Legal Aspects in Tourism and Hospitality (THM52011)

Atty. Jeni Eunice A. Ramos

Reading assignment for September 13 to 23

Reference book: The Law on Obligations and Contracts by Hector S. De Leon and Hector M. De
Leon, Jr. (2021 Edition)

I. Obligations and Contracts

1. What is an Obligation? – Article 1156 of the Civil Code
Art. 1156: An obligation is a juridical necessity to give, to do or not to do.
The definition of obligations establishes the unilateral act of the debtor either to
give, to do or not to do as a patrimonial obligation.

 Patrimonial Obligations: Obligations with pecuniary value or assessable in

terms of money.
 Judicial Necessity: Rights and duties arising from obligations are legally
demandable and the courts of justice may be called upon through proper
action to order the performance.

Distinction between Obligations and Contracts:

 Contract is the only source of obligation, while obligations have other
sources like law, quasi-contracts, delicts, or quasi-delicts
 All contracts are obligations but not all obligations are contracts

1. Essential requisites of obligation

1. Active Subject: Has the power to demand the prestation, known as
the creditor or oblige
2. Passive Subject: who is bound to perform the prestation, known as
debtor or obligor
3. Object of Prestation: the act of giving, doing or not doing something
4. Judicial Tie or Vinculum Juris: The legal tie that constitutes the
devise of obligation or the coercive force that makes the obligation
demandable

2. Nature of an obligation (civil and natural) - Article 1423

1. Civil Obligations: Derive their binding force from positive law. Can
be enforced by court action of the coercive power of public
authority.
2. Natural Obligations: Their binding force effect from equity and
natural justice. The fulfillment cannot be compelled by court action
but depends on the good conscience of debtor.

2. Sources of obligation– Article 1157 to 1162 of the Civil Code

1. Law: refers to the legal obligations or obligations imposed by specific
provisions of law.
2. Contracts: Is the meeting of minds between two persons whereby one binds
himself with respect to the other. Obligations arising from contracts have the
force of law between the contracting parties. Thus, the agreement should be
complied.
3. Quasi-contracts: The judicial relation resulting from a lawful, voluntary, and
unilateral act. Natural Obligation.
 4. Delicts or Acts or Omissions punishable by law: Acts or omission punished by
law is known as Delict, or Felony, or Crime. The act gives rise to civil liability
as it caused damage to another.

Civil Liability Arising from Delicts:

 Restitution: the returning of the object of crime to the injured
party.
 Reparation: the payment by the offender with the value of the
object of crime. This is done when such object cannot be returned
to the injured party.
 Indemnification: The consequential damages which includes the
payment of other damages that may have been caused to the
injured party.

5. Quasi-delicts: One where whoever by act or omission causes damage to

another due to negligence, but no contractual relation exists between the
parties.
Requisites of Quasi-delicts:
 There must be fault of negligence attributable to the offender
 There must be damage or injury caused to another
 There is no pre-existing contract

3. Classification of obligations and their meaning.

a. Primary classifications
i. Pure and conditional – Article 1179 to 1192
 Pure obligation: Performance is not subject to any
condition and can be immediately demandable.
 Conditional obligation: Performance is subject to a
condition and can only be demandable upon the happening
of an event.
ii. Obligation with a period – Article 1193-1198
 Obligation with period: Performance is subject to a period
and can only be demandable when that period expires.
iii. Alternative and facultative – Article 1199 to 1206
 Alternative Obligation: several prestation are due but the
performance of one is sufficient. debtor has the right to
choose. Creditor may have the right if expressly granted.
 Facultative Obligation: only one prestation is due or agreed
upon, but the debtor may render another in substitute.
iv. Joint or solidary – Article 1207 to 1222
 Joint Obligation: The concurrence of two or more creditors
or of two or more debtors in one and the same obligation.
 Solidary Obligation: One where each one of the debtors is
bound to render, and/or each one of the creditors has a
right to demand entire compliance with the prestation.
v. Divisible or indivisible – Article 1223 to 1225
 Divisible Obligation: When an object, in its delivery or
performance, is capable of partial fulfillment.

Example: If I agreed to pay someone 40,000

in 4 equal monthly installments.
  Indivisible Obligation: An obligation is indivisible when
an object, in its delivery or performance, is not capable of
partial fulfillment.

Example: If I oblige myself to deliver to

someone a specific car on Sept 20. This obligation
is indivisible because it is not capable of partial
fulfillment. The car must be delivered at one time
and as a whole.
vi. With penal clause – Article 1226 to 1230
Penal Clause: A penal clause is an accessory undertaking to
assume greater liability on the part of the obligor in case of breach
of obligation. Or it is a form of guaranty for the fulfillment of an
obligation by establishing an aggravation of responsibility.

Obligation with Penal Clause:

“Sa mga obligasyon na may penal clause, sakaling ito ay hindi
masunod, ang kaparusahan ay papalit sa pagbabayad ng danyos at
sa interes.”

b. Secondary classifications
i. Legal, conventional, and penal – Article 1158 - 1162
 Legal Obligation: obligations imposed by law
 Conventional Obligation: obligations established by the
agreement of the parties like contracts
 Penal Obligation: is a penalty, such as the obligation to pay
extra money if the terms or conditions of an agreement
cannot be satisfied.
ii. Real or personal – Article 1163 - 1168
 Real Obligation: obligation to give; is that in which the
subject is a thing which the obligor must deliver to the
oblige
 Personal Obligation: obligation to do or not to do; is that in
which the subject is an act to be done or not to be done.
iii. Determinate or generic – Article 1163 - 1166
 Determinate or Specific Thing: something which is
susceptible of particular designation or specification.
Example: Toyota Fortuner, Model 2018
 Indeterminate or Generic Thing: something which is not
particularized or specified but has reference only to a class.
Example: a car
iv. Positive or negative - Article 1167 to 1168
 Positive obligation: When the debtor is obliged to give or
to do something in favor of the creditor.
 Negative obligation: When the debtor is not obliged to
give or to do anything. That is, he must refrain from doing
something.

v. Unilateral and bilateral – Article 1191

 Unilateral obligation: only one party is bound to perform a
prestation.
  Bilateral obligation: both parties are bound to each other in
performing their respective prestation.
- Reciprocal obligation - one party is bound to
perform a prestation in exchange for the other
party's performance.

vi. Individual and collective -Article 1207 and 1223

 Individual Obligation: there is only one debtor and creditor
in a contract
 Collective Obligation: there are two or more debtor and
two or more creditor
vii. Accessory and principal - Article 1166 and 1226
 Principal obligation: Main obligation created by the
parties.
 Accessory obligation: Secondary obligation created to
guarantee the fulfillment of the principal obligation.

4. Breach of obligation - Article 1165 to 1174, 1177, and 1191

a. What is breach of obligation or contract?
Breach of contract is the inability to fulfill the specifications of the
contract without any legal reason.

PNB vs. Spouses Tajonera G.R. No. 195889, September 24, 2014
Respondent: Eduardo and Ma. Rosario Tajonera and Eduarosa Realty
Development
Petitioner: Philippine National Bank (PNB)

Facts:
 ERDI, through Rosario, obtained loans from petitioner Philippine
National Bank (PNB) and entered into several credit agreements to
finance the completion of the construction of their 20-storey Eduarosa
Tower Condominium located in Roxas Boulevard, Paranaque City
 the principal amount of loan extended by PNB to ERDI was Sixty
Million Pesos (P60,000,000.00)
 As security for the initial loan, ERDI executed the Real Estate
Mortgage (REM) consisting of three (3) parcels of land.
 On January 31, 1992, ERDI executed an amendment to the Credit
Agreement obtained an additional loan of Forty Million Pesos
(P40,000,000.00).  As additional security to the increased amounts of
loan, the respondent spouses' 958-square meter lot was mortgaged.
 On October 28, 1992, a Second Amendment to Credit Agreement was
executed by the parties to extend the repayment dates of the loan and
the additional loan subject to the terms set forth in the said agreement.
 The following year, or on November 3, 1993, a Third Amendment to
the Credit was entered into by the parties wherein PNB granted an
additional loan of Fifty Five Million Pesos (P55,000,000.00) to ERDI.
 As of September 30, 1994, ERDI's outstanding loan obligation with
PNB amounted to P211,935,067.40.
 ERDI failed to settle its obligation. As a consequence, PNB filed an
application for foreclosure of the Greenhills property.  As the highest
bidder, PNB was issued the Certificate of Sale. Upon ERDI's failure to
 redeem the property, PNB consolidated its title and caused the
cancellation of TCT No. 29733. A new title, TCT No. 9424-R, was
issued in the name of PNB.

Compliant:
This prompted the respondents to file a complaint against PNB  for
annulment of sale, cancellation of title, cancellation of mortgage, and
damages before the RTC.
i. the title to the mortgaged property that was transferred to PNB
as a consequence of the foreclosure proceedings was null and
void as their mortgage obligation had been novated and no new
loans were released to them
ii. in violation of the provisions of the Supplement to REM;
iii. the foreclosure proceedings were defective due to PNB's failure
to send personal notice to the respondent spouses;
iv. PNB's delay in the release of loan proceeds under the credit
agreements caused the non-completion of the condominium
project;
v. and the properties mortgaged under the original mortgage
contract covering the respondents' condominium titles should
now be discharged, as the property of the respondent spouses
had already been foreclosed.

The RTC Decision:

judgment is hereby rendered in favor of plaintiffs and against the
defendant:
1. NULLIFYING and CANCELLING the Supplement to Real Estate
Mortgage dated January 28, 1992 and the Certificate of Sale dated
October 9, 1997.
2. NULLIFYING and CANCELLING the Transfer Certificate of Title
No. 9424-R, Registry of Deeds for San Juan, Metro Manila, and
REINSTATING Transfer Certificate of Title No. 29733, Registry of
Deeds for San Juan, Metro Manila.
3. ORDERING the defendant to pay the plaintiffs the amount of
P500,000.00 as moral damages.
4. ORDERING the defendant to pay the plaintiffs the amount of
P200,000.00 as exemplary damages.
5. ORDERING the defendant to pay the plaintiffs the amount of
P100,000.00 as and by way of attorney's fees.
6. Costs of suit.

b. Fraud - Article 1171

 Fraud: A false representation of a matter of fact—whether by words
or by conduct, by false or misleading allegations, or by concealment
of what should have been disclosed—that deceives and is intended to
deceive another so that the individual will act upon it to her or his
legal injury.
 when through insidious words or machinations of one of the parties,
INDUCED the other to enter into a contract.
 i. Fraud in the constitution of the obligation vs. fraud in the
performance of an obligation - Article 1390 vs, Article
1170, Article 1171

 Article 1390. The following contracts are voidable or

annullable, even though there may have been no damage to the
contracting parties:
1. Those where one of the parties is incapable of giving
consent to a contract.
2. Those where the consent is vitiated by mistake,
violence, intimidation, undue influence or fraud.

These contracts are binding, unless they are annulled by a

proper authority action in court. They are susceptible of
ratification.

 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)
Ang mga nagsasagawa ng kanilang obligasyon na may
kasalanan ng fraud, nagligence, o delay o balam at sa mga
nagsasagawa ng kanilang obligasyon na hindi ayon sa
napagkasunduan ay mananagot sa mga danyos

 Article 1171. Responsibility arising from fraud is demandable

in all obligations. Any waiver of an action for future fraud is
void.

c. Negligence or fault – Article 1173

 Negligence: Conduct that falls below the standards of behavior
established by law for the protection of others against unreasonable
risk of harm. A person has acted negligently if he or she has departed
from the conduct expected of a reasonably prudent person acting
under similar circumstances.

i. What is negligence? – Cang vs. Cullen, G.R. No. 163078,

November 25, 2009
Petitioner: Stephen Cang and George Nardo y Josol
Respondent: Hermina Cullen

Facts:
Respondent:
o Claim for damages was cause by a vehicular accident
involving a taxicab owned by Stephen Cang and driven by
George Nardo, and a motorcycle owned by Hermina Cullen
and driven by Guillermo Saycon.
o Taxi sideswiped the motorcycle and attempted to speed away
o Driver of the motorcycle was seriously injured
 Petitioner:
o Claimed that it was the motorcycle who bumped into the taxi
and did not sideswipe the motorcycle
o Nardo did not attempt to speed away from the scene of the
accident
o Also claimed that Sayson was driving the motorcycle without
any protective headgear and that he was not authorized to
drive since he only had a student’s permit.

Decision:
o judgment is hereby rendered in favor of the petitioner
o Respondent’s complaint was dismissed
o Petitioner’s counterclaims are likewise denied
o No pronouncement as to costs.
December 2002, they revised the RTC Decision to:
o Petitioner is ordered to pay the respondent, jointly and
severally (which includes the hospitalization, medical
expenses, and exemplary damages.

ii. Test of Negligence – Philippine National Railways Corporation

vs. Vizcara G.R. No. 190022, February 15, 2012
Petitioner: Philippine Railways Corporation, Japhet Estranas, and
Ben Saga
Respondent: Purificacion Vizcara, Marivic Vizcara, Cresencia
Natividad, Hector Vizcara, Joel Vizcara, and Dominador Antonio

Facts:
o Reynold Vizcara was driving a passenger jeepney headed
towards Bicol to deliver onion crops with his companions.
o While crossing the railroad truck, a PNR train then being
operated by Japhet Estansas suddenly turned up and rammed
up the jeepney.
o The collision resulted to the instantaneous death of 4 people
and serious physical injuries of 2 people/

Petitioner:
o petitioners claimed that they exercised due diligence in
operating the train and monitoring its roadworthiness
o Estranas was driving the train at a moderate speed
o 400 meters away from the railroad crossing, he started
blowing his horn to warn motorists of the approaching train
o 50 meters away he noticed that all vehicles on both sides of
the track were already at a full stop. Thus, he carefully
proceeded at a speed of 25 kilometers per hour, still blowing
the train’s horn.
o when the train was already 10 meters away from the
intersection, the passenger jeepney being driven by Reynaldo
suddenly crossed the tracks
o He immediately stepped on the brakes but due to the sheer
weight of the train, it did not instantly come to a complete
stop until the jeepney was dragged 20 to 30 meters away
from the point of collision.
 Respondent:
o the respondents alleged that the proximate cause of the
fatalities and serious physical injuries sustained by the
victims of the accident was the petitioners’ gross negligence
in not providing adequate safety measures to prevent injury to
persons and properties
o there was no level crossing bar, lighting equipment or bell
installed where the accident happened

Decision:
o Ruling was in favor of the respondents
o Ordered PNR, Japhet Estransas, and Ben Saga to jointly and
severally pay for the damages.

iii. Factors to be considered under Article 1173

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.

iv. Standard of diligence required – Article 1173 par. 2, article

2201 par 1
Article 1173 par. 2. 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.

Article 2201 par. 1.  In contracts and quasi-contracts, the damages

for which the obligor who acted in good faith is liable shall be
those that are the natural and probable consequences of the breach
of the obligation, and which the parties have foreseen or could
have reasonably foreseen at the time the obligation was
constituted.

iv. Types of Negligence in Law: Contractual Negligence, Civil

Negligence – Article 2176, and Criminal Negligence
– Article 365 of the Revised Penal Code

Contractual Negligence:
Civil Negligence:
Criminal Negligence:

vii. Effect of Negligence – Article 1172, Article 1278-1290 When

negligence is equivalent to fraud – Article 1173

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.

Article 1278-1290.
 Article 1173. Where negligence shows bad faith, it is considered
equivalent to fraud.

d. Delay/default
i. Ordinary Delay - J Plus Asia Development Corporation vs. utility
assurance corporation, G.R. no. 199650, June 26,
2013

ii. Legal Delay/Default – Article 1169 par. 1

iii. Delay in reciprocal obligations – Solar Harvest

Inc. vs. Davao Corrugated Carton Corporation
G.R. No. 176868, July 26, 2010

iv. Delay due to inadvertence – RCBC vs. CA, G.R.

No. 133107, March 25, 1999

v. Kinds of Default and their requisites

vi. Necessity of Demand – DBP vs. Guarina

Agricultural and Realty Dev. Corp., G.R. No.
160758, January 15, 2014

vii. Effects of the default of the obligor – Article

1165, 1170, 2209

viii. Effects of default of the oblige – Article 1162,

1256

ix. Compensation Morae and its effects – Article

1169 par. 3, 1192

e. Contravention of tenor of obligation – Victorino D. Magat vs.

Hon. Leo D. Medialdea G.R. No. L-37120, April 20, 1983

f. Fortuitous events – Sicam vs. Jorge, G.R. No. 159617, August 8,

2007
i. Requisites of Fortuitous Events – Philippine Realty and
Holdings Corp. G.R. No. 165548, June 13, 2011

ii. Extinguishment of liability due to fortuitous events and exceptions

– Article 1174

iii. Assumption of risk – Abrogar vs. Cosmos Bottling

Company G.R. No: 64749, March 15, 2011

iv. Effect of loss by fortuitous events in real obligations –

Article 1174, 1263
 v. Effect of Fortuitous Event on Period Provided – Victorias Planters
Association Inc., vs. Victorias Milling Co. G.R.
No. L-6648, July 25, 1955

g. Remedies against breach of contract

i. Action for Specific Performance – Article 1165 par. 1 and
1244

ii. Action for Substituted Performance – Article 1165 par 2

iii. Action for Substituted Performance or Undoing of Poor

Work in obligation to do – Article 1167

iv. Action for undoing in obligation not to do – Article 1168

v. Action for damages – Article 1170 and Llorente vs.

Sandiganbayan G.R. No. 122166, March 11, 1998 vi. Action for
Recission – Article 1191

vi. Remedies of the Creditor under Article 1177

5. Extinguishment of obligations
a. Payment or performance – Article 1232 -1261
 Payment means not only the delivery of money but also the
performance, in any other manner, of an obligation.
 Payment: payment is the fulfillment of the prestation due, a
fulfillment that extinguishes the obligation by the realization of the
purpose for which it was constituted

Requisites of Payment
1. Payor or the person who pays
2. Payee or the person to whom payment is made
3. Thing to be paid
4. Manner, time, and place of payment

Kinds of Payment
1. Normal: when the debtor voluntarily performs the prestation as
agreed upon
2. Abnormal: when the debtor is forced by means of a judicial
proceeding either to comply with the prestation or pay
indemnity

Characteristics of a Valid Payment (1233)

1. Identity- only the prestation agreed upon and no other must be
complied with
2. Completeness – the thing or service must be completely delivered
or rendered

b. Loss of the thing – 1262-1269

 The loss of the thing due is a mode
of extinguishment of obligation wherein the determinate thing is
 lost or destroyed without the fault of the debtor, and before he has
incurred in delay. It is understood that the thing is lost when it
perishes, disappears, or goes out of commerce in which such thing
no longer exists and cannot be recovered.
 The loss of the thing due applies to both real obligations (to give)
and personal obligations (to do).

c. Condonation or remission of debt – 1270-1274

 An act of liberality by virtue of which the obligee, without
receiving any price or equivalent, renounces the enforcement of the
obligation, as a result of which it is extinguished in its entirety or
in that part or aspect of the same to which remission refers.

1. It must be gratuitous
2. It must be accepted by the obligor
3. The obligation must be demandable
4. Parties have the capacity
5. Not inofficious
6. Must comply with the forms of donation should it be
express.

Kinds of Remission
1. As to Form
i. Express – made in accordance with the formalities
prescribed by law for donations
ii. Implied – can be deduced from the acts of the obligee.
2. As to Extent
i. Total – entire obligation is extinguished
ii. Partial – only an aspect of the obligation is extinguished.
3. As to Constitution
i. Inter Vivos – by agreement of the obligee and obligor
ii. Mortis Causa – when it is constituted by last will and
testament

d. Confusion or merger of rights – 1275-1277

 Confusion: it is the merger of the characters of the creditor and the
debtor in one and the same person with respect to the same
obligation, by virtue of which the obligation is extinguished. (1275)

Requisites:
1. It must take place between the creditor and the debtor.
2. The very same obligation must be involved.
3. The confusion must be total.

 The obligation is extinguished from the time the characters of

creditor and debtor are merged in the same person. 
 Merger which takes place in the person of the principal debtor or
creditor benefits the guarantors. Confusion which takes place in the
person of any of the latter does not extinguish the obligation. 
 Confusion does not extinguish a joint obligation except as regards
the share corresponding to the creditor or debtor in whom the two
characters concur.
e. Compensation 1278-1290
 Compensation shall take place when two persons, in their own right,
are creditors and debtors of each other.
 Mode of extinguishing in the concurrent amount of the obligation of
those persons who are reciprocally debtors and creditors of each
other.
 It extinguishes both debts to the extent of the amount covered by the
amount of the other.

Kinds of Compensation
1. As to cause
a. Legal
b. Voluntary
c. Judicial
d. Facultative
2. As to Effect
a. Total
b. Partial

Requisites:
1. The parties are principal creditors and debtors of each other
2. Both debts consist in a sum of money or of consumable of
the same kind & quality
3. The 2 debts are due or demandable
4. The 2 debts are liquidated
5. No retention or controversy commenced by a third person

f. Novation – 1291-1304
 It is the extinguishment of an obligation through the creation of a
new one which substitutes it
 It is the substitution or change of an obligation by another, resulting
in its extinguishment or modification, either by changing its object
or principal conditions, or by substituting another in place of the
debtor, or by subrogating a third person in the rights of the creditor.
Obligations can be modified by:
1. changing the object or principal conditions
2. substituting another in place of the debtor
3. subrogating a third person in the rights of the creditor

Requisites:
1. Previous valid & existing obligation
2. Capacity of the contracting parties
3. Animus novandi
4. Substantial difference between the old and the new obligation
5. Validity of the new obligation

g. Fulfilment of Resolutory condition

 Resolutory condition refers to a condition whereby, upon fulfillment
terminates an already enforceable obligation.

h. Rescission
  It is a relief to protect one of the parties or a third person from all
injury and damages which the contract may cause, to protect some
preferential right.

Two Kinds of Rescission:

1. Rescission in general (Art. 1380)
a. is based on lesion or fraud upon creditors;
b. here, the action is instituted by either of the
contracting parties or by third persons;
c. here, the courts cannot grant a period or term within
which to comply;
d. here, non-performance by the other party is
immaterial

2. Rescission under Art. 1191 (resolution)

a. is based on non-performance or non-fulfillment of
the obligation;
b. here, the action may be instituted only by the injured
part to the contract;
c. here, in some cases, the courts may grant a term;
d. here, non-performance by the other party is
important.

i. Annulment
Grounds for Annulment (Declaration of Nullity):
1. incapacity to consent (of one of the contracting parties)
2. vitiated consent

j. Prescription
 is a mode of acquiring (or losing) ownership and other real rights
thru the lapse of time in the manner and under the condition laid
down by law.