M3_PRESENTATION IN OBLIGATIONS AND Contracts (1).pptx

A POWERPOINT ON CONTRACTS

1. CONTRACTS Atty. Armando d. Dalisay jr. cpa , reb , rea, lpt

2. Contracts, classification of contracts Contracts defined 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. Elements of a Contract Essential Elements – those without which there will be no contract a. consent of the contracting parties. b. object certain which is the subject matter of the contract. c. cause of the obligation which must be established Natural Elements – those found in certain contracts unless set aside or suppressed by the parties (such as warranty against hidden defects in a contract of sale). {art. 1547} Accidental Elements – those that refer to particular stipulations of the parties (such as terms of payment, interest rate, place of payment). (art. 1547) Classification of Contracts 1. According to perfection or formation. a. Consensual – those that are perfected by mere consent (such as sale and lease) b. Real – those that are perfected by the delivery of the object of the contract (such depositum, pledge and commodatum c. Formal or solemn – those which must be in the form provided by law for their perfection (such as the donation of an immovable which, together with acceptance by the done, must be in public instrument to be valid.

3. Contracts 2. According to cause a. Onerous – those where there is an exchange of valuable considerations (such sale and barter). For each contracting party, the cause is the prestation or the promise of a thing or service by the other. (Art. 1350) b. Gratuitous or lucrative – those where on party receives no equivalent consideration (such as donation or commodatum ). These contracts are referred to as contracts of pure beneficence, the cause of which is the liberality of the benefactor. (Art. 1350) c. Remuneratory – those where the cause is the service or benefit remunerated. (Art. 1350) 3. According to importance or dependence of one upon another a. Principal – one that can stand by itself (such as sale, loan) b. Accessory – One whose existence depends upon another contract (such as pledge or mortgage which is dependent upon a principal contract such as a loan. c. Preparatory – One which serves as a means by which other contracts may be entered into (such as agency and partnership). 4. According to name or designation a. Nominate – those which have a name under the law (such as sale, loan and barter) b. Innominate – those without any name under the law. Authorities in Civli Law, list the following as innominate contracts: 1. Do ut des (I give that you may give) 2. Do ut facias (I give that you may do) 3. Facio ut des (I do that you may give) 4. Facio ut facias (I do that you may do) *This may actually be barter, hence, a nominate contract. (See Art. 1636) Rules that govern innominate contracts 1. The stipulation of the parties 2. The provisions of Obligations and Contracts 3. The rules governing the most analogous nominate contracts; and 4. The customs of the place.

4. Contracts 5. According to risk or fulfillment a. Commutative – those where the parties give equivalents values (such as sale and barter); hence, there is real fulfillment. b. Aleatory – those whose fulfillment depends upon chance (such as an insurance contract) 6. According to the parties obligated a. Unilateral – those where only one of the parties is obligated to give or do something (such as commodatum and gratuitous deposit). b. Bilateral (or sygnalagmatic ) – those where both parties are required to give or do something (such as sale and barter). They may be reciprocal or non-reciprocal. 7. According to subject matter a. Contracts involving things (such as sale or barter). b. Contracts involving right or credits (such as usufruct or assignment of credits). c. Contracts involving services (such as agency or lease of service) 8. According to the time of fulfillment a. Executed – One which has been performed. b. Executory – One that has not yet been performed. 9. Other classifications a. Auto-contract – where only one person represents the two opposite parties to the contract (such as when an agent lends money to his principal whom he represents as borrower). b. Contract of adhesion – where only one party drafted the contract (such as insurance).

5. Stages of Contracts Stages of a contract Preparation or conception – this involves preliminary negotiation and bargaining discussions of terms and conditions and bargaining, discussion of terms and conditions with no arrival yet of a definite agreement. Negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of their agreement. Perfection or birth - this is the point when there is a meeting of minds between the parties on a definite subject matter and a valid cause. Consummation or death or termination – this occurs when the parties fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment thereof. Basic principles of contract 1. Liberty of contract of freedom to stipulate a. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy. (Art. 1306) 2. Mutuality of contracts The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. (Art. 1308). 3. Relativity of contracts Contracts take effect only between the parties, their assigns and heirs, except where the rights and obligations are not transmissible. a. by law, b. by stipulation c. by nature ( see GR No. 145736, March 4, 2009)

6. Essential requisites of contracts - consent 5. Obligatory force of contract and compliance in good faith Obligations arising from contracts shall have the force of law between the contracting parties and should be complied with in good faith. (art. 1159) Upon the perfection of the contract, the parties are bound to the following; a. The fulfillment of what has been expressly stipulated. b. All the consequences which, according to their nature, may be in keeping with good faith, usage and law. (Art. 1315) ESSENTIAL REQUISITES OF CONTRACTS Consent of the Contracting Parties Consent, meaning Consent is the manifestation of the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. (Art. 1319) Rules on offer The offer must be certain (Art. 1319) because there could be no meeting of minds if it is vague or not definite. It must be definite, complete and intentional.” Nature of advertisements a. Business advertisements of things for sale are not definite offers, but mere invitations to make an offer unless it appears otherwise. (Art. 1325) b. Advertisements for bidders are merely invitations to make proposals and the advertiser is not bound to accepts the highest or lowest bidder, unless the contrary appears. (art. 1326)

7. Rules on acceptance 2. An offer becomes ineffective upon the death, civil interdiction, insanity or insolvency of either party before acceptance is conveyed. (Art. 1323). 3. 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. (Art. 1324). Option is a contract whereby the offeror gives the offeree a certain period of time to buy or not to buy a certain object for a fixed price. It may or may not be for a valuable consideration. Right of the offeror to withdraw the offer a. If there is no consideration for the option, the offerer may withdraw the offer at anytime within the option period provided there has not yet been any acceptance. b. If there is a consideration, the offerer may not withdraw the offer before the lapse of the period agreed upon.. Otherwise he will be liable for damages to the offeree for breach of contract. Rules on acceptance 1. The acceptance must be absolute. (Art. 1319). If the acceptance varies the offer, there is no contract since there is no meeting of minds. a. If the acceptance is qualified, it constitutes a counter-offer; (Art. 1319) and has the effect of rejecting the offer. b. If the offer fixes the time, place and manner of acceptance, all must be complied with. (Art. 1321) Otherwise, there will be no meeting of minds.

8. Rules on consent 2. An acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. The contract in such case is presumed to have been entered into the place where the offer was made. 3. Acceptance may be express or implied. (Art. 1320) The acceptance is express if made orally or in writing. It is implied if it can be inferred from the contract of the parties. 4. An offer made through an agent is accepted from the time it is communicated to him. (Art. 1322) Rules on consent The parties must have the capacity to enter into a contract. The following cannot give consent to a contract: a. Unemancipated minors Emancipation takes place by the attainment of the age of majority which is eighteen years. (Art. 234, Family Code, as amended) b. Insane or demented persons However, contracts entered into during lucid intervals are valid. (Art. 1238) Lucid interval refers to the period of temporary sanity of an insane person. c. Deaf-mutes who do not know hoe to write. A contract entered into by the above-named incapacitated persons is voidable. (Art. 1390). However, when both parties are incapable of giving consent to a contract, the contract is enforceable. (Art. 1403) 2. Contracts agreed to in a state of drunkenness or during a hypnotic spell are voidable. (Art. 1328) This is so because consent given in such states is not freely and intelligently given.

9. Rules on consent 3. A contract where consent is given through mistake, violence, intimidation, undue influence or fraud is voidable. (Art. 1330) These five are referred to as the causes that vitiate consent or the vices of consent. a. Mistake 1. When mistake will invalidate consent a. If the mistake refers to the substance of the thing which is the object of the contract. (Art. 1331) b. If the mistake refers to those conditions which have principally moved on or both parties to enter into the contract. (Art. 1331) c. If the mistake refers to the identity or qualifications of one of the parties if such identity or qualifications have been the principal cause of the contract. (Art, 1331) d. If the mistake refers to the legal effect of an agreement when the real purpose of the parties is frustrated and the same is mutual. (Art. 1334) 2. When a mistake does not vitiate a consent a. If the mistake refers to a simple mistake of account which shall only be corrected. (Art. 1331) b. If the party alleging it knew the doubt, contingency or risk affecting the object of the contract. (Art. 1333) 3. Rule when one party is unable to read or does not understand the language of the contract. If the mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former. (Art. 1332)

10. Rules on consent b. Violence or physical coercion 1. When violence vitiates consent There is violence when in order to wrest consent, serious or irresistible force is employed. (Art. 1335) c. Intimidation or moral coercion 1. When intimidation vitiates consent. There is intimidation when ne of the contracting parties is compelled by a reasonable and well grounded fear of an imminent and grave evil upon his person or property of his spouse, descendants or ascendants to give his consent. (Art. 1335). Those intimidation may still have been employed by a third person who did not take part in the contract. (Art. 1336) 2. Factors to be considered in determining the degree of intimidation a. age; b. sex and c. condition of the person. (Art. 1335) 3. When no intimidation exists No intimidation exists in case of a threat to enforce one’s claim through competent authority, if the claim is just or legal. (Art. 1335) d. Undue Influence 1. When undue influence vitiates consent

11. Rules on consent d. Undue Influence 1. When undue influence vitiates consent a. When, through the 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 agreed to. (Art. 1338) The fraud here is active fraud. b. When there is a failure to disclose facts, when there is a duty to revel them, as when the parties are bound by confidential relations. (Art. 1339) 2. Requisites to make a contract voidable by reason of fraud a. The fraud should be serious. b. The fraud should not have been employed by both contracting parties. (Art. 1344) 3. When no fraud exists a. In case of the usual exaggerations in trade, when the other party had an opportunity to know the facts. (Art. 1340) b. In case of a mere expression of an opinion, unless made by an expert and the other party has relied on the former’s special knowledge. (Art. 1341) c. In case of misrepresentation by a third person, unless such misrepresentation has created substantial mistake and the same is mutual. d. If the misrepresentation was made in good faith. However, the same may constitute error. (Art. 1343)

12. Kinds of dolo or fraud 4. Kinds of dolo or fraud a. Fraud in obtaining consent 1. Causal fraud or dolo causante - Fraud without which consent would not have been given. It renders the contract voidable. 2. Incidental fraud or dolo incidente Fraud without which the consent would have been given but the person giving it would have agreed o different terms. The contract is valid but the party employing it shall be liable for damages. b. Fraud in the performance of the obligation This is the deliberate act of evading fulfillment of an obligation in a normal manner. Simulated contract, concept and kinds A simulated contract is one that does not intend to have any legal effect on or a change in the juridical situation of the parties. There are two kinds: 1. Absolutely simulated contract – one where the parties do not intend to be bound at all. (Art. 1345) Being fictitious do not intend to be bound at all. (Art. 1345) 2. Relatively simulated contract – one where the parties conceal their true agreement. (Art. 1345) The parties here are bound by their real agreement provided it does not prejudice a third person and is not intended for any purpose contrary to law, morals, good customs, public purpose or public policy. (Art. 1346)

13. Objects of contracts What may be the object of contracts All things which are not outside the commerce of men, including future things. (Art. 1347) Contract is generally void when the object is future inheritance. The contract involving future inheritance is void when the following requisites concur: a. The succession has not been opened. b. The object of the contract forms part of the inheritance; and c. The promissor has, with respect to the object, an expectancy or rights which is purely hereditary in nature. 2. All rights which are not intransmissible . (Art. 1347) Thus, a credit right may be the object of deed of assignment; so also are leasehold rights to a certain building. However, strictly personal rights, such as parental authority, or political rights such as the right to vote or to run for public office, may not be the object of contracts, as they are intransmissible . 3. All services which are not contrary to law, morals, good customs, public order or public policy. (Art. 1347) Requisites of object of a contract It must be within the commerce of men. (Art. 1347) It must be transmissible. (Art. 1347) It must not be contrary to law, morals, good customs, public order or public policy. (Art. 1347) It must not be impossible. (Art. 1348) It must be determinate as to its kind or if its quantity is not determinate, it must be possible to determine the same without the need of a new contract between the parties. (Art. 1349)

14. cause of contracts Human internal organs as object of a contract R.A. No. 9208 penalizes human trafficking for the purpose of the removal or sale of internal organs. The law provides that the human body and its parts cannot be the subject of commercial transactions. Cause of Contracts Cause, concept It is the essential reason why a party enters into a contract. Cause of contracts Onerous contract – Here, the cause for each contracting party is the prestation or promise of a thing or service by the other. (Art. 1350) Remuneratory contract – Here, the cause is the service or benefit which is remunerated. (Art. 1350) Gratuitous, lucrative or contract of pure beneficence – The cause is the liberality of the benefactor. (Art. 1350) Requisites of cause It must exist. a. It is presumed that the cause exist and it is lawful, even if not stated in the contract, unless the debtor proves the contrary. (Art. 1354) b. Contracts without cause produce no effect whatsoever. (Art. 1352) 2. It must be lawful. Contracts with unlawful cause produce no effect whatsoever. The cause is unlawful if it is contrary to law, morals, good customs, public policy or public order.

15. cause of contracts 3. It must be true. The statement of a false cause in a contract shall render them void, if it should not be proved that they were founded upon another cause which is true and lawful. (Art. 1353) Cause and motive distinguished Cause is the essential reasons of the contract; while motive is the private or secret reason or intention of a contracting party. The contract is void if the cause is illegal; the validity of the contract is not affected by the illegality of the motive. The cause of a contract is always known to the contracting parties, while the motive of one party may not be known to the other. Lesion, concept and effect on contract Lesion is the inadequacy of cause. As a general rule, lesion shall not invalidate a contract except in the following: When there was fraud, mistake and undue unfluence . (Art. 1355) In cases provided by law, such as when the ward or absentee suffer lesion by more than one fourth of the value of the object of the contract. (Art. 1381)

16. defective contracts Defective Contracts The following are the defective contracts, arranged according to the gravity of their defect; 1. Rescissible contract 2. Voidable contract 3. Unenforceable contract Rescissible Contracts A rescissible contract is one which has all the essential requisites of a contract but which may be set aside by reason of equity on account of damage to one of the parties or upon a third person. The following are rescissible contracts. (Art. 1381) 1. Those entered into by guardians whenever the ward whom they represent suffer lesion by more than one-fourth of the value of the things which are the object thereof. 2. Those agreed to in representation of absentees, if the latter suffer lesion by more than one-fourth of the value of the things which are the object thereof. 3. Those undertaken in fraud of creditors when the latter cannot in any manner collect the claims due them. 4. Those which refer to things under litigation it they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority.

17. Requisites of rescission 5. All other contracts specially declared by the law to be the subject to rescission. (Art. 1381) Rescissible payment, requisites 1. The debtor is insolvent. 2. The obligation is not yet due. 3. The debtor makes the payment. (Art. 1382) Rescission, concept Rescission is the remedy allowed by law to the contracting parties and even to third persons, to secure the reparation of damages caused to them by a contract, even if it should be valid, by means of restoration of things to their condition at the moment prior to the celebration of said contract. Requisites for rescission 1. The party suffering damage must have no other legal means to obtain reparation for the same. (Art. 1383) 2. The party demanding rescission must be able to return whatever he may obliged to restore. (Art. 1385) 3. The thing object of the contract must not be legally in the possession of a third person who acted in good faith. (Art. 1385) 4. The action for rescission must be brought is 4 years from the date of the contract, except in the following: a. For persons under guardianship – 4 years from termination of incapacity. b. For absentees – 4 years from the time the absentee’s domicile is known.

18. defective contracts Extent of rescission Rescission shall only be to the extent necessary to cover the damages caused. (Art. 1384) Alienations in fraud of creditors 1. Alienations by gratuitous title Gratuitous alienations are presumed to have been entered into in fraud of creditors if the debtor did not reserve sufficient property to pay all debts contracted before the donation. (Art. 1387) 2. Alienations by onerous title (such as sale or exchange) Onerous alienations are presumed fraudulent when made by persons against whom some judgement has been rendered in any instance or some writ of attachment has been issued. Liability for damages of persons acquiring things is alienations in fraud of creditors If the purchase was made in bad faith If the purchase was made in good faith Voidable Contracts A voidable contract is one that is defective by reason of the incapacity or vitiated consent of one to the parties. It is binding unless by a proper action in court. It is susceptible of ratification. (Art. 1390)

19. Voidable contracts The following are voidable or annullable contracts Those where one o f the parties is incapable of giving consent to a contract. The following are incapable of giving consent to a contract: a. Unemancipated minors b. Insane or demented persons. c. Deaf-mutes who did not know how to write. (Art. 1327) 2. Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud. (Art. 1390) 3. Those where consent is given in a state of drunkenness. (Art. 1328) 4. Those where consent is given during a hypnotic spell. (Art. 1328) Amendment, concept Annulment is the action brought to set aside a voidable contract. Annulment and rescission, distinguished Annulment is brought to declare the inefficacy inherent in the contract. Rescission is availed of to produce the inefficacy which did not exist in the contract. Annulment is based on vitiated consent; hence, damage is immaterial. Rescission is based on lesion or damage.

20. Voidable contracts 3. In annulment, the action is principal. In rescission, the action is subsidiary. 4. Annulment is a sanction where the law predominates. Rescission is a remedy where equity predominates. 5. Annulment is available only to the parties, whether bound principally or subsidiarily. Rescission is available not only to the contracting parties but also to third persons whose are affected. 6. Ratification is required to prevent annulment, while ratification is not required to prevent rescission. Rules on annulment of voidable contracts When action must be brought (prescriptive period); otherwise the contract can no longer be set aside. The action for annulment must be brought within four (4) years which period shall begin: a. In cases of intimidation, violence or undue influence, from the time the defect in the consent ceases. b. In case of mistake or fraud, from the time of discovery of the same. c. In cases of minority or other incapacity of a party, from the time guardianship ceases. (Art. 1391) 2. Who may bring action for annulment The action for annulment may be instituted by all who are thereby obliged primarily or subsidiarily. (Art. 1397) Hence , it cannot be brought by third person. It may be brought by the following: a. The guardian of the incapacitated person during the latter’s incapacity.

21. Voidable contracts b. The incapacitated person after he has attained capacity. c. The party whose consent is vitiated by mistake, violence, intimidation, undue influence or fraud. 3. Effects of annulment a. Obligations created by annulment 1. In obligations to give, the contracting parties shall restore to each other, except in cases provided by law, the following: a. The things which have been the subject matter of the contract, with their fruits. b. The price with its interest. (Art. 1398) 2. In obligations to render service, the value thereof shall be the basis of damages. (art. 1398) 3. Restitution when one of the parties is incapacitated. 4. When the thing is lost through the fault of the party obliged by the decree of annulment to return it The said party shall return the following: a. Fruits received. b. Value of the thing at the same time o the loss. c. Interest from the time of the loss. (Art. 1400)

22. Rules on ratification 5. Mutual restitution If one party cannot restore what he is bound to return in the decree of annulment, the other cannot be compelled to comply with what is incumbent upon him. (Art. 1402) 4. Effect of loss of thing while in the possession of the party who has right to bring the action for annulment a. If lost through his fault, the action for annulment is extinguished, whether such party is incapacitated or his consent is vitiated. b. If lost without fault and such party is incapacitated, he can still bring an action for annulment. Ratification, concept Ratification is the adoption or affirmation of a contract which is defective because of a party’s vitiated consent or incapacity. Rules on ratification How ratification is made. a. Express – when made in wirting . b. Implied or tacit – there is 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 executes an act which necessarily implies an action to waive his right. (Art, 1393)

23. Unenforceable contracts 2. Who may ratify (the same persons who may annul the contract) a. The guardian of the incapacitated person during the latter’s incapacity b. The incapacitated whose consent is vitiated by mistake, violence, intimidation, undue influence or fraud. 3. Effect of ratification a. It extinguishes the action to annul a voidable contract. (Art. 1392) b. It cleanses the contract from all its defects from the moment it was constituted. In other words, the contract is validated from inception. Unenforceable Contracts An unenforceable contract is on that cannot be enforced unless ratified. Right to defense of unenforceability This right is available only to the contracting parties. Unenforceable contracts cannot be assailed by third persons. (Art. 1408) The following are unenforceable contracts: 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. (Art. 1403)

24. Unenforceable contracts 2. Those that do comply with the Statute of Frauds. (Art. 1403) The Statute of Frauds is a statute designed to prevent the commission of fraud by requiring certain contracts to be in writing and be subscribed by the party charged. It applies only to wholly executory contracts. The following contracts must be in writing otherwise they are unenforceable: a. An agreement that by the its terms is not to be performed within a year from the making thereof. b. A special promise to answer for the debt, default or miscarriage of another. This is known as guaranty. c. An agreement in consideration of marriage, other than mutual promise to marry. d. Sale of goods, chattels or things in action at a price not less that P500. e. An agreement for the leasing of a real property or of an interest therein for more than a year. f. Sale of real property or an inherent therein. e. A representation as to the credit of a third person. Applicability of Statute of Frauds The Statute of Frauds applies only to executory, not to completed, executed or partially consummated contracts. They are susceptible of ratification through any of the following means which will render them enforceable.

25. void contracts a. By the failure to object to the presentation or oral evidence to prove them. b. By the acceptance of benefits under them. (Art. 1405) This will make the contract executed in part. 3. Those where both parties are incapable of giving consent to a contract. (Art. 1403) Thus a contract us unenforceable if one party is a minor, while the other party is insane. Effect of ratification by parent or guardian a. When only the parent or guardian of one party ratifies, the contract is voidable at the instance of the parent or guardian of the party who did not ratify the contract. b. When the parents or guardians of both parties ratify, the contract shall be considered validated from inception. (Art. 1407) Void or Inexistent Contracts A void contract is one which has no force and effect from the very beginning, as if it had never been entered into and which cannot be validated either by time or ratification. Characteristics of a void contract 1. A void contract cannot be ratified. (Art. 1409)

26. void contracts 2. The right to set up the defense of illegality cannot be waived. (Art. 1409) 3. The action or defense for the declaration of the inexistence of a contract does not prescribed. (Art. 1410) 4. The defense of illegality of contracts is not available in third persons whose interests are not directly affected. (Art. 1421) 5. A contract is void and inexistent if it is the direct result of a previous illegal contract. (Art. 1422) The following contracts are void from the very beginning (Art. 1409) Those whose cause, object or purpose is contrary l=to law, morals, good customs, public order or public policy. (Art. 1347, 1352) Those which are absolutely simulated or fictitious. (Art. 1356) Those whose object or cause did not exist at the time of the transaction. Those whose object id outside the commerce of men. (Art. 1347) Those which contemplate an impossible service. (Art. 1347, 1348) Those where the intention of the parties relative to the principal object if the contract cannot be ascertained. (Art. 1378, par. 2) Those expressly prohibited or declared voi

27. void contracts The following are some contracts declared void by law. ( aArt . 1409) a. A contract of donation between spouses during the marriage (except moderate ones made on the occasion of a family rejoicing.) Art. 87, Family Code.) b. A contract of sale between spouses (except there is a separation of property). (Art. 1490) c. A contract which stipulates that the household service shall be without any compensation. ( Artt . 1689) d. A contract upon furniture inheritance (except in cases provided by law such as in the marriage settlements) Kinds of Illegal contracts; effect of illegality Where the contract is a criminal offense. (Art. 1411) a. If both parties are guilty (in pari delicto) 1. They shall have no right of action against each other. 2. Both shall be criminally prosecuted. 3. The effects and instruments of the crime (the things and price of the contract) shall be confiscated in favor of the government. b. If only one party is guilty 1. The guilty party will be criminally prosecuted. 2. Neither one may compel the other to comply his undertaking. 3. The instruments will be confiscated 4. The innocent part shall not be bound to comply with his promise if he has not yet given anything, and if he had given he may claim for its return.

28. Pari delicto 2. Where the contract is not a criminal offense. (Art. 1412) a. If both parties are guilty. b. If only one party is guilty. 1. The guilty party canoe recover what he has given nor can he ask for the fulfillment of what has been promised him. 2. The innocent party may demand the return of what he has given without any obligation to comply with his promise. Pari delicto, concept Pari delicto is a universal doctrine which holds that no action arises, in equity or law, from an illegal contract; no suit can be maintained for its specific performance; or to recover the property agreed to be sold or delivered, or the money agreed to be paid or damages for its violation; and where the parties are in pari delicto, no affirmative relief of any kind will be given to one against the other. ( Rellosa vs Gaw , 93 Phil 831) Pari delicto applies only when there is equal guilt and not when one party is more guilty than the other. Exceptions to the rule of pari delicto As a rule, when the contract is unlawful, whether or not it constitute a criminal offense, recovery by either party is not allowed if both parties are in pari delicto. The following are the cases where recovery may be made despite the parties being in pari delicto. 1. The payor may recover interest he paid in excess of the interest allowed by usury laws together with interest from the date of payment. (Art. 1413)

29. Pari delicto a. Law governing usurious transactions 1. Twelve percent (12% per annum – if the security given is a real estate the title to which is duly recorded or government securities. 2. Fourteen percent (14%) per annum – If the security given is unregistered real estate or personal property or where there is no security given. 3. For pawnbrokers a. Two-and-a-half percent (2 ½%) a month – If the loan is less than P500 b. Two percent (2%) per month – If the loan is P500 to P2,000 c. Fourteen percent (14%) per annum – If the loan is more than P2,000 b. Usually legally inexistent With the promulgation of Central Bank Circular No. 905, usury has become legally inexistent. The lender and borrower may this freely agree on the interest to be charged on the loan. (Verdejo vs CA, 157 SCRA 743) However, nothing in the said circular grants lenders carte blanche to raise the interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging such interest are contra bonos mores. (contrary to good customs)

30. Pari delicto 2. A party may recover, if public interest will be subserved, money or property delivered for illegal purpose provided be repudiates the contract before the purpose has been accomplished or before any damage has been caused to third person. (Art. 1414) 3. An incapacitated person who is a party to an illegal contract may recover, if the interest of justice so demands, money or property delivered by him. (Art. 1415) 4. A person may recover, if public policy, is thereby enhanced, what he has paid or delivered, if the agreement is not illegal per se but is merely prohibited and the prohibition by law is designed for his protection. (Art. 1416) 5. Any person may recover any amount he has paid in excess of the price fixed by law for any article or commodity. (Art. 1417) 6. A laborer may demand additional compensation for service rendered beyond the maximum number of hours of labor in a contract where he undertakes to work longer than the maximum hours fixed. (Art.. 1418) 7. A laborer may recover the deficiency in a contract where he accepts a wage lower than the minimum wage set by law. (Art. 1419) Rule when contract is divisible or indivisible and there are illegal terms If divisible – The legal terms may be enforced, the illegal terms are void, hence, may not be enforced. (art. 1420) If indivisible – The whole contract is void, hence, no part thereof may be enforced. (Art. 1420)

31. FORM OF CONTRACT FORM OF CONTRACTS Obligatory force of contracts in whatever form, exceptions Contract shall be obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present. (Art. 1356) This rule, however, does not apply when a certain form is required by law for the following reasons: 1. For validity If the contract is not in the form provided by law for its validity, the contract is void. The following are certain contracts that must be in certain form to be valid: a. Contract of donation of an immovable which must be in a public document together with the acceptance thereof by the done. b. Contract of donation of personal property hos value exceeds P5,000 must be in writing together with the acceptance of the donee . c. The authority of the agent to sell a piece of land must be in writing; otherwise, the sale is void. (Art. 1874) d. Contract of partnership where immovable property is contributed must be in a public instrument to which shall be attached a signed inventory of the immovable property. (Art. 1771) 2. For enforceability If the contract is not in the form provided by la for its enforceability, the contract, though it has all the essential requisites for validity, cannot be enforced against the party sought to be charged.

32. FORM OF CONTRACT 3. For convenience Right to compel observance of the form required by law Of the contract is valid and enforceable but the same is not in the form required by law, the contracting parties may compel each other to observe that form. This right must be exercised simultaneously with the action upon the contract. (Art. 1357) Contracts for the convenience of the parties (Art, 1358) Public document The following contracts are required to appear in a public document for the convenience of the parties and so that they may be registered in the proper recording office to adversely affect third persons. (Zamora vs Miranda, GR No. 162930, December 5, 2012): a. Act and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property. b. The cession, repudiation or renunciation of hereditary rights or of those of conjugal partnership of gains. c. The power to administer property or any other power which has for its object an act appearing or which has for its object an act appearing or which should appear in a public document or should prejudice a third person. d. The cession of actions or rights proceeding from an act appearing in a public document.

33. FORM OF CONTRACT 2. Any writing, public or private All other contracts where the amount involved exceeds P500 must be in writing for the convenience of the parties REFORMATION OF INSTRUMENTS Reformation, concept Reformation is a remedy in equity by means of which a written instrument is made or construed so as to express or confirm to the real intention of the parties when some error or mistake has been committed. ( Zaragosa vs Certified Clubs 52718-R Nov. 24, 1975) Requisites of reformation There must be a meeting of minds of the parties to the contract. The true intention of the parties is not expressed in the instrument. The reason therfor is due to mistake, fraud, inequitable conduct or accident. (Art. 1359) Who may ask for reformation If the mistake was mutual, by either party, or his successors in interest, such as his heirs or assigns. In other cases, by the injured party or his heirs or assigns.

34. FORM OF CONTRACT When an instrument may be reformed When a mutual mistake of the parties causes the failure of the instrument to disclose their agreement. (Art. 1361) When one party was mistaken and the other acted fraudulently or inequitably in such way that the instrument does not show their true intention. (Art, 1361) When a party was mistaken and the other knew or believed that the instrument did not state their real agreement. (Art. 1363) When through the ignorance, lack of skill, negligence or bad faith on the part of the person the instrument or of the clerk or typist, the instrument does not express the intention of the parties. (Art. 1364) 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 right of repurchase. (Art, 1365) When reformation is not available In the case of the following: a. Simple donations inter vivos wherein no condition is imposed. b. Wills 2. When one of the parties has brought an action to enforce the contract, he cannot subsequently ask for its reformation. (Art. 1367)

35. FORM OF CONTRACT INTERPRETATION OF CONTRACTS Rules on interpretation of contracts 1. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of the stipulations shall control. (Art. 1370) 2. If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former. (Art. 1370) 3. However, general the terms of a contract may be, they shall not be understood to comprehend things that are distinct and vases that are different from those upon which the parties intended to agree. (art. 1372) 4. If the 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. (Art. 1373) 5. 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. (Art. 1374) 6. Words which may have different significations hall be understood in that which is most in keeping with the nature and object of the contract. (Art. 1373) 7. 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. 1376)

36. Interpretation of contracts 8. The interpretation of obscure words or stipulations in a contract shall not favor a party who caused the obscurity. (Art. 1377) Rules when it is absolutely impossible to settle doubts under the proceeding rules (Art. 1378) When the doubts refer to the incidental circumstances of a 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 if cannot be known what may have been the intention or will of the parties, the contract shall be null and void.