Sources of Obligations
There may be various sources of obligations, including moral, ethical, and legal. For the purpose of understanding business law, the focus is on legal obligations which may be enforced against another person through the regular courts.
There are five sources of legal obligations, namely: (1) law; (2) contracts; (3) quasi-contracts; (4) acts or omissions punished by law; and (5) quasi-delicts.
It is important to remember that obligations will only arise from either or a combination of the above-mentioned sources. Hence, any obligation imposed on a person, for which a corresponding right is granted to another, is sourced from at least one of these five sources. If an obligation cannot be traced back to either of those, then it is not be a legal obligation.
Further, to successfully enforce a right and to demand an obligation from another, the source of the obligation must be identified.  Otherwise, the mere assertion of a right and a claim to an obligation will simply result in a mere conclusion of fact and law. For example, a government office cannot impose fines and penalties if there is no basis for it under the law. There must be a source of a legal obligation.
Law as a source of obligation – The law may impose an obligation on a business.  These law-based obligations are never presumed. There must be a legal provision which serves as the basis. Necessarily, the demandable obligations are only those expressly provided by the law.
If there is a law, then it will regulate the observance of the obligation depending on the precepts of that particular law, including those that have not been foreseen. For instance, Article 1174 of the Civil Code specifically provides that the happening of a force majeure releases one from an obligation.
Best Legal Practices:
Obligations arising from law must have legal basis – When an obligation arising from law is imposed on a business, it is best to ask for the legal basis to confirm whether such in fact exists. With government offices, managers may coordinate with the concerned offices/agencies and ascertain the existence of any rules and regulations that their business may need to comply. Hence, managers may write a letter asking for opinion from the concerned office whether compliance is indeed required by law.
The law specifically provides that contractual obligations have the force of law between the contracting parties. Further, the law requires that these obligations be complied with in good faith. Consequently, those who do not comply with their contractual obligations are liable for breach of contract resulting in payment of damages, among others.
Contract as a source of obligations – A contract is a meeting of the minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.
Fernando Lopez, et al., v. Pan American World Airways
G.R. No. L-22415, 30 March 1966
Plaintiffs, then Senate President Pro Tempore Fernando Lopez and his family, filed a complaint for breach of contract in bad faith against Pam American World Airways after the airline denied the plaintiffs of their 1st class reservations for their trip from Tokyo to San Francisco. The airline denied them of their reservations since the 1st class was already fully occupied. Instead, Pan-Am placed them in the tourist class. Considering their pressing business concerns and for medical reasons, the Lopez family acceded but latter on wrote to Pan-Am stating that they are doing so “under protest.” In their defense, Pan-Am claimed that the entire incident was due primarily to an “honest error” by its employees.
HELD: Pan American was liable for breach of contract in bad faith. The airline company admitted that the plaintiffs’ reservations were first cancelled by mistake but the same was deliberately and intentionally withheld. “In so misleading plaintiffs into purchasing first class tickets in the conviction that they had confirmed reservations for the same, when in fact they had none, defendant willfully and knowingly placed itself into the position of having to breach its aforesaid contracts with plaintiffs should there be no last-minute cancellation by other passengers before flight time, as it turned out in this case.” The company may have been promoted by its self-interest in holding on to the plaintiffs and thus foreclosing the latter’s chance of availing the first class accommodations of other airlines. “All the time, in legal contemplation such conduct already amounts to action in bad faith. For bad faith means a breach of a known duty through some motive of interest or ill-will.”
Thus, plaintiffs are entitled to moral damages as they are recoverable “in breach of contracts where the defendant acted fraudulently or in bad faith.” Also, plaintiffs are entitled to exemplary or corrective damages as they are “imposed by way of example or correction for the public good, in breach of contract where the defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.” Moreover, they are entitled to attorney’s fees which amount is controlled by the written contract for an attorney’s services unless found by the court to be unconscionable or unreasonable.
Plaintiffs were awarded: (1) Php200,000.00 as moral damages, divided among plaintiffs; (2) Php75,000.00 as exemplary damages; (3) interest at the legal rate of 6% per annum on the moral and exemplary damages from the date of the amended decision by the lower court, until damages are fully paid; (4) Php50,000.00 as attorney’s fees; and; (5) the costs.
Best Legal Practices:
Comply with contractual obligations in good faith – To avoid incurring such liability, a business should ensure that all its contractual obligations are complied with in good faith.
Quasi-contract as a source of obligation – A quasi-contract is a juridical relation that the law creates on the basis of certain voluntary, unilateral and lawful acts of a person, to avoid unjust enrichment at the expense of another.In the Lopez case, the airline was made liable for damages as a result of a breach of their contractual obligations. In 1966, the award imposed was a huge sum of money. The airline’s liability ballooned due to the finding of bad faith on their part. As a consequence, plaintiffs were awarded moral and exemplary damages, as well as attorney’s fees.
While the law does not exhaustively list down all quasi-contracts, it provides for two general examples. 
First, in a negotiorum gestio, any person who voluntarily takes charge of the agency or management of the business or property of another, without any power from the latter, is obliged to continue the same until the termination of the affair and its incidents, or to require the person concerned to substitute him, if the owner is in a position to do so.
For example, if a business owner leaves and did not provide for any arrangements, the manager may voluntarily take charge despite not being authorized to do so. Once that is done, the manager will be obligated to run the business until its termination or any pending incident, as well as require any person concerned to be the manager’s substitute.
Best Legal Practices:
Document quasi-contractual obligations – For the interest and protection of the obligor subjected to quasi-contractual obligations, the latter should document all expenses that he made in order to recover them as reimbursements from the obligee.
For example, if a shop owner receives payment when it is not owing from a supplier, the shop owner is required to return the sum of money.Second, in a solutio indebiti, any person who receive something when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises.
In either of the above case, as well as in any quasi-contract, unjust enrichment is not allowed resulting the reimbursement or return of payment.
Acts or omissions punished by law as a source of obligation – An obligation arising from an act or omission punishable by law either refers to: (a) a felony punishable under the Revised Penal Code, or (b) a crime punishable under special laws.
For instance, administrative fines or imprisonment are imposed for violations of business laws, including but not limited to, the Labor Code, National Internal Revenue Code, Corporation Code, Intellectual Property Code.
Quasi-delict as a source of obligation – A quasi-delict is an obligation to pay for damages imposed on a person who, by act or omission, caused damage to another through fault or negligence, with the parties having no pre-existing contractual relations. The proximate cause of the damage must be attributable to the defendant. However, while stated in the law, it has repeatedly been held that the existence of a contractual relation between the parties do not bar an action for quasi-delict.
Coca-Cola Bottlers Philippines, Inc. v. Court of Appeals
G.R. No. 110295, 18 October 1993
A store-operator in a kindergarten school filed suit against Coca-Cola claiming that she closed shop and lost her livelihood after incurring heavy losses due to fiber like materials in her stock of Coca-Cola soft drinks. As a defense, Coca-Cola claimed that her cause of action, if any, is for breach of contract – and not quasi-delict.
HELD: Coca-Cola was liable for breach of contract and quasi-delict. “The vendor could likewise be liable for quasi-delict under Article 2176 of the Civil Code, and an action based thereon may be brought by the vendee. While it may be true that the pre-existing contract between the parties may, as a general rule, bar the applicability of the law on quasi-delict, the liability may itself be deemed to arise from quasi-delict, i.e., the acts which breaks the contract may also be a quasi-delict.”
– – –
 Ibid. Article 1157.
 Id at 4.
 Ibid. Article 1157.
 CIVIL CODE. Article 1158.
 Ibid. Article 1158.
 Ibid. Article 1305.
 Ibid. Article 1159.
 Lopez v. Pan American World Airways, G.R. No. L-22415, 30 March 1966.
 Php200,000.00 was divided as follows: Php100,000 to Senate President Pro Tempore Fernando Lopez, Php50,000.00 for his wife Maria J. Lopez, Php25,000.00 for his son-in-law Alfredo Montelibano, Jr., Php25,000.00 for his daughter Mrs. Alfredo Montelibano, Jr.
 CIVIL CODE. Article 2142.
 The Civil Code’s numeration of quasi-contract is not exhaustive (seeCIVIL CODE, Articles 2144, 2154, 2164-2175, 2143).
 CIVIL CODE, Article 2144.
 Ibid. Article 2154.
 Ibid. Article 2142.
 Ibid. Article 2176.
 CIVIL CODE. Article 2176, cf. 2217.
 Coca-Cola Bottlers Philippines, Inc. v. Court of Appeals, G.R. No. 110295, 18 October 1993