LAW ON OBLIGATIONS AND CONTRACTS

SESSION III- NATURE AND EFFECTS OF OBLIGATIONS

Art. 1163- Every person obliged to give something is also obliged to take care of
it with the proper diligence of a good father of a family, unless the law or the
stipulation of the parties requires another standard of care.

• Specific or determinate thing- particularly designated or physically

segregated from others of the same class (identified by its individuality)
• Generic or indeterminate thing- refers only to a class or genus to which it
pertains and cannot be pointed out with particularity (identified only by
its specie)

Duties of debtor in obligation to give a determinate thing:

• preserve the thing (take care of the thing due with the diligence of a good
father of a family pending delivery)
• deliver the fruits of the thing
o natural fruits- spontaneous products of the soil, and the young and other
products of animals (grass, all trees and plants produced without the
intervention of human labor)
o industrial fruits- those produced by lands of any kind through cultivation
or labor (sugar cane, vegetables, rice and all products of lands brought
about by reason of human labor)
o civil fruits- those derived by virtue of a juridical relation (rents of buildings,
price of leases of lands)
• deliver the accessions and accessories
o accessions- fruits of a thing or additions to or improvements upon a
principal thing (house or trees on a land, rents of a building, air-
conditioner in a car
o accessories- things joined to or included with the principal thing for the
latter’s embellishment better use, or completion (key of a house, frame of
a picture, bracelet of a watch, machinery in a factory)
• deliver the thing itself
• answer for damages in case of non-fulfillment or breach

Duties of debtor in obligation to deliver a generic thing:

• deliver a thing which is of the quality intended by the parties
• be liable for damages in case of fraud, negligence or delay, in the performance
of his obligation, or contravention of the tenor thereof
Art. 1164- Right of creditor to the fruits: the creditor is entitled to the fruits of
the thing to be delivered from the time the obligation to make delivery arises,
but, he shall acquire no real right over it until the same has been delivered to
him.

When obligation to deliver fruits arises:

• generally, from the time of the perfection of the contract
• if obligation is subject to a suspensive condition or period, upon the
fulfillment of the condition or arrival of the term
• in a contract of sale, from the time of the perfection of the contract even if the
obligation is subject to a suspensive condition or period where the price has
been paid.

Personal right vs. real right

• Personal right- right or power of a person (creditor) to demand from another
(debtor), as a definite passive subject, the fulfillment of the latter’s obligation
to give, to do, or not to do. Personal right is binding or enforceable only
against a particular person.
• Real right- the right or interest of a person over a specific thing (like
ownership, possession, mortgager), without a definite passive subject against
whom the right may be personally enforced. Real right is directed against the
whole world.

Art. 1165- Rights in case the debtor fails to comply with his obligation:
➢ obligation to deliver a determinate thing (specific real obligation)
• compel delivery (demand specific performance or fulfillment) with a right
to indemnity for damages
• demand rescission or cancellation with a right to recover damages
• demand payment of damages only where it is the only feasible remedy

➢ obligation to deliver a generic thing (generic real obligation)

• ask that the obligation be complied with at the expense of the debtor
• demand payment of damages

RIGHTS AVAILABLE TO A CREDITOR (In obligations to give):

A. If it is a determinate thing:
1. To compel specific performance
2. To recover damages in case of breach
 3. Acquires personal right to the fruits of the thing from the time the
obligation to deliver arises
4. Acquires real right over the thing once the thing has been delivered to him
5. Rights over the accessories and accessions.

B. If it is a generic thing:
1. To ask for performance of the obligation
2. To ask that the obligation be complied with at the expense of the debtor.

Art. 1167- Remedies of creditor in positive personal obligation:

 If the debtor fails to comply with his obligation to do, the creditor has the
right:
1. to have the obligation performed by himself, or by another, at the debtor’s
expense; and
2. to recover damages
 In case the obligation is done in contravention of the terms of the same or is
poorly doe, the court may order that it be undone if it is possible to undo what
was done

Art. 1168- Remedies of creditor in negative personal obligation: when the

obligation consists in not doing and the obligor does what has been forbidden
him, it shall also be undone at his expense, plus damages.

SUMMARY: OBLIGATIONS IMPOSED UPON THE DEBTOR:

I. IN OBLIGATIONS TO GIVE
A. If it is determinate
1. To deliver the thing which he has obligated himself to give
2. To take care of the thing with the proper diligence of a good father of a
family
3. To deliver all its accessories and accessions
4. To pay damages in case of breach of obligation
B. If it is generic
1. To deliver the thing which neither of superior nor inferior quality
2. To pay damages in case of breach of obligation

II.IN OBLIGATIONS TO DO
A. If the debtor fails to do what he is obliged to do, it will be done at his expense
 B. If the work is done in contravention of the tenor of the obligation, it will be
re-done at debtor’s expense
C. If the work is poorly done, it will be re-done at debtor’s expense.

III.IN OBLIGATIONS NOT TO DO

If the debtor performs what is forbidden to do, it shall be undone at his expense.

Art. 1169- Those obliged to deliver or to do something incur in delay from the
time the obligee judicially or extra-judicially demands from them the fulfillment
of their obligation.

Delay-
 ordinary delay- the failure to perform an obligation on time
 legal delay or default- the failure to perform an obligation on time which
failure constitutes a breach of obligation

Delay or default: When the debtor fails to fulfill or perform his obligation on the
delivery or maturity date specified in the contract.

Kinds of delay or default:

 Mora Solvendi– delay on the part of the debtor to fulfill his obligation (to
give or to do)
 Mora accipiendi – delay on the part of the creditor to accept delivery or
acknowledge receipt of the object due or accept the performance of the
obligation; and;
 Compensatio Morae – delay of the obligors in reciprocal obligations (like in
sale), i.e., the delay of the obligor cancels the delay of the oblige, and vice
versa.

Remember: No delay in negative personal obligation.

Requisites of delay or default by the debtor (mora solvendi):

 failure of the debtor to perform his positive obligation on the date agreed
upon
 demand (not mere reminder or notice) made by the creditor upon the
debtor to comply with his obligation which demand may be either judicial
(when a complaint is filed in court) or extra-judicial (when made outside
of court, orally or in writing); and
  failure of the debtor to comply with such demand

Effects of delay-
 mora solvendi:
• debtor is guilty of breach or violation of the obligation
• he is liable to the creditor for interest or damages
• he is liable even for a fortuitous event when the obligation is to deliver a
determinate thing. (In An obligation to deliver a generic thing, the debtor
is not relieved from liability for loss due to a fortuitous event and can still
be compelled to deliver a thing of the same kind or held liable for damages,
in line with principle of genus nunquam perit)

 mora accipiendi:
• creditor is guilty of breach of obligation
• he is liable for damages suffered if any be the debtor
• he bears the risk of loss of the thing due
• where the obligation is to pay money, the debtor is not liable for interest
from the time of creditor’s delay; and
• the debtor ay release himself from the obligation by the consignation or
deposit in court of the thing or sum due

 compensation morae- delay of the obligor cancels the delay of the oblige and
vice versa. Net result is that there is no default or delay on the part of both
parties

Legal delay: delay by the debtor begins only from the moment of a demand,
judicial or extra-judicial, for the fulfillment of the debtor’s obligation is made by
the creditor

Delay or default:
The debtor can be held liable for the delay or default in the fulfillment of his
obligation only after the creditor has made a demand, judicial or extrajudicial,
on the debtor, except:
 When the law expressly provides that demand is not necessary;
 When the contract expressly stipulates that demand is not necessary;
 When time is of the essence;
 When demand would be useless.

In reciprocal obligations, when one party fulfills or is ready to fulfill in a manner

with his contractual duty, delay by the other party begins;
When demand is not necessary to put debtor in delay
• when the obligation so provides
• when the law so provides
• when demand would be useless
• when there is performance by a party in reciprocal obligations

Art. 1170- Four grounds for liability which may entitle the injured party to
damages: (SOURCES OF LIABILITY)
1. Fraud (deceit or dolo)- the deliberate or intentional evasion of the normal
fulfillment of an obligation; it implies some kind of malice or dishonesty and
is synonymous to bad faith. It cannot cover cases of mistake and errors of
judgment made in good faith. Fraud referred under this article is incidental
fraud or dolo incidente. Kinds of fraud:
• Incidental fraud (dolo incidente)- committed in the performance of an
obligation already existing because of contract. The remedy for the other
party if to claim damages.
• Causal fraud (dolo causante)- fraud employed in the execution of a
contract, which vitiates consent. Without the fraud, the other party could
not have given his consent to the contract. The remedy for the other party
is to have the contract annulled or set aside o the ground of fraud.
2. Negligence (fault or culpa)- any voluntary act or omission, there being no
malice, which prevents the normal fulfillment of an obligation
3. Delay (mora)
4. Contravention of the tenor of the obligation- violation of the terms and
conditions stipulated in the obligation. The contravention must not be ue to
a fortuitous event of force majeure.

SUMMARY

Negligence: Omission of that diligence which is required by the nature of the

obligation and corresponds with the circumstances of the persons, of time and of
the place.

Fraud: It is the intent to evade the normal fulfillment of the obligations and to
cause damage; 2 kinds of Fraud:
1. Dolo causante or Causal Fraud – The fraud used to induce a person to agree
to a contract. This kind of fraud is a ground for annulment of the contract
plus damages;
 2. Dolo incidente or incidental fraud – fraud which is merely incidental in the
performance of a valid obligation.

Contravention of the tenor of the Obligation: In contracts, where performance is

contrary to what is agreed upon, therefore making the debtor liable for damages.

Art. 1171- Responsibility arising from fraud can be demanded with respect to all
kinds of obligation and unlike in the case of responsibility arising from
negligence, the court is not given the power to mitigate or reduce the damages to
be awarded.
• A waiver of an action for future fraud is void (no effect, as if there is no
waiver) as being against public policy.
• Waiver of action for past fraud is valid.

Art. 1172- In the performance of every kind of obligation, the debtor is also liable
for damages resulting from his negligence. The courts, however, are given wide
discretion in fixing the measure of damages.

Art. 1173- In determining the issue of negligence, the following factors must be
considered:
• nature of the obligation
• circumstances of the person
• circumstances of time
• circumstances of place

Kinds of diligence required:

• that agreed upon by the parties, orally or in writing
• in the absence of stipulation, that required by law in the particular case (like
extraordinary diligence required of common carriers)
• if both contract and law are silent, then the diligence expected of a good father
of a family

Art. 1174- Except in cases expressly specified by law, or when it is otherwise

declared by stipulation, or when the nature of the obligation requires the
assumption of risk, no person shall be responsible for those events which could
not be foreseen, or which though foreseen, were inevitable.
Fortuitous event- refers to any event which cannot be foreseen, or which, though
foreseen, is inevitable. It is a happening independent of the will of the debtor
and which happening, makes the normal fulfillment of the obligation impossible.

Distinction:
• fortuitous event (acts of man)- an event independent of the will of the obligor
but not of other human wills (war, fire, murder, robbery, insurrection, etc.)
• force majeure (acts of God)- events which are totally independent of the will
of every human being (earthquake, flood, rain, shipwreck, lightning eruption
of volcano, etc.)

Requisites of a fortuitous event-

 the event must be independent of the human will or at least of the debtor’s
will
 the event could not be foresee, or if foreseen, is inevitable
 the event must be of such a character as to render it impossible for the debtor
to comply with his obligation in a normal manner
 the debtor must be free from any participation in, or the aggravation of, the
injury to the creditor, that is, there is no concurrent negligence on his part.

Rules as to liability in case of fortuitous event- A person is not, as a rule,

responsible for loss or damage caused to another resulting from fortuitous
events. In other words, his obligation is extinguished. The following are the
exceptions:
 when expressly specified by law
• the debtor is guilty of fraud, negligence, or delay, or contravention of the
tenor of the obligation
• the debtor has promised to deliver the same (specific) thing to two or more
persons who do not have the same interest
• the obligation to deliver a specific thing arises from a crime
• the thing to be delivered is generic
 when declared by stipulation
 when the nature of the obligation requires the assumption of risk

SUMMARY: General rule as to the loss of the specific or determinate thing

through a fortuitous event:
The obligation is extinguished and the debtor is not liable, except:
a) When to object is generic
b) When the debtors incurs in delay
 c) When the law or contract expressly provides that the obligation will not be
extinguished
d) When the nature of the obligation requires an assumption of risk.

Art. 1175- Usurious transactions shall be governed by special laws

Requisites for recovery of interest:

 the payment of interest must be expressly stipulated
 the agreement must be in writing; and
 the interest must be lawful

Art. 1176- The receipt of the principal by the creditor, without reservation with
respect to the interest shall give rise to the presumption that said interest had
been paid. The receipt of a later installment of a debt without reservation as to
prior installments, shall likewise raise the presumption that such installments
have been paid.

Presumption- the inference of a fact not actually known arising from its usual
connection with another which is known.

Kinds of presumption
 conclusive presumption- one which cannot be contradicted, like the
presumption that everyone is conclusively presumed to know the law
 disputable (or rebuttable) presumption- one which can be contradicted or
rebutted by presenting proof to the contrary.

When presumptions in Article 1176 do not apply:

 with reservation as the interest- there is a reservation that no payment has
been made as to interest or prior installments, as the case may be. The
reservation may be made in writing, or verbally.
 receipt without indication of particular installment paid- the receipt does not
recite that it was issued for a particular installment due as when the receipt
is only dated.
 payment of taxes- there is not presumption that previous taxes have been
paid by the payment of later ones.
 non-payment proven- non-payment of prior obligations has been proven.
Art. 1177- Remedies available to creditors for the satisfaction of their claims:
 Exact fulfillment (specific performance) with the right to damages
 Pursue the leviable (not exempt from attachment under the law) property of
the debtor
 After having pursued the property in possession of the debtor, exercise all the
rights (like the right to redeem) and bring all the actions of the debtor (like
the right to collect from the debtor of his debtor) except those inherent in or
personal to the person of the latter (such as the right to vote, to hold office,
to receive legal support)
 Ask the court to rescind or impugn acts or contracts which the debtor may
have done to defraud him when he cannot in any other manner recover his
claim

SUMMARY: Remedies of the Creditor against his debtor:

1. Sue the debtor for collection
2. Attachment of debtor’s property, real or personal, except those which are
exempt from execution
3. Exercise all the rights and actions which the debtor may have against third
persons, except those which are inherently personal to the debtor.
4. To impugn or contest acts of debtor which are intended to defraud his
creditor (Action pauliana)

Art. 1178- All rights acquired in virtue of an obligation are generally

transmissible. The exceptions are the following:
 prohibited by law (which are purely personal in character)
• rights in partnership
• rights in agency
• rights under commodatum
 prohibited by stipulation of the parties

SUMMARY: Transmissibility of rights:

Subject to such laws, all rights acquired by virtue of an obligation are
transmissible. Heirs shall be liable only to the extent of what they stand to inherit.
Exceptions:
1) When the law prohibits transmission of rights
2) When the contract stipulates no transmission of rights
3) When the nature of the obligation does not permit transmission of rights, as
when the obligation is personal in nature.