CITY GOVERNMENT OF SAN PABLO

DALUBHASAAN NG LUNSOD NG SAN PABLO

CHED Recognized Local College
TESDA Recognized Programs under foster
ALCU Commission on Accreditation – Level 1 Accredited
Member, Association of Local Colleges and Universities

DEPARTMENT OF BUSINESS AND HOSPITALITY MANAGEMENT

Bachelor of Science in Business Administration

MODULE IN OBLIGATIONS & CONTRACTS

INTRODUCTION TO LAW

THE GENERAL NATURE OF LAW

Meaning of law in general.

In its widest and most comprehensive sense, the term law means any rule of action or any system of
uniformity.

Thus, law, in general, determines not only the activities of men as rational beings but also the
movements or motions of all objects of creation, whether animate or inanimate

General divisions of law.

Law, as above defined, may be divided into two general groups:

(1) Law (in the strict legal sense) which is promulgated and enforced by the state: and
(2) Law (in the non-legal sense) which is not promulgated and enforced by the state.

The first refers to what is known as the state law while the second includes divine law, natural law,
moral law, and physical law. (see M.J. Gamboa, introduction to Philippine Law, 6th ed., p. 3)

Subjects of law.

State law, divine law, natural law and moral law are comprised in the definition of law as a rule of
action. They apply to men as rational beings only. On the other hand, physical law operates on all things,
including men, without regard to the latter’s use of their will power and intelligence. It is called law only
figuratively speaking.

Before, proceeding with the discussion of state law, let us first dispose of those laws with which the
state is not directly concerned.

Divine Law.

Divine Law is the law of religion and faith which concerns itself with concept of sin (as contrasted with
crime) and salvation.

(1) Source – It is formally promulgated by God and revealed or divulged to mankind by means of direct
revelation.

(a) Under Old Testament, divine law is embodied in Ten Commandments. It is believed by
Christians that these laws were formally given by God through Moses, the great Hebrew
prophet and leader. (see C. Pascual, Legal method, 2nd ed., pp. 7-8)

(b) Of course, divine law differs according to what one believes to have been established and
communicated to mankind by revelation. Thus, to the Mohammedans, divine law is
embodied in the Muslim Quoran.

(2) Sanction – The sanction of divine law lies in the assurance of certain rewards and punishments in
the present life or in the life to come. (Clark, elementary Law, p. 5)
NATURAL LAW.

Natural law may then be defined as the divine inspiration in man of the sense of justice, fairness and
righteousness, not by divine revelation or formal promulgation, but by internal dictates of reason alone.

(1) Binding force – Natural law is ever present and binding on all men everywhere and at all times.
There is I every man a basic understanding of right and wrong based on an understanding of the
fundamental standard or criterion of good and evil. In other words, there are some acts or conduct
which man knows in his heart and his conscience, not by theorizing, but by the dictates of his moral
nature, are simply good or bad or evil.

Thus, we know that killing for the sake of killing or stealing for the sake of stealing is bad or evil
because it is contrary to what we believe is just, fair or righteous. When we speak of this inward instinct
of justice, fairness and righteousness in man as divinely inspired by the dictates of his higher nature.
(see C. Pascual, the Nature and Elements of the Law, 1954 ed., pp. 9-10)

(2) Compared to divine law - While natural law and divine law are very similar, they are not, however,
the same. Divine law; as the law of religious faith, is made known to man by means of direct
revelation. On the other hand, natural law is said to be impressed in man as the core of his higher
self at the very moment of being or, perhaps even before that. (see C. Pascual. Legal method, 2nd
ed. P. 111)

(3) Place in state law – Natural law has been regarded as the reasonable basis of state law.

MORAL LAW.

When we talk of moral law, we are speaking of the totality of the norms of good and right conduct
growing out of the collective sense of right and wrong of every community.

(1) Determination of what is right and wrong – “At a comparatively early stage of their existence human
beings learned that it was good for the welfare of the group that the privilege to determine what is
right and what is wrong was not left to each member of the group. The mores or ways of life were
then evolved which were always considered right and correct, and obedience to them was
demanded by the group”

(2) Sanction – As distinguished from state law, there is no definite legal sanction (punishment imposed
by law like imprisonment and/ or payment of fines or damages) for violation of purely moral law. “If a
member of the community disregards the moral norms, a spontaneous social reaction is produced
in the form of public displeasure, contempt or even indignation. If, on the other hand, there is
conformity to the moral norms, there is created spontaneous social response which may be in form
of public pleasure, approval or even joy,” (see C. Pascual, the Nature and Elements of Law, 1954
ed., p. 16)

(3) Binding force – Moral law is not absolute. It varies with the changing times, conditions or
convictions of the people. For example, polygamy is considered immoral (it is also a crime) in the
Philippines, whereas, it is allowed in some parts of the world. Today’s fashions in women’s dress
are socially allowed but at different times, they would have been morally condemned.

(4) Place in state law – Moral law, to a great extent, influences or shapes state law.

Physical Law.

“In the operation or course of nature, there are uniformities of actions and orders of sequence which
are the physical phenomena that we sense and feel. They are known as the laws of physical science or
physical law.” (Ibid., p 19)
 (1) Order or regularity in nature - A law of physical science, being addressed to objects which have no
power to disobey, is in reality nothing more than an order or regularity in nature by which certain
results follow certain causes. (Clark, Elementary Law, p. 34)

(2) Called law only by analogy – In other words, this order or regularity is called law only by analogy.
“Examples of physical law are many. The more conspicuous ones are the law of gravitation and the
law od chemical combination. “(see C. Pascual, Legal Method, 2nd ed., p. 13)

State Law.

The kind of law, however, which particularly concerns us in thus work is the state law or the law that is
promulgated and enforced by the state.

(1) Other terms used – This law is also called positive law, municipal law, civil law, or imperative law. It
Is the law that we refer to when we speak of law in connection with obligations and contracts,
marriage, the administration of justice, the conduct of elections and the entire governmental
process itself.

(2) Binding force – As a rule of action, only state law is enforced by the state, with the aid of its physical
force, if necessary.

(3) Concern of state law – The fields of state law are different from those of divine law, natural law, and
moral law. State law does not concern itself with violations of the latter rules of actions unless they
also constitute violations of its commands. A full examination of divine law properly belongs to the
fields of philosophical theology; of natural law, to metaphysics; of moral law; to ethics; and of
physical law, to physical science or physics. (M.J. Gamboa, ov cit., p 5)

Leaving aside these topics, we proceed now with the consideration of state law.

Concepts of (state) law.

The term law may be understood in two concepts: in the general or abstract sense, and in the specific
or material sense.

(1) In its general sense, the term refers to all the laws taken together. It may be defin3d as “the mass of
obligatory rules established for the purpose of governing the relations pf persons in society.” (see A.
Tolentino, Civil Code of the Philippines, 1953 ed., Vol. 1, p. 1) Examples of the use of law in this
sense are: “law of the land,” :rule of law and not of men,” “equally before the law,” “enforcement of
the law, etc.

2. In its specific sense, the term has been identified as “a rule of conduct, just, obligatory promulgated
by legitimate authority, and of common observance and benefit.” (I Sanchez Roman). It has this
connotation when we refer to a particular statute or legal rule, e.g., the law on obligations and contract

Characteristics of law

The characteristic of law (in its specific sense) are:

1. It is a rule of conduct- Law tells us what shall be done and what shall not be done. As a rule of human
conduct, law takes cognizance of external acts only.

2. It is obligatory- Law is considered a positive command imposing a duty to obey and involving a sanction
which forces obedience.

3. It is promulgated by legitimate authority- In a democratic country like Philippines, the legitimate or

competent authority is the legislature. Under the Constitution, laws called “statutes” are enacted by
 Congress which is the name of the legislative branch of our government; local government units ae also
empowered to enact ordinances which have the binding force of law.

4. It is of common observance and benefit- Law is intended by man to serve man. It regulates the relation
of men to maintain harmony in society and to make order and co-existence possible. Law must,
therefore, be observed by all for the benefit of all.

Necessity and functions of law

1. What would life be without law?

Society comes into existence because its members could not live without it. The need for
internal order is as constant as the need for external defense. No society can be stable in which either
of these requirements fails to be provided for.

2. What does law do?

It has been said that law secures justice, resolve social conflict, orders society, protects interest,
controls social relations. Life without basic laws against theft, violence, and destruction would be
solitary, nasty, brutish and short. Life without other laws such as those regulating traffic, sanitation,
employment, business, redress of harm or broken agreements, etc.- would be less orderly, less
healthful, less wholesome.
3. What is our duty as member of society?
No society can last and continue without means of social control, without rules of social order
binding on its members. The sum of such rules as existing in a given society, under whatever particular
forms, is what, in common speech, we understand by law or is referred to as the legal system. Since we
find law necessary, every citizen should have some understanding of law and observe it for the common
good.

Source of law

1. Constitution- written instrument by which the fundamental powers of the government are established,
limited, and defined, and by which these powers are distributed among the several departments to their
safe and useful exercise for the benefit of the people. It is often referred to as the fundamental law or
supreme law or highest law of the land because it is promulgated by the people themselves, binding on
all individual citizens and all agencies of the government. It is the law to which all other laws enacted by
the legislature (as well as administrative or executive acts, orders and regulations having the force of
law) must conform. This means that laws which are declared by the courts to be inconsistent with the
constitution shall be void and the latter shall govern. (see Art. 7, Civil Code)

2. Legislation- it consists in the declaration of legal rules by a competent authority. It is the preponderant
source of law in the Philippines. Act passed by the legislature are so called enacted law or statute law.
Legislation includes ordinances enacted by local government units,

3. Administrative, or executive orders, regulations and rulings

They are those issued by administrative officials under legislative authority. Administrative rules and
regulations are intended to clarify or explain the law and carry into effect its general provisions.
Administrative acts are valid only when they are not contrary to the laws and Constitution. (Art. 7, Civil
Code.)

4. Judicial Decisions or jurisprudence- The decisions of the courts, particularly the Supreme Court,
applying or interpreting the laws or the Constitution form part of the legal system of the Philippines. (Art.
8, Ibid) The decisions of a superior court on a point of law are binding on all subordinate courts. This is
called doctrine of precedent or stare decisis.

5. Custom- it consists of those habits and practices which through long and uninterrupted usage have
become acknowledged and approved by the society as binding rules of conduct.

6. Other sources- To the above may be added principles of justice and equity, decisions of foreign
tribunals, opinions of text writers and religion. They are, however, only supplementary, that is, they are
 resorted to by the courts in the absence of all the other sources. They are, however, not binding on the
courts.

Rules in case of doubt in interpretation or application of laws

Our Civil Code provides that “no judge or court shall decline to render judgement by reason of the
silence, obscurity or insufficiency of the laws.” (Art. 9, Civil Code) “In case of doubt in the interpretation or
application of laws it is presumed that the lawmaking body intended right and justice to prevail. (Art. 10, Ibid)

In our country, courts are not only courts of law but also of justice. Faced with a choice between a
decision that will serve justice and another that will deny it because of a too strict interpretation of the law,
courts must resolve in favor of the former, for the ultimate end of the law is justice. (Pangan vs. Court of
Appeals, 166 SCRA 375). This is particularly true where what is at stake is the life, liberty, or property of an
individual, and more so if he is poor or disadvantage.

Organs of social control

Law is not an end in itself. It may be viewed as a means of social control— the control of social
behavior that affects others.

In modern pluralistic societies, there are many organs of social control. For instance, in the Philippines,
in addition to legal institutions, national and local there are churches, corporations, political parties, trade
associations, school, labor unions, professional organizations, social clubs, families, and host of others. Such
organizations, through rules, regulations and orders, control some of the behavior of their members.

Law compared with other means of social control

1. Laws are made and administered by the only institutions in society authorized to act in behalf of the
entire citizenry. Churches, for example, act only for their members.

2. Only the legal institutions within the society can make rules, regulations and orders with which the
entire citizenry must comply. The rules etc. of social and economic organizations for example, govern
only limited numbers.

3. People associated with an organization can ordinarily terminate their relationship and thereby free
themselves from the impact of its rules and regulations. Citizens of a state, however cannot do this
unless they choose to leave geographical area in which the state is sovereign.

4. The sanction or techniques of control through law or more varied and complex than the techniques
available to organizations such as churches labor unions, and political parties. Expulsion is usually the
most powerful technique available to such organizations to secure compliance with their rules, etc. for
the employee, it is the loss of his job.

5. Before the law “operates” against an individual, various procedural steps are required. Thus, the
individual must ordinarily be given a hearing and a fair opportunity to show why he should not. For
example, be ordered to pay money to a claimant, or be deprived of his liberty. Such steps are
commonly referred to as “due process” of law.

Organization of courts

Under the Constitution, the judicial power or the power to decide actual cases and controversies
involving the interpretation and application of laws, is “vested in one Supreme Court and in such lower courts
as may be stablished by laws”. (Art. VIII, Sec. 1 thereof.) The judiciary composed of the courts, is one the three
(3) main divisions of power in our system of government.

1. Regular courts- The Philippine judicial system consists of hierarchy of courts resembling a pyramid with
the Supreme Court at the apex. Under present legislation, the other courts are:
a. Court of Appeals
b. Regional Trial Court sitting in the different provinces and cities
c. Metropolitan Trial Courts in Metropolitan areas established by the law

2. Special Courts- aside from these courts, there is, under the Constitution, a special anti-graft court, the
Sandiganbayan (Art. XI, Sec. 4 thereof.) It forms part of the judicial hierarchy together with the Court of
Tax Appeals, a special tax court created by law, on the same level as the Court of Appeals.

3. Quasi-judicial agencies- Administrative bodies under the executive branch performing quasi-judicial
functions, like the National Labor Relations Commission, the Securities and Exchange Commission,
Land Transportation Franchising and Regulatory Board, Insurance Commission, etc. and the
independent Constitutional Commission (Civil Service Commission, Commission on Elections and
Commission on Audit) don’t form part of the integrated judicial system.

Classifications of law

1. As to its purpose:
a. Substantive law- or that portion of the body of law creating, defining and regulating rights and duties
which may be either public or private in the character.

b. Adjective law- or that portion of the body of law prescribing the manner or procedure by which rights
may be enforced or their violations redressed. Sometimes this is called remedial law or procedural
law. The provision of law which says that actions for the recovery of real property shall be filed with
the Regional Trial Court of the region where the property or any part of thereof lies, is an example
of private adjective law.

2. As to its subject matter:

a. Public law- the body of legal rules which regulates the rights and duties arising from the relationship
of the state of the people. These are some examples of public law
 Criminal law- defines crimes and provides for their punishment

 International law- governs the relations among nations or state.

 Constitutional law- governs the relations between the state and its citizens. It establishes
fundamental powers of the government.

 Administrative law- governs the methods by which the functions of administrative authorities
are to be performed.

 Criminal procedure- branch of private law which governs the method of trial and punishment
in criminal cases.

b. Private law- body of rules which regulates the relations of individuals with one another for purely
private ends. Included in Private law are:
 Civil law
 Commercial law or Mercantile law
 Civil procedure- branch of private law which provides for the means by which private rights
may be enforced.
Law on obligations and contracts defined

“The law of 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 the particular contracts.” (Ibid.; see Art.
1307.)

Civil Code of the Philippines

The law on obligations and contracts is found in Republic Act no. 386, other known as the Civil Code of
the Philippines. When we speak of civil law, we refer to the law found primarily in our Civil Code.

The Civil Code of the Philippines is based mainly on the Civil Code of Spain which took effect in the
Philippines on December 7, 1889. (Mijares vs. Neri, 3 Phil. 196.) It was approved as Republic Act no. 386 on
June 18, 1949 and took effect on August 30, 1950. (Lara vs. Del Rosario, 94 Phil. 778)

It is divided into four (4) books.

Civil Code provisions on obligations and contracts

Book IV of the Civil Code deals with obligations and contracts. The general provisions on obligations
are contained in Title 1, Articles 1156-1304, while those on contracts, in Title II, Articles 1305-1422. The
general rules of law governing contracts (like sales, agency, partnership, barter, etc.) in addition to the special
provisions of law governing each type of contract.

Book IV also contains new provisions dealing with natural obligations which are found in title III, Articles
1423-1430.

Conclusive presumption of knowledge of law

Ignorance of law excuses no one from compliance therewith. (Art. 3, Civil Code)

“Everyone, therefore is conclusively presumed to know the law.” This presumption is far from reality but
it has been established because of the obligatory force of law.

The following reasons have been advanced for this presumption:

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 absolved 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 sense of duty, so that our reasons indicate
many times what we have to do and in more complicated juridical relations, there are lawyers who
should be consulted.

5. “Evasion of 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 rules thereof, is dictated not only by expediency but also by
necessity.

` Thus, ignorance of the provisions of the law imposing a penalty for illegal possession of firearms, or
punishing the possession of prohibited drugs, does not constitute a valid excuse for their violation.
 OBLIGATIONS
(Arts. 1156-1304, Civil Code)

Chapter 1 GENERAL PROVISIONS

ARTICLE 1156. An obligation is a juridical necessity to give, to do or not to do. (n)

Meaning of obligation

The term obligation is derived from the Latin word obligatio which means tying or binding.

It is a tie or bond recognized by law by virtue of which one is bound 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.

Civil Code definition

Article 1156 gives the Civil Code definition of obligation, in its passive aspect. It merely stresses the
duty under the law of the debtor or obligor (he who has the duty of giving doing or not doing) when it speaks of
obligation as juridical necessity.

Meaning of juridical necessity

Obligation is a juridical necessity because 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 or obligator may also be made liable for damages, which represents
the sum of money given as a compensation for the injury or harm suffered by the creditor or oblige (he who
has the right to the performance of the obligation) for the 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 some harmful or undesirable consequences. If obligations were not made
enforceable, then people can disregard them with impunity. There are, however, obligations that cannot be
enforced because they are not recognized by law as binding.

Nature of obligations under the Civil Code

Obligations which give to the creditor or oblige a right under the law to enforce their performance in
courts of justice are known as civil obligations. 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 enforce their
performance although in case of voluntary fulfillment by the debtor, the latter may not recover what has been
delivered or rendered by reason thereof. (Art. 1423.)

Essential requisites of an obligation

1. A passive subject (called debtor or obligor)

The person who is bound to the fulfillment of the obligation, he who has a duty.

2. An active subject (called creditor or oblige)

The person who is entitled to demand the fulfillment of the obligation, he who has a right.

3. Object or prestation (subject matter of the obligation)

The conduct required to be observed by the debtor. It may consist in giving, doing, or not doing.
Without the prestation, there is nothing to perform. In bilateral obligations (Art. 1191,) the parties are
reciprocally debtors and creditors.

4. A juridical or legal tie (also called efficient cause)

That which binds or connects the parties to the obligation. The tie in an obligation can easily be
determined by knowing the source of the obligation.

Example:
Under a building contract, X bound himself to build a house for Y for P1,000,000.
 Here, X is the passive subject, Y is the active subject, the building of the house is the object or
prestation, and the agreement or contract, which is the source of the obligation, is the juridical tie.

Suppose X has already constructed the house and it was the agreement that Y would pay X
after the construction is finished, X then becomes active subject and Y, the passive subject.

Forms of obligation

Refers to the manner in which an obligation is manifested or incurred. It may be oral, or in writing, or
partly oral and partly in writing.

1. As a general rule, the law does not require any form in obligations arising from contracts for their
validity or finding force. (Art.1356)

2. Obligations arising from other sources (Art. 1157) do not have any form at all.

Obligation, right and wrong distinguished

1. Obligation is the act or performance which the law will enforce.

2. Right, on the other hand, is the power which a person has under the law, to demand from another any
prestation.

3. A wrong (cause of action) according to its legal meaning, is an act or omission of one party in violation
or the legal right of rights of another. In law, the term injury is also used to refer to the wrongful violation
of the legal right to another .

The essential elements of a legal wrong or injury are:

a. A legal right in favor of a person (creditor/obligee/plaintiff)

b. A correlative legal obligation on the part of another (debtor/obligor/defendant) to respect or

not to violate said right.

c. An act or omission by the latter in violation of said right with resulting injury or damage to the
former.

Kinds of obligations according to the subject matter

1. Real obligation (obligation to give)-- which the subject matter is a thing which the obligor must deliver to
the obligee.

Example: X (e.g. seller) binds himself to deliver a piano to Y (buyer).

2. Personal obligation (obligation to do or not to do) is that in which the subject matter is an act to be done
or not to be done. There are two kinds of personal obligation.

a. Positive personal obligation or obligation to do or to render service.

Example: X binds himself to repair the piano of Y.

b. Negative personal obligation is obligation not to do (which naturally includes obligations “not
to give”
Example: X obliges himself not to build a fence on a certain portion of his lot in favor of Y
who is entitled to a right of way over his lot.
ARTICLE 1157 Obligations arise from:
1. Law
2. Contracts
3. Quasi-contracts
4. Acts or omissions punished by law
5. Quasi-delicts (1089a)

Source of obligations

1. Law- when they imposed by law itself.

Example: Obligation to pay taxes; obligation to support one’s family. (Art.291)

2. Contracts- when they arise from the stipulation of the parties. (Art. 1306)
Example: the obligation to repay a loan or indebtedness by virtue on an agreement.

3. Quasi-contracts- when they arise from lawful, voluntary and unilateral acts which are enforceable to
the end that no one shall be unjustly enriched or benefited at the expense of another. (Art. 2142). In a
sense, these obligations may be considered as arising from law.
Example: the obligation to return mney paid by mistake or which is not due.

4. Crimes or acts or omissions punished by law- when they arise from civil liability which is the
consequence of a criminal offense. (Art. 1161).
Example: the obligation of a thief to return the stolen car by him; the duty of a killer to indemnify
the heirs of the victim.

5. Quasi-delicts or torts- when they arise from damage caused to another through an act or omission,
there being fault or negligence, but no contractual relation exists between the parties. (Art. 2176).
Example: the obligation of the head of the family that lives in a building or a part thereof to
answer damages caused by things thrown or falling from the same (Art. 2193); the obligation od
possessor of an animal to pay for the damage which it may have caused. (Art. 2183)

Sources of obligations

1. Those emanating from law

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 (infra)

b. Those arising from illicit acts, which may be either punishable in the case of delicts or
crimes, or not punishable in the case of quasi-delicts or torts. (infra)

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

Legal obligations

Article 1168 refers to legal obligations or obligations arising from law. They are not presumed a burden
upon the 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:

1. 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 while in
performance of his duties. (Dela Cruz vs. Northern Theatrical Enterprises, 95 Phil. 739)

2. 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. This obligation is provided by law. (Art.2014)
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

The above article speaks of contractual obligations or obligations arising from contracts or voluntary
agreements. It presupposes that the contracts entered into are valid and enforceable.

A contract is a meeting of minds between two reasons whereby one binds himself, with respect to the
other, to give something or to render some service. (Art. 1305)

1. Binding force- Obligations arising from contracts have the force of law between the contracting parties.

2. Requirement of valid contract- a contract is valid (assuming all the essential elements are present; Art.
1318) if it is not contrary to law, moral, good customs, public order and public policy. It is invalid or void
if it is contrary to law, morals, good customs, public order, or public policy.

3. Breach of contract- a contract may be breached or violated by a party in whole or in part. A breach of
contract takes place when a party fails or refuses to comply, without legal reason or justification, with
his obligation under the contract as promised.

Compliance in good faith

Means compliance or performance in accordance with the stipulations or terms of the contract or
agreement. Sincerity and honesty must be observed to prevent one party from taking unfair advantage over
the other.

Non-compliance by a party with his legitimate obligations after receiving the benefits of a contract would
constitute unjust enrichment on his part.
Examples
1. If S agrees to sell his house to B and B agrees to buy the house of S, voluntarily and willingly, then
they are bound by the terms of their contract and neither party may, upon his own will, and without any
justifiable reason, withdraw from the contract or escape from his obligations thereunder.
That which is agreed upon in the contract is the law between S and B must be complied with in
good faith.