CONTRACTS

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 (Article 1305).
 Elements
1.Essential - those without which there can be no contract.
Ex.a.Consent
b. object or Subject Matter
c. Cause or Consideration

2. Natural - those found in certain contracts and presumed to

exist, unless excluded by stipulation of the parties.
Ex. Warranty against eviction and against hidden defect in a contract
of sale.

3. Accidental - not considered agreed by the parties unless

stipulated
Ex.payment of interest in a contract of loan.
Stages in the life of a contract
 1. Preparation or conception- this is the
preparatory step taken by the parties leading
to the perfection of the contract otherwise
known as the bargaining point.
 2. Perfection or birth- the meeting of minds
regarding the subject matter and the cause
of the contract.
 3. Consummation or death or termination -
the point of time when the parties have
performed their respective obligations and
the contract is put to an end.
Ex.
 Today, Celerio offered for sale a specific
car to Montero for P500,000. Tomorrow,
Montero countered by telling Celerio that
he will buy the car if Celerio will give it
for P400,000. Celerio consented to the
proposal (counter) of Montero. Two days
thereafter, Celerio delivered the car and
Montero paid the price of P400,000.
Different Kinds of Contracts
 1. Accdg to perfection
 A. consensual – perfected by mere consent, such as sale and
barter.
 B. real – perfected by the delivery of the object of the
contract such as pledge, loan and deposit.
 2. Accdg.to degree of importance
 A. principal – can stand alone, such as sale barter, deposit and
loan
 B. accessory – its existence and validity is dependent upon
another contract, such as pledge, mortgage and guaranty.
 C. Preparatory – contract is not an end by itself but a means
thru which other contracts may be made.
 Ex. Contract of partnership and contract of agency.
 3. Accdg.to subject matter
 A. contracts involving things such as sale, barter
 B. contracts involving rights or credits, such as
usufruct or assignment of credit.
 C. contracts involving services, such as agency,
lease of services and contract of carriage.
 4. Accdg.to name
 A. nominate- with a special name such as pledge,
barter and lease.
 B. innominate – without any name.
 Innominate contracts are regulated by the stipulations of the
parties, by the general provisions of the Civil Code on
obligations and contracts, by rule governing the most analogous
nominate contracts and by the customs of the place.
Kinds:
a.Do ut des - I give that you give
b.Do ut facias - I give that you do
c.Facio ut des - I do that you give
d.Facio ut facias - I do that you do
 NOTE:
According to some authorities.do ut des is no longer an
innominate contract. It has already been given a name of its
own, i.e. barter or exchange(Article 1638).
 5. Accdg.to cause
 A. onerous – there is an exchange of
considerations, such as sale, barter and
lease.
 B. Gratuitous – there is no consideration
received in exchange for what has been
given such as donation, remission and
commodatum.
 6. Accdg to nature of obligation produced or number of
parties obligated.
 A. Unilateral – only one of the parties is obliged to give or to
do something, such as commodatum, gratuitous deposit and
gratuitous mutuum.
 1. commodatum is a contract of loan whereby one of the
parties delivers to another, either something not consumable
so that the latter may use the same for a certain time and
return it. This contract is essentially gratuitous.
 2. Mutuum is a contract of loan whereby one of the parties
delivers money or other consumable thing, upon the
condition that some amount of the same kind and quality
shall be paid. This contract may be gratuitous or with a
stipulation to pay interest.
 B. bilateral or sinalagmatico – where both parties are obliged
to give or do to something, such as sale, barter and lease.
 7. Accdg.to risk
 A. commutative – where equivalent values
are given by both parties such as sale,
barter and lease.
 B. Aleatory – where fulfillment of the
contract is dependent upon chance, such
as insurance.
Characteristics Of Contracts:
(ROMA)
 1.R elativity (ART 1311)-binding between
the parties only, their assigns and heirs.
 2.Obligatory Force and Consensuality (ART
1315)- perfected by mere consent
 3.Mutuality (ART 1308)- both parties are
mutually bound
 4. Autonomy (ART 1306)- there is freedom
or liberty to stipulate.
 Relativity- Contracts take effect only between parties, their assigns
and heirs.
 Exception:
1. Stipulation pour atrui -stipulation in favor of a third person. Art. 1311
 Requisites:
 a. the stipulation must be a part, not the whole of the contract;
 b. the contracting parties must have clearly and deliberately
conferred a favor upon a third person, not a mere incidental benefit
or interest;
 c. the third person must have communicated his acceptance to the
obligor before its revocation;
 d. the favorable stipulation should not be conditioned or
compensated by any kind of obligation whatever; and
 e. neither of the contracting parties bears the legal representative
or authorization of the third person.
2. Obligations arising from contract which are not
transmissible by their nature, stipulation or
provision of law (Art. 1311)
3. When a third person induces a party to violate
a contract (ART1314)
Requisites:
 a. Existence of a valid contract;
 b. knowledge of contract by third person; and
 c. interference by third person without legal cause
or justification.
4. The right of a creditor to sue on a contract
entered into by his debtor (Art. 1313)
 Mutuality
The contract must bind both parties; its validity or
compliance must not be left to the will of one of
them.(ART 1308)

 The contract cannot have any stipulation

authorizing one of the contracting parties (a) to
determine whether or not the contract shall be
valid or (b) to determine whether or not the
contract shall befulfilled
GF Equity, Inc. vs Arturo Valenzona

 Case about abuse of rights (Art 19 of CC) regarding void provision of

the Employment Contract of basketball coach. This leads to award of
damages under Art 20 of the CC.

 Case about mutuality of contracts and not leaving the compliance to

the will of one of the contracting parties.
Oblicon Concept:
 Art. 19. Every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and
observe honesty and good faith.
 Art. 20. Every person who, contrary to law, willfully or negligently
causes damage to another, shall indemnify the latter forthe same.

 Art 1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.
The ultimate purpose of the mutuality principle is thus
 to nullify a contract containing a condition which makes its fulfillment or
pre-termination dependent exclusively upon the uncontrolled will of one
of the contracting parties
 Laches has been defined as the failure or neglect for an unreasonable and
unexplained length of time to do that which by exercising due diligence, could
or should have been done earlier, thus giving rise to a presumption that the
party entitled to assert it either has abandoned or declined to assert it. It is
not concerned with mere lapse of time; the fact of delay, standing alone, is
insufficient to constitute laches.

Facts:
 GF Equity, represented by its Chief Financial Officer, Steven Uytengsu,
hired Valenzona as Head Coach of the Alaska basketball team in the
Philippine Basketball Association (PBA) under a Contract of
Employment. Under the contract, GF Equity would pay Valenzona the
sum of Thirty Five Thousand Pesos (P35,000) monthly, net of taxes, and
provide him with a service vehicle and gasoline allowance. While
the employment period agreed upon was for two years commencing
on January 1, 1988 and ending on December31, 1989, the last sentence of
paragraph 3 of the contract carried the following condition:
 “ If at any time during the contract, the COACH, in the sole opinion of the
CORPORATION, fails to exhibit sufficient skill or competitive ability to
coach the team, the CORPORATION may terminate this contract
During his stint as Alaska„s head coach, the team placed third both in the Open and All-
Filipino PBA Conferences in 1988. Valenzona was later advised by the management
of GF Equity thru a letter dated September 26, 1988 regarding the termination of his
Services. Close to six years after the termination of his services, Valenzona„s counsel,
by letter of July 30, 1994, demanded from GF Equity payment of compensation arising
from the arbitrary and unilateral termination of his employment
 RTC decided in favor of GF Equity, CA and SC decided in favor of Valenzona.
 Issues:

 1. W/N paragraph 3 of the Employment Contract is void?

 2. W/N GF Equity abused its right in terminating the contract?
 3. W/N GF Equity„s defense of laches on account of Valenzona„s invocation of his
right under the contract only after the lapse of six years is valid?

RULING
1. Yes. It is against the mutuality of contracts (Art 1308), Art 19 and Art 20 of the CC.
2. Yes. Since the pre-termination of the contract was anchored on an
illegal ground, hence, contrary to law, and GF Equity negligently failed
to provide legal basis for such pre-termination, e.g. that Valenzona
breached the contract by failing to discharge his duties thereunder, GF
Equity failed to exercise in a legitimate manner its right to pre-
terminate the contract, thereby abusing the right of Valenzona to thus
entitle him to damages under Art. 19 in relation to Article 20 of the
Civil Code.

3. No. Laches applies in equity, whereas prescription applies at law.

Our courts are basically courts of law, not courts of equity. Laches
cannot thus be invoked to evade the enforcement of an existing legal
right (10 years prescription for contracts) Equity, which has been
aptly described as a ―justice outside legality,is applied only in the
absence of, and never against, statutory law.
 Autonomy
 The parties are free to stipulate anything they
deem convenient provided that they are not
contrary to law, morals, good customs, public
order and public policy. (ART 1306)
 Consensuality
 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 consequences which,
according to their nature may be in keeping with
good faith, usage and law.
A contract of
adhesion is
defined as one in
which one of the
parties imposes a
ready-made form
of contract, which
the other party
may accept or
reject, but which
the latter cannot
modify.
Daisy Tiu vs Platinum Plans Phil., Inc.

 Case about stipulations in contracts which should not be contrary

to law, morals, good customs, public order and public policy.
 Case about validity of non-involvement clause which is limited as
to trade, time and place.

 Oblicon Concept:

 Article 1306 provides that parties to a contract may establish

such stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy.

 Article 1159 provides that obligations arising from

contracts have the force of law between the contracting parties
and should be complied with in good faith.
 Facts:

 Respondent Platinum Plans Philippines, Inc. is a domestic

corporation engaged in the pre-need industry. From 1987 to1989,
petitioner Daisy B. Tiu was its Division Marketing Director.
 On January 1, 1993, respondent re-hired petitioner as Senior
Assistant Vice-President and Territorial Operations Head in charge of its
Hongkong and Asean operations. The parties executed a contract of
employment valid for 5 years.
 On September 16, 1995, petitioner stopped reporting for work.
In November 1995, she became the Vice-President for Sales of Professional
Pension Plans, Inc., a corporation engaged also in the pre-need industry.
 Consequently, respondent sued petitioner for damages before the
RTC. Respondent alleged, among others, that petitioner„s employment with
Professional Pension Plans, Inc. violated the non-involvement clause in
her contract of employment. It contained provisions prohibiting the
employee from working in the same business (i.e., pre-need industry)as her
employer for 2 years. The liquidated damage is set at P100k.
Petitioner avers that the non-involvement clause is
offensive to public policy since the restraint
imposed is much greater than what is necessary to
afford respondent a fair and reasonable protection.
She adds that since the products sold in the pre-
need industry are more or less the same, the
transfer to a rival company is acceptable. Petitioner
also points out that respondent did not invest in
her training or improvement. At the time she joined
respondent, she already had the knowledge and
expertise required in the pre-need industry. Finally,
petitioner argues that a strict application of the
non-involvement clause would deprive her of the
right to engage in the only work she knows.
 Issue:
 Whether or not the non-involvement clause is valid?
 Ruling:
 Yes. A non-involvement clause is not necessarily void for being in
restraint of trade as long as there are reasonable limitations as to
time, trade, and place. The non-involvement clause has a time limit:
two years from the time petitioner„s employment with respondent
ends. It is also limited as to trade, since it only prohibits petitioner
from engaging in any pre-need business akin to respondent„s. She
had been privy to confidential and highly sensitive marketing
strategies of respondent„s business. To allow her to engage in a rival
business soon after she leaves would make respondent„s trade
 secrets vulnerable especially in a highly competitive marketing
environment.
 The Court finds the non-involvement clause not contrary to public
welfare and not greater than is necessary to afford a fair and
reasonable protection to respondent.
How contracts are perfected

1. If consensual- by mere consent

Ex. Contract of sale
2. If real – by delivery
Ex. Contract of pledge and mortgage
3. If formal or solemn- special form is
required for its perfection
Ex. Donation of real property – must be in
public instrument to be valid.
 CONSENT
 Manifested by the concurrence of the offer and acceptance
upon the thing and the cause which are to constitute the
contract.

 Requisites:
a. Legal capacity of the contracting parties
b. Manifestation of the conformity of the contracting parties
c. The parties‟ conformity to the object, cause, the terms and
conditions of the contract must be intelligent, spontaneous and
free from all vices of consent
d. The said conformity must be real and not simulated or
fictitious
 NOTES:
 Consensual contracts are perfected from the
moment there is a manifestation of concurrence
between the offer and the acceptance regarding
the object and the cause.
 Real contracts like deposit, pledge and
commodatum requires delivery of object for
perfection.
 Solemn contracts are those which requires
compliance with certain formalities prescribed by
law, such prescribed form being an essential
element (i.e., donation of real property).
Nature of Acceptance

 Acceptance of the offer must be absolute. If qualified, it

constitutes only a counter-offer and the contract is not
perfected unless the counter-offer is counter accepted. In
short, a counter-offer extinguishes the original offer.
 Acceptance made by letter or telegram does not bind the
offeror except from the time it comes to his knowledge. An
offer becomes ineffective upon the death, civil interdiction,
insanity, or insolvency of either party before acceptance is
conveyed.
 Revocation of acceptance – the acceptance by the offeree
may be revoked before reaching the knowledge of the
offeror. If it is revoked, the contract is not perfected if the
notice of revocation reaches the offeror before the letter of
acceptance is received.
In unilateral promise, specific acceptance is not required

 If an obligor promises a reward for the realization of an act or

achievement of a particular result, said obligor is obliged to pay the
reward to anyone who performs the act or attains the result. No
specific acceptance is required because the offer is made to the
public. This is an exception to the rule of law that if the offer is not
accepted the same is not binding.
 Acceptance of offer made thru an agent. If the offer is made
thru an agent, the contract is perfected from the time the
acceptance of the offeree is communicated to the agent even
before it is conveyed to the principal under the principle in agency
that the personality of the agent is an extension of that of the
principal.
 Rule in an offer to sell. - 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.
Are business advertisements of things for sale definite
offers?
 If the offer is definite or certain, that is, all specific
particulars needed in the contract are present in
the advertisement, the offer is definite. If
important details are not stated, it is only
considered as a mere invitation to make an offer.
 Rules: a. Unless, it appears otherwise, business
advertisements of things for sale are not definite
offers, but mere invitations to make an offer. (Art.
1325)
 b. 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. (Art. 1326)
 PERSONS INCAPACITATED TO GIVECONSENT:
1. Unemancipated Minors
 EXCEPTIONS:
a. Contracts where the minor is estopped to raise minority as a defense through his
own misrepresentation
b. Contracts for necessaries
c . Contracts by guardians or legal representatives
d. Voluntary fulfillment of a natural obligation provided that the minor is between 18-21
years of age
e. Contracts of life, health or accident insurance taken on the life of the minor
2. Insane or demented persons, unlesst he contract was entered into
during a lucid interval
3. Deaf-mutes who do not know how to read and write
 Effect of Misrepresentation of Age by
the Minor
 Misrepresentation by minors with regard to
their age when entering into a contract shall
bind them in the sense that they are
estopped subsequently from impugning the
validity of the contract on the ground of
minority. It is necessary that the
misrepresentation must be active
 (e.g. when minors specifically stated in a
contract that they were of age), not merely
constructive.
 VICES OF CONSENT
 (VIMFU)
 1.Violence - when in order to wrest consent, serious or irresistible
force is employed.
 2.Intimidation - when one of the contracting parties is compelled
by a reasonable & well-grounded fear of an imminent & grave evil
upon his person or property, or upon the person or property of
his spouse, descendants or ascendants, to give his consent.
 3. Mistake - 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 contact.

 Must be mistake of fact and not of law, except under Article 1334.
 Requisites under Article 1334:
 a. Mistake must be with respect to the
legal effect of an agreement
 b. Mistake must be mutual
 c. Real purpose of the parties must have
been frustrated.
 4. Fraud (dolo)
- 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.
Kinds of Fraud
a. Incidental fraud- dolo incidente: committed after the
perfection of contract, the right of the party is to ask for
damages.
b. Causal fraud – dolo causante: committed before or at the
time of perfection, the right is to ask for annulment of
contract.
5. 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.
 “Caveat Emptor”
“Let the buyer beware”. The transaction is
not fraudulent because this is considered
tolerable fraud. Exaggerations in trade, when
the other party had an opportunity to know
the facts, are not in themselves fraudulent.
This is otherwise knows an “dealer‟s talk”.
Except of course, if the opinion is made by an
expert and the other party has relied on such
statement.
 Reluctant Consent

 A contract is valid even though one of the

parties entered into it against his wishes and
desires or even against his better judgment.
Contracts are also valid even though they
are entered into by one of the parties
without hope of advantage or profit.
(Martinez vs. Hongkong and Shanghai Bank,
15 Phil. 252)
 Simulation of Contracts
 1.Absolute – when the contracting parties do not intend to
be bound by the contract at all. Thus, an absolutely simulated
contract is VOID.
Ex. Marriage contract in jest or those entered only to
provoke laughter with no intention to be bound at all.
 2.Relative – when the contracting parties conceal their true
agreement. A relatively simulated contract binds the parties
to their real agreement, when it does not prejudice a 3rd
person and is not intended for any purpose contrary to law,
morals, good customs, public order or public policy.
 Ex. D owns a parcel of land which he wants to donate to X.
To avoid payment of donor‟s tax, he entered into a contract
of sale with X. In here, there is simulation of the content or
terms of the contract.
 OBJECT
 The thing, right or service which is the subject
matter of the obligation arising from the contract.

 Requisites:
 a. It must be w/in the commerce of man
 b. It must be transmissible
 c. It must be licit or not contrary law, morals,
good customs, public order or public policy
 d. It must be possible
 e. It must be determinate as to its kind
 Things which Cannot be the Object of
Contract
1.Things which are outside the commerce of men
2. Intransmissible rights
3. Future inheritance, except incases expressly
authorized bylaw
4. Services which are contrary to law, morals, good
customs, public order or public policy
5. Impossible things or services
6.Objects which are not possible of determination
as to their kind
 CAUSE
 The immediate, direct and most
proximate reason which explains and
justifies the creation of obligation.
Requisites
 a. Cause should be in existence at the
time of the celebration of the contract
 b. Cause should be licit or lawful
 c. Cause should be true
 RULES:
 1. In onerous contracts
 the cause is understood to be, for each contracting party, the
prestation of promise of a thing or service by the other.
 2. In remuneratory contracts, the service or benefit w/c
is remunerated.
 3. In contracts of pure beneficence, the mere liberality of
the donor or benefactor.
 4. In accessory contracts (mortgage or pledge), the cause
is identical with the cause of the principal contract, that is,
the loan from which it derives its life and existence.
FORM OF CONTRACTS
General Rule :
Contracts shall be obligatory, in whatever
form they may have been entered into, provided all
the essential requisites for their validity are present.
Exceptions:
1. When the law requires that a contract be in some
form in order that it may be Valid
2. When the law requires that a contract be in some
form in order that it may be enforceable.
 NOTES:

 Parties may compel each other to comply with

the form required once the contract has been
perfected.(Article 1357)

 Contracts under Art 1358 which are required to

be in some specific form is only for the
convenience of parties and does not affect its
validity and enforceability as between them.
RA 8792 (E- COMMERCE ACT)
 provides that the formal requirements to
make contracts effective as against third
persons and to establish the existence of
a contract are deemed complied with
provided that the electronic document is
unaltered and can be authenticated as to
be usable for future reference.
 REFORMATION OF INSTRUMENTS
Requisites:
a. meeting of the minds to the contract
b. true intention is not expressed in the instrument by reason of
mistake, accident, relative simulation, fraud, or inequitable conduct
c. clear and convincing proof of mistake, accident, relative simulation,
fraud, or inequitable conduct
 Instances when there can be no reformation:
 1.Simple unconditional donations inter vivos;
 2.Wills;
 3.When the agreement is void;

When one of the parties has brought an action to enforce the

instrument, no subsequent reformation can be asked
DEFECTIVE CONTRACTS
 VOID VOIDABLE

1. Defect is caused by lack of 1.Defect is caused by vice of

essential elements or illegality consent
2. Do not, as a general rule produce 2.Valid and enforceable until they
any legal effect are annulled by a competent court
3. Action for the declaration or 3. Action for annulment or defense
nullity or inexistence or defense of of annulment may prescribe
nullity or inexistence does not
prescribe 4. cured by prescription
4. Not cured by prescription. 5. . Can be ratified
5. Cannot be ratified

6. Assailed not only by a contracting 6. Assailed only by a contracting

party but even by a third person party
whose interest is directly affected
7. Assailed directly or collaterally
7. Assailed directly or collaterally
Ex. Marriage Contract
Void Voidable
-The marriage was -The consent of the
solemnized without a valid husband in the marriage
marriage license. was obtained through
- Contract is void, as if not VIMFU;
existing at all. Contract is voidable, which
- Can be filed anytime; no valid until annuled;
prescriptive period -Art. 47 of the FC provides
- Can be filed by the for the prescriptive period
affected spouse or his/her when to file an annulment
parents or any third of marriage;
person affected by the Can be filed only by the
contract affected spouse.
 RESCISSIBLE UNENFORCEABLE

1. Defect is caused by injury/ damage either 1Defect is caused by lack of form, authority,
to one of the parties or to a 3rd person or capacity of both parties not cured by
prescription

2.Valid and enforceable until they are 2. Cannot be enforced by a proper action in
rescinded by a competent court court.

3. Action for rescission may prescribe 3. Corresponding action for recovery, if

there was total or partial performance of
the unenforceablecontract under No. 1or 3
of Article 1403may prescribe

4. Cured by prescription. 4. Not cured by prescription

5. Need not be ratified 5. . Can be ratified

6. Assailed not only by a contracting party

but even by a third person who is 6. Assailed only by a contracting party
prejudiced or damaged by the contract

7. Assailed directly only 7. Assailed directly or collaterally

RESCISSIBLE CONTRACTS
Contracts validly agreed upon but, by reason of lesion or economic
prejudice may be rescinded in cases established by law.
 What contracts are rescissible
 1. those entered into by guardians where the ward suffers lesion of
more than ¼ of the value of the things which are objects thereof;
 2.those agreed upon in representation of absentees, if the latter
suffer lesion by more than ¼ of the value of the things which are
subject thereof;
 3.those undertaken in fraud of creditors when the latter cannot in
any manner claim what are 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 and the court;
 5. all other contracts especially declared by law to be subject to
rescission; and
 6.payments made in a state of insolvency on account of obligations
not yet enforceable
 Requisites:
 a. the contract must be rescissible
 b. the party asking for rescission must have no other legal
means
 c. to obtain reparation for the damages suffered by him
 d. the person demanding rescission must be able to return
whatever he may be obliged to restore if rescission is
granted
 e. the things w/c are the object of the contract must not
have passed legally to the possession of a 3rd person acting
in good faith
 f. the action for rescission must be brought w/in the
prescriptive period of 4 years
BADGES OF FRAUD:

 1. Consideration of the conveyance is inadequate or

fictitious;
 2. Transfer was made by a debtor after a suit has been
begun and while it is pending against him;
 3. Sale upon credit by an insolvent debtor;
 4. Evidence of indebtedness or complete insolvency
 5. Transfer of all his property by a debtor when he is
financially embarrassed or insolvent;
 6. Transfer made between father &son, where there is
present any of the above circumstances
 7. Failure of the vendee to take exclusive possession
of all the property
VOIDABLE CONTRACTS

 Those in which all of the essential elements

for validity are present, although the element
of consent is vitiated either by lack of
capacity of one of the contracting parties or
by VIMFU.
 What contracts are voidable
 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
 Causes of extinction of action to annul:
1.PRESCRIPTION
the action must be commenced within 4 years from:
a. the time the incapacity ends;
b. the time the violence, intimidation or undue influence
ends; or
c. the time the mistake or fraud is discovered.
 NOTE:
 Discovery of fraud must be reckoned to have taken
place from the time the document was registered in
the office of the register of deeds. Registration
constitutes constructive notice to the whole world.
 (Carantes vs. CA,76 SCRA 514)
UNENFORCEABLE CONTRACTS

Those which cannot be enforced by proper action

in court unless they are ratified
 What contracts are unenforceable
 1.those entered into in the name of another by
one without or acting in excess of authority;
 2. those where both parties are incapable of
giving consent; and
 3.those which do not comply with the Statute of
Frauds
STATUTE OF FRAUDS
The contracts/agreements under the
Statute of Frauds require that the same be
evidenced by some note, memorandum or
writing, subscribed by the party charged or
by his agent, otherwise, the said contracts
shall be unenforceable.
 The statute of frauds applies only to
executory contracts, not to those that are
partially or completely fulfilled.
 Agreements within the scope of the Statute of Frauds
 (EXCLUSIVE LIST)
1. Agreements not to be performed within one year from the making
thereof;
2. Special promise to answer for the debt, default or miscarriage of
another; NOTE: This does not refer to the original or independent
promise of the debtor to his own creditor. It refers rather to a
collateral promise
.3. Agreement in consideration of marriage other than a mutual
promise to marry;
4. Agreement for the sale of goods, etc. at a price not less than
P500.00;
5. Contracts of lease for a period longer than one year;
6. Agreements for the sale of real property or interest therein; and
7. Representation as to the credit of a third person.
 Ratification of contracts in violation
of the Statute of Frauds
1. Failure to object to the presentation of
oral evidence to prove such contracts
2. Acceptance of benefits under these
contracts.
VOID CONTRACTS

 Those where all of the requisites of a

contract are present but the cause, object
or purpose is contrary to law, morals,
good customs, public order or public
policy, or contract itself is prohibited or
declared void by law.
 What contracts are void
1.Those whose cause, object or purpose is contrary
to law, morals, good customs, public order or public
policy;
2.Those whose object is outside the commerce of
men;
3. Those which contemplate an impossible service;
4. Those where the intention of the parties relative
to the principal object of the contract cannot be
ascertained; and
5.Those expressly prohibited or declared void
by law.
INEXISTENT CONTRACTS

Those where one or some or all of the

requisites essential for the validity of a
contract are absolutely lacking.
 What contracts are inexistent
 1.Those which are absolutely simulated
or fictitious; and
 2.Those whose cause or object did not
exist at the time of the transaction.
 NOTE:
 The principle of In Pari Delicto is
applicable only to void contracts and not
as to inexistent contracts.
 Principle of In Pari Delicto

 GENERAL RULE:
 When the defect of avoid contract
consists in the illegality of the cause or
object of the contract and both of the
parties are at fault or in pari delicto, the
law refuses them every remedy and leaves
them where they are.
 Exceptions:
 1. Payment of usurious interest
 2. Payment of money or delivery of property for an illegal purpose, where
the party who paid or delivered repudiates the contract before the
purpose has been accomplished, or before any damage has been caused to
a 3rd person.
 3. Payment of money or delivery of property made by an incapacitated
person
 4. Agreement or contract which is not illegal per se & the prohibition is
designed for the protection of the plaintiff
 5. Payment of any amount in excess of the maximum price of any article or
commodity fixed bylaw or regulation by competent authority.
 6. Contract whereby a laborer undertakes to work longer than the
maximum # of hours fixed by law.
 7. Contract whereby a laborer accepts a wage lower than the minimum
wage fixed by law.
 8. One who lost in gambling because of fraudulent schemes practiced on
him is allowed to recover his losses [(Art. 315, 3(b), RPC] even if gambling
is a prohibited one.
 Rules when only one of the parties is at
fault:
 1.Executed Contracts:
 a. Guilty party is barred from recovering
what he has given to the other party is
barred from recovering what he has given to
the other party by reason of the contract.
 b. Innocent party may demand for the return
for the return of what he has given.
 2. Executory Contracts -
 Neither of the contracting parties can
demand for the fulfillment of any
obligation from the contract nor may be
compelled to comply with such obligation.
 NATURAL OBLIGATIONS
 They are real obligations to which the law denies
an action, but which the debtor may perform
voluntarily.

 It is patrimonial, and presupposes a prestation.

 The binding tie of these obligations is in the

conscience of man, for under the law, they do not
have the necessary efficacy to give rise to an
action.
 Examples of natural obligations enumerated under
the Civil Code:
 1. Performance after the civil obligation has prescribed;
 2. Reimbursement of a third person for a debt that has
prescribed; 3. Restitution by minor after annulment of
contract;
 4. Delivery by minor of money or fungible thing in fulfillment
of obligation;
 5. Performance after action to enforce civil obligation has
failed;
 6. Payment by their of debt exceeding value of property
inherited; and
 7. Payment of legacy after will have been declared void.
 ESTOPPEL
 A condition or state by virtue of which an admission or
representation is rendered conclusive upon the person making it
and cannot be denied or disproved as against the person relying
thereon.
 Kinds:
 1.Estoppel in Pais (by conduct)
 The principle of estoppel in pais applies wherein one, by his acts,
representations or admissions, or by his own silence when he
ought to speak out, intentionally or through culpable negligence,
induces another to believe certain facts to exist and such other
rightfully relies and acts on such belief, so that he will be prejudiced
if the former is permitted to deny the existence of such facts.
(Hanopol v. Shoemart, Inc., G.R. No. 137774, October 4, 2002, 390
SCRA 439; Phil. Realty Holdings Corp. v. Firematic Phils. Inc., G.R.
No. 156251, April 27, 2007, Callejo, J).
Kinds of Estoppel in Pais
 a.Estoppel by silence or acquiescence: Estoppel that prevents a person
from asserting something when he had the right and opportunity to do so
earlier, and such silence put another person at a disadvantage.
 b.Estoppel by acceptance of benefits - precludes a party from initially
adopting a judgment then repudiating the judgment and taking advantage
from the inconsistency.

2.Technical Estoppel
 a.Estoppel by deed - Situations where rules of evidence prevent a litigant
from denying the truth of what was said or done.

 b.Estoppel by record- This frequently arises as issue/cause of action

estoppel or judicial estoppel where the orders or judgments made in
previous legal proceedings prevent the parties from relitigating the same
issues or causes of action.
 c. Estoppel by judgment – same as the principle of res judicata.
 d. Estoppel by laches - Estoppel after a litigant deliberately and avoidably
delays an action so as to disadvantage an adversary.
LACHES or “STALE DEMANDS”
 Failure or neglect, for an unreasonable
and unexplained length of time, to do that
which, by exercising due diligence, could or
should have been done earlier; it is
negligence or omission to assert aright
within reasonable time, warranting a
presumption that the party entitled to
assert it either has abandoned it or
declined to assert it
 Elements:
 a. Conduct on part of the defendant, or of one under whom
he claims, giving rise to the situation of which complaint is
made and for which the complaint seeks a remedy
 b. Delay in asserting the complainant‟s rights, the complainant
having knowledge or notice, of the defendant‟s conduct and
having been afforded the opportunity to institute a suit
 c. Lack of knowledge or notice on the part of the defendant
that the complainant would assert the right on which he
bases his suit.
 d. Injury to the defendant in the event relief is accorded tot
the complainant, or the suit in not held to be barred.
 LACHES PRESCRIPTION
 1. concerned with  1. concerned with fact
effect of delay of delay
 2. question of inequity  2. question or matter
of permitting the claim of time
to be enforced
 3. not statutory  3. statutory
 4. applies in equity  4. applies at law
 5. not based on a fixed  5. based on a fixed
time time
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YOU!