OBLIGATIONS AND CONTRACTS
the former may demand of him.
Law on Obligations and Contracts
Defined
The Law on Obligations and Contracts is
the body of rules which deals with the
nature and sources of obligations, rights
and duties arising from agreements and
contracts.
Nature of Agreement and Contract
All contracts contain agreements, but
not all agreements are contracts. An
agreement may or may not be legally
enforceable.
An agreement to take your friend to a
basketball game would not be a legally
enforceable agreement because your
friend has not given you anything in
exchange for that promise. However, an
agreement to buy your friend a ticket to
the Valentine’s Day concert of Martin
Nievera in exchange for your friend’s
repairing your leaking faucet would be
legally enforceable. In this case, there
has been an exchange of value that
binds each party to the other, hence, a
contract is created.
To be enforceable, an agreement must
conform to the law of contracts. The
courts have never been agreeable to the
enforcement of social agreements such
as dinner engagements, agreements to
date or to marry one another, or to live
together without the benefit of a
marriage contract.
ARTICLE 1156. An obligation is a
juridical necessity to give, to do, or
not to do.
Obligation Defined
An obligation is a juridical necessity to
give, to do or not to do. The word
obligation is derived from the Latin word
“obligare” which means “to bind,”
Manresa, a Spanish commentator in Civil
Law, defines obligations as a legal
relation established between one person
and another whereby the latter is bound
to the fulfillment of a prestation which
Obligations may be either civil or
natural. Civil Obligations give a right of
action to compel their performance (Art.
1423.) Hence, the obligee or creditor
has a right to enforce the obligations
against the obligor or debtor in a court
of justice. This is the obligation referred
to in Art. 1156 of the Civil Code.
On the other hand, natural obligations,
not being based on positive law but on
equity and natural law, do not grant a
right of action to enforce their
performance, but after the voluntary
fulfillment by the obligor, they authorize
the retention of what has been delivered
or rendered by reason thereof (Art.
1423.)
Elements of Obligation
1. Active Subject. The active
subject is the oblige or creditor.
He is the possessor of a right. It
is in his favor that the obligation
is constituted. He is the
contracting party to whom the
obligor owes an obligation.
2. Passive Subject. The passive
subject is the obligor or debtor.
He has the duty of giving, doing,
or not ding. He is the party who
is obligated to deliver on a
promise or to undertake some act
of performance.
3. Object or Prestation. It is the
subject matter of the obligation.
The prestation may be to give, to
do or not to do.
4. Efficient Cause. It is also known
as the vinculum juris or juridical
tie. It is in this consideration that
the obligation exists.
Illustration: Under an agreement, A
obliges himself to render tutorial
services to B.
Here, A is the obligor; B is the
obligee; the prestation is the
rendering of tutorial services; and
the agreement between A and B is 2. Personal Obligation. The
the efficient cause. obligation consists in doing or
not doing something.
There may be cases when obligations
arising from certain contracts need Viewpoint of Persons
to be manifested in the form Obligated to Perform
prescribed by law. For example, in a
1. Unilateral Obligation. Only
contract involving a donation where
one party is bound in this
the value of the personal property
obligation.
donated exceeds P5,000.00, the law
2. Bilateral Obligation. The two
requires that the donation and the
parties are mutually or
acceptance by the donee be made in
reciprocally bound in this
writing. Non-compliance with this
obligation.
formality shall render the contract
void or inexistent. ARTICLE 1157. Obligations arise
from:
Kinds of Obligation
(1) Law;
Viewpoint of Sanction
(2) Contracts;
1. Civil Obligations. There is (3) Quasi-contracts;
juridical tie between the (4) Acts or omissions
parties enforceable by court punished by law; and
action. (5) Quasi-delicts.
2. Natural Obligations. There is
Sources of Obligations
juridical tie between the
parties which is not 1. Law (Art. 1158)
enforceable by court action. 2. Contracts (Art. 1159)
Voluntary fulfillment of 3. Quasi-contracts (Art. 1160)
natural obligations by the 4. Acts or omissions punished by
obligor produces legal effects law (Art. 1161)
which the courts will 5. Quasi-delicts (Art. 1162)
recognize and protect.
3. Moral Obligations. There is no ARTICLE 1158. Obligations
juridical tie between the derived from law are not
parties. Voluntary fulfillment presumed. Only those expressly
of moral obligations does not determined in this Code or in
produce any legal effect which special laws are demandable,
courts will recognize and and shall be regulated by the
protect. precepts of the law which
established them; and as to what
Viewpoint of Performance has not been foreseen, by the
provisions of this Book.
1. Positive Obligation. The
obligor is obliged to give or to Obligations ex lege are not
do something. presumed. The Civil Code and special
2. Negative Obligation. The laws are specific as to which
obligor is obliged not to give obligations are demandable. The
or not to do something. rules set forth under special laws
regulate obligations established
Viewpoint of Subject Matter
therein. Obligations not foreseen in
1. Real Obligation. The the special laws, however, shall be
obligation consists in giving regulated by the provisions of Book
something. IV of the Civil Code, Obligations and
Contracts.
If regarding an obligation ex lege,
there is a conflict between the new
Civil Code and a special law, the
latter prevails unless the contrary
has been expressly stipulated in the
new Civil Code (Art. 18.)
Obligations Derived from Law
Examples of obligations derived from
law are the obligation of husband
and wife to render mutual help and
support under the Family Code; and
the obligation of taxpayers to pay
their taxes to the government under
the National Internal Revenue Code.
ARTICLE 1159. Obligations
arising from contracts have the
force of law between the
contracting parties and should be
complied with in good faith.
Contract Defined
A contract is a meeting of minds
between two persons whereby one
binds himself, with respect to the
other, to give something or to render
some service.
Freedom of Contract
Obligations arising from contracts
can be enforced between the
contracting parties provided such
contract is not contrary to law.
Although the contracting parties
have the right to establish terms as
may be convenient to them, this
right is limited. For a contract to be
valid, stipulations therein must not
be contrary to law, morals, good
customs, public order, or public
policy (Art. 1306.)
Contracting parties of a valid
contract must comply with its terms
and conditions in good faith.
Illustration: A, borrower, agrees to
pay his debt to B. In their
agreement, they state that in case of
non-payment by A, A shall render
“free” service to B as B’s servant. Is
the obligation valid?
Here, A’s obligation to pay his debt
to B is valid. However, A’s rendering
of free domestic service to B in case
A fails to pay his debt to B is
contrary to law and morals as this
will result to slavery. The term “free”
indicates that the service shall be
gratuitous.
ARTICLE 1160. Obligations
derived from quasi-contracts
shall be subject to the provisions
of Chapter 1, Title XVII, of this
Book.
Title XVII of Book IV deals with
Extra-Contractual Obligations, under
which is Quasi-Contracts as Chapter
1.
Quasi-Contract Defined
Quasi-contract is the juridical
relation that arises from certain
lawful, voluntary and unilateral acts
to the end that no one shall be
unjustly enriched or benefited at the
expense of another (Art. 1160.)
A quasi-contract can be imposed by
a court when someone is unjustly
enriched. It is used when a contract
cannot be enforced or when there is
no actual written or oral agreement.
Applying reasons of justice and
fairness, a court may obligate one
who has unfairly benefited at the
innocent expense of another.
In a quasi-contract, there is no
meeting of the minds between two
persons. It may be distinguished
from a contract where there is
mutual consent.
Two Principal Kinds of Quasi-
Contract
1. Negotiorum Gestio
2. Solutio Indebiti
Negotiorum Gestio
In this case, a person voluntarily
takes charge of the agency or
management of the business or
property of another, without any
 power or authority from the latter
(Art. 2144) Here, there is
unauthorized management. The
power of the business or property
must reimburse the officious
manager necessary and useful
expenses, and for the damages
which the manager may have
suffered in the performance of his
duties (Art. 2150.)
Illustration: A owns a three-hectare
strawberry farm in La Trinidad,
Benguet. While on a three-day trip to
Hong Kong, a strong typhoon struck
the province. B, A’s long-time
neighbor, took the initiative of
harvesting the fruits with the help of
four other neighbors. He incurred
total expenses of P3,000.00
A, here, has an obligation to
reimburse B P3,000.00 on the
principle that no one must be
unjustly enriched at the expense of
another.
In negotiorum gestio, once the
officious manager has assumed the
agency or management of the
business or property, he is obliged to
continue the same until the
termination of the affair and its
incidents (Art. 2144.) The officious
manager shall perform his duties
with all the diligence of a good father
of a family, and pay the damages
which through his fault or negligence
may be suffered by the owner of the
property or business under
management (Art. 2145.)
Solutio Indebiti
In this case, a person receives
something when he has no right to
demand it. Here, there is undue
payment or undue delivery
resulting from a mistake.
The recipient, therefore, is obliged to
return the thing (Art. 2154.)
Illustration: A, a grocery cashier, is
supposed to give B, a customer, P40 as
change. A mistakenly gave B P400
instead.
B here has an obligation to return the
P360 excess change. This is based on
the principle that no one must be
unjustly enriched at the expense of
another. If B here did not return the
excess change, A
will have to cover the shortage with her
own money. B will be unjustly enriched
by P360 at the expense of A.
Liability in Case of Undue Payment
or Delivery
In an undue payment, the person who
accepts such payment in bad faith shall
be liable for legal interest; while in an
undue delivery of a thing that produces
fruits, the person shall be liable for fruits
received or fruits which should have
been received. Furthermore, he shall
also be answerable for any loss or
impairment of the thing from any cause,
and for damages to the person who
delivered the
thing, until it is recovered (Art. 2159.)
In quasi-contracts, the damages for
which the obligor who acted in good
faith is liable shall be those that are the
natural and probable consequences of
the breach of the obligation, and which
the parties have foreseen or could have
reasonably foreseen at the time the
obligation was constituted, in case of
fraud, bad faith, malice or wanton
attitude, the obligor shall be responsible
for all damages which may be
reasonably attributed to the non-
performance of the obligation (Art.
2201.)
Examples of Quasi-Contract
A quasì-contract is likewise created in
each of the following situations:
1. A third person who supports an
orphan, insane or other indigent person
has a right to be reimbursed by the
person obliged to give support. This
provision also applies to a person who
gives support to a child under eighteen
years of age when the child's father or
mother unjustly refuses to support the
child (Art. 2166.)
2. When through an accident or other
cause, a person is injured or becomes
seriously ill, and he is treated or helped
while he is not in a condition to give
consent to a contract, he shall be liable
to
pay for the services of the physician or
other person aiding him, unless the
service has been rendered out of pure
generosity (Art. 2167.)
3. When the government, upon the
failure of any person to comply with
health or safety regulations concerning
property,
undertakes to do the necessary work,
even over the person's objection, such
person shall be liable to pay the
expenses borne by the government (Art.
2168.)
4. When in a small community a
majority of the inhabitants of age decide
upon a measure for protection against
lawlessness, fire, flood, storm or other
calamity, any one who objects to the
plan
and refuses to contribute to the
expenses but is benefited by the project
as executed shall be liable to pay his
share of said expenses (Art. 2174.)
5. Any person who is constrained to pay
the taxes of another shall be entitled to
reimbursement from the latter (Art.
2175.)
ARTICLE 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 provision
of Chapter 2, Preliminary Title, on
Human Relations, and of Title XVII
of this Book, regulating damages.
Rules Governing Obligation Ex
Delicto or Ex Maleficio
1. Revised Penal Code (RPC) and other
penal laws, subject to the provisions of
Article 2177 of the Civil Code. Under Art.
2177, in quasi-delicts, the responsibility
for fault or negligence is entirely
separate
and distinct from the civil liability arising
from negligence under the Revised Penal
Code. But the plaintiff cannot recover
damages twice for the same act or
omission of the defendant.
2. Chapter 2. Preliminary Title of the
Civil Code, on Human Relations,
3. Title 18, Book IV of the Civil Code, on
Damages
Felony and Crime Defined
Felony is an act or omission punishable
by law. Felonies are committed not only
by means of deceit (dolo) but also by
means of fault (culpa). There is deceit
when the act is performed with
deliberate intent and there is fault when
the wrongful act results from
imprudence, negligence, lack of
foresight, or lack of skill (Art.3.)
A violation of the Revised is called a
felony while a violation of any other
penal statute is called a crime. In
practice the two terms are used
interchangeably.
When a Person Liable for Felony is
Civilly Liable
As a rule, every person liable for a
felony is also civilly liable (Art. 100,
Revised Penal Code.) This article merely
states a general rule. The general rule
that a person criminally liable is also
civilly liable stems from the fact that a
crime does not only cause moral evil but
material damage as well. But not every
felony or crime carries with it civil
liability. When a crime did not cause
material damage, no
civil action may be brought because
there is no civil liability in them first
place. Generally crimes against persons,
property and chastity result in civil
liability.
Although the criminal aspect and the
civil aspect of a particular crime are
distinct in that the former affects social
order while the latter private rights,
these two are in a sense intertwined
because the basis of the civil liability is
the criminal liability itself. Another thing
that distinguishes one aspect from the
other is that in a criminal case, the
purpose is to punish the offender while
in a civil case, the purpose is to repair
the damage suffered by the aggrieved
party.
Enforcement of Civil Liability
Generally, the following rules shall be
observed in the enforcement of civil
liability arising from criminal offenses:
1. Criminal and civil actions. When
the offended party institutes a criminal
action, a civil action arising from the
same offense is impliedly instituted.
Here, the guilt of the offender as to the
crime committed must be proved
beyond reasonable doubt. However, the
offended party may expressly reserve
his right to
institute a separate civil action.
2. Independent civil action. The
offended party expressly reserving
his right to institute a separate civil
action may bring an independent civil
action during the pendency of the
criminal case. Such civil action shall
require only a preponderance of
evidence. This applies to cases provided
in Articles 31, 32, 33, 34 and 2177 all of
the Civil Code. Examples of independent
civil actions may be those for
defamation, fraud and physical injuries.
What Civil Liability Arising from
Crime Includes
1. Restitution. The restitution of the
thing itself must be made whenever
possible, with allowance for any
deterioration or diminution in value as
determined by the court. The thing itself
shall be restored, even though it be
found in the possession of a third person
who has acquired it by lawful means,
saving to the after his action against the
proper person who may be liable to him
(Art. 105, Revised Penal Code.)
2. Reparation of the damage caused.
The court shall determine the amount of
damage, taking into consideration the
price of the thing, whenever possible,
and its special sentimental value to the
injured party, and reparation shall be
made accordingly (Art. 10s.)
3. Indemnification for consequential
damages. It shall include not only those
caused the injured party, but also those
suffered by his family or by a third
person by reason of the crime (Art. 107.
Revised Penal Code.) Indemnification for
damages shall comprehend not only the
value of the loss suffered, but also that
of the profits which the oblige failed to
obtain (Art. 2200.)
In crimes, the defendant shall be liable
for all damages which are the natural
and probable consequences of the act or
omission complained of. It is not
necessary that such damages have been
foreseen or could have reasonably been
foreseen by the defendant (Art. 2202.)
Interest, as a part of damages may, in a
proper case, be adjudicated in the
discretion of the court. Interest due shall
earn legal interest from the time it is
judicially demanded, although the
obligation may be silent upon this point
(Arts. 2211 and 2212.)
Illustration: A, B's newly-hired driver,
stole B's Sfarex van. A, on his way to
Pampanga to hide, bumped into a
Tamaraw FX injuring the driver of said
FX.
The van's front bumper was smashed
and
damages amount to P20,000.
Should A be convicted, the court would
most probably order him to return the
car, pay the P20,000 damage, and he
may also be required to shoulder the
repairs made on the FX, the
hospitalization expenses of the FX driver
and such other damages as the court
may find justifiable by reason and as a
consequence of the crime
Effect of Acquittal in a Criminal Case
A defendant in a criminal case was
acquitted. May he still be held liable
civilly? It depends on the basis of
acquittal, as follows:
1. If the reason for the acquittal was
because the accused could not have
committed the crime, no civil action can
be brought subsequently.
2. If there was an exempting
circumstance for an acquittal as when
the accused-defendant is insane, his
guardian is still civilly liable. He shall be
personally liable civilly if he has no
guardian or if his guardian is insolvent.
3. If a person is acquitted because guilt
was not proven beyond reasonable
doubt and there is an independent civil
action, civil liability may still arise and
the defendant's liability is proved by
mere preponderance of evidence.
Effect of Defendant's Death Pending
Trial
The death of the defendant in a criminal
case before final judgment does not
extinguish his civil liability. The civil
action shall be directed against the
administrator of the defendant’s estate.
The heirs shall be the ones civilly liable
but such liability shall not exceed the
value of their inheritance.
Damages Recoverable in Case of
Death
The amount of damages for death
caused by a crime or quasi- delict shall
be at least three thousand pesos (Art.
2206.) This
minimum amount has now been raised
to P50,000. In addition, the defendant
shall be liable for the loss of the earning
capacity of the deceased, moral
damages and others as may be deemed
necessary.
Persons Exempt From Criminal
Liability
Under Article 12 of the Revised Penal
Code, the following persons are exempt
from criminal liability:
1.An imbecile or insane person. But if he
acted during or lucid interval, then, he
may be held criminally liable.
2. A person under 9 years old.
3. A person over 9 years old but below
15, But if he acted with discernment,
then, he may be held criminally liable.
4. Any person who acts under the
compulsion of an irresistible force,
5. Any person who acts under the
impulse of an uncontrollable fear of an
equal or greater injury.
Let it be noted that these persons are
exempt from criminal liability but not
from civil liability. Thus, this civil liability
shall be the responsibility of their
guardians whose care and authority they
are under.
ARTICLE 1162. Obligations derived
from quasi-delicts shall be governed
by the provisions of Chapter 2, Title
XVIl of this Book, and by special
laws.
Rules Governing Obligation
Quasi-Delict
1. Chapter 2, Title 17, Book IV of the
Civil Code
2. Special Laws
Quasi-delict is that fault or negligence
where a person causes damage to
another in the absence of a contractual
relation between the parties. In such
case, the person at fault is obliged to
pay for the damage done. Quasi-delict is
also known as tort or culpa aquiliana.
Negligence is the omission of that
diligence which is required by the nature
of the obligation and corresponds with
the circumstances of the persons, of the
time and of the place. If the law or
contract does not state the diligence
which is to be observed in the
performance, that which is expected of a
good father of a family shall be required
(Art. 1173).
To Determine Negligence
"The test in determining whether a
person is negligent... is this: Would a
prudent man (in his position) foresee
harm lo the person injured as a
reasonable consequence of the course
about to be pursued@ If so, the law
imposes a duty on the actor to refrain
from that course, or to take precaution
against its mischievous results, and the
failure to do so constitutes negligence.
Reasonable foresight of harm, followed
by the ignoring of the admonition born
of this provision, is the constitute fact of
negligence." (Picart v. Smith, 37 Phil.
809.)
Illustration: X Corporation, softdrinks
manufacturer, released a batch of
bottled softdrinks without passing the
Quality Control Department in order to
meet production deadline. A consumer
after taking a bottle of softdrink from
said batch had severe stomach ache,
was brought to a hospital and was
diagnosed to have suffered liquid
Ex poisoning. The physician was positive
that the harmful chemical found in the
softdrink taken caused the same.
In this case, there is an apparent
negligence on the part of X Corporation
because under the usual and normal
circumstances, all bottled softdrinks
manufactured should pass the Quality
Control Department.
Manufacturers and processors of
foodstuffs, drinks, toilet articles and
similar goods shall be liable for death or
injuries caused by any noxious or
harmful substances used, although no
contractual
relation exists between them and the
consumers (Art. 2187.)
Illustration: A owns a forty-year old
building in Sta. Cruz, Manila. The
building partially collapsed and a
pedestrian was hit and wounded.
The pedestrian must appropriately be
indemnified for the injuries he suffered.
The proprietor of a building or structure
is responsible for the damages resulting
from its total or partial collapse, if it
should be due to the lack of necessary
repairs (Art. 2190).
Persons Civilly Liable
The obligation arising from quasi-delict
is demandable not only for one's own
acts or omissions, but also for those of
persons for whom one is responsible.
The following persons shall be civilly
liable:
1. The father and, in case of his death or
incapacity, the mother, are responsible
for the damages caused by the minor
children who live in their company,
2. Guardians are liable for damages
caused by the minors or incapacitated
peons who are under their authority and
who live in their company,
3. The owners and managers of an
establishment of enterprise for damages
caused by their employees in the service
of the branches in which the latter are
employed or on the occasion of their
functions,
4. Employers shall be liable for the
damages caused by their employees and
household helpers acting within the
scope of their assigned tasks, even
though the former are not engaged in
any business or industry.
5. The State when it acts through a
special agent; but not when the damage
has been caused by the official to whom
the task done properly pertains.
6. Teachers or heads of establishments
of arts and trades for damages caused
by their pupils and students or
apprentices, so long as they remain in
their custody.
The responsibility of the enumerated
persons shall cease if they can prove
that they observed all the diligence of a
good father of a family to prevent
damage (Art. 2180.)
Requisites to Civil Liability
The plaintiff or the offended party in a
civil action arising from quasi-delict must
prove the following facts before he could
recover damages from the defendant:
1. The fault or negligence of the
defendant.
2. The damage or injury suffered by the
plaintiff
3. The direct relation between fault or
negligence of the defendant and the
damage suffered by the plaintiff.
Illustration: A was driving his car in a
highway at a speed above that required
frequently beating the red light. His car
collided with another. A was badly
injured.
Here, A cannot recover damages from
the other party in the collision because it
is his negligence which caused the
accident.
Unless there is proof to the contrary, it
is presumed that a person driving a
motor vehicle has been negligent if at
the time of the mishap, he was violating
any traffic regulation (Art. 2185.)
Kinds of Negligence
1. Culpa aquiliana or quasi-delict. In
culpa aquilliana, the source of the
obligation is negligence with no criminal
intent. There may or may not be an
existing contract.
2. Culpa contractual. In culpa
contractual, the source of the obligation
is the contract. There is negligence in
carrying out the terms and conditions
under an existing contract.
Quasi-Delict as Distinguished from
Crime
1. Quasi-delict affects private interests
while crime, public interest.
2. Civil Code provisions that primarily
govern quasi-delicts merely repair
damages sustained or incurred while the
Revised Penal Code and other penal laws
punish and correct criminal acts.
3. Quasi-delicts include all acts in which
any kind of fault or negligence
intervenes while crimes are punished
only if there are laws that clearly cover
them.