CHAPTER 3

LAW ON CONTRACTS
The law on obligations and contracts is
governed by
Articles 1156 to 1430 of the
New Civil Code of the Philippines
August 30, 1950
 OBLIGATION

01
- Came from the Latin word
obligor

Meaning of OBLIGAR

Obligations
-“to bind”

“ The Civil Code

defines obligation as a
judicial necessity to
give, to do or not to
do.
 4 ESSENTIAL REQUISITES
FOR EVERY OBLIGATION
02
1̀
Passive
2
Active
3
Object/
4
Juridical Tie
the person who the person who can either the giving of a legal tie or the
Subject
is bound or has
Subject
demand the Prestation
thing, or a doing, or vinculum. It is
the duty to fulfill fulfillment of the not the doing of what binds the
obligation, called object or something. This is parties to the
debtor or obligor prestation, called the subject matter obligation.
creditor or obligee of the obligation Known as the
efficient cause.
X Y
X
“X” promised to
construct a
condominium for
Y “Y” for one
million pesos by
virtue of a
contract signed
by them.
 Law
Contracts
03
Source of
Quasi-contracts Obligations
Delicts Article 1157
Quasi-delicts
 LAW Example
Not presumed
Spouses
Only those expressively
determined in this code or in
special laws are demandable
1 Taxes
and shall be regulated by the Human Rights
precepts of the law which
established them
CONTRACTS Example
Have the force of law between “X” agrees to sell his car to “Y” and
contracting parties the latter agrees to buy the car of “X”

Should be complied with in good

faith
2 “A” agrees with “B” to steel the car
of “C” for and in consideration of
P2,000.
Must not be contrary to law,
morals, good customs, public
order or public policy
 QUASI-
CONTRACTS
juridical relation resulting from lawful,
Example
voluntary and unilateral acts by virtue Negotiorum Gestio
“A” went abroad with his family withput
lacks the element of consent leaving anybody to look after his house.
While abroad, a strong earthquake occurred

3
Two Types of Quasi-contracts:
1. Negotiorum Gestio
– the voluntary management of the property or
affairs of another without the knowledge or consent
of the latter
2. Solutio Indebiti
– when something s received when there is no right
to demand it, and it was unduly delivered through
mistake, giving rise to the obligation to return it.
resulting in the destruction of “A’s” house.
Because of the magnanimity of “B,” “A’s”
neighbor , the house was repaired.
Solutio Indebiti
“A” owes “B” the sum of P2,000. “A” paid
“B” the sum of P3,000 not knowing that the
former incurred only a debt amounting to
P2,000.
 DELICT OR
CRIMES
Under the law, a person who commits a
Example
criminal offense, such as murder, is obliged
to pay for the injury such inflicted. “A” bullied “B” resulting
to the latter’s death. If
4
From Revised Penal Code: “Every person
criminally liable for a felony is also civilly
liable.”
“A” is found guilty
thereof. He is liable to
Civil Liability includes: indemnify the heirs of
1. Restitution
2. Reparation for the damage caused
the deceased.
3. Indemnification for consequential
damages

QUASI-DELICTS
an act or omission by
one person which
causes damage to
another giving rise to 5 death or incapacity the mother
the obligation to pay for
the damage done
Scope of quasi-
delicts
Persons liable for damages
arising from quasi-delicts:
1. The father and in case of his
2. Guardians
3. The owners and managers
4. Employers
5. The state
6. Teachers or head of
establishments
 Obligation to be DILIGENT.

03
Nature and
Obligation to give a DETERMINATE THING.

Obligation to DO.

Effect of Obligation NOT to DO.

Obligations Obligation to be DELIVER.

Rights to the FRUITS.

1 Obligation to be DILIGENT.
“ Every person obliged
to give something is also
EXAMPLE
obliged to take care of it
with THE PROPER
DILIGENCE OF A GOOD
FATHER OF THE FAMILY,
unless the law or the
stipulation of the parties
requires another standard of
care.
- Article 1163 NCC
“A” delivers to “B” a specific
horse on a certain day.
Before the agreed day, “A”
has the obligation to take care
of the horse.
If the horse dies as a result of
“A’s” failure to exercise
proper diligence he shall be
liable for damages.
2 Obligation to give a DETERMINATE
THING.
- Article 116
NCC
INCLUDES
even though NOT MENTIONED

ACCESSION ACCESSORIE
fruits or Sthings joined or
improvements upon included with the
a thing thing
3 Obligation to D0.
”
• FAILURE:
the same shall be
EXAMPLE
executed at his cost
• CONTRAVENTION:
the same shall be
executed at his cost
• PERFORMS POORLY:
it may be ordered
undone
- Article 1167 NCC
“A” binds himself to
construct a building
for “B”. However, it
was constructed not
in accordance with
the agreed plans and
specifications. In this
case, it may be
ordered undone.
4 Obligation NOT to D0.

“
• Does what is
“A” and “B” agreed

EXAMPLE
that “B” will not
FORBIDDEN:
construct an adjoining
the same shall be fence between their
executed at his cost lands. However, “B”
• The only way to repair constructed the fence.
the non-performance is
the INDEMNITY It may be demolished.
(COMPENSATION) for
damages.
- Article 1168 NCC
5 Obligation to DELIVER.

“ SPECIFIC
To deliver

SPECI
Delivers a black
Volkswagen car

FIC
model 1980 with
(DETERMINATE) plate no. NLL 859
Or

GENERIC

GENE
(INDETERMINATE)

RIC
things. Delivers a car

- Article 1168 NCC

6 Rights to FRUITS.

“ Creditor Is entitled to the fruits to be delivered

from the time the obligation to make delivery arises
- Article 1164 NCC

NATURAL INDUSTRIAL CIVIL

• Produced without human • Produced through • Derived by virtue of
intervention cultivation juridical or legal
• Spontaneous products of • Vegetables planted in a relations
the soil and the young and garden • Rents on houses or
other products of animals buildings
? When does one incur in DELAY?
BEST ANSWER SPECIAL CASES WHEN DEMAND ≠ DELAY
a. Agreed upon
“A” is to deliver a
car to “B” on June b. Law provides
21, 1985. “A” c. Useless due to fortuitous event
failed to deliver the d. Time is of the essence ie: delivery
car. e. Reciprocal obligation

On June 25, 1985,

“B” demanded the Fortuitous event
delivery. – happens by chance/accident.
Delay starts On
June 25, 1985.
? How about FRAUD and NEGLIGENCE?
FRAUD
a party to the contract intentionally evades the
NEGLIGENCE
failure to use such care as a reasonably prudent
performance of his obligation and careful person would under similar
circumstances

Responsibility arising from legal delinquency

fraud is demandable in all characterized by inadvertence, thoughtlessness,
obligations inattention and the like

PERFORMANCE OF EVERY KIND IS

DEMANDABLE, however, the liability
ANY WAIVER OF ANY ACTION may be regulated by the courts according
to circumstances of persons, of time and
FOR FUTURE FRAUD IS VOID. the place.
 PURE and CONDITIONAL obligations

Obligations with a PERIOD

ALTERNATIVE and FACULTATIVE obligations

04
Kinds of
JOINT and SOLIDARY obligations
Obligations
DIVISIBLE and INDIVISIBLE obligations Primary Classifications

Obligations with a PENAL CAUSE

 PURE CONDITIONAL
OBLIGATIONS OBLIGATIONS

SUSPENSI
• NOT SUBJECT to any • Subject to any condition
condition or burden “A” binds– himself
 Suspensive to of
the fulfilment
“A” promised to give “B”
which givesa rise
car toasan
soon

VE
give “B” the sum as “A’s” mother arrives
obligation
of ₱1,000.00. from –Canada.
 Resolutory the fulfilment of
The obligation to VS which extinguishes an
existing obligation
• PerformancepayDOES is NOT • Performance DOES NOT
demandable
on a future orat DEPEND upon a future or

RESOLUT
DEPEND “A” allows to use
once
uncertain eventbecause
or on a past event uncertain event or upon a past
“B” the car until “B”

ORY
unknown there
to the parties
is no event unknown to the parties
• IMMEDIATELY demandable • passes the board
IMMEDIATELY demandable
specific date. exam
 EX DIE OBLIGATIONS
“I will give you a gift on
your birthday.”
WITH A PERIOD
• Subject to the expiration of said
period or term
IN DIEM  Period of term – future and certain event upon
the arrival of which
“I will give you a car a. Ex Die – suspensive period
b. In Diem – resolutory period, takes effect immediately but
after you finish your terminated upon the arrival of the day certain
c. Legal – fixed by the law
course.” d. Conventional/Voluntary – agreed upon by parties
e. Judicial – fixed by the courts
LEGAL • Performance does not depend upon
a future or uncertain event or upon
a past event unknown to the parties
Tax payments
• Immediately demandable
 ALTERNATIVE FACULTATIVE
OBLIGATIONS OBLIGATIONS
• VARIOUS PRESTATIONS • ONE PRESTATION
“A” binds himself to is
“A” binds himself to deliver
aredeliver
due “B” either a due but the “B” a
obligor
• Performance sufficiently Volkswagen car but
gold ring or a gold (debtor) mayagree
they mutually substitute
that
depends
watch.on“A”the should
debtor another
(obligor)
deliverunless
one ofgranted
them VS a Toyota car can be a
substitute.
and it is to
expressly required that
the creditor
the performance must
(oblige)
be complete, that is, he
cannot deliver the
stone of the ring or
bracelet of the watch.

Prestation – a performance of something due upon an obligation

JOINT OBLIGATIONS SOLIDARY
OBLIGATIONS
• Fulfilled • Each“A”of the
and debtors is liable
“B” are solidary
PROPORTIONATELY
“A” and “B” are fordebtors of “X”obligation
the whole and “Y” in the
amount of P10,000.00. In this
byjointly indebted to
the DIFFERENT • Each of theeither,
example, creditors
“A” andhas“B”a
“C” in the sum of
DEBTORS right
may to demand compliance
be compelled by either “X”
P2,000.00. “C” can
• EACH CREDITOR is
only demand VS of theorentire
“Y” to obligation
obligation
• Solidary
pay the entire
of P10,000.00.
liability is presentIf “A”
entitled to aeach
P1,000.00 proportionate
from pays P10,000.00 to “X” the
PART
“A” andOF“B”.
THE Thus, when:
obligation is extinguished, but
CREDIT
“A” and “B” is he• isThe obligation
entitled expressly
to be so
reimbursed
states
by his co-debtor “B”.
liable for P1,000.00 • The law requires solidarity
each. • The nature of the obligation
requires solidarity
 DIVISIBLE
OBLIGATIONS
• Capable of partial
performance
If “A” agrees to pay “B” VS
P6,000.00 in two
installments, the
obligation is divisible
because it is capable of
partial performance.
INDIVISIBLE
OBLIGATIONS
• Not capable of partial
performance
If “A” agrees to deliver a
car to “B”, the car must
be delivered as a whole
object for the car itself is
indivisible.

OBLIGATIONS
WITH PENAL
CLAUSE
• Contains an accessory
undertaking to assume greater
liability in case of breach
• Types of penalty to wit
 Subsidiary – only the penalty can be
demanded
 Joint – both principal obligation and
penalty (accessory obligation)
EXAMPLE
“A” promised to paint the house
“B” in the amount of P5,000.00.
An agreement with a penal
clause was signed that in case of
breach, “A” would have to pay
P500.00. If “A” fails to perform
his principal obligation, he can
be compelled to pay the amount
of P500.00. This is a contract
with a “subsidiary” penal clause.
However, if the agreement
carries a “joint” penal clause,
both principal and the accessory
can be demanded.