LAW ON OBLIGATIONS AND CONTRACTS

Atty. Camille G. Constantino, JD

BPA-4C (Tuesday & Thursday 5:30-7:00 PM)

TITLE I. OBLIGATIONS

CHAPTER 1. GENERAL PROVISIONS

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

Obligation – tie of law or juridical bond by virtue of which one is bound in favor of another
to render something – and this may consist in giving a thing, doing a certain act, or not
doing a certain act.

Right – claim or title to an interest in anything that is enforceable by law; legally

enforceable claim or title.

Note: For every right enjoyed by any person, there is a corresponding obligation on the part
of another person to respect such right.

Juridical necessity – because in case of non-compliance, the courts may be called upon to
enforce its fulfillment.

Civil Action – one by which a party sues another for the enforcement of protection of a
right, or the prevention or redress of a wrong.

Cause of Action – act or omission by which a party violates a right of another.

Three Essential Elements of a Cause of Action

1. Legal right of the plaintiff

2. Correlative obligation of the defendant
3. Act or omission of the defendant in violation of said right

Plaintiff – party who brings a civil suit in a court of law

Defendant – person sued in a civil proceeding or accused in a criminal proceeding

Four (4) Essential Requisites of Obligation

1. Passive Subject (debtor/obligor) – person bound to fulfill the obligation; who has
the duty.
2. Active Subject (creditor/oblige) – person who is entitled to demand fulfilment of
the obligation; who has the right.
3. Object or prestation (subject matter of the obligation) – may consist in giving,
doing or not doing. Without the object, there is nothing to perform.
4. Juridical or legal tie – which binds or connects the parties to the obligation, source
of the obligation.

Real Obligation (obligation to give) – obligation of the debtor/obligor to deliver a thing,

movable or immovable, to the creditor or oblige for the purpose of transferring ownership or
for the use of possession of the recipient.

Kinds of Real Obligation

1. Determinate or Specific Real Obligation – obligation of the debtor to deliver a

determinate or specific thing to the creditor or obligee.
Specific or Determinate Thing – a thing is determinate when it is particularly
designated or physically segregated from all other of the same class, e.g. the car sold
by X, the watch I’m wearing
2. Indeterminate or Generic Real Obligation – obligation of the debtor or obligor to
deliver an indeterminate or generic thing to the creditor or obligee.
Generic or Indeterminate Thing – when it is designated merely by its class or
genus without any particular designation or physical segregation from all others of
the same class and cannot be pointed out with particularity, e.g. a 2025 Suzuki car, a
Persian cat, a sum of P10,000.00
Personal Obligation (obligation to do and not to do)

Kinds of Personal Obligation

1. Positive personal obligation (obligation to do) – obligation of the debtor to

perform some work or services for the creditor or obligee.
2. Negative personal obligation (obligation not to do) – obligation of the debtor or
obligor not to perform some act in favor of the creditor or obligee.

Article 1157. Obligations arise from:

Note: The enumeration by the law is exclusive; hence, no obligation if its source is
not any of those enumerated.

1. Law – when they are imposed by the law itself, they are not presumed (Article 1158),
e.g. obligation to pay taxes.
2. Contracts – when they arise from the stipulation of the parties, e.g. contract of loan

Article 1159. Obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good faith.

A 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.

1. Binding Force – obligations arising from contracts are governed primarily by the
agreement of the contracting parties.
2. Requirements of a valid contract – all essential elements are present and that it is
not contrary to law, morals, good customs, public order, and public policy.
3. Where contract requires approval by the government – such contract becomes
the law between the contracting parties only when approved, and when there is
nothing in it which is contrary to law, e.g. overseas employment contract must be
approved by the Philippine Overseas Employment Administration
4. Compliance in good faith – compliance or performance in accordance with the
stipulations or terms of the contract or agreement
5. Liability for breach of contract – breaching party is liable to compensate the non-
breaching party for any losses or damages incurred due to the breach, e.g. actual
damages, liquidated damages
6. Preservation of interest of promise – a breach upon the contract confers upon the
injured party a valid cause for recovering that which may have been lost or
suffered. The remedy serves to preserve the interest of the promisee of having
the benefit of his bargain, or in being reimbursed for loss caused by reliance on
the contract, or in having restored to him any benefit that he has conferred on the
other party.

3. Quasi-contracts (Article 1160) – when they arise from lawful, voluntary and
unilateral acts and which are enforceable to the end that no one shall be unjustly
enriched or benefited at the expense of another.

A quasi-contract is that juridical relation resulting from certain 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.

The law considers the parties as having entered into contract, irrespective of their
intention, to prevent injustice.

Kinds of Quasi-contracts

a. Negotiorum gestio – voluntary management of the property or affairs of

another without the knowledge or consent of the latter, e.g. X, a neighbor, saved
the house of Y from being burned, Y has the obligation to reimburse X for the
expenses X incurred although Y did not actually give his consent to the act of X
b. Solutio indebiti – juridical relation which is created when something is received
when there is no right to demand it and it was unduly delivered through mistake.
 Solution indebiti applies where:
1. Payment is made when there exists no binding relation between the payor,
who has no duty to pay, and the person who received the payment; and
2. Payment is made through mistake and not through liberality or some other
cause.
c. Other Cases – examples provided in Article 2164-2175 of the Civil Code

4. Acts or omissions punished by law – when they arise from civil liability which is
the consequence of a criminal offense, e.g. obligation of a thief to return what he has
stolen, duty of the killer to indemnify the heirs of the victim

Every person criminally liable for a felony is also civilly liable. (Article 100, RPC)

Scope of civil liability

a. Restitution – e.g. return the stolen car or pay its value if lost or destroyed
b. Reparation for the damage caused – e.g. pay for the damage caused to the
stolen car
c. Indemnification for consequential damages – e.g. pay for other damages as
a consequence of the crime

5. Quasi-delicts or torts – when they arise from damage caused to another through
an act or omission, there being fault or negligence, but no contractual relation exists
between the parties, e.g. obligation of a possessor of an animal to pay for the
damage which it may have caused

A quasi-delict is an act or omission by a person (tort feasor) which cause damage to

another in his person, property, or rights giving rise to an obligation to pay for the
damage done, there being fault or negligence but there is no pre-existing contractual
relation between the parties. (Article 2176 of the Civil Code)

Requisites of quasi-delict
a. There must be an act or omission by the defendant;
b. There must be fault or negligence of the defendant;
c. There must be damage caused to the plaintiff;
d. There must be a direct relation or connection of cause and effect between the act
or omission and the damage; and
e. There is no pre-existing contractual relation between the parties.

Provisions on Quasi-Delicts

Art. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no
pre-existing contractual relation between the parties, is called a quasi-delict and is governed
by the provisions of this Chapter. (1902a)

Art. 2177. Responsibility for fault or negligence under the preceding article is entirely
separate and distinct from the civil liability arising from negligence under the Penal Code.
But the plaintiff cannot recover damages twice for the same act or omission of the
defendant. (n)

Art. 2178. The provisions of Articles 1172 to 1174 are also applicable to a quasi-delict. (n)

Art. 2179. When the plaintiff's own negligence was the immediate and proximate cause of
his injury, he cannot recover damages. But if his negligence was only contributory, the
immediate and proximate cause of the injury being the defendant's lack of due care, the
plaintiff may recover damages, but the courts shall mitigate the damages to be awarded. (n)

Art. 2180. The obligation imposed by Article 2176 is demandable not only for one's own acts
or omissions, but also for those of persons for whom one is responsible.

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.
Guardians are liable for damages caused by the minors or incapacitated persons who are
under their authority and live in their company.

The owners and managers of an establishment or enterprise are likewise responsible 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.

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.

The State is responsible in like manner 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, in
which case what is provided in Article 2176 shall be applicable.

Lastly, teachers or heads of establishments of arts and trades shall be liable for damages
caused by their pupils and students or apprentices, so long as they remain in their custody.

The responsibility treated of in this article shall cease when the persons herein mentioned
prove that they observed all the diligence of a good father of a family to prevent damage.
(1903a)

Art. 2181. Whoever pays for the damage caused by his dependents or employees may
recover from the latter what he has paid or delivered in satisfaction of the claim. (1904)

Art. 2182. If the minor or insane person causing damage has no parents or guardian, the
minor or insane person shall be answerable with his own property in an action against him
where a guardian ad litem shall be appointed. (n)

Art. 2183. The possessor of an animal or whoever may make use of the same is responsible
for the damage which it may cause, although it may escape or be lost. This responsibility
shall cease only in case the damage should come from force majeure or from the fault of the
person who has suffered damage. (1905)

Art. 2184. In motor vehicle mishaps, the owner is solidarily liable with his driver, if the
former, who was in the vehicle, could have, by the use of the due diligence, prevented the
misfortune. It is disputably presumed that a driver was negligent, if he had been found guilty
or reckless driving or violating traffic regulations at least twice within the next preceding two
months.

If the owner was not in the motor vehicle, the provisions of Article 2180 are applicable. (n)

Art. 2185. 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. (n)

Art. 2186. Every owner of a motor vehicle shall file with the proper government office a bond
executed by a government-controlled corporation or office, to answer for damages to third
persons. The amount of the bond and other terms shall be fixed by the competent public
official. (n)

Art. 2187. 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. (n)

Art. 2188. There is prima facie presumption of negligence on the part of the defendant if the
death or injury results from his possession of dangerous weapons or substances, such as
firearms and poison, except when the possession or use thereof is indispensable in his
occupation or business. (n)

Art. 2189. Provinces, cities and municipalities shall be liable for damages for the death of, or
injuries suffered by, any person by reason of the defective condition of roads, streets,
bridges, public buildings, and other public works under their control or supervision. (n)
Art. 2190. 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. (1907)

Art. 2191. Proprietors shall also be responsible for damages caused:

(1) By the explosion of machinery which has not been taken care of with due
diligence, and the inflammation of explosive substances which have not been kept in
a safe and adequate place;

(2) By excessive smoke, which may be harmful to persons or property;

(3) By the falling of trees situated at or near highways or lanes, if not caused by force
majeure;

(4) By emanations from tubes, canals, sewers or deposits of infectious matter,

constructed without precautions suitable to the place. (1908)

Art. 2192. If damage referred to in the two preceding articles should be the result of any
defect in the construction mentioned in Article 1723, the third person suffering damages
may proceed only against the engineer or architect or contractor in accordance with said
article, within the period therein fixed. (1909)

Art. 2193. The head of a family that lives in a building or a part thereof, is responsible for
damages caused by things thrown or falling from the same. (1910)

Art. 2194. The responsibility of two or more persons who are liable for quasi-delict is
solidary. (n)

Crimes (delict) distinguished from quasi-delict.

1. In crime, there is criminal or malicious intent or criminal negligence, while in

quasi-delict, there is only negligence.
2. Crime affects public interest, while quasi-delict concerns private interest.
3. In crime, there are generally two liabilities; criminal and civil, while in quasi-delict,
there is only civil liability.
4. In crime or delict, the purpose is punishment, while in quasi-delict,
indemnification of the offended party.
5. Criminal liability cannot be compromised or settled by the parties themselves,
while the liability for quasi-delict can be compromised as any other civil liability.
6. In crime, the guilt of the accused must be proved beyond reasonable doubt, while
in quasi-delict, the fault or negligence of the defendant need only be proved by
preponderance of evidence; and
7. In crime, the liability of the person responsible for the author of the negligent act
or omission is subsidiary, while in quasi-delict, it is direct or primary.

Note: Recovery of damages twice for the same act or omission is prohibited.

Under Article 1157, quasi-delict and an act or omission punishable by law are two
different sources of obligations. Inasmuch as civil liability co-exists with criminal
responsibility in negligence cases, the offended party has the option between an
action for enforcement of civil liability based on culpa criminal under Article 100,
RPC, and an action for recovery of damages based on culpa-aquiliana under
Article 2177.

CHAPTER 2. NATURE AND EFFECT OF OBLIGATIONS

Article 1163. Every person obliged to give something is also obliged to take care
of it with the proper diligence of a good father of a family, unless the law or the
stipulation of the parties requires another standard of care.

This provision refers to an obligation to give a specific or determinate thing.

Specific (determinate) thing and generic thing distinguished

1. A determinate thing is identified by its individuality. The debtor cannot substitute it

with another although the latter is of the same kind and quality without the consent
of the creditor.
2. A generic thing is identified only by its specie. The debtor can give anything of the
same class as long as it is of the same kind.

Duties of debtor in obligation to give a determinate thing

1. To preserve or take care of the thing due.

2. To deliver the fruits of the thing.
3. To deliver its accessions and accessories.
4. To deliver the thing itself.
5. To answer for damages in case of non-fulfillment or breach.

Obligation to take care of the thing due pending delivery

1. Diligence of a good father of a family – ordinary care or that diligence which an

average (a reasonably prudent) person exercises over his own property.
2. Another standard of care – if the law or stipulation of the parties provides for
another standard of care (slight or extraordinary diligence), said law or stipulation
must prevail.
Examples:
a. A common carrier (person or company engaged in the transportation of persons
and/or cargoes) is bound to carry the passengers safely as far as human care and
foresight can provide, using utmost (extraordinary) diligence of a very cautious
persons, with due regard for all the circumstances. In case of accident, a common
carrier will be held liable if it exercised only ordinary diligence or the diligence of
a good father of a family.
b. Banks are duty bound to treat the deposit accounts of their depositors with the
highest degree of care where the fiduciary nature of their relationship with their
depositors is concerned.

Note: While parties may agree upon the diligence which is more or less than that of
a good father of a family, it is contrary to public policy to stipulate absolute
exemption from liability for any fault or negligence.

The debtor must exercise diligence to ensure that the thing to be delivered would
subsist in the same condition as it was when the obligation was contracted. Without
the accessory duty to take care of the thing, the debtor would be able to afford being
negligent and he would not be liable even if the property is lost or destroyed, thus
rendering illusory the obligation to give.

Duties of debtor in obligation to deliver a generic thing

1. To deliver a thing which is of the quality intended by the parties taking into
consideration the purpose of the obligation and other circumstances.
2. To be liable for damages in case of fraud, negligence, or delay, in the performance of
his obligation, or contravention of the tenor thereof.

Article 1164. The creditor has a right to the fruits of the thing from the time the
obligation to deliver it arises. However, he shall acquire no real right over it until
the same has been delivered to him.

Different Kinds of Fruits

1. Natural Fruits – spontaneous products of the soil, and the young and other products
of animals, e.g. produced without the intervention of human labor
2. Industrial Fruits – those produced by lands of any kind through cultivation or labor,
e.g. products of lands brought about by human labor
3. Civil Fruits – derived by virtue of a juridical relation, e.g. rents of buildings
The creditor is entitled to the fruits of the thing to be delivered from the time the obligation
to make delivery of the thing arises. The intention of the law is to protect the interest of the
oblige should the obligor commit delay, purposely or otherwise, in the fulfillment of his
obligation.

When obligation to deliver arises

1. Generally, the obligation to deliver the thing due and, consequently, the fruits
thereof, if any, arises from the time of the perfection of the contract.
Perfection – birth of the contract, meeting of the minds between the parties.
2. If the obligation is subject to a suspensive condition or period, it arises upon
fulfillment of the condition or arrival of the period. However, the parties may make a
stipulation to the contrary as regards the right of the creditor to the fruits of the
thing.
3. In a contract of sale, the obligation arises from the perfection of the contract even
if the obligation is subject to a suspensive condition or a suspensive period where the
price has been paid.
4. In obligations to give arising from law, quasi-contracts, delicts, and quasi-delicts, the
time of performance is determined by the specific provisions of law
applicable.

Personal Right – right or power of a person (creditor) to demand from another (debtor), as
a definite passive subject, the fulfillment of the latter’s obligation to give, to do or not do.

Real Right – right or interest of a person over a specific thing (like ownership, possession,
mortgage, lease record) without a definite passive subject against whom the right may be
personally enforced.

Personal right and real right distinguished

1. While in personal right there is a definite active subject and a definite passive
subject, in real right, there is only a definite active subject without any definite
passive subject.
2. A personal right is, therefore, binding or enforceable only against a particular
person while a real right is directed against the whole world.

Delivery – formal act of transferring something, such as deed; the giving or yielding
possession or control of something to another.

Kinds of Delivery

1. Actual Delivery – the act of giving real and immediate possession to the buyer or
the buyer’s agent.
2. Constructive Delivery – an act that amounts to a transfer of title by operation of
law when actual transfer is impractical or impossible.

Article 1165. When what is to be delivered is a determinate thing, the creditor, in

addition to the right granted him by Article 1170, may compel the debtor to make
the delivery.

If the thing is indeterminate or generic, he may ask that the obligation be

complied with at the expense of the debtor.

If the obligor delays, or has promised to deliver the same thing to two or
more persons who do not have the same interest, he shall be responsible for any
fortuitous event until he has effected the delivery.
Article 1460. A thing is determinate when it is particularly designated or physical
segregated from all other of the same class.

The requisite that a thing be determinate is satisfied if at the time the contract is entered
into, the thing is capable of being made determinate without the necessity of a new
or further agreement between the parties.

Article 1246. When the obligation consists in the delivery of an indeterminate or generic
thing, whose quality and circumstances have not been stated, the creditor cannot demand a
thing of superior quality. Neither can the debtor deliver a thing of inferior quality. The
purpose of the obligation and other circumstances shall be taken into consideration.