CHAPTER 3 1. Donations of personal property (Art.

748) of
FORMS OF CONTRACTS the Code, the donation and the acceptance
shall be made in writing; otherwise, it shall
Art. 1356- Contracts shall be obligatory, in be void.
whatever form they may have been entered into, 2. Sale of a piece of land or any interest therein
provided all the essential requisites for their through an agent. (Art. 1874)
validity are present. However, when the law 3. Agreements regarding payment of interest in
requires that a contract be in some form in order contracts of loan (Art. 1956)
that it may be valid or enforceable, or that a 4. Antichresis. (Art. 2134)
contract be proved in a certain way, that
requirement is absolute and indispensable. In Contracts which must appear in a public
such cases, the rights of the parties stated in the document are as follows:
following article cannot be exercised
1. Donations of immovable property. According
General Rule: form does not matter for the validity of to Art. 749 of the Code,
a contract. It is enough that there be consent, subject 2. Partnerships where immovable property or
matter, and cause. This rule applies to Consensual real rights are contributed to the common
Contracts. fund. (Arts. 1771 and 1773)

a. Formal- require a certain specified form, in a Contracts which must be registered are as
addition to consent, subject matter and follows:
cause
1. Chattel mortgages. (Art. 2140)
b. Real- require delivery to be valid in addition
2. Sales or transfers of large cattle. According
to consent, subject matter and cause
to the Cattle Registration Act, no sale or
Spiritual system is retained, the law looks more at the transfer of large cattle shall be valid unless it
spirit rather than at the form of the contracts is duly registered and a certi cate of transfer
is secured
Exceptions:
Formalities for enforceability
1. when the law requires that the contract must
be in a certain form in order to be valid; and There are also certain contracts which are
2. when the law requires that the contract must unenforceable by action, unless they are in writing
be in a certain form in order to be and properly subscribed, or unless they are evidenced
enforceable by some note or memorandum, which must also be in
writing and properly subscribed. These contracts are
Generally, oral contracts are valid and governed by the Statute of Frauds
enforceable. The contracts covered by Art. 1358 are
binding and enforceable by action or suit despite the Art. 1358 of the Code enumerates certain kinds of
absence of any writing because said article nowhere contracts which must appear either in a public or in a
provides that the absence of written form will make private document.
the agreement invalid or unenforceable.
The purpose of the requirement, however, is not to
When Form is Important: validate or to enforce the contract, but to insure its
efcacy; in other words, the form required is neither
a. For validity- formal contracts for validity nor enforceability but for the
b. For enforceability- for agreements under convenience of the contracting parties.
statute of frauds
c. For convenience- Art 1385 ART. 1357- If the law requires a document or
other special form, as in the acts and contracts
Formalities for validity enumerated in the following article, the
contracting parties may compel each other to
1. Those which must appear in writing observe that form, once the contract has been
2. Those which must appear in a public perfected. This right may be exercised
document simultaneously with the action upon the contract.
3. Those which must be registered
This article applies only when form is needed only for
Contracts which must appear in writing are as convenience, not for validity or enforceability
follows:
Before contracting parties may be compelled to extinguishment of real rights over immovable
execute the needed form, it is essential that the property; sales of real property or of an interest
contract be: therein are governed by Articles 1403, No. 2, and
1405;
a. perfectly valid (1357)
b. enforceable under the Statute of Frauds (2) The cession, repudiation or renunciation of
(1356) hereditary rights or of those of the conjugal
partnership of gains;
Art. 1356 says that when the law requires that a
contract be in some form in order that it may be valid (3) The power to administer property, or any other
or enforceable, that requirement is absolute and power which has for its object an act appearing or
indispensable. In such cases, the right of the parties which should appear in a public document, or
stated in the following article (Art. 1357 the right to should prejudice a third person;
compel) cannot be exercised
(4) The cession of actions or rights proceeding
Formalities for Efcacy from an act appearing in a public document.

The following principles are clearly deducible from an All other contracts where the amount involved
examination of the cases decided by the Supreme exceeds ve hundred pesos must appear in
Court in which these provisions were applied: writing, even a private one. But sales of goods,
chattels or things in action are governed by
(1) Arts. 1357 and 1358 do not require the execution Articles 1403, No. 2 and 1405.
of the contract either in a public or in a private
document in order to validate or enforce it but only to The necessity for the public document in the contracts
insure its efcacy, so that after its existence has been enumerated here is only for convenience, not for
admitted, the party bound may be compelled to validity or enforceability. Formal requirements are for
execute the necessary document. the benefit of third parties. Non-compliance therewith
does not adversely affect the validity of the contract
(2) Even where the contract has not been reduced to nor the contractual rights and obligations of parties
the required form, it is still valid and binding as far as thereunder.
the contracting parties are concerned. Consequently,
both articles presuppose the existence of a contract Chapter 4
which is valid and enforceable. Reformation of Instruments
(3) From the moment one of the contracting parties Art. 1359. When, there having been a meeting of
invokes the provisions of Arts. 1357 and 1358 by the minds of the parties to a contract, their true
means of a proper action, the effect is to place the intention is not expressed in the instrument
existence of the contract in issue, which must be purporting to embody the agreement, by reason of
resolved by the ordinary rules of evidence. mistake, fraud, inequitable conduct or accident,
one of the parties may ask for the reformation of
(4) Art. 1357 does not require that the action to
the instrument to the end that such true intention
compel the execution of the necessary document
may be expressed. If mistake, fraud, inequitable
must precede the action upon the contract. As a
conduct, or accident has prevented a meeting of
matter of fact, both actions may be exercised
the minds of the parties, the proper remedy is not
simultaneously
reformation of the instrument but annulment of
(5) However, although the provisions of Art. 1357, in the contract
connection with those of Art. 1358, do not operate
Reformation
against the validity of the contract nor the validity of
- is that remedy in equity by means of which a written
the acts voluntarily performed by the parties for the
instrument is made or construed so as to express or
fulllment thereof, yet from the moment when any of
conform to the real intention of the parties when some
the contracting parties invokes said provisions, it is
error or mistake has been committed
evident that under them the execution of the required
document must precede the determination of the When the true intention of the parties to a perfected
other obligations derived from the contract and valid contract are not expressed in the instrument
purporting to embody their agreement by reason of
Art. 1358. The following must appear in a public
mistake, fraud, inequitable conduct or accident, one of
document:
the parties may ask for the reformation of the
(1) Acts and contracts which have for their object instrument so that such true intention may be
the creation, transmission, modication or expressed
Requisites: absolutely or with a right of repurchase,
reformation of the instrument is proper.
1. There must be a meeting of the minds of the
contracting parties; Art. 1366. There shall be no reformation in the
2. Their true intention is not expressed in the following cases:
instrument; and
3. Such failure to express their true intention is (1) Simple donations inter vivos wherein no
due to mistake, fraud, inequitable conduct or condition is imposed;
accident (2) Wills;
(3) When the real agreement is void.
Rationale: Justice and equity
Art. 1367. When one of the parties has brought an
Equity orders the reformation of an instrument in order action to enforce the instrument, he cannot
that the true intention of the contracting parties may subsequently ask for its reformation.
be expressed. It would be unjust and inequitable to
allow the enforcement of a written instrument which Art. 1368. Reformation may be ordered at the
does not reflect or disclose the real meeting of the instance of either party or his successors in
minds of the parties interest, if the mistake was mutual; otherwise,
upon petition of the injured party, or his heirs and
Distinguished from annulment of contracts assigns.

Reformation Annulment Art. 1369. The procedure for the reformation of

Presupposes a valid Based on a defective instruments shall be governed by rules of court to
contract; meeting of the contract in which there be promulgated by the Supreme Court
minds has been no meeting of
the minds because Contracts of Adhesion
consent has been -as one in which one of the parties imposes a ready-
vitiated made form of contract, which the other party may
accept or reject, but which the latter cannot modify
Art. 1360. The principles of the general law on the In itself is not an invalid agreement. This type of
reformation of instruments are hereby adopted contract is as binding as a mutually executed
insofar as they are not in conict with the transaction and it is not entirely prohibited. The one
provisions of this Code. who adheres to the contract is in reality free to reject it
entirely; if he adheres to give his consent
Art. 1361. When a mutual mistake of the parties
causes the failure of the instrument to disclose Not even an allegation of ignorance of a party
their real agreement, said instrument may be excuses non-compliance since the responsibility for
reformed. ensuring full comprehension devolves on the
consignee.
Art. 1362. If one party was mistaken and the other
acted fraudulently or inequitably in such a way Accorded inordinate vigilance and scrutiny by the
that the instrument does not show their true courts in order to shield the unwary from deceptive
intention, the former may ask for the reformation schemes contained in ready-made covenants
of the instrument.
Article 24: (i)n all contractual, property or other
Art. 1363. When one party was mistaken and the relations, when one of the parties is at a disadvantage
other knew or believed that the instrument did not on account of his moral dependence, ignorance,
state their real agreement, but concealed that fact indigence, mental weakness, tender age or other
from the former, the instrument may be reformed. handicap, courts must be vigilant for his protection

Art. 1364. When through the ignorance, lack of Contracts of Credit Cards
skill, negligence or bad faith on the part of the
person drafting the instrument or of the clerk or This Court will not hesitate to rule out blind adherence
typist, the instrument does not express the true to such contracts if they prove to be too one-sided
intention of the parties, the courts may order that under the attendant facts and circumstances.
the instrument be reformed. Because of the peculiar nature of contracts of
adhesion, the validity thereof must be determined in
Art. 1365. If two parties agree upon the mortgage the light of the circumstances under which the
or pledge or real or personal property, but the stipulation is intended to apply
instrument states that the property is sold
For the cardholder to be absolved from liability for The character of the transactions between the parties
unauthorized purchases made through his lost or is not, however, determined by the language used in
stolen card, two steps must be followed: the document but by their intention

1. the cardholder must give written notice to the Contract between parties is the formal expression
credit card company, and of the parties rights, duties and obligations. It is
2. the credit card company must notify its the best evidence of the intention of the parties. When
member establishments of such loss or theft, the terms of an agreement have been reduced to
which, naturally, it may only do upon receipt writing, it is considered as containing all the terms
of a notice from the cardholder agreed upon and there can be, between the parties
and their successors in interest, no evidence of such
Both the cardholder and the credit card company, terms other than the contents of the written
then, have a responsibility to perform, in order to free agreement
the cardholder from any liability arising from the use of
a lost or stolen card How to judge intention

Prompt notice by the cardholder to the credit card Their contemporaneous and subsequent acts shall be
company of the loss or theft of her card should be principally considered in relation to the transaction
enough to relieve the former of any liability under consideration, without prejudice to the
occasioned by the unauthorized use of her lost or consideration of other factors as fixed or determined
stolen card. To require the cardholder to still pay for by other rules of interpretation.
unauthorized purchases after would simply be unfair
and unjust. The Court cannot give its assent to such a General Rule: documents are interpreted in the
stipulation that could clearly run against public policy. precise terms in which they are expressed,
but the courts, in the exercise of their sound
Chapter 5 discretion, are called upon to admit direct and
Interpretation of Contracts simultaneous circumstantial evidence necessary for
their interpretation with the purpose of making the true
Art. 1370. If the terms of a contract are clear and intention of the parties prevail
leave no doubt upon the intention of the
contracting parties, the literal meaning of its Art. 1372. However general the terms of a contract
stipulations shall control. If the words appear to may be, they shall not be understood to
be contrary to the evident intention of the parties, comprehend things that are distinct and cases
the latter shall prevail over the former. that are different from those upon which the
parties intended to agree.
Art. 1371. In order to judge the intention of the
contracting parties, their contemporaneous and Art. 1373. If some stipulation of any contract
subsequent acts shall be principally considered should admit of several meanings, it shall be
understood as bearing that import which is most
Primacy of Intention of Parties adequate to render it effectual.

The cardinal rule in the interpretation of contracts is to Art. 1374. The various stipulations of a contract
the effect that the intention of the contracting parties shall be interpreted together, attributing to the
should always prevail because their will has the force doubtful ones that sense which may result from
of law between them all of them taken jointly.

If the terms of contract are clear and leave no doubt Art. 1375. Words which may have different
as to the intention of the contracting parties, the literal signications shall be understood in that which is
sense of its stipulations shall be followed; and if the most in keeping with the nature and object of the
words appear to be contrary to the evident intention of contract.
the contracting parties, the intention shall prevail
Art. 1376. The usage or custom of the place shall
As a rule, in the construction and interpretation of a be borne in mind in the interpretation of the
document the intention of the parties must be sought. ambiguities of a contract, and shall ll the
And once this intention has been ascertained it omission of stipulations which are ordinarily
becomes an integral part of the contract as though it established.
had been originally expressed therein in unequivocal
terms 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 contract under does not
settle doubts by the rules established in the No. 1 or No. 3 of prescribe
Art. 1403, may
preceding articles, and the doubts refer to
prescribe
incidental circumstances of a gratuitous contract,
the least transmission of rights and interests shall As to susceptibility of ratification
prevail. If the contract is onerous, the doubt shall Not Susceptible Susceptible Not
be settled in favor of the greatest reciprocity of susceptible susceptible
interests. As to who may assail contracts
Contracting Contracting Contracting Contracting
If the doubts are cast upon the principal object of party and party only party only party and
the contract in such a way that it cannot be known third person third person
who is whose
what may have been the intention or will of the
prejudiced interest is
parties, the contract shall be null and void. directly
affected
Art. 1379. The principles of interpretation stated in As to how contracts may be assailed
Rule 123 of the Rules of Court shall likewise be Directly only, Directly or Directly or Directly or
observed in the construction of contracts and not collaterally collaterally collaterally
collaterally
Chapter 6
Rescissible Contracts
Art. 1380. Contracts validly agreed upon may be
Classes of Defective Contracts: rescinded in the cases established by law

1. Rescissible contracts Rescissible Contracts in General:

2. Voidable contracts
All of the essential requisites of a contract exist and
3. Unenforceable contracts
the contract is valid, but by reason of injury or damage
4. Void or inexistent contracts
to either of the contracting parties or to third persons,
Essential Features: such as creditors, it may be rescinded.

Rescissible Voidable Unenforceable Void or A contract which is valid for it contains all of the
inexistent essential requisites prescribed by law, but which is
As to defect defective because of injury or damage to either of the
there is there is the contract is one or contracting parties or to third persons
damage or vitiation of entered into in some of the
injury either consent or excess or essential Before it is rescinded, it is valid and legally effective.
to one of the legal without any requisites of
contracting incapacity authority, or a valid The only way by which it can be attacked is by means
parties or to of one of does not comply contract are of a direct action for rescission based on any of the
third persons the with the Statute lacking causes expressly specied by law; hence, it cannot
contracting of Frauds, or either in fact be attacked collaterally
parties both contracting or in law.
parties are Characteristics:
legally
incapacitated; 1. Their defect consists in injury or damage
As to effect either to one of the contracting parties or to
third persons.
valid and valid and cannot be Do not, as a
enforceable enforceable enforced by a general 2. Before rescission, they are valid and,
until they are until they proper action in rule, therefore, legally effective.
rescinded by are court produce a 3. They can be attacked directly only, and not
a competent annulled by legal effect collaterally.
court a
competent
4. They can be attacked only either by a
court contracting party or by a third person who is
As to prescriptibility of action or defense injured or defrauded.
The action The action The The action 5. They are susceptible of convalidation only by
for for corresponding for prescription, and not by ratication
rescission annulment action for declaration
may or the recovery, if there of nullity or Concept of rescission
prescribe defense of was total or inexistence
annulability patial or the A remedy granted by law to the contracting parties,
may performance of defense of and even to third persons, to secure the reparation of
prescribe the nullity or
unenforceable inexistence damages caused to them by a contract, even if the
same should be valid, by means of the restoration of 1. Contracts in Behalf of Ward
things to their condition prior to the celebration of the
contract Entered into by guardians whenever the wards whom
they represent suffer lesion or damage by more than
Distinguished from resolution one-fourth of the value of the things which are the
object thereof. This is without prejudice to the
Rescissible Resolution of provision of Art. 1386 which states that rescission
Contract Reciprocal Obli
(Art 1191) shall not take place with respect to contracts
Party who may Contracting Contracting approved by the courts
institute action parties and third parties only
person Under the Rules of Court, a judicial guardian entering
As to causes Several: fraud Only one: failure into a contract with respect to the property of his ward
and others of parties to must ordinarily secure the approval of a competent
specified by law comply with what
court. This is also true in the case of a father or
is incumbent
upon him mother considered as a natural guardian of the
As to power of No power of the Courts shall property of a child under parental authority where
the courts courts to grant have a such property is worth more than two thousand pesos.
an extension of discretionary
time for power to grant If the contract involves the sale or encumbrance of
performance of an extension for real property, judicial approval is indispensable,
the obligation so performance
long as there is a provided that
otherwise it is unenforceable
ground for there is a just
rescission cause However, if he enters into a contract falling within the
As to contracts Unilateral or Only reciprocal scope of his powers as guardian of the person and
which may be reciprocal contracts property, or only of the property, of his ward, such as
rescinded or when the contract involves acts of administration,
resolved express judicial approval is not necessary

2. Contracts in Behalf of Absentees

Distinguished from rescission by mutual consent
If the latter suffer the lesion or damage stated in the
1. Causes of rescission preceding number. However, such contracts are not
2. Laws applicable rescissible if they have been approved by the courts
3. Effects
Requisites:
Art. 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians 1. The contract must have been entered into by
whenever the wards whom they represent suffer a guardian in behalf of his ward or by a legal
lesion by more than one-fourth of the value of the representative in behalf of an absentee;
things which are the object thereof; 2. The ward or absentee must have suffered
lesion of more than one-fourth of the value of
(2) Those agreed upon in representation of
the property which is the object of the
absentees, if the latter suffer the lesion stated in
contract;
the preceding number;
3. The contract must have been entered into
(3) Those undertaken in fraud of creditors when without judicial approval;
the latter cannot in any manner collect the claims 4. There must be no other legal means for
due them; obtaining reparation for the lesion;
5. The person bringing the action must be able
(4) Those which refer to things under litigation if to return whatever he may be obliged to
they have been entered into by the defendant restore;
without the knowledge and approval of the 6. The object of the contract must not be legally
litigants or of competent judicial authority; in the possession of a third person who did
not act in bad faith (In such case, remedy
(5) All other contracts specially declared by law to available would be indemnification for
be subject to rescission damages)
Art. 1382. Payments made in a state insolvency 3. Contracts in Fraud of Creditors
for obligations to whose fulllment the debtor
could not be compelled at the time they were When the latter cannot in any other manner collect the
effected, are also rescissible claims due them. It complements Art 1177 which
states that one of the remedies available to the Contracts in Fraud Under Litigation
creditor after he has exhausted all the property in Purpose is to guarantee Purpose is to secure the
possession of the debtor is to impugn the acts which an existing credit possible effectivity of a
the latter may have done to defraud him claim
Personal right, both of Real right involved
Requisites: which deserve the
protection of the law
1. There must be a credit existing prior to the Similar in the sense that in both cases the person
celebration of the contract; can avail of the remedy of recission is a stranger to
2. There must be a fraud, or at least, the intent the contract
to commit fraud, or at least, the intent to
commit fraud to the prejudice of the creditor
seeking the rescission; 5. Contracts by insolvent
3. The creditor cannot in any other legal
Payments made in a state of insolvency for
manner collect his credit;
obligations to whose fulllment the debtor could not
4. The object of the contract must not be legally
be compelled at the time they were effected, are also
in the possession of a third person who did
rescissible
not act in bad faith (In such case, the remedy
available is to proceed against the person Requisites:
causing the loss for damages)
1. that it must have been made in a state of
Accion pauliana- the action to rescind contracts in insolvency, and
fraud of creditors 2. that the obligation must have been one
which the debtor could not be compelled to
Requisites:
pay at the time such payment was effected.
1. the plaintiff asking for rescission has a credit
The basis of the rescissible character of the
prior to the alienation;
transaction is fraud in the case of Nos. 3 and 4 of Art
2. the debtor has made a subsequent contract
1381
conveying a patrimonial benet to a third
person; Insolvency- nancial situation of the debtor by virtue
3. the creditor has no other legal remedy to of which it is impossible for him to fulll his
satisfy his claim; obligations. A judicial declaration of insolvency is not,
4. the act being impugned is fraudulent; therefore, necessary
5. the third person who received the property
conveyed, if it is by onerous title, has been The obligations contemplated by this article
an accomplice in the fraud. comprehend not only those with a term or which are
subject to a suspensive condition, but even void and
General Rule: Rescission requires the existence of natural obligations as well as those which are
creditors at the time of the alleged fraudulent condoned or which have prescribed
alienation, and this must be proved as one of the
bases of the judicial pronouncement setting aside the If the obligation with a period became due before the
contract obligation to the creditor seeking the rescission
became due, then the latter cannot rescind the
Without any prior existing debt, there can neither payment even if such payment was effected before
be injury nor fraud. While it is necessary that the the expiration of the period; but if the obligation with a
credit of the plaintiff in the accion pauliana must exist period became due after the obligation to the creditor
prior to the fraudulent alienation, the date of the seeking the rescission became due, then the latter
judgment enforcing it is immaterial. Even if the can rescind the payment
judgment be subsequent to the alienation, it is merely
declaratory, with retraoctive effect to the date when Art. 1383. The action for rescission is subsidiary;
the credit was constituted. it cannot be instituted except when the party
suffering damage has no other legal means to
4. Contracts Referring to Things Under Litigation obtain reparation for the same
If they have been entered into by the defendant Subsidiary Character of Action
without the knowledge and approval of the litigants or
of competent judicial authority Before a party who is prejudiced can avail himself of
this remedy, it is essential that he has exhausted all of
the other legal means to obtain reparation
Where there is no allegation or evidence that the contracting parties to return to the other the object of
creditor has already exhausted all of legal remedies to the contract, including fruits or interests.
obtain reparation from the debtor, the action to Consequently, rescission is not possible, unless he
rescind the sale in question made by said debtor is who demands it can return whatever he may be
not maintainable obliged to restore.

Parties who may institute action Consideration received should be refunded

1. Person who is prejudiced The fruits of the thing refer not only to natural,
2. Representatives industrial and civil fruits but also to other accessions
3. Heirs obtained by the thing, while interest refers to legal
4. Creditors by virtue of subrogatory action interest
defined in Art. 1177
As far as the obligation to restore the fruits is
The rights of a forced heir to the legitime are concerned, the rules on possession shall be applied
undoubtedly similar to a credit of a creditor insofar as
the right to the legitime may be defeated by fraudulent The determination of the good or bad faith of the party
contracts, and are superior to the will of those bound obliged to restore is of transcendental importance in
to respect them. order to assess the fruits or the value thereof which
must be returned as well as the expenses which must
Art. 1384. Rescission shall be only to the extent be reimbursed
necessary to cover the damages caused
The vendor must refund to the vendees in good faith
Extent of Rescission an amount equal to the purchase price, plus the sum
expended by them in improving the land
It must be observed that the primary purpose of
rescission is reparation for the damage or injury which Effect of Rescission Upon Third Persons
is suffered either by a party to the contract or by a
third person. Rescission shall not take place when the thing which
constitutes the object of the contract is legally in the
May be total or partial in character possession of a third person who did not act in bad
faith
A contract in fraud of creditors may be partially
rescinded to an extent which is sufcient to satisfy the Requisites:
damage caused to the creditor
1. that the thing must be legally in the
Art. 1385. Rescission creates the obligation to possession of the third person
return the things which were the object of the 2. that such third person must not have acted in
contract, together with their fruits, and the price bad faith
with its interest; consequently, it can be carried
out only when he who demands rescission can Movable property- possession when acquired in good
return whatever he may be obliged to restore. faith is equivalent to title

Neither shall rescission take place when the Immovable property- right of third person must be
things which are the object of the contract are registered or recorded in the proper registry to have
legally in the possession of third persons who did legal possession
not act in bad faith.
Consequently, it has been held that a third person to
In this case, indemnity for damages may be whom the realty has been transferred who has not
demanded from the person causing the loss registered his right in the proper registry cannot be
protected against the effects of a judgment rendered
Effect of Rescission in Case of Lesion in the action for rescission

Art. 1385 (1) is applicable only to rescissory actions If property is in possession of a third person who did
on the ground of lesion and not to rescissory actions not act in bad faith, remedy is an action for damages
on the ground of fraud. This is so because in the latter against the person who caused the loss
there can certainly be no obligation on the part of the
plaintiff-creditor to restore anything since he has not Art. 1386. Rescission referred to in Nos. 1 and 2 of
received anything Article 1381 shall not take place with respect to
contracts approved by the courts.
Once a contract is rescinded on the ground of lesion,
there arises an obligation on the part of both
Art. 1387. All contracts by virtue of which the Circumstances denominate by the courts as
debtor alienates property by gratuitous title are badges of fraud
presumed to have been entered into in fraud of
creditors, when the donor did not reserve 1. The fact that the cause or consideration of
sufcient property to pay all debts contracted the conveyance is inadequate.
before the donation. 2. A transfer made by a debtor after suit has
been begun and while it is pending against
Alienations by onerous title are also presumed him.
fraudulent when made by persons against whom 3. A sale on credit by an insolvent debtor.
some judgment has been rendered in any 4. Evidence of large indebtedness or complete
instance or some writ of attachment has been insolvency.
issued. The decision or attachment need not refer 5. The transfer of all or nearly all of his property
to the property alienated, and need not have been by a debtor, especially when he is insolvent
obtained by the party seeking the rescission. or greatly embarrassed nancially.
6. The fact that the transfer is made between
In addition to these presumptions, the design to father and son, when there are present
defraud creditors may be proved in any other others of the above circumstances.
manner recognized by the law of evidence. 7. The failure of the vendee to take exclusive
possession of all the property
Art. 1388. Whoever acquires in bad faith the
things alienated in fraud of creditors shall Acquisition by third person in good faith
indemnify the latter for damages suffered by them
on account of the alienation, whenever, due to any If the property is acquired by a purchaser in good faith
cause, it should be impossible for him to return and for value, the acquisition as far as the law is
them. concerned is not fraudulent. The creditor who is
prejudiced can still proceed after the property even
If there are two or more alienations, the rst though the said property may have been transferred
acquirer shall be liable rst, and so on or conveyed to other persons who are not innocent
successively purchasers for value
Proof of Fraud If for any cause or reason, it should be impossible for
the acquirer in bad faith to return the property, he
There must be existence of fraud, intent to defraud
shall indemnify the creditor seeking the rescission for
which may be presumed in accordance with Art 1387
damages suffered on account of the alienation
or in accordance with the ordinary rules of evidence
If the reason for the impossibility of returning the
Presumptions of fraud
property acquired in bad faith is a fortuitous event,
1. Alienations of property by gratuitous title if then under the principle announced in Art. 1174 of the
the debtor has not reserved sufcient Code, there can be no liability of the acquirer
property to pay all of his debts contracted
Art. 1389. The action to claim rescission must be
before such alienations
commenced within four years. For persons under
2. Alienations of property by onerous title if
guardianship and for absentees, the period of four
made by a debtor against whom some
years shall not begin until the termination of the
judgment has been rendered in any instance
formers incapacity, or until the domicile of the
or some writ of attachment has been issued
latter is known.
These presumptions are disputable, and may be
Prescriptive Period
rebutted by satisfactory and convincing evidence to
the contrary General Rule: Action for rescission of a contract must
be commenced within 4 years
Badges of fraud
Art. 1391 (1)- this period must be counted form the
The design to defraud creditors may be proved in any
time of the termination of the incapacity of the ward
other manner recognized by the law of evidence
2- it must be counted from the time the domicile of the
Test in determining whether a certain conveyance
absentee is known
is fraudulent: whether the conveyance was a bona
fide transaction or merely a trick or contrivance to 3 and 4- it must be counted from the discovery of the
defeat creditors fraud
In certain cases of contracts of sale which are contracting parties or to
specially declared by law to be rescissible, however, a third person
the prescriptive period for the commencement of the Voidable even if there is Not rescissible if there
action is six months or even forty days, counted from no damage or prejudice is no damage or
the day of delivery prejudice
Annulabilty is based on Rescissibility is based
Chapter 7 the law; on equity;
Voidable Contracts not only a remedy but a mere remedy;
sanction;
All of the essential elements for validity are present, predominated by public predominated by private
although the element of consent is vitiated either by interest interest
lack of legal capacity of one of the contracting parties, Causes for annulment are different for rescission
or by mistake, violence, intimidation, undue inuence, Susceptible for Not susceptible for
or fraud ratification ratification
May be invoked only by Either by a party or a
The most essential feature of a voidable contract is a contracting party third person who is
that it is binding until it is annulled by a competent prejudiced
court. If plaintiff is indemnified, Indemnity is no bar to
rescission cannot the prosecution
Once executed, there are only two possible prosper
alternatives left to the party who may invoke its Compatible with perfect Defect is presupposed
voidable character: validity of the contract

1. Attack its validity

2. Convalidate it either by ratification or Art. 1390. The following contracts are voidable or
prescription annullable, even though there may have been no
damage to the contracting parties:
Validity may be attacked directly by means of proper
action or indirectly by way of defense. (1) Those where one of the parties is incapable of
giving consent to a contract;
The action itself is called annulment in order to
distinguish it from an action for rescission of (2) Those where the consent is vitiated by
rescissble contracts or from an action for the mistake, violence, intimidation, undue inuence or
declaration of absolute nullity or inexistence of void or fraud. These contracts are binding, unless they
inexistent contracts are annulled by a proper action in court. They are
susceptible of ratication.
Defense itself is called annulability or relative
nullity in order to distinguish it from the defense of Contracts which are voidable
absolute nullity or inexistence in void or inexistent
All of the essential requisites for validity are present,
contracts or the defense of unenforceability in
although the requisite of consent is defective because
unenforceable contracts
one of the contracting parties does not possess the
Characteristics: necessary legal capacity, or because it is vitiated by
mistake, violence, intimidation, undue inuence or
1. Their defect consists in the vitiation of fraud. If consent is absolutely lacking or simulated, the
consent of one of the contracting parties contract is inexistent, not voidable
2. They are binding until they are annulled by a
competent court Even though there may have been no damage to the
3. They are susceptible of convalidation by contracting parties, such contracts are still voidable.
ratification or by prescription Hence, whether a contract which the law considers as
voidable has already been consummated or is merely
Their defect or voidable character cannot be executory is immaterial; it can always be annulled by
invoked by third persons a proper action in court.

Distinguished from rescissible contracts Grounds for Annulment

Voidable Rescissible a. Incapacity to consent

Defect is intrinsic Defect is external b. Vitiated consent
because it consists of a because it consists of
vice which vitiates damage or prejudice
consent either to one of the