Title II.

- CONTRACTS Classifications of contracts against the limitations of morals, good

CHAPTER 1 The kind of contract entered is not customs, public order or public policy.
GENERAL PROVISIONS determined by its name or title given, but by the Contract must not be contrary to law
Art. 1305. A contract is a meeting of minds between nature or character determined by principles of law, In its specific sense, the law is defined as the
two persons whereby one binds himself, with respect principally the intention of the parties. “rule of conduct, just, and obligatory promulgated by
to the other, to give something or to render some a legitimate authority for common observance and
service. (1254a) Art. 1306. The contracting parties may establish such benefit.
Meaning of Contract stipulations, clauses, terms and conditions as they A contract cannot be given effect if it is
In a contract, there must be at least two (2) may deem convenient, provided they are not contrary contrary to law, because the law is superior to
persons or parties, because it is impossible to contract to law, morals, good customs, public order, or public contract. Acts executed against the provision of the
with himself. policy. (1255a) mandatory of law is considered void unless the law
Contract and Obligation, distinguished Meaning of Valid Contracts authorizes their validity.
Contract is one of the sources of the Valid contracts are those that meet all the Contract must not be contrary to morals
obligation. legal requirements and limitations for the type of Morals deals with norms and right conduct
Obligation is the legal tie or relation itself agreement involved and are, therefore, legally evolved in a community. These norms may differ at
that exists after a contract has been entered into. binding and enforceable. different time and places with each group of people.
There is no contract and there’s no Freedom to Contract guaranteed Contract must not be contrary to good customs
obligation accepted in return for some benefit to The right to enter contract is one of the Customs consist of habits and practices
enjoy. But, an obligation may exist without contract. liberties guaranteed to the individual by the which through long usage have been followed and
Contact and Agreement, distinguished Constitution. However, the constitutional prohibition enforced by society or some part of it as binding rules
Contacts are binding agreements enforceable against the impairment of contractual obligations of conduct. It has the force of law when it is
through legal proceedings in case the other party does refers to legally valid contracts. recognized and enforced by the law.
not comply with his obligation under the agreement. Limitations on Contractual Obligations Ex: slapping elderly
To be valid, a contract must be lawful, and all the 1. Law. It is a fundamental requirement that a Contact must not be contrary to public order
requisites for its validity must be present. contract entered into is in accordance with Public order refers principally to public
Those agreements which cannot be enforced and not repugnant to, an applicable statute. safety.
by action of the court is not a contract but merely Its terms are embodied in every contract. Ex: Rent of a house
social or moral agreements. An agreement is broader The law thus sets limits. Contract must not be contrary to public policy
than a contract, because the former may not have all 2. Police Power. When there is no law in Public policy is broader than public order, as
the elements of a contract to create legally existence or when the law is silent, the right the former do not refer only on public safety but also
enforceable obligations. of the parties prevails unless it contravenes
considerations which are moved by the common 4. The custom of the place. the court will decide what is equitable under
good. circumstances.
Ex: Justice to be served (punishment) Art. 1308. The contract must bind both contracting
parties; its validity or compliance cannot be left to the Art. 1311. Contracts take effect only between the
Art. 1307. Innominate contracts shall be regulated by will of one of them. (1256a) parties, their assigns and heirs, except in case where
the stipulations of the parties, by the provisions of Contracts bind both contracting parties. the rights and obligations arising from the contract
Titles I and II of this Book, by the rules governing A contract is an agreement which gives rise are not transmissible by their nature, or by stipulation
the most analogous nominate contracts, and by the to obligations. It must bind both parties in order that or by provision of law. The heir is not liable beyond
customs of the place. (n) it can be enforced against either. Without this the value of the property he received from the
Classification of contracts according to its name equality, it cannot be said that the contract has the decedent.
or designation force of law between them. If a contract should contain some stipulation in favor
1. Nominate contract or that which has a of a third person, he may demand its fulfillment
specific name or designation. Art. 1309. The determination of the performance provided he communicated his acceptance to the
Ex: lease, commodatum, sale, agency, barter may be left to a third person, whose decision shall not obligor before its revocation. A mere incidental
or exchange be binding until it has been made known to both benefit or interest of a person is not sufficient. The
2. Innominate Ccntracts or that which has no contracting parties. (n) contracting parties must have clearly and deliberately
specific name or designation in law. Determination of performance by a third person conferred a favor upon a third person. (1257a)
Kinds: do ut facias, facio ut des, facio ut On the above provision, the determination of Persons Affected by the Contract
facias the performance may be left to the third person. The 1. General Rule- The party’s rights and
Reasons for innominate contracts decision, however, shall bind both parties only after it obligations are transmissible to successors.
The impossibility to anticipate all forms of has been made known to both of them. Under the article, contracts take effect only
agreement, on one hand, justify its provision. between the parties, their assigns and
A contract, will not, therefore, be invalid for Art. 1310. The determination shall not be obligatory successor.
failure to conform strictly to the standard contracts if it is evidently inequitable. In such case, the courts 2. Exceptions- The cases when the contract is
outlined in the Civil Code. shall decide what is equitable under the effective only on the parties are when the
Rules governing innominate contracts circumstances. (n) rights and obligations are not transmissible:
1. Agreement of contracting parties. Effect where determination is inequitable o by their nature
2. Provision of the Civil Code on obligations A contracting party is not bound if it is o by stipulation
and contracts. evidently inequitable or unjust as when the third o by the provision of law
3. Rules governing the most analogous person acted in bad faith or by mistake. In such case,
contracts.
Cases when strangers or third persons affected by seeks to discharge by means of the right, are bound thereby even if they were not parties
the contract stipulation. to the contract. A real right is binding against the
Third Person is one who has not taken any REQUISITES OF STIPULATION POUR whole world and attaches to the property over which
part on the contract, and is, therefore, stranger to AUTRUI it is exercised wherever it goes.
contract. As a general rule, a third person has no right 1. The contracting parties by their stipulation
and obligations under the contract which he is a must have a clearly and deliberately Art. 1313. Creditors are protected in cases of
stranger. He has no standing in law to demand the conferred a favor upon a third person; contracts intended to defraud them. (n)
enforcement of a contract or question its validity. 2. The third person must have communicated Right of creditor to impugn contracts intended to
CASES WHEN A THIRD PERSON IS AFFECTED his acceptance to the obligor before its defraud them.
BY A CONTRACT revocation by the oblige or the original It is another qualification to the rule that
1. Stipulation pour autrui parties; contracts take effect only between parties. The
2. contracts creating real rights 3. The stipulation in favor of the third person creditor is given to the right to impugn the contracts
3. contracts entered to defraud creditors should be a part, not a whole, of the of his debtor to defraud him.
4. contracts which have been violated due to contract;
the inducement of a third person 4. The favorable stipulation should not be Art. 1314. Any third person who induces another to
MEANING OF STIPULATION POUR AUTRUI conditioned or compensated by any kind of violate his contract shall be liable for damages to the
Stipulation Pour Autrui is a stipulation obligation whatever; and other contracting party. (n)
clerly and deliberately conferring a favor upon a third 5. Neither of the contracting parties bears the Liability of third person responsible for breach of
person who has a right to demand its fulfillment legal representation or authorization of the contract
provided that he communicates his acceptance to the third party, otherwise the rule of agency will This is a rule of American Law.
obligor before its revocation by the oblige or original apply. This article recognizes an instance when a
parties. stranger to a contract can be sued for damages for his
CLASSES OF STIPULATION POUR AUTRUI Art. 1312. In contracts creating real rights, third unwarranted interference with the contract. It
1. Done-Beneficiary persons who come into possession of the object of the presupposes that the contract interfered is valid and
The stipulation is intended for the sole contract are bound thereby, subject to the provisions the third person has a knowledge to the existence of
benefit of such person, It confers a gift, it of the Mortgage Law and the Land Registration the contract.
being necessary to apply the rules relating to Laws. (n)
donations as a form of acceptance. Third Persons are bound by contracts; creating Art. 1315. Contracts are perfected by mere consent,
2. Creditor-Beneficiary real rights. and from that moment the parties are bound not only
The obligation is due from the promise to Third Persons who came into possession of to the fulfillment of what has been expressly
pay to the third person which the former the object of a contract over which there is a real stipulated but also to all the consequences which,
according to their nature, may be in keeping with How contracts are perfected? Unauthorized contracts can be cured on by
good faith, usage and law. (1258) 1. Consensual Contracts are perfected by RATIFICATION
Art. 1316. Real contracts, such as deposit, pledge mere consent of the parties regarding the The defect is that it cannot be cured except
and Commodatum, are not perfected until the subject matter and cause of the contract. by subsequent ratification of the person in whose
delivery of the object of the obligation. (n) 2. Real Contracts, the exceptions are so-called name the contract was entered into or by his duly
Classification of contracts according to Perfection real contracts which are perfected not only authorized agent and not by any other person not so
1. Consensual Contracts or that which is by mere consent but by delivery, actual, or empowered.
perfected by mere consent. constructive, of the object of the obligation. When a person is bound by the contract of
2. Real Contract or that which is perfected by 3. Solemn Contracts is when the law requires another
the delivery of the thing subject matter of that a contract may be in some form to be TWO REQUISITES
the contract. valid, this special form is necessary for its 1. The person entering into the contract must
3. Solemn Contract or that which requires perfection. be duly authorized, expressly or impliedly,
compliance with certain formalities by the person in whose name he contracts or
prescribed by law, such prescribed being Art. 1317. No one may contract in the name of he must have, by law, a right to represent
thereby an essential element thereof. another without being authorized by the latter, or him; and
Stages in the life of a Contract unless he has by law a right to represent him. 2. He must act within his power.
1. Preparation or Negotiation includes all the A contract entered into in the name of another by one  
steps taken by the parties leading to the who has no authority or legal representation, or who  
perfection of the contract. This point, the has acted beyond his powers, shall be unenforceable,
parties have not yet arrived at any definite unless it is ratified, expressly or impliedly, by the
agreement. person on whose behalf it has been executed, before
2. Perfection or Birth is when the parties have it is revoked by the other contracting party. (1259a)
come to a definite agreement or meeting of Unauthorized Contracts are Unenforceable
the minds regarding the subject matter and As a general rule, a person is not bound by
cause of the contract. the contract of another of which he has no knowledge
3. Consummation or Termination is when or to which he has not given his consent. Thus, under
the parties have performed their respective the article, a contract entered into in the name of
obligations and the contract may be said to another by one who has no authority is
have been fully accomplished or executed, UNENFORCEABLE against the former unless it is
resulting in extinguishment or termination RATIFIED by him before it is revoked by another
thereof. party.
 CHAPTER 6 3. The rescission must be based upon a 1. Contracts entered into in behalf of wards
RESCISSIBLE CONTRACTS especially provided by law. A ward is a person under guardianship by
4. There must be no other legal remedy to reason of some incapacity.
Art. 1380. Contracts validly agreed upon may be obtain reparation for the damage. 2. Contracts agreed upon in representation
rescinded in the cases established by law. (1290) 5. The party asking for rescission must be able of absentees
Meaning of Rescissible Contracts to return what he is obliged to restore by An absentee is a person who disappears
Rescissible Contracts are those validly reason of the contract, from his domicile his whereabouts being
agreed upon because all the essential elements exist 6. The object of the contract must not legally unknown, and without leaving an agent to
and, therefore legally effective, but in the cases be in the possession of third person who did administer his property.
established by law, the remedy of RESCISSION is not act in bad faith. It must be noted that paragraph 1 and 2
granted in the interest of equity. 7. The period for filling the action for refers only to transactions by guardians
Binding Force of Rescissible Contracts rescission must not have prescribed. and absentees’ representatives. As a
They are VALID and ENFORCEABLE general rule, lesion does not invalidate a
although subject to RESCISSION by the court when Art. 1381. The following contracts are rescissible: contract except only in cases specified by
there is economic damage or prejudice to one of the (1) Those which are entered into by guardians the law.
parties or to a third person. whenever the wards whom they represent suffer 3. Contracts undertaken in fraud of
In a rescissible contracts, there is no defect, lesion by more than one-fourth of the value of the creditors
but by the reason of external facts, its enforcement things which are the object thereof; In order that the fraud of creditors may be a
would be INJUSTICE. (2) Those agreed upon in representation of absentees, valid ground for rescission, the following
Meaning of Rescission if the latter suffer the lesion stated in the preceding requisites must be present.
Rescission is a remedy granted by law to the number; o There must be an existing credit
contracting parties and sometimes even to third (3) Those undertaken in fraud of creditors when the prior to the contract to be
person in order to secure reparation of damages latter cannot in any other manner collect the claims rescinded, although it is not yet due
caused them by a valid contract, by means of the due them; or demandable.
restoration of things to their condition in which they (4) Those which refer to things under litigation if o There must be a fraud on the part of
were prior to the celebration of said contract. they have been entered into by the defendant without the debtor which may be presumed
Requisites of Rescission the knowledge and approval of the litigants or of or proved.
1. The contract must be validly agreed upon; competent judicial authority; o The creditor cannot recover his
2. There must be lesion or pecuniary prejudice (5) All other contracts specially declared by law to be credit in any other manner, it not
to one of the parties or to a third person; subject to rescission. (1291a) being required that the debtor be
SIX Cases of Rescissible Contracts insolvent.
Where the fraud charged is not the one used to obtain when the inferior value of the thing contract to obtain satisfaction for his claim or redress
a party’s consent to a contract, it can only be a fraud sold exceeds one-tenth of the price for the damage caused even if the contract is covered
of creditors that gives rise to the rescission of the agreed upon. by Article 1381.
offending contract. If the damage is repaired, as in the case of
4. Contracts which refer to the things Art. 1382. Payments made in a state of insolvency lesion suffered by the ward or absentee, rescission
under litigation for obligations to whose fulfillment the debtor could cannot take place.
5. Other instances not be compelled at the time they were effected, are
Specific contracts subject to rescission also rescissible. (1292) Art. 1384. Rescission shall be only to the extent
are as follows: Payments made in a state of insolvency necessary to cover the damages caused. (n)
o A partition, judicial or A debtor is insolvent if he does not have Extent of Rescission
extrajudicial, may also be rescinded sufficient properties to meet his obligations. It is not The entire contract need not be set aside by
on account of lesion, when any one necessary that the debtor’s insolvency be judicially rescission if the damage can be repaired or covered
of the co-heirs received things declared. by partial rescission. The rescission shall only be to
whose value is less by at least one- Under this article, the payment must have the extent of the creditor’s unsatisfied credit. The
fourth than the share to which he is been made “for obligations to whose fulfillment the policy of the law is to preserve or respect the
entitled, considering the value of debtor could not be compelled at the time they were contract, not to extinguish it.
the thing at the time they were effected”. Included in the obligations referred to are
adjudicated. not only those that have not yet become due and Art. 1385. Rescission creates the obligation to return
o If the lessor or the lessee should not demandable but also those which cannot be legally the things which were the object of the contract,
comply with the obligations set demanded such as natural obligations and those that together with their fruits, and the price with its
forth in Article 1654 and 1657, the have prescribed. interest; consequently, it can be carried out only
aggrieved party may ask for the when he who demands rescission can return whatever
rescission of the contract and the Art. 1383. The action for rescission is subsidiary; it he may be obliged to restore.
indemnification for damages, or cannot be instituted except when the party suffering Neither shall rescission take place when the things
only the latter, allowing the damage has no other legal means to obtain reparation which are the object of the contract are legally in the
contract to remain in force. for the same. (1294) possession of third persons who did not act in bad
o Under Article 1539, the vendee Nature of action for rescission faith.
may exercise the remedy of Rescission under article 1383 is not a In this case, indemnity for damages may be
rescission when the lack in the area principal remedy.7 It is only subsidiary and can be demanded from the person causing the loss. (1295)
of the real estate sold be not less availed of only if the injured party proves that he has Rescission creates obligation of mutual restitution
than one-tenth of that stated, or no other legal means aside from rescinding the
 When the court declares a contract be to demand indemnity for damages from debtor of his property. However, the instances
rescinded, the parties must return to each other: the person who caused the loss. mentioned are not exclusive of others that may be
o the object of the contract with its fruits proved in any other manner recognized by the law of
o the price thereof with legal interest Art. 1386. Rescission referred to in Nos. 1 and 2 of evidence.
The purpose of rescission is to restore the Article 1381 shall not take place with respect to 1. Alienation by gratuitous life
parties their original situation. The law presumes contracts approved by the courts. (1296a) 2. Alienation by onerous life
that the party who received the object of the contract Contracts approved by the courts Circumstances denominated as badges of fraud
has enjoyed the fruits thereof while the other has used If a contract entered into in behalf of a ward or “In the consideration of whether or not certain
the money which is the price of the object, with absentee has been approved by the court, rescission transfers are fraudulent, courts have laid down certain
respect to the fruits, the rules on possession govern. cannot take place because it is valid whether there is rules by which the fraudulent character of the
Obligation of third person to restore lesion or not. The law presumes that the court is transaction may be determined. The following are
The clause “he who demands rescission” acting in the interests of the ward or absentee when it some of the circumstances attending sales which have
applies also to third person. Of course, if the third approves the contract in spite of the lesion. been denominated by the courts as badges of fraud:
person has nothing to restore, the article does not 1. The fact that the consideration of the
apply. The law does not require the impossible. Art. 1387. All contracts by virtue of which the debtor conveyance is fictitious or inadequate;
Thus, where a contract is rescinded on the alienates property by gratuitous title are presumed to 2. A transfer made by a debtor after suit has
ground that it has been entered into in fraud of have been entered into in fraud of creditors, when the been begun and while it is pending against
creditors, the plaintiff creditor has no obligation to donor did not reserve sufficient property to pay all him;
return anything since he has received nothing. debts contracted before the donation. 3. A sale upon credit by an insolvent debtor;
When rescission not allowed Alienations by onerous title are also presumed 4. The transfer of all his property by a debtor
1. The remedy of rescission cannot be availed fraudulent when made by persons against whom especially when he is insolvent or greatly
of it the party who demands rescission some judgment has been issued. The decision or embarrassed financially;
cannot return what he is obliged to restore attachment need not refer to the property alienated, 5. The fact that the transfer is made between
under the contract. and need not have been obtained by the party seeking father and son, when there are present some
2. Neither shall rescission take place, if the the rescission. or any of the above circumstances;
property is legally in the possession of a In addition to these presumptions, the design to 6. The failure of the vendee to take exclusive
third person who acted in good faith (par. defraud creditors may be proved in any other manner possession of all the property; and
2.), that is to say, he acquired the property recognized by the law of evidence. (1297a) 7. It was known to the vendee that the vendor
and registered it in the Registry of Property When alienation presumed in fraud of creditors had no properties other than that sold to him.
unaware of the fl aw in his title or mode of The provision establishes prima facie
acquisition. In such case, the remedy would presumptions of fraud in the case of alienation by the
Art. 1388. Whoever acquires in bad faith the things Art. 1389. The action to claim rescission must be CHAPTER 7
alienated in fraud of creditors, shall indemnify the commenced within four years. VOIDABLE CONTRACTS
latter for damages suffered by them on account of the For persons under guardianship and for absentees, the
alienation, whenever, due to any cause, it should be period of four years shall not begin until the Art. 1390. The following contracts are voidable or
impossible for him to return them. termination of the former's incapacity, or until the annullable, even though there may have been no
If there are two or more alienations, the first acquirer domicile of the latter is known. (1299) damage to the contracting parties:
shall be liable first, and so on successively. (1298a) Period for filing action for rescission (1) Those where one of the parties is incapable of
Liability of purchaser in bad faith As a general rule, the action to rescind giving consent to a contract;
The purchaser in bad faith, who acquired the contracts must be commenced within four (4) years (2) Those where the consent is vitiated by mistake,
object of the contract alienated in fraud of creditors, from the date the contract was entered into. The violence, intimidation, undue influence or fraud.
must return the same if the sale is rescinded (see Art. exceptions are: These contracts are binding, unless they are annulled
1383.) and should it be impossible for him to return it (1) For persons under guardianship, the period shall by a proper action in court. They are susceptible of
due to any cause, he must indemnify the former. begin from the termination of incapacity; and ratification. (n)
Should there be two or more alienations, the first (2) For absentees, from the time the domicile is Meaning of Voidable Contracts
acquirer shall be liable first, and so on successively. known. Voidable or annullable contracts are those
Persons entitled for filing action for rescission which possess all the essential requisites of a valid
Meaning of purchaser in good faith May be brought by: contract but one of the parties is legally incapable of
A purchaser in good faith is one who buys 1. The injured party or the defrauded creditor; giving consent, or consent is vitiated by mistake,
the property of another without notice that some 2. his heirs, assigns, or successors, in interest; violence, intimidation, undue influence, or fraud.
other person has a right to, or interest in, such or Thus, there are only two (2) types of
property and pays a full and fair price for the same, at 3. the creditors of the above entitled to voidable contracts.
the time of such purchase, or before he has notice of subrogation. Binding Force of Voidable Contracts
the claim or interest of some other person in the They are valid and binding between the
property. A party’s mere refusal to believe that a   parties unless annulled by proper action in court by
defect exists or his willful closing of his eyes to the the injured party.
possibility of the existence of a defect in his vendor’s Once ratified, they become absolutely valid
title, will not make him an innocent purchaser for and can no longer be annulled.
value, if it afterwards develops that the title was in Note: The existence of economic damage is not
fact defective. essential for their annulment as in case of rescissible
contracts.
Kinds of Voidable Contracts
 A contract otherwise legal in object and the court, a party cannot relieve himself from the on the part of the ratifier to be bound to the
operation is voidable because of the defect caused by obligations arising therefrom. provisions of the contract.
either; The four year period for bringing an action (2) Ratification cleanses the contract from all its
1. Legal incapacity to give consent, where one for annulment of a voidable contract is reckoned: defects from the moment it was constituted. (Art.
of the parties is incapable of giving consent (1) In case of intimidation, violence, or undue 1396.) The contract thus becomes valid. (Art. 1390.)
to the contract; or influence, from the time the intimidation, etc. ceases. Hence, the action to annul is extinguished. (Art.
2. Violation of consent, where the vitiation is Before that time, the consent is still being vitiated 1392)
done by mistake, violence, intimidation, and, therefore, the victim cannot be expected to bring
undue influence, or fraud. an action in court. Art. 1393. Ratification may be effected expressly or
Meaning of annulment (2) In case of mistake or fraud, from the time it is tacitly. It is understood that there is a tacit ratification
Annulment is a remedy as well as a discovered. This must be so because before the time if, with knowledge of the reason which renders the
sanction provided by law, for reason of public of discovery, the innocent party is unaware of the contract voidable and such reason having ceased, the
interest, for the declaration of the inefficacy of a reason which renders the contract voidable (Art. person who has a right to invoke it should execute an
contract based on a defect or vice in the consent of 1393.) and cannot also be expected to bring an action act which necessarily implies an intention to waive
one of the contracting parties in order to restore them in court. Furthermore, the guilty party should not be his right. (1311a)
to their original position in which they were before rewarded for successfully hiding the mistake or Kinds of ratification
the contract was executed. fraud. They are:
(3) In the case of contracts entered into by minors or (1) Express is when the ratification is
Art. 1391. The action for annulment shall be brought other incapacitated persons, from the time the manifested in words or in writing; or
within four years. guardianship ceases. In the case of a minor, (2) Implied or tacit means it may take
This period shall begin: guardianship ceases upon reading the age of majority. diverse forms, such as by silence or acquiescence; by
In cases of intimidation, violence or undue influence, An incapacitated person has no capacity to sue. acts showing adoption or approval of the contract; or
from the time the defect of the consent ceases. by acceptance and retention of benefits fl owing
In case of mistake or fraud, from the time of the Art. 1392. Ratification extinguishes the action to therefrom. Requisites of ratification
discovery of the same. annul a voidable contract. (1309a) (1) The requisites for implied ratification are the
And when the action refers to contracts entered into Meaning and effect of ratification following:
by minors or other incapacitated persons, from the (1) Ratification means that one under no disability (a) There must be knowledge of the reason
time the guardianship ceases. (1301a) voluntarily adopts and gives sanction to some which renders the contract voidable; (b) Such
Period for filling action for annulment defective or unauthorized contract, act, or preceding reason must have ceased; and
Direct court action is necessary to annul a which, without his subsequent sanction or consent,
voidable contract, and until annulled or set aside by would not be binding or him. It indicates an intention
 (c) The injured party must have executed an conveniently disregard his contract by the simple Right of strangers to bring action
act which necessarily implies an intention to waive expedient of refusing to give his conformity. One who is not a party to the contract or an
his right. assignee thereunder, or does not represent those who
(2) The requisites for express ratification are the Art. 1396. Ratification cleanses the contract from all took part therein, has, under Article 1397, no legal
same as those for implied ratification except that the its defects from the moment it was constituted. capacity to challenge the validity of such contract.
former is effected expressly. (1313) Strangers, therefore, are without right or
Effect of ratification retroactive personality to bring the action for they are not
Art. 1394. Ratification may be effected by the Ratification purges the contract of all its obliged by the contract, principally or subsidiarily,
guardian of the incapacitated person. (n) defects (Art. 1390.) from the moment it was unless they can show detriment which would
Who may ratify executed. It extinguishes the action to annul. (Art. positively result to them from the contract in which
(1) A contract entered into by an incapacitated person 1392.) In other words, the effect of ratification is to they had no intervention or participation.
may be ratified by: make the contract valid from its inception subject to Guilty party without right to bring action
(a) the guardian; or the prior rights of third persons. The guilty party, including his successors in
(b)the injured party himself, provided, he is interest cannot ask for annulment. This rule is
already capacitated. Art. 1397. The action for the annulment of contracts sustained by the principle that he who comes to court
As legal representatives of their wards, may be instituted by all who are thereby obliged must come with clean hands.
guardians have the power to contract on their behalf. principally or subsidiarily. However, persons who are Art. 1398. An obligation having been annulled, the
Hence, they may also ratify contracts entered into by capable cannot allege the incapacity of those with contracting parties shall restore to each other the
their wards. whom they contracted; nor can those who exerted things which have been the subject matter of the
(2) In case the contract is voidable on the ground of intimidation, violence, or undue influence, or contract, with their fruits, and the price with its
mistake, etc., ratification can be made by the party employed fraud, or caused mistake base their action interest, except in cases provided by law.
whose consent is vitiated. upon these flaws of the contract. (1302a) In obligations to render service, the value thereof
Party entitled to bring an action to annul shall be the basis for damages. (1303a)
Art. 1395. Ratification does not require the Two different requisites are required to Duty of Mutual Restitution upon Annulment
conformity of the contracting party who has no right confer the necessary capacity to bring an action for 1. If the contract is annulled, the parties, as
to bring the action for annulment. (1312) annulment of a contract, to wit: (1) The plaintiff general rule, must restore to each other (a)
Conformity of guilty party to ratification not must have an interest (see Art. 1311.) in the contract; the subject matter of the contract with its
required and fruits and (b) the price thereof with legal
Ratification is a unilateral act by which a (2) The victim and not the guilty party or the interest.
party waives the defect in his consent. The consent of party responsible for the defect is the person who 2. In personal obligation, where the service had
the guilty party is not required; otherwise, he can must assert the same. already been rendered, the value thereof
 with corresponding interest, is the basis for (defendant), there is no more obligation to return (2) Under the second paragraph, the right of
damages, recoverable from the party such thing. But in such a case, the other cannot be action is based upon the incapacity of any one of the
benefited by the service. compelled to restore what in virtue of the decree of contracting parties. Whether the right of action is
annulment he is bound to return. (Art. 1402.) based upon incapacity or not, the rule is the same.
Art. 1399. When the defect of the contract consists in (2) If it is lost through his fault, his
the incapacity of one of the parties, the incapacitated obligation is not extinguished but is converted into an Art. 1402. As long as one of the contracting parties
person is not obliged to make any restitution except indemnity for damages consisting of the value of the does not restore what in virtue of the decree of
insofar as he has been benefited by the thing or price thing at the time of the loss with interest from the annulment he is bound to return, the other cannot be
received by him. (1304) same date and the fruits received from the time the compelled to comply with what is incumbent upon
Restitution by incapacitated person thing was given to him to the time of its loss. him. (1308)
This provision is an exception to the general Effect where a party cannot restore what he is
rule of mutual restitution under the preceding article. Art. 1401. The action for annulment of contracts bound to return
The incapacitated person is obliged to make shall be extinguished when the thing which is the When a contract is annulled, a reciprocal
restitution only to the extent that he was benefi ted by object thereof is lost through the fraud or fault of the obligation of restitution is created. The return by one
the thing or price received by him. It results, person who has a right to institute the proceedings. party of what he is obliged to restore by the decree of
therefore, that if he was not benefi ted, he is not If the right of action is based upon the incapacity of annulment may be regarded as a condition to the
obliged to restore what he had received but the other any one of the contracting parties, the loss of the fulfillment by the other of what is incumbent upon
contracting party is still bound to return what he had thing shall not be an obstacle to the success of the him. (see Art. 1191.) In effect, there will be no
received, whether he was benefited or not. action, unless said loss took place through the fraud annulment if the party cannot restore what he is
An exception to the rule of mutual or fault of the plaintiff. (1314a) bound to return. This is true even if the loss is due to
restitution is also provided in Article 1427. (infra.) Extinguishment of action for annulment a fortuitous event. (see comments under Art. 1400.)
(1) If the person, who has a right to institute  
Art. 1400. Whenever the person obliged by the an action for annulment (Art. 1397.), will not be able
decree of annulment to return the thing can not do so to restore the thing which he may be obliged to return
because it has been lost through his fault, he shall in case the contract is annulled because such thing is
return the fruits received and the value of the thing at lost through his fraud or fault, his right to have the
the time of the loss, with interest from the same date. contract annulled is extinguished. If the loss is not
(1307a) due to his fault or fraud, Article 1402 applies. The
Effect of loss of thing to be returned action for annulment shall be extinguished only if the
(1) If the thing to be returned is lost without loss is through the fault or fraud of the plaintiff.
the fault of the person obliged to make restitution
 CHAPTER 8 kind of property sold, terms of sale, price, names of The above contracts indicate the three types
UNENFORCEABLE CONTRACTS (n) the purchasers and person on whose account the sale of defects that render them UNENFORCEABLE.
is made, it is a sufficient memorandum; Meaning of unauthorized contracts
Art. 1403. The following contracts are (e) An agreement of the leasing for a longer period Unauthorized contracts are those entered
unenforceable, unless they are ratified: than one year, or for the sale of real property or of an into in the name of another person by one who has
(1) Those entered into in the name of another person interest therein; been given no authority or legal representation or
by one who has been given no authority or legal (f) A representation as to the credit of a third person. who has acted beyond his powers.
representation, or who has acted beyond his powers; (3) Those where both parties are incapable of giving Statute of Frauds
(2) Those that do not comply with the Statute of consent to a contract. The term “statute of frauds’’ is descriptive
Frauds as set forth in this number. In the following Meaning of unenforceable contracts of statutes which require certain classes of contracts
cases an agreement hereafter made shall be Unenforceable contracts are those that to be in writing. This statute does not deprive the
unenforceable by action, unless the same, or some cannot be enforced in court or sued upon by reason of parties of the right to contract with respect to the
note or memorandum, thereof, be in writing, and defects provided by law until and unless they are matters therein involved, but merely regulates the
subscribed by the party charged, or by his agent; ratified according to law. formalities of the contract necessary to render it
evidence, therefore, of the agreement cannot be Binding Force of Unenforceable Contracts enforceable. The effect of non-compliance is simply
received without the writing, or a secondary evidence While rescissible and voidable contracts are that no action can proved unless the requirement is
of its contents: valid and enforceable unless they are rescinded or complied with.
(a) An agreement that by its terms is not to be annulled, unenforceable contracts, although VALID, (1) History. — In 1677, the English Parliament
performed within a year from the making thereof; are UNENFORCEABLE in court unless they are enacted a statute to counter the evil practice of giving
(b) A special promise to answer for the debt, default, cured or ratified. Once RATIFIED, these contracts false testimony in actions founded on certain kinds of
or miscarriage of another; may then be enforceable. contracts. It attempted to deal with the prevalence of
(c) An agreement made in consideration of marriage, Kinds of unenforceable contracts successful perjury by making specified contracts
other than a mutual promise to marry; Under Article 1403, the following contracts unenforceable unless evidenced in a prescribed
(d) An agreement for the sale of goods, chattels or are unenforceable: manner — in general, by a written memorandum
things in action, at a price not less than five hundred (1) Those entered into in the name of signed by the party against whom liability under the
pesos, unless the buyer accept and receive part of another by one without or acting in excess of contract was sought to be enforced.
such goods and chattels, or the evidences, or some of authority; Since then, the statute has been called
them, of such things in action or pay at the time some (2) Those that do not comply with the “Statute of Frauds.’’ It has been adopted, in more or
part of the purchase money; but when a sale is made Statute of Frauds; and less modified form, in the Philippine, as set forth in
by auction and entry is made by the auctioneer in his (3) Those where both parties are incapable Article 1403.
sales book, at the time of the sale, of the amount and of giving consent.
(2) Purpose. — The Statute of Frauds has been b) It is applicable only to completely executor 4. Agreement for the sale of goods, etc. at price
enacted not only to prevent fraud and perjury in the contracts and not to contracts which are not less than 500.00.
enforcement of obligations depending for their totally executed. 5. Agreement for leasing for a longer period
evidence on the unassisted memory of witness but c) It is not applicable when the contract is than one year.
also to guard against the mistakes of honest men by admitted expressly, or impliedly by the 6. Agreement for the sale of real property or
requiring that certain agreements specified (Art. failure to deny specifically its existence, no for an interest therein.
1403, No. 2[a-f].) must be in writing signed by the further evidence thereof being required in 7. Representation as to the credit of a third
party to be charged; otherwise, they are such case. person.
unenforceable by action in court. (see Shoemaker vs. d) It is applicable to agreements enumerated
La Tondeña, Inc., 68 Phil. 24 [1939]; Rosencor therein. Thus, an agreement creating an Art. 1404. Unauthorized contracts are governed by
Development Corporation vs. Inquing, supra.) Unless easement of right of way is not covered by Article 1317 and the principles of agency in Title X
they be in writing, there may be no palpable evidence the Statute since it is not sale of real of this Book.
of the intention of the contracting parties and the property of an interest therein. Art. 1405. Contracts infringing the Statute of Frauds,
court must perforce rely upon no other evidence than e) It is not applicable where a writing does not referred to in No. 2 of Article 1403, are ratified by
the mere recollection or memory of witnesses, which express the true agreement of the parties. the failure to object to the presentation of oral
in many times faulty and unreliable. f) It does not declare that contracts infringing evidence to prove the same, or by the acceptance of
(3) Writing under the statute- The Statute does not it are void but merely unenforceable. benefit under them.
require that the contract be contained in a formal g) The defense of the Statute of Frauds may be Modes of ratification under the Statute
written document. The writing may be embodied in a waived. The ratification of contracts infringing the
slip of paper, a letter, a note or memorandum by h) The defense of the statute of frauds is Statute of Frauds may be effected in two ways:
means of a pen, a pencil, or any mechanical device as personal to the parties and cannot be (1) by failure to object to the presentation of
long as it is intelligible and records the intent of the interposed by strangers to the contract. oral evidence to prove the contract. The failure to so
parties. Agreements within the scope of the Statute of object amounts to a waiver and makes the contract as
(4) Application. — Some fundamental principles Frauds binding as if it had been reduced to writing. The
relative to the Statute of Frauds are given hereunder: 1. Agreement not to be performed within one requirement of a written form is evidential purpose
a) The Statute of Frauds is not applicable year form the making thereof. only; and
inactions which are neither for damages 2. Promise to answer for the debt, default, or (2) by acceptance of benefits under the
because of a violation of a contract, nor for miscarriage of another. contract. In this case, the contract is no longer
the specific performance thereof. 3. Agreement in consideration of marriage executory and, therefore, the Statute does not apply.
other than mutual promise to marry. This rule is based upon the familiar principle that one
who has enjoyed the benefits of a transaction should  When unenforceable contract becomes a voidable CHAPTER 9
not be allowed to repudiate its burdens. contract VOID AND INEXISTENT CONTRACTS
Where both parties to a contract are
Art. 1406. When a contract is enforceable under the incapable of giving consent, the contract is Art. 1409. The following contracts are inexistent and
Statute of Frauds, and a public document is necessary unenforceable. (Art. 1403[3].) However, if the parent void from the beginning:
for its registration in the Registry of Deeds, the or guardian, as the case may be, of either party, or if (1) Those whose cause, object or purpose is contrary
parties may avail themselves of the right under one of the parties after attaining or regaining to law, morals, good customs, public order or public
Article 1357. capacity, ratifies the contract, it becomes voidable. policy;
Right of a party where contract enforceable When unenforceable contract becomes a valid (2) Those which are absolutely simulated or
For the application of this provision, there contract fictitious;
must be a valid agreement and the agreement must If the ratification is made by the parents or (3) Those whose cause or object did not exist at the
not infringe the Statute of Frauds. guardians, as the case may be, of both contracting time of the transaction;
(1) Accordingly, a party to an oral sale of parties, or by both contracting parties after attaining (4) Those whose object is outside the commerce of
real property cannot compel the other to put the or regaining capacity, the contract is validated and its men;
contract in a public document for purposes of validity retroacts to the time it was entered into. (5) Those which contemplate an impossible service;
registration because it is unenforceable (Art. 1403[2, (6) Those where the intention of the parties relative to
e].) unless, of course, it has been ratified. (Art. 1405.) Art. 1408. Unenforceable contracts cannot be the principal object of the contract cannot be
(2) Similarly, the right of one party to have assailed by third persons. ascertained;
the other execute a public document is not available Right of third persons to assail an unenforceable (7) Those expressly prohibited or declared void by
in a donation of realty when it is in a private contract law.
instrument because the donation is void. (Art. 1356.) Strangers to a voidable contract cannot bring These contracts cannot be ratified. Neither can the
an action to annul the same (see Art. 1397.); neither right to set up the defense of illegality be waived.
Art. 1407. In a contract where both parties are can they assail a contract because of its Meaning of void contracts
incapable of giving consent, express or implied unenforceability. The benefit of the Statute can only Void contracts are those which, because of
ratification by the parent, or guardian, as the case be claimed or waived by one who is a party or privy certain defects, generally produce no effect at all.
may be, of one of the contracting parties shall give to the oral contract, not by a stranger. They are considered as inexistent from its
the contract the same effect as if only one of them inception or from the very beginning. The expression
were incapacitated. ‘‘void contract” is, therefore, a contradiction in
If ratification is made by the parents or guardians, as terms. However, the expression is often loosely used
the case may be, of both contracting parties, the to refer to an agreement tainted with illegality.
contract shall be validated from the inception. Meaning of inexistent contracts
 Inexistent contracts refer to agreements (4) Contracts whose object is outside the commerce or made through an intermediary, shall
which lack one or some or all of the elements (i.e., of men. be void.
consent, object, and cause) or do not comply with the (5) Contracts which contemplate an impossible f) Any stipulation that household service
formalities which are essential for the existence of a service. is without compensation shall be void.
contract. (6) Contracts where the intention of the parties g) Under the Constitution, members of
An illegal contract may produce effects relative to the object cannot be ascertained. Congress are prohibited from being
under certain circumstances when the parties are not (7) Contracts expressly prohibited or declared void financially interested, directly or
of equal guilt. by law. indirectly, in any contract, with the
Characteristics of a void or inexistent contract a) Contracts upon future inheritance government, or any subdivision or
1. Generally, it produces no effect whatsoever, except in cases expressly authorized by instrumentality thereof.
being void or inexistent from the beginning; law.
2. It cannot be cured or validated either by time b) Sale of property between husband and Art. 1410. The action or defense for the declaration
or ratification1 (Art. 1409, par. 2.); wife except when there is a separation of the inexistence of a contract does not prescribe.
3. The right to set up the defense of illegality, of property. (Art. 1490.) Action or Defense is imprescriptible
inexistence, or absolute nullity cannot be c) Purchase of property by persons who If a contract is void, a party thereto can
waived (Ibid.); are specially disqualified by law (like always bring a court action to declare it void or
4. The action or defense for the declaration of guardians, agents, executors, inexistent; and a party against whom a void contract
its illegality, inexistence, or absolute nullity administrators, public officers and is sought to be enforced, can always raise the defense
does not prescribe (see Art. 1410.); employees, judges, lawyers, etc.) of nullity, despite the passage of time.
5. The defense of illegality, inexistence, or because of their position or relation Since a void contract has no effect at all, it
absolute nullity is not available to third with the person or property under their is, therefore unnecessary to bring an action to declare
persons whose interests are not directly care. (Art. 1491.) it void. However, it is better that a judicial
affected (see Art. 1421.); and d) Every donation between the spouses declaration of nullity be secured not only to give
6. It cannot give rise to a valid contract. during the marriage shall be void except peace of mind to the parties but also to avoid the
Instances of void or inexistent contracts moderate gifts which the spouses may taking of the law into their own hands.
(1) Contracts whose cause, object or purpose is give each other on the occasion of any
contrary to law, etc. family rejoicing. Art. 1411. When the nullity proceeds from the
(2) Contracts which are absolutely simulated or e) A testamentary provision in favor of a illegality of the cause or object of the contract, and
fictitious. disqualified person, even though made the act constitutes a criminal offense, both parties
(3) Contracts without cause or object. under the guise of an onerous contract, 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 (1) When the fault is on the part of both contracting Art. 1413. Interest paid in excess of the interest
disposal of effects or instruments of a crime shall be parties, neither may recover what he has given by allowed by the usury laws may be recovered by the
applicable to the things or the price of the contract. virtue of the contract, or demand the performance of debtor, with interest thereon from the date of the
This rule shall be applicable when only one of the the other's undertaking; payment.
parties is guilty; but the innocent one may claim what (2) When only one of the contracting parties is at Recovery of usurious interest
he has given, and shall not be bound to comply with fault, he cannot recover what he has given by reason Any rate of interest in excess of the
his promise. (1305) of the contract, or ask for the fulfillment of what has maximum allowed under the Usury Law is usurious
Rules where contract illegal and the act been promised him. The other, who is not at fault, (see comments under Art. 1175.) and if paid, may be
constitutes a criminal offense may demand the return of what he has given without recovered together with interest thereon from the date
(1) Where both parties are in pari delicto. — The any obligation to comply his promise. (1306) of payment in a proper action for the same. (Art.
following are the effects of a contract whose cause or Rules where contract unlawful or forbidden but 1413.)
object constitutes a criminal offense and both parties act not a criminal offense. A stipulation for the payment of usurious
are equally guilty in pari delicto: (1) Where both parties in pari delicto. — If the cause interest is void. The person paying the usurious
(a) The parties shall have no action against each of the contract is unlawful or forbidden but there is interest can recover in an independent civil action not
other; no criminal offense, the rules are as follows: only the interest in excess of that allowed by the
(b) Both shall be prosecuted; and (a) Neither party may recover what he has usury laws, but the whole interest paid.
(c) The things or the price of the contract, as the given by virtue of the contract; and (b) Neither party
effects or instruments of the crime, shall be may demand the performance of the other’s Art. 1414. When money is paid or property delivered
confiscated in favor of the government. undertaking. for an illegal purpose, the contract may be repudiated
(2) Where only one party is guilty- If only one (2) Where only one party is guilty. — If only one by one of the parties before the purpose has been
party is guilty or both parties are not equally guilty, party is guilty or both parties are not equally guilty, accomplished, or before any damage has been caused
the rule in paragraph one applies only to the guilty the following are the rules: to a third person. In such case, the courts may, if the
party or the more guilty party. The innocent one or (a) The guilty party loses what he has given public interest will thus be subserved, allow the party
the less guilty may claim what he has given and shall by reason of the contract; repudiating the contract to recover the money or
not be bound to comply with his promise. (b) The guilty party cannot ask for the property.
fulfillment of the other’s undertaking; Recovery where contract entered into for illegal
Art. 1412. If the act in which the unlawful or (c) The innocent party may demand the purpose
forbidden cause consists does not constitute a return of what he has given; and The following are the requisites for the application of
criminal offense, the following rules shall be (d) The innocent party cannot be compelled this article:
observed: to comply with his promise. (1) The contract is for an illegal purpose;
 (2) The contract is repudiated before the (1) The agreement is not illegal per se but is merely Art. 1417. When the price of any article or
purpose has been accomplished or before any damage prohibited; commodity is determined by statute, or by authority
has been caused to a third person; and (2) The prohibition is designed for the protection of of law, any person paying any amount in excess of
(3) The court considers that public interest the plaintiff; and the maximum price allowed may recover such
will be subserved by allowing recovery. (3) Public policy would be enhanced by allowing the excess.
plaintiff to recover what he has paid or delivered. Recovery of amount paid in excess of ceiling price
Art. 1415. Where one of the parties to an illegal Prohibited sale of land A statute fixing the maximum price of any
contract is incapable of giving consent, the courts (1) A land sold in violation of the article or commodity is usually known as the ceiling
may, if the interest of justice so demands allow constitutional prohibition against the transfer of lands law. It can also be determined by authority of law, as
recovery of money or property delivered by the to aliens may be recovered. The public policy to by Executive Order of the President. Its purpose is to
incapacitated person. conserve lands for the Filipinos would be defeated curb the evils of profi teering or black marketing.
Recovery by an incapacitated person and its continued violation sanctioned if instead of Art. 1418. When the law fixes, or authorizes the
This article is another exception to the in setting the contract aside and ordering the restoration fixing of the maximum number of hours of labor, and
pari delicto rule in Articles 1411-1412. Recovery can of the property, the general rule on pari delicto would a contract is entered into whereby a laborer
be allowed if one of the parties is incapacitated and be applied. And the parties will not be permitted to undertakes to work longer than the maximum thus
the interest of justice so demands. resort to another transaction for the purpose of fixed, he may demand additional compensation for
It is not necessary that the illegal purpose disguising the transfer in violation of the service rendered beyond the time limit.
has not been accomplished or that no damage has Constitution. Recovery of additional compensation for service
been caused to a third person. Accordingly, it has been held that a contract rendered beyond time limit Presidential
whereby an alien is given not only a lease but also an Decree No. 442, as amended, otherwise known as the
Art. 1416. When the agreement is not illegal per se option to buy a parcel of land by virtue of which the Labor Code, sets forth that the normal hours of work
but is merely prohibited, and the prohibition by the Filipino owner cannot sell or otherwise dispose of her of any employee shall not exceed eight (8) hours a
law is designated for the protection of the plaintiff, he property, this to last for 50 years, is a virtual transfer day.
may, if public policy is thereby enhanced, recover of ownership and circumvents the constitutional ban The Labor Code applies to employees in all
what he has paid or delivered. against alien landholding. establishments and undertakings, whether for profit
Recovery where contract not illegal per se (2) The principle of pari delicto is not or not, but not to:
Article 1416 is another exception to the rule that applicable to a homestead which has been illegally (1) government employees;
where both parties are in pari delicto, they will be left sold within the prohibited period of five (5) years in (2) managerial employees;
where they are without relief. Recovery is permitted violation of the homestead law. (3) field personnel;
provided: (4) members of the family of the employer
who are dependent upon him for support;
 (5) domestic helpers; intention of the parties, the latter may be enforced. inexistent and cannot, therefore, give rise to a valid
(6) persons in the personal service of This rule, however, is subject to the contrary contract. For example, a contract of repurchase is
another; and intention of the parties. dependent on the validity of the contract of sale. If
(7) workers who are paid by results. Divisible contract distinguished from divisible the latter is itself void because the seller is not the
obligation owner, the former is also void because it presupposes
Art. 1419. When the law sets, or authorizes the It must be noted that Article 1420 speaks of a valid contract of sale between the same parties.
setting of a minimum wage for laborers, and a a divisible contract and not of a divisible obligation.
contract is agreed upon by which a laborer accepts a (see Arts. 1225, 1183.) The test of the former is the
lower wage, he shall be entitled to recover the divisibility of its cause while the latter, its
deficiency. susceptibility of partial fulfillment. The former,
Recovery of amount of wage less than minimum therefore, refers to the cause, while the latter, to the
fixed prestation or object.
If an employee or worker receives less than
the minimum wage rate, he can still recover the Art. 1421. The defense of illegality of contract is not
deficiency with legal interest (see Art. 128, Pres. available to third persons whose interests are not
Decree No. 442, as amended.), and the employer directly affected.
shall be criminally liable. Persons entitled to raise defense of illegality or
nullity
Art. 1420. In case of a divisible contract, if the illegal In voidable (Art. 1397.) and unenforceable
terms can be separated from the legal ones, the latter contracts (Art. 1408.), third persons are not allowed
may be enforced. to bring an action to annul or to assail, as the case
Effect of illegality where contract may be, said contracts. If the contract is illegal or
indivisible/divisible void, however, even a third person may avail of the
(1) Where the consideration is entire and defense of illegality or set up its illegality as long as
single, the contract is indivisible (or entire) so that if his interest is directly affected by the contract.
part of such consideration is illegal, the whole
contract is void and unenforceable. Art. 1422. A contract which is the direct result of a
(2) Where the contract is divisible (or previous illegal contract, is also void and inexistent.
severable) that is, the consideration is made up of Void contract cannot be novated
several parts, and the illegal ones can be separated This provision is based on the requisites of a
from the legal portions, without doing violence to the valid novation. An illegal contract is void and