Law on obligations and contracts Guidance by Prof. Pio Sara Jagurin

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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.