The law on obligation

and contracts
What is obligation?
It is a tie or bond recognized by law by virtue of which one is
bond in favor of another to render something and this may consist
in giving a thing, doing a certain act, or not doing a certain act.

Philippine Civil Code Article 1156 defines obligation as a

juridical necessity to give, to do, or not to do.
-
Examples of civil obligation.

1. Obligation to pay your monthly rent at your cottage ( to give )

2. Obligation of a owner to take care of his/her pets. ( to do )
3. Obligation of anyone not to kill ( not to do )

NOT a juridical necissity (therefore NOT civil obligations)

1. Your obligation to attend you classes (moral obligation)
2. To pay back your dept of gratitude(natural obligation)
Why civil obligation is a juridical necessity?

In case of none compliance, of the courts of justice may be called

upon to enforce its fulfillment or, in default thereof, the economic
value that it represents.
Essential requisites
1.
1. Passive
Passivesubject (Obligor)
subject - person
(Obligor) who is bound
- person who istobound
hte fulfullment of the obligation
to hte fulfullment of the obligation

2. Active subject (obligee) - person who is entitled to demand the fulfillment of the obligation
2. Active subject (obligee) - person who is entitled to demand the fulfillment of the
obligation
3. Prestation/Object/Subject matter - conduct required to be observed by the debtor ( it may consist in
3. Prestation/Object/Subject matter - conduct required to be observed by the debtor ( it may consist in
giving, doing, or not doing)
3. Prestation/Object/Subject matter - conduct required to be observed by the debtor ( it
4.
mayJuridical
consisttie/Vinculum/Vinculum juris
in giving, doing, or not- binds or connects the parties to the obligation.
doing)

4. Juridical tie/Vinculum/Vinculum juris - binds or connects the parties to the

obligation.
Unilateral obligation

Example
Saitama is obliged to pay his income taxes.

Passive subject - Saitama

Active subject - Philippine Government
Prestation - to give money (pay income taxes)
Jurudical tie - law
Bilateral obligation

• Contract sale
Sittie sold a Laptop to Shiervien for P50,000
Obligation 1 Obligation 2

Passive obligation Sittie Shiervien

Active obligation Shiervien Sittie

Prestaion Deliver of Laptop Pay P50,000

Juridical tie Contract

Obligations, RIght, Cause of Action (wrong)

Obligation - juridical necessity to give, to do, or do not do

Right - power which a person has under the law, to demand from another any
prestation

Cause of action - act or omission which violates a right

Injury, Damage,and Damages
Injury - act or omission which vauses harm

Damage - the harm done to a party

Damages - sum of money recoverable by reason of damage done

Sittie sold a Laptop to Shiervien for P50,000
Obligations Rights

Sittie Deliver the Laptop Demand collection of P50,000

Shiervien Pay P50,000 Deman delivery of Laptop

If Sittie delivered the Laptop and Shiervien does not pay Sittie P50,000, Sittie
will hace a right action.
Sittie - plaintiff
Shiervien - defendant

Cause of action - omission on part of Shiervien ( not paying )

Damage - Sittie incured loss on the sale
Damages - sum of money recoverable (P50,000+)
Types of obligations according to prestation
1. Real obligation - to give

2. Personal obligation -
1. Positive personal - to do
2. Negative personal - not to do
Source of obligations
Article 1157. obligation arise from:

1. Law
2. Contracts
3. Quasi-contracts
4. Acts or emissions punished by law law

5. Quasi-delicts
Obligations arising from law
• When impose by the law itself

• Examples:
• Paying taxes (Tax code)
• Obligations of parents to the family (Family code)
Obligations arising from contracts
• A contract is a meeting of minds between two persons whereby one binds
himself, with respect to the other, to give something or to render some
service.
Obligations arising from quasi-contracts
• A quasi-contract in that juridical relation resulting from certain lawful,
voluntary and unilateral acts by virtue of which the parties become bound to
each other to the end that no-one will be unjustly enriched or benefited at the
expense of another.

• Example:

• You received excessive change after paying from a store, it is your

obligation to return the excessive change ( Solutio indebiti)
Oblgations arising from delicts
• Also known as CRIME or FELONY
• Unlike the other sources of obligations, delicts produce both CRIMINAL and
CIVIL LIABILITIES.

• Examples:
• estafa, murder, rape (note that doing there crimes could not get you
imprisoned)
Obligations arising from quasi-delicts

• Also known as TORT or CULPA

• This is an act or omission by one party which causes
damage to another party wherein there is no pre existing
contract.
• Examples
•
• Because of the organizers’ negligence, audience were hurt during an event
• Because you are not careful while running in a busy sidewalk, you bumped
into a child and the child suffered injuries

In both cases the tortfeasors ( organizers, you) will answer for the medical
expenses of the audience (first case) and the child (second case)
Scope of Civil Liabilities
1. Resitution - the resitution of the thing itself must be made whenever possible,
with allowance for anay deteriortion, or diminution of value as determined by the
court.
2. Reparation for the damaged caused - court shall determine the amount of
damage, taking into consideration the price of the thing, whenever possilble,
and its special sentimental value to the injured party, and reparation shall be
made accordingly.
3. indemnification for consequential damages - indemnification for
consequential damages shall include not only those caused the injury party, but
also those suffered by his family or by a third person by reason of the crime.
• Example n

• John stole the vehicle of Lloyd. John was sighted by the authority and was
engaged in a car chase. after a while, John was apprehended by the
authority but the vehicle he stole from Lloyd got damaged. furthermore, Lloyd
should have presented the vehicle in a car show the same day John stole the
said vehicle. As a result, Lloyd loss potential income from the car show

• Resitution - return the vehicle

• Reparation - answer for the damage caused to the vehicle
• Indemnification - since John’s act resulted to Lloyd’s loss, John will also
answer for the said loss
Extinguishment of
Obligations
What is Extinguishment?

Extinguishment is the cancellation or destruction of a legal

right, interest or contract. Debt is considered extinguished
when the borrower pays the full balance of the debt, and
the creaditor releases the borrower.
ART. 1231.
Obligations are extinguished:
(1) By payment or performance;
(2) By the loss of the thing 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.
 Other causes of extinguishment of
obligations, such as annulment,
rescission, fulfillment of a resolutory
condition, and prescription, are
governed elsewhere in this Code.
Section 1. Payment or Performance

ART. 1232. Payment means not only the

delivery of money but also the performance, in
any other manner, of an obligation. (n)
Payment or Performance refers to the
payment that may consist of not only in the
delivery of money but also the giving of a
thing, and the doing of an act or not doing
of an act. In law, payment and performance
are synonymous.
ART. 1233

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.
Two requirements for payment

1.Integrity of prestation – the prestation

must be fulfilled and complete.
2.Identity of the prestation – the thing must
be delivered and released.
Example
Jake obliged himself to delivered 100 sacks of rice to
Jay. Jake only deliver 90 sacks.
Under the article 1233, there is no payment by Jake, and
Jay can refuse to pay for the 90 sacks if Jake does not
deliver what is lacking.

D promised to pay C P10,000. D is giving only P9,000.

C can refuse to accept P9,000 because the fulfillment is
not complete.
Special Modes of Payment or Performance

1. Application of Payment
2. Payment by Cession
3. Tender of payment and consignation
Application of Payment
ART. 1252. He who has various debts of the same kind in
favor of one and the same creditor, may declare at the time of
making the payment, to which of them the same must be applied.
Unless the parties so stipulate, or when the application of
payment is made by the party for whose benefit the term has been
constitued, application shall not be made as to debts which are
not yet due.
If the debtor accepts from the creditor a receipt in which an
application of the payment is made, the former cannot complain
of the same, unless there is a cause for invalidating the contract.
Application of payments is the designation
of the debt to which should be applied the
payment made by a debtor who has various
debts of the same kind in favor of one (1)
and the same creditor. ( Art. 1252, par. 1.)
Payment by Cession
ART. 1255. The debtor may cede or assign his property
to his creditors in payment of his debts. This cession,
unless there is stipulation to the contrary, shall only release
the debtor from responsibility for the net proceeds of the
thing assigned. The agreements which, on the effect of the
cession, are made between the debtor and his creditors
shall be governed by special laws.
Payment by cession is another special form of
payment. It is the assignment or abandonment
of all the properties of the debtor for the benefit
of his creditors in order that the latter may sell
the same and apply the proceeds thereof to the
satisfaction of their credits. (8 Manresa 321.)
Tender of Payment and Consignation
ART. 1256. If the creditor to whom tender of payment has been refused
without just cause to accept it, the debtor shall be released from
responsibility by the consignation of the thing or sum due.
Tender of payment is the act, on the part of the debtor, of offering to the
creditor the thing or amount due.
Consignation is the act of depositing the thing or amount due with the
proper court when the creditor does not desire or cannot receive it, after
complying with the formalities required by law. Consignation is applicable
when there is a debt or an obligation to pay. It is always judicial and it
generally requires a prior tender of payment which is, by its very nature,
extrajudicial. (Art. 1256, par. 1.)
Section 2. Loss of the Thing Due
ART. 1262. An obligation which consists in the delivery
of a determinate thing shall be extinguished if it should be
lost or destroyed without the fault of the debtor, and before
he has incurred in delay.
When by law or stipulation, the obligor is liable even
for fortuitous events, the loss of and the thing does not
extinguish the obligation, and shall be responsible for
damages. The same rule applies when the nature of the
obligation requires the assumption of risk.
Section 3. Condonation or Remission of Debt

ART. 1270. Condonation or remission is

issentially gratuitous, and requires the acceptance by
the obligor. It may be made expressly or impliedly.
One and the other kind shall be subject to the rules
which govern inofficious donations. Express
condonation shall,furthermor, comply with the forms
of donation. (1187)
 Condonation or remission is the gratuitous
abandonment by the creditor of his right against the
debtor. (4 Roman 422)
It is thus a form of donation.