Quiz on OBLIGATIONS AND CONTRACTS
several extrajudicial demands (demand letters)
1. Owner1 owned and operated a furniture shop
under the name and style of “New Antiques
Furniture Shop”. For some unknown reason, the
shop was totally burned including all of its
contents. After a few months, Owner2, the
brother of Owner1, constructed a new furniture
shop on the same site. Owner1 verbally
authorized Owner2 to use the same name and
style “New Antiques Furniture Shop”, after
which Owner2 secured a new business permit
in his own name. Subsequently, a judgment for
sum of money was rendered against Owner1 in
a case filed by CreditorZ against Owner1 when
the latter was still operating his furniture shop.
However, the judgment could not be enforced
for lack of leviable assets in the name of
Owner1. Thus, CreditorZ opted to go after
Owner2 as the new owner of the furniture shop.
a. If you were the counsel of CreditorZ, what
action will you file to protect the interest of
your client? When should you file it?
Action for rescission, on the ground that the
sale or transfer of the furniture shop was
made in fraud of creditors.
b. If you were the counsel of Owner2, how
would you defend against such action?
Defense: what was transferred was not the
real property but only the name of the
business. Thus, it could not be presumed
that it was made to defraud CreditorZ
c. If you were the judge how would you decide
the case?
As the judge, I will rule in favor of Owner2, for
lack of cause of action on the part of
CreditorZ, since the transfer of the name of
the furniture shop does not carry with it the
transfer of the assets of Owner1. Thus, there
should be assets still in the name of Owner1.
If there are other remedies available,
rescission should not be allowed
2. ClaimantM was the owner of a parcel of land
near Malacañang during Martial Law under
former President FM. Sometime in 1975, at the
height of Martial Law, he was forced to sell his
property, “through force and intimidation”, to
DBP at a grossly low price. After FM fled the
country in February 1986, ClaimantM made
asking DBP to reconvey the property to him on
account of the “forced” sale way back in 1975.
His demand letters went unheeded, the last
having been sent sometime in October 1989.
Thus, in 1991, ClaimantM sought your advice on
what action to file against DBP in order to
recover his property.
a. As counsel of ClaimantM, what action would
you file against DBP? When should you file
it?
Action to annule the sale on the ground of
vitiated consent, obtained through duress or
intimidation.
b. If you were the counsel of DBP, how would
you defend against such action?
DBP’s defense: Prescription. Should be
brought within 4 yrs counted form the
cessation of the intimidation (Feb 1986).
c. If you were the judge how would you decide
the case?
As the judge, I will rule in favor of DBP on the
ground of prescription. Besides, the running
of the prescription period was not stopped by
the sending of demand letters because DBP
is not a “creditor” in contemplation of law, as
its alleged liability has yet to be established
3. A parcel of land consisting of 5 hectares, located
in Intramuros Manila, is owned by 5 co-owners,
collectively known as Heirs of Dracula (the
heirs, for brevity). Van Helsing, a creditor of the
deceased parents of the heirs sent several
demand letters to the heirs, seeking to collect
the unpaid purchase price for construction
materials used in building Dracula’s mausoleum
and constructing the coffins and tombs found in
it. The demands went unheeded. Instead, the
heirs decided, orally, to settle, distribute and
partition the estate among themselves by
assigning one (1) hectare to each of them.
Subsequently, Van Helsing filed an action for
sum of money against the estate of Dracula.
The heirs alleged in their answer that there was
no estate to speak of because the same had
already been settled and were already
distributed to the 5 of them. Van Helsing’s
lawyer countered that the settlement of the
 estate could not be proven or enforced in court
because it was made orally; and therefore, the
property still belonged to the estate of Dracula.
a. As counsel of Van Helsing, how would you
argue in support of his position?
The oral partition is not valid because it was
not made in a public instrument. Under the
law (Art. 1358, first part), contracts for the
purpose of creation, transmission,
modification or extinguishment of real rights
over real properties must be in a public
instrument.
b. If you were the counsel of the heirs, how
would you counter the arguments of Van
Helsing’s lawyer?
Counter-argument: the formal requisite to
have it in a public instrument is required only
for convenience and will not affect the validity
of the contract. Moreover, the statute of
frauds will not apply because partition is not
a sale of real property or any interest therein.
c. If you were the judge how would you decide
the matter?
As judge I will rule in favor of the validity and
enforceability of the partition and the non-
applicability of the statute of frauds, subject
to the claim of Van Helsing because the
settlement of the estate should have included
the payment of debts validly incurred by the
decedent.
4. Seller obtained a homestead patent over a
parcel of land. Within the 5-year prohibitory
period, Seller sold his land to Buyer, as
evidenced by a Deed of Absolute Sale.
However, the deed was not registered. Buyer
then took possession of the property. After the
lapse of ten (10) years, Seller executed a 2nd
Deed of Sale, ratifying and confirming the 1st
deed, by re-stating the same provisions and the
same purchase price. The 2nd deed was
registered and a new title was issued to Buyer.
Subsequently, the relationship between Seller
and Buyer soured and the ownership over the
property became the subject of a land dispute
between the Seller and Buyer.
a. As counsel of Seller, what action would you
file against Buyer to claim ownership? When
should you file it?
Action for declaration of nullity of the sale, on
the ground that it was iin violation of the law
prohibiting such a transaction within 5 years
from the issuance of the patent. This kind of
action does not prescribe.
b. If you were the counsel of Buyer, how would
you defend against such action?
Counter-argument: Granting that the first
sale was void, the second sale was made
long after the expiration of the 5-year
prohibitory period and thus valid
c. If you were the judge how would you decide
the case?
As judge I will rule in favor of Seller. A
contract made in violation of law is null and
void and cannot be ratified. The second
contract is clearly intended to ratify the first
contract. This is apparent from the wordings
of the 2nd contract. An action for declaration
of nullity of a void contract does not
prescribe.
5. Among the different defective contracts that you
know:
a. Which is the most difficult to enforce?
Among the defective contracts, the most
difficult to enforce would be the void contract,
precisely because it is as if there was no
contract at all. It cannot be ratified and any
action to have it declared void does not
prescribe.
b. Which is the easiest to enforce?
The easiest to enforce would be the
rescissible contract because it is valid until
rescinded and the grounds for rescission are
very limited and restricted.
A voidable contract is also valid until annulled
but there are a lot more grounds that could
be invoked to support the action of
annulment.
An unenforceable contract cannot be
enforced for lack of authority or lack of a
writing or secondary evidence, which is
usually hard to find. Although an
unenforceable contract may be ratified, the
 same is usually hard to come by because,
otherwise, there would be no problem if
ratification can be easily or readily obtained.
LONG QUIZ
1. Know the characteristics of a contract and be
able to distinguish each from the rest.
a. Liberty of contract or freedom to
stipulate
The contracting parties may establish
such stipulations, clauses, terms and
conditions as they may deem convenient,
provided they are not contrary to law,
morals, good customs, public order or public
policy. (Article 1306)
b. Mutuality of Contracts
The contract must bind both
contracting parties; its validity or compliance
cannot be left to the will of one of them. (Art.
1308)
c. Relativity of Contracts
Contracts take effect only between the
parties, their assigns and heirs, except
where the rights and obligations are not
transmissible:
a) By law
b) By stipulation, or
c) By nature.
With respect to the heir, he shall not be liable
beyond the value of the property he received
from the decedent.
d. Consensuality of the Contract
Contracts are perfected by mere
consent. (Art. 1315) except in the following
contracts which need to comply with
additional requirements:
a) In real contracts such as deposit pledge
and commodatum, which are perfected
upon delivery of the object of the
obligation. (Art. 1316)
b) In formal or solemn contracts, which are
required to be in the form provided by
law, to be perfected, such as donation of
an immovable which which must be in a
public instrument together with the
acceptance thereof (Art. 749);
otherwise, the contract is void.
e. Obligatory force of contract and
compliance in good faith
Obligations arising from contracts
shall have the force of law between
the contracting parties and should be
complied with in good faith. (Art.
1159) Upon the perfection of the
contract, the parties are bound to the
following:
a. The fulfillment of what has been
expressly stipulated.
b. All the consequence which,
according to nature, may be in
keeping with good faith, usage
and law. (Art. 1315)
2. Reformation of Contracts. Know what
reformation of contract is, its purpose and the
grounds therefor. When can an action for
reformation may be brought, when can it not.
Reformation is a remedy in equity by
means of which a written instrument is made or
construed so as to express or conform to the
real intention of the parties when some error or
mistake has been committed.
1. There must be a meeting of minds of
the parties of the contract
2. The true intention of the parties is not
expressed in the instrument.
3. The reason therefor is due to mistake,
fraud, inequitable conduct or accident.
(Art. 1359)
When reformation cannot be made
available:
a. Simple donations intervivos wherein
no condition is imposed.
This is so because a donation is
essentially an act of liberality on the
part of the donor. However, if the
donation is conditional, reformation is
allowed so as show the true intent of
the donor as regards the conditions.
b. Wills
The reason is that the making of a will
is strictly a personal act which is free
and the will may also be revoked at
any time by the testator.
c. When the real obligation is void.
Here there is nothing to reform as the
contact is inexistent.
3. Object of Contracts. Be familiar with the object
of contracts; what contracts are specifically
prohibited by law.
Objects of the contract
 a. All things which are not outside the
commerce of men, including future things.
(Art. 1347)
b. All rights which are not intransmissible
c. All services which are not contrary to law,
morals, good customs, public order or public
policy.
Requisites of object of the contract
1. It must be within the commerce of men.
2. It must be transmissible
3. It must not be contrary to law morals, good
customs, public order or public policy.
4. It must not be impossible
5. It must be determinate as to its kind or if its
quantity is not determinate, it must be
possible to determine the same without the
need of a new contract between the parties.
4. Be familiar with the principle involved when
invoking legal threats as a ground for claiming
vitiated consent. General rule and exceptions, if
any.
No intimidation exists in case of a threat to
enforce one’s claims through competent
authority, if the claim is just or legal. (Art. 1335)
5. Cause or Consideration. What constitutes an
unlawful cause or consideration. Be familiar with
the various kinds of causes of a contract; what
are valid, what are illicit. Be able to distinguish,
PRECISELY, cause/consideration from motive.
General rule and exceptions, if any.
It is the essential reason why a party enters into
a contract.
Cause of Contracts
a. Onerous contracts – Here, the cause for
each contracting party is the prestation or
promise of a thing or service by the other
(Art. 1350)
b. Remuneratory contract – Here, the cause is
the service or benefit which is remunerated.
(Art. 1350)
c. Gratuitous, lucrative or contract of pure
beneficence. The cause is the liberality of
the benefactor. (Art. 1350) An example is
donation whose cause is the liberality of the
donor; or commodatum whose cause is the
liberality of the lender.
Cause vs Motive
a. Cause is the essential reason of the
contract; while motive is the private private
or secret reason or intention of a contracting
party.
b. The contract is void if the cause is illegal; the
validity of contract is not affected by the
illegality of the motive.
c. The cause of a contract is always known to
the contracting parties, while the motive of
one party may not be known to the other.
Lesion
It is the inadequacy of the cause. As a general
rule, lesion shall not invalidate a contract except
in the following:
a. When there is fraud, mistake and undue
influence (Art. 1355)
b. In cases provided by the law, such as when
the ward or absentee suffer lesion by more
than one fourth of the value of the object of
the contract. (Art. 1381)
6. Essential requisites of a contract.
a. Essential Elements – those without which
there will be no contract
1. Consent of the contracting parties.
2. Object certain which is the subject
matter of the contract.
3. Cause of the obligation which must be
established. (Art. 1318)
b. Natural Element – those found in certain
contracts unless set aside or suppressed by
the parties (such as warranty against
eviction and warranty against hidden
defects in a contract of sale
c. Accidental Element – Those that refer to a
particular stipulations of the parties (such as
terms of payment, interest rate, place of
payment).
7. Consensual contracts, real contracts, formal
contracts.
a. Consensual – Those that are perfected by
mere consent of the contracting parties
(such as sale and lease).
b. Real – Those that are the perfected by the
delivery of the object of the contract (such as
depositum, pledge, and commodatum). (Art.
1316)
c. Formal and solemn – Those which must be
in the form provided by law for their
perfection (such as the donation of an
immovable which, together with the
acceptance by the done, must be in a public
instrument to be valid).
8. When are formalities of contracts only for
convenience, not for validity?
Contracts for the convenience of the
convenience of the parties (Art. 1358)
Intelligent consent is vitiated by error; freedom
from violence, intimidation or undue influence;
spontaneity by fraud.
Free and Spontaneous

a. Public document 10. Distinguish conventional subrogation from

The following contracts are required assignment of credit.
to appear in a public instrument for the
convenience of the parties and so that they
may be registered in the proper recording 11. BorrowerX obtained a loan from BankZ in the
office to adversely affect third persons. amount of P5 Million. Subsequently, BankZ
packaged this loan into a commercial paper and
1. Acts and contracts which for their object transferred its credit to BankZZ for a fee
the creation, transmission, modification (discounted price of P4.8 Million).
or extinguishment of real rights over
immovable property. a. Is the consent of BorrowerX necessary
2. The cession, repudiation or renunciation for the validity of the transaction?
of hereditary rights or of those of conjugal Explain.
partnership of gains
3. The power to administer property, or any b. If your answer is in the negative, what
other power which has for its object and amendment or clarification should be
act appearing in a public document or made in the contract, to make
should prejudice a third person BorrowerX”s consent necessary?
4. The cession of actions or rights
proceeding from an act appearing in a c. If your answer is in the affirmative, what
public document. amendment or clarification should be
made in the contract to make
b. Any writing, public or private BorrowerX’s consent unnecessary?
All other contracts where the amount
involved exceeds 500.00 must be in
writing for the convenience of the
parties. However, the sale of goods,
chattels or things in actions whose
price is 500 or more must be in writing
to be enforceable.

9. What constitutes a valid consent (free and

unqualified consent), that would bind the
parties.

Elements of Consent
a. Legal capacity of the contracting parties;
b. Manifestation of the conformity of the
contracting parties;
c. Parties’ conformity to the object, cause,
terms and condition of the contract must be
intelligent, spontaneous and free from all
vices of consent; and
d. The conformity must be real.

Requisites of a valid consent

a. Intelligent, or with an exact notion of the
matter to which it refers;