OBLIGATIONS AND CONTRACTS

Prepared by:
Atty. Khrisna P. Sunico
School of Management, Accountancy, Real Estate & Tourism

Title I
OBLIGATIONS

Art. 1156. An obligation is a juridical necessity to give, to do, or

not to do.

It is a bond recognized by law by virtue of which one is bound in

favor of another to render something – and this may consist in
giving a thing, doing a certain act, or not doing a certain act.

An obligation is a juridical necessity because in case of non-

compliance, the courts of justice may be called upon by the
aggrieved party to enforce its fulfillment or, in default thereof,
the economic value that it represents.

4 Essential Requisites of an Obligation

1. Passive subject – debtor or obligor; the person who is bound

to the fulfillment of the obligation; he who has a duty.

2. Active subject – creditor or obligee; the person who is entitled

to demand the fulfillment of the obligation; he who has a right.

3. Object or Prestation – subject matter of the obligation; the

conduct required to be observed by the debtor. Giving, doing, or
not doing.

4. Juridical or legal tie – efficient cause; that which binds or

connect the parties to the obligation. Source of obligation (Art.
1157).
Form of Obligations

It refers to the manner in which an obligation is manifested or

incurred. It may be oral, or in writing, or partly oral and partly
in writing.

Kinds of Obligation According to the Subject Matter

1. Real Obligation – Obligation to give; the subject matter is a

thing which the obligor must deliver to the obligee.

2. Personal Obligation – Obligation to do or not to do; the

subject matter is an act to be done or not to be done.

Art. 1157. Obligations arise from:

1. Law – imposed by the law itself;
2. Contracts – arise from the stipulation of the parties;
3. Quasi-contracts – arise from lawful, voluntary and
unilateral acts which are enforceable to the end that no one
shall be unjustly enriched or benefited at the expense of
another.
4. Acts or Omissions punished by law (delicts) – arise from
civil liability as a consequence of a criminal offense; and
5. Quasi-delicts or torts – arise from damage caused to
another through an act or omission, there being fault or
negligence, but no contractual relation exists between the
parties.

Note: There is no obligation as defined in Art. 1156 if its

source is not any of those enumerated in Art. 1157.

Art. 1158. Obligations derived from law are not presumed.

Only those expressly determined in this Code or in special
laws are demandable, and shall be regulated by the precepts
of the law which establishes them; and as to what has not
been foreseen, by the provisions of this Book.
Note: Art. 1158 talks about legal obligations or obligations
arising from law. They are not presumed. To be demandable,
the obligations must be set forth in the law (Civil Code or
special laws)

In case of conflict, special laws prevail unless the contrary has

been expressly stipulated in the new civil code.

Art. 1159. Obligations arising from contracts have the force of

law between the contracting parties and should be complied
with in good faith.

Note: Contractual obligations or obligations arising from

contracts or voluntary agreements.

Compliance in good faith – means compliance or performance

in accordance with the stipulations or terms of the contract or
agreement.

Art. 1160. Obligations derived from quasi-contracts shall be

subject to the provisions of Chapter 1, Title XVII of this
Book.

Note: In quasi-contract, there is no consent but the same is

supplied by fiction of law. The law considers the parties as
having entered into a contract to prevent injustice or unjust
enrichment.

Kinds of Quasi-Contracts

1. Negotiorum Gestio – It is the voluntary management of the

property or affairs of another without the knowledge or consent
of the latter.
2. Solutio Indebiti – It is the juridical relation which is created
when something is received when there is no right to demand it
 and it was unduly delivered through mistake. (Unjust
Enrichment)
Requisites:
a. There is no right to receive the thing delivered; and
b. The thing was delivered through mistake

Art. 1161. Civil obligations arising from criminal offenses

shall be governed by the penal laws, subject to the provisions
of Art. 2177, and of the pertinent provisions of Chapter 2,
Preliminary Title, on Human Relations, and of Title XVIII of
this Book, regulating damages.

Scope of Civil Liability

1. Restitution
2. Reparation for the damage caused; and
3. Indemnification for consequential damages

Art. 1162. Obligations derived from quasi-delicts shall be

governed by the provisions of Chapter 2, Title XVII of this Book,
and by special laws.
Requisites of Quasi-Delict
1. There must be an act or omission;
2. There must be fault or negligence;
3. There must be damage caused;
4. There must be a direct relation or connection of cause and
effect between the act or omission and the damage; and
5. There is no pre-existing contractual relation between the
parties

Crimes vs Quasi-Delict

1. Presence of criminal or malicious intent/there is only

negligence
2. Purpose is punishment/indemnification of the offended party
3. Affects public interest/affects private interest
4. The guilt of the accused must be proved beyond reasonable
doubt/the fault or negligence of the defendant need only be
proved by preponderance of evidence.

Week 2
Article 1163-1178
Chapter 2: Nature and Effect 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.

Note: The above provision refers to an obligation to give

something or determinate thing.

Specific or Determinate – when a thing is particularly designated

or physically segregated from others of the same class.

Duties of Debtor in Obligation to give a determinate

thing:
1. Preserve or take care of the thing
a. Diligence of a good father of a family – means with
ordinary care or that diligence which an average person
exercises over his/her own property.

b. Another standard of care – if the law or the stipulation of

the parties provides for another standard of care
(extraordinary diligence)

2. Deliver the fruits of the thing – Art. 1164

3. Deliver the accessions and accessories – Art. 1166
4. Deliver of the thing itself
5. Answer for damages in case of non-fulfillment or breach –
Art.1170

Art. 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.

Different Kinds of Fruits:

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

Note: The intention of the law is to protect the interest of the

obligee should the obligor commits delay, intentionally or
otherwise, in the fulfillment of his obligation.

When obligation to deliver fruits arises:

1. From the time of the “perfection of the contract.”
2. Upon fulfillment of the condition or arrival of the term

Personal Right – right of the creditor to demand from the debtor

the fulfillment of the latter’s obligation to give, to do, or not to
do; binding or enforceable against a particular person

Real Right – right or interest of a person over a specific thing like

ownership, possession, mortgage; binding or enforceable against
the whole world.

Note: The creditor does not become the owner until the specific
thing has been delivered to
him.
Art. 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 things

to two or more persons who do not have the same interest, he
shall be responsible for fortuitous event until he has effected the
delivery.

Remedies of Creditor in Specific Real Obligation

1. Demand specific performance or fulfillment of the obligation
with damages – to deliver the
specific thing
2. Demand rescission or cancellation of the obligation with
damages; or
3. Demand payment of damages only, when it is the only
feasible remedy.

Remedies of Creditor in Generic Real Obligation

1. Ask the obligation to be complied with at the expense of the
debtor; or
2. Right to recover damages under Art. 1170

Fortuitous event does not exempt the debtor from responsibility

when:
1. The debtor delays in the delivery a specific thing; or
2. The debtor promised delivery of the same thing to two or more
persons who do not have the same interest.
Art. 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.

Accessions – fruits of a thing or additions to or improvements

upon a thing (the principal).
Accessories – things joined to or included with the principal
thing for the latter’s embellishment, better use, or completion.

Note: This rule is based on the principle of law that the

accessory follows
the principal.

Art. 1167. If a person is 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.

Note: The provision above refers to obligation to do, i.e., to

perform an act or render a service.

1. The debtor fails to perform an obligation to do;

2. The debtor performs an obligation to do but contrary to the
terms thereof; or
3. The debtor performs an obligation to do but in poor manner.
A specific performance cannot be ordered in a personal
obligation to do because this may amount to involuntary
servitude.

If personal qualifications of the debtor are the determining

motive for the obligation contracted, the only
feasible remedy of the creditor is indemnification for damages.
Art. 1168. When the obligation consists in not doing, and the
obligor does what has been forbidden of him, it shall be undone
at his expense.

Note: No specific performance under this provision.

Remedies of the creditor – undoing of the forbidden thing plus

damages
If the thing cannot be undone – action for damages
The debtor cannot be guilty of delay

Art. 1169. Those obliged to deliver or to do something incur in

delay from the time the obligee judicially or extrajudicially
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;

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 the 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.

Ordinary delay – It is merely the failure to perform an obligation

on time.
Legal delay or default or mora – It is the failure to perform an
obligation on time which failure constitutes breach of the
obligation.

Kinds of Delay or Default:

1. Mora Solvendi – Delay on the part of the debtor to fulfill his
obligation (to give or to do);
2. Mora Accipiendi – Delay on the part of the creditor to accept
the performance of the obligation; and
3. Compensatio Morae – Delay of the obligors in reciprocal
obligations

Requisites of Delay or Default by the Debtor

1. Failure of the debtor to perform his obligation on the date
agreed upon;
2. Demand made by the creditor upon the debtor to comply with
his obligation; demand may be judicial or extrajudicial; and
3. Failure of the debtor to comply with such demand.

Art. 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.

4 Grounds for Liability (Voluntary breach of obligation)

1. Fraud (deceit or dolo) – It is the deliberate or intentional
evasion of the normal fulfillment of an obligation.
2. Negligence (fault or culpa) – It is any voluntary act or
omission, there being no bad faith or malice, which prevents the
normal fulfillment of an obligation.
3. Delay (mora) – refer to Art. 1169.
4. Contravention of the terms of the obligation – It is the
violation of the terms and conditions stipulated in the obligation
without justifiable excuse or reason.

Art. 1171. Responsibility arising from fraud is demandable in all

obligations. Any waiver of an action for future fraud is void.
Note: The intention of the above article is to discourage
employment of fraud in fulfillment of one’s obligation.
A past fraud can be the subject of a valid waiver because the
waiver can be considered as an act of generosity on the part of
the victim of the fraud.

Art. 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.

1. Discretion of the court to fix amount of damages – when

justified by the circumstances, the court may increase or
decrease the damages recovered.
2. Damages where both parties mutually negligent – the fault of
one may cancel or neutralize the negligence of the other.

Art. 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
person, of the time and of the place. When negligence shows bad
faith, the provisions of Articles 1171 and 2201, paragraph 2,
shall 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.

Factors to be considered in determining negligence

1. Nature of the obligation
2. Circumstances of the person
3. Circumstances of time
4. Circumstances of the place
Kinds of diligence required:
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; and
3. If both the contract and law are silent, then the diligence of
expected of a good father of a family.
Art. 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.

Fortuitous event – is any event which cannot be foreseen, or

which, though foreseen, is inevitable. It could be an Act of Man
or an Act of God (Force Majeure).

Requisites of a Fortuitous Event

1. The event must be independent of the human will or at least
of the debtor’s will;
2. The event could not be foreseen, or if foreseen, is inevitable.
3. 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; and
4. 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

General Rule: A person is not responsible for loss or damage
caused to another resulting from the non-performance of his
obligation due to fortuitous events.

Exceptions:
1. When expressly specified by law
2. When declared by stipulation
3. When the nature of the obligation requires the assumption of
risk
Art. 1175. Usurious transactions shall be governed by special
laws.
Usury – is contracting for or receiving interest in excess of the
amount allowed by law for the loan or use of money, goods,
chattels or credits.

Note: Usury is now legally non-existent. Parties are now free to

stipulate any amount of interest as long as it is not iniquitous or
unconscionable.

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 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.

Presumption – it is the inference of a fact not actually known

arising from its usual connection with another which is known
or proved.

The above article talks about Disputable or Rebuttable

presumption.

When Presumptions in Art. 1176 do not apply

1. With reservation as to the interest – “no payment has been
made as to interest or prior installments, as the case may be.”
Note: the reservation may be made in writing or verbally.
2. Receipt without indication of particular installment paid.
3. Receipt for a part of the principal.
4. Payment of Taxes
5. Non-payment proven

Art. 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 latter 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 of the creditors:

1. Specific performance with the right to damages
2. Pursue the leviable (not exempt from attachment under the
law) property of the debtor
3. Exercise all the rights (right to redeem) and bring all actions
of the debtor (right to collect from the debtor of the debtor)
4. Ask the court to rescind or impugn acts or contracts which
the debtor may have done to defraud them.

Note: the last remedy can be resorted to only if the creditor

could not collect in full his or her credit.

Art. 1178. Subject to the laws, all rights acquired in virtue of an

obligation are transmissible, if there has been no stipulation to
the contrary.

General Rule: All rights acquired in virtue of an obligation are

generally transmissible or assignable.

Exceptions:
1. Prohibited by law – ex: Contract of Agency
2. Prohibited by stipulation of the parties – ex: the creditor
cannot
assign his credit to another