Chapter 4 Reformation of

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

Art. 1362: If one party was

mistaken and the other acted
fraudulently or inequitably in such
a way that the instrument does not
show their true intention, the
former may ask for the reformation
of the instrument.
Mistake on one side, fraud or
inequitable conduct on the other
Art. 1363: When one party was
mistaken and the other knew or
believed that the instrument did
not state their real agreement, but
concealed that fact from the
former, the instrument may be
reformed.
Concealment of mistake by the
other party

Reason for reformation

Requisites for reformation
Reformation distinguished from
annulment
Art. 1360: The principles of the
general law on the reformation of
instruments are hereby adopted
insofar as they are not in conflict
with the provisions of this Code.
Principles of the general law on
reformation

Art. 1364: When through the

ignorance, lack of skill, negligence
or bad faith on the part of the
person drafting the instrument or
of the clerk or typist, the
instrument does not express the
true intention of the parties, the
courts may order that the
instrument be reformed.
Ignorance, etc. on the part of third
person

Art. 1361: When a mutual mistake

of the parties causes the failure of
the instrument to disclose their real
agreement, said instrument may
eb reformed.

Art. 1365: If two parties agree upon

the mortgage or pledge of real or
personal property, but the
instrument that the property is sold
absolutely or with a right of
repurchase, reformation of the
instrument is proper.

Mutual mistake as basis for

reformation

Mortgage or pledge stated as a

sale

Art. 1366: There shall be no

reformation in the following cases:
1. Simple donations inter vivos
wherein no condition is
imposed
2. Wills
3. When the real agreement is
void
Art. 1367: When one of the parties
has brought an action to enforce
the instrument, he cannot
subsequently ask for its
reformation
Cases when reformation not
allowed
Art. 1368: Reformation may be
ordered at the instance of either
party or his successors in interest,
if the mistake was mutual;
otherwise, upon petition of the
injured party,, or his heirs and
assigns.
Party entitled to reformation
Art. 1369: The procedure for the
reformation of instruments shall be
governed by rules of court to be
promulgated by the Supreme
Court.
Procedure for reformation
Chapter 5 Interpretation of
Contracts
Art 1370: If the terms of a contract
are clear and leave no doubt upon
the intention of the contracting
parties, the literal meaning of it
stipulations shall control.
If the words appear to be contrary
to the evident intention of the

parties, the latter shall prevail over

the former.
Meaning of interpretation of
contracts
Literal meaning controls when
language clear
Evident intention of parties prevails
over terms of contract
Art. 1371: In order to judge the
intention of the contracting parties,
their contemporaneous and
subsequent acts shall be principally
considered.
Contemporaneous and subsequent
acts relevant in the determination
of intention
Art. 1372: However general the
terms of a contract may be, they
shall not be understood to
comprehend things that are distinct
and cases that are different from
those upon which the parties
intended to agree.
Special intent prevails over a
general intent.
Art. 1373: If some stipulation of
any contract should admit of
several meanings, it shall be
understood as bearing that import
which is most adequate to render it
effectual.
Interpretation of stipulation with
several meanings
Art. 1347: The various stipulations
of a contract shall be interpreted
together, attributing to the doubtful

ones that sense which may result

from all of them taken jointly.
Interpretation of various
stipulations of a contract
Art. 1375: Words which may have
different significations shall be
understood in that which is most in
keeping with the nature and object
of the contract.
Interpretation of words with
different significations
Art. 1376: The usage or custom of
the place shall be borne in mind in
the interpretation of the
ambiguities of a contract, and shall
fill the omission of stipulations
which are ordinarily established.
Resort to usage or custom as aid in
interpretation

what may have been the intention

or will of the parties, the contract
shall be null and void.
Rules in case doubts impossible to
settle
Art. 1379: The principles of
interpretation stated in Rule 123 of
the Rules of Court shall likewise be
observed in the construction of
contracts.
Principles of interpretation in Rules
of Court applicable
Introduction to Chapters 6-9
Kinds of defective contracts
Chapter 6 Rescissible
Contracts
Art. 1380: Contracts validity agreed
upon may be rescinded in the
cases established by law.

Art. 1377: The interpretation of

obscure words or stipulations in a
contract shall not favor the party
who caused the obscurity.

Meaning of rescissible contracts

Interpretation of obscure words

Meaning of rescission

Art. 1378: When it is absolutely

impossible to settle doubts by the
rules established in the preceding
articles, and the doubts refer to
incidental circumstances of a
gratuitous contract, the least
transmission of rights and interest
shall prevail. If the contract is
onerous, the doubt shall be settled
in favor of the greatest reciprocity
of interests.
If the doubts are cast upon the
principal object of the contract in
such a way that it cannot be known

Requisites of rescission

Binding force of rescissible

contracts

Art. 1381: The following contracts

are rescissible:
1. Those which are entered into
by guardians whenever the
wards whom they represent
suffer lesion by more than
one-fourth of the value of the
things which are the object
thereof
2. Those agreed upon in
representation of absentees,
if the latter suffer the lesion

stated in the preceding

number
3. Those undertaken in fraud of
creditors when the latter
cannot in any other manner
collect the claims due them
4. Those which refer to things
under litigation if they have
been entered into by the
defendant without the
knowledge and approval of
the litigants or of competent
judicial authority
5. All other contracts specially
declared by law to be subject
to rescission
Cases of rescissble contracts
Art. 1382: Payments made in a
state of insolvency for obligations
to whose fulfillment the debtor
could not be compelled at the time
they were effected, are also
rescissible.
Payments made in state of
insolvency

which were the object of the

contract, together with their fruits,
and the price with its interest;
consequently, it can be carried out
only when he who demands
rescission can return whatever he
may be obliged to restore.
Neither shall rescission take place
when the things which are the
object of the contract are legally in
the possession of third persons who
did not act in bad faith.
In this case, indemnity for damages
may be demanded from the person
causing the loss.
Rescission creates obligation of
mutual restitution
Obligation of third person to restore
When rescission not allowed
Art. 1386: Rescission refered to in
Nos. 1 and 2 of article 1381 shall
not take place with respect to
contracts approved by the courts
Contracts approved by the courts

Art. 1383: The action for rescission

in subsidiary; it cannot be
instituted except when the party
suffering damage has no other
legal means to obtain reparation
for the same.
Nature of action for rescission
Art. 1384: Rescission shall be only
to the extent necessary to cover
the damages caused.
Extent of rescission
Art. 1385: Rescission creates the
obligation to return the things

Art. 1387: All contracts by virtue of

which the debtor alienates property
by gratuitous title are presumed to
have been entered into in fraud of
creditors, when the donor did not
reserve sufficient property to pay
all debts contracted before the
donation.
Alienation by onerous title are also
presumed fraudulent when made
by persons against whom some
judgment has been rendered in any
instance or some writ of
attachment has been issued. The
decision or attachment need not
refer to the property alienated,

and need not have been obtained

by the party seeking the rescission.
In addition to these presumptions,
the design to defraud creditors
may be proved in any other
manner recognized by the law of
evidence.
When alienation presumed in fraud
of creditors
Circumstances denominated as
badges of fraud
Art. 1388: Whoever acquires in bad
faith the things alienated in fraud
of creditors, shall indemnify the
latter for damages suffered by
them on account of alienation,
whenever, due to any cause, it
should be impossible for him to
return them.
If there are two or more
alienations, the first acquirer shall
be liable first, and so on
successively.
Liability of purchaser in bad faith
Art. 1389: The action to claim
rescission must be commenced
within four years.
For persons under guardianship
and for absentees, the period of
four years shall not begin until the
termination of the formers
incapacity, or until the domicile of
the latter is known.
Period for filing action after
rescission
Persons entitled to bring action

Art. 1390: The following contracts

are voidable or annullable, even
though there may have been no
damage to the contracting parties:
1. Those where one of the
parties is incapable of giving
consent to a contract
2. Those where the consent is
vitiated by mistake, violence,
intimidation, undue influence
or fraud
These contracts are binding, unless
they are annulled by a proper
action in court. They are
susceptible to ratification.
Meaning of voidable contracts
Binding force of voidable contracts
Kinds of voidable contracts
Meaning of annulment
Art. 1391: The action for annulment
shall be brought within four years.
This period shall begin:
In case of intimidation, violence or
undue influence, from the time the
defect of the consent ceases
In case of mistake or fraud, from
the time of the discovery of the
same
And when the action refers to
contracts entered into by minors or
other incapacitated persons, from
the time the guardianship ceases.
Period for filing action for
annulment
Art 1392: Ratification extinguishes
the action annul a voidable
contract.

Chapter 7 Voidable contracts

Meaning and effect of ratification

Art. 1393: Ratification may be

effected expressly or tacitly. It is
understood that there is a tacit
ratification if, with knowledge of
the reason which renders the
contract voidable and such reason
having ceased, the person who has
a right to invoke it should execute
an act which necessarily implies an
intention to waive his right.
Kinds of ratification
Requisites of ratification
Art. 1394: Ratification may be
effected by the guardian of the
incapacitated person.
Who may ratify
Art 1395: Ratification does not
require the conformity of the
contracting party who has no right
to bring the action for annulment.
Conformity of guilty party to
ratification not required
Art. 1396: Ratification cleanses the
contract from all its defects from
the moment it was constituted.
Effect of ratification retroactive
Art. 1397: The action for the
annulment of contracts may be
instituted by all who are thereby
obliged principally or subsidiarily.
However, persons who are capable
cannot allege the incapacity of
those with whom they contracted;
nor can those who exerted
intimidation, violence, or undue
influence, or employed fraud, or

caused mistake base their action

upon these flaws of the contract.
Partly entitled to bring an action to
annul
Right of strangers to bring action
Guilty party without right to bring
action
Art. 1398: An obligation having
been annulled, the contracting
parties shall restore to each other
the things which have been the
subject matter of the contract, with
their fruits, and the price with its
interest, except in cases provided
by law. In obligations to render
service, the value thereof shall be
the basis for damages.
Duty of mutual restitution upon
annulment
Art. 1399: When the defect of the
contract consists in the incapacity
of one of the parties, the
incapacitated person is not obliged
to make any restitution except
insofar as he has been benefited by
the thing or price received by him.
Restitution by an incapacitated
person
Art. 1400: Whenever the person
obliged by the decree of annulment
to return the thing cannot do so
because it has been list through his
fault, he shall return the fruits
received and the value of the thing
at the time of the loss, with interest
from the same date.

Effect of loss of thing to be

returned
Art. 1401: The action of annulment
of contracts shall be extinguished
when the thing which is the object
thereof is lost through the fraud or
fault of the person who has a right
to institute the proceedings.
If the right of action is based upon
the incapacity of any one 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.
Art. 1402: As long as one of the
contracting parties does not restore
what in virtue of the decree of
annulment, he is bound to return,
the other cannot be compelled to
comply with what is incumbent
upon him.
Effect where a party cannot restore
what he is bound to return
Chapter 8 Unenforceable
contracts
Art. 1403: The following contracts
are unenforceable, unless they are
ratified:
1. Those entered into the name
of another person by one
who has given no authority or
legal representation, or who
has acted beyond his powers;
2. Those that do not comply
with the Statute of Frauds as
set forth in this number. In
the following cases, an
agreement hereafter made
shall be unenforceable by
action, unless the same, or
some note or memorandum

thereof, be in writing, and

subscribed by the party
charged, or by his agent;
evidence, therefore, of the
agreement cannot be
received without the writing,
or a secondary evidence of
its contents:
a. An agreement that by
its terms is not to be
performed within a
year from the making
thereof
b. A special promise to
answer for the debt,
default, or miscarriage
of another
c. An agreement made in
consideration of
marriage, other than a
mutual promise to
marry
d. An agreement for the
sale of goods, chattels,
or things in action, at a
price not less than 500
pesos, unless the buyer
accept and receive part
of such goods and
chattels, or the
evidences, or some of
them, of such things in
action, or pay at the
time same part of the
purchase money; but
when a sale is made by
auction and entry is
made by the auctioneer
in his sales book, at the
time of the sale, of the
amount and kind of
property sold, terms of
sale, price, names of
the purchasers, and
persons on whose
account the sale is

made, it is sufficient
memorandum
e. An agreement for the
leasing for a longer
period than one year,
or for the sale of real
property or of an
interest therein
f. A representation as to
the credit of a third
person
3. Those where both parties are
incapable of giving consent
to a contract
Meaning of unenforceable
contracts
Binding force of unenforceable
contracts
Kinds of unenforceable contracts
Meaning of unauthorized contracts

Art. 1406: When a contract is

enforceable under the Statute of
Frauds, and a public document is
necessary for its registration in the
Registry of Deeds, the parties may
avail themselves of the right under
article 1357.
Right of a party where contract
enforceable
Art. 1407: In a contract where both
parties are incapable of giving
consent, express or implied
ratification by the parent, or
guardian, as the case may be, of
one of the contracting parties shall
give the contract the same effect
as if only one of them were
incapacitated.
If ratification is made by the
parents or guardians, as the case
may be, of both contracting
parties, the contract shall be
validated from the inception.

Statute of Frauds
Agreements within the scope of the
statute of frauds
Art. 1404: Unauthorized contracts
are governed by article 1317 and
the principles of agency in Title X of
this Book.
Art. 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 of benefits
under them.
Modes of ratification under the
Statute

When unenforceable contract

becomes a voidable contract
When unenforceable contract
becomes a valid contract
Art. 1408: Unenforceable contracts
cannot be assailed by third
persons.
Right of third persons to assail an
unenforceable contract
Chapter 9 Void or inexistent
contracts
Art. 1409: The following contracts
are inexistent and void from the
beginning:
1. Those whose cause, object or
purpose are contrary to law,

morals, good customs, public

order or public policy
2. Those which are absolutely
simulated of fictitious
3. Those whose cause or object
did not exist at the time of
the transaction
4. Those whose object is
outside the commerce of
men
5. Those which contemplate an
impossible service
6. Those where the intention of
the parties relative to the
principal object of the
contract cannot be
ascertained
7. Those expressly prohibited or
declared void by law
These contracts cannot be ratified.
Neither can the right to set up the
defense of illegality be waived.
Meaning of void contracts
Meaning of inexistent contracts
Characteristics of a void or
inexistent contract
Instances of void or inexistent
contracts
Art. 1410: The action or defense for
the declaration of the inexistence
of a contract does not prescribe.
Action or defense is imprescriptible
Art. 1411: When the nullity
proceeds from the illegality of the
cause or object of the contract, and
the act constitutes a criminal
offense, both parties being in pari
delicto, they shall have no action
against each other, and both shall

be prosecuted. Moreover, the

provisions of the Penal Code
relative to the disposal of effects or
instruments of a crime shall be
applicable to the things or the price
of the contract.
This rule shall be applicable when
only one of the parties is guilty; but
the innocent one may claim what
he has given, and shall not be
bound to comply with this promise.
Rules where contract is illegal and
the act constitutes a criminal
offense
Art. 1412: If the act in which the
unlawful or forbidden cause
consists does not constitute a
criminal offense, the following rules
shall be observed:
1. When the fault is on the part
of both contracting parties,
neither may recover what he
has given by virtue of the
contract, or demand the
performance of the others
undertaking
2. When only one of the
contracting parties is at fault,
he cannot recover what he
has given by reason of the
contract, or ask for the
fulfillment of what has been
promised him. The other,
who is not at fault, may
demand the return of what
he has given without any
obligation to comply with his
promise
Rules where contract is illegal but
the act does not constitute a
criminal offense

Art. 1413: Interest paid in excess of

the interest allowed by the usury
laws may be recovered by the
debtor, with interest thereon from
the date of payment.
Recovery of usurious interest
Art. 1414: When money is paid or
property delivered for an illegal
purpose, the contract may be
repudiated by one of the parties
before the purpose has been
accomplished, or before any
damage has been caused to a third
person. In such case, the courts
may, if the public interest will thus
be subserved, allow the party
repudiating the contract to recover
the money or property.
Recovery where contract entered
into for illegal purpose
Art. 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
Recovery by an incapacitated
person
Art. 1416: When the agreement is
not illegal per se but is merely
prohibited, and the prohibition by
the law is designed for the
protection of the plaintiff, he may,
if public policy is thereby
enhanced, recover what he has
paid or delivered.
Recovery where contract not illegal
per se

Prohibited sale of land

Art. 1417: When the price of any
article or commodity is determined
by statute, or by authority of law,
any person paying any amount in
excess of the maximum price
allowed may recover such excess.
Recovery of amount paid in excess
of ceiling price
Art. 1418: When the law fixes, or
authorizes the fixing of the
maximum number of hours of
labor, and a contract is entered
into whereby a laborer undertakes
to work longer than the maximum
thus fixed, he may demand
additional compensation for service
rendered beyond time limit.
Recovery of additional
compensation for service rendered
beyond time limit
Art. 1419: When the law sets, or
authorizes the setting of a
minimum wage of laborers, and a
contract is agreed upon by which a
laborer accepts a lower wage, he
shall be entitled to recover the
deficiency.
Recovery of amount of wage less
than minimum fixed
Art. 1420: In case of a divisible
contract, if the illegal terms can be
separated from the legal ones, the
letter may be enforced.
Effect of illegality where contract
indivisible/divisible

Divisible contract distinguished

from divisible obligation

has delivered or the value of the

service he has rendered.

Art. 1421: The defense of illegality

of contracts is not available to third
persons whose interest are not
directly affected

Performance after civil obligation

has prescribed

Persons entitled to raise defense of

illegality or nullity
Art. 1422: A contract which is the
direct result of a previous illegal
contract, is also void and
inexistent.
Void contract cannot be novated
Title 3 Natural Obligations
Art. 1423: Obligations are civil or
natural. Civil obligations give a
right of action to compel their
performance. Natural obligations,
not being based on positive law but
on equity and natural law, do not
grant a right of action 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 following articles.
Concept of natural obligations
Civil obligations and natural
obligations distinguished
Enumeration not exclusive
Art 1424: When a right to sue upon
a civil obligation has lapsed by
extinctive prescription, the obligor
who voluntarily performs the
contract cannot recover what he

Art. 1425: When without the

knowledge or against the will of the
debtor, a third person pays a debt
which the obligor is not legally
bound to pay because the action
thereon has prescribed, but the
debtor later voluntarily reimburses
the third person, the obligor cannot
recover what he has paid.
Reimbursement of third person for
debt that has prescribed
Art. 1426: When a minor between
19 and 21 years of age who has
entered into a contract without the
consent of the parent or guardian,
after the annulment of the contract
voluntarily returns the whole thing
or price received, notwithstanding
the fact that he has not been
benefited thereby, there is no right
to demand the thing or price thus
returned.
Restitution by minor after
annulment of contract
Art. 1427: When a minor between
18 and 21 years of age, who has
entered into a contract without the
consent of the parent or guardian,
voluntarily pays a su of money or
delivers a fungible thing in
fulfillment of the obligation, there
shall be no right to recover the
same from the oblige who has
spent or consumed it in good faith.

Delivery by minor of money or

fungible thing in fulfillment of
obligation
Art 1428: When, after an action to
enforce a civil obligation has failed,
the defendant voluntarily performs
the obligation, he cannot demand
the return of what he has delivered
or the payment of the value of
service he has rendered.
Performance after action to enforce
civil obligation has failed
Art. 1429: When a testate or
intestate heir voluntarily pays a
debt of the descendant exceeding
the value of the property which he
received by will or by the law of
intestacy from the estate of the

deceased, the payment is valid and

cannot be rescinded by the payer.
Payment by heir of debt exceeding
value of property inherited
Art. 1430: When a will is declared
void because it has not been
executed in accordance with the
formalities required by law, but one
of the intestate heirs, after the
settlement of the debts of the
deceased, pays a legacy in
compliance with a clause in the
defective will, the payment is
effective and irrevocable.
Payment of legacy after will has
been declared void