TITLE 2: CONTRACTS - Particular stipulations of the parties
- Ex. Payment, interest rate, place of
Article 1305
“A contract is a meeting of minds between two persons
whereby one binds himself, with respect to the other, to
give something or to render some service”
Contract
- Meeting of minds between two contracting
parties which takes place when an offer of one
party is accepted by the other (Art. 1319)
- One of more persons bind himself or themselves
with respect to another or others to the
fulfillment to give, to do, or to render service
(Art. 1156)
- One of the sources of obligations (Art. 1157)
There must be at least two person or parties
Obligation
- Legal tie or relation itself that exists after a
contract has been entered into
No contract if there is no obligation
Obligation may exist without a contract
For Contracts to be Valid and Enforceable
- Contract must be lawful (Art. 1306)
- All requisites must be present (Art. 1318)
Moral / Social Agreements
- Agreements that cannot be enforced by action in
the courts of justice
- Ex. Agreement to go to a dance party
Agreements
- Broader than a contract
- The former may not have all the elements of a
contract that can legally enforce obligations
(Art. 1318)
All contracts are agreements but not all agreements
are contracts
Elements of a contract
1) Essential Elements
- Those without which there will be no
contract
- Consent of the contracting parties
- Cause of the obligation which must be
established (Art. 1318)
2) Natural Elements (Art. 1547)
- Found in certain contracts unless set aside
or suppressed by the parties
- Ex. Warranty against hidden defects in a
contract or sale
3) Accidental Elements
payment
Classifications of contract
1) According to name or designation
a) Nominate. Has a name under the law
b) Innominate (Art. 1307). Without name
under the law
2) According to perfection or formation
a) Consensual. Is perfected by mere consent
(sale, lease)
b) Real (Art. 1315 - 1316). Perfected by
delivery of an object of the contract
(depositum, pledge, commodatum)
c) Formal / Solemn. In the form provided
by the law for their perfection (marriage
contract must have priest or judge)
3) According to cause (Art. 1350)
a) Onerous. Exchange of valuable
considerations (sale or barter) where one
promises a thing or service of the other
b) Remuneratory. The cause is the service
or benefit remunerated
c) Gratutitious or lucrative. One party
receives no equivalent consideration
(donation or commodatum) where these
contracts are pure beneficence
4) According to form
a) Informal, common or simple.
b) Formal or solemn (Art. 1356).
5) According to obligatory force
a) Valid (Art. 1306). Meets all requirements
and limitations
b) Rescissible.
c) Voidable.
d) Unenforceable.
e) Void or inexistent.
6) According to person obliged
a) Unilateral. Only one of the parties
obligated to give or do something
(commodatum, gratuitous deposit)
b) Bilateral (Art. 1191). Both parties are
required to give or do something (sale,
barter)
7) According to risks
a) Commulative. Parties that give equivalent
values (sale, barter)
b) Aleatory. Uncertainty of an event based
on benefit or loss (insurance contract)
8) According to liability
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 a) Unilateral. Creates an obligation on the
part of only one of the parties
(commodatum, gratuitious, deposit)
b) Bilateral. Gives rise to reciprocal
obligations for both parties (sale, lease)
9) According to status
a) Executory. Not yet been completely
performed by both parties
b) Executed (Art. 1403). Been fully and
satisfactorily carried out by both parties
10) According to dependence to another contract
a) Preparatory. Serves as a bridge contract
for other contracts (agency, partnership)
b) Accessory. Dependent upon other
contracts as it secures for its existence
(mortgage which is dependent upon a
principal contract such as loan)
c) Principal. One that can stand by itself
(sale, loan)
11) According to dependence of part of contract to
another parts
a) Indivisible. Contract is dependent upon
the other parts (sale of a dining room
table and matching chairs)
b) Divisible (Art. 1223 – 1225). One part of
the contract may be satisfactorily
performed independently (sale of rocking
chair and a pair of shoes)
Article 1306
“The contracting parties may establish such
stipulations, clauses, terms and conditions as they may
deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy”
Valid Contracts
- Contracts that meet all the legal requirements
(Art. 1318) and limitations (Art. 1306)
- It is possible to have an agreement that meets all
the criteria of a valid contract but is
unenforceable in a court of law for failure to
comply with the Statutes of Frauds (Art. 1403)
Limitations on Contractual Stipulations
1) Law
- Fundamental requirement that the contract
entered into must be in accordance with,
and not repugnant to, an applicable statute
- Terms are embodied in every contract
- Law sets limits
2) Police Power
- No law in existence or when the law is
silent
- Will of the parties prevails unless their
contract contravenes the limitation of
morals, good customs, public order, or
public policy
Contract must not be Contrary to the Law
- Law
 “a rule of conduct, just, obligatory,
promulgated by legitimate authority, and
of common observance and benefit”
- Contract (Art. 1409)
 Cannot be given effect if it is contrary to
law because law is superior to a contract
 Must not be in violation of mandatory and
prohibitory laws, unless allowed by the
law
- Contracting Parties (Art. 1315)
 Must respect the law which is deemed to
be an integral part of every contract
Contract must not be Contrary to Morals
- Morals
 Norms may differ at different times and
places and with each group of people
 Based on man’s faculty of knowing how
to distinguish right or wrong
Contract must not be Contrary to Good Customs
- Customs
 Generally accepted habits and practices by
the community for a long period of time
 Has the law when it is recognized and
enforced by the law
Contract must not be Contrary to Public Order
- Public Order
 Maintenance of peace and order both in
the entire community and country
Contract must not be Contrary to Public Policy
- Public Policy
 A contract that has a tendency to be
injurious to the public good is contrary to
public policy
 Actual injury need not to be shown
Article 1307
“Innominate contracts shall be regulated by the
stipulations of the parties, bye the provisions of Titles I
and II of this Book, by the rules governing the most
analogous nominate contracts and by the customs of the
place”
Classification of Contracts according to its Name
1) Nominate Contracts
- Has a specific name or designation in law
- Ex. Commodatum, lease, agency, sale
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 2) Innominate Contracts
- Has no specific name or designation in
law
- Shall be governed by rules applicable to
the most similar contracts
- Kinds of Innomate Contracts
a) Do ut des (I give that you may
give). A will give one thing to B,
so B will give one thing
b) Do ut facias (I give that you may
do). A will give something to B
para hatagan pd sya ni B
c) Facto ut des (I do that you may
give). A will bind himself to do
something for B, para maghatag si
B kng A
d) Facto ut facias (I do that you may
do). A must do something for B, so
that B will render service to A
Do ut des is no longer an innominate contract bc
naa na syay given name (barter or exchange)
- Reasons of Innomate Contracts
a) Impossibility of anticipating all
forms of agreement
b) Progress of a man’s sociological
and economic relationships
c) A contract will not be considered
invalid for failure to conform
strictly to the standard contracts
outlined
d) It has to have all the elements of a
valid contract
- Rules Governing of Innomate Contracts
a) Agreement of the parties
b) Provisions of the Civil Code on
obligations and contracts
c) Rules governing the most
analogous contracts
d) Customs of the place
Article 1308
“The contract must bind both contracting parties, its
validity or compliance cannot be left to the will of one of
them”
Contract
- Is an agreement which gives rise to obligations
- It must bind both parties in order that it can be
enforced against either
- Without equality, it cannot be said that the
contract has the force of law between them
- Fundamental rule, no party can renounce or violate
the law of the contract without the consent of the
other
- Validity or compliance (cannot be left to the will
of one of the contracting parties)
Mutual Cancellation
- A party cannot revoke/renounce a contract without
consent of the other
Article 1309
“The determination of the performance may be left to a
third person, whose decision shall not be binding until it
has been made known to both contracting parties”
Determination of Performance of the Third Party
- May be left to a third person, whose decision shall
not be binding until it has been made known to
both contracting parties
- May be left to a third person (Art. 2042-2046)
- Shall bind the parties only after it has been made
known to both of them
Article 1310
“The determination shall not be obligatory if it is
evidently inequitable. In such case, the courts shall
decide what is equitable under the circumstances”
Effects Where Determination Inequitable
- Justice means giving each what is due but equity is
a process by which court relaxes the sanctions of
the law for humanitarian consideration
Article 1311
“Contracts take effect only between the parties, their
assigns and heirs, except in case where the rights and
obligations arising from the contract are not
transmissible by their nature, or by stipulation or by
provision of law. The heir is not liable beyond the value
of the property he received from the decedent.”
“If a contract should contain some stipulation in favor
of a third person, he may demand its fulfillment
provided he communicated his acceptance to the obligor
before its revocation. A mere incidental benefit or
interest if a person is not sufficient. The contracting
parties must have clearly and deliberately conferred a
favor upon a third person”
Persons Affected by a Contract
1) General Rule
- A party’s rights and obligations derived
from a contract are transmissible to the
successors (Art. 1178)
- Take effect only between the parties, their
assigns and heirs
- Assigns and heirs can have rights and
obligations under the contract
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2) Exceptions
- When a contract are effective only between
the parties
- The rights and obligations arise from the
contract are not transmissible
a) By their nature
- Ex. Zayn obliges himself to
write a song for Perrie. If Zayn
dies, his obligation to write a
song for Perrie is extinguished bc
such obligation is by nature.
b) By stipulation
- Ex. On Jan. 3, 2018, Jan obliged
herself to deliver to Dec a Chanel
bag on Mar. 3 2018. The
obligation of delivering the bag
is not transmitted to the heirs of
Jan bc the agreement between
Jan and Dec is in transmissible.
c) By provision of law
- Ex. Blue has distinguished
Yellow to be in charge for the
buying and selling of mangoes
for 3 years. If after 1 year,
Yellow dies, his death = end of
company.
Third Person
- One who has not taken part in a contract
- Stranger to the contract
- No rights and obligations under a contract
- Has no standing in law to demand the enforcement
of a contract
- May be affected by a contract:
a) Contracts containing a stipulation in favor of
the third person (stipulation pour autrui)
b) Contracts creating real rights
c) Contracts entered into to defraud creditors
d) Contracts which have been violated at the
inducement of a third person
Principle of Relativity
- Contracts can only bind the parties who entered
into it, and cannot favor or prejudice a third
person, even if he is aware of such contract and
has acted with knowledge thereof
Stipulation Pour Autrui (Stipulation for Others)
- Stipulation in favor upon a third person
- Communicates his acceptance to the obligor
before its revocation by the oblige or the original
parties
- Ex. Yao leased his house to Ming for 2 years at
an agreed rental of P 10 000 a month. They
stipulated that the monthly rental of P 10 000 will
be given to China, the godson of Yao, as his
monthly allowance. The stipulation in the contract
between Yao & Ming is expressly granting a
benefit to China is known as a stipulation pour
autrui.
Classes of Stipulation Pour Autrui
1) Stipulation is intended for the sole benefit of the
third person (gifts or donations)
2) Obligation is due from the promise to the third
person which the former seeks to discharge
(property if paired with the purchaser’s promise to
pay a debt owing from the seller to the third
person)
Creditor Beneficiary
- Third person is said to be a done beneficiary while
in the second
Requisites of Stipulation Pour Autrui
1) Contracting parties by their stipulation. Must
have clearly and deliberately conferred a favor
upon a third person
2) Third person must communicate his acceptance
to the obligor
3) Stipulation in favor of the third person. Should
be a part, not the whole, of the contract
4) Favorable Stipulation. Should not be
conditioned or compensated by any kind of
obligation
5) Neither of the contracting parties. Bears the
legal representation or authorization of the third
party
Article 1312
“In contracts creating real rights, third persons who
come into possession of the object of the contract are
bound thereby, subject to the provisions of the Mortgage
Law and the Land Registration Laws.”
Real Rights
- Follows wherever it goes
- Contract subjecting certain real properties to the
payment of certain debts, registered in
accordance with the Property Registration
Decree
- If not registered, third persons who acted in
good faith are protected under the provisions of
the Property Registration Decree
- Ex. X mortgaged is land in favor of Y as
security of his debt. Later on, X sold his car to
V. V bought the land subject to mortgage. V is
now bound by the contract between X and Y
even if stranger sya sa contract.
Article 1313
“Creditors are protected in cases of contracts
intended to defraud them”
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Right of Creditor to Impugn Contracts Intended to 2) Real Contract
Defraud - Perfected by the delivery of the thing
- Contracts take effect only between the parties subject matter of the contract
- Creditor is given the right to impugn the  Depositum
contracts of his debtor to defraud him o A & B agreed that before A
- Every contract that both parties have entered leaves for abroad, A would
into are always protected from frauds that an deliver his Ferrari to B for
obligor may create in the said contracts safekeeping. The contract
between A & B is not
Accion Paulina perfected until A delivers his
- Debtor intendeds to defraud his creditor and Ferrari to B
alienates his property w/o leaving enough for  Pledge
them o A borrowed P 1000 from Z. A
- Creditor may file rescission of the said contracts promised to give his Rolex
watch to Z as security with
Fraudulent Insolvency the agreement that if ever
- Offender is debtor (has obligations which are magmature ang debt, the
due and payable) watch will be the payment of
- Absconds with his property debt, which will not be
- There is prejudice to his creditory completed until A delivers his
Rolex to Z.
Article 1314
“Any third person who induces another to violate his
contract shall be liable for the damages to the other
contracting party”  Commodatum
o F & C agreed that C will
Liability of Third Person Responsible for Breach of borrow F’s car for 1 week free
Contract of charge F should deliver the
- Rule of American Law car to C.
- Also proper under the general principles of the
Philippine Law 3) Solemn Contract
- Requires compliance with certain
Stranger to a Contract formalities prescribed by the law
- Can be sued for damages for his unwarranted - Ex. Marriage contract requires priest or
interference with the contract judge

Article 1315 Stages of a Contract

“Contracts are perfected by mere consent, and from that
moment the parties are bound not only to the fulfillment
of what has been expressly stipulated but also to all the
consequences which, according to their nature, may be
keeping with good faith, usage and law”
Consensual Contracts
- Founded and completed by a mere consent of
contracting parties without external formality to
fix obligation (Marriage, Partnership
Agreement)
Article 1316
“Real contracts, such as deposit, pledge and
commodatum, are not perfected until the delivery of the
object of the obligations”
1) Preparation or negotiation
- Parties have not yet arrived at any definite
agreement
2) Perfection or birth
- Parties have come to a definite agreement
or meeting of the minds regarding the
subject matter and cause of the contract
3) Consummation or termination
- Parties have performed their respective
obligations
- Contract if fully accomplished by
performance, can result to termination
- Contract may also be terminated after its
perfection, by mutual agreement of parties

Classification of Contracts according to Perfection How Contracts are perfected

1) Consensual Contract 1) Consensual Contracts
- Perfected by mere consent (sale, lease)

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 - Perfected by mere consent of the parties
regarding the subject matter and the cause
of the contract
- Obligatory in any form, provided all the
essential requisites for validity are present
2) Real Contracts
- Perfected not merely by consent but by the
delivery, actual or constructive
- Purpose restitution because they
contemplate the return by a party of what
has been received from another
3) Solemn Contracts
- Law requires that a contract is in some
form to be valid
- Special form is necessary for its perfection
- Donation of real property cannot be
perfected until it is embodied in a public
instrument
Effect of Perfection of the Contract
- They are bound to:
1) The fulfillment of what has been expressly
stipulated
2) All the consequences according to their
nature, may be in keeping with good faith,
usage and law
Article 1317
“No one may contract in the name of another without
being authorized by the latter, or unless he has by law a
right to represent him”
“A contract entered into in the name of another by one
who has no authority or legal representation, or who
has acted beyond his powers, shall be unenforceable,
unless it is ratifies, expressly or impliedly, by the person
on whose behalf it has executed, before it is revoked by
the other contracting party”
General Rule
- A person is not bound by the contract of another
of which he has no knowledge or to which he
has not given his consent
Contract involves the Free Will of the Parties
- Only he who enters into the contract can be
bound thereby
Contract Entered into in the Name of Another by One
- No authority is unenforceable against the former
unless it is ratified by him before it is revoked
by the other contracting party
Unauthorized Contracts can be cured only by
Ratification
- Defect cannot be cured except by the subsequent
ratification
- The person in whose name the contract was
entered into
- Ratification must be clear and expressed
Person is bound by the Contract of Another
- Person may be bound by the contract of another
1) Person entering into the contract must be
duly authorized, expressly or impliedly,
the person in whose name he contracts or
he must have, by law, a right to represent
him
2) The person must act within his power. A
contract entered by an agent in excess of
his authority is unenforceable against the
principal
Article 1318
“There is no contract unless the following requisites
concur: (1) Consent of the contracting parties (2) Object
certain which is the subject matter of the contract (3)
Cause of the obligation which is established”
Classes of Elements of a Contract
1) Essential Elements (requisites of a contract)
- No contract can validly exist regardless of
the intentions of the parties
a) Common. Present in all contracts
(consent, object, and cause)
b) Special. Not common to all contracts,
only present in specified contracts
such as:
i. Form (donation, donation of
real contracts, mortgage)
ii. Subject Matter (personal
property in pledge)
iii. Consideration or Cause (price
in sale, liberality in
commodatum)
2) Natural Elements
- Presumed to exist in certain contracts
unless the contrary is expressly stipulated
by the parties
- Ex. Warrant against hidden defects
3) Accidental Elements
- Particular stipulations, clauses, terms, or
conditions established by the parties in
their contract (Art. 1306)
- Exist only when they are expressly
provided by the parties
- Ex. Period, interest, penalty
Article 1319
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 “Consent is manifested by the meeting of the offer and
the acceptance upon the thing and the cause which are
to constitute the contract. The offer must be certain and
the acceptance absolute. The qualified acceptance
constitutes a counter offer.”
“Acceptance made by letter or telegram does not bind
the offerer except from the time it came to his
knowledge. The contract, in such a case, is presumed to
have been entered into in the place where the offer was
made.”
Consent
- Conformity or concurrence of wills (offer and
acceptance)
- Meeting of minds or mutual assent between the
parties on the subject matter and the cause which
are to constitute the contract, even if neither is
delivered
Mutual Assent / Agreement
- There is an offer and acceptance of the offer
Offer
- Proposal made by one party (offerer) to another
(offeree), indicating a willingness to enter into a
contract
- Promise to act from acting on conditions that the
terms are accepted by the person
Offer must be certain or Definite
- The liability (or the rights) of the parties may be
exactly fixed
- Acceptance must be identical with the offer to
create a contract without any further act on the
part of the offerer
Offer made in Jest or Emotionally Upset
- Not seriously intended is not a valid offer
- No apparent to the offeree who honestly believe
that the offer was seriously intended, does not
invalidate the offer
Acceptance
- Manifestation by the offeree of his assent to all
the terms of the offer
- Without acceptance, there is no meeting of the
minds between the parties
Counter-offer
- Offer must be absolute, unconditional, or
unqualified
- Identical in all aspects with that of the offer so
as to produce consent or meeting of the minds
Amplified Offer
- Considered a rejection of the original offer
- Attempt by the parties to enter into a contract on
a different basis
- Constitutes a new offer which the original
offerer may accept or reject
Qualified Acceptance
- Be accepted absolutely in order to have a
contract
Article 1320
“An acceptance may be expressed or implied”
Form of Acceptance to the Offer (How to Express
Acceptance)
1) Express Acceptance
- Promise to pay a certain amount or to do
something
- May be oral or written
- Ex. X agrees to Y, in writing, that the
latter will perform to deliver it himself
2) Implied Acceptance
- Inferred from act or conduct
- Ex. X and Y was in an agreement to
deliver the thing due to be delivered to
A, w/o acceptance, Y delivered the thing
to A.
Article 1321
“The person making the offer may fix the time, place,
and the manner of acceptance, all of which must be
complied with.”
Person Making the Offer
- Has the right to choose the time, place, and the
manner of acceptance
Communication of the Offer
- Offer must be communicated and received by
the offeree by letter, telephone, e-mail
- May be expressed or implied by the language
that can be understood by both parties
Article 1322
“An offer made through an agent is accepted from the
time of acceptance is communicated to him”
Communication of Acceptance
1) To Offerer
- Acceptance of the offer must be absolute
- Acceptance must be communicated to the
offerer
- May either be expressed or implied (Art.
1320)
2) To Agent
- Considered an extension of the personality
of the principal
- Ex. Z asked L to sell his car for P 500
000, L found a buyer which is M that has
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 agreed to the terms of Z. L, as Z’s agent,
sold the car to M for P 500 000.
Article 1323
“An offer becomes ineffective upon the death, civil
interdiction, insanity, or insolvency of either party
before acceptance is conveyed”
Offer becomes Ineffective
- Offer may be revoked or withdrawn at any time
before it is accepted through communicating
- After acceptance, contract is perfected
- Offer has become ineffective because of death,
civil interdiction, insanity or insolvency
- At the time acceptance is communicated, both
parties must be living and capacitated
Failure to comply with the Offerer’s Conditions
- The expiration of the period fixed in the offer for
acceptance (Art. 1324)
- Deconstruction of the thing due before
acceptance, rejection of the offerer, will make
the offer ineffective and prevent the creation of a
contract (Art. 1262)
Article 1324 (offer and acceptance)
“When the offerer has allowed the offeree
a certain period to accept, the offer may be withdrawn
at any time before acceptance by communicating such
withdrawal, except
when the option is founded upon a consideration, as
something paid or promised”
Option
- Privilege itself given to the offeree to accept an
offer within a certain period
Option Contract
- Giving a person a certain period of consideration
to accept the offer
Option Period
- Situation when the offerer has allowed the
offeree a certain period to accept it or not
Option Money
- Money paid or promised to be paid in
consideration for the option
- Maka sigurado for the offerer na mabuhat jd ang
contract bc na fully pay na daan
Earnest Money
- Partial payment of the purchase price and is
considered as proof of the perfection of the
contract
- Downpayment
Withdrawal of Offer
- Offerer can give the offeree a certain period to
accept or withdraw the offer any time before the
acceptance
- Except when the option is founded upon a
consideration, as something paid or promised
Article 1325
“Unless it appears otherwise, business advertisements
of things for sale are not definite offers, but mere
invitations to make an offer”
Business Advertisements
- Are not definite offers
- Invitations to the reader to make an offer
- Kailangan complete sa tanan particulars para
mahimong definite offer, when ma accept sya,
mka produce sya ug perfect contract
- Ex. (1) “For sale: 200 square meters lot at Green
Plains Village, Quezon City for P 1M – Tel. No. 844-
1284” NOT A DEFINITE OFFER
- Ex. (2) “For sale: 200 square meters lot at Green
Plains Village, Quezon City located at the corner of
Geronimo and Magallanes St. for P 1M cash. – Tel.
No. 844-1284” DEFINITE OFFER
Article 1326
“Advertisements for bidders are simply invitations to
make proposals, and the advertiser is not bound to
accept the highest or lowest bidder, unless the contrary
appear”
Advertisements for Bidders
- Advertiser is not the one making the offer
- Bidder is the one making the offer which the
advertiser is free to accept or reject
Acceptance by the Advertiser of a Given Bid
- Necessary for a contract to exist between the
advertiser and the bidder, regardless of the terms
and conditions
- Advertiser is not bound to accept the highest
bidder (offer is to buy) or the lowest bidder
(offer to construct a building)
- Judicial Sales (sales ordered by court),
auctioneer is bound to accept the highest bid
Article 1327
“The following cannot give consent to a contract:
(1) Unemancipated Minors
(2) Insane or demented persons; and deaf-mutes
who do not know how to write”
Civil Code
- Does not have the capacity or legal ability to
give consent to a contract
Voidable Contract
- Contract entered into where one of the parties is
incapable of giving consent to a contract
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 - Valid and binding until annulled by proper
action in court
- Susceptible of ratification
No Capacity to Give Consent
1) Unemancipated Minors
- Persons who have not yet reached the age
of majority (18 years old)
- Still subject to parental authority
2) Insane or Demented Persons
- Insanity must exist at the time of
contracting
- Unless person is presumed sane
3) Deaf-mutes
- Persons are deaf and dumb
- Contract is valid when he knows how to
write and is capable of giving intelligent
consent
Reason for Disqualification
- Persons mentioned can easily be the victims of
fraud as they are not capable of understanding
the nature of their actions
- Enter to a contract through a parent or guardian
Article 1328
“Contracts entered into during a lucid interval are
valid. Contracts agreed to in a state of drunkenness or
during a hypnotic spell are voidable”
Lucid Interval
- Temporary period of sanity
- Contract-entered into by insane or demented
person during a lucid interval is valid
- Full return of the mind to sanity to enable him to
understand the contract he is entered into
Effect of Drunkenness and Hypnotic Spell
- Impairs the capacity of a person to give
intelligent consent
- Equivalent to temporary insanity
- Contract entered into in a state of drunkenness,
or during hypnotic spell is voidable
Article 1329 (modifies laws of Article 1327)
“The incapacity declared in article 1327 is subject to
the modifications determined by law, and is understood
to be without prejudice to special disqualifications
established in the laws”
Incapacity Subject to Modifications:
1) Necessaries such food are sold and delivered to
a minor or other person without capacity to act,
must pay reasonable price
2) Minor 18 years old or above may contract for
life, health and insurance if beneficiary
appointed is minor’s mother, father, etc.
3) Contract is valid if entered into through a
guardian or legal representative
4) Contract is valid where the minor
misrepresented his age and convincingly make
other ppl believe in his legal capacity
5) Contract is valid where minor is between 18 and
21 years of age if they voluntarily will pay a
sum of money in fulfillment of obligation
Other Special Disqualifications provided by Law
1) Incompetents and may be placed under
guardianship
a. Persons suffering the accessory penalty
civil interdiction
b. Hospitalized lepers
c. Prodigals (spendthrifts)
d. Deaf and dumb who are unable to read
and write
e. Unsound mind even if they have lucid
intervals
f. By reason of age, disease, weak mind and
other similar causes
Contract entered into by ANY OF THE ABOVE is valid
except when it is voidable by reason of incapacity is
placed under guardianship
Has Capacity to Enter into a Contract
a) Insolvents until discharged
b) Cases specified by law
c) Husband and wife with respect to sale of
property to each other
d) Other persons especially disqualified by law
Article 1330
“A contract where consent is given through mistake,
violence, intimidation, undue influence or fraud is
voidable”
Characteristics of Consent
- Consent may be valid for purposes of contract
and is based on the genuine assent of both
parties
- No valid consent unless
1) It is intelligent. There is capacity to stop
2) It is free and voluntary. No vitiation of
consent by reason of violence or
intimidation
3) It is conscious or spontaneous. No
vitiation of consent by reason of mistake,
undue influence or fraud
Contracting parties must possess the necessary legal
capacity to give consent to a contract
9
Vices of Consent
- Causes that vitiate consent or render it defective
to make a contract voidable
1) Incapacity
2) Simulation of contract
3) Error or mistake
4) Violence or force
5) Intimidation or threat or duress
6) Undue influence
7) Fraud or deceit
Causes vitiating Consent and Causes of Incapacity
1) Former = temporary; latter = more or less
permanent
2) First = contract itself; second = person entering
into contract
Both make a contract voidable only, not void
Article 1331
“In order that mistake may invalidate consent, it should
refer to the substance of the thing which is the object of
the contract, or to those conditions which have
principally moved one or both parties to enter into the
contract.
Mistake as to the identity or qualifications of one of the
parties will vitiate consent only when such identity or
qualifications have been the principal cause of the
contract.
A simple mistake of account shall give rise to its
correction”
Ignorance
- Complete absence of any notion about a
particular matter
Mistake or Error
- False notion of a thing or a fact material to the
contract
- Wrong or false notion about such matter, a
belief in the existence of some circumstance,
fact or event, which in reality does not exist
Nature of Mistake
- Mistake of fact
o Arise from ignorance or lack of
knowledge
- Substantial Mistake of Fact
o Mistake contemplated by law
o Party would not have given his consent if
he is known for the mistake
o Not every consent will vitiate consent or
make the contract voidable
o “Ignorance of the law excuses no one
from compliance therewith”
- Unilateral
o One party is mistaken about a material
fact
- Bilateral (Mutual)
o Both parties are in error
- A person who makes a mistake cannot avoid
liability to the innocent party unless he shows
that he was free of fault or negligence
Mistake in fact or law does not nullify the contract
As to Object
- The error must refer to the substance of the thing
- The very nature of the contract itself
- Ex. Substitution of a specific thing
contemplated by the parties to another
Nature of Contract
- The error refers in the nature of the contract is
the one that affects the will of the party agreed
in such contract
- Ex. K promised D to lend his car, and the latter
agrees in the belief that it is donated to him by
K. K signed a document presented by D, with a
belief that it was a deed of mortgage, and not of
a sale as it turned out to be
In order to Vitiate Consent
1) Substance of the thing. Object of the contract,
which includes the mistake on the nature of the
contract
2) Conditions. Principally moved one or both
parties to enter into the contract
3) Identity or qualifications. One of the parties
have provided the same as the principal cause of
the contract
As to Principal Conditions
- The principal condition of the things is its
essential or substantial character, without which
the thing ceases to be what it is
- Refers to the qualities determined by its
particular kind
- Ex. K contracted for the delivery of 32K of
gold necklace to B, upon delivery it turned out
to be 16k of gold only
Mistake of Fact that Does Not Vitiate Consent
1) Error regarding the incidents of a thing or
accidental qualities. Contrary to the essential or
principal conditions, in which its errors does not
vitiate the contract or affect it in any manner
 Karl bought a book of Sherlock Holmes
thinking it’s a documentary, which turned
out to be a fiction.
 The following mistakes won’t affect the
validity of contract:
1.Error with respect to accidental
qualities of the object of the
10
 contract, such as quality of paper of
a book, the adjoining owners of a
piece of land
2.Error in the value of the thing, such
as when a person having forgotten
the cost price of merchandise
erroneously sells it for less
3.Error which refers not to the
conditions of the thing, but to
accessory matters in the contract
foreign to the determination of
object
2) Mistake referring to the quantity or amount.
Does not vitiate consent but gives rise to its
mistakes unless it is the essence of the contract
3) Error referring to the motives of the contract.
Does not vitiate consent unless the motives
constitutes a condition or cause of the contract
(Art. 1351)
4) Mistake as to the identity or qualifications. Party
does not vitiate consent bc the reasons that the
contracts are entered are in consideration of the
things in which they form the subject matter
rather than the persons involved. The exception
is when the identity or qualifications are the
principal cause of the contract (Art. 1331) which
5) Error which could have been avoided by the
alleging party.
Article 1332
“When one of the parties is unable to read, or if the
contract is in a language not understood by him, and
mistake or fraud is alleged, the person enforcing the
contract must show that the terms thereof have been
fully explained to the former”
Burden of Proof in Case of Mistake or Fraud
- Article 1332 is an exception to the following:
Person signs a contract. Presumption is that he
is in full knowledge and understanding of the
contents and is bound by all of its terms
- Presumption. It is accepted to be true until
proven otherwise
- One of the parties is unable to read or
understand the language in the contract. Party
enforcing the contract is duty-bound to show
that there has been no fraud or mistake and that
the terms of the contract have been fully
explained by the former
Contracting Party
- May be literate or illiterate, but does not
understand the language used in the contract that
he signed, later alleged fraud and mistake in the
execution, where there is a presumption that
there was a fraud when he signed or gave his
conformity
Party Enforcing the Agreement
- Has to prove that the contract is fully explained
to the party alleging fraud or mistake
- Failure to rebut the presumption will sustain the
charge or mistake
Presumption
- There is fraud when contracting party signed or
gave his conformity to the contract that he
couldn’t understand the language used in the
contract
- Will later allege fraud and mistake in the
execution
Article 1333
“There is no mistake if the party alleging it knew the
doubt, contingency or risk affecting the object of the
contract”
To Invalidate Consent:
1) Real error is inevitable
2) Unknown facts
Effect of Knowledge of Risk
- If the party knows with doubt, contingency or
risk affecting the object of the contract. It is
assumed that he was willing to take chances and
cannot make mistake
- Ex. Z acquired a house and lot from One
Direction Holding, historically it is known to the
public that One Direction are is prone to flood
during rainy days. When Z transferred to his
newly purchased house, if submerged due to
flood, therefore Z demanded to cancel his
purchase agreement with One Direction
Holdings on the ground that his house was
flooded.
Article 1334
“Mutual error as to the legal effect of an agreement
when the real purpose of the parties is frustrated, may
vitiate consent”
Mistake of Law
- Arises from an ignorance of some provision of
law
- An erroneous interpretation of its meaning, or
from an erroneous conclusion as to the legal
effect of an agreement, on the part of one of the
parties
Mistake of Law does not Invalidate Consent
- Ignorance of the law excuses no one from
compliance therewith
- Doctrine is based on public policy, dictated by
expediency and necessity
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Mistake of Law does not Vitiate Consent
- There is a mistake on a doubtful question of law
- Analogous to a mistake of fact
- Maxim of ignorantia legis neminem excusat
(ignorance of the law excuses no one)
Requisites for the Application of Article 1334
1) The error must be mutual
 Contract is voidable because there is no
meeting of minds
2) It must be as to the legal effect of an agreement
3) It must frustrate the real purpose of the parties
Article 1335
“There is violence when in order to wrest consent,
serious or irresistible force is employed.
Reverential Fear
- Fear of displeasing a person to whom respect
and obedience are due
Threat to Enforce just or Legal Claim
- Does not vitiate consent
- Practice followed by creditors to demand
payment of their accounts with the threat that if
it fails, the court will take action
Elements of Violence / Force
1) Physical force employed which must be serious
or irresistible that the victim is left without any
choice but to submit
2) Physical force employed is the determining
cause of giving the consent

There is intimidation when one of the contracting Intimidation

parties is compelled by a reasonable and well-grounded - Internal moral force operating in the will and
fear of an imminent and grave evil upon his person or inducing the performance of an act
property, or upon the person or property of his spouse, - Victim is compelled to consent due to a
descendants or ascendants, to give his consent. reasonable and well-grounded fear of an
imminent and grave evil upon his person or
To determine the degree of the intimidation, the age, spouse, descendants and ascendants
sex, and condition of the person shall be borne in mind.
Elements
A threat to enforce one’s claim through competent 1) Threat must be real, serious and imminent
authority, if the claim is just or legal, does not vitiate endangering the person and property of the
consent.” victim
Violence 2) Threat act be unjust or unlawful, therefore there
- Required the employment of physical force is no intimidation
- To make consent defective. The force employed 3) Threatened act is aimed to secure the consent of
must be either serious or irresistible because the victim
consent is not free
- External and physical force or compulsion VIOLENCE MORAL
exerted upon a person to prevent him from doing External internal
something to do an act Prevent the expression of Influences operation of
will will
Nature of Intimidation or Threat Physical compulsion Moral compulsion
1) Must produce a reasonable and well-grounded To sign contract with gun Moral coercion
fear of an evil point
2) Evil must be imminent and grave
3) Evil must be upon his person or property, or that Article 1336
of his spouse, descendants, or ascendants “Violence or intimidation shall annul the obligation,
4) It is the reason why he enters into the contract although it may have been employed by a third person
who did not take part in the contract”
Intimidation does not need physical force and
internal

Violence or Intimidation
- May be employed by a third person who did not
Factors to Determine Degree of Intimidation take part in the contract
- Fear is reasonable and well-grounded - To make contract voidable or annullable.
- Grave depends upon the circumstances including Necessary that the violence or intimidation must
age, sex and condition of the person be of the character
- Signed out of reverential fear, contract is valid
bc it does not annul consent in the absence of Article 1337
actual fear
12
“There is undue influence when a person takes improper  Occurs after valid  Occurs before or
execution of the simultaneous with the
advantage of his power over the will of another, contract creation with perfection
depriving the latter of a reasonable freedom of choice. Time of
 Employed in the of the obligation
occurrence
The following circumstances shall be considered: the performance of an pre-
existing obligation
confidential, family, spiritual and other relations
between the parties or the fact that the person alleged to Vitiated by serious
Consent Free
have been unduly influenced was suffering from mental deception
Ground for annulment of
weakness or was ignorant or in financial distress.” Effect Not ground for annulment
the contract
Action for annulment with
Remedy Action for damages only
damages
Undue Influence
- Influence of a kind that so overpowers the mind
Article 1338
of a party as to prevent him from acting
“There is fraud when, through insidious words or
understandingly and voluntarily to do what he
machinations of one of the contracting parties, the other
would have done
is induced to enter into a contract which, without them,
- Gives one party an advantage over another
he would not have agreed to”
- One party is able to influence the decisions of
another party to a transaction
Dolo Causante (Causal Fraud)
- Vitiate consent, due influence, reluctant consent
- Essential cause of the consent without the party
and reverential fear do not vitiate consent
would not have agreed to enter into the contract
- Fraud committed by one party before or at the
Circumstances to be considered
time of the celebration of the contract to secure
1) Confidential, family, spiritual (devotion to
the consent of the other
religion) and other relations between the parties
- Fraud without consent would not have been
2) Mental weakness
given
3) Ignorance
4) Financial distress of the person alleged to have
Insidious Words or Machinations
been unduly influenced
- Deceitful scheme or plot with an evil design
- Party who obtains the consent does so by the
Undue Influence vs Contract
means of concealing or omitting material facts
 Contract of Adhesion
- Other person may choose not to adhere the
Requisites of Causal Fraud
contract
- In order that fraud may annul consent, the
- Freedom to accept or not to accept
following must be present:
1) Must be misrepresentation or concealment
Due Influence
of a material fact with knowledge of its
- Persuasive arguments or appeals to the affection
falsity (1338, 1339)
(solicitation)
2) It must be serious (1344)
- Importunity that are not prohibited by laws nor
3) Must have been employed by only one of
violate morals, good customs or public policy
the contracting parties. Fraud committed
by a third person does not vitiate consent
Contract of Adhesion
unless it was practiced in connivance with
- One party imposes a ready-made form of
the knowledge of the favored contracting
contract on the other (not against laws)
party
- Binding
4) Must be made in bad faith or with intent
- Contracting party has freedom to accept or not
to deceive (1343) the contracting party
- Ex. After filling out many different from a
who had no knowledge of the fraud
bank. After filling out different forms and
5) Must have induced the consent of the
paperworks, the bank is ready to give Vee a
other contracting party
loan. Vee receives a loan document, which states
6) Must be alleged and proved by clear and
various responsibilities with respect to
convincing evidence
borrowing the money
- Ready-made contract made by the party whose
Falsity of the Representation
in power to give the terms and conditions
- Ordinarily proved from the representation itself
leaving the weaker party to “take it or leave it”
and the circumstances under which it was made
FRAUD IN FRAUD IN
BASIS
PERFORMANCE PERFECTION Dolo Incidente (Incidental Deceit)
- Not efficient cause for giving the consent to the
contract
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 - Refers to the incident  When there is written consent
- If not present the contracting parties still has the - Caveat emptor
chance to agree with the contract
Caveat Emptor
BASIS DOLO DOLO INCIDENTAL
- buyer has to buy at own risk
CAUSANTE
Nature Efficient cause of the Not efficient cause - Has the opportunity to check and know the facts,
giving of consent reason why it is acceptable
Effect Renders the contract Does not affect the
voidable validity of the contract Article 1341
Remedy Annulment with Contract = valid “A mere expression of an opinion does not signify fraud,
damages remedy = for damages unless made by an expert and the other party has relied
only
on the former’s special knowledge”
Article 1339
Misrepresentation
“Failure to disclose facts, when there is a duty to reveal
- Must refer to facts, not opinions
them, as when the parties are bound by confidential
- An opinion does not signify fraud
relations, constitutes fraud”
- May amount to fraud, the following requisites
must be present:
Concealment
1) Must be made by an expert
- Neglect or failure to communicate or disclose
2) Other contracting party has relied on the
that which a party to a contract knows and ought
expert’s opinion
to communicate
3) Opinion turned out to be false or
- Equivalent to misrepresentation or false
erroneous
representation

Article 1342
Injured Party
“Misrepresentation by a third person does not vitiate
- Entitled to rescind or annul the contract whether
consent, unless such misrepresentation has created
the failure to disclose the material facts is
substantial mistake and the same is mutual”
intentional or unintentional as long as there is a
duty to reveal them and the party is misled or
Third Person has No Connection with the Contract
deceived in entering into the contract
- Misrepresentation made by him does not vitiate
- Failure is unintentional. The basis of the action
consent
of annulment is not fraud but mistake or error
- Not be made to suffer for the imprudence of
(Art. 1343), even if intentional but there is no
another
duty to make the disclosure, the parties are still
- Both contracting parties are acting in bad faith
bound to their contract
- Misrepresentation has created substantial
mistake. Affects both parties, and the contract
- Ex. S sold to B stocks traded in the stock
may be annulled but principally on the ground of
exchange at a certain price. S believed that the
mistake
price of the stocks would go down and it did.
- Misrepresentation has been employed by a third
The sale is valid because S was not bound to
person. It is deemed to have been exercised by
make disclosure of his reasons for his belief
such party upon the other contracting party
- Force or intimidation employed by a third
Article 1340
person on one of the parties. Makes contract
“The usual exaggeration in trade, when the other party
voidable because consent is vitiated just the
had an opportunity to know the facts, are not in
same
themselves fraudulent”

Misrepresentation by Third Person

Dealer’s Talk/ Trader’s Talk/ Dolus Bogus
- Does not vitiate consent
- Tolerated fraud
a) When there is a connivance between the
- Misrepresentation of traders trying to minimize
third person and one of the contracting
the defects of the thing/service being advertised
parties
for sale
b) When it has created substantial mistake on
- Exaggerations or magnifications of its qualities,
both parties
establishment of qualities that the object does
- Ex. A is the owner of a car worth P500 000
not possess
which he sold it to B for P400 000 because C
 Does not give rise to actions for damages
misrepresented to A that his car is worth P400
- Stupidity of the victim is the real
000 only. A cannot annul the contract on the
cause of loss
14
 ground of misrepresentation committed by C,
unless it is shown that C connived with B in
misrepresenting the value of the car
Article 1343
“Misrepresentation made in good faith is not fraudulent
but may constitute error”
Misrepresentation is Not Intentional
- Made in good faith (the person making the false
statement believed it to be true)
- Considered a mere mistake or error
- Party guilty of fraud. Subject to greater liability
- Error in knowledge about the true boundaries of
parcel of land offered for sale
- Ex. S sold a ring to B. S honestly believed that
what he sold to B was a diamond ring. It turned
out that it was not a diamond ring. The
misrepresentation of B is a mere mistake and the
contract is voidable on that ground and not on
the ground of fraud.
Article 1344
“In order that fraud may make a contract voidable, it
should be serious and should not have been employed by
both contracting parties.
Incidental fraud only obliges the person employing it to
pay damages”
Two Kinds of (Civil) Fraud in Making the Contract:
 Dolo Causante (Causal Fraud)
- Fraud may make a contract voidable when
it is serious
- May give rise to an action for damages
- Fraud at the time of the execution of a
contract in order to secure consent,
remedy for annulment because of vitiation
of consent
- Not serious if an ordinary prudent person
made it
- Must not be in pari delicto, otherwise,
neither may ask for annulment
 Dolo Incidente (Incidental Fraud)
- Committed in the performance of pre-
existing obligation, remedy is damage
- Ex. G entered into a contract to deliver
500 bags of rice to R with a price per bad
of P1300, G delivered 300 bags but
withheld the delivery of the remaining,
stating that the price went up and priced
the rice to P1600 per bag. The fraud here
is dolo incidental because it is committed
to the existing contract
Requisites of Causal Fraud (In order for Causal Fraud
may vitiate consent)
1) Should be serious (depends on the
circumstances)
2) Should not have been employed by both parties
(not be in pari delicto)
3) Should not have known by the other contracting
parties
Fraud is employed by both parties
- Neither may ask for annulment as the fraud of
one neutralizes that of the other
- “he who comes to court, must come with clean
hands”
Article 1345
“Simulation of a contract may be absolute or relative.
The former takes place when the parties do not intend to
be bound at all; the latter, when the parties conceal
their true agreement.”
Article 1346
“An absolutely simulated or fictitious contract is void. A
relatively simulation, when it does not prejudice a third
person and is not intended for any purpose contrary to
law, morals, good customs, public order or public policy
binds the parties to their real agreement.”
Simulation of a Contract
- Act of deliberately deceiving others, by feigning
or pretending by agreement, the appearance of a
contract is either non-existent or concealed
Kinds of Simulation
 Absolute Simulation (Fictitious contracts )
- Contract does not really exist and the
parties do not intend to be bound at all
- Inexistent and void
- Takes place when the parties do not intend
to be bound at all with the contract
- Ex. In a sale of a car, it was made to
appear that the price was paid when it was
actually not. The sale being without any
consideration is fictitious
 Relative Simulation
- Contract entered into by the parties is
different from their true agreement
- Parties have an agreement which they
conceal under the guise of another
contract
- Parties are bound by their real
agreement as long as it does not
prejudice a third person
- Not intended for a purpose contrary to
law, morals, good customs, public order,
or public policy
15
 - Ex. A donor is donating a fish pond to a
done. However, instead of executing a
sale of donation, the donor executed a
deed of sale, concealing the donation
intended

Two Juridical Acts

1) Ostensible Act (apparent or fictitious)
- Contract that the parties pretend to be
executed

2) Hidden Act (real)

- True agreement between the parties

16