Obligations and
Contracts
Contracts – Nature and
Concepts
Coverage
Atty. Joselito V. Abuel
Juris Doctor (JD)
Certified Public Accountant (CPA)
Master in Business Administration (MBA)
Licensed Professional Teacher (LPT)
Data Protection Officer (DPO)
LAW ON
CONTRACTS
Laws, Principles & Jurisprudence
TITLE 2 – CONTRACTS
Chapter 1 – General Provisions
Chapter 2 – Essential Requisites of Contracts
General Provisions
Section 1 – Consent
Section 2 – Objects of Contracts
Section 3 – Cause of Contracts
TITLE 2 – CONTRACTS
Chapter 3 – Form of Contracts
Chapter 4 – Reformation of Instruments
Chapter 5 – Interpretation of Contracts
Chapter 6 – Rescissible Contracts
Chapter 7 – Voidable Contracts
Chapter 8 – Unenforceable Contracts
Chapter 9 – Void or Inexistent Contracts
Title II. - CONTRACTS
CHAPTER 1
GENERAL PROVISIONS
Art. 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. (1254a)
Art. 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.
(1255a)
CLASSIFICATION OF CONTRACTS
According to their relation to other contracts:
1. Preparatory
Those which for their object the establishment of a
condition in law which is necessary as a preliminary step
towards the celebration of another subsequent contract.
Example: Contract of Partnership, Contract of Agency
2. Principal
Those which can subsist independently from other
contracts and whose purpose can be fulfilled by
themselves. Example: Contract of Sale, Contract of Lease
3. Accessory
Those which can exist only as a consequence of, or in
relation with, another prior contract. Examples: Contract
of Pledge, Contract of Mortgage
CLASSIFICATION OF CONTRACTS
According to their perfection
Those which are perfected by the mere agreement of the parties.
1. Consensual
Example: Contract of Sale, Contract of Lease
Those which require not only the consent of the parties for their
perfection, but also the delivery of the object by any one party to
2. Real
the other. Examples: Contract of Commodatum, Contract of Deposit,
Pledge
CLASSIFICATION OF CONTRACTS
According to their cause
1. Onerous
Those in which each of the parties aspires to procure for himself a benefit
through the giving of an equivalent or compensation. Example: Contract of Sale
2. Gratuitous
Those in which one of the parties proposes to give to the other benefit without
any equivalent or compensation. Example: Contract of Commodatum
CLASSIFICATION OF CONTRACTS
According to risk involve
1. Commutative
Those where each of the parties acquires an equivalent of his prestation and
such equivalent is pecuniarily appreciable and already determined from the
moment of the celebration of the contract. Example: Contract of Lease
2. Aleatory
Those where each of the parties has to account the acquisition of an equivalent
of his prestation, but such equivalent although pecuniarily appreciable, is not yet
determined, at the moment of the celebration of the contract, since it depends
upon the happening of an uncertain event, thus charging the parties with the
risk of loss or gain. Example: Insurance Contract
CLASSIFICATION OF CONTRACTS
According to their names or norms regulating them
1. Nominate
Those which have their own individuality and are regulated by special provision of
law. Example: Contract of Sale, Contract of Lease
2. Innominate
Those which lack individuality and are not regulated by special provision of law.
Example: MOA, MOU which is not regulated by a special provision of law.
CONTRACT OF ADHESION
AUTONOMY OF CONTRACTS
Is a contract whereby almost all of its provisions
are drafted by one party. The participation of the
other party is limited to affixing his signature or
his “adhesion” to the contract. For this reason,
contracts of adhesion are strictly construed
against the party who drafted it.
In Abe v. Foster Wheeler Corp, the
Supreme Court held that the freedom
to contract is not absolute. The same is
understood to be subject to reasonable
legislative regulation aimed at the
promotion of public health, morals,
safety and welfare. One such legislative
regulation is found in Article 1306 of
the Civil Code which allows the
contracting parties to “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.
It is erroneous, however, to conclude that
contracts of adhesion are invalid per se. They are,
in the contrary, as binding as ordinary contracts. A
party is in reality free to accept or reject it. A
contract of adhesion becomes void only when the
dominant party takes advantage of the weakness
of the other party, completely depriving the latter
of the opportunity to bargain on equal footing.
Art. 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. (n)
Art. 1308. The contract must bind both contracting parties;
its validity or compliance cannot be left to the will of one of
them. (1256a) (MUTUALITY)
Art. 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. (n)
INNOMINATE CONTRACT
Those with lack individuality and are not
regulated by special provision of law
1.
2.
3.
4.
Do ut des – I give that you give
Do ut facias – I give that you do
Facio ut des – I do that you give
Facio ut facias – I do that you do.
RULES ON INNOMINATE CONTRACTS
1. Stipulations of the parties
2. The provisions of the Civil Code on
obligations and contracts
3. The rules governing the most
analogous nominate contracts; and
4. The customs of the place
1308 – Notes
1308 expresses what is known in law as the principle of mutuality of contracts.
PURPOSE OF MUTUALITY OF CONTRACTS – the ultimate purpose is thus to nullify a contract
containing a condition which makes its fulfillment or pre-termination dependent exclusively
upon the uncontrolled will of one of the contracting parties.
Art. 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. (n)
Art. 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.
(RELATIVITY)
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 clearly and deliberately conferred a
favor upon a third person. (1257a)
1311 – Note: Refer to Relativity of Contracts
GENERAL RULE:
Contracts take effect only between the parties, their assigns and heirs.
EXCEPTIONS:
1. Contracts are not transmissible by their nature; or
2. Contracts are not transmissible by stipulation; or
3. Contracts are not transmissible by provision of law
FOUR EXCEPTIONAL CASES TO THE PRINCIPLE OF RELATIVITY OF CONTRACTS
1. 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 it revocation.(1311)
2. In contracts creating real rights, third person who come into possession of the object of the
contract are bound thereby. (1312)
3. Creditors are protected in cases of contracts intended to defraud them. (1313)
4. Any third person who induces another to violate his contract shall be liable for damages to the
other contracting party. (1314)
1311 - Notes
REQUISITES OF STIPULATION FOR AUTRUI
1. There must be a stipulation in favor of a third party
2. The stipulation must be a part not the whole, of the contract.
3. The contracting parties must have clearly and deliberately conferred a favor
upon a third person, not a mere incidental benefit or interest.
4. The third person must have communicated his acceptance to the obligor
before its revocation, and
5. Neither of the contracting parties bears the legal representation or
authorization of the third party.
1312 and 1313- 1314 Note
THIS IS AN EXCEPTION TO THE PRINCIPLE OF RELATIVITY OF CONTRACTS
Art. 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. (n)
Art. 1313. Creditors are protected in cases of contracts intended to
defraud them. (n)
Art. 1314. Any third person who induces another to violate his contract
shall be liable for damages to the other contracting party. (n) (TORT
INTERFERENCE)
Art. 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. (1258)
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1314 - Note
WHAT IS TORT INTERFERENCE?
Article 1314 expresses the principle of tort interference. This is an exception to the
principle of relativity of contracts. The tort recognized in this provision is known as
interference with contractual relations. The interference is penalized because it violates
the property rights of a party in a contract to reap the benefits that should result
therefrom.
ELEMENTS OF TORT INTERFERENCE
1. Existence of a valid contract. It must be duly established
2. Knowledge on the part of the third person of the existence of a contract. Requires that
there be knowledge on the part of the interferer that the contract exists.
3. Interference of the third person is without legal justification.
1315 - Notes
STAGES IN THE LIFE OF A CONTRACT
Begins from the time the prospective contracting
parties manifest their interest in the contract and
ends at the moment of agreement of the parties.
1. Preparation or Negotiation
Negotiation is formally initiated by an offer.
Accordingly, an offer that is not accepted, either
expressly or impliedly, precludes the existence of
consent, which is one of the essential elements of a
contract.
2. Perfection or Birth
Takes place when the parties agree upon the
essential elements of the contract.
3. Consummation
The parties fulfill or perform the terms agreed upon
in the contract culminating in its extinguishment.
Art. 1316. Real contracts, such as deposit, pledge and
commodatum, are not perfected until the delivery of the
object of the obligation. (n)
Art. 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. (1259a)
Consensual Contract
Those which are perfected by the
mere agreement of the parties.
Real Contract
Those which require not only
consent of the parties for their
perfection, but also the delivery of
the object by any one of the party
to the other.
Example: Sale or Lease
Examples: Commodatum, Deposit,
Pledge
Formal/Solemn Contract
When the law requires that a
contract be in some form in order
that it may be valid or enforceable
or that a contract be proved in
certain way, that requirement is
absolute
and
indispensable.
Example: Donation of personal
property
exceeding
P5,000;
Immovable property in public
instrument.
Commodatum
Deposit
Pledge
One of the parties deliver to another,
either something not consumable so
that the latter may use the same for a
certain time and return it, in which case
the contract is called commodatum.
A deposit is construed from the
moment a person receives thing
belonging to another, with the
obligation of safely keeping it and of
returning the same.
In a contract of pledge, the creditor is
given the right to retain his debtor’s
movable property in his possession, or
in that of a third person to whom it has
been delivered, until the debt is paid.
Art. 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. (1259a)
GENERAL RULE
No one may contract in the name of another
EXCEPTIONS:
1. The person entering into a contract in the name of another has been authorized by the latter.
2. The person entering into a contract in the name of another has by law has a right to represent him.
EFFECT OF AN UNAUTHORIZED CONTRACT
GENERAL RULE:
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.
CHAPTER 2
ESSENTIAL REQUISITES OF CONTRACTS
GENERAL PROVISIONS
Art. 1318. There is no contract unless the
following requisites concur:
(1) CONSENT of the contracting parties;
(2) OBJECT certain which is the subject
matter of the contract;
(3) CAUSE of the obligation which is
established. (1261)
Essential Elements
Natural Elements
Accidental Elements
The essential elements are those
without which there can be no
contract.
Subdivided into:
a. Common (Comunes) are those
which are present in all contracts.
Example: Consent, Object,
Certain and cause
b. Special (especiales) are present
only in certain contracts.
Example: Delivery in real
contracts, form of solemn
contracts
c. Extraordinary or peculiar
(especialisimos) are those which
are peculiar to a specific contract.
Example: Price
Are those which are
derived from the nature
of the contract and
ordinarily accompany the
same. They are presumed
by the law, although they
can be excluded by the
contracting parties if they
so desire. Thus, warranty
against eviction is implied
in a contract of sale,
although the contracting
parties may increase,
diminish or even suppress
it.
The accidental elements are
those which exists only when
the parties expressly provide
for them for the purpose of
limiting or modifying the
normal effects of the contract.
Examples
of
these
are
conditions, terms and modes.
SECTION 1. - Consent
Art. 1319. Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute. A
qualified acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the offerer except
from the time it came to his knowledge. The contract, in such a case, is
presumed to have been entered into in the place where the offer was
made. (1262a)
Art. 1320. An acceptance may be express or implied. (n)
Art. 1321. The person making the offer may fix the time, place, and
manner of acceptance, all of which must be complied with. (n)
Art. 1322. An offer made through an agent is
accepted from the time acceptance is
communicated to him. (n)
Art. 1323. An offer becomes ineffective upon the
death, civil interdiction, insanity, or insolvency of
either party before acceptance is conveyed. (n)
Art. 1324. When the offerer has allowed the
offeree a certain period to accept, the offer may be
withdrawn at any time before acceptance by
communicating such withdrawal, except when the
option is founded upon a consideration, as
something paid or promised. (n)
CONSENT
POLICITACION
Is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are
to constitute the contract
An imperfect promise (policitacion) is
merely an offer. An imperfect promise that
could not be considered a binding
commitment.
OFFER
An offer is a unilateral proposition made by one
party to another for the celebration of a contract.
For an offer to be certain, a contract must come into
existence by the mere acceptance of the offer
without any further act on the offeror’s part.
The offer must be definite, complete and intentional.
Spouses Paderes vs Court of Appeals
“There is an offer” in the context of Article 1319 only if
the contract can come into existence by the mere
acceptance of the offeree, without any further act on the
part of the offeror. Hence, the ‘offer’ must be definite,
complete and intentional.
COUNTER-OFFER
This refers to qualified acceptance
NOTE: where the parties merely
exchanged offers and counter-offers, no
agreement or contract is perfected.
Acceptance by Letter or Telegram
Acceptance made by letter or telegram does not bind
the offerer except from the time it came to his
knowledge.
1321- Note
The offerer may fix the time, place, and manner of acceptance, all of which must be complied
with.
A qualified acceptance constitutes a counter-offer.
CONSENT OF CORPORATION
It cannot act except through Board of
Directors as a collective body, which is
vested
with
the
power
and
responsibility to decide whether the
corporation should enter into a contract
that will bind the corporation, subject
to the articles of incorporation, by-laws
or relevant provisions of law.
1322 - Note
CONTRACT OF AGENCY
By the contract of agency a person binds himself to render
some service or to do something in representation or on
behalf of another, with the consent or authority of the letter.
BASIS
The basis for agency is representation that is, the agent acts
for and on behalf of the principal on matters within the scope
of his authority and said acts have the same legal effect as if
they were personally executed by the principal.
1323 - Note
RATIONALE
An offer becomes ineffective upon the death,
civil interdiction, insanity, or insolvency of
either party before acceptance is conveyed. The
reason for this is that:
The contract is not perfected except by the
concurrence of two wills which exist and
continue until the moment that they occur.
The contract is not yet perfected at any time
before acceptance is conveyed; hence, the
disappearance of either party or his loss of
capacity before perfection prevents the
contractual tie from being formed.
1324 - Notes
OPTION
Is a contract granting a privilege to buy or sell at a
determined price within an agreed time.
An OPTION is a preparatory contract in which
one party grants to another, for a fixed period
and at a determined price, the privilege to buy
or sell, or to decide whether or not to enter into
a principal contract with any other person during
the period designated, and within that period, to
enter into such contract with the one to whom
the option was granted, if the latter should decide
to use the option.
1324 - Notes
RULES AS TO OFFER
1. If the period is not founded upon or
supported by a consideration, the offeror is
still free and has the right to WITHDRAW the
offer before its acceptance, or, if an
acceptance has been made, before offeror’s
coming to know of such fact, by
communicating that withdrawal to the
offeree.
2. If the period has a separate consideration, a
contract of ‘option’ is deemed perfected,
and it would be a breach of that contract to
withdraw the offer during the agreed period.
The option, however, is an INDEPENDENT
contract by itself, and is to be distinguished
from the projected main agreement which is
obviously yet to be concluded.
1325 - Notes
GENERAL RULE
Business advertisements of things for sale are not
definite offers, but mere invitations to make an offer.
EXCEPTION
If the business advertisements of things for sale appears
to be a definite offer.
1326 – Note
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.
Art. 1325. Unless it appears otherwise, business advertisements
of things for sale are not definite offers, but mere invitations to
make an offer. (n)
Art. 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. (n)
Art. 1327. The following cannot give consent to a contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not
know how to write. (1263a)
Art. 1328. Contracts entered into during a lucid interval
are valid. Contracts agreed to in a state of drunkenness
or during a hypnotic spell are voidable. (n)
Art. 1329. The incapacity declared in Article 1327 is
subject to the modifications determined by law, and is
understood to be without prejudice to special
disqualifications established in the laws. (1264)
Art. 1330. A contract where consent is given through
mistake, violence, intimidation, undue influence, or
fraud is voidable. (1265a)
1328 - Note
1327 - Notes
PERSONS INCAPACITATED TO GIVE CONSENT
1. Minors
2. Insane persons
3. Demented persons; and
4. Deaf-mutes who do not know how to write
LUCID INTERVAL
A brief period during which an insane
persons regains sanity sufficient to have
the legal capacity to contract and act on
his or her own behalf.
1329-1330 - Notes
Article 1390 provides that a contract where
one of the parties are incapable of giving
consent is voidable or annullable.
Article 1403(3) of the Civil Code provides that a
contract where both parties are incapable of
giving consent is unenforceable.
VICES OF CONSENT
1. Mistake
2. Violence
3. Intimidation
4. Undue influence;
and
5. fraud
CHARACTERISTIC OF CONSENT
1. It should be INTELLIGENT
2. It should be FREE
3. It should be
SPONTANEOUS
Intelligence in consent is
vitiated by error.
Freedom is vitiated by
violence, intimidation or
undue influence
Spontaneity is vitiated by
fraud.
Art. 1331. In order that mistake may invalidate consent, it should refer to the
substance of the thing which is the object of the contract, or to those conditions
which have principally moved one or both parties to enter into the contract.
Mistake as to the identity or qualifications of one of the parties will vitiate consent
only when such identity or qualifications have been the principal cause of the
contract.
A simple mistake of account shall give rise to its correction. (1266a)
Art. 1332. When one of the parties is unable to read, or if the contract is in a
language not understood by him, and mistake or fraud is alleged, the person
enforcing the contract must show that the terms thereof have been fully explained
to the former. (n)
1331 - Notes
MISTAKE has been defined as a “misunderstanding of the
meaning or implication of something “or” a wrong action or
statement proceeding from faulty judgment xxx.”
EXAMPLE:
Mistake as to the object of the contract is the substitution of
a specific thing contemplated by the parties with another.
MISTAKE MUST BE SUBSTANTIAL
1. Mistake should refer to the substance of the thing which
is the object of the contract;
2. Mistake should refer to those conditions which have
principally moved one or both parties to enter into the
contract; and
3. Mistake as to the identity or qualifications of one of the
parties will vitiate consent only when such identity or
qualifications have been the principal cause of the
contract.
Art. 1333. There is no mistake if the
party alleging it knew the doubt,
contingency or risk affecting the
object of the contract. (n)
Art. 1334. Mutual error as to the legal
effect of an agreement when the real
purpose of the parties is frustrated,
may vitiate consent. (n)
1334 - Notes
RULE
Mistake of law, does not render the contract
voidable because of the well-known principle
that ignorance of the law does not excuse
anyone from compliance therewith. However,
the above-stated rule is an EXCEPTION.
REQUISITES:
1. The mistake must be with respect to the
legal effect of an agreement
2. The mistake must be mutual; and
3. The real purpose of the parties must be
frustrated.
1333 - Notes
Article 1333 of the Civil Code, however, states
that “there is no mistake if the party alleging it
knew the doubt, contingency or risk affecting
the object of the contract.”
Under this provision of law, it is presumed that
the parties to a contract know and understand
the import of their agreement.
To invalidate consent, the error must be
excusable. It must be real error, and not that
could have been avoided by the party alleging it.
Art. 1335. There is violence when in order to wrest
consent, serious or irresistible force is employed.
There is intimidation when one of the contracting
parties is compelled by a reasonable and well-grounded
fear of an imminent and grave evil upon his person or
property, or upon the person or property of his spouse,
descendants or ascendants, to give his consent.
To determine the degree of intimidation, the age, sex
and condition of the person shall be borne in mind.
A threat to enforce one's claim through competent
authority, if the claim is just or legal, does not vitiate
consent. (1267a)
1335 - Notes
VIOLENCE
There is violence when in order to wrest consent, serious or irresistible force is employed.
REQUISITES OF VIOLENCE
1. The force employed to wrest consent must be serious or irresistible; and
2. It must be the determining cause for the party upon whom it is employed in entering into the
contract.
1335 – Notes
INTIMIDATION
There is intimidation when one of the contracting parties is compelled by a reasonable and well-grounded fear of an
imminent and grave evil upon his person or property, or upon the person or property of his spouse, descendants or
ascendants, to give his consent.
REQUISITES
1. Must be the determining cause of the contract, or must have caused the consent to be given.
2. That the threatened act be unjust or unlawful.
3. That the threat be real and serious, there being an evident disproportion between the evil and the resistance which
all men can offer, leading to the choice of the contract as the lesser evil; and
4. That it produces a reasonable and well-grounded fear from the fact that the person from whom it comes has the
necessary means or ability to inflict the threatened injury.
Art. 1336. Violence or intimidation shall annul the obligation,
although it may have been employed by a third person who
did not take part in the contract. (1268)
Art. 1337. There is undue influence when a person takes
improper advantage of his power over the will of another,
depriving the latter of a reasonable freedom of choice. The
following circumstances shall be considered: the confidential,
family, spiritual and other relations between the parties, or
the fact that the person alleged to have been unduly
influenced was suffering from mental weakness, or was
ignorant or in financial distress. (n)
1337 - Notes
UNDUE INFLUENCE
There is undue influence when a person takes
improper advantage of his power over the will
of another, depriving the latter of a reasonable
freedom of choice.
CIRCUMSTANCES TO BE CONSIDERED
1. The confidential, family, spiritual and other
relations between the parties, or
2. The fact that the person, alleged to have been
unduly influenced was suffering from mental
weakness, or
3. The fact that the person alleged to have been
unduly influenced was ignorant, or
4. The fact that the person alleged to have been
unduly influenced was in financial distress.
1338 - Notes
To constitute fraud under Article 1338, the words
and machinations must have been so insidious or
deceptive that the party induced to enter into the
contract would not have agreed to be bound by its
terms if that party had an opportunity to be aware
of the truth.
FRAUD
There is fraud when through insidious words or
machinations of one of the contracting parties, the
other is induced to enter into a contract which,
without them, he would not have agreed upon.
DOLO CAUSANTE OR CAUSAL FRAUD
DOLO INCIDENTE OR INCIDENTAL
Causal fraud to in Article 1338, are those
deceptions or misrepresentations of a
serious character employed by one party
and without which the other party would
not have entered into the contract.
Dolo incidente or incidental fraud which is
referred to in Article 1344, are those
which are not without which the other
party would still have entered into the
contract
Dolo causante determines or is the
essential cause of the consent
Dolo incidente refers only to some
particular or accident of the obligations
Effects of dolo causante are the nullity of
the contract and the indemnification of
damages
Dolo incidente also obliges the person
employing it to pay damages
1338 - Notes
EXAMPLE OF CAUSAL FRAUD
1. When the seller, who had no intention to
part with her property, was ‘tricked into
believing’ that what she signed were papers
pertinent to her application for the
reconstitution of her burned certificate of
title, not a deed of sale
2. When the signature of the authorized
corporate officer was forges; or
3. When the seller was seriously ill, and died a
week after signing the deed of sale raising
doubts on whether the seller could have
read, or fully understood, the contents of the
documents he signed or of the consequences
of his act.
1338 - Notes
REQUISITES OF CAUSAL FRAUD
1. It must have been employed by one
contracting party upon the other
2. It must have induced the other party to
enter into the contract
3. It must have been serious
4. It must have resulted in damage and injury
to the party seeking annulment
Art. 1338. There is fraud when, through insidious words or machinations
of one of the contracting parties, the other is induced to enter into a
contract which, without them, he would not have agreed to. (1269)
Art. 1339. Failure to disclose facts, when there is a duty to reveal them,
as when the parties are bound by confidential relations, constitutes
fraud. (n)
Art. 1340. The usual exaggerations in trade, when the other party had
an opportunity to know the facts, are not in themselves fraudulent. (n)
Art. 1341. A mere expression of an opinion does not
signify fraud, unless made by an expert and the other
party has relied on the former's special knowledge. (n)
Art. 1342. Misrepresentation by a third person does not
vitiate consent, unless such misrepresentation has
created substantial mistake and the same is mutual. (n)
Art. 1343. Misrepresentation made in good faith is not
fraudulent but may constitute error. (n)
Art. 1344. In order that fraud may make a contract
voidable, it should be serious and should not have been
employed by both contracting parties.
Incidental fraud only obliges the person employing it to
pay damages. (1270)
1344 - Notes
FRAUD
Refers to all kinds of deception – whether through
insidious machination, manipulation, concealment or
misrepresentations that would lead an ordinarily prudent
person into error after taking the circumstances into
account.
In contracts, a fraud known as dolo causante or causal
fraud is basically a deception used by one party prior to
or simultaneous with the contract, in order to secure the
consent of the other. Needless to say, the deceit
employed must be serious.
In contradistinction, only some particular or accident of
the obligation is referred to by incidental fraud or dolo
incidente, or that which is not serious in character and
without which the other party would have entered into
the contract anyway.
STANDARD PROOF FOR FRAUD Article
1344
CLEAR and CONVINCING EVIDENCE
It is less then proof beyond reasonable doubt
(for criminal cases) but greater than
preponderance of evidence (for civil cases).
The degree of believability is higher than that
of an ordinary civil case.
FRAUD
BAD FAITH
Must be established by
clear
and
convincing
evidence, preponderance
of evidence is inadequate
Imports
a
dishonest
purpose or some moral
obliquity and conscious
doing of a wrong, not
simply bad judgment or
negligence.
Art. 1345. Simulation of a contract may be
absolute or relative. The former takes place
when the parties do not intend to be bound
at all; the latter, when the parties conceal
their true agreement. (n)
Art. 1346. An absolutely simulated or
fictitious contract is void. A relative
simulation, when it does not prejudice a
third person and is not intended for any
purpose contrary to law, morals, good
customs, public order or public policy binds
the parties to their real agreement. (n)
ABSOLUTE SIMULATION
There is a colorable contract but
it has no substance as the parties
has no intention to be bound by
it. The apparent contract is not
really desired or intended to
produce legal effect. It is VOID.
RELATIVE SIMULATION
If the parties state a false cause in the
contract to conceal their real agreement,
the parties are still bound by the real
agreement.
SECTION 2. - Object of Contracts
Art. 1347. All things which are not outside the commerce of men, including future things,
may be the object of a contract. All rights which are not intransmissible may also be the
object of contracts.
No contract may be entered into upon future inheritance except in cases expressly
authorized by law.
All services which are not contrary to law, morals, good customs, public order or public
policy may likewise be the object of a contract. (1271a)
Art. 1348. Impossible things or services cannot be the object of contracts. (1272)
Art. 1349. The object of every contract must be determinate as to its kind. The fact that the
quantity is not determinate shall not be an obstacle to the existence of the contract,
provided it is possible to determine the same, without the need of a new contract between
the parties. (1273)
No contract may be entered into upon future inheritance except
in cases expressly authorized by law
REQUISITES
1. The succession has not been opened
2. The object of the contract forms part of the inheritance; and
3. The promissor has, with respect to the object, an expectancy of
a right which is purely hereditary in nature
Things
Rights
Services
All things which are not All rights which are not All services which are not
outside the commerce of men transmissible may also be the contrary to law, morals, good
including future things, may be object of a contracts.
customs, public order or public
the object of a contract.
policy may likewise be the
object of contract.
SECTION 3. - Cause of Contracts
Art. 1350. In onerous contracts the cause is understood to be, for each
contracting party, the prestation or promise of a thing or service by the other;
in remuneratory ones, the service or benefit which is remunerated; and in
contracts of pure beneficence, the mere liberality of the benefactor. (1274)
Art. 1351. The particular motives of the parties in entering into a contract are
different from the cause thereof. (n)
Art. 1352. Contracts without cause, or with unlawful cause, produce no effect
whatever. The cause is unlawful if it is contrary to law, morals, good customs,
public order or public policy. (1275a)
WHAT IS CAUSE?
In general, the cause is the WHY of the
contract or the essential reason which
moves the contracting parties to enter into
the contract. For the cause to be valid, it
must be lawful such that it is not contrary
to law, morals, good customs, public order
or public policy.
Cause is the essential reason which moves
the contracting parties to enter into it. In
other words, the cause is the immediate,
direct and proximate reason which justifies
the creation of an obligation through the will
of the contracting parties.
Cause and Consideration
In onerous contracts the cause is understood to be, for each
contracting party, the prestation or promise of a thing or service by
the other.
In remuneratory contracts, the cause is the service or benefit which is
remunerated.
Cause in gratuitous contracts, the mere liberality of the benefactor.
In our jurisdiction, cause and
consideration are used
interchangeably.
Art. 1353. The statement of a false cause in contracts shall render
them void, if it should not be proved that they were founded upon
another cause which is true and lawful. (1276)
Art. 1354. Although the cause is not stated in the contract, it is
presumed that it exists and is lawful, unless the debtor proves the
contrary. (1277)
Art. 1355. Except in cases specified by law, lesion or inadequacy of
cause shall not invalidate a contract, unless there has been fraud,
mistake or undue influence. (n)
1355 – Notes
GENERAL RULE
Lesion or inadequacy or inadequacy of
cause shall not invalidate a contract.
EXCEPTIONS:
1. In cases specified by law
2. When there has been fraud
3. When there has been mistake; and
4. When there has been undue influence
CHAPTER 3
FORM OF CONTRACTS
Art. 1356. Contracts shall be obligatory, in whatever form they may have been
entered into, provided all the essential requisites for their validity are present.
However, when the law requires that a contract be in some form in order that
it may be valid or enforceable, or that a contract be proved in a certain way,
that requirement is absolute and indispensable. In such cases, the right of the
parties stated in the following article cannot be exercised. (1278a)
Art. 1357. If the law requires a document or other special form, as in the acts
and contracts enumerated in the following article, the contracting parties may
compel each other to observe that form, once the contract has been
perfected. This right may be exercised simultaneously with the action upon
the contract. (1279a)
A certain form may be prescribed by law for any of the following purposes:
Validity of Contract
Enforceability of Contract
When the form required is for
validity, its non-observance
renders the contract VOID and
of no effect.
When the required form is for
enforceability, non-compliance
therewith will not permit,
upon the objection of a party,
the
contract,
although
otherwise valid to be proved
or enforce by action.
Greater Efficacy or
Convenience
Formalities
intended
for
greater efficacy or convenience
or to bind third persons, if not
done, would not adversely
effect
the
validity
or
enforceability of the contract
between
the
contracting
parties themselves.
1356 Note
However, when the law requires that a contract be in some form in order that it may be valid
or enforceable, or that a contract be proved in a certain way, that requirement is absolute
and indispensable.
To be Valid and Enforceable
(Solemn Contracts)
Law requires to be PROVED by some
WRITING of its terms
1. Donation of an immovable property
1. Covered by Statute of Frauds under
that the law requires to be embodied in
Article 1403(2) off the Civil Code.
a public instrument in order that the
donation may be valid, existing or
2. Their existence not being provable by
binding. (Art. 1318)
mere oral testimony (unless wholly or
2. Donations of movables worth more
partly executed), these contracts are
than P5,000 which must be in writing,
exceptional in requiring a writing
otherwise the donation is void. (Art.
embodying the terms thereof for their
748)
enforceability by action in court.
3. Contracts to pay interest on loans
(mutuum) that must be expressly
stipulated in writing (Art.1956)
Art. 1358. The following must appear in a public document:
(1) Acts and contracts which have for their object the creation, transmission, modification or
extinguishment of real rights over immovable property; sales of real property or of an interest
therein a governed by Articles 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal
partnership of gains;
(3) The power to administer property, or any other power which has for its object an act
appearing or which should appear in a public document, or should prejudice a third person;
(4) The cession of actions or rights proceeding from an act appearing in a public document.
All other contracts where the amount involved exceeds five hundred pesos must appear in
writing, even a private one. But sales of goods, chattels or things in action are governed by
Articles, 1403, No. 2 and 1405. (1280a)
Art. 1403. The following contracts are unenforceable, unless they are ratified:
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases
an agreement hereafter made shall be unenforceable by action, unless the same, or some note or
memorandum, thereof, be in writing, and subscribed by the party charged, or by his agent; evidence,
therefore, of the agreement cannot be received without the writing, or a secondary evidence of its
contents:
(a) An agreement that by its terms is not to be performed within a year from the making thereof;
(b) A special promise to answer for the debt, default, or miscarriage of another;
(c) An agreement made in consideration of marriage, other than a mutual promise to marry;
(d) An agreement for the sale of goods, chattels or things in action, at a price not less than 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;
(e) An agreement of the leasing for a longer period than one year, or for the sale of real property or of an
interest therein;
(f) A representation as to the credit of a third person.
Reference: Obligation and Contracts by Atty. Andrix Domingo, CPA
And New Civil Code