Contract

Title II.
CONTRACTS
(Memory Aid)
ART. 1305
ART. 1306
A. Stipulations declared null and void b t!e court "or bein# contrar to la$%
a. The stipulation in a deed of sale with right of repurchase giving the vendor-a-retro the option to
repurchase the property even after 10 years from the date of the contract.
b. An agreement on sale or transfer of land which results in the transferee owing more lands than
what the law or the Constitution allows.
c. A contract transferring ownership of lands, including residential lands, to aliens because they
are prohibited by the Constitution.
d. A stipulation exempting the depositary from any liability arising from the loss of the thing
deposited on account of fraud, negligence or delay.
e. A stipulation in employment agreement giving the employer the right to terminate the agreement
at any time by giving the !mployee notice in writing in advance one month before the intended
termination or in lieu thereof, by paying the employees wages e"uivalent to one month#s salary.
f. An escalation clause w$o a corresponding descalation clause in loan agreements.
g. A lease over a parcel of land to an alien for %% years and granting to the lessee, provided he
becomes a &ilipino citi'en, the option to buy the land within a period of (0 years.
h. A stipulation which excludes one or more parties from any profits or losses.
i. A mortgage over unregistered lands.
). A stipulation transferring ownership of a part of residential lands to the developer.
*. A stipulation transferring ownership of submerged areas to the developer.
&. A. Stipulations declared null and void b t!e court "or bein# contrar to public polic and public
order%
a. A stipulation that the donee of a parcel of land shall not dispose or sell the property within a
period of 100 years from the deed of donation.
b. A contract of professional services entered into by an incumbent )udge with another person.
c. A contract for the operation of vehicle under the *abit system+, an arrangement whereby a
person who has been granted a certificate of public convenience allows another person to
operate under such franchise for free.
d. A promissory note issued in consideration for the compounding crime.
e. A stipulation in a contract of sale prohibiting the vendees from selling the property to persons
other than the vendor or his heirs and assigns.
f. A compromise agreement between two litigants ad)udicating to one of them the ownership over
the fishpond in dispute which was formerly a cree*.
g. A waiver on the part of a scholarship grantee of his right to transfer to another school w$o
having refunded to the ,niversity the e"uivalent of my scholarship in cash+.
h. -ale made by a husband in favor of a concubine.
i. The stipulation in the credit card that- purchase made$ incurred arising from the use of the
lost$stolen card shall be for the exclusive account of the cardholder and the cardholder continues
to be liable from the purchase made through the use of the lost$stolen card until such notice shall
be given and been communicated to the member establishment.+
C. A. Stipulations declared null and void b t!e court "or bein# contrar to 'orals and #ood
custo's%
a. A stipulation re"uiring the payment of a penalty of .(.00 for every day of delay after the maturity
of loan of ./0(.00.
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1bligations and Contracts$ Atty.2irgilio .aulo Alconera$ -.3. 4014-4015 6tatchi 7egencia
b. A stipulation re"uiring a debtor to render service to the creditor w$o pay until the debtor#s
obligation is paid.
c. An agreement entered into by a husband and his wife that they separate from each other8 that
each authori'es the other to remarry8 that they renounce their rights and obligations8 and that
they authori'e each other to remarry, renouncing any action to which they may be entitled and
each promising not to be a witness against the other.
d. 9ids tendered, and contracts of sale entered into, by public officers who hold positions of trust
over properties foreclosed by their offices.
e. ,nconscionable rate of interest.
ART. 130(
a. The innominate contract of facio ut des (I do and you give) commands that of some service is
rendered by one in favor of another, the latter is obliged to compensate the former for his
services, despite the absence of the express contract regarding compensation (Corpus vs. CA:.
ART. 130)
a. The article states the principle of mutuality of contracts.
b. To increase the interest rate at will during the term of the loan is null and void for being violative
of the principle of mutuality essential in contracts (Almeds vs. CA:
c. contract containing a condition which ma!es its fulfillment dependent exclusively upon the
uncontrolled will of one of the contracting parties is void ;<arcia vs. 7ita =egarda:.
d. unilateral renunciation of a contract violates the principle of mutuality of contracts
;.rofessional Academic .lans, 6nc. vs. Crisostomo:
e. stipulation in a contract to sell authori"ing the vendor to automatically cancel the contract in
case of breach does not violate the principle of mutuality of contracts.
f. stipulation that The lessee may at any time withdraw from this agreement in a contract does
not violate the principle of mutuality of contracts (.hil. 9an* Corp. vs. =ui -he:
ART. 130*
ART. 1310
a. #hile escalation clause is valid, the $upreme %ourt may reduce escalated interest if they intend
to produce results the escalation clauses see to prevent ;Almeda vs. CA:
b. If the amount of harvest of the lessee from his farm abruptly ad tremendously decreases because
of theft made possible by the failure on the part of the lessee to adopt and maintain security
measures, and the &' declares force ma(ure, the landowner may )uestion the validity of &'*s
determination.
ART. 1311
+', %ontracts are binding only upon contracting parties, their heirs and assigns.
-, In cases where the rights and obligations arising from the contracts are not transmissible by their
nature, or by stipulations or by provision of law.
a. lease w. option to buy entered into by one binds his heirs upon his death ;>?C @olding Corp.
vs. CA:.
b. Third persons are not liable for damages. Thus a sub/charterer is not liable to the owner of the
vessel for damages that the latter has suffered by reason of the violation by the charterer of the
charter party.
c. contract can only bind the parties who had entered into it or their successors who assumed their
personalities or their (uridical positions, and that, as a conse)uence, such contract can neither
favor nor pre(udice third persons ;Auano vs. CA:.
d. The rule that a contract bind only the parties, their heirs, and assigns does not apply if applying it
pre(udices the rights of third persons under existing law ;2elasco vs. CA:.
e. The principle of privity of contract does not also apply if applying it pre(udices the statutory
rights of purchasers of subdivision lots on installment basis (.B9 vs. 1ffice of the .res.:.
f. 'ights and obligations under contracts entered into consideration of the personal )ualifications of
one of the parties or of both of them are intransmissible.
g. The heirs of the parties to a contract of agency or partnership may not continue the agency or
partnership relations upon the death of their predecessors (9angayan vs. CA:.
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+SO,- .RINCI./- ON STI.0/ATION 1pour atrui2%
a. a benefit owing to a third person is not presumed0 it must be clearly and deliberately conferred to
him in a contract ;9onifacio 9ros, 6nc. vs. Cora:.
b. The conveyance of the property covered by the stipulation of pour autrui constitutes a revocation
of the grant. The stipulation to be affective has to be accepted, before it is revo!e (3oung vs. CA:.
c. The en(oyment of benefits flowing from the property covered by the stipulation of pour autrui is
implied acceptance thereof (&lorentino vs. !ncarnacion:.
ART.1313
a. 'egistration or notice of the existence of a contract is essential for a third person to be bound by a
contract creating real rights.
b. mortgage creates a real right which is enforceable against the whole world. 1ence, even if the
mortgaged property sold or its possession transferred to another, the property remains sub(ect to
the fulfillment of the obligation for whose security it was constituted ;Cenas vs. -antos:.
c. recorded real estate mortgage is a right in rem a lien on the property whoever its owner may be
(sale or transfer cannot affect or release the mortgage) ;.aderes vs. CA:.
d. buyer of leased property who, before the sale, !new of the existence of the lease has to respect
the lease ;Crisostomo vs. CA:.
ART. 1313
a. sham and simulated deed of conveyance entered into the parties to defraud a creditor may be
declared null and void0 deed of conveyance executed in fraud of creditors may be rescinded
;.9Com vs. CA:.
b. sham rescission agreement between a debtor/mortgagor and an alleged seller of materials and
supplies intended for no other purpose than to confer upon the latter the status of unpaid sellers
over said goods and defeat mortgagee*s lien over the goods may be declared ineffective ;.eople#s
9an* and Trust Co. vs. >ahican =umber Company:.
ART. 1314
a. 2inancial interest, w.o improper motive, is a valid (ustification.
b. third person who sells goods in violation of the contractual rights of another may be stopped by
a writ of in(unction ;3u vs. CA:.
ART. 1315
a. 3arties to a contract bound not only by its stipulations but also the conse)uences thereof ;Torres
vs. CA:.
b. contract of sale is perfected at the moment there is a meeting of minds upon the thing which is
the ob(ect of the contract and upon the price0 'escission of a contract will not be permitted for a
slight or casual breach ;Depeda vs. CA:.
ART. 1316
a. &elivery is an essential element of a real contract w.o which the contract does not exist.
b. %onstructive delivery of a thing pledged is sufficient. The delivery will depend upon the nature
and the peculiar circumstances of each case0 The pledgee can temporarily entrust the physical
possession if the chattels pledged to the pledgor w.o invalidating the pledgee. In such case, the
pledgor is regarded as the trustee for the pledgee ;3uliongsiu vs. .B9:.
ART. 131(
a. contract of sale entered into by an attorney/in/fact who acts beyond his powers in
unenforceable, but the receipt by the principal from the agent of the purchase price is an act of
ratification and ma!es the contract enforceable ;2alde' vs. CA:.
b. contract which is unenforceable by reason of absence of authority on the part of the agent who
signs it is enforceable against the principal if he (the principal) ma!es use of the benefits owing to
him under the contract ;7avago !"uipment 7entals, 6nc. vs. CA:.
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ART. 131) (basic re)uisites of contract)
ART. 131*
a. definite agreement on the manner of payment of the price is an essential element in the
formation of a binding and enforceable contract of sale ;,raca vs. CA:.
b. The seller*s acceptance of payment is an indication of his consent to the contract thereby
precluding him from re(ecting its binding effect ;Clarin vs. 7ulona:.
c. perfected and consummated contract may not be invalidated by an alleged mista!e in the
acceptance of the offer ;&rancisco vs. <-6-:.
d. The statement we agree to buy property proceed Tacloban to negotiate details in response to an
offer to sell renders the acceptance not absolute, thus precluding consent ;3uvienco vs.
>acuycuy:.
e. non/essential change made by the offerree in a phrase in the offer to purchase does not amount
to a re(ection of the offer and the tender of counter/offer ;2illonco 7ealty Company vs.
9ormaheco:.
f. The word entertain applied to an act does not mean the resolution to perform said act, but
simply a position to deliberate for deciding to perform or not to perform said act0 The offer must
be definite ;7osenstoc* vs. 9bur*e:.
g. The revocation of an offer before the offerer !nows of its acceptance prevents the meeting of the
offer and the acceptance0 an acceptance by letter does not have any effect until it comes to the
!nowledge of the offerer ;=audico vs. 7odrigue':.
h. The revocation of the offer need not to !nown by the acceptant for it to produce the legal effect of
preventing the perfection of the contract.
i. The seller*s consent in a sale with assumption of mortgage is conditioned upon the approval of
the sale by the mortgagee. #.o such approval, the sale is ineffective, and the seller, after the
foreclosure of the mortgage and the redemption of the property by him, may sell it to another
person ;7amos vs. CA:.
ART. 1330
ART. 1331 (conditions for acceptance)
a. The owner of property offered for sale either at public or private auction has the right to prescribe
the manner, conditions and terms of the sale ;=eo"uinco vs. .ostal -avings 9an*:.
ART. 1333
ART. 1333
a. n offer becomes ineffective if the acceptant becomes insolvent before his acceptance comes to
the !nowledge if the offerer ;2illanueva vs. CA:.
ART. 1334
'45-$ where period is given to the offeree,
6. If the period is not itself founded upon or supported by consideration, the offeror is still
free and has the right to withdraw the offer before its acceptance, or, if an acceptance has
been made, before the offeror*s coming to !now of such fact, by communicating that
withdrawal to the offeree.
7. If the period has a separate consideration, a contract of option is deemed perfected, and
it would be a breach of that contract to withdraw during the agreed period ;Ang 3u
Asuncion vs. CA:.
8. If the option is given w.o consideration, it is a mere offer of a contract of sale, which is
not binding until accepted. If, however, acceptance us made before the withdrawal, it
constitutes a binding contract of sale, even though the option was not supported by a
sufficient consideration ;At*ins, ?roll and Co., vs. Cua:.
9. contract entered into in breach of the lessee*s right of first refusal may be rescinded
;!"uatorial 7ealty >evelopment, 6nc. vs. Cayfair Theater, 6nc.:.
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:. The deed of option or the option clause in a contract, in order to be valid and enforceable,
must, among other things, indicate the definite price at which the person granting the
option, is willing to sell.
;. $tipulations in lease contracts granting the lessee the right of first refusal is not covered
by rt. 6879 and 69<= re)uiring independent consideration.
<. 4nconditional mutual promise to buy and sell, as long as the ob(ect is made determinate
and the price is fixed, can be obligatory to parties and compliance therewith may
accordingly be exacted ;Ang 3u Asuncion vs. CA:.
>. n accepted unilateral promise which specifies the thing to be sold and the price to be
paid, when coupled w. a valuable consideration distinct and separate from the price,
merely constitutes a perfected contract of option.
=. In a lease w. option to buy, the consideration for the lessor*s obligation to sell the leased
premises to the lessee, should he choose to exercise his option to purchase the property0
is the obligation that the lessee has to comply, e.g. to sell, or transfer for free, to the lessor
the building that he has built on the land, should he fail to exercise the option ;-erra vs.
CA:.
ART. 1335
a. n advertisement in a department store is an offer not being definite, an acceptance of the buyer
does not give rise to a perfected contract of sale. The advertisement is merely intended to induce
any shopper to ma!e an offer to buy.
b. car dealer offering to sell, through newspaper advertisement, a brand new car of particular
brand and model at a definite price, is binding upon him if accepted by the buyer.
ART. 1336
a. dvertiser is not bound to accept the highest or lowest bid unless contrary appears ;CEC
Commercial Corp. vs. Cenor:.
b. 'eservation on right to re(ect bids is not necessary. #hat binds him is a statement in the
advertisement that he shall be bound to the lowest or highest bid.
c. The article does not apply to foreclosure or execution sales. The law directs that the property be
sold to the highest bidder.
ART. 133(
a. 3ersons mentioned in this article are incapacitated to give consent to contracts0 contracts entered
by them are voidable.
b. %ontracts entered into by persons inflicted w. senile dementia are voidable.
c. minor vendor who !nows of his minority yet indicates in the deed of conveyance that he is of
legal age and leads the vendee to believe that such is the fact will no longer be allowed to recover
what he has conveyed/ estoppel validates a minor*s consent.
ART. 133)
a. (udicial decree of guardianship on the ground of insanity may be effectively rebutted by
evidence of the ward*s recovery from the ailment. 1ence, contracts entered into by the ward
during this period of recovery may not be annulled on the basis of the decree ;>umaguin vs.
7eynolds:.
b. The presumption of insanity is only prima facie and may be rebutted by evidence, in the absence
of a statute to the contrary.
c. person under guardianship for insanity may still enter into a valid contract and even convey
property, provided that it is proven that at the time of entering into said contract, he was not
insane or his mental defect did not affect him to appreciate the meaning of the transaction entered
into by him.
ART. 133*
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a. The following transactions if entered into are void because they are prohibited by the law,
6. the husband and the wife cannot sell property to each other (except, ?6@ when a separation
of property was agreed upon in the marriage settlement0 or ?7@ when there has been a
(udicial declaration of property).
7. The husband and the wife cannot donate property to each other (except if the property
donated is moderate which the spouses may give each other on the occasion of any
family re(oicing).
8. 3ersons cannot buy the properties from owners with whom they have established some
fiduciary relations.
9. non/%hristian cannot sell real property (w.o the approval of the 3rov. +overnor).
ART. 1330 (vitiated consent5
ART. 1331
a. #hen the thing sold under the deed of sale is not the property intended to be sold by the seller,
there is mista!e and the contract may be annulled ;Theis vs. CA:.
b. In an action to annul a contract, a party thereto may not allege an error which refers to a fact
!nown to him or which he should have !nown by ordinary diligent examination of the facts
;Alcasid vs. CA:.
c. The error must be the causal, not merely incidental, factor that induced the complaining party to
enter into the agreement0 it must not contradict the manifest intention of the parties entering into
the contract ;.eri"uet vs. 7eyes:.
d. In a contract of sale mista!en for contract of loan, such contract is null and void, as it was given
by mista!e which goes to very substance of the thing which was the sub(ect matter of the contract
;>umasug vs. Codelo:.
e. #hen an employee signs a )uitclaim upon the false representation by the employer that the
company is suffering from business reverse, the )uitclaim is voidable on the ground of mista!e
;.hil. Carpet !mployees Association vs. .hi. Carpet Canufacturing Corp.:
f. To annul a contract on the ground of mista!e in identity or )ualification of a person, his identity
or )ualification should be the principal cause of the contract.
ART. 1333
+', whosoever alleges fraud or mista!e in any transaction must substantiate his allegation.
-, rt. 6887
a. 2or this article to apply, it has to be first established convincingly that the illiterate could not read
or understand the language in which the contract was written.
b. The ff. may negate proof of fact of explanation,
6. the contract being prepared by the defendant who is highly educated0
7. the defendant being a lawyer, yet the document is unnotari"ed ;=im vs. CA:0
8. the illiterate plaintiff not being assisted by any of his children who live few meters away
;Cayabyab vs. 6AC:8
9. the notary public who notari"ed the contract not being presented as witness0
:. the plaintiff being already of advanced age0
;. the payment of the consideration not being shown0
c. The duty of proving that the contents of the contract were explained to the illiterate devolves
upon the party see!ing to enforce the contract, not upon him who see!s to avoid it ;Tang vs. CA:.
ART. 1333
a. n error so patent that no prudent man could have committed it is not a ground to annul
a contract on the ground of mista!e.
ART. 1334
ART. 1335
a. The threat to file a criminal complaint for estafa against employee who, after audit, is found to
have incurred cash shortage, unless he resigns from the company does not in law constitute
intimidation. 1is resignation as a result if the threat is valid ;Callanta vs. B=7C:.
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b. The threat to sue for collection in case the account is not paid does not in law constitute
intimidation.
c. The threat of legal prosecution that gives rise to a novation of an obligation or a contract of surety
to secure the obligation of the person under threat constitutes intimidation.
d. The threat of legal prosecution of a husband amounts to the intimidation of his wife who,
constrained thereby, becomes the surety ;Adams vs. 6rving B. 9an*:.
e. The threat to foreclose mortgage does not in law constitute intimidation ;>evelopment 9an* of
the .hil. vs. CA:.
f. 'eluctance to act does not necessarily vitiated consent ;7eyes vs. Daballero:.
ART. 1336
ART. 133(
a. The presence of fiduciary relationship gives rise to the presumption that the assailed instrument
was executed w. undue influence. In the absence of fiduciary relationship, undue influence, must
be proved by convincing evidence.
b. To prove a confidential relationship from which undue influence may arise, the relationship must
reflect a dominant overmastering influence which controls over the dependent person.
c. 4ndue influence is not to be inferred from age, sic!ness, or debility of body, if sufficient
intelligence remains.
d. $olicitation, importunity, argument and persuasion do not constitute undue influence ;Cartine'
vs. @ong*ong and -hanghai 9an*ing Corp.:.
e. 2inancial woes per se do not amount to undue influence ;Carpo vs. Chua:.
f. The consent of the lover/seller to the sale is held to be vitiated by undue influence ;9ucoy vs.
.aulino:.
ART. 133)
a. Ane who employs causal fraud may liable for damages.
b. void or voidable contract does not affect the title of the buyer in good faith ;Abando vs.
=o'ada:.
c. The solemnity of notari"ation has to give way to substantial proof of fraud ;.Agsuyuin vs. 6AC:.
d. 2raud must be proved by strong, complete, and conclusive evidence and not merely
preponderance of evidence ;Carandang-Collantes vs. Capuno:.
ART. 133*
a. The debtor in a contract, which is to be assigned by the creditor0 has the duty to reveal to the
assignee any defect in the contract to be assigned or to refrain from affixing his signature thereto
;&ilinvest Credit Corp. vs. 7elova:.
b. #hen an agent concealed a material facts from the principal, the contract can be annulled by the
aggrieved party ;Cadwallader E Company vs. -mith, 9ellc E Company:.
c. $ilence or concealment of the facts, by itself, does not constitute fraud, unless there is a special
duty to disclose them.
ART. 1340
a. #hen the purchaser proceeds to ma!e investigations by himself, and the vendor does nothing to
prevent such investigation, from being as complete as the former might wish, the purchaser
cannot later allege that the vendor made false representation to him ;A'araga vs. <ay:.
ART. 1341
ART. 1343
a. misrepresentation made by a third person that produces substantial and mutual mista!e on the
part of the parties to a contract vitiates their consent ;7ural 9an* of Caloocan vs. CA:.
b. contract may be annulled on the ground of vitiated consent if deceit by a third person, even w.o
connivance or complicity w. one of the contracting parties to the contract ;@ill vs. 2eloso:.
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c. The mortgage contract over the whole property signed by a co/owner in blan! upon the
representation by the other co/owner that only the latter*s share will be mortgaged is, insofar as
the share of the former is concerned, voidable ;Co. vs. CA:.
ART. 1343
ART. 1344
a. Butual fraud prevents a party from see!ing annulment of the contract.
ART. 1345
ART. 1346
a. n absolutely simulated contract is one where the parties do not intend to be bound by it. It is
void for absence of true consent.
b. relatively simulated contract is one used by the parties to conceal their true agreement. It is
valid and binds the parties to their true agreement if the simulation does not pre(udice 8
rd
persons
and is not intended for any purpose contrary to law, morals, good customs, public order or public
policy.
c. protuberant index of simulation is the complete absence if an attempt in any manner on the part
of the purported buyer to assert his rights of ownership over the property by ta!ing possession
thereof ;-untay vs. CA:.
d. The falsity of the cause in a relatively simulated contract may be shown by contemporaneous and
subse)uent acts of the parties. contract w. a false consideration is not null and void per se
;Favier vs. CA:.
ART. 134(
a. 3roperties of public dominion are outside the commerce of men.
b. public pla"a may not be leased or sold because it is a public dominion ;2illanuva vs.
Castaneda:.
c. 2uture things, except future inheritance, may be ob(ects of contracts.
d. wife*s share in the con(ugal properties is not future inheritance.
e. sale of future inheritance is null and void, and an affidavit of conformity to Cre/affirm,
respect, ac!nowledge and validate the sale I made* even if executed after the death of the seller*s
predecessor is li!ewise null and void ;Tanedo vs. CA:.
f. 'e)uisites f a contract upon future inheritance,
6. that the succession has not yet been opened0
7. that the ob(ect of the contract forms part if the inheritance0 and
8. that the promissor has, w. respect to the ob(ect, an expectancy of a right which is purely
hereditary in nature ;F.=.T Agro, 6nc. vs. 9alansag:.
9. %onveyance of property through a partition inter vivos, made pursuant to rt.6D>D of the
%ivil %ode, may be considered conveyance of future inheritance expressly authori"ed by
law ;Chave' vs. 6AC:.
:. sale of property allotted to a person under partition inter vivos is valid.
ART. 134)
a. If the land sub(ect matter of deed of donation is no longer owned by the donor for the reason that
he has earlier assigned the same to a corporation in consideration of some of its shares of stoc!,
the land may be considered an impossible thing. 1ence, the donation is null and void for absence
of an ob(ect. Ane cannot give what he does not own ;9oard of =ii"uidators vs. 7oxas:.
b. The debtor shall also be relieved from obligations which consist in the performance of an act if
fulfillment of the underta!ing becomes legally or physically impossible.
ART. 134*
8
a. #hen one agrees to buy playa produced from another*s farm of a given )uota, a contract exists
even if the exact )uantity of palay to be delivered has not yet been determined ;Bational <rain
Authority vs. 6AC:.
b. sale must have for its ob(ect a determinate thing, is fulfilled as long as, at the time the contract
is entered into, the ob(ect of the sale is capable of being made determinate w.o the necessity of a
new or further agreement between the parties ;Celi'a vs. City of 6loilo:.
c. residential lot ad(oining his previously paid lot on three sides excepting on the frontage is a
determinate ob(ect as the lot referred to the instrument indeed ad(oins the lot previously brought
by the buyer in three sides ;Diga vs. 7odrigue':.
ART. 1350
a. The cause or consideration of the contract represents the why of the contracts, the essential
reason which moves the contracting parties to enter into the contract ;2illamor vs. CA:.
b. n onerous contract is one where one party performs an obligation in exchange for the
performance in his favor of an obligation by the other ;1legario vs. CA:.
c. remuneratory contract is one executed by a party by way of a compensation for the service or
benefit rendered or given by him by the other ;Cenido vs. Apacionado:.
d. remunerative donation is one made to a person for services rendered to the donor ;.irovano
vs. >e =a 7ama -teamship:.
e. %ontracts of pure beneficence are the contracts designed solely and exclusively to procure the
welfare of the beneficiary, w.o any intent of producing any satisfaction for he donor0 contracts. In
other words, in which the idea of self/interest is absent on the part of the transferor ;=igue' vs.
CA:.
f. donation made by a man in favor of a woman not only for the purpose of benefiting the donee,
but also to secure her cohabiting w. him, so that he could gratify his sexual impulse,, is not a
contract of pure beneficence.
ART. 1351
a. Botive is the condition of mind w.c incites to action, but includes also the inference as to the
existence of such condition, from an external fact of a nature to produce such a condition
;1legario vs. CA:.
b. lease contract is not rendered null and void (ust because the specific purpose for which the
lease was entered into did not materiali"e.
c. The motive or particular purpose of a party in entering into a contract does not affect the validity
nor existence of the contract0 an exception is when the reali"ation of such motive or particular
purpose has been made a condition upon which the contract is made to depend ;.hil. Bational
Construction Corp. vs. CA:.
d. Botive is different from cause0 hence, a party may not insist on the reali"ation of his motive
;7epublic vs. Cloribel:.
e. There are times that the motive of a party in entering into a contract and the essential reason for
the contract (the cause) are one and the same. In such case, if the motive is illegal, then,
necessarily, the cause is, li!ewise, illegal ;=igue' vs. CA:.
f. The motive of the parties may be regarded as the consideration when it predetermines the purpose
of the contract. #hen they blend to that degree, and the motive is unlawful, then the contract
entered into is null and void.
g. sale executed for the purpose of frustrating one*s right of inheritance and of avoiding payment
of estate tax is null and void as the illegal motive predetermined the purpose of the contract
;1legario vs. CA:.
ART. 1353
a. bsolutely simulated or fictitious contracts are w.o cause, hence, they are null and void.
b. #here it is shown by the evidence that the purchase price as appearing in the deed of sale was not
paid, the sail is null and void for absence of consideration ;1legario vs. CA:.
9
c. contract of purchase ad sale is null and void and produces no effect whatsoever where the same
is w.o cause or consideration in that the purchase price which appears thereon as paid has in fact
never been paid by the purchaser to the vendor ;Capalo vs. Capalo:.
d. #here a loan is granted to a corporation upon the condition that the lending institution ta!es over
the management of the borrowing corporation and the new management dissipates the proceeds
of the loan, it is as if the loan has not been granted at all, and the loan instruments may be
declared null and void ;&ilipinas Carble Corp. vs. 6AC:.
e. valuable consideration, however small or nominal, if given or stipulated in good faith is, in the
absence of fraud, sufficient ;7odrigue' vs. CA:.
f. consideration of 36.DD and other valuable consideration for a )uitclaim over a parcel of land
also constitutes valuable consideration ;1ng vs. 1ng:.
g. 2ailure on the part of the vendee to pay in full the purchase price does not constitute absence of
consideration ;.uato vs. Cendo'a:.
h. Bortgage contract executed ahead of secure promissory note/ deed of mortgage executed on
&ec. ; to secure a loan which is released only on &ec. 67 is not void for absence of consideration.
It is valid as the deed is executed for and in condition of the loan granted ;9onnevie vs. CA:.
i. $tifling the prosecution of a crime, promissory note executed to stifle the prosecution of a
crime is null and void. The cause is unlawful for being contrary to public policy ;,nited <eneral
6ndustries, 6nc. vs. .aler:.
(. Influencing public officers in the performance of their official functions, promissory note
issued for the purpose of influencing public officers in the performance of their official functions
is null and void for being contrary to public policy ;.ineda vs. >ela 7ama:.
ART. 1353
a. contract that states a false consideration is one that has in fact real consideration but the same
is not one stated in the document ;Capalo vs. Capalo:.
b. deed which states a consideration that in fact did not exist, is a contract w.o consideration, and,
therefore, void ab initio.
c. contract which states a false cause, but the parties thereto are in good faith, is not void, but
merely voidable ;&eati 9an* Trusy Co. vs. CA:.
ART. 1354
a. 1e who alleges absence or unlawfulness of consideration hast the burden of proving the
allegation.
ART. 1355
a. Inade)uacy of cause or consideration alone does not invalidate a contract ;Alsua-9etts vs. CA:.
b. Inade)uacy of consideration does not vitiate a contract, unless it is proven, that that there was
fraud, mista!e or undue influence.
ART. 1356
a. +enerally, contracts are obligatory in whatever form they may have been entered into.
supplemental contract may be made orally, even if the original one is in writing ;7oyal =ines vs.
CA:.
b. The location of the signature of the parties is immaterial.
c. #hen the form re)uired is for validity, its non/observance renders the contract void and of no
effect.
d. #hen the re)uired form is for enforceability, non/compliance therewith will not permit, upon the
ob(ection of a party, the contract, although otherwise valid, to be proved or enforced by action.
e. 2orm as re)uisite of validity,
6. rt.<9> re)uires a donation of personal property valued at more than 3:,DDD.DD be in
writing0
7. rt <9= re)uires that a donation of an immovable be in public instrument0
10
8. rt 6<99 re)uires that a stipulation between a common carrier and a shipper limiting the
liability of the former for the loss, destruction or deterioration of the goods to a degree
less than extraordinary diligence be in writing0
9. rt. 6<<8 re)uires that an inventory of the immovable property to be contributed to a
partnership be signed by thee parties to a contract of partnership and attached to the
contract0
:. rt, 6><9 re)uires that the authority of the agent who sells a piece of land or an interest
therein be in writing0
;. rt. 6=:; re)uires that an agreement on the payment of interest for loan be in writing0
<. rt. 7689 re)uires that in a contract of antichresis the amount of the principal and of the
interest be in writing.
f. The fact that the deed of sale was not notari"ed does not render the agreement null and void and
w.o any effect ;9iona vs. CA:.
ART. 135(
a. -ach contracting party of a valid but formally deficient contract of sale of registered land is
granted the right to compel the other to execute the proper public instrument so that the valid
contract can be duly registered and bind third persons ;Fomoc vs. CA:.
b. The contract of sale of real property even if not complete in form, so long as the essential
re)uisites of consent of the contracting parties, ob(ect, and cause of the obligation concur and
they were clearly established to be present, is valid and effective as between the parties.
ART. 135)
a. The provision of this article on the necessity of public document is only for convenience, not for
validity or enforceability.
b. contract of sale is perfected by mere consent. Eo particular form is re)uired for its validity.
4pon the perfection of the contract, the parties may reciprocally demand performance.
c. #hen the sale is made through a public instrument, the execution thereof is e)uivalent to the
delivery of the thing ;>alion vs. CA:.
d. %ontracts enumerated in this article are valid even when not been reduced to public or private
writings ;Tapec vs. CA:.
e. It is not enough that the law should re)uire that the contract be in writing0 The law must further
prescribe that w.o the writing the contract is not valid or not enforceable by action ;@ernae' vs.
>elos Angeles:.
ART. 135*
a. In reformation of contracts, what is reformed is not the contract itself, but the instrument
embodying the contract.
b. 'eformation of instrument presupposes a valid, existing contract, in which there had been a
meeting of the minds of the parties but the instrument drawn up and signed by them des not
correctly express the terms of their agreement.
c. nnulment of a contract, presupposes a defective contract in which the minds of the parties did
not meet, or the consent of one was vitiated ;2elu' vs. 2elu':.
d. The prescriptive period for an action for reformation is 6D years from the time the action accrues
;2elu' vs. 2elu':.
ART. 1360
ART. 1361
a. Bista!e is a ground for the reformation of an instrument when, there having been meeting of the
minds of the parties to a contract, their true intention is not expressed in the instrument purporting
to embody the agreement ;>i'on vs. <aborro:.
b. (udgment debtor, whose property is levied on execution may transfer his right of redemption to
any one whom he may desire. The right to redeem land sold under execution within 67 months is
11
a property right and may be sold voluntarily by its owner and may also be attached and sold
under execution ;Cagno vs. 2iola and -otto:.
c. The (udgment debtor remains in the possession of the property foreclosed and sold, during the
period of redemption. If the (udgment debtor is in possession of the property sold, he is entitled to
retain it and receive the fruits, the purchaser not being entitled to such possession ;7iosa vs.
2er'osa:.
d. #hen a mutual mista!e of the parties causes te failure of the instrument to disclose their real
agreement, said agreement may be reformed ;>i'on vs. <aborro:.
e. #here mutual mista!e is not proved by clear and convincing evidence, a written instrument may
not be reformed ;9an* of the .hil. 6sland vs. &idelity and -urety Co.:.
f. To (ustify reformation of the ground of mista!e,
6. the mista!e should be of a fact0
7. the mista!e should be prove by clear and convincing evidence0
8. the mista!e should be common to both parties to the instrument.
g. The amount of evidence re)uired to support reformation of a written instrument is more than a
mere preponderance of evidence.
h. The terms of a counterbond to lift a writ of attachment may be reformed to ma!e it conform to the
purpose fir which it exists under the law ;=eelin Car*eting Corp. vs. CE- Agro >evelopment
Company:.
ART. 1363
a. n instrument may be reformed where there is a mista!e in one side and fraud or unfair dealing
on the other ;1ng vs. Carr:.
b. #here the vendee of a property has entered into an agreement with the heirs of the original owner
thereof to reconvey the land to them, and the vendee reconveys it to one of the heirs, upon the
latter*s misrepresentation that he was buying the property for the benefit of all the heirs, the deed
of reconveyance may be reformed by reflecting therein the names of the other heirs as additional
parties thereto ;=acorte vs. CA:.
ART. 1363
a. The contract may be reformed to conform to the true agreement of the parties.
ART. 1364
a. The real intention of the parties that not has been stated in the instrument may be proved by their
contemporaneous acts ;Centenera vs. <arcia:.
ART. 1365
a. %reditor*s insistence on drawing instrument of sale with right to repurchase, instead of deed of
mortgage, is a scheme to allow the creditors to en(oy the benefits of the old concept of mortgage, at
the same time giving them some form of protection or defense against any future claim from the
debtor of extinguishment of the loan obligation by legal compensation.
b. sale w. right to repurchase to be an e)uitable mortgage in any of the ff. cases,
6. when the price of the sale w. right to repurchase is usually inade)uate0
7. when the vendor remains in possession as lessee or otherwise0
8. when upon or after the expiration of the right to repurchase another instrument extending
the period of redemption or granting a new period is executed0
9. when the purchaser retains or himself a part of the purchase price0
:. when the vendor binds himself to pay the taxes on the thing sold0
;. id any other case where it may be fairly inferred that the real intention of the parties is
that the transaction shall secure the payment of a debt or the performance of any other
obligation.
c. The transaction of mortgage or pledge may be proved by the conduct of the parties ;2illa vs.
-antiago:.
ART. 1366
12
a. bsolute donations and wills being unilateral acts on the part of the donor or testator, there
cannot be an occasion in these transactions of the instrument not expressing the true intention of
the parties. There is no meeting of minds to spea! of.
b. &etermining a true, yet void, agreement and having it reflected in an instrument is an exercise in
futility. It cannot be enforced.
ART. 136(
a. #hen an action for specific performance filed on the basis of written instrument is amended to
one for breach of contract before any responsive pleading is file, the plaintiff may not be said to
have brought an action to enforce the instrument ;.aradise -auna, Cassage Corp. vs. Bg:.
ART. 136)
a. real party in interest is the party who stands to be benefited or in(ured by the (udgment in the
suit, or the party entitled to the avails of the suit.
ART. 136*
ART. 13(0
a. If there is no doubt on the intention of the parties, the literal meaning of the stipulations controls
;=im 3hi =uya vs. CA:.
b. #here the literal interpretation of a contract is contrary to the evident intention of the parties, the
latter prevails ;=igon vs. CA:.
ART. 13(1 (conte'poraneous and subse6uent acts5
ART. 13(3
a. The intention of the parties limits the broadness and generality of the stipulations in the contract
;!mpire 6nsurance Company vs. 7ufino:.
b. The authority given to one to plant crops on the land and to build his house thereon does not
ma!e him a tenant if tenancy was not intended in the contract ;Catien'o vs. -ervidad:.
ART. 13(3
a. The contract must be interpreted so as to ma!e it effectual.
ART. 13(4
a. ll the terms of the contract must be interpreted together to give effect to the whole agreement
;Canete vs. -an Antonio Agro-6ndustrial Corp.:.
b. The parties to a contract are free to deprive themselves of certain rights and waive them, if any
such exist in law, as long as such renunciation is not violative of public policy or any legal
impediment.
ART. 13(5 (ob7ect o" t!e contract5
ART. 13(6
ART. 13((
a. n ambiguous contract is interpreted against the party who prepared it.
b. ny ambiguity in the contract prepared at the instance of the private respondents and by their
lawyers should therefore be interpreted to the pre(udice not of the vendors but of the vendees,
who were responsible for such ambiguity ;>e =eon vs. Ca:.
ART. 13()
a. &oubts on the incidental circumstances of a gratuitous contract should be resolved in favor of the
least transmission of rights and interests ;Central .hil. ,niversity vs. CA:.
b. There is reciprocity of interests where the debtor does not surrender all rights to his property but
simply confers upon the creditor the right to collect what is owing from the value of the thing
given as security ;=abasan vs. =acuesta:.
13
c. If the intention of the parties upon the ob(ect of the contract cannot be ascertained, the contract is
void ;Carin vs. Adil:.
ART. 13(*
ART. 13)0
a. The basis of an action for rescission is economic pre(udice done to third persons.
b. 'escission implies a contract which, even if initially valid, produces a lesion or pecuniary
damage to someone that (ustifies its invalidation for reasons of e)uity ;<u'man, 9ocaling E Co.
vs. 9onnevie:.
c. rescissible contract is not a void contract. It may convey title. It may not be attac!ed
collaterally nor raised or set up by mere motion.
d. n action for rescission may not be raised or set up in a summary proceeding through a motion,
but in an independent civil action and only after full/blown trial ;Air &rance vs. CA:.
e. 'escissible contracts cannot, however, be ratified.
f. rescinded contract of sale transfers ownership to the vendee from the execution of the
instrument of sale up to the time the sale is declared rescinded, provided there is valid delivery.
g. The land sold under a public instrument of sale is not considered delivered where the vendee has
failed to ta!e actual possession of land sold for the reason that the lessee thereof, who was given
the right of first refusal by the vendor, files an action for rescission of the sale and continues to
possess the property ;!"uatorial 7ealty >evelopment vs. Cayfair Theater, 6nc.:.
h. The rescission on account of breach of stipulations (rt. 66=6) is not predicated on in(ury to
economic interests of the party plaintiff but on the breach of faith by the defendant, that violates
the reciprocity of the parties.
i. 'escission by reason of lesion or economic pre(udice (rt. 68>D), the cause of action is
subordinated to the existence of that pre(udice, because it is the ration d*etre as well as the
measure of the right to rescind.
ART. 13)1
a. %ontracts entered into by guardians and representatives of absentees is rescissible.
b. %ontracts in fraud of creditors is rescissible.
c. The action to rescind a contract entered into to defraud creditors is called accion pauliana.
d. 'e)uisites for an accion pauliana to prosper,
6. the credit must be existing at the time of the fraudulent alienation, even if it is not yet
due0
7. at the time the action is brought, the credit must already be due.
2urther,
6. the plaintiff must not have no other legal means to obtain reparation for the damage done0
7. the thing which is the ob(ect of the contract has not yet legally come into the possession
of a third person who did not act in bad faith0
8. the rescission shall be allowed only to the extent necessary to cover the damage caused.
e. The term creditors includes a grantee of right of first refusal to buy a property. If the property is
sold to another person, the grantee who may impugn the sale because the sale defrauds him of his
right to ac)uire the property.
f. sale of the leased premises made in violation of a lessee*s right of first refusal may be
rescinded. 1owever, if the vendee did not act in bad faith, rescission is no longer legally possible
;<u'man, 9ocaling E Co. vs. 9onnevie:. The remedy for the aggrieved party is to sue for
damages the party who violated his right of first refusal ;7osencor >evelopment Corporation vs.
6n"uing:.
g. -ven if a mortgagee acted in bad faith in accepting the mortgage, but no damage was done to the
creditor of the mortgagor/ because at the time of the suit for rescission was filed, the mortgage
was already cancelled/ the plaintiff has no cause of action against the mortgagee0 hence, the
defendant is not liable for damages.
14
h. Eo right of action is given where no in(ury is sustained. wrongful violation of a legal right is
not a sufficient element of a cause of action unless it has resulted in an in(ury causing loss or
damages.
i. Fad faith alone, when not translated into in(urious action, is not punishable by law.
(. The sale of a property under litigation may be rescinded ;-antos vs. 6AC:.
!. %ontracts declared by law to be rescissible,
6. $ale of real estate by the unit where the area delivered is less that what has been agreed
upon0
7. $ale of real estate by lump sum where the are contained in the boundaries is more than
what is stipulated, and the vendor refuses to deliver the excess0
8. $ale of things with hidden defects0
9. $ale of animals with redhibitory defects.
ART. 13)3
a. 3ayment in state of insolvency is rescissible. (udicial declaration of insolvency is not
necessary.
ART. 13)3
a. The plaintiff for rescission must prove that he has no other legal means to obtain reparation
;,nion 6nsurance -ociety of Canton vs. CA:.
b. #hen a contract is void, the right to set/up its nullity or non/existence is available to third
persons whose interests are directly affected thereby ;Canila 9an*ing Corp. vs. -ilverio:.
c. The rule of rescission or subsidiarity does not apply where the contract sought to be rescinded is a
void contract, li!e an absolute simulated contract entered into by the debtor in order to place his
property beyond the reach of his creditors.
ART. 13)4
ART. 13)5
a. The rule on mutual restitution applies only to contracts executed by guardians and administrators.
b. #hen it is no longer possible to return the ob(ect of the contract, an indemnity for damages
operates restitution. The important consideration is that the indemnity for damages should restore
to the in(ured party what was lost ;Coastal .acific Trading, 6nc. vs. -outhern 7olling Cills:.
c. The rule on mutual restitution does not apply to cases of rescission by mutual consent. 1owever,
in the absence of such agreement, the rule applies ;A"uino vs. Tanedo:.
d. +ood faith on the part of the donee may not prevent rescission of a donation made by the donor in
fraud of his creditors.
ART. 13)6
a. %ourt approval cures a rescissible contract entered into by guardians and administrators over the
property of the ward or the absentee.
ART. 13)(
a. The effect of the presumptions is to shift the burden to the defendant to prove that the alienation
was not fraudulently made ;=im vs. CA:.
b. 2raud may be proved by the presumption stated in the article and in any manner recogni"ed by
law of evidence.
c. In order that a contract of sale entered into by a debtor may be rescinded as in fraud of creditors,
fraud must be proved by clear preponderance of evidence0 the sale cannot be considered in fraud
of creditors in the absence of proof that the vendor has no other property except that which was
sold ;9obis vs. .rov. -heriff of Camarines Borte:.
d. (udgment debtor who sells his property after the rendition of the (udgment is presumed to have
done so in fraud of his creditors and the contract may be rescinded ;Cabaliw vs. -adorra:.
15
e. The approval by the 3ublic $ervice %ommission of a fraudulent transfer of e)uipment and the
corresponding certificates of public convenience may be revo!ed ;!scoto vs. 2da. >e <ranada:.
f. 2raud is present when the debtor !nows that its actions would cause in(ury ;Coastal .acific 6nc.
vs. -outhern 7olling Cills:.
ART. 13))
a. If the thing sought to be recovered is lost due to any cause, the transferee who ac)uired it in
bad faith is liable to the creditor for damages.
b. If the 6
st
transferee acted in good faith, no rescissory action may be filed against the subse)uent
transferees, regardless whether or not they acted in good faith, because Eeither shall rescission
ta!e place when the thing in the possession of third persons who did not act in bad faith.
c. If the first transferee acted in bad faith, the list of defendants in the rescissory action that may be
filed excludes the transferee who acted in goof faith0 the transferee before him is the last final
defendant.
ART. 13)*
+', the prescriptive period of an action to claim rescission must be commenced four years
at the time the contract in )uestion is executed.
-, %ontracts entered into by the guardians and administrators, the period begins when the
ward reaches the age of ma(ority or when the absentee*s domicile is !nown.
a. The article applies to contracts w. express warranties in the absence of expressed period therein,
as distinguished from implied warranties ;2ollostas vs. CA:.
b. 3rescriptive period for other rescissible contracts,
6. for contracts of sale of real estate by the unit where the area delivered is less than what
has been agreed upon and by lump sum where the area contained in the boundaries is
more than what is stipulated and those of things with hidden defects/ ; months from the
date of delivery.
7. 2or contracts of sale of animals w. hidden defects/ 9D days from the date of delivery
ART. 13*0
a. voidable contract is valid until declared void by the courts. It may be cured by ratification.
ART. 13*1
a. In determining whether or not an action to annul a registered contract on the found of fraud has
already prescribed, time of discovery of fraud refers to the time the document is registered, not
to the time of actual discovery of the fraud ;Carantes vs. CA:.
ART. 13*3
a. 'atification cures a defective contract.
ART. 13*3
a. 'atification of a voidable contract may be express or implied.
b. There is ratification of the contract where, with the !nowledge of the true nature of the
transaction before him or w. means available to obtain the !nowledge, the person alleged to be
defrauded performs his part of the contract ;Tang Ag Chan vs. <on'ale':.
c. The utili"ation by the vendor of the proceeds of the sale is implied ratification ;.hil. &ree .ress,
6nc. vs. CA:.
ART. 13*4
a. 'atification cleanses the contract from all its defects0 ratification by the guardian extinguishes the
right of the minor to annul the contract himself upon reaching the age of ma(ority.
ART. 13*5
a. 3arties who have no right to annul a voidable contract,
16
6. parties whose consent was not vitiated0
7. the capacitated parties0
8. the parties who employed force, intimidation, undue influence, fraud.
Their conformity to any ratification is not necessary.
ART. 13*6
a. 'atification purges the contract of all defects to which it may have been sub(ect as from the
moment it was entered into. It results, therefore, that after a contract is validly ratified, no action
to annul the same can be maintained based upon defects relating to its original validity ;Tang Ah
Chan vs. <on'ale':.
b. Ance validly ratified, a contract is cleansed from the moment it was entered into. The retroactive
effect, however, shall not pre(udice the rights of third persons.
c. The validity of a sale of land to a buyer who acted in good faith shall not be affected by the
subse)uent ratification made by the seller of a prior sale ha had made over the same property
when he was still a minor.
d. perfectly valid sale en(oys a better protection than does a defective one.
ART. 13*(
a. person who is not a forced heir (e.g., a brother) of a deceased has no personality to file a suit
for annulment of an allegedly fraudulent sale entered into by the decease which transaction does
not confer any right nor impose any obligation upon him ;Armentia vs. .atriarca:.
b. non/compulsory heir who has already ac)uired a vested right in the property left by a
predecessor may assail the validity of the contract of the said property.
c. #hen a contract pre(udices the rights of a third person, he may exercise an action for nullity of
the contract id he is pre(udiced in his rights with respect to one of the contracting parties, and can
show detriment which would positively result to him from the contract in which he had no
intervention.
d. stranger to a contract cannot sue either or both of the contracting parties to annul and set aside
that contract, unless he is pre(udiced in his rights w. respect to one of them ;Calabanan vs. <an
Ching:.
ART. 13*)
a. The award by the appellate court of legal interest upon the purchase price to be returned to the
buyer is proper even if the decision of the trial court did not award interest, even if the buyer did
not appeal from said decision ;6nes vs. CA:.
ART. 13**
a. If the money paid to the minor in consideration of his property has not benefited him in any way,
he is not obliged to return it to the buyer. It is therefore, the duty of the buyer of some property to
determine whether the owner thereof is of age.
b. The minor loses his right to annul the contract id, upon reaching the age of ma(ority, he ratifies it
by disposing of what he has received under he contract or by retaining it for an unreasonable
length of time ;,y soo =im vs. Tan ,nchuan:.
ART. 1400
a. #here the mortgage is declared void for want of consideration, but the mortgagee/vendee has
already sold the mortgaged property to an innocent purchaser for value, the mortgagor has the
right to be paid by the mortgagee/vendee the value of the property and the fruits thereof, plus
interest of 67G per annum ;Traders 7oyal 9an* vs. CA:.
ART. 1401
a. If the thing id lost through fortuitous event, the action is not extinguished and an annulment suit
may still be pursued.
17
b. 4nder this article the only circumstances that extinguishes the action is the loss of the thing
through the fraud or fault of the person who has a right to institute the proceedings. In such a
case the defendant will pay the value of thing, but w.o, for want of basis, fruits and interests.
ART. 1403
a. fter the issuance of the decree of annulment, a reciprocal obligation is created between the
parties, and the loss of any of the things due shall be governed by the law on obligations.
ART. 1403
a. n unenforceable contract does not ta!e effect unless ratified. It has therefore the potential of
becoming a valid contract.
b. ny contract entered into for and in behalf of a deceased principal by the agent who has prior
!nowledge of the death of his principal is unenforceable ;7allos vs. &elix E <o Chan E-ons
7ealty Corp.:.
c. contract entered into in the name of another w.o being authori"ed by the latter, or who ha acted
beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the
person on whose behalf it has been executed, before it is revo!ed by the other contracting party.
d. n act done by the agent after the death of his principal is valid and effective if,
6. the agent acted w.o !nowledge of the death of the principal, and0
7. the third person who contracted w. the agent himself, acted in good faith.
e. The sale of the minor child*s property made by his natural guardian w.o court approval is
unenforceable. The property may be recovered by the minor w.o restitution ;9adillo vs. &errer:.
f. n agreement that that by its terms is not performed within a year from the ma!ing thereof,
6. n oral contract to sell and to buy a particular property (e.g. car), after five years hence is
unenforceable. If the agreed period is less than one year, the contract is enforceable.
g. %ontracts which by their terms are not to be performed within one year may be ta!en out of the
$tatute of 2rauds through performance by one party thereto. 2or this to operate, it must appear
that full performance has been made by one party within one year has been made by one party
within one year.
h. special promise to answer for the debt, default or miscarriage of another,
6. contract of guaranty is not a formal contract and shall be valid in whatever form it may
be, provided that it complies with the statute of frauds.
i. n agreement made in consideration of marriage, other than a mutual promise to marry,
6. marriage settlement0
7. donation by reason of marriage.
(. mutual promise to marry is not covered by the $tatute of 2rauds. 1ence, an oral mutual
promise to marry is enforceable as a basis for suit for damages. Fut an agreement which is not a
mutual promise to marry, even if made in consideration if the marriage, is covered ;Cabague
vs. Auxillo:.
!. Aral agreement to sell real property, or any interest therein, for any amount is unenforceable.
l. The promise made by the controlling stoc!holder to sell :DG of his shareholding in the company
to the person who financed the ac)uisition by him of the ma(ority shares is declared
unenforceable because the consideration involved more than 3:DD.DD.
m. 2or the lease agreement to be covered by the $tatute of 2rauds, the period of lease should be more
than one year.
n. representation as to the credit of a third person is unenforceable.
o. 3rinciples of $tatute of 2rauds,
6. $tatute of 2rauds is applicable only to executory contracts0 it does not apply to partially
or completely executed contracts ;Asia .roductions Co., 6nc. vs .ano:.
a. The defense of failure to comply w. statute of frauds in a suit for specific performance, in
the basis of perfected oral contract of sale over a parcel of land against the seller who
refuses to proceed w. the sale, is unavailing were the buyer has already paid a partial
payment to the seller*s agent ;2alen'euela vs. CA:.
18
b. The amount paid as part payment for a building under oral contract of sale may be
recovered if the buyer bac!s out from the transaction because the seller changes the term
of the sale. The $tatute of 2rauds does not apply.
c. #here the lessee, pursuant to an oral contract of lease, has already made improvements
of the leased premises, the lease contract is enforceable. The $tatute of frauds does not
apply ;.aterno vs. Faon 3an:.
d. To contracts over real property, where an oral contract of sale has been partially executed
by payment of the price, oral testimony is admissible to evidence the existence of
contract ;Almirol and Carino vs. Conserrat:.
7. written note or memorandum, embodying the essentials of the contract and signed by
the party charged, suffices to ma!e the verbal agreement enforceable, ta!ing it out from
the operation of the $tatute of 2rauds ;.aredes vs. !spino:.
a. 2or a note or memorandum to satisfy the $tatute of 2rauds, ?6@ it must be complete in
itself and cannot rest partially in writing and partly in parol0 ?7@ it must contain the
names of the parties, the terms and conditions of the contract and a description of the
property sufficient to render it capable for identification0 ?8@ it must contain the
essential elements of the contract expressed w. certainty that may be ascertained from
the note or memorandum itself or some other writing to which it refers or within
which its is connected, w.o resulting to parol evidence0 ?9@ to be binding in the
persons to be charged, such note or memorandum must be signed by the said party or
by his agent duly authori"ed in writing ;=iton)ua vs. &ernande':.
8. Anly contracts for the leasing for a longer period than one year for the sale of real
property or of an interest therein is covered by the $tatute of 2rauds. ll other contracts
affecting real property are not so covered ;@ernande' vs. CA:.
9. If the parties had agreed that the thing to be sold is to be paid on installment basis, the
note or memorandum relied upon should reflect such mode of payment in order to
remove the contract from the operative effects of $tatute of 2rauds ;3uvienco vs.
>acuycuy:.
:. n oral creating an easement of right of way is not covered by the $tatute of 2rauds since
it is not a sale of property or of an interest therein ;Gestern Cindanao =umber Co., 6nc.:.
;. Anly sale or lease of real property or an interest therein is covered by the $tatute of
2rauds. ny other transaction is not contemplated. Thus, an agreement to deliver land in
consideration of services rendered is not covered ;Cru' vs. F.C. Tua'on E Co., 6nc:.
<. right of first refusal is not covered by the $tatute of 2rauds ;7osencor >evelopment
Corp. vs. 6n"uing:.
p. If two parties were incapable of giving consent, the sale is unenforceable.
ART. 1404
ART. 1405
a. 4nenforceable contracts are ratified by the failure to ob(ect to the presentation of oral evidence to
prove the same ;7odrigue' vs. Ca:.
b. 4nenforceable contracts are ratified by the acceptance of benefits under them.
c. The sale of a parcel of land made by owner*s attorney/in/fact beyond the latter*s authority is
deemed ratified by the acceptance by the owner of part of the purchase price ;2alde' vs. CA:.
19
ART. 1406
a. If a contract otherwise unenforceable is enforceable because of the presence of some note or
memorandum or because it has been ratified, the buyer may file a suit for specific performance to
compel the seller to execute the document necessary for registration.
ART. 140(
a. If the parent or guardian of one of the incapacitated parties ratifies it, the contract is converted
into a voidable one. 1ence, it is valid and enforceable until annulled.
ART. 140)
a. The defense of unenforceability of contract is personal to the aggrieved party. It cannot be
invo!ed by a third person.
ART. 140*
a. n inexistent contracts is one that lac!s any if the essential elements. It is not a contract at all.
b. void contract is one where the essential elements are present, but the cause or ob(ect or purpose
is contrary to low, good customs, public order or public policy, or is prohibited by the law.
c. Hoid contracts may produce effects, li!e parties being sub(ect to criminal prosecution, or the
innocent party being entitled to the return of what he has given w.o any obligation on his part to
comply w. his promise.
d. stipulation in a charter party exempting the ship owner from liability for the negligence of its
agent is not contrary to law, morals, good customs or public policy ;2alen'uela @ardwood vs.
CA:.
e. Those which are absolutely simulated or fictitious.
f. Those whose cause or ob(ect did not exist at the time of the transaction.
g. #here the lease has already expired and the lessee subleases the leased property, the sublease
contract is void by reason of non/existence of ob(ect.
h. Those whose ob(ect is outside the commerce of man0 those which contemplate an impossible
service0
i. Those where the intention of the parties relative to the principal ob(ect of the contract cannot be
ascertained.
(. Those expressly prohibited or declared void by law,
6. %ontracts that violate the law prohibiting any person operating a public utility from
contributing or ma!ing expenditure in connection w. any election campaign are null and
void ;@alili vs. CA:.
7. ny sale, transfer or alienation of homestead land within fiver years from the issuance of
the patent is null and void ;7epublic vs. CA:.
8. lawyer is prohibited from ac)uiring, either by purchase or assignment, the property or
rights involved which are the ob(ects of the litigation in which they, by virtue of their
profession, intervene. The prohibition on purchase is all embracing to include not only
sales to private individuals but also public or (udicial sales ;&ornilda vs. CA:.
9. conveyance of real property by a member of a non/%hristian tribe w.o the approval of
the governor of the province is null and void ;Cangayao vs. =asud:.
:. Hoid contract not mentioned in the article, second sale over an immovable property
entered into by the buyer in bad faith is null and void ;Caram vs. =aureta:.
!. 2undamental characteristics of void contracts,
a. +', they produce no legal effects whatsoever0
b. They are not susceptible of ratification0
c. The right to set up defense of inexistence or absolute nullity cannot be waived or
renounced0
d. The action or defense for the declaration of their inexistence or absolute nullity is
imprescriptible0
20
e. The inexistence or absolute nullity of a contract cannot be invo!ed by a person
whose interests are not directly affected.
IThe nullity of these contracts is definite and cannot be cured by ratification.I
ART. 1410
a. right of action may be lost through laches.
b. -lements of laches,
6. conduct on the part of the defendant, or of one under which he claims, giving rise to the
situation of which complaint is made and for which the complaint see!s remedy0
7. delay in asserting the complainant*s rights, the complaint having had !nowledge of notice
of the defendant*s conduct and having been afforded an opportunity to institute a suit0
8. lac! of !nowledge or notice on the part of the defendant that the complainant would
assert the right on which he base his suit0
9. in(ury or pre(udice to the defendant in the vent the relief is accorded to the complainant,
or the suit is not held to be barred ;D.!. =otho, 6nc. vs. 6ce and Cold -torage 6ndustries:.
c. bsent of any one of its elements, the defense of laches is futile.
ART. 1411
a. #hen the nullity proceeds from the illegality of the cause or ob(ect of the contract, and the act
constitutes a criminal offense, both parties being in pari delicto they shall have no action against
each other, and the ob(ect of contract will be confiscated in favor of the government ;1uano vs.
CA:.
b. contract of deposit over foreign exchange is null and void as it violates the %entral Fan!
%ircular Eo. 7D. 1ence, a suit for recovery of the foreign exchange deposited is futile.
c. #here the signature of the deceased spouse of the donor is forged in a deed of donation executed
to evade the payment of publication fees and inheritance taxes, the donor is not allowed to
recover the donated properties from the donee as they are in pari delicto in a transaction w. an
illegal cause ;7amire' vs. 7amire':.
ART. 1413
a. 3arties to a contract w. an illegal cause which does not constitute criminal offense and are both in
fault do not have any right of action against each other ;=ita !nterprise 6nc. vs. 6AC:.
b. The one at fault cannot recover0 the one not at fault can w.o obligation on his part to comply w.
his promise.
c. The one not at fault may retain what has been given him under the void contract.
d. In pari delicto doctrine does not apply to inexistent contracts ;Codina vs. CA:.
e. The pari delicto rule does not apply to contracts the ob(ect and causes which are licit ;7oble'a vs.
CA:.
ART. 1413
a. n interest rate of :.:G, per month, although not usurious, is ini)uitous or unconscionable and,
hence, contrary to morals and renders the stipulation void, and reduced the interest rate to 67G
per annum ;Cedel vs. CA:.
ART. 1414
a. Ane who repudiates a contract which stipulates for the termination of marital relations may get
bac! what he has given pursuant to a void contract ;>e =eon vs. CA:.
ART. 1415
ART. 1416
a. %ontracts illegal per se0 contracts contrary to public policy not illegal per se.
b. The (uridical concept of what is illegal per se cannot be necessarily e)uated w. what is contrary to
public policy in all instances ;<uiang vs. ?intanar:.
21
c. The in pari delicto rule does not apply in case of illegal conveyance of homestead lands ;Angeles
vs. CA:.
d. The in pari delicto rule applies only where the fault on both sides is, more or less, e)uivalent It
does not apply where one party is literate or intelligent and the other is not ;Cangayao vs.
=asud:.
ART. 141(
ART. 141)
ART. 141*
a. The ff. are allowed to recover the things they have given or been deprived of under a void
contract,
6. the innocent party0
7. the debtor who pays usurious interest0
8. the party repudiating the void contract before the illegal purpose is accomplished or
before damage is caused to a third person and if public interest is subserved by allowing
recovery0
9. the incapacitated party if the interest of (ustice so demands0
:. the party for whose protection the prohibition by law is intended if the agreement is not
illegal per se but merely prohibited and if public policy would be enhanced by permitting
recovery0 and
;. the party for whose benefit the law has been intended such as the price in ceiling laws.
ART. 1430
a. The loan and mortgage contracts remain valid despite nullity on stipulation of interest ;Carpo vs.
Chua:.
b. collateral usufruct agreement in a void mortgage contract may stand as a valid contract
;9autista Carcos:.
ART. 1431
a. n absolutely simulated contract may be attac!ed by any creditor, including one subse)uent to
the contract ;Canila 9an*ing Corp.:.
b. The mere fact that a contract ma!es it unprofitable for one to operate his business does not clothe
him with the right to )uestion the validity of the contract ;1longapo !lectric =ight E .ower
Corp. vs. Bational .ower Corporation:.
c. %hildren of parents, who are still living, has no legal standing to )uestion the validity of contracts
entered into by them ;9ueneventura vs. CA:.
d. pasture lessee whose right is adversely affected in that portion of a pasture land is included in
the area covered by the certificate of title issued in the name of another has the personality to
)uestion the validity of the title ;Tottoc vs. 6AC:.
ART. 1433
ART. 1433
a. natural obligation, not being based on positive law, but upon natural or conscience law, is not
enforceable. Fut once the obligation is performed voluntarily by the obligor, the obligee may
retain what has been delivered or rendered by reason thereof.
b. Holuntary performance is an essential element of natural obligation.
ART. 1434
ART. 1435
a. The natural obligation of one, whose civil obligation to some other person has already been
extinguished by prescription, to reimburse any third person who pays the extinguished debt w.o
the !nowledge or against the will of the obligor.
22
ART. 1436
ART. 143(
ART. 143)
ART. 143*
ART. 1430
ART. 1431 (-stoppel5
ART. 1433
ART. 1433
a. -lements of estoppel in pais (e)uitable estoppel) related to the party to be estopped,
6. conduct amounting to falre representation or concealment of material fact or at least
calculated to convey the impression that the facts are otherwise, than, and inconsistent
with, those which the party subse)uently asserts0
7. intent, or at least expectation that his conduct shall be acted upon by, or at least influence,
the other party0
8. !nowledge, actual or constructive, of the real facts.
b. s related to the party claiming estoppel,
6. lac! of !nowledge and of the means of !nowledge of the truth as the facts in )uestions0
7. reliance upon in good faith, upon the conduct of the party sought to be estopped0
8. action or inaction based thereon of such character as to change the position or status of
the party claiming the estoppel, to his in(ury, detriment or pre(udice ;?alalo vs. =u':.
c. 'epresentation based on honest mista!e does not result in estoppel ;Boda vs. ---:.
d. If the conduct, act or misrepresentation of the party sought to be estopped is due to ignorance
founded on innocent mista!e, estoppel may not arise ;7amiro vs. <rano:.
e. -stoppel by silence, arises where a person, who by force of circumstances is under a duty to
another to spea!, refrains from doing so and hereby leads the other to believe in the existence of a
state of facts in reliance on which he acts to his pre(udice. $ilence may support estoppel whether
the failure to spea! is intentional or negligent.
f. -stoppel by deed is a bar which preclude a party to a deed and his privies from asserting as
against the other and his privies any right of title on derogation of the deed, or from denying the
truth of any material fact asserted in it ;7Amnani vs. CA:.
g. -stoppel by record bars a second action between the same parties on an issue of ownership of
property and its incidents thus ad(udicated cannot be relitigated in a second action between the
same parties.
ART. 1434
a. contract of sale over a portion of land which is defective for lac! of authority on the part of the
seller thereof is validated upon the seller becoming the owner of the whole property ;!sto"ue vs.
.a)imula:.
b. In a sale of land before the issuance of sales patent, it is error for the court, w.o passing upon the
validity of the sale, to declare the plaintiff the owner of the land upon the ground that the plaintiff
could not have validly disposed of the said land at the time when the deed of sale was allegedly
executed, since the land still then formed part of the public domain ;Colina vs. CA:.
ART. 1435
a. , as agent of F under a special power of attorney, sells to % a car purportedly owned by F.
later is not allowed to sue % for the recovery of the car even if he is the true owner of the car. is
now estopped from denying F*s ownership over the car.
ART. 1436
a. %ommondatum and deposit are contracts of bailment.
b. The relation of lessor and lessee does not depend on the former*s title but on the agreement
between the parties, followed by the possession of the premises by the lessee under such
23
agreement. s long as the latter remains in undistributed possession, it is immaterial whether the
lessor has a valid title/ or any title at all/ at the time the relationship was entered into ;Tamio vs.
Ticson:.
c. -stoppel applies even if lessee does not claim title in himself.
ART. 143(
a. -stoppel can only be invo!ed between the person ma!ing the misrepresentation and the person to
whom it was addressed. It is essential that the latter shall have relied upon misrepresentation and
had been influenced and misled thereby ;Cendo'a vs. 7eyes:.
b. The principle of estoppel rests on the rule that whenever a party has, by his declaration, act or
omission, intentionally and deliberately led the other to believe a particular thing true and to act,
upon such belief he cannot, in any litigation arising out from such declaration, act or omission, be
permitted to falsify it ;-otto vs. Teves:.
ART. 143)
a. delivers to F his watch so that the latter may sell it. F, instead of selling the watch, pledges it to
% to secure a loan and turns over the loan proceeds to . is now not allowed to sue % to annul
the pledge on the ground that the pledgor is not the owner of the thing pledged.
b. In the rule of e)uitable estoppel, where one of two innocent persons must suffer a loss he who by
his conduct made the loss possible must bear it.
ART. 143*
a. 1e who against whom estoppel cannot be invo!ed has legal standing to )uestion the application
of the estoppel ;Castrillo vs. CA:.
b. -stoppel does not operate upon the $tate or its instrumentalities.
c. municipal corporation which sells a public pla"a in the mista!en belief that the property is
patrimonial is not estopped from )uestioning the validity of the sale.
ART 1440 (TR0STS5
a. Trust is a fiduciary relationship w. respect to property which involves the existence of e)uitable
duties imposed upon the holder of the title to the property to deal w. it for the benefit of another.
It can be either,
6. -xpress trust is created by the intention of the trustor or of the parties.
7. Implied trust comes into being by operation of law. Ic can either be,
a. %onstructive trust which is not created by words either expresly or impliedly, but by
construction of e)uity in order to satisfy the demands of (ustice.
b. 'esulting trust is a trust raised by implication of the law and presumed always to
have been contemplated by the parties, the intention of which is found in the nature
of the transaction, but not expressed in the deed or instrument of conveyance.
ART. 1441
ART. 1443
ART. 1443 (-8.R-SS TR0ST5
a. n express trust need not to be in writing to be valid.
b. The article refers merely to enforceability, not validity of a contract between the parties.
c. n action to compel the trustee to convey the property registered in his name for the benefit of
the cestui for trust does not prescribe. It is only when the trustee repudiates the trust that the
period of prescription may run ;!nri"ue' vs. CA:.
d. Aral testimony is allowed to prove that a trust exists. #hat is crucial is the intention to create a
trust.
e. The ob(ection to the oral character of a trust may be overcome or removed where there has been
partial performance of the terms of the trust as to raise an e)uity in the promise.
24
f. #hen a verbal contract has been contemplated, executed or partially consummated, its
enforceability will not be barred by the $tatute of 2rauds, which applies only to executory
agreement ;7ingor vs. 7ingor:.
ART. 1444
a. Eo particular words are re)uired for the creation of an express trust, it being sufficient that a trust
is clearly intended0 a statement in a tax declaration designating one as administrator of the
property is sufficient ;>ela Cru' vs. CA:.
b. n express trust is created by the direct and positive acts of the parties, by some writing or deed
or will by words evidencing an intention to create a trust ;-otto vs. Teves:.
c. #hen the testatrix instituted her husband as the sole and universal heir to the properties but w.
the obligation to deliver the, in e)ual share to her nieces and nephews, an express trust is created
in his favor.
ART. 1445
a. The refusal of the named trustee to accept the designation does not automatically extinguish the
trust, unless the instrument creating the trust stipulates, or the nature of the trust is such, that the
person named therein and no other act as trustee. In the absence of such exception, the court will
appoint a new trustee.
ART. 1446
a. cceptance by the beneficiary may be express, implied, or presumed.
ART. 144( (I,./I-9 TR0STS5
a. To determine whether implied trust exists is to decide whether in the numerous and varying fact
situations presented to the court there is a wrongful holding fact situations presented to the courts
there is a wrongful holding of property and hence a threatened un(ust enrichment of the
defendant.
b. %onstructive trusts are fictitious of e)uity which are bound by no unyielding formula when they
are used by courts as devices to remedy any situation in which the holder of the legal title may
not in good conscience retain the beneficial interest ;Coreno vs. Cactan-Cebu 6nternational
Airport Authority:.
ART. 144)
a. Implied trust in favor of payor of property0 Implied tries arises where the price for a property is
paid by one who intends to have the beneficial interest of the property but allows the property to
be registered in the name of another ;@uang vs. CA:.
b. Eo implied trust is created out of a purchase made in violation of law ;1ng Ching .o:.
ART. 144*
a. #here a father intends to donate unregistered land to two of his children but in the deed of
donation only one of them is named as a donee so that the titling of the land in the donee*s name
may be facilitated, an implied trust is created in favor of the other child ;Ada'a vs. CA:.
ART. 1450
a. Implied trust in favor of borrower0 #here a person, using his own funds, purchases a certain
piece of land in behalf of another who, in the meantime, may not have sufficient funds to
purchase the land, an implied trust is created in favor of the person in whose favor the purchase is
made ;Ba*pil vs. 6AC:.
ART. 1451
25
a. Implied trust in favor of co/heir.
b. #here the mortgagor of the foreclosed property is the owner of a mere pro indiviso share thereof,
the remainder being owned by his co/heirs, the buyer of the auctioned property becomes owner
only of the share of the mortgagor. 1e holds the remaining in trust of the other heirs ;Bufable vs.
Bufable:.
ART. 1453
a. Implied trust in favor of co/owner.
b. The fact of the (oint purchase of the property by the co/owners must be proved.
c. +eneral 3ower of dministration signed by the deceased registered owner whereby he
ac!nowledged that the trust claimant is part owner of the property is not enough ;&ranco vs. CA:.
d. The prescription period for an action to claim an implied trust in favor of a co/owner begins only
from the time the possession of the trustee becomes adverse ;Ceni'a vs. CA:.
e. dverse possession re)uires the ff. concurrence,
6. that the trustee has performed une)uivocal acts of repudiation amounting to the ouster of
the cestui )ue trust0
7. that such positive acts of repudiation have been made !nown to the cestui )ue trust0
8. that the evidence thereon should be clear and conclusive.
ART. 1453
a. Implied trust in favor of promisee.
b. #here a deed of sale is executed in favor of one because of the hereditary claims over the
property demanded upon the vendor by his co/heirs and upon the vendee*s promise that he will
convey the property bac! to the vendor when the plaintiffs* claims are finally settled, an implied
trust is created in favor of the vendor/promisee ;Carandang vs. 2enturan'a:.
ART. 1454
a. Implied trust in favor of the vendor/borrower.
b. #here the purpose for which property is expropriated property is ended or abandoned or if the
property is to be used for purposes other than what was originally intended, a constructive arises
creating on the part of the government the obligation to reconvey the property to its owner.
ART. 1455
a. Implied trust in favor of cestui )ue trust, ward, etc.
ART. 1456
a. Implied trust in favor of the person deprived of property through mista!e or fraud.
b. The mista!e may be committed by the grantor or the grantee0 the right to enforce the implied trust
may be lost by laches ;.B9 vs. CA:.
c. #hen a party uses fraud or concealment to obtain a certificate of title of property, a constructive
trust is created in favor of the defrauded party ;Crisostomo vs. <arcia:.
d. n action for reconveyance based on implied or constructive trust prescribes in 6D years from the
alleged fraudulent registration or date of issuance of the certificate of title over the property.
e. #here land is sold twice, the second buyer in bad faith holds the property in trust for the first
buyer who has ac)uired first the title over it ;Alfredo vs. 9orras:.
f. The fraud or mista!e may be committed by a third person ;-umaong vs. 7TC Fudge, 9ranch
HHH6:.
ART. 145(
a. Aral evidence must be trustworthy0 rule applies whether or not property held in trust is real or
personal.
26

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