The Laws on Obligations and Contracts PDF

Lecture No. 2: The Laws on Obligations and Contracts Atty. Faye Agcarao THE LAWS ON OBLIGATIONS AND CONTRACTS Importance of knowing the legal concepts behind civil obligations and entering into contracts: ∙ Entering into different contracts is almost a part and...

Lecture No. 2: The Laws on Obligations and Contracts Atty. Faye Agcarao THE LAWS ON OBLIGATIONS AND CONTRACTS Importance of knowing the legal concepts behind civil obligations and entering into contracts: ∙ Entering into different contracts is almost a part and parcel of the operation of the tourism and hospitality business. As such, one should understand that there are obligations that must be faithfully observed which, if violated, may lead to a legal cause of action. “Civil Obligation” – Under Article 1156, Civil Code: ∙ “Obligation is a juridical necessity to give, to do, or not to do.” ∙ The above article only pertains to civil obligations which means that if these obligations are not performed by one party, the other party may go to court to enforce the obligation and/or claim payment for damages. Elements of an Obligation: Passive Subject The person or party who has the duty to fulfill the obligation Also called as the “Debtor” or “Obligor” Active Subject The person who has the power to demand fulfillment of the Also called as the obligation “Creditor” or “Obligee” Prestation The object of the obligation either: to give, to do, or not to do Also called as the “Object” Juridical Tie That which binds the debtor and the creditor Also called as the “Vinculum” Example: Alice obliged herself to deliver 10 boxes of red wine to Lucky South Restaurant owned by Cassandra. Here, the elements of the obligation are as follows: ∙ Passive Subject/Obligor/Debtor: Alice - because Alice is the one who has the duty to fulfill the obligation to deliver the 10 boxes of red wine. ∙ Active Subject/Obligee/Creditor: Cassandra - because in case of failure of Alice to deliver the 10 boxes of red wine, Kristine may demand from Alice to deliver the same. ∙ Object: To give and To do - deliver the 10 boxes of red wine. ∙ Juridical Tie: Agreement or Contract - Alice and Cassandra entered into an agreement/contract concerning the delivery of 10 boxes of red wine.  Page 1 of 5 Lecture No. 2: The Laws on Obligations and Contracts Atty. Faye Agcarao Sources of Obligation - Civil obligations are those that arise from any of the following sources: 1. Law 2. Contracts 3. Quasi-Contracts; 4. Acts or omissions punishable by law (“Delicts”); or 5. Quasi-Delicts A. Obligations arising from Law ∙ Obligations arising from Law are NOT PRESUMED. ∙ Only those obligations expressly determined by law are demandable. Example: Mabuhay Hotel Corporation is earning a lot of income but the said corporation is not paying the proper tax. Can the BIR sue Mabuhay Hotel Corporation before the court? Answer: Yes. Mabuhay Hotel Corporation can be sued because the obligation to pay the proper tax is mandated by no less than the law, particularly the National Internal Revenue Code of the Philippines. B. Obligations arising from Contracts ∙ In every contract entered into by the parties, there is always obligation to be performed. ∙ Once a contract is perfected, parties must comply with their respective obligations. Otherwise, a non-fulfillment or breach of such obligations will give the injured party the right to file a civil case against the other party. ∙ A “contract” is different from an “obligation”. ∙ There can be an obligation without a contract. However, there is no contract if there is no obligation. All contracts have obligations. C. Obligations arising from Quasi-Contracts ∙ “Quasi-Contract” – under Article 2142, Civil Code, a quasi-contract is defined as, “lawful, voluntary, and unilateral acts, to the end that no one may be unjustly enriched or benefited at the expense of another” Example No. 1: Harry met an accident and became seriously ill. He was treated and helped by Dr. Sarah while he was not in a condition to give consent to a contract. Here, Harry shall be liable for the services of Dr. Sarah, unless the service has been rendered out of pure generosity. Example No. 2: During Typhoon Carina, Apollo’s properties within his compound were saved from destruction by Rody. This was done without Apollo’s knowledge. Here, Apollo is bound to pay Rody just compensation. D. Obligations arising from Quasi-Delicts ∙ These are acts or omissions that cause damage to another, there being fault or negligence. ∙ Here, there is no pre-existing contractual relation between the parties.  ∙ Requisites: To sustain a claim based on Quasi-Delict, the following requisites must be present: Page 2 of 5 Lecture No. 2: The Laws on Obligations and Contracts Atty. Faye Agcarao 1. The injured party suffered damage; 2. There was fault or negligence of the other party (the party at fault); and 3. There is a connection of cause and effect between the fault/negligence of one party and the damage incurred by another. Example: Sheila was driving her car recklessly while drunk. She hits Wesley, a mere pedestrian who happened to be crossing the street. As a consequence, Wesley suffered injuries. Can Wesley file a case against Sheila based on Quasi-Delict? Let us examine: Was there damage or injury suffered by Wesley? Was there negligence on the part of Sheila? Was the negligence of Sheila the direct cause of the injuries suffered by Wesley? Answer: Yes, Wesley can file a civil case for damages against Sheila based on Quasi-Delict. ∙ Owners and managers of an establishment can be held liable for the negligent acts of their employees based on Quasi-Delict. Under Article 2180, Civil Code: o “The owners and managers of an establishment or enterprises are responsible for damages caused by their employees in the service of the branches in which the employee is employed or on the occasion of their functions.” o “Employers shall be liable for damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry.” ∙ Based on the foregoing, one may file a case against the employer or manager even if he/she is not the one who committed damage to another. However, before an employer may be held liable for the negligence of his/her employee, the act or omission which caused the damage must have occurred while the employee was in the actual performance of his/her assigned tasks or duties. Question: What could possibly be the defense of an owner, manager, or employer in order to be relieved from liability of their employees? Answer: Also under Article 2180, Civil Code, the employers may invoke the defense that they observed all the diligence of a good father of a family to prevent damage. In other words, liability is relieved upon showing that employers exercised the diligence of a good father of a family in the selection and supervision of their employees. Example: Carlos, a driver, is a regular employee of Whirlwind Hotel, Inc. One of his functions is to pick up guests of the said hotel. One day, Carlos went to the airport to fetch their guest, Chloe, to the hotel. However, on their way to the hotel, Carlos fell asleep while driving. As a consequence, the car he was driving hits Angelica. Angelica thereafter suffered damages. Can Angelica sue Whirlwind Hotel, Inc., the employer of Carlos for damages? Answer: Yes. Under the Civil Code on Quasi-Delicts, the employer, Whirlwind Hotel, Inc., is liable due to the negligence of their employee. Since Carlos was negligent in driving,  the employer may be held liable. Page 3 of 5 Lecture No. 2: The Laws on Obligations and Contracts Atty. Faye Agcarao Follow-up question: But what possible defense can Whirlwind Hotel, Inc., raise in order to relieve itself from liability? Answer: Whirlwind Hotel, Inc. may raise the defense that it exercised the diligence of a good father of the family in the selection and supervision of its employees. For example, if Whirlwind Corporation is able to prove that it carefully scrutinized the qualifications, records, experience and training of Carlos. Sources of Damages (Liability): Article 1170 of the Civil Code provides: ∙ “Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages.” ∙ Under this provision, the following are sources of damages: 1. Fraud (“Dolo”) 2. Negligence or Fault (“Culpa”) 3. Delay 4. Contravention of the Tenor of the Obligation A. Fraud (“Dolo”) ∙ Pertains to the deliberate and intentional evasion of the normal fulfillment of obligation. ∙ Example: Cassandra is the owner of Lucky South Restaurant. She ordered five (5) sacks of Jasmine Rice from Alice. On the day of the delivery, Alice mixed NFA rice to each sack of rice. Here, Alice committed fraud against Cassandra. The remedy of Cassandra is to ask for damages. B. Negligence or Fault (“Culpa”) ∙ Refers to the omission of that diligence which is required by the nature of the obligation. ∙ Example: Mr. X sets a business meeting in Cebu. He boarded Pacific Airlines and checked in his two (2) travelling bags. When he reached the airport in Cebu, his travelling bags were missing due to the negligence of the airline crew. Can Pacific Airlines, Inc., be held liable for damages? ∙ Answer: Yes, Pacific Airlines can be held liable for damages due to negligence. As a common carrier, it has the obligation to observe utmost diligence in carrying and transporting passengers and goods. Since it failed to observe that diligence, the airlines is responsible for damages due to the loss of travelling bags. C. Delay ∙ General Rule: “No demand, no delay” ∙ If the creditor did not demand for the performance of the obligation, the debtor is not considered to be in delay. As such, the creditor cannot go to court and sue the debtor.  Example: Mr. X entered into a contract of loan with Mr. Y amounting to Php 100,000.00 to be paid on December 15, 2024. When the due date came, Mr. X failed to pay. Page 4 of 5 Lecture No. 2: The Laws on Obligations and Contracts Atty. Faye Agcarao o Is Mr. X already legally in delay? – No, not yet. Mr. Y has not yet made a formal demand for Mr. X to pay the outstanding loan. Hence, the general rule of “no demand, no delay” still applies. o Can Mr. Y already go to court and demand the fulfillment of Mr. X’s obligation to pay the loan? – No, not yet. Since the delay of Mr. X has not yet been legally established, Mr. Y has no cause of action to file a case before the court. Follow-up question: Supposing on December 27, 2024, Mr. Y wrote a demand letter to Mr. X for him to pay the Php 100,000.00. Mr. X has 5 days to pay and settle the loan. However, after 5 days, Mr. X still did not pay. o Is Mr. X already legally in delay? – Yes. This time, since Mr. Y has already formally made a demand to Mr. X, the latter’s delay in the fulfillment of his obligation to pay the loan has commenced. o Can Mr. Y already go to court and demand the fulfillment of Mr. X’s obligation to pay the loan? – Yes, Mr. Y now has a cause of action to file a civil case to claim the unpaid balance from Mr. X. D. Contravention in the Tenor of the Obligation ∙ Refers to the failure to perform that which is incumbent upon him or the non performance or failure of a party to fulfill his duty. Case study: Air France vs. Rafael Carrascoso (G.R. No. L-21438, September 28, 1966) Facts of the Case: ∙ Air France issued to Mr. Carrascoso a first-class roundtrip airplace ticket from Manila to Rome. ∙ From Manila to Bangkok, Mr. Carrascoso travelled in first-class, but at Bangkok, the Manager of Air France forced him to vacate the first-class seat that he was occupying because there is a “white man” who has a “better right” to the deat. ∙ Mr. Carrascoso refused and a commotion ensued. The fight was pacified and Mr. Carrascoso reluctantly gave up his seat. Issue: Is Air France liable for contravention of the tenor of the obligation? Ruling: Yes, Air France is liable. Here, there was a contract to give Mr. Carrascoso a first-class passage covering the entire trip. Unfortunately, that contract was breached when the airline failed to give that first-class transportation. Moreover, there was evident bad faith when the Air France Employee forced Mr. Carrascoso to vacate his seat of which he suffered inconvenience, embarrassment and humiliation. Thus, resulting to damages. Page 5 of 5