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CONTRACT 3.

Consensuality

 ART. 1305: A contract is a meeting of the minds 4. Mutuality


between 2 persons whereby one binds himself,
5. Relativity
with respect to the other, to give something or
to render some service. ARTICLE 1306. The contracting parties may establish
such stipulations, clauses, terms and conditions as they
Effects of contract:
may deem convenient, provided they are not contrary
1. Obligations arising from the contract have the force
to
of law between the contracting parties
 law,

2. There must be mutuality between the parties based  morals,


on their essential equality
 good customs,
ELEMENTS OF A CONTRACT
 public order, or
1. Essential elements – without which there can be no
contract  public policy.

a. Consent b. Object c. Cause a. Contrary to law

2. Natural elements – exist as part of the contract i. Pactum commissorium – automatic foreclosure
nothwithstanding the agreement of the parties
 Art 2088 The creditor cannot
- the law, as suppletory to the contract, appropriate the things given by way of
creates them. pledge or mortgage, or dispose of them.
Any stipulation to the contrary is null
E.g. warranty against hidden defects or and void.
eviction
ii. Pactum leonina – one party bears the larger share of
3. Accidental elements – agreed upon by the parties the risk
and which cannot exist without being stipulated
 Art 1799 A stipulation including one or
 E.g. mortgage, guaranty, bond more parties from any share in the
profits or losses is void
STAGES OF A CONTRACT
iii. Pactum de non alienado – not to alienate
First: Preparation/Conception/Generation
 Art 2130 A stipulation forbidding the
 period of negotiation and bargaining, ending at
owner from alienating the immovable
the moment of agreement of the parties
mortgaged shall be void
Second: Perfection / Birth
 Art 87, FC inter vivos donation between
 moment when the parties come to agree on the spouses
terms of the contract
 Art 1490 husband and wife generally
Third: Consummation / Performance / Death / cannot sell property to each other,
Termination subject to exceptions

 fulfillment or the performance of the terms  Art 1491 special prohibition as to who
agreed upon in the contract cannot acquire by purchase

CHARACTERISTICS OF A CONTRACT  Art 1782 persons prohibited from giving


each other any donation or advantage,
1. Freedom (to stipulate) cannot enter into universal partnership.
2. Obligatory Force and b. Contrary to morals
Compliance in Good
Faith - A sense of what is right and wrong.
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c. Contrary to good customs CA Agro-Industrial Devt. Corp. vs. CA, G.R. No. 90027,
March 3, 1993
- certain precepts which may be acceptable to
specific communities only  A provision allowing that bank to assume no
liability whatsoever in connection with the
d. Contrary to public order contents of the safe is void as they are contrary
- Consideration of the public good, will or weal to law and public policy.
(welfare), peace and safety of the public ARTICLE 1307. Innominate contracts shall be regulated
e. Contrary to public policy by the stipulations of the parties, by the provisions of
Titles I and II of this Book, by the rules governing the
- In contravention of some established interest most analogous nominate contracts, and by the
of the society customs of the place.

Illustrative Cases: a. NOMINATE – have their own individuality (names)


and are regulated by special provisions of law
Delos Reyes vs. Alojado, 16 Phil 499
b. INNOMINATE – without particular names
 Domestic services are always to be
remunerated  Do ut des – I give that you may give.

 Agreement that domestic service shall be  Do ut facias – I give that you may do.
gratuitous or in consideration of her
indebtedness is void  Facio ut des – I do that you may give.

Molina vs. dela Riva, 6 Phil 12  Facio ut facias – I do that you may do

 an express stipulation allowing the parties to 4. Mutuality


submit themselves to the jurisdiction of a
ARTICLE 1308. The contract must bind both
particular court to the exclusion of the court contracting parties; its validity or compliance cannot be
duly vested with such jurisdiction is void left to the will of one of them.
Ferazzini vs. Gisell, 34 Phil 697  Both parties are bound.
 A provision which states that plaintiff should  A party cannot revoke or renounce a contract
not enter into any enterprise wherever in the
without the consent of the other
Phil. except by special written permission of the
defendant and for a term of 5 years from and  When the fulfillment of the condition depends
after the termination of work for any cause is upon the sole and uncontrolled will of the
VOID debtor, conditional obligation is void

Ireneo Leal vs. IAC, G.R. No. L-65425, Nov. 5, 1987 ARTICLE 1309. The determination of the performance
may be left to a third person, whose decision shall not
 A prohibition to sell to third parties is void, be binding until it has been made known to both
because the same virtually amounts to a contracting parties.
perpetual restriction on the right of ownership,
specifically the owner's right to freely dispose of  Example is sales agent
his properties.
 Decision is binding only after it is made
Evelyn De Luna vs. Sofronio F. Abrigo, G.R. No. 57455, known to both parties
January 18, 1990
ARTICLE 1310. The determination shall not be
 A provision stating that" violation of any of the obligatory if it is evidently inequitable. In such case, the
conditions (herein) shall cause the automatic courts shall decide what is equitable under the
reversion of the donated area to the donor, his circumstances.
heirs, . . . , without the need of executing any
other document for that purpose and without  What is inequitable is a question of fact
obligation on the part of the DONOR“ is valid and the court may be called upon to
decide on such matters.
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Illustrative Cases:  Those increases were null and void, for
if the Monetary Board itself was not
Francisco Lao Lim vs. Court of Appeals, G.R. No. 87047,
authorized to make such changes
October 31, 1990 oftener than once a year, even less so
Disputed Provision: may a bank which is subordinate to the
Board.
“That the term of the lease shall be renewed
every three years retroacting from October 1979 to  no law was ever passed in July to
October 1982; after which the abovenamed rental shall November 1984 increasing the interest
be raised automatically by 20% every three years for as rates on loans or renewals thereof to
long as defendant needed the premises and can meet 32%, 41% and 48% (per annum), and no
and pay the said increases, the defendant to give notice documents were executed and
of his intent to renew sixty (60) days before the delivered by the debtor to effectuate
expiration of the term;" the increases.

Ruling:  PNB relied on its own Board Resolution


No. 681 (Exh. 10), PNB Circular No. 40-
 the disputed stipulation "for as long as the 79-84 (Exh. 13), and PNB Circular No.
defendant needed the premises and can meet 40-129-84 (Exh. 15), but those
and pay said increases" is a purely potestative resolution and circulars are neither laws
condition because it leaves the effectivity and nor resolutions of the Monetary Board
enjoyment of leasehold rights to the sole and
exclusive will of the lessee. Danilo D. Mendoza vs. Court of Appeals, G.R. No.
116710, June 25, 2001
 The use of the word "renew" and the
designation of the period of three (3) years Disputed Provision: It appears that respondent bank
clearly confirm that the contract of lease is increased the interest rates on the two (2) subject
limited to a specific period and that it is not a Promissory Notes Nos. 127/82 and 128/82 without the
continuing lease. prior consent of the petitioner. The petitioner did not
agree to the increase in the stipulated interest rate of
 The contract of lease should be and is hereby 21% per annum on Promissory Note No. 127/82 and
construed as providing for a definite period of 18% per annum on Promissory Note No. 128/82.
three (3) years and that the automatic increase
of the rentals by twenty percent (20%) will take Ruling:
effect only if the parties decide to renew the  Unilateral determination and imposition
lease. of increased interest rates by
 Leases which may have been intended to be respondent bank is violative of the
renewable in perpetuity will nevertheless be principle of mutuality of contracts
construed as importing but one renewal if there ordained in Article 1308 of the Civil
is any uncertainty in that regard. Code.

Philippine National Bank vs. Court of Appeals, G.R. No.  It has been held that no one receiving a
88880, April 30, 1991 proposal to change a contract to which
he is a party is obliged to answer the
Disputed Provision: The Promissory Notes, in turn, proposal, and his silence per se cannot
uniformly authorized the PNB to increase the stipulated be construed as an acceptance
18% interest per annum "within the limits allowed by
law at any time depending on whatever policy it [PNB] Jespajo Realty Corporation vs. CA, G.R. No. 113626,
may adopt in the future; Provided, that, the interest September 27, 2002
rate on this note shall be correspondingly decreased in Disputed Provision: The lease period shall be effective
the event that the applicable maximum interest rate is as of February 1, 1985 and shall continue for an
reduced by law or by the Monetary Board. indefinite period provided the lessee is up-to-date in
Ruling: the payment of his monthly rentals.

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For the duration of this contract, the LESSEE statutory restrictions, valid and binding
agrees to an automatic 20% yearly increase in the on the parties.
monthly rentals.
 The fact that such option is binding only
Ruling: on the lessor and can be exercised only
by the lessee does not render it void for
 The lease contract between petitioner lack of mutuality. After all, the lessor is
and respondents is with a period
free to give or not to give the option to
subject to a resolutory condition the lessee.
 Petitioner cites Puahay Lao vs. Suarez  Their rights and obligations become
where it said that "the Court in the mutually fixed, and the lessee is entitled
earlier case of Singson v. Baldomar, to retain possession of the property for
rejected the theory that a lease could the duration of the new lease, and the
continue for an indefinite term so long lessor may hold him liable for the rent
as the lessee paid the rent, because therefor.
then its continuance and fulfillment
would depend solely on the free and  The lessee cannot thereafter escape
uncontrolled choice of the tenant liability even if he should subsequently
between continuing to pay rentals or decide to abandon the premises.
not, thereby depriving the lessors of all
 The case of Lao Lim v. Court of Appeals
say in the matter
relied upon by the trial court is not
 In those cases, the lessees were actually applicable here.
in arrears with their rental payments.
 In that case, the stipulation in the
 the grant of benefit of the period in disputed compromise agreement was
favor of the lessee was given in to the effect that the lessee would be
exchange for no less than an automatic allowed to stay in the premises "as long
20% yearly increase in monthly rentals. as he needs it and can pay the rents."
This additional condition was not
present in the Puahay and Singson  In the present case, the questioned
cases. provision states that the lease "may be
renewed for a like term at the option
 Moreover, the express provision in the of the lessee." The lessor is bound by
lease agreement of the parties that the option he has conceded to the
violation of any of the terms and lessee. The lessee likewise becomes
conditions of the contract shall be bound only when he exercises his
sufficient ground for termination option and the lessor cannot thereafter
thereof by the lessor, removes the be excused from performing his part of
contract from the application of Article the agreement.
1308.
5. Relativity
Allied Banking Corp. vs. CA, et al., G.R. No. 124290,
January 19, 1998 ARTICLE 1311. Contracts take effect only between the
parties, their assigns and heirs, except in case where
Disputed Provision: The No. 1 provision of the contract the rights and obligations arising from the contract are
of lease specifically states that "the term of this lease not transmissible by their nature, or by stipulation or by
shall be fourteen (14) years commencing from April 1, provision of law. The heir is not liable beyond the value
1978 and may be renewed for a like term at the option of the property he received from the decedent.
of the lessee.

Ruling:
If a contract should contain some stipulation in
 An express agreement which gives the favor of a third person, he may demand its fulfillment
lessee the sole option to renew the provided he communicated his acceptance to the
lease is frequent and subject to obligor before its revocation. A mere incidental benefit
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or interest of a person is not sufficient. The contracting possession of the object of the
parties must have clearly and deliberately conferred a contract are bound thereby
favor upon a third person.
4. Creditors of the contracting parties
General Rule - Contracts take effect only between the
parties, their assigns and heirs  ARTICLE 1313. Creditors are
protected in cases of contracts
○ Strangers cannot generally intended to defraud them.
demand the enforcement of
contracts nor can they demand 5. Where third person induces another to
annulment nor are they bound violate his contracts
by the same  ARTICLE 1314. Any third person
○ Heirs can be bound because of who induces another to violate
his contract shall be liable for
privity of interest provided they
damages to the other
are forced or compulsory heirs
contracting party.
Exceptions
Requisites:
1. Where the rights and obligations arising from the
contract are not transmissible by their nature, or by (1) the existence of a valid contract;
stipulation or by provision of law. (2) knowledge by the third person of the
○ Partnership (ends when existence of the contract; and
partnership dies) (3) interference by the third person in the
○ Indebtedness must be claimed contractual relation without legal justification.
against the estate 3. Consensuality
2. Stipulation in favor of a third person (Stipulation ARTICLE 1315. Contracts are perfected by mere
pour autrui) consent, and from that moment the parties are bound
Requisites: not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which,
a. Stipulation in favor of a third person according to their nature, may be in keeping with good
faith, usage and law.
b. The contracting parties must have clearly and
deliberately conferred a favor upon a third How Contracts are perfected
person
 Consensual contracts – mere
c. Mere incidental benefit or interest of a person consent
is not sufficient
 Real contracts – delivery
d. Stipulation must be part of the contract
 Formal or solemn contracts –
e. Third person communicated his acceptance to execution of special form
the obligor before its revocation (acceptance
ARTICLE 1316. Real contracts, such as deposit, pledge
may be made in a form of demand)
and commodatum, are not perfected until the delivery
f. There must be no relation of agency between of the object of the obligation.
either of the parties and the third person
CONSENT+ SUBJECT MATTER + CAUSE /
3. Possession of the object of contract by CONSIDERATION + DELIVERY
third persons
ARTICLE 1317. No one may contract in the name of
 ARTICLE 1312. In contracts another without being authorized by the latter, or
creating real rights, third unless he has by law a right to represent him.
persons who come into
A contract entered into in the name of another
by one who has no authority or legal representation, or
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who has acted beyond his powers, shall be  parties must be capable and
unenforceable, unless it is ratified, expressly or capacitated
impliedly, by the person on whose behalf it has been
executed, before it is revoked by the other contracting 3. Intelligent and free will
party.  no vitiation of consent
Requisites: A person to contract in the name of another 4. Express or tacit manifestation of will
1. duly authorized  legal formalities must be
2. right to represent in accordance with law complied with

3. subsequent ratification of the contract 5. Conformity of the internal will and its manifestation

 no conflict between declaration


Essential Requisites of Contracts
and intention
ARTICLE 1318. There is no contract unless the
following requisites concur: Requisites for Meeting of Minds:

1. an offer must be certain (DEFINITE, COMPLETE,


(1) Consent of the contracting parties;
INTENTIONAL)
(2) Object certain which is the subject
2. an acceptance must be unqualified and
matter of the contract;
absolute
(3) Cause of the obligation which is
established. Acceptance thru correspondence – 2nd paragraph

Take Note:  Acceptance made by letter or telegram does


not bind the offerror except from the time it
 Real Contracts require DELIVERY came to his knowledge. The contract, in such a
case, is presumed to have been entered into in
 Solemn Contracts require compliance with
the place where the offer was made.
formalities of law (execution of necessary
document)  knowledge may be actual or constructive (letter
of acceptance received by person of age)
Consent

ARTICLE 1319

 Consent is manifested by the meeting of the


offer and the acceptance upon the thing and
the cause which are to constitute the contract.

 The offer must be certain and the acceptance


absolute. A qualified acceptance constitutes a
counter-offer.

 Acceptance made by letter or telegram does


not bind the offerer except from the time it
came to his knowledge. The contract, in such
case, is presumed to have been entered into in
the place where the offer was made.

REQUISITES OF CONSENT FORM OF ACCEPTANCE = ARTICLE 1320. An acceptance


may be express or implied.
1. Plurality of subjects
TIME PLACE & MANNER OF ACCEPTANCE = ARTICLE
 two or more parties
1321. The person making the offer may fix the time,
2. Capacity place, and manner of acceptance, all of which must be
complied with.
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OFFER THROUGH AN AGENT = ARTICLE 1322. An offer  To be valid and enforceable, must, among other
made through an agent is accepted from the time things, indicate the definite price and the
acceptance is communicated to him. agreed time at which the person granting the
option is willing to sell
INEFFECTIVE OFFER = ARTICLE 1323. An offer becomes
ineffective upon the death, civil interdiction, insanity, or Characteristics and Obligations: Option Contracts
insolvency of either party before acceptance is
 Consideration in an option contract may be
conveyed.
anything of value, unlike in a sale where it must
Miguela R. Villanueva vs. Court of Appeals, G.R. No. be the price certain in money or its equivalent,
114870, May 26, 1995 or essentially a “valuable consideration”

Can an insolvent bank enter into a transaction legally?  An option contract is also a consensual contract,
since the meeting of the minds as to the subject
 the insolvency of a bank and the consequent
matter and the price would also give rise to the
appointment of a receiver restrict the bank's
option contract, even when the separate
capacity to act, especially in relation to its consideration for the option itself has not been
property. paid.
 Applying Art. 1323 of the Civil Code, Ong's offer  The subject matter of an option contract is the
to purchase the subject lots became ineffective accepted promise to sell or accepted promise to
because the PVB became insolvent before the buy
bank's acceptance of the offer came to his
knowledge.

 The purported contract of sale between them


did not reach the stage of perfection.”

ARTICLE 1324.

GR: 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  Not covered by the Statute of Frauds

Exc: The option is founded upon a consideration, as  Can be proved by parole evidence
something paid or promised.
 Elements:
Definition and Essence:Option Contract
 Consent or meeting of the minds
 a privilege existing in one person, for which he
had paid a consideration and which gives him  Subject matter: option right to an
the right to buy certain merchandise or certain unaccepted unilateral offer to sell or
specified property, from another person, if he buy
chooses, at anytime within the agreed period at
 A determinate or determinable
a fixed price.
object
 An “unaccepted offer”
 For a price certain, including the
 Not of itself a purchase, but merely secures the matter of payment
privilege to buy
 Prestation: a consideration separate
 It is not a sale of property, but a sale of the right and distinct from the purchase price for
to purchase the option given.

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Meaning of Separate Consideration Vda. De Quirino vs. Palarca (29 SCRA 1, 1969)

 The consideration may be anything or  An option to buy the leased premises at a


undertaking of value stipulated price in a lease contract is not
without a separate consideration for in
Vda. de Quirino v. Palarca (29 SCRA 1) reciprocal contracts, like lease, the obligation or
Facts: A lease contract was entered into with option to promise of each party is the consideration for
buy on the part of the lessee. The lessee is further that of the other.
obligated to sell to the lessor the building and
improvements constructed by the former, if he fails to
exercise his option to buy said premises. Dijamco vs. CA (440 SCRA 190, 2004)

Issue: Is there a perfected ‘Option Contract’? Was there  The condition that the spouses-borrowers will
an option founded upon a consideration, as something pay monthly interest during the one-year option
paid or promised? period granted to them by the bank after the
spouses had failed to exercise their original
Ruling: The consideration for the lessor's obligation to legal right of redemption on the foreclosed
sell the leased premises to the lessee, should he choose property, was considered to be the separate
to exercise his option to purchase the same, is the consideration to hold the resulting option
obligation of the lessee to sell to the lessor the building
contract valid.
and/or improvements constructed and/or made by the
former, if he fails to exercise his option to buy said Soriano vs. Bautista (6 SCRA 946, 1962)
premises.
 An option to buy attached to a real estate
Villamor vs. CA (202 SCRA 607, 1991) mortgage was deemed to be a valid stipulation
and the “mortgagor’s promise to sell is
FACTS: supported by the same consideration as that of
 Buyers previously bought one-half of the parcel the mortgage itself, which is distinct from that
of land from the sellers at an agreed price of which would support the sale, an additional
P70 per sq. m. amount having been agreed upon t make up for
the entire price of P3,900.00 should the option
 Subsequently, a deed of option was executed be exercised.
between the parties over the other half with an
express provision that the only reason why the When Option is Without Separate Consideration
buyers earlier agreed to purchase the first half  Without a consideration separate from the
at that high price was because of the purchase price, an option contract would be
undertaking of the sellers to sell the other half void
later also at the same price.
 Even if void, it would still constitute a valid offer
 Seller-offeror contended that option was void so that if the option is exercised prior to its
for lack of consideration distinct and separate withdrawal, that is equivalent to an offer being
from the purchase price stipulated accepted prior to withdrawal and would give
RULING: rise to a valid and binding sale

 The consideration of the deed of option is the  The burden of proof to show that the option
“why of the contracts, the essential reason contract was supported by a separate
which moves the contracting parties to enter consideration is with the party seeking to show
into the contract” it.

 The impelling reason on the part of the buyer- Period of Exercise of Option
offeree in executing the deed of option was the  When an option contract does not contain a
seller-offeror’s having agreed to buy the original period when it can be exercised, an action for
half of the land at P70 per sq. m. “ which was
specific performance to enforce the option to
greatly higher than the actual reasonable purchase must be filed within ten (10) years
prevailing price” after the accrual of the cause of action
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 An option to purchase attached to a contract of ARTICLE 1328. Contracts entered into during a lucid
lease when not exercised within the original interval are valid. Contracts agreed to in a state of
period is extinguished and cannot be deemed to drunkenness or during a hypnotic spell are voidable.
have been included in the implied renewal of
the lease When offer and/or acceptance is made

 During a lucid interval - VALID

Proper Exercise of Option  In a state of drunkenness - VOIDABLE utter


want of understanding
 A notice of the exercise of the option need not
be coupled with actual payment of the price, so  During a hypnotic spell VOIDABLE utter want of
long as this is delivered to the owner of the understanding
property upon performance of his part of the ARTICLE 1330. A contract where consent is given
agreement through
Effects of Exercise of Option a. mistake,
 When an option is properly exercised, then b. violence,
there is already a sale of contract existing, and
the laws applicable to sales shall then apply c. intimidation,

 The timely, affirmatively and clearly acceptance d. undue influence, or


of the offer, would convert the option contract
e. fraud
into a “bilateral promise to sell and to buy
where both parties were then reciprocally is voidable.
bound to comply with their respective
undertakings”  Mistake and fraud – affect intellect

ADVERTISEMENTS  Violence, intimidation and undue influence –


affect will
ARTICLE 1325. Unless it appears otherwise, business
advertisements of things for sale are not definite offers,  Effect = VOIDABLE contracts
but mere invitations to make an offer.
MISTAKE
 Advertisements are not definite offers if
ARTICLE 1331. In order that mistake may invalidate
important details are missing
consent, it should refer to the substance of the thing
ARTICLE 1326. Advertisements for bidders are simply which is the object of the contract, or to those
invitations to make proposals, and the advertiser is not conditions which have principally moved one or both
bound to accept the highest or lowest bidder, unless the parties to enter into the contract.
contrary appears.
Mistake as to the identity or qualifications of one of the
 Not applicable to judicial sale wherein parties will vitiate consent only when such identity or
the highest bid must necessarily be qualifications have been the principal cause of the
accepted contract.

Required Legal Capacities of the Parties A simple mistake of account shall give rise to its
correction.
ARTICLE 1327. The following cannot give consent to a
contract: Requisites: Mistake

(1) Unemancipated minors; 1. The error must be substantial

(2) Insane or demented persons, and deaf- - object, conditions, quantity, quality, identity
mutes who do not know how to write. or qualifications

 The consent must be INTELLIGENT, FREE, 1. The error must be excusable


SPONTANEOUS and REAL
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- does not apply if erring party is ARTICLE 1333. There is no mistake if the party alleging
negligent or has failed to ascertain the truth despite it knew the doubt, contingency or risk affecting the
opportunity object of the contract.

3. The error must be a mistake of fact and not of law  Party cannot alleged error which refers to a fact
known to him or which he should have known
by ordinary diligent examination of the facts

ARTICLE 1334. Mutual error as to the legal effect of an


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

Requisites:

1. Must be mutual

2. Error must be as to the legal effect of an


agreement - includes rights and obligations of
the parties, not as stipulated in the contract but
as provided by law

3. Real purpose of the parties is frustrated

ARTICLE 1332. When one of the parties is unable to VIOLENCE AND INTIMIDATION
read, or if the contract is in a language not understood
by him, and mistake or fraud is alleged, the person ARTICLE 1335. There is violence when in order to wrest
enforcing the contract must show that the terms consent, serious or irresistible force is employed.
thereof have been fully explained to the former.
There is intimidation when one of the contracting
Presumption – a party to a contract acts with due care parties is compelled by a reasonable and well-grounded
and that he signs with full knowledge of all the contents fear of an imminent and grave evil upon his person or
of the documents property, or upon the person or property of his spouse,
descendants or ascendants, to give his consent.
Exception – when one party is unable to read
To determine the degree of intimidation, the age, sex
Severo Sales vs. Court of Appeals, G.R. No. L-40145, and condition of the person shall be borne in mind.
July 29, 1992 - With regard to the issue of whether or
not there was compliance with the provision of Art. A threat to enforce one's claim through competent
1332 of the Civil Code, before said article may be authority, if the claim is just or legal, does not vitiate
invoked, it must be: consent.

- convincingly established that the disadvantaged Violence


party is unable to read or that the contract
 Physical force or compulsion
involved is written in a language not understood
by him.  External and generally serve to prevent an act
from being done
- It is the party invoking the benefits of Art. 1332
or Sales, who has the burden of proving that he Requisites: Violence
really is unable to read or that English, the
language in which the deed of sale was written,  Employment of serious and irresistible force
is incomprehensible to him.
 Must be the reason why the contract was
- Only after sufficient proof of such facts may the entered into
burden of proving that the terms of the contract
Intimidation (moral coercion)
had been explained to the disadvantaged party
be shifted to the party enforcing the contract  Moral force or compulsion

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 Internal operating upon the will and induces the Requisites: Undue Influence
performance of an act
1. Improper advantage
 Influences the mind to choose between two
evils, between the contract and the imminent 2. Power over the will of another
injury 3. Deprivation of the latter’s will of a reasonable
Requisites: Intimidation freedom of choice

1. That it produces a reasonable and well-  A factor which controlled other party’s volition
grounded fear and induced him to give his consent to the
contract which otherwise he would not have
 the person who employs such entered into.
has the necessary means or
ability to inflict the threatened FRAUD
injury ARTICLE 1338. There is fraud when, through insidious
2. Of an imminent and grave evil words or machinations of one of the contracting
parties, the other is induced to enter into a contract
 threat must be real and serious which, without them, he would not have agreed to.

3. Upon his person or property, or upon the “Insidious words and machinations”
person or property of his spouse, descendants
or ascendants - constitute deceit including

4. Intimidation must be the determining cause of > false promises,


the contract, or must have caused the consent > exaggeration of hopes or benefits,
to be given
> abuse of confidence,
5. That the threatened act be unjust or unlawful
> fictitious names, qualifications or
EFFECT OF authority
VIOLENCE OR INTIMIDATION Kinds of Fraud:
ARTICLE 1336. Violence or intimidation shall annul the 1. Fraud in the celebration of the contract
obligation, although it may have been employed by a
third person who did not take part in the contract.  Dolo causante (ground for annulment)

 Consent is still vitiated even if caused by third  Dolo incidente (ground for claim of
person damages only)

UNDUE INFLUENCE 2. Fraud in the performance of the obligations

ARTICLE 1337. There is undue influence when a person Requisites of Dolo Causante:
takes improper advantage of his power over the will of
1. Fraud must be material and serious
another, depriving the latter of a reasonable freedom
of choice. 2. Fraud must have been employed by only one of
the parties
The following circumstances shall be considered:
3. There is deliberate intent to deceive
1. the confidential, family, spiritual and
other relations between the parties, or 4. Other party must have relied on the untrue
statements and must himself not guilty of
2. the fact that the person alleged to have
negligence in ascertaining the truth
been unduly influenced was suffering from
mental weakness, or ARTICLE 1339. Failure to disclose facts, when there is a
duty to reveal them, as when the parties are bound by
3. was ignorant or in financial distress.
confidential relations, constitutes fraud.

11
GENERAL RULE: Silence or concealment does not  If 3rd person is in collusion with one of the
constitute a fraud parties

EXCEPTIONS:  If 3rd person not in connivance with any of the


parties but leads them both into error (mutual
 There is a special duty to disclose certain facts error)
 According to good faith and usages of ARTICLE 1343. Misrepresentation made in good faith is
commerce the communication should have not fraudulent but may constitute error.
been made
ARTICLE 1344. In order that fraud may make a contract
ARTICLE 1340. The usual exaggerations in trade, when voidable, it should be serious and should not have been
the other party had an opportunity to know the facts, employed by both contracting parties.
are not in themselves fraudulent.
SIMULATED CONTRACTS
 Caveat emptor – buyer must be on his guard
ARTICLE 1345. Simulation of a contract may be
 “tolerated fraud” or lawful misrepresentation absolute or relative. The former takes place when the
(dolus bonus) parties do not intend to be bound at all; the latter,
ARTICLE 1341. A mere expression of an opinion does when the parties conceal their true agreement.
not signify fraud, unless made by an expert and the  Simulation of Contracts – declaration of a
other party has relied on the former's special fictitious will, deliberately made by agreement
knowledge. of the parties in order to produce, for the
 Must be made by an expert of the other party purposes of deception the appearance of a
and not your own expert juridical act which does not exist or is different
from that which was really executed.
The standard of proof required is clear and convincing
evidence. This standard of proof is derived from Requisites:
American common law. It is less than proof beyond 1. Outward declaration of will different from the
reasonable doubt (for criminal cases) but greater than
will of the parties
preponderance of evidence (for civil cases). The degree
of believability is higher than that of an ordinary civil 2. False appearance must have been intended by
case. Civil cases only require a preponderance of mutual agreement
evidence to meet the required burden of proof.
However, when fraud is alleged in an ordinary civil case 3. Purpose is to deceive third persons
involving contractual relations, an entirely different EFFECTS OF SIMULATED CONTRACTS
standard of proof needs to be satisfied. The imputation
of fraud in a civil case requires the presentation of ARTICLE 1346. An absolutely simulated or fictitious
clear and convincing evidence. Mere allegations will not contract is void. A relative simulation, when it does not
suffice to sustain the existence of fraud. The burden of prejudice a third person and is not intended for any
evidence rests on the part of the plaintiff or the party purpose contrary to law, morals, good customs, public
alleging fraud. The quantum of evidence is such that order or public policy binds the parties to their real
fraud must be clearly and convincingly shown. Alejandro agreement.
V. Tankeh v. Development Bank of the Philippines, et al.,
G.R. No. 171428, November 11, 2013.

MISREPRESENTATION

ARTICLE 1342. Misrepresentation by a third person


does not vitiate consent, unless such misrepresentation
has created substantial mistake and the same is mutual.

GENERAL RULE: Fraud by third person does not vitiate


the contract

EXCEPTIONS:
12
Recovery under simulated contract in absolute parties; its validity or compliance cannot be left
simulation to the will of one of them.’ A perusal of the
Promissory Note will readily show that the
1. If does not have illicit purpose – prove simulation to increase or decrease of interest rates hinges
recover what may have been given solely on the discretion of petitioner. It does not
2. If simulated has illegal object – IN PARI DELICTO rules require the conformity of the maker before a
apply new interest rate could be enforced. Any
contract which appears to be heavily weighed in
Edilberto Cruz vs. Bancom Finance Corp., G.R. No. favor of one of the parties so as to lead to an
147788, March 19, 2002 unconscionable result, thus partaking of the
nature of a contract of adhesion, is void. Any
 Clearly, the Deeds of Sale were executed merely
stipulation regarding the validity or compliance
to facilitate the use of the property as collateral
of the contract left solely to the will of one of
to secure a loan from a bank. Being merely a
the parties is likewise invalid. (Philippine
subterfuge, these agreements could not have
National Bank v. Sps. Enrique Manalo &
been the source of any consideration for the
Rosalinda Jacinto, et al., G.R. No. 174433,
supposed sales. Indeed, the execution of the
February 24, 2014)
two documents on the same day sustains the
position of petitioners that the Contracts of Sale  OBJECT OF CONTRACTS
were absolutely simulated, and that they
received no consideration therefore.  ARTICLE 1347.

 A simulated deed of sale has no legal effect,  1. All things which are Not outside the
consequently any transfer certificate of title commerce of men, including future
(TCT) issued in consequence thereof should be things
cancelled. A simulated contract is not a  2. All rights which are not
recognized mode of acquiring ownership. intransmissible
CONTRACT OF ADHESION  3. All services which are not contrary to
 A contract of adhesion is one wherein a party, law, morals, good customs, public order or
usually a corporation, prepares the stipulations public policy
in the contract, while the other party merely  No contract may be entered into upon future
affixes his signature or his "adhesion" thereto. inheritance except in cases expressly authorized
 These types of contracts are as binding as by law.
ordinary contracts. Because in reality, the party ARTICLE 1348. Impossible things or services
who adheres to the contract is free to reject it
cannot be the object of contracts.
entirely.
ARTICLE 1349. The object of every contract
 The Court has declared that a contract where
must be determinate as to its kind. The fact that the
there is no mutuality between the parties quantity is not determinate shall not be an obstacle
partakes of the nature of a contract of to the existence of the contract, provided it is
adhesion, and any obscurity will be construed possible to determine the same, without the need
against the party who prepared the contract, of a new contract between the parties.
the latter being presumed the stronger party to
the agreement, and who caused the obscurity. ARTICLE 1350. In onerous contracts the cause
PNB should then suffer the consequences of its is to be understood to be, for each contracting
failure to specifically indicate the rates of party, the prestation or promise of a thing or service
interest in the credit agreement. We spoke by te other; in remuneratory ones, the service or
clearly on this in Philippine Savings Bank v. benfit which is remunerated; and in contracts of
Castillo, to wit: The unilateral determination pure beneficence, the mere liberality of the
and imposition of the increased rates is violative benefactor.
of the principle of mutuality of contracts under
Article 1308 of the Civil Code, which provides CAUSE OF CONTRACTS
that ‘[t]he contract must bind both contracting
13
 “CAUSE” is the Why of a contract; Ordinarily, a party's motives for entering into the
contract do not affect the contract. However, when
 the immediate and most proximate purpose of
the motive predetermines the cause, the motive
the contract may be regarded as the cause. — In this case, it is
 Essential reason that moves the parties to enter clear, and petitioners do not dispute, that NHA
into a contract would not have entered into the contract were the
lands not suitable for housing. In other words, the
Requisites of Cause quality of the land was an implied condition for the
NHA to enter into the contract. On the part of the
1. Exist 2. True 3. Licit
NHA, therefore, the motive was the cause for its
Distinguished from object being a party to the sale. Were the lands indeed
unsuitable for housing as NHA claimed? (William Uy
 Object is the starting point of agreement vs. Court of Appeals, G.R. No. 120465, September
9, 1999)
 Object may be the same for both of the parties
but Cause is different with respect to each party Form of Contracts

ARTICLE 1351. The particular motives of the ARTICLE 1356. Contracts shall be obligatory, in
parties in entering into a contract are different from whatever form they may have been entered into,
the cause thereof. provided all the essential requisites for their validity
are present.
CAUSE is the objective, intrinsic and juridical reason
for the existence of the contract itself while However, when the law requires that a contract
MOTIVE is the Psychological, individual or personal be in some form in order that it may be valid or
purpose of a party to the contract enforceable, or that a contract be proved in a
certain way, that requirement is absolute and
CAUSE is the essential reason for the contract while
indispensable.
MOTIVE is the Particular reason for a contracting
party, which does not affect the other and which In such cases, the right of the parties stated in
does not impede the existence of a true distinct the following article cannot be exercised.
cause
GENERAL RULE: Contracts shall be obligatory, in
Presumption of the existence and lawfulness of a whatever form they may have been entered into,
cause - ARTICLE 1354. Although the cause is not provided all essential requisites for their validity are
stated in the contract, it is presumed that it exists present.
and is lawful, unless the debtor proves the contrary.
EXCEPTION: When the law requires that a contract
Effects of: be in some form in order that it may be VALID or
ENFORCEABLE
1. Absence or unlawful cause - ARTICLE 1352.
Contracts without cause, or with unlawful 1. Art 748 Donation of movable
cause, produce no effect whatever. The cause is
unlawful if it is contrary to law, morals, good 2. Art 749 Donation of immovable
customs, public order or public policy.
3. Art 1874 Sale of piece of land through an
2. False cause - ARTICLE 1353. The statement of a agent
false cause in contracts shall render them void,
4. Art 2134 Contract of antichresis; amount
if it should not be proved that they were
of principal and of the interest
founded upon another cause which is true and
lawful. 5. Art 1771 Partnership; immovable
property or real rights are
3. Lesion or inadequacy of cause - ARTICLE 1355.
contributed
Except in cases specified by law, lesion or
inadequacy of cause shall not invalidate a 6. Art 1773 Partnership; inventory of
contract, unless there has been fraud, mistake immovable property
or undue influence. contributed

14
7. Art 1956 Interest for using someone essential requisites of a contract entered into, as
else’s money between the parties, but mere conditions of form or
solemnities which the law imposes in order that
8. Art 2140 Chattel mortgage such contract may be valid as against third
ARTICLE 1357. If the law requires a document persons, and to insure that a publicly executed and
or other special form, as in the acts and contracts recorded agreement shall be respected by the
enumerated in the following article, the contracting latter." (PNB vs. Intermediate Appellate Court, G.R.
parties may compel each other to observe that No. 66715, September 18, 1990)
form, once the contract has been perfected. This Reformation of Instruments
right may be exercised simultaneously with the
action upon the contract. ARTICLE 1359. When, there having been a
meeting of the minds of the parties to a contract,
ARTICLE 1358. The following must appear in a their true intention is not expressed in the
public document: instrument purporting to embody the agreement,
(1) Acts and contracts which have for their object by reason of mistake, fraud, inequitable conduct or
the creation, transmission, modification or accident, one of the parties may ask for the
extinguishment of real rights over immovable reformation of the instrument to the end that such
property; sales of real property or of an interest true intention may be expressed.
therein are governed by articles 1403, No. 2, and If mistake, fraud, inequitable conduct, or accident
1405; has prevented a meeting of the minds of the
(2) The cession, repudiation or renunciation of parties, the proper remedy is not reformation of the
hereditary rights or of those of the conjugal instrument but annulment of the contract.
partnership of gains;  Reformation is a remedy in equity
(3) The power to administer property, or any other  True intention of the contracting parties must
power which has for its object an act appearing or
be expressed.
which should appear in a public document, or
should prejudice a third person;  Court do not attempt to make a new contract
for the parties, but only to make the instrument
(4) The cession of actions or rights proceeding from
express their real agreement
an act appearing in a public document.
 Statute of Frauds is no impediment to the
All other contracts where the amount involved
reformation of an instrument
exceeds five hundred pesos must appear in writing,
even a private one. But sales of goods, chattels or  When there is no meeting of the minds,
things in action are governed by articles 1403, No. 2 reformation is unavailable
and 1405.
Requisites:
The requirement of a public document in Article
1358 is not for the validity of the instrument but 1. there must be meeting of the minds
for its efficacy. Although a conveyance of land is 2. the true intention is not expressed in the
not made in a public document, it does not affect instrument
the validity of such conveyance. Article 1358 does
not require the accomplishment of the acts or 3. there must be clear and convincing proof
contracts in a public instrument in order to validate
4. must be brought within the prescriptive period
the act or contract but only to insure its efficacy, so
that after the existence of said contract has been 5. document must not refer to a simple
admitted, the party bound may be compelled to unconditional donation inter vivos or to will or
execute the proper document (Renato Cenido vs. to contract where the real agreement is void.
Amadeo Apacionado, G.R. No. 132474, November
19, 1999 ) INSTANCES WHEN REFORMATION IS ALLOWED

"The legalization by a public writing and the 1. ARTICLE 1361. When a mutual mistake of the
recording of the same in the registry are not parties causes the failure of the instrument to
15
disclose their real agreement, said instrument may (2) Wills;
be reformed.
(3) When the real agreement is void.
 Reformation because of mutual
ARTICLE 1367. When one of the parties has
mistake
brought an action to enforce the instrument, he
2. ARTICLE 1362. If one party was mistaken and cannot subsequently ask for its reformation.
the other acted fraudulently or inequitably in such a
way that the instrument does not show their true WHO MAY ASK FOR REFORMATION?
intention, the former may ask for the reformation ARTICLE 1368. Reformation may be ordered at
of the instrument. the instance of either party or his successors in
 Unilateral mistake interest, if the mistake was mutual; otherwise, upon
petition of the injured party, or his heirs and
 Reformation may be sought by assigns.
party mistaken
The onus probandi is upon the party who insists
3. ARTICLE 1363. When one party was mistaken that the contract should be reformed because of
and the other knew or believed that the instrument the unfairness of its provisions. x x x In this
did not state their real agreement, but concealed connection, it bears stressing that a contract may
that fact from the former, the instrument may be not be reformed simply because a party later finds
reformed. itself at the shorter end of an unwise bargain. It is
only when the agreement is shown to be so grossly
 Unilateral mistake unjust as to be unduly oppressive that the strong
 Only party in good faith may ask arm of equity may intervene to grant relief to the
for reformation aggrieved party (Cecilia Mata vs. Court of Appeals,
G.R. No. 87880, April 7, 1992)
4. ARTICLE 1364. When through the ignorance,
lack of skill, negligence or bad faith on the part of Florencia T. Huibonhoa vs. Court of Appeals, G.R.
the person drafting the instrument or of the clerk or Nos. 95897 & 102604, December 14, 1999
typist, the instrument does not express the true “Huibonhoa honestly admitted that there was an
intention of the parties, the courts may order that oversight in the drafting of the contract by her own
the instrument be reformed. counsel. By such admission, oversight may not be
 Mistake by 3rd persons – due to attributed to all the parties to the contract and
ignorance, lack of skill, therefore, it cannot be considered a valid reason for
negligence, bad faith of drafter, the reformation of the same contract. In fact,
clerk or typist because it was Huibonhoa's counsel himself who
drafted the contract, any obscurity therein should
 Court may order reformation be construed against her.”

5. ARTICLE 1365. If two parties agree upon the


mortgage or pledge of real or personal property,
but the instrument states that the property is sold
absolutely or with a right of repurchase,
reformation of the instrument is proper.

 Intent to have a mortgage or


pledge

WHEN REFORMATION IS NOT ALLOWED ?

ARTICLE 1366. There shall be no reformation in the


following cases:

(1) Simple donations inter vivos wherein no


condition is imposed;

16

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