SAN CARLOS COLLEGE

Mabini St., San Carlos City, Pangasinan

First Semester S.Y. 2022-2023

THE LAW ON OBLIGATIONS AND CONTRACTS

(2014)

HECTOR S. DE LEON

HECTOR M. DE LEON, JR.

SUBMITTED FROM:

ANTHONY A. DE GZUAMN

SUBMITTED TO:

MR. ATTY HARRY L. CAGAMPAN

 TITLE II

CONTRACTS

(ART 1305-1422, CIVIL CODE.)

CHAPTER 1

GENERAL PROVISIONS

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.
(1254a)
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.
(1254a)
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.
(1254a)
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.
(1254a)
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.
(1254a
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.
(1254a
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.
(1254a
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. (1254A)
According in this ART, a breach of contract occurs when one party in this art. 1305 fails to carry
out their commitment. If this occurs, the damaged party or the other party has the right to file a
lawsuit against the other party, claim damages, and collect them. A contract is an agreement
between two parties whereby one of the parties commits to providing the other with a good or
service.

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. (1255A)

This article provides the limitations to which contracting parties may establish in the stipulations
of the contract.

1. Limitations by law- Stipulations in a contract must not be in violation of mandatory and

prohibitory laws, unless the law itself authorizes the validity of such acts. As a rule, an existing
law enters and into and forms part of a valid contract without the need for the parties expressly
making reference to it.

2. Limitations by Morals- Morals refer to norms of conduct universally accepted as rules not
based on law but on principles of morality. Morality in turn is based on man’s faculty of
knowing how to distinguish between what is right from what is wrong.

3. Limitations by Good Customs- Good customs refer to the generally accepted principles of

morality which have received some social and practical recognition in the community for a long
period of time. Thus, contracts which have immoral aims are contrary to good customs.

4. Limitations by Public Order- Public order refers to public safety of the people which includes
the maintenance of peace and order both in the entire country and in a particular community.

5. Limitations by Public Policy- Public policy is the express will of the State. A contract is
contrary to public policy if it has a tendency to injure the public, is against the public good, or
contravenes some established interest of society, or tends clearly to undermine the security of the
individual.

ARTICLE 1307. INNOMINATE CONTRACTS SHALL BE REGULATED BY THE

STIPULATIONS OF THE PARTIES, BY 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.
A contract that cannot be classified under any specific name is known as an "innominate
contract" in Roman and civil law. Nothing more than the parties' express agreement is provided
by the law in an innominate contract. If the other party willingly and spontaneously agrees to
serve gratuitously under an innominate contract, the serving party may be excluded from
payment for the services given.

ARTICLE 1308. THE CONTRACT MUST BIND BOTH CONTRACTING PARTIES;

ITS VALIDITY OR COMPLIANCE CANNOT BE LEFT TO THE WILL OF ONE OF
THEM. (1256A)

The binding effect of a contract on both parties is based on the principle that the obligations
arising from contract have the force of law between the contracting parties, and there must be
mutuality between them based essentially on their quality under which it is repugnant to have
one party bound by the contract while leaving the other free therefrom. Mutuality of contracts. It
is but natural and logical that the contract shall bind both contracting parties. This is the principle
of mutuality contract. It is based on the essential quality of the parties. It is incongruous to bind
one party and let free the other party from responsibility. Obligations arising from contract have
the force of law between the parties and should be complied with in good faith.

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.

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

 The determination of its performance may be left to a third party person. In such case the
obligation does not depend upon a potestative condition.

–Potestative condition is a contract is under complete control and power of only one of the
parties, where the other party does not have say in the matter

 The decision however shall bind the parties only after it has been known to both of them
 Sandra sold his parcel of land to Brenda. it was agreed that Carla, a real estate appraiser,
would be the one to determine the reasonable price of the land. Carla, then, fixed the
price after considering circumstances and factors affecting the value of the land.
 In this case Carla must make known his decision to Sandra and Brenda who would be
bound by the same
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.

If the decision is clearly unjust, it shall not be binding. In this situation, the courts will determine
what is just and reasonable. In accordance with Article 1310, the Court may only make decisions
based on justice and equality. Giving each person their due is what justice entails, but equity is
the procedure through which a court relaxes the legal penalties in light of humanitarian concerns.

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 OF A PERSON IS
NOT SUFFICIENT. THE CONTRACTING PARTIES MUST HAVE CLEARLY AND
DELIBERATELY CONFERRED A FAVOR UPON A THIRD PERSON. (1257A)

If a contract should contain a clause that benefits a third party, he may demand that it be carried
out so long as he informed the obligor of his acceptance prior to the contract's cancellation. A
person's interest or profit cannot be just incidental. The favor must have been given to a third
party intentionally by the contractual parties.

Except in situations when the rights and responsibilities arising from the contract are not
transferable due to their nature, a clause in the contract, or a legal requirement, contracts are only
binding between the parties, their assignee, and heirs. Beyond the value of the assets he acquired
from the deceased, the heir has no further liability.

It is a clause in a contract that expressly and knowingly grants favor to a third party, who has the
right to demand that it be fulfilled so long as he notifies the party obligated of his acceptance
prior to the contract's cancellation.

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.

Third parties who acquire the subject matter of contracts producing real rights are bound by
them, subject to the provisions of the mortgage law and the land registration regulations.
A real right is a person's interest or right over a particular property (such as ownership,
possession, or a mortgage) that cannot be directly enforced against a specific passive subject.

According to article 1312, third parties who come into possession of the contract's object are
bound by it, subject to the provisions of the Mortgage Law and the Land Registration
regulations.

ARTICLE 1313. CREDITORS ARE PROTECTED IN CASES OF CONTRACTS

INTENDED TO DEFRAUD THEM

Discussion

The relativity principle, which applies to contracts that are only binding between parties, their
assigns, and heirs, makes an exemption for this action article.

A creditor may seek the cancellation of the aforementioned contracts if a debtor intentionally
transfers property without leaving enough for them and does so with the intent to mislead them.
Accion pauliana is another name for this contract cancellation process.

According to the Revised Penal Code, fraudulent insolvency is a serious felony that must include
the following elements:

That the criminal owes debts that are due and payable, or that he is a debtor;

That he flees with his possessions;

That his creditors would suffer harm.

If the criminal is a business owner, fraudulent insolvency is penalized by prision mayor and
prision

ARTICLE 1314. ANY THIRD PERSON WHO INDUCES ANOTHER TO VIOLATE HIS
CONTRACT SHALL BE LIABLE FOR DAMAGES TO THE OTHER CONTRACTING
PARTY.

Discussion:

Interference with Contractual Relations- This article is known in the law of torts as interference
with contractual relations. The liability incurred by the intermeddler cannot be more than the
liability incurred by the party in whose behalf he intermeddled. Otherwise, it will result to
injustice.
Elements (in torts):

1. Existence of a valid contract

2. Knowledge on the part of the third person of the existence of the contract
3. Interference of the third person without legal justification or excuse (the third person
acted with malice, or was driven by purely impious reasons)

Nature:

1. The liability of the intermeddler and the person for whom he intermeddled is solidary.
This is because the act is a quasi-delict and in quasi-delict, the responsibility is solidary.
2. Malice is essential to make the intermeddler liable.

Requisites (in interference in contractual relations)

1. There must be an existing valid contract between two or more persons

2. The third person is aware of the existence of the contract
3. The third person interferes by inducing a party to violate the contract and the contract
thus was violated
4. The interference is without legal justification or valid excuse

ARTICLE 1315. 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 IN
KEEPING WITH GOOD FAITH, USAGE, AND LAW. (1258)

The codification of Philippine private law produced the Civil Code of the Philippines. The
general law in the Philippines is what regulates family and property relationships. The single act
of assent is all that is necessary for a contract to be complete, and once it is, the parties are then
responsible for all consequences that may follow that are consistent with good faith, custom, and
the law as well as the specific terms of the agreement.

ARTICLE 1316. REAL CONTRACTS, SUCH AS DEPOSIT, PLEDGE AND

COMMODATUM, ARE NOT PERFECTED UNTIL THE DELIVERY OF THE OBJECT
OF THE OBLIGATION. (N)

Authentic contracts are flawless. The article makes reference to actual contracts that, in addition
to the presence of the other necessary components of a contract: consent subject matter and cause
of consideration, require delivery of the object for their legality.

Real contracts include loans, mutuums, and carriage contracts.

A loan contract is a real contract that only becomes finalized upon the delivery of the contract's
object rather than a consensual one.

the rationale behind real contracts requiring delivery. Real contracts need the delivery of the
object since without it, the other party cannot fulfill his contractual obligations.

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
RATIFIED, EXPRESSLY OR IMPLIEDLY, BY THE PERSON ON WHOSE BEHALF
IT HAS BEEN EXECUTED, BEFORE IT IS REVOKED BY THE OTHER
CONTRACTING PARTY. (1259A)

Nobody may enter into a contract on another person's behalf unless they have that person's
consent or a legal right to do so. Without the express or implied approval of the party on whose
behalf the contract was executed and before it is revoked by the other contracting party, a
contract entered into in the name of another by a person acting without authority or legal
representation, or acting outside of his or her powers, shall not be enforceable.

CHAPTER 2

ESSENTIAL REQUISITES OF CONTRACTS

GENERAL PROVISIONS

ARTICLE 1318. THERE IS NO CONTRACT UNLESS THE FOLLOWING REQUISITES CONCUR:

1.) CONSENT OF THE CONTRACTING PARTIES- MEETING OF THE MINDS OF

THE TWO PARTIES;

2) OBJECT CERTAIN WHICH IS THE SUBJECT MATTER OF THE CONTRACT-

MUST BE DEFINITE AND CERTAIN (EX. LAND, OR HOUSE ETC);
3) CAUSE OF THE OBLIGATION WHICH IS ESTABLISHED- COMPELLING
REASON IN THE PERFORMANCE OF THE CONTRACT OR WHY A PARTY
ASSUMES AN OBLIGATION. (1262A)

If the following conditions are not met, there is no contract. Consent of the contracting parties is
defined as a convergence of the minds of the two parties; the object specific, or what is the
subject matter of the contract, must be precise and certain; and the cause of the obligation, or
what justifies the assumption of the obligation, is established.

ARTICLE 1319. CONSENT IS MANIFESTED BY THE MEETING OF THE OFFER

AND THE ACCEPTANCE UPON THE THING AND THE CAUSE WHICH ARE TO
CONSTITUTE THE CONTRACT. THE OFFER MUST BE CERTAIN AND THE
ACCEPTANCE ABSOLUTE. A 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. (1262A)

In contracts, consent refers to an individual's freely given and voluntary declaration of adherence
to the conditions of the contract. The contract is created when the parties' opinions on the cause
and subject matter, as well as the other clauses and conditions to which they freely commit
themselves, are in agreement. The expression of consent is optional.

When an offer is accepted, it binds the offeror only as of the moment the offer or learns of the
acceptance. According to law, the site where the offer was made the beginning of the contract's
conception is where the contract was finalized.

ARTICLE 1320, AN ACCEPTANCE MAY BE EXPRESS OR IMPLIED.

Similar to this, full compliance with a contest's regulations is participation, which implies
acceptance of the offer. The Supreme Court has thus stated that "due to the fact that the bank
started, and advertised the contest offering prizes, under certain conditions, and the plaintiff
prepared, by labor and expense, and participated in said contest, the bank is bound to comply
with its promise made in the rules and conditions prepared and advertised by it.

ARTICLE 1321. THE PERSON MAKING THE OFFER MAY FIX THE TIME, PLACE,
AND MANNER OF ACCEPTANCE, ALL OF WHICH MUST BE COMPLIED WITH.
(N)

The offeror must be informed of the acceptance before the end of the predetermined period. If
the acceptance was made outside of the designated window, it is no longer valid.

Regarding how the offer is accepted, the offeror may specify that it must be done in writing,
orally, or through a representative.
The offer is void and cannot be accepted by the original offeror if the acceptance was not made
in the manner specified by the offer or.

ARTICLE 1322. AN OFFER MADE THROUGH AN AGENT IS ACCEPTED FROM

THE TIME ACCEPTANCE IS COMMUNICATED TO HIM.

According to this article, when an offeror selects a third party as his agent to represent him, the
agent's offer is deemed accepted by the offeree not from the knowledge of the offeror's
acceptance but from the moment the agent has received the message of acceptance. Thus, the
point of agreement is made. The offeror must give the agent consent before acting. An attorney-
in-fact who has been given power of attorney is an illustration of an agent. The offer is not
legally binding on the offeror if the intermediary is not approved. An authorized agent may also
be used by the offeree.

ARTICLE 1323. AN OFFER BECOMES INEFFECTIVE UPON THE DEATH, CIVIL

INTERDICTION, INSANITY, OR INSOLVENCY OF EITHER PARTY BEFORE
ACCEPTANCE IS CONVEYED.

Even if the offer is not withdrawn, according to Article 1323, the conveyance of the acceptance
to the offeror will not result in a meeting of the minds if the offer has already lost its validity due
to the death, civil interdiction, insanity, or insolvency of either party prior to the conveyance of
the acceptance.

ARTICLE 1324. 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. (N)

The parties may later enter into the principal contract if they successfully complete their main
agreement, but the option contract or contract of option is independent from and distinct from
that. In the event that the parties ultimately complete their currently negotiated transaction, this
contract will serve as a preamble to the main agreement. Because the offeror may or may not
employ the privilege granted to him, the matter is said to be still under negotiation.

ARTICLE 1325. UNLESS IT APPEARS OTHERWISE, BUSINESS ADVERTISEMENTS

OF THINGS FOR SALE ARE NOT DEFINITE OFFERS, BUT MERE INVITATIONS
TO MAKE AN OFFER. (N)

A firm offer may or may not be implied by commercial advertisements for goods for sale.
Depending on the situation, the question The sale of the item being advertised is explicitly
offered if the advertisement contains all the information required in a contract.

It is obvious that the adverts are merely requests for offers. If offers are made, the advertiser may
or may not accept them since they are merely invites.
The advertiser cannot retract the offer once it has been accepted if the advertisement appears to
be a firm offer to sell. The advertisement is not a firm offer and is merely an invitation to submit
an offer if it omits key information for the future contract.

ARTICLE 1326 – ADVERTISEMENT OF BIDDING. ADVERTISEMENTS FOR

BIDDERS ARE SIMPLY INVITATIONS TO MAKE PROPOSALS, AND THE
ADVERTISER IS NOT BOUND TO ACCEPT THE HIGHEST OR LOWEST BIDDER,
UNLESS THE CONTRARY APPEARS. (N)

It can be inferred from an advertisement that the best bid—highest or lowest—spurs a legally
enforceable agreement. Each bid in this situation signifies the completion of the contract,
provided a better bid is submitted. The advertiser is free to reject the bid if this requirement is not
expressly stated and each bid is only an offer. Where it was stated in a notice calling for a public
auction that the party selling the property reserved the right to refuse any form of bid. The rules
of the auction must be agreed to by all parties participating in the bid, and if a bid is rejected, the
party that asked for bids is not required to accept it or execute a deed of sale.

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. (1263A)

The contracts that the legally defined incapacitated individuals entered into are valid. Only if just
one person is unable to assent are they voidable. However, the resulting agreement is void if both
parties are unable to assent. The minor is not bound by his signature when he voluntarily enters
into a contract. However, if the contract is silent regarding the child's age, the fraud is only
constructive and not actual. Only passive misrepresentation is what he did.

The minor becomes bound by the contract when he ratifies it at the age of majority. If the
contract is in the form of a savings account at the Postal Savings Bank, it is still enforceable as
long as the minor is at least 7 years old. when the contract includes insurance for the minor's life,
health, and accident.

ARTICLE 1328. CONTRACTS ENTERED INTO DURING LUCID INTERVAL ARE

VALID. CONTRACTS AGREED TO IN A STATE OF DRUNKENNESS OR DURING A
HYPNOTIC SPELL ARE VOIDABLE.

Some Voidable Contracts by Reason of Incapacity. Insane or demented persons (unless they
acted during lucid interval);

Those in the state of drunkenness (which temporarily results in complete loss of understanding,
and may therefore be equivalent to temporary insanity).
Those entered into during a hypnotic spell (induced by drugs, or by deliberate or unintentional
hypnotism) or while a person walks during his sleep, somnambulism, for in these cases, a person
is incapable of intelligent consent.

ARTICLE 1329. The incapacity declared in Article 1327 is subject to the modifications
determined by law, and is understood to be without prejudice to special disqualifications
established in the laws. (1264)

A group of people who, because to old age, illness, mental incapacity, or other similar reasons,
are unable to care for themselves and manage their property without outside assistance and are
therefore more vulnerable to fraud and exploitation.

Article 1330. A contract where consent is given through mistake, violence, intimidation,
undue influence, or fraud is voidable.

Vitiated consent, in the old civil code, makes the contract void. In the new civil code, it merely
renders the contract voidable. The reason for the void ability is because consent must be
intelligent, free and spontaneous. Intelligent consent is vitiated by mistake or error, freedom by
intimidation, violence and undue influence and spontaneity by fraud. Proof to needed to sustain
annulment- To annul the contract on the ground of vitiated consent, there must be full, clear and
convincing evidence and not merely a preponderance of evidence.

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 quality 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 the correction.

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. (n)

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

Article 1334. Mutual error as to the legal effect of an agreement when the real purpose of
the parties is frustrated, may vitiate consent.

Article 1335. There is violence when in order to wrest consent, serious or irresistible force is
employed.
There is intimidation when one of the contracting parties is compelled by a reasonable and well-
grounded fear of an imminent and grave evil upon his person or property, or upon the person or
property of his spouse, descendants or ascendants, to give his consent.

To determine the degree of intimidation, the age, sex and condition of the person shall be borne
in mind.

A threat to enforce one’s claim through competent authority, if the claim is just or legal, does not
vitiate consent. (1267a)

Art 1336. VIOLENCE OR INTIMIDATION SHALL ANNUL THE OBLIGATION ,

ALTHOUGH IT MAY HAVE BEEN EMPLOYED BY A THIRD PERSON WHO DID
NOT TAKE PART OF THE CONTRACT

Article 1337. Article 1337

There is undue influence when a person takes improper advantage of his power over the will of
another, depriving the latter of a reasonable freedom of choice. The following circumstances
shall be considered: the confidential, family, spiritual and other relations between the parties, or
the fact that the person alleged to have been unduly influenced was suffering from mental
weakness, or was ignorant or in financial distress.

Article 1338. There is fraud when, through insidious words or machination of one of the
contracting parties, the other is induced to enter into a contract which, without them, he
would not have agreed to.

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

A neglect or failure to communicate or disclose that which a party to a contract knows and ought
to communicate constitutes concealment. Concealment is equivalent to misinterpretation or false
Injured party may rescind or annul the contract whether the disclosure of facts is intentional or
unintentional as long as it is a duty to reveal them and it is misleading or decieving to a party
entering into the contract.

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

Assertions concerning the property which is the subject of a contract of sale, or in regard to its
qualities and characteristics, are the usual and ordinary means used by defendant to obtain a high
price and are always understood as affording to buyers no ground for omitting to make inquiries.
A man who relies upon such an affirmation made by a person whose interest might so readily
prompt him to exaggerate the value of his property does so at his peril, and must take the
consequences of his own imprudence.
It is the natural tendency for merchants and traders to resort to exaggerations in their attempt to
make a sale at the highest price possible. When the person dealing with them had the opportunity
to know the facts, the usual exaggerations in trade are not in themselves fraudulent. As long as
they do not go to the extent of malice of bad faith, such as changing the appearance of the thing
by false devices, and preventing all the discovery of the truth by the other party. Customers are
expected to know how to take care of their concerns and to rely on their own independent
judgment.

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

An opinion of an expert is like a statement of fact, and if false, may be considered as a fraud
giving rise to annulment. When the expert, however was employed by the party who was misled,
he cannot ask for annulment, because he is chargeable with the acts and declaration of his
employees.

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

Article 1343. Misrepresentation made in good faith is not fraudulent but may constitute
error. (n).

The the principe remains the same even the dureness is employed by a third person who did not
take part in the contract in the contract making the contract voidable.

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.

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. (n)

Absolute simulation (simulados) – In a sale of a car, it was made to appear that the price was
paid when actually it was not.  The sale being without any consideration is fictitious.

Relative simulation (dissimulados) – A donor is donating a fish pond to a donee.  However,

instead of executing a sale of donation, the donor executed a deed of sale, concealing the
donation intended.

Article 1346. An absolutely simulated or fictitious contract is void. A relative 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.

Concept of simulation- Simulation of a contract is the deliberate act of making a fictitious

agreement by the parties for the purposes of deception, when in fact the juridical act that appears
on the contract does not really exist or is different from what is actually agreed upon. Simulation
takes place when the parties do not really want the contract they have executed to produce the
legal effects expressed by its wordings.

Article 1347. All things which are not outside the commerce of men, including future things,
may be the object of a contract. All rights which are not in transmissible may also be the
object of contracts. No contract may be entered into upon future inheritance except in cases
expressly authorized by [Link] services which are not contrary to law, morals, good
customs, public order or public policy may likewise be the object of a contract.

In case of marriage settlements, future inheritance may be the object of donation.

In case of partition of property inter vivos made by the deceased himself as long as no legitimate
is impaired.

ARTICLE 1348. Impossible things or services cannot be the object of contracts. (1272)

Liability for Damages. If the thing or service is impossible, there is no contract. Can there be any
claim for damages against the debtor if the creditor incurred actual damages? The answer is, it
depends. If both parties are fully aware of the impossibility of the thing or service, there is no
liability for damages because both the debtor and creditor are considered in bad faith. If the
debtor knew of the impossibility or could have known it by exercising ordinary diligence, he is
liable for damages because he is in bad faith or is negligent. But if the debtor is ignorant of the
impossibility, and his ignorance is justifiable or unavoidable, he cannot be held liable for the
damages suffered by the creditor.

Yes. One may not obligate himself to do something which, when accomplished, will be prove to
be dangerous to life and property. It is contrary to law and public policy to force the performance
of a contract that is undesirable and harmful.

Article 1349. The object of every contract must be determinate as to its kind. The fact that
the quantity is not determinate shall not be an obstacle to the existence of the contract,
provided it is possible to determine the same, without the need of a new contract between
the parties. (1273)

Article 1350 In onerous contracts the cause is understood to be, for each contracting party
the prestation or promise of a thing or service by the other; in remuneratory ones, the
service or benefit which remunerated; and in contracts of pure beneficence, the mere
liberality of the benefactor.
Article 1351. The particular motives of the parties in entering into a contract are different
from the cause thereof. (n)

The cause of a contract is the objective and juridical reason for the establishment of a contract
and is always the same. while motive is the psychological or personal purpose of a party in
getting the object and differs with each person.  Each party may have his own personal reasons
or motives in entering into a contract.  Motive or even with illegal motives does not affect the
validity of the contract.

Art. 1352 Contracts without cause, or with unlawful cause, produce no effect whatever.
The cause is unlawful if it is contrary to law, morals, good customs, public order or public
policy. (1275a)

The  presumption  that  a  negotiable  instrument  was  issued  for  valuable consideration is a rebuttable
presumption.  It can be rebutted by proof to the contrary. Furthermore,  the  note  was  void  ab  initio 
because  the  consideration  given was  to  influence  the  administrator  to  delay  charges  against 
Pineda.    The consideration was void for being against law and public policy.

Article 1353. The statement of a false cause in contracts shall render them void, if it should
not be proved that they were founded upon another cause which is true and lawful. (1276)

Void contracts cannot be ratified, but based on Article 1353, as long as it can be proven that
another cause that is true and lawful supports it, then the contract will still have a valid cause to
sustain it.

Article 1353 can also be applied to absolutely simulated contracts that are considered as void
contracts.  Again, even if the contract is already void, if it can be established that there is another
cause for it which is valid, then the contract is valid.

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

 In the event that the contract does not state its cause, it must be presumed that the cause exists
and is lawful. This presumption, though, is rebuttable. If the debtor can prove otherwise, the
existence of the cause, or its legality can be questioned.  applies to contracts which must be
evidenced by writing under the Statute of Frauds. Burden of proof- The person who has the
burden of establishing that there was no consideration is the debtor.

Article 1355. Except in cases specified by law, lesion or inadequacy of cause shall not
invalidate a contract, unless there has been fraud, mistake or undue influence.

The effect of lesion or inadequacy of cause when it resulted from fraud, mistake or undue
influence is that the lesion became a good ground for rescission of the contract.
 CHAPTER 3

FORM OF CONTRACTS

Article 1356. Contracts shall be obligatory, in whatever form they may have been entered
into, provided all the essential requisites for their validity are present. However, when the
law requires that a contract be in some form in order that it may be valid or enforceable,
or that a contract be proved in a certain way, that requirement is absolute and
indispensable. In such cases, the right of the parties stated in the following article cannot be
exercised. (1278a)

As long as all of the conditions necessary for a contract's legality are met, the contract is binding
regardless of its form. However, when the law stipulates that a contract must take a specific form
in order to be valid or enforceable or that it must be proven in a specific manner, such condition
is unavoidable and essential. The parties' right to exercise it as described in the next article
cannot be used in such circumstances.

Article 1357. If the law requires a document or other special form, as in the acts and
contracts enumerated in the following article, the contracting parties may compel each
other to observe that form, once the contract has been perfected. This right may be
exercised simultaneously with the action upon the contract. (1279a)

When form is required by law for its convenience only and the contract is in not that
form, contracting parties may compel each other to observe that form, once the contract required
by the law but if not not essential for validity .of the contract then this art. cannot be made.
Illustration: Almarion sold leviste a house and lot but the contract appears in a private writing.
under the law, when sale refers real property like house and lot, almario cannot compel leviste to
execute a deed of sale in public documents.

ARTICLE 1358. Art. 1358. The following must appear in a public document:

(1) Acts and contracts which have for their object the creation, transmission, modification
or extinguishment of real rights over immovable property; sales of real property or of an
interest therein a governed by Articles 1403, No. 2, and 1405;

(2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal
partnership of gains;

(3) The power to administer property, or any other power which has for its object an act
appearing or which should appear in a public document, or should prejudice a third
person;

(4) The cession of actions or rights proceeding from an act appearing in a public document.

All other contracts where the amount involved exceeds five hundred pesos must appear in
writing, even a private one. But sales of goods, chattels or things in action are governed by
Articles, 1403, No. 2 and 1405. (1280a)

The effect of the notarization of a private document is to convert the said document into a public

one and renders it admissible in evidence in court without further proof of its authenticity and
due execution.

They enjoy the presumption of validity and regularity. It is not, however, the intention nor the

function of the notary public to validate and make binding an instrument never, in the first place,
intended to have any binding legal effect upon the parties thereto. The presumption is not
absolute and, as stated above, may be rebutted by clear and convincing, not merely preponderant,
evidence to the contrary. Furthermore, notarization per se is not a guarantee of the validity of the
contents of a document.

Public documents are entitled to full faith and credit on their face in the absence of any clear and

convincing evidence, more than merely preponderant, that their execution was tainted by defects
or irregularities that would warrant a declaration of nullity. One, who denies the due execution of
a deed where one’s signature appears, has the burden of proving that, contrary to the recital in
the jurist, one never appeared before the notary public and acknowledged the deed to be a
voluntary act.
 CHAPTER 4

REFORMATION OF INSTRUMENTS (N)

Article 1359. When, there having been a meeting of the minds of the parties to a contract, their true
intention is not expressed in the instrument purporting to embody the agreement, by reason of
mistake, fraud, inequitable conduct or accident, one of the parties may ask for the reformation of the
instrument to the end that such true intention may be expressed.

If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of
the parties the proper remedy is not reformation of the instrument but annulment of the
contract. (n)

It would be unjust and inequitable to allow the enforcement of a written instrument which does
not reflect or disclose the real meeting of the minds of the parties. The rigor of the legalistic rule
that a written instrument should be the final and inflexible criterion and measure of the rights and
obligations of the contracting parties is thus tempered, to forestall the effects of of mistake,
fraud, inequitable conduct, or accident. The court which orders the reformation of the instrument
does not make a new contract for the participating parties in the document but merely orders that
the instrument express their true agreement.

Art 1360. The principles of general law on the reformation of instrument are hereby
adopted insofar as they are not in conflict with the provisions of the Code.
There must have been a meeting of minds upon the contract. Instrument or document evidencing
the contract does not express the true agreement between the parties .Failure of the instrument to
express the agreement must be due to mistake, fraud, inequitable conduct, or accident.

Article 1361. When a mutual mistake of the parties causes the failure of the instrument to
disclose their real agreement, said instrument may be reformed. (n)

Article 1361 applies to contracts whose parties have committed a mutual mistake, the same
mistake which caused the failure of the instrument to express their true agreement.  Thus, the
proof to establish the mutual mistake must be clear and convincing, and not just a mere
preponderance of evidence.  Also, the mistake must be a mistake of fact and not a mistake of
law, because everybody is supposed to know the law and ignorance of the law excuses no one.
Subsequently, reformation will not be granted, unless the proof of mutual mistake is clear and
strong.

Article 1362. If one party was mistaken and the other acted fraudulently or inequitably in
such a way that the instrument does not show their true intention, the former may ask for
the reformation of the [Link] is said that a written instrument maybe reformed
where the mistake is unilateral and the other acted fraudulently or inequitably.

Article 1363. When one party was mistaken and the other knew or believed that the
instrument did not state their real agreement, but concealed that fact from the former, the
instrument may be reformed.

On this article if the party is guilty of concealment and attended with bad faith therefore
reformation is authorized to avoid injustice and inequity while if the second party is not aware of
the imperfection and acted in good faith as the first party therefore the mistake becomes mutual
and reformation is authorized.

Article 1364. When through the ignorance, lack of skill, negligence or bad faith on the part of the
person drafting the instrument or of the clerk or typist, the instrument does not express the true
intention of the parties, the courts may order that the instrument be reformed.

Article 1365. If two parties agree upon the mortgage or pledge of real or personal property, but the
instrument states that the property is sold absolutely or with a right of repurchase, reformation of
the instrument is proper.

May be inferred from their simultaneous or subsequent acts as well as from their stipulations in
the contract; The CA considered the word “debt” used in the agreement as an indicator of the
true intention of the parties. This term implies the existence of a debtor-creditor relationship
between the parties which is not in accord with a purchase and sale transaction.

ARTICLE 1366. There shall be no reformation in the following cases:

(1) Simple donations inter vivo wherein no condition is imposed;

(2) Wills;

(3) When the real agreement is void.

Both donations and wills are essentially acts of pure liberality. Reformation is not required
unless there is an imperfect or erroneous descriptions of persons or property ensuring that the
manner of property disposal remains. Reformation is not allowed in case the real agreement is
void because such a procedure would be useless. Once reformation is made, the new instrument
would be void precisely because the true agreement and intention are void.

Article 1367. When one of the parties has brought as action to enforce the instrument, he
cannot subsequently ask for its reformation.

Anna who is need of money negotiated a contract of chattel mortgage with Ben using Anna’s Car
for security. Through machination perpetrated by Ben, Anna signed a document of sale believing
that it was a chattel mortgage. Later Ben filed a case against Anna for delivery of the car based
on the deed of sale.  The action failed. Ben can no longer seek the reformation of the instrument
to consider it a chattel mortgage.  He is estopped for the law has deemed him to have waived the
action for reformation.

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

Reformation is the remedy allowed by law by means of a written instrument is amended or

rectified so as to express or conform to the real agreement or intention of the parties when by
reason of mistake, fraud, inequitable conduct, or accident, the instrument fails to express such
agreement or intention

Article 1369. The procedure for the reformation of instruments shall be governed by rules
of court to be promulgated by the Supreme Court.
An action for the reformation of instruments happens to “quiet title to real property or remove
clouds therefrom.”  This action for reformation of instruments falls under the jurisdiction of the
Regional Trial Court.

CHAPTER- 5

INTERPRETATION OF CONTRACTS

Article 1370. If the terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall control.

If the words appear to be contrary to the evident intention of the parties, the latter shall
prevail over the former.

It is a cardinal rule in the interpretation of contracts that if the terms of a contract are clear and leave no
doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall control. The
Court must not read into any other intention of the contracting parties contradictory to the plain meaning.

The terms of an agreement or writing are presumed to have been used in their primary and
general acceptation. However, evidence may be admitted to show that they are used in a local,
technical or otherwise peculiar signification.

Article 1371. In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered.
When we say contemporaneous this will occur in the same period of time and the Subsequent
Acts is the one which following in time or order of the acts of the contracting parties.

Article 1372. However general the terms of a contract may be, they shall not be understood
to comprehend things that are distinct and cases that are different from those upon which
the parties intended to agree. (1283)

Can the general terms used in a contract can comprehend things that are distinct and different
from those agreed upon by the parties No, no matter how general the terms used in a contract,
they do not comprehend things that are distinct and different from those agreed upon by the
parties. Illustrative case: Carrot man built s house on a lot containing an area of 350 sqm.
Cabbage man protested to the construction alleging that their agreement was that Carrot man
could occupy only that space where the house was constructed. This interpretation is erroneous
because if that was the intention they could have used the words “portion” or “part” and not the
word “lot”.

Article 1373. If some stipulation of any contract should admit of several meanings, it shall
be understood as bearing that import which is most adequate to render it effectual. (1284)

Whether or not the plaintiff is bound to do all of the annual assessment work upon the mining
claims mentioned in the contract necessary to secure patents therefor, The administrator should
have renounced all interest in the property at the time demand was made upon him to contribute
his share of the assessment work in order to have escaped the absolute obligation imposed upon
him by the terms of the contract and the law to reimburse the plaintiff for the estate’s share of the
expense incurred for the joint.

Article 1374. The various stipulations of a contract shall be interpreted together,

attributing to the doubtful ones that sense which may result from all of them taken jointly.

A contract must be interpreted as a whole and the intention of the parties is to be gathered from
the entire instrument and not from particular words, phrases, or clauses. All provisions should, if
possible, be so interpreted as to harmonize with each other. 

The mortgage contract should be read in its entirely. If so read, it is at once seen that while the
making of the 2nd mortgage except with the written consent of the mortgage is prohibited , the
contract continues and states the penalty for such violation namely, it gives to the mortgage the
right immediately foreclose mortgage. It does not give the mortgages the right to treat the second
mortgage as null and void.

Article 1375. Words which may have different significations shall be understood in that
which is most inkeeping with the nature and object of the contract. (1286)
If a word is susceptible to two or more meanings shall be understood to follow the eaning which
is most in keeping with the nature and object of the agreement.

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

If a contract for a lease of services does not state how much compensation should be given, the
custom of the place where the services were rendered should determine the amount.

Article 1377. The interpretation of obscure words or stipulations in a contract shall not
favor the party who caused the obscurity. (1288)

It is fair, logical and sensible not to favor that one who caused the ambiguity in the contract
because he should not benefit from it.  Therefore, drafters of contract must be very careful and
cautious in the choice of words or term they are going to use.  The terms should be clear and
should leave no room for doubt regarding the true intention of the parties.

The same article applies to contracts of adhesion where the terms are prepared by only one party
while the other merely makes a choice whether he wants to take it or leave it.  Contracts of
adhesion become void when the weaker party is reduced to the alternative of taking ir or leaving
it, and is absolutely deprived of the opportunity to bargain on equal footing.

Article 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 rights 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.

When it is utterly impossible to resolve concerns using the criteria outlined in the paragraphs that
came before them and the uncertainties concern incidental conditions of a gratuitous contract, the
least transmission of rights and interests shall take precedence. If a contract is burdensome, any
disagreements must be resolved in favor of the parties with the highest degree of reciprocity.

The contract is void if the primary purpose of the agreement is in question to the point where it is
impossible to determine the parties' intentions or desires.
Article 1379. The principles of interpretation stated in Rule 123 of the Rules of Court shall
likewise be observed in the construction of contracts.

Contract construction must also adhere to the rules of interpretation outlined in Rule of the Rules
of Court.

CHAPTER 6

RESCISSIBLE CONTRACTS

Article 1380. Contracts validly agreed upon may be rescinded in the cases established by
law. (1290)

A rescissible contract is one which contains all the essential requisites of a contract which make
it valid, but by reasons of injury or damage to either of the contracting parties or to third person,
such as creditors, may be rescinded.

Article 1381.  The following contracts are rescissible:

(1) Those which are entered into by guardians whenever the wards whom they represent
suffer lesion by more than one-fourth of the value of the things which are the object
thereof;

(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in
the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any other manner
collect the claims due them;

(4) Those which refer to things under litigation if they have been entered into by the
defendant without the knowledge and approval of the litigants or of competent judicial
authority;

(5) All other contracts specially declared by law to be subject to rescission. (1291a)

guardians engage into these agreements whenever the wards they represent suffer losses of more
than one-fourth of the value of the items covered under the agreements those chosen to speak for
absentees if they sustain the injury indicated by the preceding number; when creditors cannot
otherwise recover the claims owed to them, they engage in fraud against them; those that make
reference to matters in dispute if they were entered into by the defendant without the parties'
consent or the knowledge of an appropriate judicial authority;All other agreements that have
been specifically deemed voidable by law.

Article 1382. Payments made in a state of insolvency for obligations to whose fulfillment
the debtor could not be compelled at the time they were effected, are also rescissible. (1292)
Rescission under Article 1191 is a result of what people usually call as breach of contract. In
reciprocal contracts, parties have mutual obligations and the obligation by either party to do, not
to do or to give something is actually the cause for the other party to agree to also do, not do or
give something in return. So when one does not perform his obligations under his contract, the
other party has remedies under the law. Under the said Article 1191, the injured party can choose
between fulfillment and rescission, with payment of damages in either case. This means that the
injured party can either compel the guilty party to perform his part of the contract and claim for
damages as a result of the breach, or it can rescind the contract and also claim for damages.

Article 1383. The action for rescission is subsidiary; it cannot be instituted except when the
party suffering damage has no other legal means to obtain reparation for the same. (1294)

An action to rescind a resistible is just subsidiary, which means; it cannot be instituted except
when the party suffering damages has no other legal means to obtain reparation for damages
suffered. Therefore it is necessary for the plaintiff to have exhausted all other legal means to
obtain reparation. Otherwise, action will not prosper.

A Four – year period to rescind a fraudulent contract must be counted from the time the action
accrues and not from the date of registration of the conveyance for that would run  counter.

However, the heirs of a debtor who alienated properties in fraud of creditors cannot represent the
debtor to institute the action.
If a deceased person alienated his property during his lifetime for the purpose of depriving or
diminishing the legitimates of his cumpolsory heirs, the latter may rescind the contracts made for
that illegal purpose.

Article 1384. Rescission shall be only to the extent necessary to cover the damages caused.

Partial Rescission -This is a new provision of the New Civil Code, making possible partial
rescission, since after all, the only purpose of rescission is to repair or cover the damages caused.
Complete rescission will not therefore be allowed, if it is not justified by the circumstances of the
case. Insofar as it is not rescinded, the alienation is valid.

Person Benefited -Only the creditor who has asked for rescission, not the other creditors, benefits
from the rescission.

Article 1385. Rescission creates the obligation to return the things which were the object of the
contract, together with their fruits, and the price with its interest; consequently, it can be carried out
only when he who demands rescission can return whatever he may be obliged to restore. Neither
shall rescission take place when the things which are the object of the contract are legally in
the possession of third persons who did not act in bad faith.
In this case, indemnity for damages may be demanded from the person causing the loss.
(1295)

This article provides for mutual restitution where there is delivery on both sides and both parties
must return what they had received from each other.  It is not applicable in cases where the
creditor rescinds the contract executed by his debtor in favor of other persons, because the
creditor will not have anything to restore in the first place since he did not receive anything from
the debtor.

However, rescission will not prosper when the thing had already been legally transferred to a
third person, such as by way of sale, and he is in good faith that the transfer to him will be
respected.  On the other hand, the thing can be recovered from the third person if he had acted in
bad faith, along with the imposition of damages for the injury suffered by the complaining party.

ARTICLE 1386. Rescission referred to in Nos. 1 and 2 of Article 1381 shall not take place
with respect to contracts approved by the courts. (1296a)

An absentee is a person who disappears from his domicile his whereabouts being unknown, and
without leaving an agent to administer his property. Likewise, the absentee must suffer lesion by
more than one fourth of the value of the property object of the contract to entitle him to the
remedy of rescission. Paragraph one and two of Art. 1381 refer only to transactions by guardians
and absentees representatives.
Article 1387. All contracts by virtue of which the debtor alienates property by gratuitous title are
presumed to have been entered into in fraud of creditors, when the donor did not reserve sufficient
property to pay all debts contracted before the donation.

Alienation by onerous title are also presumed fraudulent when made by persons against
whom some judgment has been rendered in any instance or some writ of attachment has
been issued. The decision or attachment need not refer to the property alienated and need
not have been obtained by the party seeking the rescission.

In addition to these presumptions, the design to defraud creditors may be proved in any
other manner recognized by the law of evidence.

All contracts by virtue of which the debtor alienates property by gratuitous title are presumed to
have been entered into in fraud of creditors, when the donor did not reserve sufficient property to
pay all debts contracted before the donation.

Alienation by onerous title are also presumed fraudulent when made by persons against whom
some judgment has been rendered in any instance or some writ of attachment has been issued.
The decision or attachment need not refer to the property alienated and need not have been
obtained by the party seeking the rescission.

In addition to these presumptions, the design to defraud creditors may be proved in any other
manner recognized by the law of evidence.

Article 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. (1298a)

 the liability of a person who being aware of the intention of the debtor to defraud his creditors,
still insisted on acquiring or purchasing the debtor’s property The person will be liable to return
the property to the particular creditor/s who had successfully instituted the complaint for
rescission.

Article 1389. The action to claim rescission must be commenced within four years.
For persons under guardianship and for absentees, the period of four years shall not begin
until the termination of the former’s incapacity, or until the domicile of the latter is known.
(1299)
Subject to revocation. The revocation action must be filed within four years. The four-year
period does not start for guardianship recipients or absentees until the former's incapacity is lifted
or until the latter's residence is established.

CHAPTER 7

VOIDABLE CONTRACTS

Article 1390. The following contracts are voidable or annullable, even though there may have been
no damage to the contracting parties: (1) Those where one of the parties is incapable of giving
consent to a contract;
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence
or fraud.

These contracts are binding, unless they are annulled by a proper authority action in court.
They are susceptible of ratification. (n)

Voidable contracts are governed by Arts. 1390 to 1402. Consent is one of the three essential
elements of contracts. If the consent of one of the parties is defective or vitiated, the contract is
voidable. Defect or vitiation of consent is caused by either internal or external [Link],
as an element of contracts, must be intelligent and free. If either attribute is impeded or impaired,
then consent is said to be vitiated, and the contract voidable.
Article 1391. The action for annulment shall be brought within four years.

This period shall begin: In cases of intimidation, violence or undue influence, from the time
the defect of the consent ceases.

In case of mistake or fraud, from the time of the discovery of the same.

And when the action refers to contracts entered into by minors or others incapacitated
persons, from the time the guardianship ceases. (1301a)

his article only applies to the parties in the contract. It does not apply to a third person when the
law allows them to question the validity of a contract Failure to pursue an action within the
period prescribed by law will have the effect of extinguishing the action. With regard to
fraudulent conveyances with the Registry of Property, the prescriptive period is counted not from
the actual knowledge of the fraud by the plaintiff but from the registration Of the public
document with the said registry.  The act of registration is a notice to the whole world.  It is the
operative acts that bind registered land s under the Torrens System.

ARTICLE 1392. Ratification extinguishes the action to annul a voidable contract.

Confirmation

 Is the act by which a person, entitled to bring an action for annulment, with knowledge of
the cause of annulment and after it has ceased to exist, validates the contract either
expressly or impliedly.

 Is properly applicable only to annullable contracts.

Ratification

 Is the act of approving a contract entered into by another without the authorization of the
person in whose name it was entered into, or beyond the scope of the authority of the
former

 Applies to unenforceable contracts, or contracts where consent is totally absent.

Acknowledgement
  To remedy a deficiency of proof

 When what has been agreed upon orally is put in writing, or when a private document is
converted into a public instrument there is acknowledgement

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

Requisites of Ratification

1. The contract is a voidable one.

2. The confirmation is made by the injured contracting party.

3. The confirming party has full knowledge of the vice or defect of the contract.

4. The cause of voidability should have already ceased or disappeared at the time of the
ratification.  Otherwise, if the cause of void ability is still present (subsisting
intimidation), the act of confirmation would also suffer from the very vice or defect it is
attempting to cure.

Effects of Ratification

1. The contract is purged or cleansed of its defects from its constitution or establishment,
and the validation is retroactive to the day of its creation.

2. Any action for its annulment is extinguished.

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

Discussion:

Incapacitated persons includes unemancipated minors and insane or demented persons, and deaf-
mutes who do not know how to write.
If incapacitated enters into a contract, the contract is voidable if the other party is capacitated. If
both are incapacitated, the contract becomes void.

The guardians however may ratify the defective contract in their behalf. If the incapacitated
person becomes capacitated, they themselves may ratify their defective contracts.

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

The one who caused the vice of consent personally or through a third person is not allowed to
file a case of annulment the innocent party has the prerogative to annul or not to annul a voidable
contract.

Article 1396. Ratification cleanses the contract from all its defects from the moment it was
constituted. (1313)

One of the consequences of ratification of the contract is its legal purification and its being made
as a regular and untainted contract. From what time shall the cleansing of the voidable contract
retroacts The cleansing of the voidable contract retroacts to the time of its constitution.

Article 1397. Ratification cleanses the contract from all its defects from the moment it was
constituted. (1313)

However, persons who are capable cannot allege the incapacity of those with whom they
contracted; nor can those who exerted intimidation, violence, or undue influence, or employed
fraud, or caused mistake base their actionupon these flaws of the contract

ARTICLE 1398. An obligation having been annulled, the contracting parties shall restore
to each other the things which have been the subject matter of the contract, with their
fruits, and the price with its interest, except in cases provided by law.

In obligations to render service, the value thereof shall be the basis for damages. (1303a)

can be applied without qualification, only when the cause of nullity does not involved an illicit
act, such as error and incapacity unknown to the other party. But when the cause of nullity is
illicit, such as fraud, violence, intimidation, or undue influence, the other party who employed
those means must be considered as a possessor in bad faith, and must be obliged to restore not
only the fruits received but also those which might have been received; on the other hand, the
innocent party must be deemed a possessor in good faith and should not be required to return
fruits or pay interest.
Article 1399. When the defect of the contract consists in the incapacity of one of the parties,
the incapacitated person is not obliged to make any restitution except insofar as he has
been benefited by the thing or price received by him. (1304)

Incapacitated or Disadvantaged Person is generally favored by Law; No restoration is required of

him (Article 24 of the code provides “In all contractual, property or other relations, when one of
the parties is at disadvantage on account of his moral dependence, ignorance, indigence, mental
weakness, tender age or other handicap, the courts must be vigilant for his protection.

Exception: However, to balance things, where the minor had received something by virtue of a
contract, which is voidable solely and exclusively because of his incapacity, he must make a
restoration insofar as he has been benefited by the thing or price received by him.  If did not
benefit, he has no duty to make restoration.

Article 1400. Whenever the person obliged by the decree of annulment to return the thing
cannot do so because it has been lost through his fault, he shall return the fruits received
and the value of the thing at the same time of the loss, with interest from the same date.

If the person required by the annulment decree to return the item is unable to do so because it
was lost due to his error, he must refund the fruits received in addition to the item's value at the
same time as the loss, with interest starting on the same day.

Article 1401. The action for annulment of contracts shall be extinguished when the thing which is
the object thereof is lost through the fraud or fault of the person who has a right to institute the
proceedings.

If the right of action is based upon the incapacity of any one of the contracting parties, the
loss of the thing shall not be an obstacle to the success of the action, unless said loss took
place through the fraud or fault of the plaintiff. (1314a)

The creditor would not have a cause of action in the first place because he himself caused the
loss of the thing. The principle of Article 1401 in universally understood and recognized because
of the maxim “he who comes to court must come with clean hands.”

The same thing for the plaintiff, if the loss is due to his fraud or fault, the loss of the thing will
bar the complaint because the plaintiff cannot benefit from his fault or wrong.

Furthermore, if the thing was lost or destroyed due to fortuitous event, the action for annulment
is extinguished unless the defendant has incurred in delay.  Likewise, the action for
annulment may be extinguished by prescription of the action or by ratification (confirmation).
Article 1402. As long as one of the contracting parties does not restore what in virtue of the
decree of annulment he is bound to return, the other cannot be compelled to comply with
what is incumbent upon him.

Restitution is a shared obligation. A party cannot submit a Motion for Execution to carry out a
decision after it has been made and both parties have been ordered to return the things they
obtained from the other without first restoring the things he is obligated to return.

he other contracting party cannot be made to perform what is required of him as long as one of
the parties does not restore what, pursuant to the decision of annulment, he is required to return.

CHAPTER 8

UNENFORCEABLE CONTRACTS (N)

Article 1403. The following contracts are unenforceable, unless they are ratified:

 Those entered into in the name of another person by one who has been given no
authority or legal representation, or who has acted beyond his powers;

 These that do not comply with the Statute of Frauds as set forth in this number. In
the following cases, an agreement hereafter made shall be unenforceable by action,
unless the same, or some note or memorandum thereof, be in writing, and
subscribed by the party charged, or by his agent; evidence, therefore, of the
agreement cannot be received without the writing, or a secondary evidence of its
contents.
 1. An agreement that by its terms is not to be performed within a year from the
making thereof;

2. A special promise to answer for the debt, default, or miscarriage of another;

3. An agreement made in consideration of marriage, other than mutual promise to

marry;

4. An agreement for the sale of goods, chattels or things in action, at a price not less
than five hundred pesos, unless the buyer accept and receive part of such goods and
chattels, or the evidence, or some of them of such things in action, or pay at the time
some part of the purchase money; but when the sale is made by auction and entry is
made by the auctioneer in his sales book, at the time of the sale, of the amount and
kind of property sold, terms of sale, price, names of the purchasers and person on
whose account the sale is made, it is a sufficient memorandum;

5. An agreement for the leasing for a longer period than one year, or for the sale of
real property or of an interest therein;

6. A presentation as to the credit of a third person.

7. Those where both parties are incapable of giving consent to a contract.

8. Statute of Frauds – is descriptive of those laws, statutes, or provisions which require

certain agreements to be in writing before they can be proved and enforced in a
judicial action.
9. The basic purpose of the statute is to prevent fraud and not to encourage its
commission.

Article 1404. Unauthorized contracts are governed by Article 1317 and the principles of
agency in Title X of this Book.

Other provisions of law that governs unauthorized contracts are the following:

1. Article 1317 which provides –

“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 ratified,
expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked
by the other contracting party. (1259a)”

Article 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of article 1403,
are ratified by the failure to object to the presentation of oral evidence to prove the same,
or by the acceptance of benefit under them.

 If the party in whose favor the statute may be invoked, cross examined the witness who is
testifying on the oral contract, the former is deemed to have waived the right to object to the
admission of the testimonial evidence.

The party should promptly object to the presentation of the witness once it becomes apparent that
no evidence in writing could be presented to prove the contract. The objection must be invoked
during the “offer of the testimony” of the witness. OR a motion to dismiss may be filed before
answer to the complaint is filed.

Article 1406. When a contract is enforceable under the Statute of Frauds, and a public
document is necessary for its registration in the Registry of Deeds, the parties may avail
themselves of the right under Article 1357.

The parties may exercise their entitlement under Article 1357 when a contract is enforceable
under the Statute of Frauds and a public document is required for its registration in the Registry
of Deeds.

Article 1407. In a contract where both parties are incapable of giving consent, express or implied
ratification by the parent, or guardian, as the case may be, of one of the contracting parties shall give
the contract the same effect as if only one of them were incapacitated.

If ratification is made by the parents or guardians, as the case ,ay be, of both contracting
parties, the contract shall be validated from the inception. (n)

If the parties ground for incapacity like minority attained majority age, or if the capacity is due to
insanity and regained their insanity, they can ratify their previous acts.  There is no need for the
law to include this expressly because it is deemed understood.

Article 1408. Unenforceable contracts cannot be assailed by third persons.

Strangers Cannot Assail Unenforceable Contracts

Just as strangers cannot attack the validity of voidable contracts, so also they cannot attack a
contract because of its unenforceability. Indeed, the Statute of Frauds cannot be set up as a
defense by strangers to the transaction.

CHAPTER 9

VOID OR INEXISTENT CONTRACTS

Article 1409. The following contracts are inexistent and void from the beginning:

1.) Those whose cause, object or purpose is contrary to law, morals, good customs, public
order or public policy;

2.) Those which are absolutely simulated or fictitious;

3.) Those whose cause or object did not exist at the time of the transaction;
4.) Those whose object is outside the commerce of men;

5.) Those which contemplate an impossible service;

6.) Those where the intention of the parties relative to the principal object of the contract
cannot be ascertained;

7.) Those expressly prohibited or declared void by law.

These contracts cannot be ratified.  Neither can the right to set up the defense or illegality
be waived. (n)

A void contract is a contract that isn't legally enforceable, starting from the time it was created.
While both a void and voidable contract are null, a void contract cannot be ratified. In a legal
sense, a void contract is treated as if it was never created and becomes unenforceable in court.

agreements which lack one or some or all of the elements (i.e., consent, object, and cause) or do
not comply with the formalities which are essential for the existence of a contract

Article 1410. The action or defense for the declaration of the inexistence of a contract does
not prescribe.

The action for the declaration of inexistence or the defense on such is imprescriptible. The mere
lapse of time does not validate a void contract, unlike in voidable contracts, which, if not assailed
within the specific period provided by law, shall remain valid.

It is not necessary to go to the court to declare the nullity of a void contract if both parties agree
that it is void and henceforth, on their own volition, change it. However, to avoid instances
where one party refuses to restore what he has received out of a void contract, it is better to go to
the court first to avoid inconvenience or to avoid taking the law into his own hands. Taking the
law into one’s hands may lead to coercion which is a criminal offense.

Article 1411. When the nullity proceeds from the illegality of the cause or object of the
contract, and the set constitutes a criminal offense, both parties being in pari delicto, they
shall have no action against each other, and both shall be prosecuted. Moreover, the
provisions of the Penal Code relative to the disposal of effects or instruments of a crime
shall be applicable to the things or the price of the contract.

If the contract has not yet been completed, neither party may require the other to keep their
respective commitments, and if it has, neither party may recover any amounts previously paid or
delivered. They will remain unmolested by the law.
Article 1412. If the act in which the unlawful or forbidden cause consists does not constitute a
criminal offense, the following rules shall be observed:

(1) When the fault is on the part of both contracting parties, neither may recover what he
has given by virtue of the contract, or demand the performance of the other’s undertaking;

(2) When only one of the contracting parties is at fault, he cannot recover what he has given
by reason of the contract, or ask for the fulfillment of what has been promised him. The
other, who is not at fault, may demand the return of what he has given without any
obligation to comply his promise. (1306)

There are limitations to the in pari delicto premise. The law won't help either party to an illegal
contract; it will just leave them both in their current situation. The assumption is that both sides
have more problems than not.

Article 1413. Interest paid in excess of the interest allowed by the usury laws may be
recovered by the debtor, with interest thereon from the date of the payment.

Any interest rate that is higher than what is permitted by the law against usury is usurious. There
will be no longer be any restrictions imposed by the Usury Law on the amount of interest and
other fees that can be charged on a loan or forbearance of money, commodities, or credit. In a
separate civil lawsuit, the party that paid the usurious interest could be compensated for the
whole amount of interest paid as well as any interest that exceeded the legal limit.

Article 1414. When money is paid or property delivered for an illegal purpose, the contract
may be repudiated by one of the parties before the purpose has been accomplished, or
before any damage has been caused to a third person. In such case, the courts may, if the
public interest will thus be subserved, allow the party repudiating the contract to recover
the money or property.

The party may be granted permission by the courts to recover the money or property in the
public interest. When property is provided or money is paid for an unlawful purpose, one of the
parties may revoke the contract before the unlawful purpose is fulfilled or before any harm to a
third party has been done. If the public interest will be served, the courts may allow the party
repudiating the contract to reclaim the money or property in this situation.

Article 1415. Where one of the parties to an illegal contract is incapable of giving consent,
the courts may, if the interest of justice so demands, allow recovery of money or property
delivered by the incapacitated person. (n)

If neither party to the alleged contract is unable to assent, the contract is void and cannot be
enforced in court. It could be approved
if only one of the contracting parties ratifies the agreement. In other words, the contract is
changed by the parent or guardian into a voidable contract for the party who did not ratify,
making it now valid and binding unless revoked by a court.

The agreement is deemed to have been ratified by the parents or legal guardians on both sides at
the time of signing. The approval applies in the past.

If the parties' grounds for incapacity, such as minority, have reached majority age or if their
insanity has returned, they may ratify their agreement.

Article 1416. When the agreement is not illegal per se but it is merely prohibited, and the
prohibition by the law is designed for the protection of the plaintiff, he may, if public policy
is thereby enhanced, recover what he has paid or delivered.

This law prohibits the alienation or incumbering of the land within 10 years from the issuance of
the corresponding certificate of title. Ras leased the land to the Sua spousesThe plaintiff may be
entitled to receive his money back if public policy is improved as a result of the agreement, even
though it is not criminal in and of itself and is only banned by the law for the plaintiff's
protection.

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

Applicable to goods or services for which a law or regulation issued by a competent authority
has set a maximum price. Due to the fact that this rule strives to prohibit profiteering that is
contrary to the interests of the public, any excess payments made must be recoupable.

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

Under the Eight-Hour Labor Law, employees are entitled to supplemental remuneration for
services provided outside of regular work hours.

The rights and duties of employees and laborers will be governed by social and labor laws. When
the law specifies or permits the specification of the maximum number of hours of labor and a
contract is entered into by which a laborer agrees to work longer than the maximum so
established, he may claim additional payment for the additional service provided.
Article 1419. When the law sets, or authorizes the setting of a minimum wage for laborers,
and a contract is agreed upon by which a laborer accepts a lower wage, he shall be entitled
to recover the deficiency.

The worker is not prohibited from recouping the shortfall even if he consented to accept a wage
that is less than the legal minimum wage. The minimum wage law nullifies such a contract or
arrangement.

A worker is entitled to compensation for any shortfall when the law establishes or permits the
establishment of a minimum wage for workers and a contract is reached that stipulates a lower
pay.

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

The clause only takes effect if the contract contains stipulations, terms, or conditions. The legal
provisions must still be effective and enforceable even if some of the other provisions are
invalid. If a contract is divisible, the lawful terms may be enforced if they can be distinguished
from the illegal ones.

Article 1421. The defense of illegality of contracts is not available to third persons whose
interests are not directly affected.

Persons entitled to raise defense of illegality or nullity.

Third parties are not permitted to file a claim to invalidate or otherwise challenge voidable or
unenforceable contracts. However, even a third party may assert the contract's illegality if it is
unenforceable or illegal, provided that the deal directly affects his interest. Third parties whose
interests are unaffected directly are not permitted to raise the defense of contract [Link]
right to assert an invalidity or illegality defense.

Article 1422. A contract which is the direct result of a previous illegal contract, is also void
and inexistent.

Because there is nothing to novate, a void obligation cannot be. The novation is legitimate,
nonetheless, if the original commitment is solely voidable or if the voidable obligation is ratified.
A contract that directly results from a prior illegal contract is also null and void.
.