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Held:
CHAPTER 7. VOIDABLE CONTRACTS The sale was a defective contract under the category of voidable
contracts (no capacity to give consent). The wife had no capacity to
GENERAL CONCEPT give consent to the contract of sale because such capacity belonged to
both the spouses. Hence, it was subject to annulment by the husband
VOIDABLE CONTRACTS only during the marriage because he was the victim. The wife who has
A contract where all the essential elements for validity are present, responsible for the defect cannot ask for its annulment nor can the
although the element of consent is vititiated by reason of lack of legal heirs because they merely had an inchoate right to the lands sold.
capacity or by mistake, violence, fraud, etc.
However, the case of Sofia and Salvador is different. After Maximo’s
Essential feature: Binding until annulled by a competent court. death, they acquired the right to question to defective contract
because it deprived them of their hereditary rights in their father’s
Two remedies share in the land.
1. Attack its validity (direct or collateral)
2. Convalidate it either by ratification or by prescription Felipes have been in possession of the lands since 1951. It was only in
1976 when Maximo died that the action to recover the lands was
TN: instituted.
Annulment – the action itself
Annulability or relative nullity - defense Has the action for annulment already prescribed?

CHARACTERISTICS Held:
Felipes could not have acquired ownership of the lots by prescription
1. Defect is the vitiation of consent of one of the parties because of their bad faith, and even if there was good faith, the action
2. Binding until annulled has not yet prescribed for it has been just 25 years. Further, the
3. Susceptible of convalidation by ratification or prescription children’s cause of action accrued from the death of their father, hence
4. Voidable character cannot be invoked by third person they had 30 years to institute it. (Abandoned ruling)

Distinguished from rescissible contracts Caveat. Others believe that the contract of sale is unenforceable
because it consists of lack of authority and not incapacity.

Annulment Rescission WAYS TO EXTINGUISH THE ACTION FOR ANNULMENT

(a) Defect is intrinsic (a) Defect is external Three ways:

A. Prescription
(b) Ground is vitiated consent (b) Ground is lesion or damage B. Ratification
C. Loss of the thing through fraud or fault of the person
(c) Action is principal (c) Action is subsidiary entitled to institute the action

(d) Both a remedy and a sanction (d) Mere remedy Art 1391. PRESCRIPTIVE PERIOD

(e) Damage is immaterial (e) Damage is material Prescriptive period

Action for annulment must be institued within a period of four years
(f) Susceptible of ratification (f) Not susceptible from the time:

(g) Based on law (g) Based on equity A. Incapacitated persons –guardianship ceases
B. Violence, intimidation, undue influence – ceases or disappears
(h) Public interest predominates (i) Private interest predominates C. Mistake or fraud – discovery

(i) plaintiff must be a party to the (i) plaintiff may be a contracting TN: If not commenced within such period, the action shall prescribe.
contract party or a third person
Carantes v. CA
Facts:
Art 1390. CONTRACTS WHICH ARE VOIDABLE Carantes was the original owner of the land, evidenced by a COT. In
1913, he died, and was survived by his widow and 6 children. In 1930,
Two general classes of voidable contracts construction of the Loakan airport was commenced by the
1. Incapacity to give consent (minors, insane, deaf-mute) Government, where the latter expropriated a portion of the land
2. Vitiated by reason of mistake, violence, intimidation, undue because the same was needed for the landing field.
influence or fraud.
In 1939, heirs assigned their right to inheritance to their co-heir,
Damage is immaterial Maximo in consideration of P1. After Maximo registered the deed of
Even though there may have been no damage to the contracting Assignment of Right to Inheritance, he sold to the Government the
parties, it is still voidable, regardless of whether the contract has said portion of the land and divided the proceeds of the sale amongst
already been consummated or is merely executory. his co-heirs.

TN: Binding unless annulled by the court and is susceptibe of
ratification.
Felipe v. Heirs of Aldon
Facts:
Spouses Aldon bought lands and were subsequently divided into 3 lots.
Sometime later, the wife sold the lots to spouses Felipe, without the
consent of her husband. When the husband died, his heirs, the wife
and their children Sofia and Salvador, filed a complaint against the
Felipes, praying for the recovery of the said lands..
Felipes contend that the property was acquired by sale and were
delivered to them. Lower court ruled in their favor. However, upon
appeal, the decision was reversed – because the sale was invalid for tit
it was executed without the needed consent of her husband, the lots
being conjugal.
In 1958, the said heirs filed a complaint against Maximo, alleging that
they only executed the Deed of Assignment because they were made
to believe that it merely authorized Maxim to convey the land to the
Government in their behalf. Hence, prayed to void the said deed.
Issue: WON contract is void or merely voidable. WON action has
prescribed.
Held:
Merely voidable because it is complete lack of consideration which
makes a contract absolutely simulated thus rendering it void and
inexistent. Here, there was a consideration – P1. In this case, there
was consent but only vitiated. Hence, the action is one to annul the
contract on the ground of fraud. An action based on fraud prescribes
in 4 years from discovery of the fraud. In this case, it alleged fraud
must have been discovered on 1940 when the deed of assignment was

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registered for it serves as a constructive notice to the world. Hence, Example: A minor contracted with X. X’s heir cannot sue for annulment
the action already prescribed. on the ground that the other party was a minor.

Presciption period of defense
The defense of annulability shall also prescribe after the lapse of four
years, since the basis of the action and that of defense are identical.
(except minority as a defense – not contolling but Jurado is of the
opinion that this is more logical and just)
XPN: Those not being a principal or subsidiary party, but:
A. Is prejudiced in his rights with respect to one of the parties
B. Can show detriment which would positively result to him
from the contract in which he has no intervention.

TN: If the misrepresentation of age is active, rule on estoppel applies. Example: Remaining partners executed a chattel mortgage over the
However, if merely constructive, the defense of minority can be properties of the partnership in favor of a former partner to the
invoked as a defense, and the 4 year prescription cannot apply. prejudice of ceditors of the partnership. The creditors can file for the
annulment of the chattel mortage.
Arts 1392 – 1396. RATIFICATION
REQUISITES
RATIFICATION
The act or means by virtue of which efficacy is given to a contract 1. Plaintiff must have an interest in the contract
which suffers from a vice of curable nullity. 2. The victim and not the party responsible for the vice must
be the person who must assert the same.
Requisites

1. Contract is tainted by a vice susceptible of being cured. Arts 1398 – 1399. MUTUAL RESTITUTION

TN: Otherwise, it is void, not susceptible of ratification MUTUAL RESTITUTION

2. Ratification by the person who is entitled to do so by law. GR: Upon the annulment, the parties shall restore to each other the
things which they have received from each other.
A. Incapacitated person – him upon regaining
capacity or by his guardian A. Obligations to give – object with their fruits and price with
B. Other vices – only the innocent party its interest
B. Obligations to do or not to do – apportionment of damages
3. Effected with knowledge of the vice. based on the value of the prestation with interests.

TN: If two or more vices are present, knowledge of all of XPN: Incapacitated persons – not obliged to make restitution, except
them is required. insofar as he has benefited by the thing or price received by him.

4. Cause of defect should have already disappeared. TN: Benefit does not presuppose material and permanent
augmentation of fortune. Prudent and beneficial use is sufficient.
TN: Xpn – ratification by guardian of incapacitated person (food, clothing, shelter, health, etc)

Forms of ratification How to determine? Know the person’s necessities and social position.

A. Express – oral or written Burden to prove benefit – upon the person who has capacity.
B. Tacit – implied as from conduct implying a waiver
Example:
Example: Two minors borrowed from a creditor, evidenced by a PN. While they
A minor bought a land and sold the same after reaching the age of cannot be bound because of their signatures, they can be compelled to
majority or the use of the proceeds of a property by a person who had make restitution to the extent that they may have been benefited by
been previously intimidated into selling said property. the money.

Conformity of guilty party not needed Caveat: Cannot be applied when the incapacited person can still return
Reason: The guilty party’s consent is not needed, otherwise, he may the thing which he received. He shall return the same after attaining
find a way of getting out of the contract by the simple expedient of capacity.
refusing to ratify.
Hence, if after attaining capacity, he did not just annul the contract but
Effects of ratification also squandered the money – implied ratification.

1. Extinguishes the action to annul the contract Arts 1400 – 1402. LOSS OF OBJECT BEFORE ANNULMENT
2. Cleanses the contract of its defects from the moment of
constitution (retroactive effect)
LOSS DUE TO DEFENDANT’S FAULT
Xpn: when rights of innocent third persons are prejudiced. When the person obliged by the annulment decree cannot return the
thing because the same has been lost through his fault –
Example:
A minor sold his land to X. When he was already of age, he Effect: Contract can still be annulled.
became indebted to Y. To avoid paying Y, he decided to
ratify the sale of the land. He then had no other property. A. Return the fruits received
May Y still rescind the contract? YES. Although ratification B. Return the value of the thing at the time of the loss, with
has retroactive effects, still the rights of an innocent third interest.
person must not be prejudiced.
LOSS DUE TO PLAINTIFF’S FAULT
Art 1397. WHO MAY INSTITUTE ACTION When the loss is due to the fraud or fault of the party entitled to
institute the proceedings –

GENERAL RULE AND EXCEPTIONS Effect: Contract can no longer be annulled.

GR: Only the injured party (principal or subsidiary), and not the guilty
party or his successor.
Reason – he who comes to equity must come with clean hands. (TN:
This statement is misleading because in voidable contracts, damage is
immaterial)
Rule when action is based upon incapacity
If the right of action is based upon incapacity,loss of the thing shall not
be an obstacle to the success of the action, unless said loss took place
through fraud or fault of the plaintiff. (omitted phrase: after having
acquired capacity)
Old rule: Loss due to the fraud or fault of the plaintiff:

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A. After acquiring capacity – ART 1403. UNENFORCEABLE CONTRACTS

Effect: Contract can no longer be annulled.

B. During incapacity – CONTRACTS WITHOUT OR IN EXCESS OF AUTHORITY

Effect: Contract can still be annulled.
Contracts entered into the name of another person by one who was
New rule: Regardless of whether the loss occurred during or after the not given legal representation, or who has acted beyond his powers –
plaintiff acquired capacity – action for annulment is extinguished. Effect: Unenforceable

Example: Principles
Insane sold his house and squandered the proceeds while insane. Can 1. No one may contract in the name of another without being
he ask for annulment later and recover the house? NO, the action is authorized by the latter or unless has has a right to represent
extinguished under Art 1401. him. If duly authorized, must act within the scope of his
powers.
Caveat – This contradicts Art 1399 because incapacitated person is not
obliged to make restitution except insofar as he has been benefited. 2. Effect – unenforceable.
Being insane, he could not have profited by squandering the money.
Also, the loss was not due to fraud or fault. 3. However, it may be ratified (express or implied) by the person
in whose behalf it has been executed, before it is revoked by
LOSS DUE TO FORTUITOUS EVENT the other contracting party.

Defendant Confirmation v. Ratification and Recognition

When the person obliged by the annulment decree cannot return the
thing because the same has been lost through fortuitous event –
Confirmation Ratification Recognition
Effect: Contract can still be annulled (but liable only for the value of
the thing at the time of the loss, without interest)
An act by which a An act by which a An act whereby a defect
Plaintiff voidable contract is contract entered of proof is cured.
When the person who instituted the annulment cannot return the thing cured of its vice. into by a person Examples: oral contract is
because the same has been lost through fortuitous event – in behalf of put in writing or a private
another without instrument is comverted
Effect: Contract can still be annulled (must pay to defendant the value or in excess of into a public instrument
of the thing at the time of the loss, without interest) authority is cured
of its defect.
CHAPTER 8. UNENFORCEABLE CONTRACTS

GENERAL CONCEPT
Has a vice to be No vice to be remedied
remedied
UNENFORCEABLE CONTRACTS
Those which cannot be enforced by a proper action in court, unless
they are ratified, because: The person acting The person acting
A. They are entered into without or in excess of authority on behalf of on behalf of
B. Non-compliance with the Statute of Frauds another is duly another is duly
C. Both contracting parties do not possess legal capacity authorized to do so. not authorized to
do so.
Classes

A. Contracts entered into in the name of another person by one CONTRACTS INFRINGING STATUTE OF FRAUDS
without or in excess of authority
Purpose of Statute
Defect: No consent from the person in whose name the To prevent fraud. Hence, it should not be made the instrument to
contract is entered into. further them.

B. Those which do not comply with the Statute of Frauds Form required by Statute
1. Contract must be in writing and
Defect: No writing, note or memo to prove the contract 2. Subscribed by the other party charged or by his agent

C. Where both contracting parties are not legally capacitated Effect of non-compliance with Statute
A contract exists and is valid even though it is not clothed with the
Defect: Consent absolutely vitiated by incapacity of both necessary form. Effect of non-compliance is simply that no action can
be enforced, unless the requirement is complied with.
Characteristics
1. Cannot be enforced by a proper action in court TN: SOF simply provides a method by which the contracts listed may
2. Susceptible of ratification be proved. It does not declare that said contrats are invalid because
3. Cannot be assailed by third persons they are not reduced to writing. The form required is merely for
evidential purposes.
Unenforceable Rescissible Voidable
Contracts covered by Statute
Cannot be enforced Can be enforced, Can be enforced,
in court unless rescinded unless annulled 1. An agreement that by its terms is not to be
performed within a year from its making.
Can’t be assailed by Can be assailed by a Can’t be assailed by
third persons prejudiced 3rd person third persons TN: Refers only to agreements by which their terms are not
to be performed on either side within 1 year from execution.
Susceptible of Not susceptible of Susceptible of
ratification ratification ratification 2. A special promise to answer for the debt, default or
miscarriage of another.

The causes or grounds are different TN: Promise must be collateral, not independent or original.

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Reiss . Memije CONTRACTS WHERE BOTH PARTIES ARE INCAPACITATED

Test to determine whether a promise is within the statute:
Whether the promise is an original or a collateral one. Voidable – if only one is incapacitated
Uneforceabe – if both are incapacitated
 If original or independent – Promise is not within the
statute. Hence, promisor is primarily liable for the Ratification
payment of the debt. 1. Expressly
2. Impliedly
 If promise is collateral – Promise is within the statute.
Promisor becomes merely a surety, hence promise Who can ratify?
should be in writing. 1. By the parents of guardians of the contracting parties.
2. By the parties themselves upon attaining capacity
3. An agreement made in consideration of marriage,
other than a mutual promise to marry. Effect:
Voidable – if only one ratified
Valid from inception – if both ratified
TN: Marriage settlements and donations propter nuptias
shall be regulated by the SOF.
CHAPTER 9. VOID OR INEXISTENT CONTRACTS
4. An agreement for the sale of goods, chattels or
GENERAL CONCEPT
things in action, at a price not less than P500.

VOID AND INEXISTENT CONTRACTS

5. An agreement for the leasing of real property for a
A contract which lacks absolutely either in fact or in law one or some
longer period than one year, or for sale of real of the elements which are essential for its validity.
property or an interest therein.
A. Absolutely no consent, object or cause
Syquia v. CA
B. Formalities essential for its validity are not complied with
An alleged oral promise of the reps of the lessor that the C. Cause or object is contrary to law, morals, customs, etc.
lessee should be given priority or a renewal of the lease D. Contracts is expressly prohibited by law
cannot be enforceable.
Void v. Inexistent
Zaide v. CA The distinction is relevant for the in pari delicto principle.
If the agreement concerns the sale of land or of an interest
therein, the law not only requires that it must be in writing A. Void – where all of the requisites of a contract are present but
and subscribed by the party charged, but also that the the cause, object or purpose is contrary to law, morals, etc.
writing be in the form of a public document.
Effect: Neither party may be heard to invoke its unlawful
Western Mindanao v. Medalle character as a ground for relief.
The SOF refers to specific kinds of transactions. The list is
exclusive and cannot apply to any that is not enumerated B. Inexistent – where one or some of the requisites essential for
therein. An agreement creating an easement of right of way its validity are absolutely lacking
is NOT one of the contracts covered by the Statute.
Effect: Still open to attack even by the parties thereto.
6. A representation as to the credit of a third person
Example: A and B entered into a verbal contract to sell a
land. When B was ready to pay, A refused to go through Void contract Inexistent contract
with the sale. Is the agreement valid? Will an action for
specic performance prosper?
(a) All of the requisites are (a) One or some of all of those
A. Yes. Verbal agreements are valid so long as there is an present, but the cause, object or requisites essential for its
agreement as to the object and purchase price. purpose is contrary to law, morals, validity are absolutely lacking
etc. or the contract itself is
B. No, because the sale is covered by the SOF. The fact that prohibited by law
is not not evidenced by any note or writing, it cannot be
enforced in court, unless ratified. (b) principle of pari delicto is (b) principle of pari delicto is not
applicable. applicable
Effect of Performance of Contract
Statute of Fraud applies only to contracts which are executory and (b) may produce legal effects (c) cannot produce any effect
NOT to those which have been consummated either totally or partially, whatsoever
because there is already ratification.

Carbonnel v. Poncio Distinguished from Rescissible contracts

Facts:
Carbonnel bought from Poncio a land. She paid part of the agreed
price, the remaining balance to be paid upon the execution of the Void Rescissible
deed. Poncio refused to execute the deed despite repeated demands,
claiming that the same is unenforceable under the SOF.
(a) produces no effect even if not (a) contract is valid, unless
Held: set aside by a direct action rescinded
SOF is applicable only to executory contracts and not to those already
performed totally or partially. To hold otherwise would enable Poncio (b) defect consists in the absolute (b) defect consists in the lesion
to keep the benefits he already derived and evade obligations or lack of one or some of the or damage
liabilities. If there has been partial performance, such party is entitled essential reqs
to a reasonable chance to establish by parole evidence the truth of his
allegation, as well as the contract itself. (c) nullity or inexistence is based (c) rescissible character is based
on law on equity
Ratification
Contracts infringing the SOF are susceptible of ratification. (d) action is imprescribtible (d) action prescribes
1. By failure to object to the presentation of oral evidence to
prove the same. (e) nullity cannot be assailed by (e) can be assailed by third
2. By the acceptance of benefits under them. third persons persons

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Distinguished from Voidable contracts Held:

Void
(a) Produces no effect even if not
set aside by a direct action
(b) Not susceptible of ratification
(c) Imprescriptible
(d) Defense is available to third
persons whose interests are
directly affected
Distinguished from Unenforceable contracts
Void
The donation was null and void, not inexistent because the cause is
contrary to law, morals, etc. While it is true that motive differs from
Voidable cause, still a contract that is conditioned upon the attainment of an
immoral motive should be considered void, for here motive may be
regarded as cause when it predetermines the purposes of the contract.
(a) Binding unless annulled
The liberality of the donor is deemed causa only in contracts of pure
liberality. In the case, the donation was not moved exlusively by the
(b) Susceptible of ratification desire to benefit Conchita but also to gratify his sexual impulse.
Therefore, the donation was but one part of an onerous transaction.
(c) Prescriptible
However, although void, the principle of in pari delicto is not applicable
(d) Defense is not available to because Conchita was only a minor at the time of donation and minors
third persons occupy a privileged position under the law. But even if the said
principle is applicable, the same rules would still apply because nullity
of contracts when executed has the effect of barring any action by a
guilty party to recover what he has already given under the contract.
Therefore, had Lopez been alive, he could not have invoked the
immorality of the donation because it was he who was at fault.
Unenforceable Consequently, the heirs cannot also because they cannot be placed in
a better position than their predecessor.

(a) In reality, no contract at all
(b) Not susceptible of ratification
(c) Can be assailed by third
persons whose interests are
directly affected
ART 1409. VOID AND INEXISTENT CONTRACTS
(a) There is a contract, only not
enforceable, unless ratified
(b) Susceptible of ratification
(c) Cannot be assailed by third
persons
However, because the property donated is conjugal, under the Civil
Code, the donation is merely fraudulent. Hence, Conchita is entitled to
so much of the donated property as may be found proper upon
liquidation not to prejudice the heir of the widow or the legitimes of
the compulsory heirs.
If New Civil Code – the same rule applies to the donor. However, for
the wife, the rules are different. The wife can bring an action for the
declaration of absolute nullity of the contract – imprescriptible. If she
dies without bringing the action, the heirs can. Principle of pari delicto
cannot be applied because the wife nor heirs are not parties to the
illegal contract.

VOID AND INEXISTENT CONTRACTS Francisco Chavez v. PCGG

If the agreement contains terms that are clearly contrary to the
1. Whose cause, object or purpose is contrary to law, etc. Constitution and the law, it cannot be rendered operative by the
2. Whose object is outside the commerce of men parties’ alleged performance, whether partial or full. It is void ab initio
3. Which contemplate an impossible service hence, vests no rights and creates no obligations. Produces no legal
4. Where the intention of the parties relative to the principal effects at all.
obect of the contract cannot be ascertained
5. Expressly prohibited or declared void by law RATIFICATION
6. Absolutely simulated or fictitious A void contract can never be ratified.
7. Whose cause or object did not exist at the time of the
transaction Guiang v. CA
The Deed of Transfer of Rights cannot be ratified even by an amicable
TN: These contracts cannot be ratified nor can the right to set up the settlement. The participation by some barangay authorities in the
defense of illegality be waived. (First 5 are void, last 2 are inexistent) amicable settlement cannot otherwise validate an invalid act. A
contract that is the direct result of a previous illegal contract is also
Other void contracts void. Thus, both the Deed and settlement are void.
1. No concurrence between the offer and acceptance
2. Non-compliance with the required form essential for validity Sale of conjugal properties
Requires the consent of both husband and wife. Absence of the
CHARACTERISTICS consent of one renders the sale null and void, while vitiation thereof
makes it merely voidable. Hence, only in the latter can there be a valid
A. They produce no legal effects whatsoever (quod nullum est ratification.
nullum producit effectum)
ART 1410. IMPRESCRIBTIBITY OF ACTION AND DEFENSE
B. Not susceptible of ratification
C. Right to set up the defense of inexistence or absolute nullity
cannot be waived or renounced IMPRESCRIBILITY OF ACTION OR DEFENSE
D. Action or defense is imprescriptible Reason: Because the defect of void or inexistent contracts is
E. Cannot be invoked by a person whose interests are not permanent in character. Hence, mere lapse of time cannot give
directly affected efficacy to such contracts – cannot be cured by prescription.

EFFECTS TN: Applies to both the action and defense.

 Inexistent contracts – produces no legal effects Cases in point: Castillo v. Galvan & Mapalo case
 Void contracts – bars any action by a guilty party to An action to declare the nullity of a void contract does not prescribe.
recover what he has already given under the contract. The same equally applies when the same is invoked as a matter of
(illegal cause or object) defense.

Liquez v. Court of Appeals Castillo v. Galvan

Facts: Facts:
Salvador Lopez, a married man, donated a land to a 16-year old Paulino Galvan married twice, two daughters from the first and three
(Conchita Liquez), subject to the condition that she will cohabit with children from the second with Castillo. He was the owner of ½ share
him as his mistress. in 2 parcels of land in Dagupan City. The other ½ is owned by his two
daughters of the first marriage. In the two lots is the conjugal house of
Issue: him and his wife Castillo.
What is the character of the contract – valid, void or inexistent?

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The spouses had little education. Consequently, they were made to
sign a document which according to Josefa Galvan (daughter of first
marriage) was necessary in order to have separate tax declarations for
their respective ½ portions of the 2 lots – but turned to be a deed of
sale, written in a language not known to the spouses (English). The
consideration listed P500, when in fact the share was worth at least
P22,500.
An action to declare void the contract of sale was instituted.
Issue: Whether the contract was void or merely voidable.
Held:
CA held that it was merely voidable for consent was vitiated by fraud,
and the action prescribes in 4 years. However, SC reversed the deision
holding that the contract was void and inexistent, for having been
absolutely simulated (no cause or consideration). Hence, an action to
declare a contract void does not prescribe.
Mapalo case
Facts:
Illiterate farmers were deceived into signing a deed of absolute sale
for a land in favor of Maximo Mapalo. They were made to believe that
the document was a deed of donaton covering the eastern half of their
land. The deed stated a consideration of P500 but the spouses did not
receive anything.
Eventually, Maximo sold the land to the Narcisos and the latter
eventually sued the spouses praying that they be declared the owners
of the entire land. Mapalo spouses alleged that their signatures to the
deed of sale was obtained through fraud and asked that the sale be
declread void as to the western portion.
Issue: Whether the sale was void or merely voidable.
Held:
CA held that it was merely voidable for consent was vitiated by fraud,
and the action prescribes in 4 years. However, SC reversed the deision
holding that the contract was void and inexistent, for having been
absolutely simulated (no cause or consideration). Hence, an action to
declare a contract void does not prescribe.
ARTS 1411 – 1412. PRINCIPLE OF IN PARI DELICTO
IN PARI DELICTO
When the defect of a void contract consists in the illegality of the
cause or object of the contract, and both are at fault or in pari delicto
– law refuses them remedy and leaves them where they are.
TN: This presupposes that the fault of one party is more or less equal
to the fault of the other.
Rodriguez v. Rodriguez
Facts:
Concepcion Felix contracted a second marriage with Domingo
Rodriguez. Prior to the second marriage however, Concepcion was the
registered owner of 2 fishponds. It appears that she executed a deed
of sale of the said properties in favor of his daughter, which the latter
in turn transferred to her mother and stepfather. Hence, the ownership
of the fishponds were now under the name of Concepcion and
Domingo.
Domingo eventually died intestate and the heirs entered into an
extrajudicial settlement of his estate, consisting of 1/2 of the
properties allegedly belonging to the conjugal partnership.
Issue:
Whether or not the contract was simulated that would render it
inexistent, hence the non-applicability of the in pari delicto rule.
Held:
No, in simulation, the contract is not really desired to produce an
illegal effect, whereas an illegal contract is intended to be real and
effected, and entered in such form as to circumvent a prohibited act.
Hence, the contract of sale in question could not have been simulated,
but were real and intended to be fully operative, being the means to
achieve the result desired.
However, although not inexistent, it is void for having an illegal causa
– circumvent the prohibition against donation between spouses.
Consequently, as a void contract, the principle of in pari delicto
applies. Hence, the wife cannot question its nullity.
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UNIVERSITY OF SAN CARLOS COLLEGE OF LAW 6 | P a g e
Applicability of the in pari delicto rule
Applies only to cases of existing contracts with an illegal cause or
object and NOT to simulated or fictitious contracts nor to whose which
are inexistent for lack of an essential requisite such as cause or
consideration.
TN: Illegality must be with the cause/object and not with the motive.
Effect if only one party is at fault
IT DEPENDS.
A. Executed contract
 Guilty party – barred from recovering what he has given to
the other party. It is repugnant for a party to invoke his own
guilt as a reason for relief.
 Innocent party – may demand for the return of what he has
given.
B. Executory contract
Cannot produce any legal effect whatsoever. Neither of the
contracting parties can demand its fulfillment nor be compelled
to comply.
EXCEPTIONS
The in pari delicto is not absolute in character.
1. Payment of usurious interest – Law allows debtor to
recover the interest paid in excess of that allowed by the
usury laws, with interest from the date of payment.
2. Payment or delivery for an illegal purpose, where the
party who paid repudiates the contract before the purpose
has been accomplished, or before an damages has been
caused to a third person – recover what was paid or
delivered.
Example: For a reward, A promised to kill C for B. B gave the
reward. Before A could kill C, B repudiated the contract. Is B
allowed to do so? Yes, because here, the purpose has not
yet been accomplished and no damage has as yet been
caused to a third person. May B recover what he has paid?
It depends on the discretion of the court.
3. Payment or delivery of property by an incapacitated
person – recover what was paid or delivered.
4. Agreement or contract which is not illegal per se but
is merely prohibited by law, and the prohibition is
designed for the protection of the plaintiff – latter can
recover what he has paid or delivered.
Example: A donated to B everything that he (A) possessed
and owned, leaving nothing for himself. This is prohibited
but not illegal per se. Since public policy is hereby enhanced,
A will be allowed to recover, at least that necessary for his
own support and the support of his relatives.
5. Payment in excess of the maximum price of any
article fixed by law – Buyer may recover the excess
6. Contract whereby a labou]rer undertakes to work
longer than the maximum number of hours fixed by
law –Laborer may demand for overtime pay.
7. Contract whereby a labourer accepts a wage lower
than the minimum fixed by law –Laborer may demand
for a deficiency.
ART 1413. RECOVERYBY DEBTOR OF USURIOUS INTERESTS
RECOVERY BY DEBTOR OF USURIOUS INTERESTS
Debtor may recover the interest paid in excess of the interest allowed
by the Usury law, with interest theeon from date of payment.
However, Sec 6 Usury law – debtor may recover the whole interest
paid with costs and attorney’s fees. (Is there conflict?)
OBLIGATIONS & CONTRACTS REVIEWER l FINALS l Tanya de la Cruz Ibanez l JD1 408
Angel Jose Warehousing v. Chelda
There is no conflict between the Civil Code and the Usury Law. When
the Code speaks of “interest paid in excess of that allowed by the
usury law”, it means the whole usurious interest. The only difference is
that – Code adds that the whole usurious interest can be recovered
with interest thereon from the date of payment.
Whether or not the creditor will be allowed to recover the
amount loaned?
Angel Jose Warehousing v. Chelda
Facts:
An action for the recovery of an unpaid loan with legal interest from
the filing of the complaint. Defendants interposed as a defense that
since the loan is usurious and therefore void, the principle of pari
delicto is applicable.
Held:
A contract of loan with usurious interest consists of principal and
accessory stipulation. The principal one is to pay the debt, the
accessory is to pay the interest. These two are divisible. Hence, the
illegal terms can be separated from the legal ones. (Art 1420)
Briones v. Cammayo
Facts:
The Cammayos obtained a P1,500 loan from Briones and executed a
real estate mortgage as security thereof. There was a usurious
agreement that they shall pay P300 as interest for one year. However,
Briones only lent the Cammayos P1,200 and withheld the P300 as
advance interest for one year.
On account of said loan of P1,200.00, defendant Cammayo paid to the
Briones during the period from October 1955 to July 1956 the total
sum of P330.00 which Briones, illegally and unlawfully refused to
acknowledge as part payment of the account but as in interest of the
said loan for an extension of another term of one year.
Consequently, Briones filed an action against the Cammayos to recover
from them the amount of P1,500.00, plus damages, attorney's fees
and costs of suit.
Issue: Can Briones recover the amount of P1,500.00?
Ruling:
Loan is valid but usurious interest is void. Creditor has the right to
recover his capital by judicial action. To discourage stipulations on
usurious interest, said stipulations are treated as wholly void, so that
the loan becomes one without stipulation as to payment of interest. It
should not, however, be interpreted to mean forfeiture even of the
principal, for this would unjustly enrich the borrower at the expense of
the lender. Furthermore, penal sanctions are available against a
usurious lender, as a further deterrence to usury. In simple loan with
stipulation of usurious interest, the prestation of the debtor to pay the
principal debt, which is the cause of the contract is not illegal. The
illegality lies only as to the prestation to pay the stipulated interest;
hence, being separable, the latter only should be deemed void, since it
is the only one that is illegal.
Barrredo, J., concurring
What the law prohibits is not the lending of money but only the
collection of excessive interest. There is nothing morally wrong in
allowing a lender to get back the money he has loaned because after
all the borrower has used the same for his own needs. Otherwise,
there would be unjust enrichment.
Castro Fernando, and Conception, JJ., dissenting
In a contract which is tainted with usury, that is, with a stipulation
(whether written or unwritten) to pay usurious interest, the prestation
to pay such interest is an integral part of the cause of the contract. It
is also the controlling cause, for a usurer lends his money not just to
have it returned but indeed, to acquire in inordinate gain. Here, the
motive becomes the integral part of the cause. Hence, the contract of
loan should be illegal for the usurious interest is an integral and
controlling part of the cause.
ART 1413 – 1416. OTHER EXCEPTIONS
Another XPN
Agreement or contract which is not illegal per se but is merely
prohibited by law, and the prohibition is designed for the protection of
the plaintiff – latter can recover what he has paid or delivered.
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UNIVERSITY OF SAN CARLOS COLLEGE OF LAW 7 | P a g e
Angeles v. Court of Appeals
Facts:
A homestead patent was issued to Angeles and the latter sold the
same to defendants Inez and Divino. Heirs of Angeles seeks to recover
the homestead from the defendants – sale was void since it was made
within the prohibited period of 5 years. (Sec 118 Public Land Law)
Defendants claim that there can be no recovery under the principle of
in pari delicto.
Held:
The in pari delicto rule does not apply to the sale of the homestead
because such sale is contrary to public policy since it the policy of the
law is to give land to a family for home and cultivation. Hence, the
homesteader is allowed to reacquire the land even if it has been sold.
Consequently, the sale was null and void, allowing the recovery of the
homestead illegally disposed of. Being one, the action does not
prescribe.
However, while the doctrine does not apply to the sale of the
homestead, it applies to the loss of the products received by the buyer
and the value of the necessary improvements made by him on the
land. Thus, since both the homesteader and the buyer are in bad faith,
the claim of the heirs of the homesteader for the products of the land
and that of the buyer for the expenses in the construction of the dike,
should be denied.
Philiippine Banking Corp v. Lui She
Facts:
A Filipino leased a parcel of land to an alien for 99 years with an option
to buy the property within 50 years, provided that the latter shall
become a Filipino citizen.
Issue: WON the contract is valid.
Held:
The motive of the agreement which resulted in the virtual transfer of
ownership is to circumvent the Constitutional prohibition to transfer
lands to aliens. The motive is the illegal causa, thus contract is void.
However, the pari delicto rule does not apply if in a transfer to an alien
of Philippine land, the government takes no steps to escheat or to
revert the property to the State. If the alien continues to hold on to
the land, there would be a continuing violation of the Constitution.
Hence, the Filipino assignor should be allowed to get back the
property. It is public policy to conserve lands for the Filipinos.
ART 1417 – 1420. OTHER EXCEPTIONS
Problem:
A partnership borrowed P20, 000 from A at clearly usurious interest
rates. Can the creditor recover anything from the debtor?
Answer: YES, creditor can recover the principal debt, legal interest on
the principal from the date of demand, legal interest on the legal
interests from the time of judicial demand, and attorney’s fees if
proper.
Dissenting opinion (Briones v. Cammayo)
In a contract which is tainted by a stipulation to pay usurious iterest,
the prestation to pay such interest is an integral part of the cause of
the contract. It is also the controlling case for the usurer lends his
money not just to have it returned but to acquire inordinate gain. –
more logical view.
TITLE III. NATURAL OBLIGATIONS
ART 1423. CONCEPT
NATURAL OBLIGATIONS
Those based on equity and natural law, which do not grant a right of
action to enforce their performace, but after voluntary fulfillment by
the obligor, authorize the retention of what has been delivered or
rendered by reason thereof.
IOW, obligations without a sanction, susceptible of voluntary
performance, but not through compulsion by legal means.
OBLIGATIONS & CONTRACTS REVIEWER l FINALS l Tanya de la Cruz Ibanez l JD1 408

Distinguished from civil obligations
Natural Obligation
(a) Based on equity & natural law
(b) Not enforceable in the courts
Civil Obligation
(a) Based on positive law
(b) Enforceable in the courts
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.
Notes
A. Generally, annulment requires mutual restitution. Here, the
obligee who has spent or consumed the object in good faith is
not required to restore.
B. Good faith of the obligee must be present at the time of
spending or consuming.

Distinguished from moral obligations C. Note that the majority age today is 18. And “fungible” here
really means “consumable.’’

Natural Obligation Moral Obligation ART 1428. WINNER IN AN ACTION ENFORCING OBLIGATION

(a) There is a juridical tie
between the parties which is not
enforceable by court action
(b) Voluntary fulfillment by the
obligor produces legal effects
which the courts will recognize
and protect
REASONS FOR REGULATION OF NATURAL OBLIGATIONS
(a) There is no juridical tie
whatsoever
(b) Voluntary fulfillment does
not produce any legal effects
WINNER IN AN ACTION TO ENFORCE AN 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.
Example:
A owes B P500,000. B brings a suit against A, but B loses the case for
insufficient evidence. No appeal is made from the decision, and the
judgment becomes final. Later, A paid B voluntarily the debt. May A
now recover from B what he has paid? No.

In natural obligations, there is a moral but not a legal duty to perform
or pay but the person thus paying feels that in good conscience he
should comply with his obligation based on moral grounds.
Shold the law permit him to change his mind?
No, for it is more just that the law should compel him to abide by his
honor and conscience.
ART 1424. EXTINCTIVE PRESCRIPTION
EXTINCTIVE PRESCRIPTION
When a right to sue upon a civil obligation has lapsed by extinctive
prescription, the obligor who voluntarily performs the contract cannot
recover what he has delivered or the value of the service he has
rendered.
Example:
A’s debt to C has been extinguished by prescription. Yet A, knowing of
the prescription, voluntarily paid the prescribed debt. A cannot now
recover what he has paid C. Prescribed debt may indeed give rise to
new obligation.
ART 1425. PAYMENT BY A THIRD PERSON
PAYMENT BY THIRD PERSONS
When without the knowledge or against the will of the debtor, a third
person pays a debt which the obligor is not legally bound to pay
because the action thereon has prescribed, but the debtor later
voluntarily reimburses the third person, the obligor cannot recover
what he has paid.
Example:
A owes B P700,000. But the debt soon prescribes. Later C, against the
consent of A, pays B the P700,000. A here does not have to reimburse
C because he (A) has not at all been benefited by the transaction.
However, A later voluntarily reimburses C. May A now recover what he
has given to C? NO more. This is the express provision of the law.
ART 1426. PAYMENT BY MINORS AND ANNULMENT
PAYMENT BY MINORS AFTER ANNULMENT
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 that he has not
been benefited thereby, there is no right to demand the thing or price
thus returned.
ART 1427. PAYMENT BY MINORS – BEFORE ANNULMENT
PAYMENT BY MINORS BEFORE ANNULMENT
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
ART 1429. PAYMENT BEYOND THE VALUE OF ESTATE
PAYMENT BEYOND THE VALUE OF 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.
Example:
A dies, leaving an estate of P10,000,000 and debts amounting to
P15,000,000. His heir here is not expected to make up for the
difference, BUT if he does so voluntarily, then he cannot recover said
difference. After all, one does have a moral duty to see to it that the
dead relative’s or friend’s obligations in life are all carried out. Here,
the heir is not really required by law to shoulder the defi cit, but since
he does so voluntarily, he cannot now back out.
ART 1430. PAYMENT OF LEGACIES DESPITE VOID WILL
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.
Example:
In a will defective for lack of the needed legal formalities, X, a friend,
was given a legacy. The legacy is void, and the whole estate should go
to the intestate heirs. If however, the intestate heirs give X the legacy,
they cannot get it back now, provided that the debts of the deceased
have been settled.
ART 1423.
TITLE IV. CONCEPT
ESTOPPEL
ART 1431. CONCEPT
ESTOPPEL
Condition by virtue of which an admission is rendered conclusive upon
the person making it and cannot be denied or disproved as against the
person relyin thereon.
Reason: Afford solution to many questions which are not foreseen in
our legislation.
TWO KINDS OF ESTOPPEL
1. Estoppel in pais (equitable estoppel)
2. Estoppel by deed (technical estoppel)
TN: Classification is too broad. Hence, Supreme Court classified
estoppels into three and added estoppel by laches.
ESTOPPEL IN PAIS (EQUITABLE ESTOPPEL)
It arises when one, by his acts, representations or by his silence when
he ought to speak out, intentionally or through culpable negligence,

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OBLIGATIONS & CONTRACTS REVIEWER l FINALS l Tanya de la Cruz Ibanez l JD1 408
induces another to believe certain facts to exist, and such other
rightfully relies and acts on such belief, so that he will be prejudiced if
the former is permitted to deny the existence of such facts.
Examples:
If a seller accepts a check in payment of the purchase price, he cannot
afterwards allege that the check is not legal tender. He is bound by his
own act.
A. Estoppel by silence or inaction – when a party who has
a right and opportunity to speak, as well as the duty to do
so under the circumstances, does not do so to the prejudice
of the other person.
TN: Just because a person is silent does not necessarily
mean that he will be in estoppel. There should have been a
duty or obligation to speak.
B. Estoppel by acceptance of benefits – when a party
accepted benefits derived from a certain transaction, he can
no longer be allowed to deny the existence of the same.
ESTOPPEL BY DEED OR BY RECORD (TECHNICAL ESTOPPEL)
A. Estoppel by deed –By virtue of which, a party to a deed is
precluded from asserting as against the other party any right
or title in derogation of the deed.
Example: If a shipper has his goods valued at only P200, he
cannot later on recover damages for its value more than
what he has declared in the bill of lading, even if the value
of the goods be worth much more, for he is in estoppel.
B. Estoppel by record – By virtue of which, a party is
precluded from denying the truth of matters set forth in a
record whether judicial or legislative.
C. Estoppel by judgment – By virtue of which the party to a
case is precluded fromm denying the facts adjudicated by a
court of competent jurisdiction.
Estoppel by judgment Res judicata
Bars the parties from raising Makes a judgment
any question that might have conclusive between the
been put in issue and decided same parties as to the
in the previous litigation matter directly adjudged.
ESTOPPEL BY LACHES
When a party, knowing his rights as against another, takes no step or
delays in eforcing them.
Laches – failure or neglect for an unreasonable and unexplained length
of time, to do that which, should have been done earlier.
Presumption: When a party does not assert a right within a reasonable
time, there arises a presumption that he has abandoned it or declined
to assert it.
Basis: Doctrine of laches or stale demands is based upon grounds of
public policy which requires for the peace of society, the
discouragement of stale claims.
Elements
1. Conduct on the part of the defendant giving rise to the
complaint
2. Delay in asserting the complainant’s rights, despite knowledge
of the defendant’s conduct
3. Lack of knowledge or notice on defendant’s part that the
complainant would assert the right on which he bases his suit
4. Injury or prejudice to the defendant in the event relief is
accorded to the complainant, or the suit is not held to be
barred
Application
Usually renders the doctrine of imprescribtibility useless.
Rodriguez v. Rodriguez
Mother (plaintiff) sold 2 fishpods to her daughter and the latter in turn
sold the same back to her mother and stepfather to circumvent the
law on donation between spouses. The plaintiff’s act to revindicate the
properties 28 years later – doctrine of laches is applicable.
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Miguel v. Catalino
Facts:
Father of plaintiff is a non-Christian who sold a land to the father of
the defendant in 1928 without executive approval. Despite the
invalidity of the sale, former allowed the latter to enjoy the land
without protest from 1928 to 1943, when the former died. Plaintiff did
not take any step to revindicate the property from 1943 to 1962.
Issue: Is the suit barred by laches?
Held: YES. Despite the fact that there is no prescription with regards to
void contracts, the passivity and inaction of plaintiff for more than 34
years justifies the defendant in setting up the equitable defense of
laches. Hence, the action is barred.
Heirs of Lacamen v. Heirs of Laruan
Facts:
Laruan executed a deed of sale over a land in favor of Lacamen, duly
notarized. Immediately after the sale, Laruan delivered the COT to
Lacamen. His possession was continuous, peaceful and open. His heirs
also continued possession of the land after his death and they too paid
taxes.
TN: Lacamen and Laruan are illiterate Igorots belonging to the non-
Christian tribes – contract should have the approval of the Director of
Bureau of Non-Christian Tribes, otherwise, null and void.
Heirs of Laruan were able to get a new owner’s copy of the COT by a
petition in court alleging that their copy has been lost. Hence, they
caused the transfer of the tittle on the lot in their names. This was
contended by the heirs of Lacamen. However, heirs of Laruan claimed
that their father never sold the property and that the deed of sale was
not thumbmarked by him.
Issue: Can heirs of Laruan recover the property?
Held:
The heirs lost their right to recover back the property by reason of
laches. In this case, Lacamen and his heirs possessed the property for
nearly 30 years which although did not have the approval of executive
authority, the vendor never questioned during his lifetime. Laruan’s
laches extend to his heirs since they stand in privity with him. Even
granting that no prescription lies, their inaction for almost 30 years
commands the imposition of laches.
Laches distinguished from prescription
Laches Prescription
(a) Concerned with effect of delay (a) Concerned with fact of delay
(b) A question of inequity of (b) Question of matter of time
permitting a claim to be enforced
(c) Not statutory (c) Statutory
(d) Applies in equity (d) Applies at law
(e) Not based on fixed time (e) Based on fixed time
ART 1434. SALE BY A NON-OWNER
SALE BY A NON-OWNER
When a person who is not the 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.
Example:
Tanya sold a parcel of land to Feds in 1941, who in turn, without
having fully paid the price, sold the same land to Kadz in 1943. The
land was registered land, and when Feds sold it to Kadz, the land was
still registered in Tanya’s name. It was only in Feb 1944 that the sale
in favor of Feds was recorded. In May 1944, Feds’ title was cancelled
and the transfer certificate of title was issued to Kadz. Did Kadz really
acquire title over the property?
Held: Yes, because although Feds was not yet the registered owner at
the time he sold it to Kadz, the fact remains that he (Feds)
subsequently acquired valid title in his own name. This title was later
transferred to Kadz.
OBLIGATIONS & CONTRACTS REVIEWER l FINALS l Tanya de la Cruz Ibanez l JD1 408
Bucton v. Gabar
Facts:
Villarin sold in 1946 to Gabar a parcel of land on the installment plan.
Gabar in turn had an oral agreement with Bucton that the latter would
pay half of the price, and thus own half of the land. Bucton paid her
share to Gabar, and was given in 1946 receipts acknowledging the
payment.
In 1947, Villarin executed a formal deed of sale in favor of Gabar, who
immediately built a house on half of the lot. Bucton took possession of
the other half, and built improvements thereon.
When Bucton asked for a separate title, she was refused, and so, in
1968, she filed a complaint to compel Gabar to execute a formal deed
of sale in her favor. The Court of Appeals ruled that the action had
already prescribed because this was an action to enforce a written
contract, and should have been brought within 10 years from 1946,
under Art. 1144 of the Civil Code.
Issue: Has the action really prescribed?
Held:
No, the action has not really prescribed. The error of the Court of
Appeals is that it considered the execution of the receipt (in 1946) as
the basis of the action. The real basis of the action is Bucton’s
ownership (and possession of the property). No enforcement of the
contract of sale is needed, because the property has already been
delivered to Bucton, and ownership thereof has already been
transferred by operation of law under Art. 1434, referring to property
sold by a person (Gabar) who subsequently becomes the owner
thereof. The action here therefore is one to quiet title, and as Bucton
is in possession, the action is imprescriptible.
ART 1435. SALE IN REPRESENTATION OF ANOTHER
SALE IN REPRESENTATION OF ANOTHER
If a person in representation of another sells or alienates a thing, the
former cannot subsequently set up his own title as against the buyer
or grantee.
TN: This is estoppel created in a representative capacity. In this kind
of estoppel, prejudice is also not essential.
Example
Amalia, in representation of Romeo, sells to Juanito a car. Amalia
cannot afterwards allege that she was really the owner of the car, and
that, therefore, the sale is not valid.
ART 1436. ESTOPPEL ON THE PART OF LESSEE OR BAILEE
ESTOPPEL ON THE PARTY OF LESSEE OR BAILEE
A lessee or a bailee is estopped from asserting title to the thing leased
or received, as against the lessor or bailor.
ARTART 1437.
1423. ESTOPPEL CONCERNING IMMOVABLE PROPERTY
CONCEPT
ESTOPPEL CONCERNING IMMOVABLE PROPERTY
When in a contract between third persons concerning immovable
property, one of them is misled by a person with respect to the
ownership or real right over the real estate, the latter is precluded
from asserting his legal title or interest therein, provided all these
requisites are present:
1. There must be fraudulent representation or wrongful
concealment of facts known to the party estopped
2. The party precluded must intend that the other should act
upon the facts as misrepresented
3. The party misled must have been unaware of the true facts
4. The party defrauded must have acted in accordance with the
misrepresentation.
ART 1438. ALLOWING TO ASSUME APPARENT PARTNERSHIP
APPARENT OWNERSHIP
One who has allowed another to assume apparent ownership of
personal property for the purpose of making any transfer of it, cannot,
if he received the sum for which a pledge has been constituted, 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.
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Example:
A has a diamond ring. He allowed B to assume apparent ownership
over the ring so that B might sell the same. Instead, B pledged the
ring with C to obtain a loan. The money lent was later handed over to
A. Later A attacks the validity of the pledge claiming that under the
law, the pledgee must be the owner thereof, and since B in this case
acted without authority, the pledge is invalid. Is A allowed
to do this?
Answer: No, A is not allowed to do this. His receipt of the sum for
which the pledge was made is an implied ratification of the pledge and
A is, therefore, in estoppel.
ART 1439. PERSONS BOUND BY ESTOPPEL
PERSONS BOUND BY ESTOPPEL
Estoppel is effective only as between the parties thereto or their
successors in interest.
TITLE V. TRUSTS
ART 1440. CONCEPT OF TRUSTS
TRUST
The legal relationship between one person having an equitable
ownership in a certain property and another person owning the legal
title to such property.
Three persons involved in the creation of a trust
1. Trustor – person who establishes the trust
2. Trustee – one in whom confidence is reposed as regards the
property for the benefit of another person
3. Beneficiary – person for whose benefit the trust has been
created
Trust res
Object of the trust. Consists of property, actually in existence, in which
the trustor has a transferable interest or title, although as a rule, it
consists of any kind of transferable property, either realty or
personality, including undivided, future, or contingent interest therein.
ART 1441. KINDS OF TRUSTS
KINDS OF TRUST
Trusts may either be express or implied.
Express trust
Created by the intention of the trustor or the parties
Implied trust
Created by operation of law.
A. Resulting trust – raised by implication of law and presumed
always to have been contemplated by the parties, the intention
as to which is to be found in the nature of their transaction,
but not expressed in the deed or instrument of conveyace.
TN: Here, there is an intent to create a trust but it is not
effective as an express trust.
Example: Where a person who inherits property registers the
same in another’s name, whom he does not intend to have any
beneficial interest therein for he wants this for himself.
B. Constructive trust – not created by any words, either expressly
or impliedly evincing a direct intention to create a trust, but by
the construction of equity in order to satisfy the demands of
justice. It does not arise by agreement or intention but by
operation of law.
TN: Here, no intention to create a trust is present, but a trust
is nevertheless created by law to prevent unjust enrichment or
oppression.
Example: If a person acquires property by mistake, he is
considered by the law as a trustee while he holds the same.
OBLIGATIONS & CONTRACTS REVIEWER l FINALS l Tanya de la Cruz Ibanez l JD1 408

Express trust Implied trust ART 1446. NECESSITY OF ACCEPTANCE BY THE BENEFICIARY

Created by the intention of the
trustor or of the parties
Created by the direct and positive
acts of the parties, by some
writing or deed or by words
evidencing the intention to create
a trust
Comes into being by operation of
law
Those without being expressed,
are deducible from the nature of
the transaction by operation of
law as matters of equity,
independently of the particular
intention of the parties
NECESSITY OF ACCEPTANCE BY THE BENEFICIARY
Acceptance by the beneficiary is necessary. Nevertheless, if the trust
imposes no onerous condition upon the beneficiary, his acceptance
shall be presumed, if there is no proof to the contrary.
For the trust to be effect, the beneficiary must accept:
A. Expressly
B. Impliedly
C. Presumably

The intetion to establish a trust is When acceptance is presumed

The intention to establish a trust
to be taken from
is clear
circumstances or other matters
indicative of such intent
Can’t be proved by parol evidence Can be proved by parol evidence
If the granting of benefit is purely gratuitous.
the
XPN: If there is proof that he really did not accept. (TN: Acceptance by
the beneficiary is not subject to the rules for the formalities of
donation)

Action to enforce cannot be How express trusts are ended

barred by laches or by extinctive Action to enforce may be barred A. Mutual agreement by all the parties
prescription (so long as there is no by laches or by extinctive B. Expiration of the term
express repudiation of the trust by the prescription C. Fulfillment of the resolutory condition
trustee and made known to the beneficiary) D. Rescission or annulment
E. Loss of subject matter of the trust
F. Order of the court
ART 1442. SUPPLETORY EFFECT G. Merger
H. Accomplishment of the purpose of the trust
SUPPLETORY EFFECT OF THE GENERAL LAW OF TRUSTS
The principles of the general law of trusts, insofar as they are not in CHAPTER 3. IMPLIED TRUSTS
conflict with this Code, the Code of Commerce, the Rules of Court and
special laws are hereby adopted.
ART 1447. ENUMERATION OF INSTANCES
CHAPTER 2. EXPRESS TRUSTS
ENUMERATION OF INSTANCES
The enumeration of the following cases of implied trust does not
ART 1443. FORMALITIES RE EXPRESS TRUSTS exclusde others established by the general law of trust, but the
limitation laid down in article 1442 shall be applicable.
FORMALITIES
No express trusts concerning an immovable or any interest therein Enumeration is not exclusive
may be proved by parol (oral) evidence. But trusts are recognized only if not in conflict with:
A. The Civil Code
Therefore B. Code of Commerce
C. Rules of Court
A. The requirement that the express trust be written is only for D. Special Laws
enforceability and not for validity between the parties.
ART 1448. PURCHASE OF PROPERTY
B. By implication, for a trust over personal property, an oral
agreement is valid and enforceable between the parties. PROPERTY WHERE TITLE IS NOT GIVEN TO PAYER
There is an implied trust when property is sold, and the legal estate is
C. Regarding third persons, the trust me be in a public granted to one party but the price is paid by another for the purpose
instrument and registered in the Registry of Property (if it of having the benefi cial interest of the property. The former is the
concerns real property) trustee, while the latter is the benefi ciary. However, if the person to
whom the title is conveyed is a child, legitimate or illegitimate, of the
Distinguished from the form of an implied trust one paying the price of the sale, no trust is implied by law, it being
An implied trust, whether real or personal property is involved, may be disputably presumed that there is a gift in favor of the child.
proved by oral evidence.
This is a resulting trust
ART 1444. HOW AN EXPRESS TRUST IS CREATED Reason: One who pays for something usually does so for his own
benefit.
HOW AN EXPRESS TRUST IS CREATED
No particular words are required for the creation of an express trust, it Example:
being sufficient that a trust is clearly intended. A buys a piece of land from B. A pays the price so that he may have
the beneficial interest in the land, but the legal title is given to C. The
A. By conveyance to the trustee by an act inter vivos/mortis causa trustee is C and A is the beneficiary.
B. By admission of the trustee that he holds the property, only as
trustee Suppose C was the legitimate or illegitimate child of A, is an implied
trust still presumed in this case?
ART 1445. EFFECT IF TRUSTEE DECLINES
NO. Here, no trust is implied by law, it being disputably presumed that
EFFECT IF TRUSTEE DECLINES there is a gift in favor of the child.
No trust shall fail because the trustee appointed declines the
designation, unless the contrary should appear in the instrument ART 1449. WHEN DONEE DOES NOT GET FULL OWNERSHIP
constituting the truth.
WHEN DONEE DOES NOT GET FULL OWNERSHIP OF BENEFIT
Effect – The trust ordinarily continues even if the trustee declines. There is also an implied trust when a donation is made to a person but
Reason: The court will appoint a new trustee, unless otherwise it appears that although the legal estate is transmitted to the donee,
provided for in the trust instrument. he nevertheless is either to have no benefi cial interest or only a part
thereof.
This is a resulting trust
Where the donee becomes the trustee of the real beneficiary.

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OBLIGATIONS & CONTRACTS REVIEWER l FINALS l Tanya de la Cruz Ibanez l JD1 408
Example:
A donated land to B. But it was agreed that B is supposed to have only
1/3 of the products of said land. There is a trust here, with B as the
trustee.
ART 1450. PROPERTY AS SECURITY
CONVEYANCE OF PROPERTY AS SECURITY
If the 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 it
is paid. The latter may redeem the property and compel a conveyance
thereof to him.
This is a constructive trust
The reason of the law being to prevent unjust enrichment
Example:
Jose wants to buy a piece of land but he has no money. So Jose asks
Carlos to pay for the land. The land is then given in Carlos’ name. This
is supposed to be Carlos’ security until the debt of Jose is paid. Here
an implied trust has been created. Carlos is only a trustee, the
beneficiary being Jose. When Jose has the money, he may redeem the
property from Carlos and compel a conveyance thereof to him. The
trust here is implied, hence it exists even if in the title taken by Carlos,
there is no mention of the interest of Jose or of his right to redeem.
Trust receipt
A security transaction intended to aid in financing importers and retail
dealers who do not have suffi cient funds or resources to fi nance 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.
ART 1451. INHERITED LAND’S TITLE NOT IN OWNER’S NAME
TITLE TO INHERITED LAND NOT IN OWNER’S NAME
When 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.
This is a resulting trust
For a trust is intended
Example:
A inherited a piece of land from his father, but A caused the legal title
to be put in the name of X, a brother. Here a trust is impliedly
established, with X as trustee and A as beneficiary.
ART 1452. PROPERTY IN THE NAME OF ONLY ONE CO-BUYER
PROPERTY IN THE NAME OF ONE CO-BUYER
If two or more persons agree to purchase a 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.
This is a resulting trust
Example: Some Chinese merchants bought a lot with a house on it so
that the same could be used as their clubhouse. The property was
registered under the name of only one of them. The registered owner
leased the property, collected rents and when asked for an accounting,
refused to so account on the ground that he was the owner thereof.
Held: He is a mere trustee and is therefore obliged to render proper
accounting. The beneficiaries are all the members of the club.
ART 1453. INTENT TO HOLD PROPERTY FOR SOMEONE ELSE
INTENT TO HOLD PROPERTY FOR SOMEONE ELSE
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.
This is a resulting trust
Example: Feds bought from Tanya a parel of land and it was conveyed
to him upon his declaration that he would hold it in behalf of Kads.
Here, Feds is merely the trustee while Kads is the beneficiary.
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ART 1454. ABSOLUTE CONVEYANCE FOR SECURITY
ABSOLUTE CONVEYANCE FOR SECURITY
If an 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.
This is a constructive trust
The purpose of the law being to prevent unjust enrichment to the
prejudice of the true owner
Example:
Marlene was indebted to Susan. For the sole purpose of guaranteeing
her debt, Marlene sold her parcel of land to Susan. Here, a trust has
been created. If Marlene pays her debt when it becomes due, Marlene
may demand the resale of the property to her.
ART 1455. USE OF TRUST FUNDS
USE OF TRUST FUNDS
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.
Applies to:
A. Any trustee
B. Guardian
C. Other person holding a fiduciary relationship (ex. Agent)
Reasons for the rule:
A. Fiduciary or trust relations
B. Estoppel
C. To remove the temptation to place self-interest above all
other things, and at the expense of one’s integrity and duty
to another
This is a constructive trust
Example:
An agent using his principal’s money purchases land in his own name.
He also registers it under his name. Here, he will be considered only a
trustee, and the principal is the beneficiary. The principal can bring an
action for conveyance of the property to himself, so long as the rights
of innocent third persons are not adversely affected.
Another example:
A was a confidential employee of B. B intended to purchase an
hacienda and he told A about it and of his option to buy the same.
Thinking that the purchase seems good, A, in his wife’s name, bought
the hacienda, to the prejudice of B. Can B sue A for damages? YES, in
view of the breach of trust.
ART 1456. PROPERTY ACQUIRED THRU MISTAKE OR FRAUD
PROPERTY ACQUIRED THRU MISTAKE OR FRAUD
If 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.
This is a constructive trust
Example: Bella was given a car by Mina although it should have been
given to Erlinda. Bella is considered as merely the trustee of the car for
the benefit of Erlina.
Another example:
After the death of the decedent, some of the co-heirs entered into an
extrajudicial settlement or partition of the hereditary estate with
preterition of the other coheirs, and subsequently, secured original or
transfer certificates of title in their names. In such a case, such co-
heirs are considered trustees of an implied or constructive trust for the
benefit of the other co-heirs who were omitted in the settlement or
partition.
Mistake should be by a third person
And not by a party to the contract. Otherwise, no trust is created.
OBLIGATIONS & CONTRACTS REVIEWER l FINALS l Tanya de la Cruz Ibanez l JD1 408
PRESCRIBTIBILITY OF ACTIONS TO ENFORCE TRUST
Whether or not an action for reconveyance of real property based
upon an implied trust resulting from fraud may be barred by the
statute of limitations.
The action cannot be barred.
Example:
A brother, as administrator of the estate of his parents, took
advantage of the absence of his sister and registered the properties
adjudicated to his sister in his own name. 29 years later, his sister filed
an action to recover the property. The defense of prescription set up
by the brother is untenable. Public policy demands that a person guilty
of fraud or at least of breach of trust should not be allowed to use a
Torrens Title as a shielf against the consequences of his wrongdoing.
Gerona v. De Guzman
An action for reconveyance of real property based upon an implied
trust resulting from fraud, may not be barred by the statute of
limitations, and the action may be filed from the discovery of the fraud
– discovery deemed to have taken place when new COTs were issued
exclusively in the names of the defendants therein.
Period of prescription
What is the period of prescription for bringing an action for
reconveyance based on the constructive trust in 1456? IT DEPENDS.
A. 4 years from discovery of the fraud – If action involves
annulment of voidable contract as basis for the fraudulent
registration
B. 10 years from discovery of fraud – if action does not involve
the annulment of a contract but there was fraud in
registration
C. Imprescribtible
 If action involves declration of the nullity or
inexistence of a void contract as basis for the
fraudulent registration
 If the legitimate owner of the property which was
fraudulently registered in the name of another had
always been in possession thereof (in reality, only an
action to quiet title)
Laches may bar action
Laches may bar an action to enforce a constructive trust. Repudiation
is not required, unless there is a concealment of the facts giving rise to
the trust.
ACQUISITION OF PROPERTY THRU PRESCRIPTION
GR: Trustee cannot acquire property through prescription.
XPN: Express trust
Requisites before absolute title can be vested to the trustee:
A. Trustee must expressly repudiate the right of the beneficiary
B. Such repudiation must be brought to the knowledge of the
beneficiary
C. Evidence thereon must be clear and conclusive
D. Expiration of the period prescribed by law
XPN TO XPN: Implied trusts
Express repudiation of the trust by the trustee is not required.
A. Trustee must set up a title which is adverse to that of the
beneficiary
XPN TO XPN TO XPN: Implied constructive trust
Fabian v. Fabian
Facts:
Land in question was acquired by Pablo Fabian in 1909. He died in
1928 and was survived by 4 children. In 1937, through a series of
fraudulent acts, one of the children and a niece of Pablo secured an
original COT in their name. In 1945, they subdivided the lot into 2
equal parts, as a result of which, two new transfer COT were issued in
their names. In 1960, other heirs brought an action against them for
reconveyance on the ground of the existence of an implied or
constructive trust. Defendants invoked the defense of laches,
extinctive prescription and acquisition prescription.
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Held:
As to the defense of laches, plaintiffs are wrong to believe that a
constructive trust may not be barred by lapse of time. The rule is,
laches constitutes a bar to actions to enforce the trust and repudiation
is not required.
As to the defense of extinctive prescription, an action for reconveyance
based upon a constructive trust resulting from fraud may be barred by
the statute of limitations. Plaintiffs had laches when they instituted
their action only in 1960 and their right to enforce the constructive
trust had already prescribed.
Consequently, acquisitive prescription has operated to vest absolute
title in the defendants.
Bueno et al v. Reyes et al
Facts:
The lot subject of litigation originally belonged to Jorge Bueno. When
he died, property was passed by intestate succession to his 3 children,
Brigida, Eugenia and Rufino. Subsequently, Brigida and Eugenia died.
In 1936, by agreement among the heirs, Francisco Reyes, husband of
Eugenia was tasked to file the answer in the cadastal proceedings and
obtain the title to the property for and in behalf of the heirs of Bueno.
Reyes filed the answer, claiming the lot as property belonging to him
and his two brothers. Original certificate of title was issued under their
names in 1939.
In 1962, heirs of Bueno who had always been in possession of the
property, discovered the fraud. Hence, action for reconveyance.
Defendants interposed the defense of prescription.
Issue: Has the action prescribed?
Held:
Action to enforce prescribes in 10 years. Prescription starts to run the
moment fraud is discovered. However, in this case, defendants cannot
invoke the constructive notice rule on the basis of their own breach of
the authority thus given to file the cadastral answer. Also, it were
plaintiffs who possessed the property continuously up to 1962. Hence,
a full-blown litigation is warranted to afford both parties the
opportunity to lay their respective claims and defenses before the
court.
De la Cerna et al v. De la Cerna et al
Facts:
Narciso de la Cerna died in 1945. His widow and their two children
then executed a deed of extrajudicial partition which they registered
on Sep 14, 1946, stating that they are the owners of the property and
that ½ is the share of the widow and the other half is the share of the
children. On the basis of such deed, a transfer of COT was issued to
them. 20 years later, children of Narciso by a prior marriage brought
an action against defendants. Has their right of action prescribed?
Held:
Yes, action has already prescribed. It is immaterial to bother whether
the action is founded on fraud (prescribes after 4 years) or one based
on constructive trust (prescribes after 10 years), since the action was
filed 20 years after the registration of the property. It is from the date
of the issuance of such title that the effective assertion of adverse title
for purpose of the statute of limitations is counted.
Constructive trust
A constructive trust is a form of implied trust created by equity to meet
the demands of justice. It arises contrary to intention against one who,
by fraud, duress or mistake or breach of fiduciary duty or wrongful
disposition of another’s property, obtains or holds the legal right to
property which he is not entitled to under the law.
ART 1457. ORAL EVIDENCE
ORAL EVIDENCE
An implied trust may be proved by oral evidence.
TN: Applies whether property is real of personal.