OBLICON PRELIMS 2017-2018

CAVEAT: Class these notes are designed for supplementary purposes only. After you are done reading an OBLICON book, you may review using
these. Good luck and God Bless to your Departmentals. -MCT

PRELIM DEPARTMENTALS COVERAGE

Introduction to Law
Law, Morals, Customs
Classification & Sources
Who makes laws
How a bill becomes a law
Importance in Society

General Provisions and Concept of Obligations

a. Elements
b. Kinds
c. Sources

Concept of Contracts
1. Elements
2. Kinds and Stages
3. Basic Principles

Elements of a Valid Contract

1. Consent
2. Object
3. Cause or consideration

Forms/Reformation and Interpretation of Contracts

Defective Contracts
1. Rescissible
2. Voidable
3. Unenforceable
4. Void

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OBLIGATIONS

• Obligation means obligatio, tying or binding

• Obligation is a tie or bond recognized by law by virtue of which one is bound in favor of another of
another to render something.
• It consists of the GIVING, DOING and NOT DOING..

 Article 1156. Obligation is a juridical necessity to give, to do or not to do.

• JURIDICAL NECESSITY – means in case of non-compliance, the aggrieved party can go to court to
enforce fulfilment or in default, to ask for damages.

 ESSENTIAL REQUISITES OF OBLIGATION

1. Passive subject – also called debtor/obligor, one who is bound to fulfill an obligation
2. Active subject – also called creditor/obligee, one who is entitled to demand fulfillment
3. Object or Prestation – subject matter of the obligation; consist of the GIVING, DOING and NOT DOING
4. Juridical or Legal tie – also known as Efficient Cause or vinculum; one that connects or ties the parties, it
refers to the SOURCE of the obligation.

 KINDS OF OBLIGATION
• Real Obligations – Subject Matter Is A Thing. This Refers To Obligations To Give.
• Personal Obligations – Subject Matter Is An Act. This Refers To Obligations To Do Or Not To Do.
o 2 Classes
a. Positive Personal Obligations
b. Negative Personal Obligations

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  SOURCES OF OBLIGATIONS (Art. 1157)
• Laws
• Contracts
• Quasi-Contract
• Acts or Omissions punished by law
• Quasi-Delicts

 LAWS
• Laws – Ex. Obligations To Pay Taxes, To Support One’s Family. Also Known “Ex Lege”

 CONTRACT – Ex. Sale, Lease, Pledge, Mortgage, Etc.

• Meeting of minds between two persons whereby one binds himself with respect to the other, to give
something or to render some service.
• Arise by stipulation of the parties
• Also called culpa contractual
• See Art. 1159 – obligations arising from contracts have the force of law between the parties
• Presupposes that contracts are valid and enforceable
• There must be COMLIANCE IN GOOD FAITH.

 QUASI-CONTRACTS
• Quasi-Contracts means “almost a contract”
• Based on the principle of unjust enrichment
• It Is A Juridical Relation Resulting From Lawful, Voluntary And Unilateral Acts.
• No consent as it is supplied by fiction of law

• Kinds Of Quasi-Contracts
1. Negotiorum Gestio – voluntary management of the affairs of another without knowledge or consent.
2. Solutio Indebiti – something is received when there is NO RIGHT to demand it; basically delivery by
mistake or error

 ACTS OR OMISSIONS PUNISHABLE BY LAW

• CRIMES, essentially
• Also called CULPA CRIMINAL
• a source of obligation because in every criminal liability, there arises a CIVIL liability, which comprises:

 CIVIL LIABILITIES IN CRIMES include

• Restitution – return of the object of crime
• Reparation – if return is not possible, then to pay the value of the object of the crime
• Indemnification for consequential damages – payment for the after effect of the crime

 QUASI-DELICT
• Also known as TORT or CULPA AQUILIANA
• Definition: An act or omission by a person (tort feasor) which causes damage to another in his person,
property or rights, giving rise to an obligation to pay for the damage done, there being FAULT or
NEGLIGENCE, but there is NO PRE-EXISTING CONTRACT.
• Requisites:
1. Act/omission
2. Fault or negligence
3. Damage caused
4. Direct relation between act or omission and damage
5. No pre-existing contractual relation between parties

CONTRACTS

• Definition is found in Art. 1305. 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.

 Classification of contracts
1. According to name: nominate/innominate
2. According to perfection: consensual/real/solemn

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3. Cause: onerous/remuneratory/gratuitous
4. Form
5. Persons obliged: unilateral (one party is obliged)/ bilateral (both parties are obliged)
6. Risks: commutative & aleatory
7. Status: executed & executory
8. Dependence to another contract: preparatory/accessory/principal
9. Dependence of part of contract to other parts: divisible & indivisible

 According to name
• Innominate
o Do ut des – i give that you may give
o Do ut facias - i give that you may do
o Facto ut des – I do that you may give
o Facto ut facias – I do that you may do
o Innominate contracts are governed by
 Agreement of the parties
 Civil Code
 Rules analogous to contracts
 Customs of the place
 According to perfection
1. Consensual Contracts (Art. 1315)
• Perfected by mere consent
• Ex. Sale, lease, agency
2. Real Contracts
• Perfected by delivery (actual or constructive delivery) of the thing
• Ex. Deposit, pledge, commodatum
3. Solemn Contract
• Certain formalities are required
• Ex. Donation of a real property must be in a public instrument for it to be valid

 According to risks
1. Commutative - parties give things which are of equal values; like sale or lease
2. Aleatory – parties give things which are not of equal values; like insurance contracts

 According to Cause
• Onerous – burdensome
• Remuneratory or renumerative – as a form of compensating services
• Gratuitous – out a the liberality of the benefactor, pure beneficence

 According to Status
1. Executory – not yet been performed by both parties
2. Executed – already performed

 Dependence to other contracts

1. Preparatory – in preparation to another contract. Ex. Agency, Partneship
2. Accessory – cannot stand on its own. Ex. Pledge, Chattel Mortgage and Real Estate Mortgage
3. Principal – independent of other contracts

 Dependence to other parts of the contract

1. Indivisible – can be performed only as a whole
2. Divisible – piecemeal performance of obligation

 PRINCIPLES IN CONTRACTS
4. Freedom to Contract/Autonomy of Contract
- Based on Art. 1306.
- Rule: Contracting parties may establish ANY stipulations, clauses, terms and conditions AS LONG AS
they are NOT contrary to law, morals, good custom, public order, public policy

5. Mutuality of Contract – based on Art. 1308. Contract must bind both parties, validity or compliance
cannot be left to one of them
• Determination by 3rd person – if it has been made known to parties

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 6. Obligatory Force of the Contract
7. Relativity of Contract
- Based on Art. 1311.
- GR: Contracts take effect between parties, their heirs and assigns
- Exceptions:
1. Intransmissible by nature, stipulation, provision of law
2. When a third person is affected by a contract
 Instances when a third person is affected in a contract
1. Stipulation pour autrui
2. Contracts creating real rights
3. Contracts which have been violated at the inducement of third persons
- Such third person is liable for damages

 Requisites of Stipulation Pour Autrui

1. Stipulation is clear and deliberate
2. Stipulation is only a part of the contract
3. Should not be compensated by any kind of obligation
4. No legal representation

 Stages in the life of a contract:

5. Preparation or negotiation or generacion
6. Perfection or birth
7. Consummation or Termination

 ELEMENTS OF A CONTRACT
Classes of Elements:
1. Essential Elements – elements without which a contract will not be valid.
 Consent
 Object Certain
 Cause of obligation
2. Accidental Elements – contracts which may or may exist.
- Terms of payment, place of payment, currency payable, interest, penalty
3. Natural Elements – elements which are naturally part of the contract even though they are not
stipulated by the parties. They are presumed unless contrary stipulation.
- Examples: Warranty against eviction & Warranty against hidden defects

 CONSENT
• Art. 1319
- Meeting of offer and acceptance
- Concurrence of wills
- Offer – means proposal
- Acceptance – manifestation by offeree of his assent; can be express or implied
- When is offer accepted? From the time acceptance is communicated
 NOTE! Actual knowledge of acceptance is REQUIRED to perfect a contract

 Contracts of Adhesion.
- One party has already a prepared form of a contract, containing the stipulations he desires, and he
simply asks the other party to agree to them if he wants to enter into the contract.
- They are invalid contracts unless accepted by the other party. In which case, contract becomes
valid. Ex. Plane ticket, bus ticket, ready-made contracts of loan.

 When Offer Becomes Ineffetive

1. Offer is ineffective if prior to actual knowledge of the offeree’s acceptance, both or either
party encounter: Death/Civil Interdiction/Insanity/Insolvency
2. Express or implied revocation of the offer by the offeree
3. Qualified or conditional acceptance of the offer, which becomes counter‐offer. (Ex. Sellers
offers a car for 500k but buyer accepts it for 600k.
4. Subject matter becomes illegal or impossible before acceptance is communicated

 OPTION
 Article 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be
withdrawn at any time before acceptance by communicating such withdrawal, except when the option is
founded upon a consideration, as something paid or promised. (n)

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  Option contract – contract entirely different from sale. Privilege given to one who can make use of the
period whether to accept any offer or not.
 Option period – period for deciding
 Option money – consideration of option contract
 Earnest money – part of the purchase price.

 Business Advertisements
 business advertisements of things for sale are not definite offers, but mere invitations to make an offer. (n)
 Advertisements for bidders are simply invitations to make proposals, and the advertiser is not bound to
accept the highest or lowest bidder, unless the contrary appears. (n)

 Who can give consent?

 Legal Capacity – meaning those of legal age
 Sound mind – not suffering any mental conditions that deprives intelligent choices

 Who cannot give consent?

1. Unemancipated minors
Exc.
a. Contracts for necessaries
b. Contracts by guardians or legal representatives & the court having jurisdiction had approved the
same
c. When there is active misrepresentation on the part of the minor (minor is estopped)
d. Contracts of deposit with the Postal Savings Bank provided that the minor is over 7 years of age
e. Upon reaching age of majority – they ratify the same

2. Insane or demented persons, and deaf-mutes who do not know how to write.
 EXC. under lucid interval where party is temporarily sane, there is Valid consent, thus contracts
are valid
3. Those in a State of drunkenness
4. During hypnotic spell
 Others disqualified to give consent (see page 345)

 VICES OF CONSENT
• Make the contract voidable. Voidable contracts are Valid until annulled.
1. Mistake or error
2. Violence or force
3. Intimidation or threat or duress
4. Undue influence
5. Fraud or deceit

 MISTAKE
Note: to be voidable, such mistake principally moved the party to enter into a contract
• Mistake as to substance/object/subject matter
• Mistake as to condition
• Mistake as to identity/qualification of the party
• Mistake as to account - gives rise to correction
• NO MISTAKE if the party alleging it knew the doubt

 FORCE and INTIMIDATION (see Article 1335.)

• FORCE – also known as VIOLENCE – means to wrest consent, SERIOUS or IRRESISTIBLE force is
employed Article 1335.
• INTIMIDATIOON - party is compelled by a reasonable and well-grounded fear of an imminent and grave
evil upon his person or property, or upon the person or property of his spouse, descendants or
ascendants, to give his consent.
• LEGAL THREAT is NOT INTIMIDATION. Legal threat is a threat to enforce one's claim through
competent authority, if the claim is just or legal, does not vitiate consent.
• Violence or intimidation may be done by a third person who did not take part in the contract.

 UNDUE INFLUENCE (ARTICLE 1337.)

• There is undue influence when
o a person takes improper advantage of his power over the will of another, depriving the latter of
a reasonable freedom of choice.

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 o The following circumstances shall be considered:
 confidential,
 family,
 spiritual and
 other relations between the parties, or
 the fact that the person alleged to have been unduly influenced was suffering from
mental weakness, or was ignorant or in financial distress. (n)
 FRAUD
• THERE IS FRAUD when . . (thus contract is voidable)
- ONE PARTY uses of insidious words or machinations of one of the contracting parties, to
induced the other to enter into a contract
- Failure to disclose facts, when there is a duty to reveal them is FRAUD. (Article 1339.)
• NO FRAUD when . . . (contract is valid)
- usual exaggerations in trade, when the other party had an opportunity to know the facts
- If fraud is employed by both parties
- 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

 Causal Fraud vs Incidental Fraud

• Causal fraud – also known as dolo causante, makes the contract voidable. It is the cause which induces
the party to enter into a contract
• Incidental fraud – also known as dolo incidente, does not make the contract voidable but valid; it only
obliges the person employing it to pay damages. It is NOT the cause which induces the party to enter
into a contract

 ABSOLUTE AND RELATIVE SIMULATION

1. Absolute Simulation - The parties do not intend to be bound at all; the latter, when the parties conceal
their true agreement.
- ex. contract of sale from father to son
- absolutely simulated or fictitious contract is void.
2. Relative Simulation – there are 2 contracts
- gr: the real contract binds parties
- exc. if the simulated contract affects third parties, then simulated contract is binding

 REQUISITES OF THINGS AS OBJECT OF CONTRACT

• Within commerce of men
• Not impossible, legally/physically
• Existence or capable of coming into existence
• Determinate/determinable without the need of a new contract
 Future things or services can be objects of contract
 Future inheritance CANNOT be OBJECTS

 CAUSE/CONSIDERATION
• What is cause? - real reason why parties enter into a contract
• Kinds of causes
 Onerous - the prestation or promise of a thing or service by the other
 Remuneratory - the service or benefit remunerated
 Gratuitous - the mere liberality of the donor or benefactor
• Requisites of Cause
 Presumed to Exist at the time of contract
 Lawful
 True/real
• Illegal cause vs False cause
- Illegal cause – refers to any unlawful cause thus contract is void
- False cause could either be erroneous cause or simulated
a. erroneous cause – contract is void
b. Simulated cause – true agreement is valid

 CAUSE VS. MOTIVE

• Motive – purely personal and private reason why parties enter into a contract
• Distinguish cause from motive:
1. Cause is the direct reason while motive is indirect

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 2. Cause is always known while motive is not
3. Illegality of the cause affects validity of contract, illegality of one’s motive does not
render contract void

 What is the effect of the error of cause on contracts?

1. Absence of cause (want of cause; there is total lack or absence of cause) – Confers no right and produces
no legal effect
2. Failure of cause ‐ Does not render the contract void
3. Illegality of cause (the cause is contrary to law, morals, good customs, public order and public policy)–
Contract is null and void
4. Falsity of cause (the cause is stated but the cause is not true)–Contract is void, unless the parties show that
there is another cause which is true and lawful
5. Lesion or inadequacy of cause –Does not invalidate the contract, unless:
a. there is fraud, mistake, or undue influence;
b. when the parties intended a donation or some other contract
6. in cases specified by law (e.g.contracts entered when ward suffers lesion of more than 25% of ¼ of the
value of the object of the contract)

DEFECTIVE CONTRACTS

1. RESCISSIBLE CONTRACTS
2. VOIDABLE CONTRACT
3. UNENFORCEABLE CONTRACTS
4. VOID OR INEXISTENT CONTRACTS

RESCISIBLE CONTRACTS

 What are rescissible contracts?

• The contract is valid until rescinded
• There is an extrinsic defect consisting of economic damage or lesion
• Voidable Contracts may be rescinded

 Name of the remedy used in rescissible contracts: RESCISSION:

• Means restoration of things to their condition prior to the celebration of the said contract
• It is a process, a remedy, a relief to protect one of the parties or a third person from all injury or
damages which the contract may cause.

 Requisites Of Rescission
1. Contract must be validly agreed upon - means all the essential elements of the contract are present.
2. There must be lesion or economic or financial or pecuniary prejudice to someone either a party or not
• Rescission is based upon a case especially provided by law - means rescissible contracts are those only
determined by the law and not by the parties.
3. There must be no other legal remedy provided by law
4. Party asking for rescission must be able to return what he is obliged to restore by reason of the contract
5. Object must not be in the legal possession of a third person who is in good faith
6. Period to file for rescission must not have prescribed

 What are the rescissible contracts under the law? See Article 1381.
1. Those which are entered into by guardians whenever the wards whom they represent suffer lesion by
more than one-fourth of the value of the things which are the object thereof;
• “Lesion” – disparity between PRICE and VALUE
• “Ward” – A person under guardianship by reason of some incapacity

Note: EFFECT OF CONTRACTS ENTERED INTO IN BEHALF OF WARD

• If an act of ownership, court approval is required, otherwise, contract is unenforceable (whether there
is lesion or not
• If merely an act of administration, distinguish:
a. If with court approval – valid regardless of lesion
b. If without court approval – rescissible, if lesion is more than ¼
2. Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding
number;

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  “Absentee” – person who disappears from his domicile (permanent residence) his whereabouts being
unknown, without no agent to administer property.
 Requisite: absentee suffers lesion by more than ¼ the value of the object
3. Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due
them
a. the action to rescind this contract is called “Accion Pauliana”
b. Requisites for ACCION PAULIANA:
i. Existing credit/creditor prior to the contract sought to be rescinded
ii. Alienation must be subsequent to such credit
iii. Party alienating is in bad faith (meaning he knew damages would cause creditors)
iv. Inability of creditor to collect claims due them
1. Debtor need not be judicially declared insolvent

4. Those which refer to things under litigation if they have been entered into by the defendant without the
knowledge and approval of the litigants or of competent judicial authority;
a. This refers to “THINGS UNDER LITIGATION”
b. Competent Judicial Authority refer to COURTS
5. All other contracts specially declared by law to be subject to rescission.
a. Partition – heir can rescind if value of things entitled to receive is less by least ¼ or more
b. Sale of Real Estate – lack of area is not less than 1/10 of the stated
c. Lease contracts - when lessor, lessee do not comply with obligations
6. Payments made in a state of insolvency for obligations which are not yet due (Article 1382.)
7. Payments made when the contract has already prescribed

 Article 1383. The action for rescission is subsidiary; it cannot be instituted except when the party
suffering damage has no other legal means to obtain reparation for the same.
a. Action is subsidiary or of the last resort
b. Policy of the law is to give effect to the contract NOT extinguish it

 EFFET OF RESCISSION: Mutual Restitution

 Rescission creates the obligation to return
1. things (object of the contract)
2. Fruits of the thing
3. Price of the thinh with interest;

 More principles in rescission:

• Rescission can be carried out only when he who demands rescission can return whatever he may be
obliged to restore. (Article 1385.)
• Rescission cannot take place when the object of the contract are
a) legally in the possession of a 3rd person; and
b) such 3rd person acted in good faith.
• “Legal Possession” means registered in proper registry
• “Good faith” – no knowledge of fraud

 What happens if the object of a contract is in legal possession of a 3 rd person?

• If object is in legal possession of a 3 rd person, the remedy of the creditor who has been defrauded is: to
demand damages from the person causing the loss. This person is the debtor who sold the property to 3 rd
persons.

 Presumptions:
• In gratuitous contracts: Ex. Donation.
– They are presumed to have been entered into in fraud of creditors when the donor did not reserve
sufficient property to pay all debts contracted before the donation.
– Presumption is PRIMA FACIE, meaning it can be rebutted by adequate proof
• Sales are also presumed fraudulent and thus can be rescinded when
– made by persons against whom some judgment has been rendered in any instance or
– Made by person against who some writ of attachment has been issued.
TAKE NOTE: The decision or attachment need not refer to the property alienated, and need not have been
obtained by the party seeking the rescission.
• “any instance” - even though not yet final
• alienation or sale has to be after judgment, for presumption of fraud to apply

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 • before judgment – presumption cannot apply
• Writ of Attachment - properties are levied to secure judgment

 Badges of Fraud (these can be rescinded by injured creditors)

1. Consideration is fictitious/inadequate
2. Transfer made by a debtor after suit is began or while suit is pending
3. Sale upon credit by insolvent debtor
4. Transfer of all or nearly all of his property by debtor when embarassed financially
5. Large indebtedness
6. Transfer between father and son
7. Failure of vendee to take exclusive possession of all property

 Buyers in BAD FAITH

• Buyers in bad faith are those who acquire the object of a contract which is entered into in fraud of a
creditor and they knew that damage would result to the creditor
• If the contract is rescinded, these buyers in good faith will be liable for damages whenever the thing they
are bound to return cannot be returned due to any cause
• Due to any cause - means that the object has been lost either through an accident or through his fault.

 Still in buyers of object of the contract entered into in fraud of creditors.

• If there are two or more alienations or sale, the first acquirer shall be liable first, and if he cannot pay, the
second and so on successively, will be liable
• Rules:
d. If transferee is in Good Faith: the good faith or bad faith of the next transferee is NOT IMPORTANT
e. If transferee is in Bad Faith: the next transferee is liable if he is also in Bad faith, that is if the first
transferee cannot pay
f. BAD FAITH: connotes ill will, self-interest

 When to file action for rescission?

• Within 4 years after minors turn 18 for contracts entered into by their guardians
• Within 4 years after domicile of absentees is known

 Who can bring action for rescission?

• Injured party or defrauded creditor(s)
• His Heir/successor in interest

VOIDABLE CONTRACTS

• VOIDABLE CONTRACTS - are contracts are binding, unless they are annulled by a proper action in
court. They are susceptible of ratification, meaning they can be cured.

 What are the different voidable contracts?:

4. Those where one of the parties is incapable of giving consent to a contract;
5. Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.

 When To File Action To Annul A Voidable Contract?

• Within 4 Years From:
1. In cases of intimidation, violence or undue influence, from the time the defect of the consent ceases.-
2. In case of mistake or fraud, from the time of the discovery of the same.
3. In case of contracts entered into by minors or other incapacitated persons, from the time the guardianship
ceases.
 RATIFICATION, principles
• Ratification extinguishes the action to annul a voidable contract (Article 1392. )
• Ratification can be
1. express or
2. implied - another term is tacit.
• TACIT ratification is - party whose consent has been vitiated performs an actwhich necessarily implies an
intention to waive his right.
– Example: A minor uses the money he received from an adult buyer

 RATIFICATION, more principles

• Ratification may be made by a guardian (Article 1394.)

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 • Ratification does not require the conformity of the contracting party who has no right to bring the action
for annulment. (Article 1395.)
• Ratification cleanses the contract from all its defects from the moment it was constituted.
• What happens after annulment of a voidable contract?
• parties shall restore to each other the
1. things (subject matter of the contract)
2. Fruits of a thing (fruits can either be NATURAL, INDUSTRIAL OR CIVIL FRUITS)
- Natural fruits – refer to spontaneous products of the soil. Ex. Young of the animals.
These fruits are anything that grows naturally without human intervention
- Industrial fruits – refer to products born out of human labor. Ex. Crops
- Civil fruits – refers to rental payments
3. Price of the thing with its interest
4. If the object is a service, parties shall restore value as basis for damages.
5. If thing is lost thru fault of the person obliged to return, he is liable for fruits received and value of thing
at the time of loss.

UNENFORCEABLE CONTRACTS
 Unenforceable contracts, concept
• Contracts which cannot be enforced or be sued upon unless ratified
• Cannot be given effect until ratified
• Does not have legal effect until ratified
• Can only be brought by a contracting party and therefore cannot be questioned by a third persons

 What are the contracts which are unenforceable

 Article 1403. The following contracts are unenforceable, unless they are ratified:
1. Contracts entered into in name of another person
a) by one who has no authority or legal representation ex. Bert sold Alona’s car to Camille w/o
authority
b) By one who has acted beyond his power
ex. Bert sold upon credit Alan’s car to Conie in excess of authority to sell in cash only.

2. Contracts which do not comply with the Statute of Frauds

• Statue of Fraud is rule wherein for an agreement to be enforceable, it must be made in writing in a note or
memorandum, and subscribed or signed by the party
• If such is not in writing, it is unenforeacble
• Statute of Frauds, principles...
• Purpose: Prevent Fraud; Memory unreliable
• Properly called Statute of Frauds and Perjuries
• Written: means any form of writing, note/memo/any paper/letter as long as legible
• Application:
– Applies to executory contracts and NOT TO EXECUTED contracts (there should be NO
PERFORMANCE YET)
– If a party does not object to the unenforceability of a contract which is not compliant with the
statute of fraud, the contract, although not in writing will be enforceable.
 Contracts under Statute of Frauds, meaning contracts which must be in writing to be enforceable are:
a. An agreement that by its terms is not to be performed within a year from the making thereof.
b. A special promise to answer for the debt, default, or miscarriage of another;
– This refers to Guaranty and not Surety
– Guaranty – is a promise to secure the debt of another person
c. An agreement made in consideration of marriage, other than a mutual promise to marry;
– Marriage settlements
– Donations propter nuptias
– In consideration : means by virtue of
d. Sale Of Goods Or Things In Action (things in action refer to shares of stock of a company or incorporeal
properties)
• GR: Sale of Goods at a price not less than five hundred pesos (P500.00) or at least P500.00 must be in
writing for it to be enforceable
• EXCEPTION : THEY NEED NOT BE IN WRITING to be enforceable IF
- buyer accepts and receives part of such goods OR
- buyer pays a part of the purchase money;
• Sale is made by auction, entry is made by the auctioneer in his sales book is sufficient memorandum;

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 e. An agreement for the leasing more than one (1) year, or for the sale of real property or of an interest
therein;
– This include
– Lease of REAL PROPERTY
– Lease of INTEREST in real property
– Both for more than 1 year.
– Lease of Personal Properties: enforceable regardless of period
– Sale of REAL PROPERTY (regardless of price)
– Sale of INTEREST in real property
f. A representation as to the credit of a third person.
– Representation induces extension of credit
– Representation needs to be in writing
– Person does not promise to answer debt

 Can contracts under Statute of Fraud, be ratified or cured? Yes by the ff:
a. Failure to object to the presentation of oral evidence to prove the contract
b. Acceptance of benefits, contracts are no longer exceutory.

 Who can question unenforceable contracts?

– Only contracting parties
– third persons or strangers to the conract cannot

VOID OR INEXISTENT CONTRACTS

 Void Contracts, concept.

• No force and effect whatsoever
• Cannot be ratified
• Action or defense is imprescriptible, means there is no time limit for questioning it.
• third persons whose interest are NOT directly affected cannot question them
• It cannot give rise to a valid contract

 Article 1409 – Void Contracts Are The Following:

1. cause, object or purpose is contrary to law, morals, good customs, public order or public policy;
2. absolutely simulated or fictitious contract;
3. cause or object did not exist at the time of the transaction, Except future things;
4. Contracts with object is outside the commerce of men;
5. Contracts with an impossible service;
6. Contracts where intention of the parties relative to the principal object of the contract cannot be
ascertained – meaning there is doubt to the principal object
7. Contracts expressly prohibited or declared void by law.

 Contracts expressly declared by law to be void

1. Future Inheritance
2. Sale bet. Husband and wife
3. Guardians as to things of their minors
4. Agents as to things of principal
5. Executors and administrators as to things belonging to the deceased
6. public officers, judges, lawyers as to things under litigation
7. Donation during marriage EXC. Moderate gifts/family rejoicing
8. Household service w/o compensation
9. Pactum commisorium – the creditor appropriates to himself the things given by way of pledge or
mortgage to fulfill the debt
10. Pactum de non alienando – an agreement prohibiting the owner from alienating the mortgaged
immovable
11. Pactum leonina – a stipulation in a partnership agreement which excludes one or more partners from any
share in the profits or losses

 PARI DELICTO RULE Art.1411 and 1412

• When both parties are guilty, law leaves them where they are
• No action against each other
• No remedy
• Both are prosecuted
• No recovery

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 • Innocent however can

 Can there be recovery where contract entered into for illegal purpose?
• See Article 1414.
• Recovery where contract entered into for illegal purpose
– Requisites:
– Contract is for illegal purpose
– Contract is repudiated before the purpose has been accomplished or before any damage has been
caused to a third person
– Court considers public interest will be subserved by allowing recovery

REFORMATION

 What is reformation of instruments?

It is a remedy to conform to the real intention of the parties due to mistake, fraud, inequitable conduct,
accident. (Art. 1359)
 What are the requisites in reformation of instruments?
1. Meeting of the minds to the contract
2. True intention is not expressed in the instrument
3. By reason of MARFI:
a. Mistake,
b. Accident,
c. Relative simulation,
d. Fraud, or
e. Inequitable conduct
4. Clear and convincing proof of MARFI

Note: When there is no meeting of the minds, the proper remedy is annulment and not reformation.

 In what cases is reformation of instruments not allowed?

1.Simple, unconditional donations inter vivos (meaning there are no conditions imposed)
2.Wills
3.When the agreement is void
4.When an action to enforce the instrument is filed (estoppel)

 What is the prescriptive period in reformation of instruments?

o 10 years from the date of the execution of the instrument.
 Who may ask for the reformation of an instrument?
o It may be ordered at the instance of:
o if the mistake is mutual – either party or his successors in interest; otherwise;
o upon petition of the injured party; or
o his heirs and assigns.
Note: When one of the parties has brought an action to enforce the instrument, no subsequent
reformation can be asked (estoppel).

FORM

 What are rules on the form of contracts?

o Contracts shall be obligatory, in whatever form they may have been entered into, provided all
essential requisites for their validity are present.
o Contracts must be in a certain form – when the law requires that a contract be in some form to be:
a. valid;
b. enforceable; or
c. for the convenience of the parties.
o The parties may compel each other to reduce the verbal agreement into writing.

 Note: GR: Form is not required in consensual contracts. EXCEPTION is When the law requires a
contract be in certain for its:
o validity (formal contracts); or
o enforceability (under Statute of Frauds).

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 • What are the acts which must appear in a public document? Public Documents means the contract
has been notarized by a notary public.

1. Donation of real properties (Art. 719);

2. Partnership where immoveable property or real rights are contributed to the common fund (Arts. 1171 &
1773);
3. 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 is governed by Arts.
1403, No. 2, and 1405 [Art. 1358 (1)];
4. The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of
gains [Art. 1358 (2)]
5. 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 [Art. 1358 (3)];
6. The cession of actions or rights proceeding from an act appearing in a public document [Art. 1358 (4)].

• What are formal contracts?

Contracts which require a special form for perfection.

• What are the formalities required in the following contracts?

1. Donations:
a. personal property‐ if value exceeds 5000, the donation and acceptance must both be written.
b. b. real property:
• donation must be in a public instrument, specifying therein the property donated and value of charges
which donee must satisfy.
• acceptance must be written, either in the same deed of donation or in a separate instrument.
• If acceptance is in a separate instrument, the donor shall be notified therof in authentic form, and this step
must be noted in both instruments.
• The acceptance in a separate document must be a public instrument.
2. Partnership where real property contributed:
i. there must be a public instrument regarding the partnership.
ii. the inventory of the realty must be made, signed by the parties and attached to the public instrument.
3. Antichresis‐ the amount of the principal and interest must be in writing.
4. Agency to sell real property or an interest therein‐ authority of the agent must be in writing.
5. Stipulation to charge interest ‐ interest must be stipulated in writing. (By the way, legal rate of the Philippines Is
6% starting July 1, 2013.)
6. Stipulation limiting common carrier's duty of extraordinary diligence to ordinary diligence:
1. must be in writing, signed by shipper or owner
2. .supported by valuable consideration other than the service rendered by the comon carrier
3. .reasonable, just and not contrary to public policy.
7. Chattel mortgage‐ personal property must be recorded in the Chattel Mortgage Register

INTERPRETATION OF CONTRACTS
• A clearly written contract does not need interpretation. Hence, if the terms are clear and does not leave
any doubt as to the intention of the contract parties, the literal meaning of the stipulations prevails and
controls.

• If there is a conflict with the words and the evident intention of the parties, it is the latter that will prevail.
The intention of the parties is principally determined and considered based on their contemporaneous and
subsequent acts. That is to say, the actions of the parties at the time of preparing the contract and their
subsequent acts will determine their true intentions.

• Art. 1378. When it is absolutely impossible to settle doubts by the rules established in the preceding
articles, and the doubts refer to incidental circumstances of a gratuitous contract, the least transmission
of rights and interests shall prevail. If the contract is onerous, the doubt shall be settled in favor of the
greatest reciprocity of interests. (See Example of Author Hector de Leon.

End.

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