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OBLI CON REVIEWER

FINAL EXAMS

1. What are the different defective contracts and what makes each of them defective?

(a) Recissible - there is a sort of extrinsic defect consisting of an economic damage or


lesion. The rescissible contract is valid until rescinded.

(b) Voidable - The defect is more or less intrinsic, as in the case of vitiated consent. The
voidable contract is valid till annulled. It can be annulled. It cannot be annulled, however, if there
has been a ratification.

(c) Unenforceable unenforceable contracts have no effect either because they are
unauthorized, they fail to comply with the Statute of Frauds, or both parties are incapable of
giving consent to the contract. The unenforceable contract cannot be sued upon or enforced,
unless it is ratified. In a way, it may be considered as a validable transaction, that is, it has no
effect now, but it may be effective upon ratification.

(d) Void - The void contract is one that has no effect at all either because they are
inexistent or illegal. It cannot be ratified or validated.

2. Define Rescission
Rescission is a process designated to render inefficacious a contract validly entered into
and normally binding, by reason of external conditions, causing an economic prejudice to a
party or to his creditors.

3. Enumerate the different recissible contracts

(1) Those which are entered into by the 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;

(2) Those agreed upon in representation of absentees, if the latter suffer the lesion y
more than one-fourth of the value of the things which are the object thereof;

(3) Those undertaken in fraud of creditors when the latter cannot in any other manner
collect the claims 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 or of competent judicial authority;

(5) All other contracts specially declared by law to be subject to rescission.

4. What are the different badges of fraud (Oria v. Mcmicking)

1) The fact that the consideration of the conveyance is fictitious or inadequate;


2) A transfer made by a debtor after suit has been begun and while it is pending against
him;
3) A sale upon credit by an insolvent debtor;
4) The transfer of all or nearly all of his property by a debtor, especially when he is
insolvent or greatly embarrassed financially;
5) Evidence of large indebtedness or complete insolvency;
6) The fact that the transfer is made between father and son (when this fact is
considered together with preceding circumstances);
7) The failure of the vendee to take exclusive possession of all the property.
5. Discuss the case of Abaya v. Enriquez.

(Note: This case illustrates the principle that the presumption of fraud established in Art.
1387 does not apply to registered lands under the Torrens System IF the judgment or
attachment made is not also registered.)

FACTS: Enriquez owed Abaya a sum of money evidenced by a promissory note. Abaya
obtained a judgment, and part payment was made by Enriquez, leaving the judgment partially
unsatisfied. Subsequently, Enriquez sold two registered parcels of land to the spouses Artemio
and Nera Jongco, complete strangers to them. The judgment in favor of Abaya and the writ of
execution issued were never annotated at the back of the Transfer Certifi cate of Title to the
land. Abaya assailed the validity of the alienation on the ground that same has been made in
fraud of his rights, the transaction having been effected after a judgment and an attachment had
been issued. Thus, he sued for the rescission of the sale.

HELD: The rescission will not prosper, for the presumption established in Art. 1387 does
not apply in this case for two reasons: Firstly, the spouses Jongco had no complicity at all in the
fraud imputed to Enriquez; secondly, the encumbrance of the judgment and the attachment, not
having been registered and annotated on the certificate, cannot prejudice an innocent purchaser
for value of registered land. The Civil Code must yield to the Mortgage and to the Registration
Laws, which are special laws.

6. What is the prescriptive period for an action to claim recission? For annulment?

(1) For Rescission

(a) General rule 4 years from the date the contract was entered into.
(b) Exceptions:
1) persons under guardianship 4 years from termination of incapacity
2) absentees 4 years from the time the domicile is known

(2) For Annulment


The action for annulment shall be brought within four years. This period shall
begin:
a) In cases of intimidation, violence or undue influence, from the time the
defect of the consent ceases.
b) In case of mistake or fraud, from the time of the discovery of the same.

And when the action refers to contracts entered into by minors or other
incapacitated persons, from the time the guardianship ceases.

7. Who may bring an action for recission?

(a) The injured party (or the defrauded creditor).


(b) His heir or successor-in-interest.
(c) Creditors of the injured party or his heir or successor-in-interest by virtue of accion
subrogatoria.

8. What are the 2 groups of voidable contracts?

(1) Those where one of the parties is incapable of giving consent to a contract;
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue
influence or fraud.
9. Distinguish recission and annulment.

RESCISSION ANNULMENT
(a) The basis here is lesion (damage). (a) The basis here is vitiated consent or
incapacity to consent.
(b) The defect here is external or intrinsic. (b) The defect here is intrinsic (in the meeting
of the minds).
(c) The action is subsidiary. (c) The action is principal.
(d) This is a remedy. (d) This is a sanction.
(e) Private interest governs. (e) Public interest governs.
(f) Equity predominates. (f) Law predominates.
(g) Plaintiff may be a party or a third person. (g) Plaintiff must be a party to the contract
(whether bound principally or subsidiarily).
(h) There must be damage to the plaintiff. (h) Damage to the plaintiff is immaterial.
(i) If plaintiff is indemnified, rescission cannot (i) Indemnity here is no bar to the prosecution
prosper. of the action.
(j) Here, a defect is presupposed.
(j) Compatible with the perfect validity of the (k) To prevent annulment, ratification is
contract. required.
(k) To prevent rescission, ratification is not
required.

10. What are the grounds for annulment?


(a) incapacity to consent
(b) vitiated consent

11. Effects of ratification of a voidable contract.


(a) The action to annul is extinguished; thus, the contract becomes completely valid.
(b) The contract is cleansed of its defect from the beginning.

12. Who may ask for annulment?


The victim (principal or subsidiary party) may ask for annulment, not the guilty person or
his successor. (Reason: He who comes to equity must come with clean hands.)

13. What are the effects of annulment?

(a) If the contract has not yet been complied with, the parties are excused from their
obligations.
(b) If the contract has already been performed, there must be MUTUAL RESTITUTION
(in general) of:
1) the thing, with fruits;
2) the price, with interest.

14. Query on squandering by insane person.

An insane person sold his house, and squandered the proceeds while insane. Can he
ask for annulment later on and recover the house?

Under the second paragraph of Art. 1401, he cannot sue for annulment and recover the
house because the proceeds were squandered away by him. Thus, according to the Code
Commission, the action cannot prosper, even if at the time of loss, the plaintiff was still insane or
a minor.

AND YET, this would contradict Art. 1399, because there, the incapacitated person is
not obliged to make any restitution except insofar as he has been benefited by the thing or price
received by him. Being insane, he could not have profited by squandering the money.

It is thus believed that the answer of the Code Commission is NOT accurate for even
were we to apply Art. 1401 (2nd paragraph), it is clear that the loss during the insanity could not
be due to fraud or fault.
15. What are the different kinds of unenforceable contracts?
(a) Unauthorized contracts.
(b) Those that fail to comply with the Statute of Frauds.
(c) Those where both parties are incapable of giving consent to a contract.

16. What are agreements that must be reduced in writing?

(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 for 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.
(g) Express trust in real property

17. Enumerate the principles of Statute of Fraud.

1) The Statute of Frauds applies only to executor contracts (contracts where no


performance has yet been made) and not partially or completely executed (consummated
contracts).
2) The Statute of Frauds cannot apply if the action is neither for damages because of the
violation of an agreement nor for the specific performance of said agreement.
3) The Statute of Frauds is exclusive; that is, it applies only to the agreement or
contracts enumerated therein.
4) The defense of the Statute of Frauds may be waived.
5) The Statute of Frauds is a personal defense, that is, a contract infringing it cannot be
assailed by third persons.
6) Contracts infringing the Statute of Frauds are not void; they are merely unenforceable.
7) The Statute of Frauds is a Rule of Exclusion.
8) The Statute of Frauds does not determine the credibility or weight of evidence. It
merely concerns itself with the admissibility thereof.
9) The Statute of Frauds does not apply if it is claimed that the contract does not express
the true agreement of the parties.

18. What is the purpose of the Statute of Frauds?


The purpose of the Statute of Frauds is to prevent fraud, and not to encourage the
same. Thus, certain agreements are required to be in writing so that they may be enforced.

19. How does the Statute of Fraud prevent fraud?


Since memory is many times unreliable, oral agreements may sometimes result in
injustice. To aid human memory, to prevent the commission of injustices due to faulty memory,
to discourage intentional misrepresentations, are the principal aims of the Statute of Frauds.

20. How are contracts infringing the Statute of Fraud ratified?


a) the failure to object to the presentation of oral evidence to prove the same; or
b) by the acceptance of benefits under them.
21. What are the different void contracts?
(1) Those whose cause, object or purpose is contrary to law, morals, good customs,
public order, or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal object of the contract
cannot be ascertained;
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up the defense of illegality be
waived.

22. Void v. Voidable.


VOIDABLE VOID
(a) may be ratified (a) cannot be ratified

(b) produces effects 'til annulled (b) generally, effects are not produced at all

(c) defect is due to incapacity or vitiated (c) the defect here is that ordinarily, public
consent policy is militated against

(d) void from the very beginning so generally,


(d) valid 'til annulled no action is required to set it aside, unless the
contract has already
been performed

(e) may be cured by prescription (e) cannot be cured by prescription

(f) defense may be invoked only by the parties (f) defense may be availed of by anybody,
(those whether he is
principally or subsidiarily liable), or their a party to the contract or not, as long as his
successors in interest and privies interest is directly affected.

(g) referred to as relative or conditional nullity (g) referred to as absolute nullity

23. Are simulated contracts valid or not?


(a) If absolutely simulated, the contract is void for utter lack of consent.
(b) If relatively simulated, the hidden or intended contract is generally binding unless prejudice
is caused to a third person or if it is contrary to law, morals, customs, public policy, or
public order.

24. Different characteristics of a void contract.


(a) The right to set up the defense of illegality cannot be waived, and may be considered
on appeal even if not raised in the trial court.
(b) The action or defense for their declaration as inexistent does not prescribe.
(c) The defense of illegality of contracts is not available to third persons whose interests
are not directly affected.
(d) Cannot give rise to a contract; thus a contract which is the direct result of a previous
illegal contract is also void and inexistent.
(e) Generally produces no effect.
(f) Generally, no action to declare them void is needed, since they are inexistent from the
very beginning.
(g) They cannot be ratified.

25. Is a sale of conjugal properties valid?


The sale of conjugal properties cannot be made by the surviving spouse without the
formalities established for the sale of property of deceased persons, and such sale is VOID as
to the share of the deceased spouse.
26. Distinguish civil and natural obligations.
Civil obligations give a right of action to compel their performance. Natural obligations,
not being based on positive law but on equity and natural law, do not grant a right of action to
enforce their performance, but after voluntary fulfillment by the obligor, they authorize the
retention of what has been delivered or rendered by reason thereof. Some natural obligations
are set forth in the following articles.

27. Undue payment v. natural obligation.


If a person pays a debt that has prescribed
(a) not knowing it has prescribed, he can recover on the ground of undue
payment.
(b) knowing it has prescribed, he cannot recover for this would be a case
of a natural obligation.

28. Concept of estoppel.


Speaking generally, it may be said that estoppel is a bar which precluded a person from
denying or asserting anything contrary to that which has been, in contemplation of law,
established as the truth either by acts of judicial or legislative officers, or by his own deed or
representation either express or implied.

29. Origin of estoppel.


The doctrine of estoppel has its origin in equity, and is based on moral rights and natural
justice. Its applicability to any particular case depends to a very large extent upon the special
circumstances of the case.

30. What are the kinds of estoppel?


a) estoppel IN PAIS (equitable estoppel); this may be estoppel:
1) by conduct or by acceptance of benefits,
2) by representation or concealment,
3) by silence,
4) by omission,
5) by laches (unreasonable delay in suing).

(b) estoppel BY DEED (technical estoppel); this may be:


1) estoppel by deed proper
2) estoppel by judgment as a court record

31. What are the different doctrines in estoppel?


In estoppel in pais:
1) Conduct because of ignorance or mistake does not result in estoppel.
2) Estoppel by laches bars an action to create a vested right but does not
bar an action to protect a vested right.
3) Just because a person is silent does not necessarily mean that he will
be in estoppel. There should have been a duty or obligation to speak.
4) A mere promise to perform or to omit at some future time does not
necessarily result in estoppel. For this to exist, the promise must have been
relied upon, and prejudice would result unless estoppel is applied.

In estoppel by deed:
1) If the deed or instrument is null and void because the contract, let us
say, is illegal, there is NO estoppel.
2) Ordinarily, the person estopped must be capacitated. But if a minor is
clever enough to deceive others, estoppel may result.
3) If a person notarizes (and is not a party to) the instrument, he is NOT
in estoppel.
32. Define trust and give its characteristics.

Trust is the right to the beneficial enjoyment of property, the legal title to which is vested
in another. It is a fiduciary relationship concerning property which obliges the person holding it
to deal with the property for the benefit of another. The person holding, in view of his equitable
title, is allowed to exercise certain powers belonging to the owner of the legal title.

The Characteristics of a Trust are:


(a) It is a fiduciary relationship.
(b) Created by law or by agreement.
(c) Where the legal title is held by one, and the equitable title or beneficial title is held
by another.

33. Who are the parties to a trust?

(a) trustor or settler he establishes the trust


(b) trustee holds the property in trust for the benefit of another
(c) beneficiary or cestui que trust the person for whose benefit the trust has been
created

34. Classifications of trusts?

(a) Express trust created by the parties, or by the intention of the trustor.
(b) Implied trust created by operation of law. There are two kinds of implied trusts:
1) Resulting trust (also called bare or passive trust) Here, there is an
intent to create a trust but it is not effective as an express trust.
2) Constructive trust Here, no intention to create a trust is present, but
a trust is nevertheless created by law to prevent unjust enrichment or oppression.

35. Is trust over personal property valid and enforceable?

Yes, trust over personal property is valid and enforceable. The law says that no express
trusts concerning an immovable or any interest therein may be proved by parol (oral) evidence.
Thus by implication, for a trust over personal property an oral agreement is valid and
enforceable between the parties.

36. How is an express trust created?


(a) By conveyance to the trustee by an act inter vivos or mortis causa (as in a will).
(b) By admission of the trustee that he holds the property, only as trustee.

37. Is acceptance by beneficiary necessary? When is it presumed?


For the trust to be effective, the beneficiary must accept either expressly, impliedly, or
presumably.

If the granting of benefit is purely gratuitous, the acceptance by the beneficiary is


presumed unless there is proof that he really did not accept.

38. How are trusts ended?


(a) Mutual agreement by all the parties
(b) Expiration of the term
(c) Fulfillment of the resolutory condition
(d) Rescission or annulment
(e) Loss of subject matter of the trust
(f) Order of the court
(g) Merger
(h) Accomplishment of the purpose of the trust
39. Do trusts prescribe? (Ramos v. Ramos)

(1) Express trusts do not prescribe. This means that the beneficiary or cestui que trust
can recover the property anytime unless there has been repudiation of the same.
(2) With respect to implied trusts, a distinction must be made:
(a) resulting trusts generally also do not prescribe. However, recovery from the
trustee may prescribe if the trustee has expressly repudiated the trust;
(b) constructive trusts do prescribe, and this rule is well-settled.

40. Oral evidence for trusts.


While an implied trust may be proved by oral evidence, still, said evidence must be a
trustworthy oral evidence, for oral evidence may be easily fabricated.

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