CONTRACTS – GENERAL PROVISIONS 2.

do ut facias – I give that you may do

REVIEWER 3. facto ut des – I do that you may give
4. facto ut facias – I do that you may do
DEFINITION
Contract – A contract is a meeting of minds
between two persons whereby one binds ARTICLE 1308 – MUTUALITY OF
himself, with respect to the other, to give CONTRACTS
something or to render some service. • Binding on both parties.
ARTICLE 1305 – MEANING OF • Validity/compliance cannot be left to the
CONTRACTS will of one.
Essence: Mutual agreement binding both • Ex: marriage contract
parties.
ARTICLE 1309 – PERFORMANCE BY
Requirement: Legal obligation to perform. THIRD PERSON
ARTICLE 1306 – LIBERTY OF CONTRACTS • A third person may determine performance.
• Parties may freely agree on stipulations as • Binding only when known to both parties.
long as they are not contrary to:
ARTICLE 1310 – INEQUITABLE
• Law
DETERMINATION
• Morals
• If performance is inequitable, courts will
• Good customs decide equitably.

• Public order ARTICLE 1311 – PRINCIPLE OF

RELATIVITY
• Public policy
• Contracts bind only parties, heirs, and
Note: these 5 are the limitations to stipulations
assigns, except:
ARTICLE 1307 – INNOMINATE
• When rights/obligations are non-
CONTRACTS
transmissible by:
Not named or categorized by law.
1. Nature
Governed by:
2. Stipulation
1. Parties’ stipulations
3. Law
2. Titles I and II of the Civil Code on
Obligations and Contracts • Heirs’ liability is limited to value received.

3. Rules of analogous nominate contracts Situation:

4. Customs of the place Anna (A) borrows ₱10,000 from Ben (B).
So, A owes B ₱10,000.
KINDS:

1. do ut des – I give that you may give

If Ben (B) dies, Anna must pay the ₱10,000 to Once Taylor officially accepts, she becomes part
Ben’s heirs (like his son or daughter). of the agreement.
➜ This is because the right to collect the money
is passed on to the heirs. ➜ Now, Taylor can go to court to demand the
₱1,200 if Liam doesn’t pay.
If Ben (B) assigns (sells or transfers) his right to
collect the debt to Carl (C),
then Anna must pay Carl instead of Ben. ARTICLE 1312 – CONTRACTS CREATING
➜ Because Carl now has the legal right to REAL RIGHTS
collect.
• Binding on 3rd parties in possession of
If Anna (A) dies, and her son Dave (D) inherits property.
from her,
then Dave must pay the ₱10,000 to Ben (or his Subject to:
heirs).
1. Mortgage Law
➜ Because Dave stepped into Anna’s legal
position and must fulfill her obligations. 2. Land Registration Law

Stipulation Pour Autrui (3rd Party Situation:

Beneficiary) Requisites: Diego borrows money from Clara.
1. Clear and deliberate favor for 3rd party To secure the loan, Diego mortgages his land to
2. Acceptance by 3rd party before revocation Clara.

3. Part of the contract (not whole) The mortgage is properly registered in the
government’s land registry.
4. No compensation from beneficiary
Later on, Diego sells the land to Tina.
5. Not legal representative of contracting
party What Happens:

Situation: Even though Tina is not part of the loan or

mortgage agreement, she must respect the
Liam borrows ₱10,000 from Chloe, and agrees mortgage because it is a real right that “follows
to pay it back in 1 year with ₱1,200 interest. the land.”
Liam and Chloe agree that instead of giving the So, if Diego fails to pay Clara,
₱1,200 interest to Chloe, it will be given to
Taylor, because Chloe owes ₱1,200 to Taylor. ➜ Clara can still foreclose the land, even
though Tina is now the owner.
What Happens:
Tina is a stranger to the original contract, but
Taylor is not part of the loan contract, but she because the mortgage is a real right and is
will benefit from it—this is called a stipulation registered, any new owner (like Tina) is bound
pour autrui (a benefit for a third party). by it.
But for Taylor to claim the ₱1,200, she must
accept the benefit and tell Liam before Chloe
and Liam cancel or change the deal.
 ARTICLE 1313 – RIGHT OF CREDITORS • Sam agrees to sell his land to Ben for
₱1,000,000.
• Contracts intended to defraud creditors • But then, Derek convinces Sam to sell
may be rescinded. the land to Carla instead — maybe by
offering more money or pressuring him.
• Creditors protected even if not party to the
• So, Sam breaks his contract with Ben
contract.
and sells the land to Carla.
Situation:
What Happens:
• Dan owes Cathy ₱100,000.
• Ben can sue Derek (the one who
• Dan sells his land to Tina, but the real
interfered) for damages.
reason he does this is to hide the land
so Cathy can’t use it to collect her ➜ Because Derek caused Sam to break
money. his promise.
• Dan has no other property to pay • But Derek’s liability cannot be more
Cathy. than what Sam would owe Ben.
➜ That means Ben can’t ask Derek to
What Happens: pay more than Sam would have paid
for breaking the deal.
• Even though Cathy is not part of • In some cases, Derek and Sam can be
the sale between Dan and Tina, made solidarily liable, meaning both
the law allows her to ask the court can be made to pay.
to cancel the sale. • Derek’s responsibility is not from the
• Why? Because the sale was made to contract (since he wasn’t part of it), but
cheat Cathy and prevent her from from doing something wrong — this is
getting paid. called a quasi-delict (a kind of civil
wrong or negligence).
Even if you're not part of a contract, if that
contract was made to defraud you as a If someone intentionally causes another person
creditor, you can go to court and ask for it to to break a contract, they can be sued for
be cancelled (this is called rescission). damages, but only up to the amount the
original party would owe.
ARTICLE 1314 – LIABILITY OF INDUCING
ARTICLE 1315 – CONSENSUAL
3RD PARTY
CONTRACTS
• Third person inducing breach of contract is
- Perfected by mere consent.
liable for damages.
- Obligations include express stipulations and
• Liability is limited to that of the breaching consequences from:
party.
• Good faith
• Based on quasi-delict.
• Usage

Situation: • Law
 • Good faith and equity play crucial roles.
ARTICLE 1316 – REAL CONTRACTS
• Unauthorized contracts can be ratified
• Require delivery for perfection.
to be binding.
• Examples: Deposit, Pledge,
Commodatum

STAGES IN THE LIFE OF A CONTRACT

1. Preparation/Negotiation

• Preliminary stage

• No definite agreement yet

2. Perfection/Birth

• Definite agreement on subject and

cause

• Essential elements present

3. Consummation/Termination

• Obligations performed

• Can also end by mutual agreement

ARTICLE 1317 – UNAUTHORIZED

CONTRACTS
- No one may contract on behalf of another
unless:

• Authorized

• Has legal representation

• Otherwise, contract is unenforceable

unless:

• Ratified before revocation

KEY TAKEAWAYS

• Contracts must be mutual, lawful, and

definite.

• Freedom to stipulate is wide but limited

by public interest.

• Third parties can be affected under

specific conditions.
 REVIEWER: ARTICLE 1320–1322 –
ESSENTIAL Forms & Communication
REQUISITES OF A of Acceptance
CONTRACT • Acceptance can be express or
implied.
(Articles 1318–1355, Civil Code) • Offerer may fix time, place, and
manner of acceptance.
• Acceptance via agent is valid once
the agent is informed.

ARTICLE 1318 –
Requisites of a Valid
Contract ARTICLE 1323 – Offer
Becomes Ineffective If:
A contract is valid only if these three
elements are present: • The offerer or offeree dies, becomes
insane, or insolvent before
1. Consent – Parties agree to the terms. acceptance.
2. Object – A thing, service, or right
that is the subject of the contract.
3. Cause – The reason or motive for
entering into the contract.
ARTICLE 1324 –
Withdrawal of Offer
ARTICLE 1319 – • An offer can be withdrawn anytime
before acceptance, unless option
Consent: Offer and money is given.
Acceptance
Example:
• Offer must be clear and definite. A gives B 5 days to decide, with ₱500
• Acceptance must be absolute and option money. A cannot withdraw within 5
unconditional. days.

Example:
A says, "I’ll sell my phone for ₱5,000."
B says, "I accept." → ✔ Contract ARTICLE 1325–1326 –
B says, "₱4,000 na lang?" → Counter-
offer, not acceptance Advertisements
• Business ads are not definite offers,
just invitations.
 • Bidding ads: Advertiser may reject
any bidder unless stated otherwise.
ARTICLE 1332 –
Burden of Proof
ARTICLE 1327 – • If a person cannot read or understand
Persons Who Cannot Give the language of the contract, the
person enforcing it must prove it was
Consent fully explained.
1. Unemancipated minors
2. Insane or demented persons
3. Deaf-mutes who cannot write
ARTICLE 1333 – No
Mistake If Risk Is Known
ARTICLE 1328–1330 – • If buyer knew the object was risky
Lucid Intervals & Vices of (e.g., under litigation), he can’t claim
mistake.
Consent
• Contracts during lucid intervals are
valid.
• Drunkenness or hypnosis = ARTICLE 1334 –
voidable. Mistake of Law
• If consent is given through mistake,
violence, intimidation, undue • Ignorance of the law does not
influence, or fraud, contract is excuse.
voidable. • But if both parties misunderstood a
law affecting their contract, it may be
annulled.

ARTICLE 1331 –
Mistake
ARTICLE 1335–1336 –
• Mistake must be substantial (e.g., Violence & Intimidation
wrong object, terms, or identity).
• A minor error in computation = can • Violence = physical force
be corrected, not voided. • Intimidation = serious threat
• Even 3rd party threats can vitiate
Example: consent.
A sells a barren cow thinking it’s fertile =
substantial mistake.
 • Relative simulation (hiding the real
ARTICLE 1337 – contract) = valid if legal and no harm
Undue Influence to others

• Abusing one’s influence over Example:

another (e.g., emotional A fake sale to hide a mortgage = still valid if
manipulation) makes consent invalid. no law is broken

ARTICLE 1338–1344 – ARTICLE 1347 –

Fraud Object of a Contract
• Causal Fraud: Lies that cause • Must be lawful, possible, and within
someone to enter the contract = commerce of man
voidable. • Can include future goods
• Incidental Fraud: Lies that don’t • Can't include future inheritance
affect consent = only damages. (unless allowed by law)

Example:
Selling fake jewelry as gold = causal fraud
Slight exaggeration in ads = not fraud ARTICLE 1348 –
Impossible Objects = No
Contract
ARTICLE 1342–1343 –
You can’t sell the moon, sunlight, or
Fraud by 3rd Person & someone’s political right.
Good Faith
• 3rd person’s misrepresentation
invalidates contract only if it causes
substantial mutual mistake.
ARTICLE 1349 –
• Misrepresentation in good faith is Quantity Need Not Be
not fraud.
Exact
• If the kind is clear, the quantity can
be determined later.
ARTICLE 1345–1346 –
Simulation of Contracts Example:
"I’ll sell you all my chickens" – ✔ Valid
• Absolute simulation (no intention to even if exact number is unknown
be bound) = void
 Example:
A promissory note for ₱10,000 is valid even
without stating why — unless proven
ARTICLE 1350 – otherwise.
Cause of Contract
• Reason or purpose for the contract

•
Types:
Onerous – For value (e.g., sale, rent)
ARTICLE 1355 –
• Gratuitous – Free (e.g., donation) Lesion (Inadequate Price)
• Remuneratory – As reward (e.g.,
reward for past help) • A very low or unfair price doesn’t
invalidate a contract
• Except if caused by fraud,
mistake, or undue influence
ARTICLE 1351 –
Example:
Motive ≠ Cause Selling a house worth ₱1M for ₱10,000 isn’t
void unless the seller was tricked or forced
• Motive is personal (e.g., "I sold it
because I needed money").
• Cause is the legal reason (e.g., "You SUMMARY TABLE
paid ₱5,000").
ELEMENT MEANING RULE
Must be valid
Agreement of
Consent and free from
wills
ARTICLE 1352–1353 – defects
Must be
No Cause = No Contract Object
What is being
lawful and
exchanged
possible
• Cause must be real, true, and lawful
Why the
• A fake cause = void, unless real Must be real
Cause contract is
cause can be proven and legal
made

✔ ARTICLE 1354 – Cause

Is Presumed
• Even if not written, courts assume a
valid cause exists, unless proven
otherwise.
Form of Contracts Type Explanation Example
Directly
ARTICLE 1356 stated in “I will buy your
FORMS OF CONTRACT Express
words (oral bike for ₱2,000”
or written)
ARTICLE 1356 – Forms of Contracts
You take groceries
General Rule: Inferred to the cashier and
Contracts are valid regardless of form, as Implied
from actions pay – implied
long as the essential requisites are
contract
present:
• Consent of the parties No specific Selling a phone
• Object (subject matter) Informal/Common form via chat with
• Cause (why the parties are required mutual agreement
contracting) Law requires
Sale of land =
Exceptions – When Form is Required by Formal/Solemn specific
must be in
Law: form
writing, usually a
1. To be valid public document
2. To be enforceable or provable
3. For convenience or to affect third ARTICLE 1357 – Form for Convenience
persons • Even if a contract is already perfected
(agreed upon), the parties can
Form compel each other to follow the
Scenario Why?
Requirement proper form required by law for
You promise to Must be in convenience.
give someone writing Example:
To be valid
your phone (donation + You and a buyer agree on a land sale verbally.
worth ₱10,000 acceptance) You can force the buyer to sign a public
You sell land document to register the sale officially.
Writing
through an
required ARTICLE 1358 – Contracts Requiring a
agent, but no Contract is void
for agent Public Document
written
authority
authority Must Appear in a Public Instrument:
You lend 1. Creation/transfer/extinction of
money and Writing real rights over immovable
agree to No interest is required property
interest, but no due to pay 2. Renunciation of inheritance or
written interest conjugal property
stipulation 3. Power of attorney to administer
A friend says Not enforceable Statute of property
4. Cession of rights/actions that
he'll buy your in court unless Frauds
appear in a public document
land (verbally) in writing applies
 Why Public ACCORDING TO DOCU TYPE
Situation
Document? Form Description Example
D mortgages land It's a real right over No writing; Borrowing
to C land Oral spoken money
Still a real right, so agreement verbally
C cancels the
mortgage after full public document is Written
Either public or
payment needed contract to
Written private
lease an
X renounces document
This is hereditary apartment
inheritance from
right Notarized or
father Z Public Deed of sale
certified by a
P appoints A as Instrument of land
Power to administer notary
agent while he goes = public doc Written and
abroad Promissory
Private signed by the
C assigns It’s a cession of right note written
Instrument parties without
mortgage right to T from a public act on paper
notarization

CLASSIFICATIONS OF CONTRACTS
Type Description Example
Rule Key Takeaway Informal
Article Form doesn’t matter unless law Sale of a used
/ No specific form
1356 requires it phone worth
Common required by law
₱400
Article Once agreed, you can force proper / Simple
1357 form Donation of a
Public documents required for Law requires a house must be
Article Formal / specific form for in a public
important acts involving real
1358 Solemn validity or document
rights, inheritance, and powers
enforceability with written
acceptance

III. FORM OF VALIDITY OF CONTRACTS

FORMS OF CONTRACTS (When Form is Required by Law)
Type Meaning Example Here are the instances when form is
Clearly stated REQUIRED for the contract to be VALID:
“I sell you this Required Legal
Express in words (oral Contract Type
laptop for ₱20,000.” Form Reason
or written)
Paying fare after Both donation
Inferred from Donation of
Implied riding a jeepney (no and
conduct personal
words exchanged) acceptance To be valid
property >
must be in
₱5,000
writing
Must be in a
public
Donation of
instrument To be valid
real property
with written
acceptance
 Required Legal
Contract Type
Form Reason
Written
Sale of land by If not, sale
authority of
an agent is void
agent required
If not, no
Stipulation to Must be in
interest is
pay interest writing
due
Must be in a
Partnership
public For validity
with real
instrument + and
property
inventory registration
contribution
attached

When Form is Required for

Enforceability (Statute of Frauds)
These contracts are valid but cannot be
enforced in court unless in writing:
• Sale of land or interest therein
• Lease of real property for more than 1
year
• Contract not to be performed within 1
year
• Promise to pay the debt of another
• Sale of goods worth more than ₱500
(unless delivery or partial payment
was made)
These are valid contracts, but
unenforceable if not in writing.

Concept Rule
Contracts are valid in any
General Rule form, if essential
requisites are present
Required in specific cases
Form for
(e.g., donation, sale of
Validity
land)
Form for Required to bring to court
Enforceability (Statute of Frauds)
Required to register or
Form for
protect 3rd party rights
Convenience
(e.g., real estate)
 VOIDABLE (ANNULABLE) CONTRACTS • Tacitly (Implied): Using the money
from the voidable sale instead of
What Are Voidable Contracts? rejecting it.
Contracts that are valid and binding unless Example:
annulled by a proper action in court. S, a minor, sold land to B. Upon reaching
They are defective but can be ratified majority, S collects the remaining payment.
(corrected) by the injured party. This is implied ratification.
Characteristics:
• Have all the essential requisites of a Who Can Ratify? (Art. 1394)
valid contract • The injured party, once capacitated
• Contain a defect in consent (e.g. former minor)
• May be ratified • The guardian of the incapacitated
• Binding unless annulled Not needed: The guilty party’s approval
is not required (Art. 1395)
Grounds for Voidability (Art. 1390)
1. One party is incapable of giving Effect of Ratification (Art. 1396)
consent Cleanses the contract retroactively — as if it
Example: A 17-year-old sells property. was valid from the beginning.
2. Consent is vitiated by: Example:
o Mistake S is forced to sell a horse. Later, the horse
o Violence gives birth. If S ratifies, the buyer owns the
o Intimidation colt, because the sale is treated as valid from
o Undue Influence the start.
o Fraud
Example: A person signs a Who May Bring an Action to Annul?
contract because of blackmail (Art. 1397)
= voidable. • Any party obliged under the contract
• Victim of the flaw (not the guilty
Period to File an Action for Annulment party)
(Art. 1391) Example:
When the 4-Year S sells land to B through fraud. Then S sells it
Ground
Period Starts again to C.
Violence, C can file an action to annul the first sale,
When the force or
Intimidation, Undue because it affects his interest.
pressure ceases
Influence
Mistake or Fraud From discovery Effect of Annulment – Mutual
From when Restitution (Art. 1398)
Incapacity (e.g. Both parties must return what they received,
guardianship ceases
Minor) with fruits and interest.
(e.g. turns 18)

RATIFICATION (Arts. 1392–1396) Special Cases in Restitution:

What is Ratification? Case Rule
Approval of a defective contract, making it Only returns what he
Incapacitated
fully valid retroactively (from the start). benefited from (Art.
person
How can it happen? 1399)
• Expressly: "I confirm the sale I made Lost item due to Return value + fruits +
while I was a minor." fault interest (Art. 1400)
 Example:
B buys a carabao from S. The contract is
annulled, but the carabao dies in B’s care due
to B’s fault.
B must pay the value of the carabao, plus
interest, and deliver any offspring.

When Annulment Action is

Extinguished (Art. 1401)
• If the thing is lost through the fraud
or fault of the plaintiff (e.g. the
injured party)
But if the action is based on incapacity, it
can still proceed unless the loss is the
plaintiff's fault.

Effect if One Party Cannot Restore (Art.

1402)
One party cannot be forced to return what
they owe if the other party has not
returned their part.

Concept Key Points

Voidable Has defect in consent but
Contract binding unless annulled
Incapacity, Mistake, Violence,
Grounds Intimidation, Undue Influence,
Fraud
Must be filed within 4 years
Annulment
depending on the case
Makes contract valid
Ratification retroactively; may be express
or implied
Mutual Return of what was received,
Restitution with fruits/interest
If due to fault = pay value +
Loss of Thing
fruits + interest
 VOID CONTRACTS – Reviewer Imprescriptibility of Action (Art. 1410)
The right to declare a void contract as
What is a Void Contract? inexistent does not expire — it can be done
A void contract is inexistent and produces at any time.
no legal effect from the beginning. It’s like no
contract ever existed at all. Illegality and Criminal Offense (Art.
1411)
VOID CONTRACTS Under Article 1409 If the contract involves something criminal,
Contracts are void if: and both parties are at fault (in pari
1. Contrary to law, morals, good delicto):
customs, public order, or public policy • Neither party can sue the other.
➤ Example: Selling a person into slavery. • Both are prosecuted.
• Items involved are confiscated.
2. Absolutely simulated or fictitious
Example: S sells illegal drugs to B for
➤ Example: A fake sale of land to hide
₱10,000. B only pays ₱1,000.
assets from creditors.
➤ Both are guilty. No one can sue the other.
3. Cause or object did not exist at the
The court confiscates the drugs and money.
time of the transaction
➤ Example: Selling a house that never
Illegality Without Crime (Art. 1412)
existed.
Situation Effect
4. Object is outside commerce of men
➤ Example: Selling the moon, human Both are at
No recovery for either
organs, or public streets. fault
5. Contemplate an impossible service Only one is at Innocent party can recover
➤ Example: Promising to bring someone fault what they gave
back from the dead. Example: X agrees to be Y’s common-law
6. Intention of parties on the wife in exchange for land.
principal object cannot be ascertained ➤ Immoral but not criminal → no one can sue
➤ Example: Too vague or ambiguous to the other.
understand what was agreed.
7. Expressly prohibited or declared Usurious Interest (Art. 1413)
void by law Debtor can recover interest paid beyond
➤ Example: Marriage brokerage legal limit, with interest from payment date.
contracts or sale of land between
spouses (Art. 1490). Repudiation Before Completion (Art.
1414)
Characteristics of Void Contracts If one party repents and backs out before
the illegal purpose is accomplished, the
• No legal force or effect
court may allow recovery of what they gave,
• Cannot be ratified if public interest is served.
• Defense of illegality cannot be
waived Incapacitated Party Recovery (Art.
• Action or defense does not 1415)
prescribe A minor or person incapable of consent may
• Third parties with no direct recover what they gave, even in an illegal
interest cannot raise illegality contract, if justice requires.
• Cannot become valid contracts
later
 Prohibited but Not Illegal Per Se (Art. Rule Example
1416) Object never existed? ➤ Selling a non-
If the contract is only prohibited (not VOID existent plane
immoral/criminal) and meant to protect the
plaintiff, recovery may be allowed. Even if both
Not ratifiable agree, it stays
Example: A contract violating licensing
void
rules.
No time limit for filing
Art. 1410
Ceiling Price Violations (Art. 1417) case
If a person pays more than the legal price for Both guilty? ➤ No action In pari delicto
goods, they may recover the excess. Only one guilty? ➤
Art. 1412
Innocent can recover
Labor Protection (Arts. 1418–1419)
Employee underpaid? ➤
Rule Right Art. 1419
Can claim difference
Exceeding max Employee may recover
Contract divisible? ➤ Car + shabu
hours extra pay
Legal part enforceable example
Accepting below Employee may recover
minimum wage the deficiency

Divisible vs Indivisible Contracts (Art.

1420)
If a contract has both legal and illegal parts,
and they can be separated, only the legal
parts may be enforced.
Example:
• Legal: Selling a car
• Illegal: Selling shabu
If sold together in one contract = wholly
void
If separable = car sale valid, shabu void

Who Can Raise Illegality? (Art. 1421)

Only parties directly affected can invoke
illegality. Strangers cannot.
Example: A husband sells land to his wife
(prohibited by law).
Only the parties (not third persons) may raise
the issue.

Chain Contracts Are Also Void (Art.

1422)
If a contract is based on a previous illegal
contract, it is also void.

Summary Table
Rule Example
Object illegal? ➤ VOID Selling drugs
 What is a Rescissible Contract? (Art. No. Case Example
1380) As provided in
A valid contract that causes damage or Other contracts
other specific
prejudice to one party or a third person and 5 declared rescissible
provisions (e.g., Art.
may be rescinded by law. by law
1382)

What is Rescission?
Who is an Absentee?
A legal remedy that:
Someone who has disappeared from their
• Cancels a valid contract
residence, with unknown whereabouts, and
• Restores parties to their original
no agent left to manage their property.
position
• Is allowed when the injured party
Article 1382: Payments Made in a State
has no other legal remedy
of Insolvency
If a debtor pays debts he could not be
REQUISITES OF RESCISSION
compelled to pay, while insolvent, the
1. The contract must be valid
payment may be rescinded.
2. There must be lesion (damage) or
Example:
pecuniary prejudice
Debtor pays a loan not yet due while unable
3. It must be expressly allowed by law
to pay other debts.
4. There must be no other remedy
5. The rescinding party must be able to
Article 1383: Nature of Action for
return what was received
6. The object must not be in the Rescission
possession of a third person in good Rescission is a subsidiary remedy — only
faith allowed if there’s no other way to recover
losses.
7. The action must be filed within the
prescriptive period
Article 1384: Extent of Rescission
Article 1381: Cases of Rescissible Rescission only covers the extent of the
damage.
Contracts
Example:
No. Case Example G sells two lands worth ₱200,000 each for a
Contracts by G sells minor M’s total of ₱200,000.
guardians if ward land worth ₱20,000 Only one land is underpriced → Only that part
1
suffers lesion > ¼ for ₱14,000 = is rescinded.
value rescissible
A property of an Article 1385: Obligation of Mutual
Contracts for
absentee is sold Restitution
2 absentees if they
below value Both parties must return what they received,
suffer lesion
without authority with fruits and interest.
Fraudulent Example:
Debtor donates C bought land from G (guardian) for
contracts that
3 property to evade ₱140,000. Actual value: ₱200,000.
prevent creditors
paying debts
from collecting If M (minor) rescinds the sale after
Contracts involving Defendant sells a majority:
things in litigation disputed property • C returns the land and any fruit (e.g.,
4 crops)
made by the without court
defendant approval • M returns ₱140,000 + 6% interest
from filing date
 If M can’t return the ₱140,000 → Concept Key Point
Rescission fails Rescissible Valid, but causes damage
Contract = can be rescinded
Article 1386: Contracts Approved by Economic loss > 25% of
Courts Lesion
value
Contracts by guardians or for absentees
cannot be rescinded if they were approved Rescissible if price is too
Guardian's sale
by the court. low
Absentee Rescissible if value lost >
Article 1387: Fraud of Creditors – contracts 25%
Presumptions Fraud on Donation or undervalued
Presumed creditors sale to hide assets
Type Example
Fraud If… Insolvency Paying early debts while
Debtor didn’t R donates payment unable to pay others
Gratuitous
leave enough land to E Rescission Return both sides'
transfer
property to pay before paying Result benefits + interest/fruits
(donation)
debts debts Third party in Cannot be forced to
R sells good faith return the object
Debtor has
Onerous property Prescriptive
judgment or 4 years (with exceptions)
transfer while being Period
attachment
(sale) sued for
against him
unpaid loans
Fraud can also be shown through:
• Fictitious/inadequate price
• Sudden transfers while being sued
• Sale on credit by insolvent debtor
• Debtor transferring all property

Article 1388: Buyer in Bad Faith

A buyer who acquires property in bad faith
in a fraudulent contract:
• Must pay damages if the property
cannot be returned
• If there are many buyers, liability
starts with the first buyer

Article 1389: Prescriptive Period

Action must be filed within 4 years from:
• The time the damage occurred
• The end of incapacity (for
minors/wards)
• When the absentee's domicile
becomes known

Summary Table
 WHAT ARE UNENFORCEABLE Example:
CONTRACTS? • R leases his house to E for two years.
Unenforceable contracts are valid in form but • The contract is unenforceable
cannot be enforced in court unless unless written or partially executed
ratified. They require written evidence or (e.g., E already moved in or paid rent).
ratification to be enforced. Covered
primarily under Art. 1403 No. 2 of the Civil 5. Sale of Real Property or an Interest
Code (Statute of Frauds). Therein
Must be in writing unless partially
STATUTE OF FRAUDS (Art. 1403[2]) executed.
Certain contracts must be in writing to be Example:
enforceable. These include: • A agrees orally to sell land to B.
• Must be in writing, unless B has
1. Promise to Answer for the Debt, Default, taken possession or made partial
or Miscarriage of Another payment.
Must be in writing.
Example: 6. Representation Regarding the Credit of
• D owes C ₱50,000. G promises to pay a Third Person
if D defaults. Must be in writing.
• G's promise must be in writing to Example:
be enforceable. • T tells C that D has good credit. C
lends D money based on this.
2. Agreement Made in Consideration of • T's statement must be written to
Marriage (Other than Mutual Promise to be enforceable.
Marry)
Must be in writing unless ratified. RATIFICATION (Arts. 1404–1407)
Example: Art. 1404:
• M promises to build a ₱5M house if W
Unauthorized contracts (e.g., signed by
marries him. someone without authority) are governed by
• Must be in writing, even if a third Art. 1317 and principles of agency.
party makes the promise.
Art. 1405:
3. Agreement for the Sale of Goods, Contracts violating the Statute of Frauds may
Chattels, or Things in Action at a Price Not be ratified by:
Less Than ₱500 • Failure to object to oral evidence
Must be in writing unless partially presented in court; or
performed. • Acceptance of benefits under the
Example: contract.
• S and B orally agree to buy/sell a
piano for ₱12,000. Art. 1406:
• The contract is unenforceable If the contract is enforceable under the
unless there was delivery or Statute of Frauds, and a public document is
partial/full payment. required for registration, the parties can
compel execution under Art. 1357.
4. Lease of Real Property for More Than
One Year Art. 1407:
Must be in writing unless partially If both parties are incapacitated,
executed. ratification by one party’s guardian makes
the contract valid as if only one party was
incapacitated.
• If both guardians ratify, the contract
is valid from inception.

Art. 1408:
Third persons cannot assail unenforceable
contracts. Only the parties themselves can
raise the defense of unenforceability.

SUMMARY TABLE
Must Be
in
Situation Can Be Ratified?
Writing
?
Debt of
Yes Yes
another
Promise due
Yes Yes
to marriage
Sale of goods Yes (if partial
Yes
₱500+ payment/delivery)
Yes (if partial
Lease > 1 year Yes
performance)
Yes (if
Sale of real
Yes possession/paymen
estate
t made)
Credit
No ratification
representatio Yes
n by oral means
Contract by
Yes (by
unauthorized No
principal)
agent
Contract by
Yes (by
incapacitated No
parties guardian/s)