CONTRACTS

CHAPTER 1: GENERAL PROVISIONS

CONTRACTS is a meeting of the
minds between two persons whereby
one bids himself, w/respect to other,
to give something or to render some
services.
* MEETING OF THE MINDS exist
when there is consent, if the two
persons agreed of the object & cost.
DISTINGUISH CONTRACTS FROM
OBLIGATION & STIPULATION
Contract Obligation Stipulation
Source of an
obligation
Legal tie or
relation
itself that
exist after
the contract
was entered
into
The
dispositive
part of a
contract
which
cannot be
separated
from the
principal
agreement.
This is the
cause
This is the
effect


DIFFERENT KINDS OF CONTRACTS
ACCORDING TO PERFECTION
A. CONSENSUAL-perfected by mere
consent, such as sale and barter.
B. REAL-perfected by the delivery
of the object of the contract,
such as pledge,
loan & deposit.
ACCORDING TO DEGREE OF
IMPORTANCE
A. PRINCIPAL-can stand alone,
such as sale, barter, deposit &
loan.
B. ACCESSORY-its existence &
validity is dependent upon
another contracts, such as
pledge, mortgage & guaranty.
C. PREPARATORY-contracts is not
an end by itself, but a means
thru which other contracts may
be made.
ACCORDING TO SUBJECT
MATTER
A. Contracts involving things, such
as sale & barter.
B. Contracts involving rights of
credit, such as usufruct or
assignment of credit.
C. Contracts involving services,
such as agency, lease of services
& contract of carriage.
ACCORDING TO CAUSE
A. ONEROUS-there is an exchange
of consideration, such as sale,
barter & lease.
B. GRATUITOUS OR
LUCARATIVE-there is no
consideration received in
exchange for what has been
given, such as donation,
remission & commodatum.
C. REMUNERATORY-something is
given for a benefit or serviced
performed w/out any legal
obligation to do so.

ACCORDING TO RISK
A. COMMUTATIVE-where
equivalent values are given by
both parties, such as sale, barter
& lease.
B. ALEATORY-where fulfillment of
the contract dependent upon
chance, such as insurance.
KINDS OF CONTRACT
ACCORDING TO NAME
A. NOMINATE- are those which
have an individuality of their
own & are governed by special
rules of law.
B. INNOMINATE-are those w/out
any individuality of their own &
are not governed by special rules
but by general rules of contracts.
KINDS OF INNOMINATE CONTRACTS:
1. DO UT DES - I give that you
may give.
2. DO UT FACIAS - I give that you
may do.
3. FACIO UT DES - I do that you
may give.
4. FACIO UT FACIAS- I do that you
may do.
ELEMENTS OF CONTRACTS
ESSENTIAL ELEMENTS-w/out
them a contract cannot exist
because there is a indispensable
requirements. There is a ESSENTIAL
ELEMENTS:
Consent, object & cost.
NATURAL ELEMENTS-these are
found in certain contracts &
presumed to exist, unless excluded
by stipulaton of the parties.
Example is implied warranty in a
contract of sale
ACCIDENTAL EEMENTS-not
considered agreed by the parties
unless stipulated. Example payment
of interest in a contract of loan.
STAGES IN THE LIFE OF A CONTRACT
o PREPARATION OR CONCEPTION-
this is the preparatory step taken by
the parties leading to the perfection
of the contract, otherwise known as
the BARGAINING POINT.
o PERFECTION OR BIRTH-the
meeting of the minds regarding the
subject matter & the cause of the
contract.
o CONSUMMATION OR DEATH OR
TERMINATION-the point in time
when the parties have performed
their respective obligations & the
contract is put to an end.
DISTINGUISH AN ORDINARY
CONTRACT FROM:
A. CONTRACT OF MARRIAGE-in
an ordinary contract, the parties
may be two or more persons of
the same or different sexes,
whereby in a marriage contract, it
is necessary that the parties
must be a man & a woman.
Ordinary contract may be
terminated by mere agreement of
the parties in marriage contract,
the termination is w/ the consent
of the state.
B. OBLIGATION- the contract is the
cause, while obligation is the
effect. There can be an obligation
w/out a contract, but there can
be no contract/out an obligation.
C. PACT- is an incidental part of a
contract which can be separated
from the agreement itself.
D. STIPULATION-is the dispositive
part of a contract which cannot
be separated from the principal
agreement.
BASIC PRINCIPLES OR
CHARACTERISTICS OF A CONTRACT
Freedom ( or liberty) to stipulate.
Obligatory force & compliance in
good faith.
Perfection by mere consent.
Both parties are mutually bound.
Relatively binding between the
parties only, their assigns & heirs.
CONTRACT BY A THIRD PERSON
The decision of the third person is
not binding until it has been made
known to both contracting parties.
EXCEPTION TO THE RULE OF
RELATIVITY
Obligations arising from contract
which are not transmissible by their
nature, stipulation or provision of
law.
When a third person induces
another to violate his contract.
The right of a creditor to sue on a
contract entered into by his debtor.
Stipulation of POUR AUTRUI- in
favor of a third person made by the
contracting parties w/ the clear &
deliberate intention of conferring a
favor upon such third person &
whose fulfillment the latter may
demand by communicating his
acceptance to the obligor before its
revocation.
REQUISITES OF POUR AUTRUI
Stipulation is in favor of a third
person.
The parties clearly & deliberately
conferred the favor to the third
person.
The stipulation must be a part of
the contract.
The acceptance of the third person
must be communicated to the
parties of the contract.
CONTRACT OF DEPOSIT-is constituted
from the moment a person receives a thing
belonging to another, w/the obligation of
safety keeping it & of returning the same.
CONTRACT OF PLEDGE-is the delivery of
a personal property by a debtor to a
creditor as security for a debt.
CONTRACTS ENTERED INTO IN THE
NAME OF ANOTHER as a rule, no one
may contract in the name of another,
except:
A. If the authorized by the person
whom he represents.
B. If his right to represent is provided
by law.
UNENFORCEABLE CONTRACTS-
contracts entered into in the name of
another by one who is not authorized are
unenforceable. This defective contract can
be the object of ratification. It ratified
before revocation, it becomes enforceable.
CHAPTER 2: ESSENTIAL REQUISITES
OF CONTRACTS
There is no contract unless the
following requisites concur:
Consent of the contracting parties.
Object certain which is the subject
matter of the contract.
Cause of the obligation which is
established.
SECTION 1: CONSENT
CONSENT is the manifestation of meeting
of offer & acceptance upon the thing & the
cause of the contract.
REQUITES OF CONSENT:
o Must be given by two or more
parties.
o Parties are capacitated to contract.
o Consent must be intelligently or
freely given.
o Express manifestation of the will of
the contracting parties.
EXPEDITION THEORY-the contract is
perfected from the moment acceptance is
declared or made even if not made known
to the offeror.
COGNITION THEORY-the contract is
perfected from the moment the acceptance
comes to the knowledge of the offeror.
There is no perfected contract until it has
come to the knowledge of the person
making the offer.
OFFER- Is the proposition or proposal
made by one party to another to enter into
a contract. It is expression or willingness
to bargain for something you desire.
REVOCATION OF ACCEPTANCE- the
acceptance by the offeree may be revoked
before reaching the knowledge of the
offeror. If it is revoked, the contract is not
perfected if the notice of revocation
reaches the offeror before the letter of
acceptance is received.
ACCEPTANCE IS MADE BY :
EXPRESSLY written or oral words
can be used in accepting the offer.
IMPLIEDLY- when from the acts of
offeree, it can be inferred that he is
accepting the offer, such as
accepting payment of the price of
the sale.
ACCEPTANCE OF OFFER MADE BY
THRU AN AGENT
There is no meeting of the minds. If
the offer is made thru an agent, the
contract is perfected from the time
the acceptance of the offeree is
communicated to the agent even
before it is conveyed to the principal
under the principle in agency that
the personality of the agent is an
extension of that of the principal. The
offer & acceptance is communicated
thru an agent.
EFFECT OF DEATH, INSANITY OF
EITHER PARTY BEFORE
ACCEPTANCE IS CONVEYED the offer
& the acceptance becomes ineffective.
OTHER INSTANCES WHEN THE
OFFER BECOMES INEFFECTIVE:
Rejection of the offer by the offeree.
The offeree accepted w/qualification
or condition-these will constitute a
counter-offer.
Before acceptance, the object
becomes illegal or unlawful.
When the period to accept the offer
had lapsed.
WHEN TO ACCEPT THE OFFER
When there is a period for
acceptance, the offer must be
accepted at any time until such
period expires.
If no time is fixed for acceptance &
the offer is made to a person
present, the acceptance must be
made immediately.
And if made to person who is
absent, the acceptance must be
made within such time under
normal circumstances, an answer
can be received.
WITHDRAWAL OF OFFER- The offeror
to withdraw the offer at any time before
acceptance, even before the period for
acceptance has expired. But this right
is not absolute, the offer must allow the
offeree a sufficient time to decide on the
option & to communicate his decision
to the offerer. If the offerer disregard
the right of the offeree & arbitrarily
revokes the offer, he must be held
liable for damages which the offeree
may suffer.
RULE IN CASE OF AN OFFER TO SELL:
OPTION CONTRACT one giving a
person a certain period within
which to accept the offer of the
offerer. It also the earnest money or
the down payment to the object.
OPTION PERIOD- period given
within which the offeree must
accept the offer.
OPTION MONEY- money paid or
promised to be paid in consideration
for the option.
PERSONS INCAPABLE OF GIVING
CONSENT:
MINORS- the person who have not
reached the majority age & are still
subject to parental authority
DEAF MUTE- who do not know how
to write.
INSANE or DEMENTED PERSONS-
the insanity must exist at the time
of contracting. Unless proved
otherwise, a person is presumed
sane.
CONTRACTS WHICH ARE VOIDABLE BY
REASON OF INCAPACITY:
Contracts entered into by insane or
demented persons, unless under
lucid interval.
Contracts agreed to in a state of
drunkenness if there is complete
loss of understanding.
Contracts entered into during
hypnotic spell, those induced by
drugs, or state of somnambulism.
LUCID INTERVAL
Is a temporary period of sanity.
This is period of suspension of
insanity to sanity. If the contract
is entered into during lucid
interval, the contract is binding
between the parties because
voidable contracts are valid until
annulled by a proper action in
court.
OTHER PERSONS DISQUALIFIED BY
LAW TO ENTER INTO A CONTRACTS:
Hospitalized lepers.
Persons suffering the accessory
penalty of civil interdiction.
Prodigals (spendthrifts).
Deaf & dumb who are unable to
read & write.
Those who are of unsound mind
even though they have lucid
intervals.
Those who, by reason of age,
disease, weak mind, & other similar
causes, cannot w/out outside aid,
take care of themselves & manage
their property, becoming thereby an
easy prey for deceit & exploitation.
VITIATING CONSENT- the consent is not
given voluntarily. This is also vices of
consent
FIVE CAUSES VITIATING CONSENT :
o Error or mistake.
o Violence or force.
o Intimidation or threat.
o Undue influence.
o Fraud or deceit.
MISTAKE OR ERROR- is the false notion
of a thing or fact material to the contract.
WHEN ERROR VITIATES CONSENT:
A. It must be substantial regarding:
o Object of contract.
o Conditions which principally
moved one or both parties to
enter into a contract.
o Identity or qualification of
persons.
B. Error must be excusable, not
caused by negligence.
C. The error must be a mistake of fact
& not of law.
ERROR WHICH DOES NOT INVALIDATE
CONSENT:
o Mistake as a quantity or amount
does not invalidate consent but only
gives rise to its correction.
o Error or mistake as regards to the
incidents of a thing or accidental
quantities thereof, not taken as the
principal consideration.
o Error or mistake as regards to the
motives of the contract, unless the
motives constitute a condition or
cause of the contract.
MISTAKE OF FACT this reiterates that a
difficult question of law becomes a
question of fact, the consent of the party
is vitiated & will render the contract
voidable.
REQUISITES:
There must be mutual error.
The error must refer to the legal
effect of the agreement.
The real purpose of the parties is
frustrated.
DISTINGUISH VIOLENCE FROM
INTIMIDATION.
In violence, there is physical
contract between persons or
there is physical coercion; while
in intimidation, there is mental or
moral coercion.
THERE IS VIOLENCE- when in order to
wrest consent, serious or irresistible force
is employed.
REQUISITES OF VIOLENCE TO VITIATE
CONSENT
A. Employment of serious or
irresistible force.
B. The very reason why the contract is
entered into.
THERE IS INTIMIDATION-when one of the
contracting parties is compelled by a
reasonable & well-grounded fear of an
imminent & grave evil upon his persons
or property, or upon the person or
property of his spouse, descendants or
ascendants, to give his consent.
REQUISITES FOR INTIMIDATION TO
VITIATE CONSENT
A. Reasonable & well grounded fear.
B. Of an imminent an grave evil.
C. Upon his person, property or upon
the persons or property of his
spouse, descendants or ascendants.
D. The very reason why the contract is
entered into.
E. The threat must be of an unjust act,
or actionable wrong.
VIOLENCE OR INTIMIDATION MADE BY
THIRD PERSON-when violence or
intimidation is caused by third person, the
contract is voidable because the consent is
also vitiated.
UNDUE INFLUENCE- Is influenced by a
kind that so over-powers the mind of a
party as to destroy his free will & make
him express the will of another, rather his
own.
REQUISITES OF UNDUE INFLUENCE TO
VITIATE CONSENT
A. Taking improper advantage.
B. Over the will of another person.
C. Depriving the person of a reasonable
freedom of choice.
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.
KINDS OF FRAUD (DOLO)
INCIDENTAL FRAUD- dolo incidente:
committed after the perfection of
contract, the right of the party is to ask
for DAMAGES.
CAUSAL FRAUD- dolo causante:
committed before or at the time of
perfection, the right is to ask for
ANNULMENT OF CONTRACT.
REQUISITES OF FRAUD TO VITIATE
CONSENT:
A. The fraud must be serious.
B. The party must not be in pari-
delicto, that is, it should not have
been employed by both contracting
parties. If both are at fault, the
court will not entertain them under
the principle he who comes to
court must do so w/ clean hands.
C. There must be deliberate intent to
deceive or to induce.
D. The other party relied on his untrue
statement.
DOLO CAUSANTE & DOLO INCIDENTE
MAY BE DISTINGUISHED FROM ECAH
OTHER IN THE FF.WAYS:
A. The first refer to fraud which is
serious in character, whereas the
second is not serious.
B. The first is the cause which induces
the party upon whom it is employed
en entering into a contract, whereas
the second is not the cause.
C. The effect of the first is to render the
contract voidable, whereas the effect
of the second is to render the party
who employed it liable for damages.
WHAT IS CAVEAT EMPTOR? is the
transaction fraudulent?
Let the buyer beware. The
transaction is not fraudulent
because this is considered
tolerable fraud. Exaggerations in
trade, when the other party had
an opportunity to know the facts,
are not in themselves fraudulent.
This is otherwise known as
DEALERS TALK. Except of
course, if the opinion is made by
an expert & the other party has
relied on such statement.
MISPRESENTATION BY A THIRD
PERSON
As a rule, the misrepresentation of a third
person does not constitute error that will
make the contract voidable, except:
A. The mispresentation has created
substantial mistake.
B. The mistake is mutual.
SIMULATION- it is declaration of a
fictitious intent manifested deliberately &
by agreement by the parties in order to
produce, for purposes of deceiving others,
the appearance of a transaction which
does not exist or which is different from
their true agreement.
KINDS OF EFFECT OF SIMULATION:
A. ABSOLUTE- when the parties do not
intended to be bound void from the
beginning(not valid).
B. RELATVE- parties conceal their true
agreement. When not prejudicial to
the third person & not intended for
any purpose contrary to law,
morals, good customs, public order
or public policy, binds the parties to
their real agreement (valid).

SECTION 2:
OBJECT OF CONTRACTS
Is its subject matter. The object
of every contract is the obligation
created. But since a contract
cannot exist w/out an obligation,
it may be said that the thing,
service, or right which is the
object of the obligation is also the
object of the contract.
OBJECT OF CONTRACT :
A. The thing must be within the
commerce of men.
B. Future goods.
C. Licit.
CHARACTERISTIC OF CONTRACTS :
A. The thing must be within the
commerce of men.
B. Transmissible.
C. Possible.
D. Determinate.
RULES IN A CONTRACT OF SALES AS
TO FUTURE THINGS:
A. Under a contract of sale, things
having potential existence may be
the object of a contract of sale.
B. There may be a sale of expected
things, but subject to the condition
that it will come into existence. If
the will not materialize, the sale is
not effective. This is sale of future
things ( emptio rei speratae).
C. There may be sale of hope itself, the
hope or expectancy already exists.
This called sale of hope ( emptio
spei). However, sale of vain hope or
expectancy is void.
FUTURE INHERITANCE- the source of
property is still alive cannot be the object
of a contract, except in cases provided by
the law.
SECTION 3
CAUSE OF CONTRACTS
The cause of a contract is the
why of the contract, essential
reason which impels the
contracting parties to enter into
the contract.
REQUISITES OF CAUSE:
A. It must exist.
B. It must be real, that is, true.
C. It must be lawful.
KINDS OF CONTRACTS ACCORDING TO
CAUSE
A. ONEROUS- is the one the cause
which, for each contracting party, is
the presentation or promise of a
thing or service by the other, or the
promise that the parties are
reciprocally obligated to each other.
B. REMUNERATORY- one the cause of
the which is service or benefited
which is remunerated.
C. GRATUITOUS- one the cause of
which is the mere liberality of the
benefactor or giver.
MOTIVE- the psychological, individual
& personal reason which induces a
party to enter into a contract.
DISTINGUISH CAUSE FROM MOTIVE:
A. Cause is the immediate, direct &
most proximate reason; while motive
is the indirect & remote reason.
B. Cause is the objective, intrinsic
reason of the contract; motive is the
individual & purely personal reason
of the contract.
C. The motive may be unknown to the
other, the cause is always known.
D. The motive may be lawful or
unlawful, the cause must always be
lawful.
FALSITY OF CAUSE & ITS EFFECT the
cause is false if it is fictitious or simulated.
If the cause is false, it does not follow that
the contracts is void. It is considered only
as a voidable contract because if it can be
proved that there is another cause which
is true & lawful, the contract is binding.
RULES IN THE STATEMENT OF FALSE
CAUSE:
o If the cause stated in the contract is
false, the parties are given a chance
to show that a cause really exists, &
that said cause is true & lawful.
o The contract therefore is not void,
but only voidable or revocable.
DIFFERENTIATE WANT OF CAUSE
FROM ILLEGAL CAUSE & FALSE
CAUSE:
Want of cause- there is a total lack
or absence of consideration.
Illegal cause-the cause is contrary
to law, morals, good custom, public
order or public policy.
False cause-the caused is stated
but that cause is not true.
LESION is the insufficiency or
inadequacy of the cause of a contract.
RULES WHEN THERE IS LESION :As a
rule, the contract is valid, except when
there is:
A. Fraud.
B. Mistake, or
C. Undue influence.
EFFECT IF THE CAUSE IS
INADEQUATE- the contract remains to be
valid because lesion or inadequacy of
cause shall not invalidate a contract,
unless there has been fraud, mistake or
undue influence.
CHAPTER 3
FORMS OF CONTRACTS
As a rule, the moment the three (3)
essential elements of a contract are
present, the contract is valid & enforceable
even if it is orally entered into. This is
called spiritual system of the Spanish
civil code by virtue of which the law looks
more at the spirit rather than the form of
contracts.
FORMS OF CONTRACTS - Refers to the
manner in which a contract is executed or
manifested. The contract may be written
or oral or partly oral, or in partly in
writing. If in writing, it may be in a public
or a private instrument.
FORM IS REQUIRED BY LAW IN EITHER
OF THREE WAYS:
A. VALIDITY the form required or
specified by law is essential,
otherwise the contract is without
effect.
B. ENFORCEABILITY- requires the
contract to be in writing
subscribed by the parties to be
charge for its enforcement as
against such party, as in the case
of contracts covered by the
statue frauds.
C. CONVENIENCE- requires a
certain form in order to make
effective the rights against third
persons. But as between the
parties, it is no longer necessary
because the law allows them to
compel each other to put in the
proper form.
The following must appear in a public
instrument or document:
A. Acts & contracts which have for
their object the creation,
transmission, modification, or
extinguished of real rights over
immovable property.
B. The cession, repudiation or
renunciation of hereditary rights or
of those of the conjugal partnership
of gains.
C. The power to administer property, or
any other power which has for its
object an act appearing o which
should appear in a public
document, or should prejudice a
third person.
D. The cession of actions or rights
proceeding from an act appearing in
a public document.
CHAPTER 4
REFORMATION OF INSTRUMENTS
The remedy in equity by means of
which a written instruments is
made or construed so as to express
or conform to the real intention of
the parties when some error or
mistake has been committed.
PURPOSE OF REFORMATION to
enforce a written instrument which does
not reflect or disclose the real meeting of
the minds of the parties would be unjust
& inequitable, so the law allows the
parties the doctrine of reformation.
REQUISITES OF REFORMATION:
A. Meeting of the minds.
B. Instrument does not express the
true intention of the parties.
C. There must be clear & convincing
proof.
MUTUAL MISTAKE Is mistake of fact
that is common to both parties of the
instrument which causes failure of the
instrument to express their true intention.
REQUISITES OF MISTAKE:
A. The mistake is the mistake of fact.
B. Proof must be clear & convincing.
C. The alleged mistake must be
common to both contracting parties.
UNILATERAL MISTAKE- if the mistake is
unilateral & the other party acted
fraudulently or inequitably , or is guilty of
concealment, the party who was mistaken
can ask for reformation.
NOT SUBJECT TO REFORMATION:
Simple donations inter vivos
wherein no condition is imposed;
Wills;
When the real agreement is void.
PERSONS TO FILE AN ACTION FOR
REFORMATION:
A. If mistake is mutual, either party or
his successors in interest.
B. If not mutual:
1. This injured part, or
2. His heirs & assigns.

CHAPTER 5
INTERPRETATION OF CONTRACTS
INTERPRETATION interpretation of a
contract is the determination of the
meaning of the terms or words used by the
parties in their contract.
RULE IN CASE OF CONFLICT- Whenever
there is a conflict between the words used
in the contract & of that of the intention of
the parties, the intention must prevail.
The words appearing in the contract shall
only be given weight when they are so
clear that there is no doubt w/ regard to
the intention of the parties. Should there
be a doubt, the intention must prevail.
DOUBT AS TO INCIDENTAL
CIRCUMTANCES OF THE CONTRACT:
A. IF ONEROUS-in favor of the greatest
reciprocity of interest.
B. IF GRATUITUS-in favor of the least
transmission of rights.

CHAPTER 6
RESCISSIBLE CONTRACTS

According towel known Spanish
commentator, Scaevola, is a process
to render inefficacious a contract
validly entered into & normally
binding, by reason of external
conditions, causing an economic
prejudice to a party or to his
creditor.
According to Supreme court,
rescission is a relief to protect one
of the parties or a third person from
all injury & damages which the
contract may cause, to protect some
preferential right.
Rescission contracts are those
validity agreed upon because all the
essential elements exist &,
therefore, legally effective, but in the
cases established by law, the
remedy of rescission is granted in
the interest of equity.
REQUISITES OF RESCISSION :
A. The contract entered into is
essentially valid.
B. There is lesion or pecuniary
prejudice.
FOUR KINDS OF DEFECTIVE
CONTRACTS ARE:
A. RESCISSIBLE CONTRACTS-valid
until rescinded. The defect is
extrinsic defect consisting of an
economic damages or lesion.
B. VOIDABLE CONTRACTS-valid until
annulled. Annullable unless
ratified. If ratified, the contract is
cleansed of its defect. This contract
is effective now, but may be
invalidated.
C. UENFORCEABLE CONTRACTS-
cannot be sued upon or enforced
unless it is ratified. These are
validable contracts. No effect now,
but they may be effective upon
ratification.
D. VOID CONTRACT-is one that has
no effect at all. It cannot be ratified
or validated. This is also called
INTEXISTENT CONTRACTS.
RESCISSIBLE CONTRACTS
EXEMPLIFIED:
A. Those entered into by guardians
whenever the wards whom they
represent suffer lesion by more than
one-fourth of the value of the things
which are the object.
B. The contract agreed upon In
representation of absentee.
C. Those undertaken in fraud of
creditors when the latter cannot in
any manner collect claims due
them.
D. Those property under the litigation.
E. All other
LESION- defined as the injury suffered,
in consequence of inequality of
situation, by one who does not receive
the full equivalent for what he gave in a
commutative contract.
o PAYMENT- must have been
made for obligations to whose
fulfillment the debtor could
not be compelled at the time
they were effected.
REQUISITES OF PREMATURE
PAYMENT:
A. The debtor, or the person paying
must be in the state of insolvency.
B. The debt is not yet due or
demandable.
NATURE OF ACTION OF RESCISSION:
Rescission is not a principal remedy.
It is only subsidiary, meaning it can
be availed of only if the injured party
proves that he has no other legal
means aside from rescinding the
contract to obtain redress for the
damage caused.
REQUISITES FOR RESCISSION OF
CONTRACTS IN FRAUD OF CREDITORS:
A. The existence of a credit;
B. That said credit must be prior to the
contract to be rescinded;
C. The existence of fraud or bad faith
on the part of the debtor which can
either be presumed or proved; and
D. The creditors cannot recover their
credits in any other manner.
BADGES OF FRAUD:
A. The fact that the consideration of
the conveyance is fictitious or
inadequate.
B. A transfer made by a debtor after
suit has begun & while it is pending
against him.
C. A sale on credit by an insolvent
debtor.
D. Evidence of large indebtedness or
complete insolvency.
E. Transfer of all or nearly all of his
property by a debtor, especially
when he is insolvent or greatly
embarrassed financially.
F. The fact that the transfer is made
between father & son, when the
above circumstances are present.
G. The failure of the vendee to take
exclusive possession of all the
property.
H. Gross disparity between the price &
real value of the property.
PRESUMPTION OF FRAUD IN A
RESCISSIBLE CONTRACT:
A. GRATUITOUS CONTRACTS-
contracts entered into by the debtor
when he did not reserve sufficient
property to pay his debts before
donation, are considered fraudulent.
B. ONEROUS CONTRACT-
1. Made by a persons against whom
some judgment has been
rendered even if not yet final.
2. Made by a persons against whom
some writ of attachment has
been issued. The decision or
attachment need not refer to the
property alienated.
ESSENTIAL FEATURE OF RESCISSIBLE
CONTRACTS:
A. The action for rescission is
subsidiary. It cannot be instituted
except when the party suffering
damages has no other legal means
to obtain reparation for the same.
B. Rescission shall be only to the
extent necessary to cover the
damage caused.
C. Rescission creates the obligation to
return the things which were the
object of the contract, together
w/the fruits & the price w/interest.
Consequently, it can be carried out
only when he who demands
rescission can return whatever he
may be obliged to restore.
D. The action to claim rescission must
be commenced within four years.
EFFECTS OF BAD FAITH IN CASE OF
ALIENATION:
A. First transfer.
1. The transferee must return or
indemnify.
2. Loss due to any cause includes
fortuitous event.
B. Subsequent transfer.
1. If the first transferee is in good
faith, the good faith or bad faith
of the next transferee is not
important.
2. If the first transferee is in bad
faith, the next transferee is liable
only if he is also in bad faith.
PRESCRIPTIVE PERIOD OF
RESCISSION
Action for rescission shall be commenced
within four (4) years from the date it was
entered into:
A. If the person is under
guardianship, within in four (4)
years from the time guardianship
ceases.
B. In case of absentees-within four
(4) years from the time the domicile
is known.
THE FOLLOWING PERSONS CAN BRING
THE ACTION FOR RESCISSION:
A. The injured party.
B. The heirs of the injured party.
C. Creditors, if the transaction is
fraudulent.
CHAPTER 7
VOIDABLE CONTRACTS
Those which possess the essential
requirements of a valid contract but
one of the parties is incapable of
giving consent, or consent is vitiated
by mistake, violence, intimidation,
undue influence or fraud.
NULLITY it is that imperfection of a
contract derived from the determinate
vices of capacity, or of the consent of
the parties which gives rise to an action
of nullity, which if exercised
successfully, produces the destruction
of the act with retroactive effect.
CONTRACT ARE VOIDABLE OR
ANNULLABLE EVEN THOUGH THERE
MAY HAVE BEEN NO DAMAGE TO
THE CONTRACTING PARTIES:
A. Those where one of the parties is
incapable of giving consent to a
contract.
B. Those where the consent is vitiated
by mistake, violence, intimidation,
undue influence or fraud.
These contracts are binding, unless
they are annulled by a proper action
in court. They are susceptible of
ratification.
DISTUISH RESCISSIBLE FROM
VOIDABLE CONTRACTS:
Rescissible Contract Voidable Contract
The basis is lesion or
damage.
It is vitiated
consent or
incapacity to
consent.
The basis is external. It is intrinsic; in
the meeting of
minds.
The action is
subsidiary.
The action is
principal.
Is a remedy. Is a sanction.
There must be
damage to the
plaintiff.
Damage is
immaterial.
To prevent
rescission,ratification
is not requires
Ratification is
allowed.

VOIDABLE CONTRACTS &
UNENFORCEABLE CONTRACTS
DISTINGUISHED:
Voidable contract Unenforceable
contract
Valid & enforceable
until annulled.
Not enforceable
unless ratified.
Capable of being
sued upon until
annulled.
Cannot be sued
upon unless they
are ratified.

VOIDABLE CONTRACTS & VOID AB
INITIO CONTRACTS DISTUISHED:


Voidable Contract Void ab initio
contract
Valid until annulled
by a proper action
in court.
No court is
required.
All essential
requisites are
present but there is
a defect in the
consent.
Not an essential
requisites are
present either the
consent is missing
or fictitious, or
there is want of
cause or the cause
is illicit.
Susceptible of
ratification.
Cannot be ratified.
Can be attacked
only by the parties
& their privies
Can be attacked by
third persons whose
interests are directly
affected.
The action to
declare the nullity
prescribes.
The action to
declare a contract
does not prescribe.

EFFECT OF PRESCRIPTION- the action
for annulment must commence within
four (4) years, otherwise the action will
prescribe. Hence, the contract can no
longer be set aside.
CONFIRMATION- is the act of purging the
voidable contracts of its through the
renunciation of the action of nullity made
by the person who can invoke the vice or
defect of said contracts.
ACKNOWLEDGEMENT- is the act of
curing the deficiency of proof as when in a
document whereby an agreement made
verbally is admitted or a private document
is made a public document.
RATIFICATION- is that which cures the
defect of the contracts celebrated in the
name of another without authority or in
excess of authority.
KINDS OF RATIFICATION:
A. Express ( oral or written).
B. Tacit (implied).
REQUISITES OF RATIFICATION :
A. The contract must be voidable.
B. The person ratifying knew the
reason why the contract is voidable.
C. The ratification must be have been
made expressly o impliedly.
D. The ratification is made by the
injured party.
THE PERSONS WHO CAN FILE ACTION
FOR ANNULLMENT:
A. FOR INCAPACITY- the person
incapacited.
B. FOR VITIATED CONSENT- the
injured party.
LOSS OF THE THING WHILE IN THE
POSSESSION OF THE PARTY AT FAULT:
A. If due to his fault:
1. To return the value of the thing
at the time of loss.
2. Interest on the value of the thing.
3. Fruits received.
B. If due to fortuitous event:
1. The value of the thing at the time
of loss but no interest.
2. Fruits received.
LOSS OF THE THING WHILE IN THE
POSSESSION OF THE PARTY WHO CAN
ANNUL THE CONTRACTS:
A. IF DUE TO HIS FAULT- the right to
annul is extinguished. In short, the
party has no more right to annul.
B. IF DUE TO A FORTUITOUS EVENT-
the contract can still be annulled,
unless if the innocent party could
no longer restore what, by virtue of
the decree of annulment, he is
bound to return.
MUTUAL RESTITUTION- if a voidable
contract is annulled, the parties shall
return to each other what they have
received. Such that if one cannot restore
what he is required to return, the other
cannot be compelled to return what he
received.
CHAPTER 8
UNENFORCEABLE CONTRACTS
Those that cannot be enforced in
court or sued upon by reason of
defects provided by law until &
unless they are ratified according to
law.
CONCEPT: An unenforceable contract
is one which cannot be enforced unless
it is first ratified. These are called
contracts without effect, but if ratified,
they are valid contracts. Sometimes,
these are called validable contracts.
DISTINGUISH UNENFORCEABLE
FROM VOIDABLE & RESCISSIBLE
CONTRACTS:
Voidable & rescissible are valid &
binding until annulled or rescinded,
while unenforceable contracts are
without effect unless ratified.
KINDS OF UNENFORCEABLE
CONTRACTS:
A. Those executed by one in the name
of another without any authority or
in excess of such authority.
B. Those that do not comply the statue
of frauds.
C. Those were both parties are
incapable of giving consent.
UNATHORIZED OR DISAUTHORIZED
CONTRACTS- contracts entered into the
name of another person by one who has
been given no authority or legal
representation or who as acted his power
are unenforceable unless ratified.
STATUE OF FRAUDS-it is a law, which
requires that certain contracts must be in
writing, otherwise, unenforceable.
PURPOSE:
To aid human memory, to prevent
the commission of injustice due to
faulty memory & to discourage
intentional mispresentations, are
the principal aims of the statue of
frauds.
FORM REQUIRED:
Contracts falling under the statue of
frauds are required to be in writing or
there should be a note or memorandum
subscribed by the party charged, or his
agent. Failure to execute the contracts in
writing does not render the contract void
but only unenforceable.
APPLICATION:
Statue of Frauds is applicable only to
executor contracts & not to contracts
totally or partially executed.
CONTRACTS COVERED BY STATUE OF
FRAUDS:
A. An agreement 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 mutual
promise to marry.
D. An agreement for the sale of goods,
chattels, or things in action at a
price of five hundred pesos or more.
E. An agreement for the leasing for a
longer period than one year, or the
sale of real property or an interest
therein.
F. A representation as to the credit of a
third person.
SUFFICIENCY OF THE NOTE OR
MEMORANDUM- the note or
memorandum is sufficient if it contains
the name of the contracting parties, the
date, the place of the contract, the term &
condition, the description of the object, &
the signature of the party assuming the
obligation.
RATIFICATION OF CONTRACTS
FALLING UNDER THE STATUE OF
FRAUDS:
A. Failure to object to the presentation
of oral evidence.
B. Acceptance of benefit under them.
Hence, if the contract is partially or
totally executed, Statue of Frauds
will not apply.
ACTS CONSIDERED AS PARTIAL
PERFORMANCE:
A. Possession.
B. Payment of taxes.
C. Improving the property.
D. Tender of payment followed by
surveying the lot at the expense of
the buyer.
RIGHT OF THE PARTY TO COMPEL
THE OTHER TO EXECUTED THE
NEEDED INSTRUMENT
When a public instrument is
required for mere convenience of the
parties, the same may compel each
other to execute the necessary
document, but only if the following
elements are present:
A. The contract must be valid.
B. The contract is enforceable.
CONTRACT WHERE BOTH PARTIES
ARE INCAPACITATED- if both parties are
incapacitated, the contract is
unenforceable but can be ratified to make
it enforceable.
HOW CONTRACTS RATIFIED IF BOTH
PARTIES ARE INCAPACITATED:
A. Expressly or implied by the parent
or guardian of one of the parties
making the contract voidable.
B. If both parents or guardian of the
contracting parties ratified the
contract, I becomes enforceable,
validated from inception.
WHO MAY SET UP THE DEFENSE OF
UNENFORCEABILITY- the defense is
available only to the contracting parties &
their heirs. A stranger therefore cannot
attack the unenforceability of a contract,
in like manner that a stranger in a
contract cannot attack the validity of a
voidable contract.
WAIVER- the defense of the Statue of
Frauds is a personal defense. It can be
relied only by the parties or personal
representative. However, it can be waived
by the parties thereto.
CHAPTER 9
VOID OR INEXISTENT
CONTRACTS
VOID CONTRACTS-these are the
contracts which have absolutely no force
& effect & are inexistent from the
beginning. The maxim is no contract at
all.
KINDS OF VOID CONTRACTS:
A. The inexistent ones. The formalities
required by law were not met. The
contract has no effect at all.
B. The illegal or illicit ones.
CHARACTERISTICS OF VOID
CONTRACT:
A. Defense of illegality cannot be
waived.
B. They are not subject to ratification.
C. The action to declare the contract
inexistent does not prescribe.
D. Generally, no action to declare them
void is needed.
E. The defense of illegality of contracts
is not available to third persons
whose interests are not directly
affected.
A VOID OR INEXISTENT CONTRACT
MAY BE DISTUINHED FROM A
RESCISSIBLE CONTRACT IN THE
FOLLOWING WAYS:
A. A void or inexistent contract
produces as a rule, no effect, even if
it is not set aside by a direct action,
whereas a rescissible contratcs is
valid unless it is rescinded.
B. The defect of the former consists in
absolute lack in fact or in law of one
or some or all of the essential
elements of a contract, whereas the
defect of the latter consists in lesion
or damages to one of the contracting
parties or the third persons.
C. The action for the declaration of the
nullity or inexistence of a contract is
imprescriptible, whereas the action
for the rescission of a contract is
prescriptible.
D. The nullity or inexistence of a
contract cannot, as a rule, be
assailed by third persons whose
interests are not directly affected,
whereas the rescissible character of
a contract may be assailed by third
persons.
A VOID CONTRACT MAY BE
DISTUISHED FROM A VOIDABLE
CONTRACT IN THE FOLLOWING WAYS:
A. A void or inexistent contract
produces, as a rule, no effect even if
it is not set aside by a direct action,
whereas a voidable contract is
binding unless it is annulled.
B. The former is not susceptible of
ratification, whereas the latter is
susceptible of ratification.
C. The action for declaration of the
nullity or inexistence of a contract is
imprescriptible, whereas the action
for the annulment of a contract is
prescriptible.
D. The defense of inexistence or
absolute nullity is available to third
persons whose interest are directly
affected, whereas the defense of
annulability is not available to third
persons.
A VOID CONTRACT MAY BE
DISTUINGED FROM AN
UNENFORCEABLE CONTRACT IN THE
FOLLOWING WAYS:
A. In a void or inexistent contract,
there is in law or in reality no
contract at all, whereas in an
unenforceable contract, there is
actually a contract which cannot be
enforced by a court action unless it
is ratified.
B. The former is not susceptible of
ratification, while the latter is
susceptible of ratification.
C. The former cab be assailed by third
persons whose interests are directly
affected, whereas the latter cannot
be assailed by third persons.
SIMULATED CONTRACTS- simulation
takes place when the parties do not really
want the contract they have executed to
produce the legal effects expressed by its
wordings. Simulation or vices of
declaration maybe absolute or relatve.
An absolutely simulated contract of sale is
void ab initio & transfer no ownership
right. The purported buyer, not being the
owner, cannot validly mortgage the subject
property. Consequently neither does the
buyer at the foreclosure sale acquire any
title thereto.
EFFECT OF CONTRACT WHERE THERE
IS A CRIMINAL OFFENSE:
1. THOSE WHERE BOTH PARTIES
ARE GUILTY:
Examples: sale of opium.
EFFECTS:
A. No right of action against each
other.
B. Both will be prosecuted.
C. Effects or instrument of the
crime will be confiscated in favor
of the government.
2. ONLY ONE PARTY IS GUILTY
Examples: S sold a government
property to B, who is in good faith.
EFFECTS:
A. The guilty party will be prosecuted.
B. Property sold, as the instrument of
the crime, will be confiscated in
favor of the government.
C. Innocent party can claim what he
has given.
EFFECT OF CONTRACTS WHERE
THERE IS NO CRIMINAL INTENT:
A. Those where both parties are guilty
neither party may recover what he
has given by virtue of the contract
or demand the performance of the
others undertaking.
B. Those when only one is guilty or at
fault, or one party is less guilty than
the other:
1. The guilty party cannot recover
what he has given by reason of
the contract, or ask for the
fulfillment of what has been
promised him.
2. The party not at fault may
demand the return of what he
has given, without any obligation
to comply with his promise.
PRINCIPLE OF IN PARI DELICTO
Where the defect of void contract is
the illegality of the cause or object of
the contract, both parties are at
fraud or in pari delicto. No remedy
could be given to any of the
parties,& the court leaves them
where they are. This is a universally
accepted principle in law under the
maxim he who comes to court
must do so w/clean hands.
SOME EXCEMPTIONS:
A. Fictitious or absolute simulated
contracts because they are
inexistent.
B. Payment of usurious interest, the
law allows recovery of the principal
& the legal interest.
C. When public policy intervenes.
D. Payment of any amount in excess of
the maximum price of any article or
commodity fixed by law, the buyer
may recover the excess.
E. One of the parties in a contract is
less guilty than the other.
RATES OF INTEREST:
The permissible rates of interest
according to Usury law are:
A. 12% per annum, secured loans with
registered real property as security.
B. 14% per annum, for unsecured
loans.
C. For licensed pawnbrokers:
1. 2-1/2% per month- for loan less
than P500.
2. 2% per month- between P500 &
P 2,000.
3. 14% per annum- for loans over
P2,000.
EFFECT OF USURIOUS TRANSACTION-
if the transaction is usurious, the debtor
may recover in excess of Usury law, with
interest from the date of payment.
EXEMTION OF THE PARI DELICTO
RULE
When money is paid or property
delivered for an illegal purpose, the
contract may be repudiated by one
of the parties before the purpose has
been accomplished, or before any
damages has been caused to a third
person. The courts are given
discretionary powers to allow
recovery or not.
RECOVERY COULD ONLY MADE
ONLY IF:
A. The purpose has not yet been
accomplished.
B. Damage has not been caused to
third person.
ILLEGAL PER SE CONTRACTS- are those
forbidden contracts because of public
interest.
THE MERELY PROHIBITED
CONTRACTS
- These contracts are also forbidden
because of private interest. There
may be recovery:
A. If the contract is not illegal per
se.
B.
C. plaintiff.
D. Public policy will be enhanced by
allowing the recovery.
PAYMENT IN EXCESS OF THAT
ALLOWED BY LAW IS RECOVERABLE-
to curb the evils of profiteering, any
person paying an amount in excess of that
allowed by law may recover such excess.
The maximum number of hours of
work is eight (8) hours a day. The
minimum wage of an employee a
day is P404.00.
MINIMUM WAGE- no waiver is right.
ILLEGAL TERM OF THE CONTRACTS:
A. If indivisible, the whole contract is
void, even if only some parts or
terms are illegal.
B. If divisible, the legal terms may be
enforced if they can be separated
from the illegal terms.

The defense of illegality of
contracts, as a rule, is not
available to third persons. Thus,
such third persons have no legal
personality to interfere in any
court proceeding.
EFFECT OF THE CONTRACT
EXECUTED WHICH IS A DIRECT
RESULT OF A PREVIOUS ILLEGAL
CONTRACTS- If a new contract is
executed & it is a direct result of a
previous contract, the effect of such
contract is void & inexistent.
KINDS OF OBLIGATIONS FROM THE
VIEWPOINT OF SANCTION:
A. CIVIL OBLIGATIONS - Those
obligation whereby the creditors are
given a right of action to compel
their performance.
B. NATURAL OBLIGATION- They are
not based on positive law but on
equity. They do not grant a right of
action to enforce their performance
but after voluntary fulfillment by the
obligor, they authorize the retention
of what has been delivered or
rendered by reason thereof.
VOLUNTARY- the term voluntary is
understood to mean the execution of an
act free from coercion or compulsion. The
act is voluntary or thru his own free will,
w/ knowledge that the other party cannot
compel his anymore, yet he executes the
act of willfully. Therefore, if payment or
delivery of money as payment is made
thru a court process, natural obligation
cannot be made to apply because this is
not voluntary fulfillment.
PERIOD OF EXTINCTIVE
PRESCRIPTION:
A. IF ORAL CONTRACT- the
prescriptive period is six (6) years.
B. IF WRITTEN CONTRACT-the
prescriptive period is ten (10) years.
PAYMENT BY THIRD PERSON
if the obligation is paid by a third
person without the knowledge or
against the will of the debtor, but
such debt has already prescribed
before payment is made, &
subsequently the debtor reimburses
the third person, the obligor- the
debtor in this case cannot recover
anymore what he has paid.
PAYMENT OF LEGACY IN A VOID WILL
If the will or last will & testament is
void. The legacy would also be void,
& the deceased is considered to
have died intestate, that is, without
any will. The property, thereof, will
be distributed according to law
because he died intestate.