CONTRACTS
the contract. GSIS argued that it was stipulated later that the
GENERAL PROVISIONS
A. Definitions -
A contract is a meeting of minds between two persons whereby
one binds himself, with respect to the other, to give something or
to render some service.(Art. 1305)
Difference between contracts and obligations – A contract is a
source of an obligation, an obligation is the legal tie which compels
a person to give something or to render some service. An
obligation can exist without a contract, while a contract can never
exist without an obligation.
Difference between Agreements and Contracts – An agreement is
generally not enforceable through legal proceedings while a
contract is enforceable through legal proceedings.
B. Elements
1. Essential Elements
a. Consent
b. Subject Matter
c. Cause/Consideration
d. *Delivery (ONLY in real obligations)
e. *Form (ONLY in some cases; ex. Donation must be
in public instrument)
2. Natural Elements – those found in certain contracts and
presumed to exist (Ex. Warranty)
3. Accidental Elements – various particular stipulations that
may be agreed upon by contracting parties in a contract (ex.
Stipulation to pay interest)
C. Characteristics
1. Obligatory Force – obligations arising from contracts have the
force of law between the parties and must be complied with
in good faith
Art 1308: The contract must bind both contracting parties; its
validity or compliance cannot be left to the will of one of
them.
Art 1309: The determination of the performance may be left
up to a third person, provided it is communicated to both
parties.
Here, the compliance or the validity is not left up to a third
person. What may be determined by the third person is HOW
the contract may be performed and not the validity of the
contract itself.
2. Mutuality
General Rule:Both parties are bound by the contract based on the
essential equality. It is thus void if the fulfillment/ validity/
compliance of one condition depends upon the sole will of one of
them.
Exceptions:
 It may be valid if condition is suspensive or resolutory(Art.
1182)
 It may be valid when determinationof the performance is left to a
3rd person (Article 1309).
o Provided that the determination may not be
obligatory if it is evidently inequitable, which is up
to the court to decide (Art. 1310)
Article 1473. The fixing of the price can never be left to the discretion of
one of the contracting parties. However, if the price fixed by one of the
parties is accepted by the other, the sale is perfected.
GSIS v. CA, 228 SCRA 183
Private respondents won a house and lot, which petitioner is
constructing. The parties executed a Deed of Conditional Sale.
After the construction, GSIS increased the price of the said house
and lot because of the construction costs. The respondents
contested the price increase because it was not the agreed price in
OBLIGATIONS AND CONTRACTS | ATTY. MARICRIS BATHAN-LASCO | PRE-FINALS | 1
contract may be subject to changes depending on the construction.
The contention of the petitioner is without merit. The stipulation
was not part of the original contract that was entered into the
parties. The parties cannot add a provision without the consent of
the other party. What the petitioner did was only making a bad
business proposal, in which it is not beneficial to them. A party
cannot suffer from the wrong of the other party.
3. Relativity
General Rule: Contracts are binding only to the parties, their
assigns and successors.
- The act, declaration, or omission of another, cannot affect
another, except as otherwise provided by law or
agreement.
- Strangers, therefore, cannot generally demand the
enforcement of a contract, nor can they demand its
annulment, nor are they bound by the same.
Exceptions to the Principle of Relativity:
a. When the obligation is not transmissible by nature,
stipulation or law
- The following are intransmissible contracts: a) those that
are purely personal (like partnerships), b) those where
the very nature of the obligation requires special
personal qualifications of the obligor, and c) money debts
are payable to the estate.
b. Stipulation Pour Autrui (Art. 1311, par. 2)*
c. A 3rd person induces another to violate the contract (Art.
1314)*
d. When third persons come into possession of the contract that
create real rights (Art. 1312)*
e. When law authorizes the creditor to sue on a contract entered
into by his debtor (AccionDirecta)*
f. Through direct stipulation or by provision of law
g. When a third person is adversely affected by a contract even
though he wasn’t made a party to a contract (be careful with
this exception it seems that the application of this exception
can only be made but not limited to labor cases)
*See Letter H down below.
a. Art. 1311, par. 1: Contracts take effect only between the
parties, assigns and heirs except in cases 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.
- Only compulsory or forced heirs can question the validity of
contracts or can bring an action to annul the same.
Manila Railroad Co. v. La CompanaTransatlantica; 38 Phil. 875
The petitioner ordered 2 steam broilers from the respondent. Since
the respondent does not have the sufficient equipment to cargo the
broilers, it hired Atlantic Gulf & Pacific Co. The contract executed
was now between Atlantic and La Compana. When Atlantic was
about to deliver the cargo, the broilers became damaged. Because
of the damage, petitioner filed a suit against Atlantic for the
collection of damages. The Supreme Court ruled that petitioner
should only go after La Compana. It is because the parties of the
contract was only limited between the two. The contract between
La Compana and Atlantic is another contract with different parties
of interests. The reason why petitioner cannot go after Atlantic is
because of the principle of Relativity. Only parties of interests can
go after the other contracting party. Hence, petitioner may only go
after La Compana; while the latter may seek for reimbursement
from Atlantic.
DKC Holdings v. CA; 329 SCRA 666
There is a parcel of land owned by Bartolome. Petitioner and
Encarnacion Bartolome entered into a Contract of Lease with an
 CONTRACTS
Option to buy for 2 years. Years later, Encarnacion died. Petitioner
then exercised its right to buy the land with the respondent, as the
heir of Encarnacion. When there was a proceedings of the transfer
of properties, the land was transferred to the respondent, and not
to the petitioner. Petitioner tendered the amount of money to
respondent, but the latter refused. It was then contented by
petitioner that its contract between Encarnacion is not binding
upon his son, the respondent. The respondent's case is not an
exception of the rule on relativity of contracts. It is because he is
the heir of Encarnacion. As the heir, the powers of Encarnacion is
transferred to respondent. He now becomes a party of interest.
Thus, heirs are still considered as parties of interest.
b. Art. 1317: No one may contract in the name of another
without being authorized by the latter or has, by law, a right
to represent him.
- These contracts are unenforceable, unless it is ratified.
Gutierrez Hermanos v. Orense; 28 Phil. 571
Respondent originally owned a parcel of land, and it was sold by
his nephew. The land that his nephew sold to, petitioners, asked
for rentals from respondent. Respondent refused to pay because
the contract that his nephew entered into was void. Respondent
contended that his nephew is does not have the authority to sell
the land. However, it was shown in the evidence that respondent
impliedly gave authority to his nephew. The contract was valid
because there was ratification. It is because it was testified that the
respondent knew of the sale. Since respondent knew what his
nephew did, he cannot allege that the contract is void. Ratification
cured the defect of the contract that was entered into by the
nephew.
D. Parties
1. Auto-contracts
This happens when only one person represents two opposite
parties, but in different capacities. Example: an agent representing
his principal sells a specific car to himself, as a buyer
2. Freedom to Contract
The free entrance into contracts generally without restraint is one
of the liberties guaranteed to the people.
Gabriel v. Monte de Piedad; 71 Phil. 497
Petitioner was an employee of respondent. Almost a year before
petitioner resigned, incurred a deficiency because of an erroneous
appraisal of pawned jewels. Thereafter, both parties entered into a
chattel mortgage agreement, wherein petitioner would pay for the
deficiency. Years later, petitioner filed a suit alleging that the
contract is void because it was against public policy and morals.
He contended that he suffered moral and economic damages as an
appraiser. The petition is without merit. It is not enough that there
is an allegation that the contract is against policy. There must be
concrete evidence that it is indeed against public policy.
Furthermore, the law does not even support the claim of the
petitioner.
Pakistan Int'l Air vs Ople; 290 SCRA 90
Petitioner executed 2 separate contracts of employment with
Farrales and Mamasig in Manila. The agreement period is for 3
years, and can be extended by mustual consent. It is also
stipulated that the petitioner has the right to terminate the contract
at any time. Furthermore, it was also stipulated that the governing
law is the Pakistani law, with the jurisdiction of Pakistan. Both
employees are stewardess of the company until they were
terminated 1 year and 4 months after. The employees then filed the
case in the Philippine labor arbiter (respondent). Petitioners
insisted that respondent does not have the jurisdiction because the
contract stated that the jurisdiction should be in Pakistani courts.
OBLIGATIONS AND CONTRACTS | ATTY. MARICRIS BATHAN-LASCO | PRE-FINALS | 2
The contract is invalid because it was against public policy, morals
and good custom. The provision was against public interest, as it is
stated in the Labor Code. The Supreme Court also said that you
cannot bargain a right that is stated in the law. Employment is
imbued with public interest because it is one of the main public
policies in the Philippine jurisdiction.
Special Disqualifications under the law (due to conflict of interest):
i. Art. 87, Family Code - Prohibition of Donation Between
Spouses during marriage
ii. Arts. 1490 & 1491, Civil Code – Persons who cannot acquire
property through purchase
iii. Art. 1782, Civil Code - Persons above cannot also enter into
a universal partnership
3. What they may not stipulate
Art. 1306: The contracting parties may establish stipulations
provided they are not contrary to laws, morals, good customs, public
order or public policy.
Cui v. Arellano; 2 SCRA 205
Petitioner is a scholar of respondent university. His uncle was the
dean of his college. He retained his scholarship until he transferred
to another university. When he was about to take the bar exam, he
went to the respondent university for his transcripts. He was
denied of such because he has to reimburse his scholarship for his
transfer. The respondent justified its actions because it was
stipulated in their contract. It was held that the provision was
against public policy. Scholarships shall not be reimbursed
because they should be for merit, not propaganda. In this case,
respondent was promoting scholarships for propaganda by
discouraging the transfer of their scholars. Moreover, provisions
that are against public policy should not be stipulated in contracts,
and shall be rendered void. Therefore, the provision is void for
against public policy.
Arroyo v. Berwin; 36 Phil. 386
Petitioner prosecuted Juaneza, Berwin's client, in a case of theft.
Petitioner and Juaneza entered into a verbal agreement to
withdraw the case. They agreed that the Torrens title of the land
where Juaneza cut the cane be obtained by her and transferred to
petitioner. Petitioner, then asked the court to execute the
agreement between them, hence this case. The contract is invalid.
It is because it is against public policy, morals and good customs.
It is the state's interest in the prosecution of a person, not a mere
individual interest. The state is interested in carriage of justice.
Moreover, the object of the agreement is a stolen good. The mere
fact that the proceeds come from a crime and it exchanges a
perversion of justice, which is the withdrawal of the case, is
contrary to public policy. It is because justice is compromised.
Bustamante v. Rosel; 319 SCRA 413
Respondent entered into a loan agreement with the petitioner. It is
stated that the respondents would borrow for a period of 2 years
with interest. When the loan was about to mature, respondent
offered to buy the land. However, the petitioner refused, and
offered to sell another lot instead. The respondents accepted the
offer. The petitioners then tendered payments of the loan to
respondent, but the latter refused. The respondents then asked for
specific performance, while asking for consignation, from
petitioners. Trial court ruled in favor of petitioners, then it was
reversed by CA. The Supreme Court said that the stipulation is
void. The intent of the creditor appears to be evident, for the
debtor is obliged to dispose of the collateral at the pre-agreed
consideration amounting to practically the same amount as the
loan. In effect, the creditor acquires the collateral in the event of
non-payment of the loan. This is within the concept of
pactumcommissorium. Such stipulation is void.
 CONTRACTS
E. Classification
1. According to subject matter
(1) Things
(2) Rights or credits - provided these are transmissible
(3) Services
2. According to their name or designation
a. Nominate - contracts is given a particular or special
name; (ex, commodatum, partnership, sale, agency,
deposit)
b. Innominate - no special name
i. Do ut des (I give that you may give)
ii. Do utfacias (I give that you may do)
iii. Faciout des (I do that you may give)
iv. Facioutfacias (I do that you may do)
Dizon vs Gaborro; 83 SCRA 688
Petitioner was the owner of 3 parcels of land. He constituted a
mortgage lien in favor of DBP to secure a loan, and secured a 2 nd
mortgage in favor fo PNB to cure the debt of the former bank.
Having defaulted of the payent, DBP foreclosed the mortgage
extrajudicially. Then there came a time that petitioner and
respondent met. Dizon intended to lease the land, but the
mortgage was already foreclosed by DBP. On the same day of the
foreclosure, constituted a deed of absolute sale of the subject lands.
The documents were executed by the parties, but the proceeds are
used to pay the banks. Thus, the parties question as to what type
of contract that they had executed. The contract is a valid
innominate contract. It is not a deed of sale because the elements
of a deed of sale is not present in the case. It is said that the
proceeds are for the payment of the petitioner's security of the
mortgage, while delivering the object to the respondent. In terms
of the name of the contract, it has no name at all. An innominate
contract is a type of ccontract that does not have a specific name. It
is one of its kind. Therefore, it is an innominate contract.
3. According to perfection or Formation
a. Consensual - perfected by mere consent
b. Real - perfected by delivery
c. Formal - those where special formalities are essential
before the contract may be perfected
4. According to relation/dependence to other contracts
a. Principal - the contract may stand alone by itself (ex.
sales, lease)
b. Accessory - depends for its existence upon another
contract (ex. mortgage wherein the principal contract is
the loan)
c. Preparatory - here, the parties do not consider the
contract as an end by itself, but as a means thru which
future transaction or contracts may be made (Ex. agency,
partnership)
5. According to form
a. Common
b. Special
6. According to purpose
a. Transfer of ownership
b. Conveyance
c. Rendition of services
7. According to nature of vinculum produced (the parties
obligated)
a. Unilateral - only one of the parties has an obligation (ex:
Commodatum, like the borrowing of a car)
b. Bilateral - both parties are required to render reciprocal
prestations (ex. Sale)
8. According to causeor equivalence of value of prestations
a. Onerous - where there is an interchange of equivalent
valuable consideration
OBLIGATIONS AND CONTRACTS | ATTY. MARICRIS BATHAN-LASCO | PRE-FINALS | 3
b. Gratuitous - this is FREE, thus one party receives no
equivalent prestation except a feeling that one has been
generous or liberal
c. Remunerative - one where one prestation is given for a
benefit or service that had been rendered PREVIOUSLY
(ex. Employment)
9. According to the risk of fulfillment
a. Commutative - parties contemplate a real fulfillment;
therefore, equivalent values are given;
b. Aleatory - here the fulfillment is dependent upon chance;
thus the values vary because of the risk or chance (ex. an
insurance contract)
F. Stages
Preparation ---> Perfection --->Consummation
Preparation — Here the parties are progressing with their
negotiations; they have not yet arrived at any definite agreement,
although there may have been a preliminary offer and bargaining.
Perfection (or birth) — Here the parties have at long last came to a
definite agreement, the elements of definite subject matter and
valid cause have been accepted by mutual consent.
Consummation (or death or termination) — Here the terms of the
contract are performed, and the contract may be said to have been
fully executed.
G. As distinguished from a Perfected v. Imperfect Promise
(Politacion)
Contract – establishes and determines the obligation arising
therefrom
Perfected Promise - Tends only to assure and pave the way for the
celebration of a contract in the future; until the contract is actually
made, the rights and obligations are not yet determined.
Imperfect Promise - Mere unaccepted offer.
H. With respect to third persons
General Rule: Contracts only take effect between the contracting
parties, their assigns and/or their heirs.
Exceptions:
a. Stipulations in favor of third persons
b. Third persons who come in possession of the object of a
contract creating a real right
c. A contract is entered into to defraud a third person
d. Third person induces a contracting party to violate his
contract
I. Stipulations in favor of third persons or stipulations pour
autrui (Article 1311, par. 2)
This is a stipulation in a contract where the contracting parties
clearly and deliberately conferred a favor upon a third person,
who must have accepted it before it was revoked.
Kinds:
a. Those where the stipulation is intended for the sole
benefit of the third person;
b. Those where an obligation is due from the promisee to
the third person which the former seeks to discharge by
means of such stipulation.
Requisites:
1. The stipulation should only be part of a contract;
 CONTRACTS
2. The contracting parties must have clearly and
deliberately conferred a favor upon a third person and
not a mere incidental benefit or interest;
3. The third person must have communicated his
acceptance to the obligor before its revocation, which
may be done in any particular form, expressly or
impliedly; and
4. Neither of the contracting parties bears the legal
representative or authorization of the third party.
Test of Beneficial Stipulation: Did they deliberately insert terms in
their agreement with the avowed purpose of conferring a favor upon such
third person?
Florentino vEncarnacion, 79 SCRA 192
Petitioners inherited a land through their aunt. Respondents
thereafter file for an exclusion of their shares of the land because
they do not want to pay to the Church. There is a stipulation that
the Church may benefit from the fruits of the land for religious
activities. The Church then alleged that they are the proper parties
of the contract due the said stipulation. Stipulation pour atrui is
present in this case. The stipulation is only a part of the contract,
and the Church, a 3 rd party, has always been accepting the
benefits. The acceptance binds the parties to the stipulation and is
not revokable anymore.
Coquia vs Fieldmen's Insurance; 26 SCRA 178
Manila Yellow Taxicab (Manila Yellow) and respondent entered
into an insurance contract. It is stipulated therein that any
accidents, injuries and other types of damages arise from the
operations shall be granted with the insurance money. Coquia, one
of Manila Yellow's driver died in a car accident. The respondents
wanted to claim the insurance money, as the heirs of the victim,
but the respondents refused. They contended that husband is the
sole beneficiary of the insurance policy, and only Manila Taxicab
can claim it in default. The petitioners have a claim of the
insurance money as the heirs of the deceased. The deceased has
the right claim the money. It is stated in the law that the heirs can
now become parties in interest due to succession.
Constantino vs Espiritu; 39 SCRA 206
Petitioner sold 2 parcels of land to respondent in favor of their
unborn illegitimate child. The respondent took mortgages on the
land and offered them for sale. Petitioner asked to execute a TRO
to stop the sale, and execute the sale to the child instead. The court
ruled that the contract appears to be a contract pour autrui,
although in the form of a deed of absolute sale, and appellant’s
action was, in effect, one for specific performance. The child has
received the benefit of the aforementioned stipulation of the
contract as a 3rd party. It was clearly stated in the contract. Thus,
the stipulation that the child is a proper party to the contract is
binding.
II. Possession of the object of contracts by third persons
(Article 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.
Example:
A procured a loan from Bank XY. To secure the loan, he
mortgaged a parcel of land he owns. A sold the same parcel of
land he mortgaged to Bank XY to B. The parcel of land sold to B
has a certificate of title which bears an annotation saying that the
said land is mortgaged to XY bank.
Q: If A fails to pay off his loan, can XY bank foreclose the mortgage on
the land, even if B is now in possession of it?
OBLIGATIONS AND CONTRACTS | ATTY. MARICRIS BATHAN-LASCO | PRE-FINALS | 4
A: Yes, Bank XY may foreclose the mortgage even if B is now in
possession of it. The contract between A and Bank XY mortgaging
a parcel of land as security for a loan creates a real right in favor to
the bank. Since a real right arises from the said contract, B (a third
person) is bound by it even if he is not in full possession of the
land he bought from A.
Note: B may now go after A after the land is foreclosed. It must be
known that the bank wouldn’t be able to foreclose if the mortgage
wasn’t annotated on the land’s certificate of title and B didn’t have
personal knowledge about the mortgage since the registration law
protects buyers in good faith.
If B knew had personal knowledge about the mortgage, but there
was no annotation on the land’s certificate of title, he is still bound
by the contract. Personal knowledge is tantamount to an
annotation.
III. Creditors of the Contracting Parties (Article 1313)
If a creditor can prove that his debtor entered into a contract to
defraud him, he may ask the court to rescind it.
Example: A is indebted to B. A donates all of his property to C so
that B wouldn’t be able to levy on A’s property.
Q: What can B do?
A: B can ask the court to rescind the deed of donation executed by
A in favor of C.
IV. Interference by third persons (Article 1314)
The person who induces a party to a contract to violate his own
contract may now be liable for damages to the other contracting
party.
Requisites:
1. The existence of a valid contract;
2. Knowledge on the part of the third person of the
existence of the contract; and
3. The interference was without legal justification or excuse.
Daywalt vs Corporacion; 39 Phil. 587
Ednica executed a contract with petitioner to convey a parcel of
land to the latter. It was found out that the land sold was bigger
than what Ednica wanted to sell. However, the court ordered a
decree of specific performance to Ednica. The defendant came into
the picture, as a neighbor, and took custody of the Torrens title.
When defendant sold the land, it had an agreement with Ednica
that its cattle may still pasture the land.There was no unlawful
interference. It was done in good faith because they wanted to
protect Ednica. Even if there was unlawful interfere, the
petitioners cannot ask for an amount more than the damages.
So Ping Bun vs CA
Tek Hua, with its partner, So PekGiok, entered into a contract with
DDCI. The agreement was to lease certain properties with a period
of 1 year, and thereafter a monthly basis. So PekGiok died, and
was inherited by the son, petitioner. The property was then used
by petitioner for his business. Tek Hua requested petitioner to
vacate, but refused. Instead, petitioner entered into a lease contract
with DDCI. Moreover, petitioner asked for the nullification of Tek
Hua's contract because the former occupied and religiously paid
the rent of the warehouse.There is no malicious interference, but
proper business of interest. So there were no damages. However,
there was tortuous interference in this case.
 CONTRACTS

so that the liability of the rights of the parties may be

ESSENTIAL REQUISITES OF exactly fixed.
CONTRACTS
b. The offeror MAY FIX the time, place and manner of acceptance
(Art. 1321)
Art. 1318: There is no contract unless the following requisites concur:
- Any act contrary to the prescribed terms really
(1) Consent of the contracting parties;
constitutes a counter offer or counter-proposal. This
(2) Object certain which is the subject matter of the contract; article also applies to an auction sale, whether private or
(3) Cause of the obligation which is established. public
- A “contract to purchase which does not give specific
1st requisite: CONSENT description of the objects to be purchased nor the price
Consent is the manifestation of the meeting of the certain offer and nor the rate of exchange to be used is a mere
PRELIMINARY AGREEMENT.
the absolute acceptance upon the thing and the cause that constitute
a contract. A qualified acceptance is called a counter-offer. (Art.
c. When made through an AGENT, it is only accepted from the
1319)
time the acceptance is communicated to the agent. (Art. 1322)
- By legal fiction, an agent is considered an extension of
Requisites of Consent:
the personality of his principal. (Art. 1910, par. 1.) If duly
1. The consent must be manifested by the concurrence of
authorized, the act of the agent is, in law, the act of the
the offer and the acceptance.
principal.
2. Both parties must be capacitated
3. Consent must be intelligent, free, spontaneous and real
d. An offer becomes INEFFECTIVE upon the death, civil
interdiction, insanity or insolvency of either party before
I. Manifested by the concurrence of the offer and
acceptance is conveyed. (Art. 1323
acceptance
- If the acceptance did reach the creditor before he died,
the heirs will be bound to the contract.
Rosenstock v. Burke; 46 Phil. 217
- It must be observed that the law refers to “either party.”
Esler who owned a yacht wrote Burke a letter which began as
This means that at the time the acceptance is
follows: “In connection with the yacht Bronzewing, I am in
communicated, both parties, offerer and offeree, must be
position and am willing to entertain the purchase of it under the
living and capacitated. (see Art. 1327.) The death of
following terms: . . .” To this letter, Burke affixed his signature at
either party or his loss of capacity before perfection
the bottom thereof just below that of Esler’s as follows:
precludes the formation of a contract.
“Proposition accepted (Sgd.) Burke.” This case involves the
meaning of phrase “willing to entertain the purchase.’’ The court held
e. BUSINESS ADVERTISEMENTS should not be construed as a
that the phrase was not a definite offer and did not create a
definite offer.
binding contract of sale. Esler could have used the expressions “I
- But, if the advertisement is complete in all the particulars
want to purchase,’’ “I offer to purchase, I am in position to
necessary in a contract, it may amount to a definite offer.
purchase,’’ or other similar language of easy and unequivocal
meaning.
Not a definite offer: “For sale: 1,000 square meters lot at Green
Plains Village, Quezon City for P15,000,000.00 – Tel No. 817-12-84”
Malbarosa v. CA; 402 SCRA 168
Malbarosa was the president of Philtectic owned by the
A certain offer – “I am willing to sell my house and lot for 1
respondent. Respondent assigned to Malbarosa a Mitsubishi car
million pesos payable in monthly instalments”; here no certain
for his use. As Malbarosa desired to retire, he requested that his
price for the monthly instalments is given, however this does not
compensation as president be paid. Respondent accepted his
affect the certainty of the offer since the price for the monthly
resignation and proposed that the subject car assigned to him shall
instalments only pertains to the manner of payment
be transferred to him in lieu of the compensation worth
approximately 200k. Malbarosa refused and claimed that he was
A definite offer: “For sale: 1,000 square meters lot at Green Plains
entitled to 300k. However the respondent, after a lapse of 2 weeks,
Village located at the corner of Geronimo and Magallanes Streets
did not receive back the letter-offer addressed to Malbarosa, thus it
for P15,000,000.00 cash – Tel. No. 817-12-84.”
withdrew the offer. Respondent demanded the return of the car.
The Supreme Court ruled that the acceptance of an offer must be
f. ADVERTISEMENTS FOR BIDDERS are generally not definite
made known to the offeror. Unless the offeror knows of the
offers (Art. 1326)
acceptance, there is no meeting of the minds of the parties, no real
- In an advertisement for bidders, the advertiser is not the
concurrence of offer and acceptance. The offeror may withdraw its
one making the offer. In reality, the bidder is the one
offer and revoke the same before acceptance thereof by the offeree.
making the offer which the advertiser is free to accept or
The contract is perfected only from the time an acceptance of an
reject.
offer is made known to the offeror. The contract is not perfected if
the offeror revokes or withdraws its offer and the revocation or
ACCEPTANCE – the manifestation by the offeree of his assent to
withdrawal of the offeror is the first to reach the offeree. The
the terms of the offer.
acceptance of the offeree of the offer after knowledge of the
revocation or withdrawal of the offer is inefficacious.
a. Acceptance must be ABSOLUTE (Art. 1319)
- If an acceptance is qualified, it merely constitutes a
OFFER – a proposal made by one party to another to enter into a
counter-offer or a new proposal which is considered a
contract. It must be:
rejection of the original offer and an attempt by a party to
enter into a contract on a different basis
a. CERTAIN (Art. 1319)
- Acceptance by silence or inaction. — As a rule, silence
- The offer must be certain or definite and clear. It is
cannot be construed as acceptance. The acceptance must
definite when an agreement can be reached upon
be affirmatively and clearly made and evidenced by
acceptance. It is clear when it is not vague or speculative
OBLIGATIONS AND CONTRACTS | ATTY. MARICRIS BATHAN-LASCO | PRE-FINALS | 5
 CONTRACTS
words or some acts or conduct communicated to the
offeror.
b. Kinds of acceptance – express or implied (Art. 1320)
c. When the acceptance was made by letter or telegram, the
contract is perfected from the time of the offerer’s knowledge,
actual or constructive, of the acceptance. (Art. 1319, par. 2)
- Before the acceptance is known, the offer can be revoked.
Similarly, the offeree may revoke the acceptance he has
already sent, provided, the revocation reaches the offerer
before he learns of the acceptance.
- Sample Problem: A made an offer to B on January 1,
2016. A provided that B should communicate his
acceptance through a formal letter. B decided to accept
the offer and communicated his acceptance on January 7,
2016. Unknown to B, A had already withdrawn his offer
on January 2, 2016, however his letter of withdrawal was
only received by B on January 7, 2016. Is there a meeting
of the minds?
Answer : No, prior to an offeree’s acceptance, the offeror
may withdraw his offer. At the time A received the
acceptance, there was no certain offer anymore since he
withdrew it.
d. 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. (Art. 1324)
- Contemplates on a situation when the offeror gives the
offeree a certain period of time to decide.
If the option is without a consideration – the offeror may
withdraw his offer by communicating such withdrawal to the
offeree at any time before acceptance (even before expiration
of the period).
If the option is with a consideration – the offeror cannot
withdraw his offer within the period he has given.
e. Contract of Option – contract granting a person the privilege
to buy or not to buy certain objects at any time within the
agreed period at a fixed price. The option must have its own
cause or consideration.
- Illustration: If A offers to sell a golden watch to B for
40,000 pesos, A may sell the golden watch to another
person even if B had not communicated his acceptance or
rejection of the offer.
However, if B had given A 3,000 pesos as option money
which gives him an option to buy the watch within 30
days, A is bound to reserve the said watch in case
decides to buy it within for a period of 30 days.
Sanchez v. Rigos; 45 SCRA 368
Sanchez and Rigos executed ‘Option to Purchase’ whereby Rigos
promised to sell to Sanchez a parcel of land within 2 years from
the execution thereof and that the option is terminated after the
lapse of such period. But within the period Rigos refused the
payment. Hence, Sanchez filed an action. The court ruled that the
option did not impose upon Sanchez the obligation to purchase
defendant's property. Annex A is not a "contract to buy and sell."
It merely granted plaintiff an "option" to buy. And both parties so
understood it, as indicated by the caption, "Option to Purchase,"
given by them to said instrument. Under the provisions thereof,
the defendant "agreed, promised and committed" herself to sell the
land therein described to the plaintiff for P1,510.00, but there is
nothing in the contract to indicate that her aforementioned
agreement, promise and undertaking is supported by a
consideration "distinct from the price" stipulated for the sale of the
land. In other words, since there may be no valid contract without
a cause or consideration, the promisor is not bound by his promise
OBLIGATIONS AND CONTRACTS | ATTY. MARICRIS BATHAN-LASCO | PRE-FINALS | 6
and may, accordingly, withdraw it. Pending notice of its
withdrawal, his accepted promise partakes, however, of the nature
of an offer to sell which, if accepted, results in a perfected contract
of sale.
II. Necessary legal capacity of the parties
a. The following cannot give consent to a contract (Art. 1327):
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not
know how to write.
- The reason behind Article 1327 is that those persons
mentioned can easily be the victims of fraud as they are
not capable of understanding or knowing the nature or
import of their actions. They can enter into a contract
only through a parent or guardian.
UNEMANCIPATED MINORS:
Cases where a contract entered into by an UNEMANCIPATED
MINOR may have all the effects of a valid contract:
1. When it is entered into by a minor who misrepresents his age
(Mercado vs. Espiritu, 37 Phil. 215).
2. When it involves the sale and delivery of necessaries to the
minor (Art. 1489).
3. When it involves a natural obligation and such obligation is
fulfilled voluntarily by the minor, provided.
4. Upon reaching the age of majority, they ratify the same.
5. Contract entered into thru a guardian, and the court
approved the same.
6. Contracts of life insurance in favor of their parents, spouse,
children, bro, sisters (minor should be 18 years and above).
7. Form of savings account (minor at least 7 years old).
The mere silence when making a contract as to his age does not
constitute a fraud which can be made the basis of an action for
deceit. There should be an active (actual not constructive)
misrepresentation.
INSANE OR DEMENTED PERSONS
- The insanity must exist at the time of contracting.
DEAF-MUTES
- But if a deaf-mute knows how to write, then he is
presumed to be capacitated.
b. When an offer or acceptance is made
- If any of the contracting parties is incapacitated, the contract
is voidable.
- If both parties are incapacitated, then the contract is
unenforceable.
- Contracts entered during a lucid interval are valid.
- Those entered in a state of drunkenness or during a
hypnotic spell are voidable. (Art. 1328.)
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.
Weakness of mind alone, not caused by insanity, is not a ground for
avoiding a contract.
III. Consent must be intelligent, free, spontaneous and real
Art. 1330: A contract where consent is given through mistake,
violence, intimidation, undue influence, or fraud is voidable.
VICES OF CONSENT:
A. MISTAKE OR ERROR
Mistake is the false notion of a thing or a fact material to the
contract.
 CONTRACTS
Requisites for Mistake to Vitiate Consent:
1. Error must be substantial regarding (Art. 1331):
a. The object of the contract (Par. 1)
- Example: A person signed a contract of sale thinking
it was only a contract of loan;
b. Conditions (error in quality or quantity) which
principally moved or induced one of the parties (Par.1)
- Example: Error in knowledge about the true
boundaries of a parcel of land offered for sale
- Examples: A person buys a fountain pen thinking it
to be made of solid gold when as a matter of fact, it
is merely gold-plated; a person buys a CD record
thinking it to be Stateside, but it turns out to be
merely a local imitation, a pirated one.
- Example: A person desiring to buy land consisting
of 100 hectares discovers that the land has only 60
hectares;
c. Identity or qualification (error in personae) but only is
such was the principal cause of the contract. (Par. 2)
- Examples: Hiring of a pre-bar reviewer, a particular
singer for a concert, contracts involving partnership,
agency, deposit — since these require trust and
confidence.
2. Error must be Excusable (not caused by negligence).
3. Error must be a mistake of fact, and not of law.
MISTAKE OF LAW
General Rule: Mistake of law does not invalidate consent because
ignorance of the law excuses no one from compliance therewith.
Exception: Mutual error as to the legal effect of an agreement when
the real purpose of the parties is frustrated, may vitiate consent.
(Art. 1334)
Requisites for the application of Article 1334:
(1) The error must be mutual;
(2) It must be as to the legal effect of an agreement; and
(3) It must frustrate the real purpose of the parties.
Art. 1331, par. 3: A simple mistake of account shall give rise to its
correction.
WHEN ONE OF THE PARTIES IS UNABLE TO READ OR DOES
NOT UNDERSTAND THE LANUAGE OF THE CONTRACT (Art.
1332):
- The party enforcing the contract has the burden of proof
to show that there has been no fraud or mistake and that
the terms of the contract have been fully explained.
- This rule is especially necessary here in the Philippines
where many people are still illiterate.
KNOWLEDGE OF RISK (Art. 1333):
- If a party knew beforehand the doubt, contingency or
risk affecting the object of the contract, it is to be
assumed that he was willing to take chances and cannot
claim mistake.
Asian v. Jalandoni; 45 Phil. 296
Asian thought he was selling and Jalandoni thought he was
buying a tract of land containing 25 hectares more or less with its
corresponding crop estimated at 2,000 piculs of sugar. In reality,
the land contained only a little more than 18 hectares and
produced a crop of only about 800 piculs. The court held that the
mutual mistake of the contracting parties to a sale in regard to the
subject matter thereof which is so material as to go to the essence
of the contract is a ground for relief and rescission. Without the
mistake as to the quantity of the land sold and as to the amount of
the standing crop, the agreement would not have been made.
Heirs of Sevilla v. Leopold Sevilla; 402 SCRA 501
The heirs in this case inherited 1/3 each of the land after Honorata
died. Furthermore, it was divided into ½ shares for the respondent
OBLIGATIONS AND CONTRACTS | ATTY. MARICRIS BATHAN-LASCO | PRE-FINALS | 7
by the death of Felisa. The parties then made a Deed of
Extrajudicial Partition on the land of Honorata. Petitioners seek to
cancel the deed because of fraud. It is because Felisa was having
an unsound mind due to her age when she executed the deed.
Moreover, the deed was executed without the consent of
petitioners. The deeds were valid. The respondent did not prove
that there was fraud. The mere allegation of unsound mind cannot
be taken against the contract. There must be sufficient proof
because not all old people are of unsound mind.
Dumasug v. Modelo; 34 Phil. 252
The subjects of the contract was a carabao and a land, wherein
there was a mistake in the subjects. There was a dispute of the
subjects between petitioner and another party. Respondent helped
petitioner in preparing certain documents for the security of the
objects. The contract consists of an attachment of money in
exchange of the objects. It turned out to be a sale, which the
petitioner did not intend.The contract was void because of fraud.
The petitioner never knew that the service of respondent would
come in the form of the subjects. It was because the language used
cannot be understood by the petitioner. She signed something that
she could not have signed in the first place. Hence, there was
fraud.
Hemedes v. CA; 316 SCRA 347
The late Jose Hemedes originally owned the land. Jose executed a
document whereby he conveyed ownership over the subject land
in favor of his third wife, Kausapin. Petitioner filed an application
for registration and confirmation of title over the subject land.
Subsequently, an OCT was issued in the name of petitioner with
the annotation that Kausapin shall have the usufructuary rights
over the parcel of land. However, Enrique Hemedes subsequently
sold the property to Dominium. Petitioner, on the other hand,
mortgaged the property to R&B, which was eventually foreclosed.
Kausapin also executed a “Kasaunduan” confirming the
conveyance of the subject property in favor of Enrique and
denying the conveyance made to petitioner.A person cannot
simply allege or deny that one is part of the contract. In using 1332,
the party must confirm the existence of the contract. It only applies
to persons who can neither read nor understand the contract, but
signed it. In this case, there was denial of the existence of a
contract. Admitting the existence is essential in using 1332.
B. VIOLENCE AND INTIMIDATION
Violence is physical force or compulsion. The following are the
requisites for violence to vitiate consent:
1. The employment of serious or irresistible force.
2. It must have been the reason why the contract was entered
into.
Intimidation is moral coercion. The following are the requisites for
intimidation to vitiate consent:
1. It must produce a reasonable and well-grounded fear of an
evil
2. The evil must be imminent and grave
3. The evil must be upon his person or property, or that of his
spouse, descendants or ascendants.
The following shall be borne in mind to determine the degree of
the intimidation (Art. 1335, par. 2):
i. Age
ii. Sex
iii. Condition
THREAT TO ENFORCE A JUST OR LEGAL CLAIM (Art. 1335,
par. 3)
- The threat of a court as a means to enforce a just or legal
claim is justified and does not vitiate consent.
 CONTRACTS
VIOLENCE OR INTIMIDATION BY A THIRD PERSON (Art.
1336)
- The violence or intimidation employed by a third person
shall annul the obligation.
C. UNDUE INFLUENCE
Undue influence must be of a kind that so overpowers and
subjugates the mind of a party as to destroy his free agency and
make him express the will of another.
Requisites of Undue Influence that will vitiate consent:
1. There must be improper advantage of one party
2. He has power over the will of another
3. This has deprived the latter of a reasonable freedom of choice.
The following circumstances of the person alleged to have been
unduly influenced are to be considered:
i. Confidential, family, spiritual and other relations
between the parties;
ii. Mental weakness;
iii. Ignorance
iv. Financial distress
Solicitation, importunity, argument, and persuasion are not undue
influence and a contract us not to be set aside merely because one
party used these means to obtain the consent of another.
UNDUE INFLUENCE BY A THIRD PERSON
- Just like violence and intimidation, undue influence by a
third person will also vitiate consent.
REVERENTIAL FEAR v. UNDUE INFLUENCE
- The difference is only a matter of perspective.
- Reverential fear comes from the perspective of the person
himself. He signs a contract because he does not want to
displease the person to whom obedience and respect is due,
the said contract is valid because it was his own decision to
enter into the contract.
- Undue influence comes from a person in position that induces
another to consent to a contract. He is substituting the will of
the other party with his own will.
D. FRAUD OR DOLO
Fraud is the use of insidious words or machinations to induce a
party to enter into a contract which, without them, he would not
have agreed to.
“Insidious words of machinations” – include false promises,
exaggerated expectations or benefits, abuse of confidence,
fictitious names, qualities or power, etc.
Requisites of Fraud to vitiate consent:
1. There must be misrepresentation or concealment by a party
2. It must be serious in nature (Art. 1344)
3. Must be employed only by one contracting party. (Art. 1344)
If both contracting parties used fraud to obtain consent, the
contract would be valid.
4. The party must have relied on the untrue statement and must
not be guilty of negligence in ascertaining the truth.
Hill v. Veloso; 31 Phil. 161
There was a certain promissory note that was signed by the
respondents. When respondent stopped paying, petitioner was
filing a suit of collection. Respondent alleged that there was
deceit. Respondent was made to sign a blank piece of paper in
order to pay her debt to certain minors. The fraud was employed
by Franco, the son-in-law of respondent, because he was the one
who procured respondent's signature. There is no fraud. Fraud
OBLIGATIONS AND CONTRACTS | ATTY. MARICRIS BATHAN-LASCO | PRE-FINALS | 8
should be employed by one of the contracting parties. Fraud
employed by a 3rd party is not a vice of consent because the law is
very clear. The law says that the fraud can only be employed by
the active subject and the passive subject. Since Franco is neither,
there was no fraud in the contract.
Woodhouse v. Halili; 92 Phil. 526
The parties entered into a partnership agreement of bottling
Mission softdrinks. Petitioner stipulated to pay 30% of the profits,
and respondent is given a temporary franchise. Respondent later
on learned that the franchise was temporary, and sought to
execute the partnership agreement. Respondent claimed that the
petitioner has the exclusive franchise.The fraud constituted was
doloincidente. The fraud only revolves around the 30% in the
stipulation, and not the entire partnership. For fraud to be used as
a ground for annulment, it must be dolocausante. The parties
would enter into the partnership, even if one has exclusive
franchise. The 30% only came after the contract was executed.
Dolocausante should be the main cause of the contract.
Geraldez v. CA; 230 SCRA 320
Petitioner availed of the tourism services of respondent. The
respondent offered a promo of a cheap Europe tour package with
a European tour guide manager, great hotels and a visit to one of
the highlighted factory. The tour turned out to be substandard.
The tour guide was only an inexperienced Filipino, the hotels were
bad, and the factory was not visited. The petitioner filed for
damages because the contract was not true to its word.Despite the
defenses of respondent, there was fraud. There were disclaimers in
the contract that were written in fine print. Moreover, the tourists
were not fully informed of the tour briefing. If only petitioner
knew about the service, she would not have availed of the services.
Kinds of fraud:
i. Fraud in the celebration of the contract -
a. Dolocausante–If it were not for the fraud the other party
would not have entered into the contract. This is the
fraud referred to in Article 1338.
b. Doloincidente– these are deceptions or misrepresentations
which are not serious in character and without which the
other party would still have entered into the contract.
This is the fraud referred to in Article 1344, par. 2 that
obliges the person employing it to pay damages.
ii. Fraud in the performance of the contract– this presupposes a
valid contract.
FAILURE TO DISCLOSE FACTS (Art. 1339)
- Concealment, or failure to disclose facts, constitutes
fraud when there is a duty to reveal them.
- Example: Those bound by confidential relations such as
partners.
Tuason v. Marquez; 45 Phil. 381
Defendant was given a right to operate a franchise of an electric
power plant. The defendant then sold his property to petitioner
due to the former's inefficiency. The operation continued smoothly
until petitioner suffered the same inefficiency. The defendant filed
for the rescission of the contract because there was
misrepresentation.Non-disclosure is not an excuse to rescind a
contract. The defendant could have looked into other sources of
information of the defect. The petitioner is not the sole source of
information.
Rural Bank of Sta. Maria v. CA; 314 SCRA 255
A parcel of land is registered in the name of Manuel Behis. He
mortgaged said land in favor of petitioner. Manuel was delinquent
in paying his debts. He sold the land to the plaintiffs. The land was
then sold to a 3rd person. The parties of the case entered into n
agreement. It stated that the bank may still foreclose the land if
 CONTRACTS
Behis is insolvent. The bank wants to annul the contract because
they were not informed of the purchase price.The fraud in this
case did not vitiate the contract. The petitioner has no business in
knowing the consideration. The concern of the petitioner should
be on its security, and in fact it is secured. This is not the kind of
concealment that affects the decision of the parties.
USUAL EXAGGERATIONS IN TRADE (Art. 1340)
“Caveat emptor” – Let the buyer beware.
- These in themselves are not fraudulent.
- Where there were means of knowledge to ascertain the
truthfulness of the claim of the dealer, one will not be
heard to say that he has been deceived.
Azzaraga vs Gay; 52 Phil. 599
Petitioner sold a parcel of land to respondent. The petitioner went
and inspected the land before the sale was conducted. The
respondent would pay certain amounts upon the completion of
each stage of delivery. Respondent failed to pay for the remaining
balance. Respondent alleged that his failure to pay was due to the
deceit of petitioner because the land was smaller than what was
stipulated. Respondent cannot ask for the annulment of the
contract in the basis of misrepresentation. Respondent has the
ample opportunity to know the facts. Petitioner, on the other hand,
did not prevent the respondent from knowing the facts. Thus,
there was no fraud.
Trinidad vs IAC; 204 SCRA 524
Petitioner offered to buy a property from the respondent. The
petitioner examined the lot and found drainage canals in the
vicinity. However, petitioner heard rumors that previous buyers
vacated the property because of floods. She talked to respondent,
but the latter said that the drainage was repaired. Petitioner
continued to pay until she was fed up with the flood. She
contended that there was misrepresentation because the property
was still flooded.There was no misrepresentation. The petitioner
inspected the lot, and was aware of the conditions. Hence, she had
the opportunity to know the facts. She did not bother re-examining
the property and was complacent. She had the ample opportunity
to repair the drainage. Thus, there was no fraud.
MERE EXPRESSION OF AN OPINION (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.
Songco v. Sellner; 37 Phil. 254
Sellner bought the uncut sugarcane drop of Songco still standing
in the sugarcane field on Songco’s estimation that it would
produce 3,000 piculs of sugar. It turned out, it produced only 2,017
piculs of sugar. The sale was valid. Although Songco did claim a
higher yield, such was only an opinion. In fact, Sellner wasn’t
induced by such since he had a different motive – i.e., to get an
easement to pass on the property of Songco. “Misrepresentation,
as a matter of opinion, is not actionable.
MISREPRESENTATION
i. When done by a third person (Art. 1342) -
General Rule: A third person has no connection with a contract. A
misrepresentation by a third person does not vitiate consent.
Exception:
- When the misrepresentation by the third person has
created a substantial mistake and the same is mutual, the
contract may be annulled on the ground of mistake.
- But when the misrepresentation was made by a third
person in connivance with, or at least with the knowledge of
the party benefited by the fraud, it is deemed to be exercised
OBLIGATIONS AND CONTRACTS | ATTY. MARICRIS BATHAN-LASCO | PRE-FINALS | 9
by the other contracting party and may be annulled by
the ground of fraud.
ii. Made in good faith (Art. 1344) – it may not be fraudulent
but may constitute error and can be annulled.
iii. Misrepresentation must be active, and not constructive,
for the contract to be annullable.
Mercado v. Espriritu; 37 Phil. 215
Siblings Domingo and Josefa, purported to be of legal age, entered
into a notarized agreement with Luis acknowledging a sale and
loan transaction previously entered into by their parents with the
later. The siblings however contested said agreement noting that
such is void due to minority.The notarized agreement bound the
siblings as to their declared age. The sale of real estate, made by
minors who pretend to be of legal age, when in fact they are not, is
valid, and they will not be permitted to excuse themselves from
the fulfillment of the obligations contracted by them, or to have
them annulled in pursuance to the provisions of Law.
Braganza v. Villa Abrille; 105 Phil. 456
Rosario, with her sons Rodolfo and Guillermo entered a loan
amounting to 70000 and promised to pay the same 2 years
thereafter. Rosario failed to pay contending that they only receive
P40,000 and that her 2 sons were minors upon signing of the note.
Rosario is liable. Children are liable in as much as they benefited
from the loan. Failure to disclose their minority in promissory note
does not mean that they’ll not be permitted to assent it. THERE
WAS NO JURIDICAL DUTY TO DISCLOSE INABILITY.
Mercado and Braganza case, distinguished.
In Mercado, there was an active misrepresentation in that the
siblings Mercado wrote in the document that they were of age.
Here, no such thing. = Guillermo and Rodolfo are not legally
bound.
SIMULATION OF CONTRACTS (Art. 1345-1346)
Simulation of a contract is the act of deliberately deceiving others
by producing the appearance of a contract that really does not
exist or that which is different from the true intention of the
parties.
Requisites for Simulation:
1. An outward declaration of will different from the will of the
parties;
2. The false appearance must have been intended by mutual
agreement
3. The purpose is to deceive third persons.
Rodroguez v. Rodriguez; 28 SCRA 229
Plaintiff Concepcion Felix filed for an action to declare null and
void the deeds of transfer of her properties to the conjugal
partnership of her second marriage alleging that such conveyance
from Concepcion to her daughter and then to the conjugal
partnership was based on the force and pressure on her by her
second husband (deceased) and is without consideration. The
court held that in contracts invalidated by illegal subject matter or
illegal causa, Article 1305 and 1306 of the Civil Code then in force
apply rigorously the rule in pari delicto non orituractio, denying
all recovery to the guilty parties inter se. And appellant is clearly
as guilty as her husband in the attempt to evade the legal
interdiction. Further, having taken part in the questioned
transactions, petitioner was not the proper party to plead lack of
consideration to avoid the transfers. Also, she entered into a series
of subsequent transactions (an implied ratification/confirmation)
with respondents that confirmed the contracts that she now tries to
set aside. Furthermore, duress being merely a vice or defect of
consent, an action based upon it must be brought within four years
after it has ceased, and the present action was instituted only in
1962, 28 years after the intimidation is claimed to have occurred.
 CONTRACTS
Suntay v. CA; 251 SCRA 430
For purposes of accommodation, Federico Suntay sold to his
nephew Rafael by way of fictitious/simulated sale a parcel of land
with all existing structures therein for P20,000. Less than three
months after conveyance, Rafael sold it back to Federico for the
same amount. However, the said document was not the said deed
of sale but a certain "real estate mortgage of a parcel of land to
secure a loan of P3,500.00 in favor of the Hagonoy Rural Bank.
Federico requested that Rafael returned the land title so that he
can have the counter deed of sale in favor registered in his but
such request was turned down.The history and relationship of
trust, interdependence and intimacy between the late Rafael and
Federico is an unmistakable token of simulation. It has been
observed that fraud is generally accompanied by trust. The 2
instruments were executed closely one after the other and the
value of the property purportedly sold is not reflective of the said
transaction.
Kinds of Simulation:
A. Absolute – The parties do not intend to be bound. This
contract is void.
B. Relative – The parties conceal their true agreement. The real
agreement binds both parties as long as a) it does not
prejudice third persons or b) the purpose is not contrary to
law, morals, good customs, public order or public policy.
2nd requisite: OBJECT
The object of the contract is its subject matter.
WHAT MAY BE OBJECTS OF CONTRACTS (Art. 1347)
1. All things which are not outside the commerce of men.
 “Not outside the commerce of men” – the object must be
susceptible of appropriation and transmissible from one
person to another. Ex: Streets, bridges, tax.
 These include future things – these are things that do not
belong to the obligor at the time the contract is made;
these may be made, raised or acquired by the obligor
after the perfection of the contract. They may be objects
of contracts because they are determinable without having
to enter into a new contract. Ex: Wine that a vineyard is
expected to produce, future sales for the month.
 Future inheritance may NOT be the object of a contract –
the heir does not a determinable share because the
decedent can do whatever he wants to his property while
he is still alive
2. All rights which are not intransmissible may also be the object
of contracts.
3. All services which are not contrary to law, morals, good
customs, public order or public policy may likewise be the
object of a contract.
Requisites:
1. Thing or service must be within the commerce of man
2. Must not be contrary to law, morals, good custom, public
policy or public order
3. Must be possible (Art. 1348)
4. Must be determinate (Art 1349)
 If not determinate, it will not be an obstacle to the
existence of the contract PROVIDED that it is possible to
determine the same without the need of a new contract
WHAT MAY NOT BE OBJECTS OF CONTRACTS
1. Those which are contrary to law, morals, customs, public
order and public policy
2. Indeterminable as to their kind
3. Outside the commerce of men
4. Intransmissible rights
OBLIGATIONS AND CONTRACTS | ATTY. MARICRIS BATHAN-LASCO | PRE-FINALS | 10
5. Future inheritance (Art. 1347)
6. Impossible things or services (Art. 1348)
This may be:
i. Impossible because of the nature of transaction or the
law
ii. Absolute – when NO ONE can do it (e.g. fly like a bird).
This nullifies the contract.
iii. Relative – when it arises from special circumstances or
the special conditions of qualifications of the obligor
a. If it is temporary – it does not nullify the contract
b. If it is permanent – nullifies the contract
Blas v. Santos; 1 SCRA 899
Heirs of Simeon Blas filed for a complaint against the
administratrix of the estate of his second wife Maxima contending
that she did not partition Simeon Blas’s property as her promised,
that they’ll (the heirs from the first marriage) be receiving
properties of their father upon her death.The promise is valid and
enforceable upon Maxima’s death. Though it is not a will (it lacks
the formality) nor a donation, it is still enforceable because said
promise was actually executed to avoid litigation (partition of
Simeon Blas’ estate) hence it is a compromise. It could be an object
of a contract because it was not future inheritance.It is an
obligation or promise made by the maker to transmit one-half of
her share in the conjugal properties acquired with her husband,
which properties are stated or declared to be conjugal properties in
the will of the husband.
3rd requisite: CAUSE
Cause is the essential reason which impels the contracting parties
to enter into a contract and which explains and justifies the
creation of the obligation through such contract.The thing which has
been promised to you or what you are to receive.
Requisites of Cause:
1. It must exist at the time the contract is entered into.
2. It must be lawful.
3. It must be true or real.
Art. 1350:
In onerous contracts – the cause is the prestation or promise of a
thing or service by the other.
In remuneratory contracts – the cause is the service or benefit
which is remunerated
In contracts of pure beneficence – the cause is mere liberality.
Art. 1351: The particular motives of the parties in entering into a
contract are different from the cause thereof.
CAUSE VS. MOTIVE
CAUSE MOTIVE
The objective reasons or the Internal reasons for entering
things you expect to receive. into the contract.
The cause is always known. The motive may not be known.
Essential element of a contract Not an essential element of
contract
The illegality of which affects The illegality of motive does
the validity of the contract not affect the contract.
Examples:
 A hired B to kill C and promised to pay 1M
- Object of A: 1M; Cause of A: B’s service to kill C = VOID
because the cause is contrary to LAW
 A sold prohibited drugs to B for 1M but reason was so he will
have money to pay hospital bills of his mother.
- Object of A: prohibited drugs; Cause of A: 1M; Object of
B: 1M; Cause of B: prohibited drugs = VOID because
selling of prohibited drugs is contrary to LAW although
the motive is valid
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 X borrowed money from Y in the amount of 2M for hiring A
to kill B.
- While the motives are illegal to hire A to kill B, the
contract is valid being a contract of loan.
DEFECTIVE CAUSES AND THEIR EFFECTS
1. Absence of cause and unlawful cause(Art. 1352)
Effect if Cause is illegal:
 If one party is innocent, he cannot be compelled to
perform his obligation and he may recover what he has
already given
 If both parties are guilty, in general, neither can sue the
other
Effect if there is no cause.
- No contract at all because if it lacks one requisite then the
contract is VOID.
Effect is cause is unlawful:
- VOID
Liguez v. CA; 102 Phil. 577
Salvador P. Lopez, a married man, gave Conchita Liguez, a 15-
year-old girl, a donation of land so that she would have sexual
relations with him and so that her parents would allow them to
live together. After Lopez’s death, Conchita sought to get the land
from his heirs, but said heirs refused on the ground that the cause
or consideration of the donation was illegal, and that therefore the
donation should be considered null and void. Conchita contended
that while the motive might have been immoral, still the cause —
“liberality” — was proper, and that therefore the donation should
be considered valid.The donation was null and void. While it is
true that motive differs from cause, still a contract that is
conditioned upon the attainment of an immoral motive should be
considered void, for here motive may be regarded as cause when it
predetermines the purposes of the contract. It cannot be said here
that the donation was a “contract of pure beneficence” or a
contract designed solely and exclusively for the welfare of the
beneficiary. Indeed, the donation was made both to benefit
Conchita and to gratify his own sexual desires. Nevertheless, had
Lopez been alive, he could not have invoked the immorality of the
donation because it was he who was at fault; thus Conchita is
entitled to the land.
2. Statement of a false cause in a contract (Art. 1353)
- If the cause is false, the contract is void unless it can be proven
that the contract was founded upon another cause which is
lawful.
Example:
a. Supposing there was a sale of a parcel of land from A to B,
what was written in the Deed of Sale is that it is worth 1M but
in truth and in fact, the parcel of land is exchanged for a rare
diamond ring. Does it make the contract void?
- Even if in the contract there is a false cause, it does not
automatically render the contract void if the parties can
prove that there is actually another cause which is legal.
b. In a sale of a parcel of land, there was an omission of the
price. Does that make the contract void?
- No, because the presumption is even if the cause or
consideration is not written in the contract, the
presumption is that there is a cause. Reason: No one in his
right mind will give up a thing without anything in
return.
- The burden of proof that there is no cause present lies in
the one who alleges such.
- The court will be the one to invalidate the contract if
there is absence of cause.
3. Lesion or inadequacy of cause(Art. 1355)
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General Rule: Lesion or inadequacy of cause shall not invalidate a
contract.
Exceptions: Lesion will invalidate a contract when
a. There has been fraud, mistake or undue influence
b. In cases specified by law (Wards and absentees suffering
from lesion under Art. 1381)
Carantes v. CA; 76 SCRA 514
Certain co-heirs assigned, in 1939 in favor of a co-heir, a parcel of
land in Loakan, Baguio. The document was registered in 1940. The
assignors sued in 1958 for the annulment of the assignment,
claiming that they thought they were signing a mere authority to
sell, not the sale itself. Moreover, there was allegedly absence of
cause because they only paid P1.00. The court held that there was
lesion or inadequacy of cause but still, the contract was valid.
Sps. Buenaventura v. CA; 416 SCRA 263
Sought to be declared null and void ab initio are certain deeds of
sale of real property executed by defendant parents Leonardo
Joaquin and Feliciana Landrito in favor of their co-defendant
children. The petitioners contend that there was no actual valid
consideration and that assuming that there was consideration in
the sums reflected the properties are more than three-fold times
more valuable than the small sums appearing therein. If there is a
meeting of the minds of the parties as to the price, the contract of
sale is valid, despite the manner of payment, or even the breach of
that manner of payment. If the real price is not stated in the
contract, then the contract of sale is valid but subject to
reformation.
CAUSE IS PRESUMED TO EXIST AND LAWFUL (Art. 1354)
It is not necessary that the cause be expressly stated in the contract.
It is presumed that the cause exists and is lawful unless the debtor
proves the contrary. This presumption exists because ordinarily, a
person will not part with his property unless there is a
consideration.
FORM OF CONTRACTS
General Rule: Contracts shall be obligatory, in whatever form they
may have been entered into, provided all the essential requisites
for their validity are present. (Art. 1356)
Exception: When the law requires that a contract be in some form in
order that it may be valid or enforceable
Hernaez v. de los Angeles; 27 SCRA 1276
Marlene Dauden-Hernaez, a movie actress, sued a movie company
(the Hollywood Far East Productions, Inc.) and its President and
General Manager (Ramon Valenzuela), to recover P14,700
representing a balance allegedly due her for her services as a star
in two movies, and to recover damages. The contract was an oral
one. The lower court dismissed the case on the ground that under
Art. 1358 of the Civil Code, since the contract price exceeded P500,
the same should have been evidenced by a written instrument. The
Supreme Court held that the dismissal was not proper. Generally,
under Art. 1356 all contracts are valid, regardless of form. There
are only two exceptions — first, when the contractual form is
needed for VALIDITY as in the case of a donation of real property
which needs a public instrument; secondly, when form is needed
for ENFORCEABILITY under the Statute of Frauds. The contract
for her services falls under neither exception. The contracts
covered by Art. 1358 (such as her contract) are binding and
enforceable by action or suit despite the absence of any writing
because said article nowhere provides that the absence of written
form will make the agreement invalid or unenforceable. In the
matter of form, the contractual system of our Civil Code still
follows that of the Spanish Civil Code of 1889 and of the
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“Ordenamiento de Alcala” of upholding the spirit and intent of
the parties over formalities; hence, generally, oral contracts are
valid and enforceable.
Kinds of formalities required by law:
1. Those required for the validity
The following contracts require a specific form in order to be
valid:
748 Donations of personal property require a public
document if the value exceeds Php 500.00
749 Donations of real property require a public
document
1874 Sale of land thru an agent (here, the authority of
the agent must be in writing; otherwise, the sale
is null and void)
2134 The amount of the principal and of the interest
shall be specified in writing; otherwise, the
contract of antichresis shall be void.
1771 Partnership where immovable property or real
rights are contributed thereto, in which case a
public instrument shall be necessary.
1773 Contracts of antichresis must be in writing
2. Those required, not for validity, but to make the contract
effective as against third persons
- The form of the contract is only needed for
convenience.
Art. 1357: The contracting parties may compel each other to
observe the form prescribed by law, once the contract has been
perfected. This does not affect the validity or enforceability of the
contract. The contracts are enumerated in Article 1358.
Art. 1358: These contracts are valid and binding even if there is no
written contract. The form is merely for convenience purposes:
(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
are 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.
Example: A bought a parcel of land from B but it was only
embodied in a private instrument. A now wants to register the
land but the Register of Deeds requires a public instrument. Under
Art. 1357, A may compel B to execute a public document for him
to be able to register the land under his name. But this does not
affect the validity or enforceability of the contract.
3. Those required for the purpose of proving the existence of the
contract, such as those under the Statute of Frauds.
REFORMATION OF INSTRUMENTS
Reformation is that remedy in equity by means of which 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. The reason for reformation is equity.
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Requisites for reformation:
1. Valid contract, meeting of the minds
2. The written instrument does not express the true intention of
parties
3. The failure is due to mistake, fraud, inequitable conduct or
accident
Garcia v. Bisaya; 97 Phil. 609
Plaintiff filed a complaint against the defendant alleging that
defendants executed in favor of plaintiff a deed of sale covering a
parcel of land that was erroneously designated by the parties in
the deed of sale as an unregistered land when in truth and in fact
said land is a portion of a big mass of land registered under
Original Certificate of Title No. 6579. That despite persistent
demand from plaintiff to have the error corrected, defendants have
refused to do so. Appellant's complaint states no cause of action,
for it fails to allege that the instrument to the reformed does not
express the real agreement or intention of the parties. Such
allegation is essential since the object sought in an action for
reformation is to make an instrument conform to the real
agreement or intention of the parties. But the complaint does not
even allege what the real agreement or intention was. Moreover,
courts do not reform instruments merely for the sake of reforming
them, but only to enable some party to asserts right under them as
reformed.
Bentir v. Leande; 330 SCRA 591
P entered into a contract of lease of a parcel of land with D for a
period of 20 years starting from 1968. P is the lessee; D is the
lessor. In 1989, D sold the leased premises to E. P questioned the
sale alleging that it had a right of first refusal. Rebuffed, P filed a
case seeking reformation of the expired contract of lease on the
ground that its lawyer inadvertently omitted to incorporate in the
contract of lease executed in 1968, the verbal agreement between
the parties that P has a right of first refusal over the leased
property.The court held that reformation cannot prosper. Such
action already prescribed. Since the purpose of an action for
declaratory relief is to secure an authoritative statement of the
rights and obligations of the parties for their guidance in the
enforcement or compliance and not to settle issues arising from the
breach thereof, it maybe entertained only before the breach or
violation of the law or contract to which it refers. Here, P brought
the present action for reformation after an alleged breach or
violation of the contract was already committed by D.
REFORMATION VS. ANNULMENT
Reformation Annulment
Presupposes the existence No meeting of the minds or
of a valid contract, ergo, there is vitiated consent
there was meeting of the
minds
Corrects a contract Nullifies a contract
The mistake, fraud, The mistake, fraud,
inequitable conduct or inewquitable conduct or
accident happens during accident happens upon the
the writing of the contract. perfection of the contract
and prevents the meeting of
the minds.
CAUSES FOR REFORMATION
1. When there is mutual mistake by both parties (Art. 1361)
- These must only be Mistake of Fact
- Must be proven by clear and convincing proof
- Causes failure of instruments to express true
intention
2. Mistake by one of the parties
 If he acted fraudulently or inequitably, only the injured
party may ask for reformation. (Art. 1362)
 The other party concealed the mistake, the instrument
may be reformed (Art. 1363)
3. Mistake by third persons (Art. 1364)
- Ignorance, lack of skill, negligence and bad faith on the
part of the person drafting the instrument or the clerk or
of the typist.
 CONTRACTS
4. Mortgage or pledge stated (Art. 1365)
- When the contracting parties agree upon a mortgage or
pledge or real or personal property, yet the instrument
states that the property is sold absolutely or with right of
redemption.
WHEN NO REFORMATION IS ALLOWED (Art. 1366)
1. Simple donations inter vivoswherein no condition is imposed
- This is an act of liberality whereby a person disposes
gratuitously of a thing or right in favor of another.
2. Wills
3. When the real agreement is void
- If the real agreement is void, it has prescribed.
IMPLIED RATIFICATION (Art. 1367)
- Where one party has brought an action to enforce
the instrument, he cannot ask for reformation. This
is based on estoppel, waiver, or ratification.
WHO MAY ASK FOR REFORMATION (Art. 1368)
1. When the mistake is mutual, either of the parties may ask for
reformation.
2. In all other cases, only the injured party.
3. The heirs or successors in interest of the injured party,
PROCEDURE FOR REFORMATION
In case of conflict between the Civil Code and the principle of the
general law on reformation, the former prevails. The latter will
have only suppletory effect.(Art. 1360) It will be promulgated by
the Supreme Court. (Art. 1369)
Atilano v. Atilano; 28 SCRA 232
A case was filed by the heirs of Atilano II against the heirs of
Atilano I to recover a certain lot 535-E from the later allegedly due
to mistake and error of title of the property and the actual
occupancy thereof. Atilano I is the title holder of lot 535-A, while
Atilano II holds lot 535-E, being conveyed to him by his brother
Atilano I. They however occupied each other’s property which
they later found out upon actual survey. From the facts and
circumstances, the object is lot No. 535-A and its designation as lot
No. 535-E in the deed of sale was a simple mistake in the drafting
of the document. The mistake did not vitiate the consent of the
parties, or affect the validity and binding effect of the contract
between them. Such can be remedied by means of reformation.
Sarming v. Dy; 383 SCRA 131
All of the requisites regarding an action for reformation of
instrument provided under Art. 1359 of the Civil Code, are present
in the instant case. Thus: There was a meeting of the minds
between the parties to the contract but the deed did not express
the true intention of the parties due to mistake in the designation
of the lot subject of the deed. There is no dispute as to the intention
of the parties to sell the land to Alejandra Delfi no but there was a
mistake as to the designation of the lot intended to be sold as
stated in the Settlement of Estate and Sale.
INTERPRETATION OF CONTRACTS
Primacy of intention
Verbaintentione non e contradebentinservare – words ought to be
subservient to the intent, not the intent to the word
Art. 1370: If the terms of a contract are clear and leave no doubt
upon the intention of the contracting parties, the literal meaning of
its stipulations shall control
Art. 1372: However general the terms of a contract may be, they
shall not be understood to comprehend things that are distinct and
cases that are different from those upon which the parties intend
to agree
Example: When one sells a house and all of the furniture herein, it
may not include those which are not owned by the vendor
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Borromeo v. CA; 47 SCRA 65
Defendant Villamor instituted a promissory note to Plaintiff
Borromeo promising to pay his indebtedness even after the lapse
of ten years for the amount of 7,220 at the rate of 12% per annum,
agreeing to pay as soon as I have money'. The note further
stipulate that defendant 'hereby relinquish, renounce, or otherwise
waive my rights to the prescriptions established by our Code of
Civil Procedure. After the last war (18 years passed), plaintiff
made various oral demands, but defendants failed to settle his
account. As between two possible interpretations, that which saves
rather than destroys is to be preferred. It is a fundamental
principle in the interpretation of contracts that while ordinarily the
literal sense of the words employed is to be followed, such is not
the case where they "appear to be contrary to the evident intention
of the contracting parties," which “intention shall prevail” (Art.
1370).
Kasilag v. Rodriguez; 69 Phil. 217
The parties entered into a contract of loan to which has an
accompanying accessory contract of mortgage. The executed
accessory contract involved the improvements on a piece land, the
land having been acquired by means of homestead. Petitioner
Kasilag for his part accepted the contract of mortgage. Believing
that there are no violations to the prohibitions in the alienation of
lands, petitioner, acting in good faith took possession of the land,
to wit, he has no knowledge that the enjoyment of the fruits of the
land is an element of the credit transaction of Antichresis. The
accessory contract of mortgage of the improvements of on the land
is valid. The verbal contract of antichresis agreed upon is deemed
null and void. Every person who is unaware of any flaw in his title
or in the manner of its acquisition by which it is invalidated shall
be deemed a possessor of good faith. And in this case, the
petitioner acted in good faith in his enjoyment of the fruits of the
land to which was done through his apparent acquisition thereof.
HOW TO DETERMINE INTENTION
Art. 1371: In order to judge the intention of the contracting parties,
their contemporaneous and subsequent acts shall be principally
considered.
 If parties have themselves placed an interpretation, such
interpretation must be in general be followed
 Courts may consider the existing relations between the
parties and the purpose of the contract, especially when
it is made in good faith between two mutual friends
HOW TO INTERPRET A CONTRACT (Just like Statutory
Construction)
1. When it contains stipulations that admit to several meanings
(Art. 1373)
- import which is the most adequate to render it effectual
Example: when a spouse exchanges “her house” for a specific
diamond ring, and that spouse has two houses (conjugal and
exclusive) the one which she intends to exchange must be the
house which she exclusively owns to render the exchange
valid and effectual
2. When it contains various stipulations, some of which are
doubtful (Art. 1374)
- contract should be interpreted as a whole, attributing to
the doubtful ones that sense which may result from all of
them taken jointly
3. When it contains words that have different significations (Art.
1375)
- Understood in that which is most in keeping with the
nature and object of the contract
4. When it contains ambiguities and omission of
stipulations(Art. 1376)
- The usage or custom of the place shall be borne in mind
and shall fill the omission of stipulations which are
ordinarily established
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5. With respect to the party who caused the obscurity(Art 1377)

- Interpretation shall not favor the party who caused the
obscurity
- Especially in contracts of adhesion in which it is resolved
against the party who prepared the contract and in favor
of the one who merely adhered to it
6. When it is impossible to settle doubts by the rules above (Art.
1378, par.1)
a. In gratuitous contracts, incidental circumstances – least
transmission of rights and interests
b. In onerous contracts – greatest reciprocity of interests
7. When the doubts are cast upon the principal objects so that
the intention cannot be known(Art. 1378 par 2)
- Contract shall be null and void

Art. 1379: Principles of interpretation stated in Rule 123 of the

Rules of Court shall likewise be observed in the construction of
contracts

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