009 - F.forms of Contracts - I.voidable Contracts

II.
Contracts
F. Forms of Contracts Arts. 1356-1358
Article 1356. Contracts shall be obligatory, in
whatever form they may have been entered into,
provided all the essential requisites for their validity
are present. However, when the law requires that a
contract be in some form in order that it may be
valid or enforceable, or that a contract be proved in
a certain way, that requirement is absolute and
indispensable. In such cases, the right of the parties
stated in the following article cannot be exercised.
(1278a)
Article 1357. If the law requires a document or
other special form, as in the acts and contracts
enumerated in the following article, the contracting
parties may compel each other to observe that form,
once the contract has been perfected. This right
may be exercised simultaneously with the action
upon the contract.
Article 1358. The following must appear in a public
document:
1) Acts and contracts which have for their
object,
the
creation,
transmission,
modification or extinguishment of real rights
over immovable property; sales of real
property or of an interest therein 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 (1280a)
1.
2.
any form oral

special form
a.
Validity Arts. 748, 749, 1744, 1773, 1874,

1956, 2134, Act 1147, Sec 22
If the value of the personal property donated

exceeds Five thousand pesos, the donation and the
acceptance shall be made in writing. Otherwise, the
donation shall be void. (632a)
Article 749. In order that the donation of an

immovable may be valid, it must be made in a public
document, specifying therein the property donated
and the value of the charges which the donee must
satisfy.
The acceptance may be made in the same deed of

donation or in a separate public document, but it
shall not take effect unless it is done during the
lifetime of the donor.
If the acceptance is made in a separate instrument,

the donor shall be notified thereof in an authentic
form, and this step shall be noted in both
instruments.
Article 1744. A stipulation between the common

carrier and the shipper or owner limiting the liability
of the former for the loss, destruction, or
deterioration of the goods to a degree less than
extraordinary diligence shall be valid, provided it be:
1) In writing, signed by the shipper or owner;
2) Supported by a valuable consideration other
than the service rendered by the common
carrier; and
3) Reasonable, just and not contrary to public
policy.
Article 748. The donation of a movable may be

made orally or in writing.
An oral donation requires the simultaneous delivery

of the thing or of the document representing the
right donated.
Article 1773. A contract of partnership is void,

whenever immovable property is contributed
thereto, if an inventory of said property is not made,
signed by the parties, and attached to the public
instrument.
URIBE WEEK X | LAW 130 B AY 2016-2017
of marriage, other than a mutual

promise to marry;
Article 1874. When a sale of a piece of land or any
interest therein is through an agent, the authority of
the latter shall be in writing; otherwise, the sale shall
be void. (n)
(d)
An agreement for the sale of goods,

chattels or things in action, at a price
not less than Five hundred pesos,
unless the buyer accept and receive
part of such goods and chattels, or the
evidences, or some of them, of such
things in action, or pay at the time
some part of the purchase money; but
when a sale is made by auction and
entry is made by the auctioneer in his
sales book, at the time of the sale, of
the amount and kind of property sold,
terms of sale, price, names of the
purchasers and persons on whose
account of the sale is made, it is a
sufficient memorandum;
(e)
An agreement for the leasing for a

longer period than one year, or for the
sale of real property or of an interest
therein;
(f)
A representation as to the credit of a

third person.
Article 1956. No interest shall be due unless it has

been expressly stipulated in writing. (1755a)
Article 2134. The amount of the principal and of

the interest shall be specified in writing; otherwise,
the contract of antichresis shall be void. (n)
Act 1147
Section 22. No transfer of large cattle shall be valid
unless registered, and a certificate of transfer
secured as herein provided
b.
Enforceability Arts. 1403, 1878
Article
1403. The
following
contracts
unenforceable unless they are ratified:
are
1) Those entered into in the name of another

person by one who has been given no
authority or legal representation, or who has
acted beyond his powers;
2) Those that do not comply with the Statute of
Frauds as set forth in this number. In the
following cases an agreement hereafter
made shall be unenforceable by action,
unless the same, or some note or
memorandum thereof, be in writing, and
subscribed by the party charged, or by his
agent; evidence, therefore, of the agreement
cannot be received without the writing, or a
secondary evidence of its contents;
3) Those where both parties are incapable of

giving consent to a contract.
Article 1878. Special powers

necessary in the following cases:
of
attorney
are
1) To make such payments as are not usually

considered as acts of administration;
2) To effect novations which put an end to
obligations already in existence at the time
the agency was constituted;
(a)
An agreement that by its terms is not

to be performed within a year from the
making thereof;
3) To compromise, to submit questions to

arbitration, to renounce the right to appeal
from a judgment, to waive objections to the
venue of an action or to abandon a
prescription already acquired;
(b)
A special promise to answer for the

debt, default, or miscarriage of
another;
4) To waive any obligation gratuitously;
(c)
An agreement made in consideration
5) To enter into any contract by which the

ownership of an immovable is transmitted or
from an act appearing in a public document.

acquired either gratuitously or for a valuable
consideration;
6) To make gifts, except customary ones for
charity or those made to employees in the
business managed by the agent;
7) To loan or borrow money, unless the latter
act be urgent and indispensable for the
preservation of the things which are under
administration;
8) To lease any real property to another person
for more than one year;
9) To bind the principal to render some service
without compensation;
10) To bind the principal in a contract of
partnership;
11) To obligate the principal as a guarantor or
surety;
12) To create or convey
immovable property;
real
rights
over
13) To accept or repudiate an inheritance;

14) To ratify or recognize obligations contracted
before the agency;
15) Any other act of strict dominion. (n)
c.
Greater Efficiency or Convenience Art.

1358
Article 1358. The following must appear in a public

document:
1) Acts and contracts which have for their
object,
the
creation,
transmission,
modification or extinguishment of real rights
over immovable property; sales of real
property or of an interest therein 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
All other contracts where the amount involved

exceeds Five hundred pesos must appear in writing,
even a private one. But sales of goods, chattels or
things in action are governed by Articles 1403, No. 2
and 1405 (1280a)
Lao Sok v. Sabaysabay, (1985)
Petitioner
Lao Sok
Responde
Lydia Sabaysabay, Amparo Mangulat,
nts
Rosita Salviejo, Nenita Ruinata, Vilma
Capillo and Virginia Sanorjo
summary
Petitioner owned and operated a
department store while the private
respondents were all salesladies of
the department store. The department
store was razed by fire but petitioner
did not report the loss of the job of the
salesladies as required by the Labor
Code.
The petitioner at first told them that
he would transfer them to his other
department stores but he didnt do so.
He then told them that he would give
them their separation pay and other
benefits due them as soon as he
collected the insurance proceeds
arising from his burned store. The
private respondents accepted this
offer of the petitioner. However
petitioner failed do as he had
promised even after he collected the
insurance proceeds.
The Supreme Court ruled in favor of
the respondents and stated that
petitioner is obliged to give their
separation pay and other benefits.
Petitioner made a promise which was
accepted by the employees. There
was, therefore, a meeting of the
minds between two parties whereby
one bound himself with respect to the
other, to give something or to render
some service. By the unconditional
acceptance of the offer that they
would be paid separation pay, a
contract was therefore perfected.
Petitioner contends that the contract
though orally made is unenforceable
since it does not comply with the
Statute of Frauds. This contention has
no merit.
Contracts in whatever form they may
have been entered into are binding on
the parties unless form is essential for
the validity and enforceability of that
particular contract.
The requirement of writing for the

offer made by Lao Sok is only for
convenience and not enforceability. In
fact,
the
petitioner
could
be
compelled to put the offer in writing, a
step no longer necessary now
because of this petition.
facts of the case
Petitioner Lao Sok owned and operated the Shelton
Department Store located at Carriedo Street, Quiapo,
Manila. Private respondents, Lydia Sabaysabay,
Amparo Mangulat, Rosita Salviejo, Nenita Ruinata,
Vilma Capillo and Virginia Sanorjo were all salesladies
of the department store.
On October 12, 1980, petitioner's store was razed
by fire. He did not report the loss of jobs of the
salesladies which resulted from the burning of his
department store to the Regional Office of the Ministry
of Labor.
Petitioner promised the private respondents that
he would transfer them to his other department stores
but he didnt fulfil his promise. The petitioner then told
the respondents that he would give them their
separation pay and other benefits due them as soon as
he collected the insurance proceeds arising from his
burned store. The private respondents accepted this
offer of the petitioner. Petitioner later collected the
proceeds of his insurance but he did not give the
private respondents their separation pay and other
benefits.
On May 14, 1981, the private respondents filed a
complaint with the Ministry of Labor and Employment
charging the petitioner with illegal dismissal and nonpayment of their separation pay, allowance and
incentive leave pay.
LA ruled in favor of the respondents. NLRC affirmed
LA decision. Hence this petition for review GAD on
the part of the NLRC.
Issue
WON Lao Sok is obligated to
respondents' separation pay. - YES
pay
the
private
ratio
Section 10, Rule XIV, Book V of the Labor Code
states that no clearance is required if the shutdown of
establishment is due to serious accidents, fire, flood
or other disaster, calamity or public emergencies,
provided that the employer makes a report thereon to
the Regional Office.
Section 11 (c), Rule XIV, Book V of the Labor Code
states that an employer shall submit a report to the
Regional Office on the following instances of
termination of employment, suspension, layoff or
shutdown which may be effected by the employer
without prior clearance, within 5 days after the

shutdown stated in Section 10.
Compliance with the above rules is only an
administrative matter and the failure to make a report
does not make the dismissal illegal per se.
However, the petitioner's obligation to pay
severance compensation is not based on his failure to
make a report or to ask for a prior clearance. Article
284 of the Labor Code provides for separation pay
whenever there is a reduction of personnel caused by
the closure of an establishment which is not intended
to circumvent the provision of the law.
Rule 1, Section 4 (b) of the Rules and Regulations
Implementing the Labor Code provides:
(b) In case the establishment where the employee
is to be reinstated has closed or ceased operations or
where his former position no longer exists at the time
of reinstatement for reasons not attributable to the
fault of the employer, the employee shall be entitled to
separation pay equivalent at least to one month salary
or to one month salary for every year of service,
whichever is higher, a fraction of at least six months
being considered as one whole year.
That petitioner Lao Sok promised to give his
employees their separation pay, as soon as he receives
the insurance proceeds for his burned building was not
rebutted.
As stated by the Sol. Gen:
... It was in reality not a mere 'promise' as
petitioner terms it but a contract, because all the
essential requisites of a valid contract are present, to
wit: (1) consent was freely given by the parties, (2)
there was a subject matter, which is the payment of
the separation pay of private respondents, and (3) a
cause, which is the loss of job of private respondents
who had been petitioner's salesladies for several years.
... .
Lao Sok made an offer which was duly accepted by
the private respondents. There was, therefore, a
meeting of the minds between two parties whereby
one bound himself with respect to the other, to give
something or to render some service. By the
unconditional acceptance of the offer that they would
be paid separation pay, a contract was therefore
perfected.
Petitioner contends that the contract though orally
made is unenforceable since it does not comply with
the Statute of Frauds. This contention has no merit.
Contracts in whatever form they may have been
entered into are binding on the parties unless form is
essential for the validity and enforceability of that
particular contract.
The requirement of writing for the offer made by
Lao Sok is only for convenience and not enforceability.
In fact, the petitioner could be compelled to put the
offer in writing, a step no longer necessary now

because of this petition.
No. 2262, issued on April 2, 1924 owned and registered

in the name of the late Pedro Villanueva.
Furthermore, it was also established that petitioner

Lao Sok has other department stores where he
promised to absorb the salesladies. He was likewise
remiss in this obligation. There is Merit in the Solicitor
General's submission that, in effect, the fire closed only
a division or unit of Lao Sok's business. His entire
enterprise consisting of the operation of various
department stores did not really close down or cease.
Petitioners were nephews and niece of the late

Pedro Villanueva and first cousin of private respondent
Marta Villanueva vda de Agana. Mrta is the daughter of
Pedro Villanueva.
Both the law and equity dictate that private

respondents must be compensated for the loss of their
jobs considering that they were kept waiting and
hoping that they would be re-employed by the
petitioner, if not paid their severance pay.
WHEREFORE, the decision is hereby AFFIRMED and
judgment is rendered in favor of private respondents,
ordering the petitioner to pay the former their
separation pay equivalent to one month salary for
every year of service proportionate to their individual
lengths of service with the petitioner.
Gallardo v. IAC (1987)
Petitioner
Meliton Gallardo and Teresa Villanueva
s
Responde
Marta Villanueva vda de Agana et. al.
nts
Summary
Petitioners claimed that the land was
sold to them in a private document
(an unnotarized deed of sale written
in Tagalog) that was allegedly signed
by
the
late
Pedro
Villanueva
conveying
and
transferring
the
property in favor of the petitioners.
They had the title reconstituted since
all of the records were destroyed
during
the
second
world
war.
However, the respondents filed an
affidavit of Adverse claim. Thus the
petitioners filed a complaint for
Quieting of Title in the CFI.
CFI and IAC ruled in favor of the
respondents and declared the deed of
sale null and void.
The SC ruled that there was no valid
reconstitution of the TCT since the
unnotarized deed of sale is not
considered as a valid instrument for
effecting the alienation by way of sale
of a parcel of land registered under
the Torrens System.
Facts of the Case
The subject matter of this controversy involves a
parcel of land in Cavinti, Laguna consisting of 81,300
square meters covered by an original Certificate of Title
On August 10, 1937, petitioners claimed that the

land was sold to them in a private document (an
unnotarized deed of sale written in Tagalog) that was
allegedly signed by the late Pedro Villanueva conveying
and transferring the property in favor of the
petitioners.
Subsequently, the Original Certificate of Title was
cancelled on the basis of the private document of sale
and a new certificate of title was issued in the name of
the petitioners covered by Transfer Certificate of Title
No. RT- 6293 (No. 23350) on January 4, 1944
During the Second World War, the records as well
as the Office of the Register of Deeds of Laguna, where
the original of their new transfer certificate of title was
kept, were completely burned. Accordingly, by virtue of
an Affidavit of Reconstitution dated December 2, 1958
and upon presentation of the Owner's Duplicate
Certificate of Title, the title was administratively
reconstituted and the Register of Deeds of Laguna
issued Transfer Certificate of Title No. RT-6293 (No.
23350) in the name of the petitioners.
Respondent Marta Villanueva executed and filed an
Affidavit of Adverse Claim with the Office of the
Register of Deeds of Laguna. When petitioners learned
of this Affidavit of Adverse Claim, attempts were made
to settle the controversy amicably but all of these
failed.
Petitioners filed a complaint for Quieting of Title
and Damages with the CFI. The CFI ruled in favor of
respondents and declared the private document null
and void. IAC affirmed in toto the decision of the CFI.
Issue
WON there was a valid reconstitution of Transfer
Certificate of Title No. RT-6293 (No. 23350) issued in
the names of petitioners NONE.
Ratio
The crux of the matter centers on whether or not
the unnotarized deed of sale purportedly executed on
August 10, 1937 by the owner Pedro Villanueva, in
favor of petitioners, can be considered as a valid
instrument for effecting the alienation by way of sale of
a parcel of land registered under the Torrens System.
Petitioners claim that the sale although not in a
public document, is nevertheless valid and binding
citing this Court's rulings in the cases of Cauto v.
Cortes, Guerrero v. Miguel, and Bucton v. Gabar
wherein this Court ruled that even a verbal contract of
sale of real estate produces legal effects between the
parties. The contention is unmeritorious.
As the respondent court aptly stated in its decision:

True, as argued by appellants, a private conveyance
of registered property is valid as between the parties.
However, the only right the vendee of registered
property in a private document is to compel through
court processes the vendor to execute a deed of
conveyance sufficient in law for purposes of
registration. Plaintiffs-appellants' reliance on Article
1356 of the Civil Code is unfortunate. The general rule
enunciated in said Art. 1356 is that contracts are
obligatory, in whatever form they may have been
entered, provided all the essential requisites for their
validity are present. The next sentence provides the
exception, requiring a contract to be in some form
when the law so requires for validity or enforceability.
Said law is Section 127 of Act 496 which requires,
among other things, that the conveyance be executed
"before the judge of a court of record or clerk of a court
of record or a notary public or a justice of the peace,
who shall certify such acknowledgment substantially in
form next hereinafter stated.
Such law was violated in this case. The action of
the Register of Deeds of Laguna in allowing the
registration of the private deed of sale was
unauthorized and did not lend a bit of validity to the
defective private document of sale.
Furthermore, Section 127 of the Land Registration
Act, Act 496 (now Sec. 112 of P.D. No. 1529) provides:
Sec. 127. Deeds of Conveyance, ... affecting lands,
whether registered under this act or unregistered shall
be sufficient in law when made substantially in
accordance with the following forms, and shall be as
effective to convey, encumber, ... or bind the lands as
though made in accordance with the more prolix forms
heretofore in use: Provided, That every such
instrument shall be signed by the person or persons
executing the same, in the presence of two witnesses,
who shall sign the instrument as witnesses to the
execution thereof, and shall be acknowledged to be his
or their free act and deed by the person or persons
executing the same, before the judge of a court of
record or clerk of a court of record, or a notary public,
or a justice of the peace, who shall certify to such
acknowledgement substantially in the form next
hereinafter stated.
The private document evidencing sale is definitely
not registerable under the Land Registration Act.
Likewise noteworthy is the case of Pornellosa and
Angels v. Land Tenure Administration and Guzman
where the Court ruled:
The deed of sale allegedly executed by Vicente San
Jose in favor of Pornellosa is a mere private document
and does not conclusively establish their right to the
parcel of land. WhiIe it is valid and binding upon the
parties with respect to the sale of the house erected
thereon, yet it is not sufficient to convey title or any
right to the residential lot in litigation. Acts and
contracts which have for their object the creation,
transmission, modification or extinguishment of real
rights over immovable property must appear in a

public document.
Upon consideration of the facts and circumstances
surrounding the execution of the assailed document,
the trial court found that said private document was
null and void.
Note: It was also found that the private document was
signed by somebody else not Pedro Villanueva.
PETITION IS DENIED. IAC Decision is AFFIRMED
Paredes v, Espino (1968)
Appella
Cirilo Paredes
nt
Appelle
Jose Espino
e
summar
Appellant filed an action to compel
y
appellee to execute a deed of sale and to
pay damages. Defendant-Appellee filed a
motion to dismiss upon the ground that
the complaint stated no cause of action,
and that the plaintiff's claim upon which
the
action
was
founded
was
unenforceable under the Statute of
Frauds.
Plaintiff opposed the MTD and
annexed to his opposition a copy of a
letter purportedly signed by defendant, a
telegram
from
defendant
advising
plaintiff of his arrival as well as a
previous letter of defendant referring to
the lot as the one covered by Certificate
of Title No. 62.
The CFI dismissed the complaint on
the ground that there being no written
contract, although the contract is valid in
itself, the same cannot be enforced by
virtue of the Statute of Frauds.
The SC remanded the case to the CFI.
The Statute of Frauds does not
require that the contract itself be in
writing. A written note or memorandum
embodying the essentials of the contract
and signed by the party charged, or his
agent, suffices to make the verbal
agreement enforceable, taking it out of
the operation of the statute.
In the case at bar, the 2 letters
appended in the opposition to the MTD
constitute an adequate memorandum of
the transaction. The letters contain all
the essential terms of the contract, and
they satisfy the requirements of the
Statute of Frauds. It was ruled in Berg vs.
Magdalena Estate, Inc. that a sufficient
memorandum may be contained in two
or more documents.
facts of the case

Appellant Cirilo Parades had filed an action to
compel defendant-appellee Jose L. Espino to execute a
deed of sale and to pay damages. The complaint
alleged that the defendant "had entered into the sale"
to plaintiff of Lot No. 67 of the Puerto Princesa Cadastre
at P4.00 a square meter; that the deal had been
"closed by letter and telegram" but the actual
execution of the deed of sale and payment of the price
were deferred to the arrival of defendant at Puerto
Princesa; that defendant upon arrival had refused to
execute the deed of sale although plaintiff was able
and willing to pay the price, and continued to refuse
despite written demands of plaintiff; that as a result,
plaintiff had lost expected profits from a resale of the
property, and caused plaintiff mental anguish and
suffering, for which reason the complaint prayed for
specific performance and damages.
Defendant-Appellee filed a motion to dismiss upon
the ground that the complaint stated no cause of
action, and that the plaintiff's claim upon which the
action was founded was unenforceable under the
Statute of Frauds.
Plaintiff opposed the MTD and annexed to his
opposition a copy of a letter purportedly signed by
defendant, a telegram from defendant advising plaintiff
of his arrival as well as a previous letter of defendant
referring to the lot as the one covered by Certificate of
Title No. 62.
The CFI dismissed the complaint on the ground
that there being no written contract, although the
contract is valid in itself, the same cannot be enforced
by virtue of the Statute of Frauds.
Statute of Frauds. It was ruled in Berg vs. Magdalena

Estate, Inc. that a sufficient memorandum may be
contained in two or more documents.
Defendant-appellee argues that the authenticity of
the letters has not been established. That is not
necessary for the purpose of showing prima facie that
the contract is enforceable. For as ruled by us in
Shaffer vs. Palma, whether the agreement is in writing
or not, is a question of evidence; and the authenticity
of the writing need not be established until the trial is
held. The plaintiff having alleged that the contract is
backed by letter and telegram, and the same being a
sufficient memorandum, his cause of action is thereby
established, especially since the defendant has not
denied the letters in question. At any rate, if the Court
below entertained any doubts about the existence of
the written memorandum, it should have called for a
preliminary hearing on that point, and not dismissed
the complaint.
WHEREFORE, the appealed order is hereby set
aside, and the case remanded to the Court of origin for
trial and decision. Costs against defendant-appellee
Jose L. Espino.
G. Reformation of Contracts Art. 1359-1369
Article 1359. When, there having been a meeting

of the minds of the parties to a contract, their true
intention is not expressed in the instrument
purporting to embody the agreement, by reason of
mistake, fraud, inequitable conduct or accident, one
of the parties may ask for the reformation of the
instrument to the end that such true intention may
be expressed.
issue
WON the enforcement of the contract pleaded in the
complaint is barred by the Statute of Frauds NO
ratio
The Statute of Frauds, embodied in Article 1403 of
the Civil Code of the Philippines, does not require that
the contract itself be in writing. The plain text of Article
1403, paragraph (2) is clear that a written note or
memorandum, embodying the essentials of the
contract and signed by the party charged, or his agent,
suffices to make the verbal agreement enforceable,
taking it out of the operation of the statute.
In the case at bar, the complaint pleads that the
deal had been closed by letter and telegram" and the
letter referred to was evidently the one copy of which
was appended to plaintiff's opposition to the motion
dismiss. The 2 letters appended in the opposition to
the MTD constitute an adequate memorandum of the
transaction. They are signed by the defendantappellee; refer to the property sold as a lot in Puerto
Princesa, Palawan, covered, by TCT No. 62; give its
area as 1826 square meters and the purchase price of
four (P4.00) pesos per square meter payable in cash.
The letters contain all the essential terms of the
contract, and they satisfy the requirements of the
If mistake, fraud, inequitable conduct, or accident

has prevented a meeting of the minds of the parties,
the proper remedy is not reformation of the
instrument but annulment of the contract.
Article 1360. The principles of the general law on

the reformation of the instruments are hereby
adopted insofar as they are not in conflict with the
provisions of this Code.
Article 1361. When a mutual mistake of the parties

causes the failure of the instrument to disclose their
real agreement, said instrument may be reformed.
Article 1362. If one party was mistaken and the

other acted fraudulently or inequitably in such a way
that the instrument does not show their true
intention, the former may ask for the reformation of
the instrument.
Article 1363. When one party was mistaken and

the other knew or believed that the instrument did
not state their real agreement, but concealed that
the fact from the former, the instrument may be
reformed.
Article 1364. When through the ignorance, the lack

of skill, negligence or bad faith on the part of the
person drafting the instrument or of the clerk of
typist, the instrument or of the clerk or typist, the
instrument does not express the true intention of the
parties, the courts may order that the instrument be
reformed.
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.
Article 1366. There shall be no reformation in the

following cases:
1) Simple donations inter vivos wherein no
condition is imposed;
2) Wills;
3) When the real agreement is void.
Article 1367. When one of the parties has brought

an action to enforce the instrument, he cannot
subsequently ask for its reformation.
instance of either party or his successors in interest,

if the mistake was mutual; otherwise, upon petition
of the injured party, or his heirs and assigns.
Article 1369. The procedure for the reformation of

the instruments shall be governed by the rules of
court to be promulgated by the Supreme Court.
H. Interpretation of Contracts Art. 1370-1379
Article 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.
If the words appear to be contrary to the evident

intention of the parties, the latter shall prevail over
the former. (1281)
Article 1371. In order to judge the intention of the

contracting parties, their contemporaneous and
subsequent acts shall be principally considered.
(1282)
Article 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
intended to agree. (1283)
Article 1373. If some stipulation of any contract

should admit of several meanings, it shall be
understood as bearing that import which is most
adequate to render it effectual. (1284)
Article 1374. The various stipulations of a contract

shall be interpreted together, attributing to the
doubtful ones that sense which may result from all
of them taken jointly. (1285)
Article 1368. Reformation may be ordered at the
Article 1375. Words which may have different

significations shall be understood in that which is
most in keeping with the nature and object of the
contract. (1286)
Article 1376. The usage or custom of the place

shall be borne in mind in the interpretation of the
ambiguities of a contract, and shall fill the omission
of stipulations which are ordinarily established.
(1287)
Article 1377. The interpretation of obscure words

or stipulations in a contract shall not favor the party
who caused the obscurity. (1288)
Article 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.
If the doubts are cast upon the principal object of

the contract in such a way that it cannot be known
what may have been the intention or will of the
parties, the contract shall be null and void. (1289)
Article 1379. The principles of interpretation stated

in Rule 123 of the Rules of Court shall likewise be
observed in the construction of contracts. (n)
Lim v. CA 99
petitioner
s
responde
nts
summary
(1980)
Lim Yhi Luya
Hind Sugar Company
x
facts of the case
Petitioner Lim Yhi Luya is a businessman, resident

of Lingayen, Pangasinan where he operates a
grocery store, hardware store and gasoline station.
Private respondent Hind Sugar Company is
engaged in the manufacturing and marketing of
sugar, its principal office located in Manaoag,
Pangasinan.
Vice President and General Manager of respondent
company is Atty. Emiliano Abalos. His assistant is
Generoso Bongato, while the cashier and
accountant of the company is Teodoro Garcia.
Petitioner and private respondent since 1958 have
had business dealings with each other, the
company selling sugar to the petitioner and the
latter has been supplying the company with
diesoline, gasoline, muriatic acid, sulfuric acid,
other supplies and materials ordered on credit.
The parties agreed to the purchase of 4,085 piculs
of sugar at P35.00 per picul. In compliance with the
contract, four delivery orders were issued to
petitioner by cashier Garcia upon instructions of
manager Abalos covering the total quantity of
sugar sold. Between November
to January,
petitioner withdrew from the company warehouse
in varying quantities a total amount of 3,735 piculs
under substitute delivery orders, leaving a balance
of 350 piculs undelivered
Petitioners claimed he had paid P142,975 to the
company cashier and manager. As proof of his
payment, he referred to the stipulation in the
contract stating: Terms: Cash upon signing of this
contract.
Respondent company denied the claim of
petitioner and said he never paid for the sugar.
Respondent said that the contract doesnt prove
payment but merely created petitioners obligation
to pay
issue
Whether the statement in the contract can be
construed as proof that the petitioner has paid NO
Ratio
Interpretation shall not favor the party who caused

the ambiguity. Thus, the one who prepared the
contract which states: Terms: Cash upon signing
of this contract, cannot deny that the agreement
was not a cash transaction.
See Articles 1370, 1371, 1375 and 1377 for the

cardinal rules in interpreting contracts.
Considering the admitted fact that the contract of

sale was prepared in the office of respondent
company by Generoso Bongato, Assistant to the
Manager of the company, upon instruction of
General Manager Emiliano L. Abalos who is a
lawyer, and We are now confronted with the
varying or conflicting interpretations of the parties
thereto, the respondent company contending that
the stipulation Terms: Cash upon signing of this
contract does not mean that the agreement was a
cash transaction because no money was paid by
the petitioner at the time of the signing thereof
whereas the petitioner insists that it was a cash
transaction inasmuch as he paid cash amounting to

P142,975.00 upon the signing of the contract, the
payment having been made at around 1:30 in the
afternoon of November 13, 1970 to the cashier,
Teodoro Garcia, and Manager Abalos although the
sale was agreed to in the morning of the same day,
November 13, 1970, the conflicting interpretations
have shrouded the stipulation with ambiguity or
vagueness. Then, the cardinal rule should and
must apply, which is that the interpretation shall
not favor the party who caused the ambiguity (Art.
1377, New Civil Code). We rule that in the instant
case, the interpretation to be taken shall not favor
the respondent company since it is the party who
caused the ambiguity in its preparation.
In truth, the stipulation in the contract which reads:
Terms: Cash upon signing of this contract is very
clear and simple in its meaning, leaving no doubt
in Our minds upon the intention of the contracting
parties, hence, the first rule of contract
interpretation that the literal meaning of its
stipulation shall control, is the governing rule at
hand.
Resorting
to
Websters
Third
New
International Dictionary for the definition of the
word upon which literally means, among others,
10a (1): immediately following on; very soon after;
x x b: on the occasion of; at the time of; x x, the
clear import of the stipulation is that payment was
made on the occasion of or at the time of the
signing of the contract and not that payment will
follow the signing. We must adopt the former
meaning because it is such an interpretation that
would most adequately render the contract
effectual, following Article 1373 of the New Civil
Code.
The SC gave more weight to the evidence
presented by the petitioner that it paid the whole
amount upon the signing of the contract and the
contract is an evidence of the payment of
P142,975.
Besides, the respondent cannot show nor produce
any document or record whatsoever that petitioner
did not pay the consideration demanded in cash.
While Manager Abalos claims that the mode of
payment was altered or changed, there is no
showing or proof that the contract, was accordingly
changed or altered. And neither was such
alteration or change noted or recorded in the books
of the respondent company.
Another evidence which show that there was
already payment was the contemporaneous acts of
the parties after the signing of the contract. This
includes the issuance of delivery orders of the
respondent and delivery to the petitioner of the
sugar.
Republic v Castellvi (1974)

Appella
Republic of the Philippines
nt
Appelle
Carmen Vda De Castellvi et. al.
es
FACTS:
In 1947, the republic, through the Armed Forces of the

Philippines (AFP), entered into a lease agreement over
a land in Pampanga with Castellvi on a year-to-year
basis. When Castellvi gave notice to terminate the
lease in 1956, the AFP refused because of the
permanent installations and other facilities worth
almost P500,000.00 that were erected and already
established on the property. She then instituted an
ejectment proceeding against the AFP. In 1959,
however, the republic commenced the expropriation
proceedings for the land in question.
ISSUE:
Whether or not the compensation should be
determined as of 1947 or 1959.
HELD:
The Supreme Court ruled that the taking should not be
reckoned as of 1947, and that just compensation
should not be determined on the basis of the value of
the property that year.
The requisites for taking are:
1.
2.
3.
4.
5.
The expropriator must enter a private property;

The entry must be for more than a momentary
period;
It must be under warrant or color of authorities;
The property must be devoted for public use or
otherwise informally appropriated or injuriously
affected; and
The utilization of the property for public use must
be such a way as to oust the owner and deprive
him of beneficial enjoyment of the property.
Only requisites 1, 3 and 4 are present. It is clear,

therefore, that the taking of Castellvis property for
purposes of eminent domain cannot be considered to
have taken place in 1947 when the republic
commenced to occupy the property as lessee thereof.
Requisite number 2 is not present according to the
Supreme Court, momentary when applied to
possession or occupancy of real property should be
construed to mean a limited period -- not indefinite
or permanent. The aforecited lease contract was for a
period of one year, renewable from year to year. The
entry on the property, under the lease, is temporary,
and considered transitory. The fact that the Republic,
through AFP, constructed some installations of a
permanent nature does not alter the fact that the entry
into the lant was transitory, or intended to last a year,
although renewable from year to year by consent of
the owner of the land. By express provision of the lease
agreement the republic, as lessee, undertook to return
the premises in substantially the same condition as at
the time the property was first occupied by the AFP. It
is claimed that the intention of the lessee was to
occupy the land permanently, as may be inferred from
the construction of permanent improvements. But this
intention cannot prevail over the clear and express
terms of the lease contract.
The 5th requirement is also lacking. In the instant case
the entry of the Republic into the property and its
utilization of the same for public use did not oust
10
Castellvi and deprive her of all beneficial enjoyment of

the property. Cstellvi remained as owner, and was
continuously recognized as owner by the Republic, as
shown by the renewal of the lease contract from year
to year, and by the provision in the lease contract
whereby the Republic undertook to return the property
to Castellvi when the lease was terminated. Neither
was Castellvi deprived of all the beneficial enjoyment
of the property, because the Republic was bound to
pay, and had been paying, Castellvi the agreed
monthly rentals until the time when it filed the
complaint for eminent domain on June 26, 1959.
It is clear, therefore, that the taking of Castellvis
property for purposes of eminent domain cannot be
considered to have taken place in 1947 when the
Republic commenced to occupy the property as lessee
thereof, and that the just compensation to be paid for
the Castellvis property should not be determined on
the basis of the value of the property as of that year.
The lower court did not commit an error when it held
that the taking of the property under expropriation
commenced with the filing of the complaint in this
case.
Under Sec. 4, Rule 67 of the Rules of Court, just
compensation is to be determined as of the date of
the filing of the complaint. The Supreme Court has
ruled that when the taking of the property sought to be
expropriated coincides with the commencement of the
expropriation proceedings, or takes place subsequent
to the filing of the complaint for eminent domain, the
just compensation should be determined as of the date
of the filing of the complaint.
Eastern Shipping v. Margarina-Verkaufs-Union (1979)
petitioner Eastern Shipping Lines, Inc.
s
responde
Margarine-Verkaufs-Union
nts
summary
Petitioner
Eastern
Shipping
was
contracted to transport 500 long tons
of Philippine copra to Hamburg,
Germany. A fire broke out and a
portion of the shipment was water
damaged. The petitioner refused to
grant the claim of US$591.38 of
respondent for the said damage. It
cited the Code of Commerce which
barred claims for averages not
exceeding 5% of the claimant's
interest. The respondent insists that
Rule 3 of said York-Antwerp Rules
applies as basis for its claim for
damages. The Court held the Code of
Commerce is not applicable in this
particular case for the reason that the
bill of lading contains "an agreement
to the contrary" for it is expressly
provided in the last sentence of the
first paragraph that "In case of
average, same shall be adjusted
according to York-Antwerp Rules of
1950." The said law allows the claim of
the Respondent. Also, the bill of lading

is a contract of adhesion. Any
ambiguity therein must be construed
against petitioner as the author.
FACTS:
Respondent, a West German corporation not
engaged in business in the Philippines, was the
consignee of 500 long tons of Philippine copra in
bulk with a total value of US$ 108,750.00 shipped
from Cebu City on board petitioner's (a Philippine
corporation) vessel, the SS "EASTERN PLANET" for
discharge at Hamburg, Germany.
Petitioners bill of lading for the cargo provides:
Except as otherwise stated herein and in - the
Charter Party, this contract shall be governed by
the laws of the Flag of the Ship carrying the goods.
In case of average, same shall be adjusted
according to York-Antwerp Rules of 1950.
A fire broke out aboard the ship and caused water
damage to the copra shipment in the amount of
US$591.38.
Respondent filed a claim for payment from the
petitioner but the latter rejected the claim.
Respondent then filed a case for recovery of the
amount with the CFI Manila
o CFI: Ruled in favor of the respondent.
Ordered the petitioner to pay
Petitioners argument: Article 848 of the Code of
Commerce which would bar claims for averages
not exceeding 5% of the claimant's interest should
be applied rather than the lower court's ruling that
petitioner's bill of lading expressly contained "an
agreement to the contrary," i.e. for the application
of the York-Antwerp Rules which provide for
respondent's fun recovery of the damage loss.
ISSUE:
WON petitioner should pay for the damage [YES]
HELD:
Yes.
-
The cited codal article is not applicable in this

particular case for the reason that the bill of lading
contains "an agreement to the contrary" for it is
expressly provided in the last sentence of the first
paragraph that "In case of average, same shall be
adjusted according to York-Antwerp Rules of 1950."
The insertion of said condition is expressly
authorized by Commonwealth Act No. 65 which has
adopted in toto the U.S. Carriage of Goods by Sea
Act. Now, it has not been shown that said rules
limit the recovery of damage to cases within a
certain percentage or proportion that said damage
may bear to claimant's interest either in the vessel
or cargo as provided in Article 848 of the Code of
Commerce
Rule 3 of said York-Antwerp Rules expressly states
that "Damage done to a ship and cargo, or either
of them, by water or otherwise, including damage
by breaching or scuttling a burning ship, in
11
extinguishing a fire on board the ship, shall be

made good as general average."
There is a clear and irreconcilable inconsistency
between the York-Antwerp Rules expressly adopted
by the parties as their contract under the bill of
lading which sustains respondent's claim and the
codal article cited by petitioner which would bar
the same.
What is here involved is a contract of adhesion as
embodied in the printed bill of lading issued by
petitioner for the shipment to which respondent as
the consignee merely adhered, having no choice in
the matter, and consequently, any ambiguity
therein must be construed against petitioner as the
author.
I. Kinds of Contracts as to Validity

1.
2.
Valid and Binding

Valid but Defective
i.
Rescissible Contracts Arts. 1380-1389,
1191
Article 1380. Contracts validly agreed upon may be

rescinded in the cases established by law. (1290)
Article
1381. The
following
contracts
are
rescissible:
1) Those which are entered into by guardians
whenever the wards whom they represent
suffer suffer lesion by more than one-fourth
of the value of the things which are the
object thereof;
2) Those agreed upon in representation of
absentees, if the latter suffer the lesion
stated in the preceding number;
3) Those undertaken in fraud of creditors when
the latter cannot in any other manner collect
the claims due them;
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;
5) All other contracts specially declared by law
to be subject to rescission. (1291a)
Article 1382. Payments made in a state of
insolvency for obligations to whose fulfillment the
debtor could not be compelled at the time they were
effected, are also rescissible. (1292)
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. (1294)
Article 1384. Rescission shall be only to the extent
necessary to cover the damages caused. (n)
Article 1385. Rescission creates the obligation to
return the things which were the object of the
contract, together with their fruits, and the price
with its interest; consequently, it can be carried out
only when he who demands rescission can return

whatever he may be obliged to restore.
Neither shall rescission take place when the things
which are the object of the contract are legally in the
possession of third persons who did not act in bad
faith.
In this case, indemnity for damages may be
demanded from the person causing the loss. (1295)
Article 1386. Rescission referred to in Nos. 1 and 2
of Article 1381 shall not take place with respect to
contracts approved by the courts. (1296a)
Article 1387. All contracts by virtue of which the
debtor alienates property by gratuitous title 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.
Alienations by onerous title are also presumed
fraudulent when made by persons against whom
some judgment has been issued. The decision or
attachment need not refer to the property alienated,
and need not have been obtained by the party
seeking the rescission.
In addition to these presumptions, the design to
defraud creditors may be proved in any other
manner recognized by the law of evidence. (1297a)
Article 1388. Whoever acquires in bad faith the
things alienated in fraud of creditors, shall indemnify
the latter for damages suffered by them on account
of the alienation, whenever, due to any cause, it
should be impossible for him to return them.
If there are two or more alienations, the first acquirer
shall be liable first, and so on successively. (1298a)
Article 1389. The action to claim rescission must
be commenced within four years.
For persons under guardianship and for absentees,
the period of four years shall not begin until the
termination of the former's incapacity, or until the
domicile of the latter is known. (1299)
Article 1191. The power to rescind obligations is
implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent
upon him.
The injured party may choose between the
fulfillment and the rescission of the obligation, with
the payment of damages in either case. He may also
seek rescission, even after he has chosen fulfillment,
if the latter should become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
12
This is understood to be without prejudice to the

rights of third persons who have acquired the thing,
in accordance with Articles 1385 and 1388 and the
Mortgage Law. (1124)
ii.
Voidable Contracts
1327-1328, 1330
Arts.
1390-1402,
Article 1390. The following contracts are voidable

or annullable, even though there may have been no
damage to the contracting parties:
(1) Those where one of the parties is incapable of
giving consent to a contract;
(2) Those where the consent is vitiated by mistake,
violence, intimidation, undue influence or fraud.
These contracts are binding, unless they are
annulled by a proper action in court. They are
susceptible of ratification. (n)
Article 1391. The action for annulment shall be
brought within four years.
This period shall begin:
In cases of intimidation, violence or undue influence,
from the time the defect of the consent ceases.
In case of mistake or fraud, from the time of the
discovery of the same.
And when the action refers to contracts entered into
by minors or other incapacitated persons, from the
time the guardianship ceases. (1301a)
Article 1392. Ratification extinguishes the action to
annul a voidable contract. (1309a)
Article
1393. Ratification
may
be
effected
expressly or tacitly. It is understood that there is a
tacit ratification if, with knowledge of the reason
which renders the contract voidable and such reason
having ceased, the person who has a right to invoke
it should execute an act which necessarily implies an
intention to waive his right. (1311a)
Article 1394. Ratification may be effected by the
guardian of the incapacitated person. (n)
Article 1395. Ratification does not require the
conformity of the contracting party who has no right
to bring the action for annulment. (1312)
Article 1396. Ratification cleanses the contract
from all its defects from the moment it was
constituted. (1313)
Article 1397. The action for the annulment of
contracts may be instituted by all who are thereby
obliged principally or subsidiarily. However, persons
who are capable cannot allege the incapacity of
those with whom they contracted; nor can those
who exerted intimidation, violence, or undue
influence, or employed fraud, or caused mistake

base their action upon these flaws of the contract.
(1302a)
Article 1398. An obligation having been annulled,
the contracting parties shall restore to each other
the things which have been the subject matter of
the contract, with their fruits, and the price with its
interest, except in cases provided by law.
In obligations to render service, the value thereof
shall be the basis for damages. (1303a)
Article 1399. When the defect of the contract
consists in the incapacity of one of the parties, the
incapacitated person is not obliged to make any
restitution except insofar as he has been benefited
by the thing or price received by him. (1304)
Article 1400. Whenever the person obliged by the
decree of annulment to return the thing can not do
so because it has been lost through his fault, he
shall return the fruits received and the value of the
thing at the time of the loss, with interest from the
same date. (1307a)
Article 1401. The action for annulment of contracts
shall be extinguished when the thing which is the
object thereof is lost through the fraud or fault of the
person who has a right to institute the proceedings.
If the right of action is based upon the incapacity of
any one of the contracting parties, the loss of the
thing shall not be an obstacle to the success of the
action, unless said loss took place through the fraud
or fault of the plaintiff. (1314a)
Article 1402. As long as one of the contracting
parties does not restore what in virtue of the decree
of annulment he is bound to return, the other cannot
be compelled to comply with what is incumbent
upon him. (1308)
Article 1327. The following cannot give consent to
a contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes
who do not know how to write. (1263a)
Article 1328. Contracts entered into during a lucid
interval are valid. Contracts agreed to in a state of
drunkenness or during a hypnotic spell are voidable.
(n)
Article 1330. A contract where consent is given
through mistake, violence, intimidation, undue
influence, or fraud is voidable. (1265a)
iii.
Article
Unenforceable Contracts Arts. 1403-1408,

1317, 1878
1403. The
following
contracts
are
13
unenforceable, unless they are ratified:

(1) Those entered into in the name of another
person by one who has been given no authority or
legal representation, or who has acted beyond his
powers;
(2) Those that do not comply with the Statute of
Frauds as set forth in this number. In the following
cases an agreement hereafter made shall be
unenforceable by action, unless the same, or some
note or memorandum, thereof, be in writing, and
subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be
received without the writing, or a secondary
evidence of its contents:
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;
c.
An agreement made in consideration of

marriage, other than a mutual promise to
marry;
d.
An agreement for the sale of goods, chattels

or things in action, at a price not less than
five hundred pesos, unless the buyer accept
and receive part of such goods and chattels,
or the evidences, or some of them, of such
things in action or pay at the time some part
of the purchase money; but when a sale is
made by auction and entry is made by the
auctioneer in his sales book, at the time of
the sale, of the amount and kind of property
sold, terms of sale, price, names of the
purchasers and person on whose account the
sale is made, it is a sufficient memorandum;
e.
An agreement of the leasing for a longer

period than one year, or for the sale of real
property or of an interest therein;
f.
A representation as to the credit of a third

person.
(3) Those where both parties are incapable of giving

consent to a contract.
Article 1404. Unauthorized contracts are governed

by Article 1317 and the principles of agency in Title
X of this Book.
Article 1405. Contracts infringing the Statute of

Frauds, referred to in No. 2 of Article 1403, are
ratified by the failure to object to the presentation of
oral evidence to prove the same, or by the

acceptance of benefit under them.
Article 1406. When a contract is enforceable under

the Statute of Frauds, and a public document is
necessary for its registration in the Registry of
Deeds, the parties may avail themselves of the right
under Article 1357.
Article 1407. In a contract where both parties are
incapable of giving consent, express or implied
ratification by the parent, or guardian, as the case
may be, of one of the contracting parties shall give
the contract the same effect as if only one of them
were incapacitated.
If ratification is made by the parents or guardians, as
the case may be, of both contracting parties, the
contract shall be validated from the inception.
Article 1408. Unenforceable contracts cannot be
assailed by third persons.
Article 1317. No one may contract in the name of

another without being authorized by the latter, or
unless he has by law a right to represent him.
A contract entered into in the name of
another by one who has no authority or legal
representation, or who has acted beyond his
powers, shall be unenforceable, unless it is
ratified, expressly or impliedly, by the
person on whose behalf it has been
executed, before it is revoked by the other
contracting party. (1259a)
Article 1878. Special powers of attorney are

necessary in the following cases:
(1) To make such payments as are not usually
considered as acts of administration;
(2) To effect novations which put an end to
obligations already in existence at the time the
agency was constituted;
(3) To compromise, to submit questions to
arbitration, to renounce the right to appeal from a
judgment, to waive objections to the venue of an
action or to abandon a prescription already acquired;
(4) To waive any obligation gratuitously;
(5) To enter into any contract by which the
14
ownership of an immovable is transmitted or

acquired either gratuitously or for a valuable
consideration;
(6) To make gifts, except customary ones for charity
or those made to employees in the business
managed by the agent;
(7) To loan or borrow money, unless the latter act be
urgent and indispensable for the preservation of the
things which are under administration;
(8) To lease any real property to another person for
more than one year;
(9) To bind the principal to render some service
without compensation;
(10) To bind the principal in a contract of
partnership;
(11) To obligate the principal as a guarantor or
surety;
(12) To create or convey real rights over immovable
property;
(13) To accept or repudiate an inheritance;
(14) To ratify or recognize obligations contracted
before the agency;
(15) Any other act of strict dominion. (n)
3.
Void or Inexistent Arts. 1409-1422, 1318,

1353, 1378, 1491, 1898
Article 1409. The following contracts are inexistent

and void from the beginning:
(1) Those whose cause, object or purpose is contrary
to law, morals, good customs, public order or public
policy;
(2) Those which are absolutely simulated or
fictitious;
(3) Those whose cause or object did not exist at the
time of the transaction;
(4) Those whose object is outside the commerce of
men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative
to the principal object of the contract cannot be
ascertained;
(7) Those expressly prohibited or declared void by
law.
These contracts cannot be ratified. Neither can the
right to set up the defense of illegality be waived.
Article 1410. The action or defense for the

declaration of the inexistence of a contract does not
prescribe.
Article 1411. When the nullity proceeds from the
illegality of the cause or object of the contract, and
the act constitutes a criminal offense, both parties
being in pari delicto, they shall have no action
against each other, and both shall be prosecuted.
Moreover, the provisions of the Penal Code relative
to the disposal of effects or instruments of a crime
shall be applicable to the things or the price of the
contract.
This rule shall be applicable when only one of the
parties is guilty; but the innocent one may claim
what he has given, and shall not be bound to comply
with his promise. (1305)
Article 1412. If the act in which the unlawful or
forbidden cause consists does not constitute a
criminal offense, the following rules shall be
observed:
(1) When the fault is on the part of both contracting
parties, neither may recover what he has given by
virtue of the contract, or demand the performance of
the other's undertaking;
(2) When only one of the contracting parties is at
fault, he cannot recover what he has given by
reason of the contract, or ask for the fulfillment of
what has been promised him. The other, who is not
at fault, may demand the return of what he has
given without any obligation to comply his promise.
(1306)
Article 1413. Interest paid in excess of the interest
allowed by the usury laws may be recovered by the
debtor, with interest thereon from the date of the
payment.
Article 1414. When money is paid or property
delivered for an illegal purpose, the contract may be
repudiated by one of the parties before the purpose
has been accomplished, or before any damage has
been caused to a third person. In such case, the
courts may, if the public interest will thus be
subserved, allow the party repudiating the contract
to recover the money or property.
Article 1415. Where one of the parties to an illegal
contract is incapable of giving consent, the courts
may, if the interest of justice so demands allow
recovery of money or property delivered by the
incapacitated person.
Article 1416. When the agreement is not illegal per
se but is merely prohibited, and the prohibition by
the law is designated for the protection of the
plaintiff, he may, if public policy is thereby
enhanced, recover what he has paid or delivered.
Article 1417. When the price of any article or
15
commodity is determined by statute, or by authority

of law, any person paying any amount in excess of
the maximum price allowed may recover such
excess.
Article 1418. When the law fixes, or authorizes the
fixing of the maximum number of hours of labor, and
a contract is entered into whereby a laborer
undertakes to work longer than the maximum thus
fixed, he may demand additional compensation for
service rendered beyond the time limit.
Article 1419. When the law sets, or authorizes the
setting of a minimum wage for laborers, and a
contract is agreed upon by which a laborer accepts a
lower wage, he shall be entitled to recover the
deficiency.
Article 1420. In case of a divisible contract, if the
illegal terms can be separated from the legal ones,
the latter may be enforced.
Article 1421. The defense of illegality of contract is
not available to third persons whose interests are
not directly affected.
Article 1422. A contract which is the direct result of
a previous illegal contract, is also void and
inexistent.
persons who may be under his guardianship;

(2) Agents, the property whose administration or
sale may have been entrusted to them, unless the
consent of the principal has been given;
(3) Executors and administrators, the property of the
estate under administration;
(4) Public officers and employees, the property of
the State or of any subdivision thereof, or of any
government-owned or controlled corporation, or
institution, the administration of which has been
intrusted to them; this provision shall apply to
judges and government experts who, in any manner
whatsoever, take part in the sale;
(5) Justices, judges, prosecuting attorneys, clerks of
superior and inferior courts, and other officers and
employees connected with the administration of
justice, the property and rights in litigation or levied
upon an execution before the court within whose
jurisdiction or territory they exercise their respective
functions; this prohibition includes the act of
acquiring by assignment and shall apply to lawyers,
with respect to the property and rights which may
be the object of any litigation in which they may
take part by virtue of their profession.
(6) Any others specially disqualified by law. (1459a)
Article 1318. There is no contract unless the

following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the
contract;
(3) Cause of the obligation which is established.
(1261)
Article 1353. The statement of a false cause in
contracts shall render them void, if it should not be
proved that they were founded upon another cause
which is true and lawful. (1276)
Article 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.
If the doubts are cast upon the principal object of
the contract in such a way that it cannot be known
what may have been the intention or will of the
parties, the contract shall be null and void. (1289)
Article 1491. The following persons cannot acquire
by purchase, even at a public or judicial auction,
either in person or through the mediation of another:
(1) The guardian, the property of the person or
Article 1898. If the agent contracts in the name of

the principal, exceeding the scope of his authority,
and the principal does not ratify the contract, it shall
be void if the party with whom the agent contracted
is aware of the limits of the powers granted by the
principal. In this case, however, the agent is liable if
he undertook to secure the principal's ratification.
(n)
Rescissible Contracts
Cabaliw v. Sadorra (1975)
Petitioner Isidora
Cabaliw
and
s
Sadorra
responde
Sotero Sadorra et. al.
nts
Soledad
facts of the case

Cabaliw was the second wife of Benigno. During their
marriage, they bought 2 parcels of land. They had a
daughter Soledad.
Benigno abandoned his wife
Cabaliw, thus the latter filed an action in court for
support. The Court ordered Benigno to pay her P75 a
month. However, Benigno did not pay and instead sold
their property to his son-in-law Soterro. The transaction
was done without Isidoras consent. Prior to the sale,
Soterro already knew that there was a judgment
rendered against his father-in-law but proceeded to buy
the property anyway. When Cabaliw found out, she
instituted an action along with her daughter to recover
the properties.
16
issue
Is there a presumption of fraud?
were declared fictitious for being in fraud of creditors

by the CFI. A compromise agreement was entered into.
ratio
Yes. Alienations by onerous title are presumed
fraudulent when made by persons against whom some
judgment has been rendered or some writ of
attachment has been issued. Benigno was ordered by
the Court to pay Cabaliw support and he failed to do
so. Instead, he sold his properties to his son-in-law. The
close relationship between Benigno and Soterro is a
badge of fraud. Soterro knew about the judgment
against Benigno but proceeded to purchase the
properties anyway. He cannot be said to be a purchaser
in good faith. The presumption of fraud is not
overcome by the fact that the transactions were all
made in the nature of public instruments between
Soterro and Benigno. The properties sold were conjugal
properties. These cannot be sold without Cabaliws
consent.
Case 3 (CFI Manila)

Having discovered that the sugar plantation
belonged to Pauli, HSBC filed a complaint for revival of
judgment. A writ of preliminary attachment was issued
against Paulis rights. Under the pretext of amicably
settling the case, Pauli postponed hearings to enable
the spouses to intervene. Court decreed the revival of
judgment. No appeal was taken.
HSBC v. Pauli (1988)

appella
HSBC
nt
appelle
Ralph Pauli and Spouses Sally Garganera
e
and Mateo Garganera
summa
HSBCs theory that the 4 year period
ry
commenced to run from the date when it
obtained actual knowledge of the
fraudulent sale of Paulis land to the
Gargarenas (sometime in 1969) and
hence, the 4 year period did not yet
expire when it filed the case on Feb 17,
1971, is NOT acceptable. That theory
would diminish public faith in the
integrity of torrens titles and impair
commercial
transactions
involving
registered lands for it would render
uncertain the computation of the period
for the prescription of such actions.
facts of the case
This case stemmed from 3 other cases:
Case 1 (CFI Manila)
HSBC filed a complaint against Pauli to collect
P258,964.15. Judgment was rendered for HSBC. On
appeal, SC upheld the decision of the lower court. The
writs of execution were returned unsatisfied because
there were no leviable assets of Pauli that could be
located. Unknwon to HSBC, Pauli purchased from the
Philippine National Bank (PNB) a sugar cane plantation
Hacienda Riverside. Pauli did not register the deed of
sale. 6 years later, he fraudulently sold the hacienda to
his daughter and her husband spouses Garganera.
Case 2 (CFI Negros Occidental)
At the instance of Warner Barnes & Co. another
creditor of Pauli, the sale to the Garganera spouses
Current case before the SC

HSBC filed a new complaint in the CFI of
Negros Occidental to annul the Conditional Sale and
Deed of Sale of Hacienda Riverside to the Garganera
spouses and to annul TCT. Pauli and the spouses filed a
Motion to Dismiss on the grounds of res judicata,
prescription, waiver and abandonment of claim. The
lower court granted the Motion to Dismiss.
issue
Whether or not the case should be dismissed on the
ground of prescription. YES
(W/N the action for annulment of sale already
prescribed and when the prescription commenced to
run from the registration of the sale or from discovery)
Ratio
When the transaction involves a parcel of land,
the 4 year period fixed in Art. 1391 within which to
bring an action for annulment of deed shall be
computed from the registration of the conveyance
(March 5, 1963) on the familiar theory that the
registration of the document is constructive notice of
the conveyance to the whole world.
HSBCs theory that the 4 year period
commenced to run from the date when it obtained
actual knowledge of the fraudulent sale of Paulis land
to the Gargarenas (sometime in 1969) and hence, the
4 year period did not yet expire when it filed the case
on Feb 17, 1971, is NOT acceptable. That theory would
diminish public faith in the integrity of torrens titles
and
impair
commercial
transactions
involving
registered lands for it would render uncertain the
computation of the period for the prescription of such
actions.
Voidable Contracts
Felipe v. Heirs of Aldon (1983)
petitioner Eduardo Felipe, Hermogena Felipe and
s
Vincent Felipe
responde
Heirs of Maximo Aldon et. al.
nts
facts of the case
During the marriage of Maximo Aldon and Gemina
Almorasa, they bought several pieces of land. The
17
lands were divided into three lots. Subsequently,

Gemina sold the lots to the spouses Eduardo Felipe and
Hermogena Felipe without the consent of her husband.
Maximo died. Afterwhich, his heirs, namely Gemina and
their children Sofia and Salvador filed a complaint
against the Felipes alleging that they are the owners of
the lots. The Felipes asserted that they had acquired
the lots from the plaintiffs by purchase and subsequent
delivery to them. The trial court sustained the claim of
the defendants. The CA reversed the decision of the
trial court.
issue
WON the sale of the lots by Gemina without the
consent of the husband is defective. YES
ratio
The sale made by Gemina is certainly a defective
conract, that is, a voidable contract.
According to Art. 1390 of the Civil Code, among the
voidable contracts are "[T]hose where one of the
parties is incapable of giving consent to the contract."
(Par. 1.) In the instant case-Gimena had no capacity to
give consent to the contract of sale. The capacity to
give consent belonged not even to the husband alone
but to both spouses.
The view that the contract made by Gimena is a
voidable contract is supported by the legal provision
that contracts entered by the husband without the
consent of the wife when such consent is required, are
annullable at her instance during the marriage and
within ten years from the transaction questioned. (Art.
173, Civil Code.)
Gimena's contract is not rescissible for in such contract
all the essential elements are untainted but Gimena's
consent was tainted. Neither can the contract be
classified as unenforceable because it does not fit any
of those described in Art. 1403 of the Civil Code. And
finally, the contract cannot be void or inexistent
because it is not one of those mentioned in Art. 1409 of
the Civil Code. By process of elimination, it must
perforce be a voidable contract.
The voidable contract of Gimena was subject to
annulment by her husband only during the marriage
because he was the victim who had an interest in the
contract. Gimena, who was the party responsible for
the defect, could not ask for its annulment. Their
children could not likewise seek the annulment of the
contract while the marriage subsisted because they
merely had an inchoate right to the lands sold.
The termination of the marriage and the dissolution of
the conjugal partnership by the death of Maximo Aldon
did not improve the situation of Gimena. What she
could not do during the marriage, she could not do
thereafter.
The case of Sofia and Salvador Aldon is different. After
the death of Maximo they acquired the right to
question the defective contract insofar as it deprived
them of their hereditary rights in their father's share in
the lands. The father's share is one-half (1/2) of the

lands and their share is two-thirds (2/3) thereof, onethird (1/3) pertaining to the widow.
The petitioners have been in possession of the lands
since 1951. It was only in 1976 when the respondents
filed action to recover the lands. In the meantime,
Maximo Aldon died.
Two questions come to mind, namely: (1) Have the
petitioners acquired the lands by acquisitive
prescription? (2) Is the right of action of Sofia and
Salvador Aldon barred by the statute of limitations?
Anent the first question, We quote with approval the
following statement of the Court of Appeals:
We would like to state further that appellees
[petitioners herein] could not have acquired
ownership of the lots by prescription in view of
what we regard as their bad faith. This bad
faith is revealed by testimony to the effect that
defendant-appellee Vicente V. Felipe (son of
appellees Eduardo Felipe and Hermogena V.
Felipe) attempted in December 1970 to have
Gimena Almosara sign a ready-made document
purporting to self the disputed lots to the
appellees. This actuation clearly indicated that
the appellees knew the lots did not still belong
to them, otherwise, why were they interested
in a document of sale in their favor? Again why
did Vicente V. Felipe tell Gimena that the
purpose of the document was to obtain
Gimena's consent to the construction of an
irrigation pump on the lots in question? The
only possible reason for purporting to obtain
such consent is that the appellees knew the
lots were not theirs. Why was there an
attempted improvement (the irrigation tank)
only in 1970? Why was the declaration of
property made only in 1974? Why were no
attempts made to obtain the husband's
signature, despite the fact that Gimena and
Hermogena were close relatives? An these
indicate the bad faith of the appellees. Now
then, even if we were to consider appellees'
possession in bad faith as a possession in the
concept of owners, this possession at the
earliest started in 1951, hence the period for
extraordinary prescription (30 years) had not
yet lapsed when the present action was
instituted on April 26, 1976.
As to the second question, the children's cause of
action accrued from the death of their father in 1959
and they had thirty (30) years to institute it (Art. 1141,
Civil Code.) They filed action in 1976 which is well
within the period.
WHEREFORE, the decision of the Court of Appeals is
hereby modified. Judgment is entered awarding to
Sofia and Salvador Aldon their shares of the lands as
stated in the body of this decision; and the petitioners
as possessors in bad faith shall make an accounting of
the fruits corresponding to the share aforementioned
18
from 1959 and solidarity pay their value to Sofia and

Salvador Aldon; costs against the petitioners.
House International v IAC 151 SCRA 703
plaintiffGutierrez Hermanos
appellee
defendan
Engracio Orense
tappellant
summary
Orense owned a house and lot in
Albay, which his nephew, Duran, sold
to
herein
plaintiff,
Gutierrez
Hermanos, under right of redemption.
After the lapse of the 4-year
redemption
period,
Orense
now
refuses to deliver the property,
alleging that he had not executed any
power of attorney or authorization of
any kind to Duran in order that the
latter may sell the property. Based on
the
evidence,
however,
particularly Orenses testimony in
the estafa case filed by GH where
Duran was acquitted, Orense had
indeed consented to the sale.
Such
statement
under
oath
confirms and ratifies the sale, and
has the effect of an express
agency. He is bound to abide by
the consequences of this agency
granted to Duran, as if it had
been given in writing.
facts of the case
Defendant Engracio Orense owned a parcel of land
in Albay, as well as the house that stood thereon. On
14 February 1907, Orenses nephew, Jose Duran,
executed a notarial instrument selling both the house
and the lot to plaintiff firm, Gutierrez Hermanos, for
P1,500. The sale was under right of redemption, which
was to last for four years.
After four years had lapsed, the defendant Orense
refused to deliver the property to GH and to pay the
rental of P30 per month since 14 February 1911.
Orense refused, based on his allegation that he was
the registered owner of the land as per the property
registry, and that he had neither executed any written
power of attorney in Durans favor nor given any verbal
authorization to Duran to sell the land. Neither did he
perform any act to induce GH to believe that Duran
was empowered and authorized to carry out the sale.
The plaintiff thus charged Duran with estafa for
having represented himself as the owner of the
property, when it in fact belonged to Orense. However,
at trial, Orense was called to the witness stand and
admitted that he had consented to Durans selling the

property to GH under right of redemption. Thus, the
court acquitted Duran of estafa, and GH sought the
payment of rentals and damages for the period during
which the house and lot were not yet delivered.
The lower court ruled for GH, directing Orense to
immediately deliver the property in question and pay
them P780 as rentals and damages. Hence, this
appeal.
issue
Whether defendant Orense had ratified the sale by
Duran, which would entitle plaintiff Gutierrez Hermanos
to delivery, rentals, and damages.YES. He had
consented to the sale of the property; hence, it
is valid.
ratio
In this case, though Duran indeed was not the
owner of the property, Orense had conferred a
verbal, or at least implied, power of agency upon
him, and he had accepted it impliedly by selling
the property. The principal must therefore fulfill
all the obligations contracted by the agent actin
within the scope of his authority.
Even granting that the consent was only given
subsequent to the sale, Orense act can be deemed
to have ratified the sale, which produces the
effect of an express authorization in Durans
favor. Art. 1259 provides, A contract executed in the
name of another by one who has neither his
authorization nor legal representation shall be void,
unless it should be ratified by the person in whose
name it was executed before being revoked by the
other contracting party. Hence, Orenses sworn
statement as a witness in the estafa case
confirms and ratifies the sale.
Orenses testimony was the basis of Durans
acquittal, and it would be unjust to let him deny his
admission to the prejudice of plaintiff GH, who had
already given P1,500 in payment of the purchase price
of the property.
It is contended that the authority given to Duran to
make the contract of sale is not shown to be in writing
and signed by Orense. But the proof on recordproof
to which Orense did not objectshows that Orense
nonetheless consented under oath, producing the
effects of an express agency. He is thus bound to abide
by the consequences of this agency as though it had
actually been given in writing.
The judgment appealed from is therefore affirmed.
19

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II.

any form oral

Validity Arts. 748, 749, 1744, 1773, 1874,

If the value of the personal property donated

Article 749. In order that the donation of an

The acceptance may be made in the same deed of

If the acceptance is made in a separate instrument,

Article 1744. A stipulation between the common

Article 748. The donation of a movable may be

An oral donation requires the simultaneous delivery

Article 1773. A contract of partnership is void,

URIBE WEEK X | LAW 130 B AY 2016-2017

of marriage, other than a mutual

An agreement for the sale of goods,

An agreement for the leasing for a

A representation as to the credit of a

Article 1956. No interest shall be due unless it has

Article 2134. The amount of the principal and of

Enforceability Arts. 1403, 1878

1) Those entered into in the name of another

3) Those where both parties are incapable of

Article 1878. Special powers

1) To make such payments as are not usually

An agreement that by its terms is not

3) To compromise, to submit questions to

A special promise to answer for the

4) To waive any obligation gratuitously;

An agreement made in consideration

5) To enter into any contract by which the

URIBE WEEK X | LAW 130 B AY 2016-2017

from an act appearing in a public document.

13) To accept or repudiate an inheritance;

Greater Efficiency or Convenience Art.

Article 1358. The following must appear in a public

All other contracts where the amount involved

URIBE WEEK X | LAW 130 B AY 2016-2017

The requirement of writing for the

without prior clearance, within 5 days after the

URIBE WEEK X | LAW 130 B AY 2016-2017

offer in writing, a step no longer necessary now

No. 2262, issued on April 2, 1924 owned and registered

Furthermore, it was also established that petitioner

Petitioners were nephews and niece of the late

Both the law and equity dictate that private

On August 10, 1937, petitioners claimed that the

URIBE WEEK X | LAW 130 B AY 2016-2017

As the respondent court aptly stated in its decision:

rights over immovable property must appear in a

URIBE WEEK X | LAW 130 B AY 2016-2017

facts of the case

Statute of Frauds. It was ruled in Berg vs. Magdalena

Article 1359. When, there having been a meeting

If mistake, fraud, inequitable conduct, or accident

Article 1360. The principles of the general law on

Article 1361. When a mutual mistake of the parties

URIBE WEEK X | LAW 130 B AY 2016-2017

Article 1362. If one party was mistaken and the

Article 1363. When one party was mistaken and

Article 1364. When through the ignorance, the lack