ATTY. JOHNSON A.H.

ONG, CPA, MBA

LAW1101 - Law on Obligations and Contracts 1st Semester 2020-2021

CONTRACTS 3. Consummation (death or termination) – parties have

performed their respective obiigation
Contract - meeting of minds between two persons whereby
one binds himself, with respect to the other, to give something Characteristics of contract
or to render some service. 1. Freedom of contract - contracting parties may establish
such stipulations, clauses, terms and conditions as they
Kinds of contract may deem convenient (1306)
1. Formation or perfection Limitation:
a. Consensual – perfected by mere consent (1315) a. Law
b. Real – perfected by delivery (i.e. depositum, pledge, b. Moral
commodatum) (1316) c. Good custom
c. Formal or solemn (i.e. Interest must be in writing d. Public order
(1956); Contribution of immovable property must be e. Public policy
in a public instrument, donation of personal property 2. Mutuality of contract - contract must bind both
where the value exceeds P5,000 must be in writing; contracting parties; its validity or compliance cannot be
Donation of immovable property must be in a public left to the will of one of them (1308). The principle is
instrument, Sale of land or interest therein, the based on the essential equality of the parties.
authority of the agent must be in writing) ➢ The determination of the performance may be left to
2. Cause or equivalence of value of prestation a third person, whose decision shall not be binding
a. Onerous – equivalent value of prestation until it has been made known to both contracting
b. Gratuitous or lucrative – no equivalent prestation parties. (1309)
c. Remunerative - the prestation is the benefit or ➢ The determination shall not be obligatory if it is
service that had been rendered previously. evidently inequitable. In such case, the courts shall
3. Importance or dependence of one upon another: decide what is equitable under the circumstances
a. Principal – can stand alone (1310)
b. Accessory – depend upon the existence of another 3. Relativity of contract - Contracts take effect only between
contract the parties, their assigns and heirs (1311)
c. Preparatory – not considered the contract as an end Exception:
by itself but as a mean for entering in future a. Where the obligations arising from contract are not
transaction or contract. transmissible by nature (personal qualification is
4. Parties obligated involved), by stipulation or by provision of law
a. Unilateral – only one party has obligation (Agency, partnership, commodatum).
b. Bilateral – both party has obligation b. Stipulation in favor of third person (stipulation pour
5. Name or designation autrui) (1311 par 2)
a. Nominate – has a name given by law If a contract should contain some stipulation in favor
b. Innominate – no name given by law of a third person, he may demand its fulfillment
1. Do ut des (I give that you may give) no longer provided he communicated his acceptance to the
innominate. This is now called Barter obligor before its revocation. A mere incidental
2. Do ut facias (I give that you may do) benefit or interest of a person is not sufficient. The
3. Facio ut des (I do that you may give) contracting parties must have clearly and deliberately
4. Facio ut facias (I do that you may do) conferred a favor upon a third person
6. Risk of fulfillment c. Contract creating real right (1312)
a. Commutative – real fulfillment, equivalent value are d. Contact entered into to defraud the creditors. (1313)
given e. Contract which have been violated thru the
b. Aleatory – fulfillment depend upon chance. inducement of 3rd person (1314)
7. Time of performance or fulfillment 4. Consensuality of contract - Contracts are perfected by
a. Executed – prestation are already complied with mere consent, and from that moment the parties are
b. Executory – prestations are to be complied with in the bound not only to the fulfillment of what has been
future expressly stipulated but also to all the consequences
8. According to number of person who participated in the which, according to their nature, may be in keeping with
drafting of the contract good faith, usage and law.
a. Ordinary -
b. Contract of adhesion – Where the terms and condition Elements of a Contract
of the contract is already drafted by one party. The 1. Essential elements
other party only signifies his consent by signing the a. Common (Consent, Object, Cause)
contract. b. Special
1.) Form – formalities in solemn contract, deliver in
Stages of contract real contract, registration to bind third person
1. Preparation (Negotiation, conception or Generacion) (Real estate mortgage, chattel mortgage)
– steps taken by the parties leading to the perfection
of the contract. Solemn contract
2. Perfection (or birth) – Come to a definite agreement (Consent, Object, Cause + Execution of
or meeting of the mind upon the object and the cause. formalities)

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a. Stipulation of interest = writing. interdiction, insanity, or insolvency of either party before

b. Contribution of immovable property in acceptance is conveyed.
partnership = inventory of such property + Art. 1325. Unless it appears otherwise, business
public instrument advertisements of things for sale are not definite offers, but
c. Donation of personal property where the mere invitations to make an offer.
value exceed P5,000 = in writing Art. 1326. Advertisements for bidders are simply invitations
d. Donation as well as acceptance of real to make proposals, and the advertiser is not bound to accept
property = Public instrument. the highest or lowest bidder, unless the contrary appears.
e. Will = writing + formalities prescribed by Art. 1327. The following cannot give consent to a contract:
law. (1) Unemancipated minors;
f. Agent authority in case of sale of immovable (2) Insane or demented persons, and deaf-mutes who do not
property in behalf of the principal = writing know how to write. (1263a)
Art. 1328. Contracts entered into during a lucid interval are
Real Contract valid. Contracts agreed to in a state of drunkenness or during
(Consent, Object, Cause + Delivery) a hypnotic spell are voidable. (n)
a. Deposit
b. Pledge
c. Commodatum
2.) Subject matter
Real estate mortgage Real property No delivery
Chattel mortgage Personal No delivery
property
Pledge Personal Delivery
property
Antichresis Real property Delivery
3.) Consideration or cause – Sale (price);
Commodatum (liberality)
2. Natural elements – presumed to exist in certain contracts
a. Warranty against eviction
b. Warranty against hidden defect
3. Accidental elements (by stipulation) – Exist only when
they are expressly provided by the parties. (i.e.
Conditions, period, interest, penalty, place of payment)

Art. 1318. There is no contract unless the following requisites

concur:
1. Consent of the contracting parties;
2. Object certain which is the subject matter of the contract;
3. Cause of the obligation which is established.

CONSENT (1319)
Art. 1319. Consent is manifested by the meeting of the offer
and the acceptance upon the thing and the cause which are to
constitute the contract. The offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a OPTION PERIOD (1324)
counter-offer. Art. 1324. When the offerer has allowed the offeree a certain
Acceptance made by letter or telegram does not bind the period to accept, the offer may be withdrawn at any time
offerer except from the time it came to his knowledge. The before acceptance by communicating such withdrawal, except
contract, in such a case, is presumed to have been entered into when the option is founded upon a consideration, as
in the place where the offer was made. something paid or promised. (n)
1. Theory of cognition – The acceptance is considered to
effectively bind the offeror only from the time it came to
his knowledge. (Civil code)
2. Theory of manifestation – The contract is perfected at
the moment when the acceptance is declared or made by
the offeree. (Code of commerce)

Art. 1320. An acceptance may be express or implied.

Art. 1321. The person making the offer may fix the time,
place, and manner of acceptance, all of which must be
complied with.
Art. 1322. An offer made through an agent is accepted from
the time acceptance is communicated to him. (n)
Art. 1323. An offer becomes ineffective upon the death, civil

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confidential, family, spiritual and other relations between

the parties, or the fact that the person alleged to have been
unduly influenced was suffering from mental weakness,
or was ignorant or in financial distress. (1337)
5. Fraud - when, through insidious words or machinations of
one of the contracting parties, the other is induced to enter
into a contract which, without them, he would not have
agreed to.
➢ Failure to disclose facts, when there is a duty to
reveal them, as when the parties are bound by
confidential relations, constitutes fraud. (1339)
➢ The usual exaggerations in trade, when the other
party had an opportunity to know the facts, are not in
themselves fraudulent. (1340)
➢ A mere expression of an opinion does not signify
fraud, unless made by an expert and the other party
has relied on the former's special knowledge. (1341)
➢ Misrepresentation by a third person does not vitiate
consent, unless such misrepresentation has created
substantial mistake and the same is mutual. (1342)
➢ Misrepresentation made in good faith is not
fraudulent but may constitute error. (1343)
➢ In order that fraud may make a contract voidable, it
Vices of Consent should be serious and should not have been employed
1. Error or mistake by both contracting parties. (1344)
➢ In order that mistake may invalidate consent, it Incidental fraud only obliges the person employing it to
should refer to the substance of the thing which is the pay damages.
object of the contract, or to those conditions which
have principally moved one or both parties to enter Employed by Employed by 3rd
into the contract. one of the person
Mistake as to the identity or qualifications of one of contracting
the parties will vitiate consent only when such party
identity or qualifications have been the principal Violence Voidable Voidable
cause of the contract. Intimidation Voidable Voidable
A simple mistake of account shall give rise to its Fraud without Voidable Valid, unless it
correction. (1331) connivance/ results to a
➢ When one of the parties is unable to read, or if the knowledge by the substantial mistake
contract is in a language not understood by him, and party benefited by and the same is
mistake or fraud is alleged, the person enforcing the the fraud mutual. It can be
contract must show that the terms thereof have been annulled on the
fully explained to the former. (1332) ground of mistake
➢ There is no mistake if the party alleging it knew the Fraud with Voidable Voidable. As if
doubt, contingency or risk affecting the object of the connivance/ exercised by the
contract. (1333) knowledge by the party benefited by
➢ Mutual error as to the legal effect of an agreement party benefited by the fraud.
when the real purpose of the parties is frustrated, may the fraud
vitiate consent. (1334) Undue influence Voidable Voidable

2. Violence - when in order to wrest consent, serious or Absolute simulated Relative simulated
irresistible force is employed. (1335) or fictitious contract
3. Intimidation - when one of the contracting parties is The parties do not The parties conceal their true
compelled by a reasonable and well-grounded fear of an intend to be bound at agreement. (1345)
imminent and grave evil upon his person or property, or all. (1345)
upon the person or property of his spouse, descendants or VOID When it does not prejudice a third
ascendants, to give his consent. (1335) (1346) person and is not intended for any
To determine the degree of intimidation, the age, sex and purpose contrary to law, morals,
condition of the person shall be borne in mind. good customs, public order or public
A threat to enforce one's claim through competent policy binds the parties to their real
authority, if the claim is just or legal, does not vitiate agreement. (1346)
consent.
4. Undue influence - when a person takes improper
advantage of his power over the will of another, depriving OBJECT OF CONTRACTS
the latter of a reasonable freedom of choice. The ➢ All things which are not outside the commerce of men,
following circumstances shall be considered: the including future things, may be the object of a contract.

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All rights which are not intransmissible may also be the which has for its object an act appearing or which
object of contracts. should appear in a public document, or should
➢ No contract may be entered into upon future inheritance prejudice a third person;
except in cases expressly authorized by law. (4) The cession of actions or rights proceeding from an
➢ All services which are not contrary to law, morals, good act appearing in a public document.
customs, public order or public policy may likewise be All other contracts where the amount involved exceeds
the object of a contract. (1347) five hundred pesos must appear in writing, even a
➢ Impossible things or services cannot be the object of private one. But sales of goods, chattels or things in
contracts. (1348) action are governed by articles, 1403, No. 2 and 1405.
➢ The object of every contract must be determinate as to its (1280a)
kind. The fact that the quantity is not determinate shall
not be an obstacle to the existence of the contract, REFORMATION OF INSTRUMENTS
provided it is possible to determine the same, without the Art. 1359. When, there having been a meeting of the
need of a new contract between the parties. (1349) minds of the parties to a contract, their true intention is
not expressed in the instrument purporting to embody the
CAUSE OF CONTRACTS agreement, by reason of mistake, fraud, inequitable conduct
➢ To be a valid cause, it must be lawful, true and real, or accident, one of the parties may ask for the reformation of
definite or determinate as to its kind and possible. the instrument to the end that such true intention may be
➢ In onerous contracts the cause is understood to be, for expressed.
each contracting party, the prestation or promise of a If mistake, fraud, inequitable conduct, or accident has
thing or service by the other; in remuneratory ones, the prevented a meeting of the minds of the parties, the proper
service or benefit which is remunerated; and in contracts remedy is not reformation of the instrument but annulment of
of pure beneficence, the mere liberality of the benefactor. the contract.
(1350)
➢ The particular motives of the parties in entering into a When reformation is not allowed?
contract are different from the cause thereof. (1351) There shall be no reformation in the following cases:
➢ Contracts without cause, or with unlawful cause, produce (1) Simple donations inter vivos wherein no condition is
no effect whatever. The cause is unlawful if it is contrary imposed;
to law, morals, good customs, public order or public (2) Wills;
policy. (1352) (3) When the real agreement is void. (Art. 1366)
➢ The statement of a false cause in contracts shall render
them void, if it should not be proved that they were ➢ Reformation can be avail only of the innocent party.
founded upon another cause which is true and lawful. ➢ Reformation may be ordered at the instance of either
(1353) party or his successors in interest, if the mistake was
➢ Although the cause is not stated in the contract, it is mutual; otherwise, upon petition of the injured party, or
presumed that it exists and is lawful, unless the debtor his heirs and assigns. (1368)
proves the contrary. (1354) ➢ When reformation proper
➢ Except in cases specified by law, lesion or inadequacy of a. Mutual mistake of the parties causes the failure of the
cause shall not invalidate a contract, unless there has been instrument to disclose their real agreement (1361)
fraud, mistake or undue influence. (1355) b. One party was mistaken and the other acted
fraudulently or inequitably in such a way that the
FORM OF CONTRACTS instrument does not show their true intention. (1362)
➢ Contracts shall be obligatory, in whatever form they may c. When one party was mistaken and the other knew
have been entered into, provided all the essential or believed that the instrument did not state their real
requisites for their validity are present. However, when agreement, but concealed that fact from the former.
the law requires that a contract be in some form in order (1363)
that it may be valid or enforceable, or that a contract be d. When through the ignorance, lack of skill,
proved in a certain way, that requirement is absolute and negligence or bad faith on the part of the person
indispensable. In such cases, the right of the parties stated drafting the instrument or of the clerk or typist,
in the following article cannot be exercised. (1356) the instrument does not express the true intention of
➢ If the law requires a document or other special form, as in the parties. (1364)
the acts and contracts enumerated in the following article, e. If two parties agree upon the mortgage or pledge of
the contracting parties may compel each other to observe real or personal property, but the instrument states
that form, once the contract has been perfected. This right that the property is sold absolutely or with a right of
may be exercised simultaneously with the action upon the repurchase. (1365)
contract. (1357) ➢ When one of the parties has brought an action to
➢ The following must appear in a public document: (1358) enforce the instrument, he cannot subsequently ask
(1) Acts and contracts which have for their object the for its reformation. (1367)
creation, transmission, modification or ➢ The procedure for the reformation of instrument shall
extinguishment of real rights over immovable be governed by rules of court. (1369)
property; sales of real property or of an interest
therein a governed by articles 1403, No. 2, and 1405; INTERPRETATION OF CONTRACTS
(2) The cession, repudiation or renunciation of hereditary ➢ If the terms of a contract are clear and leave no doubt
rights or of those of the conjugal partnership of gains; upon the intention of the contracting parties, the literal
(3) The power to administer property, or any other power meaning of its stipulations shall control. (1370)

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If the words appear to be contrary to the evident intention a. consensuality of contracts

of the parties, the latter shall prevail over the former. b. building effect of contracts
➢ In order to judge the intention of the contracting parties, c. autonomy of contracts
their contemporaneous and subsequent acts shall be d. obligatory force of contracts
principally considered. (1371) e. relativity of contracts
➢ However general the terms of a contract may be, they 5. Which of these is a formal contract?
shall not be understood to comprehend things that are a. Donation of real property
distinct and cases that are different from those upon b. A partnership where there is contributed real property
which the parties intended to agree. (1372) c. Both of (a) and (b)
➢ If some stipulation of any contract should admit of d. None of (a) and (b)
several meanings, it shall be understood as bearing that 6. This is a real contract:
import which is most adequate to render it effectual. a. Deposit d. Antichresis
(1373) b. Pledge e. All of them
➢ The various stipulations of a contract shall be interpreted c. Mutuum
together, attributing to the doubtful ones that sense which 7. The mere liberality of the benefactor is the cause in:
may result from all of them taken jointly. (1374) a. Onerous contract
➢ Words which may have different significations shall be b. Remunetory contract
understood in that which is most in keeping with the c. Contract of pure beneficence
nature and object of the contract. (1375) d. All of the above
➢ The usage or custom of the place shall be borne in mind 8. Which of these is proof of the perfection of a contract of
in the interpretation of the ambiguities of a contract, and sale?
shall fill the omission of stipulations which are ordinarily a. Option c. Earnest money
established. (1376) b. Option money d. All of them
➢ The interpretation of obscure words or stipulations in 9. Which of these contracts is consensual?
a contract shall not favor the party who caused the a. Mutuum d. Deposit
obscurity. (1377) b. Commodatum e. Mortgage
➢ When it is absolutely impossible to settle doubts by the c. Partnership
rules established in the preceding articles, and the doubts 10. S in Manila offered to sell to B in Cebu his house and lot
refer to incidental circumstances of a gratuitous contract, for P10,000,000 giving the latter 60 days within which to
the least transmission of rights and interests shall prevail. decide. B accepted the offer of S by a letter. While the
If the contract is onerous, the doubt shall be settled in letter was on its way to Manila, B changed his mind and
favor of the greatest reciprocity of interests. sent to S another letter withdrawing his acceptance 2 days
If the doubts are cast upon the principal object of the after his first letter.
contract in such a way that it cannot be known what a. B cannot anymore withdraw the first letter of
may have been the intention or will of the parties, the acceptance.
contract shall be null and void. (1378) b. B cannot anymore withdraw the letter of acceptance
➢ The principles of interpretation stated in Rule 123 of specially if S has already received the same.
the Rules of Court shall likewise be observed in the c. B can withdraw the acceptance because such
construction of contracts. (1379) withdrawal was made before S received his first letter
of acceptance.
Multiple Choice d. B can withdraw the acceptance even if S has already
1. Strictly speaking, which of those should not anymore be received his letter of acceptance.
considered an innominate contract? 11. S offered to sell his house and lot to B for P5,000,000
a. Do ut des or I give that you give; giving to him an option of 60 days within which to decide
b. Do ut facias or I give that you make; whether or not to buy. After only 15 days, S met T who
c. Facio ut des or I make that you give; offered to buy the same house and lot for P8,000,000. S
d. Facio ut facias or I make that you make. then notified B of the withdrawal of the option and
2. DO UT FACIAS: proceeded to sell to T. B files an action for damages
a. I give that you give against S.
b. I give that you make a. B cannot recover damages from C because his option
c. I make that you give is without consideration as something paid or
d. A make that you make promised.
3. The characteristic of a contract to the effect that a b. B can recover damages from S because the latter
contract binds not only the contracting parties, but also violated the option given to the former.
the heirs or assigns is called: c. B can recover damages from S if B gave S option
a. Autonomy of contracts money which will result in a perfected contract of
b. Obligatory force of contracts sale.
c. Binding effects of contracts d. Correct answer not indicated
d. Relativity of contracts 12. F owes C P10,000,000. F dies leaving to the only heir S a
e. Consensuality of contracts house and lot valued at P7,000,000. S voluntarily pays
4. Contracting parties are free to enter into all kinds of pacts, P10,000,000. Decide:
terms or stipulations provided they are not contrary to a. In the first place, S is under no obligation to pay C
law, morals, good customs, public policy or public order. because the P10,000,000 is not his debt.
The above is a description of the characteristic of a
contract known as:

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b. S is obligated to pay P10,000,000 because he

becomes liable for the debts of his predecessor-in- DEFECTIVE CONTRACTS
interest. 1. Rescissible contract – Rescissible contract is valid until
c. C cannot be compelled to return the excess of rescinded. It is allowed by reason of injury or damage
P3,000,000 because it is the natural obligation of an to one parties or to a third person.
heir to pay the debts of his predecessor-in-interest if S The following contracts are rescissible: (1381)
voluntarily paid P10,000,000. a. Those which are entered into by guardians whenever
d. If S paid C P10,000,000 the excess of P3,000,000 the wards whom they represent suffer lesion by more
should be the subject of an agreement between S and than one-fourth of the value of the things which are
C because it is unjust to S that he should lose his own the object thereof;
money of P3,000,000. ➢ Not applicable when approved by court (1386)
13. S orally sold to B his house and lot for P5,000,000 where ➢ Prescriptive period: Four years from the
B initially paid P50,000. After paying the balance B now termination of incapacity
seeks to register the lot in his name, but the Register of b. Those agreed upon in representation of absentees, if
Deeds refuses to do so. In this case: the latter suffer the lesion stated in the preceding
a. The transaction involving the oral sale of a house and number;
lot is null and void. ➢ Not applicable when approved by court (1386)
b. The contract between S and B is unenforceable under ➢ Prescriptive period: Four years from the date the
the Statute of Fraud. domicile of the absentee is known.
c. The oral sale of the house and lot although c. Those undertaken in fraud of creditors when the latter
unenforceable under the Statute of Fraud has been cannot in any other manner collect the claims due
ratified by the receipt of the consideration and, them;
therefore, B can compel S to execute the deed of sale ➢ The action to claim rescission must be
in a public document. commenced within four years (1389)
d. If S does not want to execute the public document, he ➢ Alienation which are presumed to have been
can rescind or cancel his agreement with B. entered into in fraud of creditors
14. Factor vitiating consent: a. Gratuitous title - donor did not reserve
a. MORA c. Dolo causante sufficient property to pay all debts contracted
b. CULPA d. Dolo incidente before the donation.
15. S offered to B the sale of his house and lot for 10,000,000 b. Onerous title - when made by persons against
by means of a letter. At the same time, B offered to buy whom some judgment has been issued. The
from S the same house and lot by way of telegram for decision or attachment need not refer to the
P10,000,000 also. B has received the offer of S and S has property alienated, and need not have been
also received the telegram of B. Is there a perfected obtained by the party seeking the rescission.
contract of sale between S and B? Note: The design to defraud creditors may be
a. No, because what occurred was not a concurrence of proved in any other manner recognized by the
offer and acceptance but a crisscrossing of offers. law of evidence. (1387)
b. Yes, because the essential elements are all present, ➢ Whoever acquires in bad faith the things
namely: consent, object and consideration. alienated in fraud of creditors, shall indemnify
c. No, because the house and lot being an immovable to the latter for damages suffered by them on
perfect the contract it must be in a public document. account of the alienation, whenever, due to any
d. Correct answer not given. cause, it should be impossible for him to return
16. This is not always an essential element of contract: them.
a. Consent c. Cause If there are two or more alienations, the first
b. Object d. Form acquirer shall be liable first, and so on
17. Statement 1: S orally sold to B a piece of land successively. (1388)
P1,000,000 where the latter made a down payment of d. Those which refer to things under litigation if they
P500,000 to the former, B can compel S to execute a have been entered into by the defendant without the
public document containing the sale. knowledge and approval of the litigants or of
Statement 2: In reformation of contracts, where the competent judicial authority;
mistake, fraud or accident prevented a meeting of the ➢ The action to claim rescission must be
minds, the remedy remains to be reformation and not commenced within four years (1389)
annulment. e. All other contracts specially declared by law to be
a. Both statements are true. subject to rescission.
b. Both statements are false. ➢ The action to claim rescission must be commenced within
c. Statement 1 is true, but statement 2 is false. four years (1389)
d. Statement 1 is false, but statement 2 is true.
18. Which of these is not subject to reformation? Limitation on the exercise of rescission
a. Simple donations inter vivos where no conditions are 1. Contracts can be rescinded only in cases provided by law
imposed. 2. Being a subsidiary action, it can be exercised only when
b. Last wills and testaments. there is no other legal means to obtain reparation for the
c. Contract where the real agreement is void. same. (1383)
d. Where the fraud or mistake prevented a meeting of 3. Can be exercised only to the extent necessary to cover the
the minds. damages caused. (1384)
e. All of the above 4. Rescission creates the obligation to return the things

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which were the object of the contract, together with their shall be the basis for damages. (1398)
fruits, and the price with its interest (mutual restitution). ➢ When the defect of the contract consists in the incapacity
Hence, it can be demanded only if the one claiming of one of the parties, the incapacitated person is not
rescission can return whatever he may be obliged to obliged to make any restitution except insofar as he has
restore. been benefited by the thing or price received by him.
5. It cannot be availed when the things which are the object (1399)
of the contract are legally in the possession of third ➢ Whenever the person obliged by the decree of annulment
persons who did not act in bad faith. In this case, to return the thing can not do so because it has been lost
indemnity for damages may be demanded from the through his fault, he shall return the fruits received and
person causing the loss (1385) the value of the thing at the time of the loss, with interest
6. The action for rescission has not been prescribed. from the same date. (1400)
➢ The action for annulment of contracts shall be
2. Voidable Contract – The consent is defective by reason extinguished when the thing which is the object thereof is
of incapacity of one party or vices of consent. It is valid lost through the fraud or fault of the person who has a
until annulled. right to institute the proceedings.
The following contracts are voidable or annullable, even If the right of action is based upon the incapacity of any
though there may have been no damage to the one of the contracting parties, the loss of the thing shall
contracting parties: (1390) not be an obstacle to the success of the action, unless said
a. Those where one of the parties is incapable of giving loss took place through the fraud or fault of the plaintiff
consent to a contract; (1401)
b. Those where the consent is vitiated by mistake, ➢ As long as one of the contracting parties does not restore
violence, intimidation, undue influence or fraud. what in virtue of the decree of annulment he is bound to
return, the other cannot be compelled to comply with
These contracts are binding, unless they are annulled by a what is incumbent upon him. (1402)
proper action in court. They are susceptible of
ratification. 3. Unenforceable contract – Contract that cannot be
Grounds Prescriptive period enforce unless ratified.
Intimidation, violence or 4 years from the time the The following contracts are unenforceable, unless they
undue influence defect of the consent are ratified: (1403)
ceases (1) Those entered into in the name of another person by
Mistake or fraud 4 years from the time of one who has been given no authority or legal
the discovery* of the same representation, or who has acted beyond his
minors or other 4 years from the time the powers;
incapacitated persons guardianship ceases (2) Those that do not comply with the Statute of
*Note: If there is registration of the property, count from the Frauds as set forth in this number. In the following
date of registration. cases an agreement hereafter made shall be
unenforceable by action, unless the same, or some
➢ Ratification extinguishes the action to annul avoidable note or memorandum, thereof, be in writing, and
contract. (1392) subscribed by the party charged, or by his agent;
➢ Express ratification – Done in writing or orally evidence, therefore, of the agreement cannot be
➢ Tacit ratification - with knowledge of the reason which received without the writing, or a secondary evidence
renders the contract voidable and such reason having of its contents:
ceased, the person who has a right to invoke it should (a) An agreement that by its terms is not to be
execute an act which necessarily implies an intention to performed within a year from the making
waive his right. (1393) thereof;
➢ Ratification may be effected by the guardian of the (b) A special promise to answer for the debt,
incapacitated person. (1394) default, or miscarriage of another;
➢ Ratification does not require the conformity of the (c) An agreement made in consideration of
contracting party who has no right to bring the action for marriage, other than a mutual promise to marry;
annulment. (1395) (d) An agreement for the sale of goods, chattels or
➢ Ratification cleanses the contract from all its defects from things in action (personal property), at a
the moment it was constituted. (1396). price not less than five hundred pesos, unless
➢ The action for the annulment of contracts may be the buyer accept and receive part of such goods
instituted by all who are thereby obliged principally or and chattels, or the evidences, or some of them,
subsidiarily. However, persons who are capable cannot of such things in action or pay at the time some
allege the incapacity of those with whom they contracted; part of the purchase money; but when a sale is
nor can those who exerted intimidation, violence, or made by auction and entry is made by the
undue influence, or employed fraud, or caused mistake auctioneer in his sales book, at the time of the
base their action upon these flaws of the contract. (1397) sale, of the amount and kind of property sold,
➢ An obligation having been annulled, the contracting terms of sale, price, names of the purchasers and
parties shall restore to each other the things which have person on whose account the sale is made, it is a
been the subject matter of the contract, with their fruits, sufficient memorandum;
and the price with its interest, except in cases provided by (e) An agreement of the leasing for a longer
law. In obligations to render service, the value thereof period than one year, or for the sale of (real

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property) or of an interest therein; 4. Void contract – contract that never exist in the eyes of
(f) A representation as to the credit of a third law. It has no effect at all and cannot be ratified.
person.
(3) Those where both parties are incapable of giving The following contracts are inexistent and void from the
consent to a contract. beginning: (1409)
(1) Those whose cause, object or purpose is contrary to
➢ Statutes of fraud is no longer applicable when: law, morals, good customs, public order or public
a. There is total or partial performance (Partially or policy;
totally executed) (2) Those which are absolutely simulated or fictitious;
b. Failure to object to the presentation of oral (3) Those whose cause or object did not exist at the time
evidence to prove the contract. of the transaction;
➢ Cannot be assailed by third person (1408) (4) Those whose object is outside the commerce of men;
➢ Effect of ratification by parents or guardian (1407) (5) Those which contemplate an impossible service;
a. Only one party – Voidable contract (6) Those where the intention of the parties relative to the
b. Both parties - valid principal object of the contract cannot be ascertained;
(7) Those expressly prohibited or declared void by law.
Electronic document These contracts cannot be ratified. Neither can the
Refers to information or the representation of information, right to set up the defense of illegality be waived.
data, figures, symbols or other modes of written expression,
described or however represented, by which a right is Rules in determining contracts void
established or an obligation extinguished, or by which a fact 1. Absence of any of essential requites of contract
may be proved and affirmed, which is received, recorded, (Consent, Object or Cause)
transmitted, stored, processed, retrieved or produced 2. Contract that are prohibited by law. (i.e Sale between
electronically. (Sec 5 (f), R.A.8792) husband and wife, donation between husband and
wife)
Legal Recognition of Electronic Documents
Electronic documents shall have the legal effect, validity or ➢ The action or defense for the declaration of the
enforceability as any other document or legal writing, and - inexistence of a contract does not prescribe. (1410)
(a) Where the law requires a document to be in writing, that ➢ Interest paid in excess of the interest allowed by the
requirement is met by an electronic document if the said usury laws may be recovered by the debtor, with
electronic document maintains its integrity and reliability interest thereon from the date of the payment. (1413)
and can be authenticated so as to be usable for subsequent ➢ Where one of the parties to an illegal contract is
reference, in that – incapable of giving consent, the courts may, if the
a. The electronic document has remained complete and interest of justice so demands allows recovery of
unaltered, apart from the addition of any endorsement money or property delivered by the incapacitated
and any authorized change, or any change which person. (1415)
arises in the normal course of communication, storage ➢ When the agreement is not illegal per se but is merely
and display; and prohibited, and the prohibition by the law is
b. The electronic document is reliable in the light of the designated for the protection of the plaintiff, he may,
purpose for which it was generated and in the light of if public policy is thereby enhanced, recover what he
all the relevant circumstances. has paid or delivered. (1416)
(b) Paragraph (a) applies whether the requirement therein is ➢ When the price of any article or commodity is
in the form of an obligation or whether the law simply determined by statute, or by authority of law, any
provides consequences for the document not being person paying any amount in excess of the maximum
presented or retained in its original form. price allowed may recover such excess. (1417)
(c) Where the law requires that a document be presented or ➢ When the law fixes, or authorizes the fixing of the
retained in its original form, that requirement is met by an maximum number of hours of labor, and a contract is
electronic document if – entered into whereby a laborer undertakes to work
i. There exists a reliable assurance as to the integrity of longer than the maximum thus fixed, he may demand
the document from the time when it was first additional compensation for service rendered beyond
generated in its final form; and the time limit. (1418)
ii. That document is capable of being displayed to the ➢ When the law sets, or authorizes the setting of a
person to whom it is to be presented: Provided, That minimum wage for laborers, and a contract is agreed
no provision of this Act shall apply to vary any and upon by which a laborer accepts a lower wage, he
all requirements of existing laws on formalities shall be entitled to recover the deficiency. (1419)
required in the execution of documents for their ➢ In case of a divisible contract, if the illegal terms can
validity. be separated from the legal ones, the latter may be
For evidentiary purposes, an electronic document shall be the enforced. (1420)
functional equivalent of a written document under existing ➢ The defense of illegality of contract is not available to
laws. third persons whose interests are not directly affected.
This Act does not modify any statutory rule relating to the (1421)
admissibility of electronic data messages or electronic ➢ A contract which is the direct result of a previous
documents, except the rules relating to authentication and best illegal contract is also void and inexistent. (1422)
evidence. (Sec. 7, R.A. 8792)

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Multiple Choice 13. F disappeared without his whereabouts having been

1. M, minor enters into a contract with I, insane, in known sometime in 2004. Whereupon in 2006, W, his
connection with the sale of a house and lot for P500,000. wife, sold his house and lot worth P10,000,000 for only
Said contract is: P7,000,000 in favor of T in order to support the family. In
a. Valid d. Unenforceable 2008, F resurfaced and began staying with his family. In
b. Rescissible e. Void 2013, F decided to file an action to rescind the contract
c. Voidable with T. In this case:
2. M, minor enters into a contract with I, insane, in a. The contract of W with T is valid and, therefore,
connection with the sale of a house and lot for P500,000. rescission will not be available as a remedy.
However, the guardian of M ratifies the contract. b. If F can return the P7,000,000 to T and the house and
a. Valid d. Unenforceable lot has not been sold to a buyer in good faith, he can
b. Rescissible e. Void validly ask for rescission.
c. Voidable c. Even if F can return the P7,000,000 and the house
3. The guardian of an insane person sells a house and lot and lot has not been sold to a buyer in good faith,
belonging to the latter valued at P100,000 to B, buyer for rescission will not lie because more than 4 years had
P74,000 with the approval of the court. the contract is: elapsed from the reappearance and, therefore, his
a. Valid Unenforceable right to rescind has already prescribed.
b. Rescissible e. Void d. Correct remedy not indicated.
c. Voidable 14. S offered to sell to B his house and lot for P10,000,000.
4. A representative of an absentee sells a house and lot In order to pressure B into buying said house and lot, T, a
valued at P100,000 for only P60,000. The contract is: very good friend of S, threatened B with death as a result
a. Valid d. Unenforceable of which B accepted the offer of S. It turns out now that
b. Rescissible e. Void the market value of the house and lot is P15,000,000. Is
c. Voidable the contract of S and B valid?
5. Which of these contracts is not subject to ratification? a. The contract is valid since it is very clear that S did
a. Rescissible d. Void not apply the intimidation.
b. Voidable e. none of the above b. The contract is voidable because the consent given by
c. Unenforceable B is anyway vitiated even if the intimidation was
6. O is the owner of a car which was sold by S without employed by a third person.
authorization in favor of B. The contract between S and B c. The issue of the contract being voidable is not
in so far as O is concerned is: relevant because B will not have the contract
a. Valid d. Unenforceable avoidable because it is actually favorable to him.
b. Rescissible e. Void d. It is not B but S or T who can file the action for
c. Voidable annulment.
7. A voidable contract: 15. S sometime in 2016 sold to B a house and lot where the
a. Contract agreed to in state of drunkenness former committed fraud. The deed of sale which was in a
b. Contract agreed to during hypnotic spell public document was registered with the Register of
c. Contract where consent is given through undue Deeds in 2017. In 2019, the fraud was discovered by the
influence heirs of B. Under the Law, the action to annul a contract
d. All of the above based on fraud must be filed within four (4) years from:
8. The least defective contract: a. 2016 the date of the contract.
a. Voidable contract b. 2017 the date of registration with the Register of
b. Rescissible contract Deeds.
c. Unenforceable contract c. 2019 the date the fraud was discovered.
d. Void contract d. The action to annul a contract based on fraud is not
9. An oral sale of land for P500,000. subject to prescription.
a. Rescissible c. Unenforceable 16. Valentina orally promised to many Pedro as consequence
b. Voidable d. Void of which the latter contracted the Manila Cathedral as the
10. One of the parties to a contract is incapacitated: venue of the marriage, the whole of the Fiesta Pavilion of
a. Rescissble the Manila Hotel the bridal gown to be made by Pitoy
b. Voidable Moreno, spending all in all about P1,000,000. On the date
c. Unenforceable of the marriage, Valentina did not appear:
d. Void a. Pedro can legally compel Valentina to marry him.
11. An agreement in restraint of trade: b. Pedro cannot compel Valentina to pay damages
a. Perfectly valid because the mutual promise to marry was oral.
b. Voidable c. While Pedro cannot compel Valentina to marry him,
c. Unenforceable he can collect from Valentina damages.
12. An oral contract of guaranty: d. Pedro can neither collect damages from Valentina nor
a. Perfectly valid c. Unenforceable compel her to marry him.
b. Voidable d. Void 17. S and B agreed on the sale of a certain amount of opium
for the total price of P1,000,000. Which of these
statements is correct?
a. If S had delivered the opium, and B does not pay him,
he cannot ask for the return of the opium.

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b. If B had paid the P1,000,000 and S does not deliver

the opium, he cannot recover the price paid.
c. The opium and the consideration of P1,000,000 shall
be confiscated by the government.
d. All of the above.
18. O agreed to transfer to I, verbally, a residential lot in
consideration of a service or benefit already rendered by
the latter in favor of the former. Which of these is
correct?
a. The agreement being verbal involving real property is
unenforceable and therefore cannot be sued upon in
court.
b. The verbal agreement is enforceable because it is not
covered by the Statute of Fraud.
c. The law requires the agreement to be in writing at
least since it involves real property.
d. The transaction is covered by the Statute of Fraud
because it involves the sale of real property or any
interest therein.
19. A deaf-mute who knows how to write enters into a
contract with an insolvent person after his discharge, the
contract is:
a. Valid d. Unenforceable
b. Rescissible e. Void
c. Voidable
20. This results in the ratification of a contract violative of
the Statute of Fraud:
a. Receipt of benefits under the agreement.
b. Failure to object to the presentation of evidence
proving the oral agreement.
c. Both (a) and (b)
d. None of (a) and (b)
21. Which of the following contracts is not void ab initio?
a. The contract where the object is beyond the
commerce of man.
b. The contract whose cause, object or consideration is
against the law, morals, good customs or public
order.
c. The contract which is relatively simulated or
fictitious.
d. The contract where the intention of the relative to the
object thereof cannot be ascertained.
e. None of the above.

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