OBLIGATIONS AND CONTRACTS FINALS DEAN MEL STA.

MARIA
CONTRACTS i. PIA had the right to terminate the employment agreement
at any time by giving one month’s notice/one month’s
CHAPTER 1: GENERAL PROVISION OF CONTRACTS salary.
ii. SC: Principle of autonomy of contracts is not absolute.
I. CONTRACTS Provisions of applicable laws are deemed incorporated in
 Two parts: law between the parties and the good faith duty. the contract. The said stipulation is contrary to Arts 280-
 Source of obligation 281 of the Labor Code (Security of Tenure/Regular and
 Legally enforceable agreement. Casual Employment.) and rendered the employment of
 Juridical convention manifested in legal form by virtue of which one or more private respondents at the pleasure of PIA.
persons bind themselves in favor of another to the fulfillment of prestation. 3. INDUSTRIAL PERSONNEL v. JOSE DE VERA
 Agreement whereby atleast one of the parties acquires a right o SC: WHEN CAN FOREIGN LAW GOVERN CONTRACTS.
o In rem  GR: Philippine laws apply to overseas employment
o In personam contracts
 Except: when the parties agree that a foreign law shall
A. STAGES OF CONTRACT MAKING govern.
1. Negotiation- from the period prospective parties conveyed interest-  REQUISITES (lacking one=invalidation of application)
conclusion.  It must be expressly stipulated in the contract that
2. Perfection- concurrence of the essential elements thereof. a specific foreign law shall govern.
a. Consensual- meeting of the minds. o Domestic law- lex loci contractus
b. Real- still needs delivery.  Foreign law must be proven before the courts
i. i.e. pledge/commodatum pursuant to Philippine rules on evidence.
c. Solemn- compliance to requirements of law is still needed for its o Processural presumption will operate.
validity  Same is not contrary to law, morals, good
i. Donation of real property customs, public policy, public order.
B. ESSENTIAL ELEMENTS OF A CONTRACT o Philippine law governs Art 17 and 1306
1. Consent (stipulations must not be contrary to
2. Object certain which is the subject matter of the contract law)
3. Cause of the obligation  The Contract must be processed with the POEA
o Violation of Art. 18 of the Labor Code.
II. CHARACTERISTICS OF CONTRACTS 4. MANILA BAY v. CA
 Petitioner failed to comply with the insurance clause of the lease
A. AUTONOMY OF CONTRACTS contract and as a result of which, the lessor terminated the lease
 Parties are free to stipulate terms, conditions provided that they are not pursuant to a stipulation that provides that failure to comply with
contrary to law, morals, good customs, public order, public policy. any of the provisions of the contract shall give the lessor the right to
terminate the same.
Cases:  SC: TERMINATION IS VALID. CONTRACTS ARE
1. AZCUNA v. CA RESPECTED AS THE LAW BETWEEN THE PARTIES. It
o Legality of the provision that if the lessee does not vacate the can be judged from the contract that the parties intended mandatory
premises, he shall be charged 1000 per day as damages. compliance with all the provisions of the contract.
o SC: Nothing is immoral or illegal with the indemnity/penalty clause.
Petitioner cannot evade responsibility.
2. PAKISTAN INTERNATIONAL AIRPORT v. OPLE 5. PHILIPPINE AMERICAN GENERAL INSURANCE v. MUTUC
 Contractual stipulation entered into by the airport and its employees  Appellant agreed that his bond may be renewed or extended without
which was calculated to evade the provisions of the Labor Code. notification but later claimed that such provision was null and void.
1|S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
OBLIGATIONS AND CONTRACTS FINALS
 SC: APPELLANT STILL LIABLE FOR THE BOND. Appellant
needs to realize that assertion is not equal to proof. No offense to
law or morals could be imputed with the aforementioned provision.
Also, the contention that the contract was that one of adhesion is
untenable since he is not at all compelled to agree to it.
6. TEVES v. PEOPLE’S HOMSITE AND HOUSING
 In the absence of express legislation or constitutional prohibition, a
court must find that the contract has a tendency to injure the
public/against the public good/contravenes some interest of the
society/undermines security of individual rihts wherethr or personal
liability or private property.
7. DE LEON v. COURT OF APPEALS.
 The parties stipulated that in consideration of a peaceful and
amicable termination of relations, the husband shall give some
properties to the wife and monthly support for the children while the
wife shall agree to a judicial separation of property plus amendment
to divorce proceedings.
 SC: Agreement is contrary to law. The consideration of the
agreement is the termination of the marriage by which they
cannot do on their own and without legal basis.
A1. PROVISIONS OF THE LAW ARE DEEMED INCORPORATED.
 Only laws existing at the time of the execution are applicable.
 Later statutes do not govern said contract unless it is intended to have a
retroactive effect.
o However if it enlarges, abridges or change the intent of the parties,
it cannot be retroactive effect without violating non-impairment of
contracts. (must still yield to the police power of the state).
1. ORTIGAS v. CA
a. Contract provided that the property shall only be used for residential
purposes but when the buyer bought the same, it built a commercial
edifice in consonance with a later zoning ordinance which
reclassified the area as a commercial zone.
b. SC: Restrictions in the court are extinguished by the enactment
of later law pursuant to the police power of the state.
A2. INNOMINATE CONTRACTS
 INNOMINATE CONTRACTS- not specifically governed by any
provision of the Civil Code.
o They shall be governed by the following:
2|S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
DEAN MEL STA. MARIA
1.STIPULATION OF THE PARTIES
2.GENERAL RULE ON OBLIGATIONS AND
CONTRACTS
3. MOST ANALOGOUS NOMINATE CONTRACTS
4. Sale, barter, exchange,, lease, partnership, agency,
deposit, guaranty, aleatory contracts, mortgage, pledge,
insurance, real estate mortgage, charter party.
5. CUSTOMS OF THE PLACE.
 Rule of conduct formed by repetition which are
observed as a social rule.
o KINDS OF INNOMINATE CONTRACT
1. DO UT DES (mutually give each other a certain thing)
2. FACIO UT FACIAS (mutually render a service)
3. DO UT FACIAS; FACIAS UT DES (Mixed prestation)
o Cases
1. DIZON v. GABORRO- ANTICHRESIS
 Respondent assumed to pay the indebtedness of
petitioner in exchange of possession, enjoyment
and use of certain lands until petitioner can
reimbursed the amount paid to accomplish the
following ends: payment of bank obligations,
make the land productive for benefit of possessor
and assurance of return of the land to owner.
 SC: Innominate contract. Parties agreed to give
and to do certain rights and obligations but in the
form of antichresis (debtor pledges real property
to the creditor allowing the use of the land in lieu
of interest of the loan)
2. CORPUS v. CA- LAWYER’S FEES
 The legal fees were not reduced into writing but
there were indicators that payment of the same
was contemplated by the parties.
 SC: Innominate contract (facio it des: I do and
you give). So long as services were accepted and
made use, there is a tacit and mutual consent to
the rendition of services. The person benefited
must make compensation.
B. MUTUALITY OF CONTRACTS
 Contract must bind BOTH parties and validity and compliance cannot be left
to the will of ONE of the parties.
Cases:
1. GARCIA v. RITA LEGARDA
OBLIGATIONS AND CONTRACTS FINALS
o Stipulation provides that the vendor can unilaterally rescind or
terminate a contract IN THE EVENT that the other party failed to
pay any of the required installment for the purchase.
o SC: Stipulation does not violate mutuality of contracts. The
purpose of Art. 1308 is to render VOID a condition which make its
fulfillment dependent EXCLUSIVELY UPON THE WILL OF
THE PARTIES. In this case, the termination is subject to a
RESOLUTORY CONDITION which is failure to pay and not
dependent on the sole will of one of the parties.
2. RODOLFO MORA v. CORAZON BELMONTE
 A party to the contract cannot be allowed to renege on his obligation
simply because he changed his mind.
3. GF EQUITY v. ARTURO VALENZON
 Coaching contract contains a stipulation that based on the SOLE
OPINION of the corporation that the coach failed to exhibit
sufficient skill or competitive ability to coach the team, the
corporation may terminate the contract.
 SC: VIOLATIVE OF THE MUTUALITY OF CONTRACTS.
The stipulation effectively gives the petitioner unbridled prerogative
to terminate the job. There were obviously no parameters imposed
and the element of predictability is wanting. To uphold the said
stipulation would open the gate for arbitrary and illegal dismissals.
 PURPOSE OF MUTUALITY PRINCIPLE
i. Obligations arising from contracts have the force of law
ii. There should be MUTUALITY between the two parties
BASED ON THEIR ESSENTIAL EQUALITY.
iii. Purpose: nullify a contract which makes the fulfillment
dependent on the exclusive and uncontrolled will of one of
the parties.
iv. However, a party may still have the right to terminate so
long as there is still ESSENTIAL EQUALITY
BETWEEN THE PARTIES.
v. INSTANCES WHEREIN ONE OF THE PARTY MAY
TERMINATE THE CONTRACT UNILATERALY
1. Express provision in lease agreement that
violation of any terms and conditions will be
sufficient ground for termination.
2. Resolutory condition in a contract for personal
service.
3. Option that is binding only on the lessor and
can only be exercised by the lessee does not
render it void for lack of mutuality. Lessor is
free to give or not to give the option to the lessee.
3|S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
DEAN MEL STA. MARIA
And once they agree on something, their rights
and obligations become mutually fixed.
4. ALLIED BANK v CA
 SC: Stipulation in lease contract that contract may be renewed for a
like term at the option of the lessee is valid. Such right is part of the
consideration in the contract. Once the lessee exercises the option to
renew, all the terms and conditions of the old contract would also be
renewed.
5. PNB v. CA
 PNB and the debtor entered into an agreement that PNB was
authorized to increase the stipulated 18% interest per annum, within
the limits prescribed by law at any time provided that the same
should be decreased whenever reduced by law or the Monetary
Board. Pursuant to such stipulation, PNB increased the rates to 32%,
41% and 48% within the year and over the objection of the debtor.
 SC: INCREASES ARE NULL AND VOID. P.D. 116 expressly
provides that increases in interest rates shall be made only once
every year and such increases VIOLATE MUTUALITY OF
CONTRACTS. The stipulation changed the contract to that of
adhesion: take it or leave it.
 DM: Potestative condition: you only increase when there is an
increase but no decrease if there is a decrease: VOID.
6. PHILIPPINE SAVINGS BANK. V. SPS. CASTILLO
 SC: Promissory note which have an escalation and de-escalation
clause in relation to the interest is VALID. However, it does not ipso
facto give the petitioner the unbridled right to unilaterally adjust
rates and the same should still be subjected to mutual agreements.
B.1 CONTRACT OF ADHESION ARE NOT PER SE VOID.
 CONTRACT OF ADHESION: one party prepares the contract while the
other party merely affixes his signature.
 Valid: because the party who adheres to the contract is free to reject it
completely.
 To be invalidated, it must be shown that it is highly INEQUITABLE.
1. SERRA v. CA
 Contract was being assailed by one party who was a lawyer-
CPA for allegedly being a contract of adhesion.
 Given his educational background, he should be cautious in
transactions he enters into.
B.2. DETERMINATION OF PERFORMANCE BY 3RD PERSON
OBLIGATIONS AND CONTRACTS FINALS
 Parties may constitute a third person to determine the performance of the
contract.
o BINDING: Both parties know about the decision
o NOT BINDING: If only one knows.
o DETERMINATION MUST NOT BE EVIDENTLY
INEQUITABLE, OTHERWISE, COURT WILL DECIDE.
 Ex: A and B enter into a contract wherein B would sing in
the nightclub and X would be the one who will determine
the number and types of songs that must be performed. If
X makes a determination that B should sing 20 songs
without a break and if B should fail to adhere to the
requests of the customers even though the song is in a
different language or not known by him, his fee shall be
reduced. B
 REMEDY: B can go to the court who shal decide what is
equitable under the circumstances. COURT
INTERVENTION IS NECESSARY IN ORDER THAT
THE INTENT WILL NOT BE RENDERED
NUGATORY BY INEQUITABLE TERMS AND
CONDITIONS OF THIRD PARTY.
C. RELATIVITY OF CONTRACTS
 GR: Contracts are binding both the principal parties and invisible parties.
 Invisible parties to the contract: Assignees and heirs.
 EXCEPT: Obligations that are not transferrable based on their nature, as
mandated by law and by express stipulation of the parties.
o NATURE OF CONTRACT- Real right- transmissible | Personal
right- non-transmissible.
Cases
1. INTEGRATED PACKAGING CORPORATION v CA
 Company petitioner who was in default sued the supplier-
private respondent due to alleged failure of the latter to deliver
the materials necessary which led to the failure of petitioner’s
contract with another corporation (PHILACOR).
 SC: NO DAMAGES MAY BE AWARDED. First, the non-
delivery is justified by the failure of the petitioner to settle their
respective accounts and second, the supplier-private respondent
has nothing to do with the contract between petitioner and
PHILACOR. The demand sent by PHILACOR was also made
long after private respondent filed its respective complaint.
2. GAMES GARMENT v. ALLIED CORPORATION
 The bank merely facilitated the sale of property and provided
financing for the deed of sale.
4|S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
DEAN MEL STA. MARIA
 SC: The bank cannot be held liable for the balance of the
purchase price because the bank is not a party to the
contract. Assistance rendered did not make the bank a party to
the Deed. Third parties cannot be held liable if he is not a party
to a contract even if he is aware and has acted with knowledge
thereof.
3. DONA ADELA v. TRADE AND INVESTMENT
 Parties included in their compromise agreement a waiver of
confidentiality of the deposits of non-party over his deposits.
 SC: Violative of the mutuality principle. The waiver of
confidentiality lacks the required written consent of petitioner
and conformity of the receiver. It is basic that a compromise
agreement is only binding upon the parties, and not upon non-
parties.
4. SPS. PONTIGON v. HEIRS OF MELITON SANCHEZ
 SC: Even though the extrajudicial settlement is not notarized
and not a public document, the heirs are not third parties to
a contract and are still liable for the same. It is immaterial
whether it is a oral or written contract or public or private
document.
C.1 LAW EFFECTS THE TRANSFER OF ACTION EVEN WITHOUT
CONCURRING ACT OR ASSENT THERETO.
1. DKH HOLDING v CA
 Sole heir of the lessor refused to honor the lease contract
entered into by the deceased lessor contending that while he
inherited the property from the lessor, he is still not a party to
the contract.
 SC: Heir must honor the contract because in inheriting the
properties, he acquired all the rights and obligations of the
deceased lessor with respect to the property. What is valid and
binding against the deceased lessor is also binding upon him.
 TRANSMISSION OF RIGHTS AND OBLIGATIONS
MAY ALSO BE AGREED UPON BY THE PARTIES.
C.2 RULE REGARDING THE LIABILITY OF THE HEIR
 GR: Liable for the obligations of the inherited property.
 EXC: If liability is beyond the value of the property he received, the heir
cannot be held liable for the deficiency.
C.3 CONTRACTS CANNOT TAKE EFFECT WITH RESPECT TO
HEIRS/ASSIGS.
1. Nature of the contract does not allow transmission
OBLIGATIONS AND CONTRACTS FINALS
i. Pertains to personal rights.
ii. Involves exercise of special knowledge, genius, skill, taste,
ability, experience, judgment, discretion, integrity etc.
2. Stipulated by the parties disallowing such transmission.
i. Contract of lease stipulating that it cannot be subleased
without the consent of the lessor.
3. Law provides for non-transmission
i. Contract of voluntary deposit- depositary cannot deposit
the thing with a third person unless there is a stipulation to
the contrary.
ii.
D. WHEN CAN THIRD PARTY INTRUDE/DEMAND ENFORCEMENT
1. 1311- Stipulations pour autrui
2. 1312- Contracts involving Real rights
3. 1313- Contracts in fraud of creditors
4. 1314- Tort interference
1311- CONTRACTS POUR AUTRUI
 CONTRACT POUR AUTRUI: Enforcement may be demanded by the
party for whose the benefit it has been made, although not a party to the
contract, before revocation of the stipulation in his favor. (insurance, CC)
 REQUISITES
o Stipulation in favor the third person
 Need not be named.
o Stipulation must be a part, not the whole of the contract.
o Contracting parties must have clearly and deliberately conferred a
favor upon third person (not mere incidental benefit)
o None of the parties bears the legal representation/authorization of
the third party
o Favored party must communicated his acceptance before revocation
 No need to make a formal acceptance prior to bringing of
the suit.
 COMMENCEMENT OF AN ACTION TO ENFORCE
A PROMISE IS ACCEPTABLE.
 EXAMPLE
o Letter of credit transaction- importer and bank enters into an
agreement where the bank pays an exporter in another country of
goods ordered and delivered to the importer. The exporter benefits
from the stipulation in a contract between importer and bank.
CASES:
1. MARMONT RESORT HOTEL v. GUIANG
 Original contract: Memorandum of agreement between Marmont
Hotel and Maris Trading for the installation of complete water
5|S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
DEAN MEL STA. MARIA
supply facility which encroached on the property of respondent-
spouses, with their permission.
 The said encroachment paved the way for the memorandum of
agreement between MARIS TRADING and RESPONDENTS
which provides that in exchange for the possessory rights over their
property, Maris Trading will give them monetary considerations and
this contract was for the benefit of Marmont Hotel. However,
respondent spouses prevented MARMONT HOTEL from
inspecting the water facility in their property.
 SC: RESPONDENT SPOUSES ARE LIABLE FOR
VIOLATING STIPULATION PUR AUTRUI.
 Clear from the MOA between Maris and respondents that
petitioner Marmont is to benefit from such.
 Stipulation partakes the nature of POUR AUTRUI
wherein a clear and deliberate favor was conferred to a
third person which can be found in a contract entered into
by parties neither of whom acted as agent of beneficiary.
 Purpose of acquiring such land was to supply the water
requirements of MARMONT’s hotel.
 Neither Maris nor the respondents need a water supply
facility hence the interest of Marmont is not purely
incidental.
2. COQUIA v. FIELDMAN’S INSURANCE
 Fieldman’s Insurance and Manila Yellow Taxicab entered into an
agreement regarding an insurance policy in which it was stated that
the former shall indemnify the insured for the sums arising from
death or injury to any passenger including the driver, conductor and
inspector of the said vehicle.
 While the policy was in force, a driver of the taxicab insured met an
accident which resulted to the death of the driver. Manila Yellow
then filed a claim of 5K which was rejected by Fieldman’s Insurance
and proposed 2K. The former rejected the same and made a counter-
offer of 4K but the latter did not accept. As a result of which, the
parents of the taxi driver filed a complaint for collection against
Fieldman’s Insurance.
 Trial court rendered the assailed decision which granted the claim
of 4k in favor of Manila Yellow and parents of deceased driver. On
appeal, Fieldman is contending that the Coquias have no cause of
action against them since they don’t have any contractual
relation with them.
 SC: COQUIAS HAVE CAUSE OF ACTION. A careful perusal
of the insurance policy will show that the insurance company will
be legally liable for death or bodily injury of any passenger of the
cars of insured and shall indemnify him or his representatives.
OBLIGATIONS AND CONTRACTS FINALS
 Moreover, the deceased driver paid 50% of the corresponding
premiums which were deducted from his weekly commissions.
COMMENCEMENT OF AN ACTION TO ENFORCE A PROMISE IS
ACCEPTABLE.
1. MANDARIN VILLA v. CA
 Owner of the restaurant refused to honor a credit card on the ground
that the validating machine indicated that the card has expire despite
showing otherwise upon examination of the card itself.
 SC: OWNER IS LIABLE FOR DAMAGES AS A RESULT OF
NEGLIGENCE AND 1131.
i. There is an agreement between the Bankard and the
Mandarin Villa Seafood Village which expressly provided
that the latter should honor validly issued PCCCI credit
cards presented by the holders provided that the card
expiration date has not yet elapsed and that the number
does not appear on the cancellation bulletin of lost.
ii. This stipulation conferred upon the private respondent a
favor which gives him a cause of action against the Seafood
Village.
iii. The offer of the private respondent to pay by means of the
credit card constitutes an explicit communication of his
acceptance.
2. YOUNG v. CA
 Defendant Phil. Holding is the former owner of a piece of land and
building composing 6 units, one of which is occupied by the
petitioner (Rebecca Young et.al). The defendant then secured an
order from the City Engineer of Manila to demolish said building
which prompted petitioner to file an action to annul the demolition
order.
 Later, the parties submitted a compromise agreement stating that all
persons claiming rights bind themselves to voluntarily and
peacefully vacate the premises which are subject of the demolition
order and surrender possession to Phil. Holding provided that should
it decide to sell the property, the petitioner (Rebecca Young) shall
have the right of first refusal.
 Phil. Holding sold the subject property to PH credit Corporation by
way of dacion in payment who then sold the subject properties to
Antonio Young and spouses Lu. This prompted petitioner Rebecca
Young to file a case of the annulment of sale for specific
performance and damages on the ground that they were denied of
their right of first refusal.
6|S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
DEAN MEL STA. MARIA
 Trial court dismissed the case on the following grounds: (1) that
Rebecca Young was not a party to the compromise agreement and
said agreement did not contain her signature; (2) Rebecca failed to
present any evidence that she demanded from defendant-owners; (3)
She did not inform the obligor of her acceptance of the right of first
refusal.
 SC: REBECCA YOUNG DID NOT COMMUNICATE HER
ACCEPTANCE WHETHERE EXPRESSLY OR
IMPLIEDLY. The contention that her present claim or demand is
still valid provide that the stipulation has not yet been revoked
deserve no merit because the SALE OF SUBJECT PROPERTY
CONSTITUTE REVOCATION OF THE RIGHT OF FIRST
REFUSAL.
1312- CONTRACTS CREATING REAL RIGHTS.
 A third person not a party to the contract may be affected/subject to its
provisions.
o Lease of real estate between lessor and lessee will bind subsequent
buyer.
o Lessor and lessee- sublessee is bound by said contract.
o Successful judicial ejection: trespassers, guests or other occupants
even with permission of the lessee, transferee pendente lite, sub-
lessees, co-lessees, members of the family.
Cases:
1. ESTATE OF ORLANDO LLENADO v. EDUARDO LLENANDO.
 SC: Provisions of the lease contract which was transmitted to the
heirs must be exercised otherwise it can be lost.
i. Contract of lease is generally transmissible and death of
party does not excuse non-performance of the contract,
ii. Stipulation that expressly provides that the lessee
transferred all his rights and interests including option to
renew in favor of Orlando, his heirs and assigns.
iii. While option to renew is an enforceable right, it must
be exercised before it can be given effect.
iv. General rule: notify the lessor before at least at the time
of the expiration of the original term.
v. Silence of the lessee or persistence despite demand cannot
be taken to mean that they opted to renew the contract.
1313- CONTRACTS IN FRAUD OF ANOTHER.
 Creditors are protected with respect to contracts intended to defraud them.
Even if he is not a party to the same, he may rescind it.
1314- TORT INTERFERENCE.
OBLIGATIONS AND CONTRACTS FINALS
 Contracts are binding between the parties and they are expected to comply
with it in keeping with good faith, usage, and law.
o REQUISITES
1. Existence of valid contract
2. Knowledge on the part of the third person regarding the
existence of such contract
3. Interference is without legal justification/excuse.
 PROPER BUSINESS INTEREST IS
ACCEPTABLE.
 A stranger owes it to the parties not to interfere to a performance of
contract.
o INTERFERENCE WITH INTENT TO INJURE= LIABLE
FOR DAMAGES.
1. One has property rights and privileges with respect to the
use or enjoyment interfered with.
2. Invasion is substantial
3. Defendant’s conduct is the legal cause
4. Invasion is either intentional, unreasonable or due to
negligence.
o INTERFERENCE ACTING IN THE LAWFUL EXERCISE
OF RIGHT= NOT LIABLE.
o Party guilty of the breach may recover from the one who induce him
to violate his contract.
Cases:
1. SO PING BUN v. CA
 A company leased property from lessor DCCSI. After the lease has
expired, the company still occupied the premises and when the
managing partner of said company died, the petitioner used the
property as a warehouse. Upon receipt of notice to vacate, the
petitioner refused and asked the execution of formal contracts of
lease in which the lessor agreed. Then the company sue for
nullification of contract on the ground of contractual interference.
They won but did not order petitioner to pay damages, only
attorney’s fees.
 SC: Petitioner is liable for attorney’s fees. In this case, petitioner
asked DCCSI to execute lease contracts in its favor and as a result
deprived corporation of its property right. However, since petitioner
acted based on his business interest rather than wrongful motives,
he shall not be considered as a malicious interferer which
necessitates imposition of obligatory damages. However, this does
not relieve the petitioner of legal liability for entering into contracts
and causing breach of existing ones.
2. ANALITA INOCENCIO v. HOSPICIO DE SAN JOSE
7|S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
DEAN MEL STA. MARIA
 Lessor entered into lease contracts with the former sublessees of the
former lessee.
 SC: No tort interference when motivation is purely economic
interest.
III. PERFECTION AND KINDS OF CONTRACT.
1315- PERFECTION OF CONTRACT
 GR: Contracts are perfected by mere consent and from that moment is bound
to all the possible consequences which according to their nature may be in
keeping with good faith.
 EXC: 1316- REAL CONTRACTS
o Pledge, deposit, commodatum are not perfected till the delivery.
CONTRACT PERFECTION EXAMPLE
Ordinary Mere consent Consensual contracts
(contract of sale)
Real Delivery of the object Ownership over object of
contract of sale, pledge,
commodatum, deposit.
A. CONTRACT AS THE LAW BETWEEN THE PARTIES
 Parties are expected to comply in keeping with good faith, usage and law.
 Non-fulfillment will make the violator liable.
 REQUIRED DILIGENCE: That of a good father of the family.
o Unless there is another standard of care
 Also obliged to deliver with the determinate thing all its accessions and
accessories even though they are not mentioned.
 LIABLE FOR FORTUTIOUS EVENT.
B. REAL CONTRACTS
 Commodatum- delivery is essential since bailee in commodatum acquires
the use of the thing loaned but not its fruits.
 Pledge- constituted by owner of object to be pledged to secure a loan and it
is indispensable that it should be in the possession of the creditor/3 rd person.
 Deposit- Constituted the moment a person receives a thing belonging to
another with the obligation of safely keeping it and returning the same.
C. AGENCY AND LEGAL REPRESENTATION (Art. 1317)
 CONTRACT OF AGENCY- a person binds himself to render some service
or make some representation on behalf of another with consent/authority.
o An agent shall act in accordance with the instructions of the
principal
o Exercise diligence of good father.
o Sale of piece of land/interest- shall be in writing otherwise void.
OBLIGATIONS AND CONTRACTS FINALS DEAN MEL STA. MARIA
CONSENT/AUTHORITY EXCEEDS HIS RATIFICATION LIABILITY 2. HEIRS OF POLICARNIO URETA v. HEITS OF LIBERATO
POWER URETA
X X X Unenforceable  SC: One of the heirs of inherited property failed to get the authority
 x x Liable of his co-heirs in signing extrajudicial partition and sale=
  x Not liable TRANSACTION IS UNENFORCEABLE.
   Liable
C.1 EXPRESS OR IMPLIED RATIFICATION BEFORE REVOCATION.
 AUTHORITY OF PARENTS TO REPRESENT UNEMANCIPATED 1. REGAL FILMS v. CONCEPCION
CHILD  Agent of an actor entered into an agreement with Regal Films
designed to constitute an addendum in order to settle a lawsuit.
Family Code provides ACTS COURT AUTHORITY However, said actor disavowed said agreement contending that the
that parents have parental Simple acts of NOT NEEDED agent has no more authority when she contracted the same. Hence,
authority over administration (repairs) when the preliminary conference in court was held and Regal Films
unemancipated children Acts of dominion NEEDED manifested that it would release the actor from his contracts, the
without need of court (selling, encumbering, actor had a change of heart and said that he was now accepting the
appointment alienating) addendum. A decision by way of compromise agreement was
Cases: entered by the court.
1. YAO KA SIN v. CA  SC: COMPROMISE AGREEMENT IS UNENFORCEABLE.
 President and chairman entered into a contract with another A compromise agreement partakes the nature of a contract which
corporation despite not having authority under the law or corporate requires three essential elements: consent, object certain, cause of
by-laws to do so. obligation. Consent is manifested by the mere meeting of the offer
 SC: CONTRACTS ARE UNENFORCEABLE. Corporations can however, the offer must be certain and the acceptance must be
only act through its officers and agents so far as limitations may be seasonable and absolute. In the present case, the outright rejection
imposed by special charter, by-laws, or statutory provisions. In the made known to the other ended the offer and when he manifested
present case, while it was indeed the present/chairman who entered the intention to avail of the same, there was nothing to accept
into the contract, the by-laws provide that such authority is not anymore.
exclusively lodged with him but with the Board of Directors. The
present may only sign the same to facilitate the execution of the CHAPTER 2: ESSENTIAL ELEMENTS OF CONTRACTS
contract.
 APPARENT AUTHORITY WAS NOT PROVEN. Petitioner 1318: ESSENTIAL ELEMENTS OF CONTRACTS
also contends that the company has clothed the president with 1. Consent
apparent authority and should be bound by the contract entered into 2. Object certain which is the subject matter of the contract
by him in good faith. However, petitioner failed to prove that 3. Cause of the obligation which is established.
company has clothed the president with apparent power to enter into
a contract. Apparent authority may result from (1) general manner VALIDITY OF CONTRACT
by which the corporation holds out an officer (2) acquiescence in his  All three elements must concur.
acts of particular nature.  Absence of one would produce an inexistent contract which produces no
i. Francisco v GSIS and Board of Liquidators v Kalaw effect and can be invoked by any person.
1. Court found sufficient evidence based on conduct
ad actuations of corporations concerned. GSIS TWO TYPES OF VOID CONTRACT
accepted unconditionally= ratification. In the 1. VOID AB INITIO: One of the elements in 1318 is not present.
second case, practice of corporation to allow 2. VOID PURSUANT TO ART. 1409- prohibited by law/beyond human
general manager to negotiate and execute commerce.
contracts without prior board approval.
8|S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
OBLIGATIONS AND CONTRACTS FINALS
PARI DELICTO
 NOT APPLY: when one of the elements of valid contract is missing and
when it is an absolutely simulated contract.
Case: PAULO BALLESTEROS v. ROLANDO ABION
 A person who is not the owner of the property and has no authority
over the same leased an apartment to another.
 SC: VOID. It does not have a cause and an object.
 GOOD FAITH IS IMMATERIAL IN DETERMINING
VALIDITY.
I. CONSENT
1319: CONSENT
 Manifested by the meeting of the offer which must be certain and the
acceptance upon the thing and the cause must be absolute.
 QUALIFIED ACCEPTANCE= counter-offer.
 No agreement unless terms are sufficiently complete.
 Parties must agree on the same thing, in the same sense and their minds must
meet on every point. So long as there is uncertainty/indefiniteness, there is
no complete contract.
 ACCEPTANCE: absolute, may be expressed or implied.
 IN A CONTRACT OF SALE, THE MANNER OF PAYMENT OF
PURCHASE PRICE IS ESSENTIAL BEFORE A VALID AND
BINDING CONTRACT CAN EXIST.
o If they agreed on a certain price but still has to agree on the manner
of how and when the down payments and installments are to be paid,
NO CONTRACT.
 Meeting of the minds must be free, voluntary willful and with reasonable
understanding of various obligations.
A. STAGES OF PERFECTION OF CONTRACT
1. Offer- manifestation of willingness to enter into a bargain. It is inviting
an acceptance which, if given, will finally create a contract.
2. Negotiation- initiated by an offer.
 Offers are not binding commitments until perfection of contract.
 Parties are free to stop the negotiation and offer may be withdrawn.
ACTION EFFECTIVITY
Acceptance Time of actual knowledge.
Withdrawal Immediately after manifestation (by mailing and not
knowledge of withdrawal)
Offer through an Acceptance is communicated to him.
agent
9|S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
DEAN MEL STA. MARIA
Cases:
1. SALONGA v. FERRALES (Unaccepted offer)
 By way of compromise, the defendant merely offered the property,
but such offer was not accepted
 SC: NO CONSENT. Contract to sell is a bilateral contract. When
there is merely an offer without the acceptance of another, there is
no consent. In the present case, the defendant not only did not accept
but also rejected the offer.
2. ADELFA PROPERTIES v CA (acceptance in contract of sale)
 Acceptance may be made either in formal or informal manner and
may be shown by acts, conducts or words of the accepting party
except where a formal acceptance is required.
3. JARDINE DAVIES v. CA (conditions pertaining to performance)
 A company accepted the bid/offer of a particular supplier and stated
in its letter of acceptance that the awarding of project is subject to
certain basic terms and conditions pertaining to the
execution/performance of the contract.
 SC: CONDITIONS ARE NOT QUALIFIED ACCEPTANCE.
The assailed conditions were imposed on the performance of the
obligation rather than the perfection of the contract. Furthermore,
the submission of the performance bond and all-risk insurance
constitute implied acceptance.
 VALIDITY OF CONDITIONS.
i. Pertains to performance/execution of contract
1. Valid, failure to comply will give the other party
options/remedies to protect interests.
ii. Perfection of contract
1. Serves as a counter-offer. Failure to comply
would lead to failure of contract.
4. CONCHITA TAN v. PLANTERS PRODUCT
 One of the parties argued that non-commercial provisions were not
material to the execution of the lease contract and its non-
consideration will not negate the creation of the contract.
 SC: AREA OF AGREEMENT MUST EXTENDS TO ALL
POINTS THAT PARTIES DEEM MATERIAL. If such
stipulations even though not ordinarily significant was considered
material by the parties, those stipulations will likewise be agreed by
them.
B. ACCEPTANCE
OBLIGATIONS AND CONTRACTS FINALS DEAN MEL STA. MARIA
 1321- Person making the offer may fix the time, place and manner of If sale of land- must be in writing otherwise VOID.
acceptance which must be all complied with. Offeror will not be bound in
any other manner unless he agrees to the same.
o Contract is perfected only from time an acceptance of an offer is D. INEFFECTIVITY OF THE OFFER.
made known to the offeror.  1323- an offer becomes ineffective if any of the following will happen before
the acceptance is conveyed.
Case: o Death
1. SALVADOR MALBAROSA v. CA o Civil interdiction
 Respondent made its offer through the Vice-Chairman of the Board. o Insanity
The letter sent to the petitioner clearly indicated that should o Insolvency
petitioner agrees to the terms and conditions stated in the contact, he  When an offer becomes ineffective, nothing can be accepted.
should affix his signature and write the corresponding date.  ‘before acceptance is conveyed” -before acceptance come to the actual
However, petitioner did not sign on the ground that he needed more knowledge of offeror.
time to think. No contract was perfected.  Case: VILLANUEVA v. CA
 Petitioner now argues that he had affixed his conformity on a later o Person offered to purchase certain foreclosed properties and such
date, he failed to transmit the same to the respondent. By the time offer was accepted by the bank but was not relayed immediately to
he conformed to the same, the respondent already has withdrawn its the offeror and has come to his knowledge when the bank was
offer as evidenced by the letter sent to the petitioner. placed under receivership for being insolvent.
 Petitioner now contends that he was not given reasonable time to o SC: Offer became ineffective and no contract was created. In this
accept or reject the offer. Indubitably, there was no time frame fixed case, the person did not receive any notice of approval of his offer.
for the acceptance and rejection of said offer and in this kind of Hence, the insolvency of the bank and the consequent appointment
instances, the offer must be accepted IMMEDIATELY. of receiver restricted the bank’s capacity to act on its properties.
2. MATIAS v. CA
 A new owner of a leased property offered to sell the property to the
lessee but said offer was ignored by the latter who instead filed a E. OPTION CONTRACT (1324)
suit to compel the former to sell the property in an amount and  OPTION CONTRACT- grants a privilege to buy/sell at a determined price
manner which the latter feels reasonable. within the agreed time.
 SC: REJECTED THE APPEAL OF THE LESSEE. It was  Said privilege belongs to the buyer and he may not be compelled to exercise
evident from the facts that petitioners have already been in arrears option to buy before the time expires.
in the payment of rentals but despite such, they were given the right  Consideration may be anything if value.
to top. Instead of discussing the terms, lessee opted to file a case and
relied on the false assumption that right to fix the price is included RULES IN CASE OF AN OPTION.
to the rights granted to them by law. 1. NO CONSIDERATION: Right to withdraw: before
acceptance/before knowledge of such acceptance.
C. AGENCY i. It must be communicated.
 1322- Offer made through an agent is accepted from the time such acceptance ii. Must not be exercised whimsically, otherwise,
was communicated to the agent. DAMAGES.
2. SEPARATE CONSIDERATION: contract of option.
CONSENT/AUTHORITY EXCEEDS HIS RATIFICATION LIABILITY i. Withdrawal=breach of contract.
POWER ii. Option is an INDEPENDENT CONTRACT ITSELF
X X X Unenforceable and must be distinguished from projected main agreement.
 x x Liable 1. If offer was withdrawn before exercise of option:
  x Not liable REMEDY IS NOT SPECIFIC
   Liable
10 | S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
OBLIGATIONS AND CONTRACTS FINALS DEAN MEL STA. MARIA
PERFORMANCE BUT DAMAGES FOR 2. INSANE/DEMENTED PERSONS
BREACH OF OPTON.  EFFECT: Annullable
Option Contract Option Anything of value  A PERSONAL RIGHT. Agreement may not be avoided by another
Contract of sale Money Price certain party/3rd person.
i. Still binding if
E.1 EARNEST MONEY AND EARNEST DEPOSIT 1. Insane has no guardian
 EARNEST MONEY- considered part of the price in a contract of sale. 2. No reasonable cause to believe that he is insane
o May be a proof of perfection but what establishes the existence of 3. Already executed that parties cannot return to
perfected sale is proof of concurrence of all essential elements. status quo
 EARNEST DEPOSIT- Serves as guarantee so that buyer would not back 4. Agreement is beneficial/equitable for the insane.
out is not earnest money.  PRESUMPTION: Contract was entered by competent persons.
i. To annul, the insanity must be proved to be existing at the
F. BUSINESS ADVERSTISEMENTS/BIDS. (1325-1326) time of the perfection of contracts.
 Business advertisements are not definite offer but mere invitations to make  People suffering from mental incapacity (1) Idiot- insane from birth;
an offer. However, the advertisement may also contain a certain offer. (2) lunatic- one time sane but lost his use of reason; (3) mental
 Advertisement for bidders are simply invitations to make proposals and the weakness that does not render person totally incapacitated to
advertiser is not bound to accept the highest/lowest bidder. manage his business and properties.
o Advertisement: dissemination of documents  Insanity alleged must have direct bearing on the agreement.
o Offers: bid proposal
o Acceptance: favorable reply. 3. DEAF-MUTES WHO DO NOT KNOW HOW TO WRITE
 EFFECT: Annullable.

H. VALIDITY OF CONTRACTS
G. PERSONS WHO CANNOT ENTER INTO CONTRACTS (1327)
1. UNEMANCIPATED MINORS VALID VOID ANNULLABLE
 EFFECT: Annullable/voidable. 1. Lucid interval 1. Minors
 A PERSONAL RIGHT: Those who are capable cannot allege 2. Insane (under certain) 2. Insane/Demented
3. Deaf-mutes who do
the incapability of those incapacitated.
not know how to
 REIMBURSEMENT: Only those that redounded to the write
benefit. 4. Drunkenness
5. Hypnotic spell
 Case: BRAGANZA v. DE VILLA ABRILLE 6. Obtained under
i. Two minors signed a promissory note without telling the duress
creditor their ages and where the debtor sought to enforce 7. Mistake
the promissory notes against them.
ii. SC: Minors can set up defense of minority. Failure to 1. LUCID INTERVAL- valid.
disclose their minority is immaterial because they had no  Lucid interval- period of time when an insane act with reasonable
juridical duty to disclose their inability. In order for him to understanding, comprehension.
be liable, there must be ACTIVE  If shown to be mentally deranged recently, condition is presumed
MISREPRESENTATION (employment of actual fraud). to continue.
However, the minors should still make restitution to the 2. DRUNKENNESS- annullable
extent that redounded to their benefit.  Intoxication must be of such a character that would perpetuate an
undue advantage over the drunken person.
11 | S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
OBLIGATIONS AND CONTRACTS FINALS
i. Drunkenness was brought by opposite party.
ii. There was fraudulent advantage.
iii. It deprived the party of his reason of an agreeing mind.
 If it only clouds/darkens reason: not voidable unless the same has
been obtained by fraud/circumvention.
3. HYPNOTIC SPELL – annullable
4. UNDER DURESS- annullable
 fraud, violence, intimidations, undue influence= no real assent.
5. MISTAKE (1331)
H.1 MISTAKE
 Must refer to
o substance of the thing which is the object of the contract
o conditions which principally move either of parties to enter into
contract
 If refers to identity/qualifications- will vitiate consent if principal cause.
 Simple mistake shall give rise to correction.
Cases:
1. SPS. THEIS v. CA (different property from deed of sale)
 The seller sold a property to the buyer via a dee of sale, but such
property did not correspond to the one appearing in the deed. The
mistake was not due to the fault of any parties. In fact, as soon as
the seller knew of such mistake, he immediately offered another
property or refund of money, but such offers were unreasonably
refused by the buyers which prompted the seller to file for
annulment of contract.
 SC: CONTRACT MAY BE INVALIDATED. The mistake
involved is related to the substance of the thing and the seller was in
good faith.
2. ROMAN CATHOLIC v. REGINO PANTE
 In this case, the church claimed that the contract shall be annulled
on the basis of mistake due to the buyer’s misrepresentation as to his
qualification. It contends that the lot was sold on the mistaken
impression that Pantes was the actual occupant of the land and
asserts that actual occupancy or residence is a necessary
qualification to acquire the said land.
 SC: NO DELIBERATE MISREPRESENTATION. ACTUAL
OCCUPANCY DOES NOT APPEAR TO BE A NECESSARY
QUALIFICATION. Subject land was only 2x16 strip of rural land
and could not serve any purpose aside from being a passageway.
Also, the fact that the Church could have easily conducted an ocular
inspection over its own property to verify if Pantes is an actual
occupant belies any misrepresentation. Finally, the parish priest
12 | S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
DEAN MEL STA. MARIA
knew the fact that Pante was not an actual occupant but still allowed
the sale of land.
H.2 INABILITY TO READ/FOREIGN LANGUAGE
1332: DUTY OF PERSON ENFORCING THE CONTRACT.
 In case one of the parties is unable to read or the contract is in a foreign
language and mistake/fraud is alleged, the person enforcing the contract has
the burden to show that the terms was fully explained to said party.
 PRESUMPTION: they understood the terms they voluntarily signed.
Cases:
1. LUSTAN v. CA
 There was dispute on whether the Deed of Definite Sale was an
equitable mortgage or just a simple mortgage.
 SC: EQUITABLE MORTGAGE. The illiterate owner was made
to understand.
2. LIM v. CA
 A deed of Confirmation of Extrajudicial Partition was allegedly
written in English by an elderly woman who did not even know the
language.
 SC: NO EVIDENCE TO SHOW THAT THE WOMAN WHO
IS ILLITERATE UNDERSTOOD THE SAME. The said
document was prepared by the woman’s brother who was a CPA-
lawyer and it was also postulated that he took advantage of the trust
of the woman in him.
3. ARRIOLA v. MAHILUM
 Sister of an illiterate was able to have a document signed by the latter
on the misrepresentation that a certain property of him was not
included in the partition but in reality, the same was included.
 SC: ILLITERATE MAY RECOVER HIS PROPERTY. The
partition of the land was fraudulent employed through
misrepresentation that a property was not among those that will be
distributed.
4. SWIFT FOODS v. SPS. MATEO
 The records reveal that respondents released stocks even without
securing clearance. They also admitted that there were times they
released stocks directly to customers. When asked for their reason,
they admitted that they did not read lest understand the warehouse
agreement and simply followed verbal instructions.
 SC: Newness/lack of experience is not an excuse for negligence.
Ordinary diligence necessitate that he should have atleast inquired
with the head office. Also, the presumption that a party to an
agreement knows the import of his contract and is bound thereby
does not help his cause.
OBLIGATIONS AND CONTRACTS FINALS
5. LINA CALICAP-ASMERON v. DBP
 Petitioner assails the validity of a deed of conditional sale on the
ground that she failed to give full consent due to her lack of legal
and technical knowledge.
 SC: 1332 IS INAPPLICABLE. Petitioner did not specify which
of the stipulations she had difficulty and deficiency in
understanding. Also, the stipulations were worded and plain enough
for even one with slight knowledge of English to easily understand.
Moreover, petitioner is not illiterate and does not have any difficulty
with English language. In addition, her act of asking the officer of
the bank why she had been made to sale a deed of conditional sale
reflects full discernment on her dealings with the DBP.
1333: ASSUMPTION OF RISK
 No mistake if the party alleging it knew the doubt, contingency, risk affecting
the object of the contract.
 When parties voluntary enter with full knowledge of facts, there is no
such mistake that can affect the validity of the contract.
 WOOD v. BOYNTON (stone)
o Seller not knowing the nature of the stone he found sold it for only
one dollar to the buyer after they discussed their ignorance to the
nature of the stone which turned out to be a diamond.
o NO ANNULMENT/RESCISSION. When they transacted, there
was conscious uncertainty.
1334: MUTUAL ERROR
 Unilateral mistake of law as to the legal effect of an agreement is not a ground
to annul a contract.
 Except: Mistake as to legal effect of the contract is mutual + it frustrates the
real purpose of the parties.
1335: ACTS OF DURESS
 Violence- serious and irresistible. May be annulled even if employed by 3 rd
person.
 Intimidation- reasonable and well-grounded fear of an imminent and grave
evil upon his person/property. It must excite the reasonable apprehensions of
person of ordinary courage. May be annulled even if employed by 3rd person.
 Threats
o threat to enforce one’s just/legal claim through competent authority
does not vitiate consent.
o If party threatened would rather pay than resort to litigation= no
remedy.
o However, if it is made to ruin something in order to coerce such
party to the contract= TANTAMOUNT TO DURESS.
13 | S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
DEAN MEL STA. MARIA
o Threatened civil action may also amount to duress where parties are
not on equal footing.
 Undue influence (1337)- when a person takes improper advantage of his
power over the will of another. [Influenced is acquired and abused,
confidence is reposed and betrayed.]
o Confidential, family, spiritual and other relations must be
considered.
o Solicitation, importunity, argument and persuasion= not undue
influence.
Cases
1. VDA. DE LACSON v. GRANADA
 A contract entered into during Japanese occupation is sought to be
nullified on the ground that said parties where only constrained to
enter into such for the fear of danger for himself and his family.
 SC: INTIMIDATION WAS NOT ENOUGH. There must be
specific acts/instances of such nature and magnitude to inflict
fear/terror.
2. LAPERAL v. ROGERS
 A person was told by Japanese soldiers to sell his house and
threatened him that failure to do so would be considered as hostility
against the Japanese which prompted him to sell the house.
 SC: ANNULLABLE. CONSENT WAS COERCED BY
DIRECT INTIMIDATION.
3. DE LEON v. CA
 Mother claims that she was intimidated into entering a letter
agreement by the estranged wife of her son by threatening to bring
her son to court to ask for support, scandalize the family by filing
baseless suits.
 SC: THREAT DID NOT SATISFY REQUIREMENTS TO
CONSTIUTE INTIMIDATION.
i. Intimidation is the determining cause.
ii. Threatened act is unlawful/unjust
iii. Threat be real/serious (evident disproportion between evil
and resistance)
iv. Produces reasonable and well-grounded fear from the fact
that person who made the threats have the means/ability to
inflict threatened injury.
4. BANEZ v. CA
 Respondent contends that a letter from a Senator unduly influenced
the PHHC to transfer certain property to another person.
 SC: NO UNDUE INFLUENCE. No proof that the transfer of rights
was solely dependent on the strength of the letter and that there has
OBLIGATIONS AND CONTRACTS FINALS
been approval and recommendation of the transfer from various
officers.
5. MARUBENI v. LIRAG
 An agreement was sought to be annulled on the ground that it was
obtained from a government agency because of alleged use of
influence of executive officials.
 SC: Not merely voidable but NULL AND VOID for being contract
to public policy.
1338- FRAUD
 Fraud- false misrepresentation of a material fact made by word or by
conduct with knowledge of its falsehood.
 THERE MUST ALWAYS BE DAMAGE/INJURY.
 WAYS OF COMMITTING FRAUD
o Use of insidious words/machinations
o Failure to disclose despite duty to reveal them
o Usual exaggerations in trade
o Mere expression of opinion.
A. Through insidious words or machinations
 RIVERO v. CA: nephew of an old illiterate woman took advantage of her
predicament by making her sign a contract of sale believing that the same
was mere contract of mortgage.
 SC: CONTRACT WAS ANNULLABLE because consent was obtained
through fraudulent machinations.
B. Failure to disclose despite duty to disclose them.
 Parties are not duty bound to make known to each other any fact which is
within their knowledge
 Mere fact that one of the parties have superior knowledge of value of
property does not per se constitute fraud.
 HOWEVER, if there is a LEGAL AND EQUITABLE DUTY to reveal
certain facts material to the transaction OR there is a confidential
relationship between the parties, failure to observe will constitute FRAUD.
Cases:
1. ANGEL TALAMPAS v. MOLDEX
 Contractor and owner entered into a contract for the former to
develop the property of the latter. Mobilization has already started
when the owner decided to unilaterally cancel the contract. In this
case, petitioner claims actual damages due to premature termination
and moral and exemplary damages due to the alleged deliberate
14 | S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
DEAN MEL STA. MARIA
failure of the respondent to inform him of the project’s lack of
clearance from the DAR.
 SC: CONTRACTOR IS ENTITLED TO ACTUAL DAMAGES
DUE TO UNDUE TERMINATION BUT NO AWARD OF
EXEMPLARY OR MORAL DAMAGES DUE TO FRAUD.
While petitioner contends that respondent deliberately did not
inform him that they do not have a clearance from the DAR, nothing
on evidence would show that the respondent was under legal or
contractual obligation to disclose the project’s conversion clearance
status to the petitioner or that the same clearance was the principal
consideration by him in entering the said contract.
 TO OBTAIN MORAL AND EXEMPLARY DAMAGES, The
fraud/breach must be wanton, reckless, malicious, in bad faith,
oppressive and abusive. ATTORNEY’S FEES MAY NOT BE
AWARDED when there is no sufficient showing of bad faith.
C. Usual exaggerations in trade
 In trade, usual exaggerations are employed to induce a customer into
consummating a particular product.
 TO CONSTITUTE FRAUD, it must be active misrepresentation.
 If the same is within the means of investigation by one of the parties and still
failed to do so, there is no fraud despite the exaggeration.
D. Mere expression of opinion (1341)
 GR: Opinions are not regarded as representation of facts and do not signify
fraud.
 EXC: When given by one is thoroughly knowledgeable or an expert in the
field that he knows that his opinion will turn out to be false but still induced
the other party.
E. Misrepresentation by third person (1342)
 GR: Misrepresentation by third person will vitiate consent only if it created
a SUBSTANTIAL MISTAKE and the same is mutual.
Case:
1. RURAL BANK OF CALOOCAN v. CA
 Person induced an old woman to co-sign a promissory note as debtor
and mortgaged said property of the woman even without her having
full knowledge as to the nature of the contract.
 SC: ANNULLABLE ON GROUND OF MISTAKE IN GIVING
THE CONSENT. Both the old woman and the bank committed
mistake when they consented to the contract.
OBLIGATIONS AND CONTRACTS FINALS DEAN MEL STA. MARIA
F. Misrepresentation made in good faith (1343)  SC: ONLY INCIDENTAL.
 GR: Any fraud is a misrepresentation, but every misrepresentation is not  While indeed, Woodhouse
fraudulent. misrepresented himself to be a
 EXC: When done in good faith and party does not have knowledge of its holder of exclusive franchise
falsity= MERE ERROR. which induced the other party
to enter into a contract with
G. NATURE OF FRAUD NEEDED TO ANNUL THE CONTRACT (1344) him, it is shown that principal
 IN ORDER TO ANNUL A CONTRACT obligation he undertook was to
o Fraud must be of serious nature. There must be intent to injure. secure franchise for the
o Parties must not be in pari delicto. partnership. [Both are liable
o Must occur in dolo causante instead of being dolo incidente. for damages \]
 Both are grounds for issuance of writ pf prel. Attachment
to put a property within the jurisdiction of the court while
the case is pending.

2. SPS. TONGSON v. EMERGENCY PAWNSHOP

Case  Parties entered into a contract of sale of a land for a certain amount
1. ALEJANDRO TANKEH v. DBP of money. However, petitioners are now contending that their
 SC: Distinction between dolo causante and dolo incidente. consent was vitiated due to the misrepresentation of the defendant
 If there is fraud in the execution of the contract= DAMAGES. that they have sufficient funds to pay the property. According to
 QUANTUM OF EVIDENCE: CLEAR AND CONVINCING. petitioners, the fraud warrants nullification of contract while
defendant denies the fraud and insists on voluntary signing of
DOLO CAUSANTE DOLO INCIDENTE petitioners.
 SC: NO CAUSAL FRAUD TO ANNUL THE CASE. The
Serious fraud Incidental fraud
assurance that the check was fully funded was not the principal
May be present or employed at time of birth/perfection of contract inducement for the signing of the petitioners of the Deed of Absolute
Without which, the other party Without which, party will still enter Sale. Even before such issuance of check, parties have already
would not enter to the contract to the contract. agreed to the transaction and the petitioner were never tricked into
Determines/essential cause of Only a particular or accident of selling their property.
consent obligation.  HOWEVER, THERE IS FRAUD IN A GENERAL SENSE.
Must be proven by full, clear and convincing evidence General fraud is present when defendant inveigle the petitioners to
accept a worthless check which was performed at the consummation
VOIDABLE + DAMAGES DAMAGES stage of their obligations. Despite repeated demands, defendant
Example Example: Woodhouse v. Halili failed to pay his balance and account for the useless check. As a
(1) no intention to sell but was  Parties entered into a result of the substantial breach, RESCSIION OF THE SALES
tricked to selling the same by partnership for bottling and CONTRACT IS PROPER AND JUSTIFIED. Petitioners should
employing misrepresentation as distribution of softdrinks. return the initial payment while defendant is not entitled to more
to the document being signed However, said plan failed to time to pay the remaining balance to erase the default he incurred.
(2) Forged signature materialize on the ground that
(3) seller was seriously sick and Woodhouse intended to `1345- SIMULATION OF CONTRACTS
died a week after the signing of defraud the company because  ABSOLUTE SIMULATION= VOID.
the same. he was not actually the owner o There is a colorable contract but no substance since parties do not
of franchise of softdrink have the intention to be bound by it.
bottling operation.
15 | S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
OBLIGATIONS AND CONTRACTS FINALS DEAN MEL STA. MARIA
o
Apparent contract was not really desired/intended to produce legal Services not contrary to law, morals, Sale of vain hope or expectancy.
effect. good customs, public order or public
 RELATIVE SIMULATION- PARTIES ARE STILL BOUND BY REAL policy
AGREEMENT. Impossible things/services (become a
o False cause to conceal their real agreement. monkey)
o Parties are still bound by such real agreement. Indeterminate object (dee, fruit)
o Simulation only pertains to content and terms of the contract.
Cases
Case: 1. BLAS v. SANTOS (share in the conjugal partnership)
1. HEIRS OF POLICRONIO URETA v. HEIRS OF LIBERATO  The wife agreed to give whatever share in the conjugal partnership
URETA property to heirs once the husband dies.
 ABSOLUTE SIMULATION. The transfer was purely for  SC: VALID. NOT FUTURE INHERITANCE. It is not an
taxation purposes without really intending to transfer ownership obligation or promise made by the maker to transmit 1/2 of her share
to the said land. in the conjugal properties acquired with her husband. It does not
2. UMALI v. CA refer to any properties the maker would inherit upon the death of her
 One of the parties failed to pay the consideration which resulted to husband. The promise pertains to existing properties that she
the discovery that such was absolutely simulated. will surely receive by operation of law on the death of her
 SC: Receiving and using the subject matter + issuance of surety husband because it is her share in the conjugal asset.
bond= parties intended to be bound by the contract.
III. CAUSE OF THE OBLIGATION
II. OBJECT CERTAIN
1350: CAUSE OF CONTRACTS
1347: OBJECT CERTAIN  CAUSE- essential or more proximate purpose which the contracting parties
 GR: Any property or service can be the object of a contract provided that it have in view at the time of the entering into contract.
is within the commerce of man o May or may not be tangible.
 PROHIBITED  CAUSES IN CONTRACTS
o Future inheritance- extent, amount, quantity is not determinable. o ONEROUS: The prestation or promise of a thing or service
o RENUMERATORY: service/benefit which is remunerated.
1349: DETERMINATE OBJECT  Doctor: fee; patient: diagnosis
 The object of every contract must be determinate as to its kind. o PURE BENEFICENCE- mere liberality/GENEROSITY
 The fact that quantity is not determinate shall NOT BE an obstacle to the  Scholarship grants
existence of contract provided that it is POSSIBLE to determine the same, o RECIPROCAL- obligation or promise of each party is the
without need of new contract. consideration of the contract.
 Object must be one that can be ascertained with reasonable certainty.  PRESUMPTION: Even if cause is not stated, it is presume that it exists and
o If indeterminate object= VOID. is lawful, unless debtor proves the contrary
Cases
OBJECTS PROHIBITED OBJECTS= VOID 1. DIHIANSAN v. CA (preferential right)
 The Corporation decided to sell its property along an avenue and
Things within the commerce of man Future inheritance gave the persons living near the property a preferential right. A
Future things Property of state: river (Maneclang v. then approached B, a person given such right and requested that he
IAC) be allowed to buy the property with a commitment to re-sell the
Transmissible rights Services contrary to law, morals, good same to the people who was originally given the preferential right.
customs, public order and public policy. B agreed, and an agreement was signed. However, A did not re-sell

16 | S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
OBLIGATIONS AND CONTRACTS FINALS
the property to B but instead sold it C (3rd person not given
preferential right).
 ISSUE: Is the Contract null and void for not having a
consideration? NO.
 SC: The consideration is the preferential right. The contract
clearly and expressly stipulated that petitioner is bound to re-sell the
disputed property to private respondent.
2. REPUBLIC v. CLORIBEL (cause in onerous contracts)
 Parties entered into a compromise agreement designed to terminate
the case between litigating parties.
 SC: Cause: waiver and abandonment of claims against each
other.
1351- MOTIVE v. CAUSE
 GR: Motive or particular purpose in entering into a contract does not affect
the validity/existence of contract.
 EXC: Such motive has been made a condition upon which the contract is
made to depend. (motive predetermines the cause)
MOTIVE CAUSE
Particular reason for a contracting party Essential reason for the contract
Does not affect other party One of the essential elements of contract
Does not preclude the existence of Absence of which will render the
different consideration. contract VOID.
SAMPLE: CONTRACT OF SALE FOR VALUABLE RELIC
Expectation of profit /aesthetic Enjoyment/use of the thing.
Cases:
1. PNB v. CA (motive v cause)
 Lessee sought to release itself from paying rentals and from the
effects of the whole contract itself on the ground that its purpose did
not materialize.
 SC: CAUSE IN A CONTRACT OF LEASE: enjoyment and use
of a thing.
2. E RAZON v. PHILIPPINE PORTS (unlawful cause)
 Management contract was entered into by E. Razon, Enrique Razon
and PPSA. By its own admission, E. Razon Inc. was controlled by
Bejo Romualdez, brother-in-law of deposed Ferdinand Marcos.
 SC: VOID CONTRACT BECAUSE OF ILLEGAL CAUSE.
Under the Anti-Graft and Corrupt Practices Act, Mr. Romualdez
17 | S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
DEAN MEL STA. MARIA
was prohibited from intervening, directly or indirectly on any
business of the government, as a result of his relationship with the
president
 IN THE ATTEMPT OF THE PETITIONER to evade the
consequences of their connection to Romualdez, they now argue that
the share of the latter was obtained through force and duress, without
any monetary consideration.
 SC: TRANSFER OF SHARE OF STOCKS IS ALSO NULL
AND VOID. It is because it springs from an unlawful cause-
obtaining a government contract in violation of the law. In this case,
the morive to acquire government contracts may be regarded as the
causa. However, petitioner cannot now claim any relief since it is a
party that is a participant in the unlawful intention. It provided
the direct link.
3. UY v. CA
 National Housing Authority purchase certain lots and upon finding
out that the lands were unsuitable for its housing project cancelled
the Deeds of Sale.
 SC: CANCELLATION IS VALID. Because it is based on the
negation of the cause arising from the realization that the lands,
which were the object of the sale, were not suitable for housing. It
is clear that the NHA would have not entered into the contract were
the lands not suitable for housing. The quality of the land was then
an implied condition for the NHA to enter into the contract.
NHA VENDEE
MOTIVE Use the lands for housing
CAUSE Acquisition of land Obtain the price
1352: CONTRACTS WITH UNLAWFUL CAUSES.
 UNLAWFUL CAUSE- contrary to law, morals, good customs, public order,
public policy.
 Produces no effect or whatsoever.
o Contract to steal, contract to foment riot, waiving the right of an
employee to receive what is due to him.
1353: FALSE CAUSE.
 GR: FALSE CAUSE stated in a contract makes the contract void.
 EXC: When proven to be founded upon another lawful and true cause.
o Contract that the price of object is 500, no price paid = VOID.
o Contract states that price is 1000, paid was only 500= VALID.
1355: LESION
 Lesion or inadequacy of case will not invalidate a contract
OBLIGATIONS AND CONTRACTS FINALS DEAN MEL STA. MARIA
 Except in cases specified by law or there has been fraud, mistake or undue 2.
Law provides that a contract needs to be proved in certain way.
influence.  Needs to be in writing (memorandum)
 RATIONALE FOR MANDATORY FORMS
Case: Reason Non-observance
1. AUYONG HIAN v. COURT OF TAX APPEALS. VALIDITY Null and void
 A contract for tobacco is being assailed as invalid due to inadequacy ENFORCEABILITY Unenforceable but valid
of its price. GREATER EFFICACY No effect between contracting parties
 SC: INADEQUATE CONSIDERATION CANNOT
INVALIDATE THE SALE. In this case, it was shown that the Cases
Collector of Customs took precautionary measures to insure the 1. DAUDEN HERNAEZ v. DE LOS ANGELES
appraisal of the tobacco. And even assuming that the consideration  A movie actress filed a suit to recover her compensation for her
was inadequate, the same cannot be a ground for the invalidity of services as a leading lady in two motion pictures but the producers
contract since petitioner failed to prove that the instant case falls resisted such claim on the ground that the contract was void because
within those exempted from the operation of the presumption of there was no written agreement to the same.
lawful cause by virtue of Art. 1355 or that there was fraud, mistake
 SC: CONTRACTS ARE BINDING REGARDLESS OF FORM.
or undue influence in the sale.
It is important to uphold the spirit and intent of the parties over
2. PENACO v. RUAVA
formalities. A contract for compensation of services does not fall
 A contract of sale of a house is being assailed due to inadequacy of within the two exceptions solemn contracts and those that needs to
cause. Appellants are contending that the price offered was only be proved in a certain way.
enough to cover the price of the house and not that of the land.
2. CENIDO v. APACIONADO
 SC: INADEQUACY CANNOT INVALIDATE. First, the
building is constructed on a public land in which they have no right  Written contract of sale of real property is still valid even not in a
to sell it. What is being transferred is the rights, interests and their public instrument so long as the essential elements are there.
participation over the said land. Furthermore, the vendee a retro
cannot buy the house alone, otherwise he could be ejected Reason Non-observance
thereform. VALIDITY Null and void
 A VALUABLE CONSIDERATION, HOWEVER ENFORCEABILITY Unenforceable but valid
SMAL/NOMINAL, IF GIVEN OR STIPULATED IN GOOD GREATER EFFICACY No effect between contracting parties
FAITH AND IN THE ABSENCE OF FRAUD IS SUFFICIENT.
 CLAIM OF INADEQUACY IS INCOMPATIBLE WITH A 3. DELOSO v. SANDIGANBAYAN
CLAIM THAT A CONTRACT IS ABSOLUTELY  A contract is being assailed as anomalous on the ground that it was
SIMULATED. If there is an actual consideration, the transaction originally made orally but was later then reduced to writing.
cannot be a simulated sale.  SC: CONTRACTS CAN BE MADE IN WHATEVER FORM.
All the witnesses in this case attested to the existence of a verbal
CHAPTER 3: FORMS OF CONTRACTS agreement between the parties and that the lessees were informed
that they bound themselves in writing to all terms and conditions the
1356: FORMS OF CONTRACT. Municipality may impose. The subsequent act of translating the
 G.R.: Contract are binding regardless of form (oral or written) so long as contract into a written form does not make the transaction
essential requisites (consent, object, cause) are present. anomalous/felonious.
 EXCEPTIONS 4. RODOLFO CRUZ v. ATTY. DELFIN GRUSPE
1. SOLEMN CONTRACTS- required by law to follow form  Parties signed a Joint Affidavit of Undertaking.
 Donation of immovable property,Movable more than 5,000  SC: Contents of affidavit partakes the nature of a contract and must
 Pay interests on loans (mutuum) be treated as such. In determining whether a document is an affidavit
 Expressly stipulated in writing.
18 | S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
OBLIGATIONS AND CONTRACTS FINALS
or contract, the court will look beyond the title/denomination given
by the parties. What is material is the intention of the parties.
 In the present case, there is a stipulation wherein one party promised
to replace the damaged car of the same model and same quality and
failure to do so would give rise to obligation to pay 350K plus
interests.
1357: RIGHT TO COMPEL TO FOLLOW A PARTICULAR FORM.
 Parties have the right to compel each other to follow the form prescribed by
law, once the contract has already been perfected and this right may be
exercise simultaneously with the action upon contract.
 A party who desires to have his contract reduced in the particular form
required by law, can FILE AN ACTION TO COMPEL THE OTHER
PARTY to comply with such form.
 If form prescribed is mere DIRECTORY, parties can enforce a contract and
at the same time demand that it be reduced to in the form prescribed by law.
 MERELY FOR CONVENIENCE.
Case:
1. ZAIDE v. CA
 Unregistered contract of sale was assailed as invalid. The deed of
sale was valid but it was refuse registration in the Registry of
Property.
 SC: SALE WAS VALID. The defect was unsubstantial and will
not invalidate the deed. Parties can compel each other to do what
it needs to make the contract of sale registrable. (Land=writing
+subscribed by party charged + public document).
1358: CONTRACTS THAT MUST APPEAR IN PUBLIC DOCUMENTS
 CONTRACTS NEEDS TO BE IN A PUBLIC DOCUMENT
1. Acts and contracts pertaining to real rights over immovable
property, real property or interest therein.
2. Cession, repudiation, renunciation of rights or CPG
3. Power to administer property/should prejudice 3rd person
4. Cession of actions or rights proceeding from an act appearing in a
public document.
5. Contracts exceeding 500 pesos must be in writing.
 PURPOSE: greater efficacy/bind 3rd persons.
 NON-COMPLIANCE: will not render the agreement void or invalid.
1. Still binding between the parties and enforceable by action/suit.
 EXCEPTION: Non-compliance=void for violating prohibitory law.
19 | S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
DEAN MEL STA. MARIA
1. Rights involving ACP/CPG. Must be in public document (89 and
107)
2. General power of attorney
 May not refuse payment of agent’s fee: still binding
between parties
 Administer the apartment: lessees are not mandated to
honor the power (since it is only binding to parties and not
applicable to 3rd persons)
Cases:
1. DALION v. CA
 Dalion impugns validity of sale on the ground that it is embodied in
a private document.
 SC: 1358 is not a requirement for enforceability but merely for
convenience. A contract of sale is a consensual contract and is
perfected by mere consent.
2. LUISITO PONTIGON et.al v. HEIRS OF MELITON SANCHEZ
 The transfer of title of property to heirs via an extrajudicial
settlement was not notarized and was not in a public document.
 SC: TRANSFER IS VALID AND BINDING AMONG HEIRS.
CHAPTER 4: REFORMATION OF INSTRUMENTS
1359: REFORMATION OF INSTRUMENTS
When, there having been a meeting of the minds of the parties to a contract,
their true intention is not expressed in the instrument purporting to embody
the agreement, by reason of mistake, fraud, inequitable conduct or
accident, one of the parties may ask for the reformation of the instrument
to the end that such true intention may be expressed.
If mistake, fraud, inequitable conduct, or accident has prevented a meeting of
the minds of the parties, the proper remedy is not reformation of the
instrument but annulment of the contract.
REFORMATION OF INSTRUMENTS.
 One can only reform instruments and not contracts.
 It connotes a VALID CONTRACT.
 There has been a meeting of the minds, but the instrument does not
conform to such contract.
 It is only applicable to WRITTEN CONTRACTS contained in an
INSTRUMENT or SERIES OF INSTRUMENTS.
 What is being reformed is the instrument embodying the contract, not the
contract itself.
 May be caused by mistake, fraud, inequitable conduct or accident.
OBLIGATIONS AND CONTRACTS FINALS
REQUISITE FOR REFORMATION
(failure to prove may lead to creation of new contract)
 Instrument does not reveal the intention of the parties
 Real and actual contract.
EFFECT OF REFORMATION
 MAKE THE INSTRUMENT EXPRESS THEIR REAL AGREEMENT.
 Court does not make a new contract
APPLICATION OF REFORMATION
 BURDEN: party who wants the instrument to be reformed.
 May only be sought by injured party.
 Action in personam. (against the person).
 Applied in the ABSENCE of and NEVER AGAINST statutory law.
 May be filed within 10 years from time of action accrues (knowledge of such
ground for reformation/ date of execution of contract).
 May be barred by laches
 May be filed as a special civil action for declaratory relief.
 FOR GUIDANCE AND NOT TO SETTLE ANY ISSUE ARISING
FROM BREACH.
Case:
1. ROSELLO-BENTIR v. LEANDA
 It is alleged that at time of execution (1968) there was a verbal
agreement that the lessee will be given the right of first refusal.
However, lessee only filed the case for reformation on 1992.
 ACTION HAS ALREADY PRESCRIBED. (10 years).
GROUNDS FOR REFORMATION
A. MUTUAL MISTAKE (1361)
 For mistake to be cause of reformation, it must be MUTUAL and pertain
FACTUAL MATTERS.
 Valid existing agreement to which the erroneous document can be made to
match/harmonize. (must be clear and satisfactory)
Cases
1. MONDRAGON v. SANTOS
 One of the parties contend that there was a mistake in the
documentation of the contract because their intent was for sale by
hectare and not sum in gross as stated in document of sale.
 SC: REFORMATION DENIED due to failure to submit
convincing evidence that the mistake was mutual.
2. ATILANO v. ATILANO
20 | S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
DEAN MEL STA. MARIA
 If there was a mistake in the designation of particular lands owned
by two brothers, remedy is REFORMATION.
 But if correct properties were ALREADY IN POSSESSION of
the person, NO NEED FOR REFORMATION. The mistake did
not vitiate consent of parties nor affect validity and binding effect
of the contract between them.
B. UNILATERAL MISTAKE= ONE MUST ACTED FRAUDULENTLY. (1362)
 To cause reformation when the mistake is unilateral, the other party must
have acted FRAUDULENTLY OR INEQUITABLY resulting in the
drafting of a document.
 GR: Mistake of law/ignorance of law not a ground for reformation.
 EXC: There has been a misplaced confidence because of some
artifice/deception employed by other party = REFORMATION.
C. UNILATERAL MISTAKE + KNOWLEDGE OF THE OTHER. (1363)
 Knowledge by one party of the other’s mistake regarding the expression of
the agreement= MUTUAL MISTAKE.
D. IGNORANCE, LACK OF SKILL, NEGLIGENCE, BAD FAITH ON PART
OF PERSON WHO DRAFTED THE CONTRACT. (1364)
 Mistake will be deemed mutual and reformation can be availed of.
Case:
1. HUIBONHOA v. CA
 Parties failed to prove what costly mistake suppressed their true
intention and wherein one party admitted that there was
OVERSIGHT on the part of her counsel.
 SC: NO REFORMATION. Oversight is not attributable to all
parties of the contract.
E: MORTGAGE/PLEDGE BUT BECAME ABSOLUTE SALE/RIGHT TO
REPURCHASE.(1365)
Case:
1. PALILEO v. COSIO
 Intention of the parties was to collateral the house for a particular
loan but the agreement stated that it was the subject of a conditional
sale of residential building.
 SC: MAY BE REFORMED.
REFORMATION NOT ALLOWED
PROHIBITED SUBJECTS OF REFORMATION:
1. Simple donation intervivos no condition is imposed.
2. Wills
3. Real agreement is void
OBLIGATIONS AND CONTRACTS FINALS
4. One of the parties brought an action for enforcement.
 1-2 are gratuitous and does not involve any meeting of the minds.
 If party already filed an action to enforce= ESTOPPED.
OTHER PROCEDURAL MATTERS
LEGAL STANDING: (1368)
 Mutual mistake- parties/successors-in-interests.
 Fraud, vitiate consent- petition of injured party, heirs and assigns.
GOVERNING RULE: (1369)
 Declaratory relief under Rule63 of Rules of Court.
o Before breach/violation: bring action to RTC
o After breach/violation: convert to ordinary action.
Case:
1. EMILIO v. RAPAL: NOTARIZED DOCUMENT ENJOY
PRESUMPTION OF REGULARITY. (must be overturned by mere
preponderance of evidence)
SUMMARY:
21 | S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
DEAN MEL STA. MARIA
CHAPTER 5: INTERPRETATION OF CONTRACTS
1370: INTERPRETATION OF CONTRACTS
 If terms are clear, literal interpretation of stipulations will control.
 If there is a clash, intent>words.
o Words used
o Contemporaneous and subsequent acts
 Not limited to the words used in the contract.
 FACTORS TO CONSIDER: provision, nature, object, consequences
o Mandatory= may can be construed as shall and vice versa.
Cases:
1. WELLEX GROUP v. U-LAND AIRLINES
 SC: Cardinal rule in interpretation: Plain-meaning rule. Courts must
first ascertain whether a contract provision is ambiguous. If it is
clear, then there is no need for the court to interpret the same.
2. INTERNATIONAL EXCHANGE BANK v. SPS BRIONES
 A promissory note with chattel mortgage provided that the creditor
was constituted by the debtors as their attorney-in-fact with all
power and authority to act on behalf of them in their insurance
claims.
 SC: CREDITOR IS THE AGENT OF THE DEBTORS.
3. CONCHITA TAN v. PLANTERS PRODUCT
 Marman’s argument: failure to agree on non-commercial terms of
contract is not integral to its option to renew, hence failure to agree
on those should not affect the perfection of new contracts.
 PPI: No perfected contract because they did not agree on every point
and the renewal is made dependent on AGREEMENT ON ALL
TERMS AND CONDITIONS.
 SC: PPI’S CONTENTION IS CORRECT.
i. Sec 1 of the lease contract provides that the “lessee has the
option to renew…..under such conditions as may be
agreed by the parties.” Based on such stipulation, it is clear
that the renewal of lease is NOT AUTOMATIC. The only
term that cannot be subject of the negotiation is the period
of renewal of lease.
ii. While the contract speaks of renewal, what it really intends
was a new contract of lease. The contract is renewed only
in a sense that it is for the same period of 10 years.
OBLIGATIONS AND CONTRACTS FINALS
iii. The stipulation which provided that “lessee shall give the
lessor…in writing, of his desire to procure such new
lease…” pertains to a condition for the option to renew.
However, mere notice will not result into a new lease
contract.
iv. EVIDENT INTENTION is to agree on ALL TERMS
AND CONDITIONS OF THE NEW LEASE. And since
PPI only accepted the commercial terms of the new lease,
there is no perfected contract since they did not agree on
all terms of the lease.
v. HELD: PPI cannot be compelled to execute a new lease
contract with Marman.
4. FINMAN v. CA
 The insurance policy procured by the insured did not include murder
and assault as incidents exempting insurance company from liability
in case of the death of the injured
 SC: INSURANCE COMPANY MUST PAY THE
BENEFICIARIES ARISING FROM THE DEATH OF THE
INSURED MEN. Mention of one thing implies exclusion of
another.
5. ADELFA PROPERTIES v. CA
 Various provisions of the contract would provide that what was
entered into was not option to purchase but contract to sell.
 SC: All words must be considered in order to determine the intent
of the parties. Also, a title of a contract does not necessarily
determine its nature.
6. SANTI v. CA
 Trial court interpreted the contract provision which provides that
“20-year period of lease being extendable for another period of 20
years.” as tantamount to automatic renewal of lease period.
 SC: Intention is not automatically to extend the contract but to
afford time to ponder and think whether to extend the lease. This
view is more proper given that should she decide to extend the lease,
a new contract shall be entered to by the parties involving the same
conditions and period of lease and 20 years is rather a long period
of time in which she may have other plans for her property. If their
intention was to provide for automatic extension, it is easy to
provide for a straight 40 years.
7. FERNANDEZ v. CA
 Parties enter into a contract of sale over piece of land with
stipulation that provides “contract is renewable for another 10 years
at the option of both parties” and “upon termination, all
improvements would automatically belong to the lessor.”
22 | S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
DEAN MEL STA. MARIA
LESSOR: Manifested intent to terminate the lease.
LESSEE: Want to renew to recover all expenses.
ISSUE: Can the lessee unilaterally renew the contract even if it is
provided that any renewal or extension was only possible at the
option of BOTH PARTIES.
 SC: LESSEE CANNOT RENEW UNILATERALLY. It is clear
from the stipulations that the parties intended to make any renewal
or extension subject to the WILL OF BOTH PARTIES and that
the second portion which address the future and direct parties to
negotiate and reach mutual agreement on terms. Only thing pre-
agreed is the period of lease.
8. CENTURY PROPERTIES v. EDWIN BABIANO
 In this case, CPI invokes the Confidentiality of Documents and Non-
Compete Clause to justify forfeiture of his commissions. It is
provided in the said stipulation that (1) no disclosure shall be made
during or even the employment and that (2) respondent is prohibited
to work in a company which is a direct competitor during
employment/1 year after. Failure to comply would result to
damages, payment of profits/revenues that may be affected and
forfeiture of commissions and incentives.
 Notwithstanding such clause, the CA limited the application to acts
done during post-employment relations.
 SC: INTENTION IS TO MAKE APPLICABLE THE
STIPULATION DURING THE EMPLOYMENT AND AFTER
THE EMPLOYMENT. Said stipulation is justified because
respondent held a highly sensitive and confidential managerial
position and to allow him to freely move during employer-employee
relationship to direct competitors may prejudice the CPI.
9. PINGOL v. CA
 There is dispute as to whether the purchase agreement was a
contract to sell or an absolute sale.
 Absolute in nature: no stipulation that title to property is reserved in
seller until full satisfaction of the price.
 SC: CONTEMPORANEOUS ACTS INDICATIVE THAT
VENDOR RECOGNIZED VENDEE AS ABSOLUTE
OWNER.
i. Vendor delivered actual and constructive possession of
property to vendee.
ii. Since the sale, appellee possessed the land and occupied
the property till his death.
10. RADIOWEALTH FINANCE v. SPS. DEL ROSARIO
 The parties did not indicate a date of payment in the space provided
in the promissory note. Petitioner now claims that respondents are
OBLIGATIONS AND CONTRACTS FINALS
liable for whole amount of debt and interest thereon after they
defaulted on their monthly interests. On the other hand, respondents
contend that installments were not yet due and demandable on the
basis of the blank space for date of installment and asks the court to
set a period.
 SC: ACT OF LEAVING BLANK THE DUE DATE OF FIRST
INSTALLMENT IS NOT TANTAMOUNT TO PERMISSION
TO PAY WHENEVER THEY WANTED.
i. The note provides that each installment shall be payable
each month.
ii. There is an acceleration clause and late payment penalty
which are constitute of intention to collect payment at a
definite date.
iii. Furthermore, their subsequent acts of paying installments
on the Promissory Note even if the checks were
dishonored by the Bank indicates that the obligation had
already become due and demandable.
11. RAPANUT v. IAC
 A provision which states that the lot is to be sold for x amount
payable “in monthly installments of 500 with an interest of 10%
per annum on the remaining balance until full amount is paid.”
 PRIVATE RESPONDENT: 10% interest payable every year.
 PETITIONER: 500 monthly installments include 10% interest.
 SC: PETITIONER IS CORRECT. Interpretation of the stipulations
should be at the end of the year; all the installments payments shall
be deducted from the principal obligation. Private respondent
accepted the payment of petitioner religiously made for four years.
12. JAVIER v. CA
 Petitioners: deed of assignment conveyed to them was share of
stocks of private respondent in a corporation which never came into
existence.
 SC: SUBSEQUENT ACTS SHOW OTHERWISE.
i. both parties knew the company was non-existent
ii. they assumed operation of logging concession.
iii. Entered into a forest consolidation agreement with other
holders of forest concessions.
1372: SCOPE OF CONTRACT
However general the terms of a contract may be, they shall not be
understood to comprehend things that are distinct and cases that are
different from those upon which the parties intended to agree.
23 | S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
DEAN MEL STA. MARIA
GENERAL TERMS
 Noscitur a sociis- general and unlimited terms are restrained by particular
terms that follow.
 Ejusdem generis- general term joined with a specific one (like things only)
1373: CONSTRUCTION THAT WILL FAVOR EFFECTIVITY
If some stipulation of any contract should admit of several meanings, it shall
be understood as bearing that import which is most adequate to render it
effectual.
CONSERATION AND PRESERVATION OF
RIGHT>WAIVER/ABANDONMENT/FORFEITURE OF RIGHT.
Case: LAO LIM v. CA
 Contract of lease specifically provides that the “term of lease shall be
renewed every three years….. for as long as defendant needs the premises.”
While it may be considered as a potestative suspensive condition,
examination for the whole provision would reveal that private respondent
have the right to give notice of intent to renew.
 SC: INTERPRETATION SHOULD FAVOR EFFECTIVITY. Definite
period of 3 years and that the automatic increase will take effect only if parties
decide to renew the lease.
1374: READ AS A WHOLE AND NOT IN ISOLATION
Cases:
1. RUIZ v. SHERIFF
 For failure to pay indebtedness, appellants’ property was foreclosed.
They filed a case to annul foreclosure on the ground that they still have
5 more years to pay based on the last two sentences in the contract
“notwithstanding the foregoing, this loan shall not run for more than 5
years.”
 SC: PROVISION MUST BE TAKEN AS A WHOLE AND NOT IN
ISOLATION. Reading of whole contract would reveal that should they
fail to pay two successive monthly amortizations, then the entire loan
would be due and payable.
2. CHINA BANK v. CA
 Petitioners: additional loans are also covered by the same collaterals
pursuant to the “whereas clause”
 RESPONDENT: Additional loans are clean loans.
 SC: ADDITIONAL LOANS ARE ALSO COVERED BY SAME
COLLATERALS.
OBLIGATIONS AND CONTRACTS FINALS
i. “mortgagor is required to give collateral security for
payment of any and all obligations heretofore contracted,
and which may THEREAFTER BE CONTRACTED.”
ii. Other paragraphs would show that the parties intended the
collaterals to be continuing one.
3. HOME DEVELOPMENT v. CA
 A consultancy agreement provides that “this agreement takes effect
from x to x: provided, however, that either party who wishes to
terminate may serve the other party written notice at least 30 days
in advance.”
 PETITIONER: First clause is independent of the 2nd clause hence
notice of termination given to respondent after 9 days is compliance
in good faith.
 SC: PETITIONER FAILED TO COMPLY WITH 30 DAY
NOTICE. It is important to take note that the practice of the parties
was that without renegotiation, the contract is continuously
renewed. First clause must be read together with the 2nd clause.
4. FELSAN REALTY v. COMMONWEALTH OF AUSTRALIA
 Lessee sought to pre-terminate the lease as a result of a fire that
damage the leased premises while the lessor refused on the basis that
the fire was caused by lessee’s negligence hence he has no right to
pre-terminate the contract.
 Contract enumerated force majeure which includes natural
calamities and fire.
 SC: Lessee can pre-terminate since fire was accidental in nature.
1375: MOST KEEPING WITH NATURE AND OBJECT
1376: USAGE AND CUSTOM
 Usage must be consistent with the contract.
 Use only to interpret what is doubtful not to contradict what is plain.
 FOR PURPOSES OF PLEADINGS AND EVIDENCE
24 | S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
DEAN MEL STA. MARIA
o General- may be proved without being pleaded.
o Local- must be pleaded.
Case:
1. TOMAS CHUA v. CA
 Contract to sell provides that failure to pay the balance of the
purchase price would result to forfeiture of earnest money provided
that all papers are in proper order.
 Lower court held that buyer’s non-payment is justified because not
all papers are in proper order because there are documents not
submitted.
 SC: UNDER EXISTING USAGE OR CUSTOM, all papers are
in proper order. The following are papers that would complete a
sale of real estate
i. Owner’s copy of Torrens title
ii. Signed deed of absolute sale
iii. Tax declaration
iv. Latest tax realty receipt.
 Moreover, the transfer of ownership takes effect upon the signing
and notarization of the deed of absolute sale. The recording is only
necessary to bind third parties to the transfer of ownership. Lastly,
Valdez-Chay was ready to submit all papers that would
complete the sale and to pay the capital gains tax.
 Chua’s condition that a new TCT be first issued is not customary in
the sale of real estate.
2. METROPOLITAN WATERWORKS v. REYNALDO DAWAY
 Liability of banks in letters of credit: obligation of banks issuing
letters of credit are solidary with the person/entity requesting for
such insurance.
3. WERR INTERNATIONAL v. HIGHLANDS
 Parties enter into a contract in which Werr undertakes to complete
the project within 210 calendar days and in return, HPI should pay
the former certain amount of money. Included in their contract are
the conditions that HPI shall pay 20% of contract price upon
execution of agreement; HPI shall retain 10% as form of retention
bond among many others.
 However, the project was not completed on the target date wherein
Werr sought the assistance of HPI to pay its obligations to the
suppliers. As to the last billing, HPI had already paid for more than
93% of the building.
 CIAC then rendered the decision which granted Werr’s claim for the
balance of the retention money, applying the industry practice that
liquidated damage do not accrue after achieving substantial
OBLIGATIONS AND CONTRACTS FINALS DEAN MEL STA. MARIA
compliance. This was assailed and overturned by the CA on the  Lesion: economic damage
ground that contract prevails over the industry practice.  SUBSIDIARY:
 SC: WHILE INDUSTRY PRACTICE MAY SUPPLEMENT o Proper and direct action filed for rescission.
THE CONTRACT, WERR CANNOT BENEFIT FROM IT. o Cannot be attacked collaterally.
Substantial completion should be 95% to excuse contractor from o Action for rescission must be raised in an independent civil action
payment of liquidated damage. It also failed to show that it is the and only after a full-blown trial.
practice of the industry to compute delay from rate in past progress o Must be filed within 4 years.
billing. o IT MUST BE THE LAST REMEDY.
 Accion pauliana (action to rescind)
OTHER RULES FOR INTERPRETATION o Judgment
 1377: CONTRA PREFERENTEM. Ambiguities in the contract must be o Issuance by trial court of writ of execution for satisfaction of
construed against the party who drafted it. judgment
 1378: GRATUITOUS AND ONEROUS CONTRACTS o Failure to enforce and satisfy judgment of the court.
o GRATUITOUS CONTRACTS: least transmissible.  UP ONLY TO A POINT NECESSARY TO COVER DAMAGES
o ONEROUS: greater reciprocity/lesser burden/less onerous CAUSED. (need not be totally rescinded)
o If there is doubt in the principal object of contract= VOID.
EFFECTS OF RESCISSION
 OBLIGATION TO RETURN things which were the subject of the contract,
fruits, interests.
o If it cannot be restored because of loss= DAMAGES.
 EXC: object of contract is in the possession of 3rd person in good faith.
o i.e. father sold a property to his son to evade payment of liability but
son was without knowledge of the motive of his father.

COURT APPROVAL
 Approval by courts implies that parties were given their day in court to justify
the necessity and reasonableness of the contract entered into.
 Once APPROVED, cannot be subject to RESCISSION.

Case:
1. DILAG v. COURT OF APPEALS
 At the time of the levy on execution, the Dilag spouses were still the
registered owners of the subject lands. They then sold the said lot to
their children for insufficient consideration and said title was issue
several days ahead of the deed of sale.
 SC: CONTRACT IS ABSOLUTELY SIMULATED=VOID.
Deed of Absolute Sale was executed to defraud Arellano who
obtained money judgment against the parents of petitioners Dilag.
RESCISSIBLE CONTRACTS  A contract in fraud of creditor but completely simulated is VOID
1380: RESCISSIBLE CONTRACTS and not merely rescissible.
 Valid but may subsequently be terminated on legal grounds.
RESCISSIBLE CONTRACTS
 Not on breach of trust but on ECONOMIC DAMAGES resulting from
INEQUITABLE CONDUCT BY ONE PARTY.
25 | S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
OBLIGATIONS AND CONTRACTS FINALS
1. Those which are entered into by guardians whenever the wards whom they
represent suffer lesion by more than one-fourth of the value of the things
which are the object thereof;
 Guardian with court approval- 1/4 lesion.
 Without Court approval- VOID.
2. Those agreed upon in representation of absentees, if the latter suffer the
lesion stated in the preceding number;
 Provisional absence (court may appoint)
i. w/o admin: 2 years
ii. w/ admin: 5 years
3. Those undertaken in fraud of creditors when the latter cannot in any other
manner collect the claims due them;
 Entered into in bad faith and was purposely designed to evade due
obligations.
 Fraud is not presumed.
 It must be proven that parties have acted MALICIOUSLY and
with FRAUD.
 It must be in fraud of ACTUAL CREDITOR and he/she is
effectively deprive by the transactions by all means in which they
can effect their claims. (only creditor can ask for rescission)
4. Those which refer to things under litigation if they have been entered into
by the defendant without the knowledge and approval of the litigants or
of competent judicial authority;
 Must be entered without the knowledge and approval of (1)
litigants; (2) court.
 When a thing is subject of judicial controversy
 i.e contract in replevin wherein plaintiff seeks to recover personal
property from defendant. Defendant cannot sell the thing in bad
faith.
 REQUISITES
i. Defendant, during the pendency of the case, enters into
contract which refers to thing subject of litigation.
ii. Said contract was entered without knowledge and approval
of litigants and court.
 Case: ADA v. BAYLON
i. Rita donated inter vivos two lands which are subject of a
pending partition case filed with the RTC without
informing nor getting the approval of other
petitioners/RTC.
ii. SC: VALID BUT RESCISSIBLE. Furthermore,
petitioner’s right to institute action for rescission os not
preconditioned upon RTC’s determination as to the
ownership of the said land..
26 | S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
DEAN MEL STA. MARIA
5. All other contracts specially declared by law to be subject to rescission.
 Contract of sale entered into in violation of a right of first refusal
of another person is valid but RESCISSIBLE.
 Case: LITONJUA v. L.R. CORPORATION (right of first
refusal)
i. Failure of the debtor to recognize or implement the
stipulate right to first refusal contained in the loan-
mortgage agreement makes any sale of the property to a
third person rescissible.
ii. RIGHT OF FIRST REFUSAL: should the debtor decide
to sell his property, he must offer the same to the creditor.
 Payments made in state of insolvency for obligations not yet due.
i. If a person who is insolvent pays his creditor whose credit
has not yet become due, that payment can be rescinded.
ii. No need for judicial declaration of insolvency.
PRESUMPTION OF FRAUD
 If debtor alienates property GRATUITOUSLY (donates) without leaving
enough property to satisfy the obligation to creditor.
o Maturity date of debt not a requirement.
 Alienation by ONEROUS TITLE when made by persons against whom
some judgment has been rendered in any instance or some writ has been
issued.
o There must be a decision or writ of attachment which must be
registered if what is involved is a registered land.
o No registration= no presumption.
o Attachment need not refer to the property alienate (p.615)
Case: PROVINCIAL SHERIFF OF PAMPANGA v. CA
 An action for recovery of sum of money was filed against Elpidio Agustin.
While the case was still pending, a fire broke and burned his furniture store.
As a result of which, his brother opened up a new store but still adopted the
name and style of Elpidio’s shop. Soon thereafter, judgment was rendered
against Elpidio and a writ of execution was issued which the sheriff used to
levy properties of the store. The new owner of the store then filed a 3rd party
claim against the sheriff.
 ISSUE: W/N there had been an alienation or transfer of property, whether
gratuitously or by onerous title.
 SC: LEVIED PROPERTY DIFFERENT FROM ELPIDIO’S PROPERTY.
Since there had been no alienation or transfer of property and that the store
levied was an entirely new one and separate from that ot Elpidio, Art. 1387
finds no application and there is no presumption of fraud of creditors.
LIABILITY OF THE BUYER/TRANSFEREE
OBLIGATIONS AND CONTRACTS FINALS DEAN MEL STA. MARIA
 1388: If buyer/transferee is in BAD FAITH  Effects will operate prospectively (will not retroact to the time of contract)
o Return the property OR IN FAILURE TO DO SO: pay damages.  Damage need not exist.
o 2 or more alienations- first acquirer shall be liable first.  Extrajudicial demand will not interrupt the period for prescription
o A has no obligation to accede to demand for reconveyance because
PRESCRIPTION OF RESCISSION (4 years) the contract is valid until annulled.
Guardianship Incapacity terminates + unsuccessfully exhausting all o
other legal remedies. PRESCRIPTION FOR VOIDABLE CONTRACTS- 4 years.
Absentees Learns of contract/domicile is known Extrajudicial demand will not interrupt the period because it only applies to determinate conduct
Fraud of creditors Discovery of fraud Intimidation, violence, undue influence Time when the defect ceases
Under litigation Time of knowledge Mistake/fraud Discovery of the same
Minors/incapacitated persons Guardianship ceases

RATIFICATION AND ITS POSSIBLE EFFECTS

 RATIFICATION- act of curing the defect which made the contract
annullable and extinguishes the action to annul a contract.
 Expressly or tacitly given- by words/by actions.
 Implied ratification- silence/acquiescence, subsequent acts showing
approval/adoption of contract/acceptance and retention of the benefits.
 Corporation may not ratify acts performed by an officer if he was not given
apparent authority to perform the same.
 Ratification cleanses the contract from ALL ITS DEFECTS from the
moment it was CONSTITUTED.

LEGAL STANDING FOR RATIFICATION

Unilateral act only the injured party may file.
CAN FILE CANNOT FILE
Guardians of incapacitated person Capable persons may not alleged
incapacity of those incapacitated.
Those who are liable principally and Party who caused the defect
subsidiary
(injured party and his assigns/heirs)
* intestate heirs are not included.
3rd person prejudiced Incapacitated when the object is lost due
VOIDABLE CONTRACTS (only to extent necessary to protect to their fault.
his/her rights; most of the time,
WHAT ARE VOIDABLE CONTRACTS
injunction would be sufficient)
Incapacitated person Vitiated consent
Demented Mistake, fraud, undue influence,
Minors intimidation, drunkenness, hypnotic RULES PERTAINING TO INCAPACITY OF MINOR.
Deaf mutes who cannot read and write spell
ACTION LEGAL STANDING OF LIABILITY OF THE MINOR
CAPACITATED PERSON
1390: VOIDABLE CONTRACTS Annulment No legal standing None
 Valid until annulled.
 May be ratified.
27 | S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
OBLIGATIONS AND CONTRACTS FINALS DEAN MEL STA. MARIA
Enforcement May file against the minor. Active misrepresentation- liable Cases:
for his obligation under the 1. MIAILHE v. CA- (extrajudicial demand and prescription)
contract.  Petitioner claims that he was intimidated and forced to enter into a
Passive misrepresentation- liable contract with DBP during the height of Martial Law.
up only the extent he is benefited.  INTIMIDATION CEASES: FEB 24 1986 (when Marcos left)
 He only filed the case for annulment on March 23, 1990, contending
that the demand to reconvey the property interrupted the running of
EFFECTS OF ANNULMENT OF VOIDABLE CONTRACTS: RESTITUTION prescriptive period.
 1398: Contracting parties must restore to each other the subject matter of the  SC: NO ANNULMENT YET SO NO DETERMINATE DUTY
contract including the fruits/price with its interests. TO RECONVEY. The contract that allowed the respondent to own
o For contract of services- DAMAGES based on the value of the and possess property was voidable (valid till annulled).
same. 2. SPS. VILORIA v. CONTINENTAL AIRLINES
 Exception: INCAPACITATED PERSONS  Petitioners claim that their consent in buying the airplane ticket was
o only liable to the extent that he has been benefited. vitiated so the contract is annullable BUT NEVERTHELESS used
o Will not be liable for the losses (gambling/uselessly spent) their right under the same contract to purchase new ones.
 The capacitated may not file a case against the minor, only a counterclaim in  SC: CONTRACT HAS BEEN IMPLIEDLY RATIFIED. The
a complaint for annulment when the minor reaches the majority. petitioners decide to exercise their right to use the subject tickets to
purchase new ones. Pertinently, the petitioners also are asking for a
IF ANNULLABLE CONTRACTS RESCISSION UNDER 1991 refund on the ground that there has been a bad faith on the part of
THE respondents in reneging on their undertaking to replace the lost
Consent is absent All elements are present ticket. In doing so, they are actually asking for rescission based on
CONTRACTUAL BREACH which in turn implies
Defect is present during negotiation Defect lies on the consummation/breach RECIPROCITY BETWEEN THE PARTIES.

OBJECT CANNOT BE RETURNED/LOST

LIABLE LIABILITY/EFFECT
Fault of one of the parties value of object, fruits interest
Fraud/fault of the injured party Action for annulment will be
extinguished.
3. MALABANAN v. GAW CHING (third party standing)
Fortuitous event Action will proceed
 Respondent Gaw Ching admitted that he is a stranger to the contract
Incapacitated party Loss of thing will not bar success of
of sale of land between the petitioners.
action. [since he is only liable for the
 SC: GAW CHING HAS NO LEGAL STANDING. First, he does
benefits he received and when the object
not the legal right of pre-emption since the subject land is outside
is lost, no benefit, no liability]
the Urban Land Reform Zones. And even assuming arguendo that
Fault of the incapacitated party Action will be dismissed
the subject land is covered, the same action must still fail. It is
established that in preemptive/redemptive rights of a lessee under
IF ONE CANNOT RESTORE the same law exists only when the lessee had already resided for
 Restitution requires that both parties return what they have received to each 10 years or more. Moreover, preferential right does not exist
other. If one of the parties cannot comply, the other person CANNOT BE outside the said law. MORE IMPORTANTLY, petitioner had
COMPELLED to return what he, in turn, received. already offered the land to Gaw Ching but he refuse the same every
 Incapacitated: no obligation to return except to the point he was benefited. single time. Lastly, a lessee has no right to attack the title of his
lessor.
28 | S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
OBLIGATIONS AND CONTRACTS FINALS
4. ARMENTIA v. PATRIARCA (cause of action of heirs)
 While the plaintiff is a brother of the deceased owner, he is a mere
intestate heir and not a forced heir. On the other hand, the deceased
Marta who has no ascendants or descendants has the right to dispose
of her property the way she liked it.
 SC: PLAINTIFF HAS NO LEGAL STANDING. Plantiff is not a
forced heir and he is not obliged principally or subsidiary under the
contract. It is to be noted that the plaintiff did not transmit to him
any right to the property and instead disposed it. Since there are no
creditors defrauded and no legitimes impaired, plaintiff has no cause
of action.
 In Concepcion, the Court held that heirs will only have cause of
action when a right or obligation arising from the contract are
transmitted to him. When there is no transmission, the latter
cannot bring an action to annul.
5. BANEZ v. CA
 Pio Arcilla stranger to the contract seeks to annul a conditional
contract to sell by the PHHC in favor of another person contending
that his rights will be prejudiced by the same contract.
 SC: TRESPASSERS HAVE NO CAUSE OF ACTION. It is
admitted that Arcilla stayed on the land of PHHC with no bona fide
claim or color of title and without the consent of the owner. He
began his material possession in bad faith. He has no right over the
same cause his occupancy is merely tolerate and cannot affect the
owner’s possession.
STATUTE OF FRAUDS
 Statute that mandates that for certain executory contracts to be enforceable in
UNENFORCEABLE CONTRACTS
1403: UNENFORCEABLE CONTRACTS
 Have all the requisites for perfection but still unenforceable.
1. NO AUTHORITY OR EXCEEED THE SAME: 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;
29 | S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
DEAN MEL STA. MARIA
2. STATUTE OF FRAUDS: Those that do not comply with the Statute
of Frauds as set forth in this number. In the following cases an
agreement hereafter made shall be unenforceable by action, unless the
same, or some note or memorandum, thereof, be in writing, and
subscribed by the party charged, or by his agent; evidence, therefore,
of the agreement cannot be received without the writing, or a secondary
evidence of its contents:
a. An agreement that by its terms is not to be performed within
a year from the making thereof;
b. A special promise to answer for the debt, default, or
miscarriage of another;
c. An agreement made in consideration of marriage, other than
a mutual promise to marry;
d. An agreement for the sale of goods, chattels or things in
action, at a price not less than five hundred pesos, unless the
buyer accept and receive part of such goods and chattels, or the
evidences, or some of them, of such things in action or pay at
the time some part of the purchase money; but when a sale is
made by auction and entry is made by the auctioneer in his sales
book, at the time of the sale, of the amount and kind of property
sold, terms of sale, price, names of the purchasers and person
on whose account the sale is made, it is a sufficient
memorandum;
e. An agreement of the leasing for a longer period than one year,
or for the sale of real property or of an interest therein;
f. A representation as to the credit of a third person.
3. BOTH INCAPACITATED: Those where both parties are incapable
of giving consent to a contract.
court, it must have a written proof of agreement like some notes or
memoranda.
o May only be invoked in violation of contracts or for specific
performance.
o Need not be contain in one document.
o No particular form of language or instrument is necessary to
constitute a memorandum or note in writing so long as it satisfies
the contents and signature.
o Paper connected- any documents that can be read together when
one refers to the other.
 APPLICABILITY: executory contracts and not to those that have been
partially performed or already consummated.
OBLIGATIONS AND CONTRACTS FINALS DEAN MEL STA. MARIA
o Contract of sale in installment if first installment was already made  However, if one party FULLY COMPLETED his undertaking within one
o ORAL CONTRACT partially performed must be proven clearly. year and the other could finish BEYOND ONE YEAR, removed from statute
 It must also be fair, reasonable and just. of frauds.
 It cannot be maintained on vague, uncertain and indefinite
testimony. PARTIAL PERFORMANCE
 REASON: Prevent perjury (written document: uniform language | spoken-  Statute of Frauds will not be applicable. (no need for written memorandum)
may be unreliable)  Can be manifested when improvements are made on the subject property
pursuant to contract coupled with other acts such as payment of rent, taking
COVERAGE OF THE STATUTE OF FRAUDS of possession, payment of taxes etc.
SOF APPLICABLE SOF NOT APPLICABLE
Promisor is a mere surety (I will pay if Promisor is primarily liable (joint B. SPECIAL PROMISE TO ANSWER FOR DEBT, DEFAULT OR
he will not pay) obligations) his debt will also be MISCARIRRIAGE
extinguished  Limited to express and tacit promises made and does not apply when duties
Person for whose the benefit is made Goods are sold upon the sold credit and are created by law without any promissory assent.
was himself liable at all (third party and responsibility of the person making the  PROMISE: There is an obligation of some third person to the promise, either
defendant must be liable in the same promise (ONE OBLIGATION already existing or subsequently existing. It must be made to the promise and
way regarding the same obligation). ONLY) not to the debtor
Charges were made against a third party One who advances the money at the o If solidary- whether or not the promisor knew that the only one of
or bill was presented to the original request of another to pay the debt of 3 rd the solidary debtors will truly benefit from the payment.
debtor in the first instance, unqualified party.  DEBT, DEFAULT, MISCARRIAGES: All legal obligations under which
by special circumstances a person can come, contractual or non-contractual requiring a money
Agreement by its terms not to be If one already fully completed his payment or other kind of performance.
performed within one year undertaking within one year and the  THE COMMITMENT TO PAY SHOULD NOT IMMEDIATELY
Violation of contract other could only finish BEYOND one DISCHARGE THE DEBTOR, OTHERWISE IT IS NOVATION.
year.  It must be a collateral and subsidiary obligation.
If contract stipulates that contract is
immediately executory upon signing of C. AGREEMENT MADE IN CONSIDERATION OF MARRIAGE OTHER
agreement but was reset to another date THAN MUTUAL PROMISE TO MARRY
by agreement.  Ante-nuptial agreements or marriage settlements must be in writing.
Violation of contract/specific To prove lawful possession  ART. 77 of the FAM CODE mandates that it shall be in writing, singe by
performance parties and executed before the marriage.
Enforcement of contract Based on lawful possession but for mere  HENCE, violation will not only render the contract
registration. UNENFORCEABLE but also VOID.
 If mutual promise, not under SOF since a breach of promise is not per se
actionable.
 GROUND IS EXCLUSIVE. Any other contract not included is not within
the operation of statute of fraud. D. AGREEMENT FOR SALE OF GOODS, CHATTELS, THINGS IN ACTION
o Right of first refusal- not included. AT PRICE NOT LESS THAN 500.
 If 500 or more, it must be in writing.
A. AGREEMENT THAT BY ITS TERMS SHOULD NOT BE PERFROMED  A contract of sale of a fountain pen must be in writing to be enforceable.
WITHIN A YEAR FROM MAKING THEREOF o If one has already paid the pen: removed from SOF.
 An oral agreement entered into in 1987, for a person to commence a painting  Auction sale, recording of the sale in the sales book is enough memorandum.
of portrait on 1989 is unenforceable, UNLESS IN WRITING.

30 | S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
OBLIGATIONS AND CONTRACTS FINALS
E. AGREEMENT FOR THE LEASING FOR A LONGER PERIOD THAN ONE
YEAR OR SALE OF REAL PROPERTY OR INTEREST THEREIN.
 Contract of lease for more than 2 years must be in writing.
 Sale of real estate must be in writing but need not be notarized/in a public
document. (still binding to the parties)
F. REPRESENTATION AS TO THE CREDIT OF THIRD PERSON
 A representation of creditworthiness of another, which if untrue may give rise
to action for damages if given in bad faith.
 If untrue representation-good faith, =NO DAMAGES.
RATIFICATION
 RATIFICATION IN STATUTE OF FRAUDS (1405)
o Failure to object to presentation of oral evidence
o Acceptance of benefits.
o Partial execution/performance
 BOTH PARTIES ARE INCAPABLE OF GIVING CONSENT (1407)
o Ratification of the guardian of one of the parties will transform the
same into a voidable or annullable contract.
 BOTH INCAPACITATED PARTIES RATIFIED
o Completely valid as if no defect at all.
REMEDY OF THE PARTIES WHEN CONTRACT IS ENFORCEABLE
UNDER SOF AND MUST BE IN WRITING FOR REGISTRATION
 When agreements provided in 1403 (2) are in writing and enforceable and the
law requires that the written document should be transformed into a public
document for its registration, the contracting parties may compel each other
to observe the form once the contract has been perfected.
LEGAL STANDING: 3rd person may not assail since it cannot be executed anyway
(no prejudice may be brought upon them).
Cases:
1. PAREDES v. ESPINO (enough memoranda)
 Defendant claims that he wrote plaintiff a letter as to the price and
the object of the contract and this was followed up by telegrams.
 SC: SAID DOCUMENTS CONSTITUTE ENOUGH
MEMORANDA.
2. LIMKETKAI SONS MILLING v. CA (enough memoranda)
 There is no written contract of sale of the Pasig property executed
by the BPI in favor of the plaintiff but there are abundance of notes
31 | S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
DEAN MEL STA. MARIA
and memoranda evidencing the elements of a perfected contract
such as a letter authorizing the sale and instruction that it be on cash
basis, authority to sell, letter informing that there has already a
buyer and letter of confirmation of transactions.
 SC: SAID DOCUMENTS CONSTITUTE ENOUGH
MEMORANDA.
3. BABAO v. PEREZ (inequitable consideration not included in SOF)
 Santiago Babao bounded himself to convert a big parcel of forest
land into veritable farm planted to coconuts, rice, corn or other crops
and to act as administrator of the same in exchange of the right to
receive 1/2 of the land with all the improvements upon the death of
the owner.
 SC: UNENFORCEABLE CONTRACT. The contract is vague
and ambiguous for it does not specify the how many hectares will
be involved. Being vague, the doctrine of PART
PERFORMANCE cannot take this case out of the coverage of
statute of frauds. AN ORAL CONTRACT TO BE ENFORED
MUST HAVE THE DEGREE OF CERTAINTY WHICH IS
REQUIRE OF WRITTEN CONTRACTS.
4. PATERNO v. JAO YAN (partial performance)
 Defendant testified that a original written contract was subsequently
modified by an oral agreement and submitted documents filed with
the City Engineer’s Office of the plans allegedly conforming to the
oral agreements.
 SC: PARTIAL PERFORMANCE TAKES AN ORAL
CONTRACT OUT OF THE SCOPE OF STATUTE OF
FRAUDS.
i. Partial execution of payment is admissible as evidence of
the existence of contract.
ii. Taking possession, payment of taxes, making
improvements operate as sufficient compliance.
5. PAUL REISS v. JOSE MEMIJE (collateral obligation)
 Defendant appellant entered into contract with one Bueneventrua
Kabalsa for the repair of their house in Manila. The contractor
undertook to furnish the necessary materials. However, being a man
with no standing, the contractor was unable to secure the credit and
was compelled to pay cash for all purchases. Having no money and
credit, the plaintiff refused to allow any lumber to leave their yard
without payment in advance. And since the work of the house was
already delayed, defendant accompanied the contractor to the
plaintiff. After satisfying his own financial responsibility and that
he is a property owner and attorney active in practice in Manila, the
plaintiff entered into contract with them and agreed to deliver the
necessary lumber to the contractor.
OBLIGATIONS AND CONTRACTS FINALS DEAN MEL STA. MARIA
 SC: CONTRACT NOT COVERED BY THE SOF. In this case,
the lumber delivered by the plaintiffs to defendant’s contractor was VOID AND INEXISTENT CONTRACTS
extended SOLELY and EXCLUSIVELY to the defendant under
the verbal agreement with him. Evidently, the contractor has no 1409: VOID CONTRACTS
money and no credit standing and by virtue of the persistent  No contract at all.
refusal of the contractor to release the lumber to contractor, it is  Defect is permanent and incurable.
evident that contractor has no liability.  It cannot be ratified.
6. LIMKETKAI SONS MILLING v. CA (cross examination)  Partial or full performance will not ratify the contract.
 There is no written contract of sale of the Pasig property executed  Two kinds
by the BPI in favor of the plaintiff but there are abundance of notes o VOID AND INEXISTENT: one of the elements (consent, object,
and memoranda evidencing the elements of a perfected contract cause) is missing.
such as a letter authorizing the sale and instruction that it be on cash o OSTENSIBLE BUT VOID: Void under 1409
basis, authority to sell, letter informing that there has already a 1. Those whose cause, object or purpose is contrary to law,
buyer and letter of confirmation of transactions. However, NBS morals, good customs, public order or public policy;
contends that there was no concurrence of the said offer and 2. Those which are absolutely simulated or fictitious;
acceptance is wanting to the very cause of the contract. 3. Those whose cause or object did not exist at the time of
Furthermore, they assail the admissibility of the evidence the transaction;
presented by the petitioners. 4. Those whose object is outside the commerce of men;
 SC: UNMERITORIOUS. First, the sale of land is valid regardless 5. Those which contemplate an impossible service;
of form it may have been entered into. The fact that the deed of sale 6. Those where the intention of the parties relative to the
still has to be signed and perfected does not mean that no contract principal object of the contract cannot be ascertained;
has been perfected. Second, the contention regarding the 7. Those expressly prohibited or declared void by law.
admissibility of evidence holds no water since the counsel for  No need to bring separate action to declare void.
respondents examined petitioner’s witnesses at length on the o Except when the contract is no longer executory.
contract itself and other thing. Even assuming that the parol  No prescriptive period. Laches not applicable.
evidence was initially inadmissible, the same can become  Restitution should generally apply.
competent and admissible because of cross-examination which  Defense of illegality not available to 3rd persons whose interest are not
elicited evidence proving the existence of a contract. directly affected.
 CROSS EXAMINATION- WAIVER OF DEFENSE OF SOF.  Contract which is a result of a previous illegal contract- also void and
7. RODRIGUEZ v. CA inexistent.
 A particular sale was questioned and only receipts were introduced
as evidence to prove the same because they were not constitutive of
the basic elements of a contract. RULE ON PARI DELICTO
 SC: FAILUTE TO OBJECT TO SAID EVIDENCE WILL Pari delicto: no remedy against each other.
REMOVE THE TRANSACTION FROM THE STATUTE OF
FRAUDS. PARI DELICTO WILL APPLY WILL NOT APPLY
8. ALIMIROL v. MONSEERAL (parties have no remedy against each (parties may recover)
 By virtue of a verbal sale, the applicant came into possession of land other)
and sought the registration of the subject lot already in their GENERAL RULE Inexistent contracts.
possession while the oppositors claim that oral proof cannot be 1414- repudiation before illegal purpose
adduced in court. Pari delicto will apply if the contract is accomplished
 SC: Since the parol evidence is being adduced not for the purpose have an illegal consideration or subject 1415- one of parties is incapable of
of enforcement but on the basis of a lawful possession, statute of matter. giving consent; discretion of court
fraud is not applicable.

32 | S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
OBLIGATIONS AND CONTRACTS FINALS
* facts constitute misdemeanor/offense
* consideration involved is merely
rendered illegal.
1416- not illegal per se but merely
prohibited.
1417- excess of maximum price set by
law
1418- maximum hours set by law
1419- below minimum wage
DEAN MEL STA. MARIA
1419: MINIMUM WAGE- CONTRACT IS BELOW THE MINIMUM WAGE
 He may recover deficiency
DIVISIBLE CONTRACTS (1420)
 If illegal terms can be separated from legal ones, the latter may be enforced.
 If void provision directly affect entirety of contract- contract is void.

1411: ILLEGAL CAUSE OR OBJECT WHICH IS A CRIMINAL OFFENSE

 No action against each other and both shall be prosecuted.
1412: UNLAWFUL/FORBIDDEN CAUSE IS NOT A CRIMINAL OFFENSE
 BOTH PARTIES ARE AT FAULT: Cannot recover or demand the
performance
 ONE IS AT FAULT
o Guilty party: cannot recover/demand
o Innocent party- demand the return of what he has given without any
obligation to fulfill his promise.
1413- INTEREST PAID IN EXCESS OF THE INTEREST ALLOWED BY
USURY LAWS
 It may be recovered by the debtor with interest from the date of payment.
EXCEPTIONS TO THE PARI DELICTO RULE (parties may still recover)
1414: DELIVERY OF MONEY/DELIVERY OF PROPERTY FOR ILLEGAL
PURPOSE
 It may be repudiated
o Before purpose has been accomplished
o Before any damage is caused to a third person.
o Public interest- party may be allowed to recover money or property.
1415: ONE OF PARTIES TO ILLEGAL CONTRACT IS INCAPABLE OF
GIVING CONSENT
 Courts may, in the interest of justice allow recovery of money or property
delivered by the incapacitated person.
1416: AGREEMENT IS NOT ILLEGAL PER SE BUT MERELY
PROHIBITED AND THE PROHIBITION IS DESIGNED FOR PROTECTION
OF PLAINTIFF.
 Courts may, in the interest of justice allow recovery of money or property
delivered by the incapacitated person.
1417: PAYMENT MADE IN EXCESS OF PRICE DETERMINE BY STATUTE.
 Recover the excess
1418: STATUTE DETERMINE MAXIMUM NUMBER OF HOURS OF
LABOR AND LABORER UNDERTAKES TO WORK LONGER
 He may demand additional compensation for service rendered beyond the
time limit.
Cases:
1. DE LEON v. CA (in consideration of marriage)
 Parties stipulated that “in consideration for a peaceful and amicable
termination of marriage.
 SC: VOID because the cause and the object of the contract is
contrary to law, morals and public policy.
2. JOEY R. PENA v. JESUS DELOS SANTOS (lawyer pending litigation)
 Pena filed a motion for substitution on the contention that the lands
were transferred to him by his lawyer, who is a predecessor-in-
interest.
 SC: CONTRACT IS VOID AND INEXISTENT. A person who
obtained a property for a seller whose title is void does not
acquire any right pertinent to the property. In this case, the
lawyer acquired the property in litigation which is prohibited by law.
This being so, the lawyer cannot transfer a valid title to Pena. Also,
while the fact of sale was made pursuant to a contingency fee
contract and such is recognized in this jurisdiction, the same must
still fail because the payment of the contingency fee to the lawyer
was made during the pendency of litigation.
 Estoppel not applicable since it is based on equity and must not be
in conflict with the law.
3. GARDNER v. CA (absolutely simulated)
 A contract was entered into without consideration and merely
intended to protect a party to a joint venture for the cash advances
 SC: ABSOLUTELY SIMULATED CONTRACT. NULL AND
VOID.
4. MAHARLIKA v. TAGLE (GSIS official)
 Wife of a GSIS official, acting for her husband who is an influential
officer of the GSIS participated in a bidding of a foreclosed property
and won the same.
 SC: NULL AND VOID. Contrary to public order and public policy
since by allowing a GSIS official to participate in a bidding will
always give rise to the suspicion that insider official had access to
information and connections with fellow GSIS officials.
5. CUI v. ARELLANO (law student scholar)

33 | S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
OBLIGATIONS AND CONTRACTS FINALS
 A law student scholar was asked to refund his free tuition based on
the scholarship granted because he decided to transfer schools
pursuant to a contract signed by the student.
 SC: NULL AND VOID. Refund cannot be demanded for being
contrary to public policy. Scholarships are usually awarded based
on merits and to bolster the prestige of a school and not to increase
its business potential.
6. LITONJUA v L & R CORPORATION
 A stipulation prohibiting a mortgagor to sell the property mortgaged
is VOID.
 But if a stipulation prohibiting the re-mortgage to another of the
same property already mortgaged to the creditor-mortgagee is valid.
7. MIGUEL GUILLERMO v. PHILIPPINE INFORMATION AGENCY
 Contract entered into with the government without appropriation
law is VOID.
8. PENALOSA v. SANTOS
 Non-payment of purchase price will not nullify the contract.
 Will only give rise to rescission.
9. SPS ABELLA v. SPS ROMEO ABELLA
 Unconscionable rate of interest (2.5%) is void for being contrary to
morals despite willingness of the party to enter to the same.
10. SPS. MALLARI v. PRUDENTIAL BANK
 5.5% interest per month is void.
 3% and 3.81 % interest is also void.
 In this case, the interest rate agree by the parties are less than 2% per
month/ 23% per annum. [24% is still valid]
 Penalty charge of 12% is valid. 1% surcharge on principal loan for
every month of default is valid.
 PENALTY CLAUSE: Can only be demanded when non-
performance is due to the fault or fraud of the debtor
11. HYPTE AUJERO v. PHILIPPINE COMMUNICATIONS (quitclaim)
 Petitioner contends that a Dee of Release and Quitclaim is null and
void because an employee got a lesser retirement benefit than what
he believe to be the proper amount on the account of pressure and
dire necessity.
 SC: NOT ALL WAIVERS/QUITCLAIMS ARE AGAINST
PUBLIC POLICY. If it is voluntarily entered into and represents
reasonable settlement, it is binding on the parties. It is unlikely for a
man with his educational attainment to easily succumb to private
respondent’s company’s pressure without defending himself.
Assuming that there was indeed pressure, no urgency for him to sign
resignation letter.
12. PAUL IRAO v. BY THE BAY
34 | S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
DEAN MEL STA. MARIA
 Contractual stipulations empowering the lessor and or his
representative to repossess the leased property extrajudicially from
a deforciant lessee. A stipulation allowing the lessor to take over
the leased premises upon violation of contract is NOT VOID.
13. LITA ENTERPRISE v. IAC
 Parties operate under an arrangement called the kabit system
whereby a person granted a certificate of convenience allows
another to operate under such franchise for a fee.
 SC: Kabit system is contrary to public policy, since certificate of
public convenience is a special privilege conferred by the
government. No relief will be given to one against the other.
14. HEIRS OF MARCIANA AVILA V. ca
 A teacher bought property in violation of the Administrative Code
prohibiting public officials from purchasing property sold by the
government for non-payment of taxes.
 SC: Contract is void because it was contrary to law. The teacher
cannot recover what she gave by reason of the contract or ask
for fulfillment.
15. COMPANIA v. CA
 Purchaser and seller of certain sugar quota entered into a contract of
sale purposely intending to negate lawful rights and claims of the
banks which foreclose on mortgaged.
 SC: Buyer cannot be reimbursed. At the time of transaction, they
were well-aware of the encumbrance on the property dealt with.
16. RODRIGUEZ v. RODRIGUEZ
 Mother sold property to her daughter who later sold the property to
her father for the purpose of converting the paraphernal property of
the mother to conjugal property and evading the prohibition against
donations.
 SC: No relief may be granted since both are at fault.
17. ROS v SUA
 Property acquired from the government pursuant to law designed to
give land to the landless was in violation of the spirit of the said law.
 3rd party lessee refuse to have the property reconveyed to the
possession of the owner-grantee despite violation of law.
 3rd party possessors invoked pari delicto to resist repossession.
 SC: OWNERS MAY RECOVER THE PROPERTY. The law is
silent as to the consequence of alienation or encumbering of the land
after the execution of the contract of sale. The law also does not
provide that the disregard or violation of the same will result to
automatic reversion of the property to the state nor defeat the
grantee’s right the owner to recover the property he had previously
disposed.
OBLIGATIONS AND CONTRACTS FINALS DEAN MEL STA. MARIA
GROUND EFFECT ILLUSTRATION
SUMMARY OF RULES Right to sue upon civil Obligor who voluntarily Prescriptive period for
Rescissible Annullable Unenforceable Void obligation lapsed by performs the contract filing collection of loan is
Ratification    X extinctive prescription cannot recover what he 10 years. If debtor
Restitution   No, still  has delivered voluntary pays knowing
(minors need executory (except 1411- that the same has already
not restitute) 1412) prescribed, he cannot
3rd party Creditor Interested x Interested recover such payment.
standing w/proof of parties who parties who Without Obligor cannot recover A is indebted to X but
debtor’s fault are are knowledge/against the what he paid. such debt already
prejudiced prejudiced will of debtor, 3rd person prescribed. If B pays X
Damages Partial None pays a debt which the despite such prescription
(economic Not required to file a case obligor is not legally and A voluntarily repays
damage) bound to pay because it B for the same, A cannot
Prescription    X already prescribed but recover such payment.
(remedy: reduce to debtor voluntarily
writing) reimburse
Minor (18-21) who has Minor/guardian cannot
entered into contract recover what he paid even
without consent and after though he was not
the annulment voluntarily benefited by the same.
returns the whole
thing/price received
Minor without consent Minot cannot recover the
voluntarily pays and same.
obligee is in good faith in
contracting with the
NATURAL OBLIGATIONS minor
Action to enforce civil Cannot demand A civil suit to collect debt
TWO KINDS OF OBLIGATION obligation has failed but recovery/return of what failed but debtor
defendant voluntarily he has delivered/paid voluntarily paid the same
NATURAL CIVIL performs the obligation
Do not give grant right of action to Give a right of action to compel Testate/intestate heir Payment is valid and A is indebted to X for
enforce their performance. performance voluntarily pays debt of cannot be rescinded 10,000. A then dies and B
Based on equity and natural law Based on statute decedent exceeding the receives 5,000 as a heir. If
Voluntary fulfillment- authorize value of what he has he pays X the whole
retention of what has been received amount of 10K, he cannot
delivered/rendered by reason thereof/ demand return of the
excess.
Will declared void Payment is effective and
NATURAL OBLIGATION
because it did not comply irrevocable
 Moral but not legal duty to perform or pay but the person thus performing or
with the formalities
paying feels that in good conscience he should comply with his undertaking
required by law, but one
which is based on moral ground.
still pays a legacy
35 | S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
OBLIGATIONS AND CONTRACTS FINALS
ESTOPPEL
ESTOPPEL
 An admission or representation is rendered conclusive upon the person
making it and cannot be denied/disproved as against the person relying
therefrom.
 Based on equity
 Applicability is dependent on the special circumstances of the case.
 When misapplied, it becomes the most effective weapon to accomplish
injustice.
 Not applicable against government suing in its capacity as sovereign or
asserting government rights nor by the mistake of its officers.
 Not applicable if a law or public policy will be violated.
 Applies only on questions of FACT and not with questions of law.
 Should not be contrary with the provisions of the Code, Code of Commerce,
Rules of Courts of Special Laws.
 Applicable only to parties and successors-in-interests.- MUTUALITY.
DEAN MEL STA. MARIA
Prevent circuity of actions and compel
party to perform their contracts.
Limited to an action on the dee itself (no
collateral attack)
1434: PERSON NOT THE OWNER SELLS THE SAME.
When a person who is not the owner of a thing sells or alienates and delivers it,
and later the seller or grantor acquires title thereto, such title passes by operation
of law to the buyer or grantee.
 Illustration: A who is not the owner of the car sells the same to B- sale
is unenforceable since A has no authority. But if A himself delivers the
property to B and later buys the same from the real owner N, A cannot
claim ownership. B shall be preferred by the law.
1435: AGENCY
If a person in representation of another sells or alienates a thing, the former
cannot subsequently set up his own title as against the buyer or grantee.

1436: LESSEE/BAILEE
A lessee or a bailee is estopped from asserting title to the thing leased or
received, as against the lessor or bailor.

1437: CONTRACT BETWEEN 3RD PERSONS CONCERNING IMMOVABLE

ESTOPPEL BY DEED
Preclude one party to a deed and his
privies from asserting as against the
other party and right or title.
Technical in nature.
1. Representation or concealment of
material facts
2. Representation was made with
knowledge of facts
3. Other party must be ignorant of the
truth
4. Made with intention that the other
party would act upon it.
ESTOPPEL IN PAIS/EQUITABLE
ESTOPPEL
Because of something which he has
done/omitted to do, he is denied the
right to plead or prove an otherwise
important fact.
A party who knows the truth is
absolutely preclude from
denying/asserting the contract of any
material fact which by his words,
conduct, intentional or by negligence,
induced another to rely on the same.
1. conduct amounting to false
representation/concealment of material
facts
2. intent/expectation that the conduct
shall be acted upon or will influence the
other party
3. actual or constructive knowledge of
actual facts
PROPERTY.
When in a contract between third persons concerning immovable property,
one of them is misled by a person with respect to the ownership or real right
over the real estate, the latter is precluded from asserting his legal title or
interest therein, provided all these requisites are present:
(1) There must be fraudulent representation or wrongful concealment of
facts known to the party estopped;
(2) The party precluded must intend that the other should act upon the
facts as misrepresented;
(3) The party misled must have been unaware of the true facts; and
(4) The party defrauded must have acted in accordance with the
misrepresentation.
ILLUSTRATION:
A and B have a contract of lease where A, the lessee was given a preferential right.

36 | S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
OBLIGATIONS AND CONTRACTS FINALS
A approaches Z and misrepresents that the property is his already because he has
already exercised his preferential right and even told Z that a corporation is eyeing the
property. Representation was made to entice Z to buy the property and sell the same
to corporation which would give enormous profit. B ratified the sale. A cannot
anymore asset a claim on the property since the sale is unforceable for not having the
true consent of owner, B
5.
1438: PLEDGE
One who has allowed another to assume apparent ownership of personal
property for the purpose of making any transfer of it, cannot, if he received
the sum for which a pledge has been constituted, set up his own title to defeat
the pledge of the property, made by the other to a pledgee who received the
same in good faith and for value.
6.
 Thing pledged must be in the possession of creditor/third person by
common agreement.
 A allowed B to be recognized as the real owner of his car and gives B the
authority to sell and B then subsequently pledges the property for the
payment of his loan. As pledgee, X now is in the possession of the car. The
loan became due and B was not able to pay which lead to the foreclosure
of the property. A cannot resist such foreclosure.
 invoke estoppel.
DEAN MEL STA. MARIA
 Lessor-petitioner insisted that lessee-respondent cannot renew its
lease despite existence of such right in the lease contract.
 SC: In estoppel by pais, there are three requisites: lack of knowledge,
reliance on good faith, action or inaction. In the present case, there
was no showing that petitioner relied on good faith on the letters and
that the same have caused damage/injury/detriment.
ESTOQUE v. PAJUIMULA
 Co-owner sold a land which he co-owned and the sale was assailed
as invalid because the seller could not have sold the interest of the
other co-owners.
 SC: SALE WAS VALID. While it was invalid at first, the
transaction was validated when vendor acquire the entire interest of
her co-owners.
CASTRILLO v. CA
 Lower court apple estoppel on a case wherein Isabel Miranda sold
her 1/3 share of land to B at the time she was not yet the owner and
only acquired ownership of the same when sister executed formal
deed of sale in her favor which also rendered questionable the rights
of B and heirs of dead sister assailed the application of estoppel.
 SC: Only Isabel Miranda has the right to invoke. B already
conveyed the land to Isabel, neither she nor her successors may

Cases: EXTRA-CONTRACTUAL OBLIGATIONS

1. REPUBLIC v. GO BON LEE
 Government, through the OSG filed a petition to cancel the
certificate of naturalization of a certain Chinese who was granted
citizenship. The Chinese then claimed that his citizenship cannot be
reopened anymore based on estoppel.
 SC: DOCTRINE OF ESTOPPEL DOES NOT APPLY
AGAINST THE GOVERNMENT.
2. COLLECTOR OF INTERNAL REVENUE v. MCGRATH
 Any error made by a tax official in the assessment or computation
of taxes does not relieve taxpayer from paying the full liability as
fixed by law.
3. SM LAND v. BASES CONVERSION
 Private company was repeatedly assured by government that it will
respect its rights which placed the company in so much trouble and
expenses.
 SC: While estoppel cannot lie against the government, such
right is not absolute. Government cannot be allowed to deal
dishonorably or capriciously with its citizens.
4. MANILA INTERNATIONAL v. DING VELAYO
QUASI CONTRACTS
QUASI-CONTRACTS
 Certain lawful, voluntary and unilateral acts may give rise to the juridical
relation of quasi-contract to the end that no one should be unjustly
enrich/benefited at the expense of the other.
 Meeting of the minds- enforced like a contract
 Not implied because they are not contracts,
TWO KINDS
1. Negotiorum gestio- officious management of affairs
2. Solutio Indebtii- recovery of what has been improperly paid.
3. Other kinds
a. Payment made upon existing consideration which failed
b. Wrongly made upon a consideration contrary to law
c. Payment made upon vicious consideration/obtained by illicit means.
SECTION ONE: NEGOTIORUM GESTIO

37 | S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
OBLIGATIONS AND CONTRACTS FINALS DEAN MEL STA. MARIA
NEGOTIORUM GESTIO o Insanity
 A person voluntary takes charge of an abandoned or neglected property o Insolvency
without any authority and does so not in consideration of a profit.
RATIFICATION
PROPERTY CONSENT EFFECT  Expressed ratification
Abandoned Without Officious manager o Owner agrees to whatever O.M has done
Not abandoned Without Unenforceable o Cures the defects
Not With Agency o Law on agency shall apply.
abandoned/abandoned o Even business fails, authority of agency is still recognized.
 No express ratification
OFFICIOUS MANAGER o If the owner enjoys/enjoyed the advantages
 Known as legal trespasser  Liable for obligations incurred in his interest.
 Once you assume obligation, you must exercise diligence of a good father of  Reimburse O.M for necessary and useful expenses
the family.  No benefit to owner/no danger to property
 Will be liable once he delegates the same to another. o Owner still liable
 May return the property so long as it is preserved,  O.M acted in good faith
 Will be liable for damages through his fault/negligence  Property is intact and ready to be returned.
 Cannot escape liability by invoking the defense of no obligation. TERMINATION
G.R. Officious manager may withdraw.
 He must require owner/person concerned to substitute him.
o If owner/person concerned not in position to do so,
DELEGATION  O.M. must still continue and withdraw upon termination of
 Officious manager will be liable for the acts of the delegate. affair and its incidents.
 If there are 2 or more O.M.= solidary obligation. Case:
o Owner may claim full amount of damages to anyone. 1. SISON v. BALGOS
 The guardian of the minors died without paying the redemption
FORTUITIOUS EVENT price and by reason of which, the uncle voluntarily deposited the
 Officious manager is not excused. amount to the court and subsequently the authority of the uncle was
o Undertakes risky operations which owner was not accustomed to questioned.
embarking upon. (change upon the nature of business)  SC: THERE IS A QUASI CONTRACT.
o Preferred his own interest than that of the owner i. Relate to determined thing/affair and there is no
o Failure to return the property/business after demand by owner. administrator/representative of owner
o Assumed management in bad faith ii. No knowledge/consent
 Except to save the property from imminent danger iii. Inspired by idea of avoiding/reducing losses.
o If he is manifestly unfit to carry over management  Such elements are present in the present case.
o Prevented a more competent person to take up management. i. Deposit redemption price to prevent the action from
prescribing.
EXTINGUISHMENT OF MANAGEMENT ii. Also called upon the guardian ad bona.
 Owner repudiates and ends it  The claim that the minors could not contract/bind themselves does
 Officious manager withdraws so long as property is preserved and the same not hold water= UNCLE MUST BE REIMBURSED.
must be returned. i. It redounded to the benefit of the minor.
 OWNER/OFFICIOUS MANAGER ii. No one may enrich himself to the prejudice of another.
o Death 2. BENEDICTO v. BOARD OF ADMINISTRATORS
o Civil interdiction
38 | S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
OBLIGATIONS AND CONTRACTS FINALS
 The properties of Broadcast City were abandoned after the 1986
revolution. P.C.G.G was then created and requested to the Ministry
of National Defense and Information to sequester the Broadcast City
pending clarification as to its financial condition, legal and
beneficial ownership. In return, MNDI requested Ministry of Info to
undertake management/administration of sequestered properties.
 President Aquino then issued EO11 which created Board of
Administrators to manage/operate business of Broadcast City.
 PETITIONER: assail the sequestration. An agreement between
petitioner and PCGG stipulated that 2/3 of the nominees should be
nominees of petitioners.
 The Board of Admin constituted by PCGG refused to surrender
management.
 SC: In view of reorganization of Board of Directors, the
authority of the BOA constituted by PCGG has become functus
officio. This is supported by the fact that broadcast city is not a
commercial venture but a media enterprise in which the government
cannot interfere.
DEAN MEL STA. MARIA
GOOD FAITH
 One who accepts undue payment in good faith
o Liable for impairment/loss of same including its accessories and
accessions as he has been benefited.
 If he alienated it- return the price or assign action to collect the sum.
Article 2162. He shall be exempt from the obligation to restore who, believing in good
faith that the payment was being made of a legitimate and subsisting claim, destroyed
the document, or allowed the action to prescribe, or gave up the pledges, or cancelled
the guaranties for his right. He who paid unduly may proceed only against the true
debtor or the guarantors with regard to whom the action is still effective. (1899)
Article 2163. It is presumed that there was a mistake in the payment if something
which had never been due or had already been paid was delivered; but he from whom
the return is claimed may prove that the delivery was made out of liberality or for any
other just cause.

GROUND GOOD FAITH BAD FAITH

SECTION TWO: SOLUTIO INDEBTII Right to recover BOTH
improvements
SOLUTIO INDEBTII Right to retain property Yes until he is No right
 Something is received reimbursed
o No right to demand it
Useful expenses Refund/pay increase in
o Delivered by mistake.
value
 Mistake of law is allowed when it involves doubtful/difficult question of law.
Useful improvements Remove/recover Reimburse fruits
 When payer was in doubt whenever the debt was due, he can recover if he
proves that the same was not yet due. Pure luxury No refund
 If there are two or more payees= solidary obligation. Cost of litigation BOTH
o Even if one has not received his own share. Liability Not liable unless with Deterioration even cause
 If property delivered to A is owned by 3 rd party. fraudulent by fortuitous event.
o A has no obligation to question origin. intent/negligence
o If he has knowledge, he must advise 3rd person.
 Must be claimed within one month. Cases:
 INDISPENSABLE REQUITES 1. VELEZ v. BALZARA
o One who paid was not under obligation to do so.  Obligor paid money which did not constitute as payment of interest
o Payment was made by reason of essential mistake of fact. or rentals (not yet due)
 SC: THERE IS SOLUTIO INDEBTII
BAD FAITH. i. Plaintiff must return excess payments
 One who accepts undue payment in bad faith 1. No right to collect the sum.
o Liable for legal interest- money is involved. 2. Payment was made through mistake.
o Fruits received- things. ii. Based on their contract
 If creditor knew the debt is not yet due, he must inform debtor. 1. Never intended that either rents/interests should
be paid.
39 | S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
OBLIGATIONS AND CONTRACTS FINALS
2. Defendants intended the sum to apply to principal,
but they overpaid.
iii. No one should unjustly enrich himself to the prejudice
of others.
2. ADRES v. MANUFACTURERS HANOVER
 Petitioners is engaged in manufacture of clothes and one of its
customers is FACETS. By some reason, a payment made by FACET
through FNSB and via PNB initially failed. However, after sending
a telex, petitioner was able to receive the amount due.
 FACETS, not knowing that petitioners already received the amount
due ordered FNSB to effect payment via PCI Bank. Petitioner then
received the 2nd remittance.
 When FNSB discovered the duplication of payment, it asked for the
credit in which petitioners refused to pay. RTC then rendered in
favor of petitioners and held that there was no solution indebti.
 SC: FNSB MAY RECOVER THE 2ND REMITTANCE.
No contractual relationship between petitioner and FNSB.
i. Petitioner contends that it has right to demand and reain the
second remittance which was credit to receivables due
from balance of FACETS.
ii. However, the contract was between the petitioner and
FACET, not between the petitioner and FNSB. Petitioner
then had no right to apply the second remittance to the
balance of FACETS.
1. Contract of Garments- petitioner and FACET
2. Contract of Transmittal of Dollar: FNSB and
FACET
Remittance was made by mistake.
iii. Petitioner: mistake is due to negligence.
iv. Payment was made on wrong assumption that petitioner
did not received the first remittance.
Principle of equity will not apply if a law is applicable to the
case.
i. Solutioo indebtii applies to the case.
Petition was filed within the 6 year prescriptive period.
3. SEBASTIAN SIGA-AN v. VILLANUEVA
 Wrongful imposition of interest,
 SC: MUST BE REIMBURSE BY VIRTUE OF SOLUTIO
INDEBTII.
i. 1960 of CC states that if borrower pays interest when there
is no stipulation thereof, solution indebtii must apply.
40 | S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1
DEAN MEL STA. MARIA
ii. If something is receive when there is no right to demand
the same and it was delivered by mistake, there is
obligation to return it.
iii. No binding relations between the party as regards payment
of interest.
4. GONZALO PUYAT v. CITY OF MANILA
 Appellee paid taxes by mistake. The City of Manila affirms the
same. The mistake is due to a complicated violation between various
municipal and national laws.
 SC: THERE IS SOLUTIO INDEBTII
i. Taxes were paid by error and mistake= SOLUTIO
INDEBTII.
ii. Failure to protect was caused by belief that same was due.
iii. The amount paid, even without protest is recoverable.
iv. This is based on the assumption that taxing power was
lawfully exercise.
5. SEBASTIAN SIGA-AN V. ALICIA VILLANUEVA
 Loan between petitioner and respondent for 540,000. As payment
for the same, respondent issued a check worth 700,000 (excess of
160,000) and paid another cash in amount of 175,000 as interest.
 SC: THERE IS SOLUTIO INDEBTII
i. Art. 2159- Creditor must inform debtor that payment is not
yet due/excessive.
ii. Failure to inform= bad faith
1. Liable for legal interest of money/fruit of thing.
iii. Petitioner should return 335,000/
iv. In solution indebtii, exemplary damages may be awarded
if defendant acted in oppressive manner- 12% finality-
satisfaction.
v. Interest of 6% (extrajudicial demand-decision)
SECTION THREE: OTHER QUASI CONTRACTS
OTHER QUASI-CONTRACTS
i. Article 2164. When, without the knowledge of the person obliged to give
support, it is given by a stranger, the latter shall have a right to claim the same
from the former, unless it appears that he gave it out of piety and without
intention of being repaid. (1894a)
ii. Article 2165. When funeral expenses are borne by a third person, without the
knowledge of those relatives who were obliged to give support to the
OBLIGATIONS AND CONTRACTS FINALS DEAN MEL STA. MARIA
deceased, said relatives shall reimburse the third person, should the latter x. Article 2173. When a third person, without the knowledge of the debtor, pays
claim reimbursement. (1894a) the debt, the rights of the former are governed by articles 1236 and 1237.
a. Obliged to support each other: spouses, leg. a. G.R. Whoever pays for another may demand from debtor
Ascendants/descendants/ parents and their leg. children/illegitimate b. EXC: w/o knowledge/against will of debtor/ minor- only benefits.
children and leg/illegitimate grandchildren, legitimate xi. Article 2174. When in a small community a majority of the inhabitants of
brothers/sisters whether full/half-blood. age decide upon a measure for protection against lawlessness, fire, flood,
b. Liability: spouse, descendant, ascendant, brothers and sisters. storm or other calamity, any one who objects to the plan and refuses to
iii. Article 2166. When the person obliged to support an orphan, or an insane or contribute to the expenses but is benefited by the project as executed shall be
other indigent person unjustly refuses to give support to the latter, any third liable to pay his share of said expenses.
person may furnish support to the needy individual, with right of xii. Article 2175. Any person who is constrained to pay the taxes of another shall
reimbursement from the person obliged to give support. The provisions of be entitled to reimbursement from the latter.
this article apply when the father or mother of a child under eighteen years of
age unjustly refuses to support him.
iv. Article 2167. When through an accident or other cause a person is injured or
becomes seriously ill, and he is treated or helped while he is not in a condition
to give consent to a contract, he shall be liable to pay for the services of the
physician or other person aiding him, unless the service has been rendered
out of pure generosity. Case:
v. Article 2168. When during a fire, flood, storm, or other calamity, property is
saved from destruction by another person without the knowledge of the i. DE MARCAIDA v. REDFERN
owner, the latter is bound to pay the former just compensation.  Spouse borrowed a sum of money on different occasions from her
vi. Article 2169. When the government, upon the failure of any person to sister and where the sister and husband sue the husband of thee
comply with health or safety regulations concerning property, undertakes to borrowing spouse
do the necessary work, even over his objection, he shall be liable to pay the i. SC: THEY MAY NOT RECOVER FROM THE
expenses. HUSBAND. While spouses Ramirez did not support Mrs.
vii. Article 2170. When by accident or other fortuitous event, movables Redfern with money out of charity and husband and wife
separately pertaining to two or more persons are commingled or confused, are mutually bound to support each other, the same must
the rules on co-ownership shall be applicable. not apply to the present case since it was not shown that
viii. Article 2171. The rights and obligations of the finder of lost personal Mrs. Refern ever made a complaint to her husband or
property shall be governed by articles 719 and 720.
gave the latter the opportunity to render the assistance.
a. Movable- return to previous possessor/mayor of municipality.
b. Public announcement for 2 weeks. If object cannot be kept without
deterioration, the same shall be sold within 8 days at public auction.
c. After six months and no claim, thing found shall be awarded to the
finder.
d. If owner appear on time, he shall be obliged to pay 1/10 th of sum of
price of money/thing found.
ix. Article 2172. The right of every possessor in good faith to reimbursement for
necessary and useful expenses is governed by article 546.
a. Necessary expenses shall be refunded to every possessor but only
possessor in good faith may retain before reimbursement.
b. Useful expenses- only to possessor of good faith who has the right
of retention.

41 | S T E P H A N I E S E R A P I O | B L O C K C 2 0 2 1