INTRO (ALM1&CLM1) – MODULE 9: Contracts [WEEK 8 – 19 September 2019] 1

MODULE 8
CONTRACTS
WEEK 10

CONTRACTS

 CONCEPT OF CONTRACTS. – As defined under

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.”

To better understand the definition, let us

recall the definition of an obligation under Article 1156
that, “(A)n obligation is a juridical necessity to give, to do,
or not to do. We said that the definition of an obligation
under Article 1156 refers specifically to civil obligations,
and not to moral, divine or natural obligations, which
cannot be legally enforced in court by the creditor or
active subject.

 From the definition of a contract above, we

can assume the following :
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(a) There are at least two parties involved in a contract

– an active subject (creditor) and a passive subject
(debtor).

(b) An obligation is created because the passive

subject promises to the active subject the performance of
a prestation, either to deliver something (“to give”), or to
render some service (“to do” or “not to do”).

(c) By agreement between the parties, a civil

obligation is created. At this point, we make a distinction
between an agreement and a contract. If two parties
agree on the performance of a moral or social obligation,
there is an agreement, but there is no contract. However,
if the parties agree on the performance of a civil obligation
(Art. 1156), the result is a contract which is legally
enforceable in court.

AGREEMENT: Daisy and Cris agreed that they will go to

mass every Sunday at the St. Therese Chapel in
Villamor, Pasay for 10 consecutive Sundays.
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CONTRACT: Daisy and Cris agreed that if she will hear

mass for 10 consecutive Sundays at the St. Therese
Chapel, he will give her P100,000.00. Here, we have
a contract which gives rise to a conditional obligation.
If Daisy performs her obligation, Cris will be obliged
to give Daisy P100,000.00. If Daisy does not comply
with her obligation as agreed upon, the obligation of
Cris will not arise.

(d) A contract gives rise to an obligation between the

parties to the contract. Hence, there can be no contract if
there is no obligation. However, can a party have an
obligation even without a contract? YES. As we have
previously studied in Article 1157, ‘contracts’ is only one of
the sources of an obligation. Thus, we are reminded that
even without the debtor’s knowledge or consent (i.e.,
even without a previous contract entered into with the
active subject), he will be liable for reimbursement arising
from quasi-contract (Art. 1160) if he has been benefited at
the expense of another.

Essential Elements of a Contract. – The

essential requisites of a contract are those without which a
contract would not exist. These are:

 Consent of the contracting parties. – Consent is

the manifestation of the meeting of the offer and the
acceptance upon the thing and the cause which are to
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constitute the contract. The offer must be certain, and the

acceptance must be absolute. (Art. 1319, NCC)

 Therefore, to be able to conclude an agreement and

result in the perfection of a contract, the acceptance must
in every respect meet and correspond with the terms and
conditions of the offer.

 An acceptance that varies or modifies any term or

condition of the offer becomes a qualified acceptance. If
the acceptance is qualified, there is no concurrence of
minds. There is merely a counter-offer which, if accepted,
will produce a contract.

 A qualified acceptance has the effect of rejecting the

offer; hence, no binding contract is perfected.

 Illustrative Examples:
(a) Sylvia offers to sell her car to Byron for P5
million in cash. Byron accepts the offer but says that
he would give a down payment of P1 million, and pay
the balance of P4 million after 30 days.

Question: Is there a perfected contract of sale

between Sylvia and Byron?

Answer: NO. The acceptance here by Byron is not

absolute as it varies the offer concerning the terms of
payment of the price. It is a qualified acceptance
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which is equivalent to another offer but coming this

time from the original offeree. it does not give rise to
any contract. However, if Sylvia accepts the counter-
offer, a contract results with the payment of the price
according to the terms set by Byron.

(b) Sylvester offers his MacBook Air for sale to

Britney for P150,000.00, to be delivered at his
residence. Britney accepts the offer but tells Sylvester
to deliver the laptop at her residence.

Question: Is there a perfected contract of sale?

Answer: NO. The acceptance here is qualified

because the term in the offer regarding the place of
delivery is modified. Britney’s qualified acceptance
constitutes a counter-offer which must be accepted by
Sylvester to produce a contract.

 Object certain which is the subject matter of the

contract. – The object of a contract is its subject matter.
The object of a contract is the creation or extinguishment
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of an obligation involving a thing, right or service. In

effect, the object of a contract is a thing (i.e. the delivery
of a car), right (i.e. when the right to collect a debt is
assigned by the creditor to another person), or service (i.e.
to render a 1-hour massage to a client).

 Cause of the obligation which is established. – The

cause of a contract is the immediate, direct and proximate
reason which justifies the creation of an obligation
through the will of the contracting parties. The cause of a
contract is the “why of the contract,” the essential reason
which impels the contracting parties to enter into the
contract.

 Cause distinguished from Motive. – (Art. 1351, NCC)

(a) Motive is the private or secret reason or intention
of a party in entering into a contract. It is different from
cause which is the essential reason that moves the
contracting parties to enter into the contract.

(b) The illegality of the cause makes the contract

void, while the illegality of the motive does not affect the
validity of the contract.

(c) Illustrative Examples:

(c.1) Selina sold her car to Bruno for P2 million.

The immediate and proximate reason for Selina is to
receive the price, while that for Bruno is to get the car.
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If Selina sold the car because she needed money to pay

a loan, and if Bruno bought the car because he wanted
to use it as a taxicab, these are the motives of the
parties.

(c.2) Barney bought a bottle of insecticide for

P1,200.00 from the store of Sabrina because he
wanted to poison Elmer, his enemy. The motive of
Barney is illegal, but it does not affect the validity of
the contract of sale of the insecticide between Barney
and Sabrina.

(c.3) Sebastien sold 10 grams of shabu to

Bernice for P10,000.00. The cause for Bernice is the
delivery of an illicit object. Here, the contract is void
because of the illegal cause.

 Rule when there is lesion. –

(a) Lesion refers to the insufficiency or inadequacy of
cause. There is inadequacy of cause if the consideration is
not commensurate with or less than the value of the thing,
such as when the price is insufficient for the thing sold.

(b) As a general rule, lesion or inadequacy of cause

does not invalidate a contract, unless there has been
fraud, mistake, force, violence, or undue influence. (Arts.
1330 & 1390, No. 2)
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 Illustrative Example: Saul sold his 2,000

square-meter lot in Taguig City worth P50 million to
Betty for only P20 million because he did not know the
actual worth of his property.

Question: May this contract of sale be cancelled?

Answer: NO. As a rule, lesion or inadequacy of price,

by itself, does not invalidate a contract. The fact that
the bargain was a hard one coupled with mere
inadequacy of a price when both parties are in a
position to form an independent judgment concerning
the transaction, is not sufficient ground for the
cancellation of a contract. However, the sale may be
invalidated if Betty pointed a gun to the head of Saul
while asking him to sign the Deed of Sale transferring
ownership of the property to Betty. In this case, the
contract will be annullable, not on the ground of
lesion, but on the ground of intimidation employed by
Betty on the person of Saul at the time of the
perfection of the contract.
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 WHAT ARE THE BASIC PRINCIPLES GOVERNING

CONTRACTS? –

(a) Autonomy or Liberty of Contracts (Art. 1306, NCC)

(b) Mutuality of Contracts (Art. 1308, NCC)
(c) Consensuality of Contracts (Art. 1315, NCC)
(d) Relativity of Contracts (Art. 1311, NCC)
(e) Obligatory Force of Contracts (Art. 1159, NCC)

 Autonomy or Liberty of Contracts - The principle

of autonomy of contracts is stated in Article 1306. Thus,

“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.”

 By this principle, the parties to a contract are

given the freedom to agree on any terms or stipulations in
their contract. The only limitation is that the agreement
should not be illegal (i.e., contrary to law, morals, good
customs, public order, or public policy). The contracting
parties must respect the law which is considered as an
essential part of every contract.
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 Example of a contract which is contrary to law.

Aimee and Boler entered into a contract. It was agreed
that Aimee will give Boler P500,000.00 if he will steal the
pet lion of Cassy. It was also agreed that Aimee will give
an advance payment of P250,000.00, and the balance will
be given to Boler when he delivers the lion to Aimee. As
agreed upon, Boler stole the lion from the residence of
Cassy. However, Boler was apprehended by the police
authorities before he could deliver the lion to Cassy.

Question: Since Boler failed to deliver the lion to Aimee as

agreed upon, can Aimee file an action in court against
Boler for the recovery of the P250,000.00 advanced to
him?

Answer: NO. The prestation of Boler in the parties’

contract is to steal the lion of Cassy. Stealing is unlawful.
Hence, the contract is illegal and cannot be given effect. If
Aimee files an action for recovery of the P250,000.00 from
Boler on the basis of their contract, both of them will be
put on trial for the crime of robbery or theft.
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 Example of a contract which is contrary to

morals and good customs. – Joe is a 40-year old bachelor.
Jane is an 18-year old student who has been compelled to
obtain a leave of absence from school last semester
because her parents could no longer afford to pay her
tuition. On 2 June 2020, Joe promised to give Jane P1M if
Jane will live with him as his wife for 6 months without the
benefit of marriage. Jane agreed. On 6 June 2020,
however, Jane informed Joe that she was backing out from
their agreement because she had already found an
employer who was willing to help her with her studies.
Joe was upset. He filed an action against Jane for specific
performance (to compel her to comply with her
obligation) and for damages.

Question: Is the contract valid? Can Jane be compelled to

comply with her promise under the agreement?

Answer: It is stated that by the autonomy of contracts, the

parties are free to establish any stipulation in their
contract as they may consider convenient to them. In this
case, however, to compel a woman to cohabit with a man
(not her husband) is contrary to morals. The contract of
Joe and Jane is, therefore, void for being immoral and
cannot be enforced.


Example of a contract which is contrary to
public order or public policy. – Olive is the owner of an
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apartment. Troy is interested in leasing or renting her

apartment. The parties enter into a contract with the
following stipulations, among others:

1. Olive obliged to lease his apartment to Troy

for 2 years.
2. Troy promises to pay a monthly rental of
P10,000.00.
3. Should Troy fail to pay his monthly rentals,
he must leave the apartment.
4. If after failure to pay rentals Troy refuses to
leave the apartment, Olive will ask his 2 wrestler
brothers (each weighing 500 pounds) to drag Troy
out of the apartment never to be seen again.
Both Olive and Troy agreed to these provisions in their
lease contract.

Question: Assuming that Troy later on fails to pay his

monthly rentals, can Olive enforce term No. 4 in their
agreement considering that Troy had agreed to the
stipulation?

Answer: NO. While the other terms in the parties’

contract is lawful and valid, term No. 4 cannot be enforced
by Olive for being against public order. The proper
recourse of Olive is not to use physical force on Troy to
leave the apartment. What Olive should do is to file an
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action for ejectment in court against Troy. Olive must first

secure a final judgment from the court ordering Troy to
vacate the premises. Then the sheriff of the court will
carry out the final order of ejectment (an order to compel
the tenant to leave the property being leased).

 Mutuality of Contracts – By this principle, no

party to a contract can renounce or violate the law of the
contract without the consent of the other. The principle of
mutuality of contracts is stated in Article 1308, viz:
“The contract must bind both contracting parties,
its validity or compliance cannot be left to the will
of one of them.”

 Example of the principle of mutuality.

Sarah
promised to sell his car to Benito, an interested buyer. It
was agreed that Sarah will determine the price of the car
and inform Benito about it on the same day that Sarah will
deliver the car. The following day, Sarah went to the
house of Benito and delivered the car. She was also
collecting from him the purchase price of P3.5M which is
what Sarah had decided.

Question: Can Sarah compel Benito to accept delivery of

the car and to pay the purchase price of P3.5M?

Answer: NO. There is here no valid contract. A contract is

a meeting of the minds and, therefore, there must be
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mutual consent. The contract does not bind both

contracting parties because the determination of the
purchase price of the car was left to the sole
determination of Sarah. Of course, if Benito decides to
accept delivery and agrees to the purchase price of P3.5M
upon delivery, there is now a meeting of the minds and
the contract of sale is perfected.

 Consensuality of Contracts – Under the principle

of consensuality of contracts, it is stated that contracts
are perfected by mere consent (Article 1315, NCC). Before
we start discussing this principle, let us take a quick look at
the essential requisites of a contract.

ART. 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.

Example: Selma agreed to sell her BMW car to Bong for

P6M.
(1) The object is the delivery of the car.
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(2) The cause or consideration is the payment of the

purchase price of P6M.
(3) There is consent because both parties agree as to
the object and the cause of the sale.

Effect of lack of any one of the requisites: The contract

will be void and cannot be enforced.

We also need to take a look into the three stages in the

life of a contract.

Stages in the life of a contract.

(1) Conception (Preparation or negotiation) – This
includes all the negotiations or steps taken by the parties
leading to the perfection of the contract. At this stage, the
parties have not yet arrived at any definite agreement.
(2) Perfection or birth – This is when the parties have
come to a definite agreement or meeting of the minds
regarding the subject matter and cause of the contract
(Art. 1319, NCC). At this stage, there is already a
concurrence of all the essential elements or requisites of a
contract.
(3) Consummation or termination – This is when the
parties have performed their respective obligations, and
the contract may be said to have been fully accomplished
or executed, resulting in the extinguishment or
termination thereof.
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Example: Sonia advertised her BMW car for sale at P6M.

(1) Stage of Conception – Bert goes to Sonia and offers to
buy the BMW car for P5M. Sonia is willing to sell at
P5.8M. Bert again makes another offer to buy at
P5.5M. Here, the parties are still negotiating.
(2) Stage of Perfection – Sonia agrees to Bert’s offer of
P5.5M. Here, the contract is perfected. There is
already a mutual agreement as to the object and the
cause or consideration of the sale.
(3) Stage of Consummation – Sonia delivers the BMW car
to Bert. Bert then pays Sonia the P5.5M purchase
price. Here, the parties comply with their respective
prestations under the contract. It is in this stage that
the obligations of the parties are completely
extinguished.

Effect of perfection of a contract: It is only after

perfection of a contract that the following will arise:
(a) the obligation of the debtor to perform the
prestation and/or to pay for damages.
(b) the right of the creditor to compel performance of
the obligation and/or claim for damages.


A contract is thus only perfected after
concurrence of all the three essential requisites of
consent, object and cause, or C-O-C .


Now we go back to the principle of
consensuality. Contracts are perfected by mere consent.
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In other words, if all the requisites of C-O-C are present,

a contract is already perfected. This is, however, only the
GENERAL RULE because some contracts need more than
mere consent for their perfection. We can understand this
better by examining the three (3) kinds of contracts
according to perfection outlined below.

 Classification of contracts according to

perfection :
(a) Consensual contract –
This kind of contract is
perfected by mere
consent. As long as there
is C-O-C , the contract is
perfected.

 Example : A contract of sale is an example of a

consensual contract. – On 25 October 2020, Samuel
promised to sell his history book to Beth for P480. It was
agreed by the parties that delivery of the book and
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payment of the purchase price was to be made on 31

October 2020. On 31 October 2020, Samuel refused to
deliver the book stating that he had changed his mind
about selling it.

Question: Was there here a perfected contract of sale

between Samuel and Beth?

Answer : YES. As of 25 October 2020, there was already a

perfected contract of sale because as of that date there
was already consent on the part of both contracting
parties, there was an object (the promise to deliver the
book), and there was a cause (the promise to pay the P480
purchase price). Since there was already a perfected
contract, both Samuel and Beth are bound to the
fulfilment of their respective obligations under the
contract. Therefore, Samuel can no longer back out from
his obligation of delivering the book to Beth, unless he is
willing to be liable for damages to her for breach of
contract (Art. 1170, NCC).

(b) Real contract – This kind of contract is perfected by

the delivery of the thing subject matter of the contract. In
other words, mere consent is not enough. There is an
additional requisite for the perfection of the contract –
that is, delivery of the object of the contract. C-O-C-D
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 Example : As stated in Article 1316 of the Civil Code, a

contract of pledge is one example of a real contract. – On 5
January 2020, Douglas borrowed P200,000.00 from Cora
due for payment on 4 July 2020. To secure the loan,
Douglas promised Cora that he will deliver his Rolex watch
valued at P250,000.00 to her the following day. Douglas,
however, failed to deliver the watch, and Cora eventually
forgot about it. On maturity date, Douglas could not pay
his P200,000.00 debt to Cora. Cora then demanded that
Douglas deliver the watch so that she may sell the watch
at public auction, and use the proceeds from the sale to
cover his P200,000.00 loan.

Question: Was there here a perfected contract of pledge

between Douglas and Cora? Can Cora compel Douglas to
deliver the Rolex watch so that it may be sold at public
auction to pay for the indebtedness?

Answer : NO. The purpose of a contract of pledge (which

is merely an accessory contract to the principal contract of
loan) is to secure the payment of the loan by the debtor.
Under the contract of pledge, the creditor is given the
right to sell the thing pledged at public auction, if the
debtor fails to pay the principal obligation on maturity
date. In this case, Douglas never delivered the Rolex
watch to Cora until the debt already matured. In other
words, since pledge is a real contract, it will be perfected
(the contract will be born) only if the thing object of the
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contract is delivered to the creditor. Since there was no

delivery of the Rolex watch, there was no perfected
contract of pledge between Douglas and Cora.
(Remember that for the perfection of a real contract, in
addition to the three essential requisites of consent,
object and cause, there must be delivery of the object or
subject matter of the contract.) Therefore, on maturity
date, if Douglas fails to pay his obligation, Cora will have
no right to demand the delivery of the Rolex watch for
purposes of selling it at public auction. It is as if Cora
agreed to the contract of loan without security. Her
proper recourse is to file an action in court for the
collection of the P200,000.00 unpaid obligation of
Douglas.

(c) Solemn or formal contract – This kind of contract is

perfected after compliance with certain formalities
prescribed by law. Just like in real contracts, mere consent
is not enough. There is an additional requisite for the
perfection of this kind of contract – that is, compliance by
the parties with the formalities required by law for its
validity or effectiveness. C-O-C-F
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 Example : A contract of donation of real property is an

example of a solemn contract. Article 749 of the Civil Code
requires that for a contract of donation of real property to be
valid, it must be in a public instrument. – On 5 January 2020,
Don donated to Des a 1000 square-meter house and lot
located in Manila. Don and Des then drafted and signed a
“Deed of Donation”. After two years, Don died leaving as
sole heir his only son, Andy. Andy now wants to recover
the house and lot from Des.

Question: Was there a perfected contract of donation

between Don and Des? Can Andy recover the property
from Des?

Answer: The contract of donation is an example of a

solemn contract which requires a specific form for the
validity of the contract. In other words, without the
specific form required by law for its perfection, the
contract will be lacking one essential requisite which is
form. Article 749 of the Civil Code requires that for the
contract of donation to be valid, it must be executed by
the parties in a public instrument. It is not enough that
the parties draft and sign the document. (This is a private
document only.) After signing the written contract of
donation, the parties must have the document notarized
by a notary public. (The private document of donation is
now converted into a public document.) In this case, the
contract of donation between Don and Des was made only
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in a private document. Therefore, there was no contract

of donation perfected between Don and Des. Corollarily,
the property may still be recovered from Des by Andy who
is the rightful heir of the property left by his father Don.

 Relativity of Contracts – Under the principle of

relativity of contracts, it is stated that contracts take
effect only between the parties, their assigns and heirs
(Article 1311). This means that only the parties, their
assigns and heirs can have rights and obligations under the
contract. Strangers to a contract cannot be made liable
for damages under the contract. Neither can strangers
claim benefits under the contract.

 Example No. 1: Contracts take effect only between the

parties. On 5 June 2020, Spencer promised to sell his
BMW car to Bella for P2M. The delivery of the car and
payment of the purchase price was set on 15 June 2020.
On 15 June 2020, Spencer delivered the car but Bella paid
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only P1.5M of the purchase price. Bella promised to

deliver the balance of the purchase price to Spencer the
following day. Bella, however, failed to pay despite
repeated demands from Spencer. When Martha, the
mother of Spencer, heard about what happened, Martha
filed a case against Bella in court for collection of the
balance of P500,000.00.

Question: Will the action for collection filed by Martha

against Bella prosper?

Answer : NO. Matha has no legal standing to file the action

for collection against Bella. Under the principle of
relativity of contracts, the contract takes effect only
between the parties. Even if Martha is the mother of
Spencer, she is a stranger to the contract of sale between
Spencer and Bella. Hence, Martha cannot claim any rights
under the contract by collecting the balance of the
purchase price which Bella failed to pay. Only Spencer, the
aggrieved party, is the proper party to file the collection
case against Bella.

 Example No. 2: Contracts can also bind the assigns of

the parties. In the example above, let us assume that
Spencer specifically authorized his mother to collect the
purchase price of the car, and to file an action for
collection in case of non-payment.
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Question: This time, will an action for collection filed by

Martha against Bella prosper?

Answer: YES. This time, since Martha has been specifically

authorized and allowed by her son to collect the purchase
price and file an appropriate action against Bella, the
action for collection will prosper. This is because Martha,
as an assignee or authorized representative of Spencer,
can now legally act in behalf of Spencer.

 Example No. 3: Contracts have also binding effect on

the heirs of the parties. This is only possible if one of the
parties to a contract dies before the maturity date of the
obligation. – Denzel owes Cindy P2 million due for
payment on 30 October 2020. On 30 September 2020,
Denzel died of a heart attack leaving his only son Stefan an
inheritance amounting to P1.5 million. Stefan is a
multimillionaire with his total assets valued at P890 million
as of August 2020.

Question: Can Cindy collect the obligation from Stefan? If

so, how much?

Answer : YES. By the principle of relativity, since Denzel is

already dead, the contract can be made to bind the son
Stefan. When we say, however, that the contract will bind
even the heirs, what the law actually means is not the heir
personally, but the estate of the deceased (the contracting
party who died). Hence, if Denzel died without leaving any
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inheritance to Stefan, Stefan cannot be made personally

liable for the obligation of Denzel even if he is Stefan’s
father. In this case, Cindy may recover from Stefan, but
only to the extent of whatever Stefan inherited from
Denzel – that is, P1.5 million. Under the last sentence of
the first paragraph of Article 1311, “(T)he heir is not liable
beyond the value of the property he received from the
decedent.” Of course, since Stefan is a multimillionaire, if
he considers it his moral obligation to pay the entire debt
of his father, he is not legally prohibited from doing so.

Obligatory Force of Contracts – Under the

principle of the obligatory force of contracts, it is stated
that “Obligations arising from contracts have the force of
law between the contracting parties and should be
complied with in good faith.” (Art. 1159) From the
moment a contract is perfected, “the parties are bound
not only to the fulfilment 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.”
(Art. 1315)
INTRO (ALM1&CLM1) – MODULE 9: Contracts [WEEK 8 – 19 September 2019] 26

 Example: Sam agreed to sell his horse to Brigit. It

was stipulated that Sam should deliver the horse after two
days. In this case, Sam has the obligation to deliver the
horse after two days as agreed upon in the contract.
While waiting, since it was not part of the agreement, Sam
did not feed the horse anymore. Also, since it was not
part of the agreement, Sam did not let the horse stay in
the stable anymore. After two days, the horse fell ill and
died. The veterinarian said that the horse caught a deadly
virus while soaked in heavy rains two nights before the
delivery date.

Question: Was Sam obliged to feed the horse and provide

adequate shelter to it considering that it was never
stipulated in the parties’ contract?

Answer : YES. Pending delivery of the object of a contract,

the debtor is obliged to take care of the thing to be
delivered with the proper diligence of a good father of a
family (Art. 1163). Hence, Sam had the obligation to feed
the horse, and provide it adequate shelter before the
appointed delivery date even if nothing is said about the
obligation in his contract with Brigit as this is in keeping
with good faith, usage, and law.
INTRO (ALM1&CLM1) – MODULE 9: Contracts [WEEK 8 – 19 September 2019] 27

 FORM OF CONTRACTS –

(a) Meaning of “form of contracts”. – The form of a

contract refers to the manner in which a contract is
executed or manifested.

(b) What are the different forms in which a contract may

be executed?

(b.1) A contract may be executed orally, or in

writing.

(b.2) If in writing, the contract may either be

made in a:

(b.2.1) Private instrument – where the parties put down in

writing all the terms and conditions of their contract, and
sign it; or
INTRO (ALM1&CLM1) – MODULE 9: Contracts [WEEK 8 – 19 September 2019] 28

(b.2.2) Public instrument – A private instrument becomes a

public instrument if it is notarized by a lawyer – a notary
public.

(c) What are the two (2) classifications of contracts according

to form?

(c.1) Informal or Common Contracts – Informal or

common contracts are contracts which do not need a
specific form in order to be valid and enforceable.

 The first sentence of Article 1356 states

that, “Contracts shall be obligatory, in whatever form
they may have been entered into, provided all the
essential requisites for their validity are present.” This
means that as long as there is consent, object, and cause,
a contract is perfected, and becomes binding on both
parties to the contract. This, however, refers only to
consensual contracts which are perfected by mere
consent.

 Example: Steve orally sold to Bea a Parker pen for

P450.00. Is this contract of sale valid even if it is not in
writing?

Discussion: A contract of sale is a consensual contract, and

is perfected by mere consent. Therefore, even if orally
made, the contract of sale between Steve and Bea is valid
and enforceable.
INTRO (ALM1&CLM1) – MODULE 9: Contracts [WEEK 8 – 19 September 2019] 29

 Consensual contracts are, therefore,

informal contracts and do not need any specific form for
their validity.


Real contracts (Art. 1316), cannot be
perfected by mere consent, but need delivery (in addition
to consent, object, and cause) for the perfection of the
contract. Real contracts are also classified as informal or
common contracts because, just like consensual contracts,
they do not need any specific form for their validity.

 Example: Dimitri borrowed P200,000.00 from Chiara

due on 30 August 2020. Since Chiara required security for
the loan, Dimitri delivered to Chiara his Rolex watch
valued at P300,000.00. On maturity date, Dimitri failed to
pay his obligation. Hence, Chiara caused the sale of the
Rolex watch at public auction so that she may recover
Dimitri’s P200,000.00 obligation from the proceeds of the
auction sale. Is there here a perfected contract of pledge
even if it was not made in writing?

Discussion: There are two (2) separate contracts between

Dimitri and Chiara in this case.

 the principal contract of loan, where Dimitri is obliged

to pay the P200,000.00 to Chiara on 30 August 2020; and

 the accessory contract of pledge, under which Chiara

has the right to sell the thing pledged (the Rolex watch) at
INTRO (ALM1&CLM1) – MODULE 9: Contracts [WEEK 8 – 19 September 2019] 30

public auction IF there is failure on the part of Dimitri to

pay his obligation on 30 August 2020.

Both the contract of loan and the contract of pledge are

real contracts; (Art. 1934 & 2093, NCC; Art. 1316, NCC)
hence, both contracts, which are perfected by the delivery
of the object of the contract, are valid between Dimitri and
Chiara even if they were not executed in writing because
both are informal or common contracts.

(c.1) Formal or Solemn Contracts – Formal or solemn

contracts are required by law to be in a specified form to
be valid and enforceable.


The second sentence of Article 1356
states that, “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.”

 The second sentence of Article 1356 states

the exception to the general rule stated in the first
sentence of Article 1356 - that contracts become valid and
binding even if not made in writing. This is because the
second sentence emphasizes that when the law requires a
specific form, that form should be strictly followed. If the
INTRO (ALM1&CLM1) – MODULE 9: Contracts [WEEK 8 – 19 September 2019] 31

required form is not followed, the contract becomes either

void or unenforceable.

 Example of a contract when form is required for validity. -

Dondi verbally donated his house and lot to Donna.
Donna accepted the donation. Is the donation valid?

Discussion: NO. A contract of donation is a formal or

solemn contract. Under Article 749 of the Civil Code, it is
required that donations of real property be made in a
public instrument. In this case, since the contract was
verbally made, the donation is void.

 Example of a contract when form is required for

enforceability. – Sasha verbally agreed to sell her land to
Brian for P2M. Delivery date and payment was set by the
parties on 15 September 2020. On 15 September 2020,
Brian demands for the delivery of the lot, but Sasha
INTRO (ALM1&CLM1) – MODULE 9: Contracts [WEEK 8 – 19 September 2019] 32

refuses to comply. May Sasha be held liable by Brian for

damages under their contract of sale?

Discussion: NO. The contract of sale between Sasha and

Brian in this case is unenforceable and cannot be enforced
by the party who claims a right under the contract (the
active subject) because it was not made in writing. Under
Article 1403, No. 2(e), when the object of a contract of sale
is real property, the law requires that it be made in writing
(at least in a private instrument) in order that it will be
enforceable even only between the contracting parties. If
not made in writing, it cannot be enforced if the party
obliged (the passive subject) denies the existence of the
contract.

It is important to note, however, that while a contract of

sale of real property is not enforceable if not in writing, it
is a valid contract. Since it is a valid contract, it can still be
enforced later on should the party obliged (the passive
subject) admit the existence of the contract (ratify the
contract) even if it was only orally made.

 THE FOUR KINDS OF DEFECTIVE CONTRACTS –

(a) RESCISSIBLE CONTRACTS. – Contracts subject to

rescission are valid contracts between the parties, but by
reason of economic injury or damage to one of the
INTRO (ALM1&CLM1) – MODULE 9: Contracts [WEEK 8 – 19 September 2019] 33

parties, or to third persons such as creditors, the contract

may be rescinded.

 An action for rescission must be commenced

within four years (Art. 1389, NCC).

 Under Art. 1381, the following contracts are

rescissible:

 Contracts 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 of the contract.

 Example: Thelma is the guardian of Jim, a

minor, who is the owner of a lot valued at P4M. On 15
January 2020, two days after Jim turned 16, Thelma (in her
capacity as guardian of Jim) sold the subject lot to Ben for
only P2.5 million. By reason of the sale, Jim suffered
damages (lesion) amounting to P1.5 million, which is more
than one-fourth (1/4) of the value of the lot (which is
P4M). Upon reaching the age of majority, Jim’s remedy
will be to file an action in court to rescind the sale made by
Thelma to Ben on the ground that, by such sale of the
property by his guardian Thelma, he suffered lesion by
more than one-fourth of the value of his lot.
INTRO (ALM1&CLM1) – MODULE 9: Contracts [WEEK 8 – 19 September 2019] 34

 Contracts agreed upon in representation of

absentees, if the absentees suffer the lesion stated in
the preceding number.

 Example: On 20 December 2014, Abby

boarded the M/V Doña Paz bound for Manila. The
following day, the vessel was reported to have sunk in the
waters of Mindoro. Abby was not among the passengers
who were rescued. Abby had a 500 square-meter lot in
Bulacan worth P2M. On 16 January 2018, the sister of
Abby, Aisha, sold the lot to Efren for P1.2M. On 10
December 2018, Abby suddenly appeared in their home in
Bulacan. She was rescued by officers of the Philippine
Coast Guard from an abandoned island near Taiwan.
When Abby learned about the sale of her lot, she filed an
action for rescission of the contract of sale between Aisha
and Efren.

Question: Is the contract of sale rescissible?

Answer: YES. This case involves the sale of the property of

an absentee by a representative. The absentee suffered
lesion by more than one-fourth of the property amounting
to P800,000.00 (P2M – P1.2) by reason of the contract of
sale. Therefore, as soon as Abby appears, she has the right
to file an action for rescission of the contract of sale on the
ground of lesion.
INTRO (ALM1&CLM1) – MODULE 9: Contracts [WEEK 8 – 19 September 2019] 35

 Contracts undertaken in fraud of creditors when the

latter cannot in any other manner collect the claims
due them.


Example: Denzel owes Jennifer P5 million
due for payment on 30 August 2020. On 15 June 2020,
Denzel had sold his only remaining asset, a 1000 square-
meter lot in Cebu City, to Trina, who was aware that
Denzel’s purpose was to evade his obligation to Jennifer.
(The buyer here, just like the seller, is in bad faith.) On 31
August 2020, Denzel was insolvent and had no other
properties with which to pay for his debt to Jennifer.
Under the facts, Jennifer can file an action for the
rescission of the contract of sale between Denzel and
Trina, the same having been undertaken by Denzel to
defraud Jennifer. If Jennifer’s action is granted by the
court, and the sale is rescinded, ownership of the lot will
be revested in Denzel. The property will then be made to
answer for Denzel’s obligation.

 Contracts 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.

 Example:
Heart sued Chiz to recover some
pieces of jewelry. While the case was pending, Chiz,
without the approval of the court or of Heart, sold the
INTRO (ALM1&CLM1) – MODULE 9: Contracts [WEEK 8 – 19 September 2019] 36

jewelry to Tara. Tara was a buyer in bad faith since she

was aware that the jewelry was the subject of litigation in
court between Heart and Chiz. Under the facts, the sale to
Tara is rescissible at the instance of Heart if Heart obtains
a favorable judgment against Chiz in the original case she
filed.

(b) VOIDABLE CONTRACTS. – Contracts subject to

annulment are also valid and binding between the parties
until annulled, unless there has been ratification. Unlike
in a rescissible contract which requires economic injury or
damage to one of the parties, in a voidable contract, the
defect is caused by a vice of consent.
 An action for annulment must be commenced
within four years (Art. 1391, NCC).

 Under Art. 1390, the following contracts are

voidable, even though there may have been no damage to
the contracting parties:

 Contracts where one of the parties is incapable of

giving consent to a contract, i.e., one of the parties to
the contract is incapacitated.

 Contracts where the consent is vitiated by mistake,

violence, intimidation, undue influence or fraud.
INTRO (ALM1&CLM1) – MODULE 9: Contracts [WEEK 8 – 19 September 2019] 37

(c) UNENFORCEABLE CONTRACTS. – In these cases, there

is a valid contract between the parties, but neither can
compel the other to perform the obligation. The rule is
that the contract must not have been performed or
consummated yet, either on one or both sides. For once
there is performance, even on only one side, the contract
is taken out of the rules governing unenforceable
contracts.
 Under Art. 1403, the following contracts are
unenforceable, unless they are ratified:

 Unauthorized contracts or those entered into

in the name of another person by one (a) who has been
given no authority or legal representation, or (b) who has
acted beyond his powers.

 Example: Owen is the owner of a BMW car. Without

his authority, his daughter Odessa, sold the BMW car to
Benjie for P5 million. Odessa represented to Benjie that
she was authorized by her father to sell the car. Odessa
and Benjie then agreed that delivery of the car as well as
payment of the purchase price will be made on 15
September 2020.

Question: On 15 September 2020, can Benjie compel Owen

to deliver the car as earlier agreed upon?
INTRO (ALM1&CLM1) – MODULE 9: Contracts [WEEK 8 – 19 September 2019] 38

Answer: In this case, since the sale was undertaken by

Odessa without the authority of Owen, the contract of sale
is unenforceable; hence, Odessa cannot bind Owen to the
contract. Owen cannot be compelled to deliver the car to
Benjie. If Benjie files an action to compel performance of
the obligation, the court will dismiss the case on the
ground that Benjie’s action is grounded on a contract
which is unenforceable by action.

 Contracts that do not comply with the Statute

of Frauds.

 Contracts where both parties are incapable of

giving consent to a contract.

 Example: Ferdie, 17 years old, promised to sell to 16

year-old Rachel his mountain bike for P150,000.00. In this
case, if Francis later on refuses to honor his promise and
denies that he ever made a promise to sell the mountain
bike, Rachel will not be able to enforce their agreement by
INTRO (ALM1&CLM1) – MODULE 9: Contracts [WEEK 8 – 19 September 2019] 39

an action in court since the contract is unenforceable. This

is true even if the parties put their agreement down into
writing. What is material here is not the form of the
contract, but the capacity of the contracting parties.

 Agreements that are unenforceable for failure

to comply with the statute of frauds (Art. 1403, No. 2). – The
Statute of Frauds provides that an agreement shall be
unenforceable by action, unless such is in writing, and
subscribed by the party charged, or by his agent.
Evidence, therefore, of the agreement cannot be received
by the court without the writing, or a secondary evidence
of its contents.

Under Article 1403, No. 2, the following

contracts must be in writing and must comply with the
Statute of Frauds to be enforceable between the parties:


An agreement which is to be executed or
consummated after one (1) year from the date of
perfection of the contract.

 Example: On 1 September 2019, Sally entered into a

contract with Brian for the sale of her car to him. Delivery
of the car and payment of the purchase price was set on 5
September 2020. This contract must be in writing to be
enforceable because the execution or consummation of
INTRO (ALM1&CLM1) – MODULE 9: Contracts [WEEK 8 – 19 September 2019] 40

the contract is set on a date more than a year from the

perfection of the contract.

 A special promise to answer for the debt, default

or miscarriage of another.

 Example: Dennis borrowed money from Carina with

Gorio as guarantor. As guarantor, Gorio obliges himself to
answer for the obligation to Carina, if Dennis is not able to
pay the debt on maturity date. This promise of Gorio to
answer for the default of Dennis must be in writing, so
that Gorio can be held liable by Carina if Dennis fails to pay
his obligation on due date.

 An agreement made by reason of marriage other

than a mutual promise to marry.

 Example: Martin agrees to build a house for Wilma’s

parents worth P10M if she will marry him. If Wilma
subsequently marries Martin, she cannot oblige Martin to
make good his promise to build a house for her parents if
their agreement was not made in writing.

An agreement for the sale of personal

property where the consideration is P500 or more, unless
there has been partial delivery or payment.
INTRO (ALM1&CLM1) – MODULE 9: Contracts [WEEK 8 – 19 September 2019] 41

 Example: Sylvia and Barry entered into a verbal

contract for the sale of a pair of silver earrings for P500.00.
Delivery and payment were set on 30 October 2020. IF on
due date Sylvia does not deliver, Barry cannot compel her
to do so even if he is willing to pay because the contract
falls under the Statute of Frauds, and must be in writing to
be enforceable between the parties. ASSUME THAT on
due date Sylvia makes, and Barry accepts, delivery of the
silver earrings. Later, Sylvia files an action to compel Barry
to pay the purchase price of P500.00. This time, Barry will
be obliged to pay. Barry cannot set up the defense that
Sylvia cannot enforce their agreement for not having been
made in writing. This is because there has already been
delivery of the object of the contract, and by accepting the
pair of earrings, Barry in effect admits the existence of the
agreement.

 An agreement for the lease of real property where

the term is more than one year.

 Example: On 15 January 2020, Orly agreed to lease his

building to Tirso for a period of two (2) years starting 15
February 2020, until 14 February 2022. On 15 February
2020, if Orly does not allow Tirso to take possession of the
leased property as agreed upon, Tirso cannot legally
compel Orly to do so if their lease contract is not in
writing.
INTRO (ALM1&CLM1) – MODULE 9: Contracts [WEEK 8 – 19 September 2019] 42

 An agreement for the sale of real property or of

an interest therein.

 Example: Isko and Bernie entered into a verbal contract

for the sale of a parcel of land. Delivery and payment were
set on 30 October 2020. On 30 October 2020, if Isko
changes his mind about the sale, Bernie cannot sue Isko to
compel the latter to perform his obligation under the
contract of sale which was not put in writing; hence,
unenforceable.

 A representation as to the credit of a third

person.

 Example: Delfino is applying for a loan with Cielo.

Before she releases the money, Cielo asks Ramiro about
the credit standing of Delfino. Ramiro orally assures Cielo
that Delfino is solvent, and has good credit reputation. On
the basis of this representation, Cielo extends a loan to
Delfino. However, it turns out that Ramiro made a false
representation as to Delfino’s credit standing because
Delfino defaulted in his obligation to Cielo on due date. In
this case, if the representation of Ramiro as to Delfino’s
credit standing was not made in writing, Cielo cannot hold
Ramiro liable for damages for such misrepresentation.

(d) VOID CONTRACTS. – A void contract is inexistent

from the beginning. In contemplation of law, there is no
INTRO (ALM1&CLM1) – MODULE 9: Contracts [WEEK 8 – 19 September 2019] 43

contract between the parties. A void contract cannot be

ratified, the reason being that the defect of the contract is
permanent.

 Under Art. 1409, the following contracts are

inexistent and void from the beginning:

 Contracts whose cause, object or purpose is

contrary to law, morals, good customs, public order or
public policy (e.g., a contract for the sale of shabu).

 Contracts which are absolutely simulated or

fictitious.

 Example: Darius is indebted to Carrie. Upon learning

that Carrie is going to enforce her credit, Darius pretended
to sell his land to Larry, his father-in-law. Darius did not
receive a single centavo for the transaction from Larry, and
Darius continued in the possession of the land, since the
contract was merely simulated or fictitious. There is no
contract in this case as the parties did not intend to be
bound by the sale at all.

 Contracts whose cause or object did not exist

at the time of the transaction (e.g., a contract for the sale
of future inheritance, but sale of hereditary rights is valid).
INTRO (ALM1&CLM1) – MODULE 9: Contracts [WEEK 8 – 19 September 2019] 44

 Contracts whose object is outside the commerce

of men. (Example: For a monthly consideration of
P1,000.00, Lala obliged herself to rent out to Ling the side
walk outside her store to serve as Ling’s parking space.)

 Contracts which contemplate an impossible

service. (Example: Kiko promised to deliver to Zsazsa a
mermaid from the San Juanico Strait.)

 Contracts where the intention of the parties

relative to the principal object of the contract cannot be
ascertained. (Example: Dolphy promised to sell to Panchito his
BMW car. Dolphy, however, has five BMW cars. Since it cannot
be ascertained based on the parties’ contract which car Dolphy is
selling, the parties’ contract of sale is void.)

 Contracts expressly prohibited or declared

void by law.

 THE “PARI DELICTO” DOCTRINE – Generally,

parties to a void agreement cannot expect the aid of the
law; the courts leave them as they are, because they are
deemed in pari delicto or “in equal fault.” In pari delicto is
a “universal doctrine which holds that no action arises, in
equity or at law, from an illegal contract; no suit can be
maintained for its specific performance, or to recover the
property agreed to be sold or delivered, or the money
INTRO (ALM1&CLM1) – MODULE 9: Contracts [WEEK 8 – 19 September 2019] 45

agreed to be paid, or damages for its violation; and where

the parties are in pari delicto, no affirmative relief of any
kind will be given to one against the other.

 Illustrative Examples:
 When the illegality of the contract constitutes
a crime and both parties are in pari delicto. – Sheldon
sold to Brenalie 100 sticks of marijuana for P20,000.00.
Pursuant to their agreement, Sheldon delivered 100 sticks
to Brenalie who paid only P10,000.00 therefor. Brenalie
told Sheldon that she will pay the balance the following
day because she was out of cash. Brenalie, however, did
not pay the balance despite repeated demands from
Sheldon.

QUESTION: Under the facts, can Sheldon legally compel

Brenalie to pay the balance?

ANSWER: NO. Sheldon cannot legally compel Brenalie to

pay the P10,000.00 balance. In this case, both Sheldon
and Brenalie will be criminally prosecuted for the sale of
marijuana. The marijuana and the P10,000.00 paid to
Sheldon will be confiscated in favor of the government.
(Art. 1411, NCC)

 When the illegality of the contract does not constitute

a crime and both parties are in pari delicto. – Mandy and
Wendy, who are both under no legal impediment to marry
INTRO (ALM1&CLM1) – MODULE 9: Contracts [WEEK 8 – 19 September 2019] 46

each other, entered into an agreement whereby Wendy

agreed to live with Mandy, as his wife, without the benefit
of marriage for six months from January to June 2020, in
exchange for Mandy’s giving to her a monthly support of
P50,000.00. On 1 January 2020, Mandy advanced to
Wendy the complete P300,000.00 consideration for the
entire six months that Wendy was to cohabit with him
based on the terms of their agreement. On 1 February
2020, however, Wendy was forced to go home to their
province because her mother found out about their
arrangement and she was summoned home. Since Wendy
did not make good her part of the bargain, Mandy
demanded that she return to him the P250,000.00
corresponding to the monthly support for the remaining 5
months of their contract which Wendy did not make
good.

QUESTION: Under the facts, can Mandy legally compel

Brenalie to return the P250,000.00 as per the terms of
their contract?

ANSWER: NO. The parties’ contract here is illegal for

being contrary to morals, but the illegality does not
constitute a crime. In this case, no affirmative relief of any
kind will be given to either of the parties in this illegal
contract. Hence, Mandy cannot compel Wendy to cohabit
with him for another 5 months as stipulated in their
contract. Neither can Mandy recover from Wendy the
INTRO (ALM1&CLM1) – MODULE 9: Contracts [WEEK 8 – 19 September 2019] 47

P250,000.00 already given to her pursuant to the terms of

their agreement. (Art. 1412, NCC)

* * * END * * *
HAPPY READING & LEARNING!


SOURCES of NOTES:

The discussions outlined in this module

have been collectively lifted from the
cases cited and commentaries made by
the authors in the references cited
below:

1. Alconera, Virgilio P. Obligations and Contracts.

Quezon City: Central Book Supply, Inc., 2009.

2. De Leon, Hector S. The Law on Obligations and

Contracts. Manila: Rex Book Store, 2011.

3. Martin, Ruperto G. Introduction to Philippine Laws

Manila: Premium Book Store, 1986.

4. Soriano, Fidelito R. Obligations and Contracts (Law

and Application). Manila: GIC Enterprises & Co., Inc.,
2011.

5. Suarez, Rolando A. Introduction to Law. Manila:

Rex Book Store, Inc., 2017.
INTRO (ALM1&CLM1) – MODULE 9: Contracts [WEEK 8 – 19 September 2019] 48

FOOD FOR THOUGHT

“Live as if you were to die tomorrow.

Learn as if you were to live forever.”
Mahatma Gandhi