The Law on Obligations and Contracts (Notes)
Introduction to Law
 Meaning of law in General
 Any rule of action or any system of
uniformity
 Thus, law determines not only activities of
men but also movements or notions of all
objects of creation
3. Moral Law
General Divisions of Law
 Law (strict legal sense)
 Promulgated and enforced by state
 State Law
 Law (non-legal sense)
 Not promulgated and enforced by state
 Includes: divine law, natural, law, moral law,
physical law
Subjects of Law
 State law
 Divine law Apply to men as
rational beings
 Natural law
 Moral law
 Physical law on all things, including men
1. Divine Law
 law of religion and faith
 sin and salvation
 Source: In Old Testament, Ten
commandments given to Moses by God
Islam, Quoran
 Sanction: Assurance of rewards and
punishments in life or life to come
2. Natural Law
 Divine inspiration of man of the sense of
4. Physical Law
justice, fairness, and righteousness by
internal dictates of reason alone
 (1) Binding Force
 NL is always ever present and
binding on all men everywhere.
 Man knows in his heart and his
conscience some acts are good or
evil by the dictates of moral nature.
 Stealing for the sake of stealing is
evil because we believe it is unfair
and unjust. (This is natural law)
 Instinct of justice fairness, and
righteousness
Terms and Meanings
 (2) Compared to Divine Law
 Divine law is given by higher being
 Natural law is the core of a man’s
higher self
 (3) Place in state law
 Regarded as reasonable basis of state
law
 Totality of the norms of good and right
conduct growing out of the collective sense
of right and wrong
 (1) Determination of what is right and wrong
 Early on, humans decided that
privilege of determining right and
wrong is best not left for each
member of the group
 Obedience to what was determined
right was demanded.
 (2) Sanction
 By state law, none for violation of
purely moral law.
 If violated, community produces
public displeasure, contempt, or
indignation.
 If followed, community produces
public pleasure, approval, or joy.
 (3) Binding Force
 ML is not absolute.
 It changes through time.
 What is despised now, might be
accepted in the future.
 What is despised here, might be
accepted in other places.
 (4) Place in State Law
 ML, to great extent, influences or
shapes state law.
 “In the course of nature, there are
uniformities of actions and orders of
sequence which are the physical phenomena
we sense and feel, they are known as the
laws of physical science or physical law”
 (1) Order or Regularity in Nature
 Law addressed to object with no
power to disobey, is nothing more
than an order or regularity in nature
by which certain results follow
certain causes.
 (2) Called law only by analogy
 Ex. Law of gravitation and law of
chemical combination
The Law on Obligations and Contracts (Notes)
5. State Law
 Promulgated and enforced by the state
 (1) Other Terms used
 Positive law
 Municipal law
 Civil law
 Imperative law
 Law we refer to in regards to
obligations and contracts,
administration of justice, elections
etc.
 (2) Binding Force
 Only law enforced by state with
physical force
 (3) Concern of State Law
 Field of SL is diff from DL, NL, and
ML.
 SL does not concern itself with
violations of the latter rules of action
unless they constitute violations of
its commands.
Concepts of State Law
1. Law in its general sense
 All the laws taken together
 “the mass of obligatory rules established for
the purpose of governing the relations of
persons in society”
 Examples of use of law in this sense
 Law of the land
 Rule of law and not of men
 Etc.
2. Law in its specific sense
 “a rule of conduct, just, obligatory,
promulgated by legitimate authority and of
common observance and benefit”
Characteristics of Law
1. It is a rule of conduct.
 Law tells us what should be done and what
shall not be done.
2. It is obligatory.
 Imposes a duty to obey and involves sanction
if disobeyed.
3. It is promulgated by legitimate authority.
 In PH, legitimate authority is the legislature.
 “Statutes are enacted by Congress
 LGUs are empowered to enact ordinances
which have binding force of laws
4. It is of common observance and benefit.
 Law is intended by man to serve man.
 To maintain harmony, and order
 To make co-existence possible
 For the benefit of all
Terms and Meanings
Necessity and Functions of Law
1. What would life be without law?
 No society can be stable in which either
internal order or external defense, as
requirements of society, fail to be provided
for.
2. What does law do?
 Makes society orderly, healthful, wholesome,
etc,
3. What is our duty as members of society?
 To understand and observe law for the
common good.
Sources of Law
1. Constitution
 Written instrument by which the powers of
the government are established, limited, and
defined.
 Fundamental law or supreme law or highest
law
 Promulgated by the people themselves.
 Binding on all citizens and all agencies of the
government
 Every law enacted shall conform by the
Constitution, otherwise shall be void.
2. Legislation
 Dominant source of law in PH
 Enacted law Statute law – acts passed by
legislature
 Includes ordinances by LGUs.
3. Administrative or executive orders,
regulations, and ruling
 Issued by administrative official under
legislative authority.
 Intended to clarify the law and carry into
effect its provisions
4. Judicial decisions or jurisprudence
 Decisions of a superior court are binding on
all subordinate courts – doctrine of precedent
or stare decisis
 Supreme Court may reverse or modify
previous rulings
 Decision by SC are “laws” because they
declare what the laws say or mean.
 Lower court rulings, bind parties to specific
cases alone
5. Custom
 “Those habits and practices through long and
uninterrupted use have become
acknowledged by society as binding rules of
conduct”
 Has force of law when recognized by state
and enforced.
 Must be proved as fact
The Law on Obligations and Contracts (Notes)

May be applied by courts if there are no laws
applicable
 Customs that counters the law, are not
acceptable
6. Other Sources
 Principles of justice and equity, Decisions of
foreign tribunals, Opinions of text writers
And, Religion
Only supplementary, used in absences of all
other sources, not binding on courts
Rule in case of doubt in interpretation or
application of laws
 The end goal of law is justice.
 Courts must resolve in favor of decisions that
will serve justice, or deny that because of strict
interpretation of the laws.
 Courts must choose the former.
Organs of Social Control
 Law can be viewed as social control
 There are many organs of social control
 Legal institutions
 Churches
 Corporations
 Political parties
 Trade associations
 Schools
 Labor unions
 Professional organizations
 Social clubs
 Families
Law compared with other means of Social Control
1. Laws are made and administered only by
institutions authorized to act in behalf of its
entire citizenry (i.e churches)
2. Only legal institutions within the society can
make laws, rules, etc. for the entire citizenry
3. People in an organization who leave the
organization are thereby free from its laws.
People of a state, cannot do that unless they leave
the teritorry of the state.
4. Sanctions through law are more varied and
complex.
 Expulsion can be used by churches
 Job termination for the companies
 Sanction available to the law:
 Imprisonment
Terms and Meanings
 Deportation
 Denial or revocation of license
 Property confiscation
 Imposition of civil liability
 Dissolution of organizations
 Denial of privileges
 Remedial sanction for indemnificationof
person who suffered from a violation of law
 Penal sanctions for violators of law
5. Before the law “operates” against and individual,
there are steps to be followed.
 These are the hearings in courts
 “due process”
Organizations of Courts
1. Regular Courts
 Supreme Court is the highest
 Other courts are:
 Court of Appeals
 Regional Trial Courts in diff
provinces and cities
 Metropolitan Trial Courts in
metropolitan areas
 Municipal Trial Courts in cities not
forming part of a metropolitan area,
and municipalities
 Municipal Circuit Trial Courts in
areas defined as municipal circuits,
jurisdiction over two or more cities
or municipalities
 Courts of General or Superior Jurisdiction
include SC, CoA, and RTC
2. Special Courts
 Sandiganbayan, Anti-graft court
 Court of Tax Appeals, tax court
3. Quasi-Judicial agencies
 Administrative bodies under exec branch
performing quasi-judicial functions
 Ex. National Labor Relations Commission,
SEC, LTFRB, Insurance Commission, and
the independent Constitutional Commissions
(Civil Service Commission, Commission on
Elections, and Commission on Audit)
 The mentioned do not form part of the
integrated judicial system.
 Quasi-judicial means it involves settlement
or adjudication of disputes
The Law on Obligations and Contracts (Notes)
Classifications of Law
1. As to its purpose
a. Substantive laws
 Portion of body of law creating,
defining, and regulating rights and
duties which may either be public or
private
 Law on obligations and contracts
b. Adjective Law
 Prescribes the manner or
procedure by which rights may be
enforced or their violations
redressed
 Remedial law or procedural law
 Adjective law is needed so
substantive law may be
administered
 In PH, Rules of Court
2. As to its subject matter
a. Public law
 Relates to the relationship of the
state to the people
 Ex. Criminal law, which defines
crimes and provides punishment
 Ex. International law, governs
relations between states
 Ex. Constitutional law, governs
between state and its people, states
fundamental powers of gov
 Ex. Administrative law, governs
methods how functions of
authority are to be performed
 Ex. Criminal procedure, governs
methods of trial and punishment in
crim cases
b. Private law
 Governs relations between
individuals for purely private ends
 Ex. Law on Obligations and
Contracts
 State is involved but only as an
arbiter not as a party, enforces law
 Ex. Civil Law, provides for the
means by which private rights
may be enforced.
Law on Obligatiions and Contracts defined
 “the body of rules which deals with the nature
and sources of obligations and the right and
duties arising from agreements and the
particular contracts”
Terms and Meanings
Civil Code of the Philippines
 Law of ObliCon is found in Republic Act No.
386
 Civil Law, we refer to laws found in our Civil
Code
 Civil Code of the Philippines is based on the
Civil Code of Spain which took effect on Dec.
7, 1889 (Mijares v. Neri, 3 Phil. 196.)
 Approved as R.A. Act No. 386 on June 18,
1949 and took effect on August 30, 1950 (Lara
v. Del Rosario, 94 Phil. 778)
 Divided into 4 books
Civil Code Provisions on Obligations and Contracts
 Book IV of the Civil Code
 General provisions on Obligations are in Title
I, Articles 1156-1304
 General provisions on Contracts are in Title II,
Articles 1305-1422
 General rules of law apply to particular kinds
of contracts aside from the special provisions
governing particular contracts
 Book IV also contain new provisions dealing
with natural obligations (Title III, Articles
1423-1430)
Conclusive Presumption of Knowledge of Law
 Ignorance of law excuses no one.
 Presumption of everyone knows the law
 Reasons for this presumption
a. If laws are not binding before they are
known, life is impossible because most
laws are unknown to many.
b. Impossibility to prove the contrary when a
person claims ignorance of the law
c. It is absurd to absolve those who do not
know and increase obligations of those
who know
d. Our reason indicates what we have to do
because of our conscience, and there are
lawyers who should be consulted
e. If people could plead their ignorance, they
would evade the law and justice would be
defeated.
The Law on Obligations and Contracts (Notes)
Title I
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)
Obligation
- From Latin word obligatio, which means
tying or binding
- 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 Defenition of Obligation
- Stresses the duty under the law of the debtor
or obligor when it speaks of obligation as a
juridical necessity.
Meaning of Juridical Necessity
- Obligations, in case of non compliance, the
courts of justice maey be called upon by
aggrieved party to enforcement its
fulfillment, in default thereof, the economic
value that it represents.
- Damages- represents the sum of money
given as compensation for injury or harm
suffered by obligee for violation of his
rights.
- The debtor MUST COMPLY with his
obligation WHETHER HE LIKES IT OR
NOT.
Nature of obligations under the Civil Code.
- Obligations which give the obligee a right
under the law to enforce their performance
in courts of justice are know as civil
obligations.
- Obligations which do not grant a right of
action to enforce their performance are
known as natural obligations, although in
case of voluntary fulfillment by the debtor,
the latter, may not recover what has been
delivered or rendered by reason thereof.
Essential Requisites of an Obligation
1. Passive Subject
- Debtor or obligor
- Person who is bound to fulfillment of
obligations; he who has a duty
Terms and Meanings
2. Active Subject
- Creditor or obligee
- Person entitled to demand the fulfillment of
obligation; He who whas a right
3. Object or Prestation
- the conduct required to be observed by the
debtor
- may consist of giving, doing, or not doing
- In bilateral obligations, both parties are
debtors and creditors.
4. Juridical or Legal Tie
- That which binds or connects parties to the
obligation.
Ex.
Under a contract, Collector A was bound to deliver all
50 sets of figurines to Collector B on the agreed price
of, PHP 50,000 per set.
 Collector A is the passive subject since he
has the duty to deliver the figurines.
 Collector B is the active subject since he has
the right, under the contract, to demand the
delivery of the 50 sets of figurines.
 The object or prestation is to deliver the 50
sets of figurines to Collector B.
 The agreement is the juridical or legal tie.
Suppose Collector A has already delivered the sets.
It is time for Collector B to pay for the 50 sets of
figurines.
 Collector B now becomes the passive
subject, who has a duty to pay for the
figurines.
 Collector A is now the active subject.
Form of Obligations
- Refers to the manner in which and
obligation is manifested or incurred.
- (1) As a general rule, obligations arising
from contracts is not required to take up any
form.
- (2) Obligations from other sources do not
have any form at all.
Obligation, right, and wrong distinguised
(1) Obligation is the act or performace which the
law will enforce
(2) Right is the power which a person has under
the law, to demand from another any
prestation.
The Law on Obligations and Contracts (Notes)
(3) Wrong (cause of action) is and act or omission
of one party in violation of the legal right or
rights of another.
- The term injury is also used
Essential elements of a wrong:
(a) Legal right in favor of a person (creditor)
(b) A correlative legal obligation to respect
or not to violate said right (debtor)
(c) An act or omission by the latter in
violation of said right resulting to injury
or damage to the former
Ex.
In the preceeding example, Collector B has the
legal right to have the sets of figurines
delivered
to him. On the other hand, Collector A also has
the legal right to collect payment once the
products have been delivered.
If there is a failure in either party to fulfill the
prestation with the agreed upon terms and
conditions, their rights have been violated by
the other. thus, giving the violated a couse of
action for the enforcement of his right.
Kinds of Obligation according to Subject Matter
1. Real obligation
- Obligation to give
- The subject matter is a thing which
the obligor must deliver
2. Personal Obligation
- Obligation to do or not to do
- an act to be done or not done
a. Postive personal obligation
- To do or to render service
b. Negative personal obligation
- To not do
- Includes, not to give
ART. 1157. Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi delicts. (1089a)
Source of Obligations
1. Law
- When they are imposed by law itself
- Ex. To pay taxes, to give support to
family
Terms and Meanings
2. Contracts
- From stipulation of parties
- Ex. To repay a loan by virtue of
agreement
3. Quasi-contracts
- When they arise from larful, voluntary
and unilateral acts which are enforceable
to the end that one shall be unjustly
enriched or benefited at the expense of
another
- Ex. Obligation to return Iphone 13 left at
a room which belongs to another person.
4. Crimes or acts or omissions punished by law
(Delict)
- From civil liability which is the
consequence of a criminal offense
- Ex. Obligation of a thief to return the car
stolen by him
5. Quasi-delicts or torts
- From damage caused to another through
an act or ommission,there being fault or
negligence, but no contractual exicsts
between the parties.
- Ex. The obligation of a pet owner to pay
for the damage which it may have caused
Sources Classified
There are 5 sources of obligations. They may be
classified as follows:
1. Those emanating from law
2. Those emanating from private acts
2.1 Those arising from licit acts
- In the case for contracts and quasi-
contracts
2.2 Those arising from illicit acts
- Punishable for delicts or crimes
- Not punishable for quasi-delicts or
torts
Actually there are only two sources: law and contracts
because delicts, quasi-contracts, and quasi-delicts are
really imposed by law.
The Law on Obligations and Contracts (Notes)
ART 1158. Obligations derived from law are not
presumed. Only those expressly determined in this
Code or in special laws are demandable, and shalll 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. (1090)
Legal Obligations
- Legal obligations, are not presumed.
- Reason: they are considered a burden to the
obligor.
- To be demandable, it must be clear in the law.
(1) While in the performace of his duties, an
employee got into an altercation which is
caused by strangers. This led to the employee
hiring a lawyer to recover the damages caused
by that incident. Because the incident
happened in the workplace, the employee
wants the company to provide legal assistance.
However, no law requires this so the employee
can’t recover the amount he paid to the lawyer.
If the law says otherwise, then the company is
obligated to grant the legal assistance
employee needs.
- The special laws mentioned in Art. 1158 refer
to all other laws not contained in the civil
code.
ART. 1159. Obligations arising from contracts have
the force of law between the contracting parties and
should be compelled with in good faith (1091a)
Contractual Obligations
A contract is a meeting of minds between two or more
persons wherbey one binds himself, with respect, to
the other, to five something or to render some service.
(1035a)
(1) Binding Force
- Obligations arising from contracts have the
same binding effect of obligations imposed by
laws.
- Should be valid
- Invalid if against the law.
(2) Requirement of a valid contract
- Valid, if contract is not contrary to law, morals,
good customs, public order, and public policy.
(3) Breach of contract
- Takes place when a party fails or refuses to
comply, without legal reason or justification,
Terms and Meanings
with his obligation under the contract as
promised.
Compliance in good faith
This means compliance in accordance with the
stipulations of the contract or agreement.
Sincerity and honesty must be observed.
Non-compliance with legitimate obligations after
receiving benefits of a contract would constitute unjust
enrichement.
A party can’t breach a contract with impunity, meaning
without punishment or consequences.
The oppressed side would be given remedies to protect
his rights.
ART. 1160. Obligations derived from quasi-contracts
shall be subject to the provisions of Chapter 1, Title
XVII of this Book. (n)
Quasi-contractual obligations
Quasi-contracts are not properly contracts at all.
In contract, there is a meeting of minds or consent
between the parties, and must have deliberately entered
into a formal agreement.
In quasi-contracts, there is no consent but the same is
applied by fiction of law.
The parties are considered in a contract, but not in
actuality. To prevent injustice or unjust enrichment of
the other person.
Kinds of quasi-contracts
(1) Negotiorum gestio
- Voluntary management of the property or
affairs of another without the knowledge or
consent of the latter
(2) Solutio indebiti
- Juridical relation which is created when
something is received when there is no right to
demand it and it was unduly delivere through
mistake.
- Requisites:
 There is no right to receive thing
delivered.
 The thing was delivered through
mistake.
The Law on Obligations and Contracts (Notes)
(3) Other examples
- Provided in Art. 2164-2175 of the civil code.
- Of infinite variety
- Recovery may be allowed on basis of quasi-
contract, when recovery cannot be held on a
true contract.
Art. 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, Prelimenary Title, on Human
Relations, and of Title XVIII of this Book, regulating
damages.
Civil liability arising form crimes or delicts
(1) Civil liability in addition to criminal liability
- Crime not only causes moral evil but also,
material damage.
- A person criminally liable is also civilly liable
for damages suffered by agrieved party
(2) Criminal liabality without civil liability
- Crimes with no material damage has no civil
liability
(3) Civil liability without criminal liability
- A person not criminally liable may still be
liable civilly (Art. 29;Sec. 2 [c], Rule 111,
Rules of court)
Scope of Civil Liability
Extent of civil liability for damages arising from
crimes is governed by the Revised Penal Code and the
Civil Code. Civil liability includes:
1. Restitution (restoration of something lost or
stolen)
2. Reparation for the damages caused
3. Indemnification (compensation for harm and
loss) for consequential damage
Art. 1162. Obligations derived from quasi-delicts shall
be governed by the provisions of Book 2, Title XVII of
this Book, and by special laws.
Obligations arising from quasi-delicts.
A quasi-delict is an act or omission by a person
(tortfeasor) which causes damage to another in his
person, propery, or rights giving rise to an obligation to
pay for the damage done, there being fault or
negligence but there is no pre-existing contractual
relation between the parties. (Art 2176)
Terms and Meanings
Requisites of a Quasi-delict
Before being liable for a quasi-delict, there are
requisites:
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 or connection
of cause and effect between the act ot omission
and the damage
5. There is no pre-existing contractual relation
between the parties.
Crime distinguised from quasi delict
1. In crime, there is malicious intent or criminal
negligence. In quasi-delict, there is only
negligence
2. Crime, the purpose is punishment. Quasi-
delict, indemnification of offended
3. Crime affects public interest. Quasi-delict
concerns private interest
4. Crime, there are two liabilities criminal and
civil. Quasi-delict, only civil liability
5. Criminial liability can not be compromised or
settled by the parties themselve, while the
liability for quasi-delict can be compromised
as any other civil liability.
6. In crime, the guilt of the accused must be
proved beyond reasonable doubt, while in
quasi delict, the fault or negligence of the
defendant need only be proved by
preponderance (i.e. superior or greater weight)
of evidence.