Short answer. It is void unless the parties can show the agreement really rested on a different cause that is both true and lawful. So a false statement of cause is not automatically fatal: the contract survives if the genuine reason behind it is proved and that reason is itself legal.
What the law says
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.
Civil Code, Article 1353 — False Cause. Read the full provision →
What "cause" means here
Cause is the essential reason why each side entered the contract — in an onerous contract, the promise or performance of the other party; in a gratuitous one, the giver's liberality. It is not the same as a party's private motive. A statement of cause is false when the document recites a reason that is not the real one: a deed reciting a price that was never agreed or paid, an acknowledgment of a debt that does not exist, a sale papered over what was truly a donation or a security arrangement. Because cause is one of the three essential requisites of a contract, an agreement with no true cause behind it has nothing to stand on and is void from the beginning.
The escape clause: another cause, true and lawful
The article does not condemn every inaccurate recital. It gives the parties a way out, and both conditions must be met. The other cause must be true — actually the reason the parties dealt — and it must be lawful. A deed that recites a sale but was in truth a donation between people who may validly give and receive can stand as what it really is. A recital masking something the law forbids, such as an arrangement to defeat creditors, to evade a prohibition on who may own the property, or to disguise an unlawful payment, cannot be saved, because the real cause is itself illegal. The burden of proving the true cause falls on whoever wants the contract upheld.
How this differs from an absent or unlawful cause
Three situations are easily confused. A contract with no cause at all is void outright. A contract whose cause is unlawful — contrary to law, morals, good customs, public order or public policy — is likewise void, and the courts will generally leave parties in pari delicto where they found them, refusing recovery to either. This article covers the middle case: a real cause exists but the paper misstates it. Note too that a contract is presumed to have a sufficient cause even if it is not stated, so the person attacking a document bears the burden of showing the stated cause is false. Inadequacy of price, by itself, is not falsity of cause.
Where this bites in practice
The commonest scenarios are family property arrangements and financing. A deed of absolute sale executed to secure a loan, land put in a relative's name with a fictitious price, or a settlement papered as a sale to reduce taxes all invite this attack, sometimes years later and usually after someone has died. Voidness cannot be cured by ratification and does not lapse with time, so these documents remain vulnerable indefinitely, and the person holding the title may be the one exposed. If you are asked to sign a deed reciting something that did not happen, or you are challenging one, gather the payment records and correspondence and book a consultation first.
Cases citing this provision
These Supreme Court decisions cite the provision above. We list them so you can read them yourself; the summaries of what each decided are not ours to give.
- Barceliza P. Capistrano vs. Darryl Limcuando, et al, G.R. No. 152413, February 13, 2009 — read the decision on LawPhil →
- Heirs of the Late Spouses Aurelio and Esperanza Balite vs. Rodrigo N. Lim, G.R. No. 152168, December 10, 2004 — read the decision on LawPhil →