OBLIGATIONS & CONTRACTS

OBLIGATIONS:
An obligation is a juridical necessity to give, to do, or not to do.

Elements of the obligation:

The obligation is constituted upon the concurrence of the essential elements thereof:
a. Juridical tie: the efficient cause established by the various sources of obligations;
b. Object: the prestation or conduct required to be observed (to give, to do, or not to
do);
c. Active (obligee) & Passive (obligor) subjects: subject-persons whom can demand
from the obligation

Sources of obligation:
1. Law
2. Contracts
3. Quasi-contracts
4. Acts or ommissions punished by law
5. Quasi-delicts

NATURE & EFFECT OF OBLIGATIONS

Obligation to give:
A prestation which consists in the delivery of a movable or an immovable thing in order
to create a real right, for for the use of the recipient, or for its simple possession, or in
oder to return it to its owner.

Specific or determinate thing:

A thing is specific or determinate when it is particularly designated or physically
segrated from all others of the same class.

Generic or indeterminate thing:

A thing is generic or indeterminate when it is designated merely by its class or genus
without any particular designation or physical segregation from all others of the same
class.

Obligations of a debtor in obligations to give a specific or determinate thing:

1. To preserve or take care of the thing due with proper diligence of a good father of a
family, unless another standard of care is required by law or stipulated by the parties;
2. To deliver the fruits of the thing;
3. To deliver all accessions and accessories of the thing although not mentioned;
4. To deliver the thing itself;
5. To be liable for damages in case of delay, fraud, negligence or contravention of the
tenor thereof.

Rights of a creditor in obligations to give a specific or determinate thing:

1. To compel specific performance with right to be indemnified for damages;
2. Right to the fruits of the thing from the time the obligation to deliver it arises;
3. If the obligor delays, or has promised to deliver the same thing to two or more
persons who do not have the same interest, the creditor has the right to hold the obligor
responsible for any fortuitous event until the latter has effected delivery;
4. To demand rescission of the obligation with right to recover damages, should the
obligation be reciprocal;
5. To demand payment of damages if the other party is guilty of fraud, negligence, or
delay in the performance of their obligation, and contravenes in any manner the tenor
thereof.

Obligations of a debtor in obligations to give a generic or indeterminate thing:

1. To deliver a thing which is neither of superior nor inferior quality; and
2. To be liable for damages incase of breach of the obligation by reason of delay, fraud,
negligence or contravention of the tenor thereof.

Rights of a creditor in obligations to give a generic or indeterminate thing:

1. To ask for performance of the obligation;
2. To ask that the obligation be complied with at the expense of the debtor;
3. To recover damages for breach of the obligation by reason of delay, fraud,
negligence or contravention of the tenor thereof.

Personal right Real right

A personal right is the right or power of a A real right is the right or interest of a
person (creditor) to demand from another person over a specific thing without a
(debtor), as a definite passive subject, definite passive subject against whom
the fulfillment of the latter’s obligation to the right may be personally enforced.
give, to do, or not to do.

DIFFERENT MODES OF BREACH OF OBLIGATIONS

1. Fraud;
2. Negligence;
3. Delay; and
4. Contravention of the tenor thereof.

Fraud:
Fraud is synonymous to bad faith. Bad faith does not simply connote bad judgement or
negligence; it imports a dishonest purpose or some moral obliquity and conscious doing
of a wrong, a breach of a known duty through some motive or interest or ill will that
partakes of the nature of fraud.

Negligence:
Consists in the omission of that diligence which is required by the nature of the
obligation and corresponds with the circumstances of the persons, of the time and of the
place.

Diligence of a good father of a family:

Connotes reasonable care consistent with that which an ordinarily prudent person would
have observed when confronted with a similar situation.

Kinds of negligence according to source of obligation:

1. Culpa contractual: fault or negligence of obligor by virtue of which he is unable to
perform his obligation arising from a pre-existing contract;
2. Culpa aquiliana / quasi-delict: fault or negligence of a person, whose failure to
observe the required deligence to the obligation causes damage to another;
3. Culpa criminal: fault or negligence which results in the commission of a crime.

Requisites of default/delay by the debtor:

1. The obligation is demandable and liquidated;
2. The debtor delays performance;
3. The creditor judicially or extra-judicially demands the debtor’s performance.
Kinds and effects of delay:
1. Mora solvendi: a. The debtor is guilty of breach of obligation.
b. He is liable for interest in case of obligation to pay money or for
damages in other obligations.
c. He is liable even for a fortuitous event when the obligation is to
deliver a determinate thing.

2. Mora accipiendi: a. The creditor is guilty of breach of obligation.

b. He is liable for damages suffered, if any, by the debtor;
c. He bears the risk of loss of the thing due;
d. Where the obligation is to pay money, the debtor is not liable for
interest from the time of the creditor’s delay; and
e. The debtor may release himself from the obligation by the
consignation of the thing or sum due.

3. Compensatio morae: a. The delay of the obligor cancels out the effects of the
delay of the obligee and vice versa;
b. In case both parties have committed a breach of the
obligation, the liability of the first infractor shall be equally
tempered or balanced by the courts. If it cannot be
determined which of the parties is guilty of delay, the
contract shall be deemed extinguished and each shall
bear his own damages.

FORTUITOUS EVENT
: any event which cannot be foreseen, or which, though foreseen, is inevitable
: either impossible to foresee or impossible to avoid
: a happening independent of the will of the debtor, which makes the normal fulfillment
of the obligation impossible

1. Acts of man
: an event independent of the will of the obligor but not of other human wills
: e.g. war, fire, robbery, murder, insurrection

2. Acts of God
: refer to force majeure; events which are totally independent of the will of every human
being
: e.g. earthquake, flood , rain, shipwreck, lightning, volcano eruption

Kinds of Fortuitous events:

1. Ordinary : events which are common & which the contracting parties & could
reasonable foresee (e.g. rain)
2. Extraordinary : events which are uncommon & which the contracting parties could
not have reasonably foreseen (e.g. earthquake, fire, war, pestilence, unusual flood)

Requisites of Fortuitous events:

1. Independent of the human will or at least the debtor’s will
2. event could Not be foreseen, or if foreseen, is inevitable
3. Impossible for the debtor to comply with his obligation in a normal manner
4. Free from any participation or concurrent negligence of the debtor

**ALL must be present; otherwise, would not exempt obligor from liability
Rule on LIABILITY whenever a fortuitous event occurred:
General Rule: Not responsible for loss or damage to another resulting from the non-
performance of his obligation (obligation is extinguished)

Exceptions:
1. When expressly specified by law:
(a) debtor is guilty of fraud, negligence, or delay or contravention of the tenor of
the obligation
(b) debtor has promised to deliver the same specific thing to 2 or more persons
who do not have the same interest
(c) obligation to deliver a specific thing arises from a crime
(d) thing to be delivered is generic

Example: X stole a bag from Y. X has the obligation, arising from the crime, to
return the bag to Y. Even if the bag is lost due to FE.

2. When declared by stipulation: Intention to make the debtor liable even in case of a
FE should be clearly expressed.

3. When the nature of the obligation requires the assumption of risk: Fire insurance

SIMPLE LOAN / MUTUUM

: contract whereby one of the parties delivers to another, money or other consumable
thing, upon the condition that the same amount of the same kind and quality shall be
paid.

USURY
: contracting for or receiving interest in excess of the amount allowed by law for the loan
or use of money, goods, chattels or credits

REQUISITES FOR RECOVERY OF INTEREST

1. Payment of interest must be Expressly stipulated.
2. Agreement must be in writing.
3. Interest must be lawful.

TRANSMISSIBILITY OF RIGHTS
General rule: All rights acquired in virtue of an obligation are generally transmissible or
assignable.

Exceptions:
1. Prohibited by law: partnership, agency, commodatum
2. Prohibited by stipulation of the parties: death of creditor extinguishes obligation;
cannot assign

KINDS OF OBLIGATIONS

Pure: immediately demandable; not subject to any condition and no specific date is
mentioned for its fulfillment
e.g. X binds himself to pay Y Php 100,000
Conditional: one whose consequences are subject in one way or another to the
fulfillment of a condition

CONDITION : future and uncertain event, upon the happening of which,

the acquisition or extinguishment of an obligation (or right)
subject to it depends
: must not be impossible
: future & uncertain; past but unknown

Two kinds of condition:

1. Suspensive condition: fulfillment of which will give rise to an

obligation (or right)
e.g. X will sell land to Y if he inherits the same from
his father.

2. Resolutory condition: fulfillment of which will extinguish an

obligation (or right) already existing
e.g. X will give Y allowance of Php 5,000 until he
graduates from college.

As to cause/origin:

1. Potestative: condition depends upon the will of one of the contracting parties
e.g. (debtor) VOID : both condition & obligation are void
I will pay you if I want
I will pay you after I graduate from college

VALID : only the condition is void

X borrowed Php 100,000 from Y payable within 1 mo.
Thereafter, X promised to pay Y upon the sale of his car.

2. Casual: condition depends upon chance or upon the will of a third person
e.g. X promised to sell his land to Y if the same is adjudicated to
him by his father

3. Mixed: condition depends partyly upon chance and partly upon a third person
e.g. X Construction comany promises to repair & cover damages
in the building if it was hit by an earthquake; if found by a panel
of arbitrators that construction defects contributed in any way to the damage

Period: future and certain event upon the arrival of which the obligation subject to it
either arises or is extinguished
● debtor promises to pay when his means permit him to do so
● as soon as possible
● from time to time
● at any time I have money
● in partial payments
● when I am in a position to pay
 Condition Term/Period
In general Refers to an event Refers to an interval of time
As to requisites Requires futurity and Requires futurity and
uncertainty certainty
As to fulfillment May or may not happen Will surely come to pass,
although it may not be known
when
As to influence upon the Exerts an influence upon the Exerts an influence only
obligation very existence of the upon the time of
obligation itself demandability or
extinguishment of an
obligation
As to retroactivity effects Has retroactive effects Does not have retroactove
effects unless there is an
agreement to the contrary
As to effect of will upon When condition is left When the duration of a term
debtor exclusively to the will of the or period is left exclusively to
debtor, the very validity of the will of the debtor, the
the obligation is affected obligation is still valid

Alternative obligation Facultative obligation

As to number of objects Several objects are due Only one object is due
As to compliance It may be complied with by It may be complied with by
delivery of one of the objects the delivery of another object
or by performance of one of or by the performance of
the prestations which are another prestation in
alternatively due substitution of that which is
due
As to the right of choice Choice generally belongs to Choice pertains only to the
the debtor unless it has been debtor
expressly granted to the
creditor
As to extinguishment in case Loss/impossibility of all Loss/impossibility of the
of loss objects/prestations due to object/prestations due to
fortuitous event shall fortuitous event is sufficient
extinguish the obligation to extinguish the obligation
As to culpable loss before It may give rise to liability on It does not give rise to any
choice the part of the debtor liability on the part of the
debtor
As to loss through fault of The loss of one of the The loss of the thing due
debtor alternatives through the through the debtor’s fault
debtor’s fault does not render makes him liable.
him liable if the right of
choice belongs to the debtor. The loss of the substitute
before the substitution
Where the right of choice has through the fault of the
been expressly granted to debtor does not render him
the creditor by the debtor, liable.
the loss of one alternative
through the fault of the
debtor gives rise to liability.
As to nature Various prestations all of Only the principal prestation
which constitute parts of the constitutes the obligation, the
obligation. accessory being only a
means to facilitate payment.
 Joint Obligations Solidary Obligations
As to demand by the creditor The demand by one creditor Each one of the solidary
produces the effects of default creditors may do whatever
only with respect to the may be useful to the others,
creditor who demanded and but not anything which may be
the debtor on whom the prejudicial to the latter. Hence,
demand was made. each solidary creditor may
constitute the debtor in
default.
As to breach of obligation by 1. In case of a joint divisible If there was fault on the part of
reason of the act of one of the obligation, the other debtors any one of the solidary
debtors cannot be compelled to debtors, all shall be
answer for the liability of responsible to the creditor, for
others as the debt is divided the price and the payment of
into an many equal shares as damages and interest, without
there are debts. prejudice to their action
2. In case of a joint indivisible against the guilty or negligent
obligation, it gives rise to debtor.
indemnity for damages from
the time any one of the
debtors does not comply with
his undertaking. The debtors
whom may have been ready
to fulfill promise shall NOT
contribute to the indemnity
beyond the corresponding
portion of the price of the thing
of of the value of service
which the obligation consists.
As to insolvency of debtor If one of the joint debtors When one of the solidary
should be insolvent, the debtors cannot, because of
others shall not be liable for his insolvency, reimburse his
his share. share to the debtor paying the
obligation, such share shall be
borne by all his co-debtors, in
proportion to the debt of each.
As to personal defenses The vices of each obligation A solidary debtor may avail
arising from the personal himself of all defenses which
defect of a particular debtor or personally belong to the
creditor do not affect the others only as regards that
obligation or the rights of the part of the debt for which the
others. latter are responsible.
As to presumption by law Presumed by law. Not presumed. Must be
expressly stipulated by the
parties, or when the law or th
enature of the obligation
requires solidarity.
As to liability of each debtor Proportionate part of the Obliged to pay the entire
enture debt. obligation.
As to right of the creidtor to Each creditor, if there are Each creditor has the righ to
the fulfillment of the obligation several, is entitled only to a demand from any of the
proportionate part of the credit debtors, the payment or
fulfillment of the entire
obligation
 Divisible Obligations Indivisible Obligations
As to object Those which have as their Those which have as their
object a prestation which is object a prestation which is
susceptible of partial not susceptible of partial
performance without the performance, because
essence of the obligation otherwise, the essence of
being changed. the obligation will be
changed.
As to when deemed 1. The obligation has for its 1. Obligations to give
divisible/indivisible object the execution of a definite things;
certain number of days of 2. Obligations which are
work; not susceptible of partial
2. The obligation has for its performance;
object the accomplishment 3. Obligations intended by
of work by metrical units; the parties to be indivisble
3. The obligation which by even if thing or service is
its nature is susceptible of physically divisible;
partial performance. 4. Obligations provided by
law to be indivisible even if
thing or service is physically
divisble.

Indivisbility Solidarity
As to nature Indivisibility refers to the Solidarity refers to the legal
prestation which constitutes tie, and consequently, to
the object of the obligation. the subjects or parties of
the obligation.
As to requisite Plurality of subjects is not Plurality of subjects is
required in indivisibility. indispensable in solidarity.
As to effect of breach When the obligation is When there is liability on
converted into one of the part of the debtors
indemnity for damages because of breach, the
because of breach, solidarity among the
indivisibility of the obligation debtors remains.
is terminated.
As to liability for damages Only the debtor guilty of All of the debtors are liable
breach of the obligation is for breach of the obligation
liable for damages. committed by a co-debtor,
for solidarity among them
remains.
As to plurality of parties Indivisibility can exist There must be at least two
although there is only one debtors and two creditors.
debtor and one creditor.
As to insolvency of the The others are not liable in The others are
parties case of insolvency of one proportionately liable.
debtor.
EXTINGUISHMENT OF OBLIGATIONS

Modes of extinguishing an obligation:

1. By payment or performance
2. By the loss of the things due
3. By the condonation or remission of the debt
4. By the confusion or merger of the rights of creditor and debtor
5. By compensation
6. By novation
7. Fulfillment of a resolutory condition
8. Rescission
9. Annulment
10. Prescription
11. Death of one of the contarcting parties in purely personal obligations
12. Will of one of the contracting parties in certain contracts
13. Expiration of the resolutory term or period
14. Renunciation or waiver by the obligee or creditor
15. Compromise

PAYMENT:
Payment means not only the delivery of money but also the performance, in any other
manner, of an obligation. In law, payment and performance are synonymous.

An obligation is understood to be paid or performed when:

General rule: A debt shall not be understood to have been paid unless the thing or
service in which the obligation consists has been completely delivered or rendered, as
the case may be.

Exceptions: Instances where there is payment even if the obligation is not completely
delivered/rendered:
1. When the obligation has been substantially performed in good faith.
2. When the obligee accepts the performance, knowing its incompleteness or
irregularity, and without expressing any protest or objection.
3. When the obligation to give, to do, or not to do is converted into an obligation to
indemnify the obligee or creditor because of breach or nonfulfillment and indemnity is
finally paid in full.

Persons from whom the creditor must accept payment:

1. Debtor;
2. A third person who has an interest in the fulfillment of the obligation; or
3. A third person who has no interest in the obligation when there is stipulation that he
can make payment.

Effect of payment made by a third person with respect to the extinguishment of the
obligation:
1. The creditor is not bound to accept payment or performance by a third person who
has no interest in the fulfillment of the obligation, unless:
a. There is a stipulation to the contrary; or
b. When it is made by a third person who has an interest in the fulfillment of the
obligation, such as a guarantor, surety, or joint debtor
2. Whoever pays for another may demand from the debtor what he has paid. But he
can recover only insofar as the payment was beneficial to the debtor if he paid:
a. Without the knowledge of the debtor; or
b. Against the will of the debtor.
3. When a person pays on behalf of the debtor without the knowledge or against the will
of the latter, he cannot compel the creditor to subrogate him in his rights, such as those
arising from mortgage, guaranty, or penalty.
4. When payment is made by a third person who does not intend to be reimbursed by
the debtor, it is deemed to be a donation, which requires the debtor’s consent. But the
payment is in any case valid as to the creditor who has accepted it.

Rights of a third persons who effected payment with the knowledge and consent of the
debtor:
1. He can recover from teh debtor the entire amount which he has paid; and
2. He is subrogated to all of the rights of the creditor.

Effect of payment made to a wrong person:

When payment is made to the wrong party, the obligation is extinguished as to the
creditor who is without fault or negligence even if the debtor acted in utmost good faith
and by mistake as to the person of the creditor or though error induced by fraud of a
third person.

Subrogation Reimbursement
As to definition The person who pays for the Reimbursement is merely a
debtor is put into the shoes of simple personal action
the creditor. available to the third person
against the debtor to recover
from the latter what he has
paid insofar as the payment
has been beneficial to the said
debtor.
As to right acquired The third person is entitled, The third person entitled by
not only to demand reason of payment has merely
reimbursement from the the bare right to be refunded
debtor, but also to exercise all to the extent provided in par.2
the rights which the creditor of Article 1236 without the
could have exercised against right to the guarantees and
the debtor and against third securities of the original
persons, such as those arising obligation.
from a mortgage, a guaranty,
or a penalty.

To whom must payment be made:

Payment shall be made to the:
1. Person in whose favor the obligation has been constituted; or
2. His successor in interest; or
3. Any person authorized to receive it.

Special forms of payment:

1. Dation in payment
2. Application of payments
3. Payment by cessation
4. Tender of payment and consignation
 Dation in Payment Payment by Cession
As to number of parties Only one creditor Plurality of creditors
As to financial condition of the Debtor is not necessarily in a Debtor is in a state of partial
parties state of financial difficulty or relative insolvency
As to object What is delivered by the What is ceded by the debtor is
debtor is merely a thing to be the universality of all of his
considered as the equivalent property
of the performance of the
obligation
As to effect Payment extinguishes the Merely to release the debtor
obligation to the extent of the for the net proceeds of the
value of the thing delivered things ceded or assigned,
either as agreed upon or as unless there is a contrary
may be proved, unless the intention
silence of the parties signifies
that they consider the delivery
of the thing as the equivalent
of the performance of the
obligation
As to whether it is an act of An act of novation Not an act of novation
novation

Tender of Payment Consignation

As to description It is the antecedent of Act of depositing the thing due
consignation, that is, an act with the court or judicial
preparatory to the consigation, authorities whenever the
which is the principal, and creditor cannot accept or
from which are derived the refuses to accept payment,
immediate consequences and it generally requires a
which the debtor desires or prior tender of payment.
seeks to obtain.
As to the act involved Preparator act Principal act
As to character Extrajudicial in character Judicial in character

LOSS OF THE THING DUE:

The thing which constitutes the object of the obligation perishes, or goes out of
commerce of man, or disappears in such a way that its existence is uknown or it cannot
be recovered.

Requisites in order that an obligation to give may be extinguished by the loss of the
thing:
1. The thing which is lost must be determinated;
2. The thing is lost without any fault of the debtor; and
3. The thing is lost before the debtor has incurred in delay.

Doctrine of Frustration of Enterprise / Doctrine of Unforeseen Events / Doctrine of

Relative Impossibility:
When the service has become so difficult as to be manifestly beyond the contemplation
of the parties, the court should be authorized to release the obligor in whole or in part.

CONDONATION / REMISSION OF DEBT:

An act of liberality, by virtue of which, without receiving any equivalent, the creditor
renounces the enforcement of the obligation, as a result of which it is extinguished in its
entirety or in that part or aspect of the same to which the remission refers.
Requisites for a remission or condonation which result in the total/partial extinguishment of the
obligation:
1. It must be gratuitous;
2. It must be accepted by the obligor;
3. The obligation must be demandable;
4. Parties must have capacity;
5. It must not be inofficious; and
6. It must comply with the formalities prescribed for donation if remission is expressed.

Requisites for implied condonation or remission of debt:

1. The document evidencing the credit was delivered by the creditor to the debtor;
2. Such document is a private document; and
3. The delivery was voluntary.

CONFUSION OR MERGER:
There is confusion or merger when the characters of creditor and debtor are merged in the
same person.

Requisites of confusion or merger of rights:

1. Merger of the characters of the creditor and debtor must be in the same person;
2. Must take place in the person of either the principal creditor or the principal debtor;
3. There must be a complete and definite meeting of all qualities of creditor and debtor in the
obligation or in the part thereof affected by the merger.

COMPENSATION:
The extinguishment in the concurrent amount of the obligations of those persons who are
reciprocally debtors and creditors of each other.

Kinds of compensation:
1. As to cause: a. Legal: takes effect by operation of law from the moment all of the
requisites are present.
b. Voluntary: parties who are mutually creditors and debtors agree to
compensate their respective obligations, even though all of the
requisites for compensation may not be present; and
c. Judicial: takes effect by judicial decree
2. As to effect: a. Total: when the two debts are of the same amount; and
b. Partial: when the debts to be compensated are not equal in amount.

NOVATION:
Takes place in the following instances:
1. Changing their object or principal conditions
2. Substituting the person of the debtor; and
3. Subrogating a third person in the rights of the creditor.

Requisites of extinctive novation:

1. There must be a previous valid obligation;
2. The parties concerned must agree to a new contract;
3. The old contract must be extinguished; and
4. There must be a valid new contract.

Forms of novation by substitution of debtors:

1. Expromision: substitution of debtors with the consent of the creditor at the instance of the
new debtor even without the knowledge or against the will of the old debtor
2. Delegacion: substitution of debtors effected with the consent of the creditor at the instance of
the old debtor with the concurrence of the new debtor.