Title 1 – Obligations

Chapter 1: General Provisions

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.

] Contract
} A meeting of minds between two (2) (or more) persons whereby one binds himself, with respect to the other, to
give something or to render some service. (Article 1305.)

(1) Binding Force

} Obligations arising from contracts have the force of law between the contracting parties, i.e., they have
the same binding effect of obligations imposed by laws.
} This does not mean, however, that contract is superior to the law.
} As a source of enforceable obligation, contract must be valid and it cannot be valid if it is against the
law.

(2) Requirement of a Valid Contract

} A contract is valid (assuming all the essential elements are present; Article 1318) if it is not contrary to
law, morals, good customs, public order, and public policy.
 Article 1318.
▪ There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established. (1261)

} It is invalid or void if it is contrary to law, morals, good customs, public order, or public policy. (Article
1306)
 Article 1306.
▪ The contracting parties may establish such stipulations, clauses, terms and conditions
as they may deem convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy. (1255a)

} In the eyes of the law, a void contract does not exist. (Article 1409). Consequently, no obligations will
arise.
 Article 1409.
▪ The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good
customs, public order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal object of the
contract cannot be ascertained;
(7) Those expressly prohibited or declared void by law.

These contracts cannot be ratified. Neither can the right to set up the defense of
illegality be waived.

} A contract may be valid but cannot be enforced. This is true in the case of unenforceable contracts.
(See Article 1317, 1403)
 Article 1317.
▪ No one may contract in the name of another without being authorized by the latter, or
unless he has by law a right to represent him.
 Article 1403.
▪ The following contracts are unenforceable, unless they are ratified:

(1) Those entered into in the name of another person by one who has been given no
authority or legal representation, or who has acted beyond his powers;
Title 1 – Obligations
Chapter 1: General Provisions

(2) Those that do not comply with the Statute of Frauds as set forth in this number. In
the following cases an agreement hereafter made shall be unenforceable by action,
unless the same, or some note or memorandum, thereof, be in writing, and subscribed
by the party charged, or by his agent; evidence, therefore, of the agreement cannot
be received without the writing, or a secondary evidence of its contents:

(a) An agreement that by its terms is not to be performed within a year from
the making thereof;

(b) A special promise to answer for the debt, default, or miscarriage of another;

(c) An agreement made in consideration of marriage, other than a mutual

promise to marry;

(d) An agreement for the sale of goods, chattels or things in action, at a price
not less than five hundred pesos, unless the buyer accept and receive part of
such goods and chattels, or the evidences, or some of them, of such things in
action or pay at the time some part of the purchase money; but when a sale is
made by auction and entry is made by the auctioneer in his sales book, at the
time of the sale, of the amount and kind of property sold, terms of sale, price,
names of the purchasers and person on whose account the sale is made, it is
a sufficient memorandum;

(e) An agreement for the leasing for a longer period than one year, or for the
sale of real property or of an interest therein;

(f) A representation as to the credit of a third person.

(3) Those where both parties are incapable of giving consent to a contract.

(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

] 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. Although a contract provides no penalty for its violation, a party cannot breach it with impunity.
The oppressed party is afforded remedies to protect his rights. (See Article 1191)
 Article 1191.
▪ The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
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 and must be complied with in good faith.

(2) A contract whereby S will kill B in consideration of P1,000 to be paid by C, is void and non-existent because
killing a person is contrary to law. Likewise, an agreement whereby S will render domestic service
gratuitously until his loan to B is paid, is void as being contrary to law and morals (See Article 1689; De
los Reyes vs. Alejado, 16 Phil. 499.)
In both cases, S has no obligation to comply with his agreements.