LAW

Contracts.5
Sufficiency of the note or memorandum.
 The note or memorandum is sufficient if it contains
the name of the contracting parties, the date, the
place of the contract, the terms and condition, the
description of the object, and the signature of the
party assuming the obligation.
Incapacity of both parties.
 S, 16 years old, sold to b, 17 years old, a specific
ring for P10,000.This contract cannot be enforced
because both parties are incapable of giving
consent.
Ratification of contracts falling under the Statue of
Frauds.
1. Failure to object to the presentation of oral evidence.
2. Acceptance of benefits under them, hence if the contract is partially
or totally executed , Statue of Frauds will not apply.
 Acts considered as partial performance.
1. Possession
2. Payment of taxes
3. Improving the property
4. Tender of payment followed by surveying the lot at the expense of
the buyer.
If the contract is totally or partially
executed, will statue of Frauds still apply?
 No, Statue of Frauds is applicable only if the contract is
executory.
 Example: S sold orally to B a specific radio for P600, to be
delivered after 10 days from its perfection. The contract is
supposed to be in writing because the price is more than P500,
otherwise unenforceable. However, if B paid already the price
of the sale, S must deliver the radio and cannot claim the benefit
of the statute of frauds bec. part of the contract is already
executed.
Does a contract of loan for P1000 need to be in
writing to be enforceable?
 No, bec. a contract of loan does not fall under the
Statute of frauds. What is covered under the statute
of frauds is the sale of goods or movable property.
 Can an oral sale of land be judiciary enforced as
between the contracting parties, if the land has been
delivered but the buyer has paid ten percent of the
purchase price?
 Yes, contracts perform totally or partially are not
governed by the statute of frauds. The acceptance of the
seller of the 10 percent purchase price amounts to
ratification.
 O verbally leased his house and lot to L for two years at a monthly rental of
P250. After the first year, O demanded a rental of P500 claiming that the due
to the energy crisis, with the sudden increase of the price of oil, which no
one expected, there was also a general increase in prices. O proved an
inflation rate of 100 percent. When L, refused to vacate the house, O brought
an action for ejectment. O denied that they agreed to a lease for two years.
Can lessee testify on a verbal contract of lease? Reasons.
 Yes, because “O” accepted the benefits of the contract by accepting the monthly
rentals for one year. True, the contract is unenforceable bec. It is a lease for a
longer period than one year, but since the lessor has accepted the rentals the
contract becomes enforceable by ratification.
Right of the party to compel the other to
execute the needed instrument.
 When a public instrument is required for mere
convenience of the parties, the same may compel
each other to execute the necessary documents, but
only if the ff elements are present:
 The contract must be valid.
 The contract must is enforceable.
Illustrative Case
 S sold to B a parcel of land in a private instrument. Later, B
wanted to have the sale registered in the Registry of Property
requiring a public instrument. Can B compel S to execute the
needed public instrument?
 Yes. The contract is valid because all the essential elements are
present. Not only that the contract is valid but also it is enforceable
because it is in writing. The right of B is to request S to execute
the public instrument, and if S refused, his right is to go to court so
that the court can compel him to execute the needed instrument.
Illustrative Case
 S sold to B for P10K a parcel of land orally. Later, B wanted to have the sale
registered in the Registry of Property requiring a public instrument.
 Is the sale valid? Yes, bec. all the essential elements are present.
 Is the sale enforceable? No, because it is orally made, the law requires that in sale
of immovable property, the contract must be in writing, otherwise unenforceable.
 Can B compel S to execute the public instrument needed? No, although the
contract is valid. It is unenforceable. Before B can compel S to execute the public
instrument it is necessary that contract is valid and enforceable.
 Supposing the contract remains to be oral, but B paid the price of the sale which
was accepted by S. Can be compel S to execute the public instrument? Yes, if a
contract is totally or partially executed
Illustrative Case
 S, 16 years old, and B, 17 years old, entered into a contract
of sale of a watch without the consent of their parents or
guardian. The contract is unenforceable because both
parties are incapacitated. If later, the guardian of S ratifies
the contract, the same becomes voidable because there is
only one party incapacitated . If later on, the guardian of B
ratifies the contract, it becomes enforceable upon its
inception, or effective when the contract is perfected.
Is ‘‘ mutual promise to marry’’ enforceable even if
oral?
 Yes, because this is an exception as it is not
embraced under the statue of Frauds. However, it is
made clear that we are not compelling the parties to
marry each other because of the promise. The only
right of the injured party is to ask for damages
because of the breach of promise, not specific
performance.
Illustrative Case
1. L leased to X in a public instrument registered in
the Registry of Property, Apartment No.9 for five
(5) years beginning January 1,2006. On the third
year, L sold the apartment to B.
Is the sale between L and B valid?
Yes, because L remains to be the owner of
the apartment, even if it is leased to X.
Illustrative Case
1. L leased to X in a public instrument registered in the Registry
of Property, Apartment No.9 for five (5) years beginning
January 1,2006. On the third year, L sold the apartment to B.
After the sale between L and B, must X vacate the apartment
because the new owner is B?
No, because in contract creating real rights, third persons who
come into the possession of the object of the contract are
bound thereby. (Art.1312) B, therefore must respect the lease
contract up to its expiration.
Illustrative Case
1. L leased to X in a public instrument registered in the
Registry of Property, Apartment No.9 for five (5) years
beginning January 1,2006. On the third year, L sold the
apartment to B. If the contract of lease is orally made, is
the contract of sale valid?
Yes. Although the law requires that contract of lease
longer than 1 year must be in writing, this requirement is
for enforceability and not for validity.
Illustrative Case
1. L leased to X in a public instrument registered in the
Registry of Property, Apartment No.9 for five (5) years
beginning January 1,2006. On the third year, L sold the
apartment to B. If the contract of lease is orally entered into,
is the contract of sale enforceable?
No. Because in sale of immovable property or interest therein,
the contract must be in writing, otherwise unenforceable.
However, if part of the contract, was already executed by one or
both parties the contract becomes enforceable.
Does a mere telegram comply with Statute of
Frauds?
No, because the law requires that contract falling
under the Statute of Frauds must be in writing
otherwise unenforceable. However, if a written
note or memorandum or letters or telegrams
provides the essentials of the contracts and signed
by the parties charged or their agents. The statute
of Frauds is complied with.
Is the oral sale of immovable property for a price of
P400 enforceable?
 No, because this is immovable property,
irrespective of the price of the sale it must be in
writing otherwise unenforceable.
Void Contracts defined
 These are contracts which have absolutely no force
and effect and are inexistent from the beginning,
the maxim is “no contract all”
The ff contracts are inexistent and void from
beginning:
 Those whose cause, object or purpose is contrary to law, morals, good
customs, public order or public policy;
 Those which are absolutely stimulated or fictitious
 Those whose cause or object did not exist at the time of the transaction;
 Those whose object is outside the commerce of men
 Those which contemplate an impossible service
 Those where the intention of the parties relative to the principal object of
the contract cannot be ascertained;
 Those expressly prohibited or declared void by law. (Art.1409)
Special classification of void contracts
 Our Supreme Court, thru Justice J.B.L. Reyes stated
there are two kinds of void contracts.
 the inexistent ones. The formalities required by law are
not met. The contract has no effect at all.
 Example: Donation of land in a private instrument.
 The illegal or illicit ones
 Example: donation made with immoral condition, such as
sexual intercourse.
Some characteristic of a void contract
 Defense of illegality cannot be waived
 They are not subject to ratification.
 The action to declare the contract inexistent does not
prescribe.
 Generally no action to declare them void is needed.
 The defense of illegality of contracts is not available to
third persons whose interests are not directly affect.
Distinguish void and inexistent contracts from other
defective contracts.
 A void or inexistent contracts may be distinguished from rescissible contract
in the following ways:
 Void or inexistent contract produces as a rule no effect even if it is not set aside by
direct action, whereas a rescissible contract is valid unless rescinded, (Art.1409)
 The defect of the former consists in absolute lack in fact or in law of one or some
or all the essential elements of a contract, whereas the defect of the latter consists
in lesion or damage to one of the contracting parties or to third persons (Art.1380)
 The action for declaration of nullity or inexistence of a contract is imprescriptible,
whereas the action for rescission of a contract is prescriptible.
 The nullity or inexistence of a contract cannot as a rule be assailed by third persons
whose interest are not directly affected, whereas the rescissible character of a
contract may be assailed by third persons. (art. 1421)
A void contract may be distinguished from a
voidable contract in the following ways:
 A void or inexistent contract produces as a rule no effect even if it is not set
aside by a direct action, whereas a voidable contract is binding unless it is
annulled. (Art.1409,1390)
 The former is not susceptible of ratification, whereas the latter is susceptible of
ratification. (Art1409, 1395)
 The action for declaration of the nullity or inexistence of a contract is
imprescriptible, whereas the action for the annulment of a contract is
prescriptible. (ART.1410,1391)
 The defense of inexistence or absolute nullity is available, to third persons
whose interests are directly affected, whereas the defense of annulability is not
available to third persons. (Art.1421)
A void contract may be distinguished from
an unenforceable contract in the ff ways:
 In a void or inexistent contract, there is in law or in reality no
contract at all, whereas in an unenforceable contract there is
actually a contract which cannot be enforced by a court action
unless it is ratified. (Art.1409,1407)
 The former is not susceptible of ratification, while the latter is
susceptible of ratification. (Art.1409.1407)
 The former can be assailed by third persons whose interests are
directly affected, whereas the latter cannot be assailed by third
persons. (Art.1408)
Effects of contract where there is a criminal
offense:
 Those where both parties are guilty.
 Example: Sale of opium
 Effect: a. No right of action against each other.
b. Both will be prosecuted.
c. Effects or instruments of the crime will be
confiscated in favor of the govt.
 Only one party is guilty.
 Example: S sold a gov’t property to B, who is in good faith.
 Effect: a. The guilty will be prosecuted.
b. Property sold as the instrument of the crime will be confiscated
in favor of the gov’t.
c. Innocent party can claim what he has given.
What is in the principle of “in pari delicto”
 Where the defect of void contract is the illegality of
the cause or object of the contract, both parties are
at fault or “in pari delicto”, no remedy could be
given to any parties, and the court leaves them
where they are. This is universally the accepted
principle in law under the maxim “he who comes to
court must do so with clean hands.”
Exceptions:
 Fictitious or absolute simulated contracts because they are inexistent.
 Payment of usurious interest, the law allows recovery of the principal and legal
interest.
 When public policy intervenes.
Example: In sale of homestead land, the owner may recovers the land under the
principle, “land for landless”
 Payment of any amount in excess of the maximum price of any article or
commodity fixed by law, the buyer may recover the excess.
 One of the parties in a contract is less guilty than the other, as it will be presented
in the next question.
Illustrative Case
 H married to W, donated in 2006, a parcel of land belonging to
the conjugal partnership to M, a minor of 16, subject to the
condition that M shall become his mistress. The donation was
duly accepted by M and her parents. After the donation, M
became the mistress of H. Subsequently, after 5 years, H and W
died. After the death of the parents, the legitimate children want
to recover the land from M, alleging that the donation is void or
inexistent because the giving is premised on an illegal and
immoral act.
Is the contract valid or inexistent?
 The contract is void, bec the purpose of giving is
not the liberality of the donor but to gratify his
sexual and passionate desire.
If void, what are its effects, if any?
 The donor cannot recover what he has given, and
the donee cannot be compelled to comply with her
promise.
Illustrative Case
 In the preceding illustration, if the contract is void and inexistent or
without effect, why can’t the heirs of the donor recover after all
there was no donation because the contract did not exist as it is
inexistent?
 The court did not apply the rules on both parties that are at fault, instead
they applied the second rule, that is, if one party is at fault and the other
is less guilty than the other, the party cannot recover what he was given,
and the less guilty cannot be compelled to comply with her promise. The
court further stated, what makes M less guilty is that she is a minor.
Under Phil. laws, minors occupy privileged position bec. of their tender
age, they are easy prey for deceit and exploitation.
Another exception of “Pari delicto rule”
 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. This rule is not
absolute. The courts are given discretionary powers allow
recovery or not. Take note that recovery could be made only if:
 The purpose has not yet been accomplished.
 Damage has not been caused to third person.
Example:
 For P10K, K promised to kill X for R. R gave the reward in
advance. Before K could kill X, R withdrew from his evil design.
 Is R allowed to do so? Yes, because the act has yet been accomplished
and no damage was caused to a third person.
 May R recover what he has paid? That is discretionary on the part of
the court.
 Supposing the repudiation took place after the act of killing was
executed? Both parties will be prosecuted as principals of the crime of
murder.
Example of one party incapacitated
 For P10K, M a nine year old boy, acting without
discernment ordered K to kill X. Before the evil act was
consummated, M withdraw from his plan.
 If the reward was already given to K, is M entitled to
recover what he gave to K?
 Yes, this is another instance whereby the guilty party is
allowed recovery that is, if he is a minor or person who is
incapacitated.
Example of one party incapacitated
 For P10K, M a nine year old boy, acting without discernment
ordered K to kill X. Before the evil act was consummated, M
withdraw from his plan.
 The act was already consummated, can M still recover?
 No more, instead K will be prosecuted criminally and civilly, while M
is not liable criminally bec being a minor he is exempted from criminal
liability under Art.12 of the Revised Penal Code. However, from the
Civil obligation he is not exempted and it shall devolve upon these
having such person under their legal authority or control, unless it
appears that there was no fault or negligence on their part.
What are the “merely” prohibited contracts.
 These contracts are also forbidden bec of private
interest. There may be recovery:
 If the contract is not illegal per se.
 The prohibition is for the protection of the plaintiff.
 Public policy will be enhanced by allowing the
recovery.
 F, a Filipino, sold and delivered to C, a Chinese alien, a
parcel of land for p10K. Although both parties are at
fault, the land delivered to C may be recovered. The
rule is an exception of the pari delicto rule because the
act is not illegal per se but only prohibited. Public
policy is hereby enhanced for if you will not allow
recovery, the principle of conserving land for the
Filipino will be defeated.
Illegal terms of the contract.
 If indivisible, the whole contract is void, even if only some parts
or terms are illegal.
 If divisible, the legal terms may be enforced if they can be
separated from illegal terms.
 Example: On Jan. 1, 1982, D borrowed money from C P10,000
at 20% interest pa. The principal obligation of P10,000 is valid,
but payment of interest is invalid. Therefore, D must pay the
P10,000, but as to the interest he cannot required to pay.
note
 20% interest is usurious before Jan.1983. Under
Bangko Sentral Circular 905-82, the usury law had
been suspended in our country since Jan.1983.
Interest will now depend on the mutual agreement
of borrower and lender.
Effect of contract executed which is direct result of
previous illegal contract
 If a new contract is executed and it is direct result of a previous
contract, the effect of such contract is void and inexistent.
 Example: D promised to give K a specific car to kill X. After the act
was consummated, D and K novated the contract, that instead of D
giving K a car, he will just give K P300K. What is the effect of the
new or novating contacting of giving K P300K?
 The contract is void or inexistent because it is a direct result of a
previous illegal contract.
The kinds of obligation from the viewpoint of
sanction.
 Civil obligations – Those obligations whereby the
creditors are given a right of action to compel their
performance.
 Natural obligations – they are not based on positive law
on equity. They do not grant a right of action to enforce
their performance but after voluntary fulfillment by the
obligor, they authorize the retention of what has been
delivered or rendered by reason thereof.
Period of extinctive prescription
 Oral contract – the prescriptive period is six years
 Written contract – prescriptive period is 10 years
Define natural obligations
 Natural obligation are those based on equity and
natural law which are not enforceable by means of
a court action, but which, after voluntary
fulfillment by the obligee of what has been
delivered or rendered by reason therefore, is
extinguished
Examples of natural obligations
 D borrowed money from C in the amount of P10K ten years ago,
evidenced by a written promissory note. Ten years had elapsed,
yet no payment was made by D, and no demand was made by C.
The obligation of D, therefore, is extinguished by prescription. If
later on, D knowing that the obligation was already extinguished,
voluntarily paid C, can D still recover the amount paid?
 No, because when a right to sue upon a civil obligation has
prescribed, the obligor who voluntarily performs the contract cannot
recover anymore what he paid or rendered.
Examples of natural obligations
 D owes C P10K. The debt soon prescribed. Later X, a third person,
pays C P10K. D here does not have to reimburse X bec the debt
already prescribed when X paid C. If subsequently, D reimburses X
voluntarily, after the reimbursement can D still recover what he
paid X?
 No more, because this is another case of natural obligation provided for
in Art.1425. The law states “when without the knowledge or against the
will of the debtor, a third person pays a debt which the obligor is not
legally bound to pay bec the action thereon as prescribed, but debtor
later voluntarily reimburses the third person, the obligor cannot recover
what he has paid.
Examples of natural obligations
 D owes C P10K evidenced by a promissory note due on June 10,
‘06. On the date of maturity, D failed to pay. C files an action for
collection but the same is unsuccessful because the evidence of
the obligation which is the promissory note got lost. No appeal
was made, and the judgment becomes final. If later, D still paid
C voluntarily, can D still recover what he paid?
 No more, because the law says that when, after an action to enforce a
civil obligation has failed, the defendant voluntarily performs the
obligation, he cannot demand the return of what he has delivered or
the payment of the value of the service he has rendered (Art.1428)
Payment of legacy in a void will.
 If the will or last will and testament is void, the legacy would also
be void, and the deceased is considered to have died intestate, that
is, without a will. The property, therefore will be distributed
according to law bec. he died intestate.
 Example: T, a testator, executed a will giving a specific car to X as
legacy and the remaining portion of his property to be given to his
compulsory heirs. However, one of the pages of the will was left
unsigned. By provision of the law, the will is not valid, so as if T died
intestate, all property therefore including specific car must be given to
his legal heirs. If later on, the legal heirs voluntarily delivered the legacy
to X they cannot recover anymore what they have given.