Obligations and Contract

NOTES

20/24 Nov 2017

CONTRACTS
Art. 1305.

Definition -
 contractus (Latin); contract (French)
 a juridical convention manifested in legal form, by virtue of which, one or more persons (or parties)
bind themselves in favor of another or others, or reciprocally, to the fulfillment of a prestation to give,
to do or not to do.
 It is the agreement of two or more persons (or parties) for the purpose of creating, modifying, or
extinguishing a juridical relation between them.

Stages in the life of a contract:

1. Preparation or negotiation (Conception)
a. All steps taken leading to the perfection of contract;
b. preliminary steps toward formation of a valid contract;
c. There is no definite agreement yet;
d. May be stopped or offer may be withdrawn
2. Perfection (Birth)
a. Have come to a definite agreement or there is a meeting of minds regarding the terms
b. Upon concurrence of the essential elements of the contract
3. Consummation (Death or Termination)
a. Takes place when the parties have fulfilled or performed their respective obligations or
undertakings under the contract
b. When contract has been fully accomplished or executed, contract is extinguished

Elements of a Contract:
1. Essential Elements or Requisites – absence of which render a contract invalid [Art. 1318]

2. Natural Elements – presumed to exist in contracts like warranty against eviction [Art. 1548] or
warranty against hidden defects in sale [Art. 1561] MACEDA LAW; contract remains valid if they are
not part of the contract

3. Accidental Elements – exist only when they are expressly provided by the parties, e.g., stipulations,
clauses, terms or conditions for the purpose of clarifying, restricting, or modifying its legal effects; not
necessary to perfect a contract [Art. 1306]

Classification of Contracts

1. According to Perfection:
a. Consensual contract – perfected by mere consent of the parties regarding the subject matter
and the cause of the contract (e.g., sale, lease, agency) [Art. 1315]

b. Real contract – perfected by the delivery (actual or constructive) of the thing of the subject
matter of the contract [or obligation] (e.g., depositum, pledge, commodatum) [Art 1316]

c. Solemn contract – requires compliance with certain formalities prescribed by law, such
prescribed form being thereby an essential element thereof (e.g., donation inter vivos of real
property requires for its validity a public instrument) [Art 1356]

Consensual Real Solemn

1. subject matter or object 1. subject matter or object 1. subject matter or object
2. cause or consideration 2. cause or consideration 2. cause or consideration
3. consent or meeting of minds 3. consent or meeting of minds 3. consent or meeting of minds

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Obligations and Contract
NOTES
4. Delivery of the object 4. Delivery of the object
Examples Examples Examples
Contract of Sale: Car Pawnshop: (1) Contract of Donation
Subject matter: car Contract of Loan - must be in public instrument
Cause: price of the car - must accepted by donee
Consent: agreement on the Contract of Pledge - must be communicated to
price and delivery of the car - subj matter should be the donor
delivered required for the
purpose of perfection
BPI Case (2) Donation of Personal
- payment of interest Property
- above P50,000 must be in
writing
- P50,000 or less is for
delivery
Borrowing of a Tractor (3) Sale of land through an
Subject: agent. — The authority of the
Bailey agent must be in writing;
Commodatum (gratuitous; no otherwise, the sale is void. (Art.
valuable consideration) vs 1874.)
contract of lease (delivery is not (4) Contract of antichresis. —
essential) The amount of the principal and
of the interest must be specifi ed
Onerous: with valuable in writing. (Art. 2134.)
consideration (5) Stipulation to pay interest. —
Contract of deposit (involves It must be in writing; otherwise,
personal property; delivery for no interest is due. (Art. 1956.)
the purpose of safekeeping and (6) Contract of partnership. — If
for the purpose of perfection) immovables are contributed, it
must be in a public instrument to
which shall be attached a signed
inventory of the immovable
property contributed. (Arts.
1771, 1773.)
(7) Transfer or sale of large
cattle. — It must be registered
(so it must be in a public
instrument) and a certifi cate of
transfer secured. (Act No. 1147,
Sec. 22.)
(8) Negotiable instruments. —
They must be in writing. (Act No.
2031, Sec. 1.)

 Consequence: A perfected contract creates JURIDICAL RELATIONS that results in the

establishment of OBLIGATIONS.

2. According to cause or equivalence of the value of prestations:

a. Onerous – there is an interchange of equivalent valuable consideration, e.g., contract of

lease

Subject matter: possession or enjoyment of property

Consideration: payment of stay (RENT) [valuable consideration]

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Obligations and Contract
NOTES
b. Gratuitous – this is FREE, thus one party receives no equivalent prestation except a
feeling that one has been generous or liberal, e.g, contract of donor, contract of deposit

c. Remunerative - xxx

3. According to importance or dependence upon another:

a. Preparatory – in preparation for another contract, e.g., option contract, agency contract
[e.g., special power of attorney], contract of partnership

b. Principal – one which stands by itself, justifies its own existence, and is not subordinate
or auxiliary to any other, e.g, Donation, contract of lease

c. Accessory – made for assuring the performance of a prior contract, either by the same
parties or by others, e.g., suretyship (solidary liability), guarantee (mortgage, and pledges

4. According to parties obligated:

a. Unilateral - commodatum (bailey)
b. Bilateral – both parties have obligations; reciprocal (performance of one depends on the
performance of the other)

5. According to their name or designation:

a. Nominate – covered by a particular provision of the law
b. Innominate ARTICLE 1307
i. Do ut des – I give that you may give
ii. Do ut facias – I give that you may do
iii. Facio ut des – I do that you may give
iv. Facio ut facias – I do that you may do

6. According to the risk of fulfillment:

a. Commutative – value exchange is more or less equal, e.g., contract of sale
b. Aleatory – value exchange is not equal depends upon certain event or contingency, e.g.,
insurance

7. According to the time of performance or fulfillment:

a. Executed
b. Executory

8. According to subject matter:

a. Contract involving things
b. Contract involving rights or credits
c. Contract involving services

9. According to obligations imposed and regarded by law:

a. Ordinary
b. Institutional

10. According to the evidence required for its proof:

a. Those requiring oral or parol evidence
b. Those requiring written proof

11. According to the number of persons actually and physically entering into the contracts:
a. Ordinary
b. Auto-contracts

12. According to the number of persons who participated in the drafting of the contract:

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Obligations and Contract
NOTES
a. Ordinary – all parties are involved in the drafting
b. A contract of adhesion – prepared by one party only; important for the purposes of
interpreting the rules; always in favor of the one that adhered to and against the one who
prepared

13. According to the nature of the contract:

a. Personal
b. Impersonal

Basic Principles or Characteristics of a Contract:

1. Perfection by Mere Consent [CONSENSUALITY] - [Art. 1315, 1317]
2. Freedom to Stipulate [AUTONOMY] – provided not contrary to law, morals, good customs,
public order or public policy [Art. 1306, BSP Circular No. 799, s 2013]
3. Both parties are mutually bound [MUTUALITY] - [Art. 1308, 1309, 1182, 1469]
4. Relatively [RELATIVITY] - generally, it is binding only between the parties, their assigns and
heirs [Art. 1311, 1312, 1313, 1314]
5. Obligatory Force and compliance in good faith [OF AND EFFECTS] - [Art. 1159, 1315]

1. [CONSENSUALITY]
Principle:
 Contracts are perfected by mere consent. and no form is prescribed by law for their validity.
[ARTICLE 1315] Exception: (a) real contracts (such as pledge, chattel mortgage); (b) contracts
covered under the Statute of Frauds.
 Effect when consent is missing: the contract is UNENFORCEABLE; seller is not the owner; but can
be repealed by the real owner ARTICLE 1316
 Effect when action is beyond the scope of authority: the contract is UNENFORCEABLE

2. [AUTONOMY]
The Principle of Freedom:
 [general rule] Parties are free to stipulate terms and provisions in a contract, [limitations] as long as
these terms and provisions are not contrary to law, morals, good customs, public order and public
policy. ARTICLE 1306
 One can freely enter into a contract; establish stipulations they may deem proper

1. to law,
a. contractual stipulations must not be contrary to mandatory and prohibitive laws
[Article 5]
b. must respect the law
c. pactum commissorium is null and void [Art 2088] [the automatic appropriation by
the creditor of the thing pledged or mortgaged upon the failure of the debtor to
pay the principal obligation]
d. upset price is not allowed in a mortgage contract [the lowest acceptable selling
price for a property in an auction]

Kinds of Contract
 Directory – enacted for convenient of the parties, e.g., warranty against eviction
 Mandatory – absolute prohibition, e.g., Maceda Law [in case of default of payment, forfeit
all payments except when there are at least 24 payments made already, in such a case
50% of all payments shall be returned. Any stipulations lower than standards shall be null
and void.
o Jurisdiction of the court is mandatory

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Obligations and Contract
NOTES

 Personal action – depends on the residence of the plaintiff

 Real action – RTC or MTC depends on the value of real property
 Ejectment cases is always MTC
o Venue (location) – in the absence of stipulation, can freely choose the venue

Interest Rates
1. Monetary interest – interest charge for the use of money; can have it only in writing;
should be stipulated
2. Compensatory – damages, e.g., penalty for failure to pay obligations; legal rate
applies if there is no stipulation

Forbearance of money and credit – involves obligation to pay money

Solutio indebiti – a payment of what is not due

2. morals,
a. deals with right and wrong
b. agreement to work without pay is immoral as this would amount to involuntary
servitude
c. scholarships are awards of merits, to seek reimbursement contravenes both
morals and public policy
d. excessive attorneys fees is immoral

3. good customs,
a. those that have received for a period of time practical and social confirmation
b. e.g., changing of religion, change of domicile

4. public order or
a. includes public safety; contains an implied reservation of the police power for the
promotion or protection of the general welfare.

5. public policy
a. a contract is contrary to public policy is it has tendency to injure the public, is
against the public good, or contravenes some established interest of society or is
inconsistent with sound policy and good morals, undermines the security of
individual’s rights.
b. E.g., charging of excessive interest rates; undue or unreasonable restraint of
trade such as prohibition to engage in any enterprise after leaving the service of
the employer.

The following are valid stipulations in an employment contract:

a) Non-competition agreements – those that impose restrictions on an employer’s ability to compete

with a former employer are valid as long as:
 It is supported by adequate consideration;
 The restraint is confined within the limits that are reasonably necessary for the protection of the
employer’s business
 Restraint does not impose undue hardship on the employee.

b) Non-solicitation agreements – requirement to newly-hired employees to sign a non-solicitation

agreement to obligate the employee not to solicit contacts and fellow employees of the employer. Non-
solicitation agreements run for an indefinite period.

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Obligations and Contract
NOTES
c) Confidentiality – imposes upon an employee a duty to keep confidential trade secrets and other
confidential company information during employment and after employment. This may also run for an
indefinite period.

A Yellow Dog Contract is a promise exacted from workers as a condition of employment that they are not
to belong to, or attempts to foster, a union during their period of employment. This constitutes Unfair
Labor Practice and considered an illegal stipulation.

3. [MUTUALITY]
Consequence of Mutuality: ARTICLE 1308
 Its validity and performance cannot be left to the will of only one of the parties.
 [Parties entered into a contract at the same level]; [equality between the parties]; [CANNOT
UNILATERALLY CHANGE; IT IS REPUGNANT IF ONLY ONE PARTY IS BOUND TO THE
CONTRACT]
 A party cannot revoke or renounce a contract without the consent of the other or cannot
have it set aside on the ground that he had made a bad bargain.
 When the fulfillment of the condition depends upon the sole will of the debtor, the conditional
obligation is void, if the condition is SUSPENSIVE. If RESOLUTORY, the obligation is valid.
[Article 1182]
 Third person may determine performance, provided it has been made known to both parties
[Article 1469]

4. [RELATIVITY]
Principle:
 Contracts are binding only upon the parties and their successors-in-interest [ASSIGNS and HEIRS]
 A contract can only bind the parties who have entered into it or their successors who
assumed their personalities or their juridical positions; cannot favor or prejudice a third
person; any party involved can file an action
 Why are assignees bound by the contract? They acquire the rights of the creditor.

Two ways to transfer properties:

1. By succession
2. By assignment

X X
Creditor Debtor
I I
I I
I I
V V
SON A SON A
- Can the son collect the loan from the - Is the son liable to pay the loan of his
debtor if he is not identified as authorized parent? NO. Rights to payable is not
representative? NO. transmissible. It shall be charged to the
- Binds heirs and assigns if rights or estate.
interest are transmissible by way of
succession or by assignment
- PRIVITY - Personal action is one that is
founded on privity of contracts between the
parties; and in which the plaintiff usually
seeks the recovery of personal property, the

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Obligations and Contract
NOTES
enforcement of a contract, or recovery of
damages. Real action, on the other hand, is
one anchored on the privity of real estate,
where the plaintiff seeks the recovery of
ownership or possession of real property or
interest in it.

Intransmissible – by its very nature, personal in nature; e.g., Obligation of Partnership

- Contract of lease (Narvaez) – transmissible
- Tenancy right – intransmissible; cannot compel heirs to vacate.

In a contract of lease, it remains valid and applies to the lessor even if the property has been
sold by the lessee to another party.

Exceptions to the Principle of Relativity: [where third party can be benefited or

prejudiced]
1. Contracts creating real rights. For example, if A purchased an apartment house from the owner but
there is a lease thereon, A must respect the lease if A has actual knowledge of the existence and
duration of the lease or if the same is registered in the registry of property. (Art. 1312)
2. Stipulation in favor of a third person (stipulation pour autrui) as in a beneficiary of an insurance
policy. IT IS A STIPULATION IN A FAVOR OF A THIRD PERSON COFERRING A CLEAR AND
DELIBERATE FAVOR UPON HIM, AND WHICH STIPULATION IS MERELY A PART OF A
CONTRACT ENTERED INTO BY THE PARTIES, NEITHER OF WHOM ACTED AS AGENT OF THE
THIRD PERSON.
3. Third person liable to pay damages in case he induces a party to violate his contract. (Art. 1314);
loss of property rights or prospective income
4. Collective contracts, e.g., CBA wherein decision of majority, not only those who opposed, but other
who are members; the will of majority;
5. Contracts to defraud credits (Art. 1313)
 Defrauded creditor can demand for rescission of contracts
 Remedy is to cancel the contract

A Stipulation pour autrui (stipulation in favor of a third person) will prosper as long as the following
requisites are present:
 It must be for the benefit or interest of the third person;
 Such benefit must not be merely incidental;
 Contracting parties must clearly and deliberately conferred such benefit or interest upon the third
person
 That the third person must have communicated his acceptance to the obligor before his revocation.

Requisites of Stipulation pour autrui

1. There is a valid contract existing contract known to both parties
2. The stipulation must be a part, not the whole, of the contract.
3. The contracting parties must have clearly and deliberately conferred a favor upon a third
person, and not a mere incidental benefit or interest to the third party
4. There should not be any condition given to the third party [Unconditional, uncompensated]
5. The third person must have communicated his acceptance to the obligor before its
revocation. The law does not provide specific form of acceptance. It can be direct or implied
6. Neither of the contracting parties bears the legal representative or authorization of the third
party.

For examples:

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Obligations and Contract
NOTES

1. Car insurance; principal parties are the insurance company and the car owners, third
party is the in-house financing
2. Mandarin villa case; principal parties are the credit card company and the
establishments, third party is the credit card holder

Requirements to determine if there is fraud

1. Prior credit before the sale
2. There must be fraud or intention to commit fraud
3. No other means that creditor can be compensated for the loan

Elements of tortuous interference with contractual relations: . (Art. 1314)

(a) existence of a valid contract;
(b) knowledge on the part of the third person of the existence of the contract and
(c) interference of the third person without legal justification or excuse.

5. [OBLIGATORY]
Principle:
 Binds the contracting parties
 Bound to perform the obligation creation; in case of refusal, can be compelled through court
proceeding
 Perform obligation in good faith.

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Obligations and Contract
NOTES

8 Dec 2017
II. ESSENTIAL REQUISITES OF CONTRACT

CONSENT [Article 1318]

 Meeting of minds of the capacitated parties (capacity to give consent)
 Manifested by the meeting of the offer and acceptance of offer
 Requisites of consent:
1. There must be two or more parties
2. The parties must be capable or capacitated (if insane, contract is voidable)
3. There must be no vitiation of consent (no fraud, or intimidation)
4. There must be no conflict between what was expressly declared and what was really
intended. (SIMULATED contract is void)
5. The intent must be declared properly (all legal formalities must be complied with)

 Requisites for the meeting of minds:

1. Offer must be certain, that is, it is complete, definite, intentional; not vague, not a
joke
2. acceptance must be unqualified, that is, the offer is accepted by the offeree in toto,
without modification

Offer [Article 1319]

 Unilateral preposition coming from one made to another manifesting an intention

 Advertisement – an advertisement is an offer [Article 1325]

Acceptance
 Absolute, unqualified; not subject to any conditions; no changes in the offer [Article
1319]
 Counter-offer – means rejection of the original offer
 Can be [Article 1320]
1. express – categorical, oral writing
2. implied – from certain acts, can be deduced there is an acceptance

 In certain kinds of contract, there is formal acceptance that the law requires e.g.,
Contract of Donation

Theories of Perfection of Contracts

Manifestation Expedition Reception Cognition

the contract is the contract is the contract is the contract is
perfected from the perfected from the perfected from the perfected from the
moment the moment the offeree moment that the moment the
acceptance is declared transmits the notification of acceptance comes to
or made notification of acceptance is in the the knowledge of the
acceptance to the hand of the offeror in offeror
offeror such a manner that he
can, under ordinary
conditions, procure the
knowledge of its
contents, even if he is

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Obligations and Contract
NOTES
not able actually to
acquire such
knowledge by reason of
absence, sickness or
some other cause

Verbal acceptance – once the offeree has communicated his acceptance

Agent – extension of the principal, if he has authority on behalf of the principal [Article 1322]. Example, a
broker looking for buyer.
 General Power of Atty – acts of administration
 Special Power of Atty – acts of ownership and disposition, e.g., sale, mortgage, (for very specific
purpose)

Acceptance by silence – only when law provides for it, e.g., renewal of lease (implied renewal)

Validity of offer – becomes ineffective upon death, civil interdiction (a court order depriving a person of
civil rights), insanity or insolvency (asset is less than liability)

Amplified acceptance – additional order by the offerer with thesame price; matter of intention of parties
but the intention to buyless than the said number of pieces, there is no perfected contract

Complex Offer
RULES:
(1) if the offeror proposes to lease one part and to sell another part, acceptance of one by the offeree
would ordinarily result in a perfected contract, unless, of course, the offeror should have made
one offer dependent upon the other
(2) in an offer involving a prospective contract of loan and the mortgage which will secure it,
acceptance by the future debtor of the proposed loan alone would not give rise to a perfected
contract

Unilateral offer can be withdrawn at any time before it is accepted, unless there a contract to keep it open;
which must be supported by consideration [Article 1324]

Option Contract
 perfected contract
 preparatory contract – a means to enter into another contract; preparatory for a contract of sale
 a contract where offeror gives offeree a period of time to buy or not to buy a certain object at a
fixed price

Contract of Option: This is a preparatory contract in which one party grants to the other, for a fixed
period and under specified conditions, the power to decide whether or not to enter into a principal
contract. It must be supported by an independent consideration, and the grant must be exclusive.

Contract of sale – nominate contract

Contract to sell – innominate contract; reservation is given to buyer until full payment

Option money – given upon fulfillment of option contract

Earnest money –
(1) part of the contract of sale, or part of the downpayment
(2) given when there is perfected contract of sale
(3) buyer is bound to pay the balance of purchase price

Parties and capacities of Contract [Articles 1327, 1330]

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Obligations and Contract
NOTES
Voidable contracts
 one of the parties’ consent is vitiated (vice of consent) or incapacitated to give consent

Capacities
2 kinds of incapacity
(1) Relative – under certain condition, e.g., husband and wife cannot donate to each other, but can
donate to others
(2) Absolute – cannot enter into a valid contract

Contracts with Minors are generally voidable, unless

1. Upon reaching the age of majority, they ratify the same
2. They were entered into through a guardian,
3. They were contracts of life insurance, provided they were 18 years old or above
4. They were in the form of savings, provided they were at least 7 years old
5. They were contracts for necessities such as food
6. Where the minor misrepresented his age

III. FORMS OF CONTRACTS

1. GENERAL (Art 1356)

The general rule as to the formalities of contract: Contract is obligatory in whatever form. This applies
to Consensual contracts.

Forms of Contracts
1. PAROL or oral
2. Writing
3. Partly oral or partly writing

Exceptions (i.e., contracts which require specific form)

1. When forms are needed for VALIDITY such as in Solemn Contracts
2. When Forms are needed for ENFORCEABILITY under the Statutes of Frauds

2. Importance of Formalities (Arts. 1356-1358)

a. Convenience (in relation to Art 1485).
b. Enforceability
c. Validity (in relation to formal or solemn contracts)

CONVENIENCE
Article 1357.
A certain form (e.g., public instrument) is required for the convenience of the parties in order that the
contract may be registered in the proper registry to make effective, as against third persons, the right
acquired under such contract. The public document is required only for the convenience and
greater protection of the parties and registration is needed only to make the contract
effective as against third persons.

A public document or instrument is one which is acknowledged before a notary public or any
official authorized to administer oath, by the person who executed the same.

Contract of Agency… sale of property must be in writing, e.g., Special Power of Attorney
 Special power of attorney – specific authority.. act of ownership. IF NOT IN WRITING, IT IS VOIC
 General power of attorney – act of administration, not to sale or mortgage

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Obligations and Contract
NOTES
Kinds of Interest
a. Monetary - cost of money
b. Compensatory – in the form of damages (in case of penalty); not required in writing

INTEREST RATE DOES NOT HAVE TO BE STIPULATED.

Unconscionable interest rate – contrary to public policy, moral, not contrary to law anymore (there is
no more minimum interest rate)

Quasi contract
 Solutio indebiti
 Return what is not due
 Negotium gestio

ENFORCEABILITY
.
.

Dauden-Hernaez vs de los Angeles

IV. REFORMATION (Art 1359)

Reformation is that remedy by means of which a written instrument is amended or rectifi ed so

as to express or conform to the real agreement or intention of the parties when by reason of
mistake, fraud, inequitable conduct, or accident, the instrument fails to express such agreement
or intention.

RATIONALE: It is unfair and inequitable to allow the enforcement of a written instrument that
does not reflect or disclose the real meeting of the minds of the parties.

REQUIREMENTS:
1. Perfected contract – there is meeting of minds
2. Contract is in writing
3. Contract does not reflect the real agreement
4. There is mistake

RESPONSIBILITY OF THE COURT: In reforming the instruments, courts do not make another
contract for the parties. They merely inquire into the intention of the parties and having found
it, reform the written instrument (non the content), in order that it may express the real
intention of the parties.

Annulment of contract:
There is perfected contract but there is defect, e.g., capacity of parties; consented is vitiated. It
involves nullification of contract; no force and effect.

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Obligations and Contract
NOTES

Effect:
Action for reformation will retroact to the execution of the contract, at the time of perfection, not
at the time of correction.

When reformation can be Undertaken

1. Mutual mistake (Article 1361)
2. There is fraud (Article 1362)
3. There is concealment (Article 1363)
4. There is equitable mortgage (contract which appears as contract of sale, but the true
intention is to use the subject matter as a collateral to obtain loan; the rationale is to
avoid foreclosure of mortgage) (Article 1602)

PACTUM COMMISSORIUM
Automatic appropriation by the creditor of the thing pledged or mortgaged upon the
failure of the debtor to pay the principal obligation

PRESCRIPTION PERIOD: 10 YEARS AFTER PERFECTION OF CONTRACT

File an action for SPECIFIC PERFORMANCE or BREACH OF CONTRACT: ESTOPPEL

V. DEFECTIVE CONTRACTS
4 TYPES
1. Rescissible They are valid until rescinded; there is a sort of extrinsic defect consisting
of an economic damage or lesion.
2. Voidable - They are also valid until annulled unless there has been a ratification. In a
voidable contract, the defect is caused by vice of consent
3. Unenforceable - They cannot be sued upon or enforced unless they are ratified;
considered validable transaction, that is, it has no effect now, but it may be effective
upon ratification.
4. Void (inexistent or illegal) - They are absolutely null and void. . They have no legal
effect at all and cannot be ratified

RESCISSIBLE CONTRACTS

Rescissible (Art. 1381) Art. 1191

Basis of Action Lesion or economic Substantial breach of
damage obligation
Who will file the action A party to the contract and Aggrieved party
creditor
Nature of action Subsidiary Principal

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Obligations and Contract
NOTES

2 Kinds of Disposition

1. Dominion – ownership, sale, mortgage. Guardians have no authority; unenforceable

without court approval

2. Administration – management; without court approval

LIS PENDENS – PENDING CASE

Notice of lis pendens. No action to recover possession of real estate, or to quiet title thereto, or to
remove clouds upon the title thereof, or for partition, or other proceedings of any kind in court directly
affecting the title to land or the use or occupation thereof or the buildings thereon, and no judgment,
and no proceeding to vacate or reverse any judgment, shall have any effect upon registered land as
against persons other than the parties thereto, unless a memorandum or notice stating the institution
of such action or proceeding and the court wherein the same is pending, as well as the date of the
institution thereof, together with a reference to the number of the certificate of title, and an adequate
description of the land affected and the registered owner thereof, shall have been filed and
registered.

Without judicial authority… object is sold to another party without knowledge and
approval of litigants or of judicial authority…. Lis pendens – annotated

Has no other means for the reparation of damage… subsidiary.. remedy of last resort…
exhaust all remedies first

Accion Pauliana
1. Plaintiff is defrauded – a creditor prior to the fraud
2. Debtor made subsequent alienation or disposition
3. Creditor has no other legal remedy
4. Contract to be rescinded is fraudulent
5. 3rd person who ---- the property … in bad faith

Prescription… the injured party shall file…

Action to defraud creditors --- exhaustion of remedies

HOW TO ASSAIL
1. Annulment, on the ground of voidable (positive action)
2. To compel, enforce the contract (Defense)

HOW TO MAKE IT VALID

1. BY PRESCRIPTION, ACTION FOR Annulment will not prosper
2. BY RATIFICATION, efficacy which suffers from vice of consent

Enforceable, can no longer be annulled and defense being voidable cannot be used

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Obligations and Contract
NOTES

Form of Ratification
1. Express
2. Tacit

Intelligent
Voluntary
Knowingly
Intentionally
GIVEN

Effects of annulment

1. There is no performance – obligations are extinguished

2. Mutual restitution – together with interest and the fruits thereof [unjust
enrichment]
3. Incapacitated – up to the extent of benefits he received.. what is left at the time
when the contract is annulled
4. Failure to restitute, party is at fault he cannot recover; without interst

UNNFORCEABLE

Classes
1. Unauthorized contract – cannot be enforced; liable for damages
2. Infringes statutes of fraud -
3. Both parties are incapacitated.. if only one is incapacitated, contract is voidable

KINDS OF EVIDENCES
1. Object evidence
2. Documentary evidence
3. Testimonial evidence

Statute of Limitation – Prescription of Action

Statutes of Fraud

- Provides for the contracts to be enforcenable must be in some sort of writings or

memorandum or notes

Purpose: prevention in the commission of fraud or perjury

Involves substantial consideration; valuable; effective to be performed by 1 year.

Art 1403 – covers consensual contract

15
Obligations and Contract
NOTES

BASIC PRINCIPLES
1. APPLIES ONLY TO EXECUTORY CONTRACTS – there is no performance
2. For specific performance of contract or breach contract - implementation of oral
contract e.g., recovery of downpayment – does not involve performance of
contract or breach of contract… = partial performance.

http://www.accralaw.com/publications/statute-frauds-more-just-handshake

Rescissible Voidable Unforceable Void

Meaning
Characteristics All essential All essential All essential
requisites are requisites are requisites are
present. present; but there present -
is defect in PERFECTED
consent CONTRACT
(incapacitated or
vitiated)
Valid and Valid, forceable Obligation cannot
enforceable. Valid be enforced
until rescinded. through court
order
File to repair Parties may
economic damage voluntarily perform
or lesion the obligations
Defect is extrinsic Defects in the
– damage to third Capacity
person
Remedy – Susceptible of Ratification cures
rescission ratification or the defect
convalidation
Remedy is Cannot be
subsidiary – assailed by a third
remedy of last person, being a
resort; before you defect by itself is a
file – avail all defense
remedies to
recover all
damages, e.g, if
surety can be
used, you cant
use rescission

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