Chapter III.

Form of Contracts Art 748 Donation of movable

• Must be dovetailed with Statute of Art 749 Donation of immovable

Frauds
Art 1874 Sale of piece of land through an agent;
A. GENERAL RULE: Contracts shall be obligatory, regarding authority of agent
in whatever form they may have been entered
Art 2134 Contract of antichresis; amount of
into, provided all essential requisites for their
principal and of the interest
validity are present. (Spiritual system of the
Spanish Code) Art 1744 Contract of carriage; limiting liability
for consideration other than the service itself—
must be reasonable, just, and not against public
Art 1356 Contracts shall be obligatory, in policy
whatever form they may have been entered
Art 1771 Partnership; immovable property or
into, provided all the essential requisites for
real rights are contributed; includes real
their validity are present.
property

Art 1773 Partnership; inventory of immovable

B. EXCEPTION: When the law requires that a property contributed
contract be in some form in order that it may be
Art 1956 Interest for using someone else’s
VALID or ENFORCEABLE (Anglo-American
money
principle in Statutes of Fraud) indispensable and
absolute; parties Art 2140 Chattel mortgage; must have affidavit
of good faith; in order to be effective against 3rd
persons, must be registered in chattel mortgage
Art 1356 However, when the law requires that register.
a contract be in some form in order that it may
Special Law (PD 533) Sale of large cattle;
be valid or enforceable, or that a contract be
transfer certificate of registration at Cattle
proved in a certain way, that requirement is
Administrative Court
absolute and indispensable. In such cases, the
right of the parties stated in the following
article cannot be exercised.
2. Those required, not for the validity, but to
Cases: y Hernaez v De los Angeles make the contract effective as against third
persons, such as those covered by Art 1357 (if
law requires a special form, parties may compel
C. KINDS OF FORMALITIES REQUIRED BY LAW each other to observe that form upon
perfection of the contract) and Art 1358
1. Ad esentia, ad solemnitatem—Those required
(documents which must appear in a public
for the validity of contracts, such as those
document; it also constitutes constructive
referred to in
delivery)
(Sir refers to these as formal contracts)
Art 1358 The following must appear in a public at the very least, must be ready to comply with
document his obligation so that the other party does not
have the implied right to rescind the obligation.
(1) Acts and contracts which have for their
object the creation, transmission, modification
or extinguishment of real rights over immovable
Chapter IV. Reformation of Instruments
property; sales of real property or of an interest
therein a governed by Articles 1403, No. 2, and • Action under Rule 63 of the Rules of
1405; Court
• RULE 63: "declaratory relief and
(2) The cession, repudiation or renunciation of
several remedies" -- several
hereditary rights or of those of the conjugal
remedies include reformation of
partnership of gains;
instrument, quieting of title and
(3) The power to administer property , or any consolidation of ownership (of the
other power which has for its object an act vendee) under a pacto de retro sale.
appearing or which should appear in a public
Question: What is the extinctive prescription of
document, or should prejudice a third person;
action to reformation?
(4) The cession of actions or rights proceeding
Wretz’ answer: 5 years, in accordance with Art
from an act appearing in a public document.
1149)
All other contracts where the amount involved
Art 1359 When, there having been a meeting
exceeds five hundred pesos must appear in
of the minds of the parties to a contract, their
writing, even a private one. But sales of goods,
true intention is not expressed in the
chattels or things in action are governed by
instrument purporting to embody the
Articles, 1403, No. 2 and 1405.
agreement, by reason of mistake, fraud,
inequitable conduct or accident, one of the
parties may ask for the reformation of the
3. Ad probationem—Those required for the
instrument to the end that such true intention
purpose of proving the existence of the
may be expressed.
contract, such as those under the Statute of
Frauds in Art 1403 If mistake, fraud, inequitable conduct, or
accident has prevented a meeting of the minds
Finals question: What are the requisites to
of the parties, the proper remedy is not
make an unenforceable contract enforceable?
reformation of the instrument but annulment
If the contract is one of those listed under the of the contract.
Statute of Frauds (Art 1403), then a
1359 par 2: if these prevented meeting of the
memorandum is needed to make it enforceable
minds, consent was vitiated. hence, the contract
against other parties, but always subject to Art
is voidable, so the remedy is not reformation
1191 (tacit resolutory condition of reciprocal
but annulment.
contracts). Thus, if the contract is a reciprocal
one, the party seeking to enforce the contract
must have already performed his obligation, or
 o Of the 4, only in fraud and inequitable ✓ Gives life to the contract upon certain
conduct can the party ask for damages corrections
in addition to the action for reformation
ANNULMENT
o note that fraud here is committed in
reducing the agreement to writing (vs. ✓ No meeting of the minds or the consent
in obtaining consent and in of either one was vitiated by mistake or
performance) fraud
o inequitable conduct can be committed ✓ Involves a complete nullification of
by the draftsman/lawyer of the contracts
vendee/creditor in changing the
Requisites for Reformation of Instruments
agreement of pacto de retro sale (sale
with right to repurchase) to a contract 1. Meeting of the minds upon the contract
of absolute sale, OR the real estate
2. There is a written contract, not void
mortgage to a conditional deed of sale
o accident involves wrong typing a. The contract must have all the
essential elements; the only defect is that a
Reason for Reformation of Instruments
mistake was made in the expression of the true
• Equity dictates the reformation of intent of the parties.
instrument in order that the true
b. If the contract is void, the correct
intention of the contracting parties may
remedy is for a declaration of nullity, not
be expressed. Unjust and inequitable to
reformation of contract.
allow the enforcement of a written
instrument which does not reflect or 3. The true intention of the parties is not
disclose the real meeting of the minds expressed in the instrument
of the parties
4. The failure of the instrument to express the
• Court does not attempt to make a new
true agreement is due to mistake, fraud,
contract for the parties, but only to
inequitable conduct or accident
make the instrument express their real
agreement
• Statute of Frauds is no impediment to
Are damages awarded after the reformation of
the reformation of an instrument
a contract?
Distinguished from Annulment
If the reformation is needed because of mistake
REFORMATION or accident, generally not. However, if it is
needed because of fraud or inequitable
✓ Action presupposes a valid existing
conduct, damages may be awarded.
contract between the parties and only
the document or instrument which was Cases:
drawn up and signed by them does not
y Garcia v Bisaya
correctly express the terms of the
agreement y Bentir v Leande
 3. Art 1364 When through the ignorance, lack
of skill, negligence or bad faith on the part of
Causes for Reformation
the person drafting the instrument or of the
1. Mutual instrument includes something which clerk or typist, the instrument does not express
should not be there or omit what should be the true intention of the parties, the courts
there may order that the instrument be reformed.

i. Mutual Cases where no reformation is allowed

ii. Mistake of fact 1. Oral contracts there’s nothing to reform at all!

iii. Clear and convincing proof 2. When specified by law.

iv. Causes failure of instrument to Art 1366 There shall be no reformation in the
express true intention following cases:

2. Unilateral (1) Simple donations inter vivos wherein no

condition is imposed; (including DPNs)
i. One party was mistaken
• Does not include donations mortis
ii. Other either acted fraudulently or
causa.
inequitably or knew but concealed
• "no condition is imposed" refers to
iii. Party in good faith may ask for onerous conditions
reformation • hence, (1) includes donation propter
nuptias whose consideration is marriage
3. Mistake by 3rd persons due to ignorance, lack
only, and sir's example:
of skill, negligence, bad faith of drafter, clerk or
• donation given by parents to the bride
typist
after she accepted their son's proposal
4. Others specified by law to avoid frustration of • * Sir mentioned that the provision
true intent stating that DPN is covered by the
statute of frauds was repealed by the
family code.
Example of cases where reformation is allowed
(2) Wills;
1. Art 1361 When a mutual mistake of the
(3) When the real agreement is void.
parties causes the failure of the instrument to
disclose their real agreement, said instrument Implied ratification
may be reformed.
Art 1367 When one of the parties has brought
2. Art 1363 When one party was mistaken and an action to enforce the instrument, he cannot
the other knew or believed that the instrument subsequently ask for its reformation.
did not state their real agreement, but
concealed that fact from the former, the • There has b election between two
inconsistent remedies, one in
instrument may be reformed.
affirmance, the other in disaffirmance
 o As an aside, Sir mentioned that
analogy and doctrine of necessary
Who may ask for reformation
implication are the only liberal rules
MUTUAL MISTAKE: either party or successor in of statutory construction.
interest

MISTAKE BY ONE: injured party, heirs or assigns

Primacy of intention
1. Art 1368 Reformation may be
• Verba intentione non e contradebent
ordered at the instance of either
inservare - words ought to be
party or his successors in interest,
subservient to the intent, not the intent
if the mistake was mutual;
to the word
otherwise, upon petition of the
• Look for the contractual intent
injured party, or his heirs and
assigns.
2. Art 1362 If one party was mistaken
Art 1370 If the terms of a contract are clear and
and the other acted fraudulently or
leave no doubt upon the intention of the
inequitably in such a way that the
contracting parties, the literal meaning of its
instrument does not show their
stipulations shall control.
true intention, the former may ask
for the reformation of the Art 1372 However general the terms of a
instrument. contract may be, they shall not be understood
to comprehend things that are distinct and
cases that are different from those upon which
Procedure of reformation the parties intended to agree.

Art 1369 The procedure for the reformation of • Generalia verba sunt generaliter
instrument shall be governed by ROC to be intelligencia general things are to
promulgated by the Supreme Court. understood in a general sense

Cases:
Chapter V. Interpretation of Contracts y Borromea v CA
(Compare with Rules on Statutory Construction) y Kasilag v Rodriguez

• More or less the same with rules on How to determine intention

evidence and statutory construction
Art 1371 In order to judge the intention of the
rules (ex. 1371 is similar to the
contracting parties, their contemporaneous
contemporaneous construction of law)
and subsequent acts shall be principally
• EXCEPT 1377 & 1378 which are
considered.
applicable only to contracts and not
statutes • Also take note of the usage and customs
• literal interpretation is strict of the place
interpretation
 Art 1377 The interpretation of obscure words
or stipulations in a contract shall not favor the
How to interpret a contract
party who caused the obscurity.
1. When it contains stipulations that admit of
• Contracts of adhesion—resolved against
several meanings
the party who prepared the contract
Art 1373 If some stipulation of any contract and in favor of the one who merely
should admit of several meanings, it shall be adhered to it
understood as bearing that import which is
most adequate to render it effectual.
6. When it is absolutely impossible to settle
doubts by the rules above
2. When it contains various stipulations, some
Art 1378 Par 1 When it is absolutely impossible
of which are doubtful
to settle doubts by the rules established in the
Art 1374 The various stipulations of a contract preceding articles, and the doubts refer to
shall be interpreted together, attributing to the incidental circumstances of a gratuitous
doubtful ones that sense which may result contract, the least transmission of rights and
from all of them taken jointly. interests shall prevail. If the contract is
onerous, the doubt shall be settled in favor of
the greatest reciprocity of interests.
3. When it contains words that have different
significations
a. In gratuitous contracts, incidental
Art 1375 Words which may have different
circumstances least transmission of rights and
significations shall be understood in that which
interests
is most in keeping with the nature and object
of the contract. • Restrictive interpretation against done
for gratuitous contracts

b. In onerous contracts greatest reciprocity of

4. When it contains ambiguities and omission of
interests
stipulations
• Liberal interpretation on both parties
Art 1376 The usage or custom of the place shall
for onerous contracts
be borne in mind in the interpretation of the
ambiguities of a contract and shall fill the
omission of stipulations which are ordinarily
7. When the doubts are cast upon the principal
established.
objects so that the intention cannot be known

Art 1378 Par 2 If the doubts are cast upon the

5. With respect to the party who caused the principal object of the contract in such a way
obscurity that it cannot be known what may have been
the intention or will of the parties, the contract 3. UNENFORCEABLE - contract that for some
shall be null and void. reason CANNOT BE ENFORCED, UNLESS
RATIFIED in the manner PROVIDED BY LAW

4. VOID AND NON-EXISTENT (contrato

Applicability of Rule 12, Rules of Court (now
inexistente) - contract, which is an ABSOLUTE
Secs. 10-19, Rule 130)
NULLITY and produces NO EFFECT, as if it had
Art 1379 The principles of interpretation stated never been executed or entered into
in Rule 123 of the Rules of Court shall likewise
be observed in the construction of contracts.
Chapter VI. Rescissible Contracts
• Law on evidence; interpretation of
documents) RESCISSION

Art 1380 Contracts validly agreed upon may be

In between VALID and DEFECTIVE contracts is rescinded in the cases established by law.
RELATIVELY INEFFECTIVE - ineffective only with
Definition
respect to certain parties but are effective as to
other persons. • Remedy granted by law to the
contracting parties and even to third
(1) assignment of the lease by the lessee
persons, to secure the reparation of
without the consent of the lessor is ineffective
damages caused to them by a contract,
only as regards the lessor,
even if this should be valid, by means of
(2) transfer of a debt by the debtor to another, the restoration of things to their
without the consent of the creditor is ineffective condition at the moment prior to the
as to the creditor, celebration of said contract.
• Relief for the protection of one of the
(3) the payment by a debtor to his creditor after
contracting parties AND third persons
the credit has been garnished or attached by a
from all injury and damages the
third person is ineffective to the latter
contract may cause OR protect some
DEFECTIVE CONTRACTS incompatible and preferential right
created by the contract
1. RESCISSIBLE - contract that has caused a
• Implies a contract which, even if initially
particular damage to one of the parties or to a
valid, produces a lesion or pecuniary
third person and which for EQUITABLE REASONS
damage to someone
may be set aside even if valid
• Sets aside the act or contract for
2. VOIDABLE OR ANNULLABLE (contrato nulo) - justifiable reasons of equity
contract in which CONSENT of one of the parties • Grounds for rescission can only be for
is defective, either because of WANT OF legal cause
CAPACITY or because it is VITIATED , but which
Characteristics of Rescissible Contracts
contract is VALID until JUDICIALLY set aside
1. Their defect consist in injury or damage 2. The party asking for rescission has no
either to one of the contracting parties or other legal means to obtain reparation
to third persons
Art 1383 The action for rescission is subsidiary;
LESION: injury which one of the parties suffers it cannot be instituted except when the party
by virtue of contract that is disadvantageous to suffering damage has no other legal means to
him; must be known or could have been known obtain reparation for the same.
at the birth of contract and not due to
subsequent thereto or unknown to the parties,
3. He is able to return whatever he may be
e.g. Art 1098 Partition, judicial and extra-
obliged to restore if rescission is granted
judicial may be rescinded on account of lesion
Art 1385 Rescission creates the obligation to
Art 1539 Sale of real estate of inferior thing
return the things which were the object of the
Art 1542 Sale of real estate made for a lump contract, together with their fruits, and the
sum price with its interest

2. They are valid before rescission

3. They can be attacked directly only, not
4. The object of the contract has not
collaterally
passed legally to the possession of a
• However, in the case of rescissible
third person acting in good faith
contracts entered into on behalf of a
minor or otherwise incapacitated Art 1385 consequently, it can be carried out
person a third party, or a guardian ad only when he who demands rescission can
litem, may file the action for rescission return whatever he may be obliged to restore.
on the ward’s behalf.
Art 1385 Par 3 Neither shall rescission take
4. They can be attacked only either by a
place when the things which are the object of
contracting party, or by a third person who
the contract are legally in the possession of
is injured or defrauded
third persons who did not act in bad faith.

Requisites for Rescission

5. The action for rescission is brought
1. The contract is rescissible
within the prescriptive period of four
Art 1381 Must fall under the kinds of years
rescissible contracts as specified
Art 1389 The action to claim rescission must
Art 1382 Payments made in a state of be commenced within four years. For persons
insolvency for obligations to whose fulfillment under guardianship and for absentees, the
the debtor could not be compelled at the time period of four years shall not begin until the
(has not yet matured) they were effected, are termination of the former s incapacity or until
also rescissible. the domicile of the latter is known.
 o Period commences on the termination - Same principles as the contracts
of the ward s incapacity or when under paragraph 1.
absentee s domicile is known
3. In fraud of creditors who cannot collect
claims due them
Kinds of Rescissible Contracts
• Presumptions of Fraud
The following are rescissible contracts (Art
Art 1387 All contracts by virtue of which the
1381):
debtor alienates property by gratuitous title
1. Entered into by guardians whenever the are presumed to have been entered into in
wards suffer lesion by more than ¼ of fraud of creditors, when the donor did not
value of things object reserve sufficient property to pay all debts
• For this article, the guardians are acting contracted before the donation.
within their legal authority as guardians.
o Authorized only to manage ward’s
property, no power to dispose Alienations by onerous title are also presumed
without prior approval of court. fraudulent when made by persons against
o If sold, mortgaged or otherwise whom some judgment has been issued. The
encumbered without approval of decision or attachment need not refer to the
the court, contract is property alienated and need not have been
unenforceable. obtained by the party seeking the rescission.
o If sold with the misrepresentation
In addition to these presumptions, the design
that the property is the guardian’s,
to defraud creditors may be proved in any
and not the wards, the contract is
other manner recognized by the law of
void.
evidence.
• Sir Labitag: thin band of contracts‖ – for
power of administration where the - Rebuttal by evidence that conveyance
ward suffers, in that if the guardian sells was made:
without court authorization, he • In good faith
becomes liable under art. 1403 in • For a sufficient cause
excess of authority, and the contract • Effect of Fraud: Does not necessarily
becomes unenforceable make the alienation rescissible. It is only
• 25% threshold for lesion is problematic. one of the requisites for accion
o Value changes according to time pauliana. Can be overruled by a
o Dependent on appraiser. transferee in good faith and for valuable
o More usually, litigants will claim consideration.
around 50% lesion.
Badges of Fraud (indicia of fraud) - rules by
which fraudulent character of transaction may
be determined
2. Agreed upon in representation of
absentee, suffer lesion by more than ¼ (Oria v. McMicking)
of the value of things object
 1. Fictitious/insufficient consideration General Rule: Mutual restitution
2. Conveyance is after suit is filed and
Special Case: Accion Pauliana
while it is pending
3. Sale on credit by insolvent debtor - Alienated property reverts to the
4. Evidence of insolvency or large patrimony of the debtor.
indebtedness - It becomes available as guaranty for the
5. Transfer of All or nearly all of debtor’s debtor’s obligation once more.
property
With respect to third persons who acquired the
6. Transfer is between father and son
thing in good faith
when some of above is present
7. Failure of vendee to take exclusive - If the third party who acquired the thing
possession of the property did so for valuable consideration, and
without knowledge of the action for
Relief for defrauded creditor: Accion
rescission, he cannot be deprived of
Pauliana (see discussion, supra.)
property.

Art 1385 Par 2 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

Art 1385 Par 3 In this case, indemnity for

damages may be demanded from the person
causing the loss.

MUTUAL DISSENT not the same as rescission, Right of transferee to retain alienation: Nature
because mutual dissent is tantamount to a of transfer
simple creation of new contract for the
dissolution of the previous one. In order for ONEROUS
rescission to take place, the requisites must first • Good faith - no rescission
be satisfied. • Bad faith - rescissible because of his
complicity in the fraud not entitled for
reimbursement because in pari delicto;
Effect of Rescission if not possible to return, indemnify the
Art 1385 Rescission creates the obligation to plaintiff;
return the things which were the object of the GRATUITOUS
contract together with their fruits, and the
price with its interest; consequently, it can be • Good faith - does not protect him
carried out only when he who demands because he gave nothing; rescissible,
rescission can return whatever he may be though not required to restore the fruits
obliged to restore.
 • Bad faith - rescissible because of his - File a direct action for rescission proper
complicity in the fraud; if not possible to (as distinguished from resolution of
return, must indemnify the plaintiff 1191)

Cure

Who may bring action for rescission 1. For contract of guardians – by

ratification/confirmation of the ward
1. Creditor injured
2. For contracts in representation of
2. Heirs of creditor injured
absentees – By prescription
3. Creditors of creditor injured (by virtue
3. For contracts entered into by debtor in
of accion subrogatoria)
state of insolvency – prescription
Extent of Rescission 4. For contracts which refer to things in
litigation – by prescription
Art 1384 Rescission shall be only to the extent
5. For all other contracts declared by law -
necessary to cover the damages caused.
by ratification/confirmation of the ward
• As to the excess, alienation is 6. For contracts made in favor of one
maintained even if transferee is in bad creditor – by ratification by creditor not
faith preferred
• Benefits only the plaintiff creditor, not
everyone
• BUT if transferee is willing to pay, no Chapter VII. Voidable or Annullable Contracts
rescission

Kinds of Voidable/Annullable Contracts

Liability for acquiring in bad faith the things Art 1390 Although no damage to contracting
alienated in fraud of creditors parties:
Art 1388 Whoever acquires in bad faith the 1. Want of capacity
things alienated in fraud of creditors, shall 2. Vitiated consent
indemnify the latter for damages suffered by
them on account of the alienation, whenever,
due to any cause, it should be impossible for
Characteristics of Voidable/Annullable
him to return them.
Contracts
If there are two or more alienations, the first
1. Their defect consists in the vitiation of
acquirer shall be liable first, and so on
consent of one of the contracting
successively.
parties
2. They are binding until they are annulled
by a competent court
How to Attack 3. They are susceptible of convalidation by
- Sir Labitag: ―frontal, from the point of ratification or by prescription
view of the debtor‖
Question: a. Interest in the contract - bound
to the contract either principally
What if there is mutual force?
or subsidiarily
- Then there would be no contract at all. b. Victim and not the party
responsible for the defect - he
What if there is mutual fraud?
who comes to the court must
- Similar to the situation with mutual come with clean hands (so not
force, there would be no contract at all. applicable to the successor in
If both parties are fraudulent in interest of one who has
acquiring the consent of the other, the contracted with a minor)
in pari delicto rule would apply. (see
B. MAY NOT:
unenforceable contracts, infra.)
1. Capable parties cannot allege the
incapacity of those with whom they
contracted
2. Those who caused the vitiation of
consent of the other party, i.e. parties
who exerted intimidation, violence or
undue influence or employed fraud or
caused mistake
3. Third person who is a stranger to the
contract. UNLESS he can prove that the
Grounds for Annulment Art 1390
contract prejudiced his rights with
1. Incapacity to consent respect to one of the contracting
Capacity to consent is not an essential parties, he may ask for annulment e.g.
requisite of a contract; want is only a guarantors and sureties
ground for annulment
2. Vices of consent: violence, intimidation,
undue influence, mistake or fraud Prescription of Action for Annulment after
prescription, contract can no longer be set aside

Art 1391 - Within 4 years

Who may and may not institute an Action for
Annulment Art 1397 Period shall begin:

A. MAY: All who are obliged principally or 1. Intimidation, violence or undue

subsidiarily influence: from the time consensual
defect ceases
Art 1395: Ratification does not require
2. Mistake or fraud: from the time of
conformity of the other party who has no right
discovery of the same
to bring action for annulment
3. Incapacity: from the time guardianship
Requisites: ceases
*Extinctive prescription applies not only to extinguished, even if at the time of the
action for annulment, but also to the defense of loss the plaintiff is still a minor or insane
nullity. (Art 1401) - therefore no restitution.
• LOSS THROUGH FORTUITOUS EVENT,
*Applies to the parties of to the contract, but
BUT PLAINTIFF WILLING TO PAY:
NOT to third persons.
Defendant should return the object but
Effects of Annulment - The contract is set aside; does not pay the interest. - restitution
the parties are to restore themselves to the does not include interest.
positions they were in before the contract was • LOSS OF FRUITS AND ACCESSIONS:
made. Apply Art 1400, pay value if they cannot
return (both plaintiff and defendant) -
a) MUTUAL RESTITUTION Art
restitution does not include fruits and
1398 Restore to each other:
accessions.
things which have been the
• Cases stated below.
subject matter of the contract,
b) together with fruits and 1. When one of the parties is incapacitated
c) the price with interest,
Art 1399 not obliged to make any restitution
• EXCEPT in cases provided by law
EXCEPT insofar as he has been benefited by the
(principle of unjust enrichment): e.g.
price/thing received
compensation, services rendered in
contracts of service • Incapacitated party is generally not
• ELIMINATES AWARD FOR DAMAGES. But required to make any restitution
when there is loss or suffered damages, o Exception: He has been benefited
injured party may be entitled to recover by the price/thing received.
indemnity for damages. • Benefit not necessarily a material and
permanent increase in fortune
• Benefit must be proven by incapacitated
b. WHEN MUTUAL RESTITUTION CANNOT BE person, in the absence of such proof,
COMPELLED the presumption is there is no
benefit/profit.
Art 1402 as long as one does not restore what
• If the amount is still in the patrimony at
he is bound to return, the other cannot be
the time incapacity ceases, the
compelled to return
incapacitated party is deemed to have
General Rule: After annulment of contract, the been benefited.
parties must return the things or amounts they o If he asks for annulment, he must
have received complete with fruits, accessions, return it to the other party.
and interest on the purchase price. o If he squanders it, the contract is
considered ratified.
Exceptions:
2. When the thing is lost through the fault of the
• LOSS THROUGH PLAINTIFF’S (party
party obliged to return the same (i.e.
entitled to bring action) FAULT or
defendant)
FRAUD: Action for annulment is
Art 1400 Whenever the person obliged by the b. Ratification is made with the
decree of annulment to return the thing knowledge of the cause for
cannot do so because it has been lost through nullity
his fault, he shall return the fruits received and c. At the time of the ratification,
the value of the thing at the time of the loss, the cause of nullity has already
with interest from the same date. ceased to exist

LOSS THROUGH FORTUITOUS EVENT: pay for the Forms of Ratification

value of the thing lost but not fruits and
a. Art 1393
interests.
✓ Express: any oral or written
Extinguishment of the Action
manifestation of the person entitled to
a. Art 1392 By ratification ask for annulment that he agrees to be
bound by the contract or that he will
• Confirmation/ratification: cures a defect
not seek its annulment.
of nullity
✓ Tacit: execute an act which necessarily
• Acknowledgment: remedies deficiency
implies an intention to waive his rights
of proof
E.g. of IMPLIED:
b. Art 1401 When the thing is lost through the
fault of the person who has the right to file the • Silence or acquiescence
action • Acts showing approval or adoption of
the contract
• Extinguishment can only come about
• Acceptance and retention of benefits
due to the loss by fault of plaintiff.
flowing therefrom
• Unjust enrichment if the loss is returned
for the defendant to bear. b. Art 1394
• Hence, the defendant cannot be obliged
By the parties themselves or by the guardian in
to make restitution to the plaintiff
behalf of an incapacitated party
because of Art 1402 (cannot compelled
to return if the other party does not - During the existence of incapacity
return) - Right to ratify is transmitted to the heirs
• Cannot extinguish action for annulment of the party entitled to such right.
for any event not imputable to the fault
Effects of Ratification
or fraud of the plaintiff
a. Art 1392 Action to annul is
extinguished
RATIFICATION b. Art 1396 The contract is cleansed
retroactively from all its defects from
Requisites of Ratification
the time it was constituted
a. Contract is voidable/annullable c. EXCEPTION: Right of 3rd persons
acquired prior to ratification

Summarized form of Sir’s Table

Nature of Defect: • Within 4 years of discovery of error or
fraud
• Want of capacity (age, insanity)
• Vitiated Consent

Effect on Contract Chapter VIII. Unenforceable Contracts

• Valid until annulled by court action Art. 1403. The following contracts are
unenforceable, unless they are ratified:
Assailable? How?
(1) Those entered into in the name of another
• Yes, both directly and collaterally in an
person by one who has been given no authority
action for annulment
or legal representation, or who has acted
Who Can Assail? beyond his powers;

• Victims in both cases (2) Those that do not comply with the Statute of
• All who are obliged principally or Frauds as set forth in this number. In the
subsidiarily following cases an agreement hereafter made
shall be unenforceable by action, unless the
When to Assail? same, or some note or memorandum, thereof,
• In case of want of capacity: within 4 be in writing, and subscribed by the party
years of gaining/regaining capacity charged, or by his agent; evidence, therefore, of
• In case of vitiated consent: within 4 the agreement cannot be received without the
years of cessation of duress or undue writing, or a secondary evidence of its contents:
influence a. An agreement that by its terms is not to
• In case of fraud or error: within 4 years be performed within a year from the
of discovery making thereof;
b. A special promise to answer for the
Curable? How?
debt, default, or miscarriage of another;
• Yes, by ratification (express or implied) c. An agreement made in consideration of
or by prescription marriage, other than a mutual promise
to marry;
Who can Cure?
d. An agreement for the sale of goods,
• Parties themselves chattels or things in action, at a price
• Guardians ad litem in cases of want of not less than five hundred pesos, unless
capacity the buyer accept and receive part of
such goods and chattels, or the
When to Cure?
evidences, or some of them, of such
• Within 4 years of gaining or regaining things in action or pay at the time some
capacity part of the purchase money; but when a
• Within 4 years of cessation of duress or sale is made by auction and entry is
undue influence made by the auctioneer in his sales
book, at the time of the sale, of the
 amount and kind of property sold, Kinds of Unenforceable Contracts (Art. 1403)
terms of sale, price, names of the
Art 1403 Par 1: Unauthorized contracts
purchasers and person on whose
account the sale is made, it is a • The agent does not act for himself but
sufficient memorandum; on behalf of someone
e. An agreement of the leasing for a longer • Unenforceable at the instance of the
period than one year, or for the sale of true owner/principal and the defense
real property or of an interest therein; should be interposed at the time the
f. A representation as to the credit of a other is trying to enforce the contract
third person. and NOT after full compliance on one
side or
(3) Those where both parties are incapable of
• Binds only the AGENT and not the
giving consent to a contract.
principal unless he ratifies it, thereby
curing the unauthorized contract. Note
that the intention of the parties to bind
Characteristics of Unenforceable Contracts
someone should be given effect.
• They cannot be enforced by a proper • If the principal executes the contract or
action in court asks for specific performance, there is
• They are susceptible of ratification ratification or implied waiver of
• They cannot be assailed by third defense.
persons Art 1408 • EXCEPTION: negotiorum gestio = owner
is liable to officious manager (see
Question: Are unenforceable contracts valid,
discussion above)
void, or in between?
o Officious manager, not previously
Wretz’ answer: having contractual relation with the
owner of the property, has no
Par 1 – void as to principal and 3rd party
authority to manage. However, law
Par 2 – valid as to parties unless involves a of equity governs.
formal contract • Example of in excess of authority:
authority given is only up to acts of
Par 3 – void
administration / acts for better use and
Unenforceable distinguished from Rescissible enjoyment on property in case of co-
and Annullable ownership, BUT he exercises acts of
ownership.
UNENFORCEABLE
• Sale of ward’s property in the latter’s
• Produces NO legal effect unless ratified name without authority regardless of
by competent court lesion is unenforceable
o However, if agent sold the land but
RESCISSIBLE AND ANNULLABLE
he is only authorized to mortgage it
• Produce legal effects unless set aside by = VOID, not enforceable because of
competent court Art. 1874
 - under par2 (e) where the lease covers a
period longer than 1 year: period of the
Governing rules in Unauthorized Contracts:
lease and the date it begins
• Art 1404: Governed by Art 1317 (no - consideration (cause) VS. cause is
one may contract in the name of the presumed to exist & to be legal.
other without being authorized or • Other data that can be included:
unless he has by law a right to o Names of the parties
represent him; representation without o Terms and conditions of the
authority or legal representation agreement
makes the contract unenforceable o Place of the making of the
unless ratified before being revoked) agreement
AND principles of Agency in Title X of • Note: written memorandum/note is the
this Book evidence of the agreement and is used
• Sale of property WITHOUT authority of to show the intention of the parties. No
the owner is VOID from the beginning particular form of language or
BUT can be made perfectly valid if the instrument is necessary to constitute a
owner ratifies it upon his stating under memorandum under SoF.
oath in court that he himself consented • Merely regulates the formalities of the
to the other’s making the said sale contract necessary to render it
enforceable.
Art 1403 Par 2: Contracts covered by the
Statute of Frauds a. Performance NOT within 1 year

Statute of Frauds: • time begins to run from the day the

contract is entered into and NOT from
descriptive of statutes which requires certain
the time that performance is entered
classes of contracts to be in a written
upon
memorandum or note containing the following
• How to compute the period: exclude 1st
minimum information (essential elements of the
day, include last day (Art 13, CC)
contract):
• intention for non-performance within 1
o signature of the parties –to show year should exist at the time of the
consent parties made the contract (impossibility
o sufficient description of the object to of the terms of the contract or the
render it capable of identification (e.g., intention of the parties and not
location of the property which is the natural/physical impossibility)
subject matter of the sale) • outside SoF if no time is fixed & nothing
o dates IF: in the agreement suggests that it
- under par2 (a) where the agreement is cannot be performed within 1 year
not to be performed within a year: date
b. Special Promise to answer for another’s
of making the agreement is important.
DEBT, DEFAULT or MISCARRIAGE
 • An undertaking by a person, previously Covers agreements between the parties to the
not liable, to secure/perform the same contemplated marriage AND promised by 3rd
duty for which the original debtor persons to one of the contracting parties (ex.
continues to be liable Gift of bride’s father to groom)
• Why is it included in SoF? To offer
Question: What is the consideration in a
protection to the promisor who,
promise to marry?
receiving none of the benefits for which
the debt was incurred, should be bound - Another promise to marry.
only by the exact terms of his promise.
d. Sale of GOODS, CHATTELS or THINGS IN
Question: What is included in miscarriage? ACTION

o MISCARRIAGE = species of wrongful • Price should be at least P500

act, the consequences for which the o Covers both tangible & intangible
law would make the party civilly personal property
responsible o Includes assignment of choses in
o includes liability arising from TORT action over P500
and not just those out of contracts E o CHOSES or THINGS in ACTION
o EXAMPLE: The wrongful riding the
Effect of noncompliance with SoF:
horse of another, without his leave
or license, and thereby causing its The contract is unenforceable at the instance of
death, is clearly an act for which the any party. Thus, if the vendor demands the
party is responsible for damages, payment of the purchase price, the vendee can
and therefore, falls within the interpose the defense that the contract is
meaning of the word miscarriage unenforceable.
• Tesst of Guaranty: Is the promise
• 1408 Unenforceable contracts cannot
original or collateral? Fall under SoF if it
be assailed by third persons
is collateral to another’s agreement. ---
• Statute of Frauds is a personal defense
a question of law & fact to be
and the same may be waived
determined from language used
• Can only be relied upon by the
(though not always conclusive especially
contracting parties or their
if parties are unaware of legal &
representatives
technical differences of words used) and
the surrounding circumstances Question: Can one ask for a declaration of
unenforceability?
c. In consideration of MARRIAGE (other than
mutual promise to marry) - No. There is no such action for that.
• Marriage should not be a mere incident; How to ratify contracts under Statute of Frauds?
there should not be any other Art 1405
consideration sufficient to support the
oral agreement. • Failure to object to the presentation of
oral/parol evidence to prove the contract
covered by SoF
• Objection is already too late if all the the buyer should also perform his
essential elements of the contract have obligations.
been testified to.
Art 1403 Par 3: Both parties are incapable of
• Acceptance of benefits under them
giving consent to a contract
• The contract has already been partly
executed • Neither party or his representative can
enforce the contract unless this has
Case: y Carbonell v Poncio
been previously ratified
Art 1406 When a contract is enforceable under
Art 1407
SoF BUT a public document is NECESSARY for
its registration in the Registry of Deeds, the • Effect of ratification by the parent or
parties may avail of their rights under Art 1357 guardian of one of the parties: (express or
(parties may compel each other to observe the implied)
necessary form once the contract has been • Converts the contract into a voidable
perfected) contract, at the option of the party who has
not ratified.
Written memorandum makes the contract
o Sir added: UNLESS the subject matter
enforceable whereas the public document
has been consumed by the
transfers real rights
incapacitated in good faith and for
Example: SALE OF LAND by owner (only needs necessaries.
to comply with statute of frauds) terms were • The non-ratifying party may: enforce the
written on a tissue paper --> consensual contract OR ask for the annulment on the
contract is perfected; valid but only executory ground of his incapacity
• Effect of ratification by the parents or
• a written memorandum should first be
guardians of both parties: validated from
made before the buyer can enforce the
the inception
seller's obligation to execute a public
document to transfer ownership of the Effect on Contract: VALID but cannot be
real property enforced by a proper action in court (e.g., action
• [NOTE: seller can willingly execute such for specific performance and action for damages
public document without the written due to non-performance) UNTIL ratified.
memorandum in which case the seller
SIR’S TABLE SUMMARIZED
ratifies the contract, making it
enforceable] Assail the Unenforceable contract:
• applying 1191 (tacit resolutory
How: DEFENSE of its unenforceability (not a
condition), the seller can still assert that
direct attack) through:
if the buyer does not pay the purchase
price and any other obligation he is For pars 1, 2 & 3: motion to dismiss complaint
required to perform, the seller may Additional for par 2: motion to exclude oral
want to resolve the contract after he evidence (e.g., testimony of the plaintiff about
executes such public instrument. Hence, the contents of the oral contract)
Who: Wretz’ answer: none because there is no
extinctive prescription for merely interposing
par 1: by owner of property
the defense of unenforceability, unlike direct
par 2: by plaintiff & his privies (heirs, action for rescission and annulment.
representatives and assigns)
Question: How is the Statute of Frauds
par 3: by other party & his privies (heirs, dovetailed with Laws on Formality?
representatives and assigns) & by guardian /
Art. 1406. When a contract is enforceable
parents during incapacity
under the Statute of Frauds, and a public
When: document is necessary for its registration in
the Registry of Deeds, the parties may avail
For pars 1, 2 & 3: at any time one party
themselves of the right under Article 1357.
attempts to enforce the contract against the
other through a court action (defense should be Art. 1357. If the law requires a document or
raised immediately) other special form, as in the acts and contracts
enumerated in the following article, the
Cure the Unenforceable contract:
contracting parties may compel each other to
How: observe that form, once the contract has been
perfected. This right may be exercised
par 1: by ratification: express or implied (e.g.,
simultaneously with the action upon the
owner tries to enforce the obligation)
contract
par 2: by acknowledgement, by performance of
oral contract, by failure to object seasonably to
presentation of oral evidence, by acceptance of Chapter IX. VOID OR INEXISTENT CONTRACTS
benefits under the contract
Art. 1409. The following contracts are
par 3: by confirmation inexistent and void from the beginning:

Who (1) Those whose cause, object or purpose is

contrary to law, morals, good customs, public
par 1: person in whose name the contract was
order or public policy;
entered into
(2) Those which are absolutely simulated or
par 2: party against whom the contract is being
fictitious;
enforced
(3) Those whose cause or object did not exist
par 3: parents / guardians of BOTH parties, OR
at the time of the transaction;
both parties after regaining capacity to act
(4) Those whose object is outside the
When
commerce of men;
Question: What is the period for
(5) Those which contemplate an impossible
expressly/impliedly ratifying unenforceable
service;
contracts?
(6) Those where the intention of the parties mandatory provisions of the law, such as a
relative to the principal object of the contract contract for the separation of property,
cannot be ascertained; executed after the celebration of marriage, or a
sale of a homestead within the 5-yr prohibitory
(7) Those expressly prohibited or declared void
period provided by law.
by law.
Difference Void Rescissible
These contracts cannot be ratified. Neither can
DEFECT Inherent in In effects,
the right to set up the defense of illegality be
the contract either to one
waived.
itself of the parties
• Void ab initio, as if it had never been or to a third
entered into party
• Includes not only those in which one of NULLITY Matter of law Based on
the essential requisites are wanting, but and public equity and
also those which are declared void by interest more of
positive provision of law or statute private
interest
Examples of Void or Inexistent Contracts:
IF NO There are no Remains
1. Those which are simulated or fictitious ACTION IS legal effects valid and
TAKEN even if produces all
2. Those in which consent was not produced by
no action is its
the concurrence of the offer and acceptance,
taken to set effects
and did not pass the stage of generation to the
it aside
point of perfection
ACTION TO Never Prescribes
3. When the object of the contract is RESCIND prescribes
impossible, illegal, or outside the commerce of
man, or when it is not determined in kind as
Void Unenforceable
required in Art. 1349
RATIFICATION Can never Can be ratified
Art. 1349. The object of every contract must be be ratified and therefore
determinate as to its kind. The fact that the can be
quantity is not determinate shall not be an enforced
obstacle to the existence of the contract, EXISTENCE No contract There is a
provided it is possible to determine the same, at all contract,
without the need of a new contract between which,
the parties. (1273) however,
cannot be
4. When the contract has no cause or
enforced
consideration, or when such cause or
unless
consideration is illicit.
properly
5. When the contract, although the cause or ratified
object may not be illegal, violates some
SIMILARITY: Void/Inexistent and Unenforceable anyone, hence, it does not create,
are similar in that they cannot be the basis of modify, or extinguish the juridical
action to enforce compliance. relation to which it refers.
• No action for annulment is necessary
VOID VOIDABLE/
because the nullity exists IPSO JURE; a
ANNULLABL
judgment of nullity would merely be
E
declaratory
VALIDITY Implies that there Valid until
• It cannot be confirmed or ratified
is no contract but set aside
• If it has been performed, the restoration
only the and its
of what has been given is in order
appearance of validity can
• The right to set up the defense of
one, and it be assailed
illegality cannot be waived.
produces no effect only in an
even if not set action for ACCION REINVIDICATORIA – recovery of a
aside by a direct that property where there has been void transfer,
action purpose by and any possessor may refuse to deliver it to the
a party to transferee, who cannot enforce the transfer.
the contract
and never • Creditors may attach property of the
debtor which has been alienated by the
by a third
person latter under a void contract;
NULLITY Can be set up Nullity can • A mortgagee can allege the inexistence
against anyone only be set of a prior encumbrance
who asserts a up against a • A debtor can assert the nullity of an
right arising from party assignment of credit as a defense of an
it; not only the thereto action by the assignee.
first but against all ACTION TO DECLARE NULLITY
his successors
who are not • No need of an action to set aside a void
affected by the or inexistent contract. In fact, such
law action cannot logically exist. However,
RATIFICA Not susceptible of May be an action to declare the non-existence
TION ratification; rendered of the contract can be maintained; and
cannot be cured valid by in the same action the plaintiff may
ratification recover what he has given by virtue of
PRESCRIP Does not Prescribes the contract.
TION prescribe • If the void contract is still executory, no
need to bring an action; but if one party
brings action to enforce it, nullity can be
IN SUM: Characteristics of a Void Contract: set up as defense
• The contract produces no effect • Power to ask for declaration of a
whatsoever either against or in favor of nonexistent contract – can’t be assigned
CONTRACTS THAT ARE VOID: Art. 1412. If the act in which the unlawful or
forbidden cause consists does not constitute a
1. Those whose cause, object or purpose is
criminal offense, the following rules shall be
contrary to law, morals, good customs, public
observed:
order, or public policy:
(1) When the fault is on the part of both
A. When the act constitutes a criminal offense
contracting parties, neither may recover what
(illegality of cause or object)
he has given by virtue of the contract, or
Art. 1411. When the nullity proceeds from the demand the performance of the other's
illegality of the cause or object of the contract, undertaking;
and the act constitutes a criminal offense, both
(2) When only one of the contracting parties is
parties being in pari delicto, they shall have no
at fault, he cannot recover what he has given
action against each other, and both shall be
by reason of the contract, or ask for the
prosecuted. Moreover, the provisions of the
fulfillment of what has been promised him.
Penal Code relative to the disposal of effects or
The other, who is not at fault, may demand the
instruments of a crime shall be applicable to
return of what he has given without any
the things or the price of the contract.
obligation to comply his promise. (1306)
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 IN PARI DELICTO RULE
to comply with his promise. (1305)
1. BOTH parties at fault

• Neither party may recover what he has

IN PARI DELICTO RULE given by virtue of the contract
• Neither party may demand the
1. BOTH are in pari delicto
performance of the other’s undertaking
• No action against each other
2. ONLY ONE is guilty
• BOTH will be prosecuted
• RPC provision relative to the disposal of • INNOCENT PARTY may demand the
effects/instruments of a crime shall return of what he has given without
apply obligation to comply with his promise
• PARTY AT FAULT cannot recover what he
2. ONLY ONE is guilty
has given by reason of the contract
• INNOCENT PARTY may claim what he • PARTY AT FAULT cannot ask for the
has given fulfillment of what has been promised
• INNOCENT PARTY not bound to comply to him
with his promise • Not applicable to fictitious contracts
because they refer to contracts with an
B. Art 1412 When the act is unlawful but does
illegal cause or subject-matter (criminal
not constitute a criminal offense
offense OR only illegal), OR to contracts
 that are null and void ab initio. Fictitious Law, and not the entire interest paid, but
or simulated contracts don t have cause. interest on such excess from the time payment
is allowed. Furthermore, in this article, recovery
EXCEPTIONS TO THE IN PARI DELICTO RULE
is not limited to interest paid within the last 2
• General Statement of the Exception (Art yrs, hence the excess in all payments may be
1416): Agreement is not illegal per se, recovered.
but merely prohibited
● SO WHICH WOULD PREVAIL? Tolentino says
o Prohibition is designed for the
Usury Law provision:
protection of the plaintiff
o Plaintiff may recover what he paid or ● Because of irreconcilable differences with Art
delivered if public policy is enhanced 1961, 1957, and 1175, the intention of the Civil
o ILLEGAL PER SE- one that by universally Code cant be ascertained; it is the same as if
recognized standards is inherently or by there is no rule in the Civil Code on the recovery
its very nature bad, improper, immoral of Usurious interest. This leaves the Usury Law
or contrary to good conscience. as the only law that can be applied.

IN CASES OF USURY: ● Public policy favors the Usury Law. Policy is to

discourage usury. Allowing the debtor to
Usury Law limits his right to recovery of
recover the full amount of the usurious interest
usurious interest paid during the 2 years
paid and not only the excess over what the law
preceding the making of the claim. But where
permits will discourage usury. And limiting the
the only consideration is the usurious interest,
action to 2 yrs after payment of usurious
the entire consideration is illicit, the contract is
interest will encourage debtors to expose as
null and void, and the borrower may recover the
soon as possible the usurious transaction so
property conveyed, with its fruits.
they may still recover what they have paid as
interest.

Art. 1413 Interest paid in excess of the interest OTHER SPECIFIC EXCEPTIONS
allowed by the usury laws may be recovered by
a. Art 1414 When the PURPOSE is illegal and
the debtor, with interest thereon from the date
money is paid or property delivered therefore
of payment (n)
maybe repudiated by one of the parties before
This article, as opposed to Sec 6 of ct 2655 or the purpose has been accomplished OR before
the Usury Law (in such case that the person any damage has been caused to a 3rd person.
who paid usurious interest ―may recover the Courts may allow the party repudiating the
whole interest, commissions, premiums, contract to recover the money or property, if
penalties, and surcharges paid or delivered if the public interest will thus be subserved.
the action is brought within 2 yrs after such
b. Art 1415 When the CONTRACT is illegal and
payment or delivery, or in other words the
one of the parties is INCAPABLE of giving
whole usurious interest paid within the last 2
consent courts may allow recovery of
yrs preceding the action can be recovered under
money/property delivered by the
the Usury Law), allows the recovery only of the
excess over the interest allowed by the Usury
incapacitated person, if interest of justice so 2. Those which contemplate an impossible
demands service Art 1409 Par 5

c. Art 1417 When the amount paid exceeds the 3. Those where the intention of the parties
maximum fixed by law any person paying in relative to the principal object of the contract
excess of the maximum price may recover such cannot be ascertained Art 1409 Par 6
excess
4. Those expressly prohibited are declared void
d. Art 1418 When by virtue of contract a by law Art 1409 Par 7
laborer undertakes to work longer than the
maximum number of hours of work fixed by
law worked may demand additional Contracts that are INEXISTENT
compensation for service rendered beyond the
1. Those which are absolutely simulated or
limit
fictitious - Art 1409 Part 2 :
e. Art 1419 When a laborer agrees to accept a
Art 1345 Simulation of contracts may be
lower wage than that set by law entitled to
ABSOLUTE (parties do not intend to be bound at
recover deficiency
all) or
f. Art 1420 When the contract is divisible if
RELATIVE (parties conceal their true agreement)
illegal terms can be separated from legal ones,
(see discussion supra.)
enforce latter
Art 1346 Absolute or Fictitious: void
4. In case of doubt, contract is considered as
divisible or separable. • Those whose cause or object did not
exist at the time of the transaction - Art
EXCEPTIONS to Art 1420:
1409
1. Nature of contract requires indivisibility e.g.
The action or defense for the declaration of the
contract of compromise
inexistence of a contract
2. Intention of the parties is that the contract be
1. Art 1410 Does not prescribe, defect is
entire e.g. if what is void be the essential part,
permanent and incurable
void the entire contract. Divisibility will only be
2. Art 1421 Is NOT available to 3rd
followed when the nullity affects only the
persons whose interest is not directly
secondary or accessory obligations.
affected

*Ratification may take the form of a new

g. Art 1422 When the contract is the DIRECT contract, in which case its validity shall be
RESULT of a previous illegal contract also void determined only by the circumstances at the
and inexistent time of the execution of the new contract.
However, the same does not retroact to the
constitution of the first contract.
1. Those whose object is outside the commerce
of man Art 1409 Par 4