STUDY GUIDE: CONTRACTS AND EXTINGUISHMENT OF OBLIGATIONS
ARTICLE 1231: MODES OF EXTINGUISHING OBLIGATIONS
Obligations may end through:
1. Payment or Performance - Doing what was promised.
2. Loss of the Thing Due - Object is lost or destroyed without fault.
3. Condonation or Remission - Debt is voluntarily forgiven.
4. Confusion or Merger - Debtor and creditor become the same person.
5. Compensation - Both parties owe each other and debts cancel out.
6. Novation - Old obligation is replaced with a new one.
Other Causes: Death (if personal obligation), Mutual withdrawal, Resolutory condition, Compromise,
Impossibility of performance, Fortuitous event.
ARTICLE 1305: WHAT IS A CONTRACT?
A contract is an agreement between two persons where one binds himself to give or do something
for the other.
ARTICLE 1306: FREEDOM TO CONTRACT & LIMITATIONS
Valid contracts meet all legal requirements and are enforceable. However, contracts must NOT:
- Be contrary to law
- Be contrary to morals
- Be contrary to good customs
- Be contrary to public order
- Be contrary to public policy
Examples:
- A contract to slap a parent is against good customs.
- A contract allowing violent eviction violates public order.
- A contract stopping someone from reporting a crime violates public policy.
ARTICLE 1307: NOMINATE AND INNOMINATE CONTRACTS
Nominate contracts have names in law (e.g., sale, lease).
Innominate contracts do not have specific names.
Kinds of Innominate Contracts:
1. Do ut des (I give that you may give)
2. Do ut facias (I give that you may do)
3. Facio ut des (I do that you may give)
4. Facio ut facias (I do that you may do)
Innominate contracts follow:
1. Agreement of parties
2. Civil Code provisions
3. Similar nominate contracts
4. Customs of the place
ARTICLE 1308: CONTRACT MUST BIND BOTH PARTIES
A contract must bind both parties equally. One party cannot cancel or change terms without the
other's agreement.
Example: A seller cannot decide alone to cancel or change the price without buyer's consent.
ARTICLE 1309: THIRD PERSON MAY DETERMINE PERFORMANCE
The performance of a contract may be decided by a third person (e.g., price of land set by
appraiser). But it only becomes valid when both parties are informed.
ARTICLE 1310: UNFAIR DECISION BY THIRD PERSON
If the third person's decision is clearly unfair (e.g., due to bias or mistake), it is not binding. The court
will decide what is fair.
ARTICLE 1311: WHO IS AFFECTED BY A CONTRACT?
General Rule: Only the parties, their heirs, or assigns are bound.
Exceptions:
- If the contract involves real rights
- If it contains stipulation pour autrui (for third-party benefit)
- If made to defraud creditors
- If violated due to a third person's interference
Stipulation pour autrui: A third person is clearly and deliberately given a benefit in a contract. They
can accept and demand fulfillment before revocation.
Types:
- Donee-beneficiary: Gets a gift
- Creditor-beneficiary: Is paid a debt
Requisites of Stipulation Pour Autrui:
1. Clearly intended to benefit the third person
2. Third person must accept before revocation
3. It must be only a part of the contract
4. Benefit must be free (not paid for)
5. Third person must not already be legally represented in the contract
Example: D owes C. C tells D to give interest to T. T accepts = valid.
Not valid: Neighbor benefits from a building contract incidentally.
ARTICLE 1312: CONTRACTS CREATING REAL RIGHTS
Real rights (like mortgages) are attached to property and follow it even if sold.
Example:
- D mortgages land to C.
- D sells land to T.
- T must honor the mortgage if it was registered.
If not registered and T acted in good faith, he is protected.
This guide summarizes key legal principles in contract law and extinguishment of obligations for
easy studying and understanding.