Q: An Agreement Was Made Between. A & B. Was A Contract Created?

II. CONTRACTS & In Sales (art.
1491): one party can

(Read Arts. 1305-1422) never validly give consent.
A. General Provisions Article 1491. The following persons

cannot acquire by purchase, even at a
1. Definition public or judicial auction, either in
person or through the mediation of
Article 1305. A contract is a another: (CAPACITY TO BUY OR SELL)
meeting of minds between two (1) The guardian, the property of
persons whereby one binds himself, the person or persons who may be
with respect to the other, to give under his guardianship;
something or to render some
service. (2) Agents, the property whose
administration or sale may have
Balane: thinks that the definition in been intrusted to them, unless the
Art. 1305 is inaccurate. The term consent of the principal has been
“persons” should be substituted by the given;
term “parties”. Also, contracts may be (3) Executors and administrators,
multilateral; there can be more than 2 the property of the estate under
parties involved (i.e. partnership). administration;
SANCHEZ-ROMAN: a juridical “convention” (4) Public officers and EEs, the
manifested in legal form, by virtue of property of the State or of any
which one or more parties bind themselves subdivision thereof, or of any
in favor of one another or others, or government-owned or controlled
reciprocally, to d fulfillment of a corporation, or institution, the
prestation to give, to do or not to do. administration of which has been
intrusted to them; this provision
Tolentino: Contracts w/reciprocal shall apply to judges and
OBLIGATIONs excluded by d def. government experts who, in any
manner whatsoever, take part in the
Q: An agreement was made between. A & B. sale;
Was a contract created? (5) Justices, judges, prosecuting
A: NN. Agreement to go to church attorneys, clerks of superior and
together is not a contract. inferior courts, and other officers
and EEs connected with the
Q: May a contract be perfected as to an administration of justice, the
Agreement no to do? YES property and rights in litigation
EX: not to engage in business (provided or levied upon an execution before
not in perpetuity) the court within whose jurisdiction
or territory they exercise their
Q: MAY…Deed of sale signed by only 1 respective functions; this
party? prohibition includes the act of
A: Yes, in autocontract acquiring by assignment and shall
apply to lawyers, with respect to
AUTO-CONTRACT: the property and rights which may
 Is a contract executed by one be the object of any litigation in
person only, but in such execution which they may take part by virtue
he represents at least 2 parties; of their profession;
 Executed by one person, (6) Any others specially

either: disqualified by law.
1. when a person in his capacity Baviera:
as rep, of himself, or  Nos. 1-3 are voidable
2. when as a rep of 2 diff contracts; Nos. 4-6 are void
persons he brings about a contract contracts.
bet his principals by contracting  The reason why those
w/himself enumerated under Art. 1491 have
relative incapacity to enter into a
GR: valid, exc. 1491. contract of sale is that they
EX: contract of AGENCY (Read art. possess a fiduciary relationship w/
the owner of the properties
1890)
mentioned, such that the law
prevents them for. being tempted to
Article 1890. If the agent has been take advantage of their positions.
empowered to borrow money, he may himself
be the lender at the current rate of  The prohibition rests on the
interest. If he has been authorized to fact that greed might get the better
lend money at interest, he cannot borrow of loyalty. The law does not trust
it without the consent of the principal. human nature to resist the
 Agent can be lender but he temptations likely to arise out of
may not be the borrower. the antagonism between the interest
of the seller & the buyer.
“The lone wolf dies, but the pack survives” 1

 An agent who has renounced the  those which are derived from
agency & is a judgment creditor of the nature of the contract and
his principal may acquire the ordinarily accompany the same.
latter’s property in a public sale.
 They are presumed by law,
 The prohibition against although they can be excluded by
lawyers is intended to curtail any the contracting parties if they so
undue influence the lawyer may have desire.
over his client on account of their
confidential association. Such i. right to resolve (Art. 1191)
sales are void & cannot be ratified. ii. warranties in sales contracts,
Public interest & public policy implied
remain paramount & do not permit
compromise & ratification. Q: Is warranty a natural ELEMENT of
Q: When is a thing deemed to be the contract? Not always
subject of litigation? A: only implied warranty are natural, not
 Not only if there is some express ones
contest or litigation in court, but
also from the moment it becomes (c) Accidental Elements
subject to judicial action.  The accidental elements are
those which exist only when the
 Contingent fee- not contrary parties expressly provide for them
to law as it will encourage the for the purpose of limiting or
lawyer to work harder to win the modifying the normal effects of the
case in order to earn the said fee. contract (i.e. conditions, terms,
thus, it is to the client’s
advantage. But the court may reduce modes)
the fee is found to be
unconscionable. Q: Stipulation as to interest in a
(ON LEASE OF RURAL AND URBAN LANDS) contract of Loan, what kind of ELEMENT?
Article 1646. The persons disqualified to A: Accidental; Interest must always be
buy referred to in articles 1490 and expressed/written to be given effect.
1491, are also disqualified to become
lessees of the things mentioned therein BATCHELDER vs CB 44 SCRA 45:
TOLENTINO: RATIO: Monetary Boards do not create

 All contracts under 1491 are contracts bet. CB & dollar earner.
void by reason of PP
 In Code of commerce, B. GOVERNING LAW / JURISDICTION:
(Art.267) a commission agent w/o 1307 - innominate C’s governed by:
permission of principal cannot buy i. Stipulation of
for himself or for another, nor to parties
sell what he ought to buy. ii. Law on
ObliCon
(2) ELEMENTS OF CONTRACTS iii. Analogous
a) ESSENTIAL contracts
b) NATURAL iv. Customs
c) ACCIDENTAL
1370 – intention of parties; based on
(a) Essential Elements contemporaneous & subsequent Acts
 The essential elements are
those without which there can be no Q: What may not be SM of contract of
contract. (indispensable Sale?
requirements.) A: service
 These elements are, in turn,
Q: contract that is perfected at the
subdivided into:
negotiation stage?
A: Option contract  a
1.) common (communes)  those
precontractual OBLIGATION
which are present in all contracts,
such as consent, object certain,
and cause; C. CHARACTERISTICS / PRINCIPLES OF
CONTRACTS:
2.) special (especiales)  are
present only in certain contracts, (1) Consensuality;
such as delivery in real contracts, (2) Autonomy;
or form in solemn ones. (3) Mutuality;
(4) Obligatory Force
3.) extraordinary (5) Relativity
(especialissimos)  are those which
are peculiar to a specific contract (1) CONSENSUALITY OF CONTRACTS
(i.e. price in sales).
Article 1305. A contract is a
(b) NATURAL ELEMENTS meeting of minds between two
persons whereby one binds himself,

with respect to the other, to give to stipulate such terms and conditions is
something or to render some of the essence of our contractual system,
service. and by express provision of the statute,
a contract may be annulled if tainted by
Article 1317. No one may contract violence, intimidation, or undue
in the name of another without influence (Articles 1306, 1336, 1337,
being authorized by the latter, or CC).
unless he has by law a right to
represent him.
A contract entered into in CORPUS v. CA, 98 SCRA 424
the name of another by one who has RATIO:
no authority or legal
representation, or who has acted An atty-client rel. can be created
beyond his powers, shall be by implied agreement, as when the atty.
unenforceable, unless it is Actually rendered legal services for a
ratified, expressly or impliedly, person who is a close friend. The
by the person on whose behalf it OBLIGATION of such a person to pay atty’s
has been executed, before it is fees is based on the law of contract’s
revoked by the other contracting concept of facio ut des (I do and you
party. give).
Consent  vitiated  voidable (2) AUTONOMY OF CONTRACTS:

If by Rep  authority is void 
unenforceable Art. 1306. The contracting parties
may establish such stipulations,
Q: How is consent given? clauses, terms and conditions as they
A: by a meeting of the offer and may deem convenient, provided they are
acceptance, upon the thing which is not contrary to law, morals, good
to constitute the contract and as customs, public order or public
to the cause. policy.
The following contracts are unenforceable Ex: unconscionable/usurious interest
unless they are ratified (Art. 1403): (Jurado)
 autonomy of will; Liberty of
(a) those entered into in the name of
contracts/Freedom to contract
another person by one who has been given
no authority or legal representation, or  CONSTI  Non-impairment
who has acted beyond his powers (r/t Clause, legislature nor Courts may
Art.1317) not prescribe the terms of a legal
contract, \freedom to contract w/o
CONTRACT OF ADHESION: prior restraint;
 Where one party has already  Parties may freely stipulate
prepared the form of a contract, (as long as not contrary to
containing stipulations. he L/M/GC/PO/PP) but the juridical
desires, and he simply asks the relations created by their contract
other party to agree to them if he & the rts & OBLIGATIONs arising
wants to continue w/d contract; therefrom are determined By Law;
(Ex: a Pacto de Retro Sale may be
construed by court to be loan
 The party who adheres to the w/mortgage after looking at the
contract is in reality free to substance of d contract & not
reject it entirely, but if he does, merely its form or name.
he consents;
 Freedom to contract limited
by the common good (Police Power)
 In case of doubt in
interpretation of stipulation in  EX: a PN which constitute a
contract, such will be construed gambling debt is unenforceable
vs. d party who prepared such  Compromise Agreement approved
stipulation. by court, where a grantee of public
land promised to sell to another,
Q: contract of adhesion is being within the 5-yr prohibitory
disputed on the ground of lack of consent period, even if sale was made after
of the other party. Is this tenable? such period and was approved by
A: SC held no, contract is valid. Sec. of Agric. is null and VOID ab
(Ong Yiu v. CA) initio. (Zambales v. CA)
REPUBLIC v, PLDT, 26 SCRA 620 Limitations in Freedom to Contract:
RATIO: Freedom of parties to stipulate – In Agency, a stipulation which excludes

Parties cannot be coerced to enter into a one or more partners from any share in
contract where no agreement is had the profits or losses is void. (Article
between them as to the principal terms 1799)
and conditions of the contract. Freedom

In Pledge/mortgage  The creditor cannot LEAL v. IAC, 155 SC 394
appropriate the things given by way of
pledge or mortgage, or dispose of them. RATIO: Contracts are generally
Any stipulation to the contrary is null binding between the parties, their
and void. (Article 2088) assigns and heirs; however, under Art.
1255 of the Civil Code of Spain, which is
Article 2130. A stipulation forbidding applicable in this instance, pacts,
the owner from alienating the immovable clauses, and conditions which are
mortgaged shall be void. contrary to public order are null and
void, thus, without any binding effect.
 Parties may not Agree on a Annotations on title: prohibition
ceiling price of mortgaged prop.in to sell property to third parties which
execution because such should be is indefinite & unlimited as to time,
made to the highest bidder (Warner which shall continue to be applicable
v, Jaucian); nor stipulate that beyond the lifetime of the original
upon non-payment, creditor may parties to the contract, is a nullity.
appropriate. Mortgaged prop. Upon Redemption: Right to redeem must
himself  this is called pactum be expressly stipulated in the contract
commisorium, contrary to Art. 2088. of sale to have legal existence.
 There are certain matters

where man, by nature must have (3) MUTUALITY PRINCIPLE:
freedom of decision, thus may not
validly be bound by contractual  The contract must bind both
OBLIGATION, such as: contracting parties; its validity or
1. promise to marry or not, to compliance cannot be left to the will of
secure legal separation, or to one of them (Art. 1308).
adopt a child;
2. promise to change  The determination of the
citizenship, professions, performance may be left to a 3rd person,
religion or domicile; whose decision shall not be binding until
3. promise not to hold public it has been made known to both
ofc, or limit perf or ofc contracting parties (Art. 1309).
duties;
4. promise to join a political  The determination shall not be
party or separate from it. obligatory if it is evidently
5. contract not to engage in inequitable. In such case, the courts
work, labor; shall decide what is equitable under the
6. to vote for a candidate, circumstances (Art. 1310).
7. to do, at the risk of life,
8. to pay money for an immoral  An example of a determination made
cause – i.e. commit a crime; by a 3rd person (Art. 1309) is the fixing
bribe a public ofc; marry; of the price by the 3rd person.
testify in court.
 The contract may be revoked if
CUI V. ARELLANO [112 PHIL 135 (1961)] there is mutual dissent.
STIPULATION CONTRARY TO P.P.
 The condition can never depend
solely upon the will of the debtor. If
RATIO: STIPULATION WHEREBY STUDENT CANNOT
the condition depends solely on the will
TRANSFER TO ANOTHER SCHOOL W/O REFUNDING
of the debtor, the obligation is void
SCHOLARSHIP CASH, NULL AND VOID.
(Art. 1182).
Scholarships are awarded in  The obligation is void because
recognition of merit & NOT to keep there is no vinculum juris. The creditor
students in school to bolster prestige. As could never compel the debtor to perform
for the Def., scholarship award is a the OBLIGATION. (potestative suspensive
business scheme designed to increase the OBLIGATION that depends on sole will of
business potential of an educational Db)
institution.
Q: A stip. That contract may be
terminated by 1 party, valid?
SAURA v. SINDICO, 107 PH 336 A: Yes, does not violate
STIPULATION CONTRARY TO P.P. mutuality, b/c the latter pertains
to validity/performance, not
RATIO: termination (Philbanking v. Lui
Among those that may not be the She)
subject matter (object) of contracts are
certain rights of individuals, which the ACCELERATION CLAUSE
law and public policy have deemed wise to EX: In contract of Sale by
exclude from the commerce of man. Installment basis

 Upon non-payment of amort., the
whole balance will automatically be 4. OBLIGATORY FORCE OF CONTRACTS:
due, or rescind.
Obligations arising from contracts have
ESCALATION CLAUSE the force of law between the parties and
 Advancing maturity under should be complied with in good faith
certain conditions  are valid (Art. 1159)
(Insular Bank vs. Salazar)
 It is provided by the Contracts are perfected by mere consent,
parties, to adjust and from that moment the parties are
compensation/consideration upon the bound not only to the fulfillment of what
happening of an event. has been expressly stipulated but also to
all the consequences which, according to
 Limitation of CC’s liability their nature, may be in keeping with good
for loss of passenger’s baggage faith, usage and law (Art. 1315).
that was under declared by the
latter, valid. (Ong Yiu v. CA)
GEN RULE: Contracts are perfected by
 “Escalator clause” mere consent – the principle of
Valid if not potestative solely on consensuality (Art. 1315)
the will of one of the parties
(violates mutuality)
EXCEPTION: Real contracts, such as
EX: contract of Loan/ contract of
deposit, pledge, and commodatum are not
WORK/service/project-independent
perfected until the delivery of the
contracting
object of the obligation (Art. 1316)
Q: w/o de-escalation clause, will
Q: Perfection of contract goes into what
contract still be valid?
principle?
A: yes; only the escalation clause
A: Obligatory force of contract, when
will not be given effect
parties became bound
BANCO FILIPINO SAVINGS VS NAVARRO, 152 SC Donation of immovables (Art. 749)
346 (’87)
 The donation must be in a public
instrument.
RATIO: A contract which
 The acceptance must either be in
embodies an Escalation Clause authorizing
the same public instrument or in a
automatic increase in interest rates in
different public instrument.
the event a “law increasing the lawful
rates of interest that may be charged”,  Acceptance shall not take effect
does not incl. a CB Circular, which, unless it is done during the lifetime
although having the face & effect of law, of the donor.
is not strictly a statute or a law.  If the acceptance is made in a
An Escalation Clause to be valid separate public instrument, the donor
must include a de-escalation clause. – shall be notified thereof in an
“There can be an increase in int. if authentic form, and this step shall be
increased by law or by the Monetary noted in both instruments
Board;” in order for such stipulation To
be valid, it must include a provision for
the reduction of the stipulated interest 5. RELATIVITY OF CONTRACTS
in the event that the applicable maximum
rate of int. is reduced by law or by the GEN RULE: The contract is binding only
MB. upon the parties and their successors
(Art. 1311).
 However, if the contract is
FLORENDO VS CA, 265 SC 678 (’96) purely personal (intuitu personae),
then the contract will not bind
RATIO: assigns and heirs. (intransmissible
A contract containing a condition rts.)
which makes its fulfillment dependent
exclusively upon the uncontrolled will of Tol: GR: Rts. & OBLIGATIONs under a
one of the contracting parties, is void contract are transmitted to the heirs of
The unilateral determination and the parties. Heirs can’t be considered
imposition of increased interest rates by as 3P, because there is privity of
the herein respondent bank is obviously interest bet. them & their predecessor.
violative of the principle of mutuality
of contracts ordained in Article 1308 of Q: Who are bound by contracts?
A: parties/successors-in-int/
the Civil Code. heirs/assigns
Escalation clauses are valid GR: Under the Principle of Privity of
stipulations in commercial contracts to contracts, assigns & heirs are bound
maintain fiscal stability and to retain
the value of money in long term EXC: intransmissible rts or
contracts. OBLIGATIONs created by law/ nature /
stipulation

 To hold the stranger liable
Intransmissible contracts: those w/c are for damages in excess of those that
purely personal, either by could. be recovered v. the
(1) provision of law, such as in immediate. party would. lead to
cases of partnership & agency / results grotesquely unjust.
usufructuary rts;
 3P’s liability. is solidary w/
(2) by the very nature of the non-perf.. party, because he commits
OBLIGATIONs arising therefrom, such a tortuous act or a q-delict.
as those requiring special personal
qualifications of the obligor;
contract of service, det; BAL:
EXCEPTION: 3 parties are affected by the
(3) or by stipulation of parties contract in the following instances and
i.e. pacto de retro sale where only can take appropriate action:
the party may redeem not anyone else
(i) accion pauliana (Art. 1177)
2nd par. permits a 3P to avail himself of a  A rescissory action involving a
benefit extended to him by its terms.
Doctrine of stipulations pour autrui contract in fraud of creditors.
(SPA).  Creditors are protected in cases of
contracts intended to defraud them
Requisites of SPA: (Art. 1313).
(1) stipulation in favor of 3rdP
(2) stipulation should be a part, (ii) accion discreta (Arts. 1652, 1729)
not the whole, of the contract  A direct
(3) clearly & deliberately
conferred by contract’ing parties (not subrogatory) action by the
(4) not be conditioned or creditor against his debtor’s debtor,
compensated by any kind of a remedy which gives the creditor the
OBLIGATION whatever prerogative to act in his own name,
(5) 3rdP must have communicated such as the actions of the lessor
his acceptance to obligor before against the sublessee (Art. 1652);
revocation  the laborer
(6) neither of the contracting
parties bears the legal of an independent contractor against
representation or authorization of the owner/principal ER (Art. 1729);
the 3P  the
principal against the subagent (Art.
(SPA) Acceptance by 3P: no particular 1893); and
form.  the vendor-
Before acceptance, the contracting
parties, by mutual agreement, may modify a-retro against the transferee of the
the contract or revoke it. vendee (Art. 1608).
(SPA) Since 3P’s rt. is based directly on  In contracts creating real rights,
the contract, it is also subj. to all 3rd persons who come into possession of
defenses available v. the contract, such the object of the contract are bound
as those affecting its validity. thereby, subject to the provisions of
the Mortgage Law and the Land
Bav: A consignee, though not strictly a Registration Laws (Art. 1312) 
party in the contract of transportation
purchaser in good faith
can sue, on the contract, the common
carrier.
Reason: There is a stipulation in his VELASCO VS CA, 95 SC 616
favor.
RATIO: In the Deed of Quitclaim in
 In Art. 1314, Any 3P who question wherein Laigo Realty waived in
induces another to violate his favor of GSIS its rts in favor of the
contract shall be liable to the subdivision in question arising out of
other contracting party. its debt and assumed to pay the claims of
Tol: any contractor, material furnisher, lot
Requisites of action under this article: buyer, etc. having connection w/the said
 existence of a valid contract debt, the GSIS was not relieved of any
 knowledge by 3P of contract’s liability to pet. For cost of materials &
existence labor the latter incurred in bldg. the
 interference by 3P in the subdv houses if Laigo is unable to pay
contractual relation w/o legal them. (Solidary liability of Principal
justification ER, w/job contractor when EEs wages not
 Whatever may be the char. of paid.)
the liability w/c a stranger to a
contract may incur by advising or
assisting one of the parties to Kauffman v. National Bank, 42 Phil 182
evade perf., such stranger can’t
become more extensively liable in RATIO: A stipulation in favor of a
damages for non-perf. of the
contract than the party in whose 3P cannot be revoked by the obligated
behalf he intermeddles. party alone, w/o the conformity of the
other contracting party.

BONIFACIO BROS. V. MORA, 20 SCRA 261 not have any direct action against the
owner of the premises as lessor.
RATIO: CONTRACTS TAKE EFFECT ONLY BET.
THE PARTIES THERETO.
DAYWALT VS CORP DE PP AGUSTINOS
FLORENTINO V. ENCARNACION RATIO: Whatever may be the character
RATIO: of the liability which a stranger to a
A stipulation pour autrui is a contract may incur by advising or
stipulation in favor of a third person assisting one of the parties to evade
conferring a clear and deliberate favor performance, there is one proposition
upon him, and which stipulation is merely upon which all must agree. This is, that
a part of a contract entered into by the the stranger cannot become more
parties, neither of whom acted as agent extensively liable in damages for the
of the third person, and such third nonperformance of the contract than the
person and demand its fulfillment party in whose behalf he intermeddles.
provoked that he communicates his to the
obligor before it is revoked
GILCHRIST vs. CUDDY
 The acceptance does not have to be
in any particular form, even when the RATIO: One who wrongfully
stipulation is for the third person an interferes in a contract between others,
act of liberality or generosity on the and, for the purpose of gain to himself
part of the promisor or promise. induces one of the parties to break it,
 It need not be made expressly and is liable to the party injured thereby;
formally. Notification of acceptance, and his continued interference may be
other than such as is involved in the ground for an injunction where the
making of demand, is unnecessary. injuries resulting will be irreparable
The requisites are: HELD:

Injunction is the proper remedy to
prevent a wrongful interference with
(1) that the stipulation in favor of a contract by strangers to such contracts
third person should be a part, not the where the legal remedy is insufficient
whole, of the contract; and the resulting injury is irreparable.
(2) that the favorable stipulation should

not be conditioned or compensated by any EST. OF K.H. HEMADY vs. LUZON SURETY
kind of obligation whatever; and
RATIO: A party's contractual rights
(3) neither of the contracting bears the and obligations are transmissible to the
legal represented or authorization of successors.
third person.
While a stipulation in favor of a SO PING BUN vs. CA

third person has no binding effect in
itself before its acceptance by the party RATIO: Where there was no malice in the
favored, the law does not provide when interference of a contract, and the
the third person must make his impulse behind one's conduct lies in a
acceptance. As a rule, there is no time proper business interest rather than in
at such third person has after the time wrongful motives, a party cannot be a
until the stipulation is revoked. malicious interferer. Where the alleged
interferer is financially interested, and
BANK OF AMERICA vs. IAC such interest motivates his conduct, it
cannot be said that he is an officious or
RATIO: Contract between foreign bank malicious intermeddler
& local bank asking the latter to pay an D. CLASSIFICATION OF CONTRACTS
amount to a beneficiary, is a SPA.
1. ACCORDING TO DEGREE OF DEPENDENCE
a. preparatory
MARIMPERIO vs. CA  A preparatory contract is one
which has for its object the
RATIO: A party who has not taken part in establishment of a condition in
the contract cannot sue or be sued for law which is necessary as a
the performance or cancellation thereof, preliminary step towards the
unless he has a real interest affected celebration of another
thereby. subsequent contract (i.e.
partnership, agency).
In a contract of sublease, the
personality of the lessee does not b. principal
disappear & the sublease generally does  A principal contract is one
which can subsist independently

from other contracts and whose equivalent or compensation (i.e.
purpose can be fulfilled by sale).
themselves (i.e. sales, lease).
b. gratuitous
c. accessory  A gratuitous contract is one
 An accessory contract is one in which one of the parties
which can exist only as a proposes to give to the other a
consequence of, or in relation benefit without any equivalent
with, another prior contract or compensation (i.e.
(i.e. pledge, mortgage). commodatum).
2. According to Perfection 7) According to Risk

a. consensual
 A consensual contract is one a. commutative
which is perfected by mere  A commutative contract is one
agreement of the parties (i.e. in which each of the parties
sales, lease). acquires an equivalent of his
prestation and such equivalent
b. real is pecuniarily appreciable and
 A real contract is one which already determined from the
requires not only the consent of moment of the celebration of the
the parties for their contract (i.e. lease).
perfection, but also the
delivery of the object by 1 b. aleatory
party to the other (i.e.  An aleatory contract is one
commodatum, deposit, pledge). in which each of the parties has
to his account the acquisition
3) According to their Form or solemnity: of an equivalent prestation ,
but such equivalent, although
a. Common or informal pecuniarily appreciable, is not
 An informal contract is one yet determined, at the moment of
which does not require some the celebration of the contract,
particular form (i.e. loan, since it depends upon the
lease). happening of an uncertain event,
thus charging the parties with
b. Special or formal the risk of loss or gain (i.e.
 A formal contract is one insurance).
which requires some particular
form (i.e. donation, chattel 8) According to Name
mortgage).
a. nominate
4) According to Purpose  A nominate contract is one
which has a name and is
a. transfer of ownership (i.e. sale) regulated by special provisions
of law (i.e. sale, lease)
b. conveyance of use (i.e. commodatum)
b. innominate
c. rendition of service (i.e. agency)  An innominate contract is one
does not have a name and is not
regulated by special provisions
5) According to the Nature of the of law.
Obligation  Innominate contracts shall be
regulated by the
a. bilateral 1) stipulations of the parties,
 A bilateral contract is one 2) provisions of obligations and
which gives rise to reciprocal contracts,
obligations for both parties 3) rules governing the most
(i.e. sale, lease). analogous nominate contracts,
and
b. unilateral 4) customs of the place (Art.
 A unilateral contract is one 1307).
which gives rise to an
obligation for only 1 of the  4 Classes of Innominate
parties (i.e. commodatum, Contracts
gratuitous deposit).
i. I do, you do
6) According to Cause ii. I do, you give
iii. I give, you do
a. onerous iv. I give, you give
 An onerous contract is one in
which each of the parties 9) According to Subject Matter
aspires to procure for himself a a. thing (i.e. sale, deposit, pledge)
benefit through the giving of an b. right

c. service (i.e. agency, lease of If the option is given w/o a
services) consideration, it is a mere offer of a
contract of sale, w/c is not binding until
E. STAGES OF CONTRACTS accepted. If however, acceptance is made
before a w/drawal, it constitutes a
1. NEGOTIATION binding contract of sale, even though the
option was not supported by a sufficient
 Preparation, conception, or consideration.
generation, which is the period of
negotiation and bargaining, ending BAVIERA:
at the moment of agreement of the Q: Distinguish between Art. 1479 & 1324?
parties
1479 1324
CONTRACT OF OPTION: Applies if This is the
contract has NOT GENERAL RULE on
Art. 1324: When the offerer has allowed been ACCEPTED CONTRACTS: If
the offeree a certain period to accept, ACCEPTED, the
the offer may be withdrawn at any time A consideration agreement becomes
before acceptance by communicating such other than the BINDING (WON
withdrawal, except when the option is purchase price is there is a
founded upon a consideration, as required to make consideration
something paid or promised. the unilateral other than the
promise binding purchase price)
Art. 1479. A promise to buy & sell a
determinate thing for a price certain is
reciprocally demandable.  In order that a unilateral
promise may be binding upon the
An accepted unilateral promise to buy or promissor, Art. 1479 requires the
to sell a determinate thing for a price concurrence of the condition that
certain is binding upon the promissor if the promise be “supported by a
the promise is supported by a consideration distinct from the
consideration distinct from the price. price.” Accordingly, the promisee
cannot compel the promisor to comply
Article 1482. Whenever earnest money is w/ the promise, unless the former
given in a contract of sale, it shall be establishes the existence of said
considered as part of the price and as distinct consideration. The promisee
proof of the perfection of the contract. has the burden of proving such
consideration. (Cronco v. Tuazon)
Bav: The parties could stipulate
otherwise & that the earnest money will be Conventional Redemption
forfeited, as in the CAB
Art. 1601. Conventional redemption shall
 When there is a right of first take place when the vendor reserves the
refusal, at the time the offer is right to repurchase the thing sold, w/ the
made, the owner still has not yet obligation to comply w/ the provisions of
decided to sell, but in case he Art. 1616 & other stipulations w/c may
does, the holder of the right has have been agreed upon.
the priority to accept it.
Distinguished from an option to
sell, where there is a continuing Art. 1616. The vendor cannot avail
offer to sell on the part of the himself of the right of repurchase w/o
owner. returning to the vend the price of the
sale , & in addition:
SANCHEZ VS. RIGOS (1) The expenses of the contract, & any
other legitimate payments made by reason
As Justice Bengzon explained, “an of the sale;
option is unilateral; a promise to sell at (2) The necessary & useful expenses made
the price fixed whenever the offeree on the thing sold.
should decide to exercise his option w/in
the specified time. After accepting the Baviera:
promise & before he exercises his option, In an equitable mortgage, the
the holder of the option is not bound to property must still first be foreclosed
before ownership passes to the seller.
buy. He is free either to buy or not to Distinguished from a pacto de retro sale,
buy later...however, upon accepting herein where ownership already passes to the
petitioner’s offer, a bilateral promise to buyer upon perfection of the contract, but
sell & to buy ensued, & the resp. ipso if the right to redeem is exercised, then
facto assumed the obligation of a ownership reverts to the seller.
purchaser. He did not just get the right
subsequently to buy or not to buy. It was Pacto de retro, or conventional
not a mere option then; it was a bilateral redemption, is favored by creditors,
contract of sale.” because it does away w/ the necessity of a
foreclosure, in case the debtor fails to
pay the loan. All that the creditor has
to do is to execute an affidavit

consolidating ownership in himself & Baviera:
register the same in the Register of An agreement to repurchase becomes an
Deeds. The price in a pacto de retro option to buy when entered into after the
sale is naturally lesser than that in an time to redeem stipulated in a pacto de
absolute sale, because the sale is subject
to a resolutory condition, & also to retro sale had already expired, because
facilitate redemption. Thus, the mere then the vendee a retro became absolute
fact that the price is not the true value owner of the thing sold, & the subsequent
of the property does not justify the grant of the right to repurchase is a new
conclusion that the contract is one of agreement. But where the period to
mortgage. repurchase has not expired, & another
agreement is entered into granting the
 If the seller wants to redeem, vendor a retro the right to repurchase the
he must give the buyer the price the object of the contract at any time, the
expenses of the contract any other subsequent agreement is not a promise to
legitimate payments made by reason
sell but is an extension of the period to
of the sale the necessary expenses
made on thing sold. redeem, w/c cannot exceed 10 years.
Equitable Mortgage Reason for the 10-year limitation: A

pacto de retro is a suspension of title, &
Art. 1602. The contract shall be presumed it is against public interest to permit
to be an equitable mortgage in any of the such uncertainty to continue for a long
following cases: time.
(1) When the price of the sale w/ right to
repurchase is unusually inadequate; Counting of 4-year period: From the
(2) When the vendor remains in possession execution of the contract. But if the
as lessee or otherwise; right is suspended by agreement that it
(3) When upon or after the expiration of shall be exercised only after a certain
the right to repurchase another instrument time or condition arises, then the period
extending the period of redemption or shall be counted only from the time such
granting a new period is executed; right could be exercised, but not
(4) When the purchaser retains for himself exceeding 10 years from execution.
a part of the purchase price;
(5) When the vendor binds himself to pay Not sufficient that a vendor a retro
the taxes on the thing sold; manifests his desire to redeem. This must
(6) In any other case where it may be be accompanied by an actual or
fairly inferred that the real intention of simultaneous tender of payment of the
the parties is that the transaction shall redemption price. But if vendee refuses,
secure the payment of a debt or the then vendor may file a suit against him &
performance of any other obligation. consign the amount in court.
In any of the foregoing cases, any
money, fruits, or other benefit to be
received by the vendee as rent or 2. PERFECTION
otherwise shall be considered as interest
w/c shall be subject to usury laws.  Perfection or birth of the
contract, which is the moment when
Art. 1603. In case of doubt, a contract the parties come to agree on the
purporting to be a sale w/ right to terms of the contract;
repurchase shall be construed as an  GEN RULE: Contracts are
equitable mortgage. perfected by mere consent – the
principle of consensuality (Art.
Paras: 1315);
 An equitable mortgage is one
w/c, though lacking in some  EXCEPTION: Real contracts,
formality or other requisites such as deposit, pledge, and
demanded by law, reveal an intention commodatum are not perfected until
of the parties to charge a real
the delivery of the object of the
property as security for a debt &
constrains nothing impossible or obligation (Art. 1316)
contrary to law.
3. PERFORMANCE
Art 1606. The right referred to in Art.
1601, in the absence of an express 4. CONSUMMATION
agreement, shall last four years from date  Consummation or death, which
of the contract. is the fulfillment or performance
Should there be an agreement, the period of the terms agreed upon
cannot exceed ten years.
However, the vendor may still exercise the F. ESSENTIAL ELEMENTS OF CONTRACTS:
right to repurchase w/in thirty days from
the time final judgment was rendered in a 1. CONSENT of the contracting parties:
civil action on the basis that the
contract was a true sale w/ right to Consent is the manifested by the meeting
repurchase. of offer and acceptance upon the thing

and the cause which are to constitute the
contract (Art. 1319, 1st par). Requisites of Acceptance:
1. unequivocal
Elements of Consent:
a. plurality of subjects 2. unconditional
b. capacity (legal) o If the acceptance is
c. intelligent and free will qualified, then that is a counter-
d. express or tacit manifestation offer.
of the will o An amplified acceptance may
e. conformity of the internal will or may not be an acceptance of the
and its manifestation original offer. It depends on the
circumstances.
CONSENT  is the concurrence of wills of o For example, A is selling
the offerer & the acceptor as to the 1000 kgs. of cement. B says he
thing & the cause which constitute a wants to buy 2000 kgs of cement.
contract There is no acceptance of the offer
if B will only buy 2000 kgs and
OFFER  manifestation of a willingness nothing less.
to enter into a bargain so made as to
justify another in understanding that his Manifestation of Acceptance:
assent to that bargain is invited & will o An acceptance may be express
conclude it. or implied (Art. 1320).
o Silence is ambiguous. One
Offer  negotiation  imperfect promise must look at the circumstances to
 policitation determine if the silence is a form
of acceptance.
No acceptance  no concurrence of wills o A
 no consent  no contract! and B are own stalls which sell
rice. C delivers 1000 kgs of rice
Contract to Sell is a bilateral contract, to A every Sunday. If A is not
where there is merely an offer by one there, C just leaves it to A’s
party; w/o acceptance on the other party, assistant. C tries to do business
no consent. (Salonga v. Farrales, July with B. B is not there though. C
10, 1981); leaves rice with B’s assistant. B
does not call C. Both A and B are
An offer is a unilateral proposition silent. A accepted the rice
which 1 party makes to the other for the because of the arrangement. If A
celebration of a contract. did not want to accept the rice,
then A should have called. B’s
Requisites of Offer: silence is not acceptance.
1. definite
 The offer must be definite, so Q: Could there be a perfected contract
that upon acceptance, an agreement in a unilateral promise to sell?
can be reached on the whole A: Yes, a perfected contract of option
contract. is an accepted unilateral promise which
2. complete specifies the thing to be sold and the
price to be paid, when coupled with a
 The offer must be complete,
valuable consideration distinct and
indicating with sufficient
separate from the price. (Art. 1324)
clearness the kind of contract
intended and definitely stating the
OPTION is a contract granting a privilege
essential conditions of the
to buy or sell at a determined price w/in
proposed contract as well as the
an agreed time (Ang Yiu Asuncion v. CA,
non-essential ones desired by the
Dec. 2, 1994)
offeror.
3. intentional
COGNITION Theory
 An offer without seriousness,
made in such manner that the other
Acceptance made by letter of telegram
party would not fail to notice such
does not bind the offer except from the
lack of seriousness, is absolutely
time it came to his knowledge (Art. 1319,
without juridical effects and
2nd par).
cannot give rise to a contract
(i.e. must not be made in jest, or  This is known as the Cognition
a prank). Theory
 If the parties are face to face,
Acceptance must be affirmatively and then there is no problem since there is
clearly made & must be evidenced by some no time gap.
acts or conduct communicated to offeror,  The problem arises when there is a
either in formal or informal manner, & time gap. Under Art. 1319, there is
may be shown by conduct, acts, words, by perfection of the contract when there is
accepting party that clearly manifest the knowledge of the other party’s
intention to buy or sell. (Art. 1319; acceptance/. This has serious
Adelfa Properties v. CA) consequences.

 For example, the offer was made in is tantamount to a continuing offer.
Davao on Feb. 1. The offer was sent Prof. Balane does not agree with this.
through mail which is received in According to him, if there is no valid
Manila on Feb. 5. On the same day, option contract, there should be no
the offer is accepted. Mail is sent continuing offer. According to Prof.
to Davao on Feb. 5 signifying Balane, the SC should have explained
acceptance. On Feb. 8, the party in that.
Manila becomes insane. On Feb.13 the
mail reaches Davao. According to Prof. EX: B offers to sell a car to J for
Balane, under Art. 1323, there is no P300,000. J needs to think about it, and
contract since there was no so J asks for 30 days. J pays earnest
contractual capacity. money worth P5,000. J decides to buy the
car within 30 days. The car is not sold
to anybody else. B does not want to sell
the car to J. J can sue B for specific
Offers Through Agents performance – compel B to sell him the
 An offer made through an agent is car.
accepted from the time acceptance is
communicated to him (Art. 1322). EX: B offers to sell a car to J for
P300,000. J needs to think about it, and
Effect of Death, Insanity so J asks for 30 days. J pays earnest
money worth P5,000. J decides to buy the
 An offer becomes ineffective upon
car within 30 days. Before J is able to
the death, civil interdiction, insanity
buy the car, B sells the car to X. J can
or insolvency of either party before
sue B for damages. J cannot sue for
acceptance is conveyed (Art. 1323).
specific performance since the car has
Withdrawal of the Offer been sold to an innocent purchaser.
 When the offerer has allowed the A right of first refusal vs. option
offeree a certain period to accept, the contract:
offer may be withdrawn at any time before
acceptance by communicating such right of first option contact
withdrawal, except when the option is refusal
founded upon consideration, something
right to have first limits the
paid or promised (Art. 1324).
opportunity to promissor’s power to
purchase or the revoke an offer
EX: A offers to B by mail on Feb.1
right to meet any
The offer reaches B on Feb. 5. B
other offer
accepts via mail. The mail reaches
not covered by the Art. 1324, CC
A on Feb. 8. On Feb. 8, A also
Civil Code
decides to withdraw the offer.
Which will take effect? If the In Equatorial v. In Ang Yu v. CA, the
mail of B reaches A first, then A Mayfair the right of SC said that an
cannot withdraw the offer. The first refusal was action for specific
problem here is evidentiary. violated when the performance will not
vendor sold the lie against the
object to another promissor. However,
 Art. 1324 is related to Art. 1479, person - an action a complaint under
par. 2. They actually say the same for specific Art. 19 for damages
thing. performance may be may be filed if the
filed. actions of the
EX: B offers to sell a car to J for promissor are
P300,000. J needs to think about it, and whimsical.
so J asks for 30 days. J pays B earnest
money worth P5,000. The payment of
P5,000 is a distinct consideration from RIGHT OF FIRST REFUSAL
the price of the car. This distinct
consideration of P5,000 is payment for  The basis of the right of first
the 30 days. J is paying for time. The refusal must be the current offer to sell
option contract is separate from the of the seller or offer to purchase of any
contract of sale. B cannot sell the car prospective buyer. Only after the optionee
to anybody else within that 30 day fails to exercise its right of first
period. priority under the SAME terms & w/in the
period contemplated, could the owner
EX: B offers to sell a car to J for validly offer to sell the property to a
P300,000. J needs to think about it, and 3rd person, again, under the same terms as
so J asks for 30 days. J does not pay B offered to the optionee. (PARANAQUE KINGS
for time, but B promises to give J 30 ENTERPRISES vs. CA)
days. In this case there is no option
contract. However, in Sanchez v. Rigos, SANCHEZ V. RIGOS
the SC said that even if there was no It should be noted that:
option contract, B must still communicate 1. Art. 1324 applies to contracts in
the withdrawal of the offer to J. If B general, whereas the 2nd par of Art. 1479
does not communicate his withdrawal, that refers to "sales" in particular, &, more

specifically, to an "accepted unilateral An absolutely simulated or fictitious
promise to buy or to sell." Art. 1479 is contract is void (Art. 1346)
controlling in the case at bar.
b. Relatively Simulated (contrato
2. In order that said unilateral promise disimulado)
may be binding upon the promisor, Art.
1479 requires the concurrence of a Relative simulation of a contract
condition, namely, that the promise be takes place when the parties conceal
"supported by a consideration distinct their true agreement (Art. 1345).
from the price. In other words, the  In a relatively simulated contract,
promise, even if accepted, may be w/drawn the parties enter into a contract but
if there is no consideration distinct from disguise it as another.
the price. (SW Sugar case)
EX: X has many creditors, and they
 In a right of first refusal, there are going after X’s car. X cannot
is no definite offer since the vendor has donate his car to Y since the
to option of deciding not to sell the creditors will just resort to
object. Also, in a right of first accion pauliana. So, X antedates a
refusal, there is no need for a separate contract of sale, selling his car
consideration. In an option contract, to Y, except that X’s intention is
there is a definite offer. According to to donate his car to Y.
Prof. Balane, the right of first refusal
is inferior to an option contract since  A relatively simulated contract,
there is no definite offer. Prof. Balane when it does not prejudice a 3rd person
does not understand why an action for and is not intended for any purpose
specific performance is allowed in contrary to law, morals, good customs,
violations of rights of first refusal but public order or public policy binds the
not in the case of option contracts when parties to their real agreement (Art.
the object is sold to another person. 1346).
Why is the SC giving greater legal effect
to a right of first refusal which is more  The law will apply the rules of the
tentative? Also, where the SC get these true contract and not the ostensible
rules since the right of first refusal is contract.
not covered by the Civil Code.
Article 37. Juridical capacity, which is
ADVERTISEMENTS: the fitness to be the subject of legal
Unless it appears otherwise, relations, is inherent in every natural
business advertisements of things for person and is lost only through death.
sale are not definite offers, but mere
invitations to make an offer (Art. 1325) Capacity to act, which is the power to do
acts with legal effect, is acquired and
Advertisements for bidders are simply may be lost.
invitations to make proposals, and the Article 38. Minority, insanity or
advertiser is not bound to accept the imbecility, the state of being a deaf-
highest or lowest bidder, unless the mute, prodigality and civil interdiction
contrary appears (Art. 1326). are mere restrictions on capacity to act,
and do not exempt the incapacitated
 Most advertisements are simply person from certain obligations, as when
invitations to make an offer and are not the latter arise from his acts or from
offers in themselves since not all the property relations, such as easements.
necessary terms can fit in the
advertisement. Article 39. The following circumstances,
among others, modify or limit capacity to
act: age, insanity, imbecility, the state
 Even if the ad had all the
of being a deaf-mute, penalty,
necessary terms, it’s still an invitation prodigality, family relations, alienage,
to make offer since there is no definite absence, insolvency and trusteeship. The
person to whom the offer is being made
consequences of these circumstances are
(public offer).
governed in this Code, other codes, the
Rules of Court, and in special laws.
Simulated Contracts
Capacity to act is not limited on account
of religious belief or political opinion.
a. Absolutely Simulated (contrato
simulado) Article 739. The following donations
shall be void:
Absolute simulation of a contract
(1) Those made between persons who
takes place when the parties do not
were guilty of adultery or
intent to be bound at all (Art. 1345).
concubinage at the time of the
donation;
EX: X pretends to sell his car to
avoid tax liability. However X has (2) Those made between persons
no real intention to sell the car. found guilty of the same criminal
offense, in consideration thereof;

(3) Those made to a public officer and rights in litigation or levied upon
or his wife, descendants and an execution before the court within
ascendants, by reason of his whose jurisdiction or territory they
office. exercise their respective functions; this
prohibition includes the act of acquiring
In the case referred to in No. 1, the
by assignment and shall apply to lawyers,
action for declaration of nullity may be
with respect to the property and rights
brought by the spouse of the donor or
which may be the object of any litigation
donee; and the guilt of the donor and
in which they may take part by virtue of
donee may be proved by preponderance of
their profession;
evidence in the same action.
(6) Any others specially disqualified by
Article 1476. In the case of a sale by
law
auction:
Art. 1533 (par.5). The seller is
xxx
bound to exercise reasonable care and
(4) Where notice has not been given judgment in making a resale, and subject
that a sale by auction is subject to this requirement may make a resale
to a right to bid on behalf of the either by public or private sale. He
seller, it shall not be lawful for cannot, however, directly or indirectly
the seller to bid himself or to buy the goods.
employ or induce any person to bid
Article 1646. The persons disqualified to
at such sale on his behalf or for
buy referred to in articles 1490 and
the auctioneer, to employ or induce
1491, are also disqualified to become
any person to bid at such sale on
lessees of the things mentioned therein
behalf of the seller or knowingly
to take any bid from the seller or Article 1782. Persons who are prohibited
any person employed by him. Any from giving each other any donation or
sale contravening this rule may be advantage cannot enter into universal
treated as fraudulent by the buyer. partnership.
Article 1490. The husband and the wife Article 1409. The following contracts are
cannot sell property to each other, inexistent and void from the beginning:
except:
xxx
(1) When a separation of property
(7) Those expressly prohibited or
was agreed upon in the marriage
declared void by law.
settlements; or
These contracts cannot be ratified.
(2) When there has been a judicial
Neither can the right to set up the
separation of property under
defense of illegality be waived.
article 191.
Article 5. Acts executed against the
Article 1491. The following persons
provisions of mandatory or prohibitory
cannot acquire by purchase, even at a
laws shall be void, except when the law
public or judicial auction, either in
itself authorizes their validity.
person or through the mediation of
another: [FC: E.O. 209]
(1) The guardian, the property of the Art. 87. Every donation or grant of
person or persons who may be under his gratuitous advantage, direct or indirect,
guardianship; between the spouses during the marriage
shall be void, except moderate gifts
(2) Agents, the property whose
which the spouses may give each other on
administration or sale may have been
the occasion of any family rejoicing. The
intrusted to them, unless the consent of
prohibition shall also apply to persons
the principal has been given;
living together as husband and wife
(3) Executors and administrators, the without a valid marriage.
property of the estate under
Section 5. Administration of the Conjugal
administration;
Partnership Property
(4) Public officers and employees, the
Art. 124. The administration and
property of the State or of any
enjoyment of the conjugal partnership
subdivision thereof, or of any
shall belong to both spouses jointly. In
government-owned or controlled
case of disagreement, the husband's
corporation, or institution, the
decision shall prevail, subject to
administration of which has been
recourse to the court by the wife for
intrusted to them; this provision shall
proper remedy, which must be availed of
apply to judges and government experts
within five years from the date of the
who, in any manner whatsoever, take part
contract implementing such decision.
in the sale;
In the event that one spouse is
(5) Justices, judges, prosecuting
incapacitated or otherwise unable to
attorneys, clerks of superior and
participate in the administration of the
inferior courts, and other officers and
conjugal properties, the other spouse may
employees connected with the
assume sole powers of administration.
administration of justice, the property
These powers do not include disposition

or encumbrance without authority of the Prof. Balane, these provisions are not
court or the written consent of the other fatal though.
spouse. In the absence of such authority
or consent, the disposition or Requisites of Object:
encumbrance shall be void. However, the
transaction shall be construed as a 1. the object must be within the
continuing offer on the part of the commerce of man, either already existing
consenting spouse and the third person, or in potency (Art. 1347)
and may be perfected as a binding
contract upon the acceptance by the other  Within the commerce of man
spouse or authorization by the court means that the object is capable of
before the offer is withdrawn by either appropriation and transmission;
or both offerors.
EMANCIPATION AND AGE OF MAJORITY  The term “in potency” means
that the object will come into
Art. 234. Emancipation takes place by the existence in the future;
attainment of majority. Unless otherwise
provided, majority commences at the age  Generally, in reciprocal
of twenty-one years. contracts particularly sales, the
Emancipation also takes place: sale of future things is allowed.
For example, it is possible to sell
(1) By the marriage of the minor; the future harvest of a farm.
or
(2) By the recording in the Civil  The coming into being of the
Register of an agreement in a future thing is a suspensive
public instrument executed by the condition.
parent exercising parental
authority and the minor at least  Emptio rei speratae is a
eighteen years of age. Such conditional sale. There is a
emancipation shall be irrevocable. suspensive condition. If the
[RA No. 6809] future thing does not come into
existence, then there is no
 Republic Act No. 6809, which contract of sale.
reduced the age of majority to
eighteen (18) years was approved  Emptio spei is the sale of a
only on 13 December 1989 and became hope. Even if the future thing
effective two weeks after does not materialize, the buyer
publication in two newspapers of must pay since the buyer is taking
general circulation. a chance. (i.e. sale of lotto
ticket). Hope is a present thing.
1987 CONSTITUTION: ARTICLE XII - NATIONAL
ECONOMY AND PATRIMONY
 Some future things are not
Section 7. Save in cases of hereditary allowed to be objects of the
succession, no private lands shall be prestation. The law does not allow
transferred or conveyed except to contracts on future inheritance.
individuals, corporations, or
associations qualified to acquire or hold 2. the object must be LICIT, or not be
lands of the public domain. contrary to law, morals, good customs,
Section 8. Notwithstanding the provisions public policy or public order (Art. 1347)
of Section 7 of this Article, a natural-
born citizen of the Philippines who has 3. the object must be possible (Art.
lost his Philippine citizenship may be a 1348)
transferee of private lands, subject to
limitations provided by law.  If the object is impossible,
then the contract is void for lack
of cause;
2. OBJECT certain which is SM of
contract  Art. 1348 does not talk of
supervening impossibility which is
 The object of the contract is the a mode of extinguishment;
prestation. Thus, it is always the
conduct which is to be observed. It is  Impossibility under Art. 1348
not a concrete object like a car. In a must be actual and contemporaneous
contract of sale, the object is the with the making of the contract.
delivery of the object and not the object
itself. 4. the object must be determinate as
to its kind and determinable as to its
 The provisions on object however quantity (Art. 1349)
blur the distinction between the object
of the contract, the prestation, and the  The object need not be
object of the prestation. According to individualized. It must be

determinate as to its kind or contracting party, the prestation or
species; promise of a thing or service by the
other; in remuneratory ones, the service
 The quantity of the object or benefit which is remunerated; and in
may be indeterminate, so long as contracts of pure beneficence, the mere
the right of the creditor is not liberality of the benefactor.
rendered illusory.
[GR] Failure of motive as a general rule
5. the object must be transmissible does not affect the contract.
[EXC] Motive affects the contract
 This is actually a redundancy when:
since this is already in the 1. the motive becomes a suspensive
requisite of being within the condition; or
commerce of man. 2. the realization of the motive
is the cause for the contract and
there is an intervening serious
3. CAUSE of the OBLIGATION: mistake of fact
 In onerous contracts, the

 The cause of a contract is the “why
cause is the prestation or promise
of the contract;”
of a thing or service by the other
party.
 the immediate and most proximate
purpose of the contract;  It has been held that, as a
mortgage is an accessory contract,
 the essential reason which impels its cause or consideration is the
very cause or consideration of the
the contracting parties to enter
into it and which explains and principal contract, from which it
receives its life, and without
justifies the creation of the
obligation through such contract; which it cannot exist as an
independent contract (China Bank v.
Lichauco).
 The cause is different from
consideration.  In remuneratory contracts,
 Consideration in the Anglo-American the cause is the service or benefit
sense must always be valuable or which is remunerated .
capable of pecuniary estimation.  A remuneratory contract is
 Cause, on the other hand, need not one where a party gives something
be material at all, and may consist to another because of some service
in a moral satisfaction for the or benefit given or rendered by the
promissor. latter to the former, where such
service or benefit was not due as a
Requisites of Cause: legal obligation.
1. it must exist  In gratuitous contracts, the
2. it must be true cause is the mere liberality of the
3. it must be licit benefactor.
 Cause is different from motive. Article 1351. The particular motives of

 Cause is the proximate why while the parties in entering into a contract
motive is the ultimate why; are different from the cause thereof.
EX: A wants to sell his house for Article 1352. Contracts without cause, or
P60 M because A is moving to with unlawful cause, produce no effect
Canada. B is willing to buy the whatever. The cause is unlawful if it is
house for P60 M. In this case, the contrary to law, morals, good customs,
cause for A is the P60 M while the public order or public policy.
cause for B is the house. A’s
motive is to dispose of the house Article 1353. The statement of a false
which he does not need since A is cause in contracts shall render them
going to Canada. void, if it should not be proved that
they were founded upon another cause
 Like failure of or lack of object, which is true and lawful.
the failure of cause has an effect
on the contract. If there is no
cause or the cause is illegal, then Article 1354. Although the cause is not
the contract is void. stated in the contract, it is presumed
that it exists and is lawful, unless the
debtor proves the contrary.
 This is unlike the lack of consent.
When consent is lacking, the
contract is not void. The contract Article 1355. Except in cases specified
is merely voidable. by law, lesion or inadequacy of cause
shall not invalidate a contract, unless
Article 1350. In onerous contracts the there has been fraud, mistake or undue
cause is understood to be, for each influence.

4. Delivery – for real contracts
Once a contract is shown to have
5. Form – for formal contracts been consummated or fully performed by
the parties thereto, its existence and
Art. 1356. Contracts shall be obligatory, binding effect can no longer be disputed.
in whatever form they may have been
entered into, provided all the essential TANG v CA
requisites for their validity are present. RATIO:
However, when the law requires that a Art. 1332. When one of the parties is
contract be in some form in order that it unable to read, or if the contract is in
may be valid or enforceable, or that a a language not understood by him, and
contract be proved in a certain way, that mistake or fraud is alleged, the person
requirement is absolute & indispensable. enforcing the contract must show that the
terms thereof have been fully explained
Tolentino to the former.
Art. 1356 provides for TWO CASES where The obligation to show that the
form is absolute & indispensable, namely: terms of the contract had been fully
(1) When the form is essential to
the validity of the contract; explained to the party who is unable to
(2) When the contract is read or understand the language of the
unenforceable unless it is in a contract, when fraud or mistake is
certain form, such as those under alleged, devolves on the party seeking to
the Statute of Frauds (SOF) enforce it.
GR: A contract having the essential

requisites of Art. 1318 will be valid as
between the parties whatever the form it CARIÑO v CA
may have been entered into; RATIO:
Contracts which are absolutely
Requisites under Art. 1318 simulated or fictitious are inexistent
1. Consent of the contracting parties and null & void ab initio.
2. Object certain w/c is the subject
matter of
litigation
3. Cause of the obligation w/c is LAGUNZAD v GONZALES
established RATIO:
Duties must comply w/contracts
The formalities required by law are entered into where provisions thereof are
classified into three groups: not contrary to L/M/GC/PO/PP.
(1) ad esentia, ad solemnitatem  those
w/c are required for the validity of the
contract ; G. FORM OF CONTRACTS: 1356-1358
(2) those required to make the contract CHAPTER 3 - Form of Contracts

effective as against 3rd parties, such as
those mentioned in Arts. 1357 & 1358; Article 1356. Contracts shall be
obligatory, in whatever form they may
(3) formalities ad probationem  those have been entered into, provided all the
required for the purpose of proving the essential requisites for their validity
existence of a contract, such as those are present. However, when the law
provided in the SOF requires that a contract be in some form
in order that it may be valid or
ONG YIU v CA enforceable, or that a contract be proved
Ong may not have signed the ticket in a certain way, that requirement is
nevertheless, he is bound by such absolute and indispensable. In such
stipulation the same being part of the cases, the right of the parties stated in
contract of carriage, valid & binding upon the following article cannot be
the passenger regardless of lack of exercised. (1278a)
knowledge or assent.
Article 1357. If the law requires a
It is a contract of adhesion wherein document or other special form, as in the
one party imposes a ready made contract acts and contracts enumerated in the
for the other party, the place ticket in following article, the contracting
CAB. Such contracts are not entirely parties may compel each other to observe
prohibited. The one who adheres to the that form, once the contract has been
contract is free to reject it entirely, if perfected. This right may be exercised
he adheres he give consent. simultaneously with the action upon the
contract. (1279a)
WELDON v CA Article 1358. The following must appear
RATIO: in a public document:
Only an absolute or unqualified
(1) Acts and contracts which have for
acceptance of a definite offer manifests
their object the creation,
the consent necessary to perfect a
transmission, modification or
contract (Article 1319, New Civil Code).
extinguishment of real rights over

immovable property; sales of real  Art. 1357 applies only to contracts
property or of an interest therein are w/c validly exist, & cannot be held
governed by articles 1403, No. 2, and applicable to a case where the form is
1405; required in order to make it valid
(2) The cession, repudiation or  A public instrument is not necessary

renunciation of hereditary rights or of in cases of onerous donations because they
those of the conjugal partnership of are governed by the rules on contracts.
gains;
 Title to immovable prop. does not
(3) The power to administer property, pass from the donor to the donee until &
or any other power which has for its unless:
object an act appearing or which should
appear in a public document, or should 1. it has been accepted in a
prejudice a third person; public instrument---whether in the
deed of donation itself or on a
(4) The cession of actions or rights separate public instrument. Solemn
proceeding from an act appearing in a words of acceptance are not
public document. necessary.
All other contracts where the amount 2. The donor was duly notified
involved exceeds five hundred pesos must thereof--- Necessary that formal
appear in writing, even a private one. notice is given to the donor & the
But sales of goods, chattels or things in fact that due notice has been given
action are governed by articles, 1403, must be noted in the instruments
No. 2 and 1405. containing the offer to donate &
that showing the acceptance. Then &
only then is the donation perfected
NOTE: Purpose of form in Art. 1358 is to
prejudice or to affect third persons. 3. The acceptance must be made
during the life of the donor; if not
1. GEN RULE: (any) There is no need made before the donor’s death, it is
w/o effect.
for a specific form, but there must still
be some manifestation of consent 4. In so far as the donor is
concerned, the donation is not
EXCEPTION: When the written form accepted unless he/she is notified
is required of such acceptance.
2. SPECIAL FORM Art. 748. x x x If the value of the

personal property donated exceeds five
a) for validity thousand pesos, the donation & the
acceptance shall be made in writing.
 If it not written, the same is Otherwise, the donation shall be void.
void.
[Tolentino, RE 748]
Examples are donations (Arts. 748, 749),  A donation of personal prop.
 antichresis (Art. 2134), exceeding P5 thou in value must ALWAYS be
 interest in a loan (Art. 1956), made in writing, & accepted also in
writing.
 sale of land by an agent (Art.
1874),
 The document of donation & the
 contribution of immovables in a acceptance need not be public instruments
partnership (Art. 1773) but may simply be private documents.
Art. 749. In order that the donation of an  When the value does not exceed P5
immovable may be valid, it must be made in thou, a donation may be mare orally or in
a public document, specifying therein the writing.
property donated & the value of the
charges w/c the donee must satisfy.  If donation is made orally, there
The acceptance may be made in the same must be simultaneous delivery.
deed of donation or in a separate public
document, but it shall not take effect  If there is no simultaneous
unless it is done during the lifetime of delivery, the donation is void unless made
the donor. in writing. BUT in this case, the law does
not require that that when the donation is
If the acceptance is made in a separate made in writing, the acceptance should
instrument, the donor shall be notified also be in writing.
thereof in an authentic form, & this step
shall be noted in both instruments. Tolentino
Art. 1356 provides for TWO CASES where
Tolentino: form is absolute & indispensable, namely:
 If the donation of an immovable was
not made in a public instrument, the donee 1) When the form is essential to
cannot bring an action to compel the donor the validity of the contract
to execute a public instrument of donation 2) When the contract is
under Art. 1357. unenforceable unless it is in a
certain form, such as those under
the Statute of Frauds (SOF)

Title III of Book III of the Civil Code,
GENERAL RULE: A contract having the insofar as they are not modified by the
essential requisites of Art. 1318 will be following articles.
valid as between the parties whatever the
form it may have been entered into (b) for enforceability
Requisites under Art. 1318 NOTE: *** This list is EXCLUSIVE (Art.
1. Consent of the contracting 1403, below)
parties [BAVIERA]
2. Object certain w/c is the
subject matter of  When the law states “in
litigation writing,” this need not be a public
3. Cause of the obligation w/c is document.
established  It is sufficient that it was
SIGNED by the party sought to be
Tolentino: charged
 A donation of personal prop.
exceeding P5 thou in value must ALWAYS be Instances when the law makes a contract
made in writing, & accepted also in unenforceable if it is not written: (SOF)
writing.
 The document of donation & the (a) an agreement that by its terms is
acceptance need not be public instruments not to be performed within a year from
but may simply be private documents. the making thereof (Art. 1403 (a))
 When the value does not exceed P5 [BAVIERA] rationale of this: because of
thou, a donation may be made orally or in memory lapse
writing. Tolentino: The time begins from the day
the contract is entered into, & not from
 If donation is made orally, there the time that performance of it is
must be simultaneous delivery. entered upon;
 If there is no simultaneous  It must appear that the parties
delivery, the donation is void unless made intended when they made the contract that
in writing. BUT in this case, the law does it should not be performed w/in a year.
not require that that when the donation is
made in writing, the acceptance should
also be in writing.  Where no time is fixed by the
parties for performance, & there is
nothing in the agreement itself to show
Instances when the law requires contract that it cannot be performed w/in a year
to be in a certain form to be valid: according to its terms & the understanding
of the parties, the agreement is NOT w/in
Art. 1773. A contract of partnership is the SOF.
void, whenever immovable property is
contributed thereto, if an inventory of (b) a special promise to answer for the
said property is not made, signed by the debt, default or miscarriage of another
parties, & attached to the public (Art. 1403 (b))
instrument.
BAVIERA: Examples of this are guaranty
Art. 1984. The depositary cannot demand & surety contracts
that the depositor proves his ownership of
the thing deposited. Tolentino: This has been defined as an
Nevertheless, should he discover undertaking by a person, not before
that the thing has been stolen & who its liable, for the purpose of securing or
true owner is, he must advise the latter performing the same duty for w/c the
of the deposit. original debtor continues to be liable.
If the owner, in spite of such  The test as to whether a promise is
information, does not claim it w/in the w/in the statute has been said to lie in
period of one month, the depositary shall the answer to the question whether the
be relieved of all responsibility by promise is an original or a collateral
returning the thing deposited to the one:
depositor.
If the depositary has reasonable PROMISE IS PROMISE IS COLLATERAL
grounds to believe that the thing has not ORIGINAL OR
been lawfully acquired by the depositor, INDEPENDENT
the former may return the same. If the promisor If the promise is
becomes primarily collateral to the
Art. 2134. The amount of the principal & liable for the agreement of another &
of the interest shall be specified in payment of a debt, the promisor becomes
writing; otherwise, the contract of the promise is not thereby merely a
antichresis shall be void. w/in the statute surety, the promise
falls w/in the SOF &
Art. 83---Family Code hence, it should be in
These donations are governed by the writing
rules on ordinary donations established in

(c) an agreement made in consideration (e) an agreement of lease for a period
of marriage, other than a mutual promise of more than 1 year, or the sale of real
to marry (Art. 1403 (c)) property or of an interest therein (Art.
1403 (e))
BAVIERA: Examples of this would be a
marriage settlement, donation propter (f) a representation as to the credit of
nuptias a 3rd person (Art. 1403 (f))
 A mutual promise to marry, whether Tolentino:

or not in writing, is unenforceable  The representations are
because it is a personal act. limited to those w/c operate to
induce the person to whom they are
Tolentino: When the marriage is a mere made to enter into contractual
incident, & not the end to be attained by relations w/ the third person, but
the agreement, the contract is not in not to those representations tending
consideration of marriage, & oral to induce action for the benefit of
the person making them.
evidence can prove the agreement
BAVIERA:Q: What is the ratio for the SOF?
 Even when marriage is a A: To prevent fraud. The problem w/
consideration, but in addition oral contracts is that they are easy
thereto, there is some other to fabricate & perjure the
consideration sufficient to support witnesses.
the oral agreement, this may be
proved by w/o a writing. Q: An oral contract for the lease of
property for 2 years. What is the status
(d) an agreement for the sale of goods, of the K?
chattels or things in action, at a price A: Enforceable for the 1st year,
not less than P500, unless the buyer unenforceable for the 2nd year
accepts and receives part of such goods
and chattels, or the evidence, or some of Q: An oral K for the sale of land. The
them, of such things in action, or pay at buyer suffered damages when the seller
the time some part of the purchase money; refused to comply w/ his promise even if
the buyer offered to pay. B consigned the
but when a sale is made by auction and payment. So what’s up?
entry is made by the auctioneer in his A: Acceptance of benefits (even if
sales book, at the time of sale, of the it was just an earnest money) takes
amount and kind of property sold, terms it away w/in the ambit of the
of sale, price, names of the purchasers Statute of Frauds. To allow a K w/c
and person on whose account the sale is has been partially performed to
made, it is a sufficient memorandum become unenforceable would be to
(Art. 1403 (d)) allow a party to perpetrate fraud.
Q: When is there a waiver of the SOF?

BAVIERA: Choses in action refer to
A: In the ff. instances:
incorporeal property
 When there has been acceptance
of benefits
Tolentino: The requirement of a written  When there is failure to
instrument or a memo for sales of object to the introduction of oral
personal prop. for a price not less than evidence
P500, covers both TANGIBLE & INTANGIBLE
personal prop. Q: Seller has advertised a specific object
for sale. A buyer comes to buy (sus...eh
 To bring a sales transaction ano pa nga bang ginagawa ng buyer?).
w/in the operation of the SOF, the Seller says “Bukas ka na lang bumalik,
price of the prop. sold must be at alas 7:00 na eh!” To show good faith,
least P500. buyer deposits P500.00 as earnest money.
Is the sale enforceable even if there’s no
 A contract for the sale of compliance w/ the SOF?
goods, chattels or things in action A: OO naman.
is removed from the operation of the
SOF where the buyer ACCEPTS & [Tolentino]
RECEIVES part of such goods & Rationale of the SOF: Oral contracts lead
chattels. to fraud in the fulfillment of
obligations, or to false testimony.
 Neither will the SOF apply
where there has been part payment of  SOF applies only to EXECUTORY & not
the purchase price. to completed or executed contracts.
 Evidence to prove an oral  A contract falling under the SOF

contract of sale of real estate must cannot be proved w/o the writing or a
be disregarded if timely objections memorandum thereof.
are made to its introduction.
 SOF simply provides for the manner
 A consummated sale of real in w/c contracts under it shall be proved.
prop. is not covered by the SOF. It does not make such Ks invalid if not
executed in writing, but only makes

ineffective the action for specific Registration of a private deed of
performance. sale by the RD is unauthorized and does
not lend validity to the defective
 Where one party has entirely private doc of sale; Rt of a vendee of
performed his OBLIGATION under an oral
reg’d prop in a private doc.
contract, equity would agree that all
evidence be admitted to prove the alleged
agreement. Performance takes it out of the
operation of the statute.
 During trial, if the parties to the C. For Greater Efficacy or Convenience

action make no objection to the or for Registrability the following must
admissibility of oral evidence to support appear in a public instrument:
the contract covered by the statute, & 1. acts and contracts which have for
thereby permits such contract to be proved
their object the creation, transmission,
orally, it will be just as binding upon
the parties as if it had been reduced to modification or extinguishment of real
writing. rights over immovable property; sales of
real property or of an interest therein
In order that a NOTE/MEMORANDUM shall meet governed by Arts. 1403 (2) and 1405
the requirements of the SOF, it must
contain: 2. the cession, repudiation or
 the names of the parties renunciation of hereditary rights or of
 the terms & conditions of the those of the conjugal partnership of
agreement gains
 a description of the subject matter
sufficient to render it capable of 3. the power to administer property,
identification or any other power which has for its
 the date & place of the making of object an act appearing or which should
the agreement appear in a public document, or should
 signature of the party assuming the prejudice a 3rd person
obligation
4. the cession of actions or rights
(g) no express trusts concerning an proceeding from an act appearing in a
immovable or any interest therein may be public document
proved by parol evidence (Art. 1443)
BAVIERA:  Contracts enumerated in Art. 1358 are

 This provision is not very valid as between the contracting parties
clear as to the meaning of “parol.” even when they have not been reduced to
Strictly, parol evidence rule public or private writings.
presupposes a written agreement. It
is much better to make it  Except in certain cases where
unenforceable. public instruments and registration
are required for the validity of
Pertinent Family Code Provisions the contract itself, the
Art. 77. The marriage settlements & any legalization of a contract by means
modification thereof shall be in writing, of a public writing and its entry
signed by the parties & executed before in the register are not essential
the celebration of the marriage. They solemnities or requisites for the
shall not prejudice third persons unless validity of the contract as between
they are registered in the local civil the contracting parties, but are
registry where the marriage contract is required for the purposes of making
recorded as well as in the proper it effective as against 3rd person.
registries of property.
 Art. 1357 gives the
Art. 83. These donations are governed by
contracting parties the coercive
the rules on ordinary donations
power to reciprocally compel the
established in Title III of Book III of
execution of the formalities
the Civil Code, insofar as they are not
required by law, as soon as the
modified by the following articles.
requisites for the validity of the
contracts are present.
LAO SOK v. SABAYSABAY, 138 SC 135
H. Reformation of Instruments
RATIO:
Perfected contract - where the ER
offered the EEs payment of separation pay  Once the minds of the contracting
which offer was unconditionally accepted, parties meet, a valid contract exists,
a contract was perfected; contracts tho whether the agreement is reduced to
orally made are binding on the parties. writing or not. There are instances
however, where in reducing their
agreements to writing, the true
intention of the contracting parties
GALLARDO v. IAC, 155 SC 134
are not correctly expressed in the
RATIO:
document, either by reason of mistake,
fraud, inequitable conduct or

accident. It is in such cases that  A written instrument may be
reformation of instruments is proper. reformed where there is a mistake
The action for such relief rests on on 1 side and fraud or inequitable
the theory that the parties came to an conduct on the other, as where 1
understanding, but in reducing it to party to an instrument has made a
writing, through mutual mistake, fraud mistake and the other knows it and
or some other reason, some provision conceals the truth from him.
was omitted or mistakenly inserted,
and the action to change the  The mistake of 1 party must
instrument so as to make it conform to refer to the contents of the
the contract agreed upon. instrument and not the subject
matter or the principal conditions
Reformation Distinguished from Annulment of the agreement. In the latter
case, an action for annulment is
Reformation Annulment the proper remedy.
presupposes that if the minds of the
there is a valid parties did not  If 2 parties agree upon the
existing contract meet, or if the mortgage or pledge of real property
between the parties, consent of either or personal property, but the
and only the one was vitiated by instrument states that the property
document or violence or is sold absolutely or with a right
instrument which was intimidation or of repurchase, reformation is
drawn up and signed mistake or fraud, so proper.
by them does not that no real and c) the proof of mutual mistake must be
correctly express valid contract was clear and convincing
the terms of their made
agreement Limitations of Reformation:
gives life to it involves a complete
upon certain nullification of the 1. Reformation is not proper in the
corrections contract while following cases:
reformation gives a) simple donations inter vivos
life to it upon wherein no condition is imposed;
certain corrections.
b) wills
Operation and Effect of Reformation
c) when the real agreement is void
GR: Reformation relates back to, and
takes effect from the time of its 2. Who may ask for reformation
original execution, especially as between a) If the mistake is mutual,
the parties. reformation may be ordered at the
instance of either party or his
successors in interest
Requisites of Reformation:
b) If the mistake is not mutual,
1. there must have been a meeting of the reformation may be ordered upon
minds upon the contract petition of the injured party or
his heirs and assigns
2. the instrument or document evidencing
the contract does not express the true 3. Effect of enforcing an action
agreement between the parties  When one of the parties has
brought an action to enforce the
3. the failure of the instrument to instrument, he cannot subsequently
express the agreement must be due to ask for its reformation.
mistake, fraud, inequitable conduct or
accident
I. Interpretation of Contracts: (1370-
Requisites of Mistake: 1379)
a) that the mistake is one of fact
o Whenever an instrument is  Where the parties have reduced
drawn with the intention of their contract into writing, the contents
carrying an agreement previously of the writing constitutes the sole
made, but which, due to mistake or repository of the terms of the agreement
inadvertence of the draftsman or between the parties. Whatever is not
clerk, does not carry out the found in the writing must be understood
intention of the parties, but as waived and abandoned. Generally,
violates it, there is a ground to therefore, there can be no evidence of
correct the mistake by reforming the terms of the contract other than the
the instrument. contents of the writing, unless it is
alleged and proved that the intention of
b) that it was common to both parties the parties is otherwise.

 When the terms of the agreement are
so clear and explicit that they do not 2. Valid but defective
justify an attempt to read into it any a. rescissible contract
alleged intention of the parties, the (1380-89; 1191)
terms are to be understood literally just b. voidable contract (1390-1402;
as they appear on the face of the 1327-28; 1330)
contract. c. unenforceable contract
(1403-1408; 1317; 1878)
 When the true intent and agreement
of the parties is established, it must be 3. Void or inexistent (1409-1422; 1318;
given effect and prevail over the bare 1353; 1378; 1491; 1898)
words of the written agreement.
DEFECTIVE CONTRACTS:
 In order to judge the intention of
the contracting parties, their
contemporaneous and subsequent acts shall 1. Rescissible Contracts
be principally considered.
 A rescissible contract is a
 When a general and a particular contract which is valid because it
provision are inconsistent, the contains all the essential requisites
particular provision will control. prescribed by law, but which is defective
because of injury or damage to either of
 Where the instrument is susceptible the contracting parties or to 3rd persons,
of 2 interpretations, 1 which will make as a consequence of which it may be
it invalid and illegal, and another which rescinded by means of a proper action for
will make it valid and legal, the latter rescission.
interpretation should be adopted.
 Rescission is a remedy granted by
 In the construction of an law to the contracting parties, and even
instrument where there are several to 3rd persons, to secure the reparation
provisions or particulars, such a of damages caused to them by a contract,
construction is, if possible, to be even if the same should be valid, by
adopted as will give effect to all. means of the restoration of things to
their condition prior to the celebration
of the contract.
 When there is doubt as to the
meaning of any particular language, it
Requisites of Rescission:
should be determined by a consideration
of the general scope and purpose of the
a) the contact must be a rescissible
instrument in which it occurs.
contract under Art. 1381 or Art. 1382:
 An instrument may be construed The following contracts are rescissible -
according to usage in order to determine
its true character. i. those entered into by guardians
whenever the whom they represent suffer
 The party who draws up a contract lesion by more than ¼ of the value of
in which obscure terms or clauses appear, things which are the object thereof (Art.
is the one responsible for the obscurity 1381 (1))
or ambiguity; they must therefore be  Rescission shall not take place
construed against him. with respect to contracts approved by
the court (Art. 1386).
 When it is absolutely impossible to
settle doubts by the rules established in  As a rule, when a guardian
the preceding articles, and the doubts enters into a contract involving the
refer to incidental circumstances of a disposition of the ward’s property,
gratuitous contract, the least the guardian must secure the approval
transmission of rights and interest shall of the guardianship court. A guardian
prevail. If the contract is onerous, the is only authorized to manage the
doubt shall be settled in favor of the estate of the ward. A guardian has no
greatest reciprocity of interests. power to dispose of any portion of the
estate without approval of the court.
 If the doubts are cast upon the If more than acts of mere
principal object of the contract in such administration are involved, judicial
a way that it cannot be known what may approval is necessary.
have been the intention or will of the
parties, the contract shall be null and  In case of sale, mortgage, or
void. other encumbrance of any portion of
the estate which does not have
judicial approval is an unenforceable
J. Kinds of Contracts as to Validity: contract (Art. 1403 (1)).
1. Valid and Binding

 Therefore, Art. 1381 (1) is
limited to contracts which constitute  Creditors, after having pursued the
mere acts of administration (i.e. the property in possession of the debtor
purchase of equipment for the to satisfy their claims may exercise
cultivation of lands, purchase of all the rights and bring all the
materials for repair of buildings, actions of the latter for the same
etc.). purpose, save those which are inherent
in his person; they may also impugn
Lesion is very difficult to apply in the acts which the debtor may have
practice – done to defraud them (Art. 1177).
For example, A is the agent of B. B owns  Creditors are protected in cases of

land worth P10 M. A sells the land for contracts intended to defraud them
P7 M. From the facts, the lesion (Art. 1313).
suffered by B is 30%. In practice, are
you sure that P10 M is the fair market  In determining whether or not a
value of the land. What if the situation certain conveyance is fraudulent, the
is urgent and that property must be question in every case is whether the
disposed of right away? conveyance was a bona fide transaction
or trick and contrivance to defeat
Another example, A is the agent of B. B creditors, or whether it conserves to
owns land worth P10 M. C wants to buy the debtor a special right.
the land. C is willing to pay P 7 M –
 All contracts by virtue of which
lump sum payment. D is willing to pay P
the debtor alienates property by
10 M but on installments.
gratuitous tile are presumed to have
ii. those agreed upon in representation been entered into in order to defraud
of absentees, if the absentee suffers creditors, when the donor did not
lesion by more than ¼ of the value of reserve sufficient property to pay all
things which are the object thereof (Art. debts contracted before the donation
1381 (2)) (Art. 1387, 1st par).
 Alienations by onerous title are

 Rescission shall not take place
also presumed fraudulent when made by
with respect to contracts approved by
persons against whom some judgment has
the court (Art. 1386).
been rendered in any instance or some
writ of attachment has been issued.
 As a rule, when the legal The decision or attachment need not
representative of an absentee enters refer to the property alienated, and
into a contract involving the need not have been obtained by the
disposition of the absentee’s party seeking the rescission (Art.
property, he must secure the approval 1387, 2nd par).
of the court.
Badges of Fraud:
 A legal representative is only
authorized to manage the estate of the
1. the fact that the
absentee. He has no power to dispose
consideration of the conveyance is
of any portion of the estate without
inadequate
approval of the court. If more than
acts of mere administration are
2. a transfer made by a debtor
involved, judicial approval is
after suit has begun and while it
necessary.
is pending against him
 In case of sale, mortgage, or other
encumbrance of any portion of the 3. a sale upon credit by an
estate which does not have judicial insolvent debtor
approval is an unenforceable contract
(Art. 1403 (1)). 4. evidence of large
indebtedness or complete
 Th insolvency
erefore, Art. 1381 (2) is limited to
contracts which constitute mere acts 5. the transfer of all or nearly
of administration (i.e. the purchase all of his property by a debtor,
of equipment for the cultivation of especially when he is insolvent or
lands, purchase of materials for greatly embarrassed financially
repair of buildings, etc.).
6. the fact that the transfer is
iii. those undertaken in fraud of made between father and son when
creditors when the creditors cannot in there are present any of the above
any other manner collect the claims due circumstances
them (Art. 1381 (3))
7. the failure of the vendee to
 This is an exception to the take exclusive possession of all
principle of relativity of contracts. the property

 If there are 2 or more
iv. those which refer to things under alienations,the 1st acquirer shall
litigation if they have been entered into be liable 1st, and so on
by the defendant without the knowledge successively (Art. 1388, 2nd par).
and approval of the litigants or of
competent judicial authority (Art. 1381 (4) the action for rescission must
(4)) be brought within the prescriptive
period of 4 years (Art. 1389)
 Art. 1381 (4) refers to a
contract executed by the defendant Art. 1191. The power to rescind obs. Is
in a suit involving the ownership implied in reciprocal ones, in case on of
or possession of a thing, when such the obligors should not comply w/ what is
contract is made without the incumbent upon him.
knowledge and approval of the The injured party may choose between the
plaintiff or court. fulfillment & the rescission of the ds.,
w/ the payment of damages in either case.
 As in the case of a contract He may also seek rescission, even after he
in fraud of creditors, the remedy has chosen fulfillment, if the latter
of rescission in this case is given should become impossible.
to a 3rd person who is not a party The ct. shall decree the rescission
to the contract. The purpose is to claimed, unless there be just cause
protect the plaintiff. authorizing the fixing of a period.
This is understood to be w/o prejudice to
v. all other contracts specially the rts of third persons who have acquired
declared by law to be the subject of the thing, in accordance w/ Arts. 1385 &
rescission (Art. 1381 (5)) 1388 & the Mortgage Law.
 The following provision in sales Art. 1192. In case both parties have
are examples of rescissible contracts committed a breach of the obligation, the
declared by law – Arts 1526, 1534, liability of the 1st infractor shall be
1538, 1539, 1540, 1556, 1560, 1567, equally tempered by the cts. If it cannot
1659. be det. Which of the parties 1st violated
the K, the same shall be deemed
 payments made in a state of
extinguished, & each shall bear his own
insolvency for obligations to whose
damages.
fulfillment the debtor could not be
compelled at the time they were [Tolentino]
effected (Art. 1382) Similarities between Rescission under Art.
1191 & Art. 1380+:
(1) the person asking for
rescission must have no other legal (1) both presuppose contracts validly
means to obtain reparation for the entered into & existing, &
damages suffered by him (Art.
1383); (2) both require mutual restitution when
declared proper.
(2) the person demanding
Differences:
rescission must be able to return (1) Rescission under 1191 may be demanded
whatever he may be obliged to only by party to the contract, under 1380+
restore if rescission is granted by 3P prejudiced by the contract;
(Art. 1385, 1st par)
(2) Rescission under 1191 may be denied
 This requisite is only when there is sufficient reason to justify
applicable if the one who suffers extension of time to perform, under 1380+
the lesion is a party to the such reason does NOT affect rt. To ask for
Rescission;
contract.
 This requisite does not apply (3) Non-perf. is the only ground. For
when a defrauded creditor resorts Rescission under 1191, while there are
to accion pauliana. various reasons of equity as grounds.
(3) the things which are the under 1191 applies only to recip. ds.
object of the contract must not where one party has not performed, while
have passed legally to the under 1380(+) ob. May be unilateral or
possession of a 3rd person acting in reciprocal & even when K has been
good faith (Art. 1385, 2nd par) fulfilled.
 Whoever acquires in bad faith

the things alienated in fraud of
creditors, shall indemnify the 2. VOIDABLE Contracts
latter for damages suffered by them
on account of the alienation, A voidable contract is a contract in
whenever, due to any cause, it which all of the essential elements for
should be impossible for him to validity are present, but the element of
return them (Art. 1388,1st par). consent is vitiated either by lack of

legal capacity of 1 of the contracting agreed to in a state of drunkenness or
parties or by mistake, violence, during a hypnotic spell are voidable
intimidation, undue influence, or fraud. (Art. 1328).
Voidable contracts are binding unless iii. those where the consent is vitiated
they are annulled by a proper action by mistake, violence, intimidation,
court. They are susceptible to undue influence or fraud
confirmation.
 A contract where consent is given
There is a difference between through mistake, violence, intimidation,
confirmation and ratification: undue influence or fraud is voidable
 Confirmation is the process of (Art. 1330).
curing the defect of a voidable
contract. a) mistake
 Ratification is the process of In order that mistake may invalidate

curing contracts which are defective consent, it should refer to the substance
because they were entered into without of the thing which is the object of the
authority. contract, or to those conditions which
have principally moved one or both
The following contracts are voidable or parties to enter into the contract (Art.
annullable, even though there may have 1331, 1st par).
been no damage to the contracting
parties: Mistake as to the identity or
qualification of one of the parties will
vitiate consent only when such identity
a. those where one of the parties is
or qualifications have been the principal
incapable of giving consent to a
cause of the contract (Art. 1331, 2nd
contract.
par).
The following cannot give consent to a
A simple mistake of account shall give
contract (Art. 1327):
rise to its correction (Art. 1331, 3rd
par).
i. unemancipated minors
 Where necessaries are sold When one of the parties is unable to
and delivered to a minor or other read, or if the contract is in a language
person without capacity to act, he not understood by him, and mistake or
must pay a reasonable price fraud is alleged, the person enforcing
therefore. the contract must show that the terms
 Necessaries include thereof have been fully explained to the
everything that is indispensable former (Art. 1332).
for sustenance, dwelling, clothing,
and medical attendance. There is no mistake if the party alleging
 Contracts effected by minors it knew the doubt, contingency or risk
who have already passed the age of affecting the object of the contract
puberty and adolescence and are (Art. 1333)
near the adult age, when they
pretend to have already reached the Mutual error as to the legal effect of an
age of majority, while in fact they agreement when the real purpose of the
have not, are valid, and cannot be parties is frustrated, may vitiate
permitted afterwards to excuse consent (Art. 1334).
themselves from compliance with
obligations assumed by them or seek Misrepresentation by a 3rd person does not
their annulment. This is in vitiate consent, unless such
consonance with the rules of misrepresentation has created substantial
estoppel. (Mercado v. Espiritu). mistake and the same is mutual (Art.
 However in Braganza v, De 1342).
Villa, the SC said that the
misrepresentation of an Misrepresentation made in good faith is
incapacitate person does not estop not fraudulent but may constitute error
him from denying that he was of (Art. 1343).
age, or from asserting that he was
under age, at the time he entered b) violence
into the contract. According to
Prof. Balane, this view is very There is violence when in order to wrest
logical. If the minor is too young consent, serious or irresistible force is
to enter into contracts, he is too employed (Art. 1335, 1st par).
young to be estopped.
Violence shall annul the obligation,
ii. insane or demented persons, and deaf although it may been employed by a 3rd
mutes who do not know how to write person who did not take part in the
 Contracts entered into during a contract (Art. 1336).
lucid interval are valid. Contracts

Requisites of Violence: iv. The threat produces a well-grounded
i. irresistible physical force is fear that the person making it can and
employed will inflict harm
ii. the force is the determining cause
for giving consent To determine the degree of intimidation,
the age, sex, and condition of the person
c) intimidation shall be borne in mind (Art. 1335, 3rd
par).
There is intimidation when one of the For example, a 75year old man who
contracting parties is compelled by a is bed ridden and says that he will
reasonable and well-grounded fear of an kill you does not produce a well-
imminent and grave evil upon his person grounded fear.
or property, or upon the person or
property of his spouse, descendants or Intimidation shall annul the obligation,
ascendants, to give his consent (Art. although it may have been employed by a
1335, 2nd par). 3rd person who did not take part in the
contract (Art. 1336).
Requisites of Intimidation:
DURESS is that degree of constraint or
i. the threat must be the determining danger sufficient to overcome the mind
cause for giving consent and will of the person or ordinary
firmness.
ii. the threatened act is unjust and
unlawful Violence Intimidation
 A threat to enforce one’s Duress actually threatened or
claim through competent authority, inflicted impending
if the claim is just or legal, does External Internal
not vitiate consent (Art. 1335, 4th Serves to prevent an operates upon the
par). act from being done will, induces
performance of an
 The threat to enforce a act
right, should not be aimed at a Physical force Influences the mind
result which is contrary to law or employed is to choose bet. two
morals, or which is unjust and irresistible evils
contrary to good faith. Although Or of such degree as Influences the
it is lawful to exercise rights, it that victim has no expression of the
is not always lawful to use them other choice but to will, inhibits the
for purposes different from those submit true intent and
for which they were created. Thus, making of manifest
although it is lawful to report something apparently
crimes, the threat to report it may as that of the
be illicit if the purpose is not to person who consents
cooperate in the discovery and Such force is the intimidation caused
prosecution of the crime, but to determining cause in the consent to be
obtain some prestation from the giving consent given
culprit which otherwise could not Threatened act
be obtained and which does not unjust or unlawful
constitute indemnity for damages Threat must be real
for the crime committed. Thus, the or serious producing
threat to report a murderer if he reasonable and well-
does not agree to pay a certain sum grounded fear
to one who saw the offense
committed, would constitute d) undue influence
intimidation, because he is made to
agree to something which has no There is undue influence when a person
relation to his crime. takes improper advantage of his power
over the will of another, depriving the
 The rule regarding marriage latter of a reasonable freedom of choice.
is different. Where a man marries The following circumstances shall be
under the threat to obstruct his considered: the confidentiality, family,
admission to the bar by filing spiritual and other relations between the
charges against him for immorality parties, or the fact that the person
committed by him, he cannot avoid alleged to have been unduly influenced
the marriage on the ground of was suffering from mental weakness, or
duress. was ignorant or in financial distress
(Art. 1337).
iii. the threat is real and serious
e) Fraud
For example the threat must be to
kill you or burn your house and not When one of the parties is unable to
merely to pinch you. 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 3rd person has created a mutual
thereof have been fully explained to the substantial mistake (Art. 1342).
former (Art. 1332).
Rules Regarding Voidable Contracts:
There is fraud when, through insidious
words or machinations of one of the a) Voidable contracts are effective
contracting parties, the other is induced unless set aside.
to enter into a contract which, without
them, he would not have agreed to (Art. b) The validity of a voidable contract
1338) can only be assailed in a suit for that
purpose (i.e. complaint or counterclaim).
 deceit or dolo causante.
 The action for annulment of
Requisites of Fraud: contracts may be instituted by all
who are thereby obliged principally
1. fraud is employed by 1 party on the or subsidiarily. However, persons
other (Arts. 1342, 1344) who are capable cannot allege the
incapacity of those with whom they
2. the other party was induced to contracted; nor can those who
enter into the contract (Art.1338) exerted intimidation, violence, or
undue influence, or employed fraud,
3. the fraud must be serious (Art. or caused ,mistake base their
1344) action upon these flaws of the
contract (Art. 1397).
4. there is damage or injury caused
The action for annulment shall be brought
Failure to disclose facts, when there is within 4 years. This period shall begin:
a duty to reveal them, as when the
parties are bound by confidential intimidation  from the time the defect
relations, constitutes fraud (Art. 1339) of the consent ceases;
violence  from the time the defect of
The usual exaggerations in trade, when the consent ceases;
the other party had an opportunity to undue influence  from the time the
know the facts, are not in themselves defect of the consent ceases;
fraudulent (Art. 1340). mistake  from the time of the discovery
A mere expression of an opinion does not of the mistake
signify fraud, unless made by an expert fraud  from the time of the discovery
and the other party has relied on the of the fraud
former’s special knowledge (Art. 1341).
Requisites of Consent vitiated by
Misrepresentation by a 3rd person does not 1. it should be by error or
vitiate consent, unless such intelligent, with exact mistake
misrepresentation has created substantial notion of the matter to
mistake and the same is mutual (Art. which it refers
1342). 2. it should be free violence,
intimidation,
Misrepresentation made in good faith is or undue
not fraudulent but may constitute error influence
(Art. 1343).
3. it should be by fraud
spontaneous
In order that fraud may make a contract
voidable, it should be serious and should
The 4 year prescription period to annul
not have been employed by both
contracts entered into by minors or other
contracting parties (Art.1344, 1st par).
incapacitated persons shall begin from
the time the guardianship ceases (Art.
Incidental fraud only obliges the person
1391, 4th par).
employing it to pay damages (Art. 1344,
2nd par).
An obligation having been annulled, the
contracting parties shall restore to each
If a 3rd
person should commit violence or
other the things which have been the
intimidation on 1 of the contracting
subject matter of the contract, with
parties and this vitiates the contracting
their fruits, and the price with its
party’s consent, then the contract may be
interest, except in cases provided by law
annulled (Art. 1336).
(Art. 1398, 1st par).
By analogy, if a 3rd person should exert
In obligations to render service, the
undue influence on 1 of the contracting
value thereof shall be the basis for
parties and this vitiates the consent of
damages (Art. 1398, 2nd par).
the contracting party, then the contract
may be annulled. However, if the 3rd
When the defect of the contract consists
party commits fraud, damages is the only
in the incapacity of 1 of the parties,
remedy unless the fraud committed by the
the incapacitated person is not obliged

to make any restitution except insofar as
he has been benefited by the thing or i. that the contract is a voidable or
price received by him (Art. 1399); annullable contract
Q: What if the Thing to Be Returned is ii. that the ratification is made with
Lost? knowledge of the cause for nullity
a. Loss due to Fault of Defendant to pay iii. that at the time the ratification
the plaintiff value of the thing loss, is made, the cause of nullity has already
fruits if any, interest ceased to exist
b. Loss due to a Fortuitous Event or due Confirmation may be effected expressly

to a 3rd party or tacitly. It is understood that there
 Defendant has to pay the is tacit confirmation if, with knowledge
plaintiff value of the thing of the reason which renders the contract
loss fruits if any voidable and such reason having ceased,
the person who has a right to invoke it
c. Loss due to Fault or Fraud of should execute an act which necessarily
Plaintiff implies an intention to waive his right
 The plaintiff loses the right to (Art. 1393).
annul (Art. 1401).
 There is fault on the part of the
plaintiff once the plaintiff Voidable contracts can be confirmed only
regains capacity. by the party whose consent was vitiated.
d. Loss without Fault on the Plaintiff’s  Confirmation does not require the
Part conformity of the contracting party
who has no right to bring the
Commentators have a difference of opinion action for annulment (Art. 1395).
-
 the right to annul is extinguished  Confirmation may be effected by the
unless the plaintiff offers to pay guardian of the incapacitated
the value of the object at the time person (Art. 1394).
of loss
 the plaintiff is entitled to annul
without having to pay anything. (3) Unenforceable Contracts
As long as 1 of the contracting parties An unenforceable contract is a contract

does not restore what in virtue of the which cannot be enforced by a proper
decree of annulment he is bound to action in court, unless they are
return, the other cannot be compelled to ratified, because either they are entered
comply with what is incumbent upon him into without or in excess of authority or
(Art. 1402). they do not comply with the Statute of
Frauds or both the contracting parties do
The action for annulment will not prosper not possess the required legal capacity.
in the following:
[BAVIERA]
a) if the contract has been confirmed Q: Authority to sell oral but sale is in
(Art. 1392) writing
A: Void.
b) if the action to annul has prescribed
(Art. 1391) Q: Authority to sell in writing but sale
of land is not
A: Unenforceable under Statute of
c) when the thing which is the object of Frauds.
the contract is lost through the fault or
fraud of the person who has a right to Q: Why should loan be in writing for
institute the proceedings (Art. 1401, 1st antichresis to be in writing?
par) A: Antichresis takes a long time.
Loan is valid if not in writing but
d) estoppel antichresis not
Voidable contracts can be confirmed.  Donation propter nuptias: rules on

ordinary donations would apply.
 Confirmation extinguishes the Q: Buyer & seller orally agreed for
action to annul a voidable contract Seller to sell land. Buyer sold palay &
(Art. 1392). w/ the money from this sale Buyer gave to
Seller. Seller refused.
 Confirmation cleanses the contract A: Seller can refuse. He did not
from all its defects from the receive any benefit yet.
moment it was constituted (Art.
Q: X saw an advertisement for the sale
1396). of a car for P200T. X phoned Y & the
latter noted the order. Y failed to
Requisites of Confirmation:

deliver the car. Can X enforce the
obligation? i. an agreement that by its terms
A: Sale of movable > P500 should is not to be performed within a
be in writing under the Statute of year from the making thereof
Frauds or else unenforceable.
 If person promises to lend money to In Babao v. Perez, the SC

another, then refuses to lend, no cause of interpreted the phrase “not be
action. If a bank does it, enforceable. to performed within a year” to
mean that the obligation cannot
Dilag vs. IAC Badges of fraud: be finished within 1 year.
 whether sale to children was Prof. Balane does not agree with
paid this interpretation. According
 not registered until after to Prof. Balane the phrase “not
decision in the quasi-delict case to be performed within a year”
 parents continued to exercise should mean that the obligation
acts of ownership over land cannot begin within a year. For
 relationship between vendor & practical reasons, the contract
vendee. must be in writing since the
parties might forget. According
 This does not fall squarely under the to Prof. Balane, the SC’s
presumption of fraud because there was a
sale before judgment in 1974. If sale was interpretation is incorrect. If
after, presumed to be fraudulent. the obligation cannot be
finished within 1 year, the
Q: X proposed to buy Y’s house & lot. X contract is not within the
paid the P100T then constituted a chattel Statute of Frauds because of
mortgage on Y’s house & lot for the unpaid partial performance.
balance. Art. 1484 CC: law gives seller
the choice of remedies. ii. a special promise to answer
A: Y cannot choose to rescind for the debt, default or
because alternative remedy of miscarriage of another
foreclosure is available.
The test as to whether a promise
The following contracts are unenforceable
is within the statute has been
unless they are ratified (Art. 1403):
said to lie in the answer to the
question whether the promise is
(a) those entered into in the name of an original or collateral one.
another person by 1 who has been given no If the promise is an original
authority or legal representation, or who one or an independent one, that
has acted beyond his powers is, if the promisor becomes
thereby primarily liable for the
 No one may contract in the name of payment of the debt, the promise
another without being authorized by is not within the statute.
the latter, or unless he has by law
or right to represent him (Art. If the promise is collateral to
1317, 1st par). the agreement of another and the
promisor becomes merely a surety
 A contract entered into in the name or guarantor, the promise must
of another by one who has no be in writing.
authority or legal representation,
or who has acted beyond his powers, iii. an agreement made in
shall be unenforceable, unless it consideration of marriage, other
is ratified, expressly or than a mutual promise to marry
impliedly, by the person on whose
behalf it has been executed, before  A mutual promise to marry
it is revoked by the other does not fall within the Statute
contracting party. (Art. 1317, 2nd of Frauds since they are not
par). made in writing.
Agreements made in consideration
 When a person enters into a of marriage other than the
contract for and in the name of mutual promise to marry are
another, without authority to do within the Statute of Frauds.
so, the contract does not bind the
latter, unless he ratifies the In Cabague v. Auxilio, the father of the
same. groom promised to improve his daughter-
in-law’s father’s house in consideration
 The agent, who has entered into the of the marriage. The father of the groom
contract in the name of the made improvements on the house. The
purported principal, but without wedding did not take place. The SC said
authority from him, is liable to 3rd that the father of the groom could not
persons upon the contract. sue on the oral contract which as to him
is not “mutual promise to marry”. Prof.
(b) those that do not comply with the Balane disagrees with the SC. According
Statute of Frauds to Prof. Balane, the father of the groom

should be able to sue since there was  A wants to borrow money from C. C
partial performance. does not know A. C goes to B to
ask about A’s credit standing. B
iv. an agreement for the sale of goods, says that A’s credit standing is
chattels or things in action, at a price satisfactory even though B knows
not less than P500, unless the buyer that A is insolvent. Under Art.
accepts and receives part of such goods 1403, C can go after B if B’s
and chattels, or the evidence, or some of representation was in writing.
them, of such things in action, or pay at
the time some part of the purchase money;  Prof. Balane thinks that this does
but when a sale is made by auction and not belong in the Statute of
entry is made by the auctioneer in his Frauds. There is no contract
sales book, at the time of sale, of the between C and B. B did not bind
amount and kind of property sold, terms himself to pay C. What we have
of sale, price, names of the purchasers here is an unenforceable tort.
and person on whose account the sale is
made, it is a sufficient memorandum  According to Prof. Balane, “a
representation as to the credit of
 The requirement of a written a 3rd person” should be replaced by
instrument or a memorandum for sales Art. 1443. Art. 1443 provides that
of personal property for a price not no express trusts concerning an
less than P500, covers both tangible immovable or any interest therein
and intangible personal property. It may be proved by parol evidence.
also covers the assignment of choses
in action.  When the express trust concerns an
immovable or an interest therein, a
 Where a contract for the sale of goods writing is necessary to prove it.
at a price not less than P500 is oral, This writing is not required for
and there is neither partial payment the validity of the trust. It is
or delivery, receipt, and acceptance required only for purposes of
of the goods, the contract is proof. When the property subject
unenforceable, and cannot be the basis to the express trust, however is
of an action for the recovery of the not real estate or an interest
purchase price, or as the basis of an therein, then it may be proved by
action for damages for breach of the any competent evidence, including
agreement. parol evidence.
 Where there is a purchase of a number (c) those where both parties are
of articles which taken separately incapable of giving consent to a contract
does not have a price of P500 each,
but taken together, the price exceeds  Neither party or his representative
P500, the operation of the statute of can enforce the contract unless it
frauds depends upon whether there is a has been previously ratified.
single inseparable contract or a
several one. If the contract is  The ratification by 1 party,
entire or inseparable, and the total however, converts the contract into
price exceeds P500, the statute a voidable contract – voidable at
applies. But if the contract is the option of the party who has not
separable, then each article is taken ratified; the latter, therefore,
separately. can enforce the contract against
the party who has ratified.
v. an agreement of lease for a period  Or, instead, of enforcing the

of more than 1 year, or the sale of real contract, the party who has not
property or of an interest therein ratified it may ask for annulment
on the ground of his incapacity.
 As long there is a sale of real
property, the sale must be in
writing. There is no minimum. 2 Principles in the Statute of Frauds
 An oral contract for a supplemental (a) Parol evidence is not admissible.

lease of real property for longer However, there are 2 ways of bringing it
period than 1 year is within the out.
Statute of Frauds.
 An agreement to enter into an i. failure to object by the
agreement is also within the opposing lawyer when parol evidence
Statute of Frauds. is used (Art. 1405)
vi. a representation as to the credit of  If there is no objection,

a 3rd person then parol evidence is
admitted.

ii. acceptance of benefits (Art.  Where there is a sale of a number of
1405) articles w/c separately do not have a
price of P500 each but w/c in their
 if there has been performance aggregate have a total price exceeding
P500, the operation of the SOF depends
on 1 side and the other side upon whether there is a single inseparable
accepts, then the Statute of contract or a several one. If the contract
Frauds is not applicable. is entire or inseparable, SOF applies. If
separable, then each article is taken
(b) The Statute of Frauds applies only separately, & the application of the SOF
to executory contracts and not to those depends upon its price.
which have been executed in whole or in
part.  oral evidence to prove a consummated
sale of real property - allowed by the
TOLENTINO: Statute of Frauds
Purpose of the Statute of Frauds: To
prevent fraud & perjury in the enforcement  “representation as to credit of a third
of obligations depending for their person” - limited to those w/c operate to
evidence upon the unassisted memory of induce the person to whom they are made to
witnesses by requiring certain enumerated enter into contractual relations w/ the 3rd
contracts & transactions to be evidenced person, but NOT to those representations
by a writing signed by the party to be tending to induce action for the benefit
charged. of the person making them.
Statute Of Frauds  An oral contract for a supplemental

lease of property for a period longer than
 simply provides for the manner
1 year - also w/in SOF. An agreement to
in w/c contracts under it shall be enter into an agreement is also w/in the
proved SOF & the promise is not enforceable
unless the statute is satisfied.
 such contracts are valid but
effect of noncompliance w/ the SOF Defense of the Statute of Frauds 
is simply that no action can be personal to the party to the agreement
proved unless the requirement is like minority, fraud, mistake, & similar
complied w/ defenses w/c may be asserted or waived by
the party affected cannot be set up by
 not applicable to contracts strangers to the agreement
either totally or partially
performed but only to executory
contracts 4. Void Contracts
 neither applicable to actions
w/c are neither for specific A void contract is an absolute nullity
performance of the contract nor and produces no effect, as if it had
for the violation thereof never been executed or entered into.
 partial performance must be The following contracts are inexistent

duly proved and void from the beginning (Art. 1409):
 contract under SOF cannot be
proved w/o the writing or a (a) those whose cause, object or
memorandum thereof purpose is contrary to law, morals. Good
customs, public order or public policy
“note or memorandum” (b) those which are absolutely
 evidence of the agreement used to simulated or fictitious
show the intention of the parties
 may consist of any kind of writing, (c) those whose cause or object did not
from a solemn deed to a mere hasty exist at the time of the transaction
note or memorandum in books &
papers, may be in ink or in pencil, Balane: Art. 1409 (3) should not be
typed or printed “did not exist”. Rather, the
correct phrase should be “could not
 meets requirements of Statute of come into existence” because there
Frauds if it contains: can be a contract over a future
thing.
 names of the parties
 terms & conditions of the agreement (d) those whose object is outside the
commerce of men
 a description of the subject matter
sufficient to render it capable of (e) those which contemplate an impossible
identification service
 date & place of the making of the
agreement (f) those where the intention of the
parties relative to the principal object
 signature of the party assuming the of the contract cannot be ascertained
obligation

(g) those expressly prohibited or file an action for specific
declared void by law performance.
 If the shabu dealer pays the

Characteristics of Void Contracts: shabu supplier but fails to
deliver the shabu, the shabu
1) the contract produces no effect deliver cannot recover what he
whatsoever either against or in favor of has paid.
anyone
2. If only 1 party is guilty
2) a judgment of nullity would be merely  No action for specific
declaratory performance can prosper on
either side.
 Even when the contract is void or
inexistent, an action is necessary  An action for restitution
to declare its inexistence, when it will be allowed only if the
has already been fulfilled. Nobody innocent party demands.
can take the law into his own
hands. B. If it does not constitute a
 The intervention of a competent criminal offense
court is necessary to declare the
absolute nullity of the contract 1. If both parties are in pari
and to decree the restitution of delicto
what has been given under it.  No action for specific
 The judgment of nullity will performance can prosper on
retroact to the very day when the either side (Art. 1411, 1st
contract was entered into. par).
3) it cannot be confirmed or ratified  No action for restitution can
prosper on either side (Art.
4) if it has been performed, the 1411, 1st par).
restoration of what has been given is in
order 2. If only 1 party is guilty
 No action for specific
5) the right to set the contract’s
performance can prosper on
nullity cannot be waived
either side.
6) the action for nullity is
imprescriptible (Art. 1410)  An action for
restitution will be allowed
only if the innocent party
 As between the parties to a
demands.
contract, validity cannot be given
to it by estoppel if it is
Exceptions to Pari Delicto:
prohibited by law or is against
public policy.
Interest paid in excess of the interest
7) any person can invoke the contract’s allowed by the usury laws may be
nullity if its juridical effects are recovered by the debtor, with interest
therefrom from the date of payment (Art.
felt as to him
1413)
 The defense of illegality of
When money is paid or property delivered
contracts is not available to 3rd
for an illegal purpose, the contract may
persons whose interests are not
be repudiated by 1 of the parties before
directly affected (Art. 1421).
the purpose has been accomplished, or
before any damage has been caused to a 3 rd
 Pari Delicto (in equal guilt)
person. In such case, the courts may, if
the public interest will thus be
A. If it constitutes a criminal subserved, allow the party repudiating
offense the contract to recover the money or
1. If both parties are in pari property (Art. 1414).
delicto
Where 1 of the parties to an illegal
No action for specific performance contract is incapable of giving consent,
can prosper on either side (Art. the courts, may, if the interest of
1411, 1st par). justice so demands, allow recovery of
money or property delivered by the
No action for restitution can incapacitated person (Art. 1415).
prosper on either side (Art. 1411,
1st par). When the agreement is not illegal per se
 A shabu supplier supplies shabu but is merely prohibited, and the
to the shabu dealer. If the prohibition by law is designed for the
shabu supplier does not deliver protection of the plaintiff, he may, if
the shabu, the dealer cannot

public policy is enhanced, recover what
he has paid or delivered (Art. 1416).
When the price of any article or

commodity is determined by statute, or by
authority of law, any person paying any
amount in excess of the maximum price
allowed may recover such excess (Art.
1417).
When the law fixes, or authorizes the

fixing of the maximum number of hours of
labor, and a contract is entered into
whereby a laborer undertakes to work
longer than the maximum thus fixed, he
may demand additional compensation for
service rendered beyond the time limit
(Art. 1418).
When the law sets or authorizes the

setting of a minimum wage for laborers,
and a contract is agreed upon by which a
laborer accepts a lower wage, he shall be
entitled to recover the deficiency (Art.
1419).

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II. CONTRACTS & In Sales (art.

1491): one party can

A. General Provisions Article 1491. The following persons

 Executed by one person, (6) Any others specially

“The lone wolf dies, but the pack survives” 1

TOLENTINO: RATIO: Monetary Boards do not create

“The lone wolf dies, but the pack survives” 2

Consent  vitiated  voidable (2) AUTONOMY OF CONTRACTS:

REPUBLIC v, PLDT, 26 SCRA 620 Limitations in Freedom to Contract:

RATIO: Freedom of parties to stipulate – In Agency, a stipulation which excludes

“The lone wolf dies, but the pack survives” 3

 There are certain matters

“The lone wolf dies, but the pack survives” 4

“The lone wolf dies, but the pack survives” 5

“The lone wolf dies, but the pack survives” 6

The requisites are: HELD:

(2) that the favorable stipulation should

While a stipulation in favor of a SO PING BUN vs. CA

“The lone wolf dies, but the pack survives” 7

2. According to Perfection 7) According to Risk

“The lone wolf dies, but the pack survives” 8

“The lone wolf dies, but the pack survives” 9

Equitable Mortgage Reason for the 10-year limitation: A

“The lone wolf dies, but the pack survives” 10

“The lone wolf dies, but the pack survives” 11

“The lone wolf dies, but the pack survives” 12

“The lone wolf dies, but the pack survives” 13

“The lone wolf dies, but the pack survives” 14

“The lone wolf dies, but the pack survives” 15

 In onerous contracts, the

 Cause is different from motive. Article 1351. The particular motives of

“The lone wolf dies, but the pack survives” 16

GR: A contract having the essential

(2) those required to make the contract CHAPTER 3 - Form of Contracts

“The lone wolf dies, but the pack survives” 17

(2) The cession, repudiation or  A public instrument is not necessary

2. SPECIAL FORM Art. 748. x x x If the value of the

“The lone wolf dies, but the pack survives” 18

“The lone wolf dies, but the pack survives” 19

 A mutual promise to marry, whether Tolentino:

Q: When is there a waiver of the SOF?

 Evidence to prove an oral  A contract falling under the SOF

“The lone wolf dies, but the pack survives” 20

 During trial, if the parties to the C. For Greater Efficacy or Convenience

BAVIERA:  Contracts enumerated in Art. 1358 are

“The lone wolf dies, but the pack survives” 21

“The lone wolf dies, but the pack survives” 22

1. Valid and Binding

“The lone wolf dies, but the pack survives” 23

For example, A is the agent of B. B owns  Creditors are protected in cases of

 Alienations by onerous title are

“The lone wolf dies, but the pack survives” 24

 Whoever acquires in bad faith

“The lone wolf dies, but the pack survives” 25

 Ratification is the process of In order that mistake may invalidate

“The lone wolf dies, but the pack survives” 26

“The lone wolf dies, but the pack survives” 27

“The lone wolf dies, but the pack survives” 28

b. Loss due to a Fortuitous Event or due Confirmation may be effected expressly