Obligations

And
Contracts
Module 1
Obligations and Contracts

Obligations
1. Define obligation.

It is a juridical necessity to give, to do or not to do.

2. Explain briefly the meaning of juridical necessity.

Obligation is a juridical necessity because in case of non-performance, its

enforcement may be demanded through the courts, or in default thereof, the economic
value of the obligation.

3. State the essential requisites of an obligation.

1. A passive subject – the person to perform the obligation;

2. An active subject – the person who can demand performance;
3. Object or prestation – the subject matter of the obligation which may consist
in giving, doing, or not doing;
4. A juridical or legal tie – that which binds or connects the parties to the
obligation. It is also called efficient cause.

4. What are the kinds of obligation according to subject matter?

1. Real obligation – one which requires the delivery of the subject matter by the
obligor to the obligee;
2. Personal obligation – one in which the subject matter is either an act to be
done or not to be done.

5. What are the kinds of obligation according to enforceability?

1. Civil
2. Natural

6. What are the sources of obligation?

1. Law – when it is imposed by the law itself such as the duty to pay taxes,
obligation to support.
2. Contracts – when the obligations arise from the agreement of the parties.
3. Quasi-contracts – when the obligation arises from certain lawful, voluntary
and unilateral acts and which may be enforced to preclude unjust enrichment
at the expense of another.
4. Delicts (crimes or acts or omissions punished by law) – when the obligation
arises from a civil liability which is the result of a criminal offense.
5. Quasi-delicts or torts – when the obligation arises from an act or omission
causing damage to another there being fault or negligence, but no contractual
relation between the parties.

7. Give an example of obligation arising from contracts, quasi-contracts, delicts, and

quasi-delicts.

1. Contracts – The obligation to repay a loan by virtue of an agreement.

2. Quasi-contracts – The obligation to return money paid by mistake.
3. Delicts – The duty of a thief to return the thing stolen or the duty of a killer to
indemnify the heirs of the victim.
4. Quasi-delicts – The duty of the driver to pay damages to the victim caused
by his negligent act.

8. Give the distinctions between obligation and contract.

1. An obligation is the result of a contract, while not all obligations come from
contracts;
2. In contracts, there must be a meeting of the minds between the parties,
while in obligation, this is not necessary.

9. Give the distinctions between civil and natural obligations.

1. Civil obligation is based on positive law, while natural obligation is based on

equity or natural law;

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2. Civil obligation is enforceable in a court of justice, while natural obligation is

not although in case of voluntary fulfillment by the debtor, he cannot recover
what has been delivered or rendered by reason thereof.

10. Give the distinctions between contract and quasi-contract.

1. A contract presupposes a meeting of minds between the parties, while a

quasi-contract does not;
2. A contract may arise either from law or agreement of the parties, while a
quasi-contract arises only from law.

11. Define quasi-contract.

It 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.

12. What are the kinds of quasi-contracts?

The principal kinds of quasi-contracts are:

1. Negotiorum gestio – it is the voluntary management of the property or affairs
of another without the knowledge or consent of the latter.
2. Solutio indebiti – it is the juridical relation which is created when something is
received when there is no right to demand it and it was delivered through
mistake.

13. Define delict and quasi-delict.

1. Delict – it is an act or omission punished by law.

2. Quasi-delict – it is an act or omission by a person which causes damage to
another giving rise to an obligation to pay for the damage done, there being
fault or negligence but there is no pre-existing contractual relation between
the parties.

14. Give the distinction between delict and quasi-delict.

1. In delict, there is malicious intent or criminal negligence, while in quasi-delict,

there is only negligence;
2. Delict give rise both criminal and civil liability, while quasi-delict gives rise
only to civil liability;
3. In delict, the guilt of the accused must be proved beyond reasonable doubt,
while in quasi-delict, the fault or negligence need to be proved only by
preponderance of evidence;
4. In delict, the purpose is punishment of the accused, while in quasi-delict, the
purpose is the indemnification of the offended party;
5. The liability for criminal offense cannot be compromised because it affects
public interest, while the liability for quasi-delict can be compromised
because it concerns private interest.

15. Give the meaning of a specific or determinate thing and a generic or indeterminate
thing.

1. Specific or determinate thing – when it is particularly designated or physically

segregated from all others of the same class.
2. Generic or indeterminate thing – when it refers only to a class or genus.

16. What are the obligations of an obligor in an obligation to give a determinate thing?

1. To preserve the thing with the diligence of a good father of a family;

2. To deliver the thing itself;
3. To deliver the accessions and a accessories;
4. To answer for damages in case of non-fulfillment or breach of the obligation.
5. To deliver the fruits.

17. What are the duties of a debtor in an obligation to deliver a generic thing?

1. To deliver a thing which is of the quality intended by the parties having in

mind the purpose of the obligation and other circumstances;

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2. To pay damages in case of fraud, negligence, or delay, in the performance of

his obligation, or contravention of the tenor thereof.

18. State the remedies of a creditor in case of failure by the debtor to comply with his
obligation to deliver a specific thing.

1. To demand specific performance with a right to indemnity for damages;

2. To demand rescission or cancellation in certain cases, of the obligation also
with a right to damages;
3. To demand damages only.

19. State the remedies of a creditor in case of failure by the debtor to comply with his
obligation to deliver a generic thing.

1. To ask that the obligation be complied with at the expense of the debtor;
2. To demand damages.

20. Give the different standards of care.

1. Extraordinary – the diligence of very cautious man having due regard for all
the circumstances;
2. Ordinary – that diligence which an average person exercises over his own
property, or the diligence of a good father of a family.

21. Define fruits. What are the kinds of fruits?

Fruits – refer to natural, industrial and civil fruits.

The kinds are:
1. Natural Fruits – are the spontaneous products of the soil, and the young and
other products of animals;
2. Industrial Fruits – are those produced by lands of any kind through cultivation
or labor;
3. Civil Fruits – are those derived by virtue of a juridical relation such as the
rents of buildings, the price of leases of land and other properties or the
amount of perpetual or life annuities or other similar income.

22. State the duties of an obligor in a personal obligation to do.

1. To perform the obligation by himself or by another, unless the obligation is

personal;
2. If he fails to do it, the same shall be executed at his cost;
3. If done in contravention of the tenor of the obligation, it shall be undone also
at his expense;
4. If poorly done, it shall be undone and redone at his expense.

23. State the duties of an obligor in a personal obligation not to do.

1. Not to do the negative personal obligation,

2. If done, it shall be undone at his expense.

24. Define ordinary delay and legal delay or default.

1. Ordinary delay – it is the failure to perform an obligation on time;

2. Legal delay or default – it is the failure to perform an obligation on time which
failure constitute a breach of the obligation.

25. What are the requisites of legal delay or default?

1. The debtor fails to perform his obligation on the date agreed upon;
2. A demand by the creditor upon the debtor to comply with his obligation was
made judicially or extra judicially;
3. The debtor fails to comply with such demand.

26. What are the kinds of delay (mora)?

1. Mora solvendi – delay of the debtor to fulfill his obligation;

2. Mora accipiendi – delay of the creditor to accept performance of obligation;

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3. Compensatio morae – delay of the obligors in reciprocal obligations. The

result is that the delay of one party cancels the delay of the other and vice
versa.

27. What are the effects of mora solvendi?

1. There is breach of the obligation;

2. The debtor is liable for interest and damages;
3. The debtor is liable even for fortuitous event when the obligation is to deliver
a determinate thing.

28. Enumerate the cases when demand is not necessary to put the debtor in delay.

1. When the obligation or the law expressly so declares;

2. When time is of the essence;
3. When demand would be useless;
4. In reciprocal obligations, when a party has perform his obligation.

29. State the grounds for liability which may entitle the injured party to damages. Define
each of them.

1. Fraud or dolo – It is the deliberate or intentional evasion of the normal

fulfillment of an obligation;
2. Negligence or culpa – It is any voluntary act or omission, there being no
malice, which prevents the normal fulfillment of an obligation;
3. Delay or mora – already defined above;
4. Contravention of the terms of the obligation – This refers to the violation of
the terms and conditions of the obligation.

30. What are the kinds of fraud?

1. Incidental fraud (dolo incidente) – refers to fraud committed in the

performance of a pre-existing obligation; and
2. Causal fraud (dolo causante) – refers to fraud employed in the perfection of a
contract which vitiates consent.

31. Give the distinctions between dolo incidente and dolo causante.

1. In dolo incidente, the fraud occurs at or during the performance of the

obligation; while in dolo causante, it occurs at the time of perfection of the
contract;
2. Dolo incidente is employed to evade the normal performance of an obligation,
while dolo causante is employed to induce a party to enter into a contract.
3. Dolo incidente results in a breach of the obligation, while in dolo causante, in
the vitiation of consent;
4. In dolo incidente, the injured party may recover damages, while in dolo
causante, the innocent party may ask for annulment.

32. Give the distinctions between fraud and negligence.

1. In fraud, the intention to cause damage or injury in intentional, while in

negligence, there is no such intention;
2. A waiver for future fraud is void, while such a waiver may be allowed in
negligence;
3. Fraud must be clearly proved, while negligence is presumed from the breach
of a contract; and
4. In fraud, the court has no authority to mitigate a liability for fraud, while in
negligence; such liability may be reduced according to the circumstances.

33. What is the meaning of negligence?

The fault or negligence of the obligor consists in the omission of that diligence
which is required by the nature of the obligation and corresponds with circumstances of the
person, of the time and of the place.

34. What are the kinds of diligence?

1. Express – the stipulated by the parties, orally or in writing;

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2. Implied – that which can be inferred from the express diligence;

3. Presumed – that which can be deducted from the circumstances;
4. In the absence of stipulation, that required by law in the particular case like
extraordinary diligence for common carriers;
5. In the absence of stipulation in the contract and the law, then the diligence of
a good father of a family.

35. Define fortuitous event.

It is any event which cannot be foreseen; or which, though foreseen, is inevitable.

36. Is there a distinction between fortuitous event and force majeure?

Yes. However, fortuitous events and force majeure are identical in the sense they
exempt an obligor from liability.

Fortuitous event is an event independent of the will of the obligor but not of other
human wills, e.g. war, fire, robbery, murder, etc., while force majeure are events which are
totally independent of the will of every human being like flood, rain, shipwreck, earthquake,
etc.

37. What are the remedies of a creditor in case the debtor does not comply with his
obligation?

1. Exact fulfillment with the right to damages;

2. Pursue the property of the debtor not exempt from attachment;
3. Exercise all the rights and bring all the actions of the debtor except those
inherent in his person (Action subrogatoria);
4. Impugn the acts which the debtor may have done to defraud them (Action
pauliana).

38. Are the rights acquired by virtue of an obligation transmissible?

Yes, as a general rule, all rights acquired in virtue of an obligation are

transmissible, except in the following cases:

1. When prohibited by law; and

2. When prohibited by stipulation of the parties.

39. Give the classification of obligations under the Civil Code.

1. Pure and conditional obligations

2. Obligations with a period
3. Alternative and facultative obligations
4. Joint and solidary obligations
5. Divisible and indivisible obligations
6. Obligations with a penal clause

40. Define each of the above obligations.

1. Pure obligation – one which is not subject to any condition, term or period for
its fulfillment, and therefore, it is immediately demandable.
2. Conditional obligation – one whose effectivity or extinguishment depends
upon the fulfillment of a condition.
3. Obligation with a period – one whose effectivity or extinguishment depends
upon the expiration of a period or term.
4. Alternative obligation – one where a person is alternatively bound by different
presentations but the performance of one is sufficient.
5. Facultative obligation – one where only one presentation has been agreed
upon, but the obligor may render another in substitution.
6. Joint obligation – one where the whole obligation is to be paid proportionately
by the different debtors and/or to be demanded proportionately by the
different creditors.
7. Solidary obligations – one where each one of the debtors is required to
render, and/or each one of the creditors can demand from any of the debtors’
entire compliance with the presentation.
8. Divisible obligation – one where the subject matter is capable or partial
fulfillment.

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9. Indivisible obligation – one where the subject matter is not capable or partial
fulfillment.
10. Obligations with a penal clause – one which contains an accessory
undertaking to assume greater liability in case of breach.

41. What is the meaning of condition?

It is a future and uncertain event, upon the happening of which, the effectivity or
extinguishment of an obligation subject to it depends.

42. What are the two principal kinds of conditions?

1. Suspensive condition – one which suspends the demandability of the

obligation until the happening of the uncertain event which constitute the
condition.
2. Resolutory condition – one the fulfillment of which has the effect of
extinguishing an obligation.

43. Give the distinctions between suspensive and resolutory conditions.

1. Suspensive condition suspends the effects of an obligation, while resolutory

condition resolves the obligation upon the happening of the condition;
2. Fulfillment of the suspensive condition gives rise to an obligation, while
fulfillment of the resolutory condition extinguishes an obligation;
3. Pending the happening of the suspensive condition, the existence of the
condition is a mere hope, while in the second, its effects flow, but there is the
possibility of termination.

44. State the cases where an obligation is demandable at once.

1. When it is pure;
2. When it is subject to a resolutory condition;
3. When it is subject to a resolutory period.

45. Define potestative condition. What is its effect?

It is a condition suspensive in nature and which depends upon the sole will of the
debtor.

46. Define causal condition. What is its effect?

It is a condition suspensive in nature and which depends upon chance or upon

the will of a third person.
This condition is valid.

47. Name the two kinds of impossible conditions.

1. Physically impossible conditions – those which in the nature of things are not
susceptible of coming into existence or being done.
2. Legally impossible conditions – those contrary to law, morals, good customs,
public order, or public policy.

48. What are the kinds of loss?

1. Physical loss – when a thing perishes;

2. Legal loss – when a thing goes out of commerce;
3. Civil loss – when a thing disappears in such a way that its existence is
unknown, or even if known, it cannot be recovered.

49. What are the effects of fulfillment of a resolutory condition?

1. In an obligation to give, the fulfillment of the resolutory condition extinguishes
the obligation, and the parties shall return to each other what they have
received. The effects of the fulfillment of the condition are retroactive.
2. In an obligation to do or not to do, it is the duty of the courts to determine the
retroactive effect of the fulfillment of the resolutory condition.

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50. Define reciprocal obligations.

Those which arise from the same cause and the performance of one is designed
to be the equivalent and the condition for the performance of the other.

51. What are the remedies in reciprocal obligations?

1. To demand fulfillment of the obligation with damages; or

2. To demand rescission of the obligation with damages.
The remedies of the injured party are alternative, subject to the exception that if
he has chosen fulfillment and it becomes impossible, then he can still seek rescission.

52. Give the kinds of negligence according to source of obligation?

1. Contractual negligence (culpa contractual) or negligence in contracts

resulting in their breach. This is not a source of obligation but it makes the
debtor liable for damages by reason of his negligence in the performance of a
pre-existing obligation;
2. Civil negligence (culpa aquiliana) or negligence which is a source of
obligation between the parties not bound by a pre-existing contract. The
other term is tort or quasi-delict;
3. Criminal negligence (culpa criminal) or negligence resulting in the
commission of a crime.

53. What is a period?

It is a day certain which must necessarily come, although it may not be known
when. The arrival of the period determines either the demandability of an obligation or its
termination.

54. What are the differences between a period and a condition?

1. The former is a certain event, while the latter, is an uncertain event;

2. The former refers only to the future, while a condition may refer to a past
event unknown to the parties;
3. The former determines the effectivity of an obligation, while the latter, will
determines the birth or the termination of an obligation;
4. The court may fix the duration of a period when it depends upon the will of
the debtor, while a condition which depends upon the sole will of the debtor
will invalidate the obligation;
5. In the former, there is no retroactive effect, unless there is an agreement to
the contrary, while in the latter, the happening of a condition has retroactive
effect.

55. Classify period. Define each of them.

1. According to effect:
A. Suspensive period (ex die) – the obligation becomes effective upon
the arrival of a day certain which has been fixed; and
B. Resolutory period (in diem) – the obligation takes effect at once but
terminates upon the arrival of the day certain.

2. According to source:
A. Legal – when it is provided by law;
B. Voluntary – when it arises from the stipulation of the parties;
C. Judicial – when it is fixed by the court.

3. According to definiteness:
A. Definite – when the term is fixed;
B. Indefinite – when the term is not fixed.

56. For whose benefit is a period established? Cite the exception.

If a period has been fixed by the parties in an obligation, such period is presumed
to be for the benefit of both the creditor and the debtor.
The exception is when the tenor of the obligation or the circumstances shows
that it was the intention of the parties to establish the period for the benefit of either the
debtor or the creditor.

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57. State the rules when the period has been established for the benefit of the debtor and
of the creditor.

1. If the period has been established for the benefit of the debtor, he cannot be
compelled to pay before the arrival of the term, but he can, if he desires to do
so.
2. If the period has been established for the benefit of the creditor, he may
demand fulfillment even before the arrival of the term but the debtor cannot
compel him to accept payment before the expiration of the period.

58. Differentiate alternative from facultative obligation.

1. In the former, there are several prestations due but, fulfillment of one is
sufficient, while in the latter, there is only one prestation due but, the debtor
may render another in substitution;
2. In the former, the right of choice belongs to the creditor or third person, while
in the latter; the right of choice belongs to the debtor;
3. In the former, the loss of one or more of the prestations alternatively due by
fortuitous event does not extinguish the obligation, while in the latter, the loss
of the prestation due extinguishes the obligation;
4. In the former, the loss of one of the alternative prestations through the
debtor’s fault does not make him liable, while in the latter, the loss of the
thing due through the fault of the debtor makes him liable;
5. In the former, the loss of one alternative prestation through the debtor’s fault
makes him liable if the choice belongs to the creditor, while in the latter, the
loss of the substitute before the substitution through the fault of the debtor
does not make him liable.

59. Who has the right of choice in alternative obligation?

Generally, the debtor has the right to choose the prestation.

The exceptions are:
1. When it has been expressly granted to the creditor; and
2. When it has been granted to a third person by common agreement.

60. State the rules governing the responsibility of the debtor when the right of choice
belongs to the creditor.

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.
Until then the responsibility of the debtor shall be governed by the following rules:
1. If one of the things is lost through a fortuitous event, he shall perform the
obligation by delivering that which the creditor should choose from among the
remainder, or that which remains if only one subsists;
2. If the loss of one of the things occurs through the fault of the debtor, the
creditor may claim any of those subsisting, or the price of that which, through
the fault of the former, has disappeared, with a right to damages;
3. If all the things are lost through the fault of the debtor, the choice by the
creditor shall fall upon the price of any one of them, also with indemnity for
damages.

61. State the kinds of solidarity.

1. According to parties:
A. Passive – solidarity on the part of the debtors. Any one of the debtors can be
made to comply with the entire obligation;
B. Active – solidarity on the part of the creditors. Any one of the creditors can
demand the fulfillment of the entire obligation;
C. Mixed – solidarity on the part of both debtors and creditors. Each one of the
debtors is liable to render, and each one of the creditors can demand, entire
compliance with the obligation.

2. According to source:
A. Legal – solidarity is provided by law;
B. Conventional – solidarity is stipulated by the parties;
C. Real – solidarity is imposed by the nature of the obligation.

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3. According to tie:
A. Uniform – when the parties are bound by the same stipulations or clauses;
B. Non-uniform – when the parties are not bound by the same stipulations or
clauses.

62. Give the requisites of joint obligation and of solidary obligation.

1. Requisites of a joint obligation:

A. Plurality of parties
B. Specification of the share of each in the obligation

2. Requisites of solidary obligation:

A. Plurality of parties
B. Unity of prestation
C. Internal relationship between debtors and creditors.

63. How do joint debtors share in the obligation?

1. If the share of each in the obligation is specified, such agreement prevails.

2. If the share of each in the obligation is not specified, then the credit or debt
shall presumed to be divided into as many equal shares as there are
creditors or debtors, the credits or debts being considered distinct from one
another, subject to the Rules of Court governing the multiplicity of suits.

64. What is the effect of payment by a solidary debtor?

Payment made by one of the solidary debtors extinguishes the obligation. If two
or more solidary debtors offer to pay, the creditor may choose which offer to accept.
He who made the payment may claim from his co-debtors only the share which
corresponds to each, with the interest for the payment already made. If the payment is made
before the debt is due, no interest for the intervening period may be demanded.
When one of the solidary debtors cannot, because of his insolvency, reimburse
his share to the debtor paying the obligation, such share shall be borne by all his co-debtors,
in proportion to the debt of each.
As regards the solidary creditors, the receiving creditor is jointly liable to the
others for their corresponding shares.

65. What are the kinds of division?

1. Qualitative division – one based on quality rather than quantity. Example: X
and Y are heirs of Z. A inherits a house and lot and home appliances, while Y
inherits a banana plantation and a certificate of stock.
2. Quantitative division – one based on quantity rather on quality. When the
inheritance consists only of a certain parcel of land, the partition of such land
by meters and bounds partakes of the nature of a quantitative division.
3. Ideal or intellectual division – one which takes place only in the minds of the
parties, not physically. Example: co-ownership.

66. What are the purposes of a penal clause?

1. To insure the performance of an obligation;

2. To determine the amount of damages to be awarded in case of breach;
3. To punish the obligor in case of non-compliance.

67. Give the distinctions between a penal clause and a condition.

1. A penal clause is an accessory obligation, while a condition is not;

2. A penal clause becomes demandable in case of non-compliance, while
condition is never demandable.

68. What are the kinds of penal clause?

1. Legal penal clause – when it is provided by law;

2. Conventional penal clause – when it is provided by agreement of the parties;
3. Compensatory penal clause – when the penalty takes the place of damages;
4. Punitive penal clause – when it is imposed as a punishment;
5. Subsidiary or alternative penal clause – when only the penalty can be
imposed;

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6. Joint or cumulative penal clause – when both the principal obligation and the
penalty can be enforced.

69. When may interest and damages be recovered in addition to the penalty?

In an obligation with a penal clause, the general rule is that the penalty
substitutes the indemnity for damages and the payment of interest in case of non-
compliance. However, the creditor, in addition to the penalty, may recover damages and
interests in the following cases:

1. When the obligor refuses to pay the penalty;

2. When it is stipulated by the parties; and
3. When the obligor is guilty of fraud in the fulfillment of the obligation.

70. Give the instances where the penalty may be reduced by the courts.

1. When there is partial or irregular performance; and

2. When the penalty is iniquitous or unconscionable.

71. What are the effects of the nullity of the penal clause and of the principal obligation?

1. The nullity of the penal clause does not carry with it that of the principal
obligation.
2. The nullity of the principal obligation carries with it that of the penal clause.

72. Enumerate the modes of extinguishing obligations.

1. by the payment or performance;

2. by the loss of the thing due;
3. by the confusion or merger of the rights of creditor and debtor;
4. by compensation;
5. by novation.

73. What are the other causes of extinguishment of obligation?

1. Annulment;
2. Rescission;
3. Fulfillment of resolutory condition;
4. Prescription;
5. Death of a party in case of personal obligation;
6. Mutual desistance or withdrawal;
7. Arrival of a resolutory period;
8. Compromise;
9. Impossibility of fulfillment; and
10. Happening of a fortuitous event.

74. Define payment.

It means not only the delivery of money but also the performance, in any other
manner, of an obligation. Payment and performance are synonymous.

75. State the instances when partial performance may be allowed.

1. When there is agreement by the parties;

2. When the debt is in part liquidated and in part unliquidated;
3. When the different prestations in which the obligation consists are subject to
different terms or conditions.

76. Which is incomplete or irregular performance deemed payment?

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.

77. May a third person pay for a debtor?

Yes, if agreed to by the parties.

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78. Discuss the effect of payment made by a third person.

1. If payment has been made without the knowledge or against the will of the
debtor, recovery by the payer is allowed insofar as the payment has been
beneficial to the debtor. This means that the payer can recover only the
amount of debt at the time of payment.
2. If payment has been made with the knowledge of the debtor, the payer is
entitled to reimbursement and subrogation.

79. Give the distinctions between domicile and residence.

Domicile is the place of a person’s habitual residence, the place where he has
his true fixed permanent home and to which place he, whenever he is absent, has the
intention of returning.
Residence is only an element of domicile. Residence requires bodily presence as
an inhabitant in a given place, while domicile (or legal residence) requires bodily presence in
that place and also an intention to make it one’s domicile.

80. Name the four special forms of payment.

1. Dation in payment or dacion en pago;

2. Application of payment;
3. Payment by cession; and
4. Tender of payment and consignation.

81. Define dacion en pago.

It is the conveyance of ownership of a thing as an accepted equivalent of

performance.

82. Differentiate dacion en pago from payment by cession.

1. In dation, there is but one creditor, while in cession, there are several
creditors;
2. Dation does not require the insolvency of the debtor, while insolvency is
required in cession;
3. Dation refers only to particular property of the debtor, while cession refers to
all the property of the debtor;
4. In dation, the creditor becomes the owner of the thing given by the debtor,
while in cession, the creditors acquire the right to sell the thing and apply the
proceeds to their credits pro rata.

83. Define application of payments.

It 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.

84. State the rules on application of payments.

1. The debtor must indicate at the time of payment which particular debt is
being paid. He has the first choice;
2. If there is no specification by the debtor, the creditor may designate in the
receipt as to which debt payment is being made;
3. In the absence of any specification made by the creditor, then the debt which
is most onerous to the debtor among those due shall be deemed to have
been satisfied;
4. If the debts due are of the same nature and burden, the payment shall be
applied pro rata.

85. Define payment by cession.

It is the assignment or abandonment of all the properties of the debtor for the
benefit of his creditors in order that the latter may sell the same and apply the proceeds
thereof to the satisfaction of their credits.
86. State the requisites of payment by cession.

1. There must be several creditors;

2. The debtor must be insolvent; and

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3. The cession must be accepted by the creditors.

87. State the effect of payment by cession.

The debtor is released from his obligation to the extent of the net proceeds of the
sale of the property assigned, unless there is an agreement to the contrary. There is
therefore, the possibility of a liability by the debtor if there be a balance.

88. Differentiate payment by cession from insolvency.

1. Payment by cession is voluntary and requires the consent of all the debtors,
while insolvency refers to the legal assignment which is governed by the
Insolvency Law;
2. Payment by cession is extra-judicial, while insolvency is judicial.

89. Define tender of payment. Define consignation.

1. Tender of payment – is the offer of payment on the part of the debtor coupled
with the existence and possession of the thing or amount due.
2. Consignation – is the delivery of the thing or amount due to the proper court
by the debtor when the creditor does not desire or cannot receive it, after
complying with the formalities required by law.

90. Distinguish tender of payment from consignation.

1. Tender of payment is the preparatory act, while consignation is the principal

act;
2. Tender of payment is by its nature extra-judicial, while consignation is always
judicial and as a rule requires a prior tender of payment.

91. Give the requisites of (a) valid tender of payment, and (b) valid consignation.

A. Requisites for a valid tender of payment are:

1. It must comply with the rules on payment;
2. It must be unconditional and for the whole amount; and
3. It must be actually made.

B. Requisites for a valid consignation are:

1. Existence of a valid debt which is due;
2. Tender of payment by the debtor and refusal by the creditor without justifiable
reason;
3. Previous notice of consignation to persons interested in the fulfillment of the
obligation;
4. Consignation of the thing or sum due; and
5. Subsequent notice of consignation made to the interested parties.

92. When is a thing considered lost?

When it perishes, or goes out of commerce or disappears in such a way that its
existence is unknown and cannot be recovered.

93. Specify the instances when the loss of the thing will extinguish an obligation.

1. When the obligation is to deliver a specific thing;

2. When the loss of the thing occurs without the fault of the debtor; and
3. When the debtor is not guilty of delay.

94. Specify the instances when the loss of the thing will not extinguish as obligation.

1. When the law so provides;

2. When agreed to by the parties;
3. When the nature of the obligation requires the assumption of risk;
4. When the obligation to deliver a specific thing arises from a crime;
5. When the loss occurs after the debtor incurs in delay;
6. When the obligation is to deliver a generic thing;
7. When the debtor promised to deliver the same thing to two or more persons
who do not have the same interest.

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95. Define condonation or remission. Give its requisites.

It is the gratuitous abandonment by the creditor of his right against the debtor.
The requisites are:
1. It must be gratuitous;
2. The obligation must be demandable at the time of remission;
3. The parties must have capacity;
4. The obligor must accept the remission;
5. It must not be inofficious;
6. If made expressly, the same must comply with the formalities of a donation.

96. State the kinds of condonation or remission.

1. Complete – if it relates to the entire obligation;

2. Partial – if it does not cover the entire obligation;
3. Express – if made either verbally or in writing;
4. Implied – if it can be inferred from the conduct;
5. Inter vivos – if it takes effect during the lifetime of the donor;
6. Mortis causa – if it takes effect upon the death of the donor.

97. Give instances of implied condonation or remission.

1. The delivery of a private document evidencing a credit, made voluntarily by

the creditor to the debtor.
2. If 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.

98. Define confusion or merger. Give its requisites.

Confusion or merger is the meeting in one person of the qualities of creditor and
debtor with respect to the same obligation.
The requisites are:
1. The meeting of qualities must be between the principal debtor and creditor;
2. The confusion must be complete.

99. Give the effect of confusion or merger.

It extinguishes the obligation because enforcement is absurd.

100. Define compensation. Give the requisites of legal compensation.

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.

The requisites of legal compensation are:

1. That each one of the obligors be bound principally, and that he be at the
same time a principal creditor of the other;
2. That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the
latter has been stated;
3. That the two debts be due;
4. That they be liquidated and demandable;
5. That over neither of them there be any retention or controversy, commenced
by third persons and communicated in due time to the debtor.

101. What are the kinds of compensation?

1. Total – when both debts are of the same amount and are completely
extinguished;
2. Partial – when the two obligations are of different amounts and a balance
remains;
3. Legal – when it takes place by operation of law even if the parties are not
aware of it;
4. Voluntary – when it takes place by stipulation of the parties;
5. Judicial – when it takes place by order of the court;
6. Facultative – when set up by one party who has a right to effect
compensation.

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102. Distinguished compensation from confusion.

1. In compensation there are two persons each of whom is an obligor and

obligee of the other, while in confusion there is only one person in whom is
merged the qualities of creditor and debtor;
2. In compensation, there are two obligations, while in confusion, there is one
obligation;
3. In compensation, there is indirect payment, while in confusion, there is
impossibility of payment.

103. Enumerate the obligations that are not compensable.

1. If it arises from a depositum;

2. If it arises from a commodatum;
3. If it arises from a claim for support due by gratuitous title;
4. It if consists in civil liability arising from a penal offense.

104. Define novation. How is novation affected?

Novation is the substitution or alteration of an obligation by a subsequent one

that cancels or modifies the one preceding.

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 right of the creditor.

105. What are the requisites of a valid novation?

1. A previous valid obligation;

2. Capacity of the parties;
3. The modification or extinguishment of the obligation; and
4. The creation of a new valid obligation.

106. What are the kinds of novation?

1. Legal – takes place by operation of law;

2. Conventional – takes place by stipulation of the parties;
3. Express – when declared in unequivocal terms;
4. Implied – when the old and the new obligations are essentially incompatible
with each other;
5. Total or extinctive – when the old obligation is completely extinguished;
6. Partial or modificatory – when the old obligation is merely modified;
7. Real and objective – when the object or principal conditions are changed;
8. Personal or subjective – when the person of the debtor is substituted and/or
when a third person is subrogated in the rights of the creditor;
9. Mixed – when the object and the debtor or the creditor, or both the parties,
are changed.

107. Give the kinds of substitution.

1. Expromision – takes place when a third person of his own initiative and
without the knowledge or against the will of the original debtor assumes the
latter’s obligation with the consent of the creditor.
2. Delegacion – takes place when the creditor accepts a third person to take the
place of the debtor at the instance of the latter. The creditor may withhold
approval. It requires the consent of all the parties, the old debtor, the new
debtor, and the creditor.

108. Distinguish expromision from delegacion.

1. In expromision, the initiative comes from the new debtor, while in delegacion,
from the old debtor;
2. In expromision, the payment by the new debtor gives him the right to
beneficial reimbursement, while in delegacion, the payment made with the
consent of the original debtor or on his own initiative gives the new debtor the
right to demand reimbursement and subrogation;

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3. In expromision, the new debtor’s insolvency or non-fulfillment of the

obligation will not revive the action of the creditor against the old debtor, while
in delegacion, revival of the action may arise.

109. What are the kinds of subrogation?

1. Conventional – takes place by agreement of the parties;

2. Legal – takes place by operation of law.

110. Give the requisites of a conventional subrogation.

The consent of all the parties is required, that is, the debtor, the new creditor, and
the old creditor.

111. Enumerate the cases of 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.

112. State the effect of subrogation.

Subrogation transfers to the person subrogated the credit with all the rights
thereto appertaining, either against the debtor or against third persons, be they guarantors
or possessors of mortgages, subject to stipulation in a conventional subrogation.

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Contracts
1. Define contract.

A contract is a meeting of minds between two persons where by one binds

himself, with respect to the other, to give something or to render some service.

2. Distinguish contract from obligation.

Contract is one of the sources of obligations, while obligation is the legal tie.
There can be no contract if there is no obligation. An obligation, however, may exist without
a contract.

3. Give the limitations on contractual stipulations.

1. Law – the stipulation of the parties must be in accordance with the applicable
statute;
2. Police power – the contract must not contravene morals, good customs,
public order, or public policy.

4. What are the elements of a contract?

1. Essential elements – those which are necessary for the existence of a

contract.

The essential elements are:

A. Consent
B. Object
C. Cause or consideration

2. Natural elements – those presumed to exist in certain contracts unless the

contrary is expressly stipulated by the parties, like warranty against eviction.
3. Accidental elements – those particular stipulations, clauses, terms, or
conditions established by the parties in their contract.
4. Formal elements – those formalities and solemnities required of certain
contracts for validity and enforceability.

5. Classify contracts.

1. According to name or designation:

A. Nominate – that which has a specific name in law like lease, agency,
sale, etc.
B. Innominate – that which has no specific name in law.

2. According to perfection:
A. Consensual – which is perfected by mere consent like sale, agency,
lease;
B. Real – this is perfected by the delivery of the thing, like depositum,
pledge, commodatum;

3. According to cause:
A. Onerous – which is made for valuable consideration, like sale, lease,
partnership;
B. Remunetary – which is given for the purpose of rewarding a service
previously rendered;
C. Gratuitous – which is given out of the liberality of the benefactor;

4. According to form:
A. Solemn – which requires certain formalities for its validity, like the
sale of immovable property which must be in a public instrument;
B. Common – which may be entered into in any form provided all the
essential requisites for validity are present.

5. According to relation of the parties:

A. Preparatory – which is made as a necessary step to enter into other
contract, like agency and partnership;
B. Principal – which can stand alone like sale;

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C. Accessory – which is dependent upon other contract, such as pledge

and mortgage.

6. According to parties upon whom obligations are imposed:

A. Unilateral – only one party has an obligation, like deposit;
B. Bilateral – both parties have corresponding obligation, such as sale;

7. According to risk:
A. Commutative - which each of the parties has in mind the acquisition
of an equivalent prestation, like lease;
B. Aleatory – which depends upon chance or some future event, such as
insurance.

6. Explain the freedom to contracts.

The freedom to contract is guaranteed by the Constitution and also by statutes.

The constitutional prohibition against the impairment of contractual obligation has particular
reference only to contracts validly entered into by the parties, and in addition, such right may
not be invoked against the police power of the state. In other words, freedom to contract is
not an absolute right.

7. What are the kinds of innominate contract?

1. Do ut des (I give that you may give);

2. Do ut facias (I give that you may do);
3. Facio ut des (I do that you may give);
4. Facio at facias (I do that you may do).

8. What are the stages of a contract?

1. Preparation or conception – the taking of steps such as the offer and

acceptance;
2. Perfection or birth – this is the stage where the parties have come to an
agreement regarding the subject matter and cause of the contract;
3. Consummation or termination – this is the stage where the parties have
performed their respective obligations.

9. Explain the characteristics of contracts.

1. Freedom to contract – the parties have the right to stipulate such terms,
conditions, clauses provided they are not contrary to law, morals, good
customs, public order and public policy;
2. Binding effect – contracts have the force and effect of law;
3. Parity and mutuality – the contract must bind both parties and compliance
cannot be left to the will of one of them;
4. Consensual contract – perfection is by mere consent;
5. Relativity – contract binds not only the contracting parties but also their
assigns, heirs and successors in interest.

10. May the determination of the performance of contract be left to third persons?

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.

11. Who are the persons affected by a contract?

As a general rule, contracts take effect only between the parties, their assigns
and heirs, except in case where rights and obligations arising from the contract are not
transmissible by their nature, or by stipulation or by provision of law.

12. Enumerate the cases when a third person may be bound by a contract.

1. Contracts containing a stipulation in favor of a third person (stipulation pour

autrui);
2. Contracts creating real rights;
3. Contracts entered into to defraud creditors;
4. Contracts which have been violated at the inducement of the third person;

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5. Contracts creating status;

6. In quasi-contracts of negotiorum gestio;
7. In collective bargaining contracts.

13. What is the extent of the liability of the heir?

The heir is not liable beyond the value of the property he received from the
decedent.

14. What are the requisites of a valid consent?

1. It must be free, intelligent and voluntary;

2. It must be conscious and spontaneous;
3. Person must be capacitated.

15. When is there consent?

Consent is manifested by the meeting of the offer and the acceptance upon the
thing and the cause which are to constitute the contract.

16. State the requisites of offer and of acceptance.

1. The following are the requisites of offer:

A. It must be certain.
B. It must be communicated or published
C. It must be received

2. The following are the requisites of acceptance:

A. It must be absolute, unqualified and unconditional;
B. It must be expressed or implied;
C. It must be communicated to the offerror.

17. When is an offer ineffective?

An offer becomes ineffective upon the death, civil interdiction insanity, or

insolvency of either party before acceptance is conveyed.

18. State the rule when acceptance is by letter or telegram.

Acceptance made by letter or telegram does not bind the offerer except from the
time it came to his knowledge.

19. Define option contract, option period, option money and earnest money.

1. Option contract – one given a person for a consideration a certain period

within which to accept the offer of the offerer.
2. Option period – the period given within which the offeree must accept the
offer.
3. Option money – is the money paid or promised to be pain in consideration for
the option.
4. Earnest money – money paid as part of the price and as proof of the
perfection of the contract.

20. Are business advertisements definite offer?

No. Unless it appears otherwise, business advertisements of things are not

definite offers but mere invitation to make an offer.

21. Enumerate the persons who cannot give consent.

1. Unemancipated minors;
2. Insane person or demented persons, and deaf-mutes who do not know how
to write;
3. Persons under civil interdiction;
4. Married woman in cases specified by law;
5. Insolvents until discharged;
6. Prodigals (spendthrifs)

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22. Enumerate contracts entered into by minors that are valid.

1. Contract for necessaries;

2. Contract for life, health and accident insurance, provided the insurance is
taken on his life and the beneficiary appointed is the minor’s estate or the
minor’s father, mother, spouse, brother, or sister;
3. Contract entered into through a guardian or legal representative;
4. In special cases provided by law.

23. Enumerate the vices of consent.

1. Error or mistake;
2. Violence or force;
3. Intimidation or threat or duress;
4. Undue influence;
5. Fraud or deceit.

24. Define mistake.

It is the false belief of a thing.

25. What are the requisites for mistake to vitiate consent?

1. It must be a mistake of fact, not of law;

2. It must be substantial;
3. It must be excusable, without bad faith.

26. May mistake as to the identity or qualifications of one of the parties vitiate consent?

Yes, provided that such identify or qualifications have been the principal cause of
the contract.

27. May mistake of law vitiate consent?

Generally, mistake of law does not vitiate consent. But consent may be vitiated
when there is mistake on a doubtful question of law, or on the construction or application of
law.

28. When is there violence and intimidation?

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 well-grounded fear of an imminent and gave evil upon his person or
property, or upon the person or property of his spouse, descendants or ascendants, to give
consent.

29. Distinguish violence from intimidation.

1. The former is external, while the latter, is internal;

2. The former is physical coercion, the latter, is moral coercion.

30. State the effect of violence or intimidation.

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.

31. Give the meaning of undue influence.

There is under 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 influence was
suffering from mental weakness, or was ignorant or in financial distress.

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32. Define fraud.

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.

33. Give the requisites of causal fraud.

1. It must be serious;
2. There must be misrepresentation or concealment;
3. It must be employed with the intent to deceive;
4. It must have induced and secured the consent of the other party;
5. It must be alleged and proved by clear and convincing evidence.

34. What is the effect of causal fraud?

It renders the contract void.

35. May exaggerations in trade constitute fraud?

No. The usual exaggerations in trade, when the other party had an opportunity to
know the facts, are not in themselves fraudulent.

36. What are the kinds of fraud in the making of a contract?

1. Causal fraud – fraud committed before or at the time of the celebration of

the contract which is a ground for annulment;
2. Incidental fraud – fraud which gives rise to an action for damages.

37. Define simulation of a contract. State its kinds and effects.

It is the act of deliberately deceiving others, by feigning or pretending by

agreement, the appearance of a contract which is either non-existent or concealed.

The kinds are:

1. Absolute – takes place when the parties do not intend to be bound at all;
2. Relative – takes place when the parties conceal their true agreement.

The effects are:

1. An absolutely simulated or fictitious contract is void.
2. 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.

38. Give the requisites of object or subject matter.

1. It must be determinate or determinable without the need of a new contract;

2. It must be within the commerce of men;
3. It must be in existence or capable of coming into existence;
4. It must not be impossible, physically or legally
5. It must not be contrary to law, morals, good customs, public order or public
policy.

39. What is the concept of object of a contract?

The object of a contract is its subject matter. It may involve a thing, or a service,
or a right. Thus, all things which are not outside the commerce of men, including future
things, may be the object of a contract. Also, all rights which are not intransmissible may
also be the object of contracts. Likewise, all services which are not contrary to law, morals,
good customs, public order or public policy may be the object of a contract.

40. State and explain briefly the requisites of things, rights and services as objects of
contract.

1. Things – the following requisites must be present:

A. It must be within the commerce of men;
B. It must not be impossible, physically or legally;
C. It must be existing or capable of coming into existence

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D. It must be determinate or determinable

2. Rights – generally, all rights may be the object of a contract, except those
which are intransmissible by their nature, or by stipulation, or by provision of
law, such as:
A. Those outside the commerce of men like things of public ownership
such as public places, bridges, streets, etc., and things common to
everybody such as air, rain, sunlight, etc.
B. Impossible, physically or legally – to harm or kill a person, to engage
in illicit objects like opium;
C. Determinable things – all the books in a library, all the appliances in a
house etc.
D. Future things or rights – things to be manufactured, rose, or acquired
after the perfection of the contract;
E. Intransmissible rights – political rights such as the right to vote; family,
marital, and parental rights; right to public office, or to run for public
office.

3. Services – the requisites are:

A. It must not be impossible, legally or physically;
B. It must not be contrary to law, morals, good customs, public order and
public policy.

41. Define cause. State its requisites.

Cause is the essential or more proximate purpose which the contracting parties
have in view at the time of entering into the contract.

The requisites are:

1. It must be lawful;
2. It must be true or real;
3. It must exist at the time the contract is entered into.

42. What is the effect of absence of a cause? Or with an unlawful cause?

Contracts without a cause, or with unlawful cause, produce no effect whatever.

43. Define lesion.

It is any damage caused by the fact that the price is unjust or inadequate.

44. What is the effect of lesion?

Lesion or inadequacy of cause shall not invalidate a contract, unless there has
been fraud, mistake or undue influence.

45. What is the form required in contract?

Contracts may be entered into in any form 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.

46. What contracts must appear in a public instrument?

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;
2. The cession, repudiation or renunciation of hereditary rights or 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.

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47. Give specific examples where the law requires that a contract be in a certain form for
the validity of the contract.

1. Donation of real property – it must be in a public instrument.

2. Donation of personal property exceeding P5,000 – it must be in writing
including the acceptance.
3. Sale of land through an agent – the agent’s authority must be in writing,
otherwise, the sale is void.
4. Stipulation to pay interest – it must be in writing otherwise, interest cannot be
collected.
5. Transfer or sale of large cattle – it must be in a public instrument and
registered.
6. Contribution of immovable in a contract of partnership – it must be in a public
instrument with an inventory duly signed attached to the public instrument.
7. Negotiable instrument – they must be in writing.

48. Give the concept of reformation of instrument.

When there is 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 the
reason of mistake, fraud, inequitable conduct or accident, one of the parties may ask for the
reformation of the instrument to the end that such true intention may be expressed.

49. What is the remedy if mistake, fraud, inequitable conduct, or accident prevented a
meeting of the minds of the parties?

The proper remedy is annulment, not reformation.

50. What are the requisites of reformation?

1. There must be a meeting of the minds of the parties;

2. The written instrument does not express the true agreement of the parties;
3. The failure to express the true intention is due to mistake, fraud, inequitable
conduct, or accident;
4. There must be clear and convincing evidence of the mistake, fraud,
inequitable conduct, or accident.

51. When is reformation not allowed?

There shall be no reformation in the following cases:

1. Simple donation inter vivos wherein 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.

52. Enumerate the kinds of defective contracts. Explain briefly.

1. Rescissible contracts – are valid contracts because all the essential elements
exist but by reason of injury or damage, the same may be rescinded;
2. Voidable contracts – are valid until annulled. These contracts are susceptible
of ratification;
3. Unenforceable contracts – are those that cannot be sued upon or enforced
unless ratified;
4. Void contracts – are contracts which produce no effect at all and cannot be
ratified. They are null and void.

53. Define rescission.

It is a remedy granted by law to the contracting parties and sometimes even to

third persons in order to secure reparation of damages caused them by a valid contract, by
means of the restoration of things to their condition prior to the celebration of said contract.

54. State the requisites of rescission.

1. It must be validly agreed upon;

2. It must be based upon a case provided by law;
3. There must be lesion or pecuniary prejudice;
4. There must be no other legal remedy;

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5. The party who filed the action for rescission must be able to return what he is
obliged to restore;
6. The object must not be in the hands of a third person who acted in good faith;
7. The action for rescission must not have prescribed.

55. What are the rescissible contracts?

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 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;
4. Those undertaken in fraud of creditors when the latter cannot in any other
manner collect the claims due them;
5. All other contracts specially declared by law to be subject to rescission.

56. What are the effects of rescission?

1. It creates an obligation to return the things which were the object of the
contract, together with their fruits, and the price with its interest;
2. It can be carried out only when he who demands rescission can return
whatever he may be obliged to restore;
3. It cannot take place when the things 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.

57. When is alienation presumed to be in fraud of creditors?

1. When the debtor alienates his property by gratuitous title without reserving
sufficient property to pay all debts contracted before the donation;
2. When the debtor alienates his property by onerous title against whome some
judgment has been rendered or attachment issued;
3. When the design to defraud creditors have been proved in any manner
recognized by the law of evidence.

58. Enumerate the badges of fraud.

1. The consideration of conveyance is fictitious or inadequate;

2. Transfer made by a debtor after suit has been begun and while it is pending;
3. Sale upon credit by an insolvent debtor;
4. Evidence of large indebtedness or complete insolvency;
5. Transfer of all or nearly all of his property by a debtor, especially when he is
insolvent or greatly embarrassed financially;
6. Transfer between father and son, when there are present any if the above
circumstances;
7. Failure of the vendee to take exclusive possession of the property sold.

59. What are the voidable contracts?

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.

60. What is the effect of ratification?

Ratification cleanses the contract from all its defects from the moment it was
constituted. Hence, the action to annul is extinguished.

61. State the kinds of ratification.

1. Express – manifested either orally or in writing;

2. Tacit – inferred from the conduct of the person showing adoption of the
contract; or waiver thereof.

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62. Give the requisites of ratification.

1. There must be knowledge of the reason which renders the contract voidable;
2. The cause must have ceased;
3. The injured party must have executed an act which necessarily implies an
intention to waive his right.

63. What is the effect of annulment?

1. If the contract is annulled, the contracting parties must restore to each other
the things which have been the subject matter of the contract, with their
fruits, and the price with its interest.
2. In personal obligations, where the service had already been rendered, the
value thereof shall be the basis for damages.

64. Who may institute the action for annulment?

The action for the annulment of contracts may be instituted by all who are
thereby obliged principally or subsidiarily.

65. Who are the persons who may affect ratification?

1. With respect to contract entered into by an incapacitated person, the same

may be ratified by the guardian or injured party himself if he becomes
capacitated;
2. With respect to contract vitiated by the party whose consent is vitiated.

66. Give the meaning of unenforceable contracts.

They are those that cannot be sued upon and enforced by reason of defects
provided by law until and unless they are ratified in accordance with law.

67. Enumerate the unenforceable contracts.

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 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 action 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
purchasers and persons on whose account the sale is made, it is
sufficient memorandum;
E. An agreement for the leasing for a longer period than one year, or for
the same of real property or of an interest therein;
F. A representation as to the credit of a third person.

68. Give the general principles governing the Statute of Frauds.

1. It applies only to executor contracts;

2. It may be waived either expressly or impliedly;
3. It is personal and cannot be interposed by third persons;

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4. It is applicable only to actions for a violation of the contract, or to enforce

performance thereof;
5. It refers to enforceability not to validity;
6. It determines the admissibility of evidence not the weight thereof.

69. What are the manners of ratifying contracts infringing the Statute of Frauds?

1. by failure to object to the presentation of oral evidence to prove the contract;

2. by acceptance of benefits under the contract.

70. Enumerate the void or inexistent contracts.

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.

71. State the characteristics of a void or inexistent contract.

1. It is not susceptible of ratification;

2. It does not prescribe;
3. It produces no effect whatsoever;
4. The defense of illegality is not waivable;
5. The defense of illegality may be set up by a third person only when his
interest is directly affected.

72. State the rules where the contract is illegal and the act constitutes a criminal offense.

1. If the nullity proceeds from the illegality of the cause or object, and the act
constitutes a criminal offense, where both parties are equally guilty, that is,
they are in pari delicto, they shall have no action against each other, and both
shall be prosecuted; and the things or the price of the contract shall be
confiscated in favor of the government;
2. If only one party is guilty, the innocent party may claim what he has given,
and shall not be bound to comply with his promise.

73. What is the concept of natural obligations?

They are not based on positive law but on equity and natural law, hence, they do
not grant a right of action to enforce their performance.

74. Give the distinctions between civil and natural obligations.

1. Civil obligations arise from law, contracts, quasi-contracts, delicts, and quasi-
delicts, while natural obligations are based on equity or natural law; and
2. The former can be enforced by an action to compel specific fulfillment, the
latter is not.

75. Enumerate some of the instances of natural obligations.

1. Where the obligor voluntarily performs after a right to sue upon a civil
obligation has lapsed by extinctive prescription;
2. Where a third person pays a debt after it has prescribed, without the
knowledge or against the will of the debtor, but the debtor later voluntarily
reimburses the third person;
3. Where a minor between 18-21 years of age who has entered into a contract
without the consent of the parent or guardian, voluntarily returns the whole
thing or price after the contract has been annulled;
4. Where a minor between 18-21 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, and the
oblige has spent or consumed it in good faith;

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5. Where the defendant voluntarily performs the obligation after an action to

enforce a civil obligation has failed;
6. Where an heir voluntarily pays a debts of the decedent exceeding the value
of the property he received from the estate of the deceased; and
7. Where an heir pays a legacy after a will has been declared void, in
compliance with a clause in the defective will.

EXTRA-CONTRACTUAL OBLIGATIONS
1. Define quasi-contract.

` It is a juridical relation resulting from certain lawful, voluntary, and unilateral acts
by virtue of which the parties become bound to each other to the end that no one shall be
unjustly enriched or benefited at the expense of another.

2. What are the kinds of quasi-contracts?

1. Negotiorum gestio – it is a juridical relation created when a person voluntarily

takes charge of the agency or management of the business or property of
another without the knowledge or consent of the latter;
2. Solutio Indebiti – it is the juridical relation that arises when something is
received when there is no right to demand it, and it was unduly delivered
through mistake with the obligation of the recipient to return whatever was
received by him.

3. State the essential requisites of negotiorum gestio.

1. There must be a voluntary act of taking over the management of the business
or property of another;
2. There must not be any contractusl relation between the owner and the
gestor;
3. There must be abandonment of the property or business.

4. Give two instances when the juridical relation of negotiorum gestio will not arise.

1. When the property or business is not neglected or abandoned; and

2. If in fact the manager has been tacitly authorized by the owner

5. Give the obligations of the gestor.

1. To perform his duties with the diligence of a good father of a family;

2. To pay damages incurred through his fault or negligence;
3. To answer for contracts entered into with third persons unless ratified by the
owner;
4. To continue the management until the termination of the affairs;
5. To be liable for fortuitous events in certain cases.

6. What are the obligations of the owner?

1. To be liable for expenses and obligations incurred in his interest; and

2. To reimburse the gestor for necessary and useful expenses and for
damages.

7. May the owner be liable even though he did not derive any benefit?

Yes, provided that:

1. The officious manager has prevented any imminent and manifest loss on the
thing which is the subject of the relation;
2. The officious manager has acted in good faith, and the property or business
in intact, and ready to return to the owner.

8. Give other quasi-contracts recognized by law.

1. Support given by a stranger without the knowledge of the person obliged to

give support;
2. Funeral expenses given by a third person without the knowledge of the
relatives who were obliged to give support to the deceased;

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3. Medical treatment to an injured or sick person;

4. The saving of the property of another from destruction during a calamity;
5. The payment of the debt of another.

9. Define quasi-delict.

It is an act or omission by a person which causes damage to another giving rise

to an obligation to pay for the damage done, there being fault or negligence but there is no
pre-existing contractual relation between the parties.

10. Give the specific instances of quasi-delicts.

1. The possessor of an animal for damages caused by it even when lost or has
escaped;
2. The 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;
3. The proprietor of a building or structure is responsible for damages resulting
from its total or partial collapse, if it should be due to the lack of necessary
repairs;
4. The proprietor is likewise liable for damages in the following cases caused
by:
A. 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;
B. The excessive smoke, which may be harmful to persons or property;
C. The falling of trees situated at or near the highways, if not caused by
force majeure; and
D. The emanations from tubes, canals, sewers or deposits of infectious
matter, constructed without precautions suitable to the place.

*Reference: Review of Business Law by Oscar P. Ferreros

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