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LAW ON OBLIGATIONS

AND CONTRACTS

LAW - a rule of conduct, just, obligatory and laid
down by a legitimate power for common
observance and benefit

REQUISITES OF LAW
It is a rule of conduct
It must be just or presumed to be just
It is laid down by a legitimate power
It is obligatory or compulsory

CLASSIFICATION OF LAW
1. NATURAL LAW law based on morality or
equity
2. POSITIVE LAW law imposed by the State
and is enforceable in court.

*** CLASSIFICATION OF POSITIVE LAW
1. PRIVATE LAW law that regulates the
relations of the members of a community
with each other
2. PUBLIC LAW law that governs the
relation of an individual with the State
3. SUBSTANSIVE LAW law that establishes
rights as well as duties of an individual
4. PROCEDURAL/ADJ ECTIVE LAW law
that lays down the procedure by which
rights or claims may be enforced

WHEN LAWS TAKE EFFECT?
Laws shall take effect after 15 days following the
completion of their publication either in the Official
Gazette or in newspaper of general circulation in
the Philippines, unless it is otherwise provided.

BUSINESS LAW - branch of private law that
relates to or covers rules governing the rights,
obligations and relations of persons engaged in
commerce or trade

CHARACTERISTICS OF BUSINESS LAW
1UNIVERSAL it exists in every civilized society
2PROGRESSIVE Business law accumulates
new ideas and keeps abreast with modern trends
3EQUITABLE Commercial transactions involves
exchange of values or consideration
4CUSTOMARY its rules are followed from time
to time or are invoked in everyday
transactions
5UNIFORM a commercial act or contract
is governed by the same rules

ARTICLE 1156 - An obligation therefore is
not mere necessity, it clothed with
compellability. If a debtor does not comply
with his contractual obligation, he may be
compelled to perform the same or a willing
third person may be asked by the court to
comply with the obligation at the expense
of the defaulting debtor, or such debtor may
be adjudged to pay damages to the
aggrieved party.

REQUISITES OF AN OBLIGATION
1. A juridical or legal tie which bind
the parties
2. Active subject (creditor or
obligee) one who can compel
compliance with the obligation
3. Passive subject (debtor or
obligor) one who can compelled to
comply with or perform the obligation
4. Prestation object or undertaking
of the obligation or that which is to
be given, to be done or not to be
done

ARTICLE 1157
OBLIGATIONS ARISE FROM:
1. Law
2. Contracts meeting of the minds
between two persons whereby one
binds himself with respect to the
other to give something or to render
some service
3. Quasi contracts lawful, voluntary
and unilateral act based on the
maxim that no one shall unjustly
enrich himself at the expense of
another
4. Acts or omissions punishable by
law Every person is criminally and
civilly liable. Thus person guilty of
crimes aside from being convicted to
serve prison terms are adjudged
liable for damages in favor of the
offended party.
5. Quasi delicts when a person
through his fault or negligence
causes damage to another for which the
former shall be liable to the latter, there
being no pre-existing contractual relation
between them


ARTICLE 1158
Obligations derived from law must be expressly
determined by the Civil Code or special laws; they
cannot be presumed because they constitute as
limitation upon an individuals freedom, imposing
obligations that cannot be avoided by the obligor.

ARTICLE 1159
Obligations imposed by contracts the parties
to a contract are free to stipulate on anything that
is not contrary to law, morals, good customs,
public order or policy. Any contracting party who
violates a valid contract may be sued to comply
with the same or may be asked to pay damages to
the aggrieved party.

ARTICLE 1160
Law governing quasi contracts
1Solutio indebiti payment by mistake
2Negotiorum gestio takes place when a person
without the knowledge nor consent of the owner
assumes the management of an abandoned
business
3
ARTICLE 1161
Civil obligations arising from criminal offenses
shall be governed by the following:
1. Every person that is criminally liable shall be
civilly liable
2. Filing out of the civil action independent of
the criminal action in cases like defamation,
fraud, physical injuries, .. thus qualifying
the basic provision in procedure that when
the criminal action is filed in the court, the
civil action is deemed instituted with it,
authorizing the court not only to convict the
accused but to order him to satisfy the civil
liability in favor of the complainant


ARTICLE 1163 - Contemplates an obligation to
give a determinate thing imposing upon the debtor
the accessory obligation to preserve the
determinate thing pending delivery to the creditor
in order to ensure its efficiency and performance of
an obligation to give

Proper diligence legal standard of care
which is ordinary care


ARTICLE 1164 - applies to an obligation to
give a determinate thing when obligation to
deliver arises

From the time the obligation to deliver a
determinate thing arises, the creditor is
already entitled to the fruits of such thing
subject to the right of a third person who
may enjoy legal protection. It is only
through delivery the ownership is
transferred.

The creditor shall acquire no real right
over the determinate thing until delivery
is affected.


KINDS OF FRUITS
1. Natural spontaneous products of
the soil and the young and other
products of animals
2. Industrial produced by lands of
any kind through cultivation and
labor
3. Civil rents of buildings, price of
leases of lands and properties and
annuities

ARTICLE 1165

If the debtor fails to deliver
If the debtor fails to deliver the determinate
thing he has promised to deliver, the
creditor, aside from the right to ask for
damages from the debtor as authorized by
Article 1170, may compel the debtor to
make delivery by going to court in a suit for
specific performance

Effect of delay and double transactions
If a debtor delays, he is liable for loss such
thing even if the cause of the loss is
fortuitous event. A promise to deliver the
same thing to two or more persons who do
not have the same interest is illustrated by
a double sale of the same thing of two
different vendees which is an act of
dishonesty and will not excuse the debtor for loss
occasioned by fortuitous event

ATICLE 1166
Accessions and accessories are deemed
included in the principal it is legal principle that
the accessory follows the principal. Even that the
contract does not mention about it, the obligation
to give a determinate thing includes the obligation
to deliver accessories and accessions of such
thing.

ARTICLE 1167 provides remedy in creditor's part
in case of failure or refusal by the debtor to
perform in an obligation to do. In an obligation to
give a determinate thing, the creditor may compel
the debtor to perform but in an obligation to do
which involves the debtor's freedom, it is
impracticable and unsatisfactory in result to
compel the debtor to perform because the debtor
has an axe to grind and may not perform the
obligation well. Hence the remedy of the creditor
is to have the obligation fulfilled by a third
person at debtor's expense.


ARTICLE 1168 - In an obligation not to do, the
debtor fulfils by not doing what is forbidden him.
Hence if the debtor does what is forbidden, he
incurs the breach of obligation by reason of
which he is liable of the damages.

ARTICLE 1169 in an obligation to give or to do,
the debtor or the obligor is put on delay only when
he fails to deliver or perform after demand,
judicially or extra judicially, made upon him by the
creditor or obligee

KIND OF DELAY
1. Mora Solvendi delay of the debtor to
perform
Mora Solvendi ex re delay of the
obligation to give
mora solvendi ex person delay of
the debtor in an obligation to do
2. Mora Accipiendi delay of the
debtor to receive or accept
3. Compensatio morae delay of the
obligors in reciprocal obligation

EXTRAJ UDICIAL DEMAND one that is made
out of court, as by letter or by word of mouth
J UDICIAL DEMAND made in court,
by filing of the complaint, writ or
action

ARTICLE 1170

SOURCES OF LIABILITY
1. Fraud
2. Negligence
3. Delay
4. Contravention of the tenor of the
obligation

ARTICLE 1172 In negligence, there is no
intention or design to evade the normal
fulfilment of a pre-existing obligation.
Negligence is carelessness, lack of
foresight and includes lack of skill. Liability
for negligence may be regulated, that is
decreased or increased by the court
according to the circumstances.

ARTICLE 1173 The word fault in 1173 is
used in legal effect, synonymously with
negligence, but in quasi delict, the word
fault is distinct from negligence where
fault is intentional while negligence
is not intentional.

ARTICLE 1174

No person shall be liable for fortuitous
event except in following cases:

1. When provided for by law, as in
the following cases:
a) A debtor in delay is liable for
fortuitous event
b) A possessor in bad faith is liable for
loss of the thing possessed by him
even if caused by fortuitous event
c) A bailee in commodatum is liable for
loss of the thing loaned brought
about by fortuitous event
d) When the debt of a thing certain and
determinate proceeds from a
criminal offense, the debtor shall not
be exempted from the payment of
the price, whatever may be the
cause of the loss unless the thing
having offered by him to the person
who should receive it, the latter
refused without justification to accept it.
2. When stipulated upon by the parties and
this is consistent with the rule set in 1163,
which states that every person obliged to
give something is also obliged to take
care of it with the proper diligence of a
good father of a family, unless the law of
the stipulation of the parties require
another standard of care.
3. When the nature of the obligation
requires assumption of risks.

ESSENTIAL CHARACTERISTICS OF
FORTUITOUS EVENT (CASO FORTUITO)

1. The cause of the foreseen or unexpected
occurrence or of the failure of the debtor to
comply with his obligation must be
independent of the human will
2. It must be impossible to foresee the event
which constitutes fortuitous event, or it can
be foreseen, it must be impossible to avoid.
3. The occurrence must be such as to render it
impossible for the debtor to fulfil his
obligation in a normal manner
4. The obligor must be free from any
participation in the aggravation of the injury
resulting to the creditor.

ARTICLE 1176 - The presumption that if the
creditor's receipt does not make reservation to the
interest, the latter has been paid is paid on the
consideration that as payments are first applied to
the interest, the receipt of the principal must be
taken place because interest had already been
paid.

ARTICLE 1177

REMEDIES OF CREDITORS TO SATISFY THEIR
CLAIMS
The creditors may go to court and get favorable
judgment; then the properties of the debtors are
attached and sold to an auction. If after the
proceeds of the sale at public auction have been
applied to the claims, there should remain
deficiency, the creditors, may do any of the
following, in proper cases:

1. Exercise the rights that pertain to the debtor
except those personal to the latter
2. Bring all the actions of the debtor which are
not inherent in the person of the
debtor
3. Impugn the acts which the debtor
may have done to defraud them

INSOLVENCY not a defense in a suit for
fulfilment of one's obligation
An insolvent debtor is not excused from
fulfilling his obligation. His insolvency is
instead taken as a breach of contract.



Source: (Handbook on Obligations and Contracts for
Commerce Students, 2004 Edition, by Jose N.
Nolledo, Updated by Mercedita S. Nolledo)




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