Nature and Effect of Obligations

Article 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.

• Concurrent (Existing) obligations in obligations to give a specific or

determinate thing and generic or Indeterminate thing.

• Meaning of specific or determinate thing

➢ Specific or determinate particularly designated or physically segregated from
others of the same class.

• Meaning of generic or indeterminate thing

➢ Refers only to a class or genus (group) to which it pertains and cannot be
pointed out with particularity.

• Specific thing and determinate thing distinguished

➢ Determinate=individuality, debtor cannot substitute it with another although
the latter is of the same kind and quality without the consent of the creditor.
➢ Generic=specie, debtor can give anything of the same class as long as it is of
the same kind.

• Duties of debtor in obligation to give a determinate thing

1. Preserve or taken care of the thing
a. Diligence of a good father of a family
ordinary care or diligence which an average (a
reasonably prudent) person exercises over his own
property.
b. Another standard of care
slight or extraordinary diligence
c. Factors to be considered
General rule: the debtor is not liable if his failure to
preserve the thing is not due to his fault or negligence
but to fortuitous events or force majeure.
d. Reason for debtor’s obligation
must exercise diligence to ensure that the thing to be
delivered would subsist in the same condition as it
was when the obligation was contracted.
2. Deliver the fruit of the thing (Article 1164)
3. Deliver the accessions and accessories (Article 1166)
4. Deliver the thing itself (Article11 63)
5. Answer the damages in case of non -fulfillment or breach (Article 1170)
 • Duties in obligation to deliver a generic thing
1. To deliver a thing which is of the quality intended by the parties taking into
consideration the purpose of the obligation and other circumstances
2. To be liable for damages in case of fraud, negligence, or delay, in the
performance of his obligation, or contravention of the tenor thereof.

Article 1164. The creditor has a right to the fruits of the thing from the time the obligation
to deliver it arises. However, he shall acquire no real right over it until the same has been
delivered to him.

• Kinds of fruits

• Different kind of fruits

1. Natural fruits
❖ spontaneous products of the soil, and the young and other products
of animals.
2. Industrial fruits
❖ produced by lands of any kind through cultivation or labor.
3. Civil fruits
❖ derived by virtue of a juridical relation .

• Right of creditor to the fruit

➢ entitled to the fruits of the thing to be delivered from the time the obligation to
make delivery arises.

• When obligation to deliver fruits arises

1. Generally, the obligation to deliver the thing due and, consequently, the
fruits thereof, if any, arises from the time of the “perfection of the contract.”
2. If the obligation is subject to a suspensive condition or period, it arises upon
fulfillment of the condition or arrival of the term.
3. In a contract of sale, the obligation arises from the perfection of the contract
even if the obligation is subject to a suspensive condition or a suspensive
period where the price has been paid.
4. In obligations to give arising from law, quasi-contracts, delicts, and quasi-
delicts, the time of performance is determined by the specific provisions of
law applicable.

• Meaning of personal right and real right

1. Personal right
❖ The 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.
2. Real right
❖ the right or interest of a person over a specific thing (like ownership,
possession, mortgage, lease record) without a definite passive
subject against whom the right may be personally enforced.
 • Personal right and real right distinguished
1. In personal right there is a definite active subject and a definite passive
subject, in real right, there is only a definite active subject without any
definite passive subject.
2. A personal right is, therefore, binding or enforceable only against a
particular person while a real right is directed against the whole world.

• Ownership acquired by delivery

➢ “he shall acquire no real right over it until the same has been delivered to him,”
❖ that the creditor does not become the owner until the specific thing
has been delivered to him.
➢ when there has been no delivery yet, the proper action of the creditor is not
one for recovery of possession and ownership but one for specific
performance or rescission of the obligation.

Article 1165. When what is to be delivered is a determinate thing, the creditor, in addition
to the right granted him by Article 1170, may compel the debtor to make the delivery.

If the thing is indeterminate or generic, he may ask that the obligation be complied with
at the expense of the debtor.

If the obligor delays, or has promised to deliver the same thing to two or more persons
who do not have the same interest, he shall be responsible for any fortuitous event until
he has effected the delivery.

• Remedies of creditor in real obligation

1. In a specific real obligation (obligation to deliver a determinate thing)
❖ the creditor may exercise the following remedies or rights in case
the debtor fails to comply with his obligation:
a. demand specific performance or fulfillment (if it is still
possible) of the obligation with a right to indemnity for
damages
b. demand rescission or cancellation (in certain cases) of th e
obligation also with a right to recover damages
c. demand the payment of damages only where it is the only
feasible remedy.
❖ the very thing itself must be delivered.
❖ only the debtor can comply with the obligation.
2. In a generic obligation (obligation to deliver a generic thing)
❖ can be performed by a third person since the object is expressed
only according to its family or genus.
❖ not necessary for the creditor to compel the debtor to make the
delivery although he may ask for performance of the obligation.

• When debtors delays or has promised delivery to separate creditors

➢ Paragraph 3 gives two instances when a fortuitous event does not exempt the
debtor from responsibility (refers to a determinate thing).
 ➢ An indeterminate thing cannot be the object of destruction by a fortuitous
event because genus nunquam perit (genus never perishes).

Article 1166. The obligation to give a determinate thing includes that of delivering all its
accessions and accessories, even though they may not have been mentioned.

• Meaning of accessions and accessories

1. Accessions
❖ the fruits of, or additions to, or improvements upon, a thing (the
principal).
2. Accessories
❖ things joined to, or included with, the principal thing for the latter’s
embellishment, better use, or completion.

• Right of creditor to accessions and accessories

➢ General rule: all accessions and accessories are considered included in the
obligation to deliver a determinate thing although they may not have been
mentioned.

Article 1167. If a person obliged to do something fails to do it, the same shall be executed
at his cost.

This same rule shall be observed if he does it in contravention of the tenor of the
obligation. Furthermore, it may be decreed that what has been poorly done be undone.

• Obligations to do or not to do
• Situations contemplated in Article 1167
1. The debtor fails to perform an obligation to do.
2. The debtor performs an obligation to do but contrary to the terms thereof.
3. The debtor performs an obligation to do but in a poor manner.

• Remedies in case of non-performance

• Remedies of creditor in positive personal obligation.
1. If the debtor fails to comply with his obligation to do, the creditor has the
right:
a. to have the obligation performed by himself, or by another unless
personal considerations are involved, at the debtor’s expense.
b. to recover damages.
2. In case the obligation is done in contravention of the terms of the same or
is poorly done, it may be ordered (by the court) that it be undone if it is still
possible to undo what was done.

• Performance by a third person

1. Compelling performance by debtor prohibited
❖ A personal obligation to do, like a real obligation to deliver a generic
thing, can be performed by a third person.
2. Indemnification of creditor for damages
 ❖ The personal qualifications of the debtor are the determining motive
for the obligation contracted the performance of the same by another
would be impossible or would result to be so different that the
obligation could not be considered performed.

Article 1168. When the obligation consists in not doing, and the obligor does what has
been forbidden him, it shall also be undone at his expense.

• Remedies of creditor in negative obligation

➢ In an obligation not to do, the duty of the obligor is to abstain from an act.
Here, there is no specific performance.
➢ The very obligation is fulfilled in not doing what is forbidden. Hence, in this
kind of obligation the debtor cannot be guilty of delay.
➢ As a rule, the remedy of the obligee is the undoing of the forbidden thing plus
damages.

Article 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.

However, the demand by the creditor shall not be necessary in order that delay may
exist:

(1) When the obligation or the law expressly so declares; or

(2) When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be rendered
was a controlling motive for the establishment of the contract; or

(3) When demand would be useless, as when the obligor has rendered it beyond his
power to perform.

In reciprocal obligations, neither party incurs in delay if the other does not comply or is
not ready to comply in a proper manner with what is incumbent upon him. From the
moment one of the parties fulfills his obligation, delay by the other begins.

• Meaning of delay
➢ A distinction should be made between ordinary delay and legal delay (default
or mora) in the performance of an obligation.
1. Ordinary delay
❖ merely the failure to perform an obligation on time.
2. Legal delay or default or mora
❖ the failure to perform an obligation on time which failure, constitutes
a breach of the obligation.

• Kinds of delay or default (mora)

1. Mora solvendi (solvendi=loosing/release )
❖ The delay on the part of the debtor to fulfill his obligation.
 2. Mora accipiendi (accipiendi=accepting)
❖ The delay on the part of the creditor to accept the performance of the
obligation.
3. Compensatio morae (compensatio=compensation; morae=delay)
❖ The delay of the obligors in reciprocal obligations, the delay of the
obligor cancels the delay of the obligee, and vice-versa.

• No delay in negative personal obligation

➢ In an obligation not to do, non -fulfillment may take place but delay is
impossible for the debtor fulfill by not doing what has been forbidden him.

• Requisites of delay or default by the debtor

➢ There are 3 conditions that must be present before mora solvendi can exist or
its effects may arise.
1. Failure of the debtor to perform his (positive) obligation on the date agreed
upon.
2. 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
complaint is filed in court) or extrajudicial (which made outside of court,
orally or in writing).
3. Failure of the debtor to comply with such demand.

• Effects of delay
1. Mora solvendi
a. The debtor is guilty of breach or violations of the obligation.
b. He is liable to the creditor for interest (in case of obligations to pay
money) or damages ( in other obligation).
c. 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.
2. Mora accipiendi
a. The creditor is guilty of breach of obligation.
b. He is liable for damages suffered, if any, by the debtor.
c. He bears the risk of loss of the thing due.
d. Where obligation is to pay money, the debtor is not liable for the
interest from the time of the creditor’s delay.
e. The debtor may release himself from the obligations by the
consignation or deposit in court of the thing or sum due.
3. Compensatio morae
❖ Legally, there is no default or delay on the part of both parties.
❖ If the delay of 1 party is followed by that of the other, the liability of
the first infractor shall be equitably tempered or balanced by the
courts.
• When demand is not necessary to put debtor in delay
 ➢ General rule: delay of the debtor begins only from the moment a demand,
judicial or extrajudicial, for the fulfillment of the former’s obligation is made by
the creditor.
➢ Exceptions:
1. When the obligation so provides.
2. When the law so provides.
3. When the time is of the essence.
4. When demand would be useless
5. When there is performance by a party in reciprocal obligation

Article 1170. 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

• Grounds for liability

1. Fraud (deceit or dolo)
❖ the deliberate or intentional evasion of the normal fulfillment of an
obligation.
❖ As a ground for damages, it implies some kind of malice or
dishonesty and it cannot cover cases of mistake and errors of
judgment made in good faith.
❖ synonymous to bad faith in that it involves a design to mislead or
deceive another.
❖ Article 1170 refers to incidental fraud (dolo incidente) committed in
the performance of an obligation already existing because of
contract. It is to be differentiated from causal fraud (dolo causante)
or fraud employed in the execution of a contract under Article 1338,
which vitiates consent.
2. Negligence (fault or culpa)
❖ any voluntary act or omission, there being no malice, which prevents
the normal fulfillment of an obligation .
❖ Failure to exercise that degree of care required by the
circumstances.
3. Delay (mora)
❖ Discussed in Article 1169
4. Contravention of the terms of obligations (breach of contract)
❖ the violation of the terms and conditions stipulated in the obligation.
❖ The contravention must not be due to a fortuitous event or force
majeure.

• Fraud and negligence distinguished

1. In fraud, there is a deliberate intention to cause damage or injury, while
negligence, there is no such intention.
2. Waiver of the liability for future fraud is void, while waiver may, in certain
sense, be allowed in negligence.
3. Fraud must be clearly proved, while negligence is presumed from the
violation of a contractual obligation
 4. Liability for fraud cannot be mitigated or reduced by the courts, while liability
for negligence may be reduced according to the circumstances.

Article 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver
of an action for future fraud is void.

• Responsibility arising from fraud demandable

➢ refers to incidental fraud which is employed in the fulfillment of an obligation.
➢ 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.

• Waiver of action for future fraud void

➢ According to the time of commission, fraud may be past or future.
➢ A waiver of an action for future fraud is void as being against the law and
public policy.
➢ A contrary rule would encourage the perpetration of fraud because the obligor
knows that even if he should commit fraud he would not be liable for it thus
making the obligation illusory.

• Waiver of action for past fraud valid

➢ A past fraud can be the subject of a valid waiver because the waiver can be
considered as an act of generosity and magnanimity on the part of the party
who is the victim of the fraud.

Article 1172. Responsibility arising from negligence in the performance of every kind of
obligation is also demandable, but such liability may be regulated by the courts, according
to the circumstances.

• Responsibility arising from negligence demandable

➢ Discretion of court to fix amount of damages

❖ The courts, however, are given wide discretion in fixing the measure of
damages.
❖ The reason is because negligence is a question which must
necessarily depend upon the circumstances of each particular case.
➢ Damages where both parties mutually negligent
❖ When both parties to a transaction are mutually negligent in the
performance of their obligations, the fault of one cancels the negligence
of the other.
❖ Their rights and obligations may be determined equitably under the law
prescribing unjust enrichment. No one shall enrich himself at the
expense of another.

• Validity of waiver of action arising from negligence

 1. An action for future negligence (not fraud) may be renounced except where
the nature of the obligation requires the exercise of extraordinary diligence
as in the case of common carriers.
2. Where negligence is gross or shows bad faith, it is considered equivalent to
fraud. Any waiver of an action for future negligence of this kind is, therefore,
void.

• Kinds of negligence according to sources of obligation

1. Contractual negligence (culpa contractual) or negligence in contracts
resulting in their breach.
❖ This kind of negligence is not a source of obligation.
❖ It merely makes the debtor liable for damages in view of his
negligence in the fulfillment of a pre-existing obligation resulting in its
breach or non-fulfillment.
❖ It is a kind of civil negligence if it does not amount to a crime.
2. Civil negligence (culpa aquiliana) or negligence
❖ by itself is the source of an obligation between the parties not
formally bound before by any pre-existing contract.
❖ It is also called “tort” or “quasi-delict”.
3. Criminal negligence (culpa criminal) or negligence resulting in the
commission of a crime
❖ The same negligent act causing damages may produce civil liability
arising from a crime under Article 100 of the Revised Penal Code
(supra.) or create an action for quasi-delict under Article 2176 of the
Civil Code.

• Effect of negligence on the part of the injured party

➢ “When the plaintiff’s own negligence was the immediate and proximate cause
of his injury, he cannot recover damages. But if his negligence was only
contributory, the immediate and proximate cause of the injury being the
defendant’s lack of due care, the plaintiff may recover damages, but the courts
shall mitigate the damages to be awarded.” (Article 2179 of the Civil Code)

Article 1173. The fault or negligence of the obligor consists in the omission of that
diligence which is required by the nature of the obligation and corresponds with the
circumstances of the persons, of the time and of the place. When negligence shows bad
faith, the provisions of Articles 1171 and 2201, paragraph 2, sh all apply.

If the law or contract does not state the diligence which is to be observed in the
performance, that which is expected of a good father of a family shall be required.

• Meaning of fault or negligence

➢ Article 1173
➢ According to our Supreme Court, “negligence is conduct that creates undue
risk or harm to another. It is the failure to observe for the protection of the
interests of another person, that degree of care, precaution and vigilance
 which the circumstances justly demand, whereby such other person suffers
injury.”

• Factors to be considered
1. Nature of the obligation
2. Circumstances of the person
3. Circumstances of time
4. Circumstances of the place

• Damages

• Measure of liability for damage

➢ Damages signify the money compensation awarded to a party for loss or

injury, resulting from breach of contract or obligation by the other.
➢ In contracts and quasi-contracts, the damages for which the obligor who
acted in good faith is liable shall be those that are the natural and probable
consequences of the breach of the obligation, and which the parties have
foreseen or could have reasonably foreseen at the time the obligation was
constituted.
➢ In case of fraud, bad faith, malice or wanton attitude, the obligor shall be
responsible for all damages which may be reasonably attributed to the non-
performance of the obligation.

• Kinds of diligence required

➢ Diligence is “the attention and care required of a person in a given situation
and is the opposite of negligence.’’
1. that agreed upon by the parties, orally or in writing
2. in the absence of stipulation, that required by law in the particular case (like
the extraordinary diligence18 required of common carriers)
3. if both the contract and law are silent, then the diligence expected of a good
father of a family or ordinary diligence.

Article 1174. Except in cases expressly specified by the 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.

• Meaning of Fortuitous Event

➢ any extraordinary event which cannot be foreseen, or which, though foreseen,
is inevitable.
➢ an event which is either impossible to foresee or impossible to avoid.
➢ consists of being a happening independent of the will of the obligor and which
happening, makes the normal fulfillment of the obligation impossible.

• Fortuitous event distinguished from force majeure

1. Acts of man
 ❖ Strictly speaking, fortuitous event is an event independent of the will
of the obligor but not of other human wills
2. Acts of God
❖ They are those events which are totally independent of the will of
every human being.

• Kinds of fortuitous events

1. Ordinary fortuitous events
❖ those events which are common and which the contracting parties
could reasonably foresee.
2. Extraordinary fortuitous events
❖ those events which are uncommon and which the contracting parties
could not have reasonably foreseen .

• Rules as to liability in case of fortuitous event

➢ A person is not, as a rule, responsible for loss or damage resulting from
fortuitous events. In other words, his obligation is extinguished.
➢ Exceptions:
1. When expressly specified by law
❖ In exceptions (a), (b), and (c) below, the special strictness of the law
is justified.
a. The debtor is guilty of fraud, negligence, or delay, or
contravention of the tenor of the obligation.
b. the debtor has promised to deliver the same (specific) thing to
2 or more persons who do not have the same interest.
c. The obligation to deliver a specific thing arises from a crime
d. The thing to be delivered is generic.
2. When declared by stipulation
❖ The basis for this exception rests upon the freedom of contract.
3. When the nature of the obligation requires the assumption of risk
❖ risk of loss or damage is an essential element in the obligation .

Article 1175. Usurious transactions shall be governed by special laws.

• Meaning of simple load or mutuum

➢ a contract whereby one of the parties delivers to another money or other
consumable thing, upon the condition that the same amount of the same kind
and quality shall be paid.
➢ It may be gratuitous or with a stipulation to pay interest.

• Meaning of usury
➢ contracting for or receiving interest in excess of the amount allowed by law for
the loan or use of money, goods, chattels, or credits.

• Requisites for recovery of interest

1. The payment of interest must be expressly stipulated.
2. The agreement must be in writing.
 3. The interest must be lawful.

Article 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 has 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.

• Meaning of presumption
➢ the inference of a fact not actually known arising from its usual connection
with another which is known or proved.

• Two kinds of presumption

1. Conclusive presumption
❖ one which cannot be contradicted like the presumption that everyone
is conclusively presumed to know the law.
2. Disputable (or rebuttable) presumption
❖ one which can be contradicted or rebutted by presenting proof to the
contrary like the presumption established in Article 1176.

• When presumptions in Article 1176 do not apply

1. With reservation as to interest
❖ The presumptions established in Article 1176 do not arise where there
is a reservation as to interest or prior installments, as the case may
be.
❖ The reservation may be made in writing or verbally.
2. Receipt for a part of principal
❖ The presumption in paragraph 2 of Article 1176 is not applicable if the
receipt does not recite that it was issued for a particular installment
due as when the receipt is only dated.
3. Receipt for a part of the principal
❖ Such a receipt, without mentioning the interest, implies that the
creditor waives his right to apply the payment first to the interest and
then to the principal as permitted by Article 1253.
4. Payment of taxes
❖ Article 1176 does not apply to the payment of taxes.
❖ There is no presumption that previous taxes have been paid by the
payment of later ones.
5. Non-payment proven
❖ Of course, Article 1176 is not applicable where the non -payment of
the prior obligations has been proven.
❖ A presumption cannot prevail over a proven fact.

Article 1177. The creditors, after having pursued the property in possession of the debtor
to satisfy their claims, may exercise all the rights and bring all the actions of the l atter for
the same purpose, save those which are inherent in his person; they may also impugn
the acts which the debtor may have done to defraud them.
 • Remedies available to creditors for the satisfaction of their claims
1. exact fulfillment (specific performance) with the right to damages
2. pursue the leviable (not exempt from attachment under the law) property
of the debtor
3. “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
debtor22 (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, to revoke a donation on
the ground of ingratitude, etc.)
4. 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.

Article 1178. Subject to the laws, all rights acquired in virtue of an obligation are
transmissible, if there has been no stipulation to the contrary.

• Transmissibility of rights
➢ All rights acquired in virtue of an obligation are generally transmissible.
➢ Exceptions:
1. Prohibited by law
❖ When prohibited by law, like the rights in partnership, agency,
and commodatum which are purely personal in character.
a. By the contract of partnership
two or more persons bind themselves to contribute
money, property or industry to a common fund, with
the intention of dividing the profits among
themselves.
b. By the contract of agency
a person binds himself to render some service or to
do something in representation or on behalf of
another, with the consent or authority of the latter.
c. By the contract of commodatum
one of the parties delivers to another something not
consumable so that the latter may use the same for a
certain time and return it.
Commodatum is essentially gratuitous.
2. Prohibited by stipulation of parties.
❖ When prohibited by stipulation of the parties, like the stipulation
that upon the death of the creditor, the obligation shall be
extinguished or that the creditor cannot assign his credit to
another.

• Specific circumstances affecting obligations in general

• Fortuitous Event
➢ See Article 1174 above
 ➢ any extraordinary event which cannot be foreseen, or which, though
foreseen, is inevitable.
➢ an event which is either impossible to foresee or impossible to avoid.
➢ consists of being a happening independent of the will of the obligor and
which happening, makes the normal fulfillment of the obligation impossible.
• Fraud
➢ See Article 1170 and 1171 above
➢ the deliberate or intentional evasion of the normal fulfillment of an obligation
• Negligence
➢ See Article 1170, 1172, and 1173 above
➢ According to our Supreme Court, “negligence is conduct that creates undue
risk or harm to another. It is the failure to observe for the protection of the
interests of another person, that degree of care, precaution and vigilance
which the circumstances justly demand, whereby such other person suffers
injury.”
• Delay
➢ See Article 1169 above
➢ the failure to perform an obligation on time which failure, constitutes a
breach of the obligation.
• Breach of Contract
➢ See Article 1174 above
➢ Breach of contract is the failure without justifiable excuse to comply with the
terms of a contract. The breach may be willful or done unintentionally. It has
been defined as the failure, without legal excuse, to perform any promise
which forms the whole or part of the contract.