Magbalon III

Contracts; patterned to Justice Caguioas book; Suppletory to Ali notes.

Sanchez Roman A contract is a juridical convention manifested in legal form, by
virtue of which one or more persons bind themselves in favor another, or others, or
reciprocally, to the fulfillment of a prestation to give, to do, or not to do.
Contracts differs from policitacion, the latter is merely an offer that has not yet
accepted, whereas in contracts, there is the meeting of the minds. It also differs
from perfect promise, because the latter is merely preparatory to the contract and
merely paves the way for the celebration of the contract in the future.
Number of parties in a contract What the law meant is two parties not two
persons because that same person may represent two parties because he may act
in his own right and as representative of another. This is the so called autocontract.
Stages in the life of a contract
1. Preparation start of the negotiation till the moment just before the
agreement of the parties
2. Perfection precise moment when the parties come into agreement on the
terms of the contract
3. Consummation contract is fully executed
Elements of a contract
1. Essential without which there can be no contract; consent, subject matter
and cause
2. Natural usually accompany a contract and are derived from its nature and
are presumed by law which can be waived; warranty in sales
3. Accidental can only exist when the parties expressly so provide for the
purpose of limiting or modifying the normal effects of their rights; condition
or period
Characteristics of contracts
1. Autonomy of the will of the parties in contracts also called as freedom of
contracts, the contracting parties may establish such stipulations provided
that they are not contrary to law, morals, good customs, public order or
public policy.
2. Obligatory force of contracts the parties are not only bound 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.
3. Mutuality of contracts the contract must bind both parties and the validity
and compliance cannot be left to the will of one of them.
4. Relativity of contracts contracts take effect only between the parties,
assigns and heir, except in case where the rights and obligations arising
from the contracts are not transmissible by their nature or by stipulation or
by provision of law.

Art. 1306 Autonomy of the will of the parties in contracts.

Art. 1307 Innominate contracts those without any individuality or their own
special rules and are governed by the general rules of contracts.
They are grouped generally into four types; I give what you give, I give that you do,
I do that you give and I do that you do.
Art. 1308 Validity cannot be left to one party In order to maintain the
enforceability of contacts.
Art. 1309 Determination of performance determination of the performance
may be left to a third persons, whose decision shall be obligatory unless it is
evidently inequitable, and its binding effect begins from the time the decision of
the third person has been made known to both contracting parties.
Art. 1310 Mutuality of contracts However, should the decision of the third
person be evidently inequitable, the courts will decide what is equitable under the
circumstances.
Resolutory condition at the will of the parties What is prohibited under Art. 1308
is that the effectivity of the fulfillment of the contract will be left to the will of one
of the parties. However, the termination of the contract may be left to the will of
one of them in the negative form of rescission if that is so expressly stated in the
contract; an agreement permitting the cancellation of the contract by one of the
parties, for instance, a provision under a contract of lease, that the lessee at any
time before the erecting any building on the land leased might rescind the contract
of lease.
Art. 1311 Relativity of contracts; the general rule, therefore is that contracts
produce effect only as between the parties who execute them. Hence, the rights of
a part cannot be prejudiced by the act, declaration or omission of another, and
proceedings against one cannot effect another, except as expressly provided by law
or the Rules of Court. This is the same principle as the rules of res inter alios acta
in Evidence.
Exceptions The contract does not produce effects for the heirs when the
obligations arising from contracts are not transmissible in nature, or by stipulation
of the parties or by law. E.g.: agency
The contract may affect third persons in following:
1. When the parties transfer to third persons the rights they acquired under
the contract
2. Contract contains stipulations in favor of third person
3. When third person exercise subrogatory action or the action pauliana
4. Suspension of payments under Insolvency law
5. Collective bargaining
6. Contracts creating real rights
7. In cases of Negotiorum Gestio

Only parties in a contract may enforce or annul the contract. However, creditors
may rescind those contracts created in fraud of their rights.
Stipulations POUR AUTRUI; requisites
1.
2.
3.
4.
5.

The conferment of favor upon third person is clear and deliberate

No compensation for the stipulation in favor of the third person
The stipulation should not be the entire contract but merely a part
There is no agency
Third person communicated his acceptance to the obligor before its
revocation the power of revocation belongs to both contracting parties and
not to one of them alone. Hence, unilateral revocation by one of the parties
does not constitute the revocation referred to in law.

Art. 1312 Contracts creating real rights

Contracts creating real rights must be distinguished from real contracts. The
former refers to the nature of the rights created by the contract, the latter refers
to perfection of the contract. In a contract crating real rights, the right created
directly affects the object of the contract and it follows the same whoever comes
into the possession of the property. Real contracts on the other hand, are those
which are perfected by the delivery of the property in question. A contract may be
consensual, but produce real rights, and a real contract may not produce a real
right.
Art. 1313 Protection of creditors; this refers to a rescissory action or action
pauliana
Art. 1314 Violation induced by another; requisites.
a. The existence of a valid contract
b. Knowledge by a third person of the existence of the said contract
c. Interference by the third person in the contractual relation without legal
justification
Such stranger cannot become more intensively liable to damages for nonperformance of the contract that the party in whose behalf he intermeddles.
The liability of the contracting party who broke the contract and the third person
who induced him to do so should be solidary, because in so far as the third person
is concerned, he commits a tortious act or a quasi-delict for which liability arises.
For third person, the liability arises from quasi- delict but with regard to guilty
party, his liability arises from breach of contract or culpa contractual.
Art. 1315 Perfection of contracts; article only apply to consensual contracts.
a. Consensual contracts perfected by mere consent
b. Real contracts perfected by the delivery of the object of the contract
c. Formal or Solemn contracts only enforceable if it conforms to the forms
prescribed by law

From the moment a contract is perfected, the parties are bound not only to
fulfillment of what has been expressly stipulated but also to all consequences
which, according to their nature, may be in keeping with good faith, usage and law.
The name of the contract which is given by the parties is totally immaterial since
the nature of the contract is determined not by the parties but by the law. We must
distinguish between the validity of the stipulation in a contract and the juridical
qualification of a contract.
Art. 1316 Real contracts; delivery is essential
Art. 1317 Contracts in the name of another; lack of authority makes the contract
unenforceable unless ratified before it is revoked.
Ratification retroacts to the time of its celebration. Without ratification, the person
in whose name the contract was executed is no liable. Whether the representative
becomes liable to the other party or not will depend on whether in entering into
the contract he gives notice of his lack of authority or excess of authority. He would
be liable if did not inform of suck lack of authority. On the other hand, the one
informed is not entitled to damages if he know or should have known that he was
dealing with a person lacking of authority.
Art. 1318 Essential requisites of contracts; Consent, Object and Cause
The essence of consent is the conformity of the parties to the terms of the contract.
Hence, it is defined as the concurrence of the offer and the acceptance over the
thing and the cause which constitute the contract.
Requisites of consent
a. Plurality of subjects a contract therefore requires not two persons but two
parties; not two wills but two declaration of wills.
b. Capacity of the contracting parties
c. Intention of the parties
d. Manifestation the intention of the parties
e. Concurrence between the intention of the parties and its manifestation

Elements of consent
a. The offer
b. The acceptance
It is only the general rule, exception is, where other matter besides the thing and
the cause are consired material by the parties, in which case, the area of
agreement must include those other things which are considered material by the
parties.
Requisites of an offer
a. It must be definite
b. It must be complete
c. It must be made with the intention to be bound

d. It must be directed to the person or persons with whom the offeror intends
to enter into a contract. modern law of contracts recognize definite offers
which are directed to the public in general in the case of promises or
rewards.
Requisites of acceptance
a.
b.
c.
d.
e.

It must be absolute
It must be directed to the offeror
It must be made with the intention to be bound
It must be within the proper time
Communicated to the offeror and learned by him

Any modification or variation from the terms of the offer annuls the latter and frees
the offeror, because it would be considered a qualified acceptance or a counteroffer and a counter-offer has the effect of extinguishing the offer.
Acceptance through intermediaries, unless the intermediary convey the
acceptance to the principal the offer is not yet accepted. However, in cases of an
agent, the acceptance conveyed to the agent is accepted from the time the
acceptance is communicated to the same.
The offeror is not bound by the acceptance by letter or telegram until the same
came to his knowledge. This requirement should be understood rationally, so if the
offeror delays in bad faith his knowledge of the acceptance by not reading nor
opening the letter or telegram of acceptance, the contract is deemed perfected.
Since it is not the intention of the law to leave the perfection of the contract to the
caprice of the offeror
Will silence on the part of the offeree constitute acceptance? The answer must be
qualified. When circumstance imply a duty to speak on the part of the person for
whom an obligation is proposed, his silence can be construed as consent. Provided,
there is no other interpretation of such silence.
The law on Agency have cases when acceptance of the agency may be implied from
silence of the agent under circumstances.
Art. 1320 An acceptance may be expressed or implied; acceptance may also
be presumed, for instance, the failure on the part of the heir to reject the
inheritance within 30 days from notice of the order of the court distributing estate.
Art. 1321 Terms of acceptance; offerror may fix time, place and manner of
acceptance.
Art. 1322 An offer made through an agent is accepted from the time
acceptance is communicated to him
Art. 1323 Extinguishment of the offer; death, civil interdiction, insanity or
insolvency of either party before acceptance is conveyed.
In addition, offer is also extinguished when: upon the rejection by the offeree, upon
the lapse of period stated in the offer without acceptance being conveyed, when

there is a counter-offer and upon revocation of the offer before knowledge of

acceptance.
Art. 1324 Withdrawal of the offer; the offeror may always withdraw the offer
before acceptance, the exception being when the period given is founded upon
consideration, as something paid or promised.
Option contract Where the offeror grants to the other party a period within which
to accept the offer or not; requisites
a. Concession by one party in favor of the other of the power to decide whether
a contract will be celebrated or not, without any obligation on the part of
the latter
b. The concession is exclusive
c. The concession is for a fixed period
d. There is no other condition but the sole will of the other
Exception to the rule of withdrawal as a rule, withdrawal of the offer must be
made before acceptance. The exception is, even though a unilateral promise to buy
or to sell has already been accepted, it can still be withdrawn by the offeror if the
accepted unilateral promise (option contract) is not supported by any
consideration distinct from the price.
Art. 1325- Advertisement of things for sale; as a rule, are mere invitations,
exception is when it is complete in itself.
Art. 1326 Advertisement for bidders; not applicable to bids in judicial sale
Art. 1327 Capacity to give consent
Capacity is not an essential element of a contract but of consent.
If both parties are incapacitated to give consent, contract is unenforceable; If only
one party is incapacitated to give consent, contract is voidable.
Under Art. 1489, it is provided that where necessaries/necessities are sold and
delivered to a minor or other persons without capacity to act, he must pay a
reasonable price thereof.
Should a minor be guilty of active misrepresentation and his physical development
is such as to mislead the other party into believing that he is of age, the minor is
said to be guilty of estoppel and may not annul the contract on the ground of
minority.
Insanity must exist at the time of the perfection of the contract.
Deaf mutes must not know how to write to be incapacitated to give consent
Art. 1328 Lucid interval; valid, Drunkenness/Hypnotic spell; voidable
Art. 1329 Other incapacities
Incapacities are different from disqualifications. Incapacities are limitations on
capacity to act and are therefore restrictions on the exercise of the right and are

founded on subjective circumstances within the person affected thereof;

disqualifications are not limitations on capacity to act but merely restriction on the
enjoyment of the right and are based on reasons of morality. A contract celebrated
by an incapacitated person is voidable; a contract entered into against a
prohibition/disqualification of law is null and void ab initio. The Rules of Court
provides for other incapacities.
Art. 1330 Vices of consent Mistake, Violence, Intimidation, Undue Influence and
Fraud
Characteristics of consent
a. It should be intelligent, not vitiated by error or mistake
b. It should be free and voluntary, it is not vitiated by violence, intimidation or
undue influence
c. It should be spontaneous, that is, not vitiated by fraud
d. It should be real, it is not simulated
Contracts with vitiated consent are only voidable, valid until annulled.
Art. 1331 Consent through mistake; it should refer to mistake of fact and not
of law. In consonance with Art. 3 of the Civil Code. Mistake of law, as a general
rule, will not vitiate consent except in those cases and under those circumstances
specifically provided by the Code.
The mistake must also refer to the very substance of the thing. However, it the
mistake should refer to the nature of the contract, there will be a lack of consent
rendering the contract void instead of voidable.
The mistake as to the conditions must refer to something essential or substantial to
vitiate the consent.
Art. 1332- Illiterate party this provision is not a rule of substantive law but of
evidence since it shifts merely the burden of proof from the party alleging the
mistake to the party enforcing the contract.
Art. 1333 Essential requisite of mistake; requisites
a. It must be of a past or present fact
b. The mistake must have induced the consent
c. The mistake must not be imputable to the party mistaken, that is, that the
mistake is inadvertent and excusable
d. The mistake must be of fact and not of law
Art. 1334 Mistake of law, usually not a ground to vitiate consent only by way of
exception; requisites
a. It is a mutual error or mistake
b. The mistake is to the legal effect of an agreement
c. The mistake frustrates the real purpose of the parties
This kind of mistake should be distinguished from mistake as to nature of the
contract itself. The former renders the contract voidable, whereas, the latter

renders the contract void. Thus, if a person delivers a thing by way of sale and the
other receives it, thinking it was a lease, there is no meeting of the minds, and
hence, there is no contract, whether of sale or of lease.
Art. 1335 Violence or intimidation; former, physical while, latter, moral force
or compulsion
In order both may vitiate consent, it must prevent the will of the victim from freely
making a choice.
When a person is under compulsion, he becomes a mere instrument by the
offender, he acts against his will. He loses the personality of the actor.
Violence; requisites
a. Force employed is serious or irresistible, or of such a degree that the victim
has no other course, but to submit
b. That it is the determining cause of consent
c. That it is not justified
d. That it is sufficient
Intimidation; requisites
a.
b.
c.
d.

It must produce a reasonable and well-grounded fear

The fear must produce consent
The fear is of imminent and grave evil upon person and property
The threat must be unjust

Note that the offender must have the capability to inflict the harm threatened. Age,
sex and condition must be borne in mind.
Exception; when threat is enforced to a legal claim Such a threat cannot
constitute duress even if the claim proves the unfounded so long as the creditor
believes that it was his right to do so (Berg vs, Natl City Bank of New York)
Art. 1337 Undue Influence; there is still freedom of choice but the same is
unreasonably restrained must be distinguished from reverential fear which is the
fear of displeasing a person to whom respect and obedience is due.
Art. 1338 - Fraud; insidious words and machinations, in the procurement of
consent.
Kinds of fraud
a. Fraud in the performance of the obligation (malice or bad faith), fraud dealt
with in Art. 1171
b. Fraud in the celebration of the contract (deceit), fraud referred to in Art.
1338.
- Dolo causante (substantial fraud), which affects the substance of the
agreement so that without it the party would not have consented.
- Dolo incidente (incidental fraud), which affects the incidentals of the
agreement so that without it the party would not have consented but
under different term.

Fraud; requistes
a. There must be concealment or representation of a fact
b. It must be serious
c. It must be employed by one of the contracting parties and not by a third
person
d. It must not be employed by both contracting parties
e. It must be made in bad faith, that is, with the knowledge of its falsity
Art. 1339 Failure to disclose facts, when there is a duty to reveal them
constitutes fraud; concealment must refer to a material fact that induced the other
party to give his consent and there must be a duty to disclose such fact that may
arise from confidential relations.
Art. 1340 - Exaggerations in trade; dealers talk not fraud
Art. 1341 Expression of opinion does not constitute fraud unless made by an
expert which the other party relied on the formers knowledge
Art. 1342 Fraud employed by a third person does not vitiate consent, unless
such misrepresentation has created substantial mistake and the same is mutual;
exception is, when there is conspiracy between the third person and the other
party.
Art. 1343 Misrepresentation in good faith is not fraudulent but may constitute
error.
Art. 1344 Dolo Causante; in order that fraud may vitiate consent it must be a
dolo causante. Where the fraud is dolo incidente, it will only give rise to an action
for damages against the guilty party but the contract is not voidable.
Art. 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.
Simulation involves a defect in the declaration of the will; requisites
a. A deliberate declaration contrary to the will of the parties
b. Agreement of the parties to he apparently valid act
c. The purpose is to deceive or to hid from third persons although it is not
necessary that the purpose be illicit or for purposes of fraud.
Do not confuse intention to deceive from intention to damage.
Art. 1346 Absolute simulated contract is void, a relative simulated contract,
when it does not prejudice a third person and is not intended for any purposes
contrary to law, morals, good customs, public order or public policy binds the
parties to their real agreement.
Art. 1347 Object of contracts; not outside the commerce of men even future
things or transmissible rights, exception is, future inheritance save in cases
expressly authorized by law, also services which are not contrary to law, morals,
etc.

Art. 1348 Impossible things or services cannot be the object of contracts.

Art. 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.
Art. 1350 Cause of contracts; the essential or more proximate purpose which
the contracting parties have in view at the time of entering into the contract.
Strictly speaking, the cause is not that of the contract but of the obligation
established by the contract
Cause; requisites
a. It must exist, otherwise the contract is non-existent
b. It must be real
c. It must be lawful
Kinds of cause; in onerous contacts it is for each party the prestation or promise
of a thing or service by the other, in remuneratory contracts the service or
benefit which is remunerated, in contracts of pure beneficience the mere
liberality of the benefactor.
Art. 1351 Motives; different from cause
Motive is the psychological, individual and purely personal reasons which induce a
party to enter into a contract.
As a general rule, motives which impelled the parties to incur the obligation or
enter into the contract do not affect the existence or validity of the same.
Exception is, where the motives become an integral part of the cause because their
realization is the condition upon which the contract is to depend, where the
realization of the motives is the cause for entering into the contract and there
intervenes a serious mistake of fact and where the motive is the purpose or end of
the contract and the same is illicit.
Art. 1352 Lack of cause; no effect, null and void.
Art. 1353 Falsity of cause; renders the contract void.
Art. 1354 Cause is presumed unless the debtor proves the contrary; but it the
cause is stated in the contract and it is shown to be false, then it is incumbent upon
the party enforcing the contract to prove the legality of the cause.
Art. 1355 Lesion; or inadequate cause is any damage caused by the fact that
the price is unjust or inadequate. The mere fact that the cause is unjust or
inadequate does not invalidate the contract in the absence of fraud, mistake, or
undue influence. This provision is subject to those cases where the law specifically
allows lesion as a ground for rescission of the contract as in the contracts
mentioned in Art. 1381, pars. 1 and 2 and 1098 of the Civil Code.

Art. 1356 Form of contracts; contracts need not be in writing to be binding,

generally. Exceptions are, when the form is essential to the validity as in donations
of an immovable and movables worth P5,000 and when a contract is unenforceable
unless it be in a certain form as those embodied in the Statue of Frauds.
Necessity of form
a. Form is required for the validity of the contract; formal or solemn contracts
b. Form is required for the purpose of proving the existence of the contract;
contracts under the Statute of Frauds
c. Form is required for the purpose of making the contract effective as against
third person; contracts under Art. 1358
Art. 1357 Form for convenience; the contracting parties may compel each
other to observe that from, once the contract has been perfected. The right may be
exercised simultaneously with the action upon the contract. Form referred here is
the forms under Art. 1358, the next article.
Art. 1358 Contracts in public document; contracts of immovable properties,
sale of real properties, renunciation of hereditary rights or of those of the conjugal
partnership of gains, the power to administer properties, the cession of actions or
rights proceeding from an act.
These require form in order to make contract effective as against third person, this
article has nothing to do with the validity of a contract rather it talks about
efficacy.
Art. 1359 Reformation of instruments; there having a meeting of the minds
but the true intention is not expressed. When there is not yet a meeting of the
minds between the parties because it was prevented, the proper remedy is to
annul the contract.
Note that, what is reformed is the written instrument not the contract and the
action must be brought within ten years from the time the cause of action accrued.
Art. 1360 Principles of general law
Art. 1361 Mutual mistake as ground for reformation; requisites
a. The mistake should be of a fact
b. The mistake should be proved by clear and convincing evidence
c. The mistake should be common to both parties to the instrument.
Art. 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 defrauded party may ask for the reformation of the instrument.
Art. 1363 Mistake by one party; the instrument maybe reformed, if the other
party knew that there was a mistake and he concealed such fact from the former.
Art. 1364 Mistake of a clerk; by reason of the ignorance, lack of skill,
negligence or bad faith on the part of the draftsman or of the clerk or typist,
reformation is allowable.

Art. 1365 Relative simulation as a ground for reformation; when a contract

of mortgage turns out to recite a contract of sale or with a right of repurchase.
Art. 1366 Reformation not allowed
a. Simple donations inter vivos wherein no condition is imposed
b. Wills
c. When the real agreement is void
With respect to wills, there can be an exception, that is, to imperfect or erroneous
description of persons or property, which can be corrected by evidence aliunde
under Art. 789.
Note that, reformation being in the nature of an action for specific performance
requires a valuable consideration that is why simple donations cannot be reformed
because they are gratuitous.
Art. 1367 Election of remedies; when one of the parties has brought an action
to enforce the instrument, he cannot subsequently ask for its reformation.
The first constitutes an affirmation of the instrument and the latter a denial.
Art. 1368 Parties and action; the action for reformation can only be brought by
the injured party or his heirs and assigns, which in the case of mutual mistake is
either party or their successor in interest since the mistake being mutual, both are
considered injured parties. The complaint in reformation must likewise alleged the
necessary facts and prescribes in 10 years from the time the cause of action
accrued.
Art. 1369 Procedure shall be governed by the rules of court to be promulgated
by the Supreme Court.
Interpretation of contracts; cardinal rule
Is to seek the intention of the parties. The terms of a writing are to interpreted
according to the legal meaning it bears in the place of its execution unless parties
have reference to a different place, and the terms are presumed to have been used
in their primary and general acceptation, but evidence is admissible to show that
they have a local, technical or otherwise peculiar signification ad were so used and
understood in the particular sense.
Memorize Art. 1370 to Art. 1379
Art. 1380 Rescission; remedy to make ineffective a contract validly entered into
and which is therefore obligatory under normal conditions by reason of external
causes, resulting in a pecuniary prejudice to one of the contracting parties or their
creditors.
Rescission is a specie or form of the efficacy of contracts and one which operates
by law and not through the will of the parties; requisites
a. A contract initially valid
b. A lesion or pecuniary prejudice to someone

Rescission is different from mutual dissent in a way that the former operates by
law while the latter is a mutual agreement of the parties.
Art. 1381 Contracts that 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.
1 and 2 are based on lesion, note that the guardian and representative should refer
to contract of administration where the ward suffers necessary lesion and not to
contract of disposition, save in cases of judicial approval, where it will prevent the
rescissory action.
3 refers to Actio Pauliana, which requires; the existence of a credit, that said credit
existed prior to the contract of be rescinded, the existence of fraud or that the
debtor has the intention to injure by acting knowingly and in bad faith which
fraud or bad faith can either be presumed or proved and that the creditors cannot
in any other way recover their credits. Note that, rescission is a subsidiary remedy
a remedy of last resort.
4 refers to those things under litigation. Note that, it is not necessary that the
alienation be effected after the filing of the answer to the complaint, it is enough if
it is made after service of summons.
5 refer to special cases governed by special provision such as in Art. 1189, 1191,
1526, 1534, 1538, 1542, 1556, 1560, 1567, and 1659. E. g suspensive period or
conditions, payment by an insolvent.
Art. 1382 Payment by insolvent; insolvent of fact not judicial insolvency
Art. 1383 Rescission is subsidiary; remedy of last resort
Art. 1384 Extent of rescission; shall only be to the extent necessary to cover
the damage caused. Meaning in the exercise of the debtors right, he is only
entitled to the extent of his credit and shall not get the totality of the debtors
property. Note that, rescission can only be brought by the injured party.
Art. 1385 Effects of rescission; Abrogation of the contract and mutual
restitution. Restitution cannot be made if the object of the contract is in the hands

of a third person who acted in good faith, the only remedy is indemnification for
damages.
Art. 1386 Rescission referred to in No. 1 and 2 of Art. 1381 shall not take place
with respect to contracts approved by the courts.
Art. 1387 Presumption of fraud; in gratuitous alienations of property, there
arises a presumption of fraud when the donor did not reserve sufficient property to
pay all debts contracted before the donation. In onerous alienation there arises a
rebuttable presumption of fraud in case the conveyance is made after issuance of
the writ of attachment or judgement be issued. The latter need not be final and in
case of the former, even before service or execution. The decision or attachment
need not refer to the property alienated and need not have been obtained by the
party seeking rescission.
Art. 1388 Purchaser in bad faith; if the property is already in the hands of a
third person, whether the action will prosper or not will depend on the good or bad
faith of the first transferee. Note that, if the thing cannot be returned, the only
remedy is damages.
Art. 1389 The action to claim rescission must be commenced within 4
years, to be counted from the celebration of the contract except in cases of
guardianship or absentees, where the period of 4 years shall not begin until the
termination of the formers incapacity or until the domicile of the latter is known.
Art. 1390 Voidable contracts; valid until annulled.
a. Those where one of the parties is incapable of giving consent to a contract.
b. Those where consent is vitiated by mistake, violence, intimidation, undue
influence or fraud.
Art. 1391 Annulment must be brought within 4 years; counting of period
will begin:
a. Intimidation, violence or undue influence defect of the consent ceases
b. Mistake or fraud Time of discovery
c. Minors and incapacitated persons from the time guardianship ceases
Note that where minority is used as a defense and no positive relief is prayed for,
the four year period will not apply.
Art. 1392 Ratification extinguishes the action to annul a voidable contract;
requisites
a.
b.
c.
d.

The contract is voidable

The ratification is made with knowledge of the cause for nullity
At the time of ratification, the cause of nullity has already ceased to exist
Ratification is made by the party who can bring the action to annul

Art. 1393 Express and Implied ratification

Implied or tacit ratification happens when 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. For example, acceptance of payment and benefits by a debtor.
Art. 1394 Ratification by guardian
Art. 1395 Ratification does not require the conformity of the contracting party
who has no right to bring the action for annulment; hence, should the innocent
party choose to ratify the contract, the consent of guilty party is not necessary.
Art. 1396 Ratification cleanses the contract from all its defects the moment it
was constituted; ratification retroacts to the perfection of the contract.
Art. 1397 Who can bring action to annul; requisites
a. The plaintiff must be bound by the contract principally or subsidiarily
(guarantor, mortgagor et al), no stranger to the contract can bring an action
to annul.
b. The victim or the injured party and not the party responsible for the defect is
the person who must assert the annulment of contract.
Art. 1398 Mutual restitution; after the annulment has been granted, the same
shall produce the effect of mutual restitution, both parties must return things that
was given by one to the other and in case of services rendered, the value thereof
shall be the basis for damages. Mutual restitution is a condition precedent for
annulment of a contract.
Art. 1399 Restitution by incapacitated party; the incapacitated person has no
obligation to make restitution except insofar as he has been benefited by the thing
or the price received by him.
Such benefit consists not simply in the delivery to the incapacitated person of the
things or the price, but in proof that the enrichment resulted in an increase or
benefit of the incapacitated persons patrimony. Thus, there is benefit even
without increase of fortune, if the thing received is used for food, clothing,
dwelling, health or education.
Art. 1400 Loss by defendant; the above article refers to loss by the defendant
of the thing he is obliged to return after the decree of annulment. If the loss occurs
through his fault, then defendant must return the fruits and received and the value
of the thing at the time of the loss with interest from the same date. If the loss
occurs without the fault of the defendant then he is still bound to return the fruits
and the value of the thing under the principle of RES PERIT DOMINO, but since
the loss was without his fault, he is not bound to pay interest.
Art. 1401 Loss by plaintiff; the action for annulment of contract is extinguished
However, when 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. If
the incapacitated person himself lost the thing through fraud or fault, he is liable.
If it was lost in his possession but not through the incapacitated persons act
himself, there will be no action for annulment.

Art. 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.
Art. 1403 Unenforceable contracts unless ratified
a. Lack or excess of authority
b. Contracts which are required to comply by the requirements laid down in
the Statute of Frauds but requirements was not complied with.
c. Both parties are incapable of giving consent
Statute of frauds does not affect the validity of contracts or for the enforceability
thereof, and is only applicable to actions for the specific performance of the
contract or for the violation thereof. Only executory contracts, contracts which are
yet to be performed are covered and not those already partially or totally executed
or performed.
Please memorize codal provision of statute of frauds.
a. Performance within one year full performance must exceed a year
b. Guaranty- may include liability for tort
c. In consideration of marriage marriage settlements and donation propter
nuptias
d. Sale of personal property not less than P500
e. Lease or sale of real property lease for a period longer than one year and
executory real sale of real property. In case of agency, the same must also be
in writing
f. Representation as to credit liability arises from quasi-delict
Art. 1404 Law on unauthorized contracts Title X of Civil Code
Art. 1405 Ratification of contracts that must comply rather offended the
requirements laid down by the statute of frauds; by the failure to object the
presentation of oral evidence to prove the same, or by the acceptance of benefits
under them. This is an implied ratification.
Art. 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 Art. 1357
Art. 1407 Mutual incapacity; when one either partys parent or guardian
ratifies the contract, the contract becomes voidable. If then both partys parent or
guardian ratifies the contract, the contract is validated from inception.
Art. 1408 Unenforceable contracts cannot be assailed by third persons.
Art. 1409 Void contracts
a. Cause, object or purpose is contrary to law, morals, good customs, public
order or public policy
b. Absolutely simulated contracts
c. Cause or object did not exist at the time of the transaction
d. Object is outside the commerce of men

e. Impossible service
f. The intention of the parties relative to the principal object of the contract
cannot be ascertained
g. Expressly prohibited or declared void by law
These contracts cannot be ratified. Neither can the right to set up the defense of
illegality be waived.
Art. 1410 The action or defense for the declaration of existence of a
contract does not prescribe.
Art. 1411 Criminal contracts
In pari delicto
a. The parties shall have no action against each other
b. Both shall be prosecuted
c. The things or the price of the contract, as the effects or instruments of the
crime, shall be confiscated in favor of the Government.
In delicto The rule on Par. 1 of Art. 1411 applies only to the guilty party. The
innocent one or the less guilty may claim what he has given and shall not be bound
to comply with his promise.
Art. 1412 Unlawful contracts; but the act does not constitute a criminal
offense
In pari delicto
a. Neither party may recover what he has given by virtue of the contract
b. Neither party may demand the performance of the others undertaking
In delicto (only one party is guilty)
a.
b.
c.
d.

The
The
The
The

guilty party loses what he has given by reason of contract

guilty party cannot ask for the fulfillment of the others undertaking
innocent party may demand the return of what he has given
innocent party cannot be compelled to comply with his promise

Articles 1411 and 1412 embody the general principle of in pari delicto and refuses
them every remedy and leaves them where they are. Proceeding articles admit its
exceptions.
Art. 1413 Recovery of usurious interest Recoverable only the excess of
interest paid, since usury law is suspended
Art. 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

Art. 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 is thereby enhanced, recover what he has paid or delivered.
Art. 1416 When the agreement is not illegal per se but is merely prohibited, and
the prohibition by law is designed for the protection of the plaintiff, he may, if
public policy is thereby enhanced, recover what he has paid or delivered.
Art. 1417 Price fixed by law; recovery
Art. 1418 Hours of labor; recovery
Art. 1419 Minimum wage; recovery
Art. 1420 In case of a divisible contract, if the illegal terms can be separated
from the legal ones, the latter may be enforced.
Exceptions
a. When the nature of the contract requires indivisibility
b. Where the intention of the parties is that the contract be entire.
Art. 1421 The defense of illegality of contracts is not available to third persons
whose interests are not directly affected
Art. 1422 - A contract which is the direct result of a previous illegal contract, is
also void and inexistent.