GLOBAL RECIPROCAL COLLEGES
COLLEGE OF ACCOUNTANCY
Law on Obligations and Contracts
INTRODUCTION TO LAW
Meaning of Law, in general – any rule of action; any system of uniformity, and is divided
into two (2) general groups:
 General Divisions of Law
(1) In strict legal sense – promulgated and enforced by the state
 State Law
(2) Non-legal sense – not promulgated and enforced by the state
 Divine Law, Natural Law, Moral Law, Physical Law
 Subjects of Law
Yes
State Law
Is the
.
state
directly
concerned?
No
Divine Law, Natural Law, Moral Law, Physical Law
State Law
1. “a rule of conduct, just, obligatory, promulgated by legitimate authority,
and of common observance and benefit.” (I Sanchez Roman 3)
2. “the mass of obligatory rules established for the purpose of governing the
relations of persons in society.” (A. Tolentino, Civil Code of the Philippines,
1953 edition, Volume 1, Page 1)
Sheila Marie C. Caculitan, CPA, CTT
Faculty, College of Accountancy
1 | P a g e ObliCon100
GLOBAL RECIPROCAL COLLEGES
COLLEGE OF ACCOUNTANCY
Law on Obligations and Contracts
Divine
Law
1. Source – promulgated by God and revealed to mankind by means of revelation.
2. Sanction – assurance of certain rewards and punishment in the present life
of in the life to come. (Clark, Elementary Law, p.5)
Natural
Law
1. Source – present and binding in all men everywhere and at all times;
impressed to man as the core if his higher self at the very moment of being or,
perhaps, even before that. (C. Pascual, Legal Method, 2nd Ed., p. 111).
2. Place in State Law – the reasonable basis of state law.
Moral Law
1. Sanction - “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 there is conformity
to the moral norms, there is created spontaneous social response which may be
in the form of public pleasure, approval, or even joy.” (see C. Pascual, The
Nature and Elements of Law, 1954 ed., p.16.).
2. Binding Force - not absolute.
3. Place in State Law - influences or shapes state law.
Physical
Law
uniformities of actions and orders of sequence which are the physical phenomena
that we sense and feel.
Characteristics of Law - L.O.R.O
1. It is promulgated by Legitimate Authority;
2. It is obligatory;
3. It is a Rule of Conduct;
4. It is of common Observance and Benefit

Necessity and Functions of Law
 What would life be without law?
≈ The need for internal order is as constant as the need for external
defense.
 What does law do?
≈ Secures justice, resolves social conflict, orders society, protects
interests, controls social relations.
 What is our duty as members of society?
≈ Every citizen should have some understanding of law and observe it for
the common good.
Sources of Law
1. Constitution - the fundamental law
a) The law to which all other laws enacted by the legislature 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.
2. Legislation - the statute law
a) consists of the declaration of legal rules by a competent authority. (Salmond,
Jurisprudence, 9th ed., p. 209.)
3. Administrative or Executive Orders, Regulations, and Rulings - issued by
administrative officials under legislative authority.
a) Intended to clarify or explain the law
4. Judicial decisions or jurisprudence - the decision of the courts, particularly
Supreme Court.
a) Doctrine of Precedent or stare decisis
Sheila Marie C. Caculitan, CPA, CTT
Faculty, College of Accountancy
2 | P a g e ObliCon100
GLOBAL RECIPROCAL COLLEGES
COLLEGE OF ACCOUNTANCY
Law on Obligations and Contracts
5. Custom - consists of those habits and practices which through long and
uninterrupted usage have become acknowledged and approved by society as binding
rules of conduct.
6. Other sources - resorted to by the courts in the absence of all the other
sources.
“For the ultimate end of the law is justice”
Organization of Courts
1. Regular Courts - the Supreme Court, the Court of Appeals, and the Regional Trial
Courts are considered courts of general or superior jurisdiction.
PHILIPPINE JUDICIAL HIERARCHY - CHAN ROBLES VIRTUAL LAW LIBRARY
2. Special Courts a) Special Anti-graft court - Sandiganbayan
b) Court of Tax Appeals
3. Quasi-Judicial Agencies - do not form part of the integrated judicial system but
they are involved in settlement or adjudication of controversies or disputes.
Classifications of Law
1. As to its purpose
a) Substantive - body of law creating, defining,
duties (Law on Obligations and Contracts)
Sheila Marie C. Caculitan, CPA, CTT
Faculty, College of Accountancy
and
regulating
rights
and
3 | P a g e ObliCon100
GLOBAL RECIPROCAL COLLEGES
COLLEGE OF ACCOUNTANCY
Law on Obligations and Contracts
b) Adjective - body of law prescribing the manner or procedure by which rights
may be enforced or their violations redressed.
2. As to its subject matter
a) Public Law - body of legal rules which regulates the rights and duties
arising from the relationship of the state to the people. (Criminal Law)
b) Private Law - body of rules which regulates the relations of individuals with
one another for purely private ends. (Law on Obligations and Contracts)
INTRODUCTION TO OBLIGATIONS AND CONTRACTS
Definition: “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” (Art. 1307)
Civil Code of the Philippines - R.A 386
 Basis - Civil Code of Spain
 Approved - June 18, 1949
 Effectivity date - August 30, 1950
 Divided into four books
1. Book I - Persons
2. Book II - Property, Ownership, and Its Modification
3. Book III - Different Modes of Acquiring Ownership
4. Book IV - Obligations and Contracts
Conclusive Presumption of Knowledge of Law
“Ignorance of law excuses no one from compliance therewith” (Art. 3, Civil Code)
 Rationale
1. Social life will be impossible;
2. Impossible to prove a person’s claims of his ignorance of the law;
3. It is absurd to absolve those who do not know the law and increase the
obligations of those who know it;
4. There are lawyers who should be consulted; and
5. Evasion of the law would be facilitated
GENERAL PROVISIONS OF OBLIGATIONS
(1156 TO 1162)
Article 1156. An obligation is a juridical necessity to give, to do, or not to do.
 Meaning of obligation - obligatio
 General Rule: a tie or a bond, recognized by law by virtue of which one is
bound in favor of another.
 Exception: in case of Natural Obligations, non-fulfillment of which do not
grant a right of action to enforce their performance.
Sheila Marie C. Caculitan, CPA, CTT
Faculty, College of Accountancy
4 | P a g e ObliCon100
GLOBAL RECIPROCAL COLLEGES
COLLEGE OF ACCOUNTANCY
Law on Obligations and Contracts
 Meaning of juridical necessity
 Debtor must comply with his obligation, noncompliance of which the courts of
justice may be called upon by the aggrieved party to enforce its fulfillment,
or in default thereof, the economic value it represents.
 Essential Requisites
1. Passive Subject - debtor or obligor, the one who has duty;
2. Active Subject - creditor or obligee, the one who has right;
3. Object or Prestation - subject matter of the obligation, the conduct required
to be observed by (1);
4. Juridical or Legal Tie - efficient cause, source of obligation
 Under a contract of construction4, Mark1 binds himself to build a 3-storey
house3 for Lawrence2 for 3M3.
 Forms of Obligations - manner in which an obligation is manifested or incurred.
A. Orally; or
B. Writing; or
C. Partly (a) and partly (b)
Exception: Statute of Frauds
 Kinds of Obligations According to Subject Matter
1. Real Obligation - obligation to give; obligor must deliver a thing to obligee.
 Earl, seller, binds himself to deliver a diamond ring to Scottie, buyer.
2. Personal Obligation - obligation to do or not to do
a)
Positive Personal Obligation - to do or to render service.
 Will binds himself the repair the car of Alodia.
b)
Negative Personal Obligation - not to do
 Gerald obliges himself not to cut the oldest mango tree in Quezon.
Article 1157. Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts

Sources of Obligations
1. Law - when they are imposed by law itself.
i. Obligations derived from law are not presumed
 The NIRC which provides for the obligation to pay taxes.
 The Anti-Mendicancy Law which prohibits the giving of alms to beggars.
2. Contracts - arises from the stipulation of the parties.
i. Meeting of the minds between two persons
 Contract of Sale
 Contract of Lease
3. Quasi-contracts - arises 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.
i. Unjustly enrichment - a person unjustly retains a benefit to the loss of
another.
 Obligation to return a money mistakenly paid.
Sheila Marie C. Caculitan, CPA, CTT
Faculty, College of Accountancy
5 | P a g e ObliCon100
GLOBAL RECIPROCAL COLLEGES
COLLEGE OF ACCOUNTANCY
Law on Obligations and Contracts
4. Acts or omissions punishable by law - delicts, crimes, or felonies
i. Commission of crimes makes the offender civilly liable.
 Obligation of a thief to return what is stolen and answer for damages thereof.
5. Quasi-delicts - tort or culpa aquiliana
i. Arises from damage caused to another through an act or omission, there being
fault or negligence, but no contractual relation exists.
 Obligation of an owner of an animal to pay for the damages it may caused.
 Obligation of the parents of a minor to pay for damages it may caused.
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
precepts of the law which establishes them; and as to what has not been foreseen by the
provisions of this Book.
 Key Notes:
1. Not presumed because they are considered a burden upon the obligor.
2. Obligations arising from the law are the exception, not the rule.
3. To be demandable, the obligations must be clearly set forth in the Civil Code
or special laws.
i. Special Laws - refer to all other laws not found in the Civil Code.
 The employer is liable to pay an additional compensation equivalent to the
average 8-hour pay, including 30% more if he has asked his employee to work
beyond 8-hours on a holiday or rest day.
 The employer is not obliged to to provide clothing allowance to its employees.
Article 1159. Obligations arising from the contracts have the force of law between the
contracting parties and should be complied with good faith.
 Definition - contract is the meeting of the minds between two persons whereby one
binds himself, with respect to the other, to give something or to render some
service.
 Binding force - must be valid to be enforceable
 Requirement of a valid contract - not contrary to law, morals, good customs, public
order, and public policy.
 Compliance in good faith - compliance or performance in accordance with the
stipulations or terms of the contract or agreement.
 Daniel sells his house to Kathryn for 1M.
 Liza directed Enrique to kill Mama O for 5M.
Article 1160. Obligations derived from quasi-contracts shall be subject to the provisions
of Chapter 1, Title XVII of this Book.
 As compared to Contracts - in quasi-contracts, there is no consent but the same is
supplied by fiction of law.
 Kinds of Quasi-Contracts
1. Negotorium Gestio - voluntary administration of the property, business or
affairs of another without his consent or authority.
 Ganda went to Elyu with his family. While in Elyu, a fire broke out that
could have been destructed the house of Ganda should Ion did not exert
efforts to save the house. However, Ion incurred total of Php. 10,000.00
while saving the house of Ganda.
Sheila Marie C. Caculitan, CPA, CTT
Faculty, College of Accountancy
6 | P a g e ObliCon100
GLOBAL RECIPROCAL COLLEGES
COLLEGE OF ACCOUNTANCY
Law on Obligations and Contracts
2. Solution Indebiti - payment by mistake of an obligation which was not due when
paid.
 Aljur wrote a check amounting to 1M: “Payable to the order of AJ Raval”, as
payment to his big bike. However, Aljur mistakenly paid the amount due to AJ
not knowing that the true owner of big bike is Kylie.
Article 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, Preliminary Title, on Human Relations, and of Title XVIII of this Book,
regulating damages.

Civil Liability arising from delicts
1. Criminally liable person is also civilly liable for damages.
i. Restitution
ii. Reparation for the damaged caused; and
iii.
Indemnification for consequential damages
 Ronnie stole the car of Loisa. The former is convicted hours after his act.
The court ordered Ronnie for the following:
1. Return the car or to pay its value if return is impossible;
2. Pay for damages;
3. Pay for other damages suffered by Loisa as the consequence of the
crime.
Article 1162. Obligations derived from quasi-delicts shall be governed by the provisions
of Chapter 2, Title XVII of this Book, and by special laws.

Requisites of quasi-delict
1. Act or omission;
2. Fault or negligence;
3. There must be damage;
4. Direct relation between the act or omission and the damage; and
5. No pre-existing contractual relation.
 Marian, while playing with her friends, accidentally caused damage to the
car of Dingdong, of which were parked illegally in the side of the streets.
Marian claimed that she is not liable to pay
for
the
damages
because
Dingdong is violating traffic rules at the time of the accident.

Crimes vs. Torts
CRIMES
TORTS
Malicious intent is present
Only negligence
Criminal and civil liability
Civil liability only
Affects public interest
Affects private interest
Cannot be compromised
Can be compromised
Guilt of accused must be proved beyond
reasonable doubt
Proved by evidence
*****
Sheila Marie C. Caculitan, CPA, CTT
Faculty, College of Accountancy
******
*****
7 | P a g e ObliCon100