Title II

Rules governing innominate contracts

CONTRACTS

Innominate contracts shall be governed by:

Chapter 1
General Provisions

1)
2)

Article 1305

3)
4)

The agreement of the parties

The provisions of the civil code on obligations and
contract
The rules governing the most analogous contracts
The customs of the place

Contracts
A meeting of minds between two persons whereby
one binds himself, with respect to the other, to
give something or to render some service.
One of the sources of obligations. On the other
hand, obligation is the legal tie or relation itself
that exists after a contract has been entered into.
Agreements enforceable through legal
proceedings. An agreement is broader than
contract because the former may not have all the
elements of a contract. All contracts are
agreements but not all agreements are contract.

Article 1308
Contracts bind both contracting parties

A contract is an agreement which gives rise to

obligations. It must bind both parties in order that
it can be enforced against either. It is a
fundamental rule that no party can renounce or
violate the law of the contract without the
consent of the other.

Article 1309
Article 1306
Freedom to contract guaranteed

Determination of performance by a third person

Every person has the liberty to enter into a

contract provided they are not contrary to law,
morals, good customs, public order and public
policy.

The determination of the performance of a

contract may be left to a third person. The
decision, however, shall bind the parties only
after it has been made known to both of them.

Article 1310
Limitations:
1)

2)

Law- it is a fundamental requirement that

contract entered into must be in accordance with
and not repugnant to an applicable statute.
Police power- the police force sets the limit on
contractual stipulations. It is the power of the
state to enact laws or regulations in relation to
persons and property.

Contract must not be contrary to:

Law - rule of conduct, just obligatory promulgated

by legitimate authority.
Morals deals with norms of good and right
conduct evolved in community.
Customs consist of habits and practices which
through the long usage have been followed and
enforced by society.
Public order refers principally to public safety
although it has been considered to mean also the
public weal.
Public policy refers to considerations which are
moved by the common good.

Article 1307
Classification of contract according to its name or
designation
1)
2)

Nominate contract- has a specific name or

designation in law.
Innominate contract- has no specific name or
designation in law.

Kinds of innominate contract:

Do ut des (I give that you may give)

Do utfacias ( I give that you may do)
Facto ut des (I do that you may give)
Facto utfacias ( I do that you may do)

Effect where determination inequitable

A contracting party is not bound by the

determination if it is evidently inequitable or
unjust as when the third person acted in bad faith
or by mistake. In such case, the courts shall decide
what is equitable under the circumstances.

Article 1311
Persons affected by a contract
General rule:
Contract takes effect only between the parties, their
assigns, and their heirs.
Exceptions the cases when a contract is effective only
between the parties are when the rights and obligations
arising from the contract are not transmissible:
a)
b)
c)

By their nature
By stipulation
By provision of law

Cases when strangers or third persons affected by a

contract:
Third person is one who had not taken part in a contract
and is therefore a stranger to the contract
1)
2)
3)
4)

In contracts containing a stipulation in favor of a

third person
In contracts creating real rights
In contracts entered into to defraud creditors
In contracts which have been violated at the
inducement of a third person.

Stipulation pour autrui it is 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.

Classes of stipulations pour autrui (Stipulation in favor of a

third person)
1)
2)

Those where the stipulation is intended for the

sole benefit of such person.
Those where an obligation is due from the
promisee to the third person which the former
seeks to discharge by means of such stipulation.

Requisites of stipulation pour autrui:

The contracting parties by their stipulation must

have clearly and deliberately conferred a favor
upon a third person
The third person must have communicated his
acceptance to the obligor before its revocation by
the obligee or the original parties.
The stipulation in favor of the third person should
be a part not the whole, of the contract
The favorable stipulation should not be
conditioned or compensated any kind of
obligation
Neither of the contracting parties bears the legal
representation or authorization of the third party
for otherwise, the rules on agency will apply.

Article 1312
Third person are bound by contracts; creating real rights.
Third persons who come into possession of the
object of a contract, over which there is a real right, are
bound thereby even if they were not parties to the
contract.
Article 1313

been fully accomplished or executed, resulting in

the extinguishment or termination
Effect of perfection of the contract
From the moment the parties come to an
agreement on a definite subject matter and valid
consideration, they are bound not only
1)
2)

Article 1317
Unauthorized contracts are unenforceable
As a general rule, a person is not bound by the
contract of another of which he has no knowledge or to
which he has not given his consent.
Unauthorized contracts can be cured only by ratification
The mere lapse of time cannot give efficacy to
such a contract. The defect is such that it cannot be cured
except by the subsequent ratification of the person in
whose agent and not by any other person not so
empowered.
When a person is bound by the contract of another
In order that a person may be bound by the
contract of another, there are two requisites:
1)

Right of the creditor to impugn contracts intended to

defraud them
The creditor is given the right to impugn the contracts of his
debtor to defraud him.
Article 1314

To the fulfillment of what has been expressly

stipulated
To all the consequences which according to their
nature, may be in keeping with good faith, usage,
and law

2)

The person entering into the contract must be

duly authorized, expressly or impliedly, by the
person in whose name he contracts or he must
have, by law, a right to represent him
He must act within his power

Chapter 2
Essential Requisites of contracts

Liability of third person responsible for breach of contract

Rule of American Law

A stranger to a contract can be sued for damages
for his unwarranted interference with the
contract

General Provisions
Article 1318
Requisites
1)
2)

Article 1315
Classification of contracts according to perfection
1)
2)
3)

Consensual contract- which is perfected by mere

consent
Real contract- which is perfected by the delivery
of the thing subject matter of the contract
Solemn contract- which requires compliance with
certain formalities prescribed by law

3)

Consent of the contracting parties

Object certain which is the subject matter of the
contract
Cause of the obligation which is established

Classes of elements of a contract:

1)

Stages in the life of a contract

a)

b)

c)

Preparation or negotiation- this includes all the

steps taken by the parties leading to the
perfection of the contract.
Perfection or birth- this is when the parties have
come to a definite agreement or meeting of the
minds regarding the subject matter and cause of
the contract
Consumption or termination- this is when the
parties have performed their respective
obligations and the contract may be said to have

Essential Elements- those without which no

contract can validly exist. They are
subdivided into:
a) Common- those present in all contracts
namely: consent, object and cause
b) Special those not common to all
contracts or those which must be present
only, in peculiar to certain specified
contracts. It may be as regards to: form,
subject matter and the consideration or
cause.

2) Natural Elements- those are presumed to exist

in certain contracts unless the contrary is
expressly stipulated by the parties.
2)

Accidental Elements- the particular

stipulations, clauses, terms, or conditions

established by the parties in their contract

like conditions, interest and penalty

Section 1

Consent

the expiration of the period fixed in the offer for

acceptance
the destruction of the thing due before
acceptance
rejection of the offer

Article 1319

An offer maybe withdrawn before it is accepted. After

acceptance, the contract is already perfected.

Consent- is the conformity or concurrence of wills and with

respect to contracts. It is the meeting of minds between the
parties on the subject matter and the cause which are to
constitute the contract.

Article 1324

Offer

a proposal made by one party to another to enter

into a contract
Must be certain or definite

Acceptance

The manifestation by the offeree of his assent to

the terms of the offer.
It must be absolute

Article 1320
Forms of acceptance of offer:

Oral
Written

An offer becomes ineffective upon the death, civil

interdiction, insanity, or insolvency of either party before
acceptance is conveyed.
Article 1321
Matters that may be fixed by the offerer

Time
Place
Manner of acceptance

Article 1322

Option contract- one giving a person for a consideration a

certain period within which to accept the offer of the
offerer.
Option period- the period given within which the offeree
must accept the offer.
Option money- the money paid or promised to be paid in
consideration for the option.
Withdrawal of offer where period stipulated for
acceptance.
When the offerer gives to the offeree a certain period
within which to accept the offer, the general rule is that the
offer may be withdrawn as matter of right at any time
before acceptance.
Article 1325
Business advertisements generally not definite offers
Business advertisements of things for sale are not definite
offers but are merely invitations of the reader to make an
offer. However, if the advertisement is complete in all
particulars necessary in a contract, it may amount to a
definite offer which, if accepted, will produce a perfected
contract
Article 1326
Advertisements for bidders are generally not definite
offers

Communication of acceptance through an agent

Article 1327

Agent

extension of the personality of his principal

if duly authorized the act of the agent is the act of
the principal

This article only applies if the offer is made through the

agent and the acceptance is communicated through him.

Capacity to give consent presumed

Article 1223
Cases when offer becomes ineffective
death
civil interdiction
insanity
insolvency

Unemancipated minors are persons who

have not yet reached the age of majority.
Insane or demented persons are persons who
are in the state of insanity at the time of
contracting.
Deaf mutes are persons who are deaf and
are unable to write.

Reason for disqualification

Other grounds which render offer ineffective.

Civil Code defines who have no capacity, by

which it can be inferred that capacity is the
general rule, which exists in those, of whom
law has not defined it.

Persons who cannot give consent

As a general rule, advertiser is not bound to

accept the highest or the lowest bidder
unless the contrary appears. In judicial sales,
the sheriff is bound to accept the highest bid.

failure to comply with the condition of the offer

as to the time, place and manner of payment
Article 1328

Persons mentioned can easily be victims of

fraud that is why they cannot give consent.
But they can enter into a contract only
through a parent or guardian.

Lucid interval

It is a temporary period of sanity. A contract

entered into by an insane or demented
person during a lucid interval is valid.

Nature of mistake

Effect of drunkenness and hypnotic spell

Drunkenness and hypnotic spell impair the

capacity of a person to give intelligent
consent. These conditions are equivalent to
temporary insanity. Therefore, contract
entered during this state is voidable.

Article 1329
Incapacity declared in article 1327 subject to modifications

When necessaries such as food

A minor 18 years old or above may contract
for life, health, insurance, etc.
Contract valid through the guardian or legal
representatives
Contract is valid where the minor
misrepresented his age and convincingly led
the other party in his legal capacity
Contract is valid where a minor between 18
and 21 voluntary pays a sum of money or
delivers a fungible thing in the fulfillment of
his obligation

Other special disqualifications may be provided by law

Person suffering the accessory penalty of civil

interdiction
Hospitalized lepers
Prodigals
Deaf and dumb who are unable to read and
write
Those who are unsound mind even though
they have lucid intervals
Those by reason of age, disease, weak mind
and other similar causes.

Article 1330

Mistake of fact to which law refers

In order that mistake may vitiate consent, it must refer to:

It is intelligent- their capacity to act

It is free and voluntary- there is no vitiation
of consent by reason of violence or
intimidation
It is conscious or spontaneous- there is no
vitiation of consent by reason of mistake
undue influence
Error or mistake
Violence or force
Intimidation or threat
Undue influence
Fraud or deceit

Cause vitiating consent and causes of capacity

distinguished

Substance of the thing which is the object of

the contract
Those conditions which have principally
moved one or both parties to enter into the
contract
The identity or qualifications of one of the
parties provided the same was the principal
cause of the contract

Mistake of fact which does not vitiate consent

Error as regards the incidents of a thing

Mistake as to quantity or amount
Error as regards the motives of the contract
Mistake as regards the identity or
qualifications of party

Effect of simple mistake of account

A simple mistake of account or calculation

does not void a contract because it does not
affect its essential elements requisites

Article 1332

If a person is unable to read or if the contract

is in a language not understood by him, and
mistake or fraud is alleged, the person
enforcing the contract must show that the
terms thereof have been fully explained to
the former.

The former are temporary while the latter

are more or less permanent
The first refers to the contract itself while the
second to the person into the contract

Mistake of law

It is that which arises from the following:

o Ignorance of some provision of law
o From erroneous interpretation of
its meaning
o From an erroneous conclusion as
to the legal effect of an agreement

Effects of mistake of law

Mistake of law does not invalidate consent

because ignorance of the law excuses no
one from compliance therewith.

Mistake of law vitiates consent

Article 1331
Mistake or error

There is no mistake if the party alleging it

knew the doubt, contingency, or risk
affecting the object of the contract.

Article 1334

Vices of consent

Mistake may be of fact or law

The mistake contemplated by law is
substantial mistake of fact

Article 1333

Characteristics of consent

It is the false notion of a thing or a fact

material to the contract

When there is a mistake on a doubtful

question of law, or on the construction or
application of law, this is analogous to a
mistake of fact, and the maxim of ignoratia
legis neminem excusat should have no
proper application.

Requisites for the application of article 1334

The error must be mutual

It must be as to the legal effect of an

agreement
It must frustrate the real purpose of the
parties

Violence or force
It requires the employment of physical force.
It shall annul the obligation, although it may
have been employed by a third person who
did not take part in the contract.

Nature of intimidation or threat

Article 1335

It must produce a reasonable and wellgrounded fears of an evil

The evil must be imminent and grave
The evil must be upon his person or property
It is the reason why he enters into the
contract

Article 1339
Fraud by concealment

If contract is signed merely out of reverential

fear or the fear of displeasing a person whom
respect and obedience are due, the contract
is valid because reverential fear by itself does
not annul consent in the absence of actual
threat, unless the fear so deprives one of
reasonable inference that undue influence
has been exercised.

Threat to enforce just or legal claim

Threat of court action as means to enforce a

just or legal claim is justified and does not
vitiate contract.

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.

Expression of opinion

Fraud by a third person

Undue influence
It is the influence of a kind that so
overpowers the mind of a party as to destroy
his free will and make him express the will of
another.

Circumstances which shall be considered whether undue

influence has been exercised

Confidential, family, spiritual and other

relations between the parties
Mental weakness
Ignorance
Financial distress of the person alleged to
have been unduly influenced

Causal fraud

It is the fraud committed by one party before

or at the time of the celebration of the
contract to secure the consent of the other.
It can be committed through insidious words
or machinations.

Requisites of causal fraud

There must be misrepresentation or

concealment

Misrepresentation by a third person does not

vitiate consent, unless such
misrepresentation has created substantial
mistake and the same is mutual.

Article 1343

Misrepresentation made in good faith is not

fraudulent but may constitute error.

Article 1344
Two kinds of fraud

Causal fraud- ground for the annulment of

the contract
Incidental fraud- renders party who employs
it liable for damages.

Requisites of causal fraud

Article 1338

In order that it may amount to fraud, the

following requisites must be present:
o It must be made by an expert
o The other contracting party has relied
on the experts opinion
o The opinion turned out to be false or
erroneous

Article 1342

Article 1337

Exaggerations in trade, when the other had

an opportunity to know the facts, are not
themselves fraudulent.
Dealers talk or traders talk are
representations which do not appear on the
face of the contract and these do not bind
either party.

Article 1341

Article 1336

A neglect or failure to communicate that

which a party to a contract knows and ought
to communicate constituted concealment.

Article 1340

Factors to determine degree of intimation

It must be serious
It must have been employed by only one of
the contracting parties
It must be in bad faith or with intent to
deceive
It must have induced the consent of the
other contracting parties
It must be alleged and proved by clear and
convincing evidence

It should be serious
It should not have been employed by both
contracting parties
It should not have been known by the other
contracting party

Article 1345

Simulation of 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.

Article 1346
Simulation of contract

The act of deliberately deceiving others, by

feigning or pretending by agreement, the
appearance of a contract which is either nonexistent or concealed

Article 1349

Kinds of simulation
1)

2)

Physical- when the thing or service in the

very nature of things cannot exist
Legal- when the thing or service is contrary
to law, morals, good customs, public order,
or public policy.

Absolute simulation- when the contract does not

really exist and the parties do not intend to be
bound at all.
Relative simulation- when the contract entered
into by the parties is different from their true
agreement.

The object of every 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.

Section 3: Cause of contracts

Section 2
Objects of Contracts
Article 1347 and 1348
Object of a contract

It is the subject matter of the contract.

Kinds of object of contract

Things
Rights
Services

Requisites of things as object of contract

The thing must be within the commerce of

men
It must not be impossible, legally or
physically
It must in existence or capable of coming into
existence
It must be determinate or determinable
without the need of a new contract between
the parties

Requisites of services as object of contract

The service must be within the commerce of

men
It must not be impossible, physically or
legally
It must be determinate or capable of being
made determinate

Rights as object of contract

As a general rule, all rights may be the object

of a contract the exceptions are when they
are intransmissible by their nature,
stipulation or by provision of law.

Article 1350
Cause- is the essential or more proximate purpose which
the contracting parties have in view at the time of entering
into the contract
Distinction of cause from object
In a bilateral or reciprocal contract, the cause for
one is the subject matter or object for the other, or vice
versa. The distinction is a matter of viewpoint.
Classification of contracts according to cause
1)

2)

3)

Article 1351
Motive- is the purely personal or private reason which a
party has in entering into a contract.
Cause distinguished from motive

Future inheritance

It is any property or right, not existence or

capable of determination at the time of the
contract, that a person may inherit In the
future. A contract concerning future
inheritance is void.
Exceptions:
o In the case of donations by reason of
marriage between future spouses with
respect to their future property to take
effect
o In the case of partition of property by
act inter vivos by a person to take effect
upon his death.

Kinds of impossibility

Onerous- one the cause of which, for each

contracting party is the prestation or promise of a
thing or service by the other.
Remuneratory or Remunerative one the cause
of which is the service or benefit which is
remunerated.
Gratuitous- one the cause of which is the liberality
of the benefactor or giver.

Cause is the immediate or direct reason while

motive is the remote or indirect reason;
Cause is always known to the other contracting
party, while motive may be unknown;
Cause is an essential element of a contract while
motive is not; and
The illegality of the cause effects the validity of a
contract, while the illegality of ones motive does
not render the contract void.

Article 1352
Contracts without cause produce no effect.

Article 1353
Requisites of cause
1)
2)

It must exist at the time the contract is entered

into
It must be lawful

3)

It must be true or real

Effect of absence of cause

c)

Form for validity of contract

Contracts without cause confer no right and

produce no legal effect whatever. There is a total lack of
any valid consideration for the contract.

a)

Effect of failure of cause- Failure of cause does not render a

contract void.

c)

Effect of illegality of cause- Contracts with unlawful cause

are null and void
Effect of falsity of cause- if the cause if false, the contract is
void. If it is simulated, it is voidable

When the law requires that a contract be I some

form for the convenience of the parties

b)

d)
e)

Donation of real property- it must be in public

instrument.
Donation of personal property the value of which
exceeds 5,000- the donation and acceptance must
be in writing.
Sale of land through an agent- the authority of the
agent must be in writing
Stipulation to pay interest- it must be in writing.
Contract of partnership- if immovable are
contributed, it must be in a public instrument.

Form for enforceability of contract

The law requires that they be in writing
subscribed by the party charged or by his agent.

Article 1354
The cause need not to be expressly stated in the
contract, it is presumed that it exists and is lawful, unless
the debtor proves otherwise.

Article 1357
In certain cases, a certain form is required for the
convenience of the parties in order that the contract may
be registered in the proper registry.

Article 1355
Lesion- is any damage caused by the fact that the price is
unjust or inadequate
Effect of lesion or inadequacy of cause
General Rule: Lesion or inadequacy of cause does
not of itself invalidate a contract, the exceptions are:
a) When there has been fraud, mistake
or undue influence; and
b) In cases specified by law.

Article 1358
Contracts which must appear in a public instrument
a)
b)
c)
d)

Creation of real rights immovable property

Cession or renunciation of hereditary rights
Power to administer property
Cession of actions or rights

Chapter 4: Reformation of instruments

Article 1359

Chapter 3: Forms of contracts

Reformation is that remedy by means of which a written

instrument is amended or rectified so as to express or
conform the real or intention of the parties when by reason
of mistake, fraud, inequitable conduct, or accident.

Article 1356

Reason for reformation:

Forms of contract- it refers to the manner in which a

contract is executed or manifested.

Equity orders the reformation of an instrument

in order that the intention of the contracting parties may be
expressed.

Classification of contracts according to form

1)

2)

Informal or common contract- which may be

entered into in whatever from provided all the
essential requisites for their validity are present.
Formal or solemn contract- which is required by
law for its efficacy to be in a certain specified
form.

Requisites of Reformation:
1)
2)
3)

Rules regarding form of contracts

Contracts are binding, therefore, enforceable
reciprocally by the contracting parties whatever may be the
form in which the contract has been entered into.
Exceptions:
a)
b)

When the law requires that a contract be in some

form to be valid.
When the law requires that a contract be in some
form to be enforceable.

4)

5)

There is a meeting of the minds of the parties to

the contract;
The written instrument does not express the true
agreement or intention of the parties;
The failure to express the true intention is due to
mistake, fraud, inequitable conduct;
The facts upon which relief by way of reformation
of the instrument is sough are put in issue by the
pleadings; and
There is clear and convincing evidence of the
mistake, fraud, inequitable conduct or accident.

Reformation distinguished from annulment

In reformation, there has been a meeting of the
minds of the parties; hence, a contract exists. In annulment,
there has been no meeting of the minds.

Article 1360
In case of conflict between the provisions of the
New Civil Code and the principles of the general law on
reformation, the former prevails.
Article 1361
Mutual mistake-mistake of fact that is common
to both parties of the instrument which causes the failure of
the instrument to express their true intention.
Requisites of mutual mistake
a)
b)
c)
d)

The mistake must be of fact;

Such mistake must be proved by clear and
convincing evidence;
The mistake must be mutual; and
The mistake must cause the failure of the
instrument to express their true intention.

Article 1362
Mistake on one side, fraud or inequitable conduct on the
other
The right for reformation is granted only to the
party who was mistaken in good faith. Here, the mistake is
not mutual.
Article 1363

Chapter 5: Interpretation of contracts

Article 1370
Interpretation of contracts- is the determination
of the meaning of the terms or words used by the parties in
their contract.
Evident intention of parties prevails over terns of contract
Where the words and clauses of a written
contract are in conflict with eh manifest intention of the
parties, the latter shall prevail over the former.
Article 1371
The subsequent or contemporary acts of the
contracting parties may be considered by the court in
determining and ascertaining their intentions.
Article 1372
As a rule, where in a contract there are general
and special provisions covering the same subject matter,
the latter control over the former when the two cannot
stand together.

Concealment of mistake by the other party

The remedy of reformation may be availed of the
party who acted in good faith.

Article 1364
Ignorance on the part of the third person
Under the above article, neither party is
responsible for the mistake hence, either party may ask for
reformation.
Article 1365
True intention must prevail for the contract must
be complied with in good faith.
Article 1366 and 1367

Article 1373
When an agreement is susceptible of several
meanings, one of which would render it effectual, it should
be given that interpretation
Article 1374
A contract must be interpreted as a whole and the
intention of the parties is to be gathered from the entire
instrument and not from particular words, phrases, or
clauses.
Article 1375
If a word is susceptible of two or more meanings,
it is to be understood in that sense which is most in keeping
with the nature and object of the contract in line with the
cardinal rule that the intention of the parties must prevail.

There shall be no reformation in the following cases:

1)
2)
3)
4)

Simple donations inter vivos where no condition

in imposed;
Wills;
When the real agreement is void; and
When one party has brought an action to enforce
the instrument.

Article 1368
Party entitled to reformation
1.
2.
3.

Either if the parties, if the mistake is mutual;

In all cases, the injured party; and
The heirs or successors in interest, I lieu of the
party entitled.

Article 1369
The rules of the Supreme Court govern the
procedure of reformation.

Article 1376
The usage or custom of the place where the
contract was entered into may be received to explain what
is doubtful or ambiguous in the contract.
Article 1377
In case of doubt, a written agreement should be
interpreted against the party who has drawn it, or be given
an interpretation which will be favorable to the other who
has incurred an obligation.
Article 1378
Rules in case doubts impossible to settle
1)

Gratuitous contract if the doubts

refer to the incidental
circumstances of a gratuitous
contract. It should be interpreted
which would result to a least

2)

3)

transmission of rights and

interests.
Onerous contract if the contact is
onerous, the doubts should be
settled in favor of the greatest
reciprocity of interest.
In case of a contact it is essentially
onerous, thus, whether the parties
intended a suspensive condition or
suspensive period, the doubt shall
be resolve in favor of the latter,
and that is, the buyers obligation is
still subsist with only to its maturity
postponed or deferred.
Principal object of the contract if
the doubt refers to the principal
object of the contract and such
doubt cannot be resolved, thereby
leaving the intention of the parties
unknown, and the contact shall be
null and void.

Rescission is a remedy granted by law to

the contracting parties and sometimes to the third persons
in order to secure reparation of damaged caused them by a
valid contract.
Requisites of rescission
1)
2)

3)

4)

5)

Article 1379
Principles of interpretation in the Rules of Court
applicable

6)

The principles of interpretation stated in

Rule of Court shall likewise be observed in the construction
of contract.
INTRODUCTION
To Chapters 6, 7, 8 and 9
Kinds of defective contracts
1)
2)
3)
4)

Rescissible contracts
Voidable contracts
Unenforceable contracts
Void or inexistent contracts

Rescissible contracts are valid

because the requisites of contract exist but by
reason of economic injury or damage to one of
the parties, the contract may be rescinded.

7)

Article 1381
Cases of rescissible contracts
1)

2)

Voidable contracts are valid until

annulled unless they are ratified. The defect is
caused by vice of consent.
Unenforceable contracts cannot be
used unless they are ratified (approve). It
occupies an intermediate ground between a
voidable and void contract.

3)

Void or inexistent contracts are

absolutely null and void. It has no effect at all and
cannot be ratified.
CHAPTER 6
RESCISSIBLE CONTRACTS
Article 1380
Meaning of rescissible contracts
Rescissible contracts are those validly
agreed upon because all essential elements of a contract
exist, therefore legally effective. But in cases established by
law, the remedy of rescission is granted in the interest of
equity.
Binding force of rescissible contracts
Valid and enforceable although subject
to rescission by the court when there is economic damage
or prejudice to one of the parties or third person. Basically,
there is no defect at all but by reason of some external
facts, enforcement would cause injustice.
Meaning or rescission

The contract must be validly

agreed upon
There must be lesion or
pecuniary(concerning/consisting of
money) prejudice to one of the
parties or the third person
The rescission must be based upon
a case especially provided by the
law
There must be no other legal
remedy to obtain reparation for
the damage
The party asking for rescission
must be able to return what he is
obliged to restore by reason of
contract
The object of the contact must not
be legally be in the possession of
the third persons who did not act
in bad faith
The period of filing the action for
rescission must not have
prescribed

4)

Contracts entered into in behalf of

wards a ward is a person under
guardianship by reason of some
incapacity
Contracts agreed upon in
representation of absentees an
absentee is a person who
disappears from his domicile his
whereabouts being unknown, and
without leaving an agent to
administer his property. To entitle
the remedy of rescission, the
absentee must suffer lesion
(affecting its function) by more
than of the value of the property.
Contracts undertaken in fraud of
creditors in order that fraud of
creditors may be valid ground for
rescission, the following requisites
must be present:
a) There must be an existing
credit prior to the
contract to be rescinded,
although not yet due and
demandable
b) There must be fraud on
the part of the debtor
which maybe presumed
or proved
c) The creditor cannot
recover his credit in any
other manner
Contracts which refer to things
under litigation
Just for instance, A sues B for
the recovery of a parcel of land. In
this case the land is a thing under
litigation. If B sold the land to C
without the approval of A or the

5)

court, the sale is rescissible in the

instance that A will win the case of
suit for the recovery and C is in
legal possession of the land in good
faith.
If the action involves personal
property, A may petition the court
for the issuance of an order of
attachment or the appointment of
the receiver to place the property
in custodia legis.
Other instances

A partition, judicial
or extrajudicial, may
also rescind on
account of lesion,
when one of the
coheirs received less
by at least than
the share to which
he is entitled.

In case of lessor and

lessee, the
aggrieved party may
ask for the rescission
of the contract and
the indemnification
for damages.

Article 1382
Payments made in a state of insolvency
A debtor is said to be insolvent if he
does not have sufficient properties to meet his obligation.
Under this article, its speak more of a payment not exactly
as a contract. The payment should have been paid to the
debtor for his obligation in which the debtor could not be
compelled at the time they were effected. In addition, the
obligation referred to are not only those obligations that
are due and demandable but also to those which cannot be
legally being demanded such as natural obligations.

with legal interest-the party who used the money must

abide with the corresponding legal interest.
Obligation of third person to restore
He who demands rescission applies
also with the third person. But if the third person has
nothing to restore then there is no obligation. The law does
not require the impossible.
When rescission not allowed
1)

2)

Article 1386
Contracts approved by the courts
As the law provides that If the contract
entered into is represented or in behalf of a ward or
absentee that further approved by the court is said to be
valid whether there is lesion or not. Therefore rescission
cannot take place from the fact that the contract is valid.
Article 1387
When alienation presume in fraud of creditors
This provision establishes the prima
facie (at first glance) presumptions of fraud in case of
alienation by the debtor of his property.
1)

2)

Article 1383
Nature of action for rescission
Rescission is not the principal remedy. It
is only subsidiary that is, it can only availed only if the
injured party proves that he has no other legal means aside
from rescinding the contract to obtain
redress(compensation) for the damages he made.

Alienation by gratuitous title

presumed to have been entered
into fraud of creditors
Alienation by onerous title
presumed fraudulent when made
by persons against whom some
judgment has been rendered or
some writ of attachment has been
issued.

Circumstances denominated as badges

(identifying feature) of fraud
1)

If the damage is being repaired, just like

the case of the lesion (physical change in a body part that is
the result of illness or injury) suffered by the ward, the
rescission cannot take place.

2)

3)

Article 1384
Extent of rescission

4)

The entire contract need not be aside by

rescission if the damage can be repaired or can be covered
by the partial rescission. With respect of the partial
rescission, the rescission will only to the extent of the
creditors unsatisfied credit.

5)
6)

Article 1385
Rescission creates obligation of mutual
restitution
The purpose of rescission is to restore
the parties to their original situation, thats why when the
court declares a contract rescinded, the parties must return
to each other (1) the object of the contract with its fruitbecause the law presumes that the party who receive the
object of the contract are enjoying the fruits, (2) the price

The remedy of rescission cannot be

availed if the party who demand
rescission cannot return what is
obliged in the contract
Rescission shall not take place if
the property is legally in the
possession of the third person who
acted in good faith. In this case, the
remedy would be to demand
indemnity for damages from the
person who caused the loss

7)

The fact that the consideration of

the conveyance is fictitious or
inadequate
A transfer made by a debtor after
suit has begun and while it is
pending against him;
A sale upon credit by an insolvent
debtor;
The transfer of all of his property
by debtor, especially when he is
insolvent or greatly embarrassed
financially;
The fact that the transfer is made
between father and son;
The failure of the vendee to take
exclusive possession of all the
property;
It was known to the vendee that
the vendor had no properties other
than that sold to him.

Article 1388
Liability of purchaser in bad faith
The purchaser in bad faith, who
acquired the object of the contract alienated in fraud of

creditors, that purchaser must returned the same thing if

the sale is rescinded. And if in case there is impossibility to
return the thing, then the purchaser paid for the
indemnification to the creditor.
Article 1389
Period for filing action for rescission

2)

As a general rule, the action to claim

rescission must be commenced within four years from the
date contract entered into.
3)

The exceptions are:

1)

2)

For the person under

guardianship, the period
shall begin from the
termination of the
incapacity
For absentee, from the
time the domicile is
known

Article 1392
Meaning and effect of ratification

Persons entitled to bring action for rescission

1)
2)
3)

etc. ceases before the time the

intimidation, and etc. ceases, the
consent is still vitiated (make
something ineffective), therefore,
the victim cannot be expected to
bring an action in court
In case of mistake or fraud, the
period of filing an action for
annulment is from the time the
mistake or fraud discovered
In case of contracts entered into by
minors or incapacitated person,
the period of filing an action for
annulment is from the time the
guardianship ceases. An
incapacitated person has no
capacity to sue

1)

The injured party or the defraud

creditor
Hi heirs, assigns, or successors in
interest
The creditors of the above entitled
to subrogation

2)

Ratification one voluntarily adopt

some defective or unauthorized
contract, which without his
approval, would not be binding on
him
Ratification cleanses the contract
from all its defects from the
moment it was constituted. The
contract is valid, hence, the action
to annul is extinguished

Chapter 7
VOIDABLE CONTRACTS

Article 1393
Kinds of ratification

Article 1390

1)

Meaning of voidable contracts

2)

Voidable or annullable contracts are

those which possess all the essential requisites of a valid
contract but one of the parties are incapable of giving
consent
Binding force of voidable contract
They are valid and binding unless
annulled by a proper action in court. Once ratified, they are
absolutely valid and cannot be annulled.

Requisites of ratification
1)

Kinds of voidable contract

1)

2)

Legal incapacity to give consent,

where one of the parties is
incapable to giving consent to the
contract
Violation of consent, where the
vitiation ( to make something
ineffective) is done by mistake,
violence, intimidation, undue
influence or fraud

Meaning of annulment
Annulment is a remedy provided by law,
for the reason of public interest, for the declaration of the
inefficacy of a contract due to defect or vice of consent

2)

Article 1391
Period for filing action for annulment
The four - year period for bringing
action for annulment of a voidable contract is reckoned
(include something):
1)

In cases of intimidation, violence,

or undue influence, the period of
filing an action for annulment is
from the time the intimidation, and

Express when the ratification is

manifested in words or in writing
Implied or tacit may take diverse
forms such as by silence or
acquiescence (agree to something
passively); by acts showing
adoption or approval of the
contract;

The requisites for implied

ratification
a) There must be
knowledge of the reason
which renders the
contract voidable;
b) Such reason must have
ceased;
c) The injured party must
have executed an act
which necessarily implies
an intention to waive his
right
The requisites for express
ratification are the same as that
of the requisites of implied
ratification except that the express
ratification is effected expressly

Article 1394
Who may ratify
1)

A contact entered into by

incapacitated person may be
ratified by:
a) Guardian;

b)

2)

The injured party himself

provided that he is
already capacitated
In case the contract is voidable on
the ground of mistake, etc.,
ratification can be made by the
party whose consent is vitiated

what he receive, thus it also infer that when the

incapacitated person is not enjoying of what he received
then he is not obliged to give it back. But for the other
contracting parties whether they benefited or not, they are
still rebound to return what he received.
Article 1400
Effect of loss of thing to be returned
1)

Article 1395
Conformity of guilty party to ratification not
required
Ratification is said to be unilateral act by
which a party waives the defect in his consent. It does not
require the conformity of the contracting party who has no
right to bring the action for annulment.

2)

Article 1396
Effect of ratification retroactive
Ratification - cleanses the contract from
all its defects from the moment it was constituted. It
extinguishes the right of action to annul. Thus, the effect of
ratification is to make a contract valid from its inception
(beginning) subject to the prior right of third persons.

Article 1401
Extinguishment of action for annulment
1)

Article 1397
Party entitled to bring an action to annul
1)

2)

The plaintiff (somebody who brings

civil action) must have an interest
in the contract
The victim and not the party
responsible for the defect is the
person who must assert the same

2)

Rights of strangers to bring action

Basically the third person has no legal
capacity to challenge the validity of contract.
Therefore, stranger are without right or
personality to bring the action for they are not
obliged by the contract, unless they can show
detriment (disadvantage) which would passively
result to them contract in which they had no
intervention or participation.
Guilty party without right to bring action
The guilty party, including his successor
in interest, cannot ask for annulment. This is sustained in
the principle that he who comes to court must come with
clean hands.
Article 1398

If the thing to be returned is lost

without the fault of the person
obliged to make restitution, there
is no more obligation to return
such thing
If the thing to be returned is lost
with the fault of the person obliged
to make restitution, the obligation
is not extinguished but converted
into an indemnify for the damages,
plus interest and the delivery of the
fruits if in case an animal gave
birth.

If the person who has right to

institute an action for annulment,
will not be able to restore in which
are obliged to return because it is
through his own fraud or fault, his
right to have contract annulled is
extinguished
If the right of action is based upon
the incapacity of any of the
contracting parties, the loss of the
thing shall not be an obstacle to
the success of the action, unless
said loss took place through the
fraud or fault of the plaintiff.

Article 1402
Effect where a party cannot restore what he is
bound to return
There will be no annulment arose if the
party cannot restore what he is obliged to return. This is
also true even if the loss is due to a fortuitous event.
Chapter 8: Unenforceable contracts
ART.1403
The following contracts are unenforceable, unless they are
ratified

Dual of mutual restitution upon annulment

1)

2)

If the contract is annulled, as a

general rule, the parties must
restore a) the subject matter of the
contract with its fruits and b) the
price with legal interest
Like rescission, the purpose of the
law is to restore the parties to its
original situation by mutual
restitution (giving back to rightful
owner)
In personal obligation, where the
service is already been rendered,
the value thereof the
corresponding interest is the basis
for damages

Article 1399
Restitution by an incapacitated person
The incapacitated person is obliged to
make restitution only the extent that he was benefited of

1) Those entered into the name of another person by one

who has been given no authority or legal representation, or
who has acted beyond his powers
2) Those do not comply with the Statute of frauds as set
forth in this number
a)

b)
c)
d)

An agreement that by its terms is not to be

performed within a year from the making
thereof;
A special promise to answer for the debt,
default, or miscarriage o another;
An agreement made in consideration of
marriage, other than a mutual promise to marry;
An agreement for the sales of goods, chattels, of
things in action, at a price not less than five
hundred pesos, unless the buyers accept and
receive part of such goods and chattels

e)

f)

An agreement for the leasing for a longer period

than one year, or for the sale of real property or
of and interest therein;
A representation as to the credit of a third
person

3) Those where both parties are incapable of giving consent

to a contract

Unenforceable contracts- are those that cannot

be enforced in court r sued upon by reason of
certain defects provided by law until and unless
they are ratified according to law

Article 1406
Right of a party where contract enforceable
1) Accordingly, a party to an oral sale of real property
cannot compel the other to put the contract in a public
document for purpose of registration because it is
enforceable unless, of course, it has been ratified
2) Similarly, the right of one party to have the other
execute a public document is not available in a
donation of realty when it is a private instrument
because the donation is void
Article 1407

Kinds of unenforceable contracts

1) Those entered into in the name of another by one
without, or acting in excess in authority;
2) Those that do not comply with the Statute of
Frauds;
3) Those where both parties are incapable of giving

Unauthorized contracts-are those entered into in

the name of another person by one who has been
given no authority or legal representation or who
has acted beyond his powers

Statute of frauds
1) When execute or partially executed it is not capable
in statute of frauds
2) A party cannot use oral or verbal evidence to prove
the contract

When unenforceable contract becomes a voidable

contract
Where both parties to a contract are incapable of
giving consent, the contract is unenforceable. However, if
the parent or guardian, as the case may be, of either party,
or if one of the parties after attaining or regaining capacity,
ratifies the contract, it becomes voidable
When unenforceable contracts becomes a valid contract
If the ratification is made by the parents or
guardians, as the case me be, of both contracting parties, or
by both contracting parties after attaining o regaining
capacity, the contract is validated and its validity retroacts
to the time to it was entered into
Article 1408
Unenforceable contracts cannot be assailed by third person.

3) Admissibility of evidence ,testimony is not valid

Chapter 9: Void or Inexistent contracts
Two ways to ratify
1) Failure to object
2) Acceptance of benefit

ART.1409
The following contracts are inexistent and void from the
beginning
1) Those whose cause, object or purpose is contrary
to law, morals good customs, public order o public
policy

Agreements within the scope of the Statute of Frauds

1) Agreement not be performed within one year from
the making thereof

2) Those which are absolutely simulated or fictitious

3) Those whose cause or object did not exist at the
time of the transaction

2) Promise to answer for the debt, default, or

miscarriage of another

4) Those whose object is outside the commerce of

men

3) Agreement in consideration of marriage other than

mutual promise to marry

5) Those which contemplate an impossible service

4) Agreement for sale of goods, etc. at price not less

than 500

6) Those where the intention of the parties relative

to the principal object of the contract cannot be
ascertained

5) Agreement for leasing for a longer period than one

year

7) Those expressly prohibited or declared void by

law

6) Agreement for the sale of real property or of an

interest
7) Representation as to the credit of a third person

Void contracts-are those which, because of

certain defects, generally produce no effect at all

Inexistent contracts-refers to agreements which

lack one or some of the elements or do not
comply with formalities which are essential for
the existence of a contract

Article 1404
Unauthorized contracts are governed by article 1317
Article 1405
Contracts infringing the Statute of Frauds, referred to in No.
2, article 1403, are ratified by the failure to object to the
presentation of oral evidence to prove the same, or by the
acceptance under them.

Characteristics of a void or inexistent contract

1) It produces no effect whatsoever
2) It cannot be ratified
3) The right to set up the defense of illegality
cannot be waived

4) The action or defense for the declaration of its

inexistence dose not prescribe
5) The defense of illegality is not available to third
persons whose interests are not directly affected
6) It cannot give rise to a valid contract

Article 1414
Recovery where contract entered into for illegal purpose
1)
2)

Instances of void or inexistent contracts

1) Contracts whose cause, object o purpose is
contract to law, etc.
2) Contracts which are absolutely simulated or
fictitious
3) Contracts without cause or object
4) Contracts which object is outside the commerce of
men
5) Contracts which contemplate an impossible service
6) Contracts where the intention of the parties
relative to the object cannot be ascertained
7) Contracts prohibited or declared void by law

3)

The contract is for an illegal purpose

The contract is repudiated before the
purpose has been accomplished or before
any damage has been caused to a third
person
The court considers that public interest will
be sub served by allowing recovery

Article 1415
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.
Article 1416

Article 1410

Recovery where contract not illegal per se

Action or defense is imprescriptible

If a contract is void, a party thereto can always bring a court
action to declare it void or inexistent, and a party against
whom a void contract is sought to be enforced, can always
raise the defense of nullity, despite the passage o time

1)
2)
3)

Article 1411
Rules where contract is illegal and the act constitutes a
criminal offense
1)

2)

Where both parties are in pari delicto

a) The parties shall have no
action against each other
b) Both shall be prosecuted
c) The things or the price of the
contract, as the effects or
instruments of the crime, shall
be confiscated in favor of the
government
Where only one party is guilty

Article 1412
Rules where contract is illegal but the act does not
constitute a criminal offense
1)

2)

Where both parties are in pari delicto

a) Neither party may recover what he has
given by virtue of the contract
b) Neither party may demand the
performance of the others undertaking
Where only one party is guilty
a) The guilty party loses what he has given
by reason of the contract
b) The guilty party cannot task for the
fulfillment of the others undertaking
c) The innocent party may demand the
return of what he has given
d) The innocent party cannot be compelled
to comply with his promise

Article 1413

The agreement is not per se but is merely

prohibited
The prohibition is designed for the protection
of the plaintiff
Public policy would be enhance by allowing
the plaintiff to recover what he has paid or
delivered

Article 1417
Recovery of amount paid in excess
A statute fixing the maximum price of any article o
commodity is usually known as the ceiling law. It can also be
determined by authority of law, as by Executive Order of
the President. Its purpose is to curb the evils of profiteering
or black-marketing
Article 1418
Recovery of additional compensation for service rendered
beyond time limit
President Decree No.442, otherwise known as the
Labor Code, sets forth the normal hours of work of any
employee shall not exceed eight hours a day
Article 1419
If an employee receives less than the minimum wage rate
,he can still recover the deficiency with legal interest , and
the employer shall be criminally liable.
Article1420
Effect of illegality where contract indivisible/divisible
1) When the consideration is entire the single, the
contract is indivisible so that if part of such
consideration is illegal, the whole contract is void and
unenforceable
2) Where the contract is divisible o severable, that is,
the consideration is made up of several parts, and the
illegal ones can be separated from the legal portions,
the latte may be enforced. This rule, however, is
subject to the contrary intentions of the parties

Recovery of usurious interest

Any rate of interest in excess of the maximum
allowed under the Usury Law is usurious and if paid, may be
recovered together with interest thereon from the date
payment in a proper action for the same

Divisible contract distinguished from divisible obligation

It must not be noted that Article 1420 speaks of
divisible contract and not of a divisible obligation. The test
of the former is the divisibility of its cause while the latter,
its susceptibility of partial fulfillment. The former, therefore,

refers to the cause, while the latte, to the prestation or

object

Article 1427

Article 1421

Delivery by minor of money or fungible thing in fulfillment

of obligation

Persons entitled to raise defense of illegality or nullity

In voidable and unenforceable contracts, third
persons are not allowed to bring an action to annul or to
assail, as the case may be, said contracts. If the contract is
illegal o void, however, even a third person may avail of the
defense of illegality or set up its nullity as long as his
interest is directly affected by the contract
Article 1422
Void contract cannot be novated
This provision is based on the requisites of a valid
novation. An illegal contract is void and inexistent and
cannot, therefore, give rise to a valid contract
Title III: Natural Obligation
ART.1423
Obligation is civil or natural. Civil obligations give a right of
action to compel their performance. Natural obligations,
not being based on positive law both on equity and natural
law, do not grant a right of faction to enforce their
performance, but after voluntary fulfillment by the obligor,
they authorize the retention of what has been delivered or
rendered by reason thereof. Some natural obligations are
set forth in the follow articles
Civil obligations and Natural obligations distinguished
1) Civil obligation arises from law, contracts,
quasi-contracts, delicts, and quasi-delicts, while
natural obligations are based not on positive law
but on equity and natural law
2) Civil obligations give a right of action to compel
their performance, while natural obligations do
not grant such right of action to enforce their
performance
Article 1424
Performance after civil obligation has prescribed
By prescription (acquisitive), one acquires
ownership and other real rights through the lapse of time in
the manner and under the conditions laid down by law. In
the same way, rights and actions are lost by prescription
(extinctive)
Article 1425
Reimbursement of third person for debt that has
prescribed
If a third person says the prescribed debt of the
debtor without his knowledge or against his will, the latter
is not legally bound to pay him. But the debtor cannot
recover what he has paid in case he voluntarily reimburses
the third person
Article1426
Restitution by minor after annulment
When a contract is annulled, a minor is not
obliged to make any restitution except insofar as he has
been benefited by the thing o price received by him.
However, should he voluntarily return the thing or price
received although he has not been benefited thereby, he
cannot recover what he has returned

By the decree of annulment, the parties, as

general rule, are obliged to make mutual restitution.
However, the oblige who has spent or consumed in good
faith the money or consumable thing voluntarily paid or
delivered by the minor, is not bound to make restitution
Article 1428
Performance after action to enforce civil obligations has
failed
This article contemplates a situation where a
debtor, who has failed to pay his obligation, is sued by the
creditor and instead of losing the case, he has won int. If,
notwithstanding this fact, the debtor voluntarily performs
his obligations, he cannot demand the return of what he
has delivered or the payment of the value of the service he
has rendered. He must be deemed to have considered it his
moral duty to fulfill his obligations
Article 1429
Payment by heir debt exceeding value of property
inherited
The heir is not personally liable beyond the value
of the property he received from the decedent. But if
voluntarily pays the difference, the payment is valid and
cannot be rescinded by him. An heirs has a moral duty to
perform or pay obligation legally contracted by hi dead
relatives
Article 1430
Payment of legacy after will has been declared void
Legacy-is the act of disposition by the testator in
separating from the inheritance for definite purposes,
things, rights or a definite portion of his property. It may be
viewed also as the same portion, or those things or special
rights, which the testator separates from his inheritance for
a definite purpose. The purpose of the legacy is to reward
friends, servants and others for services they have
rendered, to give alms, etc.