CONTRACTS
Article 1305 – 1317
General Provision
Article 1305. A contract is a meeting of minds between two persons whereby one binds himself, with
respect to the other, to give something or to render some service.
LEGAL DEFINITION OF CONTRACTS
Meeting of minds takes place when an offer by one party is accepted by the other.
Is it necessary that contract must be in writing?
- NO. Since contract is a meeting of minds so meaning it is not necessary that it is to be written.
Except: contracts that are required by the law to be written.
Contract
Contract is one of the sources of obligations
There can be no contract if there is no obligation.
Contract
All contracts are agreements.
Enforceable through legal proceedings
Obligation
Obligation is the legal tie or relation itself exists
after a contract has been entered into.
An obligation may exist without a contract since
there are still other sources of obligations (e.g.,
law, quasi-delicts)
Agreement
Not all agreements are contracts.
There are agreements which cannot be enforced in
an action in courts (e.g., watch a movie)
Stages in the life of a contract
1. Preparation or conception
- Preparatory step (happens which eventually leads to the perfection of the contract)
- Bargaining point (may nag-offer pero wala pang meeting of minds as to the subject matter
and the cause are considerations)
- Negotiation stage
2. Perfection
- Meeting of minds regarding the subject matter and the cause of the contract. (From the
moment that the parties come to an agreement regarding the terms of their contract.
3. Consummation
- Parties performed their respective obligations, and so the contract is put to an end.
Ex.
On December 1, Pogi offered to sell his car for 1M to Ganda. Ganda is still thinking. (Preparation)
On December 2, Ganda offered to buy Pogi’s car for 800k. Pogi agreed. (Perfection)
On December 3, Pogi delivered the car to Ganda and Ganda paid 800k. (Consummation)
Classification of Contracts
According to Perfection or Formation:
1. Consensual
- Perfected by mere agreement of the parties (i.e., sales, lease).
2. Real
- Requires not only the consent of the parties for their perfection, but also the delivery of the
object by 1 party to the other. (i.e., commodatum, deposit, pledge)
3. Formal/Solemn
- Requires some particular form (i.e., donation, chattel, mortgage)
According to Cause or equivalent vale of prestation:
1. Onerous
- Each of the parties aspires to procure for himself a benefit through the giving of an equivalent
or compensation (i.e., sale)
2. Gratuitous
- One of the parties proposes to give to the other a benefit without any equivalent or
compensation (i.e., commodatum)
3. Remunerative
- For service previously rendered
According to Degree of dependence:
1. Principal
- A principal contract is one which can subsist independently from other contracts and whose
purpose can be fulfilled by themselves (i.e., sales, lease).
2. Accessory
- An accessory contract is which can exist only as a consequence of, or in relation with,
another prior contract (i.e., pledge, mortgage).
3. Preparatory
- A preparatory contract is one which has for its object the establishment of a condition in law
which is necessary as a preliminary step towards the celebration of another subsequent
contract (i.e., partnership, agency).
According to parties obligated:
1. Unilateral
- A unilateral contract is one which gives rise to an obligation for only 1 of the parties (i.e.,
commodatum, gratuitous deposit, you rent a bike, you have an obligation to return that bike
afterwards).
- Though unilaterally made, it does not mean that only one of the parties will give their
consent.
2. Bilateral
- A bilateral contract is one which gives rise to reciprocal obligations for both parties (i.e., sale,
lease).
According to Name or Designation:
1. Nominate
- A nominate contract is one which has a name and is regulated by special provisions of law
(i.e., sale, deposit, agency, lease)
2. Innominate
- No specific name or designation in law
According to Subject Matter:
1. Involving things (i.e., sale, deposit, pledge)
2. Involving rights or credits (i.e., usufruct, assignment of credits)
3. Involving services (i.e., agency, leases of services)
According to Number of Person who participated in the drafting of contracts:
1. Ordinary (i.e., sales)
2. Contract of adhesion (i.e., insurance contract, real-estate contract)
- Provisions are drafted by only one party and the only participation of the party is to sign his
name, his signature or his adhesion to the contract.
According to certainty or fulfillment
1. Commutative – contracting parties contemplate the assured fulfillment of the terms and
conditions of their agreement, and there is no risk to anticipate (i.e., contracts of mortgage and
pledge)
2. Aleatory - where the fulfillment is dependent on chance or event which may not happen within
the period stipulated, and the loss contemplated may not happen. (i.e., insurance contract)
According to completion or performance
1. Executed - contracts that are already completed when formally entered into (i.e., sale of a thing)
2. Executory - contracts, where the prestation promised by the parties, has yet to be fulfilled at some
future date (i.e., a unilateral promise to sell which has been accepted, but the sale is not yet
executed)
Article 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as
they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or
public policy.
FREEDOM TO STIPULATE/AUTONOMY OF WILL/PRINCIPLE OF FREEDOME/PRINCIPLE OF
AUTONOMY OF CONTRACTS
The right to enter into contracts is one of the liberties guaranteed by the constitution.
General Rule: Parties are free to stipulate anything.
Except: if they are contrary to law, morals, good customs, public order or public policy.
Article 1307. Innominate contracts shall be regulated by the stipulations of the parties, by the provisions
of Titles I and II of this Book, by the rules governing the most analogous nominate contracts, and by the
customs of the place.
WHAT WILL GOVERN INNOMINATE CONTRACTS?
Nominate contracts such as sales, pledges or loans are governed by contracts of sales, contract of pledges
and contract of loans, respectively.
Innominate contracts are contracts without specific name or designation in law.
Innominate contracts shall be governed by:
1.
2.
3.
4.
Stipulations of the parties
Provisions of Title I and II (Law on Obligation and Contracts)
Rules governing the most analogous (similar, identical, congruent) nominate contracts
Customs of the place
Four kinds of Innominate contracts
1.
2.
3.
4.
Do ut des (I give that you may give)
Do ut facias (I give that you may do)
Facio ut des (I do that you may give)
Facio ut facias (I do that you may do)
Article 1308. The contracts must bind both contracting parties; its validity or compliance cannot be left to
the will of the one of them.
PRINCIPLE OF MUTUALITY OF CONTRACTS
Both parties are bound meaning the principle is based on the equality of the parties. Contract should not
be left or depends upon the sole discretion of one party, both parties should have the same footing.
Dapat lahat magdedecide at lahat may-say. May mutual consent.
Ex. Pogi agreed to sell his car to Ganda. Ganda agreed to pay 1M. The contract is binding between Pogi
and Ganda.
If it stipulated in the contract that Pogi ALONE will determine/adjust the price of the car, and Ganda has
no right to negate Pogi’s decision, it VIOLATES THE MUTUALITY OF CONTRACTS.
Bad bargain in itself does not necessarily violates Mutuality of Contracts.
Article 1309. The determination of the performance may be left to a third person, whose decision shall
not be binding until it has been made known to both contracting parties.
EXCEPTION TO THE PRINCIPLE OF MUTUALITY OF CONTRACTS
Pwedeng si third person ang mag-determine ng payment or performance pero magiging binding lang yung
determination na ginawa ni third person after niyang ipaalam sa contracting parties.
Ex. Pogi sold his land to Ganda. They agreed that Beauty, a third person and a real estate appraiser, will
determine the price of the land.
This determination of Beauty will only be binding when she has made it known to Pogi and Ganda.
Article 1310. The determination shall not be obligatory if it is evidently inequitable. In such case, the
courts shall decide what is equitable under the circumstances.
EXCEPTIONS TO THE THIRD PERSON’S DETERMINATION
Yung decision ni third person ay hindi binding if yung determination is evidently inequitable or unjust.
Kasi baka yung third person acted on bad faith. Kapag ganon, yung court na ang magdedecide.
Article 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where
the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation
or by provision of law. The heir is not liable beyond the value of the property he received from the
decedent.
If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment
provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit
or interest of a person is not sufficient. The contracting parties must have a clearly and deliberately
conferred a favor upon a third person.
PRINCIPLE OF RELATIVITY OF CONTRACTS
Principle of Relativity/ General Rule: The contracts are generally effective only between the parties, their
assigns and heirs provided that they are transmissible.
Exceptions: In case where the rights and obligations arising from the contract are not
transmissible by their nature, or by stipulation or by provision of law
Ex. Pogi owed Ganda 1M. (Meaning they are the parties and the contract will only take effect between
them.)
- If Ganda dies, Pogi will give his payment to Ganda’s Heirs.
- If Pogi dies, the Heirs of Pogi will pay Ganda 1M.
Provided that there are properties of Pogi which can be used as a payment to Ganda worth 1M, then it can
be used as a payment.
Kung sobra naman yung worth ng property na naiwan ni Pogi don sa utang niya kay Ganda which is 1M,
then pwedeng bayaran muna nila si Ganda then tsaka nila hati-hatiin yung property.
Pero kung kulang yung value nung property na naiwan ni Pogi don sa utang niya kay Ganda which is 1M,
then hindi na liable ang heir beyond the value of the property na na-receive niya sa decedent (namatay)
dahil WALANG UTANG NA NAMAMANA. Pero yung namanang property galing sa namatay na tao,
pwede pa yung ipambayad don sa naiwang utang nung namatay. (-money debts are not directly
chargeable to the heirs. (chargeable to the estate of the deceased person)
Exceptions:
1. Not transmissible by their nature
- Ex. A was to paint for B, but B died. The obligation is not transmissible by nature. Hindi
pwedeng heirs na lang ang magpaint para kay B.
2. Not transmissible by stipulations
- Kapag nasa-usapan or stipulated ng both parties na yung obligation is not transmissible sa
heirs nila at between sa kanila lang talaga.
3. Not transmissible by provision of law
- Ex. Pogi and Ganda formed a partnership. If Pogi dies, the partnership becomes extinguished
therefore hindi namamana at hindi transmissible sa heir ni Pogi.
Dahil nga relativity, sila lang ang may rights and obligations under their contract. Sa kanila lang effective
yung contract. Yan yung ibig sabihin ng Principle of Relativity. Yung parties lang, hindi kasama ang
hindi PRIVY (like stranger/ third person) to the contract. Therefore, strangers cannot demand
enforcement of the contract.
Ex. A sold her car to B with an agreement not to sell it to others until full payment. Later on, B, even
though he is still not fully paid to A, sold the car to C, in violation to the agreement.
Analysis:
Can A cancel the contract entered into by B and C?
- No. Since A is not a party to the agreement between B and C. The same way that C is not party
to the agreement between A and B.
What is the possible remedy of A?
- A can claim damages against B for breach of contract.
Ex. A leased his property to B with an agreement that they will prohibit sub-lease. B, in violation of the
leased contract, subleased property to C (part of inupahan ni B, pinarentahan niya rin kay C).
Analysis:
A goes to court to rescind the leased contract. Can C oppose?
- NO. Since C is not part of the leased contract binding A and B. The same way that A is not
bound by the leased contract between B and C.
What is the possible remedy of C?
- C can proceed against B.
EXCEPTION TO THE PRINCIPLE OF RELATIVITY OF CONTRACTS
1.
2.
3.
4.
Stipulation pour autrui (A1311, 2nd paragraph)
Third person is bound by contracts creating real rights (A1312)
Right of defrauded creditors under (A1313)
Contract is violated through inducement by third person (A1314)
Stipulation pour autrui is a stipulation in favor of third-person made by the contracting parties with a
clear and deliberate intention of conferring a favor upon that third person.
Stipulation pour autrui requisites:
1.
2.
3.
4.
There must be a stipulation in favor of a third person
The contracting parties must have clearly and deliberately conferred a favor to the third person
The stipulation should be a part and not the whole of the contract or the contract itself
The third person must have communicated his acceptance to the obligor before its revocation the
obligee or the original parties
5. Neither of the contracting parties bears the legal representation or authorization of the third party
for otherwise the rules on agency will apply.
Ex. Pogi owes Ganda 10,000 with an interest of 12% payable on December 25. The 12% will be given to
Beauty, a third person.
Analysis:
Beauty should communicate her acceptance to Pogi and Ganda otherwise she will not be entitled to the
benefit of the contract. The moment Beauty communicated her acceptance, she becomes a party of the
contract.
Article 1312. In contracts creating real rights, third persons who come into possession of the object of the
contract are bound thereby, subject to the provisions of the Mortgage Law and the Land Registration
Laws.
THIRD-PERSON IS BOUND BY CONTRACTS CREATING REAL RIGHTS
Ex. Pogi mortgages his land to Ganda as a security for his debt. This is actually registered in the registry
of his property. Since he is still the owner of the property, after he mortgaged the land to Ganda, he sold
the same land to Beauty. In this case, we know that the land has encumbrance since this has a mortgage in
favor of Ganda.
Kahit hindi party si Ganda sa contract between Pogi and Beauty, dahil merong pre-existing contract of
mortgage which is actually a real rights dahil naka register siya sa registry of property, then Beauty will
be bound by the contract between Pogi and Ganda. Kailangang i-respeto ni Beauty yung right ni Ganda
over the mortgage according to A1312.
Article 1313. Creditor are protected in cases of contracts intended to defraud them.
RIGHT OF DEFRAUDED CREDITORS
It refers to the right of the creditor to impugn (question, challenge) contracts intended to defraud them.
When a third person can interfere with another contract.
Ex. Pogi owes Ganda 1M. Pogi owns a property and since he doesn’t want it to be attached to him as this
could be used as a payment, he donated his only property to Beauty.
Analysis: Since Ganda became a defrauded creditor, she has the right to impugn the contract between
Pogi and Beauty although she is not a party to that contract. She is given by the law the right to ask for
rescission or cancellation of that donation in order that she may be paid.
Article 1314. Any third person who induces another to violate his contract shall be liable for damages to
the other contracting party.
CONTRACT IS VIOLATED THROUGH INDUCEMENT BY A THIRD PERSON
The contracting party/ Injured party has the right to claim damages against that person who induces.
Action can be filed against a third person in view of his unwarranted interferences. So, whoever is injured
may sue for damages and claim for damages.
Induce refers to situations where a person causes another to choose one course of conduct by persuasion
or intimidation.
Ex. Ganda is a movie actress who has a one-year contract with 123 Studio. If Beauty, a friend of Ganda,
induces Ganda without any justifiable cause to break the contract then 123 Studio can sue Beauty for
damages.
Analysis:
Although wala namang contract binding between 123 Studio and Beauty, pero dahil Beauty induces
Ganda to violate her contract, in accordance to A1214, 123 Studio, being the injured party, can sue
Beauty and claim damages.
A third person is not liable when sufficient justification for interference or inducement can be shown.
Article 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not
only to the fulfillment of what has been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage and law.
PRINCIPLE OF CONSENSUALITY OF CONTRACTS
Principle of Consensuality of Contracts - Perfection of contracts by mere consent of the parties regarding
the subject matter or the object of the contract and the cause of the contract.
COC  Consent as to the Object and to the Cause of the contract
Signing is not generally a legal requirement in entering into a contract.
How contracts are perfected?
General Rule: Principle Consensuality of Contracts
Exceptions:
Real Contracts – delivery is needed
Formal Contracts – requires a specific form or specific documents
Consequence of perfection of contract
1. The parties will be bound first to the fulfillment of what has been expressly stipulated
2. The parties will also be bound to the consequences which, according to their nature, may be in
keeping with good faith, usage and law.
Article 1316. Real Contracts, such as deposit, pledge and commodatum are not perfected until the
delivery of the object of the obligation.
REAL CONTRACTS
Ang general rule is: contracts is perfected by mere consent. This provision talks about the exception sa
general rule na ito. Meaning, hindi lang mere consent ang kailangan para maging perfected ang contract.
Yung perfection ng contract not only requires consent but also the delivery of the object of the obligation.
On June 1, Pogi borrowed money from Ganda, worth 10,000 with a promise that Pogi will give his
diamond rings to Ganda as a security for the loan on June 15. Before June 15, Ganda gave the 10,000 to
Pogi.
Is the contract of pledge perfected?
-NO, because in a contract of pledge, the perfection is only upon the delivery of the object pledge
which is the diamond ring.
Article 1317. No one may contract in the name of another without being authorized by the latter, or unless
he has by law a right to represent him.
A contract entered into in the name of another by one who has no authority or legal representation, or who
has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the
person on whose behalf it has been executed, before it is revoked by the other contracting party.
UNENFORCEABLE CONTRACTS
Unauthorized contracts or contracts entered into without the authority of the principal are unenforceable
contracts.
Ex. Ganda owns a car. Pogi sold Ganda’s car to Beauty in the name of Ganda but without being
authorized. Being unauthorized meaning it is an unenforceable so it is not valid.
Requisites for a person to contract in the name of another: pwedeng maging valid if:
1. He must be authorized (expressly or impliedly)
2. He must have by law, a right to represent him
3. The contract must be subsequently ratified (express or implied)
Ex. Ganda owns a car. Pogi sold Ganda’s car to Beauty in the name of Ganda but without being
authorized. Later on, Ganda collected the payment from Beauty. (This has been ratified)
4. He must act within his power
Ratification cleanses the contract from its defects.
Article 1325. Unless it appears otherwise, business advertisements of things for sale are not definite offer,
but mere invitations to make an offer.
Are business advertisements a definite offer? It depends.
If it appears to be a definite offer containing all the specific particulars needed in a contract then it is a
definite offer.
One can know if it is a definite offer if all the specific particulars needed in the contract are included.
If it does not appear to be a definite offer, then it is just a mere invitation to make an offer.
Ex. DEFINITE OFFER
FOR SALE: 100 Square Meter Lot, with 2-storey house located at 123 ABC St., Malate, Manila for Php
10,000,000 cash.
Ex. MERE INVITATION TO MAKE AN OFFER
FOR SALE: 100 Square Meter Lot, at 10 million to 20 million a lot at 123, ABC St., Malate, Manila
Article 1326. Advertisements for bidders are simply invitations to make proposals, and the advertiser is
not bound to accept the highest or lowest bidder, unless the contrary appears.
Advertisements for bidders are generally not a definite offer. They are just simply invitations to make a
proposal.
In reality, ang gumagawa talaga ng offer ay yung mga bidder.
Advertisers are free to accept or to reject. Para magkaroon ng contract, kailangan i-accept ni advertiser
yung proposal or offer nong bidders.
Advertisements are simple invitations to make proposal since not all specific particulars can be included
in the advertisement therefore it is not a definite offer.
General Rule: Advertisements are simple invitations unless the contrary appears.
DEFECTIVE CONTRACTS
Rescissible Contracts – it is actually a valid contract since all essential requisites of a contract exist but for
some reason (economic injury or damage to one of the parties or to a third person), the contract may be
rescinded.
Voidable Contracts – valid until annulled contracts unless there is ratification.
Unenforceable contracts – cannot be ma-enforced unless ratified
Void Contracts – or inexistent contracts; absolutely null and void. Contracts that have no effect at all and
cannot be ratified. (Most defective)
These four types of defective contracts are arranged from less serious to the most serious defects.
Article 1380. Contracts validly agreed upon may be rescinded in the cases established by law.
RESCISSIBLE CONTRACT
Rescissible contracts are contracts in which all essential requisites exist therefore legally effective.
However, one party is given the remedy to rescind the contract because of an economic injury or damage
to him or to a third person.
The purpose of a rescissible contract is to secure reparation of the damage caused by a valid contract
especially if the enforcement of that contract would cause injustice.
Requisites:
1. The contract must be validly agreed upon (A1380)
2. There must be lesion or pecuniary prejudice or damage to one of the parties or to a third person
(A1381)
3. The rescission must be based upon a case especially provided by law (A1380, 1381, 1382)
4. There must be no other legal remedy to obtain reparation for the damage
5. The party asking for rescission must be able to return what he is obliged to restore by reason of
the contract
6. The object of the contract must not legally be in the possession of third persons who did not act in
bad faith
7. The period for fi ling the action for rescission must not have prescribed
Article 1381. The following contracts are rescissible:
1. Those which are entered into by guardians whenever the wards whom they represent suffer lesion
by more than one-fourth of the value of the things which are the object thereof;
Ward – person under guardianship because he is incapacitated (e.g., minors)
Lesion - is any damage caused by the fact that the price is unjust or inadequate.
Ex. Pogi is the guardian of Ganda, a minor. Pogi sold the 1 million worth property of Ganda for
only 800,000.
Analysis: Lesion is NOT more than one-fourth of the value, hence cannot be rescinded.
Ex. Pogi is the guardian of Ganda, a minor. Pogi sold the 1 million worth property of Ganda for
only 500,000.
Analysis: Lesion is more than one-fourth of the value, hence can be rescinded.
2. Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the
preceding number; [same situation pero ang pinagkaiba, and nirerepresent dito are absentees
(person who disappears from his or her domicile and his whereabouts being unknown without
leaving an agent to administer his property)]
Rule: if the absentee suffers a lesion by more than one-fourth of the value of the property which is
the object of the contract then it entitles the absentee the remedy of rescission.
General Rule: Lesion does not invalidate a contract.
Exceptions: lesion will invalidate a contract:
1. There has been a fraud, mistake, or undue influence
2. In cases specified by law
3. Those undertaken in fraud of creditors when the latter cannot in any other manner collect the
claims due them;
Accion Pauliana – the creditor has the right to rescind contract that is intended to defraud them
Ex. Pogi owes Ganda 1M. To defraud Ganda, before his obligation becomes due and demandable,
in fraud of Ganda, Pogi sold his only property to Beauty.
Analysis: Ganda may rescind the contract between Pogi and Beauty, being rescissible contract.
This could only happen if there are no other ways for Ganda to collect the payment from Pogi.
4. Those which refer to the things under litigation if they have been entered into by the defendant
without the knowledge and approval of the litigants or of competent judicial authority;
Ex. Pogi files a case against Ganda for the recovery of a diamond ring. Pending the case, Ganda
sold the said diamond ring to Beauty without the approval of Pogi and the court.
Analysis: The sale of diamond ring by Ganda in favor of Beauty is a rescissible contract, which
can be rescinded.
Dapat yung bagay or thing which is under litigation or may pending case from the moment na nareceive nung defendant (Ganda) yung summons na may case na finile si plaintiff (Pogi) against sa
kaniya for the recovery of the diamond ring, that is already considered as in litigation na yung
diamond ring, so if ever binenta niya yun, that contract is rescissible.
5. All other contracts specially declared by law to be subject to rescission.
Article 1382. Payments made in a state of insolvency for obligations to whose fulfillment the debtor could
not be compelled at the time they were effected, are also rescissible.
PREMATURE PAYMENT MADE IN THE STATE OF INSOLVENCY
Requisites:
1. Debtor paid in a state of insolvency (not needed to be judicially declared as insolvent but the
debtor must be insolvent)
2. Obligation is not yet due and demandable.
Payment made in insolvency tapos nagbayad ka kahit hindi pa naman due and demandable, it is
rescissible. Hindi exclusive sa rescissible contracts dahil ang rescissible dito ay yung payment.
Article 1383. The action for rescission is subsidiary; it cannot be instituted except when the party
suffering damage has no other legal means to obtain reparation for the same.
RESCISSION IS A SUBSIDIARY REMEDY
Rescission is not actually a principal remedy but subsidiary. Meaning, maa-avail mo lang siya kapag yung
injured party has no other legal means for seeking reparation for the damages.
Dapat no choice na for reparation, tsaka pa lang magrerescind.
Article 1384. Rescission shall be only to the extent necessary to cover the damages caused.
EXTENT OF RESCISSION
The extent of rescission is hindi naman talaga entirely marerescind yung contract, it will only rescind up
to the extent necessary to cover the damage. The contract need not be set aside kaagad in its entirety by
rescission if the damages can be covered by partial rescission.
Article 1385. Rescission creates the obligation to return the things which were the object of the contract,
together with their fruits, and the price with its interest; consequently, it can be carried out only when he
who demands rescission can return whatever he may be obliged to restore.
Neither shall rescission take place when the things which are the object of the contract are legally in the
possession of third persons who did not act in bad faith.
In this case, indemnity for damages may be demanded from the person causing the loss.
MUTUAL RESTITUTION
Rescission creates an obligation of mutual restitution.
General Rule: The plaintiff or complainant who demands rescission must be able to return what has been
received by virtue of that rescissible contract. It also includes the fruits and interests.
Exception: Hindi mo na makukuha yung bagay
1. Kapag yung bagay is in legal possession na nung tao who did not act on bad faith; meaning in
legal possession of a person who acted in good faith. Kapag ganon, ang remedy is indemnity for
damages na lang ang i-dedemand from that guilty person.
Ex. In fraud of Pogi’s creditor, he sold his land in favor of Ganda. Ganda is already in legal possession of
the land.
Analysis:
If there are no other legal means found to exact satisfaction of the credits except this contract with Ganda,
may the sale in favor of Ganda be rescinded?
- It depends whether Ganda is in Good Faith or in bad faith.
- If Ganda is in good faith (not in bad faith) and since she is already in legal possession of the
land, then her right is protected and the third person can only claim indemnification for damages.
- If Ganda acted in bad faith, the contract of sale between Ganda and Pogi can be rescinded.
If the creditor cannot rescind the contract, what is their remedy?
- Indemnity for damages may be demanded from the person causing the loss.
Article 1386. Rescission referred to in Nos. 1 and 2 of Article 1381 shall not take place with respect to
contracts approved by the courts.
Contracts that are rescissible entered by guardians and representative in favor of the wards and absentees,
respectively then lesion occurred by one-fourth of the value of the property.
Kapag ganon and approved naman ng courts yung contracts or merong judicial approval, hindi na
pwedeng ma-rescind. Hindi magpoprosper ang case for rescission.
Article 1387. All contracts by virtue of which the debtor alienates property by gratuitous title are
presumed to have been entered into in fraud of creditors, when the donor did not reserve sufficient
property to pay all debts contracted before the donation.
Alienations by onerous title are also presumed fraudulent when made by persons against whom some
judgment has been rendered in any instance or some writ of attachment has been issued. The decision or
attachment need not refer to the property alienated, and need not have been obtained by the party seeking
the rescission.
In addition to these presumptions, the design to defraud creditors may be proved in any other manner
recognized by the law of evidence.
PRESUMPTION OF FRAUD – GRATUITOUS ALIENATION
This provision establishes Presumption of Fraud
1. In case of gratuitous alienation
2. In case of onerous alienation
Alienation – alienating the property or transfer of property from the owner to the other person.
Magkakaroon ng presumption of fraud in case of gratuitous alienation.
Gantuitous kapag walang exchange or free of charge. Magkakaroon ng presumption of fraud
(presumption na it was done to defraud the creditors) kapag si donor hindi nag reserve ng sufficient
property to pay all the debts contracted before the donation.
Dinonate mo lahat kahit alam mong meron kang kailangang bayarang utang. It is presumed that your
donation of those properties is fraudulent (to defraud yung mga inutangan mo)
Ex. Pogi donated his entire properties to Ganda. Before his donation, Pogi incurred debts, previously.
Without reserving any for the payment of his debts.
Analysis:
- The donation is presumed in fraud of his creditors because Pogi didn’t reserve sufficient
property to pay all his debts. Since this is a presumption, it can be proven otherwise, but the burden is on
the donor.
Ex. Pogi donated his entire properties to Ganda without reserving any for the payment of his debts. Later
on, Pogi incurred debts.
Analysis:
- Article 1387 is not applicable since his debts has been incurred after his donation. According to
1387, when the donor did not reserve sufficient property to pay all debts contracted BEFORE the
donation.
PRESUMPTION OF FRAUD – ONEROUS ALIENATIONS
Magkakaroong presumption of fraud or presumption that that transaction was made to defraud creditor
when made by persons against whom judgment has been rendered in any instance or some writ of
attachment has been issued.
Meron ng judgment or some writ of attachment has been issued tapos binenta mo pa rin yung property
mo, it will be presumed that it was done fraudulently or to defraud your creditors.
Ex. After judgment has been rendered against Pogi, Pogi sold his property to Ganda.
Is the Sale presumed fraudulent?
- YES, the sale is presumed fraudulent because it was made after a judgment has been issued
against Pogi.
Ex. Pogi sold his property to Ganda. After that, a judgment has been rendered against Pogi.
Is the sale presumed fraudulent?
- No presumption that the sale is fraudulent since the sale happened before the judgment has been
issued. Pagkatapos pa lang ibenta, tsaka pa lang nag-render ng judgement.
The decision or attachment need not refer to the property alienated.
Ex. Creditor file a case against Pogi (debtor), and obtained favorable judgment. After judgment, Pogi sold
his property to Ganda. Beauty, another creditor of Pogi, wants to rescind the contract of sale between Pogi
and Ganda.
Pogi and Ganda claimed that Beauty has no right to rescind their contract, afterall, hindi naman siya yung
creditor na nagfile ng case who obtained a favorable judgment against Pogi.
Is Pogi and Ganda’s claim correct?
NO, their claim is not justified because, yes the judgment creditor is different to Beauty, but
according to A1387, the decision or attachment need not refer to the property alienated, and need
not have been obtained by the party seeking the rescission.
Article 1388. Whoever acquires in bad faith the things alienated in fraud of creditors, shall indemnify the
latter for damages suffered by them on account of the alienation, whenever, due to any cause, it should be
impossible for him to return them.
If there are two or more alienations, the first acquirer shall be liable first, and so on successively.
EFFECT OF BAD FAITH
A property has been alienated to defraud the creditor by transferring or donating the property in favor of a
third person. If that third person acted on a bad faith, what is its effect?
1. Indemnify the damages suffered if it is impossible for him to return the thing or property due to
any cause even if it is fortuitous event. (Liable pa rin siya no matter what is the cause of loss kung
hindi niya mababalik ang property)
2. Subsequent transfer, yung unang nakabili nung property which was transferred or sold to defraud
the creditors and if he is in bad faith then the next transferee is liable if he also acted in bad faith.
Ex. In fraud of his creditors, Pogi sold his property in favor of Ganda. Ganda is also in bad faith.
After Ganda acquired the property, she also transfers the property in favor of Beauty. Later, the
defrauded creditors file for rescission of the contract, and the contract was rescinded but the
property was damaged so it cannot be returned.
Who is liable to pay for damages if it became impossible to return the property?
- According to A1388, the purchaser in bad faith will be liable to pay for the damages therefore
it is Ganda who is the first to be liable. If she cannot pay the damages, then the subsequent
transferee will be liable which is Beauty.
Article 1389. The action to claim rescission must be commenced within four years.
For persons under guardianship and for absentees, the period of four years shall not begin until the
termination of the former’s incapacity, or until the domicile of the latter is known.
FOUR YEAR PERIOD TO RESCIND CONTRACT
From the date of the fraudulent transaction, meron kang four years to file for rescission.
In case naman sa mga minor, upon reaching maturity, doon magsisimula ang four years.
Doon kay absentee, sa pag balik niya na kapag nalaman niya na na binenta and that he suffered lesion for
more than one-fourth of the value of his property. From the moment na nalaman niya, he has four years
from that to rescind the contract.
Article 1390. The following contracts are voidable or an-nullable even though there may have been no
damage to the contracting parties:
1. Those where one of the parties is incapable of giving consent to a contract;
2. Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.
These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of
ratification.
VOIDABLE CONTRACTS
Voidable contracts are valid until annulled. The defect lies in the consent, which is either one party is
incapable of giving consent or the consent is vitiated. These two are grounds for annulment.
These contracts are binding unless annulled but they can only be annulled by means of proper action in
court. The voidable contract can also be ratified.
Rescission
The basis is lesion or damage
Defect is external or intrinsic (damage or
prejudice it caused)
The action is subsidiary
To prevent rescission, ratification is not required
Annulment
The basis is vitiated consent or incapacity to
consent
Defect is intrinsic (meeting of minds)
The action is principal
To prevent annulment, ratification is required
Article 1391. The actions for annulment shall be brought within four years.
The period shall begin:
In cases of intimidation, violence or undue influence, from the time the defect of the consent ceases.
In case of mistake or fraud, from the time of the discovery of the same.
And when the action refers to contracts entered into by minors or other incapacitated persons, from the
time the guardianship ceases.
FOUR YEAR PERIOD TO ANNUL CONTRACT
This provision gives a prescriptive period which is four years to file annulment for the contract. If the
action has prescribed, meaning tapos na yung four years and hindi nag-file yung injured party ng case for
annulment for that contract then the contract can no longer be set aside, therefore valid na talaga siya.
Kapag nagkaroon ng vitiated consent dahil sa intimidation, violence or undue influence, yung four years
ay magsisimula from the time the defect of the contract ceases or kung kailan natigil yung intimidation,
violence or undue influence, pwede mo na ipa-annulled.
In case of mistake or fraud, from the time na nadiscover mo yung mistake or fraud, pwede mo na ipaannul.
Kapag minor or incapacitated person, from the time na hindi na sila incapacitated or upon the reach of
maturity, or legal age pwede na nila ipa-annul yung contract.
Ex. Pogi was intimidated into signing a contract on January 1, 2020. The intimidation continued until
December 1, 2020.
From what time should we compute the four-year period for annulment of contract?
- From December 1, 2020, when intimidation ceases.
Ex. January 1, 2020, Pogi and Ganda entered into a contract. On January 1, 2021, Ganda discovers the
fraud employed by Pogi in seeking her consent for the contract.
From what time should we compute the four-year period for annulment of contract?
- Four years from January 1, 2021, when fraud was discovered, the action for annulment should
be filed otherwise her right to sue for annulment will prescribe.
Article 1392. Ratification extinguishes the action to annul a voidable contract.
Ratification – despite knowing na may defect yung contract, you still approved the contract. Your
intention is to be bound by the contract kahit na alam mo na pwede mo sanang ipa-annul.
Kapag na-ratify na, hindi na pwedeng ma-annul.
Ratification cleanses a contract from all its defects from the moment it was constituted because the action
to annul was extinguished.
Ratification could be made expressly or impliedly.
Ex. Pogi, a minor, bought a land. Upon reaching the age of majority, he sold the land to Beauty. Can the
contract be annulled?
Analysis: Dito hindi na siya pwedeng mag-file ng action to annul the contract kasi there is already
implied ratification kasi binenta niya na kay Beauty. The action to file for annulment of contract was
extinguished.
Ex. Pogi, a minor, bought a land. Upon reaching the age of majority, he collected the unpaid balance.
Analysis: It is as if he waived his right to file an action for annulment, meaning he ratified the contract.
Article 1393. Ratification may be effected expressly or tacitly. It is understood that there is a tacit
ratification if, with knowledge of the reason which renders the contract voidable and such reason having
ceased, the person who has a right to invoke it should execute an act which necessarily implies an
intention to waive his right.
RATIFICATION COULD BE MADE EXPRESSLY OR IMPLIEDLY
Ratification expressly made – manifested in words or in writing
Ratification impliedly made – from the act or conduct which implies that he is waiving his right to file an
action for annulment
Article 1394. Ratification may be effected by the guardian of the incapacitated person.
GUARDIAN MAY RATIFY
Halimbawa, ang nag enter into contract ay yung incapacitated person, at dahil nga incapacitated pa siya,
ang pwedeng mag-ratify is his guardian on his behalf dahil hindi pa siya pwedeng magbigay ng consent.
Pwede ring ang injured party ang magratify, pero kailangan mag-cease muna yung cause kung bakit
naging voidable yung contracts (intimidation, violence, kung minor dapat reach the age of maturity etc.)
Article 1395. Ratification does not require the conformity of the contracting party who has no right to
bring the action for annulment.
Yung guilty party, yung consent niya hindi na kailangan. Sa ratification, ang kailangan lang talaga is yung
pag-ratify ni injured party (either yung incapacitated person o yung person whose consent was vitiated)
Article 1396. Ratification cleanses the contract from all its defects from the moment it was constituted.
It has a retroactive effect, so kung ngayon mo siya ni-ratify pero yung contract was entered way before
January 2020 pa, the effect of ratification is to make that contract valid from inception (from the time it
was constituted) subject to prior rights of third parties.
Article 1397. The action for the annulment of contracts may be instituted by all who are thereby obliged
principally or subsidiary. However, persons who are capable cannot allege the incapacity of those with
whom they contracted; nor can those who exerted intimidation, violence, undue influence, or employed
fraud, or caused mistake base their action upon these flaws of the contract.
WHO CAN FILE FOR ANNULMENT?
Only the injured party or the victim can file for annulment.
He can be the principal or subsidiary party but not the guilty party (the one who executed intimidation,
violence, fraud etc.). The guilty party has no right to bring an action for annulment.
General Rule: The action for annulment of contracts can only be maintained by the parties who are either
principally or subsidiary bound by the contract.
Exception: The person who is not oblige principally or subsidiary in a contract may exercise and action
for nullity of the contract if:
1. He is prejudiced in his rights with respect to one of the contracting parties
2. He can show detriment which could possibly result to him from the contract in which he had
no intervention.
Article 1398. An obligation having been annulled, the contracting parties shall restore to each other the
things which have been the subject matter of the contract, with their fruits, and the price with its interest,
except in cases provided by law.
In obligations to render service, the value thereof shall be the basis for damages.
EFFECT OF ANNULMENT
If yung contract ay hindi pa na-cocomply, then it’s as simple as the parties are excused from performing
their obligation (wala silang gagawin)
If there is compliance, then magkakaroon ng mutual restitution. Ibabalik ang (1) thing with fruits at (2)
price with interests. (These are in cases of real obligation)
Kapag naman personal obligation, ang magiging basis ay yung value ng service para sa damages.
Ex. If it is a contract of sale then yung contract of sale was annulled dahil nagkaroon ng vitiated consent.
Kapag nagkaroon na ng delivery and payment (compliance), yung seller dapat ibalik yung purchase price
with interest and si buyer dapat niyang ibalik yung thing with its fruits.
Article 1399. When the defect of the contract consists in the incapacity of one of the parties, the
incapacitated person is not obliged to make any restitution except insofar as he has been benefited by the
thing or price received by him.
NO RESTITUTION FOR INCAPACITATED PERSON
General rule: No restitution by the injured party if the reason is incapacitated to give consent. (Yung party
who is incapacitated to enter or give consent ay hindi obliged to make mutual or any restitution)
Exception:
Only insofar as he has been benefited by the thing or price received by him
This article only applies if the defect is because one of the contracting parties is incapacitated to give
consent.
Itong si capacitated person has the burden of showing na nagkaroon ng benefit si incapacitated person.
Yung incapacitated person naman kung nasa kaniya pa yung property then pwede niya namang ibalik.
Article 1400. Whenever the person obliged by the decree of annulment to return the thing can not do so
because it has been lost through his fault, he shall return the fruits received and the value of the thing at
the time of the loss, with interest from the same date.
The effect of annulment was restitution (restore the thing and the price). Pero paano kapag hindi na mareturn and it was because it has been lost through his fault?
Irereturn na lang yung fruits na na-receive niya and yung value nung bagay at the time of loss, with
interest from the same date.
Yung value of the thing with interest substitutes the thing itself that was lost.
Ex. Pogi forced Ganda to sell her house and lot to him. After intimidation, Ganda brought an action for
annulment of contract. The contract was then annulled on the ground of intimidation. So Pogi was ordered
by the court to return to Ganda what he has received, but the house was already destroyed due to his fault.
Pogi should return the following:
1. The fruits or the rentals he may received from the time the house was given to him until the house
was destroyed
2. The value of the house at the time of lost
3. The interest of the value of the house at the time of the lost.
Article 1401. The action for annulment of contracts shall be extinguished when the thing which is the
object thereof is lost through the fraud or fault of the person who has a right to institute the proceedings.
If the right of action is based upon the incapacity of any of the contracting parties, the loss of the thing
shall not be an obstacle to the success of the action, unless said loss took place through the fraud or fault
of the plaintiff.
EXTINGUISHMENT OF ACTION FOR ANNULMENT
Hindi na pwedeng magfile ng case for annulment if:
1. The action for annulment shall be extinguished only if the loss was through his fault or fraud.
(Yung person who has the right to institute an action for annulment ay hindi na kayang i-restore
yung bagay that he will be obliged to return once the contract is annulled since he lost that thing
through his own fault or fraud. So, his right to annul the contract is extinguished.)
2. Ma-eextinguish din ang right ni contracting party to file a case for annulment of the contract if the
lost took place through the fault or fraud of the plaintiff.
Ex. Pogi was forced to sign a contract with Ganda, granting Pogi a house. Pogi destroyed the house given
to him.
May Pogi still bring the action for annulment of that contract?
- NO, since Pogi’s act of destroying the house extinguishes his right to file for annulment of contract.
Ex. Ganda sold her house to Pogi, who is a minor. The house was destroyed due to a fortuitous event.
May Pogi still annul the contract as to recover from Ganda the payment with interest which he paid to
her?
-YES, since the lost of the thing was through fortuitous event therefore, he is not guilty of fraud and it
was not lost through his fault.
Article 1402. As long as one of the contracting parties does not restore what in virtue of the decree of
annulment he is bound to return, the other cannot be compelled to comply with what is incumbent upon
him.
RECIPROCAL OBLIGATIONS OF RESTITUTION
If one of the contracting parties still cannot restore or return what has been on the decree of annulment, he
cannot compel the other party to comply on his own obligation to restore.
The return by one party of what he is obliged to restore by the decree of annulment may be regarded as a
condition to the fulfillment by the other of what is of incumbent upon him. In effect, hindi magkakaroon
ng annulment if yung one party cannot restore what he is bound to return.
Ex. Pogi forced Ganda to exchange cars with Ganda. Ganda asks for annulment. The court ordered that
each party to return whatever they received. Ganda refuses to return the car of Pogi.
Can Ganda compel Pogi to return her car to her?
-NO, Pogi cannot be compelled to comply with what is incumbent upon him since Ganda also refuses to
return what she has received from Pogi.
UNENFORCEABLE CONTRACTS
Unenforceable contracts are contracts cannot be enforced in court or sued upon by reason of defects until
and unless they are ratified according to the law. More defective than voidable since voidable are valid
and can be enforced but it can be annulled. Unenforceable contracts need to be ratified before it can be
enforced in court. Prior to ratification, there is no legal effect yet. It can have the effect of valid contract
once ratified.
While rescissible and voidable contracts are valid and enforceable unless they are rescinded or annulled,
unenforceable contracts, although valid, are unenforceable unless they are ratified.
Kinds of Unenforceable Contract
1. Unauthorized Contracts
2. Fail to comply with the statute of frauds
3. Both parties are incapable of giving consent to a contract
Article 1403. The following contracts are unenforceable, unless they are ratified:
(1) Those entered into the name of another person by one who has been given no authority or legal
representation, or who has acted beyond his powers;
Ito yung mga unauthorized contracts which are not enforceable. Kailangan muna i-ratify nung person
(principal) para magkaroon ng legal effects. Ito yung binenta mo yung property ng iba without their
authority to sell or dispose the said property.
Ex. Without authority from Pogi, Ganda sold Pogi’s car in the name of Pogi to Beauty.
Analysis: The contract is therefore, unauthorized. Hence, there is no legal effect unless it is ratified by
Pogi, either by expressed or implied ratification.
Implied Ratification: Pogi, upon knowing that his car has been sold by Ganda without authority, collected
the payment from her. This will give a legal effect to the contract.
Express ratification: Through words
Sa unauthorized contract, hindi kailangan na wala talagang authority. Pwedeng binigyan ka ng authority
but you acted beyond that power.
Ex. Your authority is to mortgage that property but you sold it. Then it means that you acted beyond the
power na binigay sa’yo ng principal.
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases
an agreement hereafter made shall be unenforceable by action, unless the same, or some note or
memorandum thereof, be in writing, and subscribed by the party charged, or by his agent; evidence,
therefore, of the agreement cannot be received without the writing, or a secondary evidence of its
contents:
Yung mga contracts na hindi nag-comply with the statute of frauds. Yung statute of frauds require the
contract should be in writing. Yung purpose is, aside from the fact to prevent fraud, it is also to guard
against mistakes.
Hindi nirerequire ni statute of fraud na formal written document talaga. So pwede siya kahit saang papel
nakasulat. Sulat kamay, type written, formal like notarized document, naka-pencil, ballpen or anything, as
long as it records the intent of the parties.
Statute of frauds is a law which requires that a certain contract must be in writing, otherwise
unenforceable.
The purpose is to prevent fraud and since memory is many times unreliable and to prevent mistake. Oral
agreement may sometimes result to injustice so to aid human memory, to prevent the commission of
injustice due to the faulty memory, to discourage intentional misrepresentations.
Statute of fraud is applicable only to executory contracts or wala pa talagang performance and so hindi na
siya applicable kapag yung contract is totally or partially executed na. Once nasimulan na partially, then
hindi na mag-aapply si Statute of frauds.
Cases or scenarios na kailangan in writing ang contracts para maging enforceable:
(a) An agreement that by its terms is not to be performed within a year from the making thereof;
Yung mga agreement na ngayon natin ginawa pero within one-year hindi pa natin ipeperform so kumbaga
napaka future niya.
Yung mga agreements na ipeperform mo within a year from the time na ginawa yung agreement ay hindi
cover ng statute of fraud.
Ex. December 1, 2020, Pogi sold to Ganda verbally a specific phone for 10,000. The parties agreed that
the delivery and payment shall be on Dec. 25, 2021.
Analysis: Since yung performance will take place after na ng one year from the execution of the contract,
dapat it must be in writing to be enforceable.
(b) A special promise to answer for the debt, default, or miscarriage of another;
Promise to answer para sa mga utang ng iba, obligation ng ibang tao.
Ex. Si Pogi may utang kay Ganda na 10,000 tapos yung guarantor ay si Beauty. The contract is entered
verbally.
Analysis: If Pogi failed to pay his debt to Ganda, pagdating ng due date, si Ganda cannot compel Beauty
the Guarantor to pay because the contract is unenforceable. Kasi it was not reduced in writing.
Kasi Beauty is actually promising to answer for the debt of Pogi pag hindi nabayaran ni Pogi, so statute of
fraud requires that it must be in writing, otherwise it is unenforceable. Kasi verbally lang yung contract na
ginawa ni Pogi, Ganda and Beauty, and so unenforceable.
(c) An agreement made in consideration of marriage, other than a mutual promise to marry;
Ex. Pogi promised Ganda to give her a specific car if Ganda will marry Makisig by next month. The
contract was made verbally. Five days after, Ganda married Makisig. Can Ganda demand delivery of the
car Pogi promised?
Analysis: No, because if the agreement is in consideration of marriage, it must be in writing otherwise
unenforceable.
Exception:
Other than a mutual promise to marry – (so if it is a mutual promise to marry between the parties, then the
contract is enforceable even if it was made verbally.)
However, if one parties does not comply with his obligation to marry the other, the injured party cannot
compel the other to proceed with the marriage proposition kasi yung right lang naman talagga niya is to
ask for damages because of breach of promise. Kasi hindi mo naman talaga mapipilit ang isang tao to
marry you.
You made preparations for the wedding already and last minute nagback out siya, hindi ka pwedeng
magfile ng case to demand specific performance para pakasalan ka. The only thing you can do is to ask
for damages. Kasi may preparations ka ng ginawa and last minute pa siya nag atras. Pero kung wala pang
preparation, hindi ka makahingi ng bayad for damages.
(d) An agreement for the sale of goods, chattels, or things in action, at a price not less than Five
hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the
evidences, or some of them, of such things in action, or pay at the time some part of the
purchase money; but when a sale is made by auction and entry is made by the auctioneer in
his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale,
price, names of the purchasers and person on whose account the sale is made, it is a sufficient
memorandum;
An agreement for the sale of goods, chattels, or things in action, at a price of P500 or more. Kailangan it
must also be reduced in writing.
Ex. Pogi and Ganda entered verbally or orally into a contract of sale of a particular notebook where it cost
P600. Delivery and payment are to take place on December 25, 2021.
Analysis: If on the date stated, Pogi refused to deliver. Ganda cannot compel him to deliver kahit pa
willing siya to pay because the contract falls under the statute of frauds. To be enforceable, it must be in
writing and verbally yung price ng notebook ay 600, so naka in writing na sana yun para ma-enforced or
ma-compel ni Ganda si Pogi to deliver that notebook.
(e) An agreement for the leasing for a longer period than one year, or for the sale of real property
or of an interest therein;
If yung period ng lease is one year or less, kahit pa yung object is real or personal property, enforceable
siya at pwede siyang oral contract. Enforeceable na ang oral contract if the object is real or personal
property and hindi naman nag exceed ng one year or less, pwede ng hindi in writing, enforceable pa rin
siya.
If yung lease is more than one year and the object is immovable (real property), it must be in writing,
otherwise unenforceable.
If yung sale ng immovable property (real property), irrespective of the price of the of the sale, kahit pa
magkano basta real property ang binebenta, it must be in writing otherwise, unenforceable.
(f) A representation as to the credit of a third person.
Ex. Pogi wants to borrow 100,000 from ABC Bank. Bago pa nagrelease yung banko ng pera, the bank
inquired from Ganda about the credit status of Pogi. Itong si Ganda, verbally assured the bank that Pogi’s
credit status is good and he is a well-known client in the locality and he could easily pay his loan if given.
By virtue of such statement, ABC Bank released the money.
If on the due date, Pogi cannot pay the ABC Bank, can the bank hold Ganda liable?
NO, because the representation as to the credit of the other person must be in writing, otherwise
unenforceable. Ay yung assurance naman na ginawa ni Ganda is verbally known, so hindi siya pwedeng
maging liable.
(3) Those where both parties are incapable of giving consent to a contract
Kapag yung isang party lang yung incapable of giving consent, that is VOIDABLE.
Kapag ang both parties ang incapable of giving consent, then the contract is UNENFORCEABLE.
Article 1404. Unauthorized contracts are governed by Article 1317 and the principles of agency in Title X
of this book.
Article 1317. No one may contract in the name of another without being authorized by the latter, or unless
he has by law a right to represent him.
A contract entered into in the name of another by one who has no authority or legal representation, or who
has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the
person on whose behalf it has been executed, before it is revoked by the other contracting party.
UNENFORCEABLE CONTRACTS
Unauthorized contracts or contracts entered into without the authority of the principal are unenforceable
contracts.
Ex. Ganda owns a car. Pogi sold Ganda’s car to Beauty in the name of Ganda but without being
authorized. Being unauthorized meaning it is an unenforceable so it is not valid.
Requisites for a person to contract in the name of another: pwedeng maging valid if:
(g) He must be authorized (expressly or impliedly)
(h) He must have by law, a right to represent him
(i) The contract must be subsequently ratified (express or implied)
Ex. Ganda owns a car. Pogi sold Ganda’s car to Beauty in the name of Ganda but without
being authorized. Later on, Ganda collected the payment from Beauty. (This has been
ratified)
(j) He must act within his power
Ratification cleanses the contract from its defects.
Article 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of Article 1403, are ratified
by the failure to object to the presentation of oral evidence to prove the same, or by the acceptance of
benefits under them.
TWO WAYS OF RATIFICATION INFRINGING STATUTE OF FRAUDS
Unenforceable contract has no legal effect unless it has been ratified. Paano mararatify?
Two ways of ratification of contracts infringing (violate) the statute of frauds:
1. Failure to object the presentation of oral evidence
Kapag nag file ka ng case sa court, and then yung pinresent nilang evidence is oral evidence dapat magobject ka. Dahil kung hindi na mag-object, its as if you waive your right. Dahil nagkaroon ng waiver, it is
considered as ratification of contract that infringes the statute of fraud.
2. Acceptance of benefits under them
The statute of fraud does not apply to executed or partial executed or performed contracts. It is only
applicable to executory contracts, meaning yung mga wala pang performance talaga.
If tinanggap mo na or may tinanggap ka ng partial performance or payment or benefits. It’s as if there is
already a ratification of the contract which infringes the statute if frauds.
Article 1406. When a contract is enforceable under the Statute of Frauds, and a public document is
necessary for its registration in the Registry of Deeds, the parties may avail themselves of the right under
Article 1357.
Yung right of one party to compel the other party to execute the needed instruments, ang dalawang
kailangan lang naman don is valid and enforceable yung contracts so yung public document is necessary
lang for convenience kaya yung remedy ng party is to compel the other party to execute the necessary
instrument.
Kapag yung contract is enforceable under the Statute of Frauds, at kailangan ng public document para
maregister siya under registry of deeds, then pwedeng i-compel nung one party yung other party to
execute the needed instrument.
Article 1407. In a contract where both parties are incapable of giving consent, express or implied
ratification by the parent, or guardian, as the case may be, of one of the contracting parties shall give the
contract the same effect as if only one of them were incapacitated.
If ratification is made by the parents or guardians, as the case may be, of both contracting parties, the
contract shall be validated from the inception
Kapag yung isang party lang yung incapable of giving consent, the status is VOIDABLE.
Kapag ang both parties ang incapable of giving consent, then the contract is UNENFORCEABLE.
Dalawang parties are both incapable of giving consent meaning unenforceable yung contract, kapag yung
isa sa party ay may parent or guardian na nag-ratify ng contract nay un, magiging voidable ang status
niya. Meaning valid until annulled.
If both yung guardians and parents talaga ang nag-ratify, the contract will be validated from the time of
inception kasi nga ratification cleanses the contract from all of its defects from the time it is constituted.
Ex. Pogi and Ganda are both minors, being 16 and 17 years old respectively. They entered into a contract.
The contract is unenforceable since both of them are incapacitated to give consent.
Now if yung parent ni Pogi ratifies expressly or impliedly yung contract entered by Pogi and Ganda, then
it becomes voidable. Valid until annulled by the guardian or parent of Ganda.
However, if yung parent din ni Ganda also ratifies the contract, then yung unenforceable contract since niratify na nung parents ni both Pogi and Ganda, it will become validated from the time it was first entered
into. Magkakaroon ng retroactive effect. So kung December 1, 2020 sila nag-enter int0o contract, then
from that time mismo naging valid yung contract.
Article 1408. Unenforceable contracts cannot be assailed by third persons.
Yung strangers cannot assail or cannot question the unenforceable contracts. Hindi siya pwedeng maattack ng strangers or ng mga hindi parties sa contract.
VOID CONTRACTS
Void contracts has a special classification.
Kinds of Void Contract
1. Inexistent contracts where formalities required by law are not met. Contract has no effect at all
2. Illegal or illicit contracts
Characteristics of Void Contract
1.
2.
3.
4.
5.
Defense of illegality cannot be waived. (hindi mo pwedeng i-waive dahil illegal)
They are not subject to ratification
The action to declare the contract inexistent does not prescribe
Generally, no action to declare them void is needed
The defense of illegality of contract is not available to third persons whose interest are not
directly affected
VOIDABLE CONTRACTS
Can be ratified
Produces effect until annulled
Valid until annulled
Need to be annulled to be set aside
May be cured by prescription
Defense of voidable contracts can only be invoked
by involved parties (principally and subsidiary
liable as well as successors and interest)
Referred to as relative or conditional nullity
UNENFORCEABLE CONTRACTS
Can be ratified
There is a contract but it cannot be enforced by
court action
Cannot be assailed by third parties
VOID CONTRACTS
Cannot be ratified because it is void and inexistent
Produces no effects at all
Void from the very beginning
No action is required to set it aside unless it is
already performed
Cannot be cured by prescription
Defense may be availed of by anybody whether
he is party to the contract or not as long as his
interest is directly affected
Referred to as absolute nullity
VOID CONTRACTS
Cannot be ratified because it is void and inexistent
No contract at all
Can be assailed by anybody directly affected
Article 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or
public policy;
(2) Those which are absolutely simulated or fictitious;
Absolute simulation means that the contract is void for the lack of consent. It is also when the contract
does not really exist and the parties do not intend to be bound at all. Relative Simulation kapag ibang
yung intent talaga ng parties doon sa nasa contract nila. It is also when when the contract entered into by
the parties is different from their true agreement or the parties state a false cause in the contract to conceal
their real agreement. Kapag ganito, yung binding is kung ano talaga yung real agreement ng parties.
Walang plano, walang agreement o walang intention to be bound (fictitious)
(3) Those whose cause or object did not exist at the time of the transaction;
Yung contracts wherein yung cause or yung object does not exist at the time of the transaction.
Ex. Sale of future inheritance, kasi hindi mo naman mabebenta pa yun dahil wala pa nga.
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
Kapag impossible service
(6) Those where the intention of the parties relative to the principal object of the contract cannot be
ascertained;
(7) Those expressly prohibited or declared void by law. These contracts cannot be ratified. Neither
can the right to set up the defense of illegality be waived.
Article 1410. The action or defense for the declaration of the inexistent of a contract does not prescribe.
If a contract is void, yung party ng contract na yun can always bring a court action to declare it void or
inexistent kasi yung void contract ay hindi nag-peprescribe unlike kay rescissible at voidable contract.
Article 1411. When the nullity proceeds from the illegality of the cause or object of the contract, and the
act constitutes a criminal offense, both parties being in pari delicto, they shall have no action against each
other, and both shall be prosecuted. Moreover, the provisions of the Penal Code relative to the disposal of
effects or instruments of a crime shall be applicable to the things or the price of the contract.
This rule shall be applicable when only one of the parties is guilty; but the innocent one may claim what
he has given, and shall not be bound to comply with his promise.
It provides for a rule that the contract is illegal and the act constitutes a criminal offense.
Where both parties are in pari delicto (mutual guilt o pareho silang guilty), ang magiging epekto is:
1. The parties shall have no action against each other
2. Both shall be prosecuted
3. Price of the contract as well as the effect and instruments nung crime will be confiscated in favor
of the government.
Kapag naman one party is guilty and the other is innocent, ang epekto is:
1. Yung innocent party may claim what he has given and he will not be bound to comply with his
promise
Ex. Pogi sold shabu to Ganda worth 1M. Ganda paid P100,000 and so Pogi didn’t deliver all the illegal
drugs agreed.
Analysis: In this case, wala kay Pogi o Ganda has the right of action against each other. The law will
leave them where it finds them. Pababayaan lang sila dahil pareho silang in pari delicto. Both of them
shall be prosecuted and the price as well as the illegal drugs will be confiscated in favor of the
government.
Ex. Pogi sold drugs to Ganda worth 1M. Ganda didn’t know that it was illegal drugs so bumili siya at
binayaran niya lang ng 100,000.
So dahil si Ganda is innocent party, she can claim the return of 100,000. Or kung hindi pa talaga siya
nakakapagbayad, si Ganda cannot be compelled to pay or comply with her promise. The law will render
relief to the more innocent party.
So si Pogi for selling illegal drugs, will be prosecuted criminally tapos yung illegal drugs will be
confiscated in favor of the government.
Article 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal
offense, the following rules shall be observed:
Rules where the contract is void pa rin, illegal but does not constitute criminal offense.
(1) When the fault is on the part of both contracting parties, neither may recover what he has given
by virtue of the contract, or demand the performance of the other’s undertaking;
(2) When only one of the contracting parties is at fault, he cannot recover what he has given by
reason of the contract, or ask for the fulfillment of what has been promised him. The other, who is
not at fault, may demand the return of what he has given without any obligation to comply with
his promise.
Rules where the contract is void pa rin, illegal but does not constitute criminal offense.
Kapag both parties are in pari delicto or both are guilty, then:
1. because there is no criminal offense, neither one or wala sa kanila ang makaka-recover ng kung
ano man ang binigay nila by virtue of the contract.
2. Wala rin sa kanila ang pwedeng magdemand for the performance ng bawat isang undertaking na
nasa agreement nila.
Kapag only one is guilty or at fault, ang magiging effect ay:
1. Yung guilty party cannot recover what he has given by reason of the contract at hindi rin siya
pwedeng mag-ask ng fulfillment of what has been promised to him.
2. Don sa party who is not at fault, siya ay pwedeng magdemand ng return of what he has given
without any obligation to comply with his promise.
Article 1413. Interest paid in excess of the interest allowed by the usury laws may be recovered by the
debtor, with interest thereon from the date of the payment.
Article 1414. When money is paid or property delivered for an illegal purpose, the contract may be
repudiated by one of the parties before the purpose has been accomplished, or before any damage has
been caused to a third person. In such case, the courts may, if the public interest will thus be subserved,
allow the party repudiating the contract to recover the money or property.
INSTANCE WHERE RECOVERY CAN BE MADE (EXCEPTION TO PARI DELICTO)
Exception to the rule of pari delicto wherein you cannot recover (ibig sabihin pwede ka mag-recover
despite mutual guilt)
This provision provides case where recovery can be made even if the parties are in pari delicto.
However, the recovery can only be done:
1. If the purpose has not yet been accomplished
2. Damaged has not been caused to third person
Ex. For 10,000 Pogi promised to kill Ganda for Beauty. Beauty gave Pogi the reward in advance. Before
Pogi can kill Ganda, Beauty withdrew her plan.
Is Beauty allowed to do so?
YES, because the act has not yet been accomplished and no damage has been caused to Ganda (third
person).
May Beauty recover what she has paid?
It is discretionary on the part of the court.
Supposing the repudiation (withdrawal) took place after the act of killing, what will happen?
Both parties will be prosecuted for the crime of killing Ganda. (Murder)
Article 1415. Where one of the parties to an illegal contract is incapable of giving consent, the courts
may, if the interest of justice so demands, allow recovery of money or property delivered by the
incapacitated person.
INSTANCE WHERE RECOVERY CAN BE MADE (EXCEPTION TO PARI DELICTO)
Exception to the rule of pari delicto wherein you cannot recover (ibig sabihin pwede ka mag-recover
despite mutual guilt)
If one party is incapacitated, pwede rin silang maka-recover.
Ex. For 10,000 Pogi promised to kill Ganda for Beauty. Supposedly, Beauty was a minor. Beauty gave
Pogi the reward in advance. Before Pogi can kill Ganda, Beauty withdrew her plan.
Can Beauty recover what she has given to Pogi?
YES, because she is incapacitated therefore, she can recover.
If the act is already consummated, can Beauty still claim recovery?
NO, because Ganda is already dead therefore there is already damage to the third person. Pogi will then
be prosecuted for killing Ganda. Since Beauty is still a minor, she is exempted from criminal liability.
Article 1416. When the agreement is not illegal per se but is merely prohibited, and the prohibition by the
law is designed for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover
what he has paid or delivered.
INSTANCE WHERE RECOVERY CAN BE MADE (EXCEPTION TO PARI DELICTO)
General Rule in Pari delicto: Recovery is not allowed or without any relief
Exception: Recovery is permitted provided that:
1. The agreement is not illegal per se but is merely prohibited
2. The prohibition is designed for the protection of the plaintiff
3. Public policy would be enhanced by allowing the plaintiff to recover what he has delivered
Ex. Si Pogi dinonate niya lahat ng kaniyang property kay Ganda and nothing was left for Pogi for his
sustenance.
This is prohibited by law pero hindi illegal per se. Since public policy is enhance, Pogi will be allowed to
recover at least the necessary for his own support.
Article 1417. When the price of any article or commodity is determined by statute, or by authority of law,
any person paying any amount in excess of the maximum price allowed may recover such excess.
IN CASE OF PAYMENT IN EXCESS OF THE MAXIMUM PRICE
Yung price nung commodity is determined by the law na ito na yung maximum price, tapos ikaw,
nagbayad ka in excess of that maximum price. So recover is allowed.
Ex. Meron tayong batas na nagsasabi na yung price ng facemask ay dapat daw P100 maximum na per
box. Tapos bumili ka at an amount of P150. Pwede mo marecover yung excess na P50.
Article 1418. When the law fixes, or authorizes the fixing of the maximum number of hours of labor, and
a contract is entered into whereby a laborer undertakes to work longer than the maximum thus fixed, he
may demand additional compensation for service rendered beyond the time limit.
FIX HOURS OF LABOR
If yung batas is nag-fix ng maximum number of hours of labor, and yung workers ay nagwork ng longer
than the maximum time na allowed, then dapat magdemand siya ng additional compensation for his
service rendered beyond the time limit.
Article 1419. When the law sets, or authorizes the setting of a minimum wage for laborers, and a contract
is agreed upon by which a laborer accepts a lower wage, he shall be entitled to recover the deficiency.
MINUMUM WAGE
Dapat talaga yung sahod is hindi lower than the minimum wage otherwise pwede mo ma-recover yung
deficiency. Dapat more than the minimum wage talaga yung sahod.
Article 1420. In case of a divisible contract, if the illegal terms can be separated from the legal ones, the
latter may be enforced.
Kapag yung sa terms ng mga contracts, merong illegal terms and so if pwede namang mahiwalay
(divisible contracts) yung legal terms from that illegal terms, tatanggalin lang yung illegal terms para
maging enforceable pa rin yung legal terms. Unless it is indivisible contract talaga so ang mangyayari, the
whole contract is void na.
Article 1421. The defense of illegality of contracts is not available to third persons whose interests are not
directly affected.
Yung defense ng illegality are generally hindi talaga yan available to third person. Even if the contract is
illegal, the defense of illegality of contract is pwede lang i-set up ng mga tao na whose interest are
directly affected.
Article 1422. A contract which is the direct result of a previous illegal contract, is also void and
inexistent.
Yung mga contract na direct result ng mga previously illegal contract din ay magiging void at inexistent
rin.
Ex. Pogi promised to Ganda 10,000 if Ganda will kill Beauty. Later, after killing, the contract was
changed, from giving 10,000 it was changed into giving a house and lot. The second contract is a direct
result pa rin ng illegal contract which is to kill Beauty and so the second contract is null and void.