BUSINESS LAW

(OBLIGATIONS AND
CONTRACTS)

Submitted by:
She Tacastacas

Submitted to:
Ms. Joanne Balaba
 KINDS OF OBLIGATION

Pure Obligation- is one that is demandable at once because it does not depend upon a future or
uncertain event, not on a past event unknown to the parties and is not an obligation with a
resolutely condition.

Explanation:

A pure obligation is an obligation upon which it is fulfilled depends on a future or specific event
or event in the past that is unknown to each other immediately upon request and the event
becomes void of obligation that may also be filed or demanded by the court or by a party without
the effect of the anticipated event of the cancellation of the obligation.
Example:
Nicole made a promissory note for the upcoming midterm exam and she promise to pay 10,000.

Conditional Obligation-one of the fulfilment in which it is subject to a certain condition which

may be an event, which may or may not happen. It could be suspensive or resolutory.

Explanation:

It’s more on fulfilment of certain condition if it will be going to happen or not and by having
conditional obligation people may strive hard and motivated to fulfil the condition.

Example:

Hyacinth promise Matheu to buy a new Laptop if he pass the exam.

Condition- uncertain event which wields an influence on a legal relation.

Explanation:

It is an unforeseeable event in which obligation and provision depends.

Principal Kinds of Condition:

1. Suspensive Condition-is a future or uncertain event, the happening of which give birth to the
obligation.

Explanation:

The suspensive condition is temporarily suspend the right and obligation under the contract until
the said condition is being fulfilled. Once the condition was fulfilled the contract considered
gratified. However if the suspensive condition is not fulfilled no necessary contract between the
parties come into existence.
Example:

Tina must provide a proof that she can pay the debt that she borrowed to her boss on such latter
date as may be agreed.

Requisites for a suspensive condition to be considered fulfilled even if it not actually

fulfilled:

a. The condition is suspensive- it comprises obligation to suspend operation of obligation

beneath a contract until the condition gratified. If there is no condition gratified, then
there is no contract comes to exist.
b. The obligor actually prevents the fulfilment of the obligation- when the obligor dedicate
an act willingly that is not intended to prevent fulfilment of the condition, then there is no
fulfilment achieved.
c. The obligor act voluntarily (same as letter B.)

2. Resolutive Condition-is an event the passing of which extinguishes the obligation.

Explanation:

The Resolutive Condition is immediately secure on its rights and obligation coming on the
existence of the contract and there is no deferral of its rights and obligation unlike suspensive
condition.

Example:

Tina will no longer provide a proof that she can pay the debt that she barrowed to her boss on
such latter date as may be agreed, the contract will be considered to be cancelled and be of no
force or effect.

Requisites for a resolutory condition to be considered fulfilled even if it is not actually

fulfilled:

a. The condition is resolotury- it refers to a condition whereby an enforceable obligation

been fulfilled. It also permissible to the parties to use their original positions and it
implied in all commutative contracts.
b. The obligor actually prevents the fulfilment of the obligation- when the obligor do an act
voluntarily which is not intended to prevent the fulfilment of the condition but
nevertheless resulted in a frustration of the condition, there is no effective fulfilment.
c. The obligor acts voluntarily (Same as letter B)

Characteristics of a Condition

a. It must be future and uncertain- the condition must not happened at the same time. A
condition precedent must occur before a right accrues.
 b. It is past but unknown- the past event must necessarily be unknown to the interested
parties at the moment in the sense that the event can be consider unsettled.
c. It must not be possible- impossible condition, those contrary to good custom or public
policy and those prohibited by the law shall be invalidate of the obligation. If the
obligation is distinguishable, that part which is not affected by the impossible or unlawful
condition shall be valid.

Impossible Conditions

 Physical Impossible Condition- these are in the nature of things that cannot exist or
cannot be done.
Ex.
I will give my Iphone to you if there will be no typhoon exist in one year.
 Legally Impossible Condition- contrary to law, morals, good customs, public order, or
public policy.
Ex.
Tine will give all of his property to Pam if
a. Pam will kill Bright ( against the law)
b. Pam will be the common-law wife of Tine (against moral)
c. Pam will punch her sister (against good customs)
d. Pam will encourage violence against government (against public order)
e. Pam will lie against Tine in a criminal case (against public policy)

Difference between a suspensive and resolutory conditions

Suspensive Condition Resolutory Condition

If fulfilled, the obligation appear. If fulfilled, the obligation will be terminate.
If fulfilled, the juridical tie will not exist. If fulfilled, the juridical tie is consolidated.
Until the condition takes place, the existence Until the condition exists, the effects of the
of the obligation is barely hope. obligation happen but the possibility of
termination remains.
Obligation will become in demand, only when Obligation will become instant demandable
the condition happens. but ceases to be effective when the condition
happens.

Joint and Solidary Obligations

 Individual Obligation- there is only one obligor and one oblige.

 Collective obligation- there are two (2) or more debtors and/ or two (2) or more creditors.

Joint Obligation- where the whole obligation is to be paid or fulfilled proportionately by the
different debtors and demanded proportionately by the different creditors. This is the
presumption in all collective obligation unless solidarity is expressly stated.

Explanation:
The whole obligation is liable to be paid to fulfill the different debtors or demanded
proportionately by the different creditors.

Example:

X and Y are liable to pay P20,000 to Z. In this type of obligation, X and Y are liable only for
P10,000 each and Z is not obliged to collect from each debtor more than his corresponding share
in the said obligation.

Solidary Obligation- refers to a legal relationship where one or more of several debtors are each
liable to pay the entire amount, or one or more of several creditors each able to collect the whole.

Explanation:

It is an obligation under which any of two or more obligors can be held liable for the entire
performance like payment of a debt.

Example:

A owes B and C, solidary creditors, the amount of P20,00. B can demand payment of the
obligation for this will benefit C. If B decided obligate A to pay, B is still responsible to
reimburse for his share.

Divisible and Indivisible Obligations

Divisible Obligation- the object of which, in its delivery or performance, is capable of partial
fulfilment.

Explanation:

It is an obligation in which the object, in its performance is capable without changing the essence
of the obligation.

Example:

Mr. Gonzales passed away and leaving his property to his family. The property can be divided
evenly to the heirs.

Indivisible Obligation- the object of which is not capable of partial fulfilment.

Explanation:

It is an object prestation which is not capable to partial fulfilment or the essence of obligation
will be changed.

Example:

Usher receive an ordered from his buyer to deliver Iphone pro max not later than May 30.
However, the only available model on his supplier is only Iphone 11.Usher cannot deliver the
pick up available because the said order is pro max and it is not susceptible for partial
performance realizing the purpose of which the obligation seeks to obtain. Usher has to deliver
the exact model required.

Obligation with Penal Clause

 Principle obligation-one which can stand by itself and does not depend for its validity
and existence upon another obligation while an accessory obligation is one which is
attached to a principle obligation and therefore, cannot stand alone.

Explanation:

It is an obligation which appear from the principle object of the assignation which has been
contracted between the parties. It differs from an accessory obligation.

 Accessory Obligation- one which is attached to a principle obligation and therefore,

cannot stand alone.

Explanation:

When the first obligation is accepted, an accessory obligation can be committed and cannot
stand alone at the end of primary obligation.

 Obligation with a penal clause- one which contains accessory undertaking to pay a
previously stipulated indemnity in case of breach of the principal prestation, intended
primarily to induce its fulfilment.

Explanation:

All of the creditor has to prove, to impose penalty, the violation of the obligation of the
debtor. It is not oblige to cite the evidence to prove losses and damages by the creditor.

Civil and Natural Obligations

 Civil Obligations- based on positive law. They are those that are expressly provided for
by laws. They give a right of action to compel their performance which means in order to
enforce these obligations, the people who are aggrieved can file a case before the courts
to compel the performance of these obligation.

Explanation:

It is totally based on a positive law and gives right of action to compel performances which
means that as a way to implement these obligations, people who aggrieved can report a case
before the courts to compel the performance of those obligation.

Example:

Abby wrote a promissory note for her debt to Andrew. Abby is the debtor while Andrew is
the creditor. If Abby does not pay on due date, Andrew can enforce the fulfilment of the
 obligation by the court of action. If Andrew will not file in the court of action within 10 years
from the due date which is the given period for an action against the agreement. Andrew
might lose his right as a creditor.

 Natural Obligations- based on equity and natural law. They do not grant the right of
action to enforce their performance but after the obligor voluntary fulfils the obligation,
they authorize the retention of what has been delivered or rendered by reasons thereof. It
exist to temper with equity and justice the severity of the civil law.

Explanation:

It is an obligation that has no legal basis, therefore it does not provide right of action to
enforce performance. It is totally based on equity, morality, and natural law, and to be
voluntary.

Example:

A defendant who voluntarily help the poor people who does not demand in return of what he
has done or the payment of the value of service he rendered for the poor people. Natural
obligation are based on positive law but on equity and natural law.

EXTINGUISHMENT OF OBLIGATIONS

Article 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.

Payment- it refers to the giving of a things other than money, the doing of an act, or not doing an
act.

Explanation:

Payment in law is a fulfilment of a promises; performance of agreement. It may form of money

or either specific property or services by debtor to creditor.

Example:
Example of this are paying by bill of exchange, by promissory note, by check (negotiable
instruments), or by electronic funds transfer.

Article 1233. As a general rule, the obligation will only be extinguished by payment of it.

Explanation:

A debt may be paid by money, things (other than money) to do an act or not to do an act but it
must on the currency agreed on. The said payment must have negotiation first between the debtor
and creditor on what kind of payment should be use.

Explanation:

A and B made an agreement that A will pay the damages cost P5000.00.A only give P2500.00 to
B. B can refuse to accept the money because the said agreement is not fulfilled.

Article 1234. Allows for a debtor to recover in case of substantial compliance in good faith.
However, before this exception could apply, the following requisites must be met:

 There must be substantial performance of the obligation; and

 The obligor must be in good faith.

Explanation:

There is a substantial agreement by the debtor when in good fate that he/she tried to perform the
settlement or prestation but through excusable neglect or oversight, he/she didn’t make full and
entire performance for which the opposite party can be reimburse.

If there is substantial agreement, the obligor may also get better although there has been
complete fulfilment minus the amount damages suffered by means of the obligee.

Example:

Hyacinth obliged herself to sell 100 mangoes to Matheu for a certain price. However, she was
able to deliver only 95 mangoes because of the shortage of mangoes. Hyacinth wants to comply
with her obligation to deliver the entire order but he was not able to do it for a reason beyond her
control. Under the law, Hyancinth can recover as though there had been a complete delivery less
the price of 95 mangoes. Matheu cannot require Hyacinth to deliver first remaining 5 mangoes as
a condition to the liability for the price. He must pay the 95 mangoes and enforce his right for
damages for failure of Hyacinth. It is mandatory upon Hyacinth to explain what happened so
that Matheu will able to understand.

Article 1235. When the obligee accepts the performance, knowing its incompleteness or
irregularity, and without expressing any protest or objection, the obligation is deemed fully
complied with.
Explanation:
This Article provides an express rule that an obligee is already stopped from the obligor further
compliance if he accepts an incomplete or irregular compliance of the duty, knowing fully nicely
that such disorder exists. The law deems the obligation fully complied with on this case.
Example:
X availed the promo of Cut Salon to rebond her hair. The staff of cut salon rebond her hair but
after 3 days her hair still curly. X talked to the staff of cut salon thst she is not satisfied with
service. Obligation is not fully extinguished.
Article 1427. The creditor cannot be compelled to accept payment where the person paying has
no capacity to make it.
Explanation:
In this article when a minor between 18-20 years of age made a contract without the permission
of the parents and voluntarily pays an amount of money or offers fungible things in achievement
of the obligation, there shall be no right to recover from the oblige who has spent or consumed it
in good faith.
Example:
Kisses is a 19 years old who entered into a contract with Junjun for a small business which is
milktea. She paid the total amount P50,000 without the consent of her parents, therefore she can
no longer recover the amount she paid off to junjun.
Article 1242. Payment in good faith made to any person in possession of the credit shall be
valid.
Explanation:
This law is intended to defend the debtor from being required to pay again the payee.
Example:
Gee owes P50,000 to his bestfriend Ben. Ben lost the agreement paper given by Gee. His mother
found the agreement paper and demanded the paypment from Gee.
Article 1243. When a debtor has been judicially ordered to retain the debt but the debtor still
paid the same to the creditor, such payment shall not be valid.
Explanation:
In this article, there must be an order to the judge keep the debt the third person filed a process of
garnishment which the debtor’s creditor is subjected to the payment of his own debt to another
Example:
X owes Y P100,000.00.Y in return, owes Z P100,000.00. Z brings an action agains Y, who
claims inability to pay one’s dabt but he admit the credit which he has over to X. Before X pays
Y, X asked the proceeding to retain the debt in the meantime. Thus, the debt is “garnished”. The
reason why X should not pay Y, and instead he should pay Z.
Loss of the Thing Due- the law technically defines a thing is lost when it perishes, or goes out
of commerce or disappears I such a way that its existence is unknown or it cannot be recovered.
Explanation:
It is a method of extinguishment of responsibility wherein the determinate component is lost or
destroyed without the fault of the debtor, and before it incurred in delay. It recognize that the
element is misplaced when it perishes, disappears, or goes out of commerce wherein such factor
not exist and cannot be recovered.
Example:
Ana promised to deliver 20 sock of rice to Ben. But the rice that Ana intended to deliver was
washed away by the typhoon. Ana is liable to ben because her obligation is to deliver the genetic
thing, and it can still be paid from the other sources.
Condonation or Remission- is a mode of extinguishment of obligation wherein the creditor
gratuitously renounced his right against the debtor with the latter's acceptance.
Explanation:
It is the method of extinguishment of obligation wherein the creditor reject his/her right in
opposition to the debtor with the latter of acceptance.

Example:
Lianne owes Mica P50,000 payable on May 30, 2020. On due date, Mica told Lianne that she
should not pay because she is condoning Lianne’s debt.
Confusion or Merger of Rights- this is another cause of extinguishment of obligation where
there is a meeting in one person of the qualities of creditor and debtor with respect to the same
obligation.
Explanation:
It compromise of meeting 1 person of the qualities of the creditor and debtor with good moral
and same obligation.
Example:
Lianne borrowed money from Mica. As security, Lianne mortgaged her land. Subsequently,
Lianne sold her land to Judith. (in this case, the mortgage is extinguishment of the accessory
obligation does not carry with it that of the principal obligation)
Compensation - shall take place when two persons, in their own right, are creditors and debtors of
each other. It is the extinguishment to the concurrent amount of the debts of two persons who, in
their own right, are debtors and creditors of each other.
Explanation:
It is a method of extinguishment of responsibility wherein there’s simultaneous balancing or
weighting of two responsibilities that reciprocally of debtors and creditors of each other.
Example:
A owes B the amount of P5,000. B owes A the amount of P4,500.00. (Both debt are due and
payable today. Here compensation takes place partially, that is, to the concurrent amount
P4,500.00
Novation- the total or partial extinction of an obligation through the creation of a new one which
substitutes it. There can be novation through changing the object or principal conditions, through
substituting the person of the debtor; or subrogating a third person in the rights of the creditor.
Explanation:
It is the substitution of the new agreement from the old one. New agreement put out the rights
and obligations that have been affected under the old agreement. A novation essentially arises
when new individual assumes that an obligation to pay and end up incurred by manner of the
original party of the manner.
Example:
C sign a contract with D for C will builc the house of D for 2M. C enters into a separate contract
with D and E for E to paint C house and to discharge its duties to D.

CONTRACTS
  It is a meeting of minds between 2 persons whereby one binds him/herself, with respect
to the other, to give something or to render some service.
 There must be 2 person involved; otherwise, allowing one to contract with him/herself
would only result to confusion that extinguishes an obligation.
 It is one of the source of obligation.
 It adheres to technical rules and must be lawful.
 It is enforceable through legal proceeding.

Explanation:
It is a contract of agreement or settlement between two or more competent parties. The
agreement can be form of written, formal, informal, oral or just simply understood.
Example:
L sign a contract to the company that he will going to work.
Valid Contract- these are the contracts that meet all the illegal requirements and limitation for
the type of agreement involved.
Explanation:
It is a legitimate contract, in the context of insurance, refers to a legally enforceable agreement
between insurers and policyholders as well as insurers and reinsurers. It includes the transfer of
risk for a top premium payment.
Classification of Contracts According to Name or Designation
1. Nominate Contracts- these contracts have specified names or designation in law.
Explanation:
A nominate agreement is systematize contractual relationship of special designation attached
to it, (such as buy and sale, lease, loan, insurance), against to innominate contracts (which
aren't standardized and consequently have no set name).
Example:
Matmat sign for a loan agreement.
2. Innominate Contracts- theses contracts do not have specify names or designations. There
are several kinds of innominate contract, namely:
a. Do ut des (“I give that you may give.”)- it comprises an obligation to give from both
parties.
Explanation:
It is a contract whereby something is given so that something may be received in return. (e.g.,
sale or loan)
b. Do ut facias (“I give what you may do.”)- it comprises an obligation to give on the part of
the first party and obligation to do on the part of the second party.
Explanation:
It is a contract whereby something is given and something may be done in return. (e.g,. hiring
workmen for wages)
c. Facto ut des (“I do what you may give.”)- it comprises an obligation to do in the part of
the first party and obligation to give on the part of the second party.
Explanation:
It is the type of contract in the civil law which arises when someone agrees to perform
anything for a price, either exclusively mentioned. (e.g., case of employees)
 d. Facto ut facias (“I do what you may do.”)- it comprises an obligation to do on both
parties.
Explanation:
It is a contract in which one party perform something in order that another may perform
something in exchange. (e.g., marriage, or exchange of services)

FORMS OF CONTRACTS

Classification of Contracts According to Form

1. Informal/common/simple contract- these may be entered into in whatever form as long as
all the essential requisites for its validity are present.
Explanation:
It is an agreement that sometimes use in a form of oral or written.
Example:
V and Y made a verbally agreement about the debt the he going to pay.
2. Formal/Solemn Contract- these are required by the law for the same to be effective that
they be in a certain specified form.
Explanation:
It is required by the law to have certain specified form of agreement. By having this formal
Contract it is formed by a greater authority.
Example:
STI agreed Y to write a promissory note for the upcoming exam.
Unauthorized Contract- a person is not bound by the contract of another of which s/he has no
knowledge or to which s/he has not given any consent.
Explanation:
It is where the contract stated that the one who link in that obligation of borrowing money to
another person’s name without a permission.
Example:
L was authorized by Mr. P to have contract of sale with another person. However, L acted
beyond the given power to him. Therefore, the contract is not enforceable against Mr. P and he
may not be compelled to accept the instalment payments.

REFORMATION OF CONTRACTS

Reformation- this remedy is allowed by law by means of which a written instruments is

amended or rectified to express or conform to the real agreement or intention of the parties when
by reason of mistake, fraud, inequitable conduct, or accident, the instruments fails to express
such agreement or intention.
Explanation:
It is a contract that the court allows the parties to have revision portion of the said contract to
make it more accurate from mistakes. The court allows because they will no longer create
another contract. Neglecting a contract case, the non- neglecting party usually must choose
between legal and equitable remedies. (e.g,. monetory damages award to reimburse for losses)
Grounds for Reformation
 Mistake- it is the parties were mistaken about certain term in the contract, the court may
grant a request of reformation but first, it should be prove that there was a mistake on the
contract for it will invalidate to do some changes.
 Fraud or Inequitable Conduct- it occur when the patent of the applicant misrepresent or
there are misinformation of showing the real agreement.
 Accident- the mistake should not be done intentionally for it will be considered cheating.
INTERPRETATION OF CONTRACTS

Literal Interpretation
Article 1370.Contracts should be fulfilled according to the literal sense of their stipulations if
the terms of a contract are clear and unequivocal.
Explanation:
If the term of contract are clear and there is no doubt of the contracting parties, then it means
its provision shall restraints.
Example:
Mila executed the contract and the term of the contract was clear and it does not appear any
circumstances that the intention of the party is contrary to the literal meaning of the said
contract.
Interpretation Based on Subsequent Acts
Article 1371. The parties; contemporaneous and/or subsequent acts to the perfection of the
contracts are significant in determining the intention of the parties.
Explanation:
To judge the intention of the contracting parties, their contemporaneous and subsequent acts
shall be considered.
Example:
Bon and Bry execute into a contract titled Contract of Lease. It states that the possession and
ownership of the land are transferred to Bry. The title to the land was given by Bon and Bry
who registered the land in their names. Before the date of the contract, Bry wrote a letter to
Bon offereing to buy the land. In that way, it clearly indicate that the evident intention is to
make Bry the owner of the lance but the contract should be interpreted as one sale.
Specific vs. General Intent
Article 1372. This states that when there are general and specific provisions in the contract
covering the same subject matter, the specific provision controls over the general provision.
Explanation:
In this article the terms of contract may not understand and comprehend well and it leads to
misinformation to the parties which intended to agree.
Example:
A and B execute a contract and it leads to misinformation because the terms was not able to
comprehend well.
Interpretation of Various Stipulation of a Contract
 A contract must be interpreted as a whole and the intention of the parties is to be gathered
from the entire implementation and not from particular words, phrases, or clauses. All
provision should be interpreted as to match with each other.
Interpretation of Words with Different Significations
When using a word in a contract in subject to various meanings, it must interpreted in
accordance of nature and subject of the rules for it will be understandable that in line with the
agreement.
Usage or Custom as Aid in Interpretation
In this contract it may be resorted in order to elaborate and understand what is not clear under
the theory that the contract was entered into with reference to such usage or custom.
Interpretation of Obscure Words
It is a written agreement should be interpreted against party who go under and in favour of
the party who, upon the faith which incurred an obligation.

ESSENTIAL REQUISITES OF CONTRACTS

Consent-is a manifested by way of meeting the offer and acceptance upon the issue and the
cause that are constitute the contract. Consent is the permission or approval of one person to
another to show respect with the contracts.
Object Certain- subject matter of the contract.
Cause of Contract- it is important to have a reason or purpose before entering into the
contract. It was given by the party in exchange for legally applicable promise of another.

REFERENCES

Doctor, J. (2019). Obligations and Contracts. Retrieved from:

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Labour Net. (2018). Suspensive and Reslutive Conditions In Employement Contracts. Retrieved
from: https://www.labournetblog.com/post/2018/02/06/suspensive-and-resolutive-conditions-in-
employment-contracts

Word Press. (2016). Obligation with a Penal Clause. Retrieved from:

https://lspuoblicon2015.wordpress.com/category/i-obligations/chapter-3-different-kinds-of-obligations/
section-6-obligations-with-a-penal-clause/

De Leon, H. S. De Leon Jr., H.M (2014). The Law on Obligation and Contracts. Philippines: Rex
Book Store

Philippine Civil Law. (1949). The Civil Code of the Philippines: Obligations and Contracts. Retrieved
from: hhtps://www.chanrobles.com/civilcodeofthephilippinesbook4.htm