TITLE II – CONTRACTS injured party to institute

an action against the

institute a civil action
against the other party
other party for for legal separation
CHAPTER 1: damages or a criminal action
for adultery or
GENERAL PROVISIONS concubinage

IN GENERAL 4. Perfected promise

- Merely tends to insure and pave the way for the
Article 1305. A contract is a meeting of minds between celebration of a future contract
two persons whereby one binds himself, with respect 5. Imperfect promise (politacion)
to the other, to give something or to render some - Mere unaccepted offer
service. 6. Pact
- Incidental part of a contract which can be
CONCEPT separated from the principal agreement
- May be defined as a JURIDICAL CONVENTION 7. Stipulation
manifested in legal form, by virtue of which one or - Essential and dispositive part which cannot be
more persons bind themselves in favor of another or separated from such principal agreement
others, or reciprocally, to the fulfillment of a prestation
to give, to do, or not to do BASIC DUTIES OF PERSONS ENTERING INTO
CONTRACTS
DISTINGUISHED FROM OTHER TERMS - All men are presumed to be SANE and NORMAL and
1. Obligation vs. Contract subject to be moved by substantially the same
- While a contract is one of the sources of motives
obligations, an obligation is the LEGAL TIE or ▪ When of age and sane, they must take care of
RELATIONS itself that EXISTS AFTER a contract themselves
has been entered into ▪ Men must depend upon themselves – their own
- There can be no contract, if there is no obligation. abilities, talents, training, senses acumen,
But an obligation may exist without a contract judgement
- The law furnishes protection to BOTH ALIKE
2. Other juridical conventions including marriage, ▪ One man cannot complain because another is
adoption and succession more able, or better trained, or has better sense
Contract Others or judgment than he has
Principal Agreement Law - There must be a violation of law, the commission of
source of what the law knows as an actionable wrong, before
obligation the courts are authorized to law hold of the situation
Nature of Concrete, limited More or less and remedy it (Valles vs. Villa, 35 Phil. 769)
rights and and transitory elastic, absolute
obligations and permanent DUTY OF THE COURTS IN INTERPRETING
CONTRACTS
3. Ordinary contract vs. Contract of marriage Confined to the interpretation of the one which they have
Contract of made for themselves without regard to its wisdom or folly
Ordinary contract as the court cannot supply material stipulations or
marriage
Parties may be two or Parties must be one read into the contract words which it does not contain
more persons of the man and one woman (Cuizon vs. CA, 260 SCRA 645)
same or different
sexes ELEMENTS OF A CONTRACTS (NAE)
Nature, consequences, Governed by law 1. Natural
and incidents of the - Derived from the nature of the contract and
contract are governed ordinarily accompany the same
primarily by the - Presumed by the law, but can be excluded by the
agreement of the contracting parties if they so desire
parties - E.g., warranty against eviction in a contract of
Once the contract is Once a marriage is sale
executed, the result is a celebrated, the result 2. Accidental
contract is a status - Exist only when the parties expressly provide for
Can be terminated or Cannot them for the purpose of limiting or modifying the
dissolved by the mere normal effects of the contract
agreement of the - E.g., conditions, terms and modes
parties 3. Essential
In case of breach, the Usual remedy is for - Without which there can be no contract
usual remedy is for the the injured party to
 A. Common (comunes) – those which are present in
all contracts (C.O.C)
B. Special (especiales) – present in certain
contracts (e.g., delivery in real contract)
C. Extraordinary (especialisimos) – those which are
peculiar to a specific contract (e.g., price in a
contract of sale)
Parties to a contract
GR: Existence of two parties is also another essential
element which is common to all contracts
- A person cannot enter into a contract with himself
XPN: AUTOCONTRACTS – there is only one party
involved and said party merely acts I the name and for the
account of 2 distinct contracting parties
1. When a person, in his capacity as representative
of another, contracts with himself; or
2. When as a representative of 2 different persons,
he brings about a contract between his principals
by contracting with himself, unless there is a
conflict of interests or when the law expressly
prohibits it in specific cases
STAGES IN THE MAKING OF CONTRACT (CPC)
1. Conception or generation – parties begin their initial
negotiation and bargaining for the formation of the
contract ending at the moment of agreement of the
parties
2. Perfection or birth – when the parties had a meeting
of minds as to the object, cause or consideration, and
other terms and conditions
3. Consummation or fulfillment – consists in their
performance or fulfillment by the parties of their
obligations under the term of the perfected contract
CHARACTERISTICS OF A CONTRACT
The following are the characteristics of a contract
(AMOR):
1. Autonomy (NCC, Art 1306)
2. Mutuality (NCC, Art 1308)
3. Obligatoriness and consensuality (NCC, Art
1315)
4. Relativity (NCC, Art 1311)
PRINCIPLE OF RELATIVITY OR PRINCIPLE OF
LIMITED EFFECTIVITY
GR: Contracts take effect only between the parties or their
assigns and heirs
Res inter alios acta aliis neque nocit prodest (a thing
done between others does not harm or benefit others) – a
contract can only obligate the parties who entered into it,
or their successors who assumed their personalities, and
that, concomitantly, a contract can neither favor nor
prejudice 3rd persons
Note: With respect to their heir, he shall not be liable
beyond the value of the property he received from the
decedent (NCC, Art 1311)
XPN:
1. Rights and obligations that are not transmissible
by their nature, or by the stipulation, or by
provisions of law (NCC, Art 1311)
Note: Determine whether a contract terminates
upon the death of one of the parties
2. Stipulation pour autrui (stipulation in favor of a 3rd
person) – benefits clearly and deliberately
conferred by parties to a contract upon 3rd
persons and which stipulation is merely part of a
contract entered into by parties, neither of whom
acted as agents of the 3rd person and which favor
can be demanded by the 3rd person if duly
accepted by him before it could be revoked
Requisites of stipulation pour autrui:
a. In favor of a 3rd person;
b. Just a part and not the whole obligations of
the contract;
c. Contracting parties must have clearly and
deliberately conferred a favor upon 3rd
person;
d. Favor or benefit conferred is not just an
incidental benefit or interest;
e. 3rd person must have communicated his
acceptance; and
f. Neither of the contracting parties bears the
legal representation of the 3rd person
Note: The fairest test to determine whether the
interest of 3rd person in a contract is a stipulation
pour autrui or merely an incidental interest, is to
rely upon the intention of the parties as disclosed
by their contract
3. 3rd persons coming into possession of the object
of the contract creating real rights subject to the
provisions of Mortgage Law and the Land
Registration Law
4. Contracts entered into in fraud of creditors
5. When a 3rd person induces a party to violate the
contract (interference with contractual relations)
Requisites:
a. Existence of a valid contract
b. 3rd person has knowledge o such contract
c. 3rd person interferes without legal justification
or excuse
Liability: Solidary between the 3rd person and the
breaching party based on quasi-delict
Note: A 3rd person can be held liable for tort
interference even if he does not know the identity
of one of the contracting parties. The interference
with lawful contracts by strangers gives rise to an
action for damages in favor of the injured person.
OBLIGATORY FORCE OF A CONTRACT or leaving it” completely depriving such party of
- Obligatory, in whatever form they may have been the opportunity to bargain on equal footing
entered into, provided all the essential requisites for
validity are present Interpretation of contract of adhesion
- Parties are bound not only to the fulfillment of what - Courts are expected to observe greater vigilance in
has been expressly stipulated, but also to all of the order to shield the unwary or weaker party from
consequences thereof deceptive schemes contained in ready-made
- Has the force of law between the contracting parties covenants
and should be complied with in good faith ▪ In case of doubt, which will cause a great
- Requisites: Contract is imbalance of rights against one of the parties, the
▪ Perfected contract shall be construed against the party who
▪ Valid drafted the same
▪ enforceable
Unilateral increase of interest rate
MUTUALITY OF CONTRACT - The license to increase the interest rate at will during
- Must bind both contracting parties and its validity or the term of the loan would have been null and void for
compliance cannot be left to the will of one of them being violative of the principle of mutuality essential in
▪ A party alleging defects in the contract so that it contracts
could be set aside must prove conclusively the
existence of defects AUTONOMY OF CONTRACTS/ LIBERTY OF
▪ Contract which appears to be heavily weighed in CONTRACTS
favor of one of the parties so as to lead to - Freedom of party to contract and to stipulate provided
unconscionable result is VOID the stipulations are not contrary to law, morals, good
▪ A contract containing conditions whose efficacy customs, public order or public policy
or fulfillment is dependent solely on the - Courts cannot make for the parties better or more
uncontrolled will of one of the parties is VOID equitable agreements than they themselves have
- Binding effect is premised on 2 settled principles: been satisfied to make, or rewrite contracts because
▪ Any obligation arising from contract has the force they operate harshly or inequitably as to one of the
of law between the parties; and parties, or alter them for the benefit of one party and
▪ There must be mutuality between the parties to the detriment of the other, or by construction,
based on their essential equality relieve one of the parties from terms which he
- Termination of the contract does not necessarily voluntarily consented to, or impose on him those
require mutuality, and it can even be validly left to one which he did not
party by agreement or under a resolutory facultative
condition BREACH OF CONTRACTS
- Determination of the performance may be left to a 3rd - Failure, without legal reason , to comply with the
person terms of the contract
▪ Although not binding until it has been made - Failure, without legal excuse, to perform any promise
known to both contracting parties which forms the whole or part of the contract
▪ Not obligatory if it is evidently inequitable, and the
courts shall decide what is equitable under the CLASSIFICATIONS OF A CONTRACT
circumstances
According to 1. Preparatory – those which have
Contract of adhesion their relation to for their object the
- Contract in which one of the parties prepares the other contracts establishment of a condition in
stipulations in the form of a ready-made contract, law which is necessary as a
which the other party must accept or reject, but not preliminary step towards the
modify, by affixing his signature or his “adhesion” celebration of another
thereto subsequent contract (e.g.,
- No obligations partnership, agency)
- Deprives the other party of the opportunity to bargain 2. Principal – can subsist
on equal footing independently from other
contracts and whose purpose
Validity of contract of adhesion can be fulfilled by themselves
- Not void in themselves. They are binding as ordinary (e.g., sale, lease)
contracts. 3. Accessory – can exist only as a
▪ Not entirely prohibited since the one who adheres consequence of, or in
to the contract is, in reality, free to reject it entirely, relationship with, another prior
and if he adheres, he gives his consent contract (e.g., pledge,
▪ VOID when the weaker party is imposed upon in mortgage)
dealing with the dominant bargaining party, and
its option is reduced to the alternative of “taking
According to 1. Consensual – perfected by 2. Innominate – which lack
their perfection mere agreement of the parties individuality and are not
(e.g,, sale, lease) regulated by special provisions
2. Real – require not only the of law
consent of the parties for their
perfection, but also the delivery Article 1306. The contracting parties may establish
of the object by one party to the such stipulations, clauses, terms and conditions as
other (e.g., commodatum, they may deem convenient, provided they are not
deposit, pledge) contrary to law, morals, good customs, public order, or
According to 1. Common or informal – require public policy.
their form no particular form (e.g., loan)
2. Special or formal – require RIGHT TO CONTRACT
some particular form (e.g., - Both a constitutional and a statutory right
donations, chattel mortgage) ▪ To uphold this right, courts should move with all
According to 1. Transfer of ownership (e.g., the necessary caution and prudence in holding
their purpose sale) contracts VOID
2. Conveyance of use (e.g.,
commodatum) LIMITATIONS
3. Rendition of services (e.g., Must not be contrary to:
agency) 1. Law
According to 1. Things - Refers to those which are:
their subject 2. Services ▪ Mandatory or prohibitive; or
matter ▪ Expressive of fundamental principles of
According to the 1. Unilateral – give rise to an justice thus, cannot be overlooked by the
nature of the obligation for only one of the contracting parties
vinculum which parties (e.g., commodatum) ▪ Impose essential requisites without
they produce 2. Bilateral – give rise to reciprocal which the contract cannot exist
obligations for both parties - Pactum commissorium is prohibited by law
(e.g., sale, lease) ▪ Elements:
According to 1. Onerous – which each of the ✓ There should be a property
their cause parties aspires to procure for mortgaged by way of security for the
himself a benefit through the payment of the principal obligation,
giving of an equivalent or and;
compensation ✓ There should be a stipulation for
2. Gratuitous – one of the parties automatic appropriation by the
proposes to give to the other a creditor of the thing mortgaged in
benefit without any equivalent case of non-payment of the principal
or compensation obligation within the stipulated period
According to the 1. Commutative – where each of 2. Morals
risks involved the parties acquires an - Those principles which are incontrovertible
equivalent of his prestation and and are universally admitted and which have
such equivalent is pecuniary received social and practical recognition
appreciable and already 3. Good customs
determined from the moment of - Frequently overlaps with the sphere of
the celebration of the contract morals, but may however do not
2. Aleatory – where each of the - If a moral precept or custom is not recognized
parties has to his account the universally, but is sanctioned by the practice
acquisition of an equivalent of of a certain community, then it shall be
his prestation, but such included within the scope or sphere of good
equivalent, although pecuniary customs
appreciable, is not yet 4. Public order
determined at the moment of - Refer to the safety, as well as to the peace
the celebration of the contract, and order, of the country or of any particular
since it depends upon the community
happening of an uncertain - Public order is considered synonymous with
event, thus charging the parties public policy under the Spanish Civil Code
with the risk of loss or gain 5. Public policy
According to 1. Nominate – which have their - Vague and uncertain in meaning, floating and
their names or own individuality and are changeable in connotation
norms regulated by special provisions - Principle of law which holds that no person
regulating them of law can lawfully do that which has a tendency to
 be injurious to the public or against the public
good
- Principle under which freedom of contract is
restricted by law for the public good
▪ A contract is to be judged by its
character, and courts will look to the
substance and not to the mere form of the
transaction
▪ Freedom of contract is both a
constitutional and statutory right and to
uphold this right, courts should move with
the necessary caution and prudence in
holding contracts void
- In the absence of express legislation or
constitutional prohibition, a court, in order to
declare a contract void as against public
policy, must find that the contract as to the
consideration or thing to be done, has a
tendency to injure the public, is against the
public good, or contravenes some
established interests of society, or is
inconsistent with sound policy and good
morals, or tends clearly to undermine the
security of individual rights, whether of
personal liability or of private property
- With regard to contracts which tend to
restrain business trade, the rule is now well
established that a contract in restraint of trade
is valid provided that there is a limitation upon
either time or place
▪ Public welfare must always be
considered
▪ Requirements:
✓ There must be a limitation as to time
or place;
✓ Restraint must be reasonable
necessary for the protection of the
contracting parties
- Ysmael & Co. vs. Barretto:
▪ A carrier cannot limit its liability, for injury
or loss of goods shipped, where such
injury or loss was caused by its own
negligence
▪ The contract of the carrier is to carry and
deliver the goods, and a contract that
undertakes to relieve the carrier from any
liability for loss or damage accruing or
arising from its own negligence would in
effect nullify the contract
- Sy Suan vs. Regala:
▪ The question whether a contract is
against public policy depends upon its
purpose and tendency, and not upon the
fact that no harm results from it
▪ All agreements the purpose of which is to
create a situation which tends to operate
to the detriment of the public interest are
against public policy and void whether
the purpose of the agreement is or is not
effectuated
▪ For a particular undertaking to be against
public policy actual injury need not be
shown because it is enough if the
potentialities for harm are present
- Cui vs. Arellano University:
▪ Waiver of right to transfer to another
school unless the amount of scholarship
granted is refunded is contrary to public
policy
▪ Scholarship grants are awarded in
recognition of merit and not to attract and
keep brilliant students in school for their
propaganda value
COMPROMISE AGREEMENTS
- Contract whereby the parties, by making reciprocal
concessions, avoid a litigation or put an end to one
already commenced
- Agreement between 2 or more persons, who, for
preventing or putting an end to a law suit, adjust their
difficulties by mutual consent in the manner which
they agreed on, and which everyone of them prefers
in the hope of gaining, balanced by the danger of
losing
▪ Binding on the contracting parties and is
expressly acknowledged as a juridical agreement
between them
Effects of a compromise agreement
1. Has upon the parties the effect and authority of res
judicata, with respect to the matte definitely stated
therein, or which by implication from its terms should
be deemed to have been included therein
- Holds true even if the agreement has not been
judicially approved
2. A consensual contract which became binding
between the parties upon its execution and not upon
its court approval
- From the time entered into, becomes the sour of
the rights and obligations of the parties
- Purpose is to replace and terminate controverted
claims
CASE DISCUSSION (conflicting view)
National Commercial Bank of Saudi Arabia vs. Court of
Appeals, supra
A compromise agreement must be approved by final
order of the court. To be valid, the compromise
agreement must be based on real claims and actually
agreed upon in good faith
NOMINATE AND INNOMINATE CONTRACTS
Article 1307. Innominate contracts shall be regulated
by the stipulations of the parties, by the provisions of
Tiles I and II of this Book, by the rules governing the
most analogous nominate contracts, and by the
customs of the place.
NOMINATE CONTRACT
- Those which have their own distinctive individuality
and are regulated by special provisions of law
- Includes the following as defined and regulated by the
Civil Code:
▪ Sales;
▪ Barter or exchange;
▪ Lease;
▪ Partnership;
▪ Agency;
▪ Loan;
▪ Deposit;
▪ Aleatory contracts, such as insurance, gambling
and life annuity;
▪ Compromise and arbitration;
▪ Guaranty;
▪ Pledge, mortgage and antichresis
INNOMINATE CONTRACT
- Those which lack individuality and are not regulated
by special provisions of law
Kinds of innominate contract
1. Do ut des – I give that you give
2. Do ut facias – I give that you do
3. Facio ut des – I do that you give
4. Facio ut facias – I do that you do
Governing law
- Regulated by the following:
▪ Stipulations of the parties;
▪ General provisions or principles of obligations
and contracts;
▪ Rules governing the most analogous nominate
contracts;
▪ Customs of the place
MUTUALITY OF CONTRACTS
Article 1308. The contract must bind both contracting
parties; its validity or compliance cannot be left to the
will of one of them.
Article 1309. The determination of the performance
may be left to a third person, whose decision shall not
be binding until it has been made known to both
contracting parties.
Article 1310. The determination shall not be obligatory
if it is evidently inequitable. In such case, the courts
shall decide what is equitable under the circumstances
MUTUALITY
- The law expressly or impliedly recognizes the
following consequences regarding the validity or
fulfillment of the contract:
▪ Cannot be left to the will of one of the contracting
parties
✓ What is prohibited by the law from being
delegated to one of the contracting parties is
the power to determine whether or not:
• The contract shall be VALID; and
• The contract shall be FULFILLED
▪ May be left to the will of a third person
✓ Such decision shall not be binding until it has
been made known to each of the contracting
parties
✓ Should not be evidently inequitable or else it
shall not have any obligatory effect upon the
contracting parties
▪ Can be left to chance
Agreements rendering the mutuality of contracts
illusory
- Those where one of the contracting parties is placed
in a position of superiority with regard to the
determination of the validity or fulfillment of the
contract over that occupied by the other party, but
which do not fall within the purview of the prohibition
stated in Article 1308
▪ Agreements where the obligor promises to pay a
certain amount which is not determined, but the
contract itself specifies the manner by which the
amount may be determined
▪ Agreements where the fulfillment of the contract
is left to the will of one of the contracting parties
in the negative form of rescission
- It is perfectly licit to leave the fulfilment of a contract
to the will of one of the contracting parties in the
negative form of rescission because the prohibition in
Article 1308 is not violated nor is there inequality
between the parties
RELATIVITY OF CONTRACTS
Article 1311. Contracts take effect only between the
parties, their assigns and heirs, except in case where
the rights and obligations arising from the contract are
not transmissible by their nature, or by stipulation or by
provision of law. The heir is not liable beyond the value
of the property he received from the decedent.
If a contract should contain some stipulation in favor of
a third person, he may demand its fulfillment provided
he communicated his acceptance to the obligor before
its revocation. A mere incidental benefit or interest of a
person is not sufficient. The contracting parties must
have clearly and deliberately conferred a favor upon a
third person.
RELATIVITY
- A contract can only bind the parties who had entered
into it or their successors who have assumed their
personality or their juridical position, and that, as a
consequence, such contract can neither favor nor
prejudice a 3rd person
Persons bound by contract
- GR: Can take effect only between the parties, their
assigns, and heirs
▪ Even though the contract may have been
executed ostensibly in the name of another
person or entity, it shall produce effect only
insofar as the real contracting party is concerned
✓ Such fact must be known to the other party
 ▪ An assignment or transfer by a contracting party
has the effect of subrogating the assignee to all
the rights and obligations of the assignor
▪ Same rule apples to the transmission of property,
rights and obligations through either testate or
intestate succession
✓ Except for MONETARY obligations that the
decedent might have incur during his lifetime
cannot be transmitted through succession
• Heirs cannot be charged directly with the
payment of obligations
❖ Obligations must be liquidated in the
testate and intestate proceeding for
the settlement of the estate of the
decedent
✓ NON-MONETARY obligations are still
chargeable against the heirs, but only to the
extent of the value of the property which they
may have received from the decedent
- XPN:
▪ Contracts containing a stipulation in favor of a 3rd
person (pour autrui)
▪ Contracts containing real rights
▪ Contracts entered into to defraud creditors
▪ Contracts which have been violated at the
inducement of 3rd persons
▪ Quasi-contract of negotiorum gestio
Rights and obligations which are not transmittable
▪ By nature
▪ By stipulation of the parties
▪ By provision of law (Contract of partnership or
agency)
Effect of contract on third persons
- GR: Cannot produce any effect whatsoever as far as
3rd persons are concerned
▪ He who is not a party to a contract, or an assignee
thereunder, has no legal capacity to challenge its
validity
▪ It is the interest had in a given contract, that is the
determining reason of the right which lies in favor
of the party obligated principally or subsidiarily to
enable him to bring an action
- XPN: Produces effect either directly or indirectly on
3rd persons
▪ Where the contract contains a stipulation in favor
of a 3rd person
▪ Where the 3rd person comes into possession of
the object of a contract creating a real right
▪ Where the contract entered into in order to
defraud a 3rd person
▪ Where the 3rd person induces a contracting party
to violate his contract
Stipulations in favor of 3rd persons
- 3rd person may demand its fulfillment provided he
communicated his acceptance to the obligor before
its revocation
- Stipulation POUR AUTRUI (beneficial situation)
▪ Stipulation in a contract, clearly and deliberately
conferred by the contracting parties as a favor
upon a 3rd person, who must have accepted it
before it could be revoked
Kinds of stipulations in favor of 3rd persons
1. Those where the stipulation is intended for the sole
benefit of the 3rd person; and
2. Those where an obligation is due from the promisee
to the 3rd person with former seeks to discharge by
means of such stipulation
Requisites of stipulations in favor of a 3rd person
Before the stipulation can be enforced, it is essential that:
1. There must be a stipulation in favor of a 3rd
person;
2. The stipulation must be a part, not the whole of
the contract;
3. The contracting parties must have clearly and
deliberately conferred in favor upon a 3rd person,
not a mere incidental benefit or interest;
4. The 3rd person must have communicated his
acceptance to the obligor before its revocation;
and
5. Neither of the contracting parties bears the legal
representative or authorization of the 3rd party
Note: Acceptance by the 3rd person or beneficiary does
not have to be done in any particular form (may be
express or implied)
Test of beneficial stipulation
- Rely upon the intention of the parties as disclosed by
their contract
▪ Does not matter whether the stipulation is in the
nature of a gift or whether there is an obligation
owing from the promisee to the 3rd person
CONTRACTS CREATING REAL RIGHTS
Article 1312. In contracts creating real rights, third
persons who come into possession of the object of the
contract are bound thereby, subject to the provisions of
the Mortgage Law and the Land Registration laws.
CONTRACTS CREATING REAL RIGHTS
- REAL RIGHT:
▪ Right belonging to a person over a specific thing,
without a passive subject individually determined,
against whom such right may be personally
enforced
▪ Enforceable against the whole world
CONTRACTS IN FRAUD OF CREDITORS
Article 1313. Creditors are protected in cases of
contracts intended to defraud them.
CONTRACTS IN FRAUD OF CREDITORS
- If the 3rd person is a creditor of one of the contracting
parties, and it can be established that the contract
 was entered into with the intention of defrauding him,
he may ask for its rescission
- Creditors are protected in cases of contracts intended
to defraud him
INTERFERENCES WITH CONTRACTUAL
RELATIONS
Article 1314. Any third person who induces another to
violate his contract shall be liable for damages to the
other contracting parties.
INTERFERENCES WITH CONTRACTUAL RELATIONS
- Any 3rd person who induces another to violate his
contract shall be liable for damages to the other
contracting party
- The right to perform a contract and to reap the profits
resulting from such performance, and also the right to
performance by the other party, are property rights
which entitle each party to protection, and to seek
compensation by an action in tort for any interference
therewith
Requisites
- Before the 3rd person who induces another to violate
his contract can be held liable for damages, the ff
requisites must concur:
▪ Existence of a valid contract;
▪ Knowledge on the part of the 3rd person of the
existence of the contract; and
▪ Interference by the 3rd person without legal
justification or excuse
✓ MALICE defined:
• Generally implied from the act of
interference with contractual relations,
and is declared to be an essential
ingredient in such cases
• In its legal sense: The intentional doing of
a harmful act without legal justification or
excuse, is sometimes used in the sense
of ill-will, or even as denoting a desire to
harm irrespective of the presence or
absence of ill-will
• The malice which makes one liable for
procuring a breach of contract is malice
in its legal sense, and whether a
wrongdoer’s motive in interfering is to
benefit himself or to gratify his spite
working mischief to another is immaterial
PERFECTION OF CONTRACTS
Article 1315. Contracts are perfected by mere consent,
and from that moment the parties are bound not only to
the fulfillment of what has been expressly stipulated but
also to all the consequences which, according to their
nature, may be in keeping with food faith, usage and
law.
Article 1316. Real contracts, such as deposit, pledge
and commodatum, are not perfected until the delivery
of the object of the obligation.
PERFECTION OF CONTRACTS
- Moment in the life of a contract when there is finally a
CONCURRENCE OF THE WILLS of the contracting
parties with respect to the object and the cause of the
contract
- Birth or appearance of the contract as an obligatory
tie, resulting from the concurrence of the wills of the
contracting parties
- GR: Perfected by mere consent (refers to consensual
contracts)
- XPN:
▪ Real contracts – perfected by delivery
▪ Formal contracts – perfected upon compliance
CONTRACTS IN NAME OF ANOTHER
Article 1317. No one may contract in the name of
another without being authorized by the latter, or unless
he has by law a right to represent him.
A contract entered into in the name of another by one
who has no authority or legal representation, or who
has acted beyond his powers, shall be unenforceable,
unless it is ratified, expressly or impliedly, by the person
in whose behalf it has been executed, before it is
revoked by the other contracting party.
CONTRACTS IN THE NAME OF ANOTHER
- No person may enter into a contract in the name of
another unless he has been duly authorized by the
latter, or unless he has by law a right to represent him
▪ Logical corollary to the principles of the obligator
force and the relativity of contracts
▪ UNENFORCEABLE if a person enters into a
contract with anther in the name of another
person, although he has no authority or legal
representation, or even if he has such authority or
representation, if he has acted beyond the scope
of his powers
CHAPTER 2:
ESSENTIAL REQUISITES OF
CONTRACTS
GENERAL PROVISIONS
Article 1318. There is no contract unless the following
requisites concur:
1. Consent of the contracting parties;
2. Object certain which is the subject matter of the
contract;
3. Cause of the obligation which is established
ELEMENTS OF A CONTRACT
1. NATURAL (presumed, accepted and repudiated)
- Those which are derived from the very nature of
the contract, and as a consequence, ordinarily
accompany the same
- Ordinarily accompany the contract, although they
can be excluded by the contracting if they want
2. ESSENTIAL (imposed and conformed)
- Those without which there can be no contract
▪ Common (comunes)
✓ Present in all contracts such as consent,
object and cause
▪ Special (especiales)
✓ Present only in certain contracts, such as
delivery in real contracts or for in solemn
ones
▪ Extraordinary (especialisimos)
✓ Peculiar to a specific contract, such as
the price in a contract of sale
3. ACCIDENTAL (authorized and established)
- Those which exist only when the contracting
parties expressly provide for them
SECTION 1:
CONSENT
CONSENT
Article 1319. Consent is manifested by the meeting of
the offer and the acceptance upon the thing and the
cause which are to constitute the contract. The offer
must be certain and the acceptance absolute. A
qualified acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind
the offerer except from the time it came to his
knowledge. The contract, in such a case, is presumed
to have been entered into in the place where the offer
was made.
CONCEPT OF CONSENT
- Agreement of wills
- Concurrence of the wills of the contracting parties with
respect to the object and the cause which shall
constitute the contract
- Manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are
to constitute the contract
▪ Offer must be certain and the acceptance
absolute
▪ A qualified acceptance shall constitute a counter-
offer
Note: Consent is essential to the existence of a contract;
and where it is wanting, the contract is non-existent.
Requisites of consent (LM-CR)
1. Legal Capacity of the contracting parties
- Parties must have full civil capacity
2. Manifestation of the conformity of the contracting
parties;
- May be in writing bearing the signature or marks
of the parties, or it may be implied from the
conduct of the parties like the acceptance of
payment
3. Parties’ conformity to the object, cause, terms and
condition of the contract must be intelligent,
spontaneous and free from all vices of consent; and
- Intelligence is vitiated by error, freedom by
violence, intimidation or undue influence, and
spontaneity by fraud
4. The conformity must be real
WHEN CONTRACTS ARE PERFECTED
- From the moment that there is a manifestation of the
concurrence between the offer and the acceptance
with respect to the object and the cause which shall
constitute the contract
- If the acceptance is made by letter or telegram:
▪ GR: Contract is perfected from the moment that
the offeror has knowledge of such acceptance
(Article 1319)
▪ XPN: Contract is perfected from the moment an
answer is made accepting the offer (Article 54 of
the Code of Commerce)
✓ Applied only to purely commercial contracts
such as joint accounts, maritime accounts,
etc.
MANIFESTATION OF CONSENT
- Once there is such a manifestation of the concurrence
of the wills of the contracting parties, the period or
stage of negotiation is terminated and the contract, if
consensual, is finally perfected
Character of offer and acceptance
- Offer:
▪ Proposal to make a contract
▪ Must be certain or definite
▪ An expression of willingness to contract on
certain terms, made with the intention that it shall
become binding as soon as it is accepted by the
person to whom it is addressed
- Acceptance:
▪ Must also be certain or definite
▪ “Willing to accept” does not mean acceptance,
but simply a disposition to accept the offer in
principle
▪ Must be absolute in character (plain and
unconditional)
- To convert an offer into a contract, the acceptance
must be absolute and must not qualify the terms of
the offer
- It must be plain, unequivocal, unconditional and
without variance of any sort from the proposal
Elements of a valid offer and acceptance
1. Definite – unequivocal
2. Intentional
3. Complete – unconditional
Rules on complex offers
1. Offers are interrelated – contract is perfected if all the
offers are accepted
2. Offers are NOT interrelated – single acceptance of
each offer results in a perfected contract unless the
offeror has made it clear that one is dependent upon
the other and acceptance is both necessary
Acceptance of complex offers
- If the offeror proposes to lease one part and to sell
another part, acceptance of one by the offeree would
ordinarily result in a perfected contract, unless, of
course, the offeror should have made one offer
dependent upon the other
- Prospective contracts which are comprised in a single
offer may be so interrelated in such a way that the
acceptance of one would not at all result in a
perfected contract
Acceptance by letter or telegram
1. Manifestation theory (manifestacion)
- Perfected from the moment the acceptance is
declared or made
2. Expedition theory (expedicion)
- Perfected from the moment the offeree transmits
the notification of acceptance to the offeror, as
when the letter is placed in the mailbox
3. Reception theory (recepcion)
- Perfected from the moment that the notification of
acceptance is in the hand of the offeror in such a
manner that he can, under ordinary conditions,
procure knowledge of its contents, even if he is
not able actually to acquire such knowledge by
reason of absence, sickness or some other cause
4. Cognition theory (cognicion)
- Perfected from the moment the acceptance
comes to the knowledge of the offeror
- It is retained that the cognition theory as embodied in
the Spanish Civil Code. Acceptance made by letter or
telegram does not bind the offeror except from the
time it came to his knowledge. Thus, contract is
presumed to have been entered into in the place
where the offer was made
- Rule is applicable to all cases in which the
acceptance is made by a person who is not in the
presence of the offeror
▪ Premised upon the fact that he is not acting
through an agent
Note: We follow the cognitive theory and NOT the mailbox
theory. Under our Civil Law, the offer and acceptance
concur only when the acceptance has reached the
knowledge of the offeror (actual knowledge), and not at
the time of sending the acceptance
Requisites of an effective offer
1. The one offering must have a serious intention to
become bound by his offer;
2. The terms of the offer must be reasonably certain,
definite and complete, so that the parties and the
court can ascertain the terms of the offer; and
3. The offer must be communicated by the offeror to the
offeree, resulting in the offeree’s knowledge of the
offer
Grounds that would render the offer ineffective
1. Death, civil interdiction, insanity or insolvency of
either party before acceptance is conveyed;
2. Express or implied revocation of the offer by the
offeree;
3. Qualified or conditional acceptance of the offer, which
becomes a counter-offer;
4. Subject matter becomes illegal or impossible before
acceptance is communicated;
5. Period given to the offeree to signify his acceptance
has already lapsed
Q: The husband assumed sole administration of the
family’s mango plantation since his wife worked
abroad. Subsequently, without his wife’s knowledge,
the husband entered into an antichretic transaction
with a company, giving it possession and
management of the plantation with power to harvest
and sell the fruits and to apply the proceeds to the
payment of a loan he got. What is the standing of the
contract?
A: It is considered a continuing offer by the parties;
perfected only upon the wife’s acceptance or the court’s
authorization.
Withdrawal of an offer
- An offeror may still withdraw his offer or proposal so
long as he still has no knowledge of the acceptance
by the offeree
▪ He is not bound by the acceptance except from
the time it comes to his knowledge
Withdrawal of acceptance
- MANRESA: Offeree, from the moment he accepts,
loses the power to retract such acceptance and its
communication is a right which is expressly limited by
law to the offeror
▪ RATIONALE: Offeree is the first person who
knows of the concurrence of wills of the parties
- TOLENTINO: Acceptance may be revoked before it
comes to the knowledge of the offeror because in
such case there is still no meeting of the minds, since
the revocation has cancelled or nullified the
acceptance which thereby ceased to have legal effect
ACCEPTANCE
Article 1320. An acceptance may be express or
implied.
FORM OF ACCEPTANCE
- There is an express and tacit consent which produces
true contracts, but also a presumptive consent which
is the basis of quasi-contracts
Requisites of a valid acceptance
1. Must be absolute; a qualified acceptance constitutes
a counter-offer
2. No specified form but when the offeror specifies a
particular form, such must be complied with
Note: Offer or acceptance, or both, expressed in
electronic form, is VALID, unless otherwise agreed by the
parties (electronic contracts).
Mirror image rule in law on contracts
CASE DISCUSSION
ABS-CBN v. CA (as cited by Rabuya)
301 SCRA 592-593, 1999
This is a common law concept which states that in order
for there to be an acceptance, the offeree must accept
the terms as stated in the offer. Our courts also adhere
to the “mirror-image rule.” Thus, it has been ruled that
acceptance must be identical in all respects with that of
the offer so as to produce consent of meeting of the
minds
EFFECT OF DEATH, CIVIL INTERDICTION,
INSANITY, OR INSOLVENCY
Article 1321. The person making the offer may fix the
time, place, and manner of acceptance, all of which
must e complied with.
Article 1322. An offer made through an agent is
accepted from the time acceptance is communicated to
him.
Article 1323. An offer becomes ineffective upon death,
civil interdiction, insanity, or insolvency of either party
before acceptance is conveyed.
EFFECT OF DEATH, CIVIL INTERDICTION, INSANITY,
OR INSOLVENCY
- Becomes ineffective upon the death, civil interdiction,
insanity, or insolvency of EITHER party before
acceptance is conveyed
▪ “Conveyed” means the moment when the offeror
has knowledge of the acceptance by the offeree
PERIOD OF ACCEPTANCE
Article 1324. When the offerer has allowed the offeree
a certain period to accept, the offer may be withdrawn
at any time before acceptance by communicating such
withdrawal, except when the option is founded upon a
consideration, as something paid or promised.
PERIOD OF ACCEPTANCE
Presence of
Option to withdraw acceptance
consideration
Without Offeror may withdraw his offer by
communicating such withdrawal to
the offeree at anytime before
acceptance
With Offeror cannot withdraw his offer
- In unilateral offers to buy or to sell, since there may
be no valid contract without a cause or consideration,
the promisor is not bound by his promise and may
accordingly withdraw it
▪ Pending notice of withdrawal, the promise
partakes of the nature of an offer to sell
Rule
1. STATED FIXED PERIOD IN THE OFFER
- Must be made within the period given by the
offeror
- As to the withdrawal of offer:
▪ GR: It can be made by communicating such
withdrawal at any time before the acceptance
is made
▪ XPN: When the option is founded upon a
consideration (something paid or promised
since partial payment of the purchase price is
considered proof of the perfection of the
contract
2. NO STATED PERIOD
- Offer is made to a person present
▪ Acceptance must be made immediately
- Offer is made to a person absent
▪ Acceptance may be made within such time
that, under normal circumstances, an answer
can be expected from him
Note: If there was an acceptance already, the offeror
cannot just withdraw his offer unilaterally. He will be liable
for damages.
ADVERTISEMENTS AS OFFERS
Article 1325. Unless it appears otherwise, business
advertisements of things for sale are not definite offers,
but mere invitations to make an offer.
Article 1326. Advertisements for bidders are simply
invitations to make proposals, and the advertiser is not
bound to accept the highest or lowest bidder, unless
the contrary appears.
CAPACITY TO GIVE CONSENT
Article 1327. The following cannot give consent to a
contract:
1. Unemancipated minors;
2. Insane or demented persons, and deaf-mutes
who do not know how to write
LEGAL CAPACITY OF CONTRACTING PARTIES
- Indispensable requisite of consent
Incapacitated persons
- Who are incapacitated? (DIM)
1. Unemancipated minors;
2. Insane or demented persons;
- Covers all cases where one or both of the
contracting parties are unable to understand
the nature and consequences of the contract
at the time of its execution
3. Deaf-mute who does not know how to write
- Because the law incapacitates them to give consent,
the only way by which any one of those enumerated
above can enter into a contract is to act through a
parent or guardian
- Effect of incapacity to give contract
Only ONE party is VOIDABLE
incapacitated
 BOTH parties are UNENFORCEABLE
incapacitated
Unemancipated minors
- Cannot give their consent to a contract
- According to Article 399 of the Civil Code, if a minor
is emancipated by marriage or by voluntary
concession he shall have the power to administer his
property, but he cannot borrow money or alienate or
encumber real property without the consent of his
father or mother, or guardian
- Cases entered into by an unemancipated minor may
have all the effects of a valid contract:
▪ When it is entered into by a minor who
MISREPRESENTS HIS AGE;
▪ When it involves the sale or delivery of
NECESSARIES to the minor
▪ When it involves a NATURAL OBLIGATION and
such obligation is fulfilled voluntarily by the minor,
provided that such minor is between 18 and 21
▪ When it is a MARRIAGE SETTLEMENT or
DONATION PROPTER NUPTIAS, provided that
the minor is between 20 and 21 years of age, if
male, or between 18 and 21 years of age, if
female
▪ When it is a LIFE, HEALTH, or ACCIDENT
INSURANCE taken on the life of the minor,
provided that the minor is 18 or more and the
beneficiary appointed is the minor’s estate or the
minor’s father, mother, husband, wife, child,
brother or sister
Effect of misrepresentation
- Principle of ESTOPPEL
▪ Where the minors who entered into the contract
have already passed the age of puberty and
adolescence in such a way that they could
misrepresent and actually did misrepresent
themselves as having reached the age of
majority, they cannot, upon reaching the age of
majority, annul the contract on the ground of
minority
- Binding in the sense that they are estopped
subsequently from impugning the validity of the
contract on the ground of minority
- Misrepresentation must be ACTIVE, not merely
constructive
▪ Mere silence when making a contract as to his
age does not constitute a fraud which can be
made the basis of an action for deceit
- In case of misrepresentation, minors cannot be
absolved entirely from MONETARY responsibility
▪ Even if the written contract is voidable because of
non-age, they shall make restitution to the extent
that they may have PROFITED by the money
received
Insane or demented persons
- Include any person, who, at the time of the celebration
of the contract, cannot understand the nature and
consequences of the act or transaction by reason of
any cause affecting his intellectual or sensitive
faculties, whether permanent or temporary
- Valid when entered during LUCID INTERVAL
- The presumption of insanity and mental incapacity in
a person under guardianship for mental derangement
is only PRIMA FACIE and may be rebutted by
evidence
- Code considers as a demented person, or at least,
places in the same category as a demented person
anyone who is in the state of DRUNKENNESS or
under HYPNOTIC SPELL
- Necessary to show that at the time of the celebration
of the contract one of the contracting parties was not
capable of understanding with reasonable clearness
the nature and effect of the transaction in which he
was engaged
- Mental capacity is a QUESTION OF FACT which
must be decided by the courts
▪ Presumption is SANE
- Cannot give consent whether or not they are placed
under guardianship
Deaf-mutes
Ability to write Effect
Knows how to write Perfectly valid
Does not know how Either voidable or unenforceable
to write
- Cannot give consent whether or not they are placed
under guardianship
Other incapacitated person
- Others who are also incapacitated to give their
consent:
▪ Married women of age in cases specified by law;
✓ Included in Article 1263 of the Spanish Civil
Code, but not in the present Code
• In conformity with the rule that a married
woman, 21 years of age or over, is
qualified for all acts of civil life except in
cases specified by law
• There are still cases, although much
more limited in extent than under the old
Code, where married women cannot give
their consent to a contract without first
securing their husband’s consent
✓ In the acquisition by a wife of property by
gratuitous title, the property is acquired from
her ascendants, descendants, parents-in-
law, and relatives within the 4th degree
▪ Persons suffering from civil interdiction;
▪ Incompetents who are under guardianship
✓ The mere fact that a person is classified as
an incompetent in accordance with the New
Rules of Court does not necessarily mean
that he cannot give his consent to a contract,
nor does the mere fact that he cannot give
consent to a contract
✓ Rule 92 of the New Rules of Court states that
the word “incompetent” includes:
• Deaf and dumb who are unable to read
and write;
 • Those who are of unsound mind, even give each other on the occasion of any family
though they have lucid intervals rejoicing (Article 133, NCC)
▪ The husband and the wife cannot sell property to
W/N they can give each other, except:
Description ✓ When a separation of property was agreed
their consent
Persons suffering Cannot give their upon in the marriage settlements; or
from civil consent whether or ✓ When there has been a judicial separation of
interdiction not placed under property under Article 191 (Article 1490,
guardianship NCC)
Prodigals Before they are ▪ The following persons cannot acquire by
Those who by placed under purchase, even at a public or judicial auction,
reason of age, guardianship, are either in person or through the mediation of
weak mind, and disputably presumed another:
other similar to possess ✓ The guardian, the property of the person or
causes, cannot, contractual capacity. persons who may be under his guardianship;
without outside ✓ Agents, the property whose administration or
aid, take care of Whether or not they sale may have been entrusted to them,
themselves and can give their consent unless the consent of the principal has been
manage their to a contract becomes given;
property a matter of proof ✓ Executors and administrators, the property of
becoming thereby the estate under administration;
an easy prey for ✓ Public officers and employees, the property
deceit and of the State or of any subdivision thereof, or
exploitation of any government-owned or controlled
corporation, or institution, the administration
Hospitalized Before they are of which has been entrusted to them; this
lepers placed under provision shall apply to judges and
guardianship are not government experts who, in any manner
incapacitated whatsoever, take part in the sale;
- Once an incompetent is placed under ✓ Justices, judges, prosecuting attorneys,
guardianship, such incompetent can enter clerks of superior and inferior courts, and
into a contract only through his guardian; other officers and employees connected with
otherwise the contract is VOIDABLE the administration of justice, the property and
rights in litigation or levied upon on execution
Article 1328. Contracts entered into during lucid before the court within whose jurisdiction or
interval are valid. Contracts agreed to in a state of territory they exercise their respective
drunkenness or during a hypnotic spell are voidable. functions; this prohibition includes the act of
acquiring by assignment and shall apply to
lawyers, with respect to the property and
Article 1329. The incapacity declared in Article 1327 is
rights which may be the object of any
subject to the modification determined by law, and is
litigation in which they may take part by virtue
understood to be without prejudice to special
of their profession;
disqualifications established in the laws.
✓ Any others specially disqualified by law
(Article 1491, NCC)
DISQUALIFICATIONS TO CONTRACT
▪ Persons who are prohibited from giving each
- Refers to those who are prohibited from entering into
other any donation or advantage cannot enter
a contract with certain persons with regard to certain
into universal partnership (Article 1782, NCC)
property under certain circumstances and not to those
who are incapacitated to give their consent
Distinguished from incapacity
- Examples:
Disqualification/
▪ Person who is declared insolvent before he is Incapacity
Prohibition
discharged (Insolvency Law)
▪ Contract relating to real property entered into by Restrains the exercise of Restrains the very right
any non-Christian inhabitant of Mindanao and the right to contract itself
Sulu, unless approved by the Chairman of the Can still enter into a Absolutely disqualified
Commission on National Integration is VOID (Sec contract, but he must do from entering into the
145 of the Administrative Code as amended by so through his parent or contract
RA No 3872) guardian
▪ Donation between the spouses during the Based upon subjective Based upon public policy
marriage shall be void. This prohibition does not circumstances of certain and morality (special
apply when the donation takes effect after the persons which compel the incapacity)
death of the donor. Neither does this prohibition law to suspend for a
apply to moderate gifts which the spouses may definite or indefinite
 period their right to When one or both of When one or both of
contract the contracting the contracting parties
Merely voidable Void parties believe that a arrive at an erroneous
fact exists when in conclusion regarding
VICES OF CONSENT reality it does not, or the interpretation of a
that such fact does question of law or the
Article 1330. A contract where consent is given not exist when in legal effects of a
through mistake, violence, intimidation, undue reality it does certain act or
influence, or fraud is voidable. transaction
▪ Ignorance of the law excuses no one from
VICES OF CONSENT (MI-VUF) compliance therewith
1. Mistake - XPN: When mistake of law involves mutual error as
2. Intimidation to the legal effect of an agreement when the real
3. Violence purpose of the parties is frustrate
4. Undue influence
5. Fraud Mistake distinguished from ignorance (UST GOLDEN
NOTES 2019)
Note: A threat to enforce a just or legal claim through a Mistake is a false impression on something, while
competent authority does not amount to intimidation nor Ignorance is absence of any notion or impression about a
vitiate consent particular thing.

Groups of vices Note: The Code does not distinguish between mistake
1. VICES OF THE WILL as such and ignorance (Jurado, 2011)
- MI-VUF
2. VICES OF DECLARATION Requisites
- Comprehends all forms of SIMULATED contracts 1. Must be with respect to the LEGAL EFFECT of the
agreement;
Requisites of consent and what is affected by the 2. Must be MUTUAL; and
vices 3. Real purpose of the parties must have been
Requisite Vice FRUSTRATED
Intelligent Mistake or error
Free Violence, intimidation and Kinds of mistake of fact which vitiate consent
undue influence 1. Mistake as to the nature of the contract;
Spontaneous Fraud 2. Mistake as to object of the contract;
3. Mistake as to the quality or principal conditions of the
Real* Simulated contracts
thing;
*additional
4. Mistake or error in quantity;
5. Mistake as to identity of the person;
MISTAKE
6. Mistake as to the identity or qualifications of one of
the parties will vitiate consent only when such identity
Article 1331. In order that mistake may invalidate or qualifications have been the principal cause of the
consent, it should refer to the substance of the thing contract.
which is the object of the contract, or to those
conditions which have principally moved one or both Classes of mistake of fact which vitiate consent
parties to enter into the contract. 1. MISTAKE AS TO OBJECT (error in re)
- Mistake as to the identity of the thing (error in
Mistake as to the identity or qualifications of one of the corporae)
parties will vitiate consent only when such identity or ▪ When the thing constitutes the object of the
qualifications have been the principal cause of the contract is confused with another thing
contract. - Mistake as to substance of the thing (error in
substantia)
A simple mistake of account shall give rise to its - Mistake as to the condition of the thing, provided
correction. that such conditions have principally moved one
or both parties to enter into the contract
MISTAKE - Mistake as to the quantity of the thing (error in
- Not only as the wrong conception of a thing, but also quantitae), provided that the extent or dimension
the lack of knowledge with respect to a thing of the thing was one of the principal reasons of
- GR: Mistake as a vice of consent refers to mistake of one or both of the parties for entering into the
FACTS and not of law, thus rendering the contract contract
VOIDABLE ▪ To be rendered VOIDABLE, it is necessary
▪ Distinguish mistake of fact and law that such mistake should render not only to
Mistake of fact Mistake of law the material out of which the thing is made,
 but also to the nature which distinguishes it,
generically or specifically, from all others,
such as when a perso purchases a thing
made in silver believing it is made of gold
Note: if the mistake refers only to accidental
or secondary qualities (error in qualitate), the
contract is not rendered voidable.
Error in Mistake of account
quantitate or calculation
There is a real There is only an
mistake as to the apparent mistake, a
extent of the object mere mistake of
of the contract mathematical error
Voidable Not voidable
2. MISTAKAE AS TO PERSON (error in personae)
- Refer either to the name or to the identity or to the
qualification of a person
- Requisites:
▪ The mistake must be either with regard to the
identity or with regard to the qualification of
one of the contracting parties;
▪ Such identity or qualification must have been
the principal consideration for the celebration
of the contract
Article 1332. When one of the parties is unable to read,
or if the contract is in a language not understood by
him, and mistake or fraud is alleged, the person
enforcing the contract must show that the terms thereof
have been fully explained to the former
RULES WHERE A PARTY IS ILLITERATE
- Burden of proving that the plaintiff had understood the
contents of the document was shifted to the
defendant
- Intended for the protection of a party to a contract who
is at a disadvantage due to his illiteracy, ignorance,
mental weakness or other handicap
- Assumes that consent imputing the mistake or fraud
was given, although vitiated, and does not cover a
situation where there is a complete absence of
consent
Article 1333. There is no mistake if the party alleging it
knew the doubt, contingency or risk affecting the object
of the contract
Article 1334. Mutual error as to the legal effect of an
agreement when the real purpose of the parties is
frustrated, may vitiate consent
MISTAKE OF LAW
- GR: Does not vitiate consent
- XPN: Mutual error as to the effect of an agreement
when the real purpose of the parties is frustrated, may
vitiate consent
- When there is mistake on a doubtful question of law,
or on the construction or application o law, this is
analogous to a mistake of fact, and the maxim
ignorantia legis neminem excusat should have no
proper application
Requisites for mistake, as to the qualification of one
of the parties, to vitiate consent:
1. The mistake must be either with regard to the
IDENTITY or with regard to the QUALIFICATION of
one of the contracting parties; and
2. The identity or qualification must have been the
PRINCIPAL CONSIDERATION for the celebration of
the contract
Note: Burden rests upon the party who seeks to enforce
the contract to show that the other party fully understood
the contents of the document. (Mayor vs. Belen, 430
SCRA 561)
VIOLENCE AND INTIMIDATION
Article 1335. There is violence when in order to wrest
consent, serious or irresistible force is employed.
There is intimidation when one of the contracting
parties is compelled by a reasonable and well-
grounded fear of an imminent and grave evil upon his
person or property, or upon the person or property of
his spouse, descendants or ascendants, to give his
consent.
To determine the degree of the intimidation, the age,
sex and condition of the person shall be borne in mind.
A threat to enforce one’s claim through competent
authority, if the claim is just or legal, does not vitiate
consent
Article 1336. Violence or intimidation shall annul the
obligation, although it may have been employed by a
third person who did not take part in the contract.
VIOLENCE AND INTIMIDATION
- Both are sometimes known as DURESS
- Shall annul the obligation, although it may have been
employed by a third person who did not take part in
the contract
- Distinguished:
Violence Intimidation
There is violence when One of the contracting
in order to wrest parties is compelled by
consent, serious or a reasonable and well-
irresistible force is grounded fear of an
employed imminent and grave evil
upon his person or
property, or upon the
person or property of his
spouse, descendants or
ascendants, to give his
consent
External Internal
Prevents the Influences the operation
expression of the will of the will, inhibiting in
substituting it with a such a way that the
 material act dictated by expression thereof is
another apparently that of a
person who has freely
given his consent
Physical compulsion Moral compulsion
Requisites of violence
1. Physical force employed must be serious or
irresistible; and
2. The determining cause for the party upon whom it is
employed in entering into the contract
Note: A threat to enforce one’s claim through competent
authority, if the claim is just or legal, does not vitiate
consent
Requisites of intimidation (CICU)
1. One of the parties is compelled to give his Consent by
a reasonable and well-grounded fear of an evil;
2. The evil must be Imminent and grave;
3. It must be Unjust;
4. The evil must be the determining Cause for the party
upon whom it is employed in entering into the contract
Character of intimidation
- Must be actual, serious and possible of realization,
and that the actor can and still will carry out his threat
Distinguished from reluctant consent
- Given voluntarily and independently in the eyes of the
law when he acts reluctantly and with hesitation as
when he acts spontaneously and joyously
- VALID even though:
▪ One of the parties entered into it against his
wishes and desires or even against his better
judgment
▪ They are entered into by one of the parties
without hope of advantage or profit
- In intimidation:
▪ There is a disappearance of the personality of the
actor
▪ He ceases to exist as an independent entity with
faculties and judgment and in his place is
substituted another — the one exercising the
force or making use of the intimidation
Determination of degree of intimidation
- The age, sex and condition of the person intimidated
shall be borne in mind
▪ Condition:
✓ Not only the resolute or weak character of the
person intimidated, but also his other
circumstances, such as his capacity or
culture, which permits him to appreciate
whether or not there is an imminent danger,
his position, by which he can determine
whether or not it gives him a chance to thwart
the danger, his financial condition, because
while a certain amount may mean nothing to
some, to others it may mean economic ruin
✓ Applicable also when the person intimidated
is the spouse, ascendant or descendant
UNDUE INFLUENCE
Article 1337. There is undue influence when a person
takes improper advantage of his power over the will of
another, depriving the latter of a reasonable freedom of
choice. The following circumstances shall be
considered: the confidential, family, spiritual and other
relations between the parties, or the fact that the
person alleged to have been unduly influenced was
suffering from mental weakness, or was ignorant or in
financial distress
UNDUE INFLUENCE
- When a person takes improper advantage of his
power over the will of another, depriving the latter of
a reasonable freedom of choice
- That which substitutes the wishes of another for those
of a party to the contract or that which deprives the
latter of his free agency
- Must in some measure destroy the free agency if a
party and interfere with the exercise of that
independent discretion
- Solicitation, importunity, argument, and persuasion
are not undue influence and a contract is not to be set
aside merely because one party used these means to
obtain the consent of the other
- Test to determine undue influence that will vitiate
consent:
▪ Determine whether or not the influence exerted
has so overpowered or subjugated the mind of a
contracting party as to destroy his free agency,
making him express the will of another rather
than his own.
- Circumstances to be considered:
▪ Confidential, family, spiritual and other relations
between the parties;
▪ Mental weakness;
▪ Ignorance;
▪ Financial distress
Note: The enumeration is NOT exclusive. Moral
dependence, indigence, mental weakness, tender age or
other handicap are some of the circumstances to consider
undue influence
Reverential fear
- Fear of displeasing persons to whom respect and
obedience are due does not vitiate consent
FRAUD
Article 1338. There is fraud when, through insidious
words or machinations of one of the contracting parties,
the other is induced to enter into a contract, which
without them, he would not have agreed to.
FRAUD
- Insidious words refer to a deceitful scheme or plot
with an evil design, or a fraudulent purpose
- To invalidate a contract, it is essential that
 ▪ There must be proof of concrete facts constituting - Lies in the deception or misrepresentation employed
the fraud or insidious words or machinations by one of the contracting parties to secure the
employed by one of the contracting parties by consent of the other
virtue of which the other party was induced to - Comprehends any kind of deception:
enter into the contract, which, without them, he ▪ False promises;
would not have agreed to ▪ Fictitious names;
▪ Such insidious words or machinations must be ▪ Fictitious qualifications;
PRIOR TO or CONTEMPORANEOUS WITH the ▪ Fictitious authority
birth or perfection of the contract
Article 1339. Failure to disclose facts, when there is a
Requisites of fraud to vitiate consent duty to reveal them, as when the parties are bound by
1. It was applied or utilized by one contracting party confidential relations, constitutes fraud
upon the other;
2. It must be serious deception; EFFECT OF FAILURE TO DISCLOSE FACTS
3. It must have induced the victim to enter the contract - Failure to disclose facts, when there is a duty to reveal
without which he would not have agreed to; and them, as when the parties are bound by confidential
4. It must have resulted in damage or injury relations, constitutes fraud
- The innocent nondisclosure of a fact, when there is
Kinds of fraud no duty to reveal it, does not constitute fraud
1. Fraud in the PERFECTION of the contract ▪ Does not affect the formation of the contract or
- Employed by a party to the contract in securing operate to discharge the parties from their
the consent of the other party agreement
a. Causal fraud (dolo causante)
- Those deceptions or misrepresentations ACTS CONSIDERED NOT FRAUDULENT
of a serious character employed by one
party and without which the other party Article 1340. The usual exaggerations in trade, when
would not have entered into the contract the other party had an opportunity to know the facts,
- What is referred to by Article 1338 are not in themselves fraudulent.
b. Incidental fraud (dolo incidente)
- Those deceptions or mispresentations Article 1341. A mere expression of an opinion of does
which are not serious in character and not signify fraud, unless made by an expert and the
without which the other party would still other party relied on the former’s special knowledge.
have entered into the contract
- What is referred to by Article 1344 Article 1342. Misrepresentation by a third person does
not vitiate consent, unless such misrepresentation has
Dolo Dolo created substantial mistake and the same is mutual.
Basis Causante Incidente (Art.
(Art. 1338) 1340) Article 1343. Misrepresentation made in good faith is
Gravity of Serious in Not serious not fraudulent but may constitute error.
fraud character
Efficient Yes. It induces No EFFECT OF EXAGGERATION IN TRADE
cause the party to - When the purchaser proceeds to make investigations
enter into a by himself, and the vendor does nothing to prevent
contract such investigations from being as complete as the
Effects of Voidable Does not affect former might wish, the purchaser cannot allege that
the status the validity of the vendor made false representations to him
of the the contract
contract Note: It is important for the other party to have an
Remedies Annulment with Contracts OPPORTUNITY to know the facts
damages remain valid.
Remedy is
claim for
damages
EFFECT OF EXPRESSION OF OPINION
2. Fraud in the PERFORMANCE of an obligation (Article - Does not signify fraud, unless made by an EXPERT
1170, NCC) and the other party RELIED on the former’s special
- Fraud which is employed by the obligor in the knowledge
performance of a pre-existing obligation - Not an actionable deceit, nor is it a sufficient ground
for avoiding a contract as fraudulent
Nature of fraud - The law allows considerable latitude to seller’s
statement, or dealer’s talk, and experience teaches
that it is exceedingly risky to accept it at face value
 contracting parties do not to conceal their true
EFFECT OF MISREPRESENTATION BY THIRD intend to be bound by the agreement
PERSON contract at all
- In order to vitiate consent, the fraud must be The apparent contract is If the concealed contract
employed only by one of the contracting parties not really desired or is lawful, it is absolutely
intended to produce legal enforceable, provided it
Article 1344. In order that fraud may make a contract effects or in any way alter has all the essential
voidable, it should be serious and should not have been the juridical situation of requisites: consent,
employed by both contracting parties. the parties object, and cause
Parties may recover from Binds the parties to their
Incidental fraud only obliges the person employing it to each other what they may real agreement when it
pay damages. have given under the does not prejudice third
contract persons or is not intended
MAGNITUDE OF FRAUD for any purpose contrary
- Must be SERIOUS in character to law, morals, good
▪ Refers not to its influence, but to its importance or customs, public order or
magnitude public policy

RELATION BETWEEN FRAUD AND CONSENT Presumption in simulation of contracts

- Fraud employed should have INDUCED the other - The legal presumption is in favor of the validity of
party to enter into the contract contracts
▪ It must be the principal or causal inducement or ▪ Party who impugns the validity and regularity of a
consideration for the consent of the party who is contract has the burden of proving his allegation
deceived in the sense that he would never have
given such consent were it not for the fraud Primary consideration in determining the nature of
▪ Pertains to DOLO CAUSANTE contract
- If the fraud is merely incidental, his consent is not - Intention of the parties
vitiated and the validity of the contract is not at all ▪ Determined from the express terms of their
affected agreement as well as from their
▪ Its only effect is to render the party who has contemporaneous and subsequent acts
employed it liable for damages
▪ Pertains to DOLO INCIDENTE Note: Where the essential requisites of a contract are
present and the simulation refers only to the content or
SIMULATED CONTRACTS terms of the contract, the agreement is absolutely binding
and enforceable between the parties and their successors
Article 1345. Simulation of a contract may be absolute in interest
or relative. The former takes place when the parties do
not intend to be bound at all; the latter, when the parties Action for recovery
conceal their true agreement Does not have an illegal Intended for an illegal
purpose purpose
Article 1346. An absolutely simulated or fictitious The interested party may Contract is void and the
contract is void. A relative simulation, when it does not prove the simulation to parties have no cause of
prejudice a third person and is not intended for any recover whatever he action
purpose contrary to law, morals, good customs, public might have given under
order or public policy binds the parties to their real the fictitious contracts
agreement
SECTION 2:
SIMULATION OF CONTRACT
- It is the declaration of a fictitious will, deliberately OBJECT
made by agreement of the parties, in order to
produce, for the purposes of deception, the OBJECT
appearance of a juridical act which does not exist or
is different from that which was executed - Pertains to the subject matter of the contract
Absolute Relative - Most fundamental, most indispensable in order to
(simulados) (disimulados) have at least a shadow of a contract
The contracting parties do The contracting parties - the thing, right or service which is the subject matter
not intend to be bound by conceal their true of the obligation which is created or established
the contract at all, thus the agreement
contract is VOID Article 1347. All things which are not outside the
There is colorable Contracting parties state a commerce of men, including future things, may be the
contract but it has no false cause in the contract object of a contract. All rights which are not
substance as the intransmissible may also be the object of contracts.

No contract may be entered into upon future
inheritance except authorized by law.
All services which are not contrary to law, morals, good
customs, public order or public policy may likewise be
the object of a contract.
Article 1348. Impossible things or services cannot be
the object of contracts
Article 1349. The object of every contract must be
determinate as to its kind. The fact that the quantity is
not determinate shall not be an obstacle to the
existence of the contract, provided it is possible to
determine the same, without the need of a new contract
between the parties
REQUISITES OF AN OBJECT (DELiCT)
1. Determinate as to kind (even if not determinate,
provided it is possible to determine the same without
the need of a new contract);
2. Existing or the potentiality to exist subsequent to the
contract;
3. Must be Licit;
4. Within the Commerce of men; and
5. Transmissible
Note: The most evident and fundamental requisite in
order that a thing, right or service may be the object of a
contract, is that it should be in existence at the moment of
the celebration of the contract, or at least, it can exist
subsequently or in the future.
OBJECTS OF CONTACT
- GR: All things or services may be the object of
contracts.
- XPN:
▪ Things outside the commerce of men;
▪ Intransmissible rights;
▪ Future inheritance, except in cases expressly
authorized by law;
▪ Services which are contrary to law, morals, good
customs, public policy and public order; and
▪ Objects which are not possible of determination
as to their kind
Appropriability and transmissibility
- Essential that it is within the COMMERCE OF MEN
▪ Should be susceptible of appropriation;
▪ Should be transmissible from one person to
another
- Those which are not within the commerce of men:
▪ Those which are such by their very nature (e.g.,
air, sea, sacred things, res nullius, and property
belonging to the public domain);
▪ Those which are made by such by special
prohibitions by law (e.g., poisonous substances,
drugs, arms, explosives, and contrabands)
▪ Those rights which are intransmissible because
either they are:
✓ Purely personal in character (e.g., jus
consortium which arises from the relationship
of husband and wife, or patria potestas which
arises from the relationship of paternity and
filiation); or
✓ Honorary or political in character (e.g., right
to hold public office and the right of suffrage)
Existence of object
- The most fundamental requisite is the existence of the
right or service AT THE MOMENT of the
CELEBRATION of the contract, or at least, it can exist
subsequently or in the future
Things which have perished
- In principle, they are inexistent
- If at the time the contract of sale is perfected, the thing
which is the object of the contract has been entirely
lost, the contract shall be without any effect
Future things
- May be interpreted as follows:
▪ CONDITIONAL CONTRACT if its efficacy should
depend upon the future existence of the; or
▪ ALEATORY CONTRACT if one of the contracting
parties should bear the risk that the thing will
never come into existence
Note: In case of doubt, it is deemed to be CONDITIONAL
because of the principle that doubt shall be resolved in
favor of the greatest reciprocity of interests
Rule with respect to future inheritance
- GR: No contract may be entered into with respect to
future inheritance
▪ If the rule were otherwise, there would always be
the possibility that one of the contracting parties
may be tempted to instigate the death of the other
in order that the inheritance will become his
▪ Also, the possibility that fraud and prejudice may
be committed or occasioned thereby
▪ What is prohibited is a contract that deals with any
property or right not in existence or capable of
determination at the time of the contract, that a
person may in the future acquire by succession
- XPN:
▪ Under Art 130 of NCC, future spouses are
allowed to give or donate to each other in their
marriage settlement their future property to take
effect upon the death of the donor to the extent
laid down by the provisions of the Civil Code
relating to testamentary succession; and
▪ Under Art 1080 of NCC, a person is allowed to
make partitions of his estate by an act inter vivos,
provided that the legitime of compulsory heirs are
not prejudiced
Note: Except in cases authorized by law, future
inheritance cannot be an object of contract because its
extent, amount or quantity is not determinable
Impossible things or services Article 1351. The particular motives of the parties in
- Cannot be the subject of the contract, thus rendering entering into a contract are different from the cause
it VOID or INEXISTENT thereof
- Types of impossibility:
▪ ABSOLUTE: Arises from the very nature or CONCEPT OF CAUSE
essence of the act or service itself, renders the - It is the WHY of the contract
contract VOID - In onerous contracts:
▪ RELATIVE: Arises from the circumstances or ▪ For each contracting party, the prestation or
qualifications of the obligor rendering him promise of a thing or service by the other
incapable of executing the act or service, allows - In remuneratory contracts:
the perfection of the contract, although the ▪ The service or benefit which is remunerated
fulfillment thereof is hardly probable - In contracts of pure beneficence:
✓ When the impossibility is permanent, ▪ Liberatlity of the benefactor
however, as in the case of a person who is
unable to perform the service which he has Distinguished from consideration
contracted because of total blindless, the Cause and consideration are used INTERCHANGEABLY
contract is VOID – CAUSA merely being the civil law term, while
CONSIDERATION is the common law term. However,
Licitness of object causa in civil law jurisdictions is broader in scope than
- Indispensable requisite consideration in Anglo-American jurisdictions
- All services which are not contrary to law, morals,
good customs, public order and public policy may be Distinguished from object
the object of a contract Cause Object
Remuneratory Service or benefit Thing which is
Determinability of object which is given in
- Also an indispensable requisite renumerated renumeration
- Means that the genus of the object should be Gratuitous Liberality of the Thing which is
expressed although there might be no determination donor or given or donated
of the individual specie benefactor
▪ There need not be any specification of the Onerous Prestation or Thing or service
qualities and circumstances of the thing which promise of a itself
constitutes have not been stated, the creditor thing or service
cannot demand a thing of superior quality. by the other
Neither can the debtor deliver a thing of inferior
quality - Opposing views in terms of cause and object of an
▪ Occurs where the contract itself has established onerous contract
the BASIS upon which such quantity can be ▪ In bilateral contracts, the thing sold is the object
determined while the price paid is the cause (Dr. Tolentino –
- The fact that the quantity is not determinate shall not considered more logical)
be an obstacle to the existence of the contract, ▪ The cause of the obligation of the vendor is the
provided it is possible to determine the same, without obligation of the vendee, while the cause of the
the need of a new contract between the parties obligation of the vendee is the obligation of the
vendor. The objects of the contract are the thing
SECTION 3: which is sold and the price which is paid (Manresa
CAUSE and Castan)

Distinguished from motive

CAUSE
Basis Cause Motive
Proximate Direct and most Indirect or remote
ESSENTIAL REASON which moves the parties to enter
reason in a proximate reason reasons
into the contract. It is the immediate, direct and proximate
contract of a contract
reason which justifies the creation of an obligation through
Kind of Objective and Psychological or
the will of the contracting parties.
reason in juridical reason of purely personal
the contract reason
Article 1350. In onerous contracts the cause is
contract
understood to be, for each contracting party, the
Legal Legality or Legality or illegality
prestation or promise of a thing or service by the other;
effect to illegality of cause of motive does not
in remuneratory ones, the service or benefit which is
the affects the affect the existence
remunerated; and in contracts of pure beneficence, the
contract existence or or validity of
mere liberality of the benefactor
validity of the contract
contract
 Parties Cause is always Motive differs for
the same for each each contracting
contracting party party
Knowability Always known May be known to
the other
Note: The motive may be regarded as the cause when
the realization of such motive or particular purpose has
been made a condition upon which the contract is made
to depend (Phil. National Construction Corp. vs. CA, 272
SCRA 183, 1997)
CAUSE IN ONEROUS CONTRACTS
- For each contracting party, the prestation of promise
of a thing or service by the other
▪ It necessarily follows that a promise made by one
party may be a sufficient cause for a promise
made by another party
▪ It is not necessary that the cause or consideration
should pass from one party to the other at the
time of the execution of the contract
Accessory contracts
- Cause of the accessory contract is IDENTICAL with
that of the principal contract
▪ In case of an accommodation party who binds
himself jointly and severally with the principal
debtor for the payment of a debt by affixing his
signature to a promissory note for the
accommodation of the latter, the consideration
which supports the promise of the
accommodation maker is that parted with by the
person taking the note and received by the
person accommodated
Moral obligations
- Where the moral obligation arises WHOLLY from
ETHICAL considerations, unconnected with any civil
obligation and, is not demandable in law but only in
conscience, it cannot constitute a sufficient cause or
consideration to support an onerous contract
- When such is based upon a PREVIOUS CIVIL
OBLIGATION which has already been barred by the
statute of limitations at the time when the contract is
entered into, it constitutes a sufficient cause of
consideration
CASE DISCUSSION
Fisher vs. Robb
69 Phil 101
Short facts:
Defendant was one of the organizers of a certain
enterprise, while the plaintiff was one of those who had
invested a certain sum of money in the venture. When
the venture did not succeed, the defendant wrote a
letter to the plaintiff stating that he felt “a moral
responsibility for those who had sent in the 2nd
payment of their subscription” and that he will see to it
that “stockholders who had made such payment shall
be reimbursed such amount as soon as possible out
of his own personal funds”
Issue:
W/N there is a sufficient cause or consideration to
justify the promise made by the defendant in his letter
Ruling:
No, the obligation which was contracted is purely
moral and is not demandable in law, but only in
conscience. The defendant is required to pay P2,000
but the plaintiff has not given or promised anything or
service to the former which may compel him to make
such payment. The promise was prompted by a feeling
of pity which said defendant had for the plaintiff as a
result of the loss which the latter had suffered because
of the failure of the enterprise
CASE DISCUSSION
Villaroel vs. Estrada
71 Phil 140
Short facts:
A contract was entered into by virtue of which the
defendant undertook to pay to the plaintiff a certain
debt which his deceased mother had incurred from the
deceased parents of the said plaintiff more than 18
years ago. Said debt had already prescribed.
Issue:
W/N the contract entered into is enforceable
Ruling:
Yes, the debt lawfully contracted by his mother,
although it lost its efficacy by prescription, is now a
moral obligation as far as defendant is concerned, a
moral obligation which is sufficient consideration to
create and make effective and demandable the
obligation which he had voluntarily contracted.
CAUSE IN REMUNERATORY CONTRACTS
- A remuneratory contract is one in which one of the
contracting parties remunerates or compensates the
service or benefit rendered or given by the other
party, although such service or benefit does not
constitute a demandable debt
▪ Cause – Service or benefit which is renumerated
- Example:
▪ A gives a certain property to his lawyer friend, B,
in remuneration for legal services rendered to him
freely in the past. The cause as far as A is
concerned would be the legal services by B,
although such services do not constitute
demandable debts
CAUSE IN CONTRACTS OF PURE BENEFICENCE
- Mere liberality of the benefactor
▪ Equivalent to “El carino, el desprendimiento, la
admiracion, la generosidad, el agradecimiento, la
compasion”
▪ Affection, detachment, admiration, generosity,
gratitude, compassion
- Example:
▪ A makes a pure donation of a certain property to
B in accordance with the formalities prescribed by
law
REQUISITES OF CAUSE
Article 1352. Contracts without cause, or with unlawful
cause, produce no effect whatever. The cause is
unlawful if it is contrary to law, morals, good customs,
public order or public policy.
Article 1353. The statement of a false cause in
contracts shall render them void, if it should not be
proved that they were founded upon another cause
which is true and lawful.
Article 1354. Although the cause is not stated in the
contract, it is presumed that it exists and is lawful,
unless the debtor proves the contrary.
Article 1355. Except in cases specified by law, lesion
or inadequacy of cause shall not invalidate a contract,
unless there has been fraud, mistake or undue
influence.
REQUISITES OF A CAUSE
It must:
1. Exist at the time of the celebration of contract;
2. Be true; and
3. Be licit or lawful
- If the contract has NO CAUSE, or even if it has, if the
cause should be ILLICIT or UNLAWFUL, the rule is
that it shall NOT PRODUCE any effect whatsoever,
or it is INEXISTENT or VOID from the beginning
- The same is true if the cause is FALSE, unless it can
be proved that the contract is, in reality, founded upon
another cause which is TRUE and LAWFUL
Note: Although the cause is not stated in the contract, it
is presumed that it exists and is lawful unless the debtor
proves the contrary. This is true even where the contract
falls within the purview of the Statute of Fraud
Effect of lack of cause
- Produces no effect whatsoever
▪ Article 1409 NCC declares as inexistent those
contracts which are ABSOLUTELY SIMULATED
or FICTITIOUS as well as those whose cause did
not exist at the time of the transaction
- Applicability of rule:
▪ Absolutely simulated contracts
▪ Fictitious contracts
▪ Conveyance of property where the conveyance
or transfer is simulated without any cause or
consideration whatsoever whether the purpose of
the grantor is to defraud his creditors or to avert
the possible attachment of the property
- Inapplicability of rule:
▪ Purchaser failed to fully pay for the property, even
if there is a stipulation in the contract that full
payment shall be made at the time of celebration
thereofi
▪ A contract which states that the consideration for
the sale of a piece of land is only one peso
- It is TOTAL ABSENCE of cause or consideration that
renders a contract void and inexistent
Simulated contracts
- The basic characteristic of simulation is the fact that
the apparent contract is not really desired or intended
to produce legal effects or in any way alter the juridical
situation of the parties
Lesion or inadequacy of cause
- Except in cases provided by law, shall not invalidate
a contract, unless there has been fraud, mistake or
undie influence
▪ VOIDABLE if it can be established that it was due
to fraud, mistake, or undue influence
- The Court does not agree with the respondent court’s
legal conclusion that the deed of “Assignment of Right
of Inheritance” is void ab initio and inexistent on the
grounds that real consent was wanting and the
consideration of P1.00 is so shocking to the
conscience that there was in fact no consideration
(Carantes vs. Court of Appeals)
Note: Despite the fact that lesion or inadequacy of cause,
in itself, can not render the contract void or voidable, there
is always the possibility that the contract may be
rescissible
Effect of unlawful cause
- An unlawful cause is one which is contrary to law,
morals, good customs, public order or public policy
- VOID AB INITIO
- Article 1352 presupposes the existence of an illicit or
illegal cause which is determinative of the nullity of the
contract
▪ Cannot be applied to simulated or fictitious
transfers of property, where the motive of the
grantor may be either to defraud his creditors or
to avert possible attachment
- Example:
▪ A contract affecting the course of a criminal
prosecution is invalid because such contract
would be manifestly contrary to public policy and
the due administration of justice
▪ Criminals should be prosecuted and all
criminal proceedings should be instituted and
maintained in the form and manner
prescribed by law
Note: It is immaterial whether the illegal character of the
contract is revealed in the matter of the consideration, in
the promise as expressed in the agreement or in the
purpose which the agreement, though legal in expression,
is intended to accomplish. If the illegality lurks in any
element, or even subsists exclusively in the purpose of
the parties, it is fatal to the validity of the contract
Effect of false cause
- Renders the contract VOID if it should not be proved
that they were founded upon another cause which is
true and lawful
▪ In simulated contracts, it does not necessarily
follow that it is inexistent or void, provided that it
can be established that it is, in reality, founded
upon another cause which is true and lawful
SUMMARY OF RULES RELATING TO CAUSE
1. Absence of cause – confers no right and
produces no legal effect.
2. Failure of cause – does not render the contract
void.
3. Illegality of cause – contract is null and void.
4. Falsity of cause – contract is void; unless the
parties show that there is another cause which is
true and lawful.
5. Lesion or inadequacy of cause – does not
invalidate the contract, unless:
A. There is fraud, mistake, or undue influence;
B. When the parties intended a donation or some
other contract; or
C. in cases specified by law (e.g. contracts
entered by guardian when ward suffers lesion
of more than 25% and with court approval,
otherwise, if there is no approval, the contract
is void regardless of the amount of lesion.)
CHAPTER 3:
FORMS OF CONTRACT
GENERAL PROVISIONS
Article 1356. Contracts shall be obligatory, in whatever
form they may have been entered into, provided all the
essential requisites for their validity are present.
However, when the law requires that a contract be in
some form in order that it may be valid or enforceable,
or that a contract be proved in a certain way, that
requirement is absolute and indispensable. In such
cases, the right of the parties stated in the following
articles cannot be exercised.
RULES ON THE FORMS OF CONTRACTS
- GR: Form is not required in consensual contracts.
(Provided, all the essential requisites for their validity
are present.)
▪ Adhering to the “spiritual system” of the Spanish
Code which looks more at the spirit rather than
the form
- XPNs: When the law requires a contract be in writing
for its:
▪ Validity (formal contracts);
▪ Enforceability (under the Statutes of Frauds); or
▪ For the convenience of the parties
Note: The parties may compel each other to reduce the
verbal agreement into writing
FORMALITIES FOR VALIDITY
1. Must appear in writing;
2. Must appear in a public document; and
3. Must be registered
Contracts which must be in WRITING
1. Donation of personal property whose value exceeds
five thousand pesos (P5,000)
- BOTH the donation and acceptance must be in
writing, or else VOID
2. Sale of a piece of land or any interest therein through
an agent
- Authority of the agent must be in writing,
otherwise it is VOID
3. Agreements regarding payment of interest in
contracts of loan
- No interest shall be due unless it has been
expressly stipulated in writing
- Validity of the contract of loan is not affected
4. Antichresis
- Amount of the PRINCIPAL and INTEREST shall
be specified in writing, otherwise it is VOID
Contracts which must appear in a PUBLIC
INSTRUMENT
1. Donation of real properties
Act Form
Donation Must be made in a public
document
Acceptance May be made in the same deed of
donation or in a separate public
document
If made in a SEPARATE
document, the donor shall be
notified in an AUTHENTIC form,
and must be noted in both
instruments
- Noncompliance shall render the donation VOID
2. Partnership where immovable property or real rights
are contributed to the common fund
- There must also be an inventory of the immovable
property or real rights, signed by the partners, and
attached to the public instrument; otherwise it is
VOID
3. Acts and contracts which have for their object the
creation, transmission, modification or
extinguishment of real rights over immovable
property; sale of real property or of an interest therein
is governed by Arts. 1403, No. 2, and 1405
4. The cession, repudiation or renunciation of hereditary
rights or of those of the conjugal partnership of gains
5. The power to administer property or any other power
which has for its object an act appearing or which
should appear in a public document or should
prejudice a third person
6. The cession of actions or rights proceeding from an
act appearing in a public document
Contracts which must be REGISTERED
1. Chattel mortgages e.g., creation of real rights over
- Personal property is recorded in the Chattel immovable property must be written,
Mortgage Register as a security for the deposit and pledge
performance of an obligation Solemn Must appear in writing
- If the movable, instead of being recorded, is
delivered to the creditor or a 3rd person, the According to the degree of dependence and according to
contract is a PLEDGE and not a chattel mortgage their relation to other contracts
Principal Can exists independently of other
CASE DISCUSSION (Conflicting view) contracts
Filipinas Marble Corporation vs. Intermediate
Appellate Court e.g., contract of loan
GR No. L-68010, May 30, 1986 Accessory Cannot exist without a valid principal

An unregistered chattel mortgage is binding e.g., guaranty, surety, pledge,

between the parties because registration is mortgage
necessary only for the purpose of binding third Preparatory Not an end by itself but only a means
persons for the execution of another contract

2. Sale or transfer of large cattle e.g., contract of agency as agency

- By virtue of the Cattle Registration Act does not stop with the agency because
- No sale or transfer of large cattle shall be valid the purpose is to enter into other
unless it is duly registered and a certificate of contracts
transfer is secured
According to their form
Formalities for enforceability Common or Those which require no particular form
- Pertains to contracts governed by the Statutes of informal
Frauds e.g., loan
▪ Unenforceable by action, unless they are in Special or Require a particular form
writing and properly subscribed, or unless they formal
are evidenced by some note or memorandum, e.g., donations, chattel mortgage
which must also be in writing and properly
subscribed According to their purpose
Transfer of e.g., sale
FORMS OF CONTRACTS REQUIRED BY LAW ownership
- Purpose of the requirement, however, is not to Conveyance e.g., usufruct, commodatum
validate or to enforce the contract, but to insure its of use
efficacy; in other words, the form required is neither Rendition of e.g., agency
for validity nor enforceability but for the convenience services
of the contracting parties
- Forms as required by law may be divided into: According to the nature of the vinculum they produce
▪ Those which are necessary for the Unilateral Give rise to an obligation only to one of
CONVENIENCE of the contracting parties or for the parties
the EFFICACY of the contract (Articles 1356 to
1358, NCC); e.g., commodatum
▪ Those which are NECESSARY FOR THE Bilateral Give rise to reciprocal obligations for
VALIDITY of the contract (scattered provisions of both parties
NCC and special laws); and
▪ Those which are necessary for the enforceability e.g., sale
of the contract (Statutes of Frauds)
According to their cause
KINDS OF CONTRACT Onerous e.g., sale
According to perfection or formation Gratuitous e.g., commodatum
Consensual Perfected by the mere meeting of the Remuneratory
minds of the parties
According to the risk involved
e.g., sale, lease
Commutative Those where each of the parties
Real Require for their perfection both the acquire an equivalent of his prestation
consent of the parties and the delivery and such equivalent is pecuniarily
of the object by one party to the other appreciable and already determined
from the moment of the perfection of
the contract

e.g., lease
Aleatory Those which are dependent upon the
happening of an uncertain event, thus,
charging the parties with the risk of
loss or gain
e.g., insurance
According to their names or norms regulating them
Nominate Those which have their own name
and individuality, and are regulated
by provisions of law
e.g., sale
Innominate Those which lack name or
individuality, and are not regulated by
special provisions of law
FORMALITIES FOR EFFICACIES
Article 1357. If the law requires a document or other
special form, as in the acts and contracts enumerated
in the following article, the contracting parties may
compel each other to observe that form, once the
contract has been perfected. This right may be
exercised simultaneously with the action upon the
contract
Article 1358. The following must appear in a public
document:
1. Acts and contracts which have for their object
the creation, transmission, modification or
extinguishment of real rights over immovable
property; sales of real property or of an interest
therein are governed by Articles 1403, No. 2
and 1405;
2. The cession, repudiation or renunciation of
hereditary rights or of those of the conjugal
partnership of gains;
3. The power to administer property, or any other
power which has for its object an act appearing
or which should appear in a public document,
or should prejudice a third person;
4. The cession of actions or rights proceeding
from an act appearing in a public document
All other contracts where the amount involved
exceeds P500 must appear in writing, even a
private one. But sale of goods, chattels or
things in action are governed by Articles 1403,
No. 2, and 1405
FORMALITIES FOR EFFICACY
- Article 1357 grants a coercive power to the
contracting parties by which they can reciprocally
compel the observance of the required form
- Arts. 1357 and 1358 do not require the execution of
the contract either in a public or in a private document
in order to validate or enforce it but only to insure its
efficacy, so that after its existence has been admitted,
the party bound may be compelled to execute the
necessary document
- Even where the contract has not been reduced to the
required form, it is still valid and binding as far as the
contracting parties are concerned
- When invoked by means of a proper action, the effect
is to place the existence of the contract in issue, which
must be resolved by the ordinary rules of evidence
- The action to compel the execution of the necessary
document and the action upon the contract may be
exercised simultaneously
- From the moment when any of the contracting parties
invokes said provisions, it is evident that under them
the execution of the required document must precede
the determination of the other obligations derived
from the contract
CHAPTER 4:
REFORMATION OF INSTRUMENTS
GENERAL PROVISIONS
Article 1359. When, there having been a meeting of
the minds of the parties to a contract, their true intention
is not expressed in the instrument purporting to
embody the agreement, by reason of mistake, fraud,
inequitable conduct or accident, one of the parties may
ask for the reformation of the instrument to the end that
such true intention may be expressed.
If mistake, fraud, inequitable conduct, or accident has
prevented a meeting of the minds of the parties, the
proper remedy is not reformation of the instrument but
annulment of the contract
DOCTRINE OF REFORMATION OF INSTRUMENTS
- Remedy to conform to the real intention of the parties
due to mistake, fraud, inequitable conduct, accident
- Remedy in equity by means of which a written
instrument is made or construed so as to express or
confirm the real intention of the parties when some
error or mistake is committed
Rationale
- It would be unjust and inequitable to allow the
enforcement of a written instrument which does not
reflect or disclose the real meeting of the minds of the
parties
Requisites in reformation of instruments
1. Meeting of the mind to the contract;
2. True intention is not expressed in the instrument;
3. By reason of: (MARFI)
a. Mistake;
b. Accident;
c. Relative simulation;
d. Fraud; or
e. Inequitable conduct
4. Strong, clear and convincing proof of MARFI
Distinction between reformation and annulment
Reformation Annulment
There is meeting of the There is no meeting of the
minds between the parties minds. Consent is vitiated.
as to the object, cause of
the contract
The instrument failed to The meeting of the minds
express the true intention was prevented by reason
of the parties due to of mistake, fraud,
mistake, fraud, inequitable conduct or
inequitable conduct or accident perpetrated by
accident. one party against the
other
The purpose of The purpose of annulment
reformation is to establish is to render inefficacious
the true agreement of the the contract in question.
parties and not to create a
new one
Note: When there is no meeting of the minds, the proper
remedy is annulment and not reformation
Operation and effect of reformation
- Relates back to, and takes effect from the time of its
original execution, especially as between the parties
- Reformation of instruments may be availed of
judicially or extrajudicially
Basis and nature of reformation
- Based on the principle of equity where, to express the
true intention of the contracting parties, an instrument
already executed is allowed by law to be reformed
- Right of reformation is necessarily an invasion or
limitation of the parol evidence rule, since, when a
writing is reformed, the result is that an oral
agreement is by court decree made legally effective
- Must be subject to the limitations as may be provided
by law
Article 1360. The principles of the general law on the
reformation of instruments are hereby adopted insofar
as they are not in conflict with the provisions of this
Code
Article 1361. When a mutual mistake of the parties
causes the failure of the instrument to disclose their
real agreement, said instrument may be reformed
Article 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, the
former may ask for the reformation of the instrument
Article 1363. When one party was mistaken and the
other knew or believed that the instrument did not state
their real agreement, but concealed that fact from the
former, the instrument may be reformed
Article 1364. When through the ignorance, lack of skill,
negligence or bad faith on the part of the person
drafting the instrument or of the clerk or typist, the
instrument does not express the true intention of the
parties, the courts may order that the instrument be
reformed
Article 1365. If two parties agree upon the mortgage or
pledge or real or personal property, but the instrument
states that the property is sold absolutely or with a right
of repurchase, reformation of the instrument is proper
Article 1366. There shall be no reformation in the
following cases:
1. Simple donations inter vivos wherein no
condition is imposed;
2. Wills;
3. When the real agreement is void
Article 1367. When one of the parties has brought an
action to enforce the instrument, he cannot
subsequently ask for its reformation.
Article 1368. Reformation may be ordered at the
instance of either party or his successors in interest, if
the mistake was mutual; otherwise, upon petition of the
injured party, or his heirs or assign.
Article 1369. The procedure for the reformation of
instruments shall be governed by rules of court to be
promulgated by the Supreme Court
Reformation of instruments; when allowed
1. Mutual mistake. – When the mutual mistake of the
parties causes the failure of the instrument to disclose
their agreement (NCC, Art. 1361);
Requisites:
a. The mistake should be of fact;
b. The same should be proved by clear and
convincing evidence; and
c. The mistake should be common to both parties to
the instrument (BPI v. Fidelity Surety, Co. 51 Phil
57).
2. Mistake on one party and fraud on the other. – In such
a way that the instrument does not show their true
intention, the party mistaken or defrauded may ask for
the reformation of the instrument (NCC, Art. 1362);
3. Mistake on one party and concealment on the other.
– When one party was mistaken and the other knew
or believed that the instrument did not state their real
agreement, but concealed that fact from the former
(NCC, Art. 1363);
4. Ignorance, lack of skill, negligence or bad faith. –
When through the ignorance, lack of skill, negligence
or bad faith on the part of the person drafting the
instrument or of the clerk or typist, the instrument
does not express the true intention of the parties
(NCC, Art. 1364);

5. Right of repurchase. – If the parties agree upon the
mortgage or pledge of real or personal property, but
the instrument states that the property is sold
absolutely or with a right of repurchase (NCC, Art.
1365).
Reformation of instruments; when not allowed
1. Simple, unconditional donations inter vivos;
2. Wills;
3. When the agreement is void (NCC, Art. 1366);
4. When an action to enforce the instrument is filed
(estoppel);
5. If mistake, fraud, inequitable conduct, or accident has
prevented a meeting of the minds of the parties;
Note: The remedy here is annulment of contract.
6. When the contract is unenforceable because of failure
to comply with the statute of frauds.
Prescriptive period in reformation of instruments
- 10 YEARS from the date of the execution of the
instrument
Note: The prescriptive period within which to bring an
action to set aside or reform a simulated or fictitious
written deed of pacto de retro sale starts only when the
alleged vendees made known their intention by overt acts
not to abide by the true agreement, and not from the date
of execution of contract (Conde v. Cuenca, G.R. No. L-
643, 1956).
Persons who can ask for the reformation of the
instruments
- It may be ordered at the instance of:
▪ Either party or his successors in interest (if the
mistake is mutual);
▪ Upon petition of the injured party; or
▪ His heirs and assigns.
Note: In the reformation of contracts, what is reformed is
not the contract itself, but the instrument embodying the
contract. It follows that whether the contract is
disadvantageous or not is irrelevant to reformation and
therefore, cannot be an element in the determination of
the period for prescription of the action to reform
CONTRACTS OF ADHESION
- One in which one of the parties imposes a ready-
made form of contract, which the other party may
accept or reject, but which the latter cannot modify.
- In itself is not an invalid agreement, and is as binding
as a mutually executed transaction
- One who adheres to the contract is in reality free to
reject it entirely, and if he adheres he gives his
consent
- It is in the person who made the contract of adhesion
who has the burden to prove the provisions stated
therein
CONTRACTS OF CREDIT CARDS
- A contract of adhesion, so-called because its terms
are prepared by only one party while the other party
merely affixes his signature signifying his adhesion
thereto
- The validity thereof must be determined in the light of
the circumstances under which the stipulation is
intended to apply
- For the cardholder to be absolved from liability for
unauthorized purchases made through his lost or
stolen card, two steps must be followed:
▪ The cardholder must give written notice to the
credit card company, and
▪ The credit card company must notify its member
establishments of such loss or theft, which,
naturally, it may only do upon receipt of a notice
from the cardholder
CHAPTER 5:
INTERPRETATION OF CONTRACTS
GENERAL PROVISIONS
Article 1370. If the terms of a contract are clear and
leave no doubt upon the intention of the contracting
parties, the literal meaning of its stipulations shall
control.
If the words appear to be contrary to the evident
intention of the parties, the latter shall prevail over the
former.
Article 1371. In order to judge the intention of the
contracting parties, their contemporaneous and
subsequent acts shall be principally considered.
PRIMACY OF INTENTION OF PARTIES
- Intention of the contracting parties should always
prevail because their will has the force of law between
them
▪ If the terms of the contract are clear and leave no
doubt as to the intention of the contracting parties,
the literal sense of its stipulations shall be
followed;
▪ If the words appear to be contrary to the evident
intention of the contracting parties, the intention
shall prevail
- The contract is the law between the parties and when
the words of the contract are clear and can easily be
understood, there is no room for construction
How to judge intention
- The contemporaneous and subsequent acts shall be
principally considered
- GR: Documents are interpreted in the precise terms
in which they are expressed, but the courts, in the
exercise of their sound discretion, are called upon to
admit direct and simultaneous circumstantial
evidence necessary for their interpretation with the
purpose of making the true intention of the parties
prevail.
- Where there is evidence regarding the intention of the
parties to extend the contract equivalent to the period
of suspension caused by the war and the parties
understood the suspension to mean extension, it was
held that the suspension of the agreement means the
extension of the same for a period equivalent to the
suspension
Article 1372. However general the terms of a contract
may be, they shall not be understood to comprehend
things that are distinct and cases that are different from
those upon which the parties intended to agree.
Article 1373. If some stipulation of any contract should
admit of several meanings, it shall be understood as
bearing that import which is most adequate to render it
effectual
CHAPTER 6:
RESCISSIBLE CONTRACTS
IN GENERAL
Article 1380. Contracts validly agreed upon may be
rescinded in the cases established by law.
Contract which is valid because it contains all of the
essential requisites prescribed by law, but which is
defective because of INJURY or DAMAGE to either of the
contracting parties or to third persons, as a consequence
of which it may be rescinded by means of a proper action
for rescission
CHARACTERISTICS

Article 1374. The various stipulations of a contract 1. Their defect consists in injury or damage either to one
shall be interpreted together, attributing to the doubtful of the contracting parties or to third parties
ones that sense which may result from all of them taken 2. Before rescission, they are valid and, therefore,
jointly legally effective
3. They can be attacked directly only, and not
Article 1375. Words which may have different collaterally
significations shall be understood in that which is most 4. They can be attacked only either by a contracting
in keeping with the nature and object of the contract party or by a third person who is injured or defrauded
5. They are susceptible of convalidation only by
Article 1376. The usage or custom of the place shall prescription, and not be ratification
be borne in mind in the interpretation of the ambiguities
of a contract, and shall fill the omission of stipulations RESCISSION
which are ordinarily established
Remedy granted by law to the contracting parties, and
Article 1377. The interpretation of obscure words or even to third persons, to secure the reparation of
stipulations in a contract shall not favor the party who damages caused to them by a contract, even if the same
caused the obscurity should be valid, by means of the restoration of things to
their condition prior to the celebration of contract
Article 1378. When it is absolutely impossible to settle
Distinguished from RESOLUTION
doubts by the rules established in the preceding
articles, and the doubts refer to incidental Basis Rescission Resolution
circumstances of a gratuitous contract, the least (Art 1381) (Art 1191)
transmission of rights and interests shall prevail. If the Both presuppose contracts validly
contract is onerous, the doubt shall be settled in favor entered into and subsisting and both
of the greatest reciprocity of interests. require mutual restitution when proper
Nature Subsidiary Principal action;
If the doubts are cast upon the principal object of the remedy retaliatory in
contract in such a way that it cannot be known what character
may have been the intention or will of the parties, the Purpose Reparation for Cancellation of the
contract shall be null and void damage or injury, contract
allowing partial
Article 1379. The principles of interpretation stated in rescission of
Rule 123 of the Rules of Court shall likewise be contract
observed in the construction of contracts. Grounds 5 grounds under Non-performance
Art 1381 (lesion or is the only ground
fraud of creditors);
non-performance
is not important
Applicability Both unilateral Only to reciprocal
and reciprocal contracts
contracts
Person who Not only by a party Only the injured
can initiate to the contract but party to the
action even 3rd person contract
 Fixing of There is no power Law expressly 1 - CONTRACTS IN BEHALF OF WARD
period by of the courts to declares that - Those which are entered into by guardians whenever
the Court grant an extention courts shall have a the wards whom they represent suffer lesion or
of time for discretionary damage by more than ¼ of the value of the things
performance of power to grant an which are the object thereof
the obligation so extention for ▪ Without prejudice to Art 1386 which states that
long as there is a performance rescission shall not take place with respect to
ground for provided that there contracts approved by the courts
rescission is a just cause - Judicial guardians entering into a contract with
Prescriptive 4 years 10 years from respect to the property of his ward must ordinarily
period accrual of right of secure approval of a competent court (Rules of Court)
action for written ▪ Same is true in case parents as a natural
contracts; guardian of the child’s property under parental
authority where such property is worth more than
6 years for verbal P2,000.
contracts
Judicial approval
Distinguished from RESCISSION BY MUTUAL Indispensable If the contract Contract is
CONSENT involves the sale unenforceable,
Rescission by mutual or encumbrance and not
Rescission of real property rescissible even
consent
Relief which the law For the dissolution of a if the latter
grants, on the premise previous one, and its suffers lesion or
that the contract is valid, effects, in relation to the damage of more
for the protection of one of contract so dissolved, than ¼ of the
the contracting parties should be determined by value of the
and 3rd persons from all the agreement made by property
injury or damage that the the parties, or by the Not necessary Contracts falling Contract is
contract may cause, or to application of other legal within the scope rescissible if the
protect some provisions of powers as latter suffers the
incompatible and guardian, such lesion or
preferential right created as when the damage
by the contract contract
involves acts of
RESCISSIBLE CONTRACTS administration

Article 1381. The following contracts are rescissible:
1. Those which are entered into by guardians
whenever the wards whom they represent
suffer lesion by more than ¼ of the value of the
things which are the object thereof;
2. Those agreed upon in representation of
absentees, if the latter suffer the lesion stated
in the preceding number;
3. Those undertaken in fraud of creditors when
the latter cannot in any manner collect the
claims due them;
4. Those which refer to things under litigation if
they have been entered into by the defendant
without the knowledge and approval of the
litigants or of competent judicial authority;
5. All other contracts specially declared by law to
be subject to rescission
Article 1382. Payments made in a state insolvency for
obligations to whose fulfillment the debtor could not be
compelled at the time they were effected, are also
rescissible
2 - CONTRACTS IN BEHALF OF ABSENTEES
- Those agreed upon in representation of absentees, if
the latter suffer the lesion stated in the preceding
number
- Same principles as those contracts in behalf of wards
Requisites for the rescission under par 1 and 2
The following must concur:
1. Contract must have been entered into by a
guardian in behalf of his ward or by a legal
representative in behalf of an absentee;
2. Ward or absentee must have suffered lesion of
more than ¼ of the value of the property which is
the object of the contract;
3. Contract must have been entered into without
judicial approval;
4. There must be no other legal means for obtaining
reparation for the lesion;
5. Person bringing the action must be able to return
whatever he may be obliged to restore; and
6. Object of the contract must not be legally in the
possession of a third person who did not act in
bad faith
- If object is legally in the possession of a 3rd
person who did not act in bad faith, remedy is
 indemnification for damages and not CASE DISCUSSION
rescission Chief Justice Davide, Jr., First Division, Siguan vs. Lim
GR No 134685
3 - CONTRACTS IN FRAUD OF CREDITORS
- Those undertaken in fraud of creditors when the latter Without any prior debt existing, there can neither be
cannot in any manner collect the claims due them fraud nor injury. While it is necessary that the credit of
- Complementary to Art 1177 NCC: the plaintiff in the accion pauliana must exist prior to the
▪ One of the remedies available to the creditor after fraudulent alienation, the date of the judgement
he has exhausted all the property in possession enforcing it is immaterial.
of the debtor is to impugn the acts which the latter
may have done to defraud him 4 - CONTRACTS REFERRING TO THINGS UNDER
LITIGATION
ABSOLUTELY - Those which refer to things under litigation if they
CONTRACTS IN FRAUD
SIMULATED have been entered into by the defendant without the
OF CREDITORS
CONTRACTS knowledge and approval of the litigants or of
Rescissible under par 3 of Not merely rescissible, competent judicial authority
Article 1381 but inexistent
Remedy is rescission Remedy is action to Distinguished from par 3
declare the contract PAR 3 PAR 4
inexistent Purpose is to guarantee Purpose is to secure the
Action is prescriptible Imprescriptible an existing debt possible effectivity of a
after four year claim
Both are undertaken in fraud of creditors Personal right is involved Real right is involved
In both cases the person who can avail of the remedy
Requisites for rescission under par 3 of rescission is a stranger to the contract
The following requisites must concur:
1. There must be a credit existing PRIOR to the CONTRACTS BY INSOLVENT
celebration of the contract; - Payments made in a state insolvency for obligations
2. There must be a FRAUD, or at least, the intent to to whose fulfillment the debtor could not be compelled
commit fraud to the prejudice of the creditor at the time they were effected
seeking the rescission; - Requisites:
3. The creditor cannot in any other legal manner ▪ It must have been made in a state of insolvency;
collect his credit; ▪ Obligation must have been one which the debtor
4. The object of the contract must not be legally in could not be compelled to pay at the time such
the possession of a 3rd person who did not act in payment was effected
bad faith - Insolvency refers to the financial situation of the
debtor by virtue of which it is impossible for him to
Accion Pauliana fulfill his obligations
- Action to rescind contracts undertaken in fraud of ▪ Judicial declaration of insolvency is not
creditors necessary
- Requisites: - Obligations comprehend not only those with a term or
▪ Plaintiff asking for rescission has a credit prior to which are subject to a suspensive condition, but even
the alienation; void and natural obligations as well as those which
▪ Debtor has made a subsequent contract are condoned or which have prescribed
conveying a patrimonial benefit to a 3rd person; ▪ In case of obligations with a suspensive period, if
▪ Creditor has no other legal remedy to satisfy his the obligation with a period became due BEFORE
claim; the obligation to the creditor seeking the
▪ Act being impugned is fraudulent; rescission, the latter cannot rescind the payment
▪ 3rd person who received the property conveyed, if even if such was effected before the expiration of
it is by onerous title, has been an accomplice in the period
the fraud ▪ If the obligation with a period became due after
- GR: Rescission requires the existence of creditors at the obligation to the creditor seeking rescission,
the time of the alleged fraudulent alienation, and this the latter can rescind
must be proved as one of the bases of the judicial
pronouncement setting aside the contract Requisites for action for rescission
1. Plaintiff has no other means to maintain reparation;
2. Plaintiff must be able to return whatever he may be
obliged to return due to rescission;
3. The thing must not have been passed to 3 rd persons
in good faith;
4. It must be made within 4 years
5 - OTHER RESCISSIBLE CONTRACTS
Article A partition, judicial or extra-judicial when any
1098 one of the co-heirs received things whose
value is less, by at least one-fourth, than the
share to which he is entitled, considering the
value of the things at the time they were
adjudicated
Article If the object in an obligation to give with
1189 suspensive condition deteriorates through
the fault of the debtor, the creditor may
choose between the rescission of the
obligation and its fulfillment, with indemnity
for damages in either case;
Article An unpaid seller has the right to rescind the
1526 sale notwithstanding that the ownership in the
goods may have passed to the buyer
Article An unpaid seller having the right of lien or
1534 having stopped the goods in transitu, may
rescind the transfer of title and resume the
ownership in the goods, where he expressly
reserved the right to do so in case the buyer
should make default, or where the buyer has
been in default in the payment of the price for
an unreasonable time.
Article If the sale of real estate should be made with
1539 a statement of its area, at the rate of a certain
price for a unit of measure or number, and the
vendor could not deliver, the vendee may
choose between a proportional reduction of
the price and the rescission of the contract,
provided that, in the latter case, the lack in the
area be not less than one-tenth of that stated.
The same shall be done, even when the area
is the same, if any part of the immovable is
not of the quality specified in the contract.
The rescission, in this case, shall only take
place at the will of the vendee, when the
inferior value of the thing sold exceeds one-
tenth of the price agreed upon.
Nevertheless, if the vendee would not have
bought the immovable had he known of its
smaller area of inferior quality, he may
rescind the sale.
Article In the sale of real estate, made for a lump
1542 sum and not at the rate of a certain sum for a
unit of measure or number, there shall be no
increase or decrease of the price, although
there be a greater or less area or number than
that stated in the contract.
The same rule shall be applied when two or
more immovables as sold for a single price;
but if, besides mentioning the boundaries,
which is indispensable in every conveyance
of real estate, its area or number should be
designated in the contract, the vendor shall
be bound to deliver all that is included within
said boundaries, even when it exceeds the
area or number specified in the contract; and,
should he not be able to do so, he shall suffer
a reduction in the price, in proportion to what
is lacking in the area or number, unless the
contract is rescinded because the vendee
does not accede to the failure to deliver what
has been stipulated.
Article Should the vendee lose, by reason of the
1556 eviction, a part of the thing sold of such
importance, in relation to the whole, that he
would not have bought it without said part, he
may demand the rescission of the contract;
but with the obligation to return the thing
without other encumbrances that those which
it had when he acquired it.
The same rule shall be observed when two or
more things have been jointly sold for a lump
sum, or for a separate price for each of them,
if it should clearly appear that the vendee
would not have purchased one without the
other.
Article If the immovable sold should be encumbered
1560 with any non-apparent burden or servitude,
not mentioned in the agreement, of such a
nature that it must be presumed that the
vendee would not have acquired it had he
been aware thereof, he may ask for the
rescission of the contract, unless he should
prefer the appropriate indemnity. Neither right
can be exercised if the non-apparent burden
or servitude is recorded in the Registry of
Property, unless there is an express warranty
that the thing is free from all burdens and
encumbrances.
Within one year, to be computed from the
execution of the deed, the vendee may bring
the action for rescission, or sue for damages.
One year having elapsed, he may only bring
an action for damages within an equal period,
to be counted from the date on which he
discovered the burden or servitude.
Article In the cases of Articles 1561, 1562, 1564,
1567 1565 and 1566, the vendee may elect
between withdrawing from the contract and
demanding a proportionate reduction of the
price, with damages in either case.
Article If the lessor or the lessee should not comply
1659 with the obligations set forth in Articles 1654
and 1657, the aggrieved party may ask for the
rescission of the contract and indemnification
for damages, or only the latter, allowing the
contract to remain in force.
ACTION FOR RESCISSION
Article 1383. The action for rescission is subsidiary; it
can not be instituted except when the party suffering
damage has no other legal means to obtain reparation
for the same
Subsidiary character
- Before a party who is prejudiced can avail himself of
this remedy, it is essential that he has exhausted all
of the other legal means to obtain reparation
- Availed of as the LAST RESORT
- RATIONALE:
▪ In order not to disturb other contracts and to
comply with the principle of relativity of contracts
▪ If it can be proven that the property alienated was
the only property of the debtor at the time of the
transaction, the action for rescission is certainly
maintainable because it is clear that the creditor
has no other remedy under the circumstances
Parties who may institute action
1. The person who is prejudiced, such as the party
suffering the lesion in rescissory actions on the
ground of lesion, the creditor who is defrauded in
rescissory actions on the ground of fraud, and other
persons authorized to exercise the same in other
rescissory actions;
2. Their representatives;
3. Their heirs;
4. Their creditors by virtue of the subrogatory action
defined in Article 1177 of the Code
Article 1384. Rescission shall be only to the extent
necessary to cover the damages caused.
Extent of rescission
- Primary purpose of rescission is reparation for the
damage or injury which is suffered either by a party to
a contract or by a third person
▪ Does not necessarily have to be total in character,
it may be partial
Article 1385. Rescission creates the obligation to
return the things which were the object of the contract,
together with their fruits, and the price with its interest;
consequently, it can be carried out only when he who
demands rescission can return whatever he may be
obliged to restore.
Neither shall rescission take place when the things
which are the object of the contract are legally in the
possession of third persons who did not act in bad faith.
In this case, indemnity for damages may be demanded
from the person causing the loss.
EFFECT OF RESCISSION
1. Obligation of mutual restitution (but not absolute);
2. Abrogation of contract (absolute);
3. Obligation of 3rd person to restore (if 3rd person has
nothing to restore, article does not apply)
Note: Rescission is possible only when the person
demanding rescission can return whatever he may be
obliged to restore. A court of equity will not rescind a
contract unless there is restitution (i.e., parties are
restored to the status quo ante
Mutual restitution is not applicable when
1. Creditor did not receive anything from contract; or
2. Thing already in possession of 3rd persons in good
faith; subject to indemnity only, if there are 2 or more
alienations – liability of first infractor
Requisites that must concur before a contract may be
rescinded on the ground of lesion
Applicable to contracts in behalf of ward or absentee:
1. Contract must be entered into by the guardian in
behalf of his ward or by the legal representative
of an absentee
2. Ward or absentee suffered a lesion of more than
¼ of the value of the property which is object of
the contract
3. Contract must be entered into without judicial
approval
4. There must be no other legal means for obtaining
reparation for the lesion
5. Person bringing the action must be able to return
whatever he may be obliged to restore
6. Object of the contract must not be legally in the
possession of a 3rd person who acted in good
faith
Effect of rescission in case of lesion
- First paragraph:
▪ Applicable only to rescissory actions on the
ground of LESION
▪ In actions on the ground of fraud, there can be no
obligation on the part of the plaintiff-creditor to
restore anything since he has not received
anything
- There is an obligation on the part of both contracting
parties to return to the other the object of the contract,
including fruits or interests
▪ Rescission is not possible, unless he who
demands it can return whatever he may be
obliged to restore
▪ As a condition precedent to rescission, the
consideration received should be refunded
- “Fruits of the thing”
▪ Refer not only to natural, industrial and civil fruits
but also to other accessions obtained by the thing
▪ As far as the obligation to restore the fruits is
concerned, the rules on possession shall be
applied
▪ The determination of the good or bad faith of the
party obliged to restore is of transcendental
importance in order to assess the fruits or the
value thereof which must be returned as well as
the expenses which must be reimbursed
- “Interest”
▪ Legal interest
Effect of rescission upon 3rd persons
- 2nd paragraph:
▪ Rescission shall not take place when the thing
which constitutes the object of the contract is
legally in the possession of a 3rd person WHO DID
NOT ACT IN BAD FAITH
- Requisites in order that the acquisition of the thing
which constitutes the object of the contract by a 3rd
person shall defeat an action for rescission:
▪ Thing must be legally in the possession of the 3rd
person
▪ Such 3rd person must not have acted in bad faith
▪ 3rd person refers not only to subsequent
transferees who are strangers to the contract
which is sought to be rescinded, but even to the
immediate transferees who are not strangers to
the cotract
Property Possession
Movable Possession of movable property
acquired in good faith is equivalent to
a title
Immovable The right of the 3rd person must be
registered or recorded in the proper
registry before the thing is legally in his
possession and before he is protected
by law
- When the object is legally in the possession of a 3rd
person who did not act in bad faith, the person who is
prejudiced may still bring an action for indemnity for
damages against the person who caused the loss
▪ Action may be directed against:
✓ Guardian, representative of the absentee or
litigant who transferred the thing
✓ Third person who, in bad faith, had previously
acquired the thing and, subsequently, had
alienated it to an innocent purchaser for value
Article 1386. Rescission referred to in Nos 1 and 2 of
Article 1381 shall not take place with respect to
contracts approved by the courts.
FRAUD
Article 1387. All contracts by virtue of which the debtor
alienates property by gratuitous title are presumed to
have been entered into in fraud of creditors, when the
donor did not reserve sufficient property to pay all debts
contracted before the donation.
Alienations by onerous title are also presumed
fraudulent when made by persons against whom some
judgment has been rendered in any instance or some
writ of attachment has been issued. The decision or
attachment need not refer to the property alienated,
and need not have been obtained by the party seeking
the rescission.
In addition to these presumptions, the design to
defraud creditors may be proved in any other manner
recognized by the law of evidence.
Article 1388. Whoever acquires in bad faith the things
alienated in fraud of creditors shall indemnify the latter
for damages suffered by them on account of the
alienation, whenever, due to any cause, it should be
impossible for him to return them.
If there are two or more alienations, the first acquirer
shall be liable first, and so on successively.
PROOF OF FRAUD
- May be either presumed in accordance with Article
13887 of the Code or duly proved in accordance with
the ordinary rules of evidence
- TEST: W/N the conveyance is prejudicial to the rights
of the creditor.
Presumptions of fraud
- Disputable presumptions which may be rebutted by
satisfactory and convincing evidence to the contrary
1. Alienations by gratuitous title if the debtor has not
reserved sufficient property to pay all his debts
contracted before such alienations;
2. Alienations by onerous title if made by a debtor
against whom some judgement has been rendered in
any instance or some writ of attachment has been
issued
- Decision need not refer to the property alienated
nor have been obtained by the party seeking
rescission
- Presumption is stronger when it is established
that the conveyance is for the purpose of
preventing the seizure of property
Badges of fraud
- Founded on a good and valuable cause or
consideration AND made with bona fide intent
- 3rd paragraph of Art 1387:
▪ The design to defraud creditors may be proved in
any other manner recognized by the law of
evidence
1. Fact that the cause or consideration of the
conveyance is inadequate
2. Transfer made by a debtor after suit has been
begun and while it is pending against him
3. Sale on credit by an insolvent debtor
4. Evidence of large indebtedness or complete
insolvency
5. Transfer of all or nearly all of his property by a
debtor, especially when he is insolvent or greatly
embarrassed financially
6. Fact that the transfer is made between father and
son, when there are present others of the above
circumstances
7. Failure of the vendee to take exclusive
possession of all the property
Requisites before a contract entered into in fraud of
the creditors may be rescinded
1. There must be a credit existing prior to the
constitution of the said fraudulent contract;
2. There must be fraud, or at least the intent to
commit fraud to the prejudice of the creditor
seeking rescission;
3. The creditor cannot in any legal manner collect
his credit (subsidiary character of rescission);
 4. The object of the contract must not be legally in CHAPTER 7:
the possession of a 3rd person in good faith
VOIDABLE CONTRACTS
ACQUISITIONS BY 3rd PERSON
GOOD FAITH BAD FAITH IN GENERAL
Not rescissible. Remedy Rescissible, even though
is to proceed against the property may have been Contracts in which all of the essential elements for validity
person causing the loss transferred to other are present, although the elements of consent is
for damages. Such persons who are not VITIATED either by the following:
person is solidarily liable innocent purchasers for a. Lack of legal capacity of one of the contracting
with that of transferring value. With right to parties; or
creditor as both of them indemnity for damages in b. By mistake, violence, intimidation, undue
are guilty of fraud case the property cannot influence, or fraud
be returned (unless loss is
due to fortuitous event) MOST ESSENTIAL FEATURE: Binding until annulled by
If the property is acquired Property is acquired by a competent court
by a purchaser in good one who is not a
faith and for value, the purchaser in good faith Possible alternatives to invoke voidable character
acquisition as far as the and for value 1. Attack validity
law is concerned is not - Directly by means of proper action in court
fraudulent (annulment); or
Right of purchaser in good If there are more than one - By way of defense (annullability or relative nullity)
faith is LEGALLY alienations, the first 2. Convalidate by ratification or by prescription
SUPERIOR to that of any acquirer shall be liable
other person even as first and so on CHARACTERISTICS
against the creditor who is successively
prejudiced by the 1. Their defect consists in the vitiation of consent of one
conveyance of the contracting parties
2. They are binding until they are annulled by a
competent court
PRESCRIPTIVE PERIOD 3. They are susceptible of convalidation by ratification or
by prescription
Article 1389. The action to claim rescission must be 4. Can be assailed only by the party whose consent was
commenced within four years. defective or his heirs or assigns

For persons under guardianship and for absentees, the Note: Third persons may assail if they are prejudiced
period of four years shall not begin until the termination (Development Bank vs. CA, 96 SCRA 342)
of the former’s incapacity, or until the domicile of the
latter is known. Distinguished from RESCISSIBLE CONTRACTS
VOIDABLE RESCISSIBLE
PRESCRIPTIVE PERIOD Defect is INTRINSIC Defect is EXTERNAL
GR: Action must be commenced within FOUR years because it consists of a because it consists of
XPN: Cases where period is 6 months or even 40 days, vice which vitiates damage or prejudice
counted from the date of delivery consent either to one of the
contracting parties or to a
Ground for Reckoning of prescriptive third person
rescission period Voidable even if there is Not rescissible if there is
Contracts in behalf of From the time the termination no damage or prejudice no damage or prejudice
ward of the incapacity of the ward Annullability is based on Rescissibility of the
Contracts in behalf of From the time the domicile of the LAW. Annulment is contract is based on
an absentee the absentee is known not only a remedy but a EQUITY. Rescission is a
Contracts in fraud of From the time of the sanction mere remedy
creditors, contracts discovery of the fraud Predominated by PUBLIC Predominated by
referring to things interest PRIVATE interest
under litigation and Susceptible of ratification Not susceptible
contracts by insolvent Annulment may be Rescission may be
invoked only by a invoked either by a
contracting party contracting party or by a
third person who is
prejudiced
Sanction Remedy
Principal action Subsidiary action
 VOIDABLE CONTRACTS RATIFICATION

Article 1390. The following contracts are voidable or Article 1392. Ratification extinguishes the action to
annullable, even though there may have been no annul a voidable contract.
damage to the contracting parties:
1. Those where one of the contracting parties is Article 1393. Ratification may be effected expressly or
incapable of giving consent to a contract; tacitly. It is understood that there is a tacit ratification if,
2. Those where the consent is vitiated by with knowledge of the reason which renders the
mistake, violence, intimidation, undue contract voidable and such reason having ceased, the
influence, or fraud person who has a right to invoke it should execute an
act which necessarily implies an intention to waive his
These contracts are binding, unless they are annulled right.
by a proper action in court. They are susceptible of
ratification. Article 1394. Ratification may be effected by the
guardian of the incapacitated person.
Note: Even though there may have been no damage to
the contracting parties, the contracts enumerated are still Article 1395. Ratification does not require the
voidable. Whether a contract which the law considers as conformity of the contracting party who has no right to
voidable has already been consummated or is merely bring the action for annulment.
executory is immaterial; it can always be annulled by a
proper action in court. Article 1396. Ratification cleanses the contract from all
its defects from the moment it was constituted.
PRESCRIPTION
Defined
Article1391. The action for annulment shall be brought Act or means by virtue of which efficacy is given to a
within four years. contract which suffers from a vice of curable nullity (also
called confirmation in the Spanish Civil Code)
This period shall begin: In case of intimidation, violence
or undue influence, from the time the defect of the Requisites
consent ceases. 1. The contract should be tainted with a vice which is
susceptible of being cured
In case of mistake or fraud, from the time of the - Contract would be void or inexistent if not
discovery of the same. susceptible of being cured
2. The confirmation should be effected by the person
And when the action refers to contracts entered into by who is entitled to do so under the law
minors or other incapacitated persons, from the time - By the incapacitated person upon attaining or
the guardianship ceases regaining capacity
- By his guardian if not yet attained or regained
Prescriptive period 3. It should be effected with knowledge of the vice or
Class Reckoning Period defect of the contract
Entered into by From the time the guardianship - Confirmation as a form of expressing the will has
incapacitated ceases the same conditions of freedom, knowledge, and
person clarity which consent also requires, although it
Those where From the time such violence, does not require the conformity of the other party
consent is vitiated intimidation or undue influence who has no right to invoke the nullity of the
by violence, ceases or disappears contract
intimidation or ▪ Conformation may also be invalidated by
undue influence mistake, violence, intimidation, undue
Those where From the time of the discovery of influence or fraud
consent is vitiated such mistake or fraud - When a contract is tainted with several vices,
by mistake or confirmation must ratify or confirm the contract
fraud with knowledge of all the vices, or else it will only
purge the contract of the vice known, and not
Note: If the action is not commenced within such period, those that is not
the right of the party entitled to institute the action shall 4. Must be express or through an act implying a waiver
prescribe of the action to annul
5. The cause of the nullity or defect should have already
disappeared or must immediately cease after the
ratification
- If not, such confirmation would also suffer from
the very vice or defect which it seeks to cure
 - In the case of contracts entered into by
incapacitated persons, it is not indispensable in a
sense, because even while the incapacity
continues to exist, the confirmation may be
effected by the guardian of the incapacitated
person
Forms of ratification
- No special form required, but the law provides that it
may be effected expressly or tacitly
- EXPRESS:
▪ Not defined in the Code
▪ There is an express confirmation if the person
who has a right to invoke it should expressly
declare his desire to convalidate it, or what
amounts to the same thing, to renounce his right
to annul the contract
▪ Clearly manifested verbally or formally in writing
- TACIT:
▪ With knowledge of the reason which renders the
contract voidable and such reason having
ceased, the person who has the right to invoke it
should execute an act which necessarily implies
an intention to waive his right
Party who may ratify
1. In contracts entered into by incapacitated persons
- Guardian;
- Injured party himself, provided he is already
capacitated
2. In contracts voidable on the ground of mistake
- Party whose consent was vitiated
Effect of ratification
1. Extinguishes the action to annul the contract; and
2. Cleanses the contract of its defects from the moment
it was executed
Result of valid ratification
No action to annul he same can be maintained based
upon defects relating to its original validity
Retroactivity in ratification of contracts
GR: Retroactivity applies in ratification of contracts
XPN: When the rights of innocent 3rd persons will be
prejudiced, ratification will not take effect
Note: Ratification does not require the conformity of the
contracting party who has no right to bring action for
annulment
Confirmation vs. Recognition
CONFIRMATION RECOGNITION
Act by which a voidable Act whereby a defect of
contract is cured of its vice proof is cured such as
or defect when an oral contract is
put into writing or when a
private instrument is
converted into a public
instrument
ACTION FOR ANNULMENT
Article 1397. The action for the annulment of contracts
may be instituted by all who are thereby obliged
principally or subsidiarily. However, persons who are
capable cannot allege the incapacity of those with
whom they contracted; nor can those who exerted
intimidation, violence, or undue influence, or employed
fraud, or caused mistake base their action upon these
flaws of the contract.
Who may institute action
- Two requisites required to confer capacity for the
exercise of the action for annulment:
▪ Real party in interest – all who are principally or
subsidiarily liable
✓ GR: He who is not a stranger to the contract
cannot institute an action for its annulment
✓ XPN: If the stranger is prejudiced in his rights
with respect to one of the contracting parties,
and can show detriment which would
positively result to him from the contract in
which he has no intervention
▪ The victim and not the party responsible for the
vice or defect must be the person who must
assert the same
✓ Whoever goes to court must do so with clean
hands
Note: An action for annulment is independent of the lesion
or damage suffered by the plaintiff
Article 1398. An obligation having been annulled, the
contracting parties shall restore to each other the things
which have been the subject matter of the contract, with
their fruits, and the price with its interest, except in
cases provided by law.
In obligations to render service, the value thereof shall
be the basis for damages.
Article 1399. When the defect of the contract consists
in the capacity of one of the parties, the incapacitated
person is not obliged to make any restitution except
insofar as he has been benefited by the thing or price
received by him.
EFFECTS OF ANNULMENT
When the EFFECT
contract is
Consummated Contracting parties shall be released
from the obligations arising therefrom
Not yet Rules provided for in Articles 1398 to
consummated 1402 of the Code shall govern:
a. Restitution
GR: Mutual restitution
XPN: If and when such will
result in unjust enrichment of
one party at the expense of
another
 Note: Party incapacitated is
not obliged to make any
restitution except insofar as
he has been benefited by the
thing or the price received by
him
b. Whenever the person obliged
by the decree of annulment
to return the thing cannot do
so because it has been lost
through his fault, he shall
return the fruits received and
the value of the thing at the
time of the loss, with interest
from the same date
Obligation of mutual restitution
- Upon annulment the contracting parties should be
restored to their original position
Obligation Effect
To give Parties shall restore to
each other the things
which have been the
subject matter of the
contract, with their fruits,
and the price with its
interest, except in cases
provided by law
To do or not to do There will have to be an
apportionment of
damages based on the
value of such prestation
with corresponding
interests
- The question of fruits shall be shall be governed by
the rules on possession
Rules in case of incapacity
- The incapacitated is not obliged to make any
restitution except insofar as he has been benefited by
the thing or price received by him
- Benefit mentioned in Art 1399:
▪ Does not necessarily presuppose a material and
permanent augmentation of fortune
▪ Sufficient if there has been a prudent and
beneficial use by the incapacitated person of the
thing which he has received
✓ Necessary to know the necessities, social
position, and duties as a consequence
thereof to others
✓ Benefit is present if the thing received is used
for food, clothing, shelter, health, and others
of a similar character
▪ Proof of benefit is cast upon the person who has
capacity, since it is presumed in the absence of
proof that no benefit has accrued
- Rule is not applicable where the incapacitated person
can still return the thing which he has received
- If after attaining capacity, it is established that the
incapacitated not only failed to ask for the annulment
of the contract but he also squandered that part of the
consideration which remained, it is clear that there is
already an implied ratification
Modes of extinguishment of action for annulment
1. Prescription – if the action has prescribed, the
contract can no longer be set aside
2. Ratification – cleanses the contract of its defects from
the moment it was constituted
3. Loss of the thing which is the object of the contract
through the fraud or fault of the person who is entitled
to institute the action
4. Minor is guilty of active misrepresentation of his age
(Braganza v. De Villa Abrille, 1959)
Article 1400. Whenever the person obliged by the
decree of annulment to return the thing can not do so
because it has been lost through his fault, he shall
return the fruits received and the value of the thing at
the time of the loss with interest from the same date
Article 1401. The action for annulment of contracts
shall be extinguished when the thing which is the object
thereof is lost through the fraud or fault of the person
who has a right to institute the proceedings.
If the right of action is based upon the incapacity of any
one of the contracting parties, the loss of the thing shall
not be an obstacle to the success of the action, unless
said loss took place through the fraud or fault of the
plaintiff.
Article 1402. As long as one of the contracting parties
does not restore what in virtue of the decree of
annulment he is bound to return, the other cannot be
compelled to comply with what is incumbent upon him
EFFECT OF FAILURE TO MAKE RESTITUTION
Due to fault of Return the fruits received and the
defendant (against value of the thing at the time of
whom the action the loss, with interest from the
can be instituted) same date
Action for annulment is not
extinguished, that is, instead of
being compelled to restore the
thing, the defendant can only be
compelled to pay the value
Due to fault of Whether the loss occurred during
plaintiff (who has the plaintiff’s incapacity or after
the right of action) he had acquired capacity, the
action for annulment would still
be extinguished
Due to fortuitous Action for annulment is not
event extinguished, but liability is only
up to the value of the thing at the
time of the loss, without interest
thereon.
 CHAPTER 8: Note: The causes for the unenforceable character are
different from the causes for the voidable or rescissible
UNENFORCEABLE CONTRACTS character

IN GENERAL UNENFORCEABLE CONTRACTS

Those which cannot be enforced by a proper action in Article 1403. The following contracts are
court, unless they are ratified, because, either they are unenforceable, unless they are ratified:
entered into without or in excess of authority or they do 1. Those entered into in the name of another
not comply with the statute of frauds or both of the person by one who has been given no authority
contracting parties do not possess the required legal or legal representation, or who has acted
capacity beyond his powers;
2. Those that do not comply with the Statute of
Classes Defect Frauds as set for the in this number. In the
Those contracts entered There is absolutely no following cases an agreement hereafter made
into in the name of consent insofar as the shall be unenforceable by action, unless the
another person by one person in whose name the same, or some note or memorandum thereof,
without any authority or in contract is entered into is be in writing, and subscribed by the party
excess of his authority concerned charged, or by his agent; evidence, therefore,
of the agreement cannot be received without
Those which do not There is no writing, note or the writing, or a secondary evidence of its
comply with the Statute of memorandum by which contents:
Frauds the contract maybe A. An agreement that by its terms is not to be
proved performed within a year from the making
thereof;
Those where both Consent is absolutely B. A special promise to answer for the debt,
contracting parties are vitiated by the legal default, or miscarriage of another;
legally incapacitated incapacity of both of the C. An agreement made in consideration of
contracting parties marriage, other than a mutual promise to
marry;
D. An agreement for the sale of goods,
Note: A contract of sale over a piece of land entered by chattels or things in action, at a price not
an agent whose authority is NOT IN WRITING, even if less than P5,000, unless the buyer accept
ACTED BEYOND his authority is VOID, not merely and receive part of such goods and
unenforceable chattels. or the evidences, or some of
them, of such things in action, or pay at the
CHARACTERISTICS time some part of the purchase money, but
when a sale is made by auction and entry
1. They cannot be enforced by a proper action in court is made by the auctioneer in his sales
2. They are susceptible of ratification book, at the time of the sale, of the amount
3. They cannot be assailed by third persons and kind of property sold, terms of sale,
4. Defect is of permanent nature and it will exist as long price, names of the purchasers and person
as the contract is not duly ratified. The mere lapse of on whose account the sale is made, it is a
time cannot give efficacy to the contract sufficient memorandum;
E. An agreement for the leasing for a longer
Note: Contract is valid although it produce no legal effect period than one year, or for the sale of real
property or of an interest therein;
Distinguished from RESCISSIBLE CONTRACTS F. A representation as to the credit of a third
UNENFORCEABLE RESCISSIBLE person
Cannot be enforced by a Can be enforced, unless it 3. Those where both parties are incapable of
proper action in court is rescinded giving consent to a contract
Susceptible of ratification Not susceptible
Cannot be assailed by May be assailed by third WITHOUT OR IN EXCESS OF AUTHORITY
third persons persons who are - Shall be governed by Article 1317 and by the
prejudiced principles of agency in Title X of the Code
- PRINCIPLES:
Distinguished from VOIDABLE CONTRACTS ▪ No one may contract in the name of another
UNENFORCEABLE VOIDABLE without being authorized by the latter or unless he
Cannot be enforced by a Can be enforced, unless it has a right to represent him. If he is duly
proper action in court is annulled authorized, he must act within the scope of his
powers
 ▪ A contract entered into in the name of another by
one who has no authority or legal representation,
or who has acted beyond his powers, is
unenforceable
▪ Such contract may be ratified, expressly or
impliedly, by the person in whose behalf it has
been executed, before it is revoked by the other
contracting party
Confirmation and ratification distinguished (OLD
LAW)
Confirmation Ratification
Used to designate the act Used exclusively to
by which a voidable designate the act by which
contract was cured of its a contract entered into by
vice or defect a person in behalf of
another without or in
excess of authority is
cured of its defects
Cure a vice of nullity Gives authority to a
person who previously
acted in the name of
another without authority
Note: Under the present Code, the term ratification is now
used to designate the act of validating any kind of
defective contract
STATUTES OF FRAUD
- Statues which require certain classes of contracts to
be in WRITING
- Does not deprive the parties of the right to contract
with respect to the matters involved, but merely
regulates the formalities of the contract necessary to
render it enforceable
Note: Merely provides method by which the contract may
be proved. It does not declare the contracts to be invalid
Fundamental principles governing the Statues of
Fraud
1. It only applies to executory contracts and not partially
or completely executed
2. It cannot apply if the action is neither for damages
because of violation of an agreement nor for the
specific performance of said agreement
3. It is exclusive as it applies only to the agreements
enumerated in Art 1403
4. The defense of Statute of Frauds may be waived
5. It is a personal defense; it cannot be assailed by third
persons
6. Contracts infringing the Statute of Frauds are not
void; they are merely unenforceable
7. It is a Rule of Exclusion as it excludes oral testimony
8. It does not determine the credibility or weight of
evidence. It merely concerns itself with the
admissibility
9. It does not apply if the claim is that the contract does
not express the true agreement of the parties
Infringing statute of frauds
- PURPOSE: Prevent fraud and perjury in the
enforcement of obligations depending for their
evidence on the unassisted memory of witnesses,
requiring certain enumerated contracts and
transactions to be evidenced by a writing signed by
the party to be charged
- FORMS REQUIRED: Must be in writing and
subscribed by the party charged or by his agent
Effect of noncompliance with Statute
- No action can be enforced unless the requirement is
complied with
- Contract becomes unenforceable by action
▪ Evidence of the agreement cannot be received
without the writing, or a secondary evidence of its
contents
▪ What is affected by the defect is not its validity,
but its enforceability
- The Statute of Frauds simply provides the method by
which contracts enumerated therein may be proved
▪ Does not declare the contracts as invalid because
they are not reduced to writing
▪ Contract exists and is valid even though it is not
clothed with the necessary form
▪ Form required is for evidential purposes only
✓ If the parties permit a contract to be proved,
without any objection, it is then just as binding
as if the statute has been complied with
Contracts covered by Statute (EXCLUSIVE)
1. An agreement that by its terms is not to be performed
within a year from the making thereof
- Refers only to agreements which by their terms
are not to be performed on EITHER side
- Does not apply when one of the contracting
parties has already complied within the year
2. A special promise to answer for the debt, default, or
miscarriage of another
- Such promise must be collateral, not independent
or original
▪ Collateral – merely a surety to the agreement
of another
▪ Independent – promisor is primarily liable for
the payment of debt
- The character of a promise is a question of law
and fact which must in each case be determined
from the evidence as to the language used and
the circumstances
▪ A promise may be deemed prima facie
collateral but may be adjudged original
3. An agreement made in consideration of marriage,
other than a mutual promise to marry
- Eg., marriage settlements and donations by
reason of marriage
4. An agreement for the sale of goods, chattels or things
in action, at a price not less than P5,000
5. An agreement for the leasing of real property for a
longer period than 1 year, or for the sale of real
property or an interest therein
6. A representation as to the credit of a third person
Effect of performance of contract
- The Statute of Fraud is applicable only to those
contracts which are EXECUTORY and not to those
which have been consummated either totally or
partially
▪ When consummated, there is already a
ratification and acceptance of benefits
▪ In executory contracts there is a wide filed for
fraud because unless they be in writing there is
no palpable evidence of the intention of the
contracting parties
Contracts enforceable under the Statute of Frauds
If the contract enforceable under Statute of Frauds
because it is duly evidenced by writing, but it cannot be
registered because it is not in a public instrument, the
party concerned may compel the opposite party to
formalize it in the proper form required by law. If the latter
refuses, the court will issue necessary order to that effect
CONTRACTS WHERE BOTH PARTIES ARE
INCAPACITATED
- Both parties must be legally incapacitated
- May be ratified either expressly or impliedly
▪ May be effected by the parents or guardians of
the contracting parties, or
▪ By the parties themselves upon attaining or
regaining capacity (although the Code does not
say so)
RATIFICATION
Ratification
Contracts may be ratified either:
1. By the failure to object to the presentation of oral
evidence to prove the same
2. By the acceptance of benefits under them
Unenforceable contract is ratifiable
1. Contract entered into in the name of another by one
who has no authority, legal representation or who
acted beyond his powers shall be unenforceable,
unless it is ratified expressly or impliedly, by the
person on whose behalf it has been executed, before
it is revoked by the other contracting party
2. Contracts infringing the Statute of Frauds are ratified:
a. By failure to object to the representation of oral
evidence to prove the same; or
b. By the acceptance of benefits under them; the
contract is already executed
c. By cross-examining the witness who is testifying
on the oral contract
3. In a contract where both parties are incapable of
giving consent, express or implied ratification by the
parents or guardian of one of the contracting parties
upon attaining capacity, shall give the contract the
same effect as if only one of them is incapacitated.
Hence, the contract becomes voidable and the rules
on voidable contracts should govern

Article 1404. Unauthorized contracts are governed by Note: If ratification is made by the parents or
Article 1317 and the principles of agency in Title X of guardians of BOTH contracting parties, or both
this Book contracting parties upon attaining capacity, the
contract shall be validated from the inception
Article 1405. Contracts infringing the Statute of
Frauds, referred to in No. 2 of Article 1403, are ratified Effect of ratification
by the failure to object to the presentation of oral Ratification by Effect
evidence to prove the same, or by the acceptance of Parent or guardian of Contract becomes
benefits under them ONE of the contracting VOIDABLE
parties or by the
Article 1406. When a contract is enforceable under the incapacitated himself
Statute of Frauds, and a public document is necessary upon attaining capacity
for its registration in the Registry of Deeds, the parties By the parents or Contract shall be
may avail themselves of the right under Article 1357 guardians of BOTH VALIDATED from its
parties or by both of such inception
Article 1407. In a contract where both parties are themselves upon attaining
incapable of giving consent, express or implied capacity
ratification by the parent, or guardian, as the case may
be, of one of the contracting parties shall give the same ENFORCEABILITY OF ELECTRONIC
effect as if only one of them were incapacitated. TRANSACTIONS (RA NO 8792)
Electronic Commerce Act of 2000 had given legal
If ratification is made by the parents or guardians, as recognition to the following:
the case may be, of both parties, the contract shall be a. Electronic Data Message
validated from the inception b. Electronic Documents
c. Electronic Signatures
Article 1408. Unenforceable contracts cannot be
assailed by third persons.
 CHAPTER 9:
Distinguished from VOIDABLE CONTRACTS
VOID OR INEXISTENT CONTRACTS VOID or INEXISTENT VOIDABLE
Absence of essential Consent is vitiated or
IN GENERAL element/s of a contract there is incapacity to give
consent
Those which have no force and effect from the beginning Produces as a rule no Binding unless annulled
and which cannot be ratified or validated by the lapse of effect even if it is not set
time aside by a direct action
Not susceptible of Susceptible of ratification
One which lacks absolutely either in fact or in law one or ratification
some of the elements which are essential for its validity Action is imprescriptible Action is prescriptible
1. There is absolutely no consent, object or cause Defense of inexistence or Defense of annullability is
2. If the formalities which are essential for validity absolute nullity is not available to third
are not complied with available to third persons persons
3. When there is cause and an object but such is whose interests are
contrary to law, morals, good customs, public directly affected
order or public policy
4. Contract is expressly prohibited or declared by Distinguished from UNENFORCEABLE CONTRACTS
law to be void
VOID or INEXISTENT UNENFORCEABLE
In reality, no contract at all There is a contract which
VOID INEXISTENT
cannot be enforced by a
Those where all of the Those where one or some court action, unless it is
requisites of a contract are or all of the requisites ratified
present, but the cause, which are essential for the
Not susceptible of Susceptible of ratification
object or purpose is validity of a contract are
ratification
contrary to law, morals, absolutely lacking, or
Can be assailed by third Cannot be assailed by
good customs, public where the cause or object
persons whose interests third persons
order or public policy, or did not exist at the time of
are directly affected
contract itself is prohibited the transaction
or declared void by law
INEXISTENT AND VOID CONTRACTS
Neither party may be Open to attack even by
heard to invoke its the parties thereto
unlawful character as a Article 1409. The following contracts are inexistent and
ground for relief void from the beginning:
Principle of pari delicto is Not applicable, and 1. Those whose cause, object or purpose is
applicable thus, it may cannot produce any effect contrary to law, morals, good customs, public
produce legal effects whatsoever order or public policy;
2. Those which are absolutely simulated or
fictitious;
Distinguished from RESCISSIBLE CONTRACTS
3. Those whose cause or object did not exist at
VOID or INEXISTENT RESCISSIBLE
the time of the transaction;
Produces as a rule no Valid unless it is rescinded
4. Those whose object is outside the commerce
effect even if it is not set
of men;
aside by a direct action
5. Those which contemplate an impossible
Defect consists of Defect consists in lesion service;
absolute lack in fact or in or damage to one of the 6. Those where the intention of the parties
law of one or some of the contracting parties or to relative to the principal object of the contract
essential elements of a third persons cannot be ascertained;
contract 7. Those expressly prohibited or declared void by
The nullity or inexistence The rescissible character law.
of the contract is based on is based on equity.
the law. These contracts cannot be ratified. Neither can the right
Rescission is a mere to set up the defense of illegality be waived
Absolute nullity is not only remedy and
a remedy but a sanction, predominated by private VOID – Nos. 1, 4, 5, 6 and 7
and predominated by interest INEXISTENT – Nos. 2 and 3
public interest
Action is imprescriptible Action is prescriptible Others
Cannot, as a rule, be May be assailed by third − Those which are the direct results of previous illegal
assailed by third persons persons contracts
− Those where there is no concurrence between the
offer and the acceptance with regard to the object and
the cause of the contract
− Those which do not comply with the required form
when such form is essential for validity
Characteristics
1. GR: Produce no legal effects whatsoever in
accordance with the principle “quod nullum est nullum
producit effectum”
XPN: In case of pari delicto, since it will refuse legal
remedy to either party to an illegal agreement and
leaves them to where they were. Hence, if a void
contract is already executed, neither of the parties
can recover from each other
Note: A party has a right to unilaterally cancel and
treat as avoided a void contract. However, an action
to declare its inexistence is necessary to allow
restitution of what has been given under it
2. They are not susceptible of ratification
3. The action or defense for the declaration of their
inexistence or absolute nullity is imprescriptible
4. The inexistence or absolute nullity of a contract
cannot be invoked by a person whose interests are
not directly affected
5. The defense of illegality of contracts is not available
to third persons whose interest are not directly
affected
6. Cannot give rise to a valid contract
7. Can be assailed either directly or indirectly
8. Parties to a void agreement cannot expect the aid of
the law
Note: In case of a divisible contract, if the illegal terms can
be separated from the legal ones, the latter may be
enforced
Kinds of void contract
Those lacking in essential elements:
1. Those whose cause, object or purpose is contrary
to law, morals, good customs, public order, or
public policy: illicit cause or object;
2. Those which are absolutely simulated or fictitious;
no cause;
3. Those whose cause or object did not exist at the
time of the transaction: no cause or object;
4. Those whose object is outside the commerce of
man; no object;
5. Those which contemplate an impossible service;
no object;
6. Those where the intention of parties relative to
principal object of the contract cannot be
ascertained
Contracts prohibited by law:
1. Pactum commisorium – the creditor appropriates
to himself the things given by way of pledge or
mortgage to fulfill the debt
2. Pactum de non alienado – an agreement
prohibiting the owner from alienating the
mortgaged immovable
3. Pactum leonine – a stipulation in a partnership
agreement which excludes one or more partners
from any share in the profits or losses
4. Illegal or illicit contracts (e.g., contract to sell
marijuana)
Effects
INEXISTENT Can produce no legal effect
whatsoever
VOID When executed, will produce the effect
of barring any action by a guilty to
recover what he has already given
under the contract.
A void agreement will not be rendered
operative by the parties’ alleged
performance (partial or full) of their
respective prestations.
A void contract cannot be ratified
CASE DISCUSSION
Guiang vs. Court of Appeals
291 SCRA 372
The Deed of Transfer or Rights cannot be ratified, even
by an ‘amicable settlement.’ By express provision of
law, the amicable settlement is also void. Under Article
1422, a contract which is a direct result of a previous
illegal contract, is also void and inexistent.
Both the Deed of Transfer of Rights and the amicable
settlement are null and void
ACTION OR DEFENSE
Article 1410. The action or defense for the declaration
of the inexistence of a contract does not prescribe
Imprescriptibility of action or defense
- Cannot be cured by prescription
▪ Since the defect is more of a more or less
permanent character, mere lapse of time cannot
give efficacy to such contracts
▪ Refers to both action for the declaration of the
inexistence or absolute nullity but also to the
defense
Effect of LACHES
- Lache is negligence or omission to assert a right
within the reasonable time, warranting a presumption
that the party entitled to assert it either has
abandoned it or declined to assert it
GR: The action or defense for the declaration of the
inexistence of a contract does not prescribe
XPN: When there is laches on the part of the party
assailing the contract
Note: The prevailing doctrine is that the right to have a
contract declared void ab initio may be barred by laches
although not barred by prescription
 Article 1411. When the nullity proceeds from the
illegality of the cause or object of the contract, and the
act constitutes a criminal offense, both parties being in EXCEPTIONS TO THE PRINCIPLE OF PARI
pari delicto, they shall have no action against each DELICTO
other, and both shall be prosecuted. Moreover, the
provisions of the Penal Code relative to the disposal of Scenario Effect
effects or instruments of a crime shall be applicable to Payment of usurious Law allows the debtor to
the things or the price of the contract. interest recover the interest paid in
excess of that allowed by
This rule shall be applicable when only one of the the usury laws, with
parties is guilty, but the innocent one may claim what interests thereon from the
he has given, and shall not be bound to comply with his date of payment
promise Payment of money or Courts may allow such
delivery of property for an party to recover what he
Article 1412. If the act in which the unlawful or illegal purpose, where the has paid or delivered, if
forbidden cause consists does not constitute a criminal party who paid or the public interest will thus
offense, the following rules shall be observed: delivered repudiates the be subserved
1. When the fault is on the part of both contracting contract before the
parties, neither may recover what he has given purpose has been
by virtue of the contract, or demand the accomplished, or before
performance of the other’s undertaking; any damage has been
2. When only one of the contracting parties is at caused a third person
fault, he cannot recover what he has given by Payment of money or Courts may allow such
reason of the contract, or ask for the fulfillment delivery of property by an person to recover what he
of what has been promised him. The other, incapacitated person has paid or delivered, if
who is not at fault, may demand the return of the interest of justice so
what he has given without any obligation to demands
comply with his promise Agreement or contract Such plaintiff, if public
which is not illegal per se policy is thereby
IN PARI DELICTO but is merely prohibited by enhanced, may recover
law, and the prohibition is what he has paid or
PRINCIPLE OF IN PARI DELICTO designed for the delivered
- When the defect of a void contract consists in the protection of the plaintiff
illegality of the cause or object of the contract, and Payment of any amount in Buyer may recover the
both of the parties are at fault or in pari delicto, the excess of the maximum excess
law refuses them every remedy and leaves them price of any article or
where they are commodity fixed by law
▪ Presupposes that the fault of one party is more or Contract whereby a Laborer may demand for
less equal or equivalent to the fault of the other laborer undertakes to overtime
party work longer than the
- Applies only to cases of existing contracts with an maximum number of
illegal cause or object and not to simulated or fictitious hours fixed by law
contracts not to those which are inexistent for lack of Contract whereby a Laborer may demand for
an essential requisite such as cause or consideration laborer accepts a wage the deficiency
▪ No application to inexistent contracts lower than the minimum
▪ Illegality must be with respect to the cause or the wage fixed by law
object of the contract, not to the motives
When in pari delicto rule not applicable
Effect if only one party is at fault 1. Breach of warranty cases;
Stage Innocent Party Guilty Party 2. Simulated contracts;
Merely Neither can demand for the fulfillment of 3. When parties are not equally guilty;
executory any obligation arising from the contract nor 4. Against the government;
be compelled to comply with such 5. Prohibited conveyances under the law;
obligation 6. Constitutional prohibition against alien
Already May demand Barred from landholding
executed return of what he recovering what he 7.
has given has given to the Article 1413. Interest paid in excess of the interest
other party by reason allowed by the usury laws may be recovered by the
of the contract. debtor, with interest thereon from the date of the
payment
Recovery by debtor of usurious interest CASE DISCUSSION
Article 1961 Article 1175 Article 1957 Angeles vs. Court of Appeals
Usurious Usurious Borrower may 102 Phil 1006
contracts shall be transactions recover in
governed by the shall be accordance Short facts:
Usury Law and governed by with the laws A homestead patent was issued to Juan Angeles on
other special laws special laws on usury March 12, 195, which he subsequently sold to
so far as they are defendants, Gregorio Inez and Anastacia Divino on
not inconsistent May 28, 1937
with this Code
Issue:
Article 1413, NCC Usury Law W/N the heirs of Angeles can recover the homestead.
Debtor may recover the Debtor may recover the
interest paid IN EXCESS WHOLE INTEREST paid Held:
of the interest allowed by with costs and attorney’s Yes, the principle of in pari delicto is not applicable to a
the Usury Law fees in such sum as may homestead which has been illegally sold in violation to
be allowed by the court in the homestead law. The policy of the law is to give land
an action against the to a family for home and cultivation; consequently, the
creditor if such action is law allows the homesteader to reacquire the land even
brought within 2 years if it has been sold; hence, the right may not be waived.
after such payments The sale of the homestead is null and void and the
action to recover the same does not prescribe.
- In Angel Jose Warehouse Co., vs. Chelda, the SC
declared that, in reality, there is no conflict with the The loss of the products realized by the defendants and
Civil Code and the Usury Law. the value of the necessary improvements made by
▪ When the Code speaks of “interest paid in excess them on the land should not be excepted from the
of that allowed by the usury law,” it means the application of in pari delicto because no cause or
whole usurious interest reason can be cited to justify the exception. The rule is
▪ The only change effected by Art 1413 of the CC inapplicable only where the same violates a well-
is not to provide for the recovery of the interest established public policy.
paid in excess of that allowed by law, which the
Usury Law already provided for, but to add that Article 1417. When the price of any article or
the same can be recovered “with interest thereon commodity is determined by statute, or by authority of
from the date of payment” law, any person paying any amount in excess of the
▪ The principal to pay the debt, and the accessory maximum price allowed may recover such excess.
to pay interest, being divisible, means what is
illegal is to pay the stipulated interest which Article 1418. When the law fixes, or authorizes the
should be deemed void, and not the principal fixing of the maximum number of hours of labor, and a
contract is entered into whereby a laborer undertakes
Article 1414. When money is paid or property to work longer than the maximum thus fixed, he may
delivered for an illegal purpose, the contract may be demand additional compensation for service rendered
repudiated by one of the parties before the purpose has beyond the time limit.
been accomplished, or before any damage has been
caused to a third person. In such case, the courts may, Article 1419. When the law sets, or authorizes the
if the public interest will thus be subserved, allow the setting of a minimum wage for laborers, and a contract
party repudiating the contract to recover the money or is agreed upon by which a laborer accepts a lower
property. wage, he shall be entitled to recover the deficiency.

Article 1415. When one of the parties to an illegal
contract is incapable of giving consent, the courts may,
if the interest of justice so demands, allow recovery of
money or property delivered by the incapacitated
person.
Article 1416. When the agreement is not illegal per se
but is merely prohibited, and the prohibition by the law
is designed for the protection of the plaintiff, he may, if
public policy is thereby enhanced, recover what he has
paid or delivered.
Article 1420. In case of a divisible contract, if the legal
terms can be separated from the legal ones, the latter
may be enforced.
Article 1421. The defense of illegality of contracts is
not available to third persons whose interests are not
directly affected.
Article 1422. A contract which is the direct result of a
previous illegal contract, is also void and inexistent.
 TITLE III – NATURAL
OBLIGATIONS
IN GENERAL
Article 1432. Obligations are civil or natural. Civil
obligations give a right of action to compel their
performance. Natural obligations, not being based on
positive law but on equity and natural law, do not grant
a right of action to enforce their performance, but after
voluntary fulfillment by the obligor, they authorize the
retention of what has been delivered or rendered by
reason thereof. Some natural obligations are set forth
in the following articles.
Article 1424. 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.
Article 1425. 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.
Article 1426. 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.
Article 1427. When a minor between eighteen and
twenty one years of age, who has entered into a
contract without the consent of the parent or guardian,
voluntarily pays a sum of money or delivers a fungible
thing in fulfillment of the obligation, there shall be no
right to recover the same from the obligee who has
spent or consumed it in good faith.
Article 1428. 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.
Article 1429. 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.
Article 1430. 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.
CONCEPT
- Those based on equity and natural law, which do not
grant a right of action to enforce their performance,
but after voluntary fulfillment by the obligor, authorize
the retention of what has been delivered or rendered
by reason thereof
- Obligations without a sanction, susceptible of
voluntary performance, but not through compulsion
by legal means
Note: They are real obligations to which the law denies
an action, but which the debtor may perform voluntarily.
Requisites for natural obligations to arise
1. The obligation is not prohibited by law or contrary to
morals and good customs.
2. There must be a previous juridical relationship
between two persons but due to certain intervening
circumstances, it lost its legal enforceability leaving its
fulfillment entirely to the free will or discretion of the
supposed debtor (Pineda, 2000).
Examples of natural obligations (not exclusive)
1. Performance even after the civil obligation has
prescribed (NCC, Art. 1424);
2. Reimbursement of a third person for a debt that has
prescribed (NCC, Art. 1425);
3. Restitution by minor of the thing or price after
annulment of contract (NCC, Art. 1426);
4. Delivery by minor of money or fungible thing in
fulfillment of obligation (NCC, Art. 1427);
5. Performance after action to enforce civil obligation
has failed (NCC, Art. 1428);
6. Payment by the heir of a debt exceeding the value of
property he inherited (NCC, Art. 1429); and
7. Payment of legacy after will has been declared void
(NCC, Art. 1430).
Voluntary payment of debt which has already
prescribed
- Cannot recover what has been delivered or the value
of the service that has been rendered.
▪ Because of extinctive prescription, the obligation
of the debtor to pay his debt became a natural
obligation.
▪ After voluntary fulfillment by the debtor, under the
law, the creditor is authorized to retain what has
been paid by reason thereof
▪ Fulfillment puts the debtor into estoppel from
recovering what had been paid or delivered
Effect of partial performance Susceptibility Can be ratified Cannot be ratified
Legally susceptible of Cannot be recovered and to ratification
confirmation or the obligation is converted
ratification into a civil one Note: A natural obligation can be GUARANTEED
Fulfilled portion is NOT Portion can be the basis of
legally susceptible of a cause of action for Reasons for regulation of natural obligation
confirmation or recovery of what has been - Because they rest upon morality and because they
ratification delivered because it has are recognized in some leading civil codes, natural
not been converted into obligations should again become part and parcel of
legal obligation Philippine law

Distinguished from civil obligation

Basis Natural Civil TITLE IV – ESTOPPEL
Source of Based on equity Based on law,
obligation and natural law contracts, quasi- IN GENERAL
contracts, delicts,
and quasi-delicts Article 1431. Through estoppel an admission or
Availability Cannot be Can be enforced in representation is rendered conclusive upon the person
of enforced in court court because the making it, and cannot be denied or disproved as
enforcement because the obligee has a right against the person relying thereon.
of the obligee has no of action
obligation in right of action to CONCEPT
courts compel its - A condition or state by virtue of which an admission
performance but or representation is rendered conclusive upon the
after voluntary person making it and cannot be denied or disproved
fulfilment by the as against the person relying thereon
obligor, they - Based on public policy, fair dealing, good faith and
authorize the justice and its purpose is to forbid one to speak
retention of what against his own act, representation or commitments
may have been to the injury of one who reasonably relied thereon
delivered or
rendered by Note: The admission or representation must be plain and
reason thereof clear. Estoppel cannot be sustained on doubtful or
ambiguous inferences.
Conversion of natural obligation to civil obligation
- May be converted by acts of novation Article 1432. The principles of estoppel are hereby
adopted insofar as they are not in conflict with the
Distinguished from moral obligations provisions of this Code, the Code of Commerce, the
Basis Natural Moral Rules of Court and special laws
Presence of Juridical tie No juridical tie
juridical tie previously Article 1433. Estoppel may be in pais or by deed
existed between
the parties but Kinds of estoppel
because of 1. Estoppel in pais – a person is considered in estoppel
certain if by his conduct, representations, admissions or
intervening silence when he ought to speak out, whether
causes they intentionally or through culpable negligence, "causes
cannot be another to believe certain facts to exist and such other
enforced in rightfully relies and acts on such belief, as a
courts consequence of which he would be prejudiced if the
Performance Voluntary Performance is a former is permitted to deny the existence of such
of the fulfillment by the pure act of facts.
obligation debtor is a legal liberality which a. Estoppel by silence - arises when a party, who
fulfillment with springs from blood has a right and opportunity to speak or act as well
legal effect relation or as a duty to do so under the circumstances,
affection intentionally or through culpable negligence,
Applicability Within the Within the domain induces another to believe certain facts to exist
of the law domain of the of the morals and such other relies and acts on such belief, as
law a consequence of which he would be prejudiced
Performance When fulfilled Performance does if the former is permitted to deny the existence of
of the produces mora not produce legal such facts
obligation legal effects effects

b. Estoppel by acceptance of benefits – arises
when a party by accepting benefits derived from
a certain act or transaction, intentionally or
through culpable negligence, induces another to
believe certain facts to exist and such other relies
and acts on such belief, as a consequence of
which he would be prejudiced if the former is
permitted to deny the existence of such facts.
2. Estoppel by deed or by record – a party to a deed
and his privies are precluded from denying any
material fact stated in the deed as against the other
party and his privies.
a. Estoppel by judgment - preclusion of a party to
a case from denying the facts adjudicated by a
court of competent jurisdiction.
Estoppel by
Res judicata
judgment
Bars the parties from Makes a judgment
raising any question conclusive between
that might have been thesame parties as to
put in issue and the matter directly
decided in the adjudged
previous litigation
3. Estoppel by laches – an equitable estoppel, a
person who has failed or neglected to assert a right
for an unreasonable and unexplained length of time
is presumed to have abandoned or otherwise
declined to assert such right and cannot later on seek
to enforce the same, to the prejudice of the other
party, who has no notice or knowledge that the former
would assert such rights and whose condition has so
changed that the latter cannot, without injury or
prejudice, be restored to his former state.
Basis – Doctrine of laches or of “stale demands” is
based upon grounds of public policy which requires,
for the peace of society, the discouragement of stale
claims and, unlike the statute of limitations, is not a
mere question of time but is principally a question of
the inequity or unfairness of permitting a right or claim
to be enforced or asserted
Elements (DILC)
1. Delay in asserting complainant’s right after he
had knowledge of the defendant’s conduct and
after he has opportunity to exercise it;
2. Injury or prejudice to the defendant in the event
relief is accorded to the complainant; (Pineda,
2000)
3. Lack of knowledge or notice on the part of the
defendant that the complainant would assert the
right on which he bases his suit; and
4. Conduct on the part of the defendant or one under
whom he claims, giving rise to the situation
complained of.
Inaction and passivity to recover land subject to an
invalid sale for more than 34 years
- Action to recover will not prosper. The passivity and
inaction for more than 34 years justify the defense of
laches. All of the four (4) elements are present. As a
result, the action of plaintiffs must be considered
barred (Miguel v. Catalino, G.R. No. L-23072,
November 29, 1968)
Laches distinguished from prescription
Laches Prescription
Concerned with the effect Concerned with the fact of
of delay delay
Principally a question of It is a matter of time
inequity of permitting a
claimed to be enforced
Not statutory Statutory
Applies in equity Applies at law
Not based on fixed of time Based on fixed of time
Note: The doctrine of laches is inapplicable when the
claim was filed within the prescriptive period set forth
under the law
Article 1434. 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.
Article 1435. 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.
Article 1436. A lessee or a bailee is estopped from
asserting title to the thing leased or received, as against
the lessor or bailor.
Article 1437. 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; and
4. The party defrauded must have acted in
accordance with the misrepresentation
Article 1438. 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.
 formally accepted the
trust in a public document,
Article 1439. Estoppel is effective only as between the upon mere acquiescence
parties thereto or their successors in interest. in the formation of the
trust and acceptance

TITLE V – TRUST
under Art. 1132(2) of the
Civil Code.

CHAPTER 1: Contract
Trust Contract
GENERAL PROVISIONS A trust always involves an Legal obligation based on
ownership, embracing a an undertaking supported
IN GENERAL set of rights and duties by a consideration, which
fiduciary in character obligation may or may not
Article 1440. A person who establishes a trust is called which may be created by be fiduciary in character
the trustor; one in whom confidence is reposed as a declaration without a
regards property for the benefit of another person is consideration
known as the trustee; and the person for whose benefit
the trust has been created is referred to as the Debt
beneficiary. Trust Debt
A debt implies merely an A duty to deal with a
CONCEPT obligation to pay a certain specific property for the
- Legal relationship between one person having an sum of money benefit of another. A
equitable ownership in a certain property and another creditor has merely a
person owning the legal title to such property personal claim against the
debtor.
Note: Trust is founded in equity and can never result from There is a fiduciary There is no fiduciary
acts violative of law (Deluao vs Casteel, 26 SCRA 415, relation between a trustee relation between a debtor
1968 and 29 SCRA 350, 1969). and a beneficiary. and creditor.
The beneficiary of a trust A creditor has merely a
Three persons involved in the creation of a trust has a beneficial interest in personal claim against the
1. Trustor – the person who establishes the trust. the trust property. debtor.
2. Trustee – one in whom confidence is reposed as
regards property for the benefit of another person. Bailment
3. Beneficiary or cesti que trust – person for whose Trust Bailment
benefit the trust has been created
A delivery of a property in The bailee has
trust necessarily involves possession of without
Trust property
a transfer of legal title, or legal title to the property
- The subject-matter of trust may be any property of
at least a separation of subject to the bailment.
value- real, personal, funds or money, or choses in
legal title and equitable
action
interest, with the legal title
in the trustee.
Trust res
- Object of the trust
CLASSIFICATION OF TRUST
- Consist of property, actually in existence, in which the
1. Creative force bringing them into existence (creation)
trustor has a transferable interest or title, although as
a. Express – one which can come into existence
a rule, it consists of any kind of transferable property,
only by the execution of an intention to create it
either realty or personality, including undivided,
by the trustor or the parties
future, or contingent interest therein
b. Implied – one which comes into being by
operation of law
AS DISTINGUISHED FROM OTHER RELATIONS
i. Resulting trust - raised or created by the act
Donation
or construction of law, but in its more
Trust Donation
restricted sense it is a trust raised by
An existing legal Transfer of property which implication of law and presumed always to
relationship and involves involves a disposition of have been contemplated by the parties, the
separation of legal and both legal and equitable intention as to which is to be found in the
equitable title. ownership except gift in nature of their transaction, but not expressed
trust. in the deed or instrument of conveyance.
The beneficiary of a trust Must comply with the legal ii. Constructive trust – raised by construction of
may demand requirements in accepting law, or arising by operation of law, or a trust
performance of the donations. not created by any words, either expressly or
obligation without having impliedly evincing a direct intention to create
 a trust, but by the construction of equity in intention of the
order to satisfy the demands of justice. parties.
Parole An express trust An implied trust
Note: Not a trust in a technical sense (Ramos evidence concerning an concerning an
v. Ramos, 61 SCRA 284). It is substantially immovable or any immovable or any
an equitable remedy against unjust interest therein interest therein
enrichment (Sumaoang v. Judge, RTC, 215 cannot be proved may be proved by
SCRA 136, 1992). by parole parole evidence.
evidence
It is otherwise known in American law as a Laches or An action to An action to
trust ex maleficio, trust ex delicto, and de son extinctive enforce an enforce an implied
tort (Sumaoang vs. Judge, RTC, 215 SCRA prescription express trust, so trust even when
136, 1992). long as there is there is no express
no express repudiation of the
2. Whether they become effective after the death of the repudiation of the trust by the trustee
trustor or during his life (effectivity) trust by the and made known
a. Testamentary – takes effect upon trustor’s death trustee and made to the beneficiary,
and is usually included as part of the will and does known to the may be barred by
not have a separate trust deed beneficiary, laches or by
b. Inter vivos or “living trust” – established cannot be barred extinctive
effective during the owner’s life wherein the by laches or prescription.
grantor executes a “trust deed” and once the trust extinctive
is created, legal title to the trust property passes prescription.
to the named trustee with duty to administer the
property for the benefit of the beneficiary Article 1442. The principles of the general law of trusts,
insofar as they are not in conflict with the Code, the
3. Whether they may be revoked by the trustor Code of Commerce, the Rules of Court and special
(revocability) laws are hereby adopted.
a. Revocable – can be revoked or cancelled by the
trustor or another individual given the power EXPRESS TRUST
b. Irrevocable – one which may not be terminated
during the specified term of the trust Article 1443. No express trusts concerning an
immovable or any interest therein may be proved by
Note: Whether a trust is revocable or irrevocable depends parole evidence.
on the wordings or language used in the creation of the
trust. It will be presumed revocable unless the creator has
Article 1444. No particular words are required for the
expressed a contrary intention in the trust deed
creation of an express trust, it being sufficient that a
trust is clearly intended.
KINDS OF TRUST
Article 1445. No trust shall fail because the trustee
Article 1441. Trusts are either express or implied.
appointed declines the designation, unless the contrary
Express trusts are created by the intention of the trustor
should appear in the instrument constituting the trust.
or of the parties. Implied trusts come into being by
operation of law.
Article 1446. Acceptance by the beneficiary is
necessary. Nevertheless, if the trust imposes no
DIFFERENTIATED
onerous condition upon the beneficiary, his acceptance
Basis Express Implied shall be presumed, if there is no proof to the contrary.
Definition Created by the Comes into being
intention of the by operation of
EXPRESS TRUST
trustor or of the law. It may be
- One which come into existence only by the execution
parties. either resulting or
of an intention to create it by the trustor or the parties
constructive.
Manner of Created by the Those which, Elements of express trust
creation direct and without being 1. A competent trustor and trustee;
positive acts of expressed, are 2. An ascertainable trust res; and
the parties, by deducible from the 3. Sufficiently certain beneficiaries
some writing or nature of the
deed or will or by transaction by Note: All of the above elements are required to be
words evidencing operation of law as established
an intention to matters of equity,
create a trust. independently of Evidence to prove express trust
the particular
- No express trust concerning an immovable or any
interest therein may be proved by parol evidence
Note: The defense that express trusts cannot be proved
by parol evidence may be waived, either by failure to
interpose timely objections against presentation of oral
evidence not admissible under the law or by cross-
examining the adverse party and his witnesses along the
prohibited lines (Sinaon v. Sorongan, 136 SCRA 407,
1985).
An express trust over personal property or any interest
therein, and an implied trust, whether the property subject
to the trust is real or personal, may be proved by ORAL
EVIDENCE.
Note: The general rule is that the burden of proving the
existence of a trust is on the party alleging its existence;
and to discharge the burden, it is generally required that
his proof be clear and satisfactory and convincing (Ramos
v. Ramos, 61 SCRA 284, 1974).
Note: To affect third persons, a trust concerning an
immovable or any interest therein must be embodied in a
public instrument and registered in the Registry of
Property
Creation of express trust
- Express trusts are those trust voluntarily and
intentionally, created by direct and positive act of the
trustor, by some writing, deed, will, or oral declaration
evincing an intention to create trust
Note: Technical or particular form of words or phrases are
not essential to the manifestation of an intention to create
a trust. It is possible to create a trust without using the
word “trust” or “trustee”
Kinds of express trusts
1. Eleemosynary or Charitable trust- one designed for
the benefit of a segment of the public or of the public
in general. Created for charitable, educational, social,
religious, or scientific purposes, or for the general
benefit of the humanity
2. Accumulation trust- one that will accumulate
income to be reinvested by the trustee in the trust for
the period of time specified
3. Spendthrift trust- one established when the
beneficiary needs to be protected because of his
inexperience or immaturity from his imprudent,
esvspending habits or simply because the beneficiary
is spendthrift
4. Sprinkling trust- one that gives the trustee the right
to determine the income of the beneficiaries who
should receive income each year and the amount
thereof.
Termination of express trust
1. Destruction of the Corpus
2. Revocation by the trustor (De Leon v. Molo Peckson,
6 SCRA 978 (1962)
3. Achievement of the objective, or happening of the
condition, provided for in the trust instrument
4. Death or legal incapacity of the trustee
5. Confusion or merger of legal title and beneficial title in
the same person
6. Breach of trust.
Requisites for acquisition of property by trustee
through prescription
1. The trustee must expressly repudiate the right of the
beneficiary;
2. Such act of repudiation must be brought to the
knowledge of the beneficiary;
3. The evidence thereon must be clear and conclusive;
and
4. Expiration of the period prescribed by law.
IMPLIED TRUSTS
Article 1447. The enumeration of the following cases
of implied trust does not exclude others established by
the general law of trust, but the limitation laid down in
Article 1442 shall be applicable.
Article 1448. There is an implied trust when property is
sold, and the legal estate is granted to one party but the
price is by another for the purpose of having the
beneficial interest of the property. The former is the
trustee, while the latter is the beneficiary. However, if
the person to whom the title is conveyed is a child,
legitimate or illegitimate, of the one paying the price of
the sale, no trust is implied by law, it being disputably
presumed that there is a gift in favor of the child.
Article 1449. There is also an implied trust when a
donation is made to a person but it appears that
although the legal estate is transmitted to the donee,
he nevertheless is either to have no beneficial interest
or only a part thereof.
Article 1450. 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.
IMPLIED TRUST
- Those which, without being express, are deducible
from the nature of the transaction as matters of intent,
or which are superinduced on the transaction by
operation of law, as matters of equity, independently
of the particular intention of the parties
Article 1451. 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.
Article 1452. If two or more persons agree to purchase
property and by common consent the legal title is taken
 in the name of one of them for the benefit of all, a trust
is created by force of law in favor of the others in
proportion to the interest of each.
Article 1453. 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 contemplated.
Article 1454. If an If an absolute conveyance or
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.
Article 1455. 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.
Article 1456. 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.
Laches may bar action
- In constructive trusts, the rule is that laches
constitutes a bar to actions to enforce the trust, and
repudiation is not required, unless there is a
concealment of the facts giving rise to the trust
▪ Express trusts disable the trustee from acquiring
for his own benefit the property committed to his
management or custody, at least while he does
not openly repudiate the trust and make such
repudiation known to the beneficiary.
Acquisition of property by trustee through
prescription in implied trusts
- Express repudiation of the trust by the trustee is not
required.
▪ All that is required is that he must set up a title
which is adverse to that of the beneficiary
▪ Normal requisites for extraordinary acquisitive
prescription must be present
Conversion of implied trust to express trust
- An implied trust may converted to an express trust
through recognition by the implied trustee of the right
to the property of the owner

PRESCRIPTIBILITY OF ACTIONS TO ENFORCE

TRUST
- An action for reconveyance of real property based
upon a constructive or implied trust, resulting from
fraud, may be barred by the statute of limitations
- An action may be filed from the discovery of the fraud.
In some cases, the discovery is deemed to have
taken place when new certificates of title were issued
exclusively in the name of another person.

Period of prescription
Basis Prescriptive period
Annulment of voidable FOUR years from the
contract based on discovery of the fraud
fraudulent registration of
the subject property.
Declaration of nullity or Imprescriptible
inexistence of a void or
inexistent contract based
on fraudulent registration
of the subject property.
Based on fraudulent TEN years from the
registration of the subject discovery of the fraud.
property but the action
does not involve
annulment of contract.
If the legitimate owner of An action to quiet title.
the subject property Therefore,
which was fraudulently imprescriptible.
registered in the name of
another had always been
in possession thereof