TITLE I violation of his rights.

In other words, the debtor must comply with his

obligation whether he likes it or not; otherwise, his failure will be visited with
OBLIGATIONS some harmful or undesirable legal consequences. If obligations were not
made enforceable, then people can disregard them with impunity. If an
(Arts. 1156-1304.)
obligation cannot be enforced, it may be only a natural obligation.
Chapter I
Nature of obligations under the Civil Code.
GENERAL PROVISIONS
Obligations which give to the creditor or obligee a right of action in
ARTICLE 1156. An obligation is a juridical necessity to give, to courts of justice to enforce their performance are known as civil obligations.
do or not to do. (n) They are to be distinguished from natural obligations which, not being based
on positive law but on equity and natural law, do not grant a right of action to
Meaning of obligation. enforce their performance although in case of voluntary fulfilment by the
debtor, the latter may not recover what has been delivered or rendered by
The term obligation is derived from the Latin word “obligatio” which
reason thereof. (Art.* 1423.) Natural obligations are discussed under the Title
means a “tying” or “binding.”
dealing with “Natural Obligations.” (Title III, Arts. 1423-1430.)
(1) It is a tie of law or a juridical bond by virtue of which one is bound
Essential requisites of an obligation.
in favor of another to render something — and this may consist in giving a
thing, doing a certain act, or not doing a certain act. An obligation as defined in Article 1156 is constituted upon the
concurrence of the four (4) essential elements thereof, namely:
(2) Manresa defines the term as “a legal relation established between
one party and another, whereby the latter is bound to the fulfilment of a (1) A passive subject (called debtor or obligor) or the person who is
prestation which the former may demand of him.” (8 Manresa 13.) bound to the fulfilment of the obligation; he who has a duty;
(3) Article 1156 gives the Civil Code definition of obligation, in its (2) An active subject (called creditor or obligee) or the person who is
passive aspect. Our law merely stresses the duty of the debtor or obligor (he entitled to demand the fulfilment of the obligation; he who has a right;
who has the duty of giving, doing, or not doing) when it speaks of obligation
as a juridical necessity. (3) Object or prestation (subject matter of the obligation) or the
conduct required to be observed by the debtor. It may consist in giving,
Meaning of juridical necessity. doing, or not doing. (See Art. 1232.) without the prestation, there is nothing
to perform. In bilateral obligations (see Art. 1191.), the parties are
Obligation is a juridical necessity because in case of non-compliance, the
reciprocally debtors and creditors; and
courts of justice may be called upon to enforce its fulfilment or, in default
thereof, the economic value that it represents. In a proper case, the debtor (4) A juridical or legal tie (also called efficient cause) or that which
may also be made liable for damages, which represent the sum of money binds or connects the parties to the obligation. The tie in an obligation can
given as a compensation for the injury or harm suffered by the creditor or easily be determined by knowing the source of the obligation. (Art. 1157.)
obligee (he who has the right to the performance of the obligation) for the
 EXAMPLE: Under a building contract, X bound himself to construct a ao Sugar Central Co. vs. Barrios, 79 Phil. 66 [1948]; Teves vs. People’s
house for Y for P1, 000,000.00. Here, X is the passive subject, Y is the active Homesite and Housing Corp., 23 SCRA 1141 [1968]; Development Bank of
subject, the building of the house is the object or prestation, and the the Phils. vs. Pundogar, 218 SCRA 118 [1993]; Parañaque King Enterprises
agreement or contract, which is the source of the obligation, is the juridical vs. Court of Appeals, 269 SCRA 727 [1997]; Nadela vs. City of Cebu, 411
tie. Suppose X had already constructed the house and it was the agreement SCRA 315 [2003].)
that Y would pay X after the construction is finished. X, then, becomes the
(2) If any of these elements is absent, the complaint becomes vulnerable to
active subject and Y, the passive subject
a motion to dismiss on the ground of failure to state a cause of action. (San
Form of obligation. Lorenzo Village Assoc., Inc. vs. Court of Appeals, 288 SCRA 115 [1998]; Uy
vs. Evangelista, 361 SCRA 95 [2001].) The presence of a cause of action
(1) As a general rule, the law does not require any form in obligations arising rests on the sufficiency, and not on the veracity, of the allegations in the
from contracts for their validity or binding force. (See Art. 1356.) complaint, which will have to be examined during the trial on the merits.
(2) Obligations arising from other sources (Art. 1157.) do not have any form (Pioneer International, Ltd. vs. Guadiz, Jr., 535 SCRA 584 [2007].) The test
at all. is whether the material allegations of the complaint, assuming to be true,
state ultimate facts which constitutes plaintiff’s cause of action such that
Obligation, right, and wrong (cause of action) distinguished. plaintiff is entitled to a favorable judgment as a matter of law. (Rovels
Enterprises, Inc. vs. Ocampo, 391 SCRA 176 [2002].)
(1) Obligation is the act or performance which the law will enforce.
(3) A cause of action only arises when the last element occurs, i.e., at the
(2) Right, on the other hand, is the power which a person has under the law,
moment a right has been transgressed.
to demand from another any prestation.
(a) It is to be distinguished from right of action or the right to commence and
(3) A wrong (cause of action), according to its legal meaning, is an act or
maintain an action, in that the former is governed by the procedural law while
omission of one party in violation of the legal right or rights of another,
the latter depends on substantive law. The right of action springs from the
causing injury to the latter
cause of action, but does not accrue until all the facts which constitute the
Essential elements of cause of action. cause of action have occurred. (Multi-Realty Dev. Corp. vs. Makati Tuscany
Condominium Corp., 491 SCRA 9 [2006]; Borbe vs. Calalo, 535 SCRA 89
(1) Its essential elements are: [2007].) The action shall be brought in the name of the party who by law is
(a) A legal right in favor of a person (creditor/plaintiff) by whatever means entitled to the right to be enforced.
and under whatever law it arises or is created; (b) An obligation on the part of a person cannot exist without a corresponding
(b) A correlative legal obligation on the part of another (debtor/defendant) to right existing in favor of another, and vice-versa, for every right enjoyed by a
respect or not to violate said right; and person, there is a corresponding obligation on the part of another to respect
such right.
(c) An act or omission in breach or violation of said right by the defendant
with consequential injury or damage to the plaintiff for which he may maintain
an action for the recovery of damages or other appropriate relief. (see Ma-
ILLUSTRATIVE CASE: Cause of action based upon a written contract.
S rejected or cancelled a contract to sell his property even before the Actions based upon a written contract should be brought within 10 years from
arrival of the period in the exercise of the option to buy by the purchaser who the time the right of action accrues. (Art. 1144.). The accrual refers to the
has already made a down payment. cause of action. Accordingly, an action based on a contract accrues only
when an actual breach or violation thereof occurs. (China Banking Corp. vs.
Facts: S and B entered into a contract to sell, whereby B, after making
Court of Appeals, 461 SCRA 162 [2005]; see Art. 1169.). Therefore, the
a down payment, was given the option to pay the balance of the purchase
period of prescription commences, not from the date of execution of the
price of a parcel of land. Later, S “rejected the contract to sell’’ even before
contract but from the occurrence of the breach.
the arrival of the period for the exercise of said option on the ground that the
terms and conditions of the contract are grossly disadvantageous and highly The cause of action resulting from breach of contract is dependent on the
prejudicial to his interest. S sent two (2) checks to B in an apparent effort to facts of each particular case. (Pilipinas Shell Petroleum Corporation vs. John
return the downpayment. Bordman Ltd., 473 SCRA 151 [2006].)
S contends that the complaint was prematurely fi led because at the (1) In an action to rescind a contract of sale on instalment basis, for non-
time of the institution of the complaint, B has yet to exercise his option under payment, the cause of action arises at the time the last instalment is not paid.
the “Option of Buyer’’ clause of the contract. (Nabus vs. Court of Appeals, 193 SCRA 732 [1991].)
Issue: Has B a cause of action against S for prematurity? (2) Where an overdraft agreement stipulates that the obligation is payable
on demand, the breach starts only when demand is made. (Elido vs. Court
Held: Yes. (1) All the elements of a cause of action are present. First,
of Appeals, 216 SCRA 637 [1992]; China Banking Corporation vs. Court of
there is a legal right in favor of B, i.e., the right to complete the payment of
Appeals, supra.)
the purchase price should he choose to do so; there is an obligation on the
part of S to sell the subject property exclusively to B upon full payment of the (3) In a contract of loan with real estate mortgage, whereby the creditor
purchase price; and there was a breach of S’s obligation to sell the property, could unilaterally increase the interest rate, where the creditor foreclosed the
when S rejected the contract to sell even before B could exercise his option mortgage when the debtor failed to pay the loan, the cause of action for the
to buy notwithstanding that he had already made a downpayment. annulment of the foreclosure sale should be counted from the date the debtor
discovered the increased interest rate (Banco Filipino Savings & Mortgage
(2) S rejected contract to sell in no uncertain terms. — The fact that
Bank vs. Court of Appeals, 388 Phil. 27, 332 SCRA 241 [2000].)
the rejection or cancellation of the contract by S was not made judicially or
by notarial act (see Art. 1592.) is of no moment. It is enough for purposes of (4) Where the agreement to buy and sell was conditioned upon the conduct
determining the existence of a cause of action that S has declared in no of a preliminary survey of the land to verify, whether it contained the area
uncertain terms his refusal to be bound by the contract to sell. Such stated in the tax declaration, the right of action for specific performance arose
declaration, coupled with S’s act of returning B’s down payment, clearly only when the plaintiff discovered the completion of the survey. (Cole vs.
indicates S’s rejection of the contract to sell. (Leberman Realty Corporation Gregorio, 202 Phil. 226, 116 SCRA 670 [1982].)
vs. Typingco, 293 SCRA 316 [1998].)
(5) With respect to money claims arising from a contract of employment,
which would prescribe in three (3) years from the time the cause of action
accrued, the cause of action would arise from the date the employer made Existence of one without the other.
a defi nite denial of the employee’s claim, for prior to such denial, it is deemed
that the issues had not yet been joined because the employee could have There may be injury without damage and damage without injury.
still been reinstated (Serrano vs. Court of Appeals, 415 Phil. 447, 363 SCRA (1) Proof of loss for injury. — A wrongful violation of his legal right is not
223 [2001].) sufficient to entitle a person to sue another in a court of justice for the
(6) In an action for reformation of a contract, where the plaintiff alleged, enforcement or protection of said right. As a rule, there must be, in addition,
among others, that the contract was one-sided in favor of the defendant, and loss or damage caused to him by the violation of his right. But except for
that certain events had made the arrangement inequitable, the cause of actual or compensatory damages (Art. 2199.), no pecuniary proof is
action for reformation would arise only when the contract appeared necessary in order that moral, nominal, temperate, liquidated, or exemplary
disadvantageous. (Naga Telephone Co. vs. Court of Appeals, 230 SCRA damages may be awarded. (Art. 2216.)
351 [1994].) (2) Liability for damages of a person for exercising his legal rights. — A
(7) The nature of the product sold is a major factor in determining when the person has the right to take all legal steps to enforce his legal and/or
cause of action has accrued. For example, when fuel oil is delivered in equitable rights. One who makes use of his legal right does no injury. Qui
drums, a buyer readily assumes that the agreed volume can be and actually jure suo utitur mullum damnum facit. If damage results from a person’s
is, contained in those drums. He is not expected to make a meticulous exercising his legal rights, it is damnum absque injuria (damage without
measurement of each and every delivery. In case of short deliveries, the injury). (Auyong Hian vs. Court of Appeals, 59 SCRA 110 [1974].). The
cause of action will arise only from the discovery of the same with certainty. plaintiff must establish that the damage to him resulted from a breach or
(Pilipinas Shell Petroleum Corporation vs. John Bordment, Ltd., supra.) violation of legal duty which the defendant owned to him; otherwise, the
consequences must be borne by the plaintiff alone.
Injury, damage, and damages distinguished.
In other words, in order that the law will give redress for an act (or omission)
The words “injury,” “damage,’’ and “damages’’ are sometimes used causing damage, that act must be not only hurtful, but wrongful.2 (Custodio
synonymously, although there is a material difference among them. vs. Court of Appeals, supra; see Philippine National Bank vs. Court of
Appeals, 367 SCRA 198 [2001].)
(1) Injury is the illegal invasion of a legal right; it is the wrongful act or
omission which causes loss or harm to another, while damage is the loss, ILLUSTRATIVE CASE:
hurt, or harm which results from the injury. On the other hand, damages
Acts of importer contesting forfeiture, delay in the delivery of goods
denote the sum of money recoverable as amends for the wrongful act or
to highest bidder.
omission; and
Facts: X imported certain goods. The Collector of Customs declared
(2) Injury is the legal wrong to be redressed, while damages are the
the goods forfeited in favor of the government and ordered the sale thereof
recompense or compensation awarded or recoverable for the damage or
at public auction. The bid of Y was approved and the goods were awarded
loss suffered. (Custodio vs. Court of Appeals, 253 SCRA 483 [1996].)
to him.
 Under the law, X has the right to have the decision of the Collector of An obligation imposed on a person and the corresponding right
Customs reviewed by the Commissioner of Customs, and from the decision granted to another must be rooted in at least any of the following sources:
of the latter, to appeal to the Court of Tax Appeals (Secs. 2313, 402, Tariff
(1) Law. - when they are imposed by the law itself, e.g., obligation to pay
and Customs Code.), and from the latter’s decision, to the Supreme Court.
taxes; obligation to support one’s family (see Art. 195, Family Code.);
X will be prejudiced if the sale is not set aside. (see Art. 1397.)
(2) Contracts. - when they arise from the stipulation of the parties (Art.
Issue: Is X liable to Y for damages from the consequent delay in the
1306.), e.g., the obligation to repay a loan by virtue of an agreement;
delivery of the goods?
(3) Quasi-contracts. — when they arise from lawful, voluntary and unilateral
Held: Such delay is an incident to the exercise by X of his right to
acts and which are enforceable to the end that no one shall be unjustly
contest the forfeiture and the sale of his goods. (see Auyong Hian vs. Court
enriched or benefited at the expense of another (Art. 2142.), e.g., the
of Appeals, supra.
obligation to return money paid by mistake or which is not due. (Art. 2154.).
Kinds of obligation according to subject . matter In a sense, these obligations may be considered as arising from law;

From the viewpoint of the subject matter, obligation may either be: (1) Real (4) Crimes or acts or omissions punished by law. — when they arise from
obligation (obligation to give) or that in which the subject matter is a thing civil liability which is the consequence of a criminal offense (Art.
which the obligor must deliver to the obligee; or (2) Personal obligation
1161.), e.g., the obligation of a thief to return the car stolen by him; the duty
(obligation to do or not to do) or that in which the subject matter is an act to
of a killer to indemnify the heirs of his victim; and
be done or not to be done. There are thus two (2) kinds of personal
obligation: (a) Positive personal obligation or obligation to do or to render (5) Quasi-delicts or torts. — when they arise from damage caused to
service (see Art. 1167.); and (b) Negative personal obligation or obligation another through an act or omission, there being fault or negligence, but no
not to do (which naturally includes obligations “not to give”). (see Art. 1168.) contractual relation exists between the parties (Art. 2176.), e.g., the
obligation of the head of a family that lives in a building or a part thereof to
answer for damages caused by things thrown or falling from the same (Art.
ART. 1157. Obligations arise from: 2193.); the obligation of the possessor of an animal to pay for the damage
which it may have caused. (Art. 2183.)
(1) Law;
The enumeration by the law is exclusive; hence, there is no obligation
(2) Contracts; as defined in Article 1156, if its source is not any of those enumerated.
(3) Quasi-contracts; Sources classified.
(4) Acts or omissions punished by law; and The law enumerates five (5) sources of obligations. They may be
classified as follows:
(5) Quasi-delicts. (1089a)
(1) Those emanating from law; and
Sources of obligations.
(2) Those emanating from private acts which may be further subdivided into:
 (a) those arising from licit acts, in the case of contracts and quasi-contracts; ART. 1158. Obligations derived from law are not presumed.
and Only those expressly determined in this Code or in special laws
(b) those arising from illicit acts, which may be either punishable by law in are demandable, and shall be regulated by the precepts of the
the case of delicts, or not punishable in the case of quasi-delicts. law which establishes them; and as to what has not been
foreseen, by the provisions of this Book. (1090)
Actually, there are only two (2) sources: law and contracts, because
obligations arising from quasi-contracts, crimes, and quasi-delicts are really Legal obligations.
imposed by law. (see Leung Ben vs. O’Brien, 38 Phil. 182 [1918].)
Article 1158 refers to legal obligations or obligations arising from law.
Where the source of the obligation is a private act, the law merely They are not presumed because they are considered a burden upon the
recognizes or acknowledges the existence of the obligation. obligor. They are the exception, not the rule. To be demandable, they must
be clearly set forth in the law, i.e., the Civil Code or special laws. Thus:
ILLUSTRATIVE CASE:
(1) An employer has no obligation to furnish free legal assistance to
Liability of sheriff lawfully enforcing a judgment in an ejectment suit. his employees because no law requires this, and, therefore, an employee
Facts: A judgment was rendered by a justice of the peace court (now may not recover from his employer the amount he may have paid a lawyer
municipal court) in favor of X who brought an ejectment suit against Y, the hired by him to recover damages caused to said employee by a stranger or
owner of the house built on the land of X. Z, the deputy sheriff who executed strangers while in the performance of his duties. (De la Cruz vs. Northern
the judgment, was obliged to remove the house of Y from the land according Theatrical Enterprises, 95 Phil. 739 [1954].
to the usual procedure in the action for ejectment. (2) A private school has no legal obligation to provide clothing
Issue: Is Y entitled to indemnity arising from the destruction of his allowance to its teachers because there is no law which imposes this
house? obligation upon schools. But a person who wins money in gambling has the
duty to return his winnings to the loser. This obligation is provided by law.
Held: No proof has been submitted that a contract had been entered (Art. 2014.)
into between plaintiff (Y) and the defendants (X and Z) or that the latter had
committed illegal acts or omissions or incurred in any kind of fault or Under Article 1158, special laws refer to all other laws not contained
negligence, from any of which an obligation might have arisen on the part of in the Civil Code.
X and Z to indemnify Y. For this reason, the claim for indemnity, on account ILLUSTRATIVE CASES:
of acts performed by the sheriff, while enforcing a judgment, cannot under
any consideration be sustained. (Navales vs. Rias, 8 Phil. 508 [1907].) 1. Liability of husband for medical assistance rendered to his wife
but contracted by his parents.
Facts: X, by virtue of having been sent for by B and C, attended as
physician and rendered professional services to a daughter-in-law of B and
C during a difficult and laborious childbirth.
 Issue: Who is bound to pay the bill: B and C, the parents-in-law of the Note: If X were a minor, the vessels would belong to C in ownership
patient, or the husband of the latter? and usufruct under Article 161 of the old Civil Code. (now Art. 324.) Under
Article 1448, the payment may give rise to a gift or an implied trust.
Held: The rendering of medical assistance in case of illness is
comprised among the mutual obligations to which spouses are bound by way
of mutual support.4
ART. 1159. Obligations arising from contracts have the
If spouses are mutually bound to support each other, there can be force of law between the contracting parties and should be
no question that when either of them by reason of illness should be in need complied with in good faith. (1091a)
of medical assistance, the other is to render the unavoidable obligation to
furnish the services of a physician and is liable for all expenses, including Contractual obligations.
the fees for professional services.
The above article speaks of contractual obligations or obligations
This liability originates from the above-mentioned mutual obligation arising from contracts or voluntary agreements.
which the law has expressly established between the married couple. B and
A contract is a meeting of minds between two persons whereby one
C not having personally bound themselves to pay are not liable. (Pelayo vs.
binds himself, with respect to the other, to give something or to render some
Lauron, 12 Phil. 453 [1909].)
service. (Art. 1305.) It is the formal expression by the parties of their rights
—-— —-— —-— and obligations they have agreed upon with respect to each other.

2. Title to property purchased by a person for his own benefi t but (1) Binding force. — Obligations arising from contracts are governed
paid by another. primarily by the agreement of the contracting parties. Once perfected, valid
contracts have the force of law between the parties who are bound to comply
Facts: X, of legal age, bought two vessels from B, the purchase price therewith in good faith, and neither one may without the consent of the other,
thereof being paid by C, X’s father. Subsequently, differences arose between renege therefrom. (Tiu Peck vs. Court of Appeals, 221 SCRA 618 [1993].) In
X and C. The latter brought action to recover the vessels, he having paid the characterizing contracts as having the force of law between the parties, the
purchase price. law stresses the obligatory nature of a binding and valid agreement (William
Issue: Is there any obligation on the part of X to transfer the Golangco Construction Corporation vs. Phil. Commercial International Bank,
ownership of the vessel to C? 485 SCRA 293 [2006].), absent any allegation that it is contrary to law,
morals, good customs, public order, or public policy. (Art. 1306.)
Held: None. If any such obligation was ever created on the part of X,
said obligation must arise from law. But obligations derived from law are not
presumed. Only those expressly determined in the Civil Code or in special (a) The law,7 recognizing the obligatory force of contracts (Arts.
laws are demandable. Whatever right C may have against X either for the 1139, 1308, 1315, 1356.), will not permit a party to be set free from liability
recovery of the money paid or for damages, it is clear that such payment for any kind of misperformance of the contractual undertaking or a
gave him no title, either legal or equitable, to these vessels. (Martinez vs. contravention of the tenor thereof. (Art. 1170.) The mere proof of the
Martinez, 1 Phil. 647 [1902].) existence of the contract and the failure of its compliance justify, prima facie,
a corresponding right of relief.8 (FGU Insurance Corp. vs. G.P. Sarmiento litigation) or judicial (to end a litigation). (Magbanua vs. Uy, 458 SCRA 184
Trucking Corp., G.R. No. 141910, Aug. 6, 2002.) [2005].)
(b) In law, whatever fairly puts a person on inquiry is suffi cient notice, (2) Requirements of a valid contract. — As a source of obligation, a
where the means of knowledge are at hand, which if pursued by proper contract must be valid and enforceable. (see Art. 1403.) A contract is valid
inquiry, the full truth might have been ascertained. Thus, where a purchaser (assuming all the essential elements are present, Art. 1318.) if it is not
of a memorial lot, on installment basis, had full knowledge of the terms and contrary to law, morals, good customs, public order, and public policy. It is
conditions of the sale, including the rules and regulations issued by the seller invalid or void if it is contrary to law, morals, good customs, public order, or
governing the memorial park, to which she obliged herself to abide, cannot public policy. (Art. 1306; see Phoenix Assurance Co., Ltd. vs. U.S. Lines, 22
later feign ignorance of said rules. (Dio vs. St. Ferdinand Memorial Park, Inc., SCRA 675 [1968].)
509 SCRA 453 [2006].)
In the eyes of the law, a void contract does not exist. (Art. 1409).
(c) If it occurs to one of the contracting parties to allege some defect Consequently, no obligations will arise.
in a contract as a reason for invalidating it, such alleged defect must be
(3) Where contract requires approval by the government. — Where
proved by him by convincing evidence since its validity or compliance cannot
a contract is required to be verified and approved by the government before
be left to will of one of them. (see Art. 1308.) “An experienced businessman
it can take effect (e.g., contract for overseas employment must be approved
who signs important legal papers cannot disclaim the consequent liabilities
by the Philippine Overseas Employment Administration [POEA] under Art.
therefor after being a signatory thereon.’’ (Blade International Marketing
21[c] of the Labor Code), such contract becomes the law between the
Corp. vs. Court of Appeals, 372 SCRA 333 [2001].) It behoves every
contracting parties only when approved, and where there is nothing in it
contracting party to learn and to know the contents of an instrument before
which is contrary to law, etc., its validity must be sustained. (Intetrod
signing and agreeing to it. (Dio vs. St. Ferdinand Memorial Park, Inc., supra.)
Maritime, Inc. vs. National Labor Relations Commission, 198 SCRA 318
(d) Courts have no alternative but to enforce contracts as they were [1991].)
agreed upon and written when the terms thereof are clear and leave no room
(4) Compliance in good faith. — It means compliance or performance
for interpretation. (Art. 1370.). This does not mean, however, that contract is
in accordance with the stipulations or terms of the contract or agreement.9
superior to the law. Although a contract is the law between the contracting
Good faith and fair dealing must be observed to prevent one party from
parties, the provisions of positive law which regulate such contracts are
taking unfair advantage over the other. Evasion by a party of legitimate
deemed included and shall limit and govern the relations between the
obligations after receiving the benefits under the contract would constitute
parties. (Asia World Recruitment, Inc. vs. National Labor Relations
unjust enrichment on his part. (see Royal Lines, Inc. vs. Court of Appeals,
Commission, 313 SCRA 1 [1999].)
143 SCRA 608 [1986].)
(e) A compromise agreement is immediately executory and not
(5) Liability for breach of contract. — Although the contract imposes
appealable, except for vices of consent (Art. 1330.) or forgery. Upon the
no penalty for its violation, a party cannot breach it with impunity. Our law on
parties, it has the effect and the authority of res judicata, once entired into.
contracts recognizes the principle that actionable injury inheres in every
To have the force of law between the parties, it must comply with the
contractual breach. (Boysaw vs. Interphil Promotions, Inc., 148 SCRA 635
requisites of contracts. (Art. 1318.) It may be either extrajudicial (to prevent
[1987]; see Arts. 1170, 1191.) Interest may, in the discretion of the court, on
equitable grounds, be allowed upon damages awarded for breach of Held: Yes. Since he agreed to pay Y the balance of the account
contract. (see Art. 2210.) independently of the terms of the written contract, he must perform his
obligation to pay according to the tenor of his verbal agreement which has
The failure of either party to a contract to demand performance of the
the force of law between them. (Hijos de I. de la Rama vs. Inventor, 12 Phil.
obligation of the other for an unreasonable length of time may render the
45 [1908].)
contract ineffective where the contract does not provide for the period within
which the parties may demand the performance of their respective —-— —-— —-—
undertakings but the parties did not contemplate that the same could be
2. Validity of contract stipulating that in case of failure of debtor to
made indefinitely. (Villamor vs. Court of Appeals, 202 SCRA 607 [1991].)
pay amount of loan, his property shall be considered sold to creditor.
The mere failure of a party to respond to a demand letter in the absence of
other circumstances making an answer requisite or natural does not Facts: D borrowed from C money to be paid within a certain period,
constitute an implied admission of liability. (Phil. First Insurance Co., Inc. vs. under the agreement that, if D fails to pay at the expiration of said period, the
Wallen Phils. Shipping, Inc., 582 SCRA 457 [2009].) house and lot described in the contract would be considered sold for the
amount of the loan.
(6) Preservation of interest of promisee. — A breach upon the
contract confers upon the injured party a valid cause for recovering that D failed to pay as promised. C brought action for the delivery of the
which may have been lost or suffered. The remedy serves to preserve the house and lot.
interest of the promisee of having the benefit of his bargain, or in being
reimbursed for loss caused by reliance on the contract, or in having restored Issue: Are both contracts valid and, therefore, should be given effect?
to him any benefit that he has conferred on the other party. Held: Yes. The fact that the parties have agreed at the same time, in
The effect of every infraction is to create a new duty, that is, to make such a manner that the fulfilment of the promise of sale would depend upon
recompense to the one who has been injured by the failure of another to the non-payment or return of the amount loaned has not produced any
observe his contractual obligation unless he can show extenuating change in the nature and legal conditions of either contract, or any essential
circumstances. (FGU Insurance Corporation vs. G.P. Sarmiento Trucking defect which would nullify them.
Corporation, 386 SCRA 312 [2002]; see Art. 1170.) As the amount loaned has not been paid and continues in possession
ILLUSTRATIVE CASES: of the debtor, it is only just that the promise of sale be carried into effect, and
the necessary instruments be executed. That which is agreed to in a contract
1. Binding force of an oral agreement inconsistent with a prior written is law between the parties, and must be enforced. (Alcantara vs. Alinea, 8
one. Phil. 111 [1907].)
Facts: X verbally agrees to pay Y the balance of an account in Note: In the above case, the court found that no contract of mortgage,
advance, notwithstanding the different stipulation of a prior written pledge, or antichresis was entered into. (see Arts. 2088, 2137.)
agreement.
—-— —-— —-—
Issue: Is X bound to perform said obligation?
 3. Validity of contract for attorney’s fees where amount stipulated is Held: B only pleads that it be given special treatment and that the
unreasonable. cancellation of its contract be somehow rejected notwithstanding S’s clear
right under the contract and the law to do so.
Facts: D executed a promissory note in favor of C for the purchase
price of a truck sold by the latter. In the note, D bound himself to pay an The contract between S and B, entered into with the assistance of
additional 25% as attorney’s fees in the event of becoming it necessary for counsel and with full awareness of the import of its terms and conditions, is
C to employ counsel to enforce its collection. the binding law between them and equity cannot be pleaded by one who has
not come with clean hands nor complied therewith in good faith but instead
Issue: Has the court the power to ignore the contract as to attorney’s
willfully breached the contract.
fees, considering that a contract has the force of law between the contracting
parties? “Its time to put an end to the fiction that corporations are people. The
business of big corporations such as the protagonists at bar is business.
Held: Yes. Where no special agreement is made by the parties with
They are bound by the lawful contracts that they enter into and they do not
reference thereto, the courts are authorized to determine the amount to be
ask for nor are they entitled to considerations of equity.” (Luzon Brokerage
paid to an attorney as reasonable compensation for his professional
Co., Inc. vs. Maritime Bldg. Co., Inc., 86 SCRA 305 [1978].)
services; and even where parties have made a written agreement as to the
fee, the courts have the power to ignore their contract, if the amount fi xed is
unconscionable or unreasonable, and to limit the fee to a reasonable
5. Corporation unconditionally undertook to redeem preferred shares at
amount.10 (Bachrach vs. Golingco, 35 Phil. 138 [1916].)
specified dates.
—-— —-— —-—
Facts: The terms and conditions of the Purchase Agreement shows
4. A big corporation, to avoid cancellation of contract it has breached, that the parties intended the repurchase of the preferred shares in question
pleaded considerations of equity. on the respective dates to be an absolute obligation made manifest by the
fact that a surety was required to see to it that the obligation is fulfilled in the
Facts: The contract between the parties (two big real estate
event of the corporation’s inability to do so.
corporations) was a contract to sell or conditional with title expressly
reserved in S (seller) until the suspensive condition of full and punctual Defendant corporation contends that it is beyond its power and competence
payment of the full price by B (buyer) shall have been met on pain of to redeem the preferred shares due to financial reverses.
automatic cancellation of the contract upon failure to pay any of the monthly
Issue: Can this contention serve as a legal justification for its failure
instalments.
to perform its obligation under the agreement?
B failed to pay the P5, 000.00 monthly installments notwithstanding
Held: No. The unconditional undertaking of the corporation does not
that it was punctually collecting P10, 000.00 monthly rentals from the lessee
depend upon its financial ability: it constitutes a debt which is defined “as an
of the property.
obligation to pay money at some fixed future time, or at a time which
Issue: The main issue posed by B is that there has been no breach becomes definite and fixed by acts of either party and which they expressly
of contract by it; and assuming there was, S was not entitled to rescind or or impliedly agree to perform in the contract.” The Purchase Agreement
resolve the contract without recoursing to judicial process.
constitutes the law between the parties. (Lirag Textiles Mill, Inc. vs. Social Facts: By virtue of an agreement between X and Y, X assisted Y in
Security System, 153 SCRA 338 [1987].) improving a large tract of land which was later declared by the court as
belonging to C.
Issue: Has X the right to be reimbursed by Z for X’s services and
ART. 1160. Obligations derived from quasi-contracts shall expenses on the ground that the improvements are being used and enjoyed
be subject to the provisions of Chapter 1, Title XVII, of this Book. by Z?
(n)
Held: No. From the language of Article 2142, it is obvious that a
Quasi-contractual obligations. presumed quasi-contract cannot emerge as against one party when the
subject matter thereof is already covered by an existing contract with another
Article 1160 treats of obligations arising from quasi-contracts or
party. X’s cause of action should be against Y who, in turn, may seek relief
contracts implied in law.
against Z. (Cruz vs. J.M. Tuazon Co., Inc., supra.)
A quasi-contract is that juridical relation resulting from certain lawful,
—-— —-— —-—
voluntary and unilateral acts by virtue of which the parties become bound to
each other to the end that no one will be unjustly enriched or benefited at the 2. Bank paid the seller of goods under an expired letter of credit but
expense of another. (Art. 2142.) the goods subject thereof were voluntarily received and kept by the buyer
which refused to pay the bank.
It is not, properly, a contract at all. In a contract, there is a meeting of
the minds or consent; the parties must have deliberately entered into a Facts: X opened with B (bank) a domestic letter of credit (LC) in favor
formal agreement. In a quasi-contract, there is no consent but the same is of Y for the purchase from the latter of hydraulic loaders. B paid Y for the
supplied by fiction of law. In other words, the law considers the parties as equipment after the expiration of the letter of credit. X refused to pay B
having entered into a contract, irrespective of their intention, to prevent claiming that there was breach of contract by B which acted in bad faith in
injustice. Corollarily, if one who claims having enriched somebody has done paying Y knowing that Y delivered the loaders to X after the expiry date of
so pursuant to a contract with a third party, his cause of action should be the subject LC.
against the latter, who, in turn, may, if there is any ground therefor, seek
relief against the party benefited. (Cruz vs. J.M. Tuason & Co., Inc., 76 SCRA X offered to return the loaders to B which refused to take possession
543 [1977].) three (3) years after X accepted delivery, when B made a demand for
payment.
Quasi-contracts are governed by the Civil Code, more particularly, by
Articles 2142-2175, Chapter I, Title XVII. Issue: Was it proper for B to pay the LC which had long expired or
been cancelled?
ILLUSTRATIVE CASES:
Held: B should not have paid the LC which had become invalid upon
1. When a party benefited at the expense of another not liable to the the lapse of the period fi xed therein. Be that as it may, X should pay B the
latter. amount B expended for the equipment belatedly delivered by Y and
voluntarily received and kept by X. B’s right to seek recovery from X is
anchored, not upon the inefficacious LC, but on Article 2142 of the Civil mistakenly paid arises from the moment said payment was made, and not
Code. from the time the payee admits the obligation to reimburse. (Comm. of
Internal Revenue vs. Esso Standard Eastern, Inc., 172 SCRA 364 [1989].)
X was not without fault in the transactions in view of its unexplained
Under the principle, the government has to restore (credit or refund) to the
inaction for almost four (4) years with regard to the status of the ownership
taxpayer the amounts representing erroneous payments of taxes. (Phil.
or possession of the loaders and the fact that it formalized its offer to return
Geothermal, Inc. vs. Comm. of Internal Revenue, 465 SCRA 308 [2005].)
the equipment only after B’s demand for payment, which came more than
The quasi-contract of solutio indebiti is based on the ancient principle that
three (3) years after X accepted delivery.
no one shall enrich himself unjustly at the expense of another.
When both parties to a transaction are mutually negligent in the
Solutio indebiti applies where:
performance of their obligations, the fault of one cancels the negligence of
the other and as in this case, their rights and obligations may be determined (a) payment is made when there exists no binding relation between
equitably under the law proscribing unjust enrichment. (Rodzssen Supply, the payor, who has no duty to pay, and the person who received the
Inc. vs. Far East Bank & Trust Co., 357 SCRA 618 [2001].) payment; and

Kinds of quasi-contracts. (b) the payment is made through mistake11 and not through liberality
or some other cause. (Power Commercial and Industrial Corp. vs. Court of
The principal kinds of quasi-contracts are negotiorum gestio and Appeals, 274 SCRA 597 [1997]; National Commercial Bank of Saudi Arabia
solutio indebiti. vs. Court of Appeals, 396 SCRA 541 [2003]; Moreño-Lenifer vs. Wolf, 144
(1) Negotiorum gestio is the voluntary management of the property SCRA 584 [2004]; Bank of the Phil. Islands vs. Sarmiento, 484 SCRA 261
or affairs of another without the knowledge or consent of the latter. (Art. [2006].)
2144.) Thus, if through the efforts of X, a neighbour, the house of Y was ILLUSTRATIVE CASES:
saved from being burned, Y has the obligation to reimburse X for the
expenses X incurred although Y did not actually give his consent to the act 1. Recovery of taxes paid under a mistake.
of X in saving his house on the principle of quasi-contract.
Facts: X, a tax-exempt cooperative store, paid taxes to the City of
This juridical relation does not arise in either of these instances: Manila, believing that it was liable.

(a) When the property or business is not neglected or abandoned, in Issue: May X recover the payment?
which case the provisions of the Civil Code regarding unauthorized contracts
Held: Yes, as it was made under a mistake. (UST Cooperative Store
(Arts. 1317, 1403[1], 1404.) shall govern; or
vs. City of Manila, 15 SCRA 656 [1965].)
(b) If, in fact, the manager has been tacitly authorized by the owner,
—-— —-— —-—
in which case the rules on agency shall govern. (Art. 2144.)
2. Recovery of backwages paid which are legally due.
(2) Solutio indebiti is the juridical relation which is created when
something is received when there is no right to demand it and it was unduly Facts: X, an employee of Cebu City, sued certain officials of the City
delivered through mistake. (Art. 2154.). The obligation to pay money for claim of backwages.
 Issue: May the City of Cebu successfully recover the payment later an award of additional damages to the victim. (People vs. Catubig, 363
made by it to X on the ground that it was not made a party to the case? SCRA 621 [2001].)
Held: No, because a judgment against a municipal officer in his (2) Oftentimes, the commission of a crime causes not only moral evil
official capacity binds the city. The city was under obligation to make the but also material damage. From this principle, the rule has been established
payment. It cannot, therefore, be said that the payment was made by reason that every person criminally liable for a felony17 is also civilly liable. (Art.
of mistake. (City of Cebu vs. Piccio and Caballero, 110 Phil. 870 [1969].) 100, Revised Penal Code; see Albert, the Revised Penal Code Annotated,
p. 276.) In crimes, however, which cause no material damage (like contempt,
(3) Other cases. — Other examples of quasi-contracts are provided
insults to person in authority, gambling, violations of traffic regulations, etc.),
in Article 2164 to Article 2175 of the Civil Code.12
there is no civil liability to be enforced. But a person not criminally
The cases that have been classified as quasi-contracts are of infinite responsible may still be liable civilly. (Art. 29; Rules of Court, Rule 111, Sec.
variety, and when for some reason recovery cannot be had on a true 2[c].)
contract, recovery may be allowed on the basis of a quasi-contract in view
Reservation of right to recover civil liability.
of the peculiar circumstances or factual environment to the end that a
recipient of benefits or favors resulting from lawful, voluntary and unilateral Under the present rule, only the civil liability arising from the offense
acts of another may not be unjustly enriched at the expense of the latter.13 charged is deemed instituted with the criminal action unless the offended
(Phil. National Bank vs. Court of Appeals, 217 SCRA 347 [1993].) party waives the civil action, reserves his right to institute it separately, or
institutes the civil action prior to the criminal action. There is no more need
for a reservation of the right to fi le the independent civil actions under
ART. 1161. Civil obligations arising from criminal offenses Articles 32, 33, 34 and 2176 of the Civil Code.
shall be governed by the penal laws,14 subject to the provisions The reservation and waiver referred to refer only to the civil action
of Article 2177,15 and of the pertinent provisions of Chapter 2, for the recovery of the civil liability arising from the offense charged. This
Preliminary Title on Human Relations,16 and of Title XVIII of this does not include recovery of civil liability under Articles 32, 33, 34 and 2176
Book, regulating damages. (1092a) of the Civil Code of the Philippines arising from the same act or omission
which may be prosecuted separately even without a reservation. (DMPI
Employees Credit Cooperative, Inc. vs. Velez, 371 SCRA 72 [2001];
Civil liability arising from crimes or delicts. Hambon vs. Court of Appeals, 399 SCRA 255 [2003]; see Secs. 1, 2, 3, Rule
111, Revised Rules of Criminal Procedure; see Notes 19, 25.)
This article deals with civil liability arising from crimes or delicts.
(1) The commission of an offense has a two-pronged effect: one, on
the public as it breaches the social order and the other, upon the private Scope of civil liability.
victim as it causes personal sufferings or injury, each of which is addressed, The extent of the civil liability arising from crimes is governed by the
respectively, by the imposition of heavier punishment on the accused and by Revised Penal Code and the Civil Code.18
 This civil liability includes: Requisites of quasi-delict.
(1) Restitution; Before a person can be held liable for quasi-delict, the following
requisites must be present:
(2) Reparation for the damage caused; and
(1) There must be an act or omission by the defendant;
(3) Indemnification for consequential damages. (Art. 104, Revised
Penal Code.) (2) There must be fault or negligence of the defendant;
EXAMPLE: (3) There must be damage caused to the plaintiff;
X stole the car of Y. If X is convicted, the court will order X: (1) to (4) There must be a direct relation or connection of cause and effect
return the car (or to pay its value if it was lost or destroyed); (2) to pay for between the act or omission and the damage; and
any damage caused to the car; and (3) to pay such other damages suffered
by Y as a consequence of the crime. (5) There is no pre-existing contractual relation between the parties.

Where the trial court convicts an accused of a crime, without, Crime distinguished from quasi-delict.
however, ordering payment of any indemnity, it has been held that the The following are the distinctions:
Supreme Court, on appeal, may modify the decision by ordering
indemnification of the offended party pursuant to Articles 100, 104(3), and (1) In crime or delict, there is criminal or malicious intent or criminal
107 of the Revised Penal Code. (People vs. Peña, 80 SCRA 589 [1977]; see negligence, while in quasi-delict, there is only negligence;
Note 2.)
(2) Crime affects public interest, while quasi-delict concerns private
interest;

ART. 1162. Obligations derived from quasi-delicts shall be (3) In crime, there are generally two liabilities: criminal and civil, while
governed by the provisions of Chapter 2, Title XVII of this Book, in quasi-delict, there is only civil liability;
and by special laws. (1093a) (4) In crime or delict, the purpose is punishment, while in quasi-
delict, indemnification24 of the offended party;
Obligations arising from quasi-delicts.
(5) Criminal liability cannot be compromised or settled by the parties
The above provision treats of obligations arising from quasi-delicts
themselves, while the liability for quasi-delict can be compromised as any
or torts. (see Arts. 217619 to 2194.)
other civil liability;
A quasi-delict is an act or omission by a person (tort feasor) which
(6) In crime, the guilt of the accused must be proved beyond
causes damage to another in his person, property, or rights giving rise to an
reasonable doubt, while in quasi-delict, the fault or negligence of the
obligation to pay for the damage done, there being fault or negligence but
defendant need only be proved by preponderance of evidence; and
there is no pre-existing contractual relation between the parties.21 (Art.
2176.)
 (7) In crime, the liability of the person responsible for the author of
the negligent act or omission is subsidiary, while in quasi-delict, it is direct.

Recovery of damages twice for the same act or omission

prohibited.
The same negligent act or omission causing damage may produce
civil liability arising from a crime under Article 100 of the Revised Penal Code
(supra.) or create an action for quasi-delict under Article 2176. (see Barredo
vs. Garcia and Almario, 73 Phil. 607 [1942]; see Elcano vs. Hill, 77 SCRA 98
[1977].) The Revised Penal Code in Article 365 punishes not only reckless
but also simple negligence.
Under Article 1157, quasi-delict and an act or omission punishable
by law are two different sources of obligations. Inasmuch as civil liability co-
exists with criminal responsibility in negligence cases, the offended party has
the option between an action for enforcement of civil liability based on culpa
criminal under Article 100 of the Revised Penal Code and an action for
recovery of damages based on culpa aquiliana under Article 2177.25 (see
Art. 1161.)
These two causes of action (ex delicto or ex quasi delicto) may be
availed of subject to the caveat that the offended party cannot recover
damages twice for the same act or omission or under both causes. Since
these two (2) civil liabilities are distinct and independent of each other, the
failure to recover in one will not necessarily preclude recovery in the other.
(Equitable Leasing Corporation vs. Suyom, 388 SCRA 445 [2002].)
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