1. Define Contracts.

A contract is a meeting of the minds between two persons whereby one binds
himself, with respect to the other, to give something or to render some
service. (Art. 1305)
2. What are the causes of extinguishing an obligation?
Answer:
Obligations are extinguished:
a.
b.
c.
d.
e.
f.

By
By
By
By
By
By

payment or performance;
the loss of the thing due;
the condonation or remission of the debt;
the confusion or merger of the rights of creditor and debtor;
compensation;
novation.

Other causes of extinguishment of obligations are the following: annulment,

rescission, fulfilment of a resolutory condition, and prescription.(Art. 1231)
3. State the effect of consignation.
If the creditor to whom tender of payment has been made refuses without
just cause to accept it, the debtor shall be released from responsibility by the
consignation of the thing or sum due.
Consignation alone shall produce the same effect in the following cases:
1. When the creditor is absent or unknown, or does not appear at the place
of payment;
2. When he is incapacitated to receive the payment at the time it is due;
3. When, without just cause, he refuses to give a receipt;
4. When two or more persons claim the same right to collect;
5. When the title of the obligation has been lost
IN order that consignation shall produce the effect of payment, it is not only
essential that it must conform with all of the requisites of payment, but it is
also essential that certain special requirements prescribed by law must be
complied with. The debtor must show:
a. That there is a debt due;
b. That the consignation has been made either because the creditor to whom
tender of payment was made refused to accept the payment without just
cause, or because any of the cause stated by law for effective
consignation without previous tender of payment exists ( Art. 1256)
c. That previous notice of consignation had been given to the persons
interested in the fulfilment of the obligation.
d. That the thing or amount due had been placed at the disposal of judicial
authority ( Art. 1258, par. 1)

e. That after the consignation had been made, the persons interested in the
fulfilment of the obligation had been notified thereof. (Art. 1258, par 2)
4. What are contracts considered voidable?
Answer:
The following contracts are voidable or annullable, even though there may
have been no damage to the contracting parties:
1. Those where one of the parties is incapable of giving consent;
2. Those where the consent is vitiated by mistake, violence, intimidation,
undue influence or fraud ( Art. 1390)
5. State the cases where reformation is not allowed.
Answer:
There shall be no reformation in the following cases:
a. Simple donations inter vivos wherein no condition is imposed;
b. Wills;
c. When the real agreement is void. (Art. 1366)
When one of the parties has brought an action to enforce the instrument, he
cannot subsequently ask for its reformation. (Art. 1367)

6. When is compensation considered proper?

Answer:
In order that compensation may be proper, it is necessary:
1. That each one of the obligors be bound principally, and that he be at the
same time a principal creditor of the other;
2. That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the
latter has been stated;
3. That 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
Compensation is not proper under the following circumstances:
1. Debts arising from contracts of depositum;
2. Debts arising from contracts of commodatum;
3. Claims for support due by gratuitous title
4. Obligations arising from criminal offense
5. Certain obligations in favor of the government, such as taxes, fees, duties
and others of a similar nature.
7. How are obligations modified?
Answer:
Obligations may be modified by:

1. Changing their object or principal conditions;

2. Substituting the person of the debtor;
3. Subrogating a third person in the rights of the creditor. (Art. 1291)
8. What is legal subrogation? When is it presumed?
Answer:
It is presumed that there is legal subrogation:
a. When a creditor pays another creditor who is preferred, even without the
debtors knowledge;
b. When a third person, not interested in the obligation, pays with the
express or tacit approval of the debtor;
c. When, even without the knowledge of the debtor, a person interested in
the fulfilment of the obligation pays, without prejudice to the effects of
confusion as to the latters share. (Art. 1302)
9. What is the rule to be observed and the conditions to be imposed with
intention of suspending the efficacy of an obligation to give in case of the
improvement, loss or deterioration of the thing during the pendency of the
condition?
Answer:
Art. 1189
When the conditions have been imposed
With the intention of suspending the efficacy of an obligation to give,
The following rules shall be observed in case of improvement,
loss or deterioration of the thing during the pendency of the
condition:
1. If the thing is lost without the fault of the debtor, the obligation shall be
extinguished;
2. If the thing is lost through the fault of the debtor, he shall be obliged to
pay damages; it is understood that the thing is lost when it perishes, or
goes out of commerce, or disappears in such a way that its existence is
unknown or it cannot be recovered;
3. When the thing deteriorates without the fault of the debtor, the
impairment is to be borne by the creditor;
4. If it deteriorates through the fault of the debtor, the creditor may choose
fulfilment, with indemnity for damages in either case;
5. If the thing is improved by its nature, or by time, the improvement shall
inure to the benefit of the creditor;
6. If it is improved at the expense of the debtor, he shall have no other right
than that granted to the usufructuary.

10.Under what circumstances shall the debtor lose every right to make use of
period?
Answer:
Art. 1198
The debtor shall lose the right to make use of the period:

1. When after the obligation has been contracted, he becomes

insolvent, unless he gives a guaranty or security for the debt;
2. When he does not furnish to the creditor the guaranties or
securities which he has promised;
3. When by his own acts he has impaired said guaranties or securities
after their establishment, and when through a fortuitous even they
disappear, unless he gives a new one equally satisfactory;
4. When the debtor violates any undertaking , in consideration of
which the creditor agrees to the period;
5. When the debtor attempts to abscond.

PROBLEMS:
1. A construction company entered into a contract to build a 5-storey
commercial building for a period of 3 years worth 10 million. After a year, the
building was completed without electrical plumbing fixtures. The contractor
demanded from the owner the payment of the contract price however the
owner refuses to pay because there was no electrical fixture. The contractor
sued the owner for collection of the balance. Thereafter, the contractor filed
an action for reformation to include the installation of electrical fixtures. The
owner moved to dismiss the case for lack of cause of action.
a. Decide
b. What are the cases or agreement which are unenforceable by an action
filed by a party?

2. A dealer offered for sale a Bulldozer worth 5 Million to a construction

company. The construction company made a counter offer which the dealer
accepted. The owner confirmed the receipt of the subject equipment.
Thereafter the dealer demanded the payment of the delivered bulldozer. The
construction company refused to pay so the dealer sued the company for
collection. The construction company contended that the agreement is
unenforceable.
a. Will the action of the dealer for collection against the construction
company prosper? Cite legal basis.
b. Is the contention of the contractor that the contract is unenforceable
correct? Explain. Cite legal basis.
c. If you are the judge, how will you decide the case? Cite legal basis.