CONTRACTS.

Is a meeting of minds between two persons whereby one binds himself,

with respect to the other, to give something or to render some service. (Art.1305)
KINDS OF CONTRACTS; AS TO FORMATION OR PERFECTION:
1. CONSENSUAL. Perfected by mere consent
2. REAL. Perfected by delivery (e.g., deposit, pledge, commodatum and mutuum)
3. FORMAL OR SOLEMN. Requires a certain form for perfection (e.g., interest must
be stipulated in writing, antichresis, donation of real properties and personal
properties more than (5,000 pesos)
KINDS OF CONTRACTS; AS TO CAUSE:
1. ONEROUS. Such as a contract of sale, barter, lease and simple loans or mutuum
with stipulation for interest.
2. GRATUITOUS OR LUCRATIVE. Such as a donation and commodatum.
3. REMUNERATORY. Where one prestation is given for a benefit or service that had
been rendered previously.
KINDS OF CONTRACTS; AS TO DEPENDENCE OF ONE UPON ANOTHER:
1. PRINCIPAL. A contract which can stand on its own, such as a contract of sale,
barter, lease, loan.
2. ACCESSORY. Those which cannot stand on its own and are dependent upon other
contracts for its validity. (E.g., guaranty, suretyship, mortgage and antichersis).
3. PREPARATORY. A contract is mean to achieve an end, such as an option contract,
a contract of partnership and that of agency.
KINDS OF CONTRACTS; AS TO NAME:
1. NOMINATE. Those contracts for which a particular name has been designated and
rules particular to them are applicable such as sales, commodatum, partnership,
agency, deposit, etc.
2. INNOMINATE. Those which do not have a particular designation, such as do ut
des, do ut facias, facio ut des and facio ut facias.
KINDS OF CONTRACTS; AS TO PARTIES OBLIGED:
1. BILATERAL. Where both parties are reciprocally obligated, e.g., lease (where the
lessor is obliged to allow the use of the thing and the lessee is obliged to pay rent)
and sale (where the buyer is obliged to pay the price and the seller obliged to
deliver the thing). (ARTS. 1642,1458)
2. UNILATERAL. Only one party is obliged. E.g., guaranty and pledge. (ARTS.
2047,2093)
KINDS OF CONTRACTS; AS TO RISK:
1. COMMUTATIVE. Where the parties contemplate real fulfillment, therefore,
equivalent values (presumably) are given, such as sales (where the price is
presumably the equivalent of the thing is delivered) or lease (where the rental
payments is presumably the value of the use of the thing)
2. ALEATORY. Where the fulfillment of the cause as to once party is dependent upon
chance, such as an insurance contract ( where the payment will depend on the
happening of the event insured against)
STAGES OF A CONTRACT
1. NEGOTIATION (PREPARATION/CONCEPTION/GENERATION). Here the parties
are progressing with their negotiations; prior to the arrival on a definite
agreement. Here is where the parties provide for their offers and bargain with each
other.
2. PERFECTION (OR BIRTH). When the parties have already came to a definite
agreements and all the essential elements are present (which includes form or
delivery in some).
3. CONSUMMATION (OR DEATH/TERMINATION). The terms of the contract have
already been performed.
CHARACTERISTICS OF A CONTRACT
1. CONSENSUALITY. 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 consequences which, according to their nature, may be in keeping
with good faith, usage, and law. (ART. 1315)
CONTRACT OF ADHESION. One where there is already a prepared form
containing the stipulations desired by one party whereby the latter only asks the
other party to agree to them if he wants to enter into a contract. This is generally
valid because a party who does not consent to the terms and conditions in the
contract can opt not to.
Not even the government can force someone to enter into a contract: as
such, in the case of PLDT, the SC held that the government cannot compel PLDT to
enter into an interconnection agreement with it. However, the government may
exercise its sovereign power of eminent domain and compel PLDT to allow the use
of its facilities subject to just compensation. In this case, the Court treated the
action as one of expropriation. (Republic vs. PLDT)
2. AUTONOMY OR FREEDOM TO CONTRACT. 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. (ART. 1306)
CONTRARY TO LAW: note that the law is deemed part of every contract and must
thus be not contrary to the same.
 Waiver for future fraud
 Partnership: Pactum Leonina. A stipulation which excludes one or more partners
from any share in the profits or losses.
 Mortgage/Pledge: Pactum Commissorium. A stipulation where the creditor
appropriates the things given by way of pledge or mortgage, or dispose of
them.
 Mortgage/Pledge: Pactum de non aliendo. A stipulation forbidding the owner
from alienating the immovable mortgaged.
CONTRARY TO PUBLIC POLICY:
 Refund of tuition fees during the time a student is covered by a scholarship if
such student transfers schools. Scholarships are granted not to attract
and to keep brilliant students in school for their propaganda mine but
to reward merit or help gifted students in whom society has an
established interest or a first lien. (Cui vs. Arellano)
 Prohibiting a losing candidate in a convention to run as an independent
candidate is contrary to the constitutionality-protected right to be elected in
public office and the right of the electorate to choose. (Saura vs. Sindico)
CONTRARY TO MORALS:
 In a contract of loan, where the interest rate is 50%, is void for being contrary to
morals, the same being unconscionable, confiscatory, exorbitant, excessive, or
inequitable, not because it is usurious
3. MUTUALITY. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them. (ART. 1308)
CONSEQUENCES OF MUTUALITY:
 One party cannot revoke or renounce a contract without the consent of the
other, nor have it said aside on the ground that he made a bad bargain.
 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.
 The determination shall not be obligatory if it is evidently inequitable. In such
cases, the courts shall decide what is equitable under the circumstances.
ESCALATION CLAUSE: where one increases/decreases the compensation of one
party.
  When void: when the increase is dependent solely upon the will of one of the
parties.
 When valid: when the increase/decrease is dependent on valid and reasonable
standards.
NON-INVOLVEMENT CLAUSE: a stipulation in restraint of trade is valid provided
there is a limitation upon either time or place and the restraint upon one party is not
greater than the protection the other party requires.
4. OBLIGATORY FORCE OF CONTRACTS
5. RELATIVITY OR PRIVITY. The contract takes effect only between the parties,
their assigns, and heirs which are referred to as privies.
WHEN NOT TRANSMISSIBLE:

 When the nature of the obligation is that it is not transmissible: when the rights
are purely or strictly personal in nature, i.e., the qualifications and skills of the
person have been considered in the constitution of the contract.
 By stipulation: e.g. the right to sublease is granted by law- but may be
prohibited by stipulation.
 By provision of law: e.g. heirs as to the usufruct. The law provides that the
rights of a usufructuary shall not be transmitted to the heirs unless the parties
stipulate otherwise.

EXCEPTIONS TO RELATIVITY:
 Third person may be bound by the contract.
 A creditor may initiate an action against the contracting parties.
 Third persons may be liable under a contract.
 Third persons may benefit from the contract.
ESSENTIAL ELEMENTS OF A CONTRACT:
1. Consent of the contracting parties
2. Object certain which is the subject matter.
3. Cause or consideration
In some contracts, delivery (real), or certain formalities (formal or solemn contracts), are
likewise required.
ELEMENTS OF A CONTRACT
1. ESSENTIAL. Those without which the contract cannot exist, i.e., consent, object,
consideration. In some contracts, form and delivery are essential too.
2. NATURAL. Those that exist as part of the contract even if the parties do not
stipulate it because the law is deemed written therein. Example: Warranty against
eviction in a contract of sale or the warranty against hidden facts.
3. ACCIDENTAL. Those which are agreed upon by the parties and which cannot exist
without being stipulated. Example: stipulation for interest.
CONSENT. This is manifested by the meeting of the offer and the acceptance of the
thing and the cause which are to constitute the contract.
 OFFER AND ACCEPTANCE:
1. The offer must be certain and the acceptance must be absolute. A qualified
acceptance constitutes a counter-offer.
2. Acceptance made by letter or telegram does not bind the offerer except from
the time it came to his knowledge. The contract, in such cases, is presumed to
have been entered into in the place where the offer was made.
3. An acceptance may be expressed or implied.
4. The person making the offer may fix the time, place, and manner of
acceptance, all of which must be complied with.
5. An offer becomes ineffective upon the death, civil interdiction, insanity, or
insolvency of either party before acceptance is conveyed.
 OPTION AGREEMENT: when the offerer 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 a
consideration, as something paid or promised.
  ADVERTISEMENTS: unless it appears otherwise, business advertisements of
things for sale are not definite offers, but mere invitations to make an offer.
Advertisements for bidders are simply invitations to make proposals, and the
advertiser is not bound to accept the highest or lowest bidder unless the contrary
appears.

SITUATIONS CONCERNING CONSENT OF THE CONTRACTING PARTIES:

1. Both parties gave consent their consent as to the essential elements of the
contract- the contract is valid.
2. Simulation: when one or both parties did not intend to be bound by the contract
(absolute simulation), the same is void. Otherwise, if the parties merely conceal
their true agreement (relative simulation), they shall be bound by their real
agreement.
3. Incapacity of one party: Kinds of Capacity: (a) Juridical Capacity. Is the
fitness to be the subject of legal relations, is inherent in every natural person and
is lost only through death. If incapacity pertains to juridical capacity the contract is
void. (b) Capacity to act (or legal capacity). The power to do acts with legal
effect is acquired and may be lost. If incapacity pertains to the capacity to act or
legal capacity, it can be:
 Absolute Incapacity. The party cannot give consent in any contract,
with anyone, in whatever capacity, over anything.
 Relative Incapacity. A person may be prohibited from entering in a
certain capacity, i.e., prohibited to be the buyer, or to specific things, or
specific persons.
4. Both are incapacitated: the contract is unenforceable.
5. Both parties gave their consent, but such consent was vitiated by VICES OF
CONSENT.
VICES OF CONSENT:
1. MISTAKE. Must be that of (a) the object of the contract, or to (b) those conditions
which have principally moved one or both parties to enter into the contract.
 Mistakes as to the identity or qualifications of one of the parties will vitiate
consent only when such identity or qualifications have been the principal
cause of the contract.
 Mistakes or error as to motive does not vitiate consent.
 A simple mistake of account shall give rise to its correction.
 There is no mistake if the party alleging it knew the doubt, contingency, or
risk affecting the object of the contract.
 Mutual error as to the legal effect of an agreement when the real purpose of
the parties is frustrated, may vitiate consent.
2. VIOLENCE. When in order to wrest consent, serious or irresistible force is
employed.
3. INTIMIDATION. When one of the contracting parties is compelled by a reasonable
and well-grounded fear of an imminent and grave evil upon his person or property,
or upon the person or property of his spouse, descendants, or ascendants, to give
his consent. To determine the degree of intimidation, the age, sex, and conditions
of the person shall be borne in mind. A threat to enforce one’s claim through
competent authority, if the claim is just or legal, does not vitiate consent.
4. UNDUE INFLUENCE. When a person takes improper advantage of his power over
the will of another, depriving the latter of a reasonable freedom of choice. The
following circumstances shall be considered: the confidential, family, spiritual, and
other relations between the parties, or the fact that the person alleged to have
unduly influenced was suffering from mental weakness, or was ignorant or in
financial distress.
5. FRAUD. When, through insidious words or machinations of one of the contracting
parties, the other is induced to enter into a contract which, without them, he would
not have agreed to.
RULES ON FRAUD:
1. Failure to disclose facts, when there is a duty to reveal them, as when the
parties are bound by confidential relations, constitutes fraud.
 2. The usual exaggerations in trade, when the other party had an opportunity to
know the facts, are not in themselves fraudulent.
3. A mere expression of an opinion does not signify fraud, unless made by an
expert and the other party has relied on the former’s special knowledge.
4. Misrepresentation by a third person does not vitiate consent unless such
misrepresentation has created a substantial mistake and the same is mutual.
5. In order that fraud may make a contract voidable, it should be serious and
should not have been employed by both contracting parties.
6. Incidental fraud only obliges the person employing it to pay damages.
7. Misrepresentation made in good faith is not fraudulent but may constitute error.

OBJECT CERTAIN WHICH IS THE SUBJECT MATTER. May involve things, services, or
rights.
REQUISITES:
1. Thing, right, or service must be within the commerce of man;
2. It must be transmissible;
3. It must not be contrary to law, morals, good customs, public order or public policy;
4. It must not be impossible;
5. It must be determinate as to its kind or determinable without the need for a new
contract or agreement.
 Future inheritance: cannot be the subject matter of a valid contract. This is
because the seller owns no inheritance while his predecessor lives. Public policy
demands that if you’re going to sell, you have the right to do so, but not
necessarily require that the seller is the owner.
CAUSE OR CONSIDERATION. Cause is the essential or impelling reason why a party
assumes an obligation.
 In onerous contracts the cause is understood to be, for each contracting party,
the prestation of a thing or service by the other; in remuneratory ones, the
service or benefit which is renumerated; and in contracts of pure beneficence,
the mere liberality of the benefactor.
RULES ON CAUSE:
 Contracts without cause, or with unlawful cause, produce no effect whatever. The
cause is unlawful if it is contrary to law, morals, good customs, public order or
public policy.
 The statement of a false cause in contracts shall render them void if it should not
be proved that they were founded upon another cause that is true and lawful.
 Although the cause is not stated in the contract, it is presumed that it exists and is
lawful unless the debtor proves the contrary.
 As a rule, inadequacy of the price will not affect the contract. Except: (a) when
expressly provided by law, e.g., recissible contracts; (b) when there has been a
fraud, mistake, or undue influence
 The particular motives of the parties in entering into a contract are different from
the cause thereof.

FORMS OF CONTRACT
GENERAL RULE: no form is required for the validity or perfection of a contract.
EXCEPTIONS:
(1) Donations of real property that require a public instrument.
(2) Donations of personal property that exceeds P5,000 which requires that the donation
be written.
(3) Stipulation to pay interests on loans or the use of money, which must be in writing.
(4) Sale or transfer of large cattle which requires that it be in a public instrument,
registered, and that there should be a certificate of transfer.
FORMALITIES REQUIRED FOR ENFORCEABILITY (STATUE OF FRAUDS): The
following are unenforceable unless they are in writing, or some note or memorandum
and subscribed by the party charged, or by his agent:
1. An agreement that by its terms is not to be performed within a year from the
making thereof;
2. A special promise to answer for the debt, default, or miscarriage of another;
3. An agreement made in consideration of marriage, other than a mutual promise
to marry;
4. An agreement for the sale of goods, chattels, or things in action, at a price
not less than five hundred pesos, 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 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;
5. An agreement of the leasing for a period than one year, or for the sale of
real property or of an interest therein;
6. A representation as to the credit of a third person.
FORMALITIES REQUIRED FOR CONVENIENCE: to bind third persons, the following are
required to appear in a public instrument:
1. Acts and contracts which have for their object the creation, transmission,
modification, or extinguishment of real rights over property; sales of real property
or of an interest therein a governed by the Statute of Frauds.
2. The cession, repudiation, or renunciation of hereditary rights or those of the
conjugal partnerships 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.
REFORMATION OF INSTRUMENTS. Is a remedy using which a written instrument is
made or construed to express or conform to the true intention of the parties when some
error or mistake has been committed.
REQUISITES:
1. There is a meeting of the minds;
2. There is a written instruments; and
3. The written instrument does not reflect the true intention of the parties.
WHEN MAY REFORMATION BE HAD:
1. Mutual mistakes of the parties.
2. If one party was mistaken and the other acted fraudulently or inequitably in such a
way that the instrument does not show its true intention, the former may ask for
the reformation of the instrument.
3. When one party was mistaken and the other knew or believed that the instruments
did not state their real agreement, but concealed that fact from the former.
4. Ignorance, lack of skill, negligence, or bad faith on the part of the person drafting
the instrument or of the clerk or typist.
5. 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.
NO REFORMATION: (1) simple donations inter vivos wherein no condition is imposed;
(2) wills; (3) when the real agreement is void.
INTERPRETATION OF CONTRACTS
1. If the terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulation shall control.
 2. If the words appear to be contrary to the evident intention of the parties, the latter
shall prevail over the former.
3. In order to judge the intention of the contracting parties, their contemporaneous
and subsequent acts shall be principally considered.
4. When it is absolutely impossible to settle doubts, and the doubts refer to incidental
circumstances of a gratuitous contract, the least transmission of the rights and
interests shall prevail. If the contract is onerous, the doubt shall be settled in favor
of the greatest reciprocity of interests.
5. If doubts are cast upon the principal object of the contract in such a way that it
cannot be known what may have been the intention or will of the parties, the
contract shall be null and void.
6. General the terms of a contract may be, they shall not be understood to
comprehend things that are distinct and cases that are different from those upon
which the parties intended to agree.
7. 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.
8. The various stipulations of contracts shall be interpreted together, attributing to
the doubtful ones that sense which may result from all of them taken jointly.
9. Words that may have different significations shall be understood in that which is
most in keeping with the nature and object of the contract.
10. The usage or custom of the place shall be borne in mind in the interpretation
of the ambiguities of a contract and shall fill the omission of stipulations which are
ordinarily established.
11. The interpretation of obscure words or stipulations in a contract shall not
favor the party who caused the obscurity.
KINDS OF CONTRACTS AS TO VALIDITY
1. VALID AND BINDING CONTRACTS. Are those that meet all the legal requisites
for the type of agreement involved (see Art. 1318) and the limitations on
contractual stipulation (Art. 1306) and are, therefore, legally binding and
enforceable.
2. RESCISSIBLE CONTRACTS. The following contracts are rescissible:
2.1 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 objects thereof;
2.2 Those agreed upon in representation of absentees, if the latter suffer the
lesion stated in the preceding number;
2.3 Those undertaken in fraud of creditors when the latter cannot in any other
manner collect the claims due them;
2.4 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
components of judicial authority;
2.5 All other contracts specially declared by law to be subject to rescission.
 LESION. Is the damage or injury to the party asking for rescission, which
represents the difference between the price and the actual value of the property.
Lesion, as a ground for rescission, must be MORE THAN ONE-FOURTH of the
value.
 IN FRAUD OF CREDITORS: which is properly termed “Accion pauliana”, through
which the creditor can interfere and have the contract entered into by the debtor
rescinded. This presupposes that the creditor cannot in any other manner collect
the claims due. Thus, if the debtor entered into a contract of sale with a third
person in order to have enough money to pay the creditor, the latter cannot
rescind such contract of sale since the sale was precisely entered into to pay him
his due.
 PRESUMPTION OF FRAUD: (1) Alienations by gratuitous title. Presumed to
have been entered into fraud of creditors, when the donor did not reserve
sufficient property to pay all debts contracted before the donation. (2)
Alienations by onerous title. Presumed fraudulent when made by persons
against whom some judgment has been issued. The decision or attachment need
not refer to the property alienated and need not have been obtained by the party
seeking the rescission.
 OTHER CONTRACTS SUBJECT TO RESCISSION UNDER THE LAW: (1) Rights of
an unpaid seller; (2) In obligations to deliver a specific thing, where the same
deteriorates with the fault of the debtor before the suspensive condition is fulfilled
(or suspensive terms arrives); (3) Lesion of at least one-fourth in partition. (4) In
the sale of real estate for a certain price per unit of measure and the real estate
delivered is deficient by more than 1/10 or when the buyer would not have entered
into the contract knowing the actual area of the real estate.
 RECISSION AS A REMEDY: (1) 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) Rescission shall be only to the extent
necessary to cover the damages caused. (3) Restitution- 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. (4) It can be carried out only when he
who demands rescission can return whatever he may be obliged to restore. (5)
Rescission shall not take place when the things that are the object of the contract
are legally in the possession of third persons who did not act in bad faith. In this
case, indemnity for damages may be demanded from the person causing the loss.
(6) If the sale of the property of the guardian or the absentee is approved by
courts, rescission is not an available remedy.
 PRESCRIPTIVE PERIOD: the action to claim rescission must be commenced
within 4 years. For persons under guardianship and for absentees, such a four-year
period shall begin upon termination of the ward’s incapacity or when the
absentee’s domicile is known. Sale of land, 4 years are counted from the
time of registration: when a transaction involves registered land, the four years
fixed in Art. 1391 within to bring an action for annulment of the deed, shall be
computed from the registration of the conveyance. The registration of the
document is constructive notice of the conveyance to the whole world. (HSBC vs.
Pauli)
3. VOIDABLE CONTRACTS. Are those which are valid until they have been annulled
by proper action in court. However, they are likewise subject to ratification to cure
the defect. The following are voidable contracts:
3.1 Those where one of the parties is incapable of giving consent;
3.2 Those where the consent is vitiated by mistake, violence, intimidation, undue
influence, or fraud.
 PRESCRIPTIVE PERIOD: shall be four years.
Ground Counted from:
Intimidation, violence, or undue The defect of the consent ceases.
influence.
Mistake or fraud Discovery
Minority or incapacity Guardian ceases.
 RATIFICATION: extinguishes the action to annul an avoidable contract.
1. Ratification may be effected by the guardian of the incapacitated person.
2. It does not require the conformity of the contracting party who has no right
to bring the action for annulment.
3. It cleanses the contract from all the defects from the moment it was
constituted.
4. It may be done: (a) Expressly - either oral or written; or (b) Tacitly
(impliedly) – when the reason which renders the contract voidable has
ceased, the person who has a right to invoke annulment should execute an
act which necessarily implies an intention to waive such right.
 ANNULMENT: renders the contract non-existing, as if it was never entered into.
1. Only the injured party (the victim, whether principal or subsidiary party) may
ask for annulment.
2. Creditors of the injured party cannot ask for the annulment of the contract
for they are not parties thereto.
3. In the case of minority, and the minor misrepresents his age and the other
party was led to believe the same, there can be no annulment, for here, the
minor would be estopped.
4. Those who are capacitated cannot allege the incapacity of those with whom
they contracted nor those who exerted intimidation, violence, or undue
influence, employed fraud, or caused the mistake.
 5. Effects of loss of the thing: (a) 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. (b) If the right of action is based upon incapacity, 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 incapacitated person.
6. Effects of annulment: (a) Generally, the parties are obliged to restore to
each other the things which have been the subject matter of the contract,
with their fruits and the price with its interest. (b) In the obligation to render
service, the value thereof shall be the basis for damages. (c) In case of
incapacity, the person incapacitated is not obligated to make any restitution
except insofar as he has been benefited by the thing or price received by
him. (d) Whenever the person who is obliged to return the thing cannot do
so because it has been lost through his fault, he shall return: the fruits
received; the value of the thing at the time of loss; and with interest from the
same date. (e) When one party does not return what is due to him by virtue
of the annulment, he cannot compel the other to comply with what is
incumbent upon him.
4. UNENFORCEABLE CONTRACTS. Are those which have no effect until they are
ratified.
 KINDS OF UNENFORCEABLE CONTRACTS:
1. Unauthorized contracts – those entered into in the name of a 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 – these are required
to be in writing in order to avoid fraud.
3. Those where both parties are incapable of giving consent.
 RULES APPLICABLE TO STATUTE OF FRAUDS:
1. It applies only to executory contracts and not those which have been partially
or completely executed.
2. The list is exclusive, that is, it applies only to the agreements or contracts
enumerated above.
3. The defense of the Statute of Frauds may be waived.
4. The Statute of Frauds is a personal defense, that is, an agreement infringing it
cannot be assailed by third persons.
5. If oral evidence is presented to prove the agreement, and the other does not
object thereto, there is deemed a waiver of the defense of the Statute of
Frauds. The same is true if the other party has already accepted the benefits of
the contract.
5. VOID CONTRACTS. Are those which are either inexistent (as when the required
formalities are not complied with for its perfection which produces no legal effect),
or illegal or illicit. The following contracts are inexistent and void from the
beginning:
5.1 Those whose cause, object or purpose is contrary to law, morals, good
customs, public order or public policy;
5.2 Those which are absolutely simulated or fictitious;
5.3 Those whose cause or object did not exist at the time of the transaction;
5.4 Those whose object is outside the commerce of men;
5.5 Those whore contemplate an impossible service;
5.6 Those where the intention of the parties relative to the principal object of the
contract cannot be ascertained
5.7 Those expressly prohibited or declared void by law.
 RULES APPLICABLE:
1. The action or defense for the declaration of the contract as inexistent is not
prescribed.
2. The contract cannot be ratified.
3. It cannot give rise to valid subsequent contracts if the same are based on it.
4. Generally, produces no effect, and no action to declare them void is needed.
5. When money is paid or property delivered for an illegal purpose, the contract
may be repudiated by one of the parties before the purpose has been
accomplished, or before any damage has been caused to a third person. In such
 case, the courts may, if the public interest will thus be subserved, allow the
party repudiating the contract to recover the money or property.
6. Where one of the parties to an illegal contract is incapable of giving consent,
the courts may, if the interest of justice so demands allow recovery of money or
property delivered by the incapacitated person.
7. When the agreement is not illegal per se but is merely prohibited, and the
prohibition by the law is designated for the protection of the plaintiff, he may, if
public policy thereby enhanced, recover what he has paid or delivered.
8. In the case of a divisible contract, if the legal terms can be separated from the
legal ones, the latter may be enforced.
9. The defense of the illegality of the contract is not available to the third persons
whose interests are not directly affected.
 ILLEGAL CONTRACTS: can either be that which involves a criminal offense or
when there is no criminal offense.
 When there is a criminal offense, it may be of two kinds:
1. Those where both parties are guilty (in pari delicto) – they shall have
no action against each other; they shall both be prosecuted; the effects of
the crime shall be confiscated in favor of the government. An example is
when both parties entered into a contract of smuggle contraband.
2. Those where only one is guilty and the other is innocent: (a) The
guilty party will be prosecuted; (b) The instrument of the crime (or object of
the contract) will be confiscated; (c) The innocent one may claim what he
has given.
 When there is no criminal offense, which may be:
1. Where both are guilty – where neither can recover what he has given by
virtue of the contract or demand the performance of the other’s undertaking.
2. Where only one is guilty or at fault – where the guilty party cannot
recover what he has given by reason of the contract or ask for fulfilment of
what had been promised him and the party not at fault may demand the
return of what he has given, without any obligation with his promise.