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Chapter III.

Form of Contracts

A. General rule: Contracts shall be obligatory, in whatever form they may have been
entered into, provided all the essential requisites for their validity are present.
B. Exception: When the law requires that a contract be in some form in order that it
may be valid or enforceable. (Anglo-American principle) -Art. 1356
Case:
Hernaez vs. De los Angeles, 27 SCRA 1276 (1969)
C. Kinds of formalities required by law:
1. Those required for the validity of contracts, such as those referred to in Arts. 748,
749, 1874, 2134,177 L 1773;
2. Those required, not for validity, but to make the contract effective as against third
persons, such as those covered by Arts. 1357 and 1358; and
3. Those required for the purpose of proving the existence of the contract, such as
those under the Statute of Frauds in Art. 1403.

Chapter IV. Reformation of Instruments


A. Requisites (Art. 1359):
1. Meeting of the minds upon the contract;
2. The true intention of the parties is not expressed in the instrument; and
3. The failure of the instrument to express the true agreement is due to mistake, fraud,
inequitable conduct, or accident.
Cases:
Garcia vs. Bisaya, 97 Phil. 609 (1955)
Bentir vs. Leande, 330 SCRA 591 (2000)
B. Cases where no reformation is allowed - Art. 1366
C. Implied Ratification-Art. 1367
D. Who may ask for reformation - Art. 1368
E. Procedure of reformation - Art. 1369
Cases:
Atilano vs. Atilano, 28 SCRA 2232 (1969)
Carantes vs. CA, supra
Sarming, et al. vs. Cresencio Dy, et al., 383 SCRA 131 (2002)

Chapter V. Interpretation of Contracts (Compare with Rules on Statutory


Construction)
A. Primacy of intention-Arts. 1370, 1372
Cases:
Borromeo vs. CA, 47 SCRA 65 (1972)
Kasilag vs. Rodriguez, 69 Phil. 217 (1939)
B. How to determine intention - Art. 1371
C. How to interpret a contract
1. When it contains stipulations that admit several meanings -Art. 1373
2. When it contains various stipulations, some of which are doubtful-Art. 1374
3. When it contains words that have different significations - Art. 1375
4. When it contains ambiguities and omission of stipulations -Art. 1376
5. With respect to the party who caused the obscurity - Art. 1377
6. When it is absolutely impossible to settle doubts by the rules above - Art. 1378
a. in gratuitous contracts
b. in onerous contracts
7. When the doubts are cast upon the principal object so that the intention cannot
be known - Art. 1378
D. Applicability of Rule 123, Rules of Court (now Sees. 10-19, Rule 130)

DEFECTIVE CONTRACTS
Chapter VI. Rescissible Contracts
A. Kinds-Art. 1381
B. Characteristics
1. Their defect consists in injury or damage either to one of the contracting parties
or to third persons.
2. They are valid before rescission.
3. They can be attacked directly only, and not collaterally.
4. they can be attacked only either by a contracting party or by a third person who
is injured or defrauded.
5. They can be convalidated only by prescription, and not by ratification.
C. Rescission-Art. 1380
1. Definition
2. As distinguished from rescission under Art. 1191
Case:
Universal Food Corp. vs. Ca, 33 SCRA 1 (1970)
3. Requisites:
a. The contract is rescissible;
b. The party asking for rescission has no other legal means to obtain reparation -
Art. 1383;
c. He is able to return whatever he may be obliged to restore if rescission is
granted - Art. 1385;
d. The object of the contract has not passed legally to the possession of a third
person acting in good faith-Art. 1385;
e. The action for rescission is brought within the prescriptive period of four (4)
years - Art. 1389;
4. Effect of rescission - Art. 1385
a. with respect to third persons who acquired the thing in good faith - Art. 1385,
2nd and 3rd par.
5. Extent of rescission - Art. 1384
6. Presumptions of fraud - Art. 1387
a. Badges of fraud
Cases:
Oria vs. Mcmicking, 21 Phil. 243 (1912)
Siguan vs. Urn, et al., 318 SCRA 725 (1999)
Suntay vs. CA, supra
7. Liability for acquiring in bad faith the thins alienated in fraud of creditors - Art. 1388
Chapter VII. Voidable or Annullable Contracts
A. Kinds-Art. 1390
B. Characteristics
1. Their defect consists in the vitiation of consent of one of the contracting parties.
2. They are binding until they are annulled by a competent court.
3. They are susceptible of co-validation by ratification or by
prescription.
C. Annulment
1. As distinguished from rescission
2. Grounds-Art. 1390
3. Who may and may not institute action for annulment - Art. 1397
Case:
Singsong vs. Isabela Sawmill, 88 SCRA 732 (1979)
4 Prescription-Art. 1391
5. Effect
a. Mutual restitution-Arts. 1398 and 1402
Cases:
Cadwallader & Co. vs. Smith, Bell & Co., 7 Phil. 461 (1907)
Velarde vs. CA, supra
1) When one of the parties is incapacitated - Art. 1399
2) When the thing is lost through the fault of the party obliged to return the same -
Art. 1400
6. Extinguishment of the action
a. By ratification-Art. 1392
b. When the thing is lost through the fault of the person who has the right to file
the action - Art. 1401
D. Ratification
1. Requisites:
a. The contract is voidable;
b. The ratification is made with knowledge of the cause for nullity;
c. At the time of the ratification, the cause of nullity has already ceased to exist.
2. Forms:
a. Express or tacit-Art. 1393
b. By the parties themselves or by the guardian in behalf of an incapacitated
party - Art. 1394
3. Effects:
a. Action to annul is extinguished - Art. 1392
Case:
Uy Soo Urn vs. Tan Unchuan, 38 Phil. 552 (1918)
b. The contract is cleansed retroactively from all its defects-Art. 1396

Chapter VIII. Unenforceable Contracts


A. Characteristics
1. They cannot be enforced by a proper action in court.
2. They are susceptible of ratification.
3. They cannot be assailed by third persons.
B. Kinds-Art. 1403
1. Unauthorized contracts
a. Governing rules-Art. 1404
2. Contracts covered by the Statute of Frauds
a. Purpose of Statute
Cases:
Philippine National Bank vs. Philippine Vegetable Oil Co., 49 Phil. 857
(1927)
Limketkai Sons Milling Inc. vs. CA, G.R. No. 118509, December 1. 1995
Swedish Match vs. CA, G.R. NO. 128120, October 20, 2004
b. How ratified - Art. 1405
Case:
Carbonnel vs. Poncio, et al., 103 Phil. 655 (1958)
c. Right of the parties when a contract is enforceable but a public document is
necessary for its registration - Art. 1406
3. Contracts executed by parties who are both incapable of giving consent to a
contract
a. Effect of ratification by the parents or guardian of one of the parties - Art. 1407
b. Effect of ratification by the parents or guardian of both parties-Art. 1407

Chapter IX. Void or Inexistent Contracts


A. Characteristics
1. Void from the beginning
2. Produces no effect whatsoever
3. Cannot be ratified - Art. 1409
B. Kinds-Art. 1409
1. Contracts that are void
a. Those whose cause, object, or purpose is contrary to law, morals, good
customs, public order or public policy
1) When the act constitutes a criminal offense -Art. 1411
a) in pan delicto rule
Case:
Urada vs. Mapalad, A.M. MTJ-91-622 (1993)
2) When the act is unlawful but does not constitute a criminal offense-
Art.1412.
a) in pari delicto rule
Case:
Medina vs. CA, G.R. No. 109355, October 29,
1999.
3) When the purpose is illegal, and money is paid or property delivered
therefore - Art. 1414
4) When the contract is illegal and one of the parties is incapable of giving
consent - Art. 1415
Case:
Liguez vs. Ca, supra
Relloza vs. Gaw Cheen Hum, 93 Phil. 827 (1953)
5) When the agreement is not illegal per se but is prohibited - Art. 1416
Cases:
Philippine Banking Corp. vs. Lui She, 21 SCRA 52(1967)
Frenzel vs. Catito, 406 SCRA 55 (2003)
6) When the amount paid exceeds the maximum fixed by law - Art. 1417
7) When by virtue of a contract a laborer undertakes to work longer than the
maximum number of hours of work fixed by law - Art. 1418
8) When a laborer agrees to accept a lower wage than that set by law - Art.
1419
9) When the contract is divisible - Art. 1420
10) When the contract is the direct result of a previous illegal contract - Art. 1422
b. Those whose object is outside the commerce of man
c. Those which contemplate an impossible service
d. Those where the intention of the parties relative to the principal object of the
contract cannot be ascertained
e. Those expressly prohibited or declared void by law
2. Contracts that are inexistent
a. Those which are absolutely simulated or fictitious (see Arts. 1345 and 1346)
b. Those whose cause or object did not exist at the time of the transaction

C. Right to set up defense of illegality cannot be waived - Art. 1409


D. The action or defense for the declaration of the inexistence of a contract
1. does not prescribe - Art. 1410
2. is not available to third persons whose interest is not directly affected -
Art 1421

Title III. Natural Obligations


A. Definition-Art. 1423
B. As distinguished from civil obligations - Art. 1423
C. As distinguished from moral obligations
Cases:
Villaroel vs. Estrada, 71 Phil. 140 (1940)
Fisher vs. Robb, 69 Phil. 101 (1939)
D. Conversion to civil obligation
1. by novation
2. By ratification
E. Examples-Arts. 1424-1430

Title IV. Estoppel


A. Definition-Art. 1431
Case:
Kalalo vs. Luz, 34 SCRA 337 (1970)
B. Kinds
1. Technical estoppel
a. By record
b. By deed-Art. 1433
C. Persons bound - Art. 1439
Case:
Manila Lodge No. 761 Benevolent and Protective Order of the Elks vs. CA, 73
SCRA 168 (1976)
D. Cases where estoppel applies - Arts. 1434-1438

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