CONSENT

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)

PERSONS WHO CANNOT GIVE CONSENT TO A CONTRACT:

1. UNEMANCIPATED MINORS Those below 18 years of age. Those 18

years and above may enter into contracts.

Arts. 1426 & 1427 are no longer applicable to minors between 18

and 21 years requiring parental consent. R.A. 6809, reduced the
age of majority to 18 yrs. old.

2. INSANE OR DEMENTED PERSONS are detached from reality;

cannot act with legal consequences and thus, cannot contract. But
they may enter into valid contracts during their lucid intervals.

3. DEAF-MUTES WHO DO NOT KNOW HOW TO WRITE are

disqualified. But those who can write and/or read may validly enter
into contracts.

EFFECTS OF CONTRACTS ENTERED BY INCAPACITATED PERSONS:

a.) If only one party is incapacitated and thus cannot give consent,
the contract is voidable. (Armentia v. Patriarca, 125 Phil. 382; Art.
1390, [1]). But upon reaching age of majority, i.e. 18 or above,
he may ratify the contract and make it valid as a consequence.

b.) If both parties are incapacitated to give consent, the contract is

unenforceable. (Art. 1407)

1
READ: Sample cases/rulings where minors are liable under the contracts
they entered into despite their minority - pp. 393-394 Pineda, Obligations
and Contracts, 2000 ed.

1. MERCADO vs. ESPIRITU, 37 Phil. 37 (Bambalan v. Maramba, 51

Phil. 417; Sia Suan v. Alcantara, 85 Phil. 669)

Contract effected by a minor who is an adolescent near the adult

age, who pretended to be of majority age, misleading the other
party, will be deemed valid & binding upon the minor based on
estoppel. He cannot later excuse himself from compliance with the
obligations or seek annulment of the contract for being voidable.

2. DE BRAGANZA ET AL v. DE VILLA ABRILLE, L-12471, April 13, 1959;

105 Phil. 456

There was silence in the contract as to the age of the minor, the
fraud is not actual but only constructive. The minor is not bound by
his signature as he is guilty only of passive misrepresentation. But
he must still make restitution up to the extent that he was
benefited.

See Art. 1489. x x x Where necessaries are sold and delivered to

a minor or other person without capacity to act, he must pay a
reasonable price therefor.

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.
WHO HAS THE BURDEN TO PROVE INSANITY OF CONTRACTING PARTY:

Insanity will be proved by one alleging it.

If a person is established to be insane, then the burden of proving

that he was lucid at the time he entered into the contract is shifted
to the party seeking to enforce the contract.

DRUNKENNESS:

The drunkenness must be such point that he has completely lost his
mental faculties and consciousness to capably enter into a contract
but not if he is still aware of what he is doing and its consequences.

2
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.

The person referred to in Art. 1327 is incapacitated because of his

presumed lack of intelligence and therefore his right to exercise the right
to enter into a contract is resctricted. Any contract entered into by the
incapcacitated person is thus deemed voidable. But he may still validly
enter into a contract if made thru a guardian. The disqualification is not
absolute.

SPECIAL DISQUALIFICATIONS TO CONTRACT PROVIDED BY LAWS are

persons absolutely disqualified by law; the restriction is upon the right
itself. The disqualification makes the contract VOID.

1.) Persons in Art. 1491 disqualified to enter into contracts because

of fiduciary relations or due to public policy. (Read article)

Example: A judge is prohibited to buy property subject of

litigation in his court. Violates Art. 1491. Sale is void

2.) Husband and wife (legal or living together as one) cannot

donate, sell or lease properties to one another. (Art. 87 Family
Code; Art. 1490 NCC)

3.) Insolvent person until discharged (Act 1956, Sec. 24)

OTHER CAUSES OF INCAPACITY TO ENTER INTO CONTRACT Rule 92,

Sec. 2 of the Revised Rules of Court considers the following persons as
incompetent to enter into contracts, and may be placed under judicial
guardianship:

a.) Those under civil interdiction;

b.) Hospitalized lepers;

c.) Prodigals;

3
 d.) Deaf and dumb who are unable to read and and write;

e.) Insane persons even if they have lucid intervals;

f.) Those who by reason of age, disease, weak mind and other
similar causes without outside aid, cannot take care of
themselves and manage, becoming easy prey for deceit and
exploitation.

Unlike the persons specially disqualified by law, the above incompetent

persons are not totally prohibited to enter into contracts, in the sense that
they may do so through their guardians with approval of the court.

Art. 1330. A contract where consent is given through mistake,

violence, intimidation, undue influence, or fraud is voidable.

VICES OF CONSENT or DEFECTS OF WILL makes the contract

VOIDABLE.

REQUISITES OF CONSENT: To be valid, it should be (a) intelligent;

(b) free, and; (c) spontaneous.

Consent is vitiated or becomes defective when proof is shown that -

intelligence is vitiated by mistake; freedom by violence,
intimidation, or undue influence; spontaneity by fraud.

PROOF REQUIRED: For the court to annul the contract on the

ground of defect of will or lack of valid consent, there must be full,
clear and convincing evidence, and not merely preponderance
thereof (Centenera v. Garcia, 29 Phil. 470).

Art. 1331. In order that mistake may invalidate consent, it should

refer to the substance of the thing which is the object of the

4
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.

Q. WHAT KIND OF MISTAKE OR ERROR WHICH VITIATES CONSENT?

A. The mistake or error which vitiates consent is one that refers to the
substance of the thing i.) the object of the contract; ii.) the conditions
which principally moved one or both parties to enter into the contract.

CLASSIFICATION OF MISTAKES WHICH VITIATE CONSENT:

1. MISTAKE OF FACT refers to mistake by a party or parties as to:

(a) Nature of Contract; (b) Object; (c) Substance of the thing; (d)
Quality of conditions of the thing; (e.) Identity or qualification of
the person; (f) Quantity of the thing where it is the main reason of
the contract.

2. MISTAKE OF LAW refers to mistake incurred by one or both

parties as to the LEGAL EFFECT of the contract, transaction or act
such as provided in Art. 1334 which if the mutual error frustrates
the intention of the parties such mistake may vitiate consent cause
the annulment of the contract.

As a gen. rule however, mistake of law does not render a contract

voidable, based on the principle that ignorance of the law
excuses no one from compliance therewith.

MISTAKE OF FACT:

a.) Nature of the contract may invalidate a contract

5
 Example 1: A party thinks he affixed his thumbmark on a real
mortgage contract, when it was in fact a deed of sale of the
land

DUMASUG v. MODELO, 34 Phil. 252.

Plaintiff thought she was signing a document of a promise to

pay sum of money for expenses of a lawsuit she was involved
in. But this turned out to be a sale contract of her carabao and
2 parcels of land. SC held that this error of plaintiff invalidates
the contract because it goes to the very substance of the
thing which was the subject matter of the contract. Had the
plaintiff fully knew of the nature of the document, she would
not have accepted nor signed it.

b.) Object of contract refers to the substance or material of the

thing itself.

Example: A party pays P50K for a ring he thought has a

diamond stone, which is actually a well cut zirconia worth only
P1000K; or pay for a 15 yr. old whiskey when it is only a 5 yr.
old vintage.

c.) Quality or Principal conditions of the thing principal reason

why the party entered into the contract

Example: A party buys an Amorsolo painting for P1M, which

turned out to be an excellently made copy or a fake; or a land
thought to be clean but actually has a preferred lien or
encumbrance.

d.) Mistake as to the Identity of the Person or his qualifications

but it will vitiate consent only if such identity or qualification is
the principal reason why the party entered into the contract.

Example: X Lending Inc. agreed to lend money to Y believing

that it is Z, millionaire business man brother of Y who will
serve as guarantor. It turned out that it is Q, a public school
teacher, who is Zs twin, who guarantees for Y.

Example: A hired Dr. B thinking that he is doctor highly

trained in reconstructive and plastic surgery, but it turned out
that Dr. B is a doctor specializing in dermatology who
attended short program studies on cosmetic surgery.

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 Example: A lawyer entered into a contract for himself in his
own name. Later, he alleged that he made a mistake in
contracting for himself and not in the name of his client. Is this
allegation tenable? SC ruled that he acted in his own name,
there is no mistake in identity and thus he will be bound.
(Joaquin v. Mitsumine, 34 Phil. 858)

e.) Mistake or error in Quantity refers to error in the number or

actual dimension of the object of the contract, which makes it
voidable, and not mere accounting mistake which may
corrected.

Example: A party bought the land for a certain price, because

it was represented to be 30 hectares which could produce
2000 piculs of sugar, but turned out to be only 18 hectares
which produce only 800 piculs. SC held that it is annullable.
( Asian v. Jalandoni, 45 Phil. 296)

Example: If the intention of the parties is sale of land but

there is mistake in designating the lot to be sold in the
document, different from what the buyer saw and agreed to
buy. The remedy is not annulment but mere reformation of
instrument, there being a meeting of minds of the parties to a
contract. (Atilano v. Atilano et al, 28 SCRA 231)

NOTES:

1. If the party incurred error in estimating or computing benefits in

good faith, it is not a ground for the annulment of contract as this
does not go directly to the essential elements of the contract itself.
This will give rise only to its correction. (Art. 1331, par. 3)

2. However, if the estimate or calculation is deliberately made in bad

faith to induce the other party to enter into the contract, there is
not only mistake, but fraud which may invalidate the contract under
Art. 1338.

3. Mistake or error in the motive of a party does not vitiate consent as

to annul a contract.

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 Example: Abe buys a new car thinking that his carnapped car will
not be recovered. But this was later recovered and returned to him.
The purchase of the new car could not be set aside due to error in
his motive.

4. Accidental or accessory conditions or qualities which exist but do

not affect its existence or substance. Here, consent is not affected
and do not affect validity of the contract.

Example: A buys a horse thinking that it will be a good race horse

being born of fast runner parents. If the horse turns out not to be
so, this will not invalidate the contract.

Example: B buys from a flea market an old painting for P800, which
turns out to be an old Manansala now worth P1M. This error will not
invalidate a contract.

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.

WHEN FRAUD OR MISTAKE IS ALLEGED BY AN ILLITERATE PARTY.

Legal Presumption: a person intends the ordinary consequences of his

voluntary act; a party is presumed to know the import of documents
he signs and will be bound thereby.

Exception: Burden of proof is shifted to the party enforcing the

contract -

1.) When one of the parties is unable to read, or,

2.) If the contract is in a language not understood by him (even if the

party is literate).

8
Failure to rebut or disprove the allegation of mistake or fraud based on
the above grounds, will sustain the charge of mistake or fraud. The
contract will be set aside or annulled.

Read: Sample Cases, pp. 407-408, Pineda, id.

Art. 1333. There is no mistake if the party alleging it knew the

doubt, contingency or risk affecting the object of the contract.

If the party alleging mistake to annul a contract, knowing the doubtful,

and risky character of the object of the contract, that is, he knows or
should have known it thru the exercise of ordinary diligence or prudence,
he cannot use mistake as a ground to invalidate the contract. He will be
bound by it.

Art. 1334. Mutual error as to the legal effect of an agreement

when the real purpose of the parties is frustrated, may vitiate
consent.

MUTUAL ERROR OF LAW MAY VITIATE CONSENT Requisites:

1.) Error must refer to the legal effect of the agreement;

2.) It must be mutual;

3.) The real purpose of the parties is frustrated.

Illustrate: Jay is an heir of Juan who left a notarized will when he died.
Jay sold to his friend Jess a lot in Davao City that is bequeathed to
him in the Will of his father. Both Jay and Jess believed that the sale is
valid. But the Will and Testament was denied on probate for failing to
comply with the requisite formalities of the law on succession plus the
appearance of creditors of testator Juan.

Thus, ownership of the lot is not yet passed to the heir Jay until the
issues of succession is resolved. Since it turned out that Jay is not yet

9
 the owner of the lot, the contract is voidable due to the mutual error of
the parties as to the legal effect of their agreement.

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.

KIND OF VIOLENCE & INTIMIDATION THAT VITIATES CONSENT;

ELEMENTS.

I. Concept of VIOLENCE It is a serious, external and physical force applied

upon a party to prevent or compel him to act, thereby vitiating
consent.

A. ELEMENTS OF VIOLENCE:

a.) Physical force that is serious and irresistible is used for the victim
or contracting party to submit;

b.) The physical force inflicted is the determining cause in the giving of
consent to the contract.

II. Concept of INTIMIDATION It is an internal moral force or compulsion

on the will inducing the party to act. There is fear of imminent and
grave danger on his person, or loved ones, or property, compelling the
victim or party to give his consent to the contract.

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A. ELEMENTS OF INTIMIDATION:

a.)That the threat be real, serious and imminent danger to his person,
loved ones or property;

b.)That it produces a reasonable fear that the person intimidating the

party will carry the threatened injury;

c.) That the threatened act be unjust or unlawful, for if it is, there is no
intimidation;

d.)That the intimidation is the cause of the contract, or reason for

giving the consent.

NOTA BENE:

1. A threat to sue in court to collect his claim against the party does
not invalidate a contract of assignment of properties to satisfy such
claim, is not the kind of actionable intimidation to void or annul the
contract.

2. Where a man marries under threat to prevent his admission to the

bar by filing charges against him for immorality, cannot avoid the
marriage on the ground of duress or intimidation. (Ruiz v. Atienza,
O.G. 30 Aug. 1941, p.1903)

3. A threat to report a murderer if he does not agree to pay sum of

money to the witness of the offense, constitute intimidation that
may vitiate consent and annul a contract. Here, the payor is made
to agree to something which has no relation to his crime. (p. 496,
Tolentino, Civil Code, Vol. IV, 2004)

4. If the intimidation is merely incidental, the contract is not

annullable. (Example: A receives serious violent threat from B. A
then buys from C a gun for protection. Shortly, B died in an accident.

11
 A cannot now claim to annul the contract with C on the ground of
violence and intimidation.)

5. Moral coercion may not annul a contract entered by the party, but
the courts may reduce the amount if found excessive as modern law
does not favour strict enforcement of agreement of this nature.
(Example: A is in imminent grave danger. B saves him on As
promise that he will pay B a certain sum if he saves A.)

Read: Case of Vales v. Villa, 35 Phil. 769, 787-790.

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)

VIOLENCE OR INTIMIDATION BY A THIRD PERSON may result to a

voidable contract because the consent of the contracting party is vitiated.

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.

UNDUE INFLUENCE is similar to moral coercion. It is a means employed

upon a party which, under the circumstances, he could not well resist,
and has the effect of controlling his volition, inducing him to give his
consent to the contract, which otherwise he would not have entered into.

Undue influence is different from Intimidation although they seem to be

similar. In intimidation, the threatened act is unlawful or unjust, while in
undue influence, it need not be so.

NOTA BENE :
12
 1. The circumstances to determine undue influence, stated in this
provision are not exclusive, but to be taken as illustrative. Other
analogous circumstances may be considered depending on the
coercive power by one party and the susceptibility to influence on
the other.

Example:

a.) illness of one party;

b.) gross inequality in bargaining power bet. the parties;

c.) one party is at a disadvantage by reason of moral dependence,

ignorance, indigence, mental weakness, age or other handicap.
(Art. 24 )

2. In contracts of adhesion where one party alone fixes the terms of

the contract, and the other has merely to take it or leave it, there
may be economic inequality and the freedom to contract by the
other party is suppressed.

However, this is generally allowed by law as a product of modern

business development and practice. For one who adheres to the
contract has also the freedom to reject it. But contracts of adhesion
are construed strictly against the party that drew the contract.

Example: Air, sea and land transportation contracts, public utilities

contracts with water, gas and electricity, insurance contracts, some
real estate contracts, franchise contracts.

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)

CONCEPT OF FRAUD VITIATING CONSENT. It is every kind of deception

whether thru insidious machinations, manipulation, concealments or
misrepresentation, for the purpose of leading another party into error and
to execute an act.

13
INSIDIOUS WORDS OR MACHINATIONS deceitful scheme or plot, such
as false promises, concealment of material facts with intent to deceive,
exaggeration of hope and benefits, abuse of confidence, use of fictitious
names, qualifications or authority, to influence or induce the consent of
the contracting party.

TWO KINDS OF FRAUD in the PERFECTION OF CONTRACT:

1. DOLO CAUSANTE fraud that is the essential cause of the consent

without which the party would not have agreed to the contract; also
known as causal fraud.

Effect: Contract is VOIDABLE

Remedy: Annulment of contract plus Damages

(Read p. 423, Pineda id. for Sample Cases)

2. DOLO INCIDENTE fraud that is not the decisive influence, nor the
essential cause in giving the consent to the contract as it refers only
to an incident which even if not present, the party would still agree
to the contract; also called incidental deceit or fraud.

(Legal effect is same with fraud in performance of obligation in Art.

1170, 1171)

Effect: Contract remains Valid

Remedy: Claim or action for Damages only

REQUISITES OF FRAUD to vitiate consent and to cause annulment of

contract:

1.) Fraud was employed by one party upon the other;

2.) It must have induced the other party to enter the contract;

3.) It must have been serious deception or misrepresentation;

4.) It resulted in damage or injury to the victim-party.

14
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.

Q. When is failure to disclose facts considered fraudulent?

A. When by reason of confidential relations, the party is duty bound to

disclose the facts, but instead concealed or omitted them with intent to
deceive. Such concealment or omission of material facts constitutes fraud,
and may be a ground for annulment of contract.

Example:

a.) Where the insured concealed the fact that he had a number of
ailments, including pulmonary tuberculosis, thus the insurance co.
accepted the risk, which it would have otherwise refused had it
known the truth. (Musngi v. West Coast Life Ins. Co., 61 Phil.
864)

b.) Where a director/manager of the corporation who negotiated and

knew that the govt. will be buying a valuable property of their corp.,
used an agent to buy more stocks from another stockholder for a
lower price. The director/manager did not disclose to the latter that
he had just negotiated a sale that would increase the value of the
corp. stocks. Had the stockholder knew about the negotiated sale,
she would not have sold her stocks yet. The court held the purchase
fraudulent and annulled the sale contract. (Strong v. Rapide, 41
Phil. 947)

NOTES:

1. Non-disclosure of material facts to persons whom the party has no

confidential relations cannot be considered fraudulent. Opponents in
litigation have no confidential relations. (Escudero v. Flores, 97 Phil.
240)

2. Where there is an innocent non-disclosure of a fact between the

parties where there is no duty to reveal it, no fraud was committed.

15
 The legal maxim caveat emptor may be applied. (Tuason v.
Marquez, 45 Phil. 381)

Art. 1340. The usual exaggerations in trade, when the other party
had an opportunity to know the facts, are not in themselves
fraudulent.

USUAL EXAGGERATIONS IN TRADE OR BUSINESS (TOLERATED FRAUD)

are not fraudulent per se, especially when the other party can verify the
facts. Tolerated fraud includes minimizing the defects of the thing, and
exaggerating its good qualities, even giving it qualities that it may not
have.

This is known as dealers or traders talk, which by long practice in

commerce has been tolerated and deemed not to affect validity of
contract.

Exception: If the party commits act of malice and/or bad faith and
prevents verification or discovery of the truth by the other party.

OPPORTUNITY TO KNOW PRINCIPLE

Where the means of knowledge are available to both parties, one

cannot be claimed to have been deceived, and cannot thus annul the
contract on grounds of false represenation and/or exaggerations.
(Sanga v. Zaballero, 59 Phil. 101)

Where a buyer bought land based on the representatios of its seller

and has visited the land and has the chance to examine it himself
cannot later avoid the contract based on false exaggerations.
(Azarraga v. Gay, 52 Phil. 599)

Or even if buyer has did not visit the land but had the opportunity to
do so if he so desired cannot annul the contract if the first class land
turns out to be only second class. (Puato v. Mendoza, 64 Phil.
457)

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CAVEAT EMPTOR - Principle of let the buyer beware. The buyer has the
duty to be careful and exercise prudence and diligence in his dealings for
his own protection.

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.

EXPRESSION OF OPINION :

1.) By an ORDINARY PERSON is a mere opinion that does not

signify fraud.

2.) By an EXPERT PERSON is like a statement of fact, and if falsely

made to mislead the other party, will give rise to annulment of
contract.

But if the expert was employed by the party who was misled, he
cannot ask for annulment as he is bound by the acts of his
employee.

Art. 1342. Misrepresentation by a third person does not vitiate

consent, unless such misrepresentation has created substantial
mistake and the same is mutual.

GEN. RULE: Misrepresentation by a third person inducing party to enter

into a contract does not vitiate consent, and will not annul the contract.

Action for damages against the third person may however be filed by
the party injured.

GROUNDS FOR EXCEPTION:

1. If one of the parties is in collusion with the third person, or

knows of the fraud of the latter and he is benefitted as a result thereof.
Both the party and the third person in this case will be solidarily liable to
the innocent party.

17
 2. Even without connivance with the third person who
misrepresented by any of the parties, if this misrepresentation results to
substantial mistake on the part of the parties to the contract, the consent
is vitiated by mistake (not by fraud). The contract may be annulled by any
or both of the parties.

Art. 1343. Misrepresentation made in good faith is not fraudulent

but may constitute error.

Note: If error is substantial and serious, it may vitiate consent, making

the contract voidable.

FRAUD THAT MAKES CONTRACT VOIDABLE: (also stated in Art. 1338

discussion)

1.) It must be serious, not mere exaggerations of trade;

2.) It should not be mutual; if in pari-delicto, neither party can seek

annulment of contract which will be treated valid by the court.

3.) It must be the determining cause of the contract (dolo

causante).

INCIDENTAL FRAUD when fraud is not the determining cause of the

contract, but merely incidental, person guilty is liable for damages; but
contract remains valid and will not be annulled.

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.

If a 3rd person should commit violence or intimidation on 1 of the

contracting parties and this vitiates the contracting partys consent,
then the contract may be annulled (Article 1336).

18
 By analogy, if a 3rd person should exert undue influence on 1 of the
contracting parties and this vitiates the consent of the contracting
party, then the contract may be annulled.
However, if the 3rd party commits fraud, damages is the only remedy
unless the fraud committed by the 3rd person has created a mutual
substantial mistake (Article 1342).

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.

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.

CONCEPT OF SIMULATION OF CONTRACT is the deliberate act of making

a fictitious agreement by the parties for the purpose of deception, when in
fact the juridical act that appears on the contract does not really exist or
is different from what is actually agreed upon. It involves a defect in the
declaration of will by the parties.

TWO KINDS OR CLASSES OF SIMULATION:

1.) ABSOLUTE SIMULATION (simulados) the parties do not have any

intention to be bound by the contract. There is a color of a contract
but its not really intended to have any legal effect between the
parties.

Example: Contract of sale of a fishpond. It is made to appear that

there was a price paid when in reality, there was none, as the sale
and/or consideration was fictitious. (Vda. De Catalina v. Heirs of
Catalina Roque, 74 SCRA 83)

EFFECTS:

a.) Contract is VOID

19
 Reason: it lacks element of true consent; generally fraudulent

b.) It is as if there was no transfer of property & title remains with

transferor or seller

c.) Arts. 1411 & 1412 may be applied depending on the

circumstances of absolute simulation.

2.) RELATIVE SIMULATION (dissimulados) the parties conceal their

real agreement (hidden) under the guise of another contract
(ostensible).

Example: Rene executed a Deed of Sale of his condo unit to his

daughter, disguising their true agreement which is actually a
Donation.

EFFECTS: Contract may be VOID or VALID.

a.) VOID if it is: (a) prejudicial to 3rd persons; or (b) contrary to

law, morals, good customs, public order or public policy.

b.) VALID if (a) it does not prejudice any one; (b) it does not
have an illicit purpose and not contrary to law, morals, good
customs, public order or public policy.

Q. Can the owner-simulator recover whatever is given under the

fictitious or simulated contract?

A. It depends.

o If the absolutely simulated contract does not have any illegal

purpose, the interested party may prove the simulation to recover
what has been given under the simulated contract.

20
 o If the contract was intended for an illegal purpose, the contract is
void and the parties have no cause of action against each other.
Articles 1411 and/or 1412 may be applied.

Q. What is the right of a third person prejudiced by the simulation of

contract?

A. A third person prejudiced by a fraudulent simulated contract may

attack the nullity of the contract and file an action for its rescission or
annulment.

If the third person is in bad faith or knew of the simulation, he can have
no better right than the person from whom he had acquired title.

If the third person is in good faith when he acquired the property subject
of the simulated contract, this third person will be protected by law. The
apparent contract which he relied upon shall be deemed as the real
contract.

ILLUSTRATE: X would like to escape the impending attachment of his

land by creditors for his failure to pay his P5M debt. X then transferred
his 5-ha. land to his cousin Y thru a simulated or fictitious Deed of Sale. X
and Y were in collusion. There was no money paid for the sale. Later,
without Xs knowledge, cousin Y sold this 5-ha.land to Z, an innocent third
party buyer. Q. What is the status of the sale of Y to Z?

Answer: The law will consider the apparent contract of sale between Y and
Z as a true contract. In effect, the sale to the good faith buyer Z will be
sustained as valid and binding. This serves as a penalty for the fraud or
deception by the simulators X & Y.

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ART. 1348. Impossible things or services cannot be the object of
contracts.

Q. What constitutes impossible things or services?

IMPOSSIBLE THINGS:

a.) Not susceptible of existing;

b.) Outside the commerce of men

IMPOSSIBLE SERVICES:

a.) Acts beyond the ordinary power of man.

DIFFERENT KINDS OF IMPOSSIBILITY

WHICH MAY OR MAY NOT NULLIFY CONTRACTS

1. ABSOLUTE OR OBJECTIVE -
When nobody can perform it
Nullifies a contract
Determined objectively

2. RELATIVE OR SUBJECTIVE
When due to special condition or qualifications of the debtor it
cannot be performed.
If temporary does not nullify a contract; nullifies when
permanent

PARTIAL IMPOSSIBILITY; LEGAL EFFECTS

1. If the thing or service is partly possible and partly impossible, the

effect will depend whether it is divisible or indivisible.

2. If it is INDIVISIBLE, by its nature or intention of the parties, there is

no contract for it was either for the whole obligation or none at all.

3. If it is DIVISIBLE, then the contract is valid as to that which is

possible to perform.

LIABILITY FOR DAMAGES

Q. Is the debtor/obligor liable for damages when the object of

the contract is impossible?

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A. It depends on the good faith or bad faith of the obligor or debtor.

As a general rule when the object of the contract is impossible, the

contract if void or inexistent. No juridical relation or obligation is created.

1.) Thus, if the obligor/debtor is ignorant of the impossibility or is

unavoidable, he is not liable for damages that may be suffered by
the creditor.

2.) Also, if both parties have knowledge of the impossibility, no

liability for damages may be collected from obligor/debtor.

3.) If the obligor/debtor knew of the impossibility, or could have

known it, he may be liable for the losses incurred by creditor who
relied on the contract, but not for all kinds of damages arising
from the non-performance of the contract.

DIFFICULTY OF PERFORMANCE v. IMPOSSIBILITY OF PERFORMANCE

1. Mere inconvenience, unexpected impediments or increased

expenses is not enough to relieve the debtor of the obligation.

Equity cannot relieve from bad bargains simply because it is

unfavourable to the debtor or obligor. Debtor who does not perform
in such cases must be held liable for damages.

2. But if the obstacle to the performance of the object of the contract

is so great that for the obligor to overcome it, he must do a sacrifice
that is absolutely disproportionate to the prestation of the contract,
taking into account the ethical and economic considerations
intended by the parties in good faith, then, this must be considered
impossible.

3. It is contrary to law and public policy to force the performance of a

contract that is harmful to life, liberty and property.

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