ART. 1305. A contract is a meeting of minds between two persons 2.

Customs
whereby one binds himself, with respect to the other, to give 3. Public Order
something or to render some service. 4. Public Policy

Number of parties to a contract ART. 1307. Innominate contracts shall be regulated by the
stipulations of the parties, by the provisions of Titles 1 and 2 of this
1. In a contract, there must be at least two persons or parties
Book, by the rules governing the most analogous nominate contracts
because it is impossible for one to contract with himself.
and by the customs of the place.
2. A single person may create a contract by himself where he
represents distinct interests Kinds of innominate contract

Contract and obligation distinguished 1. Do ut des (I give that you may give) – changed to barter or
exchange
Contract is the source of obligations while obligation is the legal tie or
2. Do ut facias (I give that you may do)
relation that exists. There can be no contract if there is no obligation
3. Facto ut des (I do that you may give)
accepted but obligation may exist without a contract.
4. Facto ut facias (I do that you may do)
Contract and agreement distinguished
Rules governing innominate contracts
Contracts are binding agreements enforceable through legal
1. The agreement of the parties
proceedings in case the other party does not comply with the obligation.
2. The provisions of the Civil Code on obligations and Contracts
An agreement is broader than a contract because the former may not
3. The rules governing the most analogous contracts
have all the elements of contracts that create legally enforceable
4. The customs of the Place
obligations. All contracts are agreements but not all agreements are
contracts ART. 1308. The contract must bind both contracting parties, its
validity or compliance cannot be left to the will of one of them.
Classifications of contract
ART. 1309. The determination of the performance may be left to a
1. According to name or designation
third person, whose decision shall not be binding until it has been
a. Nominate – that which has a specific name or
made known to both contracting parties.
designation in law
b. Innominate – that which has no specific name or ART. 1310. The determination shall not be obligatory if it is evidently
designation in law inequitable. In such case, the courts shall decide what is equitable
2. According to Perfection under the circumstances.
a. Consensual
ART. 1311. Contracts take effect only between the parties, their
b. Real
assigns and heirs, except incase where the rights and obligations
3. According to cause
arising from the contract are not transmissible by their nature, or by
a. Onerous
stipulation or provision of law. The heir is not liable beyond the value
b. Remuneratory or remunerative
of the property he received from the decedent.
c. Gratuitous
4. According to form If a contract should contain some stipulation in favor of a
a. Informal, common, or simple third person, he may demand its fulfillment provided he
b. Formal or solemn communicated his acceptance to the obligor before its revocation.
5. According to obligatory Force A mere incidental benefit or interest of a person is not sufficient. The
a. Valid contracting parties must have clearly and deliberately conferred a
b. Rescissible favor upon a third person.
c. Voidable
d. Unenforceable Persons affected by a contract.
e. Void or inexistent
1. General Rule – A party’s rights and obligations derived from a
6. According to Person obliged
contract are transmissible to the successors.
a. Unilateral
2. Exceptions – The cases when a contract are effective only
b. Bilateral
between the parties are when the rights and obligations arising
7. According to Risks
from the contract are not transmissible
a. Commutative
a. By their nature
b. Aleatory
b. By stipulation
8. According to liability
c. By provision of law
a. Unilateral
b. Bilateral Cases when strangers or third persons affected by a contract.
9. According to Status
a. Executory 1. In contracts containing a stipulation in favor of a third person
b. Executed (stipulation pour autrui)
10. According to dependence to another contract 2. In contracts creating real rights
a. Preparatory 3. In contracts entered into to defraud creditors.
b. Accessory 4. In contracts which have been violated at the inducement of a
c. Principal third person
11. According to dependence of part of contract to other parts Stipulation pour autrui – A stipulation in a contract clearly and
a. Indivisible deliberately conferring a favor upon a third person who has a right to
b. Divisible demand its fulfillment provided he communicates his acceptance to the
ART. 1306. The contracting parties may establish such stipulations, obligor before its revocation by the oblige or the original parties.
clauses, terms, and conditions as they may deem convenient, Classes of Stipulation pour autrui
provided they are not contrary to law, morals, good customs public
order, or public policy. 1. Those where the stipulation is intended for the sole benefit of
such third person.
Valid contracts are those that meet all the legal requisites for the type of 2. Those where an obligation is due from the promise to a third
agreement involved. person which the former seeks to discharge by means of such
Limitations on contractual stipulations stipulation

1. Law – The contract entered must be in accordance with an Requisites of stipulation pour autrui
applicable statute. 1. The contracting parties by their stipulation must have clearly
2. Police Power – All contractual obligations are subject to the and deliberately conferred a favor upon a third person
possible exercise of the police power of the state. 2. The third person must have communicated his acceptance to
Contracts must not be contrary to: the obligor before its revocation by the oblige or the original
parties
1. Morals
 3. The stipulation in favor of the third person should be a part, not CHAPTER 2
the whole of the contract.
ESSENTIAL REQUISITES OF CONTRACTS
4. The favorable stipulation should not be conditioned or
compensated by any kinds of obligation whatever ART. 1318. There is no contract unless the following requisites
5. Neither of the contracting parties bears the legal representation occurs.
or authorization of the third party for otherwise, the rules on
agency will apply 1. Consent of the contracting parties
2. Object certain which is the subject matter of the contract
ART. 1312. In contracts creating real rights, third persons who came 3. Cause of the obligation which is established
into possession of the object of the contract are bound thereby,
subject to the provisions of the Mortgage Law and the Land
Registration laws.
Classes of elements of a contract
A real right is binding against the whole world (everybody) and attaches
1. Essential Elements – those without which, no contract can
to the party over which it is exercised wherever it goes.
validly exist
ART. 1313. Creditors are protected in cases of contracts intended to a. Common – consent, object, and cause
defraud them. b. Special – those not common to all contracts and must
be present only in certain specific contracts such as:
ART. 1314. Any third person who induces another to violate his i. As regards form, public instrument in donation
contract shall be liable for damages to the other contracting party. of immovable property.
ii. As regards the subject matter, personal
ART. 1315. Contracts are perfected by mere consent, and from that
property in pledge
moment the parties are bound not only to the fulfillment of what has
iii. As regards the consideration, price in sale and
been expressly stipulated but also to all the consequences which
in lease, liberality in commodatum
according to their nature may be keeping with good faith, usage and
2. Natural – those that are presumed to exist in certain contracts
law.
unless the contrary is expressly stipulated by the parties
ART. 1316. Real contracts, such as deposit, pledge and 3. Accidental elements – particular stipulations, clauses, terms
commodatum, are not perfected until the delivery of the object of or conditions established by the parties in their contracts.
the obligation.

Classification of contracts according to perfection.

SECTION 1. – CONSENT
1. Consensual Contract – perfected by mere consent
ART. 1319. Consent is manifested by the meeting of the offer
2. Real contract – affected by the delivery of the thing subject
and the acceptance upon the thing and cause which are to
matter to the contract
constitute the contract. The offer must be certain and the
3. Solemn contract – which requires compliance with certain
acceptance absolute. A qualified acceptance constitutes a counter-
formalities prescribed by law, being an essential element
offer.
thereof.
Acceptance made by letter or telegram does not bind the
Stages in the life of a contract
offeror except from the time it came to his knowledge. The contract,
1. Preparation or negotiation – This includes all the steps taken by in such a case, is presumed to have been entered into in the place
the parties leading to the perfection of the contract. where the offer was made.
2. Perfection or birth – This is when the parties have come to a
definite agreement or meeting of the minds regarding the
subject matter and cause of the contract. • Consent – The conformity or concurrence of wills and with respect top
3. Consummation or termination. This is when the parties have contracts, it is the agreement of 1 contracting party with that of another.
performed their respective obligations and the contract may be
said to have been fully accomplished or executed. • Offer – a proposal made by one party (offeror) to another,(offeree)
indicating a willingness to enter into a contract
ART. 1317. No one may contract in the name of another without being
authorized by the latter, or unless he has by law a right to represent • Acceptance – the manifestation by the offeree of his assent to all the
him. terms of the offer.

A contract entered in the name of another by one who has no ART. 1320. An acceptance may be express or implied.
authority or legal representation, or who has acted beyond his
Implied – one that is inferred from act or conduct, mere silence
powers, shall be unenforceable, unless it is ratified, expressly or
cannot be construed as acceptance.
impliedly, by the person on whose behalf it has been executed,
before it is revoked by the other contracting party ART. 1321. The person making the offer may fix the time, place and
the manner of acceptance, all of which must be complied with.
Unauthorized contracts are unenforceable
An acceptance departing from the terms of the offer constitutes
1. A contract involves the free will of the parties and only he who
a counter-offer.
enters into the contract can be bound thereby.
2. An unauthorized contract is not to be confused with a contract ART. 1322. An offer made through an agent is accepted from the time
for the benefit of a third person who may demand its fulfillment acceptance is communicated to him.
provided the requisites mentioned are present.
Communications of Acceptance
Unauthorized contracts can be cured only by ratification.
1. To offerer – The acceptance of the offer must be absolute.
1. The defect is such that it cannot be cured except by the 2. To agent – By legal fiction, an agent is considered as an
ratification of the person in whose name the contract was extension of the personality of his principal.
entered into by his duly authorized agent and not by any other
person not so empowered. ART. 1323. An offer becomes in effective upon the death, civil
2. The ratification may be express or implied, but it must be clear interdiction, insanity, or insolvency of either party before
so as not to admit of any doubt or vagueness. acceptance is conveyed.
3. The effects of ratification retroact to the moment of the ART. 1324. When the offerer has allowed the offeree a certain period
celebration of the contract. to accept, the offer may be withdrawn at any time before acceptance
When a person is bound by the contract of another. (Requisites) by communicating such withdrawal, except when the option is
founded upon a consideration, as something paid or promised.
1. The person entering into the contract must be duly authorized,
expressly or impliedly, by the person in whose name he • Option Contract – one giving a person for a consideration a
contracts or he must have by law a right to represent him certain period within which to accept the offer of the offerer. It is
2. He must act within his power. separate and distinct from the contract which will be perfected upon the
acceptance of the offer.
 • Option Period – the period given within which the offeree must Vices of consent
accept the offer.
Aside from incapacity and simulation of contract, the following
• Option Money – the money paid or promised to be paid in are the causes that vitiate consent or render it defective so as to make
consideration for the option. the contract voidable:

ART. 1325. Unless it appears otherwise, business advertisements of 1. Error or mistake

things for sale are not definite offers, but mere invitations to make 2. Violence of force
an offer. 3. Intimidation or threat or duress
4. Undue influence
ART. 1326. Advertisements for bidders are simply invitations to make
5. Fraud or deceit
proposals, and the advertiser is not bound to accept the highest or
lowest bidder, unless the contrary appears. Causes vitiating consent and causes of incapacity distinguished

ART. 1327. The following cannot give consent to a contract: 1. The former are temporary, while the latter are more or less
permanent.
1. Unemancipated minors – those persons who have not yet
2. The first refers to the contract itself, while the second, to the
reached the age of majority (18 years) and are still subject to
person entering into the contract.
parental authority
2. Insane or demented persons, and deaf-mutes who do not ART. 1331. In order that mistake may invalidate consent, it should
know how to write. refer to the substance of the thing which is the substance of the
a. Insane or Demented Persons – The insanity must exist contract, or to those conditions which have principally moved one or
at the time of contracting. Unless proved otherwise, a both parties to enter into the contract.
person is presumed sane.
Mistakes as to the identity or qualifications of one party will
b. Deaf-mutes – They are persons who are deaf and
vitiate consent only when such identity or qualifications have been
dumb. However, if the deaf-mutes know how to write,
the principal cause of the contract.
the contract is valid for then he is capable of giving
intelligent consent. A simple mistake of account shall give rise to its correction.
ART. 1328. Contracts entered into during a lucid interval are valid. Meaning of mistake or error.
Contracts agreed to in a state of drunkenness or during a hypnotic
spell are voidable. Mistake or error is the false notion of a thing or a fact material to
the contract.
Lucid interval is a temporary period of sanity.
Nature of mistake
ART. 1329. The incapacity declared in Article 1327 is subject to the
modifications determined by law, and is understood to be without 1. Mistake may be of fact or of law
prejudice to special disqualifications established in the laws. 2. The mistake contemplated by law is substantial mistake of fact,
that is, the party would not have given his consent had known of
Exceptions to Article 1327: the mistake
3. The mistake may be unilateral when only one party is mistaken
1. When necessaries such as food, are sold and delivered to a
about a material fact, or bilateral, when both parties are in error.
minor or other person without capacity to act, he must pay
a reasonable price therefor. Mistake of fact to which the law refers.
2. A minor 18 years old or above may contract for life, health
and accident insurance, provided the insurance is taken on 1. Substance of the thing which is the object of the contract
his life and the beneficiary appointed is the minor’s estate. 2. Those conditions which have principally moved one or both
3. A contract is valid if entered into through a guardian or legal parties to enter into the contract
representative. 3. The identity or qualifications of one parties provided the
4. A contract is valid where the minor misrepresented his age same was the principal cause of the contract.
and convincingly led the other party to believe in his legal
Mistakes of fact which does not vitiate consent
capacity.
5. A contract is valid where a minor between 18 and 21 1. Error as regards the incidents of a thing or accidental qualities
voluntarily pays a sum of money or delivers a fungible thing there of
in fulfillment of his obligation thereunder and the obligee 2. Mistakes as to quantity or amount only gives rise to its
has spent or consumed it in good faith. correction unless it goes to the essence of the contract.
3. Error as regards the motives of the contract unless the motives
Other special disqualifications may be provided by law.
constates a condition or cause of the contract.
1. Incompetents 4. Mistakes as regards the identity or qualifications of a party does
a. Persons suffering the accessory penalty civil not vitiate consent for the reason that contracts are entered into
interdiction; more in consideration of the things or services which form their
b. Hospitalized lepers subject matter rather than of persons
c. Prodigals (spendthrifts) 5. Error which could have been avoided by the party alleging it,
d. Deaf and dumb who are unable to read and write which he should have known through ordinary diligence.
e. Those who are of unsound mind even though they
Effect of mistakes of account
have lucid intervals
f. Those who, by reason of age, disease, weak mind 1. Where mistake simple – does not void a contract because it
and other similar causes, cannot without outside does not affect its essential requisites.
aid take care of themselves and manage. 2. Where mistakes gross – the party who the mistake cannot avoid
liability on the ground of mistake in computation.
A contract entered into by any of the above is valid except where
it voidable by reason of incapacity under Articles 1327 and 1328, or of ART. 1332. When one of the parties is unable to read, or if the contract
causes which vitiate consent. is in a language not understood by him, and the mistake or fraud is
alleged, the person enforcing the contract must show that the terms
thereof have been fully explained to the former.
ART. 1330. A contract where consent is given through mistake,
ART. 1333. There is no mistake if the party alleging it knew the doubt,
violence, intimidation, undue influence, or fraud is voidable.
contingency or risk affecting the object of the contract.
Characteristics of Consent:
ART. 1334. Mutual error as to the legal parties of an arrangement
1. It is intelligent – there is capacity to act when the real purpose of the parties is frustrated may vitiate
2. It is free and voluntary – there is no vitiation of consent by consent.
reason of violence or intimidation
Mistake of law is that which arises from an ignorance of some
3. It is conscious and spontaneous – there is no vitiation of
provision of law, or from an erroneous interpretation of its meaning
consent by reason of mistake, undue influence, or fraud.
Requisites for the application of Article 1334. ART. 1345. Simulation of a contract may be absolute or relative. The
former takes place when the parties do not intend to be bound at all;
1. The error must be mutual
the latter, when the parties conceal their true agreement.
2. It must be as to the legal effect of an arrangement
3. It must frustrate the real purpose of the parties. ART. 1346. An absolute simulated or fictitious contract is void. A
relative simulation, when it does not prejudice a third person and is
ART. 1335. There is violence when in order to wrest consent, serious
not intended for any purpose contrary to law, morals, good customs,
or irresistible force is employed.
public order or policy bind the parties to their real agreement.
There is intimidation when one of the contracting parties is
Simulation of a contract is the act of deliberately deceiving
compelled by a reasonable and well-grounded fear of an imminent
others, by feigning or pretending by agreement, the appearance of a
and grave evil upon his person or property, or upon the person or
contract which is either non-existent or concealed.
property of his spouse, descendants or ascendant, to give his
consent. Kinds of Simulation

To determine the degree of the intimidation, the age, sex and 1. Absolute Simulation – when the contract does not really exist
condition of the person shall be borne in mind. and the parties do not intend to be bound at all. Absolutely
simulated or fictitious contracts are inexistent and void.
A threat to enforce one’s claim through competent authority,
2. Relative Simulation – when the contract entered into by the
if the claim is just or legal, does not vitiate consent.
parties is different from their agreement.
ART. 1336. Violence or intimidation shall annul the obligation,
although it may have been employed by a third person who did not
take part in the contract. SECTION 2. – Object of Contracts

ART. 1337. There is undue influence when a person takes improper ART. 1347. All things which are not outside the commerce of
advantage of his power over the will of another, depriving the latter men, including future things
of a reasonable freedom of choice. The following circumstances
, may be the object of a contract. All things which are not
shall be considered: the confidential, family, spiritual and other
intransmissible may also be the object (subject matter) of contracts.
relations between the parties, or the fact that the person alleged to
have been unduly influenced was suffering from mental weakness, No contract may be entered into upon future inheritance
or was ignorant or in financial distress. except in cases expressly authorized by law.
Undue influence is the influence of a kind that so overpowers All services which are not contrary to law, morals, good
the mind of a party as to prevent him from acting understandingly and customs, public order, or public policy may likewise be the object of
voluntarily to do what he would have done if he had been left to exercise a contract.
freely his own judgement and discretion
ART. 1348. Impossible things or services cannot be the
ART. 1338. There is fraud when, through insidious words or object of contracts
machinations of one of the contracting parties, the other is induced
to enter into a contract which, without them, he would not have Requisites of things as objects of contracts:
agreed to.
1. The thing must be within the commerce of men
Causal fraud is the fraud committed by one party before or at 2. It must not be impossible legally or physically
the time of the celebration of the contract to secure the consent of the 3. It must be in existence or capable of coming into existence
other. 4. It must be determinate or determinable without the need of a
new contract between parties.
Requisites:
Requisites of service as object of contract:
1. There must be misrepresentation or concealment of a material
fact with knowledge of its falsity 1. The service must be within commerce of men
2. It must be serious 2. It must not be impossible physically or legally
3. It must have been employed by only one of the contracting 3. It must be determinate or capable of being made determinate.
parties
Rights as object of contract
4. It must be made in bad faith or with intent to deceive the other
contracting party who had no knowledge of the fraud As a general rule, all rights may be the object of a contract, the
5. It must have induced the consent of the contracting party exceptions are when they are intransmissible by their nature or by
6. It must be alleged and proved by clear and convincing evidence. stipulation or by provision of law (right to vote).

ART. 1339. Failure to disclose facts, when there is a duty to reveal Future Inheritance
them, as when the parties are bound by confidential relations,
constitutes fraud. Any property or right not in existence or capable of
determination at the time of contract, that a person may inherit in the
Fraud by Concealment future. Inheritance ceases to be future upon the date of the decedent or
deceased.
A neglect or failure to communicate or disclose that which a
party to contract knows and ought to communicate constitutes Kinds of Impossibility:
concealment.
1. Physical – when the thing or service in the very nature of things
ART. 1340. The usual exaggerations in trade, when the other party had cannot exist or be performed.
an opportunity to know the facts, are not in themselves fraudulent. a. Absolute – when the act cannot be done in any case so
that nobody can perform it. It nullifies the contract
ART. 1341. A mere expression of an opinion does not signify fraud,
b. Relative – When it arises from the special
unless made by an expert and the other party has relied on the
circumstances of the case or the special conditions or
former’s special knowledge. The opinion turned out to be fraud.
qualification of the obligor. It does not nullify the
ART. 1342. Misrepresentation by a third person does not vitiate contract if temporary.
consent, unless such misrepresentation has created substantial 2. Legal – when the thing or service is contrary to law, morals, good
mistake and the same is mutual. customs, public order, or public policy.

ART. 1343. Misrepresentation made in good faith (the person making ART. 1349. The object of every contract must be determinate as
the false statement believed it to be true) is not fraudulent but may to its kind. The fact that the quantity is not determinable shall not be
constitute error. an obstacle to the existence of the contract, provided it is possible
to determinate the same, without the need of a new contract
ART. 1344. In order that fraud may make a contract voidable, it should between the parties.
be serious and should not have been employed by both contracting
parties. It should not have been known by the contracting party.

Incidental fraud only obliges the person employing it to pay

damages.
 SECTION 3. – Cause of Contracts CHAPTER 3

ART. 1350. In onerous contracts, the cause is understood to FORMS OF CONTRACTS

be, for each contracting party, the prestation or promise of a thing or
ART. 1356. Contracts shall be obligatory, in whatever form
service by the other; in remuneratory ones, the service or benefit
they may have been entered into, provided all the essential
which is remunerated; and in contracts of pure beneficence, the
requisites for their validity are present. However, when the law
mere liability of the benefactor.
requires that a contract be in some form in order that it may be valid
Cause (causa) is the essential reason or purpose which the or enforceable, or that a contract be proved in a certain way, the
contracting parties have in view at the time of entering into the contract. requirement is absolute and indispensable. In such cases, the right
of the parties stated in the following article cannot be exercised.
Classification of contracts according to cause:
Form of contract refers to the manner in which a contract is
1. Onerous – onerous or one the cause of which, for each
executed or manifested
contracting party is the prestation or promise of a thing or
service by the other. Parties are reciprocally obligated to each a. The contract may be oral, or in writing, or partly oral and
other. partly writing. If in writing, it may be in a public or private
2. Remuneratory or Remunerative – one the cause of which is the instrument.
service or benefit which is remunerated. The purpose of the b. It may be express when the parties expressly set forth their
contract is to reward the service that had been previously intentions, or implied when their intentions may be inferred
rendered by the party remunerated from their actions or conduct.
3. Gratuitous – one the cause of which is the liberality of the
Classification of contracts according to form
benefactor or giver.
1. Informal or common or simple contract – that which may be
ART. 1351. The particular motives of the parties in entering into a
entered into in whatever form provided all the essential
contract are different from the cause there of.
requisites (consent, object, and cause) for their validity are
Motive purely personal or private reason which a party has in present. This refers only to consensual contracts.
entering into a contract. 2. Formal or solemn contract – that which is required by law for
its efficacy to be in a certain specified form.
Cause distinguished from motive
Form for validity of the contract
1. Cause is the immediate or direct reason while motive is the
remote or indirect reason 1. Donation of real property – it must be in a public instrument
2. Cause is always known to the other contracting parties while 2. Donation of personal property the value of which exceeds
motive may be unknown 5,000 – the donation and acceptance must be in writing.
3. Cause is an essential element of a contract, while a motive is 3. Sale of land through an agent – the authority of the agent must
not. be in writing; otherwise, the sale is void.
4. The illegality of the cause affects the validity of a contract while 4. Stipulation to pay interest – it must be in writing; otherwise, no
the illegality of one’s motive does not render the contract void. interest is due
5. Contract of partnership – if immovables are contributed, it
ART. 1352. Contracts without cause, or with unlawful cause
must be in a public instrument to which shall be attached a
produce no effect whatever. The cause is unlawful if it is contrary to
signed inventory of the immovable property contributed/
law, morals, good customs, public order or public policy.
ART. 1357. If the law requires a document or other special form,
ART. 1353. The statement of a false cause in contracts shall
as in the acts and contracts enumerated in the following article, the
render them void, if it should not be proved that they were founded
contracting parties may compel each other to observe that form,
upon another cause which is true and lawful.
once the contract has been perfected. This right may be exercised
Requisites of Cause: simultaneously with the action upon the contract.

1. It must exist at the same time the contract is entered into Non-compliance with the required form would not adversely affect the
2. It must be lawful validity or enforceability of the contract between the parties themselves.
3. It must be true or real.
ART. 1358. The following must appear in a public document:
Effect of absence of cause:
1. Acts and contracts which have for their object, the creation,
1. A contract which is absolutely simulated or fictitious is transmission, modification, or extinguishment of real rights
inexistent and void. over immovable property; sales of real property or of an
2. Where there is no consideration (sale) the statement of one in interest therein are governed by Articles 1402, No. 2 & 1405.
the contract will not suffice to bring it under the rule of article 2. The cession, repudiation or renunciation of hereditary or of
1353 as stating a false consideration. those of the conjugal partnership of gains;
3. Promises to make a gift or to render some gratuitous service in 3. The power to administer property or any other power which
the future are not enforceable as contracts because they has for its object an act appearing or which should appear in
contain no consideration. a public document or should prejudice a third person;
4. Promises made in gratitude for good deeds of others cannot be 4. The cession of actions or rights proceeding from an act
enforced for they constitute only moral, not legal consideration. appearing in a public document

ART. 1354. Although the cause is not stated in the contract, it is All other contracts where the amount involved exceeds PHP
presumed that it exists and is lawful, unless the debtor proves the 500 must appear in writing, even a private one. But sales of
contrary. goods, chattels or things in action are governed by Articles 1403,
No. 2 and 1405
ART. 1355. Except in cases specified by law, lesion or inadequacy
of cause shall not invalidate a contract, unless there has been fraud, The contracts covered by this article are valid and enforceable though
mistake, or undue influence. not contained in a public document or instrument in writing. The public
document is required for the convenience and greater protection of the
Lesion is any damage caused by the fact that the price is unjust parties and to make the contract binding as against third persons.
or inadequate.
 CHAPTER 4 CHAPTER 5

REFORMATION OF INSTRUMENTS INTERPRETATIONS OF CONTRACTS

ART. 1359. When there having been a meeting of the minds of the ART. 1370. If the terms of a contract are clear and leave no doubt
parties to a contract, their true intention is not expressed in the upon the intention of the contracting parties, the literal meaning of
instrument purporting to embody the agreement, by reason of its stipulations shall control.
mistake, fraud, inequitable conduct or accident, one of the parties
If the words appear to be contrary to the evident intention of
may ask for the reformation of the instrument to the end that such
the parties, the latter shall prevail over the former.
true intention may be expressed. Other requisites (aside from
underlined): (4) the facts upon which relief by way of reformation the Interpretation of a contract is the determination of the meaning
instrument is sought are put in issue by the pleadings; (5) There is clear of the terms or words used by the parties in their written contract.
and convincing evidence of the mistake, fraud, inequitable conduct.
ART. 1371. In order to judge the intention of the contracting parties,
If mistake, fraud, inequitable conduct, or accident has their contemporaneous and subsequent acts shall be principally
prevented a meeting of the minds of the parties, the proper remedy considered.
is not reformation of the but annulment of the contract.
ART. 1372. However general the terms of a contract may be, they
Meaning of Reformation. shall not be understood to comprehend things that are distinct and
cases that are different from those upon which the parties intended
Reformation is that remedy allowed by law by means of which a
to agree. Special Provisions control the former when the two can’t stand
written instrument is amended or rectified as to conform to the real
agreement or intention of the parties ART. 1373. If some stipulation of any contract should admit of several
meanings, it shall be understood as bearing that import which is
most adequate to render it effectual.
ART. 1360. The principles of the general law on the reformation of
ART. 1374.The various stipulations of a contract shall be interpreted
instruments are hereby adopted insofar as they are not in conflict
together, attributing to the doubtful ones that sense which may
with the provisions of this code. New Civil Code > General Law
result from all of them taken jointly.
ART. 1361. When a mutual mistake of the parties causes the failure
A contract must be interpreted as a whole and the intention of
of the instrument to disclose their real agreement, said instrument
the parties is to be gathered from the entire instrument not from
may be reformed.
particular words, phrases, or clauses. All provisions should, if possible,
Mutual Mistake - mistake of fact that is common to both parties be so interpreted as to harmonize with each other.
of the instrument
ART. 1375. Words which may have different significations shall be
Requisites: understood in that which is most in keeping with the nature and
object of the contract.
1. The mistake must be of fact
2. Such mistake must be proved by clear and convincing ART. 1376. The usage or custom of the place shall be borne in mind
evidence in the interpretation of the ambiguities of a contract, and shall fill the
3. The mistake must be mutual omission of stipulations which are ordinarily established.
4. The mistake must cause the failure of the instrument to
ART. 1377. The interpretation of obscure words or stipulations shall
express their true intention.
not favor the party who caused the obscurity.
ART. 1362. If one party was mistaken and the other acted fraudulently
A written agreement should, in case of doubt, be interpreted against the
or inequitably in such a way that the instrument does not show their
party who has drawn it.
true intention, the former may ask for the reformation of the
instrument. ART. 1378. When it is absolutely impossible to settle doubts by the
rules established in the preceding articles, and the doubts refer to
ART. 1363. When one party was mistaken and other knew or believed
incidental circumstances of a gratuitous contract, the least
that the instrument did not state their real agreement, but concealed
transmission of rights and interest shall prevail. If the contract is
that fact from the former, the instrument may be reformed.
onerous, the doubt shall be settled in favor of the greatest
ART. 1364. When through the ignorance, lack of skill, negligence or reciprocity of interests.
bad faith on the part of the person drafting the instrument or of the
If the doubts are cast upon the principal object of the
clerk or typist, the instrument does not express the true intention of
contract in such a way that it cannot be known what may have been
the parties, the courts, may order the instrument be reformed.
the intention or will of the parties, the contract shall be null and void.
ART. 1365. If two parties agree upon the mortgage or pledge of real or
ART. 1379. The principles of interpretations stated in Rule 123 of the
personal property, but the instrument states the property is sold
Rules of Court shall likewise be observed in the construction of
absolutely or with a right of repurchase, reformation of the
contracts.
instrument is proper.

ART. 1366. There shall be no reformation in the following cases

ITNRODUCTION TO CHAPTERS 6,7,8, and 9
1. Simple donations inter vivos wherein no condition is
imposed – donation is an act of liberality whereby a person Kinds of defective contracts: RVUV
disposes gratuitously of a thing or right in favor of another.
2. Wills – a will is an act whereby a person is permitted with the 1. Rescissible Contracts -valid because all the essential
formalities prescribed by law to control to a certain degree the requisites of a contract exist but by reason of economic injury or
disposition of his estate. damage to one of the parties or to third persons such as
3. When the real agreement is void. – if the real agreement is creditors, the contract may be rescinded;
void, there is nothing to reform 2. Voidable Contracts – also valid until annulled unless there has
been a ratification. In voidable contract, the defect is caused by
ART. 1367. When one of the parties has brought an action to enforce the vice of consent.
the instrument, he cannot subsequently ask for its reformation. 3. Unenforceable Contracts – cannot be sued upon or enforced
unless they are ratified. As regards the degree of defectiveness,
ART.1368. Reformation may be ordered at the instance of either party
voidable contracts are father away from absolute nullity than
or his successors in interest, if the mistake was mutual; otherwise
unenforceable contracts. Unenforceable contract occupies an
upon petition of the injured party, or his heirs and assigns.
immediate ground between voidable and void contracts.
ART. 1369. The procedure for the reformation of instruments shall be 4. Void or Inexistent Contracts – They are absolutely null and
governed by rules of court promulgated by the supreme court. void. Void contracts have no effect at all and cannot be ratified.
 In addition to these presumptions, the design to defraud
creditors may be proved in any other manner recognized by the law
CHAPTER 6
of evidence.
RESCISSIBLE CONTRACTS – (FOCUSED ON LESION)
Circumstances denominated as badges of fraud
ART. 1380. Contracts validly agreed upon may be rescinded in the
1. The fact that the consideration of the conveyance is fictitious or
cases established by law.
inadequate
Binding Force 2. A transfer made by a debtor after suit has begun and while it is
pending against him
They are valid and enforceable although subject to rescission by 3. A sale upon credit by an insolvent debtor
the court when there is economic damage or prejudice to one of the 4. The transfer of all of his property by a debtor, especially when he
parties or to a third person. is insolvent or greatly embarrassed financially
5. The fact that the transfer is made between father and son, there
Requisites of Rescission:
are present some or any of the circumstances
1. The contract must be validly agreed upon 6. The failure of the vendee to take exclusive possession of all the
2. There must be lesion or pecuniary prejudice to one of the parties property
or to a third person. 7. It was known to the vendee that the vendor had no properties
3. The rescission must be based upon a case especially provided other than that sold to him.
by law
ART. 1388. Whoever acquires in bad faith the things alienated in fraud
4. There must be no other legal remedy to obtain reparation for the
of creditors, shall indemnify the latter for damages suffered by them
damage rescission is last resort
on account of the alienation, whenever due to any cause, it should
5. The party asking for rescission must be able to return what he is
be impossible for him to return them
obliged to restore by reason of the contract.
6. The object of the person must not legally be in the possession If there are two or more alienations, the first acquirer shall
of third persons who did not act in bad faith. be liable first, and so on successively.
7. The period for filing the action for rescission must not have
prescribed. ART. 1389. The action to claim rescission must be commenced
within four years.
ARTICLE 1381. The following contracts are rescissible:
For persons under guardianship and for absentees, the
1. Those which are entered into by the guardians whenever the period of four years shall not begin until the termination of the
wards whom they represent suffer lesion by more than one former’s incapacity or until the domicile of the latter is known
fourth (1/4) of the value of the things which are the object
thereof. Persons entitled to bring action:
2. Those agreed upon in representation of absentees, if the
1. The injured party or the defrauded creditor;
latter suffer the lesion stated in the preceding number.
2. His heirs, assigns, or successors in interest; or
3. Those undertaken in fraud of creditors when the latter
3. The creditors of the above entitled to subrogation
cannot in any other manner collect the claims due them.
a. There must be an existing credit prior to the contract to
be rescinded, although it is not yet due or demandable
CHAPTER 7
b. There must be fraud on the part of the debtor which
may be presumed or proved VOIDABLE CONTRACTS – (FOCUSED ON CONSENT)
c. The creditor cannot recover his credit in any other
manner, it not being required that the debtor be ART. 1390. The following contracts are voidable or annullable, even
insolvent. though there may have been no damage to the contracting parties:
4. Those which refer to things under litigation of they have been
1. Those where one of the parties is incapable of giving consent
entered into by the defendant without the knowledge and
to the contract
approval of the litigants or of competent judicial authority.
2. Those where the consent is vitiated by mistake, violence,
5. All other contracts specifically declared by law to be subject
intimidation, undue influence, or fraud FUMIV
to rescission.
These contracts are binding, unless they are annulled by a
ART. 1382. Payments made in a state of insolvency for obligations to
proper action in court. They are susceptible of ratification.
whose fulfillment the debtor could not be compelled at the time they
were effected. Binding Force

ART. 1383. The action for rescission is subsidiary; I cannot be They are valid and binding between the parties unless annulled
instituted except when the party suffering damage has no other legal by proper action in court by the injured party. Once ratified, they become
means to obtain reparation for the same. absolutely valid and can no longer be annulled.

ART. 1384. Rescission shall be only to the extent necessary to cover Annulment is a remedy provided by law, for reason of public
the damages caused. interest, for declaration of the inefficacy of a contract based on a defect
or vice in the consent of one of the contracting parties in order to restore
ART. 1385. Rescission creates the obligation to return the things
them to their original position in which they were before the contract was
which were the object of the contract, together with their fruits and
executed.
the price with its interest; consequently, it can be carried out only
when he who demands rescission can return whatever he may be ART. 1391. The action for annulment shall be brought within four
obliged to restore. years.

Neither shall rescission take place when the things which This period shall begin:
are the object of the contract are legally in the possession of third
persons who did not act in bad faith. In case of intimidation, violence or undue influence, from
the time the defect of the consent ceases.
ART. 1386. Rescission referred to in Nos 1 and 2 of Article 1381 shall
not take place with respect to contracts approved by the courts. In case of mistake or fraud, from the time of discovery of the
same.
ART. 1387. All contracts by virtue of which the debtor alienates the
property by gratuitous title are presumed to have been entered in And when the action refers to contracts entered into by
fraud of creditors, when the donor did not receive sufficient property minors or other incapacitated persons, from the time the
to pay all debts contracted before the donation. guardianship ceases.

Alienation by onerous title are also presumed when made by ART. 1392. Ratification extinguishes the action to annul a voidable
persons against whom some judgement has been rendered in any contract
instance or some writ of attachment has been issued. The decision Ratification means that one voluntarily adopts or approves
or attachment need not refer to the property alienated, and need not some defective or unauthorized act or contract. Cleanses the contract.
have been obtained by the party seeking the rescission.
ART. 1393. Ratification may be effected expressly or tacitly. It is a. An Agreement that by its terms is not to be
understood that there is a tacit ratification if, with knowledge of the performed within a year from the making thereof;
reason which renders the contract voidable and such reason having b. A special promise to answer for the debt, default, or
ceased, the person who has a right to invoke it should execute an act miscarriage of another,
which necessarily implies an intention to waive his right. c. An arrangement made in consideration of marriage,
other than a mutual promise to marry
Kinds of Ratification
d. An agreement for the sale of goods, chattels, or
1. Express – when the ratification is manifested in words or in things in action, at a price not less than five hundred
writing. (500) pesos, unless the buyer accept and receive
2. Implied or Tacit – by silence or acquiescence, by acts part of such goods and chattels, or by the evidences,
showing adoption or approval of the contract or by or some of them, of such things in action, or pay at
acceptance and retention of benefits flowing therefrom. the time some part of the purchase money; but when
a sale is made by action and entry is made by the
ART. 1394. Ratification may be effected by the guardian of the auctioneer in his sales book, at the time of the sales,
incapacitated person. of the amount and kind of property sold, terms of
sale, price, names of the purchasers and persons on
1. A contract may be entered into by which an incapacitated
whose account the sale is made, it is sufficient
person may be ratified by:
memorandum.
a. The Guardian
e. An agreement for the leasing for a longer period than
b. The injured party himself provided that he is
one year, or for the sale of real property or of an
already capacitated
interest therein:
2. In case the contract is voidable on the grounds of mistake,
f. A representation as to the credit of a third person
ratification can be made by the party whose consent is
3. Those where both parties are incapable of giving consent to
vitiated
the contract.
ART. 1395. Ratification does not require the conformity of the
Binding Force
contracting party who has no right to bring the action for annulment.
Rescissible and voidable contracts are valid and enforceable
ART. 1396. Ratification cleanses the contract from all its defects
unless they are rescinded or annulled, unenforceable contracts,
from the moment it was constituted.
although valid, are unenforceable in court unless they are cured or
ART. 1397. The action for the annulment of contracts may be ratified. Once ratified, these contracts may then be enforceable
instituted by all who are thereby obliged principally or subsidiarily.
Applications of Statute of Fraud:
However, persons who are capable cannot allege the incapacity of
those with whom they contracted; nor can those who exerted 1. Not applicable in actions which are neither for damages
intimidation, violence, or undue influence, or employed fraud or because of a violation of a contract, nor for the specific
caused mistake base their action upon these flaws of the contract. performance thereof.
2. Applicable only to completely executory contracts (where no
Guilty party without right to bring action
performance has as yet been made)
ART. 1398. An obligation having been annulled, the contracting 3. Not applicable where the contract is admitted expressly, or
parties shall restore to each other the things which have been the impliedly by the failure to deny its existence, no further evidence
subject matter of the contract, with their fruits, and the price with its thereof being required for such case.
interest, except incases provided by law. In obligations to render 4. It is applicable only to the arrangement enumerated therein.
service, the value thereof shall be the basis for damages. 5. Not applicable where a writing does not express the true
agreement of the parties.
ART. 1399. When the defect of the contract consists in the incapacity 6. It does not declare the contracts infringing it are void but merely
of one of the parties, the incapacitated person is not obliged to make unenforceable.
any restitution except insofar, as he has benefited by the thing or 7. The defense of the Statute of Frauds may be waived.
price received by him. 8. The defense of the Statute of Frauds is personal to the parties
ART. 1400. Whenever the person obliged by the decree of annulment and cannot be interposed by strangers to the contract.
to return the thing cannot do so because it has been lost through his ART. 1404. Unauthorized contracts are governed by Article 1317 and
fault, he shall return the fruits received and the value of the thing at the principles of agency int Title X of this Book.
the time of the loss, with interest from the same date.
ART. 1405. Contracts infringing the Statute of Frauds, referred to in
ART. 1401. The action for annulment contracts shall be extinguished No. 2, Article 1403, are ratified by the failure to object to the
when the thing which is the object thereof is lost through the fraud or presentation of oral evidence to prove the same, or by the
fault of the person who has a right to institute the proceedings. acceptance of benefits under them.
If the right of action is based upon the incapacity of any one ART. 1406. When a contract is enforceable under the Statute of
of the contracting parties, the loss of the thing shall not be an Frauds, and a public document is necessary for its registration in the
obstacle to the success of the action, unless said loss took place Registry of Deeds, the parties may avail themselves of the right
through the fraud of the plaintiff. under Article 1357.
ART. 1402. As long as one of the contracting parties does not restore Right of a party where contract are enforceable
what in virtue of the decree of annulment, he is bound to return, the
other cannot be compelled to comply with what is incumbent upon For the application of this provision, there must be a valid of
him. agreement and the agreement must not infringe the Statute of Frauds.

CHAPTER 8 1. Accordingly, a party to an oral sale of real property cannot

compel the other to put the contract in a public document for
UNENFORCEABLE CONTRACTS purpose of registration because it is unenforceable, unless of
ART. 1403. The following contracts are unenforceable, unless they course, it has been ratified.
are ratified: 2. Similarly, the right of one party to have the other execute a
public document is not available in a donation of realty when it
1. Those entered into the name of another person by one who is a private instrument because the donation is void.
has been given no authority or legal representation or who
has acted beyond his powers ART. 1407. In a contract where both parties are incapable of giving
2. Those that do not comply with the Statute of Frauds as set consent, express or implied ratification by the parent, or guardian,
forth in this number. In the following cases, an agreement as the case may be, of one of the contracting parties shall give the
hereafter made shall be unenforceable by action, unless the contract the same effect as if only one of them were incapacitated.
same, or some note or memorandum thereof, be in writing, If ratification is made by the parents or guardians, as the
and subscribed by the party charged, or by his agent; case may be, of both contracting parties, the contract shall be
evidence, therefore, of the agreement cannot be received validated from the inception.
without the writing, or secondary evidence of its contents:
 VOID CONTRACTS
ART. 1409. The following contracts are inexistent and void from the 1. When the fault is on part of both contracting parties, neither
beginning: may recover what he has given by virtue of the contract or
demand performance of the other’s undertaking
1. Those whose cause, object, or purpose is contrary to law,
2. When only one of the contracting parties is at fault, he
morals, good customs, public order or public policy;
cannot recover what he has given by reason of the contract,
2. Those which are absolutely simulated or fictitious
or ask the fulfillment of what has been promised him. The
3. Those whose cause or object did not exist at the time of the
other, who is not at fault, may demand the return of what he
transaction
has given without and obligation to comply with his promise.
4. Those whose objects is outside the commerce of men
a. The guilty party loses what he has given by reason of the
5. Those which contemplate an impossible service;
contract;
6. Those where the intention of the parties relative to the
b. The guilty party cannot ask for the fulfillment of the
principal object cannot be ascertained;
other’s undertaking
7. Those expressly prohibited or declared void by law.
c. The innocent party may demand the return of what he
Examples: has given
d. The innocent party cannot be compelled to comply
1. Contracts upon future inheritance except in cases with his promise.
expressly authorized by law
2. Sale of property between husband and wife ART. 1413. Interest paid in excess of the interest allowed by the usury
3. Purchase of property by persons who are specially laws may be recovered by the debtor, with interest thereon from the
disqualified by law because of their position or relation with date of the payment.
the person or property under their care.
ART. 1414. When money is paid or property delivered for an illegal
4. Every donation between the spouses during the marriage
purpose, the contract may be repudiated by one of the parties before
shall be void except moderate gifts which the spouses may
the purpose has been accomplished or before any damage has been
give each other on the occasion of any family rejoicing
accomplished or before any damage has been caused to a third
5. A testamentary provision in favor of a disqualified person,
person. In such case, the courts may, if the public interest will thus
even though under the guise of onerous contracts, or made
be subserved, allow the party repudiating the contract recover the
through an intermediary, shall be void.
money or property.
6. Any stipulation that household service is without
compensation shall be void Requisites for recovery where contract entered into illegal purpose
7. Under the constitution, members of the congress are
1. The contract is for an illegal purpose
prohibited from being financially invested, directly or
2. The contract is repudiated before the purpose has been
indirectly, in any contract with the government or any
accomplished or before any damage has been caused to a third
subdivision or instrumentality thereof.
person; and
These contracts cannot be ratified. Neither can the right to set up the 3. The court considers that public interest will be subserved by
defense of illegality be waived. allowing recovery.

Void Contracts are those which, because of certain defects, ART. 1415. Where one of the parties to an illegal contract is incapable
generally produce no effect at all. of giving consent, the courts may, if the interest of justice so
demands, allow recovery of money or property delivered by the
Inexistent Contracts are agreements which lack one or some or
incapacitated person.
all of the element or do not comply with formalities which are essential
for the existence of a contract. ART. 1416. When the agreement is not illegal per se but is merely
prohibited, and the prohibition by the law is designed for the
Characteristics of a void or inexistent contract:
protection of the plaintiff, he may, if public policy is thereby
1. It produces no force and effect whatsoever enhanced, recover what he has paid or delivered.
2. It cannot be ratified
ART. 1417. When the price of any article of commodity is determined
3. The right top set up the defense of illegality cannot be waived
by statute, or by authority of law, any person paying any amount in
4. The action or defense of the declaration of inexistence does not
excess of the maximum price allowed may recover such excess.
prescribe
(Ceiling Law)
5. The defense of illegality is not available to third persons whose
interest are not directly affected. ART. 1418. When the law fixes, or authorizes the fixing of the
6. It cannot give rise to a valid contract. maximum number of hours of labor, and a contract is entered into
whereby a laborer undertakes to work longer than maximum thus
ART. 1410. The action or defense for the declaration of inexistence of
fixed, he may demand additional compensation for service rendered
a contract does not prescribe.
beyond the time limit.
ART. 1411. When the nullity proceeds from the illegality of the cause
Normal working hours shall not exceed eight hours except in:
or object of the contract, and the act constitutes a criminal offense,
both parties being in pari delicto (in equal fault), they shall have no 1. Government employees
action against each other, and both shall be prosecuted. Moreover, 2. Managerial Employees
the provision of the penal code relative to the disposal of effects or 3. Field Personnel
instruments of a crime shall be applicable to the things or the price 4. Members of the family of the employers who are dependent
of the contract. upon him for support
5. Domestic Helpers
This rule shall be applicable only when one of the parties is
6. Persons in the personal service of another
guilty; but the innocent may claim what he has given and shall not be
7. Workers who are paid of results.
bound to comply with his promise.
ART. 1419. When the law sets or authorizes the setting of a maximum
Rules where contract is illegal and the act constitutes a criminal
wage for laborers, and a contract is agreed upon by which a laborer
offense:
accepts a lower wage, he shall be entitled to recover the deficiency.
1. Where both parties are in pari delicto
ART. 1420. In case of a divisible contract, if the illegal terms can be
a. The parties shall have no action against each other
separated from the legal ones, the latter may be enforced.
b. Both shall be prosecuted
c. The things or the price of the contract, as the effects or Effect of illegality where contract indivisible/divisible
instruments of the price, shall be confiscated in favor
1. When the consideration is entire and single, the contract is
of the government
indivisible and so that if part of such consideration is illegal, the
2. Where only one party is guilty – The innocent one or the less
whole contract is void and unenforceable
guilty may claim what he has given and shall not be bound to
2. Where the contract is divisible or severable, that is, the
comply with his promise.
consideration is made up of several parts, and the illegal ones
ARAT. 1412. If the act in which the unlawful or forbidden cause can be separated from the legal portions, the latter may be
consists does not constitute a criminal offense, the following rules enforced.
shall be observed:
ART. 1421. The defense of illegality of contracts is not available to
third persons whose interests are not directly affected.

ART. 1422. A contract which is the direct result of a previous illegal

contract, is also void and inexistent.

TITLE III

NATURAL OBLIGATIONS

ART. 1423. Obligations are civil or natural. Civil obligations give a

right of action to compel their performance. Natural obligations, not
being based on positive law but on equity and natural law, 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.