You've reached the end of your free preview.
Want to read all 178 pages?
Unformatted text preview: CONTRACTS
TITLE I. — OBLIGATIONS
Art. 1156: Elements of an Obligation (derived from the Latin “obligare”— to bind)
“An obligation is a juridical relation whereby a person (called the creditor) may demand from another (called the debtor) the observance of a determinative conduct (the giving,
doing, or not doing), and in case of breach, may demand satisfaction from the assets of the latter.”
(a) Oblige or creditor (active subject): the possessor of a right; he in whose favor the obligation is constituted.
(b) Obligor or debtor (passive subject): has the duty of giving, doing or not doing
(c) Object or prestation: the subject matter of the obligation
(d) Efficient cause (vinculum or juridical tie): reason why the obligation exists.
NOTE: In a few cases, FORM — or the manner in which the obligation is manifested — is also important.)
Concept of Prestation (BAR QUESTION)
A prestation is an obligation; more specifically, it is the subject matter of an obligation — and may consist of giving a thing, doing or not doing a certain act. The law speaks of an
obligation as a juridical necessity to comply with a prestation. There is a “juridical necessity,” for non-compliance can result in juridical or legal sanction.
Mataas na Lupa Tenants’ Association v. Carlos Dimayuga and Juliana Diego Vda. de Gabriel L-32049, Jun. 25, 1984
Under PD 1517, tenants-lessees are given pre-emptive or preferential rights (right of first refusal) if they have occupied the land or lot for over ten (10) years. The owner has this
obligation to grant said preference. Thus, he cannot sell to a third person without first offering the same to the lessee. If the latter renounces
said right, the waiver must be in a public instrument.
Kinds of Obligations
There are various basis for the classification of obligations. Given hereunder are few of them:
(a) From the viewpoint of “sanction” —
1) civil obligation (or perfect obligation) (1156)
2) natural obligation — the duty not to recover what has voluntarily been paid although payment was no longer required
3) moral obligation (or imperfect obligation) - The sanction here is conscience or morality, or the law of the church. if may connection the money.
[NOTE: If a Catholic promises to hear mass for 10 consecutive Sundays in order to receive P1 million this obligation becomes a civil one.]
(d) From the viewpoint of persons obliged —
1) unilateral — where only one of the parties is bound
2) bilateral — where both parties are bound (Example: In a contract of sale, the buyer is obliged to pay, while
the seller is obliged to deliver.).
Criticism of the Definition by the Code Some Cases
Pelayo v. Lauron 12 Phil. 453 (BAR)
FACTS: A wife was about to deliver a child. Her parent’s in law called the doctor. Issue: Who should pay the doctor: the husband or the parents?
HELD: The husband should pay, even if he was not the one who called the doctor. It is his duty to support the wife, and support includes medical attendance. The duty to pay is
an obligation to give, and is imposed by the law.
Poss v. Gottlieb 193 N.Y.S. 418
FACTS: There were two partners engaged in buying and reselling land. After they had bought a piece of land, one asked the other to sell the latter’s share to him for the price
invested by the latter. The first partner, who now completely owned the land, resold it at a huge profit to a third person. The second partner would not have sold his share had he
known that a big offer had been made by such third person. The fir st partner alleged that he should not be blamed on the ground that he, after all did not make any false
concealment to his partner that is, he did not tell the latter that nobody wanted the land. Issue: May the second partner successfully bring an action for damages against the first
HELD: Yes, because the first partner is liable. He had the duty not only to make any false concealment but also to abstain from all kinds of concealment insofar as the partnership
was concerned. This is an obligation to do (to relay all pertinent information).
Joaquin P. Nemenzo v. Bernabe Sabillano L-20977, Sept. 7, 1968
FACTS: A municipal mayor, upon assumption of office, arbitrarily dismissed a corporal (a civil service eligible) in the police force of the municipality, without due investigation.
Issue: Is the mayor personally liable?
HELD: Yes, because his act of dismissing the corporal without previous administrative investigation and without justifiable cause is clearly an injury to the corporal’s rights. The
mayor cannot hide under the mantle of his official capacity and pass the liability to the municipality of which he was mayor. There are altogether too many cases of this nature,
wherein local elective officials, upon assumption of office, wield their new-found power indiscriminately by replacing employees with their own protegés, regardless of the laws
and regulations governing the civil service. Victory at the polls should not be taken as authority for the commission of such illegal acts.
Leonides Pengson v. Court of Appeals GR L-65622, Jun. 29, 1984
If the owner of certain shares should pledge the same to his creditor, and later said owner sells his shares to a third person, the creditor cannot be compelled to surrender the
share certificates to the buyer, and this refusal will not invalidate the sale.
Phil. National Bank v. Court of Appeals 74 SCAD 786 (1996)
A local bank, while acting as local correspondent bank, does not have the right to intercept funds being coursed thru it by its foreign counterpart for transmittal and deposit to
the account of an individual with another local bank, and thereafter apply the said funds to certain obligations owed to it by the said individual.
Heirs of Luis Bacus, et al. v. CA & Spouses Faustino and Victoriana Duray GR 127695, Dec. 3, 2001
FACTS: When private respondents opted to buy the property, their obligation was to advise petitioners of their decision and their readiness to pay the price. Issue: At this point in
time, were respondents already obliged to make actual payment?
HELD: No. Only upon petitioners’ actual execution and delivery of the deed of sale were they required to pay. The latter was contingent upon the former.
Art. 1157: Sources of Obligations (LQAQ)
- law are exclusive where is the contract does belong to the sources, no obligation exist.
(1) Law; - (obligations ex lege) — like the duty to pay taxes and to support one’s family. (2) Contracts; (obligations ex contractu) — like the duty to repay a loan by virtue of an agreement.
(3) Quasi-contracts; - (obligations ex quasi-contractu) — like the duty to refund an “over change” of money because of the quasi-contract of solution indebiti or “undue
(4) Acts or omissions punished by law; - Crimes or Acts or Omissions Punished by Law (obligations ex malefi cio or ex delicto) — like the duty to return a stolen carabao.
(5) Quasi-delicts or TORTS — (obligation ex quasi-delicto or ex quasi-malefi cio) — like the duty to repair damage due to negligence. Offers of Reward in Newspaper or Public Contest
Although no express provision of law regulates said contests, it is understood that once contestants accept the offer by submitting entries, there is a sort of implied contract that
prizes would eventually be awarded. It is understood that the rules of the contest form part of the contractual stipulations.
Art. 1158: Obligations Ex Lege (Law)
1) the duty to support. (Art. 291, Civil Code).
2) the duty to pay taxes. (National Internal Revenue Code).
Canonizado v. Benitez L-49315, L-60966, Feb. 20, 1984
The obligation of a married couple to support each other, under the law, generally subsists all throughout the marriage. If support which had been suspended is again invoked,
a simple motion in the same proceeding will suffice. There is no necessity to fi le a separate action. (Note that in a very real sense, a final judgment for support can never be
really final as the amount given may increase, decrease, or may even cease, at least, temporarily.)
No agreement is necessary before obligation ex lege can arise, but of course the law steps in only because of human actuations. For example, one who gambles and wins can be
compelled by the loser to return the winnings. (Art. 2014). The action by the loser is called indebitatus assumpsit. (Leung Ben v. O’Brien, 38 Phil. 182).
Vda. de Recinto v. Inciong 77 SCRA 196
A person who buys another’s property unaware of the right thereto of some other party is to be considered a buyer in good faith. While he is liable, his is the liability of a person
in good faith.
Serrano v. Central Bank L-30511, Feb. 14, 1980
The Central Bank (now Bangko Sentral) is NOT OBLIGED to pay the deposit of a depositor made in an insolvent bank. (NOTE: The Philippine Deposit Insurance Corporation — PDIC
— pays up to P100,000.00 per depositor).
Santos v. Court of Appeals L-60210, Mar. 27, 1984
The right of pre-emption (right of first refusal) or redemption under PD 1517 refers only to urban land leased to a person who constructs his house thereon and who has leased
the land for more than ten (10) years. The law does not apply if both the land and the house belong to the lessor. In the latter case, the lessor has no legal obligation to allow
preemption or redemption.
Gonzales v. Philippine National Bank GR 33320, May 30, 1983
The PNB is not an ordinary corporation and therefore not governed by the Corporation Law but by its own charter. A stockholder of the PNB cannot, therefore, insist on the
inspection of its books. This can be done only by the Department of Supervision and Examination of the Central Bank (now Bangko
Meaning of the Article (BAR)
The law says “obligations derived from law are not presumed.” This merely means that the obligation must be clearly (expressly or impliedly) set forth in the law (the Civil Code
or Special Laws). Thus, an employer is ordinarily not required to furnish his employees with legal assistance, for no law requires this. (See De la Cruz v. Northern Theatrical
Enterprises, 50 O.G. 4225, Sept. 1954, where a movie house guard, forced to defend himself in court for killing a gate crasher, was acquitted but was not allowed to recover
attorney’s fees from the theater owner.
In case of overpayment of taxes, the National Gov’t. cannot be required to pay interest on the amount refundable in the absence of a statutory provision expressly directing or
authorizing such payment. (Collector of Int. Rev. v. Fisher, et al., L-11622 and L-11668, Jan. 28, 1961).
Hilario Jaravata v. Sandiganbayan L-56170, Jan. 31, 1984
A high school principal has no legal obligation to facilitate the release of the salary differentials of the teachers under him. So if he receives reimbursement for his “expenses” or
as “gifts,” he cannot be adjudged guilty under the Anti-Graft Law, for after all, he had no duty to do said facilitation.
Conflict Between Civil Code and Special Laws
If regarding an obligation ex lege, there is a conflict between the New Civil Code and a special law, the latter prevails unless the contrary has been expressly stipulated in the New
Civil Code. (See Art. 18).
Art. 1159: Obligations Ex-Contractu
While obligations arising from a contract have the force of law between the parties, this does not mean that the law is inferior to contracts. This is because before a contract can
be enforced, it must first be valid, and it cannot be valid if it is against the law. Moreover, the right of the parties to stipulate is limited. Hence, Art. 1306 of the Civil Code says:
“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.”
As long as Art. 1306 is complied with, the contract should be given effect, even if at the time it was entered into, no legal provision existed governing it. (Quizana v. Redugerio, 50
O.G. 2444, Jun. 1954).
“Compliance in good faith” means that we must interpret “not by the letter that killeth but by the spirit that giveth life.” (See William Golangco Construction Corp. v. PCIB, 485
SCRA 203 .)
Martin v. Martin, et al. L-12439, May 23, 1959
Where the parties to a compromise agreement signed and executed the same WILLINGLY and VOLUNTARILY, they are BOUND by its terms, even if the COURT before which it was
made had NO jurisdiction over the case. In a regime of law and order, the repudiation of an agreement validly entered into cannot be made without any justifiable reason.
(NOTE: The approval of the court here is immaterial; what is important is the mutual consent to the compromise.)
National Marketing Corp. (NAMARCO) v. Tan, et al. L-17074, Mar. 31, 1964
FACTS: On August 8, 1959, the Board of Directors of the FEDERATION of NAMARCO DISTRIBUTORS requested the President of the Philippines to allow the NAMARCO to purchase
certain commodities, for distribution to the members of the FEDERATION. Upon endorsement by the President, the NAMARCO authorized the importation. When the Federation gave NAMARCO certain cash advances for the cost of importation, NAMARCO and the Federation executed a contract, whereby the former sold to the latter the goods to be
imported. Part of the goods (when they arrived) was delivered to the Federation, but when a new Board took charge of the NAMARCO, the Board refused further delivery to
outsiders. Issue: Was NAMARCO’s action proper?
HELD: No, because it had entered into a valid contract with the Federation.
Differences Between an Obligation and a Contract
An obligation is the result of a contract (or some other source). Hence, while a contract, if valid, always results in obligations, not all obligations come from contracts. A contract
always presupposes a meeting of the minds; this is not necessarily true for all kinds of obligations.
Be it noted, however, from another viewpoint that a contract may itself be the result of an obligation. Thus, if P engages A as the former’s agent, we have the contract of agency.
As an agent, A has the obligation, say to look around for clients or buyers, as in the real estate business. As a result of such obligation, A may enter into a contract of sale with C, a
customer. The contract of sale itself results in the obligations to pay and to deliver. The obligation to deliver may result in a contract of carriage, and so on, ad infinitum.
Some Decided Cases
RENDER FREE SERVICE TO PAY FOR NON-PAYMENT OF DEPT
De los Reyes v. Alejado 16 Phil. 499
FACTS: A borrower agreed to pay his debt, and in case of non-payment, to render free service as a servant. Issue: Is the obligation valid?
HELD: The obligation to pay is, of course, valid and cannot be questioned but the undertaking to render domestic services for free is contrary to law and morals, for here, slavery
would result. (NOTE: If, however, the “free” services will be rendered in satisfaction of the debt, the stipulation can be given effect, for here the services will not really be
gratuitous. Even in this case, however, specific performance of the service will not be a proper remedy for non-compliance. Instead, an action for damages of payment of the
debt should be brought.)
JURISDICTION IS CONFERRED BY LAW:
Molina v. de la Riva 6 Phil. 12
FACTS: The parties in a case agreed to go to court in Albay, although another Court has jurisdiction.
HELD: The agreement is null and void, for jurisdiction is conferred by law, and not by the will of the parties.
Alcantara v. Alinea 8 Phil. 111
FACTS: A borrowed from B P480 and agreed that in case of non-payment on the date stipulated, A’s house and lot would be sold to B for the amount of P480. Issue: Is the
HELD: Yes, and if A does not pay, A should sell the house and lot for P480. The agreement is not contrary to law. (See also Quizana v. Redugerio, 50 O.G. 2444, June, 1954). (NOTE:
It seems to the author that the stipulation may be considered void as being a pactum commissorium, unless A be allowed, instead of selling, to select the option of still being
indebted, with consequential damages or interest.)
Ganzon v. Judge Sancho GR 56450, Jul. 23, 1983
If a mortgage is substituted by a guaranty or surety bond without the consent of all the required parties, the contract may be said to be impaired.
Ollendorf v. Abrahamson 38 Phil. 585
FACTS: Ollendorf, needlework manufacturer, hired Abrahamson for two years, on the condition that for five years, the latter should not engage in competitive needlework
manufacture. After one year, the latter left for reasons of health. Shortly afterwards, after regaining his health, he competed with his former employer, who now seeks to restrain
him from such competition. The defendant argues that the restriction is void, because it is an unreasonable restraint of trade.
HELD: The agreement was valid, and is a reasonable restraint, considering that it was only for 5 years. Inasmuch as it is enforceable and has the rule of law between the parties,
the defendant can be properly restricted.
Molave Motor Sales, Inc. v. Laron and Geminiano L-65377, May 28, 1984
When an employee in a car repair shop has his own car repaired therein and purchases certain spare parts, his liability therefor is governed by the Civil Code, not the Labor Code.
Therefore, it is the civil courts, not the Ministry (Department) of Labor, that has jurisdiction over the case.
CONTRACT FOR ATTORNEY’S SERVICES
Borcena, et al. v. IAC GR 70099, Jan. 7, 1987
Contracts for attorney’s services stand upon an entirely different footing from contracts for the payment of compensation for any other services. An attorney is not entitled, in
the absence of express contract, to recover more than a reasonable compensation for his services. And even when an express contract is made, the court can ignore it and limit
the recovery of reasonable compensation if the amount of the stipulated fee is found by the court to be unreasonable. This is a very different rule from that announced in Sec.
1091 of the Civil Code of Spain (now Art. 1159, Civil Code) with reference to the obligation of contracts in general, where it is said that such obligation has the force of law
between the contracting parties.
PNB v. Se, Jr. 70 SCAD 323 (1996)
As contracts, warehouse receipts must be respected by authority of Art. 1159 of the Civil Code. A prior judgment holding that a party is a warehouseman obligated to deliver
sugar stocks covered by the Warehouse Receipts does not necessarily carry with it a denial of the warehouseman’s lien over the same sugar stocks. Even in the absence of a
provision in the Warehouse Receipts, law and equity dictate the payment of the warehouseman’s lien pursuant to Sections 27 and 31 of the Warehouse Receipts Law. A party is
in estoppel in disclaiming liability for the payment of storage fees due the warehouseman while claiming to be entitled to the sugar stocks covered by the subject Warehouse
Receipts on the basis of which it anchors its claim for payment or delivery of the sugar stocks. Imperative is the right of the warehouseman to demand payment of his lien
because he loses his lien upon goods by surrendering possession thereof.
For want of an express name, the following are termed “contratos innominados”:
(a) Do ut des — I give that you may give.
(b) Do ut facias — I give that you may do.
(c) Facio ut des — I do that you may give.
(d) Facio ut facias — I do that you may do.
Vicente Aldaba v. Court of Appeals, et al. L-21676, Feb. 28, 1969
FACTS: Dr. Vicente Aldaba and his daughter, Dr. Jane Aldaba, rendered services to Belen Aldaba, a rich woman of Malolos, Bulacan for 10 years without receiving any
compensation. It was admitted that for such services, the two doctors did NOT expect to be paid. Issues: Was there a contract, whether express or implied? Was Belen obliged to
compensate the two doctors?
HELD: There was no contract, whether express or implied,...
View Full Document