ENTRE 13 – BUSINESS LAW & TAXATION -Introduction to Obligations

MODULE 2
2nd Semester, AY 2024-2025

PALAWAN STATE UNIVERSITY CORE VALUES

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sustainable development L-leadership by example I-innovation T-transparency excellence
in service Y-youth empowerment

PSU MISSION
PSU VISION
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committed to upgrade An internationally
people’s quality of life by recognized university that
providing education provides relevant and
opportunities through innovative education and
excellent instruction, research research for lifelong
and innovation, extension, learning and sustainable
production services, and development
transnational collaborations.

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Learning Outcomes:
1. Discuss & explain the functions of Obligations & Contracts
2. Defined Quasi-contract & its advantages & disadvantages
3. Discuss elements of Obligation

Law on Obligations & Contracts Defined – the Law on Obligations & Contracts is the
body of rules which deals with the nature & sources of obligations, rights & duties arising from
agreements & contracts.
Nature of Agreement & Contract
All contracts contain agreements, but not all agreements are contract. 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 is 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 agreements, agreements to date or to
marry one another, or to live together without the benefit of a marriage contract.

Obligations 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 obligation; as a legal relation established between one person & another whereby the latter is
bound to the fulfillment of a prestation which the former may demand of him.
Obligations may be either civil or natural

• Civil Obligations give a right of action to compel their performance (Art.1423) Hence, the oblige
or creditor has a right to enforce the obligation against the obligor or debtor in a court of justice.
This is the obligation being referred to in Art. 1156 of the Civil Code
• Natural Obligations not being based on positive law but on equity & 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 – 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 – is the obligor or debtor. He has the duty of giving, doing or not doing. 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 maybe 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 oblige; the prestation is the rendering of tutorial services; & the
agreement between A & B is the efficient cause.
There may be cases when obligations arising from certain contracts need to be manifested in the form
prescribed by law. For example, in a contract involving a donation where the value of the personal
property donated exceeds P5,000 the law requires that the donation & the acceptance by the done be made
in writing. Non-compliance with this formality shall render the contract void or inexistent.

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Kinds of Obligation
Viewpoint of sanction
1. Civil Obligation – there is juridical tie between the parties enforceable by court action.
2. Natural Obligations – there is juridical tie between the parties which is not enforceable by court
action. Voluntary fulfillment of natural obligations by the obligor produces legal effects which
the courts will recognize & protect.
3. Moral Obligations – there is no juridical tie between the parties. Voluntary fulfillment of moral
obligations does not produce any legal effect which courts will recognize & protect.
Viewpoint of Performance
1. Positive Obligation – the obligor is obliged to give or to do something.
2. Negative Obligation – the obligor is obliged not to give or not to do something.
Viewpoint of Subject Matter
1. Real Obligation – the obligation consists in giving something.
2. Personal Obligation – the obligation consists in doing or not doing something.
Viewpoint of Persons Obligated to Perform
1. Unilateral Obligation – only one party is bound in this obligation
2. Bilateral Obligation – the two parties are mutually or reciprocally bound in this obligation
Article 1157 – Obligations arise from:
1. Law
2. Contracts
3. Quasi-contracts
4. Acts or omissions punished by law;
5. Quasi-delicts
Sources of Obligations
1. Law (Art. 1158)
2. Contracts (Art. 1159)
3. Quasi-contracts (Art. 1160)
4. Acts or omissions punished by law (Art.1161)
5. Quasi-delicts (Art.1162)

Article 1158 – Obligations derived from law are not presumed. Only those
expressly determined in this Code or in special laws are demandable, and shall
be regulated by the precepts of the law which established them; and as to what
has not been foreseen, by the provisions of this book.
Obligations ex lege are not presumed. The Civil Code & special laws are specific as to which obligations
are demandable. The rules set forth under special laws regulate obligations established therein.
Obligations not foreseen in the special laws, however, shall be regulated by the provisions of Book IV of
the Civil Code, Obligations and Contracts.
If regarding an obligation ex lege, there is a conflict between the new Civil Code and 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.
• Obligation of taxpayers to pay their taxes to the government under the National Internal Revenue
Code.

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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 meaning 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 condition 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 9Art.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
Negitiorum 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 owner 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 P3,000.
A, here, has an obligation to reimburse B P3,000 on the principle that no one must be unjustly enriched at
the expense of another.
In negotiorium 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

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family, and pay the damages which through his fault of negligence may be suffered by the owner of the
property or business under management (Art. 2145)
Solotio 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. 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.
Examples of Quasi-Contract
A quasi-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 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 provisions of Chapter 2, Preliminary Title, on Human Relations,
and of Title XVIII 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.

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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 Penal Code is called a felony while a violation of any other penal statute 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 its civil liability. When a crime did not cause material damage, no civil action
may be brought because there is no civil liability in the 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 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 implied 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. These applies to cases provided in
Article 31, 32, 33, 34, and 2177 all of the civil code. Examples of independent civil actions may
be those for defamation, fraud & 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 latter his action against the proper person who may be liable to him (Art.
105, Revised Penal Code)
2. Reparation of the damaged 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 9Art. 106)
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)

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Illustration: A, B’s newly-hired driver, stole B’s Starex 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 judgement does not extinguish his civil liability.
The civil action shall be directed against the administrator of the defendants’ estate. The heirs shall be the
one’s 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 50,000. 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 a 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, care and authority they are under.

Article 1162. Obligations derived from quasi-delicts shall be governed by the

provisions of Chapter 2, Title XVII of this Book, and by special laws.
Rules Governing Obligation Ex 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

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Negligence – is the omission of that which is required by the nature of 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)
Test to Determine Negligence
“the test in determining whether a person is negligent … is this: would a prudent man (in his position)
foresee harm to 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, Soft drinks manufacturer, released a batch of bottled soft drinks without
passing the Quality Control Department in order to meet production deadline. A consumer after taking a
bottle of soft drink from said batch had severe stomach ache, was brought to a hospital and was diagnosed
to have suffered liquid poisoning. The physician was positive that the harmful chemical found in the soft
drink 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 soft drinks 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 exists between them and the consumers (Art. 2187)
Illustration: A owns a forty-year old building in Sta. Cruz, Manila. The building partially collapsed & a
pedestrian was hit and wounded.
The pedestrian must appropriately be indemnified foe 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 act 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 persons who are under
their authority and who live in their company.
3. The owners and managers of an establishment or 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 damaged caused by their employees and household helpers
acting within the scope of their assigned task, 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 diligence
of a good father of a family to prevent damage (Art. 2180)
Requisites to Civil Liability
The plaintiff of 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.

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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 aquiliana, the source of the obligation is 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 same time of the mishap, he was violating any
traffic regulation (Art. 2185)
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.

GOODLUCK! & THANK YOU!

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