Sources of Obligations

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Five sources of obligations – There are five sources of obligations, namely: (1) law; (2) contracts; (3) quasi-contracts; (4) acts or omissions punished by law; and (5) quasi-delicts.[1] Hence, any obligation imposed on a person, for which a corresponding right is granted to another, is sourced in at least one of these five sources.[2] 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 of an obligation will simply be a conclusion of fact and law.[3]

Same; Law; Legal obligations not presumed – An obligation arising from law is not presumed.[4] Thus, the demandable obligations are only those expressly provided in the Civil Code or in special laws.[5] The law establishing the obligation will be the one to regulate the latter depending on the precepts of the said law, including those that have not been foreseen.[6]

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.

Same; Contract – 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.”[7] Contractual obligations have “the force of law” by and between the contracting parties.[8] These obligations are required to be “complied with in good faith.”[9]

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 latter denied the former of their 1st class reservations for their trip from Tokyo to San Francisco since that 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 and wrote to Pan-Am a letter stating that they are doing so “under protest.” In their defense, Pan-Am claimed that the entire incident was due 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 wilfully and knowingly placed itself into the position of having to breach its a foresaid 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’s 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.”

Plaintiffs are entitled to moral damages as they are recoverable “in breach of contracts where the defendant acted fraudulently or in bad faith.” Also, plaintiff is entitled to exemplary or corrective damages  which 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;[10] (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.

(Note: This case was set in the 60s when the peso valuation was substantially lower. When computed to its present day value, the award granted could easily run in the millions of pesos.)

Same; Quasi-contract – 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.”[11]

Best Legal Practices

  • Document quasi-contractual obligations – For the interests 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 creditor.

Acts or omissions punished by law – An act or omission punished by law either refers to: (a) a felony punishable under the Revised Penal Code, or (b) a crime punishable under special laws.Quasi-delict – A quasi-delict is an obligation to pay for damages imposed on a person who “by act or omission causes damage to another, there being fault or negligence” and there is “no pre-existing contractual relation between the parties.”[12]


[1] CIVIL CODE. Article 1157.

[2] Id at 4.

[3] Ibid.

[4] CIVIL CODE. Article 1158.

[5] Ibid. Article 1158.

[6] Ibid.

[7] Ibid. Article 1305.

[8] Ibid. Article 1159.

[9] Ibid.

[10] 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.

[11] Metropolitan Bank & Trust Company v. Absolute Management Corporation, G.R. No. 170498, 09 January 2013, citing Cruz v. J.M. Tuason Company, Inc., 167 Phil. 261, 276-277 (1977). The Civil Code has a list of quasi-contract which enumeration is not exhaustive (see CIVIL CODE, Articles 2144, 2154, 2164-2175, 2143). The two common ones are: (1) 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” (Article 2144, Civil Code); and, (2) solutio indebiti – should something be received “when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises” (Article 2154, Civil Code).

[12] CIVIL CODE. Article 2176.

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