Obligations and Contracts:

Advance Reading: Articles 1156 – 1162 of the civil code

Articles 1156: An obligation is a judicial necessity to give, to do, or not to do.

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What is an obligation?
- It is from the Latin word obligatio which means tying or binding.

“Judicial necessity”, defined.

- Obligation is a judicial necessity (to give, to do, or not to do) because failure or refusal to perform the
obligations gives rise to a right of action

Nature of Obligations Under the Civil Code

Civil Obligations
- Obligations that give to the creditor or oblige a right under the law to enforce their performance in
courts of justice

Natural Obligations
- Obligations that do not grant a right of action to enforce their performance although incase of voluntary
fulfillment by the debtor, the latter may not recover what has been delivered or rendered by reason thereof

Essential Requisites of an Obligation

1. Passive Subject (debtor or obligor)

2. Active Subject (creditor or obligee)
3. Object or Prestation (subject matter of the obligation)
4. Juridical or Legal Tie (Efficient Cause)
Example:
C and D entered a loan contract whereby D promised his P100,000 debt to C within one year.
 C is the active subject. D is the passive subject. The P100,000 loan is the object or prestation, and
the agreement or contract is the juridical or legal tie, which is also the source of the obligation.

Obligation vs. Right vs. Wrong

Obligation – The act or performance that the law will enforce.

Right – The power that a person has under the law, to demand from another any prestation
Wrong (Cause of action) – An act or omission in violation of the legal right or rights of another.

Kinds of Obligations

According to Subject Matter

1. Real Obligation (Obligation to give) – The subject matter is a thing that the obligor must deliver to the
obligee
Two Kinds of Real Obligation

1) Generic Real Obligation (GRO) – To give a generic or indeterminate object.

2) Specific Real Obligation (SRO) – To give a specific or determinate object.

2. Personal Obligation (obligation to do or not to do) – The subject matter is an act to be done or not to
be done.
Two Kinds of Personal Obligation

1) Positive Personal Obligation – obligation to do or to render service.

2) Specific Real Obligation – obligation not to do.

General Provision
 c. Viewpoint of subject matter
real obligation to give
personal obligation to do or not to do
d. Viewpoint of Person obligated to perform
Unilateral one parties is bound
Bilateral both parties are bound

Article 1157: Obligations arise from:

(1) Law; - obligations imposed by law itself
Example: Obligation to pay taxes

Law as a source of obligation

Obligation derived from the law are not presumed. Only those expressly determined in
this code or by 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.

(2) Contracts; - obligations arising from the stipulation of the parties (Art. 1306)
Example: The obligation of the client to pay the professional fee of his/her
accountant by virtue of a service agreement

Contracts as source of obligation

obligations arising from the contract have the full force of law between the
contracting parties and should be complied with in good faith.
 (3) Quasi-contracts; - obligations arising from lawful, voluntary, and unilateral acts that
are enforceable so that no person shall be unjustly enriched or benefited a the expense of
another
Example: The obligation to return the goods mistakenly delivered.

Quasi-Contract as a source of obligation

a juridical relation resulting from lawful, voluntary and unilateral acts by virtue of
which the parties become bound

(4) Acts or omissions punished by law; and – obligations arising from civil liability as a
consequence of a criminal offense (Art. 1161)
Examples:
1. The obligation of a government employee to return the money stolen from the
government
2. The obligation of a convicted criminal to pay the medical expenses incurred by the
victim of his assault

Delict as a source of obligation

This is an act or omission punishable by law. The principle is that the person committed an act
or committed to do an act, and the act or omission is punishable by law, he is civilly liable.

(5) Quasi-delicts (or torts) (1089a); - obligations arising from damaged caused to
another through an act or omission, there being fault or negligence, but no contractual
relation exist between the parties (Art. 2176)
Example: 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

Quasi-Delict or Culpa Aquiliana or Tort as a source of Obligation

One which cause the damage to another there is being fault or negligence but there is no pre-
existing contractual relation between the parties ,is obliged to pay for the damage done
(ART.2176)

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 establishes them; and as to what has not been foreseen, by the provisions of this Book.
(1090)

Not Presumed
Obligations arising from law are not presumed, to be demandable and enforceable,
the obligation must be stated by: the law which created the obligation. Such being the case, the
 agreement of the parties under this obligations is no longer necessary because it is the law
which govern their obligations.

Law Governing Obligations derived from law

Obligations derived from law shall be governed by the law which establishes them. In case of
insufficiency, the same shall be supplemented by the provisions of the Civil Code
Ex:
a. The obligation of husband and wife to support each other. ( Art. 195, Family code)
b. The obligation of the taxpayer to file his income tax return ( Title II, section 23 NIRC)
c. The obligation of the legitimate ascendants and descendants to support each other. (Art. 195,
Family code).

Legal Obligations
- Obligations derived from the law are not presumed. only those expressly determined in the
Civil Code or in special laws are demandable.

Special Laws are those not contained in the civil code.

Examples: Revised Penal Code, National Internal Revenue , Securities Regulation Code,
Revised Corporation Code, Negotiable Instruments Law, Insurance Code, Labor Code

A private school has no legal obligation to provide clothing allowance to its teachers because
there is no law which imposes this obligation upon schools. But a person who wins money in
gambling has the duty to return his winnings to the loser. The obligation is provided by law.

Article 1159: Obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith. (1091a)

Contractual Obligations

Contract – A meeting of minds between two persons whereby one binds himself with respect to
the other to give something or to render some service (Art. 1305)

Binding force of a contract

Obligations arising from contracts have the force of law between the contracting parties
and should be complied with in good faith. As a source of enforceable obligation, a contract must
be valid and it cannot be valid if it is against the law.

Compliance in Good Faith

Compliance or performance of an obligation strictly in accordance with the stipulations
of terms or conditions as provided in the contract or agreement.

Example:
 If A agrees to sell and deliver 1000 face shields to B and B agrees to pay for them P40,000, then
both of A and B are bound by the terms of their contract. Neither of them may, voluntarily, and
without any reason, withdraw from the contract or escape from his/her obligations there under.
The terms and conditions of their contract is the law between A and B and they must comply in
good faith.

1. Validity of contracts
General information Freedom to contract or autonomy of will . The contract
entered into between the parties shall have the force of law between them . Any violations by
either party shall produce a cause of action against the violator. However, in order for a
contract to be valid and enforceable, it must not be contrary to the laws, morals, good
customs, public policy, otherwise the contracts void. ( Rt. 1306,1409 Civil Code)

2. Summary of the Rules arising from contracts or voluntary agreements parties

a. Entered into must have three essential element: consent, object and cause.
b. The contract must not be contrary to law, public policy, public order and public moral.
c. If the contrary to letter (b), the agreement or contract is void, because it does not exist and no
obligation will arise.
d. Even, if valid it must follow the forms of contract , otherwise it may be declared as unenforceable
under Art. 1403 of the Civil Code.

3. Effect if the contract is void

If the part of the contract is void but the contract is susceptible of division, that part
which is not affected may be enforced disregarding that part which is void. Such, that if the
contract is falsified by the unauthorized insertion of additional stipulation, this falsified insertion
shall be considered inexistent and the part unaffected shall be enforced.

Article 1160: Obligations derived from quasi-contracts shall be subject to the provisions of

Chapter 1, Title XVII, of this Book. (n)

Concept of the Quasi-Contract

It is a juridical relation which arises from certain lawful, voluntary and unilateral
acts, to the end that no one maybe unjustly enriched or benefited at the expense of
another.

Kinds of Quasi-contracts

1. Negotiorum gestio – The voluntary management of the property or affairs of another without
the knowledge or consent or the authority of its owner (Art. 2144)

2. Solutio Indebiti – The juridical relation which is created when something is received when
there is no right to demand it and it was unduly delivered through mistake (Art. 2154) the
requisites are:
 a. There is no right to receive the thing delivered; and
b. The right thing was delivered through mistake.

Example of Quasi
a. Art. 2144, civil Code . Whoever voluntarily take charge of the agency or management of the
business or property of another, without any power from the latter, is obliged to continue the
same until the termination of the affair and its incident, or to require the person concerned to
substitute him, if the owner is in a position to do so.
Example:
D, merchant- farmer and owner of a ten hectare agricultural land, left for USA
on a pleasure trip. While enroute to USA typhoon Dading devastated the entire
Philippines including the land owned by D. Before the typhoon reached our area of the
responsibility, C a neighbor of D, employed six farmers to harvest the palay planted on
the land of D. The expenses incurred was P1,200. In here the obligation of D upon
arrival is to reimburse C P1,200, because he must not be enriched at the expense of
another.

b. Article 2154 if something is received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises.
Example:
D owes C P10,000 on Dec. 20, 2012. on Dec. 20, 2011, d, thinking that the
obligation was already due, paid C the full amount of the obligation. In this case, C s
obligation is to return the amount paid because the obligation is not yet due and the
obligee ( C ) has no right to demand it.

c. Art. 2164, Civil Code.- When without knowledge of the person obliged to give support, it is
given by a stranger , the latter shall have a right to claim the same from the former, unless it
appears that he gave it out of piety and without intention of being repaid.

d. Art. 2167, Civil Code, - When, through accident or other cause, a person injured or become
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.
e. Art.2168 Civil Code,- When during a fire, a flood, storm or other calamity property is saved
from destruction by another person without the knowledge of the owner, the latter is bound to
pay the former just compensation.

f. Art.2174 Civil Code- when, in a small community a majority of the inhabitants of age decides
upon a measure for protection against lawlessness, fire, flood, storm or other calamity, anyone
who objects to the plan and refuses to contribute to the expenses but is benefited by the projects
as executed shall be liable to pay his share of said expenses.

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.
(1092a)

The rule is a person who is criminally liable is also civilly liable.

1. Rules governing obligation ex delicite or ex maleficie

a. Philippine revised Penal Code and other Penal laws, subject to the provisions of Art. 2177
of the civil code.
b. Chapter II, Preliminary Title, on human Relations of the Civil Code.
c. Civil Code on damages, Title 18 Book IV

2. Commission of a crime as a source of an obligation

Every person criminally liable is also civilly liable under Art. 100 of the Revised Penal
Code . If a person therefore is guilty of the crime charged, he must not only be imprisoned but he
shall also answer for damages as civil obligations.

3. Commission of a crime or felony will not always make person civilly liable
As a rule when a person commits a crime he can be held criminally liable and in addition
he can also be held civilly liable because most often the commission of crime causes not only
more evil but also material damage. Not all crimes cause material injury. Therefore if there is no
material damage to be compensated here is no civil liability to be indemnified.

4. What is included in civil liability?

a. Restitution – Art. 105 revised penal code
The restitution of the things itself must be made whenever possible , with allowance for any
deterioration or diminution of value as determined by the court.

b. Reparation of the damaged cause- Art.106, Revised Penal Code-

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.

C. Indemnification for consequential damages- Art. 107 Revised penal Code-

Indemnification for consequential damages shall include not only those caused to the injured
party, but also suffered by his family or by a third person by reason of the crime.

5. Proof or evidenced required

a. When civil liability for damage is made in the criminal case proof or evidence beyond
reasonable doubt is required.
b. when claim for damage is filed separately with the criminal action, mere preponderance
of evidence is enough.

6. Effect if the guilty party died pending trial

 The civil obligation is not extinguished. The injured party may file his claims against the
estate of the offender, but heirs are not liable beyond the value of the property they received from
the decedent. (Art. 1178 & 1311 Civil Code)

7. Effect the guilty party is acquitted of criminal action filed

The extinction of the civil action. However the civil action based on delicts may be
deemed extinguished if there is finding in a final judgment in the criminal action that the act or
omission from which the civil liability may arise did not exist.

8. Minimum amount recoverable in case of death

The minimum amount recoverable in cased of death caused by a crime or quasi- delict is
P 50, 000, without the need of presenting evidence or proof of damage may be recovered by the
injured party.

9. May a person who committed an act constituting a crime be exempted from a criminal
liability?

Yes, this is provided for in article 12 of the revised Penal Code. The ff. persons are exempted
from criminal liability even if the act committed constitutes a crime.
1. An imbecile or insane person , unless he acted a lucid interval.
2. A person under 9 years of age.
3. A person over 9 years of age but below 15 unless he acted with discernment.
4. Person acting under the compulsion of an irresistible force.
5. Person acting under the impulse of an uncontrollable fear of an equal or greater injury.

Examples of crime not causing material injury

a. Contempt
b. Gambling
c. Violation of Traffic Regulations

Scope of Civil Liability arising from crime:

1. Restitution
2. Reparation for damaged caused
3. Indemnification for the consequential damages

Example:
A stole B’s cellphone. If A is convicted, his civil liability will include:

1. The obligation to return the phone or pay its value if it was lost or destroyed
2. Pay for any damaged caused to the phone; and
3. Pay such other damages B may have suffered as a consequence of A’s crime
 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. (1093a)

Requisites of Quasi-delict:
1. There must be an act or omission:
2. There must be fault or negligence;
3. There must be damaged caused;
4. There must be a direct relation or connection of cause and effect between the act or
omission and the damage; and
5. There is no pre-existing contractual relation between the parties.

Crime Distinguished from Quasi-delict

Crime Quasi-delict
There is malice or intent. There is only negligence, imprudence, lack of
foresight or lack of skill.
Purpose is to punish the offender. Purpose is to compensate the offended party for the
damages sustained.
Offender is criminally and civilly liable. Offender is civilly liable only.
Only the civil aspect of the crime may be The civil liability can be compromised.
compromised.
Offender’s guilt must be proved beyond reasonable Defendant’s liability needs only be proved by
doubt. preponderance of evidence.

1. Concept
Quasi- delict or tort or Culpa Aquiliana, is wrong committed against a person
independent of contract and without criminal intent.

2. Basis of Liability
Manresa a Spanish Commentator in Civil Law, states the liability for quasi-delict is
founded upon an indisputable principle of equity namely, the fault or negligence cannot
prejudice anyone else besides its author and in no case should it consequences be borne by him
who, without will or fault on his part, becomes the victim of the result or suffers the harm
produced by such fault or negligence.

3. Requisites or elements to concur before a person is made liable

a. The act or omission complained of is due to the fault or negligence of the offending
party.
b. The act or omission causes damage or injury
c. There is a direct relation of cause and effect between the fault or negligence and the
damage or injury.
d. There is no pre-existing relation between the offender and offended parties.
4. Kinds of Negligence
a. Culpa acquiliana or quasidelict, the negligence as a source of obligations.
b. Culpa contractual, the negligence in the performance of an obligations

5. Culpa or Negligence distinguished from the dolo or fraud

In Culpa it is not the act or omission which gives rise to the responsibility but the want of
cared required from the circumstances . In Dolo the act done or executed by the actor is willful
or deliberate with an intention to cause the resulting loss.

6. Culpa or negligence as distinguished from crimes

a. In Culpa or Quasi- delict, whenever in the execution of the act or omission fault or
negligence supervenes the actor is liable while in crime unless there is a law penalizing it. The
“Nullum Crimen, Nulla Poena sine lege”
b. In culpa or quasi- delict , criminal intent is not necessary while in crime, criminal
intent is necessary except in criminal negligence.
c. In culpa or quasi- delict damages are awarded to the injured party; while in crime some
violation will not make the person liable for the damages because there is no one injured.
d. In culpa or quasi- delict, the right violated is a private right while in crime the right
violated is public right.
e. In culpa or quasi- delict the proof of fault or negligence will only be by preponderance
of evidence; while in crime it is beyond reasonable doubt.

Articles 1163 – 1178

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. (1094a)

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. (1095)

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. (1096)

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. (1097a)
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.
Furthermore, it may be decreed that what has been poorly done be undone. (1098)

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. (1099a)

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 exist:

(1) When the obligation or the law expressly so declare; or

(2) When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be rendered
was a controlling motive for the establishment of the contract; or

(3) When demand would be useless, as when the obligor has rendered it beyond his
power to perform.

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready
to comply in a proper manner with what is incumbent upon him. From the moment one of the
parties fulfills his obligation, delay by the other begins. (1100a)

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.
(1101)

Article 1171: Responsibility arising from fraud is demandable in all obligations. Any waiver of
an action for future fraud is void. (1102a)
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 the
circumstances. (1103)

Article 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 the time and of the place. When negligence shows bad faith, the provisions of articles
1171 and 2201, paragraph 2, shall apply.

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. (1104a)
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. (1105a)

Article 1175: Usurious transactions shall be governed by special laws. (n)

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. (1110a)

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. (1111)

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. (1112)

Article 1179 to 1192

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. (1113)

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. (n)

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. (1114)

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. (1115)

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.
(1116a)

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. (1117)

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. (1118)

Article 1186: The condition shall be deemed fulfilled when the obligor voluntarily prevents its
fulfillment. (1119)

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. (1120)

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. (1121a)

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:

(1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished;

(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages;
it is understood that the thing is lost when it perishes, or goes out of commerce, or
disappears in such a way that its existence is unknown or it cannot be recovered;

(3) When the thing deteriorates without the fault of the debtor, the impairment is to be
borne by the creditor;
 (4) If it deteriorates through the fault of the debtor, the creditor may choose between the
rescission of the obligation and its fulfillment, with indemnity for damages in either case;

(5) If the thing is improved by its nature, or by time, the improvement shall inure to the
benefit of the creditor;

(6) If it is improved at the expense of the debtor, he shall have no other right than that
granted to the usufructuary. (1122)

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. (1123)

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. (1124)

Article 1192: 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. (n)