Garayblas Oblicon Finals 2019
Reviewer
CONTRACTS
1) Definition of a Contract (Art. 1308)
Article states that a contract is the, “meeting
of the minds between two persons whereby
one binds himself, with respect to the other,
to give something, or to render some
service.”
This is inaccurate because: Firstly, A party in
a contract may refer to one or more persons
because otherwise, they would no longer be
covered by this article. Secondly, it must also
include cases where in the performance is
mutual or reciprocal (prestation), where both
parties have prestation to perform in favor of
one another. Thirdly, it must also include the
obligation not to do, not merely delivery of
something and rendition of service.
2) Essential Elements of a Valid Contract
(Art. 1318)
i) Consent – refers to the meeting of
the minds between the contracting
parties or their conformity to all
the terms and conditions of the
contract which is freely given.
ii) Object certain – refers to the
subject matter of the contract. It
must be definite and certain,
otherwise, the meeting of the
minds of the contracting parties is
not possible. Services may also be
the objects of contracts (Art.
1347)
iii) Cause of the obligation – refers to
the compelling reason why a party
assumes an obligation (Art.
1350). It is different from motive
or the personal reason unknown to
the other party why a person
enters into the contract (Art.
1351)
iv) Delivery of the object – refers to
the “tradicion” or transfer of
possession of the object to the
other party which is required as an
additional element in real
contracts.
v) Mandated formalities – refer to
the need to comply with certain
solemnities or formalities
required for the validity of certain
formal contracts.
3) Can the performance of a contract be
determined by a third person? (Art.
1309)
Yes. 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.
For Example: A purchased from B certain
goods in the possession of C, a
warehouseman. A and B may agree that the
delivery of the goods to A will be at the
convenient day and time of C, within a
particular month of the year. Here, the
delivery is left at the discretion of the
warehouseman, a third person.
4) Three stages of a contract (Art. 1305)
i) Conception or Generation –
Parties begin their initial
negotiation and bargaining for the
formation of the contract ending
at the moment of agreement of the
parties. It is also called the
preparatory stage.
ii) Perfection or Birth – The contract
is said to have been born here. The
parties had a meeting of minds as
to the object, cause or
consideration and other terms and
conditions of the contract. It has
passed the preparatory stage.
iii) Consummation or Fulfillment –
Consists in the performance or
fulfillment by the parties of their
obligations under the terms of the
perfected contract.
Consummation is the
accomplishment, death or
termination of the contract.
5) Simulated Contracts and Fictitious
Contracts (Art. 1346)
Simulation of a contract is the deliberate act
of making a fictitious agreement by the
parties for purposes of deception, when in
fact the juridical act that appears on the
contract does not really exist or is different
from what is actually agreed upon.
i) Absolute simulation is one where
the parties do not intend to be
bound by the contract. The
apparent contract is not really
intended to produce any legal
effects between the parties, nor
does it alter the juridical situation
of the parties. It is void
ii) Relative simulation is one where
the parties conceal their real
agreement by disguising it under
another contract. It can be void or
valid depending upon the
circumstances. If it is not against
law, morals, good customs, public
order or policy, it is not void and
the real agreement which was
concealed by the apparent
contract shall be binding upon the
parties provided all the essential
elements of a contract are present.
6) Constructive Fulfillment (Art. 1186)
Constructive fulfillment is not an actual
fulfillment of condition. However, the mere
intention to prevent the happening of the
condition will not be enough without actually
preventing the fulfillment. The prevention of
the condition must be consummated. These
two requisites are sine qua non for
constructive fulfillment to operate. (Thus,
requisites are the 1) the intention of the
obligor to prevent consummation of
condition and 2) it is no mere intention, and
is therefore consummated)
When an obligor committed an act
voluntarily which is not intended to prevent
the fulfillment of the condition, but
nevertheless resulted in the frustration of the
condition, there shall be no constructive
fulfillment.
7) Definite offer v. Mere Invitation to
offer (Art. 1325)
If the advertisement contains all the
necessary data needed in a contract, it is a
definite offer for the sale of the things
advertised. When the advertisement clearly
appears to be a definite offer to sell, the
advertiser cannot withdraw the offer once
somebody had accepted it.
On the other hand, if the advertisement does
not contain all the important data for a future
contract, it is not a definite offer, It is a mere
invitation to make an offer.
Also see Art. 1326, where it says that
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.
8) Statute of Fraud (Art. 1403 par. 2)
It is descriptive of those laws, statutes, or
provisions which require certain agreements
to be in writing before they can be proved and
enforced in a judicial action.
The statute applies only to executory
contracts. It can not be invoked in contracts
which had been already executed whether
partially or completely.
Agreements include:
i) Agreement by its terms is not to
be performed within a year from
the making thereof
ii) A special promise to answer for
the debt, default or miscarriage of
another.
iii) An agreement made in
consideration of marriage, other
than a mutual promise to marry
iv) An agreement for the sale of
goods, chattels or things in action,
at a price not less than five
hundred pesos (…)
v) An agreement for the leasing for a
longer period than one year, or for
the sale of real property or of an
interest therein
vi) A representation as to the credit of
a third person.
9) Executed v. Executory Contract
Executed contract is a contract in which the
promises are made and completed
immediately, like in the purchase of a product
or service. On the other hand, an executory
contract means that the promises of the
contract are not fully performed immediately.
An example of an executory contract would
be an apartment lease.
10) Badges of fraud
Evidence of actual intent is rarely available to
a creditor for it would require proof of
someone’s inner thoughts. Because of that,
creditors often have to rely on circumstantial
evidence of fraud. To prove actual intent, the
courts have developed “badges of fraud,”
which, while not conclusive, are considered
by the courts as circumstantial evidence of
fraud. (list varies from sources to sources)
i) The fact that the cause or
consideration of the conveyance
is inadequate
ii) A transfer made by a debtor after
suit has been begun and while it is
pending against him
iii) A sale on credit by an insolvent
debtor
 iv) Evidence of large indebtedness or
complete insolvency
v) The transfer of all or nearly all of
his property by a debtor especially
when he is insolvent or greatly
embarrassed financially
vi) The fact that the transfer is made
between father and son, when
there are present others of the
above circumstances
vii) The failure of the vendee to take
exclusive possession of all the
property
11) Cause v. Motive (Art. 1350)
Cause is the essential reason which moves the
parties to enter into the contract. It is the
immediate, direct and proximate reason
which justifies the creation of an obligation
through the will of the contracting parties.
Motive is the indirect and personal reason for
the contract without affecting the cause.
Illegality of the cause affects the validity of
the contract while illegality of the motive
does not.
12) Public policy (Art. 1306)
Under the Old Civil Code, public order is
synonymous with public policy. Under the
present code, public order refers only to
public safety of the people which includes the
maintenance of peace and order both in the
entire country and in a particular community.
Examples:
i) A stipulation in a contract
surrendering for a consideration
one’s right to vote and to run for
public position is void
ii) A stipulation exempting a carrier
from liability for its gross
negligence
iii) Stipulations of compromise
which are intended to stifle the
prosecution of persons charged
with crimes for valuable
considerations are void for being
contrary to public policy
13) Characteristics of a valid contract
i) Obligatory - the force of law between
the contracting parties compel them
to perform under the threat of civil
action or lawsuit.
ii) Autonomy - such stipulations,
clauses, terms and conditions are
established by the contracting parties
as they may deem convenient,
provided they are not contrary to law,
morals, good customs, public order,
or public policy. (Art. 1306)
iii) Mutuality - the bind must involve
both of the parties, so that the validity
or compliance of a contract cannot be
left to the will of only one of them.
(Art. 1308)
iv) Relativity - the effectivity is 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. (Art. 1311)
v) Consensuality - the mere consent that
perfected the contract should bound
the parties to the fulfillment of what
has been expressly stipulated, and all
 the consequences which, according to
their nature, may be in keeping with
good faith, usage and law. (Art.
1315) However, real contracts, such
as deposit, pledge and commodatum,
are not perfected until the delivery of
the object of the obligation. (Art.
1316)
14) Rescissible Contracts (Art. 1380 and
1381)
These are those validly entered into by the
contracting parties, but for having caused
economic damage or lesion to one of the
parties or to a third person or for having been
entered into in fraud of creditors, or without
the knowledge and approval of the judicial
authority having custodia legis over the
property involved, or for having been
specially declared by law as rescissible, may
fir equitable reasons, be rescinded or set aside
by the court.
15) Unenforceable Contracts (Arts. 1403,
1406, 1407)
Those which cannot be enforced in court
because of the existence of any of the
following reasons: (1) they were entered into
in behalf of another without authority or in
excess of authority, (2) there is non-
compliance with the statute of frauds, and (3)
both contracting parties are incapacitated
which however may be ratified in accordance
with the law.
16) Effects of Ratification | Both
incapacitated | And similar queries
(Art. 1317 ,1396, 1404)
Art. 1317 provides that 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.
The ratification of an unauthorized contract
has the effect of cleansing the contract from
all its defects from the moment it was
constituted. It has a retroactive effect.
Under Art. 1407, when both parties to the
purported contract are not capacitated to give
consent, the contract is unenforceable. It
cannot be enforced in court. It may however
be ratified:
i) If ratification is only on the side of
one of the contracting parties, that
is, by the parent or guardian, the
contract is transformed into a
voidable contract on the part of
the party who did not ratify.
ii) If ratification is made by both
sides that is by the parents or
guardians, the contract is
validated from its inception. Such
is retroactive.
17) Stipulation Pour Autrui (Art. 1311)
A stipulation in a contract, clearly and
deliberately conferred by the contracting
parties as a favor upon a third person, who
must communicate his acceptance of the
favor to the obligor before it could be
revoked.
Requisites are as follows:
i) That the stipulation in favor of the
3rd person should be a part, not the
whole, of the contract
 ii) That the favorable stipulation
should not be conditioned by any
kind of the obligation
iii) Neither of the contracting parties
bears the legal representation or
authorization of the third person
Thus, it is a stipulation in favor of a third
person conferring a clear and deliberate favor
of a third person conferring a clear and
deliberate favor upon him and which
stipulation is merely a part of the contract
entered into by the parties, neither of whom
acted as agent of the third person, and which
favor can be demanded by the third person if
duly accepted by him before it could be
revoked.
18) Characteristics of a Void of Contract
(Art. 1409)
The code uses the words void contracts
interchangeably with inexistent contracts,
referring to contracts which have no force
and effect from the beginning, and which
cannot be ratified or validated by lapse of
time.
The Salient Characteristics of void or
inexistent contracts are:
i) Generally, they produce no civil
effects either in favor of or against
anyone
ii) They are not susceptible to
ratification
iii) The right to set up the defense of
their inexistence or absolute
nullity cannot be waived
iv) The action or defense for the
declaration of the inexistence of
the contract does not prescribe
v) The defense of illegality of
contracts cannot be invoked by
third persons whose interests are
not directly affected
vi) No action is needed to set them
aside because their nullity exists
ipso jure. However, if there has
been performance already, the
intervention of the court is
necessary to declare its nullity and
decree the restitution of what has
been given by virtue thereof
19) Principle of In Pari Delicto (Art. 1411
and 1412)
When the defect of a void contract consists in
the illegality of the cause or object of the
contract, and both of the parties are at fault or
in pari delicto, the law refuses them every
remedy and leaves them where they are.
Ex dolo malo non oritur actio | In pari delicto
potior est conditio defendentis. The law will
not aid either party to an illegal agreement | It
leaves them where they are.
OBLIGATION
20) Sources of Obligation
i) Law – Art. 1158 states that
unless such obligations are
expressly provided by law,
they are not demandable and
enforceable. Like the duty of
the spouses to render mutual
support and respect tone
another is derived from Art.
68 of the F.C.
ii) Contract – Art. 1159 states
that obligations from
contracts have the force of
law. They are governed by the
 stipulations, clauses, terms
and conditions of their
agreements.
iii) Quasi-Contract – Art. 1160
states that it is a juridical
relation which arises from a
lawful, voluntary, and
unilateral act or acts executed
by somebody for the benefit
of another and for which the
former must be indemnified to
the end that no one shall be
enriched or benefited at the
expense of another.
iv) Delict – Art. 1161 refers to
civil obligations arising from
criminal offenses anchored on
the well-accepted principle
that every person criminally
liable for a felony is also
civilly liable. (Restitution,
Reparation, Indemnification)
v) Quasi-Delict – Art. 1162
states that liability for quasi-
delict is founded on the
principle of equity, that is, the
consequences of the fault or
negligence of a person shall
not be borne by him, who,
without fault or negligence on
his part, becomes the victim
thereof.
21) Two kinds of Quasi-Contracts (Art.
1160)
i) Negotiorum Gestio – This is a
juridical relation which takes
place when somebody takes
charge of the agency or
management of the business or
property of another without any
power from the latter.
ii) Solutio Indebiti – This is a
juridical relation which takes
place when somebody received
something from another without
any right to demand for it, and the
thing was unduly delivered to him
through mistake.
22) Extinguishment of Obligations (Art.
1231)
i) By payment or performance
ii) By the loss of things due
iii) By the condonation or remission
of the debt
iv) By the confusion or merger of the
rights of creditor and debtor
v) By compensation
vi) By novation
23) Special Forms of Payment
i) Dacion en pago – Dation in
payment is the alienation by the
debtor of a particular property in
favor of his creditor, with the
latter’s consent, for the
satisfaction of the former’s money
obligation to the latter, with the
effect of extinguishing the said
money obligation. (Art. 1245)
ii) Application of Payment – it is the
designation of the particular debt
being paid by the debtor who has
two or more debts or obligations
of the same kind in favor of the
same creditor to whom the
payment is made. The debtor has
the right to choose which debt of
the several debts due shall be
paid. (Art. 1252)
iii) Payment by cession – it is the
same as payment by assignment.
It is a special form of payment
 whereby the debtor cedes his
property to his creditors so the
latter may sell the same and the
proceeds realized applied to the
debts of the debtor. There will be
no cession or assignment if the
creditors do not agree to the
abandonment of the debtor’s
property in their favor. Without
the creditor’s acceptance, this
special form of payment will not
be effective. (Art. 1255)
iv) Tender of payment and
consignation – (See Art. 1256 for
list of when consignation shall
produce effect)
Tender of payment is the
voluntary act of the debtor
whereby he offers to the creditor
for acceptance the immediate
performance of the former’s
obligation to the latter.
Consignation is the act of
depositing the object of the
obligation with the court or
competent authority after the
creditor has unjustifiably refused
to accept the same or is not in a
position to accept it due to certain
reasons or circumstances.
If there is no creditor-debtor
relationship, consignation cannot
apply. The debtor must be willing
to pay or deliver, but the creditor
unjustifiably refuses to accept. To
shield himself from
responsibility, the debtor should
make a tender of payment, which
if refused, should be followed by
a complaint for consignation. It
must be first announced to the
creditor for consignation to take
effect.