Law On Obligations And Contracts - Chapter 1 PDF

TITLE I OBLIGATIONS (Arts.1156-1304.) Chapter I GENERAL PROVISIONS ARTICLE 1156.An obligation is...

TITLE I OBLIGATIONS (Arts.1156-1304.) Chapter I GENERAL PROVISIONS ARTICLE 1156.An obligation is a juridical necessityto give, to do or not to do. (n) Meaning of obligation. The term obligation is derived from the Latin word "obligatio" which means a "tying" or "binding." (1) It is a tie of law or a juridical bond by virtueof 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. (2) Manresa defines the term as "a legal relation established between one party and another, whereby the bound to the latter is fulfillment of a prestation which the former may demand of him." (8 Manresa 13.) (3) Article 1156 gives the Civil Code definition of obligation, in its passive aspect.Our law merely stresses the duty of the debtor or obligor (he who has the duty of giving,doing, or not doing) when it speaks of obligation as a juridical necessity. Meaning of juridical necessity. Obligation is ajuridical necessity because in caseof non-compliance, the courts of justice may be called upon to enforce its fulfillment or, in defaultthereof, the economic value that it represents. In a proper case, 1 2 OBLIGATIONS Art. 1156 the debtor may also be made liable for damages, which represent the sum of money given as a compensation for the injury or harm suffered by the creditor or obligee(hewho has the right to the performance of the obligation) forthe violation of his rights. In other words, the debtor must comply with his obligation whether he likes it or not; otherwise,his failure will be visited with some harmful or undesirable legal consequences. If obligations were not made enforceable, then people can disregard them with impunity. If an obligation cannot be enforced,it may be only a naturalobligation. Nature of obligations under the Civil Code. Obligations which give to the creditor or obligeea right of action in courts of justice to enforce their performance are known as civil They are to be distinguishedfrom natural obligations which, obligations. not being based on positive law but on equity and natural law, do not grant a right of action to enforce their performance although in case of voluntary fulfillment by the debtor, the latter may not recover what has been delivered or rendered by reason thereof. (Art.* 1423.) Natural obligations are discussed under the Title dealing with "Natural Obligations."(Title II, Arts. 1423-1430.) Essential requisites of an obligation. An obligation as defined in Article 1156 is constituted upon the concurrence of the four (4) essential elements thereof, namely: (1) A passive subject (called debtor or obligor) or the person who is bound to the fulfillment of the obligation; he who has a duty; (2) An active subject (called creditor or obligee)or the person who is entitled to demand the fulfillment of the obligation; he who has a right; (3) Object or prestation (subject matter of the obligation) or the con duct required to be observed by the debtor. It may consist in giving, doing, or not doing. (see Art. 1232.) Without the prestation, there is nothing to perform. In bilateral obligations (seeArt. 1191.), the parties are reciprocally debtors and creditors; and *Unless otherwiseindicated, refers to article in the Civil Code. Art. 1156 GENERAL PROVISIONS 3 (4) A juridical or legal tie (also called efficient cause) or that which binds or connects the parties to the obligation. The tie in an obligation can easily be determined by knowing the source of the obligation. (Art. 1157.) EXAMPLE: Under a building contract, X bound himself to construct a house for Y for P1,000,000.00. Here, X is the passive subject, Y is the active subject, the building of the house the object or prestation, and the agreement or contract, which is the source of the obligation, is the juridical tie. Suppose X had already constructed the house and it was the agreement that Y would pay X after the construction is finished. X, then, becomes the active subject and Y, the passive subject. Form of obligation. (1) As a general rule, the law does not require any form in obligations arising from contracts for their validity or binding force. (seeArt. 1356.) (2) Obligationsarising from other sources (Art.1157.) do not have any form at all. Obligation, right, and wrong (cause of action) distinguished. (1) Obligation is the act or performance which the law will enforce. (2) Right, power which a person has on the other hand, is the under the law,to demand from another any prestation. (3) A wrong (cause of action), according to its legal meaning, is an act or omission of one party in violation of the legal right or rights of another,causing injury to the latter;' 'In a breach of contract, the contract violated is the subject matter, while the breach there ofby the obligor is the cause of action. The subject matter is the item with respect to which the controversy has arisen or concerning which the wrong has been done, and is ordinarily the right, the thing or the contract under dispute. (BachrachCorporation vs. Court of Appeals,296 SCRA 487 [1998); Dela Rosa vs. Mendiola, 401 SCRA 704 [20031.)  OBLIGATIONS Art. 1156 Essential elements of cause of action. (1) Its essential elements are: (a) a legal right in favor of a person (creditor/plaintiff) by whatever means and under whatever law it arises or is created; (b) a correlative legal obligation on the part of another (debtor/defendant) to respect or not to violate said right; and (c) an act or omission in breach or violation of said right by the defendant with consequentialinjury or damage to the plaintiff for which he may maintain an action forthe recovery of damages or other appropriate relief. (see Ma-ao Sugar Central Co. vs. Bar rios,79 Phil. 66 ; Teves vs.People's Homesite and Housing Corp., 23 SCRA 1141 ; Development Bank of the Phils. vs. Pundogar, 218 SCRA 118 ; Parañaque King Enterprisesvs. Court of Appeals, 269 SCRA 727 ;Nadela vs. City of Cebu, 411 SCRA 315.) (2) If any of these elements is absent, the complaint becomes vulnerable to a motion to dismiss on the ground of failure to state a cause of action. (San Lorenzo Village Assoc., Inc. vs. Court of Appeals, 288 SCRA 115 (1998); Uy vs. Evangelista, 361 SCRA 95 (2001].) The presence of a cause of on the sufficiency, and not on the action rests veracity, of the allegations in the complaint, which will have to be examined during the trial on the merits. (Pioneer International, Ltd. vs. Guadiz, Jr, 535 SCRA 584 [20071.) The test is whether the material allegations of the complaint, assuming to be true, state ultimate facts which constitutes plaintiff's cause ofactionsuch that plaintiff is entitled to a favorablejudgment asa matter of law.(Rovels Enterprises, Inc.vs. Ocampo, 391 SCRA 176 (2002].) (3) A cause of action only arises when the last element occurs,i.e., at the moment a right has been transgressed. (a) It is to be distinguished from right of action or the right to commence and maintain an action, in that the former is governed by the procedural law while the latter depends on substantivelaw. The right of action springs from the cause of action, but does not accrue until all the facts which constitute the cause of action have occurred. (Multi-RealtyDev. Corp. vs. Makati Tuscany Condo minium Corp.,491 SCRA 9 ; Borbe vs. Calalo, 535 SCRA 89.) The action shall be brought in the name of the party who by law is entitled to the right to be enforced. Art. 1156 GENERAL PROVISIONS 5 (b) An obligationon the part of a person cannot exist without a corresponding right existing in favor of another,and vice-versa, for every right enjoyed by a person, there is a corresponding obligationon the part of another to respect such right. ILLUSTRATIVE CASE: S rejected or cancelled a contract to sell his property even before the arrival of the period in the exercise of the option to buy by the purchaser who has already made a downpayment. Facts: S and B entered whereby B, after making into a contract to sell, a downpayment, was given the option to pay the balance of the purchase price of a parcel of land. Later, S "rejected the contract to sell" even before the arrival of the period forthe exercise of said option on the ground that the terms and conditions of the contract are grossly disadvantageousand highly prejudicial to his interest.S sent two (2) checksto B in an apparent effort to return the downpayment. S contends that the complaintwas prematurelyfiled because at the time of the institution of the complaint, B has yet to exercise his option under the "Option of Buyer" clause of the contract. Issue: Has Ba cause of action against S for prematurity? Held: Yes. (1) All the elements of a cause of action are present. First, there is a legal right in favorof B, ie, the right to complete the payment of the purchase price should he choose to do so; there is an obligation on the part of S to sell the subject property exclusively to B upon full payment of the purchaseprice; and there was a breach of S's obligation to sell the property, when S rejected the contract to sell even before B could exercise his option to buy notwithstanding that he had already made a downpayment. (2) S rejected contractto sell in no uncertain terms. -The fact that the by S was not made judicially or rejection or cancellation of the contract by no moment. It is enough for purposes notarial act (see Art. 1592.) is of of determining the existence of a cause of action that S has declared in no uncertain terms his refusal to be bound by the contract to sell. Such declaration, coupled with S's act of returning B's down payment, clearly indicates Ss rejection of the contract to sell. (Leberman Realty Corporation Us. Typingco, 293 SCRA 316.) Cause of action based upon a written contract. Actions based upon a writtencontract should be brought within 10 years from the time the right of actionaccrues.(Art.1144.) The accrual 6 OBLIGATIONS Art. 1156 refers to the cause of action. Accordingly,an action based on a contract accrues only when an actual breach or violation thereofoccurs.(China Banking Corp. vs. Court of Appeals, 461 SCRA 162 ; see Art. 1169.)Therefore, the period of prescription commences, not from the date of execution of the contract but from the occurrence of the breach. The cause of action resulting from breach of contract is dependent on the facts of each particular case. (Pilipinas Shell Petroleum Corpo ration vs. John Bordman Ltd., 473 SCRA 151.) (1) In an actionto rescind a contract ofsale on installment basis, for non-payment, the cause of action arises at the time the last installment is not paid. (Nabus vs. Court of Appeals, 193 SCRA 732.) (2) Where an overdraft agreement stipulates that the obligation is payable on demand, the breach starts only when demand is made. (Elido vs.Court ofAppeals, 216 SCRA 637 ;China Banking Corporation vs. Court of Appeals, supra.) (3) In a contract of loan with real estate mortgage, whereby the Creditor could unilaterally increasethe interest rate, where the creditor foreclosed the mortgage when the debtor failed to pay the loan, the cause of action for the annulment of the foreclosure sale should be counted from the date the debtor discovered the increased interest rate (Banco Filipino Savings & Mortgage Bank vs.Court of Appeals, 388 Phil. 27, 332 SCRA 241.) (4) Where the agreement to buy and sell was conditioned upon the conduct apreliminary of survey of the land to verify, whether it contained the area stated in the tax declaration, the right of action for specific performance arose only when the plaintiff discovered the completion of the survey.(Cole vs. Gregorio, 202 Phil. 226, 116 SCRA 670.) (5) With respect to money from a contract of claims arising employment, which would prescribe in three (3) years from the time the cause of action accrued,the cause of action would arise from the date the employer made a definite denialof the employee's claim, forprior to such deemed that the issues had not yet been joined denial, it is because the employee could have still been reinstated (Serrano vs. Court of Appeals, 415 Phil. 447, 363 SCRA 223 ,) (6) In an action for reformation of a contract, where the plaintiff alleged,among others, that the contract was one-sided in favor of Art. 1156 GENERAL PROVISIONS 7 ( the defendant, and that certain events had made the arrangement inequitable, the cause of action forreformation would arise only when the contract appeared disadvantageous. (Naga Telephone Co. vs. Court of Appeals, 230 SCRA 351 [1994).) (7) The nature of the product sold is a major factor in determining when the cause of action has accrued. For example, when fuel oil is delivered in drums, a buyer readily assumes that the agreed volume can be and actually is, contained in those drums. He is not expected to make a meticulous measurement of each and every delivery. In case of short deliveries, the cause of action will arise only from the discovery of the same with certainty. (Pilipinas ShellPetroleum Corporation vs. John Bordment, Ltd., supra.) Injury, damage, and damages distinguished. The words "injury," "damage," and "damages" are sometimes used synonymously, although there is a material difference among them. (1) Injury is the illegal invasion of a legal right; it is the wrongful act or omission which causes loss or harm to another,while damage is the loss, hurt, or harm which results from the injury. On the other hand, damages denote the sum of money recoverable as amends for thewrongful act or omission; and (2) Injury is the legal wrong to be redressed, while damages are the recompense or compensation awarded or recoverablefor the damage or loss suffered. (Custodio vs. Court of Appeals, 253 SCRA 483 |.) Existence of one without the other. There may be injury without damage and damage without injury. is (1) not Proof sufficient of loss to for injury, – A wrongful violation of his legal right entitle a person to sue another in a court of justice for the enforcement or protectionof said right. As a rule, there must be, in addition,loss or damage caused him by the violation of his to right. But except for actual or compensatory damages (Art.2199.), no pecuniary proof is necessary in order that moral, nominal, temperate, liquidated, or exemplary damages may be awarded. (Art.2216.) 8 OBLIGATIONS Art. 1156 (2) Liabilityfordamages of a person for exercising his legal rights. -A person has the right to take all legal steps to enforce his and/ legal or equitable rights. One who makes use of his legal right does no in jury. Qui jure suo utitur mullum damnum facit. If damage results from a person's exercising his legal rights, it is damnum absque injuria (dam age without injury). (Auyong Hian vs. Court of Appeals, 59 SCRA 110.)The plaintiff must establish that the damage to him resulted from a breach or violation of legal duty which the defendant owned to him; otherwise,the consequences must be borne by the plaintiff alone. In other words, in order that the law will give redress for an act (or omission) causing damage, that act must be not only hurtful, but wrongful.² (Custodio vs. Court of Appeals, supra; see Philippine National Bank vs. Court of Appeals, 367 SCRA 198.) ILLUSTRATIVE CASE: Acts of importer contesting forfeiture, delay in the delivery of goods to highest bidder. Facts: X imported certain goods.The Collector of Customs declared the goods forfeited in favor of the government and ordered the sale thereof at public auction. The bid of Y was approved and the goods were awarded to him. Under the law, X has the right to have the decision of the Collector of Customs reviewed by the Commissioner of Customs, and from the decision of the latter, to appeal to the Court of Tax Appeals (Secs. 2313, 402, Tariff and Customs Code.), and from the latter's decision, to the Supreme Court. X will be prejudiced if the sale is not set aside. (see Art. 1397.) Issue: Is X liable to Y for damages from the consequentdelay in the delivery of the goods? Held: Such delay an incident to the exercise by X of his right to is contest the forfeiture and the sale of his goods.(seeAuyong Hian vs. Court of Aypeals, Supra.) '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 observehonesty and good faith. The principleof damnum absque injuria does not apply when there is an abuse of a per son's right. Article 19 prescribes a "primordiallimitation on all rights" by setting certain stan dards that must be observed in the exercise thereof. It does not permit an abuse of rights which is committed when the defendant acts with bad faith or intent to prejudice the plaintiff in the exercise of a right. Such abuse will give rise to liability for damages. Good faith, how ever, is presumed. Art. 1157 GENERAL PROVISIONS q Kinds of obligation according to subject matter. From the viewpoint of the subject matter, obligation may either be: (1) Real obligation (obligation to give) or that in which the subject matter is a thing which the obligormust deliver to the obligee; or (2) Personal obligation (obligation to do or not to do) or that in which the subjectmatter is an act to be done or not to be done. There are thus two (2) kinds of personal obligation: (a) Positive personal obligation or obligationto do or to render service(seeArt. 1167.); and (b) Negative personal obligation or obligationnot to do (which naturallyincludes obligations "not to give"). (seeArt. 1168.) ART. 1157.Obligationsarise from: (1) Law; (2) Contracts; (3) Quasi-contracts; (4) Acts or omissions punished by law; and (5) Quasi-delicts. (1089a) Sources of obligations. An obligation imposed on a person and the corresponding right granted to another must be rooted in at least any of the following SOurces: (1) Law.-when they are imposed by the law itself, e.g., obligation to pay taxes; obligationto support one's family (seeArt. 195, Fanmily Code.); (2) Contracts. when they arise from the stipulation of the parties (Art.1306.), e.g., the obligation to repay a loan by virtue of an agreement; (3) unilateral Quasi-contracts. acts - when they arise from lawful,voluntary and and which are enforceableto the end that no one shall be unjustlyenriched or benefited at the expense of another (Art.2142.), eg., the obligationto return money paid by mistake or which is not due. (Art.2154.)In a sense,these obligations may be considered as arising from law; 10 OBLIGATIONS Art. 1157 (4) Crimes or acts or omissions punished when they arise by law. from civil liability which is a criminal offense (Art. theconsequence of 1161.), e.g., the obligation of a thief to return the car stolenby him; the duty of a iller to indemnify the heirs of his victim; and (5) Quasi-delicts or torts. when they arise from damage caused to another through an act or omission, there being fault or negligence, but no contractualrelation between the parties (Art.2176.), e.g., exists the obligationof the head of a family that lives in a building or a part thereof to answer for damages caused by things thrown or falling from the same (Art.2193.); the obligation of the possessor of an animal to pay for the damage which it may have caused. (Art.2183.) The enumeration by the law is exclusive; hence, there is no obligationas defined in Article 1156,if its source is not any of those enumerated.3 Sources classified. The law enumerates five (5)sources of obligations. They may be classified as follows: (1) Those emanating from law; and (2) Those emanating from private acts which may be further subdivided into: (a) those arising from licit acts, in the case of contracts and quasi-contracts; and (b) those arising from illicit acts, which may be either punishable by law in the case of delicts, or not punishable in the case of quasi-delicts. Actually, there areonly two (2) sources:law and contracts, because obligationsarising from quasi-contracts, crimes, and quasi-delicts are The principle that no person may unjustly enrich himself at the expense of another is embodied in Article 22 of the Civil Code. This principle applies not only to substantive rights but also to procedural remedies. One condition for invoking this principle is that the aggrieved party has no other action based on contract, quasi-contract, crime, quasi-delict or any other provision of law. (Reyes vs. Lim, 408 SCRA 560 [20031; A. Tolentino, Civil Code of the Philippines, 1990, pp. 77,82.) Article 22 provides: "Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him." A practice or custom is, as a general rule, not a source of a legally demandable or enforce able right. (Makati Stock Exchange, Inc. vs. Campos(585SCRA 120 (2009].) Art. 1158 GENERAL PROVISIONS 11 imposed by law. (seeLeung Ben vs. O'Brien,38 Phil. 182.) really Where the source of the obligation is a private act, the law merely recognizes or acknowledges the existence of the obligation. ILLUSTRATIVE CASE: Liability of sheriff laufully enforcing a judgmentin an ejectment suit. Facts: A judgment was rendered by a justice of the peace court (now municipal X who brought an ejectment suit against Y, court) in favor of the owner of the house built on the land of X.Z,the deputy sheriff who executed thejudgment, was obliged to remove the house of Y from the land according to the usual procedure in the action for ejectment. Issue: Is Y entitled to indemnity arising from the destruction of his house? No proof has been submittedthat a contract had been entered Held: intobetween plaintiff(Y)and the defendants (X and Z) or that the latter had committed illegal acts or omissions or incurred in any kind of fault or negligence, from any of which an obligation might have arisen on the part ofX and Z to indemnify Y. For this reason, the claim for indemnity, on accountof acts performedby the sheriff, whileenforcing a judgment, cannot under any consideration be sustained. (Navales vs. Rias, 8Phil. 508.) ART. 1158.Obligations derived from law are not presumed. Only those expresslydetermined in this Code or in special laws are demandable, and shall be regulated by the preceptsof the law which establishes them;and as to what has not been fore seen, by the provisionsof this Book. (1090) Legal obligations. Article 1158 refers to legal obligations or obligations arising from law. They arenot presumed because they areconsidered aburdenupon the obligor. They are the exception,not the rule. To be demandable, they must be clearly set forth in the law, i.e., the Civil Code or special laws. Thus: (1) An employerhas no obligation to furnishfree legal assistance to his employees because no law requires this, and, therefore, an em ployee may not recover from his employer the amount he may have paid a lawyerhired by him to recoverdamages caused to said employ ee by a strangeror strangerswhile in the performance of his duties. (De laCruz vs.Northern Theatrical Enterprises, 95 Phil. 739 (1954).) 12 OBLIGATIONS Art. 1158 (2) A private school has no legal obligation to provide lothing allowance to its teachersbecause there is no law which imposes this obligationupon schools.But a person who wins money in gambling has theduty to return his winnings to the loser. This obligationis pro vided by law. (Art.2014.) Under Article 1158,special laws refer to all other laws not contained in the Civil Code. ILLUSTRATIVE CASES: 1. Liability of husband for medical assistance rendered to his wife but contracted by his parents. Facts: X, by virtue of having been sent for by B and C, attended as physician and rendered professional services to a daughter-in-law of B and C during a difficultand laborious childbirth. Issue:Who is bound to pay the bill: B and C, the parents-in-law of the patient, or the husband of the latter? Held: The rendering of medical assistance in case of illness is comprised among the mutual obligations to which spousesare bound by way of mutual support. If spouses are mutually bound to support each other, there can be no question that when either of them by reason of illness should be in need of medical assistance, the other is to render the unavoidableobligation to furnish the services of a physician and is liable for all expenses, including the fees for professional services. This liability originates from the above-mentioned mutual obligation which the law has expressly established between the married couple. B and C not having personally bound themselves to pay are not liable. (Pelayo vs. Lauron, 12 Phil. 453.) 2 Title to property purchased by a person for his own benefit but paid by another. Facts: X, of legal age, bought two vessels from B, the purchase price thereofbeing paid by C, X's father. Subsequently, differences arose between X and C. The latter brought action to recover the vessels, he having paid the purchaseprice. Issue:Is there any obligation on the part of X to transfer the ownership of the vessel to C? Held: None. If any such obligation was ever created on the part of X, said obligation must arise from law. But obligations derived from law 'See Arts. 194, 195,Family Code. Art. 1159 GENERAL PROVISIONS 13 are not presumed. Only those expressly determinedin the Civil Code or in special laws are demandable. Whatever right C may have against X either for the recovery of the money paid or for damages, it is clear that such payment gave him no title, either legal or equitable, to these vessels. (Martinez vs. Martinez, 1 Phil. 647 (1902].) Note: If X were a minor, the vessels would belong to Cin ownership and usufruct under Article 161 of the old Civil Code. (now Art. 324.5) Un der Article 1448, the payment may give rise to a gift or an implied trust. ART. 1159.Obligationsarising from contracts have theforce of law between the contracting parties and should be complied with in good faith. (1091a) Contractual obligations. The above article speaks of contractual obligations or obligations arising from contracts or voluntary agreements. A contract is a meeting of minds between two persons whereby one binds himself,with respectto the other, to give something or to render some service. (Art.1305.) It is the formal expression by the parties of their rights and obligations they have agreed upon with respect to each other. (1) Binding force. Obligations arising from contracts are governed primarily by the agreement of the contractingparties. Once perfected, valid contracts have the force of law between the parties who are bound to comply therewith in good faith, and neither one may without the consent of the other, renege therefrom. (Tiu Peck vs. Court of Appeals, 221 SCRA 618.) In characterizing contracts as having the force of law between the parties, the law stresses the obligatorynature of a binding and valid agreement (William Golangco Construction Corporation vs. Phil. Commercial International Bank, 485 SCRA 293.), absent any allegation that it is contrary to law, morals, good customs, public order, or public policy. (Art. 1306.) 5Thisprovision is not contained in the Family Code. Art. 1448. There is an implied trust when property is sold, and the legal estate is granted to one party but the price is paid by another for the purpose of having the beneficial interest of the property. The former is the trustee, while the latter is the beneficiary. However, if the person to whom the title is conveyed is a child, legitimate or illegitimate, of the one paying the price of the sale, no trust is implied by law, it being disputably presumed that there is a gift in favvor of the child. 14 OBLIGATIONS Art. 1159 (a) The law, recognizing the obligatory force of contracts (Arts.1139,1308, 1315, 1356.), will not permit a party to be set free from liability for any kind of misperformance of the contractual undertaking or a contravention of the tenor thereof. (Art.1170.) The mere proof of the existence of the contractand the failure of its compliance justify, prima facie, a corresponding right of relief. (FGU Insurance Corp. vs. G.P.Sarmiento Trucking Corp., G.R. No. 141910,Aug. 6, 2002.) (b) Inlaw,whatever fairly puts apersonon inquiry is sufficient notice, where the means of knowledge are at hand,whichifpursued by proper inquiry, the full truth mighthave been ascertained.Thus, where a purchaser of a memorial lot, on installmentbasis, had full knowledge of the terms and conditions of the sale, including the rules and regulationsissued by the seller governing the memorial park, to which she obliged herself to abide, cannot later feign ignorance of said rules. (Dio vs. St. Ferdinand Memorial Park, Inc., 509 SCRA 453 (2006].) (c) If it occurs to one of the contracting parties to allege some defect in a contract as a reason for invalidatingit, such alleged defect must be proved by him by convincing evidence since its validity or compliance cannot be left to will of one of them. (see Art. 1308.) "An experienced businessman who signs important le gal papers cannot disclaim the consequent liabilities therefor after being a signatory thereon."(Blade International Marketing Corp. vs.Court of Appeals, 372 SCRA 333.) It behooves every con tracting party to learn and to know the contentsof an instrument before signing and agreeing to it. (Dio vs. St. Ferdinand Memorial Park, Inc., supra.) (d) Courts have no alternative but to enforce contracts as they were agreed upon and written when the terms thereof are clear The rule of lex loci contractus (the law of the place where the contract is made) governs in workers whose employment contracts were approved by the Philippine cases of Filipino Overseas Employment Administration (POEA)and were entered into and perfected in the Philippines. (Philippine Employment Services and Resources,Inc. vs. Paramo, 427 SCRA 732.) ŠIt has been consistently ruled that a bonus is not a demandable and enforceable obliga tion, unless the giving of such bonus has been the company's long and regular practice, ie., the giving of the bonus should have been done over a long period of time, and must be shown tohave been consistent and deliberate. (Phil. Appliance Corp. vs. Court of Appeals,430 SCRA 525.) Art. 1159 GENERAL PROVISIONS 15 and leave no room for interpretation. (Art. 1370.). This does not mean, however, that contract is superior to the law. Although a contract is the law between the contracting parties, the provisions of positive law which regulate such contracts are deemed included and shall limit and govern the relations between the parties. (Asia World Recruitment,Inc. vs. National Labor RelationsCommission, 313 SCRA 1.) (e) A compromise agreement is immediately executory and not appealable,except for vices of consent (Art. 1330.) or forgery. Upon the parties, it has the effect and the authorityof res judicata, once entired into. To have the force of law between the parties, it must comply with the requisites of contracts. (Art. 1318.)It nmay be either extrajudicial (to prevent litigation) or judicial (to end a litigation). (Magbanua vs. Uy,458 SCRA 184.) (2) Requirementsof a valid contract. As a source of obligation, a contract must be valid and enforceable. (see Art. 1403.) A contract is valid (assuming all the essential elements are present, Art. 1318.) if it is not contraryto law, morals, good customs, public order, and public policy. It is invalid or void if it is contraryto law,morals,good customs, public order, or public policy. (Art. 1306; see Phoenix Assurance Co., Ltd. vs. U.S. Lines, 22 SCRA 675 (1968) In the eyes of the law, a void contract does not exist. (Art.1409.) Consequently, no obligations will arise. (3) Where contract requires approval by the government. Where a contract is required to be and approved by the government verified before it can take for overseas employment must effect (e.g., contract be approved by the PhilippineOverseas Employment Administration [POEA]under Art.21[c]of the Labor Code), such contract becomes the law between the contracting parties only when approved, and where there is nothing in it which is contrary to law, etc., its validity must be sustained.(Intetrod Maritime,Inc. vs. National Labor Relations Com mission,198 SCRA 318.) (4)Compliance in good faith. It means compliance or - perfor mance in accordance with the stipulations or terms of the contract or agreement.° Good faith and fair dealing must be observed to prevent '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 observehonesty and good faith. 16 OBLIGATIONS Art. 1159 one party from taking unfair advantage over the other. Evasion by a party of legitimate obligations after receiving the benefits under the contract would constitute unjust enrichment on his part. (see Royal Lines, Inc. vs. Court of Appeals, 143 SCRA 608.) (5) Liability forbreach of contract. -Although the contract imposes no penalty for its violation, a party cannot breach it with impunity. Our law on contracts recognizesthe principle that actionableinjury inheres in every contractualbreach.(Boysaw vs. Interphil Promotions, Inc., 148 SCRA 635 (1987|; see Arts. 1170,1191.) Interest may, in the discretion of the court, on equitable grounds, be allowed upon damages awarded forbreach of contract. (seeArt. 2210.) The failure of either party to a contract to demand performance of the obligation of the other for an unreasonable length of time may render the contract ineffective where the contract does not provide for the period within which the parties may demand the performance of their respectiveundertakings but the parties did not contemplate that the same could be made indefinitely. (Villamor vs. Court of Appeals, 202 SCRA 607.) The mere failure of a party to respond to a demand letter in the absence of other circumstances making an answer requisite or natural does not constitute an implied admission of liability. (Phil. First Insurance Co., Inc. vs. Wallen Phils. Shipping, SCRA 457 (2009].) Inc., 582 (6) Preservation confersupon the of interest injured party a of promisee. - A breach upon the contract cause for recovering that which valid may have been lost or suffered. The remedy serves to preserve the interest of thepromisee of having the benefit of his bargain,or in being reimbursed for loss caused by reliance on the contract, or in having restored to him any benefit that he has conferred on the other party. The effect of every infraction is to create a new duty, that is, to make recompense to the one who has been injuredby the failure of an other to observe his contractualobligation unless he can show extenu ating circumstances. (FGU Insurance Corporation vs. G.P. Sarmiento Trucking Corporation, 386 SCRA 312 ;: see Art. 1170.) ILLUSTRATIVE CASES: 1. Binding force of an oral agreement inconsistent with a prior written One. Facts:X verbally agrees to pay Y the balance of an accountin advance, notwithstanding the different stipulation of a prior written agreement. Art. 1159 GENERAL PROVISIONS 17 Issue: Is X bound to perform said obligation? Held: Yes. Since he agreed to pay Y the balance of the account independentlyof the terms of the written contract, he must perform his obligation to pay according to the tenor of his verbal agreement which has the force of law between them. (Hijos de I. de la Rama vs. Inventor, 12 Phil. 45.) 2. Validity of contract stipulating that in case of failure of debtor to pay amountof loan, his property shall be considered sold to creditor. Facts: D borrowed from C money to be paid within a certain period, under the agreement that, if D fails to pay at the expiration of said period, the house and lot described in the contract would be considered sold for the amount of the loan. D failed to pay as promised.C brought action for the delivery of the house and lot. Issue: Are both contracts valid and, therefore, should be given effect? Held: Yes. The fact that the parties have agreed at the same time, in such a manner that the fulfillment of the promise of sale would depend upon the non-payment or return of the amount loaned hasnot produced any change in the nature and legal conditions of either contract, or any essential defect which would nullify them. As the amount loaned hasnotbeen paid and continues in possession of the debtor, it promise of sale be carried into effect, is only just that the and the necessary instrumentsbe executed. That which is agreed to in a contract is law between the parties, and must be enforced. (Alcantara vs. Alinea, 8 Phil. 111.) Note: In the above case, the court found that no contract of mortgage, pledge, or antichresis was entered into. (see Arts. 2088, 2137.) 3 Validity of contract for attorney's fees where amount stipulated is unreasonable. Facts: D executed a promissorynote in favor of Cfor the purchase price of a truck sold by the latter. In the note, D bound himself to pay an additional 25% asattorney's fees in the eventof becoming it necessary for C to employ counsel to enforce its collection. Issue: Has the court the power to ignore the contract as to attorney's fees, considering that a contract has the force of law between the contracting parties? 18 OBLIGATIONS Art. 1159 Held: Yes. Where no special agreement is made by the parties with reference thereto, the courts are authorized to determine the amount to be paid to an attorney as reasonable compensation for his professional services; and even where parties have made a written agreement as to the fee, the courts have the power to ignore their contract, if the amount fixed is unconscionable or unreasonable, and to limit the fee to a reasonable amount.l0(Bachrach vs. Golingco, 35 Phil. 138.) 4. A big corporation, to avoid cancellation of contract it has breached, pleaded considerations of equity. Facts: The contract between the parties (two big real estate corporations) was a contract to sell or conditional with title expressly reserved in S (seller) until the suspensive condition of full and punctual payment of the full price by B (buyer) shall have been met on pain of automatic cancellation of the contract upon failure to pay any of the monthly installments. B failed to pay the P5,000.00 monthly installments notwithstanding that it was punctually collecting P10,000.00 monthly rentals from the les see of the property. Issue: The main issue posed by B is that there has been no breach of contract by it; and assuming there was, S was not entitled to rescind or resolve the contract withoutrecoursing to judicial process. Held: B only pleads that it be given special treatment and that the cancellation of its contract be somehow rejected notwithstanding S's clear right under the contract and the law to do so. The contract between S and B, entered into with the assistance of counsel and with fullawareness of the importof its termsand conditions, is the binding law between them and equity cannotbe pleaded by one who hasnot come with clean hands nor complied therewith in good faith but instead willfully breached the contract. "Its time to put an end to the fictionthat corporations arepeople. The business of big corporations such as the protagonists at bar is business. They are bound by the lawful contracts that they enter into and they do not ask for nor are they entitled to considerations of equity." (Luzon Brokerage Co., Inc. vs. Maritime Bldg. Co., Inc., 86 SCRA 305.) 1UThe validity of contingent fee agreement in large measure depends on the reasonable ness of the stipulated fees under the circumstancesof each case. The reduction of unreason able attorney's fees is within the regulatory powers of the courts to protect clients from unjust charges.(Taganas vs. National Labor Relations Commission, 248 SCRA 133 ; see Sec. 13, Canons of Professional Ethics; Sec. 24, Rule 138, Rules of Court.) Art. 1160 GENERAL PROVISIONS 19 5. Corporation unconditionally undertook to redeem preferred shares at specified dates. Facts: The terms and conditions of the Purchase Agreement shows that the parties intended the repurchase of the preferred shares in question on the respective dates to be an absolute obligation made manifest by the fact that a surety was required to see to it that the obligation is fulfilled in the event of the corporation's inability to do so. Defendant corporation contends that it is beyond its power and competence to redeem the preferred shares due to financial reverses. Issue: Can this contention serveas a legal justificationfor its failure to perform its obligation under the agreement? Held: No.The unconditional undertaking of the corporation does not depend upon its financial ability: itconstitutes a debt which is defined "as an obligation to pay money at some fixed future time, or at a time which becomes definite and fixed by acts of either party and which they expresly or impliedly agree to perform in the contract." The Purchase Agreement constitutes the law between the parties. (Lirag Textiles Mill, Inc. vs.Social Security System, 153 SCRA 338 (1987].) 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. Article 1160 treats of obligations arising from quasi-contracts or contracts implied in law. A quasi-contract is from certain law that juridical relation resulting ful, voluntary and unilateral by virtue of which the parties become acts bound to each other to the end that no one will be unjustlyenriched or benefited at the expense of another.(Art.2142.) It is not, properly,a contract at all. In a contract, there is a meeting of the minds or consent; the parties must have deliberately entered into a formal agreement. In a quasi-contract, there is no consent but the same is supplied by fiction of law. In other words, the law consid ers the parties as having entered into a contract, irrespective of their intention, to prevent injustice. Corollarily, if one who claims having enriched somebody has done so pursuant to a contract with a third party, his cause of action should be against the latter, who, in turn, 20 OBLIGATIONS Art. 1160 may, if there is any ground therefor, seek relief against the party ben efited. (Cruz vs. J.M. Tuason & Co., Inc., 76 SCRA 543.) Quasi-contractsaregoverned by the Civil Code,more particularly, by Articles 2142-2175,Chapter I, Title XVII. ILLUSTRATIVE CASES: 1 When a party benefited at the expense of another not liable to the latter. Facts: By virtue of an agreement between X and Y, X assisted Y in improving a large tract of land which was later declared by the court as belonging to C. Issue: Has X the right to be reimbursed by Z for X's services and expenses on the ground that the improvements are being used and enjoyed by Z? Held: No. From the language of Article 2142, it is obvious that a presumed quasi-contract cannotemerge as against one party when the subject matter thereof is already covered by an existing contract with anotherparty. X's cause of action shouldbe against Y who, in turn, may seek relief against Z.(Cruzvs. J.M. Tuazon Co., Inc., supra.) 2. Bank paid the seller of goods under an expired letter of credit but the goods subject thereof were voluntarily received and kept by the buyer which refused to pay the bank. X opened with B (bank)a domesticletter of credit (LC) in favor Facts: of Y forthe purchasefrom the latter of hydraulic loaders. B paid Y forthe equipment after the expiration of the letter of credit. X refused to pay B claiming that there was breach of contract by B which acted in bad faith in paying Y knowing that Y delivered the loaders to X after the expiry date of the subject LC. X offered to return the loaders to B which refused to take possession three (3) years after X accepted delivery, when B made a demand for payment. Issue: Was it proper for B to pay the LC which had long expired or been cancelled? Held: B should not have paid LC which had become invalid upon the the lapse of the period fixed therein.Be that as may, X should pay B it the amount B expended for the equipment belatedly delivered by Y and voluntarily received and kept by X. B's right to seek recovery from X is Art. 1160 GENERAL PROVISIONS 21 anchored,not upon the inefficacious LC, but on Article 2142 of the Civil Code. X was not withoutfault in the transactions in view of its unexplained inaction for almostfour(4)years with regard to the status of the ownership or possession of the loaders and the fact that it formalized its offer to return the equipment only after B's demand for payment, which came more than three (3) years after X accepted delivery. When both parties to a transaction are mutuallynegligent in the per formance of their obligations, the fault of one cancels the negligence of the other and as in this case, their rights and obligations may be deter mined equitably under thelaw proscribing unjust enrichment. (Rodzssen Supply, Inc. vs. Far East & Bank Trust Co., 357 SCRA 618.) Kinds of quasi-contracts. The principal kinds of quasi-contracts are negotiorum gestio and solutio indebiti. (1) Negotiorum gestio is the voluntary management of the property or affairs of another without the knowledge or consent of the latter. (Art.2144.)Thus, if through the efforts of X,a neighbor,the house of Y was saved from being burned, Y has the obligationto reimburse X for the expenses X incurred althoughY did not actually give his consent to the act of X in saving his house on the principle of quasi-contract. This juridical relation does not arise in either of these instances: (a) When the property or business isnot neglected or aban doned, in which case the provisions of the Civil Code regarding unauthorized contracts (Arts. 1317, 1403, 1404.) shall govern; or (b) If, in fact, the manager has been tacitly authorized by the owner, in which case the rules on agency shall govern. (Art. 2144.) (2) Solutio indebiti is the juridical relation which is created when something is received when there is no demand it and it was right to unduly delivered through mistake. (Art. 2154.) The obligation to pay money mistakenly paid arises from the moment said payment was made, and not from the time the payee admits the obligationto reimburse. (Comm. of Internal Revenue vs. Esso Standard Eastern, Inc., 172 SCRA 364 ,) Under the principle, government has the to restore (credit or refund) to the taxpayer the amounts representing 22 OBLIGATIONS Art. 1160 erroneous payments of taxes. (Phil. Geothermal, Inc. vs. Comm. of Internal Revenue, 465 SCRA 308 (2005].) The quasi-contract of solutio indebiti is based on theancientprinciple that no one shall enrichhimself unjustly at the expense of another. Solutio indebiti applieswhere: (a) payment made when is there exists no binding relation between the payor, who has no duty to pay, and the person who received the payment;and (b) the payment is made through mistake!" and not through liberality or some other cause. (Power Commercial and Industrial Corp. vs. Court of Appeals, 274 SCRA 597 : National Commercial Bank of Saudi Arabia vs. Court of Appeals, 396 SCRA 541(20031; Moreño-Lenifer SCRA 584 (2004};Bank vs. Wolf,144 of the Phil. Islandsvs. Sarmiento, 484 SCRA 261.) ILLUSTRATIVE CASES: 1. Recovery taxes paid undera mistake. of Facts: X, a tax-exemptcooperative store, paid taxes to the City of Manila, believing that it was liable. Issue: May X recover the payment? Held: Yes, as it was made under a mistake. (UST Cooperative Store vs. City Manila,15 SCRA 656.) of 2. Recovery of backvages paid which are legally due. Facts: X, an employee of Cebu City, sued certain officials of the City for claim of backwages. Issue: May the City of Cebu successfully recover the payment later made by it to X on the ground that it was not made a party to the case? Held:No, because a judgment against a municipal officer in his of ficial capacity binds the city. The city was under obligation to make the payment. It cannot, therefore, be said that the payment was made by rea son of mistake. (City of Cebu vs. Piccio and Caballero, 110 Phil. 870.) Art. 2163. It is presumed that there was a mistake in the payment if something which had never been due or had already been paid was delivered; but he from whom the return isclaimed may prove that the delivery was made out of liberality or for any other just cause. (1901) Art. 1161 GENERAL PROVISIONS 23 (3) Other cases. - Other examples of quasi-contractsare provided in Article 2164 to Article 2175 of the Civil Code.12 Thecases that have been classified as quasi-contractsare of infinite variety, and when for some reason recovery cannot be had on a true contract, recovery may be allowed on the basis of a quasi-contractin view of the peculiar circumstances or factual environment to the end that a recipientof benefitsor favors resulting from lawful, voluntary and unilateral acts of another may not be unjustly enriched at the " expense of the latter, (Phil. National Bank vs. Court of Appeals, 217 SCRA 347.) ART. 1161. Civil obligations arising from criminaloffenses shall be governed by the penal laws," subject to the provisions of Article 2177,15 and of the pertinentprovisions of Chapter 2, Preliminary Title on Human Relations,19 and of Title XVIll of this Book,regulating damages. (1092a) Civil liability arising from crimes or delicts. This article deals with civil liability arising from crimes or delicts. (1) The commission of an offense has a two-pronged effect: one, on the public as it breaches the social order and the other, upon the private victim as it causes personal sufferingsor each of which injury, is addressed, respectively, by the imposition of heavier punishment on the accused and by an award of additional damages to the victim. (People vs. Catubig, 363 SCRA 621 (2001].) PArt. 2143. The provisionsfor quasi-contracts in this Chapter do not exclude other qua si-contracts which may come within the purview of the preceding article. (n) 1Quantumn meruit allows recovery of the reasonable value regardless of any agreement as to value. It entitles the party to "as much as he reasonably deserves," as distinguished from quantum valebant or to "as much as what is reasonably worth." Recovery based on quantum meruit presents a justiciable question because its settlement requires the application of judg ment and discretion and cannot be adjusted by simple arithmetical processes. (F.F. Mañacop Construction Co., Inc. vs. Court of Appeals, 266 SCRA 235.) The doctrineof quantum meruit prevents undue enrichment based on the equitable postulate that it is unjust for a per son to retain benefit without paying for it. (PhilippineNational Bank vs. Shellink Planners, Inc., 473 SCRA 552 (2006].) 14The pertinent provisionsare Articles 100 to 113 of the Revised Penal Code. 15Art. 2177. Responsibility for fault or negligence under the preceding article [Art. 2176, Note 19.] is entirely separateand distinct from the civil liability arising from negligence under the Penal Code. But the plaintiff cannot recover damages twice for the same act or omission of the defendant. (n) 16Among the pertinent provisionsare Articles 29 to 35 of the Civil Code. 24 OBLIGATIONS Art. 1161 (2) Oftentimes, the commission of a crime causes not only moral evil but also material damage. From this principle, the rule has been established that every person criminally liable for a felonyl" is also civilly liable. (Art.100, Revised Penal Code; see Albert,the Revised Penal Code Annotated, p. 276.) In crimes, however, which cause no material damage (like contempt, insults to person in authority, gambling, violations of traffic regulations, etc.), there is no civil liability to be enforced. But a person not criminally responsible may still be liable civilly. (Art.29;Rules of Court, Rule 111, Sec. 2[c].) Reservation of right to recover civil liability. Under the present rule, only the civil liability arising from the offense charged is deemed instituted with the criminal action unless the offended party waives the civil action, reserves his right to institute it separately,or institutes the civil action prior to the criminal action. There isno more need fora reservation of the right to file the independent civil actions under Articles 32,33,34 and 2176 of the Civil Code. The reservationand waiver referred to refer only to the civil action from the offense charged. for the recovery of the civil liability arising This does not include recovery of civil liability under Articles 32, 33, 34 and 2176 of the Civil Code of the Philippinesarising from the same act or omission which may be prosecuted separatelyeven without a reservation.(DMPI Employees Credit Cooperative, Inc. vs. Velez, 371 SCRA 72 [20011; Hambon vs. Court of Appeals, 399 SCRA 255 (2003|; see Secs. 1, 2, 3, Rule 111, Revised Rules of Criminal Procedure; see Notes 19, 25.) Scope of civil liability. The extentof the civil liability arising from crimes is governed by the Revised Penal Code and the Civil Code.18 This civil liability includes: (1) Restitution; (2) Reparation forthe damage caused; and 1"Afelony is an act or omission punishableby law. It is committed with criminal intent or by means of negligence. (Arts. 3, 365, Revised Penal Code.) I6Articles 2202, 2204-2206,2208, 2211, 2219-2220, 2222, and 2230 of the Civil Code govern the amountof damages recoverable by reason of crime. Art. 1162 GENERAL PROVISIONS 25 Indemnification forconsequential damages. (Art.104, Revised (3) Penal Code.) EXAMPLE: X stole the car of Y. If X is convicted, the court will order X: (1) to return the car (orto pay its value if itwas lost or destroyed); (2) to pay for any damage caused to the car; and (3) to pay such other damages suffered by Y as a consequence of the crime. Where the trial court convicts an accused of a crime, without, however, ordering payment of any indemnity, it has been held that the Supreme Court, on appeal, may modify the decision by ordering indemnification of the offended party pursuant to Articles 100, 104(3), and 107 of the Revised Penal Code. (People vs. Peña, 80 SCRA 589 [19771;see Note 2.) ART. 1162. Obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2,Title XVllof this Book, and by special laws. (1093a) Obligations arising from quasi-delicts. The above provision treats of obligationsarisingfrom quasi-delicts or torts. (seeArts. 217619 to 2194.) 1'Art. 2176. Whoeverby act or omission causes damage to another, there being fault or negligence,is obliged to pay for the damage done. Such fault or negligence,if there is no pre existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter. [on Quasi-delicts] The concept of quasi-delict as enunciated in Article 2176, includes not only injuries to persons but also damage to property. (Cinco vs. Canonoy, 90 SCRA 369.) The Supreme Court has held that "fault or negligence" in Article 2176 covers not only acts "not punishable by law" but also acts criminal in character, whether intentional and voluntary or negligent. Con sequently, a separate civil action lies against the offender in a criminal act, whether or not he is found guilty or acquitted, provided,that the offended party is not allowed, if the offender is actu ally charged also criminally, to recover damages on both scores, and would be entitled in such eventuality only to the bigger award of the two, assuming the awards made in the two cases vary. (Elcano vs. Hill, 77 SCRA 98 ; Virata vs. Ochoa, 81 SCRA 472.) Inasmuch as Articles 2176 and2177 (see Note 2.) create a civil liability distinct and different from the civil action arising from the offense of negligenceunder the Revised Penal Code, no reservation of the right to file an independent civil action based on quasi-delict need be made in the criminal case. Section 2, Rule 111of the Rules of Court is inoperative because of its inconsistency with Article 2177. Therefore, such right is not barred by the failure to reserve the same. But the action for enforcement of civil liability based on culpa criminal under Section 1, Rule 111 of the Rules of Court is deemed simul taneously instituted with the criminal action, unless expressly waived or reserved for separate application by the offended party. (Mendoza vs. Arrieta, 91 SCRA 113.) 26 OBLIGATIONS Art. 1162 A quasi-delict0 is an act or omission by a person (tort feasor) which causes damage to another in his person, property, or rights giving rise to an obligation topay for the damage done, there being fault or negligence but there is no pre-existing contractual relation between the parties," (Art.2176.) Requisites of quasi-delict. Before a person can be held liable for quasi-delict, the following requisites must be present: (1) There must be an act or omission by the defendant; (2) There must be fault or negligence of the defendant; (3) There must be damage caused to the plaintiff; (4) There must be a direct relation or connection of cause and effect between the actor omission and the damage; and 20It is the equivalent of tort in Anglo-American law. But "tort" under that system is much broader than the Spanish-Philippine concept of obligations arising from non-contractual negligence. "Tort" in Anglo-American jurisprudenceincludes not only negligence, but also intentional criminal acts, such as assault and battery, false imprisonment and deceit. In the generalplan of the Philippine legal system,intentional and malicious acts are governed by the Revised Penal Code, although certain exceptions are made. (Reportof the Code Commission, pp. 161-162.) However, the new Civil Code as enacted as well as rulings of the Supreme Court in a number of cases (supra), reveal an intent to adopt a broad interpretation of the provision on quasi-delicts in Article 2176 to include intentional acts. 2Art. 2180. The obligation imposed by Article 2176 is demandable not only for one's own acts or omissions, but also for those of persons for whom one is responsible. The father and, in case of his death or incapacity, the mother, are responsible for the dam ages caused by the minor children who live in their company. Guardians are liable for damages caused by the minors or incapacitated persons who are under their authority and company. live in their The owners and managers of an establishment or enterprise are likewise responsible for damages caused by their employees in the service of the branches in which the latter are employed or on the occasion of their functions. Employers shallbe liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not en gaged in any business or industry. The State is responsible in like manner when it acts through a special agent; but not when the damage has been caused by the official to whom the task done properly pertains, in which case what is provided in Article 2176 shall be applicable. Lastly, teachers or heads of establishments of arts and trades shall be liable for damages caused by their pupils and students or apprentices, so long as they remain in their custody. The responsibility treated of in this article shall cease when the persons herein men tioned prove that they observed all the diligence of a good father of a family to prevent dam age. (1903a) Art. 1162 GENERAL PROVISIONS 27 (5) There is no pre-existing contractual relation between the parties,2 Crime distinguished from quasi-delict. The followingare the distinctions: (1) In crime or delict, thereis criminal or malicious intent or crimi nal negligence,while in quasi-delict, there is only negligence; (2) Crime affects public interest, while quasi-delict concerns private interest; (3) In crime,there aregenerallytwo liabilities: criminaland civil,23 while in quasi-delict, there is only civil liability; (4) In crime or delict, the purpose is punishment, while in quasi delict, indemnification of the offended party; (5) Criminal liability can not be compromised or settled by the parties themselves, 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 rea sonable doubt, while in quasi-delict, the fault or negligence of the de fendant need only be proved by preponderance of evidence; and (7) In crime, the liablity of the person responsiblefor theauthor of the negligentact or omission is subsidiary, while in quasi-delict, it is direct and primary. "A contractual obligation can be breached by tort, and when the sameact or omission causes the injury, one resulting in culpa contractual and the other in culpa aquiliana, Article 2194 which imposes solidary responsibility on two or more persons who are iable for a quasi-de lict, can well apply. In fine, a liability for tort may arise even under a contract, where tort is that which breaches the contract. Stated differently, when an act which constitutes a breach of contract would have itself constituted the source of a quasi-delictual liability had no contract existed between the parties, the contract can be said to have been breached by tort, thereby allowing the rules on tort to apply. (Light Rail Transit Authority vs. Navidad, 397 SCRA 75.) 2Delicts are not as broad as quasi-delicts because the former are punished only if there is a penal law clearly covering them, while the latter include all which any kind of fault acts in or negligence intervenes. But not all violations of the penal laws produce civil responsibility, such as begging in violation of ordinances, of gambling laws, and infraction violation of traffic rules when no injury or damage is caused. (Barredo vs. Garcia, 73 Phil. 607.) 2*The Civil Code provisions on damages especially applicable to obligations derived from quasi-delicts (Arts. 2176-2194.) are Articles 2202, 2206, 2211, 2214-2215, 2219, 2222, and 2231. 28 OBLIGATIONS Art. 1162 ( Recovery of damages twice for the same act or omission prohibited. The same negligent act or omission causing damage may produce from a crime under Article 100 of the Revised civil liability arising Penal Code (supra.) or create an action for quasi-delict under Article 2176. (see Barredo vs. Garcia and Almario, 73 Phil. 607 1942]; see Elcano vs. Hill, 77 SCRA 98.) The Revised Penal Code in Article 365 punishes not only reckless but also simple negligence. Under Article 1157, quasi-delict and an act or omission punish able by law are two different sources of obligations. Inasmuch as civil with criminal responsibility in negligence cases, the liability co-exists offended party has the option between an action for enforcement of civil liability based on culpa criminal under Article 100 of the Revised Penal Code and an action forrecovery of damages based on culpa aq uiliana under Article 2177,2% (seeArt. 1161.) These two causes of action (ex delicto or ex quasi delicto) may be availed of subjectto the caveat that the offended party cannot recover damages twice for the same act or omission or under both causes. Since these two (2) civil liabilities are distinct and independent of each other, the failure to recover in one will not necessarily preclude recovery in the other. (EquitableLeasing Corporation vs.Suyom, 388 SCRA 445.) -oOo 2The 2000 Rules of Criminal Procedure deleted the requirement of reserving indepen dent civil actions and allowed these to proceed separately from criminal ones.Thus, the civil actions referred to in Articles 32, 33, 34, and 2176 of the Civil Code shall remain "separate, distinct and independent" of any criminal prosecution based on the same act or omission. (Neplum, Inc. vs. Orbeso, 384 SCRA 466 (20021: see Casupanan vs. Laroya, 388 SCRA 28 ; Cancio,Jr. vs. sip, 391 SCRA 393.)