Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS

YSRefran 1
TITLE II. CONTRACTS
Chapter 1. GENERAL PROVISIONS
1305 A contract is a meeting of minds between two persons whereby one binds
DEFINITION of contracts himself, with respect to the other, to give something or to render some service.
(1254a)
1306 The contracting parties may establish such stipulations, clauses, terms and
Characteristic of contracts: AUTONOMY conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy. (1255a)
LIMITATIONS: must not be contrary to
- LAW (mandatory & prohibitive laws)
- MORALS (deal with right & wrong and
the human conscience)
- GOOD CUSTOMS (standards of justice
& decency acknowledged by society)
- PUBLIC ORDER (public weal, peace,
safety & health of the community)
- PUBLIC POLICY (idea of variable
content, depending on the stage of social
culture in the community)
1307 Innominate contracts shall be regulated by the stipulations of the parties, by the
INNOMINATE contracts GOVERNED by: provisions of Titles I and II of this Book, by the rules governing the most
- stipulations analogous nominate contracts, and by the customs of the place. (n)
- provs of Titles I & II, Book IV, CC
-rules governing the most analogous
nominate contracts
- customs
1308 The contract must bind both contracting parties; its validity or compliance cannot
Characteristic of contracts: MUTUALITY be left to the will of one of them. (1256a)
1309 The determination of the performance may be left to a third person, whose
EXCEPTION to MUTUALITY: decision shall not be binding until it has been made known to both contracting
DETERMINATION BY 3rd PERSON not parties. (n)
binding until made known to both parties
1310 The determination shall not be obligatory if it is evidently inequitable. In such
EXCEPTION to MUTUALITY: case, the courts shall decide what is equitable under the circumstances. (n)
EVIDENTLY INEQUITABLE DETERMI-
NATION not obligatory
1311 Contracts take effect only between the parties, their assigns and heirs, except in
Characteristic of contracts: RELATIVITY case where the rights and obligations arising from the contract are not
EXCEPTIONS transmissible by their nature, or by stipulation or by provision of law. The heir is
Stipulation pour autrui not liable beyond the value of the property he received from the decedent.
Third person comes into possession of
object of contract creating a real right If a contract should contain some stipulation in favor of a third person, he may
Contract entered into to defraud 3rd demand its fulfillment provided he communicated his acceptance to the obligor
person before its revocation. A mere incidental benefit or interest of a person is not
Third person induces contracting party to sufficient. The contracting parties must have clearly and deliberately conferred a
violate his contract favor upon a third person. (1257a)
1312 In contracts creating real rights, third persons who come into possession of the
EXCEPTION to RELATIVITY: 3rd object of the contract are bound thereby, subject to the provisions of the
PERSON COMES INTO POSSESSION Mortgage Law and the Land Registration Laws. (n)
OF OBJECT OF CONTRACT CREATING
A REAL RIGHT
1313 Creditors are protected in cases of contracts intended to defraud them. (n)
EXCEPTION to RELATIVITY: contract
entered into to DEFRAUD 3RD PERSON
1314 Any third person who induces another to violate his contract shall be liable for
EXCEPTION to RELATIVITY: 3RD damages to the other contracting party. (n)
PERSON INDUCES PARTY to VIOLATE
CONTRACT
1315 Contracts are perfected by mere consent, and from that moment the parties are
Characteristics of contracts: bound not only to the fulfillment of what has been expressly stipulated but also to
CONSENSUALITY all the consequences which, according to their nature, may be in keeping with
OBLIGATORY FORCE OF CONTRACTS good faith, usage and law. (1258)
& PERFORMANCE IN GOOD FAITH
1316 Real contracts, such as deposit, pledge and commodatum, are not perfected
4TH element to perfect REAL contracts: until the delivery of the object of the obligation. (n)
Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS
YSRefran 2
DELIVERY
1317 No one may contract in the name of another without being authorized by the
REQUISITE for person to CONTRACT IN latter, or unless he has by law a right to represent him.
NAME OF ANOTHER
- DULY AUTHORIZED, or A contract entered into in the name of another by one who has no authority or
- HAS RIGHT TO REPRESENT legal representation, or who has acted beyond his powers, shall be
BY LAW unenforceable, unless it is ratified, expressly or impliedly, by the person on
- Contract subsequently RATIFIED whose behalf it has been executed, before it is revoked by the other contracting
party. (1259a)

Chapter 2. ESSENTIAL REQUISITES OF CONTRACTS

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

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

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

EXCEPTION: option is founded upon a

consideration as something paid or
Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS
YSRefran 3
promised
1325 Unless it appears otherwise, business advertisements of things for sale are not
GEN RULE: ADVERTISEMENTS are definite offers, but mere invitations to make an offer. (n)
MERE INVITATIONS to make an offer
1326 Advertisements for bidders are simply invitations to make proposals, and the
GEN RULE: ADVERTISER NOT BOUND advertiser is not bound to accept the highest or lowest bidder, unless the
TO ACCEPT highest or lowest bidder contrary appears. (n)
1327 The following cannot give consent to a contract:
PERSONS INCAPACITATED TO
CONSENT (EXERCISE OF RIGHT is (1) Unemancipated minors;
RESTRICTED; VOIDABLE transaction) (2) Insane or demented persons, and deaf-mutes who do not know how to write.
- Unemancipated MINORS (1263a)
- INSANE or DEMENTED persons
(unless acting during lucid interval),
DRUNKS, and those HYPNOTIZED
- DEAF-MUTES WHO DON’T know how
to WRITE (AND READ)
1328 Contracts entered into during a lucid interval are valid. Contracts agreed to in a
DRUNKENNESS equivalent to state of drunkenness or during a hypnotic spell are voidable. (n)
TEMPORARY INSANITY

HYPNOTIC SPELL (DRUGS or

HYPNOTISM) or SOMNAMBULISM
1329 The incapacity declared in Article 1327 is subject to the modifications determined
SPECIALLY DISQUALIFIED PERSONS by law, and is understood to be without prejudice to special disqualifications
(RIGHT is WITHHELD; VOID transaction) established in the laws. (1264)
- Persons under CIVIL INTERDICTION
- HUSBAND & WIFE, to each other
- INSOLVENTS
- Disqualified persons because of
FIDUCIARY RELATIONSHIP
- Contracts entered into w/ NON-
CHRISTIANS
1330 A contract where consent is given through mistake, violence, intimidation, undue
VICES OF CONSENT render contract influence, or fraud is voidable. (1265a)
VOIDABLE
- proven with CLEAR AND CONVINCING
EVIDENCE
1331 In order that mistake may invalidate consent, it should refer to the substance of
MISTAKE: false belief about something; the thing which is the object of the contract, or to those conditions which have
inadvertent & excusable disregard of a principally moved one or both parties to enter into the contract.
circumstance material to the contract
Mistake as to the identity or qualifications of one of the parties will vitiate consent
REQUISITES only when such identity or qualifications have been the principal cause of the
- INADVERTENT contract.
- EXCUSABLE
- OF FACT, not law A simple mistake of account shall give rise to its correction. (1266a)
- PAST OR PRESENT
- MATERIAL: must refer to factors
inducing consent
- SUBSTANCE of the OBJECT or
NATURE of transaction (error in
SUBSTANTIA)
- PRINCIPAL QUALITIES of the
OBJECT (error in QUALITATE)
- QUANTITY (error in
QUANTITATE)
- IDENTITY of PARTY, considering
individual skills, confidence, etc.
(error in PERSONA)
1332 When one of the parties is unable to read, or if the contract is in a language not
RULE in case of INABILITY TO READ or understood by him, and mistake or fraud is alleged, the person enforcing the
UNDERSTAND contract must show that the terms thereof have been fully explained to the
former. (n)
PRESUMPTION that ONE ACTS W/ DUE
Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS
YSRefran 4
CARE & SIGNS W/ FULL KNOWLEDGE
of a DOC’S CONTENTS
1333 There is no mistake if the party alleging it knew the doubt, contingency or risk
KNOWLEDGE OF DOUBT or RISK affecting the object of the contract. (n)
DOESN’T VITIATE CONSENT
1334 Mutual error as to the legal effect of an agreement when the real purpose of the
REQUISITES for MUTUAL ERROR to parties is frustrated, may vitiate consent. (n)
VITIATE CONSENT
- MUTUAL ERROR
- ERROR referring to LEGAL EFFECT
of AGREEMENT
- REAL PURPOSE OF PARTIES is
FRUSTRATED
1335 There is violence when in order to wrest consent, serious or irresistible force is
DURESS employed.
- VIOLENCE: physical coercion
1) Employment of SERIOUS OR There is intimidation when one of the contracting parties is compelled by a
IRRESISTIBLE FORCE reasonable and well-grounded fear of an imminent and grave evil upon his
2) SUCH FORCE the REASON why person or property, or upon the person or property of his spouse, descendants or
CONTRACT was ENTERED into ascendants, to give his consent.
- INTIMIDATION: moral coercion
1) REASONABLE & WELL-GROUNDED To determine the degree of intimidation, the age, sex and condition of the person
FEAR shall be borne in mind.
2) of an IMMINENT & GRAVE EVIL
3) UPON PERSON OR PROPERTY OF A threat to enforce one's claim through competent authority, if the claim is just or
HIS (or his SPOUSE, DESCENDANTS, legal, does not vitiate consent. (1267a)
or ASCENDANTS)
4) SUCH was the REASON the
CONTRACT was ENTERED into
5) threat must be of an UNJUST ACT, an
ACTIONABLE WRONG

REVERENTIAL FEAR (fear of displeasing

persons to whom obedience & respect are
due) doesn’t vitiate consent
1336 Violence or intimidation shall annul the obligation, although it may have been
DURESS CAUSED BY THIRD PERSON employed by a third person who did not take part in the contract. (1268)
ANNULS CONTRACT
1337 There is undue influence when a person takes improper advantage of his power
UNDUE INFLUENCE – REQUISITES over the will of another, depriving the latter of a reasonable freedom of choice.
- IMPROPER ADVANTAGE The following circumstances shall be considered: the confidential, family,
- POWER OVER WILL OF ANOTHER spiritual and other relations between the parties, or the fact that the person
- DEPRIVING PERSON of REASONABLE alleged to have been unduly influenced was suffering from mental weakness, or
FREEDOM OF CHOICE was ignorant or in financial distress. (n)
1338 There is fraud when, through insidious words or machinations of one of the
DEFINITION of FRAUD contracting parties, the other is induced to enter into a contract which, without
them, he would not have agreed to. (1269)
KINDS
1) Fraud in the CELEBRATION of the
contract (FRAUD PROPER)
- DOLO CAUSANTE (causal fraud)
Requisites:
1) MATERIAL & SERIOUS FRAUD
2) USED BY only ONE PARTY
3) DELIBERATE INTENT TO
DECEIVE or INDUCE
4) OTHER PARTY RELIED ON
UNTRUE STMT & ISN’T GUILTY
OF NEGLIGENCE IN
ASCERTAINING THE TRUTH
- DOLO INCIDENTE (incidental fraud)
2) Fraud in the PERFORMANCE of the
obligations stipulated
1339 Failure to disclose facts, when there is a duty to reveal them, as when the parties
CONCEALMENT constitutes fraud when are bound by confidential relations, constitutes fraud. (n)
Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS
YSRefran 5
there’s a DUTY TO REVEAL THEM
1340 The usual exaggerations in trade, when the other party had an opportunity to
CAVEAT EMPTOR: let the buyer beware know the facts, are not in themselves fraudulent. (n)
1341 A mere expression of an opinion does not signify fraud, unless made by an
MERE EXPRESSION OF OPINION expert and the other party has relied on the former's special knowledge. (n)
DOESN’T SIGNIFY FRAUD
1342 Misrepresentation by a third person does not vitiate consent, unless such
MISREPRESENTATION BY 3RD PERSON misrepresentation has created substantial mistake and the same is mutual. (n)
DOESN’T VITIATE CONSENT
1343 Misrepresentation made in good faith is not fraudulent but may constitute error.
MISREPRESENTATION IN GOOD FAITH (n)
1344 In order that fraud may make a contract voidable, it should be serious and
REQUISITES for FRAUD to VITIATE should not have been employed by both contracting parties.
CONSENT
1) Fraud must be SERIOUS Incidental fraud only obliges the person employing it to pay damages. (1270)
2) Parties MUST NOT BE IN PARI
DELICTO (mutual guilt)
1345 Simulation of a contract may be absolute or relative. The former takes place
REQUISITES of simulated contracts when the parties do not intend to be bound at all; the latter, when the parties
1) OUTWARD DECLARATION of WILL conceal their true agreement. (n)
DIFFERENT FROM THE WILL OF THE
PARTIES
2) FALSE APPEARANCE must’ve been
INTENDED BY MUTUAL AGREEMENT
3) PURPOSE is TO DECEIVE 3RD
PERSONS
1346 An absolutely simulated or fictitious contract is void. A relative simulation, when it
KINDS of SIMULATED CONTRACTS does not prejudice a third person and is not intended for any purpose contrary to
1) ABSOLUTELY SIMULATED: parties law, morals, good customs, public order, or public policy binds the parties to their
don’t intend to be bound real agreement.
2) RELATIVELY SIMULATED: parties
conceal their true agreement

Section 2. OBJECT OF CONTRACTS

1347 All things which are not outside the commerce of men, including future things,
OBJECT OF A CONTRACT: to create or may be the object of a contract. All rights which are not intransmissible may also
to end obligations w/c may involve things be the object of contracts.
or services
No contract may be entered into upon future inheritance except in cases
REQUISITES expressly authorized by law.
- W/IN the COMMERCE OF MAN
- TRANSMISSIBLE All services which are not contrary to law, morals, good customs, public order or
- LAWFUL public policy may likewise be the object of a contract. (1271a)
- ACTUAL or POSSIBLE
- DETERMINATE or DETERMINABLE
W/O NEED OF A NEW CONTRACT
1348 Impossible things or services cannot be the object of contracts. (1272)
IMPOSSIBILITY may be
- Because of the TRANSACTION or the
LAW
- ABSOLUTE (objectively impossible)
- RELATIVE (subjectively impossible)

Impossibility must not be confused w/

DIFFICULTY
1349 The object of every contract must be determinate as to its kind. The fact that the
A requisite of OBJECT 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. (1273)

Section 3. CAUSE OF CONTRACTS

1350 In onerous contracts the cause is understood to be, for each contracting party,
CAUSE: impelling reason for which a the prestation or promise of a thing or service by the other; in remuneratory
party assumes an obligation under a ones, the service or benefit which is remunerated; and in contracts of pure
contract beneficence, the mere liberality of the benefactor. (1274)
Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS
YSRefran 6
1351 The particular motives of the parties in entering into a contract are different from
MOTIVE V. CAUSE the cause thereof. (n)
- may vary; always the same
- may be unknown to the other; always
known
- presence of motive can’t cure absence
of cause
1352 Contracts without cause, or with unlawful cause, produce no effect whatever.
REQUISITES for CAUSE The cause is unlawful if it is contrary to law, morals, good customs, public order
- PRESENT (existent at time contract was or public policy. (1275a)
entered into)
- TRUE
- LAWFUL

NO CAUSE = VOID CONTRACT

1353
CONTRACT W/ STATEMENT OF FALSE
CAUSE not necessarily VOID, may be
VOIDABLE
1354
PRESUMPTION – CAUSE EXISTS
1355
LESION: inadequacy of cause
GEN RULE: LESION DOESN’T
INVALIDATE a CONTRACT
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. (1276)
Although the cause is not stated in the contract, it is presumed that it exists and
is lawful, unless the debtor proves the contrary. (1277)
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.
(n)

EXCEPTIONS
1) Lesion + FRAUD/MISTAKE/UNDUE
INFLUENCE
2) CASES expressly PROVIDED BY LAW

Chapter 3. FORM OF CONTRACTS

1356
GEN RULE – FORM NOT REQ’D (applies
to CONSENSUAL CONTRACTS)
- SOLEMN contracts require CERTAIN
SPECIFIED FORM
- REAL contracts require DELIVERY
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 article cannot be exercised. (1278a)

FORM may be important for

- VALIDITY
- ENFORCEABILITY
- CONVENIENCE
1357 If the law requires a document or other special form, as in the acts and contracts
Before PARTIES may be COMPELLED to enumerated in the following article, the contracting parties may compel each
EXECUTE NEEDED FORM, ESSENTIAL other to observe that form, once the contract has been perfected. This right may
that contract is: be exercised simultaneously with the action upon the contract. (1279a)
- PERFECTED (valid)
- ENFORCEABLE UNDER the STATUTE
OF FRAUDS

1358 The following must appear in a public document:

NECESSITY for PUBLIC DOC IN
CONTRACTS ENUMERATED – for (1) Acts and contracts which have for their object the creation, transmission,
CONVENIENCE modification or extinguishment of real rights over immovable property; sales of
real property or of an interest therein a governed by Articles 1403, No. 2, and
PRESUMPTION – PUBLIC 1405;
INSTRUMENT is VALID
(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;
Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS
YSRefran 7

(4) The cession of actions or rights proceeding from an act appearing in a public
document.

All other contracts where the amount involved exceeds five hundred pesos must
appear in writing, even a private one. But sales of goods, chattels or things in
action are governed by Articles, 1403, No. 2 and 1405. (1280a)

Chapter 4. REFORMATION OF INSTRUMENTS (n)

1359 When, there having been a meeting of the minds of the parties to a contract,
REFORMATION: remedy in equity by their true intention is not expressed in the instrument purporting to embody the
means of which a written instrument is agreement, by reason of mistake, fraud, inequitable conduct or accident, one of
made or construed to express or conform the parties may ask for the reformation of the instrument to the end that such
to the real intention of the parties when true intention may be expressed.
some error or mistake has been
committed 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
NO NEW CONTRACT IS MADE annulment of the contract.

REQUISITES for reformation

1) MEETING OF THE MINDS
2) TRUE INTENTION NOT EXPRESSED
IN THE INSTRUMENT
3) CLEAR & CONVINCING PROOF
4) BROUGHT W/IN PROPER
PRESCRIPTIVE PERIOD
5) DOC MUSN’T REFER TO
- SIMPLE UNCONDITIONAL DONATION
INTER VIVOS
- WILLS
- CONTRACT WHERE REAL
AGREEMENT IS VOID
1360 The principles of the general law on the reformation of instruments are hereby
CC PREVAILS OVER PRINCIPLES OF adopted insofar as they are not in conflict with the provisions of this Code.
GENERAL LAW ON REFORMATION IN
CASES OF CONFLICT
1361 When a mutual mistake of the parties causes the failure of the instrument to
REFORMATION bec. of MUTUAL disclose their real agreement, said instrument may be reformed.
MISTAKE
- MUTUAL MISTAKE
- MAY BE UNILATERAL PER CC 1362 &
1363
- MISTAKE usually must be OF FACT
1362 If one party was mistaken and the other acted fraudulently or inequitably in such
a way that the instrument does not show their true intention, the former may ask
for the reformation of the instrument.
1363 When one party was mistaken and the other knew or believed that the
PARTY IN GOOD FAITH CAN ASK FOR instrument did not state their real agreement, but concealed that fact from the
REFORMATION former, the instrument may be reformed.
1364 When through the ignorance, lack of skill, negligence or bad faith on the part of
FAILURE TO CONVEY TRUE INTENT the person drafting the instrument or of the clerk or typist, the instrument does
because of IGNORANCE/ LACK OF not express the true intention of the parties, the courts may order that the
SKILL/ BAD FAITH of instrument be reformed.
- DRAFTER OF the INSTRUMENT
- CLERK
- TYPIST
1365 If two parties agree upon the mortgage or pledge of real or personal property,
INTENT TO HAVE MORTGAGE/PLEDGE but the instrument states that the property is sold absolutely or with a right of
but instrument states otherwise – repurchase, reformation of the instrument is proper.
reformation is proper

PARTIES’ INTENT judged from

CONTEMPORANEOUS &
SUBSEQUENT ACTS
1366 There shall be no reformation in the following cases:
Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS
YSRefran 8
INSTANCES WHEN REFORMATION IS
ALLOWED (1) Simple donations inter vivos wherein no condition is imposed;
(2) Wills;
(3) When the real agreement is void.
1367 When one of the parties has brought an action to enforce the instrument, he
INSTANCE WHEN REFORMATION cannot subsequently ask for its reformation.
CAN’T PROSPER – ACTION TO
ENFORCE THE INSTRUMENT
Basis: estoppel, waiver, or ratification
1368 Reformation may be ordered at the instance of either party or his successors in
PLAINTIFFS IN ACTION FOR interest, if the mistake was mutual; otherwise, upon petition of the injured party,
REFORMATION or his heirs and assigns.
- MUTUAL MISTAKE: EITHER PARTY or
his successors in interest
- OTHER CASES: INJURED PARTY, his
HEIRS & ASSIGNS

COMPLAINT MUST ALLEGE

- INSTRUMENT DOESN’T EXPRESS
PARTIES’ REAL
AGREEMENT/INTENTION
- WHAT REAL AGREEMENT/INTENTION
WAS
1369 The procedure for the reformation of instrument shall be governed by rules of
PROCEDURAL RULES supposed to be court to be promulgated by the Supreme Court.
promulgated by SC

Chapter 5. INTERPRETATION OF CONTRACTS

1370 If the terms of a contract are clear and leave no doubt upon the intention of the
TEST: PARTIES’ INTENTION, DERIVED contracting parties, the literal meaning of its stipulations shall control.
FROM the TERMS of the contract. IF
CLEAR & LEAVE NO DOUBT, LITERAL If the words appear to be contrary to the evident intention of the parties, the latter
MEANING CONTROLS shall prevail over the former. (1281)
1371 In order to judge the intention of the contracting parties, their contemporaneous
IF PARTIES PLACED INTERPRETATION and subsequent acts shall be principally considered. (1282)
TO TERMS, SUCH IN GEN. MUST BE
FOLLOWED

CONTEMPORANEOUS &
SUBSEQUENT ACTS
1372 However general the terms of a contract may be, they shall not be understood to
SPECIAL INTENT PREVAILS OVER comprehend things that are distinct and cases that are different from those upon
GEN. INTENT which the parties intended to agree. (1283)
1373 If some stipulation of any contract should admit of several meanings, it shall be
If ONE INTERPRETATION MAKES A understood as bearing that import which is most adequate to render it effectual.
CONTRACT VALID & ILLEGAL, FMR (1284)
INTERPRETATION MUST PREVAIL
1374 The various stipulations of a contract shall be interpreted together, attributing to
STIPULATIONS TO BE READ the doubtful ones that sense which may result from all of them taken jointly.
TOGETHER (1285)
1375 Words which may have different significations shall be understood in that which
WORDS TO BE INTERPRETED IN is most in keeping with the nature and object of the contract. (1286)
KEEPING W/ NATURE & OBJECT OF
CONTRACT
1376 The usage or custom of the place shall be borne in mind in the interpretation of
LOCAL CUSTOMS MUST BE ALLEGED the ambiguities of a contract, and shall fill the omission of stipulations which are
& PROVED ordinarily established. (1287)

GEN. CUSTOMS NEED NOT BE

PLEADED
1377 The interpretation of obscure words or stipulations in a contract shall not favor
INTERPRETATION AGAINST PARTY the party who caused the obscurity. (1288)
WHO CAUSED OBSCURITY

Applies w/ greater force to CONTRACTS

Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS
YSRefran 9
OF ADHESION
1378 When it is absolutely impossible to settle doubts by the rules established in the
DOUBTS AS TO PRINCIPAL OBJECT preceding articles, and the doubts refer to incidental circumstances of a
OR INCIDENTAL CIRCUMSTANCES gratuitous contract, the least transmission of rights and interests shall prevail. If
the contract is onerous, the doubt shall be settled in favor of the greatest
reciprocity of interests.

If the doubts are cast upon the principal object of the contract in such a way that
it cannot be known what may have been the intention or will of the parties, the
contract shall be null and void. (1289)
1379 The principles of interpretation stated in Rule 123 of the Rules of Court shall
SUPPLETORY USE – RULE 123 of RoC likewise be observed in the construction of contracts. (n)
to refer to RULE 130 of New Rules on
Evidence

- Written words control printed ones

- Language interpreted according to legal
meaning it bears in the place of its
execution, unless parties intended
otherwise
- General acceptation of terms presumed
intended unless shown to have been
understood in a peculiar/technical sense

Chapter 6. RESCISSIBLE CONTRACTS

1380 Contracts validly agreed upon may be rescinded in the cases established by law.
RESCISSION: process designated to (1290)
render inefficacious a contract validly
entered into & normally binding, because
of external conditions, causing an
economic prejudice to a party or his
creditors

REQUISITES
1) INITIALLY VALID CONTRACT
2) ECONOMIC OR FINANCIAL
PREJUDICE TO SOMEONE
3) Requires MUTUAL RESTITUTION

EFFECTS OF RESCISSION
1) RETURN to ORIGINAL STATUS QUO
(1385)
2) IF RETURN ISN’T POSSIBLE,
TRANSFEREE MUST PAY INDEMNITY
FOR DAMAGES (1388)
3) If there are several alienations, FIRST
ACQUIRER IS LIABLE FIRST (for
damages. Actual possessor of thing liable
fraudulently alienated will be liable for its
return) (1388, last par.)
1381 The following contracts are rescissible:
ENUMERATION of RESCISSIBLE
CONTRACTS (1) Those which are entered into by guardians whenever the wards whom they
represent suffer lesion by more than one-fourth of the value of the things which
GROUNDS of RESCISSION are the object thereof;
1) LESION PROPER
- 1381(1) (2) Those agreed upon in representation of absentees, if the latter suffer the
- 1381(2) lesion stated in the preceding number;
- Partitions of inheritance when there’s
lesion of ¼ or more for one heir (CC 1098) (3) Those undertaken in fraud of creditors when the latter cannot in any other
2) BAD FAITH (fraud) manner collect the claims due them;
- 1381(3) – ACCION PAULIANA
- 1381(4) (4) Those which refer to things under litigation if they have been entered into by
- 1382 the defendant without the knowledge and approval of the litigants or of
3) SPECIAL PROVISION OF LAW competent judicial authority;
[1381(5)]
Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS
YSRefran 10
(5) All other contracts specially declared by law to be subject to rescission.
(1291a)
1382 Payments made in a state of insolvency for obligations to whose fulfillment the
REQUISITES debtor could not be compelled at the time they were effected, are also
- Debtor-payer must’ve been insolvent rescissible. (1292)
(doesn’t need to be judicially declared)
- Debt not yet due and demandable
1383 The action for rescission is subsidiary; it cannot be instituted except when the
RESCISSION NOT A PRINCIPAL party suffering damage has no other legal means to obtain reparation for the
REMEDY same. (1294)
1384 Rescission shall be only to the extent necessary to cover the damages caused.
PARTIAL RESCISSION (n)
1385 Rescission creates the obligation to return the things which were the object of
NECESSITY OF MUTUAL RESTITUTION 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
REQUISITES before action for rescission return whatever he may be obliged to restore.
can be brought
1) Generally, PLAINTIFF able to RETURN Neither shall rescission take place when the things which are the object of the
what has been received contract are legally in the possession of third persons who did not act in bad
2) THING object of contract NOT IN faith.
LEGAL POSSESSION of 3RD PERSONS
IN GOOD FAITH In this case, indemnity for damages may be demanded from the person causing
3) NO OTHER LEGAL REMEDY the loss. (1295)
4) Action BROUGHT W/IN PROPER
PRESCRIPTIVE PERIOD
1386 Rescission referred to in Nos. 1 and 2 of Article 1381 shall not take place with
respect to contracts approved by the courts. (1296a)
1387 All contracts by virtue of which the debtor alienates property by gratuitous title
PRESUMPTION OF FRAUD in are presumed to have been entered into in fraud of creditors, when the donor did
- GRATUITOUS alienations, when not reserve sufficient property to pay all debts contracted before the donation.
DEBTOR DIDN’T RESERVE
SUFFICIENT PROP. TO PAY DEBT Alienations by onerous title are also presumed fraudulent when made by
CONTRACTED BEFORE THE persons against whom some judgment has been issued. The decision or
DONATION attachment need not refer to the property alienated, and need not have been
- ONEROUS alienations, when MADE BY obtained by the party seeking the rescission.
PERSONS
a) Against whom some JUDGMENT In addition to these presumptions, the design to defraud creditors may be proved
has been rendered in any other manner recognized by the law of evidence. (1297a)
b) Against whom some WRIT OF
ATTACHMENT has been issued

BADGES OF FRAUD: circumstances

indicating certain alienation has been
made in fraud of creditors
1) Fictitious or INADEQUATE
CONSIDERATION
2) Transfer AFTER SUIT IS FILED &
WHILE IT’S PENDING
3) SALE ON CREDIT by INSOLVENT
DEBTOR
4) Proof of LARGE INDEBTEDNESS OR
COMPLETE INSOLVENCY
5) Transfer OF (NEARLY) ALL PROP.
6) RELATIONSHIP + OTHER
CIRCUMSTANCES
7) FAILURE OF VENDEE (in absolute
sale) to take exclusive possession of prop
8) GROSS DISPARITY bet. price & real
value
1388 Whoever acquires in bad faith the things alienated in fraud of creditors, shall
EFFECT OF BAD FAITH – ACQUIRER indemnify the latter for damages suffered by them on account of the alienation,
MUST RETURN OR INDEMNIFY whenever, due to any cause, it should be impossible for him to return them.

SUBSEQUENT TRANSFERS If there are two or more alienations, the first acquirer shall be liable first, and so
- First transferee IN GOOD FAITH – next on successively. (1298a)
Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS
YSRefran 11
transferee’s good or bad faith not
important
- First transferee IN BAD FAITH – next
transferee liable if he’s also in bad faith
1389 The action to claim rescission must be commenced within four years.
GEN RULE on prescriptive period: 4 YRS
from date contract was entered into For persons under guardianship and for absentees, the period of four years shall
not begin until the termination of the former's incapacity, or until the domicile of
EXCEPTIONS the latter is known. (1299)
Second par., 1389

Chapter 7. VOIDABLE CONTRACTS

1390 The following contracts are voidable or annullable, even though there may have
VOIDABLE CONTRACTS: valid until been no damage to the contracting parties:
annulled
(1) Those where one of the parties is incapable of giving consent to a contract;
GROUNDS
1) INCAPACITY OF ONE PARTY TO (2) Those where the consent is vitiated by mistake, violence, intimidation, undue
GIVE CONSENT influence or fraud.
2) VITIATION OF CONSENT
These contracts are binding, unless they are annulled by a proper action in
court. They are susceptible of ratification. (n)
1391 The action for annulment shall be brought within four years.
DURATION OF ACTION TO ANNUL
1) DURESS (violence, intimidation, or This period shall begin:
undue influence) – 4 YRS FROM
CESSATION THEREOF In cases of intimidation, violence or undue influence, from the time the defect of
2) FRAUD OR FALSE CAUSE – 4 YRS the consent ceases.
FROM DISCOVERY
3) MINORS, ETC. – UP TO 4 YRS FROM In case of mistake or fraud, from the time of the discovery of the same.
MAJORITY OR REMOVAL OF
DISABILITY And when the action refers to contracts entered into by minors or other
incapacitated persons, from the time the guardianship ceases. (1301a)
1392 Ratification extinguishes the action to annul a voidable contract. (1309a)
REQUISITES OF RATIFICATION
1) VOIDABLE CONTRACT
2) PERSON RATIFYING MUST KNOW
REASON FOR CONTRACT BEING
VOIDABLE (cause must be known)
3) CAUSE MUSN’T EXIST OR
CONTINUE TO EXIST ANYMORE AT
TIME OF RATIFICATION
4) RATIFICATION MADE EXPRESSLY
OR BY ACT IMPLYING WAIVER OF
ACTION TO ANNUL
5) PERSON RATIFYING MUST BE
INJURED PARTY

EFFECTS OF RATIFICATION
- ACTION to annul is EXTINGUISHED
- CONTRACT CLEANSED OF DEFECT
FROM BEGINNING
1393 Ratification may be effected expressly or tacitly. It is understood that there is a
KINDS OF RATIFICATION tacit ratification if, with knowledge of the reason which renders the contract
- EXPRESS (oral or written) voidable and such reason having ceased, the person who has a right to invoke it
- TACIT (implied) should execute an act which necessarily implies an intention to waive his right.
(1311a)
1394 Ratification may be effected by the guardian of the incapacitated person. (n)
RATIFICATION BY GUARDIAN
1395 Ratification does not require the conformity of the contracting party who has no
CONFORMITY OF GUILTY PARTY NOT right to bring the action for annulment. (1312)
NEEDED
1396 Ratification cleanses the contract from all its defects from the moment it was
RETROACTIVE EFFECT OF constituted. (1313)
RATIFICATION
Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS
YSRefran 12
1397
PERSONS WHO MAY ASK FOR
ANNULMENT: PARTY (principal or
subsidiary) WHOSE CONSENT WAS
VITIATED
CREDITORS OF VICTIM CAN’T ASK
FOR ANNULMENT – they’re not bound by
the contract
ACTIVE MISREPRESENTATION BY
MINOR – can’t later on sue for annulment
1398
EFFECTS OF ANNULMENT
1) Contract hasn’t been complied with:
PARTIES EXCUSED FROM THEIR
OBLIGATIONS
2) Contract already performed: MUTUAL
RESTITUTION (in general) of
- THING, w/ FRUITS
- PRICE, w/ INTEREST
1399
EXCEPTION TO MUTUAL RESTITUTION
PER 1398 – ONLY TO EXTENT OF
ENRICHMENT
NO PRESUMPTION OF ENRICHMENT
1400
VALUE of thing w/ interest MAY BE
SUBSTITUTED FOR THING ITSELF
1401
ACTION to annul EXTINGUISHED W/
LOSS OF OBJECT THROUGH FRAUD
OR FAULT OF VICTIM (person who has
right to institute proceedings)
1402
ONE CAN’T BE COMPELLED TO
RESTORE IF OTHER DOESN’T –
reciprocal obligation of restitution has
been created
Chapter 8. UNENFORCEABLE CONTRACTS (n)
1403
UNENFORCEABLE CONTRACTS:
contracts that by reason of statutory
defects don’t confer any action to enforce given no authority or legal representation, or who has acted beyond his powers;
the same until and unless they’re ratified
in the manner prescribed by law
KINDS
1) UNAUTHORIZED contracts: entered
into in another person’s name in excess of evidence, therefore, of the agreement cannot be received without the writing, or
or w/o authority
2) Those that FAIL TO COMPLY W/
STATUTE OF FRAUDS (certain
agreements req’d in writing to prevent
fraud
3) Those where BOTH PARTIES are
INCAPABLE OF GIVING CONSENT TO
A CONTRACT
SoF: GEN. RULES OF APPLICATION
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. (1302a)
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.
(1303a)
When the defect of the contract consists in the incapacity 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. (1304)
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. (1307a)
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. (1314a)
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. (1308)
The following contracts are unenforceable, unless they are ratified:
(1) Those entered into in the name of another person by one who has been
(2) Those that do not comply with the Statute of Frauds as set forth in this
number. In the following cases an agreement hereafter made shall be
unenforceable by action, unless the same, or some note or memorandum,
thereof, be in writing, and subscribed by the party charged, or by his agent;
a secondary evidence of its contents:
(a) An agreement that by its terms is not to be performed within a year from
the making thereof;
(b) A special promise to answer for the debt, default, or miscarriage of
another;
(c) An agreement made in consideration of marriage, other than a mutual
promise to marry;
(d) An agreement for the sale of goods, chattels or things in action, at a price
not less than five hundred pesos, unless the buyer accept and receive part
of such goods and chattels, or the evidences, or some of them, of such
Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS
YSRefran 13
- Applies to EXECUTORY things in action or pay at the time some part of the purchase money; but
CONTRACTS when a sale is made by auction and entry is made by the auctioneer in his
- Applies if there’s a PRINCIPAL sales book, at the time of the sale, of the amount and kind of property sold,
DEBTOR (OTHER THAN terms of sale, price, names of the purchasers and person on whose
DEFENDANT) LIABLE account the sale is made, it is a sufficient memorandum;
- Is EXCLUSIVE – applies only to (e) An agreement of the leasing for a longer period than one year, or for the
contracts enumerated therein sale of real property or of an interest therein;
- (1405) May be WAIVED BY: (f) A representation as to the credit of a third person.
+ Timely FAILURE TO OBJECT TO
PRESENTATION OF ORAL (3) Those where both parties are incapable of giving consent to a contract.
EVIDENCE TO PROVE ORAL
AGREEMENT
+ ACCEPTANCEOF BENEFITS under
them
- PERSONAL DEFENSE – can’t
be assailed by third persons
- Contracts infringing SoF
unenforceable
- RULE OF EXCLUSION
- Concerns itself only w/
ADMISSIBILITY OF EVIDENCE
- DOESN’T APPLY IF IT’S
CLAIMED that the CONTRACT
DOESN’T EXPRESS PARTIES’ TRUE
AGREEMENT
1404 Unauthorized contracts are governed by Article 1317 and the principles of
agency in Title X of this Book.
1405 Contracts infringing the Statute of Frauds, referred to in No. 2 of Article 1403, are
RATIFICATION OF CONTRACTS ratified by the failure to object to the presentation of oral evidence to prove the
INFRINGING SoF same, or by the acceptance of benefit under them.
1) FAILURE TO OBJECT TO
PRESENTATION OF ORAL EVIDENCE
(deemed a waiver)
2) ACCEPTANCE OF BENEFITS UNDER
THEM (thus SoF doesn’t apply to
executed or partially executed contracts)
1406 When a contract is enforceable under the Statute of Frauds, and a public
RIGHT OF ONE PARTY TO COMPEL document is necessary for its registration in the Registry of Deeds, the parties
OTHER TO EXECUTE NEEDED may avail themselves of the right under Article 1357.
INSTRUMENT – GIVEN ONLY WHEN
CONTRACT IS BOTH VALID &
ENFORCEABLE
1407 In a contract where both parties are incapable of giving consent, express or
BOTH PARTIES INCAPACITATED implied ratification by the parent, or guardian, as the case may be, of one of the
(Express/implied) RATIFICATION BY A contracting parties shall give the contract the same effect as if only one of them
PARTY’S PARENT/GUARDIAN –gives were incapacitated.
effect as if only one party is incapacitated
(VOIDABLE contract) If ratification is made by the parents or guardians, as the case may be, of both
RATIFICATION BY contracting parties, the contract shall be validated from the inception.
PARENTS/GUARDIANS OF BOTH
PARTIES – VALID from beginning
1408 Unenforceable contracts cannot be assailed by third persons.
STRANGERS CAN’T ASSAIL
UNENFORCEABLE CONTRACTS

Chapter 9. VOID AND INEXISTENT CONTRACTS

1409 The following contracts are inexistent and void from the beginning:
KINDS
1) LACKING an ESSENTIAL ELEMENT (1) Those whose cause, object or purpose is contrary to law, morals, good
(1346, 1347) customs, public order or public policy;
2) ILLEGAL contracts (protect general
interest) (2) Those which are absolutely simulated or fictitious;
3) Contracts that are EXPRESSLY
PROHIBITED (protect private interest) (3) Those whose cause or object did not exist at the time of the transaction;
4) Contracts DECLARED VOID BY LAW
Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS
YSRefran 14
(4) Those whose object is outside the commerce of men;
CHARACTERISTICS OF VOID &
INEXISTENT CONTRACTS (5) Those which contemplate an impossible service;
1) CAN’T BE RATIFIED (1409)
2) ACTION/DEFENSE to declare (6) Those where the intention of the parties relative to the principal object of the
inexistence is IMPRESCRIPTIBLE (1410) contract cannot be ascertained;
3) RIGHT TO SET UP DEFENSE OF
ILLEGALITY CAN’T BE WAIVED (1409) (7) Those expressly prohibited or declared void by law.
4) DEFENSE NOT AVAILABLE TO
THIRD PERSONS WHOSE INTERESTS These contracts cannot be ratified. Neither can the right to set up the defense of
ARE NOT DIRECTLY AFFECTED (1421) illegality be waived.
5) CAN’T GIVE RISE TO A CONTRACT
(1422)
6) Generally produces NO EFFECT
7) Generally, NO ACTION TO DECLARE
THEM VOID IS NEEDED
1410 The action or defense for the declaration of the inexistence of a contract does
ACTION for declaration of inexistence of not prescribe.
contract IMPRESCRIPTIBLE
1411 When the nullity proceeds from the illegality of the cause or object of the
IN PARI DELICTO: both PARTIES contract, and the act constitutes a criminal offense, both parties being in pari
EQUALLY GUILTY = NO ACTION delicto, they shall have no action against each other, and both shall be
AGAINST EACH OTHER prosecuted. Moreover, the provisions of the Penal Code relative to the disposal
of effects or instruments of a crime shall be applicable to the things or the price
of the contract.

This rule shall be applicable when only one of the parties is guilty; but the
innocent one may claim what he has given, and shall not be bound to comply
with his promise. (1305)
1412 If the act in which the unlawful or forbidden cause consists does not constitute a
KINDS of ILLEGAL contracts criminal offense, the following rules shall be observed:
1) Those where there is a CRIMINAL
OFFENSE (1) When the fault is on the part of both contracting parties, neither may recover
a) BOTH parties GUILTY (in pari what he has given by virtue of the contract, or demand the performance of the
delicto) other's undertaking;
- NO ACTION against each other
- BOTH PROSECUTED (2) When only one of the contracting parties is at fault, he cannot recover what
- EFFECTS/INSTRUMENTS OF he has given by reason of the contract, or ask for the fulfillment of what has been
CRIME CONFISCATED IN FAVOR promised him. The other, who is not at fault, may demand the return of what he
OF GOV’T has given without any obligation to comply his promise. (1306)
b) ONLY ONE IS GUILTY
- GUILTY PARTY PROSECUTED
- INSTRUMENT OF CRIME
CONFISCATED
- INNOCENT PARTY MAY CLAIM
WHAT HE HAS GIVEN; OR if he
hasn’t given anything yet, NOT
BOUND TO COMPLY w/ his
promise
2) Those where there is NO CRIMINAL
OFFENSE
a) BOTH parties GUILTY (in pari
delicto)
- NEITHER MAY RECOVER what
he has given or demand
performance
b) ONLY ONE IS GUILTY
- GUILTY PARTY MAY NOT
RECOVER what he has given or
demand performance
- PARTY NOT AT FAULT MAY
DEMAND RETURN of what he has
given w/o obligation to comply w/ his
promise

IN PARI DELICTO
Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS
YSRefran 15
- DOESN’T APPLY TO ABSOLUTELY
SIMULATED contracts
- DOESN’T APPLY WHERE SUPERIOR
PUBLIC POLICY INTERVENES
- DOESN’T APPLY TO VOID
CONTRACTS SIMULATED TO
CIRCUMVENT A LAW
- INAPPLICABLE TO INEXISTENT &
VOID CONTRACTS
1413 Interest paid in excess of the interest allowed by the usury laws may be
EXCESS (strictly speaking) recovered by the debtor, with interest thereon from the date of the payment.
14% - unsecured loans
12% - secured loans w/ registered real
estate as security
2.5% per mo, 2% per mo, 14% per yr –
pawnshops
1414 When money is paid or property delivered for an illegal purpose, the contract
One CASE WHERE RECOVERY CAN BE may be repudiated by one of the parties before the purpose has been
MADE EVEN IF parties are IN PARI accomplished, or before any damage has been caused to a third person. In such
DELICTO – UNACCOMPLISHED case, the courts may, if the public interest will thus be subserved, allow the party
PURPOSE & NO DAMAGE CAUSED TO repudiating the contract to recover the money or property.
ANY 3RD PERSON

Applies even if parties aren’t equally

guilty, and where public policy would be
advanced by allowing suit for relief
1415
EFFECT IF ONE PARTY IS
INCAPACITATED – RECOVERY
POSSIBLE
1416
Contracts ILLEGAL PER SE: those
FORBIDDEN BEC. OF PUBLIC
INTEREST
Where 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.
When the agreement is not illegal per se but is merely prohibited, and the
prohibition by the law is designated for the protection of the plaintiff, he may, if
public policy is thereby enhanced, recover what he has paid or delivered.

MERELY PROHIBITED contracts: those

FORBIDDEN BEC. OF PRIVATE
INTERESTS. RECOVERY PERMITTED,
provided:
- CONTRACT NOT ILLEGAL PER SE
- PROHIBITION DESIGNED FOR
PLAINTIFF’S PROTECTION
- PUBLIC POLICY would be ENHANCED
BY ALLOWING RECOVERY
1417 When the price of any article or commodity is determined by statute, or by
Rule in case of PAYMENT IN EXCESS authority of law, any person paying any amount in excess of the maximum price
OF MAX PRICE – RECOVERY OF allowed may recover such excess.
EXCESS ALLOWED
1418 When the law fixes, or authorizes the fixing of the maximum number of hours of
HOURS OF LABOR labor, and a contract is entered into whereby a laborer undertakes to work longer
than the maximum thus fixed, he may demand additional compensation for
service rendered beyond the time limit.
1419 When the law sets, or authorizes the setting of a minimum wage for laborers,
NO WAIVER OF RIGHT TO MIN. WAGE and a contract is agreed upon by which a laborer accepts a lower wage, he shall
be entitled to recover the deficiency.
1420 In case of a divisible contract, if the illegal terms can be separated from the legal
ILLEGAL TERMS OF CONTRACT ones, the latter may be enforced.
- INDIVISIBLE contract: VOID contract
- DIVISIBLE contract: LEGAL TERMS
may be ENFORCED IF SAME CAN BE
SEPARATED FROM ILLEGAL ONES
1421 The defense of illegality of contract is not available to third persons whose
Generally, DEFENSE OF ILLEGALITY interests are not directly affected.
NOT AVAILABLE TO 3RD PERSONS
1422 A contract which is the direct result of a previous illegal contract, is also void and
Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS
YSRefran 16
TITLE III. NATURAL OBLIGATIONS
1423
NATURAL OBLIGATIONS: based on
equity and natural law, and don’t grant
right of action to enforce their
performance
EFFECT: after obligor’s VOLUNTARY
FULFILLMENT, WHAT HAS BEEN
DELIVERED OR RENDERED thereof
CAN BE RETAINED
1424
EFFECT OF EXTINCTIVE
PRESCRIPTION – RIGHT OR
PROPERTY HAS BEEN LOST
1425
PAYMENT BY 3RD PERSON
- W/O KNOWLEDGE OF DEBTOR
- AGAINST DEBTOR’S WILL
PAYMENT W/ DEBTOR’S CONSENT –
CIVIL OBLIGATION ARISES
1426
AGE OF MAJORITY NOW 18
VOLUNTARY RETURN AFTER
ANNULMENT: CAN’T DEMAND RETURN
1427
OBLIGEE’S GOOD FAITH MUST BE
PRESENT AT TIME OF SPENDING OR
CONSUMING
1428
DEFENDANT, who is the WINNER IN
ACTION TO ENFORCE A CIVIL
OBLIGATION, VOLUNTARILY
PERFORMS obligation CAN’T DEMAND
RETURN
1429
PAYMENT OF DEBTS BEYOND VALUE
OF DECEDENT’S ESTATE – VALID
PAYMENT & CAN’T BE RESCINDED BY
PAYER
1430
WILL DENIED PROBATE because it
WASN’T EXECUTED W/ FORMALITIES
PRESCRIBED BY LAW – PAYMENT OF
LEGACY ACCDG TO ITS TERMS IS
EFFECTIVE AND IRREVOCABLE
TITLE IV. ESTOPPEL (n)
1431
CONCEPT of ESTOPPEL
1432
PRINCIPLES OF ESTOPPEL ONLY
SUPPLETORY
1433
KINDS of ESTOPPEL
1) Estoppel IN PAIS (EQUITABLE
ESTOPPEL): situation where, because of
something w/c he hasn’t done or omitted
inexistent.
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.
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.
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.
When a minor between eighteen and twenty-one years of age who has entered
into a contract without the consent of the parent or guardian, after the annulment
of the contract voluntarily returns the whole thing or price received,
notwithstanding the fact the he has not been benefited thereby, there is no right
to demand the thing or price thus returned.
When a minor between eighteen and twenty-one years of age, who has entered
into a contract without the consent of the parent or guardian, voluntarily pays a
sum of money or delivers a fungible thing in fulfillment of the obligation, there
shall be no right to recover the same from the obligee who has spent or
consumed it in good faith. (1160A)
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.
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.
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.
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.
The principles of estoppel are hereby adopted insofar as they are not in conflict
with the provisions of this Code, the Code of Commerce, the Rules of Court and
special laws.
Estoppel may be in pais or by deed.
Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS
YSRefran 17
to do, a party is denied the right to plead
or prove an otherwise important fact
- By CONDUCT or by acceptance of
benefits
- By REPRESENTATION OR
CONCEALMENT
- By SILENCE
- By OMISSION
- By LACHES (unreasonable delay in
suing)
2) Estoppel BY DEED (TECHNICAL
ESTOPPEL): bar w/c precludes one party
to a deed & his privies from asserting as
against the other party & his privies, any
right or title in derogation of the deed or
from denying truth of mat’l facts asserted
- By DEED PROPER
- By JUDGMENT AS A COURT
RECORD
1434 When a person who is not the owner of a thing sells or alienates and delivers it,
SALE OF “AFTER-ACQUIRED PROP.” – and later the seller or grantor acquires title thereto, such title passes by
prejudice not essential operation of law to the buyer or grantee.
1435 If a person in representation of another sells or alienates a thing, the former
ESTOPPEL CREATED IN cannot subsequently set up his own title as against the buyer or grantee.
REPRESENTATIVE CAPACITY –
prejudice not essential
1436 A lessee or a bailee is estopped from asserting title to the thing leased or
ESTOPPEL ON PART OF LESSEE OR received, as against the lessor or bailor.
BAILOR
1437 When in a contract between third persons concerning immovable property, one
REQUISITES of ESTOPPEL IN PAIS of them is misled by a person with respect to the ownership or real right over the
- on PARTY ESTOPPED real estate, the latter is precluded from asserting his legal title or interest therein,
1) CONDUCT AMOUNTING TO provided all these requisites are present:
FALSE REPRESENTATION OR
CONCEALMENT OF MAT’L FACTS (1) There must be fraudulent representation or wrongful concealment of facts
2) INTENT OR EXPECTATION known to the party estopped;
CONDUCT shall be ACTED UPON BY
OTHER PARTY (2) The party precluded must intend that the other should act upon the facts as
3) KNOWLEDGE (actual or misrepresented;
constructive) OF THE TRUTH
- on PARTY INVOKING ESTOPPEL (3) The party misled must have been unaware of the true facts; and
1) LACK OF KNOWLEDGE & MEANS
TO ASCERTAIN THE TRUTH (4) The party defrauded must have acted in accordance with the
2) RELIANCE UPON CONDUCT OF misrepresentation.
PARTY ESTOPPED
3) ACTION (OR FAILURE TO ACT)
SO AS TO CHANGE HIS POSITION
PREJUDICIALLY
4) PREJUDICE UNLESS ESTOPPEL
IS APPLIED

ESTOPPEL CONCERNING IMMOVABLE

PROPERTY – ONE SHOULD’VE BEEN
MISLED

CONSENT ON PART OF OWNER

ESTOPS HIM FROM ASSERTING ANY
RIGHT OVER THE PROPERTY
1438 One who has allowed another to assume apparent ownership of personal
ESTOPPEL RESULTING FROM property for the purpose of making any transfer of it, cannot, if he received the
ACCEPTANCE OF BENEFITS 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
ESTOPPEL ALSO APPLIES IF ‘AGENT’ good faith and for value.
WAS GIVEN APPARENT AUTHORITY, &
OTHER PARTY WAS MISLED INTO
GIVING HIM CREDIT
Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS
YSRefran 18
1439 Estoppel is effective only as between the parties thereto or their successors in
PERSONS BOUND BY ESTOPPEL interest.

- Generally GOV’T NOT BOUND BY

ESTOPPEL
- Estoppel APPLIES ONLY TO
QUESTIONS OF FACT, truth of w/c the
other party is ignorant

ESTOPPEL CAN’T VALIDATE A VOID

CONTRACT

PROMISSORY ESTOPPEL: promise to

do or not to do something in the future
intended to be relied upon & was so relied
upon, and a refusal to enforce it would
virtually sanction fraud or injustice

AGENCY BY ESTOPPEL

TITLE V. TRUSTS (n)

Chapter 1. GENERAL PROVISIONS
1440 A person who establishes a trust is called the trustor; one in whom confidence is
TRUST: fiduciary relationship WRT reposed as regards property for the benefit of another person is known as the
property, subjecting person holding the trustee; and the person for whose benefit the trust has been created is referred
same to the obligation of dealing w/ the to as the beneficiary.
property for another person’s benefit
: right to the beneficial enjoyment
of property, the legal title to w/c is vested
in another

ELEMENTS
1) PARTIES to the trust
a) TRUSTOR or settler – establishes
the trust
b) TRUSTEE – holds property in trust
for another’s benefit
c) BENEFICIARY (CESTUI QUE
TRUST) – person for whose benefit
the trust has been created

NOTE: The trustor may also be the

beneficiary.

2) TRUST PROPERTY or trust estate or

subject matter of the trust

CHARACTERISTICS
1) FIDUCIARY RELATIONSHIP
2) CREATED BY LAW OR BY
AGREEMENT
3) LEGAL TITLE HELD BY ONE, and
EQUITABLE/BENEFICIAL TITLE HELD
BY ANOTHER
1441 Trusts are either express or implied. Express trusts are created by the intention
CLASSES OF TRUST of the trustor or of the parties. Implied trusts come into being by operation of law.
1) EXPRESS: created by assent of the
parties, or by the intention of the trustor
2) IMPLIED: created by operation of law
a) RESULTING TRUSTS: imposed by
law to carry out actual or presumed
intent of the parties, where the express
trust fails
b) CONSTRUCTIVE TRUSTS: est. by
law, regardless of intention, to prevent
fraud, oppression, or unjust enrichment
Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS
YSRefran 19

1442 The principles of the general law of trusts, insofar as they are not in conflict with
PRINCIPLES OF GEN. LAW OF TRUSTS this Code, the Code of Commerce, the Rules of Court and special laws are
MERELY SUPPLETORY hereby adopted.

Chapter 2. EXPRESS TRUSTS

1443 No express trusts concerning an immovable or any interest therein may be
EXPRESS TRUSTS DON’T PRESCRIBE proved by parol evidence.
& MAY NOT BE PROVED BY ORAL
EVIDENCE

FORMALITIES RE EXPRESS TRUSTS

- FOR ENFORCEABILITY
- FOR TRUST OVER PERSONAL PROP,
ORAL AGREEMENT IS VALID &
ENFORCEABLE BET. THE PARTIES
- RE 3RD PERSONS: trust in PUBLIC
INSTRUMENT & REGISTERED in
Registry of Prop. if it concerns real prop.
1444 No particular words are required for the creation of an express trust, it being
CREATION OF EXPRESS TRUST sufficient that a trust is clearly intended.
METHOD
1) DECLARATION OF TRUSTOR THAT
HE HOLDS PROP IN TRUST
2) CONVEYANCE TO TRUSTEE INTER
VIVOS OR BY TESTAMENT

CLEAR INTENTION to create a trust

CAPACITY
- TRUSTOR capacitated to TRANSFER
PROP
- TRUSTEE capacitated to HOLD PROP
& OBLIGATE HIMSELF
- BENEFICIARY capacitated to RECEIVE
GRATUITOUSLY FROM TRUSTOR

ADMINISTRATION (Rule 98,RoC)

1445
EFFECT OF DECLINATION BY
TRUSTEE – Court appoints new trustee
1446
BENEFICIARY’S ACCEPTANCE IS
NECESSARY
- may be express, implied, or presumed
No trust shall fail because the trustee appointed declines the designation, unless
the contrary should appear in the instrument constituting the trust.
Acceptance by the beneficiary is necessary. Nevertheless, if the trust imposes
no onerous condition upon the beneficiary, his acceptance shall be presumed, if
there is no proof to the contrary.

TERMINATION of express trusts (8)

- MUTUAL AGREEMENT by ALL
PARTIES
- EXPIRATION OF the TERM
- FULFILLMENT OF RESOLUTORY
CONDITION
- RESCISSION OR ANNULMENT
- LOSS (physical loss or legal
impossibility) OF SUBJECT MATTER OF
TRUST
- COURT ORDER
- MERGER
- ACCOMPLISHMENT OF PURPOSE OF
THE TRUST

Chapter 3. IMPLIED TRUSTS

1447 The enumeration of the following cases of implied trust does not exclude others
TRUSTS RECOGNIZED ONLY IF NOT IN established by the general law of trust, but the limitation laid down in Article 1442
CONFLICT W/ CC, Code of Commerce, shall be applicable.
Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS
YSRefran 20
RoC, & special laws

IMPLIED TRUSTS as are specified by the

Code don’t exclude others est. by gen.
law, insofar as they’re not in conflict w/ the
CC & special laws. Provable by oral
evidence

RESULTING TRUSTS (5): trusts intended

but ineffective as express trusts
1448, 1449, 1451, 1452, 1453
CONSTRUCTIVE TRUSTS (4)
1450, 1454, 1455, 1456
1448 There is an implied trust when property is sold, and the legal estate is granted to
No implied trust if doc expresses different one party but the price is paid by another for the purpose of having the beneficial
intent interest of the property. The former is the trustee, while the latter is the
beneficiary. However, if the person to whom the title is conveyed is a child,
Resulting trust 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.
1449 There is also an implied trust when a donation is made to a person but it appears
WHEN DONEE DOESN’T GET FULL that although the legal estate is transmitted to the donee, he nevertheless is
OWNERSHIP OF BENEFIT either to have no beneficial interest or only a part thereof.

Resulting trust
1450 If the price of a sale of property is loaned or paid by one person for the benefit of
CONVEYANCE OF PROPERTY SO IT another and the conveyance is made to the lender or payor to secure the
MAY SERVE AS SECURITY payment of the debt, a trust arises by operation of law in favor of the person to
whom the money is loaned or for whom its is paid. The latter may redeem the
Constructive trust property and compel a conveyance thereof to him.

TRUST RECEIPT: security transaction

intended to aid in financing importers &
retail dealers who don’t have sufficient
funds to finance importation or purchase
of merchandise, and who may not be able
to acquire credit except thru utilization, as
collateral, of the merchandise imported or
purchased
1451 When land passes by succession to any person and he causes the legal title to
WHEN TITLE TO LAND ISN’T TO be put in the name of another, a trust is established by implication of law for the
OWNER’S NAME benefit of the true owner.

Resulting trust
1452 If two or more persons agree to purchase property and by common consent the
WHEN PROPERTY IS IN THE NAME OF legal title is taken in the name of one of them for the benefit of all, a trust is
ONLY ONE OF THE CO-BUYERS created by force of law in favor of the others in proportion to the interest of each.

Resulting trust
1453 When property is conveyed to a person in reliance upon his declared intention to
WHEN A PERSON DECLARES HIS hold it for, or transfer it to another or the grantor, there is an implied trust in favor
INTENT TO HOLD PROPERTY FOR of the person whose benefit is contemplated.
SOMEONE ELSE

Resulting trust
1454 If an absolute conveyance of property is made in order to secure the
ABSOLUTE CONVEYANCE MADE FOR performance of an obligation of the grantor toward the grantee, a trust by virtue
SECURITY PURPOSE of law is established. If the fulfillment of the obligation is offered by the grantor
when it becomes due, he may demand the reconveyance of the property to him.
Constructive trust
1455 When any trustee, guardian or other person holding a fiduciary relationship uses
USE OF TRUST FUNDS trust funds for the purchase of property and causes the conveyance to be made
to him or to a third person, a trust is established by operation of law in favor of
Constructive trust the person to whom the funds belong.
1456 If property is acquired through mistake or fraud, the person obtaining it is, by
Finals Provisions Reviewer – OBLIGATIONS AND CONTRACTS
YSRefran 21
PROPERTY ACQUIRED THRU MISTAKE force of law, considered a trustee of an implied trust for the benefit of the person
OR FRAUD from whom the property comes.

Constructive trust
1457 An implied trust may be proved by oral evidence.
PROOF OF IMPLIED TRUST – applies
whether property is real or personal

ORAL EVIDENCE FOR TRUST MUST

BE TRUSTWORTHY