Notes: Contracts

1305. Contract
meeting of minds between 2 persons whereby one binds himself with respect to the other to give
something or to render some service; agreement of 2 or more persons for the purpose of creating,
modifying or extinguishing a juridical relation between them
elements
essential- contract cannot exit without them
consent
object or subject matter- thing given up
cause or consideration- promise of the other
natural- derived from the nature of the contract and ordinarily accompany the same; found in
certain contracts, presumed to exist unless contrary stipulated
EX. warrant against eviction and against hidden defects in a contract of sale
accidental elements- for the purpose of limiting or modifying the normal effects of the
contract; may be present or absent depending upon whether or not the parties have agreed
upon them; does not affect its validity
EX. stipulation to pay interest, designation of a particular place to pay or deliver,
notarized, conditions, terms, modes
classification
perfection or formation
consensual- perfected by mere consent; EX. sale
real- perfected by delivery; EX. pledge
formal or solemn- special formalities essential before the contract may be perfected
EX. donation inter vivos
cause or equivalence of the value of prestations
onerous- interchange of equivalent valuable consideration
gratuitous or lucrative- free; generosity or liberality
remunerative- one prestation is given for a benefit or service that had previously been
rendered
EX. contract of employment
importance or dependance of one upon the other (relationship of the contracts to each other)
principal- may stand alone EX. sales (contract of sale does not need contract to sell)
accessory- existence dependent EX. loan
preparatory- means through which future transaction or contracts may be made EX.
agency, partnership
parties obligated
unilateral
bilateral or synalagmatic
name or designation
nominate- given a particular or special name; own distinctive individuality and
are regulated by special provisions of law
innominate- not given any special name
risk of fulfillment
commutative- contemplate a real fulfillment EX. sale, lease
aleatory- fulfillment defendant on chance EX. insurance
time of performance or fulfillment
executed- completed at the time the contract is entered into
executory- prestations are to be complied with at some future time
subject matter
things- sale
rights or credits- usufruct (provided they are transmissible)
services- agency
obligations imposed and regarded by the law
ordinary- sale
institutional- marriage
evidence required for its proof
requiring merely oral or parol evidence
requiring written proof- EX. contracts under Statute of Frauds
number of persons actually and physically entering into the contract
ordinary- 2 parties are represented by different persons
auto-contracts- only one person represents 2 opposite parties but in different
 capacities; acts in the name and for the account of 2 distinct contracting parties
person in his capacity as a representative of another contracts with himself
EX. agent representing a principal sells a specific car to himself
as buyer
cannot borrow without consent but if empowered to borrow then
he may himself be the lender
representative of 2 dif persons brings about a contract between his principals
by contacting with himself unless there is a conflict of interests or when the
law expressly prohibits it in specific cases
a person cannot enter into a contract with himself
number of persons who participated in drafting the contract
ordinary- sale
contract of adhesion- buyer or person interested signifies consent by signing the
contract which is his only participation; take it or leave it basis
nature of the contract
personal- EX. life insurance as contract ceases to exist upon death of the insured
impersonal
stages
preparation/conception/generacion- negotiations, may have been preliminary offer and
bargaining
perfection/birth- definite agreement, the elements of definite subject matter and valid cause
have been accepted by mutual consent
consummation/death/termination- terms are performed and the contract may be said to have
been fully executed
parties- 2 parties as the law speaks of meeting of minds between two persons
if at the time of supposed perfection one of the parties has already died there can be no
meeting of the minds hence no contract
can be with juridical persons (partnership, corporation)
basic principles or characteristics of a contract
freedom/liberality to stipulate
obligatory force and compliance in good faith- bound not only to the fulfillment of what has
been expressly stipulated but also to all of the consequences thereof
consensuality/perfection by mere consent as a rule
mutuality/both parties are mutually bound- validity or compliance cannot be left to the will of
one of them
relativity- binding only between the parties, their assigns, and heirs- generally cannot produce
any effect upon 3rd persons
co-existence of a contract with a quasi-delict/tort
the existence of a contract does not bar the commission of a tort by one against the other and
the consequent recovery of damages
inviolability of contractual obligations- rule that they not be impaired is not absolute
agreement- meeting of minds but not enforceable through the courts
contracts- can be enforced through the courts; source which gives rise to an obligation; cannot exist
without an obligation
obligation- legal tie
law
contracts
quasi-contracts
delicts
quasi-delicts
perfected promise- merely tends to insure and pave the way for the celebration of a future contract
imperfect promise (policitacion)- mere unaccepted offer
pact- incidental part of a contract which can be separated from the principal agreement
stipulation- essential and dispositive part which cannot be separated from such principal agreement
duty of persons entering into contracts- all men presumed to be sane and normal and subject to
be moved by substantially the same motives; the fact that one may be worsted by another, of itself,
furnishes no cause of complaint; courts do not operate becasue one person had been defeated or
overcome by another, but because he had been defeated or overcome illegally; there must be, in
addition, a violation of the law
duty of the courts in interpreting contracts- not the province of the court to alter a contract by
construction or to make a new contract for the parties but to interpret one which they have made for
themselves
 breach of contract- failure without legal reason to comply with the terms of the contract
1306. Principle of autonomy / freedom (to stipulate)
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
free entrance into contract generally without restraints is one of the liberties guarded by the people;
both a constitutional and statutory right thus courts should move with the utmost caution
and prudence in holding contracts void
refers only to contracts which are legal, not void or inexistent ones
limitations
law
must not be contrary to mandatory and prohibitive laws
without being mandatory, are expressive of fundamental principles of justice and
cannot be overlooked by the contracting parties
impose essential requisites without which the contract cannot exist
must respect the law for the law forms part of the contract
EXC. void: pactum commissorium, limiting jurisdiction of courts
moral- right and wrong and human conscience
good customs- those that have received for a period or time practical and social confirmation
public order- public weal and includes public safety
public policy- public, social, and legal interest in private law; manifest will of the State
freight company stipulating exemption from all liability from negligence- void for being
against public policy unless fairly and freely agreed upon
freight company limiting liability to agreed valuation unless higher value declared
and paid- valid and binding
contracts which tend to restrain business trade- valid provided there is a limitation
upon either the time or place and reasonably necessary for the protection of
the contracting parties
designation of the name- generally may agree on any contract but the name that they give should not
be controlling for a contract is what the parties intended it to be not what they call it; must be judged
by its character, nature, and legal qualifications
Gabriel v Monte de Piedad- pre-existing admitted liability is a good consideration; courts
must exercise utmost caution and prudence in declaring contracts void; voluntarily executed
the mortgage to guarantee
Pakistan International Airlines v Ople- public policy deemed written into labor contract as it is
heavily impressed with public interest thus not at liberty to insulate themselves from peremptory
provisions of labor laws; Phil laws cannot be rendered illusory
Cui v Arellano- against public policy and good morals and tends to undermine the security of public
rights; cannot be held hostage if he wants to leave; scholarship grants are given to recognize
academic merit not for propaganda to increase the business potential of the university
Arroyo v Berwin- stifling prosecution cannot be the subject as it is manifestly contrary to the law and is
a perversion of justice; utmost importance that criminals be prosecuted and that it be maintained in the
form and manner prescribed by law
Bustamante v Rosel- pactum commissorium, which is automatic appropriation of the thing pledged or
mortgaged, is proscribed by law
1307. Innominate contracts
kinds [given general term to secure]
do ut des
do ut facias
facio it des
facio ut facias
Dizon v Gaborro- not void just an innominate contract of facio ut des
governing rules
stipulations
Titles I and II of Book IV
rules on most analogous nominate contracts
customs of the place
1308. Mutuality / obligatory force
equality of the parties; repugnant to bind one party and yet leave the other free
consequences
a party cannot revoke or renounce a contract without the consent of the other nor have it set
aside on the ground that he made a bad bargain [because for there to be meeting of the minds
both must consent]
 when the fulfillment of a condition depends on the sole will of the debtor
suspensive- void
resolutory- valid
cannot delegate or be left to chance
determination of validity of the contract
determination of fulfillment of the contract
GSIS v Leuterio- unilateral change in price; without knowledge or consent; determination of the
cause/object cannot be left to the will of one party; agreement must be mutual
1309. Determination by 3rd person
the determination of the performance may be left to a 3rd person who decision will not be binding until
it has been made known to both parties [for their agreement]
EXC. evidently inequitable
continuance of contract would depend solely on the will of one party depriving the
other of any say on the matter
EX. fixing the price and delivery date [regarding performance only]
effect of stipulation regarding arbitration- only function of the Court is to decide whether
the parties should proceed to arbitration
1310. Inequitable determination (EXC)
evidently inequitable determinations are not binding
what is equitable is a question of fact
court is called upon to decide what is equitable
manifestly beyond their contemplation
1311. Relativity (GR)
contracts are generally effective only between the parties, their assigns, and their heirs; generally
its terms cannot determine the rights of 3rd persons; only those who are parties to contracts are liable
for their breach
reason: the act, declaration, or omission of another cannot affect another except as otherwise
provided by law or agreement
the heir is not liable beyond the value of the property he received from the decedent [only to
the extent of the value he receives]
Manila Railroad v La Compania Transatlantica- not a party to the contract thus has no legal capacity to
sue and recover; contract determines not only the character and extent of the liability but also the
person or entity by whom the obligation is exigible
DKG Holdings v Bartolome- heir is also bound as the act is not personal as the subject is property thus
may be performed by him and it is by nature transmissible; succeeds only the rights of predecessor
and what is binding against her is binds him; death does not extinguish contract of property right
assignment or transfer by a contacting party has the effect of subrogating the assignee to all of
the rights and obligations of the assignor
monetary obligations of the decedent cannot be transmitted to his heirs through succession as they
must be liquidated in the testate and intestate proceeding for the settlement of the estate of the
decedent; estate not the heir which continues the decedent’s personality
generally does not produce any legal effect to 3rd persons and consequently they have no
legal capacity to challenge its validity
EXC
cases where the rights and obligations arising from the contract are not transmissible by their
nature, by stipulation or by law (Art 1311)
EX. contract of partnership, contract of agency, money debts (chargeable not to heirs
but to estate)
stipulation pour autrui (Art 1311)- binding on said 3rd person although may not be a signatory
to the contract; stipulation in a contract benefiting a 3rd person
there must be a stipulation in favor of a 3rd person
contracting parties must have clearly and deliberately conferred a favor upon a
3rd person (not a mere incidental benefit or interest) [based on intention of the parties
as disclosed by their contract]
Coquia v Fieldman’s Insurance- exception to relativity as heirs have a
direct cause due to the stipulation that they would indemnify the driver
stipulation must be a part of the contract [not the whole of the contract]
3rd person communicated his acceptance to the obligor before its revocation
(expressly or impliedly)
Florentino v Encarnacion- there was an implied acceptance when it entered
into the possession of the property and such acceptance is recognized by law;
therefore the revocation is an absolute nullity as it is clear there was a
 perfected agreement as the requisites were present consequently the rules
on contracts such as the obligatory force of contracts and mutuality [consent
of Church to revoke] of contracts govern and the contract can no longer
be revoked; no time limit and no prescribed form
there must be no relation of agency between either of the parties and the 3rd
person [otherwise Rules of Agency will govern]
3rd third person induces another to violate his contract (Art 1314)
unwarranted interference
3rd persons may be adversely affected by a contract where they did not participate (Art 1312)
EX. collective bargaining, quasi- contract of negotiorum gestio, contract which creates
a status as the whole world must respect such status, real rights over real property
accion directa- law authorizes the creditor to sue on a contract entered into by his debtor
[lessor can sue lessee and rescind sub-lease and sub-lessee cannot object as the lessor is not
bound by the sub-lease as he is not a party thereto]
1312. Contracts creating real rights (EXC)
3rd 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 Registrations Laws [register mortgage securing a loan
like Certificate of Title]
exception to the general rule that a contract binds only the parties
real right binds the property over which it is exercised
1313. Right of defrauded creditors (EXC)
creditors are protected in cases of contract intended to defraud them; essentially outsider can in a
sense interfere with another’s contract [prove that it was entered into to defraud creditors]
EX rescission of gratuitous donation to the extent that he may have been prejudiced
1314. Contract violated through inducement of 3rd person (EXC)
requisites
existence of a valid contract
knowledge on the part of the 3rd person of the existence of the contract
interference by the 3rd person without legal justification or excuse
stranger can be sued in view of his unwarranted interference
whoever is injured may properly sue for damages; liability does not arise ex-contractu as not a party to
the contract [may be liable if violation proven]
liability cannot be greater than that of the principal; at most solidary because of commission of tort
malice is generally implied from the act of interference and is declared to be an essential ingredient
Daywalt v Padres Agustinos Recoletos- no malice in prompting non-compliance because of the belief
in good faith that she would be harmed; stranger cannot become more extensively liable; special
damages cannot be recovered as the circumstances were too remote to be within the contemplation
of the parties to be the subject of the contract
So Ping Bun v CA-
1315. Consensuality (GR)
contract are perfected by mere consent; from the moment the parties agree on the object, and the
cause or consideration; from the time an acceptance of an offer is made known to the offeror
consequences
from that moment the parties are bound to the fulfillment of what has
been expressly stipulated (if true intention not expressed the remedy is reformation)
[legally bound upon acceptance]
also to all consequences which according to their nature may be in keeping with good
faith, usage, and law [can institute a case if one reneges]
formal- donation
1316. Perfection of real contracts
real contract are not perfected until the delivery of the object of the obligation
deposit [not bank as that is a contract of loan; after agreement there isa contract of loan not a
contract of pledge]
pledge
commodatum- exact same thing
mutual- money
require consent, subject matter, cause or consideration, and delivery
delivery is required of the very nature of the contract
depositary- cannot be expected to comply with his obligation of keeping the object safely
unless and until it is delivered to him
future real contracts are consensual contracts (meeting of minds to make a deposit); after delivery the
contract becomes a real contract
an agreement to constitute a deposit is binding but the deposit itself is not perfected until the delivery
 of the thing
contract to carry is consensual and is perfected by mere consent; contract of carriage is a real
contract as until the moment of actual use the carrier cannot be said to have already assumed the
obligation of a carrier
1317. Person to contract in the name of another
GR: 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
EXC: requisite
duly authorized (express or implied) OR
must have by law a right to represent him (EX guardian or administrator) OR
contract must be subsequently ratified (express or implied, by word or by deed)
retroactive: cleanses the contract from all its defects from the moment the contract
was entered into
one under no liability voluntarily adopts and gives sanction to some unauthorized act
or defective proceeding which without his sanction would not be binding on him
must be before revocation by the other party
mere lapse of time is not the ratification contemplated
death of the principal does not render the act of the agent unenforceable where the
latter had no knowledge of such extinguishment of agency
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 has been ratified (expressly or
impliedly by the one he represented) before it is revoked by the other contracting party
unenforceable: cannot be sued upon or enforced unless ratified

Essential Requisites
Consent

1318. Essential Requisites

no contract unless the following concur
consent of the contracting parties
object certain which is the subject matter of the contract
cause of the obligation which is established
real contracts: delivery
solemn or formal contracts: compliance with the formalities required by law
1319. Consent
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 as 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 is presumed to have been entered into in the place where the
offer was made (may be actual or constructive knowledge as when it has been received in the
house of the offeror by a person possessed of reasonable discernment)
concurrence of offer and acceptance; must be intelligent, free, spontaneous and real
definition: meeting of minds between the parties on the subject matter and the cause of the contract
even if neither one has been delivered;
requisites:
two or more parties (one person may represent 2 or more parties unless there are
contradictory or prejudicial interests involved)
parties must be capable or capacitated (if one is insane then merely voidable)
must be no vitiation of consent (otherwise voidable)
must be no conflict between what was expressly declared and what was really intended
(remedy may be reformation if they really intend to be bound otherwise void for being fictitious
or absolutely simulated)
intent must be declared properly (whatever legal formalities are required must be complied
with)
requisites of meeting of minds:
offer that must be certain [fixed liabilities and rights & contains already object and cause]
not vague, misleading, or made as a joke
not mere intention or invitation
i will buy your car: no
i am willing to sell my watch for Pxx: yes
 not withdrawn before acceptance
if 2 contacts are offered and they are independent: acceptance of one does not imply
acceptance of the other; contract is perfected as to the item accepted
if one depends upon another: essential that there be an agreement on both
transactions
acceptance that must be absolute and unqualified [must assent to all the terms of the offer]
completely no acceptance or offer is rejected: no meeting of minds
acceptance is qualified: no concurrence of minds; counter-offer which extinguishes the
offer
not willingness or intention to accept as this merely indicates a disposal to accept in
principle subject to certain considerations
acceptance may be implied from actions complying with terms or accepting payment
acceptance through correspondence
GR: contract is perfected from the moment the offerer has knowledge of such acceptance
EXC: perfected from the moment an answer is made accepting the offer- purely commercial
contracts
crossing of letters- no contract as neither party knew of the offer of the other at the time the
letter was written; necessary for the perfection of a contract that one party accepts the offer of
the other
rule if letter of acceptance is withdrawn or revoked but received only after the receipt of the letter of
acceptance
Reyes: already a meeting of minds thus revocation of the acceptance must reach and be
learned by the offerer ahead of the acceptance
Manresa: at the moment of alleged meeting of the minds there really was no concurrence of
minds or wills thus it is important that at the time of the receipt of the letter of acceptance
there had already been a prior revocation of said acceptance
knowledge of acceptance may be constructive so as not to allow escape of liability
offer can be withdrawn so long as he still has no knowledge of the acceptance- not bound by the
acceptance except from the time it came to his knowledge
consent presupposes legal capacity and the fulfillment of conditions
lack of consent is separate and distinct from lack of consideration; parties must also meet on the terms
or manner of payment of the price otherwise there is no sale as an agreement in price but
disagreement on the manner of its payment will not result in consent (not lack of consideration as
where the contract states that the price has been paid when it hasn’t)
absolutely no consent/absolutely simulated: void since non-existent or inexistent contract
vice of consent/vitiated consent: voidable
Rosenstock v Burke- “in the position” and "willing to entertain” does not mean resolution to perform
but proposal to deliberate; no definite and actual offer thus no consent and nothing to accept;
payment cannot be compelled; however already a meeting of minds as to the repairs as it was in
consideration of the use of the yacht
Malbarosa v CA- particular retail as to how acceptance should be made and since not complied with
there is no acceptance hence no meeting of the minds consequently no consent and ultimately no
contract; not bound to comply thus can withdraw; if no time frame accept immediately; letter must
be received for a contract to be established
1320. Acceptance
forms
express
implied: from conduct, or acceptance of unsolicited services
offer of reward considered implicitly accepted when the act referred to is performed
thus promisor is obliged to pay the reward to anyone who performs the act or attains
the result as no specific acceptance is required since the offer is made to the public
participation in a contest with full compliance of its rules is implied acceptance
implied rejection: failure to act on an offer or compromise before the court
enters final judgment on a case
presumed (by law)
failure to repudiate hereditary rights within the period fixed by law
silence in certain specific cases as would tend to mislead the other party and thus
place the silence person in estoppel
1321. Offeror may fix
things offeror may fix which must be complied with as any act contrary to the prescribed terms really
constitutes a counter-offer or counter-proposal
 time
place
manner of acceptance
applies to public and private auction sales
contract to purchase which does not give a specific description of the objects to be purchased nor the
price is a mere preliminary agreement
1322. Agent offers acceptance
an offer made through an agent is accepted from the time acceptance is communicated to him
(applies when both the offer and the acceptance are made thru an agent who is an extension of
the personality of the principal)
any other intermediary (not an agent with power to bind) is merely a sort of messenger who must
communicate to the person who sends him otherwise there is as yet no meeting of minds
if principal made the offer and acceptance communicated to the agent there is as yet no meeting of
the minds as he may be an ordinary agent not authorized to receive the acceptance for the particular
transaction [authorized-deemed perfected]
1323. Ineffectivity of offer
offer becomes ineffective upon: (either party before offer or acceptance is conveyed- knowledge of
acceptance)
death
person who applied and paid for life insurance dies before notice of acceptance
received- heirs can recover the amount paid since death renders the offer ineffective
and the offer by communication becomes effective only when it comes to the
knowledge of the person making the offer
person owning life insurance policy pays premium then dies- heirs can recover
premium only (not the policy) as there was no perfected contract of insurance
civil interdiction
insanity
insolvency
one of the parties at the time of making the offer or the acceptance was already insane: voidable; may
be said that there is a meeting of minds
other instances
expressly or impliedly rejects the offer
accepted with a qualification or condition
before acceptance is communicated the subject matter becomes illegal or impossible
offer is revoked in due time
1324. Rule on options
option: contract granting a person the privilege to buy or not buy certain objects at any time within the
agreed period at a fixed price
separate and distinct consideration from the contract which the parties may enter into upon
the consummation of the contract
as it is by itself a contract it is not perfected until there is a meeting of minds on the option
must have its own cause or consideration (which may be pure liberality)
without option: can withdraw at any time as a matter of right by communicating revocation
no breach of contract-> no damages as there is no perfected preparatory contract of
option of lack of a consideration
first to notify of acceptance or withdrawal during the period will be the victor
Sanchez v Rigos- unilateral promise to buy or to sell; no option contract for lack of a cause
or consideration distinct from the purchase price thus not bound to wait for the end of the
period; refusal of tender of payment is implied withdrawal of promise
GR: when the offeror has allowed the offerer certain period to accept, the offer may be withdrawn at
any time before acceptance by communicating such withdrawal
offer may be withdrawn at any time prior to communication of acceptance by communicating
such withdrawal
mere offer withdrawal at any time
EXC: when the option is founded upon a consideration as something is paid or promised
cannot withdraw the offer until after the expiration of the option period
must have a cause or consideration distinct from the selling price (not deducted from price as
it is independent from the purchase price)
insufficiency of the consideration paid by virtue of the option is irrelevant as it is not the
price of the sale
1325. Business advertisements
 GR: business advertisements of things for sale are not definite offers but mere invitation to make an
offer
EXC: it appears otherwise (appears to be a definite offer containing all the specific particulars needed
in a contract)
1326. Ads for bidders
GR: advertisements for bidders are simply invitations to make proposals and the advertiser is not
bound to accept the highest or lowest bidder
EXC: contrary stipulated [object and consideration present] can no longer withdraw otherwise liable for
damages
decision to accept a proposal of a bidder must be communicated to constitute a contract
anybody participating in the bidding at a public auction is understood to have submitted himself to all
the conditions set forth at such sale
owner of the property has the right to prescribe the manner, conditions, and terms of the sale which
are binding upon the purchaser whether he knew them or not
bids at execution sales cannot be below value of the item thus the highest bid must necessarily be
higher than the value
lowest bidder
lowest bidder: lowest price
lowest responsible bidder: lowest price + necessary skill and capacity
lowest and best bidder: lowest price + necessary skill and capacity + reputation
1327. Classes of voidable
Voidable for being defective: cannot give consent to a contract, there is consent but just incapacitated
to give [void if complete absence of consent]
one party is incapacitated to give consent (if both incapacitated then unenforceable)
the person who is capacitated cannot allege the incapacity of the person who is incapacitated
by reason of estoppel
estoppel- admission or representation is rendered conclusive upon the person making it
and cannot be denied or disproved as against the person relying thereon
unemancipated minors- not emancipated by marriage, attainment of the age or
majority, or by parental or judicial authority
EXC upon reaching the age of majority they ratify the same
EXC entered through a guardian and the court having jurisdiction had
approved the same
EXC contracts of life insurance in favor of their parents, spouse, siblings, and
that the minor is 18 or above
EXC savings account with the Postal Savings bank and at least 7
EXC contract for necessities such as food (people legally bound to support
should pay therefor)
EXC contract where the minor misrepresented his age thus estopped (other
party must be misled)
EXC married minors may validly alienate or encumber personal property
EX married minors need parental consent to alienate or encumber real
property or borrow money
EXC misrepresented themselves thus in estoppel (Mercado v Espiritu)
sale of real estate by a minor representing himself to be legally
capacitated the contract is valid and he cannot be permitted
afterwards to excuse himself from compliance by reason of estoppel
insane or demented persons (EXC lucid interval), drunks and those hypnotized
includes any person who are unable to understand the nature
and consequences of the contract at the time of its execution by reason of any
cause affecting his intellectual or sensitive faculties whether permanent or
temporary
reason: people who contract must know what they are entering into
no proper declaration of insanity by the court is required as long as insanity
shown at time of contracting
Jurado: mental capacity to enter into a contract is a question of fact
which must be decided by the courts there is however a prima
facie presumption that every person of legal age possesses the necessary
capacity to execute a contract
presumption of sanity if made before declaration
even if already declared does not necessarily mean insane at the time of
contracting
GR: deaf-mutes who do not know how to write and read- invalid
 EXC can read then capable of understanding thus contract valid
EXC: person of advanced years or age of physically infirm valid unless they
impair his mental faculties thus unable to properly, intelligently and fairly
understand the provisions of the contract
consent of one party has been vitiated
error
fraud
violence
intimidation
undue influence
valid until annulled however annulment cannot prosper if ratified
persons specially disqualified
spouses cannot sell or donate to each other: void
insolvents before they are discharged cannot make payments
persons disqualified because of fiduciary relationships (EX guardians and judges)
contracts entered into with non-Christians
reason: to prevent their ignorance from being preyed upon
EXC approved by the governor or his representative
EXC personal service and the barter or sale of personal property
Incapacity
Disqualification
restrains the exercise of the right to contract thus can still enter through parent or guardian
restrains the very right itself thus absolutely disqualified
based on subjective circumstances of the certain persons
based on public policy and morality
merely voidable
void

1328. Voidable by reason of incapacity

entered into
insane or demented persons
EXC lucid intervals- even if a person has been judicially declared insane he may still
enter during lucid intervals but sanity must be proven since presumed insane
in a state of drunkenness- equivalent to temporary insanity
during a hypnotic spell (drugs or deliberate or unintentional hypnotism), somnambulism-
incapable if intelligent consent
1329. Modifications re incapacity
incompetents under the ROC (may be placed under guardianship)
under civil interdiction
hospitalized lepers
prodigals (spendthrifts)
deaf and dumb who are unable to read and write
those of unsound mind even though they have lucid intervals
those who by reason of age, disease, weak mind, and other similar causes cannot without
outside aid take care of themselves and manage their property

Vices of Consent
Vices of the Will

1330. Vitiated consent / vices of consent

voidable when consent is given through
cognition must be intelligent [no mistake or error], free [no violence, intimidation
or undue influence], spontaneous [no fraud], real [not simulated]
mistake / error [of fact not of law]
fraud / deceit
volition must be free
violence
intimidation
undue influence
voidable: binding and valid unless annulled but susceptible of ratification; annulment may be had even
if there be no damage to the contracting parties
 requires clear and convincing evidence
1331. Mistake / error
false belief about something; wrong conception of a thing or the lack of knowledge with respect to a
thing (ignorance)
to vitiate consent: should refer to the substance of the thing which is the object of the contract or to
those conditions which have principally moved to one or both parties to enter into the contract
error must be substantial (consented because of it or would not have entered into the contract
had the party known the truth) regarding
the object of the contract (mistake as to quantity v mistake of account)
conditions which principally moved or induced one of the parties (error in quality
or quality not error in account or error in personal motive)
identity or qualifications (error in personae) but only if such was the principal cause of
the contract
error must be excusable
not cause by negligence
if having the opportunity to ascertain the truth he did not do so
he knew of the doubt, contingency or risk affecting the object)
error must be a mistake of fact and not of law (mutual error as to the legal effect of
an agreement when the real purpose of the parties is frustrated may vitiate)
GR: mistake of law not allowed
EXC: mutual error as to application of a law especially when even those learned of the law differ as to
its application [men of common intelligence must necessarily guess at its meaning and differ as to
its application
Asiain v Jalandoni-mutual erroras to the size of the land and quantity of harvest goes into the very
substance of the contract itself and is a ground for relief and rescission; the use of the phrase “more or
less” relieves from exactness but not from gross deficiency; consent of both parties vitiated and
mistake was substantial as without such mistake the contract would not have been entered into thus
voidable and the court annulled
Damasug v Modelo- error invalidates the contract as it goes into the very substance of subject matter
and had the maker truly understood the contents of the contract she would have neither accepted not
authenticated her mark
1332. Inability to read or understand
GR: voidable
EXC: burden shifted and the person person enforcing the contract must show that the terms thereof
have been fully explained 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
reason: fairly large number of illiterates and documents are usually drawn up in English or Spanish
presumption: that one always acts with due care and signs with full knowledge of all the contents (if
merely confused but still aware of actions then cannot repudiate the transaction)
EXC unable to read (including a blind person)
EXC contract is in a language not understood by one of the parties
Hemedes v CA- can no longer use Art 1332 because she said she did not sign thus alleging it
was spurious; 1332 is applicable if the instrument was signed believing it was for a certain agreement
which is different from that contained in the actual document
1333. Knowledge of doubt or risk
cannot be annulled: no mistake if the party alleging it knew the doubt, contingency or risk affecting
the object of the contract; inexcusable negligence [no “mistake in expectation”]
assumed that the party was willing to take the risk especially in contracts which are evidently aleatory
in nature
EXC. buying stocks expecting it would rise
1334. Mutual error
may vitiate consent as it is analogous to mistake of fact
requisites
must be mutual error
error must refer to the legal effect of the agreement
real purpose of the parties is frustrated
reason: while mistake of law does not generally vitiate consent, a mistake on a doubtful question of
law or on the construction or application of law is analogous to a mistake of fact
1335. Violence and intimidation
violence: when in order to wrest consent, serious or irresistible force is employed (physical coercion)
employment of a serious or irresistible force
must have been the reason why the contract was entered into (EXC would have entered even
without vitiation then valid as not vitiated)
intimidation: when one of the contracting parties is compelled to give his consent 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 (moral coercion)
degree determined through
age
sex
condition
requisites
reasonable and well-grounded fear (irresistible fear)
not reluctant consent or given against good sense and judgment since still
voluntarily and freely
of an imminent and grave evil
EXC reverential fear or fear of displeasing persons to whom obedience and
respect are due
EXC mere fear or mere knowledge
EXC not in a position to accomplish the threat)
upon his person, property, or upon the person or property of his spouse,
descendants or ascendants [exclusive!!]
must have been the reason why the contract was entered into
threat must be of an unjust act, an actionable wrong
EXC threat to enforce claim through competent authority if claim is just or
legal
threat to prosecute or report to the Courts
threat to file charges for immorality if man does not marry cannot later
be annulled on the ground of duress as the threat is just and legal
EX legal threat to novate the contract or for a confession of a larger
indebtedness
1336. Violence or intimidation by 3rd person
 violence or intimidation shall annul the obligation although it may have been employed by a 3rd person
who did not take part in the contract
reason: consent is still vitiated
[teleserye alert]
1337. Undue influence
influence must be of a kind that overpowers the mind as to destroy the party’s free agency making
his express the will of another rather than his own; takes improper advantage of his power over the will
of another depriving the latter of a reasonable freedom of choice
requisites to vitiate consent
improper advantage
power over the will of another
deprivation of the latter’s will of a reasonable freedom of choice
circumstances to be considered
confidential, family, spiritual, and other relations between the parties
mental weakness
ignorance
financial distress [EX. blacklist episode]
consent still vitiated even if undue influence exercised by 3rd person
EXC. due or allowable: solicitation, importunity, argument and persuasion
EXC. contracts of adhesion to be strictly interpreted against the company and liberally in favor of the
individual; prepared by one party; valid because other party can always reject
1338. Fraud (dolo causante)
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
kinds:
fraud in the celebration of the contract
EX. fake ring but passed off as genuine- causal, during perfection; other party
consented due to fraud
dolo causante / causal fraud: voidable; were it not for the fraud the other party would
not have consented
must be material and serious- induced the consent
EX. another person took insurance examination, misrepresentation of
boundaries of land by vendor
must have been employed by only one of the contracting parties (not in pari
delicto)- if both then contract would remain valid
must be a deliberate intent to deceive or induce- misrepresentation in good
faith is not fraud
other party must have relied on the untrue statement and must himself not be
guilty of negligence in ascertaining the truth
caveat emptor- let the buyer beware- transaction is not fraudulent as
this is considered tolerable fraud
dolo incidente / incidental fraud: valid but can be an action for damages; even without
the fraud the parties would have agreed just the same hence the fraud was only
incidental in causing consent
fraud in the performance of the obligations stipulated in the contract (presupposes the
existence of an already perfected contract)
EX. genuine ring shown then fake ring sold- incidental; fraud in the
performance only
party who alleges the fraud must present full and convincing evidence thereof
all men are presumed sane and normal and subject to be moved by substantially the same motives;
when of age and same they must take care of themselves
Sevilla v Sevilla- must establish by full, clear and convincing evidence such specific acts that vitiated a
party’s consent otherwise deemed valid; fraud cannot be inferred
Hill v Veloso- must be committed by one party against the other and Veloso and Franco are one in the
person of the creditor thus it is not the fraud contemplated which would vitiate consent because it
does not affect Hill who acted in good faith
Woodhouse v Halili- fraud merely in the performance to obtain a bigger share in the profit which is an
incidental matter
Geraldez v CA- did not dwell on whether causal or incidental as contract can no longer be annulled as
it was already performed thus only dwelled on matter of damages which can be recovered regardless
of type of fraud; fraudulent misrepresentations amounting to bad faith
 1339. Failure to disclose facts
concealment constitutes fraud when there is a duty to reveal them
EX. parties are bound by confidential relations as in the case of partners (good faith not only
requires abstinence from making false concealment but all concealment) [when there is a duty
to reveal]
EXC. no duty to disclose facts between opponents in a litigation for their relations
Tuason v Marquez- not all nondisclosures amount to fraud as the party could have easily ascertained
the status of the franchise; caveat emptor thus estopped
Rural Bank v CA- not causal fraud because there was no duty to disclose as it does not affect the Bank
thus no fraud to base the annulment claim; Bank would still have entered into the contract thus the
fraud was not the determining cause; Bank could have easily ascertained the financial capability
1340. Exaggerations in trade
not in themselves fraudulent when the other party had an opportunity to know the facts
rule of caveat emptor: let the buyer beware
EX. duty to check the title of the seller otherwise the buyer gets the object at is own risk
law allows considerable latitude to seller's statement or dealer’s talk and experience teaches us it is
exceedingly risky to accept it at its face value
Azarraga v Gay- due diligence to be observed by purchaser of real property; had the opportunity to
ascertain the truth and was not prevented thus no vitiation
Trinidad v IAC- not just mere opportunity to apprise self because in fact checked the property
1341. Mere expression of opinion
GR: does not signify fraud and is not an actionable deceit as there is a difference between giving
an honest opinion and making a false representation
even if false doe not vitiate consent that will render the contract voidable
EXC: made by an expert and the other party relied on the former’s special knowledge
reason: opinion af en expert is almost in the same category as a fact
EXC. own expert hired (therefore employee) committed the error
Songco v Sellner- cannot simply rely on opinion if opportunity to investigate present; matter of opinion
as the true quantity cannot be ascertained until harvested; man who relies on dealer’s talk does so at
his own peril and must take the consequence of his own imprudence
1342. Misrepresentation by a 3rd person
does not vitiate consent [unlike violence and intimidation] unless such misrepresentation
substantial error
mutual error
logical corollary to the principle that the fraud must be employed only by one of the contracting
parties because unjust to ...
force or intimidation by 3rd person: voidable
Mercado v Espíritu- cannot use minority as a ground to annul as there was
intentional misrepresentation thus estopped; the document signed by the minors specifically stated
that they were of legal age
Braganza v Villa Abrille- minority of consignors does not release the party from her liability as minority is
a personal defense and will only benefit her as to the extent of their liability; minors guilty of only
passive or constructive misrepresentation; their silence as to their age in making the contract does not
constitute actual fraud which his required to be constitute the fraud contemplated to hold them liable;
thus being minors cannot legally be bound by their signature; however as the funds were used for their
support it is but fair that they be liable to the extent that they were benefited
1343. Misrepresentation made in good faith
not fraudulent but may constitute error [may still be used as a vice to annul]
1344. Requisites for fraud to vitiate consent
grounds to annul contract
fraud must be serious
parties must not be in pari delicto (rendered valid)
refers not to influence but magnitude or importance
cannot be annuled due to minor or common acts of fraud whose veracity could easily have been
investigated
EXC. incidental fraud does not vitiate consent

Vices of Declaration

1345. Simulation of contract

 process on intentionally deceiving others by producing the appearance of that
really does not exist: absolute
different from the true agreement: relative
requisites
outward declaration of will different from the will of the parties
false appearance must have been intended by mutual agreement
purpose is to deceive 3rd persons
Rodriguez v Rodriguez- clear that the motive or purpose is to circumvent the law against donations
between spouses and this illegal cause supposedly would render the contract void however they are in
pari delicto thus there can be no recovery; intended to be effective thus real and effective
conveyance being the means to achieve the result desired
Suntay v Suntay- clearly simulated and intended to be a mere accommodation agreement (1) 2
instruments executed closely in time and involved the same property and the same price (2) blood
relation which is the foundation of the professional relationship (3) did not take possession and did not
even state the property in SALN (4) gross inadequacy of the price; absolutely simulated and cannot be
ratified as it was never intended to produce any legal effect
1346. Kinds of simulated contracts
absolutely simulated / fictitious contract
parties do not intend to be bound; not intended to produce legal effects or alter the juridical
situation of the parties
void
illegal contract distinguished: intended to be real and effective to circumvent a prohibited act
relatively simulated / disguised contract
parties conceal their true agreement
parties are bound to the real and true agreement (presumption of validity of contracts)
EXC. prejudices a 3rd person- contracting parties are in estoppel and should
be penalized for their deception [bound by written consent]
EXC. purpose is contrary to law, morals, good customs, public order, or public policy

Object of Contracts [thing given up]

1347. Object of a contract

the object of a contract is really to create or to end obligations which in turn may involve things or
services
requisites:
must be within the commerce of men
susceptible of appropriation
including future things but future property may not be donated by express provision of
the law [having potential existence- future profit, future harvest- since you own or have
control]
conditional contract- efficacy depends on future existence thus if it does not
materialize then ineffective
may be sale of hope as the hope of expectancy exists- sale of vain
hope of expectancy is void
aleatory- one party bears the risk that the object will never come into
existence
EXC. public dominion- sidewalks, public plazas, public bridges
EXC. sacred or common things as they have not been appropriated- sea, air
EXC. taxes as they are fixed by law
EXC. illegal items-> not within the commerce of men-> lacking requisite-> no contract
EXC. human blood and other parts of the human body
EXC. future inheritance where the source of property is still alive cannot be the subject
of a contract except
future spouses allowed to donate or give to each other in their marriage
settlement future property to take effect upon the death of the donor
partition of estate by an act inter vivos provided legitime of compulsory heirs
are not prejudiced
partitions or property inter vivos by the deceased
future inheritance- any property or right not in existence or capable of determination at
the time of the contract [because inchoate right not determinable; may still be sold by
owner]
 EXC. future inheritance sold without specification of the properties this would
only be the sale of future hereditary rights which is permissible by law
ownership is automatically transferred to the heir upon the death of the decedent
must be transmissible (rights)
EXC. strictly political rights and strictly personal rights cannot be transmitted
EXC. right to present one’s candidacy for public office; defeated candidate who
previously agreed not to run cannot be successfully sued for breach of contract
must not be contrary to law, morals, good customs, public order or public policy (service) licit
permanent prohibition / non-compete- undue or unreasonable restraint of trade
temporary- imposed on a limited scale so valid
labor contracts- so impressed with public interest that labor contracts, collective
bargaining must yield to the common good
contracts of adhesion- just as binding as ordinary contracts despite the fact that the
Court has on occasion struck down such contracts when the weaker party is
completely derived of an opportunity to bargain; construed against the party preparing
unless clear and no room left for interpretation then stipulations are controlling
must not be impossible possible
must be determinate as to its kind or determinable without the need of a new contract or
agreement
genus should be specified not necessarily specie
quantity unspecified not an obstacle as long as it may be determined without need of
a new contract (determined from purpose or motive)
GR: future inheritance may not be the object of a contract
EXC: authorized by law
Blas v Santos- the object was not future inheritance but share of the spouse in the conjugal properties
which she will receive by operation of law thus already existing at the time of execution
1348. Impossible things or services
impossible things cannot be the object of contracts
causes of impossibility
nature of the transaction or because of the law
blind man enters into a contract requiring eyesight the contract is void although only
relatively impossible as it is not temporary
absolute (objectively impossible)- no one can do it
relative (subjectively impossible)- particular debtor cannot comply)
impossibility is not to be confused with difficulty as a showing of mere inconvenience, unexpected
impediments, or increased expenses is not enough
EXC. partner obligates himself to contribute to a common fund an amount beyond his means the
contract is not void as the impossibility may disappear
1349. Object of the contract
must be determinate or determinable without need of a new agreement
fact that the quantity is not determinate is not an obstacle to the existence of the contract
provided it is possible to determine the same without need for a new contract
if the object is not determinate or determinable the contract is void for want of an essential
requisite

Cause of Contracts [promise by other party]

1350. Cause
it is the essential and impelling reason why a party assumes an obligation
onerous contracts- prestation or promise for each contracting party of a thing or service by
the other
remuneratory contracts- service or benefit which is remunerated (recoverable debt)
pure beneficence- mere liberality of the benefactor
EX. accessory contracts of personal guaranty
wholly moral obligations- cannot be enforced through courts as demandable only in
conscience
moral based on previous civil obligation barred by prescription- sufficient cause and
can be judicially enforced
EX. simple loan with usurious interest- the prestation to pay the principal debt which is the cause of
the contract is not illegal as the illegality lies only as to the prestation to pay the interest thus only the
latter is deemed void and the loan becomes one without stipulation as to the payment of interest
 cause and subject matter differs depending on viewpoint
a moral obligation may be the cause of a civil obligation unless it really does not exist such as an
erroneous belief that one was morally responsible for a failed enterprise
bad faith or inadequacy of monetary consideration does not render a conveyance inexistent as liberality
could be a sufficient cause
1351. Motives
what impels one to enter into a contract
motives of the parties for entering into a contract do not enter into the validity or invalidity of the cause
or consideration
presence of motive cannot cure the absence of cause
Liguez v CA-motive may be regarded as cause when it predetermines the purpose of the contract;
Lopez cannot assail validity as he is a man advanced in years and she was a mere minor thus not in pari
delicto; heirs cannot set up the plea of illegality as they cannot have better rights than their
predecessor; a contract with an illegal cause may produce effects under certain circumstances where
the parties are not of equal guilt; the cohabitation is implied in the contract as the donor would not
have donated the property were the donee to refuse to cohabit with him
Rodriguez v Rodriguez- clear that the motive or purpose is to circumvent the law against donations
between spouses and this illegal cause supposedly would render the contract void however they are in
pari delicto thus there can be no recovery; intended to be effective thus real and effective conveyance
and cannot recover

1352. Requisites for cause

must be present exist (at the time the contract was entered into)
no existing cause whatsoever: void
failure to pay price does not result in lack of cause (performance only not perfection)
 while it must exist at the time of execution it need not exist later (subsequent revocation is of
no consequence)
must be true real
if the cause is false the contract is not valid unless some other cause which is lawful really
exists
only a voidable contract becasue if it can be proven that there is another cause which is true
and lawful then the contract is valid
EX. delivered but no payment although appearing otherwise in contract executed may be
considered valid as a donation if the parties can proved the cause was pure liberality
must be lawful (not contrary to law, morals, good customs, public order, or public policy)
unlawful: null and void
if a person claims that some parts of a contract are illegal but the rest are valid he has the
burden of showing which parts are supported by a lawful cause otherwise the whole contract
shall be considered void
a contract with an illegal cause may produce effects under certain circumstances where the
parties are not of equal guilt
effects of illegality
if one party is innocent he cannot be compelled to perform and may recover what he
has given
if both are guilty neither can sue the other and the law leaves them as they are
(exceptions exist)
Liguez v CA & Lopez- motive may be regarded as cause when it predetermines the purpose of
the contract; Lopez cannot assail validity as he is a man advanced in years and she was a
mere minor thus not in pari delicto; heirs cannot set up the plea of illegality as they cannot
have better rights than their predecessor; a contract with an illegal cause may produce effects
under certain circumstances where the parties are not of equal guilt
1353. Statement of a false cause
statement of a false cause in a contract renders it void if it should not be proved that they were
founded upon another cause which is true and lawful (merely revocable or voidable)
reason: parties are given a chance to show that a cause really exists and that the same is true and
lawful
EX. deed of sale expressly states that the purchase price has been paid when it in fact has never been
paid the contract is invalid
1354. Presumption that cause exists
GR: although cause not stated in the contract it is presumed that it exists and is lawful
EXC: debtor proves the contrary
necessary that the cause must exist but not necessary to state the cause in the contract due to
presumption
1355. Lesion
lesion is the inadequacy of cause like an insufficient price for a thing sold
GR: shall not invalidate a contract (valid)
gross inadequacy of the price shall not invalidate a contract of sale except as it may indicate a
defect in the consent or that the parties really intended a donation or some other act of
contract
EXC: consent vitiated (rescissible)
fraud
mistake
undue influence
expressly provided by law
entered into by guardians whenever the wards suffer lesion by more than 1/4 of the
value of the things which are the objects thereof
agreed upon in representation of absentees if the latter suffer by more than 1/4 of the
value
partition among co-heirs when anyone of them received things with a value less than
1/4 the share he is entitled
EX. fact that the bargain was a hard one coupled with mere inadequacy of a price when both parties
are in a position to form an independent judgment concerning the transaction is not sufficient grounds
for the cancellation of a contract
lesion may be evidence of the presence of fraud, mistake, or undue influence
Carantes v CA- it is the total absence of cause or consideration which renders a contract void; the
contract may be voidable because of inadequacy of consideration but it is certainly not inexistent
 Joaquin & Buenaventura v CA- no valid cause of action as there can be no legitime to speak of prior to
the death of the parents; valid sale as it is a consensual contract and non-payment does not invalid as
it has nothing to do with the perfection of a contract as it merely goes into the performance; failure to
pay is different from lack of consideration

Form of Contracts

1356. Form
GR: contracts shall be obligatory in whatever form they may have been entered into provided all the
essential requisites for their validity are preset (consensual contracts)
spirit system which looks more at the spirit than the form of the contracts
valid but unenforceable: 3 essential elements present but not in the form required
EXC: absolute and indispensable requirement when the law requires that a contract be in some form to
be valid or enforceable or that a contract be proved in a certain way
formal contracts / solemn contracts- require a certain specified form
real contracts- requires delivery to be valid as a real contract even as between the parties
when form is important
validity- formal or solemn contracts
EX. donations of real property: public instrument (both giving and acceptance)
registration is important for effectivity as against 3rd persons but between the
parties a public instrument is sufficient
EX. partnerships where immovable property or real rights are contributed to the
common fund: public document
EX. donations of personal property: written contract or document if the donation
exceeds P5000
EX. stipulation to pay interest on loans, interest for the use of money: must be in
writing
EX. transfer of large cattle: transfer of the certificate of registration
EX. sale of land through an agent: authority of the agent must be in writing
EX. contracts of antichresis: principal loan and the interest if any must be specified in
writing
enforceability: agreements enumerated under the Statute of Frauds; absolute and
indispensable requirement
still valid between the parties but cannot be enforced through the courts thus cannot
compel execution of the required form
may be waived by acceptance of benefits or failure to object to the presentation of
parol evidence
applies to executory agreements thus when a verbal contract has already been
completed, executed, or partially consummated, its enforceability will not be barred by
the Statute of Frauds
oral sale of land
GR: unenforceable if the land has not yet been delivered and the price not yet
paid; neither party may be compelled by court action to perform unleaded the
defense of the Statute of Frauds is waived
EXC: valid if the land had been delivered or the money has been paid
convenience: contracts enumerated for example under 1358
when a party admits the genuineness of a document he also admits that the words and figures of the
document are set out correctly and that he waives all formal requisites by law

1357. Right of one party to compel the other to execute the necessary form

contracting parties may compel each other to observe a form if the law requires a document or other
special form once the contract has been perfected [already meeting of the minds]
this right may be exercised simultaneously with the action upon the contract
applies only when form is needed only for convenience not for validity or enforceability
requisites before the contracting parties may be compelled to execute the needed form
perfected (valid)
enforceable under the Statute of Frauds- requirement of form is absolute and indispensable
a contract parly written and partly oral is in legal effect an oral contract
A donated to B in a private instrument: cannot be compelled to execute a public document as the
donation is not valid [no valid donation because not perfected due to lacking requisite of public doc]
 A donated to B in a private instrument land actually delivered: cannot be compelled as the donation is
null and void
A sold to B in a private instrument: may be compelled as the donation is both valid and
enforceable [convenience for registration]
A sold to B orally
executory: no because the contact is not enforceable under the Statute of Frauds which
requires sales of real property to be in writing to be enforceable by court action
price paid or land delivered: yes because the contract is both valid and enforceable

1358. Form for convenience

to ensure efficacy and protect the interests of the contracting

parties as well as that of 3rd persons
if contract is perfected then it is taken out of the operation of
the statute of frauds and the other party can be compelled to
observe the form required by law in order for the property to
be registered

must appear in a public document (for convenience not validity or enforceability

acts and contracts which have for their object the creation, transmission, modification or
extinguishment of real rights over immovable property
the cession, repudiation or renunciation of hereditary rights or of those of the conjugal
partnership of gains
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 3rd person
cession of actions or rights proceeding from an act appearing in a public document
all other contracts where the amount involved exceeds P500 must appear in writing even a private
one (convenience only- still valid)
sales of goods, chattels or things in action are governed by Articles 1403 and 1405
Duaden-Hernaez v Delos Angeles- law requires that the contract be written to be enforceable;
contractual system of the Civil Code upholds the spirit and intent rather than the form thus as
long as the essential elements are present the contract is generally valid and obligatory; there
are 2 exceptions which are solemn contracts and Contracts covered by the Statute of Frauds
and the contract falls under neither; it is not enough that the law should require that the
contract be in writing as the law must further prescribe that without such the contract is invalid
or unenforceable; stipulation is only for convenience not validity
formal requirements are for the benefit of 3rd persons; non-compliance does not adversely affect the
validity of the contract nor the contractual rights and obligations of the parties thereunder
EX. loan of P800 contracted orally: may recover as the requirement is only for convenience
EXC. stipulation to pay interest must be in writing otherwise the stipulation is void (the loan
remains valid)
presumption of the validity of a public instrument
GR: strong and convincing evidence is necessary to impugn the contract by an action brought
by one party against the other
EXC: suit is instituted by a 3rd person not a party to the contract but the victim of it

Reformation of Instruments

1359. Reformation
remedy in equity when, there having been a meeting of the minds of the parties to a contract, their true
intention is not expressed in the instrument purporting to embody the agreement by reason of mistake,
fraud, inequitable conduct, or accident, one of the parties may ask for the reformation of the
instrument to the end that such true intention may be expressed
reason: 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; rigor of the
legalistic rule that a written instrument should be final and inflexible is tempered to forestall the
effects of (MAFIA)
mistake
fraud
inequitable conduct
accident
courts do not attempt to make another contract or extricate parties from the necessary
 consequences of their acts
courts merely inquire into the intention of the parties and having found it they reform the
written instrument (not the content) in order that it may express the real intention
reformation may still proper even if the property involved is already mortgaged by buyer to a
3rd person- reclaim property subject to the rights of the 3rd person or courts may order the
property freed from the mortgage
requisites
meeting of the minds
true intention is not expressed in the instrument
clear and convincing proof thereof
brought within the proper prescriptive period (otherwise barred by mere lapse of time)
document must not refer to a simple unconditional donation inter vivos or to a contract where
the real agreement is void
Garcia v Bisaya- dismissed for failure to allege that the instrument to be reformed does not express the
real agreement or intention of the parties and it is clear that no cause of action is stated therein since
such allegation is essential considering the fact that the object of an action for reformation is to make
the instrument conform to the real agreement or intention of the parties; purpose of reformation is to
ascertain the intention and to enable the instrument to conform to such
Bentir v Leande- remedy of prescription is an extraordinary one thus subject to limitations one of which
is prescription; cause of action has become stale as the prescription period has lapsed; can no longer
ask for reform after breach as the purpose of reformation is for enforcement

1362. Unilateral mistake (with fraud)

mistake is unilateral but the other acted fraudulently or inequitably: person who acted
by mistake may ask for the reformation of the contract if the contract does not show
their real intention
1363. Unilateral mistake (with concealment)
mistake is unilateral but the other party is guilty of concealment: the party in good faith may ask for
reformation when the other party knew or believed that the instrument did not state their real
agreement but concealed the fact
 1364. Failure to convey the true intent
court may order the reform of the instrument of it does not convey the true intention due to
ignorance
lack of skill
bad faith
drafter of the instrument
typist
clerk
1365. Intent to have a mortgage or pledge
parties agreed upon a mortgage or pledge of real or personal property but the instrument states that
the property is sold absolutely or with a right or repurchase: reformation of the instrument is proper
otherwise the true intention of the parties would be frustrated
intention of the parties can be judged from their contemporaneous and subsequent acts
1366. No reformation
simple donations inter vivos wherein no condition is imposed
reason: donations are essentially acts of pure liberality
EXC. donation is conditional: reformation may be resorted to so that the real or true conditions
intended might be brought out
EXC. donation is onerous: partakes of the nature of contracts thus reformation allowed
wills
reason: making of a will is strictly a personal one (can only be reformed by testator
himself) which is free and may be revoked at any time [cannot question intent anymore
because duh because dead]
EXC. errors or imperfections in descriptions may be corrected after the death of the testator
but not the manner of property disposal
real agreement is void
reason: such a procedure would be useless as the new instrument would be void precisely
because the true agreement and intention are void
1367. Effect of an action to enforce the instrument
no reformation due to estoppel, waiver or ratification
1368. Plaintiffs in action for reformation
mistake is mutual: either party or his successors in interest
all other cases: the injured party or his heirs (not heir of party at fault) and assigns
if heir of party at fault wants to correct the error no court action is needed as the parties can
agree to reform the instrument themselves
complaint must allege
the instrument to be reformed does not express the real agreement or intention of the parties
what the real agreement or intention was
function is not to make a new agreement but to establish and perpetuate the true
existing one
courts do not reform instruments merely for the sake of reforming them but only to
enable some party to assert rights under them as reformed
prescriptive period for reformation of contracts: 10 years
1369. Procedural rules
the procedure for reformation shall be governed by ROC to be promulgated by SC
Atilano v Atilano- wrongful designation in title is a simple mistake which did not vitiate consent or affect
the validity of the contract; Civil Code provides the remedy of reformation; no longer need to reform as
the parties conformed to the real intention thus mutual deeds of conveyance; one buys and sells
property as he sees it not by the lot number assigned to it in the certificate of title
Sarming v Dy- incorrect designation not in conformity with the intention; mistake did not vitiate consent
nor affect validity; meeting of the minds but contract as written did not express their true intent thus
remedy of reformation lies

INTERPRETATION OF CONTRACTS

1370. Interpretation
rules:
literal meaning its stipulations: terms of the contract are clear and leave no doubt upon the
intention
intention shall prevail: words appear to be contrary to the evident intention of the parties
not the name given by the parties that controls but their real intent as gleaned form the purposes of
 the contract
agreement reduced to writing: agreement is to be considered as containing all such terms and there
can be between the parties and their successors-in-interest no evidence of the terms of the agreement
other than the contracts of the writing
courts are not at liberty to adopt a construction opposed to that which the parties have placed their
contracts
corporations and businessmen should exercise more fairness in dealing with ordinary persons
especially if they do not have the assistance of counsel
if 2 documents are executed on the same day they are to be considered as 1 contract
1371. Judging intent
prior, contemporaneous and subsequent acts shall be principally considered to judge intent
acts done in the performance of contracts are admissible as evidence being the parties’ own
contemporaneous interpretation of its terms
the contract of the parties may result in estoppel
the courts may consider the relations existing between the parties and the purpose of the contract
particularly when it was made in good faith between mutual friends
1372. General terms
general terms are not to be understood to comprehend things that are distinct and cases that
are different from those upon which the parties intended to agree
“all” although general can not included things that were not the subject of the contract no
matter what the terms of the contract may be
if not owned then cannot transfer possession thereof; furniture =/= appliances
expresso unius est exclusio alterius: the mention of one thing implies the exclusion of another;
only logical to assume that had they intended for a condition to be excluded it would have
been so provided
special intent prevails over general intent
1373. Stipulation admitting several meanings
several meanings: should be understood as bearing that import which is most adequate to render it
effectual
the interpretation that would validate the contract if the other would render it ineffectual
if one interpretation makes a contract valid and the other illegal the former must prevail
1374. Stipulations to be read together
various stipulations are to be interpreted together attributing to the doubtful ones that sense which
may result from all of them taken jointly
read to give effect to all, reconcile
performance more clearly indicates their intention that the name or title given the contract
complementary contracts must of course be construed together to give effect as much as
possible to the provisions of both agreements
1375. Words interpreted within the nature and object of the contract
words which may have different significations shall be understood (meaning to be used if susceptible
to 2 or more interpretations)
that in keeping with the nature and object of the contract
terms of a writing are presumed to have been used in their primary and general acceptation
other: local, technical or otherwise peculiar signification may be admitted into evidence to
prove they were so used and understood in the particular instance
if there could be any doubt as to the meaning of this language taken itself it would be removed by a
consideration of the general scope and purpose of the instrument in which it concurs
1376. Usage or custom of the place
usage and custom shall be borne in the mind in the interpretation of the ambiguities of a contract
and shall fill the omission of stipulations which are ordinarily established
general customs and usages: need not be pleaded and may be proved even without
being previously alleged
local customs and usages: have to be both alleged and proved
1377. Obscure interpretation
the interpretation of obscure words or stipulations in a contract shall not favor the party who caused
the obscurity
reason: since he cause the obscurity the party who drew up the contract
with ambiguous terms should be responsible therefor so the obscurity must be construed
against him
when different interpretations of a provision are otherwise equally proper the construction is to
be taken which os the most favorable to the party in whose favor the provision was made
 contract of adhesion: one party imposes a ready-made form of contract on the other are
not entirely prohibited as the one who adheres is in reality free to reject it entirely thus if he adheres he
consents
1378. Doubts
rules when it is absolutely impossible to settle doubts by the rule established in the preceding articles
doubt as to the principal object
contract is void as the object is unknown thus there could not have been any meeting
of the minds
EX. sale of a care but has 3 cars; object cannot be determined
doubts as to the incidental circumstances
gratuitous: least transmission of rights and interest
fairer to interpret a contract in case of doubt as gratuitous rather than onerous
onerous: greatest reciprocity of interests
1379. Suppletory use of principles of interpretation
principles of interpretation stated in Rule 123 of the ROC shall be observed in the construction of
contracts
language in the place of execution: interpreted according to the legal meaning it bears in the
place of its execution unless the parties intended otherwise
meaning of the words used: terms are presumed to have been used in their primary
and general acceptation but evidence is admissible to show that they have a local, technical,
or otherwise peculiar signification and were so used or understood
conflict between written and printed: when an instruments consists of partly written words and
partly of a printed form and the two are inconsistent the former controls the latter
use of experts and interpreters: the evidence of a person skilled in deciphering the characters
or who understood the language is admissible to declare the characters or meaning of the
language
interpretation in favor of natural rights: one in favor of natural rights prevail over one against
when an instrument is equally susceptible of 2 interpretations
usage or customs: an instrument may be construed according to usage in order to determine
its true character

Defective Contracts
Rescissible Contracts

1380. Rescission [only remedy for 3rd persons]

contracts validly agreed upon may be rescinded in the cases established by law
Scaevola: process to render inefficacious a contract validly entered into and normally binding
by reason of external conditions causing an economic prejudice to a party or to his creditors
Manresa: remedy granted by law to secure the reparation of damages caused even if the
contract be valid by means of the restoration of things to their condition prior to the
celebration of said contract
SC: relief to protect one of the parties or a 3rd person from all injury and damages which the
contract may cause to protect some preferential right
rescission presupposes a valid contract thus not the remedy where the contract is fictitious and
therefore null and void
defect not in elements but cancelled due to tendency to cause damage
subsidiary remedy
direct action is required as it cannot be attacked collaterally
to prevent injustice the aggrieved party may be allowed to register his reservation of the right to
rescind
may be rescinded extrajudicially where the contract provides that it may be revoked and cancelled for
violation of any of its terms and conditions
contract of sale entered into in violation of a right of first refusal of another person, while valid, is
rescissible
requisites
must be at the beginning either a valid or a voidable contract [not a void one because cannot
rescind what does not exist in law]
economic of financial prejudice to someone (party or 3rd person)
requires mutual restitution
kinds
rescission in general (Art 1380)
based on lesion or fraud upon creditors
instituted by either of the contracting parties or by 3rd persons
courts cannot grant a period or term within which to comply
non-performance by the other party is immaterial
rescission in reciprocal obligations for non-performance (Art 1191)
based on non-performance or non-fulfillment of the obligation
instituted only by the injured party to the contract
courts may grant a term to comply; for performance
non-performance by the other party is important
EXC. mutual dissent/mutual withdrawal- not the rescission referred to as it is the will of the parties that
constitutes the basis and not the law; was not originated by any of the causes specified nor is it a relief
for the purposes sought thus simply another contract for the dissolution of the previous one
EXC. mere fact that a contract conferred more favors upon one party is not a ground for rescission
EXC. mere excessiveness of the price because the only grounds for rescission are those enumerated
by law
EXC. mere inadequacy of the price
unless shocking to the conscience
unless there is a showing that in the event of a resale a better price can be obtained
lesion is the damage or injury to the person asking for rescission
modern legislation does not favor rescission due to lesion as goods do not have a fixed and true value
being a function of supply and demand thus variable and fluctuating
1381. Enumeration of rescissible contracts
 on behalf of wards: suffer lesion by more than 1/4 of the value of the things which are the object
thereon
act of ownership (sale or mortgage)
court approval not obtained then unenforceable regardless of whether or not there is
lesion
act of administration (buying fertilizer for land cultivation, materials for repair)
with court approval: valid regardless or lesion
without court approval: rescissible is lesion is more than 1/4
in representation of absentees
lesion is more than 1/4
partition for inheritance: more than 1/4 for one heir (Art 1098)
those undertaken in fraud of creditors when the latter cannot in any other manner collect claims due
them
requisites for accion pauliana
creditor who became such prior to the contract sought to be rescinded
alienation made subsequent to such credit [transfer of ownership through sale,
donation, assignment]
party alienating must be in bad faith (knowledge that damage would be caused
regardless of intent) [to escape payment]
must be no other remedy for the prejudiced creditor [specific performance -> attach ->
accion subragatoria -> accion pauliana]
may be brought even if the debtor has not been judicially declared insolvent and even if the
creditor has not yet brought an action to collect his credit
both unsecured and secured creditors may bring the action as long as prejudiced
must show that the conveyance or alienation was fraudulent
things in litigation
rescissible if the party wins in the original litigation
property is in litigation after service of summons
plaintiff must register his claim to protect himself pending litigation
real property: notice of lis pendens
personal property: writ of preliminary attachment
other: placed in the hands of a receiver
usually litigation on ownership of land such as when land is sold pending litigation without
court approval then rescinded if decision is against vendor
other instances
partition (1098)
result of deterioration (1189)
right given to unpaid seller (1526 and 1534)
sale of real estate (1539)
1382. Premature payments
payments in a state of insolvency for obligations to whose fulfillment the debtor could not be
compelled at the time they were effected: rescissible
debtor-payer must have been insolvent (judicial declaration unnecessary)
debt was not yet due and demandable
debtor not yet compelled to pay but pays although insolvent such that other creditors with due and
demandable debts can ask for rescission
EXC. clear waiver of the stipulated automatic right of rescission due to numerous extensions granted
to the buyer
1383. Subsidiary remedy
action for rescission is subsidiary and cannot be instituted except when the party suffering the damage
has no other legal means to obtain reparation for the same
provided all the essential requisites for rescission are present
prove
really is a creditor
cannot collect the debt in any other way
EX co-owners of a property and one mortgages the entire property
can only rescind his share mortgaged not the share of the other
1384. Partial rescission
rescission shall only be to the extent necessary to cover the damages caused
only purpose is to repair or cover the damage caused thus rescission will not be allowed if not
justified
 insofar as it is not rescinded the alienation is valid
person benefited: only the creditor who asked for the rescission
1385. Mutual restitution
rescission creates the obligation to return; consequently, it can only be carried out when he who
demands rescission can return whatever he may be obliged to restore
to restore status quo; return whatever was received by virtue of the contract
EXC. does not apply to creditors who seek to impugn fraudulent transactions of their debtors
EXC: rescission cannot take place when the things which are the object are in the possession of 3rd
persons (both must concur); person causing rescission indemnifies for damages
legal possession
good faith
EXC: person asking for rescission is not in a position to restitute
requisites for action for rescission
plaintiff must be able to return what has been received by virtue of the rescissible contract
thing object of the contract is not in the legal possession of 3rd persons in good faith
things to return
object of the contract + fruits (after delivery of the thing sold has been made)
innocent purchaser in good faith: indemnity for damages not recovery of object
price + interest
1386. Judicially approved
rescission on behalf of wards or in representation of absentees shall not take place with respect to
contracts approved by the courts
1387. Presumptions of fraud [to escape payment; can prove otherwise]
gratuitous alienations [donation]
debtor did not reserve sufficient property to pay all debts contracted before the donation
prima facie presumed valid unless shown that it adversely affects creditors
EXC. anticipatory fraud- rescission may still prosper if it can be shown that the
donation had been deliberately made beforehand to avoid the payment of debts still to
be contracted
onerous alienations [sale, assignment for value]
made by persons against whom some judgment has been rendered in any instance (even if not
yet final judgment)
against whom some writ of attachment has been issued
EXC. sale had been made before the judgment then presumption cannot apply even if,
unknown to the buyer, the suit had already been brought but still pending as long as
no attachment has been issued
decision or attachment need not refer to the property alienated and need not have
been obtained by the party seeking the rescission
badges of fraud [presumption carries with it signs of fraud
fact that the consideration of the conveyance is fictitious or inadequate (great disparity
between the price and real value)
transfer made by a debtor after suit has been begun and while it is pending against him
sale upon credit by an insolvent debtor
transfer of all or nearly all of his property by a debtor, especially when he is insolvent or greatly
embarrassed financially
evidence of large indebtedness or complete insolvency
fact that the transfer is made between father and son (when considered together with
preceding circumstances as relationship alone does not constitute a badge of fraud)
failure of the vendee to take exclusive possession of all the property
1388. Bad faith
state of mind affirmatively operating with the furtive design or with some motive or self-interest or ill-will
for an ulterior purpose and implies a conscious and intentional design to do a wrongful act for a
dishonest purpose or moral obliquity
nonchalance in performing an urgent obligation indicating
gross negligence amounting to bad faith
effect of acquiring in bad faith the things alienated in fraud of creditors
acquirer must return or indemnify [return first then indemnify]
vendor pays first but vendee is subsidiarily liable if vendor is unable to pay
“due to any cause” includes a fortuitous event
subsequent transfers (2 or more alienations then first acquirer shall be liable first and so on
successively)
 1st transferee in good faith: good or bad faith of next transferee irrelevant
1st transferee in bad faith: next transferee only liable if he is also in bad faith
1389. Prescriptive period
GR: 4 years from the date of execution
EXC:
under guardianship: 4 years from termination of incapacity or attainment of age of majority
should sue for rescission before reaching 22
absentee: 4 years from the time the domicile is known
who can bring the action
injured party (or defrauded creditor)
heir or successor-in-interest
creditors of the above by virtue of accion subrogatoria
Voidable Contracts

1390. Voidable
binding upon the parties unless annulled by proper action in court
grounds:
incapacity to consent
vitiated consent
EXC repentance at having entered into the transaction is not a ground as it is not the function
of the court to protect or relieve one from the consequence of a bad bargain
action to bring
positive redress: action (complaint, counterclaim) must be filed otherwise the contract remains
binding
defense: ordinarily no affirmative action is required
1391. Prescriptive period
4 years
intimidation, violence, under influence: time the defect of consent ceases
mistake of fraud: time of the discovery
minors or incapacitated persons: guardianship ceases
effect: contract can no longer be set aside after prescription
1392. Ratification
ratification extinguishes the action to annul [even if pending]
cure a defect in a voidable contract (confirmation)
cure the defect of lack of authority in an authorized contract (ratification)
remedy a deficiency of proof (acknowledgement)
effects:
action to annul is extinguished: rendered completely valid
contract is cleansed of its defect from the beginning
requisites
contract must a voidable one
person ratifying must know the reason for the contract being voidable
cause must not exist or continue to exist anymore at the time of ratification
ratification must have been made expressly or by an act implying a waiver of the action to
annul
person ratifying must be the injured party
1393. Kinds of ratification
express (oral or written)
tacit (implied- as from conduct implying a waiver)
EX minor bought land and sold the same after reaching age of majority
EX use of the proceeds by one previously intimidated to make the sale
EX voluntary performance of obligation after cause of nullity was made known
EX remaining silent for a certain period of time ratifies the contract
EXC mere lapse of time does not legalize a voidable contract
1394. Ratification by guardian
ratification of a contract entered into by an incapacitated person thus guardian acts on his behalf
ratification can be made by the injured party himself, provided he is capacitated, or has become
capacitated
1395. Conformity of guilty party
ratification does not require the conformity of the guilty party or the party who has no right to bring the
action for annulment since caused the voidability
reason: may find a way of getting out of the contract by he simple expedient of refusing to ratify
1396. Retroactive effect
cleanses the contract from all its defects from the moment it was constituted
annulment based on the original defects cannot prosper
however the rights of innocent 3rd persons must not be prejudiced
1397. Persons who may ask for annulment
all who are thereby obliged principally or subsidiarily
victim may ask for the annulment
person not principally or subsidiarily liable if prejudiced
EXC. one who merely offered a higher bid without actually buying the property is not
an interested party unless public auction
EXC. guilty party and his heirs as they derive their rights from their predecessors
reason: he who comes to equity must come with clean hands
EXC. creditors of the victim cannot ask for annulment as they are not bound by the contract
if prejudiced can ask for rescission not annulment [entered into to defraud them]
EXC. victim in estoppel
at fault
misrepresented and other party misled
1398. Effects of annulment
contract not yet complied with: parties are excused from their obligations
contract already performed: mutual restitution
thing + fruits
price + interest
personal obligation: value of the service [because already performed]
EXC. absence of showing that there is considerable disparity in the benefits then equity will
presume they are more or less the same
EXC. builder in bad faith cannot recover reimbursement
EXC. cannot be availed of by strangers to the contract
EXC. innocent 3rd parties cannot be obliged to restore
still applies even if the land has already been registered provided there is no estoppel
extra liability: Arts 20 & 21of the Civil Code
1399. No restitution by incapacitated party (EXC to mutual restitution)
GR: when the defect consists of incapacity of one of the parties the incapacitated person is not
obliged to make any restitution
EXC: insofar as he has been benefited by the thing or price received by him (only to the extent of
enrichment- pecuniary or otherwise)
no presumption of enrichment thus must be proven by he who alleges
just because delivered does not mean there was enrichment
incapacitated person still has the property then is a benefit which he must return and not
squander otherwise will amount to ratification
1400. Value may be substituted by thing itself
duty of mutual restitution: the value of the thing and fruits with interest substitutes for the thing itself
that was lost through the party’s fault
1401. Action extinguished
vitiated consent: when the thing which is the object thereof is lost through the fraud or fault of the
person who has a right to institute the proceedings [cannot ask for annulment because cannot return]
EX. destroys the house he was forced to contract for- extinguishes right to bring the action for
annulment
incapacity
GR: if the right is based upon the incapacity of one of the contracting parties the loss of the
thing shall not be an obstacle to the success of the action (not guilty of fraud)
EXC: said loss took place through the fraud or fault of the plaintiff
1402. Mutual restitution
one party does not restore: other party cannot be compelled to comply with what is incumbent upon
him
reason: reciprocal obligation to restitute is created
innocent party cannot restore due to fortuitous event: cannot compel other party
reason: before the annulment the contract is valid and the innocent party being the owner of
the thing lost due to FE must bear the loss
EXC: innocent party offers to give the value of the thing then can recover
Unenforceable Contracts

1403. Unenforceable contracts

cannot be sued upon or enforced unless ratified; validable [valib between the parties only refers to
involvement of courts to compel performance]
ratification may be express or implied
accepting the benefits / proceeds of the agreement or contract
EXC. mere lapse of time is not the ratification contemplated by law
unauthorized contracts: those entered into in the name of another person by one who has (without
ratification the agent assumes personal liability)
not been given authority or legal representation
acted beyond his powers
EX: SPA to administer but sold; not authorized so buyer cannot compel delivery as
owner is not bound
fail to comply with the Statute of Frauds: unenforceable by action unless the same, or some note or
memorandum thereof, be in writing [includes texts, chat] and subscribed by the party charged or by his
agent; evidence of the agreement cannot be received without the writing or a secondary evidence of
its contents
executory: an agreement that by its terms is not to be performed within a year from
the making thereof
reason: possibility of fraud in executory contracts is much greater; frailty of
man’s memory
EX. 3 months- oral still enforceable; 3 years- oral unenforceable
EXC. would not perform till after 3 years: Statute doesn’t apply as the
performance not to do would begin right away and performance was
not postponed
EXC. if executed: partial performance takes an oral contract out of the scope
of the Statute thus agreement can be proved and can be compelled to
perform otherwise the very evil sought to be prevented will occur
special promise to answer for the debt, default, miscarriage of another
subsidiary or collateral promise to pay; guaranteeing debt of another, surety
EXC. not a guaranty such as when obligating self or promising to pay own
debt
agreement made in consideration of marriage, other than a mutual promise to
marry
by reason of marriage thus cause is not the marriage but liberality
EXC. oral evidence may be used to prove mutual promise to marry
unless marriage deferred till after lapse of 1 year thus must be
written
marriage settlement
donation propter nuptias
payment to suppliers
agreement for the sale of goods, chattels or things in action (incorporated or
intangible personal property) at a price of not less than P500 [regardless of time]
EX. sale for exactly P500- written to be enforced
EXC: buyer accepts and receives part or pays part of the purchase money
when the sale is made by auction and the auctioneer makes an entry in his
sales book at the time of the sale it is a sufficient memorandum even if not
signed by party sought to be charged
amount and kind of the property sold
terms of the sale
price
names of the purchasers and persons on whose account the sale is
made
agreement for the leasing for a longer period than 1 year or for the sale of real
property or interest therein (regardless of price)
interest in real property may include easement or usufruct
authority of agent to sell land not in writing- VOID not merely
unenforceable
EXC. lease for exactly 1 year- may be oral
 EXC. promise to give land is not a sale thus Statute does not apply
EXC. executed totally or partially
representation as to the credit of a 3rd person
must be in writing to be enforceable
there is merely an assurance- not promise- that somebody has a certain
amount of credit
person making the representation does not take part in the contract but the
assurance may be considered as a form of agreement thus may be liable for
tort
Statute of Frauds
oral promise to put into writing an agreement covered by the Statute is itself
unenforceable
descriptive of those laws, statutes, or provisions which require certain agreements to
be in writing before they can be enforced in a judicial action
to prevent fraud and perjury as the law considers memory of man unreliable
applies only to executory contracts (oral evidence may be introduced to prove partial
performance otherwise unfairness would result)
applies only if the action is for recovery of damages because of violation of agreement
or for specific performance of said agreement
EX. parol evidence adduced not for the purpose of enforcing contract of
sale but as basis of possession by person claiming to be the owner
exclusive, applies only to the agreements or contracts enumerated
EXC. oral loan of P1,000 is valid and enforceable
EXC. wills which are governed by separate provisions of law
EXC. mutual promise to marry may be made orally (damages not specific
performance bc personal obligation)
defense of the Statute may be waived
personal defense, cannot be assailed by 3rd persons
Rule of Exclusion, oral evidence that might be relevant and might therefore be
admissible were it not for the law or statute excludes said evidence
merely executory then no oral evidence because Statute of Frauds excludes
such evidence
determines only admissibility not credibility or weight
although the testimony may be relevant or truthful still it would not be
admitted
does not apply if it is claimed that the contract does not express the true agreement;
as long as the true agreement is not covered by the Statute it is provable by oral
evidence
EX. ring is orally sold for P700 then unenforceable; unless one insists the price
was only P400 then oral evidence is allowed
duty of attorney for defendant
file a motion to dismiss
plead the Statute of Frauds as an affirmative defense
make a timely objection in the course of the trial
duty of attorney for the plaintiff
present the written agreement or contract
otherwise present a memorandum or note in writing
setting forth important details of the transaction
signed by party sought to be charged or his agent
otherwise present secondary evidence in the form of oral testimony or parol evidence
(written contract lost is merely being proved orally not oral contract being proved)
both parties are incapable of giving consent
1404. Unauthorized contracts
governed by Art. 1317 and the principles of agency in Title X
ratification cures an unauthorized contract otherwise it has no effect
1405. Ratification: violating Statute of Frauds
waiver: timely failure to object to the presentation of oral evidence to prove the oral agreement [one
sues another, coulee fails to object to oral evidence, earliest opportunity otherwise waived]
after the question about the agreement
after the answer to said question
 acceptance of the benefits under them (when the contract is totally or partially performed)
1406. Right of one party to compel the other to execute the needed instrument
when the contract is enforceable and a public instrument is necessary for its registration the other party
may be compelled to execute
execute the public instrument needed for convenience when both valid and enforceable
EX. sale of realty in private instrument -> public instrument
EXC. oral sale of realty -> not enforceable thus cannot compel
EX. oral sale of realty ratified -> now both valid and enforceable thus can be registered
1407. Both parties incapacitated to consent
unenforceable
one parent or guardian consents: voidable
both parents or guardians consent: validated from the time it was entered into
1408. Strangers cannot assail unenforceability
unenforceable contracts cannot be assailed by 3rd persons
Statute of Frauds cannot be set up as a defense by strangers to the transaction
just as strangers cannot assail voidability
Void Contracts

1409. Void and inexistent

cannot be ratified and right to set up defense of illegality cannot be waived (may be considered
on appeal even if not raised in the trial court)
defense is not available to 3rd persons who are not directly affected
cannot give rise to a contact thus a contract which is the direct result of a previous illegal
contract is also void
generally produces no effect
generally no action to declare them void is needed since they are inexistent from the very
beginning (unless already performed)
enumeration
cause, object or purpose is contrary to law, morals, good customs, public policy, public order
EX. sale to concubine of conjugal abode due to good morals and public policy
EX. contract or waiver intended to exempt employers from all or part of the liability is
null and void
EX. common law spouse cannot receive from insurance even if designated as
beneficiary
EX. concession to wife who sold some to others
portion sold to others valid and taxable
portion kept from sale by husband: prohibited by law
EXC. promissory note to pay for estafa case to be dropped since the real consideration
is the pre-existing debt not the dismissal of the case as it merely furnished the
occasion for the execution of the note
absolutely simulated or fictitious
only relatively simulated: generally bound to hidden or intended contract
cause or object did not exist at the time of the transaction
should be could not come into existence: object may legally be a future thing
object is outside the commerce of man
contemplate an impossible service
expressly prohibited or declared void by law
EX. donation of land in a private instrument
EXC. subsequent donation made in public instrument valid (not ratification
thus date is from the new agreement not original)
EX. sale of conjugal properties by surviving spouse without the formalities established
is void as to the share of the deceased spouse
kinds
inexistent ones
essential formalities are not complied with
produces no effect whatsoever
illegal or illicit
produces some effect in that he who gave cannot get back what was given
1410. Declaration of inexistence
 action for declaration of inexistence does not prescribe consequently the illegality of a contact can
always be set up as a defense
declaration to avoid public taking law into their own hands
defect of inexistence of a contract is permanent and incurable
mere lapse of time cannot give effect to contract null and void
laches cannot be set up to resist the enforcement of an imprescriptible legal right thus can
vindicate despite lapse of time
EX. one who buys in bad faith knowing of encumbrance enters into a void not voidable
contract
EX. void bigamous marriage is already void and does not have to be declared void
1411. Pari delicto rule
pari delicto rule refuses legal remedy to either party to an illegal agreement and leaves them where
they are
no action against each other, both shall be prosecuted, disposal of the things or the price of
the contract
applies to spouse who although not a signatory has sufficiently manifested unequivocal
concurrence through affirmative acts
benefit of spouse raises strong presumption
EXC. fictitious or absolutely simulated contracts
EXC. superior public policy intervenes
EXC. simulated contracts to circumvent the law- property can be reclaimed as application of the rule
would sanction circumvention
1412. Illegal contracts
criminal offense
both parties guilty (in pari delicto)
cannot give positive relief otherwise it will interpret and enforce an illegal and
immoral arrangement
no action against each other
both shall be prosecuted
effects or instruments of the crime (things or the price of the contract) shall be
confiscated in favor of the government
EX. a party who voluntarily entered into an illegal and void compromise agreement
cannot withdraw or render ineffective acts already done in connection with their part in
the unlawful bargain
only one is guilty and the other innocent (or not in equal guilt though both guilty)
guilty party will be prosecuted
instruments of the crime (object of the contract) shall be confiscated in favor of the
government
innocent party may claim what he has given otherwise shall not be bound to comply
with promise
EXC. if a cause of action can be established without referring to the illegal act or motive, relief
can be granted
no criminal offense
both parties guilty (in pari delicto)
neither may recover what he has given by virtue of the contract or demand the
performance of the other’s undertaking
EXC. property sold to foreigner who sells to Filipino: validity of the title can no longer
be questioned
EXC. govt does not take steps to escheat or revert and alien continues in possession:
Filipino vendee should be allowed to get back the property
only one is guilty or at fault (or not in equal guilt though both guilty)
guilty party cannot recover what had been given or ask for fulfillment of what had been
promised
party not at fault may demand the return without any obligation to comply
1413. Excess of interest
interest paid in excess of the interest allowed by usury laws may be recovered by the debtor with
interest theron from the date of the payment
14%- unsecured loans
12%- secured loans with registered real estate as the security
2% per month; 14% per year- pawnshops
1414. Recovery available (EXC to pari delicto)
 courts may, if the public interest will be subserved, allow the party repudiating the contract to
recover the money or property
purpose has not yet been accomplished
contract to kill but not yet killed: can recover if courts allow
contract to kill and killed: cannot recover
damage has not been caused any 3rd person
also applies if the parties are not equally guilty and where public policy would be advanced by allowing
the suit for relief
1415. One party is incapacitated (EXC)
one of the parties to an illegal contract is incapable of giving consent the courts may allow the
recovery of money or property delivered by the incapacitated person
if the interest of justice so demands
1416. Not illegal per se but prohibited
when the agreement is not illegal per se but is merely prohibited, and the prohibition by law is
designed for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what
he has paid or delivered
illegal per se: forbidden because of public interest
merely prohibited: for the protection of the plaintiff and public policy would be enhanced by
allowing the recovery
1417. Payment in excess of maximum price
when the price of any article or commodity is determined by statute, or by authority of law, any person
paying any amount in excess of the maximum price may recover such excess
to curb the evils of profiteering

Natural Obligations

1423. Natural and Civil Obligations

EXC: voluntary fulfillment- the debtor complied with the same even if he knew that he could not have
been legally forced to do so
partial voluntary fulfillment- the balance cannot be recovered since there is no legal obligation
EXC: payment through a coercive process of the writ of execution is not considered voluntary
and the provisions of natural law cannot be applied
EXC: did not know
undue payment
knowing it has prescribed: no recovery as this is a natural obligation
not knowing: can recover on the ground of unjust enrichment
other examples
obligation to pay interest for the use of money even if not agreed upon in writing
duty to support natural or spurious children
giving of material and financial assistance to children upon their marriage
 no juridical tie in moral obligation (while there is in natural)
giving of legal assistance to employee is merely a moral obligation
Christmas bonus not yet given is not generally demandable or enforceable nor may it be
considered a natural obligation for there has been no voluntary performance yet; Courts cannot
order the grant of the bonus
EXC made a part of the wage and salary
EXC granted on equitable considerations (used to be given in the past)
moral obligations may be turned into civil obligations
1424. Extinctive prescription
the obligor who voluntarily performs the contract cannot recover what he has delivered of the value or
the service he has rendered
right to sue upon a civil obligation had lapsed
1425. Payment by a 3rd person
debtor that later voluntarily reimburses the third person cannot recover what he has paid
3rd person pays a debt which the obligor is not legally bound to pay because the action
thereon has prescribed
without the knowledge
against the will
EXC. payment made with the consent then a civil obligation arises

1426. Contracts by minors between 18 & 21 (Annulment) [not applicable]

when a minor between eighteen and twenty-one years of age who has entered into a contract without
the consent of the parent or guardian, after the annulment of the contract voluntarily returns the whole
thing or price received, notwithstanding the fact the he has not been benefited thereby, there is no
right to demand the thing or price thus returned
without parental consent
voluntary return after annulment
1427. Contracts by minors (No annulment) [not applicable]
when a minor between eighteen and twenty-one years of age, who has entered into a contract without
the consent of the parent or guardian, voluntarily pays a sum of money or delivers a fungible thing in
fulfillment of the obligation, there shall be no right to recover the same from the obligee who has spent
or consumed it in good faith. (1160A)
obligee who has spent or consumed the object in good faith is not required to restore
good faith of the obligee must be present at the time of the spending or consuming
fungible = consumable
non-consumable: applies if there has been loss by fortuitous event or alienation in good faith
(if the proceeds have already been spent in good faith)
1428. Winner in an action to enforce a civil obligation
when, after an action to enforce a civil obligation has failed the defendant voluntarily performs the
obligation, he cannot demand the return of what he has delivered or the payment of the value of the
service he has rendered [right to sue did not prescribe, debtor failed but still paid]
defendant may have realized he should have lost the case
1429. Payment of debts beyond value of the decedent’s estate
when a testate or intestate heir voluntarily pays a debt of the decedent exceeding the value of the
property which he received by will or by the law of intestacy from the estate of the deceased, the
payment is valid and cannot be rescinded by the payer [inherit not only rights and assets but also
obligation]
heirs inherit obligations only to the extent of the value of the inheritance
1430. Payment of legacies despite void will
when a will is declared void because it has not been executed in accordance with the formalities
required by law, but one of the intestate heirs, after the settlement of the debts of the deceased, pays
a legacy in compliance with a clause in the defective will, the payment is effective and irrevocable
void will -> void legacy -> deceased considered to have died without a will
all alienation defective for lack of the proper formalities may be included by analogy
Law on Succession: formalities of a will must be strictly followed otherwise void [testate ->
intestate]

Estoppel
1431. Estoppel
principle that an admission or representation is rendered conclusive upon the person making it and
cannot be denied or disproved as against the person relying thereon [can no longer refute previous
misrepresentation by act or deed]
origin is in equity and is based on moral rights and natural justice
estoppel is a bar which precluded a person from denying or asserting anything contrary to that which
has been, in contemplation of law, established as the truth either by acts of judicial or legislative
officers, or by his own deed or representation either express or implied
he who prevents a thing from being done may not avail himself of the non-performance which he
himself has occasioned
EXC
superior public policy
complaining party has not been misled
erroneous application of law
omission or neglect of government officials generally does not put govt in estoppel
frustrating by indirection the purpose of the law
allowing to be done indirectly what cannot be done directly
1432. Suppletory effect of the general principles of estoppel
principles of estoppel are adopted insofar as they are not in conflict with
provisions of this Code
the Code of Commerce
the Rules of Court
special laws
limited to supplying deficiency but not supplanting positive law
if facts are alleged as constituting estoppel they must be expressly pleaded
1433. Kinds of estoppel
estoppel in pais / equitable estoppel: arises when one induces another to believe certain facts to exist
and such other rightfully relies and acts on such belief so that he will be prejudiced of the former is
permitted to deny the existence of such facts
conduct or acceptance of benefits (EXC conduct because of ignorance or mistake)
representation or concealment
silence (there should be a duty or obligation to speak)
omission
laches (unreasonable delay in suing- even if the prescription period has not lapsed)
conduct on the part of the defendant or one under whom he claims, giving rise
to the situation of which the complaint is made and for which the complaint
seeks a remedy
delaying in asserting the complainant’s rights having had knowledge of the
conduct and afforded an opportunity to institute a suit
lack of knowledge or notice on the part of the defendant that the complainant
would assert the right
injury or prejudice to the defendant in the event relief is not accorded to the
complainant or the suit is not held to be barred
bars an action to create a vested right / executory interest
EXC does not bar an action to protect a vested right / executed interest
estoppel by deed / technical estoppel: bar which precludes a party to a deed and his
privies from asserting as against the other and his privies any right or title in derogation of the deed or
from denying the truth of any material fact asserted in it
estoppel by deed proper [waiver]
EX. shipper has his goods valued at only P200
EX. purchase in one’s own name with another’s money
EX. minors selling real estate claiming to be of age
EXC. deed is null and void (illegal) -> no estoppel
EXC. person estopped is incapacitated
estoppel by judgment as a court record (when there could have been res judicata)
while res judicata makes a judgment conclusive between the parties as to things
which were directly adjudged, estoppel by judgment prevents the parties from raising
questions that could have been put in issue and decided in the previous case
1434. Sale or alienation by non-owner
non-owner of a thing sells or alienates and delivers it and later the seller or grantor acquires
 title thereto: such title passes by operation of law to the buyer or grantee
sale of “after-acquired” property- seller subsequently acquired valid title making the sale valid
prejudice is not essential
EXC. deed of sale is alleged to be forged -> question of fact threshed out in trial
1435. Sale or alienation in representation of another
person representing another sells or alienated a thing: former cannot subsequently set up his own title
as against the buyer or grantee
estoppel created in a representative capacity
prejudice is not essential
1436. Estoppel on the part of the lessee or bailee
lessee or bailee is estopped from asserting the tile of the thing leased or received as against the lessor
or bailor
not permitted to deny the title of his landlord at the time of the commencement of the relation
of the landlord and tenant between them
enough for the landlord to prove the existence of the lease contract for the presumption
to apply
presumption also applies for donee who had accepted the donation in due form as
well as to a servant and agent
EXC. alleged tenant does not admit expressly or implicitly the existence of the lease
contract
1437. Estoppel concerning immovable property
one who, in a contract between third persons concerning immovable property, misleads another with
respect to the ownership or real right over the real estate is precluded from asserting his legal title or
interest therein
fraudulent representation or wrongful concealment of facts known to the party estopped
party precluded must intend that the other should act upon the facts as misrepresented
(should have made a fraudulent representation or wrongful concealment of facts known to
him)
party misled must have been unaware of the true facts (knowledge of the facts by the stranger
prevents deception thus no estoppel)
party defrauded must have acted in accordance with the misrepresentation (must have
been misled otherwise there is no estoppel)
estopped as third parties were misled
consent on the part of the true owner: estopped from asserting any right over the property
1438. Allowing someone to assume apparent ownership (personal property)
one who has allowed another to assume apparent ownership of personal property for the purpose of
making any transfer of it cannot set up his own title to defeat the pledge of the property, made by the
other to a pledgee who received the same in good faith and for value, if he received the sum for which
a pledge has been constituted
estoppel resulting from acceptance of the benefits with knowledge of the true facts
no benefits: estopped still if the agent was given apparent authority and the other party was
misled into giving him credit
1439. Persons bound by estoppel
persons bound
both parties of the obligation & their successors
persons not bound
third parties
government (particularly when there has been an erroneous application and enforcement of the
law)
EX. error by tax official in assessment of taxes does not relieve taxpayer from full
liability
EX. govt official illegally conveys public land, govt is not estopped to recover
EXC. defendant city is wrongly represented and no motion to dismiss is filed thus
estoppel operates
rule on estoppel applies only to questions of fact, not of law, about the truth of which the other party
is ignorant
estoppel by record: doctrine applies only between the same parties or their proved and cannot
be used abasing strangers
estoppel cannot validate a void contract- cannot be validated if it is prohibited by law or is
against public policy as no citizen is to barter away what public policy be law seeks to preserve
promissory estoppel: doctrine may arise from the making of a promise even though
without consideration if it was intended that the promise should be relied upon and if a refusal to
 enforce it would be virtually to sanction the perpetration of fraud or would result in other injustice
exception to the general rule that a promise of future conduct does not constitute estoppel
thus must established
promise reasonably expected to induce action or forbearance
such promise did in fact induce action or forbearance
the party suffered a detriment
agency by estoppel: similar to the doctrine of apparent agency; requires proof of reliance upon the
representations and that the representations predated the actions taken in reliance
principal manifested a representation of the agent’s authority or knowingly allowed the agent
to assume such authority
3rd person, in good faith, relied upon such representation
relying upon said representation, a 3rd person has changed his position to his detriment

Trusts

1440. Trusts
parties (trustor may at the same time also be the beneficiary)
trustor or settler- established the trust
trustee- holds the property in trust for the benefit of another
beneficiary or cettui que trust- person for whose benefit the trust has been created
trust- right to the beneficial enjoyment of property the legal title to which is vested in another; fiduciary
relationship concerning property which obliges the person holding it to deal with the property for the
benefit of another
EX co-ownership with the co-owner being a trustee for each of the others
elements
parties to a trust
trust property / trust estate / subject matter of the trust
characteristics
fiduciary relationship
created by law or agreement
legal title is held by one, and the equitable title or beneficial title is held by another
guardian, administrator, executor- has no legal title
Trust
Stipulation Pour Autrui
exists due to legal provision or because of an agreement
arises one in the case of contracts
refers to specific property
refers to specific property and other things

1441. Classification of trusts

express / conventional: created by the intention of the trustor or of the parties [agreement]
implied / trust by operation of law: come into being by operation of law [no agreement that is clear]
resulting / bare / passive trust: intent to create a trust but it is not effective as an express
trust [looking at circumstances]
EX a person who inherits property registers the same in another’s name whom he
does not intend to have any beneficial interest therein
constructive trust : no intention to create a trust is present but a trust is nevertheless created
by law to prevent unjust enrichment or oppression [to protect the beneficiary]
EX person acquires a property by mistake is considered by law a trustee while he
holds the same
1442. Suppletory effect
principle of the general law of trusts are merely suppletory

Express Trusts

1443. Formalities
no express trusts concerning an immovable or any interest therein may be proved by parol
(oral) evidence
requirement that the express trust be written is only for enforceability, not for validity
 oral agreement is valid and enforceable for trust over personal (movable) property
by implication (whether real or personal) [can be basis of action]
for 3rd persons, trust over real property must be [to be enforceable as still valid between the
parties]
in a public document
registered
1444. Creation of express trust
no particular words are required for the creation of an express trust, it being sufficient that a trust
is clearly intended
conveyance of the trustee by an act inter vivos or mortis causa
admission of the trustee that he holds the property only as trustee
there must be intent to create a fiduciary relationship with respect to the property; there must be a
clear intention to create a trust (thus no particular or technical words are required)
the trustor must be capacitated to convey the property
minor cannot create an express or conventional trust of any kind
joint owner of a thing may be a trustor and the other a trustee of one’s share
beneficiary must be capacitated to receive gratuitously from the trustor
if incapacitated to be the donee, heir or legatee, or devisee: cannot become the beneficiary of
a gratuitous trust
administration of the trust
trustee must file a bond
trustee must make an inventory of the real and personal property in trust
trustee must manage and dispose of the estate and faithfully discharge his trust in relation
thereto according to law or the terms of the trust as long as they are legal and possible
in the absence of express stipulation in a contract entered into by a trustee for a
corporation that a trust estate and not the trustee should be liable: the trustee is liable
in his individual capacity
before a trustee may sue or be sued alone it is essential that his trust be express
trustee must render a true and clear account
trustee cannot acquire the property held in trust by prescription as long as the trust is admitted
1445. Trustee declines
trust ordinarily continues even if the trustee declines
GR: the court will appoint a new trustee
EXC: otherwise provided
new trustee has to be appointed otherwise the trust will not exist
1446. Acceptance by beneficiary necessary
acceptance is necessary
express
implied
presumed
GR: purely gratuitous then presumed accepted
EXC: proof that he really did not accept
acceptance by the beneficiary of a gratuitous trust is not subject to the rules and
formalities of donations thus mere acquiescence in the formation often trust and
presumed acceptance are sufficient
end of express trusts
mutual agreement by all the parties
expiration of the term
fulfillment of the resolutory condition
rescission or annulment
loss of subject matter of the trust (physical or legal loss)
order of the court (EX. when the purpose of the contract is being frustrated)
merger
accomplishment of the purpose of the trust
testamentary trust for the administration and eventual sale of properties ends when
the sale is actually made and the proceeds thereof are distributed to the proper
recipients

Implied Trusts
1447. Instances of implied trust
the enumeration of the following case of implied trust does not exclude others established by
the general law of trust but the limitation of 1442 shall be applicable
trusts are recognized only if not in conflict: Civil Code, Code of Commerce, Rules of
Court, Special Laws
1448. Purchase of property where title is not given to payer but to another [Resulting]
implied trust when property is sold, and the legal estate is granted to one party but the price is paid by
another for the purpose of having the beneficial interest of the property.
trustee: grantee
beneficiary: payer
if the trustee (person to whom the title is conveyed) is a child, legitimate or illegitimate, of the one
paying the price of the sale, no trust is implied by law, it being disputably presumed that there is a gift
in favor of the child
presumption of the existence of a donation made by law thus the formalities of a donation are
not required otherwise there would be no need for the presumption
no implied trust if the document expresses a different intention
EX proven that it was a loan
1449. When donee does not get full ownership of benefit [Resulting]
implied trust when a donation is made to a person but it appears that although the legal estate is
transmitted to the donee, he nevertheless is either to have no beneficial interest or only a part thereof
resulting trust where the donee becomes the trustee of the real beneficiary
1450. Conveyance of property to serve as security [Constructive]
price of a sale of property is loaned or paid by one person for the benefit of another and the
conveyance is made to the lender or payor to secure the payment of the debt, a trust arises by
operation of law in favor of the person to whom the money is loaned or for whom its is paid; the latter
may redeem the property and compel a conveyance thereof to him
constructive trust to prevent unjust enrichment
no fiduciary relationship exists between the “trustor” and the “trustee” in a constructive trust
trust receipt- partakes of the nature of a conditional sale as a contract with the importer
becoming the absolute owner of the imported merchandise assign as he paid the price until
the owner who advanced payment has been paid in full or if the merchandise has already been
sold, the proceeds turned over to him, the ownership continues to be vested in such person
trust receipt is a security transaction intended to aid in financing importers and retail
dealers who do not have sufficient funds or resources to finance the importation or
purchase of merchandise and who may not be able to acquire credit except thru
utilization as collateral of the merchandise imported or purchased
default of trustee to comply with trust agreement: not absolutely necessary to cancel trust and
take possession of the goods to be able to enforce his rights; use of “may” grants
the entrusted the right to cancel thus he may avail of such right or seek any alternative action
distinguish from a mortgage!!
1451. When title to inherited land is not in owner’s name [Resulting]
land passes by succession to any person and he causes the legal title to be put in the name of
another, a trust is established by implication of law for the benefit of the true owner
resulting trust
EX. rule in co-ownership: if a co-owner or co-heir possesses certain property owner in common by him
and the others he is under the same situation as a trustee insofar as the shares of the other co-owners
are concerned
EX. paraphernal property registered under the husband’s name: can claim them as her own upon
his death even if she does not refer to the situation as a trust since a trust was clearly intended
EX. title in the name of surviving husband: as long as the surviving husband retains the property of the
conjugal estate itself, or its place, if sold, he holds it in the character of administrator ad is virtually a
trustee
EX. rights of co-heirs: one who acquires a Torrens title in his own name to property he is administering
for himself and his siblings as heirs may be compelled to surrender to each of his co-heris
his appropriate share and a proceeding for partition is the appropriate remedy
1452. When property is in the name of only one of the co-buyers [Resulting]
if two or more persons agree to purchase property and by common consent the legal title is taken in
the name of one of them for the benefit of all, a trust is created by force of law in favor of the others in
proportion to the interest of each
resulting trust in view of the intent to create a trust
mere trustee and is therefore obliged to render proper accounting
the shares or interest of co-owners are presumed to be equal
1453. When a person declares his intent to hold property for someone else [Resulting]
 when property is conveyed to a person in reliance upon his declared intention to hold it for, or transfer
it to another or the grantor, there is an implied trust in favor of the person whose benefit is
contemplated
resulting trust in view of the owner’s intention to create a trust
EX. person promises to hold and administer property until it be freed from all debts and
encumbrances thus he is a mere trustee ad must later on return the property
1454. Absolute conveyance made for security purpose [Constructive]
absolute conveyance of property is made in order to secure the performance of an obligation of the
grantor toward the grantee, a trust by virtue of law is established
if the fulfillment of the obligation is offered by the grantor when it becomes due, he may demand the
reconveyance of the property to him
constructive trust to prevent unjust enrichment to the prejudice of the true owner
1455. Trust funds usage [Constructive]
when any trustee, guardian or other person holding a fiduciary relationship uses trust funds for the
purchase of property and causes the conveyance to be made to him or to a third person, a trust is
established by operation of law in favor of the person to whom the funds belong
constructive trust ot prevent unjust enrichment
applicability
any trustee
guardian
any person holding a fiduciary relationship
reasons
fiduciary or trust relationship
estoppel
to remove the temptation to place self-interest above all other things and at
the expense of one’s integrity and duty to another
to avoid unjust enrichment by guardian to the economic disadvantage of minor;
prevent guardian from claiming as his own the trust fund
1456. Property acquired thru mistake or fraud [Constructive]
property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a
trustee of an implied trust for the benefit of the person from whom the property comes
constructive trust
the right of action must be exercised against the trustee who may have caused the fraud and
not the the innocent purchaser for value (within 4 years from discovery)
land cannot be sold; the true owner is preferred over the registered owner and the trustee may
be compelled to execute a deed of conveyance of property that has been obtained improperly
EXC. does not apply to a donation of property which the ones has acquired through
a legal donation even if she breaks an important condition thereof
nature of mistake: mistake made by a 3rd person not the made by a party to the contract otherwise no
trust is created
nature of fraud: the fraud referred to is extra-contractual fraud and the effects are
prescription of trust
express
GR: do not prescribe as long as they have not been repudiated thus beneficiary or
cestui que trust can recover at any time since the possession is not adverse
EXC: 10 years from repudiation
implied (enforcement may be barred by laches unless there is continued recognition of trust;
prescription 10 years)
resulting trust
GR: do not prescribe [as there was intent]
EXC: 10 years from repudiation [trustee has expressly repudiated the same]
constructive trust: 10 years from discovery [prescribe as they are not really trusts in
the technical sense]
creative trusts: made by way of equity to prevent unjust enrichment arising by one who, by fraud,
duress, or abuse of confidence, obtains or holds the legal right to property which the out not to hold in
equity and conscience
1457. Proof of implied trust
implied trust may be proved by oral evidence [written or oral]
whether real or personal property