CONTRACT
Agree to terms and conditions
Art. 1305. The meeting of minds / between
two persons / whereby one binds himself,
with respect to the other, / to give something
or to render some service
BETTER DEFINITION:
A juridical convention manifested in legal
form, by virtue of which one or more
persons bind themselves in favor of
another or others, / or reciprocally, / to the
fulfillment of a prestation to give, to do or
not to do Sanchez Roman
DEFINITION INACCURATE:
2 person what the law requires is there - Not forced because there is freedom to
must be at least 2 parties
- Require: plurality of declaration of
wills or parties does not require plurality
of wills or persons
AUTO CONTRACTS contract executed
by only 1 person. But in the execution thereof
he represents at least 2 parties
- There is only 1 party involved but said
party merely acts in the name and for
the account of two distinct
contracting parties.
1. When a representative of another
contracts with himself
2. When as representative of 2
persons brings about contract
with himself and the principals
Ex. contract of agency
- The effective element is not the formation
of the will but in its declaration. In the
auto-contract, there are two declarations,
although made by the same person
CONTRACTS OF ADHESION
(Ready-made contract)
Contract which 1 party has already a
prepared stipulations in the form of a
ready-made contract, and he simply asks
the other party to agree to them if he wants
to enter into the contract
Ex.
prepared ina printed form and submitted to
other party to accept/reject
1) Contracts pf loan when you deal with
banks and other financial institution
2) Contracts of carriage, shipping
3) Contracts of insurance
Validity of Contracts of Adhesion
VALID: The act of submitting the finished
product to the other party for his acceptance
or rejection - makes it conform to the
definition of contracts because
- the moment it is accepted by the other
party, then it cannot be denied that the
meeting of the minds requisite was
complied with
refuse/ reject it and if he adheres = gives
consent
VOID: completely depriving such party of the
opportunity to bargain on equal footing
- When the weaker party is imposed upon
in dealing with the dominant bargaining
party, and its option is reduced to the
alternative of taking or leaving it,
OBLIGATION V. CONTRACT
While a contract is one of the sources of
obligations, an obligation is the legal tie or
relations itself that exists after a contract
has been entered into.
Perfection/ Birth of Contract Obligation
arises
- Parties bind themselves with knowledge
that an obligation is attached to the
contract
- No contract if no obligation. There can be
an obligation without a contract (Other
sources of Obligation)
AGREEMENT V. CONTRACT
Contract binding agreements enforceable
thru legal proceedings in case other party
does not comply with obligation
Agreement- cannot be enforced by action in
the courts of justice; may not have all the
elements of a contract
All contracts are agreements, not all
agreements is a contract
Contract is limited to agreements which
produce patrimonial liabilities.
Contracts, different from other acts based
on the consent of two or more persons
(marriage, donation, adoption, and
succession
1) A contract creates obligations which
are more particular, concrete and
transitory, because it establishes a
relation which is more limited by
reason of persons, effects, and
importance
2) In contract, the freedom to stipulate
predominates over necessity of
the act; Determining factor:
Contracts: INTENTION of the parties
while the meeting of the minds is
merely secondary in the other acts
3) PRINCIPAL SOURCE OF RIGHTS
AND OBLIGATIONS
Other agreements: LAW
Contract: STIPULATION;
LAW suppletory
ORDINARY CONTRACT V. MARRIAGE
1) PARTIES
Contract - 2 or more persons of
the same or different sexes
Marriage Man and Woman
2) GOVERNED PRIMARILY BY
Contract - by the agreement of
the parties
Marriage - law
3) RESULT
Contract - When executed, the
result is contract
Marriage - When celebrated, the
result is status
4) TERMINATION STAGE
Contract - Can be terminated or
dissolved by mere agreement
Marriage - Cannot be dissolved or
terminated
5) IN CASE OF BREACH, REMEDY
Contract - institute an action for
damages
Marriage - institute an action for
legal separation, or adultery or
concubinage
NCC (Art. 15-17)
Art. 15. Laws relating to family rights and duties,
or to the status, condition and legal capacity of
persons are binding upon citizens of the
Philippines, even though living abroad. (9a)
Art. 16. Real property as well as personal
property is subject to the law of the country
where it is stipulated.
However, intestate and testamentary
successions, both with respect to the order of
succession and to the amount of successional
rights and to the intrinsic validity of testamentary
provisions, shall be regulated by the national
law of the person whose succession is under
consideration, whatever may be the nature of
the property and regardless of the country
wherein said property may be found. (10a)
Art. 17. The forms and solemnities of
contracts, wills, and other public instruments
shall be governed by the laws of the country in
which they are executed.
When the acts referred to are executed before
the diplomatic or consular officials of the
Republic of the Philippines in a foreign country,
the solemnities established by Philippine laws
shall be observed in their execution.
Prohibitive laws concerning persons, their acts
or property, and those which have, for their
object, public order, public policy and good
customs shall not be rendered ineffective by
laws or judgments promulgated, or by
determinations or conventions agreed upon in
a foreign country. (11a)
STAGES IN THE FORMATION OF
CONTRACTS
1. Preparatory stage - conception, or
generation, which is the period of
negotiation and bargaining, ending
at the moment of agreement of the
parties; offer
Ex. contract of common carrier look
at the sign of the jeepney you are
riding; marriage - courtship
2. Perfection or birth of the contract -
which is the moment when the parties
come to agree on the terms of the
contract
Ex. contract of common carrier
enter the jeepney; marriage
solemnize marriage
3. Consummation or death - which is
the fulfillment or performance of the
terms agreed upon in the contract;
parties performed their obligation
then go back to original position/ status
Ex. contract of common carrier pay
the jeepney; marriage not
applicable because special contract
DIFFERENT KINDS OF CONTRACTS:
1. ACCORDING TO THEIR PERFECTION:
Art. 1315. Contracts are perfected by mere
consent, and from that moment the parties
are bound not only to the fulfillment of what
has been expressly stipulated but also to all
the consequences which, according to their
nature, may be in keeping with good faith,
usage and law. (1258)
Perfection of contracts moment in the life
of the contract where the parties come to an
agreement with respect to the object or
cause of the contract.
signifies the birth of the contract as
obligatory tie, resulting from the
concurrence of the wills of the contracting
parties
a) Consensual perfected by the meeting
of the minds with regard the object that is
involved;
- perfected by mere consent of the parties
regarding the subject matter and the
cause of the contract
- obligatory provided all essential
requisites for their validity are present
Ex. Sale, lease, agency, partnerhsip
Q: A offered to sell his land to B. After
inspection, A and B agreed on the price. The
next day, A received a better offer from C and
sold it to him. Can B sue A?
A: Yes. Sale is a consensual contract.
When A and B agreed on the property and
the purchase price, even if not reduced into
writing, there is a sale that is perfected.
In case of sale moment the minds
of parties (buyer and seller) meet on
the object and price perfected
contract of sale even if no delivery or
payment yet
In case of partnership would-be
partners agreed that they will
contribute something - delivery of
contributions not necessary
Note, however, under property registration: the
first registrant will have a better right.
Property Registration Law, a special law, will
prevail over the Civil Code, a general law
(Statutory Construction)
Art. 1316. Real contracts, such as deposit,
pledge and commodatum, are not perfected
until the delivery of the object of the obligation
b) Real perfected with the consent of the
parties and the delivery of the object by
one party to the other;
- purpose is restitution because
contemplate the return by a party of what
has been received from another
1) Commodatum
Bailor transfer non-consumable
property to Bailee gratuitously; Bailee
obligation to return the property; no
considerations (if there is lease)
Ex. Borrowing books in lib/
notes
2) Pledge collateral, transfer of
possession
Ex. Pawnshop
3) Deposit safekeeping
Ex. Baggage counter in malls
c) Solemn/ Formal requires compliance
with certain formalities prescribed by the
law
Ex. Deed of donation of a real property/
cattle require public instrument
Personal property 5k+ - in writing
CONTRACT OF LOAN borrower
and lender; real contract
CONTRACT TO LEND no lender;
consensual contract
- will NEVER become a real contract
CONTRACT OF SALE - Ownership
is transferred immediatel
CONTRACT TO SELL no buyer
and seller; only promisee and
promisor. Ownership will be
dependent upon the fulfilment of the
obligation, i.e., payment of purchase
price
- Buy a lot in installment basis- do note
execute out rightly a contract of sale but
what they execute is a contract to sell.
There is no sale yet.
CONTRACT OF DEPOSIT real
contract
CONTRACT TO DEPOSIT
consensual contract
Effect of perfection of contract:
From moment come to an agreement on
definite subject matter and valid
consideration bound
a) Fulfillment of what has been expressly
stipulated
b) All consequences which according to
their nature must be in keeping w/ good
faith, usage and law
2. ACCORDING TO IMPORTANCE:
a) Principal can exist by itself (ex.
simple loan)
b) Accessory existence is dependent
upon a principal contract (ex.
mortgage)
Note: If the principal contract is void,
the accessory contract is also void.
But not vice versa
3. ACCORDING TO THE PARTY
OBLIGATED TO PERFORM OR TO
RENDER SERVICE:
a) Unilateral only 1 of the parties have
the obligation to perform;
bailee/borrower (ex. commodatum)
b) Bilateral or reciprocal (ex. contract
with the school, sale)
4. ACCORDING TO EQUIVALENCE OF
PRESTATION:
a) Gratuitous- w/o any considerations
(e.g., commodatum, donation)
b) Onerous exchange of equivalent
prestation (ex. sale)
c) Remuneratory premised on
services/benefits already received
5. ACCORDING TO NAME OR
DESIGNATION
Art. 1307. Innominate contracts shall be
regulated by the stipulations of the parties, by
the provisions of Titles I and II of this Book,
by the rules governing the most analogous
nominate contracts, and by the customs of
the place.
 a) Nominate has a specific name or
designation in law (ex. commodatum,
lease, agency, sale, deposit,
partnership)
b) Innominate no specific name or
designation in law
i. Do ut des (I give you give)
*no longer innominate bec.
barter/ exchange
ii. Do ut facias (I give you do)
iii. Facto ut des (I do you give)
iv. Facto ut facias (I do you do)
Regulated by:
1. stipulations of the parties,
2. provisions of Titles I and II of this
Book,
3. rules governing the most analogous
nominate contracts
4. Customs of the place.
ELEMENTS OF A CONTRACT
1. Essential without which there can be no
contract; will make contract void (ex. Art 4)
Art. 2 FC. Essential requisites are present:
1. Legal capacity of the contracting
parties who must be a male and a
female; and
2. Consent freely given in the
presence of the solemnizing officer.
Art. 3 FC. The formal requisites of marriage
1. Authority of the solemnizing officer;
2. A valid marriage license except in the
cases provided for in Chapter 2 of this
Title; and
3. A marriage ceremony which takes
place with the appearance of the
contracting parties before the
solemnizing officer and their personal
declaration that they take each other
as husband and wife in the presence
of not less than two witnesses of legal
age.
Art. 4 FC. The absence of any of the
essential or formal requisites shall render
the marriage void ab initio, except as stated
in Article 35 (2).
A defect in any of the essential requisites
shall not affect the validity of the marriage but
the party or parties responsible for the
irregularity shall be civilly, criminally and
administratively liable. (n)
Q: Is the contract valid?
A: 1st, check what kind of contract -
consensual, real or formal
(Elements for the validity of contracts)
If consensual contract:
a) Consent
b) Subject matter
c) Cause of consideration
If real contract:
a) Consent
b) Subject matter
c) Cause of consideration
d) Delivery of the thing
If formal contract:
a) Consent
b) Subject matter
c) Cause of consideration
d) Formality required by law
2. Natural presumed to exist in certain
contracts unless the contrary is expressly
stipulated by the parties; presumed by law
(e.g., in sale, warranties in a contract of sale,
warranty against eviction, warranty against
hidden defects in sale)
3. Accidental will only exist upon
stipulation of the parties; particular clauses,
terms, or conditions established by the
parties in their contract like conditions,
period, interest, penalty, etc.
E.g., In a sale of a real property in
installments, instead of a contract to sell, it
becomes a contract of sale
BASIC PRINCIPLES APPLICABLE ON
CONTRACTS: (A-M-C-O-R)
1. Autonomy or liberty of contracts
2. Mutuality
3. Consensuality
4. Obligatory force of contracts
5. Relativity
Art. 1306. The contracting parties may establish
such stipulations, clauses, terms and conditions
as they may deem convenient, provided they are
not contrary to law, morals, good customs, public
order, or public policy.
1. AUTONOMY OR LIBERTY OF
CONTRACTS parties are free to stipulate
the terms and conditions of the contract
provided, they are not contrary to law, public
moral, good customs, public order, public
policy
- The right to enter into lawful contracts
constitutes one of the liberties of the
people of the state. If that right be struck
down or arbitrarily interfered with, there is
a substantial impairment of the liberty of
the people under the constitution
- The contract is the law between the
contracting parties. And where there is
nothing in the contract which is contrary
to law, morals, good customs, public
policy, or public order, the validity of the
contract must be sustained
LIMITATIONS ON STIPULATION
Art. 5. Acts executed against the provisions
of mandatory or prohibitory laws shall be
void, except when the law itself authorizes
their validity.
1. Law contract entered into must be in
accordance with and not repugnant to
applicable statute
- Freedom to contract is restricted by
law for the good of the public
- Statutes generally have no
retroactive effect and only the laws
existing at the time of the execution
of the contract are applicable to the
transaction
2. Police Power when no law in existence
or is silent, must not contravene morals,
good customs, public order and public policy
Morals norms of good and right
conduct evolved in a community
- generally accepted principles of
morality which are incontrovertible
and are universally admitted and
which have received social and
practical recognition
(ex. servitude to pay debt)
Good customs habits and
practices which through long usage
have been followed and enforced by
society
- includes even those moral precept
not recognized universally but is
sanctioned by the practice of a
certain community
(ex. showing respect to elder)
Public order public safety/ weal
(ex. stipulation wherein you can use
force or violence)
Public policy includes public
safety and common good; has
tendency to be injurious to public
(ex. exempting common carrier from
liability for gross negligence)
Note: This principle is NOT applicable in
a contract of marriage except during an
anti-nuptial agreement and only with
respect to their property relations
Article 1 FC. Marriage is a special contract of
permanent union between a man and a woman
entered into in accordance with law for the
establishment of conjugal and family life. It is the
foundation of the family and an inviolable social
institution whose nature, consequences, and
incidents are governed by law and not subject
to stipulation, except that marriage
settlements may fix the property relations
during the marriage within the limits provided by
this Code.
2. CONSENSUALITY OF CONTRACTS
perfected by mere consent except real and
formal contracts
Art. 1308. The contract must bind both
contracting parties; its validity or compliance
cannot be left to the will of one of them.
Art. 1309. The determination of the
performance may be left to a third person,
whose decision shall not be binding until it has
been made known to both contracting parties.
Art. 1310. The determination shall not be
obligatory if it is evidently inequitable. In such
case, the courts shall decide what is equitable
under the circumstances.
3. MUTUALITY must bind both parties and
its validity and compliance cannot be left to
the will of one of the parties
Consequences:
1. Cannot revoke/ renounce w/o consent of
the other
2. When fulfillment depends upon sole will of
one of parties conditional obligation void
if suspensive; valid if resolutory
- What cannot be left to the will of
one of the parties is its validity and
NOT EXTINGUISHMENT because
they may validly stipulate on such
term and this will not violate because
It is not the birth of the
contract or validity or
fulfillment of the contract but
simply extinguishment
The binding effect of the contract on both
parties is based on the principles:
1) obligations arising from contracts
have the force of law between the
contracting parties;
2) there must be mutuality between
the parties based on their
essential equality,
to which is repugnant to have one
party bound by the contract
leaving the other free therefrom.
PURPOSE: to render void contract
containing a condition which makes its
fulfillment dependent exclusively upon
the uncontrolled will of one of the
contracting parties
1. Power to determine the validity of
the contract
2. Power to determine WON the
contract shall be fulfilled
GR: Unilateral cancellation VOID
No party can renounce it unilaterally or
without the consent of the other.
No one may be permitted to change his mind
or disavow and go back upon his own acts,
or to proceed contrary thereto, to the
prejudice of the other party
The unilateral act of one party in terminating
the contract without legal justification makes
it liable for damages
XPN: When stipulated VALID
a) An agreement of the parties that either
one of them may terminate the contract
upon a reasonable period of notice, is
valid.
- Judicial action for the rescission of a
contract is not necessary where the
contract provides that it may be
revoked and cancelled for the
violation of any of its terms and
conditions. The right of rescission
may be waived
b) Under a resolutory facultative
condition
c) Negative form of rescission for in such
case, neither is the article violated, nor is
there any lack of equality between the
persons contracting, since they remain
with the same faculties in respect to
fulfillment.
VALIDITY OR FULFILLMENT MAY BE
A. left to the will of a 3rd person
B. can be left to chance
However, his decision shall not be binding
until it has been known to both the
contracting parties
Moreover, the determination made shall not
be obligatory if it is evidently inequitable.
In such case, the courts shall decide what
is equitable under the circumstances
4. OBLIGATORY FORCE OF CONTRACTS
obligations arising from contract have the
force of law between the contracting parties
(1159). Thus, in case of amendment, both
parties must agree.
- if one does not perform his obligation,
the other can go to court and ask for
specific performance
Contracts shall be obligatory, in whatever
form they may have been entered into,
provided all the essential requisites for
validity are present (Art. 1356, NCC).
The parties are bound from the moment the
contracts are perfected by mere consent not
only from the fulfillment of what has been
expressly stipulated but also to all the
consequences which, according to their
nature, may be in keeping with good faith,
usage and law (Art. 1315, NCC).
5. RELATIVITY OF CONTRACTS
Art. 1311. Contracts take effect only between the
parties, their assigns and heirs, except in case
where the rights and obligations arising from the
contract are not transmissible by their nature,
or by stipulation or by provision of law. The
heir is not liable beyond the value of the property
he received from the decedent.
If a contract should contain some stipulation in
favor of a third person, he may demand its
fulfillment provided he communicated his
acceptance to the obligor before its
revocation. A mere incidental benefit or interest
of a person is not sufficient. The contracting
parties must have clearly and deliberately
conferred a favor upon a third person.
GR: The contract takes effect only between
1. parties,
2. their assigns and
3. heirs (not liable beyond value of
property he received)
XPN:
A. Effective only between parties when
rights and obligations arising from
contract is not transmissible.
1. by their nature (contract involving
personal qualifications)
2. by stipulation (in accordance with
principle of freedom to contract)
3. by provision of law (ex. money debts
not directly charge to heir but to
estate; death of partner heir does
not step into partners shoes)
- Every contract is binding to all
contracting parties. The effects of the
contract may extend to heirs,
successors-in interest, assignees but
the transmission of the effects of
the contract beyond the parties is
possible only if the rights created
by the contract is transmissible
A thing done between others does not harm
or benefit others a contract can only
obligate the parties who entered into it, or
their successors who assumed their
personalities, and that, concomitantly, a
contract can neither favor nor prejudice third
persons
Third persons affected although contracts do
not bind third persons, juridical situations
may be created affecting them.
B. Third persons coming into
possession of the object of the
contract creating real rights subject to
the provisions of Mortgage Law and the
Land Registration Law (Art. 1312, NCC).
- A contract creating a real right affects
third persons who may have some
right over the thing; Accion Directa
 Real right right belonging to a person
over a specific thing without a passive
subject individually determined against
whom such right may be personally
enforced
- Enforceable against the whole world
- 3rd person who come to be in
possession of
Different from Personal right - power
belonging to a person to demand from
another as a definite passive subject
debtor, the fulfillment of a prestation to
give, to do or not to do.
C. Contracts entered into in fraud of
creditors (Art. 1313, NCC).
- A contract may reduce the properties
of a debtor thus diminish the
available security for the claims of
creditors; Accion Pauliana
D. When a third person induces a party to
violate the contract (Art. 1314, NCC)
- Interference with contractual
relations.
- Any person who induces another to
violate the contract shall be liable for
damages to the other contracting
party arising from quasi delict.
stranger cannot become
more extensively liable in
damages for non-
performance of the contract
than the party in whose behalf
he intermeddles.
Their liability should be
solidary, because in so far as
the third person is concerned,
he commits a tortuous act or
a quasi-delict, for which
solidary responsibility arises
Requisites:
a) Existence of a valid contract;
b) Third person has knowledge of
such contract;
c) Third person interferes without
justification.
E. Stipulation pour atrui (stipulation in
favor of a third person) who is not an
assignee or heir, but a stranger (Art.
1311, NCC)
- benefits clearly and deliberately
conferred by parties to a contract
upon third persons which stipulation
merely part of a contract entered into
by the parties,/ neither of whom acted
as agents of the third person / and
which favor can be demanded by the
third person if duly accepted by him
before it could be revoked.
(Ex. insurance contracts where insurer
enters into a contract with the insured but
benefits are deliberately and mutually
conferred upon 3rd person or beneficiary)
If a contract should contain some stipulation
in favor of a 3rd person, he may demand its
fulfillment provided he communicated his
acceptance to the obligor before its
revocation (Art. 1311 par. 2)
Revocation must be done by
mutual agreement or at least
by direction of the party
purchasing the exchange or
who initiated the insertion of
the stipulation
ACCEPTANCE BY THIRD PARTY
A stipulation in favor of a third person has no
binding effect in itself before its
acceptance by the party favored.
- Before such acceptance, there is
legally no obligor. Neither party to
the contract can sue the other for
non-performance unless there has
been an acceptance
- The acceptance is optional to the
third person; he cannot be obliged
to accept a right against his will.
Acceptance does not determine the moment
when rights are acquired by the 3rd person
- depends upon the terms of the
stipulation, and the acceptance retroacts to
the moment intended by the parties to the
contract
Before acceptance by the 3rd person,
- the contracting parties, by mutual
agreement, may modify the contract
or revoke it
- benefits conferred may be
withdrawn by both parties
(unilateral withdrawal not allowed)
After acceptance of the stipulation by the 3rd
person, and there is failure of performance
- he can sue either for specific
performance or resolution, with
indemnity for damages
DEPENDENCE ON CONTRACT
- Thus, the right of the third person
does not exist if the contract is void; it
disappears if the contract is annulled
or dissolved, either by the happening
of a resolutory condition or by the
exercise of the right of rescission
granted by article 1191
** Only a party to the contract can maintain
an action to enforce the obligations arising
under said contract
RESCISSION- 3rd person may ask for its
rescission if it is in fraud of his rights.
ANNULMENT OF CONTRACT
Since a contract is binding only upon the
parties thereto, a third person cannot ask
for its annulment
- One who is not a party to a contract
has no rights under such contract,
and even if the contract may be
voidable, its nullity can be asserted
only by one who is a party thereto; a
third person would have absolutely
no personality to ask for the
annulment
** A person who is not a party obliged
principally or subsidiarily in a contract may
exercise an action for nullity of the
contract if prejudiced in his rights with
respect to one of the contracting parties,
and can show the detriment which would
result to him from the contract in which he
had no intervention
2 CLASSES OF STIPULATION POUR
ATRUI
1. DONE BENIFICIARY - those where
the stipulation is intended for the
sole benefit of such third person
corresponds almost always to
the juridical conception of a
gift or donation
2. CREDITOR BENEFICIARY - those
where an obligation is due from the
promise to the third person and the
former seeks to discharge it by
means of such stipulation
Requisites of stipulation pour atrui:
1) There must be a stipulation in favor of
a third person
2) That the stipulation should be a part,
not the whole, of the contract
3) That the contracting parties must
have clearly and deliberately
conferred a favor upon a third person,
not a mere incidental benefit or
interest
4) That the favorable stipulation should
not be conditioned or compensated
by any kind of obligation whatever
5) That the third person must have
communicated his acceptance to the
obligor before its revocation
6) Neither of the contracting parties
bears the legal representation or
authorization of the third party.
Note: If the third party is represented, then
the principles of agency apply
Test to determine whether the interest of
third person in a contract is a stipulation pour
autrui or merely an incidental interest:
INTENTION OF PARTIES
UNENFORCABLE CONTRACTS
Art. 1317. No one may contract in the name of
another without being authorized by the latter,
or unless he has by law a right to represent him.
A contract entered into in the name of another by
one who has no authority or legal representation,
or who has acted beyond his powers, shall be
unenforceable, unless it is ratified, expressly or
impliedly, by the person on whose behalf it has
been executed, before it is revoked by the other
contracting party.
- Based on the principle of obligatory
force and relativity of a contract.
Unenforceable contracts
- Cannot be sued upon unless they are
ratified
- Intermediate ground between
voidable and void contract
3 kinds:
1) Contracts entered into w/o authority/ in
excess of authority given
2) Do not comply with requirements of
Statute of Frauds
3) Both parties are incapacitated
Not prohibited that person from entering into
a contract with another by representing
another person.
Requisites:
1. Require presence of authority
2. Require that person authorized in the
name of another act within scope of authority
given
How authority given?
- Either by law or granted by a contract
Ex. Contract of agency where you
designate somebody as your agent
for the purpose of representing you
for a particular transaction
Effect of lack of authority
a) Against person sought to be
represented unenforceable
b) Against person making unauthorized
representation valid and
enforceable
UNAUTHORIZED CONRACTS CURED
ONLY BY RATIFICATION
Where a contract is entered into in behalf of
another who has not authorized it, such
contract is void unless he ratifies the
transaction and is estopped to question its
legality.
- The nullity of such contract is of a
permanent nature and it will exist as
long as it is not duly ratified.
- The mere lapse of time cannot give
efficacy to such contract. The defect
is such that it cannot be cured
except by the subsequent
ratification of the person in whose
name the contract was executed
The ratification of an unauthorized contract
may be either express of implied
The ratification of a contract by the person
in whose name it has been entered into
without authority, validates the act from the
moment of its celebration, and not merely
from the time of its ratification, for the
ratification operates upon or applies to the
act already performed
Before ratification - the other party, as in
cases of suspensive conditions, may not do
anything which would frustrate the rights of
the former which may arise in the event of
ratification. However, he may resolve the
contract before the ratification, by means of
revocation communicated to the principal
or to the agent
If the contract is not ratified by the person
represented - the representative becomes
liable in damages to the other party
Art. 1897 - an agent who exceeds the limits
of his authority without giving the other party
sufficient notice of his powers, becomes
personally liable to the latter. This is
applicable also to cases of total want of
authority, because the ratio legis is the same

ESSENTIAL REQUISITES OF
CONTRACTS
SECTION 1 - CONSENT
Art. 1319. Consent is manifested by the
meeting of the offer and the acceptance upon
the thing and the cause which are to constitute
the contract. The offer must be certain and the
acceptance absolute. A qualified acceptance
constitutes a counter-offer.
Acceptance made by letter or telegram does
not bind the offerer except from the time it
came to his knowledge. The contract, in such
a case, is presumed to have been entered into
in the place where the offer was made
CONSENT -
It is the manifestation of the meeting of the
offer and the acceptance upon the thing and
the cause which are to constitute the contract
(Art. 1319, NCC).
- Accord or coincidence of the desires
and intent of the parties to the
contract upon the subject matter and
the cause (Castan)
How is consent manifested?
Concurrence of offer and acceptance with
respect to the object and the cause of the
contract
NOTE: Consent is essential to the existence
of a contract; and where it is wanting, the
contract is non-existent
** During time of perfection/ birth or end of
preparatory stage
Elements of Consent: (P-L-ISF-M-CC)
1. Plurality of subjects
2. Legal capacity of the contracting
parties
3. Parties conformity to the object,
cause, terms and condition of the
contract must be intelligent,
spontaneous and free from all vices
of consent;
4. Express/ Tacit manifestation of the
intent of the contracting parties;
5. Cognition by the other party
6. Conformity of the internal will and its
manifestation
Requisites of Valid Consent: (I-S-F)
1) Intelligent, or with an exact notion of
the matter to which it refers;
NOTE: Intelligence in consent is
vitiated by error; freedom by violence,
intimidation or undue influence; and
spontaneity by fraud.
2) Spontaneous
3) Free
OFFER - a unilateral proposition which one
party makes to the other for the celebration
of a contract.
- Acceptance of which will perfect
contract
Requisites of a valid offer (D-C-I)
1) Definite
So that upon acceptance an
agreement can be reached on the
whole contract.
The offer must be distinguished from
mere communications indicating that
a party is disposed to enter into a
certain contract, or inviting the other
to make an offer
2) Complete
Indicating with sufficient clearness
the kind of contract intended and
definitely stating the essential
conditions of the proposed
contract, as well as the non-
essential ones desired by the offeror
Thus, in a contract of sale, the offer
must specify the object and the price
3) Intention on part of offeror to be
bound
An offer w/o seriousness is
absolutely without juridical effects
and cannot give rise to a contract
 Mental reservation - when a party makes
a declaration but secretly does not
desire the effects of such declaration.
It exists when the manifestation of the will
is made by one party for the purpose of
inducing the other to believe that the
former intends to be bound, when in fact
he does not
** The mental reservation of the offeror,
unknown to the other, cannot affect the
validity of the offer
THEORY OF COGNITION
(Not mailbox theory)
- Offer and acceptance concur only
when the offeror comes to know and
not when offeree merely manifests
his acceptance
- As soon as offeror learns of
acceptance of offeree
Contract by correspondents: (1319, par.2)
Rule: As soon as offeror learns of
acceptance of offeree
Apply this rule even if the question uses
text messaging or electronic mail as
means of expressing acceptance
Art. 1321. The person making the offer may fix
the time, place, and manner of acceptance, all
of which must be complied with.
COUNTER-OFFER qualified acceptance;
involves a new proposal; rejection of the
original offer
AMPLIFIED ACCEPTANCE there is a
perfected contract with regard the original
offer; but with regard to the additional, the
offeree is now making a counter-offer.
Rules on COMPLEX OFFER
1. Offers are interrelated contract is
perfected if all the offers are accepted
2. Offers are not interrelated single
acceptance of each offer results in a
perfected contract unless the offeror has
made it clear that one is dependent upon
the other and acceptance of both is
necessary.
Example:
1. Offer to sell lot no1, and lease on lot no2;
the offeree accepted only the 1st offer, is
there a valid contract? - YES w/ regard to 1st
offer.
2. Offer to mortgage the property and loan
1M; the offers are interrelated - they may not
be separately accepted
Rules on ADVERTISEMENTS AS OFFERS
Art. 1325. Unless it appears otherwise,
business advertisements of things for sale are
not definite offers, but mere invitations to
make an offer.
Art. 1326. Advertisements for bidders are
simply invitations to make proposals, and the
advertiser is not bound to accept the highest
or lowest bidder, unless the contrary appears.
1. Business advertisements not a definite
offer, but mere invitation to make an offer,
unless it appears otherwise
Example: In case of flyers of
condominium units for sale: Although
there is an intention on the part of the
offeror to be bound, the first two
requisites, however, are not yet met.
The flyers are merely an invitation
to make an offer to buy
2. Advertisement for bidders simply
invitation to make proposals and advertiser is
not bound to accept the highest or lowest
bidder, unless the contrary appears may
become a definite offer if so intended by
advertiser
Nature and effect of advertisement:
If it involves a sale of a real or
personal property, it is simply an
invitation to make an offer
 Insanity insane person cannot give a
Art. 1322. An offer made through an agent is valid consent to a contract. He loses the
accepted from the time acceptance is capacity to do acts with legal effects
communicated to him.
Insolvency modifies or limits capacity
If personally knowledge of offeror results in to act.
consent
ACCEPTANCE manifestation by the
If acceptance given to an intermediary offeree of his assent to all terms of the offer
acceptance does not bind the offeror until
Art. 1320. An acceptance may be express or
such acceptance comes to the knowledge of
implied.
the offeror;
- An intermediary who has no power
- w/o which no meeting of minds
to bind either the offeror or the
- An offer that is not accepted does not
offeree is not an agent; his situation
give rise to consent, and the contract
is similar to that of a letter carrier. The
does not come into existence. Thus,
communication of the acceptance to
where it appears that the offeree not
him does not perfect the contract
only did not accept, but rejected the
offer, no contract was created
Grounds that would render the offer
ineffective (DCI3-R-II-L)
Requisites of a valid acceptance (UCC-C)

Art. 1323. An offer becomes ineffective upon 1) Absolute, unqualified or

the death, civil interdiction, insanity, or unconditional
insolvency of either party before acceptance 2) Communicated to the offeror
is conveyed.
What if acceptance reached the offeror
thru a letter? Did not open?
1. Death, civil interdiction, insanity or
insolvency of either party before
- IF there is an obligation on the part of
acceptance is conveyed
the offeror to open the letter but he
2. Express or implied revocation of the
refused to open it, he becomes
offer by the offeree
bound.
3. Qualified or conditional acceptance of the
- IF no obligation to open it does not
offer, which becomes counter-offer
become bound
4. Subject matter becomes illegal or
impossible before acceptance is
Period for acceptance
communicated
5. Period given to the offerree to signify his Art. 1324. When the offeror has allowed the
acceptance has already lapsed offeree a certain period to accept, the offer
may be withdrawn at any time before
Reasons: acceptance by communicating such
Death -extinguishes personality and withdrawal, except when the option is
juridical capacity founded upon a consideration, as
Civil interdiction (accessory penalty for something paid or promised.
RT) person is deprived of parental
authority, guardian, and also deprived of 1. Stated fixed period in the offer
the right to manage or dispose of his a) Must be made within the period
property, he cannot execute acts inter given by the offeror.
vivos.
b) As to withdrawal. revocation,
cancellation of the offer:

GR: It can be made by communicating such
withdrawal at any time before the
acceptance is made
Offeror withdraws offer:
- Offeror may still withdraw the offer so
long as he still has no knowledge of
the acceptance by the offeree.
- effect of withdrawal is immediate
Offeree withdraws acceptance:
- The acceptance may be revoked
before it comes to the knowledge
of the offeror, because in such case
there is still no meeting of the minds,
since the revocation has canceled or
nullified the acceptance which
thereby ceased to have any legal
effect.
XPN: When the option is founded upon a
consideration (something paid or promised
since partial payment of the purchase price
is considered as proof of the perfection of the
contract)
2. No stated period
a) Offer is made to a person present
acceptance must be made
immediately.
b) Offer is made to a person absent
acceptance may be made within such
time that, under normal
circumstances, an answer can be
expected from him.
Option mere right to decid; different from
Option Contract provides for a reasonable
period within which to make a final decision,
whether you will accept the offer or not
OPTION MONEY VS EASEMENT MONEY
Option money money paid or promised to
be paid in consideration for the option.
1) Does not give rise to a contract of sale, but
simply a perfected option contract; merely a
preparatory to the principal contract (2
contracts)
2) It is a consideration for the waiting time of
the seller
Note: The Code is silent as to the
amount, thus, P1 will be enough
3) Seller has no right to offer the same
product to a third person within the agreed
period; if lapse or no option money free to
dispose to 3rd person
4) Never recovered if ever principal contract
fails
(Ex. if deposit/ reservation fee is not
deducted from contract price
Earnest money partial payment of the
purchase prices and is considered proof of
perfection of contract
1) Gives rise to a perfected contract of sale
2) It forms part of the contract price
3) Recoverability depends on stipulation of
parties
Note: Both option money and earnest
money involve a delivery of money
Art. 1327. The following cannot give consent
to a contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-
mutes who do not know how to write.
Art. 1328. Contracts entered into during a
lucid interval are valid. Contracts agreed to in
a state of drunkenness or during a hypnotic
spell are voidable.
Art. 1329. The incapacity declared in Article
1327 is subject to the modifications
determined by law, and is understood to be
without prejudice to special disqualifications
established in the laws.
Persons incapacitated to give consent
(D-I-M)
1) Deaf-mutes who do not know how to
read and write (illiterates)
IF he knows how to write not
disqualified

2) Insane or demented persons,
unless the contract was entered into
during a lucid interval
Even if person is mentally ill,
as long as he has control of
his faculties
Drunk, under hypnotic spell,
somnambulists deprived of
mental faculties
It should be runkenness, in
such degree that obscures
completely the faculties &
almost extinguishes the
consciousness of acts, may
be a ground for annulment of
a contract
3) Minors (Art. 1327, NCC) except:
a) Contracts for necessaries (Art.
1489, NCC)
b) Contracts by guardians or legal
representatives and the court
having jurisdiction had approved
the same
c) When there is active
misrepresentation on the part of
the minor (minor is estopped)
d) Contracts of deposit with the
Postal Savings Bank provided
that the minor is over 7 years of
age
e) Upon reaching age of majority
they ratify the same
RA 6809 no longer have
unemancipated minors. Under the law,
there is only 1 mode of emancipation
by law by reaching age of majority which
is 18 yrs old.
NOTE: These incapacitated persons can
enter into a contract only through a parent
or guardian.
INCAPACITY VS DISQUALIFICATION
Incapacity
1. Restrains exercise of right to contract
2. May still enter into contract thru
parent, guardian or legal
representative
3. Based upon subjective circumstance
of certain person
4. Contracts entered into are merely
voidable
Disqualification
1. Restrains the very right itself
2. Absolutely disqualified
3. Based upon public policy and
morality
4. Contracts entered into are void
Persons disqualified to give consent
1. persons suffering from civil
interdiction
2. hospitalized lepers
3. prodigals
4. deaf and dumb who are unable to
read
5. those who by reason of age, weak
mind or other similar cases, cannot,
without aid from other, take care of
themselves and manage their
property becoming thereby easy prey
from deceit and exploitation.
Effects:
Defective contract effect of incapacitated
persons entering into a contract not through
a parent or agent.
Voidable contracts only one of the
contracting parties is incapacitated to give
consent.
Unenforceable contracts when both
parties are incapacitated to give consent.
 VICES OF CONSENT
(Grounds for annulment of contract)
circumstances that affect adversely
decision of party in entering contract
1. Affecting cognition (intellectual faculty)
(I-E-F) Conscious/ spontaneous
a. Incapacity (e.g., 37, 38)
b. Error or mistake 1331
c. Fraud 1338
2. Affecting volition (faculty of the will)
(V-I-U) Free and voluntary
a. Violence 1335
b. Intimidation 1335
c. Undue influence 1337
IN RELATION TO MARRIAGE:
Art. 45 FC. A marriage may be annulled for
any of the following causes, existing at the
time of the marriage:
1. Party in whose behalf it is sought to
have the marriage annulled was 18
years of age or over but below 21,
and the marriage was solemnized
w/o the consent of the parents,
guardian or person having substitute
parental authority over the party, in
that order, unless after attaining the
age of 21, such party freely cohabited
with the other and both lived together
as husband and wife;
2. That either party was of unsound
mind, unless such party after coming
to reason, freely cohabited with the
other as husband and wife;
3. That the consent of either party
was obtained by fraud, unless such
party afterwards, with full knowledge
of the facts constituting the fraud,
freely cohabited with the other as
husband and wife;
4. That the consent of either party
was obtained by force,
intimidation or undue influence,
unless the same having disappeared
or ceased, such party thereafter
freely cohabited with the other as
husband and wife;
5. That either party was physically
incapable of consummating the
marriage with the other, and such
incapacity continues and appears to
be incurable; or
6. That either party was afflicted with
a sexually-transmissible disease
found to be serious and appears to be
incurable.
Art. 1331. In order that mistake may invalidate
consent, it should refer to the substance of the
thing which is the object of the contract, or to
those conditions which have principally moved
one or both parties to enter into the contract.
Mistake as to the identity or qualifications of one of
the parties will vitiate consent only when such
identity or qualifications have been the principal
cause of the contract.
A simple mistake of account shall give rise to its
correction.
A. ERROR OR MISTAKE inadvertent (not
intended) and excusable disregard of a
circumstance material to the contract
False notion of a thing or fact
There is consent but if aware of
effort would not have given consent
GR: Must be unilateral mistake
XPN: When mistake of law involves mutual
error as to the legal effect of an agreement
when the real purpose of the parties is
frustrated (Art. 1334, NCC).
- Mistake on a doubtful question of
law, or on the construction or
application thereof, may vitiate
consent.
NO MISTAKE if one alleging it knew
of the doubt, contingency, or risk
involved in the object of the contract.
IF from beginning knew already and
still proceeded in entering contract
cannot ask for annulment by invoking
mistake
Requisites of Mistake involving Mutual Error:
1. Mistake must be with respect to the legal
effect of the agreement;
2. It must be mutual; and
3. Real purpose of the parties must have
been frustrated.

Mistake of fact, not mistake of law
Mistake of fact when one or both of the
contracting parties believe that a fact exist
when in fact it does not
Good faith is a defense between the
contracting parties
Mistake of law when one or both of the
contracting parties arrive at an erroneous
conclusion regarding the interpretation of a
question of law or the legal effects of a
certain act or transaction.
Ignorance of the law excuses no one
from compliance therewith
Not only mistake of fact but must refer to
substance of the object or to principal
condition that moves the parties
To what should mistake refer to in
order to vitiate consent?
A: Substance of the thing which is
the object/ conditions which
principally moved parties to enter the
contract.
Effect if mistake was not
substantial
A: If committed by both parties
either one may ask for reformation
If unilateral it means threat
2 KINDS OF MISTAKE OF FACT:
1. Error in Re (MISTAKE AS TO OBJECT)
a) Error in Corpore (mistake as to the
identity of the thing)
b) Error in Substantia (mistake as to the
substance of the thing)
c) Error in Quantitae (mistake as to the
quantity of the thing)
d) Mistake as to the conditions of the
thing, provided such conditions have
principally moved one or both parties
to enter into the contract
2. Error in Persona (MISTAKE AS TO
PERSON)
Mistake as to the identity or qualifications of
one of the parties - only when such identity
or qualifications have been the principal
cause of the contract.
*Usually, these mistakes occur in obligations
to do.
2 REQUISITES of error in persona:
1. The mistake must be either with
regard to the identity or to the
qualification of one of the
contracting parties;
2. The identity or qualification must
have been the principal
consideration for the celebration
of the contract
Ex. Family Code Mistake of Fact
Sacristan misrepresented himself as priest
parties believed in good faith save validity
of marriage
Mistake of Law Court administrators such
as Justices has no authority to solemnize
marriage parties believed in good faith that
any justice has authority to solemnize
marriage but in fact no authority good faith
not valid
Art. 1338. There is fraud when, through insidious words or
machinations of one of the contracting parties, the other is
induced to enter into a contract which, without them, he would not
have agreed to.
Art. 1339. Failure to disclose facts, when there is a duty to
reveal them, as when the parties are bound by confidential
relations, constitutes fraud.
Art. 1340. The usual exaggerations in trade, when the other
party had an opportunity to know the facts, are not in themselves
fraudulent.
Art. 1341. A mere expression of an opinion does not signify
fraud, unless made by an expert and the other party has relied
on the former's special knowledge.
Art. 1342. Misrepresentation by a third person does not vitiate
consent, unless such misrepresentation has created substantial
mistake and the same is mutual.
Art. 1343. Misrepresentation made in good faith is not
fraudulent but may constitute error.
Art. 1344. In order that fraud may make a contract voidable, it
should be serious and should not have been employed by both
contracting parties.
Incidental fraud only obliges the person employing it to pay
damages.
B. FRAUD insidious words or
machinations of one of the contracting
parties, the other is induced to to enter
into a contract which, without them, he
would not have agreed to.
A 3rd person only vitiates consent
when he is in connivance with one of
the contracting parties because
status of consent cannot be made to
depend on act of 3rd person
Even if employed by 3rd person w/o
connivance, person who is being
defrauded still has time to reflect or
discern whether he should yield to
the fraud
Requisites of Fraud: (FIM-MS-I-I-not 2/3-D)
a. Fraud, insidious words or
machinations must have been employed
by one of the contracting parties;
b. It must have been material and serious;
c. It induced the other party to enter into a
contract;
d. It must be a deliberate intent to deceive
or and induce;
e. Should not have been employed by both
contracting parties or by third persons;
f. The victim suffered damage or injury.
2 kinds of fraud
1. Fraud in the perfection of the contract
a) Causal Fraud (dolo causante)
- Fraud in the celebration of the contract
(ground for annulment)
- The party would not have given his consent
have he been aware of the fraud
- Affects validity of consent
b) Incidental fraud (dolo incidente)
- Fraud in the execution of the contract or of
the obligation (ground for damages)
- There is intention to enter contract
- Parties deceived would have agreed but
under different terms/ condition
CAUSAL VS INCIDENTAL FRAUD
Gravity of Fraud
C - Serious in character
I - Not serious
Efficient Cause
C - Efficient cause which induces the
party to enter into a contract
I - Not the efficient cause
Effect on the Status of a Contract
C - Renders the contract voidable
I - Does not affect the validity of the
contract
Remedies
C - Annulment with damages
I - Contract remains valid. Remedy is
claim for damages.
2. Fraud in the performance of an obligation
(Art. 1170, NCC)
Art. 1170. Those who in the performance of
their obligations are guilty of fraud,
negligence, or delay, and those who in any
manner contravene the tenor thereof, are
liable for damages
KINDS OF FRAUD WHICH DO NOT
VITIATE CONSENT
1. Tolerated Fraud/ Dealers Talk
exaggerated qualities of a thing.
Fraud shall not vitiate consent as
long as the other party was given
opportunity to know the facts
2. Rendition of Opinion mere
rendition of an opinion is not fraud
unless person giving it is an expert &
other party relies on his expertise.
3. Both parties commit fraud they
compensate each other. Fraud must
be actual and serious
4. Fraud by 3rd party with no
connivance with other party
5. Misrepresentation does not vitiate
consent, unless such
misrepresentation has created
substantial mistake and the same is
mutual
6. Misrepresentation made in good
faith is not fraudulent but may
constitute error
Is there fraud even if one has not done a
positive act?
A: Yes. Failure to make disclosure where
there is an obligation to do so amounts to
fraud. Not always necessary that it should be
a positive act fraud through silence
Example:
1. Insurance Code- concealment = fraud
2. Family Code Art. 46
4 CASES OF FRAUD
1) Non-disclosure of a previous
conviction by final judgment of the
other party of a crime involving moral
turpitude
2) Concealment by the wife of the fact
that at the time of the marriage, she
was pregnant by a man other than
her husband
3) Concealment of sexually
transmissible disease, regardless
of its nature, existing at the time of
the marriage
4) Concealment of drug addiction,
habitual alcoholism or
homosexuality or lesbianism
existing at the time of the marriage.
Art. 1335. There is violence when in order to
wrest consent, serious or irresistible force is
employed.
There is intimidation when one of the contracting
parties is compelled by a reasonable and well-
grounded fear of an imminent and grave evil upon
his person or property, or upon the person or
property of his spouse, descendants or
ascendants, to give his consent.
To determine the degree of intimidation, the age,
sex and condition of the person shall be borne in
mind.
A threat to enforce one's claim through competent
authority, if the claim is just or legal, does not
vitiate consent. (1267a)
Art. 1336. Violence or intimidation shall annul the
obligation, although it may have been employed
by a third person who did not take part in the
contract.
C. VIOLENCE in order to wrest consent,
serious or irresistible force is employed
- Not limited to physical violence
- (external force physical compulsion)
- Degree of constraint or danger actually
inflicted
- There is consent but not voluntarily
given
Requisites of violence (SI-DC)
1) Physical force employed must be
serious or irresistible; and
2) The determining cause for the party
upon whom it is employed in entering
into the contract
.
D. INTIMIDATION compelled by a
reasonable and well-grounded fear of an
imminent and grave evil upon his person
or property, or upon the person or
property of his spouse, descendants or
ascendants, to give his consent
- grave threat
- (internal force moral compulsion)
- the degree of constraint or danger
threatened or impending, sufficient
to overcome the mind and will of a
person of ordinary firmness
- All intimidation threat but not all
threats result to intimidation (just/
lawful threat)
Requisites of intimidation (C-I-C-U)
1. One of the parties is compelled to give his
consent by a reasonable and well-grounded
fear of an evil
2. The evil must be imminent and grave;
3. It must be unjust and unlawful
4. The evil must be the determining cause
for the party upon whom it is employed in
entering into the contract
NOTE: To determine the degree of the
intimidation, the age, sex and condition of the
person shall be borne in mind
Object of threat person/ property of one of
the contracting parties or upon the person or
property of his spouse, descendants, and
ascendants
Even if the intimidation or threat had been
employed by a 3rd person who was not a
party to the contract, the agreement is still
null and void
NOTE: Violence or intimidation shall annul
the obligation, although it may have been
employed by a 3rd person who did not take
part in the contract
E. UNDUE INFLUENCE improper
advantage of one's power;
- no threat involved but imposition of
ones will over another because of
the superiority of position
- There is undue influence when a
person takes improper advantage of
his power over the will of another,
depriving the latter of a reasonable
freedom of choice
Circumstances to be considered for the
existence of undue influence
1. Confidential, family, spiritual and other
relations between the parties
2. Mental weakness
3. Ignorance
4. Financial distress (Art. 1337, NCC)
NOTE: The enumeration is not exclusive.
Moral dependence, indigence, mental
weakness, tender age or other handicap are
some of the circumstances to consider
undue influence.
Determination of undue influence
WON the influence exerted has so
overpowered and subjugated the mind of
the contracting party as to destroy his
free agency, making him express the will of
another rather than his own
Ex. Government official/ Employer not
agree = fired
Art. 1345. Simulation of a contract may be
absolute or relative. The former takes place
when the parties do not intend to be bound at
all; the latter, when the parties conceal their
true agreement. (n)
Art. 1346. An absolutely simulated or
fictitious contract is void. A relative
simulation, when it does not prejudice a third
person and is not intended for any purpose
contrary to law, morals, good customs, public
order or public policy binds the parties to their
real agreement.
F. SIMULATION OF A CONTRACT
declaration of non-existent will made
deliberately and by agreement by the
parties (1345, 1346)
1. Absolutely simulated no real intention
to enter into a contract
- There is color of a contract, without any
substance thereof, the parties not having any
intention to be bound
- VOID
2. Relatively simulated parties intend to
be bound to each other but the real intention
is not reflected in the instrument
- The parties have an agreement which they
conceal under the guise of another contract
- IF lawful VALID & ENFORCEABLE
- Still binds the contracting parties to their
real agreement, when it does not prejudice a
3rd person and is not intended for any
purpose contrary to law, morals, good
customs, public order, or public policy
There are two juridical acts involved in
relative simulation:
1) The ostensible act, also called
apparent or fictitious, which is the
contract that the parties pretend
to have executed
2) The hidden act, also called real,
which is the true agreement
between the parties
Can it be reformed? YES. Parties to a
contract are free to change what they have
agreed upon, as long as theres agreement