OBLIGATIONS 

and CONTRACTS
Business law 1

INTRODUCTION

 LAW

 In its general and abstract sense, LAW has been defined as a science of moral laws founded
on the rational nature of man that governs his free activity for the realization of the
individual and social ends of life under an aspect of mutual conditional independence.

In its specific and concrete sense, law is the rule of conduct, just, obligatory, formulated
by legitimate power for common observance and benefit. (Lapitan vs. Philippine Charity
Sweepstakes, Office, 60 OG 6841).

PURPOSE OF LAW

  Man does not exist independently of other human beings. By nature, human beings are
drawn toward living in communities or societies. These communities or societies thrive only
when the people in them live in peace with on another. If each person in a community or
society is governed by rules that he has set for himself, conflicts between him and other
individuals will continually arise. Thus, there is a need to establish rules to govern their
conduct not only in the dealings with one another but also with the government, other
entities or groups of individuals. Laws are needed to maintain harmony, stability and justice
within a society.

CLASSIFICATION OF LAW

In general, Law maybe classified into two:

1. NATURAL LAW ; and

2. POSITIVE LAW

A. Natural Law
  Natural law consists of specific principles derived from nature, or based on morality or
equity, and which are binding upon human society in the absence of or in addition to
positive law.
  ex. Law of gravity, law of supply and demand

B. POSITIVE LAW

Positive law may be classified as follows:

1. DIVINE POSITIVE LAW- This consists of laws promulgated by a Supreme Being and
expressed directly through some writings like the bible. (ex. Ten Commandments)

2. DIVINE-HUMAN POSITIVE LAW – This consist of precepts established by authorities

within a religious sect or denomination and whose formulation is inspired by divine will. It is
expressed directly in the writings of the said sect or denomination. The spiritual and
corporal works of mercy within the Roman Catholic Church are examples of this law. 

3. HUMAN POSITIVE LAW – This consists of principles promulgated by the State and which
generally imposes a sanction in case of non-observance.

Ex. Philippine Constitutions, Statutes passed by Congress, Ordinances

POSITIVE LAW may be classified into the following:

1. ACCORDING TO FUNCTION

a.SUBSTANTIE LAW – That which creates, defines , establishes rights and duties. (Civil Code
of the Philippines and Revised Penal Code)
b. PROCEDURAL, REMEDIAL OR ADJECTIVE LAW- that which determines the process of
enforcing such rights and duties, such as the RULES OF COURT.

2. ACCORDING TO SCOPE

a.PRIVATE LAW – that which regulates the relations of the members of a community with
one another.

b. PUBLIC LAW – that which is concerned with regulating the relations of individuals with
State and the organization and conduct of the government.

3. ACCORDING TO FORCE OR EFFECT

  a. MANDATORY LAWS– Those which require something to be done.

  b. PERMISSIVE LAWS – Those that allow discretion on the part of the individual on their
application; 

  c. PROHIBITORY LAWS - Those that forbid an act to be done.

WHAT ARE THE SOURCES OF LAW?

1. CONSTITUTION

2. ACTS PASSED BY CONGRESS AND ORDINANCES ENACTED BY LOCAL GOVERNMENTS

3. JUDICIAL DECISIONS

4. ADMINISTRATIVE REGULATIONS

Chapter 1: General Provisions

Art. 1156. An obligation is a juridical necessity to give, to do or not to do.

ELEMENTS OF AN OBLIGATION
1. Active Subject (obligee/creditor) – the possessor of a right; he in whose favor the
obligation is constituted.
2. Passive Subject (obligor/debtor) – he who has the duty of giving, doing, or not doing.
3. object/prestation – the subject matter of the obligation
4. efficient cause – the reason why the obligation exists ; vinculum or juridical tie that binds
the parties to the obligation.
      

          An obligation is a juridical necessity because the debtor must perform his obligation.
If he fails to perform his obligation, the creditor may invoke the aid of the court to order its
performance.

ILLUSTRATION

                Under an agreement, Marco obliges himself to render tutorial services to  Ylona.

Active Subject  /Obligee   = Ylona

Passive Subject/Obligor    = Marco

Prestation        = rendering of tutorial service

Efficient cause       = agreement between Marco and   Ylona

KINDS OF OBLIGATION

A. From the viewpoint of “sanction” –

1. civil obligation –

2. natural obligation –

3. moral obligations

1. Civil Obligation – one that is defined in article 1156.

Example: A promises to pay B debt of Php1,000,000.00.

2. Natural Obligation – the duty not to recover what has voluntarily been paid although
payment was no longer required.

Example: A owes B 1million. But the debt has already prescribed. If A, knowing that it has
prescribed, nevertheless still pays B, he cannot later on get back what he voluntarily paid.

3. Moral Obligation – the duty of a Catholic to hear mass on Sundays and holy days of
obligation.

          The sanction here is conscience or morality, or the law of the church.

DISTINCTIONS BETWEEN CIVIL OBLIGATION AND NATURAL OBLIGATION

CIVIL OBLIGATION NATURAL OBLIGATION
 1. Based on positive law  1. Based on equity and natural law

  2. Give a right to compel their performance
before a court of law
 
2. Do not grant a right of action to compel their
performance, but after voluntary fulfilment by
the obligor, they authorize the retention of what
has been delivered or rendered by reason
thereof.

 
B. From the viewpoint of subject matter –

1. Real obligation – the obligation to give

2. Personal obligation – the obligation to do or not to do.

C. From the affirmativeness and negativeness of an obligation –

1. Positive or affirmative obligation – the obligation to give or to do.

2. Negative obligation – the obligation not to do (not to give).

D. From the viewpoint of persons obliged –

1. unilateral – where only one of the parties is bound.

Example: A owes B 1 Million. A must pay B.

2. bilateral – where both parties are bound.

Example: In a contract of sale, the buyer is obliged to pay, the seller is obliged to deliver.

SOURCES OF AN OBLIGATION

Art. 1157. Obligations arise from:

1) Law;
2) Contracts;
3) Quasi-contracts;
4) Acts or omissions punished by law;
5) Quasi-delicts

1. LAW – like the duty to pay taxes and to support one’s family.
2. CONTRACTS – like the duty to repay a loan by virtue of an agreement.
3.QUASI- CONTRACTS- like the duty to refund an “over change” of money because of
“undue payment”.
4.CRIMES or ACTS OR OMISSIONS PUNISHED BY LAW – like the duty to return stolen
carabao.
5.QUASI-DELICTS or TORTS – like the duty to repair damage due to negligence.
 

LAW

Art. 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 the
Book. (Art. 1158 of the New Civil Code)

Law, concept:
  Law is a rule of conduct, just and obligatory, laid down by legitimate authority for the
common observance and benefit. (1 Sanchez Roman, 23)

Law as a source of obligation

  An obligation arises from law if it is imposed by the law itself.

Example:

  1. Obligation to pay taxes – obligation imposed by the National Internal Revenue Code

  2. Obligation of Parents and children to support each other- obligation imposed by Family
Code of the Philippines.

CONTRACTS
Article 1159. Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith. (Art. 1159 of the New Civil
Code)

Contract, concept

  Contract is a meeting of the minds between two persons whereby one binds himself, with
respect to the other, to give something or to render some service. (Art. 1305, NCC of the
Philippines)

Contract as a source of obligation

  An obligation is derived from contract if it arises from the agreement of the parties. It shall
have the force and effect of law between them and should be complied with in good faith.

Q:   Does this mean that Law is inferior to Contracts?

A:   No. Because before a contract can be enforced, it must first be valid, and it cannot be
valid if it is against the law.

  In order that the obligation may be enforced, the contract must be valid and enforceable.
Once a contract is entered into, neither party can disregard it at will or withdraw from it
without a valid cause.

Distinctions between an OBLIGATION and a CONTRACT?

- An obligation is the result of the contract (or some other source). Hence, while a contract,
if valid, always results in obligations, not all obligations come from contracts. A contract
always presupposes a meeting of the minds; this is not necessarily true for all kinds of
obligations.

INNOMINATE CONTRACTS
For want of express name, the following are termed “Contratos innominados”:

1. Do ut des –   I give that you may give;

2. Do ut facias –  I give that you may do;

3. Facio ut des –  I do that you may give;

4. Facio ut facias –  I do that you may do.

ILLUSTRATION:
Example: A worked for B as an interpreter. Even without an express agreement as to
compensation, A is entitled to compensation because of facio ut des –

A will do the interpreting, and B will give him/her money.

QUASI-CONTRACT
A QUASI-CONTRACT is that juridical relation resulting from a lawful, voluntary, and
unilateral act, and which has for its purpose the payment of indemnity to the end that NO
ONE SHALL BE UNJUSTLY ENRICHED OR BENEFITED AT THE EXPENSE OF ANOTHER.

There is “unjust enrichment” when a person unjustly retains a benefit to the loss of another,
or when a person retains money or property of another against the fundamental principles
of justice, equity and good conscience. (Locsin II vs. Mekeni Food Corporation, G.R. No.
192105, December 9, 2013; Loria vs. Munoz, G.R. No. 187240, October 15, 2014)

TWO PRINCIPAL KINDS OF  QUASI-CONTRACT:

1. NEGOTIORUM GESTIO – unauthorized management

2. SOLUTIO INDEBITI – undue payment

NEGOTIORUM GESTIO
  -  This takes place when a person voluntarily takes charge of another’s abandoned
business or property without the owner’s authority. (Art. 2144 of the New Civil Code)

       Reimbursement must be made by the owner to the gestor (officious manager) for
necessary and useful expenses incurred by the latter.

2. SOLUTIO INDEBITI

      This takes place when something is received when there is no right to demand it and it
was unduly delivered thru mistake. The recipient has the duty to return it.

Example: If I let a store keeper change my Php50.00 bill and by error he gives me Php50.60. I
have the duty to return the extra Php 0.60.

DELICT
  Art. 1161. Civil obligations arising from criminal offenses shall be governed by the penal
laws, subject to the provisions of Article 2177, and of the pertinent provisions of Chapter,
Preliminary Title, on Human Relations, and of Title XVIII  of this Book, regulating damages.

DELICTS/ CRIMINAL OFFENSE

Art. 100 of the RPC – “Every person criminally liable for a felony is also civilly liable”.

     The reason lies in the fact that oftentimes the commission of a crime causes not only
moral evil but also material damage. If no material damage is done, civil liability cannot be
enforced.
LIABILITY OF AN INSANE CRIMINAL

  An insane man who commits a crime is exempted from criminal liability, but his guardian
can be held civilly liable unless the latter was diligent in his task of taking care of the insane.
If there is no guardian, or if said guardian is insolvent, the property of the insane man can
be made liable.

QUASI-DELICT

Art. 1162. Obligations derived from quasi-delicts shall be governed by the provisions of
Chapter 2, , Title XVII of this Book and by special laws.

A quasi-delict is a fault or act of negligence (or omission of care), which causes damage to

another, there being no pre-existing contractual relations between the parties.

Example:

1. While driving a car recklessly, I injured a pedestrian.

2. While cleaning my window sill, my negligence caused a flower pot to fall on the street,
breaking the arms of my neighbour.

NEGLIGENCE – is the failure to observe, for the protection  of the interests of another
person, that degree of care, precaution, and vigilance which the circumstances justly
demand, whereby such other person suffers injury.

As defined by the Civil Code, negligence is the omission of that diligence which is required
by the circumstances of persons, place and time. Thus, negligence is a question of fact.

Requirements before a Person can be held liable for a Quasi-Delict:

A. there must be fault or negligence attributable to the person charged;

B. there must be damage or injury;

C. there must be a direct relation of cause and effect between the fault or negligence on the
one hand and the damage or injury on the other hand.

PROXIMATE CAUSE
Is that adequate and efficient cause, which in natural order of events, necessarily produces
the damages or injury complained of.