OBLIGATIONS AND CONTRACTS Part I -Obligations CHAPTER 1 GENERAL PROVISIONS §1.00 Generally PDF

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1 OBLIGATIONS AND CONTRACTS Part I — Obligations CHAPTER 1 GENERAL PROVISIONS §1.00 Generally Art. 1156. An obligation is a juridical necessity to give, to do or not to do. (n) Art. 1157. Obligations arise from: (1) Law; (2) Contracts; (3) Quasi-contracts; (4) Acts or omissions punished by law; and ...

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OBLIGATIONS AND CONTRACTS Part I — Obligations CHAPTER 1 GENERAL PROVISIONS §1.00

Generally

Art. 1156. An obligation is a juridical necessity to give, to do or not to do. (n) Art. 1157. Obligations arise from: (1)

Law;

(2)

Contracts;

(3)

Quasi-contracts;

(4)

Acts or omissions punished by law; and

(5)

Quasi-delicts. (1089a)

Art. 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. (1090) Art. 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. (1091a) Art. 1160. Obligations derived from quasi-contracts shall be subject to the provisions of Chapter 1, Title XVII, of this Book. (n) 1

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OBLIGATIONS AND CONTRACTS

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, Preliminary Title, on Human Relations, and of Title XVIII of this Book, regulating damages. (1092a) Art. 1162. Obligations derived from quasidelicts shall be governed by the provisions of Chapter 2, Title XVII of this Book, and by special laws. (1093a) §2.00

Obligation defined

An obligation is a juridical necessity to give, to do or not to do.1 This definition emphasizes the obligation of the obligor or debtor to give, to do, or not to do, and implies the correlative right of the obligee or creditor to demand the performance of the act or conduct. It is a settled principle that where there is a right in favor of a person, there is a remedy for violation thereof, which entitles the latter to a remedy to assure its observance and vindication therefor.2 Obligation in its totality may thus be defined as follows: “An obligation is a juridical relation whereby a person (called the creditor) may demand from another (called the debtor) the observance of a determinate conduct and, in case of breach may obtain satisfaction from the assets of the latter.”3 For instance, the obligation to pay rentals or deliver the thing in contract of lease falls within the prestation “to give.”4 An obligation “to do” includes all kinds of work or service, while an obligation “to give” consists in the delivery of a movable or an immovable thing in order to create a real right, or the use of the recipient, or for its simple possession, or in order to return it to its owner.5 Art. 1156, Civil Code. RUBEN E. AGPALO, Statutory Construction, 2003 Ed., p. 166. 3 Quoted in TOLENTINO, Commentaries and Jurisprudence on the Civil Code, Vol. 4, p. 56. 4 Philippine National Construction Corp. v. CA, 272 SCRA 183 [1997]. 5 Ibid. 1 2

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An obligation “not to do’’ is a negative obligation which restrains or prohibits the obligor to perform or do some act. For instance, an employment contract provides that after its termination or the employee’s separation from work for any reason, he must not do similar service or undertake similar business as that of his former employer for a reasonable period of time, the usual reason for such restriction being to prevent him from making use, for a limited period, of trade secrets learned in the course of his previous service in his previous employment.6 §3.00

Essential elements of obligation

The essential elements of obligation are: 1. The vinculum juris or judicial tie which is the efficient cause established by the various sources of obligations, namely, law, contracts, quasi-contract, delict and quasi-delict; 2. The object which is the prestation or conduct, required to be observed in the obligation to give, to do or not to do; and 3. The subject-persons who, viewed from the demandability of the obligation, are the active (obligee) and the passive (obligor) subjects.7 Civil obligations, which are provided for in Arts. 1156 et seq. differ from natural obligations, which are governed by Arts. 1423 to 1430 of the Civil Code. Civil obligations, when breached, give the offended or aggrieved party cause of action to compel performance or to ask for damages. Natural obligations cannot be enforced by court action and depended solely on the conscience of the party who makes them and on equity and sense of justice. §4.00

Sources of obligations

Obligations arise from (1) law, (2) contracts, (3) quasi-contracts, (4) acts or omissions punished by law, and (5) quasi-delicts. There is one common element or factor which underlines all sources of obligations, which is that the obligor has done something or has committed an act or has omitted an act, from which the obligation to give, to do or not to do arises as provided by law, contract, quasi-contract, delict and quasi-delict, as the case may be. 6 7

See Tiu v. Platinum Plans Phil., G.R. No. 163315, Feb. 26, 2007. Ang Yu Asuncion v. CA, 238 SCRA 602, 610 [1994].

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OBLIGATIONS AND CONTRACTS

There can be no obligation without any of these sources at play, and no obligation may arise without the obligor doing something, either voluntarily or involuntarily or omitting an act required to be done. §5.00

Obligations arising from law

Except obligations arising from contract, the obligations arising from law, quasi-contract, acts or omissions punishable law, and quasi-delict are imposed or required by law and are made obligatory upon the obligor without his consent. It is only in obligations required by contract that the parties are bound by their mutual consent. §6.00

Meaning of “law”

The term “law” which requires to be published before it becomes effective refers to all laws and not only to those of general application, but also to those of local application, city charters, private laws, presidential decrees, executive orders, and administrative rules and regulations implementing existing laws.8 Obligations arising from law are independent of the agreement or consent of the parties, the obligor and the obligee. They arise from the voluntary acts of the obligor, affecting the right of the obligee, the commission or non-performance of which acts create, by law, an obligation to perform or to do on the part of the obligor in favor of the obligee. The obligation is a statutory consequence of such act or omission. Thus, the Tax Code requires every person with taxable income to file his income tax return every taxable year and to pay the corresponding taxes on his taxable income. If he fails to perform such act, he becomes liable therefor to the government. Generally, letter of instruction is not a law, upon which obligation arises. To qualify a letter of instruction as a law, from which obligation may arise, it must satisfy the following requirements: “To form part of the law of the land, the decree, order or LOI must be issued by the President in the exercise of his extraordinary power of legislation as contemplated in Section 6 of the 1976 amendments to the Constitution, whenever in his judgment, there exists a grave emergency or threat or imminence thereof, or whenever the interim Batasang Pambansa or the regular National Assembly

8

Tañada v. Tuvera, 146 SCRA 446 [1986].

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fails or is unable to act adequately on any matter for any reason that in his judgment requires immediate action.9 §7.00

Obligations derived from law are not presumed

Obligations arising from law may either be from provisions of the Civil Code or from those of special laws, and they must be expressly determined by specific provisions of the Civil Code or by special law. For instance, one of the provisions of the Civil Code which expressly determines the obligations arising therefrom is Art. 19 of the Code on abuse of rights. Article 19 of the Civil Code provides: “Every person must, in the exercise of his right and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.” If a person gravely abuses his right to the damage of another, he becomes liable for damages in favor of the latter. This rule is expressed in Art. 19 of the Civil Code. It has been held that there is abuse of right when it is exercised for the only purpose of prejudicing or injuring another.10 A person who abuses his right or performs his duty to the damage of another may be held liable under Art. 19 of the Civil Code, for the exercise of right or the performance of duty must be done with justice and in good faith. Hence, a person who acts unfairly against one in favor of other persons, or who disposes of his property — a perfectly legal act — in order to escape the reach of his creditor, or who terminates an agency — also a legal act — when terminating it would deprive the agent of his legitimate business, may be held liable for damages under said article.11 Where a right, as recognized by law, is exercised in a manner which does not conform with the norms enshrined in Article 19 of the Civil Code and results in damage to another, a legal wrong is committed and the latter may have a cause of action for damages against the former. The elements of abuse of right that may be actionable are: (1)

there must be a legal right or duty;

Poliand Industrial Limited v. NDC, 467 SCRA 500 [2005]. Hongkong and Shanghai Banking Corp. v. Catalan, 440 SCRA 495 [2004]. 11 Llorente v. Sandiganbayan, 202 SCRA 309 [1991]. 9

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(2)

the right is exercised in bad faith; and

(3) it is for the sole intent of prejudicing or injuring another.12 The case of GF Equity, Inc. v. Valenzona,13 illustrates the rule on abuse of right as basis for damages. In this case, the corporation and Valenzona, as coach, entered into an agreement which provides for a fixed monthly salary and other benefits, for a term of two years. Under the contract, GF Equity would pay Valenzona the sum of Thirty Five Thousand Pesos (P35,000.00) monthly, net of taxes, and provide him with a service vehicle and gasoline allowance. While the employment period agreed upon was for two years commencing on January 1, 1988 and ending on December 31, 1989, the last sentence of paragraph 3 of the contract carried the following condition: 3. x x x If at any time during the contract, the COACH, in the sole opinion of the CORPORATION, fails to exhibit sufficient skill or competitive ability to coach the team, the CORPORATION may terminate this contract. Valenzona was later advised by the management of GF Equity by letter of September 26, 1988 of the termination of his services in this wise: We regret to inform you that under the contract of employment dated January 1, 1988 we are invoking our rights specified in paragraph 3. You will continue to be paid until your outstanding balance which, as of September 25, 1988, is P75,868.38 has been fully paid. Please return the service vehicle to my office no later than September 30, 1988. Valenzona sued for payment of compensation arising from the arbitrary and unilateral termination of his employment. The

12 Albenson Enterprises Corp. v. CA, 217 SCRA 167 [1993]; BPI Express Card Corp. v. CA, 296 SCRA 260 [1998]; Sea Commercial Co. v. CA, 319 SCRA 210 [1999]; Hongkong and Shanghai Banking Corp. v. Catalan, 440 SCRA 495 [2004]. 13 G.R. No. 156841, June 30, 2005.

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Supreme Court ruled that the dismissal of Valenzona constituted abuse of the company’s right and awarded him damages, thus: “The assailed stipulation being violative of the mutuality principle underlying Article 1308 of the Civil Code, it is null and void. The nullity of the stipulation notwithstanding, GF Equity was not precluded from the right to pre-terminate the contract. The pre-termination must have legal basis, however, if it is to be declared justified. GF Equity failed, however, to advance any ground to justify the pre-termination. It simply invoked the assailed provision which is null and void. While GF Equity’s act of pre-terminating Valenzona’s services cannot be considered willful as it was based on a stipulation, albeit declared void, it, in doing so, failed to consider the abuse of rights principle enshrined in Art. 19 of the Civil Code which provides: Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. This provision of law sets standards which must be observed in the exercise of one’s rights as well as in the performance of its duties, to wit: to act with justice; give everyone his due; and observe honesty and good faith. Since the pre-termination of the contract was anchored on an illegal ground, hence, contrary to law, and GF Equity negligently failed to provide legal basis for such pre-termination, e.g., that Valenzona breached the contract by failing to discharge his duties thereunder, GF Equity failed to exercise in a legitimate manner its right to pre-terminate the contract, thereby abusing the right of Valenzona to thus entitle him to damages under Art. 19 in relation to Article 20 of the Civil Code the latter of which provides: Art. 20. Every person who, contrary to law, willfully or negligently causes damage to another, shall indemnify the latter for the same.

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OBLIGATIONS AND CONTRACTS

In De Guzman v. NLRC, this Court quoted the following explanation of Tolentino why it is impermissible to abuse our rights to prejudice others. The exercise of a right ends when the right disappears, and it disappears when it is abused, especially to the prejudice of others. The mask of a right without the spirit of justice which gives it life is repugnant to the modern concept of social law. It cannot be said that a person exercises a right when he unnecessarily prejudices another or offends morals or good customs. Over and above the specific precepts of positive law are the supreme norms of justice which the law develops and which are expressed in three principles: honeste vivere, alterum non laedere and jus suum quique tribuere; and he who violates them violates the law. For this reason, it is not permissible to abuse our rights to prejudice others. The disquisition in Globe Mackay Cable and Radio Corporation v. Court of Appeals is just as relevant as it is illuminating on the present case. In that case, this Court declared that even granting that the therein petitioners might have had the right to dismiss the therein respondent from work, the abusive manner in which that right was exercised amounted to a legal wrong for which the petitioners must be held liable. §8.00

Obligations arising from contracts

Contract is defined as a juridical convention manifested in legal form, by virtue of which one or more persons bind themselves in favor of another or others, or reciprocally, to the fulfillment of a prestation to give, to do, or not to do.14 An obligation “to do” includes all kinds of work or service, while an obligation’s “to give” is a prestation which consists in the delivery of a movable or an immovable thing in order to create a real right, or

14

Jardine Davies, Inc. v. CA, 333 SCRA 684 [2000].

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for the use of the recipient, or for its simple possession, or in order to return it to its owner.15 An obligation “not to do” is a negative obligation which restrains or prohibits the obligor to perform or do some act. For instance, an employment contract provides that after its termination or the employee’s separation from service for any reason, he must not do similar service or undertake similar business as that of his former employer for a reasonable period of time, the usual justification being to prevent him from making use, for a limited period, of trade secrets learned in the course of his service in his previous employment.16 Article 1305 of the Civil Code defines a contract as the “meeting of the minds between two (or more) persons whereby one binds himself, with respect to the other, to give something or to render some service. There must be a meeting of the minds among the contracting parties, from which the obligation arises, otherwise there is no contract. In other words, until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation.17 It has been held that in order that obligations arising from contract may have the force of law between the parties, there must be mutuality between the parties based on their essential equality. A contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties, is void.18 Any contract which appears to be heavily weighed in favor of one of the parties so as to lead to an unreasonable result is void.19 §9.00

Obligations from quasi-contract

A quasi-contact is a legal fiction of legal relation, which Art. 2142 of the Civil Code creates where there is no existing contract, and which arises from the principle that no one should be allowed to unjustly enrich himself at the expense of another by the latter’s voluntary and unilateral act, so as to prevent the person benefited from taking advantage of such lawful, voluntary and unilateral act at 15 Phil. National Construction Corp. v. CA, 272 SCRA 183, 191 [1997]; Phil. National Construction Corp. v. CA, 272 SCRA 183, 191 [1997]. 16 Cf. Tiu v. Platinum Plans Phil., G.R. No. 163512, Feb. 26, 2007. 17 Ang Yu v. CA, 238 SCRA 602, 611 [1994]. 18 PNB v. CA, 196 SCRA 536 [1991]. 19 Almeda v. CA, 256 SCRA 292 [1996].

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the expense of the actor20 and to entitle the latter to reimbursement or return of what has been paid.21 Article 2142 creates the legal fiction of a quasi-contract precisely because of the absence of any contractual agreement between the parties concerned. The act is voluntary because the actor in quasicontract is not bound by any pre-existing obligation to act. It is unilateral because it arises from the sole will of the actor who is not previously bound by any reciprocal or bilateral agreements. The reason why the law creates a juridical relation and imposes certain obligations is to prevent a situation where a person is able to benefit or take advantage of such lawful, voluntary and unilateral acts at the expense of said actor. Article 2142 does not apply where the parties have existing contractual agreement, in which case said agreement applies and governs their respective rights and liabilities.22 §10.00 Requisites of quasi-contract The requisites of quasi-contract include: (1) absence of contract; (2) the act done in favor of another person is voluntary and unilateral; (3) the law imposes upon the person the obligation to reimburse what has been spent or compensate the services done, or return what has been paid, for no one must be unjustly enriched at the expense of another.23 Quasi-contracts include negotiorum gestio,24 solutio indebiti,25 and other quasi-contracts.26 §11.00 Obligations arising from crimes Article 1161 of the Civil Code should be read and construed along with the pertinent provisions of the Revised Penal Code and Rule 111 of the Revised Rules of Criminal Procedure. Rule 111 of the Revised Rules of Criminal Procedure governs the prosecution of the civil action arising from a crime. Cruz v. J.M. Tuason & Co., Inc., 76 SCRA 543 [1977]. Catindig v. Roque, 74 SCRA 83 [1976]. 22 Cruz v. J.M. Tuason & Co., Inc., 76 SCRA 543 [1977]. 23 Arts. 2142-2143, Civil Code; Ramie Textiles, Inc. v. Mathay, Sr., 89 SCRA 586 [1979]. 24 Arts. 2144 to 2153, Civil Code. 25 Arts. 2154 ...