GENERAL RULE: Contracts entered into by unemancipated minors, insane or demented persons, and deaf-mutes who do not know

how to read and write are voidable. Art. 1327 EXCEPTION: Their incapacity may be modified by law, that is, they can also give valid consent. Thus, 1. When necessaries such as food, he must pay a reasonable price therefore. 2. Contracts for life, health and accident insurance. 3. Contracts entered into through a guardian or legal representative. 4. When minor represents his age and convincingly led the other party to believe in his legal capacity. (estoppel) 5. Art. 1427. CHARACTERISTICS OF CONSENT 1. Intelligent there is capacity to act. 2. Free and voluntary 3. Conscious or spontaneous VICES OF CONSENT make a contract voidable: 1. Mistake or error 2. Violence or force 3. Intimidation or threat or duress 4. Undue influence 5. Fraud or deceit Mistake of fact (Art. 1331) Refers to: 1. The substance or the thing which is the object of the contract, 2. Those conditions which have principally moved one or both parties to enter into the contract; or 3. The identity or qualifications of one of the parties provided the same was the principal cause of the contract. When mistake of fact does NOT vitiate consent: 1. Error as regards the incidents of a thing or accidental qualities thereof 2. Mistake as to quantity or amount which gives rise only to its correction, unless it goes to the essence of the contract 3. Error as regards to the motives of the contract, unless motives constitute a condition or cause of the contract 4. Mistake as regards the identity or qualifications of a contract, except when such identity or qualifications have been the principal cause. GENERAL RULE: When a person signs a document, it is presumed that he does so with full knowledge of the contents of the same.

EXCEPTION: Art. 1332 When one of the parties is unable to read, or if the contract is in language not understood by him, and mistake or fraud is alleged. The party enforcing the contract Has the burden of proof to show that there has been no fraud or mistake and that the terms thereof have been fully explained. Example: contract of adhesion Art. 1333. No mistake if the party alleging it knew the doubt, contingency, or risk affecting the object of the contract. Art. 1334. GENERAL RULE: Mistake of law does NOT invalidate/vitiate consent (because ignorance of the law excuses no one from compliance therewith). EXCEPTION: When there is mistake on a doubtful question of law, or on the construction or application of law. Requisites for the application: 1. Error must be mutual 2. As to the legal effect of an agreement 3. Frustrate the real purpose of the contract Remedy depends, either reformation or annulment. (Art. 1359) Art. 1335. Violence employment of serious or irresistible force. Intimidation or threat requisites: 1. produces a reasonable and well-grounded fear of an evil 2. evil must be eminent and grave 3. evil must be upon his person or property, or that of his spouse, descendants, or ascendants, and 4. its the reason why he enters into the contract BUT, threat to enforce just or legal claim is justified and does NOT vitiate consent, so long as the creditor believes that it was his right to do so. Violence is external; intimidation is external. They may be employed by a third person who did not take part in the contract.

Art. 1336 Undue influence when theres: 1. Improper advantage 2. Power over the will of another, or 3. Deprivation of the latters will of a reasonable freedom of choice May be exercised by a third party.

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Circumstances to be considered: 1. Confidential, family, spiritual and other relations between the parties 2. Mental weakness 3. Ignorance, or 4. Financial distress of the person alleged to have been unduly influenced. FRAUD what is voidable is only CAUSAL FRAUD! - it is the principal inducement that led the other to give his consent. -committed through insidious words or machinations or concealment, that the other is induced to enter into a contract which w/o them, he would not have agreed to. Requisites of causal fraud: 1. Misrepresentation or concealment. 2. Serious 3. Employed by only one of the contracting parties The parties must NOT be in pari delicto, otherwise, neither party may ask for annulment. The contract would, therefore, be considered valid. GEN. RULE: Fraud committed by a third person does NOT vitiate consent. EXCEPTION: If fraud was practiced by third person in connivance with, or at least with the knowledge of, the favored contracting party 4. Bad faith or with intent to deceive the other contracting party who had no knowledge of the fraud 5. Inducement to the consent of the other contracting party 6. Alleged and proved by clear and convincing evidence. Fraud by CONCEALMENT a neglect or failure to communicate that which a party to a contract knows and ought to communicate. It is equivalent to misrepresentation. If the failure is unintentional, the basis of action for annulment is NOT fraud but mistake or error. INCIDENTAL FRAUD the remedy is only indemnification for damages. NOT a cause for annulment; does NOT vitiate consent. Art. 1340. The usual exaggerations in trade, when the other party had an opportunity to know the facts, are NOT in themselves fraudulent. Art. 1341. GENERAL RULE:

Mere expression of an opinion does NOT signify fraud. EXCEPTION: If made by an expert and the other party has relied on the formers special knowledge. Art. 1342. GENERAL RULE: A misrepresentation by a third person does NOT vitiate consent. EXCEPTION: If it created substantial mistake and the same is mutual, that is, it affects both parties, the contract may be annulled but principally on the ground of mistake. Hill vs VelosoA and B entered into a contract with X. As consent was obtained only because B had deceived or defrauded him. May A ask for annulment of the contract with X? No, because X was not a party to the fraud. Art. 1343. Misrepresentation in good faith - constitute error, NOT fraud. Art. 1346. Simulation of a contract - the act of deliberately deceiving others, by feigning or pretending by agreement, the appearance of a contract which is either non-existent or concealed. Kinds: 1. Absolute Simulation the contract does not really exist and the parties do not intend to be bound at all. VOID 2. Relative Simulation concealment of true agreement. Effect: The parties are bound by their real agreement ECXEPT... a. if the contract should prejudice a third person b. or if the purpose is contrary to law, etc. Absolutely Simulated Contract -the contract is not really desired to produce an illegal effect or in any way alter the juridical situation of the parties. vs. Illegal Contract -intended to be real and effective, and entered in such form as to circumvent a prohibited act.

Section 2. OBJECTS OF CONTRACTS The subject matter. Object may be things, rights, or services.

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2. Requisites of object of a contract: 1. The thing or service must be within the commerce of man 2. Must be transmissible 3. Must not be contrary to law, morals, good customs, public order, or public policy 4. Must not be impossible(1348) 5. Must be determinate as to its kind or determinable without the need of a new contract or agreement.(1349) GENERAL RULE: A contract concerning future inheritance is VOID. EXCEPTION: When the law permits, such as: a. in cases of marriage settlements b. in cases of will partition of property by an act inter vivos by a person to take effect upon his death. Inheritance ceases to be future upon the death of the decedent or deceased, although as yet undelivered. Impossibility must not be confused from mere difficulty. Human blood, like other parts of the human body, CANNOT be considered objects of contract. They are outside the commerce of men. If given thru donation, VALID.

3.

Remuneratory or remunerative the purpose of the contract is to reward the service that had been previously rendered by the party remunerated/ compensated. Gratuitous one the cause of which is the liberality of the benefactor of giver.

Art. 1351. Motive is different from cause. CAUSE MOTIVE Direct reason Indirect reason Always known to the other Always known contracting party An essential element of a Not essential element contract Its illegality affects the Its illegality does nor ender validity of a contract the contract void The presence of motive cannot cure the absence of cause. Requisites of cause: 1. Must exist at the time the contract entered into 2. Must be lawful 3. Must be true or real Absence or Illegality of Cause VOID Art. 1354. Although the cause is not stated in the contract, it is presumed that it exists and is lawful unless the debtor proves the contrary. Art. 1355. Lesion any damage caused by the fact that the price is unjust or inadequate. GENERAL RULE: Lesion or inadequacy of cause does NOT invalidate a contract. EXCEPTION: a. when there has been fraud, mistake, or undue influence, and b. in cases specified by law such as: 1. Those entered into by guardians whenever the wards they represent suffer lesion by more than of the value of the thins which are the objects thereof (1338,par.1) 2. Those agreed upon in representation of absentees, if the latter suffer lesion stated in the preceding number (par.2) 3. Partition among co-heirs, when anyone of them received thins a value less by at least than the share to which he is entitled. (1098)

Section 3. CAUSE OF CONTRACTS It is the essential or more proximate purpose which the contracting parties have in view at the time of entering into the contract. Aka. Consideration

Cause vs. Object the distinction is only a matter of viewpoint. If a particular piano is sold for P500,000 what is the object and what is the cause? 2 schools of thought: Acc. to Manresa, for the seller, the object is the piano and the cause is the price; for the buyer, the object is the price and the cause is the piano. Acc. to others, for both the seller and the buyer, there is just one object - piano. The cause for the seller is the price, the cause for the buyer is the delivery of the piano. Kinds of Contracts acc. to Cause: 1. Onerous the parties are reciprocally obligated to each other

Chapter 3 FORMS OF CONTRACTS

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FORM OF A CONTRACT refer to the manner in which a contract is executed or manifested. All terms are in writing written contract Partly in writing, partly oral oral contract Reasons of form: 1. for validity 2. for enforceable 3. for convenience GENERAL RULE Contracts are binding and, therefore, enforceable whatever may be the form in which the contract has been entered into provided CONSENT, OBJECT and CAUSE for their validity are present. EXCEPTIONS When the law requires that a contract be in some form for...validity, enforcement, and convenience Form for VAILIDITY of contract 1. Donation of real property public instrument 2. Contract of partnership in a public instrument. 3. Donation of personal property the value of which exceeds P5000.00 in writing. 4. Sale of land through an agent in writing. 5. Stipulation to pay interest in writing. 6. Contracts of antichresis in writing. Form for ENFORCEABLITY of contract Cases of contracts by the Statute of Frauds, the law requires that they be IN WRITING, otherwise the contract is valid BUT it cannot be proved, and therefore it cannot be enforced unless ratified. Form for the CONVENIENCE of the parties in order that the contract may be registered in the proper registry to make effective, as against third persons, the right acquired under such contract. Non-compliance with the required form would NOT adversely affect the validity NOR the enforceability of the contract between the parties themselves. Before a party may be compelled to execute the required form, the contract must be both valid and enforceable. Art. 1358. The ff. must appear in a public document: 1. Creation, transmission, modification or extinguishment of real rights over immovable property; sales of real property or an interest therein are governed by Statute of Frauds. 2. Cession or renunciation of hereditary rights or those of conjugal partnership of gains.
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3. 4.

Power to administer property Cession of actions or rights

Chapter 4 REFORMATION OF INSTRUMENTS In order that the intention of the contracting parties may be expressed. Rationale: It would be unjust and inequitable to allow the enforcement of a written instrument which does not reflect or disclose the real meeting of the minds of the parties. Reformation does not invalidate a contract. Annulment invalidates a contract. Principles of the general law on reformation suppletory only. Grounds for reformation: (Arts. 1361 to 1365) 1. Mutual mistake of fact 2. Unilateral mistake and the other party acted fraudulently or inequitably 3. Unilateral mistake and the other party is guilty of concealment 4. Ignorance, lack of skill, negligence or bad faith on rd the part of 3 person (person drafting the instrument or the clerk or typist 5. When mortgage or pledge stated as a sale Art. 1366 - 1367. Cases when reformation not allowed: 1. Simple donations inter vivos where no condition is imposed 2. Wills 3. When the real agreement is void 4. When one party has brought an action to enforce the instrument Party entitled to reformation (Art. 1368): 1. In mutual mistake either of the parties or his predecessors in interest 2. Otherwise, the injured party, or his heirs and assigns Rules of court governs the procedure. -

Chapter 5 INTERPRETATION OF CONTRACTS It is the determination of the meaning of the terms or words used by the parties in their contract. Literal meaning controls when the language is clear. Evident intention of the parties prevails over terms of contract. Art. 1370.

1.

2.

3.

How to judge the intention of the parties? -consider their contemporaneous and subsequent acts (Art. 1371) General terms of a contract shall be understood to comprehend things that are distinct and cases that are different from those upon which the parties intended to agree. (Art. 1372) Special intent prevails over a general intent.

N R O P

4. No other legal remedy 5. Party asking for rescission must be able to return what he is obliged to restore rd 6. Object must not be in possession of 3 persons not in bad faith 7. Period for filing rescission must not have prescribed

4.

Where a stipulation or word in a written contract is susceptible of various interpretations, a. One which is most adequate to render it effectual (Art. 1373) b. That which is most keeping with the nature and object of the contract. (Art. 1375) 5. Where there are various stipulations of a contract, They shall be interpreted together, as to harmonize with each other. (Art. 1375) 6. Resort to usage or custom as aid in interpretation (art. 1376) it is however necessary to prove the existence of usage or custom, the burden of proof being upon the party alleging it. 7. Interpretation of obscure words shall NOT favor the party who caused the obscurity. (art. 1377) 8. Rules in case doubts impossible to settle: a. Gratuitous contract one which would result in the least transmission of rights and interests. b. Onerous contract in favor of the greatest reciprocity of interests. c. Doubt on the principal object of the contract + such doubt cannot be resolved thereby leaving the intention of the parties unknown = the contract shall be null and void.

Art. 1380. Contracts validly agreed upon may be rescinded in the cases established by law. Art. 1381. The ff. are rescissible contracts: FLLAG-I G 1. Entered into by guardian whenever ward suffers damage by more than 1/4 of value of object A 2. Agreed upon in representation of absentees, if absentee suffers lesion by more than of value of property F 3. Contracts where rescission is based on fraud committed on creditor (accion pauliana) L 4. Objects of litigation; contract entered into by defendant w/o knowledge or approval of litigants or judicial authority I 5. Payments by an insolvent on debts w/c are not yet due; prejudices claim of others (Art. 1382) Note: Judicial declaration of insolvency is not necessary. L 6. Provided for by law - art 1526, 1534, 1538, 1539, 1542, 1556, 1560, 1567 and 1659 Art. 1383. General Rule: Rescission is subsidiary and cannot be instituted. Exception: When party suffering damage has no other legal means to obtain reparation. See: Art. 1177 of De Leon book. Art. 1384. Rescission shall be only to the extent necessary to cover the damages caused. The entire contract need not be set aside by rescission if the damage can be repaired by partial rescission. (see p. 390, De Leon) Art. 1385. Rescission creates an obligation of MUTUAL RESTITUTION. Parties must return: 1. Object with fruits 2. Price with legal interest General Rule: Rescission can only be claimed when the person demanding it can return whatever he may be obliged to restore. Exception: When a contract is rescinded on the ground that it has been entered to defraud creditors, the plaintiff creditor has no obligation to return anything since he has received nothing.

KINDS OF DEFECTIVE CONTRACTS

Chapter 6 RESCISSIBLE CONTRACTS Those validly agreed upon because all the essential elements exist and therefore legally effective but by reason of lesion/economic injury rd to one of the parties or to 3 persons, such as creditors, the contract may be rescinded in the interest of equity.

REQUISITES OF RESCISSION: PROLL-VN V 1. Contract validly agreed upon rd L 2. Lesion to one party or 3 person L 3. Based on cases provided by law

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WHEN RESCISSION IS NOT ALLOWED: 1. When party demanding rescission cannot return what he is obliged to return rd 2. When the object is in possession of a 3 person who acted in GOOD FAITH. Remedy: indemnity for damages against the person who caused the loss -see p. 392, De Leon Art. 1387: When alienation presumed in fraud of creditors: 1. Alienation by gratuitous title when donor did not reserve sufficient property to satisfy all debts contracted before the donation. 2. Alienation by onerous title when made by persons against whom.. a. Judgement has been rendered in any instance-> need not be final. b. A writ of attachment has been issued. Note: Decision or attachment need not refer to the property alienated and need not be obtained by the party seeking rescission. CIRCUMSTANCES CONSIDERED AS BADGES OF FRAUD: -creates a presumption that there is fraud. CTTTENS 1. Consideration is fictitious or inadequate 2. A transfer made after suit has begun and while pending 3. A transfer of all property of a debtor who is insolvent or greatly embarrassed financially. 4. A transfer made between father and son when any of the above circumstances are present. 5. Failure of vendee to take exclusive possession of all the property 6. When known to vendee that vendor had no properties other than that sold to him 7. A sole upon credit by an insolvent debtor Art 1388. (par. 1)Liability of purchaser in bad faith in fraud of creditors: 1. To return the object 2. In case of loss due to any cause, indemnity for damages (par. 2) If there are 2 or more alienations, the first acquirer shall be liable first, and so on successively. Art. 1389. Prescription for filing an action for rescission General rule: It must be commenced within 4 yrs. from the date contract was entered into. Exceptions: 1. Under guardianship from the termination of incapacity 2. For absentees from the time the domicile is known Parties entitled to bring action for rescission:

1. 2. 3.

Injured party or defrauded creditor Heirs, assigns or successors in interest Creditors entitled to subrogation

Chapter 7 VOIDABLE CONTRACTS Valid until annulled, unless there has been ratification; caused by vice of consent.

Art. 1390. The ff. are voidable or annullable/grounds for annulment: 1. Where one of the parties is incapacitated to give consent (1327 & 1328) a. Unemancipated minors b. Insane or demented persons, unless in lucid interval c. Deaf-mutes who do not know how to read or write d. Entered into in state of drunkenness or hypnotic spell Other cases provided by law: a. Persons suffering the penalty of civil interdiction b. Hospitalized lepers c. Prodigals (spendthrifts) d. Deaf and dumb who are un able to read and write e. Those who are of unsound mind f. Those by reason of age, disease or weakness are easy prey for exploitation 2. Where consent is vitiated by: a. Mistake b. Violence c. Intimidation d. Undue influence e. Fraud Annulment - remedy provided by law, for reason of public interest, for the declaration of the inefficacy of a contract based n a defect or vice in the consent of one of the contracting parties in order to restore them to their original position in which they were before the contract was executed. Art. 1391 Action for annulment shall be brought within 4 yrs. The period shall begin: 1. In case of intimidation, violence or undue influence from the time the intimidation, etc. CEASES. 2. In case of mistake or fraud from the time it is discovered.

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3.

Contracts entered into by minors/incapacitated persons from the time guardianship ceases. In case action has prescribed, it can no longer be set aside.

1.

EFFECTS OF RATIFICATION: Art. 1392. Ratification extinguishes the action to annul a voidable contract. Art. 1396. Ratification cleanses the contract from all its defects from the moment it was constituted. (BUT subject to the prior rights of third persons) EFFECTS OF LAPSE OF TIME: 1. Does not legalize a voidable contract 2. Remaining silent for a certain period of time ratifies such a contract Art. 1397. Party entitled to action in annulment General Rule: Action for annulment can only be availed by the victim or those bound either principally or subsidiarily in a contract. Exception: Any person who is prejudiced in his rights with respect to one of the contracting parties. Case Strangers who can show detriment which would positively result to them from the contract in which they had no intention or participation. Parties NOT allowed to annul: 1. Creditors of the victim only entitled to rescission 2. Guilty party including his successors in interest Reason: He who comes to court must come with clean hands. Art. 1398. General Rule: Duty of mutual restitution upon annulment Subject matter plus fruits Price plus interest In personal obligations, its value shall be the basis for damages. Exceptions: 1. (Art. 1399) when the defect of the contract (Art. 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. Should he voluntarily return the thing or price received although he has not been benefited thereby, he cannot recover what he has returned. (natural obligation) 2. (Art. 1427) When the obligee has spent or consumed in good faith the money or consumable thing voluntarily paid or delivered by the minor. Arts. 1400 and 1402. Effect of loss of thing to be returned:

2.

Thing lost without the fault of the person obliged to make restitution no more obligation to return such thing. BUT the other party cannot be compelled to restore what in virtue of the decree of annulment he is bound to return. Thing lost through his fault restitution is converted into an indemnity for damages. Value of the thing at the time of loss + interest + fruits

Art. 1401. EFFECT ON THE RIGHT TO ANNUL IF THE THING WHICH IS THE OBJECT OF THE CONTRACT IS LOST The action for annulment of contracts shall be extinguished when the thing which is the object thereof is lost through the fraud or fault of the person who has a right to institute the proceedings. If the right of action is based upon the incapacity of any one of the contracting parties, the loss of the thing shall not be an obstacle to the success of the action, unless said loss took place through the fraud or fault of the plaintiff. (Article 1401)

Chapter 8 UNENFORCEABLE CONTRACTS those which cannot be enforced by a proper action in court, unless ratified.

Art. 1403. KINDS: I. Those entered into without or in excess of authority (unauthorized contracts); II. Those that do not comply with the Statute of Frauds -> to prevent fraud and to guard against the mistakes of honest men by requiring that certain agreements specified that are susceptible to fraud must be in writing. Fundamental principles: a. Applicable only to executory contracts where no performance has yet been made. b. Applicable only to contracts enumerated therein. c. NOT applicable if the action is neither: -for damages because of violation of agreement -for specific performance of an agreement d. NOT applicable where a writing/contract does not express the true agreement of the parties. e. The defense of SOF can be waived. f. The defense of SOF is a personal defense and rd cannot be assailed by 3 persons. g. Contracts infringing the SOF are NOT void, they are merely enforceable. h. SOF is a rule of exclusion.

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i.

SOF does not determine the credibility or weight of evidence. It is concerned with the admissibility of such evidence. 1. 2. 3. An agreement not to be performed within 1 yr. A special promise to answer for debt/ miscarriage of another Agreement in consideration of marriage EXCEPT for mutual promise to marry

compel each other to observe that form, once the contract has been perfected. NOTE: It is necessary that the contract be valid and enforceable/ ratified. Art. 1407. WHEN UNENFORCEABLE CONTRACT BECOMES A VOIDABLE CONTRACT if the parent/guardian of either party, or if one of the parties after attaining or regaining capacity, ratifies the contract. WHEN UNENFORCEABLE CONTRACT BECOMES A VALID CONTRACT if theres ratification by the parents/guardians of both contracting parties, or by both parties after attaining or regaining capacity. Refer to: Art. 1396. Art. 1408. Unenforceable contracts CANNOT be assailed by rd 3 persons.

Can be orally made Ex. Marriage settlements Donations propter nuptias 4. Agreement for the sale of goods, chattels or things in action, at a price not less than P500 (P500 or more) 5. Agreement for leasing for a period longer than 1 year 6. Agreement for the sale of real property or of an interest therein rd 7. Representation as to the credit of a 3 person Ex. D seeking a loan from C. A represented to C that D is solvent and has good reputation. Relying on the reputation C extended a loan to D who is actually insolvent. Case: Sufficient Memorandum SC held that: No particular form of language or instrument is necessary to constitute a memorandum note in writing under the SOF; any document or writing under the contract or for another purpose, which complies with all the statutory requirements of the statute as to contents and signature may be considered as sufficient memorandum or note. III. Those where both of the contracting parties do not possess the required legal capacity.

Chapter 9 VOID or INEXISTENT CONTRACTS Art. 1409. The ff. contracts are void or inexistent from the beginning: VECCIIF C 1. Those whose cause/object is contrary to L.M.G.P.P. (void) F 2. Those which are absolutely simulated or fictitious. (inexistent) E 3. Those whose cause/object did not exist at the time of the transaction. (inexistent) C 4. Those whose object is outside the commerce of men. (void) I 5. Those which contemplate an impossible service. (inexistent) I 6. Those where the intention of the parties relative to the principal object of the contract cannot be ascertained. (inexistent) V 7. Those expressly prohibited declared void by law. (void) Ex. Arts. 1347, 1490, 1491, 87, 1031, 1689, 1031, 1782, 1874, 2035, 2088, 2130,etc. Art. 1410. The action or defense for the declaration of the inexistence of a contract does not prescribe action for defense is IMPRESCRIPITABE.... BUT it is better that a judicial declaration of nullity be secured not only to give peace of mind to the parties but also to avoid the taking of the law into their own hands. VOID CONTRACTS Because of certain defects, generally produce no effect INEXISTENT CONTRACTS -refer to agreements which lack one or some or all of

MODES OF RATIFICATION UNDER THE STATUTE OF FRAUDS (ART. 1405):

makes the contract binding as if it has been reduced to writing

1. 2.

Failure to object to the presentation of oral evidence to prove the contract By acceptance of benefits under the contract because the contract is no longer executory. Principle: One who has enjoyed the benefits of a transaction should not be allowed to repudiate its burdens.

Art. 1406. When a contract is ENFORCEABLE under the Statute of Frauds and a public document is necessary for its registration in the Registry of Deeds, the parties may
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at all. Inexistent from the very beginning Refers to agreements tainted with ILLEGALITY.

the ELEMENTS or do not comply with formalities which are essential for the existence of a contract

2. 3. 4.

Note: An illegal contract may produce effects under certain circumstances where the parties are not of equal guilt. 2 KINDS OF ILLEGAL CONTRACTS Art. 1411: When contract is Art. 1412: When contract is illegal and act constitutes a illegal and act does NOT criminal offense constitute a criminal offense When both parties are When both parties are equally guilty (in pari equally guilty: delicto): a. Neither party may a. Both parties have recover what he no action against has given each other. b. Neither may b. Both shall be demand prosecuted. performance c. The price or object shall be confiscated in favor of the government. Where only 1 party is guilty Where only 1 party is guilty or both parties are NOT or both parties are NOT EQUALLY guilty: EQUALLY guilty: Guilty or more guilty party Guilty or more guilty party a. Has no action a. Cannot recover against what he has given innocent/less b. Cannot ask for guilty party fulfilment of the b. Shall be innocent partys prosecuted undertaking/promi c. Price or object se confiscated in favor of the govt. Innocent or less guilty party Innocent or less guilty party a. May claim what he has given b. Not bound to comply with his promise.

5. 6. 7. 8.

before the purpose has been accomplished or rd before any damage has been caused to a 3 person Recovery of money or property delivered by an incapacitated person Recovery where contract is not illegal per se, but is merely prohibited Recovery of amount paid in excess of ceiling price Recovery of additional compensation for service rendered beyond time limit PD # 442 (Labor Code) any employee shall not exceed 8 hrs/day (generally). Recovery of amount of wage less than minimum fixed. The doctrine does not apply to fictitious or absolutely simulated contracts. The doctrine does not apply where a superior public policy intervenes. It does not apply in case of void contracts which are simulated to circumvent a law. (see Paras) EFFECT OF ILLEGALITY Indivisible Contract Divisible Contract -void or unenforceable -the legal portions may be enforced, but is subject to the intention of the parties.

Art. 1421. The defense of illegality of 3 persons NOT available IF NOT directly affected by the contract. Art. 1422. Void contract cannot be novated. TITLE 3. NATURAL OBLIGATIONS See Arts. 1423 1430 Art. 1423. Obligations are civil or natural. CIVIL OBLIGATIONS NATURAL OBLIGATIONS -arise from law, contracts, -based on equity and quasi-contracts, delicts, and natural law. quasi-delicts -give a right of action to -do not grant a right of compel their performance. action to enforce their performance. EXAMPLES OF NATURAL OBLIGATIONS ENUMERATED UNDER THE CIVIL CODE: 1. Performance after civil obligation has prescribed rd 2. Reimbursement of 3 person for debt that has prescribed 3. Restitution by minor after annulment 4. Delivery by minor of money or fungible thing in fulfilment of obligation- no recovery if the obligee has spent or consumed in good faith the money or consumable thing.

rd

General Rule: When both parties are in pari delicto, the law refuses them every remedy and leaves them where they are. (Arts. 1411 & 1412) Exceptions: are found in Arts. 1414- 1419. 1. Recovery where contract, entered into for illegal purpose, was repudiated by one of the parties

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5. 6. 7.

If the obligee is in bad faith he shall be liable for damages Performance after action to enforce civil obligation has failed Payment of heir of debt exceeding value of property inherited Payment of legacy after will has been declared void

- that which arises when one by his acts, representations or admissions, or by his silence when he ought to speak out, intentionally or through culpable negligence, induces another to believe that certain facts to exist and such other rightfully relies and acts on such belief, as a consequence of which he would be prejudiced if the former is permitted to deny the existence of such facts. This may be estoppel: 1) by conduct or acceptance of benefits 2) by representation or concealment 3) by silence There must be some element of turpitude or negligence which misled another person to his damage. Mere innocent silence will not justify an estoppel. 4) by omission 5) by laches - In general sense, is failure or neglect, for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier; it is negligence or omission to assert a right within reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it or declined to assert it (Tijam vs. Sibonghanoy, supra; Heirs of Lacamen vs. Heirs of Laruan, 65 SCRA 605). It is therefore, a type of equitable estoppel which arises when a party, knowing his rights as against another, takes no step or delays in enforcing them until the condition of the latter, who has no knowledge or notice that the former would assert such rights, has become so changed that he cannot, without injury or prejudice, be restored to his former state.

Purpose is to reward friends, servants and others for services they have rendered, to give alms, etc. He must be deemed to have considered it his moral duty to fulfil his obligation. OTHER EXAMPLE OF NATURAL OBLIGATIONS 1. 2. Obligation to pay interest for use of money, even if not agreed upon in writing (Arts. 1956, 1960) Duty to support natural or spurious children (even if not recognized voluntarily or by judicial compulsion and even if there is a judgment denying recognition). Giving of material and financial assistance to children upon their marriage.

3.

TITLE IV ESTOPPEL A bar which precludes a person from denying or asserting anything contrary to that which has been, in contemplation of law, established as the truth either by acts of judicial or legislative officers, or by his own deed or representations either express or implied. 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 1431) Its principles are only suppletory.

ESSENTIAL REQUISITE FOR OPERATION OF ESTOPPEL The complaining party must relied in good faith on the admission or representation made causing him to act in certain way. It is immaterial whether he was prejudiced or not. It suffices, if he was misled because of his reliance on the admission or representation of the other party. KINDS OF ESTOPPEL A. Estopple in pais (by conduct or equitable estoppel)
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The four (4) essential elements of laches are: a. Conduct on the part of the defendant, or of one under whom he claims, giving rise to the situation of which the complaint seeks a remedy; b. Delay in asserting the complainants rights, the complainant having had knowledge or notice of the defendants conduct and having been afforded an opportunity to institute a suit;

c. Lack of knowledge or notice on the part of the defendant that the complainant would assert the right on which he bases his suit; and d. Injury or prejudice to the defendant in the event relief is accorded to the complainant, or the suit is not held barred (Miguel vs. Catalino, 26 SCRA 234 and cases cited therein). B. Estoppel by deed (technical estoppel (Article 1433) -by virtue of which a party to a deed and his privies are precluded from asserting as against the other party and his privies any right or title in derogation of the deed, or from denying any material fact asserted therein; must be in writing. This may be estoppel: 1) by deed proper bars a party from denying the truth of any material facts asserted in it; cannot be used against strangers. 2) by judgment as a court record where the parties are precluded from: a. raising questions involving matters which were directly adjudged because of the principle of res judicata, and b. from raising questions involving matters that have not been adjudged but could have been placed in issue and decided in the previous case because of their relation to the issues therein 3) Estoppel by laches (Tijam vs. Sibonghanoy, 23 SCRA 29).

A lessee or a bailee is estopped from asserting title to the thing leased or received, as against the lessor or bailor (Article 1436).

PERSONS BOUND BY ESTOPPEL Estoppel is effective only as between the parties thereto or their successors-in-interest (Article 1439).

TITLE V TRUSTS A fiduciary relationship involving a property whereby the fiduciary holds it for the benefit of another. Suppletory.

CHARACTERISTICS OF TRUST a. It is a fiduciary relationship. b. It is created by law or by agreement. c. It is one where the legal title is held by one, and the equitable title or beneficial title is held by another. TRUST VS. STIPULATION POUR ATRUI Basis Origin Trust (Art. 1440) Arises either by virtue of a contract or by legal provision Object is always specific property, whether real or personal, including an undivided interest therein as in coownership or choses in action. Either express or implied; continues to exist unless repudiated. Stipulation Pour Autrui (Art. 1311) Arises only by virtue of a contract and never by operation of law. Object could either be a specific property or other things.

Object

EFFECT IF A PERSON WHO IS NOT THE OWNER OF A THING SELLS OR ALIENATES AND DELIVERS IT AND LATER THE SELLER OR GRANTOR ACQUIRES TITLE THERETO such title passes by operation of law to the buyer or grantee (Article 1434). Form EFFECT IF A PERSON IN REPRESENTATION OF ANOTHER SELLS OR ALIENATES A THING VIZ A VIS THE BUYER OR GRANTEE the former cannot subsequently set up his own title as against the buyer or grantee (Article 1435).

Always express, and must be accepted by the third person before the grant stipulated in his favor is mutually revoked by the parties.

PARTIES TO A TRUST (Article 1440) 1. TRUSTOR who establishes a trust.

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3.

TRUSTEE (fiduciary) the one in whom the confidence is reposed as regards the property for the benefit of another person BENEFICIARY (ces que trust) the person for whose benefit the trust has been created. The trustor may at the same time be the beneficiary.

1.

2. 3. 4.

KINDS OF TRUST Basis Creation

Express Trust Created by the intention of the parties Created by the direct and positive acts of the parties, by some writing, deed, or by words, either expressly or impliedly, evincing an intention to create a trust cannot be proved by parole evidence; must be in writing. Imprescriptible, unless the trust has been repudiated and no action had been filed within 1 yrs from the time the beneficiary had been informed of the repudiation, the action for recovery will prescribe. Property cannot be acquired by prescription because the possession of the trustee is not adverse.

Implied Trust Created or arises by operation of law Merely deducible from the nature of the transaction

The trustee has performed unequivocal acts of repudation amounting to an ouster of the cestui que trust. Such positive acts of repudiation have been made known to the beneficiary; and The evidence thereon is clear and conclusive The adverse possession of the trustee, together with other elements of prescription, must at least be 10 yrs. in the concept of an owner. It begins to run from the time the beneficiary, or trustor gained knowledge of the repudiation by the trustee.

Manner of creation

EFFECT OF THE EXPRESS TRUST IF THE TRUSTEE APPOINTED DECLINES THE DESIGNATION No trust shall fail because the trustee appointed declines the designation, unless the contrary should appear in the instrument constituting the trust. (Article 1445) REQUIRED IN ORDER TO CREATE AN EXPRESS 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. (Article 1446)

Proof needed when immovable or interest therein is involved Prescription of action

Can be proved by parole evidence

Prescriptible. After 10 yrs from registration of the title, the action is barred BUT not for resulting trust since it is like an express trust.

HOW ARE EXPRESS TRUSTS ENDED a. Mutual agreement by all the parties b. Expiration of the term c. Fulfillment of the resolutory condition d. Rescission or annulment (as in contracts) e. Loss of the subject matter of the trust f. Order of the court g. Merger h. Accomplishment of the purpose of the trust EXAMPLES OF RESULTING TRUSTS a. There is an implied trust when property is sold, and the legal estate is granted to one party but the price is paid by another for the purpose of having the beneficial interest of the property. The former is the trustee, while the latter is the beneficiary. However, if the person to whom the title is conveyed is a child, legitimate or illegitimate, of the one paying the price of the sale, no trust is implied by law, it being disputably presumed that there is a gift in favor of the child. (Article 1448) b. There is also an implied trust when a donation is made to a person but it appears that although the legal estate is transmitted to the donee, he nevertheless is either to have no beneficial interest or only a part thereof. (Article 1449) c. When land passes by succession to any person and he causes the legal title to be put in the name of another, a trust is established by implication of

Acquisition by prescription

Property can be acquired by prescription.

Except if the ff. conditions are present:

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e.

law for the benefit of the true owner. (Article 1451) If two or more persons agree to purchase property and by common consent the legal title is taken in the name of one of them for the benefit of all, a trust is created by force of law in favor of the others in proportion to the interest of each. (Article 1452) When property is conveyed to a person in reliance upon his declared intention to hold it for, or transfer it to another or the grantor, there is an implied trust in favor of the person whose benefit is contemplated. (Article 1453)

b.

c. EXAMPLE OF CONSTRUCTIVE TRUST a. If the price of a sale of property is loaned or paid by one person for the benefit of another and the conveyance is made to the lender or payor to secure the payment of the debt, a trust arises by operation of law in favor of the person to whom the money is loaned or for whom it is paid. The latter may redeem the property and compel a conveyance thereof to him. (Article 1450) b. If an absolute conveyance of property is made in order to secure the performance of an obligation of the grantor toward the grantee, a trust by virtue of law is established. If the fulfilment of the obligation is offered by the grantor when it becomes due, he may demand the reconveyance of the property to him. (Article 1454) c. When any trustee, guardian or other person holding a fiduciary relationship uses trust funds for the purchase of property and causes the conveyance to be made to him or to a third person, a trust is established by operation of law in favor of the person to whom the funds belong. (Article 1455) d. If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes. (Article 1456) PERIOD OF PRESCRIPTION OF AN ACTION FOR RECONVEYANCE OF REAL PROPERTY BASED ON IMPLIED TRUST It depends: a. If the action for reconveyance involves the annulment of a voidable contract which became the basis for the fraudulent registration of the subject property, then the period of prescription is 4 years from the discovery of the fraud. This finds codal support in Article 1391, par. 4 of the Civil Code (Gerona vs. De Guzman, 11 SCRA 153; Fabian vs. Fabian, 22 SCRA 231; Carantes vs. Court of
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Appeals, 76 SCRA 514; Alarcon vs. Bidin, 120 SCRA 390). If the action does not involve the annulment of a contract, but there was fraud in the registration of the subject property, then the period of prescription is 10 years from the discovery of the fraud. This finds codal support in Article 1144, No. 2 (Bueno vs. Reyes, 27 SCRA 1179; Varsity Hills, Inc. vs. Navarro, 43 SCRA 503; Escay vs. Court of Appeals, 61 SCRA 360; Jaramil vs. Court of Appeals, 78 SCRA 420; Vda. De Nacalaban vs. Court of Appeals, 80 SCRA 428; Duque vs. Domingo, 80 SCRA 654). If the action involves the declaration of nullity or inexistence of a void or inexistent contract which became the basis for the fraudulent registration of the subject property, then the action is imprescriptible. This finds codal support in Article 1410 (Article Tongoy vs. Court of Appeals, 123 SCRA 718). If the action for reconveyance is in reality an action to quiet title and the legitimate owner of the subject property which was fraudulently registered in the name of another had always been in possession thereof so that the constructive notice rule cannot be applied, then the action is imprescriptible (Caragay-Lagno vs. Court of Appeals, 133 SCRA 718).