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Obligations and Contracts

Obligation came from the Latin word obligare which means to bind through giving, doing or not doing something. It is juridical course of action wherein a person is legally or morally bound to give, to do or not to do. An obligation is demandable and, in case of failure to accomplish, it can be enforced in court. Requisites of an obligation: 1. Juridical tie or vinculum which is the link that binds the parties 2. The presentation which is the giving, doing or not doing of something 3. The active subject which is the person who holds the right to demand the presentation, called obligee or creditor 4. The passive subject which is the person against whom the presentation may be demanded, called obligor or debtor Sources of obligations 1. Law 2. Contracts 3. Quasi-contracts 4. Acts or omissions punishable by law 5. Quasi-delicts Kinds of obligations 1. Pure and conditional 2. Obligation with a period 3. Alternative and facultative 4. Joint and solidary 5. Divisible and indivisible 6. Obligation with a penal all clause

Modes of extinguishing obligations 1. By payment or performance 2. By loss of the thing due 3. By condonation or remission of the debt 4. By confusion or merger of the rights of creditor and debtor 5. By compensation 6. By novation

SOURCES OF OBLIGATIONS Obligations arising from law Law is a rule of conduct laid down by legitimate authority for common benefit. The law is a necessary measure to establish order and peace in a society. Moreover, ignorance to the law is not a valid excuse from it thus breaking the law, whether the person is aware of it or not, is punishable. Examples are: 1. Obligations to pay taxes 2. Obligation of employers to pay minimum wages to employees 3. Obligations of husband and wife Obligations arising from contracts Contracts are meetings where one binds himself with respect to the other to render service. The obligations has the full force of the law so the completion of the terms in the contract must be complied with. Examples are: 1. Sale, barter 2. Lease, mortgage 3. Loan, deposit, insurance guaranty, antichresis 4. Partnership, agency Obligations arising from quasi-contracts Quasi-contract is a juridical relation arising from lawful and voluntary acts that makes both parties be bound to each other wherein no one shall be unjustly enriched or benefited at the expense of another. Kinds of quasi-contracts: 1. Negotorium gestio a. Voluntary administration of an abandoned business or property belonging to another without any consent

b. For the relation to exist these elements must be present: i. Management must refer to specific affairs ii. Property is neglected iii. No implied authority from the owner iv. No prohibition from the owner v. Management must protect the interest of the owner 2. Solutio Indebiti a. Juridical relation which is created by virtue of payment mistake, obliging the payee to return the payor what he has received b. Example: Payor gives a check worth 20,000 pesos by mistake to pay a 2,000 peso debt. The payee must return 18,000 pesos to the payor which is not due but it was paid by mistake. Obligations arising from crimes Crime of delict is defined as an act or omission punishable by law. Any person who committed crime are punished by imprisonment and indemnification of the heirs of the victim. The obligations arising from crimes are known as civil liability which may be complied within the form of restitution, indemnification or reparation of damages. Examples are: 1. Homicide 2. Damage to property through reckless impudence Obligations arising from quasi-delict Quasi-delict is defined as legal wrong comitted through fault or negligence. Punishments for comitting quasi-delicts are payment for the damage done (provided that there is no contractual agreement between the parties involved), and imprisonment. Examples are: 1. Pedestiral hit by a car 2. Food poisoning Diligence required in the performance of an obligation

An obligator is a person obliged to do something thus, upon the pending of a delivery, he is required to take care of the item unless a law or stipulation of the parties requires another standard of care. Examples are: 1. Online shopping 2. Buying of furnitures Rights to the fruits of the thing to be delivered A creditor has the rights to the fruits of the thing from the time the obligation to deliver arises however this same right disappears when the item has been delivered. Before the delivery, the creditor has the personal rights to the things. After delivery, the creditor now has the rights of ownership. Examples are: 1. LBC 2. Money transfer Rule when obligor incurs delay Delay begins on the moment a demand, judicial or extra judicial, for the fulfillment of the formers obligation is made by the creditor except when the obligation or the law expressly so declares; when from the nature and circumstances of the obligation it appears that the designation of the time was the controlling motive for the establishment of contract; or When demand would be useless. Examples are: 1. Delivery of balloons on a particular date when a childrens party will be held. In this case, the debtor is fully aware that after the time the obligation was done, the creditor will no longer benefit. 2. Sam obliged himself to deliver a specific horse to Bert on Sepmtember 5. Through Sams negligence or by reason of fortuitous event for which Sam has expressly bound himself responsible, the horse died on September 2. under this situation, any demand for the delivery whould be useless as Sam has made it impossible to perform his obligation.

Reciprocal obligations are when neither party incurs delay if the other does not or is not ready to comply in a proper manner with what is incumbent upon him. The delay by the other begins when one of the parties fulfill his obligation. Example: 1. K agreed to sell to J his television set for 10,000php. Ks obligation is to deliver the TV set to J, while Js obligation is to pay the said amount. Since no date was agreed upon, it is understood that it is simultaneous. K cannot demand payment if he himself cannot deliver the TV set. From the moment K delivers the TV set, J is in default if he does not pay K without the need of any demand.

Liability of obligor for farud, negligence delay, etc. From article 1170, those who in the performance of their obligation are guilty of fraud, negligence or delay, and those who in any manner contravene the tenor thereof are liable for damages. Grounds for liability: 1. Fraud 2. Negligence 3. Delay 4. Contravention Liability arising from fortuitous event From article 1170, except in cases expressly specified by the law, or when it is otherwise declared by the stipulation, or when the nature of obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which through foreseen, were inevitable. Fortuitous events are unexpected events either done by man or by God which can be ordinary or extraordinary, such as the following: 1. Floods 2. Earthquake 3. Torrents 4. Ship wrck 5. Lightnings 6. Robbery 7. 8. Fire Murder

9. War To determine whether an event is fortuitous, the following factors are taken into consideration: 1. The event must be independent of the human will, or at least of the debtors will. 2. The event could not be foreseen, or if foreseen, is inevitable.

3. The event must be of such character to render it impossible for the debtor to comply with his obligations. 4. The debtor must be free from any participation in the injury to the creditor, that is, there is no concurrent negligence on his part. In case of fortuitous event, a person is not responsible for loss or damage caused to another. His obligation is extinguished. However, exemptions are stated into the following: 1. When expressly specified by law i. ii. When the debtor is quilty of fraud, negligence,.... The debtor has promised to deliver the same specific thing to two or more persons who does not have the same interests. iii. iv. Obligation to deliver arises from a crime. The thing to be delivered is generic.

2. When declared by stipulation i. The basis of this exeption rests upon the freedom of contract.

3. When the nature of obligation requires the assumption of risks. i. Example: Bert insured his house for half a million to Charlies Insurance. Later, the house was destroyed by an accidental fire. In this case, Bert may recover the amount of the policy.

KINDS OF OBLIGATIONS Pure obligation Effectivity or extinguishment does not depend upon the fulfillment or non-fulfillment of a condition or upon the expiration of a period and is demandable at once Example: Promising ones partner a date Conditional Obligation Effectivity is subordinated to the fulfillment or non-fulfillment of a future and uncertain event or upon a past event unknown to the parties. A suspensive condition is happening of a condition gives rise to obligation. An example of this is a college student enjoys the benefits of a DOST scholar if he passes the exam for it. On the other hand, resolutory condition is a condition upon fulfillment extinguishes an already existing obligation. Example of this is the college student can enjoy the scholarship until he finishes her course the minimum time it takes to finish it. The Civil Code provides that in case of improvements, loss or deterioration of the thing before the fulfillment of the suspensive condition, the following rules shall govern: 1. If the thing is lost without the fault of the debtor, the obligation shall be extinguished. 2. If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is understood that the thing is lost when it perishes or goes out of commerce, or disappears in such a way that its existence is unknown or it cannot be recovered. 3. When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor; the creditor may choose between rescission of the obligation and its fulfillment, with indemnity of damages in either case. 4. If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor; and 5. If it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary. If the condition is resolutory, the happening of the condition extinguishes the obligation and the parties are obliged to make mutual restitution of whatever they have received by reason thereof (Articles 1189 to 1190).

Obligation with a period The obligation depends on a future and certain event. The period may be suspensive Ex die wherein the obligation is demandable on the day stipulated (ex. Grand celebration of a debut), resolutory In diem wherein the obligation is demandable at once but terminates on the certain day (ex. Monetary support of a child from his parents until he finds a job), legal wherein the period for compliance is fixed by law, or judicial or voluntary wherein the period for compliance is fixed by the courts or parties. Alternative obligation Alternative obligations are the kind of obligations in which various prestations are due, but the performance of one, usually chosen by the obligor (which may also be granted to the obligee or creditor) is sufficient. Ex. Issuance of registration documents Facultative Obligation Facultative obligation is the kind of obligation wherein only one prestation is due but the obligor or debtor may substitute another in lieu of the prestation due. Joint Obligation The obligation is one that to be fulfilled with proportionately by the various obligors or debtors and each one of the obligees or creditors is entitled and can demand a proportionate part of credit due from each of them. Solidary Obligation This kind of obligation is the exact opposite of joint obligation; each of the solidary debtors is liable for the entire obligation as long as the same has not been performed and each of the creditors can demand compliance Divisible Obligation Divisible obligation is one being capable of being performed partially.

Indivisible Obligation This kind of obligation requires no partial performance permitted Obligation with a Penal Clause Obligations acntains accessory undertaking to assume a greater liability in case of breach. Penal clause is attached to the principal obligation to insure its fulfillment.

MODES OF EXTINGUISHING OBLIGATIONS Payment or performance A pre-existing obligation is required for payment could be made on a specific performance or delivery of money. A debt is not considered paid unless the object or service have been delivered or rendered. Payments are in effect in various forms, such as the following: 1. Dacion in payment 2. Payment in cession 3. Tender of payment and sonsignation Loss of the thing The thing due is considered lost when it perishes, goes out of commerce, or disappears in such a way that its exitence is unknown or cannot be recovered. When the obligation consists of doing something, there is a loss when prestation becomes physically impossible an legally impossible (directcaused as when prohibited by law or indirectly-caused as when debtor is required to enter a military draft). The obligations to deliver determinate thing are extinguished if it is lost or destroyed without fault of the debtor and before he has incurred delay or not extinguished if the debtor is at fault or is made liable for fortuitous event because of a provision of law, contractual stipulation or the nature of the obligation requires assumption of risk on part of debtor. Example: X obliged himself to deliver a specific Australian horse to Y. Before the agreed date of delivery, the horse died without Xs fault. Condonation or remission It is an act of liberality by which the obligee, who receives no price or equivalent thereof, renounces the enforcement of an obligation, which is extinguished in whole or in part. Requisites: 1. There must be an agreement

2. There must be a subject matter (object of the remission, otherwise, there would be nothing to condone) 3. Cause of consideration must be liberality 4. Parties must be capacitated and must consent Example: Y is debted to X in the amount of Php 5,000.00. On the due date of obligation, Y offered to pay but x renounces his right to collect as he won in the sweeptakes. Confusion or merger Takes place the qualities of the obligor and that of the obligee meet in one person, the effect of which generally extinguishes the obligation. The character of debtor and creditor is merged in same person with respect to same obligation. If the merger take place in the person of the guarantor, only the accessory obligation of guarantee, not the principal obligation is extinguished. Requisites: 1. It must take place between principal debtor and principal creditor only. 2. Merger must be clear and definite. 3. The obligation involved must be same and identical one obligation only. 4. Revocable, if reason for confusion ceases, the obligation is revived. Compensation Takes place when two or more persons, in their own right, are creditors and debtors of each other. In order that compensation may be proper, it is necessary that each of the obligors is bound principally and that he be at the same time, a principal creditor of the other; that both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, annd also of the same quality if the latter has been stated; that the two debts be due; that they be liquidated and demandable and; that over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. Novation Novation is the change , substitution, or renewal of an obligatory relation, with the intention of extinguishing or modifying the former. It takes place by changing the object or principal conditions of the obligation (real), by Substitution of another person in the place of the debtor or Subrogation to the

rights of the creditor (personal) and, by Combination of both thru a change in the person of the parties or the object or principal condition.


Written Report in


Submitted by: Group I ChE 185 Submitted to: Engr. Gino Apollo Guerrero March 6, 2013