INTRODUCTION / OVERVIEW

This Instructional Material (IM) presents the laws on obligation and contract which dis-
cussion is divided into two parts — [1] the laws on obligation; and [2] the laws on contract. The
law in point is the Civil Code of the Philippines (R. A. 386) as the laws on obligation and the
laws on contracts are but but part of the New Civil Code of the Philippines.

We may have other types of obligations such as religious obligation and moral obliga-
tion, among others, however, when we talk of obligation in this discussion we are referring to a
legal or civil obligation. The kind of obligation which if there is breach thereof one can go to
court and enforce his claims. This is so because obligation has its own legal definition.

Obligation varies from the giving of thing, of doing something, or of not doing something
(which includes not giving a thing). Any breach thereof may result to a concomitant conse-
quences for liability of indemnity for damages.

But how one acquires legal obligation? Contract — which is the second part of the dis-
cussion — is just but one of the sources of obligations. Take note however that only a valid con-
tract binds the parties as contract likewise has its own legal definition. Contract takes effect in
whatever form unless the law requires a specific form for a particular contract.

At the end of this subject, a clear understanding of these governing rules on the nature
and sources of obligations and the rights and duties arising from agreements are established.
Consequently, one is more aware of the consequential effects when they enter into a contract,
whether for the enforcement of their right or for the performance of their undertaking, and so
that they can thereafter execute a contract that effectively embodies all the parties’ intention.

Page 1
 TABLE OF CONTENTS

Page
PART I. — LAWS ON OBLIGATION

Lesson 1.
A. Definition. 6
B. Requisites. 6
C. Sources. 6
D. Nature and Effects. 6-8
Exercises 8

Lesson 2.
E. Different Kinds of Obligations. 9
1. Pure obligation. 9
2. Conditional obligation. 9
2.1. What constitutes condition. 9
2.2. Different kinds of conditions. 9
2.3. Rules in case of Loss,
Deterioration, or Improvement of the
thing subject of the obligation when the
condition suspends the efficacy of
the obligation (or the obligation to return). 10
3. Obligations with a period. 10
3.1. What constitutes a period. 11
3.2. Kinds of periods. 11
3.3. Rules whenever a period is established. 11
3.4. Instances when the debtor may lose
every right to make use of the period. 12
4. Alternative obligations. 12
4.1. The right to choose. 12
4.2. Effectivity of the choice made. 12
4.3. Responsibility of the debtor in case
there is loss of the prestation. 12-13
5. Facultative obligations. 13
5.1. Rules in case of loss or deterioration. 13
6. Joint obligations. 13
7. Solidary obligations. 13
7.1. Notes in understanding Joint and
Solidary obligations. 13-14
8. Divisible obligations. 14
8.1. Obligation susceptible of partial performance. 14
8.2. The obligation has for its object
the execution of a certain number of days of work. 14
8.3. The obligation has for its object the
accomplishment of work by metrical units. 14
8.4. Other analogous things which by
 their nature are susceptible of partial performance. 14
9. Indivisible obligations. 14
9.1. Obligations not susceptible of
partial performance. 14
9.2. Obligations to give definite things. 14
9.3. By intention of the parties although the
obligation is divisible. 14
9.4. By provision of the law although the
obligation is divisible. 14
10. Obligations with a penal clause. 14
10.1. Three-fold purposes of the penalty. 14
Exercises 14

Lesson 3.

F. Modes of Extinguishing Obligations. 15

1. Payment or Performance. 15
1.1. What is payment or performance. 15
1.2. How payment/performance is made. 15
1.3. How payment/performance is made if
the obligation consists of payment of
debts in money. 15
1.4. Who pays. 15
1.4.1. Effect of payment by 3rd person. 16
1.5. To whom payment is made. 16
1.6. Where payment is made. 16
1.7. When payment is made. 16
1.8. Special types of payments. 16
1. Daccion en pago (dation in payment). 16
2. Payment by cession. 16
3. Application of payments. 16
4. Tender of payment and Consignation. 17
2. Loss of the thing due. 17
3. Condonation or remission of debt. 18
3.1. requisites for a valid condonation or
remission of debt. 18
4. Confusion or merger of rights. 18
5. Compensation. 18
5.1. Requisites of a legal compensation. 18

6. Novation. 18
6.1. Kinds of novation as to what is being changed. 18
1. Objective novation. 19
2. Subjective novation. 19
a. Expromission. 19
b. Delegación. 19
c. Subrogation. 19
Exercises 19-20
PART II. — LAWS ON CONTRACTS

Lesson 4.

A. Definition. 20
B. Essential features of contract. 20
1. Freedom to contract. 20
2. Mutual. 20
3. Relative. 20
3.1. Exceptions: 20
(1) Stipulation pour autrui. 20
(2) In contracts creating real rights. 20
(3) Contracts intended to defraud creditors. 20
(4) Any third person who induces another to
violate his contract. 20
4. Binding force. 21
C. Requisites of valid contracts. 21-23
(1) Consent of the contracting parties.
(2) Object certain which is the subject
matter of the contract.
(3) Cause of the obligation which is established.
Exercises 24

Lesson 5.
D. Forms of contract. 25-26
E. Reformation of instrument. 26
F. Interpretation of contracts. 27
G. Defective contracts: 30-32
Exercises 32
 PART 1.
Lesson 1 - Definition; Requisites; Sources; and Nature and Effects of Obligations:
A. Definition — Article 1156. An obligation is a juridical necessity to give, to do or not to do.

B. Requisites of valid obligation —

1. Active subject/Creditor/Obligee - The one who demands the fulfilment of obligation.
2. Passive subject/Debtor/Obligor - The one from whom the obligation is demanded.
3. Prestation - The object of the obligation which is either [1] to give; [2] to do; or [3] not to
do which includes the obligation “not to give”.
In an obligation to give [a thing], a thing may either be:
1. Specific/Determinate - The thing is already particularly segregated from the class.
2. Generic/Indeterminate - The thing is designated only by its class.
4. Vinculum juris/Legal tie - The tie that binds the parties which is the source of the obliga-
tion.

C. Sources — Article 1157. Obligations arise from:

1. Law;
2. Contracts;
3. Quasi-contracts (a. Solutio indebiti; b. Negotiorum gestio);
4. Acts or omissions punishable by law (Delicts); and
5. Quasi-delicts.

D. Nature and Effects of Obligations: [See table below]

bligations if the obligation is to give a thing?

er the obligation is to give a determinate/particular thing or the obligation is to give a generic/indeterminate thing. The table below shows

Specific/Determinate Thing Generic/Indeterminate Thing

Deliver the thing itself. Deliver the thing within the

class.
Take care the thing with the proper diligence of a good father of a
family.(Art. 1163. Every person obliged to give something is also x
obliged to take care of it with the proper diligence of a good father of
a family, unless the law or the stipulation of the parties requires
another standard of care).

Deliver the fruits from the time the obligation to deliver arises. x
(Art. 1164. The creditor has a right to the fruits of the thing from the
time the obligation to deliver it arises. However, he shall acquire no
real right over it until the same has been delivered to him).
 Deliver the accessions and accessories even though they may not
have been mentioned. (Art. 1166. The obligation to give a x
determinate thing includes that of delivering all its accessions and
accessories, even though they may not have been mentioned).

Liability for [1] Fraud; [2] Delay; [3] Negligence; [4]

Contravention of the tenor of the obligation. (Art. 1170. Those who
in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the
tenor thereof, are liable for damages).

[1] Fraud - ‘Dolo incidente’ or ‘incidental fraud’. The fraud

here was committed in the performance of the obligation pursuant
to a contract. This makes the obligor liable for damages. This is
differentiated with “fraud” as mentioned also in Art. 1338 of the
Civil Code which is referred to as ‘causal fraud’ or ‘dolo causante’
which is committed to lure the other party to enter into a contract.
This kind of fraud affects the validity o the contract.
Specific/Determinate Thing Generic/Indeterminate Thing

[2] Delay is the non-performance of the obligation on time

which already amounts to breach of the obligation. We can say -Do-
that delay is considered breach of the obligation if demand,
judicial or extrajudicial, was already made and the obligor still
fails to perform his obligation (Art. 1169). This rule however is
subject to the following exceptions that demand by the creditor
shall not be necessary to put the obligor on delay:
a) When the obligation or the law expressly so declare; or
b) When from the nature and the circumstances of the
obligation it appears that the designation of the time when the
thing is to be delivered or the service is to be rendered was a
controlling motive for the establishment of the contract; or
c) When demand would be useless, as when the obligor has
rendered it beyond his power to perform.

[3] Negligence or fault - Consists in the omission of that

diligence which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of the time and
of the place (Art. 1173). If the cause of the loss is not by
negligence or fault but by reason of an event which cannot be
foreseen or though foreseen is inevitable, no one is liable (Art.
1174). This event is usually called ‘fortuitous event’ or ‘force
majeure’. Exceptions however in cases a) expressly specified by
the law, or b) when it is otherwise declared by stipulation, or c)
when the nature of the obligation requires the assumption of risk,
the obligor is still liable even if the cause of the loss is fortuitous
event or force majeure [ibid].

Liabilities if the debtor contravenes an obligation to do or not to do?

 To Do Not to Do

Can be done at the expense of the debtor. Can be undone at the expense of the debtor.
(Art. 1167. If a person obliged to do something (Art. 1168. When the obligation consists in not
fails to do it, the same shall be executed at his doing, and the obligor does what has been
cost). The same rule shall be observed if he forbidden him, it shall also be undone at his
does it in contravention of the tenor of the expense).
obligation. Furthermore, it may be decreed that
what has been poorly done be undone.

Answer for damages (in relation to Art. Answer for damages (in relation to Article
1170). 1170).
Exercises: Situational questions. Every answer must be supported with a legal basis.

1. A requested B to help him in his assignment in a very difficult subject Calculus. However,
for no reason at all, B failed to assist A. Is there a valid obligation on the part of B that he can
be made liable for damages? (10 points)
2. A is under obligation to deliver to B a determinate horse named Sea Horse in January 1,
2020 at B’s house located along Teresa Street, Sta. Mesa, Manila. In January 5, 2020, Sea
Horse delivered a healthy baby horse which A planned to have it named Sea Horse, Jr. Howev-
er, B is claiming that Sea Horse, Jr. belongs to him which A strongly opposed. Whose con-
tention is correct? (10 points)
3. A is obliged to deliver to B a determinate car. What are the other obligations of A relative
to the car, if any? (10 points)
4. Who is liable if the subject of the obligation was totally destroyed by a fortuitous event? 10
points
5. A is obliged to construct B’s 3-storey house. However, A constructed only a 2-storey
house although with a roof deck. What are the corresponding rights and obligations of A and B?
(10 points)

Lesson 2 - Different kinds of obligations:

E. Different kinds of Obligations:

1. Pure obligations - Art. 1179. Every obligation whose performance does not depend
upon a future or uncertain event, or upon a past event unknown to the parties, is demand-
able at once.
Ex: “X will give Y Php1 Million”. Y can immediately demand the Php1 Million from
X.

2. Conditional obligations - The fulfilment or extinguishment of the obligation depends

upon the happening of the condition.

2.1. What constitutes condition?

(a) Future event and uncertain to happen. Example: “X will give Y Php1 Mil-
lion if it rains tomorrow morning”. ‘If it rains tomorrow morning’ serves as a
condition - an event future to happen and uncertain whether it will happen or
not.
(b) Past event and unknown to parties. Example: “X will give Y Php1 Million
if Manny Pacquiao wins in his fight with Floyd Mayweather” which they are
about to watch over DVD. The boxing bout between Pacquiao and May-
weather happened years ago, hence a past event already, but still it may be
made as a condition if all parties have no idea or had no knowledge what hap-
pened to that boxing bout.

2.2. Different kinds of conditions:

(a) As to whether it will give rise or will extinguish the obligation-
(a) Suspensive - The happening of the condition suspends the effi-
cacy of the obligation. Example: “X will give Y Php1 Million if it rains
tomorrow morning”. X will wait if the condition happens. If indeed the
following day it rained (thereby fulfilling the condition) then it will give
rise to X’s obligation to give Y Php1 Million.
 (b) Resolutory - The happening of the condition extinguishes the
obligation which is already existing. Example: “X will give Y Ph-
p5,000.00 monthly allowance starting this month until Y graduated in
college”. X’s obligation to give Y Php5,000.00 monthly started and
existed already. However, upon Y’s graduation in college, X’s obliga-
tion to give Y monthly allowance of Php5,000.00 is extinguished since
the condition had happened already.
(b) As to its effect to the validity of the obligation-
a. Casual condition - The happening of the condition depends
upon chance or the will of a 3rd person. The obligation is valid (Art.
1182). Example: (By chance) “X will give Y Php1 Million if it rains to-
morrow morning”. (Upon the will of a 3rd person) “X will give Y Php1
Million if W would want it”. W is a 3rd person here.
b. Mixed condition - The happening of the condition depends party
upon chance and partly upon the will of a 3rd person (ibid). The oblig-
ation is valid. Example: “X will give Y Php1 Million if the damage to his
building is caused by an earthquake and as determined by Mr. W, an
engineer”.
c. Potestative condition - When the fulfillment of the condition de-
pends upon the sole will of the debtor. Example: “X will give Y Php1
Million if X decides to give it”. The obligation shall be void (ibid). Ex-
ception: If it is potestative on the part of the creditor then the obliga-
tion is valid. Example: “X will give Y Php1 Million if Y wants it”.
d. Impossible conditions, those contrary to good customs or public
policy and those prohibited by law shall annul the obligation which
depends upon them. However, if the obligation is divisible, that part
thereof which is not affected by the impossible or unlawful condition
shall be valid (Art. 1183). Example: “X will give Y Php1 Million if Y kills
W”. The condition “to kill W” is a condition contrary to law, thus, tech-
nically X indeed has no valid obligation. However, if “X will give Y
Php1 Million if Y kills W and another Php500,000.00 if Y passes the
CPA Board Exam” then X has a valid obligation to that part of giving
Php500,000.00 since the condition imposed on it (of passing the CPA
Board Exam) is not illegal or contrary to law and the obligation is di-
visible.
2.3. Rules in case of Loss, Deterioration, or Improvement of the thing subject
of the obligation when the condition suspends the efficacy of the obligation (or the
obligation to return) (Art. 1189).

Without fault of the debtor With fault of the debtor

Loss The obligation is extinguished pursuant to Art. The debtor/obligor is liable for
1174. damages pursuant to Art. 1170

Deteriorati The deterioration is to be borne by the creditor The creditor may choose:
on 1. Rescission; or
2. Fulfilment
plus damages in either case.
Improveme If the improvement is by nature or by time the If the improvement is at the expense of
nt improvement is for the benefit of the creditor. the debtor, he has the right same with
that of the usufructuary. Meaning, the
debtor may remove the improvements
he introduced as long as it will not
cause damage to the principal thing.

3. Obligations with a period - The fulfilment of the obligation or its extinguishment de-
pends upon the arrival of the period.
3.1. What constitutes a period?
(a) Fixed period/time. Example: “In December 25, 2025”.
(b) Determinable future time. Example: “On Christmas eve of 2021”.
(c) Day certain or an event which must necessarily come although not
known when. Example: “X will give Y Php1 Million upon the death of his
father”. Death is a period as it is certain to happen although we do not know
when it will happen.
(d) When the debtor binds himself to pay when his means permit him to
do so (Art. 1180).
Example: “X will give Y Php1 Million if when he is able to do so”. “When
he is able to do so” is a period. When X will give the Php1 Million to Y? If
X and Y could not agree when is the performance of the obligation, Y could
ask the court to fix the period (Art. 1197).

3.2. Kinds of periods as to whether it will give rise or will extinguish the obliga-
tion-
(a) Suspensive - The efficacy of the obligation is suspended prior to the
arrival of the period. Example: “X will give Y Php1 Million in December 25,
2025. X will wait for the period to arrive before his obligation will take effect.

(b) Resolutory - The arrival of the period extinguishes the obligation

which is already existing. Example: “X will give Y Php5,000.00 monthly al-
lowance starting today until December 25, 2025. X’s obligation to give Y
Php5,000.00 monthly started and existed already. However, upon the ar-
 rival of December 25, 2025 X’s obligation to give Y monthly allowance of
Php5,000.00 is extinguished since the period had already arrived.

3.3. Rules whenever a period is established in an obligation -

a) Whenever in an obligation a period is designated, it is presumed to

have been established for the benefit of both the creditor and the debtor; b)
Unless from the tenor of the same or other circumstances it should appear
that the period has been established in favor of one or of the other (Art.
1196). Example:

“X will give Y Php1 Million on June 1, 2020”. X cannot be compelled to

give the Php1 Million prior to June 1, 2020 and neither Y may be compelled
to accept likewise prior to June 1, 2020. The June 1, 2020 period had been
established both for their benefit.
---------------------
“X will give Y Php1 Million on or before June 1, 2020”. In this case X may
give and may compel Y to accept the Php1 Million prior to June 1, 2020.
Clearly, the June 1, 2020 was established only for the benefit of X as he
may wait for its arrival or not before he may perform his obligation.
----------------------
“X will give Y Php1 Million on June 1, 2020. However, Y may demand
before June 1, 2020.” At this time it is Y who may demand the delivery of
Php1 Million prior to June 1, 2020. Clearly, the June 1, 2020 was estab-
lished this time for the benefit of Y as he may wait for its arrival or not be-
fore he may demand the performance of X’s obligation.

3.4. Instances when the debtor may lose every right to make use of the period
(Art. 1198) -
(1) When after the obligation has been contracted, he becomes insol-
vent, unless he gives a guaranty or security for the debt;
(2) When he does not furnish to the creditor the guaranties or securities
which he has promised;
(3) When by his own acts he has impaired said guaranties or securities
after their establishment, and when through a fortuitous event they disap-
pear, unless he immediately gives new ones equally satisfactory;
(4) When the debtor violates any undertaking, in consideration of which
the creditor agreed to the period;
(5) When the debtor attempts to abscond.

4. Alternative obligations - There are two different prestations but the debtor will
completely perform only one of them. The creditor cannot be compelled to receive part
of one and part of the other undertaking (Art. 1199). Example: “X will give Y either a
ring, a car, or a TV”. X will not deliver all the presentations but will only choose which
one from them.

4.1. The right to choose. — The right of choice belongs to the debtor, unless it
has been expressly granted to the creditor. The debtor shall have no right to
choose those prestations which are impossible, unlawful or which could not have
been the object of the obligation (Art. 1200).
 4.2. Effectivity of the choice made. — The choice shall produce no effect ex-
cept from the time it has been communicated (Art. 1201). However, the debtor
shall lose the right of choice when among the prestations whereby he is alterna-
tively bound, only one is practicable (Art. 1202); If through the creditor's acts the
debtor cannot make a choice according to the terms of the obligation, the latter
may rescind the contract with damages (Art. 1203); and the creditor shall have a
right to indemnity for damages when, through the fault of the debtor, all the things
which are alternatively the object of the obligation have been lost, or the compli-
ance of the obligation has become impossible (Art. 1204).

4.3. Responsibility of the debtor in case there is loss of the prestation:

Choice is on the debtor Choice is expressly given to the
creditor
(1) If one of the things is lost through a (1) If one of the things is lost through a
fortuitous event, he shall perform the fortuitous event, he shall perform the
obligation by delivering that which from obligation by delivering that which the
among the remainder, or that which re- creditor should choose from among the
mains if only one subsists; If all are lost remainder, or that which remains if only
through fortuitous event the obligation is one subsists;
extinguished.

(2) If the loss of one of the things occurs (2) If the loss of one of the things occurs
through the fault of the debtor, he may de- through the fault of the debtor, the creditor
liver one from among those subsisting and may claim any of those subsisting, or the
he is not liable for any damages as he can price of that which, through the fault of the
still comply with his obligation. former, has disappeared, with a right to
damages;

(3) If through the fault of the debtor all the (3) If all the things are lost through the
things have been lost, or the compliance fault of the debtor, the choice by the credi-
of the obligation has become impossible tor shall fall upon the price of any one of
the creditor shall have a right to indemnity them, also with indemnity for damages
for damages. The indemnity shall be fixed (Art. 1205).
taking as a basis the value of the last thing
which disappeared, or that of the service
which last became impossible. Damages
other than the value of the last thing or
service may also be awarded (Art. 1204).

5. Facultative obligations - When only one prestation has been agreed upon, but the
obligor may render another in substitution (Art. 1206). Example: “X obliges himself to give
Y a particular car. Or he may give Php1 Million instead”. Clearly, the Php1 Million is a
mere substitute. The only due prestation is the particular car. Whether to give the Php1
Million or not is entirely at the discretion of X.

5.1. Rules in case of loss or deterioration - The loss or deterioration of the

thing intended as a substitute, through the negligence of the obligor, does not
render him liable. But once the substitution has been made, the obligor is liable
for the loss of the substitute on account of his delay, negligence or fraud (ibid).
 6. Joint obligations - There is the concurrence of two or more creditors or of two or
more debtors or of two or more creditors and debtors. The credit - on the part of the credi-
tors - is divided into as many as equal parts as there are creditors and the debt - on the
part of the debtors - is divided into as many as equal parts as their are debtors. The credi-
tor can only demand that part pertaining to his credit and the debtor can only be com-
pelled to pay that part pertaining to his debt (Art. 1207).

7. Solidary obligations - There is the concurrence of two or more creditors or of two or

more debtors or of two or more creditors and debtors. This time, the creditor can demand
entire compliance of the obligation and the debtor can be compelled to perform entire
compliance of the obligation (ibid).

Notes in Understanding Joint and Solidary Obligation

1. Joint and solidary obligation apply if there is the concurrence of two or more
creditors; or of two or more debtors; or of two or more creditors and debtors. If there is
only one debtor and there is only one creditor joint and solidary obligation find no
application.

2. Joint obligation is always presumed and favored. There is solidarity only if the
law, stipulation, or the nature or wordings of the obligation provides solidarity (Art.
1208).

3. Solidarity may exist although the creditors and the debtors may not be bound in
the same manner and by the same periods and conditions (Art. 1211).

4. If the thing has been lost or if the prestation has become impossible without the
fault of the solidary debtors, the obligation shall be extinguished. If there was fault on
the part of any one of them, all shall be responsible to the creditor, for the price and the
payment of damages and interest, without prejudice to their action against the guilty or
negligent debtor (Art. 1221).

8. Divisible obligations -
8.1. Obligation susceptible of partial performance.
8.2. The obligation has for its object the execution of a certain number of days
of work.
8.3. The obligation has for its object the accomplishment of work by metrical
units.
8.4. Other analogous things which by their nature are susceptible of partial
performance.

9. Indivisible obligations -
9.1. Obligations not susceptible of partial performance.
9.2. Obligations to give definite things.
9.3. By intention of the parties although the obligation is divisible.
9.4. By provision of the law although the obligation is divisible.
 10. Obligations with a penal clause - The obligation contained a penalty clause.

10.1. Three-fold purposes of the penalty -

(1) Substitute the indemnity for damages;
(2) Enjoin compliance; and
(3) To penalize

Exercises: Situational questions. Every answer must be supported with a legal basis.

1. A, B, and C are the joint creditors of Y and Z who are solidary debtors in the amount of
P30,000.00. How much A, B, or C could collect from Y? (10 points)
2. When the period is “on or before the date”, the debtor may perform his obligation even be-
fore the period arrives. Why? (10 points)
3. What is the difference between suspensive condition and resolutory condition? (10 points)
4. A obliged himself to give B a determinate car upon the death of B’s father. What is the na-
ture of A’s obligation? (10 points)
5. Refer to Qs No. 5, will your answer be the same if A will give B a determinate car if B’s fa-
ther died of Tubercolosis (TB)? (10 points)

Lesson 3 - Modes of extinguishing obligations:

F. Extinguishments of Obligations (Art. 1231):

1. By payment or performance:
2. By the loss of the thing due:
3. By the condonation or remission of the debt;
4. By the confusion or merger of the rights of creditor and debtor;
5. By compensation;
6. By novation.

7. Annulment of contract,
8. Rescission of contract,
9. Fulfilment of a resolutory condition; and
10. Prescription

1. Payment or Performance:
1.1. What is payment or performance? Payment means not only the delivery of money
but also the performance, in any other manner, of an obligation (Art. 1232).
 1.2. How payment/performance is made?
(a) It must be complete (Art. 1233). Exception: There is (1) Substantial compli-
ance; and (2) Good faith (Art. 1234).
(b) It must be regular Art. 1235). Meaning, the debtor of a thing cannot compel
the creditor to receive a different one, although the latter may be of the same val-
ue as, or more valuable than that which is due (Art. 1244). Exception: When there
is (1) acceptance of the payment/performance; knowledge of the irregularity; and
(3) without expressing any protest or objection (Art. 1235).

1.3. How payment/performance is made if the obligation consists of payment of debts

in money?
(a) Legal tender in the Philippines: Notes is legal tender in whatever amount;
Php1.00; Php5.00; Php10.00 legal tender in amounts not to exceed Php1,000.00;
and 1¢; 5¢; 10¢; and 25¢ is legal tender in amounts not to exceed Php100.00
(BSP Circular 537, Series of 2006; Sec. 52, R. A. 7653).
(b)The delivery of promissory notes payable to order, or bills of exchange or
other mercantile documents shall produce the effect of payment only when they
have been cashed, or when through the fault of the creditor they have been im-
paired.

1.4. Who pays? (Art. 1236) — (1) The debtor; (2) Third person who has interest in the
fulfilment of the obligation; (3) Third person stipulated who can pay; and (4) Third person
who has no interest in the fulfilment of the obligation. The first three(3) can compel the
creditor to accept payment. The 4th (who has no interest) cannot compel the creditor to
accept payment if he wishes not to accept it.

1.4.1. Effect of payment by 3rd persons -

(a) Whoever pays for another may demand from the debtor what he has
paid, except that if he paid without the knowledge or against the will of the
debtor, he can recover only insofar as the payment has been beneficial to
the debtor (ibid).
(b)Whoever pays on behalf of the debtor without the knowledge or
against the will of the latter, cannot compel the creditor to subrogate him in
his rights, such as those arising from a mortgage, guaranty, or penalty (Art.
1237).

1.5. To whom payment is made? (Art. 1240) —

(1) Creditor;
(2) his successor in interest; or
(3) authorized representative.

1.6. Where payment is made? (Art. 1251). —

(1) In the place designated in the obligation;
(2) If there being no express stipulation and if the undertaking is to deliver a de-
terminate thing, the payment shall be made wherever the thing might be at the
moment the obligation was constituted; or
(3) In any other case the place of payment shall be the domicile of the debtor.

1.7. When payment is made? — On due date.

 1.8. Special types of payments — (1) Daccion en pago; (2) Payment by cession; (3)
Application of payments; and (4) Tender of payment and consignation.

1. Daccion en pago (dation in payment) — Whereby a single property is alien-

ated to the creditor in satisfaction of a debt in money. This is governed by the law
of sales (Art. 1245). This contemplates a scenario wherein there is one debtor
and there is one creditor. The alienation (as accepted by the creditor) immediate-
ly effects payment.

2. Payment by cession — The debtor may cede or assign his property to his
creditors in payment of his debts. This cession, unless there is stipulation to the
contrary, shall only release the debtor from responsibility for the net proceeds of
the thing assigned. The agreements which, on the effect of the cession, are made
between the debtor and his creditors shall be governed by special laws (Art.
1255). This contemplates a scenario wherein there is one debtor and two or
more creditors. Unlike in daccion en pago, where the debtor alienates a single
property only, in cession the debtor assigns all his property. And the assignment
does not immediately releases him from obligation but only from the net proceeds
thereof.

3. Application of payments — He who has various debts of the same kind in

favor of one and the same creditor, may declare at the time of making the pay-
ment, to which of them the same must be applied (Art. 1252). This contemplates
a scenario wherein the same debtor owes several or various debts to one and the
same creditor.

3.1. When the payment cannot be applied in accordance with the preceding
rules, or if application can not be inferred from other circumstances, the
debt which is most onerous to the debtor, among those due, shall be
deemed to have been satisfied (Art. 1254). If the debts due are of the
same nature and burden, the payment shall be applied to all of them pro-
portionately (ibid).

4. Tender of payment and Consignation — If the creditor to whom tender of

payment has been made refuses without just cause to accept it, the debtor shall
be released from responsibility by the consignation of the thing or sum due (Art.
1256). This is the way the debtor can compel the creditor to accept payment if
the latter refuses to accept payment without just cause.

4.1. Tender of payment must be followed by the consignation of the thing

to effect valid payment thereby extinguishing the obligation. Other way
stated, tender of payment alone without consigning the thing will not result
to payment.

4.2. On the other hand, the debtor cannot immediately consign the thing
without first tendering payment, except:
(1) When the creditor is absent or unknown, or does not appear at the
place of payment;
(2) When he is incapacitated to receive the payment at the time it is
due;
(3) When, without just cause, he refuses to give a receipt;
 (4) When two or more persons claim the same right to collect;
(5) When the title of the obligation has been lost.

4.3. Requisites for a valid tender of payment and consignation:

1. There must be a valid obligation.
2. There was a tender of payment.
3. Refusal on the part of the creditor to receive payment without just
cause.
4. Written notice to the creditor that he will consign the thing (Art.
1257).
5. Consignation (Art. 1258).
6. Subsequent written notice informing the creditor of the consigna-
tion (Art. 1258).

2. Loss of the thing due. — It is understood that the thing is lost when it (1) perishes (physical
loss), or (2) goes out of commerce (legal loss), or (3) disappears in such a way that its existence
is unknown or it cannot be recovered (civil loss) (Art. 1189[2]).

2.1. Loss of the thing due extinguishes the obligation if all the requisites are present
(Art. 1262):
(1) The object is determinate.
(2) The loss is without the fault of the debtor.
(3) The debtor is not on delay.
(4) There is no stipulation that the debtor is still liable for whatever is the cause of
the loss.
(5) There is no provision of the law that the debtor is still liable for whatever is the
cause of the loss.

3. Condonation or remission of debt. — The creditor abandons his claims against the debtor.

3.1. requisites for a valid condonation or remission of debt (Art. 1270):

1. There must be a valid obligation.
2. The parties have capacity to enter into contract.
3. It is essentially gratuitous.
4. It must be accepted by the debtor.
5. If made expressly it must conform with the rules on donation.
6. It must not be inofficious.

4. Confusion or merger of rights. — The characters of creditor and debtor are merged in one
and the same person (Art. 1275).

4.1. Merger which takes place in the person of the principal debtor or creditor benefits
the guarantors. Confusion which takes place in the person of any of the latter does not
extinguish the obligation (Art. 1276).

5. Compensation. — When two persons, in their own right, are creditors and debtors of each
other (Art. 1278).
 5.1. Requisites of a legal compensation (Art. 1279):
(1) That each one of the obligors be bound principally, and that he be at the
same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are con-
sumable, they be of the same kind, and also of the same quality if the latter has
been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, com-
menced by third persons and communicated in due time to the debtor.
5.1.1. In legal compensation the obligation is extinguished by operation
of law. if the requisites for a legal compensation are not all present, com-
pensation may still be made through voluntary compensation or by agree-
ment of the parties.

5.2. Compensation may be total or partial. When the two debts are of the same
amount, there is a total compensation (Art. 1281).

6. Novation. — The existing obligation is extinguished through the creation of a new obliga-
tion either by changing the object of the obligation or by changing the person of the debtor or by
subrogating the person of the creditor.

6.1. Kinds of novation as to what is being changed:

1. Objective novation - the object is being changed. Example: “X is obliged to
give Y a house. Thereafter, they agreed that X will give Y Php1 Million instead of
a house”. The object of the obligation which was ‘to give the house’ was there-
after changed (novated) to ‘to give Php1 Million’. Thus, the obligation of X to give
Y a house was extinguished through the creation of a new obligation to give Y
Php1 Million.

2. Subjective novation - either the person of the debtor is being changed,

whether by expromission or delegación, or the person of the creditor is being
changed through subrogation.

a. Expromission. — The payment by 3rd person is without the knowl-

edge or against the will of the debtor. Example: “X is obliged to pay Y Php1
Million”. W, the best friend of X, at his own initiative went to Y and offered
that he will pay the Php1 Million and that X be released from the said oblig-
ation. If this is accepted by the creditor Y, the payment made by W is with-
out the knowledge of X. How about if W called up X and informed him that
he will pay Y for his (X’s) debt of Php1 Million but X refused? This is still ex-
promission since the payment was made against the will of the debtor. This
resulted of the extinguishment of X’s obligation to pay Y through the cre-
ation of a new obligation of W paying Y.

b. Delegación. — The payment by 3rd person is with the consent of the

debtor. Example: “X is obliged to pay Y Php1 Million”. W, the best friend of
X, along with Y, offered that he will pay the Php1 Million and that X be re-
leased from the said obligation. If this is accepted by Y the payment made
by W is with the knowledge and consent of X. This resulted of the extin-
 guishment of X’s obligation to pay Y through the creation of a new obliga-
tion of W paying Y.

c. Subrogation. - The person of the creditor is being changed. Example:

“X is obliged to pay Y Php1 Million”. Y, the creditor, introduced W to X and
informed him that Y had assigned his credit to W and instructed him to con-
sider W as his creditor. In this instance, the obligation of X paying Y is ex-
tinguished through the creation of a new obligation of X paying W, the per-
son subrogated to the credit of Y. In subrogation the consent of the debtor
of the assignment of credit is not necessary.

7. Other causes of extinguishment of obligations, such as annulment, rescission, fulfilment of

a resolutory condition, and prescription, are governed elsewhere in the Civil Code.

Exercises: Situational questions. Every answer must be supported with a legal basis.

1. How a valid payment is made to extinguish an obligation? (10 points)

2. X is indebted to Y for Php1,000.00. X then alienated to Y his brand new bag as payment.
Will this alienation immediately takes effect of payment? (10 points)
3. X obliges himself to give Y a particular car on January 5, 2020. However, the said car was
totally wrecked in an accident involving X on January 2, 2020. What is the implication of the
total loss of the car as to the obligation of X? (10 points)
4. X is indebted to Y for Php1 Million. Y, being a good friend, informed X that he is condoning
the debt of X. Will this unilateral offer of condonation of Y immediately result in the extinguish-
ment of obligation of X? (10 points)
5. Is death a mode of extinguishing obligation? (10 points)

PART II.
Lesson 4 - Contracts. — Definition; Essential features; and Requisites of a valid con-
tracts:

Definition. — 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 (Art. 1305).

A. Essential features of contract. —

1. Freedom to contract. — The contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided they are not con-
trary to law, morals, good customs, public order, or public policy (Art. 1306). Another limi-
tation is the exercise of police power by the state (Goldenway Merchandising Corporation
vs. Equitable PCI Bank, G.R. No. 195540, March 13, 2013).

2. Mutual. — The contract must bind both contracting parties; its validity or compliance
cannot be left to the will of one of them (Art. 1308).

3. Relative. — Contracts take effect only between the parties, their assigns and heirs,
except in case where the rights and obligations arising from the contract are not transmis-
sible by their nature, or by stipulation or by provision of law. The heir is not liable beyond
 the value of the property he received from the decedent (Art. 1311).
3.1. Exceptions:
(1) Stipulation pour autrui. If a contract should contain some stipulation in favor of
a third person, he may demand its fulfillment provided he communicated his accep-
tance to the obligor before its revocation. A mere incidental benefit or interest of a
person is not sufficient. The contracting parties must have clearly and deliberately
conferred a favor upon a third person (ibid., par. 2).
(2) In contracts creating real rights, third persons who come into possession of
the object of the contract are bound thereby, subject to the provisions of the Mort-
gage Law and the Land Registration Laws (Art. 1312).
(3) Contracts intended to defraud creditors (Art. 1313).
(4) Any third person who induces another to violate his contract shall be liable for
damages to the other contracting party (Art. 1314).

4. Binding force. — Contracts are perfected by mere consent, and from that moment
the parties are bound not only to the fulfilment of what has been expressly stipulated but
also to all the consequences which, according to their nature, may be in keeping with
good faith, usage and law (Art. 1315).

B. Requisites of valid contracts. — There is no contract unless the following requisites con-
cur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established(Article 1318).

See discussions of each requisite in table below:

Consent Object Cause or consideration

1.Manifestationso 1. What are the objects of 1. What constitutes cause

f consent: contract? or consideration of contract?
(1) Meeting of the (1) All things which are (1) In onerous contracts
offer; and not outside the commerce — the prestation or prom-
of men, including future ise of a thing or service by
(2) Acceptance upon things. the other.
the thing and the cause
which are to constitute (2) All rights which are (2) In remuneratory con-
the contract. The offer not intransmissible may tract — the service or ben-
must be certain and the also be the object of con- efit which is remunerated.
acceptance absolute. A tracts. No contract may be
qualified acceptance entered into upon future (3) In contracts of pure
constitutes a counter- inheritance except in cases beneficence — the mere
offer (Art. 1319). expressly authorized by liberality of the benefactor
law. (Art. 1350).
(3) All services which
are not contrary to law,
morals, good customs,
public order or public policy
may likewise be the object
of a contract (Art. 1347).
 Consent Object Cause or consideration

2. Rules to determine as to 2. Is cause or considera-

whether acceptance already tion the same with motive?
binds the offeror: (1) The particular mo-
tives of the parties in enter-
(1) When acceptance is
ing into a contract are dif-
made by letter or telegram
ferent from the cause
—
thereof (Art. 1351).
(a) The offeror is not
bound until he has (2) Contracts without
k n o w l e d g e of t h e cause, or with unlawful
acceptance. Cognitive cause, produce no effect
theory applies. whatever. The cause is un-
(b)Offerormay lawful if it is contrary to law,
withdraw the offer at morals, good customs,
any time until he has public order or public policy
k n o w l e d g e of t h e (Art. 1352).
acceptance.
(3) Although the cause
(c) If it is the offeree is not stated in the con-
who wanted to withdraw tract, it is presumed that it
fromhispreviou exists and is lawful, unless
s acceptance, his letter the debtor proves the con-
of withdrawal must trary (Art. 1354).
come to the knowledge
first of the offeror. (4) Except in cases
specified by law, lesion or
inadequacy of cause shall
not invalidate a contract,
unless there has been
fraud, mistake or undue
influence (Art. 1355).
(2) When the offerer has
allowed the offeree a
certain period to accept the
offer —
(a) The offer may be
withdrawn at any time
before acceptance by
communicating such
withdrawal.
 Consent Object Cause or consideration

(b) However when

the option to accept (or
not to accept) i
sfounded upon
aconsideration
assomethingpai
d o r promised the
offeror cannot
withdraw until the
expiration of the given
period within which to
accept (or not to accept)
(Art. 1324).
 Consent Object Cause or consideration

3. Who are those that

cannot give consent to
contract?
(1) Minors (below 18
years old);
(2) Insane or demented
persons. Except when the
contract was entered
during lucid interval (Art.
1328); and
(3) Deaf-mute who does
not know how to write (Art.
1327).

4. What are the vices of

consent?
(1) Mistake. — Must
refer to the following:
(a) Substance of the
thing which is the object
of the contract;
(b) Conditions which
have principally moved
one or both parties to
enter into the contract;
(c)Identityor
qualifications of one of
the parties when such
have been the principal
cause of the contract.
A simple mistake of
account shall give rise
to its correction (Art.
1331).

(2) Violence. — In order

to wrest consent, serious
or irresistible force is
employed (Art. 1335).
(3) Intimidation. — One
of the contracting parties is
compelled by a reasonable
and well-grounded fear of
an imminent and grave evil
uponhispersonor
property, or upon the
person or property of his
spouse, descendants or
ascendants, to give his
consent (ibid).
 Consent Object Cause or consideration

(4) Undue influence. —

Onetakesimprope
r advantage of his power
over the will of another,
depriving the latter of a
reasonable freedom of
choice (Art. 1337).
(5)Fraud(Dolo
Causante. — Through
insidiouswordsor
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 (Art. 1338).

5. Simulation of contracts.
(1) Absolute-th
e parties do not intend to
be bound at all.
(2) Relative - the parties
concealtheirtrue
agreement (Art. 1345). An
absolutely simulated or
fictitious contract is void. A
relative simulation, 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
binds the parties to their
real agreement (Art. 1346).

Exercises: Situational questions. Every answer must be supported with a legal basis.
1. A owes B P500,000.00. It was agreed that the P200,000.00 has to be given to X as B is
likewise indebted to him. Can X demand payment the P200,000.00 from A? (10 points)
2. A offered for sale to B a particular car for Php2 Million. B accepted the offer but for Php1.5
Million only. Are the parties bound by their offer and acceptance? (10 points)
3. A offered for sale to B a particular condominium unit in Sta. Mesa, Manila. Sensing that B
still needs to inspect the unit, he gave B within five (5) days either to accept or reject the offer.
After three (3) days, B communicated his acceptance of the offer to A which A turned it down
considering that he changed his mind already and is no longer selling the unit. Is A bound by
his offer? (10 points)
4. A sent a letter to B offering for sale his particular house and lot in Bulacan. The following
day, upon receipt of A’s letter, B immediately drafted likewise a letter accepting the offer. Can A
still withdraw from his offer? (10 points)
 5. A is so desperate to acquire the ownership of a tract of land owned by B. B would not
concede whenever A offers to purchase it. Out of desperation, he poked a gun to B and asked
him to sign a pre-form contract of sale pertaining to the said lot. Can B invalidate the contract?
(10 points)

Lesson 5 - Contracts. — Forms; Reformation of Instrument; Interpretation; Defective con-

tracts

D.Forms of contract. — As 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 (Art1356).

1. However, when the law requires that a contract be in some form in order that it may be
valid or enforceable, or that a contract be proved in a certain way, that requirement is
absolute and indispensable (ibid).

2. If the law requires a document or other special form the contracting parties may compel
each other to observe that form, once the contract has been perfected. This right may be
exercised simultaneously with the action upon the contract (Art. 1357).

The following must appear in a public document:

1. Acts and contracts which have for their object the creation, transmission, mod- ification or
extinguishment of real rights over immovable property; sales of real property or of an
interest therein a governed by Articles 1403, No. 2, and 1405;
2. The cession, repudiation or renunciation of hereditary rights or of those of the conjugal
partnership of gains;
3. The power to administer property, or any other power which has for its object an act
appearing or which should appear in a public document, or should prejudice a third
person;
4. The cession of actions or rights proceeding from an act appearing in a public document
(Art. 1358).

C. Reformation of instrument. — When, there having been a meeting of the minds of the par-
ties to a contract, their true intention is not expressed in the instrument purporting to embody the
agreement, by reason of mistake, fraud, inequitable conduct or accident, one of the parties may
ask for the reformation of the instrument to the end that such true intention may be expressed
(Art. 1359).

1. Rules on reformation of instrument:

(1) If mistake, fraud, inequitable conduct, or accident has prevented a meeting of

the minds of the parties, the proper remedy is not reformation of the instrument but
annulment of the contract (ibid).
(2) When a mutual mistake of the parties causes the failure of the instrument to
disclose their real agreement, said instrument may be reformed (Art. 1361).
(3) If one party was mistaken and the other acted fraudulently or inequitably in
such a way that the instrument does not show their true intention, the former may
ask for the reformation of the instrument (Art. 1362).
(4) When one party was mistaken and the other knew or believed that the instru-
ment did not state their real agreement, but concealed that fact from the former, the
 instrument may be reformed (Art. 1363).
(5) When through the ignorance, lack of skill, negligence or bad faith on the part
of the person drafting the instrument or of the clerk or typist, the instrument does not
express the true intention of the parties, the courts may order that the instrument be
reformed (Art. 1364).
(6) If two parties agree upon the mortgage or pledge of real or personal property,
but the instrument states that the property is sold absolutely or with a right of repur-
chase, reformation of the instrument is proper (Art. 1365).
(7) There shall be no reformation in the following cases:
(1) Simple donations inter vivos wherein no condition is imposed;
(2) Wills;
(3) When the real agreement is void (Art. 1366).
(8) When one of the parties has brought an action to enforce the instrument, he
cannot subsequently ask for its reformation (Art. 1367).

D. Interpretation of contracts:

1. If the terms of a contract are clear and leave no doubt upon the intention of the con-
tracting parties, the literal meaning of its stipulations shall control. If the words appear to
be contrary to the evident intention of the parties, the latter shall prevail over the former
(Art. 1370).

2. In order to judge the intention of the contracting parties, their contemporaneous and
subsequent acts shall be principally considered (Art. 1371).

3. However general the terms of a contract may be, they shall not be understood to
comprehend things that are distinct and cases that are different from those upon which the
parties intended to agree (Art. 1372).

4. If some stipulation of any contract should admit of several meanings, it shall be un-
derstood as bearing that import which is most adequate to render it effectual (Art. 1373).
5. The various stipulations of a contract shall be interpreted together, attributing to the
doubtful ones that sense which may result from all of them taken jointly (Art. 1374).
6. Words which may have different significations shall be understood in that which is
most in keeping with the nature and object of the contract (Art. 1375).

7. The usage or custom of the place shall be borne in mind in the interpretation of the
ambiguities of a contract, and shall fill the omission of stipulations which are ordinarily es-
tablished (Art. 1376).

8. The interpretation of obscure words or stipulations in a contract shall not favor the
party who caused the obscurity (Art. 1377).

9. When it is absolutely impossible to settle doubts by the rules established in the pre-
ceding articles, and the doubts refer to incidental circumstances of a gratuitous contract,
the least transmission of rights and interests shall prevail. If the contract is onerous, the
doubt shall be settled in favor of the greatest reciprocity of interests. If the doubts are cast
upon the principal object of the contract in such a way that it cannot be known what may
have been the intention or will of the parties, the contract shall be null and void (Art.
1378).
 10. The principles of interpretation stated in Rule 123 of the Rules of Court shall like-
wise be observed in the construction of contracts (Art. 1379).
E. Defective contracts:

See table of comparison:

Defective What are these contracts? Status Ratificatio Nature of Prescripti
Contract n action on

Rescissible (1) Those which are en- Valid Can be Subsidiary 4 years
tered into by guardians until ratified. . It cannot (Art.
whenever the wards whom rescinde b e 1389).
they represent suffer lesion d (Art. instituted
by more than one-fourth of 1380). except
the value of the things which when the
are the object thereof; party
(2) Those agreed upon in s u f f er i n g
representation of absentees, damage
if the latter suffer the lesion has no
stated in the preceding other legal
number; means to
(3) Those undertaken in o b t a i n
fraud of creditors when the reparation
latter cannot in any other for the
manner collect the claims same (Art.
due them; 1383).
(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 (Art.
1381).

Voidable (1) Those where one of Valid Can be Principal 4years

the parties is incapable of until ratified action. (Art.
giving consent to a contract; annulled e i t h e r Action 1391).
(2) Those where the con- (Art. expressly may be
sent is vitiated by mistake, 1390) o r commenc
violence, intimidation, undue impliedly ed by any
influence or fraud (Art. (Art. one
1390).
1392; Art. affected.
1393)
 Defective What are these contracts? Status Ratificatio Nature of Prescripti
Contract n action on

Unenforceable (1) Those entered into in the

Valid but Can be 3rd person N/A
name of another person by one cannot ratified ( A c a n n o t
who has been given no
b e rt. assail the
authority or legal repre-
sentation, or who has acted
enforce 1403). contract
beyond his powers; d in (Art .
c o u r t 1408).
(2) Those that do not
( A r t.
comply with the Statute of
1403).
Frauds as set forth in this
number. In the following
cases an agreement here-
after made shall be unen-
forceable by action, unless
the same, or some note or
memorandum, thereof, be in
writing, and subscribed by
the party charged, or by his
agent; evidence, therefore,
of the agreement cannot be
received without the writing,
or a secondary evidence of
its contents: (1) An agree-
ment that by its terms is not
to be performed within a
year from the making there-
of;(2) A special promise to
answer for the debt, default,
or miscarriage of another;
(3) An agreement made in
consideration of marriage,
other than a mutual promise
to marry; (4) An agreement
for the sale of goods, chat-
tels or things in action, at a
price not less than five hun-
dred pesos, unless the buy-
er accept and receive part of
such goods and chattels, or
the evidences, or some of
them, of such things in ac-
tion 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
 Defective What are these contracts? Status Ratificatio Nature of Prescripti
Contract n action on

Void and (1) Those whose cause, V o i d Cannot Direct Action

Inexistent object or purpose is contrary from the be ratified action or does not
to law, morals, good cus- v e r y (Art. collateral prescribe
toms, public order or public beginnin 1409). action. It (Art.
policy; g(Art. may be 1410.
(2) Those which are ab- 1409). It brought by
solutely simulated or ficti- produce 3rd
tious; s no persons
(3) Those whose cause effect. whose
or object did not exist at the interests
time of the transaction; are
(4) Those whose object is affected.
outside the commerce of
men;
(5) Those which contem-
plate an impossible service;
(6) Those where the in-
tention of the parties relative
to the principal object of the
contract cannot be ascer-
tained;
(7) Those expressly pro-
hibited or declared void by
law (Art. 1409).

Exercises: Situational questions. Every answer must be supported with a legal basis.

1. A is the legal guardian of X, a minor. In his capacity as a guardian he sold the condomini-
um unit of X worth 1million pesos for only P500,000.00. Discuss the status of the contract? (10
points)
2. A obtained the services of B for the construction of his house in Bulacan. However, con-
sidering the financial predicament A is still facing, they agreed that B will start its construction
after one (1) year. What could be the rights and obligations of the parties in the event B refused
to proceed with his obligation? (10 points)
3. A forcibly secured the consent of B to sign the contract. Later, A wanted to invalidate the
contract by reason that the consent of B in signing the contract is vitiated. On the other hand, B,
despite such fact, he wanted to pursue the contract. What is the best way to decide the situa-
tion? (10 points)
4. A poked a gun to B since B does not want to sell his valued property to A and then uttered
these words, “Pirmahan mo ang Deed of Sale na ito, kung hindi uubusin ko ang lahi mo!!!”.
What is the status of A and B’s contract? (10 points)
5. A is asking for the reformation of the instrument because he was allegedly deceived by B
in agreeing that payment has to be made in 5 equal instalments only when in fact the payment
should have been within a period of 12 months. Is this remedy correct? (10 points).

-End-