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Title II.

Contracts
Chapter I. General Provisions
A. Definition Art. 1305
B. Elements
1. Essential elements (see Chapter II, infra)
a. Consent
b. Object
c. Cause
2. Natural elements
3. Accidental elements (see D., 3., infra)
C. Characteristics
1. Obligatory force Art. 1308
2. Mutuality Arts. 1308-1310 (see also Art. 1473)
Case
GSIS v. CA, 228 SCRA 183 (1993)
Professional Academic Plans, Inc. Francisco Colayco
and Benjamin Dino vs. Crisostomo (G.R. No. 148599,
March 14, 2005.)
3. Relativity
a) Contracts take effect only between the parties, their assigns
and heirs - Art. 1311
Cases
Manila Railroad Co. v. La Compaia
Trasatlantica, 83 Phil. 875 (1918)
DKC Holdings Corp. v. CA, 329 SCRA 666
(2000)
b) No one may contract in the name of another Art. 1317
Case
Gutierrez Hmnos. v. Orense, 28 Phil. 571
(1914)
D. Parties
1. Auto-contracts
2. Freedom to contract Art. 1306
Cases
Gabriel v. Monte de Piedad, 71 Phil. 497 (1941)
Pakistan International Airlines v. Ople, 190 SCRA 90
(1990)
a. Special disqualifications
1) Art. 87, Family Code
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2) Arts. 1490 and 1491, CC


3) Art. 1782, CC
3. What they may not stipulate Art. 1306
a. Contrary to law, e.g.:
1) pactum commissorium (Art. 2088)
2) pactum leonina (Art. 1799)
3) pactum de non alienado (Art. 2130)
b.
c.
d.
e.

Contrary to morals
Contrary to good customs
Contrary to public order
Contrary to public policy
Cases
Cui v. Arellano, 2 SCRA 205 (1961)
Arroyo v. Berwin, 36 Phil. 386 (1917)
Filipinas Compaia de Seguros v. Mandanas,
17 SCRA 391 (1966)
Bustamante v. Rosel, 319 SCRA 413 (1999)

E. Classification
1. According to subject-matter
a. Things
b. Services
2. According to name
a. Nominate
b. Innominate Art. 1307
Case
Dizon v. Gaborro, 83 SCRA 688 (1978)
Corpuz vs. CA (93 SCRA 424)

3.
4.

5.
6.

1) do ut des
2) do ut facias
3) facio ut facias
4) facio ut des
According to perfection
a. By mere consent (consensual) Art. 1315
b. By delivery of the object (real) Art. 1316
According to its relation to other contracts
a. Preparatory
b. Principal
c. Accessory
According to form
a. Common or informal
b. Special or formal
According to purpose
a. Transfer of ownership, e.g., sale
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b. Conveyance of use, e.g., commodatum


c. Rendition of services, e.g., agency
7. According to the nature of the vinculum produced
a. Unilateral
b. Bilateral
c. Reciprocal
8. According to cause
a. Onerous
b. Gratuitous or lucrative
9. According to risk
a. Commutative
b. Aleatory
F. Stages
1. Preparation
2. Perfection
3. Consummation or death

G. As distinguished from a perfected promise and an imperfect promise


(policitacion)
H. With respect to third persons
1. Stipulations in favor of third persons (stipulations pour autrui) Art.
1311, 2nd par.
Cases
Florentino v. Encarnacion, 79 SCRA 192 (1977)
Coquia v. Fieldmens Insurance Co., 26 SCRA 178
(1968)
Constantino v. Espiritu, 39 SCRA 206 (1971)
Young vs. CA (169 SCRA 213) 1989
Marmont Resort vs. Guiang (168 SCRA 373) 1988
Mandarin Villa vs. CA (257 SCRA 538) 1996
2. Possession of the object of contract by third persons Art. 1312
3. Creditors of the contracting parties Art. 1313
4. Interference by third persons Art. 1314
Cases
Daywalt v. Corp., 39 Phil. 587 (1919)
So Ping Bun v. CA, 314 SCRA 751 (1999)
Jose Lagon vs. CA and Lapuz (G.R. No. 119107.
March 18, 2005)

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Chapter II. Essential Requisites of Contracts


A. Consent
1. Requisites Art. 1319
a. Must be manifested by the concurrence of the offer and
acceptance
Cases
Rosenstock v. Burke, 46 Phil. 217 (1924)
Malbarosa v. CA, 402 SCRA 168 (2003)
San Lorenzo Development Corporation vs.
CA (G.R. No. 124242. January 21, 2005)
MMDA vs. Jancom (G.R. No. 147465.
January 30, 2002)
Malbarosa vs. CA (G.R. No. 125761. April
30, 2003)
1) Offer
a) Must be certain Art. 1319
b) What may be fixed by the offeror Art.
1321
c) When made through an agent Art. 1322
d) Circumstances when offer becomes ineffective
Art. 1323
e) Business advertisements of things for sale
Art. 1325
f) Advertisements for bidders Art. 1326
2) Acceptance
a) Must be absolute Art. 1319
b) Kinds
i. Express Art. 1320
ii. Implied Art. 1320
iii. Qualified Art. 1319
c) If made by letter or telegram Art. 1319, 2nd
par.
i. Four theories on when the contract
is perfected:
1. Manifestation theory
2. Expedition thory
3. Reception theory
4. Cognition theory Art. 1319, 2nd
par.
d) Period of acceptance Art. 1324
Case
Sanchez v. Rigos, 45 SCRA
368 (1972)
e) Contract of option Art. 1324

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b. Necessary legal capacity of the parties


1) Who cannot give consent Art. 1327
2) When offer and/or acceptance is made
a) during a lucid interval
b) in a state of drunkenness
c) during a hypnotic spell
c. The consent must be intelligent, free, spontaneous, and
real Arts. 1330-1346
1) Effect Art. 1330
2) Vices of consent
a) Mistake or error
i. kinds
1. Mistake of fact
a. as to substance of
the object
b. as to principal
conditions
c. as to identity or
qualifications of
one of the parties
d. as to quantity, as
distinguished from
a simple mistake of
account
Case
Asiain v. Jalandoni, 45 Phil. 296
(1923)
Heirs of William Sevilla, et.al
v. Leopoldo Sevilla,
402 SCRA 501 (2003)
Dometilla Andres vs. Manufacturers
Hanover and Trust (GR 82670, Sept.
15, 1989)
Spouses Theis vs. CA (GR L126013,
Feb 12, 1997)
2. Error of law
a. General rule:
Ignorantia legis
neminem excusat
Art. 3
b. Exception: Mutual
error of law Art.
1334

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ii. When one of the parties is unable to


read Art. 1332
Cases
Dumasug v. Modelo, 34 Phil. 252
(1916)
Maxina Hemedes v. CA, 316 SCRA
(1990)
Lustan vs. CA (G.R. 111924, Jan 27,
1997)
Katipunan vs. Katipunan (G.R. No.
132415. January 30, 2002)
Leonardo vs. CA et al (G.R. No.
125485. September 13, 2004)
iii. Inexcusable mistake Art. 1333
b) Violence and intimidation Art. 1335
i. Effect Art. 1336
Case
Martinez v. Hongkong and Shanghai
Bank, 15 Phil. 252 (1910)
Lee vs. CA (G.R. No. 90423,
September 6, 1991)
c) Undue influence Art. 1337
d) Fraud or dolo Art. 1338
Cases
Hill v. Veloso, 31 Phil. 161 (1915)
Woodhouse v. Halili, supra
Geraldez v. CA, 230 SCRA 320 (1994)
Sierra vs. CA (G.R. No. 90270, July
24, 1992)
i. Kinds
1. dolo causante Art 1338
2. dolo incidente Art. 1344, 2nd
par.
ii. Failure to disclose facts; duty to
reveal them Art. 1339
Cases
Tuason v. Marquez, 45 Phil. 381
(1923)
Rural Bank of Sta. Maria v. CA,
314 SCRA 255 (1999)

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iii. Usual exaggerations in trade;


opportunity to know the facts Art.
1340
Cases
Azarraga v. Gay, 52 Phil. 599 (1928)
Laureta Trinidad v. IAC, 204 SCRA
524 (1991)
iv. Mere expression of an opinion
Art. 1341
1. Effects Art. 1344
Case
Songco v. Sellner, 37 Phil. 254 (1917)
e) Misrepresentation
i. By a third person Art. 1342
ii. Made in good faith Art. 1343
iii. Active/passive
Cases
Mercado and Mercado v. Espiritu, 37
Phil. 215 (1917)
Braganza v. Villa Abrille, 105 Phil. 456
(1959)
f) Simulation of Contracts
Cases
Rodriguez v. Rodriguez, 28 SCRA 229
(1914)
Suntay v. CA, 251 SCRA 430 (1995)
Pangadil et al vs. CFI (G.R. No. L32437. August 31, 1982)
Umali et al vs. CA (G.R. No. 89561.
September 13, 1990)
i. Kinds Art. 1345
1. Absolute
2. Relative
Macapagal vs. Remorin, Caluza (G.R.
No. 158380. May 16, 2005.)
ii. Effects Art. 1346
B. Object of Contracts
1. What may be the objects of contracts Art. 1347
a. All things not outside the commerce of man
b. All rights not intransmissible
c. All services not contrary to law, morals, good customs,
public, or public policy
2. Requisite - must be determinate as to its kind Art. 1349
3. What may not be the objects of contracts

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a. Future inheritance, except when authorized by law Art.


1347
Case
Blas v. Santos, 1 SCRA 899 (1961)
J.L.T. Agro, Inc. vs. Balansag and Cadayday
(G.R. No. 141882. March 11, 2005)
b. Impossible things or services Art. 1348
C. Cause of Contracts
1. Meaning of cause Art. 1350
a. In onerous contracts
b. In remuneratory contracts
c. In contracts of pure beneficence
2. As distinguished from motive Art. 1351
3. Defective causes and their effects:
a. Absence of cause and unlawful cause Art. 1352
Case
Liguez v. CA, 102 Phil. 577 (1957)
b. Statement of a false cause in the contract Art. 1353
c. Lesion or inadequacy of cause Art. 1355
Cases
Carantes v. CA, 76 SCRA 514 (1977)
Sps. Buenaventura, et. al. v. CA, 416 SCRA
263 (2003)
4. Presumption of the existence and lawfulness of a cause, though it is
not stated in the contract Art. 1354
Chapter III. Form of Contracts
A. 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. (Spiritual system of the Spanish Code) - Art. 1356
B. Exception: When the law requires that a contract be in some form in order
that it may be valid or enforceable. (Anglo-American principle) - Art. 1356
Case
Hernaez v. De los Angeles, 27 SCRA 1276 (1969)

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C. Kinds of formalities required by law:


1. Those required for the validity of contracts, such as those referred to in
Arts. 748, 749, 1874, 2134, 1771, 1773;
2. Those required, not for validity, but to make the contract effective as
against third persons, such as those covered by Arts. 1357 and 1358; and
3. Those required for the purpose of proving the existence of the contract,
such as those under the Statute of Frauds in Art. 1403.
Case
Resuena vs.CA (G.R. No. 128338. March 28, 2005)
Chapter IV. Reformation of Instruments
A. Requisites (Art. 1359):
1. Meeting of the minds upon the contract;
2. The true intention of the parties is not expressed in the instrument;
and
3. The failure of the instrument to express the true agreement is due to
mistake, fraud, inequitable conduct, or accident.
Cases
Garcia v. Bisaya, 97 Phil. 609 (1955)
Bentir v. Leande, 330 SCRA 591 (2000)
Quiros vs. Arjona [G.R. No. 158901. March 9, 2004.]
B. Cases where no reformation is allowed - Art. 1366
C. Implied Ratification Art. 1367
D. Who may ask for reformation Art. 1368
E. Procedure of reformation Art. 1369
Cases
Atilano v. Atilano, 28 SCRA 2232 (1969)
Carantes v. CA, supra
Sarming, et. al. v. Cresencio Dy, et. al., 383 SCRA 131 (2002)
Chapter V. Interpretation of Contracts (Compare with Rules on Statutory
Construction)
A. Primacy of intention Arts. 1370, 1372
Cases
Borromeo v. CA, 47 SCRA 65 (1972)
Kasilag v. Rodriguez, 69 Phil. 217 (1939)
Santi vs. CA (GR 93625, 227 SCRA 541, 1993)

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B. How to determine intention Art. 1371


Rapanut vs CA 246 SCRA 323 (1995)
C. How to interpret a contract
1. When it contains stipulations that admit several meanings Art.
1373
Oil And Natural Gas Commission vs. Court Of Appeals [G.R.
No. 114323. July 23, 1998.]
2. When it contains various stipulations, some of which are doubtful
Art. 1374
Spouses Rigor vs. Consolidated Orix Leasing And Finance
Corporation [G.R. No. 136423. August 20, 2002.]
3. When it contains words that have different significations Art. 1375
4. When it contains ambiguities and omission of stipulations Art.
1376
Chua vs. Court Of Appeals [G.R. No. 119255. April 9, 2003.]
5. With respect to the party who caused the obscurity Art. 1377
Rizal Commercial Banking Corporation vs. Court Of Appeals
[G.R. No. 133107, March 25, 1999]
6. When it is absolutely impossible to settle doubts by the rules above
Art. 1378
a. in gratuitous contracts
Gacos vs. Court Of Appeals [G.R. Nos. 85962-63, August 3,
1992]
b. in onerous contracts
7. When the doubts are cast upon the principal object so that the
intention cannot be known Art. 1378
D. Applicability of Rule 123, Rules of Court (now Secs. 10-19, Rule 130)
DEFECTIVE CONTRACTS
Chapter VI. Rescissible Contracts
A. Kinds Art. 1381
B. Characteristics
1. Their defect consists in injury or damage either to one of the
contracting parties or to third persons.
2. They are valid before rescission.

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3. They can be attacked directly only, and not collaterally.


4. They can be attacked only either by a contracting party or by a third
person who is injured or defrauded.
5. They can be convalidated only by prescription, and not by
ratification.
C. Rescission Art. 1380
1. Definition
2. As distinguished from rescission under Art. 1191
Case
Universal Food Corp. v. CA, 33 SCRA 1 (1970)
Pryce Corporation vs. PAGCOR (G.R. No. 157480.
May 6, 2005)
Sps. Cannu vs. Sps. Galang [G.R. No. 139523. May
26, 2005.]
Iringan vs. Court Of Appeals [G.R. No. 129107.
September 26, 2001.]
Rivera vs. Del Rosario [G.R. No. 144934. January
15, 2004.]
Equatorial Realty Development vs. Mayfair Theatre
(G.R. No. 133879. November 21, 2001)
3. Requisites:
a. The contract is rescissible;
b. The party asking for rescission has no other legal
means to obtain reparation Art. 1383;
The Union Insurance Society Of Canton vs.
Court Of Appeals [G.R. No. 100319. August 8,
1996.]
c. He is able to return whatever he may be obliged to
restore if rescission is granted Art 1385;
Rivera vs. Del Rosario [G.R. No. 144934.
January 15, 2004.]
d. The object of the contract has not passed legally to
the possession of a third person acting in good faith
Art. 1385;
e. The action for rescission is brought within the
prescriptive period of four (4) years Art 1389.
4. Effect of rescission Art. 1385
a. with respect to third persons who acquired the thing
in good faith Art. 1385, 2nd and 3rd par.
5. Extent of rescission Art. 1384
Siguan v. Lim, et. al. , 318 SCRA 725 (1999)
6. Presumptions of fraud Art. 1387
a. Badges of fraud
Cases
Oria v. Mcmicking, 21 Phil. 243 (1912)
Siguan v. Lim, et. al. , 318 SCRA 725 (1999)
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Suntay v. CA, supra


China Banking Corporation vs. Court Of
Appeals [G.R. No. 129644. March 7, 2000.]
MR Holdings Ltd vs. Carlos (G.R. No. 138104.
April 11, 2002)
7. Liability for acquiring in bad faith the things alienated in fraud of
creditors Art. 1388
Chapter VII. Voidable or Annullable Contracts
A. Kinds Art. 1390
B. Characteristics
1. Their defect consists in the vitiation of consent of one of the
contracting parties.
2. They are binding until they are annulled by a competent court.
3. They are susceptible of convalidation by ratification or by
prescription.
Case
Felipe vs. Heirs of Aldon (120 SCRA 628)
C. Annulment
1. As distinguished from rescission
2. Grounds Art. 1390
3. Who may and may not institute action for annulment Art. 1397
Case
Singsong v. Isabela Sawmill, 88 SCRA 623 (1979)
Samahan Ng Magsasaka Sa San Josep vs. Valisno
[G.R. No. 158314. June 3, 2004.]
Malabanan vs. Gaw Ching (181 SCRA 84, 1990)
Armentia vs. Patriarca (18 SCRA 1253, 1966)
4. Prescription Art. 1391
Case
Carantes vs. CA (76 SCRA 514)
5. Effect
a. Mutual restitution Arts. 1398 and 1402
Cases
Cadwallader & Co. v. Smith, Bell & Co., 7
Phil. 461 (1907)
Velarde v. CA, supra
David Ines vs.Court Of Appeals [G.R. No.
114051. August 14, 1995.]

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Arra Realty Corporation vs. Guarantee


Development Corporation (G.R. No.
142310. September 20, 2004)
1) When one of the parties is incapacitated - Art. 1399
Katipunan vs. Katipunan [G.R. No. 132415.
January 30, 2002.]
2) When the thing is lost through the fault of the party
obliged to return the same Art. 1400
6. Extinguishment of the action
a. By ratification Art. 1392
b. When the thing is lost through the fault of the person who
has the right to file the action Art. 1401
D. Ratification
1. Requisites:
a. The contract is voidable;
b. The ratification is made with knowledge of the cause for
nullity;
c. At the time of the ratification, the cause of nullity has
already ceased to exist.
2. Forms
a. Express or tacit Art. 1393
b. By the parties themselves or by the guardian in behalf of
an incapacitated party Art. 1394
3. Effects:
a. Action to annul is extinguished Art. 1392
Case
Uy Soo Lim v. Tan Unchuan, 38 Phil. 552
(1918)
b. The contract is cleansed retroactively from all its defects
Art. 1396
Chapter VIII. Unenforceable Contracts
A. Characteristics
1. They cannot be enforced by a proper action in court.
2. They are susceptible of ratification.
3. They cannot be assailed by third persons.

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B. Kinds Art. 1403


1. Unauthorized contracts
a. Governing rules Art. 1404
2. Contracts covered by the Statute of Frauds
Case
Asia Production Co., Inc. vs. Pao [G.R. No. 51058.
January 27, 1992.]
Western Mindanao Co. vs. Medalle (79 SCRA 703)
Limketkai Sons vs. CA (250 SCRA 523)
Babao vs. Perez (102 Phil 756)
Reiss vs. Memije (15 Phil 350)
Villanueva vs CA (G.R. No. 107624. January 28, 1997)

a. Purpose of Statute
Case
Philippine National Bank v. Philippine
Vegetable Oil Co., 49 Phil. 857 (1927)
b. How ratified Art. 1405
Cases
Carbonnel v. Poncio, et al., 103 Phil. 655
(1958)
First Philippine International Bank vs. CA
(G.R. No. 115849. January 24, 1996)
c. Right of the parties when a contract is enforceable but a
public document is necessary for its registration Art.
1406
3. Contracts executed by parties who are both incapable of giving
consent to a contract
a. Effect of ratification by the parents or guardian of one of
the parties Art. 1407
b. Effect of ratification by the parents or guardian of both
parties Art. 1407

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Chapter IX. Void or Inexistent Contracts


A. Characteristics
1. Void from the beginning
2. Produces no effect whatsoever
3. Cannot be ratified Art. 1409
Cases
Tongoy vs. CA (123 SCRA 99)
Cui vs. Arellano University (2 SCRA 205)
Chavez vs. PCGG (307 SCRA 394)
Guiang vs. CA (291 SCRA 372)
Castillo vs. Galvan (85 SCRA 526)
B. Kinds Art. 1409
1. Contracts that are void
a. Those whose cause, object, or purpose is contrary to law,
morals, good customs, public order or public policy
1) When the act constitutes a criminal offense Art.
1411
a) in pari delicto rule
2) When the act is unlawful but does not constitute a
criminal offense Art. 1412
a) in pari delicto rule
Cases
Menchacez vs. Teves (G.R. No.
153201. January 26, 2005)
Angel vs Modales(G.R. No. 145031.
January 22, 2004)
3) When the purpose is illegal, and money is paid or
property delivered therefor Art. 1414
4) When the contract is illegal and one of the parties is
incapable of giving consent Art. 1415
Cases
Liguez v. CA, supra
Relloza v. Gaw Cheen Hum, 93 Phil. 827
(1953)

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5) When the agreement is not illegal per se but is


prohibited Art. 1416
Cases
Philippine Banking Corp. v. Lui She,
21 SCRA 52 (1967)
Frenzel v. Catito, 406 SCRA 55 (2003)
Acabal and Nicolas vs. Acabal (G.R.
No. 148376. March 31, 2005)
Frenzel vs. Catito (G.R. No. 143958.
July 11, 2003)

b.
c.
d.
e.

6) When the amount paid exceeds the maximum fixed


by law Art. 1417
7) When by virtue of a contract a laborer undertakes to
work longer than the maximum number of hours of
work fixed by law Art. 1418
8) When a laborer agrees to accept a lower wage than
that set by law Art. 1419
9) When the contract is divisible Art. 1420
10) When the contract is the direct result of a previous
illegal contract Art. 1422
Those whose object is outside the commerce of man
Those which contemplate an impossible service
Those where the intention of the parties relative to the
principal object of the contract cannot be ascertained
Those expressly prohibited or declared void by law

2. Contracts that are inexistent


a. Those which are absolutely simulated or fictitious (see
Arts. 1345 and 1346)
b. Those whose cause or object did not exist at the time of the
transaction
C. Right to set up defense of illegality cannot be waived Art. 1409
D. The action or defense for the declaration of the inexistence of a contract
1. does not prescribe Art. 1410
2. is not available to third persons whose interest is not directly affected
Art. 1421

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Title III. Natural Obligations


A. Definition Art. 1423
B. As distinguished from civil obligations Art. 1423
C. As distinguished from moral obligations
Cases
Villaroel v. Estrada, 71 Phil. 140 (1940)
Fisher v. Robb, 69 Phil. 101 (1939)
D. Conversion to civil obligation
1. By novation
2. By ratification
E. Examples Arts. 1424-1430

Title IV. Estoppel


A. Definition Art. 1431
Case
Kalalo v. Luz, 34 SCRA 337 (1970)
B. Kinds
1. Technical estoppel
a. By record
b. By deed art. 1433
3. Equitable estoppel or estoppel in pais Art. 1433
C. Persons bound Art. 1439
Case
Manila Lodge No. 761 Benevolent and Protective Order of
the Elks
v. CA, 73 SCRA 168 (1976)
D. Cases where estoppel applies Arts. 1434-1438
Case
Miguel v. Catalino, 26 SCRA 234 (1969)
Read: Annotation, 32 SCRA 542
Mendoza vs. Reyes and CA (G.R. No. L-31618. August 17,
1983)

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Title V. Trusts
Chapter I. General Provisions
A. Definition
B. Governing rules Art. 1442
C. Parties Art. 1440
1. Trustor
2. Trustee
3. Beneficiary or cestui que trust
D. Kinds Art. 1441
Case
Salao v. Salao, 70 SCRA 168 (1976)
1. Express Trusts
a. Proof required Art. 1443
b. Form Art. 1444
c. Want of trustee Art. 1445
d. Acceptance by the beneficiary Art. 1441
2. Implied Trusts
a. How established Art. 1441
b. How proved Art. 1457
c. Examples Arts. 1448-1456
Cases
Fabian v. Fabian, 22 SCRA 231 (1968)
Bueno v. Reyes, 27 SCRA 1179 (1969)
Tamayo v. Callejo, 46 SCRA 27 (1972)
Heirs of Sanjorjo vs. Quijano (GR. No.
140457. January 19, 2005)
Aznar Brothers Realty Company vs. Aying
(GR No. 144773. May 16, 2005)

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