II.

CONTRACTS

What is a CONTRACT?

A contract is a meeting of minds between two persons whereby one binds himself,
with respect to the other, to give something or to render some service (Article 1305).

What are the Elements of a Contract?

1. Essential – those without which there can be no contract.
a) Consent
b) Object or Subject Matter and-
c) Cause or Consideration

2. Natural – those derived from the nature of the contract and ordinarily accompany
the same.

3. Accidental – those which exist only when the parties expressly provide for them
for the purpose of limiting or modifying the normal effects of the contract.

What is a Nominate contract?

Those which have their own distinctive individuality and are regulated by special
provisions of law. For instance, a Contract of Sale, a Contract of Mortgage, a Contract
of Insurance, a Contract of Lease. There is a specific law that regulates these types of
contracts.

What are Innominate contracts?

-Those which lack individuality and are not regulated by special provisions of law.
-Innominate contracts are regulated by the stipulations of the parties, by the general
provisions of the Civil Code on obligations and contracts, by rule governing the most
analogous nominate contracts and by the customs of the place.
-Kinds:
a. Do ut des - I give that you give
b. Do ut facias - I give that you do
 c. Facio ut des - I do that you give
d. Facio ut facias - I do that you do

What are the Characteristics of Contracts? (ROMA)

1. Relativity (ART 1311)
2. Obligatory Force and Consensuality (ART 1315)
3. Mutuality (ART 1308)
4. Autonomy (ART 1306)

What does Relativity of Contracts mean?

-General Rule: Contracts take effect only between parties, their assigns and heirs. The
term relative means that contracts take effect only between those parties (because they
are related by virtue of the contract) and the parties’ heirs and assigns (because they
are related under law)

-Exceptions:
1. Stipulation pour atrui - stipulation in favor of a third person. French for
“Stipulation for other persons”
a) Requisites:
i. the stipulation must be a part, not the whole of the contract;
ii. the contracting parties must have clearly and deliberately conferred a
favor upon a third person, not a mere incidental benefit or interest;
iii. the third person must have communicated his acceptance to the obligor
(debtor) before its revocation;
iv. the favorable stipulation should not be conditioned or compensated by
any kind of obligation whatever; and
v. neither of the contracting parties bears the legal representative or
authorization of the third person.
b) Test of Beneficial Stipulation – the fairest test to determine whether the
interest of a third person in a contract is a stipulation pour atrui or merely an
incidental interest is to rely upon the intention of the parties as disclosed by
their contract.
c) Example: D (debtor) owes C (creditor) Php10,000 payable after one year at
12% interest. It was agreed that the interest of P1,200 would be given to T
 (third person) to whom C is indebted for the same amount. In this case, T
must communicate his acceptance to D before the revocation of the
stipulation by the parties in order that the same will be effective. From the
moment that T communicated his acceptance, T will become a party to the
contract.

2. When a third person induces a party to violate contract (ART1314)

a) Requisites:
i. Existence of a valid contract;
ii. knowledge of contract by third person; and
iii. interference by third person without legal justification or excuse.
b) Example: S agreed to sell his parcel of land to B for P1million. S, however
decided to sell the land to C because of the inducement of D. In this case, B
can sue D for damages even though he is not part of the initial agreement.

3. Third persons who come into possession of the object of the contract creating real
rights
4. Contracts entered into in fraud of creditors

What does Mutuality of Contracts mean?

-The contract must bind both parties; its validity or compliance must not be left to the
will of one of them. (ART 1308)
-The contract cannot have any stipulation authorizing one of the contracting parties
(a) to determine whether or not the contract shall be valid, or
(b) to determine whether or not the contract shall be fulfilled.

What does Autonomy of Contracts mean?

-The parties are free to stipulate anything they deem convenient provided that they are
not contrary to law, morals, good customs, public order and public policy. (Article
1306)

What does Consensuality mean?

-Contracts are perfected by mere consent.
-From the moment that both parties gave their consent, they are bound by the
stipulation of the Contract.
-For instance, a sale of a trading card (Magic cards) that was perfected online.
Delivery was to be made two weeks from the date of purchase. Three days after the
sale, the cards value went up 100%. Can the seller cancel the contract? The answer is
no.

Let us now go the first element of a Contract- Consent.

What is Consent?
-Consent is the concurrence of both the offer (first party) and acceptance (second
party) upon the thing, and the cause which are to constitute the contract. In short,
OFFER + ACCEPTANCE = CONSENT

What are the requisites of consent?

1. Legal capacity of the contracting parties. (eg. Must be of legal age, must not be
deaf-mute and unable to read/write, must not be insane or demented)
2. Manifestation of the conformity of the contracting parties.
3. The parties’ conformity to the object, cause, the terms and conditions of the
contract must be voluntary and free from all vices of consent.
4. The said confirmity must be real and not simulated or fictitious.

What is an Offer?
An Offer is a proposal made by one party to another to enter into a contract. An offer
must be certain or definite, complete and intentional.

NOTE: Offer/proposal may be withdrawn so long as the offeror has no knowledge of

acceptance by offeree.

What is an Acceptance?
An Acceptance is the manifestation by the offeree of his assent to the terms of the
offer. It must me absolute. A qualified acceptance constitutes counter-offer.

NOTE: Acceptance may be revoked before it comes to the knowledge of the offeror.
What is Rule on Complex offers?
1. If Offers are interrelated – contract is perfected if all the offers are accepted.
2. If Offers are not interrelated – single acceptance of each offer results in a
perfected contract unless the offeror has made it clear that one is dependent upon the
other and acceptance of both is necessary.

NOTES:
-Consensual contracts are perfected from the moment there is a manifestation of
concurrence between the offer and the acceptance regarding the object and the cause.

-Real contracts like deposit, pledge and commodatum requires delivery of object for
perfection (Commodatum refers to a gratuitous loan of a movable property.
Commodatum comes from the latin word “commodore” which means “to lend”.

-Solemn contracts are those which requires compliance with certain formalities
prescribed by law, such prescribed form being an essential element (i.e., donation of
real property-must in writing and notarized).

-An offer made inter praesentes (face to face) must be accepted IMMEDIATELY. If
the parties intended that there should be an express acceptance, the contract will be
perfected only upon knowledge by the offeror of the express acceptance by the
offeree of the offer. An acceptance which is not made in the manner prescribed by the
offeror is NOT EFFECTIVE BUT A COUNTER-OFFER which the offeror may
accept or reject. (Malbarosa vs. CA, et al., G.R. # 125761, April 30, 2003)

-Cognition Theory vs Manifestation Theory.

Contracts under the Civil Code generally adhere to the Cognition Theory
(contract is perfected from the moment the acceptance comes to the knowledge of the
offeror), while transactions under the Code of Commerce use the Manifestation
Theory (it is perfected from the moment the acceptance is declared or made).

WHO ARE PERSONS INCAPACITATED TO GIVE CONSENT:

1. Minors (Those below 18 years of age)
a) EXCEPTIONS:
 i. Contracts where the minor is estopped to raise minority as a defense
through his own misrepresentation
ii. Contracts for necessaries
iii. Contracts by guardians or legal representatives
iv. Voluntary fulfillment of a natural obligation provided that the minor is
between 18-21 years of age
v. Contracts of life, health or accident insurance taken on the life of the
minor
2. Insane or demented persons, unless the contract was entered into during a lucid
interval
3. Deaf-mutes who do not know how to read and write

What is the Effect of Misrepresentation of Age by the Minor?

Misrepresentation by minors with regard to their age when entering into a contract
shall bind them in the sense that they are estopped subsequently from impugning the
validity of the contract on the ground of minority. It is necessary that the
misrepresentation must be active (eg. When minors specifically stated in the contract
that they were of age) and not merely constructive.

What are VICES OF CONSENT? (VIMFU ni manong driver)

A vice means an irregularity. Vice of Consent means that consent was given
irregularly, meaning it is no longer voluntary. The following are instances where
consent is vitiated.

1. Violence - when in order to wrest consent, serious or irresistible force is employed.

(Example: X signs a document because every time he refuses, he is hit hard by Y in
the head by the butt of a gun. Here, there is violence because serious force is
employed to obtain consent.)

2. Intimidation - when one of the contracting parties is compelled by a reasonable &

well-grounded fear of an imminent & grave evil upon his person or property, or upon
the person or property of his spouse, descendants or ascendants, to give his consent.
(Example: X signs the document because a gun is pointed at him by Y who threatens
to kill him if he does not sign. Here there is a reasonable and well grounded fear of an
imminent evil on his person.
What if Y threatens to kill X but at that moment, Y has no deadly weapon with him.
In this instance, there is no intimidation since the fear is not reasonable and well
grounded since Y is in no position to carry out his threat)

Requisites for intimidation to vitiate consent:

1. It must produce a reasonable or well-grounded fear of an evil
2. The evil must be imminent and grave
3. The evil must be upon his person or property, or that of his spouse,
descendants, or ascendants; and
4. It is the reason why he enters into the contract.

3. Mistake - should refer to the substance of the thing which is the object of the
contract, or to those conditions which have principally moved one or both parties to
enter into the contact.
a) Must be mistake of fact and not of law, except under Article 1334.
b) General Law: Mistake of fact may vitiate consent. Mistake must refer to:
i. The substance of the thing which is the object of the contract. (Ex. A is
buying from B a breeding cow but B is selling a barren cow)
ii. These conditions which have principally moved one or both parties to
enter into a contract, (Ex. A is selling his parcel of land for P200k cash,
but B is buying the land thinking the price is payable in installments) or
iii. The identity or qualifications of one of the parties provided the same was
the principal cause of the contract. (Ex. A donated his car to B thinking
that B is his half-brother. It turns out that B is not related to A. The
mistake as to the identity of B is material because his identity was the
principal reason or consideration for the donation.)
c) General Rule: Mistake of Law does not vitiate consent. Why? There is a
presumption that everyone knows that law. In fact, Article 3 of the Civil code
expressly states that “Ignorance of the law excuses no one from compliance
therewith”
d) Exception: Mistake of Law under Article1334 may be considered as vitiated
consent and may be a basis for rendering the contract void.
e) Article 1334: “Mutual Error as to the legal effect of an agreement when the
real purpose of the parties is frustrated, may vitiate consent”
f) Requisites under Article 1334 :
i. Mistake must be with respect to the legal effect of an agreement
 ii. Mistake must be mutual
iii. Real purpose of the parties must have been frustrated.
Example: D borrows P10,000 from C. As security for the debt, it was agreed
that D should mortgage his parcel of land in favor of C. However, the
document as written is one of antichresis, the parties erroneously believing
that it has the effect of mortgage.
-(What is antichresis? It is a contract where the creditor acquires the
right to receive the fruits of an immovable of his debtor, with obligation to
apply them to the payment of interest, and thereafter the principal. Article
2132 of the Civil Code)

4. Fraud - when, through insidious words or machinations of one of the contracting

parties, the other is induced to enter into a contract which, without them, he would not
have agreed to.
a) Remember, Causal Fraud(dolo causante) vs Incidental Fraud (dolo
incidente).
b) This provision refers to causal fraud.
c) Incidental fraud again refers to fraud which is incident to the performance of
an obligation. There is fraud in the fulfillment of an obligation. (Ex. Delivery
of black label whiskey, but instead of actual whiskey what was delivered was
iced tea.)
d) Causal fraud refers to when fraud is used to induce a person to agree to enter
into a contract. (Ex. S offered to sell to B a ring, claiming that the stone on
the ring is diamond. S knows that it is not diamond but ordinary glass. If B
buys the ring, relying on the truth of the representation of S, the sale may be
annulled on the ground of fraud.)

5. Undue influence - when a person takes improper advantage of his power over the
will of another, depriving the latter of a reasonable freedom of choice.

What if a party gave his consent reluctantly? Is the contract still valid?
Reluctant Consent- A contract is valid even though one of the parties entered into it
against his wishes and desires or even against his better judgment. In tagalog, this
means napilitan lang siyang umenter sa contract. Contracts are also valid even though
they are entered into by one of the parties without hope of advantage or profit.
(Martinez vs. Hongkong and Shanghai Bank, 15 Phil. 252)

Simulation of Contracts
Simulated means pretended or feigned. In tagalog, pineke. Contracts are considered
simulated if the parties made it appear that they entered into a contract but in reality,
they did not.

1. Absolute Simulation of Contracts– when the contracting parties do not intend to be

bound by the contract at all. Thus, an absolutely simulated contract is VOID.

2. Relative Simulation of Contracts– when the contracting parties conceal their true
agreement. A relatively simulate contract binds the parties to their real agreement,
when it does not prejudice a third person and is not intended for any purpose contrary
to law, morals, good customs, public order or public policy.

Let us now go to the Second Element of a Contract- OBJECT

What is an OBJECT of a Contract?

The thing, right or service which is the subject matter of the obligation arising from
the contract.

What are the Requisites of an Object of a Contract?

a. It must be within the commerce of man
b. It must be licit or not contrary law, morals, good customs, public order or public
policy
c. It must be possible
d. It must be determinate as to its kind

What are things which Cannot be the Object of Contract?

1. Things which are outside the commerce of men
2. Intransmissible rights (for instance, the right to vote)
3. Future inheritance, except in cases expressly authorized by law
4. Services which are contrary to law, morals, good customs, public order or public
policy
5. Impossible things or services
6. Objects which are not possible of determination as to their kind

Let us go to the third element of a contract- CAUSE.

What is the CAUSE of a Contract?

It is the immediate, direct and most proximate reason which explains and justifies the
creation of obligation. In tagalog, ano yung kapalit.

What are the Requisites of a Cause of Contract?

a. Cause should be in existence at the time of the celebration of the contract
b. Cause should be licit or lawful
c. Cause should be true

Rules:
1. In onerous contracts, the cause is understood to be, for each contracting party, the
prestation of promise of a thing or service by the other. Here, parties are reciprocally
obligated to each other. (ex. Sales, lease, partnership)
2. In remuneratory contracts, the service or benefit w/c is remunerated. The purpose
of the contract is to reward the service that had been previously rendered by the party
remunerated)
3. In contracts of pure beneficence (gratuitous contract), the mere liberality of the
donor or benefactor. (ex. Donation)
4. In accessory contracts (mortgage or pledge), the cause is identical with the cause of
the principal contract, that is, the loan from which it derives its life and existence.

NOTE:
1. Absence of cause the contract = Contract is VOID.
2. Failure of cause = does not render the contract void
3. Illegality of cause = contract is VOID
4. Falsity of cause = contract is VOID, unless the parties show that there is another
cause which is true and lawful
5. Lesion does not invalidate the contract. In civil law, lesion refers to loss from
another's failure to perform contract. It is the injury suffered by one who did not
receive the equivalent value of what was bargained for.
a) Unless:
i. there is fraud, mistake or undue influence; or
ii. when the parties intended a donation or some other contract

Motive is different from cause. Motive is the purely personal or private reason which
a party has in entering into a contract. (Ex. S sells his land to B for P100,000. For S,
the cause or consideration is the P100,000. But his motive or private reason is really
to use the money to invest it in a business venture.)

FORM OF CONTRACTS

General Rule: Contracts shall be obligatory, in whatever form they may have been
entered into, provided all the essential requisites for their validity are present.

Exceptions:
1. When the law requires that a contract be in some form in order that it may be
valid. These are called solemn contracts.
i. Donation of real property- must be in a public instrument (Article 749)
ii. Donation of personal property the value of which exceeds P5,000. the
donation and acceptance must be in writing. (Article 748)
iii. Sale of land through an agent- the authority of the agent must be in
writing; otherwise the sale is void. (Article 1874)
iv. Stipulation to pay interest- must be in writing, otherwise no interest is
due. (Article 1956)
v. Contract of Partnership involving immovables- must be in a public
instrument. (Article 1771, 1773)
2. When the law requires that a contract be in some form in order that it may be
enforceable

NOTES:
Parties may compel each other to comply with the form required once the contract has
been perfected. (Article 1357)
RA 8792 (E- COMMERCE ACT) provides that the formal requirements to make
contracts effective as against third persons and to establish the existence of a contract
are deemed complied with provided that the electronic document is unaltered and can
be authenticated as to be usable for future reference.

REFORMATION OF INSTRUMENTS
Reformation is a remedy allowed by law by means of which a written instrument is
amended or rectified so as to express or conform to the real agreement or intention of
the parties.

Requisites:
a. meeting of the minds to the contract
b. true intention is not expressed in the instrument by reason of mistake, accident,
relative simulation, fraud, or inequitable conduct
c. clear and convincing proof of mistake, accident, relative simulation, fraud, or
inequitable conduct

What are instances when there can be no reformation?

1. Simple unconditional donations inter vivos;
2. Wills;
3. When the agreement is void

When one of the parties has brought an action to enforce the instrument, no
subsequent reformation can be asked.

COMPARATIVE TABLE OF DEFECTIVE CONTRACTS

VOID VOIDABLE RESCISSIBLE UNENFORCEABLE

1. Defect is Defect is caused Defect is caused by Defect is caused by
caused by lack by vice of consent injury/ damage either lack of form,
of essential to one of the parties authority, or capacity
(VIMFU) and one
elements or of to a third person of both parties not
party is
illegality cured by prescription
incapacitated.
2. Do not, as a Valid and Valid and Cannot be enforced
general rule enforceable until enforceable until by a proper action in
produce any they are annulled they are rescinded by court
legal effect by a competent a competent court
court
3. Action for Action for Action for rescission Corresponding action
the declaration annulment or may prescribe for recovery, if there
or nullity or defense of was total or partial
inexistence or annulability may performance of the
defense of prescribe unenforceable
nullity or contract under No. 1
inexistence or 3 of Article 1403
does not may prescribe
prescribe
4. Not cured by Cured by Cured by Not cured by
prescription prescription prescription prescription
5. Cannot be Can be ratified Need not be ratified Can be ratified
ratified
6. Assailed not Assailed only by a Assailed not only Assailed only by a
only by a contracting party by a contracting contracting party
contracting party but even by a
party but even third person who is
by a third prejudiced or
person whose damaged by the
interest is contract
directly
affected
7. Assailed Assailed directly Assailed directly Assailed directly or
directly or or collaterally only collaterally
collaterally

What are Rescissible Contracts?

RESCISSIBLE CONTRACTS are Contracts validly agreed upon but, by reason of

lesion or economic prejudice may be rescinded in cases established by law. Lesion as
used under rescissible contracts mean loss from another’s failure to perfrom the
contract.

What contracts that are rescissible?

1. those entered into by guardians where the ward suffers lesion of more than ¼ of the
value of the things which are objects thereof;
2. those agreed upon in representation of absentees, if the latter suffer lesion by more
than ¼ of the value of the things which are subject thereof;
3. those undertaken in fraud of creditors when the latter cannot in any manner claim
what are due them;
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 and the court;
5. all other contracts especially declared by law to be subject to rescission; and

What are the Requisites for Rescission?:

a. the contract must be rescissible
b. the party asking for rescission must have no other legal means
c. to obtain reparation for the damages suffered by him d
d. . the person demanding rescission must be able to return whatever he may be
obliged to restore if rescission is granted
e. the things which are the object of the contract must not have passed legally to the
possession of a third person acting in good faith
f. the action for rescission must be brought w/in the prescriptive period of 4 years

What are the BADGES OF FRAUD?

1. Consideration of the conveyance is inadequate or fictitious;
2. Transfer was made by a debtor after a suit has been begun and while it is pending
against him;
3. Sale upon credit by an insolvent debtor;
4. Evidence of indebtedness or complete insolvency
5. Transfer of all his property by a debtor when he is financially embarrassed or
insolvent;
6. Transfer made between father & son, where there is present any of the above
circumstances
7. Failure of the vendee to take exclusive possession of all the property

Rescission in Article 1191 Rescission Proper in Article 1381

1. It is a principal action retaliatory in 1. It is a subsidiary remedy.
character
2. The only ground is non-performance of 2. There are 5 grounds to rescind.
one’s obligation/s or what is incumbent Non-performance by the other party is
upon him. not important.
3. It applies only to reciprocal obligation 3. It applies to both unilateral and
reciprocal obligations.
4. Only a party to the contract may 4. Even a third person who is prejudiced
demand fulfillment or seek the rescission by the contract may demand the
of the contract. rescission of the contract.
5. Court may fix a period or grant 5. Court cannot grant extension of time
extension of time for the fulfillment of for fulfillment of the obligation.
the obligation.
6. Its purpose is to cancel the contract. 6. Its purpose is to seek reparation for
the damage or injury caused, thus
allowing partial rescission of the contract.
V

What are VOIDABLE CONTRACTS?

VOIDABLE CONTRACTS are those in which all of the essential elements for
validity are present, although the element of consent is vitiated either by lack of
capacity of one of the contracting parties or by VIMFU.

What contracts that are voidable?

1. Those where one of the parties is incapable of giving consent to a contract
2. Those where the consent is vitiated by mistake, violence, intimidation, undue
influence or fraud

What are the causes of extinction of action to annul:

1. PRESCRIPTION the action must be commenced within 4 years from:
a) the time the incapacity ends;
b) the time the violence, intimidation or undue influence ends; or
c) the time the mistake or fraud is discovered.
 NOTE: Discovery of fraud must be reckoned to have taken place from the time
the document was registered in the office of the register of deeds. Registration
constitutes constructive notice to the whole world. (Carantes vs. CA, 76 SCRA
514)

2. RATIFICATION. The confirmation or adoption of an act that has already been

performed. A principal can, for example, ratify something that has been done on his
or her behalf by another individual who assumed the authority to act in the capacity of
an agent.
a) Requisites:
i. there must be knowledge of the reason which renders the contract
voidable
ii. such reason must have ceased and
iii. the injured party must have executed an act which expressly or impliedly
conveys an intention to waive his right
3. By loss of the thing which is the object of the contract through fraud or fault of the
person who is entitled to annul the contract.

NOTE:
If the object is lost through fortuitous event, the contract can still be annulled, but the
person obliged to return the same can be held liable only for the value of the thing at
the time of the loss, but without interest thereon.

What are UNENFORCEABLE CONTRACTS?

UNENFORCEABLE CONTRACTS are those which cannot be enforced by proper
action in court unless they are ratified

What contracts are unenforceable?

1. those entered into in the name of another by one without or acting in excess of
authority;
2. those where both parties are incapable of giving consent; and
3. those which do not comply with the Statute of Frauds

What is this Statue of Frauds?

The Statute of Frauds refers to the requirement that certain kinds of contracts be
memorialized in writing, signed by the party to be charged, with sufficient content to
evidence the contract.

Agreements within the scope of the Statute of Frauds (EXCLUSIVE LIST):

1. Agreements not to be performed within one year from the making thereof;
2. Special promise to answer for the debt, default or miscarriage of another; (This
does not refer to the original or independent promise of the debtor to his own creditor.
It refers rather to a collateral promise.)
3. Agreement in consideration of marriage other than a mutual promise to marry;
4. Agreement for the sale of goods, etc. at a price not less than P500.00;
5. Contracts of lease for a period longer than one year;
6. Agreements for the sale of real property or interest therein; and
7. Representation as to the credit of a third person.

NOTES:
The contracts/agreements under the Statute of Frauds require that the same be
evidenced by some note, memorandum or writing, subscribed by the party charged or
by his agent, otherwise, the said contracts shall be unenforceable.

The statute of frauds applies only to executory contracts, not to those that are partially
or completely fulfilled.

Ratification of contracts in violation of the Statute of Frauds

1. Failure to object to the presentation of oral evidence to prove such contracts
2. Acceptance of benefits under these contracts

VOID CONTRACTS
What are Void Contracts?
Those where all of the requisites of a contract are present but the cause, object or
purpose is contrary to law, morals, good customs, public order or public policy, or
contract itself is prohibited or declared void by law.

What contracts are void?

1. Those whose cause, object or purpose is contrary to law, morals good customs,
public order or public policy;
2. Those whose object is outside the commerce of men;
3. Those which contemplate an impossible service;
4. Those where the intention of the parties relative to the principal object of the
contract cannot be ascertained; and
5. Those expressly prohibited or declared void by law.

What are INEXISTENT CONTRACTS?

Inexistent Contracts are those where one or some or all of the requisites essential for
the validity of a contract are absolutely lacking.

What contracts are inexistent?

1. Those which are absolutely simulated or fictitious; and
2. Those whose cause or object did not exist at the time of the transaction.

NOTE:
The principle of In Pari Delicto is applicable only to void contracts and not as to
inexistent contracts.

Principle of In Pari Delicto

GENERAL RULE: When the defect of a void contract consists in the illegality of the
cause or object of the contract and both of the parties are at fault or in pari delicto, the
law refuses them every remedy and leaves them where they are.
EXCEPTION:
1. Payment of usurious interest
2. Payment of money or delivery of property for an illegal purpose, where the
party who paid or delivered repudiates the contract before the purpose has been
accomplished, or before any damage has been caused to a third person.
3. Payment of money or delivery of property made by an incapacitated person
4. Agreement or contract which is not illegal per se & the prohibition is designed
for the protection of the plaintiff
5. Payment of any amount in excess of the maximum price of any article or
commodity fixed by law or regulation by competent authority.
 6. Contract whereby a laborer undertakes to work longer than the maximum
number of hours fixed by law.
7. Contract whereby a laborer accepts a wage lower than the minimum wage
fixed by law.
8. One who lost in gambling because of fraudulent schemes practiced on him is
allowed to recover his losses [(Art. 315, 3 (b), RPC] even if gambling is a prohibited
one.

Rules when only one of the parties is at fault:

1. Executed Contracts:
a) Guilty party is barred from recovering what he has given to the other party is
barred from recovering what he has given to the other party by reason of the
contract.
b) Innocent party may demand for the return for the return of what he has given.
2. Executory Contracts - Neither of the contracting parties can demand for the
fulfillment of any obligation from the contract nor may be compelled to comply with
such obligation

NATURAL OBLIGATIONS
What are Natural Obligations?
They are real obligations to which the law denies an action, but which the debtor
may perform voluntarily. It is patrimonial, and presupposes a prestation. The binding
tie of these obligations is in the conscience of man, for under the law, they do not
have the necessary efficacy to give rise to an action.

Examples of natural obligations enumerated under the Civil Code:

1. Performance after the civil obligation has prescribed;
2. Reimbursement of a third person for a debt that has prescribed;
3. Restitution by minor after annulment of contract;
4. Delivery by minor of money or fungible thing in fulfillment of obligation;
5. Performance after action to enforce civil obligation has failed;
6. Payment by heir of debt exceeding value of property inherited; and
7. Payment of legacy after will have been declared void.
ESTOPPEL
What is Estoppel?
A condition or state by virtue of which an admission or representation is rendered
conclusive upon the person making it and cannot be denied or disproved as against the
person relying thereon.

What are the Kinds of Estoppel?

1. Estoppel in Pais (by conduct)
i. Estoppel by silence
ii. Estoppel by acceptance of benefits
2. Technical Estoppel
i. Estoppel by deed
ii. Estoppel by record
iii. Estoppel by judgment
iv. Estoppel by laches

LACHES or “STALE DEMANDS”

What are Laches?
Failure or neglect, for an unreasonable and unexplained length of time, to do that
which, by exercising due diligence, could or should have been done earlier; it is
negligence or omission to assert a right within reasonable time, warranting a
presumption that the party entitled to assert it either has abandoned it or declined to
assert it.
What are the Elements of Laches:
a. Conduct on part of the defendant, or of one under whom he claims, giving rise
to the situation of which complaint is made and for which the complaint seeks a
remedy
b. Delay in asserting the complainant’s rights, the complainant having knowledge
or notice, of the defendant’s conduct and having been afforded the opportunity to
institute a suit
c. Lack of knowledge or notice on the part of the defendant that the complainant
would assert the right on which he bases his suit
d. Injury to the defendant in the event relief is accorded tot the complainant, or
the suit in not held to be barred