1

CONTRACTS
ART. 1305 A contract is a meeting of minds
between two persons whereby one binds himself,
with respect to the other, to give something or to
render some service.
cum traho an agreement or convention.
Convention is the genus, while contract is the
specie.
-

A c ontract is a juridical convention

manifested in legal form, by virtue of
which one or more persons bind
themselves in favour of another or others,
reciprocally, to the fulfilment of a
prestation to give, to do or not to do.
Ordinary contract
Parties maybe two or more person or of
different sexes
Nature, consequences and incidents of the
contracts are governed by the agreement of
the parties
Once executed, the result is a contract
Terminated and dissolved by the mere
agreement of parties
In case of breach-damages

Perfected promise- tends to insure and

pave the way for celebration of future
contract
Imperfect promise- policitacion a mere
unaccepted offer
Pact- incidental part of a contract which
can be separated from the principal
agreement
Stipulation- an essential and dispositive
part which cannot be separated from such
principal agreement
Duty of the courts in interpreting contractsconfined to interpretation of the one which they
have made for themselves without regard to its
wisdom or folly as the court cannot supply
material stipulations or read into the contract
words which it does not contain
Elements of contracts (ENA)
1) Essential- w/o which there can be no
contract
a) Common- present in all contracts
(consent, object, cause)
b) Special- present only in certain
contracts (price in the contract of
sale)
c) Extraordinary- peculiar to a specific
contract
2) Natural- derived from the nature of a
contract; presumed by law although they
can be excluded by the contracting parties
if they so desire

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3) Accidental- exists only when the parties

expressly provide for them for the purpose
of limiting or modifying the normal effects
of the contract. (conditions, terms and
modes)
Parties to a Contract- the existence of two
parties is essential, a person cannot enter into a
contract with himself
Auto-contract- one party involved, but in
reality, said party merely acts in the name and for
the account of two distinct contracting parties.
1) When as a representative of another
2) As a representative of two different
persons unless there is a conflict of
interest or when the law expressly
prohibits it
Characteristics of Contracts (OMAR)
1) Obligatory Force bound not only to
the fulfilment but also to all of the
consequence
2) Mutuality- must be binding upon both
parties
3) Autonomy- contracting parties may
establish such agreements as they
may deem convenient, provided they
are not contrary to law, morals, good
customs, public order, or public policy
4) Relativity- takes effects only to the
parties, their heirs and assigns and not
to third person
Breach of contract- failure, w/o legal
excuse, to comply with the terms of the
contract
Life of contracts:
1) Generation- preliminary or preparation,
the
period
of
negotiation
and
bargaining, ending at the moment of
agreement of the parties
2) Perfection- birth of the contract,
parties come to an agreement of the
terms
3) Consummation- death, fulfilment or
performance of the terms agreed upon
Classification of Contracts
1) According to their relation to other
contracts:
a) Preparatory- establishment of a
condition in law which is necessary
as preliminary step towards the
celebration of another subsequent
contract. (partnership, agency)
b) Principalsubsists
independently, can be fulfilled by
themselves. (sale, lease)

2)

3)

4)

5)
6)

7)

8)

9)

c) Accessory- exists only as a

consequence, or in relation with,
another prior contract. (pledge,
mortgage)
According to their perfection
a) Consensual- perfected by mere
agreement (sale, lease)
b) Real- delivery
of
the
object
(commodatum, deposit, pledge)
According to form
a) Common or informal-require
no
particular form (loan)
b) Special or formalrequires
particular form (donations, chattel
mortgage)
Purpose
a) Transfer of ownership -sale
b) Conveyance of use-commodatum
c) Rendition of services- agency
Subject matter
a) Things- sale, deposit, pledge
b) Services- agency, lease of services
Nature of vinculum which they produce
a) Unilateral- to only one of the parties
(commodatum, gratuitous deposit)
b) Bilateral- reciprocal for both parties
(sale, lease)
Cause
a) Onerous- each of the parties aspires to
procure for himself a benefit through
giving
of
an
equivalent
or
compensation (sale)
b) Gratuitous- gives to the other a benefit
without
any
equivalent
or
compensation (commodatum)
Risk involved
a) Commutative- each of the parties
acquires an equivalent of his prestation
and such equivalent is pecuniarily
appreciable and already determined
from the moment of the celebration of
the contract
b) Aleatory- not yet determined at the
moment of the celebration of the
contract, since it depends upon the
happening of an uncertain event, thus
charging the parties w/ the risk of loss
or gain
Name or norms regulating them
a) Nominate- have own individuality and
are regulated by special provisions of
law
b) Innominate- lacks individuality and are
regulated by special provisions of law

ART 1306. the contracting parties may establish

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

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mandatory
character

or

prohibitive

in

b. Expressive
of
fundamental
principles of justice
c. Imposes essential requisites w/o
which the contract cannot exist
Pactum commissorium
i.

2)

3)

4)

5)

There should be a property

mortgaged by way of security for
the payment of the principal
obligation
ii.
Stipulation
for
automatic
appropriation by the creditor of the
thing mortgaged in case of nonpayment of the principal obligation
w/in the stipulated period
Moralsprinciples
which
are
incontrovertible and universally admitted
and which have received social and
practical recognition
Good customs- moral precept or custom
not
recognized
universally,
but
is
sanctioned by the practice of certain
community
Public order- safety, as well as to the
peace and order, of the country or
particular community
Public policy- elastic, no person can
lawfully do that w/c has a tendency to be
injurious to the public or against the public
good
*a contract which restrains a am from
entering into a business or trade w/o
either a limitation as to time or place is
invalid
*actual injury need not to be shown, it is
enough if the potentialities for harm are
present

Compromise- a contract whereby the

parties, by making reciprocal concessions, avoid
litigation or put an end to one already
commenced.
-

Has the effect and authority of res

judicata , with matters definitely stated or
which by implication from its terms should
be deemed to have been included therein.
Compromise agreement as a consensual
contract became binding between the
parties upon its execution and not upon its
approval
Purpose is precisely to replace and
terminate controverted claims; must be
based on real claims and actually agreed
upon in good faith

ART 1307 Inominate contracts shall be

regulated by the stipulations of the parties, by
the provisions of Title I and II of this book, by the
rules governing the most analogous nominate
contracts, and by the customs of the place.
- Lacks individuality
a) Do ut des- I give that you give

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b) Do ut facias- I give that you do
c) Facio ut des- I do that you give
d) Facio ut facias- I do that you do
Nominate contracts- barter or exchange, lease,
partnership, loan, deposit etc
MUTUALITY OF CONTRACTS
1) ART 1308. The contract must bind both
contracting
parties;
its
validity
or
compliance cannot be left to the will of
one of them.
2) ART 1309. The determination of the
performance may be left to a third person,
whose decision shall not be binding until it
has made known to both contracting
parties. An indispensable requisite that the
determination made by the third person
should not be evidently inequitable.(ART
1310)
3) The validity or fulfilment can be left to
chance. This can be deduced a sensu
contrario from the text of Art 1308.
ART 1311
Relativity of Contracts- can only bind the
parties who had entered into it or their
successors who have assumed their personality
or their juridical position
1) Persons bound by contract:
a)
parties b) assigns
c) heirs
- Assignment or transfer by a contracting
party has the effect of subrogating the
assignee to all of the rights and
obligations of the assignor
- The monetary obligations that the
decedent might have incurred during his
lifetime cannot be transmitted to his heirs
through succession; it is the estate, rather
than the heir, w/c must be considered as
the continuation of the decedents
personality.
Exceptions:
a) Nature, special or personal qualification of
the obligor
b) Stipulation, the obligor shall perform an
act by himself and not through another
c) Provisions of law, partnership or agency
Effect on third persons. As a gen. rule, it
cannot produce any effect whatsoever; he who is
not a party to a contract, or an assignee
thereunder, has no legal capacity to challenge its
validity.
Stipulations in favour of third persons. (Art
1311) if a contract should contain stipulation in
favor of a third person, he may demand its
fulfilment provided he communicated his
acceptance to the obligor before its revocation.

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Pour artrui- a stipulation in a contract, clearly and

deliberately conferred by the contracting parties
as a favor upon a third person, who must
accepted it before it could be revoked.
Kinds: 1) for the sole benefit of the third
person
2) Due from the promise to the third person
w/c the former seeks to discharge by
means of such stipulation
Requisites:
1) There must be stipulation in favor of
third person
2) Stipulation must be a part, not the
whole contract
3) Clearly and deliberately conferred
favor upon third person, not mere
incidental benefit or interest
4) Acceptance before revocation
5) Neither of the party bears the legal
representative or authorization of the
third party
Test of beneficial stipulation- did the
parties deliberately insert terms in their
agreement with the avowed purpose of
conferring a favor upon such third person.
ART 1312 In contracts creating real rights, third
persons who come into possession of the object
of the contract are bound thereby, subject to the
provisions of the Mortgage law and Land
Registration Laws.
Real Rights- a right belonging to a person
over a specific thing, w/o a passive subject
individually determined, against whom such right
may be enforced against the whole world.
ART 1313 Creditors are protected in cases of
contracts intended to defraud them.
ART 1314 Any third person who induces
another to violate his contract shall be liable
for damages to the other contracting party
Requisites:
1. Existence of a valid contract
2. Knowledge on the part of
the third person of the
existence of the contract
3. Interference by the third
person
without
legal
justification or excuse
*Gen. Rule ART 1315 Contracts are perfected
by mere consent, and from the moment the
parties are bound not only to the fulfilment of
what has been expressly stipulated but also to all
the consequences which, according to their
nature, may be in keeping w/ good faith, usage
and law.

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*Exceptions ART 1316 Real contracts such as
deposit, pledge and commodatum, are not
perfected until the delivery of the object of the
obligation.

Acceptance of complex offer: if the

offeror proposes to lease one part and to
sell another part, acceptance of one by
the offeree would ordinarily result in a
perfected contract, unless of course, the
offeror should have made one offer
dependent upon the other. Except in
contracts which are comprised in a single
offer may be so interrelated in such a way
that acceptance of one would not result in
a perfected contract.

ART 1317 No one may contract in the name

of another w/o being authorized by the latter, or
unless he has by law a right to represent him.
A contract entered into in the name of
another by one who has no authority or legal
representation, or who has acted beyond his
powers, shall be unenforceable, unless it is
ratified, expressly or impliedly, by the person in
whose behalf it has been executed, before it is
revoked by the other contracting parties.
ART 1318 There is no contract unless the ff.
requisites concur:
1. Consent of the contracting
parties
2. Object certain w/c is the
subject
matter
of
the
contract
3. Cause of the obligation
which is established

Acceptance by letter or telegram

1. Manifestation
theory
(manifestacion)acceptance is declared or made
2. Expedition theory (expedicion)- letter is
placed in the mailbox
3. Reception theory (recepcion)- procure the
knowledge
4. Cognition theory (cognicion)- comes to the
knowledge of the offeror
-

ART 1319 CONSENT

-cum sentire agreement of wills
-most important element, the heart and soul of
contracts

Requisites:
a. Concurrence of the offer and
acceptance
b. Legal capacity
c. Intelligent,
free
,
spontaneous, and real
When contracts are Perfected- from
the moment that there is manifestation of
the concurrence between the offer and
the acceptance with respect to the object
and the cause which shall constitute the
contract
NCC- when the offeror has knowledge of
the acceptance (gen. rule)
Art 54 Code of Commerce- when an
answer is made accepting the offer
(exception)
Character of Offer and Acceptance
Offer- a proposal to make a contract;
must be certain and definite
Acceptancecertain
and
definite;
absolute, must be plain and unconditional,
unequivocal

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Effect of Constructive Knowledge

Offeror must have read the content of the
letter or telegram
What is required by law is actual
knowledge of the acceptance, mere
receipt is not sufficient
Withdrawal of Offer
He may still withdraw his proposal so long
as he still has no knowledge of the
acceptance by the offeree; he is not bound
by the acceptance except from the time it
comes to his knowledge
Withdrawal of acceptance

May be revoked before it comes to the

knowledge of the offeror because in such
case there is still no meeting of the minds

ART 1320 An acceptance may be express or

implied
ART 1321 the person making the offer may fix
the time, place, and manner of acceptance, all of
which must be complied with.
ART 1322 An offer made through an agent is
accepted
from
the
time
acceptance
is
communicated to him.
ART 1323 An offer becomes ineffective upon
death, civil interdiction, insanity or insolvency of
either party before acceptance is conveyed.
Conveyed- that moment when the offeror has
knowledge of the acceptance by the offeree.
ART 1324 When the offerer has allowed the
offeree a certain period to accept, the offer may
be withdrawn at any time before acceptance by
communicating such withdrawal, except when the

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option is founded upon
something paid or promised.

consideration,

as

Option- One giving a person for a consideration a

certain period w/in which to accept the offer of
the offerer
ART 1325 unless it appears otherwise, business
advertisements of things for sales are not definite
offers, but mere invitations to make an offer
ART 1326 Advertisements for bidders are
simply invitations to make proposals, and the
advertiser is not bound to accept the highest or
lowest bidder, unless the contrary appears.
ART 1327 The ff cannot give consent to a
contract:
1) Unemancipated Minors
2) Insane or demented persons, and deafmutes who do not know how to write
Legal capacity of the contracting parties
-

Indispensable requisite of consent

The only way by which one of those
enumerated can enter into a contract is to
act through a parent or guardian.
If not complied= defective

Vices of Declaration- void

-

ART 1331 Mistake

-the wrong conception of a thing, but also as the
lack of knowledge with respect to a thing
Mistake of fact = voidable
1)
a)
b)
c)
d)

mistake as to Object (error in re)

identity (error in corpore)
substance (substantia)
conditions of the thing
quantity (quantitae)- it is important that
this
class
of
mistake
should
be
distinguished from mistake of account or
calculation
2) mistake as to Person (error in persona)
- name or to identity or to qualification
of a person
a) qualification of the contracting party
b) qualification must have been the principal
consideration for the celebration of the
contract
ART 1332 Party is illiterate
-

Unemancipated minors may have all the

effects of a valid contract:
a) Misrepresents his age
b) Involves
sale
and
delivery
of
necessaries to the minor
c) Natural obligation fulfilled voluntarily
d) Marriage
settlement
or
donation
propter nuptias
e) Life, health or accident insurance
taken on the life of the minor
Other incapacitated persons:
-

civil interdiction
Hospitalized lepers
Prodigals
Deaf and dumb who are unable to write
Unsound mind
Age, weak mind an easy prey for deceit
and exploitation

ART 1328 Contracts entered into during a lucid

interval are valid. Contracts agreed to in a state
of drunkenness or during hypnotic spell are
voidable.
ART 1330 Vices of Consent
Vices of the Will voidable
-

mistake
fraud
violence
intimidation
undue influence

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simulated contracts

the burden of proving that the plaintiff

had understood the contents of the
document was shifted to the defendant
and he had failed to do so, the
presumption of mistake still stands
unrebutted and controlling

ART 1134 Mutual Error may vitiate consent

Requisite:
a) legal effect of agreement
b) mistake must be mutual
c) real purpose of the parties must have
been frustrated
Mistake of law= does not generally vitiate
consent, but when there is mistake on a doubtful
question of law, or on the construction or
application of laws, this is analogous to mistake
of fact

Art 1370. If the terms of the contracts are clear

and leave no doubt upon the intention of the
contracting parties, the literal meaning of it
stipulations shall control.
PRIMACY OF INTENTION OF PARTIES
-

The cardinal rule in the interpretation of

the contracts is to the effect that the
intention of contracting parties should

always prevail because their will has the

force of law between them.
This is the basic rule in the interpretation
of contracts because all other rules are but
ancillary to the ascertainment of the
meaning intended by the parties.

How to judge intention:

Contemporaneous and subsequent acts
shall be considered

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CLASSES
OF
DEFECTIVE
CONTRACTS
(Contratos Nulos/ Contratos anulables)
1.
2.
3.
4.

prejudiced or damaged by
the contract
b) May be assailed only by a
contracting party
c) May be assailed only by a
contracting party
d) May be assailed not only by
contracting party but even
by a third person who is
prejudiced or damaged by
the contract

Rescissible contracts
Voidable contracts
Unenforceable contracts
Void or inexistent contracts

Essential Features
1. Defects
a) Rescissible damage or injury
to either one of the contracting
parties or third persons
b) Voidable

vitiation
of
consent or legal incapacity of
the contracting parties
c) Unenforceable entered into
in excess or without any
authority, does not comply
with the Statute of Frauds, or
both
parties
are
legally
incapacitated
d) Void/inexistent one or some of
the essential requisites of a
valid contract are lacking
either in fact or in law
2. Effects
a) Valid and enforceable until they
are rescinded by a competent
court
b) Valid and enforceable until they
are annulled by a competent
court
c) Cannot be enforced by a proper
action in court
d) Do not produce any legal effect
3. As to prescriptibility of action or
defense
a) Action
for
rescission
may
prescribe
b) Action for annulment or the
defense of annulability may
prescribe
c) The corresponding action for
recovery, if there was total or
partial performance of the
unenforceable contract
d) Action for declaration of nullity
or inexistence of the defense of
nullity or inexistence does not
prescribed.
4. Susceptibility of ratification
a) Not
susceptible
of
ratification
b) Susceptible of ratification
c) Susceptible of ratification
d) Not
susceptible
of
ratification
5. Who may assail contracts
a) May be assailed not only by
contracting party but even
by a third person who is

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6. How contracts may be assailed

a) Directly only not collaterally
b) Directly or collaterally
c) Directly or collaterally
d) Directly or collaterally
ART. 1380 RESCISSIBLE CONTRACTS
-

contracts is valid, but by reason of injury

or damage to either party or to third
persons, such as creditor, it may be
rescinded.

CHARACTERISTICS
1) Their defect consists in injury or damage
either to one of the contracting persons or
to third persons.
2) Before rescission, they are valid and,
therefore, legally effective
3) Can be attacked directly only, not
collaterally
4) Attacked only by contracting party or
third person who is injured or defrauded
5) Susceptible of convalidation only by
prescription, and not by ratification.
CONCEPT
-for reparation of damages caused to them by a
contract
Who may institute action
Causes

RESCISSION
Party and third person
Lesion, fraud and
specified by law

Power of the courts

othe

No power to grant extensi

of time for performance
obligation
Which may be rescinded Unilateral or reciprocal m
or resolved
be rescinded
Distinguished from rescission by mutual
consent
1) Causes
2) Laws applicable
3) Effects
Art 1381. The
CONTRACTS

following

are

RESCISSIBLE

1) Those which are entered into by

guardians whenever the wards whom
they represent suffer lesion by more than

of the value of the things which are the

object thereof; (CONTRACTS IN BEHALF
OF WARD)
Must be secured by approval of a
competent court (child under parental
authority w/ property worth more than
P2000, sale or encumbrance of real
property)
Unenforceable
if
without
judicial
approval

2) Those agreed upon in representation of

absentees, if the latter suffer the lesion
stated in the preceding number; (BEHALF
OF ABSSENTEES)
- The power and duties of a legal
representative are exactly the same as
those of a guardian
- If the object is legally in the possession of
a third person who did not act in bad
faith, the remedy is indemnification for
damages and not rescission
3) Those undertaken in fraud of creditors
when the latter cannot in any manner
collect the claims due them
- Requisites:
a) Existing credit prior to contract
b) Fraud/intent to fraud
c) Creditor cannot in any other
legal manner collect his credit
d) Object of the contract must not
be legally in the possession of
third person who did not act in
bad faith
4) Those which refer to things under
litigation if they have been entered into
by the defendant w/o knowledge and
approval of the litigants or of
competent judicial authority
- the purpose is to secure the possible
effectivity of a claim
- real right is involved
Insolvency a financial situation of the
debtor by virtue of which it is impossible for
him to fulfil his obligations.
5) All other contracts specially declared
by law to be subject to rescission (Art
1098, 1189, 1526,1534, 1539, 1542, 1556,
1560, 1567, 1659)
ART 1383 The
SUBSIDIARY

action

for

rescission

is

-it cannot be instituted when the party suffering

damage has no other legal means to obtain
reparation for the same.
-it is essential that he has exhausted all of the
other means to obtain reparation
Parties who may Institute Action
1) Person prejudiced

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2) Representatives
3) Heirs
4) Creditors by virtue
action

of

subrogatory

ART 1384 Rescission shall be only to the extent

necessary to cover the damages caused.
-

The primary purpose of rescission is

reparation for the damage or injury
which is suffered either by a party or third
person.

ART 1385 Effect of Rescission in Case of

Lesion
-to return to the other the object of the contract,
including its fruits or interests.
Effects of Rescission Upon Third Persons
-rescission shall not take place when the thing
which constitutes the object of the contract is
legally in the possession of a third person who did
not act in bad faith.
Movable property- possession
property is equivalent to a title

of

movable

Immovable property- must be registered or

recorded in the proper registry before he is
protected by law.
-the person who is prejudiced is not left without a
remedy, he may bring an action for indemnity
against the person who caused the loss
ART 1387 PRESUMPTIONS OF FRAUD
1) Alienation of property by gratuitious
title if the debtor has not reserved
sufficient property to pay all of his
debts
contracted
before
such
alienation
2) Alienation of property by onerous
title if made by a debtor against
whom some judgment has been
rendered in any instance or some writ
of attachment has been issued.
BADGES OF FRAUD
-good or valuable cause or consideration or made
with bona fide intent.
1) the
fact
that
the
cause
or
consideration of the conveyance is
inadequate
2) a transfer made by a debtor after
suit has been begun and while it is
pending against him
3) sale on credit by an insolvent debtor
4) evidence of large indebtedness or
insolvency
5) transfer of all or nearly all of his
property by a debtor, especially when

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he is insolvent or greatly embarrassed
financially
6) transfer is made between father and
son, when there are present others of
the above circumstances
7) failure of the vendee to take
exclusive possession of all the
property
Acquisition by third person in good faith
-

the right over the property is legally

superior to that of any other person even
as against the creditor who is prejudiced
by the conveyance. not Rescissible.

indemnification for damages

ART 1389 PRESCRIPTIVE PERIOD (4 YEARS)

Guardianship- after termination of the
incapacity
Absentees- until the domicile is known
VOIDABLE CONTRACTS
-

all of the essential elements for validity

are present, although the element of
consent is vitiated either by lack of legal
capacity, mistake, violence, intimidation,
undue influence, or fraud
binding until annulled

Characteristics:
1) vitiation of consent
2) binding until annulled
3) susceptible
of
convalidation
ratification or by prescription

Minors or incapacitated- guardianship ceases

-

applies only to the parties and not to third

person

ART 1392. Ratification extinguishes the action

to annul a voidable contract.
-

Acquisition in bad faith

-

Mistake or fraud- discovery of the same

Ratification of confirmation acts or means

by virtue of which efficacy is given to a
contract which suffers from a vice of
curable nullity

Requisites:
1. The contracts should be tainted with
a vice which is susceptible of being
cured
2. The confirmation should be effected
by a person entitled to do so under
the law
3. It should be effected with knowledge
of the vice or defect of the contract
4. The cause of the nullity or defect
should have already disappeared
Forms:
Express- a person who has a right to invoke
expressly declares his desire to convalidate or
renounce his right to annul the contract.
Tacit- executes an act which necessarily implies
an intention to waives his right
Effects of Ratification:

by

1) Extinguishes the action to annul the

contract
2) Cleanses the contract of its defects from
the moment it was contituted

VOIDABLE
Intrinsic- vitiates consent

RESCISSIBLE
ART 1397. Who may institute action for
External- damage
or prejudice to contracting
annulment?
parties
Voidable even w/o damage or prejudice
Not Rescissible
w/o damage
prejudice
1)if Plaintiff
who or
must
have an interest in
Annulability is based on law; sanction; public Rescissibility is the
based
on
equity;
remedy;
contract
interest
private interest
- He who has no right in a contract is not
Susceptible for ratification
No
entitled to prosecute an action for
Invoked only by contracting parties
Contracting parties/third
person
annulment
Causes are different
- Third person who is a stranger to the
contract cannot institute an action for
annulment
ART 1390 VOIDABLE CONTRACTS
- Not a party principally or subsidiarily if
he is prejudiced in his rights with respect
1) incapable of giving consent
to one of the contracting parties
2) consent is vitiated by mistake,
violence, intimidation, undue influence
or fraud
ART 1391 The action for Annulment shall be
brought within four years
Intimidation, violence or undue influence
consent ceases

Lawyerat30

2) Victim and not the party responsible for

the vice or defect must be the person who
must assert the same
- Based on the well-known principle that
whoever goes to court must do so in clean
hands

10
The person who has the capacity cannot allege
the incapacity of the party with whom he
contracted
ART 1398. Effects of Annulment
Obligation of Mutual Restitution
To give- restore to each other things which have
been the subject matter of the contract, fruits,
price w/ interest, except in cases provided by law.
To do or not to do- should be restored to their
original postion
ART 1399. Rule in case of Incapacity of one
party
-

The incapacitated person is not obliged

to make any restitution except in so far
as he has been benefited by the thing or
price received by him
To determine this, it is necessary to know
his necessities, social position as well as
his duties as a consequence thereof to
other

ART 1400
Restitution

Effect

of

Failure

to

Make

Loss is due to fault of Defendant

-

Return the fruits received and the value of

the thing at the time of the loss, with
interest from the same date

ART 1401 Loss is due to fault of Plaintiff

-

Action
for
extinguished

annulment

Modes of extinguishment
Annulment

of

shall

be

action

for

1) Prescription
2) Ratification
3) Loss of the thing which is the object of the
contract through fraud or fault of the
person who is entitled to institute the
action
Where loss is due to Fortuitous Event
-the contract can be annulled
Defendant- liable for the value of the thing at
the time of loss, but without interest thereon
because the loss was not due to his fault
Plaintiff- pays to the defendant the value of the
thing at the time of the loss, but without interest
thereon.
UNENFORCEABLE CONTRACTS
-

Cannot be enforced by a proper action in

court, unless they are ratified

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Characteristics:
1) They cannot be enforced by a proper
action in court
2) Susceptible for ratification
3) Cannot be assailed by third persons
UNENFORCEABLE
Cannot be enforced by a proper action in court
Susceptible for ratification
Can be assailed by third person
Causes are different

RESCIS
Can be
No
Only pe

UNENFORCEABLE
Cannot be enforced by a proper action in court
Causes are different

VOIDA
Can be

ART 1403 UNENFORCEABLE CONTRACTS

1) Those contracts entered into in the name
of another person by one without any
authority or in excess of his authority
Principles:
1) No one may contract in the name of
another w/o being authorized by
the latter or he has a right to represent
him. If he is duly authorized, he
must act w/in the scope of his
powers.
2) These
kinds
of
contracts
are
unenforceable as reiterated in the
law on agency.
3) However, such contract may be
ratified, expressly or impliedly, by
the person in whose behalf it has been
executed, before it is revoked by the
other contracting party.
Confirmation
Used to designate
the act by which a
voidable contract is
cured of its vice or
defect

Ratification
Giving authority
to a person who
previously acted in
the
name
of
another
without
authority

2) Contracts Infringing the Statute of

Frauds
- Enacted for the purpose of preventing
Frauds
Form
required:
the
contract
or
agreement must be in writing and
subscribed by the party charged or by
his agent
Effect of Noncompliance: what is
affected by the defect of the contract or
agreement is not its validity, but its
enforceability
- No action can be enforced unless the
requirement is complied with, the form is
required for evidential purposes only

Reco
An a
such
priva

11
Contracts covered by Statute of Frauds
1) An agreement that by its term is not to
be performed within one year from the
making thereof.
2) A special promise to answer for the
debt, default or miscarriage of another.
Must be collateral, not independent or
original.
3) An agreement made in consideration of
marriage, other than a mutual promise to
marry. (marriage settlements or donations
by reason of marriage)
4) Agreement for the sale of goods,
chattels or things in action, at a price
not less than five hundred pesos.
(except in auctions)
5) Agreement for the leasing of real
property for a longer period than one
year, or for the sale of real property or an
interest therein.
6) A representation as to the credit of a
third person.
Effect of Performance of Contract: Applicable
only to those contracts which are executory and
not to those which have been consummated
either totally or partially. The basis f this rule is,
the fact that there is already ratification of the
contract.
Executory Contracts there is a wide field
for fraud because unless they be in writing there
is no palpable evidence of the intention of the
contracting parties.
Totally or partially performed
the
exclusion of parol evidence would promote
fraud or bad faith, for it would enable the
defendant to keep the benefits already derived by
him from the transaction in litigation, evade the
obligations, responsibilities or liabilities assumed
or contracted by him.
ART 1405. Ratification of Statute of Frauds:
1) By the failure to object to the
presentation of oral evidence to prove the
same
2) By the acceptance of benefits under
them
ART 1406. When a contract is enforceable under
the Statue of Frauds, and a public document is
necessary for its registration in the Registry of
Deeds, the parties may avail themselves of the
right under Art 1357.
ART 1407. Contracts where Both Parties are
Incapacitated
-

Unenforceable; if only one incapacitated,

voidable

Lawyerat30

May be ratified expressly or impliedly

by the parents or guardians of
contracting parties.

ART 1408. Unenforceable contracts cannot be

assailed by third person.
VOID OR INEXISTENT CONTRACTS
-

One which lacks absolutely either in fact

or in law one or some of the elements
which are essential for its validity

VOID
all of the requisites of a contract are
present, but cause, object or purpose is
contrary to law, morals, good customs,
public order or public policy, or contract
itself is prohibited or declared void by law.
Principle of Pari Delicto is applicable
May produce legal effects

INEXISTEN
one or so
are essent
absolutely
fictitious,
object di
transaction
No
Cannot pro

VOID/INEXISTENT
No effect even it is not set aside by a direct
action
Absolute lack in fact or in law one or some of
the essential elements of a contract
Nullity or inexistence is based on law; not only
a remedy but a sanction; public interest
Action
for
nullity
or
inexistence
is
imprescriptible
May be assailed by third person

RESCIS
Valid, u

VOID/INEXISTENT
No effect even it is not set aside by a direct
action
Not susceptible of ratification
Imprescriptible
Defense of inexistence or absolute nullity is
available to third persons whose interests are
directly affected
Causes are different

VOIDA
Binding

VOID/INEXISTENT
In reality, no contract at all
Not susceptible for ratification
Can be assailed by third persons whose
interest are directly affected
Causes are different
ART 1409. The following contracts
inexistent and void from the beginning

Lesion
contrac
Resciss
mere re
prescrip

May be

Suscep
Prescrip
Defense
third pe

UNENFOR
There is a
by a court
Susceptib
Cannot be

are

1. Whose cause, object or purpose is

contrary to law, morals, good customs,
public order or public policy
2. Those which are absolutely simulated or
fictitious

12
3. Those whose cause or object did not exist
at the time of the transaction
4. Those whose object is outside the
commerce of men
5. Those which contemplate an impossible
service
6. Those where the intention of the parties
relative to the principal object of the
contract cannot be ascertained
7. Those expressly prohibited or declared
void by law
These contracts cannot be ratified. Neither
can the right to set up the defense of
illegality be waived.
Characteristics:
1. Produce no legal effects in accordance
with the principle quod nullum est nullum
producit effectum
2. They
are
not
susceptible
for
ratification
3. The right to set up the defense of
inexistence or absolute nullity cannot be
waived or renounced
4. The action or defense for the declaration
of their inexistence or absolute nullity is
imprescriptible
5. The inexistence or absolute nullity of a
contract cannot be invoked by a third
person whose interests are not directly
affected
Effects:

Inexistent- Produce no legal effects in

accordance with the principle quod
nullum est nullum producit effectum
Void- will produce the effect of barring
any action by a guilty to recover what he
has already given under the contract.
cannot be ratified

ART 1410. The action or defense for the

declaration of the inexistence of a contract does
not prescribe.
-

Because of the fact that the defect of void

or inexistent contracts is of a more or less
permanent character, mere lapse of time
cannot give efficacy to such contracts.

ART 1411. Principle of IN PARI DELICTO

-

When the defect of a void contract

consists in the illegality of the cause or
object of the contract, and both of the
parties are at fault or in pari delicto,
the law refuses them remedy and
leaves them where they are.
Ex dolo malo non oritur action and in pari
delicto potior est condition defendantis
Applies only in cases of existing
contracts with an illegal cause or object
and not to simulated or fictitious contracts

Lawyerat30

nor to those which are inexistent for lack

of an essential requisites such as cause or
consideration
Illegality must be with respect to cause
or object not with respect to motives

Effect if only one party is at fault:

Executed- the guilty party may be
barred from recovering what he has given to
the other party by reason of contract. The
innocent party may demand for the return of
what he has given.
Merely executory- cannot produce any
legal effect whatsoever. Neither of the party can
demand for the fulfilment of any obligation
arising from contract
Exceptions:
1. ART.
1413
Payment
of
usurious
interest.
2. ART. 1414 Payment of money or delivery
or property for an illegal purpose, where
the party repudiates the contract before
the purpose has been accomplished, or
before any damage has been caused to
third person
3. ART 1415 Payment of money or delivery
or property by an incapacitated person
4. ART 1416 Agreement or contract which is
not illegal per se but is merely
prohibited by law and the prohibition is
designed for the protection of the
plaintiff.
5. ART 1417 Payment of any amount in
excess of the maximum price of any
article or commodity fixed by law. The
buyer may recover the excess.
6. ART 1418 Laborer undertakes to work
longer than the maximum number of
hours fixed by law. The laborer may
demand for overtime pay
7. ART 1419 When a laborer accepts a
wage lower than the minimum wage
fixed by law. The laborer may demand
for the deficiency.
ART 1420 in case of Divisible contract, if the
illegal terms can be separated from the legal
ones, the latter may be enforce.
ART 1421 the defense of illegality of contracts
is not available to third persons whose
interests are not directly affected.
ART 1422 the contract which is the result of a
previous illegal contract, is also void and
inexistent
NATURAL OBLIGATIONS
ART 1423. Obligations are civil or natural.

13
NATURAL
-based on equity and natural
law
-do not grant the right of
action
to
enforce
their
performance,
but
after
voluntary fulfilment by the
obligor
-authorize the retention of
what has been delivered or
rendered by reason thereof

CIVIL
-based on positive law
-enforceable
by
action

3)

4)

ART 1424 When a right to sue upon a civil

obligation
has
lapsed
by
extinctive
prescription, the obligor who voluntarily
performs the contract cannot recover what he
has delivered or the value of the service
rendered.
ART 1425. When without the knowledge or
against the will of the debtor, a third person
pays a debt which the obligor is not legally bound
to pay because the action thereon has prescribed
but the debtor later voluntarily reimburses the
third person, the obligor cannot recover what he
has paid.

5)

6)

ESTOPPEL
ART 1431 An admission or representation is
rendered conclusive upon the person making it,
and cannot be denied or disproved as against the
person relying thereon.
-

Defense raised by another party

Barred from defense; precluded
prohibited

or

ART 1433 Estoppel may be in pais or by deed

Lawyerat30

Basis: Stale Demands

Based upon grounds of public policy which
requires, for the peace of society, the
discouragement of stale claims is not
mere question of time but is principally a
question of the inequity or unfairness of
permitting a right or claim to be enforced
or asserted
Elements:
1) Conduct on the part of the defendant
2) Delay in asserting the complainants
rights
3) Lack of knowledge or notice on the
part of the defendant
4) Injury or prejudice to the defendant
Application:

Kinds of Estoppel
1) Estoppel in pais or by conduct - when
one by his acts, representations, or
admissions, or by his silence, when he
ought to speak out, intentionally or
through culpable negligence, induces
another to believe certain facts to exist
and such other rightfully relies and acts on
such belief, as a consequence of which he
would be prejudiced if the former is
permitted to deny the existence of such
facts
2) Estoppel by Silence or inaction- when
a party, who has a right and

opportunity to speak or act as well as a

duty to do so under the circumstances
Estoppel by acceptance of benefits
when a party by accepting benefits
derived from a certain act or transaction
Estoppel by deed or by record- DEED
is when a party to a deed and his privies
are precluded from asserting as against
the other party and his privies any right
or title in derogation of the deed, or from
denying any material fact asserted
therein.
RECORD
precluded
from
denying the truth of matters set forth
in a record whether judicial or legislative
Estoppel by judgment precluded from
denying the facts adjudicated by a
court of competent jurisdiction
Estoppel by laches failure or
neglect, for an unreasonable and
unexplained length of time; it is
negligence or omission to assert a right
within a reasonable time; when a party,
knowing his rights asa against another,
takes no step or delays in enforcing
them

Renders the doctrine of imprescriptibility

of such actions useless

LACHES
Effect of delay
Inequity of permitting a claim to be
enforced
Inequity being founded on some changes
Not statutory
Applies in equity
Not based on fixed time
ART 1434

PRESCR
Fact of d
Matter o

Statutory
Applies a
Based on