DEFINITION OF TERMS

Cause = it is the essential and impelling reason why a party assumes an obligation. [Strictly speaking, there is no
cause of a contract, but there is a cause for an obligation.]

Incidental Fraud = those which are not serious in character and without which the other party would still have
entered into the contract.

Lesion = It is inadequacy of cause, like an insufficient price for a thing sold.

Mistake or Error = it is a false belief about something.

Object (Subject Matter of a Contract) = The object of a contract is really to create or to end obligations which, in
turn, may involve things or services. Hence, elliptically, it may be said that the object of a contract is a thing or a
service.

Reformation = is that remedy in equity by means of which a written instrument is made or construed so as to
express or conform to the real intention of the parties when some error or mistake has been committed.

Simulation of a contract = it is the process of intentionally deceiving others by producing the appearance of a
contract that really does not exist (absolute simulation) or which is different from the true agreement (relative
simulation).

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ENUMERATIONS

REQUISITES FOR MISTAKE TO VITIATE CONSENT (Art. 1331, page 625)

a) The error must be substantial regarding:

1) The object of the contract;

2) The conditions which principally moved or induced one of the parties (error in quality or in quantity
– error in qualitate or in quantitate);

3) Identity or qualifications (error in personae), but only if such was the principal cause of the contract.

b) The error must be excusable (not caused by negligence)

c) The error must be a mistake of fact, and not of law. (Luna v. Linatoc, 74 Phil. 15)
PRESUMPTION (ART. 1332)

“This rule is especially necessary in the Philippines where unfortunately there is still a fairly large number of
illiterates, and where documents are usually drawn up in English or Spanish.” (Report of the Code Commission, p.
136).

REQUISITES FOR MUTUAL ERROR TO VITIATE CONSENT (Art. 1334, page 631)

a) There must be mutual error;

b) The error must refer to the legal effect of the agreement;

c) The real purpose of the parties is frustrated.

DISTINGUISHED FROM THE REMEDY OF REFORMATION (Art. 1334, page 632)

This Article must be distinguished from Art. 1361 where the remedy is reformation, not annulment.
Thus, Art. 1361 of the Civil Code reads: “When a mutual mistake of the parties causes the failure of the
instrument to disclose their real agreement, said instrument may be reformed.

(NOTE: Under Art. 1361, the real agreement is not disclosed; in Art. 1334, the error is as to the legal
effect of the agreement. Example: A and B agreed on a sale, but as written, the document shows a
mortgage. Here, there was a meeting of the minds, but the instrument does not show the real intention.
Hence, the remedy is reformation. If on the other hand, both agreed on a sale, and as written, the document
is one of sale, but both parties thought erroneously that it had the same effects as a mortgage, there is no
meeting of the minds, and the remedy is annulment.)

VIOLENCE AND INTIMIDATION (Art. 1335, page 632)

Violence refers to physical coercion, intimidation, to moral coercion.

REQUISITES FOR VIOLENCE TO VITIATE CONSENT (Art. 1335, page 633)

a) Employment of serious or irresistible force;

b) It must have been the reason why the contract was entered into.

REQUISITES FOR INTIMIDATION TO VITIATE CONSENT (Art. 1335, page 633)

a) reasonable and well-grounded fear;

b) of an imminent and grave evil;

c) upon his person, property, or upon the person or property of his spouse, descendants, or ascendants;

d) it must have been the reason why the contract was entered into;
 e) the threat must be of an unjust act, an actionable wrong.

IMMINENT AND GRAVE EVIL (Art. 1335, page 634)

This again depends on the circumstances, particularly, the age, sex, or condition of the person threatened.
Thus, exposure of a public official’s nightly indiscretions or immoralities is more serious to him than it is a threat to a
common day laborer.

NATURE OF THE THREAT ON PERSON AND PROPERTY OF THE PERSONS ENUMERATED (Art. 1335, page 634)

a) It is believed that threat to honor, chastity, and dignity may be classified under threat to “person.”

b) Query: is the enumeration of persons exclusive in that a threat, for example, to the life of one’s fiancée, is
not considered intimidation? It is submitted that the provision must be liberally interpreted for indeed
consent here is vitiated just the same.

REVERENTIAL FEAR (Art. 1335, page 637)

If a contract is signed merely because of “fear of displeasing persons to whom obedience and respect are
due,” the contract is still valid, for by itself reverential fear is not wrong.

REQUISITES FOR UNDUE INFLUENCE TO VITIATE CONSENT (Art. 1336, page 638)

a) improper advantage;

b) power over the will of another (reflected for example in a superior;

c) deprivation of the latter’s will of a reasonable freedom of choice.

EXAMPLES OF CIRCUMSTANCES TO BE CONSIDERED (Art. 1337, page 638)

a) confidential, family, spiritual, and other relations between the parties;

b) mental weakness;

c) ignorance;

d) financial distress;

KINDS OF FRAUD (Art. 1338, page 639)

a) Fraud in the CELEBRATION of the contract (this is fraud proper)

 1) Dolo causante (or causal fraud): Here, were it not for the fraud, the other party would not have
consented.

(This is fraud referred to in Art. 1338, Civil Code.)

Effect of this kind of fraud: The contract is VOIDABLE.

2) Dolo incidente (or incidental fraud): Here, even without the fraud the parties would have agreed just the
same, hence the fraud was only incidental in causing consent. Very likely though, different terms would
have agreed upon. Effect of this kind of fraud: The contract is VALID, but there can be an action for
damages.

b) Fraud in the PERFORMANCE of the obligations stipulated in the contract.

[NOTE: This kind of fraud presupposes the existence of an already perfected contract.]

[Example: Although real vinegar was sold, what was really delivered was diluted vinegar.]

USUAL EXAGGERATIONS IN TRADE (Art. 1340, page 645)

b) The “usual exaggerations” (dealer’s talk) constitute tolerated fraud, when the other party had an opportunity
to know the facts

REQUISITES FOR FRAUD TO VITIATE CONSENT (Art. 1344, page 648)

Two requisites for fraud as a ground for annulment are given in this Article:

a) the fraud must be serious;

b) the parties must not be in pari delicto (mutual guilt), otherwise, neither party may ask for fulfillment. The
contract would, therefore, be considered valid.

KINDS OF SIMULATED CONTRACTS (Art. 1346, page 650)

a) Absolutely simulated (simulados) fictitious contracts:

1) Here, the parties do not intend to be bound.

2) Effect: The contract is VOID.

b) Relatively simulated (disimulados) disguised contracts:

1) Here, the parties conceal their true agreement.

2) Effect: The parties are bound to the real or true agreement except –

a) if the contract should prejudice a third person;

b) or if the purpose is contrary to law, morals, good customs, public order, or public policy.
 (NOTE: Third persons should not be prejudiced; therefore, as to them, the apparent or ostensible contract is
the one valid. Reason: The contracting parties are in estoppel, and they should be penalized for their
deception).

REQUISITES (OF OBJECT OF CONTRACTS) (Art. 1347, page 652)

a) the thing or service must be within the commerce of man;

b) must be transmissible;

c) must not be contrary to law, morals, good customs, public order, or public policy;

d) must not be impossible (Art. 1348, Civil Code)

e) must be determinate as to its kind or determinate without the need of a new contract or agreement. (Art.
1349, Civil Code).

TRANSMISSIBLE (Art. 1347, page 654)

All rights which are not intransmissible may be the object of contracts. But strictly political rights (like the
right to vote) or strictly personal rights (like parental authority) cannot be the subject of a contract.

NOT CONTRARY TO LAW, MORALS, ETC. (Art. 1347, page 654)

(b) Future inheritance (one where the source of property is still alive) cannot be the subject of a contract
except:

1) in the case of marriage settlements

2) in the case of partitions of property inter vivos by the deceased.

IMPOSSIBLE THINGS OR SERVICES (Art. 1348, page 657)

Impossibility may be:

a) because of the nature of the transaction or because of the law;

b) absolute (objectively impossible) (here, NO ONE can do it);

c) relative (subjectively impossible) (here, the particular debtor cannot comply).

[NOTE: Generally, the impossibility referred to by the law is absolute impossibility.]

OBJECT OF THE CONTRACT (Art. 1349, page 657)

a) The object must be determinate or determinable (without need of a new agreement).

 b) If the object is not determinate or determinable, the contract is void for want of an essential requisite – the
object of the contract.

c) If A promised to give B this (blank), it is clear that there can be no obligation here.

d) But if A sold to B the future (2006) harvest in A’s field for a definite price, the contract is valid for there is no
need of a new agreement.

‘CAUSE’ AND ‘SUBJECT MATTER’ DISTINGUISHED (Art. 1350, page 660)

The difference is only a matter of viewpoint in some way, because what may be the subject matter for one
party will be the cause or consideration for the other party.

Example: A is obliged to sing at a concert, in return for which she will receive a car from B.

Regarding A, the subject matter is the singing, the cause is the car.

Regarding B, the subject matter is the car, the cause is the singing.

Hence, we can form this general conclusion: In reciprocal contracts, the subject matter for one is the cause
for the other, and vice versa.

CLASSIFICATION OF CONTRACTS AS TO CAUSE

a) Onerous – here the cause is, for each contracting party, the prestation or promise of a thing or service by the
other.

Example: contract of sale

b) Remuneratory – the past service or benefit which by itself is a recoverable debt.

[NOTE: In a remuneratory donation, the past service or debt is not by itself a recoverable debt. (See Art. 726,
Civil Code)]

c) Gratuitous (or contracts of pure beneficence) – here, the cause is the mere liability of the benefactor.

Example: pure donation

MOTIVES OF THE PARTIES FOR ENTERING INTO A CONTRACT (Art. 1351, page 663)

Example: I buy a gun from a store for P50,000 because I want to kill myself. The cause of the contract is the
gun (for me); the money (for the seller). My motive, however, is the killing of myself. Motives do not enter at all in
the validity or invalidity of cause or consideration.

MOTIVES DISTINGUISHED FROM CAUSE (Art. 1351, page 663)

a) The motive of a person may vary although he enters into the same kind of contract; the cause is always the
same.
 b) The motive may be unknown to the other; the cause is always known.

c) The presence of motive cannot cure the absence of cause.

REQUISITES FOR CAUSE (Art. 1352, page 664)

a) It must be present (at the time the contract was entered into);

b) It must be true (not false);

c) It must be lawful (not contrary to law, morals, good customs, public order, or public policy).

PRESUMPTION THAT CAUSE EXISTS (Art. 1354, page 669)

a) It is necessary that the cause must exist, BUT it is not necessary to STATE the cause in the contract. Reason:
It is presumed that the cause EXISTS and is LAWFUL, unless the debtor proves the contrary.

b) Under the Statute of Frauds, certain agreements have to be in writing. Now then, in these agreements, is it
essential to put down the consideration in writing?

ANS: No, because of the presumption under this Article that the cause exists.

c) A made a promissory note in B’s favor. A, however, alleged that the cause was his gambling losses in a
prohibited game. Who has the burden of proving that the game was indeed a prohibited one?

ANS: A because under the law, the presumption is that the cause is lawful.

GENERALLY, FORM IS NOT REQUIRED (Art. 1356, page 672)

In general, form does not matter for the validity of a contract. It is enough that there be consent, subject
matter, and cause. This rule applies, however, to CONSENSUAL CONTRACTS.

[NOTE:

a) FORMAL CONTRACTS (SOLEMN CONTRACTS) require a certain specified form, in addition to consent, subject
matter, and cause. (Example: A donation of real property must be in a public instrument in order to be valid,
even as between the parties.)

b) REAL CONTRACTS require DELIVERY to be valid as a real contract even as between the parties, in addition to
consent, subject matter, and cause.]

WHEN FORM IS IMPORTANT (Art. 1356, page 674)

Form may be important:

a) For VALIDITY (This is true in formal or solemn contracts.)

 b) For ENFORCEABILITY (This is true for the agreements enumerated under the Statute of Frauds, but of course
this requirement may be waived by acceptance of benefits (partial) or by failure to object to the
presentation of oral (parol) evidence.

c) For CONVENIENCE (This is true for the contracts enumerated for example under Art. 1385, Civil Code).

EXAMPLES OF FORMAL CONTRACTS (Art. 1356, page 674)

[NOTE: If the form is not complied with, Art. 1457 of the Civil Code cannot be availed of.]

a) Donations of real property (these require a public instrument).

b) Donations of personal property (these require a written contract or document if the donation exceeds
P5,000.00)

c) Stipulation to pay interest on loans, interest for the USE of the money (said stipulation must be in writing).

d) Transfer of large cattle (this requires the transfer of the certificate of registration).

e) Sale of land through an agent (here, the authority of the agent must be in writing; otherwise, the sale is null
and void).

f) Contracts of antichresis (here the principal loan, and the interest if any, must be specified in writing;
otherwise, the contract of antichresis is void.)

[NOTE: Registration in the Registry of Property of donations of real property is important only for effectivity as
against third persons; as between the parties, a public instrument is sufficient.]

RIGHT OF PARTY TO COMPEL THE OTHER TO EXECUTE THE NECESSARY FORM (Art. 1357, page 677)

The Article applies only when form is needed only for convenience, not for validity or enforceability.

In other words, before the contracting parties may be compelled to execute the needed form, it is essential
that the contract be:

a) perfected valid (Art. 1357);

b) enforceable under the Statute of Frauds (Art. 1356)

[NOTE: Art. 1356 says that when the law requires that a contract be in some form in order that it may be
valid or enforceable, that requirement is absolute and indispensable. In such cases, the right of the parties
stated in the following article (Art. 1357 – the right to compel) cannot be exercised.]

[NOTE: A contract partly written and partly oral is, in legal effect, an ORAL contract.

FORM FOR CONVENIENCE (ART. 1358, page 681)

The necessity for the public document in the contracts enumerated here is only for convenience, not for
validity or enforceability.
 Article 1358, which requires the embodiment of certain contracts in a public instrument, is only for
convenience, and registration of the instrument only adversely affects third parties.

Formal requirements are for the benefit of third parties. Non-compliance therewith does not adversely
affect the validity of the contract nor the contractual rights and obligations of the parties thereunder. (Fule v. Court
of Appeals).

DISTINCTIONS BETWEEN ‘REFORMATION’ AND ‘ANNULMENT’ (ART. 1359, page 685)

a) Where there has been a meeting of the minds, but there is mistake, fraud, inequitable conduct or accident
in the contract as written, the remedy is REFORMATION. When there has been no meeting of the minds,
because of vitiated consent, the proper remedy is ANNULMENT.

b) Reformation does not invalidate a contract; annulment invalidates a contract.

REQUISITES FOR THE ACTION FOR REFORMATION (ART. 1359, page 685)

a) There must be a meeting of the minds.

b) The true intention is not expressed in the instrument.

c) There must be clear and convincing proof thereof.

[NOTE: Mere preponderance of evidence here would not be sufficient]

d) It must be brought within the proper prescriptive period.

e) The document must not refer to a simple unconditional donation inter vivos (Art. 1366), or to wills (Art.
1366), or to a contract where the real agreement is void. (Art. 1366)

NO NEW CONTRACT IS MADE (ART. 1359, page 687)

In reforming instruments, courts do not make another contract for the parties. They merely inquire into the
intention of the parties and having found it, reform the written instrument (not the content), in order that it may
express the real intention of the parties.

WHEN REFORMATION MAY BE ASKED BECAUSE OF MUTUAL MISTAKE (ART. 1361, page 688)

a) Under this Article, the mistake must be mutual.

b) The mistake may be unilateral under the conditions set forth in Arts. 1362 and 1363 of the Civil Code.

c) The mistake must be of fact – usually. Therefore, generally an error of law is not enough.

FAILURE TO CONVEY THE TRUE INTENT (ART. 1364, page 691)

 The court may order the reformation of the instrument if the instrument does not convey the true intention
of the parties because of the:

a) ignorance
b) lack of skill
c) bad faith of

1) the drafter of the instrument

2) or the clerk
3) or the typist

HOW TO JUDGE THE PARTIES’ INTENT (ART. 1365, page 693)

The intention of the parties can be judged from their contemporaneous and subsequent acts.

PLAINTIFFS IN ACTION FOR REFORMATION (ART. 1368, page 694)

a) If the mistake is mutual, either party or his successors in interest;

b) In all other cases:

1) the injured party;

2) his heirs and assigns.

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RULES

RULE IN CASE OF INABILITY TO READ OR UNDERSTAND (Art. 1332, page 629)

“This rule is especially necessary in the Philippines where unfortunately there is still a fairly large number of
illiterates, and where documents are usually drawn up in English or Spanish.” (Report of the Code Commission, p.
136).
MISREPRESENTATION BY A THIRD PERSON (Art. 1342, page 647)

How does the participation of a third person in force and in fraud or misrepresentation differ?

a) Force or intimidation by a third person makes the contract voidable.

b) Fraud by a third person does not make the contract voidable unless –

1) the representation has created substantial mistake, and

2) the mistake is mutual. (Art. 1342)

In this case, the contract may be annulled, not principally on the ground of fraud, but on the ground
of error or mistake.

RULES ON LESION (Art. 1355, page 670)

General Rule – Lesion or inadequacy of price does not invalidate a contract.

Exceptions:

a) When, together with lesion, there has been:

1) fraud

2) mistake

3) or undue influence

b) In cases expressly provided by law (in the following, the contracts may be rescinded):

1) “Those which are entered into by guardians whenever the wards they represent suffer lesion by more
than one-fourth of the value of the things which are the objects thereof.” (Art. 1381, par . 1, Civil Code)

2) “Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding
number.” (Art. 1381, par. 2, Civil Code)

3) Partition among co-heirs, when anyone of them received things with a value less by at least one-fourth
than the share to which he is entitled. (Art. 1098, Civil Code)

RULE IN CASE OF CONFLICT (ART. 1360, page 688)

In case of conflict between the Civil Code and the principles of the general law on reformation, the former
prevails. The latter will have only suppletory effect.

EFFECT OF AN ACTION TO ENFORCE THE INSTRUMENT (ART. 1367, page 694)

a) This Article presents another instance when reformation cannot prosper.

 b) Basis is estoppel, waiver or ratification.

PROCEDURAL RULES (ART. 1369, page 696)

These procedural rules are supposed to be promulgated by the Supreme Court.

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QUESTIONS

What are the requisites in order that mistake may invalidate consent?

In order that mistake may invalidate consent, it should refer to:

a) The substance of the thing which is the object of the contract, or

b) Those conditions which have principally moved one or both parties to enter into the contract.

Define mistake of fact and mistake of law.

There is mistake of fact when one or both of the contracting parties believe that a fact exists when in
reality it does not, or that such fact does not exist when in reality it does. On the other hand, there is a
mistake of law when one or both of the contracting parties arrive at an erroneous conclusion regarding the
interpretation of a question of law or the legal effects of a certain act or transaction.

Which of these mistakes can vitiate consent rendering the contract voidable?

As a general rule, it is only a mistake of fact which will vitiate consent, thus rendering the contract
voidable; a mistake of law, on the other hand, does not render the contract voidable because of the well-
known principle that ignorance of the law does not excuse anyone from compliance therewith.

What mistakes of fact will render a contract voidable?

a) Mistake as to the object of the contract (Error in re) – This may refer to:

1) Mistake as to the identity of the thing, or

 2) Mistake as to the substance of the thing, or

3) Mistake as to the condition of the thing, provided such condition has principally moved one or both
of the parties to enter into the contract; or

4) Mistake as to the quantity of the thing, provided that the extent or dimension of the thing was one
of the principal reasons of one or both of the parties for entering into the contract.

b) Mistake as to Person:

1) Mistake as to the identity or qualifications of one of the parties will vitiate consent only when such
identity or qualifications have been the principal cause of the contract.

2) A simple mistake of account shall give rise to its correction. (Art. 1331)

What is the rule in case of inability to read or understand?

When one of the parties is unable to read, or if the contract is in a language not understood by him, and
mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully
explained to the former (Article 1332).

What is the effect of knowledge of doubt or risk?

There is no mistake if the party alleging it knew the doubt, contingency or risk affecting the object of the
contract (Article 1333). It does not therefore vitiate consent.

Is there any exception to the rule that a mistake of law cannot vitiate consent rendering the contract voidable?

Mistake of law as a rule will not vitiate consent? There is however an exception to this rule. According to
Article 1334, mutual error as to the legal effect of an agreement when the real purpose of the parties is frustrated,
may vitiate consent.

Three requisites are therefore necessary:

1) The mistake or error must be mutual;

2) The error must refer to the legal effect of the agreement;

3) The real purpose of the parties is frustrated.

What is meant by violence and intimidation?

There is violence when in order to wrest consent, serious or irresistible force is employed.

There is intimidation when one of the contracting parties is compelled by a reasonable and well-grounded
fear of an imminent and grave evil upon his person or property, or upon the person or property of his spouse,
descendants or ascendants, to give his consent.
 To determine the degree of intimidation, the age, sex and condition of the person shall be borne in mind.

A threat to enforce one's claim through competent authority, if the claim is just or legal, does not vitiate
consent (Article 1335).

What are the requisites of violence and intimidation which will render the contract voidable?

In order that consent is vitiated through violence, it is essential that the following requisites must concur?

a) The force employed to wrest consent must be serious and irresistible; and

b) It must be the determining cause for the party upon whom it is employed in entering into the contract.

Intimidation, on the other hand, requires the concurrence of the following requisites:

a) One of the contracting parties is compelled to give his consent by a reasonable and well-grounded fear of
evil;

b) The evil must be imminent and grave;

c) Upon his person, property, or upon the person or property of his spouse, descendants, or ascendants;

d) The evil must be unjust, an actionable wrong; and

e) The evil must be the determining cause for the party upon whom it is employed in entering into the
contract.

Distinguish between violence and intimidation.

a) While violence is external, intimidation is internal;

b) While violence prevents the expression of the will substituting it with a material act dictated by another,
intimidation influences the operation of the will, inhibiting it in such a way that the expression thereof is
apparently that of a person who has freely given his consent.

c) Violence is physical compulsion, while intimidation is moral compulsion.

What is the effect if violence or intimidation was employed by third person?

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 (Article 1336).

What is meant by undue influence?

There is undue influence when a person takes improper advantage of his power over the will of another,
depriving the latter of a reasonable freedom of choice.

The following circumstances shall be considered:

 a) the confidential, family, spiritual and other relations between the parties, or

b) the fact that the person alleged to have been unduly influenced was suffering from mental weakness, or was
ignorant or in financial distress (Article 1337).

What are the requisites for undue influence to vitiate consent?

a) Improper advantage

b) Power of the will of another

c) Deprivation of the latter’s will of a reasonable freedom of choice

What is meant by fraud?

There is fraud when, through insidious words or machinations of one of the contracting parties, the other is
induced to enter into a contract which, without them, he would not have agreed to (Article 1338).

What are the different classes of civil fraud?

Civil fraud may be classified as:

a) Fraud in the PERFECTION [or CELEBRATION] of the contract – fraud which is employed by a party to the
contract in securing the consent of the other party. This may either be:

1) Dolo causante or causal fraud – refers to those deceptions or misrepresentations of a serious

character employed by one party without which the other party would not have entered into the
contract.

2) Dolo incidente or incidental fraud – refers to those incidental deceptions and misrepresentations
employed by one party without which the other party would still have entered into the contract.

b) Fraud in the PERFORMANCE of the obligation – fraud which is employed by the obligor in the performance of
an existing obligation.

What are the requisites of fraud [dolo causante] which will render a contract voidable?

In order that the consent of a party to a contract is vitiated by fraud thus rendering such contract voidable, it
is essential that the following requisites must concur:

a) Fraud or insidious words or machinations must be employed by one of the contracting parties;
b) The fraud or insidious words or machinations must be serious;
c) There must be deliberate intent to deceive or to induce;
d) The fraud or insidious words or machinations must induce the other party to enter into the contract,
that is, the other party must have relied on the untrue statement and must himself not be guilty of
negligence in ascertaining the truth; and
e) The fraud should not have been employed by both of the contracting parties or by third persons.
Distinguish between dolo causante and dolo incidente.

Dolo causante (Article 1338) and Dolo incidente (Article 1344) may be distinguished from each other in the
following ways:

a) The first refers to a fraud which is serious in character, whereas the second is not serious;
b) The first is the cause which induces the party upon whom it is employed in entering into the contract,
whereas the second is not the cause;

Does failure to disclose facts to the other party, exaggeration in trade, expression of an opinion constitute fraud
which will render a contract voidable?

Failure to disclose facts, when there is a duty to reveal them, as when the parties are bound by confidential
relations, constitutes fraud (Article 1339).

The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in
themselves fraudulent (Article 1340).

A mere expression of an opinion does not signify fraud, unless made by an expert and the other party has
relied on the former's special knowledge (Article 1341).

What is the effect if there is misrepresentation by third person?

Misrepresentation by a third person does not vitiate consent, unless:

a) Such misrepresentation has created substantial mistake and

b) Such misrepresentation is mutual (Article 1342).

What is the effect of misrepresentation made in good faith?

Misrepresentation made in good faith is not fraudulent but may constitute error (Article 1343)

When shall fraud make a contract voidable? [Requisites for fraud to vitiate consent]

In order that fraud may make a contract voidable:

a) Fraud should be serious, and

b) Fraud should not have been employed by both contracting parties [the parties must not be in pari delicto]
(Article 1344).

This refers to causal fraud. If the fraud is merely incidental fraud, it only obliges the person employing it to
pay damages

What is meant by simulation of contracts?

 Simulation of a contract which is referred to as “vices of declaration” is the process of intentionally deceiving
others by producing the appearance of a contract that really does not exist (absolute simulation) or which is
different from the true agreement (relative simulation). Simulation is absolute when the parties do not intend to be
bound at all, as when a debtor simulates the sale of his properties to a friend in order to prevent their possible
attachment by creditors; while simulation is relative when the parties conceal their true agreement, as when a
person conceals donation by simulating a sale of the property to the beneficiary for a certain consideration ( Article
1345).

What are the requisites for simulation?

a) An outward declaration of will different from the will of the parties;

b) The false appearance must have been intended by mutual agreement;
c) The purpose is to deceive third persons.

What are the effects of simulation?

An absolutely simulated or fictitious contract is void. A relative simulation, when it does not prejudice a third
person and is not intended for any purpose contrary to law, morals, good customs, public order or public policy
binds the parties to their real agreement (Article 1346).

What is meant by object of contracts?

The object of a contract may be defined as the thing, right or service which is the subject matter of the
obligation which is created or established.

What requisites must concur in order that a thing, right or service may be the object of contracts?

As a general rule, all things, rights or services may be the object of contracts. It is however, essential that the
following requisites must concur:

a) The object should be within the commerce of men; in other words, it should be susceptible of
appropriation and transmissible from one person to another;

b) The object must be transmissible;

c) The object should be licit; in other words, it should not be contrary to law, morals, good customs, public
order or public policy;

d) The object should be real and possible; in other words, it should exist at the moment of the celebration of
the contract, or at least, it can exist subsequently or in the future;

e) The object should be determinate, or at least, possible of determination, 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 (Article 1349).

What things, rights or services cannot be the object of contracts?

a) Things which are outside the commerce of men, including future things;
 b) Rights which are intransmissible;
c) Future inheritance except in cases expressly authorized by law;
d) Services which are contrary to law, morals, good customs, public order or public policy (Article 1347);
e) Impossible things or services (Article 1348);
f) Objects which are not determinate as to their kind (Article 1349).

If the parties enter into a contract with respect to the above contracts, the contract is void or inexistent.

What is meant by cause of contracts?

In general, cause is the why of the contract or the essential reason which moves the contracting parties to
enter into the contract. In other words, it is the immediate, direct or proximate reason which explains and justifies
the creation of an obligation through the will of the contracting parties.

In particular:

a) In onerous contracts the cause is understood to be, for each contracting party, the prestation or promise of a
thing or service by the other;
b) In remuneratory ones, the service or benefit which is remunerated; and
c) In contracts of pure beneficence, the mere liberality of the benefactor (Article 1350).

Distinguish the cause from the object of contracts.

The cause must not be confused with the object of the contract. Of course, there can be no question
about the difference between the two cases of remuneratory and gratuitous contracts; thus, in the first, the
cause is the service or benefit which is remunerated, while the object is the thing which is given in
remuneration, and in the second the cause is the liberality of the donor or benefactor.

In onerous contracts, however, there is a tendency to confuse one with the other. Nevertheless, it is clear
that the cause, for each contracting party, is the prestation or promise of a thing or service by the other,
while the object of the contract, on the other hand, is the thing or service itself.

Thus, in a contract of sale, the cause as far as the vendor is concerned is the acquisition of the
purchase price, and as far as the vendee is concerned, it is the acquisition of the thing, or stated in a
different way, the cause of the obligation of the vendor is the obligation of the vendee and the cause of the
obligation of the vendee is the obligation of the vendor, while the object of the contract, on the other hand,
is the thing which is sold and the price which is paid [Castan’s and Manresa’s view].

Distinguish the cause of a contract from the motives of the parties in entering into a contract.

The particular motives of the parties in entering into a contract are different from the
cause thereof (Article 1351).

The differences between the two are as follows:

a) Whereas the cause is always the same, the motives may differ for each contracting party.
b) The motive may be unknown to the other, the cause is always known.
c) The presence of motive cannot cure absence of cause.
d) Whereas the cause is the direct or most proximate reason of the contract, the motives are the indirect or
remote reasons;
e) Whereas the cause is the objective or juridical reason of a contract, the motives are the psychological or
purely personal reasons;
Is there an exception to the rule that the particular motives of the parties in entering into a contract are different
from the cause thereof?

There is an exception to the rule and that is when the contract is conditioned upon the attainment of the
motive of either contracting parties. In other words, the motive may be regarded as causa when it predetermines
the purpose of the contract.

What requisites must concur in order that there will be a sufficient cause upon which a contract may be founded?

In order that there will be a sufficient cause upon which a contract may be founded, it is essential that the
following requisites must concur:

a) The cause should be in existence (it must be present);

b) The cause should be licit or lawful; and
c) The cause should be true.

Thus, contracts without cause, or with unlawful cause, produce no effect whatsoever. The cause is unlawful if it
is contrary to law, morals, good customs, public order or public policy (Article 1352). The same is true if the cause
stated in the contract is false, unless it is proven that they were founded upon another cause which is true and
lawful (Article 1353).

What is the presumption of a cause?

Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor
proves the contrary. (Article 1354)

What is lesion?

It is inadequacy of cause, like insufficient price for a thing sold.

What are rules on lesion?

As a general rule, lesion or inadequacy of price does not invalidate a contract. Lesion, however, may be
evidenced of the presence of fraud, mistake or undue influence.

Exceptions (when lesion may invalidate the contract):

a) When together with lesion, there is fraud, mistake or undue influence (Article 1355).

b) In cases expressly provided for by law (Articles 1381 and 1098)

As a rule, what is the form of a contract in order that it will be of obligatory force?

Contracts shall be obligatory, in whatever form they may have been entered into, provided all the essential
requisites for their validity are present. (Article 1356)
 We have therefore retained the “spiritual system” of the Spanish Civil Code by virtue of which the law looks
more at the spirit rather than at the form of contracts. Hence, under our legal system, the form in which a contract is
executed has no effect, as a general rule, upon its obligatory force, provided all of the essential requisites for its
validity are present.

However, this principle merely applies to CONSENSUAL CONTRACTS. In FORMAL CONTRACTS, certain form is
required while a REAL CONTRACT requires delivery in addition to the essential requisites of a contract.

What are the exceptions to the above rule?

When Article 1356 speaks of contracts as being obligatory regardless of the form in which they may have
been entered into, it does not include those contracts for which the law prescribes form either for validity or for
enforceability. There are therefore exceptions to the general rule:

1. When the law requires that a contract be in some form in order that it may be valid or enforceable, or
2. That a contract be proved in certain way.

In such instances, the requirement is absolute and indispensable and the right of the parties stated in the
following article cannot be exercised. (Art. 1356)

What are the different kinds of formalities which are prescribed by law for certain contracts?

Article 1358 enumerates certain kinds of contracts which must appear either in a public instrument or in a
private document. The purpose of the requirement, however, is not to validate or to enforce the contract, but to
insure its efficacy; in other words, the form required is neither for validity or enforceability but for CONVENIENCE of
the contracting parties. Hence, the forms required by law for the execution of certain contracts may be divided into:

1. Those which are merely for CONVENIENCE (governed by Articles 1356 to 1358);
2. Those which are necessary for the VALIDITY of the contracts (governed by scattered provisions of the Civil
Code and by special laws); and
3. Those which are necessary for the ENFORCEABILITY of the contract (governed by the Statute of Frauds).

What is the right of the contracting parties if the law requires a document or other special form?

If the law requires a document or other special form, as in the acts and contracts enumerated in the
following article, the contracting parties may compel each other to observe that form, once the contract has been
perfected. This right may be exercised simultaneously with the action upon the contract. (Art. 1357)

The article is applicable only when form is needed only for CONVENIENCE, not for validity or enforceability.
In other words, before the contracting parties may be compelled to execute the needed form, it is essential that the
contract be PERFECTED (valid) (Art. 1357) and ENFORCEABLE under the Statute of Frauds (Art. 1356)

The right to compel under Article 1357 cannot be exercised if the law requires that a contract be in some
form in order that it may be VALID and ENFORCEABLE, because Article 1356 provides that that requirement is
ABSOLUTE and INDISPENSABLE.

What are the formalities which are merely for the convenience of the contracting parties?

The following must appear in a public document:

 1. Acts and contracts which have for their object the creation, transmission, modification or extinguishment of
real rights over immovable property; sales of real property or of an interest therein are governed by Article
1403, No. 2, and 1405;

2. The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains;

3. The power to administer property, or any other power which has for its object an act appearing or which
should appear in a public document, so should prejudice a third person;

4. The cession of actions or rights proceeding from an act appearing in public document (Art. 1358)

All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a
private one. But sales of goods, chattels, or things in action are governed by Articles 1403, No. 2 and 1405 (Art.
1358)

Note that the necessity for the public document in the contracts enumerated above is only for
CONVENIENCE, not for VALIDITY or ENFORCEABILITY. Formal requirements are for the benefit or third parties.
Noncompliance therewith does not adversely affect the validity of the contract or the contractual rights and
obligations of the parties thereunder. (Fule vs. CA, GR No. 112212, March 2, 1998)

What are the formalities which are necessary for the validity of contracts?

These contracts may be classified as follows:

1. Those which must appear in writing;

2. Those which must appear in a public document; and
3. Those which must be registered.

CONTRACTS WHICH MUST APPEAR IN WRITING:

1. Donations of personal property whose value exceeds five thousand pesos. According to Article 748, the
donation and the acceptance shall be made in writing; otherwise, it shall be void.
2. Sale of piece of land or any interest therein by an agent. According to Article 1874, if the authority of the
agent is not in writing, the sale is void.
3. Antichresis. According to Article 2134, in contracts of antichresis, the amount of the principal and of the
interest shall be specified in writing; otherwise, the contract shall be void.
4. Agreements regarding payment of interest in contracts of loan. According to Article 1956, no interest
shall be due unless it has been expressly stipulated in writing. The validity of the contract of loan,
however, is not affected.

CONTRACTS WHICH MUST APPEAR IN A PUBLIC DOCUMENT:

1. Donations of immovable property. According to Article 1749, the donation must be made in a
public document. The acceptance, on the other hand, may be made in the same deed of donation
or in a separate public document. If the acceptance is made in a separate public document, the
donor shall be notified in authentic form and such fact shall be noted in both instruments.
Noncompliance with any of these formalities shall render the donation void.

2. Partnerships where immovable property or real rights are contributed to the common fund.
According to Articles 1771 and 1773, in a contract of partnership where immovable property or
real rights are contributed to the common fund, it is necessary that the contract must appear in a
public instrument and that there must be an inventory of the immovable property and real rights,
signed by the partners, and attached to the public instrument; otherwise, the contract is void.
 CONTRACTS WHICH MUST BE REGISTERED

1. Chattel mortgages. According to Article 2140, by a chattel mortgage, personal property is recorded in the
Chattel Mortgage Register as a security for the performance of an obligation. If the movable, instead of
being recorded, is delivered to the creditor or a third person, the contract is a pledge and not a chattel
mortgage.

2. Sales or transfers of large cattle. According to the Cattle Registration Act, no sale or transfer of large cattle
shall be valid unless it is duly registered and a certificate of transfer is secured.

What is the doctrine of reformation of instruments under the Civil Code?

When the 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 (Art. 1359)

What requisites must concur in order that an instrument may be reformed?

1) There must be meeting of the minds of the parties;

2) Their true intention is not expressed in the instrument; and

3) Such failure to express their true intention is due to mistake, fraud, inequitable conduct or accident.

4) There must be convincing proof thereof;

5) It must be brought within the proper prescriptive period;

6) The document must not refer to a simple unconditional donation inter vivos, or to wills, or to a contract
where the real agreement is void (Art. 1366)

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 (Art. 1359)

What are the distinctions between reformation and annulment?

The most fundamental distinctions between an action for reformation of an instrument and an action for the
annulment of a contract are:

1. Whereas the first presupposes a perfectly valid contract in which there has already been a meeting of the
minds of the contracting parties, the second is based on a defective contract in which there has been no
meeting of the minds because the consent of one of the contracting parties has been vitiated.

2. Reformation does not invalidate a contract; annulment invalidates a contract.

What is the rule in case of conflict between the Civil Code and the Principles of General Law on Reformation?

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 (Art. 1360).
What are the instances in which reformation may be asked?

1) When a mutual mistake of the parties causes the failure of the instrument to disclose their real agreement,
said instrument may be reformed (Article 1361).

2) 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 (Article 1362).

3) 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 (Article 1363).

4) 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 (Article 1364).

5) If two parties agree upon the mortgage or pledge of real or personal property, but the instrument states that
the property is sold absolutely or with a right of repurchase, reformation of the instrument is proper ( Article
1365).

What instruments cannot be reformed?

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. 1366)

What is the effect of reformation if one of the parties has brought an action to enforce the instrument?

When one of the parties has brought an action to enforce the instrument, he cannot subsequently ask for its
reformation (Art. 1367)

Who are the persons who may ask for reformation of instrument?

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 (Art. 1368)

The procedure for the reformation of instrument shall be governed by Rules of Court to be promulgated by
the Supreme Court (Art. 1369)