Title II.

Contracts
Chapter I. General Provisions a. Special disqualifications
1. FC 87
A. Definition – 1305 2. NCC 1490-91
- “cum trahere” to draw together 3. NCC 1782
- “contractus” a drawing together
- Juridical convention manifested in legal form, in which one or more parties bind themselves in favor of 3. What they may not stipulate – 1306
other parties for the fulfillment of a prestation a. Contrary to law – 1490-91
Prohibited stipulations:
B. Elements 1. Pactum commissorium (2088, 2137)
1. Essential elements (see Chapter II, infra) 2. Pactum leonine (1799)
a. Consent 3. Pactum de non alienando (2130)
b. Object b. Contrary to morals
c. Cause  Charging excessive interest/penalty
2. Natural elements c. Contrary to good customs
o exist even if not explicitly stipulated (law) d. Contrary to public order
3. Accidental elements (see D., 3., infra) e. Contrary to public policy
o Parties voluntarily agree upon (terms and conditions)  Injurious to the public, against public good, contravenes established interest of
society, undermines security of individual rights
C. Characteristics
1. Obligatory force – 1308 E. Classification
o Bind both parties 1. According to subject matter
o Bilateral: reciprocal obligations a. Things
o Unilateral: parties are brought together by one legal transaction which produces b. Services
consequences for both of them
o Escalation clause: allowing the creditor to increase interest rate (valid if due to extraneous 2. According to name
factors like market rates) a. Nominate (particular name eg sale)
b. Innominate – 1307
2. Mutuality – 1308-10 (1473)  Governed by provisions agreed upon by parties OR
o Third person may determine performance (notice must be given), subject to principles of  Provisions of Titles I and II
justice, equity, good faith  Rules governing the most closely analogous nominate contract
 Fix the purchase price  Customs of the place
 Arbitration
1. Do ut des (I give that you give)
3. Relativity 2. Do ut facias (I give that you do)
a. Contracts take effect only between the parties, their assigns and heirs – 1311 3. Facio ut facias (I do that you do)
4. Facio ut des (I do that you give)
b. No one may contract in the name of another – 1317
3. According to perfection
4. Consensuality a. By mere consent (consensual) – 1315
b. By delivery of the object (real) – 1316
D. Parties c. By compliance of formality of solemnity (formal/solemn)
1. Auto-contracts
o One person acting in two capacities (NCC 1890, agent empowered to borrow money can be 4. According to its relation to other contracts (dependence)
the lender) a. Preparatory (intended to bring about another contract)
b. Principal (can stand alone)
2. Freedom to contract – 1306 c. Accessory (cannot exist without principal contract)
o Freedom to enter into a contract
 GR: Person has right to decide to enter into a contract or not 5. According to form
 E: NC 448 mandatory lease contract between a person who introduces a. Common or informal – 1356-58
improvements on another person’s land b. Special or formal
 E: Power of eminent domain (mandatory sale)
o Freedom to stipulate whatever terms 6. According to purpose
 GR: free to stipulate whatever they wish a. Transfer of ownership (sale)
 E: not contrary to LMGCPOPP b. Conveyance of us (commodatum)
 c. Rendition of services (agency) - Manifestation (express/tacit) of intent
- Conformity of intent and its manifestation
7. According to the nature of the vinculum produced
a. Unilateral Offer requisites
b. Bilateral or reciprocal - Definite or certain
- Complete
8. According to cause - Intentional
a. Onerous (material cause e.g. interest-bearing loan)
b. Gratuitous or lucrative (liberality e.g. donation) Acceptance requisites
c. Remuneratory - Unequivocal
- Unconditional or absolute
9. According to risk - Amplified acceptance = acceptance of the original offer + part of the counter-offer
a. Commutative (definite)
b. Aleatory (subject to risk) Cognition Theory
- Acceptance binding upon knowledge of it, whether actual or constructive
Art. 1318. There is no contract unless the following requisites concur: - Compared to Manifestation Theory: binding upon manifestation of party’s acceptance
(1) Consent of the contracting parties; - Revocation of offer or acceptance applies likewise
- What happens if acceptance and revocation are simultaneously in transit? Whatever reaches its destination
(2) Object certain which is the subject matter of the contract; first is effective

(3) Cause of the obligation which is established. (1261) Silence

- Silence means yes if offeree must communicate his rejection (qui tacet consentire videtur)
Essential elements - In all other cases, silence does not mean consent has been given
- Consent, object, cause
Public Offers
Contracts which require more than consent - Ripens into a contract if an individual communicates his acceptance to the offeror
- Real contracts – require delivery - Performance does not constitute acceptance
- Formal contracts – require particular form
Art. 1320. An acceptance may be express or implied. (n)
Effect of Absence of Essential Elements
- Absent/defective consent = VOIDABLE - Regardless if express/implied, acceptance is effective only if communicated to the offeror
- No object or cause = VOID
- Simulated contracts = no object, cause, consent = VOID Art. 1321. The person making the offer may fix the time, place, and manner of acceptance, all of which must
- Contracts entered by a 3rd person on behalf of someone without his consent = VOIDABLE be complied with. (n)
- Absolutely no consent = VOID
- If contract of option, terms of the contract shall govern
SECTION 1. - Consent
Art. 1322. An offer made through an agent is accepted from the time acceptance is communicated to him. (n)
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 - As long as appointed person acts within his competence, acceptance made known to agent = acceptance
acceptance constitutes a counter-offer. communicated to the principal
Acceptance made by letter or telegram does not bind the offerer except from the time it came to his - If not with adequate authority, the agent is merely a messenger
knowledge. The contract, in such a case, is presumed to have been entered into in the place where the offer - Same rule applies to a person authorized by the offeree, otherwise he is merely a postman
was made. (1262a)
Art. 1323. An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either
Consent definition party before acceptance is conveyed. (n)
- Concurrence of offer and acceptance
o Concurrence on the object and cause - Consent involves concurrence of offer and acceptance. Death/civil interdiction/insanity/insolvency deprives
o Acceptance in all respects with the offer capacity, thus missing a requisite for consent
 Variance in either prevents consent, considered a counter-offer
Art. 1324. When the offeror has allowed the offeree a certain period to accept, the offer may be withdrawn
Consent requisites at any time before acceptance by communicating such withdrawal, except when the option is founded upon
- Plurality of subjects a consideration, as something paid or promised.
- Capacity of parties
- Intelligent and free will General rule: Offer can be withdrawn anytime before acceptance is communicated
Exception: Unless there is a consideration supporting the offer A threat to enforce one's claim through competent authority, if the claim is just or legal, does not vitiate
Art. 1325. Unless it appears otherwise, business advertisements of things for sale are not definite offers, but consent. (1267a)
mere invitations to make an offer. (n)
Art. 1336. Violence or intimidation shall annul the obligation, although it may have been employed by a third
Business advertisements person who did not take part in the contract. (1268)
- Public notices which contain barest of details which hardly constitute an offer
- Exception: If advertisement contains definite data, Art. 1337. There is undue influence when a person takes improper advantage of his power over the will of
another, depriving the latter of a reasonable freedom of choice. The following circumstances shall be
Art. 1326. Advertisements for bidders are simply invitations to make proposals, and the advertiser is not considered: the confidential, family, spiritual and other relations between the parties, or the fact that the
bound to accept the highest or lowest bidder, unless the contrary appears. person alleged to have been unduly influenced was suffering from mental weakness, or was ignorant or in
financial distress. (n)
GR: advertiser not bound to accept highest or lowest bidder
E: Contrary appears (advertiser binds himself to accept such offer); law requires it Art. 1338. There is fraud when, through insidious words or machinations of one of the contracting parties,
the other is induced to enter into a contract which, without them, he would not have agreed to. (1269)
Art. 1327. The following cannot give consent to a contract:
Art. 1339. Failure to disclose facts, when there is a duty to reveal them, as when the parties are bound by
(1) Unemancipated minors; confidential relations, constitutes fraud. (n)
(2) Insane or demented persons, and deaf-mutes who do not know how to write. (1263a)
Art. 1340. The usual exaggerations in trade, when the other party had an opportunity to know the facts, are
Art. 1328. Contracts entered into during a lucid interval are valid. Contracts agreed to in a state of not in themselves fraudulent. (n)
drunkenness or during a hypnotic spell are voidable. (n)
Art. 1341. A mere expression of an opinion does not signify fraud, unless made by an expert and the other
Art. 1329. The incapacity declared in Article 1327 is subject to the modifications determined by law, and is party has relied on the former's special knowledge. (n)
understood to be without prejudice to special disqualifications established in the laws. (1264)
Art. 1342. Misrepresentation by a third person does not vitiate consent, unless such misrepresentation has
Art. 1330. A contract where consent is given through mistake, violence, intimidation, undue influence, or created substantial mistake and the same is mutual. (n)
fraud is voidable. (1265a)
Art. 1343. Misrepresentation made in good faith is not fraudulent but may constitute error. (n)
Art. 1331. In order that mistake may invalidate consent, it should refer to the substance of the thing which is
the object of the contract, or to those conditions which have principally moved one or both parties to enter Art. 1344. In order that fraud may make a contract voidable, it should be serious and should not have been
into the contract. employed by both contracting parties.

Mistake as to the identity or qualifications of one of the parties will vitiate consent only when such identity Incidental fraud only obliges the person employing it to pay damages. (1270)
or qualifications have been the principal cause of the contract.
Ratio of vitiation of consent
A simple mistake of account shall give rise to its correction. (1266a) - Intelligent (made with sufficient understanding) (includes spontaneity)
o Incapacity, Mistake, fraud
Art. 1332. When one of the parties is unable to read, or if the contract is in a language not understood by him, - Free (no restraint on its exercise)
and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have o Violence, Intimidation, Undue influence
been fully explained to the former. (n)
Vitiated consent
Art. 1333. There is no mistake if the party alleging it knew the doubt, contingency or risk affecting the object - If one party, voidable; If both parties, unenforceable
of the contract. (n)
Incapacity
Art. 1334. Mutual error as to the legal effect of an agreement when the real purpose of the parties is - Minority/Insanity (no discretion and understanding) E: lucid interval
frustrated, may vitiate consent. (n) - Deaf-mute with illiteracy (easy prey for exploitation) E: with help of guardian
- Intoxication/Hypnotic spell (extent renders him unable to make intelligent choice)
Art. 1335. There is violence when in order to wrest consent, serious or irresistible force is employed.

There is intimidation when one of the contracting parties is compelled by a reasonable and well-grounded
fear of an imminent and grave evil upon his person or property, or upon the person or property of his spouse,
descendants or ascendants, to give his consent. Mistake
- Deprives the party of proper understanding regarding OBJECT or CAUSE of the contract
To determine the degree of intimidation, the age, sex and condition of the person shall be borne in mind. - No difference between ignorance (absence of comprehension) with error (mistaken notion), both refer to
lack of knowledge regarding a thing
- Refers to the following
o substance of the thing (object) Undue influence
o principal conditions (intent of parties) - More subtle and insidious than intimidation
o identity/qualifications of person (must be principal condition) - Presupposes a pre-existing power the perpetrator has over the will of the passive subject
o law - Exercise of moral authority or appeal to emotions
 exception: ignorance per NCC 3 - Undue influence must be strong enough to deprive victim of degree of volition required for contractual
 NCC 1334 mistake refers to legal effect of agreement, must be mutual, has the effect freedom
of frustrating the real purpose of the parties - Due influence = advertisements
 Unilateral mistake may be allowed if it is doubtful/difficult question of law
o Party is illiterate or unfamiliar with language Vitiating Factors done by third persons (acting without authority or consent of contracting party)
 Must be alleged by the mistaken party; other party must overcome presumption that - For violence and intimidation = voidable
other party understood the contract - Undue influence = code is silent but has same effect as violence and intimidation (voidable)
o Misrepresentation without intent to deceive (made through negligence or inaccurate knowledge) - Fraud = no effect (must be employed by contracting party)
Mistake is broader than fraud o Other party may take steps to avoid being defrauded (verify statements)
- If party is aware of doubt or risk, possibility of mistake is precluded. Contract becomes a contract of hazard - Third party liable for damages
or one with a suspensive condition - If fraud induces mutual substantial error, contract is voidable

Fraud Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when the parties do
- Deceit, every kind of deception for the purpose of leading another party into error and thus execute a not intend to be bound at all; the latter, when the parties conceal their true agreement.
particular act
- Three degrees of fraud: causante, incidental, dolus bonus Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does not
o Causante: serious fraud prejudice a third person and is not intended for any purpose contrary to law, morals, good customs, public
 Employed only by one party order or public policy binds the parties to their real agreement. (n)
 Induced the other to enter into the contract
 Serious Simulated contracts
 Caused damage or injury - Declaration of fictitious will deliberately made by both parties to produce a juridical act which does not exist
o Incidental: deceit not decisive in getting consent or is different from what is really executed
 Contract is valid but there is liability for damages
o Dolos bonus: good fraud/exaggerations in advertisements Kinds of simulated contracts
- Expression of opinion does not constitute fraud unless accompanied by deceit - Absolutely simulated (simulados)
- Non-disclosure of facts constitutes fraud under the following requisites o Parties do not intend to be bound at all
o Undisclosed fact is material to the contract o Contract of sale to take away property from the reach of the vendor’s creditors
o There is duty to reveal the fact
o Non-disclosure is accompanied or motivated by deceit - Relatively simulated (disimulados)
- Good faith excludes deceit, but not mistake o Disguised under the appearance of another contract
o Genuinely intend to enter into a contract but conceal the true nature of the contract
Vitiation of freedom o Donate a parcel of land, but to escape tax liability, disguise it as contract of sale
- Deprivation of free exercise of will o False cause
- Collectively referred to as duress
- Violence and intimidation known as metus (fear) Effects
- SImulados
Violence o Absolutely void (no consent, object, cause)
- External/physical force - Disimulados
- Requisites o Binds parties to their real agreement
o Must be irresistible o Fake contract will be considered according to its standards, otherwise void
o direct and determining cause in obtaining consent o Must not prejudice a third person or contrary to LMGCPOPP, otherwise void

Intimidation Absolute simulation and Pari Delicto

- Internal, moral, psychological force - constitutes a criminal offense, both have no action against each other but are both criminally liable
- Requisites
o Direct and determining cause in obtaining consent
o There is a threat
 Unjust and unlawful (act can be lawful)
 Imminent and serious SECTION 2. - Object of Contracts
 Produces a well-grounded fear that the person making it can carry it out
Art. 1347. All things which are not outside the commerce of men, including future things, may be the object
of a contract. All rights which are not intransmissible may also be the object of contracts. I. Cause of Contracts (why is it owed)
No contract may be entered into upon future inheritance except in cases expressly authorized by law. A. Concept
- Proximate/immediate/essential purpose of the contract
All services which are not contrary to law, morals, good customs, public order or public policy may likewise B. Cause and Object Distinguished
be the object of a contract. (1271a) - Remuneratory, cause is the service/benefit; object is thing given
- Gratuitous, cause is liberality; object is thing donated
Art. 1348. Impossible things or services cannot be the object of contracts. (1272) - Onerous, cause is the prestation of the other party, which could also be the object
C. Cause and Consideration Distinguished
Art. 1349. The object of every contract must be determinate as to its kind. The fact that the quantity is not - Cause = civil law; Consideration = common law
determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the - Cause is broader, does not require something material
same, without the need of a new contract between the parties. (1273) D. Cause and Motive Distinguished
- Cause = proximate/immediate reason; Motive = ultimate/final reason
I. Object of Subject-Matter of Contracts (what is owed) - Cause = objective, determined by law; Motive = subjective, differs from person to person
A. It is the quid (what) of the agreement - Failure of cause invalidates contract, failure of motive has no effect
- Most easily appreciated, most indispensable for the existence of the shadow of a contract - Exceptions of when motive affects validity
B. Prestation as object of contract o Realization of motive is a condition precedent of the contract
- Refers to conduct or activity to be observed/performed by the debtor o Motive gives rise to a mistake
- 1347-49 refers to OBJECT OF PRESTATION II. Requisites
- Ex. Contract of sale, prestation is the delivery of thing, while object of prestation is the thing itself - Real and not fictitious/simulated
- Licit
II. Requisites of object
A. Within commerce of man Art. 1351. The particular motives of the parties in entering into a contract are different from the cause
- Susceptible to appropriation and transmissibility thereof. (n)
- All-encompassing concept
B. Must exist or be capable of existing Art. 1352. Contracts without cause, or with unlawful cause, produce no effect whatever. The cause is unlawful
- Future property = did not exist, or if already existing it did not belong to the debtor, at the time if it is contrary to law, morals, good customs, public order or public policy. (1275a)
of the perfection of the contract
o Existence is a suspensive condition Art. 1353. The statement of a false cause in contracts shall render them void, if it should not be proved that
- Exceptions they were founded upon another cause which is true and lawful. (1276)
o NCC 751 donations
o NCC 1347 and 905 future inheritance I. Pertinence of article
C. Licit and not contrary to LMGCPOPP - Cause may be false but not absent, thus making contract valid
- Not necessarily against penal laws, could be mandatory or prohibitory
D. Possible Art. 1354. Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless
- Impossible object = void contract the debtor proves the contrary. (1277)
- Impossibility should exist at the time of perfection of contract; if impossibility is after perfection,
it will extinguish the obligation I. Exceptions
- Absolute impossibility = cannot be performed at all, void; relative impossibility = debtor cannot - NCC 1353 existence of cause will have to be proven if the stated cause is false
perform, void if impossibility is permanent - Contracts of option, consideration distinct from price is required
E. Determinative as to its kind, determinable as to its quantity
- If kind is not specified, contract is void Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract,
- If quantity is not specified, must be capable of determination unless there has been fraud, mistake or undue influence. (n)
F. Transmissible
- Within commerce of man = transmissible GR: Lesion/inadequacy of cause does not invalidate contract
E: Lesion is result of vitiated consent (contract voidable/rescissible)

CHAPTER 3
SECTION 3. - Cause of Contracts FORM OF CONTRACTS

Art. 1350. In onerous contracts the cause is understood to be, for each contracting party, the prestation or Art. 1356. Contracts shall be obligatory, in whatever form they may have been entered into, provided all the
promise of a thing or service by the other; in remuneratory ones, the service or benefit which is remunerated; essential requisites for their validity are present. However, when the law requires that a contract be in some
and in contracts of pure beneficence, the mere liberality of the benefactor. (1274) form in order that it may be valid or enforceable, or that a contract be proved in a certain way, that
requirement is absolute and indispensable. In such cases, the right of the parties stated in the following If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of the parties, the
article cannot be exercised. (1278a) proper remedy is not reformation of the instrument but annulment of the contract.

I. General Rule I. Based on equity

- Contracts perfected by mere consent, no specific form II. Definition
- Remedy in which a written instrument is made to express the real intention when some error or
II. Exceptions mistake has been committed
- Specific form is essential for validity III. Requisites
o NCC 748-9 Donations - Existing valid contract (genuine meeting of the minds)
o NCC 1773 partnership with immovable property contributed - Reduced to writing
o NCC 1874 sales of land through agent - Failed to reflect the true intent
o NCC 1956 stipulation on interest - Failure caused by mistake/fraud/inequitable conduct/accident/relative simulation
o NCC 2134 antichresis IV. Procedure done through Rule 63 ROC
- In writing is required for enforceability (not void)
o NCC 1403, 1443 Covered by Statute of Frauds Art. 1360. The principles of the general law on the reformation of instruments are hereby adopted insofar as
- In a public document for effectivity against third persons/registration they are not in conflict with the provisions of this Code.
o Real property, CPG, administration
General law = American law
III. Prescribed form for examples above is absolute and indispensable
- Cannot compel through judicial action for a party to follow the required form because contract is Art. 1361. When a mutual mistake of the parties causes the failure of the instrument to disclose their real
not enforceable/void to begin with agreement, said instrument may be reformed.

Art. 1357. If the law requires a document or other special form, as in the acts and contracts enumerated in Mistake = mutual, refers not to the agreement but to the manner it is reflected in the instrument
the following article, the contracting parties may compel each other to observe that form, once the contract
has been perfected. This right may be exercised simultaneously with the action upon the contract. (1279a) Art. 1362. If one party was mistaken and the other acted fraudulently or inequitably in such a way that the
instrument does not show their true intention, the former may ask for the reformation of the instrument.
Art. 1358. The following must appear in a public document:
Art. 1363. When one party was mistaken and the other knew or believed that the instrument did not state
(1) Acts and contracts which have for their object the creation, transmission, modification or extinguishment their real agreement, but concealed that fact from the former, the instrument may be reformed.
of real rights over immovable property; sales of real property or of an interest therein a governed by Articles
1403, No. 2, and 1405; Fraud in this case is passive in nature

(2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of Art. 1364. When through the ignorance, lack of skill, negligence or bad faith on the part of the person drafting
gains; the instrument or of the clerk or typist, the instrument does not express the true intention of the parties, the
courts may order that the instrument be reformed.
(3) The power to administer property, or any other power which has for its object an act appearing or which
should appear in a public document, or should prejudice a third person; Art. 1365. If two parties agree upon the mortgage or pledge of real or personal property, but the instrument
states that the property is sold absolutely or with a right of repurchase, reformation of the instrument is
(4) The cession of actions or rights proceeding from an act appearing in a public document. proper.

All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a Art. 1366. There shall be no reformation in the following cases:
private one. But sales of goods, chattels or things in action are governed by Articles, 1403, No. 2 and 1405.
(1280a) (1) Simple donations inter vivos wherein no condition is imposed;
(2) Wills;
GR: Contracts stated above are binding and enforceable even without being contained in a public document, but (3) When the real agreement is void.
needed for purposes of registration or proof of the contract
E: If falling under Statute of Frauds or sales exceeding P500, must be in writing to be enforceable I. Donations
- Formal contracts, if not executed in the proper form it is void (nothing to reform)
CHAPTER 4 - E: Onerous donations
REFORMATION OF INSTRUMENTS (n) II. Wills
- Not contracts, cannot be reformed
Art. 1359. When, there having been a meeting of the minds of the parties to a contract, their true intention - Formal documents
is not expressed in the instrument purporting to embody the agreement, by reason of mistake, fraud, III. Void agreements
inequitable conduct or accident, one of the parties may ask for the reformation of the instrument to the end - No contract between parties, nothing to reform
that such true intention may be expressed.
Art. 1367. When one of the parties has brought an action to enforce the instrument, he cannot subsequently Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who
ask for its reformation. caused the obscurity. (1288)

- Based on estoppel Based on equity; ambiguity should be resolved against the person who caused it
- When a party sues on the document, he admits its accuracy and faithfulness
Art. 1378. When it is absolutely impossible to settle doubts by the rules established in the preceding articles,
Art. 1368. Reformation may be ordered at the instance of either party or his successors in interest, if the and the doubts refer to incidental circumstances of a gratuitous contract, the least transmission of rights and
mistake was mutual; otherwise, upon petition of the injured party, or his heirs and assigns. interests shall prevail. If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity
of interests.
Exception: if contract is personal (intuit personae)
If the doubts are cast upon the principal object of the contract in such a way that it cannot be known what
Art. 1369. The procedure for the reformation of instrument shall be governed by rules of court to be may have been the intention or will of the parties, the contract shall be null and void. (1289)
promulgated by the Supreme Court.
A. Incidental circumstances
CHAPTER 5 - Gratuitous contract -> least transmission of rights (minimize diminution of patrimony)
INTERPRETATION OF CONTRACTS - Onerous contract -> greatest reciprocity between parties
B. Principal circumstances
Art. 1370. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, - Contract void
the literal meaning of its stipulations shall control.
If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the Art. 1379. The principles of interpretation stated in Rule 123 of the Rules of Court shall likewise be observed
former. (1281) in the construction of contracts. (n)

Intent > words, when there is a conflict Defective Contracts (general term for contracts outside the ambit of valid contracts)
1. Rescissible (extrinsic defect)
Art. 1371. In order to judge the intention of the contracting parties, their contemporaneous and subsequent - All requisites present
acts shall be principally considered. (1282) - Economic damage to 3rd persons (creditors, etc)
2. Voidable (intrinsic defect)
Take into consideration the circumstances and acts of the parties at the time of the contract and subsequent to it - Lack of proper consent (absent or vitiated)
- Valid until annulled by court action
Art. 1372. However general the terms of a contract may be, they shall not be understood to comprehend 3. Unenforceable (intrinsic defect)
things that are distinct and cases that are different from those upon which the parties intended to agree. - Lack of authority/writing/competence of parties
(1283) - Cannot be sued upon until ratified
4. Void/Inexistent (does not exist as a contract)
General terms are to be understood in a general sense - Object is not WELPDT or contract is expressly prohibited by law
- Incapable of ratification
Art. 1373. If some stipulation of any contract should admit of several meanings, it shall be understood as
bearing that import which is most adequate to render it effectual. (1284)

Presumption of validity = all parts fit together without conflict or inconsistency

- Similarly found in ROC Rule 130 and NCC 788/791 (testamentary interpretation)

Art. 1374. The various stipulations of a contract shall be interpreted together, attributing to the doubtful
ones that sense which may result from all of them taken jointly. (1285) CHAPTER 6
RESCISSIBLE CONTRACTS
Art. 1375. Words which may have different significations shall be understood in that which is most in keeping
with the nature and object of the contract. (1286) Art. 1380. Contracts validly agreed upon may be rescinded in the cases established by law. (1290)

Ex. “For the benefit of lessee”, subsequently area increases I. Concept of Rescission
- “benefit” is ambiguous, means lessee has the right to enjoy and use the increased area - Remedy granted by law to contracting and third parties to obtain compensation for damages
caused by a valid contract by means of the replacement of things to the state prior to the
Art. 1376. The usage or custom of the place shall be borne in mind in the interpretation of the ambiguities of celebration
a contract, and shall fill the omission of stipulations which are ordinarily established. (1287)
II. Rescission compared to 1191
Parties intended their agreement to be conformable to customs and usages - 1191 based on breach, 1380 based on economic damage or prejudice
- 1191 primary remedy, 1380 subsidiary remedy
 3. 1539 sale of goods – vendee can rescind if inferior value of the thing exceeds 1/10 of the price
III. Requisites agreed upon
- Contract under 1381 or 1382 4. 1556 sale of goods – vendee can rescind if he loses an important part of the thing by reason of
- No other means of obtaining reparation eviction
- Must be able to return whatever he may be obliged to return 5. 1560 sale of immovable property – vendee can rescind if property is encumbered with any non-
- Object of contract must not have passed to a third person apparent burden or servitude not mentioned
6. 1567 – vendee can either rescind the contract or demand reduction of price
IV. Extent
- As much as is necessary to make good the damage suffered D. 1382 (payments made which were not yet demandable)
- Remains effective insofar as no economic damage is caused 1. Payment made causes prejudice to creditors with already existing credits
2. Payments of obligations which are fictitious, void, natural, prescribed, remitted, subject to a
Art. 1381. The following contracts are rescissible: suspensive term not yet arrive, subject to a suspensive condition
3. State of insolvency means the lack of assets to meet legal obligations
(1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by
more than one-fourth of the value of the things which are the object thereof; Art. 1383. The action for rescission is subsidiary; it cannot be instituted except when the party suffering
damage has no other legal means to obtain reparation for the same.
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding
number; I. From whom can reparation is demandable
1. Vendee, or in his absence the guardian/representative (quasi-delict)
(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due 2. The other contracting party
them;
Art. 1384. Rescission shall be only to the extent necessary to cover the damages caused.
(4) Those which refer to things under litigation if they have been entered into by the defendant without the
knowledge and approval of the litigants or of competent judicial authority; Rescission not only subsidiary, but also pro tanto.

(5) All other contracts specially declared by law to be subject to rescission. (1291a) Art. 1385. Rescission creates the obligation to return the things which were the object of the contract,
together with their fruits, and the price with its interest; consequently, it can be carried out only when he
Art. 1382. Payments made in a state of insolvency for obligations to whose fulfillment the debtor could not who demands rescission can return whatever he may be obliged to restore.
be compelled at the time they were effected, are also rescissible. (1292)
Neither shall rescission take place when the things which are the object of the contract are legally in the
I. Rescissible Contracts possession of third persons who did not act in bad faith.
A. Made by guardian/representative for a ward/absentee with lesion in excess of ¼ of the value of the
contract’s subject matter In this case, indemnity for damages may be demanded from the person causing the loss.
1. Lesion = economic prejudice/pecuniary damage
2. Lesion must exceed ¼ of the thing’s value I. Mutual Restitution
3. Criticism – goods have no true value; lesion as presumption of undue influence - Extent depends on the extent of rescission (partial/total)
4. Court-approved contracts not rescissible (involving real property); contracts involving personal - Not applicable where third party suffered damage since they received nothing under the contract
property are rescissible - If mutual restitution is required but cannot be made (thing is lost or has passed to a third person
5. Lesion determinable at time of transaction in good faith), damages instead
6. Ward/absentee is the proper party to demand rescission
Art. 1386. Rescission referred to in Nos. 1 and 2 of Article 1381 shall not take place with respect to contracts
B. Accion Pauliana approved by the courts. (1296a)
1. Requisites
- Credit prior to alienation Art. 1387. All contracts by virtue of which the debtor alienates property by gratuitous title are presumed to
- Subsequent contract conveying patrimonial benefit have been entered into in fraud of creditors, when the donor did not reserve sufficient property to pay all
- No other legal remedy debts contracted before the donation.
- Impugned act is fraudulent
o Gratuitous – donor did not reserve property to pay existent debts Alienations by onerous title are also presumed fraudulent when made by persons against whom some
o Onerous – alienation after judgement/writ of attachment judgment has been issued. The decision or attachment need not refer to the property alienated, and need
- Third party is an accomplice not have been obtained by the party seeking the rescission.

C. Special cases of rescission provided by law In addition to these presumptions, the design to defraud creditors may be proved in any other manner
1. 1526 sale of goods - unpaid seller can withhold delivery of the good in transit recognized by the law of evidence. (1297a)
2. 1534 sale of goods – unpaid seller can rescind transfer of title if buyer in default
Art. 1388. Whoever acquires in bad faith the things alienated in fraud of creditors, shall indemnify the latter - Effective until judicially set aside
for damages suffered by them on account of the alienation, whenever, due to any cause, it should be - Assailed directly, not collaterally
impossible for him to return them. - Can be ratified
- Assailed only by the party with defective consent
If there are two or more alienations, the first acquirer shall be liable first, and so on successively. (1298a)
II. Distinctions on the basis of age (Chilean Code)
I. Liability of Acquirer in Bad Faith - Nino/Infante (infant) below 7, absolutely incapable of being parties
- Applies whether alienation is onerous or gratuitous (bad faith = acquirer knows that alienation - Impuber (pre-pubescent) below 14/12
would prejudice creditors) - Adulto (adult) past pre-pubescence
- Acquirer becomes insurer of the thing, incurs no liability if he is able to deliver the monetary - NCC, regardless of age, contracts entered by minors are voidable
equivalent of the thing
Art. 1391. The action for annulment shall be brought within four years.
Art. 1389. The action to claim rescission must be commenced within four years.
This period shall begin:
For persons under guardianship and for absentees, the period of four years shall not begin until the In cases of intimidation, violence or undue influence, from the time the defect of the consent ceases. In case
termination of the former's incapacity, or until the domicile of the latter is known. (1299) of mistake or fraud, from the time of the discovery of the same.

GR: prescription counts from the time of the celebration of the contract And when the action refers to contracts entered into by minors or other incapacitated persons, from the time
E: period begins once the prejudiced creditor has knowledge of the contract the guardianship ceases. (1301a)
E: for wards and absentees, period begins when incapacity is terminated or domicile is known
1. Violence/Intimidation/Undue Influence – when it ceases
2. Mistake/Fraud – time of discovery
3. Minors/Incapacitated persons – when guardianship ceases/attains majority

Art. 1392. Ratification extinguishes the action to annul a voidable contract. (1309a)

I. Curing the defect of a voidable contract - Confirmation

A. Confirmation – mode or process of curing the defect
B. Ratification – curing the defect of a contract entered without authority or excess of it
C. Acknowledgement – curing the defect of proof (oral to written contract)

II. Requisites
- Contract is voidable
- Made consciously and deliberately (with knowledge of defect)
- Made after the cessation of the cause of voidability
- Made by the party whose consent was defective/vitiated, or his guardian

III. Effects
- Curative (converts to a valid contract) and retroactive (from time of perfection)
Art. 1393. Ratification may be effected expressly or tacitly. It is understood that there is a tacit ratification if,
with knowledge of the reason which renders the contract voidable and such reason having ceased, the person
who has a right to invoke it should execute an act which necessarily implies an intention to waive his right.
CHAPTER 7 (1311a)
VOIDABLE CONTRACTS
I. Forms of Ratification
Art. 1390. The following contracts are voidable or annullable, even though there may have been no damage A. Express – statement or declaration of adopting the contract
to the contracting parties: B. Implied – act/conduct/behavior with an intention to accept the contract (ie. performance)
(1) Those where one of the parties is incapable of giving consent to a contract;
Art. 1394. Ratification may be effected by the guardian of the incapacitated person. (n)
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.
Art. 1395. Ratification does not require the conformity of the contracting party who has no right to bring the
These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of action for annulment. (1312)
ratification. (n)
Right to ratify/annul belongs to the one with defective consent. Other party estopped.
I. Characteristics of Voidable Contracts
Art. 1396. Ratification cleanses the contract from all its defects from the moment it was constituted. (1313) - If in bad faith, same as fraud/fault
- Tolentino: liable only for value of thing and fruits
Confirmation waives the right to annul only to the ground encompassed. - Others: no liability
- A minor who confirms a contract upon attaining majority cannot sue on the ground of minority, but can still
sue for annulment on the ground of fraud/mistake II. If thing is lost and party without capacity has to return
A. Due to fraud or fault
Art. 1397. The action for the annulment of contracts may be instituted by all who are thereby obliged - Right to annul is extinguished
principally or subsidiarily. However, persons who are capable cannot allege the incapacity of those with B. Due to fortuitous event
whom they contracted; nor can those who exerted intimidation, violence, or undue influence, or employed - Tolentino: right to annul if he can return the value of the thing
fraud, or caused mistake base their action upon these flaws of the contract. (1302a) - Caguioa: right to annul and demand thing from other party, no obligation to return

I. Who may Institute Action Art. 1402. As long as one of the contracting parties does not restore what in virtue of the decree of annulment
A. Incapacitated person/his successors/those bound principally or subsidiarily with him he is bound to return, the other cannot be compelled to comply with what is incumbent upon him. (1308)
- Successors are subrogated into the rights of their predecessor
- Subsidiaries cannot sue if they knew of the defect or if they were meant to assume liability in the Decree of annulment still binding even if there is no mutual restitution
event of annulment

Art. 1398. An obligation having been annulled, the contracting parties shall restore to each other the things
which have been the subject matter of the contract, with their fruits, and the price with its interest, except
in cases provided by law.

In obligations to render service, the value thereof shall be the basis for damages. (1303a)

I. Mutual Restitution
- If in good faith, no need to return fruits
- E: unjust enrichment
o Rental paid for a year, then asked to be returned after x months
- There is also liability for damages if there is fraud or duress

Art. 1399. When the defect of the contract consists in the incapacity of one of the parties, the incapacitated
person is not obliged to make any restitution except insofar as he has been benefited by the thing or price
received by him. (1304)

No benefit = no liability to return

Benefit = use to which a prudent person would have devoted the thing
Art. 1400. Whenever the person obliged by the decree of annulment to return the thing can not do so because
it has been lost through his fault, he shall return the fruits received and the value of the thing at the time of
the loss, with interest from the same date. (1307a)

If thing is lost, return only the fruits + value of the thing at the time of loss + interest

Art. 1401. The action for annulment of contracts shall be extinguished when the thing which is the object
thereof is lost through the fraud or fault of the person who has a right to institute the proceedings.

If the right of action is based upon the incapacity of any one of the contracting parties, the loss of the thing
shall not be an obstacle to the success of the action, unless said loss took place through the fraud or fault of
the plaintiff. (1314a)

I. If thing is lost and party with capacity has to return

A. Due to fraud or fault
- Value of thing
- Fruits
- Interest
- Damages
B. Due to fortuitous event