Article 1339

Failure to disclose facts,

when there is a duty to reveal
them, as when the parties are
bound by confidential
relations, constitutes fraud.
• The things that are obligatory to be
disclosed are pertinent facts where
parties are bound with duty to reveal
them as such parties are bound
together due to confidential relations.
• A neglect or failure to communicate
which a party to a contract knows and
ought to communicate constitutes
concealment.
Example
Xian and Yanee are partners engaged in the real estate
business. Here, the parties are bound by confidential
relations. Xian learned that Carlo was interested in buying
a certain parcel of land owned by the partnership even for
a high price. Without informing Yanee, Xian was able to
make Yanee sell to him (Xian) her (Yanee’s) share in the
partnership. Then, Xian sold the land at a big profit.

In this case, Xian is guilty of fraudulent concealment

because he was under the duty to make disclosure of facts
having a bearing on the value of the interests of Yanee in
the partnership which were not known to Yanee.
Article 1346
An absolutely simulated or
fictitious contract is void. A
relative simulation, when it does
not prejudice a third person and
is not intended for any purpose
contrary to law, morals, good
customs, public order or public
policy binds the parties to their
real agreement.
• This article states that if the true
agreement to a relatively simulated
contract prejudices a third person, or
such true agreement is against the law,
good customs, morals, public order or
public policy.
• Simulation of a contract is the
act of deliberately deceiving
others, by pretending by
agreement, the appearance of a
contract which is either non-
existent or concealed or is different
from that which was really
executed.
KINDS OF SIMULATED CONTRACTS

1. Absolute simulation or
when the contract does not
really exist and the parties do
not intend to be bound at all.
Absolutely simulated or fictitious
contracts are inexistent and
void.
Example
• Dan is indebted to Cathy. Upon learning that
Cathy is going to enforce his credit, Dan
pretended to sell his land to Fredo, his
father-in-law. Dan did not receive a single
centavo for the deed of sale he executed
and he continued in possession of the land
as the contract was merely simulated or
fictitious. There is no contract of sale in this
case as the parties do not intend to be
bound at all.
KINDS OF SIMULATED CONTRACTS

2. Relative simulation or when

the contract entered into by the
parties is different from their true
agreement or the parties state a
false cause in the contract to
conceal their real agreement.
TWO JURIDICAL ACTS INVOLVED IN SIMULATION

• Ostensible act - it is the apparent

but fictitious document or conduct
executed by the parties. It is
always void.
• Hidden act - it is the true or real
agreement contemplated by the
parties. It is valid if it is not
contrary to law etc.
Example
Cathy and Dan entered into a contract of mortgage.
But wanting to hide the mortgage, it was made to
appear in the form of a deed of sale.
Here, there are two acts involved: the ostensible act
(contract of sale) and the hidden act (contract of
mortgage).
As far as Cathy and Dan are concerned, the contract
entered into between them is a contract of mortgage.
As to third persons, the apparent contract, the
contract of sale, is the one entered into.
Consequently, if Dan is the mortgagee but is made to
appear as the buyer and he sells the land to Ben, the
latter will acquire ownership.
Article 1353
The statement of a false
cause in contracts shall
render them void, if it should
not be proved that they were
founded upon another cause
which is true and lawful.
• By falsity of cause is meant that the
contract states a valid consideration
but such statement is not true.
• A false cause may be erroneous or
simulated. The first always produces
the inexistence of a contract. If the
cause is false, the contract is rendered
void because the same actually does
not exist.
Example
Sandra sells to Ben a parcel of land. In the deed of
sale, P100,000.00 is stated as the price of the land. If
this statement is false, then there is no contract of
sale.
However, if Ben can prove that the contract is founded
upon another consideration, as when Ben has
exchanged his car for the land, then the contract of
barter or exchange (not sale) shall be valid. In this
case, the statement of the price is simulated because
it is wilfully made.
Otherwise stated, there is, in fact, a real consideration
but the same is not the one stated in the contract.
Article 1360
The principles of the general
law on the reformation of
instruments are hereby
adopted insofar as they are
not in conflict with the
provisions of this Code.
• Reformation is that remedy by means
of which a written instrument is
amended or rectified so as to express
or conform to the real agreement or
intention of the parties when by reason
of mistake, fraud, inequitable conduct,
or accident, the instrument fails to
express such agreement or intention.
• In case of conflict between the
provisions of the new Civil Code
and the principles of the general
law on reformation, the former
prevail. The latter will have only
suppletory effect.
REQUISITES OF REFORMATION

1.There must have been a meeting of minds

upon the contract
2.Instrument or document evidencing the
contract does not express the true agreement
between the parties
3.Failure of the instrument to express the
agreement must be due to mistake, fraud,
inequitable conduct, or accident.
Article 1367
When one of the parties has
brought an action to enforce
the instrument, he cannot
subsequently ask for its
reformation.