Prepared by:

Atty. Angeline May F. Togade

BSSLAW1 – Part 2

A Self-regulated Learning Module 1

 THE LAW ON CONTRACTS
PAGE
INTRODUCTION TO THE MODULE 2
CHAPTER6 GENERAL PROVISION ON CONTRACTS 3
Activities 10
CHAPTER7 ESSENTIAL REQUISITES OF CONTRACTS 11
Activities 26
CHAPTER8 FORM, REFORMATION AND INTERPRETATION OF CONTRACTS 27
Activities 34
CHAPTER9 DEFECTIVE CONTRACTS 35
Activities 51

INTRODUCTION TO THE MODULE: PART 2 (Contracts)

Course Code and Course BSSLAW1
Title Law on Obligations and Contracts
This unit introduces the students to the legal basic concepts
related to obligations and contracts. It will cover the general
principles of obligations and contracts, the various
classifications and kinds thereof, its nature and effect, the
Course Description modes of extinguishing the obligations, the form of contracts
and the remedy of reformation as well as the rules of
interpretation.

This learning module is being formulated considering the

following situations of students: (1) Those students who do
not have internet connection, (2) students whose family share
computer equipment (3) students with slow and weak internet
connectivity. The pandemic created a global change in our
Rationale of the Module daily norm and the academe, as dynamic as it is, is adjusting
to this changes.
The learning module seeks to provide an avenue for student
to learn by self-pace learning or asynchronous learning. This
module would also be uploaded in the google classroom
which the student can assess and study offline.
● Periodical Examination for the first semester:
Prelims, Midterms and Finals
Requirements of the ● Assignments
Course ● Quizzes
● Research Work

Angeline May F. Togade Email: amftogade@e.ubaguio.edu

A Self-regulated Learning Module 2

Chapter 6: INTRODUCTION TO CONTRACTS
Objective(s)
At the end of the module, the students will be able to enumerate and identify and
basic concepts relating to contracts.

CHAPTER 6: GENERAL PROVISIONS

Relation of obligation and contract
In Art. 1157, the different sources of obligations were discussed. One of those
sources is contracts..
CHAPTER 1 : GENERAL PROVISION ON CONTRACTS

Art. 1305. A contract is a meeting of minds between two persons whereby one
binds himself, with respect to the other, to give something or to
render some service.

Contract
Sanchez Roman, a Spanish Commentator in Civil Law, defined a contract as a
juridical convention manifested in legal form, by virtue of which, on or more persons bind
themselves in favor of another or others, or reciprocally, to the fulfillment of a prestation to
give, to do or not to do.
Common essential elements of a contract
All contracts have these basic elements:
1. Consent
2. Object or subject matter or prestation
3. Cause or consideration

Special essential elements of some contracts

Aside from the common essential elements, some contracts requires addition
elements like:

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 1. Form
2. Delivery

Natural elements of a contract

Natural elements are those found only in certain contracts and inherently part of
those contracts. They are presumed to exist, unless a contrary agreement appears.
Example: implied warranties in sale

Accidental elements of a contract

Accidental elements are only present in a contract because the parties agreed on
them.
Example: The stipulation to pay interest and the period agreed upon

Classifications of contracts
1. As to perfection
a. Consensual contract which is perfected by mere consent as to object and cause.
Example: sale
b. Real contract which is perfected by delivery of the object of the contract. Example:
depositum, commodatum, pledge

2. As to form
a. Common or informal contract is one that does not require some particular form.
Example: mutuum, commodatum
b. Special or formal contract is one that requires a particular form. Example:
donation, chattel mortgage
3. As to their relation to other contracts
a. Principal contract is a stand-alone contract and does not depend on other
contracts for its validity. Example: sale, lease
b. Accessory contract is one which depends on other contracts for its validity.
Example: pledge, mortgage
c. Preparatory contract which is the basis of future contracts. Example: partnership,
agency

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4. As to purpose
a. Contract transferring ownership is one where the ownership is passed on.
Example: sale
b. Contract for the conveyance of use of a thing is one where only the enjoyment of
the use of the thing is given and no ownership is passed on. Example: usufruct,
commodatum
c. Contract for rendition of service is one where the object is the service. Example:
agency, employment
5. As to nomenclature
a. Nominate contract is one with has a special or specific designation given to it by
law. Example: sale, lease, donation
b. Innominate contract is one which has no specific name.
6. As to risk
a. Commutative contract is one where the parties bear equivalent risks. Example:
sale, lease
b. Aleatory contract is one where the fulfillment is based upon chance. Example:
insurance
7. As to fulfillment
a. Executory contract is one where the obligations are yet to be fulfilled. Example:
lease where the rentals are not yet paid
b. Executed contract is one where the obligations have been complied with.
Example: sale where full price has been paid and delivery is effected
8. As to the legal tie
a. Unilateral contract is one where only one of the parties has an obligation to fulfill.
Example: donation, gratuitous deposit
b. Bilateral or reciprocal contract is one which gives rise to an obligation for both
parties. Example: sale, lease
9. As to cause
a. Gratuitous contract is one where one of the parties performs an obligation for
free. Example: commodatum
b. Onerous or burdensome contract is one where both parties get a benefit from the
agreement. Example: sale

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Art. 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.

Freedom to contract or liberality to contract or autonomy of contract

As a general rule, the parties can agree on anything and such contract has the force
of law between the parties. The only limitation is that the agreement must not be contrary
to :
1. law
2. morals
3. good customs
4. public order
5. public policy

Art. 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.
Kinds of innominate contracts
1. Do ut des – I give that you may give
2. Do ut facias – I give that you may give
3. Facio ut des – I do that you may give
4. Facio ut facias – I do that you may do

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

Mutuality of contract
Since contracts bind both parties, the terms and conditions are to be agreed upon by
both parties as they should be on equal footing. It prevents the condition that makes the
fulfillment or pre-termination of the agreement to de dependent exclusively upon the
uncontrolled will of just one of the contracting parties.

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Art. 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.
Art. 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.

General rule
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.

Exception
The determination shall not be obligatory if it is evidently inequitable. The remedy is
to bring the matter to the court.
Art. 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.
Art. 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.
Art. 1313. Creditors are protected in cases of contracts intended to defraud
them.
Art. 1314. Any third person who induces another to violate his contract shall
be liable for damages to the other contracting party.

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Relativity of contracts
General rule
Contracts take effect only between the parties, their assigns and heirs.
Exceptions
1. Contracts that are not transmissible by nature (Art. 1311)
2. Contracts that are not transmissible by agreement (Art. 1311)
3. Contracts that are not transmissible by provision of law (Art. 1311)
4. Contracts with stipulation pour autrui (Art. 1311)
5. In cases when a third person induces another to violate his contract (Art.
1314)
6. Contracts that are rescissible (Art. 1381)

Art. 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.

Art. 1316. Real contracts, such as deposit, pledge and commodatum, are not
perfected until the delivery of the object of the obligation.

Perfection of contracts
1. Consensual contracts are perfected by mere consent.
2. Real contracts are perfected by the delivery of the thing.
Deposit or depositum is a contract for safekeeping. 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. 1962)

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 Pledge or pignus is a contract of bailment where a good or property is
delivered by the bailor to the bailee to secure the payment or performance of a
principal obligation.
Commodatum is a contract of loan whereby one of the parties deliver a
non-consummable and non-fungible thing to another for the latter’s use for a
period of time and after which, the same thing must be returned.
3. Formal or solemn contracts require a special form.

Legal effect of perfection

All the rights and obligations appurtenant to the contract becomes legally
demandable from each party.

Art. 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.

General rule
A person should enter into a contract in his own name. No person can enter into a
contract for another, otherwise it becomes unenforceable.
Exceptions
1. When authorized by the person being represented
2. When the law gives him the right to represent the other
3. When the contract is ratified
Read:
1. G.R. No. 223825, January 20, 2020 . GEMUDIANO VS. NAESS SHIPPING
PHILIPPINES, INC. AND/OR ROYAL DRAGON OCEAN TRANSPORT, INC. AND/OR
PEDRO MIGUEL F. OCA, RESPONDENTS.
2. G.R. No. 173211, October 11, 2012, HEIRS OF DR. MARIO S. INTAC and ANGELINA
MENDOZA-INTAC, vs. COURT OF APPEALS, et al.
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ACTIVITY6_CONTRACTS:
6.a Vocabulary enhancement. Choose at least 25 words from Chapter 6 and the cases that
you are not familiar with. Find a technical definition or concept of these words that you
understand. Write a sentence using each word that shows your understanding of the
application of the technical meaning or concept of the word. Follow the format found in
Appendix A.
6.b Create 25 Multiple Choice Questions based on this chapter. Provide four (4) distinct but
related choices. Include the article number used as a basis for the question and/or
answers. Follow the format found in Appendix B.
6.c Online Quizzers will be scheduled.

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Chapter 7: GENERAL PROVISIONS ON OBLIGATION
Objective(s)
At the end of the module, the students will be able to enumerate and identify the
essential requisites of contracts.

CHAPTER 7: ESSENTIAL REQUISITES OF CONTRACTS

GENERAL PROVISIONS
Art. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.

Elements of a contract
1. Essential elements are those which without any of it, there is no contract to speak of.
A. Common (communes) – present in all contracts like consent, object and cause
B. Special (especiales) – present only in certain contracts like delivery in real
contracts
C. Extraordinary or peculiar (especialisimos) – perculiar only to certain contracts like
the price in sale
2. Natural elements are those derived from the nature of the contract. They are
presumed to exist and need not be agreed upon may be excluded by agreement.
3. Accidental elements are those which only exists when expressly agreed upon by the
parties.

SECTION 1. - Consent

Art. 1319. Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute

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 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.
Art. 1320. An acceptance may be express or implied.

Consent
Consent is manifested by the meeting of the offer and the acceptance upon the thing
and the cause which constitute the contract.

Requisites of consent
1. There must be two or more parties.
2. The parties must be capacitated to contract.
3. Consent must not be vitiated.
4. The intention of the parties must be expressly declared.

Offer
An offer is a unilateral proposition made by one party to another. For to be valid, the
offer must be certain, definite, complete and intentional.

Policitacion
Policitacion is an imperfect promise, it is an unaccepted unilateral offer.

Counter-offer
A counter-offer is a qualified acceptance.

Acceptance

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 Acceptance is the acquiescence of the offeree to the terms and conditions made by
the offeror. Acceptance made by letter or telegram is binding only when it comes to the
knowledge of the offeror.

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

The offeror has the prerogative to fix the terms and conditions of the offer. The offeree
can either agree or make a counter-offer, in which case, he now becomes the offeree.

Art. 1322. An offer made through an agent is accepted from the time
acceptance is communicated to him.

By legal fiction, an agent is an extension of the personality of the principal he

represents. The act of the agent is the act of the principal, for as long as it is within his
power and authority, subject to the limits and exceptions provided by law.

Art. 1323. An offer becomes ineffective upon the death, civil interdiction,
insanity, or insolvency of either party before acceptance is
conveyed.

When an offer becomes ineffective before acceptance

1. When either party dies
2. When either suffers civil interdiction
Civil interdiction is the interruption of person in managing his or her own
property. This can occur for example when a person is deemed incompetent
3. When either party becomes insane
4. When either becomes bankrupt or insolvent
5. Rejection of the offer
6. Counter-offer by the offeree
7. When the object becomes illegal
8. When the object is lost
9. When the period within which to accept lapses

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Art. 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.

Option
An option is a choice.

Option contract
An option contract is one granting a privilege to buy or sell at a determined price
within an agreed time. It is a preparatory contract within which a party will decide whether
or not he will enter into a subsequent principal contract.

Option period
The time frame within which to exercise an option.

Option money
Option money is the consideration for an option contract. It is not part of the
consideration of the subsequent principal contract and is not refundable whether or not the
party entitled to the exercise of the option makes use of that option.

Earnest money
Earnest money is downpayment for a principal contract and is part of the entire
contract price.

Art. 1325. Unless it appears otherwise, business advertisements of things for

sale are not definite offers, but mere invitations to make an offer.

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Art. 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.

Not definite offers

1. Business advertisement of things for sale are invitations to make an offer.
2. Bidding advertisements are invitations to make an offer.

Art. 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.
Art. 1328. Contracts entered into during a lucid interval are valid. Contracts
agreed to in a state of drunkenness or during a hypnotic spell are
voidable.
Art. 1329. The incapacity declared in Article 1327 is subject to the
modifications determined by law, and is understood to be without
prejudice to special disqualifications established in the laws.

Persons incapacitated to give consent

1. Minors
2. Insane or demented persons
3. Deaf mutes who do not know how to write

Lucid interval
Lucid interval is a period of sanity.

Lunatic episode
Lunatic episode is a period of insanity.

Some persons specially disqualified by law to enter into certain contracts

Art. 1490. The husband and the wife cannot sell property to each other, except:
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 (1) When a separation of property was agreed upon in the marriage settlements; or
(2) When there has been a judicial separation or property under Article 191.
Art. 1491. The following persons cannot acquire by purchase, even at a public or
judicial auction, either in person or through the mediation of another:
(1) The guardian, the property of the person or persons who may be under his
guardianship;
(2) Agents, the property whose administration or sale may have been entrusted to
them, unless the consent of the principal has been given;
(3) Executors and administrators, the property of the estate under administration;
(4) Public officers and employees, the property of the State or of any subdivision
thereof, or of any government-owned or controlled corporation, or institution, the
administration of which has been intrusted to them; this provision shall apply to
judges and government experts who, in any manner whatsoever, take part in the
sale;
(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and
other officers and employees connected with the administration of justice, the
property and rights in litigation or levied upon an execution before the court within
whose jurisdiction or territory they exercise their respective functions; this
prohibition includes the act of acquiring by assignment and shall apply to lawyers,
with respect to the property and rights which may be the object of any litigation in
which they may take part by virtue of their profession.
(6) Any others specially disqualified by law.

Art. 1330. A contract where consent is given through mistake, violence,

intimidation, undue influence, or fraud is

Vices of consent
1. Mistake or error – Arts. 1331 to 1334
2. Violence or force – Arts. 1335 to 1336
3. Intimidation or threat – Arts. 1335 to 1336

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 4. Undue influence – Art. 1337
5. Fraud or deceit – Art. 1338

Art. 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.

Art. 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.

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

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

Mistake or error
Mistake or error is a misunderstanding of the meaning or implication of something
leading to a wrong action. It is a false belief of something.
Kinds of mistake
1. Mistake of law which does not vitiate consent unless it is mutual. Mistake of law
connotes that one or both of the contracting parties arrived at an erroneous
conclusion regarding the interpretation of a question of law or the legal effects of a
certain act or transaction.

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 Requisites for mistake of law to vitiate consent
a. The mistake must be with respect to the legal effect of an agreement.
b. The mistake must be mutual
c. The real purpose of the parties must be frustrated
2. Mistake of fact which is the misapprehension of facts and circumstances that was
the basis of a decision.

Art. 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.

Art. 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.

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

Requisites of violence
1. The force employed is serious or irresistible.
2. It must be the determining cause for a party upon whom it is used in agreeing to the
contract.
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Intimidation of threat
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.

Art. 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.
Undue influence
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.

Circumstances considered
1. Confidential, family, spiritual and other relations between the parties
2. Mental weakness
3. Ignorance
4. Financial distress

Art. 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.
This article defines fraud.
Kinds of fraud
Dolo causante – Art. 1338 – refers to those deceptions or misrepresentations that are of
serious nature employed by one party without which the other party would not have

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entered into the contract. It will result in the nullification of the contract and
indemnification for damages.
Dolo incidente – Art. 1344 – refers to the misrepresentations that are not serious in
character and without which the other party would still have entered into a contract. It will
give rise to damages.

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

This article is about the principle of concealment which is another form of fraud.

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

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

Not fraudulent
1. Exaggerations in trade like those shown or asserted in commercial ads. Any
purchaser of goods or services should exercise the caveat emptor (buyers beware)
principle but sellers should also exercise the caveat venditor principle and must
likewise comply with the law on Truth in Advertising.
2. An expression of an opinion unless made by an expert.

Art. 1342. Misrepresentation by a third person does not vitiate consent,

unless such misrepresentation has created substantial mistake and
the same is mutual.

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

Art. 1344. In order that fraud may make a contract voidable, it should be
serious and should not have been employed by both contracting
parties.
Incidental fraud only obliges the person employing it to pay
damages.

General rule
Misrepresentation by a third person does not vitiate consent as he is not a party to
the contract.

Exception
Misrepresentation by a third person vitiate consent if it created substantial mistake
and that the same is mutual.

Misrepresentation in good faith

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

Art. 1345. Simulation of a contract may be absolute or relative. The former

takes place when the parties do not intend to be bound at all; the
latter, when the parties conceal their true agreement.

Art. 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.

Simulation

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 Simulation is the process of intentionally deceiving others.
Kinds of simulated contract
1. Absolute simulation is one where the contract does not really exist as the parties did
not intend to be bound.
2. Relative simulation is one where the contract does not show the true intention of the
parties.
Juridical acts in relative simulation
a. Ostensible act is the creation of the contract that the parties pretend to have
executed.
b. Hidden act which the real agreement between the parties.

SECTION 2. - Object of Contracts

Art. 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.

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

Art. 1349. The object of every contract must be determinate as to its kind.
The fact that the quantity is not determinate shall not be an
obstacle to the existence of the contract, provided it is possible to

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 determine the same, without the need of a new contract between
the parties.

The object or subject matter or prestation of a contract is the end-thin aimed at, the
thing sough to be accomplished. (Black’s)

Kinds of objects of a contract

1. Things which are not outside the commerce of man, including future things but not
future inheritance.
2. Rights which are transmissible.
3. Services which are not contrary to law, morals, good customs, public order or public
policy.

Requisites of a valid object

1. Within the commerce of men
2. Transmissible
3. Not contrary for law, morals, good customs, public order or public policy
4. Possible physically and legally
5. Determinate or capable of becoming determinate
6. Existing or capable of coming into existence

Examples of things outside the commerce of men

1. Personal rights like status or capacity
2. Public office
3. Political rights like the right to vote
4. Public dominion like parks, roads, rivers and public bridges

SECTION 3. - Cause of Contracts

Art. 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
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 remunerated; and in contracts of pure beneficence, the mere
liberality of the benefactor.
Art. 1351. The particular motives of the parties in entering into a contract are
different from the cause thereof.

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

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

Art. 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.

Art. 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.

Cause or consideration
Cause or consideration is the essential reason why a party enters into a contract. In
bilateral contracts, the cause of one is the object of the other and vice-versa.

Kinds of causes
1. Onerous or burdensome cause which is the prestation for each contracting party
2. Remuneratory cause when it is the past service rendered that will be renumerated
3. Gratuitous cause where the cause is the mere liberality of the benefactor

Cause versus motive

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 Cause is the essential reason for the contract and is an element of the contract.
Motive is the particular reason for a contracting party which is not an element of a
contract.

Requisites of a cause
1. It must exist.
2. It must be lawful.
3. It must be true.

Want of cause
Want of cause is the total lack or absence of cause. It invalidates a contract.

Unlawful or illegal cause

An unlawful or illegal cause is one which violates the freedom to contract principle. It
makes a contract null and void.

False cause
A false cause refers to one that is not true or real. It can give rise to reformation to
show the true cause.

Lesion
Lesion is the inadequacy or insufficiency of cause of a contract. Generally, it does not
invalidate a contract unless:
a. There is fraud
b. There is mistake
c. There is undue influence
d. The law expressly provides

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 Read:
1. G.R. No. 132887. August 11, 2005, THE MANILA BANKING CORPORATION, vs.
EDMUNDO S. SILVERIO and THE COURT OF APPEALS
2. G.R. No. 196083, November 11, 2015. 773 Phil. 39] MILAGROS C. REYES,
PETITIONER, VS. FELIX P. ASUNCION, RESPONDENT. PERALTA, J.

ACTIVITY7_CONTRACTS:
7.a Vocabulary enhancement. Choose at least 25 words from the cases in this chapter that
you are not familiar with. Find a technical definition or concept of these words that you
understand. Write a sentence using each word that shows your understanding of the
application of the technical meaning or concept of the word. Follow the format found in
Appendix A.
7.b Create 25 Multiple Choice Questions based on this chapter . Provide four (4) distinct
but related choices. Include the article number used as a basis for the question and/or
answers. Follow the format found in Appendix B.
7.c Online Quizzers will be scheduled.

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Chapter 8: FORM, REFORMATION AND INTERPRETATION OF CONTRACTS
Objective(s)

At the end of the module, the students will be able to enumerate and identify and
basic concepts relating to the form, reformation and interpretation of contracts.

CHAPTER 8.A: FORM OF CONTRACTS

Art. 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.

Art. 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.

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

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

(2) The cession, repudiation or renunciation of hereditary rights or

of those of the conjugal partnership of gains;

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 (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.

General rule
Contracts are obligatory in whatever form they have been entered into
provided all the essential requisites for their validity is present.

Exceptions
1. When the law requires a particular format for the validity or enforceability of a
contract
2. When the law requires that a contract be proved in a certain way

Importance of form
1. Validity
2. Enforceability
3. Convenience
Public document
A public document is one duly notarized to authenticated by a notary public
or any public official authorized by law.

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CHAPTER 8.B: REFORMATION OF INSTRUMENTS

Art. 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.

Art. 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.

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

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

Art. 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.

Art. 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

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 typist, the instrument does not express the true intention of the
parties, the courts may order that the instrument be reformed.

Art. 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.

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

(1) Simple donations inter vivos wherein no condition is imposed;
(2) Wills;
(3) When the real agreement is void.

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

Art. 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.

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

Reformation
Reformation is that remedy in equity by means of which a written instrument is
amended, changed or modified to express the true intention of the parties where some
errors or mistakes have been committed.
Requisites of reformation
1. There must have been a meeting of the minds.
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 2. The instrument does not express the real intention of the parties.
3. The failure to express the true intention of the parties is due to mistake, fraud,
inequitable conduct or accident.
4. There must be clear and convincing proof.

CHAPTER 8.C: INTERPRETATION OF CONTRACTS

Art. 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.

Art. 1371. In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally
considered.

Art. 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.

Art. 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.

Art. 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.

Art. 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.

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Art. 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.

Art. 1377. The interpretation of obscure words or stipulations in a contract

shall not favor the party who caused the obscurity.

Art. 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.

Art. 1379. The principles of interpretation stated in Rule 123 of the Rules of
Court shall likewise be observed in the construction of contracts.

Interpretation
The act or result of explaining something or the determination of the meaning to the
words written or spoken.

Rules of interpretation
1. When the intention of the parties is clear, there is no need to interpret.
2. In case of conflict between the words of the contract and the intention of the parties,
the intention prevails.

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 3. The intention of the parties shall be judged from their contemporaneous and
subsequent acts.
4. General terms will be understood to include distinct things intended by the parties.
5. Choose the meaning that will make the agreement effectual.
6. The meaning of various stipulation shall be taken together and the agreement read in
its entirety.
7. Words with various meaning shall be understood in such a manner as it relates to
the nature and object of the contract.
8. The custom of the place shall also be used to give proper interpretation to an
agreement.
9. The interpretation shall be strictly construed against the person who caused the
ambiguity.
10. The principles of interpretation under the Rules of Court shall also be used to aid
interpretation.

Read:
1. G.R. No. 196083, November 11, 2015. 773 Phil. 39] MILAGROS C. REYES,
PETITIONER, VS. FELIX P. ASUNCION, RESPONDENT.
2. G.R. No. 185530, April 18, 2018 MAKATI TUSCANY CONDOMINIUM CORPORATION,
PETITIONER, VS. MULTI-REALTY DEVELOPMENT CORPORATION

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ACTIVITY8_CONTRACTS:
8.a Vocabulary enhancement. Choose at least 25 words from the cases in this chapter
that you are not familiar with. Find a technical definition or concept of these words that
you understand. Write a sentence using each word that shows your understanding of the
application of the technical meaning or concept of the word. Follow the format found in
Appendix A.
8.b Create 25 Multiple Choice Questions based on this chapter. Provide four (4) distinct but
related choices. Include the article number used as a basis for the question and/or
answers. Follow the format found in Appendix B.
8.c Online Quizzers will be scheduled.

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Chapter 9: DEFECTIVE CONTRACTS
Objective(s)

At the end of the module, the students will be able to enumerate and identify and
basic concepts relating to defective contracts.

CHAPTER 9.A: RESCISSIBLE CONTRACTS

Art. 1380. Contracts validly agreed upon may be rescinded in the cases
established by law.

Rescission is the cancellation of a contract from its beginning, ensuring that all
parties return to the position they were in before it was signed. It is a process of rendering
inefficacious a valid contract earlier entered into, by reason of external conditions causing
economic prejudice to a party or to his creditors. Recission has the effect of “unmaking” or
undoing a contract from the beginning.

Requisites
1. There exists a valid contract.
2. There is lesion of financial prejudice.

Art. 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;

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 (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.

Rescissible contracts are not void and can remain legally effective until cancelled in a
an action brought for that purpose.

Ward
A ward can refer to any incapacitated person who is under guardianship.

Absentee
Ab absentee is one who disappears from his domicile, whose whereabouts is
unknown, and does not leave behind any agent to administer his properties.

Art. 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.

Insolvency
Insolvency or bankruptcy is that state where a person has more liabilities than his
assets.

Requisites for premature payment

1. The debtor-payor must have been insolvent when payment was made.
2. The debt was not yet due and demandable.
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Art. 1383. The action for rescission is subsidiary; it cannot be instituted
except when the party suffering damage has no other legal means
to obtain reparation for the same.

Subsidiary remedy
Subsidiary remedy is the exhaustion of all remedies by the prejudiced creditor to
collect claims due him before rescission is resorted to. The Supreme Court has ruled that
the rescissory action to set aside contracts in fraud of creditors is accion pauliana,
essentially a subsidiary remedy accorded under Art. 1383 of the Civil Code which the party
suffering damage can only avail of when he has no other legal means to obtain reparation
for the same. In net effect, the provision applies only when the creditor cannot recover in
any other manner what is due him.1

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

The reason for this article is that rescission is to repair the damages caused.

Art. 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.

1
Union Bank of the Phils. V Sps Ong and Jackson Lee, G.R. No. 152347, June 21, 2006

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 In this case, indemnity for damages may be demanded from the
person causing the loss.

Mutual restitution
Mutual restitution entails the return of the benefits that each party may have
received as a result of the contract. This means that the parties must revert to status quo.
However, if it is no longer possible to return the object of the contract, an indemnity for
damages operates as restitution.

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

Art. 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.

Alienations by onerous title are also presumed fraudulent when

made by persons against whom some judgment 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.

Art. 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.

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 If there are two or more alienations, the first acquirer shall be
liable first, and so on successively.

Presumption of fraud is not conclusive

The presumption of fraud on the part of the debtor in this article is not conclusive
and may be rebutted by satisfactory and convincing evidence.

Badges of fraud
1. The fact that the consideration of the conveyance is fictitious or is inadequate.
2. A transfer made by the debtor after a suit has begun and while it is pending against
him.
3. A sale upon credit by an insolvent debtor.
4. Evidence of large indebtedness or complete insolvency.
5. The transfer of all or nearly all his property by a debtor especially when he is
insolvent of greatly embarrassed financially.
6. The fact that the transfer is made between father and son, when there are present
any of the above circumstances.
7. The failure of the vendee to take exclusive possession of all the property.
Who can bring an action for rescission
1. The injured party
2. The defrauded creditor
3. The heirs or successors-in-interest of the injured party
4. Creditors of the injured party an action for subrogation the rescission

Art. 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.

The prescriptive period within which to file an action for rescission is 4 years
1. from the time the incapacity of the ward ends

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 2. from the time the domicile of the absentee is known

CHAPTER 9.B : VOIDABLE CONTRACTS

Art. 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.

Voidable or annullable contracts are existent, valid and binding but they can be
annulled in an action for that purpose because of want of capacity or by reason of vitiated
consent of any one of the parties unless ratified by the parties. The vices of consent are
mistake, violence, intimidation, undue influence and fraud.

Art. 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.

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 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.

This article talks about the prescriptive period of the action within which the
aggrieved party can bring the action for annulment of a voidable contract.

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

Art. 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.

Art. 1394. Ratification may be effected by the guardian of the incapacitated

person.

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

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

Ratification, Confirmation and Acknowledgment

1. Ratification cures the defect of lack of authority in contracts entered into in behalf of
another. (Arts. 1317, 1405)
2. Confirmation cures the defect in voidable contracts. (Art. 1396)
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 3. Acknowledgment remedies a deficiency of proof as when an oral loan is put in
writing.
*Under the New Civil Code, the three technical terms above are now uniformly called
ratification.

Kinds of ratification
1. Express – clearly stated whether oral or written
2. Tacit or implied – when inferred as a waiver

Art. 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.

Persons who may seek annulment

1. Parties principally or subsidiarily bound.
2. Guardians of incapacitated parties.

Art. 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.

Art. 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.

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Art. 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.

Art. 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.

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

Effects of annulment
1. In executory contracts, the parties are excused from their obligation.
2. In executed contracts, there must be mutual restitution.
a. However, 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.
b. 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.
c. 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.

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CHAPTER 9.C: UNENFORCEABLE CONTRACTS

Art. 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

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 time some part of the purchase money; but when a sale is made by
auction and entry is made by the auctioneer in his sales book, at
the time of the sale, of the amount and kind of property sold,
terms of sale, price, names of the purchasers and person on whose
account the sale is made, it is a sufficient memorandum;

(e) An agreement of the leasing for a longer period than one

year, or for the sale of real property or of an interest therein;
(f) A representation as to the credit of a third person.

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

contract.

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

Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of

Article 1403, are ratified by the failure to object to the
presentation of oral evidence to prove the same, or by the
acceptance of benefit under them.

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

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

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

Art. 1408. Unenforceable contracts cannot be assailed by third

persons.
Unenforceable contracts are valid contracts but because of some technical defect,
they cannot be enforced or sued upon until they are ratified. Prior to ratification, they have
no effect. It includes the following contracts:
1. Unauthorized contracts
2. Those that do not comply with the Statute of Frauds
3. Those where both parties are incapable of giving consent to a contract.

Statute of Fraud
The Statute of Fraud is based on the infallibility of man’s memory. It was a law
enacted in England in 1677 to prevent fraud and perjuries by parties seeking to hold
another to an alleged obligation. The original law is the basis of statutes that have been
enacted in all U.S. states. It required various contracts and causes of action to be evidenced
by a writing signed by the party to be charged or by a lawfully authorized agent.

Basic tenets governing the Statute of Frauds

1. The statute applies only to executory contracts.
2. It applies only if the action is for damages due to breach of contract or for specific
performance.
3. The defense arising therefrom can be waived.
4. It is a personal defense and cannot be assailed by third persons.
5. Contracts infringing the statute are only unenforceable and not void.

Ratification of contracts infringing the Statute of Frauds

1. Failure to object to presentation of parol evidence or evidence of oral statements.
2. Acceptance of the benefits under them.

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CHAPTER 9.D: VOID AND INEXISTENT CONTRACTS

Art. 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.

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

Art. 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)

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Art. 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.

Art. 1413. Interest paid in excess of the interest allowed by the usury laws may
be recovered by the debtor, with interest thereon from the date of
the payment.
Art. 1414. When money is paid or property delivered for an illegal purpose, the
contract may be repudiated by one of the parties before the purpose
has been accomplished, or before any damage has been caused to a
third person. In such case, the courts may, if the public interest will
thus be subserved, allow the party repudiating the contract to
recover the money or property.

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

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

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

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

Art. 1419. When the law sets, or authorizes the setting of a minimum wage for
laborers, and a contract is agreed upon by which a laborer accepts a
lower wage, he shall be entitled to recover the deficiency.

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

Art. 1421. defense of illegality of contract is not available to third persons

whose interests are not directly affected.

Art. 1422. A contract which is the direct result of a previous illegal contract, is
also void and inexistent.
Void contracts are those which have no force and effect because of the failure to meet
the essential requisites of a valid contract, or because of it being unlawful or illegal.
Special classification of void contracts
1. Inexistent contracts which are void because the essential formalities are not complied
with.
2. Illegal or illicit contracts which are contrary to the freedom to contract principle.

Kinds of illegal contracts

1. Those where there is a criminal offense. (Art. 1411)
Effects:

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 a. Where both parties are guilty like in sale of shabu, they will have no action against
each other for any breach, both of the parties shall be prosecuted and the effects
or the instruments of the crime shall be confiscated in favor of the government.
b. Where only one party is guilty like a sale of government property by A to B, the
latter being in good faith. In this case, the guilty party will be prosecuted, the
instrument of the crime will be confiscated and the innocent party may claim what
he has given.
2. Those where there is no criminal offense. (Art. 1412)
Effects:
a. Where both parties are guilty, then (in pari delicto) neither party may recover what
he has given.
b. Where only one party is guilty, the guilty party cannot recover what he has given
while the innocent party can demand back what he has given with no obligation to
comply with his promise.

Characteristic of void contracts

1. Void contracts produce no legal effect.
2. In void contracts, the defect consists in the lack of any or all of the essential elements
of a contract.
3. The action to declare the nullity or inexistence of void contracts does not prescribe.
4. As a rule, the nullity or inexistence of a void contract cannot be assailed by third
persons whose interests are not directly affected.
5. Void contracts cannot be ratified.
6. No action is generally required to set it aside unless the contract has already been
performed,
7. Void contracts cannot be cured by prescription.
8. The defense of a contract being void can be availed of by anybody as long as his
interest is directly affected.
9. Void contracts are an absolute nullity.
10. The right to set up the defense of illegality cannot be waived.
11. Void contracts cannot give rise to any other contract.

Read:
1. G.R. No. 179505 December 4, 2009 FIRST PHILIPPINE HOLDINGS
CORPORATION, vs. TRANS MIDDLE EAST (Phils.) EQUITIES Inc.
2. G.R. No. L-11980 February 14, 1959 MATHEW S. TEE, vs TACLOBAN
ELECTRIC AND ICE PLANT CO., INC., CHAN BUN CHIT and VICTORIANO CHAN

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ACTIVITY9_CONTRACTS:
9.a Vocabulary enhancement. Choose at least 25 words from the cases in this chapter that
you are not familiar with. Find a technical definition or concept of these words that you
understand. Write a sentence using each word that shows your understanding of the
application of the technical meaning or concept of the word. Follow the format found in
Appendix A.
9.b Create 25 Multiple Choice Questions based on this chapter. Provide four (4) distinct but
related choices. Include the article number used as a basis for the question and/or
answers. Follow the format found in Appendix B.
9.c Online Quizzers will be scheduled.

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 APPENDIX “A”
ACTIVITY #: ______________
VOCABULARY ENHANCEMENT (Alphabetically arranged)
SUBJECT: SECTION: DATE DUE:
FAMILY NAME GIVEN NAME EMAIL ADDRESS
TOPIC:
TOPIC:
# WORD TECHNICAL MEANING/CONCEPT
1
Act#
Sentence:
2
Sentence:
3
Sentence:
4

*Font 14, Arial, single space

*Use complete sentences.
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 APPENDIX “B”
ACTIVITY #: ______________
MULTIPLE CHOICE QUESTIONS
1. The choices should include 3 distinct but related choices.
2. Use CAPITAL LETTERS for the choices.
3. Use complete sentences for the statements and always provide a complete
premise.
4. The following are not allowed as choices:
a. Either A or B
b. Both A or B
c. Neither A nor B
d. None of the above
e. All of the above
f. Article numbers
g. Numbers
5. Font 14, Arial,single space.

SUBJECT: SECTION: DATE DUE:

FAMILY NAME GIVEN NAME EMAIL ADDRESS
TOPIC:

ANS # STATEMENTS AND CHOICES

C 1 A kind of obligation that has for its prestation the giving of
(Article an object.
_____) A. POSITIVE PERSONAL OBLIGATION
B. NEGATIVE PERSONAL OBLIGATION
C. REAL OBLIGATION

2
3
4
5
6
7
8
9
10
11

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12

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