Law on Obligations

and Contracts
Ricalyn E. Sumpay, CPA
Instructor
 R.A 9298
Section 4 – Scope of Practice
(c) Practice in Education/Academe - shall
constitute in a person in an educational
institution which involve teaching of
accounting, auditing, management advisory
services, fiancé, business law, taxation and
other technically related subject: Provided,
That members of the Integrated Bar of
the Philippines may be allowed to teach
business law and taxation subjects.
 Scope of the Subject
The Law on Obligations and Contracts is the
body of rules which deals with the nature
and sources of obligations and the rights and
duties arising from agreements and
particular contracts.
 Article 1156

An obligation is a
juridical necessity to
give, to do, or not to do.
 Article 1156
Juridical necessity – in case of
noncompliance, the courts of justice
may be called upon by the aggrieved
party to enforce its fulfillment or, in
default thereof, the economic value that
it represents. In a proper case, the
debtor/obligor may also be made liable
for damages.
 Article 1156
Damage means “loss or injury to a person or
property”.

Damages means “money claimed by, or

ordered to be paid to, a person as
compensation for loss or injury”.
 Article 1156

If obligations were
not made enforceable,
then people can
disregard them with
impunity.
 Article 1156

Ignorance of the law

excuses no one from
compliance therewith.
 Article 1156
1. If laws will not be binding until they are actually known, then
social life will be impossible, because most laws cannot be
enforced due to their being unknown to many;
2. It is almost impossible to prove the contrary when a person
claims ignorance of the law;
3. It is absurd to absolve those who do not know the law and
increase the obligations of those who know it;
4. In our conscience, we carry norms of right and wrong, and a
sense of duty, so that our reason indicates many times what we
have to do and in more complicated juridical relations, there are
lawyers who should be consulted.
5. Evasion of the law would be facilitated and the administration of
justice would be defeated if persons could successfully plead
ignorance of the law to escape the legal consequences of their
acts, or to excuse non-performance of their legal duties. The rule,
therefore, is dictated not only by expediency but also by
necessity.
 Article 1156
1. This presumption in Philippine law is based on convenience,
public policy and necessity. It is derived from the Latin maxim
“ignorantia legis neminem excusat.”

2. However, this rule only refers to the existence of a law, not to

mistakes regarding its application or interpretation.

3. In other words, every person in Philippine jurisdiction is

presumed to know that a law regarding a particular conduct
exists, even though in reality, he has not read or even heard
about the the law before. If a person violates a law, even though
in truth he does not know that such law exists, such ignorance of
its existence is not a valid legal defense and will not excuse him
from the legal consequences of the law’s violation. However, if a
person made a mistake borne out of a difficult question of law as
to its interpretation or application, such ignorance constitutes
an excuse and is a valid legal defense.
 Article 1156
Classification of obligation according to
sanction.
a. Civil Obligation – gives the creditor a
right under the law to enforce their
performance in the courts of justice.
b. Natural Obligation – not based on
positive law but on equity and
natural law, do not grant a right of
action to enforce their performance.
 Article 1156
When a right to sue upon a
civil obligation has lapsed by
extinctive prescription, the
obligor who voluntarily
performs the contract cannot
recover what he has delivered
or the value of the services he
has rendered.
 Article 1156
Essential requisites of an obligation:
1.Passive subject (Debtor/Obligor) - the person who is
bound to fulfill the obligation.
2.Active Subject (Creditor/Obligee) - the person who has
the right or power to demand the fulfillment of the
obligation.
3.Prestation(Object/Subject Matter) - the conduct
required to be observed by the debtor/obligor (to give, to do
or not to do)
4.Legal/Juridical Tie(Efficient cause/Vinculum
juris) - that which binds or connects the parties to the
obligation.
 Article 1156
Forms of an obligation :
1. As a general rule, the law does not
require any form in obligations
arising from contracts for their
validity/ binding force.
2. Obligations arising from other
sources does not have any form at
all.
 Article 1156
Obligation vs. Right vs. Wrong
Obligation – act/ performance which
the law will enforce.
Right – power which a person has
under the law to demand from another
any prestation.
Wrong – act/ omission of one party in
violation of legal right of another.
 Article 1156
Kinds of obligation according to the
subject matter:
1. Real obligation – obligation to give.
2. Personal obligation – obligation to
do.
2.a Positive – to do
2.b Negative - not to do
 Article 1157
Obligations arise from:
1. Law;
2. Contracts;
3. Quasi-contracts;
4. Acts/omissions punished by law;
5. Quasi-delicts;
 Article 1157
Obligations arise from law
when they are imposed by law
itself.
Ex: Obligation to pay taxes;
Obligation to support one’s
family.
 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.
 Article 1158
An employer has no obligation to
furnish free legal assistance to his
employees because no law requires
this, and therefore, an employee may
not recover from his employer the
amount he may have paid a lawyer
hired by him to recover damages
caused to said employee by a
stranger or stranger while in
performance of his duties.
 Article 1158
Liabilities of Employers for Employees’ Crime
(convicted)
1. Subsidiary, employee must have first been
convicted and sentenced to pay civil indemnity and
it must be shown that he is insolvent in order that
employee may be liable.
2. Liability is absolute and cannot avail of the defense
by proof of diligence.
3. Employer is liable only when the crime is
committed during the performance of a duty.
 Article 1159
Obligations arising from
contracts have the force of law
between the contracting parties
and should be complied with in
good faith.
 Article 1159
Contracts – is the meeting of minds
whereby one binds himself with respect
to the other to give something or to
render some service.
Simply stated, it refers to obligations
arising from stipulation/ agreement. Ex:
The obligation to pay a loan/
indebtedness by agreement.
 Article 1159
1. Binding force of contracts- have the
same binding effect as compared to
obligations imposed by law. However,
the law is always superior to
contracts.
2. Requirement of a valid contract- not
contrary to law, morals, good
customs, public order, and public
policy.
 Article 1159
1. Morals – deal with norms of
good and right conduct evolving
in a community.
 Article 1159
2. Public order - refers to
public peace and tranquility.
 Article 1159
2. Public policy – broader
than public order in a way
that it affects the whole
population. It is also moved
by a public good.
 Article 1159
Good customs – habits and
practices which through long
usage have been followed
and enforced by society or
some part of it as binding
rules of conduct.
 Article 1159
Good faith – compliance/ performance in
accordance with the stipulations/ terms
of the contract/ agreement. Sincerity
and honesty must be observed to
prevent one party from taking unfair
advantage over the other.
 Article 1160
Obligations derived
from quasi- contracts
shall be subject to the
provisions of Chapter 1,
Title XVII of this Book.
 Article 1160
Quasi-contract – juridical relation resulting
from 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 expense
of another.
 Article 1160
Kinds of Quasi – Contracts
1. Negotiorium gestio (unauthorized
management) –
arises when a person voluntarily takes charg
e of the management of the business or prope
rty of another without any power from the latter.
2. Solutio indebiti (unjust enrichment) –
takes place when a person receives something
from another without any right to demand for
it, and the thing was unduly delivered to him
through mistake.
 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)
 Article 1161
General rule:
Every person criminally liable for a
felony is also civilly liable.
 Article 1161
1. Scope of civil liability
a. Restitution
b. Reparation
c. Indemnification
 Article 1161
Enforcement of Civil Liability
1. Independent: Criminal and civil
action arising from the same offense
may be instituted separately.
2. Suspended: However, after criminal
action has been commenced
prosecution for civil action is in
whatever stage it may be found,
suspended until final judgment in the
criminal proceeding is rendered;
 Article 1161
1. Crimes with material damage =
criminal liability + civil liability
2. Crimes w/o material damage =
criminal liability only
3. Not criminally responsible but
w/h material damage = civil
liability only
 Article 1161
Crimes without civil liability:
1. Contempt
2. Insults to persons with authority
3. Gambling
4. Violations of traffic regulations
 Article 1161
Proof or evidence required:
1. Beyond reasonable doubt – when
civil liability for damage is included
in the criminal case.
2. Mere preponderance of evidence-
when claim for damage is filed
separately with the criminal action.
 Article 1161
The minimum amount of damages
recoverable in case of death caused by
crime or quasi-delict is P50, 000. 00
without the need of presenting evidence
or proof of damages. However, other
damages may be recovered by the
injured party.
 Article 1161
The following are persons exempted from criminal liability
even if the act committed constitutes a crime:
1. An imbecile or insane person, unless he acted during a lucid
interval.
2. A person under 9 years old.
3. A person over 9 years old but below 15, unless he acted in
discernment.
4. Accident
5. Person acting under the compulsion of an irresistible force.
6. Persons acting under the impulse of an uncontrollable fear of an
equal or greater injury.
7. Persons who fail to perform an act required by law when prevented
by some lawful or insuperable cause.
 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)
 Article 1162
Quasi-Delicts- Voluntary
acts or omissions with
fault or negligence causing
damage to another; not a
crime nor a contract.
 Article 1162
Negligence - failure to use reasonable
care or failure to exercise the kind of diligence
required in a particular circumstance.
 Article 1162
Requisites of quasi-delict:
1. There must be an act or omission;
2. There must be fault or negligence;
3. There must be damage caused;
4. There must be a direct relation/ connection
of cause and effect between the
act/omission and the damage; and
5. There is no pre-existing contractual
relation between the parties.
 Article 1162
Crime vs. Quasi-delict

Criminal/malicious intent Negligence only

Punishment Indemnification of the
offended party.
Affects public interest Concerns private interest
2 liabilities : criminal & civil Civil only
Can not be compromised/ Can be compromised
settled by the parties
themselves.
Guilt of the accused must be Fault/negligence need only be
proved beyond reasonable proved by preponderance of
doubt. evidence.
 Article 1157
Summary:
1. Law – there should be a law, can’t be presumed.
2. Contracts – Meeting of minds > Offer > Accepted
3. Quasi-Contracts – no meeting of minds a. Solutio Indebiti – undue payment.
b. Negotiorum Gestio – unauthorized management.
4. Delicts (Crimes) - acts or omissions punishable by law, if accused: a.
Convicted – civil & criminal obligation. b. Acquitted – civil obligation only. *
Did not commit act, no civil obligation.
5. Quasi-delicts – tort, culpa, negligence.

Start Result
Quasi-Contracts Lawful Benefit
Quasi-Delicts Lawful Injury/Damages
Delicts Unlawful Injury/Damages