Welcome to

ACC 108
The Law on Obligations and Contracts
 Definition of Law

• A rule of conduct, just, obligatory, promulgated by

legitimate authority, and of common observance and
benefit.
 Definition of Law
• Characteristics:
• Rule of Conduct – tells you what to do/not to do; takes
cognizance of external acts only. (Ex. Pay taxes, pay your debts;
”No Left Turn”)
• Obligatory (imposing a duty to obey; non-compliance have
consequences/sanctions)
• Promulgated by legitimate authority (Who makes laws?)
• It is of common observance and benefit (No person shall be
deprived of life, liberty, or property without due process of law, nor shall
any person be denied the equal protection of the laws. – Sec. 1, Article
III of the Constitution)
 Philippine Government
The Philippines is a republic with a presidential form of government where
power is divided among its three branches:
1. Executive - carries out and enforces laws. It includes the President,
Vice-President, the Cabinet, executive departments, agencies, boards,
commissions, and committees.
2. Legislative – authorized to make laws, alter, and repeal them through
the power vested in the Philippine Congress. This institution is divided
into the Senate and the House of Representatives.
3. Judicial – interprets the meaning of laws, applies laws to individual
cases, and decides if laws violate the Constitution. Judicial power is
vested in one Supreme Court and lower courts as may be established by
law.
 Sources of Law
• Constitution
• Legislation (Republic Acts)
• Administrative or Executive Orders, regulations, and rulings
• Decisions of the Supreme Court or jurisprudence
• Custom (habits and practices with long and uninterrupted usage;
acknowledged by society as binding rules of conduct;)
• Others: ex. Principles of justice and equity, decisions of foreign
tribunals, opinions of text writers, and religion. (Resorted to by the
courts in the absence of all the other sources)
 Sources of Law - Constitution

• Bill of Rights (right to life, liberty, property; right to

privacy; freedom of speech; freedom of religion;
freedom of information, etc.)
• Citizenship, suffrage (election)
• Government structure; powers of government;
• Social justice and human rights
 Sources of Law - Legislation

• Civil code of the Philippines (includes obligations and

contracts, partnership law, sales and credit transactions,
Family Code, succession, property, special contracts)
• Corporation Code, Negotiable Instruments, Commercial
Laws, Tax Laws (NIRC/TRAIN)
• Criminal laws (ex. Revised Penal Code, Anti VAWC Law,
Anti-Child Abuse Law)
• Labor Code
 Sources of Law – Legislation
(Criminal Law)
Art. 246. Parricide. — Any person who shall kill his father, mother, or
child, whether legitimate or illegitimate, or any of his ascendants, or
descendants, or his spouse, shall be guilty of parricide and shall be
punished by the penalty of reclusion perpetua to death.

Art. 308. Who are liable for theft. — Theft is committed by any person
who, with intent to gain but without violence against or intimidation of
persons nor force upon things, shall take personal property of another
without the latter's consent.
Theft is likewise committed by:
1. Any person who, having found lost property, shall fail to deliver the
same to the local authorities or to its owner; xxx
 Sources of Law –
Executive/Administrative Orders
• Implementing Rules and Regulations (IRRs) of
various legislative enactments;
• BIR Regulations;
• DOJ Circulars;
• Securities and Exchange Commission Opinions;
• CHED Memos.
 Illustration - Jurisprudence

Family Code of the Philippines (Law)

• Art. 36. A marriage contracted by any party who, at
the time of the celebration, was psychologically
incapacitated to comply with the essential marital
obligations of marriage, shall likewise be void even if
such incapacity becomes manifest only after its
solemnization.
How is this law applied?
 Jurisprudence:
Chi Ming Choi vs Court of Appeals &
Gina Lao Choi
Love is useless unless it is shared with another. Indeed,
no man is an island, the cruelest act of a partner in
marriage is to say "I could not have cared less." This is
so because an ungiven self is an unfulfilled self.
In the natural order, it is sexual intimacy which brings
spouses wholeness and oneness. Sexual intimacy is a
gift and a participation in the mystery of creation. It is a
function which enlivens the hope of procreation and
ensures the continuation of family relations.
 Jurisprudence:
People of the Philippines vs. Edgar Jumawan

Husbands do not have property rights over their wives'

bodies. Sexual intercourse, albeit within the realm of
marriage, if not consensual, is rape.
 Classifications of Law

• Substantive Law – that portion of the body of law

creating, defining, and regulating rights and duties,
which may be either public or private in nature. (Ex.
Law on obligations and contracts, partnerships, negotiable
instruments, criminal laws, etc.)
 Classifications of Law

• Adjective Law – law prescribing the manner or procedure

by which rights may be enforced or violations redressed.
(Ex. Rules of Court)
• Rules of Civil Procedure
• Filing of Complaint - Answer - Trial on the Merits - Decision -
Execution of Decision
• Rules of Criminal Procedure
• Filing of Complaint at Prosecutor’s Office - Preliminary
Investigation - Filing of Criminal Case in Court - Arrest of the
Accused - Trial – Judgment (Conviction/Acquittal) - Service of
Sentence (If convicted)
 Conclusive Presumption of
Knowledge of Law
Art. 3, Civil Code – Ignorance of the law excuses no one
from compliance therewith.

Art. 2, Civil Code - Laws shall take effect after fifteen

days following the completion of their publication in
the Official Gazette, or in a newspaper of general
circulation in the Philippines, unless it is otherwise
provided.
 Acc 108 – Law on Obligations and
Contracts
The Law on Obligations is a study of the rules governing the
nature and sources of obligations. It deals with the study of the
basic rights and duties of a debtor and a creditor in the
performance of their respective obligation/s arising from law,
contracts, quasi-contracts, delicts and quasi-delicts. It is likewise a
study of the different kinds of obligations, their nature and effects.
On the other hand, the Law on Contracts is a study of the
different kinds of contracts, their characteristics, the rights and
liabilities of the parties thereto as well as the remedies of parties to
an agreement in cases of breach and/or violations of its terms and
conditions.
 ACC 108 – Law on Obligations and
Contracts
This course is the first in the series of courses that
cover the topic on regulatory framework governing
business transactions and business
organizations/associations, and of business laws
including their legal implications. The courses tackle
pertinent legal provisions, general principles, concepts,
and underlying philosophy of the laws applicable to
commerce and business.
 Next Meeting

• Study Articles 1156 to 1162

• 1/2 sheet – Answer Study Guide Questions for
Chapter 1:
I. Definitions - Nos. 1 to 5
II. Discussions - Nos. 1 to 4
 Obligation
• Juridical Necessity – in case of non-compliance, the
courts of justice may be called upon to enforce
fulfillment.
• To give (ex. to give a car; to pay in cash)
• Real Obligation
• To do (ex. teach accounting; paint a house; defend a client)
• Personal Obligation
• Not to do (ex. not to block a right of way; not to pollute the
environment)
• Negative personal obligation
 Elements of an Obligation

• Active subject (obligee/creditor) – possessor of a

right; person in whose favor the obligation is created;
• Passive Subject (obligor/debtor) – Who has the duty
of giving, doing, or not doint;
• Object or prestation – subject matter of the
obligation;
• Efficient cause (the vinculum or juridical tie) – the
reason why the obligation exists;
 Essential Requisites of
Obligations
Examples of Obligation to Obligation to Pay Obligation to pay
Obligations Teach Law Salary for Overtime
Passive Subject Atty. Bolando HNU Employer
(Debtor/Obligor)
Active Subject HNU Atty. Bolando Employee
(Creditor/Obligee)
Object or Teach Law 1 Pay salary every Pay a premium of
Prestation during assigned NLT the 15th and at least 25% of
schedule 30th of every daily wage for
month overtime work
Juridical/ Employment Employment Law (Labor Code
Legal Tie contract contract of the Philippines)
(Efficient Cause)
 Obligation, Right, Wrong

• Alladdin bought a piece of banana cue from Jasmine

worth P10.00
• Alladdin has an obligation to pay Jasmine the price of
banana cue amounting to P10.00;
• Jasmine has the right to collect from Alladdin P10.00;
• If Alladdin does not pay, there is a wrong committed
against Jasmine. Jasmine now has a cause of action for
the enforcement of her right. she can go to court to sue
Alladdin.
 Obligations Derived from Law
• Night shift differential/overtime pay (Labor Laws)
• Comply with minimum wage (Labor Laws)
• Pay taxes on time (NIRC, TRAIN)
• “No Parking, No Left Turn, Do Not Enter” (Local
ordinances)
• Pay damages in case of breach of contract (Civil Code;
Law on Obligations and Contracts)
• Share in the profits/losses in a partnership (Civil Code;
Partnership law)
 Obligations derived from Law
(Don’t presume unless otherwise stated.)

• Labor Code expressly provides:

• Normal hours of work – 8hrs. If excess, pay overtime.
• Weekly rest periods
• Holiday pay
• Maternity leave benefits
• Employees cannot demand from employers what is not
expressly provided in the Labor Code or the employment
contract. (Ex. Education expenses of children; free
transportation)
 Art. 1159
Contractual Obligations
• Obligations which arise from the stipulations or agreements of
parties;
• Have the force of law between contracting parties;
• This does not mean that the law is inferior to contracts. In order to be
valid, contracts must not be contrary to law, morals, good customs,
public order or public policy.
• The article means that neither party may unilaterally escape his
obligation under the contract, unless the other party consented,
or unless authorized by law.
• Examples of contracts: Sale, donation, lease, service,
employment.
 Quasi-Contracts

• Juridical relation resulting from lawful, voluntary and

unilateral acts by virtue of which the parties are
bound to each other to the end that no one shall be
unjustly enriched at the expense of others.
• Negotiorum Gestio – voluntary management of the
property or affairs of another without the knowledge or
consent of the latter.
• Solutio Indebiti – judicial relation which is created when
something is received when there is no right to demand
and it was unduly delivered through mistake.
 Art. 1161
Civil obligations arising from criminal offenses
(Delicts)
• Naruto stole the car of Sasuke. If Naruto is
convicted, the Court will order Naruto to: return the
car stolen or its value if the car was already
destroyed; to pay damages caused to Sasuke.
• Civil indemnity for death caused by homicide,
murder – P75,000.00; exemplary damages –
P75,000.00; moral damages – P75,000.00.
 Article 1162 (Quasi-Delicts)
“Shunga Article”
• There is an act or omission
• There must be fault or negligence
• There must be damage caused
• There is a direct relation of cause and effect between
the act or omission and damage
• There is no pre-existing contractual relation
 Article 1163

Generic Specific
A watch This watch I am wearing
A red car A car with plate number ABC-1234
A house A house located at corner JA Clarin
and Upper Calceta Streets
A sack of rice This sack of rice
A police dog The police dog named Kitty
P10,000 cash 100 pcs. of P100 bills with serial
numbers FB799101 to FB799200
 Article 1163

• Diligence of a good father of a family

• Ordinary care or that diligence which an average
(reasonably prudent) person exercises over his property;
• Required by the nature of the obligation and corresponds
with the circumstances of person, time and place.
• Another standard of care (depends upon the law or
stipulation.)
• Extraordinary diligence: applies to transportation contracts;
banking transactions
 Article 1164
• Debtor has the obligation to deliver/Creditor has the right to
claim:
• The principal thing
• The fruits
• Natural fruits
• Industrial fruits
• Civil fruits
• When? From the time the obligation to deliver arises.
• General rule: perfection of contract/agreement
• Exception: if with suspensive condition/period, upon
fulfillment/arrival of the condition/period
 Article 1164
Who has the right over the eggs?
• On June 1, Donald obliged himself to deliver a specific duck.
While still in the possession of Donald, the duck laid 10 eggs.
• The duck was supposed to be delivered on June 30. On June 20,
the duck laid 10 eggs.
• The duck was supposed to be delivered if Mike passes Acc 108 this
semester. Before the end of the semester, the duck laid 10 eggs.
• On June 1, Donald sold a specific duck for P1,000 to Mike, who
fully paid the price. The duck is to be delivered on June 30. On
June 20, the duck laid 10 eggs.
• Would your answer be the same if Mike has not paid the P1,000 price?
 Personal vs Real Right

Personal Right Real Right

Definite active and passive subject Only a definite active subject,
without a definite passive subject
Binding or enforceable only against Directed against the whole world
a particular person (Equivalent to ownership)
Acquired when obligation to deliver Acquired upon delivery.
arises (ex. perfection of contract)
Rule: Delivery transfers ownership
 Personal vs Real Right
• On June 1, Philip obliged himself to deliver a dog named Kitty
to Marcy.
• Before June 1, Marcy has no personal or real right over Kitty.
• After June 1, but before delivery, Marcy is not yet the owner of Kitty.
However, Marcy has a personal right against Philip to compel him to
deliver the dog.
• If after June 1, Philip sold and delivered Kitty to Trevor (3rd person),
Trevor acquires ownership. Marcy can only sue for damages against
Philip, but cannot recover ownership from Trevor.
• Marcy acquires ownership over Kitty only upon delivery. Thereafter,
Marcy acquires a real right over Kitty. She can now defend her
ownership against anybody.
 Personal/Real Right vs. Obligation

Personal Real
Right Right enforceable Right enforceable
against a specific against the whole
person world
Obligation Obligation to do/not Obligation to deliver a
to do thing
 Article 1165

• Specific real obligation

• Demand performance or fulfillment plus damages; or
• Demand rescission or cancellation plus damages; or
• Demand damages only
• Generic real obligation
• Demand performance or fulfillment plus damages; or
• Have the obligation complied by a third person at the
debtor’s expense, plus damages.
 Article 1165
Loss by fortuitous event
• Lebron was obliged to deliver a specific horse to
Kobe. Before the horse could be delivered, it was
struck by lightning and died.
• General rule: Loss by fortuitous event extinguishes an
obligation.
• Exceptions:
• When Lebron is already in delay in delivering the horse.
• When Lebron also promised to deliver the same horse to
Kyrie.
 Presentation File

• http://bit.ly/acc108oblicon
 Article 1167

• Positive Personal Obligation

• Demand specific performance or fulfillment;
• If debtor refuses, have the obligation performed by
another at the debtor’s expense plus damages;
• If personal considerations are involved, demand for
damages only.
 Article 1169
• General Rule: No demand, no delay.
• Exceptions:
• Obligation or law expressly so declares.
• Agreement that no demand will be necessary;
• Deadline set by law: ex. payment of taxes
• Time is of the essence (wedding dress)
• Demand would be useless (Ex. loss of the thing at the fault of the debtor;
assumption of loss due to fortuitous event)
• Fulfillment of the other party in reciprocal obligations. (Ex. In a contract of
sale, when the seller delivers the object of the sale/buyer pays the purchase price,
assuming obligations are immediately demandable. If with suspensive period, demand
may be necessary. )
 Article 1170

• Fraud (deceit or dolo)

• Incidental fraud (dolo incidente) – fraud in preforming a
contract; results in liability for damages.
• Instead of delivering Johnny Walker Blue Label, the obligor
delivered Tanduay rum.
• Causal fraud (dolo causante) – fraud in obtaining consent;
aside from suing for damages, the aggrieved party may cause
the annulment of the contract because of defective consent.
• Thinking that the bottles of Johnny Walker Blue Label were
genuine, the buyer entered into a contract of sale. The bottles in
reality contained the much cheaper Tanduay rum.
 Article 1172
• Negligence (Culpa)
• Culpa contractual – negligence in the performance of an
obligation already existing because of a contract;
• Delivery of broken bottles of first class bahalina;
• Culpa aquiliana – negligence is direct, substantive, and
independent; no pre-existing obligation
• While playing baseball inside a museum of ancient chinaware,
some artifacts were hit by the ball and got destroyed.
• Culpa criminal – Negligence with criminal intent.
• Reckless imprudence resulting to homicide, or damage to
property.
 Kinds of Damages
• Actual Damages – actual losses, including unrealized profit;
• Liquidated Damages– predetermined beforehand by
agreement;
• Temperate Damages – when the exact amount of damages
cannot be determined;
• Moral Damages - for mental and physical anguish;
• Exemplary Damages – Corrective or to set an example;
• Nominal Damages – To vindicate a right; when no other kind
of damages may be recovered.