ART. 1343.

Misrepresentation
made in good faith is
not fraudulent but
may constitute error.
EFFECT OF MISREPRESENTATION MADE
IN GOOD FAITH.
If the misrepresentation is not intentional but made in good faith, it is considered a
mere misstate and error. Fraud is definitely more serious the mistake; hence, the
party guilty of fraud is subject to greater liability.
Example:
S sold a ring to B. S honestly believed that what he sold to B was a diamond
ring. It turned out that it was not a diamond ring.
The misrepresentation of B is a mere mistake and the contract is voidable on
that ground and not on ground of fraud.
 ART. 1344.
In order that fraud may make a
contract voidable, it should be serious
and should not have been employed be
both contracting parties.
Incidental fraud only obliges the person
employing it to pay damages.
TWO KINDS OF FRAUD IN THE MAKING
OF CONTRACT.
(1) the causal fraud, ~ which is a ground for the annulment of a
contract, although it may also give rise to an action for damages; and
(2) the incidental fraud, ~ which only renders the party who employs it
liable for damages because the fraud was not the principal inducement that led
the other to give his consent.
Incidental fraud must not be confused with the fraud in Articles 1170
and 1171 which refers to that occurring in the performance of a contract,
without affecting its validity. Both kinds of incidental fraud do not vitiate
consent.
REQUISITES OF CAUSAL FRAUD.
In order that causal fraud may vitiate consent under the above article, the following
are the requisites:

(1) It should be serious;

(2) It should not have been employed by both contracting parties, i.e., they should not
be in pari delicto (see Arts. 1411, 1414.); and

(3) It should not have been known by the other contracting party.

The seriousness of the fraud is a question of fact depending on the circumstances. It

does not mean its influence on the other contracting party, but its importance. The
requirement that fraud should be serious excludes slight and usual deviations from the truth.
Such deviations are frequently present, unfortunately, in transactions, especially those taking
place in fairs and markets.
 When fraud is employed by both parties, neither may ask for annulment as
the fraud of one neutralizes that of the other. The contract is, therefore,
considered valid. The rule is in accordance with the principle that "he who
comes to court, must come with clean hands." (see Valdez vs. Sibal, 46 Phil.
930.)

EXAMPLE:
S sold to B a parcel of land. S told B that there were 3,000 coconut trees on
the land although he knew that there were only 1,000. B bought the land
relying on the statement of S.
The fraud here is serious and B can ask for the annulment of the contract.
If there were only a difference of say, 50 coconut trees, the fraud may not be
serious or important enough to make the contract voidable. But B has a right to
deduct from the contract price the amount representing the value of the 50
coconut trees.
 ART. 1345.
Simulation of a contract may be
absolute or relative. The former
takes place when the parties do
not intend to be bound at all; the
latter, when the parties conceal
their true agreement.
 ART. 1346.
An absolutely simulated or fictitious
contract is vold. 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.
MEANING OF SIMULATION OF A
CONTRACT.

Simulation of a contract is the act of deliberately

deceiving others, by feigning or pretending by
agreement, the appearance of a contract which is either
non-existent or concealed.
KINDS OF SIMULATION.
(1) Absolute simulation. ~ when the contract does not really exist and the
parties do not intend to be bound at all. Absolutely simulated or fictitious contracts
are inexistent and void.
EXAMPLE:
D is indebted to C. Upon learning that C is going to enforce his credit, D
pretended to sell his land to B, his father-in-law. D did not receive a single centavo
for the transaction and he continued in possession of the land as the contract was
merely simulated or fictitious.
There is no contract of sale in this case as the parties do not intend to be
bound at all.
KINDS OF SIMULATION.
(2) Relative simulation. ~ when the contract entered into by the parties is different
from their true agreement. The parties are bound by their real agreement provided it does not
prejudice a third person and is not intended for a purpose contrary to law, morals, good
customs, public order, or policy.
EXAMPLE:
D and Centered into a contract of mortgage. But wanting to hide the mortgage, it
was made to appear in the form of a deed of sale.
As far as D and C are concerned, the contract entered into between them is a
contract of mortgage. As to third persons, the apparent contract, the contract of sale, is the
one entered into. Consequently, if C is the mortgagee but is made to appear as the buyer and
C sells the land to B, the latter will acquire ownership. D and C are estopped or barred from
claiming that the real agreement entered into by them is a contract of mortgage.
SECTION 2.- Object of
Contracts
 ART. 1347.
All things which are not outside the commerce of
men, including future things, may be the object of a
contract. All rights which are not in transmissible
may also be the object of contracts. No contract
may be entered into upon future inheritance
except in cases expressly authorized by law. All
services which are not contrary to law, morals,
good customs, public order, or public policy may
likewise be the object of a contract.
 ART. 1348.
Impossible things or
services cannot be the
object of contracts.
Concept of object of Kinds of object of
a contract. contract.

The object of a contract is its Object certain is the second

subject matter. essential element of a valid
In reality, the object of every contract. (Ibid.) The object may be
contract is the obligation created. things (as in sale),rights (as in
But since a contract cannot exist assignment of credit), or services
without an obligation, it may be (as in agency).
said that the thing, service, or right
which is the object of the obligation
is also the object of the contract.
Requisites of things as Requisites of services
object of contract. as object of contract.
In order that things may be the object In order that service may be the object
of a contract, the following requisites of a contract, the following requisites
must be present: must concur:
(1) The thing must be within the (1) The service must be within the
commerce of men, that is, it can legally be commerce of men;
the subject of commercial transaction ; (2) It must not be impossible,
(2) It must not be impossible, legally physically or legally; and
or physically ; (3) It must be determinate or capable
(3) It must be in existence or capable of being made determinate.
of coming into existence.; and
(4) It must be determinate or
determinable without the need of a new
contract between the parties.
RIGHTS AS OBJECT OF CONTRACT.

As a general rule, all rights may be the object of a contract. The

exceptions are when they are in transmissible by their nature, or by stipulation,
or by provision of law.
EXAMPLES:
(1) Outside the commerce of men. ~ clings of public ownership such as
sidewalks, public places, bridges, streets, etc: clings of public things that are
common to everybody such as air, sunlight, rain, etc.
 (2) Impossible, physically or legally. - prohibited drugs and all illicit
objects; to kill a person, etc. (illicit things or services are also outside the
commerce of men); to get soil from Jupiter; to construct a building in one day,
etc.
(3) Determinable things. - all the cavans of rice in a bodega; all the eggs in
a basket; my land with the smallest area; the land at the corner of a particular
street, etc.
(4) Future things or rights. - things to be manufactured, raised, or
acquired after the perfection of the contract such as wine that a vineyard is
expected to produce; wool that shall thereafter grow upon a sheep; rice to be
harvested next harvesting season; milk that a cow may yield; eggs that hens
may lay; young animals not yet in existence, etc.
Future things include future rights. Thus, an author may assign the
royalty which he expects to receive from his publisher.
(5) In transmissible rights. - political rights such as the right to vote;
family, marital, and parental rights; right to public office, or to run for public
office, etc.
Definition of future Validity of contracts
inheritance. upon future
Future inheritance is any property or inheritance.
right, not in existence or capable of (1) General Rule. - Except in cases
determination at the time of the contract, expressly authorized by law, a contract
that a person may inherit in the future, such concerning future inheritance is void.
person having only an expectancy of a purely (2) Exceptions. - The law permits
hereditary right. contracts on future inheritance-
Inheritance ceases to be future upon the (a) in the case of donations by reason of
death of the decedent or deceased. marriage between future spouses with
respect to their future property to take effect,
only in the event of death, to the extent laid
down by law in testamentary succession; and
(b) in the case of partition of property by
act inter vivos by a person to take effect upon
his death.
KINDS OF IMPOSSIBILITY.
Impossibility may be:
(1) Physical. ~ when the thing or service in the very nature of things cannot
exist or be performed. With particular reference to services, the impossibility may
be:
(a) Absolute. - when the act cannot be done in any case so that nobody can
perform it; It nullifies the contract; or
(b) Relative. ~ when it arises from the special circumstances of the case or
the special conditions or qualifications of the obligor. It does not nullify the contract
if temporary; or
(2) Legal. - when the thing or service is contrary to law, morals, good
customs, public order, or public policy. An act is contrary to law, either because it is
forbidden by penal law or a rule of law makes it impossible to be done.