Contract

    authorized   to   determine   performance   or   fulfillment   of  

    It  is  a  meeting  of  the  minds  between  two  or  more  parties,   the  contract.    
whereby   one   party   binds   himself   with   respect   to   the   other,   or   • Stipulations   allowing   a   party   to   cancel   or   rescind   DO  
where   both   parties   bind   themselves   reciprocally,   in   favor   of   one   NOT  militate  against  the  mutuality  of  contracts.  
another,  to  fulfill  a  prestation  to  give,  to  or  not  to  do  (Art.  1305).     • GR:   A   party   cannot   revoke   or   renounce   a   contract  
  without   the   consent   of   the   other.   They   may   however  
Three  Stages  of  Making  a  Contract   mutually  cancel  the  contract.    
1. Negotiation/   Preparatory   Stage   –   parties   begin   initial   • Art   1309.   Performance   may   be   left   to   a   third   person,  
negotiation   and   bargain   for   the   formation   of   the   contract   whose   decision   shall   not   be   binding   until   it   has   been  
ending  at  the  moment  of  agreement.     made  known  to  both  contracting  parties.    
2. Perfection/Birth   –   parties   had   a   meeting   of   minds   as   to   the   • Art.  1310.   The   determination   shall   not   be   obligatory   if   it  
object,  cause  or  consideration  and  other  terms  and  conditions   is   evidently   inequitable.   In   such   case,   the   courts   shall  
of  the  contract.     decide  what  is  equitable  under  the  circumstances.    
3. Consummation  of  Fulfillment  –  performance  or  fulfillment  by   4. Principle   of   relativity   of   contracts   (Art.   1311)   –   contracts  
the   parties   of   their   obligations   under   the   terms   of   the   take   effect   only   between   the   parties,   their   assigns   and   heirs  
perfected  contract.     except   where   the   rights   and   obligations   arising   from   the  
  contract   are   not   transmissible   by   their   nature,   by   stipulation  
Characteristics  of  Contract     or  by  provision  of  law.    
1. Freedom  to  Stipulate   (Art.   1306)   –   parties   are   free   to   create   • XPNS:    
or  establish  stipulations,  clauses,  terms  and  conditions  as  they   o If   the   obligations   by   their   nature   are   not  
may  deem  convenient  provided  these  are  not  contrary  to  law,   transmissible  such  as  personal  obligaitons.    
morals,  good  customs,  public  order,  or  public  policy.     o If  by  stipulation  of  the  parties.  
• What   is   the   autonomy   of   contracts?   Freedom   to   o If  under  the  provision  of  law  
stipulate.   o Court  order  
2. Obligatory   Force   of   contracts   -­‐   obligations   arising   from   o Tortious  interference  in  torts  
contracts   have   the   force   of   law   between   the   contracting   o Accion  pauliania    
parties  and  should  be  complied  with  in  good  faith.     • Principle   of   limited   effectivity   –   assigns   and   heirs   are  
3. Mutuality   of   contracts   (Art.   1308)   –   a   contract   binds   both   excluded  when  the  right  or  obligation  is  personal  to  the  
contracting   parties   and   its   validity   or   the   compliance   party.    
therewith  cannot  be  left  to  the  will  of  only  one  party.     5. Perfection   by   mere   consent   of   consensual   contracts  (Art.  
• Contracts   cannot   have   any   stipulation   authorizing   one   1315)  –  consensual  contracts  are  perfected  by  mere  consent.    
of   the   contracting   parties   to   determine   validity   and   • From  the  moment  the  contract  is  perfected  by  consent,  
fulfillment.  HOWEVER,  a  third  person  may  be     parties   are   bound   to   the   fulfillment   and   also   to   all   the  
  consequences.  
   
Art.  1311  (2nd  par.)  –  Stipulation  pour  autrui,  a  stipulation  in  favor   o Art.  1314  –  any  third  person  who  induces  another  
of   a   third   person   conferring   a   clear   and   deliberate   favor   upon   him   to   violate   his   contract   shall   be   liable   for   damages  
and   which   stipulation   is   merely   a   part   of   the   contract   entered   into   to  the  other  contracting  party.    
by  the  parties,  neither  of  whom  acted  as  agent  of  the  third  person,   § ELEMENTS:    
and   which   favor   can   be   demanded   by   the   third   person   if   duly   • Existence  of  a  valid  contract  
accepted   by   him   before   it   could   be   revoked.   Must   be   revoked   with   • Knowledge   on   the   part   of   the   third  
the  conformity  of  the  other  contracting  party.     persons  of  the  existence  of  the  contract  
• Acceptance  may  be  done  expressly  or  impliedly.  It  must  be   • Interference   of   the   third   person  
absolute,  unconditional  and  identical  with  the  terms  of  the   without  legal  justification.    
offer.     § Knowledge   on   the   part   of   the   interferer   of  
REQUISITES:     the   subsistence   of   the   contract   is   an  
1. There  is  a  stipulation  in  favor  of  a  third  person   ESSENTIAL   element.   He   must   have   acted  
2. The  stipulation  is  just  a  part  and  not  the  whole  obligation   with   malice   or   must   have   been   driven   by  
in  the  contract.   purely   impious   reasons   to   injure   the   other  
3. The   favor   or   benefit   must   have   been   clearly   and   party.    
deliberately  conferred  by  the  parties  upon  a  third  person.    
4. The   favor   or   benefit   conferred   is   not   just   an   incidental   1316.   Real   contracts,   such   as   deposit,   pledge   and  
benefit  or  interest.     commodatum,   are   not   perfected   until   the   delivery   of   the  
5. Neither   of   the   parties   bears   the   legal   representation   or   object  of  the  obligation.    
authorization  of  the  third  party.      
• XPNS:     1317.   No   one   may   contract   in   the   name   of   another   without  
o Art.   1312  –  in   contracts   creating   real   rights,   third   being   authorized   by   the   latter,   or   unless   he   has   by   law   a   right  
persons   WHO   COME   INTO   POSSESSION   of   the   to   represent   him.   Non-­‐compliance   will   render   the   contract  
object  of  the  contract  are  BOUND  thereby.     unenforceable,  unless  it  is  ratified  expressly  or  impliedly.    
§ Mortgage   or   lease,   these   real   rights   are    
binding   upon   third   persons   as   long   as    
ESSENTIAL  REQUISITES    (1318-­‐1366)  
recorded.      
o Art.   1313   –   creditors   are   protected   in   cases   of    
contracts  intended  to  defraud  them.      
§ Accion   pauliania   –   when   a   debtor   alienates    1318.   There   is   NO   contract   unless   the   following   requisites  
his  property  without  leaving  enough  for  his   concur:  
creditors   and   his   intention   is   to   defraud   1. Consent  of  the  contracting  parties  
them,   his   creditors   may   file   an   action   for   2. Object   certain   which   is   the   subject   matter   of   the  
rescission  of  the  said  contracts.     contract  
3. Cause  of  the  obligation,  which  is  established.  
4. Real  contracts:  Delivery    
 • A   contract   that   does   not   contain   the   essential   element/s    
prescribed  is  deemed  VOID.     1321.   The   person   making   the   offer   may   fix   the   time,   place,  
  and   manner   of   acceptance,   all   of   which   must   be   complied  
  I.  CONSENT  (1319-­‐1346)   with.    
  • Acceptance  made  after  the  period  fixed  by  the  offeror  had  
  lapsed,   the   acceptance   is   not   a   legal   acceptance   anymore  
Consent  is  the  giving  of  one’s  conformity  to  the  terms  of  the   but   constitutes   instead   as   an   offer   by   the   original   offeree  
contract  freely  and  voluntarily.   and  this  offer  may  or  may  nor  be  accepted  by  the  original  
 
offeror.    
ELEMENTS:  
• Acceptance   not   made   in   the   manner   as   directed   by   the  
• Legal   capacity   of   contracting   parties   –   both   parties   must  
offeror  constitutes  a  counter-­‐proposal  which  extinguishes  
possess  both  juridicial  capacity  and  capacity  to  act.  Must  have  
the  offer.    
full  civil  capacity.  
 
• Manifestation   of   the   conformity   of   the   contracting   parties   –  
1323.   An   offer   becomes   ineffective   upon   the   death,   civil  
There  must  be  overt  acts  showing  the  concurrence  of  the  offer  
interdiction,   insanity,   or   insolvency   of   either   party   before  
and   the   acceptance   with   respect   to   the   object   and   cause   of   the  
acceptance  is  conveyed.    
contract.  It  may  be  express  or  implied.    
• If   the   offer   was   accepted   then   the   principal   died,   is   it  
• Parties  conformity  to  the  object,  cause,  the  terms  and  conditions  
binding?  If  personal  obligation,  NO.    
of   the   contract   must   be   intelligent,   spontaneous   and   free   from  
• Before   the   acceptance   of   the   offer   had   been   made   known  
all  vices  of  consent.  
to   the   offeror,   no   contract   is   yet   perfected.   If   during   this  
Conformity  must  be  real  and  not  simulated.  
interregnum,   either   party   or   both   parties   had   lost   their  
 
1319.   Consent   is   manifested   by   the   meeting   of   the   offer   and   legal  capacity  to  contract,  the  offer  becomes  ineffective.  
the   acceptance   upon   the   thing   and   the   cause   which   are   to    
constitute   the   contract.   The   offer   must   be   certain   and   the   1324.   When   the   offerer   has   allowed   the   offeree   a   certain  
acceptance   absolute.   A   qualified   acceptance   constitutes   a   period   to   accept,   the   offer   may   be   withdrawn   at   any   time  
counter  offer.  //  Acceptance  made  by  letter  or  telegram  does   before   acceptance   by   communicating   such   withdrawal,  
not   bind   the   offerer   except   from   the   time   it   came   to   his   except   when   the   option   is   founded   upon   a   consideration,   as  
knowledge.   The   contract,   in   such   case,   is   presumed   to   have   something  paid  or  promised.    
been  entered  into  in  the  place  where  the  offer  was  made.   • Option   contract   –   a   contract   between   the   offeror   and   the  
  offeree   whereby   the   former   grants   the   latter,   for   a  
1320.  An  acceptance  may  be  express  or  implied.     valuable   consideration,   the   privilege   to   buy   or   not   to   buy  
• Silence   –   in   certain   specific   cases,   silence   puts   the   silent   certain   objects   at   anytime   within   a   specified   period   and  
party  in  estoppel.   for  a  fixed  price.    
Presumption   –   the   law   presumes   acceptance   of   an   inheritance,   if   • If   there   is   a   valuable   consideration,   the   offeror   cannot  
within   thirty   days   from   the   approved   partition,   the   heir   has   not   withdraw   the   offer   until   the   lapse   of   the   duration   with  
repudiated  the  inheritance.   consideration.  If  offeror  does  so,  he  is  liable  for  damages.  
 • If   there   is   no   consideration,   the   option   is   just   considered   -­‐ When   minor   actively   misrepresented   his   age   on   the  
an   “offer   to   sell”   to   the   offeree   which   is   not   binding   until   contract.  If  the  contract  is  silent  as  to  the  age,  the  minor  is  
accepted.   However,   the   offeror   must   timely   inform   the   not  bound  (only  passive  misrepresentation).  However,  he  
offeree  of  the  withdrawal.     must  make  restitution  to  the  extent  he  was  benefited.    
• If  in  case  the  offer  is  accepted  but  the  offer  is  subsequently   -­‐ When   the   contract   involves   sale   and   delivery   of  
revoked  –  It  depends  on  the  timeliness  of  the  arrival  of  the   necessaries  to  the  minor.  
revocation   or   acceptance,   whichever   comes   first   must   -­‐ Upon   reaching   age   of   majority   ratifies   the   contract   he  
prevail.   If   they   arrived   exactly   at   the   same   time,   the   becomes  bound  thereby.  
perfection  of  the  contract  shall  be  sustained.   -­‐ Contract   is   in   the   form   of   savings   account   in   the   Postal  
  Savings  Bank.  
1325.   Unless   it   appears   otherwise,   business   advertisements   When   contract   is   insurance   for   life,   health   and   the   accident   on   the  
of   things   for   sale   are   not   definite   offers,   but   mere   invitation   minor’s  life.  
to  make  an  offer.      
• When   the   advertisement   clearly   appears   to   be   a   definite   1328.  Contract  entered  into  during  a  lucid  interval  are  valid.  
offer  to  sell,  the  advertiser  cannot  withdraw  the  offer  once   Contracts   agreed   to   in   a   state   of   drunkenness   or   during   a  
somebody  has  accepted  it.   hypnotic  spell  are  voidable.    
• If   the   advertisement   does   not   contain   all   the   important   • Drunkenness  –  may  be  valid  or  voidable  depends  upon  the  
data   for   a   future   contract,   it   is   not   a   definite   offer.   It   is   a   degree  of  inebriety.  If  the  drunkenness  has  reached  the  
mere  invitation  to  make  an  offer.    
  1329.  The  incapacity  declared  in  Article  1327  is  subject  to  the  
1326.   Advertisements   for   bidders   are   simply   invitations   to   modifications   determined   by   law,   and   is   understood   to   be  
make  proposals,  and  the  advertiser  is  not  bound  to  accept  the   without   prejudice   to   special   disqualification   established   in  
highest  or  lower  bidder,  unless  the  contrary  appears.     the  laws.    
• Advertiser   has   the   right   to   prescribe   the   manner,   • Those  enumerated  under  Art  1491  are  disqualified  to  enter  
conditions  and  terms  of  the  bidding,   into   contracts   because   of   fiduciary   relationship   or   because  
  of  public  policy.  
1327.    The  following  CANNOT  GIVE  consent  to  a  contract:    
                     (1)  Unemancipated  minors   1330.   A   contract   where   consent   is   given   through   mistake,  
(2)  Insane  or  demented  persons,  and  deaf  mutes  who  do   violence,   intimidation,   undue   influence,   or   fraud   is  
not  know  how  to  write.   VOIDABLE.    
• Contract  entered  into  by  the  incapacitated  persons  are  NOT   • Vitiated  consent  –  consent  is  given  but  has  a  defect.    
VOID,   only   VOIDABLE   if   only   one   party   cannot   give   his   • VICES  OF  CONSENT:    
consent.   Unless   both   parties   are   incapacitated   to   give   -­‐ Vices   of   the   will.   Includes   mistake,   violence,  
consent,  the  contract  is  UNENFORCEABLE.     intimidation,  undue  influence  and  fraud.  
• XPNS  when  minors  are  liable:     -­‐ Vices   of   declaration.   Includes   all   kinds   of   simulated  
contracts.    
 • To   annul   a   contract   on   the   ground   of   defect   of   the   will   or   for   show  that  the  terms  thereof  have  been  fully  explained  to  the  
lack  of  valid  consent,  there  must  be  full,  clear  and  convincing   former.    
evidence  and  not  merely  a  preponderance  thereof.     • Burden   rests   upon   the   party   who   seeks   to   enforce   the  
  contract   to   show   that   the   other   party   fully   understood   the  
1331.  In  order  that  mistake  may  invalidate  consent,  it  should   contents  of  the  document.    
refer   to   the   substance   of   the   thing   which   is   the   object   of   the   • No   contract   shall   arise   unless   its   acceptance   is  
contract,  or  to  those  conditions  which  have  principally  moved   communicated  to  the  offeror.  
one  or  both  parties  to  enter  into  the  contract.  //  Mistake  as  to   • When  presumptions  is  NOT  applicable:    
the  identity  or  qualification  of  one  parties  will  vitiate  consent   (1) When  one  of  the  contracting  parties  is  unable  to  read.  
only   when   such   identity   or   qualifications   have   been   the   (2) When   the   contract   is   written   in   a   language   not  
principal   cause   of   the   contract.   //   A   simple   mistake   of   understood  by  the  said  party.    
account  shall  give  rise  to  its  correction.     • If   a   contracting   party   is   an   illiterate   or   even   if   literate   but  
• Not   all   mistakes   vitiate   consent.   The   only   mistake   or   error   does   not   understand   the   language   used   in   the   contract  
which  vitiates  consent  refers  to  the  substance  of  the  thing  –   which   he   signed,   and   later   on   alleges   fraud   and   mistake   in  
which   is   the   object   of   the   contract,   or   to   those   conditions   the   execution,   there   is   a   presumption   created   that   there   is  
which   have   principally   moved   one   or   both   parties   to   enter   fraud  or  mistake.  Burden  of  proof  is  shifted  now  to  the  party  
into  the  contract.     who  is  enforcing  the  agreement.    
• Classification  of  mistakes/errors:    
1. Mistake   of   Fact   –   incurred   by   a   party   or   both   in   the   1333.     There   is   no   mistake   if   the   party   alleging   it   knew   the  
contract  as  to  the  nature   of   the   contract,   object,   substance   doubt,  contingency  or  risk  affecting  the  object  of  the  contract.    
of   the   thing,   quality   of   conditions   of   the   thing,   identity   or   • This  covers  mistakes  or  errors  which  are  not  excusable  and  
qualification  of  the  person  and  quantity  of  the  thing  where   must   arise   from   facts   unknown   to   him.   If   the   mistakes   or  
quantity  is  the  main  reason  for  the  contract.   errors   are   excusable,   a   party   can   invoke   and   employ   the  
2. Mistake  of  Law  –  mistake  incurred  by  a  party  or  both  as   same   as   grounds   to   excuse   himself   from   the   effects   of   the  
to  the  legal  effect  of  a  certain  transaction  or  act.  By  way  of   contract.    
exception,  however,  if  the  mutual  error  of  the  contracting   • If   the   mistake   could   have   been   avoided   by   exercising  
parties   as   to   the   legal   effect   of   an   agreement   frustrates   ordinary   prudence   or   by   observing   diligence   to   know   the  
the   intention   of   the   parties,   such   error   or   mistake   may   facts,  or  when  it  is  so  obvious  and  apparent  that  an  ordinary  
vitiate  consent.     person  could  have  known  it,  a  party  cannot  invoke  mistake  
• If   the   party   alleging   mistake   knew   the   doubt,   contingency   or   to  seek  the  annulment  of  his  contract.  
risk  affecting  the  object  of  the  contract,  there  is  no  mistake.    
   
1332.   When   one   of   the   parties   is   unable   to   read,   or   if   the    
contract  is  in  a  language  not  understood  by  him,  and  mistake   1334.   Mutual   error   as   to   the   legal   effect   of   an   agreement  
or   fraud   is   alleged,   the   person   enforcing   the   contract   must   when  the  real  purpose  of  the  parties  is  frustrated  may  vitiate  
consent.    
 • Mistake   of   law   does   not   generally   vitiate   consent.   But    
when   there   is   mistake   on   a   doubtful   question   of   law,   or   on   1336.   Violence   or   intimidation   shall   annul   the   obligation,  
the  construction  or  application  of  law,  this  is  analogous  to   although   it   may   have   been   employed   by   a   third   person   who  
a  mistake  of  fact.     did  not  take  part  in  the  contract.    
• To   have   the   effect   of   vitiated   consent,   mutual   error   or   • Even   if   the   duress   is   employed   by   a   third   person   who   did  
mistake  must  have  the  following  requisites:   not   take   part   in   the   contract,   the   principle   remains   the  
(1) Error   must   be   MUTUAL.   Both   parties   are   mistaken   same  –  the  contract  is  VOIDABLE  –  because  the  consent  is  
about   something   but   not   about   the   object,   the   still  vitiated.    
condition,  personality  or  qualifications  of  a  person  as    
understood  in  Art  1331.   1337.   There   is   undue   influence   when   a   person   takes  
(2) Error  must  refer  to  the  “legal  effect”  of  the  agreement.   improper   advantage   of   his   power   over   the   will   of   another,  
Legal  effect  refers  to  the  rights  of  the  parties  as  stated   depriving   the   latter   of   a   reasonable   freedom   of   choice.   The  
in   legal   provisions   and   not   as   stipulated   by   the   following  circumstances  shall  be  considered:  the  confidential,  
contracting  parties.     family,   spiritual   and   other   relations   between   the   parties,   or  
• Where   by   mutual   mistake   of   the   parties,   the   instrument   the   fact   that   the   person   alleged   to   have   been   unduly  
embodying  their  agreement  did  not  accurately  reflect  their   influenced   was   suffering   from   mental   weakness,   or   was  
agreement,  the  instrument  is  not  annullable  because  there   ignorant  or  in  financial  distress.    
was  a  meeting  of  the  minds  between  the  parties.     • The   undue   influence   must   in   some   measure   destroy   the  
  free   agency   of   the   party   and   interfere   with   the   exercise   of  
1335.   There   is   violence   when   in   order   to   wrest   consent,   that   independent   discretion   which   is   necessary   for  
serious   or   irresistible   force   is   employed.   //   There   is   determining   the   advantages   or   disadvantages   of   a  
intimidation  when  one  of  the  contracting  parties  is  compelled   proposed  contract.    
by   a   reasonable   and   well-­‐grounded   fear   of   an   imminent   and   • DUE   INFLUENCE   does   not   vitiate   consent.   Influence  
grave  evil  upon  his  person  or  property,  or  upon  the  person  or   consists   of   persuasive   arguments   or   in   appeals   to   the  
property  of  his  spouse,  descendants,  to  give  his  consent.  //  To   affections  which  are  not  prohibited  by  law  nor  violative  of  
determine   the   degree   of   the   intimidation,   the   age,   sex,   and   morals,   good   customs,   public   order   or   public   policy,   the  
condition  of  the  person  shall  be  borne  in  mind.  //  A  threat  to   consent  is  not  vitiated.    
enforce   one’s   claim   through   competent   authority,   if   the   claim    
is  just  or  legal,  does  not  vitiate  consent.     1338.   There   is   fraud   when,   through   insidious   words   or  
• Violence   must   be   serious   or   irresistible   force   that   is   machinations   of   one   of   the   contracting   parties,   the   other   is  
employed  overcoming  the  mind  of  a  person  for  the  purpose   induced   to   enter   into   a   contract   which,   without   them,   he  
of  wrestling  his  consent.   would  not  have  agreed  to.    
• Intimidation   –   victim   must   be   compelled   to   give   his   • Fraud   and   misrepresentation   are   never   presumed   –   they  
consent   due   to   a   reasonable   and   well-­‐grounded   fear   of   an   must  be  proved  by  clear  and  convincing  evidence  and  not  
imminent   and   grave   evil   upon   his   person   or   property   or   mere  preponderance  of  evidence.    
those  of  his  spouse,  descendants  or  ascendants.     • This  article  pertains  to  FRAUD  IN  THE  PERFECTION.    
 • DOLO   CAUSANTE   /   causal   fraud   –   essential   cause   of   the   excusable   as   long   as   they   do   not   pass   beyond   the   line   of  
consent  without  which  the  party  would  not  have  agreed  to   tolerance.    
enter  into  the  contract.  (Voidable  contract  –  annulment)     • They   will   constitute   fraud   when   the   trader’s  
• DOLO   INCIDENTE   /   incidental   fraud   –   not   the   efficient   misrepresentations   are   set   to   deceive   such   as   faking   the  
cause   for   the   giving   of   the   consent   to   the   contract.   quality  of  the  thing  purposely  to  mislead.    
(Remedy:  Damages  and  specific  performance)   Caveat   emptor   –   the   buyer   has   the   duty   to   check   the   title   of   the  
• If  a  person  enters  into  ridiculous  contracts  and  had  a  bad   seller   over   the   property   plus   other   circumstances   necessary   for  
bargain,  the  law  does  not  necessarily  come  to  his  succor.     his   own   protection.   Otherwise,   he   would   be   buying   the   property  
• Distinguished   from   1331   –   error   induced   by   fraud   will   at  his  own  risk.  
always  vitiate  consent  if  it  is  the  influencing  factor  for  the    
party   to   enter   into   the   contract.   Whereas   the   mistake   or   1341.   A   mere   expression   of   an   opinion   does   not   signify   fraud,  
error   in   1331   will   only   vitiate   consent   if   it   refers   to   unless   made   by   an   expert   and   the   other   party   has   relied   on  
substance  of  the  thing  which  it  is  the  object  of  the  contract,   the  former’s  special  knowledge.    
those  which  have  principally  moved  one  or  both  parties  to   • An   expert   had   a   special   knowledge   on   his   field   of  
enter  the  contract  or  refers  to  the  identity  or  qualification   discipline.   He   is   a   recognized   authority   in   his   line   of  
of  the  parties.   business   or   profession.   As   such,   his   opinion   is   like   a  
  statement   of   fact   and   if   it   is   false,   may   be   considered  
1339.  Failure  to  disclose  facts,  when  there  is  a  duty  to  reveal   fraudulent  giving  rise  to  an  action  for  annulment.    
them,   as   when   the   parties   are   bound   by   confidential    
relations,  constitutes  fraud.     1342.   Misrepresentation   by   a   third   person   does   not   vitiate  
• When  by  reason  of  confidential  relations,  a  party  is  bound  to   consent,   unless   such   misrepresentation   has   created  
disclose   facts,   but   instead,   concealed   them   with   the   substantial  mistake  and  the  same  is  mutual.    
intention   to   deceive,   such   concealment   constitutes   fraud.   It   • Incapacity   to   give   consent   is   different   from   vitiated  
is  a  basis  for  annulment  of  the  contract.     consent  
• When   there   is   a   mere   innocent   non-­‐disclosure   of   a   fact   • GR:   Misrepresentation   by   third   person   does   not   vitiate  
where   between   the   parties   there   is   no   duty   to   reveal   it,   no   consent.                          
fraud  was  committed.      XPN:  The  fraud  committed  by  the  third  person  will  make  
  the   contract   voidable   only   if   the   following   requisites  
1340.   The   usual   exaggerations   in   trade,   when   the   other   party   concur:   (1)   representation   created   substantial   mistake.  
had   an   opportunity   to   know   the   facts,   are   not   in   themselves   (2)  mistake  is  mutual.    
fraudulent.     • The  rule  is  different  where  the  violence  or  intimidation  is  
• Usual   exaggerations   also   known   as   “dealer’s   talk”   or   exercised  by  a  third  person  who  did  not  participate  in  the  
“trader’s   talk”   which   constitute   tolerated   fraud   as   long   as   contract.   The   contract   shall   be   annulled   by   such   violence  
the   other   party   has   the   opportunity   to   check   and   know   the   or   intimidation.   Whereas,   the   fraud   made   by   the   third  
facts.   They   are   tolerated   for   being   still   bearable   and   person  does  not  vitiate  consent.    
 
1343.   Misrepresentation   made   in   good   faith   is   not   fraudulent   • Relative   simulation   –   is   one   where   the   parties   conceal  
but  may  constitute  error.     their   real   agreement   by   disguising   it   under   another  
• Misrepresentation  in  bad  faith  –  there  is  fraud,  contract  is   contract.    
voidable   • If   the   contract   is   absolutely   simulated   –   VOID   (Sale  
• In  good  faith  –  contract  is  voidable,  because  of  substantial   without   consideration,   simulated   transfer   of   property  
error.  This  is  error  is  tantamount  to  vitiated  consent.     does   not   really   divest   the   transferor   of   his   title).   Void  
  because  it  lacks  the  element  of  true  consent,  whereas  the  
1344.   In   order   that   fraud   may   make   a   contract   voidable,   it   parties   do   not   intend   to   be   bound   at   all.   The   act   is  
should   be   serious   and   should   not   have   been   employed   by   executed   to   prejudice   a   third   person   and   is   generally  
both  contracting  parties.  //  Incidental  fraud  only  obliges  the   fraudulent.    
person  employing  it  to  pay  damages.     • If   the   contract   is   relatively   simulated   –   can   be   VOID   or  
• Fraud  must  be  serious  to  vitiate  consent.  More,  it  must  not   VALID.   If   it   prejudices   a   third   person   or   is   contrary   to  
be  mutual.  When  fraud  is  sufficient  to  induce  an  ordinary   LMGPOP,  it  is  VOID.  Otherwise,  the  real  agreement  which  
prudent  person  into  error,  the  fraud  is  said  to  be  serious.  If   was   concealed   by   the   apparent   contract   shall   be   binding  
it   cannot   deceive   an   ordinary   prudent   man,   it   is   not   upon   the   parties   provided   all   essential   elements   of   a  
serious.   Personal   circumstances   of   the   victim   should   be   contract  are  present.    
weighed   and   considered   in   determining   the   influence   of   • Third   persons   –   if   the   third   person   or   a   creditor   is  
the  fraudulent  act  upon  a  person.     prejudiced   by   the   fraudulent   contract,   he   may   attack   the  
  nullity  of  the  contract.    
1345.   Simulation   of   a   contract   may   be   absolute   or   relative.   -­‐ BAD   FAITH   –   when   he   knew   of   the   simulation   he  
The  former  takes  place  when  the  parties  do  not  intend  to  be   can   have   no   better   right   than   the   person   from  
bound   at   all;   the   latter,   when   the   parties   conceal   their   true   whom  he  had  acquired  the  title.  
agreement.     GOOD   FAITH   –   will   be   protected   by   law,   the   apparent   contract  
  upon   which   he   has   put   reliance   shall   be   considered   as   real  
1346.  An  absolutely  simulated  or  fictitious  contract  is  void.  A   contract.  
relative  simulation,  when  it  does  not  prejudice  a  third  person    
and  is  not  intended  for  any  purpose  contrary  to  law,  morals,   ABSOLUTE  SIMULATION   FRAUDULENT  ALIENATION  
good  customs,  public  order  or  public  policy  binds  the  parties   (1) There  is  NO  valid  existing   There  is  a  true  and  existing  
to  their  real  agreement.     contract   contract  
• Absolute   simulation   –   one   where   the   parties   do   not   intend   (2) Contract  can  be  attacked  by  
to   be   bound   by   the   contrat.   The   apparent   contract   is   not   any  creditor  even  by  one   Only  creditors  before  the  
really   intended   to   produce   any   legal   effects   between   the   who  became  such  after  the   alienation  of  the  property  can  
parties,   nor   does   it   alter   the   juridical   situation   of   the   simulation   attack  the  contract  
parties.     (3) Insolvency  of  the   Insolvency  of  debtor  is  
simulating  debtor  is  not   NECESSARY.  Creditor  cannot  
necessary  for  the   recover  in  any  manner  what  is  
 nullification  of  contract   due  him.   • XPNS:   (a)   In   case   of   marriage   settlements,   future  
(4) Action  to  declare  nullity   Action  to  rescind  (accion   inheritance   may   be   the   object   of   donation.   (b)   In   case   of  
does  NOT  prescribe   pauliana)  prescribes  in  4  years.   partition   of   property   inter   vivos   made   by   the   deceased  
  himself  as  long  as  no  legitime  is  impaired.    
   
  II.  OBJECT  (1347-­‐1349)   1348.   Impossible   things   or   services   cannot   be   the   object   of  
  contracts.    
Object  of  the  contract  is  the  subject  matter.  It  can  be  a  thing,  right   • Partial   impossibility   and   partial   possibility   –   if   it   is  
or  service  arising  from  a  contract.   DIVISIBLE   the   possible   part   will   be   valid   and   the  
  impossible   part   will   be   void.   If   it   is   INDIVIDISBLE   by  
REQUISITES:     reason  of  law  or  agreement,  the  contract  is  entirely  VOID.    
1.) It  must  be  determinate  as  to  its  kind  although  not  definite  as   • If   the   impossibility   of   the   object   of   the   obligation   is  
to  its  quantity  provided  the  quantity  can  be  determined   absolute,   the   contract   is   VOID.   If   the   impossibility   is  
without  need  of  a  new  contract.     relative  or  subjective  but  not  permanent,  the  obligation  is  
2.) Must  be  existing  or  has  the  potentiality  to  exist  subsequent   not  nullified.      
to  the  contract  or  in  the  future.   EX.   A   partner   who   omitted   to   contribute   something   to   a  
3.) Must  be  licit,  that  is  not  contrary  to  LMGPOP   partnership   where   he   is   a   partner   because   it   is   beyond   his  
Must   be   within   the   commerce   of   man   which   means,   it   is   means,   there   is   merely   a   relative   impossibility   that   does  
susceptible  of  appropriation  or  capable  of  being  owned  privately   not   nullify   the   obligation.   Because   there   is   the   possibility  
and  is  at  the  same  time  transmissible.   that   sooner   or   later,   he   can   produce   the   amount   or   thing  
  he  has  agreed  to  contribute.    
1347.  All  things  which  are  not  outside  the  commerce  of  men,   • Difficulty   or   performance   is   not   identical   with  
including   future   things,   may   be   the   object   of   a   contract.   All   impossibility   of   performance.   XPN:   If   it   is   proven   to   be  
rights  which  are  not  intransmissible  may  also  be  the  object  of   dangerous  to  his  life  and  property,  this  will  be  contrary  to  
contracts.   //   No   contract   may   be   entered   into   upon   future   law  and  public  policy.    
inheritance   except   in   cases   expressly   authorized   by   law.   //   • Liability   for   damages?   Impossible   thing   or   service   will  
All   services   which   are   not   contrary   to   law,   morals,   good   result  to  no  contract.  If  both  parties  are  fully  aware  of  the  
customs,   public   order   or   public   policy   may   likewise   be   the   impossibility   there   will   be   no   liability   for   damages.   If   the  
object  of  a  contract.     debtor   knew   of   the   impossibility   or   could   have   known   it  
• Future  inheritance  is  different  from  future  thing.  It  cannot   by  exercising  ordinary  diligence,  he  is  liable  for  damages.  
be  the  subject  of  a  contract  because  it  is  an  inchoate  right    
which   comes   into   realization   only   after   the   death   of   the   1349.  The  object  of  every  contract  must  be  determinate  as  to  
predecessor.  Any  partition  of  the  estate  of  a  living  person   its   kind.   The   fact   that   the   quantity   is   not   determinate   shall  
by   the   supposed   heirs   is   void.   But   partition   made   by   the   not  be  an  obstacle  to  the  existence  of  the  contract,  provided  it  
decedent  himself  of  his  estate  during  his  lifetime  is  valid.     is  possible  to  determine  the  same,  without  the  need  of  a  new  
contract  between  the  parties.  
   XPN:  If  the  motive  predetermines  the  purpose  of  the  contract,  
  motive  may  be  regarded  as  cause.    
  III.  CAUSE  (1350-­‐1355)    
  1352.   Contracts   without   cause,   or   with   unlawful   cause,  
  produce   no   effect   whatever.   The   cause   is   unlawful   if   it   is  
The   reason   why   a   party   entered   into   the   contract.   The   essential   contrary  to  law,  morals,  good  customs,  public  order  or  public  
reason  which  moves  the  parties  to  enter  into  the  contract.   policy.    
  REQUISITES:  
1350.   In   onerous   contract   the   cause   is   understood   to   be,   for   • Cause   must   be   existing   at   the   time   of   perfection   of   the  
each   contracting   party,   the   prestation   or   promise   of   a   thing   contract.  
or  service  by  the  other;  in  remuneratory  ones,  the  service  or   • Must  be  a  lawful  case,  that  is  not  contrary  to  LMGPOP  
benefit   which   is   remunerated;   and   in   contracts   of   pure   • Must  be  a  true  cause  
beneficence,  the  mere  liberality  of  the  benefactor.      
• A   cause   or   consideration   is   presumed   to   exist   and   is   1353.   The   statement   of   a   false   cause   in   contracts   shall   render  
lawful,   until   the   contrary   has   been   shown.   This   them  void,  if  it  should  not  be  proved  that  they  were  founded  
presumption   cannot   be   overthrown   by   a   mere   assertion   upon  another  cause  which  is  true  and  lawful.    
that  it  has  no  consideration.     • GR:  False  cause  makes  the  contract  void.  
• ONEROUS   CONTRACTS   –   the   cause   for   each   contracting   XPN:  If  the  interested  party  can  prove  that  the  contract  is  
party  is  the  prestation  or  promise  of  a  thing  or  service  by   founded  upon  another  cause  which  is  true  and  lawful,  the  
the  other.   contract  will  be  saved  from  invalidity.    
• REMUNERATORY   CONTRACTS   –   cause   is   the   service   or   • VOID  contracts  CANNOT  be  ratified.  But  if  there  is  another  
benefit  remunerated.     cause   which   is   true   and   lawful   the   contract   can   still   be  
• CONTRACTS   FOR   PURE   BENEFICENCE   –   the   cause   is   the   considered  as  valid.    
mere   liberality   of   the   donor   or   benefactor.   In   simple   • Can  also  apply  to  absolutely  simulated  contracts   –  if  it  can  
donations,  pure  liberality  is  the  consideration.     be   established   that   there   is   another   cause   for   it   which   is  
• Accessory   contracts   –   cause   is   identical   with   the   cause   of   valid,  the  contract  will  be  considered  valid.    
the  principal  contract.      
• Cause   &   Motive   –   motive   is   the   indirect   and   personal   1354.   Although   the   cause   is   not   stated   in   the   contract,   it   is  
reason   for   the   contract.   Illegality   of   cause   affects   the   presumed   that   it   exists   and   is   lawful,   unless   the   debtor  
validity,   while   illegality   of   motive   will   not   affect   the   proves  the  contrary.    
validity.  .  But  when  the  motive  is  to  frustrate  or  stifle  the   • Verbal  contracts  are  presumed  to  have  a  cause.    
prosecution  of  criminal  case,  contract  is  void.     • It   is   better   that   the   cause   or   consideration   be   stated   in   the  
  contract.  However,  in  the  event  that  the  contract  does  not  
1351.  The  particular  motives  of  the  parties  in  entering  into  a   state   its   cause,   the   presumption   of   the   law   operates.   This  
contract  are  different  from  the  cause  thereof.     presumption  is  rebuttable.    
• Presence  of  motive  does  not  cure  absence  of  cause.    
 • This  presumption  cannot  be  overcome  by  a  bare  assertion.   • There  must  be  a  PERFECTED  contract.    
It  must  be  established  in  an  appropriate  action.   • Right  to  compel  is  available  only  when  the  form  is  needed  for  
• Burden   of   proof   –   the   person   who   has   the   onus   of   convenience.    
establishing  there  was  no  consideration  is  the  debtor.   • Not  applicable  to  solemn  and  unenforceable  contracts.      
  Right  to  demand  execution  of  document  is  subject  to  prescription  
1355.     Except   incases   specified   by   law,   lesion   or   inadequacy   (5  years)  
of   cause   shall   not   invalidate   a   contract,   unless   there   has   been    
fraud,  mistake  or  undue  influence.     1358.  The  following  must  appear  in  a  public  document:    
(1)  Acts  and  contracts  which  have  for  their  object  the  
• Art.  1381  and  Art.  1098  
creation,   transmission,   modification   or   extinguishment   of  
• Lesion   or   inadequacy   of   cause   will   also   be   a   basis   for  
real   rights   over   immovable   property;   sales   of   real   property  
rescission   of   the   contract   if   the   lesion   or   inadequacy   is   the  
or   of   an   interest   therein   are   governed   by   Articles   1403(2)  
result  of  fraud,  mistake  or  undue  influence.    
and  1405.  
 
(2)   The   cession,   repudiation   or   renunciation   of  
 
 
FORM  OF  CONTRACTS  (1356-­‐1358)   hereditary   rights   or   of   those   of   the   conjugal   partnership   of  
gains.  
 
(3)   The   power   to   administer   property,   or   any   other  
1356.  Contracts  shall  be  OBLIGATORY  in  whatever  form  they  
power   which   has   for   its   object   an   act   appearing   or   which  
may   have   been   entered   into,   provided   all   the   essential  
should   appear   in   a   public   document,   or   should   prejudice   a  
requisites  for  their  validity  are  present.  HOWEVER,  when  the  
third  person.  
law  requires  that  a  contract  be  in  some  form  in  order  that  it  
(4)   The   cession   of   actions   or   rights   proceeding   from  
may   be   valid   or   enforceable,   or   that   a   contract   be   proved   in   a  
an  act  appearing  in  a  public  document.  
certain   way,   that   requirement   is   ABSOLUTE   and  
All   other   contracts   where   the   amount   involved   exceeds   500  
INDISPENSABLE.  In  such  cases,  the  right  of  the  parties  stated  
pesos   must   appear   in   writing,   even   a   private   one.   But   sales   of  
in  the  following  article  cannot  be  exercised.    
goods,   chattels   or   things   in   action   are   governed   by   Article  
• GR:  Contracts  are  valid  in  whatever  form  they  may  be.    
1403  (2)  and  1405.    
• XPNs:  Form  is  essential,  absolute  and  indispensable  when:    
• The   form   required   by   this   article   is   for   CONVENIENCE   only  
(1) Law   requires   that   a   contract   be   in   certain   form   for   its  
and  not  mandatory.    
VALIDITY  –  solemn/formal  contracts  
• The   contract   is   still   but   not   enforceable.   If   you   want   to   bind  
(2) Law  requires  for  ENFORCEABLITY  –  Statues  of  Fraud  
3rd  persons,  it  must  be  in  a  public  document.    
 
1357.  If  the  law  requires  a  document  or  other  special  form,  as    
in   the   acts   and   contract   enumerated   in   the   following   article,  
 
• Reformation   is   a   remedy   in   equity   by   means   of   which   a  
the   contracting   parties   may   compel   each   other   to   observe  
written   instrument   is   made   or   construed   so   as   to   express   or  
that   form,   once   the   contract   has   been   perfected.   This   right  
confirm   the   real   intention   of   the   parties   when   some   error   or  
may   be   exercised   simultaneously   with   the   action   upon   the  
mistake  is  committed.  
contract.    
 REFORMATION  OF  INSTRUMENTS  (1359-­‐1369)  
 
  1362.   If   one   party   was   mistaken   and   the   other   acted  
1359.  When,  there  having  been  a  meeting  of  the  minds  of  the   fraudulently   or   inequitably   in   such   a   way   that   the   instrument  
parties  to  a  contract,  their  true  intention  is  not  expressed  in   does   not   show   their   intention,   the   former   may   ask   for   the  
the   instrument   purporting   to   embody   the   agreement,   by   reformation  of  the  instrument  
reason  of  mistake,  fraud,  inequitable  conduct  or  accident,  one    
of  the  parties  may  ask  for  the  reformation  of  the  instrument   1363.   When   one   party   mistaken   and   the   other   knew   or  
to   the   end   that   such   true   intention   may   be   expressed.   //   If   believed   that   the   instrument   did   not   state   their   real  
mistake,   fraud,   inequitable   conduct,   or   accident   has   agreement,   but   concealed   that   fact   from   the   former,   the  
prevented   a   meeting   of   the   minds   of   the   parties,   the   proper   instrument  may  be  reformed.  
remedy   is   not   reformation   of   the   instrument   but   annulment    
of  the  contract.     1364.  When  through  the  ignorance,  lack  of  skill,  negligence  or  
bad   faith   on   the   part   of   the   person   drafting   the   instrument   or  
• Reformation  does  not  create  a  new  contract;  the  court  merely  
of   the   clerk   or   typist,   the   instrument   does   not   express   the  
orders  that  the  instrument  express  their  true  agreement.  
true   intention   of   the   parties,   the   courts   may   order   that   the  
•  REQUISITES:    
instrument  may  be  reformed.  
(1) There  is  a  contract  agreed  upon  
 
(2) The  real  intention  was  not  expressed  in  the  instrument.  
1365.   If   two   parties   agree   upon   the   mortgage   or   pledge   of  
(3) The  reason  for  failure  to  express  real  intention  is  mistake,  
real  or  personal  property,  but  the  instrument  states  that  the  
fraud,  inequitable  conduct  or  accident.  
property   is   sold   absolutely   or   with   a   right   of   repurchase,  
(4) The  said  intervening  mistake  did  not  prevent  the  meeting  
reformation  of  the  instrument  is  proper.    
of  the  minds.    
• Refers   to   a   mortgage   of   real   property   or   pledge   of   personal  
• Annulment   is   the   appropriate   remedy   when   the   mistake,  
property  but  the  instrument  signed  is  an  absolute  sale  or  sale  
fraud,   inequitable   conduct   or   accident   has   prevented   a  
with  pacto  de  retro.  
meeting   of   the   minds   between   the   parties.   Reformation   is  
there  was  mere  failure  to  express  true  intention/agreement.   • Equitable  mortgage  –  one  which  lacks  the  proper  formalities,  
form   or   words   or   other   requisites   prescribed   by   law   for   a  
• In   an   action   for   reformation   the   evidence   must   be   strong,  
mortgage,   but   shows   the   intention   of   the   parties   to   make   the  
clear,  and  convincing.    
property  subject  of  the  contract  as  security  for  a  debt.    
 
 
1360.   The   principles   of   the   general   law   on   the   reformation   of  
1366.  There  shall  be  NO  reformation  in  the  following:    
instruments   are   hereby   adopted   insofar   as   they   are   not   in  
(1)   Simple   donation   inter   vivos   wherein   no   condition  
conflict  with  the  provisions  of  this  Code.  
is  imposed  
 
(2)  Wills  
1361.  When  a  mutual  mistake  of  the  parties  causes  the  failure  
(3)  When  the  real  agreement  is  void  
of   the   instrument   to   disclose   their   real   agreement,   said  
• If  a  donation  is  subject  to  a  condition,  it  partakes  of  the  nature  
instrument  may  be  reformed.    
of  a  contract.  If  the  contract  failed  to  express  the  intention  of  
• Mistake  must  be  a  mistake  of  fact  and  not  a  mistake  of  law.  
 the  parties  on  the  agreed  condition,  the  deed  of  donation  can    
be  reformed.    
  WHO  can  initiate  an  action  for  reformation?  
1367.   When   one   of   the   parties   has   brought   an   action   to   • If   the   mistake   is   MUTUAL,   either   party   or   his  
enforce   the   instrument,   he   cannot   subsequently   ask   for   its   successor   in   interest   may   file   the   case   for  
reformation.     reformation.  
  • If  the  mistake  is  only  on  ONE  SIDE,  the  injured  party  
1368.   Reformation   may   be   ordered   at   the   instance   of   either   or  his  heirs  or  assigns  may  file  the  action.  
party   or   his   successors   in   interest,   if   the   mistake   was   mutual;    
otherwise,  upon  petition  of  the  injured  party,  or  his  heirs  and   WHAT  should  be  present  for  the  action  of  reformation  to  
assigns.     ensue?  
 
• There   must   be   meeting   of   the   minds   on   the   real  
intention  or  agreement  of  the  parties.  
1369.  The  procedure  for  the  reformation  of  instruments  shall  
• The  instrument  did  not  express  the  real  intention  or  
be  governed  by  rules  of  court  to  be  promulgated  by  Supreme  
agreement  of  the  parties.  
Court.    
• The   reason   for   failure   of   the   instrument   to   express  
  the  real  intention  or  agreement  of  the  parties.    
When  can  reformation  BE   When  is  reformation  NOT    
availed?   available?   PRESCRIPTION?   Yes,   action   for   reformation   prescribes  
• Mutual   mistake   of   both   • Simple   donations   where   after  10  years.    
parties.   there   are   no   conditions    
• One   party   is   mistaken,   imposed.  
other   party   acted   • Wills   INTERPRETATION  OF  CONTRACTS  (1370-­‐1380)  
fraudulently     • If   the   real   agreement   is  
• One   party   is   mistaken   void    
and   the   other   party   is   1370.   If   the   terms   of   a   contract   are   clear   and   leave   no  
aware   but   concealed   the   doubt  upon  the  intention  of  the  contracting  parties,  the  
fact   that   there   was   a   literal  meaning  of  its  stipulations  shall  control.  //  If  the  
mistake   words  appear  to  be  contrary  to  the  evident  intention  of  
• Ignorance,   lack   of   skill,   the  parties,  the  latter  shall  prevail  over  the  former.    
negligence  or  bad  faith  on   • Doctrine   of   complementary   contracts   construed  
the   part   of   the   person   together.    
drafting  the  instrument   • When   the   language   of   the   contract   is   explicit   leaving  
• If   both   parties   agree   on   no  doubt  as  to  the  intention  of  the  drafters  thereof,  the  
mortgage   or   pledge   of   courts   may   not   read   into   it   any   other   intention   that  
real   property   but   the   would  contradict  its  plain  import.    
instrument   states   • If  there  is  doubt:  
otherwise  
 o The   least   transmission   of   rights   and   interest    
shall  prevail  if  the  contract  is  gratuitous   1374.   The   various   stipulations   of   a   contract   shall   be  
o If  onerous,  the  doubt  is  to  be  settled  in  favor  of   interpreted   together,   attributing   to   the   doubtful   ones  
the  greatest  reciprocity  of  interest   that   sense   which   may   result   from   all   of   them   taken  
o When  the  words  in  the  contract  contradict  the   jointly.    
intention   of   the   parties,   the   intention   prevails   • Principle  of  complementary  contracts  –  an  accessory  
pursuant  to  the  Parol  Evidence  Rule.     contract   must   be   interpreted   with   the   principal  
• Mutual   intent   must   be   considered   and   not   just   the   contract.  The  contract  must  be  read  in  its  entirety.    
intent  of  one  of  the  parties.     • Piecemeal   interpretation   must   be   avoided.   All   parts,  
  provisions   or   terms   are   to   be   considered   and   not   to  
1371.  In  order  to  judge  the  intention  of  the  contracting   be  read  in  isolation.    
parties,   their   contemporaneous   and   subsequent   acts   • When  the  name  given  to  the  contract  is  different  from  
shall  be  principally  considered.     what  the  parties  are  doing,  performance  prevails.  
• Applicable   when   terms   of   contract   are   not   clear   and    
leave  some  doubts  on  the  intention  of  the  contracting   1375.   Words   which   may   have   different   significations  
parties.     shall   be   understood   in   that   which   is   most   in   keeping  
• Reasons   which   induced   the   parties   to   enter   into   the   with  the  nature  and  object  of  the  contract.    
contract   and   the   circumstances   surrounding   the    
execution   of   the   contract   are   of   paramount   1376.  The  usage  or  customs  of  the  place  shall  be  borne  
importance  in  interpreting  it.     in   mind   in   the   interpretation   of   the   ambiguities   of   a  
  contract,  and  shall  fill  omission  of  stipulations  which  are  
1372.   However   general   the   terms   of   a   contract   may   be,   ordinarily  established.    
they  shall  not  be  understood  to  comprehend  things  that   • Usage  is  a  repetition  of  acts,  and  differs  from  custom  
are  distinct  and  cases  that  are  different  from  those  upon   in   that   the   latter   is   the   law   or   general   rule   which  
which  the  parties  intended  to  agree.     arises  from  such  repetition.    
  • General  custom  –   customs   which   prevail   throughout   a  
1373.  If  some  stipulations  of  any  contract  should  admit   country  and  become  the  law  of  that  country,  and  their  
of   several   meanings,   it   shall   be   understood   as   bearing   existence  is  to  be  determined  by  the  court.  
that   import   which   is   most   adequate   to   render   if   • Local   custom   –   customs   which   prevail   only   in   some  
effectual.     particular  district  or  locality,  or  in  some  city,  county,  
• If   it’s   susceptible   of   two   interpretations:   one   will   or  town.  
make   it   valid   and   legal   and   the   other   invalid   and   • Particular   custom   –   customs   nearly   the   same,   being  
illegal,   the   FORMER   interpretation   should   be   such  as  affect  only  the  inhabitants  of  some  particular  
adopted.   district.    
• Where   there   are   2   provisions,   one   general   and   the   • Article   12   “A   custom   must   be   proved   as   a   fact,  
other   special,   the   LATTER   prevails   if   they   cannot   according  to  the  rules  of  evidence.”  
stand   together.   But   if   they   can   stand   together,   both    
must  be  retained  and  given  effect.    
1377.   The   interpretation   of   obscure   words   or    
stipulations   in   a   contract   shall   not   favor   the   party   who    
caused  the  obscurity.      
• It   is   but   sensible   and   logical   that   the   one   who   cause    
the  ambiguity  should  not  benefit  therefrom.      
• Contract   of   adhesion   –   one   where   there   is   already   a    
prepared  agreement  or  form  made  by  one  party  and    
the  participation  of  the  other  party  is  merely  “to  take    
it  or  leave  it.”      
   
1378.   When   it   is   absolutely   impossible   to   settle   doubts    
by   the   rules   established   in   the   preceding   articles,   and    
the   doubts   refer   to   incidental   circumstances   of   a    
gratuitous   contract,   the   least   transmission   of   right   and    
interests   shall   prevail.   If   the   contract   is   onerous,   the    
doubt  shall  be  settled  in  favor  of  the  greatest  reciprocity    
of  interests.  //  If  the  doubts  are  cast  upon  the  principal    
object   of   the   contract   in   such   a   way   that   it   cannot   be    
known  what  may  have  been  the  intention  or  will  of  the    
parties,  the  contract  shall  be  null  and  void.    
• Doubts  on  the  incidental  circumstances:      
o If   the   contract   is   gratuitous,   the   least    
transmission   of   right   and   interests   shall    
prevail.      
o If   the   contract   is   onerous,   the   doubt   shall   be    
construed   in   favor   of   the   greatest   reciprocity    
of  interest.      
• Doubts  on  the  principal  object:    
o If   the   doubt   is   on   the   principal   object   of   the    
contract   and   it   cannot   be   determined   what    
might   have   been   the   intention   or   will   of   the    
contracting  parties,  the  contract  shall  be  void.      
   
1379.  The  principles  of  interpretation  stated  in  Rule  123    
of   the   Rules   of   Court   shall   likewise   be   observed   in   the    
construction  of  contracts.      
   
 RESCISSIBLE   VOIDABLE   UNENFORCEABLE   VOID  &  INEXISTENT  
(1380-­‐1389)   (1390-­‐1402)   (1403-­‐1408)   (1409-­‐1422)  
                   A   rescissible   contract   is   one              A   voidable   contract   is   one   which                      An   unenforceable   contract   are                      A   void   contract   is   one   which  
which   contains   all   essential   has   all   the   essential   elements   of   a   those   contract   which   cannot   be   does  not  produce  any  legal  effect  for  
requisites  of  a  contract  which  make   valid   contract,   except   that   the   enforced   by   action   or   complaint   in   they   do   not   exist   in   the   eyes   of   the  
it   valid,   but   by   reasons   of   injury   or   element   of   consent   is   vitiated   or   court,  unless  they  have  been  ratified   law   for   being   tainted   with   illegality  
damage   to   either   of   the   contracting   weakened   either   by   the   incapacity   of   by   the   party   or   parties   who   did   not   or   immorality   or   one   which   lacks  
parties   or   to   third   persons,   such   as   one   of   the   contracting   parties,   or   by   giver  their  consent  thereto.     essential  elements  of  a  contract.    
creditors,   may   be   rescinded.   As   well   mistake,   violence,   intimidation,      
as  those  specially  declared  by  law  as   undue  influence  or  fraud.        
rescissible.          
       
• A   rescissible   contract   is   valid   • A   voidable   contract   is   binding   • An   unenforceable   contract   is   • A   void   and   inexistent   contract  
and   legally   enforceable   until   unless   annulled   by   a   proper   inoperative  until  ratified.  They   does  not   produce   legal   effects.  
judicially  rescinded.     action   in   court.   It   is   valid   and   are   not   enforceable   in   court   XPNs:  Void  marriages  under  Art.  
  obligatory   between   parties   without  proper  ratification.   36  and  53.  
  before  its  final  annulment.        
       
• There   must   be   damge   or   • Damage  is  not  necessary.  Even  if   • Damage   or   prejudice   is   not   • Damage   or   prejudice   is   not  
prejudice   to   one   of   the   there   is   no   damage   suffered   by   necessary.     necessary.    
contracting   parties   or   third   any   of   the   contracting   parties,      
persons.   the  same  could  be  annulled.        
       
• Rescission  or  rescissory  action.   • Annulment  of  contract.   • A   personal   defense   when   the   • Declaration  of  nullity  of  contract.    
  plaintiff   pursues   specific    
  performance   or   complaint   for    
  damages.    
     
     
CHARACTERISTICS:   CHARACTERISTICS:   CHARACTERISTICS:    
• Has   all   the   elements   of   a   valid   • They   cannot   be   enforced   or   • They   produce   no   civil   effects  
contract   pursued  in  court.   either  in  favor  or  against  anyone  
• Has   a   defect   consisting   in   an   • They   can   be   ratified,   which   • They   are   susceptible   to  
injury   to   one   of   the   contracting   means,  they  can  be  convalidated   ratification  
parties  or  third  person   and  become  enforced.     • The  right  to  set  up  the  defense  of  
• Valid   and   effective   until   • They   cannot   be   attacked   or   their   inexistence   or   absolute  
rescinded   assailed  by  third  persons.     nullity  cannot  be  waived.  
• Can   be   attacked   only   directly,   • The   action   or   defense   for   the  
C
either  by  one  of  the  contracting   declaration   of   the   inexistence   of  
D
parties   or   by   an   affected   third   L   the  contract  does  not  prescribe.  
person,   who   is   injured   or   • The   defense   of   illegality   of  
 defrauded  by  the  contract.   contracts   cannot   be   invoked   by  
• Susceptible   of   convalidation   third   persons   whose   interests  
only   by   prescription.   are  not  directly  affected.    
Ratification  does  not  apply.     • No   action   is   needed   to   set   them  
  aside  because  their  nullity  exists  
REQUISITES:   ipso   jure.   However,   if   there   has  
• Contract   must   be   a   rescissible   been   performance   already,   the  
one.   intervention   of   the   court   is  
• Plaintiff   must   have   NO   other   necessary   to   declare   its   nullity  
resource   to   obtain   reparation   for   and   decree   the   restitution   of  
the  damages  he  suffered.   what   has   been   given   by   virtue  
• Plaintiff   must   be   able   to   return   thereof.    
whatever  he  is  obliged  to  return,  
if  the  action  would  be  sustained.  
• Object/s  of  the  contract  must  not  
have   legally   passed   unto   the  
ownership   or   possession   of   a  
third   person   who   is   acting   in  
good  faith.  
• Action   must   be   brought   within  
the  prescriptive  period  –  4  years  
from   the   accrual   of   the   cause   of  
action.  
 
1381.   The   following   contracts   are   1390.   The   following   contracts   re   1403.   The   following   contracts   are   1409.   The   following   contracts   are  
rescissible:   voidable   or   annullable,   even   unenforceable,   unless   they   are   inexistent   and   void   from   the  
  though   there   may   been   no   ratified:   beginning:  
(1) Those   which  are   entered  into   damage  to  the  contracting  parties:      
by   guardians   whenever   the     (1) Those   entered   into   in   the    
wards   whom   they   represent   (1) Those   where   one   of   the   name   of   another   person   by   (1)   Those   whose   cause,   object     or  
suffer  lesion  by  more  than  ¼   parties   is   incapable   of   giving   one   who   has   been   given   no   purpose   is   contrary   to   law,  
of   the   value   of   the   things   consent  to  a  contract   authority   or   legal   morals,   good   customs,   public  
which  are  the  object  thereof;   (2) Those   where   the   consent   is   representation,   or   who   has   order  or  public  policy;  
(2) Those   agreed   upon   in   vitiated  by  mistake,  violence,   acted  beyond  his  powers  
representation  of  absen-­‐tees,   intimidation,   undue   (2) Those   that   do   not   comply   (2)   Those   which   are   absolutely  
if   the   latter   suffer   the   lesion   influence  or  fraud.     with   the   Statute   of   Frauds   as   simulated  or  fictitious;  
stated   in   the   preceding   These   contracts   are   binding,   set   forth   in   this   number.   In  
number.   unless   they   are   annulled   by   a   the   following   cases,   an   (3)   Those   whose   cause   or   object  
(3) Those  undertaken  in  fraud  of   proper   action   in   court.   They   are   agreement   hereafter   made   did   not   exist   at   the   time   of   the  
creditors   when   the   latter   susceptible  of  ratification.   shall   be   unenforceable   by   transaction;  
cannot   in   any   other   manner     action,   unless   the   same,   or  
 collect  the  claim  due  them.   1391.   The   action   for   annulment   some   note   or   memorandum   (4)   Those   whose   object   is   outside  
(4) Those   which   refer   to   things   shall   be   brought   within   four   thereof,   be   in   writing,   and   the  commerce  of  men;  
under   litigation   if   they   have   yeaars.  //  This  period  shall  begin:     subscribed   by   the   party  
been   entered   into   by   the                      In   cases   of   intimidation,   charged,   or   by   his   agent;   (5)   Those   which   contemplate   an  
defendant   without   the   violence  or  undue  influence,  from   evidence,   therefore,   of   the   impossible  service;  
knowledge   and   approval   of   the   time   the   defect   of   the   consent   agreement   cannot   be  
the   litigants   or   of   competent   ceases.     received   without   the   writing,   (6)   Those   where   the   intention   of  
judicial  authority.                      In   case   of   mistake   or   fraud,   or   a   secondary   evidence   of   its   the   parties   relative   to   the  
(5) All   other   contracts   specially   from   the   time   of   the   discovery   of   contents:   principal   object   of   the   contract  
declared  by  law  to  be  subject   the  same.   (a) an   agreement   that   by   its   cannot  be  ascertained;  
to  rescission.                And   when   the   action   refers   to   terms   is   not   to   be  
  contracts   entered   into   by   minors   performed  within  a  year   (7)  Those  expressly  prohibited  or  
• Rescission   under   1381   is   a   or   other   incapacitated   persons,   (b) a   special   promise   to   declared  void  by  law.  
remedy   of   last   resort.   It   is   also   from   the   time   the   guardianship   answer   for   the   debt,  
known   as   accion   pauliana.   It   ceases.     default,   or   miscarriage   of                These   contracts   cannot   be  
cannot   be   instituted   if   the     another.   ratified.   Neither   can   the   right   to  
plaintiff  has  other  legal  means  to   •  If   the   vice   consists   in   (c) an   agreement   made   in   set   up   the   defense   of   illegality   be  
obtain   reparation   of   the   intimidation,   violence   or   undue   consideration   of   waived.  
perceived   damage   or   injury   he   influence,   the   reckoning   begins   marriage,   other   than   a  
suffered.     from  the  cessation  of  such  vice.   mutual   promise   to  
1410.   The   action   or   defense   for  
• Not   all   fraudulent   transactions   • If  it  consists  in  mistake  or  fraud,   marry.  
the   declaration   of   the   inexistence  
entered   into   by   a   debtor   can   be   the   reckoning   begins   from   the   (d) An   agreement   for   the  
of  a  contract  does  not  prescribe.  
the   subject   of   rescission   by   the   discovery   thereof.   An   action   for   sale   of   goods,   chattels   or  
creditor.   The   contract   must   be   annulment   shall   be   brought   things   in   action,   at   price  
• The   prevailing   doctrine   is   that  
intended  to  defraud  the  creditor,   within   four   years,   in   the   case   of   not   less   than   500   pesos  
the   right   to   have   a   contract  
and   the   creditor   cannot   in   any   fraud,  beginning  from  the  time  of   xxx  
declared   void   ab   initio   may   be  
manner   collect   the   claim   due   the  discovery  of  the  same.   (e) An   agreement   for   the  
barred   by   laches   although   not  
him.     • If   it   consists   in   the   incapacity   of   leasing   for   a   longer  
barred  by  prescription.  
• Fraudulent   intent   must   be   the   contracting   party,   the   period   of   more   than   one  
proved.     reckoning   begins   from   the   year,   or   for   the   sale   of  
real   property   or   of   an   1411.   When   the   nullity   proceeds  
• For   a   contract   to   be   rescinded,   cessation  of  guardianship.    
interest  therein;   from   the   illegality   of   the   cause   or  
both  contracting  parties  must  be   • If   it   involves   fraudulent  
(f) A   representation   as   to   object   of   the   contract,   and   the   set  
shown   to   have   acted   maliciously.   conveyances   registered   with   the  
the  credit  of  a  3rd  person   constitutes   a   criminal   offense,  
Rescission   is   generally   Registry   of   Property,  
both   parties   being   in   pari   delicto,  
unavailing   should   a   third   person,   prescriptive   period   runs   from   (3) Those  where  both  parties  are  
incapable   of   giving   consent   to   they   shall   have   no   action   against  
acting   in   good   faith,   is   in   lawful   the   registration   of   the   public  
a  contract   each   other,   and   both   shall   be  
possession  of  the  property.   document  with  the  said  registry.  
  prosecuted.   Moreover,   the  
•  A  contract  of  sale  entered  into  in    
provisions   of   the   Penal   Code  
violation  of  a  right  of  first  refusal   1392.   Ratification   extinguishes   • Statues  of  Fraud  is  descriptive  of  
those  laws,  statues  or  provisions   relative   to   the   disposal   of   effects  
of   another   person   is   rescissble.   the   action   to   annul   a   voidable  
which   require   certain   or  instruments  of  a  crime  shall  be  
(Conculada  v.  CA)   contract.  
applicable   to   the   things   or   the  
     agreements   to   be   in   writing   price   of   the   contract.   //   This   rule  
BADGES  OF  FRAUD:     1393.  Ratification  may  be  effected   before   they   can   be   proved   and   shall  be  applicable  when  only  one  
(1) The   fact   that   the   expressly   or   tacitly.   It   is   enforced  in  a  judicial  action.   of   the   parties   is   guilty;   but   the  
consideration   of   the   understood   that   there   is   a   tacit   • SOF   cannot   be   invoked   in   innocent   one   may   claim   what   he  
conveyance   is   fictitious   or   is   ratification   if,   with   knowledge   of   contracts   already   executed   has   given,   and   shall   not   be   bound  
inadequate.   the   reason   which   renders   the   whether   partially   or   completely.   to  comply  with  his  promise.  
(2) A   transfer   made   by   a   debtor   contract  voidable  and  such  reason   It  is  only  applicable  to  executory  
after   suit   has   begun   and   having  ceases,  the  person  who  has   contracts.    
white   it   is   pending   against   a  right  to  invoke  it  should  execute   • Non-­‐compliance   with   SOF   will   • This   rule   shall   be   applicable  
him.     an   act   which   necessarily   implies   when   only   one   of   the   parties   is  
not   make   the   oral   contract  
(3) A   sale   upon   credit   by   an   an  intention  to  waive  his  right.     invalid  or  void.  It  merely  renders   guilty;   the   innocent   one   may  
insolvent  debtor     the   action   for   specific   claim   what   he   has   given,   and  
(4) Evidence   of   large   • Express   –when   the   desire   of   the   shall   not   be   bound   to   comply  
performance  ineffective.    
indebtedness   or   complete   innocent  party  to  convalidate  the   with  this  promise.  
• SOF  can  be  invoked  in:  
insolvency     contract,   or   his   waiver   or   (1) Complaints   for   specific   • In   “pari   delicto”   rule   refuses  
(5) The   transfer   of   all   or   nearly   renunciation  of  his  right  to  annul   legal  remedy  to  either  party.    
performance   where   the  
all   of   his   property   by   a   the  contract  is  clearly  manifested   defendant   may   frustrate   the    
debtor,  especially  when  he  is   verbally  or  formally  in  writing.   actions   by   showing   that   the   1412.   If   the   act   in   which   the  
insolvent   or   greatly   • Tacit   or   implied   –   when   the   unlawful   or   forbidden   cause  
contracts   in   issue   are   among  
embarrassed  financially.     innocent   party   with   full   consists   does   not   constitute   a  
those  covered  by  SOF  and  not  
(6) The   fact   that   the   transfer   is   knowledge   of   the   vice   which   evidenced   by   any   written   criminal   offense,   the   following  
made   between   father   and   renders   the   contract   voidable,   document.   rules  shall  be  observed:  
son,   when   there   are   present   and   the   same   having   ceased    
(2) Complaints   for   damages   for  
other   of   the   above   already,   he   executed   act/   or   (1)  When  the  fault  is  on  the  part  of  
violation  of  the  contract.    
circumstances.   displayed   a   conduct   which   both   contracting   parties,   neither  
• The   6   enumerated   contacts   or  
(7) The   failure   of   the   vendee   to   necessarily   implies   his   intention   may  recover  what  he  has  given  by  
agreements   in   1403,   par   2  
take   exclusive   possession   of   to   waive   his   right   to   annul   the   virtue   of   the   contract,   or   demand  
require  to  be  evidenced  by  note,  
all  the  property.     contract.     the   performance   of   the   other’s  
memorandum   or   writing.   The  
  undertaking;  
• Right   to   ratify   is   transmissible,   law   does   not   require   any  
1382.   Payments     made   in   a   state   (2)   When   only   one   of   the  
may  be  exercised  by  heirs.   particular   form   of   instrument   or  
of   insolvency   for   obligations   to   contracting   parties   is   at   fault,   he  
  any   language   but   it   should  
whose   fulfillment   the   debtor   1394.  Ratification  may  be  effected   cannot   recover   what   he   has   given  
contain  the  following:  
could   be   compelled   at   the   time   by   the   guardian   of   the   by   reason   of   the   contract,   or   ask  
(1) Names  of  the  parties  
they   were   effect   are   also   for   the   fulfillment   of   what   has  
incapacitated  person.     (2) Terms   and   conditions   of   the  
rescissible.     been   promised   him.   The   other,  
  agreement  
  1395.   Ratification   does   not   who   is   not   at   fault,   may   demand  
(3) Description   of   the   subject  
REQUISITES:   require   the   conformity   of   the   the   return   of   what   he   has   given  
matter   for   the   proper  
• Payments   were   made   by   the   without   any   obligation   to   comply  
contracting   party   who   has   no   identification  thereof  
debtor   to   the   creditor,   while   his  promise.  (1306)  
right   to   bring   the   action   for   (4) Place  and  date  of  the  making  of  
being  insolvent   annulment.    
the  agreement  
• Obligations   paid   were   not   yet   • The   innocent   party   who   has   the   (5) Signature  of  the  parties  who  are   • In   pari   delicto   –   the   law   will   not  
aid   either   party   to   an   illegal  
 due  and  demandable   prerogative   to   annul   or   not   assuming  obligation   contract   but   will   leave   them  
  doesn’t   need   to   require     where  they  are.    
1383.   The   action   for   rescission   is   conformity  of  the  other  party.     1404.   Unauthorized   contracts   are   XPN:   If   they   are   not   equally  
subsidiary;  it  cannot  be  instituted     governed   by   Article   1317   and   the   guilty,   the   principle   will   not  
except   when   the   party   suffering   1396.   Ratification   cleanses   the   principles   of   agency   in   Title   X   of   apply.   The   law   will   give   relief   to  
damage   has   no   other   legal   means   contract   from   all   of   its   defects   this  Book.     the   party   who   is   the   more  
to  obtain  reparation  for  the  same.     from   the   moment   it   was     excusable  than  the  other.  
• It   is   just   a   subsidiary   action,   constituted.     1405.   Contracts   infringing   the    
meaning   it   cannot   be   instituted   • XPN:   Rule   of   retroactivity   shall   Statue   of   Frauds.   Referred   to   in   1413.   Interest   paid   in   excess   of  
when   there   are   other   legal   not   prejudice   the   rights   of   No.   2   of   Article   1403,   are   ratified   the   interest   allowed   by   the   Usury  
means  to  obtain  reparation.     innocent   third   persons   for   that   by   the   failure   of   the   object   to   the   laws   may   be   recovered   by   the  
• XPN:  If  it  can  be  proven  that  the   will  result  in  injustice.     presentation   of   oral   evidence   to   debtor,   with   interest   thereon  
property   alienated   was   the   only     prove   the   same,   or   by   the   from  the  date  of  the  payment.  
property   of   the   debtor   at   the   1397.   The   action   for   the   acceptance   of   benefits   under   • Usury  law  is  suspended.  
time   of   the   transaction,   annulment   of   contracts   may   be   them.   • This   article   is   still   applicable  
rescission  can  be  availed.     instituted   by   all   who   are   thereby   • Unenforceable   contracts   are   based   on   “contra   bonus   mores”  
• WHO   can   file   the   rescissory   obliged   principally   or   susceptible   of   ratificiation.   But   (Medel  v.  CA)    
action?     subsidiarily.   However,   persons   those   enumerated   in   SOF   may   be    
(1) Parties   who   suffered   who  are  capable  cannot  allege  the   ratified  only  in  two  ways   1414.   When   money   is   paid   or  
economic  lesion   incapacity   of   those   with   whom   (1) Failure   to   object   to   the   property   delivered   for   an   illegal  
(2) The  affected  creditor   they   contracted;   nor   can   those   presentation   of   oral   evidence   purpose,   the   contact   may   be  
(3) Other  authorized  by  law.   who   exerted   intimidation,   is  tantamount  to  a  waiver   repudiated   by   one   of   the   parties  
In   case   of   death   or   incapacity,   the   violence,   or   undue   influence,   or   (2) Acceptance   of   benefits   under   before   the   purpose   has   been  
heirs   may   institute   the   action.   employed   fraud,   or   caused   these   contracts.   This   is   accomplished,   or   before   any  
HOWEVER,   the   heirs   of   the   debtor   mistake   base   their   action   upon   equivalent   to   waiver   or   damage  has  been  caused  to  a  third  
who  alienated  properties  in  fraud  of   these  flaws  of  the  contract.     estoppel.   Hence,   it   only   person.   In   such   case,   the   courts  
creditors   cannot   represent   the   • If   it’s   the   minor   who   is   guilty   of   applies  to  executor  contracts.     may  if  the  public  interest  will  thus  
debtor   to   institute   the   action.   The   the   vices   of   consent,   he   cannot     be   subserved,   allow   the   party  
heirs   are   not   allowed   to   benefit   from   employ  his  own  fault  as  the  very   1406.   When   a   contract   is   repudiating   the   contract   to  
the   wrongs   committed   by   their   basis  to  set  aside  the  contract.     enforceable   under   the   Statue   of   recover  the  money  or  property.  
predecessor.     Active   misrepresentation   –   Frauds,   and   a   public   document   is   • This   article   constitutes   an  
  cannot  annul  the  contract   necessary   for   its   registration   in   exception   to   the   general   rule   of  
1384.   Rescission   shall   be   only   to   Passive   misrepresentation   –   may   the   Registry   of   Deeds,   the   parties   “in  pari  delicto.”  Despite  the  fact  
the   extent   necessary   to   cover   the   be  allowed  to  annul   may   avail   themselves   of   the   right   that   the   repudiating   party   is  
damages  caused.   • XPN   to   third   persons   cannot   under  Article  1357.   privy   to   the   illegal   transaction,  
• Partial  rescission  is  allowed.     annul   contracts:   IF   the   is     nonetheless,   the   law   allows   him  
  prejudiced   in   his   rights   with   • This   article   applies   only   when   to   recover   what   he   had   paid   or  
1385.   Rescission   creates   the   respect  to  one  of  the  contracting   the   contract   is   valid   and   delivered  by  reason  of  his  timely  
obligation   to   return   the   things   parties,   and   can   show   the   enforceable  under  the  SOF.     repudiation  of  the  transaction.  
which   were   the   object   of   the   detriment   which   could   positively   • If   the   contract   is   enforceable    
contract,   together   with   their   result   to   him   from   the   contract   under   SOF   because   it   is   duly   1415.  Where  one  of  the  parties  to  
fruits,   and   the   price   with   its   in  which  he  had  no  intervention.   evidenced   by   a   writing,   note   or   an   illegal   contract   is   incapable   of  
interest;   consequently,   it   can   be     memorandum,   but   it   cannot   be   giving   consent,   the   courts   may,   if  
carried   out   only   when   he   who   1398.   An   obligation   having   been   registered   because   it   is   not   in   a   interest   of   justice   so   demands,  
demands   rescission   can   return   annulled,   the   contracting   parties   public   instrument,   the   party   allow   recovery   of   money,   or  
whatever   he   may   be   obliged   to   shall   restore   to   each   other   the   concerned   may   compel   the   property   delivered   by   the  
restore.   //   Neither   shall   things   which   have   been   the   opposite   party   to   formalize   it   in   incapacitated  person.    
rescission   take   place   when   the   subject   matter   of   the   contract,   proper  form  required  by  law.    
things   which   are   the   object   of   the   with   their   fruits,   and   the   price     1416.   When   the   agreement   is   not  
contract   are   legally   in   the   with   its   interest,   except   in   cases   1407.   In   a   contract   where   both   illegal   per   se   but   is   merely  
possession   of   third   persons   who   provided  by  law.  //  In  obligations   parties   are   incapable   of   giving   prohibited,  and  the  prohibition  by  
did   not   act   in   bad   faith.   //   In   this   to   render   service,   the   value   consent,   express   or   implied   the   law   is   designed   for   the  
case,   indemnity   for   damages   may   thereof   shall   be   the   basis   for   ratification   by   the   parent,   or   protection  of  the  plaintiff,  he  may,  
be   demanded   from   the   person   damages.     guardian,   as   the   case   my   be,   of   if   public   policy   is   thereby  
causing  the  loss.       one   of   the   contracting   parties   enhanced,   recover   what   he   has  
• Mutual   restitution   and   mutual   • Applies   only   if   the   contract   is   shall   give   the   contract   the   same   paid  or  delivered.  
dissent.   consummated.     effect   as   if   only   one   of   them   were    
• The   complaining   party   who   • The   article   used   the   word   incapacitated.   //   If   ratification   is   1417.   When   the   price   of   any  
cannot   return   whatever   he   may   obligation   and   not   contract   made  by  the  parents  or  guardians,   article   or   commodity   is  
be   obliged   to   restore   is   not   because   the   contract   may   cover   as   the   case   may   be,   of   both   determined   by   statute,   or   by  
entitled  to  rescission.     several   prestations   which   are   contracting   parties,   the   contract   authority   or   law,   any   person  
• Third  persons:   divisible.   Some   may   be   voided,   shall   be   validated   from   the   paying   any   amount   in   excess   of  
GOOD   FAITH-­‐   Transfer   of   but  others  may  be  retained.     inception.     the   maximum   price   allowed   may  
property  will  be  respected.   • Mutual   restitution   is   not     recover  such  excess.  (n)  
If   the   third   person   acquired   the   absolute.   If   and   when   it   will   • If  ratification  is  made  only  on  the    
property   gratuitously   and   in   result   to   unjust   enrichment   of   side   of   one   of   the   parties,   the   1418.   When   the   law   fixes,   or  
good  faith,  he  is  obliged  to  return   one   party   at   the   expense   of   contract   is   transformed   into   a   authorizes   the   fixing   of   the  
the  thing.   another,   the   rule   of   mutual   voidable   contract   on   the   part   of   maximum   number   of   hours   of  
BAD   FAITH-­‐   Property   restitution  must  give  way.     the   one   who   did   not   ratify.     It   is   labor,   and   a   contract   is   entered  
transferred   can   still   be     valid   and   binding   unless   into   whereby   a   laborer  
recovered,   aside   from   the   1399.   When   the   defect   of   the   annulled  by  the  court.   undertakes   to   work   longer   than  
imposition  of  damages.   contract  consists  in  the  incapacity   • If   ratification   is   made   by   both   the   maximum   thus   fixed,   he   may  
  of   one   of   the   parties,   the   sides,   the   contract   is   validated   demand   additional   compensation  
1386.   Rescission   referred   to   in   incapacitated   person   is   not   from  its  inception.     for   service   rendered   beyond   the  
Nos.   1   and   2   of   Article   1381   shall   obliged   to   make   any   restitution     time  limit.  
not   take   place   with   respect   to   except   insofar   as   he   has   been   1408.   Unenforceable   contracts  
contacts  approved  by  the  courts.     benefited   by   the   thing   or   price   cannot   be   assailed   by   third  
• Opposition   to   these   contracts   received  by  him.     persons.   1419.   When   the   law   sets,   or  
should   have   been   timely   made   • Principle  of  parens  patriae     authorizes   the   setting   of   a  
before   the   cocurt.   The   alck   of   • Whether   or   not   the   capacitated   • Defense   of   SOF   is   personal   to   the   minimum  wage  for  laborers,  and  a  
opposition   is   deemed   a   waive   of   party   has   been   benefited   from   availing   party,   it   cannot   be   contract   is   agreed   upon   by   which  
the  right  to  rescind.     what   he   received   from   a   minor,   availed   by   strangers   to   the   a  laborer  accepts  a  lower  wage,  he  
   he  is  obliged  to  return  the  same.     transaction.   shall   agree   upon   by   which   a  
1387.   All   contracts   by   virtue   of   XPN:   When   he   received   the   thing     laborer   accepts   a   lower   wage,   he  
which   the   debtor   alienates   form   the   minor   in   the   shall   be   entitled   to   recover   the  
property   by   gratuitous   title   are   performance   of   the   latter’s   deficiency.  
presumed   to   have   been   entered   natural  obligation.      
into   in   fraud   of   creditors,   when     1420.   In   case   of   a   divisible  
the   donor   did   not   reserve   1400.   Whenever   the   person   contract,  if  the  illegal  terms  can  be  
sufficient   property   to   pay   all   obliged   by   the   decree   of   separted   from   the   legal   ones,   the  
debts   contracted   before   the   annulment  to  return  the  thing  can   latter  may  be  enforced.  
donation.   //   Alienations   by   not  do  so  because  it  has  been  lost   • In   case   of   doubt   on   whether   the  
onerous   title   are   also   presumed   through   his   fault,   he   shall   return   terms   of   a   contract   are  
fraudulent   when   made   by   persons   the   fruits   received   and   the   value   indivisible   or   divisible,   the   same  
against  whom  some  judgment  has   of  the  thing  at  the  time  of  the  loss,   will  be  presumed  divisible.    
been   rendered   in   any   instance   or   with  interest  from  the  same  date.      
some  writ  of  attachment  has  been   • If  the  thing  is  determinate  or  got   1421.   The   defense   of   illegality   of  
issued.   The   decision   or   lost   without   the   fault   of   the   contracts   is   not   available   to   third  
attachment   need   not   refer   to   the   debtor,   this   article   is   persons   whose   interests   are   not  
property   alienated,   and   need   not   inapplicable.     directly  affected.    
have   been   obtained   by   the   party      
seeking   the   rescission.   //   In   1401.   The   action   for   annulment   of   1422.   A   contract   which   is   the  
addition   to   these   presumptions,   contracts   shall   be   extinguished   direct   result   of   a   previous   illegal  
the   design   to   defraud   creditors   when   the   thing   which   is   the   object   contract,   is   also   void   and  
may   be   proved   in   any   other   thereof   is   lost   through   the   fraud   inexistent.    
manner   recognized   by   the   law   of   or   fault   of   the   person   who   has   a   • If   the   first   contract   is   illegal   or  
evidence.   right   to   institute   the   proceedings.   unlawful,   and   is   superseded   by  
  //   If   the   right   of   action   is   based   another   contract,   the   same   is  
• Good   faith   is   always   presumed   upon   the   incapacity   of   any   one   of   void  and  inexistent.    
and   upon   him   who   alleges   and   the  contracting  parties,  the  loss  of    
imputes   bad   faith   on   the   part   of   the   thing   shall   not   be   an   obstacle    
the   possessor   of   the   property   to   the   success   of   the   action,   unless    
rests   the   burden   of   proof.   When   said   loss   took   place   through   the  
the   law   expressly   presumes   a   fraud  or  fault  of  the  plaintiff.      
transaction   as   fraudulent,   that    
presumption  is  an  exception.     1402.   As   long   as   one   of   the    
• Statutory  presumptions  of  fraud:   contracting   parties   does   not  
(1) Alienation   by   gratuitous   restore   what   in   virtue   of   the  
title   –   when   a   debtor   decree   of   annulment   he   is   bound  
donates   his   property   to   return,   the   other   cannot   be  
without   reserving   sufficient   compelled  to  comply  with  what  is  
property   to   pay   all   his   pre-­‐ incumbent  upon  him.    
existing   debts,   the   law    
 presumes   that   the  
gratuitous   dispositions   are  
made  in  fraud  of  creditors.  
(2)  Alienations  by  onerous  title  
–   Even   for   a   valuable  
consideration,   the   contract  
is  presumed  fraudulent  if  at  
the   time   of   the   alienation  
some   judgment   has   been  
rendered   against   him   or  
some   writ   of   attachment  
has   been   issued   against  
him.    
• These   legal   presumptions   are  
rebuttable.   They   may   be  
overcome   by   clear,   strong   and  
convincing  evidence.    
(1) Must   be   proved  
affirmatively   that   the  
conveyance   was   done   in  
good  faith.  
(2) Must   also   be   established  
that  the  conveyance  was  
for   a   sufficient   and  
valuable  consideration.    
• If   there   are   no   judgments  
rendered   or   any   writ,   the  
presumption   of   fraud   under   the  
article  will  not  apply.  However,  if  
there   is   actually   a   fraud  
committed,  it  may  still  be  proven  
by  available  competent  evidence.    
 
1388.   Whoever   acquires   in   bad  
faith  the  things  alienated  in  fraud  
of   creditors,   shall   indemnify   the  
latter   for   damages   suffered   by  
them  on  account  of  the  alienation,  
whenever,   due   to   any   cause,   it  
should   be   impossible   for   him   to  
return  them.  //  If  there  are  two  or  
more   alienations,   the   first  
acquirer   shall   be   liable   first,   and  
so  on  successively.    
• If   the   first   transferee   is   in   good  
faith,   the   property   ceases   to   be  
part   of   the   patrimony   of   the  
debtor.  
• If   the   first   transferee   is   in   bad  
faith,   the   liability   of   the   second  
transferee  will  now  depend  upon  
his  good  or  bad  faith.    
• The   liability   of   the   transferee  
who   is   in   bad   faith   is   solidary  
with   that   of   the   transferring  
debtor.    
 
1389.   The   action   to   claim  
rescission   must   be   commenced  
within   four   years.   //   For   persons  
under   guardianship   and   for  
absentees,   the   period   of   four  

De  Leon  |  1-­‐AA  
years   shall   not   begin   until   the  
termination   of   the   former’s  
incapacity,  or  until  the  domicile  of  
the  latter  is  known.