Introduction to Obligations & Contracts

What is Law?
- Etymologically, “law” was derived from the Old English word “lagu” which means “something
laid down or fixed”.
- It is difficult to give a precise definition to the word law.
- The word “law” is used to describe properties, relations, or conditions existing everywhere in
the physical, mental, and moral world.
“We find in all human science that those ideas which seems to be most simple are really the
most difficult to grasp with certainty and expressed with accuracy.” - an eminent judge.
2 General Classifications of Law.
A. Jural or Human Law – refers to sanctioned or enacted law such as status, case, normative
rules, and people.
B. Non-Jural or Meta-Legal Law – refers to laws that are not anchored on human promulgation,
such as divine law, natural law, and physical law.
- Divine Law – law that proceeds from sacred writings backed up by faith.
- Natural Law – “law of our human nature based on the demands of our humanity”
- suggests that human laws are derived from eternal and unchangeable
principles found in nature.
- people are aware of these laws using reason i.e. 1 parents should care for
their children, 2 one should try to preserve one’s life, 3 people should do no harm to others,
4
we should help the vulnerable and disadvantaged.
- Physical law – refers to the mechanical laws of the Universe i.e. 1 Laws of gravity by Galileo,
2
Newtonian mechanics, 3 Einstein’s Law of Relativity.
*Non-Jural Laws are the concerns of the theologians, scientists and physicist.

Law as a Student of Obligations & Contracts.

What is Law?
- By Thomas Aquinas – “Law is an ordinance of reason ordered towards the common good,
promulgated by him who has charge of the community”
- By the Supreme Court citing Sanchez Roman – “Law is a rule of conduct, just, formulated by
legitimate power for common observance and benefit”

Characteristics of Law: [4]

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”

1. Rule of Conduct – Law tell us what shall be done and what shall not be done. As rule of
human conduct, law takes cognizance of external acts only.
- Law is a rule of human acts, commanding man to act or refrain from acting. The measure of
human acts is human reason, for it is by reason that we perceive and put order into things.
- A reasonable law is necessary, useful, clear in expression, and adapted to place and time. The
people are moved to follow the law when it is reasonable. If the law is unreasonable, it would
only invite defiance and dissent.
2. Obligatory – Law is considered a positive command imposing a duty to obey and involving a
sanction which forces obedience.
3. Promulgated by Legitimate Authority – In a democratic country like the Philippines, the
legitimate or competent authority is the legislative. Under the Constitution, laws are enacted by
congress which is the name of the legislative branch of our government.
- Due promulgation must come from a competent authority, not from some private individual
or public official unauthorized to enact a law. Law must be issued by one who takes charge of
the community, who wields the power to promote the common interest.
4. It is of Common Observance and Benefit – Law is intended by man to serve man. It regulates
the relations od men to maintain harmony in society and to make order and co-existence
possible. Law must, therefore, be observe by all for the benefit of all.
- The common good need not be the utilitarian ethics to the greatest happiness for the
greatest number, but rather it is the good of everyone. It bears common aspirations of all, not
just the majority. Still majoritarianism argues that although the majority opinion can be fallible,
it is still the best way to arrive at the most reasonable terms as more heads are better that one,
that is more intelligence, experience, and wisdom in number.
- We should be careful though to distinguish popular morality or popular good from the
common public good. A law can be valid public order, reasonable and fair to all although it may
be unpopular to many.
Sources of Philippine Law
1. Constitution
2. Legislation
3. Administration or Executive Orders
4. Judicial Decisions or Jurisprudence
5. Customs
6. Other Sources
1. Constitution
- Often referred to as The Fundamental Law, Supreme Law, or Highest Law of the Land.
It is promulgated by the people themselves, binding on all individual citizens and all agencies of
the government. It is the law to which all other laws enacted by the legislative must conform.
- This means that laws which are declared by the courts to be inconsistent with the
constitution shall be void and the latter shall govern.
2. Legislation
- It consists in the declaration of legal rules by a competent authority. It is the
preponderant source of law in the Philippines. Acts passed by the legislative are so called
enacted law or statute law. Legislation includes ordinance enacted by local governments
- City or barangay ordinance enacted by governing bodies are an example of legislation.
3. Administrative or Executive Orders, regulations, and Rulings
- Issued by administrative officials under legislative authority. Administrative rules and
regulations are intended to clarify or explain the law and carry into effect its general provisions.
Administrative acts are only valid only when they are not contrary to laws and constitution.
4. Judicial Decisions or Jurisprudence
- The decisions of the court, particularly the Supreme Court, applying or interpreting the
laws or Constitution form part of the legal system of the Philippines (See Art. 8, Civil Code).
5. Customs
- it consists of those habits and practices which through long and uninterrupted usage
have become acknowledge and approved by society as binding rules of conduct. It has the force
of law when recognized and enforced by the State
Other Sources of Law – this includes:
1. Principle of justice and equity
2. Decisions of foreign tribunals
3. Opinions of text writers
4. Religion

These are, however, only supplementary, that is, they are resorted by the court in the absence of all
other sources.

Law on Obligations and Conduct

- Body of rules which deals with the nature and sources of obligations and the rights and duties
arising from agreements and particular contracts.
- The law on obligation and contracts is found in the Republic Act no. 386, otherwise
known as the Civil Code of the Philippines. When we speak of civil law, we refer to the law
found primarily in our Civil Code.
- The Civil Code of the Philippines is based mainly on the Civil Code of Spain which took effect
in the Philippines on December 7, 1889. It was approved as Republic Act no. 286 on June 18,
1949 and took effect on August 50, 1950.
- The Civil Code is divided into 4 books. Book IV deals with obligations and constructs. The
general provisions on obligations are continued on Title I, Articles 1156-1304, while those on
contracts, in Title II, Articles 1305-1422.
Sources of Obligation
Meaning of Obligation
Obligation
Etymologically, the word obligation is derived from the Latin word obligatio which means
binding. The dictionary defines obligation as a binding agreement committing a person to a
payment or other action.
The Civil Code (Article 1156) defines an obligation as a juridical necessity to give, to do or not
to do. Justice JBL Reyes, meanwhile, provides a more complete definition to wit:
Juridical necessity – in case of non-compliance, there will be legal sanctions.
An obligation is a juridical relation whereby a person (called the creditor) may demand from
another (called the debtor) the observance of a determinative conduct (the giving, doing or not
doing), and in case of breach, may demand satisfaction from the assets of the latter.

Elements of an Obligation
An obligation has the following elements:
1. Active Subject- the one who is demanding the performance of the obligation. It is he who in
his favor, the obligation is constituted, established or created. He is called the creditor or
obligee. 
2. Passive Subject- the one bound to perform the prestation to give, to do, or not to do. Also
called debtor or obligor.
3. Prestation or object- the subject matter of the obligation which as an economic value or
susceptible of pecuniary substitution in case of noncompliance. 
4. Efficient Cause- the juridical tie or vinculum by virtue of which the debtor has become bound
to perform the prestation. 
Example 1:
Under a service contract, Caesar bound himself to repair Bernard’s Sport Car for One Million
Pesos (P 1,000,000.00)
Active Subject – Bernard
Passive Subject – Caesar
Prestation – Repair of the car
Efficient Cause – contract of agreement
Example 1.2:
Suppose Caesar already repaired the car and it was agreed Bernard would pay Caesar after the
repair is finished, Is there a change in the passive and active subject?
Answer: YES
Active Subject – Caesar
Passive Subject - Bernard

NOTE: Right vis-à-vis Obligation

When there is a right there is a corresponding obligation. Right is the active aspect while
obligation is the passive aspect. It is like the two sides of a coin. Thus, it is said the concepts of
credit and debt are two distinct aspects of unitary concept of obligation. 

Prestation
The prestation is not the thing but the particular conduct of the debtor. It may consist in giving,
doing or not doing something. Example: Obligation to deliver a thing in a contract of sale.
1. Obligation to give- consists in the delivery of a movable thing to the creditor.
2. Obligation to do- covers all kinds of works or services whether physical or mental. Example:
Contract for professional services like painting, modelling, singing.
3. Obligation not to do- consists in refraining from doing some acts like the obligation of a
building proprietor to refrain from committing nuisance through noise, offensive odor, smoke,
heat, etc. An Obligation not to deliver is included in Obligation not to do, thus a debtor shall not
deliver a thing if the court has issued a restraining order or injunction to that effect.
NOTE:
The definition of obligation in Article 1156 refers to civil obligations which are enforceable in
court when breached. It does not cover natural obligations (Article 1423 to 1430) because these
obligations cannot be enforced in court being based merely on equity and natural law and not
positive law.
What are the Sources of Obligations?
Article 1157, Civil Code - Obligation arise from:

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

A. Obligation Arising from Law

- There are obligations which arise from law such as the obligation of parents to support their
minor children (Art. 195, Family Code [FC]); the duty of spouses to render mutual support and
respect to one another (Art. 68, FC); duty if taxpayers to pay taxes to the government (Internal
Revenue Code).
Obligations Derived from Law are Never Presumed
- Unless such obligations are expressly provided by law, they are not demandable and
enforceable. As such, they cannot be presumed to exist.

B. Obligation Arising from Contracts

- Article 1159 of the Civil Code. Obligations arising from contracts have force of law between
the contracting parties and should be complied with in good faith.
- Obligations arising from contracts entered into by contracting parties are primarily governed
by stipulations, clauses, terms and conditions of their agreements. These stipulations, clauses,
terms and conditions – if they do not violate any law, morals, good customs, public order, or
public policy – shall have the force of law and should be complied with in good faith.

C. Obligations Arising from Quasi-Contracts

- A quasi-contract is a juridical relation which arises from lawful, voluntary and unilateral act or
acts executed by somebody for the benefit of another for which the former must be
indemnified to the end that no one shall be enriched or benefited at the expense of another. It
is a kind of contract created without the consent of one party but whose missing consent is
given by law.
Principal Kinds of Quasi-Contracts
Negotiorum Gestio – This is a juridical relation which takes place when somebody takes charge
of the agency or management of the business or property of another without any power from
the latter (see Art. 2144). The owner of the business or property shall reimburse the gestor for
the necessary and useful expenses incurred by the latter, and for the damages suffered by him
in the performance of his functions as gestor.
Solutio Indebiti – This is a juridical relation which takes place when somebody received
something from another without any right to demand for it, and the thing was unduly delivered
to him through mistake. The obligation to return the thing arises on the part of the recipient
(Art. 2154).

D. Obligation Arising from Acts or Omissions Punished by Law

- Article 1161. Civil obligations arising from criminal offences shall be governed by penal laws
xxx. This article refers to civil obligations arising from criminal offences. Anchored on the well
accepted principle that every person criminally liable for a felony is also civilly liable.

E. Obligations Arising from Quasi-Delict

- Quasi-delict, also known as culpa aquiliana is explained in Art. 2176 as follows –
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 xxx
Elements of Quasi-Delict
1. There is fault or negligence on the part of the defendant resulting in a wrongful act or
omission, whether voluntary or not, and whether criminal or not;
2. There is damage and injury suffered by another person;
3. There is direct causal relation between the fault or negligence and the resulting damage &
injury.
*That is, the fault or negligence is the proximate cause of the damage or injury.
Meaning of Fault or Negligence (F/N)
The Civil Code explained the meaning of fault or negligence as follows:
- Article 1173. The F/N of the obligor consist in the omission of that diligence which is required
by the nature of the obligation and corresponds with the circumstances of the person, of the
time and of the place. Xxx
- Succinctly stated, negligence is merely the want of care as required by the attending
circumstances. It is relative and not an absolute term (Tolentino, 1991 Ed., p. 84). It changes
with the changing circumstances of the persons involved, the time and place of occurrence of
the fault. It is question of fact.

Doctrine of Proximate Cause –

In determining the liability of the tortfeasor in quasi-delict, the law only looks for the proximate
cause and not for the remote cause. It is the proximate cause which has produced the damage
or injury complained of. Hence, other causes in the chain of events which existed before the
proximate cause would not be inquired into because in the natural sequence of events, they
have not contributed directly and closely to the resulting damage or injury.
*Effective Intervening Cause - is the new and independent act which itself is a proximate
cause of an injury and which breaks the causal connection between the original wrong and the
injury.
An intervening cause to be considered efficient must be - not produced by just a wrongful act or
omission but independent of it and adequate to bring the injurious results.

DIFFERENT KINDS OF OBLIGATIONS

Obligations are classified as follows:
A. As to judicial enforceability
1. Civil Obligation – this is an obligation, which if not fulfilled when it becomes due and
demandable, may be enforced in court through action. Ex: Ana agreed to sell her SUV to
Bella for ₱9,000,000.00
2. Natural Obligation – this is a special kind of obligation which cannot be enforced in
court but which the retention of voluntary payment or performance made by the
“debtor”. Ex: Ana loaned ₱100,000.00 from Beth payable in 2 months. The load was
secured by a promissory note. 12 years passed but the loan remained unpaid. The
promissory note cannot be enforced anymore because of the description. However, if
despite the prescription, Ana voluntarily paid the amount she owed Beth, she can no
longer recover what she had paid.
3. Moral Obligation - this is an obligation which arises not from positive law but from the
moral law developed by the church and not enforceable in court. A moral obligation
deals with the spiritual obligation of a person in relation to his God and Church. Ex: The
obligation imposed on Muslims on Ramadan.
B. As to subject matter
 1. Real Obligation – it refers to obligation to give. Ex: Jenny promised to give Maine a
mobile phone.
2. Personal Obligation – refers to obligation to do or not to do. Ex: Jenny obliged herself to
repair Maine’s phone.

C. As to number of persons bound to perform

1. Unilateral Obligation – that kind of obligation where only one of the parties is bound to
fulfill a prestation. Ex: Ana promised to pay Beth ₱100,000.00. (Ana alone has the duty
to perform the obligation, although there are two parties in the transaction.)
2. Bilateral Obligation – that kind of obligation where both parties are bound to perform a
part in the obligation. Ex: Ana sold her SUV to Bella. (Here, Ana is bound to deliver the
car while Bella is bound to pay the purchase price. The obligations of the parties here
are reciprocal. They are dependent upon each other.)
D. As to the capability of fulfillment
1. Possible Obligation – when the obligation is capable of accomplishment or fulfillment in
the nature or in law. Ex: I promise to give you a car.
2. Impossible Obligation – when the obligation is not capable of accomplishment or
fulfillment in nature or in law. Ex: I promise to give you the moon.
E. As to susceptibility of partial fulfillment
1. Divisible Obligation – when the obligation is susceptible of partial performance. Ex: I
promise to give you 300 Samsung Galaxy Note Smart Phones.
2. Indivisible Obligation – when the obligation is not susceptible of partial performance.
Ex: I promise to give you a red Mazda 3 car.
F. As to their dependence upon on another
1. Principal Obligation - this is the main obligation created by the parties
2. Accessory Obligation – this is the secondary obligation created to guarantee the
fulfillment of the principal obligation.
Ex: Marcos loaned ₱500,000.00 from Kurt. To secure the loan Marcos mortgaged his car
in favor of Kurt. Here, the principal obligation is the loan while the accessory obligation
is the mortgaged executed to secure the loan.
G. As to the existence of a burden or condition
1. Pure Obligation – that kind of obligation which is not burdened with any condition or
term. It is immediately demandable. Ex: I promised to pay my loan amounting to
₱300,000.00 on September 30,2017.
 2. Conditional Obligation – that kind of obligation which is subject to a condition. The
condition may be suspensive, the happening of which shall give rise to the obligation;
the condition ay be resolutory, the happening of which terminates the obligation.
Ex: Suspensive condition (a.k.a. Condition Precedent): Ana promised to give Bella a red
Mazda 3 car if Bella pass the CPA examinations before the year 2020. (if year 2020 had
already arrived and Bella had not passed the CPA examinations yet, the suspensive
condition had not been fulfilled. Therefore, Ana has no obligation to deliver the car to
Bella.)
Resolutory Condition (a.k.a. Condition Subsequent): Bella donated a land to Ana with
the condition that Ana build two-story house. No house was constructed.
Noncompliance with the condition entitles Bella the donor) to revoke the obligation.
3. Obligation with a term – that kind of obligation subject to the happening of an event
which will surely happen, although the date may not be known as of the moment. The
term may be suspensive (from a day certain) in which case, the obligation becomes
demandable only after the expiration of term. If the term (to a day certain), the
obligation terminates upon expiration.
Ex:
Suspensive: I promise to support you when your father dies. (Here, the obligation
begins from the arrival of the period, that is the death of your father)
Resolutory: I promise to support you until you reach the age of 18. (Here, the obligation
is already effective but will terminate upon the arrival of the day certain, that is when
you reach the age of 18).

I. As to the nature of performance

1. Positive Obligation - when the debtor is obliged to give or do something in favor of the
creditor. Ex: I promise to give you a car. I promise to repair your watch.
2. Negative Obligation – when the debtor is obliged not to do something, that is, he must
refrain from doing something. Ex: I, the lessee, promise not to destroy furniture of the
lessor.
I. As to the nature of creation of the obligation
1. Legal Obligation – that obligation imposed by law. Ex: The obligation of an income
earner to pay his/her income tax every 15th day of April.
2. Conventional Obligation – that obligation established by the agreement of the parties
like contract. Ex: Rio entered a contract with KR Corp. for the lease of his 5-door
apartment.
J. As to the character of responsibility or liability
 1. Joint Obligation – this is the kind of obligation where each debtor is liable only for a part
of the whole liability and to each creditor shall belong only a part of the correlative
rights. Ex: Aby, Belle and Candy owe Dada ₱600,000.00. (There are three (3) debts but
only one (1) credit. In the absence of any agreement, the liability of Aby, Belle and candy
cannot collect the n=entire amount from anyone of them. She can only collect
₱200,000.00 from each of the debtor).
2. Solidary Obligation – this is the kind of obligation where a debtor is answerable for the
whole of the obligation without prejudice to his right to collect from his co-debtors the
latter’s shares in the obligation. Ex: Aby, Belle and Cindy are solidary debtors for Dada in
the amount of ₱600,000.00. (As the obligation of the solidary debtors is in the nature of
mutual guarantee, Dada can demand payment of the entire obligation [when it becomes
due] from any one of the debtors or against all of them at the same time. If he filed a
case against all of them and won, he can execute the judgement against anyone of the
solidary debtors to compel satisfaction of the entire judgement.)
K. As to the grant of right to chose one prestation out of several, or to substitute the first one
1. Conjunctive Obligation – is one where the debtor has to perform all the several
prestation in the contract to extinguish the obligation. Ex: Mimi promised to Lala an
iPhone and motorcycle and ₱700,000.00 cash. In order to extinguish the obligation,
Mimi has to deliver all three things to Lala.
2. Alternative Obligation – the kind of obligation where the obligor may choose to
completely perform one out of the several prestation. Ex: Ex: Mimi promised to give Lala
an iPhone or motorcycle or ₱700,000.00 cash. Mimi is not bound to deliver all the three
things to Lala. The delivery of one is enough to extinguish the obligation.
3. Facultative Obligation – the kind of obligation where only one prestation had been
agreed upon, but the obligor may render one substitution of the first one. Ex: I am
indebted to you in the amount of ₱300,000.00. If I cannot pay my obligation on the
agreed date, I shall mortgage to you my red car.
L. As to the imposition of penalty
1. Simple Obligation – that kind of obligation where there is no penalty imposed for
violation of terms thereof. Ex: I promise to pay my indebtedness in the amount of
₱300,000.00 on September 30, 2017.
2. Obligation with penalty – that kind of obligation which imposes a penalty for violation
of the terms thereof. Ex: I promise to pay my indebtedness in the amount of
₱300,000.00 on September 20, 2017. Should I fail to pay on the aforementioned date, I
shall pay ₱50,000.00 as penalty.
Bonus Paterfamilias “Good Father of a
Family” – Diligence of a good father of a family
What does a good father of a family mean?
- Dean Ernesto Pineda in his book “Obligations and Contracts” said that, “The concept of bonus
paterfamilias is taken from the roman law. Ordinarily, the father, not the mother, is the head of
the family. As head, the father performs voluntarily is duties to pride support and protection to
his family. He occupies a place of honor and leadership in the family. In recognition of this, his
surname is carried over by his children and subsequent male generations. A good father is a
person possessed of no less than ordinary or average diligence. He is a person who can always
be depended upon.”
- This is the abstract standard used to correspond to a normal dependable person guided by a
good conscience that goads him to do good and avoid evil.
- As long as things are within his control, he will prevent the causing of injuries or damages to
others. Anyone who acts below this standard is considered negligent.
Needless to say, the term good father of the family may be used to describe the diligent acts of
a person whether man or woman, or whether married or single.
“Negligence is the absence of a reasonable care and caution that an ordinarily prudent person
would have used in a given situation.”
Under the Article 1173 of the Civil Code, where it is not stipulated in the law or the contract,
the diligence required to comply with one’s obligations is commonly referred to as
paterfamilias; or more specifically, as bonus paterfamilias or “a good of a family”
A good father of a family means:
- a person of ordinary or average diligence. To determine the prudence and diligence that must
be required of all persons, we must use as basis the abstract average standard corresponding to
a normal orderly person. Anyone who uses diligence below this standard is guilty of negligence.
Article 2180, Civil Code. Provides that employers shall be liable for damages caused by their
employees… but the responsibility shall cease when the employers can prove that they
observed all the diligence of a good father of a family to prevent damage.
The diligence of a good father of a family in the Article 2180 refers to the diligence in the
selection and supervision of employees, thus, while an employee while performing his duties
causes damage to persons or property due to his own negligence , there arises the rebuttable
presumption that the employer is negligent. Either in the selection of the employee or in the
supervision over him after the selection.
For the employer to avoid to solidary liability for a fault committed by his employee, an
employer must rebut the presumption by presenting adequate and convincing in the selection
and supervision of his employee, he/she exercises the care and diligence of a good father of a
family.
*bare allegations and substantiated by evidence are not equivalent proof under the rules of
evidence.
*case law teaches that for an employer to exercise the diligence of a good father of a family, he
should not be satisfied with the applicant’s mere possession of a professional driver’s license. He
must carefully examine the applicant for employment as to his qualifications, his experience and
record of service.

Case Digest: A Guide

Article 8. Judicial Decisions applying or interpreting the laws, or the constitution shall form a
part of the legal system of the Philippines.

 A case digest is a written summary of the case. Oftentimes a case involves several issues.
 A well written case digest can serve as a map or compass in navigating the complex web
of issues discussed by the court.
Digesting will help you in separating one issue from one another. Digesting will also help you in
understanding how the SC resolve the various issues in the case.
* you only need to focus on the relevant issues related to our subject on OBLICON.

Format of a Case Digest.

A typical case digest consists of 4 parts:
1. Caption
2. Facts
3. Issues
4. Ruling
Nature and effect of obligation
1163-1164
If the law provides higher degree of diligence – bonus paterfamilias doesn’t apply.
(extraordinary diligence)
Property law – property are things which can be appropriated – can be possessed.
Example of Natural Fruits – crops
Industrial – fruits of industry
Civil – rentals of a property
Delivery also means tradition in law –
Personal Property – movable property, properties that can be moved.
Real Property – properties attached to the soil, immovable.
Tradicion symbolica – A give the key of the house to B. Personal Property
Tradicion Instrumental – Give the title to the house. Real Property
Corporeal Property – can be seen by the naked eye and v.v. (Incorporeal Property)
Ownership can only be transferred upon delivery.