The Law on Obligations and Contracts

Introduction to Law:
-Law means any rule of action or any system
of uniformity.
- Divisions of Law:
a. Law which is promulgated & enforced
by the state
b. Law which is not promulgated and
enforced by the state.

- Divine Law- the law of religion and faith

which concerns itself with the concept of sin.
- Natural Law - the divine inspiration in man of
the sense of justice, fairness and righteousness,
not by divine revelation or formal promulgation,
but by internal dictates of reason alone.

- Moral Law - the totality of the norms of good

and right conduct growing out of the collective
sense of right and wrong of every community.
- Physical Law - uniformities of actions and
orders of sequence which are the physical
phenomena that we sense and feel.

State Law
- the law that is promulgated and enforced by the
state.
- also called positive law, municipal law, civil law,
or imperative law

Characteristics of law:
1. It is a rule of conduct.
2. It is obligatory.
3. It is promulgated by legitimate authority.
4. It is of common observance and benefit.

Necessity and Functions of Law:

1. What would life be without law?
2. What does law do?
3. What is our duty as members of society?

Sources of Law:
a. Constitution
b. Legislation
c. Administrative/ Executive orders,
regulations and rulings.
d. Judicial decisions or jurisprudence
e. Custom
f. Other sources

Classifications of Law:
1. As to purpose
Substantive Law vs. Adjective Law
2. As to subject matter
Public Law vs. Private Law

Law on OBLIGATIONS and CONTRACTS

- the body of rules which deals with the nature and
sources of obligations and the rights and duties
arising from agreements and the particular
contracts.

Civil Code of the Philippines

- the law on obligations and contracts is found in
Republic Act No.386 ( CIVIL CODE OF THE
PHILIPPINES)
- BOOK IV deals with obligations and contracts

TITLE I OBLIGATIONS
Article 1156. An obligation is a juridical
necessity to give, to do, or not to do.
JURIDICAL NECESSITY juridical tie;
connotes that in case of noncompliance, there
will be legal sanctions.

An obligation is nothing more than the duty of a

person (obligor) to satisfy a specific demandable
claim of another person (obligee) which, if
breached,
is
enforceable
in
court.
A contract necessarily gives rise to an obligation
but an obligation does not always need to have a
contract.

Elements of an Obligation
1. Active subject ( Obligee/ Creditor) - one in
whose favor the obligation is constituted
2. Passive subject ( Obligor/ Debtor) - one who
has the duty of giving, doing or not doing.
3. Object (Prestation) - the conduct which has to
be observed by the debtor/obligor

PRESTATION (Object)
1.TO GIVE delivery of a thing to the creditor
(in sale, deposit, pledge, donation);
2.TO DO covers all kinds of works or services
(contract for professional services);
3.NOT TO DO consists of refraining from
doing some acts (in following rules and
regulations).

KINDS OF OBLIGATIONS:
From the viewpoint of subject matter (a)REAL OBLIGATION the obligation to give
(b)PERSONAL OBLIGATION the obligation
to do or not to do (e.g. the duty to paint a house,
or to refrain from committing a nuisance)
-POSITIVE OR AFFIRMATIVE
OBLIGATION the obligation to give or to do
-NEGATIVE OBLIGATION the obligation
not to do (which naturally inludes not to give)

Article 1157. Obligation arises from

(1) law;
(2) contracts;
(3) quasi-contracts;
(4) acts or omissions punished by law;
(5) quasi-delicts.

(1) LAW imposed by law itself; must be

expressly or impliedly set forth and cannot be
presumed
(2) CONTRACTS arise from stipulations of
the parties: meeting of the minds / formal
agreement
3) QUASI-CONTRACTS 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.

- 2 kinds of quasi-contracts:
a.Negotiorum gestio - unauthorized management;
This takes place when a person voluntarily takes
charge of anothers abandoned business or
property without the owners authority.
b.Solutio indebiti - undue payment; This takes
place when something is received when there is
no right to demand it, and it was unduly delivered
thru mistake

(4) DELICTS arise from civil liability which is

the consequence of a criminal offense.
(5) QUASI-DELICTS / TORTS arise from
damage caused to another through an act or
omission, there being no fault or negligence, but
no contractual relation exists between the parties

Article 1158. Obligations from law are not

presumed. Only those (1) expressly determined
in this code or (2) 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 code.

Article 1159. Obligations arising from contracts

have the force of law between the contracting
parties and should be complied with in good
faith.

Article 1160. Obligations derived from quasicontracts shall be subject to the provisions of
chapter 1, title 17 of this book.
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 provisions of Chapter 2,
Preliminary in Human Relations, and of Title 18
of this book, regulating damages.

Article 1162. Obligations derived from quasidelicts shall be governed by the provisions of
chapter 2, title 17 of this book, and by special
laws.

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.

DUTIES OF DEBTOR:
Preserve or take care of the things due.
DILIGENCE OF A GOOD FATHER a good
father does not abandon his family, he is always
ready to provide and protect his family; ordinary
care which an average and reasonably prudent
man would do.

ANOTHER STANDARD OF CARE

extraordinary diligence provided in the
stipulation of parties.
FACTORS TO BE CONSIDERED diligence
depends on the nature of obligation and
corresponds with the circumstances of the
person, time, and place.

Deliver the fruits of a thing

Deliver the accessions/accessories
Deliver the thing itself
Answer for damages in case of nonfulfillment or breach

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.

REAL RIGHT (jus in re) right pertaining to

person over a specific thing, without a passive
subject individually determined against whom
such right may be personally enforced.
-a right enforceable against the whole world

PERSONAL RIGHT (jus ad rem) a right

pertaining to a person to demand from another,
as a definite passive subject, the fulfillment of a
prestation to give, to do or not to do.
a right enforceable only against a definite person
or group of persons.

FRUITS:
1.NATURAL spontaneous products of the soil,
the young and other products of animals;
2.INDUSTRIAL produced by lands of any
cultivation or labor;
3.CIVIL those derived by virtue of juridical
relation.

Art.1165. When what is to be delivered is a

determinate
thing,
the
creditor

may compel the debtor to make 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 ting 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.

Art. 1165
*This provision applies to an obligation to give.

DETERMINATE THING/SPECIFIC THING

something which is susceptible of particular
designation or specification;
obligation is extinguished if the thing is lost
due to fortuitous events.
Article 1460: a thing is determinate when it is
particularly designated and physically
segregated from all others of the same class.

INDETERMINATE THING /GENERIC THING

something that has reference only to a class or
genus;
obligation to deliver is not so extinguished by
fortuitous events.

REMEDIES FOR FAILURE OF DELIVERY

(determinate thing)
1.Complaint for specific performance an action
to compel the fulfillment of the obligation.
2.Complaint for rescission of the obligation
action to rescind
3.Complaint for damages action to claim for
compensation of damages suffered

As a general rule, no person shall be

responsible for those events which could not be
foreseen, or which, though foreseen, are
inevitable,
except:
1.in cases expressly specified by the law
2.when it is stipulated by the parties
3.when the nature of the obligation requires
assumption
of
risk

An indeterminate thing cannot be object of

destruction by a fortuitous event because genus
never perishes.

Article 1166. The obligation to give a determinate

thing includes that of delivering all its accessions
and accessories, even though they may not have
been mentioned.

ACCESSIONS fruits of the thing or additions to

or improvements upon the principal
-those which are naturally or artificially attached to
the thing
Ex.trees on a land, airconditioner in a car
ACCESSORIES things included with the
principal for the latters embellishment, better use,
or completion
Ex. Key of a house, frame of a picture

Article 1167. If a person obliged to do something

fails to do it, the same shall be executed at his cost.
This same rule shall be observed if he does it in
contravention of the tenor of the obligation it
may be decreed that what has been poorly done be
undone.
* This provision applies to an obligation to do.

THREE SITUATIONS:
a)Debtors failure to perform an obligation
creditor may do the obligation, or by another, at
the expense of the debtor;
recover damages

b)Performance was contrary to the terms agreed

upon
order of the court to undo the same at the
expense of the debtor
c)Performance in a poor manner
order of the court to undo the same at the
expense of the debtor

Article 1168. When the obligation consists in

NOT DOING and the obligor does what has been
forbidden him, it shall also be undone at his
expense.
* This provision applies to an obligation not to
do.

Article 1169. Those obliged to deliver or to do

something incur in delay from the time the obligee
judicially or extrajudicially demands from them the
fulfillment
of
their
obligation.
However, the demand by the creditor shall not be
necessary in order that delay may exists:
1.When the law or obligation so expressly declares;

2.When from the nature of the contract, time us the

essence and motivating factor for its establishment;
3.When demand would be useless (prestation is
impossible);
In reciprocal obligations, from the moment one of
the
parties
fulfills
his
obligation;
When the debtor admits he is in default

ORDINARY DELAY mere failure to perform an

obligation at the appointed time.
LEGAL DELAY (DEFAULT) tantamount to
non-fulfillment of the obligation and arises after
an extrajudicial or judicial demand was made
upon the debtor.

KINDS OF DEFAULT:
a)MORA SOLVENDI delay on the part of the
debtor to fulfill his obligation;
REQUISITES:
1.failure of the obligor to perform obligation on the
DATE agreed upon;
2.demand (judicial/extrajudicial) by the creditor;
3.failure to comply with such demand

EFFECTS:
1)debtor liable for damages and interests
2)debtor liable for the loss of a thing due to a
fortuitous event
KINDS:
1)mora solvendi ex re default in real obligations
(to give)
2)mora solvendi ex persona default in personal
obligations (to do)

b)MORA ACCIPIENDI delay on the part of the

creditor to accept the performance of the obligation;
Effects:
1.creditor liable for damages
2.creditor bears the risk of loss of the thing
3.debtor not liable for interest from the time of
creditors delay
4.debtor release himself from the obligation

c)COMPENSATIO MORAE delay of the obligors

in reciprocal obligation.
Effect: the default of one compensates the
default of the other; their respective liabilities shall
be offset equitable.
Default / Delay in negative obligation is not
possible. (In negative obligation, only fulfillment
and violation are possible)

Article 1170. Those who in the performance of

their obligations are guilty of fraud, negligence,
or delay, and those who in any manner
contravene the tenor thereof, are liable for
damages.

FRAUD (dolo) deliberate intentional evasion

of the faithful fulfillment of an obligation;
NEGLIGENCE (culpa or fault) voluntary act
or omission of diligence, there being no malice,
which prevents the normal fulfillment of an
obligation;

DELAY (mora) default or tardiness in the

performance of an obligation after it has been due
and
demandable;
CONTRAVENTION
OF
TERMS
OF
OBLIGATION (violation) violation of terms and
conditions stipulated in the obligation; this must
not be due to a fortuitous event.

Article 1171. Responsibility arising from fraud

is demandable in all obligations. Any waiver of
an action for future fraud is void.

Article 1172. Responsibility arising from

negligence in the performance of every kind of
obligation is also demandable, but such
liability may be regulated by the courts,
according to circumstances.

Courts
discretion
because:
(a)negligence depends upon the circumstances
of a case good or bad faith of the obligor may
be considered as well as the conduct or
misconduct
of
the
obligee;
(b)it is not as serious as fraud.

Negligence lack of foresight or knowledge

Imprudence lack of skill or precaution
TEST OF NEGLIGENCE
Did the defendant, in doing the alleged negligent act,
use the reasonable care and caution which an
ordinary prudent man would have used in the same
situation?

Aricle 1173. The fault or negligence of the obligor

consists in the omission of that diligence which is
required by the nature of the obligation and
corresponds with the circumstances of the persons,
of he 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 if a good
father of a family shall be required.

DILIGENCE the attention and care required of

a person in a given situation and is opposite of
negligence.
NEGLIGENCE consists in the omission of that
diligence which is required by the nature of the
particular obligation and corresponds with the
circumstances of the persons, of the time, and of
the place.

Article 1174. Except in cases expressly specified

by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall
be responsible for those events which could not
be foreseen, or which, though foreseen, were
inevitable.

FORTUITOUS EVENT an occurrence or

happening which could not be foreseen or even if
foreseen, is inevitable; absolutely independent of
human
intervention;
act
of
God.
FORCE MAJEURE - an event caused by the
legitimate or illegitimate acts of persons other
than the obligor; there is human intervention.

Article 1175. Usurious transactions shall be

governed by special laws.
USURY contracting for or receiving interest in
excess of the amount allowed by law for the loan
or use of money, goods, etc.

Article 1176. The receipt of the principal by the

creditor without reservation with respect to the
interest, shall give rise to the presumption that said
interest
has
been
paid.
The receipt of a later installment of a debt without
reservation as to prior installments, shall likewise
raise the presumption that such installments have
been paid.

These
are
mere
presumptions.
To be sure write the interest and the dates
covered by such payment in the receipt.

Article 1177. The creditors, after having pursued

the property in possession of the debtor to satisfy
their claims, may exercise all the rights and bring
all the actions of the latter for the same purpose,
save those which are inherent in his person; they
may also impugn the acts which the debtor may
have done to defraud them.

REMEDIES AVAILABLE TO CREDITORS FOR

THE SATISFACTION OF THEIR CLAIMS:
1.Exact fulfillment with right to damages
2.Exhaustion of the debtors properties still in his
possession writ of attachment (before judgment)
or writ of execution (for final judgment not yet
executed)

3.ACCION SUBROGATORIA an action where

the creditor whose claims had not been fully
satisfied, may go after the debtors (3rd person) of
the
defendant
debtor.
4.ACCION PAULIANA an action where the
creditor files an action in court for the
RESCISSION of acts or contracts entered into by
the debtor designed to defraud the former.

Article 1178. Subject to the laws, all rights

acquired in virtue of an obligation are
transmissible, if there has been no stipulation to
the contrary.

EXCEPTIONS:
a)Those not transmissible by their nature like purely
personal rights;
b)Those not transmissible by provision of law;
c)Those not transmissible by stipulation of parties.

CHAPTER 3
DIFFERENT KINDS OF OBLIGATIONS
Section 1 Pure and Conditional Obligations

Article 1179. Every obligation whose performance

does not depend upon a future or uncertain event,
or upon a past event unknown to the parties, is
demandable
at
once.
Every obligation which contains a resolutory
condition shall also be demandable, without
prejudice to the effects of the happening of the
event.

PURE OBLIGATION an obligation which does

not contain any condition or term upon which the
fulfillment is made to depend; immediately
demandable by the creditors and the debtor cannot
be excused from not complying with his prestation.

CONDITIONAL OBLIGATION an obligation

which depends upon a future or uncertain event, or
upon a past event unknown to the contracting
parties.

 an obligation subject to a condition.

a)Suspensive Obligation its fulfillment gives rise
to an obligation; the demandability of the obligation
or the effectivity of the contract can take place only
after
the
condition
has
been
fulfilled.
b)Resolutory Obligation its happening
extinguishes the obligation which is already existing;

Article 1180. When the debtor binds himself to

pay when his means permit him to do so, the
obligation shall be deemed to be one with a
period, subject to the provisions of Article 1197.

PERIOD a future and certain event upon the

arrival of which, the obligation subject to it
either arises or is extinguished.

INDICATIONS OF A TERM OR PERIOD:

When the debtor binds himself to pay
a.when his means permit him to do so
b.little by little
c.as soon as possible
d.from time to time
e.as soon as I have the money
f.in partial payment
g.when in the position to pay

Article 1181. In conditional obligations, the

acquisition of rights, as well as the
extinguishment or loss of those already acquired,
shall depend upon the happening of the event
which constitutes the condition.

Suspensive Condition the acquisition of rights by

the creditor depends upon the happening of the
event which constitutes the condition; if such
condition does not take place, it would be as of the
conditional obligation had never existed.
(e.g. promise to give a car after graduating from law
school as cum laude)

Resolutory Condition the rights and obligations

already existing are under threat of extinction upon
the happening or fulfillment of such condition.
(e.g. donation by reason of marriage the
celebration of marriage is a resolutory condition; if
the marriage did not push through, the donation
may be revoked)

Article 1182. When the fulfillment of the condition

depends upon the sole will of the debtor, the
conditional obligation shall be void. If it depends
upon chance or upon the will of a third person, the
obligation shall take effect in conformity with the
provisions of this Code.

3 KINDS OF CONDITIONS UNDER THIS

ARTICLE:
1.POTESTATIVE a suspensive condition which
depends upon the will of one of the contracting
parties = if at the sole will of the debtor, it is void;
if at the creditors, still valid. this is to prevent the
establishment
of
illusory
obligations.

2.CASUAL the condition depends upon chance

or the will of a third person;(e.g. cellphone
warranty)
3.MIXED the condition depends partly upon the
will of the parties and partly upon chance or the
will of a third person; (example ni Atty. De
Chavez: passing the bar)

Article 1183. Impossible conditions, those contrary

to good customs or public policy and those
prohibited by law shall annul the obligation which
depends upon them. If the obligation is divisible,
that part thereof which is not affected by the
impossible or unlawful condition shall be valid.
The condition not to do an impossible thing shall be
considered as not having been agreed upon.

POSSIBLE CONDITION if it is capable of

realization or actualization according to nature, law,
public policy or good customs.

2 KINDS OF IMPOSSIBLE CONDITIONS:

1.Physically Impossible cannot exist or cannot be
done in its nature;
2.Legally Impossible contrary to law, good
customs, or public policy.
Only the affected obligation is void, if the
obligation is divisible, and the part thereof not
affected by the impossible condition is valid.
Only the condition is void if there is already a preexisting obligation and it does not depend upon the
fulfillment of the condition which is impossible.

Article 1184. The condition that some event

happen at a determinate time shall extinguish the
obligation as soon as the time expires or if it has
become indubitable that the event will not take
place.

Positive condition refers to the fulfillment of an

event or performance of an act
Negative condition refers to the non-fulfillment
or non-performance of an act.

POSITIVE SUSPENSIVE CONDITION

The obligation is extinguished:
1.As soon as the TIME EXPIRES without the event
taking place;
2.As soon as it has become certain that the EVENT
WILL NOT TAKE PLACE although the time
specified has not yet expired.

Article 1185. The condition that some event will not

happen at a determinate time shall render the
obligation effective from the moment the time
indicated has elapsed, or if it has become evident that
the
event
cannot
occur.
If no time has been fixed, the condition shall be
deemed fulfilled at such time as may have probably
been contemplated, bearing in mind the nature of the
obligation.

The obligation shall become effective and binding:

a)From the moment the time indicated has elapsed
without
the
event
taking
place;
b)From the moment it has become evident that the
event cannot occur, although the time indicated has
not yet elapsed.

Article 1186. The condition shall be deemed

fulfilled when the obligor voluntarily prevents its
fulfillment.
This provision speaks of the DOCTRINE OF
CONSTRUCTIVE FULFILLMENT

REQUISITES:
1.The condition is SUSPENSIVE;
2.The obligor ACTUALLY PREVENTS the
fulfillment of the condition;
3.He acts VOLUNTARILY.

Article 1187. The effects of a conditional obligation to

give, once the condition has been fulfilled, shall
retroact to the day of the constitution of the obligation.
Nevertheless, when the obligation imposes reciprocal
prestations upon the parties, the fruits and interests
during the pendency of the condition shall be deemed
to have been mutually compensated.

If the obligation is unilateral, the debtor shall

appropriate the fruits and interests received, unless
from the nature and circumstances of the obligation it
should be inferred that the intention of the person
constituting
the
same
was
different.
In obligations to do and not to do, the courts shall
determine, in each case, the retroactive effect of the
condition that has been complied with.

Article 1188. The creditor may, before the

fulfillment of the condition, bring the appropriate
actions for the preservation of his right.
The debtor may recover what during the same time
he has paid by mistake in case of a suspensive
condition.

Actions
available
to
the
creditor:
Action for prohibition restraining the alienation
of the thing pending the happening of the
suspensive
condition;
Action to demand security if the debtor has
become
insolvent;
Action to set aside alienations made by the
debtor
in
fraud
of
creditors;
Actions against adverse possessors to interrupt
the
running
prescriptive
period.
To have his rights annotated in the registry.

Rights of the DEBTOR entitled to recover what

has been paid by mistake prior to the happening of
the suspensive condition.

Article 1189. When the conditions have been

imposed with the intention of suspending the
efficacy of an obligation to give, the following
rules shall be observed in case of the improvement,
loss or deterioration of the thing during the
pendency of the condition:

LOSS
(1)debtor without fault obligation is extinguished
(2)debtor with fault obligation to pay damages
DETERIORATION
(1)debtor without fault impairment is to be borne by
the
creditor
(2)debtor with fault creditor chooses: rescission of
obligation, fulfillment, indemnity

IMPROVEMENT
(1)by nature or time improvement: inure to the
benefit
of
the
creditor
(2)at the expense of the debtor granted to the
usufructuary

Article 1190. When the conditions have for their

purpose the extinguishment of an obligation to give,
the parties, upon the fulfillment of said conditions,
shall return to each other what they have received.
In case of the loss, deterioration or improvement of
the thing, the provisions which, with respect to the
debtor, are laid down in the preceding article shall
be applied to the party who is bound to return.

As for the obligations to do and not to do, the

provisions of the second paragraph of Article
1187 shall be observed as regards the effect of the
extinguishment of the obligation.

-Refers to the fulfillment of a resolutory condition.

-When the resolutory condition happened, the
obligation is considered as if it did not exist.
-The parties are bound to return or restore whatever
they have received from each other reciprocal
restitution
-Donation by reason of marriage if the marriage
does not happen, such donation should be returned
to the donor.

Article 1191. The power to rescind obligations is

implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent
upon
him.
The injured party may choose between the
fulfillment and the rescission of the obligation, with
the payment of damages in either case.

He may also seek rescission, even after he has chosen

fulfillment, if the latter should become impossible. The
court shall decree the rescission claimed, unless there
be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights
of third persons who have acquired the thing, in
accordance with Articles 1385 and 1388 and the
Mortgage Law.

RECIPROCAL each is a debtor and creditor of the

other
RESCISSION resolution or cancellation of the
contract
-Applies only to reciprocal obligations where two
parties are mutually debtor and creditor of each other
in the same transaction. The cause must be identical ad
the
obligations
must
arise
simultaneously.
-The party who can demand rescission should be the
party who is ready, willing, and able to comply with
his own obligations while the other is not capable to
perform his own.

REMEDIES:
1.Specific performance or fulfillment of obligation
with damages;
2.Rescission of contract with damages.

Effect of rescission: the parties must surrender

whatever they have received from the other, and the
obligation
to
pay
is
extinguished.
If there is an express stipulation of automatic
rescission between parties such resolution shall take
place only after the creditor has notified the debtor of
his choice of rescission subject to judicial scrutiny.

Article1192. In case both parties have committed a

breach of the obligation, the liability of the first
infractor shall be equitably tempered by the courts.
If it cannot be determined which of the parties first
violated the contract, the same shall be deemed
extinguished, and each shall bear his own damages.

FIRST INFRACTOR KNOWN

The liability of the first infractor should be
equitably reduced. equitably offset each others
damages.
FIRST INFRACTOR CANNOT BE
DETERMINED
The court shall declare the extinguishment of the
obligation and each shall bear his own damages.