CONTRACTS

* Classification of contracts according to perfection

Article 1305. DEFINITION
1. consensual – like sale, lease, agency
Contract
- is a meeting of the minds between two persons Art. 1316
whereby one binds himself to give something or *2. Real – perfected by DELIVERY of the thing
render some service.
- those that are deposit (safe keeping), pledge
- there must be at least two persons or parties (sanla), commodatum (pahiram).

3. Mutuality (Art. 1308) – that contract is binding to

DISTINGUISHED FROM OBLIGATION. both parties

Contract is one of the sources of obligation (1157), - a contract which its fulfillment or extinguishment is
while obligation is a legal tie that exists after a dependent upon the will of ONLY ONE of the parties
contract is entered into. is VOID.

NO CONTRACT = NO OBLIGATION. But an - no party can renounce or violate the law of the
Obligation may exist without a Contract. contract without the consent of the other

DISTINGUISHED FROM AGREEMENT. 4. Obligatoriness (Art. 1315) – contract is complied

with good faith (Art. 1157)
Contract are enforceable agreements through legal
proceedings. All contracts are agreement but not vice - parties are also bound to all the consequences
versa.
5. Relativity (Art. 1311) –
STAGES
GENERAL RULE: Contracts take effect only between
1. Preparation – all the steps taken by the parties the PARTIES, their ASSIGNS and HEIRS
leading to the perfection of the contract. Parties have
not yet arrived to an agreement. EXCEPTIONS:

2. Perfection – when parties have come to an *STIPULATION POUR AUTRUI

agreement or meeting of the minds
1. If the contract has STIPULATION
3. Consummation – when the parties have performed 2. re IN FAVOR of a THIRD person
their respective obligations 3. the contracting parties has CLEAR AND
DELIBERATE CONFERMENT OF SUCH FAVOR
CHARACTERISTICS OF CONTRACT upon the third person
4. Third person COMMUNICATED his acceptance to
1. Autonomy (Art. 1306) – where there is a sense of such stipulation
freedom; contracting parties may establish contract
as long as it is not contrary to law, public policy, stipulation pour autrui is a stipulation in a contract
morals. clearly and deliberately conferring a favor upon a
third person who has a right to demand its fulfillment
Limitations: provided he communicates his acceptance to such.

1. Law – contract entered into must conform to an Classes of stipulations pour autrui:
applicable statute
1. those intended for the sole benefit of a person
2. Police power – contract shall not contravene
morals, good customs, public order or policy. (ex. A leases a house and told C that ¼ of its rentals
will be given to him (c) )
2. Consensuality (Art. 1315, sent.1) – perfected by
mere consent 2. those where an obligation is due from the promise
to the third person which former seeks to discharge representative
– Unenforceable in nature
EXAMPLE: – but can be cured by ratification

A owes P10,000.00 to B with a monthly interest of Art. 1318

14%. it was agreed upon that the P1,400 will be ESSENTIAL REQUISITES OF CONTRACTS
given to S to whom B is indebted of the same - no contract unless the following elements are
amount. present:

ACCION DIRECTA
1. CONSENT (Art. 1319)
Art. 1313 – creditors are protected in cases of - conformity of the wills of both parties
contracts intended to defraud them
– manifested by meeting of the offer and the
acceptance
1. Lessor vs. sub lessors – Arts. 1651, 1652
Offer – a proposal made by one party to another to
Art. 1651 example: enter into a contract.

A (lessor) leased B (lessee) a room. B find it too Acceptance – manifestation by the offeree of his
large for him, hence, he subsequently leased it to C assent to the terms of the title offer. Without it, no
(sub lessee; making B a sub-lessor). Hence, C will meeting of the minds.
be liable for all the acts agreed upon originally by A
and B with regards to the use and preservation of the Article 1320. Acceptance may be express or implied
thing leased.
Article 1321. the person making the offer may fix the
2. Laborers/materialmen vs. Owner – Art. 1729 time, place and the manner of acceptance, all must
be complied with.
Example:
Article 1322. If offer is made thru an agent, the offer
S (owner) hired X (contractor) who hired A and B is accepted from the time the same is communicated.
(laborers) for the construction of S's building.
Article 1323. When does an offer becomes
If X do not pay A and B their compensation, A and B ineffective?
and go after S.
1. death
3. Negotorium gestio – Arts. 2150, 2151 2. civil interdiction
3. insanity
example: 4. insolvency OF EITHER PARTY

A and B are two land owners. A was out of town. Article 1324. CONTRACT OF OPTION; OPTION
There came a raging storm. B, a generous neighbor, PERIOD; OPTION MONEY
takes care of A's land while the latter's away. So B
can reimburse to A to whatever laibility. – when the period of the offer's acceptance is
certain, it is withdrawable until it is not yet accepted
4. Article 1314
Article 1325 and Article 1326. BUSINESS
*example ni Sir, A is the exclusive distributor ng Nike ADVERTISEMENTS NOT DEFINITE OFFERS,
Shoes; while X, induces the contractor of A to also ONLY MERE INVITATION.
allow him sell Nike shoes in a lower price, without the
knowledge/consent of A. Who cannot give consent to a contract? (Article
1327).
ARTICLE 1317 – UNAUTHORIZED CONTRACTS
1. unemancipated minors;
– instance when the contract is entered into the
name of another who is not the authorized person or 2. insane or demented persons;
 VITIATE CONSENT
3. deaf-mutes/illiterates
Violence – requires physical force
Article 1328.
Intimidation – there is a reasonable and well-
– contracts entered into during lucid interval is VALID grounded fear of an evil that is imminent and grave
upon a person or property so a person will enter into
– during drunkenness or hypnotic spell is VOIDABLE a contract

ARTICLE 1337. UNDUE INFLUENCE

ARTICLE 1330. - when a person takes improper advantage of his
Consent given thru MISTAKE (1331), VIOLENCE power over the will of another
(1335 p.1), INTIMIDATION (1335, p.2/1336), UNDUE
INFLUENCE (1337) OR FAUD (1338) is VOIDABLE! ARTICLE 1338. FRAUD

ARTILE 1331. MISTAKE OR ERROR Causal fraud (dolo causante)

- employed prior to or simultaneous to the consent or
– the false notion of thing or a fact material to the creation of the contract.
contract
REQUISITES:
Mistake of fact to which law refers:
1. There must be MISREPRESENTATION (Art. 1338
1. substance of the thing which is the object of the – thru insidious words or machinations) or
contract; CONCEALMENT (Art. 1339 – failure to disclose
facts).
2. conditions which have principally moved one or
both parties to enter into contract; 2. It must be serious (Art. 1344)

3. the identity of one of the parties provided in the - in order that fraud may make a contract VOIDABLE,
same was the principal cause of the contract it must be serious.

ARTICLE 1332. BURDEN OF PROOF IN CASE OF 3. it must have been employed by only one of the
MISTAKE OR FRAUD contracting parties (Art. 1342)

– THE PARTY ENFORCING THE CONTRACT has * misrepresentation by a third person does not vitiate
the duty to show that there is no mistake or fraud on consent , unless it creates substantial mistake and
the terms of the contract the same is mutual.

– if a party knew about the doubt, contingency or risk 4. it must be made in bad faith or with intent to
affecting the object of the contact, it is presumed that deceive (Art. 1343)
he was willing to take a chance (ARTICLE 1333).
5. it must have induced the consent of the other
contracting party (Art. 1338)
ARTICLE 1334. MISTAKE OF LAW
- arises from an ignorance of some provision of law, 6. it must be alleged and proved by clear and
or from an erroneous interpretation of its meaning convincing evidence

– EFFECT: does not invalidate consent FRAUD BY CONCEALMENT

(Art. 1339)
– APPLICATION:
- a neglect or failure to communicate that which a
1. when the error is mutual party to a contract knows and ought to communicate
2. it must be as to the legal effect of an agreement constitute concealment.
3. it must frustrate the real purpose of the parties
- when this arises, the injured party has the right to
ARTICLE 1335. VIOLENCE & INTIMIDATION TO rescind or annul the contract
 C and D entered into a contract of mortgage. But
Art. 1341 - Expression of opinion wanting to hide the mortgage, it was made to appear
in the form of deed of sale.
- a mere expression of opinion does not signify (Example ni Sir about sa kotse na kukunin din ng
consent, unless made by an expert and the other creditor, ibabalik lng pag nagbayad si debtor)
party has relied on the former's special knowledge OBJECT OF A CONTRACT
(Art. 1347)

TWO KINDS OF FRAUD IN MAKING OF A - the subject matter

CONTRACT (Art. 1344) - the object of every contract is the obligation created

1. causal fraud – which may be a ground for KINDS OF OBJECT IN A CONTRACT:

annulment of a contract, but also gives rise for action
for damages 1. Things (like sale)
2. incidental fraud – renders only the party who
employs it liable for damages (Art. 1344, par. 2) 2. Rights (like assignment or credit)

Art. 1170 – refers to incidental fraud (dolo 3. Services (like agency)

incidente)
- Committed in the performance of an
obligation (at the stage of consummation) Requisites of THINGS as Object of a contract
- Ex. When you were shown a pendant and it
looked real so you entered into buying it but 1. must be within the commerce of men
the seller gave you a fake pendant instead. 2. must not be impossible
3. must be in existence or capable of
It is comparable to causal fraud (dolo causante, 4. must be determinate (not generic)
Art. 1338)
- means a fraud employed in the execution of Requisites of SERVICES as Object
contract which vitiates consent and makes the
contract voidable 1. must be within the commerce of men
- the other party is induced by word to enter into the 2. must not be impossible
contract (happens at the stage of perfection) 3. must be determinate

SIMULATION OF A CONTRACT (Art. 1345) RIGHTS as Object

- the act of deliberately deceiving other, by feigning GEN RULE: All rights may be the object of a
or pretending by agreement, the appearance of a contract.
contract which is neither inexistent or concealed.
EXCEPTION:
KINDS:
When they are transmissible by their nature,
1. Absolute – when the contract does ot really exist stipulation or provision of law (1311).
and the parties do not intend to be bound at all.
Ex.
Ex.
1. things outside of commerce of men – like things of
D is indebted to C. Upon learning that C is going to public ownership (sidewalks, bridges, streets)
enforce his credit, D pretended to sell his land to F. D
did not receive any single centavo for the transaction FUTURE INHERITANCE (1347, par. 2)
and he continued in possession of the land as the
contract was merely simulated or fictitious. - any property or right, not in existence at the time of
the contract, that a person may inherit in the future.
2. Relative – when the contract entered into by the
parties is different from their true agreement - unless expressly stipulated by law, contract
concerning future inheritance is VOID.
Ex.
- inheritance ceases to be in future upon death of the Should the contract be given effect? YES. Because
decendant the contract is more of a donation con cause onerosa
which means it is governed by the provisions of the
IMPOSSIBLE THINGS cannot be OBJECT of a Civil Code relating to contracts.
contract (1348)
2. Renumenatory – one the cause of which is the
1. Physical – when the thing or service in the very service or benefit which is renumerated. The purpose
nature of things cannot exist is to give reward the service that had been previously
rendered by the party renumerated.
a. Absolute – when the act cannot be done in
any case (ex.flying) 3. Gratuitous – one the cause of which is the mere
liberality of the benefactor or giver such as
b. Relative – when it arises from the special commodatum, pure donation and the like.
circumstance of the case (ex. To make payment to a
dead person) Art. 1351 – Motive
- purely personal or private reason which a party has
2. Legal – when the thing or service is contrary to in entering into a contract
public morals, law, good customs, public order or
policy (ex. Selling prohibited drugs) CAUSE MOTIVE

EFFECT: Juridical reason of a Psychological and

contract purely personal
Absolute – nullifies the contract reason
Direct reason Indirect reason
Relative – if temporary, does not nullify the contract;
if permanent, it annuls the contract Always known to the May be unknown
other contracting party
Art. 1349 The object of a contract must be Essential element of a Not an essential
determinate as to its KIND but the quantity need not contract element
be determinate.
Affects the contract's Does not render the
validity contract void
Art. 1352. Requisites of Cause

CAUSE OF CONTRACTS (1350) 1. It must exist (no cause, no effect)

Causa – the essential or more proximate purpose 2. it must be lawful – not contrary to law, moral, xxx
which contracting parties have in view at the time of (Art. 1354)
entering into a contract
3. It must be true (Art. 1353)
CLASSIFICATION OF CONTRACT ACCORDING
TO CAUSE Effect of absence of cause
- contracts without cause confers no right and
1. Onerous produce no legal effect
- one the cause of which , for each contracting party,
is the prestation or promise of a thing or service by Effect of inadequacy of cause/failure of cause
the other. - does not render a contract void

- in this contract, both parties are obligated to each Ex. failure to pay the full amount stipulated in a
other contract does not nullify the contract immediately.

Ex. B & E signed a document which in effect stated Effect of Illegality of cause
that if T was allowed to live with them, and T should - makes the contract null and void
marry or leave them, she would receive ½ of their Ex. A promise of marriage based upon carnal
property. connection

Effect of falsity of cause (Art. 1353)

- “statement of a false cause in contracts shall render - if the seller failed to realize the price or does not
them void, if it should not be proved that they were deliver the thing to buyer = BREACH
founded upon another cause which is true and -REMEDY: Rescission
lawful”.

- the contract is void because the same actually does FORM OF CONTRACTS
not exist
Form of a contract – the manner in which a contract
Ex. X promised to give Y P1,000.00 as payment for is executed.
the past services allegedly rendered by Y which in
truth have not been rendered. Here, the cause of X, - maybe in oral, writing or partly oral and partly in
which is the renumeration, is erroneous as it is based writing.
upon facts believed to be existing but really
inexistent. - if in writing, it may be in a public or private
instrument
Is it necessary for the cause to be expressly - all its terms must be in writing
stated?
GENERAL RULE: Contracts may be in any form as
- No. In such instance, the presumption is that the long as the three essential elements are present
cause exists and is lawful, unless the debtor proves
the contrary (Art. 1354) WHEN IS FORM NECESSARY?

LESION (Art. 1355) **EXCEPTIONS to the Gen. Rule:

- any damage caused by the fact that the price is
unjust or inadequate 1. When the law requires a certain form for it to be
valid.
Gen. Rule – does not invalidate the contract
Exp. - when there has been fraud, mistake or undue Ex.
influence / or in cases specified by law.
NOTE: Lumalabas sa exam Donation of real property – public instrument
Donation of personal property – in writing
Various incidents of causal incidents in a Sale of land thru an agent – in writing
contract: Contract of antichresis – in writing
stipulation to pay interest – in writing, otherwise,
1. non-existent cause no interest due
- VOID (1352, 1st part) contract of partnership – in a public instrumeny
transfer of sale of large cattle – registered; in a
2. False cause in an ABSOLUTELY simulated public instrument
contract negotiable instruments – in writing
- VOID (1346, 1353)

3. False cause in a RELATIVELY simulated 2. when the law requires form for it to be
contract enforceable (Art. 1403, p.2)
- parties are bound to their real agreement (1346, - if the contract is not in writing, it is valid but it cannot
1353) be proved and cannot be enforced unless ratified.
-what is their remedy? REFORMATION (1359)
3. when form is required for it to be convenient to
4. Inadequate cause (1355) the parties or for the third party (Art. 1357).
- ex. Nagbenta ka ng lupa worth 1M, binenta mo ng - an action that can be used by parties to compel
100k or 1/10 of its value each other to follow a certain form of their contract
- shall not invalidate contract unless there's fraud. for their own conveniences
Mistake or undue influence
- REMEDY: Reformation (1470) Art. 1358 – Documents that must appear in a public
- legal basis para maghabol ang creditor – Art. 1381 document

5. Failure of cause REFORMATION OF INSTRUMENTS

(Art. 1359) 2. wills
3. when the real agreement is void
Reformation – remedy by means of which a written
instrument is amended or rectified so as to express INTERPRETATION OF CONTRACTS
the real agreement when by reason of fraud, mistake
or undue influence fails to express such true intention - determination of the meaning of the terms used by
the parties in their contract
REQUISITES: - involves a question of law
- for reformation to be availed of as remedy, the
following should be present: - if the language is clear, the contract is
interpreted in its literal meaning (Art. 1370)
1. there is meeting of the minds of the parties;
- Evident intention of parties prevail over the terms of
2.written instrument that does not express the true contract
agreement;
- in judging the intention of the contracting
3. failure to express true intention due to fraud, parties, their contemporaneous and subsequent
mistake, inequitable conduct or accident; acts should be principally considered (1371)

4. the relief are put in issue by the pleadings; and, - special intent prevails general intent (1372)
ex. S sold his house “including all the furniture
5. there is a clear and convincing evidence of therein”. The term “all” should not be understood to
mistake, fraud, xxx. include S' refrigerator which is distinct from
“furniture”.
INSTANCES when reformation is the remedy:
- in contracts with stipulation with several meanings,
1. mutual mistake (1361) it shall be understood as bearing the import which is
- when both parties causes the failure of the most adequate to render it effectual (1373)
instrument to disclose their real agreement
- various stipulations of a contract shall be
2. unilateral mistake (1362) interpreted together, jointly (1374)

3. concealment (1363) - words which may have different significations shall

- when one party was mistaken and the other knew be understood in that which is most in keeping the
that the instrument did not state their real agreement nature and object of the contract. (1375)
but concealed it to the former.
- resort to custom or usage as aid in interpretation of
4. mistake by a third party (1364) the contract (the usage or custom where the contract
- when thru ignorance, lack of skill, negligence or bad was entered into) 1376
faith on the part of the third person drafting the
instrument and the latter does not express the true - the interpretation of obscure words or stipulations in
agreement a contract shall not favor the party who caused the
obscurity (1377)
ex. stenographer had a mistake in typing the records
of the trial Rules in case of doubts are impossible to settle
(1378)
5. mortgage or pledge as a sale (1365)
- when two parties agreed upon the mortgage or 1. when despite application of the preceding rules,
pledge of real property but the instrument states that certain doubts still exist, such will be resolved in
the property is sold with right of repurchase. accordance with the supplementary rules like the
least transmission of rights and interests shall
WHEN IS REFORMATION NOT ALLOWED? prevail.
(Art. 1366)
ex. R gave his car to E, it is not clear whether it is
In cases of: commodatum or donation. Hence, it should be
1. simple donations presumed as mere commodatum because it would
transmit lesser rights than a donation. 3. Contracts undertaken in fraud of creditors
- in order for this instance be a ground, the following
2. if the doubts are cast upon the principal object in must be present:
such a way that it cannot be known what may have
been the intention of the parties, the contract shall be 1. there must be a credit prior to the contract to be
NULL AND VOID (1378, par. 2) rescinded;

RESCISSIBLE CONTRACTS 2. there must be fraud on the part of the debtor which
(Art. 1380) may be presumed or proved;

Rescission – a remedy granted by law to the 3. the creditor cannot recover his credit in any other
contracting parties and sometimes even to third manner; debtor's insolvency is not required.
persons in order to secure reparation of damages
caused them by a valid contract, by means of the 4. contracts which refer to things under litigation
restoration of things to their condition prior to the - Ex. S sues B for the recovery of a parcel of land. In
celebration of said contract. this case, the land is a “thing under litigation”. Hence,
if during the pendency of the case, B sells the land to
Rescissible contracts – those validly agreed upon C without S approval, the sale is rescissible by S.
because all the essential elements exist but in the
cases established by law, the remedy of rescission. 5. Other instances

Requisites of Rescission RESCISSION FOR BREACH OF CONTRACT

versus RESCISSION BY REASON OF LESION
1. the contracting parties must be validly agreed
upon (1380) 1. Rescission on account of breach is not predicated
on injury to economic interests but on the breach of
2. there must be lesion to one of the parties or to faith by the defendant that violates the reciprocity
a third person (1381) between the parties. It is not a subsidiary action.

* contracts that are rescissible: 2. On the other hand, rescission by reason of lesion,
the cause of action is subordinate to the existence of
1. contracts entered into in behalf of wards, the the prejudice.
latter suffered ¼ of the value of the object
Art. 1382 Payments made in the state of
ward – a person under guardianship by reason of insolvency are rescissible
some incapacity.
- a debtor is insolvent if he does not have sufficient
Ex. G is the guardian of W. G sells the property of W properties to meet his obligations.
worth P20,000.00 for only P15,000.00. The contract Art. 1383. The action for rescission is subsidiary, it
of sale cannot be rescinded because the lesion is not cannot be instituted except when the party suffering
more than ¼ of the value. However, if the property is damage has no other legal means to obtain
sold for less than P15,000, W can rescind the sale by reparation
proper action in court.
Art. 1384. Rescission shall only be to the extent
2. Contracts agreed upon in representation of necessary to cover the damage caused.
absentees; the latter suffered ¼ of the value of
the object Ex. G, guardian of M, a minor, authorized by the
court to sell 2 parcels of land valued at P200k each.
- Absentee – a person whi disappears from his G sold the 2 lands for only P200k. In this case, the
domicile, his whereabouts unknown entire contract need not be rescinded, rescission can
only be applied to one parcel of land to cover the
**In nos. 1 & 2, when the contract entered into is damage caused by G.
approved by the court, rescission cannot take place
because it is valid whether there is lesion or not Art. 1385 EFFECT OF RESCISSION
(1386).
1. Obligation of mutual restitution
- when the parties declare a contract to be rescinded,
the parties must return to each other (a) the object of - the action to claim rescission must be commented
the contract with its fruits and (b) the price thereof within four (4) years.
with legal interest. - the period shall be counted from the time the
creditor has known the contract.
2. Abrogation of contract
- the party seeking rescission cannot ask - for persons under guardianship and absentees, the
performance as to part and rescission as to period of four years shall not begin until the
remainder termination of the former's incapacity, or until the
domicile of the latter is unknown.
WHEN RESCISSION IS NOT ALLOWED?
Persons entitled to bring the action:
1. If the party who demands rescission cannot return 1. injured party or the defrauded creditor
what he is obliged to restore under the contract 2. his heirs, assigns, or successors in interest
(1385, p.1) 3. creditors of the above entitled to subrogation

2. if the property is legally in possession of a third

person who acted in good faith (1385, p.2) VOIDABLE CONTRACT
(Art. 1390)
- are those which possess all the essential elements
Art. 1387. Alienation presumed in fraud of of a valid contract but there is defect as to the
creditors consent.
- binding unless properly annulled and can be cured
- the provision establishes fraud in case of alienation by ratification
of property by the debtor.
*the following contracts are voidable or annullable,
- the presumption applies only when there has been even though there may have been no damage to the
an alienation or transfer, whether gratuitous or contracting parties:
onerous.
1. those where one of the parties is incapable of
- only actual creditors can ask rescission. giving consent to a contract;

Ex. 2. those where the consent is vitiated by mistake,

violence, intimidation, undue influence or fraud.
1. alienation by gratuitous title
- R made a donation of parcel of land to E. before the **ANNULMENT – remedy granted by law, for reason
date of the donation, R contracted several debts. of public interest, for the declaration of inefficacy of a
With the donation to E, the remaining property of R is contract based on a defect or vice in the consent.
not sufficient to pay all his debts. Hence, the said
donation is presumed fraudulent unless otherwise Art. 1391. the action for annulment shall be
proved. brought within four (4) years.

Art. 1388 Liability of purchaser in bad faith This period shall begin:

- whoever acquires in bad faith the things alienated in In case of: Start of period:
fraud of creditors, shall indemnify the later for
damages suffered by them on account of alienation. Intimidation, violence From the time of the
or undue influence defect of the consent
- if there are two or more alienations, the first CEASES
acquirer shall be liable first, and so on successively. Mistake or fraud From the time of the
discovery of the
Ex. S sold his car to B in order to avoid the payment same*
of his debt to C, his creditor. B knew of S's purpose.
If the sale is rescinded, B must return the car. Action entered into by From the time the
minors or other guardianship ceases
Art. 1389 Prescription period for Rescission incapacitated persons
*discovery of fraud must be reckoned to have taken
place from the execution of the contract 1. the plaintiff must have an interest in the contract
2. the victim and not the guilty party is the person
Art. 1392 – RATIFICATION who must assert the same.
- ratification extinguishes the action to annul a
voidable contract Rights of successors-in-interest to bring an action
- he can sue for the annulment of contract
Art. 1393 – Express or implied ratification
Right of strangers to bring an action – no legal
express – when the ratification is manifested in capacity to challenge the validity of the contract
words or writing Art. 1398 duty of mutual restitution upon
annulment
implied – it may take in diverse forms
- if the contract is annulled, the parties must restore
Requisites of implied ratification to each other the subject matter of the contract with
its fruits and the price thereof with legal interest.
1. there must be knowledge of the reason which
renders the contract voidable - in obligations to render service, the value thereof
shall be the basis for damages
2. such reason must have ceased
Art. 1399. person who is not obliged to any
3. the injured party must have executed an act which restitution
necessarily implies an intention to waive his right.
- when the defect of the contract consists in the
Ex. S, a minor, sold his land to B. upon reaching the incapacity of one of the parties, the incapacitated
age of majority, S, with full knowledge of his rights in person is not obliged to make any restitution
the premises, instead of repudiating the contract,
collected the unpaid balance of the purchase price except: insofar as to what he has been benefited by
from B. There is a tacit ratification by S. the thing or price received by him

Art. 1394 Who may effect ratification? Art. 1400. effect of loss of thing to be returned

1. In a contract entered into by an incapacitated - if the thing to be returned is lost without the fault o
person: the person obliged to make restitution, there is no
- guardian, or more obligation to return such thing.
- the injured party himself provided he is already
capacitated - if it is lost through his fault, his obligation is not
extinguished but is converted into an indemnity for
2. party whose consent is vitiated damages consisting of the value of the thing at the
time of the loss with interest with fruits.
Art. 1395. conformity of guilty party to ratification
is not required Ex. S sold his plow carabao to B. on the petition of S,
the contract was annulled by the court. But the
Art. 1396. Effect of ratification carabao died in the possession of B thru his fault. Is
B liable?
- ratification cleanses the contract from all its defects
from the moment it is constituted Yes, under art. 1400, B must pay the value of the
carabao at the time of his death, with interest from
Ex. B forced S to sell the latter's horse. Later, the the same date.
horse gave birth to a colt. If S should ratify the
contract after the birth of the colt, who is entitled to Art. 1401. Extinguishment of action for
the colt? annulment

- B, because ratification has a retroactive effect. It - if the person who has the right to institute an action
validates the contract from the date of its execution. will not be able to restore the thing he is obliged to
return because the thing is lost thru his fraud or fault
Art. 1397. Party entitled to bring action to annul
- if the right of action is based upon the incapacity of
any one of the contracting parties, the loss of the UNAUTHORIZED CONTRACTS
thing shall not be an obstacle to the success of the - those entered into in the name of another person by
action one who has been given no authority or legal
representation or who has acted beyond his powers.
except: if the said loss took place through the fraud
or fault of the plaintiff Art. 1405. Ratification

Art. 1402 effect where a party cannot restore 1. by failure to object to the presentation of oral
what he is bound to return evidence to prove the contract – tantamount to a
waiver and makes the contract binding.
- when a contract is annulled, reciprocal obligation of
restitution is created. 2. acceptance of benefits under the contract.

- in effect, there will be no annulment if the party Art. 1406. Right of a party where contract
cannot restore what he is bound to return. enforceable.

- however, if the party who lost the thing through a Art. 1407.
fortuitous event offers to pay its value with the fruits
received if any, the other can be required to make When unenforceable contract becomes a
restitution. voidable contract
- where both parties to a contract are incapable of
Ex. B forced S to sell the latter's horse. The contract giving consent, the contract is unenforceable.
was annulled by the court at the instance S.
- However, if the parent or guardian, or if one of the
* If the horse died through the fault of B, Article 1400 parties after regaining capacity, ratifies the contract,
governs. it becomes voidable.
* if the horse died due to fortuitous event, S can
refuse to return the purchase price.
* but if B offers to pay the value of the horse at the When unenforceable contract becomes a valid
time of its death, he can compel S to return the price contract
with the interest.
- if the ratification is made by the parents or
guardians of both contracting parties, or by both
UNENFORCEABLE CONTRACTS contracting parties after regaining capacity, the
(Art. 1403) contracts is VALIDATED and its validity retroacts to
the time it was entered into.
- those that cannot be enforced in court or sued upon
by reason of defects provided by law until and unless Art. 1408. Unenforceable contracts cannot be
they are ratified according to law. assailed by third persons

- unenforceable contracts, although valid, are

unenforceable unless ratified. VOID OR INEXISTENT CONTRACTS
(Art. 1409)
- cannot be enforced by legal action
- those which, because of certain defects, generally
KINDS: produce no effect at all.
- considered inexistent from the very beginning
1. Those entered into in the name of another by one
without or acting in excess of authority; Inexistent contracts – refer to agreements which
lack one or some or all the elements which are
2. those that do not comply with the Statute of essential for the existence of a contract
Frauds;
CHARACTERISTICS:
3. Those were both parties are incapable of giving
consent. 1. Cannot be ratified (1409, p.2)
2. the right to set-up defense of illegality cannot be Art. 1412. Rules where contract is illegal but the
waived act is not a criminal offense
3. the action for the declaration of inexistence does
not prescribed 1. where both parties in pari delicto:
4. the defense of illegality is not available to the - neither party may recover what he has given by
persons whose interests are not directly affected virtue of the contracts
5. it cannot give rise to a valid contract - neither party may demand the performance of the
other's undertaking
INSTANCES OF VOID OR INEXISTENT
CONTRACTS WHEN PARI DELICTO RULE NOT APPLICABLE?

1. Contracts whose cause, object or purpose is 1. Breach of warranty cases

contrary to law, etc. 2. simulated contracts

2. Contracts which are absolutely simulated or Art. 1413. Interest paid in excess of the interest
fictitious allowed by the usury laws may be recovered by the
- a contract of sale is void where the price, which debtor, with interest thereon from the date of the
appears thereon as paid, has in facts never been payment.
paid.
Art. 1414. Recovery where contract for an illegal
3. Contracts without cause or object purpose
- allows recovery by one of the parties even both
4. Contracts whose object is outside the commerce parties have acted contrary to law
of men (see Arts 1347 and 1348)
1. the contract is for an illegal purpose;
5. Contracts which contemplate an impossible 2. the contract is repudiated before the purpose has
service (see Arts 1347 and 1348) been accomplished or before the damage has been
caused to a third person;
6. Contracts where the intention of the parties 3. the court considers that public interest will be
relative to the object cannot be ascertained subserved by allowing recovery
Art. 1415. Recovery by an incapacitated person
7. Contracts expressly prohibited or declared void by
law - Exception to the Articles 1411-1412.
Ex.
1. contracts upon future inheritance - recovery can be allowed if one of the parties is
2. sale of property between husband and wife incapacitated
3. purchase of property by persons who are specially
disqualified by law (like guardians, agents, etc.) Ex. if X is a minor or an insane person, the court may
because of their position or relation with the person allow X to recover the money paid if the interest of
or property under their care. justice so demands.

Art. 1410. action for declaration of inexistence of Art. 1416. Recovery where contract not illegal per
a contract does not prescribe se

- also, necessity of judicial declaration is not needed - another exception to Arts. 1411-12

Art. 1411. Rules where contract is illegal and the Recovery is permitted when:
act constitutes criminal offense 1. the agreement is not illegal per se but is merely
prohibited;
1. where both parties re in pari delicto (in equal fault) 2. the prohibition is designed for the protection of the
: plaintiff;
- both parties shall have no action against each other 3. public policy would be enhanced by allowing the
- both shall be prosecuted plaintiff to recover
- the things or the price of the contract shall be
confiscated in favor of the government Art. 1417. Recovery of amount paid in excess of
ceiling price
Art. 1418. Recovery to additional compensation
for service rendered beyond time limit

Ex. when in a contract, the laborer undertakes to

work longer than the maximum period fixed, he may
demand additional compensation.

Art. 1419. Recovery of amount of wage less than

minimum fixed

Art. 1420. Effect of illegality where contract is

indivisible/divisible

1. where the consideration is entire and single the

contract is indivisible, so if the part of such is illegal,
the whole contract will be void.

2. where the contract is divisible, only the illegal parts

are void.

Art. 1421. Persons entitled to raise defense of

illegality or nullity

*third person may avail defense of illegality.

pArt. 1422. Void contract cannot be novated