UNIVERSITY OF MINDANAO

College of Business Administration Education

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

Physically Distanced but Academically Engaged

Self-Instructional Manual (SIM) for Self-Directed

Learning (SDL)

Course/Subject: ACC 216/Law 1-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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TABLE OF CONTENTS Telefax: (082)227-5456 Local 131

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 15
LET'S ANALYZE 16
IN A NUTSHELL 17
Q & A LIST 18
KEYWORDS INDEX 18
BIG PICTURE A
ULO-B UNIT LEARNING OUTCOME 19
METALANGUAGE 19
WEEK 2 TO 3 COVERAGE
ESSENTIAL KNOWLEDGE 21
SELF-HELP 44
LET'S CHECK 45
LET'S ANALYZE 46
IN A NUTSHELL 48
Q & A LIST 49
KEYWORDS INDEX 49
BIG PICTURE B
UNIT LEARNING OUTCOME 52
METALANGUAGE 52
WEEK 4 TO 5 COVERAGE
ESSENTIAL KNOWLEDGE 53
SELF-HELP 68
LET'S CHECK 69
LET'S ANALYZE 69
IN A NUTSHELL 71
Q & A LIST 73
KEYWORDS INDEX 73
BIG PICTURE C
ULO-A UNIT LEARNING OUTCOME 74
METALANGUAGE 74
WEEK 6 COVERAGE
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ESSENTIAL KNOWLEDGE 76
SELF-HELP 90 Telefax: (082)227-5456 Local 131
LET'S CHECK 90
LET'S ANALYZE 91
IN A NUTSHELL 92
Q & A LIST 94
KEYWORD INDEX 94

ULO-B UNIT LEARNING OUTCOME 95

METALANGUAGE 95
WEEK 7 COVERAGE
ESSENTIAL KNOWLEDGE 96
SELF-HELP 108
LET'S CHECK 109
LET'S ANALYZE 109
IN A NUTSHELL 110
Q & A LIST 112
KEYWORDS INDEX 112
BIG PICTURE D
UNIT LEARNING OUTCOME 95
METALANGUAGE 95
WEEK 8 TO 9 COVERAGE
ESSENTIAL KNOWLEDGE 96
SELF-HELP 117
LET'S CHECK 117
LET'S ANALYZE 118
IN A NUTSHELL 119
Q & A LIST 121
KEYWORDS INDEX 121

PART 3: COURSE SCHEDULE 122

 College of Business Administration Education
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COURSE OUTLINE : ACC 216/LAW1- LAW ON OBLIGATIONS AND

Telefax: (082)227-5456 Local 131
CONTRACTS

Course Coordinator: Sharone Mae L. Clapiz, LLB, REB, EnP, CFMP

Email: sclapiz@umindanao.edu.ph
Student Consultation: By appointment
Mobile: 0933-8261776
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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Turnitin Submission To ensure honesty and authenticity, all assessment

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(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.
 College of Business Administration Education
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Re-marking of Assessment You should request in writing addressed to the program

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

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Students with Special Needs Students with special needs shall communicate with the
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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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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 byTelefax: (082)227-5456 Local 131
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
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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.

2
De Leon and De Leon Jr., (2014, p. 17)
3
From the lectures of Atty. Lydia Galas
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Complete definition: A juridical relation between two persons

known as the creditor and debtor, whereby the former canTelefax:
demand from
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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

4
From the lectures of Atty. Lydia Galas
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vegetable garden of B (obligee).

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Kinds of Prestation: To Give, To Do, and Not to Do

Requisites for its validity:

i. It must be physically and juridically possible;
ii. It must be determinate or at least determinable according
to pre-established elements or criteria; and
iii. 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.
Quasi-delicts/Torts
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They arise from damage caused to another through an act or

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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 authority5.

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.

5
Merriam-Webster Law Dictionary
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b. Solutio Indebiti- a juridical relation created when

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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.

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

1. Natural law

_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________

2. Obligation
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________

3. Principle of Compliance in Good Faith

_________________________________________________
_________________________________________________
_________________________________________________
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_________________________________________________
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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?

_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________.

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

obligation?
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
_______________________________________________________.
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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. Not all obligations are enforceable before the court of law.

Your Turn

2._____________________________________________

_______________________________________________

_______________________________________________.

3._____________________________________________

_______________________________________________

_______________________________________________.

4.______________________________________________

_______________________________________________

________________________________________________.

5.______________________________________________

________________________________________________

________________________________________________.
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Q&A LIST. This section allows you to list down all emerging
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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.

Law Divine Law Natural Law Moral Law

Physical Law State Law Jurisprudence Constitution
Custom Ignorantia Legis Quasi- Contracts Negotiorum Gestio
Neminem Excusat
Solutio Indebiti Active Subject Passive Subject Efficient Cause
Quasi-Delict Principle of Prestation Real and Personal
Compliance in Obligation
Good Faith
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Big Picture in Focus: ULOb. Rationalize the kinds and effects of

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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,
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.

6
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viii. Conditional Obligation. An obligation that is subject to a

condition, either a suspensive or resolutory one.
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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 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.
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Essential Knowledge
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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 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;

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3. Deliver the accessions and accessories [Art. 1166];

4. Deliver the thing itself [Art. 1497]; and
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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

Example: vegetables, rice, planted with

human labor

iii. Civil -Products derived by virtue of juridical

relation

Example: rents, dividends, royalties and the

like

8
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When the obligation to deliver the fruits arises:

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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 they may not
have been mentioned.

Accessions v. Accessories

Accessions -fruits of a thing or additions or improvements on

the principal thing
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-Not necessarily together with the principal thing

-Usually of significant value
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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 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.
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Kinds of Legal Delay/Default/Mora:

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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:

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.

9
De Leon and De Leon Jr., (2014, p. 52)
10
De Leon and De Leon Jr., (2014, p. 51)
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If an action for specific performance is filed by B on December 20, the

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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 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
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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. Telefax: (082)227-5456 Local 131

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 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.

11
Merriam-Webster Law Dictionary
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Negligence. Also called a fault. It consists in the omission of diligence

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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, no pre-
existing obligation. The
12
De Leon and De Leon, Jr. (2014, p. 67)
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negligence is a source of
liability itself.
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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.
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2 Types of Fortuitous Event:

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a. Acts of Man Ex.War, fire, robbery, etc.
b. 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
ex. Earthquake, unusual flood, war

Requisites of a Fortuitous Event:13

i. The event is independent of the human will or at least of

debtor’s will;
ii. The event could not be foreseen, or if foreseen is inevitable;
iii. The event makes it impossible for the debtor to comply in a
normal manner; and
iv. 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)

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Usury
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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.

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

i. exact fulfillment (specific performance) with the right to

damages;

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

iii. 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

14
Tolentino v. Gonzales, 50 Phil. 558
15
De Leon and De Leon (2014, p.72)
16
De Leon and De Leon (2014, p.76)
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indebted to him for P40,000. Before the due date, S sold his
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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 );
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.
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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,
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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 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.
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Example:
M will sell his Jollibee shares to R if the value per share
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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 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.

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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 directlyTelefax:
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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
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.
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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.

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.

17
De Leon and De Leon (2014, p. 113)
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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.
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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.

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

18
De Leon and De Leon Jr., 2014 (cited Gonzales v. Jose, 66 Phil. 369)
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e. I will pay you little by little.19

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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

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.

19
De Leon and De Leon Jr., 2014 (cited Scone v. Francisco, 24 Phil. 309)
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Principles governing Alternative Obligations:

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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;
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.
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In Facultative Obligations, only one prestation is due but the debtor,

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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.
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.
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2 Kinds of obligations according to number of parties:20

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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

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

20
De Leon and De Leon Jr., (2014, p. 151)
21
Merriam-Webster’s Law Dictionary
22
De Leon and De Leon Jr., (2014, p. 154)
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Principles governing Joint and Solidary Obligations:

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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;

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.

23
De Leon and De Leon Jr.(2014, p.183)
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ii.Conventional Indivisibility. When the parties stipulate the

prestation to indivisible albeit divisible by nature.
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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.

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.
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Will the stipulated penalty substitute for damages and interests?

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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:

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
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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
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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. 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?

_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________.

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.

_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
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_____________________________________________________
____________________________________________________.
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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 Telefax: (082)227-5456 Local 131

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.______________________________________________

_______________________________________________

________________________________________________.

5.______________________________________________

________________________________________________

________________________________________________.
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Q&A LIST. This section allows you to list down all emerging
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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.

Bonus Pater Y Genus Nunquam The Accessory Fault or negligence

Familia Perit follows the
Principal
Fortuitous Events Damages The Diligence of Mutuum
Good Father of
Family
Force Majeure Generic Thing Specific Thing Contractual
Negligence
Criminal Natural Fruits Civil Fruits Industrial Fruits
Negligence
Mora Mora Solvendi Mora Accipiendi Compensation
Morae
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Fraud or Dolo Dolo Causante Dolo Incidente Accession

Accessories Usury Real Right Personal Right
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Pure Obligations Conditional Suspensive Resolutory
Obligations Conditions Conditions
Doctrine of Unilateral and Alternative Facultative
Constructive Bilateral Obligations Obligations
Fulfillment Obligations
Joint Obligation Solidary Obligation Divisible and Obligation with a
Indivisible Penal Clause
Obligation
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Big Picture B
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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

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

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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
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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
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.
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Essential Knowledge
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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];
-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:

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

2 Kinds of payment:

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

obligation
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

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.
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Example:
Shammy promised to deliver 1,000 pieces Telefax: (082)227-5456
of dressed chickensLocal 131
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 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

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person authorized by him;

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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;

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:

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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.

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.
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B. Application of Payments
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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;

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

bearing ones;
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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)

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

creditor and does not presuppose insolvency of the debtor at the time the
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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;
(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;

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

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
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donation.
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What is an inofficious condonation?

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.

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.
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Requisites of Confusion:
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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:

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;
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(3) That the two debts be due;

(4) That they be liquidated and demandable; Telefax: (082)227-5456 Local 131

(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
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.
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(6) Novation
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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.

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

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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.

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
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P1000. As Mike proposed for a new agreement whereby he will

pay Ronnie his antique vase to which the latter agreed, the
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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.

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

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(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
.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 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.

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2. Novation

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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.
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1. Explain how Dacion en pago different from Payment by Cession.

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_____________________________________________________

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?

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

Justify your YES or NO.

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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. 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._________________________________________________

_________________________________________________________

_________________________________________________________

3._______________________________________________________

_________________________________________________________

_________________________________________________________
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4._______________________________________________________
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_________________________________________________________

_________________________________________________________

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
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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.

The Doctrine of Nemo dat quod Legal Tender Domicile

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

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.

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

usage have been followed by society as binding rules of conduct.
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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.

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.
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Essential Knowledge Telefax: (082)227-5456 Local 131

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.

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

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Elements of a Contract:

a. Essential elements- These are the consent, object or Telefax: (082)227-5456

subject-matter, andLocal 131

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.

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.
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Public Order
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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 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.

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

25
From the lectures of Atty. Lydia Galas
26
From the lectures of Atty. Lydia Galas
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c. Provision of law e.g. in contract of agency, partnership which

prohibits continuity rather extinguishes obligations upon death of the party.
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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
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;

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

and Telefax: (082)227-5456 Local 131
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.

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;
(3) Cause of the obligation which is established.
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CONSENT Telefax: (082)227-5456 Local 131

Article 1319. Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to 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
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communicating such withdrawal, except when the option is founded

upon a consideration, as something paid or promised.Telefax: (082)227-5456 Local 131

Option Contract v. Option Period v. Option Money 28

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.”

Definite Offer: “For sale, House and Lot (Housing Development Project
of Home ID Realty) in Samal, 200 sqm for P1,450,000. Call 09191112222.”

28
De Leon and De Leon Jr., (2014, p. 339)
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Advertisements for bidders are invitations to make proposals and the

advertiser is not bound to accept the highest or lowest bidder, unless the
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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

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;

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 College of Business Administration Education
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4. It must be determinate or determinable [things only] without the need of

making a new contract. Telefax: (082)227-5456 Local 131

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.

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.
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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
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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.
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

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c. When law requires a certain form for the convenience of the parties
and to affect third persons. (Article 1358)
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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;
(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.

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Examples for Nos. 1 to 4:

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1. Shammy borrowed money from Mike worth P100,000. Mike askedLocal 131
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

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.
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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, Telefax: (082)227-5456 Local 131
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.

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.
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Article 1375. Words which may have different significations shall be

understood in that which is most in keeping with the nature and
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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.
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.
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Self-Help: You can also refer to the sources below to help(082)227-5456

Telefax: you Local 131
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, 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
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________

2. Cause of a contract
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
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3. Reformation
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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. In option contract, can the offeror freely withdraw the option

granted to the offeree?

_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________

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

_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________

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

P500,000. Is the sale valid?

_____________________________________________________
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_____________________________________________________
_____________________________________________________
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. There is perfection of contract when the acceptance is

communicated to the offeror.

Your Turn

2._________________________________________________

_________________________________________________________

_________________________________________________________

3._________________________________________________
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_________________________________________________________
Telefax: (082)227-5456 Local 131

_________________________________________________________

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. 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 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.

Aleatory Innominate Public policy Onerous

Commutative Stipulation pour Earnest money Gratuitous

autrui

Lucid interval Public order Option money Remuneratory

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Telefax:
Big Picture in Focus: ULOb. Distinguish the different kinds (082)227-5456and
of contracts Local 131

explain its legal consequences.

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. 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.

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

his obligations. Telefax: (082)227-5456 Local 131

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;

(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.
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Requisites of Rescission:

1. The contract must be validly agreed upon; Telefax: (082)227-5456 Local 131
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.

BOTH in (1) and (2), transactions are done by guardians and

absentees’ representatives.

3)Contracts undertaken to defraud creditors; requisites are:

a.T here 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.]
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6)Payments made in a state of insolvency applicable to contracts

not only due and demandable but also obligations with a
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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.

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
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Below 18 years of age;

Emancipation is attained by reachingTelefax: (082)227-5456 Local 131
the age of majority.

b. Insane or demented persons

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
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majority. Transportation shall include expenses in going to and

from school, or to and from place of work. Telefax: (082)227-5456 Local 131

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 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

This is substantial mistake of fact. Too substantial that caused

the party to enter into a contract. This includes the quality, quantity,
32
https://definitions.uslegal.com/
33
De Leon and De Leon Jr., (2014, p. 345)
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motives, or identity and qualifications of a party which may be the

principal cause of contract.
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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.

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)
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Factors like age, sex, and condition of the person shall be

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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
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.

34
https://www.investopedia.com/terms/a/armslength.asp
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Other principles governing Fraud: Telefax: (082)227-5456 Local 131

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.

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;

35
De Leon and De Leon Jr., (2014, p. 359)
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viii. Simulation of contract may either pertain to inexistent

(Absolutely simulated) or concealed (relatively Telefax:
simulated)
(082)227-5456 Local 131
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.

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;
iii. The injured party must have executed an act, implying an
intention to waive his right.
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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 Telefax: (082)227-5456 Local 131
of the contract.

Who will bring an action to annul:

a. The plaintiff must have an interest in the contract; and

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:

(1) Those entered into in the name of another person by one who has
been given no authority or legal representation, or who has acted
beyond his powers;

(2) Those that do not comply with the Statute of Frauds 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 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;
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(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;
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( 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;

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
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vii. The list is exclusive.

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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:
(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.
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Article 1410. The action or defense for the declarationTelefax:

of the(082)227-5456
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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;
v.Judicial declaration of nullity must be secured to avoid taking the law
into one’s hands.

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 Telefax: (082)227-5456 Local 131

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
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?

____________________________________________________
____________________________________________________
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Telefax: (082)227-5456 Local 131

____________________________________________________
____________________________________________________
Telefax: (082)227-5456 Local 131
____________________________________________________
____________________________________________________

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
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
 College of Business Administration Education
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and you will continue the rest.

1. Rescission is a subsidiary remedy and cannot beTelefax: (082)227-5456 Local 131

resorted to
unless there are no other means for repair or payment of
damages.

Your Turn

2._________________________________________________

_________________________________________________________

_________________________________________________________

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

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 Answers

1.

2.

3.

4.

5.

KEYWORDS INDEX. This section lists the keywords that 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.

Rescissible Voidable Contracts Unenforceable Void Contracts

Contracts Contracts
Mutual Restitution Annulment Ratification Insolvent
Statute of Frauds Ward Express Consent Tacit or implied
Consent
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Big Picture D
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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.
iv. Intestacy. It is also called as Legal Succession. It is effected
by operation of law in default or invalidity of a will.
v. 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.
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Essential Knowledge
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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.

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
 College of Business Administration Education
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her mind, she can no longer recover what she has paid out of moral
duty.
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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 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.
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Article 1428. When, after an action to enforce a civil obligation has

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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.

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.
 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

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

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
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
_________________________________________________
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3. Extinctive Prescription
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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. 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?

____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
 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. Case: Ronnie became a multi-millionaire at the age of 70.

While enjoying her retirement, she remembered being indebted
Telefax: (082)227-5456 Local 131
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?

____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________

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
 College of Business Administration Education
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Telefax: (082)227-5456 Local 131

Telefax: (082)227-5456 Local 131

2._________________________________________________

_________________________________________________________

_________________________________________________________

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

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 Answers

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 Prescription Acquisitive Prescription Legacy

Intestacy Fungible Minority Moral Duty
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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
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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