Magbalon III Contracts; patterned to Justice Caguioa’s book; Suppletory to Ali notes. Sanchez Roman – A contract is a juridical convention manifested in legal form, by virtue of which one or more persons bind themselves in favor another, or others, or reciprocally, to the fulfillment of a prestation to give, to do, or not to do. Contracts differs from policitacion, the latter is merely an offer that has not yet accepted, whereas in contracts, there is the meeting of the minds. It also differs from perfect promise, because the latter is merely preparatory to the contract and merely paves the way for the celebration of the contract in the future. Number of parties in a contract – What the law meant is “two parties” not “two persons” because that same person may represent two parties because he may act in his own right and as representative of another. This is the so called “autocontract”. Stages in the life of a contract 1. Preparation – start of the negotiation till the moment just before the agreement of the parties 2. Perfection – precise moment when the parties come into agreement on the terms of the contract 3. Consummation – contract is fully executed Elements of a contract 1. Essential – without which there can be no contract; consent, subject matter and cause 2. Natural – usually accompany a contract and are derived from its nature and are presumed by law which can be waived; warranty in sales 3. Accidental – can only exist when the parties expressly so provide for the purpose of limiting or modifying the normal effects of their rights; condition or period Characteristics of contracts 1. Autonomy of the will of the parties in contracts – also called as freedom of contracts, the contracting parties may establish such stipulations provided that they are not contrary to law, morals, good customs, public order or public policy. 2. Obligatory force of contracts – the parties are not only bound 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. 3. Mutuality of contracts – the contract must bind both parties and the validity and compliance cannot be left to the will of one of them. 4. Relativity of contracts – contracts take effect only between the parties, assigns and heir, except in case where the rights and obligations arising from the contracts are not transmissible by their nature or by stipulation or by provision of law.
Art. 1306 – Autonomy of the will of the parties in contracts. Art. 1307 – Innominate contracts – those without any individuality or their own special rules and are governed by the general rules of contracts. They are grouped generally into four types; I give what you give, I give that you do, I do that you give and I do that you do. Art. 1308 – Validity cannot be left to one party – In order to maintain the enforceability of contacts. Art. 1309 – Determination of performance – determination of the performance may be left to a third persons, whose decision shall be obligatory unless it is evidently inequitable, and its binding effect begins from the time the decision of the third person has been made known to both contracting parties. Art. 1310 – Mutuality of contracts – However, should the decision of the third person be evidently inequitable, the courts will decide what is equitable under the circumstances. Resolutory condition at the will of the parties – What is prohibited under Art. 1308 is that the effectivity of the fulfillment of the contract will be left to the will of one of the parties. However, the termination of the contract may be left to the will of one of them in the negative form of rescission if that is so expressly stated in the contract; an agreement permitting the cancellation of the contract by one of the parties, for instance, a provision under a contract of lease, that the lessee at any time before the erecting any building on the land leased might rescind the contract of lease. Art. 1311 – Relativity of contracts; the general rule, therefore is that contracts produce effect only as between the parties who execute them. Hence, the rights of a part cannot be prejudiced by the act, declaration or omission of another, and proceedings against one cannot effect another, except as expressly provided by law or the Rules of Court. This is the same principle as the rules of res inter alios acta in Evidence. Exceptions – The contract does not produce effects for the heirs when the obligations arising from contracts are not transmissible in nature, or by stipulation of the parties or by law. E.g.: agency The contract may affect third persons in following: 1. When the parties transfer to third persons the rights they acquired under the contract 2. Contract contains stipulations in favor of third person 3. When third person exercise subrogatory action or the action pauliana 4. Suspension of payments under Insolvency law 5. Collective bargaining 6. Contracts creating real rights 7. In cases of Negotiorum Gestio
Only parties in a contract may enforce or annul the contract. However, creditors may rescind those contracts created in fraud of their rights. Stipulations POUR AUTRUI; requisites 1. 2. 3. 4. 5.
The conferment of favor upon third person is clear and deliberate No compensation for the stipulation in favor of the third person The stipulation should not be the entire contract but merely a part There is no agency Third person communicated his acceptance to the obligor before its revocation – the power of revocation belongs to both contracting parties and not to one of them alone. Hence, unilateral revocation by one of the parties does not constitute the revocation referred to in law.
Art. 1312 – Contracts creating real rights Contracts creating real rights must be distinguished from real contracts. The former refers to the nature of the rights created by the contract, the latter refers to perfection of the contract. In a contract crating real rights, the right created directly affects the object of the contract and it follows the same whoever comes into the possession of the property. Real contracts on the other hand, are those which are perfected by the delivery of the property in question. A contract may be consensual, but produce real rights, and a real contract may not produce a real right. Art. 1313 – Protection of creditors; this refers to a rescissory action or action pauliana Art. 1314 – Violation induced by another; requisites. a. The existence of a valid contract b. Knowledge by a third person of the existence of the said contract c. Interference by the third person in the contractual relation without legal justification Such stranger cannot become more intensively liable to damages for nonperformance of the contract that the party in whose behalf he intermeddles. The liability of the contracting party who broke the contract and the third person who induced him to do so should be solidary, because in so far as the third person is concerned, he commits a tortious act or a quasi-delict for which liability arises. For third person, the liability arises from quasi- delict but with regard to guilty party, his liability arises from breach of contract or culpa contractual. Art. 1315 – Perfection of contracts; article only apply to consensual contracts. a. Consensual contracts – perfected by mere consent b. Real contracts – perfected by the delivery of the object of the contract c. Formal or Solemn contracts – only enforceable if it conforms to the forms prescribed by law
From the moment a contract is perfected, the parties are bound not only to fulfillment of what has been expressly stipulated but also to all consequences which, according to their nature, may be in keeping with good faith, usage and law. The name of the contract which is given by the parties is totally immaterial since the nature of the contract is determined not by the parties but by the law. We must distinguish between the validity of the stipulation in a contract and the juridical qualification of a contract. Art. 1316 – Real contracts; delivery is essential Art. 1317 – Contracts in the name of another; lack of authority makes the contract unenforceable unless ratified before it is revoked. Ratification retroacts to the time of its celebration. Without ratification, the person in whose name the contract was executed is no liable. Whether the representative becomes liable to the other party or not will depend on whether in entering into the contract he gives notice of his lack of authority or excess of authority. He would be liable if did not inform of suck lack of authority. On the other hand, the one informed is not entitled to damages if he know or should have known that he was dealing with a person lacking of authority. Art. 1318 – Essential requisites of contracts; Consent, Object and Cause The essence of consent is the conformity of the parties to the terms of the contract. Hence, it is defined as the concurrence of the offer and the acceptance over the thing and the cause which constitute the contract. Requisites of consent a. Plurality of subjects – a contract therefore requires not two persons but two parties; not two wills but two declaration of wills. b. Capacity of the contracting parties c. Intention of the parties d. Manifestation the intention of the parties e. Concurrence between the intention of the parties and its manifestation
Elements of consent a. The offer b. The acceptance It is only the general rule, exception is, where other matter besides the thing and the cause are consired material by the parties, in which case, the area of agreement must include those other things which are considered material by the parties. Requisites of an offer a. It must be definite b. It must be complete c. It must be made with the intention to be bound
d. It must be directed to the person or persons with whom the offeror intends to enter into a contract. – modern law of contracts recognize definite offers which are directed to the public in general in the case of promises or rewards. Requisites of acceptance a. b. c. d. e.
It must be absolute It must be directed to the offeror It must be made with the intention to be bound It must be within the proper time Communicated to the offeror and learned by him
Any modification or variation from the terms of the offer annuls the latter and frees the offeror, because it would be considered a qualified acceptance or a counteroffer and a counter-offer has the effect of extinguishing the offer. Acceptance through intermediaries, unless the intermediary convey the acceptance to the principal the offer is not yet accepted. However, in cases of an agent, the acceptance conveyed to the agent is accepted from the time the acceptance is communicated to the same. The offeror is not bound by the acceptance by letter or telegram until the same came to his knowledge. This requirement should be understood rationally, so if the offeror delays in bad faith his knowledge of the acceptance by not reading nor opening the letter or telegram of acceptance, the contract is deemed perfected. Since it is not the intention of the law to leave the perfection of the contract to the caprice of the offeror Will silence on the part of the offeree constitute acceptance? The answer must be qualified. When circumstance imply a duty to speak on the part of the person for whom an obligation is proposed, his silence can be construed as consent. Provided, there is no other interpretation of such silence. The law on Agency have cases when acceptance of the agency may be implied from silence of the agent under circumstances. Art. 1320 – An acceptance may be expressed or implied; acceptance may also be presumed, for instance, the failure on the part of the heir to reject the inheritance within 30 days from notice of the order of the court distributing estate. Art. 1321 – Terms of acceptance; offerror may fix time, place and manner of acceptance. Art. 1322 – An offer made through an agent is accepted from the time acceptance is communicated to him Art. 1323 – Extinguishment of the offer; death, civil interdiction, insanity or insolvency of either party before acceptance is conveyed. In addition, offer is also extinguished when: upon the rejection by the offeree, upon the lapse of period stated in the offer without acceptance being conveyed, when
there is a counter-offer and upon revocation of the offer before knowledge of acceptance. Art. 1324 – Withdrawal of the offer; the offeror may always withdraw the offer before acceptance, the exception being when the period given is founded upon consideration, as something paid or promised. Option contract – Where the offeror grants to the other party a period within which to accept the offer or not; requisites a. Concession by one party in favor of the other of the power to decide whether a contract will be celebrated or not, without any obligation on the part of the latter b. The concession is exclusive c. The concession is for a fixed period d. There is no other condition but the sole will of the other Exception to the rule of withdrawal – as a rule, withdrawal of the offer must be made before acceptance. The exception is, even though a unilateral promise to buy or to sell has already been accepted, it can still be withdrawn by the offeror if the accepted unilateral promise (option contract) is not supported by any consideration distinct from the price. Art. 1325- Advertisement of things for sale; as a rule, are mere invitations, exception is when it is complete in itself. Art. 1326 – Advertisement for bidders; not applicable to bids in judicial sale Art. 1327 –Capacity to give consent Capacity is not an essential element of a contract but of consent. If both parties are incapacitated to give consent, contract is unenforceable; If only one party is incapacitated to give consent, contract is voidable. Under Art. 1489, it is provided that where necessaries/necessities are sold and delivered to a minor or other persons without capacity to act, he must pay a reasonable price thereof. Should a minor be guilty of active misrepresentation and his physical development is such as to mislead the other party into believing that he is of age, the minor is said to be guilty of estoppel and may not annul the contract on the ground of minority. Insanity must exist at the time of the perfection of the contract. Deaf mutes must not know how to write to be incapacitated to give consent Art. 1328 – Lucid interval; valid, Drunkenness/Hypnotic spell; voidable Art. 1329 – Other incapacities Incapacities are different from disqualifications. Incapacities are limitations on capacity to act and are therefore restrictions on the exercise of the right and are
founded on subjective circumstances within the person affected thereof; disqualifications are not limitations on capacity to act but merely restriction on the enjoyment of the right and are based on reasons of morality. A contract celebrated by an incapacitated person is voidable; a contract entered into against a prohibition/disqualification of law is null and void ab initio. The Rules of Court provides for other incapacities. Art. 1330 – Vices of consent – Mistake, Violence, Intimidation, Undue Influence and Fraud Characteristics of consent a. It should be intelligent, not vitiated by error or mistake b. It should be free and voluntary, it is not vitiated by violence, intimidation or undue influence c. It should be spontaneous, that is, not vitiated by fraud d. It should be real, it is not simulated Contracts with vitiated consent are only voidable, valid until annulled. Art. 1331 – Consent through mistake; it should refer to mistake of fact and not of law. In consonance with Art. 3 of the Civil Code. Mistake of law, as a general rule, will not vitiate consent except in those cases and under those circumstances specifically provided by the Code. The mistake must also refer to the very substance of the thing. However, it the mistake should refer to the nature of the contract, there will be a lack of consent rendering the contract void instead of voidable. The mistake as to the conditions must refer to something essential or substantial to vitiate the consent. Art. 1332- Illiterate party – this provision is not a rule of substantive law but of evidence since it shifts merely the burden of proof from the party alleging the mistake to the party enforcing the contract. Art. 1333 – Essential requisite of mistake; requisites a. It must be of a past or present fact b. The mistake must have induced the consent c. The mistake must not be imputable to the party mistaken, that is, that the mistake is inadvertent and excusable d. The mistake must be of fact and not of law Art. 1334 – Mistake of law, usually not a ground to vitiate consent only by way of exception; requisites a. It is a mutual error or mistake b. The mistake is to the legal effect of an agreement c. The mistake frustrates the real purpose of the parties This kind of mistake should be distinguished from mistake as to nature of the contract itself. The former renders the contract voidable, whereas, the latter
renders the contract void. Thus, if a person delivers a thing by way of sale and the other receives it, thinking it was a lease, there is no meeting of the minds, and hence, there is no contract, whether of sale or of lease. Art. 1335 – Violence or intimidation; former, physical while, latter, moral force or compulsion In order both may vitiate consent, it must prevent the will of the victim from freely making a choice. When a person is under compulsion, he becomes a mere instrument by the offender, he acts against his will. He loses the personality of the actor. Violence; requisites a. Force employed is serious or irresistible, or of such a degree that the victim has no other course, but to submit b. That it is the determining cause of consent c. That it is not justified d. That it is sufficient Intimidation; requisites a. b. c. d.
It must produce a reasonable and well-grounded fear The fear must produce consent The fear is of imminent and grave evil upon person and property The threat must be unjust
Note that the offender must have the capability to inflict the harm threatened. Age, sex and condition must be borne in mind. Exception; when threat is enforced to a legal claim – Such a threat cannot constitute duress even if the claim proves the unfounded so long as the creditor believes that it was his right to do so (Berg vs, Nat’l City Bank of New York) Art. 1337 – Undue Influence; there is still freedom of choice but the same is unreasonably restrained must be distinguished from reverential fear which is the fear of displeasing a person to whom respect and obedience is due. Art. 1338 - Fraud; insidious words and machinations, in the procurement of consent. Kinds of fraud a. Fraud in the performance of the obligation (malice or bad faith), fraud dealt with in Art. 1171 b. Fraud in the celebration of the contract (deceit), fraud referred to in Art. 1338. - Dolo causante (substantial fraud), which affects the substance of the agreement so that without it the party would not have consented. - Dolo incidente (incidental fraud), which affects the incidentals of the agreement so that without it the party would not have consented but under different term.
Fraud; requistes a. There must be concealment or representation of a fact b. It must be serious c. It must be employed by one of the contracting parties and not by a third person d. It must not be employed by both contracting parties e. It must be made in bad faith, that is, with the knowledge of its falsity Art. 1339 – Failure to disclose facts, when there is a duty to reveal them constitutes fraud; concealment must refer to a material fact that induced the other party to give his consent and there must be a duty to disclose such fact that may arise from confidential relations. Art. 1340 - Exaggerations in trade; dealer’s talk not fraud Art. 1341 – Expression of opinion does not constitute fraud unless made by an expert which the other party relied on the former’s knowledge Art. 1342 – Fraud employed by a third person does not vitiate consent, unless such misrepresentation has created substantial mistake and the same is mutual; exception is, when there is conspiracy between the third person and the other party. Art. 1343 – Misrepresentation in good faith is not fraudulent but may constitute error. Art. 1344 –Dolo Causante; in order that fraud may vitiate consent it must be a dolo causante. Where the fraud is dolo incidente, it will only give rise to an action for damages against the guilty party but the contract is not voidable. 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. Simulation involves a defect in the declaration of the will; requisites a. A deliberate declaration contrary to the will of the parties b. Agreement of the parties to he apparently valid act c. The purpose is to deceive or to hid from third persons although it is not necessary that the purpose be illicit or for purposes of fraud. Do not confuse intention to deceive from intention to damage. Art. 1346 – Absolute simulated contract is void, a relative simulated contract, when it does not prejudice a third person and is not intended for any purposes contrary to law, morals, good customs, public order or public policy binds the parties to their real agreement. Art. 1347 – Object of contracts; not outside the commerce of men even future things or transmissible rights, exception is, future inheritance save in cases expressly authorized by law, also services which are not contrary to law, morals, etc.
Art. 1348 – Impossible things or services cannot be the object of contracts. Art. 1349 – The object of every contract must be determinate as to its kind. The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the parties. Art. 1350 – Cause of contracts; the essential or more proximate purpose which the contracting parties have in view at the time of entering into the contract. Strictly speaking, the cause is not that of the contract but of the obligation established by the contract Cause; requisites a. It must exist, otherwise the contract is non-existent b. It must be real c. It must be lawful Kinds of cause; in onerous contacts – it is for each party the prestation or promise of a thing or service by the other, in remuneratory contracts – the service or benefit which is remunerated, in contracts of pure beneficience – the mere liberality of the benefactor. Art. 1351 – Motives; different from cause Motive is the psychological, individual and purely personal reasons which induce a party to enter into a contract. As a general rule, motives which impelled the parties to incur the obligation or enter into the contract do not affect the existence or validity of the same. Exception is, where the motives become an integral part of the cause because their realization is the condition upon which the contract is to depend, where the realization of the motives is the cause for entering into the contract and there intervenes a serious mistake of fact and where the motive is the purpose or end of the contract and the same is illicit. Art. 1352 – Lack of cause; no effect, null and void. Art. 1353 – Falsity of cause; renders the contract void. Art. 1354 – Cause is presumed unless the debtor proves the contrary; but it the cause is stated in the contract and it is shown to be false, then it is incumbent upon the party enforcing the contract to prove the legality of the cause. Art. 1355 – Lesion; or inadequate cause is any damage caused by the fact that the price is unjust or inadequate. The mere fact that the cause is unjust or inadequate does not invalidate the contract in the absence of fraud, mistake, or undue influence. This provision is subject to those cases where the law specifically allows lesion as a ground for rescission of the contract as in the contracts mentioned in Art. 1381, pars. 1 and 2 and 1098 of the Civil Code.
Art. 1356 – Form of contracts; contracts need not be in writing to be binding, generally. Exceptions are, when the form is essential to the validity as in donations of an immovable and movables worth P5,000 and when a contract is unenforceable unless it be in a certain form as those embodied in the Statue of Frauds. Necessity of form a. Form is required for the validity of the contract; formal or solemn contracts b. Form is required for the purpose of proving the existence of the contract; contracts under the Statute of Frauds c. Form is required for the purpose of making the contract effective as against third person; contracts under Art. 1358 Art. 1357 – Form for convenience; the contracting parties may compel each other to observe that from, once the contract has been perfected. The right may be exercised simultaneously with the action upon the contract. Form referred here is the forms under Art. 1358, the next article. Art. 1358 – Contracts in public document; contracts of immovable properties, sale of real properties, renunciation of hereditary rights or of those of the conjugal partnership of gains, the power to administer properties, the cession of actions or rights proceeding from an act. These require form in order to make contract effective as against third person, this article has nothing to do with the validity of a contract rather it talks about efficacy. Art. 1359 – Reformation of instruments; there having a meeting of the minds but the true intention is not expressed. When there is not yet a meeting of the minds between the parties because it was prevented, the proper remedy is to annul the contract. Note that, what is reformed is the written instrument not the contract and the action must be brought within ten years from the time the cause of action accrued. Art. 1360 – Principles of general law Art. 1361 – Mutual mistake as ground for reformation; requisites a. The mistake should be of a fact b. The mistake should be proved by clear and convincing evidence c. The mistake should be common to both parties to the instrument. Art. 1362 – If one party was mistaken and the other acted fraudulently or inequitably in such a way that the instrument does not show their true intention, the defrauded party may ask for the reformation of the instrument. Art. 1363 – Mistake by one party; the instrument maybe reformed, if the other party knew that there was a mistake and he concealed such fact from the former. Art. 1364 – Mistake of a clerk; by reason of the ignorance, lack of skill, negligence or bad faith on the part of the draftsman or of the clerk or typist, reformation is allowable.
Art. 1365 – Relative simulation as a ground for reformation; when a contract of mortgage turns out to recite a contract of sale or with a right of repurchase. Art. 1366 – Reformation not allowed a. Simple donations inter vivos wherein no condition is imposed b. Wills c. When the real agreement is void With respect to wills, there can be an exception, that is, to imperfect or erroneous description of persons or property, which can be corrected by evidence aliunde under Art. 789. Note that, reformation being in the nature of an action for specific performance requires a valuable consideration that is why simple donations cannot be reformed because they are gratuitous. Art. 1367 – Election of remedies; when one of the parties has brought an action to enforce the instrument, he cannot subsequently ask for its reformation. The first constitutes an affirmation of the instrument and the latter a denial. Art. 1368 – Parties and action; the action for reformation can only be brought by the injured party or his heirs and assigns, which in the case of mutual mistake is either party or their successor in interest since the mistake being mutual, both are considered injured parties. The complaint in reformation must likewise alleged the necessary facts and prescribes in 10 years from the time the cause of action accrued. Art. 1369 – Procedure shall be governed by the rules of court to be promulgated by the Supreme Court. Interpretation of contracts; cardinal rule Is to seek the intention of the parties. The terms of a writing are to interpreted according to the legal meaning it bears in the place of its execution unless parties have reference to a different place, and the terms are presumed to have been used in their primary and general acceptation, but evidence is admissible to show that they have a local, technical or otherwise peculiar signification ad were so used and understood in the particular sense. Memorize Art. 1370 to Art. 1379 Art. 1380 – Rescission; remedy to make ineffective a contract validly entered into and which is therefore obligatory under normal conditions by reason of external causes, resulting in a pecuniary prejudice to one of the contracting parties or their creditors. Rescission is a specie or form of the efficacy of contracts and one which operates by law and not through the will of the parties; requisites a. A contract initially valid b. A lesion or pecuniary prejudice to someone
Rescission is different from mutual dissent in a way that the former operates by law while the latter is a mutual agreement of the parties. Art. 1381 – Contracts that are rescissible: (1) Those which are 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 thereof; (2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number; (3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them; (4) Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority; (5) All other contracts specially declared by law to be subject to rescission. 1 and 2 are based on lesion, note that the guardian and representative should refer to contract of administration where the ward suffers necessary lesion and not to contract of disposition, save in cases of judicial approval, where it will prevent the rescissory action. 3 refers to Actio Pauliana, which requires; the existence of a credit, that said credit existed prior to the contract of be rescinded, the existence of fraud or that the debtor has the intention to injure by acting knowingly and in bad faith – which fraud or bad faith can either be presumed or proved and that the creditors cannot in any other way recover their credits. Note that, rescission is a subsidiary remedy – a remedy of last resort. 4 refers to those things under litigation. Note that, it is not necessary that the alienation be effected after the filing of the answer to the complaint, it is enough if it is made after service of summons. 5 refer to special cases governed by special provision such as in Art. 1189, 1191, 1526, 1534, 1538, 1542, 1556, 1560, 1567, and 1659. E. g suspensive period or conditions, payment by an insolvent. Art. 1382 – Payment by insolvent; insolvent of fact not judicial insolvency Art. 1383 – Rescission is subsidiary; remedy of last resort Art. 1384 – Extent of rescission; shall only be to the extent necessary to cover the damage caused. Meaning in the exercise of the debtor’s right, he is only entitled to the extent of his credit and shall not get the totality of the debtor’s property. Note that, rescission can only be brought by the injured party. Art. 1385 – Effects of rescission; Abrogation of the contract and mutual restitution. Restitution cannot be made if the object of the contract is in the hands
of a third person who acted in good faith, the only remedy is indemnification for damages. Art. 1386 – Rescission referred to in No. 1 and 2 of Art. 1381 shall not take place with respect to contracts approved by the courts. Art. 1387 – Presumption of fraud; in gratuitous alienations of property, there arises a presumption of fraud when the donor did not reserve sufficient property to pay all debts contracted before the donation. In onerous alienation there arises a rebuttable presumption of fraud in case the conveyance is made after issuance of the writ of attachment or judgement be issued. The latter need not be final and in case of the former, even before service or execution. The decision or attachment need not refer to the property alienated and need not have been obtained by the party seeking rescission. Art. 1388 – Purchaser in bad faith; if the property is already in the hands of a third person, whether the action will prosper or not will depend on the good or bad faith of the first transferee. Note that, if the thing cannot be returned, the only remedy is damages. Art. 1389 – The action to claim rescission must be commenced within 4 years, to be counted from the celebration of the contract except in cases of guardianship or absentees, where the period of 4 years shall not begin until the termination of the former’s incapacity or until the domicile of the latter is known. Art. 1390 – Voidable contracts; valid until annulled. a. Those where one of the parties is incapable of giving consent to a contract. b. Those where consent is vitiated by mistake, violence, intimidation, undue influence or fraud. Art. 1391 – Annulment must be brought within 4 years; counting of period will begin: a. Intimidation, violence or undue influence – defect of the consent ceases b. Mistake or fraud – Time of discovery c. Minors and incapacitated persons – from the time guardianship ceases Note that where minority is used as a defense and no positive relief is prayed for, the four year period will not apply. Art. 1392 – Ratification extinguishes the action to annul a voidable contract; requisites a. b. c. d.
The contract is voidable The ratification is made with knowledge of the cause for nullity At the time of ratification, the cause of nullity has already ceased to exist Ratification is made by the party who can bring the action to annul
Art. 1393 – Express and Implied ratification Implied or tacit ratification happens when with knowledge of the reason which renders the contract voidable and such reason having ceased, the person who has
a right to invoke it, should execute an act which necessarily implies an intention to waive his right. For example, acceptance of payment and benefits by a debtor. Art. 1394 – Ratification by guardian Art. 1395 –Ratification does not require the conformity of the contracting party who has no right to bring the action for annulment; hence, should the innocent party choose to ratify the contract, the consent of guilty party is not necessary. Art. 1396 – Ratification cleanses the contract from all its defects the moment it was constituted; ratification retroacts to the perfection of the contract. Art. 1397 – Who can bring action to annul; requisites a. The plaintiff must be bound by the contract principally or subsidiarily (guarantor, mortgagor et al), no stranger to the contract can bring an action to annul. b. The victim or the injured party and not the party responsible for the defect is the person who must assert the annulment of contract. Art. 1398 – Mutual restitution; after the annulment has been granted, the same shall produce the effect of mutual restitution, both parties must return things that was given by one to the other and in case of services rendered, the value thereof shall be the basis for damages. Mutual restitution is a condition precedent for annulment of a contract. Art. 1399 – Restitution by incapacitated party; the incapacitated person has no obligation to make restitution except insofar as he has been benefited by the thing or the price received by him. Such benefit consists not simply in the delivery to the incapacitated person of the things or the price, but in proof that the enrichment resulted in an increase or benefit of the incapacitated person’s patrimony. Thus, there is benefit even without increase of fortune, if the thing received is used for food, clothing, dwelling, health or education. Art. 1400 – Loss by defendant; the above article refers to loss by the defendant of the thing he is obliged to return after the decree of annulment. If the loss occurs through his fault, then defendant must return the fruits and received and the value of the thing at the time of the loss with interest from the same date. If the loss occurs without the fault of the defendant then he is still bound to return the fruits and the value of the thing under the principle of RES PERIT DOMINO, but since the loss was without his fault, he is not bound to pay interest. Art. 1401 – Loss by plaintiff; the action for annulment of contract is extinguished However, when the right of action is based upon the incapacity of any one of the contracting parties, the loss of the thing shall not be an obstacle to the success of the action, unless said loss took place, through the fraud or fault of the plaintiff. If the incapacitated person himself lost the thing through fraud or fault, he is liable. If it was lost in his possession but not through the incapacitated person’s act himself, there will be no action for annulment.
Art. 1402 – As long as one of the contracting parties does not restore what in virtue of the decree of annulment he is bound to return, the other cannot be compelled to comply with what is incumbent upon him. Art. 1403 – Unenforceable contracts unless ratified a. Lack or excess of authority b. Contracts which are required to comply by the requirements laid down in the Statute of Frauds but requirements was not complied with. c. Both parties are incapable of giving consent Statute of frauds does not affect the validity of contracts or for the enforceability thereof, and is only applicable to actions for the specific performance of the contract or for the violation thereof. Only executory contracts, contracts which are yet to be performed are covered and not those already partially or totally executed or performed. Please memorize codal provision of statute of frauds. a. Performance within one year – full performance must exceed a year b. Guaranty- may include liability for tort c. In consideration of marriage – marriage settlements and donation propter nuptias d. Sale of personal property – not less than P500 e. Lease or sale of real property – lease for a period longer than one year and executory real sale of real property. In case of agency, the same must also be in writing f. Representation as to credit – liability arises from quasi-delict Art. 1404 – Law on unauthorized contracts – Title X of Civil Code Art. 1405 – Ratification of contracts that must comply rather offended the requirements laid down by the statute of frauds; by the failure to object the presentation of oral evidence to prove the same, or by the acceptance of benefits under them. This is an implied ratification. Art. 1406 – When a contract is enforceable under the Statute of Frauds, and a public document is necessary for its registration in the Registry of Deeds, the parties may avail themselves of the right under Art. 1357 Art. 1407 – Mutual incapacity; when one either party’s parent or guardian ratifies the contract, the contract becomes voidable. If then both party’s parent or guardian ratifies the contract, the contract is validated from inception. Art. 1408 – Unenforceable contracts cannot be assailed by third persons. Art. 1409 – Void contracts a. Cause, object or purpose is contrary to law, morals, good customs, public order or public policy b. Absolutely simulated contracts c. Cause or object did not exist at the time of the transaction d. Object is outside the commerce of men
e. Impossible service f. The intention of the parties relative to the principal object of the contract cannot be ascertained g. Expressly prohibited or declared void by law These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived. Art. 1410 – The action or defense for the declaration of existence of a contract does not prescribe. Art. 1411 – Criminal contracts In pari delicto a. The parties shall have no action against each other b. Both shall be prosecuted c. The things or the price of the contract, as the effects or instruments of the crime, shall be confiscated in favor of the Government. In delicto – The rule on Par. 1 of Art. 1411 applies only to the guilty party. The innocent one or the less guilty may claim what he has given and shall not be bound to comply with his promise. Art. 1412 – Unlawful contracts; but the act does not constitute a criminal offense In pari delicto a. Neither party may recover what he has given by virtue of the contract b. Neither party may demand the performance of the other’s undertaking In delicto (only one party is guilty) a. b. c. d.
The The The The
guilty party loses what he has given by reason of contract guilty party cannot ask for the fulfillment of the other’s undertaking innocent party may demand the return of what he has given innocent party cannot be compelled to comply with his promise
Articles 1411 and 1412 embody the general principle of in pari delicto and refuses them every remedy and leaves them where they are. Proceeding articles admit its exceptions. Art. 1413 – Recovery of usurious interest – Recoverable only the excess of interest paid, since usury law is suspended Art. 1414 – 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 damage has been caused to a third person. In such case, the courts may, if the public interest will thus be subserved, allow the party repudiating the contract to recover the money or property
Art. 1415 – Where one of the parties to an illegal contract is incapable of giving consent, the courts may, if the interest of justice so demands, allow recovery of money or is thereby enhanced, recover what he has paid or delivered. Art. 1416 – When the agreement is not illegal per se but is merely prohibited, and the prohibition by law is designed for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or delivered. Art. 1417 – Price fixed by law; recovery Art. 1418 – Hours of labor; recovery Art. 1419 – Minimum wage; recovery Art. 1420 – In case of a divisible contract, if the illegal terms can be separated from the legal ones, the latter may be enforced. Exceptions a. When the nature of the contract requires indivisibility b. Where the intention of the parties is that the contract be entire. Art. 1421 – The defense of illegality of contracts is not available to third persons whose interests are not directly affected Art. 1422 - A contract which is the direct result of a previous illegal contract, is also void and inexistent.
