Law on obligations and contracts

1. 1. The Law on Obligations and Contracts 2011 Assignment Submitted by: Domingo,
Dennimar O. TTh 17:00 - 18:30 Submitted to: Pio Sara Jagurin
2. 2. Chapter 2: Essential Requisites of Contracts GENERAL PROVISIONS Section 3 - Cause of
Contracts (Arts. 1350 - 1355) I. Definitions Define or give the meaning of the following: 1.
Cause Cause is an essential element of a contract which is more proximate purpose that the
contracting parties have in view at the time of entering into the contract. It is also called
causa which is the immediate or direct reason. The effect of the absence of cause makes no
right and creates no legal effect on the validity of the court. 2. Motive Motive is the purely
personal or private reason which a party has in entering into a contract. The illegality of
one’s motive does not render the contract void. It may be regarded as the cause in a contract
if it is founded upon a fraudulent purpose to prejudice a third person. 3. Inadequacy of
cause: Inadequacy of cause is not a ground for relief and from failure of cause which does
not convert the contract into one without cause or consideration. It means that the said
contract failed to present the right cause for the contract. Inadequacy of cause is not being
essential to the existence of cause but the contract is void for being without cause.
3. 3. II. Discussions 1. Give the requisites of cause in a contract. A contract without cause
confers no right and makes no legal effect whatever. In order to validate the contract, there
are important things to consider and it must include all of these things. First, it must exist at
the time the contract is entered into which means that the contract must have a cause in
order to make its effect be effective. Next is that it must be valid under the constitutions of
the law or to make it short, as a lawful cause because if these causes verified as unlawful,
the contract produce no effect at all. Lastly, the cause must be true or real. 2. State the effect
if the cause of a contract is found to be false. The contract states a valid consideration but
such statement is not true is meant by falsity of cause. This false statements cause the
contracts tend to be void or null. Next is it does not always produce this effect because it
may happen that the hidden but true cause is sufficient to support the contract. If the
parties can show that there is another cause and that said cause is true and lawful, then the
parties shall be bound by their true agreement. 3. What is the object and what is the cause
in a contract of sale? The thing or the object of the contract of sale is a bilateral or reciprocal
contract which is the cause for one is the subject matter or object for the other, and vice
versa. Hence, the distinction is only a matter of viewpoint. The object of the contract of sale
also must be determinate or capable of being determinate. It also needs to be licit or lawful,
that is, it should not be contrary to law, morals, good customs, public order, and public
policy. Third, it should not be impossible. The object of the contract must be within the
commerce of men, which means that it is legal and its ownership is transferable.
4. 4. III. Problems Explain or state briefly the rule or reason for your answer. 1. S sold his
fishing boat to B who intends to use the boat for smuggling. Is the contract of sale is illegal?
In this case, the motive of the buyer tends to use it in illegal form but the question is if the
contract of sale is illegal. Based on what I understand under Article 1351, the particular
motives of the parties in entering into a contract is NOT essential element of a contract
which the illegality of the buyer’s motive does not render the contract to be void. But there
are 2 cases that we may be considered. First is if seller has the knowledge about what will
the buyer do about the boat and that makes the contract of sale void while the second case
is when the seller doesn’t have the knowledge what will buyer’s do about the boat and that
makes the contract of sale still validated. 2. S sold to B a specific parcel of land for ₱500,000.
B failed to pay. Has C the right to have the sale declared void by the court on the ground of
absence of cause for non-payment of the price? In the scenario, C is just the third person
which doesn’t concern any fulfillment of obligation on the contract. C doesn’t have any right
 to have the sale declared void by the court on the ground of absence of cause for non-
payment of the price. C didn’t exist at the time of the transaction of the contracting parties
and it’s not his responsibility to declared that the contract of sale is void. Only the
agreement of the contracting parties has the rights to do anything about the contract.
5. 5. 3. X gave ₱10,000 to Y who sig ned a receipt stating : “This is to acknowledge payment by
X in the amount of ₱12,000.” X later complains that he received nothing from Y for the
₱10,000. Is Y bound to return the ₱10,000? Although the cause is not expressly stated in the
contract, the law presumes that X must have received a service from Y and that the same is
lawful. If X claims otherwise, then he must prove his allegation and that is when Y bound to
return the ₱10,000 of X. 4. S sold to B his car worth ₱250,000 for only ₱200,000. There is no
question that the purchase price is grossly inadequate. Has S the right to have the sale
annulled? In this situation, the contract of sale is valid although the price of S’ car is
inadequate. The fact that the contracting parties has the consent about what is the price of
the car, the transaction is not sufficient ground for the cancellation of a contract. However, if
it is show that B induced S to sell his car through the fraud, mistake or undue influence, S
has the right to have the sale annulled.
6. 6. Chapter 4: Reformation of Instruments (Arts. 1359 - 1369) STUDY GUIDE I. Definitions
Define or give the meaning of the following: 1. Reformation Reformation is that remedy
allowed by law by means of which a written instrument is amended or rectified so as to
express or conform to the real agreement or intention of the parties when by reason of
mistake, fraud, inequitable conduct, or accident, the instrument fails to express such
agreement or intention. 2. Mutual mistake Mutual Mistake is an error of both parties to a
contract, whereby each operates under the identical misconception concerning a past or
existing material fact. For example, a customer goes to the sample room of an interior
decorator to select a carpet and asks the clerk to show him a navy carpet, which he
subsequently purchases and takes with him. The sales slip notes that the carpet purchased
is navy. When, upon examining the carpet in daylight, the customer discovers that it is black,
not navy as he thought when he bought it, a mutual mistake would have occurred, since
both the seller and buyer were in error concerning the correct color of the carpet sold. Since
there had never been a true and complete meeting of the minds, no mutual assent was
actually arrived at, and the buyer would be entitled to return the carpet and obtain a full
refund.
7. 7. II. Discussions 1. What is the reason why the law in certain cases permits a written
instrument to be reformed or corrected? A written instrument is amended or rectified so as
to the parties when by reason of mistake, fraud, inequitable conduct, or accident, the
instrument fails to express such agreement or intention. This written document can be
formally attributed to its author, records and formally expresses a legal enforceable act,
process, or agreement. 2. In what way is reformation of written instrument distinguished
from the annulment of a contract? Reformation means changing the contract into correct
one and improves it. In the process of reformation, it includes the meeting of the minds of
the contracting parties on what they will gonna change or remove on the consideration of
the contract. For instance, S sold to B a parcel of land but this land already has a residential
building. Their contract is only consist of land but the residential building is not mentioned
on the agreement. Therefore, due to the wrong or mistake of the contract, they must
annulled it in order to reform a new contract that expresses the real intention of both
parties.
8. 8. III. Problems Explain or state briefly the rule or reason for your answer. 1. S sold his
horse “X” to B under a written contract of sale. What B thought S was selling him is horse
“Y”. C an S ask for the reformation of the contract against the objection of B who is agreeable
to the sale of horse “X”? The instance resulted to mutual mistake of fact which the written
 instrument failed to express the true intention of the contracting parties. S can ask for the
reformation of the contract due to the mutual mistake even though B agreed to receive the
horse X. 2. Suppose in the same example, S was intending to sell his horse “Y”. Give the three
(3) cases when he can ask for the reformation of the contract. On the same example mention
above, there are 3 cases wherein the seller can ask for the reformation of the contract. First,
the seller’s reformation will only be granted if he/she was mistaken in good faith. In this
case, the mistake is only acted by one party not mutual. Next case is when one party was
mistaken and the other knew or believed that the instrument did not state their real
agreement, but concealed that fact from the former that constitutes fraud, the instrument
may be reformed. And lastly is when the person who is drafting the written instrument
tends to practice ignorance, lack of skill, negligence or bad faith while drafting the contract
which resulted to the mistake which does not express the true intention of the parties, the
courts may order that the instrument be reformed.
9. 9. Chapter 5: Interpretation of Contracts (Arts. 1370 - 1379) STUDY GUIDE I. Definitions 1.
Interpretation of contract Interpretation of a contract is the determination of the meaning
of the terms or words used by the parties in their written contract. 2. Contract of adhesion
Contracts of adhesion is a contracts most of the terms of which do not result from mutual
negotiation between the parties as they are usually prescribed in printed forms prepared by
one party to which the other may “adhere” if he chooses but which he cannot change. II.
Discussions 1. What should be followed in the interpretation of a contract, its terms or the
intention of the parties? Explain. Based on Article 11370, in the interpretation of a contract,
the intention of the parties is one of the important to consider in creating the contract. The
intention of the parties should always prevail because their will has the force of law
between them. Terms are just created after the intention of the parties has been created.
10. 10. 2. Suppose a stipulation or word in a written contract is susceptible of various
interpretations, what interpretation or meaning should be given to it? There are some
instances that the word or stipulation of contract has susceptible meanings. In this case, one
of which would render it effectual, it should be given that interpretation. Thus, if one
interpretation makes a contract valid and the other makes it illegal, the former
interpretation is one which is warranted. Also, it is to be understood in that sense which is
most in keeping with the nature and object of the contract in line with the cardinal rule that
the intention of the parties must prevail. 3. State the rule of interpretation where there are
various stipulations of a contract. Under A rticle 1374, which stated, “The various
stipulations of a contract shall be interpreted together, attributing to the doubtful ones that
sense which may result from all of them taken jointly” said that the contract must be
interpreted as a whole and the intention of the parties is to be gathered from the entire
instrument and not from particular words, phrases, or clauses. All provisions should, if
possible, be so interpreted as to harmonize with each other. III. Problems Explain or state
briefly the rule or reason for your answer. 1. S sold to B his condominium unit “including all
its contents.” I n the unit, there is an antique chair belonging to X which X agreed to sell to S.
Is the chair to be included in the sale of the unit? The decision that’ll be made is based upon
the article 1372 which explained about the particular matter that may be included and
excluded on the terms of the contract. In this illustration, if S already paid the antique chair
to X, this chair can be considered to be part of the agreement. And if S is not yet paid, this
chair is still belonging of X so it is not included on the contract that says, “including all its
contents”.
11. 11. 2. X, architect, designed and supervised the construction of the house of Y. The parties
failed to agree beforehand the professional fee of X. How much is Y bound to pay X? In this
case it will be based on Article 1376 which tackled about the doubtful or ambiguous in a
contract which the contracting parties are entered into. A fine example of this Article was
mentioned above which the amount must be determined by the rate customarily paid in the
place where the services were rendered. They must also consider the quality of the work
and other factors that may affect the price of the work of X. 3. Suppose in the same problem,
the professional fee was agreed upon, but it is not clear from the written contract prepared
by X upon the request of Y whether it should be the fixed amount of ₱200,000 or 6% of the
cost of construction. How much is a Y liable to pay? In this problem, X is the party who draft
the contract that could have prevented mistakes or ambiguity in the meaning by careful
choice of words and also the party who causes the obscurity acts with ulterior motives. The
terms of the contract does not result to the mutual negotiation they’d created and most of it
was based upon the one party which is the X. The liability of Y is what will he/she chooses
from the terms of the contract. Reformation also can be made if Y chooses to reform the
contract.