CHAPTER 1: CONTRACTS

- a meeting of the minds between two persons whereby one binds himself, with respect to the
other, to give something ot to render some service
- not kasulatan
- can enter contract with himself as principal and with himself acting as an agent (autocontract)

KINDS OF CONTRACTS
1. As to perfection or formation
a. Consensual - perfected by agreement of parties
b. Real - perfected by delivery (commodatum, pledge, deposit)
c. Formal/solemn - perfected by conformity to essential formalities (donation)
Note: donations are contracts because no one is forced to accept the liberality of the
other. The donee must accept the donor

2. As to cause
a. Onerous - with valuable consideration (e.g. lease)
b. Gratuitous - founded on liberality (e.g. donations)
c. Remuneratory - prestation is given for service previously rendered which does not
constitute a demandable debt (utang na loob) (e.g. giving you money because you
saved my life)

3. As to importance or dependence of one upon another

a. Principal - contract may stand alone (e.g. contract of sale, loan, lease)
b. Accessory - depends on another contract for its existence; may not exist on its own
(e.g. pledge, sangla, sureties)
c. Preparatory - not an end by itself; a means through which future contracts may be
made (e.g agency - you want agency to perform another contract on your behalf)

4. As to parties obliged
a. Unilateral - only one of the parties has an obligations
b. Bilateral - both parties are required to render reciprocal prestations

5. As to name or designation
a. Nominate
b. Innominate
i. Do ut des - I give that you may give
ii. Do ut facias - I give that you may do
iii. Facio ut des - I do that you may give
iv. Facio ut facias - I do that you do

6. As to risk
a. Commutative (a=b, b=a)
(e.g. sale - object being sold is equivalent to the price. Lease - value of property = rent
price)
b. Aleatory - only one side has a certain burden. Other side may or may not have a burden
(e.g. insurance - insured has to pay a premium. Insurer may or may not become liable
depending on circumstances, PCSO - may only pay if you win the winning number)

7. As to purpose
a. Transfer of ownership
b. Conveyance of use
c. Rendition of service

8. As to subject matter
a. Things
b. Services

GENERAL PRINCIPLES OF CONTRACTS

1. Autonomy (Freedom) - parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient

Article 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as
they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or
public policy.
*Not plenary, limited by law, morals, good customs, public order, or public policy
(e.g. Arellano v. Cui - scholarship is a reward for academic excellence, not to promote the
school)

Article 1307. Innominate contracts shall be regulated by the stipulations of the parties, by the provisions
of Titles I and II of this Book, by the rules governing the most analogous nominate contracts, and by the
customs of the place.
*Innominate contracts - ulit ulit lang yung terms of conditions (e.g. sale, barter)

i. Do ut des - I give that you may give

ii. Do ut facias - I give that you may do
iii. Facio ut des - I do that you may give
iv. Facio ut facias - I do that you do

Note: To determine the nature of a contract courts do not have or are not bound to rely upon
the name or title given it by the contracting parties, should there be a controversy as to what
they really had intended to enter into, but the way the contracting parties do or perform their
respective obligations, stipulated or agreed upon may be shown and inquired into, and should
such performance conflict with the name given the contract by the parties, the former must
prevail over the latter (Weldon Construction v. CA)

2. Consensuality - parties must give their consent to the contract

Article 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not
only to the fulfillment of what has been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage and law.

General rule - contract is perfected by mere consent (e.g. contract of partnership)

*Spirit prevails over the form
*Contracts are valid whatever form they may be as long as the essential elements are present
(e.g. sumakay ka jeep - contract of carriage)

Exceptions:
Article 1316. Real contracts, such as deposit, pledge and commodatum, are not perfected until the
delivery of the object of the obligation.
* real contracts - dapat may delivery
STAGES OF A CONTRACT
1. Preparation or conception - steps taken by the parties leading to the perfection of the
contract (negotiation, due diligence, etc.) No agreement as of yet
2. Perfection or birth - there is a meeting of the minds as to the subject matter and cause of
the contract
3. Consummation or termination - Performance by the parties of their respective obligations
and the contract is fully accomplished or executed

NOTE: Formal contracts need to comply with certain formalities in order for the contract to be
valid. Real contracts require delivery of the object of the contract (deposit, pledge, and
commodatum)

Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to another, with
the obligation of safely keeping it and of returning the same. If the safekeeping of the thing delivered is
not the principal purpose of the contract, there is no deposit but some other contract.

Art. 2093. In addition to the requisites prescribed in Article 2085, it is necessary, in order to constitute the
contract of pledge, that the thing pledged be placed in the possession of the creditor, or of a third person
by common agreement.
 Art. 1933. By the contract of loan, one of the parties delivers to another, either something not
consumable so that the latter may use the same for a certain time and return it, in which case the
contract is called a commodatum; xxxx Commodatum is essentially gratuitous

CAN ONE ENTER INTO A CONTRACT ON BEHALF OF ANOTHER WITHOUT THE

LATTER’S CONSENT?
Article 1317. No one may contract in the name of another without being authorized by the latter, or
unless he has by law a right to represent him.

A contract entered into in the name of another by one who has no authority or legal representation, or
who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by
the person on whose behalf it has been executed, before it is revoked by the other contracting party.

3. Mutuality - the contract must bind both parties, its validity or compliance cannot be left to the
will of one of them
Article 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to
the will of one of them.
* Only applies to the determination of effectivity of the contract, not to its termination

Article 1309. The determination of the performance may be left to a third person, whose decision shall
not be binding until it has been made known to both contracting parties.

Article 1310. The determination shall not be obligatory if it is evidently inequitable. In such case, the
courts shall decide what is equitable under the circumstances.

Contract of Adhesion - when all of the terms and conditions are prepared by only one of the
contracting parties. The other party only adheres. (e.g. take it or leave it, airplane ticket)
- Does not violate mutuality because you still have a choice.

4. Obligatoriness - the contract, once perfected, has the force of law between the parties

OBLIGATORY FORCE
Article 1159. Obligations arising from contracts have the force of law between the contracting parties and
should be complied with in good faith.

5. Relativity - contracts take effect only between the parties, their assigns and heirs

Article 1311. Contracts take effect only between the parties, their assigns and heirs, except in case
where the rights and obligations arising from the contract are not transmissible by their nature, or by
stipulation or by provision of law. The heir is not liable beyond the value of the property he received from
the decedent.

If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment
provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit
or interest of a person is not sufficient. The contracting parties must have clearly and deliberately
conferred a favor upon a third person.

General rule: Contract take effect only between the parties, their assigns and heirs
Exceptions: Not transmissible by nature, not in stipulation, or no provision of law
1. 1st Class (contracts take effect only between the parties, not the assigns and heirs)
 Intransmissible by nature (e.g. you hire aga mulach to dance at your party, pag
nagkasakit si Aga, di pwede sumayaw si Andres muhlach kasi iba si andres, iba si aga -
intransmissible by nature)
 Intransmissible by stipulation
 Intransmissible by law (DKC v. CA)

2. 2nd Class (contracts take effect not only between the parties, their assigns and heirs, but
even as to 3rd persons)
 Stipulation pour autri (Mandarin Villa v. CA)
 Contracts creating real rights
 Contracts in fraud of creditors (accion pauliana)
 Interference in a contract by a 3rd person (Daywalt v. La Corporacion)
 Accion subrogatoria
 Labor agreements (closed shop and union shop agreements)

STIPULATION POUR AUTRUI

Requisites
1. There is a stipulation in favor of a 3rd person
2. The stipulation in favor of a 3rd person should be a part of, not the whole contract
3. Parties must have clearly and deliberately conferred a favor upon a 3rd person
4. The favorable stipulation should not be conditioned or compensated by any kind of obligation
whatsoever
5. The 3rd person communicates his acceptance before revocation by the original parties
6. Neither of the contracting parties bears the legal representation or authorization of 3rd party.
(see Narvaez v. Alciso)

Article 1312. In contracts creating real rights, third persons who come into possession of the object of
the contract are bound thereby, subject to the provisions of the Mortgage Law and the Land Registration
Laws.
(e.g. mortgaged property, pwede parin kunin ng bank kahit nabenta na yung collateral)

Article 1313. Creditors are protected in cases of contracts intended to defraud them.

Article 1314. Any third person who induces another to violate his contract shall be liable for damages to
the other contracting party.

CONTRACTUAL INTERFERENCE
The elements of tort interference:
1. Existence of a valid contract;
2. Knowledge on the part of the third person of the existence of a contract; and
3. Interference of the third person is without legal justification (Go v. Cordero)

*Where there was no malice in the interference of a contract, and the impulse behind one’s
conduct lies in a proper business interest rather than in wrongful motives, a party cannot be a
malicious interferer. Where the alleged interferer is financially interested, and such interest
motivates his conduct, it cannot be said that he is an officious or malicious intermeddler
(Gilchrist v. Cuddy)
CHAPTER 2: ELEMENTS OF A CONTRACT
1. Essential elements - those without which there can be no contract
 Consent
 Object certain
 Within the commerce of man
 Licit
 Possible
 Determinate
 Cause

NOTE: a contract requires at least two parties who have capacity

2. Natural elements - those which exist as part of the contract even if the parties do not provide
for them
3. Accidental elements - those agreed upon the parties and which cannot exist without being
stipulated

REQUISITES FOR CONSENT TO BE VALID

1. There must be at least two parties.
 Autocrats, as a general rule, would be valid
2. The parties must have legal capacity

Article 1327. The following cannot give consent to a contract:

(1) Unemancipated minors;

(2) Insane or demented persons, and deaf-mutes who do not know how to write.
*General disqualification - voidable
*even if insane, if entered contract in lucid interval, still valid (1328)
*in a state of drunkenness - voidable, depending on level of intoxication
*1329 - special disqualification - void
*consent is important because it is meeting of the minds
*Consent: intelligent, free, voluntary, spontaneous

VICES OF CONSENT
Article 1330. A contract where consent is given through mistake, violence, intimidation, undue
influence, or fraud is voidable.
*valid until annulled
MISTAKE - walang bad faith
Article 1331. In order that mistake may invalidate consent, it should refer to the substance of the thing
which is the object of the contract, or to those conditions which have principally moved one or both
parties to enter into the contract.

Mistake as to the identity or qualifications of one of the parties will vitiate consent only when such identity
or qualifications have been the principal cause of the contract.

A simple mistake of account shall give rise to its correction.

Article 1332. When one of the parties is unable to read, or if the contract is in a language not understood
by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms
thereof have been fully explained to the former.

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

Article 1334. Mutual error as to the legal effect of an agreement when the real purpose of the parties
is frustrated, may vitiate consent.
→ still up to the court if it vitiates consent → because ignorance excuses no one

REMEMBER: VALES v. VILLA - courts are not guardians of people who have capacity to act.

VIOLENCE AND INTIMIDATION

Article 1335. There is violence when in order to wrest consent, serious or irresistible force is employed.

There is intimidation when one of the contracting parties is compelled by a reasonable and well-grounded
fear of an imminent and grave evil upon his person or property, or upon the person or property of his
spouse, descendants or ascendants, to give his consent.

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

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

Article 1336. Violence or intimidation shall annul the obligation, although it may have been employed
by a third person who did not take part in the contract.
*voidable kahit di mo alam or di mo inauthorize na takutin ng ibang tao

UNDUE INFLUENCE
Article 1337. There is undue influence when a person takes improper advantage of his power over the
will of another, depriving the latter of a reasonable freedom of choice. The following circumstances shall
be considered: the confidential, family, spiritual and other relations between the parties, or the fact that
the person alleged to have been unduly influenced was suffering from mental weakness, or was ignorant
or in financial distress.
*also voidable

Requisites:
a. A person who can be influenced;
b. the fact that improper influence was exerted;
c. submission to the overwhelming effect of such unlawful act.

NOTE: In the absence of a confidential or fiduciary relationship between the parties, the law
does not presume that one person exercised undue influence upon the other.

A confidential or fiduciary relationship may include any relation between persons, which allows
one to dominate the other, with the opportunity to use that superiority to the other’s
disadvantage. Included are those of attorney and client, physician and patient, nurse and
invalid, parent and child, guardian and ward, member of a church or sect and spiritual adviser, a
person and his confidential adviser, or whenever a confidential relationship exists as a fact.

*consent reluctantly given is still consent → should really prove that the person under undue
influence had no choice but to submit

FRAUD - involves misrepresentation, distorting the truth, failure to disclose truth when there is
duty to disclose; must be proven by clear and convincing evidence

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

Article 1339. Failure to disclose facts, when there is a duty to reveal them, as when the parties are
bound by confidential relations, constitutes fraud.
*has duty to disclose

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

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

Article 1342. Misrepresentation by a third person does not vitiate consent, unless such
misrepresentation has created substantial mistake and the same is mutual.
*hindi alam nung party that somebody else exercised fraud on his behalf, NOT VOID.
→ except the fraud created substantial mistake

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

Article 1344. In order that fraud may make a contract voidable, it should be serious and should not have
been employed by both contracting parties.

Incidental fraud only obliges the person employing it to pay damages.

*Dolo causante
*Dolo Incidente
*1170 - liable for damages, fraud in performance, may existing obligation
*fraud and undue influence cannot coexist
*in undue influence, you don’t need fraud kasi ibig sabihin hawak mo yung tao at lahat ng sasabihin mo
ay susundin nya

STAGES OF A CONTRACT
1. Preparation or conception - steps taken by the parties leading to the perfection of the
contract (negotiation, due diligence, etc.). No agreement as of yet
2. Perfection or birth - there is a meeting of the minds as to the subject matter and cause of
the contract
3. Consummation or termination - performance by the parties of their respective obligations
and the contract is fully accomplished or executed.

A CONTRACT STARTS WITH AN OFFER

The offer must be:
1. Definite
 Article 1325. Unless it appears otherwise, business advertisements of things for sale are not definite
offers, but mere invitations to make an offer.

Article 1326. Advertisements for bidders are simply invitations to make proposals, and the advertiser is
not bound to accept the highest or lowest bidder, unless the contrary appears.
*pag walang DTI permit no, these are not definite offers
*i am thinking of selling my car - indefinite
*I am selling my car - indefinite

2. Complete
*I am selling my toyota ABC for 4 million - definite, complete offer kasi may price

3. Intentional
→ must also be intentional, di joke lang

ACCEPTANCE OF THE OFFER

Article 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and
the cause which are to constitute the contract. The offer must be certain and the acceptance absolute.
A qualified acceptance constitutes a counter-offer.

Acceptance made by letter or telegram does not bind the offerer except from the time it came to his
knowledge. The contract, in such a case, is presumed to have been entered into in the place where the
offer was made.
*It is not the acceptance which is important, it is the knowledge of acceptance which perfects the contract.
*Perfected only when offerer learns of the acceptance
*can still withdraw even if accepted, ang important kasi is knowledge of acceptance. Hanggat di pa alam
ni offerrror na tinanggap, pwede nya bawiin.
*E.G. April 5 sumulat ka to offer, april 6 sumulat sya that he is accepting the offer. April 7, you withdrew
offer, April 8 dumating acceptance, April 9, dumating withdrawal sakanya. NO CONTRACT, the offerror is
bound only when he learns of the acceptance. Important na winithdraw mo before mo nalaman yung
acceptance.
*pag namatay either party before knowledge of acceptance, walang contract

Article 1320. An acceptance may be express or implied.

Article 1321. The person making the offer may fix the time, place, and manner of acceptance, all of
which must be complied with.

Article 1322. An offer made through an agent is accepted from the time acceptance is communicated to
him.
*knowledge of agent is knowledge of principal

Acceptance must be:

1. Absolute
2. Unqualified
3. Communicated to offeror

Form of Acceptance:
 Express
 Implied

WITHDRAWAL OF OFFER/ACCEPTANCE
Article 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and
the cause which are to constitute the contract. The offer must be certain and the acceptance absolute.
A qualified acceptance constitutes a counter-offer.

Acceptance made by letter or telegram does not bind the offerer except from the time it came to his
knowledge. The contract, in such a case, is presumed to have been entered into in the place where the
offer was made.

WHEN IS THE OFFER EXTINGUISHED

1. Upon death, civil interdiction, insanity, or insolvency of either party before acceptance
2. Upon rejection by the offeree
3. Upon a qualified or conditional acceptance (counteroffer)
NOTE: Acceptance must be absolute
(e.g. I am selling my toyota for 2M, X accepts on 2 installments (DP 1M, 1M 30 days after). If I
reject, wala na yung unang offer. The counteroffer extinguishes the first offer.)
4. Upon lapse of the period stated in the offer without acceptance being conveyed
5. Upon revocation of the offer before knowledge of the acceptance
6. Subject matter becomes illegal or impossible before acceptance is conveyed.
(e.g. selling my condo for 20% discount until April 30, 2024. Malulugi yung company. Pwede
bawiin)

OPTION CONTRACT - prospective seller gives the prospective buyer the option to buy within a
specific period. Pag option, period lang binibigay to buy.

Article 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be
withdrawn at any time before acceptance by communicating such withdrawal, except when the option is
founded upon a consideration, as something paid or promised
*kahit di pa tapos period, pwedeng i-withdraw parin
*except pag may consideration na
(e.g. developer selling condo for 20% discount until April 30, 2024. Malulugi yung company. Nagdeposit si
X ng 20k, Pwede parin bawiin ni developer). With or without consideration, developer can withdraw.
*Pag walang consideration, they can withdraw anytime before knowledge
*If may consideration - pwede parin kasi basta before knowledge of acceptance. BUT, their withdrawal
will make them liable for damages for breach of the option contract. But still, they can’t be forced to enter
into the contract because there should be meeting of the minds.
→ magkano yung damages? e.g. worth 5M condo, 5M-20%=4M. Nagwithdraw before knowledge of
acceptance. Binenta mo kay Y for 6M but nagwithdraw si developer to sell to you.. Damages mo is 2M.
But you cannot force them to sell the condo to you.

What is earnest money?

Article 1482. Whenever earnest money is given in a contract of sale, it shall be considered as
part of the price and as proof of the perfection of the contract.

SAMPLE PROBLEM: Bert offers to buy Simeon’s property under the following terms and conditions: P1 million
purchase price, 10% option money, the balance payable in cash upon the clearance of the property of all illegal
occupants. The option money is promptly paid and Simeon clears the property of illegal occupants in no time at all.

However, when Bert tenders payment of the balance and asks Simeon for the deed for absolute sale, Simeon
suddenly has a change of heart, claiming that the deal is disadvantageous to him as he has found out that the
property can fetch three times the agreed purchase price. Bert seeks specific
performance but Simeon contends that he has merely given Bert an option to buy and nothing more, and offers to
return the option money which Bert refuses to accept.

a. Explain the nature of an option contract?

b. Will Bert’s action for specific performance prosper? Explain.
c. May Simeon justify his refusal to proceed with the sale by the fact that the deal is financially disadvantageous to
him? Explain.
*10% - earnest money
*sa option may offer na, complete, may presyo na, intentional - damages lang pag nabreach
 If offerer breaks, all that you get is damages
* sa ROFR- wala pa offer, nakalagay lang if the owner decides to sell. *mayfair cases
 Can force to sell to him pag naviolate
 Pag rescission + damages = di na pwedeng specific performance
RIGHT OF FIRST REFUSAL
- When a lease contract contains a right of first refusal, the lessor is under a legal duty to the
lessee not to sell to anybody at any price until after he has made an offer to sell to the latter at a
certain price and the lessee has failed to accept it. The lessee has a right that the lessor's first
offer shall be in his favor.

- In order to have full compliance with the contractual right granting petitioner the first option to
purchase, the sale of the properties for the price for which they were finally sold to a third
person should have likewise been first offered to the former. Further, there should be an identity
of terms and conditions to be offered to the buyer holding a right of first refusal if such right is
not to be rendered illusory. Lastly, the basis of the right of first refusal must be the current offer
to sell of the seller or offer to purchase of any prospective buyer.
- a right of first refusal means identity of terms and conditions to be offered to the lessee and all
other prospective buyers and a contract of sale entered into in violation of a right of first refusal
of another person, while valid, is rescissible

SIMULATION OF CONTRACTS
Article 1345. Simulation of a contract may be absolute or relative. The former takes place when the
parties do not intend to be bound at all; the latter, when the parties conceal their true agreement.

Article 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does not
prejudice a third person and is not intended for any purpose contrary to law, morals, good customs,
public order or public policy binds the parties to their real agreement.

OBJECT OF CONTRACTS
- The what of the contract
- Subject matter of the contract or the obligation arising or created by the contract
- May either be a thing (to give)
- Or a service (to do), or abstention (not to do)
- Or may be rights
Article 1347. All things which are not outside the commerce of men, including future things, may be the
object of a contract. All rights which are not intransmissible may also be the object of contracts.

No contract may be entered into upon future inheritance except in cases expressly authorized by law.

All services which are not contrary to law, morals, good customs, public order or public policy may
likewise be the object of a contract.

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

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

THINGS AS OBJECTS OF CONTRACTS

1. Must be within the commerce of man
2. Must be licit or lawful
 Must be in existence or capable of coming into existence
Exceptions:
 Future inheritance
 Future donation of property

SERVICES AS OBJECTS OF CONTRACTS

1. Must be within the commerce of man
2. Must be possible (physically and legally)
 Physical impossibility can be absolute or relative
3. Must be determinate or capable of being made determinate
NOTE: rights can be the object of a contract, so long as they are transmissible; not strictly
personal or political

CAUSE OF CONTRACTS
- The “why of the contract”, the immediate and most proximate purpose of the contract; the
essential reason which impels the contracting parties to enter into it and which explains and
justifies the creation of the obligation through such contract.

Article 1350. In onerous contracts the cause is understood to be, for each contracting party, the
prestation or promise of a thing or service by the other; in remuneratory ones, the service or benefit which
is remunerated; and in contracts of pure beneficence, the mere liberality of the benefactor.
CAUSE DISTINGUISHED FROM OBJECT
Cause Object

There is no confusion between object and cause The object is the land.
in remuneratory and gratuitous contracts. But
such confusion may arise in onerous contracts. The object is the basic matter in the contract, without
it there would not even be a price (so the land AND
E.g. Sale of land - the cause is the undertaking THE PRICE cannot be the objects of the contract)
or prestation to be performed by the other
The object is the thing, service, or act which forms the
Seller: obligation of the buyer to pay the price basis of the entire contract, without which negotiations
Buyer: obligation of the seller to deliver the land. between the parties would not even begin.

The object is the same as to both parties. The cause

is different with respect to each party.

CAUSE DISTINGUISHED FROM CONSIDERATION

Cause Consideration

Civil Law Concept Common Law concept

The why of the contract, the essential reason which impels The reason, motive, or inducement by
the contracting parties to celebrate the contract which a man is moved to bind himself by
an agreement
Concept is broader in scope than consideration. Many
contracts that will be considered as lacking consideration Concept is narrower than that of cause.
can be enforced under the broader doctrine of cause Whenever there is valuable consideration,
the contract will have a valid cause.
The principle of cause never rejects any cause as
insufficient (whatever inducement satisfies the parties, Cause requires that there be legal
satisfies the law) detriment to the promise, which must be
more than a moral duty

CAUSE DISTINGUISHED FROM MOTIVE

Article 1351. The particular motives of the parties in entering into a contract are different from the cause
 thereof.

Cause Motive

the essential reason for the contract the particular reason for a contracting party, which does not affect the
other; does not impede the existence of a true distinct cause

Direct or proximate cause of the contract Indirect or remote cause of the contract

Objective or juridical reason for the Psychological or personal reason for the contract
contract

Cause is always the same for a certain Motive may differ or vary for a certain contract, depending on the
contract parties

Cause can affect the validity of a contract Motive, as a general rule, does not affect validity of contract (illegal
(illegal cause makes contract void) motive does not affect contract)

Cause is always known Motive may be known

When Motive Affects Cause

When motive predetermines the cause of the contract, and the motive is illegal or immoral, the
contract is void.
- Liguez v. CA (Sexual relations)
- Olegario v. CA (DOAS to foster children to frustrate right of inheritance and avoidance of
estate tax)
- Uy v. CA (NHA’s motive is use of land for housing)
- E. Razon (Transfer of shares in order to get mgt. Contract void, mgt. Contract, being result of
transfer of shares, also void)

REQUISITES OF CAUSE
1. It must exist
2. It must be true
3. It must be licit

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

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

MORAL OBLIGATIONS AS CAUSE

- a mere moral obligation or conscience duty arising wholly from ethical motives or a mere
conscientious duty unconnected with any legal obligation, perfect or imperfect, or with the
receipt of benefit by the promisor of a material or pecuniary nature will not furnish a
consideration for an executory promise (Fisher v. Robb - investment in Phil. Greyhound Club lost upon change to
Phil. Racing Club)

- where the moral obligation arose from a legal liability already performed or still enforceable; or
cases in which the moral obligation arose out of, or was connected with a previous request or
promise creating originally an enforceable legal liability, which, however, at the time of the
subsequent express promise had become discharged or barred by operation of a positive rule of
law, so that at that time there was no enforceable legal liability WOULD HAVE VALID CAUSE
(Villaroel v. Estrada)

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

This rule shall be applicable when only one of the parties is guilty; but the innocent one may claim what
he has given, and shall not be bound to comply with his promise. (1305)

Article 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal
offense, the following rules shall be observed:

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

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

NECESSITY OF STATING CAUSE

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

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

LESION OR INADEQUACY OF CAUSE

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

Article 1381. The following contracts are rescissible:

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

(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the
preceding number;
CHAPTER 3: FORM OF CONTRACTS
Article 1356. Contracts shall be obligatory, in whatever form they may have been entered into, provided
all the essential requisites for their validity are present. However, when the law requires that a contract be
in some form in order that it may be valid or enforceable, or that a contract be proved in a certain way,
that requirement is absolute and indispensable. In such cases, the right of the parties stated in the
following article cannot be exercised.

EXAMPLES OF FORMAL CONTRACTS

Donations:
Article 748. xxx If the value of the personal property donated exceeds five thousand pesos, the
donation and the acceptance shall be made in writing, otherwise, the donation shall be void.

Article 749. In order that the donation of an immovable may be valid, it must be made in a
public document, specifying therein the property donated and the value of the charges which the
donee must satisfy.

The acceptance may be made in the same deed of donation or in a separate public document,
but it shall not take effect unless it is done during the lifetime of the donor.

If the acceptance is made in a separate instrument, the donor shall be notified thereof in an
authentic form, and this step shall be noted in both instruments.

Interest:
Article 1956. No interest shall be due unless it has been expressly stipulated in writing.

Agency to Sell land:

Article 1874. When a sale of a piece of land or any interest therein is through an agent, the
authority of the latter shall be in writing; otherwise, the sale shall be void

Antichresis
Article 2134. The amount of the principal and of the interest shall be specified in writing;
otherwise,the contract of antichresis shall be void.

Partnership:
Article 1771. A partnership may be constituted in any form, except where immovable. property
or real rights are contributed thereto, in which case a public instrument shall be. Necessary

Transfer of Large Cattle (see Act 1147, PD533)

- Transfer of large cattle must be registered, and a certificate of transfer must be issued by the
municipal treasurer
- No transfer of large cattle is valid unless registered and a certificate of transfer is obtained.

Registration of chattel mortgage (Act 1508)

Sec. 5. Form - A chattel mortgage shall be deemed to be sufficient when made substantially in
accordance with the following form, and shall be signed by the person or persons executing the
same, in the presence of two witnesses, who shall sign the mortgage as witnesses to the
execution thereof, and each mortgagor and mortgagee, or, in the absence of the mortgagee, his
agent or attorney, shall make and subscribe an affidavit in substance as hereinafter set forth…

FORM FOR ENFORCEABILITY

 Article 1403. The following contracts are unenforceable, unless they are ratified:
xxx
(2) These that do not comply with the Statute of Frauds as set forth in this number. In the following cases,
an agreement hereafter made shall be unenforceable by action, unless the same, or some note or
memorandum thereof, be in writing, and subscribed by the party charged, or by his agent; evidence,
therefore, of the agreement cannot be received without the writing, or a secondary evidence of its
contents.
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 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
evidence, or some of them of such things in action, or pay at the time some part of the purchase
money; but when the sale is made by auction and entry is made by the auctioneer in his sales
book, at the time of the sale, of the amount and kind of property sold, terms of sale, price, names
of the purchasers and person on whose account the sale is made, it is a sufficient memorandum;

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

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

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

WHAT CONTRACTS MUST APPEAR IN A PUBLIC INSTRUMENT

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

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

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

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

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

All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a
private one. But sales of goods, chattels or things in action are governed by articles, 1403, No. 2 and
1405.
*NOTE: This is only for convenience of the parties, not validity

Dauden-Hernaez v. Delos Angeles

- Complaint to recover 14,700 as talent fees for her starring in two movies, against Hollywood
Far East Productions Inc.
- Dismissed by lower court for not being in writing and violative of Art. 1356 and 1358
- Article 1358, last clause, provides that “ All other contracts where the amount involved
exceeds five hundred pesos must appear in writing, even a private one.” But Article 1358
nowhere provides that the absence of written form in this case will make the agreement invalid
or unenforceable. On the contrary, Article 1358 are binding and enforceable by action or suit
despite the absence of writing.
 Article 1357. If the law requires a document or other special form, as in the acts and contracts
enumerated in the following article, the contracting parties may compel each other to observe that form,
once the contract has been perfected. This right may be exercised simultaneously with the action
upon the contract.

CHAPTER 4: REFORMATION OF INSTRUMENTS

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

If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of the parties,
the proper remedy is not reformation of the instrument but annulment of the contract.
*see Raffles v. Wichelhaus (2 ships named peerless)

REQUISITES FOR REFORMATION

1. There is a written instrument
2. There is a meeting of the minds of the parties
3. There is a failure to express the true intention of the parties due to mistake, fraud, inequitable
conduct, or accident
4. The facts upon which the relief by way of reformation is sought are put in issue in the
pleadings
5. There is clear and convincing evidence of the mistake, fraud, inequitable conduct, or accident

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

Article 1362. If one party was mistaken and the other acted fraudulently or inequitably in such a way that
the instrument does not show their true intention, the former may ask for the reformation of the
instrument.

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

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

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

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

WHEN REFORMATION NOT AVAILABLE

1. Simple donation inter vivos
2. Wills
3. When real agreement is void
4. Estoppel, as when the party has brought suit to enforce it

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

Article 1360. The principles of the general law on the reformation of instruments are hereby adopted
insofar as they are not in conflict with the provisions of this Code.

Article 1369. The procedure for the reformation of instrument shall be governed by rules of court to be
promulgated by the Supreme Court.

Rule 8 (Manner of Making Allegations in Pleadings) 1997 Code of Civil Procedure

Section 7. Action or defense based on document. - Whenever an action or defense is based

upon a written instrument or document, the substance of such instrument or document shall be
set forth in the pleading, and the original or a copy thereof shall be attached to the pleading as
an exhibit, which shall be deemed to be a part of the pleading.

Section 8. How to contest such documents. When an action or defense is founded upon a
written instrument, or attached to the corresponding pleading as provided in the preceding
section, the genuineness and due execution of the instrument shall be deemed admitted unless
the adverse party, under oath specifically denies them, and sets forth what he or she
claims to be the facts; but the requirement of an oath does not apply when the adverse party
does not appear to be a party to the instrument or when compliance with an order for an
inspection of the original instrument is refused

Parol Evidence Rule

Section 10. Evidence of written agreements. — When the terms of an agreement have been
reduced to writing, it is considered as containing all the terms agreed upon and there can be,
between the parties and their successors in interest, no evidence of such terms other than the
contents of the written agreement. However, a party may present evidence to modify, explain or
add to the terms of written agreement if he puts in issue in his pleading:

(a) An intrinsic ambiguity, mistake or imperfection in the written agreement;

(b) The failure of the written agreement to express the true intent and agreement of the parties
thereto;
(c) The validity of the written agreement; or
(d) The existence of other terms agreed to by the parties or their successors in interest after the
execution of the written agreement.

The term "agreement" includes wills.

CHAPTER 5: INTERPRETATION OF CONTRACTS
Section 10. When the terms of an agreement have been reduced to writing, it is considered as
containing all the terms agreed upon and there can be, between the parties and their successors in
interest, no evidence of such terms other than the contents of the written agreement.

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

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

Syquia v. CA
- Interpretation of contract – the word "seal" is defined as “...any of various closures or
fastenings… that cannot be opened without rupture and that serve as a check against
tampering or unauthorized opening."; the word "sealed" cannot be equated with "waterproof";
literal meaning of the stipulation shall control when the terms of the contract are clear

Article 1371. In order to judge the intention of the contracting parties, their contemporaneous and
subsequent acts shall be principally considered.
Frigaliment Importing Co. v. B.N.S. International Sales Corp. (The Chicken case - what is
“chicken?”)
- Frigaliment interpreted “chicken” to mean young chickens that could be used for broiling or frying
(broilers), not stewing chickens (fowl).
- B.N.S. interpreted “chicken” to include both broilers and fowl. Thus, in its first shipment, BNS sent sent
mostly fowl, which was less expensive than broilers

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

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

Article 1374. The various stipulations of a contract shall be interpreted together, attributing to the
doubtful ones that sense which may result from all of them taken jointly.

* Contract as a Whole: A court must attempt to give effect to all of the provisions in a contract.
A court must consider the contract as a whole.

Article 1375. Words which may have different significations shall be understood in that which is most in
keeping with the nature and object of the contract.

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

Article 1377. The interpretation of obscure words or stipulations in a contract shall not favor
the party who caused the obscurity.
*Contra Proferentem: The presence of ambiguity will also allow a court to apply contra
proferentem. Under this doctrine, a court interprets an ambiguous provision against the party
who wrote it or requested its inclusion.

Article 1378. When it is absolutely impossible to settle doubts by the rules established in the preceding
articles, and the doubts refer to incidental circumstances of a gratuitous contract, the least transmission
of rights and interests shall prevail. If the contract is onerous, the doubt shall be settled in favor of the
greatest reciprocity of interests.

If the doubts are cast upon the principal object of the contract in such a way that it cannot be known
what may have been the intention or will of the parties, the contract shall be null and void.

Article 1379. The principles of interpretation stated in Rule 123 (rule 130) of the Rules of Court shall
likewise be observed in the construction of contracts.

INTERPRETATION OF DOCUMENTS
(Revised Rules of Evidence) Rule 130

Section 10. Interpretation of a writing according to its legal meaning. — The language of a
writing is to be interpreted according to the legal meaning it bears in the place of its execution,
unless the parties intended otherwise.

Section 11. Instrument construed so as to give effect to all provisions. — In the

construction of an instrument, where there are several provisions or particulars, such a
construction is, if possible, to be adopted as will give effect to all.

Section 12. Interpretation according to intention; general and particular provisions. — In

the construction of an instrument, the intention of the parties is to be pursued; and when a
general and a particular provision are inconsistent, the latter is paramount to the former. So a
particular intent will control a general one that is inconsistent with it.
* Specific over General
 If a court tries to allow both conflicting terms by harmonizing them, the court will have
specific terms qualify general terms. In other words, the conflicting general term will not
extend beyond the scope or subject matter of the conflicting specific term.

Section 13. Interpretation according to circumstances. — For the proper construction of an

instrument, the circumstances under which it was made, including the situation of the subject
thereof and of the parties to it, may be shown, so that the judge may be placed in the position of
those who language he is to interpret.

Section 14. Peculiar signification of terms. — The terms of a writing 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, and were so used and
understood in the particular instance, in which case the agreement must be construed
accordingly.

Section 15. Written words control printed. — When an instrument consists partly of written
words and partly of a printed form, and the two are inconsistent, the former controls the latter.

Section 16. Experts and interpreters to be used in explaining certain writings. — When
the characters in which an instrument is written are difficult to be deciphered, or the language is
not understood by the court, the evidence of persons skilled in deciphering the characters, or
who understand the language, is admissible to declare the characters or the meaning of the
language.

Section 17. Of Two constructions, which preferred. — When the terms of an agreement
have been intended in a different sense by the different parties to it, that sense is to prevail
against either party in which he supposed the other understood it, and when different
constructions of a provision are otherwise equally proper, that is to be taken which is the most
favorable to the party in whose favor the provision was made.

Section 18. Construction in favor of natural right. — When an instrument is equally

susceptible of two interpretations, one in favor of natural right and the other against it, the
former is to be adopted.

Section 19. Interpretation according to usage. — An instrument may be construed according

to usage, in order to determine its true character

CHAPTER 6: RESCISSIBLE CONTRACTS

What is a rescissible contract?

- A rescissible contract is one which contains all the essential requisites of a contract which
make it valid, but with an extrinsic defect, consisting of injury or damage to either of the
contracting parties or to third person, such as creditors. There is no [intrinsic] defect in the
consent, object or cause, of the contract.
- It may be enforced before rescission, as it is valid until rescinded

NOTE: This is the difference between rescissible and voidable contracts, in the former, the
defect is extrinsic, in the latter it is intrinsic

What is rescission?
- a remedy granted by law to the contracting parties and even to third persons, to secure the
reparation of damages caused to them by a contract, even if this should be valid, by restoration
of things to their condition at the moment prior to the celebration of the contract. It implies a
contract, which even if initially valid, produces a lesion or a pecuniary damage to someone (Ong
v. CA)

Article 1380. Contracts validly agreed upon may be rescinded in the cases established by law.
NOTES:
 Valid until rescinded
 Can be attacked only directly
 Does not require ratification. It prescribes

RESCISSION ON 1191 DISTINGUISHED FROM RESCISSION PROPER

Rescission in 1191 (RESOLUTION) Rescission Proper

Involves reciprocal obligations Need not involve reciprocal contracts

Ground is non-performance or breach by the Ground is economic prejudice (lesion or fraud of creditors)
other party

Principal remedy Subsidiary remedy, only if no other remedy

The one who can invoke is the party ready and The one who can invoke can be either one of the parties or a
willing to perform 3rd person (ex. A creditor)

Does not have a prescriptive period Has a prescriptive period

Rescission may be denied if there is just cause No such option provided for by law
for fixing a period

SAMPLE: In December 1985, Salvador and the Star Semiconductor Company (SSC) executed a Deed of
Conditional Sale wherein the former agreed to sell his 2,000 square meter lot in Cainta, Rizal, to the latter for the
price of P1,000,000.00, payable P100,000.00 down, and the balance 60 days after the squatters in the property
have been removed. If the squatters are not removed within six months, the P100,000.00 down payment shall be
returned by the vendor to the vendee.

Salvador filed ejectment suits against the squatters, but in spite of the decisions in his favor, the squatters still would
not leave. In August, 1986, Salvador offered to return the P100,000.00 down payment to the vendee, on the ground
that he is unable to remove the squatters on the property. SSC refused to accept the money and demanded that
Salvador execute a deed of absolute sale of the property in its favor, at which time it will pay the balance of the
price. Incidentally, the value of the land had doubled by that time.
Salvador consigned the P100,000.00 in court, and filed an action for rescission of the deed of conditional sale, plus
damages. Will the action prosper? Explain.

REQUISITES OF RESCISSION
1. The contract must be a rescissible one
2. The party asking for rescission must have no other legal means for obtaining reparation for
the damages suffered
3. The person demanding rescission must be able to return whatever he may be obliged to
restore if rescission is granted
4. The things which are the object of the contract must not have passed legally to the
possession of a 3rd person acting in good faith
5. The action for rescission must be brought within the prescriptive period of four years

What are rescissible contracts?

Article 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by
more than one fourth of the value of the things which are the object thereof;
 (2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the
preceding number;

(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims
due them;

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

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

*E.g. Pedro - minor; Owns riceland 10 million
Juan - Uncle/Guardian
Workers engaged by Juan harvest 5k kilos of palay. Prevailing purchase price is 24 pesos per kilo. Uncle
Juan sells Palay for 31 pesos per kilo.
Not rescissible because it only involves acts of administration. Not rescissible because there is no lesion.
*Juan sold for 17 pesos per kilo, rescissible because you now have lesion for more than ¼. Lugi ng 7
pesos
* Pedro, 30y/o, while on vacation in Israel takes a wrong turn and accidentally enters a Hamaz controlled
area and disappears. A guardian is appointed to take charge of his commercial building in Binondo.
Earthquake happened, and the roof was damaged. Damages estimated at 100k. Rep has the roof
repaired for 130k, is the contract rescissible? Yes, kasi rep suffered lesion, 1381(2). If 125k, not
rescissible kasi walang lesion

Article 1382. Payments made in a state of insolvency for obligations to whose fulfillment the debtor could
not be compelled at the time they were effected, are also rescissible

POWERS OF A GUARDIAN/ADMINISTRATOR OF ABSENTEE

Rule 96, SECTION 1. To what guardianship shall extend. — A guardian appointed shall have
the care and custody of the person of his ward, and the management of his estate, or the
management of the estate only, as the case may be. The guardian of the estate of a
nonresident shall have the management of all the estate of the ward within the Philippines,
and no court other than that in which such guardian was appointed shall have jurisdiction over
the guardianship.

Rule 107, SECTION 6. Section 6. Proof at hearing; order. — At the hearing, compliance with
the provisions of section 4 of this rule must first be shown. Upon satisfactory proof of the
allegations in the petition, the court shall issue an order granting the same and appointing the
representative, trustee or administrator for the absentee. The judge shall take the necessary
measures to safeguard the rights and interests of the absentee and shall specify the powers,
obligations and remuneration of his representative, trustee or administrator, regulating them by
the rules concerning guardians.

CONTRACTS IN FRAUD OF CREDITORS

1. The credit must be existing prior to the contract
2. The contract is tainted with fraud
3. The creditor has no other legal means for collecting his credit
4. The things which are the object of the contract must not have passed legally to the
possession of a 3rd person acting in good faith

Article 1387. All contracts by virtue of which the debtor alienates property by gratuitous title are
presumed to have been entered into in fraud of creditors, when the donor did not reserve sufficient
property to pay all debts contracted before the donation.

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

In addition to these presumptions, the design to defraud creditors may be proved in any other manner
recognized by the law of evidence.
*e.g. X donates 20M, left with 10M. He has debt for 24M, Roverto is creditor for 3M. Roberto can treat it
as fraud of creditors. Roberto only needs to prove all his debts.
*kahit walang connection sa judgement yung binentang property
*Juan owes Pedro 2M. Juan sells his car for 3M to alejandro. Juan figures in a car accident. 200k
damages against Juan. Roberto can treat the sale of the car as fraudulent. Presumed fraudulent. Basta
may judgment against Juan, kahit walang connection.

BADGES OF FRAUD
1. consideration of the conveyance is inadequate or fictitious
2. transfer was made by a debtor after a suit has been begun and while it is pending against him
3. sale upon credit by an insolvent debtor
4. evidence of indebtedness or complete insolvency
5. transfer of all his property by a debtor when he is financially embarrassed or insolvent
6. transfer made between father and son where there is present any of the above circumstances
7. failure of the vendee to take exclusive possession of the property

SAMPLE: Briefly explain whether the following contracts are valid, rescissible, unenforceable, or void: e)
Jenny's sale of her car to Celestine in order to evade attachment by Jenny's creditors.

ANSWER: Rescissible.

Contracts entered into in fraud of creditors are rescissible (1381[3]), in case the creditors
cannot in any other manner collect on the
claims due them.

Since the sale of the car was for the sole purpose of evading attachment of the same
by Jenny's creditors, the same was clearly undertaken in fraud of her creditors.

Accordingly, the sale is rescissible.

SAMPLE: Dux leased his house to Iris for a period of 2 years, at the rate of P25,000.00 monthly, payable
annually in advance. The contract stipulated that it may be renewed for another 2-year period upon
mutual agreement of the parties. The contract also granted Iris the right of first refusal to purchase the
property at any time during the lease, if Dux decides to sell the property at the same price that the
property is offered for sale to a third party. Twenty-three months after execution of the lease contract,
Dux sold the house to his mother for P2 million. Iris claimed that the sale was a breach of her right of first
refusal. Dux said there was no breach because the property was sold to his mother who is not a third
party. Iris filed an action to rescind the sale and to compel Dux to sell the property to her at the same
price. Alternatively, she asked the court to extend the lease for another 2 years on the same terms.
 a) Can Iris seek rescission of the sale of the property to Dux's mother?
b) Will the alternative prayer for extension of the lease prosper? (2008 Bar)

ANSWER:
a) Iris can seek rescission.

In Equatorial Realty Co. v. Mayfair Theater (264 SCRA 483), the Supreme Court said that rescission is a
relief allowed in disputes involving a violation of the right of first refusal (where the property is sold to
somebody else aware of the right, without the seller first offering the property to the person with the right
of first refusal).

In the instant case, Dux, without first offering the property to his lessee Iris, sold the house to his mother
for P2 million. This violated Iris's right of first refusal, which would entitle Iris to the relief of rescission [on
the assumption that Dux's mother was in bad faith].

b) No, the extension of the lease should be upon the mutual agreement of the parties.

SAMPLE: In a 20-year lease contract over a building, the lessee is expressly granted a right of first
refusal should the lessor decide to sell both the land and building. However, the lessor sold the property
to a third person who knew about the lease and in fact agreed to respect it. Consequently, the lessee
brings an action against both the lessor-seller and the buyer (a) to rescind the sale and (b) to compel
specific performance of his right of first refusal in the sense that the lessor should be ordered to execute
a deed of absolute sale in favor of the lessee at the same price. The defendants contend that the plaintiff
can neither seek rescission of the sale nor compel specific performance of a "mere" right of first refusal.
Decide the case. (1998 Bar)

ANSWER:
The action filed by the lessee, for both rescission of the offending sale and specific performance of the
right of first refusal which was violated, should prosper.

In Equatorial Realty Development, Inc. v. Mayfair Theater, Inc. (264 SCRA 483), the Supreme Court said
that when a contract of lease grants the lessee a right of first refusal, if the lessor sells the property to a
third person who is aware of the right of first refusal, without first offering the property to the person with
the said right, the said contract of sale is rescissible, and that thereafter, the lessor is compelled to sell
the property to the lessee under the same terms and conditions as when it originally sold the property to
the 3rd person.

Accordingly, having violated its lessee's right of first refusal, the sale to the 3rd person [who was aware of
the said right] must be rescinded, and thereafter a deed of sale of the property, under the same terms
and conditions as that of the rescinded sale, must be executed by the lessor in favor of its lessee.

b) No, the extension of the lease should be upon the mutual agreement of the parties .

WHAT MUST BE RETURNED IN RESCISSION

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

- the things which were the object of the contract

- their fruits
- the price with its interest

Article 1388. Whoever acquires in bad faith the things alienated in fraud of creditors, shall indemnify the
latter for damages suffered by them on account of the alienation, whenever, due to any cause, it should
be impossible for him to return them.
 If there are two or more alienations, the first acquirer shall be liable first, and so on successively.

Prescriptive Period
Article 1389. The action to claim rescission must be commenced within four years.
For persons under guardianship and for absentees, the period of four years shall not begin until the
termination of the former's incapacity, or until the domicile of the latter is known.
CHAPTER 7: VOIDABLE CONTRACTS
Article 1390. The following contracts are voidable or annullable, even though there may have been no
damage to the contracting parties:

(1) Those where one of the parties is incapable of giving consent to a contract;

(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.

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

What is meant by incapacity?

Article 1327. The following cannot give consent to a contract:

(1) Unemancipated minors;

(2) Insane or demented persons, and deaf-mutes who do not know how to write.

Who may file the action?

Article 1397. The action for the annulment of contracts may be instituted by all who are thereby obliged
principally or subsidiarily. However, persons who are capable cannot allege the incapacity of those
with whom they contracted; nor can those who exerted intimidation, violence, or undue influence, or
employed fraud, or caused mistake base their action upon these flaws of the contract.

Rescissible v. Voidable
Rescissible Voidable

Basis Lesion/economic prejudice Incapacity or vitiated consent

Defect Extrinsic (contract is valid but causes Intrinsic (defect in the essential element
lesion or economic prejudice to one of the existing at the time of the celebration of
parties ) the contract

Nature of the Subsidiary Principal

Action

Parties Plaintiff may be one of the parties or a 3rd Plaintiff must be a party to the contract
person (may be principal, may be subsidiary)

Damages There must be damage to the plaintiff Damage to the plaintiff is immaterial
 Prevention To prevent rescission, ratification is not To prevent annulment, ratification is
required required

Mutual GR: No restitution, no rescission. Exc. GR: No restitutio, no annulment

Restitution Contracts in fraud of Exc. 1399 in case of incapacity

SAMPLE: Jackie, 16, inherited a townhouse. Because she wanted to study in an exclusive school, she sold her
townhouse by signing a Deed of Sale and turning over possession of the same to the buyer. When the buyer
discovered that she was still a minor, she promised to execute another Deed of Sale when she turns 18. When
Jackie turned 25 and was already working, she wanted to annul the sale and return the buyer's money to recover
her townhouse. Was the sale contract void, voidable or valid? Explain. (2015 Bar)

ANSWER: The sale is voidable.

Article 1390 of the Civil Code provides that a contract shall be voidable if one of the parties thereto is incapable of
giving consent to the contract.

In the instant case, the seller Jackie was a minor, hence, the sale of the townhouse is a voidable contract.
*Other party knew jackie is a minor - can prosper
*kung di alam ni buyer, di mahahabol ni jackie
*pag 16/17 na, cannot claim minority, dapat muka siyang di na menor de edad.

Prescriptive Period
Article 1391. The action for annulment shall be brought within four years. This period shall begin:

In cases of intimidation, violence or undue influence, from the time the defect of the consent ceases.

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

And when the action refers to contracts entered into by minors or other incapacitated persons, from the
time the guardianship ceases.

How is an Annullable Contract Cured

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

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

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

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

1396. Ratification cleanses the contract from all its defects from the moment it was constituted.

REQUISITES OF VALID RATIFICATION

1. The contract must be voidable
2. The person ratifying must know of the defect in the
contract
3. The cause must not exist or continue to exist at the time of ratification
4. The person ratifying must be the injured party 5. Ratification is done expressly or impliedly

NOTE: The incapacitated person may be estopped from claiming annulment, if he

misrepresented himself to be of capacity

Restitution in Voidable Contracts

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

In obligations to render service, the value thereof shall be the basis for damages.
 Article 1399. When the defect of the contract consists in the incapacity of one of the parties, the incapacitated
person is not obliged to make any restitution except insofar as he has been benefited by the thing or price received
by him.

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

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

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

Article 1402. As long as one of the contracting parties does not restore what in virtue of the decree of annulment he
is bound to return, the other cannot be compelled to comply with what is incumbent upon him.

CHAPTER 8: UNENFORCEABLE CONTRACTS

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

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

(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
memorandum, thereof, be in writing, and subscribed by the party charged, or by his agent; evidence,
therefore, of the agreement cannot be received without the writing, or a secondary evidence of its
contents:

(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 for 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.

(3) Those where both parties are incapable of giving consent to a contract.

Statute of Frauds - it is a law, which requires that certain contracts must be in writing,
otherwise, unenforceable.
*Statute of Frauds ay laging oral

CONTRACTS COVERED BY STATUTE OF FRAUDS: 1403(2)

A. An agreement by its terms is not to be performed within a year from the making
thereof.
e.g. a contract entered into by Garett with Anne on June 1, 2024 for the sale of Garett’s car to
Anne on June 1, 2025 must be in writing to be enforceable

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

e.g. Garett borrowed money from Jovi with Anne as guarantor. The promise of Anne to be
Garett’s guarantor must be in writing so that Anne may be held liable by Jovi if Garett fails to
pay on the due date.
C. An agreement made in consideration of marriage other than mutual promise to marry.
e.g. G agrees to build a house for A worth 10M if A will marry G. If A marries G, A cannot oblige
G to make good of his promise if the agreement was not made in writing.

D. An agreement for the sale of goods, chattels, or things in action at a price of five
hundred pesos or more.
e.g. G and A entered into a verbal contract for the sale of a gold earring for 500. Delivery and
payment was set on June 30, 2024.

i. If on the due date, G does not deliver, A cannot compel G to do so even if A is willing to pay
because the contract falls under the Statute of Frauds and must be in writing to be enforceable.

ii. If on the due date, G makes, and A accepts the delivery of the gold earring, Later G files an
action to compel A to pay the purchase price of 500, A is obliged to pay. A cannot set up the
defense that B cannot enforce their agreement for not having been made. This is because there
has already been delivery of the object of the contract.

E. An agreement for the leasing for a longer period than one year
e.g. On January 15, 2024, G agreed to lease his building to A for a period of 2 years starting
February 15, 2024. On February 15, 2024, If G does not allow A to take possession of the
leased property as agreed upon, A cannot compel G to do so if their lease contract is not in
writing.

Note: Under Article 1874 of the Civil Code, “when the sale of a piece of land or any interest
therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall
be void.”

the sale of real property or an interest therein.

G and A entered into a verbal contract for the sale of a parcel of land. delivery and payment was
set on June 30, 2024. On the designated execution date, if G changes his mind about the sale,
A cannot sue G to compel the latter to perform his obligation under the contract of sale which
was not put in writing; hence, unenforceable

F. A representation as to the credit of a third person.

G is applying for a loan from A. Before A released the money, A asked J about the credit
standing of G. J orally assured A that G is solvent and has a good credit reputation. If on due
date G cannot pay, A cannot hold J liable if J’s representation is not in writing.

SAMPLE: Suppose that in an oral contract, which by its terms is not to be performed within one year from
the execution thereof, one of the contracting parties has already complied within the year with the
obligations imposed upon him by said contract, can the other party avoid fulfillment of those incumbent
upon him by invoking the Statute of Frauds? (1988 Bar)

ANSWER: No, he cannot.

The Statute of Frauds aims to prevent and not to protect fraud. It is well-settled that when the law
declares that an agreement which by its terms is not to be performed within a year from the making
thereof is unenforceable by action, unless the same, or some note or memorandum thereof, be in writing,
and subscribed by the party charged, or by his agent, it refers only to an agreement which by its terms is
not to be performed on either side within a year from the execution thereof.

Hence, one which has already been fully performed on one side within a year is taken out of the
operation of the statute. (PNB v. Phil. Vegetable Oil Co.; Shoemaker v. La Tondeña)

IMPORTANT: Statutory Fraud applies only to executory contracts. It does not apply to
totally or partially executed contracts.

Executory Contracts
 Ipeperform palang
 Covered ng statute of frauds
 Pero pag may nag perform na di na sya covered

How is an Unenforceable Contract Cured

1. By ratification
 Express
 Implied
 * Failure to object to presentation of oral evidence
* Acceptance of benefits
* When a person files an action to enforce the contract

KINDS OF UNENFORCEABLE CONTRACTS

1. Unauthorized contracts/ultra vires contracts
2. Those that fail to comply with the Statute of Frauds
3. Those where BOTH parties are incapable of giving consent

NOTE: What is the prescriptive period for unenforceable contracts? NONE

EXAMPLE:
A is minor, B is minor. A sells Pikachu card to B in exchange of PS5 - UNENFORCEABLE
Guardian of A accepts - VOIDABLE
GUardian A & B accepts - VALID
*third party walang pake

SAMPLE: In 2017, Alma orally sold a parcel of unregistered land to the spouses Ray and Shane for Php
500,000.00. Upon receipt of the initial payment of Php 350,000.00, Alma delivered possession of the land
to the spouses. Shortly thereafter, Alma died. In order to formalize the sale, Ray and Shane convinced
Josie, one of Alma's children, to sign a notarized deed of confirmation of sale. In consideration thereof,
Josie received Php 150,000.00 representing the balance of the purchase price. On the strength of the
notarized confirmation of sale, the spouses were able to transfer the tax declaration of the property in
their names. Later, Josie died. In 2020, the surviving children of Alma discovered the oral sale of the land
to Ray and Shane. They demanded the return of the property on the following grounds: (i) the oral
contract of sale is void because it does not appear in a public instrument; and (ii) assuming the sale is not
void, it is unenforceable under the Statute of Frauds. Ray and Shane insisted that the sale of the land to
them was both valid and enforceable. Are the contentions of the heirs of Alma tenable? Explain briefly.
(2022 Bar)
*1358
*1403(2)e - law only requires it appears in writing, di need na nasa public instrument
1145 - Oral - 6 yrs
Written - should be filed within 10yrs

PARI DELICTO RULE

PARI DELICTO Where the act is a criminal offense Where the act is not a criminal offense
RULE

Reinforcement Both mat not go to court, both parties shall Both may not go to court. No prosecution.
be prosecuted Courts will leave them as they are.

Restitution Both may not ask for restitution. Effects of Neither party may recover. No confiscation.
the crime will be confiscated

CHAPTER 9: VOID / INEXISTENT CONTRACTS

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

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

(2) Those which are absolutely simulated or fictitious;

 (3) Those whose cause or object did not exist at the time of the transaction;

(4) Those whose object is outside the commerce of men;

(5) Those which contemplate an impossible service;

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

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

These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.

*Outside commerce of man - selling of organs

*You can sell hair
*Contrary to law - husband wife donation
*VOID - cannot be ratified, you cannot ratify what never existed

*Erase 1426 and 1427!

TITLE 3: NATURAL OBLIGATIONS

CIVIL, NATURAL, MORAL OBLIGATIONS DISTINGUISHED

Civil Natural Moral

With juridical With a juridical tie not given effect by law Without a juridical tie entirely on
tie conscience

With right of Without right if action but in case of voluntary fulfillment, Without right of action
action authorities retention of thing given.

Notes:
1. Voluntary fulfillment means “with knowledge
2. Can be converted into a civil obligation by novation
3. Cannot arise from illicit obligations

EXAMPLES OF NATURAL OBLIGATIONS:

1. Performance after the civil obligation has prescribed (Alam mo na may utang kanang paso)
2. Reimbursement of a third person for a debt that has prescribed (3rd person cannot ask for
reimbursement kasi paso na pero pag nireimburse mo kahit knowing na di mo need ireimburse,
you cannot recover)
3. Restitution by minor after annulment of contract (no longer existent)
4. Delivery by minor of money or fungible thing in fulfillment of obligation (no longer existent)
5. Performance after action to enforce civil obligation has failed (Pinerform parin kahit natalo sa
kaso)
6. Payment by heir of debt exceeding value of property inherited (If you pay the debt of the
descendant kahit di need, wala narin balik)
7. Payment of legacy after will have been declared void (You don't need to follow the will
anymore pero if you still followed, wala na bawian)
NOTE: Listing is not exclusive, ex. see Art. 1960.

*1956 = to be collectible must be expressly stated in writing

*Pag nagbayad ka interest kahit di nakasulat, if payment in mistake, pwede mo bawiin, if natural
obligation, wala nang bawian

TITLE 4: ESTOPPEL
- a condition or state by virtue of which an admission or representation is rendered conclusive
upon the person making it and cannot be denied or disproved as against the person relying
thereon.

KINDS OF ESTOPPEL
1. Estoppel in pais (by conduct)
- Article 1433. Estoppel may in pais or by deed.
2. Estoppel by silence
3. Estoppel by acceptance of benefits
4. Technical estoppels
 By record
 By deed
5. By judgment
6. By laches

Estoppel Distinguished From Waiver

• A waiver is a voluntary and intentional abandonment or relinquishment of a known right. It
carries no implication of fraud. It involves the act or conduct of only one of the parties.
• An equitable estoppel may arise, however, even where there is no intention on the part of the
person estopped to relinquish any existing right and frequently carries the implication of fraud. It
involves the conduct of both parties.

Estoppel Distinguished From Ratification

• In ratification, the party is bound because he intended to be bound;
• In estoppel, the party is bound notwithstanding the fact that there was no such intention
because the other party will be prejudiced and defrauded by his conduct unless the law treats
him as legally bound.

Estoppel Distinguished From Fraud

• Estoppel exists with or without a contract; fraud presupposes an attempt to enter into a valid
agreement or contract.
• While estoppel may be raised as a defense, fraud may properly be a cause of action on
account of the vitiated consent that it produces.

Estoppel by Silence
• Mere innocent silence will not work an estoppel. There must also be some element of turpitude
or negligence connected with the silence by which another is misled to his injury. But one who
invokes this doctrine of estoppel must show not only unjustified inaction but also some unfair
injury would result to him unless the action is held barred.

• "Estoppel by silence" arises where a person, who by force of circumstances is under a duty to
another to speak, refrains from doing so and thereby leads the other to believe in the existence
of a state of facts in reliance on which he acts to his prejudice. Silence may support an estoppel
whether the failure to speak is intentional or negligent.

• Inaction or silence may under some circumstances amount to a misrepresentation and

concealment of facts, so as to raise an equitable estoppel. When the silence is of such a
character and under such circumstances that it would become a fraud on the other party to
permit the party who has kept silent to deny what his silence has induced the other to believe
and act on, it will operate as an estoppel. This doctrine rests on the principle that if one
maintains silence, when in conscience he ought to speak, equity will debar him from speaking
when in conscience he ought to remain silent. Qui tacet consentire videtur, ubi loqui debuit ac
potuit (He who is silent, when he ought to have spoken and was able to, is taken to agree).

e.g. Husband bound himself through corporation, kinasuhan ng bank yung husband, pero
properties ni husband transferred to a fam corp. Hinabol ng bank yung properties
Husband with conformity with wife
Court ruled in fraud of creditors yung property
Biglang sabi ni wife property namin ni hubby yan.
Sabi ni SC, nung nagkakasuhan di ka nagsasalita
Technical estoppels
1. Estoppel by record - the preclusion to deny the truth of matters set forth in a record, whether
judicial or legislative, and also to deny the facts adjudicated by a court of competent jurisdiction
Example: the conclusiveness of a judgment on the parties to a case
2. Estoppel by deed - a bar which precludes one party to a deed and his privies from asserting
as against the other party and his privies any right or title in derogation of the deed, or from
denying the truth of any material facts asserted in it; a written instrument is necessary for there
to be estoppel by deed

Article 1431. Through estoppel an admission or representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the person relying thereon.

Estoppel in pais
ESSENTIAL ELEMENTS:
As related to the party to be estopped, the essential elements are:
1. conduct amounting to false representation or concealment of material facts or at least
calculated to convey the impression that the facts are otherwise than, and inconsistent with,
those which the party subsequently attempts to assert;
3. intent, or at least expectation that his conduct shall be acted upon by, or at least influence,
the other party; and
3. knowledge, actual or constructive, of the real facts

As related to the party claiming the estoppel, the essential elements are:
1. lack of knowledge and of the means of knowledge of the truth as the facts in questions; 2.
reliance, in good faith, upon the conduct or statements of the party to be estopped;
3. action or inaction based thereon of such character as to change the position or status of the
party claiming the estoppel, to his injury, detriment or prejudice

NOTE: Estoppel cannot be predicated on an illegal act.

(see Kalalo v. Luz, 34 SCRA 337)

Article 1434. When a person who is not the owner of a thing sells or alienates and delivers it, and later
the seller or grantor acquires title thereto, such title passes by operation of law to the buyer or grantee.

Article 1435. If a person in representation of another sells or alienates a thing, the former cannot
subsequently set up his own title as against the buyer or grantee.

Article 1436. A lessee or a bailee is estopped from asserting title to the thing leased or received, as
against the lessor or bailor.

Article 1437. When in a contract between third persons concerning immovable property, one of them is
misled by a person with respect to the ownership or real right over the real estate, the latter is precluded
from asserting his legal title or interest therein, provided all these requisites are present:

(1) There must be fraudulent representation or wrongful concealment of facts known to the party
estopped;

(2) The party precluded must intend that the other should act upon the facts as misrepresented;

(3) The party misled must have been unaware of the true facts; and

(4) The party defrauded must have acted in accordance with the misrepresentation.

Article 1438. One who has allowed another to assume apparent ownership of personal property for the
purpose of making any transfer of it, cannot, if he received the sum for which a pledge has been
constituted, set up his own title to defeat the pledge of the property, made by the other to a pledgee who
received the same in good faith and for value.

Article 1439. Estoppel is effective only as between the parties thereto or their successors in interest.
LACHES Failure or neglect, Failure or neglect, for an unreasonable and unexplained length of
time to do that which, by exercising due diligence, could or should have been done earlier; it is
negligence or omission to assert a right within reasonable time warranting a presumption that
the party entitled to assert it either has abandoned it or declined to assert it

ELEMENTS OF LACHES:
1. conduct on part of the defendant, or of one under whom he claims, giving rise to the situation
of which complaint is made and for which the complaint seeks a remedy

2. delay in asserting the complainant's rights, the complainant having knowledge or notice, of
the defendant's conduct and having been afforded the opportunity to institute a suit

3. lack of knowledge or notice on the part of the defendant that the complainant would assert
the right on which he bases his suit

4. injury to the defendant in the event relief is accorded to the complainant, or the suit is not held
to be barred

Prescription Distinguished from Laches

Prescription Laches

Concerned with the fact of Concerned with the effect of delay

delay

A matter of time Principally a question of inequity founded on some change in the condition of the
property or the relation of the parties

Statutory Not Statutory

Applies to law Applies to equity

Based on a fixed time Not based on a fixed time

 Void Voidable Rescissible Unenforceable

Defect • Lack of • Vice of consent • Lesion / damage • Lack of form

essential • Incapacity of one party • Economic • Lack/excess of
element prejudice authority
• Illegality • Incapacity of both
• Lack of parties
solemnity

Cure Not cured by Cured by prescription Cured by Not cured by

 prescription prescription prescription

Ratification Cannot be Can be ratified Need not be Can be ratified

ratified ratified (already
Binding/effective until valid) Binding unless
Not annulled defect is raised as a
binding/effective Binding. Effective defense against
unless rescinded enforcement

Prescriptive 4 Years 4 Years NONE

period
intimidation, violence Under
or undue influence - guardianship
from the time the defect begins from
of the consent ceases. termination of
incapacity
mistake or fraud - from
the time of the discovery Absentee - begins
of the same. when the domicile
of the latter is
contracts entered into known.
by minors or
incapacitated persons -
from the time
guardianship ceases.

*Unenforceable - you don’t file a case to declare a contract unenforceable, maghihintay kalang,
wala kang gagawin. If the other party raises to enforce the contract or to get to damages, you
raise the defense that it is unenforceable

TO MEMORIZE:

Article 1306. The contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to Law, Morals, Good
customs, Public order, or Public policy.

Article 1315. Contracts are perfected by mere consent, and from that moment the parties are
bound not only to the fulfillment of what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping with good faith, usage and
law.

Article 1316. Real contracts, such as deposit, pledge and commodatum, are not perfected until
the delivery of the object of the obligation.
Article 1317. No one may contract in the name of another without being authorized by the
latter, or unless he has by law a right to represent him.

A contract entered into in the name of another by one who has no authority or legal
representation, or who has acted beyond his powers, shall be unenforceable, unless it is
ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is
revoked by the other contracting party.

Article 1308. The contract must bind both contracting parties; its validity or compliance cannot
be left to the will of one of them.

Article 1309. The determination of the performance may be left to a third person, whose
decision shall not be binding until it has been made known to both contracting parties.

Article 1310. The determination shall not be obligatory if it is evidently inequitable. In such
case, the courts shall decide what is equitable under the circumstances.

Article 1159. Obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith.

Article 1311. Contracts take effect only between the parties, their assigns and heirs, except in
case where the rights and obligations arising from the contract are not transmissible by their
nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the
property he received from the decedent.

If a contract should contain some stipulation in favor of a third person, he may demand its
fulfillment provided he communicated his acceptance to the obligor before its revocation. A
mere incidental benefit or interest of a person is not sufficient. The contracting parties must
have clearly and deliberately conferred a favor upon a third person.

STIPULATION POUR AUTRUI

1. There is a stipulation in favor of a 3rd person
2. The stipulation should be a part of, not the whole contract
3. Parties must have clearly and deliberately conferred a favor upon a 3rd person
4. The stipulation should not be conditioned or compensated by any kind of obligation
whatsoever
5. The 3rd person communicates his acceptance before revocation by the original parties
6. Neither of the contracting parties bears the legal representation or authorization of the 3rd
party.

Article 1312. In contracts creating real rights, third persons who come into possession of the
object of the contract are bound thereby, subject to the provisions of the Mortgage Law and the
Land Registration Laws.

Article 1313. Creditors are protected in cases of contracts intended to defraud them.

Article 1314. Any third person who induces another to violate his contract shall be liable for
damages to the other contracting party.

Article 1327. The following cannot give consent to a contract:

(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not know how to write.

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

Article 1331. In order that mistake may invalidate consent, it should refer to the substance of
the thing which is the object of the contract, or to those conditions which have principally moved
one or both parties to enter into the contract.
Mistake as to the identity or qualifications of one of the parties will vitiate consent only when
such identity or qualifications have been the principal cause of the contract.

A simple mistake of account shall give rise to its correction.

Article 1332. When one of the parties is unable to read, or if the contract is in a language not
understood by him, and mistake or fraud is alleged, the person enforcing the contract must
show that the terms thereof have been fully explained to the former.

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

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

VALES v. VILLA - courts are not guardians of people who have the capacity to act.

*If act of disposition - kailangan within his powers otherwise magiging unforceable
*dapat both deaf-mute who does not know how to write
*person declared insane by court, guardian has been appointed, assumption is he is insane
*hypnotized -voidable