BSA 1-11

LAW ON OBLICON

TITLE II. CONTRACTS

CHAPTER 1. GENERAL PROVISIONS

Article 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.

Contract – meeting of minds between two persons whereby one binds himself, with respect to the other, to give something
or to render some service; there must be at least two persons or parties.
*all contracts are obligation but not all obligation are contracts.
*all contracts are agreements but not all agreements are contracts.
KINDS OF PROMISES
Perfect Promise – ensures celebration of final contract
Imperfect Promise (policitacion) – unaccepted offer
STAGES OF CONTRACT
1. Preparation, Generation, or Policitacion – negotiating bargaining, ending at agreement of the parties
2. Perfection of contract – parties agree to the terms of the contract
3. Consummation or death – fulfillment of contract
CLASSIFICATION OF CONTRACT (According to):
1. Name or designation
a. Nominate
b. Innominate
2. Perfection
a. Consensual – perfected by agreement of parties
b. Real – perfected by delivery
3. Cause
a. Onerous – with valuable consideration
b. Remuneratory or remunerative – prestation is given for service previously rendered not as obligation
c. Gratuitous - founded on liberality
4. Form
a. Informal, Common, or simple
b. Formal or solemn
5. Obligatory force
a. Valid
b. Rescissible
c. Voidable
d. Unenforceable
e. Void or inexistent
6. Person obliged
a. Unilateral
b. Bilateral
7. Risks
a. Commutative (sale or lease) – undertaking of one party is considered the equivalent of that of the other
b. Aleatory (insurance) – when it depends upon certain event
8. Liability
a. Unilateral – (commodatum, gratuitous deposit) – creates obligation on part of only one party
b. Bilateral (sale or lease) – reciprocal obligations

9. Status
a. Executory – fulfillment does not take place at the time the contract is made
b. Executed – obligation is fulfilled at the time contract is entered into
10. Dependence to another contract
a. Preparatory (agency, partnership) – means to an end
b. Accessory (mortgage) – dependent upon another contract
c. Principal (lease) – may exist alone
11. Dependence of part of contract to other parts
 a. Indivisible – each part of contract is dependent upon the other parts
b. Divisible – may be performed independently

AUTONOMY
Article 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as the may
deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy.

Valid contracts – those that meet all the legal requirements and limitations
Autonomy of wills – parties may stipulate anything as long as it is not illegal
LIMITATIONS ON CONTRACTUAL STIPULATIONS
1. Law – contract entered must be in accordance with and not repugnant to, an applicable statute.
2. Police Power – all contractual obligations ae subject to police power of state

Morals – deals with norms of good and right conduct evolved in a community
Good customs – habit and practices which through long usage have been enforced by society as binding rules of conduct
Public order – public safety; also means public weal
Public policy – broader public order; also refers to considerations which are moved by the common good

Article 1307. Innominate contracts shall be regulated by the stipulations of the parties, by the provisions of Titles
I and II of this Book, by the rules governing the most analogous nominate contracts and by the customs of the
place.

Nominate contract – has a specific name or designation in law ( e.g commodatum, lease, sale, etc.)
Innominate contract – lack individuality and are not regulated by special provisions of law

KINDS OF INNOMINATE CONTRACT

Do ut des (I give that you may give)
Do ut facias (I give that you may do)
Facto ut des (I do that you may give)
Facto ut facias (I do that you may do)
*do ut des is no longer innominate because it has become barter or exchange.*

MUTUALITY; OBLIGATORY FORCE

Article 1308. The contract must bind both contracting parties, it validity or compliance cannot be left to will of one
of them

- The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them
- It must bind both parties in order that it can be enforced against either.
- No party can renounce or violate the law of the contract without the consent of the other
Mutuality – performance or validity binds both parties; not left to will of one of the parties

Article 1309. The determination of the performance may be left to a third person, whose decision shall not be
binding until it has been made known to both contracting parties.

- The decision shall bind the parties only AFTER it has been made known to both of them.

Article 1310. The determination shall not be obligatory if it is evidently inequitable. In such case, the courts shall
decide what is equitable under the circumstances.

RELATIVITY
Article 1311. Contracts take effect only between parties, their assigns and heirs, except in case where the rights
and obligations arising from the contract are not transmissible by their nature, or by stipulations, or by provision
of law.
The heir is not liable beyond the value of the property he received from the decedent. If a contract should contain
some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his
acceptance to the obligor before its evocation. A mere incidental benefit or interest of a person is not sufficient.
The contracting parties must have clearly and deliberately conferred a favor upon a third person.
PERSONS AFFECTED BY A CONTRACT
General rule – a party’s rights and obligations derived from a contract are transmissible to the successors.

Exceptions – contracts are effective only between parties are when the rights and obligations arising from the contract are
not transmissible:
a. By their nature – personal qualifications
b. By stipulation – in accordance with the principle of freedom to contract
c. By provision of law – agency, partnership, commodatum, death
d.
CASES WHEN STRANGERS OR THIRD PERSONS AFFECTED BY A CONTRACT
a. In contracts containing a stipulation in favor of a third person (stipulation pour autrui)
b. Contracts creating real rights
c. Contracts entered into to defraud creditors
d. Contracts which have been violated at the inducement of a third person

Relativity – binding only between parties, their assigns, heirs; strangers cannot demand enforcement

EXCEPTION TO RELATIVITY
1. Accion pauliana
2. Accion directa
3. Stipulation pour autrui

Stipulation pour autrui – If a contract should contain some stipulation in favor of a third person, he may demand its
fulfilment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or
interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a
third person

CLASSES OF STIPULATIONS POUR AUTRUI

1. Third party is said to be a done beneficiary - Those where the stipulation is intended for the sole benefit of such person;
donations.
2. Third party is called creditor beneficiary – those where an obligation is due from the promise to the third person.

REQUISITES OF STIPULATION POUR AUTRUI

1. Parties must have clearly and deliberately conferred a favor upon a third person
2. Stipulation of the third person must be a part of, not of the whole contract
3. Favorable stipulation should not be conditioned or compensated by any kind of obligation whatsoever
4. Neither of the contracting parties bears legal representation of the 3rd party
5. Third person must have communicated his acceptance to the obligation

Art 1312. In contracts creating real rights, third persons who come into possession of the object of the contract
are bound thereby, subject to the provisions of the Mortgage Law and the Land Registration laws.

REQUISITES
1. Existence of valid contract
2. Knowledge of the contract of 3rd person
3. Interference by 3rd person

Art 1313. Creditors are protected in cases of contracts intended to defraud them.
- The creditor is given the right to impugn the contracts of his debtor to defraud him.

Art 1314. Any third person who induces another to violate his contract shall be liable for damages to the other
contracting party.
- Art 1314 recognizes an instance when a stranger to a contract can be sued for damages for his unwarranted
interference with the contract. It presupposes that the contract is valid and the third person has knowledge of the
existence of the contract.

CONSENSUALITY; OBLIGATORY FORCE

Art 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not only to the
fulfillment of what has been expressly stipulated but also to all the consequences which, according to their
nature, may be in keeping with good faith, usage and law.

Art 1316. Real contracts, such as deposit, pledge or commodatum, are not perfected until the delivery of the
object of the obligation.

CLASSIFICATION OF CONTRACT ACCORDING TO PERFECTION

1. Consensual contract – perfected by mere consent
2. Real contract – perfected by delivery
3. Solemn contract – requires compliance with certain formalities prescribed by law

STAGES IN LIFE OF A CONTRACT

1. Preparation – negotiation
2. Perfection – birth
3. Consummation – performance

Art 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.

- A person is not bound by the contract of another which he has no knowledge or to which he has not given his consent. A
contract entered into in the name of another by one who has no authority is unenforceable against the former unless it is
ratified by him before it is revoked by the other contracting party.

CHAPTER 2. ESSENTIAL REQUISITES OF A CONTRACT

GENERAL PROVISIONS

Art. 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.

CLASSES OF ELEMENTS OF A CONTRACT

1. Essential elements – without which no contract can validly exist regardless of the intentions of the parties. Also known
as requisites of a contract.
a. Common – present in all contracts, namely: Consent Object, Cause
b. Special – present only in specified contracts
> Form
> Subject matter
> Consideration or cause
2. Natural elements – presumed to exist in certain contracts unless contrary is expressly stipulated by the parties
3. Accidental elements – particular stipulations, clauses, terms, or conditions established by the parties in their contract
(conditions, period interest, penalty)

SECTION 1. CONSENT
ARTICLE 1319-1326 – CONCURRENCE OF THING OR CAUSE
Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause
which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified
acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge.
The contract, in such a case, is presumed to have been entered into in the place where the offer was made.

Consent - concurrence of the wills of the contracting parties with respect to the object and the cause which shall
constitute the contract.
Mutual assent or agreement - takes place when there is an offer and acceptance of the offer.
Offer – proposal made only by one party to another indicating willingness to enter into a contract. It is a promise to act or
to refrain from acting on condition that the term are accepted by the person to whom it is made.
*offer must be certain or definite so that the liability of the parties may be exactly fixed
 *offer made in jest or anger or while emotionally upset is not a valid offer
Acceptance – manifestation by the offeree of his assent to all the terms of the offer.
*acceptance of offer must not only be clear; it must be absolute, unconditional, and unqualified.

REQUISITES
1. Consent must be manifested by the concurrence of the offer and the acceptance
2. Contracting parties must possess the necessary legal capacity
3. Consent must be intelligent, free, spontaneous and real

Art. 1320. An acceptance may be express or implied.

- an implied acceptance is one that is inferred from act or conduct

PERIOD FOR ACCEPTANCE

1. Stated fixed period in the offer
2. No state fixed period
a. offer is made to a person present – acceptance must be made immediately
b. offer is made to a person absent – acceptance may be made within such time that an answer can be
received from him
*acceptance may be revoked before it comes to the knowledge of the offeror.*
Amplified acceptance – a mere amplification on the offer must be understood as an acceptance of the original offer, plus
a new offer which is contained in the amplification.

Art. 1321. The person making the offer may fix the time, place, and manner of acceptance, all of which must be
complied with.
- Communication of the offer may be expressed or implied by the language or acts of the offeror understood as such by
the other party
RULE ON COMPLEX OFFERS
1. Offers are interrelated – contract is perfected of all the offers are accepted
2. Offers are not interrelated – one is dependent upon the other and acceptance of both is necessary

Art. 1322. An offer made through an agent is accepted from the time acceptance is communicated to him.
- Communication of acceptance must be absolute and must be communicated to the offeror.
- To agent: by legal fiction, an agent is considered an extension of the personality of the principal

Art. 1323. An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either party
before acceptance is conveyed.
- even if the offer is not withdrawn, its acceptance will not produce a meeting of the minds in case the offer has already
become ineffective because of the death, civil interdiction, insanity or insolvency of either party BEFORE the conveyance
of the offer
- at the time acceptance is communicated, both parties, must be living in and capacitated.

OTHER GROUNDS WHICH RENDER OFFER INEFFECTIVE

- Failure to comply with the condition of the offer as to the time, place, and the manner of payment
- Expiration of the period fixed in the offer for acceptance
- Destruction of the thing due before acceptance
- Rejection of the offer

Art. 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.
Option contract – one giving a person for a consideration a certain period within which to accept the offer
Option period – period given within which the offeree must accept the offer
Option money – money paid or promised to be paid in consideration for the option
*General rule is that the offer can be withdrawn as a matter of tight at any time before the acceptance*

Art. 1325. Unless it appears otherwise, business advertisements of things for sale are not definite offers, but
mere invitations to make an offer.
Business advertisement – not a definite offer; but more like an invitation to make an offer

Art. 1326. 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.
Advertisement for bidders – only invitation to make proposals and advertiser is not bound to accept the highest or
lowest bidder

ARTICLE 1327-1329 – LEGAL CAPACITY OF PARTNERS

Art. 1327. The following cannot give consent to a contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not know how to write.

PERSONS WHO CANNOT GIVE CONSENT

1. Minors
2. Insane or demented persons
3. Illiterates / deaf-mutes who do not know how to write
4. Intoxicated / under hypnotic spell
5. Person under mistake; mistake may deprive intelligence
6. Person induced by fraud (dolo causante)
(Insane, Death, Civil interdiction, Insolvent)

Art. 1328. Contracts entered into during a lucid interval are valid. Contracts agreed to in a state of drunkenness
or during a hypnotic spell are voidable.
Lucid interval – temporary interval of insanity. A contract entered into by an insane or demented person during a lucid
interval is valid. It must be shown that there is a full return of the mind to sanity as to enable him to understand the
contract he is entering into.

- People who are drunk or under hypnotic spell are considered in a state of insanity therefore, contract entered into in this
state is considered invalid.

Art. 1329. The incapacity declared in Article 1327 is subject to the modifications determined by law, and is
understood to be without prejudice to special disqualifications established in the laws.

Incapacity – exercise of your right to enter a contract is prohibited

INCAPACITY DECLARED IN ART. 1327 SUBJECT TO MODIFICATIONS

1. When necessaries delivered to a minor or person without capacity, he must pay a reasonable price thereof
2. A minor may contract for life, health, and accident insurance, provided insurance is taken on his life and beneficiary is
of immediate family member
3. As long as there a guardian or legal representative
4. Contract is valid when the minor misinterpreted his age and convincingly led the other party to believe in his legal
capacity

OTHER SPECIAL DISQUALIFICATIONS

1. Persons suffering the accessory penalty civil interdiction
2. Hospitalized lepers
3. Prodigals
4. Deaf and dumb
5. Those who are in unsound mind even though they have lucid intervals
6. Those who, by reason of age, disease, weak mind and other similar causes, cannot without outside aid, take care of
themselves.

ARTICLE 1330-1346 – CHARACTERISTICS OF CONSENT

Art. 1330. A contract where consent is given through mistake, violence, intimidation, undue influence, or fraud is
voidable.

CHARACTERISTICS OF CONSENT
1. Intelligent – capacity to act
2. Free and Voluntary – no vitiation of consent by reason of violence and intimidation
3. Conscious or spontaneous – no vitiation of consent by reason of mistake, undue influence, fraud

CAUSES WHICH VITIATES FREEDOM

1. Violence
Requisites:
a. irresistible physical force
b. such force is the determining cause for giving consent
2. Intimidation
Requisites
a. determining cause for the contract
b. threatened act is unjust or unlawful
c. real and serious
d. produces a well-grounded fear
VICES OF CONSENT (Vices of will)
1. Violence
2. Intimidation
3. Mistake
4. Fraud
5. Undue Influence

Art. 1331. In order that mistake may invalidate consent, it should refer to the substance of the thing which is the
object of the contract, or to those conditions which have principally moved one or both parties to enter into the
contract.
Mistake as to the identity or qualifications of one of the parties will vitiate consent only when such identity or
qualifications have been the principal cause of the contract.
A simple mistake of account shall give rise to its correction.

Mistake or error – false notion of a thing or a fact material to the contract

Art. 1332. When one of the parties is unable to read, or if the contract is in a language not understood by him,
and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been
fully explained to the former.

- it is the party enforcing the contract who is duty-bound to show that there has been no fraud or mistake and that the
terms of the contract have been fully explained to the former

Art. 1333. There is no mistake if the party alleging it knew the doubt, contingency or risk affecting the object of
the contract.
- if the party knew beforehand the doubt, contingency, or risk affecting the object of the contract, it is to be assumed that
he was willing to take chances and cannot, therefore, claim mistake.

Art. 1334. Mutual error as to the legal effect of an agreement when the real purpose of the parties is frustrated,
may vitiate consent.
Mistake of law – arises from ignorance of some provision of law, or from erroneous interpretation of its meaning, or from
an erroneous conclusion as to the legal effect of an agreement; as a rule, mistake of law does not invalidate consent
because “ignorance of law excuses no one” (ignorantia legis neminem excusat)

REQUISITES
1. Error must be mutual
2. Must be as to legal effect of an agreement
3. Must frustrate the real purpose of the parties

Art. 1335. There is violence when in order to wrest consent, serious or irresistible force is employed.
There is intimidation when one of the contracting parties is compelled by a reasonable and well-grounded fear of
an imminent and grave evil upon his person or property, or upon the person or property of his spouse,
descendants or ascendants, to give his consent.
To determine the degree of intimidation, the age, sex and condition of the person shall be borne in mind.
A threat to enforce one's claim through competent authority, if the claim is just or legal, does not vitiate consent.
Violence – physical force or compulsion
Intimidation – moral force or compulsion

Art. 1336. Violence or intimidation shall annul the obligation, although it may have been employed by a third
person who did not take part in the contract.
Art. 1337. There is undue influence when a person takes improper advantage of his power over the will of
another, depriving the latter of a reasonable freedom of choice. The following circumstances shall be considered:
the confidential, family, spiritual and other relations between the parties, or the fact that the person alleged to
have been unduly influenced was suffering from mental weakness, or was ignorant or in financial distress.
Undue influence – influence of a kind that so overpowers the mind of a party as to prevent him from acting
understandingly and voluntarily to do what he would have done if he had been left to exercise freely his own judgement
and discretion

Art. 1338. There is fraud when, through insidious words or machinations of one of the contracting parties, the
other is induced to enter into a contract which, without them, he would not have agreed to.

Causal fraud – committed by one party before at the time of the celebration of the contract to secure the consent of the
other. It is a fraud used by a party to induce the other to enter into a contract without which the latter would not have
agreed to.
Insidious words or machinations – false promises; exaggerations of hopes and benefits; abuse of confidence; fictitious
names qualifications, or authority

KINDS OF FRAUD
1. Dolo causante – determines or essential cause of the consent; fraud in the perfection of contract; can be ground for
annulment
2. Dolo incidente – does not have such decisive influence and by itself cannot cause the giving of consent, refers only to
some particular or accident of the obligation; cannot be a ground for annulment

REQUISITES FOR FRAUD

1. Must have been employed by one contracting party upon the other
2. Must have induced the other party to enter the contract
3. Must have been serious
4. Resulted in damage or injury to the party seeking annulment

Art. 1339. Failure to disclose facts, when there is a duty to reveal them, as when the parties are bound by
confidential relations, constitutes fraud.

Fraud by concealment – a neglect or failure to communicate or disclose that which a party to a contract knows and
ought to communicate constitutes concealment; false interpretation or misinterpretation.

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

-It is natural tendency for merchants and traders to resort to exaggerations in their attempt to make a sale at the highest
price possible
Dealer’s talk or trader’s talk – representations which do not appear on the face of the contract and these do not blind
either party.

Art. 1341. A mere expression of an opinion does not signify fraud, unless made by an expert and the other party
has relied on the former's special knowledge.

-To constitute to a fraud, the misinterpretation must refer to facts, not opinions. In order that such opinion may amount
to fraud it must be:
1. Made by and expert
2. The other contracting party has relied on the expert’s opinion
3. The opinion turned out to be false or erroneous.

Art. 1342. Misrepresentation by a third person does not vitiate consent, unless such misrepresentation has
created substantial mistake and the same is mutual.

- A third person has no connection with a contract. However, if the misrepresentation has created a substantial mistake
and the same is mutual, that is, it affects both parties, the contract may be annulled but principally on the ground of
mistake.

Art. 1343. Misrepresentation made in good faith is not fraudulent but may constitute error.

Art. 1344. In order that fraud may make a contract voidable, it should be serious and should not have been
employed by both contracting parties.
Incidental fraud only obliges the person employing it to pay damages.

REQUISITES OF CAUSAL FRAUD

1. Must be serious
2. Should not have been employed by both parties
3. Should not have been known by the other contracting party

- When fraud is employed by both parties, neither may ask for annulment as the fraud of one neutralizes that of the other.

Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when the parties do not
intend to be bound at all; the latter, when the parties conceal their true agreement.

Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does not prejudice
a
third person and is not intended for any purpose contrary to law, morals, good customs, public order or public
policy binds the parties to their real agreement.

Simulation of a contract – the act of deliberately deceiving others, by feigning or pretending by agreement, the
appearance of a contract which is either non-existent or concealed.

KINDS OF SIMULATION
1. Absolute simulation – when the contract does not really exist and the parties do not intend to be bound at all; these
are inexistent and void
2. Relative simulation – when the contract entered into by the parties is different from their agreement

SECTION 2. OBJECT OF CONTRACTS

REQUISITES: [CILID]
1) [C] within the commerce of man;
2) [I] not intransmissible
3) [L] must be licit, or not contrary to law, morals, good customs, public policy, or public order;
3) [I]not an impossible thing or service; and
4) [D] it must be determinate as to its kind.

Art. 1347. All things which are not outside the commerce of men, including future things, may be the object of a
contract. All rights which are not intransmissible may also be the object of contracts.
No contract may be entered into upon future inheritance except in cases expressly authorized by law.
All services which are not contrary to law, morals, good customs, public order or public policy may likewise be
the object of a contract.

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

Object of contract – subject matter

THINGS WHICH CANNOT BE THE OBJECT OF CONTRACT

1. Within the commerce of man
2. Must not be physically or legally impossible
3. Must be in existent or capable of coming into existent
4. Must be determinate or determinable
5. Intransmissible rights
6. Services contrary to law, morals, good customs, public policy
7. Future inheritance

Future inheritance – any property or right, not in existence or capable of determination at the time of the contract, that a
person may inherit in the future.

KINDS OF IMPOSSIBILITY
1. Physical – cannot exist
a. Absolute – cannot be done
b. Relative – arises from the special circumstances of the case
2. Legal – contrary to law, good customs, morals, etc.

Art. 1349. The object of every contract must be determinate as to its kind. The fact that the quantity is not
determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the
same, without the need of a new contract between the parties.
- The object of a contract must be determinable to its kind or at least determinable without the necessity of a new further
agreement between the parties.

SECTION 3. CAUSE OF CONTRACTS

Art. 1350. In onerous contracts the cause is understood to be, for each contracting party, the prestation or
promise of a thing or service by the other; in remuneratory ones, the service or benefit which is remunerated;
and in contracts of pure beneficence, the mere liberality of the benefactor.

Cause – essential reason or purpose which the contracting parties have in view at the time of entering into the contract.

CLASSIFICATION OF CONTRACTS ACCORDING TO CAUSE

1. Onerous – the cause of which, for each contracting party is the prestation or promise of a thing or service by the other;
parties are reciprocally obligated to each other
2. Remuneratory or remunerative – purpose is to reward the service that had been previously rendered by the party
remunerated.
3. Gratuitous – cause of which is the liberality of the benefactor or giver.

Art. 1351. The particular motives of the parties in entering into a contract are different from the cause thereof.

Motive – purely personal or private reason which a party has in entering into a contract.

Art. 1352. Contracts without cause, or with unlawful cause, produce no effect whatever. The cause is unlawful if it
is contrary to law, morals, good customs, public order or public policy.

Art. 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.

REQUISITES OF CAUSE
1. Must exist
2. Must be licit
3. Must be real or true

Absence of cause – total lack of any valid consideration for the contract
Illegality of cause – implies that there is a cause but the same is unlawful or illegal
Falsity of cause – meant that the contract states a valid consideration but such statement is not true

Art. 1354. Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the
debtor proves the contrary.

Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless
there has been fraud, mistake or undue influence.

Lesion – damages caused by the fact that the price is unjust or inadequate; does not invalidate a contract; the law
assumes that the parties themselves remain the best judges of how much their bargain is worth; lesion will invalidate a
contract when 1) there has been fraud, mistake, or undue influence and 2) in cases specified by law.
CHAPTER 3. FORM OF CONTRACTS

Art. 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
exercise.
Form of a contract – refers to the manner in which a contract is executed or manifested.

CLASSIFICATION OF CONTRACTS ACCORDING TO FORM

1. Informal or common or simple contract – consensual contracts; may be entered in whatever form provided all the
essential requisites for the validity are present; may be oral, written, or implied.
2. Formal or solemn contract – required by law to be in some certain specified form to be effective

FORM FOR VALIDITY OF CONTRACT

1. Donation of real property – must be in a public instrument
2. Donation of personal property of value which exceeds P5000 – donation and acceptance must be in writing
3. Sale of land through an agent – authority of agent must be in writing
4. Stipulation to pay interest – must be in writing
5. Contract of partnership – if immovables are contributed, must be in public instrument

Art. 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.

Art. 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 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 P5000 in writing in writing, even a private one. But sales
of goods, chattels or things in action are governed by articles 1403, N0. 2, and 1405.

CHAPTER 4. REFORMATION OF INSTRUMENTS

OBLIGATORY FORCE
Art. 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 or 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.
If mistake, 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.

- Reformation is thus not available as a remedy where no writing exist; what is reformed is not the contract itself, but the
written instrument embodying the contract
- In reformation, there has been a meeting of the minds of the parties. In annulment, there has been no meeting of the
minds, the consent of one of the parties being vitiated by mistake.

Reformation – remedy allowed by law by means of which a written instrument is amended or rectified so as to express or
conform to the real agreement or intention of the parties. The rationale of the doctrine is that it would be unjust and
inequitable to allow the enforcement of a written instrument which does not reflect or disclose the real meeting of the
minds of the parties.

REQUISITES
1. Meeting of minds between parties
2. Written instrument does not express the true agreement or intention of the parties
3. Failure to express true intention is due to mistake, fraud, inequitable conduct, or accident
4. Facts upon which relief by way of reformation of the instrument is sought are put in issue by the pleadings
5. Clear and convincing evidence
Art. 1360. The principles of the general law on the reformation of instruments are hereby adopted insofar as they
are not in conflict with the provisions of this Code.

Art. 1361. When a mutual mistake of the parties causes the failure of the instrument to disclose their real
agreement, said instrument may be reformed.

Mutual mistake – mistake of fact that is common to both parties of the instrument which causes failure of the instrument
to express their true intention.

REQUISITES
1. Mistake must be of fact
2. Mistake must be proved by clear and convincing evidence
3. Mistake must be mutual
4. Mistake must cause the failure of the instrument to express their real intention

Art. 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.

- Right to ask for reformation is granted only to the party who was mistaken in good faith.

Art. 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.

- The remedy of reformation may be availed of the party who acted in good faith.

Art. 1364. When through the ignorance, lack of skill, negligence, or bad faith on the part of the person drafting the
instrument or of the clerk or typist, the instrument does not express the true intention of the parties, the courts
ma order that the instrument be reformed.

- Neither party is responsible for the mistake. Either party may ask for reformation.

Art. 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 the right of repurchase, reformation of the instrument is proper.

- Under this article, reformation of the instrument is proper; otherwise, the true intention of the parties would be frustrated.

Art. 1366. There shall be no reformation in the following cases:

1. Simple donation inter vivos wherein no conditions is imposed
2. Wills
3. When the real agreement is void

Art. 1367. When one of the parties has brought an action to enforce the instrument, he cannot subsequently ask
for its reformation.

CASES WHEN REFORMATION IS NOT ALLOWED

1. Simple donations inter vivos where no condition is imposed (Donation) – act of liberality whereby a person
disposes gratuitously of a thing or right in favor of another, who accepts it. (Inter vivos = shall take effect in his lifetime;
Mortis causa = take effect after the donor’s death)
2. Wills – prescribed by law to control to a certain degree the disposition of his estate, to take effect after his death
3. When the real agreement is void – if real agreement is void, there is nothing to reform.
4. When one party has brought an action to enforce the instrument – means he admits its validity and that it express
the true intention of the parties.

Art. 1368. Reformation may be ordered at the instance of either party or his successors in interest, if the mistake
was mutual; otherwise, upon petition of the injured party, or is heirs and assigns.

PARTY ENTITLED TO REFORMATION

1. Either of the parties, if the mistake is mutual
2. The injured party
3. Heirs and successors in interest
Art. 1369. The procedure for the reformation of instruments shall be governed by rules of court to be
promulgated by the Supreme Court.

CHAPTER 5. INTERPRETATION OF CONTRACTS

Art. 1370. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the
literal meaning of its stipulations shall control.
If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former.

Interpretation of contract – determination of the meaning of the terms or words used by the parties in their written
contract.
- Where the words and clauses of a written contract are in conflict with the manifest intention of the parties, the latter shall
prevail over the former. The intention of the contracting parties should always prevail because their will has the force of
law between them.

Art. 1371. In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts
shall be principally considered.

Art. 1372. However general the terms of a contract may be, they shall not be understood to comprehend things
that are distinct and cases that are different from those upon which the parties intend to agree.

Art. 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.

- When an agreement is susceptible of several meanings, one of which would render it effectual, it should be given that
interpretation.

Art. 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.

- A contract must be interpreted as a whole. All provisions, if possible, be so interpreted as to harmonize each other.

Art. 1375. Words which may have different significations shall be understood in that which is most keeping the
nature and object of the contract.

Art. 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.

Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who caused
the obscurity.

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 gratuitous contract, the least transmission of rights and interest
shall prevail. If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interest.
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.

- A written agreement should, in case of doubt, be interpreted against the party who has drawn it. The party who causes
the obscurity acts with ulterior motives.

Art. 1379. The principles of interpretation stated in Rule 123 of the Rules of Court shall likewise be observed in
the construction of the contracts.