K. No.

of Persons actually and physically entering into

CONTRACTS Contracts
Art. 1305. A contract is a meeting of minds between a. Ordinary (2)
b. Auto-contracts – one represents 2 opposite parties but in
two persons whereby one binds himself, with respect to the
different capacities
other, to give something or to render some service. (1254a)
L. #of Persons participating in Drafting a Contract
a. Ordinary – e.g sale
CONTRACT – is a juridical convention manifested in legal form, by
b. Contract of Adhesion – buyer or person interested is
virtue of w/c, one or more persons bind themselves in favor of
insured, signifies his consent by signing the contract.
another or others, or reciprocally, to the fulfillment of a prestation to
give, to do or not to do.
M. Nature
a. Personal
ELEMENTS (Essential)
b. Impersonal
Consent
Subject matter
STAGES OF CONTRACT
Cause/consideration
1. Preparation (conception) – negotiations between parties
NATURAL Elements – those found in certain contracts and
2. Perfection (birth) – agreement; elements of subject matter and
presumed to exist, unless the contrary has been stipulated.
valid cause – accepted by mutual consent.
ACCIDENTAL Elements – various particular stipulations that may
3. Consummation (termination) – terms of contract are perfected.
be agreed upon by the contracting parties in a contract.
Basic Principles/Characteristics of Contract
CLASSIFICATION OF CONTRACTS

A. According to Formation 1. Freedom to stipulate

2. Obligatory force and compliance in good faith
a. Consensual – perfected by consent
3. Perfection by mere consent
b. Real - perfected by delivery
4. Both parties are mutually bound
c. Formal/solemn – those where special formalities are
5. Relativity
essential before contract may be perfected.

B. According to Cause/Equivalence of Value of

Prestations Contract: juridical convention manifested in legal form, by virtue of
which one or more persons bind themselves in favor of another or
a. Onerous – interchange of equivalent valuable
others, or reciprocally, to the fulfillment of a prestation to give, to do,
considerations
or not to do.
b. Gratuitous/ lucrative – free, one party receives no
equivalent prestation
1305 says that a contract is the meeting of minds between two
c. Remunerative – one where one prestation is given for a
persons whereby one binds himself with respect to the other to give
benefit or service that had been rendered previously.
some thing or to render some service. It does not mean that the
C. According to Importance/ Dependence of One upon parties are only limited to only two persons. The appropriate term is
Another to parties because there can be as many persons in a contract as
they are interested in the contract. May a person enter into a
a. Principal – contract stands alone by itself
contract with himself? Yes, but in different capacities. (contracts of
b. Accessory – depends for its existence upon another
adhesion) He can be a vendor and a vendee at the same time only
contract. (eg. Mortgage; principal is Loan)
that in one contract he might merely be an agent and the other the
c. Preparatory – contract is not the end itself but as means
buyer. So different capacities in one person. Now, may any person
through w/c future transactions or contracts may be made.
just enter into a contract? Is that right absolute? No, because there
D. Parties Delegated are certain limitations. Such as: husbands and wives cannot enter
into contracts involving properties, except if there is complete
a. Unilateral – one party has obligation
separation of property. Other limitations: in agency, if the agent is
b. Bilateral – both parties are obliged to give or render
authorized to borrow money, can the agent also be the lender? Or if
reciprocal prestations
he is authorized to lend, may he borrow money? But if he is
E. Name/Designation authorized to lend, can he use his own money?
o The existence of a contract is not determined by the
a. Nominate – contract has a name
number of persons who intervene in it, but by the number
b. Innominate – contract has no name
of declarations of will. (Contracts of adhesion)
F. Risk of Fulfillment
What are contracts of adhesion? Example of which would be an
a. Commutative – parties contemplated a real fulfillment;
insurance contract. Now, we learned before that in cases of
equivalent value are given (lease)
contracts of adhesion, in case of doubt, the construction is
b. Aleatory – fulfillment is dependent upon chance; values
construed strictly against that person who prepared that contract,
vary.
and liberally in favor of the person who does nothing but merely
G. Time of Performance affixes his signature to the already prepared contract. Because in
that case, the parties do not stand on equal footing. The debtor,
a. Executed – one contemplated at time the contract is
especially if he borrows money from the bank, cannot stipulate his
entered into, that is, obligations are complied with at this
term. He cannot say that this is onerous on my part. He cannot do
time (eg. Contract of sale)
that. The only option is to either to sign or not to sign. So in those
b. Executory – prestations are to be complied with at some
cases in case of doubt, the interpretation would always be in favor
future time (eg. Property not yet delivered and price not yet
of the person who merely affixed his signature thereto and who did
given)
not participate in the preparation of the contract.
H. Subject Matter
Now, what are the characteristics of a contract? Contracts have
a. Contract involving things (eg. Sale)
three characteristics: we have the obligatory force of contracts.
b. Contract involving Rights/credits (usufruct, assignment of
Now, what is meant by obligatory force of contracts? Just like
credits)
autonomy of will, what has been stipulated in the contract is the law
c. Contract involving services (carriage)
between the parties to the contract. And one cannot be heard later
I. Obligation Imposed and regarded by Law on to say that the agreement is disadvantageous on his part. The
presumption is that at the time of the negotiation, prior to the
a. Ordinary
perfection of the contract, the parties freely stipulates the
b. Institutional
conditions, terms and stipulations that may have agreed which
J. Evidence Required for its Proof arrived at and belong to the perfection of the contract.
a. Parol/oral
The second is mutuality of contract. The validity and performance
b. Required written proof
cannot be left to the performance of one of the contracting parties
and leaving the other free from complying with what is stipulated in
the contract.

The third is the principle of relativity of contracts. That it only binds
the parties to the contract and their successors in interest. One of
the exceptions there is: if there is a stipulation in favor of a third
person.
Now, contracts have 3 elements. We have the essential elements.
Consent, subject matter, and the cause. The cause is the why of
the contract, the reason why parties entered into the contract. Then
we have the natural elements, which are those elements that even
if not agreed upon by the parties form part of the contract. An
example of which would be the warranty against hidden defects.
The third element would be the accidental elements. The
accidental elements are the ones that must be agreed upon by the
parties. That if it is not stipulated there, the presumption is that it is
not part of the agreement. An example would be that if the parties
agree that in case of breach, their liability would be solidary.
Because, under the law, solidary liability is not presumed.
To arrive at a consummated or perfected contract, there are three
stages: when the parties bargain or negotiate, you call that
preparation or generation. Ano ang kasama sa negotiation? The
price. Then you have perfection, the birth and the perfection of the
contract. And when you pay the price and he delivers what you
have bought, then that is consummation or death of the contract.
Because there is now fulfillment or performance of the terms agreed
upon in the contract.
Now, how are contracts classified? First is according to the degree
of dependence, a contract may be preparatory in nature such as a
contract of agency because this would lead to future transactions.
Why is it called preparatory? It is called such in as much as it looks
forward to future transactions. Now what are those future
transactions that will arise from a contract of agency? It would
depend to the powers granted. If Y is authorized to lend money,
what would be the future transaction that would arise? A contract of
loan. This is what you call as future transactions. So, the contract of
loan is the principal contract.
A contract might also be considered accessory because its
existence will depend on the principal contract. So if the loan is
guaranteed by a mortgage, then this is the accessory contract. So
the contract of loan is the principal contract, the contract of agency
the prepratory contract and the contract of mortgage the accessory
contract.
So, how are contracts perfected? It might be perfected by mere
consent and they are called as consensual, such as sale. Now, if a
contract of sale does not have any document is that a valid
contract? Yes, because it is perfected by mere consent. Is marriage
a consensual contract? Yes. You don't have to have the contract or
certificate of marriage. Hindi man yan kailangan. But there are
certain contracts that will require delivery aside from consent, an
example of which would be antichresis. Remember antichresis?
You have to deliver the property in order that antichresis shall be
perfected. Because there can be no antichresis if the debtor does
not deliver the property.
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.
1306: Autonomy of contract = to autonomy of will; it is the obligatory
force between the parties.
1306 Autonomy of Contracts:
But there are certain limitations. As I said, it must not be
contrary to law, likewise even if the parties would say "this is valid
between us ha, the promissory note of a gambling debt". So, if X
and A played Tong-its and then their bet is 50K, natalo si A at
umabot ang utang nya ng 300,000. So, sabi ni A, i don't have the
money now, but i will furnish you a promissory note, this PN if
suppose A would not pay what is stated on it, X will not have a
cause of action against A. X cannot sue A by reason of the PN,
because this is not a contractual debt. The cause of the issuance is
an illegal cause, it is from gambling. (except those allowed). So in
this case, A in fact can recover what he had lost from X kung
nagbigay sya ng pera, of course he cannot recover under the
circumstances of the promissory note, because as I've said, the PN
cannot be the basis for X to file a case against A because the
source is from a polluted source from one not allowed by law.
(illegal gambling)
But suppose X would negotiate the PN to Y, who received
the PN in good faith and paid value for it. (like, sige discounted ko
yan, 20K). Now, Y would demand from A the value of the PN. A
cannot invoke as a defense that the PN is a void PN as against a
3rd person who acted in good faith and paid the PN with
consideration. Between Y and A, Y can still collect the amount
stated in the PN. he is not affected by the agreement between X
and A. (because 3rd persons are always protected.)
Now, parties are free to stipulate. Yes, but the juridical
relations as well as the rights and obligations that would arise by
reason of that contract that you have entered into is not governed
by the stipulation of the parties, but rather by law. Such as what?
Suppose A executed a deed of Sale with right to repurchase in
favor of C. The deed of Sale with right to repurchase contains that
A, for and in consideration of the sum of 20K hereby transfers, sells,
conveys, disposes, alienates his parcel of land covered by TCT 123
located in Ecoland D.C. consisting of 500 sq. m. And if A will be
unable to repurchase the property within the period of 1 year, then
B's right over the property shall be absolute and unconditional.
Now, looking at it, would you believe that that is a valid
deed of sale taking into account that the land is located in Ecoland,
and only for 20K for 500sq. m.? Would the parties now be bound by
that agreement in case there is a doubt? No, because while it might
be true that the stipulation is the law between the parties, however,
the rights and obligations which arise by reason of this contract is
not governed by the stipulations. In fact, by looking at it, it would
seem that the contract entered into is one of mortgage, only
couched differently by the parties. For one, the consideration is very
very low. Second, there is a period to repurchase within one year.
So those are the considerations that must be taken together when
the parties entered into the agreement. There would be no question
if the consideration was 20million, that would really be a deed of
sale with right to repurchase because the consideration given is
really equivalent to the value of the property based on its location.
So in that case, the SC said, in case of doubt, it is one of equitable
mortgage, not of sale with right to repurchase.
So, that is an example of the principle that while it may be
true that parties are bound by their stipulations and it shall
constitute the law between them, however, the juridical relations as
well as the rights and obligations that will arise by reason of the
contract is not governed by the stipulation but rather by law.
- not absolute because there are limitations, such as
husband and wives cannot enter into a contract subject to
certain exceptions, an agent authorized to lend cannot
borrow.
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. (n)
4 Kinds of Innominate Contracts
i. Do ut Des ( I give that you may give)
ii. Do ut Facias ( I give that you may do)
iii. Facio ut Des (I do that you may give)
iv. Facio ut Facias (I do that you may do)
Rules Governing Innominate
i. Stipulations of parties
ii. Provisions of Title I and II
iii. Rules governing most analogous nominate contract
iv. Customs of place
1307: Innominate Contracts
These are contracts that have no specific name. Unlike
when you enter into a contract of sale, there is this deed of sale;
when you rent, there is this contract of lease, or when you borrow
money, and it is secured by a pledge, it is a loan with pledge. Here,
the agreement has no specific name, like when a lawyer and a
client enters into an agreement whereby the client hires the
services of the lawyer, there is no specific name.
There are four kinds of innominate contracts
1. Do ut des ( I give and you give)
2. Do ut facias ( I give and you do)
3. Facio ut des ( I do and you give)
4. Facio ut facias ( I do and you do)
There was this very old case. There was this Spaniard
who came to the Philippines and wanted to tour the Philippines.
Unfortunately, he did not know how to speak the local dialect. When
one of the Filipinos learned the dilemma of the Spaniard, the
presented himself to do the interpretation. So he went around the
island. After the tour, the Filipino now demanded payment for his
services. The Spaniard countered that there was no contract
between them because the Filipino presented himself, voluntarily
entered into the request of the Spaniard. But the SC said that as
soon as you have hired the services of the person and you made
use of the talent of that person, he is therefore entitled for
compensation. Regardless if there is a contract or not.
Now, in one bar examination, the question goes like this: X
called B, "can you go to the store to buy for me the following
items?". Was there a contract entered into by the parties, and if
there was what kind of a contract was it? Can the person demand
payment for the services he rendered, assumed that the person
consented the request. There is a contract, because he rendered
his services and he is entitled to compensation.
o Innominate contracts are, in the absence of stipulations
and specific provisions of law on the matter, to be
governed by rules applicable to the most analogous
contract.
Art. 1308. The contract must bind both contracting
parties; its validity or compliance cannot be left to the will of
one of them. (1256a)
 Mutuality of contracts – both parties are bound.
Consequences of Mutuality
1. A party cannot revoke or renounce a contract w/o
the consent of the other, nor can have it set aside
on the ground that he had made a bad bargain.
2. When the fulfillment of condition depends upon
the sole will of debtor, the conditional obligation is
void if the condition is suspensive; if it is
resolutory it is valid.
1308: Speaks of mutuality of contracts that both parties must be
bound by the agreements that they have entered into. Its validity
and compliance cannot be left to the will of only one of them. So, in
this case, the presumption is that both parties at the time of the
negotiation, at the time of the bargaining stage, they stood on equal
footing. Meaning each one of them participated during the
negotiation stage, precisely which lead to the perfection of the
contract.
So, mutuality is that both parties must be bound to the
contract, it cannot be left to one of the parties alone leaving the
other party free from complying with what is incumbent upon him.
- 1308: The contract must bind both contracting parties; its
validity cannot be left to the will of one of them.
- Mutuality of contract.
- The binding effect of the contract on both the parties is
based on the principles that (1) obligations arising from
contracts have the force of law between the contracting
parties; and (2) there must be mutuality between the
parties based on their essential equality.
- Just as nobody can be forced to enter into a contract, in
the same manner once a contract is entered into, no party
can renounce it unilaterally or without the consent of the
other. The fact that a party may not have fully understood
the legal effect of the contract is no ground for setting it
aside. The unilateral act of one party in terminating the
contract without legal cause makes it liable for damages.
- Allied Bank case: . It is a purely executory contract and at
most confers a right to obtain a renewal if there is
compliance with the conditions on which the right is made
to depend. The right of renewal constitutes a part of the
lessee’s interest in the land and forms a substantial and
integral part of the agreement.
- The fact thatsuch option is binding only on the lessor and
can be exercised only by the lessee does not render it void
for lack of mutuality. After all, the lessor is free to give or
not to give the option to the lessee. And while the lessee
has a right to elect whether to continue with the lease or
not, once he exercises his option to continue and the
lessor accepts, both parties are thereafter bound by the
new lease agreement. Their rights and obligations
become mutually fixed, and the lessee is entitled to retain
possession of the property for the duration of the new
lease, and the lessor may hold him liable for the rent
therefor. The lessee cannot thereafter escape liability even
if he should subsequently decide to abandon the
premises. Mutuality obtains in such a contract and equality
exists between the lessor and the lessee since they
remain with the same faculties in respect to fulfillment. The
questioned provision states that the lease "may be
renewed for a like term at the option of the lessee." The
lessor is bound by the option he has conceded to the
lessee. The lessee likewise becomes bound only when he
exercises his option and the lessor cannot thereafter be
excused from performing his part of the agreement.
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. (n)
 E.g. in a contract of sale, the fixing of price and
delivery date can be left to a 3rd person; the
decision binds the party only after it is made
known to both.
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. (n)
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. (n)
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.
(1257a)
Principle of Relativity
 Contracts are generally effective only between the
parties, their assigns and their heirs.
Exceptions:
1. Where obligations arising from the contract are not
transmissible by their nature, by stipulation in favor of a 3 rd
party.
2. Where there is stipulation Pour Autri ( a stipulation in favor
of 3rd person)
3. Where a third person induces another to violate his
contract
4. Where in some cases, 3rd persons may be adversely
affected by a contract where they did not participate.
5. Where law authorizes the creditor to sue on a contract
entered into by his debtor.
Requisites of Stipulation Pour Autri
a) There must be a stipulation in favor of a 3rd person;
b) Contracting parties must have clearly and deliberately
conferred a favor upon a 3rd person;
c) A mere incidental benefit or interest of a person is not
sufficient
d) The stipulation must be part of contract and not the whole
of the contract;
e) 3rd person communicated his acceptance to obligor before
its revocation;
f) There must be no relation of agency between either of the
parties and 3rd person. (Neither the contracting parties
bears the representation or authorization of the 3rd party.)
g) That the favorable condition should not be conditioned or
compensated by any kind of obligation or whatsoever;
Art. 1312. In contracts creating real rights, third persons
who come into possession of the object of the contract are
bound thereby, subject to the provisions of the Mortgage
Law and the Land Registration Laws. (n)
Art. 1313. Creditors are protected in cases of contracts
intended to defraud them. (n)
Art. 1314. Any third person who induces another to violate
his contract shall be liable for damages to the other
contracting party. (n)
Requisites:
1. Existence of a valid contract;
2. Knowledge by the 3rd person of the existence of the contract;
3. Interference of the 3rd person in the contractual relation without
legal justification.
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)
 Consensual contracts are perfected from the moment
there is agreement (consent) on the subject matter,
and the Cause or consideration.
 Note: Contracts are not what the parties choose to call
them, but what they really are as determined by the
principles of laws. The validity of stipulations is one
thing, and the juridical qualification of the contract
resulting therefrom is another.
Art. 1316. Real contracts, such as deposit, pledge and
Commodatum, are not perfected until the delivery of the
object of the obligation. (n)
 Requires Consent, Subject matter,
Cause/consideration and Delivery.
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. (1259a)
Requisites for a Person to Contract in the Name of Another
a) He must be duly authorized (express/impliedly)
b) He must have by law a right to represent him
(guardian/administrator)
c) Contract must be subsequently ratified
(express/implied, by word or deed)
Unenforceable contracts are valid contracts but they cannot be
enforced through court actions.
CF: Law on agency
ESSENTIAL REQUISITES OF CONTRACTS
Art. 1318. There is no contract unless the following
requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established. (1261)
Note:
1. Consent presupposes legal capacity, otherwise, contract is
voidable.
2. Object certain means at the very least determinable
I. CONSENT
It is the meeting of the minds between parties on the subject matter
and the cause of the contract, even if neither one has been
delivered. Consent may be express or implied.
Theories:
1. Cognition Theory – Contracts are perfected only upon the
knowledge of the offer of the acceptance of the offeree. (Used if
consent is manifested through letter or telegram; adhered in the
Phil.)
2. Manifestation Theory – Contracts are perfected upon the
moment acceptance is declared, regardless of whether the
declaration has come to the knowledge of the offeror or not.
3. Expedition Theory – Contracts are perfected the moment the
offeree transmits the acceptance to the offeror, such as the letter or
telegram of acceptance is placed in the mail box.
4. Reception Theory – Contracts are perfected upon the time the
acceptance is in the hand of the offeror (regardless of knowledge or
if he read the same)
Note: Offer by telephone similar to face to face conversation.
Note: In our law, according to ma’am G., silence does not authorize
any definite conclusion. However, according to Tolentino, there are
requisites in order that silence produces tacit acceptance, namely:
a. There is a duty or the possibility to express oneself;
b. The manifestation of the will cannot be interpreted in any other
way;
c. There is a clear identity in the effect of the silence and the
undisclosed will.
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. (1262a)
Requisites of Consent
a) Plurality of subjects/parties;
b) Parties must be capable or capacitated;
c) There must be no vitiation of consent or consent must be made
intelligently and freely;
d) There must be no conflict between what was expressly
declared and what was really intended;
e) The intent must be declared properly (legal formalities must be
complied with)
Note: Accdg. to Tolentino: (f) express or tacit manifestation of the
will and (g) conformity of the internal will and its manifestation.
Requisites for Meeting of Minds
a) An offer that must be certain
- An offer must be definite, complete and intentional.
b) And an acceptance that must be Unqualified and absolute.
 If there are 2 contracts and they are independent of each
other, acceptance of one does not imply acceptance of the
other. A qualified acceptance constitutes a counter-offer.
Note: Offer and acceptance may be withdrawn before perfection of
the contract. If a persons offers the same thing to two persons, at
different times, and the second offeree accepts the offer before the
first, the offeror becomes liable for damages to the 1 st offeree if he
does not withdraw his offer prior to the acceptance of the 2 nd
offeree.
Q: Is there a perfected contract in a qualified acceptance? No, there
is no contract if there is a qualified acceptance. What happens is a
counter-offer.
Note: Another type of acceptance is amplified acceptance. Here,
there is acceptance but there is a qualification. So, there is no
perfected contract. When we say amplified, "I'm selling you
mangosteen at 5/kl but you have to get 100 kilos. I will buy another
100 for the same price." Is there a perfected contract there? Yes,
with respect to the first but not to the 2nd. There is a perfected
contract with respect to the first (sell at 5/kilo) but not to the second
offer (buy 100 kilos).
Note: Rule on public offers: A promise may be made publicly by
way of advertising a reward, compensation, or prize for any person
who performs of executes a particular act or obtains a particular
result. This is a unilateral promise. A unilateral promise is not
recognized by our Code as having obligatory effect. In order that
such promise can be enforced, there must be an acceptance that
shall convert it into a contract. So the performance of the act for
which a reward or prize is promised can be considered as an
acceptance.
Art. 1320. An acceptance may be express or implied. (n)
Forms of Acceptance
1. express
2. implied
3. presumed (by law)
Art. 1321. The person making the offer may fix the time,
place, and manner of acceptance, all of which must be
complied with. (n)
Note: When the offeror has not fixed a period and the offer is made
to a person present, the acceptance must be made immediately.
Art. 1322. An offer made through an agent is accepted from
the time acceptance is communicated to him. (n)
Art. 1323. An offer becomes ineffective upon the death, civil
interdiction, insanity, or insolvency of either party before
acceptance is conveyed. (n)
Other instances when Offer becomes Ineffective
a) When the offeree expressly or impliedly rejects the
offer;
b) When the offer is accepted with a qualification or
condition;
c) When before acceptance is communicated, the
subject matter has become illegal or impossible;
d) When the period of time given to the offeree w/in
which he must signify his acceptance has already
lapsed.
e) When the offer is revoked in due time (before the
offeror has learned of its acceptance by the offeree)
Art. 1324. When the offerer has allowed the offeree a
certain period to accept, the offer may be withdrawn at any
time before acceptance by communicating such withdrawal,
except when the option is founded upon a consideration, as
something paid or promised. (n)
GEN. RULE: If the offeror has allowed the offeree a certain
period to accept, the offer may be withdrawn at any time before
acceptance (of thing being offered) by communicating such
withdrawal.
Exception: when the option is founded upon a consideration
as something paid or promised.
OPTION CONTRACT– contract granting a person the privilege to
buy or not to buy certain objects at anytime w/in the agreed period
at a fixed price.
- It must have its own cause/consideration because it is a
distinct contract; and the grant must be exclusive
- The cause is not only price but something/anything of
value; may also come in the form of a forfeiture.
- It binds the party who has given the option not to enter into
the principal contract with any other person during the
period designated and, within that period, to enter into
such contract with the one to whom the option was granted
if the latter should decide to use the option.
From Transcription: Suppose Y will say "give me 3 days to decide,
but here is 10,000 as earnest money" and A says "okay, i will
accept it. We will just execute the deed of sale as soon as you
deliver the balance." Then that is removed from 1324 because it
says part of the purchase price. Earnest money is actually part of
the purchase price. there is no contract of option here but a
perfected contract of sale.
Art. 1325. Unless it appears otherwise, business
advertisements of things for sale are not definite offers, but
mere invitations to make an offer. (n)
Unless the object is determinate, the business advertisement is not
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.
(n)
Exceptions: Judicial sales and if specifically stated in the
advertisement
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. (1263a)
In General, Contracts w/c they enter into are Voidable, Unless:
a) Upon reaching the age of majority, they ratify the same;
b) They were entered into through a guardian and the court
having jurisdiction had approved it;
c) Contracts of life insurance in favor of their parents, spouse,
children, brothers and sisters and provided furthermore that the
minor is 18 years and above.
d) In the form of savings account, provided that minor was at least
7 years old.
e) They were contracts for necessities such as food, but here the
people who are legally bound to give them support should pay
therefore.
f) They were contracts where the minor misrepresented his age
and pretended to be one of major age and is thus in Estoppel.
INSANE/DEMENTED PERSONS– no proper declaration of insanity
by the court is required, as long as it is shown that at the time of
contracting, the person was really insane.
Note: But if both are incapable of giving consent, the contract is
unenforceable.
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. (n)
Voidable Contracts:
a) Entered into by insane/demented persons (unless
they acted during a lucid interval)
b) Those in state of drunkenness
c) Under hypnotic spell
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. (1264)
Incompetents under Rules of Court
a) Under Civil interdiction
b) Hospitalized lepers
c) Prodigals
d) Deaf and dumb; unable to read and write
e) Unsound mind even though they have lucid intervals
f) Those who by reason of age, disease, weak mind,
and other similar causes, cannot w/o aid, take care of
themselves and manage their property.
Art. 1330. A contract where consent is given through
mistake, violence, intimidation, undue influence, or fraud is
voidable. (1265a)
Vices/Causes of Vitiated Consent
 Mistake (error)
 Fraud (deceit)
 Violence
 Intimidation
 Undue influence
Note: Vitiated consent does not avoid the contract but merely
renders it voidable.
 Mere preponderance of evidence is not sufficient.
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.
(1266a)
Requisites For Mistake to Vitiate Consent
a) The error must be substantial regarding:
  Object of contract
 The conditions w/c principally moved/induced one of the
parties.
 Identity or qualifications but only if such was the principal
cause of the contract.
b) The error must be excusable (not caused by negligence)
c) The error must be a mistake of fact and not of law. (Mistake of
law is not a ground for annulment of contracts)
Error of law refers to a mistake as to the existence of a
legal provision or as to its interpretation or application.
Note: If the error refers to the rights of the parties in the contract,
the contract is not invalidated.
Errors which do not affect the validity of the contract:
1. error with respect to accidental qualifies of the object of the
contract;
2. error in the value of the thing;
3. error which refers to accessory matters in the contract foreign to
the determination of the object.
4. error in the name of the person, but without error as to the
person. Error as to the person will invalidate consent when the
consideration of the person has been the principal cause of the
contract.
5. error as to the solvency of the party;
6. error as to the motive of a party
Art. 1332. When one of the parties is unable to read, or if
the contract is in a language not understood by him, and
mistake or fraud is alleged, the person enforcing the
contract must show that the terms thereof have been fully
explained to the former. (n)
Presumption: One always acts with due care and signs with full
knowledge of all the contents of a document even if the mind of the
party signing was confused at the time of signing as long as he
knew what he was doing.
When Presumption Cannot Apply
a) When one of the parties is unable to read
b) Or if contract is in a language not understood by one of the
parties
 In both cases, the person enforcing the contract must
show that the terms thereof have been fully explained to
the former.
Art. 1333. There is no mistake if the party alleging it
knew the doubt, contingency or risk affecting the object of
the contract. (n)
Art. 1334. Mutual error as to the legal effect of an
agreement when the real purpose of the parties is frustrated,
may vitiate consent. (n)
Requisites for Mutual Error To Vitiate Consent
a) There must be mutual error
b) The error must refer to the legal effect of the
agreement.
c) The real purpose of the parties is frustrated.
 If there is no meeting of the mind and both parties
erroneously that their acts is intended towards a
particular contract but the same was not
met/frustrated – then the remedy is annulment,
otherwise it is REFORMATION.
1334: The provision here refers to mistakes of doubtful questions of
law. Legal effects. Doubtful questions of law, or the different
interpretations or construction of the law. So in that case, you
cannot agree to a certain provision, that might lead to frustration of
the real intention of the parties that would warrant annulment.
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)
Requisites for Violence to Vitiate Consent
a) Employment of serious or irresistible force.
b) It must have been the efficient cause why the contract was
entered into.
Requisites for Intimidation to Vitiate Consent
a) Reasonable and well-grounded fear
b) Of an imminent and grave evil
c) Upon his person, property or upon the person or property of his
spouse, descendants or ascendants;
d) Efficient cause of the execution of the contract;
e) The threat must be an unjust act, an actionable wrong.
Now, when is there violence, when is there intimidation? The same
definition that you have in your criminal law. (1335) Violence, in
order to wrest consent, serious or irrisistible force is employed.
Intimidation: compelled by a resonable and well-grounded fear of an
imminent and grave evil upon the person or property of one of the
contracting parties, or employed upon the spouse, descendants or
ascendants, to give his consent. (or their properties).
Take note of third paragraph, it is also found in your criminal law.
The last paragraph is enforcement of one's claim through
competent authority.
Undue influence: when a person takes improper advantage of his
powe over the will of another, depriving the latter of a reasonable
freedom of choice. The following shall be considered: the
confidential (the priest), family, spiritual and other relations between
the parties, or that the person alleged to have been unduly
influenced was suffering from mental weakness, or was ignorant or
in financial distress.
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. (1268)
Art. 1337. 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. The
following circumstances shall be considered: the
confidential, family, spiritual and other relations between the
parties, or the fact that the person alleged to have been
unduly influenced was suffering from mental weakness, or
was ignorant or in financial distress. (n)
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. (1269)
Kinds of Fraud
A. Fraud in the Celebration of Contract
a) Dolo Causante – were it not for the fraud, the other party
would not have consented--the contract is voidable
b) Dolo Incidente – even w/o the fraud, the parties would
have still agreed, fraud is incidental--Contract is valid but
damages may be recovered.
B. Fraud in Performance of Obligations stipulated in the Contract
Requisites of Dolo Causante
a) Fraud must be material and serious; induced the other
to consent;
b) Fraud must have been employed by only one of the
contracting parties, because if both committed fraud,
the contract would remain valid.
c) There must be a deliberate intent to deceive or to
induce therefore misrepresentation in good faith is not
fraud.
d) The other party must have relied on the untrue
statement and must himself not be guilty of
negligence in ascertaining the truth.
1338: There is fraud when, through insidouse words or
machinations, the other party was induced. And it must not be
employed on a co-party. It must be employed against the other
contracting parties. And if both parties employed fraud, the courts
will leave them where they are. It is as if they were in good faith
because of the fact that they are in pari delicto. Now, the fraud here
is fraud at the time of the inception of the contract, not the fraud at
the time of the fulfillment of the contract. Because if it were the
latter, that belongs to 1171, and it cannot result to the nullity or
annulment of the contract but will only be a ground for damages.
But if it were fraud under 1338, it can be a ground for nullity or
annulment of the contract plus damages. But the fraud here must
be one that is causal. (dolo causante). Because if it were merely
dolo incidente, no annulment, merely damages. And the fraud
alleged by the other party seeking annulment must be clearly and
convincingly established by sufficient and clear evidence, not by
mere preponderance.
So, requisites of fraud:
1. It must have been employed by one contracting party
upon the other contracting party, not against a co-party.
2. It must have induced the other party to enter into the
contract; example: when you apply for insurance policy and the
amount is one that will not require you to undergo medical
examination but only to fill up a certain form. You are a chain
smoker, and there is a question there do you smoke and how many
packs, you answer no, i don't smoke. And you were approved. This
is an example of material misrepresentation.
3. It must have been serious and must have resulted in
damage or injury to the other party now seeking annulment of the
contract.
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. (n)
1339: Confidential relations: between the principal and the agent.
Like if the principal authorizes the agent to sell the property at
100,000. The agent now was able to sell it at 200,000. Is the agent
bound to disclose to the principal this fact? Yes, because of the
confidential relation between them. Failure to do so 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. (n)
1340: Dolos Bonus. Tolerated fraud. common victims are the
women. For as long as the other party has the opportunity to know
the facts. The rule is: let the buyer beware. According to authors,
the reason for the loss is the stupidity of the person. Why will you
immediately believe that this particular product is a miracle.
Basta what is required here is that you must have the opportunity to
know the facts. And if it turns out that the facts are not true, you
cannot sue. Because that what we call as tolerated fraud. And the
rule is let the buyer beware, caveat emptor.
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. (n)
1341: So, you ask the opinion of a person if this is a true diamond,
and the person says yes. Is there fraud? No, because that is merely
an opinion. Exception, if you seek the opinion of an expert, an
expert would be one that is knowledgeable in that specific area.
Exception to the exception, if the expert is the employee of the
person seeking the opinion of the expert. If it turns out the the
opinion of the expert is false, then you cannot sue your own
employee. Even if it is given by an expert, but the expert is your
employee, then there can be no annulment of the contract based on
fraud.
Art. 1342. Misrepresentation by a third person does not
vitiate consent, unless such misrepresentation has created
substantial mistake and the same is mutual. (n)
1342: There was this case Diaz vs. CA whereby the mistake was
committed by a surveyor with respect to the particular location of a
particular lot. So in that case, the mistake was not committed by
both parties but by a third person, committed by the surveyor and
there was mutual mistake by both parties and the SC said that
annulment is proper because of the mistake.
Art. 1343. Misrepresentation made in good faith is not
fraudulent but may constitute error. (n)
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. (1270)
Fraud should not be employed by a party against a co-party, i.e.
between two partners. This will not annul the contract.
Requisites for Fraud to Vitiate Consent
a) Fraud must be serious
b) The parties must not be in pari delicto; otherwise there
can be no annulment.
 Incidental Fraud – not a cause for annulment,
only damages can be recovered.
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)
Nature of Impossibility
a) Nature of transaction or because of law
b) Absolute (objectively impossible) – “nobody can do it”
c) Relative (subjectively impossible) – “particular debtor cannot
comply”
Note: The impossibility must exist at the time of the constitution of
the contract.
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. (n)
SECTION 2. - Object of Contracts
Art. 1347. All things which are not outside the commerce of
men, including future things, may be the object of a contract.
All rights which are not intransmissible may also be the
object of contracts.
No contract may be entered into upon future inheritance
except in cases expressly authorized by law.
All services which are not contrary to law, morals, good
customs, public order or public policy may likewise be the
object of a contract. (1271a)
Art. 1348. Impossible things or services cannot be the
object of contracts. (1272)
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. (1273)
 Object must be determinate determinable (w/out need of a
new agreement); otherwise the contract is void for want of
an essential requisite – the object of contract.
 Difficulty of performance – A showing of mere
inconvenience, unexpected impediments, or increased
expenses is not enough to relieve a debtor from the
obligation Equity cannot relieve from bad bargains simply
because they are such. The debtor who does not perform
in such cases must be held liable for damages.
CAUSE OF CONTRACTS
It is the essential and impelling reason why a party assumes, an
obligation. It is the prestation to be performed by the other
contracting party.
Art. 1350. In onerous contracts the cause is understood to
be, for each contracting party, the prestation or promise of a
thing or service by the other; in remuneratory ones, the
service or benefit which is remunerated; and in contracts of
pure beneficence, the mere liberality of the benefactor.
(1274)
Classification of Contracts As to Cause
a) Onerous – the cause is for each contracting party, the
prestation/promise of thing/service.
b) Remuneratory – the past service/benefit w/c by itself is a
recoverable debt.
c) Gratuitous or contracts of pure beneficence– the cause is the
mere liberality of the benefactor.
 Contract of guaranty is gratuitous unless there is
stipulation to the contrary.
  Cause in Accessory Contracts Like Mortgage & Pledge –
the same as the cause for principal contract of loan.
 Moral obligation may be the cause of civil obligation – if it
does not exist , no valid cause.
Art. 1351. The particular motives of the parties in entering
into a contract are different from the cause thereof. (n)
Q: Is the cause the same as the motive of the contract? No. No
matter how illegal the motive is for as long as the cause is legal and
lawful, it does not affect the validity of the contract. Exception: if the
motive predetermines the purpose of the contract then the motive
becomes the cause of the contract.
Case: Lopez fell in love with Conchita, a 15 year old girl. Because
of Lopez' desire and lust for the body of Conchita, he told the
parents and Conchita that he will be donating a parcel of coconut
land if you agree to cohabit with me. The parents and Conchita
consented and they lived and had sexual intercourse. Then Lopez
died. Conchita now demanded for the delivery of the parcel of land.
The heirs of Lopez now said that the motive predetermined the
purpose of the contract. And while it may be true that the cause is
the liberality, however the real cause is the motive and the motive is
to have sexual intercourse. Conchita said the cause is the liberality.
The SC said the contract is void. While it is true that motive differs
from the cause, still a contract conditioned upon the attainment of
an immoral motive should be considered void. For here, it may be
regarded as cause when it predetermines the purpose of the
contract. It cannot be said that the donation is a contract of pure
benifecence or a contract designed solely and exclusively for the
benefit of the donee. The donation was designed both for the
benefit of the donee and satisfy the sexual desire of Mr. Lopez. But
because the donor cannot invoke his own immorality, then the more
reasons that the heirs are barred in questioning the validity of the
donation. Therefore Conchita is entitled to the land.
In the MFR filed by the heirs, according to JBL Reyes, the pari
delicto rule cannot apply in the case. Remember that Conchita is a
minor, the guilt of the minor cannot be judged with equal severity
with the guilt of an adult. Minors occupy a privilege position before
the law.
MOTIVE CAUSE
 May vary although he  The same
enters into same contract;
 Maybe unknown to the  Always known
other;
 Its presence cannot cure
the absence of cause
 ILLEGAL CAUSE makes a contract void, ILLEGAL MOTIVE
not necessarily renders the contract void.
Art. 1352. Contracts without cause, or with unlawful cause,
produce no effect whatever. The cause is unlawful if it is
contrary to law, morals, good customs, public order or public
policy. (1275a)
Requisites for Cause
a) It must be present – no cause, contract is void
b) It must be true – if cause is false, contract is void unless some
other cause w/c is lawfully really exists.
c) It must be lawful
From transcription: There was this case: X is an employee of a
business establishment, and it was found out that she was stealing
money from the business establishment. When she was about to be
prosecuted for what she did, the father and the husband of X
executed a PN covering the value of what has been lost by reason
of X's stealing. But X was not made a signatory to the PN. Now, the
PN remained as a PN, so the employer was not able to collect. So
the employer filed an action to collect the amount stated in the PN.
The case was dismissed because accdg. to the court, the cause
was the stifling of the criminal prosecution of X. Cause is void.
But in another case, there was A who was given money by B to buy
palay within a certain period or if unable to secure the palay by that
time, to return the money to B. No palay was bought, no money was
returned. So what B did was file a case against A for estafa. Now,
before the hearing, a friend entered before and in behalf of A, with
B seeking consideration that the case would be dismissed because
he will try to convince A to issue a promissory note to cover the
amount that was not returned. A executed a PN, but the amount
was not paid. So what B did was to file an action to recover the
amount. A moved for the dismissal of the case, stating that the
cause for the action was illegal because it was to stifle a criminal
prosecution. But the SC said that motion should be denied because
there was an admission on the part of A that he really owed B
money. This is different from the first case.
Art. 1353. The statement of a false cause in contracts shall
render them void, if it should not be proved that they were
founded upon another cause which is true and lawful. (1276)
 False cause does not necessarily mean that contract is
void; the parties are given a chance to show that a cause
really exists and is lawful and true.
Art. 1354. Although the cause is not stated in the contract, it
is presumed that it exists and is lawful, unless the debtor
proves the contrary. (1277)
 Cause must exist but is not necessary to state the cause;
 Under Statute of Frauds – certain agreement must be in
writing,
1354: So, no matter how inadequate the consideration is, the
presumption is that the contract is valid. The exception there is
when fraud is employed, or there is mistake or there is undue
influence. Like the actual value is 1M and he's only selling it for
100K, and the buyer is the son or daughter, then that is not an
absolutely simulated contract but only a relatively simulated one,
and the parties bound to it unless third persons are prejudiced by
such simulation.
Art. 1355. Except in cases specified by law, lesion or
inadequacy of cause shall not invalidate a contract, unless
there has been fraud, mistake or undue influence. (n)
LESION – inadequacy of cause – (eg. Insufficient price of a thing
sold)
Rules on Lesion
Gen. Rule: Lesion/inadequacy of price does not invalidate a
contract.
Exceptions:
a. When together with lesion there has been
i. Fraud;
ii. Mistake; or
iii. Undue Influence
b. In cases expressly provided by law.
FORMS OF CONTRACTS
The general principle is that the law looks more into the spirit, rather
than in form. Underlying principle that in the interpretation and/or
construction of the law, we must interpret not by the letter that
killeth, but by the spirit that giveth life. That is how one should
construct or interpret the law. But in contracts, there are certain
exceptions. Because if you were the one who prepared the
contract, then the contract should be construed strictly against the
person who prepared it, and liberally in favor of the person who
merely affixed his signature and did not participate in the making of
the contract.
But with respect to form, contracts are obligatory, in whatever form
they may have been entered into, provided that all the essential
requisites for the validity are present. And what are the essential
requisites? Consent, cause or consideration and object/subject
matter. So, for as long as the three are found, then the contract is
presumed valid, regardless of the form.
When we say form, it may refer to the manner in which the contract
is executed, which may be written or oral. So, a sale of a parcel of
land orally made is valid. So a sale involving real property is valid in
whatever form it is entered into. Even if it is orally made between
the parties. For what purpose then is the form? It is not for validity,
but rather to transfer ownership over the property in favor of the
vendee. The register of deeds will not transfer the title of the
property from the vendor to the vendee unless it is in a public
document. So that is the purpose of the form. And to inform third
person that the property has already been bought. But for validity,
no. It is valid. Even if there is no (written) contract, for as long as
there has been payment (vendee) and there has been delivery on
the part of the vendor.
But there are certain contracts which would require that they be in a
certain form. One is for validity, and the other for enforceability. A
contract may be valid, but it is unenforceable. When we say
enforceable, it cannot be enforced through court action. You cannot
maintain an action in court because there is a lack in that particular
document. But there are certain documents which will require a
certain form in order that it be valid. An example of which would be
a donation of a real property which must be in a public document in
order to be valid. And not only that, the acceptance of the donee
must also be in a public document to be valid. Absent one makes
the donation void. Another example of a contract which would
require a certain form is donation involving movable property and
the value exceeds 5K. The law require that it must be in writing, but
it need not be in a public document to be valid.
Now, what else? Contracts involving antichresis. That must be in
writing otherwise void. And another is when you are into lending
money, agreements for the payment of interests must be in writing
otherwise one cannot collect. The authority of the agent to sell
property must be in writing, if not, then the sale is void.
Now, another exception is for purposes of enforceability. Now what
would be required, under 1403, paragraph 2, it must be in writing or
in some memorandum or note, subscribed by the parties. (Statute
of Fraud). So those are only the exceptions for purposes of validity
or enforceability. So that a contract may prove in a certain way, that
requirement is absolute and indispensable. So, if it is absolute and
indispensable, noncompliance with it means the contract is void. In
such cases, the right of the parties stated in the following article
cannot be exercised.
Art. 1356. Contracts shall be obligatory, in whatever
form they may have been entered into, provided all the
essential requisites for their validity are present. However,
when the law requires that a contract be in some form in
order that it may be valid or enforceable, or that a contract
be proved in a certain way, that requirement is absolute and
indispensable. In such cases, the right of the parties stated
in the following article cannot be exercised. (1278a)
GEN. RULE: NO FORM IS REQUIRED IN CONSENSUAL
CONTRACTS
 Formal Contracts – requires form ( eg. Donation)
 Real Contracts – requires delivery
WHEN FORM IS IMPORTANT
a) For validity
b) Enforceability (Statute of Frauds); may be waived by
acceptance of benefits (partial) or by failure to object to
presentation of oral or parol evidence.
c) For convenience
1356 is the spiritual system of a contract, which means that,
contracts are obligatory in whatever form they may have been
entered into, provided that all the essential requisites for its validity
are present. But the spiritual system of contract cannot be adopted
in unqualified manner. Otherwise, oral agreements would often lead
to fraud in the fulfillment of the obligation. Because the faintest ink
is better than the sharpest memory.
Because if worse comes to worst, you file a case in court and what
is your proof? It was orally admitted. Who were there when you
entered into the agreement? There were only two of us, then that is
highly debatable. So, whether a certain form is required or not,
better put it into writing.
Now, there is this case of Hernaez vs. Delos Angeles. Hernaez was
a star of Philippine Cinema. And her services were engaged by one
of the producers. She was paid but there was a balance. So after
rendering service, Ms. Hernaez now demanded for the payment of
the balance. The movie company refused to honor the agreement
stating that the agreement is deemed void because it was not in
writing, and the balance exceeds 500 pesos. So, they went to court.
Delos Angeles is the judge, he sided with the movie company. The
SC said that the dismissal was not proper. Under 1356, all contracts
are valid regardless of form, there are only two exceptions. One is
when the contractual form is needed for validity. As in a case of a
donation of real property which needs to be in a public document.
Second when form is needed for enforceability, under the Statute of
Fraud. The contract covered by Art. 1358 are binding and
enforceable by action despite the absence of writing because the
Article nowhere provides that the absence of written form will make
the agreement invalid or unenforceable.
Art. 1357. If the law requires a document or other
special form, as in the acts and contracts enumerated in the
following article, the contracting parties may compel each
other to observe that form, once the contract has been
perfected. This right may be exercised simultaneously with
the action upon the contract.
1357: If the law requires that a document or other special form, as
in the acts and contracts enumerated in 1358, the contracting
parties may compel each other to observe that form, once the
contract has been perfected. This right may be exercised
simultaneously with the action upon the contract.
Art. 1358. The following must appear in a public document:
(1) Acts and contracts which have for their object the
creation, transmission, modification or extinguishment of
real rights over immovable property; sales of real property or
of an interest therein a governed by Articles 1403, No. 2,
and 1405;
(2) The cession, repudiation or renunciation of hereditary
rights or of those of the conjugal partnership of gains;
(3) The power to administer property, or any other power
which has for its object an act appearing or which should
appear in a public document, or should prejudice a third
person;
(4) The cession of actions or rights proceeding from an act
appearing in a public document.
All other contracts where the amount involved exceeds five
hundred pesos must appear in writing, even a private one.
But sales of goods, chattels or things in action are governed
by Articles, 1403, No. 2 and 1405. (1280a)
1358: Is the requirement that it must be in a public document for the
purpose of validity? No. Only for purposes of affecting third
persons, or for efficacy against third persons. So, those enumerated
under 1358, even if not in a public docu are valid. The reason why
there is this requirement that it must be in a public document, is that
it is to enforce against third person. Because by itself, it is already
valid. Now what are those contracts?
1. Acts and contracts which have for their object the creation,
transmission, modification or extinguishment of real rights over
immovable property.
An example of this is waiver of a right, assignment, barter,
mortgage (modification of one's proprietarial rights), when you enter
into a contract of usufruct because there is a transfer of ownership.
[Take note that sale involving real properties is already removed
from par. 1 of 1358]
2. The cession, repudiation, or renuncitation of hereditary rights, or
of those if the conjugal partnership of gains. You renounce your
right over the inheritance that has already become vested in favor
of your siblings;
3. The powers to administer property, or any other power which has
for its object an act appearing or which should appear in a public
document, or should prejudice a third person
In your family code, when one spouse desires to transfer
administration over his communal or paraphernal property to the
other spouse, the transfer must be in a public document. The
reason is to inform 3rd persons that the administration has been
transferred.
4. The cession of actions or rights proceeding from an act
appearing in a public document [example Claim of ownership]
All other contracts where the amount involved exceeds
500 must appear in writing, even a private one. But sales of goods,
chattels, or things in action are governed by Art. 1403.
Nowhere does it say that if it is not in writing, the contract
is void. That's the essence of the Hernaez case.
REFORMATION
REFORMATION OF INSTRUMENTS (n)
 Remedy in equity by means of w/c a written instrument is
made or construed so as to express or conform to the real
intention of the parties when some error or mistake has
been committed.
Art. 1359. When, there having been a meeting of the minds
of the parties to a contract, their true intention is not
expressed in the instrument purporting to embody the
agreement, by reason of mistake, fraud, inequitable conduct
or accident, one of the parties may ask for the reformation of
the instrument to the end that such true intention may be
expressed.
If mistake, fraud, inequitable conduct, or accident has
prevented a meeting of the minds of the parties, the proper
remedy is not reformation of the instrument but annulment of
the contract.
Requisites for Action for Reformation
1. There must be meeting of the minds
2. True intention is not expressed in the instrument
3. There must be clear and convincing proof thereof
4. It must be brought w/in the proper prescriptive period.
5. Document must not refer to a simple unconditional
donation inter vivos or to wills or to a contract where real
agreement is void.
Art. 1360. The principles of the general law on the
reformation of instruments are hereby adopted insofar as
they are not in conflict with the provisions of this Code.
Why is there a need to reform instruments? Instruments are
reformed in order that the true intention of the parties is expressed.
But all the essential requisites are present. Only that when the
parties reduced the agreement into writing, the writing failed to keep
the true intention. By reason of what? Fraud, mistake, inequitable
conduct or accident, one of the parties may ask for the reformation
of the instrument to the end that such true intention may be
expressed.
But if any of the vices of consent have prevented the meeting of the
minds of the parties, then there is no reformation but rather
annulment. So here is there was failure on the part of the parties to
express their true intention. By reason of Fraud, mistake,
inequitable conduct or accident. But if it prevented the meeting of
the minds, then no reformation but annulment.
What are the requisites in order that reformation is proper?
1. There must have been a meeting of the minds upon the contract;
2. The instrument or document evidencing the contract does not
express the true agreement between the parties;
3. the failure of the instrument to express the agreement must be
due to mistake, fraud, inequitable conduct or accident.
Art. 1361. When a mutual mistake of the parties causes the
failure of the instrument to disclose their real agreement,
said instrument may be reformed.
Requisites:
1. Mistake must be mutual
2. Mistake may be unilateral under the conditions set forth in
Art. 1362 and 1363.
3. Mistake must be of fact.
1361: The error is thru mistake but all the essential requisites are
present
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 former
may ask for the reformation of the instrument.
1362: Now, there was this case of Ong vs. Car (?), involving a
Spaniard and a Chinese. Now the Chinese does not know how to
read or speak English. So the Spaniard was interested to buy the
property of the Chinese. Now the Chinese said the agreement
should be a pacto de retro. The Spaniard said, ok. When the
document was already prepared, the Chinese aske if he included
the condition that the sale should be one with a right to repurchase.
The Spanish said yes when in truth the Spaniard omitted that it was
a sale of pacto de retro because he intended to mortgage the
property.
Now in that case, there has been an agreement. There was already
a meeting of the mind with respect to object and the cause, and the
parties have consented. What was only omitted was the right of the
buyer to repurchase, through the fraudulent acts of the other.
Art. 1363. When one party was mistaken and the
other knew or believed that the instrument did not state their
real agreement, but concealed that fact from the former, the
instrument may be reformed.
Art. 1364. When through the ignorance, lack of skill,
negligence or bad faith on the part of the person drafting the
instrument or of the clerk or typist, the instrument does not
express the true intention of the parties, the courts may
order that the instrument be reformed.
1364: This is very common in law firms, because lawyers trust their
secretaries. (typographical error)
Art. 1365. If two parties agree upon the mortgage or
pledge of real or personal property, but the instrument states
that the property is sold absolutely or with a right of
repurchase, reformation of the instrument is proper.
1365: Now there are money lenders who would, instead of having
executed a deed of real estate mortgage, would say that let's just
execute a deed of sale with a right to repurchase. That is under a
different guise. Very common is equitable mortgage although the
document is denominated as deed of sale with a right to
repurchase. It has the following indicators:
1. The seller remains in possession of the property;
2. the buyer retains a portion of the purchase price. That
portion represent actually the interest.
3. The seller, aside from he remains in possession of the
property, continues to pay the taxes on the property.
[Because if it were sale, then definitely the seller has to
vacate the property and why should he continue to pay the taxes.
Moreover, why should the buyer retain a portion of the purchase
price. ] Now read 1502
Art. 1366. There shall be no reformation in the following
cases:
(1) Simple donations inter vivos wherein no condition is
imposed;
(2) Wills;
(3) When the real agreement is void.
1366: #1 and 2 are contracts based purely on the liberality of the
testator, and being gratuitous you cannot question the intention of
the person giving or donating the thing/property. #3, being void,
how can you reform it. No legal effect shall come from a void
contract. There is no force or effect that arise from a void contract.
In fact, in a void contract, parties do not intend to be bound by their
agreement.
Art. 1367. When one of the parties has brought an
action to enforce the instrument, he cannot subsequently
ask for its reformation. (estoppel, waiver or ratification)
1367: You cannot ask for reformation and at the same time ask for
enforcement. One is inconsistent with the other. If you say that it
does not express the true intention of the parties, yet at the same
time you are asking for performance. So, those are contrary to each
other.
Art. 1368. Reformation may be ordered at the
instance of either party or his successors in interest, if the
mistake was mutual; otherwise, upon petition of the injured
party, or his heirs and assigns.
Prescriptive period for reformation of contracts is 10 years
Art. 1369. The procedure for the reformation of
instrument shall be governed by rules of court to be
promulgated by the Supreme Court.