BL 2125: Obligations and Contracts

General Concepts of Law

By: Atty. Matthew N. Irasga

What is Law?

In a specific sense, law is a rule of conduct, just, obligatory, promulgated by the

competent authority for the common observance and benefit. – Sanchez Roman

Law is the mass of obligatory rules established for the purpose of governing relations
of persons in society. – A. Tolentino

Law is a science of principles by which the civil society is regulated and held together,
by which right is enforced, and wrong is detected and punished. – J. Bradley, SCOTUS

Law is a rule of conduct or action prescribed or formally recognized as biding or

enforced by a controlling authority. – Merriam-Webster.

What are the characteristics of law?

From the forgoing definitions, one can readily see that law has four characteristics:

1. A Rule of Conduct - Laws tells us what can and can’t be done. Laws however to only
apply to physical or external acts. It cannot be made applicable to thoughts. There is
no limit to man’s imagination, however, once such thoughts are physically manifested,
such acts and/or omissions are subject to the law.

2. Obligatory – Compliance of the law is mandatory. To ensure compliance, laws involve

sanctions or penalties for disobedience.

3. Promulgated by Competent Authority – Only legislative branch of government is

authorized by the Constitution to enact laws of national scope. Local government
units however, are given a limited authority to enact local ordinances. These
ordinances have the force and effect of law but are effective only within their
respective territorial jurisdiction.

4. For Common Observance and Benefit – Laws are intended to apply to all persons
under the authority of the state. Its purpose is to regulate the conduct and relations
of man to maintain order and harmony to enable peaceful co-existence possible.
The Constitution itself guarantees equal protection of laws under the Bill of Rights.

What are the functions of law?

Society comes into existence because its members cannot live without law. The need
for internal order is as constant as the need for external defense. No society can be stable in
which either of these requirements substantially fails to be provided for; and internal order
means a great deal more than the protection of individuals against willful revolt or wanton
lawlessness.1

1
Congressional Record - United States of America 82nd Congress First Session – May 28, 1951 to June 27, 1951

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BL 2125: Obligations and Contracts
General Concepts of Law
By: Atty. Matthew N. Irasga

Laws secures justice, resolves social conflict, orders society, protects interests, controls
social relations. Without law, society would be reduced in the State of Nature. In such condition
there is no place for industry, because the fruit thereof is uncertain, and consequently, no
culture of the earth, no navigation, nor use of the commodities that may be imported by sea,
no commodious building, no instruments of moving and removing such things as require much
force, no knowledge of the face of the earth, no account of time, no arts, no letters, no society,
and which is worst of all, continual fear and danger of violent death, and the life of man, solitary,
poor, nasty, brutish, and short. [Thomas Hobbes, The Leviathan, 13]

No society can last and continue without means of social control and without rules of
social order binding on its members. The sum of such rules as existing in a given society, is
what in common speech referred to as law and is also referred to as the legal system.2

In sum, laws enable man to live in just, humane, orderly and civilized society. Since law
is clearly a necessity, every citizen should have some understanding of law and observe it for
the common good.

How are laws different from rules?

Rules are essentially an accepted procedure, custom or habit that is binding among
people who voluntarily consented to be bound with such rule. If one is not willing to be bound
by such rules, there is no entity that can force compliance thereto. Laws on the other hand,
creates legally enforceable obligations. Non-compliance with the law can result to penalties.

Who are bound by the law?

In essence, the law is an obligatory rule of conduct for the common observance and
benefit of everyone under the jurisdiction of the Republic of the Philippines. Thus, all persons
and properties within the territory of the Philippines, are bound by its laws.3 In the case of
Filipino Citizens living abroad, laws pertaining to family rights duties, or the status, condition,
and legal capacity are still binding upon them.4

Consent of a person is not even required to be bound by law. Article 3 of the Civil Code
embodies the basic legal maxim of ignorantia legis neminem excusat or Ignorance of the law
excuses no one from compliance therewith. This legal principle is compelled by necessity,
without which justice could not be administered. The said maxim is also not a departure with
another fundamental legal principle that crime exists only where the mind is at fault, because
“the evil purpose need not be to break the law, and it suffices if it is simply to do the thing
which the law in fact forbids”.5

The aforementioned legal maxim however, will not apply without publication of the law
in the Official Gazette or in a newspaper of general circulation. 6 The clear object of such

2
P.7 Hector De Leon – Law on Obligations and Contracts (2014)
3
Article 14-17, Civil Code
4
Article 15, Civil Code
5
The United States v. Ah Chong, G.R. No. L-5272, March 19, 1910 EN BANC
6
Article 2, Civil Code

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BL 2125: Obligations and Contracts
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requirement is to give general public adequate notice of the various laws which are to regulate
their actions and conduct as citizens. Without such notice and publication, there would be no
basis for the application of the maxim ignorantia legis non excusat. It would be the height of
injustice to punish or otherwise burden a citizen for the transgression of a law which he had
no notice whatsoever, not even a constructive one.7 Laws take effect on the date is expressly
provided to take effect or if no date is specified, within fifteen (15) days following completion
of its publication.

Who are considered persons under the Civil Code?

The Civil Code defines two types of persons that are subject to legal relations. These
are Natural Persons and Juridical Persons.

1. Natural Persons – Human beings. This is self-explanatory. What is important to note

with respect to natural persons is when civil personality begins. Under the Civil Code,
birth determines personality, but the conceived child shall be considered born for all
purposes that are favorable to it, provided it be born later. If the fetus had an intra-
uterine life of less than seven months, it is not considered born if it dies within twenty-
four hours after its complete delivery.8

2. Juridical Persons – These are persons created by fiction of law. They are incorporeal
entities that possess a right to own properties of any kind as well as incur obligations
and can bring civil or criminal actions. They essentially have the rights and obligations
similar to natural persons, subject to the obvious limitations that are attributable to
its lack of physical existence.

Persons, whether natural or juridical, has juridical capacity or the fitness to be the subject
of legal relations, which begins from its birth or its creation in accordance with law, respectively,
and is lost only through death.9

How are laws created?

In the Philippines, the Legislative Branch of Government, which composed of the Senate
and the House of Representatives, is the entity that is responsible for the creation of laws. In
order to craft laws, the legislative body comes out with two main documents: bills and
resolutions.

Resolutions convey principles and sentiments of the Senate or the House of Representatives.
These resolutions can further be divided into three different elements:
 joint resolutions — require the approval of both chambers of Congress and the
signature of the President, and have the force and effect of a law if approved.
 concurrent resolutions — used for matters affecting the operations of both
chambers of Congress and must be approved in the same form by both houses,

7
Lorenzo M. Tañada v. Hon. Juan C. Tuvera, G.R. No. L-63915 April 24, 1985 EN BANC
8
Article 40-41 Civil Code
9
Article 37, Civil Code.

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but are not transmitted to the President for his signature and therefore have no
force and effect of a law.
 simple resolutions — deal with matters entirely within the prerogative of one
chamber of Congress, are not referred to the President for his signature, and
therefore have no force and effect of a law.

Bills are laws in the making. They pass into law when they are approved by both houses
and the President of the Philippines. A bill may be vetoed by the President, but the House of
Representatives may overturn a presidential veto by garnering a 2/3rds vote. If the President
does not act on a proposed law submitted by Congress, it will lapse into law after 30 days of
receipt.

What are the sources of laws in the Philippines?

The principal sources of law in the Philippines are the Constitution, legislation/statutes,
administrative rules and regulations, jurisprudence, and customs.

1. Constitution – A written instrument by which the fundamental powers of the

government are defined, established and limited. These powers are distributed
among several departments for their safe and useful exercise for the benefit of the
people.

It is often referred to as the fundamental law or supreme law of the land because it
is promulgated by the people themselves and binding on all persons and agencies
of government. It is the law by which all other laws, ordinances, administrative rules,
executive acts, orders and regulations having the force and effect of law, must
conform. When courts declare a law to be inconsistent with the Constitution, the
former (law) shall be void and the latter shall govern. (Constitution).10

2. Legislation – A collection of rules promulgated by the Legislative Branch of

Government. The term also includes ordinances passed by local government units.

3. Administrative Rules, Executive Orders or Regulations – These are rules issued by

administrative officials under the Executive Branch of Government under legislative
authority. Administrative Rules and Regulations are intended to clarify or explain the
law and effectuate its general provisions. These rules cannot expand or go beyond
the scope of their authority under the law. A common example of this are
Implementing Rules and Regulations (IRR’s) of various laws.11

4. Jurisprudence or judicial decisions –Judicial decisions applying or interpreting the law

or the Constitution shall form part of the legal system of the Philippines. 12 The
decisions of a superior court is binding on subordinate courts. The Supreme Court
stands on top of the Hierarchy of Courts, while the 1st level courts such the Municipal
Trial Courts are at the bottom.

10
Article 7, Civil Code.
11
Id.
12
Article 8. Civil Code

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General Concepts of Law
By: Atty. Matthew N. Irasga

Decisions of the Supreme Court "applying or interpreting the laws or the

Constitution . . . form part of the legal system of the Philippines," and, as it were,
"laws" by their own right because they interpret what the laws say or mean. Unlike
rulings of the lower courts, which bind the parties to specific cases alone, our
judgments are universal in their scope and application, and equally mandatory in
character. Let it be warned that to defy our decisions is to court contempt. In any
case, we hold Del Mar to be the ruling case law on the matter, and applies whether
to parties or non-parties.13

5. Custom – It consists of those habits and practices which through long and
uninterrupted usage have become acknowledge and approved by society as binding
rules of conduct. It has the force of law when recognized and enforced by the State.
In order for customs however to have the force and effect of law, it must first be
established as fact according to the rules of evidence. 14 Whomever claims the
existence of a custom as basis for a claim, has the burden of evidence to prove its
existence.

What are the classification of laws in the Philippines?

Law has two main purposes, substantive and remedial or procedural. Substantive Law is
that body of laws that create, define and regulate rights and duties of persons, which may be
either public or private in character. Public substantive laws are those that regulates the rights
and duties arising from the relationship between the state and the people. Penal Statutes or
criminal law is an example of a public substantive law. In law, when a person commits a crime,
the real offended party is the state because such acts disturbs its peace and order. Hence,
criminal cases are always prosecuted in the name of the People of the Philippines.

In contrast, private substantive laws are those that regulates the relations of persons with
one another for purely private ends. The law on obligations and contracts is an example of a
private substantive law. This field of civil law deals with the nature and sources of obligations
and the concomitant rights and duties arising from legally binding agreements or particular
contracts.

Remedial Law on the other hand are those laws prescribing the manner or procedure
by which rights may be enforced or their violations redressed. The Rules of Court is the primary
source of remedial law in the Philippines and is promulgated by the Supreme Court through
its rule making authority under the Constitution15. Remedial law is also called procedural or
adjective law. Remedial Law is divided into the following rules: Civil Procedure, Special Civil
Actions, Special Proceedings, Criminal Procedure, and Evidence. Legal disputes involving
contracts a primarily governed by the Rules of Civil Procedure.

13
Phil. Veterans Affairs Office vs. Segundo G.R. No. L-51570, August 15, 1988.
14
Article 12. Civil Code
15
Par. 5, Section 5, Article VIII, 1987 Constitution

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BL 2125: Obligations and Contracts
General Concepts of Law
By: Atty. Matthew N. Irasga

What are rights and obligations in general?

Rights can be defined as a collection of entitlements a person may have that are created
by law or by agreement/contract and are protected by the government and the courts.16 An
obligation on the other hand are duties and responsibilities created by law or by agreement17,
that involves an act of giving a thing to another or the doing or not doing of an act. 18

Rights and obligations are defined under the law is meant to be observed and followed
by all for everyone’s benefit. In contrast, the rights and obligations created by agreement or
contract between private persons is for their own observance and benefit.

What are contracts?

The civil code defines contracts as a meeting of the minds between two persons
whereby one binds himself, with respect to another, to give something or render some
service.19 Contracts are in essence voluntary agreements between two or more persons to
either give the other something or perform some service for the other.

How are rights and obligations enforced?

Persons are generally expected to honor and perform their obligations whether created
by law or by contract. However, there will be instances when a person will deny, fail or outright
refuse to perform their obligation. This incident is commonly called a breach of contract. When
there is failure to perform a legally demandable obligation, the injured party may seek legal
remedies to force the other to perform his obligation. This action is simply called a lawsuit.

All contracts can be enforced by the Courts. All contracts are agreements. However,
not all agreements can be enforced through a lawsuit. The key difference between ordinary
agreements and contracts is that the latter is can be enforced through legal remedies while
the former may or may not be enforceable before the courts. Consider the two simple
agreements below:

1. An agreement between A and B to watch a movie together; and

2. An agreement where A rents the house of B.

In the first agreement, A cannot sue B, if the latter subsequently refuses to go to the
movies with the former. In the second agreement, if A refuses to pay rent, the non-payment
of rent gives rise to a “cause of action”20 for B to institute a lawsuit against A.

Legal remedies provided for in the Civil Code are judicial in nature, meaning the injured
party has to file a lawsuit to avail of these remedies. The Civil Code was enacted at a time
when the population of the Philippines is only at 19 million. 21 At present however, the current

16
https://legal-dictionary.thefreedictionary.com/rights; The Free Legal Dictionary
17
Art. 1157. Civil Code.
18
Art. 1156. Civil Code
19
Art. 1305. Civil Code.
20
Section 2. Rule 2 of the 2019 Revised Rules of Civil Procedure.
21
1948 Philippine Census. Philippine Statistics Authority.

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population is over a staggering 100 million.22 As a result, the Supreme Court has shifted its
litigious paradigm by encouraging the use of alternative modes of dispute resolution, such as
mediation, compromises and arbitration. Resort to courts are now seen as a last resort when
all extrajudicial remedies fail.

Why are disputes ultimately resolved through the courts?

Under our 1987 Constitution, government is divided into three different branches. The
Executive, Legislature and Judiciary. In a nutshell, the executive is the branch of government
who wields the power of the sword. It can exercise the inherent powers of the state namely:
police power, taxation and eminent domain. These mighty powers, if left unchecked, can
ultimately lead oppression and tyranny. To prevent the executive from abusing its powers, the
Constitution set limitations on the state’s powers through the Bill of Rights.

In addition to the constitutional limitations, the Legislative Branch, who is composed of

the duly elected representatives of the people, is given the power of the purse. This power is
intended to influence public policy and to limit the executive’s access to the state’s resources
and. Since, the legislative branch holds the power of the purse, it must first authorize the use
of public funds for the programs of the executive branch.

Inevitably, there will be a conflict on how a law is implemented from what is intended
by its framers. Hence, there is a necessity for a third branch of government with the power
hear and determine the merits of actual controversies and ultimately render a binding decision
thereon. This is called Judicial Power or the power of the pen. The executive and legislature can
interpret laws in the performance of their respective functions, such interpretations of law are
merely persuasive and does not bind the courts. However, when the Supreme Court renders a
decision, its interpretation of the laws applicable to the facts of a case binds everyone. Decisions
of the Supreme Court are called jurisprudence and form part of the law of the land. 23

When it comes to private disputes however, persons cannot simply file a lawsuit before
the Supreme Court. The judiciary follows the doctrine of hierarchy of courts24, which states
dictates that, direct recourse to the Supreme Court is allowed only to resolve questions of law,
notwithstanding the invocation of paramount or transcendental importance of the action. This
doctrine is not mere policy, rather, it is a constitutional filtering mechanism designed to enable
the Supreme Court to focus on the more fundamental and essential tasks assigned to it by the
highest law of the land.25. The Supreme Court is not a trier of facts26, it a court of last rest. Its
role is to decide cases based on the findings of fact before it.

The doctrine of hierarchy of courts guides litigants as to the proper venue of appeals
and/or the appropriate forum for the issuance of extraordinary writs. 27 As a rule, the
determination of the truth and falsity of the facts of the case falls before the trial courts. To
determine where a person should file his lawsuit, B.P 129 or The Judiciary Reorganization Act
of 1980, defines the jurisdiction of all the courts below the Supreme Court.

22
2016-058 Ref. No. Philippine Statistics Authority
23
Supra at Note 12.
24
Gios-Samar, Inc., v. Department of Transportation, G.R. No. 217158, March 12, 2019
25
Ifurung v. Carpio-Morales, G.R. No. 232131, April 24, 2018.
26
Id.
27
Id.

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BL 2125: Obligations and Contracts
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Research and Reading Assignments:

I. All hyperlinked cases on the footnotes.

II. Meaning of the following legal terms:
a. Petition for Certiorari
b. Petition for Review on Certiorari
c. Mandamus
d. Prohibition
e. Original Jurisdiction
f. Appellate Jurisdiction
g. Trial Court
h. Appellate Court
i. Cause of Action

III. The Law on Obligations and Contracts (2014), Hector De Leon

a. Pp. 1-16 – Introduction
b. Pp. 306-330 – General Provisions on Contracts
c. Pp. 388-395 – Form of Contracts

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