CIVIL LAW REVIEW: NOTES

CONTRACT - A contract is a meeting of the minds person the privilege to buy or not to buy certain
between two persons whereby one binds himself, with objects at anytime within the agreed period at a fixed
respect to the other, to give something or to render price. The contract of option is separate and distinct
some service. contract from the contract which the parties may enter
into upon the consummation of the contract.
PRINCIPLE OF LIBERALITY OF CONTRACTS? - Therefore, an option must have its own cause or
Means the right of parties to enter into such consideration. Therefore, an option must have its own
stipulations or terms and conditions in their contracts. cause distinct from the selling price itself.
However, it is subject to certain limitations imposed by
law and that the contracting parties may establish ⚫ Unless the offeror knows of the acceptance, there is
such stipulations, clauses, terms and conditions as NO meeting of the minds of the parties, NO real
they may deem convenient, provided they are not concurrence of the offer and acceptance. The contract
contrary to law, morals, good customs, public order or is PERFECTED only from the time an acceptance of
public policy. an offer is made known to the offeror. An acceptance
which is NOT MADE in the manner prescribed by the
 Principle of Mutuality of Contracts? - It means offeror is not effective but constitutes a counter-offer
that the contracts are binding between parties; which the offeror may accept or reject. Acceptance by
its validity or compliance cannot be left to the the offeree of the offer after knowledge of the
will of one of them. For a contract is a contract. revocation as withdrawal of the offer is
Once agreed upon and the essential elements INEFFICACIOUS. When the offeror has not fixed a
are present, it is valid and binding between period for the offeree to accept the offer, and the offer
parties. is made to a person present, the acceptance must be
made immediately.
Essential Elements / Requisites of a Contract
(Without them the contract cannot exist) VOIDABLE CONTRACTS
(a) CONSENT ;
(b) SUBJECT MATTER ; Two Classes of Voidable Contracts:
(c) CAUSE OR CONSIDERATION . (a) Those where one party is incapacitated to give
consent;
CONSENT - It is the manifestation of the meeting of (b) Those where consent of one party has been
the offer and the acceptance upon the thing and the vitiated (such as error, fraud, violence, intimidation
cause which are to constitute the contract. (Art. 1319) and undue influence)

Requisites: Causes of Vitiated Consent:

1. There must be two or more parties; (1) Error or mistake – false belief about something.
2. The parties must be capable or capacitated; (2) Violence & intimidation – refers to physical
3. There must be no vitiation of consent; coercion, intimidation to moral coercion.
4. There must be no conflict between what was (3) Undue influence – Requisites: (a) Improper
expressly declared and what was really intended; advantage; (b) power over the will of another; and (c)
5. The intent must be declared properly. deprivation of the latter’s will undue influence of a
reasonable freedom of choice.
Offer becomes ineffective: (4) Fraud – use of insidious words or machinations of
1. Upon death, civil interdiction, insanity or insolvency one of the contracting parties, the other is induced to
of either party. (Art. 1323); enter into a contract which without them, he would not
2. When the offeree expressly or impliedly rejects the have agreed to.
offer;
3. When the offeree accepted with a qualification or REVERENTIAL FEAR? - When a contract is signed
condition; merely because of “fear of displeasing persons to
4. When before the acceptance is communicated, the whom obedience and respect are due”, the contract is
subject matter has become illegal or impossible; still valid, for by itself reverential fear is not wrong.
5. When the period of time given to the offeree within
which he must signify his acceptance has already Simulation of Contract? - It is the process of
lapsed; intentionally deceiving others by producing the
6. When the offer is revoked in due time. appearance of a contract that really does not exist
(absolute simulation) or which is different from the true
CONTRACT OF OPTION? - It is a contract granting a agreement (relative simulation)

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⚫ The principle that once a contract is perfected, it

Kinds of SIMULATED CONTRACT: shall be of obligatory force upon both of the
contracting parties.
(a) Absolutely Simulated (simulados) fictitious 2. The autonomy of contracts.
contracts: ⚫ The principle that the contracting parties are free to
1) Here, the parties do not intend to be bound; enter into a contract and to establish stipulations,
2) Effect: Contract is VOID. clauses, terms and conditions as they may deem
convenient.
(b) Relatively Simulated (disimulados) disguised 3. The mutuality of contracts.
contracts: ⚫ The essential equality of contracting parties
1) Here, the parties conceal their true agreement; whereby the contract must bind both of them.
2) Effect: The parties are bound to the real or true 4. The relativity of contracts.
agreement except – ⚫ The principle that the contract takes effect only
⚫ 2.1. If the contract should prejudice a third between the parties, their assigns and heirs.
person;
⚫ 2.2. or if the purpose is contrary to law, morals, PRINCIPLE OF RELATIVITY OF CONTRACTS - A
good customs, public order, or public policy. contract can only be binding to parties who had
entered into it or their successors who assumed their
Kinds of Fraud : personalities or their juridical positions, and that, as a
 Dolo Causante – without the fraud the other party consequence, such contract can neither favor nor
would not have consented (Contract is voidable). prejudice a third person.
 Dolo Insidente – without the fraud the parties
would have agreed just the same, hence, the Requisites of a stipulation pour autrui :
fraud was only incidental in causing the consent. a. There must be a stipulation in favor of a third
The contract is valid but there can be an action person;
for damages. b. The stipulation must be a part, not the whole of the
contract;
Persons Incapacitated to Give Consent: c. The contracting parties must have clearly and
1. Minors; deliberately conferred a favor upon a third person, not
2. Insane or demented persons (unless they acted a mere incidental benefit or interest;
during lucid interval,) drunks and those hypnotized; d. The third person must have communicated his
3. Deaf-mutes who do not know how to write & read( If acceptance to the obligor before its revocation;
they know how to read but do not know how to write e. Neither of the contracting parties bears the legal
the contract is valid.); representation or authorization of the third party.

What is LESION? - It is inadequacy of cause, like an STAGES OF A CONTRACT:

insufficient price for a thing sold.
a. Preparation or Negotiation – here the parties are
Classification of Contracts as to Cause: progressing with their negotiations; they have not yet
1. Onerous – The cause for each contracting party, arrived at any definite agreement, although there may
the prestation or promise of a thing or service by the have been a preliminary offer, and bargaining;
other. b. Perfection – Here the parties have at long last
Ex. Contract of Sale. came to a definite agreement, the elements of definite
2. Remuneratory – the past service or benefit which subject matter and valid cause have been accepted by
by itself is a recoverable debt. mutual consent;
Ex. Service was rendered without any expectation in c. Consummation – here the terms of the contract
return. are performed, and the contract may be said to have
3. Gratuitous or contract of pure beneficence – the been fully executed.
cause is mere liberality of the benefactor.
Ex. Donation.

Limitations on the Nature of Stipulations under a

ESSENTIAL CHARACTERISTICS OF A CONTRACT contract;
a. Law;
1. Contract has the obligatory force or character. b. Morals;

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c. Good Customs; a. The contract must be valid (perfected) (Art. 1357);

d. Public Order; or and
e. Public Policy. b. The contract must be enforceable under the Statute
of Frauds. (Art. 1356)
CONTRACT OF ADHESION? - A contract of
adhesion is so called because its provisions are REAL CONTRACTS - Those which require not only
drafted by only one party, usually a corporation, and the consent of the parties for their perfection, but also
the only participation of the other party is to sign his the DELIVERY of the object by one party to the other.
name, his signature or his adhesion to the contract.
Insurance contracts, bills of lading, contracts of sale of Types of Real Contract (Art. 1316)
lots on installments plan fall into this category. a. Deposit;
b. Commodatum, a loan where the identical object
The 4 KINDS OF INNOMINATE CONTRACTS: must be returned( Ex. Loan of a car)
(a) Do ut Des – I give what you may give;
(b) Do ut Facias – I give what you may do; REFORMATION – is that remedy in equity by means
(c) Facio ut Des – I do what you may give; of which a written instrument is made or construed so
(d) Facio ut Facias – I do what you may do. as to express or conform to the real intention of the
parties when some error or mistake has been
CONSENSUALITY OF CONTRACTS? - Contracts committed. There must be meeting of the minds.
are perfected by mere consent and from that moment
the parties are bound not only to the fulfillment of what Requisites of REFORMATION :
has been expressly stipulated but also to all the 1. There must be a meeting of the minds of the parties
consequences which according to their nature may be to the contract;
in keeping with good faith, usage and law. (Art. 1315) 2. The true intention is not expressed in the instrument
Classification of Contracts according to perfection / contract;
or form : 3. There must be clear and convincing proof thereof;
4. The failure of the contract to express the true
1. CONSENSUAL (perfected by mere consent); intention of the parties is due to mistake, fraud,
⚫ Ex. Contract of Sale inequitable conduct or accident. Instances were
2. REAL (perfected by delivery); reformation is allowed :
⚫ Ex. Deposit.
3. FORMAL OR SOLEMN (those where special REFORMATION in Unilateral Mistake:
formalities are essential before the contract may (1) If one party was mistaken and the other acted
be perfected). fraudulently or inequitably; (Art. 1362)
⚫ Ex. A simple donation inter vivos of real property, to (2) When one party was mistaken and the other knew
be valid and perfected, must be in a public instrument. or believed that the instrument did not state their real
agreement, but concealed that fact from the former.
Examples of Formal Contracts : (Art. 1363)
(a) Donations of real property (These require a public
instrument); REFORMATION caused by a third person who
(b) Donations of personal property (These require a drafted the instrument:
written contract or document if the donation exceeds
P5,000.00);  The reason why the document does not express
(c) Stipulation to pay interest on loans, interest for the the true agreement of the parties maybe:
USE of money (said stipulation must be in writing); 1) Ignorance;
(d) Transfer of large cattle (This require the transfer of 2) Lack of Skill;
the certificate of registration); 3) Negligence; or
(e) Sale of land thru an agent (The authority of the 4) Bad faith.
agent must be in writing, otherwise the sale is null and Prescriptive Period:
void.);  The action for reformation of the instrument must
(f) Contracts of antichresis (The principal loan; and the be filed within TEN (10) years from the execution
interest if any, must be specified in writing, otherwise of the contract.
the contract of antichresis is void.)
 INTERPRETATION OF CONTRACTS: If the
The right may be availed only if the following terms of a contract are clear and leave no doubt
conditions are present: upon the intention of the contracting parties, the

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literal meaning of its stipulation shall control. If INSOLVENT BEFORE DUE DATE)
the words appear to be contrary to the evident
intention of the parties, the latter shall prevail Requisites:
over the former. (Art. 1370) The interpretation of a. There must be at the beginning either a valid or
obscure words or stipulations in a contract shall voidable contract;
not favor the party who caused the obscurity. (Art. b. But there is an economic or financial prejudice to
1377) someone (a party or a third person);
c. Requires mutual restitution. (Give back what you
Contracts which are not ambiguous are to be recieve)
interpreted according to their literal meaning and  If mutual restitution is not available, remedy is
should not be interpreted beyond their obvious indemnity for damages.
intendment.
The following contracts are rescissible : (Art.
CONTRA PROFERENTEM DOCTRINE (AMBIGUITY 1381)
DOCTRINE) 1. Those which are entered into by guardians
Provides that in the interpretation of documents, whenever the wards whom they represent suffer
ambiguities are to be construed against the lesion by more than one-fourth of the value of the
drafter. By its very nature, the precept assumes the things which are the object thereof;
existence of an ambiguity in the contract, which is why 2. Those agreed upon in representation of absentees,
contra proferentem is also called the ambiguity if the latter suffer the lesion;
doctrine. 3. Those undertaken in fraud of creditors when the
latter cannot in any other manner collect the claims
Four Kinds of Defective Contracts : due them;
4. Those which refer to things under litigation if they
1. Rescissible Contract ; have been entered into by the defendant without the
 Is valid until rescinded; there is a sort of extrinsic knowledge and approval of the litigants or of
defect consisting of an economic damage or competent judicial authority;
lesion. 5. All other contracts specially declared by law to be
subject to rescission.
2. Voidable Contract ;
 Is valid until annulled. It can be annulled. It LESION is the injury a party suffers due to a contract
cannot be annulled however if there has been a where they receive significantly less than their entitled
ratification. The defect is more or less intrinsic, as share or a fair equivalent for what they give in a
in case of vitiated consent. commutative contract. It's an economic injury at the
time the contract is made, not due to subsequent
3. Unenforceable Contract ; events, and it can be a ground
 Cannot be sued upon or enforced, unless it is for rescission (cancellation) of the contract, particularly
ratified. In a way, it may be considered as a for minors, guardians, and representatives
validable transaction, that is, it has no effect now of absentees.
but it may be effective upon ratification.
 Unathorized contracts Requisites:
 Both contract are onerous (1) The lesion suffered is more than 1/4 of the value of
 Contrary to statutpry of frauds the thing;
(2) The contract was entered into by a guardian or a
4. Void Contract (which may be inexistent or representative of an absentee;
illegal) (3) The contract was entered into on behalf of the
 Is one that has no effect at all; it cannot be ward or the absentee involving the ward or absentee’s
ratified or validated. property; and
RESCISSIBLE CONTRACT (4) The contract does not require approval of the court
and / or there is no approval of the court.
 RESCISSION – is a process designated to Contract is to DEFRAUD Creditors:
render inefficacious a contract validly entered into ⚫ The action to rescind the contract for being in fraud
and normally binding by reason of external of creditors is called ACCION PAULIANA .
conditions, causing an economic prejudice to a
party or to his creditors. (LESION, TRANSFER ACCION PAULIANA
IN FRAUD OF CREDITORS, TRANSFER BY

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⚫ Requisites: 7. The failure of the vendee to take exclusive

a. There must be a creditor who became such prior possession of all the property.
to the contract sought to be rescinded;
b. There must be an alienation made subsequent to ⚫ Rescission is only allowed when the breach is so
such credit; substantial and fundamental as to defeat the object of
c. The party alienating must be in bad faith; the parties in entering into the contract.
d. There must be no other remedy for the prejudiced
creditor – “inability to collect the claims due them”. ⚫ Article 1385 of the Civil Code provides the effects of
(Thus, rescission is merely a subsidiary remedy.) rescission, viz: “ART. 1385. Rescission creates the
obligation to return the things which were the object of
 Rescission creates the obligation to return the the contract, together with their fruits, and the price
things which were the object of the contract, with its interest; consequently, it can be carried out
together with their fruits, and the price with its only when he who demands rescission can return
interest; Neither shall rescission take place when whatever he may be obliged to restore.
the things which are the object of the contract are
legally in the possession of third persons who did VOIDABLE CONTRACTS
not act in bad faith.
 In this case, indemnity for damages may be Grounds for ANNULMENT of Contracts?
demanded from the person causing the loss. (Art.
1385) Grounds for ANNULMENT:
1. Incapacity to consent
2. Vitiated consent
RULES ON SUBSEQUENT TRANSFERS :
1. If the first transferee is in good faith, the good and FACTORS that impair intelligence :
bad faith of the next transferee is not important; (1) Minority (Art. 1327, par. 1);
2. If the first transferee is in bad faith, the next (2) Insanity, deaf-mutism coupled with illiteracy,
transferee is liable only if he /she is also in bad faith. intoxication, and hypnotic spell (Arts. 1327 par. 2 and
 First transferee is in bad faith, the second 1328);
transferee must be in good faith = NO (3) Mistake (Arts. 1331 and 1334)
RESCISSION.
 He must be a creditor prior to the contract  fraud as deceit is antecedent to or at least
otherwise it is Anticipatory fraud. simultaneous with the birth of the contract and for
that reason vitiates consent, which must exist
Doctrine of Anticipatory Fraud? when the contract is entered into. On the other
This legal principle allows a party to sue for a contract hand, fraud as malice occurs subsequent to the
breach before the performance is due if the other constitution of the obligation and results, not in
party indicates they will not fulfill their obligations. It the annulment of the obligation but in liability for
applies when one party clearly communicates their damages.
refusal to perform their part of the contract ahead of  Dolo Causante vitiates consent; Dolo Incidente
time. only gives rise to liability for damages.

BADGES OF FRAUD Article 1338 of the Civil Code of the Philippines

 The following are some circumstances attending provides:
sales which have been denominated by courts as ⚫ There is fraud when, through insidious words or
badges of fraud: machinations of one of the contracting parties the
other is induced to enter into a contract which,
1. Consideration of conveyance is fictitious or without them, he would not have agreed to (Art.
inadequate; (disparity in the value and amount paid); 1338, Civil Code).
2. Transfer made by the debtor after suit has begun
and during its pendency; Fraud may vitiate consent and be a cause for
3. Sale on credit by an insolvent debtor; annulment of contract, the following must concur:
4. Transfer of all or nearly all property by the debtor 1.) It must have been employed by one contracting
when he is insolvent; party upon the other (Art. 1342 and 1344);
5. Evidence of large indebtedness or complete 2.) It must have induced the other party to enter
insolvency; into the contract (Art. 1338);
6. Transfer is made between parents and children; 3.) It must have been serious (Art. 1344);

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4.) It must have resulted in damage and injury to

the party seeking annulment . ⚫ Those entered into in the name of another person
by one who has been given authority or legal
Article 1331 of the Civil Code of the Philippines representation, or who has acted beyond his powers.
provides: ⚫ Without ratification the agents assumes personal
⚫ In order that mistake may invalidate consent, it liability.
should refer to the substance of the thing which is the
object of the contract, or to those conditions which 2. Those that fail to comply with the Statutes of
have principally moved one or both parties to enter Frauds;
into the contract.
⚫ The term Statute of Frauds is descriptive of those
Article 1337 of the Civil Code of the Philippines laws, statutes, or provisions which require certain
provides: agreements to be in writing before they can be
⚫ There is undue influence when a person takes enforced in a judicial action. The law considers the
improper advantage of his power over the will of memory of man unreliable, hence, the need for the
another, depriving the latter of a reasonable freedom writing. The statute was designed to prevent fraud and
of choice. the commission of perjury.

Undue influence, therefore, is any means employed

upon a party which, under the circumstances, he ⚫ The Statute of Frauds applies only to executory
could not well resist and which controlled his volition contracts (contracts where no performance has yet
and induced him to give his consent to the contract, been made) and not partially or completely executed
which otherwise he would not have entered into. (consummated).;
⚫ The Statute of Frauds is a personal defense, that is
Factors that impair freedom of consent: a contract infringing it cannot be assailed by third
(1) Violence; persons;
(2) Intimidation;
(3) Undue Influence (Duress) Contracts that are within Statutes of Frauds:
(1) Agreements that is not to be performed within a
REVERENTIAL FEAR: year;
 If a contract is signed merely because of “fear of (2) Special promise to answer for the debt, default or
displeasing persons to whom obedience and miscarriage of another;
respect are due,” the contract is still VALID, for by (3) Sales of Goods the price is not less than P500.00;
itself reverential fear is not wrong. (4) Lease for more than one year;
(5) Sale of Real property or an interest therein;
PRESCRIPTION: 4 years from, (6) Representation as to credit of 3rd person.
a. In cases of intimidation, violence or undue influence
from the time the defect of the consent ceases; 3. Those where both parties are incapable of
b. In case of mistake or fraud from the time of giving consent to a contract.
discovery;
c. In action refers to contracts entered into by minors Well-settled is the rule that the Statute of Frauds by
or other incapacitated persons from the time the virtue of which oral contracts are unenforceable by
guardianship ceases. court action is applicable only to those contracts which
UNENFORCEABLE CONTRACTS are executory and not to those which have been
consummated either totally or partially.
⚫What are the Three (3) Kinds of Unenforceable
Contracts? ⚫ The Statute of Frauds expressed in Article 1403,
par. (2), of the Civil Code applies only to executory
Kinds of Unenforceable Contracts: contracts, i.e., those where no performance has yet
1. Unauthorized contracts; been made. Stated a bit differently, the legal
2. Those that fail to comply with the Statutes of consequence of non-compliance with the Statute does
Frauds; not come into play where the contract in question is
3. Those where both parties are incapable of giving completed, executed, or partially consummated.
consent to a contract.
⚫ Since contracts are generally obligatory in whatever
1. Unauthorized Contracts; form they may have been entered into, provided all

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the essential requisites for their validity are present, to law, morals, good customs, public order or public
the Statute simply provides the method by which the policy;
contracts enumerated in Art. 1403 (2) may be proved (2) Those which are absolutely simulated or fictitious;
but does not declare them invalid because they are (3) Those whose cause or object did not exist at the
not reduced to writing. time of the transaction;
(4) Those whose object is outside the commerce of
⚫ A contract that infringes the Statute of Frauds is men;
ratified by the acceptance of benefits under the (5) Those which contemplate an impossible service;
contract. (6) Those which the intention of the parties relative to
the principal object of the contract cannot be
BASIC PRINCIPLES CONCERNING STATUTE OF ascertained;
FRAUDS: (7) Those expressly prohibited or declared void by
1. Statute of Frauds applies only to executory law.
contracts (contracts where no performance has yet
been made) and not partially or completely excuted. ⚫ The action or defense for the declaration of the
(consummated contracts); inexistence of a contract does not prescribe. (Art.
2. Statute of Frauds cannot apply if the action is 1410)
neither for damages because of the violation of an
agreement nor for the specific performance of said Characteristics of VOID Contracts:
agreement; (1) They produce no effect whatsoever either against
3. Statute of Frauds is exclusive, it applies only to or in favor of anyone. (quod nullum est nullum producit
agreements or contracts specifically enumerated; effectum);
4. Defense of Statute of Frauds may be waived. (2) No action for annulment is necessary. Their nullity
5. Statute of Frauds is a personal defense or a exists and therefore any judgment of nullity is merely
contract infringing it cannot be assailed by 3rd declaratory;
persons. (3) They can neither be confirmed nor ratified;
6. Contracts infringing the Statute of Frauds are not (4) If performance is made, restoration of what has
void; they are merely unenforceable; been delivered is required, except when pari delicto is
7. Statute of Frauds is a Rule of Exclusion. Oral applicable;
evidence might be relevant to the agreements (5) The right to set up the defense of nullity cannot be
enumerated therein and might, therefore, be waived;
admissible were it not for the fact that the law or the (6) The action or defense of nullity does not prescribe;
statute excludes said oral evidence; (7) The defense of nullity may be invoked by anyone
8. Statute of Frauds does not determine the credibility against whom the effects of the contract are asserted.
or weight of evidence. It merely concerns itself with
the admissiblity thereof; SIMULATED CONTRACTS :
9. Statute of Frauds does not apply if it is claimed that (a) If absolutely simulated , the contract is VOID for
the contract does not express the true agreement of utter lack of consent, subject matter and cause;
the parties. As long as the true agreement is not (b) If relatively simulated , the hidden or intended
covered by the Statute of Frauds, it is provable by oral contract is generally binding.
evidence; and
10. The application of the Statute of Frauds ⚫ Art. 124. x x x In the event that one spouse is
presupposes the existence of a perfected contract. incapacitated or otherwise unable to participate in the
administration of the conjugal properties, the other
VOID OR INEXISTENT CONTRACTS spouse may assume sole powers of administration.
These powers do not include the powers of disposition
 No amount of good faith can validate an or encumbrance which must have the authority of the
agreement which is otherwise void. A contract court or the written consent of the other spouse. In the
which the law denounces as void is necessarily absence of such authority or consent, the disposition
no contract at all and no effort or act of the or encumbrance shall be void. x x x
parties to create one can bring about a change in
its legal status. (Ballesteros vs. Abion, G.R. No. ⚫ Under the provisions of the Civil Code governing
143361, February 9, 2006) contracts, a void or inexistent contract has no force
and effect from the very beginning. And this rule
FOLLOWING CONTRACTS ARE VOID (Art. 1409) applies to contracts that are declared void by positive
(1) Those whose cause, object or purpose is contrary provision of law, as in the case of a sale of conjugal

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property without the other spouse’s written consent. a juridical relation. Parties to a void agreement cannot
expect the aid of the law; the courts leave them as
⚫ Art. 1410. The action or defense for the declaration they are, because they are deemed in pari delicto or in
of the inexistence of a contract does not prescribe. equal fault. To this rule, however, there are exceptions
that permit the return of that which may have been
When the nullity proceeds from the illegality of the given under a void contract.
cause or object of the contract, and the act constitutes
a criminal offense, both parties being in pari delicto, NATURAL OBLIGATIONS
they shall have no action against each other, and both
shall be prosecuted.  Are those based on equity and natural law, which
 If the act in which the unlawful or forbidden cause are not enforceable by means of a court action,
consists does not constitute a criminal offense, but which, after voluntary fulfillment by the
the following rules shall be observed: obligor, authorize the retention by the obligee of
(1) When the fault is on the part of both contracting what has been delivered or rendered by reason
parties, neither may recover what he has given by thereof. In other words, they refer to those
virtue of the contract, or demand the performance of obligations without a sanction, susceptible of
the other's undertaking; voluntary performance, but not through
(2) When only one of the contracting parties is at fault, compulsion by legal means.
he cannot recover what he has given by reason of the
contract, or ask for the fulfillment of what has been Examples of Natural Obligations:
promised him. The other, who is not at fault, may (1) Payment of the prescribed obligations;
demand the return of what he has given without any (2) reimbursement to Third Persons;
obligation to comply his promise. (Art. 1412) (3) Voluntary Performance after Dismissal of Case;
(4) Excess payment by an Heir;
Illegal and Criminal Contracts: (5) Void Will.
(a) Those where both parties are guilty (in pari
delicto); ESTOPPEL
(b) Those where only one is guilty and the other is
innocent. Art. 1431.
⚫ Through estoppel an admission or representation is
IF BOTH ARE GUILTY : rendered conclusive upon the person making it and
(1) Since they are in pari delicto they shall have no cannot be denied or disproved as against the person
action against each other; relying thereon.
(2) Both shall be prosecuted; Kinds of Estoppel:
(3) The effects or the instruments of the crime (things 1) Estoppel IN PAIS (Equitable Estoppel);
or price of the contract) shall be confiscated in favor of 2) Estoppel BY DEED (Technical Estoppel);
the government. 1) Estoppel IN PAIS
THOSE WHERE ONLY ONE IS GUILTY:  It arises when one by his acts, representations or
(1) The guilty party will be prosecuted; admission, or by his silence when he ought to
(2) The instrument of the crime (or object of the speak out intentionally or through culpable
contract) will be confiscated (as in the case of negligence, induces another to believe certain
government property illegally sold); facts to exist, and such other rightfully relies and
(3) The innocent one may claim what he has given acts on such belief, so that he will be prejudiced if
(like the price he paid for the government property); or the former is permitted to deny the existence of
he has not yet given anything, he shall not be bound such facts.
to comply with his promise. (a) By conduct or acceptance of benefits;
(b) By representation or concealment;
Stated differently where the language of a written (c) By silence;
contract is clear and unambiguous, the contract must (d) By omission;
be taken to mean that which, on its face, it purports to (e) By laches (unreasonable delay in suing).
mean, unless some good reason can be assigned to
show that the words should be understood in a 2) Estoppel BY DEED
different sense.  It is a bar which precludes a party to a deed and
his privies from asserting as against the other
⚫ A void contract is equivalent to nothing; it produces and his privies any right or title in derogation of
no civil effect. It does not create, modify, or extinguish the deed, or from denying the truth of any

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material fact asserted in it. by operation of law as a matter of equity,

(a) Estoppel by deed proper (written instrument may independently of the particular intention of the
also be in the form of a bond or a mortgage). parties. It may either by resulting or constructive
(b) Estoppel by judgment as a court record. (this trust. (Sps. Bejos vs. Cabreros, et. al., G.R. No.
happens when there could have been res judicata) 145849, July 22, 2005)

⚫ The doctrine of estoppel may not be invoked to Two Kinds of IMPLIED TRUSTS:
validate a void contract. (1) RESULTING TRUST (Bare or Passive Trust)
(2) CONSTRUCTIVE TRUST
⚫ It is provided, as one of the conclusive
presumptions under Rule 131, Section 2(a), of the RESULTING TRUST?
Rules of Court that, "Whenever a party has, by his ⚫ Is presumed to have been contemplated by parties,
own declaration, act or omission, intentionally and the intention is to be found in the nature of the
deliberately led another to believe a particular thing to transaction but not expressed in the deed itself. It is
be true, and to act upon such belief, he cannot, in any based on the equitable doctrine that valuable
litigation arising out of such declaration, act or consideration, not legal title, determines the equitable
omission, be permitted to falsify it." This is known as title or interest.
the principle of estoppel.
Example:
The essential elements of estoppel are: (1) conduct ⚫ Art. 1451, where a person who inherits property
amounting to false representation or concealment of registers the same in another's name, whom he does
material facts or at least calculated to convey the not intend to have any beneficial interest therein for he
impression that the facts are otherwise than, and wants this for himself.
inconsistent with, those which the party subsequently In Thomson v. Court of Appeals, we held that a trust
attempts to assert; (2) intent, or at least expectation, arises in favor of one who pays the purchase price
that this conduct shall be acted upon by, or at least of a property in the name of another, because of
influence, the other party; (3) knowledge, actual or the presumption that he who pays for a thing
constructive, of the real facts. intends a beneficial interest for himself
CONSTRUCTIVE TRUST?
TRUSTS
⚫ It is created not by any word evincing a direct
(a) It is the right to the beneficial enjoyment of intention to create trust, but by operation of law in
property, the legal title to which is vested in another; order to satisfy the demand of justice and to prevent
(b) It is a fiduciary relationship concerning property unjust enrichment. It arises contrary to an agreement
which obliges the person holding it to deal with the or intention against one who, by fraud, duress or
property for the benefit of another, the person holding, abuse of confidence, obtains or holds the legal
in view of his equitable title, is allowed to exercise right to property which he ought not, in equity and
certain powers belonging to the owner of the legal good conscience, to hold.
title.
⚫ If a person acquires property by mistake, he is
Characteristics of a TRUST: considered by the law as a trustee while he holds the
(a) It is a fiduciary relationship; same (Art. 1456)
(b) Created by law or by agreement;
(c) Where the legal title is held by one, and the ⚫ Article 1450 provides, “If the price of a sale of
equitable title or beneficial title is held by another. property is loaned or paid by one person for the
benefit of another and the conveyance is made to the
Classification of Trusts: lender or payor to secure the payment of the debt, a
(a) EXPRESS TRUST; (Created by the parties, or by trust arises by operation of law in favor of the person
the intention of the trustor); to whom the money is loaned or for whom it is paid.
(b) IMPLIED TRUST; (created by operation of law) The latter may redeem the property and compel a
conveyance thereof to him.”
Implied Trust – created by operation of law.
⚫ Art. 1451. When land passes by succession to any
 Is one that, without being express, is deducible person and he causes the legal title to be put in the
from the nature of the transaction as a matter of name of another, a trust is established by implication
intent or which is superinduced on the transaction of law for the benefit of the true owner.

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⚫ Art. 1452. If two or more persons agree to ARTICLE 1317. No one may contract in the name of
purchase property and by common consent the legal another without being authorized by the latter, or
title is taken in the name of one of them for the benefit unless he has by law a right to represent him.
of all, a trust is created by force of law in favor of the
others in proportion to the interest of each. A contract entered into in the name of another by one
who has no authority or legal representation, or who
⚫ Art. 1453. When property is conveyed to a person has acted beyond his powers, shall be unenforceable,
in reliance upon his declared intention to hold it for, or unless it is ratified, expressly or impliedly, by the
transfer it to another or the grantor, there is an implied person on whose behalf it has been executed, before
trust in favor of the person whose benefit is it is revoked by the other contracting party. (1259a)
contemplated.
ARTICLE 1319. Consent is manifested by the meeting
 The trustor-beneficiary is not estopped from of the offer and the acceptance upon the thing and the
proving its ownership over the property held in cause which are to constitute the contract. The offer
trust by the trustee when the purpose is not to must be certain and the acceptance absolute. A
contest the disposition or encumbrance of the qualified acceptance constitutes a counter-offer.
property in favor of an innocent third-party
purchaser for value. ARTICLE 1346. An absolutely simulated or fictitious
contract is void. A relative simulation, when it does not
⚫ The registration of a land under the Torrens prejudice a third person and is not intended for any
system does not create or vest title, because purpose contrary to law, morals, good customs, public
registration is not one of the modes of acquiring order or public policy binds the parties to their real
ownership. agreement. (n)

It is immaterial whether or not the trustor and the ARTICLE 1356. Contracts shall be obligatory, in
trustee know that the relationship which they intend to whatever form they may have been entered into,
create is called a trust, and whether or not the parties provided all the essential requisites for their validity
know the precise characteristic of the relationship are present. However, when the law requires that a
which is called a trust because what is important is contract be in some form in order that it may be valid
whether the parties manifested an intention to create or enforceable, or that a contract be proved in a
the kind of relationship which in law is known as a certain way, that requirement is absolute and
trust. indispensable. In such cases, the right of the parties
stated in the following article cannot be exercised.
(1278a)
ARTICLE 1305. A contract is a meeting of minds
between two persons whereby one binds himself, with ARTICLE 1359. When, there having been a meeting
respect to the other, to give something or to render of the minds of the parties to a contract, their true
some service. (1254a) intention is not expressed in the instrument purporting
to embody the agreement, by reason of mistake,
ARTICLE 1306. The contracting parties may establish fraud, inequitable conduct or accident, one of the
such stipulations, clauses, terms and conditions as parties may ask for the reformation of the instrument
they may deem convenient, provided they are not to the end that such true intention may be expressed.
contrary to law, morals, good customs, public order, or
public policy. (1255a) If mistake, fraud, inequitable conduct, or accident has
prevented a meeting of the minds of the parties, the
ARTICLE 1308. The contract must bind both proper remedy is not reformation of the instrument but
contracting parties; its validity or compliance cannot annulment of the contract.
be left to the will of one of them. (1256a)
ARTICLE 1370. If the terms of a contract are clear
ARTICLE 1315. Contracts are perfected by mere and leave no doubt upon the intention of the
consent, and from that moment the parties are bound contracting parties, the literal meaning of its
not only to the fulfillment of what has been expressly stipulations shall control.
stipulated but also to all the consequences which,
according to their nature, may be in keeping with good
faith, usage and law. (1258)

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If the words appear to be contrary to the evident contract, with their fruits, and the price with its interest,
intention of the parties, the latter shall prevail over the except in cases provided by law.
former. (1281)
In obligations to render service, the value thereof shall
ARTICLE 1380. Contracts validly agreed upon may be the basis for damages. (1303a)
be rescinded in the cases established by law. (1290)
ARTICLE 1403. The following contracts are
ARTICLE 1381. The following contracts are unenforceable, unless they are ratified:
rescissible:
(1) Those which are entered into by guardians 1) Those entered into in the name of another person
whenever the wards whom they represent suffer by one who has been given no authority or legal
lesion by more than one-fourth of the value of the representation, or who has acted beyond his
things which are the object thereof; powers;
(2) Those agreed upon in representation of 2) Those that do not comply with the Statute of
absentees, if the latter suffer the lesion stated in the Frauds as set forth in this number. In the
preceding number; following cases an agreement hereafter made
(3) Those undertaken in fraud of creditors when the shall be unenforceable by action, unless the
latter cannot in any other manner collect the claims same, or some note or memorandum, thereof, be
due them; in writing, and subscribed by the party charged,
(4) Those which refer to things under litigation if they or by his agent; evidence, therefore, of the
have been entered into by the defendant without the agreement cannot be received without the
knowledge and approval of the litigants or of writing, or a secondary evidence of its contents:
competent judicial authority;
(5) All other contracts specially declared by law to be (a) An agreement that by its terms is not to be
subject to rescission. (1291a) performed within a year from the making thereof;
(b) A special promise to answer for the debt, default,
ARTICLE 1385. Rescission creates the obligation to or miscarriage of another;
return the things which were the object of the contract, (c) An agreement made in consideration of marriage,
together with their fruits, and the price with its interest; other than a mutual promise to marry;
consequently, it can be carried out only when he who (d) An agreement for the sale of goods, chattels or
demands rescission can return whatever he may be things in action, at a price not less than five hundred
obliged to restore. pesos, unless the buyer accept and receive part of
such goods and chattels, or the evidences, or some of
Neither shall rescission take place when the things them, of such things in action, or pay at the time some
which are the object of the contract are legally in the part of the purchase money; but when a sale is made
possession of third persons who did not act in bad by auction and entry is made by the auctioneer in his
faith. sales book, at the time of the sale, of the amount and
kind of property sold, terms of sale, price, names of
In this case, indemnity for damages may be the purchasers and person on whose account the sale
demanded from the person causing the loss. (1295) is made, it is a sufficient memorandum;
(e) An agreement for the leasing for a longer period
ARTICLE 1390. The following contracts are voidable than one year, or for the sale of real property or of an
or annullable, even though there may have been no interest therein;
damage to the contracting parties: (f) A representation as to the credit of a third person.
(1) Those where one of the parties is incapable of
giving consent to a contract; 3) Those where both parties are incapable of giving
(2) Those where the consent is vitiated by mistake, consent to a contract.
violence, intimidation, undue influence or fraud.
These contracts are binding, unless they are annulled ARTICLE 1409. The following contracts are inexistent
by a proper action in court. They are susceptible of and void from the beginning:
ratification. (n) (1) Those whose cause, object or purpose is contrary
to law, morals, good customs, public order or public
ARTICLE 1398. An obligation having been annulled, policy;
the contracting parties shall restore to each other the (2) Those which are absolutely simulated or fictitious;
things which have been the subject matter of the (3) Those whose cause or object did not exist at the
time of the transaction;

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(4) Those whose object is outside the commerce of

men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to
the principal object of the contract cannot be
ascertained;
(7) Those expressly prohibited or declared void by
law.
These contracts cannot be ratified. Neither can the
right to set up the defense of illegality be waived.

ARTICLE 1412. If the act in which the unlawful or

forbidden cause consists does not constitute a
criminal offense, the following rules shall be observed:

(1) When the fault is on the part of both contracting

parties, neither may recover what he has given by
virtue of the contract, or demand the performance of
the other’s undertaking;
(2) When only one of the contracting parties is at fault,
he cannot recover what he has given by reason of the
contract, or ask for the fulfillment of what has been
promised him. The other, who is not at fault, may
demand the return of what he has given without any
obligation to comply with his promise. (1306)

ARTICLE 1423. 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 1431. Through estoppel an admission or

representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as
against the person relying thereon.

ARTICLE 1440. A person who establishes a trust is

called the trustor; one in whom confidence is reposed
as regards property for the benefit of another person
is known as the trustee; and the person for whose
benefit the trust has been created is referred to as the
beneficiary.

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