Business Law 1A - Module I

BUSINESS LAW 1A:
Business Transactions
DESCRIPTION OF THE COURSE

This course is a study of the pertinent provisions of different laws governing
business transactions.
SCOPE OF THE COURSE

The course in Business Law 1 consists of two modules, namely:
Module I Obligations and Contracts
Module II Sales, Agency, Credit Transactions and Negotiable Instruments
OBJECTIVES OF THE COURSE

After completing this course on Business Law, you will be able to:
1. appreciate the importance of having a workable knowledge of obligations and
contracts in general, of the different kinds of obligations and contracts, as well
as the modes of extinguishing obligations;
2. describe the nature of a contract of sale;
3. compare the obligations of the vendor and the vendee;
4. state the nature of a contract of agency;
5. identify the obligations of the principal as against the agent;
6. explain the different modes of extinguishing agency;
7. explain the different kinds of credit transactions;
8. make and/or draw a negotiable instrument, either a promissory note or bill of
exchange;
9. tell the rights and liabilities of parties in a negotiable instrument;
10. know the incidents in the life of negotiable instrument; and
11. determine when an instrument is dishonored and when it is discharged.
SUGGESTED READINGS
Castellanes, Emilio D. Obligations and Contracts. Manila: GIC Enterprises & Co., Inc.,
1982.
Civil Code of the Philippines. Manila: Bureau of Printing.
Civil Code of the Philippines with the Child and Youth Welfare Code. Manila: Rex
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Editorial Staff, Rex Printing Co., Inc., 1975.
Leon, Hector S. de. Comments and Cases on Credit Transactions. Manila: Rex Book
Store, 1984.
Leon, Hector S. de. The Law on Obligations and Contracts. Manila: Rex Book Store,
1989.
Manansala, Manuel M. Partnership, Agency and Trust. Manila: Premium Book Store,
1991.
Manansala, Manuel M. and Noel A. Ramayrat. Negotiable Instruments Law. Manila:
National Book Store, Inc., 1987.
Padilla, Ambrosio. Agency – Text and Cases. Manila: National Book Store, Inc., 1986.
Paras, Edgardo and Gloria Paras. Civil Code of the Philippines: Annotated. Manila: Rex
Bookstore, 1995.
Note that the internet resources cited in this module were accessed
from June to August 2013.
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BUSINESS LAW 1A:
MODULE I: OBLIGATIONS AND CONTRACTS
SCOPE OF THE MODULE

This module consists of three lessons, as follows:
Lesson 1 Meaning, Sources, and Classifications of Obligations
Lesson 2 Modes of Extinguishment of Obligations
Lesson 3 Nature, Characteristics, and Kinds of Contracts
OVERVIEW OF THE MODULE

Obligations and contracts in the world of modern business can vary depending on
the people involved. A business contract or obligation can be as simple as a vocal or a
written promise between two parties or can be as complex an entity as is found when
someone purchases a house or a car. Obligations are agreements to which someone
commits himself or for which someone has taken responsibility.
Contracts, generally speaking, tend to carry more weight and are usually deemed
more official than a mere obligation, however, as a contract typically involves lengthy
paperwork that each interested party has signed. When a contract is signed and agreed
upon, some obligations are required. It is the obligation of the person signing the
contract to honor the contract. If you break the contract, you have also broken the
obligation to uphold the contract. Requirements included in the contract are considered
obligations and sometimes are as important as the full contract document itself.
It is commonplace when signing a contract to employ a licensed notary to oversee
the agreement or pact taking place. It is the notary's responsibility to make sure that
both parties have come of their own free will to engage in such a contractually binding
document. That is to say, notaries make sure that everything starts out on the right foot
with fairness remaining paramount. Notaries are usually lawyers, or someone extremely
well-versed in legal proceedings and jargon, who oversee document signings and are
also able to legally administer and witness oaths and affirmations. In the United States
and in the Philippines, notaries are listed under the title "notary public" and can be hired
for a nominal fee for many common law agreements, contracts and affirmed obligations.
It is important to emphasize that contracts and obligations take many varied forms
and that not all are relegated to the world of law and business. For instance, contracts
and obligations also exist between lovers, friends and between parents and their
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children.1
This module covers the most pertinent provisions of the Civil Code of the Philippines
on “Obligations and Contracts”. It discusses the meaning of obligation and its requisites;
kinds and modes of extinguishing obligations; meaning of contract and its essential
requisites; and the characteristics and kinds of contracts.
OBJECTIVES OF THE MODULE

After completing this module on obligations and contracts, you will be able to:
1. convey the meaning of obligation and contract;
2. identify the requisites of both obligations and contract;
3. name the sources of obligations;
4. differentiate the different kinds of obligations;
5. tell the various modes of extinguishing obligations;
6. recite the characteristics of contract; and
7. enumerate and discuss the different kinds of contracts
1 http://www.reference.com/motif/business/obligations-and-contracts
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BUSINESS LAW 1A:
MODULE I, LESSON 1:
MEANING, SOURCES, AND CLASSIFICATIONS OF
OBLIGATIONS
LESSON OBJECTIVES:
After studying this lesson on meaning, sources, and classifications of obligations,
you will be able to:
1. define the meaning of obligations;
2. list down the essential requisites of obligations;
3. identify the different sources of obligations;
4. identify and describe the principal kinds of obligations; and
5. distinguish each kind of obligation from the others.
INTRODUCTION
Obligations, in general, may either be civil or natural.

Article 1423 of the New Civil Code of the Philippines or Republic Act 386, classifies
obligations into civil or natural. "Civil obligations are a right of action to compel their
performance. Natural obligations, not being based on positive law but on equity and
natural law, do not grant a right of action to enforce their performance, but after
voluntary fulfillment by the obligor, they authorize the retention of what has been
delivered or rendered by reason thereof."
Civil Obligations are based on positive law while Natural Obligations are based
on equity and natural law. A Civil Obligation may be enforced by court action while a
Natural Obligation cannot be compelled by court action but depends on the conscience
of the debtor. Under Civil Obligations, the rights and duties are recognized and enforced
by law (e.g. contract). While under Natural Obligations, the rights and duties are
recognized but not enforced by law (e.g. wager).2
The discussions in this module are on civil obligations. Let it be understood,

therefore, that the obligations referred to in this material are civil obligations
unless otherwise specified.
2 http://en.jurispedia.org/index.php/Introduction_to_the_law_of_contract_(za)#Origin:
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MEANING OF OBLIGATION
The Origin of the Word.3

obligation (n.)
c.1300, from Old French obligacion "obligation, duty, responsibility" (early 13c.)
and directly from Latin obligationem (nominative obligatio) "an engaging or
pledging," literally "a binding" (but rarely used in this sense), noun of action from
past participle stem of obligare (see oblige). The notion is of binding with
promises or by law or duty.
obligate (v.)
1540s, "to bind, connect;" 1660s, "to put under moral obligation," back-formation
from obligation, or else from Latin obligatus, past participle of obligare. Oblige,
with which it has been confused since late 17c., means "to do one a favor."
Related: Obligated; obligating.
oblige (v.)
c.1300, "to bind by oath," from Old French obligier "engage one's faith, commit
(oneself), pledge" (13c.), from Latin obligare "to bind, bind up, bandage,"
figuratively "put under obligation," from ob "to" (see ob-) + ligare "to bind," from
PIE root *leig- "to bind" (see ligament). Main modern meaning "to make
(someone) indebted by conferring a benefit or kindness" is from 1560s. Related:
obliged; obliging.
Modern Definition.4
Merriam-Webster defines “obligation” as:
1. the action of obligating oneself to a course of action (as by a promise or vow)
2. a. something (as a formal contract, a promise, or the demands of conscience
or custom) that obligates one to a course of action
b. a debt security (as a mortgage or corporate bond)
c. a commitment (as by a government) to pay a particular sum of money;
d: an amount owed under such an obligation <unable to meet its obligations,
the company went into bankruptcy>
3. a. a condition or feeling of being obligated
3 http://www.etymonline.com/
4 http://www.merriam-webster.com/dictionary/obligation
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b. a debt of gratitude
4. something one is bound to do: duty, responsibility
“Obligation” in the context of our study.

“An obligation is a juridical necessity to give, to do or not to do.” (Article 1156)
An obligation is a tie or a bond that is recognized by law. By recognition of law, a
person is bound in favor of another to render something: to give, to do, or not to do. As
a rule, in case a party fails to comply with his obligation, the aggrieved or prejudiced
party can sue him in court to enforce fulfillment of the obligation or, in default thereof,
recover the economic value it represents.
In its general and most extensive sense, obligation is synonymous with duty. In a
more technical meaning, it is a tie which binds us to pay or to do something agreeably
to the laws and customs of the country in which the obligation is made. 5
THE ELEMENTS OR REQUISITES OF OBLIGATION
1. A passive subject (called debtor or obligor): the person who is bound to the
fulfillment of the obligation. (Obligor: a person who is bound to another; one who binds
oneself to another by contract or legal agreement; the person who has the obligation.)
2. An active subject (called creditor or obligee): the person who is entitled to
demand the fulfillment of the obligation. (Obligee: a person in whose favor an obligation,
contract, or bond is created; a person who is the recipient of the subject matter of the obligation.)
3. Object or prestation: subject matter of the obligation; that which the debtor is
supposed to perform, which may consist of giving something, doing a certain act,
or not doing a certain act. Obligations to give are called real obligations while
obligations to do or not to do are personal obligations. (Prestation: a payment in
money or in services; a duty to do or not do something in fulfillment of an obligation, or the
performance of such a duty.)
4. A juridical or legal tie: the vinculum; the efficient cause that binds or connects
the parties; that which binds the parties to the obligation and to each other. This
could be determined by looking into the source of the obligation. (Vinculum: a
unifying bond.)
If you secured a loan from your co-employee, payable in thirty (30) days and covered by a
promissory note, you would be the Obligor while your co-employee would be the Obligee. The
Prestation is the payment of the loan and the Vinculum is promissory note.
5 http://www.juridicaldictionary.com/Obligation.htm
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SOURCES OF OBLIGATIONS
REPUBLIC ACT 386: THE NEW CIVIL CODE

BOOK IV: Obligations and Contracts
TITLE I: Obligations
CHAPTER 1: General Provisions
Article 1157.
Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts.
Article 1158.
Obligations derived from law are not presumed. Only those expressly determined in this Code or
in special laws are demandable, and shall be regulated by the precepts of the law which
establishes them; and as to what has not been foreseen, by the provisions of this Book.
Article 1159.
Obligations arising from contracts have the force of law between the contracting parties and
should be complied with in good faith.
Article 1160.
Obligations derived from quasi-contracts shall be subject to the provisions of Chapter 1, Title
XVII, of this Book.
Article 1161.
Civil obligations arising from criminal offenses shall be governed by the penal laws, subject to
the provisions of article 2177, and of the pertinent provisions of Chapter 2, Preliminary Title, on
Human Relations, and of Title XVIII of this Book, regulating damages.
Article 1162.
Obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2, Title
XVII of this Book, and by special laws.
Actual text from R.A. 386 quoted herein are for your reference only. You are not
expected to commit to memory the Section and Article numbers included herein.
Our objective is to understand the spirit of the law and its application.
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OBLIGATIONS DERIVED FROM LAW ARE NOT PRESUMED.
Obligations derived from law are not presumed. Only those expressly determined in
this Code or in special laws are demandable, and shall be regulated by the precepts of
the law which establishes them; and as to what has not been foreseen, by the
provisions of this Book. (Article 1158)
For an obligation derived from law to be demandable, a law must expressly say so
and the elements of such an obligation must be clearly stated in a law.
1. The reciprocal obligation of husband and wife to support each other is expressly
stated in Article 291 of the New Civil Code.
2. The employer’s obligation to pay his employees the minimum wage is expressly
stated in the Minimum Wage Law (Republic Act 6727).
3. A taxpayer’s obligation to pay his taxes is mandated by the National Internal
Revenue Code of the Philippine or the Tax Reform Act of 1997 (Republic Act
8424 as amended)
4. A qualified voter must register and vote as required by Section 4 of the Omnibus
Election Code of the Philippines.
5. An insurance corporation is obliged to indemnify the insured against loss,
damage or liability per Section 185 of the Insurance Code of the Philippines.
OBLIGATIONS ARISING FROM CONTRACTS HAVE THE FORCE OF LAW.

TITLE II: CONTRACTS
Article 1305.
A contract is a meeting of minds between two persons whereby one binds himself, with
respect to the other, to give something or to render some service.
Article 1306.
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.
Article 1308.
The contract must bind both contracting parties; its validity or compliance cannot be left
to the will of one of them.
Article 1311.
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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.
Article 1315.
Contracts are perfected by mere consent, and from that moment the parties are bound not
only to the fulfillment 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.
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. Hence, a
contract necessarily gives rise to an obligation or to several obligations.
A contract is an agreement, based on consensus between legal subjects with
contractual capacity, which is legal, physically possible and complies with the
prescribed formalities and which is reached with the intention of creating a legal
obligation with resultant rights and duties.
The following are requisites to a contract:
1. Consensus: The parties must reach conscious agreement, with a genuine
concurrent intention.
2. Contractual capacity: The parties must be legally capable of concluding a
binding contract.
3. Legality: The contract must be legal and may not contradict any statutory or
common law rule.
4. Physical possibility: The performance must be determinable and possible at
time of conclusion.
5. Formalities: The contract must abide by any formalities set by law or by the
parties themselves.6
Obligations arising from contracts have the force and effect of law between the
contracting parties and should be complied with in good faith. Indeed, the contract or
agreement is the law between contracting parties.
While contracts have force of law, Article 1306 of the New Civil Code ensures that
contracts cannot be above the law: “provided they are not contrary to law, morals, good
customs, public order, or public policy.”
6 http://en.jurispedia.org/index.php/Introduction_to_the_law_of_contract_(za)#Sources_of_obligations:
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Instance of obligations arising from contracts:
1. the obligation of the seller (vendor) to transfer the ownership of, and to
deliver, a determinate thing (object or subject matter) in a contract of sale;
2. the obligation of the insured to pay the premium in a contract of insurance;
3. the obligation of the lessee to pay the required or agreed rent in a contract of
lease;
4. the obligation of the borrower (debtor) to pay the principal and the agreed
interest in a contract of loan;
5. the obligation of the principal to pay his agent the agreed commission in a
contract of agency.
QUASI-CONTRACTS ARE EXTRA-CONTRACTUAL OBLIGATIONS.

TITLE XVII: EXTRA-CONTRACTUAL OBLIGATIONS
CHAPTER 1: Quasi-contracts
Article 2142.
Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-
contract to the end that no one shall be unjustly enriched or benefited at the expense of
another.
Article 2143.
The provisions for quasi-contracts in this Chapter do not exclude other quasi-contracts
which may come within the purview of the preceding article.
SECTION 1: Negotiorum Gestio
Article 2144.
Whoever voluntarily takes charge of the agency or management of the business or
property of another, without any power from the latter, is obliged to continue the same
until the termination of the affair and its incidents, or to require the person concerned to
substitute him, if the owner is in a position to do so.
SECTION 2: Solutio Indebiti
Article 2154.
If something is received when there is no right to demand it, and it was unduly delivered
through mistake, the obligation to return it arises.
A quasi-contract is a court's determination of an obligation of one party to another

where no actual contract exists. It is based on the parties' conduct, mutual relationship,
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and/or on the possibility that one would be unjustly enriched at the expense of the other.
In strict legal terms a quasi-contract does not constitute a formal contract, but is a legal
remedy that allows a plaintiff to recover an award or benefit conferred on the
defendant.7 The end of a quasi-contract is to ensure that no one shall be unjustly
enriched or benefitted at the expense of another.
To understand further the concept of quasi-contracts, let us take a look at some
definitions and examples. Note certain commonalities in the following definitions:
 imposed by law; a duty is imposed; a result of a court order; a legal substitute;
 to prevent unjust enrichment or injustice; to keep one party from becoming
unjustly enriched to the detriment of the other party; to create an obligation upon
a non-contracting party to avoid injustice
A quasi-contract, or an implied-in-law contract is a contract in which no actual

agreement between the parties occurred, but a duty is imposed to prevent
injustice. The prevention of unjustness is its fundamental aspect.
In contracts, consent produces the obligation, but in quasi-contracts no consent
is required, and the obligation arises from the law or natural equity.
An oft-quoted example of a quasi-contract is the case of a man who was hit
unconscious by a car and was helped by a doctor for an hour. The injured man
did not ask for help and did not do anything from which we could imply a contract
in fact. But he did receive valuable and necessary professional services, and if
he does not pay the doctor, then he would be unjustly enriched at the expense of
the doctor.8
An obligation imposed by law to prevent unjust enrichment. Also called a contract

implied in law or a constructive contract, a quasi-contract may be presumed by a
court in the absence of a true contract, but not where a contract - either express
or implied in fact - covering the same subject matter already exists.
Because a quasi-contract is not a true contract, mutual assent is not necessary
and a court may impose an obligation without regard to the intent of the parties.
The remedy is typically restitution or recovery under a theory of quantum meruit.
Liability is determined on a case-by-case basis.9
7 http://www.businessdictionary.com/definition/quasi-contract.html
8 http://philippinelaw.info/encyclopedia/implied-in-law-contract.html
9 http://www.law.cornell.edu/wex/quasi_contract_or_quasi-contract
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There are two principal kinds of quasi-contract.
1. Negotiorum gestio involves voluntary management or administration by a
person of another’s abandoned business or property of another without any
authority or power from the owner of the property or business under
management (Article 2144: Whoever voluntarily takes charge of the agency or
management of the business or property of another, without any power from the
latter, is obliged to continue the same until the termination of the affair and its
incidents, or to require the person concerned to substitute him, if the owner is in
a position to do so).
Although the management or administration may not have been expressly
ratified, the owner of the property or business who enjoys the advantages of the
same shall be liable for obligations incurred in his interest, and shall reimburse
the officious manager for the necessary and useful expenses and for the
damages which the latter may have suffered in the performance of his duties.
Example: Victor, a wealthy landowner, suddenly left for abroad leaving his
livestock farm unattended. Ramon, a neighbor of Victor, managed the farm
thereby incurring expenses. When Victor returns, he has the obligation to
reimburse Ramon for the expenses incurred by him and to pay him for his
services. It is based on the principle that no one shall enrich himself at the
expense of another.10
2. Solutio indebiti involves payment by mistake. Article 2154 embodies the
concept “solutio indebiti” which arises when something is delivered through
mistake to a person who has no right to demand it. It obligates the latter to return
what has been received through mistake. Solutio indebiti has two indispensable
requisites: first, that something has been unduly delivered through mistake; and
second, that something was received when there was no right to demand it.
(Metropolitan Bank & Trust Company vs. Absolute Management Corporation;
G.R. No. 170498. January 9, 2013).11
An example is when the bank teller credited to your savings account an amount
more than what you have actually deposited. Admittedly, the bank erred in
crediting said amount to your account. However, by law, you have the obligation
to return said amount. Again, this is based on the principle that no one shall
enrich himself at the expense of another.
However, if a person accepts an undue payment in bad faith, he may be required
to pay legal interest if a sum or money is involved, or shall be liable for fruits
received or which should have been received if the thing produces fruits. He shall
10 Jojo Mendoza. http://www.slideshare.net/jojoisanan_mendoza/jojo-obligation-and-contracts-ppt

11 http://lexoterica.wordpress.com/2013/02/22/january-2013-philippine-supreme-court-decisions-on-civil-law/
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furthermore be answerable for any loss or impairment of the thing from any
cause and for damages to the person who delivered the thing until it is
recovered.
The concept of quasi-contracts can be of major interest to many for it seems
contrary to common sense and to ordinary life experience. The man on the street would
argue against quasi-contract by saying: “I did not consent to that, so why should I be
liable?” However, the law is clear on its intent to protect the interest of the people by
ensuring that “no one shall enrich himself at the expense of another.”
CIVIL OBLIGATIONS ARISING FROM CRIMINAL OFFENSES SHALL BE

GOVERNED BY THE PENAL LAWS.
Civil obligations arising from criminal offenses shall be governed by the penal laws,
subject to the provisions of Article 2177, and of the pertinent provisions of Chapter 2,
Preliminary Title, on Human Relations, and of Title XVIII of this Book, regulating
damages. (Article 1161)
Criminal offenses or crimes or delicts are those acts or omissions punishable by
law. While a criminal act is punishable by law, it also gives rise to a civil liability because
it caused damage to a person.
The civil liability of the offender (accused or defendant in a criminal case) if
convicted by the court of justice may be any of the following:
1. restitution – the return of the stolen goods or things;
2. reparation – the equivalent value of the stolen goods or things if the latter
could not be returned; and
3. indemnification as a result of the wrongful acts or omission like moral
damages.
Illustration: Mario was convicted and sentenced to imprisonment by the Court for the
crime of theft, the gold wrist watch of Rito. In addition to whatever penalty that the Court
may impose, Mario may also be ordered to return (restitution) the gold wrist watch to
Rito. If restitution is no longer possible, Mario shall be required to pay the value
(reparation) of the gold wrist watch. In addition to either restitution or reparation, Mario
shall also pay for damages (indemnification) suffered by Rito.12
Before going further, let us take a look into moral damages.
“Moral damages include physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation, and similar
injury. Though incapable of pecuniary computation, moral damages may be recovered if
12 Mendoza
14
they are the proximate result of the defendant's wrongful act or omission. An award for
moral damages requires the confluence of the following conditions: first, there must be
an injury, whether physical, mental or psychological, clearly sustained by the claimant;
second, there must be culpable act or omission factually established; third, the wrongful
act or omission of the defendant is the proximate cause of the injury sustained by the
claimant; and fourth, the award of damages is predicated on any of the cases stated in
Articles 2219 and 2220.”13
Moral damages may be recovered in the following cases (Article 2219)
1. A criminal offense resulting in physical injuries;
2. Quasi-delicts causing physical injuries;
3. Seduction, abduction, rape, or other lascivious acts;
4. Adultery or concubinage;
5. Illegal or arbitrary detention or arrest;
6. Illegal search;
7. Libel, slander or any other form of defamation;
8. Malicious prosecution;
9. Acts mentioned in Article 309 of the New Civil Code;
10. Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.
“To be recoverable, moral damages must be capable of proof and must be actually
proved with a reasonable degree of certainty. Courts cannot simply rely on speculation,
conjecture or guesswork in determining the fact and amount of damages. Allegations do
not suffice, for they are not proof of the facts alleged.”14
“Moral damages are not intended to enrich the complainant at the expense of the
defendant. Rather, these are awarded only to enable the injured party to obtain ‘means,
diversions or amusements’ that will serve to alleviate the moral suffering that resulted by
reason of the defendant’s culpable action. The purpose of such damages is essentially
indemnity or reparation, not punishment or correction. In other words, the award thereof
is aimed at a restoration within the limits of the possible, of the spiritual status quo ante;
therefore, it must always reasonably approximate the extent of injury and be
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proportional to the wrong committed.”
13 Atty. Manuel J. Laserna Jr., http://mannylasernajr.blogspot.com/2011/10/moral-damages-gr-no-185833.html

14 http://lexoterica.wordpress.com/2012/09/12/august-2012-philippine-supreme-court-decisions-on-civil-law/
15 Laserna, http://attylaserna.blogspot.com/2012/02/moral-damages-purpose-of-gr-no-189647.html
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OBLIGATIONS DERIVED FROM QUASI-DELICTS SHALL BE GOVERNED BY THE
PROVISIONS OF CHAPTER 2, TITLE XVII OF THIS BOOK, AND BY SPECIAL
LAWS. (ARTICLE 1162)
Quasi-delict is a French legal term used in some civil law jurisdictions. It refers to a
negligent act or omission which causes harm or damage to the person or property of
another, and thus exposes a person to civil liability as if the act or omission was
intentional. It is a residuary category of private wrongs, characterized by either vicarious
or strict liability. In quasi delicts the law creates a liability though the defendant may not
in fact be to blame.
A quasi-delict is a wrong which occurs unintentionally as a result of something like
negligence where as a true delict requires intentional action. Thus, someone who
commits murder has committed a delict, while manslaughter would be an example of a
quasi-delict.16
Key words and phrases to note under this definition are: negligent act or omission,
harm or damage to person or property; wrong which occurs unintentionally; a result of
negligence.
For a person to be liable for quasi-delict, there must be a direct relation of cause and
effect between the act or the omission and the damage or the injury caused. Take for
example the case of Pedro who drives his car negligently and hits Jose who is walking
on the sidewalk, inflicting upon him physical injuries. Pedro, then, becomes liable for
damages based on quasi-delict.17
Quasi-delict extends beyond one’s own negligent acts or omissions, but also for
those of persons for whom one is responsible. Some of the situations contemplated by
the Civil Code are as follows (Article 2180):
1. the father and, in case of his death or incapacity, the mother, are responsible for
damages caused by the minor children who live in their company;
2. guardians are liable for damages caused by the minors or incapacitated persons
who are under their authority and live in their company;
3. the owners and managers of establishments or enterprises are responsible for
damages caused by their employees in the service of the entities in which the
latter are employed or on the occasion of their functions;
4. employers shall be liable for the damages caused by their employees and
household helpers acting within the scope of their assigned tasks, even though
the former are not engaged in any business or industry;
5. teachers or heads of establishment of arts and trades shall be liable for damages
16 http://definitions.uslegal.com/q/quasi-delict/
17 Mendoza
16
caused by their pupils and students or apprentices, so long as they remain in
their custody.
The only way for the aforementioned persons to escape from the responsibility
attached to their positions is for them to prove that they observed all the diligence of a
“good father of a family” to prevent damage.
CLASSIFICATIONS OF OBLIGATIONS
On order to fully understand the different classifications of obligations, let us

backtrack a little bit and recall the different requisites of obligations. To recall, there are
two subjects of obligations: the PASSIVE and the ACTIVE subjects. To distinguish, the
passive subject is the person who is bound to the fulfillment of the obligation while the
active subject is the person who is entitled to demand the fulfillment of the obligation.
One other requisite of obligations is the OBJECT or the prestation. This is that which
the debtor (the passive subject) is supposed to perform, which may consist of giving
something, doing a certain act, or not doing a certain act.
Under the Civil Code, there are six different kinds of obligations which may be
classified as follows:
According to the demandability of the obligation (Articles 1193 to 1198):
1. Pure
2. Conditional
3. With a period
According to the plurality of the object (Articles 1199 to 1206):
1. Alternative
2. Facultative
According to the plurality of the subject (Articles 1207 to 1222):
1. Joint
2. Solidary
According to performance or fulfillment of the obligation (Articles 1223 to 1225):
1. Divisible
2. Indivisible
According to sanctions for breach (Articles 1226 to 1230):
1. With penal clause
2. Without penal clause
17
Pure and Conditional Obligations.
PURE OBLIGATIONS are those whose effectivity or extinguishment does not
depend upon the fulfillment or non-fulfillment of a condition or upon the expiration of a
term or period. It is characterized by immediate demandability. 18 On the other hand,
CONDITIONAL OBLIGATIONS are those whose effectivity or extinguishment depends
upon a condition. A condition is a future and uncertain event, or upon a past event
unknown to the parties upon the happening of which the obligation subject to it either
becomes effective or is extinguished. Clearly, this is the opposite of pure obligation.
Example:
Ferdimarc obliged himself to pay Christian P 500.00. The obligation of Ferdimarc
is demandable at any time since it has not set a date for its fulfillment and there
are no conditions imposed.
In considering Conditional Obligations, it is also necessary to understand the two
principal kinds of conditions. They are:
1. Suspensive Condition – The obligation shall start to exist or shall be demandable
once an agreed event or condition shall start to exist.
Example:
Ferdimarc obliged himself to pay Christian P 5,000.00 if Christian graduates from
college. For as long as Christian does not graduate from college, Ferdimarc has
no obligation to pay him the agreed amount. However, once Christian graduates
from college, Ferdimarc has now the obligation, which is immediately
demandable, to pay him the agreed amount.
2. Resolutory Condition – The obligation ceases to exist or shall be extinguished
once the agreed event shall commence or an agreed condition is met.
Example:
Ferdimarc binds himself to give P 500.00 monthly allowance to Christian until
Christian graduates from college. Every month, for as long as Christian is still in
college, Ferdimarc has the obligation to give him a P 500.00 allowance.
However, once Christian graduates from college, agreed condition or event,
Ferdimarc shall no longer have the obligation to give him the monthly allowance
or his obligation shall cease to exist or shall be extinguished.
Obligations with a period.

These obligations have a “schedule” or a term or period. The obligation shall start to
exist or shall cease to exist (be extinguished) only when the agreed time comes – the
“schedule,” term or period. The “period” is a certain day or time in the future which has
18 http://www.scribd.com/doc/4068616/Obligations-and-Contracts
18
been fixed.
Example:
Marita obliged herself to pay Ana P1,000.00 on January 1 next year. Marita's
obligation to pay Ana will arise only on January 1 next year.
Like conditions, periods are also either suspensive or resolutory. In an obligation
subject to suspensive period, the obligation arises only upon the arrival of the period, as
in the example above.
Generally, in an obligation with a suspensive period, the period is for the benefit of
both parties. This means that the debtor cannot be compelled to pay, and the creditor
cannot be compelled to accept payment, before the arrival of the period.
In the following instances, however, the debtor shall lose his right to avail of the
period, which means that the period is disregarded and the obligation becomes
immediately demandable:
1. when after the obligation has been contracted, he become insolvent, unless he
gives a guarantee or security for the debt;
2. when he does not furnish 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 he violates any undertaking, in consideration of which the creditor agreed
to the period; and
5. when the debtor attempts to abscond.
In the case of a resolutory period the obligation shall start and shall be extinguished
upon arrival of the agreed period(s).
Example:
Marita obliged herself to pay Ana a monthly allowance of P1,000 from January
until December of next year. Marita’s obligation to give Ana a P1,000 monthly
allowance is demandable starting January of next year and every month
thereafter. But the obligation will be terminated or extinguished after December of
next year.
Alternative and Facultative Obligations.

ALTERNATIVE OBLIGATIONS are those with several prestations which are due but
the complete fulfillment of one of them is sufficient.
As a general rule, it is the debtor who has the right to choose which among the
prestations agreed upon will be rendered to the creditor. The creditor shall have the
right to choose only if the right is expressly given to him. In either case, the choice
19
becomes effective only when communicated to the other party. Once the choice is
made and communicated to the other party, the obligation ceases to be alternative and
becomes a simple obligation to deliver that which has been chosen.
Example:
Brian obliged himself to give Christian either a bicycle or a pair of binoculars. The
two prestations are the giving or delivery of (a) a bicycle or (b) the binoculars.
Here, the right of choice is given to Brian, unless the right is expressly given to
Christian.
FACULTATIVE OBLIGATIONS are those where only one prestation has been
agreed upon but the obligor may render another in substitution. Unless substitution is
made, however, it is the principal prestation that is due. Once substitution is made, the
obligation becomes a simple obligation to deliver the substitute. Unlike alternative
obligations, the right to make the substitution is given only to the debtor.
Example:
Brian obliged himself to give Christian his bicycle, but Brian may substitute it with
his binoculars. Here, what is due is just the bicycle. If Brian substitutes it with the
binoculars, then the bicycle is not anymore due. It becomes a simple obligation to
deliver the binoculars.
Joint and Solidary Obligations.

JOINT OBLIGATIONS are those with several debtors and/or creditors among whom
the obligation (debt or credit) is divided, the credits or debts considered distinct from
one another. It is one where the whole obligation is to be fulfilled proportionately by the
different debtors and/or demanded proportionately by the different creditors.
Unless the law or the nature or the wording of the obligation provides for a different
sharing, the credit or debt shall be presumed to be equally divided among the creditors
or debtors. Each of the creditors can demand only his share of the credit and each of
the debtors can be compelled to pay only his share of the debt.
Examples:
(a) Mark and David are jointly to pay Dan P1,000. Here, Mark is liable to Dan for
P 500.00 only while David is liable to Dan for the other P500.00
(b) Mark is liable for P1,000.00 to David and Dan, joint creditors. Here, David
may collect only P 500.00 from Mark. Dan is entitled to the other P 500.00.
(c) Mark and David are jointly liable to Dan and Peter, joint creditors, for
P1,000.00. Mark is liable for P 500.00 to Dan and Peter at P 250.00 each,
while the other P 500.00 will be paid by David to Dan and Peter at P250.00
each. Or, Dan collects P500.00 form Mark and David at P250.00 each, while
Peter collects the other P 500 from Mark and David at P 250.00 each.
20
SOLIDARY OBLIGATIONS are those where there are two or more creditors and/or
two or more debtors in one and the same obligation where each one of the former has a
right to demand, or that each one of the latter is bound to render entire compliance of
the prestation.
The concurrence of two or more creditors and/or two or more debtors does not
necessarily imply solidarity. There is a solidary liability only when the obligation
expressly so states, or when the law or the nature of the obligation requires solidarity.
Examples:
(a) Brian, Ferdimarc, and Christian solidary obligated themselves to give Angelie
P 600.00. Under this case, Angelie may demand from Brian or Ferdimarc or
Christian the payment of P600.00. Angelie may, on the other hand, demand
the P 600.00 from Brian and Ferdimarc or from Brian and Christian or from
Ferdimarc and Christian. Angelie may demand the P 600.00 from Brian,
Ferdimarc and Christian
(b) Angelie obligated herself to give Brian, Ferdimarc, and Christian, solidary
creditors, P 600.00. In this case, Brian, Ferdimarc and Christian or any one of
them can demand from Angelie the entire sum of P600.00.
(c) Brian, Ferdimarc and Christian solidarily obligated themselves to Manuel,
Leonida, and Angelie solidary creditors, P 600.00. In this case, any one
among Manuel, Leonida, and Angelie or a combination of any or all of them
may demand from any one among Brian, Ferdimarc, and Christian or a
combination or all of them the entire sum of P 600.00.
As among the solidary co-debtors or among the solidary creditors, however, the
relationship is simply joint. So that if a solidary co-debtor pays the whole obligation, he
is entitled to seek reimbursement from his co-debtors. On the part of the solidary
creditors, after one of the creditors collects the whole amount, he is liable to deliver to
his co-creditors their respective share in the credit. Ultimately, therefore, each of the
creditors is entitled to his share of the credit only; and each of the debtors shoulders
only his share of the debt.
Divisible and Indivisible Obligations.

DIVISIBLE OBLIGATIONS are those obligations which performed or delivered in
parts. When the obligation has for its object the execution of a certain number of days of
work, the accomplishment of work by metrical units, or other things which by their
nature are susceptible of partial performance, it shall be divisible.
Example:
Corazon obligated herself to deliver to Juliet 10 sacks of imported Japanese rice.
The obligation may be fulfilled by delivering one sack or so of rice at a time
INDIVISIBLE OBLIGATIONS are those obligations which must be delivered or
21
performed in full.
Obligations to give definite things, or those which are not susceptible of partial
performance, or those which although by nature are susceptible of partial performance
but are provided by law or by the parties to be performed or delivered in full, are
indivisible obligations.
Example:
Tomas obligated himself to deliver to Angel a Honda motorcycle. The motorcycle
cannot be delivered one motorcycle part at a time.
Obligations with Penal Clause.

These obligations contain an accessory undertaking to pay a previously stipulated
penalty in case of breach.
In an obligation with a penal clause, the penalty shall substitute the indemnity for
damages and the payment of interests in case of non-compliance, if there is no
stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to
pay the penalty or is guilty of fraud in the fulfillment of the obligation. The penalty may
be enforced only when it is demandable
Example:
Corazon obtains a loan of P20,000.00 from Juliet subject to the following
conditions:
1. The loan shall be paid 365 days from today;
2. The loan shall bear an interest of 4% per annum;
3. In case of non-payment at maturity, an additional interest of 7% for every
month of delay shall be imposed as penalty.
Here, letter ( 3 ) is the penal clause.
22
BUSINESS LAW 1A, Module 1, Lesson 1
SELF-PROGRESS CHECK TEST
Test I. Identification
_____ 1. An obligation which is susceptible or capable of partial fulfillment is
referred to as (___).
_____ 2. As a rule, the obligation to do, not to do or to give is enforceable in the
(___).
_____ 3. The object of subject matter of an obligation is referred to as (___).
_____ 4. Obligations arising from (___) cannot be presumed.
_____ 5. Payment by mistake is commonly referred to as (___).
_____ 6. Surrender of stolen goods/things by the offender is a form of civil liability
known as (___).
_____ 7. A (___) obligation is one the fulfillment of which does not depend upon a
future or uncertain event, or upon a past even unknown to the parties, and
is demandable at once.
_____ 8. Unless the obligation expressly so states, or when the law or the nature of
the obligation requires solidarity, the obligation is (___).
_____ 9. The prevailing law between the contracting parties is their (___).
_____ 10. As a rule, the obligation arising from (___) is demandable not only for
one's own acts or omissions, but also for those of persons for whom one is
responsible.
_____ 11. The party in an obligation who has the right to demand fulfillment of the
obligation is the (___).
_____ 12. Obligations to give are also called (___) obligations.
_____ 13. In alternative obligation the (___) has the right to choose which of the
prestations shall be fulfilled.
_____ 14. In obligations with a penal clause the (___) shall substitute the indemnity
for damages sustained.
_____ 15. An obligation subject to a (___) condition is not demandable unless the
condition is fulfilled.
23
Test II. True or False
_____ 1. In negotiorum gestio, the officious manager is with full authority from the
owner of the property or business under management.
_____ 2. In quasi-delict, there is the element of intent by a person to cause damage
to another by his act or omission.
_____ 3. Individual obligations are those obligations which are capable of partial
performance.
_____ 4. Husband and wife are not under obligation to mutually support each other.
_____ 5. The father and mother are responsible for the damages caused by the
minor children who live in their company.
_____ 6. Conditional obligation, as a rule, is demandable at once.
_____ 7. The payment of a realty tax by the property owner is an example of a
contractual obligation.
_____ 8. Acts or omissions punishable by law are called crimes of delicts.
_____ 9. An obligation is still enforceable even in the absence of the juridical or
legal tie
_____ 10. In alternative obligations, all prestations agreed upon are to be fulfilled.
_____ 11. If there are two or more debtors, the obligation is always solidary.
_____ 12. Juridical tie is a source of obligations.
_____ 13. Contracts always give rise to obligations.
_____ 14. Fulfillment of resolutory conditions extinguishes existing obligations.
_____ 15. In an obligation subject to a suspensive period, the debtor cannot be
compelled to pay but the creditor can be compelled to accept payment
before the arrival of the period.
24
BUSINESS LAW 1A:
MODULE I, LESSON 2:
MODES OF EXTINGUISHMENT OF OBLIGATIONS
LESSON OBJECTIVES:
After studying this lesson on modes of extinguishment of obligations, you will be able
to:
1. identify the different methods by which obligations are extinguished; and
2. determine how obligations are extinguished under each method of
extinguishing obligations.
PRINCIPAL MODES OF EXTINGUISHING OBLIGATIONS
According to Chapter 4, Article 1231 of the New Civil Code, the principal modes of
extinguishing obligations are as follows:
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 right of creditor and debtor;
5. by compensation; and
6. by novation.
Payment (Articles 1232 to 1261).

Payment is the delivery of money or the performance of an obligation. The act of the
debtor of offering to the creditor the thing or amount due is called tender of payment.
In order for payment to be valid, the following must be satisfied:
1. It must be made by the proper person – the debtor, a person who has an
interest in the obligation (like a guarantor) or by a person who has no interest
in the obligation but there is a stipulation that he can make payment.
The creditor, as a general rule, cannot be compelled to accept payment made
by a person, unless he is any of those three persons mentioned above. Of
course, if the creditor accepts payment by any other person, the obligation is
nevertheless extinguished.
2. The payment must be made to the proper person-- the creditor, his successor
in interest (like an heir or assigned), or any person authorized to receive it.
25
As a general rule, payment made to a person other than those mentioned
here is not valid, unless the debtor can prove that payment made to such third
person redounded to the benefit of the creditor. Such benefit to the creditor,
however, need not be proved in the following cases:
a. if after the payment, the third person acquires the creditor's right;
b. if the creditor ratifies the payment to the third person; and
c. if by the creditor's conduct the debtor has been led to believe that the
third person had authority to receive the payment.
3. The very prestation due must be complied with.
The creditor cannot be compelled to accept something which is different from
that which was agreed upon, although it may be of the same or greater value
than that which is due. In an obligation to do or not to do, an act or
forbearance cannot be substituted by another act or forbearance against the
obligee's or creditor's will.
The payment of debts in money shall be made in the currency which is legal
tender in the Philippines. The notes and coins issued and circulating in the
Philippines by the authority of the Central Bank of the Philippines are legal
tender and are the recognized currency and means of payment in the
Philippines.
However, the delivery of negotiable promissory notes, 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.
4. A debt shall not be understood to have been paid unless the thing or service
in which the obligation consists has been completely delivered or rendered.
As a general rule, the creditor cannot be compelled to accept partial payment
unless stipulated.
5. The payment must be made at the proper time – that is, when the obligation
is due. As a rule, if the obligation is one with a period, the creditor cannot be
compelled to accept payment before the arrival of the period.
6. Payment must be made at the proper place. If there is a place for payment
designated, then payment shall be made at such place. If there is no such
stipulation and what is due is a determinate thing, the place of payment shall
be the place where the thing was at the time of the constitution of the
obligation. If what is due is an indeterminate or generic thing and place of
payment is not specified, the obligation shall be made at the domicile of the
debtor.
26
If payment is made and accepted, then the obligation is extinguished. If payment is
not accepted despite a valid tender of payment, then the debtor may proceed with the
consignation of thing due in order that he may be released from his liability.
Consignation is the act of depositing the things or sum due at the disposal of
judicial authority (court of justice and equity) before whom the tender of payment is to
be proved, in a proper case, and the announcement of the consignation in other cases.
In order that the consignation of the thing or sum due may release the obligor (debtor), it
must first be announced to the persons interested in the fulfillment of the obligation. The
expenses of consignation, when properly made, shall be charged against the creditor. 19
Once the consignation has been duly made, the debtor may ask the judge to order
the cancellation of the obligation.
As a rule, there must be tender of payment first before consignation. However, the
debtor is released from responsibility by mere consignation (without a prior valid tender
of payment) of the thing or sum due in the following cases:
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.
Aside from consignation, there are also other forms of special payment, to wit.
1. Dation in payment, where property is alienated to the creditor in satisfaction of a
debt in money. It is to be governed by the law of sales. (Article 1245)
2. Payment by cession, where the debtor may cede or assign his property to his
creditors so that they may sell the same and the proceeds applied
proportionately to the debtor's obligations. This cession, unless there is
stipulation (agreement) to the contrary, shall only release the debtor from
responsibility for the net proceeds of the thing assigned. (Article 1255)
Loss of the thing due (Articles 1262 to 1269).

It is understood that the thing is lost when it perishes or goes out of commerce or
disappears in such a way that its existence is unknown or it cannot be recovered.
If the thing due is lost though the fault of the debtor, the debtor is definitely liable for
such loss.
On the other hand, if the thing is lost without the fault of the debtor, generally, he is
19 New Civil Code, Sub-Section 3, Articles 1256 to 1261
27
not liable unless:20
1. The law so provides, such as;
a. where the debtor has promised to deliver the same specific thing to two or
more persons who do not have the same interest;
b. where the obligation to deliver a specific thing arises from a crime; or
c. where the thing due is generic;
2. The nature of the obligation requires the assumption of risk;
3. A stipulation so provides;
4. The debtor contributed to the loss (Tan v. Inchausti & Co., G.R. No. L-6472,
Mar. 7, 1912);
5. The possessor is in bad faith (Art. 552);
6. The obligor is guilty of fraud, negligence or delay or if he contravened the
tenor of the obligation (Juan Nakpil v. United Construction Co., Inc. v. CA,
G.R. No. L-47851, Apr. 15, 1988).
The obligation having been extinguished by the loss of the thing, the creditor shall
have all the rights of action which the debtor may have against third persons by reason
of the loss.
Condonation or remission of the debt (Articles 1270 to 1274).

The term condonation simply means forgiving or overlooking while the term
remission is construed to mean releasing or discharging.
It must be emphasized that condonation or remission is essentially gratuitous and
requires the acceptance by the obligor. It may be made expressly or impliedly.
The following are the requisites of condonation:
1. It must be gratuitous (Article 752).
2. The parties must be capacitated (Article 735 and 738).
3. There is acceptance by the debtor (Article 745 to 747).
4. It must not be inofficious (Articles 752 and 771).
5. The formalities provided by law on donations must be complied with (Articles
725 to 773). and
6. There is an existing demandable debt otherwise there would be nothing to
condone.
20 http://www.batasnatin.com/law-library/civil-law/obligations-and-contracts/2340-act-of-god-fortuitous-event.html
28
Can there be a unilateral condonation?
No. Since it is a donation of an existing credit, considered a property right, in favor of
the debtor, it is required that the debtor gives his consent thereto by making an
acceptance. If there is no acceptance, there is no condonation. (Pineda, Obligations
and Contracts, 2000 ed, p. 267)21
Condonation or remission must observe the rules which govern inofficious
donations. Express condonation shall, furthermore, comply with the forms of donation.
(Articles 725 to 773)
Confusion or Merger of Rights (Articles 1275 to 1277).

An obligation, as a rule, is extinguished from the time the characters of creditor and
debtor, with respect to the same obligation are merged in the same person.
Requisites:22
1. It must take place between principal debtor and principal creditor only.
2. Merger must be clear and definite.
3. The obligation involved must be same & identical, one obligation only.
4. If reason for confusion ceases, the obligation is revived.
Compensation (Articles 1278 to 1290).

Compensation is the extinguishment in the concurrent amount of the obligations of
those persons who are reciprocally debtors and creditors of each other. It involves a
figurative operation of weighing two obligations simultaneously in order to extinguish
them to the extent in which the amount of one covered b the other.23
When does this mode of extinguishing obligation take place?
Article 1278.
Compensation shall take place when two persons, in their own right, are creditors and
debtors of each other.
What are the types of compensation?
Compensation may be legal, voluntary or judicial. Legal Compensation takes place by
operation of law while Voluntary Compensation takes place by agreement of the
parties. Judicial Compensation takes place upon order of a court in litigation.
Legal compensation takes place by operation of law, even though the debts may be
21 http://www.pinoylawyer.org/t680-condonation-remission-of-the-debt
22 http://www.pinoylawyer.org/t679-confusion-or-merger-of-rights
23 Paras
29
payable at different places, but there shall be an indemnity for expenses of exchange or
transport to the place of payment.
The requisites for legal compensation are not yet required in the case of voluntary
compensation. For as long as the parties agree to compensate one obligation against
another, voluntary compensation takes place.
What are the requisites of legal compensation?
Article 1279.
In order that compensation may be proper, it is necessary:
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.
Article 1280.
Notwithstanding the provisions of the preceding article, the guarantor may set up
compensation as regards what the creditor may owe the principal debtor.
Can compensation be partial?
Article 1281.
Compensation may be total or partial. When the two debts are of the same amount, there
is a total compensation.
When shall compensation not be proper?
Article 1287.
Compensation shall not be proper when one of the debts arises from a depositum or from
the obligations of a depositary or of a bailee in commodatum. (Also refer to Article 1935)
Neither can compensation be set up against a creditor who has a claim for support due by
gratuitous title, without prejudice to the provisions of Paragraph 2 of Article 301.
However, support in arrear may be compensated and renounced, and the right to demand
the same may be transmitted by onerous or gratuitous title.
Novation (Articles 1291 to 1304).

As a civil law concept, novation is the extinguishment of an obligation by the
substitution or change of the obligation by a subsequent one which terminates it, either
by changing its objects or principal conditions, or by substituting a new debtor in place
30
of the old one, or by subrogating a third person to the rights of the creditor.
Novation may be extinctive or modificatory. It is extinctive when an old obligation is
terminated by the creation of a new one that takes the place of the former; it is merely
modificatory when the old obligation subsists to the extent that it remains compatible
with the amendatory agreement.
Novation may either be express, when the new obligation declares in unequivocal
terms that the old obligation is extinguished, or implied, when the new obligation is on
every point incompatible with the old one. The test of incompatibility lies on whether the
two obligations can stand together, each one with its own independent existence.
For novation, as a mode of extinguishing or modifying an obligation, to apply, the
following requisites must concur:
1. There must be a previous valid obligation.
2. The parties concerned must agree to a new contract.
3. The old contract must be extinguished.
4. There must be a valid new contract.24
A novation may be made in three different ways which form three distinct kinds of
novations.
The first takes place without the intervention of any new person, where a debtor
contracts a new engagement with his creditor, in consideration of being liberated from
the former. This kind has no appropriate name and is called a novation generally.
The second is that which takes place by the intervention of a new debtor, where
another person becomes a debtor instead of a former debtor, and is accepted by the
creditor, who thereupon discharges the first debtor. The person thus rendering himself
debtor for another, who is in consequence discharged, is called expromissor; and this
kind of novation is called expromissio.
The third kind of novation takes place by the intervention of a new creditor where a
debtor, for the purpose of being discharged from his original creditor, by order of that
creditor, contracts some obligation in favor of a new creditor. There is also a particular
kind of novation called a delegation.
It is a settled principle of the common law, that a mere agreement to substitute any
other thing in lieu of the original obligation is void unless actually carried into execution
and accepted as satisfaction. No action can be maintained upon the new agreement,
nor can the agreement be pleaded as a bar to the original demand. But where an
agreement is entered into by deed, that deed gives, in itself, a substantive cause of
action and the giving such deed may be sufficient accord and satisfaction for a simple
contract debt.
24 http://lexoterica.wordpress.com/2010/09/08/august-2010-philippine-supreme-court-decisions-on-civil-law/
31
The general rule seems to be that if one indebted to another by simple contract
gives his creditor a promissory note, drawn by himself for the same sum, without any
new consideration, the new note shall not be deemed a satisfaction of the original debt
unless so intended and accepted by the creditor. But if he transfers the note he cannot
sue on the original contract as long as the note is out of his possession. 25
The rules that may be observed on novation are as follows.
1. In order that an obligation may be extinguished by substitution, it is imperative
that it be so declared in unequivocal terms, so that the old and the new
obligations are on every point incompatible with each other.
2. Novation which consists in substituting a new debtor in the place of the
original one may be made even without the knowledge or against the will of
the latter, but not without the consent of the creditor. The rights of the new
debtor shall be subject to the following conditions:
(a) the creditor is not bound to accept payment or performance by a third
person who has no interest in the fulfillment of the obligation, unless there
is a stipulation to the contrary; and
(b) whoever pays on behalf of the debtor without the knowledge or against
subrogation.
3. Subrogation of a third person in the rights of the creditor is either legal or
conventional. The former is not presumed, except in the following cases:
(a) when a creditor pays another creditor who is preferred even without the
debtor's knowledge;
(b) when a third person, not interested in the obligation, pays with the
expressed or tacit approval of the debtor;
(c) when, even without the knowledge of the debtor, a person interested in
the fulfillment of the obligation pays without prejudice to the effects of
confusion as to the latter's share.
4. Conventional subrogation must be clearly established in order that it may take
effect.
5. Conventional subrogation of a third person requires the consent of the original
parties and of the third person.
Novatio non praesumitur, or novation is never presumed, is a well-settled
principle. Consequently, that which arises from a purported modification in the terms
and conditions of the obligation must be clear and express. The burden of showing
clearly and unequivocally that novation has indeed taken place rests on the petitioner.
25 http://www.lectlaw.com/def2/n027.htm
32
_____ 1. (___) is the act on the part of the debtor of offering to the creditor the thing
or amount due.
_____ 2. The act of depositing the things or sum due at the disposal of judicial
authority is called (___).
_____ 3. Dation in payment is to be governed by the law of (___).
_____ 4. (___) is that mode of extinguishing obligations which takes place when
two persons, in their own right, are creditors and debtors of each other.
_____ 5. In law, the thing is considered (___) when it perishes, or goes out of
commerce, or disappears in such a way that its existence is unknown or it
cannot be recovered.
_____ 6. There is (___) or (___) of rights from the time the character of creditor and
debtor are merged in the same person.
_____ 7.
_____ 8. (___) is a mode of extinguishing obligations where the debtor may cede or
assign his property to his creditors so that the latter may sell the properties
and the proceeds thereof, applied to the obligation of the debtor.
_____ 9. The delivery of promissory notes or bills of exchange or other mercantile
documents shall produce the effect of payment only when they have been
(___), or when through the fault of the creditor they have been (___).
_____ 10.
33
_____ 1. As a rule, legal subrogation may be presumed.
_____ 2. There is no exception to the rule that the debtor may be released from
responsibility by mere consignation of the thing or sum due.
_____ 3. Payment by cession is governed by the law of sales.
_____ 4. Condonation or remission must observe the rules which govern inofficious
donations.
_____ 5. Support in arrears may be compensated and renounced.
_____ 6. The consent of the original parties is the only requirement in conventional
subrogation of a third person.
_____ 7. The expenses of consignation, when properly made, shall be charged
against the creditor.
_____ 8. Confusion does not extinguish a joint obligation except as regards the
share corresponding to the creditor or debtor in whom the two characters
of creditor and debtor concur.
_____ 9. The guarantor may set up compensation as regards what the creditor may
owe the principal debtor.
_____ 10. Novation, which consists of substituting a new debtor in place of the
original one, may be made even without the knowledge or against the will
of the latter, and without the consent of the creditor.
34
BUSINESS LAW 1A:
MODULE I, LESSON 3:
NATURE, CHARACTERISTICS, AND KINDS OF CONTRACTS
LESSON OBJECTIVES:
After studying this lesson on nature, characteristics, and kinds of contracts, you will
be able to:
1. define what contracts are;
2. list down essentials of contracts; and
3. note the different kinds of defective contracts.
THE NATURE AND CHARACTERISTICS OF CONTRACTS
In Lesson 1, we were given a view into the definition and nature of contracts in our
discussion on the sources of obligations. It would be worthwhile before we proceed that
we look back into the provisions of the New Civil Code on this topic.

TITLE II: CONTRACTS
Article 1305.
A contract is a meeting of minds between two persons whereby one binds himself, with
respect to the other, to give something or to render some service.
Article 1306.
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.
Article 1307.
Innominate contracts shall be regulated by the stipulations of the parties, by the
provisions of Titles I and II of this Book, by the rules governing the most analogous
nominate contracts, and by the customs of the place.
Article 1308.
The contract must bind both contracting parties; its validity or compliance cannot be left
to the will of one of them.
35
Article 1309.
The determination of the performance may be left to a third person, whose decision shall
not be binding until it has been made known to both contracting parties.
Article 1310.
The determination shall not be obligatory if it is evidently inequitable. In such case, the
courts shall decide what is equitable under the circumstances.
Article 1311.
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.
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.
Article 1312.
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.
Article 1313.
Creditors are protected in cases of contracts intended to defraud them.
Article 1314.
Any third person who induces another to violate his contract shall be liable for damages
to the other contracting party.
Article 1315.
Contracts are perfected by mere consent, and from that moment the parties are bound not
only to the fulfillment 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.
Article 1316.
Real contracts, such as deposit, pledge and commodatum, are not perfected until the
delivery of the object of the obligation.
Article 1317.
No one may contract in the name of another without being authorized by the latter, or
unless he has by law a right to represent him.
36
A contract entered into in the name of another by one who has no authority or legal
representation, or who has acted beyond his powers, shall be unenforceable, unless it is
ratified, expressly or impliedly, by the person on whose behalf it has been executed,
before it is revoked by the other contracting party.
A contract is an agreement, based on consensus between legal subjects with

contractual capacity, which is legal, physically possible and complies with the
prescribed formalities and which is reached with the intention of creating a legal
obligation with resultant rights and duties.
A well-known civilist in the person of Sanchez Roman, defines “contract” as a
“juridical convention manifested in legal form, by virtue of which one or more persons
bind themselves in favor of another or others, or reciprocally, to the fulfillment of a
prestation to give, to do, or not to do.”
A contract may be oral (by word or mouth), in writing (legal form), and partly oral and
partly in writing. This is what is termed as “forms” or “prescribed formalities” of contract.
The New Civil Code lists only three requisites to a contract, to wit:
Article 1318.
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, the purpose of the contract.
Illustration:
Jose is the owner of a residential house which he agrees to lease to Mario for a
period of one year at P 5,000.00 monthly rental. For this purpose a contract of
lease is executed between Jose (landlord) and Mario (tenant).
In the above example, consider the following:
 Who are involved in the contract? Jose and Mario are the contracting parties.
 What is the subject matter of the contract? The house that Jose owns and is
willing to lease to Mario and the P 5,000 that Mario is willing to pay as
monthly rental.
 Why did they come to this agreement? Without this contract, Mario cannot
gain possession of the house and Jose cannot claim rent from Mario.
On top of the requisites enumerated above, the following must also be considered:
1. Contractual capacity: The parties must be legally capable of concluding a
binding contract;
37
2. Legality of purpose: The contract must be legal and may not contradict any
statutory or common law;
3. Physical possibility: The performance must be determinable and possible at
time of conclusion;
4. Formalities: The contract must abide by any formalities set by law or by the
parties themselves.26
Consent of the Contracting Parties.

Consent is manifested by the meeting of offer and acceptance upon the thing and
the cause which is to constitute the contract. The offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a counter-offer. (Article 1319)
In contract law, qualified acceptance is an assent to an offer that is either conditional
or partial and alters the offer by changing the time, amount, mode, or place of
payment.27
In order for a contract to be valid, an acceptance of an offer must not be subject to
any conditions; therefore, a qualified acceptance is tantamount to a counteroffer.
In the earlier example, if the residential house and the monthly rental of P 5,000.00
are both acceptable to Mario, his acceptance of the same is absolute. However, if Mario
is willing to rent the residential house at only P 4,000.00 monthly rental, his acceptance
is qualified which constitutes a counter-offer, which has to be accepted by Jose for the
contract to be perfected.
An acceptance may be expressed or implied (Article 1320). An expressed
acceptance is made orally or in writing while an implied acceptance is shown by
conduct or behavior of the acceptor.
Consent, to be valid, must be given intelligently, freely and voluntarily, and
consciously or spontaneously. It must not be subject to any of the vices of consent –
mistake, violence, intimidation, undue influence or fraud. If consent is given by a
capacitated person but is negatively influenced by any of the vices of consent, the
contract is voidable. (Article 1330)
The following cannot give consent to a contract (Article 1327 and 1328):
1. unemancipated minors;
2. insane or demented persons and deaf-mutes who do not know how to write;
however, contracts entered into by insane persons during lucid intervals are
valid;
3. persons who are in a state of drunkenness or who are under a hypnotic spell.
26 http://en.jurispedia.org/index.php/Introduction_to_the_law_of_contract_(za)#Sources_of_obligations:
27 http://legal-dictionary.thefreedictionary.com/Qualified+Acceptance
38
In general, the parties to a contract must observe the following rules.
1. 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. This is known as
“freedom to contract.” (Article 1306)
2. The contract must bind both contracting parties; its validity or compliance
cannot be left to the will of one of them. This describes the “personal
character” of a contract. (Article 1308)
3. The determination of the performance may be left to a third person, whose
decision shall not be binding until it has been made known to both contracting
parties. This is to avoid undue advantage by one party against the other
party. (Article 1309)
4. The determination shall not be obligatory if it is evidently inequitable. In such
case, the courts shall decide what is equitable under the circumstances. The
principle of equity is observed under this rule. (Article 1310)
5. Contracts take effect only between the parties, their assigns and heirs, except
in cases 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.
This demonstrates once again the “personal nature” of a contract.
(Article 1311)
6. 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. This is known as “stipulation pour
atrui.” (Article 1311)
7. 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. This is an exception to the
personal character of a contract. (Article 1312)
8. Creditors are protected in cases of contracts intended to defraud them.
Example: Simulated sale by a debtor of his property to evade payment
of his obligation to the creditor. (Article 1313)
9. Any third person who induces another to violate his contract shall, together
with the party who violated the contract, be liable for damages to the other
contracting party. (Article 1314)
10. Contracts are generally perfected by mere consent, and from the moment the
parties are bound not only to the fulfillment 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. This is an affirmation of
39
the “consensual nature” of a contract. (Article 1315)
11. Real contracts, such as deposits, pledge and commodatum, are not perfected
until the delivery of the object of the obligation. Simply stated, in order to
have a contract of deposit, a thing must be deposited; in order to have a
contract of pledge, a thing must be delivered to the pledgee; and in
order to have a contract of commodatum, a thing must be delivered to
the borrower. (Article 1316)
12. No one may contract in the name of another without being authorized by the
latter, or unless he has, by law, a right to represent him. (Article 1317)
A contract entered into in the name of another by one who has no authority or
legal representation, or who has acted beyond his powers, shall be
unenforceable, unless it is ratified, expressly or impliedly, by the person on
whose behalf it has been executed, before it is revoked by the other
contracting party.
In an agency, the rule is that the act of the agent which is not within the scope of his
authority granted by the principal is unenforceable and not binding upon the latter.
However, the principal may ratify the said act to make it enforceable and binding upon
himself.
For a contract to exist, it must start with an “offer.” This is the first step in the
formation of contract. When a valid offer is made and accepted, a contract comes into
existence, provided the other essential elements are present.
“Offer” is described as “when one person signifies to another his willingness to do or
to abstain from doing anything, with a view to obtaining the assent of that other to such
act or abstinence, he is said to make an offer”.
The analysis of the definition would show that the following elements are present in
an offer:
1. There is an expression of willingness to do or abstain from doing something;
2. The expression is from one person to another;
3. The expression is for seeking the assent of that other person.
The person making the offer is called the “offerer” and the person to whom the offer
is made is called the “offeree”. 28
Title II, Chapter 2, Section 1 of the Civil Code prescribes the following rules on offer:
Article 1321.
The person making the offer may fix the time, place, and manner of acceptance, all of which
must be complied with.
28 http://mbabusinesslawi.blogspot.com/2011/01/offer-valid-offer-acceptance.html
40
Article 1322.
An offer made through an agent is accepted from the time acceptance is communicated to
him.
Article 1323.
An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of
either party before acceptance is conveyed.
Article 1324.
When the offerer has allowed the offeree a certain period to accept, the offer may be
withdrawn at any time before acceptance by communicating such withdrawal, except when
the option is founded upon a consideration, as something paid or promised.
Article 1325.
Unless it appears otherwise, business advertisements of things for sale are not definite offers,
but mere invitations to make an offer.
Article 1326.
Advertisements for bidders are simply invitations to make proposals, and the advertiser is not
bound to accept the highest or lowest bidder, unless the contrary appears.
Object or the Subject Matter of Contracts.

The object of a contract is the thing which it is agreed on the part of the party
receiving the consideration to do or not to do.
In a contract to sell, the subject matter of the contract must be a determinate thing
and licit, and the vendor must have the right to transfer his ownership of it at the time it
is delivered. Things having a potential existence may also be the object of a contract of
sale. The efficacy of the sale of a mere hope or expectancy is deemed subject to the
condition that the thing will come into existence. The sale of a vain hope or expectancy
is void.
The good which form the subject of a contract of sale may be either existing goods
or “future goods”, namely, goods to be manufactured, raised, or acquired by the seller
after the perfection of the contract.29
29 http://www.aseanlawassociation.org/papers/phil_chp6.pdf
41
Below are the provisions of the New Civil Code on the Object of Contracts:

TITLE II: CONTRACTS
CHAPTER 2: Essential Requisites of Contracts
SECTION 2: Object of Contracts
Article 1347.
All things which are not outside the commerce of men, including future things, may be
the object of a contract. All rights which are not intransmissible may also be the object of
contracts.
No contract may be entered into upon future inheritance except in cases expressly
authorized by law.
All services which are not contrary to law, morals, good customs, public order or public
policy may likewise be the object of a contract.
Article 1348.
Impossible things or services cannot be the object of contracts.
Article 1349.
The object of every contract must be determinate as to its kind. The fact that the quantity
is not determinate shall not be an obstacle to the existence of the contract, provided it is
possible to determine the same, without the need of a new contract between the parties.
The object of the contract must be within the commerce of men – legal and
transferrable. Because of this, the Rizal Park and city streets cannot be objects of a
contract because they are not within the commerce of men. However, future crops and
fruits are within the commerce of men and may be an object to a contract. The right to
vote is intransmissible or non-transferrable while the right of a creditor is transmissible.
Causes of the Obligation which is Established.

TITLE II: CONTRACTS
CHAPTER 2: Essential Requisites of Contracts
SECTION 3: Cause of Contracts
Article 1350.
In onerous contracts the cause is understood to be, for each contracting party, the
prestation or promise of a thing or service by the other; in remuneratory ones, the service
42
or benefit which is remunerated; and in contracts of pure beneficence, the mere liberality
of the benefactor.
Article 1351.
The particular motives of the parties in entering into a contract are different from the
cause thereof.
Article 1352.
Contracts without cause, or with unlawful cause, produce no effect whatever. The cause
is unlawful if it is contrary to law, morals, good customs, public order or public policy.
Article 1353.
The statement of a false cause in contracts shall render them void, if it should not be
proved that they were founded upon another cause which is true and lawful.
Article 1354.
Although the cause is not stated in the contract, it is presumed that it exists and is lawful,
unless the debtor proves the contrary.
Article 1355.
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.
What is the reason for existence of the contract? The answer to this question is the
cause of the obligation or the consideration of the contract.
The cause varies according to the type of contracts:
1. for onerous contracts, the cause is the promise of a thing or service by the
other;
2. for remuneratory contracts, the cause is the service or benefit which is
being remunerated; and
3. for contracts of pure beneficence or gratuitous contracts, the cause is the
mere liberality of the benefactor.30
A contract alienating a piece of land to another for the latter's goodness to the giver
in the past is a remuneratory contract. A contract, such as a sale of goods, in which
both parties expect to receive an advantage in exchange for the service or item they
provide, is considered onerous. A contract where one party provides an advantage
without receiving anything in return, such as a donation, is a gratuitous contract. This is
an important distinction. Under the common law only onerous promises are enforceable,
since gratuitous promises lack consideration. However, under the civil law, where a
30 http://jlp-law.com/blog/the-basic-elements-of-contracts/
43
gratuitous promise can be enforced, it would be entirely possible for a party to be
obligated to deliver on the promise of gift or action.31
Forms of Contracts.
By form we mean the manner by which the contract is manifested. Whether it is oral
or in writing; or when in writing, whether it is in a public or private instrument.
Contract shall be obligatory, in whatever form they may have been entered into,
provided all the essential requisites for their validity (consent, object, cause) are
present.
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.

TITLE II: CONTRACTS
CHAPTER 3: Form of Contracts
Article 1356.
Contracts shall be obligatory, in whatever form they may have been entered into,
provided all the essential requisites for their validity are present. 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.
In such cases, the right of the parties stated in the following article cannot be exercised.
Article 1357.
If the law requires a document or other special form, as in the acts and contracts
enumerated in the following article, 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.
Article 1358.
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 are 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;
31 http://www.acc.com/legalresources/quickcounsel/clc.cfm
44
(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.
All other contracts where the amount involved exceeds five hundred pesos must appear in
writing, even a private one. But sales of goods, chattels or things in action are governed
by articles, 1403, No. 2 and 1405.
All other contracts where the amount involved exceeds five hundred pesos must
appear in writing, even a private one, but sales of goods, chattels or things in action are
governed by the rules on Statute of Frauds.
KINDS OF CONTRACTS
In general, contracts may be classified into nominate and innominate.

Contracts are also classified as rescissible, voidable, unenforceable, and void or
inexistent contracts.
Nominate Contracts.
Nominate contracts are those contracts with specific names, provided by law, such
as: lease, deposit, loan, commodatum, pledge, mortgage, insurance, agency, sales,
carriage, employment, etc.
Innominate Contracts.
Innominate contracts are those without names. They are regulated by the
stipulations of the parties, by the provisions of the New Civil Code, by the rules
governing the most analogous nominate contracts, and by the customs of the place.
Innominate contracts may fall under any of the following situations.
1. Du ut des – I give that you may give.
2. Du ut facias – I give that you may do.
3. Facio ut des – I do that you may give.
4. Facio ut facias – I do that you may do.
Du ut des, however, is not anymore innominate. The New Civil Code provides for
this kind of relationship and specifically terms it “barter” or “exchange”.
45
Rescissible Contracts (Articles 1380 to 1389).
Rescissible Contracts are valid contracts because they contain all the essential
requisites of contract. However, they may be rescinded in the cases established by law
in the interest of equity or by reason of injury or damage (lesion) to one of the parties or
to third person, such as creditors. Simply put, rescission is the cancellation of an
agreement or a contract either by mutual agreement or for a cause.
Rescission is a remedy granted by law to the contracting parties and sometimes
even to third persons in order to secure reparation of damages caused them by a valid
contract, by means of the restoration of things to their condition in which they were prior
to the contract.
For a contract to be rescinded, the following requisites must be present:
1. The contract must be validly agreed upon;
2. There must be lesion or pecuniary prejudice to one of the parties or to a third
person;
3. The rescission must be based upon a case especially provided by law;
4. There must be no other legal remedy to obtain reparation for the damage;
5. The party asking for rescission must be able to return what he is obliged to
restore by reason of the contract;
6. The object of the contract must not legally be in the possession of a third
person who did not act in bad faith; and
7. The period for filing the action for rescission must not have prescribed. 32
The following are some provisions of the New Civil Code on Rescissible Contracts:
Article 1380.
Contracts validly agreed upon may be rescinded in the cases established by law.
Article 1381.
The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards whom they
represent suffer lesion [damage or injury] by more than one-fourth of the value
of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion
stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any other manner
collect the claims due them;
(4) Those which refer to things under litigation if they have been entered into by the
32 http://es.slideshare.net/raileeanne/law-on-obligations-and-contracts-boa
46
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.
Article 1382.
Payments made in a state of insolvency for obligations to whose fulfillment the debtor
could not be compelled at the time they were effected, are also rescissible.
Article 1383.
The action for rescission is subsidiary; it cannot be instituted except when the party
suffering damage has no other legal means to obtain reparation for the same.
Article 1384.
Rescission shall be only to the extent necessary to cover the damages caused.
Article 1385.
Rescission creates the obligation to return the things which were the object of the
contract, together with their fruits, and the price with its interest; consequently, it can be
carried out only when he who demands rescission can return whatever he may be obliged
to restore.
Neither shall rescission take place when the things which are the object of the contract
are legally in the possession of third persons who did not act in bad faith.
In this case, indemnity for damages may be demanded from the person causing the loss.
Article 1389.
The action to claim rescission must be commenced within four years.
For persons under guardianship and for absentees, the period of four years shall not begin
until the termination of the former's incapacity, or until the domicile of the latter is
known.
For more information on Rescissible Contracts refer to the following internet
resources:
1. http://legal-dictionary.thefreedictionary.com/Rescission+of+contract
2. http://floridolawoffice.com/2010/08/legal-basis-for-rescission-of-contracts-in-
the-philippine-civil-code/
3. http://www.businessdictionary.com/definition/rescission-of-contract.html
4. http://www.lewissilkin.com/en/Journal/2012/February/Contractual-remedies-
the-different-outcomes-of-rescission-and-repudiatory-
breach.aspx#.UgaG1435fIV
5. http://attylaserna.blogspot.com/2011/07/rescission-of-contract-defined-
and.html
47
Voidable Contracts (Articles 1390 to 1402).
In contracts, voidable is a term typically used with respect to a contract that is valid
and binding unless avoided or declared void by a party to the contract who is
legitimately exercising a power to do away with the contractual obligations.
A contract may be voidable on the grounds of fraud, mistake, misrepresentation,
lack of capacity, duress, undue influence, or abuse of a fiduciary relationship. A contract
that is based on one of these grounds is not automatically void but is voidable at the
option of the party entitled to avoid it.
For example, a person who was induced by fraud to enter into a contract may
disclaim the contract by taking some positive action to disaffirm the contract. Or the
victim of the fraud may ratify the contract by his or her conduct or by an express
affirmation after acquiring full knowledge of the facts.
Likewise, a contract between a minor and another party is generally viewed as
voidable by the minor. The minor may legally decide to ratify the contract or disaffirm
the contract.
A voidable marriage is a marriage that is valid when entered into and remains
completely valid until a party obtains a court order nullifying the relationship. The parties
may ratify a voidable marriage upon removal of the impediment preventing a lawful
marriage, thus making the union valid. Living together as husband and wife following
the removal of the impediment typically constitutes ratification. A voidable marriage can
only be attacked by a direct action brought by one of the parties against the other and
therefore cannot be attacked after the death of a spouse. It differs from a void marriage
where no valid marital relationship ever existed.33
The following contracts are voidable or annullable, even though there may have
been no damage to the contracting parties (Article 1390):
1. Those where one of the parties is incapacitated to give consent to a contract.
2. Those where the consent of one of the parties is vitiated by mistake, violence,
intimidation, undue influence or fraud.
Annulment is a remedy granted by law, for reasons of public interest, for the
declaration of the inefficacy of a contract based on a defect in order to restore the
contracting parties to the original position in which they were before the contract was
executed.34
The action for annulment shall be brought within four years. This period shall begin
(Article 1391):
1. in cases of intimidation, violence or undue influence, from the time the defect
33 http://legal-dictionary.thefreedictionary.com/voidable
34 http://es.slideshare.net/raileeanne/law-on-obligations-and-contracts-boa
48
of the consent ceases;
2. in case of mistake or fraud, from the time of the discovery of the same; and
3. when the action refers to contracts entered into by minors or other
incapacitated persons, from the time the guardianship ceases.
The action for the annulment of contracts may be instituted by all who are thereby
obliged principally or subsidiary. However, persons who are capable cannot allege the
incapacity of those with whom they contracted; nor can those who exerted intimidation,
violence, or undue influence, or employed fraud, or caused mistake base their action
upon these flaws of the contract. In other words, only the incapacitated party or the
party whose consent is vitiated may bring an action for annulment. (Article 1397)
Once a contract is annulled, the contracting parties shall restore to each other the
things which have been the subject matter of the contract, with their fruits, and the price
with its interest, except in cases provided by law. In obligations to render service, the
value thereof shall be the basis for damages. (Article 1398)
As long as one of the contracting parties does not restore what, by virtue of the
decree of annulment, he is bound to return, the other cannot be compelled to comply
with what is incumbent upon him. (Article 1402)
While a voidable contract may be voided or annulled, it may also be ratified.
Ratification cleanses the contract from all its defects from the moment it was
constituted (Article 1396) and it extinguishes the action to annul a voidable contract
(Article 1392).
Ratification may be effected expressly or tacitly. It is understood that there is a tacit
ratification if, with knowledge of the reason which renders the contract voidable and
such reason having ceased, the person who has a right to invoke it should execute an
act which necessarily implies an intention to waive his right. (Article 1393)
Ratification may be effected by the guardian of the incapacitated person. (Article
1394)
A summary of this section:
1. What contracts are voidable? Article 1390
2. Who may institute annulment proceedings? Article 1397
3. When must an annulment be filed? Article 1391
4. What are the effects of annulment? Articles 1398 and 1402
5. Who may initiate ratification? Articles 1393 and 1394
6. What are the effects of ratification? Articles 1396 and 1392
49
Unenforceable Contracts (Articles 1403 to 1408).
There are contracts which are on their face valid but which a court will not enforce.
These are referred to as Unenforceable Contracts.
Often, there is some legal limitation that prevents the enforcement of an otherwise
valid contract. For instance, there is a statute of limitations that applies to civil actions to
enforce a contract. As an example, you may have a valid contract for a flooring
company to lay tile flooring in your kitchen. You have agreed to all terms and have paid
the contractor to lay the floor. The contractor shows up to your house and tears up your
floor, but never returns to lay the tile. If, for example, the statute of limitations to bring
such an action is six years, and you go to court in the seventh year, the court will not
enforce your contract.
In some cases, a contract is otherwise valid but does not meet the requirements of
the Statute of Frauds to be in writing. For example, if we reach an oral agreement for
you to buy my house and you move in but never pay me, I will not be able to enforce the
agreement because it should have been in writing, signed by both parties. Note,
however, that in these circumstances the law has adapted to ensure that you do not get
an unjustly received benefit from the failure of the contract. In addition, of course,
because the contract cannot be enforced against you, it also cannot be enforced
against me. In this situation, I would get my house back.35
According to the New Civil Code, the following are unenforceable or unauthorized:
1. Those entered into in the name of another person by one, who has been
given no authority or legal representation or who has acted beyond his
powers;
2. Those that do not comply with the Statute of Frauds;
3. Those where both parties are incapable of giving consent to a contract. If only
one party is incapable, this will fall under Voidable Contract under Article
1390, Paragraph 1.
The Statute of Frauds requires that certain contracts be in writing, and that they be
signed by all parties to be bound by the contract. Although there can be significant
variations between jurisdictions, the most common types of contracts to which a statute
of fraud applies are:
1. contracts in consideration of marriage;
2. contracts which cannot be performed within one year;
3. contracts for the sale of an interest in land;
4. contracts by the executor of a will to pay a debt of the estate with his own
money;
35 http://www.saylor.org/site/wp-content/uploads/2012/08/BUS2054.3.2Assessment.pdf
50
5. contracts for the sale of goods above a certain value; and
6. contracts in which one party becomes a surety (acts as guarantor) for another
party’s debt or other obligation.
The purpose of a “Statute of Frauds” is, as the name suggests, to prevent injury from
fraudulent conduct. There is some criticism of the continued existence of these statutes
as they are often used by parties who freely entered into fair contracts yet wish to avoid
having to fulfill their agreements. At the same time, the abuses these statutes were
designed to prevent are quite real, so a strong argument remains to keep them in place.
It is also arguably good public policy to require that parties to certain significant
transactions, such as those of long duration or which involve real estate, reduce their
agreements to writing. Writing will both reduce the chance of future litigation, and also
give the parties the opportunity to take a second look at the terms and conditions of
their agreement before it becomes final.
The statute of frauds does not of itself render a contract void. The statute makes
certain contracts “voidable” by one of the parties, in the event that the party does not
wish to follow through on the agreement. However, if all parties agree that they are
bound by the contract, the contract will remain enforceable despite the statute of
frauds.36
By the provisions of the New Civil Code (Articles 1405 to 1407), an unenforceable
contract may be ratified. Moreover, an unenforceable contract cannot be questioned by
a third person (Article 1408).
Void or Inexistent Contracts (Articles 1409 to 1422).

When dealing with contract matters, confusion often arises as to the terms void and
voidable. They may appear similar, but they are completely different ways to classify a
contract.
A “voidable” contract is a valid contract. Usually only one party is bound to the
contract terms in a voidable contract. The unbound party is allowed to repudiate
(cancel) the contract, at which time the contract becomes void. This typically involves
situations where only one party has committed a breach.
On the other hand, a “void” contract is not recognized by law because the
agreement cannot be enforced by either party. Technically, a void contract is a “no
contract” situation. It is as if a contract was never formed, and neither party will be able
to recover in the event of a breach. The contract is invalid from the beginning, even at
the negotiation or signing stage. This usually involves performing a duty that is illegal or
impossible to perform.
36 http://legalnotes.wordpress.com/2007/03/02/unenforceable-contracts/
51
The main difference between the two is that a void contract cannot be performed
under law, whereas with a voidable contract, performance is still possible, although
contract can be “voided” at the election of the unbound or non-breaching party. 37
By its nature, Void or Inexistent Contracts cannot be ratified.
The following contracts are inexistent and void from the beginning: (Article 1409)
1. those whose cause, objects or purpose is contrary to law, morals, good
customs, public order or public policy;
2. those which are absolutely simulated or fictitious;
3. those whose cause or object did not exist at the time of the transactions;
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.
Some rules to be observed regarding the nullity and/or illegality of contracts are as
follows.
Article 1410.
The action or defense for the declaration of the inexistence of a contract does not prescribe.
Article 1411.
When the nullity proceeds from the illegality of the cause or object of the contract, and the
act constitutes a criminal offense, both parties being in pari delicto, they shall have no action
against each other, and both shall be prosecuted. Moreover, the provisions of the Penal Code
relative to the disposal of effects or instruments of a crime shall be applicable to the things or
the price of the contract.
This rule shall be applicable when only one of the parties is guilty; but the innocent one may
claim what he has given, and shall not be bound to comply with his promise. (1305)
Article 1412.
If the act in which the unlawful or forbidden cause consists does not constitute a criminal
offense, the following rules shall be observed:
(1) When the fault is on the part of both contracting parties, neither may recover what he
has given by virtue of the contract, or demand the performance of the other's
undertaking;
(2) When only one of the contracting parties is at fault, he cannot recover what he has
given by reason of the contract, or ask for the fulfillment of what has been promised
37 http://www.legalmatch.com/law-library/article/void-vs-voidable-contract-lawyers.html
52
him. The other, who is not at fault, may demand the return of what he has given
without any obligation to comply his promise. (1306)
Article 1414.
When money is paid or property delivered for an illegal purpose, the contract may be
repudiated by one of the parties before the purpose has been accomplished, or before any
damage has been caused to a third person. In such case, the courts may, if the public interest
will thus be subserved, allow the party repudiating the contract to recover the money or
property.
Article 1415.
Where one of the parties to an illegal contract is incapable of giving consent, the courts may,
if the interest of justice so demands allow recovery of money or property delivered by the
incapacitated person.
Article 1416.
When the agreement is not illegal per se but is merely prohibited, and the prohibition by the
law is designed for the protection of the plaintiff, he may, if public policy is thereby
enhanced, recover what he has paid or delivered.
Article 1420.
In case of a divisible contract, if the illegal terms can be separated from the legal ones, the
latter may be enforced.
Article 1421.
The defense of illegality of contract is not available to third persons whose interests are not
directly affected.
Article 1422.
A contract which is the direct result of a previous illegal contract is also void and inexistent.
NATURE OF OBLIGATION RE-AMPLIFIED

(TITLE III OF THE NEW CIVIL CODE)
Lesson 1 gave us an overview of the distinctions between Civil Obligations and

Natural Obligations. While it has been stated that the discussions in this module refer to
civil obligations, we shall take a look into Natural Obligations as they are treated by the
New Civil Code.
As we do so, let us be reminded of the distinctions we have established between
civil and natural obligations:
Civil Obligations are based on positive law while Natural Obligations are based on equity
and natural law. A Civil Obligation may be enforced by court action while a Natural Obligation
cannot be compelled by court action but depends on the conscience of the debtor. Under Civil
53
Obligations, the rights and duties are recognized and enforced by law (e.g. contract). While
under Natural Obligations, the rights and duties are recognized but not enforced by law (e.g.
wager).38
Some instances of natural obligations are as follows:
Article 1424.
When a right to sue upon a civil obligation has lapsed by extinctive prescription, the obligor
who voluntarily performs the contract cannot recover what he has delivered or the value of
the service he has rendered.
Article 1425.
When without the knowledge or against the will of the debtor, a third person pays a debt
which the obligor is not legally bound to pay because the action thereon has prescribed, but
the debtor later voluntarily reimburses the third person, the obligor cannot recover what he
has paid.
Article 1428.
When, after an action to enforce a civil obligation has failed the defendant voluntarily
performs the obligation, he cannot demand the return of what he has delivered or the
payment of the value of the service he has rendered.
Article 1429.
When a testate or intestate heir voluntarily pays a debt of the decedent exceeding the value of
the property which he received by will or by the law of intestacy from the estate of the
deceased, the payment is valid and cannot be rescinded by the payer.
Article 1430.
When a will is declared void because it has not been executed in accordance with the
formalities required by law, but one of the intestate heirs, after the settlement of the debts of
the deceased, pays a legacy in compliance with a clause in the defective will, the payment is
effective and irrevocable.
 Debtor or obligor – the person who has the obligation to pay or who is liable to fulfill the obligation
 Creditor or obligee – the person who has the right to demand payment or the fulfillment of the
obligation
38 http://en.jurispedia.org/index.php/Introduction_to_the_law_of_contract_(za)#Origin:
54
_____ 1. In gratuitous contracts, the cause is the mere (___) of the benefactor.
_____ 2. A qualified acceptance constitutes a (___).
_____ 3. Contracts shall be (___), in whatever form they may have been entered
into, provided all the essential requisites for their validity are present.
_____ 4. (___) contracts are those contracts with special names provided for by
law.
_____ 5. Valid contracts which may be rescinded in accordance with law are (___).
_____ 6. Contracts that are valid, unless annulled are (___).
_____ 7. (___) are susceptible of ratification.
_____ 8. A kind of obligation not being based on positive law but on equity and
natural law is (___).
_____ 9. 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. This is known as “stipulation (___)”.
_____ 10. Contracts which are entered into by a person in representation of another
without the latter's authority is (___).

_____ 1. The validity or compliance of a contract can be left to the will of one of the
contracting parties.
_____ 2. Creditors are protected in cases of contracts intended to defraud them.
_____ 3. The action or defense for the declaration of the inexistence of a contract
does not prescribe.
_____ 4. Unenforceable contracts can be questioned by third persons.
_____ 5. Unenforceable contracts cannot be ratified.
_____ 6. The action for the annulment of contracts may be instituted by all who are
thereby obliged principally or subsidiarily.
_____ 7. Void contracts are susceptible of ratification.
_____ 8. Acceptance made by letter or telegram binds the offerer from the time it
came to his knowledge.
_____ 9. Contracts are generally consensual.
_____ 10. In case of a divisible contract, if the illegal terms can be separated from
the legal ones, the latter may be enforced.
55
Business Law 1A, Module I
ANSWER KEYS TO THE SELF-PROGRESS CHECK TESTS
Lesson 1
Test I
1. divisible 9. contract or agreement
2. courts of justice and/ or equity 10. quasi-delict
3. prestation 11. active subject or creditor or obligee
4. law 12. real
5. solutio indebiti 13. debtor
6. restitution 14. penalty/penal clause
7. pure 15. suspensive
8. joint
Test II
1. F 3. F 5. T 7. F 9. F 11. F 13. T 15. F
2. F 4. F 6. F 8. T 10. F 12. F 14. T
Lesson 2
Test I
1. tender of payment 5. lost 9. cashed
2. consignation 6. confusion 10. impaired
3. sales 7. merger
4. compensation 8. payment by cession
Test II
1.F 2.F 3.F 4.T 5.T 6. F 7. T 8. T 9. T 10. F
Lesson 3
Test I
1. liberality 5. rescissible 9. pour atrui
2. counter-offer 6. voidable or annullable 10. unenforceable
3. obligatory 7. unenforceable
4. nominate 8. natural
Test II
1. F 2. T 3. T 4. F 5. F 6. T 7. F 8. T 9. T 10. T
56
BUSINESS LAW 1A:
Module Test I
Name: DLC: Score:
_____ 1. A (___) obligation is one which is susceptible or capable of partial
fulfillment.
_____ 2. As a rule, the obligation to do, not to do or to give is enforceable in the
(___).
_____ 3. (___) is the act on the part of the debtor of offering to the creditor the thing
or amount due.
_____ 4. The act of depositing the thing or sum due at the disposal of judicial
authority is called (___).
_____ 5. In gratuitous contracts, the cause is the (___) of the benefactor.
_____ 6. A qualified acceptance constitutes a (___).
_____ 7. As a rule, the obligation arising from (___) is demandable not only for
one's own acts or omissions, but also for those of persons for whom one is
responsible.
_____ 8. The prevailing law between the contracting parties is their (___).
_____ 9. The delivery of promissory notes or bills of exchange or other mercantile
documents shall produce the effect of payment only when they have been
(___) or when through the fault of the creditor they have been (___).
_____ 10.
_____ 11. Contracts which are entered into by a person in representation of another
without the latter's authority is (___).
_____ 12. 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. This is known as “stipulation (___)”.
_____ 13. Unless the obligation expressly so states, or when the law or the nature of
the obligation requires solidarity, the obligation is (___)?
_____ 14. (___) is one where the debtor may cede or assign his property so that the
latter may sell the same and the proceeds applied to the obligations of the
debtor.
_____ 15. A kind of obligation not being based on positive law but on equity and
natural law is (___).
57
_____ 16. A (___) obligation is one the fulfillment of which does not depend upon a
future or uncertain event, or upon a past event unknown to the parties,
and is demandable at once
_____ 17. Surrender of stolen goods/things by the offender is a form of civil liability
known as (___).
_____ 18. There is (___) or (___) of rights from the time the characters of creditor
and debtor are merged in the same person.
_____ 19.
_____ 20. Contracts that do not comply with the Statute of Frauds are (___).
_____ 21. The party in an obligation who has the right to demand fulfillment of the
obligation is the (___).
_____ 22. Obligations to give are also called (___) obligations.
_____ 23. In alternative obligation, the (___) has the right to choose which of the
presentations shall be fulfilled.
_____ 24. In an obligation with a penal clause, the (___) shall substitute the
indemnity for damages sustained.
_____ 25. An obligation subject to a (___) condition is not demandable unless the
condition is fulfilled.

_____ 1. In negotiorum gestio, the officious manager is with full authority from the
owner of the property or business under management.
_____ 2. As rule, legal subrogation may be presumed.
_____ 3. The validity or compliance of a contract can be left to the will of one of the
contracting parties.
_____ 4. In quasi-delict, there is the element of intent by a person to cause damage
to another by his act or omission.
_____ 5. There is no exception to the rule that the debtor may be released from
responsibility by mere consignation of the thing or sum due.
_____ 6. Creditors are protected in cases of contracts intended to defraud them.
_____ 7. In an obligation with a suspensive period the debtor cannot be compelled
to pay and the creditor cannot be compelled to accept payment before the
arrival of the period.
_____ 8. Novation, which consists in substituting a new debtor in the place of the
original one, may be made even without the consent of the creditor.
_____ 9. In case of a divisible contract, if the illegal terms can be separated from
the legal ones, the latter may be enforced.
_____ 10. An obligation is still enforceable even in the absence of the judicial or legal
tie.
58
_____ 11. The guarantor may set up compensation as regards what the creditor may
owe the principal debtor.
_____ 12. Contracts are generally consensual ones.
_____ 13. Acts or omissions punishable by law are called crimes or delicts.
_____ 14. Confusion does not extinguish a joint obligation except as regards the
share corresponding to the creditor or debtor in whom the two characters
of creditor and debtor concur.
_____ 15. Acceptance made by letter or telegram binds the offerer from the time it
came to his knowledge.
_____ 16. The payment of a realty tax by the property owner is an example of a
contractual obligation.
_____ 17. The expenses of consignation, when properly made, shall be charged
against the creditor.
_____ 18. Void contracts can never be ratified.
_____ 19. A conditional obligation, as a rule, is demandable at once
_____ 20. The consent of the original parties is the only requirement in conventional
subrogation of a third person
_____ 21. If there are two or more debtors, the obligation is always solidary.
_____ 22. Juridical tie is a source of obligations.
_____ 23. Contracts always give rise to obligations.
_____ 24. Fulfillment of resolutory conditions extinguishes existing obligations.
_____ 25. In an obligation subject to a suspensive period, the debtor cannot be
compelled to pay but the creditor can be compelled to accept payment
before the arrival of the period
Test III. Enumeration

A. FIVE Sources of obligations (5)
B. FIVE Principal modes of extinguishing obligations
59

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BUSINESS LAW 1A:

DESCRIPTION OF THE COURSE

SCOPE OF THE COURSE

OBJECTIVES OF THE COURSE

SCOPE OF THE MODULE

OVERVIEW OF THE MODULE

OBJECTIVES OF THE MODULE

Obligations, in general, may either be civil or natural.

The discussions in this module are on civil obligations. Let it be understood,

The Origin of the Word.3

“Obligation” in the context of our study.

THE ELEMENTS OR REQUISITES OF OBLIGATION

REPUBLIC ACT 386: THE NEW CIVIL CODE

OBLIGATIONS ARISING FROM CONTRACTS HAVE THE FORCE OF LAW.

REPUBLIC ACT 386: THE NEW CIVIL CODE

QUASI-CONTRACTS ARE EXTRA-CONTRACTUAL OBLIGATIONS.

REPUBLIC ACT 386: THE NEW CIVIL CODE

A quasi-contract is a court's determination of an obligation of one party to another

A quasi-contract, or an implied-in-law contract is a contract in which no actual

An obligation imposed by law to prevent unjust enrichment. Also called a contract

10 Jojo Mendoza. http://www.slideshare.net/jojoisanan_mendoza/jojo-obligation-and-contracts-ppt

CIVIL OBLIGATIONS ARISING FROM CRIMINAL OFFENSES SHALL BE

13 Atty. Manuel J. Laserna Jr., http://mannylasernajr.blogspot.com/2011/10/moral-damages-gr-no-185833.html

On order to fully understand the different classifications of obligations, let us

Obligations with a period.

Alternative and Facultative Obligations.

Joint and Solidary Obligations.

Divisible and Indivisible Obligations.

Obligations with Penal Clause.

PRINCIPAL MODES OF EXTINGUISHING OBLIGATIONS

Payment (Articles 1232 to 1261).

Loss of the thing due (Articles 1262 to 1269).

19 New Civil Code, Sub-Section 3, Articles 1256 to 1261

Condonation or remission of the debt (Articles 1270 to 1274).

Confusion or Merger of Rights (Articles 1275 to 1277).

Compensation (Articles 1278 to 1290).

Novation (Articles 1291 to 1304).

THE NATURE AND CHARACTERISTICS OF CONTRACTS

REPUBLIC ACT 386: THE NEW CIVIL CODE

A contract is an agreement, based on consensus between legal subjects with

Consent of the Contracting Parties.

Object or the Subject Matter of Contracts.

REPUBLIC ACT 386: THE NEW CIVIL CODE

Causes of the Obligation which is Established.

REPUBLIC ACT 386: THE NEW CIVIL CODE

REPUBLIC ACT 386: THE NEW CIVIL CODE

In general, contracts may be classified into nominate and innominate.

Void or Inexistent Contracts (Articles 1409 to 1422).

NATURE OF OBLIGATION RE-AMPLIFIED

Lesson 1 gave us an overview of the distinctions between Civil Obligations and

Test II. True or False

Test II. True or False

Test III. Enumeration

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