OBLIGATIONS AND

CONTRACTS
LECTURE 2
By: Atty. Wilfred Francis B. Martinez
Obligations and Contracts
PART 1: OBLIGATIONS
DEFINITION
 “Article 1156: An obligation is a juridical necessity to
give, to do, or not to do.”
 Why is an obligation a “juridical necessity”?
 Obligation is a juridical necessity because in case of non-
compliance, the courts may be called upon by the aggrieved party
to enforce fulfillment.
 This ensures that the debtor must comply with his obligation
whether he likes it or not, otherwise, he will be handed down
some harmful or undesirable consequences.
 Note:
 In law, broken promises have severe legal and/or financial
consequences.
DEFINITION
 Obligations can be classified as either Civil Obligations or
Natural Obligations.
 Civil Obligations are based on positive (State / Man-made) laws.
 Natural Obligations arise from equity, moral and natural law.
 Example of a Natural Obligation: A borrows money from B,
A makes a promissory note and gives it to B. B now has a
right of action against A based on the promissory note. If B
did not collect the debt in 10 years, his right of action
prescribes (Art. 1144) by way of laches, however, A still
has the natural obligation to return what he has borrowed
from B.
 A more detailed discussion on Natural Obligations will be
discussed at the end of the Trimester.
REQUISITES OF OBLIGATIONS
1. A juridical or legal tie, which binds the parties to the
obligation. This juridical or legal tie may arise from
either bilateral or unilateral acts of persons;
2. An active subject known as the obligee or creditor, who
can demand the fulfillment of the obligation;
3. A passive subject known as the obligor or debtor against
whom the obligation is juridically demandable; and
4. The fact, prestation or service which constitutes the
object of the obligation.
REQUISITES OF OBLIGATIONS - Example
Bilateral
 Both parties are obligated to each other
 Example: X and Y enter into a contract wherein X will obtain a
loan of 1 million pesos from Y. X will pay back the loan within 1
year plus interest.
 Juridical / Legal Tie: Loan Agreement
 Active Subject / Creditor / Obligee: X and Y
 Y (can demand payment for the loan)
 X (can demand that A loans him the agreed upon amount)
 Passive Subject / Debtor / Obligor: X and Y
 Y (obligated to give B the agreed upon amount)
 X (obligated to return the amount upon maturity plus interest)
 Prestation / Object of the obligation: 1 Million Pesos
REQUISITES OF OBLIGATIONS - Example
Unilateral
 Only one of the parties is obligated to perform.
 X hosts a tournament wherein the winner will be given 1
million pesos. Y wins the tournament.
 Juridical / Legal Tie: X’s promise of a reward to the winner
 Active Subject / Creditor / Obligee: Y
 Y can demand that X gives him the prize for winning the tournament.
 Passive Subject / Debtor / Obligor: X
 X is obligated to give Y the promised reward because Y won the
tournament.
 Prestation / Object of the obligation: 1 Million Pesos
REQUISITES OF OBLIGATIONS – Example – Class
Participation (SW2)
Instructions: Identify the requisites in the situation below.
(4 points each, 16 points in total)
1. Maria is a graphics design student who badly needed a
laptop for her studies. Pedro, an upper-classman of Maria
offered to sell his old laptop (still in excellent condition)
for only P20,000.00. Maria agreed.

2. Takashi is a Japanese Businessman visiting Manila for a

business deal. Instead of renting a hotel room, Takashi
rents the Condominium unit of Benjamin located at Unit
1515 ABC Grand Towers, Bonifacio Global City, Taguig for
P25,000.00 a month for two months.
REQUISITES OF OBLIGATIONS – Example – Class
Participation (SW2)
3. Juan owns a restaurant in Pasig City. To ensure a steady
supply of raw materials and ingredients to his restaurant,
Juan hires Andrew, through a service contract, to deliver
the ingredients from the farmers in the province, directly
to Juan’s restaurant. Juan will pay Andrew in the amount
of Php50,000.00 per month for his service.

4. Maria owns a cat named Mimi. One day, Mimi left the
house and did not go home. Worried, Maria posted a
photo of Mimi on Facebook asking for help in finding the
cat. Maria promised a Php5,000.00 cash reward. Pedro
found Mimi in his backyard and returned the cat to Maria.
Obligation vs Right vs Wrong
 An Obligation is the act or performance which the law will
enforce.
 A Right is the power which a person has under the law, to
demand from another any object or prestation
(performance service).
 A Wrong (also known as an “Injury” in law) is an act or
omission of one party who violates the legal rights of
another. This gives the injured or the “wronged party /
injured party” the cause of action against the violator.
 Once a cause of action arises, filing of a case in court
becomes an option.
Obligation vs Right vs Wrong (cont’d)
 When can you file a case in court?
 When you have a cause of action against the other party.
 When will you acquire a cause of action against the other party?
 When the other party commits a wrong or injury against you.
 Note that the wrong or injury need not be physical.
 How do I know if I’ve been wronged or injured?
 When the following elements are present:
1. There is a legal right in favor a person;
2. There is a legal obligation on the other person not to violate that right;
and
3. The other person violates said right through his acts and omissions which
resulted in damage to the other person.
Sources of Obligation
1. Law
2. Contracts
3. Quasi-Contracts
4. Acts or omissions punished by law (Crimes /
Delicts)
5. Quasi-Delicts
Sources of Obligations (Case Studies)
 Sagrada Orden vs National Coconut Corporation (G.R. No.
L-3756, 30 June 1952)
Sources of Obligation – Law
 “Article 1158. Obligations derived from law are
not presumed. Only those expressly determined
in this Code or in special laws are demandable,
and shall be regulated by the precepts of the law
which establishes them; and as to what has not
been foreseen, by the provisions of this Book.”

 Article 1158 speaks of obligations imposed by the

law itself.
Sources of Obligation – Law
 How do you determine whether an obligation is
derived from law or the other sources of
obligation?
 The law itself must directly and expressly impose
the obligation. (ex. The obligation to pay taxes -
Sec. 23 Tax Code or, the obligation of spouses to
support each other - Article 291.)
 If the law merely acknowledges or recognizes the
obligation brought about by an act, then the act
itself is the source of the obligation. (ex.
Contracts)
Sources of Obligation – Law
 To be demandable, obligations arising from the
law itself must be clearly and explicitly set forth
in the law.
 What does Article 1158 mean when it mentions
“Only those expressly determined in this Code or in
special laws are demandable”
 “…in this Code…” refers to the New Civil Code of the
Philippines.
 “…or in special laws…” refers to all other laws not contained
in the New Civil Code. (Examples: Corporation Code,
Negotiable Instruments Law, Insurance Law, Tax Code,
Revised Penal Code, and Labor Code)
Sources of Obligation – Law
 Other examples of obligations derived from law:
 Article 2014 – Obligation of the winner in a game of
chance to return the money to the loser, plus
interest.
 Section 2 and 6 of the Workmen’s Compensation
Act – Obligation of the employer to pay
compensation benefits to an injured employee
(should the employee choose to claim
compensation).
 Section 23 of the National Internal Revenue Code
(NIRC / Tax Code) – Obligation to pay taxes.
Sources of Obligation – Contract
 “Article 1159. Obligations arising from contracts
have the force of law between the contracting
parties and should be complied with in good
faith.”

 Article 1159 speaks of contractual obligations or

obligations arising from contracts or voluntary
agreements between persons.
Sources of Obligation – Contract
 A contract is a meeting of the minds between
two or more persons whereby one or more of the
parties, either reciprocally or unilaterally,
obligates themselves to give something or render
some service to the other party.
 As a General Rule contracts are perfected by
mere consent.
 Exception to the Rule:
• Real contracts (such as a Contract of Deposit,
Commodatum, or Pledge) are perfected by delivery
of the object of the contract.
Sources of Obligation – Contract
 Obligations arising from contracts has the force
of law between the parties.
 The parties are free to establish any stipulation or
terms or conditions provided they are not
contrary to law, morals, public order, or public
policy.
 Note: For obligations to arise from a contract,
said contract must be valid.
 In the eyes of the law, a void contract does not exist.
Sources of Obligation – Contract
 Compliance in good faith:
 Each party to the contract must comply or perform
their respective obligations to each other.
 Sincerityand honesty must be observed to prevent one
party from taking unfair advantage over the other.
 Non-compliance by either one or both of them will give
rise to a cause of action in favor of the injured party
against the violating party.
Sources of Obligation – Contract
 Examples:
1. If Meryl agrees to sell her house to Niels, and Niels
agrees to buy the house of Meryl, voluntarily and
willingly, then they are bound by the terms of their
contract and neither of them may, upon their own
will, and without any justifiable reason, withdraw
from the contract or escape from his obligations
thereunder. This is a VALID contract.
2. An agreement wherein Sebastian agrees to provide
free domestic service for Don Pedro until Sebastian’s
debt to Don Pedro is paid is a VOID contract since it is
against the law (Article 1689).
Sources of Obligation – Quasi-Contract
 “Article 1160. Obligations derived from quasi-
contracts shall be subject to the provisions of
Chapter 1, Title XVII of this Book.”

 What is a Quasi-Contract?
 A quasi-contract is that juridical relation resulting from lawful,
voluntary and unilateral acts by virtue of which the parties
become bound to each other to the end that no one will be
unjustly enriched or benefited at the expense of another. (Art.
2142)
Sources of Obligation – Quasi-Contract
 What is the difference between a Contract proper
and a Quasi-Contract?
 For contracts to be formed, there must be a meeting of
the minds of both parties, in other words, there must
be consent.
 In quasi-contracts, there is no meeting of the minds,
but instead, the law considers the parties as having
entered into a contract for purposes of preventing
injustice.
Sources of Obligation – Quasi-Contract
 Types of quasi-contracts:
 Article 2144 – Negotiorum gestio
 Arises when a person voluntarily takes charge of the agency or
management of a business or property without authority from
the owner.
 Example:
 X goes to the USA for a vacation. While on vacation, X’s house
caught fire. Y, a neighbor of X, rushed in to stop the blaze and
through Y’s efforts, the fire was put out. Due to this, Y
incurred expenses.
 Under the rules of Negotiorum gestio, X is obligated to
reimburse Y for said expenses.
 Note that in the entire example, X and Y never entered into a
contract wherein Y was obligated to save the house of X.
Sources of Obligation – Quasi-Contract
 Types of quasi-contracts:
 Article 2154 – Solutio Indebiti
 Obligation to return whatever is paid or given by
mistake.
 Requisites for Solutio Indebiti to apply:
a) The person receiving something had no right to receive
it in the first place; and
b) The thing was delivered by mistake.
Sources of Obligation – Quasi-Contract
 Other examples of quasi-contracts:
 Article 2159 – Bad faith acceptance of an undue payment.
 Article 2164 – Payment of support by a third-person.
 Article 2175 – Payment of taxes by a third-person.
 Perez vs Palmar (1903) – In a quasi-contract where
no express consent is given by the other party, the
consent needed in a contract is provided by law
through presumption. Presumptive consent gives
rise to multiple juridical relations resulting in
obligations for the delivery of the thing and
rendering of service. This is the nature of a quasi-
contract.
Sources of Obligation – Crimes / Delicts
 “Article 1161. Civil obligations arising from
criminal offenses shall be governed by the penal
laws…”

 This article deals with civil liability arising from

crimes or delicts.
Sources of Obligation – Crimes / Delicts
 Most of the time, the commission of a crime
produces a moral evil and material damages.
Thus, as a general rule, persons who commits a
crime and is found guilty, would be punished for
both.
 Moral evil is punished by penal liability involving
imprisonment and/or the payment of a fines.
 Material damages is compensated through civil
liability which involves the indemnification of the
damages suffered by the victim.
Sources of Obligation – Crimes / Delicts
 Effects of Conviction (guilty) and Acquittal (not
guilty):
 If the accused is found guilty, then he is liable to
suffer both penal and civil liability.
 If the accused is found “not guilty” by the fact that
the accused did not commit the crime. = no civil
liability.
 If the accused is found “not guilty” by reason of
insufficient evidence to prove guilt beyond
reasonable doubt. = the accused may still be held
liable for civil liability.
Sources of Obligation – Quasi-Delicts
 “Article 1162. Obligations derived from quasi-
delicts shall be governed by the provisions of
Chapter 2, Title XVII of this Book, and by special
laws.”

 Referred to as “torts” in American law

 Quasi-Delicts are also known as “Culpa Aquiliana”
Sources of Obligation – Quasi-Delicts
 Quasi-Delicts is an act or omission by a person
which causes damage to another giving rise to an
obligation to pay for the damage done, there
being fault or negligence on the part of the
person who caused the damage.
 It should be noted that there must not be any
contractual relationships between the two
parties, otherwise, it is not a quasi-delict but a
breach of contract (“culpa contractual”).
Sources of Obligation – Quasi-Delicts
 What is the difference between a Crime and a Quasi-Delict?
1. Crimes are done with criminal or malicious intent, or through
criminal negligence;
2. In crimes, the penalty is punishment. In quasi-delicts, the goal is for
indemnification;
3. When a crime is committed, the State or Government is the victim,
while in quasi-delicts, only private individuals are concerned;
4. In crime, there is criminal and civil liability, in quasi-delicts, there is
only civil liability;
5. There is no compromise in crimes, while quasi-delicts can be
compromised by the parties (“pagusapan nalang”);
6. In crime, guilt must be proved beyond reasonable doubt. In quasi-
delicts, the negligence of the defendant must only be proved by
preponderance of evidence (i.e. superior or greater weight of
evidence).
Sources of Obligation – Quasi-Delicts
 Requisites:
1. The defendant does an act or there is omission (failure to act) on
his part; (There is an act)
2. The defendant does the act or omission through fault or
negligence; (There is fault or negligence)
3. That said act or omission caused damage; (it caused damage to
another)
4. That there is direct relation of cause and effect between the act
or omission and the damage done; (there is proximate cause)
and
5. There is no pre-existing contractual relationship between the
parties. (there is no contractual relationship)
 The guilty or negligent party will now be obligated to indemnify
the injured party in the form of damages
(actual/temperate/nominal. Exemplary, and/or moral).
Sources of Obligation – Quasi-Delicts
 If all of the requisites are present, then the defendant is
guilty of committing a quasi-delict.
 The guilty or negligent party will now be obligated to
indemnify the injured party in the form of damages
(actual/temperate/nominal, exemplary, and/or moral).
 Example:
 Juanito is playing baseball with his friends in an area that is really
close to the home of Pedro. While playing, the ball broke the
window of Pedro.
 In this example, Juanito was negligent in his play which caused
damage to Pedro. The damage would have not happened if he
played in an open field instead. As a result, Juanito must now pay
Pedro for the damage he has done.
Sources of Obligations (Case Studies)
 Narciso Gutierrez vs Bonifacio Gutierez et. al. (G.R. No.
34840, 23 September 1931)
Sources of Obligation - Class Participation (SW3)

 Instructions: Determine what is the source of the obligation

from the following situations. (4 points)
1. Pedro was cleaning his apartment on the third floor. Pedro saw
his old TV set and decided it was about time to throw it away.
Instead of carefully bringing the TV downstairs, he decided
that the fastest way to get it to the first floor was to slide it
down the stair case. On its way down, the TV accidentally hit
and injured an old lady. Pedro is now obligated to pay for her
medical bills. What is the source of his obligation?
2. Julian sold his house to Juan for P1 Million. Julian is now
obligated to deliver his house to Juan, while Juan is obligated
to pay the agreed upon price. What is the source of their
obligation to each other?
Sources of Obligation - Class Participation (SW3)

 Instructions: Determine what is the source of the obligation

from the following situations. (4 points)
3. Jun-Jun is a member of a notorious “aKyAt bAhAy” gang in
Baragay Cultura. One night, Jun-Jun entered the house of
Benito and stole his watch. Jun-Jun was later arrested, tried,
and convicted for his crime. Jun-Jun’s sentence was
imprisonment and the return of Benito’s watch or the value of
the watch. What is the source of Jun-Jun’s obligation?
4. Dante owed Mark P100,000.00. On the day that Dante was
supposed to pay Mark, Dante accidentally deposited his
payment to the Bank account of Regine. Regine, after figuring
out why P100,000.00 was suddenly deposited in her account,
transferred the money back to Mark. What is the source of
Regine’s obligation to return the money back to Mark?
Thank you.
 There will be a 30 item Quiz (Quiz No.1) next meeting.
 Coverage: Definition of Obligations, Requisites of
Obligations, and Sources of Obligations.