JURIS NOTES

Civil Law
POINTERS IN OBLIGATION AND CONTRACTS

A. OBLIGATIONS
OBLIGATION is a juridical necessity to give, to do or not to do.
ESSENTIAL REQUISITES:
1. ACTIVE SUBJECT (creditor or obligee) the person who may demand the
fulfillment of the prestation;
2. PASSIVE SUBJECT (debtor or obligor) the person from whom the
prestation may be demanded;
3. OBJECT the conduct which must be observed by the debtor, otherwise
called prestation. This prestation may consist in giving, doing or not
doing.
4. JURIDICAL OR LEGAL TIE (vinculum juris) the tie by reason of which
the debtor is bound to the creditor and obliged to satisfy the prestation.
CIVIL OBLIGATIONS those which give a right of action to compel their
performance. Also called PERFECT OBLIGATION.
Where parties have entered in to a well-defined contractual relationship,
it is imperative that they should honor and adhere to their rights and
obligations thereunder- obligations arising from contract have the force of law
between the contracting parties and should be complied with in good faith.
(Premiere Development Bank vs. Court of Appeals)
SOURCES OF OBLIGATION ( Article 1157, CC ) Obligations arise from:
1. LAW those which are expressly determined in the Civil Code and in
special laws and are demandable only when so provided and are never
presumed;
2. CONTRACTS those which arise from the stipulations agreed upon by
the parties and which are enforceable provided they do not contravene
any law, morals, good customs, public order or public policy;
3. QUASI- CONTRACTS those that arise from lawful, voluntary and
unilateral acts and which are enforceable to the end that no one shall be
unjustly enriched or benefited at the expense of another;
1. Negotiorum Gestio - is the voluntary management of the property
or affairs of another without the knowledge or consent of the latter.

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2. Solutio indebiti is the juridical relation which is created when
something is received when there is no right to demand it and it
was unduly delivered through mistake.
4. ACTS OR OMISSIONS PUNISHED BY LAW those that arise from the
civil liability which is the consequence of a criminal offense; and
5. QUASI- DELICTS those that arise from damage caused to another
through an act or omission there being fault or negligence but no preexisting contractual relation exists between the parties.

NATURE AND EFFECT OF OBLIGATIONS

REAL OBLIGATIONS these are obligations to give or that which has for
its object the delivery of a thing which the obligor must deliver to the oblige
because of whatever right the latter might have acquired over the same.
PERSONAL OBLIGATIONS these are obligations to do or not to do.
OBLIGATIONS TO DO these obligations which have for their object one
or several acts of the debtor distinct from the delivery of a thing.
OBLIGATIONS NOT TO DO those obligations whose object is a negative
act, or the abstention of the debtor from whatever act which otherwise he could
have performed.
SPECIFIC OBLIGATION that which has for its object a specie or a
determinate thing, that is to say, a thing determined individually in such a
manner, that it cannot be substituted with another or those obligations
determined by individuality of the thing or service.
GENERIC OBLIGATION that which has for its object a genus, incertum
corpus, that is to say, an object that is determined only by the class to which it
pertains.
ACCESSIONS those things which are incorporated to the principal either
naturally or artificially.
ACCESSORIES those things added to the principal for its completeness, use,
perfection or embellishment.
MORA (DELAY) the non-compliance of an obligation with respect to time.

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KINDS OF MORA:
1. MORA SOLVENDI the delay of the obligor to comply with the obligation.
a. MORA SOLVENDI EX RE the delay of the obligor in obligations to
give.
b. MORA SOLVENDI EX PERSONA the delay of the obligor in
obligations to do.
2. MORA ACCIPENDI the delay of the obligee to accept performance of the
obligation.
3. COMPENSATIO MORAE the delay in reciprocal obligations. i.e. delay of
debtor cancels delay of creditor and vice-versa.
KINDS OF DOLO (FRAUD):
1. DOLO IN THE PERFORMANCE OF AN OBLIGATION the deliberate and
intentional purpose to evade the normal compliance of an obligation.
2. DOLO IN THE CELEBRATION OF A CONTRACT (DECEIT) this exists
when through insidious words or machinations of one of the contracting
parties, the other is induced to enter into a contract which, without
them, he would not have agreed to.
Fraud is regarded as extrinsic where it prevents a party from having a trial
or from presenting his entire case to the court, or where it operates upon the
matters pertaining not to the judgment itself but to the matter in which it is
procured. (Teodoro vs. Court of Appeals, 388 SCRA 527, September 10,
2002)
Extrinsic fraud shall not be a valid ground if it was availed of, or could have
been availed of, in a motion for a new trial or petition for relief. (Supra)
Fraud refers to all kinds deception, whether through insidious machination,
manipulation, concealment or misrepresentation to lead another party into
error.
The principle that a party is presumed to know the import on as document
to which affixes his signature is modified by Art. 1332 of the Civil Code.
Burden rests upon the party who seeks to enforce the contract to show that the
other party fully understood the contents of the document. (Mayor vs. Belen,
430 SCRA 561)
CULPA (NEGLIGENCE) the omission of that diligence which is required by
the nature of the obligation and corresponds with the circumstances of the
persons, of the time and of the place.

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DEGREE OF DILIGENCE REQUIRED If the law or contract does not state
the diligence which is to be observed in the performance, that which is
expected of a good father of a family shall be required.
CULPA AND DOLO DISTINGUISHED:
1. In dolo there is intent to cause damage while in culpa there is no intent,
there is only lack of diligence, foresight or there is carelessness;
2. In dolo the liability of the guilty party cannot be waived in advance while
in culpa it can be waived unless the waiver is contrary to public policy;
3. Dolo must be proved, it is not presumed while culpa is presumed from
the breach of a contractual obligation; and
4. In dolo there is liability for damages which are reasonably attributable to
the breach while in culpa the damages must be the natural and probable
consequence of the breach and must have been foreseen or could have
been foreseen at the time the obligation was constituted.
KINDS OF CULPA:

1. CULPA CONTRACTUAL liability arising from the breach of a preexisting contractual relation which is due to negligence.
2. CULPA AQUILIANA liability arising from fault or negligence causing
damage to another there being no pre-existing contractual relation
between the parties.
FORCE MAJEURE OR FORTUITOUS EVENT events which could not be
foreseen or which though foreseen are inevitable.
FORCE MAJEURE (ACT OF GOD) AND FORTUITOUS EVENT
DISTINGUISHED Force majeure are those events which are totally
independent of human will and are inevitable while Fortuitous event is an event
independent of the will of the obligor but not of other human wills. In our law,
both are synonymous.
REQUISITES OF FORTUITOUS EVENTS:
1. the event must be independent of the human will or at least of the
debtors will;
2. the event must be unforeseen or if foreseen, is inevitable;
3. the event must prevent the debtor from normally complying with the
obligation;
4. the debtor must be free from participation in the aggravation of the
injury resulting to the creditor, i.e. no concurrent negligence.

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RULE AS TO LIABILITY IN CASE OF FORTUITOUS EVENT
A person is not, as a rule responsible for loss or damage caused to
another resulting from fortuitous event. In other words, his obligation is
extinguished. The exceptions are enumerated below:
1.When expressly specified by law;
a. The debtor is guilty of fraud, negligence, or delay, or contravention
of the tenor of obligation.
b. The debtor has promised to deliver the same thing or two or more
persons who do not have the same interest.
c. The obligation to deliver specific thing arises from a crime.
d. The thing to be delivered is generic.
2.When declared by stipulation;
3.When the nature of the obligation requires the assumption risk.
KINDS OF FORTUITOUS EVENTS:
1. ORDINARY FORTUITOUS EVENTS are those which are common and
which the parties could reasonably foresee;
2.EXTRAORDINARY FORTUITOUS EVENTS these are fire, war,
pestilence, unusual flood, locusts, earthquake, or others which are uncommon,
and which the contracting parties could not have reasonably foreseen.
Article 1174 exempts an obligor from liability not only to events that are
unforeseeable, but also to those which are foreseeable, but inevitable.
(Philippine Communications Satellite Corporation vs. Globe Telecom, Inc.,
429 SCRA 153)

PURE AND CONDITIONAL OBLIGATIONS

PURE OBLIGATION is that in which no condition is put nor a day fixed for its
compliance or that which is not subject to a condition or a period and which
is demandable at once.
CONDITIONAL OBLIGATION those which efficacy depends on the fulfillment
or non-fulfillment of a future and uncertain event.
CONDITION a future and uncertain event upon the happening of which
depends the existence or extinguishment of an obligation (or right) subject to it
depends.

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TWO PRINCIPAL KINDS OF CONDITION:
1. Suspensive
Condition
(condition
precedent
or condition
antecedent) or one the fulfillment of which will give rise to an
obligation.
2. Resolutory Condition (condition subsequent) or one the fulfillment
of which will extinguish an obligation already existing.
DISTINCTION BETWEEN SUSPENSIVE AND RESOLUTORY CONDITIONS:
1. If the condition is fulfilled, the obligation arises, while if it is the
resolutory condition that is fulfilled the obligation is extinguished.
2. If the first does not take place, the tie of the law (juridical or legal tie)
does not appear, while if it is the other, the tie of the law is consolidated.
3. Until the first takes place, the existence of the obligation is a mere
hope, while in the second, its effects flow, but over it hovers the possibility of
termination.
CASUAL CONDITION If the suspensive condition depends upon chance
or upon the will of a third person, the obligation subject to it is valid.
MIXED CONDITION The obligation is valid if the suspensive condition
depends partly upon chance and partly upon the will of a third person.
POSITIVE CONDITION The condition that some event happen at a
determinate time shall extinguish the obligation as soon as the time expires or
if it has become indubitable that the event will not take place.
NEGATIVE CONDITION - The condition that some event will not happen
a determine time shall render the obligation effective from the moment the time
indicated has elapsed, or if it has become evident that the event cannot occur.
RECIPROCAL (BILATERAL) OBLIGATION it is that where each of the
parties is a promissee of a prestation and promises another in return as a
counterpart or equivalent of the other.
REQUISITES:
1.
that both obligations arise from the same source;
2.
that each is designed to be the counterpart or equivalent of
the other; and
3.
that the performance of one is conditioned and dependent
upon the performance of the other.
RESOLUTION IN RECIPROCAL OBLIGATIONS AND RESCISSION ON THE
GROUND OF FRAUD DISTINGUISHED:

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1. Resolution can only be availed of by a party to the obligation while
rescission may be availed of by a third person (creditor);
2. Resolution can be obtained only on the ground of non-performance by
the other party while rescission is based on fraud, lesion, etc.;
3. Resolution may be refused by the court on valid grounds while rescission
may not be refused by the courts if all requisites are present;
4. Resolution is a primary remedy while rescission is subsidiarily available
only when there is no other remedy; and
5. Resolution is based on mutuality of the parties while rescission is based
on prejudice or damage suffered.
OBLIGATIONS WITH A PERIOD
PERIOD it consists in a space in time which has an influence on
obligations as a result of a juridical act and either suspends their
demandableness or produces their extinguishment.
PERIOD AND CONDITION DISTINGUISHED:
1. As to fulfillment A period is a certain event which must happen sooner
or later at a date known beforehand, or at a time which cannot be
determined, while a condition is an uncertain event.
2. As to time A period refers only to the future, while a condition may refer
also to a past event unknown to the parties.
3. As to effect, when left to debtors will A period which depends upon the
will of the debtor empowers the court to fix the duration thereof (Art.
1197, par. 2.), while a condition which depends upon the sole will of the
debtor invalidates the obligation (Art. 1182)
4. As to retroactivity of effects Unless there is an agreement to the
contrary, the arrival of a period does not have any retroactive effect.
WHEN OBLIGATION CAN BE DEMANDED BEFORE LAPSE OF PERIOD
The general rule is that the obligation is not demandable before the lapse
of the period. However, in any of the cases mentioned in article 1198, the
debtor shall lose every right to make use of the period, that is, the period is
disregarded and the obligation becomes pure and, therefore, immediately
demandable.
The exception is based on the fact that the debtor might not be able to
comply with his obligation
1.When debtor, becomes insolvent;
2.When debtor does no furnish guaranties or securities promised;
3.When guaranties or securities given have been impaired or have
disappeared;

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4.When debtor violates undertaking;
5.When debtor attempts to abscond;
PRESUMPTION AS TO BENEFIT OF PERIOD established for the benefit
of both debtor and obligor unless otherwise provided.
Obligations with a term are demandable only when the day fixed for their
performance arrives.
The stipulation that in the event of a fortuitous event or force majeure
the contract shall be deemed suspended during the said period does not mean
that the happening of any of those events stops the running of the period of the
contract has been agreed upon to run. It only relieves the parties from the
fulfillment of their respective obligations during the term.
ALTERNATIVE OBLIGATIONS
FACULTATIVE OBLIGATION is that where only one prestation has been
agreed upon, but the obligor may render another in substitution.
ALTERNATIVE OBLIGATIONS those that require a debtor to completely
perform only one of several obligations provided and are extinguished by the
performance of anyone of them.
The characteristic of alternative obligations is that, several objects being
due, the fulfillment of one is sufficient, determined by the choice of the debtor
who generally has the right of election. On the other hand, in facultative
obligations, only one thing is due, but the debtor has reserved the right to
substitute it with another. As a result, the loss of one of the things due affects
the obligations in alternative obligations; but in facultative obligations, the loss
of that which may be given as substitute does not affect the obligation. In
alternative obligations, the election may be granted to the creditor; in
facultative, never. The loss of one of the things in alternative obligations does
not extinguish the obligation; in facultative, the loss of that which is due as the
object of the obligation, will extinguish such obligations.
In alternative obligations, the right of choice, as a rule belongs to the
debtor. Nevertheless, the debtor may expressly give the right of choice to the
creditor. In such case, before the creditor makes the selection, the debtor
cannot incur delay.
RULES IN CASE OF LOSS BEFORE CREDITOR HAS MADE HIS CHOICE
1. When a thing is lost through a fortuitous event
The creditor can choose from among the remainder of
that which remains.
2. When a thing is lost through debtors fault

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The creditor may choose from the remaining items, with a
right to damages or the price of the thing, which is lost
with a right to damages.
3. When all the things are lost through debtors fault:
Creditor may demand of the price of any one of them with
a right to damages
4. When all the things are lost through fortuitous event
Art. 1174 applies

JOINT AND SOLIDARY OBLIGATIONS

SOLIDARY (JOINT AND SEVERAL) OBLIGATIONS those in which
concur several creditors or several debtors or several creditors and several
debtors, and where each creditor has the right to demand and each debtor is
bound to perform, in its entirety, the prestation constituting the object of the
obligation.
WORDS USED TO INDICATE JOINT LIABILITY Other words used for
joint obligations are; mancomunada; mancomunadamente; pro rata:
proportionately; we promise to pay signed by two or more persons. (Jaucian
vs. Querol, 38 Phil. 707; Parot vs. Gemora, 7 Phil. 94)
WHEN OBLIGATION SOLIDARY
There is solidary liability only when:
1. The obligation expressly so states.
2. The law requires solidarity.
3. The nature of the obligation requires solidarity.
KINDS OF SOLIDARITY
1. Passive solidarity Solidarity on the part of the debtors. where any
one of them can be made liable for the fulfillment of the entire obligation.
It is in the nature of mutual guaranty.
3.
Mixed solidarity Solidarity on the part of the debtors and
creditors, where each one of the debtors is liable to render, and each one
of the creditors has a right to demand, entire compliance with the
obligation.

WORDS USED TO INDICATED SOLIDARY LIABILITY examples of words used

to indicated solidarity are: joint and/or severally; solidaria; in solidum; together

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and/or separately; individually and/or collectively; juntos o separadamnetep; I
promise to pay signed by two or more persons.
REQUISITES OF SOLIDARY (JOINT AND SEVERAL) OBLIGATIONS
1. Plurality of subjects;
2. unity of prestation without determination of shares in the demandability
or fulfillment; and
3. the existence between the debtors by virtue of which each one of them,
as against the others, is only a creditor or debtor of a part or share.
PRESUMPTION: unless the obligation expressly so states or when the law or
the nature of the obligation requires solidarity, the obligation is presumed
mancomunada (joint).
SOLIDARITY NOT PRESUMED
The presumption where there are two or more persons in the same
obligation is that it is joint.
The reason is that solidarity obligations are very burdensome for they
create unusual rights and liabilities. Solidarity between creditors increases
their responsibility while solidarity between creditors increases the right of
each creditors.
MANCOMUNADA (JOINT) OBLIGATIONS those where although there
concur two or more creditors or two or more debtors in one and the same
obligation, there is no right on the part of each of the former to demand nor a
duty on the part of each of the latter to render entire compliance with the
prestation.
REQUISITES OF MANCOMUNADA (JOINT) OBLIGATIONS
1. Plurality of subjects, i.e. more than one creditor or more than one debtor
or both;
2. The determination of share, material or ideal, in the demandability or
fulfillment of the obligation.
MANCOMUNADA AND SOLIDARY OBLIGATIONS DISTINGUISHED
In Mancomunada obligations each of the creditors may demand only his
definite share of the credit and each of the debtors is liable only for his definite
share, and the share of each of the creditors as well as the share of each of the
debtors is totally distinct, separate and independent of the others, while in
solidary obligations each of the creditors may demand the whole obligation and
each of the debtors is liable for the whole obligation.

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EXTINGUISHMENT OF OBLIGATIONS
MODES OF EXTINGUISHMENT OF OBLIGATIONS

1.
2.
3.
4.
5.
6.
7.

payment or performance;
loss of the thing due;
condonation or remission of the debt;
confusion or merger of the rights of the creditor and debtor;
compensation;
novation;
other causes such as annulment, rescission, fulfillment of a resolutory
condition, prescription;
8. by death, mutual dissent, resolutory period and compromise.

PAYMENT OR PERFORMANCE
PAYMENT means not only the delivery of money but also the performance, in
any other manner, of an obligation.
DUTY OF DEBTOR IN CASE CREDITOR REFUSES TO ACCEPT PAYMENT If
the creditor to whom tender of payment has been made refuses without just
cause to accept it, the debtor shall be released from responsibility by the
consignation of the thing or sum due.
SPECIAL FORMS OF PAYMENT
1. Dation of payment
2. Application of payments.
3. Payment by cession
4. Tender of payment and consignation.
DACION EN PAGO - is the mode of extinguishing an obligation whereby
the debtor alienates in favor of a creditor, property for the satisfaction of
monetary debt.

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LEGAL TENDER - Is that currency which a debtor can legally compel a
creditor to accept in payment of a debt in money when tendered by the in the
right amount.
APPLICATION OF PAYMENTS - Is the designation of the debt to which
should be applied the payment made by a debtor who has various debt of the
same kind in favor of one and the same creditor.
PAYMENT BY CESSION is another special form of payment. It is the
assignment or abandonment of all the properties of the debtor for the benefit of
his creditors in order that the latter may sell the same and apply the proceeds
thereof to the satisfaction of their credits.
TENDER OF PAYMENT is the act, on the part of the debtor, of offering
to the creditor the thing amount due. The debtor must show that he has in his
possession the thing or money to be delivered at the time of the offer.
CONSIGNATION is the act of depositing the thing or amount due with
the proper court when the creditor does not desire or cannot receive it, after
complying with the formalities required by law. Consignation is always judicial
and it generally requires a prior tender of payment which is by its very nature
extrajudicial.

LOST OF THING DUE

LOSS OF THE THING it is understood that the thing is lost when it
perishes, or goes out of commerce, or disappears in such a way that its
existence is unknown or it cannot be recovered.
WHEN LOST OF THING WILL NOT EXTINGUISH LIABILITY
There are cases, however, when the loss of the specific thing eve in the
absence of fault and delay will not exempt the debtor liability.
1. When the law so provides
2. When the stipulation so provides.
3. When the nature of the obligation requires the assumption of risk.
4. When the obligation to deliver a specific thing arises from a crime.
LOSS IN OBLIGATIONS TO DO there is loss in obligations to do when
the prestation becomes legally or physically impossible without the fault of the
obligor, or when the service has become so difficult as to be manifestly beyond
the contemplation of the parties.
CONDONATION OR REMISSION OF DEBT is an act of liberality
whereby the creditor waives the enforcement of the obligation contracted in his
favor or the gratuitous abandonment by the creditor of his right.
REQUISITES OF REMISSION

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1. capacity and consent of the parties;
2. it must be gratuitous; and
3. that the formality required by law must be complied with.
KINDS OF REMISSION
1. According to extent:
a. total when whole obligation remitted,
b. partial when only a portion is remitted;
2. According to time of taking effect:
a. inter vivos when it takes effect during life of creditor, and
b. mortis causa when it takes effect on death of creditor;
3. According to its form:
a. express, or
b. implied
PRESUMPTION OF REMISSION OF DEBT the delivery of a private
document evidencing a credit, made voluntarily by the credit to the debtor,
implies the renunciation of the action which the former had against the latter.

CONFUSION OR MEGER RIGHTS

CONFUSION OR MEGER is the meeting in one person of the qualities
of creditor and debtor with respect to the same obligations.

Merger in the person of the principal debtor or creditor extinguishes

the obligation. Hence, the accessory of guaranty is also extinguished
in accordance with the principle that accessory follows the principal.
Confusion in a joint obligation, extinguishes only the share
corresponding to the creditor or debtor in whom the two
characteristics concur.
Merger in the person of one of the solidary debtor shall extinguish the
entire obligation because it is also a merger in the other solidary
debtors.

COMPENSATION
COMPENSATION is the extinguishments to the concurrent amount of the
debts of two persons who, in their own right, are debtors and creditors of each
other.
COMPENSATION AND CONFUSION DISTINGUISHED
The differences are:

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1. In confusion, there is only one person who is a creditor and
debtor of himself, while in compensation, there are two
persons involved, each of whom is a debtor and a creditor of
the other
2. In confusion, there is impossibility of payment, while in
compensation, there is indirect payment.
There may be compensation in joint and solidary obligations.
REQUISITES OF LEGAL COMPENSATION

1. that each one of the obligors be bound principally, and that he be at the
same time a principal creditor of the other;
2. that both debts consist in a sum of money or if the things due are
consumable, they be of the same kind, and also of the same quality if the
latter has been stated;
3. that the two debts be due;
4. that they be liquidated and demandable;
5. that over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the
debtor; and
6. the law does not prohibit compensation.
Instances when legal compensation is not allowed by law:
o Where one of the debts arises from a depositum
o Where one of the debts arises from a commodatum
o Where one of the debt arises from a claim for support due by
gratuitous title
o Where one of the debts consist in civil liability arising from a penal
offense

Rescissible and voidable obligations are valid until they are judicially
rescinded or avoided. Prior to rescission or annulment, the dbts may
be compensated against each other.

COMPENSATION AND COUNTERCLAIM DISTINGUISHED

1. Compensation takes place by operation of law whether it is pleaded by

the parties or not while counterclaim must be pleaded and alleged in the
pleadings; and
2. Compensation requires that the debts be liquidated while counterclaim
does not require that the debts be liquidated.

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NOVATION
NOVATION the substitution or alteration of an obligation by a subsequent one
that cancels or modifies the preceding one or the extinction of an obligation
through the creation of a new one which substitutes it.
The requisites for novation to take place are: (1) a previous valid
obligation; (2) agreement of all parties to the new contract; (3) extinguishment
of the old contract; and (4) validity of the new one. Novation is not one of the
grounds prescribed by the Revised Penal Code for the extinguishment of
criminal liability. (Ocampo-Paule vs. Court of Appeals, G.R. no. 145872,
Feb. 4, 1002, Kapunan, J.)
In order that an obligation may be extinguished by another which
substitutes the same, it is imperative that it be so declared in unequivocal
terms, or that the old and new obligation be on every point incompatible with
each other. When not expressed, incompatibility is required so as to ensure
that the parties have indeed intended such novation despite their failure to
express it in categorical terms. (Ligutan vs. Court of Appeals, supra)
SUBROGATION OF CREDITOR the novation which takes place through a
change in the party creditor.
KINDS OF SUBROGATION
1. Conventional when it takes place by agreement of the original parties
and the third person;
2. Legal when it takes place by operation of law.
PRESUMPTION OF LEGAL SUBROGATION
1. When a creditor pays another creditor who is preferred, even without the
debtors knowledge;
2. When a third person, not interested in the obligation, pays with the
express or tacit approval of the debtor;
3. When, even without the knowledge of the debtor, a person interested in
the fulfillment of the obligation pays, without prejudice to the effects of
confusion as to the latters share.
SUBROGATION AND ASSIGNMENT OF CREDIT DISTINGUISHED
1. In subrogation, a credit is extinguished and a new one is born while in
assignment the assignee merely represents the rights belonging to
another and the old obligation is not extinguished;
2. In subrogation the effects arise from the perfection of the contract while
in assignment they arise as far as the debtor is concerned from the
moment he is notified; and

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3. In subrogation the defects of the old obligation are purified and there
may be convalidation while in assignment the nullity of the old obligation
is not purified or remedied.
Subrogation contemplates full substitution such that it places the party
subrogated in the shoes of the creditor, and he may use all means which the
creditor could employ to enforce payment.
A subrogee cannot succeed to a right not possessed by the subrogor.
Where an insurance company as subrogee pays the insured of the entire loss it
suffered, insurer-subrogee is the only real party in interest and must sue in its
own name to enforce its right of subrogation against the third party which
cause the loss. (Lorenzo Shipping Corp. vs. Chubb and Sons, Inc., 431
SCRA 266, Puno, J.)
Effect of Novation on a accessory Obligation : In case of an accessory obligation
created in favor of a third person which remains in force unless said third
person gives his consent to the novation. This is so because a person should
not be prejudiced by the act of another without his consent. (see Art. 1311, par.
2. Civil Code)
Effect where the new obligation is Void or Voidable: The general rule is that
there is no novation if the new obligation is void and therefore, the original one
shall subsist for the reason that the second obligation being inexistent, it
cannot extinguish or modify the first. If the new obligation is only voidable,
novation can take place. But the moment it is annulled, the novation must be
considered as not having taken place, and the original one can be enforced,
unless the intention of the parties is ontherwise.

CONTRACTS
CONTRACT - Is a meeting of minds between two persons whereby one
binds himself, with respect to the other, to give something or to render some
service, - or it is a juridical convention manifested in legal form by virtue of
which one or more persons bind themselves in favor of another or others, or
reciprocally, to the fulfillment of a prestation to give, to do or not to do.
A breach of contract is a cause of action either for specific performance
or rescission of contracts. Actions for specific performance are incapable of

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pecuniary estimation and therefore fall under the jurisdiction of the Regional
Trial Court. (Radio Communications of the Philippines, Inc. vs. Court of
Appeals, 386 SCRA 67, August 1, 2002, J. Ynares-Santiago)
As a rule, when the terms of a contract are clear and unambiguous as to
the intention of the contracting parties, the literal of its stipulations shall
control. It is only when the words appear to contravene the evident intention of
the parties that the latter shall prevail over the former. The real nature of a
contract may be determined from the express term of the agreement and from
the contemporaneous and subsequent acts of the parties thereto. (Dela Cruz
vs. Dela Cruz, Gr. No. 146222, January 15, 2004, Quisumbing, J.)
STAGES OF A CONTRACT
1. Preparation or generation;
2. Perfection or birth;
3. Consummation, fulfillment or death.
CASES WHEN STRANGERS OR THIRD PERSONS AFFECTED BY A CONTRACT
1. In contracts containing a stipulation in a favor of a third
person.
2. In contracts creating real rights
3. In contracts entered into to defraud creditors.
4. In contracts which have been violated at the inducement of a
third person.
MEANING OF STIPULATION POUR AUTRUL
Stipulation in a contract and deliberately conferring a favor upon a third
person who has a right to demand its fulfillment provided he communicates his
acceptance to the obligor before its revocation.
Contract and agreement distinguished:
Contracts are agreements enforceable through legal proceedings. Those
agreements which cannot be enforced by an action in the courts of justice (like
an agreement to go to a dance party) are not contracts but merely moral or
social agreements. An agreement is broader than a contract because the
former may not have all the elements of a contract. So contracts are agreement
but not all agreements are contracts.
CLASSIFICATION OF CONTRACTS

UNILATERAL CONTRACTS those which produce an obligation (one or

various) for only one of the contracting parties.

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BILATERAL CONTRACTS those which produce reciprocal obligations
between both parties.
GRATUITOUS CONTRACTS those where one of the contracting parties
gives to the other an advantage without receiving any equivalent.
ONEROUS CONTRACTS those where one of the parties desires to get
an advantage through an equivalent or a compensation.
COMMUTATIVE CONTRACTS those where each of the parties take into
consideration the acquisition of an equivalent of his prestation which is
peculiarly valuable and definite from the moment of the celebration of the
contract.
ALEATORY CONTRACTS those in which each of the parties also takes
into consideration the acquisition of an equivalent of his prestation which is
pecuniarily valuable but not determined or definite at the moment of the
celebration of the contract but dependent on the happening of an uncertain
event and with the parties running the risk of profit or loss.
CONSENSUAL CONTRACTS those perfected by the mere consent of the
parties.
REAL CONTRACTS those which, in addition to the consent, require the
delivery of a thing by one of the parties to the other.
SOLEMN CONTRACTS those which require a special form for its
celebration or strictly those which require a notarial form.
PREPARATORY CONTRACTS those which have for their object the
creation of a juridical state as a necessary preliminary to the celebration of a
posterior contract, e.g. partnership, agency.
PRINCIPAL CONTRACTS are those which have in themselves their own
proper and subsisting contractual end or purpose without depending on any
other contract, e.g. purchase and sale, lease.
ACCESSORY CONTRACT are those which can only exist by reason of or
in relation to a prior contract e.g. guarantee, pledge, mortgage.
NOMINATE CONTRACTS are those which have an individuality of their
own and are governed by special rules of law.
INNOMINATE CONTRACTS are those without any individuality or their
own special rules and are governed by the general rules of contracts.
KINDS OF INNOMINATE CONTRACTS
1. Do ut des, I give that you give;
2. Do ut facias, I give that you do;
3. Facio ut des, I do that you give;
4. Facio et facias, I do that you do.
ESSENTIAL REQUISITES OF CONTRACT
1. Consent of the contracting parties;
2. object certain which is the subject matter of the contract;
3. cause of the obligation which is established.

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FREEDOM OF STIPULATION the contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs, public order or
public policy.

CONSENT
CONSENT - Is the concurrence of the offer and acceptance over the thing
and the cause which constitute the contract.
REQUISITES:
1. Plurality of subjects;
2. Capacity of the contracting parties;
3. Intention of the parties;
4. Manifestation of the intention of the parties;
5. Concurrence between the intention of the parties and its manifestation.
It is elementary that, being consensual, a contract is perfected by mere
consent.
Equally important are the three distinct stages of contracts- its preparation
or negotiation, its perfection, and its consummation.
Where there was only an offer and a counter offer that did not sum up to
any final agreement containing the elements of a contract, there clearly was no
meeting of minds established.
No contract shall arise unless its acceptance is communicated to the offeror.
The bid bond is an indispensable requirement for the validation of a bid
proposal, and this requisite ensures the good faith of bidders and binds them
to enter in to a contract with the owner, should their proposal be accepted.
When there is no ambiguity in the language of the contract, there is no
room for construction, only compliance. (Insular Life Assurance Company,
Ltd. Vs. Asset Builders Corporation, Gr. No. 147410, Feb. 5, 2004,
Panganiban, J.)
ELEMENTS:
1. Offer
2. Acceptance
KINDS:
1. Express consent
2. Tacit consent
3. Presumed consent
OFFER is the proposal to make a contract.

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REQUISITES:
1. must be certain;
2. must be made with the intent to be bound.
ACCEPTANCE is the unconditional and unqualified agreement to the offer.
REQUISITES:
1. must be absolute;
2. communicated to the offeror and learned by him.
Contracts, in general, are perfected by mere consent, which is manifested
by the meeting of the offer and the acceptance upon the thing which are to
constitute the contract. The offer must be certain and the acceptance absolute.
Moreover, contracts shall be obligatory in whatever form they may have been
entered into, provided all the essential requisites for their validity are present.
(San Lorenzo Development Corporation Vs. Court of Appeals, et al. G.R.
No. 124242. January 21, 2005, Tinga, J.:
Contracts, once perfected,bind both contracting parties, and obligations
arising therefrom have the force of law between the parties and should be
complied with in good faith. However contracts are not the only source of law
that given the rights and obligations between the parties.
When there is absolutely no acceptance of an offer or if the offer is expressly
rejected, there is no meeting of the minds. (National Housing Authority vs.
Grace Baptist Church, Gr. No. 156437, March 1, 2004, Ynares-Santiago, J.)
Once there is concurrence between the offer and the acceptance upon
the subject matter, consideration, and terms of payment, a contract is
produced.
A qualified acceptance, or one that involves a new proposal, constitutes a
counter-offer and is a rejection of the original offer.
(Palattao vs. Court of Appeals; G.R. No. 131726. May 7, 2002; YnaresSantiago, J.)
PROHIBITED TO GIVE CONSENT:
1. Unimancipated minors;
2. Insane or demented persons;
3. Deaf-mutes who do not know how to write.
OTHER SPECIAL DISQUALIFICATIONS MAY BE PROVIDED BY LAW
1.Under the Rules of Court, the following are considered incompetents and
maybe be placed under guardianship.
a.
Persons suffering the accessory penalty civil interdiction.
b.
Hospitalized lepers.

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c.
Prodigals (spendthrifts)
d.
Deaf and dumb who are unable to read and write.
e.
Those who are of unsound mind even though they have lucid intervals
f.
Those who, bye reason of age, disease, weak mind and other similar
causes, cannot without outside aid,
take care of themselves and manage their property, becoming thereby an easy
prey for deceit and exploitation.
A contract entered into by any of the above is valid except where it is
voidable bye reason of incapacity under Articles 1327 and 1328 or of causes
which vitiate consent (Art.1330.), or where incompetent has been placed under
guardianship. Thus, a prodigal is presumed to have a capacity to enter into a
contract.
a. Insolvent until discharged (insolvency Law [Act No. 1956, as amended.],
Sec. 1
b. Married women in cases specified by law (Art.39)
c. Husband and wife with respect to sale property to each other.
d. Other person especially disqualified by law.
EFFECTS OF DRUNKENNESS OR HYPNOTIC SPELL Contracts agreed to in a
state of drunkenness or hypnotic spell are voidable.
LUCID INTERVAL it is a state consisting of a full return of a persons mind
to sanity as places him in possession of the powers of his mind, enabling him
to understand and transact his affairs as usual.
CHARACTERISTICS OF CONSENT
1. Real;
2. Intelligent;
3. Free and voluntary;
4. must be conscious or spontaneous.
VICES THAT AFFECT CONSENT
1. Mistake or error;
2. Fraud;
3. Violence, intimidation or undue influence; and
4. Simulation
MISTAKE OR ERROR is the false notion of a thing or a fact and as applied
to contracts it may fall over the manifestation or the formation or the contents
of the volition.
KINDS OF MISTAKE
1. Mistake of law;
2. Mistake of fact;
a. Mistake as to thing (will vitiate consent)

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aa.Mistake over the identity of the contract which may be a
mistake over the identity of the thing which takes place when
one thing is mistaken for another.
b. Mistake as to person Mistake as to identity or qualifications of
one of the parties will vitiate consent only when said identity or
qualifications have been the principal cause of the contract.
c. Mistake as to amount will vitiate consent but not mistake as to
account which will give rise to its correction.
DOLO OR FRAUD (DECEIT) Consists in insidious words or
machinations on the part of one of the contracting parties whereby the other is
induced into entering into a contract which, without them, he would not have
agreed to.
FORMS OF FRAUD
1. Misrepresentation of a fact;
2. Concealment of a fact.
REQUISITES
1. Misrepresentation or concealment;
2. must be serious;
3. fraud must be one of the contracting parties and not of a third person;
4. must not be employed by both contracting parties;
5. misrepresentation or concealment must have induced the consent of the
other party.
KINDS:
1. DOLO CAUSANTE that which affects the substance of the agreement so
that without it the party would not have consented;
2. DOLO INCIDENTE that which merely affects, not the substance, but
the incidentals of the agreement so that without it the party would have
agreed but under different terms.
Mere weakness of mind alone, without imposition of fraud, is not a ground
for vacating a contract. Only if there is unfairness in the transaction, such as
gross inadequacy of consideration, the low degree of intellectual capacity of the
party, may be taken into consideration for the purpose of showing such fraud
as will afford a ground for annulling a contract. Hence, a person is not
incapacitated to enter into a contract merely because of advanced years or by
reason of physical infirmities, unless such age and infirmities impair his
mental faculties to the extent that he is unable to properly, intelligently and
fairly understand the provisions of said contract. (Dr. Jose, et al. Vs. Faustino
Arciaga, et al. G.R. No. 145017. January 28, 2005 SANDOVALGUTIERREZ, J.:)
Fraud is never presumed; it must be established by clear and convincing
evidence.[11]In the present case, apart from the Manifestation, there is no clear
evidence of fraud. While respondents counsel did not object to the admission of

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the Manifestation, the leeway to consider and assess its probative value
nonetheless lay in the appellate court. (Inocelia S. Autencio Vs. City
Administrator Rodel M. Maara, et al. G.R. No. 152752. January 19,
2005 PANGANIBAN, J.:)
INTIMIDATION there is intimidation when the contracting parties is
compelled by a reasonable and well-grounded fear of an imminent and grave
evil upon his person or property, or upon the person or property of his spouse,
descendants or ascendants to give his consent. To determine the degree of
intimidation, the age, sex and condition of the person shall be borne in mind. A
threat to enforce ones claim through competent authority, if the claim is just or
legal, does not vitiate consent.

REQUISITES:
1.
2.
3.
4.

a reasonable and well-grounded fear;

fear must produce consent;
fear is of imminent and serious injury;
threat must be unjust.

UNDUE INFLUENCE a person takes an improper advantage of his power

over the will of another, depriving the latter of a reasonable freedom of choice.
SIMULATION is the declaration of a fictitious intent manifested
deliberately and by agreement of the parties in order to produce, for purposes
of deceiving others, the appearance of a transaction which does not exist or
which is different from their true agreement.
REQUISITES:
1. Deliberate declaration contrary to the will of the parties;
2. Agreement of the parties to the apparently valid act;
3. the purpose to deceive or to hide from third persons although it is not
necessary that the purpose be illicit or for purposes of fraud.
KINDS:
1. Absolute there exists absolute simulation when the parties do not
intend to be bound at all.
2. Relative exists when the parties conceal their true agreement.
OBJECT OF CONTRACTS

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OBJECT OF CONTRACTS all things which are not outside the commerce
of men including future things may be the object of a contract. All rights which
are not intransmissible may also be the object of contracts.
REQUISITES OF OBJECT OF CONTRACT
1. It must be real or possible, that is to say, that it exist at the moment of
celebration of the contract or at least capable of existing thereafter;
2. That it be licit, that is, nor contrary to law, morals, good customs, public
order or public policy;
3. Determinate or susceptible of determination.
CAUSE OF CONTRACTS it is the fact which explains and justifies the
creation of an obligation by the will of the parties.
KINDS:
1. ONEROUS CAUSE is the cause in onerous contracts and by that is
understood to be, for each contracting party, the prestation or promise of
a thing or service by the other.
2. REMUNERATORY CAUSE is the cause in remuneratory contracts and
by that is understood the service or benefit which is remunerated.

FORM OF CONTRACT

FORM OF CONTRACT refers to the matter in which a contract is executed or

manifested.
The contract may be oral, or in writing, or partly oral and partly in
writing. If in writing, It may be in a public or private instrument.

1.

2.
a.
b.
c.

RULES REGARDING FORM OF CONTRACTS

General Rule Contracts are binding and, therefore, enforceable
reciprocally by the contracting parties. Whatever may be the form
in which the contract has been entered into, provided all the three
essential requisites (consent, object, and cause) for their validity
are represent.
Exceptions The form, however is required in the following cases:
When the law requires that a contract be in some form to be valid.
When the law requires that a contract be in some form to be
enforceable or proved in a certain way
When the law requires that
a contract be in some form for the
convenience of the parties or for the purpose of affecting third
person.

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FORM FOR VALIDITY OF CONTRACT
There are rare cases when the law requires that a contract be in a certain form
for the validity of the contract.
1. Donation of Property It must be in a public instrument.
2. Donation of Personal Property the value of which exceeds
P5,000 the donation and acceptance must be in writing.
3. Sale of land through an agent The authority of the agent
must be in writing; otherwise, the sale is void.
4. Stipulation to pay interest It must be in writing; otherwise,
no interest is due.
5. Contract of Partnership If immovable are contributed, it
must be in a public instrument to which shall be attached a
signed inventory of immovable property contributed.

REFORMATION OF INSTRUMENTS
REFORMATION OF INSTRUMENTS it is that remedy in equity by means of
which a written instrument is made of construed so as to express or conform to
the real intention of the parties when some error or mistake has been
committed.
PURPOSE to enforce a written instrument which does not reflect or
disclose the real meeting of the minds of the parties would be unjust and
inequitable hence the doctrine of reformation.
REQUISITES:
1. There must be a meeting of the minds of the parties to the contracts;
2. the instrument does not express the true intention of the parties;
3. failure to express the true intention is due to mistake, fraud, inequitable
conduct or accident; and
4. there must be a clear and convincing proof.
The primary consideration in determining the true nature of a contract is
the intention of the parties. Such intention is determined from the express
terms of their agreement as well as from their contemporaneous and
subsequent acts. (Ramos vs. Heirs of Honorio Ramos Sr.; G.R. No. 140848.
April 25, 2002 Panganiban, J.)

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Also, reformation cannot be resorted to as the documents have not been
assailed on the ground of mutual mistake. When a party sues on a written
contract and no attempt is made to show any vice therein, he cannot be allowed
to lay claim for more than what its clear stipulations accord. His omission
cannot be arbitrarily supplied by the courts by what their own notions of
justice or equity may dictate. (First Fil-Sin Lending Corporation Vs. Gloria
D. Padillo., G.R. No. 160533. January 12, 2005, YNARES-SANTIAGO, J.:)
Reformation is a remedy in equity whereby a written instrument is
amade or construed so as to express or conform to the real intention of the
parties where same error or mistake has been committed. (Proceso Quiros vs.
Marcelo Arjona, Gr. No. 158901, February 9, 2004, Ynares-Santiago. J)
REFORMATION DISTINGUISHED FROM ANNULMENT
In reformation, there has been a meeting of the minds of the parties (Art.
1359, par. 1.); hence, acontract exists but the written instrument purporting to
emboy the contract does not express the true intention of the parties by reason
of mistake, fraud, inequitable conduct, or accident.
In annulment, there has been no meeting of the minds, the consent of
one of the parties being vitiated by mistake, etc.

INTERPRETATION OF CONTRACTS

INTERPRETATION OF A CONTRACT is the determination of the meaning of

the terms or words used by the parties in their contract.
LITERAL MEANING CONTROLS WHEN LANGUAGE CLEAR
Contracts, which are the private laws of the contracting parties, should
be fulfilled according to the literal sense of their stipulations, if the terms of a
contract are clear and unequivocal. The parties are bound to such terms. (Phil.
Am. Gen. Ins. Co., Inc. vs. Mutuc, 61 SCRA22.) In this case, the question is
not what existed in the minds of the parties but what intention is expressed int
the language used.
EVIDENT INTENTION OF PARTIES PREVAILS OVER TERMS OF CONTRACT
Where the words and clauses of a written contract are in conflict with the
manifest intention of the parties, the latter shall prevail over the former. It is a
cardinal rule in the interpretation of contracts that the intention of the
contracting parties should always prevail because their will has the fore of law
between them.

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SPECIAL INTENT PREVAILS OVER A GENERAL INTENT
As a rule, where in a contract there are general and special provisions
covering the same subject matter, the latter control over the former when the
two cannot stand together.
INTERPRETATION OF STIPULATION
When an agreement is susceptible of several meanings, one of which
would render it effectual, it should be given that interpretation. Thus, if one
interpretation makes a contract valid and the other makes it illegal, the former
interpretation is one which is warranted by the rule stated in Article 1373.

RESCISSIBLE CONTRACTS
RESCISSION is a remedy to make ineffective a contract validly entered into
and which is therefore obligatory under normal conditions by reason of
external causes resulting in a pecuniary prejudice to one of the contracting
parties or their creditors.
REQUISITES:
1. A contract initially valid;
2. A lesion or pecuniary prejudice.
NATURE OF ACTION FOR RECISSION
Recission is not principal remedy. It is only subsidiary, meaning that it
can be availed of only if the injured party proves that he has no other legal
means aside from rescinding the contract to obtain redress for the damage
caused even if the contract is covered by Article 1381.
CONDITIONS FOR THE EXERCISE OF RESCISSION
1. there is no other remedy available to the prejudiced party;
2. the plaintiff is able to return what he has received;
3. the object of the contracts not legally in the hands of third persons who
have not acted in bad faith;
4. the period for filling the action has not prescribed.
Rescission of reciprocal obligations under Article 1191 is different from the
rescissible contracts under Chapter 6 of the law on contracts under the Civil
Code.
The breach contemplated in Article 1191 of the New Civil Code is the
obligors failure to comply with an obligation already extant, not a failure of a
condition to render binding that obligation. (Rivera vs. Del Rosario Gr. No.
144934, Jan. 15,2004, Quisumbing, J.)
When the language of the contract is clear, it requires no interpretations
and its terms should not be disturbed.

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As a general rule, when the terms of an agreement have been reduced to
writing, such written agreement is deemed to contain all the terms agreed
upon and there can be, between the parties and their successors-in-interest,
no evidence of such terms other than the contents of the written agreement.
Rescission of a contract will not be permitted for a slight or casual breach
but only such substantial and fundamental breach as would defeat the very
object of the parties in making the agreement.
Where a contract is rescinded it is the duty of the court to require both
parties to surrender that which they have respectively received and place each
other as far as practicable in his original situation. (Barredo vs. Lea, 431
SCRA 106, Puno, J.)
CASES OF RESCISSIBLE CONTRACTS
1. Contracts entered into in behalf of wards A ward is a person under
guardianship by reason of some incapacity.
2. Contracts agreed upon in representation of absentees An absentee is a
person who disappears from his domicile his whereabouts being unknown, and
without living an agent to administer his property. (Art. 381.) Likewise, the
absentee must suffer lesion by more than one-fourth of the value of the
property object of the contract to entitle him to remedy of rescission.
3.Contracts undertaken in fraud creditors.
4 .Contracts which refer things under litigation.
Rescission is not allowed when the party who demands rescission cannot
return what he is obliged to restore under the contract or if the property is
legally in the possession of a third person who acted in good faith.

1.
2.
3.
4.
5.
6.
7.
8.

BADGES OF FRAUD
The fact that the consideration of the conveyance is factitious or is
inadequate.
A transfer made by a debtor after suit has been begun and while it is
pending against him;
A sale upon credit by an insolvent debtor;
Evidence of large indebtedness or complete insolvency;
The transfer of all or nearly all of his property by a debtor, especially
when he is insolvent or greatly embarrassed financially;
The fact that the transfer is made between father and son, when these
are present others of the above circumstances;
The failure of the vendee to take exclusive possession of all the property;
Gross disparity between the price and real value of the property.

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NULLITY the imperfection of a contract derived from the determinate vices
of capacity or of the consent of the parties which give rise to an action of nullity
which if it is exercised successfully produce the destruction of the act with
retroactive effect.
GROUNDS FOR ANNULMENT OF CONTRACTS
1. Those where one of the parties is incapable of giving consent to a
contract;
2. Those where the consent is vitiated by mistake, violence, intimidation,
undue influence or fraud.

VOIDABLE CONTRACTS AND VOID AB INITIO CONTRACTS DISTINGUISHED

1. Voidable contracts are valid until annulled by a proper action in court
while in void ab initio contracts no court action is required;
2. In voidable contracts all essential requisites are present but there is a
defect in the consent, while in void ab initio contracts not all the
essential requisites are present because either the consent is missing or
fictitious, or the subject matter is illegal or there is want of cause or the
cause is illicit;
3. Voidable contracts are susceptible of ratification while void ab intio
contracts cannot be ratified;
4. Voidable contracts can be attacked only by the parties and their privies
while void ab initio contracts can be attacked by 3 rd persons whose
interest are directly affected;
5. In voidable contracts the action to declare the nullity prescribes while
the action to declare a contract void ab initio does not prescribe.
VOIDABLE AND UNENFORCEABLE CONTRACTS DISTINGUISHED
1. Voidable contracts are valid contracts until annulled while unenforceable
contracts are not enforceable unless ratified;
2. Voidable contracts are capable of being sued upon until annulled while
unenforceable contracts cannot be sued upon unless they are ratified.

Stranger are without right to bring the action for they are not obliged
by the contract, principally or subsidiarily, unless, they can show
detriment which would positively result to them from the contract in
which they had no intervention or participation.

RATIFICATION PROPER is that which cures the defect of contracts.

KINDS:
1. EXPRESS takes place when the waiver or renunciation is manifested in
words or in writing.

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2. TACIT OR IMPLIED RATIFICATION exists when with knowledge of the
reason which renders the contract voidable and such reason having
ceased, the person who has a right to invoke it, should execute an act
which necessarily implies an intention to waive his right.
UNENFORCEABLE CONTRACTS those contracts that by reason of defects
provided for by law do not give rise to any action to enforce the same until and
after they are ratified according to law.
KINDS:
1. Contracts in the name of another without authority or in excess of
authority;
2. Contracts where both contracting parties are incapacitated;
3. Contracts covered by the Statute of Frauds.
EFFECT OF STATUTE OF FRAUDS Contracts covered by the Statute of
Frauds are unenforceable by action unless the same or some note or
memorandum thereof, be in writing, and subscribed by the party charged, or
by his agent.

Agreement not to be performed within one year from the making

thereof
Promise to answer for the debt, default or miscarriage of another.
Agreement in consideration of marriage other than mutual promise to
marry
Agreement for sale of goods, etc. at price not less than P500.00
Agreement for leasing for a longer period than one year
Agreement for the sale of real property of an interest therein
Represenatioon as to the credit of a third person

UNAUTHORIZED CONTRACTS - are those entered into in the name of

another person by one who has been given no authority or legal representation
or who has acted beyond his powers.
VOID CONTRACTS are those which because of certain imperfections
are ipso jure prevented from producing their proper effects. They are
considered as inexistent from the very beginning.
CLASSES:
1. Those which lack an essential element or requisite for a valid contract;
2. contracts which are illegal. Contrary to law, morals, good customs, public
order or public policy;
3. those expressly prohibited by law;
4. declared void by operation of law.

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A void contract is equivalent to nothing; it produces no civil effect. It does
not create, modify or extinguish a juridical relation. Parties to a void agreement
cannot expect the aid of the law; the courts leave them as they are, because
they are deemed in pari delicto or in equal fault. To this rule, however, there
are exceptions that permit the return of that which may have been given under
a void contract. One of the exceptions is found in Article 1412 of the Civil Code,
which states:
Art. 1412. If the act in which the unlawful or forbidden cause consists does
not constitute a criminal offense, the following rules shall be observed:
(1) When the fault is on the part of both contracting parties, neither may
recover what he has given by virtue of the contract, or demand the performance
of the others undertaking;
(2) When only one of the contracting parties is at fault, he cannot recover what
he has given by reason of the contract, or ask for the fulfillment of what has
been promised him. The other, who is not at fault, may demand the return of
what he has given without any obligation to comply with his promise. (San
Lorenzo Development Corporation Vs. Court of Appeals, et al. G.R. No.
124242. January 21, 2005, Tinga, J.:)
IN PARI DELICTO this principle states that where both parties are
equally guilty, there may be no action against each other.
IN DELICTO BUT NOT IN PARI DELICTO this principle states that
where the parties to an illegal contract are not equally guilty, and where public
policy is considered as advanced by allowing the more excusable of the two to
sue for relief against the transaction, relief is given to him.
ESTOPPEL one wherein an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or disproved as
against the person relying thereon.
KINDS:
1. ESTOPPEL BY DEED is a bar which precludes a party to a deed and
his privies from asserting as against the others and his privies any right
or title in derogation of the deed, or from denying the truth of any
material fact asserted in it;
2. ESTOPPEL IN PAIS OR EQUITABLE ESTOPPEL arises when one by his
acts, representations, or admissions, or by his silence when he ought to
speak out, intentionally or thru culpable negligence induces another to
believe certain facts to exist and such other rightfully relies and acts on
such belief so that he will be prejudiced if the former is permitted to deny
the existence of such facts.
We stressed in Marie Antoinette R. Soliven vs. Fastforms Philippines, Inc.
that while it is a settled rule that jurisdictional questions may be raised at any

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time, an exception arises where estoppel has supervened, as in this case. We
reiterate that it is only now, before this Court, that petitioner is questioning the
jurisdiction of the trial court. After submitting its cause voluntarily to its
jurisdiction by actively participating in all stages of the proceedings before it
and invoking its authority by asking for an affirmative relief, petitioner is
estopped from challenging its jurisdiction, especially when an adverse
judgment has been rendered. In PNOC Shipping and Transport Corporation vs.
Court of Appeals, we held:
Moreover, we note that petitioner did not question at all the jurisdiction of
the lower court x x x in its answers to both the amended complaint and the
second amended complaint. It did so only in its motion for reconsideration of
the decision of the lower court after it had received an adverse decision. As this
Court held in Pantranco North Express, Inc. vs. Court of Appeals (G.R. No.
105180, July 5, 1993, 224 SCRA 477, 491), participation in all stages of the
case before the trial court, that included invoking its authority in asking for
affirmative relief, effectively barred petitioner by estoppel from challenging the
courts jurisdiction. Notably, from the time it filed its answer to the second
amended complaint on April 16, 1985, petitioner did not question the lower
courts jurisdiction. It was only on December 29, 1989 when it filed its motion
for reconsideration of the lower courts decision that petitioner raised the
question of the lower courts lack of jurisdiction. Petitioner thus foreclosed its
right to raise the issue of jurisdiction by its own inaction. (underscoring ours)
Likewise, in Sta. Lucia Realty and Development, Inc. vs. Cabrigas, we
refused to nullify the proceedings in a case conducted by the trial court even if
it has no jurisdiction over the subject matter thereof, considering that the
party assailing its jurisdiction is guilty of estoppel, thus:
In the case at bar, it was found by the trial court in its 30 September 1996
decision in LCR Case No. Q-60161(93) that private respondents (who filed the
petition for reconstitution of titles) failed to comply with both sections 12 and
13 of RA 26 and therefore, it had no jurisdiction over the subject matter of the
case. However, private respondents never questioned the trial courts
jurisdiction over its petition for reconstitution throughout the duration of LCR
Case No. Q-60161(93). On the contrary, private respondents actively
participated in the reconstitution proceedings by filing pleadings and
presenting its evidence. They invoked the trial courts jurisdiction in order to
obtain affirmative relief the reconstitution of their titles. Private respondents
have thus foreclosed their right to raise the issue of jurisdiction by their own
actions.
The Court has constantly upheld the doctrine that while jurisdiction may
be assailed at any stage, a litigants participation in all stages of the case before
the trial court, including the invocation of its authority in asking for affirmative
relief, bars such party from challenging the courts jurisdiction (PNOC Shipping

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and Transport Corporation vs. Court of Appeals, 297 SCRA 402 [1998]). A
party cannot invoke the jurisdiction of a court to secure affirmative relief
against his opponent and after obtaining or failing to obtain such relief,
repudiate or question that same jurisdiction (Asset Privatization Trust vs.
Court of Appeals, 300 SCRA 579 [1998]; Province of Bulacan vs. Court of
Appeals, 299 SCRA 442 [1998]).
The Court frowns upon the undesirable practice of a party participating
in the proceedings and submitting his case for decision and then accepting
judgment, only if favorable, and attacking it for lack of jurisdiction, when
adverse (Producers Bank of the Philippines vs. NLRC, 298 SCRA 517
[1998], citing Ilocos Sur Electric Cooperative, Inc. vs. NLRC, 241 SCRA 36
[1995]). (underscoring ours)
Following the doctrine of estoppel, we cannot allow petitioner to repudiate this
late, for lack of jurisdiction, the Decision of the RTC (Branch 256) in Civil Case
No. 95-020 for redemption affirmed by the Court of Appeals. Where, as here, a
party, by his deed or conduct, has induced another to act in a particular
manner, estoppel effectively bars the former from adopting an inconsistent
position, attitude or course of conduct that causes loss or injury to the latter.
Indeed, we frown upon this undesirable practice of a party invoking a courts
jurisdiction and then attacking its judgment for want of jurisdiction, if adverse
to him. (Springsun Management Systems Corporation Vs. Oscar
Camerino, et al. , G.R. No. 161029. January 19, 2005, SANDOVALGUTIERREZ, J.:)
Essential elements of estoppel in pais, in relation to the party sought to
be estopped and with respect to the party claiming estoppel. (Shoppers
Paradise Realty & Development Corporation vs. Roque)
Estoppel precludes individual from denying or asserting, by their own
deed or representation, anything contrary to that established as the truth, in
legal contemplation.
Estoppel will not arise from a conduct due to ignorance founded upon an
innocent mistake. (Bank of the Philippine Islands vs. Casa Montessori
Internationale, 430 SCRA 261, Panganiban, J.)

TRUST right of property, real or personal, held by one person for the
benefit of another.

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KINDS:
1. EXPRESS TRUST arises out of a direct or positive declaration of trust;
2. IMPLIED TRUST enforced by equity, in the absence of any direct or
positive declaration of trust, because morality, justice, and fair dealing
that the relation be established.
3. RESULTING TRUST arises where the legal estate in property is
disposed of, conveyed, or transferred, but the intent appears, or is
inferred from the terms of the disposition or from accompanying facts
and circumstances, that the beneficial is not to go or be enjoyed with
legal title.
4. CONSTRUCTIVE TRUST it arises when there is no intention to create a
trust is present, but a trust is nevertheless created by law to prevent
unjust enrichment or oppression.
CESTI QUE TRUST the person for whose benefit property is held in trust
by a trustee.
TRUSTEE a person in whom property is vested in trust for others.
BENEFICIARY a person who is entitled to receive or who is receiving profit,
benefit, or advantage from a contract or from an estate.
Article 1456 of the New Civil Code provides that a person acquiring property
through fraud becomes by operation of law a trustee of an implied trust for the
benefit of the real owner of the property. The presence of fraud in this case
created an implied trust in favor of the petitioners, giving them the right to seek
reconveyance of the property from the private respondents. However, because of
the trial courts dismissal order adverted to above, the petitioners have been
unable to prove their charges of fraud and misrepresentation.
The petitioners action for reconveyance may not be said to have prescribed,
for, basing the present action on implied trust, the prescriptive period is ten
years. The questioned titles were obtained on August 29, 1988 and November
11, 1988, in OCT Nos. OP-38221 and OP-39847, respectively. The petitioners
commenced their action for reconveyance on September 13, 1993. Since the
petitioners cause of action is based on fraud, deemed to have taken place when
the certificates of title were issued, the complaint filed on September 13, 1993
is, therefore, well within the prescriptive period. (Heirs of Maximo Sanjorjo,
et al. Vs. Heirs of Manuel Y. Quijano, et al., G.R. No. 140457. January 19,
2005, Callejo,J.:)
A trust is a fiduciary relationship with respect to property which involves
the existence of equitable duties imposed upon the holder of the title to the
property to deal with it for the benefit of another.
In a trust, one person has an equitable ownership in the property while
another person owns the legal title to such property, the equitable ownership of
the former entitling him to the performance of certain duties and the exercise
of certain powers by the latter.

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A person who establishes a trust is the trustor.
One in whom confidence is reposed as regards property for the benefit of
another is the trustee.
The person for whose benefit the trust is created is the beneficiary.
The right of the employees to claim their gratuities from the Gratuity
Plan Fund- Republic Act No. 1616 does not allow employees receive their
gratuities until they retire. It is not always necessary that the cestui que trust
should be named, or even be in esse at the time the trust is created in his
favor-it is enough that the beneficiaries are sufficiently certain or identifiable.
Where the Agreement indisputably transferred legal title over the income
and properties of the Fund to the Funds trustees, Commission on Audits
directive to record the income of the Fund in DBPs books of account as the
miscellaneous income of the DBP constitutes grave abuse of discretion.
(Development Bank of the Philippines vs. Commission on Audit 2004)

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