Professional Documents
Culture Documents
57
CONTRACTS
Chapter I
GENERAL PROVISIONS
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PERFECTED PROMISE-merely tends to insure and pave the way for the
celebration of a future
contract.
IMPERFECT PROMISE- is a mere unaccepted offer. (POLICITACION)
PACT-is an incidental part of a contract which can be separated from the
principal agreement.
STIPULATION-is an essential and dispositive part which cannot be separated
from such principal
agreement.
DUTY OF THE COURTS IN INTERPRETING CONTRACTS
It is not the province of the court to alter a contract by construction or to
make a new contract for the parties. Its duty is confined to the interpretation of
the one which they have made for themselves without regard to its
wisdom or folly as the court cannot supply material stipulations or read
into the contract words which it does not contain.
ELEMENTS OF CONTRACT
1. ESSENTIAL- are those without which there can be no contract.
A. COMMON ELEMENTS
a) Consent of the contracting parties
b) Object certain which is the subject of the contract
c) Cause of the obligation which is established
B. SPECIAL ELEMENTS
Are present only in certain contracts, such as delivery in real
contracts or form in solemn ones.
C. EXTRAORDINARY
a) Natural-are those which are derived from the nature of the
contract and ordinarily accompany the same. They are
presumed by the law, although they can be excluded by the
contracting parties if they so desire.
Thus, warranty against eviction is implied in a
CONTRACT OF SALE, although the contracting parties may
increase, diminish or even suppress it.
b) Accidental-are those which exist only when the parties
expressly provide for them for the purpose of limiting or
modifying the normal effects of the contracts.
Ex. Conditions, terms and modes
PARTIES TO THE CONTRACT
GR: At least two parties for a person cannot enter into a contract with
himself.
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CLASSIFICATION OF CONTRACTS
1. According to their relation to other contracts
a) Preparatory-or those which have for their object the
establishment of a condition in law which is necessary as a
preliminary step towards the celebration of another subsequent
contract.
Ex. Partnership, agency
b) Principal-or those which can subsist independently from other
contracts and whose purpose can be fulfilled by themselves.
Ex. Sale, lease
c) Accessory- or those which can exist only as a consequence of,
or in relation with, another prior contract.
Ex. Pledge, mortgage
2. According to their perfection
a) Consensual-or those which are perfected by the mere
agreement of the parties.
Ex. Sale, lease
b) Real- or those which require not only the consent of the parties
for their perfection, but also the delivery of the object by one
party to the other.
Ex. Commodatum, deposit, pledge
3. According to their form
a) Common or Informal- or those which require no particular
form.
Ex. Loan
b) Special or Formal-or those which require some particular form.
Ex. Donations, chattel mortgage
4. According to their purpose
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a) Transfer or ownership
Ex. Sale
b) Conveyance of use
Ex. Commodatum
c) Rendition of services
Ex. Agency
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Refers to the safety, as well as to the peace and order, of the country
or of any particular community.
5. PUBLIC POLICY
Principle of law which holds that no person can lawfully do that which
has a tendency to be injurious to the public or against the public good.
** In the absence of express legislation or constitutional prohibition, a
court, in order to declare a contract void as against public policy, must
find that the contract as to the consideration or thing to be done, has a
tendency to injure the public, is against the public good, or contravenes
c=some established interests of society, or is inconsistent with sound
policy and good morals, or tends clearly to undermine the security of
individual rights, whether of personal liability or of private property.
** In stipulations exempting a common carrier from liability, three kinds of
stipulations are ordinarily made in a bill of lading:
1.
One exempting the carrier from any and all liability for
loss or damage occasioned by its own negligence.
Void=contrary to public policy
2.
Providing for an unqualified limitation of such liability to
an agreed valuation. Void=contrary to public policy
CAVEAT: for Nos. 1 & 2. if it can be shown to be
reasonable under the circumstances, and had been fairly and
freely agreed upon, then it is perfectly valid and binding.
3.
Limiting the liability of the carrier to an agreed valuation
unless the shipper declares a higher value and pays a higher
rate of freight. Perfectly valid and binding
** A contract, however, which restrains a man from entering into a
business or trade
without either a limitation as to time or place is
invalid. The public welfare must always
be considered. Hence, in
addition to the requirement that there must be a limitation as
time
or place, it is also required that the restraint must be reasonably necessary for the
protection of the contracting parties. (CONTRACTS WHICH
RESTRAIN BUSINESS TRADE).
YSMAEL & CO. v. BARETTO
By the weight of modern authority, a carrier cannot limit its liability, for injury
or loss of goods shipped, where such injury or loss was caused by its own
negligence. The rule rests on consideration of public policy, as the contract of the
carrier is to carry and deliver the goods, and a contract that undertakes to relieve
the carrier from any liability for loss or damage accruing or arising from its own
negligence would in legal effect nullify the contract.
DEL CASTILLO v. RICHMOND
A contract in restraint of trade is valid provided there is a limitation upon
either time or place.
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COMPROMISE AGREEMENT
Whereby the parties make reciprocal concessions to resolve their differences
to thereby put an end to litigation is binding as a juridical agreement between
them.
EFFECTS
Binding between the parties upon its execution and not upon its court
approval. From the time a compromise is validly entered into, it becomes the
source of the rights and obligations of the parties thereto. The purpose of the
compromise is precisely to replace and terminate controverted claims.
For a compromise agreement to be valid, it must be based on real claims and
actually agreed upon in good faith.
Art. 1307. Innominate contracts shall be regulated by the stipulations of
the parties, by the provisions of Titles I and II of this Book, by the rules
governing the most analogous nominate contracts, and by the customs of
the place.
NOMINATE CONTRACTS
Which has a specific name or designation in law;
Are those which have their own distinctive individuality and are regulated by
special provisions of law.
INNOMINATE CONTRACTS
Are those which lack individuality and are not regulated by special provisions
of law.
Kinds of Innominate contracts
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a)
b)
c)
d)
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.
Art. 1310. The determination shall not be obligatory if it is evidently
inequitable. In such case, the courts shall decide what is equitable under
the circumstances.
MUTUALITY OF CONTRACTS
Essential equality of the contracting parties.
The law expressly or impliedly recognizes the following consequences:
1. The validity or fulfillment of the contract cannot be left to the will of
one of the contracting parties. It must be observed, however, that what
is probihited by the law from being delegated to one of the contracting
parties are:
First, the power to determine whether or not the contract shall
be valid; and
Second, the power to determine whether or not the contract
shall be fulfilled.
2. The validity or fulfillment may be left to the will of a third person.
However, it is an indispensable requisite that the determination made
by the third person should not be evidently inequitable. If it is evidently
inequitable, it shall not have any obligatory effect upon the contracting
parties.
3. The validity or fulfillment can be left to chance.
There are certain agreements which will in effect render the mutuality
of contracts illusory because one of the contracting parties is placed in
a position of superiority with regard to the determination of the validity
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or fulfillment of the contract over that occupied by the other party, but
which do not fall within the purview of the prohibition in Art. 1308.
1. Those agreements where the obligor promises to pay a
certain amount which is not determined, but the contract
itself specifies the manner by which the amount may be
determined, such as by the exercise of the judgment and
discretion of the obligor. Undoubtedly, a promise of this
character creates a legal obligation binding upon the
promisor, although in its actual results it may not
infrequently prove to be illusory.
2. Those agreements where the fulfillment of the contract is
left to the will of one of the contracting parties in the
negative form of rescission. In which case, neither is the
prohibition in the article violated nor is there inequality
between the parties since they remain with the same
faculties with respect to fulfillment.
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.
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.
RELATIVITY OF CONTRACTS
It is the general principle of the civil law that a contract can only bind the
parties who had entered into it or their successors who have assumed their
personality or their juridical position, and that, as a consequence, such contract can
neither favor nor prejudice a third person.
PERSONS BOUND BY CONTRACT
GR:
Contracts can take effect only between the parties, their assigns and
heirs.
EP: A contract may have been executed ostensibly in the name of another
person or entity,
it shall produce effect only insofar as the real
contracting party is concerned, provided
that such fact was known
to the other party.
An assignment or transfer by a contracting party has the effect of
subrogating the
assignee to all the rights and obligations of the
assignor. Same rule is applicable to
transmission of property, rights
and obligations through either testate or intestate
succession.
DOCTRINES: Both judicial and extrajudicial acts, formally accepted by one
who was a lawful
party thereto, are effective as to the heirs
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Exceptions
1. Where the contract contains a stipulation in favor of a third person.
A stipulation in a contract clearly and deliberately
conferring a favor upon a third person who has a right to
demand its fulfillment provided he communicates his
acceptance to the obligor before its revocation.
Kinds
a. Those where the stipulation is intended for the sole benefit of
the third person; ( it confers a GIFT)
b. Those where an obligation is due from the promises to the third
person which the former seeks to discharge by means of such
stipulation. ( The third person is called CREDITOR BENEFICIARY)
Requisites
1. There must be a stipulation in favor of a third person
2. The stipulation must be a part, not the whole of the contract
3. The contracting parties must have clearly and deliberately
conferred a favor upon a third person, not a mere incidental
benefit or interest
4. The third person must have communicated his acceptance to
the obligor before its revocation
5. Neither of the contracting parties bears the legal representative
or authorization of the third party.
* The acceptance by the third person or beneficiary does not
have to be done in any particular form. It may be done expressly
or impliedly.
TEST OF BENEFICIAL STIPULATION
Whether the interest of a third person in a contract is a
stipulation pour autrui or merely an incidental interest which can be
determined upon the intention of the parties as disclosed by their
contract. If a third person claims an enforceable interest in the
contract, that question must be settled by determining whether the
contracting parties desired to tender him such interest.
Art. 1312. In contracts creating real rights, third person who come into
possession of the object of the contract are bound thereby, subject to the
provisions of the Mortgage Law and the Land Registration laws.
REAL RIGHT
Right belonging to a person over a specific thing, without a passive subject
individually determined, against whom such right may be personally
enforced.
Such a right is enforceable against the whole world. Consequently, a third
person who might come into the possession of the object of a contract
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creating a real right will have to be bound by such right, subject to the
provisions of the Mortgage Law and the Land Registration laws.
Art. 1313. Creditors are protected in cases of contracts intended to
defraud them.
CONTRACTS IN FRAUD OF CREDITORS
Although a third person cannot ask for the annulment of a contract,
nevertheless, if he is a creditor of one of the contracting parties, and it can be
established that the contract was entered into with the intention of defrauding him,
he may ask for its rescission.
Art. 1314. Any third person who induces another to violate his contract
shall be liable for damages to the other contracting party.
INTERFERENCE WITH CONTRACTUAL OBLIGATIONS
The right to perform a contract and to reap the profits resulting from such
performance, and also the right to performance by the other party, are property
rights which entitle each party to protection, and to seek compensation by an action
in tort for any interference therewith.
REQUISITES FOR INDUCEMENT
1. The existence of a valid contract;
2. Knowledge on the part of the third person of the existence of the contract;
and
3. Interference by a third person without legal justification or excuse.
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.
Art. 1316. Real contracts, such as deposit, pledge and commodatum, are
not perfected until the delivery of the object of the obligation.
PERFECTION OF CONTRACTS
The perfection of a contract refers to that moment in the life of a contract
when there is finally a concurrence of the wills of the contracting parties with
respect to the object and the cause of the contract.
GR: The perfection of a contract is produced by mere consent.
EP: certain contracts such as deposit, pledge and commodatum, which
cannot be perfected
after the delivery of the object by one contracting
party to the other.
Art. 1317. No one may contract in the name of another without being
authorized by the latter, or unless he has by law a right to represent him.
a contract entered into in the name of another by one who has no
authority or legal representation, or who has acted beyond his powers,
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Chapter 2
ESSENTIAL REQUISITES OF CONTRACTS
General Provisions
Art. 1318. There
1.
2.
3.
Art. 1319. Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute. A
qualified acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the offerer
except from the time it came to his knowledge. The contract, in such a
case, is presumed to have been entered into in the place where the offer
was made.
CONSENT-concurrence of the wills of the contracting parties with respect to the
object and the cause which shall constitute the contract.
Requisites of Consent
1. The consent must be manifested by the concurrence of the offer
and the acceptance;
2. The contracting parties must possess the necessary legal capacity;
and
3. The consent must be intelligent, free, spontaneous, and real
ACCEPTANCE-is the manifestation by the offeree of his assent to the terms of the
offer.
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INCAPACITATED PERSONS
1. Unemancipated minors
2. Insane or demented persons
**broad enough to cover all cases where one or both of the contracting
parties are unable to understand the nature and consequences of the
contract at the time of its execution, such as those in a state of
drunkenness or under a hypnotic spell or who are suffering from any
kind of mental incapacity whatsoever.
3. Deaf-mutes who do not know how to write
** Because the law incapacitates them to give their consent to a contract, the
only way by which any one of those enumerated above can enter into a contract is
to act through a parent or guardian. If this requirement is not complied with, the
result is a defective contract. If only one of the contracting parties is incapacitated
to give his consent, the contract is voidable. If both of them are incapacitated to
give their consent, the contract is unenforceable.
UNEMANCIPATED MINORS
A minor emancipated by marriage or by voluntary concession shall have the power
to administer his property, but he cannot borrow money or alienate or encumber his
property without the consent of his father or mother, or guardian.
Five exceptional cases where a contract entered into by an
unemancipated minor may have all the effects of a valid contract:
1. When it is entered into by a minor who misrepresents his age;
2. When it involves the sale and delivery of necessaries to the minor;
3. When it involves a natural obligation and such obligation is fulfilled
voluntarily by the minor, provided that such minor is between 18 and
21 years of age;
4. When it is a marriage settlement or donation propter nuptias, provided
that such minor is between 20 and 21 years of age, if male, or between
18 and 21 years of age, if female;
5. When it is a life, health or accident insurance taken on the life of the
minor, provided that the minor is 18 years old or more and the
beneficiary appointed is the minors estate, or the minors father,
mother, husband, wife, child, brother, or sister.
EFFECT OF MISREPRESENTATION
(based on the principle of estoppel)
MERCADO & MERCADO v. ESPIRITU
Where the minors who entered into the contract have already passed the age
of puberty and adolescence in such a way that they could misrepresent and actually
did misrepresent themselves as having reached the age of majority, they cannot,
upon reaching the age of majority, annul the contract on the ground of minority
inasmuch as they are already in estoppel.
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Neither does this prohibition apply to moderate gifts which the spouses
may give each other on the occasion of any family rejoicing.
Art. 1490. The husband and the wife cannot sell property to each
other, except:
1. When a separation of property was agreed upon in the marriage
settlements; or
2. When there has been a judicial separation of property under Art.
191.
Art. 1491. The following persons cannot acquire by purchase, even at a
public or judicial auction, either in person or through the mediation of
another:
1. The guardian, the property of the person or persons who may
be under his guardianship;
2. Agents, the property whose administration or sale may have
been entrusted to them, unless the consent of the principal has
been given;
3. Executors and administrators, the property of the estate
under administrations;
4. Public officers and employees, the property of the State or of
any subdivision thereof, or of any government-owned or
controlled corporation, or institution, the administration of which
has been entrusted to them; this provision shall apply to judges
and government experts who, in any manner whatsoever,
take part in the sale;
5. Justices, judges, prosecuting attorneys, clerks of
superior and inferior courts, and other officers and
employees connected with the administration of justice,
the property and rights in litigation or levied upon on execution
before the court within whose jurisdiction or territory they
exercise their respective functions; this prohibition includes the
act of acquiring assignment and shall apply to lawyers, with
respect to the property and rights which may be the object of
any litigation in which they may take part by virtue of their
profession;
6. Any others specially disqualified by law.
Art. 1782. Persons who are prohibited from giving each other any
donation or advantage cannot enter into universal partnership.
Prohibition v. Incapacity to Contract
1. Incapacity restrains the exercise the right to contract, while the prohibition to
contract restrains the very right itself;
In other words, a person who is incapacitated can still enter into a
contract, but he must do so through his parent or guardian, while one who is
prohibited from entering into a particular contract is absolutely disqualified
from entering into that contract.
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OF CONSENT
Error or mistake
Violence or force
Intimidation or threat or duress
Undue influence
Fraud or deceit
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person entering
into the contract
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
a contract.
Mistake 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.
A simple mistake of account shall give rise to its correction.
MISTAKE- may be defined not only as the wrong conception of the thing, but also
the lack of knowledge with respect to the thing.
Two General Kinds of Mistakes
1. Mistake of fact
When one or both of the contracting parties believe that a fact
exists when in reality it does not, or that such fact does not exist
when in reality it does.
2. Mistake of law
When one or both of the contracting parties arrive at an
erroneous conclusion regarding the interpretation of a question
of law or the legal effects of a certain act or transaction.
** It is only a mistake of fact which will vitiate consent thus rendering
the contract voidable; a mistake of law, on the other hand, does not
render the contract voidable because of the well-known principle that
ignorance of law excuses no one from compliance therewith.
CLASSES OF MISTAKE OF FACT
1. Mistake as to object (error in re)
a) Mistake as to the identity of the thing (error in corpore)
As when a thing which constitutes the object of the
contract is confused with another thing;
b) Mistake as to the substance of the thing (error in
substantia)
c) Mistakes as to the conditions of the thing
provided such conditions have principally moved one or
both parties to enter into the contract; and
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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 tereof have been
fully explained to the former.
RULE WHERE A PARTY IS ILLITERATE
The contract is voidable.
**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 of the contracting parties to enter into
the contract. Fraud, on the other hand, is present 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.
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.
Mistake of Law
Arises from an ignorance of some provision of law, or from erroneous
interpretation of its meaning, or from an erroneous conclusion as to the legal
effect of an agreement, on the part of one of the parties.
Requisites
1. The error must be mutual
2. It must be as to the legal effect of an agreement
3. It must frustrate the real purpose of the parties.
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.
To determine the degree of intimidation, the age, sex and
condition of the person shall be borne in mind.
A threat to enforce ones claim through competent authority, if
the claim is just or legal, does not vitiate consent.
Art. 1336. Violence or intimidation shall annul the obligation, although it
may have been employed by a third person who did not take part in the
contract.
Violence v. Intimidation
1. Violence is external; intimidation is internal
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2. Violence prevents the expression of the will substituting it with material act
dictated by another; intimidation influences the operation of the will,
inhibiting it in such a way that the expression thereof is apparently that of a
person who has freely given his consent.
3. Violence is physical compulsion, while intimidation is moral compulsion.
Requisites of Violence
1. The force employed to wrest consent must be serious or irresistible; and
2. It must be the determining cause for the party upon whom it is employed in
entering into the contract.
Requisites of Intimidation
1. One of the contracting parties is compelled to give his consent by a
reasonable and well-grounded fear of an evil;
2. The evil must be imminent and grave;
3. The evil must be unjust; and
4. The evil must be the determining cause for the party upon whom it is
employed in entering into the contract.
** This presupposes that the threat or intimidation must be actual, serious
and possible of realization, and that the actor can and still will carry out his threat.
** BUT, the mere knowledge of the severe penalties imposed by the Japanese
invaders upon a violation of their proclamations and orders regarding
non0accptance of military notes, which was common and applicable to all, without
any proof of direct acts showing the imminence and gravity of any injury, does not
in itself establish intimidation, since, according to the law, such intimidation exists
only when one of the contracting parties is inspired with a reasonable and wellgrounded fear of suffering an imminent and grave injury to his person or property,
or to the person or property of his spouse, descendants or ascendants.
Reluctant consent v. Against Good sense of judgment
RELUCTANT CONSENT- whereby one acts as voluntarily and independently
in the eyes of the law when he acts reluctantly and with hesitation.
AGAINST GOOD SENSE OF JUDGMENT- when he acts spontaneously and
joyously.
** Legally speaking, he acts voluntarily and freely when he acts wholly
against his better sense of judgment as when he acts in conformity with them.
Between the two acts there is no difference in law.
DETERMINATION OF DEGREE OF INTIMIDATION
1. Age
2. Sex
3. Condition of the person
Meant not only the resolute or weak character of the person
intimidated, but also his other circumstances, such as
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2.
The first is the cause which induces the party upon whom
it is employed in entering into the contract, while the second is
not the cause.
3.
The effect of the first is to render the contract voidable,
while the effect of the second is to render the party who
employed it liable for damages.
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One who contracts for the purchase of real estate in reliance on the
representations and statements of the vendor as to its character and
value, but after he has visited and examined it for himself, and has had
the means and opportunity of verifying such statements, cannot avoid the
contract on the ground that such statements were false or exaggerated.
Art. 1341. A mere expression of an opinion does not signify fraud, unless
made by an expert and the other party has relied on the formers special
knowledge.
SONGCO v. SELLNER
A man who relies upon such an affirmation made by a person whose interest
might so readily prompt him to exaggerate the value of his property does so at his
peril and must take the consequences of his own imprudence.
Art. 1342. Misrepresentation by a third person does not vitiate consent,
unless such misrepresentation has created substantial mistake and the
same is mutual.
** The precept would not be applicable if the third person makes the representation
with the complicity or, at least, with the knowledge, but without any objection, of
the contracting party who is favored. Neither is it applicable if the misrepresentation
has created substantial mistake and the same is mutual.
Art. 1343. Misrepresentation made in good faith is not fraudulent but may
constitute error.
Art. 1344. In order that fraud may make a contract voidable, it should be
serious and should not have been employed by both contracting parties.
Incidental fraud only obliges the person employing it to pay
damages.
MAGNITUDE OF FRAUD
The serious character of the fraud refers not to its influence, but to its
importance or magnitude. By virtue of this requisite, the annulment of a contract
cannot, therefore, be invoked just because of the presence of minor or common acts
of fraud whose veracity could easily have been investigated; neither can such
annulment be invoked because of the presence of ordinary deviations from the
truth, deviations, which are almost inseparable from ordinary commercial
transactions, particularly those taking place in fairs or markets.
RELATION BETWEEN FRAUD AND CONSENT
The third indispensable requisite in order that the fraud employed by one of
the contracting parties will vitiate consent is that it should have induced the other
party to enter into the contract. Such fraud must be the principal or causal
inducement or consideration for the consent of the party who is deceived in the
sense that he would never have given such consent were it not for the fraud.
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** If fraud is only incidental, the validity of the contract is not affected but the
party who employed such fraud shall be liable for damages.
Art. 1345. Simulation of a contract may be absolute or relative. The former
takes place when the parties do not intend to be bound at all; the latter,
when the parties conceal their true agreement.
Art. 1346. An absolutely simulated or fictitious contract is void. A relative
simulation, when it does not prejudice a third person and is not intended
for any purpose contrary to law, morals, good customs, public order or
public policy binds the parties to their real agreement.
SIMULATION OF CONTRACTS (VICE OF DECLARATION)
ABSOLUTE
when there is colorable contract but it has no substance as the
contracting parties do not intend to be bound by the contract at all.
Ex. As when a debtor simulates the sale of his properties to a
friend in order to prevent their possible attachment by creditors.
Characteristic
The fact that the apparent contract is not really desired or
intended to produce legal effects or in any way alter the juridical
situation of the parties.
RELATIVE
When the contracting parties state a false cause in the contract to
conceal their true agreement.
Ex. When a person conceals a donation by simulating a sale of
the property to the beneficiary for a fictitious consideration.
Determination of the true nature of the contract
The intention of the parties. Such intention is determined from
the expressed terms of their agreement as well as from the
contemporaneous and subsequent acts.
EFFECTS OF SIMULATION OF CONTRACTS
Affects the contract in an entirely different manner.
If simulation is ABSOLUTE, the contract is void.
If simulation is RELATIVE, binds the parties and the parties may recover
from each other what they may have given under the contract.
Thus, a relatively simulated contract is binding and enforceable
between the parties and their successors in interest to their real
agreement, when it does not prejudice a third person and is not
intended for any purpose contrary to law, morals, good customs,
public order and public policy.
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** The legal presumption is in favor of the validity of contracts. The party who
impugns the validity and regularity of a contract has the burden of proving his
allegation.
CONTRACTS OF ADHESION
DEVT BANK OF THE PHILS. V. PEREZ
CONTRACT OF ADHESION
Its terms are prepared by only one party while the other party
merely affixes his signature signifying his adhesion thereto.
** A contract of adhesion is just as binding as the ordinary contracts.
Exception:
It may be struck down as void when the weaker party is imposed
upon in dealing with the dominant bargaining and is reduced to the
alternative of taking it or leaving it, completely deprived of the opportunity to
bargain on equal footing.
Exception (to the exception above)
Contracts of adhesion are not invalid per se; they are not
entirely prohibited. The one who adheres to the contract is in reality free to
reject it entirely; if he adheres, he gives his consent.
Section 2.-OBJECT OF CONTRACT
OBJECT OF A CONTRACT-may be defined as the thing, right or service which is the
subject matter of the
obligation which is created or
established.
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.
No contract may be entered into upon future inheritance except
authorized by law.
All services which are not contrary to law, morals, good customs,
public order or public policy may likewise be the object of a contract.
Art. 1348. Impossible things or services cannot be the object of contracts.
Art. 1349. The object of very contract must be determinate as to its kind.
The fact that the quantity is not determinate shall not be an obstacle to
the existence of the contract, provided it is possible to determine the
same, without the need of a new contract between the parties.
WHAT MAY BE THE OBJECTS OF CONTRACTS
All things or services, provided the following requisites must concur:
1. The object must be within the commerce of men.
It should be susceptible of appropriation and transmissible from
one person to another.
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RELATIVE
Arises from the circumstances or qualifications of the obligor rendering him
incapable of executing the act or service, allows the perfection of the
contract, although the fulfillment thereof is hardly probable.
Thus, as a consequence, in a contract of partnership where one of the
partners obligates himself to contribute to the common fund an amount
beyond his means, the contract is not void because the impossibility
may disappear.
DETERMINABILITY OF OBJECT
It simply means that the genus of the object should be expressed although
there might be no determination of the individual species. Consequently, there need
not be any specification of the qualities and circumstances of the thing which
constitutes the object of the contract, since according to Art. 1246 of the Code:
When the obligation consists in the delivery of an indeterminate or
generic thing, whose quality and circumstances have not been stated, the
creditor cannot demand a thing of superior quality. Neither can the debtor
deliver a thing of inferior quality. The purpose of the obligation and other
circumstances shall be taken into consideration.
** When the quantity is not specified or stated, it does not affect the existence of
the contract so long as it is possible to determine the quantity of the object without
necessity of any new contract.
AURORA FE CAMACHO v. CA
The failure of the parties to state the exact location in the contract is of no
moment. This is a mere error occasioned by the parties failure to describe with
particularity the subject property, which does not indicate the absence of the
principal object as to render the contract void.
Section 3.-CAUSE OF CONTRACTS
Art. 1350. In onerous contracts the cause is understood to be, for each
contracting party, the prestation or promise of a thing or service by the
other; in remuneratory ones, the service or benefit which is remunerated;
and in contracts of pure beneficence, the mere liberality of the benefactor.
Art. 1351. The particular motives of the parties in entering into a contract
are different from the cause thereof.
CONCEPT OF CAUSE
CAUSE
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The why of the contract or the essential reason which moves the contracting
parties to enter into the contract.
It is the immediate, direct or most proximate reason which explains and
justifies the creation of an obligation through the will of the contracting
parties.
In onerous contracts, the cause is understood to be, for each of the
contracting party, the prestation or promise of a thing or service by the
other.
In remuneratory contracts, it is the service or benefit which is
remunerated.
In contracts of pure beneficence, it is the liberality of the benefactor.
CAUSA v. CONSIDERATION
Causa- is merely a civil law term; broader in scope than consideration
Consideration- is the common law term.
** They are used interchangeably.
CAUSA v. OBJECT
** For cause, see concept of cause abovementioned.
Object- is the thing which is given or donated.
The thing or service itself
In contract of sale, the objects of the contract are the thing which is sold (ex.
Land) and the price which is paid (purchase price)
DISTNGUISHED FROM MOTIVES
The motives which impel one to a sale or purchase are not always the
consideration of the contract as the term is understood in law. One may purchase
an article not because it is cheap, for in fact it may be dear, but because he may
have some particular use to which it may be put, because of a particular quality
which the article has, or the relation which it will bear, to other articles with which it
will be associated. These circumstances may constitute the motive which induces
the purchase, but the real consideration of the purchase (as far as the vendor is
concerned) is the money which passed.
CAUSE v. MOTIVES
1. While the cause is the direct or most proximate reason of a contract, the
motives are the indirect or remote reasons;
2. While the cause is the objective or juridical reason of a contract, the
motives are the psychological or purely personal reasons;
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3. While the cause is always the same, the motives differ for each
contracting party; and
4. While the legality or illegality of the cause will affect the existence or
validity of the contract, the legality or illegality of the motives will not
affect the existence of the contract.
** The motive may be regarded as the causa when the contract is conditioned
upon the attainment of the motive of either contracting party. Motive becomes
causa when it predetermines the purpose of the contract.
**INEXISTENT- some of the essential elements are absent.
VOID- some of the essential elements are present but are contrary to law,
morals, good customs, public order or public policy. It may have legal effect, as in
the case of in pari delicto.
ACCESSORY CONTRACTS
The rule is that the cause of the accessory contract is identical with that of
the principal contract.
Thus, it has been held that as a mortgage is an accessory contract, its
cause is the very cause of the principal contract from which it receives its
life, and without which it cannot exist as an independent contract, although
it may secure an obligation incurred by another.
MORAL OBLIGATIONS
May a moral or natural obligation constitute a sufficient cause or consideration
to support an onerous contract?
GR:Where the moral obligation arises wholly from ethical considerations,
unconnected with any civil obligation and, as such, is not demandable in law but
only in conscience, it cannot constitute a sufficient cause or consideration to
support an onerous contract.
EP: where such moral obligation is based upon a previous civil obligation which
has already been barred by the statute of limitations at the time when the contract
is entered into, it constitutes a sufficient cause or consideration to support the said
contract. (PRE-EXISTING OBLIGATION)
CAUSE IN REMUNERATORY CONTRACTS
Service or benefit which is remunerated.
REMUNERATORY CONTRACT
Is one in which one of the contracting parties remunerates or
compensates the service or benefit rendered or given by the other
party, although such service or benefit does not constitute a
demandable debt.
CAUSE IN CONTRACTS OF PURE BENEFICENCE
Mere liberality of the benefactor
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GR: Entering into a contract promising to pay the damages which resulted to the
filing of a criminal case, the contract entered into is void since there was no valid
cause.
EP: where the contract entered into is based on a pre-existing obligation, hence,
the dismissal of the case is not the cause but the pre-existing obligation.
Chapter 3
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 articles
cannot be exercised.
FORM OF CONTRACTS
GR: Contracts shall be obligatory provided all the essential requisites for their
validity are present.
EP:
1. When the law requires that the contract must be in a certain form in order
to be valid; and
2. When the law requires that the contract must be in a certain form in order
to be enforceable.
FORMALITIES OF VALIDITY
Contracts for which the law prescribes certain forms for their validity:
1. Those which must appear in writing;
2. Those which must appear in public document; and
3. Those which must be registered.
Contracts which must appear in writing
1. Donations of personal property whose value exceeds P5,000
(Accdg to Art 748 of the Code, the donation and the acceptance shall
be made in writing; otherwise, it shall be void.)
2. Sale of a piece of land or any interest therein through an agent
(accdg to Art. 1874, the authority of the latter shall be in writing;
otherwise, the sale is void.)
3. Agreements regarding of payments of interest in contracts of loan
(accdg to Art. 1956, no interest shall be due unless it has been
expressly stipulated in writing. The validity of the contract of loan,
however, is not affected.)
4. Antichresis
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All other contracts where the amount involved exceeds P500 must
appear in writing, even a private one. Bust sales of goods, chattels
or things in action are governed by Arts. 1403, No.2 and 1405.
PRINCIPLES
1. Arts. 1357 and 1358 do not require the execution of the contract either in
a public or in a private document in order to validate or enforce it but only
to insure its efficacy, so that after its existence has been admitted, the
party bound may be compelled to execute the necessary document.
2. Even where the contract has not been reduced to the required form, it is
still valid and binding as far as the contracting parties are concerned.
Consequently, both articles presuppose the existence of a contract which
is valid and enforceable.
3. From the moment one of the contracting parties invokes the provisions of
Arts. 1357 and 1358 by means of a proper action, the effect is to place the
existence of the contract in issue, which must be resolved by the ordinary
rules of evidence.
4. Art. 1357 does not require that the action to compel the execution of the
necessary document must precede the action upon the contract. As a
matter of fact, both actions may be exercised simultaneously.
5. However, although the provisions of Art.1357, in connection with those of
Art. 1358, do not operate against the validity of the contract nor the
validity of the acts voluntarily performed by the parties for the fulfillment
thereof, from the moment when any of the contracting parties invoke said
provisions, it is evident that under them the execution of the required
document must precede the determination of the other obligations
derived from the contract.
Chapter 4
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.
DOCTRINE OF REFORMATION OF INSTRUMENTS
When the true intention of the parties to a perfected and valid contract are not
expressed in the instrument purporting to embody their 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.
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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. 1363. When 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, the instrument may be reformed.
Art. 1364. 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,
the courts may order that the instrument be reformed.
Art. 1365. If two parties agree upon the mortgage or pledge or 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
proper.
Art. 1366. There shall be no reformation in the following cases:
1. Simple donations inter vivos wherein no condition is imposed;
( Acts of liberality)
2. Wills;
( strictly a personal act; free; may be revoked at will by the testator)
3. When the real agreement is void.
(nothing to reform)
Art. 1367. When one of the parties has brought an action to enforce the
instrument, he cannot subsequently ask for its reformation. (UNDER THE
PRINCIPLE OF ESTOPPEL)
Art. 1368. Reformation may be ordered at the instance of either party or
his successors in interest, if the mistake was mutual; otherwise, upon
petition of the injured party, or his heirs or assigns.
Art. 1369. The procedure for the reformation of instruments shall be
governed by rules of court to be promulgated by the Supreme Court.
See contracts of adhesion on page 28.
** The stringent treat towards contracts of adhesion which the courts are enjoined
to observe is in piursuance of the madate in Art. 24 of the New Civil Code that in
all contractual, property or other relations, when one of the parties is at a
disadvantage on account of his moral dependence, ignorance, indigence,
mental weakness, tender age or other handicap, courts must be vigilant
for his protection.
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should be treated as pledge if the debt continues in existence and is not discharge
by the transfer, and that accordingly, the use of the things ordinarily importing
conveyance, of absolute ownership will not be given that effect in such a
transaction if they are also commonly used in pledges and mortgages and therefore
do not unqualifiedly indicate a transfer of absolute ownership, in the absence of
clear and ambiguous language or other circumstances excluding an intent to
pledge.
PHIL. NATL CONSTRUCTION CORP. v. CA
The SC held that the contract between parties is the formal expression of the
parties rights and obligations. It is the best evidence of the intention of the parties.
Thus, when the terms of an agreement have been reduced to writing, it is
considered as containing all the terms agreed upon and there can be, between the
parties and their successors in interest, no evidence of such terms other than the
contents of the written agreement.
OLIVARES & ROBLES v. SARMIENTO
The contract is the law between the parties and when the words of the contract
are clear and can easily be understood, there is no room for construction.
HOW TO JUDGE INTENTION
In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered.
As a general rule, documents are interpreted in the precise terms in which they
are expressed, but the courts, in the exercise of their sound discretion, are called
upon to admit direct and simultaneous circumstantial evidence necessary for the
interpretation with the purpose of making the true intention of the parties prevail.
NIELSEN & CO. v. LEPANTO CONSO. MINIG CO.
One pattern is to ascertain the contemporaneous and subsequent acts
of the contracting parties in relation to the transaction under
consideration. Thus, where there is evidence regarding the intention of the parties
to extend the contract equivalent to the period of suspension caused by the war
and the parties understood the suspension to mean extension, it was held that the
suspension of the agreement of the same for a period equivalent to the suspension.
Art. 1372. However 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.
Art. 1373. If some stipulation of any contract should admit several
meanings, it shall be understood as bearing that import which is most
adequate to render it effectual.
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.
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= intrinsic
ESSENTIAL FEATURES
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1. As to defect
a) In rescissible contracts, there is damage or injury either to one of the
contracting parties or to third persons;
b) In voidable contracts, there is vitiation of consent or legal capacity of one
of the contracting parties;
c) In unenforceable contracts, the contract is entered into in excess or
without any authority, or does not comply with the Statute of Frauds, or both
contracting parties are legally incapacitated;
d)In void or inexistent contracts, one or some of the essential requisites of a
valid contract are lacking either in fact or in law.
2. As to effect
a) The first are considered valid and enforceable until they are rescinded by a
competent court;
b) The second are considered valid and enforceable until they are annulled by
a competent court;
c) The third cannot be enforced by a proper action in court;
d) The fourth do not, as a general rule, produce any legal effect.
3. As to prescriptibility of action or defense
a) In the first, the action for rescission may prescribe;
b) In the second, the action for annulment or the defense of annullability may
prescribe;
c) In the third, the corresponding action for recovery, if there was total or partial
performance of the unenforceable contract under Nos. 1 and 2, may
prescribe;
d) In the fourth, the action for declaration of nullity or inexistence or the defense
of nullity or inexistence does not prescribe.
4. As to susceptibility of ratification
a)
b)
c)
d)
The
The
The
The
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a)
b)
c)
d)
The
The
The
The
Art. 1380. Contracts validly agreed upon may be rescinded in the cases
established by law.
RESCISSIBLE CONTRACTS IN GENERAL
All of the essential requisites of a contract exist and the contract is valid, but
by reason or injury to either of the contracting parties or to third persons, such as
creditors, it may be rescinded.
RESCISSIBLE CONTRACT
Is a contract which is valid because it contains all of the essential requisites
prescribed by law, but which is defective because of injury or damage to either
of the contracting parties or to third persons, as a consequence of which it may
be rescinded by means of a proper action for rescission.
The only way it can be attacked is by means of a direct action for rescission
based on any of the causes expressly specified by law; hence, it cannot be
attacked collateraaly.
CHARACTERISTICS
1. Their defect consists in injury or damage either to one of the contracting
parties or to third persons.
2. Before rescission, they are valid and, therefore, legally effective.
3. They can be attacked directly only, not collaterally.
4. They can be attacked only either by a contracting party or by a third person
who is injured or defrauded.
5. They are susceptible of convalidation only by prescription and not by
ratification.
CONCEPT
Rescission is a remedy granted by law to contracting parties, and even to third
persons to secure the reparation of damages caused to them by a contract even if
the same should be valid, by means of the restoration of the things to their
condition prior to the celebration of the contract.
RESCISSION v. RESOLUTION
1. As to party who may institute action
In rescission- the contracting parties or third person
In resolution-only by the party to the contract
2. As to causes
In rescission- there are several causes or grounds such as lesion,
fraud and others
expressly specified by law.
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3. The contract must have been entered into without judicial approval;
4. There must be no other legal means for obtaining reparation for the
lesion;
5. The person bringing the action must be able to return whatever he
may be obliged to restore; and
6. The object of the contract must not be legally in the possession of a
third person who did not act in bad faith.
** If the object of the contract is legally in the possession of a third person who did
not act in bad faith, the remedy available to the person suffering the lesion is
indemnification for damages and not rescission.
CONTRACTS IN FRAUD OF CREDITORS
No. 3 of Art. 1381 complements Art. 1177 of the Code which states that one of
the remedies available to the creditor after he has exhausted all the property in
possession of the debtor is to impugn the acts which the latter may have done to
defraud him.
Requisites
1. There must be a credit prior to the celebration of the contract;
2. There must be a fraud, or at least, the intent to commit fraud to the
prejudice of the creditor seeking the rescission
3. The creditor cannot in any legal manner collect his credit; and
4. The object of the contract must not be legally in the possession of a
third person who did not act in bad faith; otherwise, it cannot be
rescinded and the remedy of the defrauded creditor is to proceed
against the person causing the loss for damages.
ACCION PAULIANA- the action to rescind contracts in fraud of creditors when the
latter cannot in any other manner collect the claims due them.
Requisites
1. The plaintiff asking for rescission has a credit prior to the alienation;
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.
SIGUAN v. LIM
GR: Rescission requires the existence of creditors at the time of the alleged
fraudulent alienation, and this must be proved as one of the bases of the judicial
pronouncement setting aside the contract. Without any prior existing debt, there
can neither be injury nor fraud. While it is not necessary that the credit of the
plaintiff in the accion pauliana must exist prior to the fraudulent alienation, the date
of the judgment enforcing it is immaterial. Even if the judgment be subsequent to
the alienation, it is merely declaratory, with retroactive effect to the date when the
credit was created.
CONTRACTS REFERRING TO THINGS UNDER LITIGATION
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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.
AS DISTINGUISHED FROM IN FRAUD OF CREDITORS
1. The purpose is to secure the possible effectivity of a claim; while in
the preceding number, the purpose is to guarantee an existing credit;
2. No. 4 there is a real right involved; while in No. 3 there is a personal
right, both of which deserve the protection of law.
Similarity: In both cases, the person who can avail of the remedy of
rescission is a stranger to the contract.
CONTRACTS BY INSOLVENT
Requisites
1. That it must have been made in a state of insolvency; and
2. That the obligation must have been one which the debtor could not
be compelled to pay at the time such payment was effected
Basis: fraud as in the case of Nos. 3 and 4
INSOLVENCY
Refers to the financial situation of the debtor by virtue of which it is impossible
for him to fulfill his obligations. A juridical declaration is not necessary.
According to Manresa: the obligations contemplated by this article comprehend
not only those with a term or which are subject to a suspensive condition, but
even void and natural obligations as well as those which are condoned or which
have prescribed.
In suspensive period, where two obligations were created demandable at
different dates, the conflict can easily be resolved by considering the priority of
dates between two debts. If the obligation with a period became due before
the obligation to the creditor seeking the rescission became due then the latter
cannot rescind the payment even if such payment was effected before the
expiration of the period; but if the obligation with a period became due after
the obligation to the creditor seeking the rescission became due, then the
latter may rescind the payment.
OTHER RESCISSIBLE CONTRACTS
1. Art.1098
2. Art. 1189
3. Art.1526
4. Art.1534
5. Art.1539
6. Art. 1542
7. Art. 1556
8. Art.1560
9. Art. 1567
10.Art. 1659
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as the obligation to restore the fruits is concerned, the rules on possession shall be
applied. Consequently, the determination of the good or bad faith of the party
obliged to restore is of transcendental importance in order to assess the fruits or the
value thereof which must be returned as well as the expenses which must be
reimbursed.
EFFECT OF RESCISSION UPON THIRD PERSONS
Two indispensable requisites which must concur in order that the acquisition of
the thing which constitutes the object of the contract by a third person shall defeat
the action for rescission:
1. That the thing must be legally in the possession of the third person; and
2. That such third person must not have acted in bad faith.
** Where the thing which constitutes the object of the contract happens to be
movable property, the concurrence of these requisites offers no difficulty because
of the principle that possession of movable property acquired in good faith
is equivalent to a title.
** Where the thing happens to be immovable property, it is indispensable that
the right of the third person must be registered or recorded in the proper
registry before we can say that the thing is legally in his possession, or
what amounts to the same thing, before he is protected by law.
Art. 1386. Rescission referred to in Nos. 1 & 2 of Art. 1381 shall not take
place with respect to contracts approved by the courts.
Art. 1387. All contracts by virtue of which the debtor alienates the
property by gratuitous title are presumed to have been entered into in
fraud of creditors, when the donor did not reserve sufficient property to
pay all debts contracted before the donation.
Alienations by onerous title are also presumed fraudulent when
made by persons against whom some judgment has been rendered in any
instance, or some writ of attachment has been issued. The decision or
attachment need not refer to the property alienated, need not have been
obtained by the party seeking the rescission.
In addition to these presumptions, the design to defraud the
creditors may be proved in any other manner recognized by the law of
evidence.
Art. 1388. Whoever acquires in bad faith the things alienated in fraud of
creditors shall indemnify the latter for damages suffered by them on
account of the alienation, whenever, due to any cause, it should be
impossible for him to return them.
If there are two or more alienations, the first acquirer shall be liable
first, and so on successively.
Purchaser in Good Faith- is one who buys property of another without notice that
some other person has a right to, or an interest in, such property and pays a full and
fair price for the same, at the time of such purchase, or before he has notice of the
claim or interest of some other person in the property.
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VOIDABLE v. RESCISSIBLE
1. In a voidable contract, the defect is intrinsic because it consists of a vice
which vitiates consent, while in a rescissible contract, the defect is
external because it consists of damage or prejudice either to one of the
contracting parties or to third persons.
2. In the former, the contract is voidable even if there is no damage or
prejudice, while in the latter the contract is not rescissible if there is no
damage or prejudice.
3. In the former the annullability of the contract is based on the law, whle in
the latter the rescissibility of the contract is based on equity. Hence, the
annulment is not only a remedy but a sanction, while rescission is a mere
remedy. Public interest, therefore, predominates in the first, while private
interest predominates in the second.
4. The causes for annulment are different from the causes for rescission.
5. The former is susceptible of ratification, while the latter, is not.
6. Annulment may be invoked only by a contracting party, while rescission
may be invoked either by a contracting party or a third person.
Art. 1390. The following contracts are voidable or annullable, even though
there may have been no damage to the contracting parties:
WHAT CONTRACTS ARE VOIDABLE:
a. THOSE WHERE ONE OF THE PARTIES IS INCAPABLE OF GIVING
CONSENT TO A CONTRACT (legal incapacity)
(1) minors ( below 18 )
(2) insane unless acted in lucid interval
(3) deaf mute who cant read or write
(4) persons specially disqualified: civil interdiction
(5) in state of drunkenness
(6) in state of hypnotic spell
b. THOSE WHERE THE CONSENT IS VITIATED BY MISTAKE, VIOLENCE,
INTIMIDATION, UNDUE INFLUENCE OR FRAUD (vice of consent)
(1)mistake false belief into something
REQUISITES:
1. Refers to the subject of the thing which is the object of the contract
2. Refers to the nature of the contract
3. Refers to the principal conditions in an agreement
4. Error as to person - when it is the principal consideration of the
contract
5. Error as to legal effect - when mistake is mutual and frustrates the real
purpose of parties
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CARANTES v. CA
Registration of a deed operates as constructive notice to the whole world.
** The defense of minority must fail if he has benefited from the transaction.
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Art. 1397. The action for the 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.
Requisites to confer the necessary capacity for the exercise of the action
for annulment
1. The plaintiff must have an interest in the contract;a nd
2. That the victim and not the party responsible for the vice or defect must
be the person who must assert the same. (Based on the principle that
whoever goes to court must do so with clean hands)
GR: A third person who is a stranger to the contract cannot institute an action for
annulment.
EP: A person who is not a party obliged principally or subsidiarily under a contract
if he is prejudiced in his rights with respect to one of the contracting parties, and
can show detriment which would positively result to him from the contract in which
he has no intervention. (Teves V. Peoples Homesite & Housing Corp.)
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.
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
restitution except insofar as he has been benefited by the thing or price
received by him.
**restitution will only come into play if the contract has been already
executed or consummated.
EFFECTS OF ANNULMENT
If the contract has not yet been consummated, the contracting parties shall be
released from the obligations arising therefrom.
OBLIGATION OF MUTUAL RESTITUTION
In obligations to give, the rule enunciated by Art. 1398 shall apply.
In obligations to do or not to do, there will have to be an apportionment of
damages based on the value of such prestation with corresponding interests.
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that an action for annulment would in effect be extinguished by the loss of the thing
through a fortuitous event.
Chapter 8
UNENFORCEABLE CONTRACTS
UNENFORCEABLE CONTRACTS
Those which cannot be enforced by a proper action in court, unless they are
ratified, because either they are entered into without or in excess of
authority or they do not comply with the statute of frauds or both of the
contracting parties do not possess the required legal capacity.
GENERAL CLASSES OF UNENFORCEABLE CONTRACTS
1. Those contracts entered into in the name of another person by one without
any authority or in excess of his authority;
Defect: there is absolutely no consent insofar as the person in whose name
the contract is entered into is concerned.
2. Those which do not comply with the Statute of Frauds; and
Defect: there is no writing, note or memorandum by which the contract may
be proved.
3. Those where both contracting parties are legally incapacitated.
Defect: consent is absolutely vitiated by the legal incapacity of both of the
contracting parties.
CHARACTERISTICS
1. They cannot be enforced by a proper action in court;
2. They are susceptible of ratification;
3. They cannot be assailed by third persons.
UNENFORCEABLE v. RESCIBBLE
1. An unenforceable contract cannot be enforced by a proper action in court,
while a rescissible contract can be enforced unless it is rescinded.
2. The causes for the unenforceable character of the former are different from
the causes for the rescissible character of the latter;
3. The former is susceptible of ratification, while the latter is not;
4. The former cannot be assailed by third persons, while the latter may be
assailed by third persons who are prejudiced.
UNENFORCEABLE v. VOIDABLE
1. An unenforceable contract cannot be enforced by a proper action in court,
while a voidable contract can be enforced unless it is annulled.
2. The causes for the unenforceable character of the former are different from
the causes for the voidable character of the latter.
Art. 1403. The following contracts are unenforceable, unless they are
ratified:
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