OBLIGATIONS AND CONTRACT o As to Dependence of part of contract to

other parts
CONTRACT
▪ Indivisible
What is contract? ▪ Divisible

• Art. 1305: A contract is a meeting of the minds Illustration: George entered a contract of Sale with
between two persons whereby one binds Edward, wherein George will sell Edward 1 kilo of
himself, with respect to the other, to give marijuana for P 1 million.
something or to render some service.
Is the contract between George and Edward valid?
What are the different classifications of a Why?
contract?
No, because the contract is contrary to law, because
• The different classifications of a contract are as the object of the contract is illegal which is marijuana
follows:
o As to Name of Designation Article 1306
▪ Nominate – has a specific name or
designation. Ex. Contract of Lease; • Art. 1306 gives the parties to a contract freedom
Contract of Sale; Contract of Agency. to establish stipulation, so long as the
▪ Innominate – does not have a specific stipulations are not contrary to law, morals, good
name or designation. customs, public order, or public policy.
o As to Perfection Law
▪ Consensual – perfected by mere consent.
Ex. Contract of Sale. • Law is the rule of conduct, just, obligatory,
▪ Real – requires delivery to be perfected. Ex. promulgated by legitimate authority, and of
Pledge; Deposit. common observance and benefit.
o As to Cause
Illustration: Elizabeth who is married to George,
▪ Onerous – Ex. Contract of Sale.
entered a contract with Isabel, for Isabel to cohabit
▪ Remuneratory/remunerative - the cause
with George, in exchange Elizabeth will pay Isabel
is a service previously rendered (i.e.
P20,000 a month.
payment for work previously rendered).
▪ Gratuitous – Ex. Donation. Is the contract between Elizabeth and Isabel valid?
o As to Form Why?
▪ Informal, common, or simple – Ex.
Contract of Sale No, because the contract is contrary to morals,
▪ Formal or solemn - solemn contracts are because it is immoral for a woman to cohabit with a
those contracts to be valid, it is needed that married man.
a certain form or solemnities must be
complied with. Ex. Sale of Real Property. Morals
o As to Obligatory Force • Morals deal with norms of good and right
▪ Valid conduct observed in a community.
▪ Rescissible
▪ Voidable Customs
▪ Unenforceable
• Customs consists of habits and practices
▪ Void or Inexistent
which through long usage have been
o As to Status
followed and enforced by society or some
▪ Executory
part of it as binding rules of conduct.
▪ Executed
o As to Dependence to another contract Public Order
▪ Principal
▪ Preparatory • Public order refers principally to the
▪ Accessory wellbeing or safety, or convenience or benefit
of the public.
Public Policy Article 1309

• Public policy is broader than public order, as • “The determination of the performance may
it encompasses all aspects of life which are be left to a third person, whose decision shall
for the common benefit or good of the public not be binding until it has been made known
in general. to both contracting parties.”

Illustration: Elizabeth entered a contract of sale Illustration: Alex agreed to sell his land measuring
with Isabel, wherein Isabel promised to sell to 200 sqm. to Bernard. It was agreed that Charlie, a
Elizabeth a 1 karat ring for Php 500,000. broker, shall determine the price of the land.
It was agreed that Isabel will decide whether to Charlie a friend of Bernard decided that the price for
deliver the 1 karat ring. the land is Php 800,000, to favor Bernard. The
market value of the land is P 2 Million.
Is the contract between Elizabeth and Isabel valid?
Is the determination of Charlie that the price for the
No, because the compliance was left to the will of
land in the amount of Php 800,000, binding upon
the debtor.
Alex?
Article 1308 No, if Alex determines that the price set by Charlie is
inequitable, Alex may go to court for the court to
• “The contract must bind both contracting decide what is equitable.
parties, its validity or compliance cannot be
left to the will of one of them.”
• Since a contract is a meeting of the minds Article 1310
between the contracting parties, it
necessarily requires that both parties should • “The determination shall not be obligatory if
be bound. it is evidently inequitable. In such case, the
court shall decide what is equitable under the
Illustration: Alex agreed to sell his land measuring circumstances.”
200 sqm. to Bernard. It was agreed that Charlie, a • 1st Paragraph: Contracts take effect only
broker, shall determine the price of the land. between the parties, their assigns and heirs,
except in case where the rights and
Charlie decided that the price for the land is Php obligations arising from the contract are not
800,000. transmissible by their nature, or by
Is the determination of Charlie that the price for the stipulation or by provision of law. The heir is
land in the amount of Php 800,000 valid? not liable beyond the value of the property he
received from the decedent.
Yes. • 2nd Paragraph: If a contract should contain
Is the determination of Charlie that the price for the some stipulation in favor of a third person, he
land in the amount of Php 800,000, binding upon may demand its fulfillment provided he
Alex and Bernard? communicated his acceptance to the obligor
before its revocation. A mere incidental
It shall only bind Alex and Bernard from the time the benefit or interest of a person is not sufficient.
same was made known to them (Art. 1309) The contracting parties must have clearly
and deliberately conferred a favor upon a
third person.
Who are bound by a contract?

• The parties
• Assigns
• Heirs
 Is the rule that the obligatory effect of a contract, Illustration: On January 1, 2022, Alex sold to
passes to the assigns and heirs absolute? Bernard a car worth P 1 Million. Included in the
contract of sale is that Alex has to give Lorna a ring.
No, the 2nd part of the 1st sentence of the 1st
paragraph of Art. 1311 provides for an exception. On March 1, 2022, Alex and Bernard decided that
Alex no longer has to give Lorna a ring worth PhP
When is the obligatory effect of a contract, does not 50,000.
pass to the assigns or heirs?
On March 5, 2022, Lorna demanded from Alex the
• When the nature of the contract does not ring. Alex refused, to give Lorna a ring.
permit transmissibility
• When there is stipulation by the parties Is Alex bound or obligated to give Lorna a ring?
• When provided by law. No, because the stipulation pour autrui has been
revoked before, it was accepted by Lorna.
Illustration: Alex owes Bernard P 1 Million. Before
Alex could pay Bernard P 1 Million, Alex died. Alex Requisites of Stipulation pour autrui
was survived by his wife Lorna, and Daughter Liza.
1. The contracting parties by their stipulations
Alex left behind a bank account with P 300,000 in it, must have clearly and deliberately conferred
and a car worth P 300,000. When the obligation of a favor upon a third person.
Alex became due and demandable, Bernard 2. The third person must have communicated
demanded from Lorna and Liza the payment of P 1 his acceptance to the obligor before it is
Million. revoked.
3. The stipulation in favor of the third person
Lorna and Liza refused to pay Bernard P 1 Million, should be a part, not the whole, of the
claiming that they are not liable, because it was Alex contract.
who owes Bernard. 4. The favorable stipulation should not be
Are Lorna and Liza liable to pay Bernard? Yes. conditioned or compensated by any kind of
obligation whatever.
How much? Why? 5. Neither of the contracting parties bears the
legal representation or authorization of the
PhP 600,000, because, it is the amount left behind
third party.
by Alex.
Article 1312

• In contracts creating real rights, third persons

Illustration: Alex sold to Bernard a car worth P 1
who come into possession of the object of
Million. Included in the contract of sale is that Alex
the contract are bound thereby, subject to the
has to give Lorna a ring worth PhP 50,000.
provisions of the Mortgage Law and the Land
Lorna demanded from Alex the ring. Alex refused, Registration Laws.
saying that Lorna is not party to the contract.
Real right
Is Alex bound or obligated to give Lorna a ring?
• Real right is a rights enforceable against the
Yes, 2nd par. Of Art. 1311 provides so. whole world. Ex. Ownership of a car or
house.
Illustration: Alex owes Bernard P 2 Million. Alex
Stipulation pour autrui does not want to pay Bernard the P 2 Million, thus
• Stipulation pour autrui is a stipulation in a Alex donated to his son, William the P 2 Million and
contract clearly and deliberately conferring a Alex declared for bankruptcy.
favor upon a third person who has a right to What recourse does Bernard have, if any?
demand its fulfillment provided he
communicates his acceptance to the obligor Bernard can have the donation made by Alex to
before its revocation. William declared void.
Article 1313 3. Solemn Contracts - it is perfected by the
execution of an instrument.
• Creditors are protected in cases of contracts
intended to defraud them. Article 1316

Illustration: Alex owes Bernard P 2 Million. Stanley • Real contracts, such as deposit, pledge and
a friend of Alex, induced Alex to donate to William, commodatum, are not perfected until the
son of Alex, P 2 Million, so that Alex can declare for delivery of the object of the obligation.
bankruptcy, and avoid paying his obligation to
Illustration: Alex owns a BMW with plate number
Bernard.
ABC1234. Alex lent his BMW to Bernard. Without
May Stanley be held liable? the consent of Alex, Bernard sold the BMW of Alex
to Carlos.
Yes, Art. 1314, provides for the liability of a third
person who induced another to violate a contract. May Bernard validly sell the BMW of Alex to Carlos?
No, Bernard does not have any authority to do so.
Article 1314

• Any third person who induces another to Illustration: Alex owns a BMW with plate number
violate his contract shall be liable for ABC1234. Alex lent his BMW to Bernard. Alex also
damages to the other contracting party. authorized Bernard, through a Special Power of
Attorney, to sell Alex’s BMW.
When is a contract perfected?
Bernard sold the BMW of Alex to Carlos.
• A contract is perfected when the contracting
parties agree on the terms of the contract. May Bernard validly sell the BMW of Alex to Carlos?

Article 1315 Yes, Bernard have been given authority to do so.

• Contracts are perfected by mere consent, Alex owns a BMW with plate number ABC1234. Alex
and from that moment the parties are bound lent his BMW to Bernard. Without the consent of
not only to the fulfillment of what has been Alex, Bernard sold the BMW of Alex to Carlos.
expressly stipulated but also to all the When Alex learned of the sale of the BMW to Carlos,
consequences which, according to their Alex did not do anything.
nature, may be in keeping with good faith,
usage and law. Is the sale of the BMW to Carlos valid?

What are the stages of a contract? Yes, the inaction of Alex is an implied ratification of
the sale.
1. Preparation or negotiation - this includes all
the steps taken by the parties leading to the Article 1317
perfection of the contract. No definite
• No one may contract with the name of
agreement has yet been arrived at.
another without being authorized by the
2. Perfection or birth - this is when the parties
latter, or unless he has by law a right to
have come to a definite agreement or represent him.
meeting of the mind regarding to the subject
• A contract entered in the name of another by
matter and the cause of the contract.
one who has no authority or legal
3. Consummation or termination - this is when
representation, or who has acted beyond his
the parties have performed their respective
powers, shall be unenforceable, unless it is
obligations and the contracts has been fully
ratified, expressly or impliedly, by the person
accomplished.
on whose behalf it has been executed,
How are contracts perfected? before it is revoked by the other contracting
party.
1. Consensual Contracts - it is perfected by
mere consent.
2. Real Contracts - it is perfected by delivery.
The essential requisites or elements of a Offer
contract
• An Offer is a proposal made by one (1) party
a. Consent - is the conformity or concurrence (offerer) to another (offeree), indicating
of wills (offer and acceptance). It is the willingness to enter into a contract.
meeting of minds or mutual assent between
the parties on the subject matter and the How should offer be made?
cause which are to constitute the contract • The offer must be certain or definite so that
b. Object - is the subject matter of the contract the liability (or the right) of the parties may be
c. Cause or Consideration - is the essential exactly fixed (2nd sentence of the 1st par. Of
reason or purpose which the contracting Art. 1319)
parties have in view at the time of entering
into the contract. It is something bargained What is the meaning of acceptance?
for or given by a party in exchange for a
• Acceptance is the manifestation by the
legally enforceable promise of another.
offeree of his assent to all the terms of the
Article 1318 offer. Without acceptance, there can be no
meeting of the minds between the parties.
• “There is no contract unless the following
requisites concur: Consent of the contracting How should acceptance be made?
parties; Object certain which is the subject
• The acceptance of the offer must be clear
matter of the contract; Cause of the
and absolute, unconditional, and unqualified.
obligation which is established.”
Will a qualified acceptance constitute to a
Illustration: Alex offered to sell to Bernard, Alex’s meeting of the minds between the contracting
BMW with plate number ABC1234 for P 1 Million. parties?
Bernard offered to buy the BMW with plate number
ABC1234 for P 950,000. • No. A qualified acceptance is a counter-offer,
and does not constitute to a meeting of the
Was there consent by the parties to buy and sell the
minds between the contracting parties.
BMW with plate number ABC1234?
No, there was no consent from Alex and Bernard, Illustration: Alex offered to sell his car with plate no.
because there was no meeting of the offer and the ABC 123 to Bernard for PhP 200,000.
acceptance of the cause Since Bernard was in Davao and Alex was in
Pampanga, on June 1, 2021, Bernard drafted and
How is consent manifested?
sent a letter to Alex, wherein Bernard agreed to buy
• “Consent is manifested by the meeting of the the car of Alex with plate no. ABC 123 for PhP
offer and the acceptance upon the thing and 200,000.
the cause which constitute the contract.”
Alex received and read the letter of Bernard on June
Article 1319 15, 2021.

• “Consent is manifested by the meeting of the When does Alex start to be bound of the
offer and the acceptance upon the thing and acceptance?
the cause which are to constitute the
June 15, 2021, when Alex received the letter of
contract. The offer must be certain and the
acceptance.
acceptance absolute. A qualified acceptance
constitute a counter-offer.”
• “Acceptance made by letter or telegram does In case the acceptance is made through letter or
not bind the offerer except from the time it telegram, when does it bind the offeror?
came to his knowledge. The contract, in such
a case, is presumed to have been entered • The offeror will be bound from the time it
into in the place where the offer was made.” came to his knowledge.
Where is the situs or place of the perfection of • An offer made through an agent is accepted
the contract in case the acceptance is made from the time acceptance is communicated
through a letter or telegram? to him.
• The situs or place of the perfection of the \ Illustration: Alex offered to sell his car with plate no.
contract is the place where the offer was ABC 1234 to Bernard for PhP 500,000. Before
made. Bernard could accept the offer, Alex became
insolvent.
In what form should an express acceptance?
What will happen to the offer?
• Express acceptance may be oral or written
The offer will become ineffective
Article 1320
What are the incidents or instances that makes
• An acceptance may be express or implied.
the offer ineffective, before an offer is accepted?
Implied Acceptance
• When (1) of the parties
• An implied acceptance is one that is inferred o dies,
from act or conduct. o suffers civil interdiction,
o becomes insane, or
Illustration: Alex offered to pay Bernard PhP 1,000 o becomes insolvent
to repair the car of Alex. Without saying a word
Article 1323
Bernard worked on and fixed the car of Alex.
Is the person making the offer (offerer) allowed • An offer becomes ineffective upon the death,
determine the time, place, and manner of civil interdiction, insanity, or insolvency of
acceptance? either party before acceptance is conveyed.

Yes Art. 1321 Illustration: On June 1, 2021, Alex offered to sell his
car with plate no. ABC 1234 to Bernard for PhP
Article 1321 500,000. Alex gave Bernard until June 30, 2021, to
accept the offer.
• The person making the offer may fix the time,
place, and manner of acceptance, all of On June 15, 2021 Alex told Bernard that, Alex is
which must be complied with. withdrawing the offer, and is no longer selling his car
to Bernard.
Who or what is an agent?
May Alex validly withdraw the offer?
• An agent is a person who acts for and in
behalf of another with authority to do so. Yes, Art. 1324, gives Alex the right to withdraw the
offer.
Illustration: Alex is the agent of Pedro. Pedro
authorized Alex to sell Pedro’s car with plate no. Illustration: On June 1, 2021, Alex offered to sell his
ABC 1234 for PhP 500,000. Alex offered to Bernard, car with plate no. ABC 1234 to Bernard for PhP
Pedro’s car with plate no. ABC 1234, for PhP 500,000. Alex gave Bernard until June 30, 2021, to
500,000. accept the offer.
Bernard accepted the offer and agreed to buy On June 15, 2021 Alex told Bernard that, Alex is
Pedro’s car. Bernard informed Alex of his withdrawing the offer, and is no longer selling his car
acceptance on June 1, 2021. On June 15, 2021, to Bernard.
Alex informed Pedro that Bernard accepted the offer.
May Alex validly withdraw the offer?
When is the acceptance made?
Yes, Art. 1324, gives Alex the right to withdraw the
June 1, 2021, the day the acceptance was offer.
communicated
Article 1322 to Alex.
 Illustration: Alex placed an advertisement on his car
Article 1324 with plate no. ABC 1234 which reads “This Car is for
• When the offeror has allowed the offeree a Sale to the highest bidder”. Bernard offers to buy the
certain period to accept, the offer may be car at PhP 500,000; Carlos offers to buy th car at
withdrawn at any time before acceptance by PHP 550,000; and Dennis offers to buy the car at
communicating such withdrawal, except PhP 600,000.
when the option is founded upon a Is Alex bound to sell his car to Dennis?
consideration, as something paid or
promised. No, simply invitations to make proposals (Art. 1326)

Option Money Article 1326

• Money paid or promised to be paid in • Advertisements for bidders are simply
consideration for the option. Option money is invitations to make proposals, and the
not part of the price advertiser is not bound to accept the highest
Is option money the same as earnest money? or lowest bidder, unless the contrary
appears.
• No, option money is not the same as earnest
money. Who does not have capacity to enter into a
contract?
Earnest Money
• Below 18 years old
• Is the initial payment. It is part of the price • Insane or demented
• Suffering from civil interdiction
Option Contract
• Deaf and mute who could not write
• It is a contract wherein a person is given a
Article 1327
certain period within which to accept the offer
for a consideration. • “The following cannot give consent to a
Option Period contract:
o Unemancipated minors;
• It is the period given within which the offeree o Insane or demented persons, and
must accept the offer. deaf-mute who do not know how to
write”
Illustration: Alex placed a “This Car is for Sale” Illustration: Alex is a 20-year-old mute who could
advertisement on his car with plate no. ABC 1234, not write. Alex saw the car of Bernard and offered to
and Alex also indicated his cellular phone number on buy Bernard’s car with plate number ABC1234 for
the advertisement. Php 500,000. Bernard agreed to sell the car to Alex.
Is the advertisement “This Car if for Sale” a definite Is the contract between Alex and Bernard valid?
offer?
No, Alex is capacitated to enter into a contract.
No, it is merely an invitation to make an offer. Because he is only deaf, not a deaf mute who could
not read and write.
Article 1325

• Unless it appears otherwise, business

advertisements of things for sale are not Illustration: Alex is a 20 year old deaf and mute,
definite offers, but mere invitations to make who could write. Alex saw the car of Bernard, and
an offer. offered to buy Bernard’s car with plate number
Illustration: Alex placed an advertisement “This Car ABC1234 for Php 500,000. Bernard agreed to sell
the car to Alex.
is for Sale for Php 500,000” on his car with plate no.
ABC 1234, and Alex also indicated his cellular Is the contract between Alex and Bernard valid?
phone number. Why?
Is the advertisement placed by A on his car a definite Yes, Alex is capacitated to enter into a contract.
offer? Yes, it is a Definite offer. Because Alex could read and write.
 Illustration: Alex suffers from periodic insanity, and Aside from incapacity, what are the other causes
during a time when he was lucid Alex agreed to buy that makes a contract voidable?
the car of Bernard for PhP 500,000. Before Bernard • The following are the other causes of
could deliver the car Alex, Alex lost his sanity. voidable contracts:
Is the contract between Alex and Bernard valid? o Mistake
Why? o Violence
o Intimidation
Yes, because it was entered into during a lucid o Undue influence
interval. o Fraud
Article 1330
1st sentence of Article 1328
• A contract where consent is given through
• Contracts entered into during a lucid interval mistake, violence, intimidation, undue
are valid. influence, or fraud is voidable.
Lucid Interval What are the requirements in order that mistake
may vitiate consent?
• Lucid interval is a temporary period of sanity.
• Mistake should refer to the substance of the
Illustration: Alex got drunk, and during the time thing which is the object of the contract; or
when he was drunk, Alex agreed to buy the car of • Those conditions which have principally
Bernard for Php 500,000. moved one or both parties to enter into the
Is the contract between Alex and Bernard valid? contract
• Mistake as to identity and qualifications when
Yes, but voidable. such identity and qualifications have been
the principal cause of the contract
2nd sentence of Art. 1328 Are there mistakes that will not amount to
• Contracts agreed to in a state of vitiation of consent?
drunkenness or during a hypnotic spell are • Yes, when the mistake is considered simple.
voidable.
Article 1331
Article 1329
• In order that mistake may invalidate consent,
• The incapacity declared in article 1327 is it should refer to the substance of the thing
subject to the modifications determined by which is the object of the contract, or to those
law and is understood to be without prejudice conditions which have principally moved one
to special disqualifications established in the or both parties to enter into the contract.
laws. • Mistake as to the identity or qualifications of
Give an example of special disqualifications? one of the parties will vitiate consent only
when such identity or qualifications have
• A guardian is not allowed to buy the property been the principal cause of the contract.
of his ward. • A simple mistake of account shall give rise to
its correction.
Illustration: Beranard threatened Alex, for Alex to
buy the car of Bernard, with plate number ABC1234 Give example of a contract where there was
for PhP 500,000. Fearing the threat of Bernard, Alex mistake, which vitiates consent, thus making the
bought the car of Bernard for PhP 500,000. contract voidable.
Is the contract of sale between Alex and Bernard Alex bought a parcel of land from Bernard, for PhP
valid? 1,000,000 believing that the area of the land is 500
square meters, when the actual area is only 400
Yes, but voidable.
square meters.
 Give example of a contract where there was • Article 1334 contemplates mistake of law or
mistake, which does not vitiate consent, thus the mistake in the legal effect of the agreement.
contract not voidable. • So when the real purpose of the parties is not
what the contract provides, then the consent
Alex and Bernard agreed that Alex will buy a land of the parties are vitiated
from Bernard, measuring 500 square meters at Php
2,000 per square meters. It was mistakenly What is mistake of law?
computed that the total contract price is Php
• It is that which arises from an ignorance of
950,000, when it should have been Php 1,000,000.
some provision of law, or from erroneous
In the instant case, the mistake does not vitiate interpretation of its meaning, or from the
consent and error would only be corrected. erroneous conclusion as to the legal affect of
Because, the parties have agreed as to the area and an agreement.
the price per unit of area.
Does mistake of law generally vitiate consent?
What is the duty of the person enforcing a • No, generally mistake of law does not vitiate
contract, when the other party alleges that he is consent.
unable to read or he did not understood the
language of the contract he entered into? What are the requisites when the legal effect of
an agreement when the real purpose of the
• The person enforcing the contract must show parties is frustrated, thus consent vitiated?
that the terms thereof have been fully
explained to the former. (Art. 1332) • The error must be mutual
• It must pertain to the legal effect of the
Article 1332 agreement
• When one of the parties is unable to read, or • It frustrated the real purpose of the parties
if the contract is in a language not Give an example of the application of Art. 1334.
understood by him, and mistake or fraud is
alleged, the person enforcing the contract Alex borrowed PhP 10,000 from Bernard. As
must show that the terms thereof have been security for the debt, it was agreed that Alex will
fully explained to the former. mortgage his parcel of land in favor Bernard.
However, the document as written is one of sale.
Illustration: Alex bought a car from Bernard, who
In such a case, the contract is voidable
informed Alex that the engine of the car makes a
sound that suggest that the engine has a damage. When does violence amount to vitiation of
The engine of the car stopped working. consent?
Can Alex allege that there is mistake?
• When serious or irresistible force is
No, Alex cannot allege that there is a mistake, employed which leads to vitiation of consent.
because he was made aware of the problem of the
engine. Give an example of violence employed which
vitiates consent:

Article 1333 Alex agreed to sell his car to Bernard, because,

Bernard kept punching Alex, while Bernard was
• There is no mistake if the party alleging it pointing a gun at Alex, until Alex agreed to sell his
knew the doubt, contingency or risk affecting car to Bernard.
the object of the contract.
When does intimidation amount to vitiation of
Article 1334
consent?
• ‘Mutual error as to the legal effect of an
• When one of the contracting parties is
agreement when the real purpose of the
compelled by a reasonable and well-
parties is frustrated, may vitiate consent.”
grounded fear of an imminent and grave evil
 upon his person or property, or upon the When is there undue influence?
person or property of his spouse,
descendants or ascendants, to give his • There is undue influence when a person
consent. takes improper advantage of his power over
the will of another, depriving the latter of a
Illustration: Alex agreed to sell his car to Bernard, reasonable freedom of choice.
because Bernard threatened to kill Alex’s wife if Alex
refused to sell his car to Bernard. Give an example where undue influence was
employed, which vitiates consent:
Bernard promised to sell his car to Alex. Alex
threatened Bernard that if Bernard does not sell his Alex a teacher of Bernard, borrowed money from
car to Alex, Alex will go to court to compel Bernard to Bernard. If Bernard does not want to lend money to
sell his car to Alex. Alex, but due to the influence of Alex over Bernard,
Bernard was compelled to lend money to Alex.
Does the threat made by Alex amount to vitiation of
consent? Article 1337
No, threat to enforce a right through legal means • There is undue influence when a person
does not vitiate consent. takes improper advantage of his power over
the will of another, depriving the latter of a
Article 1335 reasonable freedom of choice.
• The following circumstances shall be
• There is violence when in order to wrest considered: the confidential, family, spiritual
consent, serious or irresistible force is and other relations between the parties, or
employed. the fact that the person alleged to have been
• There is intimidation when one of the unduly influenced was suffering from mental
contracting parties is compelled by a weakness, or was ignorant or in financial
reasonable and well-grounded fear of an distress.
imminent and grave evil upon his person or
property, or upon the person or property of In determining existence of undue influence,
his spouse, descendants or ascendants, to what factors may be considered?
give his consent.
• The following are the factors that may be
• To determine the degree of intimidation, the
considered when determining existence of
age, sex and condition of the person shall be
undue influence:
borne in mind.
o If the person who exerted influence is a
• A threat to enforce one's claim through
confidential,
competent authority, if the claim is just or
o If the person who exerted influence is a
legal, does not vitiate consent.
family member
o If the person who exerted influence has
Illustration: Alex agreed to sell his car to Bernard,
spiritual ascendancy
because, Carlos threatened Alex that Carlos will kill
o If the person alleged to have been unduly
the wife of Alex, if Alex does not sell his car to
influenced was suffering from mental
Bernard.
weakness, or was ignorant or in financial
Is the contract of sale between Alex and Bernard distress.
valid?
When is there fraud?
Yes, but it is voidable or annullable. (Art. 1336)
There is fraud when, through insidious words or
machinations of one of the contracting parties, the
Article 1336
other is induced to enter into a contract which,
• Violence or intimidation shall annul the without them, he would not have agreed to. (Art.
obligation, although it may have been 1338).
employed by a third person who did not take
part in the contract.
 Article 1338

• “There is fraud when, through insidious words Give an example wherein fraud was employed which
or machinations of one of the contracting vitiate consent.
parties, the other is induced to enter into a Anna sold a ring to Britney, by misrepresenting that
contract which, without them, he would not have the ring is 24K gold, when in fact the ring sold by
agreed to.” Anna to Britney is merely gold plated.
What kind of fraud is contemplated in Art. 1338?
Give an example where concealment does not
• Causal fraud amount to fraud.
Causal Fraud Alex owns a car with plate number ABC1234 which
• It is the fraud committed by 1 party before or at he is selling. Bernard was informed that Carlos
the time of the celebration of the contract to wants to buy the car for PhP 300,000. When
secure the consent of the other. It is fraud used Bernard learned that Carlos is interested in buying
by a party to induce the other to enter into a the car of Alex with plate number ABC1234, for PhP
contract without which the latter would not have 300,000, Bernard bought the car for PhP 250,000,
agreed to from Alex, and then sold it to Carlos for PhP
300,000.
When fraud is employed in the performance of
an obligation, what kind of fraud is this? The concealment of Bernard, does not amount to
fraud, because, Bernard is not duty bound to inform
• Incidental fraud Alex’s of Carlos’ interest in the car.
How are causal fraud committed?
Illustration: Alex offered to sell his car with plate
• Causal fraud are committed by: number ABC1234 to Bernard for PhP 300,000. Alex
o By insidious word or machination (Art. informed Bernard that the car is like brand new.
1338) Bernard inspected the car, and saw that there are
o By concealment (Art. 1339) scratches and dents. Bernard agreed to buy the car
for PhP 300,000.
Article 1339
Is the representation of Alex that the car is like brand
• Failure to disclose facts, when there is a duty new fraudulent?
to reveal them, as when the parties are
bound by confidential relations, constitutes No, because, Bernard had the opportunity to inspect
fraud. the car.

Give an example where concealment amounts to

fraud. Article 1340

Alex and Bernard are partners, in a car exchange • The usual exaggerations in trade, when the
business. Among the car owned by the partnership other party had an opportunity to know the
is a car with plate number ABC1234. Carlos wants to facts, are not in themselves fraudulent.
buy the car with plate number ABC1234 for PhP
300,000. Alex did not inform Bernard of the interest Illustration: Anna inherited a ring from his mother.
of Carlos in the car. Instead, Alex bought the car Anna knows nothing about jewelry. Anna thought
from the partnership for PhP 250,000, and then sold that the ring was 24k gold. Anna told Belinda that the
it to C for PhP 300,000. ring is 24k gold, and Anna sold the ring to Belinda. It
turns out that ring is 18k gold.
The concealment of Alex, in not telling Bernard of
Carlos’ interest in the car amounts to fraud, Does the opinion of Anna amount to fraud?
because, as partners, Alex has the duty to inform No, the opinion of Anna does not amount to fraud.
Bernard of Carlos’ interest in the property of the
partnership.
 Illustration: Anna inherited a ring from his mother. misrepresentation has created substantial
Anna a jeweller and an expert, told Belinda that the mistake and the same is mutual.
ring is 24k gold. Anna sold the ring to Belinda. It
Illustration: Anna inherited a ring from her mother.
turns out that ring is 18k gold.
Anna knows nothing about jewelry. Anna thinks that
Does the opinion of Anna amount to fraud? the ring is 24k gold, because, her mother told her
that it was 24k gold. Anna told Belinda that the ring
Yes, the opinion of Anna amount to fraud, because
is 24k gold. Anna sold the ring to Belinda. It turns out
Anna is an expert and she knows that the ring is not that ring is only 18k gold.
24k gold.
Does the opinion given by Anna, amount to fraud?

Article 1341 No, the opinion of Anna does not amount to fraud,
since the same was made in good faith.
• 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
Article 1343
special knowledge.
Illustration: Anna inherited a ring from his mother. • Misrepresentation made in good faith is not
Belinda wanted to buy the ring from Anna. Anna fraudulent but may constitute error.
does not know anything about the ring. Belinda What are the requisites of causal fraud?
borrowed the ring to have it appraised by an
expert/jeweller. Carla, an expert/jeweller told Belinda • It should be serious
that the ring is 24k gold. Belinda did not tell Anna the • It should not have been employed by both
opinion of Carla. Anna sold the ring to Belinda. It contracting parties
turns out that ring is 18k gold. • It should not have been known by the other
contracting parties
Does the opinion of Carla amount to vitiation of
consent of Anna and Belinda? 1st sentence of Article 1344
No, because the opinion of Carla is an opinion of a • In order that fraud may make a contract
3rd person. voidable, it should be serious and should not
have been employed by both contracting
parties.
Illustration: Alex wanted to buy a parcel of land to
build a house. Bernard owns a land which he wants What are the liabilities of those who commit
to build a commercial building. Carlos informed Alex incidental fraud?
and Bernard that the land owned by Bernard, is
classified as a residential land. Since Bernard could • The person who commit incidental shall be
not build a commercial building on his land, Bernard liable for damages.
sold the land to Alex. 2nd paragraph of Article 1344
It turned out that the land is classified as a
• Incidental fraud only obliges the person
commercial, hence, Alex could not build a house on
employing it to pay damages.
it.
What does simulation of a contract mean?
Does the opinion given by Carlos, amount to vitiation
of consent? • It is the act deliberately deceiving others, by
feigning or pretending by agreement, the
Yes, the consents of Alex and Bernard are vitiated,
appearance of a contract which is either non-
and the contract may be annulled.
existent or concealed

Article 1342 The different kinds of simulation of contracts?

• Misrepresentation by a third person does not

vitiate consent, unless such
 • Absolute simulation – when the contract prejudice a third person and is not intended
does not really exist and the parties do not for any purpose contrary to law, morals, good
intend to be bound at all. customs, public order or public policy binds
• Relative simulation – when the contract the parties to their real agreement.
entered into by the parties is different from
their true agreement
Article 1345

• Simulation of a contract may be absolute or

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

Give an example of an absolute simulation of a

contract.
Alex is applying for a US visa. In order to have a
good chance to be issued a US Visa Alex must
present proof of ownership of a real property. Alex
does not have a real property. Alex then asked his
brother Bernard, to execute a Deed of Sale for the
property of Bernard, making it appear that Alex
bought the real property of Bernard, in support of the
application for a US Visa of Alex.
Alex and Bernard have no intention of conveying the
property of Bernard to Alex.

Give an example of a relative simulation of a

contract.
Alex sold his car to Bernard for PhP 300,000. In
order to hide the real purchase price of the car from
Bernard’s wife, the Deed of Sale executed by Alex
and Bernard, showed that Alex sold his car to
Bernard for PhP 250,000.

What is the effect of an absolute simulated

contract?

• Void contract
What is the effect of a relative simulated
contract?

• It binds the contracting parties provided no

3rd party is prejudiced, it is not contrary to
law, moral, public policy, public order, good
customs
Article 1346

• An absolutely simulated or fictitious contract

is void. A relative simulation, when it does not