UNIVERSITY OF MINDANAO

College of Business Administration Education

Programs: BSEntrep, BSREM, BSLM, and BSBA-HR, MM,
FM, BE

Physically Distanced but Academically Engaged

Self-Instructional Manual (SIM) for Self-Directed

Learning (SDL)

Course/Subject: ACC 216-Law on Obligations and

Contracts

Name of Teacher: ___________________________________

THIS SIM/SDL MANUAL IS A DRAFT VERSION ONLY; NOT

FOR REPRODUCTION AND DISTRIBUTION OUTSIDE OF
ITS INTENDED USE. THIS IS INTENDED ONLY FOR THE
USE OF THE STUDENTS WHO ARE OFFICIALLY
ENROLLED IN THE COURSE/SUBJECT.
EXPECT REVISIONS OF THE MANUAL.
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Telefax: (082)227-5456 Local 131

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TABLE OF CONTENTS

PART 1: QUALITY ASSURANCE POLICIES 4

PART 2: INSTRUCTION PROPER 7
BIC PICTURE A
ULO-A UNIT LEARNING OUTCOME 8
METALANGUAGE 8
WEEK 1 COVERAGE
ESSENTIAL KNOWLEDGE 9
SELF-HELP 15
LET'S CHECK 16
LET'S ANALYZE 16
IN A NUTSHELL 17
Q & A LIST 19
KEYWORDS INDEX 19
BIG PICTURE A
ULO-B UNIT LEARNING OUTCOME 20
METALANGUAGE 20
WEEK 2 TO 3 COVERAGE
ESSENTIAL KNOWLEDGE 22
SELF-HELP 45
LET'S CHECK 46
LET'S ANALYZE 47
IN A NUTSHELL 49
Q & A LIST 50
KEYWORDS INDEX 50
BIG PICTURE B
UNIT LEARNING OUTCOME 52
METALANGUAGE 52
WEEK 4 TO 5 COVERAGE
ESSENTIAL KNOWLEDGE 54
SELF-HELP 72
LET'S CHECK 73
LET'S ANALYZE 73
IN A NUTSHELL 75
Q & A LIST 77
KEYWORDS INDEX 77
BIG PICTURE C
ULO-A UNIT LEARNING OUTCOME 78
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METALANGUAGE 78
WEEK 6 COVERAGE
ESSENTIAL KNOWLEDGE 80
SELF-HELP 95
LET'S CHECK 96
LET'S ANALYZE 96
IN A NUTSHELL 97
Q & A LIST 99
KEYWORD INDEX 99

ULO-B UNIT LEARNING OUTCOME 100

METALANGUAGE 100
WEEK 7 COVERAGE
ESSENTIAL KNOWLEDGE 101
SELF-HELP 116
LET'S CHECK 117
LET'S ANALYZE 117
IN A NUTSHELL 118
Q & A LIST 120
KEYWORDS INDEX 120
BIG PICTURE D
UNIT LEARNING OUTCOME 121
METALANGUAGE 121
WEEK 8 TO 9 COVERAGE
ESSENTIAL KNOWLEDGE 122
SELF-HELP 125
LET'S CHECK 126
LET'S ANALYZE 126
IN A NUTSHELL 128
Q & A LIST 130
KEYWORDS INDEX 130

PART 3: COURSE SCHEDULE 131

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2nd Floor, SS Building
Bolton Street, Davao City
Telefax: (082)227-5456 Local 131

Telefax: (082)227-5456 Local 131

COURSE OUTLINE : ACC 216- LAW ON OBLIGATIONS AND

CONTRACTS

Course Coordinator: Margarita B. Nograles

Email: mnograles@umindanao.edu.ph
Student Consultation: By appointment
Phone: (082) 2275456 local 131
Effectivity Date: 25-May-20
Blended (On-Line with face to face or virtual
Mode of Delivery:
sessions)
Time Frame: 54 Hours
Student Workload: Expected Self-Directed Learning
Requisites: None
Credit: 3
Attendance A minimum of 95% attendance is required at all
Requirements: scheduled Virtual or face to face sessions.

COURSE OUTLINE POLICY

Areas of Concern Details

Contact and Non-contact Hours This 3-unit course self-instructional manual is designed
for blended learning mode of instructional delivery with
scheduled face to face or virtual sessions. The
expected number of hours will be 54 including the face
to face or virtual sessions.

Assessment Task Submission Submission of assessment tasks shall be on the 3rd, 5th,
7th, and 9th weeks of the term. The assessment paper
shall be attached with a cover page indicating the title of
the assessment task (if the task is a performance),
the name of the course coordinator, date of submission,
and the name of the student. The document should be
emailed to the course coordinator. It is also expected
that you already paid your tuition and other fees before
the submission of the assessment task.

If the assessment task is done in real-time through the

features in the Blackboard Learning Management
System, the schedule shall be arranged ahead of time
by the course coordinator.
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2nd Floor, SS Building
Bolton Street, Davao City
Telefax: (082)227-5456 Local 131

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Turnitin Submission To ensure honesty and authenticity, all assessment

(if necessary) tasks are required to be submitted through Turnitin
with a maximum similarity index of 30% allowed. This
means that if your paper goes beyond 30%, the
students will either opt to redo her/his paper or explain
in writing addressed to the course coordinator the
reasons for the similarity. In addition to that, if the paper
has reached more than 30% similarity index, the
student may be called for a disciplinary action per the
University's OPM on Intellectual and Academic
Honesty.

Please note that academic dishonesty such as cheating

and commissioning other students or people to
complete the task for you have severe punishments
(reprimand, warning, expulsion).
Penalties for Late The score for an assessment item submitted after the
Assignments/Assessments designated time on the due date, without an approved
extension of time, will be reduced by 5% of the possible
maximum score for that assessment item for each day
or part of the day that the assessment item is late.

However, if the late submission of the assessment

paper has a valid reason, a letter of explanation
should be submitted and approved by the course
coordinator. If necessary, you will also be required to
present/attach
evidence.
Return of Assignments/ Assessment tasks will be returned to you two (2) weeks
Assessments after the submission. This will be returned by email or
via the Blackboard portal.

For group assessment tasks, the course coordinator

may require some or few of the students for online or
virtual sessions to ask clarificatory questions to validate
the originality of the assessment task submitted and to
ensure that all the group members are involved.
Assignment Resubmission You should request in writing addressed to the course
coordinator his/her intention to resubmit an assessment
task. The resubmission is premised on the student’s
failure to comply with the similarity index and other
reasonable grounds such as academic literacy standards
or other reasonable circumstances e.g.
illness, accidents financial constraints.
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2nd Floor, SS Building
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Telefax: (082)227-5456 Local 131

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Re-marking of Assessment You should request in writing addressed to the program

Papers and Appeal coordinator your intention to appeal or contest the score
given to an assessment task. The letter should explicitly
explain the reasons/points to contest the grade. The
program coordinator shall communicate with the
students on the approval and disapproval of the
request.

If disapproved by the course coordinator, you can

elevate your case to the program head or the dean with
the original letter of request. The final decision will
come from the dean of the college.
Grading System All culled from BlackBoard sessions and traditional
contact
Course discussions/exercises – 40%
1st formative assessment – 10%
2nd formative assessment – 10%
3rd formative assessment – 10%
Final exam – 30%

Submission of the final grades shall follow the usual

University system and procedures.

Preferred Referencing Style Harvard Referencing Style

Example:
Mitchell, J.A. and Thomson, M. (2017) A guide to
citation.3rd edn. London: London Publishings.
Student Communication You are required to create a umindanao email account
which is a requirement to access the BlackBoard
portal. Then, the course coordinator shall enroll the
students to have access to the materials and resources
of the course. All communication formats: chat,
submission of assessment tasks, requests, etc. shall be
through the portal and other university recognized
platforms.

You can also meet the course coordinator in person

through the scheduled face to face sessions to raise
your issues and concerns.

For students who have not created their student email,

please contact the course coordinator or program head.
Contact Details of the Dean Dr. Vicente Salvador E. Montaño
Email: vicente_montano@umindanao.edu.ph
Phone: 082-2275456 local 131
Contact Details of the Program Sharone Mae l. Clapiz
Head Email: sclapiz@umindanao.edu.ph Phone: 082-2275456
 College of Business Administration Education
2nd Floor, SS Building
Bolton Street, Davao City
Telefax: (082)227-5456 Local 131

Telefax: (082)227-5456 Local 131

local 131

Students with Special Needs Students with special needs shall communicate with the
course coordinator about the nature of his or her special
needs. Depending on the nature of the need, the
course coordina’tor with the approval of the program
coordinator may provide alternative assessment tasks
or extension of the deadline for submission of
assessment tasks. However, the alternative
assessment tasks should still be in the service of
achieving the desired course learning outcomes.
Help Desk Contact Email: mis@umindanao.edu.ph
Phone: (082) 221-0190
CBAE LMS Coordinator Reil S. Romero
Helpdesk Email: Reil_Romero@umindanao.edu.ph
Phone: (082)227-5456 local 131
Hotline No:0950-116-9053
Well-being Welfare Support Ronadora E. Deala
Helpdesk Contact Email:ronadora_deala@umindanao.edu.ph
Phone: (082)300-5456
Hotline No.:0921-212-2846
Library Contact Brigida E. Bacani
Email:Library@umindanao.edu.ph
Phone: (082)300-5456
Hotline No.: 0951-376-6681

Course Information – see/download course syllabus in the Black

Board LMS
CC’s Voice: Hello future Business Leaders! Welcome to this course
Acc 216: The Law on Obligations and Contracts. By
enrolling in this subject, you have already made the
decision to enrich your legal knowledge in business.

CO Prior to becoming a successful Business Leader, you

have to deal with Assessing, Analyzing and Correlating
legal theories in actual decision-making which is the
ultimate course outcome (CO) of this subject. Any business
person needs the competency to rationalize nature and
sources of obligations and the rights and duties arising in the
usual conduct of business. Thus, in this course you are
expected to apply your knowledge or read cases to further
the breadth of your analysis. Let us begin!
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2nd Floor, SS Building
Bolton Street, Davao City
Telefax: (082)227-5456 Local 131

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Big Picture A

Week 1-3: Unit Learning Outcomes (ULO): At the end of the unit, you
are expected to:

a. Explain the general nature and sources of law [Week 1]; and
b. Rationalize the kinds and effects of obligations [Week 2 to 3]

Big Picture in Focus: ULOa. Explain the general nature

and sources of law.

Metalanguage

In this section, the most vital terms relevant to the study of Law on
Obligations and Contracts and to demonstrate ULOa will be operationally
defined to establish a common frame of reference as to how the text
work in your chosen business career. As you progress in this topic, there
are new terms you will encounter but will be explained fully. Please refer
to below definitions for commonly and repeatedly used concepts in the
course of our discussion.
i. Law. It is a rule of conduct, just, obligatory, promulgated by
legitimate authority, and of common observance and
benefit.1

ii. Divine Law. The law of religion and faith. It varies on the
beliefs revealed to mankind thru messengers or prophets
e.g. Ten Commandments and Quoran.

iii. Natural law. This is based on internal dictates of

reason.The role of the sense of justice, fairness, and
righteousness in a man and not by divine revelation. It is
the reasonable basis of state law.

iv. Moral Law. The totality of the norms of good and right
conduct growing out of the collective sense of right and
wrong of every community.

v. Physical Law. The uniformities of actions and orders of

sequence which are the physical phenomena that we

1
De Leon and De Leon Jr., 2014(cited in I Sanchez Roman 3).
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sense and feel.

vi. State Law. It is promulgated and enforced by the state.

vii. Constitution. The fundamental law or supreme law or the

highest law of the land because it is promulgated by the
people themselves, binding all the citizens and agencies of
the government.

viii. Legislation. This pertains to enactment of laws by a

competent authority. Acts passed are called enacted law or
statute law. The Legislation includes ordinances enacted
by Local Government Units.

ix. Judicial decisions or jurisprudence. These are cases

decided by the Supreme Court with finality. Courts interpret
the law and constitution.

x. Custom. These are habits and practices which through

long and uninterrupted usage have become practiced and
approved by society as binding rules of conduct.

xi. Ignorantia Legis Neminem Excusat. Latin maxim for

“Ignorance of
the Law Excuses No one.”

Essential Knowledge
To perform the aforesaid big picture (unit learning outcomes) for
the first three (3) weeks of the course, you need to fully understand the
following essential knowledge that will be laid down in the succeeding
pages. Please note that you are not limited to exclusively refer to these
resources. Thus, you are expected to utilize other books, research
articles, and other resources that are available in the university's library
e.g. ebrary, search.proquest.com, etc.

Civil Code of the Philippines

The Law on Obligations and Contracts (Book IV) is found in

Republic Act No. 382, otherwise known as the Civil Code of the
Philippines. Civil law refers to the Civil Code. Below is Book IV scope of
discussion:
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Title I- Articles 1156-1304: Obligations

Title II-Articles 1305-1422: Contracts
Title III- Articles 1423-1430:Natural Obligations

Article 1156. An obligation is a juridical necessity to give, to do or

not to do.

An obligation is derived from a Latin word Obligatio which means tying

or binding.2

The three (3) types of obligations3 under the Civil Code are:

a. Civil obligations - those which derive their

binding force from positive law, and can be enforced by
court action or the coercive power of public authority;
b. Natural Obligations - those which are not based on
positive law but equity and natural law. They are not
granted a right of action to enforce their performance
although, in case of voluntary fulfillment by the debtor, the
latter may not recover what has been delivered or
rendered by reason thereof [Art.1423-1430]; and
c. Moral Obligations - Those which arise from moral
law developed by the church and not enforceable in court.
It deals with the spiritual obligation of a person in relation
to his God and church.

Obligation, Right, and Wrong Distinguished

An obligation is an act or performance which the law will enforce.

Right, on the other hand, is the power the person has under the law to
demand payment or performance from another. Whereas, wrong, also
called as injury, is an act or omission in violation of the rights of another.

An obligation cannot exist without a corresponding right in favor

of another, and vice versa.

Article 1156 is an incomplete definition because it refers to the

debt side which is the conduct to be observed by the obligor; there is no
debt without a credit.

Complete definition: A juridical relation between two persons

known as the creditor and debtor, whereby the former can demand from
2
De Leon and De Leon Jr., (2014, p. 17)
3
From the lectures of Atty. Lydia Galas
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the latter the observance of determinate conduct and in case of a

breach, may obtain satisfaction from the assets of the latter. 4

Four (4) Essential Requisites of an Obligation:

1) Passive Subject (debtor/obligor). The party who has the

duty-bound to perform the obligation.
2) Active Subject (creditor/obligee). The party who has the
right to demand the performance of the obligation.
3) Object or Prestation (subject-matter). The conduct required
to be observed by the debtor i.e. the giving, doing, or not
doing.
4) Juridical/Legal Tie (efficient cause). That binds or connects
the parties to the obligation. Determined by knowing the
source of the obligation [Art. 1157].

Meaning of Juridical Necessity. The aggrieved party may seek

court reliefs to enforce the fulfillment of the obligation or, in default
thereof, the economic value it represents, in case of noncompliance.

Kinds of obligations as to Subject-matter:

i. Real Obligation (Obligation to Give). The subject-matter is a

thing which the obligor/debtor must deliver.

Example: S (seller) binds herself to deliver a tray of eggs to B

(Buyer).

ii. Personal Obligation (Obligation to Do or Not to Do). A

subject-matter is an act to be done or not to be done:

a.Positive Personal Obligation. The obligation to do or render a

service.

Example: S (obligor) binds herself to repair the car of B (obligee).

b.Negative Personal Obligation. The obligation not to do or give.

Example: S (obligor) binds herself NOT to harvest from the

vegetable garden of B (obligee).

4
From the lectures of Atty. Lydia Galas
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Kinds of Prestation: To Give, To Do, and Not to Do

Requisites for its validity:

 It must be physically and juridically possible;

 It must be determinate or at least determinable according

to pre-established elements or criteria; and

 It must have a possible equivalent in money or pecuniary

value.

Article 1157. Obligations arise from:

(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by
law; and
(5) Quasi-delicts.

This article cites the sources of obligations.

Law

When obligations are imposed by law itself e.g. pay taxes.

Contracts

When it arises from an agreement between the parties e.g.

contract of loan.

Quasi-contracts

When they arise from the lawful, voluntary, and unilateral

act which are enforceable to the end that no one shall be unjustly
enriched at the expense of another [Art. 2142] e.g. the return of
money paid by mistake [Solution Indebiti].

Crimes/Delicts

These are acts or omissions punished by law which give

rise to a civil liability e.g. the duty of the thief to return the
groceries stolen or indemnify the owner.
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Quasi-delicts/Torts

They arise from damage caused to another through an act or

omission, there being fault or negligence, but no contractual relation
exists between the parties [Art. 2176].

Articles 1158 to1162 specify the general principles regarding the

sources of obligations in Art. 1157.

*Obligations are not presumed by law. To be demandable, they

must be set forth in the law.

*Principle of Compliance in Good faith. Agreements have the

binding force of law, and so the parties must comply in good faith.

* Art. 100 of Revised Penal Code. Every person criminally liable

is also civilly liable.

Civil liability may be:

a. Restitution [restoration to a former state e.g. return];
b. Reparation of damage cause; and
c. Indemnification of damages as a consequence of the crime.

Article 1160. Obligations derived from quasi-contracts shall be

subject to the provisions of Chapter 1, Title XVII, of this Book.

Quasi- contract

Definition [ibid. ,p. 10]. It is called as such as it is not properly a

contract at all. There is no consent as it is supplied by a fiction of law
[Presumptive Consent]. The law presumes that the parties entered into
an agreement although they have not done so, to prevent injustice or
unjust enrichment of a person at the expense of another.

Kinds of Primary Quasi-contracts:

a. Negotiorum Gestio- The voluntary management of affairs or
property of another; the management of or interference with the
business or affairs of another without authority. 5

5
Merriam-Law Dictionary
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Example: When C was away, his house was gutted in a fire. S, a

kind neighbor, saved some important belongings of C without his
consent. C now has the obligation to reimburse S for all the
expenses incurred in saving his belongings base on this principle.

b. Solutio Indebiti- a juridical relation created when something is

received when there is no right to demand it AND was unduly
delivered through mistake.

Example: C was asked to deliver the payment of her mother to Maria

as instructed. C handed the money to Patricia with the mistaken
belief that she was Maria. Patricia has the obligation to return the
money to C.

Other Quasi-contracts are governed by Article 2164 to 2175. Please

refer to these for further elucidation.

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.

Quasi-delict

An act or omission by a person which causes damage to another

[ there being a cause and effect connection between damage and
act/omission] in his person, property, or rights giving rise to an
obligation to pay for the damage done, there being fault or negligence
but no pre-existing contractual relation exists between the parties
[Article 2176].

Example:

A flowerpot is placed on top of the porch of a unit in a two-storey

building. Underneath the porch is a walking alley of the tenants adjacent
to M’s unit. M’s cat dropped the pot while avoiding a huge rat. This
injured a neighbor who happened to pass by below the porch. M is
liable to pay the damages caused to her injured neighbor.
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Unlike in crime, there is no malicious intent but mere negligence

in a quasi-delict. Crimes affect public interest while the other affects only
private interest. In crime, there are criminal and civil liabilities while only
civil liabilities for quasi-delicts. Contrary to civil liability, criminal liability
cannot be compromised. Lastly, the guilt required in crime must be
proved beyond reasonable doubt as contrasted by a quasi-delict
requiring proof by a preponderance of the evidence.

Self-Help: You can also refer to the sources below to

help you further understand the lesson:

*De Leon, H. (2014) The law on obligations and contracts

.Manila: Rex Book Store
*Paras, E. (2016) Civil code of the Philippines: annotated.
Volume IV.
Manila: Rex Book Store
*Aldeguer, C. (2014) Law on Obligations and Contracts in the
Philippines: An Overview. Available at SSRN:
https://ssrn.com/abstract=2429979 or
http://dx.doi.org/10.2139/ssrn.2429979
*Republic Act No. 386 : Civil Code of the Philippines
https://lawphil.net/statutes/repacts/ra1949/ra_386_1949.html
*Merriam-Webster’s Law Dictionary
https://www.merriam-webster.com/legal
*Wex - Legal Information Institute - Cornell University
https://www.law.cornell.edu/wex

Let’s Check

Activity 1. Now that you know the nature and sources of laws, let us try
to check your understanding. Define or give the meaning of the following
terms. Write your answers on the space provided.
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1. Natural law

_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________

2. Obligation
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________

3. Principle of Compliance in Good Faith

_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________

Let’s Analyze

Activity 1. Getting acquainted with the essential terms in the study is

not enough. What matters is that you should also be able to explain its
inter-relationships. Now, I will require you to explain thoroughly your
answers.

1. When can a person acquire a right of action in court against

another to enforce the performance of the obligation?
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________.

2. May a person incur obligations despite not entering into an

agreement?

_____________________________________________________
_____________________________________________________
_____________________________________________________
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_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________.

3. What is an efficient cause? How do you determine this element in

an obligation?
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
_______________________________________________________.

In a Nutshell
Activity. The basic study of Civil Law especially the Law on
Obligations and Contracts is one of the most essential ventures in
studying the course of business. Your knowledge of obligations and the
corresponding rights and duties obtained from this study will certainly
benefit you as students and when you become entrepreneurs or
business leaders in the future.

Based on the discussions made above and the learning exercises

that you have done, please feel free to write your arguments or lessons
learned below. In this part, you will be required to draw conclusions,
perspectives, and ideas from the unit lesson. I will supply the first item
and you will continue the rest.

1. Not all obligations are enforceable before the court of law.

Your Turn

2._____________________________________________

_______________________________________________

_______________________________________________.

3._____________________________________________
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_______________________________________________

_______________________________________________.

4.______________________________________________

_______________________________________________

________________________________________________.

5.______________________________________________

________________________________________________

________________________________________________.

Q&A LIST. This section allows you to list down all emerging
questions or issues. These questions or issues may be raised in the
LMS or other modes. Please write the answers after clarification. The
Q&A portion helps in the review of concepts and essential knowledge.

Do you have any questions for clarification?

Questions/Issues Answers
1.
2.
3.
4.
5.

KEYWORDS INDEX. This section lists the keywords that will help you
for recall. Keywords are similar to Metalanguage but without the definitions
and descriptions. This section includes concepts (a word or phrase), ideas,
theories, names of people, and other vital terms to remember. This section
also helps in the review.
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Law Divine Law Natural Law

Physical Law State Law Jurisprudence
Custom Ignorantia Legis Quasi- Contracts
Neminem Excusat
Solutio Indebiti Active Subject Passive Subject
Quasi-Delict Principle of Prestation
Compliance in Good
Faith
Moral Law Constitution Negotiorum Gestio
Efficient Cause Personal Obligation Real Obligation

Big Picture in Focus: ULOb. Rationalize the kinds and

effects of obligations

Metalanguage6

In this section, the most vital terms relevant to the study of Law on
Obligations and Contracts and to demonstrate ULOb will be operationally
defined to establish a common frame of reference as to how the text
work in your chosen business career. As you progress in this topic, there
are new terms you will encounter but will be explained fully. Please refer
to the definitions below for commonly and repeatedly used concepts in
the course of our discussion.
i. Bonus Pater y Familia. The diligence of a good father of a
family.

ii. Genus Nunquam Perit. Genus never perishes.

iii. “Accessory follows the principal.” . It means that

accessions and accessories are included in the obligation to
deliver.

iv. Fault or Negligence. The failure to observe the degree of

care, precaution, and vigilance which the circumstances justly
demand, whereby such other person suffers injury [US v. Barrias,
23 Phil 4334].

v. Fortuitous Event. Any event which cannot be foreseen, or

which, though foreseen, is inevitable. The happening,
6
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independent of the will of the debtor, makes the normal fulfillment

impossible. The presence of the requisites constitutive of a
fortuitous event may exempt an obligor of liability.

vi. Damages. Signify the monetary compensation awarded to a

party for loss or injury resulting from a breach of contract or
obligation by the other. The purpose of this is to place the
innocent party in the same position if the contract has not been
breached.

vii. Pure Obligation. One which is not subject to a suspensive or

resolutory condition, and no specific date is mentioned for its
fulfillment, thus, immediately demandable.

viii. Conditional Obligation. An obligation that is subject to a

condition, either a suspensive or resolutory one.

ix. Suspensive Condition. The happening of which will give rise

to an obligation.

x. Resolutory Condition. The happening of which will extinguish

an obligation.

xi. Potestative Condition. When the fulfillment of the condition

depends upon the sole will of the debtor, the conditional obligation
shall be void.

xii. Doctrine of Constructive Fulfillment. The condition shall be

deemed fulfilled when the obligor voluntarily prevents its
fulfillment. [Art. 1186]

xiii. Unilateral obligations. Only one party is obliged to perform.

xiv. Bilateral obligations. Both parties are bound to perform.

They are both debtors and creditors of each other.

xv. Alternative Obligations. There are several prestations due

but the performance or delivery of one is sufficient.

xvi. Facultative Obligations. Only one prestation is due but the

debtor, by his choice, may render another as substitute.

xvii. Joint Obligation. A kind of obligation where the entire

obligation must be paid proportionately by the debtors, or be
demanded proportionately by the creditors.

xviii. Solidary obligation. A kind of obligation where each debtor

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is bound to pay the entire obligation, or each creditor has the right
to demand for the entire obligation.

xix. Divisible obligation. The object of which is capable of partial

fulfillment.

xx. Indivisible Obligation. The object of which is incapable of

partial fulfillment.

xxi. Obligation with a penal clause. It consists of an accessory

obligation to pay a stipulated indemnity in case of breach in the
principal obligation.

Essential Knowledge
To perform the aforesaid big picture (unit learning outcome b) for
the second and third week of the course, you need to fully understand
the following essential knowledge that will be laid down in the
succeeding pages. Please note that you are not limited to exclusively
refer to these resources. Thus, you are expected to utilize other books,
research articles, and other resources that are available in the
university's library e.g. ebrary, search.proquest.com, etc.

Article 1163. Every person obliged to give something is also

obliged to take care of it with the proper diligence of a good father
of a family unless the law or the stipulation of the parties requires
another standard of care.

This provision refers to an obligation to give a specific or

determinate thing.

A thing is GENERIC OR INDETERMINATE when indicated by its

kind without being distinguished from others of the same kind. It
becomes determinate or determinable once the obligation is performed.

Example: A dog, A Police Dog, A Dachsund Dog

A thing is SPECIFIC OR DETERMINATE when it is individualized

and susceptible of specification or designation. It cannot be substituted
without the consent of the creditor.

Example: My Dog, the Dog named Gypsy, A Dachsund Dog

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named Mike

Duties of a debtor in obligation to give a Specific or Determinate

Thing:7

1. Observe the diligence of a Good Father of a Family(supra)- The

ordinary care or diligence of an average (reasonable prudent)
person exercised over his own property unless the law provides
otherwise; this is also considered as the standard degree of care.
2. Deliver the fruits of the thing [Art. 1164]l;
3. Deliver the accessions and accessories [Art. 1166];
4. Deliver the thing itself [Art. 1497]; and
5.Answer for damages in case of non-fulfillment or breach [Art.
1170].

Duties of a debtor in obligation to give a Generic or Indeterminate

Thing:8

1. Deliver the thing in a quality intended by the parties considering

the purpose and other circumstances [Art. 1246]; and
2. Liable for damages in cases of fraud, negligence, delay, or
contravention of the terms in the performance of obligation [Art.
1170].

Article 1164. The creditor has a right to the fruits of the thing from
the time the obligation to deliver it arises. However, he shall
acquire no real right over it until the same has been delivered to
him.

Different kinds of FRUITS:

i. Natural - Spontaneous products of soil and offspring of animals

Example: weeds, trees produced without human intervention

ii. Industrial - Produced by lands of any kind with human intervention

through cultivation or by labor .

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De Leon and De Leon Jr., (2014, p. 38)
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Example: vegetables, rice, planted with human labor

a. Civil -Products derived by virtue of juridical relation

Example: rents, dividends, royalties and the like

When the obligation to deliver the fruits arises:

a. From the perfection of a contract. Perfection refers to the birth of the

contract or the meeting of the minds of the parties [Art. 1305]; and

b. If the condition is subject to a suspensive condition or period, upon

the fulfillment of the condition or arrival of the term except in contract
of sale.

Example:

M agreed to give a horse to S yesterday. No date of delivery

was stipulated. While still in possession of M, the horse gave birth to
a colt. Who owns the colt?

S has the right over the colt (fruit) as it was born after the
obligation was perfected.

Real V. Personal Right

A personal right is the right to demand (by the creditor) from

another (debtor-passive subject) the latter’s obligation to give, to do or
not to do.

A real right is a right over a specific thing without a definite

passive subject against whom the right may be personally enforced.

Note: The right to the fruits of the thing shall ONLY BE PERSONAL,
and ONLY UPON DELIVERY of the thing, fruits, accessory and
accession shall the creditor acquire a REAL right over it.

Article 1166. The obligation to give a determinate thing includes

that of delivering all its accessions and accessories, even though
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they may not have been mentioned.

Accessions v. Accessories

Accessions -fruits of a thing or additions or improvements on the principal

thing
-Not necessarily together with the principal thing
-Usually of significant value
Example: House on land, air conditioner in a car

Accessories -things joined or included for the principal thing’s better use or
completion
-Must go together with the principal thing
-Lesser value or replaceable
Example: Key of car or house, bracelet of a watch

General Rule: ALL accessions and accessories are considered

included in the obligation to deliver a determinate
thing.

Principle: The accessory follows the principal.

Exception: When the accessions and accessories are

excluded from the agreement.

Article 1169. Those obliged to deliver or to do something incur in

delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation.

However, the demand by the creditor shall not be necessary in

order that delay may exist:

(1) When the obligation or the law expressly so declare; or

(2) When from the nature and the circumstances of the obligation it
appears that the designation of the time when the thing is to be
delivered or the service is to be rendered was a controlling motive
for the establishment of the contract; or

(3) When demand would be useless, as when the obligor has

rendered it beyond his power to perform.

In reciprocal obligations, neither party incurs in delay if the other

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does not comply or is not ready to comply in a proper manner with

what is incumbent upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins.

Kinds of Delay:

As to the performance of obligation

i. Ordinary - Merely the failure to perform the obligation on time

ii. Legal -also called a Default/Mora; the failure to perform the

obligation on time which constitutes breach of obligation.

Kinds of Legal Delay/Default/Mora:

a. Mora Solvendi -delay on the part of the debtor

b. Mora Accipiendi -delay on the part of creditor
c. Compensatio Morae -delay of OBLIGORS in reciprocal obligation
like a sale.

General Rule: Delay by the debtor begins only from the moment of
demand (not mere reminder or notice) made by the creditor upon the
debtor to comply with his obligation whether judicial (when a complaint
is filed) or extra-judicial (when made outside of court, orally or in
writing).

What are the conditions before mora solvendi effects may arise:9

1. Failure of the debtor to perform his obligation on the date agreed

upon;
2. Demand is made; and
3.Failure of the debtor to comply.

Effects of Delay:

a. The debtor is guilty of a breach;

b. Liable to the creditor for interest in case of money or damages in
others; and
c. Liable even for fortuitous events when its determinate thing.

Example10:

9
De Leon and De Leon Jr., (2014, p. 52)
10
De Leon and De Leon Jr., (2014, p. 51)
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S obliged himself to deliver to B a specific refrigerator on

December 10.

If S does not deliver the refrigerator on December 10, he is only

in ordinary delay in the absence of demand from B although a period
had been fixed for the fulfillment. The law presumes that B is giving S
an extension of time. The arrival of the period merely makes the
obligation demandable. Hence, there is NO breach of obligation, and S
is NOT liable for damages.

If a demand is made upon S on December 15 and S fails to deliver, S is

considered in default ONLY FROM THAT DATE.

If an action for specific performance is filed by B on December 20, the

payment of damages for the default must start on December 15 (on
extrajudicial demand) and not December 20.

In Compensation Morae
Delay of the obligor cancels the delay of obligee thus no actionable
default on both parties. However, if the delay of one party is followed by
the other, the liability of the first infractor shall be equitably reduced by
the courts. If it cannot be determined as to who is the first infractor, each
shall bear his own damages.

An Exception to General Rule: When Demand is NOT necessary to

put the debtor in delay.

1. When the obligation provides

S and R agreed that the latter will pay her loan on June 9 without the
need of demand.

2. When the law provides

The obligation to pay taxes on or before April 15 without the need for
demand from the state.

3. When time is of the essence

The delivery of a wedding cake on the day of the wedding; the payment
of money at a particular time so that the creditor may pay his debts on
the same day.

The debtor is fully aware that the performance after the

designated time would no longer benefit the creditor. The time element
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is as important as the performance itself. If time is NOT of the essence

such when no time is stipulated, the performance must be performed
within a reasonable time depending on the circumstances of the case.

4. When demand would be useless

The obligor is bound to deliver a dog on a particular date. For

whatever reason, the specific dog died. Here, demand is useless.

5. When there is a performance by a party in reciprocal obligations

There is no delay if none of the parties is willing to fulfill his

obligation. As soon as the other fulfills his obligation, delay on the other
begins. Demand not needed.

Article 1170. Those who in the performance of their obligations are

guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages.

Four (4) grounds of liability for Damages:

i. Fraud (deceit or dolo)

ii. Negligence (fault or culpa)
iii. Delay (mora)
iv. Contravention of the terms of the agreement

Fraud. The deliberate or willful evasion of the normal fulfillment of the

obligation. It implies malice or dishonesty but not tantamount to
mistakes or errors of judgment in good faith. An intentional perversion of
truth in order to induce another to part with something of value or to
surrender a legal right11. In this article, fraud pertains to incidental fraud
[dolo incidente]

Example:

M promised to deliver 100 sacks of rice from Bansalan, Davao

Del Sur to R. Unknowingly, R received imported but poor quality rice
from Indonesia. M is guilty of fraud and is liable for damages to R.

If M misrepresented the delivered rice as that from Bansalan, it is

considered as Causal Fraud [dolo causante] which is a ground for
annulment under Art. 1338 and 1390 [infra]. If M did not misrepresent, R
11
Merriam-Webster Law Dictionary
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will definitely not consent.

Waiver of action for future fraud (incidental) is void. It is as if no

waiver being against the law and public policy. Fraud is deemed serious
and evil to be discouraged. Waiver of action of past fraud, however, is
valid as an act of generosity of the victim. The waiver must be
expressed in clear language with no doubt as to renunciation of his right
against the obligor.

Negligence. Also called a fault. It consists in the omission of diligence

required by the nature of the obligation and corresponds with the
circumstances of the person, of the time and of the place. If the law
does not require a certain degree of care, the standard degree expected
of a good father of the family shall be observed.

Kinds of Diligence Required:12

i. That agreed by the parties, orally or in writing;

ii. In the absence of agreement, that required by law i.e.
extraordinary diligence for common carriers; and
iii. If both law and parties are silent, the diligence of a good father of
the family.

If negligence is gross or there is a failure to observe even slight

care showing bad faith, it is equivalent to fraud and be treated as such.

Waiver of future negligence may be renounced except when the

nature of the obligation requires extraordinary diligence like common
carriers.

Kinds of Negligence [Culpa]:

i. Contractual Negligence - Culpa contractual; presumed

negligence in violation of the contracts/agreement. It is not a source of
obligation rather makes the debtor liable for damages.

Ex: J broke the specific laptop he promised to be delivered to M. J is

guilty of negligence making him liable for damages.

ii. Civil Negligence -Culpa aquiliana; also called as tort; a source

of obligation

Ex: J broke the laptop of M because of the former's negligence. Here,

12
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no pre-existing obligation. The negligence is a source of liability itself.

iii. Criminal Negligence -Culpa criminal; negligence resulting in the

commission of the crime; Based on Art. 100 of Revised Penal Code or
Art. 2176 of Civil Code.

Ex: M may opt to file a case for culpa criminal [damage to property
through simple or reckless imprudence]. Here, the crime is the source of
obligation of Josef to pay damages. But no recovery of damages twice
from civil and criminal negligence.

If the creditor is also negligent and was the immediate and

proximate cause of his injury, he cannot recover damages. But if his
negligence is merely contributory, the court may mitigate the damages
to be awarded.

Delay [Supra. Art. 1169]

Contravention of the Terms of agreement. Violation of the terms and

conditions of agreement must not be due to a fortuitous event.

Example: S allowed M to stay in his house for free if he will not invite
guests without S’s permission. If he violates the agreement, M will pay
the monthly rent instead plus damages. M brought a friend in the house
thereby violating their agreement. M is now is bound to pay the rent for
the month and damages.

Article 1174. Except in cases expressly specified by the law, or

when it is otherwise declared by stipulation, or when the nature of
the obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or
which, though foreseen, were inevitable.

2 Types of Fortuitous Event:

1. Acts of Man Ex.War, fire, robbery, etc.
2. Acts of God Ex. Earthquake, lightning, shipwreck, flood, etc.
Also called a Force Majeure.

2 Kinds of Fortuitous Events under Contract of Lease:

a.Ordinary -common and reasonably foreseen, ex. rain
b.Extraordinary -uncommon and could not be reasonably foreseen
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ex. Earthquake, unusual flood, war

Requisites of a Fortuitous Event:13

a. The event is independent of the human will or at least of debtor’s

will;
b. The event could not be foreseen, or if foreseen is inevitable;
c. The event makes it impossible for the debtor to comply in a normal
manner; and
d. The debtor must be free from any participation in, or the aggravation
of, the injury to the creditor, that is, there is no concurrent negligence
on his part.

General Rule: A person is NOT liable for the loss or damage caused to
another resulting from the non-performance of his obligation due to
fortuitous events.

Exceptions: [Still liable despite the fortuitous event]

a. when expressly specified by law;

b. when by stipulation or agreement of the parties;
c.when the nature of the obligation requires the assumption of risk

Article 1175. Usurious transactions shall be governed by special

laws.

Simple Loan or Mutuum

It is a contract whereby one of the parties delivers to another,
money or other consumable things, upon the condition that the same
amount of the same kind and quality shall be paid. It may be gratuitous
or with a stipulation to pay interest. (Art. 1933)

Usury
Is contracting for or receiving interest in excess of the amount
allowed by law for the loan and use of money, goods, chattels, or
credits.14 However, usury is now legally non-existent according to
Central Bank Circular No. 905. Parties are free to stipulate any amount
but not an absolute right to charge iniquitous or unconscionable interest.

13
De Leon and De Leon, Jr. (2014, p. 69)
14
Tolentino v. Gonzales, 50 Phil. 558
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Requisites for recovery of interest:15

i. The payment of interest must be expressly stipulated

[Art.1956]
ii. The agreement must be in writing; and
iii. The interest must be lawful [Art. 1957]

Article 1177. The creditors, after having pursued the property in

possession of the debtor to satisfy their claims, may exercise all
the rights and bring all the actions of the latter for the same
purpose, save those which are inherent in his person; they may
also impugn the acts which the debtor may have done to defraud
them.

Remedies of the creditors for the satisfaction of their claims: 16

1. Exact fulfillment (specific performance) with the right to damages;

2. Pursue the leviable( not exempt from attachment under the law)
property of the debtor; or

3. After pursuing the properties in possession of the debtor, exercise all

rights like the right to collect, right to redeem except intransmissible
rights, personal to the debtor such as the right to vote, etc.

Example:
On the due date, S could not pay M his obligation in the amount
of P400,000. However, S owns a car worth about P280,000, and X is
indebted to him for P40,000. Before the due date, S sold his land worth
P200,000 to Y.

Under the circumstances, the rights granted to M under the law

are as follows:

a. He may bring an action for the collection of the amount of

P400,000 with a right to damages;
b. If S fails to pay the amount despite the judgment, M can ask
for the attachment of S’s car so that the car may be sold and
payment made from the proceeds of the sale;
c. He may ask the court to order X not to pay S so that payment
may be made to him ( M ); and

15
De Leon and De Leon (2014, p.72)
16
De Leon and De Leon (2014, p.76)
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d. He may ask the court to rescind or cancel the sale made by S

to Y on the ground that the transaction is fraudulent in case he
(M) cannot recover in any other manner his credit.

The last remedy can be resorted to only if M could not

collect in full his credit. He must first exhaust the properties of the
debtor or subrogate himself in the latter’s transmissible rights.

Different Kinds of Obligations:

I. Primary Classification

a. Pure and conditional obligations;

b. Obligations with a period;
c. Alternative and facultative obligations;
d. Joint and solidary obligations;
e. Divisible and indivisible obligations; and
f. Obligations with a penal clause.

a. Pure and Conditional Obligations

Article 1179. Every obligation whose performance does not depend

upon a future or uncertain event, or upon a past event unknown to
the parties, is demandable at once.
Every obligation which contains a resolutory condition shall
also be demandable, without prejudice to the effects of the
happening of the event.

A pure obligation is one which is not subject to a suspensive or

resolutory condition, and no specific date is mentioned for its fulfillment,
thus, immediately demandable.

Example:

M obliges himself to deliver 2 Siberian Husky puppies to S.

No condition, thus, demandable.

A conditional obligation is an obligation that is subject to a

condition, either a suspensive or resolutory one.

A condition is a future and uncertain event, or past but unknown

event, upon the happening of which, the effectivity or extinguishment of
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an obligation subject to it depends.

2 Kinds of Condition:

1. Suspensive - the happening of which will give rise to an

obligation.

Example:

M obliges himself to deliver 2 Siberian Husky puppies to S if

the latter will pass her next bar exam. Here, the obligation of M
will arise only after S will pass her bar exam which is the
suspensive condition.

2. Resolutory - the happening of which will extinguish an

obligation.

Example:

M agreed to let S use his house and car until such time that
she finishes college. If S graduates from college, she is no longer
allowed to use the house and car since M’s obligation has
already extinguished.

For Past but Unknown Events

This pertains to knowledge to be acquired in the future about a

past event which at present is unknown to the parties. Only then, that
the past event becomes uncertain.

Example:
M will sell his Jollibee shares to R if the value per share dives
down to P50. Unknown to him, the shares closed at P10 yesterday.
Upon discovery, M is bound to sell the shares upon knowing the
happening of the condition.

Other Principles:

i. When the fulfillment of the condition depends upon the sole will of the
debtor, the conditional obligation shall be void. This is called potestative
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condition. Its compliance is left to the will of the debtor and cannot be
easily demanded. This will grant escape to debtors to choose not to
perform his obligation. Hence, it is void.

Example: I will pay you if I want.

ii. When the condition depends on the will of the creditor, the obligation is
valid as the fulfillment depends on the beneficence of the creditor.

Example: I will pay you when you say so.

iii. Impossible conditions, those contrary to law, morals, good

customs, public order or public policy shall annul the obligations
which depend on them. Both the condition and obligation are void as
the debtor has no intention to be bound.

Example: I will pay you P5, 000 if the sun will not rise within 24
hours.
I will pay you P5, 000 if you slap your parents.

Article 1186. The condition shall be deemed fulfilled when the

obligor voluntarily prevents its fulfillment.

This is the Doctrine of Constructive Fulfillment.

Three (3) Requisites:

1. It is a suspensive condition;
2. The obligor/debtor actually prevents the fulfillment of the condition;
and
3. It was a voluntary act.

Malice or fraud is not necessary.

Example: R, a real estate broker, agreed to sell the property of

M for a commission of 8% of the selling price. R mentioned her
prospective buyer to M. M sold the property directly to R’s prospective
buyer to avoid the promised commission payment.

Here, the condition was prevented by M from happening.

Naturally, the obligation will not arise. Nevertheless, M remains liable to
pay the commission promised.

The same doctrine will apply to resolutory condition when the

debtor prevents the happening of the condition thus, the obligation is
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deemed extinguished.

Article 1191. The power to rescind obligations is implied in

reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.
The injured party may choose between the fulfillment and
the rescission of the obligation, with the payment of damages in
either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there
be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of
third persons who have acquired the thing, in accordance with
articles 1385 and 1388 and the Mortgage Law.

Kinds of obligations according to the person obliged:

a. Unilateral obligations- Only one party is obliged to perform. Ex.

Donation

b. Bilateral obligations-Both parties are bound to perform. They are

both debtors and creditors of each other.

2 Kinds:

1. Reciprocal Obligations- the tie arise from the same cause.

For example, the Contract of Sale has one cause. The payment
of one may be a suspensive condition for the delivery of the thing to
be sold. The seller is a creditor and debtor at the same time as both
parties have to perform their obligation to each other arising from one
cause or source of obligation.

2. Non-reciprocal Obligations- there is no correlative performance on

both parties. The performance of one does not give rise to the
performance of the other.

Example: M owes S P10, 000 while S obliges herself to deliver

the horse to M. They are both creditors and debtors of each other
but their obligations are not reciprocal. The sources of obligations
varies. One is a Contract of Loan while the other is Commodatum.
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Remedies in Reciprocal Obligations:17

If one of the parties failed to comply, the innocent and willing party may:

a. File an action for specific performance WITH damages; or

b. File an action for rescission WITH damages.

For Example, S is bound to deliver Gucci Bag to R. S failed to

comply. R may file action for specific performance or rescission. These
two remedies are alternative. Once, she chooses rescission, she can no
longer choose specific performance. But if she chose specific
performance and became futile, rescission may be availed of.

Article 1191 is a principal action for rescission for non-

performance of the obligation unlike the rescission under Article 1381
which is a subsidiary action on account of lesion or economic damage.
The aggrieved must resort to court for relief or the latter may fix the
period for compliance. It is a judicial rescission. However, if the subject-
matter of the obligation has been transferred to a third person in good
faith, rescission is not practicable. This does not apply also to slight
breaches; the violation must be significant to defeat the purpose of the
contract. Nevertheless, it is waivable.

Judicial Decree is Unnecessary When:

i. Parties stipulated that right to rescind is valid without the need of

judicial determination. A written notice of rescission is necessary.
If any of the parties objected to the extrajudicial rescission, the
court may still determine.

ii. The contract is still executory but one of the parties is willing to
comply. The aggrieved party may rescind the contract without
judicial decree. No stipulation on automatic rescission is
necessary.

If both parties are guilty of breach:

i. If the first infractor is known. The liability of one caused the

liability of the other. Hence, the first infractor’s liability is equitably
reduced.

ii. If the first infractor cannot be determined. Each of the parties

shall bear his own damages.
17
De Leon and De Leon (2014, p. 113)
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Example: M agreed to sell and deliver the car to R who will pay
on the delivery date. When the day arrived, no delivery was made by M.
A month after, M delivered the car to R who failed to tender the
purchase price. In this case, the first infractor is identified. If the
circumstances fail to determine the truth, the court will let the both suffer
their own share of damages.

b. Obligations with a Period

Article 1193. Obligations for whose fulfillment a day certain has

been fixed, shall be demandable only when that day comes.
Obligations with a resolutory period take effect at once, but
terminate upon arrival of the day certain.
A day certain is understood to be that which must
necessarily come, although it may not be known when.
If the uncertainty consists in whether the day will come or
not, the obligation is conditional, and it shall be regulated by the
rules of the preceding Section.

In an obligation with a period, the legal effects may arise

(suspensive) or extinguish (resolutory) upon the arrival of the period
which is a future and certain event e.g. 2021, Christmas Day.

More Examples:

a. I will provide for you until you die.

b. I will reimburse you 2 months from now.
c. I will pay you when my means permit me to do so. (Art. 1180)
d. I will pay you as soon as possible.18
e. I will pay you little by little.19

For examples c, d, and e, the debtor binds himself to pay except

that the duration is not indicated.

Legal Periods under Admin. Code of 1987

 Year- 12 calendar months

 Month- 30 days unless it refers to a specific month
 Day- 24 hours
 Night- Sunset to sunrise

18
De Leon and De Leon Jr., 2014 (cited Gonzales v. Jose, 66 Phil. 369)
19
De Leon and De Leon Jr., 2014 (cited Scone v. Francisco, 24 Phil. 309)
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Article 1197. If the obligation does not fix a period, but from its
nature and the circumstances it can be inferred that a period was
intended, the courts may fix the duration thereof.
The courts shall also fix the duration of the period when it
depends upon the will of the debtor.
In every case, the courts shall determine such period as
may under the circumstances have been probably contemplated
by the parties. Once fixed by the courts, the period cannot be
changed by them.

2 kinds of period:

i.Judicial period- when court fixes the period for the parties; and

ii.Contractual period- when parties stipulate the period for the

performance of obligation.

General Rule: The courts have no right to fix period for the parties
when the latter did not stipulate any.
Exception: The court may carry out the intention of the parties, OR fix
the duration of the period when it depends on the will of the debtor.

c. Alternative and Facultative Obligations

Article 1199. A person alternatively bound by different prestations

shall completely perform one of them. The creditor cannot be
compelled to receive part of one and part of the other undertaking.

Principles governing Alternative Obligations:

i. There are several prestations due but the performance or

delivery of one is sufficient;
ii. The right of choice generally belongs to the debtor unless
expressly granted to the creditor;
iii. The debtor cannot choose the impossible or unlawful prestation;
iv. The alternative nature is converted to a simple obligation if only
one prestation is practicable;
v. Once a choice is made, it must be communicated to the creditor;
vi. When the choice is communicated, the obligation ceases to be
alternative but becomes a simple one;
vii. If the debtor cannot make a choice due to creditor’s acts, the
former may rescind with damages;
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viii. If the debtor failed to deliver due to his fault, the damages is
equivalent to the value of the last thing which disappeared;
ix. If the choice is granted to the creditor, it ceases to be alternative
from the time it is communicated to the debtor; and
x. When the right of choice belongs to the creditor, but:

a. One of the things is lost thru fortuitous event, the creditor may
choose from whatever remains;
b. If in the same case, the loss is caused by debtor’s fault, the
creditor may choose from what remains or the value of the
lost thing, both with right to damages;
c. If all are lost thru debtor’s fault, the price of any of them
according to creditor’s choice plus damages is paid.

Example of Alternative Obligation:

M promised to deliver a box of apples, grapes, or an oranges to

S on her birthday. When the day arrived, M informed S that he will
deliver a box of oranges because of its availability in the market. The
alternative obligation has now become a simple obligation from the time
that M has notified S of his choice.

Article 1206. When only one prestation has been agreed upon, but
the obligor may render another in substitution, the obligation is
called facultative.
The loss or deterioration of the thing intended as a substitute,
through the negligence of the obligor, does not render him liable.
But once the substitution has been made, the obligor is liable for
the loss of the substitute on account of his delay, negligence or
fraud.

In Facultative Obligations, only one prestation is due but the

debtor, by his choice, may render another as substitute.

The right of choice belongs to the debtor only. Once the

substitution is made, the facultative nature ceases to be one and is
converted to a simple obligation.

Effect of loss of things :

a. Before Substitution

If the thing is lost thru fortuitous event, the liability is

extinguished.
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If the thing is lost thru debtor’s fault, he is liable with damages.

If the substitute is lost with or without debtor’s fault, he is not

liable and will not affect the obligation.

b. After Substitution

If the substituted thing is lost thru fortuitous event, the liability is

extinguished.

If the substituted thing is lost thru debtor’s fault, he is liable with

damages.

If the principal thing is lost with or without debtor’s fault, he is not

liable and will not affect the obligation.

Example of Facultative Obligation:

M promised to deliver a box of apple on S’ birthday but may

deliver a box of grapes as substitute. Because of the shortage of apples
in the market, M informed S that he will deliver a box of grapes. Here,
the obligation has now become simple.

d. Joint and Solidary Obligations

Article 1207. The concurrence of two or more creditors or of two or

more debtors in one and the same obligation does not imply that
each one of the former has a right to demand, or that each one of
the latter is bound to render, entire compliance with the prestation.
There is a solidary liability only when the obligation expressly so
states, or when the law or the nature of the obligation requires
solidarity.

2 Kinds of obligations according to number of parties:20

1.Individual – When there is only one (1) obligor and one (1) obligee;
and
2.Collective- When there are two or more obligors and two or more
obligee. It is presumed to be joint in nature.

Joint v. Solidary21

20
De Leon and De Leon Jr., (2014, p. 151)
21
Merriam-Webster’s Law Dictionary
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Joint obligation is a kind of obligation when one of two or more

obligors in a joint obligation is only liable for his or her portion of the
performance.

Solidary obligation is an obligation under which any of two or

more obligors can be held liable for the entire performance (as payment
of a debt).

NOTE: Solidary obligation is similar to joint and several liability in

common law

Words Used to indicate Joint Liability:22

Mancomunada
Mancomunadamente
Pro rata
Proportionately
We promise to pay

Words Used to indicate Solidary Liability:

Jointly and/or severally

Solidaria
In Solidum
Together and/or separately
Individually and/or collectively
Juntos o separadamente
I promise to pay

Principles governing Joint and Solidary Obligations:

i. Solidarity is not presumed;

ii. In joint indivisible obligation, the creditors’ rights will be prejudiced
only by collective acts. Thus, the debt must be proceeded against
all the debtors. If one is insolvent, the rest are not liable for his
share. The indivisibility of the obligation [e.g. car] does not give
rise to solidarity and vice versa;
iii. A solidary creditor cannot assign his rights without the consent of
all other creditors;

22
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Example of Joint Obligation:

M, S, and R owe J P90, 000. On due date, R was not able

to pay J of his share out of the obligation. M and S cannot be
made liable beyond their proportionate share of P30, 000 each.
Since there was no agreement whether it is a solidary kind of
obligation, a joint nature is presumed by law.

Example of Solidary Obligation:

If in the same case, M, S and R agreed to a solidary kind

of obligation, each of them are bound to pay J the entire P90,000
debt. The paying-debtor shall seek reimbursement from the other
debtors of their corresponding share out of the obligation i.e.
P30,000 each.

e. Divisible and Indivisible Obligations

Article 1223. The divisibility or indivisibility of the things that are

the object of obligations in which there is only one debtor and only
one creditor does not alter or modify the provisions of Chapter 2 of
this Title.

A divisible obligation is one the object of which is capable of

partial fulfillment while an indivisible obligation is otherwise. The
determining test is not the prestation but the intention of the parties or
the purpose of the contract.

Indivisibility may be based on the following: 23

i. Legal Indivisibility. When the law specifically prescribed so.

ii. Conventional Indivisibility. When the parties stipulate the
prestation to indivisible albeit divisible by nature.
iii. Natural Indivisibility. When the prestation by its nature is
indivisible e.g. singing of a song, delivery of a car.

Example of Divisible Obligation:

-When the obligor must finished the painting of room in seven (7)
days.
-When the obligation to pay back is in installments.
-When every resident was promised a food ration of five (5) kilos
of rice per week.
23
De Leon and De Leon Jr.(2014, p.183)
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Example of Indivisible Obligation:

-When the obligor is bound to deliver one unit of cellular phone.

-When somebody is promised a song to be sung on a wedding
day.
-When the debtor is obliged to pay his P50,000 debt in full at
once.

f. Obligations with a Penal Clause

Article 1226. In obligations with a penal clause, the penalty shall

substitute the indemnity for damages and the payment of interests
in case of noncompliance, 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 in

accordance with the provisions of this Code.

2 kinds of Obligations under Art. 1226:

1. Principal Obligation- Its existence and validity do not depend on

another obligation.

2. Accessory Obligation- It cannot stand alone as it depends on a

principal obligation.

An obligation with a penal clause consists of an accessory

obligation to pay a stipulated indemnity in case of breach in the principal
obligation. It has a coercive power to ensure compliance or fulfillment of
the obligation.

Will the stipulated penalty substitute for damages and interests?

As a general rule, the penalty substitutes for damages and

interests upon breach of the principal obligation.

Principles governing Penal Clause:

i. Creditor may STILL recover damages when:

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a. It is stipulated by the parties;

b. Obligor refuses to pay penalty thus legal interest on top may
be recovered; or
c. Obligor is guilty of fraud.

ii. Penalty may be enforced when stipulated but may be reduced

when unconscionable or in cases of partial performance;
iii. Proof of actual damage is not necessary to enforce penalty.
iv. The nullity of the penal clause does not nullify the principal
obligation; the nullity of the latter nullifies the former.
v. Penalty is not substitute for performance unless expressly
granted.

Self-Help: You can also refer to the sources below to help

you further understand the lesson:

*De Leon, H. (2014) The law on obligations and contracts

.Manila: Rex Book Store
*Paras, E. (2016) Civil code of the Philippines: annotated.
Volume IV. Manila: Rex Book Store
*Aldeguer, C. (2014) Law on Obligations and Contracts in the
Philippines: An Overview. Available at SSRN:
https://ssrn.com/abstract=2429979 or
http://dx.doi.org/10.2139/ssrn.2429979
*Republic Act No. 386 : Civil Code of the Philippines
https://lawphil.net/statutes/repacts/ra1949/ra_386_1949.html
*Merriam-Webster’s Law Dictionary
https://www.merriam-webster.com/legal
*Wex - Legal Information Institute - Cornell University
https://www.law.cornell.edu/wex
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Let’s Check

Activity 1. Now that you know the Effects of Obligations, let us try to check
your understanding. Define or give the meaning of the following terms.
Write your answers on the space provided.

1. Fortuitous Events
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________

2. Negligence
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________

3. The Diligence of Good Father of a Family

_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________

4. The Doctrine of Constructive Fulfillment

_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________

5. Potestative Condition

_________________________________________________
_________________________________________________
_________________________________________________
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_________________________________________________

Let’s Analyze

Activity 1. Getting acquainted with the essential terms in the study is not
enough, what also matters is you should also be able to explain its inter-
relationships or analyze the given case. Now, I will require you to explain
or justify thoroughly your answers.

1. Explain the Principle of “ Genus Nunquam Perit” in relation to

the Doctrine of Fortuitous Events.

_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________.

2. May future negligence be waived? May future fraud be

waived?

_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________.
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3. Case: Ronnie borrowed P50,000 from Mike payable after 5

months. Five months have lapsed and Ronnie failed to make
good payments. Is Ronnie considered in delay and liable for
interest? Justify your YES or NO.

_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
____________________________________________________.

4. Are all obligations with potestative condition considered void?

_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________.

5. Give one (1) example of an alternative obligation and one (1)

for facultative obligation.

_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________.

6. Case: A, B, C are co-debtors who owe X, Y, and Z P45,000.

How much is the liability of B?

_____________________________________________________
_____________________________________________________
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_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________.

In a Nutshell

Activity. The basic study of Civil Law especially the Law on

Obligations and Contracts is one of the most essential ventures in
studying the course of business. Your knowledge of obligations and the
corresponding rights and duties obtained from this study will certainly
benefit you as students and when you become entrepreneurs or
business leaders in the future.

Based on the discussions made above and the learning exercises

that you have done, please feel free to write your arguments or lessons
learned below. In this part, you will be required to draw conclusions,
perspectives, and ideas from the unit lesson. I will supply the first item
and you will continue the rest.

1. The exemption arising from the application of the Doctrine of

Fortuitous Events does not apply to Obligations to Deliver a
Generic Thing.

Your Turn

2._____________________________________________

_______________________________________________

_______________________________________________.

3._____________________________________________

_______________________________________________

_______________________________________________.

4.______________________________________________
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_______________________________________________

________________________________________________.

5.______________________________________________

________________________________________________

________________________________________________.

Q&A LIST. This section allows you to list down all emerging
questions or issues. These questions or issues may be raised in the
LMS or other modes. Please write the answers after clarification. The
Q&A portion helps in the review of concepts and essential knowledge.

Do you have any questions for clarification?

Questions/Issues An
swers
1.
2.
3.
4.
5.

KEYWORDS INDEX. This section lists the keywords that will help you in
matters of recall. Keywords are similar to Metalanguage but without the
definitions and descriptions. This section includes concepts (a word or
phrase), ideas, theories, names of people, and other vital terms to
remember. This section also helps in the review.

Bonus Pater Y Genus Nunquam Perit The Accessory follows

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Familia the Principal

Fortuitous Events Damages The Diligence of Good
Father of Family
Force Majeure Generic Thing Specific Thing
Criminal Negligence Natural Fruits Civil Fruits
Mora Mora Solvendi Mora Accipiendi
Fraud or Dolo Dolo Causante Dolo Incidente
Accessories Usury Real Right
Pure Obligations Conditional Suspensive Conditions
Obligations
Fault or negligence Mutuum Contractual Negligence
Doctrine of Unilateral and Alternative Obligations
Constructive Bilateral Obligations
Fulfillment
Industrial Fruits Compensation Morae Accession
Resolutory Facultative Obligation with a Penal
Conditions Obligations Clause
Joint Obligation Solidary Obligation Divisible and Indivisible
Obligation
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Big Picture B

Week 4-5: Unit Learning Outcomes (ULO): At the end of the unit, you
are expected to:

a. Rationalize legal means of terminating obligations.

Big Picture in Focus: ULOa. Rationalize the legal means

of terminating obligations

Metalanguage

In this section, the most vital terms relevant to the study of Law on
Obligations and Contracts and to demonstrate ULOa will be operationally
defined to establish a common frame of reference as to how the text
work in your chosen business career. As you progress in this topic, there
are new terms you will encounter but will be explained fully. Please refer
to definitions below for commonly and repeatedly used concepts in the
course of our discussion.
i. The Doctrine of Substantial Performance. When the
important part has been performed and only a small or minor part
has not been carried out, the obligor, in good faith, is allowed to
recover as if there had been a strict and complete
fulfillment/delivery LESS damages suffered by the obligee.

ii. Nemo dat quod non habet. Latin Maxim for “ You cannot
give what you do not have”.

iii. Legal Tender. That currency which if offered by the debtor in

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the right amount, the creditor must accept in payment of a debt in

money.

iv. Domicile. The place of person’s habitual residence; that he

has his true fixed permanent home and to which place he,
whenever he is absent, has the intention of returning. [17 Am.Jur.
588]

v. Residence. Only an element of domicile requiring bodily

presence as an inhabitant of a given place.

vi. Payment by cession. It is the assignment or abandonment of

all properties of the debtor for the benefit of his creditors in order
that the latter may sell the same and apply the proceeds thereof to
the satisfaction of their credits.

vii. Dation in payment. Called Adjudication or dacion en pago. It

is a conveyance of ownership of a thing as an accepted equivalent
of performance. It is an extinguishment of debt by the alienation of
property.

viii. Consignation. The act of depositing the thing or amount due

with the proper court when the creditor does not receive it, after
complying with the formalities of law. It is essentially judicial
requiring an extrajudicial tender of payment by the debtor to the
creditor.

ix.Condonation or remission. The gratuitous abandonment by

the creditor of his right against the debtor.

x. Confusion or merger. The meeting in one (1) person of the

qualities of creditor or debtor with respect to the same obligation.

xi.Compensation. The extinguishment to the concurrent amount

of the debts of two persons who, in their own right are debtors and
creditors of each other.

xii. Novation. The total or partial extinction of an obligation

through the creation of a new one that substitutes it.

xiii. Subrogation. The substitution of one (1) person (subrogee) in

the place of a creditor (subroger) with reference to a lawful claim or
right, giving the former all the rights of the latter, including the right
to employ all remedies to enforce payment.

xiv. Expromission. It takes place when a third person of his own

initiative and without the knowledge or against the will of the
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original debtor assumes the latter’s obligation with the consent of

the creditor.

xv. Delegacion. It takes place when the creditor accepts a third

person to take the place of the debtor at the instance of the latter.
All parties must consent.

Essential Knowledge

To perform the aforesaid big picture (unit learning outcomes) for

the fourth to the fifth week of the course, you need to fully understand the
following essential knowledge that will be laid down in the succeeding
pages. Please note that you are not limited to exclusively refer to these
resources. Thus, you are expected to utilize other books, research
articles, and other resources that are available in the university's library
e.g. ebrary, search.proquest.com, etc.

Article 1231. Obligations are extinguished:

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

Other causes of extinguishment of obligations, such as

annulment, rescission, the fulfillment of a resolutory condition, and
prescription, are governed elsewhere in this Code.

Other causes of Extinguishment:

-Death of an obligor required to render personal service [Art.

1311, par 1];
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-Compromise [Art. 2028]

-Impossibility of Fulfillment [Art. 1266]

-Happening of a fortuitous event (specific thing) [Art. 1174]

-Mutual desistance or withdrawal- since the mutual contract can

create an agreement, mutual disagreement ca cause its
extinguishment [Saura Import v. DBP 44 SCRA 445; Art. 1308]

(1)Payment or Performance

Article 1232. Payment means not only the delivery of money but
also the performance, in any other manner, of an obligation.

Payment or Performance- mode of extinguishing obligation consisting of:

a. Delivery of money; or
b. Performance in any other manner

2 Kinds of payment:

1. Normal or voluntary- when the obligor voluntarily pays the obligation;

and

2. Abnormal or involuntary- when a creditor institutes an action to collect

payment in order that the obligor shall comply with his obligation.

Requisites of a Valid Payment:

a. capacity of the person paying

b. capacity of the person receiving
c. delivery of the full amount
d. propriety of time, place and manner of payment
e. acceptance of the payment by the creditor
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Article 1233. 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 the case may be.

Article 1233: a.)Identity of prestation- the very thing must be paid;

b.) Integrity of prestation-fulfillment must be complete

General Rule: There is no payment if there is no complete delivery or

performance.

Exceptions: 1) Art. 1234- Doctrine of Substantial Compliance

[Supra.P. 24]

2)Art. 1235- Obligee in Estoppel

Article 1234. If the obligation has been substantially performed in

good faith, the obligor may recover as though there had been a
strict and complete fulfillment, less damages suffered by the
obligee.

The omission or defect must be slight and unimportant as to

frustrate the accomplishment of the intended work.

Example:

Shammy promised to deliver 1,000 pieces of dressed chickens

to Mike. By reason of supply shortage all over Mindanao, Shammy only
delivered 800 pieces. Shammy wanted to fully deliver except for the
reason beyond her control. Shammy can recover as though there has
been complete delivery minus the price of 200 dressed chickens.

Article 1235. When the obligee accepts the performance, knowing

its incompleteness or irregularity, and without expressing any
protest or objection, the obligation is deemed fully complied with.

Obligee in Estoppel means barred from further action or claims.

This happens when the creditor still accepts the performance despite
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knowledge of the incompleteness or irregularity and without protest or

objection accepts the performance. This is deemed a waiver of the
irregularity or incompleteness. The whole obligation is extinguished and
considered as complete or regular.

Example:

Mike obliged himself to purchase a basket of fruits in favor of

Shammy. Mike delivered boxes of sweets instead. Shammy accepted
without any protest and paid Mike the cost of the sweets. Here, the
obligation is deemed fully complied with.

Other principles governing Payment:

i. The creditor is not bound to accept payment from a third person who
has no interest in the obligation;

ii. If made without the knowledge or against the will of the debtor,
recovery is only up to the amount of debt at the time of payment;

iii. If made with the knowledge of the debtor, the payer shall have the
rights of reimbursement and subrogation i.e. the amount of debt and
other rights pertaining to the creditor [mortgage, guaranty, or penalty];

iv. Payment made by a third person who does not intend to be

reimbursed by is deemed a donation, thus requiring a debtor’s consent.
Insofar as creditor is concerned, payment is considered valid;

v. Payment made by one who does not have the free disposal of the
thing due and capacity to alienate it shall NOT be valid. [Nemo dat quod
Rule];

vi. Payment may be made to the creditor, successor-in-interest, or any

person authorized by him;

vii. Payment made after judicially ordered to retain it is invalid;

viii. In the obligation to deliver a generic thing, the Rule of Medium

Quality shall apply. The creditor cannot demand a superior quality nor
the debtor deliver an inferior one, unless stipulated;
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ix. Unless agreed, the extradjudicial costs shall be borne by the debtor;
and

x. Unless agreed or the debt is partly liquidated, the creditor cannot be

compelled to accept partial performance nor the debtor be required to
pay partially or in installments.

Article 1249 to 51

The payment shall be made in a currency stipulated. If not

practicable, it shall be paid in currency that is legal tender in the
Philippines.

Legal tender means the currency offered by the debtor and

accepted by the creditor as a payment.

Instruments [Checks, promissory notes] used as payment are in

itself not legal tender and may extinguish an obligation once encashed
or impaired through creditor’s fault.

During extraordinary inflation/deflation of the currency, the value

at the time of establishment of the obligation shall prevail and be the
basis of payment unless there is a contrary stipulation.

Inflation means the sudden drop in the value of money which

results to increase in general price level. Deflation, on the other hand,
is the reduced monetary circulation resulting to decrease of general
price level.

Example:

Mike borrowed P100, 000 from Shammy payable after 10 years.

On the 10th year, there was an extraordinary inflation (deflation) which
changed the value of the debt to P50, 000 (P150, 000). In this case
Mike must pay P50, 000 (P150, 000) UNLESS there used to be a
contrary stipulation stating that regardless of the extraordinary inflation
or deflation, Mike will still be paying P100, 000.
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Rules on Place of Payment:

1. Based on agreed place by the parties;

2. When there is NO agreement, and If it is determinate/specific thing, in

a place where the thing is at the time of constitution of the obligation; or

3. At the domicile of the debtor.

Domicile v. Residence

Domicile means the person’s habitual residence; his

fixed/permanent home. Whenever he is absent, he still has the intention
of returning home. Whereas, residence merely requires bodily
presence as an inhabitant.

It is believed, however, that domicile here pertains to actual

residence than the legal residence.

Special Forms of Payment:

A. Dation in Payment

Article 1245. Dation in payment, whereby property is alienated to

the creditor in satisfaction of a debt in money, shall be governed
by the law of sales.

Also called as dacion en pago or adjudicacion en pago. It is a

special form of payment by conveying ownership as an accepted
equivalent of payment or performance. A pre-existing obligation is
terminated by alienation of a property. It is therefor governed by the law
on sales.
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Example:

Mike owes Ronnie P100, 000. Mike, not being liquid on the due
date and after demand, offered to alienate his motorcycle as a form of
payment to which Ronnie accepted.

B. Application of Payments

Article 1252. He who has various debts of the same kind in favor of
one and the same creditor, may declare at the time of making the
payment, to which of them the same must be applied. Unless the
parties so stipulate, or when the application of payment is made
by the party for whose benefit the term has been constituted,
application shall not be made as to debts which are not yet due.

If the debtor accepts from the creditor a receipt in which an

application of the payment is made, the former cannot complain of the
same, unless there is a cause for invalidating the contract.

Application of payments is the designation or assignment of

payment by the debtor to two or more debts which are due [unless
undue debts were stipulated as included] and of the same kind in favor
of one (1) creditor. Assignment is needed because payment is not
sufficient to cover the entire debts.

Rules on application of payments:

i. The debtor has the first choice at the time of making the payment;

ii. Once exercised, it is irrevocable unless the creditor consents the

change;

iii. If the debtor does not apply the payment, the creditor may
designate as specified in the receipt with debtor’s consent;
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iv. If the creditor did not also designate or application is invalid, the
payment shall be applied to the most onerous debt due [Article
1254];

v. If the debts are of the same nature and burden, it shall be applied
proportionately; and

vi. Payment must be applied first to the interest if any, then the
principal, unless a contrary agreement exists. The debtor cannot
choose otherwise.

Most Burdensome Rule:

This applies when no application of payment was made by the

debtor and creditor.

a. An interest-bearing debt is more onerous than the non-interest-

bearing ones;

b. The debt as the sole debtor is more onerous than being one of the
solidary debtors;

c. Secured debts are more onerous than unsecured;

d. The higher interest rate is more onerous; and

e. That having penalty or penal clause is more onerous than those

debts having none.

Example of Application of Payments:

Mike has several matured debts: P10, 000, P1, 500, and P5, 000
with 3% interest p.a. He paid his creditor P5, 000. Here, Mike, as
debtor, can make his choice except as to P10, 000 debt as he cannot
force his creditor to accept partial payment unless the latter consents.
He may let his creditor do the application if he allows too. When both
parties did not make the application, the most burdensome rule will
apply. This means that the P5, 000 payment is deemed to have been
applied against the third debt which is interest-bearing.

C. Assignment in favor of Creditors (payment by Cession)

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Article 1255. The debtor may cede or assign his property to his
creditors in payment of his debts. This cession, unless there is
stipulation to the contrary, shall only release the debtor from
responsibility for the net proceeds of the thing assigned. The
agreements which, on the effect of the cession, are made between
the debtor and his creditors shall be governed by special laws.

Payment by cession is the assignment of all properties of the

debtor in favor of all his creditors so that the latter may sell them and
apply the proceeds to the debts.

Requisites:
a. There are 2 or more creditors;
b. Debtor is partially insolvent;
c. Assignment covers all properties; and
d. Cession is accepted by the creditors.

Dation in payment, unlike payment by cession, has only one (1)

creditor and does not presuppose insolvency of the debtor at the time
the payment becomes due. The creditor here becomes the owner of the
property while creditors in payment by cession sell the properties and
use the proceeds to extinguish the debts proportionately.

C. Tender of Payment and Consignation

Article 1256. If the creditor to whom tender of payment has been

made refuses without just cause to accept it, the debtor shall be
released from responsibility by the consignation of the thing or
sum due. Consignation alone shall produce the same effect 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;

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(4) When two or more persons claim the same right to

collect;

(5) When the title of the obligation has been lost.

Tender of payment means the offering of payment of debts due

to the creditor while consignation is the act of depositing the thing due
before the court.

Requisites of Consignation:

a. There is a due debt;

b. Tender of payment was made and there was invalid or unjustifiable

refusal on the part of the creditor to accept the payment;

c. Notice of consignation was given;

d. Thing is consignated; and

e. Subsequent notice made to interested parties.

Other principles governing consignation:

i. Prior and subsequent notices must be given to interested parties;

ii. Expenses of proper consignation must be charged against the

creditor;

iii. The debtor may ask the court to cancel the debt when
consignation is declared proper; and

iv. Prior to such declaration, or before the creditor has accepted the
consignation, the debtor may still withdraw the consignated thing
making the obligation to remain in force.

(2)Loss of the thing due

Principles governing loss of the thing due:

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i. Genus nunquam perit applies to generic things;

ii. In case of disagreement among the parties, the court determines

whether partial loss is equivalent to total loss that will extinguish the
obligation. There is partial loss when only a portion is lost or has
deteriorated;

iii. If the thing is lost while in possession of the debtor, he is presumed

to be at fault unless the contrary is proved; and

iv. Legal or physical impossibility of performance releases the debtor in

obligations to do.

(3)Condonation or Remission

Article 1270. Condonation or remission is essentially gratuitous

and requires acceptance by the obligor. It may be made expressly
or impliedly.

One and the other kind shall be subject to the rules which
govern inofficious donations. Express condonation shall,
furthermore, comply with the forms of donation.

Condonation is a form of donation requiring acceptance on the

part of the condoned. It is the abandonment or forgiveness of the debts
of the obligor.

Requisites of a valid condonation:

a. It must be gratuitous;
b. It is accepted by the obligor;
c. The parties have the capacity;
d. It is not officious; and
e. It must have complied with the formalities required by law on
donation.

What is an inofficious condonation?

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When one disposes more than what he is allowed by law to

donate in a will.

Kinds of Condonation/Remission as to date of effectivity:

a. Inter vivos- This takes effect during the donor’s lifetime; and

b. mortis causa- This takes effect upon the death of the donor
which must comply with the formalities of a will.

Presumption of Implied/Tacit Remission

This happens when the creditor delivers the private document

evidencing credit to the debtor even though the debt is not yet paid.
Evidence may be shown to be prove the contrary.

Example of Remission:

Mike chose to condone the entire debt of Ronnie amounting to

P1 Million. If Mike condones P500, 000 only, that is considered as
partial condonation/remission.

(4)Confusion or Merger of Rights

Article 1275. The obligation is extinguished from the time the

characters of creditor and debtor are merged in the same person.

There is confusion when the qualities of the creditor and debtor

meet in one (1) person pertaining the same obligation. The merger
creates the absurdity which results to extinguishment of the debt.
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Confusion taking place in the principal debt benefits the

guarantors. Confusion in the persons of guarantors does not affect the
principal debt.

Confusion of persons in a joint liability affects only the

proportionate share affected unlike when a solidary liability affects the
entire obligation.

Requisites of Confusion:

a. It pertains to the principal debt; and

b. There is complete confusion.

Example of Confusion:

Shammy issued a promissory note in favor of Mike who had it

indorsed. The recent indorsee was Ronnie who sought payment from
Shammy as the issuer/maker.
Shammy, the debtor in the promissory note, has now become a
creditor after payment made to Ronnie. The merger of persons as
debtor and creditor extinguishes her liability to the parties and from the
instrument.

(5) Compensation

Article 1278. Compensation shall take place when two persons, in

their own right, are creditors and debtors of each other.

Compensation is a mode of extinguishment of debt between two

persons who are reciprocally debtors and creditors. It may be total or
partial compensation depending on the amount of debts, or agreement
made.

Example:
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Mike owes Shammy P500. Shammy owes Mike P500. This is

total compensation. If Mike owes only P100, partial compensation may
be done as agreed.

Compensation be legal or voluntary. It is legal when it complies

with Article 1279.

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.

A legal compensation takes place by operation of law while

voluntary compensation takes place by agreement of the parties.

There is retention when the credit of one of the parties is subject

to the satisfaction of the claims of a third person, while controversy
exists when a third person claims he is the creditor of one of the parties.
(De Leon, 2014)

Legal compensation may take place by operation of law without

the parties knowing it or any need of their consent, not even requiring
full legal capacity to give or receive.

Other principles governing compensation:

i. Generally, guarantors cannot set up compensation except that which

the creditor may owe the principal debtor. This is primarily because the
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extinguishment of the principal obligation benefits that of the guaranty.

For example, Mike owes Shammy P1, 000 with Ronnie as guarantor.
Shammy owes Mike P1,000. Ronnie can set up compensation (Art.
1280). But if in the same case, Shammy owes Ronnie instead,
compensation cannot take place;

ii. Voluntary compensation can take place even if some of the requisites
of legal compensation are not present. An agreement is sufficient;

iii. Judicial compensation may take place when finally adjudged by the
court. Setoff of liabilities between both parties may be done in court. If
Mike owes Shammy P1,000. In a lawsuit, Shammy was adjudged as
liable to Mike worth 500. Here, compensation may take place up to
P500; and

iv. Compensation of debts from a voidable or rescissible contract is

allowed prior to being judicially rescinded or avoided. For example, a
contract with a minor may be considered as voidable contract. If the
minor owes the other P1,000 and the other person of legal age owes
the minor the same amount, compensation may take place prior to the
annulment of their contract by reason of minority.

(6) Novation

Article 1291. Obligations may be modified by:

(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor.

Novation has a dual function and that is to extinguish (total or

extinctive) or modify (partial or modificatory) obligations, or substitute a
new obligation in its stead.

Other kinds of novation:

a. Legal- by operation of law.

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b. Conventional- by agreement of the parties.

c. Express- When declared clearly and unequivocally.

d. Implied- When the old and new obligations are incompatible with
each other.

e. Real or objective- When object and principal conditions are changed.

f. Personal or subjective- When the person of debtor (substitution), or

person of the creditor (subrogation) is changed.

g. Mixed- A combination of real and personal novation.

Requisites of a valid novation:

a. A valid obligation;
b. Capacity and intention of parties to modify;
c. The changes constituting novation; and
d. The creation of a new and valid obligation.

Novation is not presumed by law. It is created by express

agreement of the parties, or by incompatibility of two (2) obligations. The
subsequent obligation must subsist independently from the first
obligation. Otherwise, the subsequent one novates the previous
obligation.

Example:

Mike agreed to deliver mango shakes to Shammy out of all the

mangoes supplied by the latter due by the end of the month. The next
week, Mike agreed to deliver avocado shakes. Is there incompatibility?
Here, there is none as both obligations are not incompatible. Neither
was there any clear novation expressed by the party.

If in the same example, Mike bound himself to deliver mango

float from the same mangoes supplied by Shammy, there is already
novation by incompatibility. Here, notice that the mango float or mango
shakes must be made out of the mangoes supplied by Shammy. This is
an example of incompatibility.
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Kinds of Substitution:

a.Expromission (Ibid.)

Example: Mike, a third person, approached Shammy, a creditor,

to pay for Ronnie’s debt. Shammy consented to this and that Ronnie will
be released from the obligation.

b.Delegacion (Ibid.)

In the same example, Ronnie, however, was the one who

introduced Mike to Shammy in order to pay his debt thereby releasing
Mike from the obligation.

In both forms of substitution, the consent of the creditor is a

necessary requirement.

General Rule: The old debtor is not liable to the creditor in case the new
debtor turns out to be insolvent.

Exceptions:

i. The old debtor is aware of the insolvency of the new debtor at the
time of delegacion; or

ii. The old debtor is unaware of the insolvency rather of public

knowledge at the time of delegacion.

This rule pertains only to insolvency. Any other causes do not

excuse the old debtor.

If novation extinguished the principal obligation, it does not

extinguish the accessory obligation [an exception to the general rule-
accessory follows the principal], if the latter benefits third persons who
are not privy to the novation.

Example:

Mike is bound to pay Ronnie P5,000. The interest of the loan will
be paid in favor of Shammy as Ronnie owes the latter P1000. As Mike
proposed for a new agreement whereby he will pay Ronnie his antique
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vase to which the latter agreed, the former is still liable to Ronnie
despite the new agreement made.

Article 1297. If the new obligation is void, the original one shall
subsist, unless the parties intended that the former relation should
be extinguished in any event.

General Rule: The old obligation is novated if the new obligation is

valid.

Exception: If the parties intended to extinguish the old one regardless

of the legal existence of the new obligation.

Novation may also effectuate in a voidable contract unless

annulled later on. If annulled, the old obligation subsists unless
otherwise intended.

In Article 1299, if the old obligation is a conditional one, the new

obligation by novation is similarly subjected to the same condition
unless otherwise intended. The life of the new obligation is dependent
on the validity of the old obligation which has complied with the
necessary requirements for its existence i.e. Conditions stipulated.

Subrogation [Ibid.]

In subrogation, there is a transfer of credit and rights pertaining to

the old creditor in favor of the new creditor as against the debtor or third
persons subject to agreement, if any. Subrogation may also be total or
partial. If in case the debtor becomes insolvent, the old creditor in partial
subrogation has preferred right over the debtor as against the new
creditor when it comes to the remainder.

Example:

Ronnie is indebted to Shammy for P50,000. Mike paid Shammy

P40,000 with the parties’ consent. A month later, Ronnie becomes
insolvent. In this case, Shammy has preferred right over Mike only up to
the amount of P10, 000.
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Kinds of Subrogation:

a. Legal – takes effect by operation of law even without the parties’

consent; or

b. Conventional - takes effect by agreement of the parties i.e. old

creditor, debtor and new creditor.

Article 1302. It is presumed that there is legal subrogation:

(1) When a creditor pays another creditor who is preferred, even

without the debtor's knowledge;

(2) When a third person, not interested in the obligation, pays with
the express or tacit approval of the debtor;

(3) 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.

Three (3) Cases of Legal Subrogation :

1. Mike owes Shammy P1Million under a mortgage. Mike also owes

Ronnie the same amount without mortgage. Shammy here is a
preferred creditor. If Ronnie chooses to be subrogated to the same
rights of Shammy, he may pay the debt of Mike if accepted by
Shammy without Mike’s consent or knowledge. Here, the law
operates a subrogation;

2. In the same example, absent the fact of mortgage, if Ronnie pays

the debts of Mike with the latter’s consent, subrogation by law steps
in; and

3. If in the joint obligation of P 50, 000, Ronnie pays the entire amount
subject to reimbursement from Shammy. Ronnie automatically
becomes a creditor even if no consent is obtained from Shammy.

Self-Help: You can also refer to the sources below to help

you further understand the lesson:
*De Leon, H. (2014) The law on obligations and contracts
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.Manila: Rex Book Store

*Paras, E. (2016) Civil code of the Philippines: annotated.
Volume IV. Manila: Rex Book Store
*Aldeguer, C. (2014) Law on Obligations and Contracts in the
Philippines: An Overview. Available at SSRN:
https://ssrn.com/abstract=2429979 or
http://dx.doi.org/10.2139/ssrn.2429979
*Republic Act No. 386 : Civil Code of the Philippines
https://lawphil.net/statutes/repacts/ra1949/ra_386_1949.html
*Merriam-Webster’s Law Dictionary
https://www.merriam-webster.com/legal
*Wex - Legal Information Institute - Cornell University
https://www.law.cornell.edu/wex

Let’s Check

Activity 1. Now that you know the Legal Means of Terminating Obligations,
let us try to check your understanding. Define or give the meaning of the
following terms. Write your answers on the space provided.

1. Distinguish Domicile from Residence.

_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________

2. Novation

_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________

3. The Doctrine of Substantial Performance

_________________________________________________
_________________________________________________
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_________________________________________________
_________________________________________________
_________________________________________________

Let’s Analyze

Activity 1. Getting acquainted with the essential terms in the study is not
enough, what also matters is you should also be able to explain its inter-
relationships or analyze the given case. Now, I will require you to explain
or justify thoroughly your answers.

1. Explain how Dacion en pago different from Payment by

Cession.

_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________

2. What are the formalities of a valid Tender of payment and

Consignation?

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_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________

3. Case: Shammy informed Mike (creditor) that she will pay for the
debt of Ronnie worth P100,000 to which the latter did not agree.

a. Is Ronnie released from her obligations?

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b. If Shammy turns insolvent, will Ronnie still be liable?

Justify your YES or NO.

____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________

In a Nutshell

Activity. The basic study of Civil Law especially the Law on

Obligations and Contracts is one of the most essential ventures in
studying the course of business. Your knowledge of obligations and the
corresponding rights and duties obtained from this study will certainly
benefit you as students and when you become entrepreneurs or
business leaders in the future.

Based on the discussions made above and the learning exercises

that you have done, please feel free to write your arguments or lessons
learned below. In this part, you will be required to draw conclusions,
perspectives, and ideas from the unit lesson. I will supply the first item
and you will continue the rest.

1. Payment may consist of not only the delivery of money but

also the giving of a thing, the doing of an act, or doing of an act.

Your Turn

2._________________________________________________

_________________________________________________________

_________________________________________________________
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3._______________________________________________________

_________________________________________________________

_________________________________________________________

4._______________________________________________________

_________________________________________________________

_________________________________________________________

5.________________________________________________________

__________________________________________________________

__________________________________________________________
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Q&A LIST. This section allows you to list down all emerging
questions or issues. These questions or issues may be raised in the
LMS or other modes. Please write the answers after clarification. The
Q&A portion helps in the review of concepts and essential knowledge.

Do you have any questions for clarification?

Questions/Issues An
swers
1.

2.

3.

4.

5.

KEYWORDS INDEX. This section lists the keywords that will help you
in matters of recall. Keywords are similar to Metalanguage but without the
definitions and descriptions. This section includes concepts (a word or
phrase), ideas, theories, names of people, and other vital terms to
remember. This section also helps in the review.

The Doctrine of Nemo dat quod non habet Legal Tender

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Substantial Performance
Residence Payment by Cession Dacio en Pago
Condonation Compensation Merger
Subrogation Expromission Delegacion
Most Burdensome Rule Application of Payments Inflation/Deflation
Voluntary Compensation Judicial Compensation Inter Vivos
Domicile Tender and Consignation Novation
Obligee in Estoppel Legal Compensation Mortis Causa

Big Picture C

Week 6-7: Unit Learning Outcomes (ULO): At the end of the unit, you
are expected to:

a. Explain the general nature, elements, form, and interpretation

of contracts; and
b. Distinguish the different kinds of contracts and explain its legal
consequences.

Big Picture in Focus: ULOa. Explain the general nature, elements,

form, and interpretation of contracts.

Metalanguage24

In this section, the most vital terms relevant to the study of Law on
Obligations and Contracts and to demonstrate ULOa will be operationally
defined to establish a common frame of reference as to how the text
work in your chosen business career. As you progress in this topic, there
are new terms you will encounter but will be explained fully. Please refer
to definitions below for commonly and repeatedly used concepts in the
course of our discussion.

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i. Contracts. It is defined as meeting of the minds between two

persons whereby one binds himself, with respect to the other, to
give something or to render some service. (Art. 1305)

ii. Agreement. Those terms agreed by parties which cannot be

enforced before the court of law.

iii. Aleatory. A contract classified by risks involved. It depends on

an uncertain event or contingency both as to benefit or loss.

iv. Commutative. It is when the undertaking of one party is

considered as equivalent of that of the other e.g. sale, lease.

v. Customs. These are habits and practices which through long

usage have been followed by society as binding rules of conduct.
It has the force of law when recognized and enforced by law.

vi. Morals. These deals with norms of good and right conduct
evolved in a community. They differ at different times and places
and with each group of people.

vii. Public Order. This pertains to public safety although it has

been considered to mean also the public weal.

viii. Public Policy. This is broader than public order. It does not
pertain only to public safety but anything for the public good.

ix. Innominate contracts. They have no specific designation or

name in the law.

x. Stipulation pour autrui. A stipulation in favor of a third person

who has the right to demand fulfillment provided he communicates
his acceptance to the obligor prior to revocation by the obligee or
original parties.

xi. Solemn Contract. This requires formalities prescribed by law.

xii. Counter-offer. It is a acceptance qualified by a condition

which is a rejection of the original offer.

xiii. Earnest money. It is a partial payment of a purchase price

and is considered as proof of the perfection of a contract.

xiv. Lucid Interval. It is a temporary period of sanity.

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xv. Mistake of law. This is an ignorance of some provisions of

law, or from erroneous interpretation of its meaning or conclusion
of legal effect of its meaning on the part of one of the parties.

xvi. Future inheritance. This refers to a property or right that a

person may inherit in the future.

xvii. Remunerative cause. It is cause which pertains to past

services rewarded.

xviii. Motive. The private reason which a party has in entering

into a contract.

xix. Lesion. A damage caused when price is unjust or

inadequate.

Essential Knowledge

To perform the aforesaid big picture (unit learning outcomes) for

the sixth to the seventh week of the course, you need to fully understand
the following essential knowledge that will be laid down in the
succeeding pages. Please note that you are not limited to exclusively
refer to these resources. Thus, you are expected to utilize other books,
research articles, and other resources that are available in the
university's library e.g. ebrary, search.proquest.com, etc.

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.

Contract v. Obligation

Obligation is broader than a contract. Contract is one of the

sources of obligations while obligation is the efficient cause arising from
the perfection of a contract.

Obligation may exist in the absence of a contract while the latter

cannot exist without an obligation.
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Kinds of Innominate Contracts:

Absence of designation by law does not make a contract invalid. It

made governed by an agreement, Civil Code Provisions, rules on
analogous contracts, or customs of the place. Examples are:

1. Do ut des = I give so you may give (barter/exchange)

2. Do ut facias = I give so you may do

3. Facio ut des = I do so you may give

4. Facio ut facias – I do so you may do

Elements of a Contract:

a. Essential elements- These are the consent, object or subject-matter,

and cause or consideration [COC].

b. Natural elements- They are presumed to exist in contracts unless

contrarily stipulated e.g. warranty against hidden defect.

c. Accidental elements- These are stipulations that the parties may

agree on.

Stages of a Contract:
1. Preparation/Conception/Policitacion- the negotiations between the
parties.

2. Perfection/birth- parties have had a meeting of the minds.

3. Consummation/termination- parties have performed their part of the

obligations, thus considered as executed or completed, or terminated by
mutual agreement.

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.
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This is the principle of autonomy of will. It is the freedom of the

parties to stipulate provided it is not contrary to law, morals, good
customs, public order, or public policy.

Moral

Ex. A contract entered into by Josef with a woman to be his

paramour until she has fully paid her debts to him is immoral and void.

Good Customs

Ex. A contract entered into by Josef on a condition that he will

enslave his father for a week in the workplace is against good customs
of respecting parents by children.

Public Order

Ex. A stipulation in a contract stating that Josef can freely eject a

tenant when they fail to make good their rental payments after a 1-week
grace period.

Public Policy

Ex. An agreement to NOT prosecute the driver who killed her

child in a vehicular accident is against public policy.

Other Principles/Characteristics of a Contract:25

i. Obligatory force and compliance in good faith [ibid.].

ii. Perfection by mere consent or consensuality- This is Article 1315.

Exceptions are Articles 1316 and 1356. These latter articles require
delivery or in written in a public instrument.

iii. Mutuality of contract- This is Article 1308. Both parties are bound by
the contract. Its validity or compliance cannot be determined by one
party only. Although, the determination of a performance may be left to a
third person who should communicate to the parties concerned. If for

25
From the lectures of Atty. Lydia Galas
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instance, the parties hired a real estate appraiser to appraise the land
subject for sale, the appraiser here is the third person who must
communicate his valuation to the parties to eventually effectuate the
sale.

iv. Just as nobody can be forced to enter into a contract, in the same
manner once a contract is entered into, no party can renounce it
unilaterally or without the consent of the other. 26

iv. Relativity principle- This is Article 1311. It states, as a general rule,

that a contract takes effect only between the parties, their assigns, and
heirs. This, however, has exceptions when the rights and obligations are
not transmissible by:

a. Their nature e.g. for contracts involving personal qualifications

to sing a song by a preferred celebrity;

b. Stipulation e.g. when parties prohibit transmission; and

c. Provision of law e.g. in contract of agency, partnership which

prohibits continuity rather extinguishes obligations upon death of the
party.

There are cases when strangers or third persons are

affected by a contract.

Who is a third person? 27

One who has not taken part in contract and is, therefore, a
stranger to the contract. He has no standing in law to demand the
enforcement of a contract or question its validity.

As a general rule, a third person has no rights and obligations

under a contract to which he is a stranger.

Exceptions to Rule of Relativity are:

a. Contracts containing a stipulation pour autrui (art. 311);

b. Contracts creating real rights (Art. 1312); and

26
From the lectures of Atty. Lydia Galas
27
De Leon and De Leon Jr., (2014, pp. 318-320)
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c. Contracts which have been violated at the inducement of a third

person {Art. 314)

A. Stipulation Pour Autrui

A stipulation in a contract which confers a favor upon a third

person who has a right to demand its fulfillment provided acceptance is
conveyed to the obligor prior to its revocation by the obligee or the
original parties.

Classes:
1. Stipulation is intended for the sole benefit of such person
(done beneficiary); and

2. Obligation is due from the promise to the third person (creditor

beneficiary)

Requisites:
1. Clear conferment of favor upon a third person;

2. Third person must have communicated his acceptance to

obligor prior to revocation by oblige or original parties;

3. The stipulation should be a part and not a whole of the

contract;

4. Stipulation must not be conditioned by any kind of obligation;

and

5. Neither of the parties is represented by the third person.

Example:

Mike owes Shammy P1 Million. They agreed that Mike will pay
Mike P100,000 monthly until the debt expires. In addition, the payment
must be given to Shammy’s nephew as his monthly allowance. The
nephew must communicate acceptance to Mike before Shammy will
revoke it or both parties.
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B. In contracts creating Real rights

A registered real right binds the whole world and attaches to the
property wherever it goes, thus, third persons are affected thereby.

Example: If the mortgaged land is registered and is sold to

another, the latter is bound by the agreement of the mortgage even if
initially he did not take part in the previous agreement.

Registration constitutes as public knowledge.

C. Contracts breached by reason of third person’s inducement

A third person can be sued for his unwarranted interference with

another person’s valid contract which constitutes as a quasi-

delict. This is premised on the principle that a contractual right is
considered as a property.

This is common in contract of sale perfected by parties. But by

reason of a third person’s inducement to buy a different property
instead, the party breached his obligation in the first contract thereby
making him liable for damages.

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; and
(3) Cause of the obligation which is established.

CONSENT

Article 1319. Consent is manifested by the meeting of the offer and

the acceptance upon the thing and the cause which are to
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constitute the contract. The offer must be certain and the

acceptance absolute. A qualified acceptance constitutes a
counter-offer.

Acceptance made by letter or telegram does not bind the

offerer except from the time it came to his knowledge. The
contract, in such a case, is presumed to have been entered into in
the place where the offer was made.

Consent is the concurrence of will or the meeting of the minds

between the parties on the subject-matter and cause of a contract.
Mutual assent may also take place when the offer meets the
acceptance of the offeree.

Other principles governing Offers:

i. An offer must be certain, absolute, and seriously intended. The offer

must be identical with the acceptance.

ii. If the offer is qualified, it is called a counter-offer. Qualifying an offer

means rejecting the original terms of the offer and substitutes it with
new terms. Example: I will sell my basket of fruits for P500. The other
party rejects it and offers to buy at P250. If accepted, then a contract is
perfected.

iii. Acceptance may be expressed orally or in writing. It is implied when

inferred from the conduct of the offeree.

iv. The terms of the offeror when it comes to time, place, and payment
must be complied with.

v. An offer made thru an agent may be communicated with acceptance

to effectuate a valid contract.

vi. An offer becomes ineffective upon the death, civil interdiction,

insanity, or insolvency of either party before acceptance is conveyed.
(Art. 1323)

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.
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Option Contract v. Option Period v. Option Money28

Option contract is a separate contract which grants a privilege

called an option to the offeree to accept an offer of the offerer within a
certain period.

Option Period is the period within which the offeree must accept
the offer.

The offer may be withdrawn as a matter right at any time before

acceptance except when it is founded upon a consideration.

Option Money is the consideration for the option given.

Example:

Shammy offered to sell her house and lot worth P10 Million to
Mike. Mike is still undecided to purchase it although it is offered at a
bargain price. In consideration of their friendship, Mike was offered 10
days to decide to buy the property. Here, Shammy may withdraw the
offer during the option period as the option to buy was not founded on a
consideration. If Mike paid for the period, Shammy must respect the
agreed period.

Article 1325. Unless it appears otherwise, business

advertisements of things for sale are not definite offers, but mere
invitations to make an offer.

Business advertisements of things for sale are mere invitations to

make an offer. However, if the advertisement is complete in all
particulars necessary in a contract, it ,may be considered as a definite
offer which if accepted will perfect a contract.

Invitation to make an offer: “For sale, House and Lot in Samal,

200 sqm for P1,450,000. Call 09191112222.”

28
De Leon and De Leon Jr., (2014, p. 339)
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Definite Offer: “For sale, House and Lot (Housing Development

Project of Home ID Realty) in Samal, 200 sqm for P1,450,000. Call
09191112222.”

Advertisements for bidders are invitations to make proposals and

the advertiser is not bound to accept the highest or lowest bidder,
unless the contrary appears. (Article 1326)

Here, the bidder is the one making the offer and not the
advertiser. The latter being free to reject or accept the bid. Upon
acceptance, contract is perfected.

OBJECT

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.

Requisites of things/services as object of contract: 29

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1. The thing must be within the commerce of men; those not of public
ownership nor common to everybody;

2. It is not legally or physically impossible. It should not be prohibited by

law nor outside the commerce of men such as the sale of a flying cow;

3. It must be in existence or capable of coming into existence;

4. It must be determinate or determinable [things only] without the need

of making a new contract.

Rights may also be an object of a contract for as long as they are

transmissible.

CAUSE

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 or benefit
which is remunerated; and in contracts of pure beneficence, the
mere liberality of the benefactor.

The cause is the reason or purpose of the parties entering into a

contract. It is something given in exchange for a legally enforceable
promise of another. In reciprocal contract like sale, the cause is the
subject matter for the other, and vice versa.

Cause v. Motive

Unlike a cause in a contract, motive is the personal reason the

party has in entering into a contract. It is usually unknown to the other
party. It is not essential to the validity of a contract. Its illegality does not
invalidate the contract.

Example: Ronnie offers to sell his car to Mike. Ronnie intended to

use the sales proceeds to buy prohibited drugs. The motive in selling
the car does not affect the validity of the contract of sale.

Other principles governing cause:

i. The cause must exist at the perfection of the contract.

ii. The cause is presumed to exist unless the contrary appears.

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iii. It must be true/real and lawful. It is unlawful if it is contrary to law,

morals, good customs, public order, or public policy.

iv. In absence of cause, the cause is either absolutely simulated or

fictitious, or no consideration at all.

v. In failure of cause, the failure to pay the price does not make it want
of cause. It is not essential to the existence of cause that payment or full
payment be made at the time of the contract. (Catangcatang vs.
Legayada, 84 SCRA 51)

vi. In illegality of cause, the contract is considered as void. For example,

the payment of P1 Million to the victims of a crime with a consideration
of not continuing with the prosecution of the case, is an illegal cause.

vii. In falsity of cause, the cause is void if it is erroneous. It is erroneous

when a cause is stated when in fact no cause actually exist. If the cause
is simulated such as when indeed a cause exists but different from the
real one, the contract remains valid.

viii. In lesion or inadequacy of cause, lesion means any damage caused

when the price is inadequate. It does not invalidate the contract. The
law assumes that the parties are aware of the worth of their bargain.
The exception is when there exist fraud, mistake, undue influence, or
defect in the consent given.

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.

The contract may be in an oral or written form, or partly oral and

partly written. When in writing, it may be in a public or private
instrument. It may also be classified as express or implied depending on
manifestation or expression of intentions.
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As a general rule, a contract is valid in whatever form. The

exceptions are:30
a. When law requires a certain form for its validity;

b. When law requires a certain form for its enforceability [To be

discussed in Art. 1403]; and

c. When law requires a certain form for the convenience of the

parties and to affect third persons. (Article 1358)

Form required for validity:31

a. Donation of real property- Art. 749

b. Donation of personal property exceeding P5,000- Art. 748

c. Sale of land thru agent- the authority of agent must be in writing.

Otherwise, the sale is void.

d. Stipulation to pay interest- it must be in writing; otherwise, no interest

is due. (Art.1956)

e. Contract of partnership- if immovable are contributed, it must be in a

public instrument with a signed inventory.

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;

(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;

30
De Leon and De Leon, Jr. (2014, p. 392)
31
De Leon and De Leon Jr., (2014, p. 390)
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(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.

Examples for Nos. 1 to 4:

1. Shammy borrowed money from Mike worth P100,000. Mike
asked for land as mortgage. The mortgage must be in a public
document by reason of the creation of real rights;

2. Mike, a business tycoon, left several properties to his heirs.

His son, Ronnie, refused to accept his inheritance. This should also be
in a public document;

3. Shammy is an executive secretary of Mike who wanted to

migrate in Canada for five years. Mike wanted Shammy to administer
his property. This power should be in a public document; and

4. In the above example, Mike, the mortgagee needs money prior

to the maturity of the loan. He has decided to assign his right as
mortgagee to Josef. This assignment must be in a public document.

Public document is a document acknowledged before the notary

public or official authorized to administer oath. If otherwise, it is
considered as a private instrument.

If the contracts are not in public document, it remains to be valid

and enforceable. The purpose of the form is to afford protection to the
parties and make it binding against third persons.

REFORMATION OF INSTRUMENTS
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Article 1359. When, there having been a meeting of the minds of

the parties to a contract, their true intention is not expressed in the
instrument purporting to embody the agreement, by reason of
mistake, fraud, inequitable conduct or accident, one of the parties
may ask for the reformation of the instrument to the end that such
true intention may be expressed.

If mistake, fraud, inequitable conduct, or accident has

prevented a meeting of the minds of the parties, the proper remedy
is not reformation of the instrument but annulment of the contract.

By means of reformation, a written instrument is corrected in a

way that the true intentions of the parties are reflected in the document.
The failure to express the intent of the parties is due to mistake, fraud,
inequitable conduct, or accident. It is required also that a clear and
convincing evidence of these cases are stated in the pleadings to avail
the relief. Hence, equity orders the reformation.

The mistake referred to in the previous paragraph must pertain to

mutual mistake. It is a mistake that is common to both parties. If one
party acted fraudulently (includes concealment) or inequitably, only the
innocent party or committing a mistake in good faith may seek relief thru
reformation. In cases of typographical errors or ignorance and the like of
a third person, either of the parties may ask for reformation.

The action for reformation may be ordered at the instance of the

successors or heirs of the innocent party.
No reformation in the following cases:
i. Simple donations inter vivos when no conditions imposed.- the
donor prefers to donate the property during the lifetime of the donor.
The latter is not bound to correct a mistake unless he initiates it himself;

ii. Will.- the right to dispose his estate according to his will is
strictly a personal and free act. Upon the death of the testator,
reformation cannot be resorted to correct a disposition in his will; and

iii. Void agreement. - simply because there is nothing to reform.

The agreement is devoid of legality to begin with.
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INTERPRETATION OF CONTRACTS

Article 1370. If the terms of a contract are clear and leave no doubt
upon the intention of the contracting parties, the literal meaning of
its stipulations shall control.

If the words appear to be contrary to the evident intention of

the parties, the latter shall prevail over the former.

Article 1371. In order to judge the intention of the contracting

parties, their contemporaneous and subsequent acts shall be
principally considered.

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

Article 1373. If some stipulation of any contract should admit of

several meanings, it shall be understood as bearing that import
which is most adequate to render it effectual.

Article 1374. The various stipulations of a contract shall be

interpreted together, attributing to the doubtful ones that sense
which may result from all of them taken jointly.

Article 1375. Words which may have different significations shall

be understood in that which is most in keeping with the nature and
object of the contract.

Article 1376. The usage or custom of the place shall be borne in

mind in the interpretation of the ambiguities of a contract, and
shall fill the omission of stipulations which are ordinarily
established.

Article 1377. The interpretation of obscure words or stipulations in

a contract shall not favor the party who caused the obscurity.

Article 1378. When it is absolutely impossible to settle doubts by

the rules established in the preceding articles, and the doubts
refer to incidental circumstances of a gratuitous contract, the least
transmission of rights and interests shall prevail. If the contract is
onerous, the doubt shall be settled in favor of the greatest
reciprocity of interests.
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If the doubts are cast upon the principal object of the

contract in such a way that it cannot be known what may have
been the intention or will of the parties, the contract shall be null
and void.

The purpose of interpretation is to ascertain the intention of the

parties from the wording of the contract.

Despite the application of Article 1370 to 77, doubts and

ambiguities still exist, the rules below shall be applied:

a. For Gratuitous Contracts.- interpretation shall lean in favor of

that which has the least transmission of rights or interests. For example,
if Mike gave Shammy a car. This is interpreted as mere Commodatum
(Contract on the use of property for free) and not donation (When Mike
might lose the property if he meant otherwise.)

b. For Onerous Contracts.- interpretation shall lean in favor of the

greatest reciprocity of interests. For example, Shammy loaned Ronnie
money at an interest. No other terms indicated. This presumes that the
amount is at 12% legal interest per annum, wherein both parties can
benefit from the contract; and

c. If doubts on the Principal Object of the Contract.-the contract

becomes void. An example is when Mike died promising to give his car
but discovered that he owns 100 cars. It failed to meet the determinate
quality of an object of contract.

Self-Help: You can also refer to the sources below to help you
further understand the lesson:

*De Leon, H. (2014) The law on obligations and contracts

.Manila: Rex Book Store
*Paras, E. (2016) Civil code of the Philippines: annotated.
Volume IV. Manila: Rex Book Store
*Aldeguer, C. (2014) Law on Obligations and Contracts in the
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Philippines: An Overview. Available at SSRN:

https://ssrn.com/abstract=2429979 or
http://dx.doi.org/10.2139/ssrn.2429979
*Republic Act No. 386 : Civil Code of the Philippines
https://lawphil.net/statutes/repacts/ra1949/ra_386_1949.html
*Merriam-Webster’s Law Dictionary
https://www.merriam-webster.com/legal
*Wex - Legal Information Institute - Cornell University
https://www.law.cornell.edu/wex

Let’s Check

Activity 1. Now that you know the Nature, Elements, and Solemnities of
Contracts, let us try to check your understanding. Define or give the
meaning of the following terms. Write your answers on the space
provided.

1. Perfection of a contract
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2. Cause of a contract
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3. Reformation
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Let’s Analyze
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Activity 1. Getting acquainted with the essential terms in the study is not
enough, what also matters is you should also be able to explain its inter-
relationships or analyze the given case. Now, I will require you to explain
or justify thoroughly your answers.

1. In option contract, can the offeror freely withdraw the option

granted to the offeree?

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2. Will the party’s motive affect the validity of the contract?

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3. Case: Shammy promised to sell one of her kidneys for

P500,000. Is the sale valid?

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In a Nutshell
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Activity. The basic study of Civil Law especially the Law on

Obligations and Contracts is one of the most essential ventures in
studying the course of business. Your knowledge of obligations and the
corresponding rights and duties obtained from this study will certainly
benefit you as students and when you become entrepreneurs or
business leaders in the future. Based on the discussions made above
and the learning exercises that you have done, please feel free to write
your arguments or lessons learned below. In this part, you will be
required to draw conclusions, perspectives, and ideas from the unit
lesson. I will supply the first item and you will continue the rest.

1. There is perfection of contract when the acceptance is

communicated to the offeror.

Your Turn

2._________________________________________________

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_________________________________________________________

3._________________________________________________

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4._________________________________________________

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_________________________________________________________

5._________________________________________________

_________________________________________________________

_________________________________________________________

Q&A LIST. This section allows you to list down all emerging
questions or issues. These questions or issues may be raised in the
LMS or other modes. Write the answers after clarification. The Q&A
portion helps in the review of concepts and essential knowledge.

Do you have any questions for clarification?

Questions/Issues Answers

1.

2.

3.

4.

5.

KEYWORDS INDEX. This section lists the keywords that may help
you in matters of recall. Keywords are similar to Metalanguage but without
the definitions and descriptions. This section includes concepts (a word or
phrase), ideas, theories, names of people, and other vital terms to
remember. This section also helps in the review.
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Aleatory Innominate Public Policy

Commutative Stipulation Pour Autrui Earnest money

Lucid Interval Public Order Option money

Onerous Gratuitous Remuneratory

Big Picture in Focus: ULOb. Distinguish the different kinds of

contracts and explain its legal consequences.

Metalanguage

In this section, the most vital terms relevant to the study of Law on
Obligations and Contracts and to demonstrate ULOb will be operationally
defined to establish a common frame of reference as to how the text
work in your chosen business career. As you progress in this topic, there
are new terms you will encounter but will be explained fully. Please refer
to definitions below for commonly and repeatedly used concepts in the
course of our discussion.
i. Rescissible Contracts. Considered as valid contracts
because all the essential requisites of a contract exist but by
reason of economic injury or damage to one of the parties or third
persons, such as creditors, the contract may be rescinded.

ii. Voidable Contracts. Considered as valid until annulled unless

there has been ratification. The defect vitiating consent is
considered as a vice.

iii. Unenforceable Contract. It cannot be sued upon or enforced

unless they are ratified. It is more defective than a voidable
contract as the latter is farther from absolute nullity.

iv. Void or inexistent Contract. Absolutely null and void. They

have no legal effect at all and cannot be ratified.

v. Mutual Restitution. Upon rescission of the contract, the parties

must return to each other the object with its fruits and the price
with its legal interest.
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vi. Annulment. A remedy provided by law for the declaration of

the inefficacy of a contract based on a defect or vice in the
consent of one of the contracting parties in order to restore them
to their original position before the contract was executed.

vii. Ratification. One voluntarily adopts or approves some

defective or unauthorized act or contract which without his
subsequent approval or consent would not be binding on him. It
cleanses the contract from all its defects from the moment it was
constituted.

viii. Insolvent. The debtor has no sufficient properties to meet

his obligations.

ix. Lucid Interval. It is a temporary period of sanity of an insane

or demented person.

Essential Knowledge

To perform the aforesaid big picture (unit learning outcomes) for

the sixth to the seventh week of the course, you need to fully understand
the following essential knowledge that will be laid down in the
succeeding pages. Please note that you are not limited to exclusively
refer to these resources. Thus, you are expected to utilize other books,
research articles, and other resources that are available in the
university's library e.g. ebrary, search.proquest.com, etc.

Article 1381. The following contracts are rescissible:

(1) Those which are entered into by guardians whenever the wards
whom they represent suffer lesion by more than one-fourth of the
value of the things which are the object thereof;

(2) Those agreed upon in representation of absentees, if the latter

suffer the lesion 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 defendant without the knowledge and approval
of the litigants or competent judicial authority;
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(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.

Requisites of Rescission:

1. The contract must be validly agreed upon;

2. There must be lesion or pecuniary prejudice to one of the parties or 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 damage;

5. The party asking for rescission must be able to return what he is

obliged to restore;

6. The object must not legally be in the possession of third persons who
did not act in bad faith; and

7. The period for filing the action must not have prescribed.

The six (6) types of Rescissible contracts:

1) Those entered into by wards. A ward is a person under

guardianship by reason of incapacity.

Example: If the lesion is more than ¼, the ward can rescind the
contract upon reaching the age of majority.

2) Contracts agreed upon in representation of absentees. An

absentee is a person who disappears from his domicile his
whereabouts being unknown, and without leaving an agent to
administer his property. The absentee suffers more than ¼ lesion.
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BOTH in (1) and (2), transactions are done by guardians and

absentees’ representatives.

3) Contracts undertaken to defraud creditors; requisites are:

a. There must be an existing credit prior to the contract to be rescinded,

although it is not yet due or demandable;

b. There must be fraud on the part of the debtor which may be presumed
or proved; and

c. The creditor cannot recover his credit in any other manner, it not being
required that the debtor be insolvent.

4) Contracts which refer to things under litigation.

Example: A case involves a question of ownership over a land. The

land is a thing under litigation. Selling the land pending litigation makes it a
rescissible contract unless the land is transferred to a third person in good
faith.

5) Other instances: Judicial or extrajudicial Partition, when the co-heir

receives less by at least one-fourth than his entitled share; Article 1191-
Power of Resolution [Ibid.]

6)Payments made in a state of insolvency applicable to contracts

not only due and demandable but also obligations with a
suspensive period and condition and natural obligations.

Rescission is a subsidiary remedy that can be availed only if the

injured party [defrauded or subrogated creditor and injured party’s
heir’s/assigns] has no the means to obtained redress for the damage
even if covered by Article 1381. It shall only be to the extent of the
creditor’s unsatisfied credit. The policy of the law is to preserve the
contract than extinguish it.

Rescission creates mutual restitution [Supra]. This applies when

the one who demands rescission is willing to return what he is obliged to
restore however not when the object is in possession of third persons
who did not act in bad faith. Damages may also be demanded from the
person causing the loss.
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Periods for filing an action for rescission

General Rule: Must be commenced within 4 years from the date

of the contract.

Exceptions:

1. The period shall begin from the termination of incapacity of

wards; and

2. From the time the domicile is known for absentees.

Article 1390. The following contracts are voidable or annullable,

even though there may have been no damage to the contracting
parties:

(1) Those where one of the parties is incapable of giving

consent to a contract;

(2) Those where the consent is vitiated by mistake, violence,

intimidation, undue influence, or fraud.

These contracts are binding unless they are annulled by a

proper action in court. They are susceptible of ratification.

These contracts possess all the essential requisites of a valid

contract but one of the parties is incapable of giving consent or consent
is vitiated by mistake, violence, intimidation, undue influence, or fraud.

1.(General Rule)Persons who are incapable of giving consent

(Article 1327):

a. Unemancipated minors

Below 18 years of age;

Emancipation is attained by reaching the age of majority.

b. Insane or demented persons

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Insanity must take place at the perfection of the contract.

The party however may validly contract during his lucid interval.
(ibid.) During this period, the person is aware of the
circumstances of his transactions.

c. In a state of drunkenness or during a hypnotic spell

These have the equivalence of temporary insanity.

d. Deaf-mutes who does NOT know how to WRITE

They do not know how to read. Those who can read

naturally knows how to write unless prevented by a physical
impairment. So, if a deaf-mute who can read enters into contract,
it is considered valid. Moreso, his writing is a manifestation that
consent exists.

(Exception)When the law incapacitates them to give valid consent,

such as:

a. When necessaries are given to a minor or those incapacitated to

give consent (Article 1489);

Necessaries are defined by Article 194 of the Family Code:

Article 194
Support comprises everything indispensable for sustenance,
dwelling, clothing, medical attendance, education and
transportation, in keeping with the financial capacity of the family.

The education of the person entitled to be supported referred to

in the preceding paragraph shall include his schooling or training
for some profession, trade or vocation, even beyond the age of
majority.  Transportation shall include expenses in going to and
from school, or to and from place of work.  

Necessaries are essentials required for subsistence or

survival. It includes all that is reasonably needed for maintaining
a certain lifestyle. Necessaries depend on one's age, status, and
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the norms of a particular society. It includes medical attention

and education.32

b. Contracts entered into by guardians in behalf of the wards;

Incompetents under guardianship according to the Rules of Court: 33

i. Persons suffering the accessory penalty civil interdiction;

ii. Hospitalized lepers;

iii. Prodigals;

iv. Deaf and dumb who are unable to read and write;

v. Having unsound mind albeit with lucid intervals;

vi. Those who by reason of age, disease, weak mind and other
analogous cases, cannot without outside aid, take care of
themselves and their property, becoming thereby an easy prey
for deceit and exploitation (Sec. 2 Rule 92, Rules of Court)

c. When a minor misrepresented his age and led the other party to
rely in good faith on that representation; and

d. When the minor complied with his obligation which constitutes

in the delivery of fungible goods such as money or another thing,
and the creditor consumed such thing delivered in good faith
(Article 1427).

2. Vices of Consent:
Article 1330. A contract where consent is given through mistake,
violence, intimidation, undue influence, or fraud is voidable.

Consent must be intelligent, free and voluntary, and spontaneous.

Vices:

a. error or mistake

32
https://definitions.uslegal.com/
33
De Leon and De Leon Jr., (2014, p. 345)
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This is substantial mistake of fact. Too substantial that

caused the party to enter into a contract. This includes the
quality, quantity, motives, or identity and qualifications of a party
which may be the principal cause of contract.

Example: The purchase of an electric fan which does not

have the rotating speed of an industrial fan. The latter quality is
the principal cause of the contract.

Quantity issues may be subject for corrections unless the

very essence of the contract. Motives may be considered only
when it constitutes the condition or cause of a contract. In terms
of identity or qualifications, if the latter is so essential and the
very reason why the other party contracted, then mistake may
vitiate a consent. For example, Shammy donated her laptop to
Ronnie whom she thought to be the daughter of her bestfriend
but turned out to be a stranger.

If the party knew about the contingency, risk and doubt,

mistake cannot be alleged. This means that the party was willing
to assume the risk.

Example: Mike wants to purchase a land which is a

subject of litigation. If the other party wins, Mike cannot allege
mistake to annul the contract.

Mistake of law, such as the erroneous interpretation of a

contract by the party, does not invalidate consent. In order to
vitiate consent, it must be a mutual error and must frustrate the
purpose of the contract. This is common in agreements written in
documents which are understood to have similar legal effect,
thus, no meeting of minds taking place. If parties agreed on a
transaction but was written on a document not reflecting such
intention, remedy of reformation is proper.

b. violence or force

This pertains to physical, serious, and irresistible force by

the other contracting party or a third party. The victim is
automated by violence to agree mechanically only.
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c. intimidation or threat

There is intimidation when one of the contracting parties is

compelled by a reasonable and well-grounded fear of an
imminent and grave evil upon his person or property, or upon the
person or property of his spouse, descendants or ascendants, to
give his consent. (Article 1335)

Factors like age, sex, and condition of the person shall be

considered to determine degree of intimidation. Intimidation need
not have physical force rather it is formed fear internally caused
by the other party or a third party.

Example: Mike gave his consent after Josef poked a gun

on his head. If Josef hit Mike’s head which led the latter to sign
the contract, there is violence.

d. undue influence

Article 1337. There is undue influence when a person

takes improper advantage of his power over the will of another,
depriving the latter of a reasonable freedom of choice. The
following circumstances shall be considered: the confidential,
family, spiritual and other relations between the parties, or the
fact that the person alleged to have been unduly influenced was
suffering from mental weakness, or was ignorant or in financial
distress.

Example: Josef sold his 4 Hectares of land for P50,000 for

the immediate hospitalization of his mother. This is not an arm’s
length transaction. The seller has preyed on the financial distress
of the seller.

An arm's length transaction refers to a business deal in

which buyers and sellers act independently without one party
influencing the other. These types of sales assert that both
parties act in their own self-interest and are not subject to
pressure from the other party; furthermore, it assures others that
there is no collusion between the buyer and seller. In the interest
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of fairness, both parties usually have equal access to information

related to the deal.34

e. fraud or deceit

Article 1338. There is fraud when, through insidious words

or machinations of one of the contracting parties, the other is
induced to enter into a contract which, without them, he would
not have agreed to.

Other principles governing Fraud:

i. This pertains to causal fraud which induces the other to enter

into a contract. Absence of which, the party would not have
consented thereto.

Requisites of Causal Fraud:35

1. There must be misrepresentation or concealment of a
material fact with knowledge of its falsity;

2. It must be serious and not slight and usual deviations

from the truth which are frequently present;

3. It must be employed by only one of the contracting

parties. They should not be in pari delicto. Otherwise, the
fraud of one neutralizes the other making the contract
valid. When committed by a third person, it does not vitiate
consent unless with the knowledge of, or in connivance
with the favored contracting party;

4. It must be committed with intent to deceive;

5. It must have induced the consent of the other; and

6. It must be alleged and proved by clear and convincing

evidence.

34
https://www.investopedia.com/terms/a/armslength.asp
35
De Leon and De Leon Jr., (2014, p. 359)
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ii. Incidental fraud (ibid.) gives rise to indemnification of damages

only and not annulment of a voidable contract with damages
(causal fraud);

iii. Fraud by concealment is equivalent to misrepresentation or

false representation.

iv. Dealer’s talk/Merchant’s talk/Trader’s talk are considered as

tolerated fraud or dolus bonus-good/permissible deceit. They do
not bind both parties. When the person has the opportunity to
know the facts, the usual exaggerations in trade are permissible;

v. A mere expression of opinion of an expert is fraud when it is

false and the other party has relied on that opinion;

vi. Misrepresentation made in good faith is not fraudulent but may

constitute error. (Article 1343). The latter has lesser liability;

vii. Fraud by third person vitiates the consent only when there is
substantial mistake and the same is mutual; this time, it is based
on the ground of mistake instead. It is different when the third
person is in connivance with the other party wherein the rules
above will follow;

viii. Simulation of contract may either pertain to inexistent

(Absolutely simulated) or concealed (relatively simulated)
contract. The former is void while the latter binds the parties to
their real agreement.

Example: Shammy borrowed money from Mike. She was

not able to pay on due date. Shammy sold her house (her only
property) to her bestfriend Ronnie out of fear of attachment. No
sale actually took place between Shammy and Ronnie. [Absolute
Simulation of Contract]

If Shammy borrowed money with a mortgage from Mike

but executed a deed of sale instead, this is considered as relative
simulation of contract.
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Article 1391. The action for annulment shall be brought within four
years. This period shall begin:

In cases of intimidation, violence, or undue influence, from

the time the defect of the consent ceases.

In case of mistake or fraud, from the time of the discovery of

the same.

And when the action refers to contracts entered into by

minors or other incapacitated persons, from the time the
guardianship ceases.

Ratification extinguishes the action for annulment of a voidable

contract. It may be effected by the guardian of the incapacitated person.
It makes the contract valid from its inception.

Kinds of Ratification:

a. Express- in words or writing

b. Implied or Tacit- By silence, adoption of contract or

acceptance of benefits

Requisites:
i. The knowledge of the reason which renders the contract voidable;

ii. The reason has ceased; and

iii. The injured party must have executed an act, implying an intention to
waive his right.

Example: Ronnie, a minor, sold the land to Mike. Upon reaching

majority, Ronnie collected the balance of the purchase price. This is an
act of ratification by the adoption of the contract.

Who will bring an action to annul:

a. The plaintiff must have an interest in the contract; and
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b. The victim and not the party [including his successors-in-interest]

responsible for the defect is the person who must assert the same.

In an annulment, mutual restitution applies [Ibid.]. For personal

services, the value plus interest is the basis for damages. The
incapacitated, however, is obliged to return only to the extent which
benefited him.

Article 1403. The following contracts are unenforceable unless

they are ratified:

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 as

set forth in this number. In the following cases an agreement
hereafter made shall be unenforceable by action, unless the same,
or some note or memorandum, thereof, be in writing, and
subscribed by the party charged, or by his agent; evidence,
therefore, of the agreement cannot be received without the writing
or secondary evidence of its contents:

(a) An agreement that by its terms is not to be performed

within a year from the making thereof;

(b) A special promise to answer for the debt, default, or

miscarriage of another;

(c) An agreement made in consideration of marriage, other

than a mutual promise to marry;

(d) An agreement for the sale of goods, chattels or things in

action, at a price not less than five hundred pesos, unless the
buyer accept and receive part of such goods and chattels, or the
evidence, or some of them, of such things in action or pay at the
time some part of the purchase money; but when a sale is made by
auction and entry is made by the auctioneer in his sales book, at
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the time of the sale, of the amount and kind of property sold, terms
of sale, price, names of the purchasers and person on whose
account the sale is made, it is a sufficient memorandum;

(e) An agreement for the leasing for a longer period than one
year, or for the sale of real property or of an interest therein;

( f ) A representation as to the credit of a third person.

(3) Those where both parties are incapable of giving consent to a

contract.

Unenforceable Contracts are those that cannot be enforced or

given effect before the court of law unless they are ratified in conformity
with the law.

Kinds:

i. Those entered into in the name of another without or in excess of

authority;

ii.Those that do not comply with the Statute of Frauds; and

iii.When both parties are incapacitated.

The first kind pertains to unauthorized contracts or those which

lack legal representation. These are further governed by the Law on
Agency.

The second kind of contract is that which is not put in writing.

The written form is for evidential purposes only. It is not necessary to be
in a formal written document. If the parties refused to comply, it cannot
be enforced.

Principles of Statute of Frauds:

i. The purpose of the Statute of frauds is to prevent false testimony

practices and guard honest men;
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ii. This applies to executory contracts [Ibid]. The reason being is the
unfairness to the party who has complied in good faith and the faltering
party receiving benefits without performing what is incumbent upon him;

iii. Contracts are merely unenforceable and not void;

iv. The defense of the Statute of Frauds is waivable;

v. It cannot be invoked by a stranger to a contract. It is a personal

defense;

vi. It is not applicable when there is an admission by the failure to deny

its existence; and

vii. The list is exclusive.

Ratification under Statute of Frauds:

1.failure to object to the presentation of oral evidence to prove the

same; and

2.By acceptance of benefits under them. This is not an executory

contract. Once, benefits are accepted, its burdens must not be
repudiated.

For ratification to set in, the agreement must be valid.

Third Kind of contract is unenforceable when both parties are

incapable of giving consent. The parent or guardian may ratify or the
ward himself upon regaining capacity. Ratification cures the defect and
the effects retroact to the time it was entered into. For example, a minor
contracts with another minor.

If the parent or guardian or the ward after regaining capacity of

either party, ratifies the contract, it becomes voidable.

If parents or guardians or the wards after regaining the capacity

of both parties, ratify the contract, it becomes valid.

Article 1409. The following contracts are inexistent and void from
the beginning:
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(1) Those whose cause, object or purpose is contrary to law,

morals, good customs, public order or public policy;

(2) Those which are absolutely simulated or fictitious;

(3) Those whose cause or object did not exist at the time of
the transaction;

(4) Those whose object is outside the commerce of men;

(5) Those which contemplate an impossible service;

(6) Those where the intention of the parties relative to the

principal object of the contract cannot be ascertained;

(7) Those expressly prohibited or declared void by law.

These contracts cannot be ratified. Neither can the right to

set up the defense of illegality be waived.

Article 1410. The action or defense for the declaration of the

inexistence of a contract does not prescribe.

Void contracts are those which are tainted by illegality or

contrary to public order, public policy, moral and good customs. They
are considered as inexistent from the beginning thus no effect at all.

Other Principles:

i. It cannot be ratified nor novated; cannot give rise to a valid contract;

ii. The defense of illegality cannot be waived;

iii. The action or defense for the declaration of inexistence of a contract

does not prescribe;

iv. The defense is not available to third persons not directly affected by
its illegality; and

v.Judicial declaration of nullity must be secured to avoid taking the law

into one’s hands.
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Bolton Street, Davao City
Telefax: (082)227-5456 Local 131

Telefax: (082)227-5456 Local 131

Self-Help: You can also refer to the sources below to help you further
understand the lesson:

*De Leon, H. (2014) The law on obligations and contracts

.Manila: Rex Book Store
*Paras, E. (2016) Civil code of the Philippines: annotated.
Volume IV. Manila: Rex Book Store
*Aldeguer, C. (2014) Law on Obligations and Contracts in the
Philippines: An Overview. Available at SSRN:
https://ssrn.com/abstract=2429979 or
http://dx.doi.org/10.2139/ssrn.2429979
*Republic Act No. 386 : Civil Code of the Philippines
https://lawphil.net/statutes/repacts/ra1949/ra_386_1949.html
*Merriam-Webster’s Law Dictionary
https://www.merriam-webster.com/legal
*Wex - Legal Information Institute - Cornell University
https://www.law.cornell.edu/wex
 College of Business Administration Education
2nd Floor, SS Building
Bolton Street, Davao City
Telefax: (082)227-5456 Local 131

Telefax: (082)227-5456 Local 131

Let’s Check

Activity 1. Now that you know the Kinds of Contracts and its Legal
Consequences, let us try to check your understanding. Define or give the
meaning of the following terms. Write your answers on the space
provided.

1. Rescission
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________

2. Ratification
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________

3. Statute of frauds
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________

Let’s Analyze

Activity 1. Getting acquainted with the essential terms in the study is not
enough, what also matters is you should also be able to explain its inter-
relationships or analyze the given case. Now, I will require you to explain
 College of Business Administration Education
2nd Floor, SS Building
Bolton Street, Davao City
Telefax: (082)227-5456 Local 131

Telefax: (082)227-5456 Local 131

or justify thoroughly your answers.

1. Will rescission apply when the object was transferred to a

third person who acquired it in bad faith? If not, what is the
remedy of the injured party?

____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________

2.What contracts are voidable or annullable?

____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________

3. Case: Mike, who is known to having lucid interval, entered into

a contract with Shammy who is a senile. What is the status of
their contract?

________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________

In a Nutshell
Activity. The basic study of Civil Law especially the Law on
Obligations and Contracts is one of the most essential ventures in
studying the course of business. Your knowledge of obligations and the
corresponding rights and duties obtained from this study will certainly
 College of Business Administration Education
2nd Floor, SS Building
Bolton Street, Davao City
Telefax: (082)227-5456 Local 131

Telefax: (082)227-5456 Local 131

benefit you as students and when you become entrepreneurs or

business leaders in the future.

Based on the discussions made above and the learning exercises

that you have done, please feel free to write your arguments or lessons
learned below. In this part, you will be required to draw conclusions,
perspectives, and ideas from the unit lesson. I will supply the first item
and you will continue the rest.

1. Rescission is a subsidiary remedy and cannot be resorted to

unless there are no other means for repair or payment of
damages.

Your Turn

2._________________________________________________

_________________________________________________________

_________________________________________________________

3._________________________________________________

_________________________________________________________

_________________________________________________________

4._________________________________________________

_________________________________________________________

_________________________________________________________
 College of Business Administration Education
2nd Floor, SS Building
Bolton Street, Davao City
Telefax: (082)227-5456 Local 131

Telefax: (082)227-5456 Local 131

5._________________________________________________

_________________________________________________________

_________________________________________________________

Q&A LIST. This section allows you to list down all emerging
questions or issues. These questions or issues may be raised in the
LMS or other modes. Please write the answers after clarification. The
Q&A portion helps in the review of concepts and essential knowledge.

Do you have any questions for clarification?

Questions/Issues
Answers
1.

2.

3.

4.

5.

KEYWORDS INDEX. This section lists the keywords that help you in
matters of recall. Keywords are similar to Metalanguage but without the
definitions and descriptions. This section includes concepts (a word or
phrase), ideas, theories, names of people, and other vital terms to
remember. This section also helps in the review.

Rescissible Contracts Voidable Contracts Unenforceable

Contracts
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Telefax: (082)227-5456 Local 131

Telefax: (082)227-5456 Local 131

Mutual Restitution Annulment Ratification

Statute of Frauds Ward Express Consent
Void Contracts Insolvent Tacit or implied
Consent

Big Picture D

Week 8-9: Unit Learning Outcomes (ULO): At the end of the unit, you
are expected to

a. Explain some principles on natural obligations and how it ripens

into an enforceable right.

Big Picture in Focus: ULOa. Explain some principle or natural

obligations and how it ripens into an enforceable right.

Metalanguage

In this section, the most vital terms relevant to the study of Law on
Obligations and Contracts and to demonstrate ULOa will be operationally
defined to establish a common frame of reference as to how the text
work in your chosen business career. As you progress in this topic, there
are new terms you will encounter but will be explained fully. Please refer
to definitions below for commonly and repeatedly used concepts in the
course of our discussion.

i. Acquisitive Prescription. When acquires ownership and other

real rights through the lapse of time in the manner and other
conditions laid down by law.
ii. Extinctive Prescription. When rights and actions are lost by
prescription.
iii. Legacy. The act of the testator in separating from the
inheritance for definite purposes, things, rights, or a definite
portion of his property.
 College of Business Administration Education
2nd Floor, SS Building
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Telefax: (082)227-5456 Local 131

iv. Intestacy. It is also called as Legal Succession. It is effected

by operation of law in default or invalidity of a will.
i. Fungible Goods. They are mostly consumable goods but
entirely replaceable by the same kind and amount measured by
metric units e.g. rice, oil, and others.

Essential Knowledge

To perform the aforesaid big picture (unit learning outcomes) for

the eighth to the ninth week of the course, you need to fully understand
the following essential knowledge that will be laid down in the
succeeding pages. Please note that you are not limited to exclusively
refer to these resources. Thus, you are expected to utilize other books,
research articles, and other resources that are available in the
university's library e.g. ebrary, search.proquest.com, etc.

Article 1423. Obligations are civil or natural. Civil obligations give

a right of action to compel their performance. Natural obligations,
not being based on positive law but on equity and natural law, do
not grant a right of action to enforce their performance, but after
voluntary fulfillment by the obligor, they authorize the retention of
what has been delivered or rendered by reason thereof. Some
natural obligations are set forth in the following articles.

Article 1423 to 1430 is NOT an exclusive list of principles

governing Natural Obligations.

Civil Obligations v. Natural Obligations

a. Civil obligations arise for positive law, while natural obligations are
based on equity and natural law; and
b. Civil obligations give right of action in courts of justice while natural
obligations do not grant such right unless the circumstances legally
warrant.
 College of Business Administration Education
2nd Floor, SS Building
Bolton Street, Davao City
Telefax: (082)227-5456 Local 131

Telefax: (082)227-5456 Local 131

Other Principles:

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.
Example:
Ronnie owes Mike P50,000 in writing. After 10 years, Ronnie’s
debt prescribed yet no efforts to collect made by Mike. Despite
knowledge of prescription, Ronnie paid Mike. Should Ronnie change
her mind, she can no longer recover what she has paid out of moral
duty.

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.
Example:

In the above example, if Shammy paid for Ronnie’s debt against

the latter’s will but still reimburses the former, Ronnie cannot recover
the payment.

Article 1426. When a minor between eighteen and twenty-one

years of age who has entered into a contract without the consent
of the parent or guardian, after the annulment of the contract
voluntarily returns the whole thing or price received,
notwithstanding the fact that he has not been benefited thereby,
there is no right to demand the thing or price thus returned.

Minority is below 18 years old.

Example:

Shammy, a minor, bought a set of jewelries worth

P50,000. Upon knowing the sale, her parents moved for the
annulment of the transaction. Shammy is bound to return what
she has received [The set of jewelries]. If Shammy lost the
necklace worth P30, 000, she is only bound to return the
 College of Business Administration Education
2nd Floor, SS Building
Bolton Street, Davao City
Telefax: (082)227-5456 Local 131

Telefax: (082)227-5456 Local 131

remaining P20, 000 worth of jewelries. Should she voluntarily

return the entire amount, she can no longer recover what has
been tendered.

Article 1427. When a minor between eighteen and twenty-one

years of age, who has entered into a contract without the consent
of the parent or guardian, voluntarily pays a sum of money or
delivers a fungible thing in fulfillment of the obligation, there shall
be no right to recover the same from the obligee who has spent or
consumed it in good faith. (1160A)

If the minor is bound to deliver money or fungible things

and the obligee has consumed it in good faith, the minor can no
longer recover what has been delivered.

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.

Albeit winning the case against the obligee or creditor, the

defendant voluntarily delivered payment, the latter can no longer
recover. He must have fulfilled his moral duty instead.

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.

Example:
If Ronnie inherited P5 Million worth of cash from her
deceased parents, leaving P10 Million worth of debts, Ronnie
cannot be held liable to the excess. Should she pay for the
difference, she cannot recover what she has paid. The payment
made is borne out of moral duty.
 College of Business Administration Education
2nd Floor, SS Building
Bolton Street, Davao City
Telefax: (082)227-5456 Local 131

Telefax: (082)227-5456 Local 131

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.

Under the law, if the will does not conform with the
formalities for its validity, the will may be disallowed which will
devoid the legacy made. The properties left will be governed by
the rules on intestacy. If the intestate heir, chose to follow the
legacy despite its invalidity, it is considered valid by carrying out
his moral duty in obeying the wishes of the dead.

Self-Help: You can also refer to the sources

below to help you further
understand the lesson:
*De Leon, H. (2014) The law on obligations and contracts
.Manila: Rex Book Store
*Paras, E. (2016) Civil code of the Philippines: annotated.
Volume IV. Manila: Rex Book Store
*Aldeguer, C. (2014) Law on Obligations and Contracts in the
Philippines: An Overview. Available at SSRN:
https://ssrn.com/abstract=2429979 or
http://dx.doi.org/10.2139/ssrn.2429979
*Republic Act No. 386 : Civil Code of the Philippines
https://lawphil.net/statutes/repacts/ra1949/ra_386_1949.html
*Merriam-Webster’s Law Dictionary
https://www.merriam-webster.com/legal
*Wex - Legal Information Institute - Cornell University
https://www.law.cornell.edu/wex
 College of Business Administration Education
2nd Floor, SS Building
Bolton Street, Davao City
Telefax: (082)227-5456 Local 131

Telefax: (082)227-5456 Local 131

Let’s Check

Activity 1. Now that you know the Kinds of Contracts and its Legal
Consequences, let us try to check your understanding. Define or give the
meaning of the following terms. Write your answers on the space
provided.

1. Natural Obligations
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________

2. Acquisitive Prescription
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________

3. Extinctive Prescription
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________

Let’s Analyze

Activity 1. Getting acquainted with the essential terms in the study is not
enough, what also matters is you should also be able to explain its inter-
relationships or analyze the given case. Now, I will require you to explain
or justify thoroughly your answers.
 College of Business Administration Education
2nd Floor, SS Building
Bolton Street, Davao City
Telefax: (082)227-5456 Local 131

Telefax: (082)227-5456 Local 131

1. If an heir is willing to pay the debts of his decedent beyond the

amount of his inheritance, can he still recover the excess should
he change his mind?

____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________

2. Can a minor recover the payment or thing delivered which has

been lost or used by the other party in good faith?

____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________

3. Case: Ronnie became a multi-millionaire at the age of 70.

While enjoying her retirement, she remembered being indebted
to her bestfriend 50 years ago. Apparently, her obligation has
long been extinguished by prescription. Unknowingly, she paid
her back with interest. While having coffee with another lawyer
friend, she mentioned about what she did and so was told in
passing that her bestfriend has no right to collect payments
anymore. If Ronnie decides to recover her payment, can the
bestfriend refuse to return?

____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
 College of Business Administration Education
2nd Floor, SS Building
Bolton Street, Davao City
Telefax: (082)227-5456 Local 131

Telefax: (082)227-5456 Local 131

____________________________________________________
____________________________________________________

In a Nutshell

Activity. The basic study of Civil Law especially the Law on

Obligations and Contracts is one of the most essential ventures in
studying the course of business. Your knowledge of obligations and the
corresponding rights and duties obtained from this study will certainly
benefit you as students and when you become entrepreneurs or
business leaders in the future.

Based on the discussions made above and the learning exercises

that you have done, please feel free to write your arguments or lessons
learned below. In this part, you will be required to draw conclusions,
perspectives, and ideas from the unit lesson. I will supply the first item
and you will continue the rest.

1. A civil obligation may lapse by extinctive prescription.

Regardless, if the debtor chose to perform his obligation, he can
no longer recover what has been delivered or paid.

Your Turn

2._________________________________________________

_________________________________________________________

_________________________________________________________
 College of Business Administration Education
2nd Floor, SS Building
Bolton Street, Davao City
Telefax: (082)227-5456 Local 131

Telefax: (082)227-5456 Local 131

3._________________________________________________

_________________________________________________________

_________________________________________________________

4._________________________________________________

_________________________________________________________

_________________________________________________________

5._________________________________________________

_________________________________________________________

_________________________________________________________
 College of Business Administration Education
2nd Floor, SS Building
Bolton Street, Davao City
Telefax: (082)227-5456 Local 131

Telefax: (082)227-5456 Local 131

Q&A LIST. This section allows you to list down all emerging
questions or issues. These questions or issues may be raised in the
LMS or other modes. Please write the answers after clarification. The
Q&A portion helps in the review of concepts and essential knowledge.

Do you have any questions for clarification?

Questions/Issues Answer
s

1.

2.

3.

4.

5.

KEYWORDS INDEX. This section lists the keywords that help students
for recall. Keywords are similar to Metalanguage but without the definitions
and descriptions. This section includes concepts (a word or phrase), ideas,
theories, names of people, and other vital terms to remember. This section
also helps in the review.

Natural Obligations Extinctive Acquisitive Prescription

Prescription
Intestacy Fungible Minority
 College of Business Administration Education
2nd Floor, SS Building
Bolton Street, Davao City
Telefax: (082)227-5456 Local 131

Telefax: (082)227-5456 Local 131

COURSE SCHEDULES
Start of Classes: ________________

Activity Date Where to submit

Big Picture Aa: Let’s Check Activities
Big Picture Aa: Let’s Analyze Activities
Big Picture Aa: In a Nutshell Activities
Big Picture Aa: QA List
Big Picture Ab: Let’s Check Activities
Big Picture Ab: Let’s Analyze Activities
Big Picture Ab: In a Nutshell Activities
Big Picture Ab: QA List
Big Picture B: Let’s Check Activities
Big Picture B: Let’s Analyze Activities
Big Picture B: In a Nutshell Activities
Big Picture B: QA List
Big Picture Ca: Let’s Check Activities
Big Picture Ca: Let’s Analyze Activities
Big Picture Ca: In a Nutshell Activities
Big Picture Ca: QA List
Big Picture Cb: Let’s Check Activities
Big Picture Cb: Let’s Analyze Activities
Big Picture Cb: In a Nutshell Activities
Big Picture Cb: QA List
Big Picture D: Let’s Check Activities
Big Picture D: Let’s Analyze Activities
Big Picture D: In a Nutshell Activities
Big Picture D: QA List
First Exam
Second Exam
Third Exam
Fourth Exam
 College of Business Administration Education
2nd Floor, SS Building
Bolton Street, Davao City
Telefax: (082)227-5456 Local 131

Telefax: (082)227-5456 Local 131

Prepared by:

Sharone Mae L. Clapiz (Sgd.)

Course Reviewed by:

Sharone Mae L. Clapiz (Sgd.)

Approved by:

Jestita F. Gurrea, DBM

Vicente Salvador E. Montaño, DBA

College of Business Administration Education
2nd Floor, SS Building
Bolton Street, Davao City
Telefax: (082)227-5456 Local 131

Telefax: (082)227-5456 Local 131