LAW 11

LAW 11
LAW ON OBLIGATIONS AND

CONTRACTS
ATTY. REYMAR ENGLIS DICO, CPA, JD

Disclaimer Statement:
This Course Study Guide is not intended to be presented as the original work of the
module compiler. It is meant to be the primary reference material for the course
composed of the flexible learning syllabus, learning plans, course content, and
assessments compiled from various sources. Accordingly, the sale and distribution
of such outside the University of the Visayas is strictly prohibited.
Flexible Learning Course Syllabus
College of Business Administration
Accountancy Department
Semester/Term: 1st Semester, AY 2020-2021
I. Course Information
Course Code LAW 11 The course gives the students an understanding of the legal concepts and rules governing
the Law on Obligations and Contracts, and the application of this legal knowledge to
practical problems and business transactions. It further involves a discussion of the
LAW ON OBLIGATIONS AND General Provisions, Sources of Obligations and Nature, and Effects of Obligations including
Course Title
CONTRACTS the different kinds of Obligations and the Mode of Extinguishing Obligations. Additionally,
Course Description the second part discusses, in detail, the Law on Contracts as a source of obligation
Credit Units / Hours 3 Units / 54 Hours including its essential requisites or elements, classifications and kinds of defective
contracts, formalities of contracts and reformation, and interpretation of contracts.
Prerequisite(s) None
Course Delivery: Course Objectives:

The students should be able to:
Category of • Discuss and apply the concepts of Law on Obligations and Contracts in various
Delivery Mode
Learners business transactions,
Offline (Asynchronous) Course Learning • Create samples of different kinds of business contracts, applying the legal knowledge
Category 1 Outcomes
Modular Approach of Law on Obligations and Contracts, and
Online (Synchronous) • Acknowledge the importance of compliance to the different laws governing business
Category 2 transactions.
Offline (Asynchronous)
1|L A W 1 1 L a w o n O b l i g a t i o n s a n d C o n t r a c t s , R E D
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Category 3 Pure online Course Goal: The course aims to equip the students with the relevant legal concepts and rules
(Synchronous + pertaining to the Law on Obligations and Contracts and integrate these concepts
Asynchronous) and rules to various business transactions and events. Moreover, it intends to
develop the critical thinking of the students as they are confronted with different
legal scenarios every day; to better understand and apply the law properly. Finally,
the students are expected to come up with at least 5 contracts that are usually
encountered in different business transactions and dealings.
II. Instructor’s Information

Instructor’s Name ATTY. REYMAR ENGLIS DICO, CPA Corporate Email
Consultation Period Fridays, 2PM – 4PM Phone 0925 555 7739
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III. Course Content
Schedule/
Assessment Tools/ Graded
No. of Hours/ Module Topic Intended Learning Outcomes Learning Activities Learning Resources
Output
Delivery Mode
MODULE 1: Introduction to Law, General Provisions, Natural Obligations, Sources, Nature and Effect of Obligations (Articles 1156-1178, Articles 1423-1430, Civil Code
of the Philippines)
• Introduction to At the end of the sessions, the • Read the sub-topic • Law 11 learning WEEK 1:
Week 1: Law, General students should be able to: 1 of Module 1. module Reflective Essay
Monday -Tuesday Provisions, • Textbook entitled,
• Explain the meaning of law in
Read the “The Law on •
Natural general. These include its • The students are to make a
8 Hours Obligations Introduction to Obligations and 5page minimum reflective essay
characteristics, subjects and
Kinds and classification, sources, and use Law, General Contracts” by Atty. summarizing the relevant
Modular approach
Sources of and function, Provisions and Hector S. De Leon, insights covered by this module.
(Asynchronous)
Obligations • Assess how their knowledge Sources of 2014 edition. The students must relate it to
about the aforementioned Obligations, their personal experiences as
(Articles 1156- Natural successful business
contribute to their understanding
1162, 1423-1430 of the Law on Obligations and Obligations of the professionals in the future and
Civil Code of the Contracts, textbook on the as to how these topics can be
Philippines). Law of Obligations applied in various business
• Analyze the definition of Civil
and Contracts by transactions.
Obligation and compare the
aforementioned with other kinds Atty. Hector S. De
of obligations according to Leon, 2014 edition. • The students are expected to
enforceability, such as Moral and submit an original craft;
Natural Obligations, thereby, any information copied
• Compare the different sources of from the internet and/or
obligations including Quasi duplication of students’ works
Contracts, Quasi Delicts, and are strictly prohibited.
Damages as a Source of
Obligation, and • The students must observe
• Apply and relate the module correct grammar and proper
topics to actual business format provided by the
transactions and events. instructor.
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Schedule/
Output
Delivery Mode
• Nature and At the end of the sessions, the • Read the sub-topic 2
Week 1: Effect of students should be able to: of Module 1.
Wednesday – Obligations
Thursday • Read “Nature and
(Articles • Explain and differentiate the
Effect of
11631178, Civil specific circumstances affecting
4 hours Code of the obligations, Obligations” of the
Modular approach Philippines) textbook on the
(Asynchronous) “Law of Obligations
• Compare the duties of the Obligor and Contracts” by
in a Real Specific and Real Atty. Hector S. De
2 Hours Generic Obligations and Personal Leon, 2014 edition.
Online (through Obligations and evaluate how
Zoom) these circumstances affect the
• Online discussion
(Synchronous) duties of the obligor in certain
through Zoom.
business transactions, • Law 11 learning
Thursday, module.
2:00pm - 4:00pm • Analyze and differentiate the
remedies of the creditors in Real • Textbook entitled,
Specific Obligations, Real “The
Generic Obligations, and Law on
Personal Obligations, and Obligations and
Contracts” by
• Assess which remedies are Atty. Hector S.
available to creditors in certain De Leon, 2014
business transactions and edition.
events.
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Schedule/
Output
Delivery Mode
MODULE 2: Different Kinds of Obligations and Modes of Extinguishing Obligations (Articles 1179-1304, Civil Code of the Philippines)
Week 2: • Pure and Conditional At the end of the sessions, the students • Read the sub-topic 1 of • Law 11 learning WEEK 2:
Monday – Tuesday Obligations, should be able to: Module 2. module. Reflective Essay
Obligations with a
6 Hours Period, • Identify and differentiate the different • Read “Kinds of • Textbook entitled, The students are to make a 5page
Modular approach Alternative kinds of obligations and apply these Obligations” of the “The minimum reflective essay
(Asynchronous) Obligations, Joint concepts to actual business textbook on the Law on summarizing the relevant insights
and Solidary transactions and events. “Law of Obligations Obligations and covered by this module. The
Obligations, and Contracts” by Contracts” by Atty. students must relate it to their
Divisible and Atty. Hector S. De Hector S. De Leon, personal experiences as successful
Indivisible Leon, 2014 edition. 2014 edition. business professionals in the future
Obligations, and as to how these topics can be
Obligations with a applied in various business
Penal Clause transactions.
(Articles 11791230, The students are expected to

Civil Code of the submit an original craft; thereby,
Philippines) any information copied from the
At the end of the sessions, the students • Read the sub-topic 2 • Law 11 Learning internet and/or duplication of
should be able to: module. students’ works are strictly
Week 2: • Payment or of Module 2.
prohibited.
Wednesday – Performance,
Thursday Loss of the Thing • Identify and differentiate the different • Read “Modes of • Textbook entitled,
Due, “The The students must observe correct
modes of extinguishing obligations Extinguishing
6 hours Condonation or Law on grammar and proper format
and apply these modes to actual Obligations” of the
Modular approach Remission of textbook on the Obligations and provided by the instructor.
business transactions and events.
(Asynchronous) Debt, Confusion “Law of Contracts” by Atty.
or Obligations and Hector S. De Leon,
Merger of Contracts” by Atty.
2 Hours 2014 edition.
Rights, Hector S. De Leon,
Online (through
Compensation, 2014 edition.
Zoom)
Novation
(Synchronous)
(Articles 12311304, through Zoom.
Thursday,
Civil Code of
2:00pm-4:00pm
the Philippines)
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Schedule/
Output
Delivery Mode
MODULE 3: General Provisions, Essential Requisites of the Law on Contracts (Articles 1305-1355, Civil Code of the Philippines)
Week 3: • General At the end of the sessions, the students • Read the sub-topic 1 of • Law 11 learning WEEK 3:
Monday – Tuesday Provisions, should be able to: Module 3. module. Reflective Essay
Title II, Law
• Explain the meaning of • Read “General • “The Law on
4 Hours on Contracts The students are to make a 5page
Contracts, its characteristics and Obligations and
Modular approach Provisions of Title II, minimum reflective essay
requisites, subjects, and Law on Contracts” of Contracts” by Atty.
(Asynchronous) summarizing the relevant insights
(Articles 13051317, classifications, the textbook on the Hector S. De Leon,
Civil Code covered by this module. The
• Distinguish Contracts from “Law of Obligations and 2014 edition.
of the Philippines). students must relate it to their
Agreements and Obligations and Contracts” by Atty. personal experiences as
assess how this prior knowledge Hector S. De Leon,
successful business professionals
contribute to their understanding of 2014 edition.
in the future and as to how these
the Law on Obligations and
topics can be applied in various
Contracts,
business transactions.
• Analyze the definition of
Contracts and compare this with The students are expected to
other Sources of Obligations, submit an original craft; thereby,
• Compare the different any information copied from the
Classification of Contracts internet and/or duplication of
including the Classification of students’ works are strictly
Contracts According to its Name or prohibited.
Designation and According to
Perfection and identify sample The students must observe
contracts in certain business correct grammar and proper
transactions, format provided by the instructor.
• Differentiate freedom to Contract
from Limitations in Contractual
Stipulations,
• Identify the persons bound in a
contract, and
• Apply and relate the module topics
to actual business transactions and
events.
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Schedule/
Output
Delivery Mode
Week 3: • Essential At the end of the sessions, the • Read the sub-topic 2
• Law 11 learning
Wednesday – Requisites of students should be able to: of Module 3.
module.
Thursday Contracts
• Describe and differentiate the
(Articles elements and stages of • Read “Essential
• Textbook entitled,
8 hours 13181355, Civil Contracts, Requisites of Title II,
“The Law on
Modular approach Code of the Law on Contracts” of
Obligations and
(Asynchronous) Philippines) the textbook on the
• Explain consent and its requisites, Contracts” by Atty.
“Law of Obligations
and Hector S. De Leon,
and Contracts” by
2 Hours 2014 edition.
Atty. Hector S. De
Online (through • Explain and compare the Object Leon, 2014 edition.
Zoom) and Causes of Contracts.
(Synchronous)
through Zoom.
Thursday,
2:00pm - 4:00pm
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Schedule/
Output
Delivery Mode
MODULE 4: Formalities of Contracts, Reformation and Interpretation of Contracts, Defective Contracts (Article 1356 – 1422, Civil Code of the Philippines)
• Formalities of • Read the sub-topic 1 of • Law 11 Learning
Week 4: Contracts, Module 4. module. WEEK 4:
Monday – Tuesday Reformation and Reflective Essay
Interpretation of • Read “General • Textbook entitled,
Contracts At the end of the sessions, the students
4 Hours Provisions of Title “The Law on • The students are to make a 5page
should be able to:
Modular approach (Articles 13561379, II, Law on Obligations and minimum reflective essay
(Asynchronous) Civil Code of the • Explain and categorize Contracts” of the Contracts” by Atty. summarizing the relevant insights
Philippines) the textbook on the Hector S. De Leon, covered by this module. The
Formalities of Contracts, “Law of Obligations 2014 edition. students must relate it to their
and Contracts” by personal experiences as successful
Atty. Hector S. De business professionals in the future
• Analyze the different circumstances Leon, 2014 edition. and as to how these topics can be
that will warrant the Reformation of applied in various business
Instruments, and transactions.
• Explain and evaluate the different • The students are expected to

rules on Interpretation of Contracts. submit an original craft; thereby,
Week 4: • Rescissible At the end of the sessions, the students • Read the sub-topic 2 of • Law 11 Learning any information copied from the
Thursday Contracts, should be able to: Module 4. module internet and/or duplication of
Voidable students’ works are strictly
6 hours Contracts,
• Explain and differentiate the • Read “Rescissible prohibited.
• Textbook entitled,
different kinds of defective contracts Contracts, Voidable
Modular approach Unenforceable “The Law on
and its corresponding Contracts, • The students must observe correct
(Asynchronous) Contracts, Obligations and
laws and rules, grammar and proper format
Void or Unenforceable Contracts” by Atty.
Contracts, Void or Hector S. De Leon, provided by the instructor.
2 Hours Inexistent
• Analyze the different remedies
Inexistent
Online (through Contracts 2014 edition.
available to the parties affected in a Business Contracts
Zoom) Contracts” of Title
(Articles 13801422, defective contract, and the
(Synchronous) II, Law on
Civil Code of the prescriptive period to assert the • Make 5 Contracts entered by
right, and Contracts” of the
Philippines) individuals in their business
Thursday, textbook on the
“Law of Obligations dealings applying your knowledge
2:00pm-4:00pm • Demonstrate the concept of on Law on Obligations and
and Contracts” by
ratification in a defective contract. Contracts.
Atty. Hector S. De
Leon, 2014 edition.
• Online discussion through

Zoom.
IV-A. POINTS FOR GRADED OUTPUT IV-B. GRADE EQUIVALENT BASED ON POINTS EARNED
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Course Week Module Topic Output Points Points Earned Grade Points Earned Grade
Week 1 Minimum 5-page Reflective Essay 40 211-220 1.0 141-150 2.1
Week 4 Minimum 5-page Reflective 60 191-195 1.3 111-120 2.4

Essay, 5 Sample Business
Contracts
Portfolio/e-Portfolio 40 186-190 1.4 101-110 2.5
Total 220 181-185 1.5 96-100 2.6
171-180 1.6 91-95 2.7
166-170 1.7 86-90 2.8
161-165 1.8 81-85 2.9
156-160 1.9 75-80 3.0
151-155 2.0 74 and below 5.0
INC is given if the final grade is 2.5 or better but missing any two of the course requirements listed above. INC should be complied within 365 days immediately after the
close of the Semester.
V. Approval
Prepared by Reviewed by Approved by
(Sgd.) (Sgd.) (Sgd.)

ATTY. REYMAR ENGLIS DICO, CPA SAMUEL GLOVA, CPA DR. AILEEN CATACUTAN DR. ROSEMARIE C. ESPAÑOL, CPA
Instructor Program Chair Librarian Dean
rce/revised, 6-19-20
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UNIVERSITY OF THE VISAYAS
2nd Floor DVG building, Colon corner D. Jakosalem St. Cebu City
LAW 11
LAW ON OBLIGATIONS AND CONTRACTS
LEARNING MODULE
10 | LAW 11 Law on Obligations and Contracts, RED

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nd
2 Floor DVG building, Colon corner D. Jakosalem St. Cebu City
COURSE STUDY GUIDE TABLE OF CONTENTS
Week
Module Topic Page
No.
Introduction to Law, General Provisions, Natural Obligations,

Sources, Nature and Effect of Obligations (Articles 1156-
1178, Articles 1423-1430, Civil Code of the Philippines) 13
Introduction to Law, General Provisions, Natural Obligations

Kinds and Sources of Obligations (Articles 1156-1162,
14231430 Civil Code of the Philippines) 16
Nature and Effect of Obligations (Articles 1163-1178, Civil

1 Code of the Philippines) 40
Different Kinds of Obligations and Modes of Extinguishing

Obligations (Articles 1179-1304, Civil Code of the Philippines) 47
Pure and Conditional Obligations, Obligations with a Period,

Alternative Obligations, Joint and Solidary Obligations,
Divisible and Indivisible Obligations, Obligations with a Penal
Clause
(Articles 1179-1230, Civil Code of the Philippines) 50
Payment or Performance, Loss of the Thing Due, Condonation

or Remission of Debt, Confusion or Merger of Rights,
Compensation, Novation (Articles 1231-1304, Civil Code of the
2 Philippines 72
General Provisions and Essential Requisites, Title II, Law on

Contracts (Articles 1305-1317, Civil Code of the Philippines) 96
General Provisions, Title II, Law on Contracts (Articles

13051317, Civil Code of the Philippines) 99
Essential Requisites of Contracts

3 (Articles 1318-1355, Civil Code of the Philippines) 111
Formalities of Contracts, Reformation and Interpretation of

Contracts, Defective Contracts 130
Formalities of Contracts, Reformation, and Interpretation of

Contracts (Articles 1356-1379, Civil Code of the Philippines) 133
Rescissible Contracts, Voidable Contracts, Unenforceable

Contracts, Void, or Inexistent Contracts (Articles 1380-1422,
4 Civil Code of the Philippines) 141

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Editorial Office
Course Developer
ATTY. REYMAR E. DICO, CPA (Sgd.)
Content Expert SAMUEL GLOVA III, CPA
Language Editor ANA MAE MAGBANUA, CPA
Design/Media Specialist NEIL CHURCHILL ANIÑON, CPA

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Introduction to Law
Module 1
General Provisions, Law on Obligations,
Natural Obligations,
Sources of Obligations, Nature and Effect of
Obligations
(Articles 1156-1178, Articles 1423-1430, Civil Code of
the Philippines)

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Course Study Guide:
Department Business Administration
Program Bachelor of Science in Accountancy
Course Code LAW 11
Course Title LAW ON OBLIGATIONS AND CONTRACTS
Credit Units/Hours 3.0
Week no./
1/8 hrs.
Number of Hours
University of the Visayas
Module Topic Introduction to Law, General Provisions, Natural
College of Obligations Kinds and Sources of
Business Administration Obligations (Articles 1156-1162, 14231430
Civil Code of the Philippines)
Topic no. / 1/8 hrs.
Allotted Hours
Introduction to Law, General Provisions, Natural Obligations, Sources,

Main Topic or Sub-Topic No. Nature and Effect of Obligations (Articles 1156-1178, Articles 1423-1430)
Civil Code of the Philippines) or Sub-Topic No. 1
1. Explain the Meaning of Law in General, its Characteristics, Subjects and

Intended Learning Outcomes Classification, Sources, Use and Function
2. Assess how this prior knowledge contribute to their understanding of the Law
on Obligations and Contracts and its application to business transactions.
3. Analyze the definition of Civil Obligation and compare this with other kinds
of Obligations according to enforceability such as Moral and Natural
Obligations and relate this to actual business transactions.
4. Compare the different Sources of Obligations including Quasi Contracts and
Quasi Delicts and Damages as a Source of Obligation and apply it to certain
Delivery Mode
Monday – Tuesday
8 hrs Offline/Modular Approach (Asynchronous)
1. Why is Law important in business?

2. What is the difference between Civil Obligation from Natural and Moral
Obligation?
Study Questions
3. What are the different Sources of Obligations?
4. How can I practice and apply the things I learned in Law specifically Law on
Obligations on actual business transactions and events?
Learning Resources: Required References

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The Law on Obligations and
Law 11 Learning module
• Print Contracts by Atty. Hector S.
De leon, 2014 edition
• Digital Law 11 LMS Learning Module
1. Read Sub-Topic 1 of Module 1
Learning Activity 2. Read Introduction to Law, General Provisions and Sources of Obligations,
Natural Obligations of the textbook on the “Law of Obligations and
Contracts” by Atty. Hector S. De Leon, 2014 edition
3. Make a minimum 5-page Reflective Essay summarizing your relevant
learnings in the topics covered by this Module and relate it to your personal
experiences as a successful business professional in the future and how
these topics can be applied in the different actual business transactions. In
making your reflective essay, use your own words and never attempt to
just copy and paste it from any sources including the outputs of your
classmates and other students. Observe correct grammar and proper
spacing, indention and margin. Use A4 Size Bondpaper, 1’ margin except
for the 1.5 margin at the top of the page, font style and size of verdana,
12.
Required Output Minimum 5-page Reflective Essay
Essay
Assessment Task
Rubrics
Assessment Tool
Promote adherence to legitimate and acceptable ethical objectives of an
organization.
Target Competency Analytical and Communication Skills
Prepared by : Reviewed by : Approved for Use:
(Sgd.) (Sgd.)
Atty. Reymar Englis Dico, CPA Samuel Glova III, CPA Dr. Rosemarie Espanol, CPA
Faculty Program Coordinator Dean
Date : Date : Date :

Revision #002
edited/rce, 6-27-20

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nd
MODULE 1
Subtopic 1 Introduction to Law, General Provisions, Natural

Obligations Kinds and Sources of Obligations (Articles 1156-1162,
1423-1430 Civil Code of the Philippines)
Learning Outcomes:
1. Explain the Meaning of Law in General, its Characteristics, Subjects and Classification,
Sources, Use and Function
2. Assess how this prior knowledge contribute to their understanding of the Law on
Obligations and Contracts and its application to business transactions.
3. Analyze the definition of Civil Obligation and compare this with other kinds of
Obligations according to enforceability such as Moral and Natural Obligations and relate
this to actual business transactions.
4. Compare the different Sources of Obligations including Quasi Contracts and Quasi
Delicts and Damages as a Source of Obligation and apply it to certain business
transactions and events.
Learning Contents:
THE THREE BRANCHES OF GOVERNMENT
a. Executive – ensures that laws are enforced; has a Quasi-Judicial and

QuasiLegislative function. It possesses Quasi-judicial functions when it has the right
to hear and decide cases such as the National Labor Relations Commission acting
as the Labor Tribunal and the Civil Service Commission on matters pertaining to
,

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public employment. It possesses quasi-legislative functions when it has the power
to promulgate rules for the proper implementation of the law. However, it cannot
exceed its powers as authorized under the law. It cannot self-legislate. Examples
of these government agencies include the BIR when it issues Revenue Regulations
and BIR Rulings and Securities and Exchange Commission when it issues its own
Rules and Regulations in the supervision of Private Corporations and partnerships.
The Executive Branch of the Government is headed by the President.
b. Legislative – the branch of government that makes, enacts amends, revises and
repeals laws. The Legislative branch of the government is composed of two houses.
The upper house composes the Senate of the Philippines with 24 Senators headed
by its Senate President elected from among the members of the Senate. The Lower
house composes the House of Representatives. It is termed as House of
Representatives since the members that composed the lower house must represent
the different legislative districts and the different marginalized sectors in the society
which is brought to life by the Party List System. Basically, that is why you elect
one Party List when you cast your votes in a National Election since the accredited
Party List which garnered majority of the votes cast may be assured with at least
1 to at most 3 seats in the House of Representatives. In making or enacting a law,
a Bill is proposed by any member of the Senate or the House of Representatives.
It will go through a series of readings. Take note that there are certain bills that
must originate in the Lower house as provided in our Constitution. Further, there
are also certain bills that may be classified as urgent and need not go through with
Second and Third Reading. It will be disposed immediately by the both houses.
When a bill is passed by both houses, it will pass through the Bicameral Conference
Committee which is tasked to reconcile the different versions of the law passed by
both houses. Once finalized and reconciled, it will be forwarded to the President for
signature. Once signed, it will now become a valid and binding law which is
numbered in series and termed as Republic Acts.
c. Judicial – settles actual controversies that may arise; it interprets the law. The
Judicial Power is exercised by One Supreme Court. The Supreme Court is the only
Constitutional Court and is otherwise known as the Highest Court of the Land. All
other lower courts are created by Law and may be abolished or otherwise added
by Congress. The Supreme Court is headed by the Chief Justice and is composed
by other Associate Justices. Following the hierarchy of courts, the Court of Appeals
stands next to the Supreme Court, followed by our Regional Trial Courts and the
Municipal Courts and Metropolitan Trial Courts are regarded as the inferior courts
or courts of limited jurisdiction.
By the principle of Equality of Powers, each branch of the Government is said to

be co-supreme and co-equal to each other. This is also highlighted by the
principle of checks and balances when one branch of Government may interfere
with the powers and duties of the other branch. The Executive branch headed by
the president appoints the Members of the Supreme Court, even the Chief Justice.
The Judicial branch of the government, on the other hand, may nullify any acts
of the President if found to be unconstitutional. The Legislative branch of the
government on the otherhand confirms the appointment of the Officials in the
Executive Department appointed by the President through the Commission on
Appointments. The principle of checks and balances is a safeguard to any
potential threat to the abuse of power and arbitrary exercise of power of any

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branch of the government to the detriment and danger of the State and its people.
As the saying says, with TOO MUCH POWER, IT EVENTUALLY CORRUPTS.
What is Law, then?

Law means any rule of action or any system of UNIFORMITY. We encounter the concept
of Law in some Science concepts such as the Law on Gravity and Relativity. It becomes a
law when proven to be true in all respects by the scientific community.
However, our core of the discussion will not be on the Laws of Science but the Laws that
pertain to human conduct or act.
The following then are the Characteristics of Law.
1. It is a rule of conduct that pertains to human acts. Animals are then outside
of the coverage of law. That is why we have laws enacted by our government because its
main purpose is to set a uniform action or behavior that every person must adhere to. It
seeks to establish a policy or concerted action within a particular society. Laws can then
be used to change culture or behavior with the end goal of achieving public good or
welfare.
2. It is obligatory in the sense that it permits no derogation and that every person
must adhere and obey.
3. It is for common observance and towards the achievement of common

good. No law shall tolerate abuse and violence. A good law shall always uphold equity and
justice. What may be inequitable and unjust for many may never be a justifiable law and
may be petitioned to be declared void for it violates the spheres of equity and justice.
4. It is promulgated by the Legitimate Authority. As said, it does not become a

binding and valid law when it is promulgated by an organ of the State which is not clothed
with the power to enact such law.
Laws are in place to bring justice and order in a society or community. Without Laws, there
will never be a CIVILIZATION as every person is unique and may succumb to abusive and
unjust acts. As humans, we have the usual tendencies to corrupt and abuse. With more
people contained in one territory, chaos and conflicts are inevitable, Laws are there to
bring a systematic approach in handling every person’s differences and uniqueness.
Kinds of Law
1. Political Law and Public International Law – this law tends to govern the
relations of the people with the organs of the State as represented by the government and
the relations of one state to the other states known as Public International Law.
2. Remedial law or Procedural Law – this law is promulgated by the Supreme

Court in its issuances known as the ”Rules of Court”. This law seeks to provide a uniform
procedure in the hearing and dispositions of cases in our courts.
3. Criminal Law – this law defines the acts or ommissions that are punishable by the
State. These acts or ommissions are often declared criminal since they are inherently
illegal or evil per se known as male in se crimes or declared criminal by virtue of pubic
policy and not inherenly evil known as male prohibita crimes.
4. Labor Law – this law promotes social justice. Labor as the primary social economic
force, it is the policy of the State to promote and protect Labor by providing free
employment for all and a living wage and humane conditions of employment.
,

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5. Mercantile Law – this law governs the different mercantile or business
transactions. This Law interests most business students as this provides the legal
foundation on how to do business in the country.
6. Taxation – this law governs the manner upon which the State collects its revenues
to defray the expenses of the government. This is the lifeblood of the government for no
State can survive without the enforced proportionate contributions from its people.
7. Civil Law – this law governs the relations of the people. This will be the core of
our discussion. Our Civil Law in the Philippines is primarily governed by the New Civil Code
of the Philippines, Republic Act No. 386. The New Civil Code of the Philippines is composed
of 4 Books and the Law on Obligations and Contracts is found in Book 4 of the New Civil
Code of the Philippines.
What is then an Obligation?
“An obligation is a juridical necessity, to give, to do or not to do. (Art. 1156) “ This
obligation is a Civil Obligation which means that this obligation gives the creditor or the
obligee a right under the law to enforce their performance in courts, in other words, it is a
demandable and an enforceable obligation while a Natural Obligation is not based on a
positive law but on natural law or the the law of equity and justice.
“An obligation is a juridical necessity, to give, to do or not to do. (Art. 1156) “. Juridical
means law while necessity means necessary, so this means that in case of
noncompliance, the courts may be called upon by the aggrieved party to compel the other
party to enforce the fulfillment or performance of the obligation/s.
Obligations, right, and wrong have been distinguished where Obligation is the act or
performance which the law will enforce. Right is the power which a person has under the
law, to demand from another any prestation. A wrong or a cause of action arises only at
the moment a right has been transgressed or violated.
Essential elements of wrong are:
a. Legal right in favor of a person (Creditor/Obligee/Plaintiff);

b. A correlative legal obligation on the part of the another
(debtor/obligor/defendant); to respect or not to violate said right; and
c. An act or omission by the latter in violation of said right with resulting injury or
damage to the former.
Essential requisites or Elements of an obligation
Absence of any of the element or requisite connotes that there is no obligation.
1. Passive subject or the debtor or obligor – the person who is bound to the
fulfillment of the obligation; he who has the duty;
2. Active subject or the creditor or obligee – the person who is entitled to demand
the fulfillment of the obligation; one who has the right under the law.
3. Object or prestation - the subject matter of the obligation.
4. Juridical or legal tie – efficient cause which binds or connects the parties to the
obligation.

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Kinds of Obligation according to subject matter
1. Real obligation – obligation to give

2. Personal obligation – obligation to do or not to do; voluntary and can never
be involuntary otherwise it will be a constitutional violation of one’s right against
involuntary servitude.
a. Positive personal obligation – obligation to do
b. Negative personal obligation – obligation not to do which includes
obligation not to give.
Art. 1157. Obligations arises from:
1. Law – which are imposed by the law itself.

2. Contracts – arises from stipulation of the parties.
3. Quasi-contracts – arises from lawful, voluntary and unilateral acts which are
enforceable to the end that no one shall be unjustly enriched or benefited at the
expense of another
4. Acts or omissions punished by law – arises from civil liability in the consequence
of a criminal offense
5. Quasi-delicts – arises from damage caused to another through an act or omission,
there being fault or negligence,there being no pre exisiting contractual relation
between the parties.
Art. 1158. ”Obligations derived from law are not presumed. Only those expressly
determined in this Code or in special laws are demandable, and shall be regulated
by the precepts of the law which establishes them; and as to what has not been
foreseen, by the provisions of this Book.”
This article means that obligations derived from law must be those clearly stipulated or
expressly stated in the laws promulgated by duly constituted authorities and these will be
regulated by the precepts of the law that govern them. Obligations derived from law are
known as Legal Obligations.
Art. 1159. "Obligations arising from contracts have the force of law between
the contracting parties and should be complied with in good faith.”
This article provides that whatever stipulations, agreements and terms freely entered by
the parties and duly embodied in a contract become the law between the parties and must
be strictly followed and observed. Noncompliance of these stipulations and agreements
gives rise to a cause of action by the aggrieved party as against the guilty party.
This topic is comprehensively discussed on the second part of this course. Obligations
arising from contracts are known as Contractual or Conventional Obligations.
Art. 1160. ”Obligations derived from quasi-contracts shall be subject to the

provisions of Chapter 1, Title XVII, of this Book.”
A quasi contract is that juridical relation resulting from lawful, voluntary and unilateral acts
by virtue of which the parties become bound to each other to the end that no one will be
unjustly enriched or benefited at the expense of another. Quasi in vernacular means
“mura”. It is similar to a contract since more than one party is involved but it is termed as
quasi-contract and not treated as a contract because of the absence of consent.
Kinds of Quasi Contracts

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1. Negotiorum gestio – is the voluntary management of the property or affairs of
another without the knowledge or consent of the latter. (Unauthorized
Management)
2. Solutio indebiti – is the juridical relation which is created when something is
received when there is no right to demand it and it was unduly delivered through
mistake. A payment by mistake must be returned to the lawful payee. (Payment
by Mistake)
Art. 1161. “Civil obligations arising from criminal offenses shall be governed by
the penal laws, subject to the provisions of Article 2177, and of the pertinent
provisions of Chapter 2, Preliminary Title, on Human Relations, and of Title XVIII
of this Book, regulating damages.”
A person who is criminally liable is also civilly liable. It is presumed in most crimes that a
damage or injury is suffered by the offended party or the victim and thus must be
indemnified for consequential damages. However, it is not true to all crimes especially for
crimes where there is no offended party such as violation of the Anti-Drug Abuse Law and
thus no civil liability may be adjudged against the guilty party.
Civil Liability Ex Delicto – civil liability arising from criminal acts.
What is a crime?
A crime is any act or ommission which is punished by law. It becomes a crime when such
act or ommission is defined by a law as a crime and is meted with a penalty. It does not
become a crime, no matter how evil or immoral it will be, when there is no law punishing
it as a crime. What may be considered as a crime rests within the normal discretion and
wisdom by the members of Congress. Kinds of Crimes according to Nature
a. Mala en se – evil in nature Ex. Vote buying during election
period
b. Mala Prohibita – prohibited by the law and is not

necessarily evil
Ex. Liquor ban before, during and after election period. Kinds
of Crimes according to the manner of commision
a. Intentional Crimes – Commited with deceit, fraud or intent to commit such grave
a wrong
Examples: Rape, murder
b. Culpa Criminal - Commited through gross negligence or reckless imprudence
Examples: Reckless imprudence resulting to homicide or serious physical injuries.
Civil liability ex delicto includes:
a. Restitution – return the thing

b. Reparation for the damages caused – pay for any damage caused
c. Indemnification for consequential damages – to pay other damages
suffered.

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Art. 1162. “Obligations derived from quasi-delicts shall be governed by the
provisions of Chapter 2, Title XVII of this Book, and by special laws.”
A quasi-delict is an act or omission by a person which causes damage to another in his

person, property, or rights giving rise to an obligation to pay for the damages done, there
being fault or negligence but there is no pre-existing contractual relation between parties.
This section gives a remedy for any aggrieved party who might be prejudiced and thus
suffered injury but can’t file a criminal case. In this case, he can file a civil case for Quasi-
delict and demand for damages.
Requisites of quasi-delict
a. There must be an act or omission.

b. There must be fault or negligence.
c. There must be damage caused.
d. There must be a direct relation or connection of cause and effect between the
act or omission and the damage.
e. There is no pre-existing contractual relation between parties.
NATURAL OBLIGATIONS
I. Definition
a. Natural Obligations – “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.” (Art. 1423).
b. Civil Obligation – “Civil obligations give a right of action to compel their

performance.” (Art. 1423). “An obligation is a juridical necessity, to give, to do or
not to do.” (Art. 1156)
II. Discussions
a. Effect of voluntary performance of a natural obligation
The obligor who voluntarily performs of a natural obligation can recover what he has
delivered or the value of the service he has rendered as provided by Art. 1423 “but after
voluntary fulfillment by the obligor, they authorize the retention of what has been delivered
or rendered by reason thereof”.
b. Examples of natural obligations under the law
Art. 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.
Prescription – is a mode of acquiring or extinguishing a right through the mere lapse of

time.
Art. 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

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prescribed, but the debtor later voluntarily reimburses the third person, the obligor cannot
recover what he has paid.
Art. 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 the
he has not been benefited thereby, there is no right to demand the thing or price thus
returned.
Art. 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)
Art. 1428. When, after an action to enforce a civil obligation has failed the defendant
voluntarily performs the obligation, he cannot demand the return of what he has
delivered or the payment of the value of the service he has rendered.
Art. 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.
Testate – mode of succession left with a last will and testament.

Intestate – mode of succession left without a last will and testament. Decedent
– the deceased person.
Art. 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.
Legacy – is the act of disposition by the testator of his real properties which composed his
estate.
III. Problems
1. C (creditor) sued D (debtor) for nonpayment of the latter’s obligation. D won

the case on a technicality (i.e, not on the merits). Nevertheless, when C
asked payment again, D paid him. Now D demands the return of what he
has paid claiming, he should not have paid C since he had no more obligation
to C under the law. Decide.
Answer:
D cannot demand the return of what he has delivered or the payment of the value of the
service he has rendered. D must be deemed to have considered it is his moral duty to
fulfill his obligation as this was clearly stated in ”Art. 1428 When, after an action to enforce
a civil obligation has failed the defendant voluntarily performs the obligation, he cannot
demand the return of what he has delivered or the payment of the value of the
service he has rendered.”

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2. M, a minor, bought a bicycle for P2,000 from N, who is not a minor. Under
the law, the contract is voidable because M is incapacitated to give consent
because of his minority. Give the situation by reason of which M cannot
recover the P2,000 from N.
Answer:
M being a minor cannot recover the amount of P2,000 from N, as in Art. 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)”. Therefore, N is not bound to make restitution to M.
TITLE XVII – EXTRA CONTRACTUAL OBLIGATIONS

CHAPTER 1 : QUASI-CONTRACTS
Two types of Quasi-Contracts

a. Nominate Quasi - Contracts - Quasi - contracts with name
Examples: Negotiorum Gestio, Solutio Indebiti
b. Innominate Quasi - Contracts - Quasi - contracts without name

Examples: Those termed as Other Quasi Contracts under the Lw
WHAT GIVES RISE TO A NEGOTIORUM GESTIO:
(1) When the property or business is not neglected or abandoned;
(2) If in fact the manager has been tacitly authorized by the owner.
If it is not a negotiorum gestio, it is possibly considered as a contract when it has the

presence of consent such as the perfected contract of agency when one person considered
as agent is authorized by the principal to act in behalf of the latter in the performance of
certain acts.
DUTIES OF AN OFFICIOUS MANAGER: (Art. 2145-2147)

Art. 2145. The officious manager shall perform his duties with all the diligence of a
good father of a family, and pay the damages which through his fault or
negligence may be suffered by the owner of the property or business under management.
The courts may, however, increase or moderate the indemnity according to the
circumstances of each case. (1889a)
Art. 2146. If the officious manager delegates to another person all or some of his duties,
he shall be liable for the acts of the delegate, without prejudice to the direct obligation
of the latter toward the owner of the business.
The responsibility of two or more officious managers shall be solidary, unless the
management was assumed to save the thing or business from imminent danger. (1890a)
Art. 2147. The officious manager shall be liable for any fortuitous event:
(1) If he undertakes risky operations which the owner was not accustomed to
embark upon;
,

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(2) If he has preferred his own interest to that of the owner;
(3) If he fails to return the property or business after demand by the owner;
(4) If he assumed the management in bad faith. (1891a)
LIABILITY OF THE OFFICIOUS MANAGER
The officious manager is personally liable for contracts which he has entered into with
third persons, even though he acted in the name of the owner, and there shall be no right
of action between the owner and third persons. (Art. 2152)
(1) If the owner has expressly or tacitly ratified the management. – Principle of Agency
where one acts as an agent to the owner
(2) When the contract refers to things pertaining to the owner of the business. –
involves the property of the owner.
RESPONSIBILITY OF THE OWNER
As a general rule, the owner shall enjoy the benefits derived from the property or business.
Exceptions are:
1. Shall reimburse the officious manager for the necessary and useful expenses
and for the damages which the latter may have suffered in the performance of his
duties. (Art. 2150)
Requires that there has been no imminent and manifest danger to the property or
business.
WHEN IS MANAGEMENT EXTINGUISHED
In accordance to Art. 2153.

(1) When the owner repudiates it or puts an end thereto;
(2) When the officious manager withdraws from the management, subject to the
provisions of Article 2144;
(3) By the death, civil interdiction, insanity or insolvency of the owner or the officious
manager. (n)
SOLUTIO INDEBITI
The following are the requisites of solution indebiti;
a. There is no right to receive the thing delivered; and

b. The thing was delivered through mistake.
Solutio Indebiti – a payment by mistake. As a payee’s defense may be payment by liberty

or delivery by condonation.
The responsibility of two or more payees is solidary. (Art. 2157)
IF PROPERTY IS OWNED BY THIRD PERSON: (Art. 2158)

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a. Payee must advise the third person of the payment by mistake
b. After the notice, there is only a span of one (1) month to claim the money paid.
IF PAYEE IS IN BAD FAITH (Art. 2159)
a. Shall pay legal interest if a sum of money is involved.

b. Shall be liable for fruits received or which should have been received the thing
produces fruits.
IF PAYEE ACTED IN GOOD FAITH (Art. 2160)
a. Shall only be responsible for the impairment or loss of the same or its accessories
and accessions insofar as he has thereby been benefited.
b. If he has alienated it, he shall return the price or assign the action to collect the
sum.
OTHER QUASI-CONTRACTS
Art. 2164 – Support to stranger
Art. 2165 – Funeral expenses
Art. 2166 – Support to an orphan, insane, etc.
Art. 2167 – Through an accident.
Art. 2168 – During a calamity
Art. 2169 – Compliance with health safety regulations
Art. 2170 – By accident

Art. 2171 – Lost of personal property
Art. 2172 – Right of every possessor
Art. 2173 – Third Person pays the debt
Art. 2174 – Measure for Protection
Art. 2175 – Constrained to pay taxes of another

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CAUSES OF ACTION
Negligence = Culpa
 Quasi-Delict – Culpa Aquillana

 Delicts – Culpa Criminal (Gross Negligence, Reckless imprudence resulting to
physical injuries)
 Contract – Culpa Contractual
Riding a Public Utility Jeepney (PUJ) is having a contract known as a Contract of Carriage.
Operators and drivers of Public Utility Jeepneys (PUJs) must exercise utmost diligence or
diligence beyond human foresight or Extra-Ordinary Diligence. If passengers in a Public
Utility Jeepneys (PUJs) suffer injury because of the negligence of the drivers or operators,
there is a breach of contract of carriage. The passengers may file a civil case for Culpa
Contractual against the operator and not the driver. The passengers may also file
simultaneously a criminal case against the driver. In filing that criminal case, the civil
liability is deemed instituted in that case.
If in a vehicle collision, pedestrians and third persons suffers injury or eventually died in
the accident. The heirs of the pedestrian may file a civil case for quasi –delict. They can
also simultaneously file a criminal case against the driver in which the civil liability ex
delicto is deemed instituted in that criminal case.
In filing a criminal case, the offended party is treated as a witness and not a party to the
case. The primary parties in a criminal case are the People of the Philippines and the
accused.
Can the Public Utility Jeepney Operator set up the defense of the diligence of the good
father of the family in the supervision and hiring of the driver in escaping liability? Who
will then be held primarily and subsidiarily liable?
Answers are provided in the table as comparison.
Negligence = Culpa

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SOURCES OF DRIVER OPERATOR PASSENGER DEFENSE OF
OBLIGATIONS DILIGENCE OF
THE GOOD
FATHER OF THE
FAMILY BY THE
OPERATOR
Contracts (Culpa Subsidiary Primarily Liable Primary Party YES – Extra-
Contractual) Liable Ordinary
Diligence
Delicts (Culpa Primarily Liable Subsidiary Witness No – Operator
Criminal) Liable absolutely liable
Quasi-Delicts Primarily Liable Subsidiary Primary Party YES – Ordinary

(Culpa Liable (Art. Diligence
Aquillana) 2180)
Civil Liability Ex Delicto – civil liability arising from the case. Once a criminal case is
filed, it is deemed instiuted in the case.
In a Civil case, the case is between the Plaintiff and the Defendant while in a Criminal
case, the case is between the People of the Philippines and the accused.
Civil Liability includes:
a. Restitution – return the thing
b. Reparation for the damages caused – pay for any damage caused
c. Indemnification for consequential damages – to pay other damages suffered.
When accused dies before final judgement or conviction the criminal case will be
dismissed including the Civil Liability Ex Delicto is also extinguished but as a
remedy, the plaintiff may file a Civil Case for Quasi-Delict and demand for
indemnification for damages and the award may be satisfied as claims against
the estate of the defendant.
QUASI-DELICTS (Chapter II, Title XVII)
Requisites of quasi-delict
a. There must be an act or omission.

b. There must be fault or negligence.
c. There must be damage caused.
d. There must be causal connection between the act or omission and the
damage caused.
e. There is no pre-existing contractual relation between parties.
Responsibility for fault or negligence is entirely separate and distinct from the civil
liability arising from the crime. But the plaintiff cannot recover damages twice for the
same act or omission of the defendant. (Art. 2177)
Plaintiff is the victim or the offended party while Defendant is the person being sued.

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When the plaintiff's own negligence was the immediate and proximate cause of his
injury, he cannot recover damages. But if his negligence was only contributory, the
immediate and proximate cause of the injury being the defendant's lack of due care, the
plaintiff may recover damages, but the courts shall mitigate the damages to be
awarded. (Art. 2179)
The obligation imposed by Article 2176 is demandable not only for one's own acts or
omissions, but also for those of persons for whom one is responsible. (Art. 2180)
The father and, in case of his death or incapacity, the mother, are responsible for the
damages caused by the minor children who live in their company.
Guardians are liable for damages caused by the minors or incapacitated persons
who are under their authority and live in their company.
The owners and managers of an establishment or enterprise are likewise

responsible for damages caused by their employees in the service of the branches
in which the latter are employed or on the occasion of their functions.
Employers shall be liable for the damages caused by their employees and
household helpers acting within the scope of their assigned tasks, even though the
former are not engaged in any business or industry.
The State is responsible in like manner when it acts through a special agent; but not when
the damage has been caused by the official to whom the task done properly pertains, in
which case what is provided in Article 2176 shall be applicable.
Lastly, teachers or heads of establishments of arts and trades or school

administrator shall be liable for damages caused by their pupils and students or
apprentices, so long as they remain in their custody.
The responsibility treated of in this article shall cease when the persons herein mentioned
prove that they observed all the diligence of a good father of a family to prevent damage.
Whoever pays for the damage caused by his dependents or employees may recover from
the latter what he has paid or delivered in satisfaction of the claim. (Art.
2181)
If the minor or insane person causing damage has no parents or guardian, the minor or
insane person shall be answerable with his own property in an action against him
where a guardian ad litem shall be appointed. (Art. 2182)
The possessor of an animal or whoever may make use of the same is responsible for
the damage which it may cause, although it may escape or be lost. This responsibility
shall cease only in case the damage should come from force majeure or from the fault of
the person who has suffered damage. (Art. 2183)
Possessor is someone who is in the last possession of the animal.

In motor vehicle mishaps, the owner is solidarily liable with his driver, if the former,
who was in the vehicle, could have, by the use of the due diligence, prevented the
misfortune. It is disputably presumed that a driver was negligent, if he had been found
guilty or recklessly driving or violating traffic regulations at least twice within the next
preceding two months.

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If the owner was not in the motor vehicle, the provisions of Article 2180 are applicable.
(Art. 2184)
Unless there is proof to the contrary, it is presumed that a person driving a motor vehicle
has been negligent if at the time of the mishap, he was violating any traffic regulation.
(Art. 2185)
Every owner of a motor vehicle shall file with the proper government office a bond
executed by a government-controlled corporation or office, to answer for damages to third
persons. The amount of the bond and other terms shall be fixed by the competent public
official. (Art. 2186)
Owner shall pay a bond and the plaintiff may file a claim bond where the bond serves as
an insurance for damage to third persons.
Manufacturers and processors of foodstuffs, drinks, toilet articles and similar goods shall
be liable for death or injuries caused by any noxious or harmful substances used,
although no contractual relation exists between them and the consumers. (Art. 2187)
There is prima facie presumption of negligence on the part of the defendant if the death
or injury results from his possession of dangerous weapons or substances, such as firearms
and poison, except when the possession or use thereof is indispensable in his occupation
or business. (Art. 2188)
Provinces, cities and municipalities shall be liable for damages for the death of, or
injuries suffered by, any person by reason of the defective condition of roads,
streets, bridges, public buildings, and other public works under their control or
supervision. (Art. 2189)
The proprietor or owner of a building or structure is responsible for the damages

resulting from its total or partial collapse, if it should be due to the lack of necessary
repairs. (Art. 2190)
Art. 2191. Proprietors shall also be responsible for damages caused:
(1) By the explosion of machinery which has not been taken care of with due
diligence, and the inflammation of explosive substances which have not been kept in
a safe and adequate place;
(2) By excessive smoke, which may be harmful to persons or property;
(3) By the falling of trees situated at or near highways or lanes, if not caused by force
majeure;
(4) By emanations from tubes, canals, sewers or deposits of infectious matter,
constructed without precautions suitable to the place. (1908)
If damage referred to in the two preceding articles should be the result of any defect in
the construction mentioned in Article 1723, the third person suffering damages may
proceed only against the engineer or architect or contractor in accordance with said
article, within the period therein fixed. (Art. 2192)
The head of a family that lives in a building or a part thereof, is responsible for
damages caused by things thrown or falling from the same. (Art. 2193)

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The responsibility of two or more persons who are liable for quasi-delict is solidary. (Art.
2194)
ACTION BROUGHT
Quasi Delicts – 4 years (Art. 1146)
Quasi-Contract and Verbal Contract – 6 years
Written Contract, Obligations created by law, based on judgement – 10 years
Title XVIII. - DAMAGES
CHAPTER 1 : GENERAL PROVISIONS
Rules under this Title are without prejudice to special provisions on damages formulated
elsewhere in this Code. Compensation for workmen and other employees in case of death,
injury or illness is regulated by special laws. Rules governing damages laid down in other
laws shall be observed insofar as they are not in conflict with this Code. (Art.
2196)
Art. 2197. Damages may be:
(1) Actual or Compensatory

(2) Moral
(3) Nominal
(4) Temperate or Moderate (5) Liquidated or
(6) Exemplary or Corrective

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CHAPTER 2 : ACTUAL OR COMPENSATORY DAMAGES
Art. 2199. Except as provided by law or by stipulation, one is entitled to an adequate

compensation only for such pecuniary loss suffered by him as he has duly proved.
Such compensation is referred to as actual or compensatory damages.
Art. 2200. Indemnification for damages shall comprehend not only the value of the loss
suffered, but also that of the profits which the obligee failed to obtain. (1106)
Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted
in good faith is liable shall be those that are the natural and probable
consequences of the breach of the obligation, and which the parties have foreseen
or could have reasonably foreseen at the time the obligation was constituted.
In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible
for all damages which may be reasonably attributed to the nonperformance of the
obligation. (1107a)
Art. 2202. In crimes and quasi-delicts, the defendant shall be liable for all damages which
are the natural and probable consequences of the act or omission complained of. It is not
necessary that such damages have been foreseen or could have reasonably been foreseen
by the defendant.
Damages aggravated doesn’t exempt liability.
Art. 2203. The party suffering loss or injury must exercise the diligence of a good
father of a family to minimize the damages resulting from the act or omission in question.
For example, Vice Ganda’s boyfriend broke with her and she committed suicide, Vice Ganda
did not minimize the damage caused and thus bears her own loss. The heirs cannot
recover from the boyfriend (So sad!)
Art. 2204. In crimes, the damages to be adjudicated may be respectively increased or

lessened according to the aggravating or mitigating circumstances.
Art. 2205. Damages may be recovered:
(1) For loss or impairment of earning capacity in cases of temporary or permanent personal
injury;
Ex. Besmirched reputation and humilation
(2) For injury to the plaintiff's business standing or commercial credit.
Art. 2206. The amount of damages for death caused by a crime or quasi-delict shall be at
least three thousand pesos (It is not anymore of the said amount since the decision
resides on the court), even though there may have been mitigating circumstances. In
addition:
(1) The defendant shall be liable for the loss of the earning capacity of the deceased,
and the indemnity shall be paid to the heirs of the latter; such indemnity shall in every
case be assessed and awarded by the court, unless the deceased on account of permanent
physical disability not caused by the defendant, had no earning capacity at the time of his
death; (Earning capacity support from the wrong doer)
(2) If the deceased was obliged to give support according to the provisions of Article
291, the recipient who is not an heir called to the decedent's inheritance by the law of
testate or intestate succession, may demand support from the person causing the death,
for a period not exceeding five years, the exact duration to be fixed by the court; (May
claim for moral damages)
(3) The spouse, legitimate and illegitimate descendants and ascendants of the
deceased may demand moral damages for mental anguish by reason of the death of the
deceased.
Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from
the insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated (treated like a creditor;
demand to the wrong doer for damages) to the rights of the insured against the
wrongdoer or the person who has violated the contract. If the amount paid by the
insurance company does not fully cover the injury or loss, the aggrieved party shall be
entitled to recover the deficiency from the person causing the loss or injury.
(NO DOUBLE RECOVERY)
Art. 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other
than judicial costs, cannot be recovered, except: (INJURED PARTY’S PART) As a
general rule, plaintiff may demand for attorney fees but must be clearly
stipulated.
(1) When exemplary damages are awarded;
(2) When the defendant's act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the
plaintiff's plainly valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;
(8) In actions for indemnity under workmen's compensation and employer's liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorney's fees and
expenses of litigation should be recovered.
In all cases, the attorney's fees and expenses of litigation must be reasonable.
Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor
incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall
be the payment of the interest agreed upon, and in the absence of stipulation, the legal
interest, which is six per cent per annum. (1108)
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Ex. Delay or failed to pay the borrowed sum amount of money at 20% interest rate
per month.
Damage is in the form of interest and is used as way for indemnifying damages.
Art. 2210. Interest may, in the discretion of the court, be allowed upon damages awarded for
breach of contract.
Must be clearly stipulated in writing if not, one cannot demand interest. If delay, may
recover only the legal interest which is 6%.
Art. 2211. In crimes and quasi-delicts, interest as a part of the damages may, in a proper
case, be adjudicated in the discretion of the court.
Still with the same example, with the principal amount of P60,000 + 20% interest
(Where it is clearly stipulated) + 6% interest for delay (P4,300) = P72,000.
Art. 2212. Interest due shall earn legal interest from the time it is judicially demanded,
although the obligation may be silent upon this point. (1109a)
There is delay even there is no demand if it is clearly stipulated.
Art. 2213. Interest cannot be recovered upon unliquidated claims or damages, except when
the demand can be established with reasonably certainty.
Unliquidated, amount is uncertain while Liquidated, amount is certain.
Art. 2214. In quasi-delicts, the contributory negligence of the plaintiff shall reduce the
damages that he may recover.
Art. 2215. In contracts, quasi-contracts, and quasi-delicts, the court may equitably
mitigate the damages under circumstances other than the case referred to in the
preceding article, as in the following instances:
(1) That the plaintiff himself has contravened the terms of the contract; (Guilty of violated
of the terms)
(2) That the plaintiff has derived some benefit as a result of the contract; (Benefit on the
part of plaintiff)
(3) In cases where exemplary damages are to be awarded, that the defendant acted upon
the advice of counsel; (Sec. 5, Imposed in addition Moral, Liquidated,
Compensatory + Exemplary. Serves or sets as a correction for public good to
discourage against public good and such act must be suppressed.
(4) That the loss would have resulted in any event;

(5) That since the filing of the action, the defendant has done his best to lessen the plaintiff's
loss or injury.
CHAPTER 3 : OTHER KINDS OF DAMAGES
Art. 2216. No proof of pecuniary loss is necessary in order that moral, nominal, temperate,
liquidated or exemplary damages, may be adjudicated. The assessment of such damages,
except liquidated ones, is left to the discretion of the court, according to the circumstances
of each case.
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SECTION 1. - Moral Damages
Art. 2217. Moral damages include physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation, and similar injury. Though incapable of pecuniary computation, moral
damages may be recovered if they are the proximate result of the defendant's wrongful
act for omission.
Ex. Battered girlfriend (Kim Chu) may demand moral damages
Art. 2218. In the adjudication of moral damages, the sentimental value of property, real or
personal, may be considered.
Art. 2219. Moral damages may be recovered in the following and analogous cases:
(Instances where moral damages may be imposed)
(1) A criminal offense resulting in physical injuries;
(2) Quasi-delicts causing physical injuries;
(3) Seduction, abduction, rape, or other lascivious acts;
(4) Adultery or concubinage;
(5) Illegal or arbitrary detention or arrest;
(6) Illegal search;
(7) Libel, slander or any other form of defamation;
(8) Malicious prosecution;
(9) Acts mentioned in Article 309;
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.
The parents of the female seduced, abducted, raped, or abused, referred to in No. 3
of this article, may also recover moral damages.
The spouse, descendants, ascendants, and brothers and sisters may bring the action
mentioned in No. 9 of this article, in the order named.
Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if
the court should find that, under the circumstances, such damages are justly due. The same
rule applies to breaches of contract where the defendant acted fraudulently or in bad faith.
SECTION 2. - Nominal Damages
Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which
has been violated or invaded by the defendant, may be vindicated or recognized, and not
for the purpose of indemnifying the plaintiff for any loss suffered by him.
Art. 2222. The court may award nominal damages in every obligation arising from any
source enumerated in Article 1157, or in every case where any property right has been
invaded.
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Art. 2223. The adjudication of nominal damages shall preclude further contest upon the
right involved and all accessory questions, as between the parties to the suit, or their
respective heirs and assigns.
One can never recover Temperate and Nominal Damages at the same time.
SECTION 3. - Temperate or Moderate Damages
One can never recover Temperate and Actual Damages at the same time because of the
“Actual proof”.
Art. 2224. Temperate or moderate damages, which are more than nominal but less than
compensatory damages, may be recovered when the court finds that some pecuniary
loss has been suffered but its amount can not, from the nature of the case, be
provided with certainty.
Art. 2225. Temperate damages must be reasonable under the circumstances.
SECTION 4. - Liquidated Damages
Art. 2226. Liquidated damages are those agreed upon by the parties to a contract, to be
paid in case of breach thereof.
Ex. Employee resigns before the end of the contract, such breach is subject to a
penalty of P100,000 payable to the company, thus, when an employee resigns
even without evidence that the company suffered, he is liable for the said
amount.
Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be

equitably reduced if they are iniquitous or unconscionable.
Ex. You borrowed money worth P10,000 to your friend and your friend agrees so
long that the interest of delay would be P1,000/day. As a general rule, the annual
interest rate would not exceed 24% or 2% per month, since P1000/day exceed
the 2% rate per month then you are not entitled to pay for the P1,000 for delay.
One could go to the court and have the excessive rate be lessen.
Art. 2228. When the breach of the contract committed by the defendant is not the one
contemplated by the parties in agreeing upon the liquidated damages, the law shall
determine the measure of damages, and not the stipulation. Can demand for both Moral
and Exemplary damages.
SECTION 5. - Exemplary or Corrective Damages
Art. 2229. Exemplary or corrective damages are imposed, by way of example or correction
for the public good, in addition to the moral, temperate, liquidated or compensatory
damages. (Violation for public good)
Art. 2230. In criminal offenses, exemplary damages as a part of the civil liability may be
imposed when the crime was committed with one or more aggravating (Ensures the
crime more evil) circumstances. Such damages are separate and distinct from fines and
shall be paid to the offended party. Ex. Treachery
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Art. 2231. In quasi-delicts, exemplary damages may be granted if the defendant acted
with gross negligence. Ex. So fragrant, grave, where human foresight can actually
recognize and wanton.
Art. 2232. In contracts and quasi-contracts, the court may award exemplary damages if
the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent
manner.
Art. 2233. Exemplary damages cannot be recovered as a matter of right; the court will decide
whether or not they should be adjudicated (decided or judged).
Art. 2234. While the amount of the exemplary damages need not be proved, the plaintiff
must show that he is entitled to moral, temperate or compensatory damages before the
court may consider the question of whether or not exemplary damages should be awarded.
In case liquidated damages (Determined beforehand by virtue of liberality of
contract not against public order, public policy, etc.) have been agreed upon,
although no proof of loss is necessary in order that such liquidated damages may be
recovered, nevertheless, before the court may consider the question of granting exemplary
in addition to the liquidated damages, the plaintiff must show that he would be entitled to
moral, temperate or compensatory damages were it not for the stipulation for liquidated
damages. (The amount will depend on the discretion of the court where the
plaintiff must show before the court that he is entitle of moral, temperate or
compensatory damages then he may demand for Exemplary Damages)
Art. 2235. A stipulation whereby exemplary damages are renounced in advance shall be null
and void.
Learning Activity:
Make a minimum 5-page Reflective Essay summarizing your relevant learnings in the
topics covered by this Module and relate it to your personal experiences as a successful
business professional in the future and how these topics can be applied in the different
actual business transactions. In making your reflective essay, use your own words and
never attempt to just copy and paste it from any sources including the outputs of your
classmates and other students. Observe correct grammar and proper spacing, indention
and margin. Use A4 Size Bondpaper, 1’ margin except for the 1.5 margin at the top of the
page, font style and size of verdana, 12.
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Course Study Guide
Course Code LAW 11
Credit
3.0
Units/Hours
Week no./
University of the Visayas Number of 1/4 hrs.

Hours
College of
Business Administration Module Topic Nature and Effect of Obligations (Articles 1163-1178,

Allotted Hours
Introduction to Law, General Provisions, Natural Obligations, Sources, Nature

Main Topic or Sub-Topic No. and Effect of Obligations (Articles 1156-1178, Articles 1423-
1430) Civil Code of the Philippines) or Sub-Topic No. 2)
1. Explain and differentiate the specific circumstances affecting Obligations

Intended Learning Outcomes and compare the duties of the Obligor in a Real Specific and Real Generic
Obligations and Personal Obligations and evaluate how these
circumstances affect the duties of the obligor in certain business
transactions.
2. Analyze and Differentiate the Remedies of the Creditors in Real Specific

Obligations, Real Generic Obligations and Personal Obligations and assess
and evaluate which remedies are available to Creditors in certain business
Delivery Mode Wed – Thursday
4 hrs Offline/Modular Approach
Thursday
2 hrs Online Discussion (Zoom) (Thursday, 2 pm – 4 pm)
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1. Why is Law on Obligations important for business?
2. What are the circumstances that affect obigations
Study Questions 3. How can I practice my knowledge on this topic in actual business
scenaries?
4. What can I do with the things I learned in this topic as a business
professional?

Law 11 Learning module The Law on Obligations and Contracts
• Print
by Atty. Hector S. De leon, 2014
edition
• Digital Law 11 LMSLearning Module

2. Read “Nature and Effect of Obligations” of the textbook on the “Law of
Obligations and Contracts” by Atty. Hector S. De Leon, 2014 edition
3. Online discussion thru Zoom

learnings in the topics covered by this Module and relate it to your
personal experiences as a successful business professional in the future
and how these topics can be applied in the different actual business
Learning Activity transactions. In making your reflective essay, use your own words and
never attempt to just copy and paste it from any sources including the
outputs of your classmates and other students. Observe correct grammar
and proper spacing, indention and margin. Use A4 Size Bondpaper, 1’
margin except for the 1.5 margin at the top of the page, font style and
size of verdana, 12.
5 page Reflective Essay

Required Output
Essay
Assessment Task
Rubrics
Assessment Tool
organization.

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Revision #002
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MODULE 1
Subtopic 2 NATURE AND EFFECT OF OBLIGATIONS
Learning Outcomes :
1. Explain and differentiate the specific circumstances affecting Obligations and

compare the duties of the Obligor in a Real Specific and Real Generic Obligations and
Personal Obligations and evaluate how these circumstances affect the duties of the obligor
in certain business transactions.
2. Analyze and Differentiate the Remedies of the Creditors in Real Specific Obligations,
Real Generic Obligations and Personal Obligations and assess and evaluate which remedies
are available to Creditors in certain business transactions and events.
Learning Contents:
Art. 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
stipulations of the parties requires another standard of care.
Diligence Needed:
a. That which is required by the nature of the obligation and corresponds with the
circumstances of person, time, and place. Diligence of a good father of a family.
b. If the law or contract provides a different standard of care.
Ex: “A common carrier is bound to carry the passengers safely as far as human care and foresight
can provide.
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Art. 1164. The creditor has a right to the fruits of the thing from the time the
obligation to deliver it arises. However, he shall acquire no real right over it until
the same has been delivered to him.
Personal right is also called jus in personam or jus ad rem; it is the power demandable by
one person to another – to give, to do or not to do.
Real right is also called jus in re; power of the specific thing like the right of ownership or
possession and is binding on the whole world.
Kinds of delivery:
a. Actual delivery (or traditio) – where physically, the proper changes hands. Ex: if a
sells B a fountain pen, the giving by A to B of the pen is actual delivery.
b. Constructive delivery – that where the physical transfer is implied. This may be done
by:
1. Traditio simbolica (symbolical tradition, ex: keys of the bodega are given)
2. Traditio longa manu (delivery by mere consent or the pointing out of the object.
3. Traditio brevi manu (delivery by the short hand)
4. Traditio constitutum possessorium – the delivery whereby a possessor of a thing
as an owner, retains possession no longer as an owner.
5. Traditio by execution of legal forms and solemnities (like an execution of public
instrument selling land)
When does the Obligation to Deliver Arise
a. If there is no term or condition, from the perfection of the contract.

b. If there is a condition or term, from the moment the term arrives or the condition
happens.
Art. 1165. When what is to be delivered is a determinate thing, the creditor, in

addition to the right granted him by Article 1170, may compel to the debtor to
make the delivery.
If the thing is indeterminate or generic thing, he may ask that the obligation be
complied with at the expense of the debtor,
If the obligation delays, or has promised to delvier the same thing to two or
more persons who do not have the same interest, he shall be responsible for
fortuitous event until has effected the delivery.
Specific or Determinate things – when it is capable of particular designation. Ex: this car,
tha car owned by A on Sept. 12, 2005, the car with the plate number 1815, the particular
picture of Piolo Pascual in my notebook.
Generic or Indeterminate Things – refers only to class, to a genus, and cannot be pointed out
with particularity.
Ex.: A car, a 2005 BMW, the sum of P5 Million, a kilo of sugar.
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Remedies of the Creditor When Debtor Fails to Comply with his Obligations: a.
Demand for specific performance of the obligation.
b. Demand for rescission or cancellation
c. Demand for damages either with or without either of the first two. (a or b)
Effect of Fortuitous Events:

a. To deliver a Determinate thing; obligation is extinguished.
b. To deliver an Indeterminate thing; obligation is not extinguished. Fortuitous
Event does not Exempt; a. Of the obligor delays
b. Of the obligor is guilty of BAD FAITH
Ordinary Delay – merely non-performance at the stipulated time;

Legal Delay (default) – which amounts to a virtual nonfulfillment of the obligation.
Art. 1156. The Obligation to give a determinate thing includes that of deliviering
all its accession and accessories even though they may not have been mentioned.
Accessories – those joined to or included with the principal for the latters better use,
perfection or enjoyment. (Ex: keys of a house, dishes on a restaurant.)
Acessions – additions to or improvements of a thing. (ex: soil river bank, whatever is built,
planted or sown on a persons parcel of land.
Art. 1167. If a person obliged to do something fails to do it, the same shall be
executed at his cost
This same rule shall be observed if he does it in contravention if the tenor of the
obligation. Furthermore, it may be decreed that what has been poorly undone.
Article 1167 - Positive Personal Obligation (AN OBLIGATION TO DO)
Remedies of the Creditor if Debtor fails to do

1. To have the obligation performed (by himself or by another) at debtors expense.
2. Also – to claim for damages
Art.1168. When the obligation consists in not doing, and the obligor does what has
been forbidden him, it shall also be undone at his expense.
Negative Personal Obligation

Remedies: Undoing of the prohibited thing and damages.
Art. 1169. Those obliged to deliver or to do something incur in delay from the
time the obligee juridically 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 declares
2. Or 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 of the
service to be rendered was a controlling motive for the establishment of the
contract; or
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3. When demand would be useless, as when the obliger has rendered it beyond
his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not
comply or is in ready to comply in a proper manner with what is incumbent upon
him. From the moment one of the parties fulfill his obligation, delay by the other
begins.
When Demand is Not Needed to Put the Debtor in Default;

a. When the law so provides
b. When the obligation so provides
c. When time is essence of the contract
d. When demand would be useless
e. When the obligor has expressly acknowledge that he really is in default.
Different Kinds of Mora (default)

a. Mora Solvendi (default on the part of the debtor)
1. Mora solvendi ex re (debtors default in real obligations)
2. Mora solvendi ex persona (debtors default in personal obligations)
b. Mora accippiendi (default on the part of the creditor)
c. Compensatio Morae (when in reciprocal obligation both parties ar in default)
Mora Solvendi Requisites:

a. Obligation must be due, enforceable and already liquidated or determinate in amount.
b. There must be non-performance
c. There must be demand, unless the demand is not required.
d. The demand must be for the obligation that is due. Effects:
a. Debtors default, liable for interest or damages.
b. Bears the risk of loss,
c. Liable even for a fortuitous event.
Mora Accipiendi
The creditor is guilty of default when he unjustifiably refuses to accept payment or
performance at the time said payment or performance can be done.
Reciprocal Obligations
Depend upon each other for performance
Art. 1170. Those who in the performance of their obligation are guilty of fraud,
negligence, or delay and those in any manner contravene the tenor thereof, are
liable for damages.
Grounds for Liability in the Performance of Obligations;

a. Fraud (deceit or dolo)
b. Negligence (fault or culpa)
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c. Default (mora)
d. Violation of the terms of obligation
Kinds of Damages (MENTAL)

a. Moral – (mental and physical anguish)
b. Exemplary – (to set an example for the public)
c. Nominal – (to vindicate a right)
d. Temperate – (when the exact amount of damages cannot be determined)
e. Actual – (actual losses as well as unrealized profit, needs substantiation or proof)
f. Liquidated – (predetermined beforehand, need not be proven but must be equitable
and not unconscionable)
Art. 1171. Responsibility arising from fraud is demandable in all obligations. Any
waiver of an action for future fraud is void.
Art. 1172. Responsibility arising from negligence in the performance of every kind
of obligation is also demandable, but such liability may be regulated by the courts,
according to the circumstances.
Fraud Distinguished from Negligence

• Fraud has deliberate intention to cause damage while negligence has no deliberate
intention.
• Fraud Liability cannot be mitigated or reduced by courts while negligence can be
reduced.
• Waiver of an action is void while negligence is allowed.
4 Kinds of Culpa:
a. Culpa Contractual – that which results in a breach of contract.
b. Culpa Aquiliana – Civil Negligence or tort or quasi delict.
c. Culpa Criminal – that which results in the commission of a crime or a delict.
Art. 1173. The fault or negligence of the obligor consists on the omission of that
diligence which is required by the nature of the obligation and corresponds with
the circumstances of the person, of the time and place. When the negligence
shows bad faith, the provisions of Article 1171 and 2201, paragraph 2, shall
apply.
If the law or contract does not state the diligence which is to be observed in the
performance, that which is expected of a good father of a family shall be
required.
Degrees of Culpa Under Roman Law:

a. Culpa lata – grave negligence;
b. Culpa levis – ordinary negligence;
c. Culpa levissima – slight negligence
Kinds of Diligence Under the Civil Code:
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a. That agreed by the parties
b. In absence of (a), that required by law
c. In absence of (b), that expected of a good father of a family
Art. 1174. Except in cases expressly specified by the law, or when it is otherwise
declared by the 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, where inevitable.
No Liability for a fortuitous event Exceptions:

a. When expressly declared by law
b. When expressly declared by stipulation or contract
c. When the nature of the obligation requires the assumption of risk
Equivalent Terms for Fortuitous Event

a. Caso fotuito
b. Act of God
c. Force majeure (like war or armed robbery)
d. Unavoidable accident (like a tire blow out)
Characteristics of Fortuitous events:

a. The cause must be independent of the will of the debtor
b. Impossibility of foreseeing or impossibility of avoiding it, even if foreseen
c. The occurrence must be such as to render it impossible for the debtor to fulfill his
obligation in a normal manner.
Art. 1175. Usurious transactions shall be governed by special laws.
Usury – it is contracting for or receiving something in excess of the amount allowed by the
law for the loan or us of money, goods, chattels, or credits.
Kinds of Interest:
a. Given for compensation or use of the money
b. Given by way of damages
Art. 1176. The receipt of the Principal by the creditor, without reservation with
respect to the interest, shall give rise to the presumption that said interest has
been paid.
The receipt of a later installment of a debt without reservation as to prior
installment, shall likewise raise the presumption that such installments have
been paid.
Art. 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 thoes which are inherent in the person;
they may also impugn the acts which the debtor may have to defraud them.
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Rights of Creditors:
a. Exact payment
b. Exhaust debtors properties, generally by attachment
c. Accion subrogatoria
d. Accion pauliana
Art. 1178. Subject to the laws, all rights acquired in virtue of an obligation are
transmissible, if there has been no stipulation to the contrary.
Transmissibility of Rights Rights

are transmissible. Exceptions:
a. If the law provides otherwise;
b. If the contract provides otherwise;
c. If the obligation is purely personal
Learning Activity:
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Different Kinds of Obligations and Modes of

Module 2
Extinguishing Obligations (Articles 1179-1304,
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Course Study Guide:
Course Code LAW 11
Credit
3.0
Units/Hours
Week no./
Number of 2/6 hrs.
Hours
Module Topic
Pure and Conditional Obligations, Obligations
College of with a Period, Alternative Obligations,
Business Administration Joint and Solidary Obligations,Divisible
and Indivisible Obligations, Obligations
with a Penal Clause (Articles 1179-1230,

Allotted Hours

Main Topic or Sub-Topic No. Obligations (Articles 1179-1304, Civil Code of the
Philippines) or Sub-Topic No. 1
Identify and differentiate the different kinds of obligations and

Intended Learning Outcomes apply these concepts to certain business transactions and
events.
Delivery Mode Mon – Tue 6 hrs Offline/Modular Approach
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1. Why is this lesson on Kinds of Obligations important in
business?
2. What are the different kinds of Obligations and the laws and
rules that govern them?
Study Questions
3. How can I practice my knowledge on this topic in actual
business setting?
4. What can I do with what I've learned from this topic as a
business professional?

Law 11 Learnign Module
• Print Contracts by Atty. Hector
S. De leon, 2014 edition
• Digital Law 11 LMS Module
2. Read “Different Kinds of Obligations” of the textbook on the
“Law of Obligations and Contracts” by Atty. Hector S. De Leon,
2014 edition
3. Make a minimum 5-page Reflective Essay summarizing your
relevant learnings in the topics covered by this Module and
relate it to your personal experiences as a successful business
professional in the future and how these topics can be applied
Learning Activity in the different actual business transactions. In making your
reflective essay, use your own words and never attempt to just
copy and paste it from any sources including the outputs of
your classmates and other students. Observe correct grammar
and proper spacing, indention and margin. Use A4 Size
Bondpaper, 1’ margin except for the 1.5 margin at the top of
the page, font style and size of verdana, 12.
Required Output Minimum 5-page reflective essay
Essay
Assessment Task
Rubrics
Assessment Tool
Promote adherence to legitimate and acceptable ethical objectives
of an organization.

(Sgd.) (Sgd.)

Revision #002
edited/rce, 6-27-20
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MODULE 2
Subtopic 1
KINDS OF OBLIGATIONS
Learning Outcome:
Identify and differentiate the different kinds of obligations and apply these concepts to certain
Learning Contents:
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.
Pure Obligation – is one which is not subject to any condition and no specific date is mentioned
for its fulfillment and is, therefore, immediately demandable.
Example: A student borrows money from a seatmate.

Conditional Obligation – is one whose consequences are subject in one way or another to the
fulfillment of a condition.
Condition – is a future and uncertain event, upon the happening of which, the effectivity or
extinguishment of an obligation subject to it depends.
Characteristics of a condition.
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1. Future and uncertain – In order to constitute an event as a condition, it is not enough
that it be future; it must also be uncertain.
2. Past but unknown – A condition may refer to a past event unknown to the parties.
Two principal kinds of condition:
1. Suspensive condition (precedent or antecedent) – one of the fulfillment of which will
give rise to an obligation. The demandability of the obligation is suspended until the
happening of the uncertain event which constitutes the condition.
Example: A bonus is given to a Salesman who reach his quota.

2. Resolutory condition (subsequent) – one of the fulfillment of which extinguish an
obligation already existing.
Example: The scholarship foundation cancelled the scholarship after the student
scholar fails to meet the grade requirement.
When obligation is demandable at once:

An obligation is demandable ate once –
1. When it is pure
2. When it is subject to a resolutory condition
3. When it is subject to resolutory period
Article 1180. When the debtor binds himself to pay when his means permit him
to do so, the obligation shall be deemed to be one with a period, subject to the
provisions of article 1197.
Period – is a future and certain event upon the arrival of which the obligation subject to it
either arises or is extinguished.
Article 1181. In conditional obligations, the acquisition of rights, as well as the

extinguishment or loss of those already acquired, shall depend upon the
happening of the event which constitutes the condition.
Effects of happening of condition:

1. Acquisition of rights – In obligations subject to a suspensive condition, the
acquisition of rights by the creditor depends upon the happening of the event which
constitutes the condition.
Example: The surrender of the sweepstakes ticket is a condition precedent to the
payment of the prize.
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2. Loss of rights already acquired – In obligations subject to a resolutory condition,
the happening of the event which constitutes the condition produces the
extinguishment or loss of rights already acquired.
Example: A lease contract expressly stipulates that R, lessor, may terminate the
lease in case his children shall need the leased premises. Here, the happening of
the condition depends upon the will of a third person – R’s children.
Article 1182. When the fulfillment of the condition depends upon the sole will of
the debtor, the conditional obligation shall be void. If it depends upon chance or
upon the will of a third person, the obligation shall take effect in conformity with
the provisions of this Code.
Potestative condition – a condition suspensive in nature and which depends upon the sole will
of one of the contracting parties.
a) Suspensive potestative condition depending on the sole will of the debtor
- VOID
- Ex. I will pay my tuition if I pass this course.
b) Suspensive potestative condition depending on the sole will of the creditor
- VALID
- Ex. I will deliver the books with cover if you pay on time.
c) Resolutory potestative condition depending on the sole will of the debtor
- VALID
- Happening of the condition merely causes extinguishment of the obligation.
- Ex. I will continue to pay your tuition fee if I remain an employee of USC.
d) Resolutory potestative condition depending on the sole will of the creditor
- Same as resolutory condition in Art. 1181
e) Casual condition - Suspensive condition depending upon chance or will of a third person
- VALID
- Ex. Contractor’s warranty
- Ex. I will let you occupy the room if the present occupant would leave.
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Article 1183. Impossible conditions, those contrary to good customs or public
policy and those prohibited by law shall annul the obligation which depends upon
them. If the obligations is divisible that part thereof which is not affected by the
impossible or unlawful condition shall be valid.
Two kinds of impossible conditions:

1. Physically impossible conditions – when they, in nature of things, cannot exist or
cannot be done.
2. Legally impossible conditions – when they are contrary to law, morals, good customs,
public order, or public policy. Effect of impossible conditions;
1. Conditional obligation void. – Impossible conditions annul the obligation which
depends upon them. Both the obligation and the condition are void.
2. Conditional obligation is valid. – If the condition is negative, that is, not to do an
impossible thing, it is disregarded and the obligation is rendered pure and valid.
Article 1184. The condition that some event happen at a determinate time shall
extinguish the obligation as soon as the time expires or if it has become
indubitable that the event will not take place.
Positive obligation – the happening of an event at a determinate time.
The obligation is extinguished:

a. Time expires without the event taking place.
Example: The seller will give the agent additional 5% commission if he is able to sell
within 30 days.
b. Indubitable that the event will not happen although the time specified has not expired.
Ex. I will give you a college scholarship if you graduate as valedictorian in high school.
The student failed a subject in fourth year.
Article 1185. The condition that some event will not happen at a determinate
time shall render the obligation effective from the moment the time indicated has
elapsed, or if it has become evident that the event cannot occur.
Negative condition – which an event will not happen at a determinate time.
The obligation shall become effective and binding:

a. Time has elapsed without the event taking place.
Ex. Return of deposit if the lessee will not leave within the contract period.
b. Evident that the event cannot occur although the time indicated has not yet elapsed.
Ex. I will provide you with a refrigerator if you will not carry other soft drinks. The
client disposes of all the bottles of the competitor.
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Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily
prevents its fulfillment.
Constructive fulfillment of suspensive condition:
There are three requisites for the application of this article:

1. The condition is suspensive
2. The obligor actually prevents the fulfillment of the condition
3. He acts voluntarily
The law does not require that the obligor acts with malice or fraud as long as his
purpose is to prevent the fulfillment of the condition. He should not be allowed to
profit from his own fault or bad faith.
Article 1187. The effects of a conditional obligation to give, once the condition
has been fulfilled, shall retroact to the day of the constitution of the obligation.
Nevertheless, when the obligation imposes reciprocal prestations upon the
parties, the fruits and interests during the pendency of the condition shall be
deemed to have been mutually compensated.
Retroactive effects of fulfillment of suspensive condition:
a. Obligation to give
- Retroacts to the day the obligation is constituted not from the time condition is fulfilled
Ex. Teachers are promised a salary increase at the start of the school year provided the
CHED approves the application for salary increase. CHED approved the application in
December. Increase in salary is effective from June.
- No retroactive effect as to fruits and interests in reciprocal obligations; deemed

mutually compensated.
Ex. Sale of taxi. Interest on the selling price and income from rentals of taxi is deemed
set-off
- No retroactive effect also as to fruits and interests in unilateral obligations unless there
is a clear intention to give the fruits and interest; gratuitous in nature.
Ex. Reimbursement of tuition fee if student tops the board exam. Student cannot ask for
interest on the tuition fee paid as the intention to return only the tuition fees paid.
b) Obligation to do or not to do
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- no fixed rule, discretionary on the courts to apply retroactive effect of
suspensive condition
- Intention of the parties is taken into consideration
Ex. A week before, a contractor submitted a quotation for the repair of the wall of the
house on the condition it will not rain on the coming weekend. On weekend, it did not rain
but the prices of materials increase. Quoted price prevails despite the increase.
Article 1188. The creditor may, before the fulfillment of the condition, bring the
appropriate actions for the preservation of his right. The debtor may recover
what during the same time he has paid by mistake in case of a suspensive
condition.
Creditor’s rights pending the happening of the suspensive condition
a) Bring action to preserve the thing
- Ex. In case of sale of land, cause the annotation in the Registry of Property.
b) Debtor can recover payment by mistake before the happening of the condition.
Article 1189. When the conditions have been imposed with the intention of
suspending the efficacy of an obligation to give, the following rules shall be
observed in case of the improvement, loss or deterioration of the thing during
the pendency of the condition.
Kinds of loss:
1. Physical loss – when a thing perishes as when a house is burned and reduced to ashes.
2. Legal loss – when a thing goes out of commerce or when a thing heretofore legal
becomes illegal.
3. Civil loss – when a thing disappears in such a way that its existence is unknown.
Rules in case of loss, deterioration, or improvement of thing during pendency of suspensive

condition
1. Lost without debtor’s fault - obligation is extinguished
2. Lost through debtor’s fault - debtor liable to pay damages
3. Deteriorates without debtor’s fault - borne by the creditor
4. Deteriorate with debtor’s fault - creditor may choose between rescission or fulfillment
of the obligation, with damages in either case.
5. Improve by nature, inure to the benefit of the creditor
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6. Improve at debtor’s expense - debtor shall have usufructuary rights (remove
the improvements without destroying the principal thing; not subject to
reimbursement)
Article 1190. When the conditions have for their purpose the extinguishment of
an obligation to give, the parties, upon the fulfillment of said conditions, shall
return to each other what they have received.
Effects of fulfillment of resolutory condition:

a. Obligation to give
- Return to each other what they have received including the fruits and interest.
Except when it is with a third person in good faith, the remedy is restitution. Ex.
A scholar who violates the scholarship contract shall return the school fees paid
plus interest.
b. Obligation to do or not to do
- The courts shall determine the retroactive effect of the fulfillment of the
resolutory condition.
Ex. Salesman is allowed to use company car provided he reached the quota. If
quota is not reached, salesman must return the car but is not required to pay rental
because the intention is to use the car for company’s business.
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.
Kinds of obligation according to the person obliged:

1. Unilateral – when only one party is obliged to comply with a prestation.
2. Bilateral – when both parties are mutually bound to each other. In other words, both
parties are debtors and creditors of each other. Bilateral obligations may be
reciprocal or non – reciprocal.
a. Reciprocal obligations are those which arise from the same cause and in which
each party is a debtor and creditor of the other.
b. Non – reciprocal obligations are those which do not impose simultaneous and
correlative performance on both parties.
Alternative remedies in reciprocal obligations if one party fails to perform his obligation
(needs time and not refusal to perform):
a) Ask for specific performance with damages
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b) Action for rescission with damages (implied); different from rescission due to
lesion, defect in consent or violation of contract.
Limitations on right to demand rescission:

1. Must be granted by the court (judicial rescission) except when automatic rescission is
expressly stipulated (extrajudicial rescission). However, notice must be given to the
other party. If there is objection, resort to court is necessary.
Ex. Violation of lease contract.
2. The court has discretion to allow the party in default a term or period to perform the
obligation.
3. Rescission is not available if the thing is in the hands of a third person in good faith.
4. There must be substantial breach of contract.
5. Right of rescission may be waived such as the acceptance of a security.
Article 1192. In case both parties have committed a breach of the obligation, the
liability of the first infractor shall be equitably tempered by the courts.
Both parties are guilty of breach:

1. First infractor known
- Liability for damages of the first infractor is equitably tempered.
2. First infractor is not known
- Contract is extinguished, each shall bear his own damage.
OBLIGATIONS WITH A PERIOD
Article 1193. Obligations for whose fulfillment a day certain has been fixed, shall
be demandable only when that day comes.
Obligation with a period – is one whose effects or consequences are subjected in one way or
another to the expiration or arrival of said period or term.
Period – is a future and certain upon the arrival of which the obligation subject to it either
arises or is terminated.
Kinds of period or term:

1. Suspensive period - obligation begins only from a day certain upon arrival of the
period. Ex. Pay the tuition fee when the student reached college.
2. Resolutory period - obligation is valid up to a day certain and terminates upon arrival
of the period. Ex. Giving of financial support until reaching majority age.
3. Legal period - provided by law. Ex. payment of taxes.
4. Conventional period - agreed by the parties. Ex. payment of loan.
5. Judicial period - fixed by the court. Ex. when to move out of the leased premises.
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6. Definite period - fixed period
7. Indefinite period - not fixed period.
Article 1194. In case of loss, deterioration or improvement of the thing before the
arrival of the day certain, the rules in article 1189 shall be observed.
Article 1195. Anything paid or delivered before the arrival of the period, the
obligor being unaware of the period or believing that the obligation has become
due and demandable, may be recovered, with the fruits and interests.
Payment by mistake as the period has not yet arrived.

a. Debtor is entitled to recover the payment plus fruits and interest. But debtor is
presumed to know the period and must prove that he was unaware of the period.
b. NO RECOVERY in personal obligation (obligation to do) as it is physically impossible
to recover services rendered.
Article 1196. Whenever in an obligation a period is designated, it is presumed to

have been established for the benefit of both the creditor and the debtor, unless
from the tenor of the same or other circumstances, it should appear that the
period has been established in favor of one or of the other.
Rebuttable presumption as to benefit of period
Presumed for the benefit of both creditor and debtor. Creditor cannot collect or debtor cannot
pay before the arrival of the period.
Ex. Banks imposed a penalty for early termination of loan.
Exceptions to the General Rule:

a. For the benefit of the debtor alone - debtor can pay early. Ex. “on or before”
b. For the benefit of the creditor alone - may demand fulfilment even before the arrival
of the term but cannot be forced to accept payment before the arrival of such period.
Ex. Acceleration clause.
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.
Obligation has no period but period was intended.
Court is authorized to fix the period:
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1) No period was fix but period is intended. Ex. construction of a house
2) Duration of the period depends upon the will of the debtor. Ex. obligation to pay money.
Article 1198. The debtor shall lose every right to make use of the period:
(1)Debtor becomes insolvent unless he gives guaranty or security for the debt
(2)Debtor does not furnish the promised guaranty or security
(3)Debtor impairs the guaranty or security unless he gives a new one
(4)Breach of contract
(5)Attempts to abscond
ALTTERNATIVE OBLIGATIONS
Article 1199. A person alternatively bound by different prestations shall completely

perform one of them.
Alternative obligation – is one wherein various prestations are due but the performance of
one of them is sufficient as determined by the choice which, as a general rule, belongs to
the debtor.
Kinds of obligation according to object:

1. Simple obligation – one where there is only one prestation.
2. Compound obligation – one where there are two or more prestations. It may be:
a. Conjunctive obligation – one where there are several prestations and all of them
are due.
b. Distributive obligation – one where two or more prestations is due. It may be:
1. Alternative obligation – one where several prestations are due but the
performance of one is sufficient.
2. Facultative obligation – one where only one prestation is due but the debtor
may substitute another.
Article 1200. The right of choice belongs to the debtor, unless it has been expressly
granted to the creditor.
Right of choices:
- Belongs to the debtor unless expressly granted to the creditor.
- No right to choose impossible obligations, unlawful or not the object of the obligation.
- No more right to choose if only one is practicable (Art. 1202).
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Article 1201. The choice shall produce no effect except from the time it has been
communicated.
Choice must be communicated, otherwise obligation remains alternative.
- Concurrence of creditor is not required.
- Notice either oral or in writing.
Article 1202. The debtor shall lose the right of choice when among the prestations
whereby he is alternatively bound, only one is practicable.
Effect when only one prestation is practicable. The obligation is still alternative because the
debtor has still the right of choice.
Article 1203. If through the creditor’s acts, the debtor cannot make a choice
according to the terms of the obligation, the latter may rescind the contract with
damages.
Debtor can rescind contract if through creditor’s fault, debtor cannot make a choice.
Ex. Car or cash. Creditor sold the car to another person. Debtor may choose car plus
damages.
Article 1204. The creditor shall have a right to indemnity for damages when,
through the fault of the debtor, all the things which are alternatively the object
of the obligation have been lost, or the compliance of the obligation has become
impossible.
Effects of loss of objects of obligation (right of choice belongs to debtor)

a) All are lost - indemnity for damages; basis of indemnity is the value of the last thing which
is disappeared plus other damages.
b) Some are lost - no liability since the debtor can still performed the obligation.
Article 1205. When the choice has been expressly given to the creditor, the
obligation shall cease to be alternative from the day when the selection has been
communicated to the debtor.
Rules in case of loss when the right of choice belongs to the creditor.
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a) Lost through fortuitous event - creditor can choose from the remaining. If all are lost,
obligation is extinguished (determinate thing)
- Lost through debtor’s fault - choose the lost item or the existing items plus damages
in either case.
Article 1206. When only one prestation has been agreed upon, but the obligor
may render another in substitution, the obligation is called facultative obligation.
Facultative obligation – is one where only one prestation has been agreed upon but the obligor
may render another in substitution.
Alternative and facultative obligations distinguished

1. Number of prestations – In the first, several prestations are due but compliance
with one is sufficient, while in the second, only one prestation is due although the
debtor is allowed to substitute it.
2. Right of choice – In the first, the right of choice may be given to the creditor or
third person, while in the second, the right to make the substitution is given only
to the debtor.
3. Loss through a fortuitous event – In the first, the loss of one or more of the
alternatives through a fortuitous event does not extinguish the obligation, while in
the second, the loss of the thing due to extinguishes the obligation.
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.
Article 1208. If from the law, or the nature or the wording of the obligations to
which the preceding article refers, the contrary does not appear, the credit or
debt shall be presumed to be divided into as may equal shares as there are
creditors and debtors.
Kinds of obligations according to the number of parties:

1. Individual obligation – one where there is only one obligor or one oblige.
2. Collective obligation – one where there are two or more debtors and or two or more
creditors.
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Joint obligation – one where the whole obligation is to be paid or fulfilled proportionately by
the different debtors and is to be demanded proportionately by the different creditors.
Solidary obligation – one where each one of the debtors is bound to render, and each one
of the creditors has a right to demand from any of the debtors, entire compliance with the
prestation.
- Solidarity exists only when (a) agreed, (b) law, (c) nature of the obligation requires
solidarity.
- If not clear, presume joint obligation as it imposes lesser burden.
- Words to indicate joint obligation: pro rata, proportionately, “we promise to pay”
signed by 2 or more persons.
- Words to indicate solidary obligation: jointly and/or severally, solidaria, in solidum,

together and/or separately, individually and/or collectively, “I promise to pay” signed
by 2 or more persons.
Article 1209. If the division is impossible the right of the creditors may be
prejudiced only by their collective acts, and the debt can be enforced only by
proceeding against all the debtors.
Joint indivisible obligation – the parties are merely proportionately liable.
- Indivisible - object is not physically divisible into parts.
- Enforced by collective acts of the creditors or proceeding against all the debtors.
- If there are damages claim, the other debtors are not liable for the share of insolvent
debtors.
Article 1210. The indivisibility of an obligation does not necessarily give rise to
solidarity. Nor does solidarity of itself imply indivisibility.
Indivisibility and solidarity distinguished:

1. Indivisibility refers to the prestation, while solidarity refers to the juridical or legal
tie that bind ties.
2. In indivisible obligations, only the debtor guilty of breach of obligation is liable for
damages, while in solidary obligations, all of the debtors are liable for the breach
of the obligation committed by a debtor.
3. Indivisibility can exist although there is only one debtor and one creditor, while in
solidarity, there must be atleast two debtors or two creditors.
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4. In indivisible obligations, the others are not liable in case of insolvency of one
debtor, while in solidary obligations, the other debtors are proportionately liable.
Article 1211. Solidarity may exist although the creditors and the debtors may not
be bound in the same manner and by the same periods and conditions.
Kinds of solidary obligation according to the legal tie:

a.) Uniform – when the parties are bound by the stipulations
b.) Non – uniform or varied – when the parties are not subject to the same stipulations.
Solidarity not affected by diverse stipulations;
The essence of solidarity consists in the right of each creditor to enforce the rights of all
and the liability of each debtor answer for the liabilities to all. Therefore, there may be a
solidary obligation although the parties may not be bound in the same manner and by the
same periods and conditions.
Article 1212. Each one of the solidary creditors may do whatever may be useful to
the others, but not anything which may be prejudicial to the latter.
Solidary creditors may do acts that are useful and not prejudicial to the other creditors:
1) Ex. collect from 1 debtor the whole obligation (useful)
2) To waive action against a debtor (prejudicial)
3) Assign his rights to another (Art. 1213)
Article 1213. A solidary creditor cannot assign his rights without the consent of the
others.
Solidary creditors cannot assign his rights without the consent of the others.
Ex. A is indebted to solidary creditors B and C, C, cannot assign his rights to D,

without the consent of B. the reason rest on the extra ordinary mutual trust and confidence
among solidary creditors and it may happen that the other creditor may not want dealings
with the person to whom the debts will be assigned.
Article 1214. The debtor may pay any one of the solidary creditors; but if any
demand, judicial or extrajudicial, has been made by one of them, payment should
be made to him.
To whom payment is made:
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1) To any solidary creditor
2) Otherwise, to one who made a judicial or extrajudicial demand (avoid confusion

or acknowledge a diligent creditor)
Article 1215. Novation, compensation, confusion or remission of the debt, made

by any of the solidary creditors or with any of the solidary debtors, shall
extinguish the obligation, without prejudice to the provision of article 1219.
Liability in case of novation, compensation, confusion or merger (extinguishment of

obligation) by a solidary creditor
1) Solidary creditor is liable to the others to give their share in the credit corresponding
to them.
Article 1216. The creditor may proceed against any one of the solidary debtors
or some or all of them simultaneously. The demand made against one of them
shall not be an obstacle to those which may subsequently be directed against the
others, so long as the debt has not been fully collected.
Right of creditor to proceed against any solidary debtor.

1) If one solidary debtor has not paid in full, creditor can still proceed against the other
solidary debtor.
Article 1217. Payment made by one of the solidary debtors extinguishes the
obligation. If two or more solidary debtors offer to accept.
Effects of payment by a solidary debtor:

(1) Between the solidary debtors and creditors – payment made by one of the solidary
debtors extinguishes the obligation.
(2) Among the solidary debtors – after payment of the debt, the paying solidary debtor
an demand reimbursement from his co- debtors for their proportionate shares with
(legal) interest only from the time of payment.
(3) Among the solidary creditors – the receiving creditor is jointly liable to the others for
their corresponding shares.
Article 1218. Payment by a solidary debtor shall not entitle him to reimbursement
from his co – debtors if such payment is made after the obligation has prescribed
or become illegal.
Effect of payment after obligation becomes illegal or prescribed.
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1) Solidary debtor is not entitled to reimbursement
Article 1219. The remission made by the creditor of the share which affects one
of the solidary debtors does not release the latter from his responsibility towards
the co – debtors, in case the debt had been totally paid by anyone of them before
the remission was effected.
Effect of remission of obligation of one solidary debtor made by the solidary creditor
1) If payment is made first by the other solidary debtor, the remission has no effect.
Paying debtor is entitled to reimbursement.
Article 1220. The remission of the whole obligation obtained by one of the solidary
debtors, does not entitle him to reimbursement from his co – debtors.
Remission of the whole obligation through one solidary debtor

1) Solidary debtor is not entitled to ask for reimbursement from his co-debtors.
Article 1221. If the thing has been lost or if the prestation has become impossible
without the fault of the solidary debtors, the obligation shall be extinguished.
Rules in case of loss or prestation becomes impossible
1) Same rules in case of loss
2) Solidary debtors who are not guilty can recover from the guilty co-debtor.
Article 1222. A solidary debtor may, in actions filed by the creditor, avail himself
of all defenses which are derived from the nature of the obligation and of those
which are personal to him, or pertain to his own share.
Defenses available to a solidary debtor:

(1) Defenses derived from the nature of the obligation
(2) Defenses personal to, or which pertain to share of, debtor sued
(3) Defenses personal to other solidary debtors
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.
Divisible Obligation – is one the object of which, in its delivery or performance, is capable of
partial fulfillment.
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Indivisible Obligation – is one the object of which, in its delivery or performance, is not
capable of partial fulfillment.
Kinds of division:
(1) Qualitative division – one based on quality, not on number or quantity of the things
which are the object of the obligation.
(2) Quantitative division – one based on quantity rather than on quality.
(3) Ideal or intellectual division – one which exists only in the minds of the parties.
Kinds of indivisibility:
1. Legal indivisibility – where a specific provision of law declares as indivisible,
obligations, which by their nature, are divisible.
2. Conventional indivisibility – where the will of the parties makes as indivisible,
obligations which, by their nature, are divisible.
3. Natural indivisibility – where the nature of the object or prestation does not admit of
division.
Article 1124. A joint indivisible obligation gives rise to indemnity for damages from
the time anyone of the debtors does not comply with his undertaking.
Effect of non-compliance by a debtor in a joint indivisible obligation.
1) Ex. delivery of car.
2) Creditor can demand damages to the debtor who does not comply with the
obligation.
3) Debtors who are willing to comply are not liable beyond the corresponding portion
of the price of the thing or the value of the services.
Article 1225. For the purposes of the preceding articles, obligations to give
definite things and those which are not susceptible of partial performance shall
be deemed to be indivisible.
Obligations deemed indivisible:

(1) Obligations to give definite things
(2) Obligations which are not susceptible of partial performance
(3) Obligations provided by law to be indivisible even if thing or service is physically
divisible
(4) Obligations intended by the parties to be indivisible even if thing or service is
physically divisible
Obligations deemed divisible:
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(1) Obligations which have for their object the execution of a certain number of days of
work
(2) Obligations which have for their object the accomplishment of work by metrical units
(3) Obligations which by their nature are susceptible of partial performance
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 non – compliance,
if there is no stipulation to the contrary.
Principal Obligation – is one which can stand by itself and does not depend for its validity and
existence upon another obligation.
Accessory obligation – is one which is attached to a principal obligation and, therefore, cannot
stand alone.
Obligation with a penal clause – is one which contains an accessory undertaking to pay a
previously stipulated indemnity in case of breach of the principal prestation, intended
primarily to induce its fulfillment.
Penal clause – is an accessory undertaking attached to an obligation to assume greater

liability in case of breach.
Purposes of general penal clause:

1. To insure their performance by creating an effective against breach, making the
consequences of such breach as onerous as it may be possible.
2. To substitute a penalty for the indemnity for damages and the payment of interests
in case of non – compliance.
Kinds of penal clause:
(1) As to its origin:
(a) Legal penal clause – when it is provided by law
(b) Conventional penal clause – when it is provided for by stipulation of the parties
(2) As to its purpose:
(a) Compensatory penal clause – when the penalty takes the place of damages
(b) Punitive penal clause – when the penalty is imposed merely as punishment for
breach
(3) As to its demandability or effect:
(a) Subsidiary or alternative penal clause – when only the penalty can be enforced
(b) Joint or cumulative penal clause – when both the principal obligation and the
penal clause can be enforced
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Article 1227. The debtor cannot exempt himself from the performance of the
obligation by paying the penalty, save in the case where this right has been
expressly reserved for him.
Penalty not a substitute for performance.

- Debtor cannot pay penalty as a substitute for performance except when reserved
for him.
Ex. Remove the garbage after vacating the leased premises or pay penalty
taken from the security deposit.
- Creditor cannot demand fulfilment and penalty at the same time unless it is clearly
granted to him. Ex. construction of a house with penalty for delay.
Article 1228. Proof of actual damages suffered by the creditor is not necessary in
order that the penalty may be demanded.
Penalty demandable without proof of actual damages
In an obligation with a penal clause all that the creditor has to prove, to enforce the penalty,
is the violation of the obligation by the debtor. It is not necessary to adduce evidence to
prove losses and damages suffered by the creditor or the extent of the same.
Article 1229. The judge shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor.
When Penalty may be reduced by the courts
1) When there is partial or irregular performance.
2) When the penalty is iniquitous or unconscionable. Ex. 75% penalty
Article 1230. The nullity of the penal clause does not carry with it that of the
principal obligation.
Effect of nullity of the penal clause
If only the penal clause is void, the principal obligation remains valid and demandable. The
penal clause is just disregarded.
Effect of nullity of the principal obligation
If the principal obligation is void, the penal clause is likewise void. The reason is that the
clause cannot stand alone without the principal obligation to which it is subordinated.
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Learning Activity:
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Course Study Guide:
Course Code LAW 11
Credit
3.0
Units/Hours
Week no./
Number of 2/6 hrs.
University of the Visayas Hours
Module Topic Payment or Performance, Loss of the Thing

College of
Due, Condonation or Remission of Debt,
Business Administration
Confusion or Merger of Rights,
Compensation, Novation (Articles 1231-
1304, Civil Code of the Philippines)

Allotted Hours

Main Topic or Sub-Topic No. Obligations (Articles 1179 1304, Civil Code of the Philippines)
or Sub-Topic No. 2
Identify and differentiate the different modes of extinguishing

Intended Learning Outcomes obligations and apply these modes to certain business
Delivery Mode Wednesday – Thursday
Thursday
2 hr Online Discussion thru Zoom ( 2 pm – 4 pm)
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1. Why is Mode of Extinguishing Obligations important to business?
2. What are the different modes of Extinguishing Obligations and
the rules that govern them?
Study Questions
3. How can I practice the things I’ve learned from this topic in
actual business setting?
business professional

Law 11 Learning Module
2. Read “Extinguishment of Obligations” of the textbook on the
“Law of Obligations and Contracts” by Atty. Hector S. De Leon,
2014 edition

relevant learnings in the topics covered by this Module and
relate it to your personal experiences as a successful business
Learning Activity professional in the future and how these topics can be applied
in the different actual business transactions. In making your
reflective essay, use your own words and never attempt to just
copy and paste it from any sources including the outputs of
your classmates and other students. Observe correct grammar
and proper spacing, indention and margin. Use A4 Size
Bondpaper, 1’ margin except for the 1.5 margin at the top of
the page, font style and size of verdana, 12.
Required Output 5 – page Reflective Essay
Essay
Assessment Task
Rubrics
Assessment Tool
of an organization.
Target Competency
Analytical and Communication Skills
(Sgd.) (Sgd.)
Revision #002
edited/rce, 6-27-20
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nd
MODULE 2
Subtopic 2 MODES OF EXTINGUISHING OBLIGATIONS
Learning Outcome:
Identify and differentiate the different modes of extinguishing obligations and apply these
modes to certain business transactions and events.
Course Contents:
Article 1231. Obligations are extinguished:

(1)Payment or performance
(2)Loss
(3)Condonation or remission
(4)Confusion or merger
(5)Compensation
(6)Novation
(7)Other causes i.e. annulment, rescission, fulfilment of a resolutory condition,
& prescription
PAYMENT OR PERFORMANCE
Article 1232. Payment means not only the delivery of money but also the
performance, in any other manner, of an obligation.
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Payment – may consist of not only in the delivery of money but also giving of a thing, the
doing of an act, or not doing of an act.
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.
Extinguishment of debt
1. Debt includes to deliver money, to deliver a thing, to do an act, or not to do

an act.
2. Debt is extinguished if thing or service is completely delivered or rendered.
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.
Requisites for the application:

(1) There must be substantial performance
(2) The obligor must be in good faith
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.
Requisites for the application:

(1) The oblige knows that the performance is incomplete or irregular
(2) He accepts the performance without expressing any protest or objection
Article 1236. The creditor is not bound to accept payment or performance by a

third person who has no interest in the fulfillment of the obligation, unless there
is a stipulation to the contrary.
From whom creditor must accept payment
1. Creditor is bound to accept payment or performance from the
following: a. Debtor
b. Any person interested in the fulfilment of the obligation (guarantor)
c. A third person authorized to make payment.
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2. If a third person pays without the knowledge or against debtor’s will
- he can recover only the amount paid (right of reimbursement). No right of
subrogation.
3. If a third person pays with the knowledge of the debtor - he can

recover the amount paid plus right of subrogation or acquires the rights of a
creditor, i.e. mortgage, guaranty or penalty.
Article 1237. Whoever pays on behalf of the debtor without the knowledge or
against the will of the latter cannot compel the creditor to subrogate him in his
rights.
Subrogation and reimbursement distinguished:

(1) In subrogation, the person who pays for the debtor is put into the shoes of the
creditor.
(2) In reimbursement, the third person entitled by reason of payment has merely the
bare right to be refunded to the extent provided in the second paragraph of Article
1236 without the right to the guarantees and securities of the original obligation.
Article 1238. Payment made by a third person who does not intend to be
reimbursed by the debtor is deemed to be a donation, which requires the debtor’s
consent.
No intention to be reimbursed - considered a donation.
1. Donation requires debtor’s consent.
2. Whether with consent or not, payment is valid as far as the creditor is

concerned.
Article 1239. In obligations to give, payment by one who does not have the free
disposal of the thing due and capacity to alienate it shall not be valid.
Free disposal of the thing due – means that the thing to be delivered must not be subject to
any claim or lien or encumbrance of a third person.
Capacity to alienate – means that the person is not incapacitated to enter into contracts and
for that matter, to make a disposition of the thing due.
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Article 1240. Payment shall be made to the person in whose favor the obligation
has been constituted, or his successor in interest, or any person authorized to
received it.
To whom payment is made.
1. Creditor
2. Successor in interest.
3. Authorized representative
Article 1241. Payment to a person who is incapacitated to administer his property

shall be valid if he has kept the thing delivered, or insofar as the payment has
been beneficial to him.
Effect of payment to an incapacitated person (minor) and effect of payment to a third person.
1. Valid if thing is kept or beneficial to him (incapacitated person)
2. Valid if it redounded to the benefit of the creditor. Ex. creditor is

indebted to the third person.
3. No proof of benefit is required:
a) Third person acquires creditor’s rights
b) Ratification by the creditor
c) Estoppel (debtor is made to believe third person is authorized to receive

payment)
Article 1242. Payment made in good faith to any person in possession of the credit
shall release the debtor.
Effect of payment in good faith to third person in possession of credit
1. Payment is valid. Obligation is extinguished.
Ex. check payable to cash or promissory note payable to bearer.
Article 1243. Payment made to the creditor by the debtor after the latter has been
judicially ordered to retain the debt shall not be valid.
When payment to creditor not valid:
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Payment made subsequently by the debtor – stranger shall not be valid if the plaintiff wins
the case and cannot collect from the debtor to whom the payment is made.
Article 1244. The debtor of a thing cannot compel the creditor to receive a
different one, although the latter may be of the same value as, or more valuable
than that which is due.
Creditor cannot be forced to accept another object even if it is more valuable. (Determinate
thing)
Example: Obliged to deliver a Kia vehicle. Debtor cannot be compel creditor to accept
a Ferrari.
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.
Special forms of payment:

a.) Dation in payment
b.) Application of payments
c.) Payment by cession
d.) Tender of payment and consignation
Dation in payment (adjudication or dacion en pago) – is the conveyance of ownership of a
thing as an accepted equivalent of performance.
Governing law – the law of sales governs because dation in payment may be considered a
specie of sale in which the amount of the money debt becomes the price of the thing
alienated.
Article 1246. When the obligation consists in the delivery of an indeterminate or

generic thing, whose quality and circumstances have not been stated, the
creditor cannot demand a thing of superior quality.
Rule of the medium quality;
Article 1246 is a principle of equity in that it supplies justice in cases where there is lack
of precise declaration in the obligation. It is always hard to find one thing that is exactly
similar to another.
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Article 1247. Unless it is otherwise stipulated, the extrajudicial expenses
required by the payment shall be for the account of the debtor. With regard to
judicial costs, the Rules of Court shall govern.
Extrajudicial expenses of payment.
-Payable by the debtor. Example: notarial fees.
-Judicial expenses are paid by the losing party.
Judicial costs – are the statutory amounts allowed to a party to an action for his expenses
incurred in the action.
Article 1248. Unless there is an express stipulation to that effect, the creditor
cannot be compelled partially to receive the prestations in which the obligation
consists.
When partial performance allowed
There are cases, however, when partial performance may be either required or insisted.
Among these cases are:
1) When there is an express stipulation to that effect;
2) When the debt is in part liquidated and in part unliquidated; and
3) When the different prestations in which the obligation consists are subject to different
terms or conditions which affect some of them.
Article 1249. The payment of debts in money shall be made in the currency
stipulated, and if it is not possible to deliver such currency, then in the currency
which is legal tender in the Philippines.
Legal tender – is that currency which if offered by the debtor in the right amount, the creditor
must accept in payment of a debt in money.
Payment by means of instruments of credits;

(1) Right of creditor to refuse or accept – promissory notes, bills of exchange and other
commercial documents are not legal tender and, therefore, the creditor cannot be
compelled to accept them.
(2) Effect on obligation – payment by means of mercantile documents does not
extinguish the obligation:
• Until they have been cashed;
• Unless they have been impaired through the fault of the creditor.
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Article 1250. In case an extraordinary inflation or deflation of the currency
stipulated should supervene, the value of the currency at the time of the
establishment of the obligation shall be the basis of payment, unless there is an
agreement to the contrary.
Inflation – is a sharp sudden increase of money or credit or both without a corresponding

increase in business transactions.
Deflation – is the reduction in volume and circulation of the available money or credit,
resulting in a decline of the general price level; it is the opposite of inflation.
Effect of extraordinary inflation or deflation:
1. Payment shall be based on the value of the currency at the time of the
establishment of the obligation
2. Payment is based on the current value of the currency if there is an

agreement.
Example: loan by the corp. in US dollars and payable in US dollars.
Article 1251. Payment shall be made in the place designated in the obligation.
There being no express stipulation and if the undertaking is to deliver a

determinate thing, the payment shall be made wherever the thing might be at
the moment the obligation was constituted.
Where payment is made:
1. Place designated
2. Where the thing is situated
3. Domicile of the debtor
APPLICATION OF PAYMENTS
Article 1252. He who has various debts of the same kind in favor of one and the
same creditor, may declare at the time of making the payment, to which of them
the same must be applied.
Application of payments – is the designation of the debt to which should be applied the
payment made by a debtor who has various debts of the same kind in favor of one and
the same creditor.
Requisites of application of payments:
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(1) There must be one debtor and one creditor;
(2) There must be two or more debts;
(3) The debts must be of the same kind;
(4) The debts to which payment made by the debtor has been applied must be due; and
(5) The payment made must not be sufficient to cover all the debts.
Application as to debts not yet due:
• There is a stipulation that the debtor may so apply; or
• It is made by the debtor or creditor, as the case may be, for whose benefit the
period has been constituted.
Article 1253. If the debt produces interest, payment of the principal shall not be
deemed to have been made until the interests have been covered.
Interest is paid ahead of the principal amount:
The rule laid down in the article is mandatory. Hence, the debtor cannot choose to credit
his payment to the principal before the interest is paid. The payment must be applied first
to the interest and whatever balance is left can be credited to the principal. The creditor
can refuse an application of the debtor made contrary to the provision of Article 1253.
Article 1254. When the payment cannot be applied in accordance with the
preceding rules, or if application cannot be inferred from other circumstances,
the debt which is most onerous to the debtor, among those due, shall be deemed
to have been satisfied.
Application of payment to most onerous debt:
In case no application of payment has been made by the debtor and the creditor, then
the payment shall be applied to the most onerous debt, and if the debts are of the same
nature and burden, to all of them proportionately.
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.
Payment by cession – is another special form of payment. It is the assignment or
abandonment of all the properties of the debtor for the benefit of his creditors in order
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that the latter may sell the same apply the proceeds thereof to the satisfaction of their
credits.
• Payment by conveying ownership of a thing.
• Difference with dation in payment, in cession debtor is insolvent, two or more
creditors.
TENDER OF PAYMENT AND CONSIGNATION
Article 1256. If the creditor to whom tender of payment has been refused without
just cause to accept it, the debtor shall be released from responsibility by the
consignation of the thing or sum due.
Tender of payment – is the act, on the part of the debtor, of offering to the creditor the thing
or amount due.
Consignation – is the act of depositing the thing or amount due with the proper court when
the creditor does not desire or cannot receive it, after complying with the formalities
required by law.
When no need to make a tender of payment:
a) Creditor is absent or unknown
b) Creditor is incapacitated.
c) Creditor refuses to give a receipt
d) Two or more persons claim the same right to collect
e) Title of the obligation has been lost.
Article 1257. In order that the consignation of the thing due may release the
obligor, it must first be announced to the persons interested in the fulfillment of
the obligation.
Requirement of Notice to persons interested in the fulfilment of the obligation:
1. Persons interested in the fulfilment of the obligation are: guarantors,

mortgagees, solidary debtors, solidary creditors.
2. Absence of notice - consignation is void.
Article 1258. Consignation shall be made by depositing the things due at the
disposal of judicial authority, before whom the tender of payment shall be
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proved, in a proper case, and the announcement of the consignation in other
cases.
Consignation must be with proper judicial authority:
Consignation, by depositing the thing or sum due with the proper judicial authority, is
necessary to effect payment.
Article 1259. The expenses of consignation, when properly made, shall be charged
against the creditor.
When consignation deemed properly made:

(1) When the creditor accepts the thing or sum deposited, without objection, as payment
of the obligation;
(2) When the creditor questions the validity of the consignation, and the court, after
hearing, declares that it has been properly made; and
(3) When the creditor neither accepts nor questions the validity of the consignation, and
the court after hearing, orders the cancellation of the obligation.
Article 1260. Once the consignation has been duly made, the debtor may ask the
judge to order the cancellation of the obligation.
Rights of the debtor after consignation

• Ask the judge to order the cancellation of the obligation.
• May withdraw the amount consigned if not yet withdrawn by the creditor or before
the judge declared the cancellation of the obligation.
Article 1261. If, the consignation having been made, the creditor should
authorize the debtor to withdraw the same, he shall lose every preference which
he may have over the thing.
Effect of withdrawal of thing consigned with authority from creditor:
1. Creditor losses preferential right over the thing.
2. Co-debtors, guarantors and sureties are released from liability.
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LOSS OF THE THING DUE
Article 1262. An obligation which consists in the delivery of a determinate thing

shall be extinguished if it should be lost or destroyed without the fault of the
debtor, and before he has incurred in delay.
Obligation is extinguished:
a) Loss is without fault of the debtor
b) Debtor is not guilty of delay
c) Loss due to fortuitous event
Obligation is not extinguished (even without fault or delay):
a) Provided by law
b) Agreed by parties
c) Nature requires assumption of risk
d) Arises from a crime. Ex. return of stolen item.
Article 1263. In an obligation to deliver a generic thing, the loss or destruction of

anything of the same kind does not extinguish the obligation.
Loss of the thing (generic or indeterminate):

• Obligation is not extinguished even due to fortuitous event.
• Based on the principle “generic thing never perishes.”
Article 1264. The courts shall determinate whether, under the circumstances, the
partial loss of the object of the obligation is so important as to extinguish the
obligation.
Effect of partial loss of a specific thing:

There is partial loss when only a portion of the thing is lost or destroyed or when it suffers
depreciation or deterioration. Partial loss is equivalent of difficulty of performance in
obligations to do.
Article 1265. Whenever the thing is lost in the possession of the debtor, it shall
be presumed that the loss was due to his fault, unless there is proof to the
contrary.
Presumption of fault in case of loss of the thing in possession of debtor:
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The article establishes a disputable presumption of fault whenever the thing to be
delivered is lost in the possession of the debtor. This presumption is reasonable because
the debtor who has the custody and care of the thing can easily explain the circumstances
of the loss.
Article 1266. The debtor in obligations to do shall also be released when the
prestation becomes legally or physically impossible without the fault of the
obligor.
Effect of impossibility of performance:
This article refers to a case when, without the debtor’s fault, the obligation becomes
legally or physically impossible. The impossibility of performance will result in the
extinction of the obligation.
Kinds of impossibility:
(1) Physical impossibility – takes place when the obligor dies or becomes physically
incapacitated to perform the obligation.
(2) Legal impossibility – occurs when the obligation cannot be performed because it is
rendered impossible by provision of law, although physically it may be possible of
performance.
Article 1267. When the service has become so difficult as to be manifestly beyond
the contemplation of the parties, the obligor may also be released therefrom, in
whole in part.
Effect of difficulty of performance:
When the performance of the service has become so difficult as to be manifestly beyond
the contemplation of both parties, the court is authorized to release the obligor in whole
or in part.
Article 1268. When the debt of a thing certain and determinate proceeds from a
criminal offense, the debtor shall not be exempted from the payment of its price,
whatever may be the cause for the loss.
Effect of fortuitous event where obligation proceeds from a criminal offense:
Article 1268 is another instance where a fortuitous event does not exempt the debtor
from liability. The obligation subsists except when the creditor refused to accept the thing
without justification, after it had been offered to him.
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Article 1269. The obligation having been extinguished by the loss of the thing,
the creditor shall have all the rights of action which the debtor may have against
third persons by reason of the loss.
Right of creditor against third persons:
• Against third persons who cause the loss or destruction. Example: To sue for damages.
CONDONATION OR REMISSION OF DEBT
Article 1270. Condonation or remission is essentially gratuitous and requires the

acceptance by the obligor. It may be made expressly or impliedly.
Condonation or remission – is the gratuitous abandonment by the creditor of his right against
the debtor.
Requisites o condonation or remission:

(1) It must be gratuitous;
(2) It must be accepted by the obligor;
(3) The parties must have capacity;
(4) It must be not be inofficious; and
(5) If made expressly, it must comply with the forms of donations.
Article 1271. The delivery of a private document evidencing a credit, made

voluntarily by the creditor to the debtor, implies the renunciation of the action
which former had against the latter.
Delivery of document evidencing the credit:

a) Debt is presumed renounce.
b) Disputable presumption.
c) Debtor or his heirs can prove that delivery of document was due to payment. Ex. when
heirs of creditor questioned the donation.
Article 1272. Whenever the private document in which the debt appears is found
in the possession of the debtor, it shall be presumed that the creditor delivered
it voluntarily, unless the contrary is proved.
Presumption in case document found in possession of debtor:
If the document is later found in the hands of the debtor and it is not known how he came
into possession of the same, the presumption is that it was voluntarily delivered by the
creditor.
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Article 1273. The renunciation of the principal debt shall extinguish the accessory
obligations; but the waiver of the latter shall leave the former in force.
Effect of renunciation of the principal debt of the accessory obligation:
The above provision follows the rule that the accessory follows the principal. While the
accessory obligations cannot exist without the principal obligation, the latter may exist
without the former.
Article 1274. It is presumed that the accessory obligation of pledge has been
remitted when the thing pledged, after its delivery to the creditor, is found in the
possession of the debtor, or of a third person who owns the thing.
Presumption in case thing pledged found in possession of debtor:
In a contract of pledge, it is necessary that the thing pledged be place in the possession
of the creditor, or of a third person by common agreement. A third person who is not a
party to the principal obligation may secure the latter by pledging his own property.
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.
Confusion or merger – is the meeting in one person of the qualities of creditor and debtor
with respect to the same obligation.
Requisites of confusion;
(1) It must take place between the principal debt and creditor; and (2)
It must be complete
Article 1276. Merger which takes place in the person of the principal debtor or
creditor benefits the guarantors.
Effect of merger in the person of principal debtor or creditor:
Merger in the person of the principal debtor or creditor extinguishes the obligation. Hence,
the accessory obligation of guaranty is also extinguished in accordance with the principle
that the accessory follows the principal.
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Article 1277. Confusion does not extinguish a joint obligation except as regards
the share corresponding to the creditor or debtor in whom the two characters
concur.
Effect of merger in joint obligation:

• Affects the co-debtor only whom the two characters of creditor and debtor are merged.
• While in solidary obligation, extinguishes the entire obligation.
COMPENSATION
Article 1278. Compensation shall take place when two persons, in their own right,
are creditors and debtors of each other.
Compensation – is the extinguishment to the concurrent amount of the debts of two persons
who, in their own right, are debtors and creditors of each other.
Compensation and confusion distinguished:

(1) In confusion, there is only one person who is a creditor and debtor of himself, while
in compensation, there are two persons involved, each of whom is a debtor and a
creditor of the other;
(2) In confusion, there is but one obligation, while in compensation, there are two
obligations; and
(3) In confusion, there is impossibility of payment, while in compensation, there is indirect
payment.
Article 1279. In order that compensation may be proper, it is necessary:

(1)That each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other;
(2)That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the
latter has been stated;
(3)That two debts be due;
(4)That they be liquidated and demandable;
(5)That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the debtor.
Requisites of compensation:
• The parties are bound principally to each other.
• Either debt is sum of money or thing of the same kind and quality.
• Both debts are due.
• Liquidated (determine) and demandable.
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• No controversy (3rd party claim) commenced by third persons.
Article 1280. Notwithstanding the provisions of the preceding article, the

guarantor may set up compensation as regards what the creditor may owe the
principal debtor.
Compensation benefits guarantor:
This article is an exception to the general rule that only the principal debtor can set up
against his creditor what the latter owes him.
Article 1281. Compensation may be total or partial. When the two debts are of the
same amount, there is a total compensation.
Two kinds of compensation:

(1) Total compensation – debts of same amount.
(2) Partial compensation – debts of different amounts.
Article 1282. The parties may agree upon the compensation of debts which are not
yet due.
Voluntary compensation - by agreement of the parties.
Article 1283. If one of the parties to a suit over an obligation has a claim for
damages against the other, the former may set it off by proving his right to said
damages and the amount thereof.
Judicial Compensation – may also take place when so declared by a final judgement of a court
in a suit.
Article 1284. When one or both debts are rescissible or voidable, they may be
compensated against each other before they are judicially rescinded or avoided.
Compensation of rescissible or voidable debts:
Recissible and voidable obligations are valid until they are judicially rescinded or
avoided.
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Article 1285. The debtor who has consented to the assignment of rights made by
a creditor in favor of a third person, cannot set up against the assignee the
compensation which would pertain to him against the assignor.
When compensation has taken place after assignment:

1) Assignment with the consent of debtor.
2) Assignment with the knowledge but without the consent of debtor.
3) Assignment without the knowledge of the debtor.
Article 1286. Compensation takes place by operation of law, even though the
debts may be payable at different places, but there shall be an indemnity for
expenses of exchange or transportation to the place of payment.
Compensation of debts payable at different places:
1. Applies to legal compensation.
2. There shall be indemnity for expenses of exchange (currency) or

transportation to the place of payment.
Article 1287. Compensation shall not be proper when one of the debts arises from
a depositum or from the obligations of a depositary or of a bailee in
commodatum.
Instances when legal compensation is not allowed by law:

(1) Where one of the debts arises from a depositum.
(2) Where one of the debts arises from a commodatum.
(3) Where one of the debts arises from a claim for support due by gratuitous title.
(4) Where one of the debts consists in civil liability arising from a penal offense.
Article 1289. If a person should have against him several debts which are
susceptible of compensation, the rules on the application of payments shall apply
to the order of the compensation.
Compensation of several debts:
• Rules on application of payment applies to compensation.
Article 1290. When all the requisites mentioned in article 1279 are present,
compensation takes effect by operation of law, and extinguishes both debts to
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the concurrent amount, even though the creditors and debtors are not aware of
the compensation.
Consent of parties not required in legal compensation:

(1) Compensation takes place automatically by mere operation of law.
(2) Full legal capacity of parties not required.
NOVATION
Article 1291. Obligations may be modified by:

(1)Changing their object or principal conditions;
(2)Substituting the person of the debtor;
(3)Subrogating a third person in the rights of the creditor.
Novation – is the total or partial extinction of an obligation through the creation of a new one
which substitutes it.
Kinds of novation:
(1) According to origin:
a) Legal - by operation of law
b) Conventional - by agreement of the parties
(2) According to subject:
a) Personal - object is changed
b) Real - parties are changed
Article 1292. In order that an obligation may be extinguished by another which

substitutes the same, it is imperative that it be so declared in unequivocal terms.
Requisites of novation:
• A previous valid obligation;
• Capacity and intention of the parties to modify or extinguish the obligation;
• The modification or extinguishment of the obligation; and
• The creation of a new valid obligation.
Novation is not presumed:
It must be clearly and unmistakably established either by the express agreement of the
parties or acts of equivalent import.
Article 1293. Novation which consists in substituting a new debtor in the place
of the original one, may be made even without the knowledge or against the will
of the latter, but not without the consent of the creditor.
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Kinds of personal novation:
• Substitution – when the person of the debtor is substituted
• Subrogation – when a third person is subrogated in the rights of the creditor.
Kinds of substitution:
1) Expromission – which takes place when a third person of his own initiative and without
the knowledge.
2) Delegacion – which takes place when the creditor accepts a third person to take place
of the debtor at the instance of the latter.
Article 1294. If the substitution is without the knowledge or against the will of
the debtor, the new debtor’s insolvency or non-fulfillment of the obligation shall
not give rise to any liability on the part of the original debtor.
 In no case shall the original debtor be held liable if the new or subsituted debtor fails
to perform or fulfill his obligation or if found to be insolvent if the substitution is
against the will or without the prior knowledge of the original debtor.
Article 1295. The insolvency of the new debtor, who has been proposed by the
original debtor and accepted by the creditor, shall not revive the action of the
latter against the original obligor, except when said insolvency was already
existing and of public knowledge, or known to the debtor, when the delegated
his debt.
• This article applies only to delegacion – where the substitution of the old debtor is
upon the proposal of the old debtor himself (delegante) and the proposal was
accepted by the new debtor (delegado) and the creditor (delegatario). If the new
debtor who has been accepted by the creditor, happens to be insolvent and cannot
fulfill the obligation delegated to him, the original debtor is no longer liable anymore
for the payment of the obligation.
Exceptions:
1) If the insolvency was already existing and is of public knowledge when the debt was
delegated to the new debtor ; or
2) If the insolvency of the new debtor was already existing and known to the original
original debtor at the time of the delegation of the debt to the new debtor.
Note:The exceptions are intended to prevent fraud on the part of the old debtor.
Article 1296. When the principal obligation is extinguished in consequence of a

novation, accessory obligations may subsist only insofar as they may benefit
third persons who did not give their consent.
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Effect of novation on accessory obligations
GENERAL RULE | The extinguishment of the principal obligation carries with it that of the
accessory obligations.
EXCEPTION | Accessory obligations subsist insofar as they benefit third persons who have
NOT given their consent to the novation.
 Because NO person should be prejudiced by the act of another without his consent.
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.
Article 1297 stresses one of the essential requirements of a novation, to wit: the new
obligation must be valid. The general rule is that there is no novation if the new
obligation is void and, therefore, the original one shall subsist for the reason that
the second obligation being inexistent, it cannot extinguish or modify the first.
Example: Dyan is indebted to Annie in the amount of Php 1, 000.00. Since Dyan cannot
pay her debt, Dyan and Annie entered into a new contract whereby Dyan will kidnap and
kill the enemy of Annie and the latter will consider Dyan's debt extinguished. In this case,
the original obligation of Dyan and Annie shall subsist because the new obligation of Dyan
to Annie is void, it being against the law.
Article 1298. The novation is void if the original obligation was void, except when
annulment may be claimed only by the debtor or when ratification validates acts
which are voidable.
Effect where the old obligation void or voidable.

This article has its basis also on the requisites of a valid novation. A void obligation cannot
be novated because there is nothing to novate. However, if the original obligation is only
voidable or if the voidable obligation is validated by ratification, the novation is valid.
Example: John agreed to deliver prohibited drugs to Vice Mayor Wado. Later on, it was
agreed that John would pay vice-mayor Wado P100,000.00 instead of delivering the drugs.
The novation is void because the original obligation is void.
Suppose John was induced through fraud committed by vice-mayor Wado to sign a contract
whereby John obliged himself to deliver a specific car to vice-mayor Wado. Subsequently,
it was agreed between John and vice-mayor Wado that John would give vice-mayor Wado
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P100,000.00 instead of the car. Here, the original obligation of John is voidable. As it has
not yet been annulled at the instance of John, the second contract is valid.
In the same example, if John subsequently confirmed his obligation to deliver the car and
the right of vice-mayor Wado thereto, his ratification cleanses the contract from all its
defects and makes it valid and, therefore, the novation is also valid.
Article 1299. If the original obligation was subject to a suspensive or resolutory

condition, the new obligation shall be under the same condition, unless it is
otherwise stipulated.
Presumption
If the first obligation is subject to a suspensive or resolutory condition, the second
obligation is deemed subject to the same condition unless the contrary is stipulated by the
parties in their contract. The reason for the rule contained in Article 1299 is that the
efficacy of the new obligation depends upon whether the condition which affects the old
obligation is complied with or not. If the condition is suspensive, and it is not complied
with, no obligation arises; and if it is resolutory and it is complied with, the old obligation
is extinguished.
Article 1300. Subrogation of a third person in the rights of the creditor is either
legal or conventional. The former is not presumed, except in cases expressly
mentioned in this Code; the latter must be clearly established in order that it may
take effect.
Subrogation is the transfer to a third person of all rights appertaining to the creditor in
the transaction including the rights to proceed against the guarantors and similar others
subject to any applicable legal provision.
Kinds of Subrogation
1. Conventional subragation is the subrogation created by the parties by their voluntary
agreement.
2. Legal subrogation is the subrogation constituted by virtue of law. It takes place by
operation of the law.
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Note: Conventional subrogation must be clearly established for it to take place
while legal subrogation is not presumed except in the cases expressly provided
by the law.
Article 1301. Conventional subrogation of a third person requires the consent of the
original parties and of the third person.
For Conventional or Voluntary Subrogation, the consent of all the parties is required:
1) the debtor-because he becomes liable under the new obligation; and because his
obligation ends
2) the old creditor-because his credit is affected
3) the new creditor- because he becomes a party to the obligation
NOTE: Generally, the debtor loses the right to present against the new creditor any
defense which he, the debtor,could have set up against the old creditor.
Article 1302. It is presumed that there is legal subrogation:

1) When a creditor pays another creditor who is preferred, even without the
debtor's knowledge;
2) When a third person, not interested in the obligation, pays with the express
or tacit approval of the debtor;
3) When, even without the knowledge of the debtor, a person interested in the
fulfillment of the obligation pays, without prejudice to the effects of
confusion as to the latter's share. (1210a)
Cases of Legal Subrogation
1.) When a creditor pays another creditor who is preferred, even without the debtor’s
knowledge;
Example:
A owes B P1,000.00 secured by the first mortgage on the land of A. A also owes C P2,000.00.
This debt is unsecured.
Under the law, B, who is a preferred creditor, has preference to payment with respect to the
land as against C who is merely an ordinary creditor.
2.) When a third person without interest in the obligation pays with the approval of the
debtor.
Example:
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A owes B P1,000.00. C pays B with the express or implied consent of A.
In this case, C will be subrogated in the rights of B.
3.) When a third person with the interest in the obligation pays even without the
knowledge of the debtor.
Example:
Suppose in the same example, C is the guarantor of A. C is a person interested in the

fulfillment of the obligation of A as he would ne benefited by its extinguishment.
If C pays B even without the knowledge of A, C is subrogated in the rights of B, Confusion

takes place in the person of C, Hence, the guaranty is extinguished but the principal
obligation still subsists.
Article 1303. Subrogation transfers to the persons subrogated the credit with all
the rights thereto appertaining, either against the debtor or against third person,
be they guarantors or possessors of mortgages, subject to stipulation in a
conventional subrogation. (1212a)
• The effect of legal subrogation is to transfer to the new creditor the credit and all the
rights and actions that could have been exercised by the former creditor either
against the debtor or against third persons, be they guarantors or mortgagor. Simply
stated, except only for the change in the person of the creditor, the obligation
subsists in all respects as before the novation.
• If the credit transferred to the new creditor is subject to a suspensive condition, the
credit cannot be collected until after the fulfillment of the said condition.
Rights which the new creditor may acquire by reason of subrogation:
1) Payment of the principal debt
2) Right to exercise accessory rights like: right to mortgage or pledge
3) Right to proceed against guarantors and sureties or against solidary debtors
Article 1304. A creditor, to whom partial payment has been made, may exercise
his right for the remainder, and he shall be preferred to the person who has been
subrogated in his place in virtue of the partial payment of the same credit.
Effect of partial subrogation

The creditor to whom partial payment has been made by the new creditor remains a creditor
to the extent of the balance of the debt.
In case of insolvency of the debtor, he is given a preferential right to recover the remainder
as against the new creditor.
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Example:
Marwin is indebted to Charles for ₱10,000. Trey pays Charles ₱6,000 with the consent of Marwin.
There is here partial subrogation as to the amount of ₱6,000. Marwin remains the creditor with
respect to the balance of ₱4,000. Thus, two credits subsist.
In case of insolvency of Marwin, Charles is preferred to Trey, that is, he shall be paid from
the assets of Marwin ahead of Trey.
Learning Activity:
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Module
3
General Provisions, Essential Requisites of the

Law on Contracts (Articles 1305-1355, Civil Code
of the Philippines)
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Course Study Guide:
Course Code LAW 11
Credit
Units/Hours 3.0
Week no./
Number of Hours 3/4 hrs.
Module Topic General Provisions, Title II, Law on Contracts
College of (Articles 1305-1317, Civil Code of the Philippines)
Business Administration
Allotted Hours
General Provisions, Essential Requisites of the Law on Contracts

Main Topic or Sub-Topic No.
(Articles 1305-1355, Civil Code of the Philippines) or Sub-topic No. 1
Intended Learning Outcomes 1. Explain the Meaning of Contracts, its Characteristics and Requisites,
Subjects and Classification and distinguish Contracts from Agreements
and Obligations and assess how this prior knowledge contribute to their
understanding of the Law on Obligations and Contracts and its
application to business transactions.
2. Analyze the definition of Contracts and compare this with other Sources
of Obligations and relate this to actual business transactions.
3. Compare the different Classification of Contracts including the

Classification of Contracts According to its Name or Designation and
According to Perfection and identify sample contracts in certain business
transactions.
4. Differentiate freedom to Contract from Limitations in Contractual

Stipulations.
5. Identify the persons bound in a contract.
Delivery Mode Mon - Tues

4 hrs. Offline/Modular Approach
1. Why is Law on Contracts important to business?

2. What are the concepts and classification of contracts, the elements and
stages of contracts and limitations in the Law on Contracts?
Study Questions 3. Who are the persons bound in a contract?
4. How can I practice the things I’ve learned from this topic in actual
business setting?
5. What can I do with what I've learned from this topic as a business
professional.
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Law 11 Learning Module The Law on Obligations and Contracts
• Print
by Atty. Hector S. De leon, 2014 edition
2. Read “General Provisions on Title II, Law on Contracts” of the textbook
on the “Law of Obligations and Contracts” by Atty. Hector S. De Leon,
2014 edition
learnings in the topics covered by this Module and relate it to your
personal experiences as a successful business professional in the future
and how these topics can be applied in the different actual business
Learning Activity transactions. In making your reflective essay, use your own words and
never attempt to just copy and paste it from any sources including the
outputs of your classmates and other students. Observe correct
grammar and proper spacing, indention and margin. Use A4 Size
Bondpaper, 1’ margin except for the 1.5 margin at the top of the page,
font style and size of verdana, 12.
Essay
Assessment Task
Rubrics
Assessment Tool
organization.
(Sgd.) (Sgd.)

Revision #002
edited/rce, 6-27-20
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nd
MODULE 3
Subtopic 1
General Provisions, Title II, Law on Contracts (Articles 13051317,

Learning Outcome: 1. Explain the

Meaning of Contracts,
its Characteristics and Requisites, Subjects and Classification and distinguish Contracts
from Agreements and Obligations and assess how this prior knowledge contribute to
their understanding of the Law on Obligations and Contracts and its application to
business transactions.
2. Analyze the definition of Contracts and compare this with other Sources of Obligations
and relate this to actual business transactions.
3. Compare the different Classification of Contracts including the Classification of Contracts

According to its Name or Designation and According to Perfection and identify sample
contracts in certain business transactions.
4. Differentiate freedom to Contract from Limitations in Contractual Stipulations.
5. Identify the persons bound in a contract.
Learning Contents:
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.
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CONTRACT - a juridical convention manifested in legal form, by virtue of which one or
more persons bind themselves in favor of another or others, or reciprocally, to the
fulfillment of a prestation to give, to do or not to do.
Other Terms:
Perfect promise – distinguished from a contract, in that the latter establishes and
determines the obligations arising therefrom; while the former tends only to assure and
pave the way for the celebration of a contract in the future.
Imperfect Promise – mere unaccepted offer
Pact – a special part of the contract, sometimes incidental and separable for the principal
agreement
Stipulation – similar to a pact; when the contract is an instrument, it refers to the
essential and dispositive part, as distinguished from the exposition of the facts and
antecedents upon which it is based.
Number of Parties:
The Code states “two persons”; what is meant actually is “two parties”. For a contract to exist,
there must be two parties. A party can be one or more persons.
Husband & Wife: Husbands and wives cannot sell to each other as a protection of the
conjugal partnership. They can however enter into a contract of agency.
Auto-contracts: It means one person contracts himself. As a general rule, it is accepted
in our law. The existence of a contract does not depend on the number of persons but on
the number of parties. There is no general prohibition against auto-contracts; hence, it
should be held valid.
Contracts of Adhesion: Contracts prepared by another, containing provisions that he
desires, and asks the other party to agree to them if he wants to enter into a contract.
Example: transportation tickets. It is valid contract according to Tolentino because the
other party can reject it entirely.
Elements of Contracts:
Essential elements – without which there is no contract; they are: consent, object;
and cause
Natural elements – exist as part of the contract even if the parties do not provide for
them, because the law, as suppletory to the contract, creates them
Accidental elements – those which are agreed by the parties and which cannot exist
without stipulated
Classifications of Contracts
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1.According to name
1. Nominate
2. Innominate
2.According to perfection
1. Consensual
2. Real
3.According to cause
1. Onerous
2. Remuneratory
3. Gratuitous
4.According to form
1. Informal, common or simple
2. Formal or solemn
5.According to obligatory force
1. Valid
2. Rescissible
3. Voidable
4. Unenforceable
5. Void or inexistent
6.According to person obliged
1. Unilateral
2. Bilateral
7.According to risks
1. Commutative
2. Aleatory
8.According to liability
1. Unilateral
2. Bilateral
9.According to status
1. Executory
2. Executed
10.According to dependence to another contract
1. Preparatory
2. Accessory
3. Principal
11. According to dependence of part of contract to other parts
1. Indivisible
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2. Divisible
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.
Valid Contracts - those that meet all the legal requirements and limitations for the type
of agreement involved and are legally binding and enforceable.
Freedom to contract:
Any person has the liberty to enter into a contract so long as they are not contrary to law,
morals, good customs, public order or public policy. The legislature, under the constitution,
is prohibited from enacting laws to prescribe the terms of a legal contract.
Validity of Stipulations:
Any and all stipulations not contrary to law, morals, good customs, public order or public
policy is valid.
Contrary to law:
Freedom of contract is restricted by law for the good of the public. It is fundamental
postulate that however broad the freedom of the contracting parties may be, it does not
go so far as to countenance disrespect for or failure to observe a legal prescription.
Examples:
• A promissory note which represents a gambling debt is unenforceable in the hands
of the assignee.
• Stipulations to pay usurious interests are void.
• A contract between to public service companies to divide the territory is void
because it impairs the control of the Public Service Commission.
• Agreement to declare valid a law or ordinance is void.
Contrary to Morals:
Morals mean those generally accepted principles of morality which have received some
kind of social and practical confirmation.
Examples:
• a promise to marry or nor to marry, to secure legal separation, or to adopt a child
a promise to change citizenship, profession, religion or domicile
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• a promise not to hold public office or which limits the performance of official duties
a promise to enter a particular political party or separate from it contracts which
limit in an excessive manner the personal or economic freedom of a person to make
an act dependent on money or some pecuniary value, when it is of such a nature
that it should not depend thereon; payment to kill another.
Contrary to Good Customs

Customs consists of habits and practices which through long usage have been followed
and enforced by society or some part oft it as binding rules of conduct.
Example:
A entered into a contract whereby B binds himself to slap his mother. This contract is void
because it is against the good custom.
Contrary to Public Order

Public order means the public weal or public policy. It represents the public, social, and
legal interest in private law that which is permanent and essential in institutions, which,
even if favoring some individual to whom the right pertains, cannot be left to his own will.
A contract is said to be against public order if the court finds that the contract as to the
consideration or the thing to be done, contravenes some established interest of society,
or is inconsistent with sound policy and good morals, or tends clearly to undermine the
security of individual rights.
Examples:
• Common carrier cannot stipulate for exemption for liability unless such exemption
is justifiable and reasonable and the contract is freely and fairly made.
• Payment to intermediaries in securing import licenses or quota allocations.
• Contract of scholarship stipulating that the student must remain in the same school
and that he waives his right to transfer to another school without refunding the
school
Contrary to Public Policy

Public policy is broader than public order for it may not refer only to public safety but also
to considerations which are moved by the common good.
Examples:
• Contracts that would cause injury to the public services.
• An agreement involving public matters that would corrupt a private citizen.
• Contracts that will obstruct or pervert justice.
• Contracts that would promote litigation.
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Article 1307. Innominate contracts shall be regulated by the stipulations of the
parties, by the provisions of Titles I and II of this Book, by the rules governing
the most analogous nominate contracts, and by the customs of the place.
INNOMINATE CONTRACTS – those which lack individuality and are not regulated by
special provisions of law.
Innominate Contracts:
1) do ut des (I give that you may give) – An agreement in which A will give one thing
to B, so that B will give another thing to A.
2) do ut facias (I give that you may do) – An agreement under which A will give
something to B, so that B may do something for A.
3) facio ut facias (I do that you may do) – An agreement under which A does
something for B, so that B may render some other service for A.
4) facio ut des (I do that you may give) – An agreement under which A does something
for B, so that B may give something to A.
Rules Governing Innominate Contracts

1. Agreement of the parties
2. Provisions of the Civil Code on obligations and contracts
3. Rules governing the moat analogous contracts
4. Customs of the place
Article 1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.
Principle of Mutuality of Contract:

That obligations arising from contracts have the force of law between the contracting
parties that there must be mutuality between the parties based on their essential equality,
to which is repugnant to have one party bound by the contract leaving the other free
therefrom.
A contract containing a condition which makes its fulfillment dependent exclusively upon
the uncontrolled will of one of the contracting parties is void.
Unilateral Cancellation:
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.
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Nobody is allowed to enter into a contract, and while the contract is in effect, leaves,
denounces or disavows the contract to the prejudice of the other.
When Stipulated:
However, when the contract so stipulates that one may terminate the contract upon a
reasonable period is valid.
Judicial action for the rescission of the contract is no longer necessary when the contract
so stipulates that it may be revoked and cancelled for the violation of any of its terms and
conditions. This right of rescission may be waived.
Article 1309. The determination of the performance may be left to a third person,
whose decision shall not be binding until it has been made known to both
contracting parties.
Exception to Art. 1308 (Mutuality of Contract)

A third person may be called upon to decide whether or not performance has been done
for the fulfillment of the contract. Such decision becomes binding when the contracting
parties have been informed of it.
Article 1310. The determination shall not be obligatory if it is evidently
inequitable. In such case, the courts shall decide what is equitable under the
circumstances.
Article 1311. Contracts take effect only between the parties, their assigns and
heirs, except in case where the rights and obligations arising from the contract
are not transmissible by their nature, or by stipulation or by provision of law. The
heir is not liable beyond the value of the property he received from the decedent.
If a contract should contain some stipulation in favor of a third person, he may
demand its fulfillment provided he communicated his acceptance to the obligor
before its revocation. A mere incidental benefit or interest of a person is not
sufficient. The contracting parties must have clearly and deliberately conferred a
favor upon a third person.
Parties bound by contract:

Generally, only the parties that agreed on the contracts are bound by the contract.
Transmission is possible to the heirs or assignees if so stipulated and in certain contracts.
Third persons not bound:

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It is a general rule that third parties are not bound by the acts of another.
A contract cannot be binding upon and cannot be enforced against one who is not
a party to it, even if he has knowledge of such contract and has acted with
knowledge thereof.
Enforcement of contract:
1. Only a party to the contract can maintain an action to enforce the obligations arising
under said contract.
2. Contracts bind heirs:
3. Rights and obligations under a contract are transmissible to heirs. Heirs are not
third persons because there is privity of interest between them and their
predecessor.
Cases when strangers or third persons affected by a contract

1. In contracts containing a stipulation in favor of a third person (stipulation
pour autrui)
2. In contracts creating real rights
3. In contracts entered into defraud creditors
4. In contracts which have been violated at the inducement of a third person
Classes of stipulations pour autrui

1. Those where the stipulation is intended for the sole benefit of such person. (the
third party is said to be a done beneficiary)
2. Those where an obligation is due from the promise to the third person which the
former seeks to discharge by means of stipulation. ( The third person is called
creditor beneficiary)
Requisites of Stipulation pour autrui

1. The contracting parties by their stipulation must have clearlyand deliberately
conferred a favor upon a third person;
2. The third person must have communicated his acceptance tothe obligor before its
revocation by the obligee or the original parties;
3. The stipulation in favor of the third person should be a part and not the whole of
the contract or the contract itself;
4. The favorable stipulation should not be conditioned orcompensated by any kind of
obligation whatever;
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5. Neither of the contracting parties bears the legal representationor authorization of
the third party for otherwise the rules on agencywill apply.
Article 1312. In contracts creating real rights, third persons who come into
possession of the object of the contract are bound thereby, subject to the
provisions of the Mortgage Law and the Land Registration Laws.
Article 1313. Creditors are protected in cases of contracts intended to defraud
them.
Contracts in Fraud of Creditors

When a debtor enters into a contract in fraud of his creditors, such as when he alienated
property gratuitously without leaving enough for his creditors (article 1387), the creditor
may ask for its rescission see Arts. 1177 and 1380.
Article 1314. Any third person who induces another to violate his contract shall
be liable for damages to the other contracting party.
Interference of Third Persons:

If a third person induced a party to violate his side of the contract, the other party may
sue the third person for damages.
Requisites:
1. the existence of a valid contract
2. knowledge by the third person of the existence of a contract
3. interference by the third person in the contractual relation without legal justification
Article 1315. Contracts are perfected by mere consent, and from that moment
the parties are bound not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which, according to their nature, may
be in keeping with good faith, usage and law.
 embodies the Principle of Consensuality:
In the absence of delivery, perfection does not transfer title or create real right yet it gives
rise to obligations binding upon both parties.
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Article 1316. Real contracts, such as deposit, pledge and commodatum, are not
perfected until the delivery of the object of the obligation. Classification of
contracts according to perfection
1. Consensual Contract
2. Real Contract
3. Solemn Contract
Stages in life of a contract

1. Preparation or negotiation
2. Perfection or birth
3. Consummation or termination
Article 1317. No one may contract in the name of another without being
authorized by the latter, or unless he has by law a right to represent him. A
contract entered into in the name of another by one who has no authority or legal
representation, or who has acted beyond his powers, shall be unenforceable,
unless it is ratified, expressly or impliedly, by the person on whose behalf it has
been executed, before it is revoked by the other contracting party.
• Unauthorized contracts are unenforceable.
• Unauthorized contracts can be cured only by ratification.
When a person is bound by the contract of another

1. The person entering into the contract must be authorized by the person whose
name he contracts by law a right to represent him.
2. He must act within his power.
3.
Learning Activity:
4.
Make a minimum 5-page Reflective Essay summarizing your relevant learnings in

the topics covered by this Module and relate it to your personal experiences as a
successful business professional in the future and how these topics can be applied
in the different actual business transactions. In making your reflective essay, use
your own words and never attempt to just copy and paste it from any sources
including the outputs of your classmates and other students. Observe correct
grammar and proper spacing, indention and margin. Use A4 Size Bondpaper, 1’
margin except for the 1.5 margin at the top of the page, font style and size of
verdana, 12.
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Course Study Guide:
Course Code LAW 11
Credit
3.0
Units/Hours
Week no./
Number of 3/8 hrs.
University of the Visayas Hours
College of Module Topic

Business Administration Essential Requisites of Contracts
(Articles 1318-1355, Civil Code of the Philippines)

Allotted Hours
General Provisions, Essential Requisites of Contracts, Title II, Contracts

Main Topic or Sub-Topic No.
(Articles 1305-1355, Civil Code of the Philippines) or Sub-topic No. 2
1. Describe and differentiate the elements and stages of Contracts

Intended Learning Outcomes
2. Explain consent and its requisites
3. Explain and Compare the Object and Causes of Contracts
Wed - Thurs
Delivery Mode
2 hr Online Discussion thru Zoom (Thursday, 2 pm – 4 pm)

2. What are the elements of contracts and the three Essential Requisites of
Contracts (Consent, Object, Cause)?
Study Questions 3. How can I practice the things I’ve learned from this topic in actual
business setting?
professional

Law 11 Learning Module The Law on Obligations and Contracts by
• Print
Atty. Hector S. De leon, 2014 edition
,
Ver 1
2. Read “Essential Requisites of Contracts on Title II, Law on Contracts” of
the textbook on the “Law of Obligations and Contracts” by Atty. Hector
Learning Activity S. De Leon, 2014 edition
3. Online discussion

relevant learnings in the topics covered by this Module and relate it
to your personal experiences as a successful business professional
in the future and how these topics can be applied in the different
actual business transactions. In making your reflective essay, use
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any sources including the outputs of your classmates and other
students. Observe correct grammar and proper spacing, indention
and margin. Use A4 Size Bondpaper, 1’ margin except for the 1.5
margin at the top of the page, font style and size of verdana, 12.
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Revision #002
edited/rce, 6-27-20
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MODULE 3
Subtopic 2 Essential Requisites of Contracts

(Articles 1318-1355, Civil Code of the Philippines)
Learning Outcome:

2. What are the elements of contracts and the three Essential Requisites of Contracts
(Consent, Object, Cause)?
3. How can I practice the things I’ve learned from this topic in actual business setting?
4. What can I do with what I've learned from this topic as a business professional
Learning Contents:
General Provisions
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. Classes of Elements of a
Contract
1. Essential Elements (requisites)
2. Common - present in all contracts (C-O-C)
3. Special - not common to all contracts
4. Natural Elements
5. Accidental Elements
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SECTION 1 Consent
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.
CONSENT (as applied to contracts) : concurrence of the wills of the contracting parties
with respect to the object and the cause which shall constitute the contract.
Requisites:
1. consent must be manifested by the concurrence of the offer and the acceptance
(Arts. 1319-1326);
2. contracting parties must possess the necessary legal capacity (Arts. 1327-1329);
and
3. consent must be intelligent, free, spontaneous and real (Arts. 1330-1346)
*Forms: Consent may either be express or implied. There is also a presumptive consent,
which is the basis of quasi-contracts.
*Manifestation: Consent is manifested by the concurrence of offer and acceptance with

respect to the object and the cause of the contract. Once there is such a manifestation,
the period or stage of negotiation is terminated. If consensual, the contract is perfected.
*A unilateral proposition must be definite (distinguished from mere communications),

complete (stating the essential and non- essential conditions desired by the offeror), and
intentional (serious) when accepted by another party for such proposition to form a valid
contract. However, a unilateral promise is not recognized by our Code as having obligatory
force. To be so, there must be an acceptance that shall convert it into a contract.
*Mental reservation — when a party makes a declaration but secretly does not desire
the effects of such declaration. The mental reservation of the offeror, unknown to the
other, cannot affect the validity of the offer.
*Offer is a proposal made by one party (offerer) to another party (offeree) indicating
willingness to enter into a contract. Offer must be certain and seriously intended
*Acceptance is the manifestation by the offeree of his assent to all the terms of
the offer.
• Acceptance of offer must be clear and absolute
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• 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.
Article 1320. An acceptance may be express or implied.

 Implied acceptance may arise from acts or facts which reveal the intent to
accept, such as the consumption of the things sent to the offeree, or the fact of
immediately carrying out of the contract offered.
 Express acceptance in the form of a promise to pay in a certain amount to do
something, may be oral or written.
Article 1321. The person making the offer may fix the time, place, and manner of
acceptance, all of which must be complied with.
• The offer with a period lapses upon the termination of the period. Thus the
acceptance, to become effective, must be known to the offeror before the period
lapses.
• The offer must be communicated and received by the offeree.
Article 1322. An offer made through an agent is accepted from the time
acceptance is communicated to him.
o An intermediary who has no power to bind either the offeror or the offeree is not an
agent; his situation is similar to that of a letter carrier.
Communication of acceptance
• To offerer (the acceptance of the offer must be absolute -supra)
• To agent
Article 1323. An offer becomes ineffective upon the death, civil interdiction,
insanity, or insolvency of either party before acceptance is conveyed. (n)
Article 1324. When the offerer has allowed the offeree a certain period to accept,
the offer may be withdrawn at any time before acceptance by communicating
such withdrawal, except when the option is founded upon a consideration, as
something paid or promised.
• It is not the moment of sending but the time of receipt of the revocation or
acceptance which is controlling. The delay in transmission is at the risk of the
sender, because he is the one who selects the time and the manner of making the
transmission.
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Contract of Option: This is a preparatory contract in which one party grants to the other,
for a fixed period and under specified conditions, the power to decide whether or not to
enter into a principal contract. It must be supported by an independent consideration, and
the grant must be exclusive.
Option period is the period given within which the offeree must accept the offer.
Option money is the money paid or promised to be paid in consideration for the option.
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 generally are not definite offers.
Article 1326. Advertisements for bidders are simply invitations to make

proposals, and the advertiser is not bound to accept the highest or lowest bidder,
unless the contrary appears.
• Advertisements for bidders are generally not definite offers.
Article 1327. The following cannot give consent to a contract:

(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not know how to write.
Persons who cannot give consent

* Unemancipated minors cannot enter into valid contracts, and contracts entered into
by them are not binding upon them, unless upon reaching majority they ratify the same.
* Insane persons: It is not necessary that there be a previous of declaration of mental
incapacity in order that a contract entered into by a mentally defective person may be
annulled; it is enough that the insanity existed at the time the contract was made.
Deaf-mutes: They are persons who are deaf and dumb.
Note: Being deaf-mute is not by itself alone a disqualification for giving consent.
The law refers to the deaf-mute who does not know how to write.
Reasons for disqualification

They can be easily be the victims of fraud as they are not capable of understanding or
knowing the nature or import of their actions.
Article 1328. Contracts entered into during a lucid interval are valid. Contracts
agreed to in a state of drunkenness or during a hypnotic spell are voidable.
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Lucid Interval - It is a temporary period of sanity.
*The use of intoxicants does not necessarily mean a complete loss of understanding. The
same may be said of drugs. But a person, under the influence of superabundance of
alcoholic drinks or excessive use of drugs, may have no capacity to contract.
*In hypnotism and somnambulism, the utter want of understanding is a common element.
Article 1329. The incapacity declared in article 1327 is subject to the

modifications determined by law, and is understood to be without prejudice to
special disqualifications established in the laws.
The Rules of Court provide a list of incompetents who need guardianship: persons
suffering from the penalty of civil interdiction, hospitalized lepers, prodigals, deaf
and dumb who are unable to write and read, those of unsound mind (even though
they have lucid intervals), and persons not being of unsound mind but by reason
of age, disease, weak mind, and other similar causes cannot, without outside aid,
take care of themselves and manage their property—becoming an easy prey for
deceit and exploitation.
 The incapacity to give consent (Arts. 1327 & 1328) to contracts renders the contract
merely voidable, while special disqualification (Art. 1329) makes it void.
Incapacity declared in Article 1327 that may be modified by law

1) When necessaries such as food, are soldand delivered to a minor or other
personwithout capacity to act, he must pay a reasonable price thereof.
2) A minor 18 years old or above may contract for life, health and accident
insurance,provided the insurance is taken on his life and the beneficiary appointed
is theminor`s estate or the minor`s father,mother, husband, wife, child, brother,
orsister.
3) A contract is valid if entered into through a guardian or legal representative.
4) A contract is valid where the minor misrepresented his age and convincingly led
the other party to believe in his legal capacity.
5) A contract is valid where a minor between 18 and 21 yrs of age voluntarily pays a
sum of money or delivers and fungible thing in fulfillment of his obligation
thererunder and the oblige has spent or consumed it in good faith.
Other Special Disqualifications may be provided by law

a) Persons suffering the accessory penalty civil interdiction
b) Hospitalized lepers
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c) Prodigals
d) Deaf and dumb who cannot read and write
e) Those who are of unsound mind even though they have lucid intervals
f) Those who by reason of age, disease, weak mind and other similar causes, cannot
without outside aid, take care of themselves and manage their own properties
becoming an easy prey for deceit and exploitation.
Article 1330. A contract where consent is given through mistake, violence,

intimidation, undue influence, or fraud is voidable.
Characteristics of Consent
1. Intelligent
2. Free and voluntary
3. Conscious or spontaneous
Vices of Consent
• Error or mistake
• Violence or force
• Intimidation or threat or duress
• Undue influence
• Fraud or deceit
Article 1331. In order that mistake may invalidate consent, it should refer to the
substance of the thing which is the object of the contract, or to those conditions
which have principally moved one or both parties to enter into the contract.
Mistake as to the identity or qualifications of one of the parties will vitiate
consent only when such identity or qualifications have been the principal cause
of the contract.
A simple mistake of account shall give rise to its correction.
Mistake or error is the false notion of a thing or a fact material to the contract.
• Ignorance and error are 2 different states of mind. Ignorance means the complete
absence of any notion about a particular matter, while error or mistake means a
wrong or false notion about such matter.
• Annulment of contract on the ground of error is limited to cases in which it may

reasonably be said that without such error the consent would not have been given.
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• An error as to the person will invalidate consent when the consideration of the
person has been the principal cause of the same.
• Mistake as to qualifications, even when there is no error as to person, is a cause

vitiating consent, if such qualifications have been the principal cause of the
contract.
• A mistake as to the motive of a party does not affect the contract; to give it such
effect would destroy the stability of contractual relations. When the motive has,
however, been expressed and was a condition of the consent given, annulment is
proper—because an accidental element is, by the will of the parties, converted into
a substantial element.
Nature of Mistake
1. Mistake may be of fact or of law. In general, the mistake to which Article 1331
refers is mistake of fact. It may arise from ignorance or lack of knowledge.
2. The mistake contemplated by law is substantial mistake of fact, that is, the party
would not have given his consent had he known of the mistake. Hence, not every
mistake will vitiate consent and make a contract voidable.
3. The mistake may be unilateral when onlu one party is mistaken about a material
fact, or bilateral when both parties are in error.
Mistake of fact to which law refers

1. the substance of the thing which is the object of the contract; or
2. those conditions which have principally moved one or both parties to enter into the
contract;
3. the identity or qualifications of one of the parties, provided, the same was the
principal cause of the contract.
Mistake of fact which does not vitiate consent

1. Error as regards the incidents of a thing or accidental qualities thereof (e.g.,
accessibility of a residential house to means of transportation; maximum speed of
a car), not taken as the principal consideration of the contract, does not vitiate
consent (Art. 1331, par. 1.), unless the error is caused by fraud of the other party.
2. Mistake as to quantity or amount does not also vitiate consent but only gives rise
to its correction, unless it goes to the essence of the contract.
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3. Error as regards the motives of the contract does not also vitiate consent unless
the motives constitute a condition or cause of the contract.
4. Mistake as regards the identity or qualifications of a party does not vitiate consent
for the reason that contracts are entered into more in consideration of the things
or services which form their subject matter rather than of persons. The exception
is when such identity or qualifications have been the principal cause of the contract
(Art. 1331, par. 2.), as in contracts, which have for their object obligations to do,
requiring personal qualifications of the debtor, or involving trust and confidence,
such as contracts of partnership, agency, commodatum, guaranty deposit, etc.
5. Error which could have been avoided by the party alleging it, or which refers to a
fact known to him, or which he should have known by the exercise of ordinary
diligence, or which is so patent and obvious that nobody could have made it, will
not invalidate consent.
Effect of mistake account

1. Where mistake is simple - it does not avoid a contract
2. Where mistake gross - said party cannot avoid liability
Article 1332. When one of the parties is unable to read, or if the contract is in a
language not understood by him, and mistake or fraud is alleged, the person
enforcing the contract must show that the terms thereof have been fully
explained to the former.
Article 1333. There is no mistake if the party alleging it knew the doubt,
contingency or risk affecting the object of the contract.
To invalidate consent, the error must be excusable. It must be a real error and not
one that could have been avoided by the party alleging it. The error must arise
from facts unknown to him. A mistake that is caused by manifest negligence cannot
invalidate a juridical act.
Effect of Knowledge of Risk

The party cannot claim mistake.
Article 1334. Mutual error as to the legal effect of an agreement when the real
purpose of the parties is frustrated, may vitiate consent.
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Mistake of law is that which arises from an ignorance of some provision of law or from
an erroneous interpretation of its meaning,from an erroneous conclusion as to the legal
effect of an agreement,on the part of one of the parties.
Three requisites for the application of this article:

1. the error must be as to the legal effect of an agreement;
2. it must be mutual;
3. the real purpose of the parties is frustrated.
The legal effects include the rights and obligations of the parties, not as stipulated in the
contract, but as provided by the law. The mistake as to these effects, therefore, means an
error as to what the law provides should spring as consequences from the contract in
question.
An error as to the nature or character is always essential, and makes the act juridically
inexistent.
Article 1335. There is violence when in order to wrest consent, serious or

irresistible force is employed.
There is intimidation when one of the contracting parties is compelled by a
reasonable and wellgrounded 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.
To determine the degree of intimidation, the age, sex and condition of the person
shall be borne in mind.
A threat to enforce one's claim through competent authority, if the claim is just
or legal, does not vitiate consent.
• Duress is that degree of constraint or danger either actually inflicted (violent) or

threatened and impending (intimidation), sufficient to overcome the mind and will
of a person of ordinary firmness.
• Violence refers to physical force or compulsion, while intimidation refers to moral

force or compulsion.
Requisites of violence:
1. That the physical force employed must be irresistible or of such degree that the
victim has no other course, under the circumstances, but to submit;
2. That such force is the determining cause in giving the consent to the contract.
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Requisites of intimidation:
1. It must produce a reasonable and well-grounded fear of an evil.
2. The evil must be imminent and grave.
3. The evil must be upon his person or property, or that of his spouse, descendants
or ascendants.
4. It is the reason why he enters into the contract.
Article 1336. Violence or intimidation shall annul the obligation, although it may
have been employed by a third person who did not take part in the contract.
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.
 In intimidation, there must be an unlawful or unjust act which is threatened and

which causes consent to be given, while in undue influence there need not be an
unjust or unlawful act. In both cases, there is moral coercion.
Moral coercion may be effected through threats, expressed or implied, or through

harassing tactics.
Undue influence is any means employed upon a party which, under the circumstances,
he could not well resist, and which controlled his volition and induced him to give his
consent to the contract—which otherwise he would not have entered into.
Circumstances to be considered to determine whether undue influence has been

exercised
a. confidential, family, spiritual and other relations between the parties

b. mental weakness
c. ignorance
d. financial distress of the person alleged to have been unduly influenced
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.
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Fraud is every kind of deception, whether in the form of insidious machinations,
manipulations, concealments, or misrepresentations, for the purpose of leading another
party into error and thus executing a particular act.
Fraud produces qualified error; it induces in the other party an inexact notion of facts.
The will of another is maliciously misled by means of false appearance of reality.
“ Insidious words or machinations ” include false promises; exaggeration of hopes or

benefits; abuse of confidence; and fictitious names, qualifications, or authority.
Kinds of fraud:
1. dolo causante (Art. 1338) — which determines or is the essential cause of the
consent; fraud in the perfection ofcontract
2. dolo incidente — (Arts. 1344 & 1170) which does not have such a decisive influence
and by itself cannot cause the giving of consent, but refers only to some particular
or accident of the obligation.
Dolo causante can be a ground for annulment; dolo incident cannot be a ground for
annulment.
The result of fraud is error on the part of the victim.
Note:The fraud contemplated in this article is causalfraud.
Causal Fraud is the fraud committed by one party before at the time of the celebration
of the contract to secure the consent of the other. It is the fraud used by a party to induce
the other to enter into a contract without which the latter would not have agreed to.
Requisites of causal fraud:

1. There must be misinterpretation or concealment of a material fact with knowledge
of its falsity.
2. It must be serious.
3. It must have been employed by only one of the contracting parties.
4. It must be made in bad faith or with intent to deceive the other party who had no
knowledge of the fraud
5. It must have induced the consent of the other contracting party. 6. It must be
alleged and proved by clear and convincing evidence.
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Article 1339. Failure to disclose facts, when there is a duty to reveal them, as
when the parties are bound by confidential relations, constitutes fraud.
Silence or concealment, by itself, does not constitute fraud, unless there is a special
duty to disclose certain facts, or unless according to good faith and the usages of
commerce, the communication should be made.
Thus, the innocent non-disclosure of a fact does not affect the formation of the
contract or operate to discharge the parties from their agreement.
Article 1340. The usual exaggerations in trade, when the other party had an
opportunity to know the facts, are not in themselves fraudulent.
Tolerated fraud includes minimizing the defects of the thing, exaggeration of its good
qualities, and giving it qualities that it does not have. This is lawful misrepresentation
known as dolus bonus. This is also called lawful astuteness.
o These misrepresentations are usually encountered in fairs, markets, and almost all
commercial transactions. They do not give rise to an action for damages, either
because of their insignificance or because the stupidity of the victim is the real
cause of his loss.
o The thinking is that where the means of knowledge are at hand and equally
available to both parties, one will not be heard to say that he has been deceived.
Article 1341. A mere expression of an opinion does not signify fraud, unless made
by an expert and the other party has relied on the former's special knowledge.
An opinion of an expert is like a statement of fact, and if false, may be considered a

fraud giving rise to annulment.
Requisites of Expression of Opinion that may mount to fraud

1. It must be made by an expert.
2. The other contracting party has relied on the expert's opinion
3. The opinion turned out to be false or erroneous.
Article 1342. Misrepresentation by a third person does not vitiate consent, unless
such misrepresentation has created substantial mistake and the same is mutual.
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• The general rule is that the fraud employed by a third person upon one of the parties
does not vitiate consent and cause the nullity of a contract.
Exception: If one of the parties is in collusion with the third person, or knows of the fraud
by the third person, and he is benefited thereby, he may be considered as an accomplice
to the fraud, and the contract becomes voidable.
Article 1343. Misrepresentation made in good faith is not fraudulent but may
constitute error.
Effect of misinterpretation made in good faith

If the misinterpretatuon is not intentional but made in good faith, it is considered a mere
mistake or error.
Article 1344. In order that fraud may make a contract voidable, it should be
serious and should not have been employed by both contracting parties.
Incidental fraud only obliges the person employing it to pay damages.
Fraud is serious when it is sufficient to impress, or to lead an ordinarily prudent person

into error; that which cannot deceive a prudent person cannot be a ground for nullity.
Besides being serious, the fraud must be the determining cause of the contract. It must
be dolo causante.
When both parties use fraud reciprocally, neither one has an action against the other; the
fraud of one compensates that of the other. Neither party can ask for the annulment of
the contract.
Distinguishing Causal Fraud from Incidental Fraud

Causal Fraud Incidental Fraud
Ground for the annulment of the contract Incidental fraud only obliges the person
although it may also give rise to an action employing it to pay damages.
for damages.
Article 1345. Simulation of a contract may be absolute or relative. The former

takes place when the parties do not intend to be bound at all; the latter, when
the parties conceal their true agreement.
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Article 1346. An absolutely simulated or fictitious contract is void. A relative
simulation, when it does not prejudice a third person and is not intended for any
purpose contrary to law, morals, good customs, public order or public policy
binds the parties to their real agreement.
Simulation is the declaration of a fictitious will, deliberately made by agreement of the

parties, in order to produce, for the purposes of deception, the appearance of a juridical
act which does not exist or is different from that which was really executed.
Kinds of Simulation
1. Absolute simulation (simulados) – when the contract does not really exist and
the parties do not intend Example
• In a sale of a car, it was made to appear that the price was paid when actually it was
not. The sale being without any consideration is fictitious.
2. Relative simulation (dissimulados) – when the contracts entered into by the

parties is different from their true agreement. Example
• A donor is donating a fish pond to a donee. However, instead of executing a sale of

donation, the donor executed a deed of sale, concealing the donation intended. Note: If
the concealed or hidden act is lawful,it is enforceable if the essential requisites
are present,such as when the true consideration was not stated.
SECTION 2 Object of Contracts

Article 1347. All things which are not outside the commerce of men, including
future things, may be the object of a contract. All rights which are not
intransmissible may also be the object of contracts.
No contract may be entered into upon future inheritance except in cases
expressly authorized by law.
All services which are not contrary to law, morals, good customs, public order or
public policy may likewise be the object of a contract.
Article 1348. Impossible things or services cannot be the object of contracts.
• The object of a contract is its subject matter. It is the thing, right, or service which is
the subject-matter of the obligation arising from the contract.
Requisites of Things as Object of Contract

1. The thing must be within the commerce of men
2. It must not be impossible
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3. It must be in existence or capable of coming into existence
4. It must be determinate or determinable without the need of a new contract between
the parties
Requisites of Services as object of contract

1. The service must be within the commerce of men
2. It must not be impossible physically or legally
3. It must be determinate or capable of being made determinate
Rights as object of Contract
• All rights may be the object of contract except when they are intransmissible by
nature, stipulation or provision of law.
Future Inheritance is any property or right not in existence or capable of determination

at the time of the contract that a person may inherit in the future, such person having only
an expectancy of a purely hereditary right.
Impossible Things or Services. Things are impossible when:

a) *They are not susceptible of existing, or they are outside the commerce of man.
Personal acts or services impossible when they beyond the ordinary strength or
power of man.
b) *The impossibility must be actual and contemporaneous with the making of the
contract, and not subsequent thereto.
c) *The impossibility is absolute or objective when nobody can perform it; it is relative
or subjective when due to the special conditions or qualifications of the debtor it
cannot be performed.
d) *The absolute or objective impossibility nullifies the contract; the relative or
subjective does not.
Kinds of Impossibility
1) Physical - when the thing or service in the very nature cannot exist or be performed.
a) Absolute - when the act cannot be done in any case
b) Relative - when it arises from the special circumstances of the case or the special
conditions or qualifications of the obligor
2) Legal - when the thing is contrary to law, morals, good customs, public order or public
policy.
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Article 1349. The object of every contract must be determinate as to its kind. The
fact that the quantity is not determinate shall not be an obstacle to the existence
of the contract, provided it is possible to determine the same, without the need
of a new contract between the parties.
• The thing must have definite limits, not uncertain or arbitrary.

• The quantity of the of the object may be indeterminate, so long as the right of the
creditor is not rendered illusory.
SECTION 3 Cause of Contracts
Article 1350. In onerous contracts the cause is understood to be, for each
contracting party, the prestation or promise of a thing or service by the other; in
remuneratory ones, the service or benefit which is remunerated; and in contracts
of pure beneficence, the mere liberality of the benefactor.
The cause of the contract is the “why of the contract,” the immediate and most
proximate purpose of the contract, the essential reason which impels the contracting
parties to enter into it and which explains and justifies the creation of the obligation
through such contract.
• The cause as to each party is the undertaking or prestation to be performed by the

other. The object of the contract is the subject matter thereof (e.g., the land which
is sold in a sales contract). Consideration, meanwhile, is the reason, motive, or
inducement by which a man is moved to bind himself by an agreement.
Requisites:
1. it must exist
2. it must be true
3. it must be licit
Classifications of Contract according to Cause

1. In onerous contracts, the cause need not be adequate or an exact equivalent in
point of actual value, especially in dealing with objects which have a rapidly
fluctuating price. There are equal considerations.
2. A remuneratory contract is one where a party gives something to another
because of some service or benefit given or rendered by the latter to the former,
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where such service or benefit was not due as a legal obligation. The consideration
of one is greater than the other’s.
3. A gratuitous contract is essentially an agreement to give donations. The
generosity or liberality of the benefactor is the cause of the contract. There is
nothing to equate.
Article 1351. The particular motives of the parties in entering into a contract are
different from the cause thereof.
Motive is the purely personal or private reason which a party has in entering into a
contract.
Cause is the objective, intrinsic, and juridical reason for the existence of the contract itself,
while motive is the psychological, individual, or personal purpose of a party to the contract.
As a general principle, the motives of a party do not affect the validity or existence of
a contract.
Exceptions: When motive predetermines the purpose of the contract, such as:
1. When the motive of a debtor in alienating property is to defraud his creditors, the
alienation is rescissible;
2. When the motive of a person in giving his consent is to avoid a threatened injury,
as in the case of intimidation, the contract is voidable; and
3. When the motive of a person induced him to act on the basis of fraud or
misrepresentation by the other party, the contract is voidable.
Cause distinguished from Motive

Cause Motive
Immediate or direct reason Remote or indirect reason
Always known to other contracting party Maybe unknown
Essential element of contract Not a requisite
Its illegality affects the validity of a contract Its illegality does not render the
contract void
Article 1352. Contracts without cause, or with unlawful cause, produce no effect
whatever. The cause is unlawful if it is contrary to law, morals, good customs,
public order or public policy.
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Article 1353. The statement of a false cause in contracts shall render them void,
if it should not be proved that they were founded upon another cause which is
true and lawful.
Requisites of Cause
1. It must exist at the time the contract is entered into
2. It must be lawful
3. It must be true or real
Note: Where the cause stated in the contract is false, the latter may nevertheless
be sustained by proof of another licit cause.
A contract of sale is null and void if there is no CAUSE or CONSIDERATION.
Effect of absence of cause

Absence or want of cause means that there is a total lack of any valid consideration for
the contract.
Effect of failure of cause

It does not render a contract void.
Effect of illegality of cause

1. A promise of marriage based upon carnal connection
2. A contract whereby a person accused of a crime obliges himself to give a sum of
money in consideration of the promise on the part of the obligee to refrain from
testifying against him is void because the purpose is to stifle criminal prosecution
and this is against public policy.
Article 1354. Although the cause is not stated in the contract, it is presumed that
it exists and is lawful, unless the debtor proves the contrary.
• Unless the contrary is proved, a contract is presumed to have a good and sufficient
consideration. This presumption applies when no cause is stated in the contract.
Article 1355. Except in cases specified by law, lesion or inadequacy of cause shall
not invalidate a contract, unless there has been fraud, mistake or undue
influence.
Lesion is any damage caused by the fact that the price is unjust or inadeqaute.
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 In case of lesion or inadequacy of cause, the general rule is that the contract is not
subject to annulment.
 In cases when there has been fraud, mistake or undue influence and in cases
provided by law, however, such as those mentioned in Art 1381, lession will
invalidate the contract.
Gross inadequacy naturally suggests fraud and is evidence thereof, so that it may be
sufficient to show it when taken in connection with other circumstances.
Note: A partition, judicialor extra-judicial, may also be rescinded on account of lesion,
when any one of the co-heirs received things whose value is less, by at least one-fourth,
than the share to which he is entitled, considering the value of the things at the time they
were adjudicated.
3.
Learning Activity:
4.
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nd
Module 4
Formalities of Contracts, Reformation and
Interpretation of Contracts, Defective Contracts
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Course Study Guide:
Course Code LAW 11
Credit
3.0
Units/Hours
Week no./
University of the Number of 4/4 hrs.
Visayas
Hours
College of Module Topic Formalities of Contracts, Reformation and
Business Administration Intepretation of Contracts (Articles
1356-1379, Civil Code of the
Philippines)
Allotted Hours
Formalities of Contracts, Reformation and Interpretation of

Main Topic or Sub-Topic No. Contracts, Defective Contracts or Sub-topic No. 1
1. Explain and Categorize the Formalities of Contracts

Intended Learning Outcomes 2. Analyze the different circumstances that will warrant the
Reformation of Instruments
3. Explain and Evaluate the different rules on Interpretation of
Contracts
Delivery Mode Mon – Tue

2. What are the Formalities of Contracts?
3. What is Reformation of Instruments and What are the
Circumstances that will warrant the reformation of an
instrument?
Study Questions 4. How is an ambiguity in a contract construed or interpreted?
5. How can I practice the things I’ve learned from this topic in
actual business setting?
business professional
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Law 11 Learning Modules
Learning Activity 2. Read “Form of Contracts, Reformation of Instruments,
Interpretation of Contracts on Title II, Law on Contracts” of
the textbook on the “Law of Obligations and Contracts” by
Atty. Hector S. De Leon, 2014 edition
3. Make a minimum 5-page Reflective Essay summarizing
your relevant learnings in the topics covered by this
Module and relate it to your personal experiences as a
successful business professional in the future and how
these topics can be applied in the different actual
business transactions. In making your reflective essay,
use your own words and never attempt to just copy and
paste it from any sources including the outputs of your
classmates and other students. Observe correct
grammar and proper spacing, indention and margin.
Use A4 Size Bondpaper, 1’ margin except for the 1.5
margin at the top of the page, font style and size of
verdana, 12.
Essay
Assessment Task
Rubrics
Assessment Tool
of an organization.
Target Competency
Analytical and Communication Skills
(Sgd.) (Sgd.)
Atty. Reymar Englis Dico, CPA, JD Samuel Glova III, CPA Dr. Rosemarie Espanol, CPA

Revision #002
edited/rce, 6-27-20
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MODULE 4
Subtopic 1 Formalities of Contracts, Reformation and

Interpretation of Contracts (Articles 1356-1379, Civil Code of the
Philippines)
Learning Outcome:
1. Explain and Categorize the Formalities of Contracts
2. Analyze the different circumstances that will warrant the Reformation of Instruments
3. Explain and Evaluate the different rules on Interpretation of Contracts
Learning Contents:
FORM OF CONTRACTS
ARTICLE 1356. Contracts shall be obligatory, in whatever form they may have
been entered into, provided all the essential requisites for their validity are
present. However, when the law requires that a contract be in some form in order
that it may be valid or enforceable, or that a contract be proved in a certain way,
that requirement is absolute and indispensable. In such cases, the right of the
parties stated in the following article cannot be exercised.
ARTICLE 1357. If the law requires a document or other special form, as in the
acts and contracts enumerated in the following article, the contracting parties
may compel each other to observe that form, once the contract has been
perfected. This right may be exercised simultaneously with the action upon the
contract.
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As long as all the essential requisites for the validity of a contract are present, then there
is a valid binding contract. It does not require any formality as long as there is consent,
object and cause, and in that case, it will be a valid and binding contract.
Classifications of contract according to form

(1) Informal or common or simple contract - one may be entered into in whatever
form provided all the essential requisites are present. In short, this is commonly
referred to as a consensual contract.
(2) Formal or solemn contract - where it requires certain formality in order for its
efficacy and effectivity.
(3) Real – creation of real rights over immovable property – must be written.
As a rule, contracts are binding as long as there is the presence of consent, object and
consideration except when the Law or the parties require a certain form for its validity and
enforceability.
When the parties require a specific form, it can either be for its validity or enforceability.
When you say validity, it will make the contract binding between the parties.
When you say enforceability, the aggrieved party may assert its right under the courts to
compel the other party to perform his obligation in cases of non-compliance of the contract
by the other party.
WHEN FORM IS IMPORTANT:

• for validity (formal/solemn contracts)
• for enforceability (statute of frauds)
• for convenience
General Rule: contract is valid & binding in whatever form provided that 3 essential
requisites concur Exception:
a. Law requires contract to be in some form for validity - donation & acceptance of
real property
b. Law requires contract to be in some form to be enforceable - Statute of Frauds;
contract is valid but right to enforce cannot be exercised; need ratification to be
enforceable
c. Law requires contract to be in some form for convenience - contract is valid &
enforceable, needed only to bind 3rd parties
Example: public documents needed for the ff:
1. contracts w/c object is creation, transmission or reformation of real rights
over immovables
2. cession, repudiation, renunciation of hereditary rights/CPG
3. power to administer property for another
4. cession of action of rights proceeding from an act appearing in a public inst.
5. all other docs where amount involved is in excess of 500 ( must be written
even private docs )
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Forms for validity of contract
(1) Donations of real property - In order to have a valid and binding donation of
real property, it must be in executed in a public instrument otherwise void.
(2) Donations of personal property the value of which exceeds 5,000 - This
must be in a written instrument to be valid.
(3) Sale of land through an agent - The authority of an agent must be in writing
otherwise the sale is void.
(4) Stipulation to pay interest – any agreement for the payment of the interest must
be stipulated in writing to be valid and enforceable between the parties.
(5) Contract of partnership – when immovable or real properties are contributed to
the partnership, such contract must appear in a public instrument containing the inventory
of the real properties contributed.
Article 1358
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.
The contracts covered by this article are valid and enforceable though not contained in a
public document or instrument or in writing. The public document is required only for the
convenience and greater protection of the parties and to make the contract binding as
against third persons.
In other words, the law does not require accomplishment of certain acts or contracts in a
public instrument in order to validate the act or contract but only to insure its efficacy so
that after the existence of the act or contract has been admitted, the party bound may be
ordered by the court in which the action or suit is filed to execute the document.
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
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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.
ARTICLE 1360. The principles of the general law on the reformation of
instruments are hereby adopted insofar as they are not in conflict with the
provisions of this Code.
ARTICLE 1361. When a mutual mistake of the parties causes the failure of the
instrument to disclose their real agreement, said instrument may be reformed.
ARTICLE 1362. If one party was mistaken and the other acted fraudulently or
inequitably in such a way that the instrument does not show their true intention,
the former may ask for the reformation of the instrument.
ARTICLE 1363. When one party was mistaken and the other knew or believed
that the instrument did not state their real agreement, but concealed that fact
from the former, the instrument may be reformed.
ARTICLE 1364. When through the ignorance, lack of skill, negligence or bad faith
on the part of the person drafting the instrument or of the clerk or typist, the
instrument does not express the true intention of the parties, the courts may
order that the instrument be reformed.
ARTICLE 1365. If two parties agree upon the mortgage or pledge of real or
personal property, but the instrument states that the property is sold absolutely
or with a right of repurchase, reformation of the instrument is proper.
ARTICLE 1366. There shall be no reformation in the following cases:
(1) Simple donations inter vivos wherein no condition is imposed;
(2) Wills;
(3) When the real agreement is void.
ARTICLE 1367. When one of the parties has brought an action to enforce the
instrument, he cannot subsequently ask for its reformation.
ARTICLE 1368. Reformation may be ordered at the instance of either party or his
successors in interest, if the mistake was mutual; otherwise, upon petition of the
injured party, or his heirs and assigns.
ARTICLE 1369. The procedure for the reformation of instrument shall be

governed by rules of court to be promulgated by the Supreme Court.
Reformation- is the remedy allowed by law, by means of which a written instrument is

amended or rectified.
- when there is any mistake in the contract or something that has not actually agreed by
the parties, then you correct it through reformation of the instrument.
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REQUISITES OF REFORMATION:
1. There is a meeting of the minds of the parties to the contract
2. The written instrument does not express the true agreement or intention of the parties
3. The failure to express the true intention is die to mistake, fraud, inequitable conduct or
accidents
4. There is clear and convincing evidence.
Article 1361: When a mutual mistake of the parties causes the failure of the instrument
to disclose their real agreement, said instrument may be reformed.
Take note: There is mutual mistake when both of the parties committed error or such
mistake resulted to failure to express the true intention of the parties.
For example: You thought a thing was gold but in fact it was a diamond. In that case, you
may change or reform the contract.
Cases when reformation not allowed:

1. Simple donation inter vivos where no condition is imposed
2. Wills
3. When the real agreement is void
4. When one party has brought an action to enforce the instrument.
Why these things can’t be reformed?

Take note: The first 2 instances can’t be reformed because these are gratuitous contracts
and the contracts rest solely to the discretion of the donor or the will of the decedent.
The third case can’t be reformed since only valid contracts can be reformed.
Lastly, When one of the parties has brought an action to enforce the instrument, he can’t
subsequently ask for its reformation because the other party has ratified the agreement
by enforcing the same in the courts.
Who are the parties entitled for reformation?

1. Either of the parties, if the mistake is mutual
2. In all other cases, the injured party
3. The heirs or successors in interest, in lieu of the party entitled.
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.
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ARTICLE 1372. However general the terms of a contract may be, they shall not
be understood to comprehend things that are distinct and cases that are different
from those upon which the parties intended to agree.
ARTICLE 1373. If some stipulation of any contract should admit of several

meanings, it shall be understood as bearing that import which is most adequate
to render it effectual.
ARTICLE 1374. The various stipulations of a contract shall be interpreted

together, attributing to the doubtful ones that sense which may result from all of
them taken jointly.
ARTICLE 1375. Words which may have different significations shall be

understood in that which is most in keeping with the nature and object of the
contract.
ARTICLE 1376. The usage or custom of the place shall be borne in mind in the
interpretation of the ambiguities of a contract, and shall fill the omission of
stipulations which are ordinarily established.
ARTICLE 1377. The interpretation of obscure words or stipulations in a contract

shall not favor the party who caused the obscurity.
ARTICLE 1378. When it is absolutely impossible to settle doubts by the rules

established in the preceding articles, and the doubts refer to incidental
circumstances of a gratuitous contract, the least transmission of rights and
interests shall prevail. If the contract is onerous, the doubt shall be settled in
favor of the greatest reciprocity of interests.
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.
ARTICLE 1379. The principles of interpretation stated in Rule 123 of the Rules of
Court shall likewise be observed in the construction of contracts.
6.
Learning Activity:
7.
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Course Study Guide:
Course Code LAW 11
Credit Units/Hours 3.0
Week no./
Number of 4/6 hrs.
Hours
Module Topic
Rescissible Contracts, Voidable Contracts,
College of Unenforceable Contracts, Void or Inexistent
Business Administration Contracts (Articles 1380-1422, Civil Code of the
Philippines)

Allotted Hours
Formalities of Contracts, Reformation and Interpretation of Contracts,

Main Topic or Sub-Topic No. Defective Contracts or Sub-topic No. 2
1. Explain and Differentiate the different kinds of defective contracts and its
Intended Learning corresponding laws and rules.
Outcomes 2. Analyze the different remedies available to the parties affected in a
defective contract and the prescriptive period to assert the right.
3. Demonstrate the concept of ratification in a defective contract.
Delivery Mode Wed – Thurs

2 hr Online Discussion (Zoom) (Tuesday, 2 pm – 4 pm)

2. What are the different kinds of defective contracts and the rules and laws
that govern them?
3. What are the remedies available to the parties affected in a defective
contract and the prescriptive periods in asserting a right?
Study Questions
4. What is the concept of ratification in a defective contract?
5. How can I practice the things I’ve learned from this topic in actual business
setting?
professional
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Law 11 Learning module The Law on Obligations and Contracts
• Print
by Atty. Hector S. De leon, 2014 edition
Learning Activity 2. Read “Rescissible Contracts, Voidable Contracts, Unenforceable
Contracts, Void or Inexistent Contracts” on Title II, Law on Contracts” of the
textbook on the “Law of Obligations and Contracts” by Atty. Hector S. De
Leon, 2014 edition

relevant learnings in the topics covered by this Module and relate it to
your personal experiences as a successful business professional in the
future and how these topics can be applied in the different actual
business transactions. In making your reflective essay, use your own
words and never attempt to just copy and paste it from any sources
including the outputs of your classmates and other students. Observe
correct grammar and proper spacing, indention and margin. Use A4
Size Bondpaper, 1’ margin except for the 1.5 margin at the top of the
5. Make 5 sample contracts ususally entered in business. In
Making these contracts, apply your knowledge in Law on Obligations
and Contracts usually in coming up with the terms, conditions and
stipulations in the Contract.
Minimum 5-page Reflective Essay and 5 Sample Business Contracts

Required Output
Essay
Assessment Task
Rubrics
Assessment Tool
organization.
(Sgd.) (Sgd.)

Revision #002
edited/rce, 6-27-20
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MODULE 4
Subtopic 2 Rescissible Contracts, Voidable Contracts,

Unenforceable Contracts, Void or Inexistent Contracts (Articles
1380-1422, Civil Code of the Philippines)
Learning Outcome:
1. Explain and Differentiate the different kinds of defective contracts and its corresponding
laws and rules.
2. Analyze the different remedies available to the parties affected in a defective contract
and the prescriptive period to assert the right.
3. Demonstrate the concept of ratification in a defective contract.
Course Contents:
Rescissible Contracts
ARTICLE 1380. Contracts validly agreed upon may be rescinded in the cases
established by law.
ARTICLE 1381. The following contracts are rescissible:

(1) Those which are entered into by guardians whenever the wards whom they
represent suffer lesion 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;
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(4) Those which refer to things under litigation if they have been entered into by
the defendant without the knowledge and approval of the litigants or of
competent judicial authority;
(5) All other contracts specially declared by law to be subject to rescission.
ARTICLE 1382. Payments made in a state of insolvency for obligations to whose

fulfillment the debtor could not be compelled at the time they were effected,
are also rescissible.
ARTICLE 1383. The action for rescission is subsidiary; it cannot be instituted

except when the party suffering damage has no other legal means to obtain
reparation for the same.
ARTICLE 1384. Rescission shall be only to the extent necessary to cover the
damages caused.
ARTICLE 1385. Rescission creates the obligation to return the things which
were the object of the contract, together with their fruits, and the price with its
interest; consequently, it can be carried out only when he who demands
rescission can return whatever he may be obliged to restore.
Neither shall rescission take place when the things which are the object of the
contract are legally in the possession of third persons who did not act in bad
faith.
In this case, indemnity for damages may be demanded from the person causing
the loss.
ARTICLE 1386. Rescission referred to in Nos. 1 and 2 of article 1381 shall not
take place with respect to contracts approved by the courts.
ARTICLE 1387. All contracts by virtue of which the debtor alienates property by
gratuitous title are presumed to have been entered into in fraud of creditors,
when the donor did not reserve sufficient property to pay all debts contracted
before the donation.
Alienations by onerous title are also presumed fraudulent when made by
persons against whom some judgment has been rendered in any instance or
some writ of attachment has been issued. The decision or attachment need not
refer to the property alienated, and need not have been obtained by the party
seeking the rescission.
In addition to these presumptions, the design to defraud creditors may be proved
in any other manner recognized by the law of evidence.
ARTICLE 1388. Whoever acquires in bad faith the things alienated in fraud of
creditors, shall indemnify the latter for damages suffered by them on account of
the alienation, whenever, due to any cause, it should be impossible for him to
return them.
If there are two or more alienations, the first acquirer shall be liable first, and so
on successively.
ARTICLE 1389. The action to claim rescission must be commenced within four
years.
For persons under guardianship and for absentees, the period of four years
shall not begin until the termination of the former’s incapacity, or until the
domicile of the latter is known.
1. RESCISSIBLE CONTRACTS – Those which have caused a particular economic

damage either to one of the parties or to a 3 rd person and which may be set aside
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even if valid. It may be set aside in whole or in part, to the extent of the damage
caused'
REQUISITES:
a. Contract must be rescissible (1) Under art 1381:
i. Contracts entered into by persons exercising fiduciary capacity
(a) Entered into by guardian whenever ward suffers damage by more
than 1/4 of value of object
(b) Agreed upon in representation of absentees, if absentee suffers
lesion by more than ¼ of value of property
(c) Contracts where rescission is based on fraud committed on
creditor (accion pauliana)
(d) Objects of litigation; contract entered into by defendant w/o
knowledge or approval of litigants or judicial authority (e)
Payment by an insolvent – on debts w/c are not yet due;
prejudices claim of others
(f) Provided for by law - art 1526, 1534, 1538, 1539, 1542, 1556, 1560,
1567 and 1659
ii. Under art 1382 - Payments made in a state of insolvency
b. Plaintiff has no other means to obtain reparation

b. Plaintiff must be able to return whatever he may be obliged to return due to
rescission
c. The things must not have been passed to 3rd parties who did not act in bad faith
d. It must be made within the prescribed period
OBLIGATION CREATED BY THE RESCISSION OF THE CONTRACT: Mutual

Restitution
1. Things w/c are the objects of the contract & their fruits
2. Price with interest
Note: Mutual restitution IS NOT APPLICABLE when:
1. creditor did not receive anything from contract

2. thing already in possession of party in good faith; subject to
indemnity only; if there are 2 or more alienations – liability of 1st
infractor
Voidable Contracts
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.
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These contracts are binding, unless they are annulled by a proper action in court.
They are susceptible of ratification.
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.
ARTICLE 1392. Ratification extinguishes the action to annul a voidable contract.
ARTICLE 1393. Ratification may be effected expressly or tacitly. It is

understood that there is a tacit ratification if, with knowledge of the reason
which renders the contract voidable and such reason having ceased, the person
who has a right to invoke it should execute an act which necessarily implies an
intention to waive his right.
ARTICLE 1394. Ratification may be effected by the guardian of the incapacitated

person.
ARTICLE 1395. Ratification does not require the conformity of the contracting
party who has no right to bring the action for annulment.
ARTICLE 1396. Ratification cleanses the contract from all its defects from the
moment it was constituted.
ARTICLE 1397. The action for the annulment of contracts may be instituted by
all who are thereby obliged principally or subsidiarily. However, persons who
are capable cannot allege the incapacity of those with whom they contracted;
nor can those who exerted intimidation, violence, or undue influence, or
employed fraud, or caused mistake base their action upon these flaws of the
contract.
ARTICLE 1398. An obligation having been annulled, the contracting parties shall
restore to each other the things which have been the subject matter of the
contract, with their fruits, and the price with its interest, except in cases
provided by law.
In obligations to render service, the value thereof shall be the basis for damages.
ARTICLE 1399. When the defect of the contract consists in the incapacity of one
of the parties, the incapacitated person is not obliged to make any restitution
except insofar as he has been benefited by the thing or price received by him.
ARTICLE 1400. Whenever the person obliged by the decree of annulment to

return the thing can not do so because it has been lost through his fault, he
shall return the fruits received and the value of the thing at the time of the loss,
with interest from the same date.
ARTICLE 1401. The action for annulment of contracts shall be extinguished

when the thing which is the object thereof is lost through the fraud or fault of
the person who has a right to institute the proceedings.
If the right of action is based upon the incapacity of any one of the contracting
parties, the loss of the thing shall not be an obstacle to the success of the
action, unless said loss took place through the fraud or fault of the plaintiff.
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ARTICLE 1402. As long as one of the contracting parties does not restore what
in virtue of the decree of annulment he is bound to return, the other cannot be
compelled to comply with what is incumbent upon him.
VOIDABLE CONTRACTS – intrinsic defect; valid until annulled; defect is

due to vice of consent or legal incapacity
CHARACTERISTICS:
c. Effective until set aside
d. May be assailed or attacked only in an action for that purpose
e. Can be confirmed ( Note: CONFIRMATION IS THE PROPER TERM
FOR CURING THE DEFECT OF A VOIDABLE CONTRACT)
f. Can be assailed only by the party whose consent was defective or his heirs or
assigns
WHAT CONTRACTS ARE VOIDABLE:

a. THOSE WHERE ONE OF THE PARTIES IS INCAPABLE OF GIVING
CONSENT TO A CONTRACT (legal incapacity)
(1)minors ( below 18 )
(2)insane unless acted in lucid interval
(3)deaf mute who can’t read or write
(4)persons specially disqualified: civil interdiction
(5)in state of drunkenness
(6)in state of hypnotic spell
b. THOSE WHERE THE CONSENT IS VITIATED BY MISTAKE,

VIOLENCE, INTIMIDATION, UNDUE INFLUENCE OR FRAUD (vice
of consent)
(1)mistake – false belief into something
REQUISITES:
1. Refers to the subject of the thing which is the object of the contract
2. Refers to the nature of the contract
3. Refers to the principal conditions in an agreement
4. Error as to person - when it is the principal consideration of the contract
5. Error as to legal effect - when mistake is mutual and frustrates the real
purpose of parties
(2)violence – serious or irresistible force is employed to wrest consent
(3)intimidation – one party is compelled by a reasonable & wellgrounded fear

of an imminent & grave danger upon person & property of himself, spouse,
ascendants or descendants (moral coercion)
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(4)undue influence – person takes improper advantage of his power
over will of another depriving latter of reasonable freedom of choice
(5)fraud – thru insidious words or machinations of contracting parties, other is

induced to enter into contract w/o w/c he will not enter (dolo causante)
PERIOD TO BRING ACTION FOR ANNULMENT

Intimidation, violence, undue 4 years from time defect of consent ceases
influence
Mistake, fraud 4 years from time of discovery
Incapacity from time guardianship ceases
EFFECTS OF ANNULMENT:
1. Obligation to give – mutual restitution
2. Obligation to do – value of service
PRESCRIPTION IN ACTION FOR ANNULMENT OF

VOIDABLE CONTRACTS:
Intimidation/Violence/undue 4 years from time defect of consent ceases
Influence
Mistake/Fraud 4 years from time of discovery
Contracts entered into by 4 years from time guardianship ceases

minors/incapacitated persons
Unenforceable Contracts
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 a 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
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goods and chattels, or the evidences, 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;
(e) An agreement for the leasing for a longer period than one year, or for the sale
of real property or of an interest therein;
(f) A representation as to the credit of a third person.
(3) Those where both parties are incapable of giving consent to a contract.
ARTICLE 1404. Unauthorized contracts are governed by article 1317 and the
principles of agency in Title X of this Book.
ARTICLE 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of

article 1403, are ratified by the failure to object to the presentation of oral
evidence to prove the same, or by the acceptance of benefits under them.
ARTICLE 1406. When a contract is enforceable under the Statute of Frauds, and
a public document is necessary for its registration in the Registry of Deeds, the
parties may avail themselves of the right under Article 1357.
ARTICLE 1407. In a contract where both parties are incapable of giving consent,
express or implied ratification by the parent, or guardian, as the case may be, of
one of the contracting parties shall give the contract the same effect as if only
one of them were incapacitated.
If ratification is made by the parents or guardians, as the case may be, of both
contracting parties, the contract shall be validated from the inception.
ARTICLE 1408. Unenforceable contracts cannot be assailed by third persons.
UNENFORCEABLE CONTRACT – valid but cannot compel its execution unless ratified;
extrinsic defect; produce legal efefcts only after ratified
KINDS/VARIETIES:
1. Unauthorized/No sufficient authority – entered into in the name of another when:
a. no authority conferred
b. in excess of authority conferred ( ultra vires )
Note: Curable by RATIFICATION
2. Both parties incapable of giving consent -2 minor or 2 insane persons
Note: Curable by ACKNOWLEDGEMENT
3. Failure to comply with Statute of Frauds

a. Agreement to be performed within a year after making contract
b. Special promise to answer for debt, default or miscarriage of another
c. Agreement made in consideration of promise to marry
d. Agreement for sale of goods, chattels or things in action at price not less than
500; exception: auction when recorded sale in sales book
,
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e. Agreement for lease of property for more than 1 year & sale of real property
regardless of price
f. Representation as to credit of another
2 WAYS OF CURING UNENFORCEABLE CONTRACTS:

1. Failure of defendant to object in time, to the presentation of parole
evidence in court, the defect of unenforceability is cured
2. Acceptance of benefits under the contract. If there is performance in either
part and there is acceptance of performance, it takes it out of
unenforceable contracts; also estoppel sets in by accepting performance,
the defect is waived.
Void or Inexistent Contracts
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.
ARTICLE 1410. The action or defense for the declaration of the inexistence of a
contract does not prescribe.
ARTICLE 1411. When the nullity proceeds from the illegality of the cause or object
of the contract, and the act constitutes a criminal offense, both parties being in
pari delicto, they shall have no action against each other, and both shall be
prosecuted. Moreover, the provisions of the Penal Code relative to the disposal
of effects or instruments of a crime shall be applicable to the things or the price
of the contract.
This rule shall be applicable when only one of the parties is guilty; but the
innocent one may claim what he has given, and shall not be bound to comply with
his promise.
ARTICLE 1412. If the act in which the unlawful or forbidden cause consists does
not constitute a criminal offense, the following rules shall be observed:
(1) When the fault is on the part of both contracting parties, neither may
recover what he has given by virtue of the contract, or demand the performance
of the other’s undertaking;
(2) When only one of the contracting parties is at fault, he cannot recover what
he has given by reason of the contract, or ask for the fulfillment of what has been
promised him. The other, who is not at fault, may demand the return of what he
has given without any obligation to comply with his promise.
,
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ARTICLE 1413. Interest paid in excess of the interest allowed by the usury laws
may be recovered by the debtor, with interest thereon from the date of the
payment.
ARTICLE 1414. When money is paid or property delivered for an illegal purpose,
the contract may be repudiated by one of the parties before the purpose has been
accomplished, or before any damage has been caused to a third person. In such
case, the courts may, if the public interest will thus be subserved, allow the party
repudiating the contract to recover the money or property.
ARTICLE 1415. Where one of the parties to an illegal contract is incapable of

giving consent, the courts may, if the interest of justice so demands allow
recovery of money or property delivered by the incapacitated person.
ARTICLE 1416. When the agreement is not illegal per se but is merely prohibited,
and the prohibition by the law is designed for the protection of the plaintiff, he
may, if public policy is thereby enhanced, recover what he has paid or delivered.
ARTICLE 1417. When the price of any article or commodity is determined by

statute, or by authority of law, any person paying any amount in excess of the
maximum price allowed may recover such excess.
ARTICLE 1418. When the law fixes, or authorizes the fixing of the maximum
number of hours of labor, and a contract is entered into whereby a laborer
undertakes to work longer than the maximum thus fixed, he may demand
additional compensation for service rendered beyond the time limit.
ARTICLE 1419. When the law sets, or authorizes the setting of a minimum wage
for laborers, and a contract is agreed upon by which a laborer accepts a lower
wage, he shall be entitled to recover the deficiency.
ARTICLE 1420. In case of a divisible contract, if the illegal terms can be separated
from the legal ones, the latter may be enforced.
ARTICLE 1421. The defense of illegality of contract is not available to third

persons whose interests are not directly affected.
ARTICLE 1422. A contract which is the direct result of a previous illegal contract,
is also void and inexistent.
VOID OR INEXISTENT – produces no legal effect
CHARACTERISTICS:
a. It produces no effect whatsoever either against or in favor of anyone
b. There is no action for annulment necessary as such is ipso jure. A judicial
declaration to that effect is merely a declaration
c. It cannot be confirmed, ratified or cured
d. If performed, restoration is in order, except if pari delicto will apply
e. The right to set up the defense of nullity cannot be waived
f. Imprescriptible
,
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g. Anyone may invoke the nullity of the contract whenever its juridical effects are
asserted against him
KINDS OF VOID CONTRACT:
1) Those lacking in essential elements: no consent, no object, no

cause (inexistent ones) – essential formalities are not complied with (
ex: donation propter nuptias – should conform to formalities of a
donation to be valid )
(a) Those w/c are absolutely simulated or fictitious – no cause
(b) Those which cause or object did not exist at the time of the
transaction – no cause/object
(c) Those whose object is outside the commerce of man – no object
(d) Those w/c contemplate an impossible service – no object (e)
Those w/c intention of parties relative to principal object of the
contract cannot be ascertained
2) Prohibited by law
(f) Those expressly prohibited or declared void by law - Contracts w/c violate
any legal provision, whether it amounts to a crime or not
3) Illegal/Illicit ones – Those whose cause, object or purpose is contrary

to law, morals, good customs, public order or public policy ; Ex:
Contract to sell marijuana
KINDS OF ILLEGAL CONTRACTS
CONTRACT CONSTITUTE CONTRACT DOES NOT

CRIMINAL OFFENSE CONSTITUTE CRIMINAL
OFFENSE BUT IS ILLEGAL OR
UNLAWFUL PER SE
Parties are in • No action for • No action for specific
pari delicto specific performance performance
• No action for restitution on • No action for restitution on
either side. The law will leave either side. The law will leave
you where you are you where you are
• Both shall be prosecuted • No confiscation

• Thing/price to be confiscated
in favor of government
,
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Only one party • No action for • No action for specific
is guilty specific performance performance
• Innocent party is entitled to • Innocent party is entitled to

restitution restitution
• Guilty party is not entitled to • Guilty party is not entitled to

restitution restitution
• Guilty party will be prosecuted

• Instrument of crime will be
PARI DELICTO DOCTRINE -both parties are guilty, no action against each
other; those who come in equity must come with clean hands; applies only to
illegal contracts & not to inexistent contracts; does not apply when a superior
public policy intervenes
EXCEPTION TO PARI DELICTO RULE
1. If purpose has not yet been accomplished & If damage has not been
caused to any 3rd person Requisites:
a) contract is for an illegal purpose

b) contract must be repudiated by any of the parties before purpose is
accomplished or damage is caused to 3rd parties
c) court believes that public interest will be served by allowing recovery

(discretionary upon the court ) – based on remorse; illegality is
accomplished when parties entered into contract; before it takes
effect – party w/c is remorseful prevents it
2. Where laws are issued to protect certain sectors: consumer protection,

labor, usury law
a) Consumer protection – if price of commodity is determined by
statute, any person paying an amount in excess of the maximum
price allowed may recover such excess
b) Labor – if law sets the minimum wage for laborers, any laborer who
agreed to receive less may still be entitled to recover the deficiency;
if law set max working hours & laborer who undertakes to work
longer may demand additional compensation
c) Interest paid in excess of the interest allowed by the usury law may
be recovered by debtor with interest from date of payment
3. If one party is incapacitated, courts may allow recovery of money,

property delivered by incapacitated person in the interest of justice;
pari delicto cannot apply because an incapacitated person does not
know what he is entering into; unable to understand the consequences
of his own action
,
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4. If agreement is not illegal per se but merely prohibited & prohibition is
designated for the protection of the plaintiff – may recover what he has
paid or delivered by virtue of public policy
MUTUAL RESTITUTION IN VOID CONTRACTS

General Rule: parties should return to each other what they have given
by virtue of the void contract in case where nullity arose from defect in
essential elements
1. return object of contract & fruits

2. return price plus interest
Exception: No recovery can be had in cases where nullity of contract arose

from illegality of contract where parties are in pari delicto; except:
a. incapacitated – not obliged to return what he gave but may recover

what he has given
b. other party is less guilty or not guilty.
8.
Learning Activity:
9.
Make 5 sample contracts ususally entered in business. In Making these contracts, apply
your knowledge in Law on Obligations and Contracts usually in coming up with the terms,
conditions and stipulations in the Contract.
,
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APPENDIX
Appendix 1 Rubric for Reflective Essay
CRITERIA SCORE
CONTENT/DEVELOPMENT - 20 POINTS
Reflective Essay has been concise and concrete in summarizing the relevant
learnings in the topics covered. It provides a short but comprehensive
synthesis of the topics covered. The Reflective Essay has been personal and it
has been related to actual personal experiences and business transactions.
ORGANIZATION - 5 POINTS
Reflective Essay is logically organized and well-structured displaying a
beginning, a body and a conclusion. Critical thinking skills are evident.
PRESENTATION/STYLE 5 POINTS
Writing is smooth, coherent and consistent with central idea. Sentences are
strong and expressive. Diction is consistent and words well chosen.
MECHANICS – 10 POINTS
Written work has no errors in word selection and use, sentence structure and
grammar, spelling, punctuation and capitalization.
TOTAL SCORE 40 points
Appendix 2 Rubric for 5 Sample Business Contracts
CRITERIA SCORE
CONTENT/DEVELOPMENT - 10 POINTS
Business Contracts have been concise and concrete in applying the legal
knowledge acquired in the subject.
ORGANIZATION - 3 POINTS
Business Contracts are logically organized and well-structured displaying a
beginning, a body and a conclusion. Critical thinking skills are evident.
PRESENTATION/STYLE 2 POINTS
Writing is smooth, coherent and consistent with central idea. Sentences are
strong and expressive. Diction is consistent and words well chosen.
MECHANICS – 5 POINTS
Written work has no errors in word selection and use, sentence structure and
grammar, spelling, punctuation and capitalization.
TOTAL SCORE 20 points
,
Ver 1

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LAW ON OBLIGATIONS AND

ATTY. REYMAR ENGLIS DICO, CPA, JD

College of Business Administration

Semester/Term: 1st Semester, AY 2020-2021

Course Delivery: Course Objectives:

II. Instructor’s Information

(Articles 11791230, The students are expected to

• Explain and evaluate the different • The students are expected to

• Online discussion through

Week 2 Minimum 5-page Reflective Essay 40 201-210 1.1 131-140 2.2

Week 3 Minimum 5-page Reflective Essay 40 196-200 1.2 121-130 2.3

Week 4 Minimum 5-page Reflective 60 191-195 1.3 111-120 2.4

Prepared by Reviewed by Approved by

(Sgd.) (Sgd.) (Sgd.)

LAW ON OBLIGATIONS AND CONTRACTS

10 | LAW 11 Law on Obligations and Contracts, RED

COURSE STUDY GUIDE TABLE OF CONTENTS

Introduction to Law, General Provisions, Natural Obligations,

Introduction to Law, General Provisions, Natural Obligations

Nature and Effect of Obligations (Articles 1163-1178, Civil

Different Kinds of Obligations and Modes of Extinguishing

Pure and Conditional Obligations, Obligations with a Period,

Payment or Performance, Loss of the Thing Due, Condonation

General Provisions and Essential Requisites, Title II, Law on

General Provisions, Title II, Law on Contracts (Articles

Essential Requisites of Contracts

Formalities of Contracts, Reformation and Interpretation of

Formalities of Contracts, Reformation, and Interpretation of

Rescissible Contracts, Voidable Contracts, Unenforceable

11 | LAW 11 Law on Obligations and Contracts, RED

Content Expert SAMUEL GLOVA III, CPA

Language Editor ANA MAE MAGBANUA, CPA

Design/Media Specialist NEIL CHURCHILL ANIÑON, CPA

12 | LAW 11 Law on Obligations and Contracts, RED

13 | LAW 11 Law on Obligations and Contracts, RED

Department Business Administration

Program Bachelor of Science in Accountancy

Course Code LAW 11

Course Title LAW ON OBLIGATIONS AND CONTRACTS

Credit Units/Hours 3.0

Introduction to Law, General Provisions, Natural Obligations, Sources,

1. Explain the Meaning of Law in General, its Characteristics, Subjects and

1. Why is Law important in business?

Learning Resources: Required References

14 | LAW 11 Law on Obligations and Contracts, RED

Required Output Minimum 5-page Reflective Essay

Date : Date : Date :

15 | LAW 11 Law on Obligations and Contracts, RED

Subtopic 1 Introduction to Law, General Provisions, Natural

THE THREE BRANCHES OF GOVERNMENT

a. Executive – ensures that laws are enforced; has a Quasi-Judicial and

16 | LAW 11 Law on Obligations and Contracts, RED

By the principle of Equality of Powers, each branch of the Government is said to

17 | LAW 11 Law on Obligations and Contracts, RED

What is Law, then?

The following then are the Characteristics of Law.

3. It is for common observance and towards the achievement of common