OBLIGATIONS AND CONTRACTS 1.

The free disposal of the thing due - The payer

must legally own the item and have no legal
Zyka Clarrise B. Maulion BSA-1A
restrictions on its transfer.
2. The capacity to alienate - The payer must be
Main Causes of Extinguishment: legally competent to transfer ownership, not a
minor or incapacitated.
1. By payment or performance
2. Loss of the thing due
To "alienate" means to transfer ownership of
3. Condonation or remission of the debt
property.
4. Confusion or merger of the rights of creditor
and debtor THIRD PARTY PAYOR:
5. Compensation
The creditor is not bound to accept payment or
6. Novation
performance by a third person who has no interest
Contracts: in the fulfillment of the obligation (Art. 1263)
Exception: If there is a stipulation.
1. General provisions
2. Stages of Contracts
3. Classification and Types RIGHTS OF THE THIRD PARTY PAYOR:
4. Characteristics of Contracts
If the payment The payor can Rights:
5. Essential Requisites of Contracts was made: demand the
6. Defective Contracts debtor:
7. Interpretation of Contracts With the What he has The payor is
knowledge and paid (full legally
EXTINGUISHMENT OF OBLIGATIONS
consent of the reimbursement. subrogated to
By Payment or Performance
debtor. the rights of the
creditor.
DEFINITION: It means not only the delivery of money, but Without the What he has The payor
knowledge or paid (only the cannot compel
also the performance in any manner, of an obligation.
against the will payment that the creditor to
REQUISITES: of the debtor. has been subrogate him
beneficial to the in his rights.
1. Identity of the prestation – the very thing due debtor).
must be delivered or released.
2. Integrity of the prestation – the prestation
must be fulfilled completely. Subrogate in legal context - one person or entity

3. Payor – payment must be made by the proper assumes the rights or duties of another.

person. Subrogate - to substitute or replace one person or

4. Payee – payment must be made to the proper thing with another.

person. PAYMENT TO THE PROPER PERSON:

PAYMENT BY PROPER PERSON:

In General: Payment shall be made to any of the
In General: following:
➢ The obligation must be paid by the debtor.
➢ The creditor is entitled to demand payment • (a) The person in whose favor the obligation
by the debtor. has been constituted, or his successor in
interest;
• (b) Any person authorized to receive the
In obligations TO GIVE, the payment must be made by
payment (Art. 1240).
one who has:

Payment to the Wrong Party: If a payment is made to

the wrong person and it's not the debtor's fault, the
obligation is not considered fulfilled. However, if the o Juridical costs shall comply with the
payment benefits the creditor, it's considered valid. Rules of Court. (Art. 1247)
2. Currency:
Payment Made in Good Faith: If a debtor makes a o Debts in money must be paid in the
payment to someone who seems to have the right to currency stipulated in the contract.
receive it, and does so in good faith, the debtor is o If the specified currency cannot be
released from the obligation (Art. 1242). delivered, payment shall be made in
the currency that is legal tender in the
Payment made in good faith to any person in Philippines. (Art. 1249)
possession of the credit shall release the debtor (Art. 3. Payment in Legal Tender:
1242). "Person in possession of the credit" refers to the o Delivery of promissory notes payable to
person who, under the circumstances, appears to be order, bills of exchange, or other
entitled to the payment. mercantile documents counts as
payment only when:
Judicial Order to Retain the Debt: If a court has ordered ▪ (a) They have been cashed, or
a debtor to withhold payment, any payment made to ▪ (b) They have been impaired
the creditor after that order is not valid. due to the fault of the creditor.
(Art. 1249)
"Good faith" in legal terms generally refers to 4. Extraordinary Inflation or Deflation:
honesty in intention or belief, without any intent to o In cases of extraordinary inflation or
deceive or defraud others. deflation of the currency stipulated, the
value of the currency at the time the
INTEGRITY OF THE PRESTATION obligation was established shall be the
basis of payment, unless agreed
In General: The obligation must be fulfilled completely. otherwise. (Art. 1250)
When someone enters into a contract, they have the 5. Place of Payment:
right to insist on its full performance. o Payment shall be made:
▪ In the place designated in the
Exceptions to the Integrity of the Prestation: obligation, if specified.
▪ Wherever the thing may be at
1. Stipulation to the Contrary: Parties can agree the moment the obligation was
that partial performance is acceptable. constituted (for a determinate
2. Partly Liquidated and Partly Unliquidated thing).
Debt: Partial payment can discharge the known ▪ At the domicile of the debtor
part of a debt. (for any other case).
3. Substantial Performance: If most of the
obligation is completed, it may be enough to "Domicile" means a person's permanent home.
fulfill it.
4. Acceptance without Protest: If the creditor PAYMENT BY CESSION
accepts performance without objection, it may
discharge the obligation. Definition: The assignment or abandonment of all the
properties of the debtor for the benefit of the creditors
In General: For payment to be valid, the exact thing in order that the latter may sell the same and apply the
owed must be delivered or released. proceeds thereof to the satisfaction of their credits.

Other Provisions Regarding Payment: Requisites:

1) There must be two or more creditors;

1. Expenses:
o Unless otherwise stipulated, 2) The debtor must be (partially) insolvent;
extrajudicial expenses required for
payment shall be paid by the debtor. 3) The assignment must involve all the properties of the
debtor; and
4) The cession must be accepted by the creditors. • The thing is lost or destroyed without the fault of
the debtor, and before the debtor is in delay
TENDER OF PAYMENT / CONSIGNATION
(Art. 1262).

Definitions:
• A thing is considered lost when it:
1. Perishes,
2. Goes out of commerce,
Tender of Payment: When a debtor tries to give the
3. Disappears in such a way that its
exact thing or money owed to the creditor.
existence is unknown or it cannot be
recovered.
Consignation: When the debtor can't pay the creditor
directly, so they deposit the exact thing or money owed
• Perishes: This means the item is destroyed or
with the court instead.
no longer exists in its original form.

Requisites:
For example, if a car is completely wrecked in
1) Existence of valid debt which is due; an accident, it has perished.

2) Tender of payment by the debtor and refusal without • Goes out of commerce: This happens when the
justifiable reason by the creditor to accept it; item is no longer available for trade or use.

3) Previous notice of consignation to persons interested

For instance, if a particular model of a
in the fulfillment of the obligation;
smartphone is discontinued by the
4) Consignation of the thing or sum due; manufacturer and is no longer sold, it has gone
out of commerce.
5) Subsequent notice of consignation made to the
interested parties. • Disappears in such a way that its existence is
unknown or it cannot be recovered: This occurs
In Simple Words: Consignation is a process that a when the item is lost in a manner where it
debtor can use when they can't pay their creditor cannot be found or recovered.
directly. It involves depositing the exact amount or thing
owed with the court. To do this: For example, if a rare artifact is lost at sea and
its location is unknown, or if it's buried under
• There must be a real debt that the debtor owes debris in a landslide and cannot be retrieved, it
and it must be time to pay it. is considered to have disappeared in such a
• The debtor must try to pay the exact amount or way that its existence is unknown or it cannot
thing owed to the creditor. be recovered.
• If the creditor refuses to accept the payment
without a good reason, the debtor can deposit Impossibility of Performance:
the payment with the court instead.
• The debtor must tell all parties who have a • Obligations to do shall be released if the
stake in the payment being made (like other prestation (action) becomes legally or
interested parties or co-debtors). physically impossible without the fault of the
• After depositing the payment with the court, the obligor (Art. 1266).
debtor must tell all interested parties again. • If the service becomes so difficult that it is
beyond the contemplation of the parties, the
EXTINGUISHMENT OF OBLIGATIONS obligor may also be released in whole or in part
By Loss of The Thing Due (Art. 1267).

Loss of Thing Due: An obligation to deliver a Exceptions:

determinate thing is extinguished if:
1. When the obligor is liable even for fortuitous
events by stipulation.
2. When by law, the obligor is liable even for
fortuitous events.
3. When the nature of the obligation requires the
assumption of risk.
4. When the obligor is guilty of contributory fault or
negligence.
5. When the loss or impossibility occurred after
the obligor has incurred in delay.
6. When the obligor has promised to deliver the
same thing to two or more persons who do not
have the same interest.