TITLE 2 – CONTRACTS TITLE 2 – CONTRACTS

Chapter 3 – Form of Contracts

Chapter 1 – General Provisions Chapter 4 – Reformation of Instruments
Chapter 2 – Essential Requisites of Contracts Chapter 5 – Interpretation of Contracts
General Provisions Chapter 6 – Rescissible Contracts
Section 1 – Consent Chapter 7 – Voidable Contracts
Section 2 – Objects of Contracts Chapter 8 – Unenforceable Contracts
Section 3 – Cause of Contracts Chapter 9 – Void or Inexistent Contracts

Title II. - CONTRACTS CLASSIFICATION OF CONTRACTS

CHAPTER 1 According to their relation to other contracts:
GENERAL PROVISIONS
Those which for their object the establishment of a
condition in law which is necessary as a preliminary step
Art. 1305. A contract is a meeting of minds between two persons whereby 1. Preparatory
towards the celebration of another subsequent contract.
one binds himself, with respect to the other, to give something or to render Example: Contract of Partnership, Contract of Agency
some service. (1254a) Those which can subsist independently from other
2. Principal contracts and whose purpose can be fulfilled by
Art. 1306. The contracting parties may establish such stipulations, clauses, themselves. Example: Contract of Sale, Contract of Lease
terms and conditions as they may deem convenient, provided they are not Those which can exist only as a consequence of, or in
contrary to law, morals, good customs, public order, or public policy. 3. Accessory relation with, another prior contract. Examples: Contract
(1255a) of Pledge, Contract of Mortgage

CLASSIFICATION OF CONTRACTS CLASSIFICATION OF CONTRACTS

According to their perfection According to risk involve
Those where each of the parties acquires an equivalent of his prestation and
Those which are perfected by the mere agreement of the parties.
1. Consensual 1. Commutative such equivalent is pecuniarily appreciable and already determined from the
Example: Contract of Sale, Contract of Lease
moment of the celebration of the contract. Example: Contract of Lease
Those which require not only the consent of the parties for their
Those where each of the parties has to account the acquisition of an equivalent
perfection, but also the delivery of the object by any one party to of his prestation, but such equivalent although pecuniarily appreciable, is not yet
2. Real
the other. Examples: Contract of Commodatum, Contract of Deposit, 2. Aleatory determined, at the moment of the celebration of the contract, since it depends
Pledge upon the happening of an uncertain event, thus charging the parties with the
risk of loss or gain. Example: Insurance Contract
CLASSIFICATION OF CONTRACTS
According to their cause CLASSIFICATION OF CONTRACTS
Those in which each of the parties aspires to procure for himself a benefit According to their names or norms regulating them
1. Onerous
through the giving of an equivalent or compensation. Example: Contract of Sale Those which have their own individuality and are regulated by special provision of
1. Nominate
Those in which one of the parties proposes to give to the other benefit without law. Example: Contract of Sale, Contract of Lease
2. Gratuitous
any equivalent or compensation. Example: Contract of Commodatum Those which lack individuality and are not regulated by special provision of law.
2. Innominate
Example: MOA, MOU which is not regulated by a special provision of law.
 CONTRACT OF ADHESION AUTONOMY OF CONTRACTS Art. 1307. Innominate contracts shall be regulated by the
Is a contract whereby almost all of its provisions In Abe v. Foster Wheeler Corp, the stipulations of the parties, by the provisions of Titles I and II
are drafted by one party. The participation of the Supreme Court held that the freedom of this Book, by the rules governing the most analogous
other party is limited to affixing his signature or to contract is not absolute. The same is
his “adhesion” to the contract. For this reason, nominate contracts, and by the customs of the place. (n)
understood to be subject to reasonable
contracts of adhesion are strictly construed legislative regulation aimed at the
against the party who drafted it. promotion of public health, morals, Art. 1308. The contract must bind both contracting parties;
safety and welfare. One such legislative its validity or compliance cannot be left to the will of one of
It is erroneous, however, to conclude that regulation is found in Article 1306 of them. (1256a) (MUTUALITY)
contracts of adhesion are invalid per se. They are, the Civil Code which allows the
in the contrary, as binding as ordinary contracts. A contracting parties to “establish such Art. 1309. The determination of the performance may be left
party is in reality free to accept or reject it. A stipulations, clauses, terms and
contract of adhesion becomes void only when the to a third person, whose decision shall not be binding until it
conditions as they may deem
dominant party takes advantage of the weakness convenient, provided they are not has been made known to both contracting parties. (n)
of the other party, completely depriving the latter contrary to law, morals, good customs,
of the opportunity to bargain on equal footing. public order or public policy.

INNOMINATE CONTRACT
Art. 1310. The determination shall not be obligatory if it is evidently inequitable.
Those with lack individuality and are not RULES ON INNOMINATE CONTRACTS
In such case, the courts shall decide what is equitable under the circumstances. (n)
regulated by special provision of law
1. Stipulations of the parties Art. 1311. Contracts take effect only between the parties, their assigns and heirs,
1. Do ut des – I give that you give 2. The provisions of the Civil Code on except in case where the rights and obligations arising from the contract are not
2. Do ut facias – I give that you do obligations and contracts
transmissible by their nature, or by stipulation or by provision of law. The heir is
3. Facio ut des – I do that you give 3. The rules governing the most
not liable beyond the value of the property he received from the decedent.
4. Facio ut facias – I do that you do. analogous nominate contracts; and
(RELATIVITY)
4. The customs of the place
If a contract should contain some stipulation in favor of a third person, he may
1308 – Notes demand its fulfillment provided he communicated his acceptance to the obligor
1308 expresses what is known in law as the principle of mutuality of contracts. before its revocation. A mere incidental benefit or interest of a person is not
PURPOSE OF MUTUALITY OF CONTRACTS – the ultimate purpose is thus to nullify a contract sufficient. The contracting parties must have clearly and deliberately conferred a
containing a condition which makes its fulfillment or pre-termination dependent exclusively favor upon a third person. (1257a)
upon the uncontrolled will of one of the contracting parties.

1311 – Note: Refer to Relativity of Contracts

1311 - Notes
GENERAL RULE:
Contracts take effect only between the parties, their assigns and heirs. REQUISITES OF STIPULATION FOR AUTRUI
EXCEPTIONS: 1. There must be a stipulation in favor of a third party
1. Contracts are not transmissible by their nature; or 2. The stipulation must be a part not the whole, of the contract.
2. Contracts are not transmissible by stipulation; or 3. The contracting parties must have clearly and deliberately conferred a favor
3. Contracts are not transmissible by provision of law upon a third person, not a mere incidental benefit or interest.
4. The third person must have communicated his acceptance to the obligor
FOUR EXCEPTIONAL CASES TO THE PRINCIPLE OF RELATIVITY OF CONTRACTS before its revocation, and
1. If a contract should contain some stipulation in favor of a third person, he may demand its 5. Neither of the contracting parties bears the legal representation or
fulfillment provided he communicated his acceptance to the obligor before it revocation.(1311) authorization of the third party.
2. In contracts creating real rights, third person who come into possession of the object of the
contract are bound thereby. (1312) 1312 and 1313- 1314 Note
3. Creditors are protected in cases of contracts intended to defraud them. (1313) THIS IS AN EXCEPTION TO THE PRINCIPLE OF RELATIVITY OF CONTRACTS
4. Any third person who induces another to violate his contract shall be liable for damages to the
other contracting party. (1314)
Art. 1312. In contracts creating real rights, third persons who come into E 1314 - Note
possession of the object of the contract are bound thereby, subject to X
the provisions of the Mortgage Law and the Land Registration Laws. (n) WHAT IS TORT INTERFERENCE?
C Article 1314 expresses the principle of tort interference. This is an exception to the
E principle of relativity of contracts. The tort recognized in this provision is known as
Art. 1313. Creditors are protected in cases of contracts intended to
P interference with contractual relations. The interference is penalized because it violates
defraud them. (n)
T the property rights of a party in a contract to reap the benefits that should result
I therefrom.
Art. 1314. Any third person who induces another to violate his contract
shall be liable for damages to the other contracting party. (n) (TORT O
INTERFERENCE) N ELEMENTS OF TORT INTERFERENCE
1. Existence of a valid contract. It must be duly established
Art. 1315. Contracts are perfected by mere consent, and from that 2. Knowledge on the part of the third person of the existence of a contract. Requires that
moment the parties are bound not only to the fulfillment of what has there be knowledge on the part of the interferer that the contract exists.
been expressly stipulated but also to all the consequences which, 3. Interference of the third person is without legal justification.
according to their nature, may be in keeping with good faith, usage and
law. (1258)

1315 - Notes Art. 1316. Real contracts, such as deposit, pledge and
STAGES IN THE LIFE OF A CONTRACT commodatum, are not perfected until the delivery of the
Begins from the time the prospective contracting object of the obligation. (n)
parties manifest their interest in the contract and
ends at the moment of agreement of the parties. Art. 1317. No one may contract in the name of another
without being authorized by the latter, or unless he has
1. Preparation or Negotiation Negotiation is formally initiated by an offer. by law a right to represent him.
Accordingly, an offer that is not accepted, either
expressly or impliedly, precludes the existence of A contract entered into in the name of another by one
consent, which is one of the essential elements of a who has no authority or legal representation, or who has
contract. acted beyond his powers, shall be unenforceable, unless
Takes place when the parties agree upon the it is ratified, expressly or impliedly, by the person on
2. Perfection or Birth
essential elements of the contract. whose behalf it has been executed, before it is revoked
The parties fulfill or perform the terms agreed upon by the other contracting party. (1259a)
3. Consummation
in the contract culminating in its extinguishment.

Consensual Contract Real Contract Formal/Solemn Contract Art. 1317. No one may contract in the name of another without being authorized by the latter,
When the law requires that a
or unless he has by law a right to represent him.
Those which require not only contract be in some form in order A contract entered into in the name of another by one who has no authority or legal
consent of the parties for their that it may be valid or enforceable representation, or who has acted beyond his powers, shall be unenforceable, unless it is ratified,
Those which are perfected by the perfection, but also the delivery of or that a contract be proved in expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked
mere agreement of the parties. the object by any one of the party certain way, that requirement is by the other contracting party. (1259a)
to the other. absolute and indispensable.
Example: Sale or Lease Example: Donation of personal GENERAL RULE
Examples: Commodatum, Deposit, property exceeding P5,000; No one may contract in the name of another
Pledge Immovable property in public
instrument. EXCEPTIONS:
1. The person entering into a contract in the name of another has been authorized by the latter.
Commodatum Deposit Pledge 2. The person entering into a contract in the name of another has by law has a right to represent him.
One of the parties deliver to another, A deposit is construed from the In a contract of pledge, the creditor is EFFECT OF AN UNAUTHORIZED CONTRACT
either something not consumable so moment a person receives thing given the right to retain his debtor’s
that the latter may use the same for a belonging to another, with the movable property in his possession, or GENERAL RULE:
certain time and return it, in which case obligation of safely keeping it and of in that of a third person to whom it has A contract entered into in the name of another by one who has no authority or legal
the contract is called commodatum. returning the same. been delivered, until the debt is paid.
representation, or who has acted beyond his powers, shall be unenforceable.
 Essential Elements Natural Elements Accidental Elements
CHAPTER 2
The essential elements are those Are those which are The accidental elements are
ESSENTIAL REQUISITES OF CONTRACTS without which there can be no derived from the nature those which exists only when
GENERAL PROVISIONS contract. of the contract and the parties expressly provide
Subdivided into: ordinarily accompany the for them for the purpose of
a. Common (Comunes) are those same. They are presumed limiting or modifying the
Art. 1318. There is no contract unless the which are present in all contracts. by the law, although they normal effects of the contract.
following requisites concur: Example: Consent, Object, can be excluded by the Examples of these are
Certain and cause contracting parties if they conditions, terms and modes.
(1) CONSENT of the contracting parties; b. Special (especiales) are present so desire. Thus, warranty
(2) OBJECT certain which is the subject only in certain contracts. against eviction is implied
Example: Delivery in real in a contract of sale,
matter of the contract; contracts, form of solemn although the contracting
(3) CAUSE of the obligation which is contracts parties may increase,
established. (1261) c. Extraordinary or peculiar diminish or even suppress
(especialisimos) are those which it.
are peculiar to a specific contract.
Example: Price

SECTION 1. - Consent Art. 1322. An offer made through an agent is

Art. 1319. Consent is manifested by the meeting of the offer and the accepted from the time acceptance is
acceptance upon the thing and the cause which are to constitute the communicated to him. (n)
contract. The offer must be certain and the acceptance absolute. A
qualified acceptance constitutes a counter-offer. Art. 1323. An offer becomes ineffective upon the
Acceptance made by letter or telegram does not bind the offerer except death, civil interdiction, insanity, or insolvency of
from the time it came to his knowledge. The contract, in such a case, is either party before acceptance is conveyed. (n)
presumed to have been entered into in the place where the offer was
made. (1262a) Art. 1324. When the offerer has allowed the
offeree a certain period to accept, the offer may be
Art. 1320. An acceptance may be express or implied. (n) withdrawn at any time before acceptance by
communicating such withdrawal, except when the
Art. 1321. The person making the offer may fix the time, place, and option is founded upon a consideration, as
manner of acceptance, all of which must be complied with. (n) something paid or promised. (n)

CONSENT POLICITACION 1321- Note

Is manifested by the meeting of the offer and the An imperfect promise (policitacion) is The offerer may fix the time, place, and manner of acceptance, all of which must be complied
acceptance upon the thing and the cause which are merely an offer. An imperfect promise that with.
to constitute the contract could not be considered a binding A qualified acceptance constitutes a counter-offer.
commitment.
OFFER
COUNTER-OFFER CONSENT OF CORPORATION 1322 - Note
An offer is a unilateral proposition made by one
party to another for the celebration of a contract. This refers to qualified acceptance It cannot act except through Board of CONTRACT OF AGENCY
For an offer to be certain, a contract must come into Directors as a collective body, which is By the contract of agency a person binds himself to render
existence by the mere acceptance of the offer NOTE: where the parties merely vested with the power and some service or to do something in representation or on
without any further act on the offeror’s part. exchanged offers and counter-offers, no responsibility to decide whether the behalf of another, with the consent or authority of the letter.
The offer must be definite, complete and intentional. agreement or contract is perfected. corporation should enter into a contract
that will bind the corporation, subject BASIS
Spouses Paderes vs Court of Appeals Acceptance by Letter or Telegram to the articles of incorporation, by-laws The basis for agency is representation that is, the agent acts
“There is an offer” in the context of Article 1319 only if or relevant provisions of law. for and on behalf of the principal on matters within the scope
Acceptance made by letter or telegram does not bind
the contract can come into existence by the mere the offerer except from the time it came to his of his authority and said acts have the same legal effect as if
acceptance of the offeree, without any further act on the knowledge. they were personally executed by the principal.
part of the offeror. Hence, the ‘offer’ must be definite,
complete and intentional.
1323 - Note 1324 - Notes
RATIONALE RULES AS TO OFFER
An offer becomes ineffective upon the death, 1. If the period is not founded upon or
civil interdiction, insanity, or insolvency of 1324 - Notes supported by a consideration, the offeror is
either party before acceptance is conveyed. The still free and has the right to WITHDRAW the 1325 - Notes
OPTION
reason for this is that: offer before its acceptance, or, if an GENERAL RULE
Is a contract granting a privilege to buy or sell at a Business advertisements of things for sale are not
acceptance has been made, before offeror’s
The contract is not perfected except by the determined price within an agreed time. coming to know of such fact, by definite offers, but mere invitations to make an offer.
concurrence of two wills which exist and communicating that withdrawal to the
continue until the moment that they occur. An OPTION is a preparatory contract in which offeree. EXCEPTION
one party grants to another, for a fixed period 2. If the period has a separate consideration, a If the business advertisements of things for sale appears
The contract is not yet perfected at any time and at a determined price, the privilege to buy contract of ‘option’ is deemed perfected, to be a definite offer.
before acceptance is conveyed; hence, the or sell, or to decide whether or not to enter into and it would be a breach of that contract to
disappearance of either party or his loss of a principal contract with any other person during withdraw the offer during the agreed period. 1326 – Note
capacity before perfection prevents the the period designated, and within that period, to The option, however, is an INDEPENDENT Advertisements for bidders are simply invitations to
contractual tie from being formed. contract by itself, and is to be distinguished make proposals, and the advertiser is not bound to
enter into such contract with the one to whom
from the projected main agreement which is accept the highest or lowest bidder, unless the contrary
the option was granted, if the latter should decide appears.
obviously yet to be concluded.
to use the option.

Art. 1325. Unless it appears otherwise, business advertisements Art. 1328. Contracts entered into during a lucid interval
of things for sale are not definite offers, but mere invitations to are valid. Contracts agreed to in a state of drunkenness
make an offer. (n) or during a hypnotic spell are voidable. (n)

Art. 1326. Advertisements for bidders are simply invitations to Art. 1329. The incapacity declared in Article 1327 is
make proposals, and the advertiser is not bound to accept the subject to the modifications determined by law, and is
highest or lowest bidder, unless the contrary appears. (n) understood to be without prejudice to special
disqualifications established in the laws. (1264)
Art. 1327. The following cannot give consent to a contract:
Art. 1330. A contract where consent is given through
(1) Unemancipated minors; mistake, violence, intimidation, undue influence, or
(2) Insane or demented persons, and deaf-mutes who do not fraud is voidable. (1265a)
know how to write. (1263a)

1328 - Note
Art. 1331. In order that mistake may invalidate consent, it should refer to the
LUCID INTERVAL
1327 - Notes substance of the thing which is the object of the contract, or to those conditions
A brief period during which an insane
PERSONS INCAPACITATED TO GIVE CONSENT persons regains sanity sufficient to have which have principally moved one or both parties to enter into the contract.
1. Minors the legal capacity to contract and act on
2. Insane persons his or her own behalf. Mistake as to the identity or qualifications of one of the parties will vitiate consent
3. Demented persons; and only when such identity or qualifications have been the principal cause of the
4. Deaf-mutes who do not know how to write CHARACTERISTIC OF CONSENT
1329-1330 - Notes contract.
1. It should be INTELLIGENT
Article 1390 provides that a contract where VICES OF CONSENT 2. It should be FREE
one of the parties are incapable of giving 1. Mistake 3. It should be A simple mistake of account shall give rise to its correction. (1266a)
consent is voidable or annullable. 2. Violence SPONTANEOUS
3. Intimidation Intelligence in consent is Art. 1332. When one of the parties is unable to read, or if the contract is in a
Article 1403(3) of the Civil Code provides that a 4. Undue influence; vitiated by error.
contract where both parties are incapable of Freedom is vitiated by language not understood by him, and mistake or fraud is alleged, the person
and
giving consent is unenforceable. 5. fraud
violence, intimidation or enforcing the contract must show that the terms thereof have been fully explained
undue influence to the former. (n)
Spontaneity is vitiated by
fraud.
1331 - Notes
1334 - Notes
MISTAKE has been defined as a “misunderstanding of the
RULE
meaning or implication of something “or” a wrong action or
statement proceeding from faulty judgment xxx.” Mistake of law, does not render the contract 1333 - Notes
voidable because of the well-known principle
Art. 1333. There is no mistake if the Article 1333 of the Civil Code, however, states
EXAMPLE: that ignorance of the law does not excuse
party alleging it knew the doubt, that “there is no mistake if the party alleging it
Mistake as to the object of the contract is the substitution of anyone from compliance therewith. However,
contingency or risk affecting the knew the doubt, contingency or risk affecting
a specific thing contemplated by the parties with another. the above-stated rule is an EXCEPTION.
object of the contract. (n) the object of the contract.”
MISTAKE MUST BE SUBSTANTIAL REQUISITES:
1. Mistake should refer to the substance of the thing which Under this provision of law, it is presumed that
Art. 1334. Mutual error as to the legal 1. The mistake must be with respect to the
is the object of the contract; the parties to a contract know and understand
effect of an agreement when the real legal effect of an agreement
2. Mistake should refer to those conditions which have the import of their agreement.
purpose of the parties is frustrated, 2. The mistake must be mutual; and
principally moved one or both parties to enter into the
contract; and may vitiate consent. (n) 3. The real purpose of the parties must be
To invalidate consent, the error must be
3. Mistake as to the identity or qualifications of one of the frustrated.
excusable. It must be real error, and not that
parties will vitiate consent only when such identity or
could have been avoided by the party alleging it.
qualifications have been the principal cause of the
contract.

1335 - Notes
Art. 1335. There is violence when in order to wrest
VIOLENCE
consent, serious or irresistible force is employed. There is violence when in order to wrest consent, serious or irresistible force is employed.
REQUISITES OF VIOLENCE
There is intimidation when one of the contracting 1. The force employed to wrest consent must be serious or irresistible; and
2. It must be the determining cause for the party upon whom it is employed in entering into the
parties is compelled by a reasonable and well-grounded contract.
fear of an imminent and grave evil upon his person or 1335 – Notes
property, or upon the person or property of his spouse,
INTIMIDATION
descendants or ascendants, to give his consent. There is intimidation when one of the contracting parties is compelled by a reasonable and well-grounded fear of an
imminent and grave evil upon his person or property, or upon the person or property of his spouse, descendants or
To determine the degree of intimidation, the age, sex ascendants, to give his consent.

and condition of the person shall be borne in mind. REQUISITES

1. Must be the determining cause of the contract, or must have caused the consent to be given.
A threat to enforce one's claim through competent 2. That the threatened act be unjust or unlawful.
3. That the threat be real and serious, there being an evident disproportion between the evil and the resistance which
authority, if the claim is just or legal, does not vitiate all men can offer, leading to the choice of the contract as the lesser evil; and
consent. (1267a) 4. That it produces a reasonable and well-grounded fear from the fact that the person from whom it comes has the
necessary means or ability to inflict the threatened injury.

Art. 1336. Violence or intimidation shall annul the obligation, 1337 - Notes
although it may have been employed by a third person who UNDUE INFLUENCE
did not take part in the contract. (1268) There is undue influence when a person takes
improper advantage of his power over the will
of another, depriving the latter of a reasonable 1338 - Notes
Art. 1337. There is undue influence when a person takes freedom of choice.
To constitute fraud under Article 1338, the words
improper advantage of his power over the will of another,
and machinations must have been so insidious or
depriving the latter of a reasonable freedom of choice. The CIRCUMSTANCES TO BE CONSIDERED
deceptive that the party induced to enter into the
1. The confidential, family, spiritual and other
following circumstances shall be considered: the confidential, relations between the parties, or
contract would not have agreed to be bound by its
family, spiritual and other relations between the parties, or terms if that party had an opportunity to be aware
2. The fact that the person, alleged to have been
of the truth.
the fact that the person alleged to have been unduly unduly influenced was suffering from mental
influenced was suffering from mental weakness, or was weakness, or
FRAUD
3. The fact that the person alleged to have been
ignorant or in financial distress. (n) unduly influenced was ignorant, or
There is fraud when through insidious words or
machinations of one of the contracting parties, the
4. The fact that the person alleged to have been
other is induced to enter into a contract which,
unduly influenced was in financial distress.
without them, he would not have agreed upon.
 DOLO CAUSANTE OR CAUSAL FRAUD DOLO INCIDENTE OR INCIDENTAL 1338 - Notes
Causal fraud to in Article 1338, are those Dolo incidente or incidental fraud which is EXAMPLE OF CAUSAL FRAUD
deceptions or misrepresentations of a referred to in Article 1344, are those 1. When the seller, who had no intention to
serious character employed by one party which are not without which the other part with her property, was ‘tricked into
and without which the other party would party would still have entered into the believing’ that what she signed were papers
not have entered into the contract. contract pertinent to her application for the
reconstitution of her burned certificate of
Dolo causante determines or is the Dolo incidente refers only to some 1338 - Notes
title, not a deed of sale
essential cause of the consent particular or accident of the obligations 2. When the signature of the authorized REQUISITES OF CAUSAL FRAUD
Effects of dolo causante are the nullity of Dolo incidente also obliges the person corporate officer was forges; or 1. It must have been employed by one
the contract and the indemnification of employing it to pay damages 3. When the seller was seriously ill, and died a contracting party upon the other
damages week after signing the deed of sale raising 2. It must have induced the other party to
doubts on whether the seller could have enter into the contract
read, or fully understood, the contents of the 3. It must have been serious
documents he signed or of the consequences 4. It must have resulted in damage and injury
of his act. to the party seeking annulment

Art. 1338. There is fraud when, through insidious words or machinations Art. 1341. A mere expression of an opinion does not
of one of the contracting parties, the other is induced to enter into a signify fraud, unless made by an expert and the other
contract which, without them, he would not have agreed to. (1269) party has relied on the former's special knowledge. (n)

Art. 1342. Misrepresentation by a third person does not

Art. 1339. Failure to disclose facts, when there is a duty to reveal them, vitiate consent, unless such misrepresentation has
as when the parties are bound by confidential relations, constitutes created substantial mistake and the same is mutual. (n)
fraud. (n)
Art. 1343. Misrepresentation made in good faith is not
Art. 1340. The usual exaggerations in trade, when the other party had fraudulent but may constitute error. (n)
an opportunity to know the facts, are not in themselves fraudulent. (n)
Art. 1344. In order that fraud may make a contract
voidable, it should be serious and should not have been
employed by both contracting parties.

Incidental fraud only obliges the person employing it to

pay damages. (1270)

1344 - Notes
STANDARD PROOF FOR FRAUD Article Art. 1345. Simulation of a contract may be
FRAUD
Refers to all kinds of deception – whether through 1344 absolute or relative. The former takes place ABSOLUTE SIMULATION
insidious machination, manipulation, concealment or CLEAR and CONVINCING EVIDENCE when the parties do not intend to be bound
misrepresentations that would lead an ordinarily prudent There is a colorable contract but
at all; the latter, when the parties conceal it has no substance as the parties
person into error after taking the circumstances into It is less then proof beyond reasonable doubt
account. (for criminal cases) but greater than their true agreement. (n) has no intention to be bound by
preponderance of evidence (for civil cases). it. The apparent contract is not
In contracts, a fraud known as dolo causante or causal The degree of believability is higher than that Art. 1346. An absolutely simulated or really desired or intended to
fraud is basically a deception used by one party prior to of an ordinary civil case.
fictitious contract is void. A relative produce legal effect. It is VOID.
or simultaneous with the contract, in order to secure the
consent of the other. Needless to say, the deceit simulation, when it does not prejudice a
employed must be serious. FRAUD BAD FAITH RELATIVE SIMULATION
third person and is not intended for any
Must be established by Imports a dishonest If the parties state a false cause in the
In contradistinction, only some particular or accident of clear and convincing purpose or some moral purpose contrary to law, morals, good
the obligation is referred to by incidental fraud or dolo evidence, preponderance obliquity and conscious customs, public order or public policy binds contract to conceal their real agreement,
incidente, or that which is not serious in character and of evidence is inadequate doing of a wrong, not the parties are still bound by the real
the parties to their real agreement. (n)
without which the other party would have entered into simply bad judgment or agreement.
the contract anyway. negligence.
 SECTION 2. - Object of Contracts No contract may be entered into upon future inheritance except
in cases expressly authorized by law
Art. 1347. All things which are not outside the commerce of men, including future things, REQUISITES
may be the object of a contract. All rights which are not intransmissible may also be the 1. The succession has not been opened
object of contracts. 2. The object of the contract forms part of the inheritance; and
No contract may be entered into upon future inheritance except in cases expressly 3. The promissor has, with respect to the object, an expectancy of
authorized by law. a right which is purely hereditary in nature
All services which are not contrary to law, morals, good customs, public order or public
policy may likewise be the object of a contract. (1271a)
Things Rights Services
Art. 1348. Impossible things or services cannot be the object of contracts. (1272)
All things which are not All rights which are not All services which are not
outside the commerce of men transmissible may also be the contrary to law, morals, good
Art. 1349. The object of every contract must be determinate as to its kind. The fact that the
including future things, may be object of a contracts. customs, public order or public
quantity is not determinate shall not be an obstacle to the existence of the contract,
the object of a contract. policy may likewise be the
provided it is possible to determine the same, without the need of a new contract between
object of contract.
the parties. (1273)

WHAT IS CAUSE?
SECTION 3. - Cause of Contracts In general, the cause is the WHY of the Cause is the essential reason which moves
contract or the essential reason which the contracting parties to enter into it. In
Art. 1350. In onerous contracts the cause is understood to be, for each moves the contracting parties to enter into other words, the cause is the immediate,
contracting party, the prestation or promise of a thing or service by the other; the contract. For the cause to be valid, it direct and proximate reason which justifies
in remuneratory ones, the service or benefit which is remunerated; and in must be lawful such that it is not contrary the creation of an obligation through the will
contracts of pure beneficence, the mere liberality of the benefactor. (1274) to law, morals, good customs, public order of the contracting parties.
or public policy.
Art. 1351. The particular motives of the parties in entering into a contract are Cause and Consideration
different from the cause thereof. (n) In onerous contracts the cause is understood to be, for each
contracting party, the prestation or promise of a thing or service by
Art. 1352. Contracts without cause, or with unlawful cause, produce no effect the other. In our jurisdiction, cause and
whatever. The cause is unlawful if it is contrary to law, morals, good customs, consideration are used
In remuneratory contracts, the cause is the service or benefit which is
interchangeably.
public order or public policy. (1275a) remunerated.
Cause in gratuitous contracts, the mere liberality of the benefactor.

Art. 1353. The statement of a false cause in contracts shall render

them void, if it should not be proved that they were founded upon 1355 – Notes
another cause which is true and lawful. (1276) GENERAL RULE
Lesion or inadequacy or inadequacy of
Art. 1354. Although the cause is not stated in the contract, it is cause shall not invalidate a contract.
presumed that it exists and is lawful, unless the debtor proves the
EXCEPTIONS:
contrary. (1277) 1. In cases specified by law
2. When there has been fraud
Art. 1355. Except in cases specified by law, lesion or inadequacy of 3. When there has been mistake; and
cause shall not invalidate a contract, unless there has been fraud, 4. When there has been undue influence
mistake or undue influence. (n)
 CHAPTER 3 A certain form may be prescribed by law for any of the following purposes:
FORM OF CONTRACTS Validity of Contract Enforceability of Contract
Greater Efficacy or
Art. 1356. Contracts shall be obligatory, in whatever form they may have been Convenience
entered into, provided all the essential requisites for their validity are present. When the form required is for When the required form is for Formalities intended for
However, when the law requires that a contract be in some form in order that validity, its non-observance enforceability, non-compliance greater efficacy or convenience
it may be valid or enforceable, or that a contract be proved in a certain way, renders the contract VOID and therewith will not permit, or to bind third persons, if not
that requirement is absolute and indispensable. In such cases, the right of the of no effect. upon the objection of a party, done, would not adversely
parties stated in the following article cannot be exercised. (1278a) the contract, although effect the validity or
otherwise valid to be proved enforceability of the contract
or enforce by action. between the contracting
Art. 1357. If the law requires a document or other special form, as in the acts
parties themselves.
and contracts enumerated in the following article, the contracting parties may
compel each other to observe that form, once the contract has been 1356 Note
perfected. This right may be exercised simultaneously with the action upon However, when the law requires that a contract be in some form in order that it may be valid
the contract. (1279a) or enforceable, or that a contract be proved in a certain way, that requirement is absolute
and indispensable.

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

To be Valid and Enforceable Law requires to be PROVED by some
(Solemn Contracts) WRITING of its terms (1) Acts and contracts which have for their object the creation, transmission, modification or
1. Donation of an immovable property 1. Covered by Statute of Frauds under extinguishment of real rights over immovable property; sales of real property or of an interest
that the law requires to be embodied in Article 1403(2) off the Civil Code. therein a governed by Articles 1403, No. 2, and 1405;
a public instrument in order that the (2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal
donation may be valid, existing or 2. Their existence not being provable by partnership of gains;
binding. (Art. 1318) mere oral testimony (unless wholly or
2. Donations of movables worth more partly executed), these contracts are (3) The power to administer property, or any other power which has for its object an act
than P5,000 which must be in writing, exceptional in requiring a writing appearing or which should appear in a public document, or should prejudice a third person;
otherwise the donation is void. (Art. embodying the terms thereof for their
748) enforceability by action in court. (4) The cession of actions or rights proceeding from an act appearing in a public document.
3. Contracts to pay interest on loans
(mutuum) that must be expressly All other contracts where the amount involved exceeds five hundred pesos must appear in
stipulated in writing (Art.1956) writing, even a private one. But sales of goods, chattels or things in action are governed by
Articles, 1403, No. 2 and 1405. (1280a)

Art. 1403. The following contracts are unenforceable, unless they are ratified:
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases
an agreement hereafter made shall be unenforceable by action, unless the same, or some note or Reference: Obligation and Contracts by Atty. Andrix Domingo, CPA
memorandum, thereof, be in writing, and subscribed by the party charged, or by his agent; evidence,
therefore, of the agreement cannot be received without the writing, or a secondary evidence of its And New Civil Code
contents:

(a) An agreement that by its terms is not to be performed within a year from the making thereof;
(b) A special promise to answer for the debt, default, or miscarriage of another;
(c) An agreement made in consideration of marriage, other than a mutual promise to marry;
(d) An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred
pesos, unless the buyer accept and receive part of such goods and chattels, or the evidences, or some of
them, of such things in action or pay at the time some part of the purchase money; but when a sale is
made by auction and entry is made by the auctioneer in his sales book, at the time of the sale, of the
amount and kind of property sold, terms of sale, price, names of the purchasers and person on whose
account the sale is made, it is a sufficient memorandum;

(e) An agreement of the leasing for a longer period than one year, or for the sale of real property or of an
interest therein;
(f) A representation as to the credit of a third person.