INSTRUCTIONAL MATERIALS FOR

Law-20013
Obligations and Contracts

Compiled by:

ATTY. RITCHE I. ESPONILLA

Faculty
College of Accountancy and Finance

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 INTRODUCTION / OVERVIEW

This Instructional Material (IM) presents the laws on obligation and contract
which discussion 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
obligation, 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 consequences for liability of indemnity for damages.

But how one acquires legal obligation? Contract — which is the second part of
the discussion — is just but one of the sources of obligations. Take note however that
only a valid contract 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.

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 TABLE OF CONTENTS

Page
PART I. — LAWS ON OBLIGATION

Lesson 1.
A. Definition. 6
B. Requisites. 6
C. Sources. 6
D. Nature and Effects. 7-8
Exercises 9

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. 10
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). 11
3. Obligations with a period. 11
3.1. What constitutes a period. 11
3.2. Kinds of periods. 11
3.3. Rules whenever a period is established. 12
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. 13
4.2. Effectivity of the choice made. 13
4.3. Responsibility of the debtor in case
there is loss of the prestation. 13
5. Facultative obligations. 13
5.1. Rules in case of loss or deterioration. 14
6. Joint obligations. 14
7. Solidary obligations. 14
7.1. Notes in understanding Joint and
Solidary obligations. 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

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 8.4. Other analogous things which by
their nature are susceptible of partial performance. 14
9. Indivisible obligations. 15
9.1. Obligations not susceptible of
partial performance. 15
9.2. Obligations to give definite things. 15
9.3. By intention of the parties although the
obligation is divisible. 15
9.4. By provision of the law although the
obligation is divisible. 15
10. Obligations with a penal clause. 15
10.1. Three-fold purposes of the penalty. 15
Exercises 15

Lesson 3.

F. Modes of Extinguishing Obligations. 15

1. Payment or Performance. 16
1.1. What is payment or performance. 16
1.2. How payment/performance is made. 16
1.3. How payment/performance is made if
the obligation consists of payment of
debts in money. 16
1.4. Who pays. 16
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. 17
1.8. Special types of payments. 17
1. Daccion en pago (dation in payment). 17
2. Payment by cession. 17
3. Application of payments. 17
4. Tender of payment and Consignation. 17-18
2. Loss of the thing due. 18
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. 19
5. Compensation. 19
5.1. Requisites of a legal compensation. 19
6. Novation. 19
6.1. Kinds of novation as to what is being changed. 19
1. Objective novation. 19
2. Subjective novation. 19
a. Expromission. 19
b. Delegación. 20
c. Subrogation. 20
Exercises 20

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PART II. — LAWS ON CONTRACTS

Lesson 4.

A. Definition. 21
B. Essential features of contract. 21
1. Freedom to contract. 21
2. Mutual. 21
3. Relative. 21

3.1. Exceptions: 21
(1) Stipulation pour autrui. 21
(2) In contracts creating real rights. 21
(3) Contracts intended to defraud creditors. 21
(4) Any third person who induces another to
violate his contract. 21
4. Binding force. 22
C. Requisites of valid contracts. 23-24
(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: 28-30
Exercises 30

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PART 1.
Lesson 1 - Definition; Requisites; Sources; and Nature and Effects of Obligations:
Week Objectives Learning Outcomes Mythodol Reference/s
ogy
1st to 1. To know the 1. Students understand On-Line The Civil Code
3rd general concepts of the concept of a civil of the
Week an obligation and obligation and that only a Philippines.
the requisites of a valid civil obligation is (1949, June 18),
valid obligation; enforceable before the Book I V,
2. To know the courts of law; Obligations and
sources o f 2. Students are apprised Contracts, Title I.
obligation; and how obligations are Chan Robles
3. To know the acquired; and Virtual law
nature and effects of 3. Students are apprised Library.https://
obligation. of the consequences as www.chanrobles.
well as the rights if there is c o m /
an obligation. civilcodeofthephi
lippinesbook4.ht
m

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
obligation.

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.

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

What are the correlative obligations if the obligation is to give a thing?

Answer: It depends whether the obligation is to give a determinate/particular thing
or the obligation is to give a generic/indeterminate thing. The table below shows the
correlative obligations.
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 x
something is also 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 x

arises. (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 x
obligation to give a 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] -Do-
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.

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 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. -Do-
We can say 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 -Do-

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

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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 Biscuit delivered a healthy baby horse which A planned to have it
named Sea Horse, Jr. However, B is claiming that Sea Horse, Jr. belongs to him which
A strongly opposed. Whose contention 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:

Week Objectives Learning Outcomes Mythodol Reference/s
ogy
4th to 1. Know 1. S t u d e n t s Off-Line The Civil Code of the
8th the different understand the different Philippines. (1949, June
Week kinds of kinds of obligations; and 18), Book IV, Obligations
obligations. 2. Students are and Contracts, Title I.
apprised of the Chan Robles Virtual law
consequences as well Library.https://
as the rights attached in w w w. c h a n r o b l e s . c o m /
each kind of obligation. civilcodeofthephilippinesbo
ok4.htm

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 demandable 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 Million 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.

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 (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 Mayweather 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 happened 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 efficacy 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 Php5,000.00 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 obligation 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 tomorrow 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 obligation 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 depends 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). Exception: If it is potestative on
the part of the creditor then the obligation 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, technically 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

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 passing the CPA Board Exam) is not illegal or contrary to law
and the obligation is divisible.

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 The debtor/obligor is liable for

pursuant to Art. 1174. damages pursuant to Art. 1170

Deterioration The deterioration is to be borne by The creditor may choose:

the creditor 1. Rescission; or
2. Fulfilment
plus damages in either case.

Improvement If the improvement is by nature or by If the improvement is at the

time the improvement is for the
benefit of the creditor.
expense of 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 depends 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
obligation-
(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

Page 11
 Php5,000.00 monthly allowance starting today until December 25,
2025. X’s obligation to give Y Php5,000.00 monthly started and
existed already. However, upon the arrival 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 established this time for the benefit of Y as he may wait
for its arrival or not before 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
insolvent, 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 disappear, 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.

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 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 except 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 alternatively 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
compliance 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 creditor should choose from among the
remains if only one subsists; If all are remainder, or that which remains if only
lost through fortuitous event the one subsists;
obligation is extinguished.

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

(3) If through the fault of the debtor all (3) If all the things are lost through the
the things have been lost, or the fault of the debtor, the choice by the
compliance of the obligation has creditor shall fall upon the price of any
become impossible the creditor shall one of them, also with indemnity for
have a right to indemnity for damages. damages (Art. 1205).
The indemnity shall be fixed 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

Page 13
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 creditors - 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 creditor can only demand that part pertaining to his credit and
the debtor can only be compelled 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.

Page 14
 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 before 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 nature 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 father died of Tubercolosis (TB)? (10 points)

Lesson 3 - Modes of extinguishing obligations:

Week Objectives Learning Mythod Reference/s
Outcomes ology
9th to 1. To know 1 . S t u d e n t s O f f - The Civil Code of the
12th how t h e u n d e r s t a n d h o w Line Philippines. (1949, June 18),
Week o b l i g a t i o n s o b l i g a t i o n s a r e B o o k I V, O b l i g a t i o n s a n d
a r e extinguished. Contracts, Title I. Chan Robles
extinguished. Virtual law Library.https://
www.chanrobles.com/
civilcodeofthephilippinesbook4.h
tm

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


Page 15
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
compliance; 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 value 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 impaired.

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;

Page 16
 (2) If there being no express stipulation and if the undertaking is to deliver
a determinate 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 alienated 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) immediately 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 payment, 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 proportionately (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

Page 17
 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
consignation (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.

Page 18
 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
consumable, 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,
commenced 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, compensation may still be made through voluntary
compensation or by agreement 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

obligation 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 thereafter 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

knowledge 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 obligation. If this is accepted by the creditor
Y, the payment made by W is without the knowledge of X. How

Page 19
 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 expromission
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
creation 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 released 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 extinguishment of X’s obligation to
pay Y through the creation of a new obligation 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 consider W as his creditor. In this
instance, the obligation of X paying Y is extinguished through the
creation of a new obligation of X paying W, the person 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 extinguishment of obligation of X? (10 points)

5. Is death a mode of extinguishing obligation? (10 points)

Page 20
PART II.
Lesson 4 - Contracts. — Definition; Essential features; and Requisites of a valid
contracts:
Week Objectives Learning Outcomes Mythodol Reference/s
ogy
13th to 1. To know the 1 . S t u d e n t s On-Line The Civil Code of the
15th general concept u n d e r s t a n d t h e Philippines. (1949, June
Week of contract; its concept of contract, 18), Book IV, Obligations
features; and its i t s f e a t u r e s , a n d and Contracts, Title II.
r e q u i s i t e s f o r consequences. Chan Robles Virtual law
validity. 2. Students are Library.https://
apprised of the rights www.chanrobles.com/
as well as the civilcodeofthephilippines
r e s u l t a n t book4.htm
consequences in
entering into a
contract.

A. 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).

B. 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 contrary to law, morals, good customs, public order, or public policy
(Art. 1306). Another limitation 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 transmissible 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 acceptance 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 Mortgage 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).

Page 21
 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).

C. Requisites of valid contracts. — There is no contract unless the following requisites

concur:
(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 . M a n i f e s t a t i o n s o f 1. What are the objects of 1. What constitutes cause

consent: contract? or consideration of
(1) Meeting of the (1) All things which are contract?
offer; and not outside the commerce (1) In onerous
of men, including future c o n t r a c t s — t h e
( 2 ) A c c e p t a n c e things. prestation or promise of a
upon the thing and the thing or service by the
cause which are to (2) All rights which are other.
constitute the contract. not intransmissible may
The offer must be also be the object of (2) In remuneratory
c e r t a i n a n d t h e contracts. No contract contract — the service or
acceptance absolute. A may be entered into upon b e n e f i t w h i c h i s
qualified acceptance future inheritance except remunerated.
constitutes a counter- i n c a s e s e x p r e s s l y
offer (Art. 1319). authorized by law. (3) In contracts of pure
beneficence — the mere
(3) All services which liberality of the benefactor
are not contrary to law, (Art. 1350).
morals, good customs,
public order or public
policy may likewise be the
object of a contract (Art.
1347).

Page 22
 Consent Object Cause or consideration

2. Rules to determine as 2. Is cause or

to whether acceptance consideration the same with
already binds the offeror: motive?
(1) The particular
(1) When acceptance motives of the parties in
is made by letter or entering into a contract
telegram — are different from the
(a) The offeror is cause thereof (Art. 1351).
not bound until he has
knowledge of the (2) Contracts without
acceptance. Cognitive cause, or with unlawful
theory applies. cause, produce no effect
whatever. The cause is
( b ) O ff e r o r m a y unlawful if it is contrary to
withdraw the offer at l a w, m o r a l s , g o o d
any time until he has customs, public order or
knowledge of the public policy (Art. 1352).
acceptance.
(3) Although the cause
(c) If it is the offeree is not stated in the
who wanted to contract, it is presumed
withdraw from his that it exists and is lawful,
previous acceptance, unless the debtor proves
his letter of withdrawal the contrary (Art. 1354).
must come to the
knowledge first of the (4) Except in cases
offeror. 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.

Page 23
 Consent Object Cause or consideration

(b) However when

the option to accept (or
not to accept) is
founded upon a
consideration as
something paid or
promised the offeror
cannot withdraw until
the expiration of the
given period within
which to accept (or not
to accept) (Art. 1324).

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).

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)

Page 24
Lesson 5 - Contracts. — Forms; Reformation of Instrument; Interpretation;
Defective contracts:
Week Objectives Learning Outcomes Mythodol Reference/s
ogy
16th to 1. To know the 1 . S t u d e n t s Off-Line The Civil Code of the
18th forms of contract, b e c o m e s Philippines. (1949, June
Week a n d i t s knowledgeable that 18), Book I V,
i n t e r p r e t a t i o n ; contracts is binding in Obligations and
and whatever form except Contracts, Title II. Chan
2. To know the in cases which the law Robles Virtual law
concept o f requires a particular L i b r a r y. h t t p s : / /
r e f o r m a t i o n o f form and becomes www.chanrobles.com/
instrument and knowledgeable also civilcodeofthephilippine
the defective h o w c o n t r a c t i s sbook4.htm
contracts. interpreted whenever
there is ambiguity in
its wordings.
2. Students
understand the
concept of reformation
of instrument. They
b e c o m e
knowledgeable that in
reformation of
instrument what is
being reformed is the
instrument or
document only that
embodies the contract
to reflect the parties’
true intention and not
the contract itself.
3. Students are
apprised of the
d i ff e r e n t d e f e c t i v e
contracts as well as
the rights and the
r e s u l t a n t
consequences of
those contracts
although defective.

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 (Art. 1356).

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).

Page 25
 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).

3. The following must appear in a public document:

(1) Acts and contracts which have for their object the creation,
transmission, modification 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).

E. Reformation of instrument. — When, there having been a meeting of the minds of

the parties 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
instrument 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 repurchase, 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).

Page 26
 (8) When one of the parties has brought an action to enforce the
instrument, he cannot subsequently ask for its reformation (Art. 1367).

F. Interpretation of contracts:

1. If the terms of a contract are clear and leave no doubt upon the intention of
the contracting 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 understood 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 established (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 preceding 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
likewise be observed in the construction of contracts (Art. 1379).

Page 27
G. Defective contracts:
See table of comparison:
Defective What are these Status Ratificati Nature of Prescript
Contract contracts? on action ion

Rescissible (1) Those which are Valid Can be Subsidiary 4 years

entered into by guardians until ratified. . It cannot (Art.
whenever the wards rescinde b e 1389).
whom they represent d (Art. instituted
suffer lesion by more 1380). except
than one-fourth of the when the
value of the things which p a r t y
are the object thereof; suffering
(2) Those agreed damage
upon in representation of has no
absentees, if the latter other legal
suffer the lesion stated in means to
the preceding number; o b t a i n
(3) Those undertaken reparation
in fraud of creditors when for the
the latter cannot in any same (Art.
other manner collect the 1383).
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 (Art. 1381).

Voidable (1) Those where one Va l i d Can be Principal 4 y e a r s

of the parties is incapable u n t i l ratified action. ( A r t .
of giving consent to a annulled e i t h e r Action 1391).
contract; ( A r t . expressly may be
(2) Those where the 1390) o r commenc
consent is vitiated by impliedly ed by any
mistake, violence, ( A r t . one
intimidation, undue 1392; Art. affected.
influence or fraud (Art. 1393)
1390).

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 Defective What are these Status Ratificati Nature of Prescript
Contract contracts? on action ion

Unenforceable (1)Those entered into Valid but Can be 3rd person N/A
in the name of another cannot ratified cannot
person by one who has b e ( A r t . assail the
been given no authority enforced 1403). contract
or legal representation, or in court ( A r t .
who has acted beyond ( A r t . 1408).
his powers; 1403).
(2) Those that do not
comply with the Statute
of Frauds as set forth in
t h i s n u m b e r. I n t h e
following cases an
agreement hereafter
made shall be
unenforceable 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 agreement that by
its terms is not to be
performed within a year
from the making thereof;
(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, 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

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 Defective What are these Status Ratificati Nature of Prescript
Contract contracts? on action ion

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

Inexistent cause, object or purpose from the be ratified action or does not
is contrary to law, morals, v e r y ( A r t . collateral prescribe
good customs, public beginnin 1409). action. It (Art.
order or public policy; g (Art. may be 1410.
(2) Those which are 1409). It brought by
absolutely simulated or produce 3rd
fictitious; s no persons
(3) Those whose effect. whose
cause or object did not interests
exist at the time of the are
transaction; affected.
(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 (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
condominium 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,
considering 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 situation? (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-

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