Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS

YSRefran 1
TITLE II. CONTRACTS
Chapter 1. GENERAL PROVISIONS
1305 A contract is a meeting of minds between two persons whereby one binds
DEFINITION of contracts himself, with respect to the other, to give something or to render some service.
(1254a)
1306 The contracting parties may establish such stipulations, clauses, terms and
Characteristic of contracts: AUTONOMY conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy. (1255a)
LIMITATIONS: must not be contrary to
- LAW (mandatory & prohibitive laws)
- MORALS (deal with right & wrong and
the human conscience)
- GOOD CUSTOMS (standards of justice
& decency acknowledged by society)
- PUBLIC ORDER (public weal, peace,
safety & health of the community)
- PUBLIC POLICY (idea of variable
content, depending on the stage of social
culture in the community)
1307 Innominate contracts shall be regulated by the stipulations of the parties, by the
INNOMINATE contracts GOVERNED by: - provisions of Titles I and II of this Book, by the rules governing the most
stipulations analogous nominate contracts, and by the customs of the place. (n)
- provs of Titles I & II, Book IV, CC
-rules governing the most analogous
nominate contracts
- customs
1308 The contract must bind both contracting parties; its validity or compliance cannot
Characteristic of contracts: MUTUALITY be left to the will of one of them. (1256a)
1309 The determination of the performance may be left to a third person, whose
EXCEPTION to MUTUALITY: decision shall not be binding until it has been made known to both contracting
DETERMINATION BY 3rd PERSON not parties. (n)
binding until made known to both parties
1310 The determination shall not be obligatory if it is evidently inequitable. In such
EXCEPTION to MUTUALITY: case, the courts shall decide what is equitable under the circumstances. (n)
EVIDENTLY INEQUITABLE DETERMI-
NATION not obligatory
1311 Contracts take effect only between the parties, their assigns and heirs, except in
Characteristic of contracts: RELATIVITY case where the rights and obligations arising from the contract are not
EXCEPTIONS transmissible by their nature, or by stipulation or by provision of law. The heir is
Stipulation pour autrui not liable beyond the value of the property he received from the decedent.
Third person comes into possession of
object of contract creating a real right If a contract should contain some stipulation in favor of a third person, he may
Contract entered into to defraud 3rd demand its fulfillment provided he communicated his acceptance to the obligor
person before its revocation. A mere incidental benefit or interest of a person is not
Third person induces contracting party to sufficient. The contracting parties must have clearly and deliberately conferred a
violate his contract favor upon a third person. (1257a)
1312 In contracts creating real rights, third persons who come into possession of the
EXCEPTION to RELATIVITY: 3rd object of the contract are bound thereby, subject to the provisions of the
PERSON COMES INTO POSSESSION Mortgage Law and the Land Registration Laws. (n)
OF OBJECT OF CONTRACT CREATING
A REAL RIGHT
1313 Creditors are protected in cases of contracts intended to defraud them. (n)
EXCEPTION to RELATIVITY: contract
entered into to DEFRAUD 3RD PERSON
1314 Any third person who induces another to violate his contract shall be liable for
EXCEPTION to RELATIVITY: 3RD damages to the other contracting party. (n)
PERSON INDUCES PARTY to VIOLATE
CONTRACT
1315 Contracts are perfected by mere consent, and from that moment the parties are
Characteristics of contracts: bound not only to the fulfillment of what has been expressly stipulated but also to
CONSENSUALITY all the consequences which, according to their nature, may be in keeping with
OBLIGATORY FORCE OF CONTRACTS good faith, usage and law. (1258)
& PERFORMANCE IN GOOD FAITH
1316 Real contracts, such as deposit, pledge and commodatum, are not perfected
4TH element to perfect REAL contracts: until the delivery of the object of the obligation. (n)

Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS
YSRefran 2
DELIVERY
1317 No one may contract in the name of another without being authorized by the
REQUISITE for person to CONTRACT IN latter, or unless he has by law a right to represent him.
NAME OF ANOTHER
- DULY AUTHORIZED, or A contract entered into in the name of another by one who has no authority or
- HAS RIGHT TO REPRESENT legal representation, or who has acted beyond his powers, shall be
BY LAW unenforceable, unless it is ratified, expressly or impliedly, by the person on
- Contract subsequently RATIFIED whose behalf it has been executed, before it is revoked by the other contracting
party. (1259a)

Chapter 2. ESSENTIAL REQUISITES OF CONTRACTS
General Provisions
1318 Art. 1318. There is no contract unless the following requisites concur:
ESSENTIAL REQUISITES (3)
(1) Consent of the contracting parties;
4TH requisite: (2) Object certain which is the subject matter of the contract;
REAL contracts – DELIVERY (3) Cause of the obligation which is established. (1261)
SOLEMN contracts – FORM

Section 1. CONSENT
1319 Consent is manifested by the meeting of the offer and the acceptance upon the
CONSENT: meeting of the minds bet the thing and the cause which are to constitute the contract. The offer must be
parties on the subject matter & the certain and the acceptance absolute. A qualified acceptance constitutes a
cause of the contract, even if neither counter-offer.
has been delivered
Acceptance made by letter or telegram does not bind the offerer except from the
ELEMENTS (2): time it came to his knowledge. The contract, in such a case, is presumed to have
- OFFER (certain) been entered into in the place where the offer was made. (1262a)
- ACCEPTANCE (absolute & unqualified;
communicated to offeror & learned by
him)

REQUISITES (5)
- PLURALITY of parties
- CAPACITY or CAPABILITY of parties
- NO VITIATION OF CONSENT
- INTENT PROPERLY DECLARED (in
due time & in proper form)
- NO CONFLICT bet intent & declaration
1320 An acceptance may be express or implied. (n)
FORMS of ACCEPTANCE
1321 The person making the offer may fix the time, place, and manner of acceptance,
TERMS of the OFFER: offeror may fix all of which must be complied with. (n)
TMP
1322 An offer made through an agent is accepted from the time acceptance is
communicated to him. (n)
1323 An offer becomes ineffective upon the death, civil interdiction, insanity, or
TERMINATION of OFFER insolvency of either party before acceptance is conveyed. (n)
- REJECTION by OFFEREE
- INCAPACITY by EITHER PARTY
BEFORE ACCEPTANCE is
CONVEYED
- DEATH
- CIVIL INTERDICTION
- INSANITY
- INSOLVENCY
1324 When the offerer has allowed the offeree a certain period to accept, the offer
GENERAL RULE on OPTIONS: offer may may be withdrawn at any time before acceptance by communicating such
be withdrawn any time before acceptance withdrawal, except when the option is founded upon a consideration, as
by communicating such something paid or promised. (n)

EXCEPTION: option is founded upon a
consideration as something paid or
promised
1325 Unless it appears otherwise, business advertisements of things for sale are not

DRUNKS. violence.IDENTITY of PARTY.SUBSTANCE of the OBJECT or NATURE of transaction (error in SUBSTANTIA) .INSANE or DEMENTED persons (unless acting during lucid interval).Disqualified persons because of FIDUCIARY RELATIONSHIP . and mistake or fraud is alleged. . and is understood to be without prejudice to special disqualifications (RIGHT is WITHHELD. and those HYPNOTIZED . and deaf-mutes who do not know how to write.proven with CLEAR AND CONVINCING EVIDENCE 1331 In order that mistake may invalidate consent. Contracts agreed to in a DRUNKENNESS equivalent to state of drunkenness or during a hypnotic spell are voidable. confidence. (1266a) .DEAF-MUTES WHO DON’T know how to WRITE (AND READ) 1328 Contracts entered into during a lucid interval are valid. unless the TO ACCEPT highest or lowest bidder contrary appears. (n) 1327 The following cannot give consent to a contract: PERSONS INCAPACITATED TO CONSENT (EXERCISE OF RIGHT is (1) Unemancipated minors. (1265a) VOIDABLE .OF FACT.INSOLVENTS . and the GEN RULE: ADVERTISER NOT BOUND advertiser is not bound to accept the highest or lowest bidder. (n) MERE INVITATIONS to make an offer 1326 Advertisements for bidders are simply invitations to make proposals.INADVERTENT contract. not law A simple mistake of account shall give rise to its correction. VOID transaction) established in the laws. . (n) TEMPORARY INSANITY HYPNOTIC SPELL (DRUGS or HYPNOTISM) or SOMNAMBULISM 1329 The incapacity declared in Article 1327 is subject to the modifications determined SPECIALLY DISQUALIFIED PERSONS by law. considering individual skills. intimidation. it should refer to the substance of MISTAKE: false belief about something.HUSBAND & WIFE.QUANTITY (error in QUANTITATE) . the person enforcing the UNDERSTAND contract must show that the terms thereof have been fully explained to the former.Persons under CIVIL INTERDICTION . RESTRICTED.PRINCIPAL QUALITIES of the OBJECT (error in QUALITATE) . or if the contract is in a language not RULE in case of INABILITY TO READ or understood by him. undue VICES OF CONSENT render contract influence. (error in PERSONA) 1332 When one of the parties is unable to read.Contracts entered into w/ NON- CHRISTIANS 1330 A contract where consent is given through mistake. or to those conditions which have inadvertent & excusable disregard of a principally moved one or both parties to enter into the contract. circumstance material to the contract Mistake as to the identity or qualifications of one of the parties will vitiate consent REQUISITES only when such identity or qualifications have been the principal cause of the .Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS YSRefran 3 GEN RULE: ADVERTISEMENTS are definite offers.EXCUSABLE . the thing which is the object of the contract.PAST OR PRESENT .MATERIAL: must refer to factors inducing consent . (1264) . to each other . (n) PRESUMPTION that ONE ACTS W/ DUE CARE & SIGNS W/ FULL KNOWLEDGE of a DOC’S CONTENTS . or fraud is voidable. etc.Unemancipated MINORS (1263a) . VOIDABLE transaction) (2) Insane or demented persons. but mere invitations to make an offer.

the other is induced to enter into a contract which. (n) 1338 There is fraud when. (1267a) or ASCENDANTS) 4) SUCH was the REASON the CONTRACT was ENTERED into 5) threat must be of an UNJUST ACT. an ACTIONABLE WRONG REVERENTIAL FEAR (fear of displeasing persons to whom obedience & respect are due) doesn’t vitiate consent 1336 Violence or intimidation shall annul the obligation. through insidious words or machinations of one of the DEFINITION of FRAUD contracting parties. if the claim is just or HIS (or his SPOUSE.DOLO INCIDENTE (incidental fraud) 2) Fraud in the PERFORMANCE of the obligations stipulated 1339 Failure to disclose facts. although it may have been DURESS CAUSED BY THIRD PERSON employed by a third person who did not take part in the contract.IMPROPER ADVANTAGE The following circumstances shall be considered: the confidential.Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS YSRefran 4 1333 There is no mistake if the party alleging it knew the doubt. or was FREEDOM OF CHOICE ignorant or in financial distress. (n) DOESN’T VITIATE CONSENT 1334 Mutual error as to the legal effect of an agreement when the real purpose of the REQUISITES for MUTUAL ERROR to parties is frustrated. when the other party had an opportunity to . may vitiate consent. the age. as when the parties CONCEALMENT constitutes fraud when are bound by confidential relations. without them. legal. (n) VITIATE CONSENT .DOLO CAUSANTE (causal fraud) Requisites: 1) MATERIAL & SERIOUS FRAUD 2) USED BY only ONE PARTY 3) DELIBERATE INTENT TO DECEIVE or INDUCE 4) OTHER PARTY RELIED ON UNTRUE STMT & ISN’T GUILTY OF NEGLIGENCE IN ASCERTAINING THE TRUTH . 2) of an IMMINENT & GRAVE EVIL 3) UPON PERSON OR PROPERTY OF A threat to enforce one's claim through competent authority. (1269) KINDS 1) Fraud in the CELEBRATION of the contract (FRAUD PROPER) . to give his consent.DEPRIVING PERSON of REASONABLE have been unduly influenced was suffering from mental weakness. . spiritual .INTIMIDATION: moral coercion 1) REASONABLE & WELL-GROUNDED To determine the degree of intimidation. DESCENDANTS. does not vitiate consent. contingency or risk KNOWLEDGE OF DOUBT or RISK affecting the object of the contract.POWER OVER WILL OF ANOTHER and other relations between the parties.ERROR referring to LEGAL EFFECT of AGREEMENT . he would not have agreed to. constitutes fraud.VIOLENCE: physical coercion 1) Employment of SERIOUS OR There is intimidation when one of the contracting parties is compelled by a IRRESISTIBLE FORCE reasonable and well-grounded fear of an imminent and grave evil upon his 2) SUCH FORCE the REASON why person or property.REAL PURPOSE OF PARTIES is FRUSTRATED 1335 There is violence when in order to wrest consent. family. . sex and condition of the person FEAR shall be borne in mind. (n) there’s a DUTY TO REVEAL THEM 1340 The usual exaggerations in trade. (1268) ANNULS CONTRACT 1337 There is undue influence when a person takes improper advantage of his power UNDUE INFLUENCE – REQUISITES over the will of another. descendants or CONTRACT was ENTERED into ascendants. when there is a duty to reveal them. or upon the person or property of his spouse. serious or irresistible force is DURESS employed. or the fact that the person alleged to .MUTUAL ERROR . . depriving the latter of a reasonable freedom of choice.

Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS YSRefran 5 CAVEAT EMPTOR: let the buyer beware know the facts. morals. the service or benefit which is remunerated. (1273) Section 3. 2) RELATIVELY SIMULATED: parties conceal their true agreement Section 2.RELATIVE (subjectively impossible) Impossibility must not be confused w/ DIFFICULTY 1349 The object of every contract must be determinate as to its kind. and in contracts of pure contract beneficence. (n) 1341 A mere expression of an opinion does not signify fraud. OBJECT OF A CONTRACT: to create or may be the object of a contract. MISREPRESENTATION IN GOOD FAITH (n) 1344 In order that fraud may make a contract voidable. (1274) 1351 The particular motives of the parties in entering into a contract are different from MOTIVE V. (1271a) . The former takes place REQUISITES of simulated contracts when the parties do not intend to be bound at all. when the parties 1) OUTWARD DECLARATION of WILL conceal their true agreement. the latter. unless such MISREPRESENTATION BY 3RD PERSON misrepresentation has created substantial mistake and the same is mutual. provided it is possible to determine the same. for each contracting party. .LAWFUL public policy may likewise be the object of a contract. good customs. including future things. (n) DOESN’T VITIATE CONSENT 1343 Misrepresentation made in good faith is not fraudulent but may constitute error.ABSOLUTE (objectively impossible) . in remuneratory party assumes an obligation under a ones. (1270) 2) Parties MUST NOT BE IN PARI DELICTO (mutual guilt) 1345 Simulation of a contract may be absolute or relative. without the need of a new contract between the parties.W/IN the COMMERCE OF MAN .Because of the TRANSACTION or the LAW . public order or . (n) DIFFERENT FROM THE WILL OF THE PARTIES 2) FALSE APPEARANCE must’ve been INTENDED BY MUTUAL AGREEMENT 3) PURPOSE is TO DECEIVE 3RD PERSONS 1346 An absolutely simulated or fictitious contract is void. CAUSE OF CONTRACTS 1350 In onerous contracts the cause is understood to be. A relative simulation. CAUSE the cause thereof. unless made by an MERE EXPRESSION OF OPINION expert and the other party has relied on the former's special knowledge. CAUSE: impelling reason for which a the prestation or promise of a thing or service by the other. (n) . are not in themselves fraudulent. the mere liberality of the benefactor. All rights which are not intransmissible may also to end obligations w/c may involve things be the object of contracts. The fact that the A requisite of OBJECT quantity is not determinate shall not be an obstacle to the existence of the contract. morals. or services No contract may be entered into upon future inheritance except in cases REQUISITES expressly authorized by law. when it KINDS of SIMULATED CONTRACTS does not prejudice a third person and is not intended for any purpose contrary to 1) ABSOLUTELY SIMULATED: parties law.DETERMINATE or DETERMINABLE W/O NEED OF A NEW CONTRACT 1348 Impossible things or services cannot be the object of contracts. CONSENT 1) Fraud must be SERIOUS Incidental fraud only obliges the person employing it to pay damages. (n) DOESN’T SIGNIFY FRAUD 1342 Misrepresentation by a third person does not vitiate consent. (1272) IMPOSSIBILITY may be . or public policy binds the parties to their don’t intend to be bound real agreement. OBJECT OF CONTRACTS 1347 All things which are not outside the commerce of men. good customs. public order.TRANSMISSIBLE All services which are not contrary to law.ACTUAL or POSSIBLE . it should be serious and REQUISITES for FRAUD to VITIATE should not have been employed by both contracting parties.

if it should CONTRACT W/ STATEMENT OF FALSE not be proved that they were founded upon another cause which is true and CAUSE not necessarily VOID. or any other power which has for its object an act appearing or which should appear in a public document. No. or that a contract be proved in a certain way. GEN RULE – FORM NOT REQ’D (applies provided all the essential requisites for their validity are present. unless the debtor proves the contrary. INSTRUMENT is VALID (2) The cession. that requirement is SPECIFIED FORM absolute and indispensable.may vary. the right of the parties stated in the .TRUE .CONVENIENCE 1357 If the law requires a document or other special form. in whatever form they may have been entered into.presence of motive can’t cure absence of cause 1352 Contracts without cause. once the contract has been perfected. always the same . when to CONSENSUAL CONTRACTS) the law requires that a contract be in some form in order that it may be valid or . it is presumed that it exists and PRESUMPTION – CAUSE EXISTS is lawful. REQUISITES for CAUSE The cause is unlawful if it is contrary to law. CONVENIENCE modification or extinguishment of real rights over immovable property. always known . (n) GEN RULE: LESION DOESN’T INVALIDATE a CONTRACT EXCEPTIONS 1) Lesion + FRAUD/MISTAKE/UNDUE INFLUENCE 2) CASES expressly PROVIDED BY LAW Chapter 3. produce no effect whatever. morals.PRESENT (existent at time contract was or public policy. repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains. sales of real property or of an interest therein a governed by Articles 1403. (1277) 1355 Except in cases specified by law. as in the acts and contracts Before PARTIES may be COMPELLED to enumerated in the following article. In such cases.may be unknown to the other. (1278a) FORM may be important for .Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS YSRefran 6 . lesion or inadequacy of cause shall not LESION: inadequacy of cause invalidate a contract. (4) The cession of actions or rights proceeding from an act appearing in a public . 2. or with unlawful cause. or should prejudice a third person.REAL contracts require DELIVERY following article cannot be exercised. ESSENTIAL other to observe that form. (3) The power to administer property. (1276) VOIDABLE 1354 Although the cause is not stated in the contract. may be lawful. transmission.LAWFUL NO CAUSE = VOID CONTRACT 1353 The statement of a false cause in contracts shall render them void. unless there has been fraud.VALIDITY . and PRESUMPTION – PUBLIC 1405.PERFECTED (valid) . mistake or undue influence. However. FORM OF CONTRACTS 1356 Contracts shall be obligatory.SOLEMN contracts require CERTAIN enforceable. good customs. the contracting parties may compel each EXECUTE NEEDED FORM.ENFORCEABILITY . public order . This right may that contract is: be exercised simultaneously with the action upon the contract. (1279a) .ENFORCEABLE UNDER the STATUTE OF FRAUDS 1358 The following must appear in a public document: NECESSITY for PUBLIC DOC IN CONTRACTS ENUMERATED – for (1) Acts and contracts which have for their object the creation. (1275a) entered into) .

lack of skill. said instrument may be reformed. but concealed that fact from the REFORMATION former. some error or mistake has been committed If mistake. the instrument does because of IGNORANCE/ LACK OF not express the true intention of the parties.Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS YSRefran 7 document.CONTRACT WHERE REAL AGREEMENT IS VOID 1360 The principles of the general law on the reformation of instruments are hereby CC PREVAILS OVER PRINCIPLES OF adopted insofar as they are not in conflict with the provisions of this Code. REQUISITES for reformation 1) MEETING OF THE MINDS 2) TRUE INTENTION NOT EXPRESSED IN THE INSTRUMENT 3) CLEAR & CONVINCING PROOF 4) BROUGHT W/IN PROPER PRESCRIPTIVE PERIOD 5) DOC MUSN’T REFER TO .TYPIST 1365 If two parties agree upon the mortgage or pledge of real or personal property.MISTAKE usually must be OF FACT 1362 If one party was mistaken and the other acted fraudulently or inequitably in such a way that the instrument does not show their true intention. negligence or bad faith on the part of FAILURE TO CONVEY TRUE INTENT the person drafting the instrument or of the clerk or typist.DRAFTER OF the INSTRUMENT . All other contracts where the amount involved exceeds five hundred pesos must appear in writing. inequitable conduct. the proper remedy is not reformation of the instrument but NO NEW CONTRACT IS MADE annulment of the contract. 1364 When through the ignorance. fraud. reformation is proper PARTIES’ INTENT judged from CONTEMPORANEOUS & SUBSEQUENT ACTS 1366 There shall be no reformation in the following cases: INSTANCES WHEN REFORMATION IS ALLOWED (1) Simple donations inter vivos wherein no condition is imposed. the instrument may be reformed. inequitable conduct or accident. reformation of the instrument is proper. . . No. by reason of mistake. GENERAL LAW ON REFORMATION IN CASES OF CONFLICT 1361 When a mutual mistake of the parties causes the failure of the instrument to REFORMATION bec.MUTUAL MISTAKE . MISTAKE . the courts may order that the SKILL/ BAD FAITH of instrument be reformed.SIMPLE UNCONDITIONAL DONATION INTER VIVOS . of MUTUAL disclose their real agreement. 1363 When one party was mistaken and the other knew or believed that the PARTY IN GOOD FAITH CAN ASK FOR instrument did not state their real agreement. one of made or construed to express or conform the parties may ask for the reformation of the instrument to the end that such to the real intention of the parties when true intention may be expressed. (1280a) Chapter 4.CLERK . 1403. REFORMATION: remedy in equity by their true intention is not expressed in the instrument purporting to embody the means of which a written instrument is agreement. But sales of goods. fraud. but INTENT TO HAVE MORTGAGE/PLEDGE the instrument states that the property is sold absolutely or with a right of but instrument states otherwise – repurchase. the former may ask for the reformation of the instrument.WILLS . chattels or things in action are governed by Articles. 2 and 1405. even a private one. or accident has prevented a meeting of the minds of the parties.MAY BE UNILATERAL PER CC 1362 & 1363 . REFORMATION OF INSTRUMENTS (n) 1359 When. there having been a meeting of the minds of the parties to a contract.

MUST BE FOLLOWED CONTEMPORANEOUS & SUBSEQUENT ACTS 1372 However general the terms of a contract may be. FMR (1284) INTERPRETATION MUST PREVAIL 1374 The various stipulations of a contract shall be interpreted together. their contemporaneous IF PARTIES PLACED INTERPRETATION and subsequent acts shall be principally considered. attributing to STIPULATIONS TO BE READ the doubtful ones that sense which may result from all of them taken jointly. INTERPRETATION OF CONTRACTS 1370 If the terms of a contract are clear and leave no doubt upon the intention of the TEST: PARTIES’ INTENTION. (1286) KEEPING W/ NATURE & OBJECT OF CONTRACT 1376 The usage or custom of the place shall be borne in mind in the interpretation of LOCAL CUSTOMS MUST BE ALLEGED the ambiguities of a contract. INTENT which the parties intended to agree. SUCH IN GEN. (1288) WHO CAUSED OBSCURITY Applies w/ greater force to CONTRACTS OF ADHESION 1378 When it is absolutely impossible to settle doubts by the rules established in the .Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS YSRefran 8 (2) Wills.MUTUAL MISTAKE: EITHER PARTY or his successors in interest . (1282) TO TERMS.OTHER CASES: INJURED PARTY. LITERAL If the words appear to be contrary to the evident intention of the parties. IF CLEAR & LEAVE NO DOUBT. (1281) 1371 In order to judge the intention of the contracting parties. (3) When the real agreement is void. (1287) GEN. they shall not be understood to SPECIAL INTENT PREVAILS OVER comprehend things that are distinct and cases that are different from those upon GEN. if the mistake was mutual. FROM the TERMS of the contract. (1283) 1373 If some stipulation of any contract should admit of several meanings. DERIVED contracting parties. waiver. TOGETHER (1285) 1375 Words which may have different significations shall be understood in that which WORDS TO BE INTERPRETED IN is most in keeping with the nature and object of the contract. . CAN’T PROSPER – ACTION TO ENFORCE THE INSTRUMENT Basis: estoppel. he INSTANCE WHEN REFORMATION cannot subsequently ask for its reformation.WHAT REAL AGREEMENT/INTENTION WAS 1369 The procedure for the reformation of instrument shall be governed by rules of PROCEDURAL RULES supposed to be court to be promulgated by the Supreme Court. or ratification 1368 Reformation may be ordered at the instance of either party or his successors in PLAINTIFFS IN ACTION FOR interest. it shall be If ONE INTERPRETATION MAKES A understood as bearing that import which is most adequate to render it effectual. promulgated by SC Chapter 5. the literal meaning of its stipulations shall control. 1367 When one of the parties has brought an action to enforce the instrument. upon petition of the injured party. the latter MEANING CONTROLS shall prevail over the former. REFORMATION or his heirs and assigns. and shall fill the omission of stipulations which are & PROVED ordinarily established.INSTRUMENT DOESN’T EXPRESS PARTIES’ REAL AGREEMENT/INTENTION . CONTRACT VALID & ILLEGAL. his HEIRS & ASSIGNS COMPLAINT MUST ALLEGE . otherwise. CUSTOMS NEED NOT BE PLEADED 1377 The interpretation of obscure words or stipulations in a contract shall not favor INTERPRETATION AGAINST PARTY the party who caused the obscurity.

the least transmission of rights and interests shall prevail. (1289) 1379 The principles of interpretation stated in Rule 123 of the Rules of Court shall SUPPLETORY USE – RULE 123 of RoC likewise be observed in the construction of contracts. because of external conditions. TRANSFEREE MUST PAY INDEMNITY FOR DAMAGES (1388) 3) If there are several alienations. .1381(4) (4) Those which refer to things under litigation if they have been entered into by . unless parties intended otherwise .1381(3) – ACCION PAULIANA .General acceptation of terms presumed intended unless shown to have been understood in a peculiar/technical sense Chapter 6.1381(2) lesion stated in the preceding number. FIRST ACQUIRER IS LIABLE FIRST (for damages. if the latter suffer the . . (n) to refer to RULE 130 of New Rules on Evidence . If the contract is onerous. (1291a) .Language interpreted according to legal meaning it bears in the place of its execution.Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS YSRefran 9 DOUBTS AS TO PRINCIPAL OBJECT OR preceding articles. RESCISSIBLE CONTRACTS 1380 Contracts validly agreed upon may be rescinded in the cases established by law. causing an economic prejudice to a party or his creditors REQUISITES 1) INITIALLY VALID CONTRACT 2) ECONOMIC OR FINANCIAL PREJUDICE TO SOMEONE 3) Requires MUTUAL RESTITUTION EFFECTS OF RESCISSION 1) RETURN to ORIGINAL STATUS QUO (1385) 2) IF RETURN ISN’T POSSIBLE. [1381(5)] (5) All other contracts specially declared by law to be subject to rescission. RESCISSION: process designated to (1290) render inefficacious a contract validly entered into & normally binding.) 1381 The following contracts are rescissible: ENUMERATION of RESCISSIBLE CONTRACTS (1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one-fourth of the value of the things which GROUNDS of RESCISSION are the object thereof.Written words control printed ones .1382 the defendant without the knowledge and approval of the litigants or of 3) SPECIAL PROVISION OF LAW competent judicial authority. the contract shall be null and void.1381(1) (2) Those agreed upon in representation of absentees.Partitions of inheritance when there’s lesion of ¼ or more for one heir (CC 1098) (3) Those undertaken in fraud of creditors when the latter cannot in any other 2) BAD FAITH (fraud) manner collect the claims due them. 1) LESION PROPER . Actual possessor of thing liable fraudulently alienated will be liable for its return) (1388. last par. If the doubts are cast upon the principal object of the contract in such a way that it cannot be known what may have been the intention or will of the parties. and the doubts refer to incidental circumstances of a INCIDENTAL CIRCUMSTANCES gratuitous contract. the doubt shall be settled in favor of the greatest reciprocity of interests.

TO PAY DEBT Alienations by onerous title are also presumed fraudulent when made by CONTRACTED BEFORE THE persons against whom some judgment has been issued. due to any cause. 6) RELATIONSHIP + OTHER CIRCUMSTANCES 7) FAILURE OF VENDEE (in absolute sale) to take exclusive possession of prop 8) GROSS DISPARITY bet.Debtor-payer must’ve been insolvent rescissible. it should be impossible for him to return them. PARTIAL RESCISSION (n) 1385 Rescission creates the obligation to return the things which were the object of NECESSITY OF MUTUAL RESTITUTION the contract. can be brought 1) Generally. LEGAL POSSESSION of 3RD PERSONS IN GOOD FAITH In this case. are also . The decision or DONATION attachment need not refer to the property alienated. it can be carried out only when he who demands rescission can REQUISITES before action for rescission return whatever he may be obliged to restore. and so . (1294) 1384 Rescission shall be only to the extent necessary to cover the damages caused. DEBTOR DIDN’T RESERVE SUFFICIENT PROP. when MADE BY obtained by the party seeking the rescission. price & real value 1388 Whoever acquires in bad faith the things alienated in fraud of creditors. (1296a) 1387 All contracts by virtue of which the debtor alienates property by gratuitous title PRESUMPTION OF FRAUD in are presumed to have been entered into in fraud of creditors.ONEROUS alienations. consequently. MUST RETURN OR INDEMNIFY whenever. when the donor did . (1298a) transferee’s good or bad faith not important . the first acquirer shall be liable first. shall EFFECT OF BAD FAITH – ACQUIRER indemnify the latter for damages suffered by them on account of the alienation. PERSONS a) Against whom some JUDGMENT In addition to these presumptions. (1292) (doesn’t need to be judicially declared) . it cannot be instituted except when the RESCISSION NOT A PRINCIPAL party suffering damage has no other legal means to obtain reparation for the REMEDY same.Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS YSRefran 10 1382 Payments made in a state of insolvency for obligations to whose fulfillment the REQUISITES debtor could not be compelled at the time they were effected. and the price with its interest. the design to defraud creditors may be proved has been rendered in any other manner recognized by the law of evidence. indemnity for damages may be demanded from the person causing 3) NO OTHER LEGAL REMEDY the loss. 1 and 2 of Article 1381 shall not take place with respect to contracts approved by the courts. and need not have been . (1297a) b) Against whom some WRIT OF ATTACHMENT has been issued BADGES OF FRAUD: circumstances indicating certain alienation has been made in fraud of creditors 1) Fictitious or INADEQUATE CONSIDERATION 2) Transfer AFTER SUIT IS FILED & WHILE IT’S PENDING 3) SALE ON CREDIT by INSOLVENT DEBTOR 4) Proof of LARGE INDEBTEDNESS OR COMPLETE INSOLVENCY 5) Transfer OF (NEARLY) ALL PROP. PLAINTIFF able to RETURN Neither shall rescission take place when the things which are the object of the what has been received contract are legally in the possession of third persons who did not act in bad 2) THING object of contract NOT IN faith. when not reserve sufficient property to pay all debts contracted before the donation. (1295) 4) Action BROUGHT W/IN PROPER PRESCRIPTIVE PERIOD 1386 Rescission referred to in Nos.GRATUITOUS alienations.Debt not yet due and demandable 1383 The action for rescission is subsidiary.First transferee IN GOOD FAITH – next on successively. SUBSEQUENT TRANSFERS If there are two or more alienations. together with their fruits.

DURATION OF ACTION TO ANNUL 1) DURESS (violence. the person who has a right to invoke it . (1313) RATIFICATION 1397 The action for the annulment of contracts may be instituted by all who are PERSONS WHO MAY ASK FOR thereby obliged principally or subsidiarily. ETC. GEN RULE on prescriptive period: 4 YRS from date contract was entered into For persons under guardianship and for absentees. – UP TO 4 YRS FROM In case of mistake or fraud.First transferee IN BAD FAITH – next transferee liable if he’s also in bad faith 1389 The action to claim rescission must be commenced within four years. violence. (1301a) 1392 Ratification extinguishes the action to annul a voidable contract. the period of four years shall not begin until the termination of the former's incapacity. (1311a) 1394 Ratification may be effected by the guardian of the incapacitated person. (n) RATIFICATION BY GUARDIAN 1395 Ratification does not require the conformity of the contracting party who has no CONFORMITY OF GUILTY PARTY NOT right to bring the action for annulment. (1309a) REQUISITES OF RATIFICATION 1) VOIDABLE CONTRACT 2) PERSON RATIFYING MUST KNOW REASON FOR CONTRACT BEING VOIDABLE (cause must be known) 3) CAUSE MUSN’T EXIST OR CONTINUE TO EXIST ANYMORE AT TIME OF RATIFICATION 4) RATIFICATION MADE EXPRESSLY OR BY ACT IMPLYING WAIVER OF ACTION TO ANNUL 5) PERSON RATIFYING MUST BE INJURED PARTY EFFECTS OF RATIFICATION . unless they are annulled by a proper action in court. undue GIVE CONSENT influence or fraud. intimidation. from the time the defect of 2) FRAUD OR FALSE CAUSE – 4 YRS the consent ceases.. 1389 Chapter 7.TACIT (implied) should execute an act which necessarily implies an intention to waive his right. persons who are capable . GROUNDS 1) INCAPACITY OF ONE PARTY TO (2) Those where the consent is vitiated by mistake. (1299) Second par. FROM DISCOVERY 3) MINORS. MAJORITY OR REMOVAL OF DISABILITY And when the action refers to contracts entered into by minors or other incapacitated persons. from the time of the discovery of the same. It is understood that there is a KINDS OF RATIFICATION tacit ratification if. with knowledge of the reason which renders the contract . violence or undue influence. intimidation.CONTRACT CLEANSED OF DEFECT FROM BEGINNING 1393 Ratification may be effected expressly or tacitly. even though there may have VOIDABLE CONTRACTS: valid until been no damage to the contracting parties: annulled (1) Those where one of the parties is incapable of giving consent to a contract.ACTION to annul is EXTINGUISHED . from the time the guardianship ceases.EXPRESS (oral or written) voidable and such reason having ceased. However. or This period shall begin: undue influence) – 4 YRS FROM CESSATION THEREOF In cases of intimidation. They are susceptible of ratification. 2) VITIATION OF CONSENT These contracts are binding. (1312) NEEDED 1396 Ratification cleanses the contract from all its defects from the moment it was RETROACTIVE EFFECT OF constituted.Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS YSRefran 11 . or until the domicile of EXCEPTIONS the latter is known. (n) 1391 The action for annulment shall be brought within four years. VOIDABLE CONTRACTS 1390 The following contracts are voidable or annullable.

unless said loss took place through the fraud or fault of the plaintiff. or VITIATED caused mistake base their action upon these flaws of the contract. Applies to EXECUTORY things in action or pay at the time some part of the purchase money. chattels or things in action. or the evidences. unless the buyer accept and receive part SoF: GEN. default. (1302a) CREDITORS OF VICTIM CAN’T ASK FOR ANNULMENT – they’re not bound by the contract ACTIVE MISREPRESENTATION BY MINOR – can’t later on sue for annulment 1398 An obligation having been annulled. or or w/o authority a secondary evidence of its contents: 2) Those that FAIL TO COMPLY W/ (a) An agreement that by its terms is not to be performed within a year from STATUTE OF FRAUDS (certain the making thereof. or some of them. of the agreement cannot be received without the writing. nor can those subsidiary) WHOSE CONSENT WAS who exerted intimidation. agreements req’d in writing to prevent (b) A special promise to answer for the debt. 2) Contract already performed: MUTUAL (1303a) RESTITUTION (in general) of . w/ INTEREST 1399 When the defect of the contract consists in the incapacity of one of the parties. with interest from the same date. at a price not less than five hundred pesos. other than a mutual INCAPABLE OF GIVING CONSENT TO A promise to marry. UNENFORCEABLE CONTRACTS (n) 1403 The following contracts are unenforceable. the value thereof shall be the basis for damages. or by his agent. but CONTRACTS when a sale is made by auction and entry is made by the auctioneer in his . PARTIES EXCUSED FROM THEIR OBLIGATIONS In obligations to render service. violence. the contracting parties shall restore to each EFFECTS OF ANNULMENT other the things which have been the subject matter of the contract. the loss of the thing shall not be an obstacle to the success of the action. In the following cases an agreement hereafter made shall be KINDS unenforceable by action. 3) Those where BOTH PARTIES are (c) An agreement made in consideration of marriage. or some note or memorandum. unless they are ratified: UNENFORCEABLE CONTRACTS: contracts that by reason of statutory (1) Those entered into in the name of another person by one who has been defects don’t confer any action to enforce given no authority or legal representation. and subscribed by the party charged. (1314a) 1402 As long as one of the contracting parties does not restore what in virtue of the ONE CAN’T BE COMPELLED TO decree of annulment he is bound to return. (1304) ENRICHMENT NO PRESUMPTION OF ENRICHMENT 1400 Whenever the person obliged by the decree of annulment to return the thing can VALUE of thing w/ interest MAY BE not do so because it has been lost through his fault. w/ FRUITS . except in cases provided by law. (1307a) 1401 The action for annulment of contracts shall be extinguished when the thing which ACTION to annul EXTINGUISHED W/ is the object thereof is lost through the fraud or fault of the person who has a LOSS OF OBJECT THROUGH FRAUD right to institute the proceedings. be in writing. or undue influence. 1) UNAUTHORIZED contracts: entered thereof. CONTRACT (d) An agreement for the sale of goods. into in another person’s name in excess of evidence.Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS YSRefran 12 ANNULMENT: PARTY (principal or cannot allege the incapacity of those with whom they contracted. he shall return the fruits SUBSTITUTED FOR THING ITSELF received and the value of the thing at the time of the loss. OR FAULT OF VICTIM (person who has right to institute proceedings) If the right of action is based upon the incapacity of any one of the contracting parties. or who has acted beyond his powers.PRICE. the same until and unless they’re ratified in the manner prescribed by law (2) Those that do not comply with the Statute of Frauds as set forth in this number. with their 1) Contract hasn’t been complied with: fruits. or employed fraud. (1308) reciprocal obligation of restitution has been created Chapter 8. of such . unless the same.THING. RULES OF APPLICATION of such goods and chattels. or miscarriage of fraud another. therefore. the other cannot be compelled to RESTORE IF OTHER DOESN’T – comply with what is incumbent upon him. EXCEPTION TO MUTUAL RESTITUTION the incapacitated person is not obliged to make any restitution except insofar as PER 1398 – ONLY TO EXTENT OF he has been benefited by the thing or price received by him. and the price with its interest.

Applies if there’s a PRINCIPAL sales book. and a public RIGHT OF ONE PARTY TO COMPEL document is necessary for its registration in the Registry of Deeds. INSTRUMENT – GIVEN ONLY WHEN CONTRACT IS BOTH VALID & ENFORCEABLE 1407 In a contract where both parties are incapable of giving consent. STRANGERS CAN’T ASSAIL UNENFORCEABLE CONTRACTS Chapter 9. 4) Contracts DECLARED VOID BY LAW (4) Those whose object is outside the commerce of men. express or BOTH PARTIES INCAPACITATED implied ratification by the parent. CHARACTERISTICS OF VOID & . or guardian. referred to in No. Is EXCLUSIVE – applies only to (e) An agreement of the leasing for a longer period than one year. effect as if only one party is incapacitated (VOIDABLE contract) If ratification is made by the parents or guardians. at the time of the sale. 1405 Contracts infringing the Statute of Frauds. or for the contracts enumerated therein sale of real property or of an interest therein. + Timely FAILURE TO OBJECT TO PRESENTATION OF ORAL (3) Those where both parties are incapable of giving consent to a contract. PERSONAL DEFENSE – can’t be assailed by third persons . DEBTOR (OTHER THAN terms of sale. or by the acceptance of benefit under them. . of the amount and kind of property sold. of both RATIFICATION BY contracting parties. Concerns itself only w/ ADMISSIBILITY OF EVIDENCE . 1347) customs. names of the purchasers and person on whose DEFENDANT) LIABLE account the sale is made. as the case may be. EVIDENCE TO PROVE ORAL AGREEMENT + ACCEPTANCEOF BENEFITS under them . are RATIFICATION OF CONTRACTS ratified by the failure to object to the presentation of oral evidence to prove the INFRINGING SoF same. it is a sufficient memorandum. of one of the (Express/implied) RATIFICATION BY A contracting parties shall give the contract the same effect as if only one of them PARTY’S PARENT/GUARDIAN –gives were incapacitated. the contract shall be validated from the inception. 1) FAILURE TO OBJECT TO PRESENTATION OF ORAL EVIDENCE (deemed a waiver) 2) ACCEPTANCE OF BENEFITS UNDER THEM (thus SoF doesn’t apply to executed or partially executed contracts) 1406 When a contract is enforceable under the Statute of Frauds. morals. Contracts infringing SoF unenforceable . 2 of Article 1403. good (1346. . 2) ILLEGAL contracts (protect general interest) (2) Those which are absolutely simulated or fictitious. RULE OF EXCLUSION . PARENTS/GUARDIANS OF BOTH PARTIES – VALID from beginning 1408 Unenforceable contracts cannot be assailed by third persons. 3) Contracts that are EXPRESSLY PROHIBITED (protect private interest) (3) Those whose cause or object did not exist at the time of the transaction.Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS YSRefran 13 . price. as the case may be. (1405) May be WAIVED BY: (f) A representation as to the credit of a third person. VOID AND INEXISTENT CONTRACTS 1409 The following contracts are inexistent and void from the beginning: KINDS 1) LACKING an ESSENTIAL ELEMENT (1) Those whose cause. the parties OTHER TO EXECUTE NEEDED may avail themselves of the right under Article 1357. DOESN’T APPLY IF IT’S CLAIMED that the CONTRACT DOESN’T EXPRESS PARTIES’ TRUE AGREEMENT 1404 Unauthorized contracts are governed by Article 1317 and the principles of agency in Title X of this Book. object or purpose is contrary to law. public order or public policy.

INNOCENT PARTY MAY CLAIM WHAT HE HAS GIVEN. 4) DEFENSE NOT AVAILABLE TO THIRD PERSONS WHOSE INTERESTS ARE These contracts cannot be ratified. Moreover. who is not at fault. may demand the return of what he OF GOV’T has given without any obligation to comply his promise. the provisions of the Penal Code relative to the disposal of effects or instruments of a crime shall be applicable to the things or the price of the contract.Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS YSRefran 14 INEXISTENT CONTRACTS (5) Those which contemplate an impossible service.EFFECTS/INSTRUMENTS OF he has given by reason of the contract.BOTH PROSECUTED (2) When only one of the contracting parties is at fault. 5) CAN’T GIVE RISE TO A CONTRACT (1422) 6) Generally produces NO EFFECT 7) Generally. and the act constitutes a criminal offense. contract IMPRESCRIPTIBLE 1411 When the nullity proceeds from the illegality of the cause or object of the IN PARI DELICTO: both PARTIES contract. or ask for the fulfillment of what has been CRIME CONFISCATED IN FAVOR promised him. both parties being in pari EQUALLY GUILTY = NO ACTION delicto.GUILTY PARTY PROSECUTED . The other. neither may recover a) BOTH parties GUILTY (in pari what he has given by virtue of the contract.PARTY NOT AT FAULT MAY DEMAND RETURN of what he has given w/o obligation to comply w/ his promise IN PARI DELICTO . they shall have no action against each other. This rule shall be applicable when only one of the parties is guilty. and shall not be bound to comply with his promise. but the innocent one may claim what he has given.GUILTY PARTY MAY NOT RECOVER what he has given or demand performance . and both shall be AGAINST EACH OTHER prosecuted.INSTRUMENT OF CRIME CONFISCATED . 1) CAN’T BE RATIFIED (1409) 2) ACTION/DEFENSE to declare (6) Those where the intention of the parties relative to the principal object of the inexistence is IMPRESCRIPTIBLE (1410) contract cannot be ascertained. (1305) 1412 If the act in which the unlawful or forbidden cause consists does not constitute a KINDS of ILLEGAL contracts criminal offense. 3) RIGHT TO SET UP DEFENSE OF ILLEGALITY CAN’T BE WAIVED (1409) (7) Those expressly prohibited or declared void by law. OR if he hasn’t given anything yet. .NEITHER MAY RECOVER what he has given or demand performance b) ONLY ONE IS GUILTY . he cannot recover what .NO ACTION against each other .DOESN’T APPLY WHERE SUPERIOR PUBLIC POLICY INTERVENES . (1306) b) ONLY ONE IS GUILTY . Neither can the right to set up the defense of NOT DIRECTLY AFFECTED (1421) illegality be waived. NOT BOUND TO COMPLY w/ his promise 2) Those where there is NO CRIMINAL OFFENSE a) BOTH parties GUILTY (in pari delicto) . or demand the performance of the delicto) other's undertaking. NO ACTION TO DECLARE THEM VOID IS NEEDED 1410 The action or defense for the declaration of the inexistence of a contract does ACTION for declaration of inexistence of not prescribe.DOESN’T APPLY TO ABSOLUTELY SIMULATED contracts . the following rules shall be observed: 1) Those where there is a CRIMINAL OFFENSE (1) When the fault is on the part of both contracting parties.

WAGE and a contract is agreed upon by which a laborer accepts a lower wage. or by Rule in case of PAYMENT IN EXCESS authority of law. with interest thereon from the date of the payment. 14% . the EFFECT IF ONE PARTY IS courts may.DIVISIBLE contract: LEGAL TERMS may be ENFORCED IF SAME CAN BE SEPARATED FROM ILLEGAL ONES 1421 The defense of illegality of contract is not available to third persons whose Generally.unsecured loans 12% . provided: .PUBLIC POLICY would be ENHANCED BY ALLOWING RECOVERY 1417 When the price of any article or commodity is determined by statute. and a contract is entered into whereby a laborer undertakes to work longer than the maximum thus fixed.secured loans w/ registered real estate as security 2. or before any damage has been caused to a third person. the latter may be enforced. NO WAIVER OF RIGHT TO MIN. DEFENSE OF ILLEGALITY interests are not directly affected. he shall be entitled to recover the deficiency. 1420 In case of a divisible contract.CONTRACT NOT ILLEGAL PER SE . NOT AVAILABLE TO 3RD PERSONS 1422 A contract which is the direct result of a previous illegal contract. OF PUBLIC public policy is thereby enhanced. INTEREST MERELY PROHIBITED contracts: those FORBIDDEN BEC.Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS YSRefran 15 .INAPPLICABLE TO INEXISTENT & VOID CONTRACTS 1413 Interest paid in excess of the interest allowed by the usury laws may be EXCESS (strictly speaking) recovered by the debtor. NATURAL OBLIGATIONS 1423 Obligations are civil or natural. he may demand additional compensation for service rendered beyond the time limit. allow the party PURPOSE & NO DAMAGE CAUSED TO repudiating the contract to recover the money or property. 14% per yr – pawnshops 1414 When money is paid or property delivered for an illegal purpose. any person paying any amount in excess of the maximum price OF MAX PRICE – RECOVERY OF allowed may recover such excess. OF PRIVATE INTERESTS.DOESN’T APPLY TO VOID CONTRACTS SIMULATED TO CIRCUMVENT A LAW . if the public interest will thus be subserved. . is also void and inexistent. if FORBIDDEN BEC. and the Contracts ILLEGAL PER SE: those prohibition by the law is designated for the protection of the plaintiff. or authorizes the setting of a minimum wage for laborers.INDIVISIBLE contract: VOID contract .PROHIBITION DESIGNED FOR PLAINTIFF’S PROTECTION . or authorizes the fixing of the maximum number of hours of HOURS OF LABOR labor. ANY 3RD PERSON Applies even if parties aren’t equally guilty. he may.5% per mo. 1419 When the law sets. RECOVERY PERMITTED. if the interest of justice so demands allow recovery of money or INCAPACITATED – RECOVERY property delivered by the incapacitated person. In such DELICTO – UNACCOMPLISHED case. Civil obligations give a right of action to compel . if the illegal terms can be separated from the legal ILLEGAL TERMS OF CONTRACT ones. EXCESS ALLOWED 1418 When the law fixes. the courts may. and where public policy would be advanced by allowing suit for relief 1415 Where one of the parties to an illegal contract is incapable of giving consent. POSSIBLE 1416 When the agreement is not illegal per se but is merely prohibited. the contract One CASE WHERE RECOVERY CAN BE may be repudiated by one of the parties before the purpose has been MADE EVEN IF parties are IN PARI accomplished. recover what he has paid or delivered. 2% per mo. TITLE III.

Some natural obligations are set forth in the following articles. PROPERTY HAS BEEN LOST 1425 When without the knowledge or against the will of the debtor. there CONSUMING shall be no right to recover the same from the obligee who has spent or consumed it in good faith. the .AGAINST DEBTOR’S WILL obligor cannot recover what he has paid. 1432 The principles of estoppel are hereby adopted insofar as they are not in conflict PRINCIPLES OF ESTOPPEL ONLY with the provisions of this Code.By REPRESENTATION OR . after an action to enforce a civil obligation has failed the defendant DEFENDANT. right of action to enforce their but after voluntary fulfillment by the obligor. who has entered OBLIGEE’S GOOD FAITH MUST BE into a contract without the consent of the parent or guardian. PAYMENT W/ DEBTOR’S CONSENT – CIVIL OBLIGATION ARISES 1426 When a minor between eighteen and twenty-one years of age who has entered AGE OF MAJORITY NOW 18 into a contract without the consent of the parent or guardian. voluntarily pays a PRESENT AT TIME OF SPENDING OR sum of money or delivers a fungible thing in fulfillment of the obligation. do not grant a right of action to enforce their performance. VOLUNTARY RETURN AFTER notwithstanding the fact the he has not been benefited thereby. after the annulment of the contract voluntarily returns the whole thing or price received. and cannot be denied or disproved as against the person relying thereon. the payment is valid and cannot be PAYMENT & CAN’T BE RESCINDED BY rescinded by the payer. the Code of Commerce. the Rules of Court and SUPPLETORY special laws.By CONDUCT or by acceptance of benefits . PAYER 1430 When a will is declared void because it has not been executed in accordance WILL DENIED PROBATE because it with the formalities required by law. they authorize the retention of what performance has been delivered or rendered by reason thereof. after the WASN’T EXECUTED W/ FORMALITIES settlement of the debts of the deceased. VOLUNTARILY PERFORMS obligation CAN’T DEMAND RETURN 1429 When a testate or intestate heir voluntarily pays a debt of the decedent PAYMENT OF DEBTS BEYOND VALUE exceeding the value of the property which he received by will or by the law of OF DECEDENT’S ESTATE – VALID intestacy from the estate of the deceased. he cannot demand the return of what he has ACTION TO ENFORCE A CIVIL delivered or the payment of the value of the service he has rendered. not being based on positive law but on equity and natural law. ESTOPPEL (n) 1431 Through estoppel an admission or representation is rendered conclusive upon CONCEPT of ESTOPPEL the person making it. a party is denied the right to plead or prove an otherwise important fact . but one of the intestate heirs. the payment is effective and irrevocable. KINDS of ESTOPPEL 1) Estoppel IN PAIS (EQUITABLE ESTOPPEL): situation where. who is the WINNER IN voluntarily performs the obligation. EFFECT OF EXTINCTIVE the obligor who voluntarily performs the contract cannot recover what he has PRESCRIPTION – RIGHT OR delivered or the value of the service he has rendered. 1433 Estoppel may be in pais or by deed.W/O KNOWLEDGE OF DEBTOR has prescribed. 1427 When a minor between eighteen and twenty-one years of age. OBLIGATION. Natural obligations. WHAT HAS BEEN DELIVERED OR RENDERED thereof CAN BE RETAINED 1424 When a right to sue upon a civil obligation has lapsed by extinctive prescription. a third person pays PAYMENT BY 3RD PERSON a debt which the obligor is not legally bound to pay because the action thereon . and don’t grant equity and natural law. because of something w/c he hasn’t done or omitted to do. but the debtor later voluntarily reimburses the third person. pays a legacy in compliance with a PRESCRIBED BY LAW – PAYMENT OF clause in the defective will. LEGACY ACCDG TO ITS TERMS IS EFFECTIVE AND IRREVOCABLE TITLE IV.Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS YSRefran 16 NATURAL OBLIGATIONS: based on their performance. (1160A) 1428 When. there is no right ANNULMENT: CAN’T DEMAND RETURN to demand the thing or price thus returned. EFFECT: after obligor’s VOLUNTARY FULFILLMENT.

cannot. PARTY ESTOPPED 3) ACTION (OR FAILURE TO ACT) SO AS TO CHANGE HIS POSITION PREJUDICIALLY 4) PREJUDICE UNLESS ESTOPPEL IS APPLIED ESTOPPEL CONCERNING IMMOVABLE PROPERTY – ONE SHOULD’VE BEEN MISLED CONSENT ON PART OF OWNER ESTOPS HIM FROM ASSERTING ANY RIGHT OVER THE PROPERTY 1438 One who has allowed another to assume apparent ownership of personal ESTOPPEL RESULTING FROM property for the purpose of making any transfer of it. REPRESENTATIVE CAPACITY – prejudice not essential 1436 A lessee or a bailee is estopped from asserting title to the thing leased or ESTOPPEL ON PART OF LESSEE OR received. the former ESTOPPEL CREATED IN cannot subsequently set up his own title as against the buyer or grantee. as against the lessor or bailor.By DEED PROPER .By LACHES (unreasonable delay in suing) 2) Estoppel BY DEED (TECHNICAL ESTOPPEL): bar w/c precludes one party to a deed & his privies from asserting as against the other party & his privies.on PARTY INVOKING ESTOPPEL (3) The party misled must have been unaware of the true facts. CONDUCT shall be ACTED UPON BY OTHER PARTY (2) The party precluded must intend that the other should act upon the facts as 3) KNOWLEDGE (actual or misrepresented.Generally GOV’T NOT BOUND BY . and 1) LACK OF KNOWLEDGE & MEANS TO ASCERTAIN THE TRUTH (4) The party defrauded must have acted in accordance with the 2) RELIANCE UPON CONDUCT OF misrepresentation. any right or title in derogation of the deed or from denying truth of mat’l facts asserted . WAS GIVEN APPARENT AUTHORITY. made by the other to a pledgee who received the same in ESTOPPEL ALSO APPLIES IF ‘AGENT’ good faith and for value. 1435 If a person in representation of another sells or alienates a thing. . 1) CONDUCT AMOUNTING TO provided all these requisites are present: FALSE REPRESENTATION OR CONCEALMENT OF MAT’L FACTS (1) There must be fraudulent representation or wrongful concealment of facts 2) INTENT OR EXPECTATION known to the party estopped. one REQUISITES of ESTOPPEL IN PAIS of them is misled by a person with respect to the ownership or real right over the . set up his own title to defeat the pledge of the property.By OMISSION .on PARTY ESTOPPED real estate. constructive) OF THE TRUTH . such title passes by prejudice not essential operation of law to the buyer or grantee. & OTHER PARTY WAS MISLED INTO GIVING HIM CREDIT 1439 Estoppel is effective only as between the parties thereto or their successors in PERSONS BOUND BY ESTOPPEL interest. BAILOR 1437 When in a contract between third persons concerning immovable property. SALE OF “AFTER-ACQUIRED PROP.” – and later the seller or grantor acquires title thereto.By SILENCE . if he received the ACCEPTANCE OF BENEFITS sum for which a pledge has been constituted.Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS YSRefran 17 CONCEALMENT . the latter is precluded from asserting his legal title or interest therein.By JUDGMENT AS A COURT RECORD 1434 When a person who is not the owner of a thing sells or alienates and delivers it.

Express trusts are created by the intention CLASSES OF TRUST of the trustor or of the parties. . property for another person’s benefit : right to the beneficial enjoyment of property. or by the intention of the trustor 2) IMPLIED: created by operation of law a) RESULTING TRUSTS: imposed by law to carry out actual or presumed intent of the parties. the legal title to w/c is vested in another ELEMENTS 1) PARTIES to the trust a) TRUSTOR or settler – establishes the trust b) TRUSTEE – holds property in trust for another’s benefit c) BENEFICIARY (CESTUI QUE TRUST) – person for whose benefit the trust has been created NOTE: The trustor may also be the beneficiary. and a refusal to enforce it would virtually sanction fraud or injustice AGENCY BY ESTOPPEL TITLE V. TRUSTS (n) Chapter 1. 2) TRUST PROPERTY or trust estate or subject matter of the trust CHARACTERISTICS 1) FIDUCIARY RELATIONSHIP 2) CREATED BY LAW OR BY AGREEMENT 3) LEGAL TITLE HELD BY ONE. 1) EXPRESS: created by assent of the parties.Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS YSRefran 18 ESTOPPEL . where the express trust fails b) CONSTRUCTIVE TRUSTS: est. insofar as they are not in conflict with PRINCIPLES OF GEN. or unjust enrichment 1442 The principles of the general law of trusts. regardless of intention. GENERAL PROVISIONS 1440 A person who establishes a trust is called the trustor. the Rules of Court and special laws are MERELY SUPPLETORY hereby adopted. the Code of Commerce. truth of w/c the other party is ignorant ESTOPPEL CAN’T VALIDATE A VOID CONTRACT PROMISSORY ESTOPPEL: promise to do or not to do something in the future intended to be relied upon & was so relied upon. subjecting person holding the trustee. and the person for whose benefit the trust has been created is referred same to the obligation of dealing w/ the to as the beneficiary. one in whom confidence is TRUST: fiduciary relationship WRT reposed as regards property for the benefit of another person is known as the property. by law.Estoppel APPLIES ONLY TO QUESTIONS OF FACT. and EQUITABLE/BENEFICIAL TITLE HELD BY ANOTHER 1441 Trusts are either express or implied. to prevent fraud. oppression. LAW OF TRUSTS this Code. Implied trusts come into being by operation of law.

& MAY NOT BE PROVED BY ORAL EVIDENCE FORMALITIES RE EXPRESS TRUSTS .may be express.FOR TRUST OVER PERSONAL PROP. but the limitation laid down in Article 1442 CONFLICT W/ CC. RoC. unless EFFECT OF DECLINATION BY the contrary should appear in the instrument constituting the trust.FULFILLMENT OF RESOLUTORY CONDITION .TRUSTEE capacitated to HOLD PROP & OBLIGATE HIMSELF .MERGER . EXPRESS TRUSTS 1443 No express trusts concerning an immovable or any interest therein may be EXPRESS TRUSTS DON’T PRESCRIBE proved by parol evidence. or presumed TERMINATION of express trusts (8) . by gen. IMPLIED TRUSTS 1447 The enumeration of the following cases of implied trust does not exclude others TRUSTS RECOGNIZED ONLY IF NOT IN established by the general law of trust. if the trust imposes no BENEFICIARY’S ACCEPTANCE IS onerous condition upon the beneficiary.Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS YSRefran 19 Chapter 2.LOSS (physical loss or legal impossibility) OF SUBJECT MATTER OF TRUST .ACCOMPLISHMENT OF PURPOSE OF THE TRUST Chapter 3. METHOD 1) DECLARATION OF TRUSTOR THAT HE HOLDS PROP IN TRUST 2) CONVEYANCE TO TRUSTEE INTER VIVOS OR BY TESTAMENT CLEAR INTENTION to create a trust CAPACITY .TRUSTOR capacitated to TRANSFER PROP .RESCISSION OR ANNULMENT . if it concerns real prop. shall be applicable.BENEFICIARY capacitated to RECEIVE GRATUITOUSLY FROM TRUSTOR ADMINISTRATION (Rule 98.COURT ORDER . Code of Commerce.MUTUAL AGREEMENT by ALL PARTIES .RoC) 1445 No trust shall fail because the trustee appointed declines the designation. it being CREATION OF EXPRESS TRUST sufficient that a trust is clearly intended. implied. ORAL AGREEMENT IS VALID & ENFORCEABLE BET. if NECESSARY there is no proof to the contrary. TRUSTEE – Court appoints new trustee 1446 Acceptance by the beneficiary is necessary.FOR ENFORCEABILITY . & special laws IMPLIED TRUSTS as are specified by the Code don’t exclude others est. law.RE 3RD PERSONS: trust in PUBLIC INSTRUMENT & REGISTERED in Registry of Prop. 1444 No particular words are required for the creation of an express trust. Nevertheless. his acceptance shall be presumed.EXPIRATION OF the TERM . insofar as they’re not in conflict w/ the . . THE PARTIES .

1453 CONSTRUCTIVE TRUSTS (4) 1450. 1449. of the one paying the price of the sale. if the person to whom the title is conveyed is a child. 1456 If property is acquired through mistake or fraud. a trust is ONLY ONE OF THE CO-BUYERS created by force of law in favor of the others in proportion to the interest of each. SOMEONE ELSE Resulting trust 1454 If an absolute conveyance of property is made in order to secure the ABSOLUTE CONVEYANCE MADE FOR performance of an obligation of the grantor toward the grantee. Constructive trust 1457 An implied trust may be proved by oral evidence. Constructive trust 1455 When any trustee. If the fulfillment of the obligation is offered by the grantor when it becomes due. a trust is established by implication of law for the OWNER’S NAME benefit of the true owner. as collateral. 1449 There is also an implied trust when a donation is made to a person but it appears WHEN DONEE DOESN’T GET FULL that although the legal estate is transmitted to the donee. 1456 1448 There is an implied trust when property is sold. 1452. it being disputably presumed that there is a gift in favor of the child. of the merchandise imported or purchased 1451 When land passes by succession to any person and he causes the legal title to WHEN TITLE TO LAND ISN’T TO be put in the name of another. by PROPERTY ACQUIRED THRU MISTAKE force of law. a trust arises by operation of law in favor of the person to whom the money is loaned or for whom its is paid. 1451. there is an implied trust in favor INTENT TO HOLD PROPERTY FOR of the person whose benefit is contemplated. Resulting trust legitimate or illegitimate. a trust by virtue SECURITY PURPOSE of law is established. while the latter is the beneficiary. Resulting trust 1453 When property is conveyed to a person in reliance upon his declared intention to WHEN A PERSON DECLARES HIS hold it for. Resulting trust 1450 If the price of a sale of property is loaned or paid by one person for the benefit of CONVEYANCE OF PROPERTY SO IT another and the conveyance is made to the lender or payor to secure the MAY SERVE AS SECURITY payment of the debt. he may demand the reconveyance of the property to him. . and the legal estate is granted to No implied trust if doc expresses different one party but the price is paid by another for the purpose of having the beneficial intent interest of the property. 1455. no trust is implied by law. and who may not be able to acquire credit except thru utilization. 1454. a trust is established by operation of law in favor of Constructive trust the person to whom the funds belong. The latter may redeem the Constructive trust property and compel a conveyance thereof to him. However.Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS YSRefran 20 CC & special laws. he nevertheless is OWNERSHIP OF BENEFIT either to have no beneficial interest or only a part thereof. Resulting trust 1452 If two or more persons agree to purchase property and by common consent the WHEN PROPERTY IS IN THE NAME OF legal title is taken in the name of one of them for the benefit of all. TRUST RECEIPT: security transaction intended to aid in financing importers & retail dealers who don’t have sufficient funds to finance importation or purchase of merchandise. or transfer it to another or the grantor. considered a trustee of an implied trust for the benefit of the person OR FRAUD from whom the property comes. guardian or other person holding a fiduciary relationship uses USE OF TRUST FUNDS trust funds for the purchase of property and causes the conveyance to be made to him or to a third person. the person obtaining it is. Provable by oral evidence RESULTING TRUSTS (5): trusts intended but ineffective as express trusts 1448. The former is the trustee.

Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS YSRefran 21 PROOF OF IMPLIED TRUST – applies whether property is real or personal ORAL EVIDENCE FOR TRUST MUST BE TRUSTWORTHY .