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CONTRACTS
What is a contract?
Art. 1305. A contract is a meeting of the minds between 2 persons whereby one
binds himself, with respect to the other, to give something or to render some
service.

I. Classifications of Contracts:
I. According to Degree of Dependence
1. Principal – when the contract does not depend for its existence and validity
upon another contract (e.g., sale, lease)
2. Accessory – depends on another contract for its existence and validity (e.g.,
mortgage, guaranty, surety)
– the contract is entered into as a means through which future
3. Preparatory e contracts may be made (e.g., agency, partnership)

II. According to manner of Perfection:

1. Consensual – perfected by mere consent of the parties on the subject matter
and cause. (e.g., Contract of Sale)
2. Real – perfected by delivery of the object of the contract (e.g., commodatum,
pledge, deposit, mutuum)
3. Formal/Solemn – require a certain specified form, in addition to consent,
subject matter and cause ( (e.g., donation of real property)

III. According to their name:

1. Nominate – those which have a specific name or designation in law (e.g., lease,
sale, agency)
2. Innominate – those which have no specific designation or name in law but
recognized in the civil code. The kinds of innominate contracts are:
a. Do ut des – I give that you may give
b. Do ut facias – I give that you may do
c. Facio ut des – I do that you may give
d. Facio ut facias – I do that you may do

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IV. According to cause:

1. Onerous – The cause is, for each contracting party, the prestation or promise
of a thing or service by the other (e.g., contract of sale)
2. Remuneratory– where the cause is the service or benefit for which the
remuneration is given.
a. Note: In a remuneratory donation, the past service or debt is not by itself a
recoverable debt.
3. Gratuitous (or contracts of pure beneficence) – founded on the mere liberality
of the benefactor (e.g., pure donation, Contract of Commodatum)

V. According to the Risk Involve:

1. Commutative – when the undertaking of one party is considered the equivalent
of that of the other (e.g., sale, lease)
2. Aleatory – when it depends upon an uncertain event or contingency both as to
benefit or loss (e.g., insurance, sale of hope)

VI. According to Subject matter:

1. Things – e.g., sale, pledge, mortgage
2. Services – e.g., leases of services or agency
3. Rights – provided they are not personal or intransmissible

VII. According to Purpose:

1. to transfer ownership – e.g., sale, barter
2. to convery the use – e.g., commodatum or lease
3. to give security – e.g., pledge or mortgage
4. to render some service. – e.g., agency

II. CHARACTERISTICS OF A CONTRACT

• 1. The Obligatory Force or character of a contract.
• 2. The Autonomy of contracts.
• 3. The mutuality of Contracts.
• 4. The Relativity of Contracts.

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1. Obligatory Force
• Art. 1315. Contracts are perfected by mere consent, and from that moment
the parties are bound not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which, according to their nature,
may be in keeping with good faith, usage and law.
Requisites for a Contract to be obligatory:
1. It is perfected.
2. It is valid.
3. It is enforceable.

2. Autonomy of Contracts
• Art. 1306. The contracting parties may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or public policy.
• Examples of Stipulations that are Void.
• Pactum commissorium: automatic appropriation of the things given by way
of pledge or mortgage, in case of non-payment of principal obligation
• Pactum de non alienado: forbidding the owner from alienating the
immovable mortgaged
• Pactum leonina: excluding one or more partners from any share in the
profits or loss

3. Mutuality of Contracts
• Art. 1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.
• Art. 1309. The determination of the performance may be left to a third
person, whose decision shall not be binding until it has been made known to
both contracting parties.
• Purpose: render void a contract containing a condition which makes it
fulfillment dependent upon the uncontrolled will of one of the contracting
parties.
• Both parties should have control over the stipulations and dispositions
stated in the contract
• Exception: An example of a determination made by a 3rd person (Article
1309) is the fixing of the price by the 3rd person.

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• Contract of Adhesion – imposes a ready-made from of contract, which the

other party may accept or reject but cannot be modified. It is valid. e.g.,
Contract of Insurance, Bank contracts.

4. Relativity of Contracts
• Contracts can only bind the parties who entered into it, and it can bind
parties who entered into it, it cannot favor nor prejudice third persons.
• Art. 1311. Contracts take effect only between the parties, their assigns and
heirs, except in case where the rights and obligations arising from the
contract are not transmissible by their nature, or by stipulation or by
provision of law. The heir is not liable beyond the value of the property he
received from the decedent.
General Rule: The contract is binding only upon the parties and their successors
(Article 1311). However, it cannot bind the persons enumerated above if:
• 1. if the contract is purely personal (intuitu personae),
• 2. Stipulation of parties
• 3. Provision of law

Exception that contract will only bind the parties involve:

1. In Accion pauliana (Article 1177) –creditor can impugn acts of the debtor which
he made to defraud him. An action involving a contract in fraud of creditors.

2. In Accion directa - A direct (not subrogatory) action by the creditor against his
debtor’s debtor, a remedy which gives the creditor the prerogative to act in his own
name, such as the actions of the lessor against the sublessee (Article 1652), the
laborer of an independent contractor against the owner (Article1729), the principal
against the subagent (Article 1893), and the vendor-a-retro against the transferee
of the vendee (Article 1608).

3. When the object of the contract is in possession of a third person who has valid
title thereat. (Art. 1312) e.g., sale of mortgage property to an innocent buyer for
value.

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4. Stipulation pour autrui – stipulation in favor of a 3rd person.

Art. 1311, p.2. If a contract should contain some stipulation in favor of a third
person, he may demand its fulfillment provided he communicated his acceptance
to the obligor before its revocation. A mere incidental benefit or interest of a
person is not sufficient. The contracting parties must have clearly and deliberately
conferred a favor upon a third person.

5. A third person who induces another to violate his contract can be made liable for
damages to the other contraction party. (Art. 1314)
• This is TORT INTERFERENCE

III. ELEMENTS OF A CONTRACT

1. Essential Elements – necessary for the very existence of a contract.

• A. Consent
• B. Object
• C. Cause
2. Natural Elements – these elements are not presumed for the existence of the
contract but are presumed to exists in certain contracts. E.g., warranty in case of
eviction in Contract of Sale
3. Accidental elements – elements exist only when the parties expressly provide
such as terms, clauses, conditions.

Essential Elements of a Contract.

Consent

• Consent – it is the conformity of wills, it is the agreement of the will of one

contracting party with that of another or others, upon the object and terms
of the contract.
• Art. 1319, 1st sentence. Consent is manifested by the meeting of the offer
and the acceptance upon the thing and the cause which are to constitute the
contract.
• It is the ESSENCE of a contract.

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Elements of Consent:
a. Plurality of subjects
b. Capacity
c. Intelligent and free will
d. Express or tacit manifestation of the will
e. Conformity of the internal will and its manifestation

Offer is a unilateral proposition which 1 party makes to the other for the
celebration of a contract.
Art. 1321. The person making the offer may fix the time, place, and manner
of acceptance, all of which must be complied with.

Requisites of Offer
a. Definite - The offer must be definite, so that upon acceptance, an agreement
can be reached on the whole contract.

b. Complete - The offer must be complete, indicating with sufficient clearness the
kind of contract intended and definitely stating the essential conditions of the
proposed contract as well as the non-essential ones desired by the offeror.

c. Intentional - An offer without seriousness, made in such manner that the other
party would not fail to notice such lack of seriousness, is absolutely without juridical
effects and cannot give rise to a contract (i.e. must not be made in jest, or a prank).

Cases not considered as offer:

1. Advertisement of things for sale.
2. Advertisement or invitation for bidders.
3. Auction Sale

Termination of offer:
• 1. By Action of the Offeror- as when there is revocation or withdrawal
of offer.
• 2. By Action of the offeree – rejection of offer or the presence of
counter offer.

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• counter offer- rejection of the original offer and a making of a

new offer, there is no acceptance in this case, unless accepted
by the original offeror.
• 3. By operation of law
• A. lapse of time
• B. Death, civil interdiction, insanity or insolvency of the parties.
(Art. 1323)
• C. Illegality of the purpose of the contract.
• D. Destruction of the Subject matter.

Option Contract - it is a preparatory contract, which one party grants to the other
for a fixed period and under specified conditions the power to decide whether or
not to enter into a principal contract.
Art. 1324. When the offeror has allowed the offeree a certain
period to accept, the offer may be withdrawn at any time
before acceptance by communicating such withdrawal,
except when the option is founded upon consideration,
something paid or promised.

- It binds the party who has given the option (offeror), not to enter into a
principal contract with any other person during the period designated, and
within that period, to enter into such contract.
- It is separate and distinct from a contract.
- It must be supported by a consideration (money, other things or any
undertaking).
- If offer was not supported by consideration, the offer might be withdrawn
anytime by the offeror pending the acceptance of offer by the offeree. IF no
withdrawal was made, and the offeree choose to accept, then there is a
perfected contract of sale.
- Example: A offered B to buy his land within the period of two years.
1. In this case A (offeror) is proposing to B (offeree) to buy his land within the
period contemplated.
2. For it to be binding, a consideration must be given by B to A e.g., a certain
price for him to have the benefit of the period contemplated.
3. If the option contract is binding to both parties:

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a. A cannot offer the land to other person except to B within the period
contemplated.
b. B has the right to buy, but is not obliged to buy the land.
c. After the lapse of the period Contemplated and B did not exercise
his right to buy, A can now offer to another person. A at this point is
not obligated to sell the land to B even if B thereafter decided to buy.
d. If B decided to buy the land within the period contemplated, he
must communicate his acceptance to A (offeror), then a valid contract
of sale is perfected.
e. The consideration paid by B to the option contract DOES NOT form
part of the purchase price, if he elects to accept the offer of sale.

ACCEPTANCE
Requisites of Acceptance
a. Unequivocal
b. Unconditional – it must be absolute or unqualified.
• If the acceptance is qualified, then that is a counter-offer (Article 1319, 3rd
sentence).
- Mirror-Image Doctrine – acceptance must be identical in all respects with
that of the offer so as to produce consent or meeting of the minds. All the
terms and conditions offered should be accepted by to form consent. Any
deviation thereat constitutes counter-offer.

Manner of Acceptance (Art. 1320)

a. Express
b. Implied
c. Unless the law requires a particular format or manner expressing such consent
(Luzon Development Bank vs. Angeles)

1. Theories Related to Acceptance

a. Cognition Theory -Article 1319, par. 2. Acceptance made by letter of telegram
does not bind the offerer except from the time it came to his knowledge.

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• Offer and acceptance takes effect only from the time knowledge is
acquired by the person to whom it is directed. If during intervening time, the
offer or acceptance is extinguished by death/insanity, such offer or
acceptance has no more effect.
Example: Offeror gave offer on March 1. The offer reached the offeree on
March 5. From the point of view of the offeror, offer is counted from March
5. He can still countermand before March 5.
• If the parties are face to face, then there is no problem since there is no t
ime gap.
b. Manifestation Theory – Contracts are perfected upon the moment acceptance
is declared, regardless of whether the declaration has come to the knowledge of
the offeror or not.
c. Expedition Theory – Contracts are perfected the moment the offeree transmits
the acceptance to the offeror, such as the letter or telegram of acceptance is placed
in the mail box.
d. Reception Theory – Contracts are perfected upon the time the acceptance is in
the hand of the offeror (regardless of knowledge or if he read the same)
Note: Offer by telephone similar to face to face conversation.

2. Offers Through Agents

Art. 1322. An offer made through an agent is accepted from the
time acceptance is communicated to him.

3. Silence – for silence to produce implied or tacit acceptance the

following must be present.
a. There is a duty or the possibility to express oneself;
b. The manifestation of the will cannot be interpreted in any other
way;
c. There is a clear identity in the effect of the silence and the
undisclosed will
4. Withdrawal of Acceptance- acceptance can be withdrawn or revoked before it
is made known to the offeror.

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CAPACITY TO GIVE CONSENT

- Legal capacity to give consent is an essential element for the existence of the
contract.
- Persons incapable of giving consent:
o Unemancipated minor
 minority is defined as a person below 18 y.o.
 the contract entered into by the minor is a voidable contract.
Which can be valid if he ratified the same upon attaining the age
of majority
 If a minor cannot annul a contract he entered into if he reached
the age of majority, if he active misrepresent himself to be of
legal age when the contract was constituted.
o Insane or Demented person
 General Rule – insane people cannot give consent.
 Exception – if the contract was entered into during their lucid
interval, the contract is valid.
o Deaf-mutes who do not know how to write
 Illiterates as a rule can validly enter into contracts provided that
the terms are fully explained in a language understandable to
him, before he can give his consent.
o Persons suffering from civil interdiction.
 Civil interdiction is an accessory penalty imposed other than
imprisonment to those who committed a crime. That person is
deprived of his right to enter into a contract and other rights
granted by law and Constitution.
o Incompetents under guardianship.

OBJECT
- The object of the contract is the prestation.

A. What may be Objects of a Contract?

1. All things which are not outside the commerce of men, including future things.
(Art. 1347)

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2. All rights which are intransmissible.

3. All services which are not contrary to law, morals, good customs, public order or
public policy.

B. Requisites of Object of Contracts:

1. The object must be within the commerce of men.

- Within the commerce of man means that the object is capable of
appropriation and transmission.
- The term “in potency” means that the object will come into existence in the
future.
- Generally in reciprocal contracts particularly sales, the sale of future things
is allowed. For example, it is possible to sell the future harvest of a farm.
- The coming into being of the future thing is a suspensive condition.
- Emptio rei speratae is a conditional sale. There isa suspensive condition. If
the future thing does not come into existence, then there is no contract of
sale.
• Emptio spei is the sale of a hope. Even if the future thing does not
materialize, the buyer must pay since the buyer is taking a chance. (i.e. sale
of lotto ticket). Hope is a present thing.
• Some future things are not allowed to be objects of the prestation.

2. The object must be real or possible, either physically or legally

- If the object is impossible, then the contract is void for lack of cause.
- Article 1348 does not talk of supervening impossibility which is a mode of
extinguishments.
- Impossibility under Article 1348 must be actual and contemporaneous with
the making of the contract.

3. The object must be licit.

- not contrary to law, morals, good customs, public order or public policy.

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4. The object must be determinate as to its kind and determinable as to its

quantity (Article 1349)
- The object need not be individualized. It must be determinate as to its kind
or species.
- The quantity of the object may be indeterminate, so long as the right of the
creditor is not rendered illusory.

CAUSE
- Cause is the why in the contract, the essential reason which moves the
contracting parties to enter into the contract.
- It is the essential reason which moves the contracting parties to enter into it.

Requisites for Cause or Consideration

1. It must Exist
- if cause does not exist it produces no effect, it is void or inexistent at the
beginning.
2. It must be True.
- the statement of a false cause renders the contract void.
- Simulated Contracts
a. Absolutely Simulated (contrato simulado) - Absolute simulation of a
contract takes place when the parties do not intent to be bound at all (Article
1345).
• For example, X pretends to sell his car to avoid tax liability. However, X has
no real intention to sell the car.
• An absolutely simulated or fictitious contract is void (Article 1346)

b. Relatively Simulated (contrato disimulado)- Relative simulation of a

contract takes place when the parties conceal their true agreement (Article
1345).
• In a relatively simulated contract, the parties enter into a contract but
disguise it as another.
3. It must be licit.

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Cause vs. Motive

Art. 1351. The particular motives of the parties in entering into a contract are
different from the cause thereof.
- General Rule: Motive as a General Rule does not affect the contract.
- Exception: Motive affects the contract when
1. The motive becomes a suspensive condition; or
2. The realization of the motive is the cause for the contract and there is an
intervening serious mistake of fact.

FORMS OF CONTRACTS

Art. 1356. Contracts shall be obligatory, in whatever form they may have
been entered into, provided all the essential requisites for their validity are
present. However, when the law requires that a contract be in some form in
order that it may be valid or enforceable, or that a contract be proved in a
certain way, that requirement is absolute and indispensable. In such cases,
the right of the parties stated in the following article cannot be exercised.

Art. 1357. If the law requires a document or other special form, as in the act
and contracts enumerated in 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.

Art. 1358. The following must appear in a public document:

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(1) Acts and contracts which have for their object the creation, transmission,
modification or extinguishment of real rights over immovable property; sale
of real property or of an interest therein a governed by articles 1403, No. 2,
and 1405;
(2) The cession, repudiation or renunciation of hereditary rights or of those
of the conjugal partnership of gains;
(3) The power to administer property, or any other power which has for its
object an act appearing or which should appear in a public document, or
should prejudice a third person;
(4) The cession of actions or rights proceeding from an act appearing in a
public document.

All other contracts where the amount involved exceeds five

hundred pesos must appear in writing, even a private one. But sales of
goods, chattels or things in action are governed by articles, 1403, No.
2 and 1405.

General Rule: There is no need for a specific form, but there must still be some
manifestation of consent.
Exception: When the written form is required
1. For validity
• If it not written, the same is void.
• Examples are donations (Articles 748, 749), antichresis (Article 2134), interest in
a loan (Article 1956), sale of land by an agent (Article 1874), contribution of
immovables in a partnership (Article 1773)

2. For enforceability (Statute of Frauds, Art. 1403)

• The contract is unenforceable if it is not written.
a. An agreement that by its terms is not to be performed within a year from the
making
b. A special promise to answer for the debt, default or miscarriage of another
c. An agreement made in consideration of marriage, other than a mutual promise
to marry

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d. An agreement for the sale of goods, chattels or things in action, at a price not
less than P500, unless the buyer accepts and receives part of such goods and
chattels, or the evidence, or some of them, of such things in action, or pay at the
time some part of the purchase money; but when a sale is made by auction and
entry is made by the auctioneer in his sales book, at the time of sale, of the amount
and kind of property sold, terms of sale, price, names of the purchasers and person
on whose account the sale is made, it is a sufficient memorandum
e. An agreement of lease for a period of more than 1 year, or the sale of real
property or of an interest therein.
f. A representation as to the credit of a 3rd person
g. No express trusts concerning an immovable or any interest therein may be
proved by parol evidence.

3. For registrability (Art. 1358)

- Contracts enumerated in Article 1358 are valid as between the contracting
parties even when they have not been reduced to public or private writings.

Reformation of Instruments

Art. 1359. When, there having been a meeting of the minds of the parties to a
contract, their true intention is not expressed in the instrument purporting to
embody the agreement, by reason of mistake, fraud, inequitable conduct or
accident, one of the parties may ask for the reformation of the instrument to the
end that such true intention may be expressed. If mistake, fraud, inequitable
conduct, or accident has prevented a meeting of the minds of the parties, the
proper remedy is not reformation of the instrument but annulment of the
contract.

A. Instances when a contract may be Reformed:

1. Mutual mistake of the parties causes the failure of the instrument to disclose
their real agreement (Art. 1361)

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2. 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. 1362)
3. One party was mistaken and the other knew or believed that the instrument did
not state their real agreement, but concealed that fact from the former. (Art. 1363)
4. When through the ignorance, lack of skill, negligence or bad faith on the part of
the person drafting the instrument or of the clerk or typist, the instrument does
not express the true intention of the parties. (Art. 1364)
5. 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. (Art. 1365)

B. No Reformation in contracts such as: (Art. 1366)

1. Simple Wills or donations with no condition imposed.
2. Wills
3. When the real agreement is void.

C. If a party seeks to enforce the contract, he cannot thereafter seek for

Reformation. (Art. 1367)

Interpretation of Contracts
A. Rules:
1. When the terms of the agreement are so clear and explicit that they do not
justify an attempt to read into it any alleged intention of the parties, the terms
are to be understood literally just as they appear on the face of the contract.
2. When the true intent and agreement of the parties is established, it must be
given effect and prevail over the bare words of the written agreement.
3. Where the instrument is susceptible of 2 interpretations, 1 which will make it
invalid and illegal, and another which will make it valid and legal, the latter
interpretation should be adopted.
4. In the construction of an instrument where there are several provisions or
particulars, such a construction is, if possible, to be adopted as will give effect
to all.

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5. When there is doubt as to the meaning of any particular language, it should be

determined by a consideration of the general scope and purpose of the
instrument in which it occurs.
6. An instrument may be construed according to usage in order to determine its
true character.
7. The party who draws up a contract in which obscure terms or clauses appear,
is the one responsible for the obscurity or ambiguity; they must therefore be
construed against him.

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Defective Contracts
1. Rescissible Contracts
2. Voidable Contracts
3. Unenforceable Contracts
4. Void Contracts
*** The order of these defective contracts reflect the degree of defect that they
have. Rescissible contracts are the least defective among the four, and a Void
contract is the most defective considering that it produces no legal effect and that
the fact it is inexistent from the beginning.

1. RESCISSIBLE CONTRACTS- is a contract which is valid because it contains all the

essential requisites prescribed by law, but which is defective because of injury or
damage to either of the contracting parties or to 3rd persons, as a consequence of
which it may be rescinded by means of a proper action for rescission.

a. What contracts are rescissible?

Art. 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the
wards whom they represent suffer lesion by more than one-
fourth of the value of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the
latter
suffer the lesion stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter
cannot in any other manner collect the claims due them;
(4) Those which refer to things under litigation if they have been
entered into by the defendant without the knowledge and
approval of the litigants or of competent judicial authority;
(5) All other contracts specially declared by law to be subject to
rescission.

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Art. 1382. Payments made in a state of insolvency for

obligations to whose fulfillment the debtor could not be
compelled at
the time they were effected, are also rescissible.

b. Effect of Rescission- Mutual Restitution

Art. 1385. Rescission creates the obligation to return the things
which were the object of the contract, together with their fruits, and the
price with its interest; consequently, it can be carried out only when he who
demands rescission can return whatever he may be obliged to restore.

c. Difference of Rescission/Resolution in art. 1191 and Rescission contemplated

in Art. 1380:
- Art. 1191 is a primary remedy while Art. 1380 is a subsidiary remedy
- Art. 1191 presupposes that the breach is fundamental and substantial,
Art. 1380 the grounds for rescission are specified.
- Art. 1191 may be invoked anytime by the injured party, while Art. 1380
presupposes that it is the only remedy available to the injured party
- Art. 1191 is applicable only to Reciprocal obligations and the parties to
the obligation has the only right to invoke, while Art. 1380 can be invoked by third
persons such as in the case of Accion Pauliana.

Element of Accion Pauliana (remedy in fraud of creditors)

(1) the plaintiff asking for rescission has a credit prior to the alienation, although
demandable later;
(2) the debtor has made a subsequent contract conveying a patrimonial benefit to
a third person;
(3) the creditor has no other legal remedy to satisfy his claim;
(4) the act being impugned is fraudulent;
(5) the third person who received the property conveyed, if it is by onerous title,
has been an accomplice in the fraud.
d. Limitation of Rescission:

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1. Rescission referred to in Nos. 1 and 2 of article 1381 shall not take place
with respect to contracts approved and with authority of the courts, even if the
ward or absentee suffered loss. (Art. 1386)
2. Rescission take place when the things which are the object of the
contract are legally in the possession of third persons who did not act in bad faith.
3. Rescission shall be only to the extent necessary to cover the damages
caused. (Art. 1384)
4. The action to claim rescission must be commenced within four years.
(Art. 1389)
5. The person demanding rescission must be able to return whatever he
may be obliged to restore if rescission is granted (Article 1385,1st par)
• This requisite is only applicable if the one who suffers the
lesion is a party to the contract.
• This requisite does not apply when a defrauded creditor
resorts to accion pauliana.

e. Badges of Fraud- there is a presumption of fraud in these following instances

(Oria vs. Mcmicking)
1. the fact that the consideration of the conveyance is fictitious or is
inadequate.
2. A transfer made by a debtor after suit has begun and while it is pending
against him.
3. A sale upon credit by an insolvent debtor.
4. Evidence of large indebtedness or complete insolvency.
5. The transfer of all or nearly all of his property by a debtor, especially
when he is insolvent or greatly embarrassed financially.
6. The fact that the transfer is made between father and son when there
are present other of the above circumstances.
7. The failure of the vendee to take exclusive possession of all the property.

2. Voidable Contracts- A voidable contract is a contract in which all of the

essential elements for validity are present, but the element of consent is vitiated
either by lack legal capacity of 1 of the contracting parties or by mistake, violence,
intimidation, undue influence, or fraud.

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- binding unless they are annulled by a proper action court.

- susceptible to confirmation.

a. What are voidable contracts?

Art. 1390. The following contracts are voidable or annullable,
even though there may have been no damage to the contracting
parties:
(1) Those where one of the parties is incapable of giving consent
to a contract;
(2) Those where the consent is vitiated by mistake, violence,
intimidation, undue influence or fraud.
These contracts are binding, unless they are annulled by a proper
action in court. They are susceptible of ratification.

b. Annulment – means to reduce to nothing, annihilate, obliterate to make void. It

exists as a contract at first but ceases to have legal effects once annulled.
Annulment vs. Rescission:
- Annulment declares the inefficacy which the contract carries, Rescission
merely produces the inefficacy which did not exist essentially by the
contract.
- Annulment of a contract is based on law, while rescission is based on equity.
- Contract is capable of annulment even if there is no damage or prejudice,
while rescissible contracts there should always be damage.
- The defect in annulment is based on the vice of the contract which
invalidates it, while in rescissible contracts is perfectly valid.
- Annulment can only be invoked by the contracting party; in rescission it can
be invoked by a third person.

c. Limitations in Annulment of Contracts:

1. The action for annulment shall be brought within four years.
This period shall begin:
- In cases of intimidation, violence or undue influence, from the time the defect of
the consent ceases.
- In case of mistake or fraud, from the time of the discovery of the same.

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- And when the action refers to contracts entered into by minors or other
incapacitated persons, from the time the guardianship ceases.

2. Confirmation extinguishes the action to annul a voidable contract. (Art.

1392)- Confirmation is the proper term in voidable contracts, ratification is term for
unenforceable contracts.
- Confirmation cleanses the contract from all its defects from the moment it was
constituted (Article 1396)
- Confirmation can only be done by the party whose consent is vitiated.
- it may be done by the guardian of the person.
- Requisites for Confirmation:
1. That the contract is a voidable or annullable contract
2. That the ratification is made with knowledge of the cause
for nullity
3. That at the time the ratification is made, the cause of
nullity has already ceased to exists.

3. Unemancipated Minor, Insane and demented individuals

- Art. 1328. Contracts entered into during a lucid interval are valid. Contracts agreed
to in a state of drunkenness or during a hypnotic spell are voidable.
- Art. 1329. The incapacity declared in article 1327 is subject to the modifications
determined by law, and is understood to be without prejudice to special
disqualifications established in the laws.

4. Mistake, Fraud, Undue influence, or fraud which vitiates the consent.

a. Mistake
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 into the
contract.
Mistake as to the identity or qualification of one of the
parties will vitiate consent only when such identity or
qualifications have been the principal cause of the
contract.

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A simple mistake of account shall give rise to its

correction.
Art. 1332. When one of the parties is unable to read, or if
the contract is in a language not understood by him, and
mistake or fraud is alleged, the person enforcing the
contract must show that the terms thereof have been fully
explained to the former.
Art. 1333. There is no mistake if the party alleging it knew
the doubt, contingency or risk affecting the object of the
contract.
Art. 1334. Mutual error as to the legal effect of an
agreement when the real purpose of the parties is
frustrated, may vitiate consent.
Art. 1342. Misrepresentation by a third person does not
vitiate consent, unless such misrepresentation has created
substantial mistake and the same is mutual.
Art. 1343. Misrepresentation made in good faith is not
fraudulent but may constitute error.

b. Violence
Art. 1335, par 1. There is violence when in order to wrest
consent, serious or irresistible force is employed.

- Violence shall annul the obligation, although it may have been employed by
a 3rd person who did not take part in the contract (Art. 1336)
- Requisites of Violence
1. Irresistible physical force is employed
2. The force is the determining cause for giving consent

c. Intimidation
Art. 1335, par.2. 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.

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- Requisites of Intimidation
1. The threat must be the determining cause for giving consent
2. The threatened act is unjust and unlawful
- a valid exercise of right is not unlawful.
- a lawful order although it creates fear is not intimation.
3. The threat is real and serious.
- For example the threat must be to kill you or burn your
house and not merely to pinch you.
4. The threat produces a well-grounded fear that the person
making it can and will inflict harm.

d. Fraud
Art. 1332. When one of the parties is unable to read, or if
the contract is in a language not understood by him, and
mistake or fraud is alleged, the person enforcing the
contract must show that the terms thereof have been fully
explained to the former.
Art. 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.
- This is known as deceit or dolo causante. This is different from dolo incidente
which means fraud on things which would not prevent you from entering
into a contract but may hold the other liable for damages.
- If a 3rd person should commit violence or intimidation on 1 of the
contracting parties and this vitiates the contracting party ‘s consent, then the
contract may be annulled (Article 1336). By analogy, if a 3rd person should
exert undue influence on 1 of the contracting parties and this vitiates the
consent of the contracting party, then the contract may be annulled.
However, if the 3rd party commits fraud, damages is the only remedy unless
the fraud committed by the 3rd person has created a mutual substantial
mistake (Article 1342).

- Requisites of Fraud
1. Fraud is employed by 1 party on the other (Articles 1342,

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25

1344)
2. The other party was induced to enter into the contract
(Article 1338)
3. The fraud must be serious (Article 1344)
4. There is damage or injury caused

- Rules Regarding Voidable Contracts

a. Voidable contracts are effective unless set aside (Article 1390).
b. The validity of a voidable contract can only be assailed in a suit for that
purpose (i.e. complaint or counterclaim).-
- The action for annulment of contracts may be instituted by all who
are thereby obliged principally or subsidiarily.
- However, persons who are capable cannot allege the incapacity of
those with whom they contracted; nor can those who exerted
intimidation, violence, or undue influence, or employed fraud, or
caused, mistake base their action upon these flaws of the contract.
- The action for annulment shall be brought within 4 years. This
period shall begin
i. Intimidation – from the time the defect of the consent ceases
ii. Violence – from the time the defect of the consent ceases
iii. Undue influence – from the time the defect of the consent
ceases
iv. Mistake – from the time of the discovery of the mistake
v. Fraud – from the time of the discovery of the fraud.
- The 4 year prescription period to annul contracts entered into by
minors or other incapacitated persons shall begin from the time the
guardianship ceases (Article 1391, par. 4). 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 (Article
1398, par.1).
- In obligations to render service, the value thereof shall be the
basis for damages (Article 1398, 2nd ¶).
- When the defect of the contract consists in the incapacity of 1 of
the parties, the incapacitated person is not obliged to make any

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restitution except insofar as he has been benefited by the thing

or price received by him (Article 1399).
- The action for annulment will not prosper in the following:
 i. If the contract has been confirmed (Article 1392)
 ii. If the action to annul has prescribed (Article 1391)
 iii. When the thing which is the object of the contract is lost
through the fault or fraud of the person who has a right to
institute the proceedings (Article 1401, 1st ¶)
 iv. Estoppel
c. Voidable contracts can be confirmed.
o Confirmation extinguishes the action to annul a voidable contract
(Article 1392).
o Confirmation is the proper term for curing the defect of a voidable
contract.
o Confirmation cleanses the contract from all its defects from the
moment it was constituted (Article 1396).
o Requisites of Confirmation
 1. That the contract is a voidable or annullable contract
 2. That the ratification is made with knowledge of the cause for
nullity
 3. That at the time the ratification is made, the cause of nullity
has already ceased to exist.
d. Voidable contracts can be confirmed only by the party whose consent was
vitiated
- Confirmation does not require the conformity of the contracting party who
has no right to bring the action for annulment (Article 1395).
- Confirmation may be effected by the guardian of the incapacitated
person (Article 1394).

3. Unenforceable Contract – unenforceable contracts cannot be sued upon or

enforced by a proper court action, unless they are ratified, as distinguished from

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rescissible and voidable contracts which are binding unless rescinded or annulled by
a proper action in court.
- there is no evidence to prove the existence of a contract.
- the Statute of Frauds is only applicable to executory contracts but not to contracts
that are executed or had partial execution.

a. Characteristics of Unenforceable contracts:

1. Valid contracts but which cannot be enforced by a proper action in court.
2. They are susceptible of ratification.
3. The defect of an unenforceable contract is permanent in nature, which will exist
as long as it is not ratified.
4. They cannot be assailed by third persons.

b. What are Unenforceable contracts

Art. 1403. The following contracts are unenforceable, unless they are
ratified:
(1) Those entered into in the name of another person by one who has
been given no authority or legal representation, or who has acted
beyond his powers;
(2) Those that do not comply with the Statute of Frauds as set forth in
this number. In the following cases an agreement hereafter made shall
be unenforceable by action, unless the same, or some note or
memorandum, thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the agreement cannot
be received without the writing, or a secondary evidence of its
contents:
(a) An agreement that by its terms is not to be performed within a year
from the making thereof;
(b) A special promise to answer for the debt, default, or miscarriage of
another;
(c) An agreement made in consideration of marriage, other than a
mutual promise to marry;
(d) An agreement for the sale of goods, chattels or things in action, at
a price not less than five hundred pesos, unless the buyer accept and
receive part of such goods and chattels, or the evidences, or some of

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28

them, of such things in action or pay at the time some part of the
purchase money; but when a sale is made by auction and entry is made
by the auctioneer in his sales book, at the time of the sale, of the
amount and kind of property sold, terms of sale, price, names of the
purchasers and person on whose account the sale is made, it is a
sufficient memorandum;
(e) An agreement of the leasing for a longer period than one year, or
for the sale of real property or of an interest therein;
(f) A representation as to the credit of a third person.

(3) Those where both parties are incapable of giving consent to a

contract.

4. Void or Inexistent Contracts

Art. 1409. The following contracts are inexistent and void

from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals,
good customs, public order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the
transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal
object of the contract cannot be ascertained;
(7) Those expressly prohibited or declared void by law. These contracts
cannot be ratified. Neither can the right toset up the defense of
illegality be waived.

a. Difference of Void and Inexistent Contract

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1. Void contracts are perfected contracts but the contract is invalid from its
inception. Inexistent Contract is a contract which does not exist because any
of the essential requisites for the existence of a contract is totally wanting.
2. The Principle of in Pari Delicto is applicable to void contracts but not to
inexistent contracts.
3. The pari delicto rule applies only to contracts which is void for illegality of
subject matter. Thus, if the contract is void for simulation, the pari delicto
rule does not apply so a party can claim the object back through
reconveyance.
b. Characteristics of a Void and Inexistent Contracts
1. As a general Rule they produce no effect whatsoever.
a. This rule is absolute with Inexistent Contract.
b. Rule does not apply in Void Contracts where the nullity proceeds
from the illegality of the cause or object and when executed
(performed already), in which case the principle of in Pari Delicto will
apply in which no action can be instituted by the parties to one
another.
2. The Right to set up defense cannot be waived.
3. The action or defense does NOT prescribe.
4. Both cannot be ratified, confirmed or cured.
5. The inexistence or nullity of the contract cannot be invoked by a person
whose interest are not directly affected. (only parties to the agreement)
6. If it has been performed, the restoration of what has been given is in order,
except if pari delicto will apply.
7. A judgment of nullity would be merely declaratory. There is no action for
annulment necessary as such is ipso jure.

c. The Following Are Inexistent Contracts:

1. those which are absolutely simulated or fictitious. - A fictitious and
simulated agreement lacks valid consent. If consent is wanting, the contract
is non-existent.
2. Those whose cause or object did not exist at the time of the transaction. -
If it has no cause, it does not produce any effect whatsoever. “could not
come into existence”-Prof Balane

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3.Those where the intention of the parties relative to the principal object of
the contract cannot be ascertained. – it is vague.
d. Void Contracts:
1. those whose cause, object or purpose is contrary to law, morals good
customs, public order or public policy.
- cause and motive and different however, when motive is regarded
as the cause when the realization of such motive has been made a
condition upon which the contract is made to depend.
2. Those whose object is outside the commerce of men.
3. Those which contemplate an impossible service.
4. Those expressly prohibited or declared void by law – e.g., sale made
between the husband and the wife, sale of public land.
e. Other pertinent Provisions:
Art. 1420. In case of a divisible contract, if the illegal terms can be
separated from the legal ones, the latter may be enforced.
Art. 1421. The defense of illegality of contract is not available to
third persons whose interests are not directly affected.
Art. 1422. A contract which is the direct result of a previous illegal
contract, is also void and inexistent

REFERENCES:
1. Civil Law Review II 2017th edition, by Prof. Elmer T. Rabuya
2. Obligation and Contracts by Prof Ruben Balane

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owner’s consent is a violation of Intellectual Property Law.