CONTRACTS  It is expressly stipulated in the overseas employment contract
that a specific foreign law shall govern
CHAPTER 1
GENERAL PROVISIONS
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.
 Contract
o juridical convention manifested in legal form, by virtues of which one or
more persons bind themselves in favor of another or others or
reciprocally, to the fulfillment of a prestation to give, to do, or not to do.
o An agreement whereby at least one of the parties acquires a right, either
in rem or in personam, in relation to some person, thing, act or
forbearance.
Stages of a Contract
1. Negotiation or preparation – covers the period from the time the prospective
ontracting parties indicate interest in the contract to the time the contract is
concluded or perfected.
2. Perfection – takes place upon the concurrence of the essential elements thereof.
a. Consensual contract - established upon a mere meeting of minds
b. Real contract – requires, in addition the above, the delivery of the object
of the agreement as in pledge, deposit, or commodatum
c. Solemn contract – compliance with certain formalities prescribed by law
(i.e. donation of real property, is essential to make the act valid, the
prescribed form being thereby an essential element thereof.
3. Consummation – begins when the parties perform their respective undertakings
under the contract culminating in the extinguishment thereof.
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.
 Contracts are autonomous in nature.
Pakistan International Airlines v. Ople
 Contractual stipulations contravening provisions of law designed to protect laborers
and employees were not valid.
 SC ruled that:
o Principle of autonomy of contracts is not an absolute principle. Art. 1306
must still apply.
Industrial Personnel & Management Services, Inc. v. De Vera
 Gen. Rule: The rule is that Philippine laws apply to overseas employment contract
o Exception: parties may agree that a foreign law shall govern the
employment contract subject to the ff. requisites:
 If absent: domestic labor laws shall apply
 Foreign law invoked must be proved before the courts pursuant
to the Philippine rules on evidence
 If absent: processual presumption operates.
 That the foreign law stipulated in the overseas employment
contract must not be contrary to law, morals, good customs,
public, order, or public policy of the Philippines
 If absent: Philippine laws govern
 Overseas employment contract must be processed through the
POEA
 If absent: Art. 18 of Labor Code is violated.
Art. 1307: Innominate contracts shall be regulated by the stipulations of the parties, by the
provisions of Title I and II of the this Book, by the rules governing the most analogous
nominate contracts, and by the customs of the place.
Innominate contracts – those which are not specifically governed by any provision in the Civil
Code or special law but which likewise involve the fulfillment or accomplishment of some
prestations.
Innominate contracts are governed by the ff:
1. Stipulation of the parties
2. Provisions in the law of obligations and contracts under Title I and II of the Civil
Code
3. Rules governing the most analogous nominate contracts
4. Customs of the place – must be proved as a fact according to rules of evidence.
Art. 1308: The contract must bind both contracting parties; its validity or compliance cannot
be left to the will of one of them.
Mutuality of contracts – a principle that the contract must bind both parties. There must be
mutuality between parties based on their essential equality to which is repugnant to have
one party bound by the contract leaving the other free therefrom. Its purpose is to render
void a contract containing a condition which makes its fulfillment dependent exclusively upon
the uncontrolled will of one of the contracting parties.
GF Equity Inc. v, Valenzona
 Stipulation that when the Coach, in the sole opinion of the Corporation, fails to
exhibit sufficient skill/competitive ability to coach the team, the Corporation may
terminate the contract.
 Coaching contract provision deemed by SC as improper since it is against the
attribute of mutuality of contracts.
Exception to mutuality – presence of essential equality
 Contracts of adhesion
 o one wherein a party, usually a corporation, prepares the stipulations in
the contract, while the other party merely affixes his signature or his
adhesion” thereto.
o Binding as ordinary contracts because the party who adheres to the
contract is free to reject it entirely.
o there must be a showing that the contract is highly inequitable to be
invalidated.
Art. 1309: the determination of the performance may be left to a third person, whose
decision shall both be binding until it has been made known to both contracting parties.
Art. 1310: The determination shall not be obligatory if it is evidently inequitable. In such case,
the courts shall decide what is equitable under the circumstances.
 Parties may constitute a third party to determine the performance of the contract.
o Decision of the 3rd party shall become effective when both of the
contracting parties already have knowledge of the decision.
o Such determination must not destroy the nature of mutuality of the
contract.
o Determination must not be evidently inequitable.
Art. 1311: Contracts take effect only between the parties, their assigns and heirs, except in
case where the rights and obligations arising from the contract are not transmissible by their
nature, or by stipulation, or by provision of law. The heir is not liable beyond the value of the
property he received from the decedent.
If a contract shall contain some stipulation in favor of a third person, he may demand its
fulfillment provided he communicated his acceptance to the obligor before its revocation. A
mere incidental benefit or interest of a person is not sufficient. The contracting parties must
have clearly and deliberately conferred a favor upon a third person.
Nature of relativity of contracts
 General Rule: a stranger cannot invoke the contract of another for his own interest
or for a source of an alleged prejudice. A party to a contract cannot impose any
obligation or liability to one who, under its terms, is a stranger to the said contract.
 Exceptions: rights and obligations are not transmissible…
o by nature
o by stipulation
o by provision of law
3 Cases where contract cannot take effect with respect to the heirs or assigns”
1. first case: when the nature of the contract does not allow transmission
o acts stipulated requires the exercise of a special knowledge. Genius, skill,
taste, ability, experience, judgement, discretion, integrity, or other
personal qualification of one or both parties
2. second case: when the parties stipulate that no transmission of right shall be
allowed
3. third case: when the law provides non-transmission
Contract pour autrui – reinforcement of the contract may be demanded by a third party for
whose benefit it has been made, although not a party to the contract.
Requisites for stipulation pour autrui
1. There must be a stipulation in favor of a third person
2. The stipulation must be a part, not the whole of the contract
3. The contracting parties must have clearly and deliberately conferred a favor upon a
third person
4. Neither of the contracting parties bears the legal representation or authorization of
the third party
5. The favored party must have communicated his acceptance of the stipulation to the
obligor before its revocation.
Art. 1312: In contracts creating real rights, third persons who come into possessions of the
object of the contract are bound thereby, subject to the provisions of the Mortgage Law and
the Land Registration Law.
 A lease of real estate recorded in the Registry of Property between a lessor and a
lessee shall bind a subsequent buyer who purchases and comes into the possession
of the contract’s object which is the property leased.
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.
A person who induces someone to dishonor a contract may be liable for damages under 1314
Elements of tort interference:
1. Existence of a valid contract
2. Knowledge on the part of the third person of the existence of contract
3. Interference of the third person is without legal justification or excuse
Art. 1315: Contracts are perfected by mere consent, and from that moment the parties are
bound not only to the fulfillment of what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping with good faith, usage, and
law.
Art. 1316: Real contracts, such as deposit, pledge and commodatum, are not perfected until
the delivery of the object of the obligation.
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 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 on whose behalf it has been executed, before it
is revoked by the other contracting party.
*note, it is unenforceable. NOT VOID. Salvador Malbarosa v. Court of Appeals
 The contract is perfected only from the time an acceptance of an offer is made
Regal Films v. Concepcion known to the offeror.
Ratification must be made before the revocation was made known to the other party.  An acceptance which is not made in the manner prescribed by the offeror is not
Otherwise, contract would still be unenforceable if entered into by a person without effective but constitutes a counter-offer which the offeror may accept or reject.
authority.  The contract is not perfected if the offeror revokes or withdraws its offer and the
revocation or withdrawal of the offeror is the first to reach the offeree. The
CHAPTER 2 acceptance by the offeree of the offer after knowledge of the revocation or
ESSENTIAL REQUISITES OF CONTRACTS withdrawal of the offer is inefficacious. (possible finals question)
 When the offeror has not fixed a period for the offeree to accept the offer, and the
Art. 1318. There is no contract unless the following requisites concur: offer is made to a person present, the acceptance must be made immediately.
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract; Art. 1322. An offer made through an agent is accepted from the time acceptance is
(3) Cause of the obligation which is established communicated to him.

2 types of void contracts  Sale of a piece of land – authority must be in writing, otherwise sale shall be void.
1. One element is missing, (i.e. conveyances by virtue of a forged document)
2. those provided for under Art. 1409
Art. 1323. An offer becomes ineffective upon the death, civil interdiction, insanity, or
insolvency of either party before acceptance is conveyed.
Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the
thing and the cause which are to constitute the contract. The offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a counter-offer. Art. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may
be withdraw at any time before acceptance by communicating such withdrawal, except when
Acceptance made by letter or telegram does not bind the offerer except from the time it the option is founded upon a consideration, as something paid or promised.
came to his knowledge. The contract, in such a case, is presumed to have been entered into
in the palce where the offer was made.  Option period – offeror has allowed the offeree a certain period to accept the offer.
o If period is not itself founded upon or supported by a consideration –
Art. 1320. An acceptance may be express or implied. offeror is still free and has the right to withdraw the offer before its
acceptance.
o If contract of option has a separate condition – deemed perfected of the
 Consent – concurrence of the wills of the offerer and the acceptor as to the thing
period has a separate consideration. An independent contract bu itself, it
and the cause which constitutes a contract; acceptance of the offer
is to be distinguished from the projected main agreement.
 Offer – manifestation of a willingness to enter into a bargain so
 Option contract – for a separate consideration paid, he is given the right to decide
made as to justify another person in understanding that his
to purchase or not, a certain merchandise or property, at any time within the
assent to that bargain is invited and will conclude it.
agreed period, at a fixed price. He may not be compelled to exercise the option to
 Acceptance – must be absolute and unconditional
buy before the time expires.
Babasa v. Court of Appeals
Earnest money – considered part of the price in a contract of sale and can be proof of the
 Distinction between a:
perfection of the contract of sale. However, it is not the giving of the earnest money per se,
1. condition imposed on the perfection of a contract
but the proof of the concurrence of all the essential elements of the contract of sale, which
 failure to comply with the condition results in the failure of a
establishes the existence of a perfected sale.
contract
Earnest deposit – not earnest money that can be considered as proof of perfection of the
2. A condition imposed merely on the performance of an obligation
contract (i.e. reservation fee for school slot).
 Failure to comply with the condition merely gives other party
options or remedies
Art. 1325. Unless it appears otherwise, business advertisement of things for sale are not
definite offers, but mere invitations to make an offer
Art. 1321. The person making the offer may fix the time, place, and manner of acceptance,
all of which must be complied with.
Ex: if a seller advertises that he intends to sell his house to any willing purchases, it is an
invitation for the purchaser to make an offer or to negotiate as to how he intends to buy the
house.
Exception: advertisement may constitute an offer which is certain.
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 following cannot give consent to a contract:
(1) unemancipated minors
(2) insane or demented persons, and deaf-mutes who do not know how to write.
 Any contract entered by an unemancipated minor is annullable or voidable.
 Person who is capable cannot be the one to annul the contract. Only the minor or
the insane person can annul the contract.
 A person of unsound mind is liable on his contract for necessities
Braganza v. De Villa Abrille
 2 minors signed a promissory note without telling the creditor their ages. SC
held that the minors can set up the defense of minority to resist the claim,
thereby overruling the decision of the Court of Appeals which based its
decision on the case of Mercado v. Espiritu.
o Minors have no juridical duty to disclose their “inability” or “minority”
o In order to hold a minor liable, the fraud must be actual and not
constructive.
o Actual fraud – constitutes active misrepresentation of the minor w/
regard to his age (i.e. explicitly misrepresenting age)
o Constructive – passive misrepresentation (i.e. not disclosing age)
o In the Mercado case, the document signed by the minor specifically
stated he was of age. In this case, he is guilty of active misrepresentation.
Whereas in the Braganza case, there is only passive misrepresentation.
o Minors may not be entirely absolved from monetary responsibility. Even if
their written contract is unenforceable because of non-age, the shall
make restitution to the extent that they may have benefited/profited
from the money they received.
Art. 1328. Contracts entered into during a lucid interval are valid. Contracts agreed to in a
state of drunkenness or during a hypnotic spell are voidable.
Lucid interval – period of time when an insane person acts with reasonable understanding,
comprehenstion and discernment with respect to what he is doing.
The contracts of an intoxicated person may be voidable under any one of the following:
1. When it appears that the drunkenness was brought about by the opposite party
2. That a fraudulent advantage was taken of it
3. That the drunkenness was so complete as to deprive the party of his reason of an
agreeing mind
Art. 1329. The incapacity declared in Art. 1327 is subject to the modifications determined by
law, and is understood to be without prejudice to special disqualification established in the
laws.
Art. 1330. A contract where consent is given through mistake, violence, intimidation, undue
influence, or fraud is voidable.
Art. 1331 In order that mistake may invalidate consent, it should refer to te substance of the
thing which is the object of the contract, or to those conditions which have principally moved
one or both parties to enter into the contract.
Mistakes as to the identity or qualifications of one of the parties will vitiate consent only
when such identity or qualifications have been the principal cause of the contract.
A unilateral mistake in the making of an agreement, of which the other party is entirely
ignorant and to which he in no way contributes, will not affect the agreement or afford
ground for its avoidance or rescission, unless it is such a mistake as goes to the substance of
the agreement itself.
Mistake in identity/qualification of one of the parties – will vitiate consent only when such
identity or qualifications have been principal cause of the contract
Art. 1332. When one of the parties is unable to read, or if the contract is in a language not
understood by him, and mistake or fraud is alleged, the person enforcing the contract must
show that the terms thereof have been fully explained to the former.
Art. 1333: There is no mistake if the party alleging it knew the doubt, contingency or risk
affecting the object of the contract.
 contract cannot be annulled when there is conscious uncertainty.
Art. 1334. Mutual error as to the legal effect of an agreement when the real purpose of the
parties is frustrated, may vitiate consent.
 Unilateral mistake of law as to the legal effect of an agreement is generally not a
ground to annul a contract.
 However, mistakake of law may vitiate consent if the ff. requisites are present:
1. the mistake as to the legal effect of the agreement must be mutual
2. such mutual mistake frustrates the real purpose of the parties
Art. 1335. There is violence when in order to wrest consent, serious or irresistible force is
employed.
There is intimidation when one of the contracting parties is compelled by a reasonable and
well-grounded fear of an imminent and grave evil upon his person or property, or upon the
person or property of his spouse, descendants or ascendants to give his consent.
To determine the degree of the intimidation, the age, sex and condition of the person shall be
borne in mind.
A threat to enforce one’s claim through competent authority, if the claim is just or legal, does
not vitiate consent.
 Violence – must be serious and irresistible
 Intimidation – there must be a reasonable and well-grounded fear of an imminent
and grave evil upon his person or property / person or property of his spouse,
ascendants or descendants
Vda. De Lacson v. Granada
 The duress and intimidation must be more than the “general feeling for fear”. There
must be specific acts or instances of such nature and magnitude as to have, of
themselves, inflicted fear or terror upon the subject tereof that his execution of the
questioned deed or act can not be considered voluntary.
De Leon v. Court of Appeals
 In order that the intimidation may vitiate consent and render the contract invalid,
the ff. requisites must concur:
1. That the intimidation must be the determining cause of the contract, or
must have caused the consent to be given;
2. that the
threated act must be unjust or unlawful.
3. That the threat must be real and serious, there being an evident
disproportion between the evil and the resistance which all men can offer,
leading to the choice of the contract as the lesser evil
4. That it produces a reasonable and well-grounded fear from the fact that
the person from whom it comes has the necessary means or ability to
inflict the threatened injury.
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.
Art. 1337. There is undue influence when a person takes improper advantage of his power
over the will of another, depriving the latter of a reasonable freedom of choice. The following
circumstances shall be considered: the confidential, family, spiritual and other relations
between the parties, or the fact that the person alleged to have been unduly influenced was
suffering from mental weakness, or was ignorant or in financial distress.
*CFSO
Marubeni Corp. v. Lirag
 Where a consultancy agreement was obtained from a government agency because
of the use of influence of executive officials, the Supreme Court declared the
contract not only voidable but null and void.
Art. 1338. There is fraud when, through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract which, without them, he
would not have agreed to.
Fraud – a false representation of a material fact made by word or conduct with knowledge of
its falsehood or in reckless disregard of its truth, in order to induce another to act, to his
injury
Art. 1339. Failure to disclose facts, when there is a duty to reveal them as when the parties
are bound by confidential relations, constitutes fraud.
*there is a duty to disclose when the contract is fiduciary.
 There is fraud when a legal or equitable duty is imposed upon the dominant party
to reveal certain facts material to the transaction.
Art. 1340. The usual exaggerations in trade, when the other party had an opportunity to
know the facts, are not in themselves fraudulent.
 If a party is induced by such usual exaggerations, there may be fraud amounting to
active misrepresentation. But if it is within the means of the other party to
investigate the truthfulness of such exaggeration and he does not do so, there will
be no fraud despite the exaggerations.
Art. 1341. A mere expression of an opinion does not signify fraud, unless made by an expert
and the other party has relied on the former’s special knowledge.
 Know the difference between opinion and representation
Art. 1342. Misrepresentation by a third person does not vitiate consent, unless such
misrepresentation has created substantial mistake and the same is mutual.
 Misrepresentation by a third person vitiates consent only if it creates substantial
mistakes and the same is mutual.
Art. 1343. Misrepresentation made in good faith is not fraudulent but may constitute error.
Art. 1344. In order that fraud may make a contract voidable, it should be serious and should
not have been employed by both contracting parties.
Incidental fraud only obliges the person employing it to pay damages.
In order to make the contract voidable, fraudulent act must be..
 Serious
  Intent to injure
 Damage/injury resulted
 Parties must not be in pari delicto
 Must be the dolo causante (very cause why the party entered into the contract)
 Must not be dolo incidente (incidental and collateral fraud, which only entitles
aggrieve party to damages)
Alejandro Tankeh v. Development Bank of the Philippines
 In order that fraud may make a contract voidable, it should be serious and should
not have been employed by both contracting parties.
2 types of fraud (Geraldez v. CA)
1. dolo incidente / incidental fraud
a. (referred to in Art. 1344) those which are not serious in character and without
which the other party would still have entered into the contract.
b. Effect: indemnification of damages
2. Dolo causante / causal fraud
a. Those deceptions or misrepresentations of a serious character employed
by one party and without which the other party would not have entered
into the contract.
b. Effect: nullity of the contract and indemnification of damages
Art. 1355. Simulations of a contract may be absolute or relative. The former takes place when
the parties do not intend to be bond at all; the latter, when the parties conceal their true
agreement.
Simulation of contract (Valerio v. Refresca)
 Absolute simulation
o there is a colorable contract but it has no substance as the parties have no
intention to be bound by it.
o Main characteristic: the apparent contract is not really desired or
intended to produce legal effect or in any way alter he juridical situation
of the parties.
o VOID. The parties may recover from each other what they may have give
under the contract.
 Relative simulation
o parties state a false cause in the contract to conceal their real agreement
o parties are still bound by their real agreement
o when the essential requisites of a contract are present and the simulation
refers only to the content or terms of the contract, the agreement is
absolutely binding and enforceable between the parties and their
successors in interest
Heirs of Policronio Ureta v. Heirs of Liberato Ureta
 lacking in an absolutely simulated contract is consent which is essential to a
valid and enforceable contract.
Art. 1347. All things which are not outside the commerce of men including future things, may
be the object of a contract. All rights which are not intransmissible may also be the object of
contracts.
No contract may be entered into upon future inheritance except in cases expressly
authorized by law.
All services which are not contrary to law, morals, good customs, public order or public
policy may likewise be the object of a contract.
*any property or service can be the object of a contract provided that it is within the commerce of man.
Blas v. Ople
 Where the wife agreed to give whatever her share in the conjugal partnership
property to her heirs once the husband dies, the Supreme Court said that such
agreement does not involve future inheritance.
o SC: the document refers to existing properties which she will receive by
operation of law on the death of her husband because it is her share in
the conjugal assets.
Art. 1348. Impossible things or services cannot be the object of contracts.
Art. 1349. The object of every contract must be determinate as to its kind. The fact that the
quantity is not determinate shall not be an obstacle to the existence of the contract, provided
it is possible to determine the same, without the need of a new contract between the parties.
 A contract engaging a cetain person to perform a deed, without specifying what
deed it is, does not make the service determinable and is therefore void.
o Deliver a fruit. – void
o Deliver a guava. – valid
 The fact that the quantity is not determinate shall not be an obstacle to the
existence of the contract, provided it is possible to determine the same, without
the need of a new contract between the parties.
o Ex. Deliver all the ice I need for my restaurant. – valid
CAUSE OF CONTRACTS
Art. 1350. In onerous contracts the cause is understood to be, for each contracting party, the
prestation or promise of a thing or service by the other; in remuneratory ones, the service or
benefit which is remunerated; and in contracts of pure beneficence, the mere liberality of the
benefactor.
Cause – it is the essential or more proximate purpose which the contracting parties have in
view at the time of entering into the contract.
Dihiansan v. Court of Appeals
A corporation who decided to sell its property along an avenue and gave the persons
living near the property preferential right to buy it. One of the persons given such right was
approached by an individual who requested that he be allowed to buy the property with a
commitment to re-sell the same to the said person who was originally given the preferential
right. However, instead of reselling to the person given the preferential right, the purchaser
sold it to another. The SC ruled that there is consideration in the contract and is therefore
valid.
-----
 Onerous contracts – the cause is understood to be, for each contracting party, the
prestation or promise of a thing or service by the other.
 Remuneratory contracts – the cause is the service or benefit which is remunerated.
Art. 1351 The particular motives of the parties in entering into a contract are different from
the cause thereof.
Cause – essential reason for the contract
Motive – particular reason for a contracting party which does not affect the other party and
which does not preclude the existence of a different consideration
Ex. Contract of sale of a valuable relic
Cause
 payment of the purchase price (seller)
 delivery of the thing sold (buyer)
General principle: motive or particular purpose of a party in entering into a contract does not
affect the validity nor existence of the contract
Exception: when the realization of such motive or particular purpose has been made a
condition upon which the contract is made to depend.
Art. 1352. Contracts without cause, or with unlawful cause, produce no effect whatever. The
cause is unlawful if it contrary to law, morals, good customs, public order or public policy.
Art. 1353. The statement of a false cause in contracts shall render them void, if it should not
be proved that they were founded upon another cause which is true and lawful.
Art. 1354. Although the cause is not stated in the contracts, if it is presumed that it exists and
is lawful, unless the debtor proves the contrary.
Art. 1355. Except in cases specified by law lesion or inadequacy of cause shall not invalidate a
contract, unless there has been fraud, mistake, or undue influence.
An assertion that the price is inadequate is incompatible with a claim that the contract is
absolutely simulated. “if there exists an actual ciosderation for transfer evidence by the
alleged act of sale, no matter how inadequate it be, the transaction could not be a simulated
sale.”
FORMS OF CONTRACTS
Art. 1356. Contracts shall be obligatory, in whatever form they may have been entered into,
provided all the essential requisites for their validity are present. However when the law
requires that a contract be in some form in order that it may be valid or enforceable, or that a
contract be proved in a certain way, that requirement is absolute and indispensable. In such
cases, the right of the parties stated in the following article cannot be exercised.
Dauden-Hernaez v. De Los Angeles
 movie actress filed a suit to recover compensation against producers, who resisted
such claim on the ground that the contract was void/iinvalid as there was no
written agreement, SC ruled that,
o general rule: contracts are valid and binding from their perfection
regardless of form, whether they be oral or written.
o Exceptions:
 Contracts for which the law itself requires that they be in some
particular form (writing) in order to make them valid and
enforceable (solemn contracts). (i.e. donation of immovable
property)
 Contracts that the law requires to be proved by some writing
(memorandum) of its terms, as in those covered by the old
Status of Frauds.
Cenido v. Apacionado
 SC upheld the validity of a written contract of sale of real property even if it were
not in a public instrument because all the essential requisites of the contract were
proven.
o SC: Generally, contracts are obligatory in whatever form such contracts
may have been entered into, provided all the essential requisites
o A certain form may be prescribed by law for any of the ff. purposes:
 Validity
 Enforceability
 Non-compliance will not permit the contract,
although otherwise valid, to be proved or enforced by
action.
 Greater efficacy
 Non-compliance would not adversely affect the
validity or enforceability of the contract between the
contracting parties themselves
Deloso v. Sandiganbayan
 Where the contracts was assailed as anomalous on the ground that it was originally
made orally and then later reduced into writing, the Supreme Court ruled that
contracts can generally be made in whatever form, thus:
Cruz v. Gruspe
 Where a “Joint Affidavit of Undertaking” was signed by the parties, the SC ruled
that the content of the affidavit showed the marks of a contract and should be
treated as such, thus:
o Contracts are obligatory no matter their forms may be, whenever the
essential requisites for their validity are present. In determining whether
a document is an affidavit or a contract, the Court looks beyond the title
of the document, since the denomination or title given by the parties in
their document is not conclusive of the nature of its contents. In the
contstruction or interpretation of an instrument, the intention of the
parties is primordial and is to be pursued.
o Intent > words
Art. 1357. If the law requires a document or their special form, as in the acts and contracts
enumerated in the ff. article, the contracting parties may compel each other to observe that
form, once the contract has been perfected. This right may be exercised simultaneously with
the action upon the contract.
Zaide v. CA
 Vendee’s husband was not included in deed of sale, it was assailed as invalid
because it cannot be registered in the register of deeds due to the defect.
 SC ruled for its validity, stating that though defective in form, the defect was
unsubstantial. It did not invalidate the deed. The sale was valid and the parties
could compel each other to do what was needed to make the document of sale
registrable.
Art. 1358. The following must appear in a public document:
(1) Acts and contracts which have for their object the creation, transmission, modification or
extinguishment of real rights over immovable property; sales of real property or of an interest
therein are governed by Articles 1403, No. 2 and 1405.
(2) The cession, repudiation or renunciation of hereditary right or of those of the conjugal
partnership of gains;
(3) The power to administer property, or any other power which has for its object an act
appearing or which should appear in a public document or should prejudice a third person;
(4) the cession of actions or rights proceeding from an act appearing in a public document.
All other contracts where the amount involved exceeds five hundred pesos must appear in
writing, even a private one. But sales of goods, chattels or things in action are governed by
Art. 1403, No. 2 and 1405.
 The requirement to put the agreement referred under this article in a public
document is only for the purpose of greater efficacy, of convenience or of binding
third persons.
 It will not make a contract/agreement invalid or unenforceable.
 General power of attorney – needed by an agent to administer property of another
(called principal), and must be in a public document. However, even a private
document will bind the principal and an agent such that the former cannot refuse
payment of the agent’s fee on the ground that the power of attorney was not in a
public document. But being in a private document, it will not bind third persons.
CHAPTER 4
REFORMATION OF INSTRUMENTS
Art. 1359. When there having been a meeting of the minds of the parties to a contract, their
true intention is not expressed in the instrument purporting to embody the agreement, by
reason of mistake, fraud, inequitable conduct or accident, one of the parties may ask for the
reformation of the instrument to the end that such true intention may be expressed.
If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the
minds of the parties, the proper remedy has prevented a meeting of the minds of he parties,
the proper remedy is not reformation of the instrument but annulment of the contract.
 Reformation applies only to written contracts contained in an instrument or series
of instrument.
 Reformation connotes a valid contract. The parties are able to have a meeting of
the minds but the instrument supposed to embody the contract does not conform
to such contract.
 An action for reformation can be filed within 10 years from the time the cause of
action accrues, since the suit is based on a written document.
 The cause of action accrues upon the knowledge of the ground for reformation or
from the date of the execution of the instrument embodying the contract if the
cause for the reformation was already known at the time of the said instrument
embodying the contract.
 The action may also be barred by laches.
 Action for reformation – declaratory relief
2 requisites before reformation can be availed:
1. That the instrument embodying the contract does not reveal the true intentions of
the parties
2. The existence of a real and actual contract entered into by the parties.
(failure to prove these two matters may lead to the creation of an entirely new contract not
within the contemplation of the parties.)
Art. 1360. The principles of the general law on the reformation of instruments are hereby
adopted insofar as they are not in conflict with the provisions of this Code.
Art. 1361. When a mutual mistake of the parties causes the failure of the instrument to
disclose their real agreement, said instrument may be reformed.
Mistake – must be mutual, else, there can be no reformation.
Art. 1362. If one party was mistaken and the other acted fraudulently or inequitably in such a
way that the instrument does not show their true intention, the former may ask for the
reformation of the instrument.
 If mistake is committed by only one party, the other party must be show to have
acted fraudulently or inequitably for there to be reformation.
Art. 1363. When one party was mistaken and the other knew or believed that the instrument
did not state their real agreement, but concealed that fact from the former, the instrument
does not show their true intention, the former may ask for the reformation of the instrument.
Art. 1363. When one party was mistaken and the other knew or believed that the instrument
did not state their real agreement, but concealed the fact from the former, the instrument
may be reformed.
Art. 1364. When through the ignorance, lack of skill, negligence or bad faith on the part of
the person drafting the instrument or of the clerk or typist, the instrument does not express
the true intention of the parties, the courts may order that the instrument be reformed.
Art. 1365. If two parties agree upon the mortgage or pledge of real or personal property, but
the instrument states that the property is sold absolutely or with a right of repurchase,
reformation of the instrument is proper.
Art. 1366. There shall be no reformation in the following cases:
(1) Simple donations inter vivos wherein no condition was imposed;
(2) wills;
(3) When the real agreement is void.
Art. 1367. When one of the parties has brought an action to enforce the instrument, he
cannot subsequently ask for its reformation.
*Person is estopped.
Art. 1368. Reformation may be ordered at the instance of either party or his successors in
interest, if the mistake was mutual; otherwise, upon petition of the injured party, or his heirs
and assigns.
Art. 1369. The procedure for the reformation of instruments shall be governed by rules of
court to be promulgated by the Supreme Court.
CHAPTER 5
INTERPRETATION OF CONTRACTS
(just read the book lol)
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CHAPTER 6
RESCISSIBLE CONTRACTS
Art. 1380. Contracts validly agreed upon may be rescinded in the cases established by law.
 Rescissible contracts are valid but may subsequently be terminated in legal grounds.
 Based on some economic damage suffered by one of the parties, as a result of
inequitable conduct by one party.
 Rescission – putting them back in their position prior to the contract’s perfection
Art. 1381. The ff. contracts are Rescissible:
(1) those which are entered into by guardians whenever the wards whom they represent
suffer lesion by more than one fourth of the value of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the leion stated in
the preceding number;
(3) those undertaken in fraud of creditors when the latter cannot in any other manner collect
the claim due them;
(4) those which refer to things under litigation if they have been entered into by the
defendant without the knowledge and approval of the litigants or of competent judicial
authority.
(5) All other contracts specially declared by law to be subject to rescission.
 Any act of ownership or disposition undertaken by the guardian on behalf of his
ward – must be with court approval to be valid, else, it is void.
 A contract entered into in bad faith by the parties to the said contract, which was
purposely designed to evade the due obligations in favor of creditors who have no
other way to collect their debts, is considered done in fraud of creditors and
therefore rescissible.
Rescission of contract under Art. 1381 (4) requires the concurrence of the ff:
1. The defendant, during the pendency of the case, enters into a contract which refers
to the thing subject of litigation;
2. Said contract was entered into without knowledge and approval of the litigants or
of a competent authority.
However, reconveyances (transporting the thing from one place to another), are allowed,
even if without knowledge and approval.
Other provisions:
- Rescission can be availed when the object deteriorates through the fault of the
debtor. [Art. 1189 (4)].
- Rescission with damages can also be availed by debtor when through creditor’s
acts, the debtor cannot make a choice (alternative obligations) according to the
terms of the obligations. (Art. 1203).
Art. 1382. Payments made in a state of insolvency for obligations to whose fulfillment the
debtor could not be compelled at the time they were affected, are also rescissible.
- If an insolvent person pays off a creditor whose credit has not yet become due, that
payment can be rescinded.
Art. 1383. The action for rescission is subsidiary; it cannot be instituted except when the
party suffering damage has no other legal means to obtain reparation for the same.
 - An action for rescission cannot be set up in a summary proceeding but in an
independent civil action and only after a full-blown trial.
- If there are other means available, it must be availed of before filing a case for
rescission
- Accion pauliana – must be of last resort
- Presupposes the following:
o A judgement
o The issuance by the trial court of a writ of execution for the satisdfaction
of the judgement
o Failure of the sheriff to enforce and satisfy the judgement of the court
Art. 1384. Rescission shall be only to the extent necessary to cover the damages caused.
- Since rescission presupposes a valid contract, it need not be rescinded totally
considering the law provides that such remedy shall be only up to the extent
necessary to cover the damages caused.
Art. 1385. Rescission creates the obligation to return the things which were the object of the
contract, together with their fruits, and the price with its interest; consequently, it can be
carried out only when he who demands rescission can return whatever he may be obliged to
restore.
Neither shall rescission take place when the things which are the object of the contract are
legally in the possession of third persons who did not act in bad faith.
In this case, indemnity for damages may be demanded from the person causing the loss.
*this includes fruits and interests.
When rescission is not an option
- when the things which are the object of the contract are legally in the possession of
third persons who did not act in bad faith.
- Party asking for rescission is unable to restore.
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.
Art. 1387. All contracts by virtue of which the debtor alienates property by gratuitous title are
presumed to have been entered into in fraud of creditors, when the donor did not reserve
sufficient property to pay all debts contracted before the donation.
Alienations by onerous title are also presumed fraudulent when made by persons against
whom some judgement has been issued. The decision or attachment need not refer to the
property alienated, and need not have been obtained by the party seeking rescission.
In addition to these presumptions, the design to defraud creditors may proved in any
other manner recognized by the law of evidence.
*person who sells the property has the burden of proving that the sale is not fraudulent.
Art. 1288. Whoever acquires in bad faith the things alienated in fraud of creditors, shall
indemnify the latter for damages suffered by them on account of the alienation, whenever,
due to any cause, it should be impossible for him to return them.
If there are two or more alienations, the first acquirer shall be liable first, and so on
successively.
Art. 1389. The action to claim rescission must be commenced within four years.
For persons under guardianship and for absentees, the period of four years shall not
begin until the termination of the former’s incapacity, or until the domicile of the latter is
know.
1. persons under guardianship – period begins from the time the incapacity
terminates
2. absentees – period begins from the time he learns of the contract and has
unsuccessfully exhausted all other legal remedies.
3. Contracts entered into in fraud of creditors – from time of discovery of the fraud
4. Contracts entered into with respect to things under litigation – from the time of
knowledge of the transaction
CHAPTER 7
VOIDABLE CONTRACTS
Art. 1390. The following contracts are voidable or annullable, even though there may have
been no damage to the contracting parties:
(1) those where one of the parties is incapable of giving consent to a contract;
(2) those where the consent is vitiated by mistake, violence, intimidation, undue influence or
fraud.
These contracts are binding, unless they are annulled by a proper action in court. They are
susceptible of ratification.
Art. 1391. The action for annulment shall be brought within four years.
This period shall begin:
In cases of intimidation, violence or undue influence, from the time the defect of the consent
ceases.
In case of mistake or fraud, from the time of the discovery of the same.
And when the action refers to contracts entered into by minors or other incapacitated
persons, from the time the guardianship ceases.
 Extrajudicial demand by a creditor shall interrupt the running of a prescriptive
Art. 1392. Ratification extinguishes the action to annul a voidable contract.
Art. 1393. Ratification may be effected expressly or tacitly. It is understood that there is tacit
ratification if, with knowledge of the reason which renders the contract voidable and such
reason having ceased, the person who has a right to invoke it should execute an act which
necessarily implies an intention to waive his right.
Ratification – act of curing the defect which made the contract annullable.
May be expressly or tacitly give.
Yao Ka Sin Trading v. CA
 There can be no ratification by a corporation of acts performed by an officer if he
has not been given apparent authority by the corporation, or if his acts are not later
validated by the corporation.
Art. 1394. Ratification may be effected by the guardian of the incapacitated person.
Art. 1395. Ratification does not require the conformity of the contracting party who has no
right to bring the action for annulment.
Ratification – a unilateral act. Generally done by the injured party.
Article 1396. Ratification cleanses the contract from all its defects from the moment it was
constituted.
Art. 1397. The action for the annulment of contracts may be instituted by all who are thereby
obliged principally or subsidiarily. However, persons who are capable cannot allege the
incapacity of those with whom they contracted; nor can those who exerted intimidation,
violence, or undue influence, or employed fraud, or caused mistake base their action upon
these flaws of the contract.
Malabanan v. Gaw Ching
 Strangers to a contract cannot sue the parties to annul and set aside that contract.
 Existence of interest – basis for one’s right to sue for nullification
 Exception:
o When a third person is prejudiced in his rights with respect to one of the
contracting parties.
 Contract may be nullified only to the extent that such nullification is absolutely
necessary to protect the plaintiff’s lawful rights.
Actions for annulment cannot be filed by the person who caused the defect in the contract,
the one capacitated to enter into the contract, the person of age.
Art. 1398. An obligation having been annulled, the contracting parties shall restore to each
other the things which have been the subject matter of the contract, with their fruits, and the
price with its interest, except in cases provided by law.
In obligations to render service, the value thereof shall be the basis for damages.
Art. 1399. When the defect of the contract consists in the incapacity of one of the parties, the
incapacitated person is not obliged to make any restitution except insofar as he has been
benefited by the thing or price received by him.
 When the annulment of the contract has been decreed, the contracting parties
must be returned to their original position.
Art. 1400. Whenever the person obliged by the decree of annulment to return the thing can
not do so because it has been lost through his fault, he shall return the fruits received and the
value of the thing at the time of the loss, with interest from the same date.
Art. 1401. The action for annulment of contracts shall be extinguished when the thing which
is the object thereof is lost through the fraud or fault of the person who has a right to
institute the proceedings.
If the right of action is based upon the incapacity of any one of the contracting parties, the
loss of the thing shall not be an obstacle to the success of the action, unless said loss took
place through the fraud or fault of the plaintiff.
Art. 1402. As long as one of the contracting parties does not restore 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 him.
CHAPTER 8
UNENFORCEABLE CONTRACTS
Article 1403. The following contracts are unenforceable, unless they are ratified:
(1) Those entered into in the name of another person by one who has been given no
authority or legal representation, or who has acted beyond his power.
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the ff.
cases an agreement hereafter made shall be unenforceable by action, unless the same, or
some note or memorandum thereof, be in writing, and subscribed by the party charged, or by
his agent; evidence, thereof, of the agreement cannot be received without the writing, or a
secondary evidence of its contents:
(a) an agreement that by its terms is not to be performed within a year from the
making thereof;
(b) A special promise to answer for the debt, default, or miscarriage of another;
(c) An agreement made in consideration of marriage, other than a mutual promise to
marry;
(d) an agreement for the sale of goods, chattels or things in action, at a price not less
than 500 pesos unless the buyer accept and receive part of such goods and chattels, or the
evidences, or some of them, of such in action, or pay at the time some part of the purchase
money; but when a sale is made by auction and entry is made by the auctioneer in his sales
book, at the time of the sale, of the amount and kind of property sold, terms of sale, price,
names of the purchasers, and person on whose account the sale is made, it is a sufficient
memorandum;
(e) an agreement for the leasing for a longer period than one year, or for the sale of
real property of an interest therein;
 (f) a representation as to the credit of a third person. - in solidary obligations, it will depend on whether or not the promisor knew that only one of
(3) Those were both parties are incapable of giving consent to a contract. the solidary debtors will truly be benefited by the payment

Character of the promise – must be collateral to be w/in SoF

Art. 1404. Unauthorized contracts are governed by Article 1317 and the principles of agency
Determination of the character of a promise as original or collateral – from evidence,
in Title X of this Book.
language, and circumstance.
- If both parties are incapacitated = unenforceable
(c) agreement made in consideration of marriage other than a mutual promise to marry
- Only one party is incapacitated = enforceable
- ante-nuptial agreements, marriage settlements, etc. must be in writing to be enforceable.
- modified already by Art. 77 of the Family Code which requires such agreements to be in
- Statute of Frauds – mandates that for certain executory contracts to be enforceable in
writing and signed by parties before the marriage. Violation of this provision will make the
a court of law, the only evidence that can prove such contract is a written proof of
marriage settlement not only unenforceable but null and void.
the agreement like some notes or memoranda. (reason: to prevent fraud or
perjury)
(d) agreement for the sale of goods, chattels or things in action, at a price not less than P500.
- if paid already, then the contract is partially performed and removed under SoF
- Statute of Frauds only apply to executory contracts and not to contracts which have
been consummated already or those which have been totally or partially
(e)lease longer than one year / sale of real property
performed.
- self explanatory.
Art. 1403 (a)
(f) representation as to the credit of a third person.
Babao v. Perez
- under this provision, there is no promise to pay for the debt of another person. This deals
 An oral contract partially performed must be proven clearly in court.
with only one who makes certain declaration or assurance about the credit or financial
o An oral contract must at least have that degree of certainty which is
standing of another.
required of written contracts sought to be specifically enforced.
 It is based on equitable estoppel or estoppel by conduct.
Art. 1405. Contracts infringing the Statute of Frauds, referred to in No.2 of Article 1403, are
 The agreement relied on must be certain, definite, clear, unambiguous and
ratified by the failure to object to the presentation of oral evidence to prove he same, or by
unequivocal in its terms and subject matter before the statute may operate.
the acceptance of benefits under them.
“The contract must be fully made and completed in every respect except for the writing
required by the statute, in order to be enforceable on the ground of part performance.”
Rodriguez v. CA
Examples of partial performance - Where a particular sale was questioned and only receipts were introduced as
- Improvements are made on the subject property pursuant to the contract evidence to prove the sale, without showing in the said receipts of the basic
- Rentals are paid elements of a contract, the Supreme Court nevertheless removed the transaction
- Taking possession on the basis of a verbal contract to purchase the property from the Statute of Frauds for failure of the other party to object to the
- Payment of taxes presentation of oral evidence to prove the sale.
- Relinquishment of right
- Tender of payment coupled with other acts indicating partial performance Art. 1406. When a contract is enforceable under the Statute of Frauds, and a public
document is necessary for its registration I the Registry of Deeds, the parties may avail
Partial performance take a contract out of the scope of the Statute of Frauds. themselves of the right under Article 1357.
--- --- --- ---
(b) special promise to answer for the debt, default or miscarriage of another. Art. 1407. In a contract where both parties are incapable of giving consent, express or implied
Special promise – limited to express and tacit promises made and does not apply in cases ratification by the parent, or guardian, as the case may be, of one of the contracting parties
where the duties are created by law without any promissory assent. shall give the contract the same effect as if only one of them were incapacitated.
- must be in the nature of a collateral or subsidiary obligation and not an original one One party ratifies the contract - It shall be transformed into a voidable/annullable contract.
- if the promisor will pay only if the principal debtor cannot pay and this promise is not in Both parties ratify the contract – completely valid as if no defect/infirmity from the beginning.
writing, such a promise falls within the Statute of Frauds, and therefore must be in writing to
be enforceable. Art. 1408. Unenforceable contracts cannot be assailed by third persons.
- joint obligations do not fall under SoF
CHAPTER 9
VOID AND INEXISTENT CONTRACTS

Art. 1409. The ff. contracts are inexistent and void from the beginning:
(1) those 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;
(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.

2 types of void contracts:

1. one of the elements in Art. 1318 is not present, (ex. “conveyances by virtue of a forged
document” which does not have the elements of consent and cause)
2. those provided for in Art. 1409

TO BE CONTINUED…