DIVINE WORD COLLEGE OF CALAPAN

SCHOOL OF ACCOUNTANCY
MODULE - LAW ON OBLIGATION AND CONTRACTS
Atty. Ma. Ellen C. Abas, CPA

LEARNING OVERVIEW

This course is the introductory subject for business laws. It includes an

introduction to law that systematically leads to the main subject in a
gradual manner. It also shows the practical applications of the different
legal provisions for obligations and contracts with numerous examples
typical of everyday life.

LEARNING OUTCOMES

At the end of the lesson, the students should be able to:

Learn obligation, its nature, effects and kinds.
Enumerate the causes why obligations are terminated.
Interpret certain contracts and give the reasons for their reformation.
Determine if a certain contract is valid or defective.

SUGGESTED READING MATERIALS

De Leon, Hector. Law On Obligations and Contracts (Latest Edition)
Agpalo, Ruben E. Obligations and Contracts (Latest Edition)

GENERAL INSTRUCTIONS:

1. Read the Module Discussion.

2. For offline mode, - in all the activities, your answers must be
legibly handwritten in a separate paper. The submission date is found
at the start of each activity.
3. Submission may be done thru
a) Online (scan or photograph your answer), in MS word form with file
name, “law1 (your schedule) activity1 (your surname)”(e.g. law1
mwf4-5 activity1 abas) then send it to mecabas23@dwcc.edu.ph OR
b) send it to our drop-off box at RJF Café, DWCC, Calapan City stating
therein your name, activity number, subject and schedule.

MODULE 1
Part 1

REQUIRED READING
De Leon, Hector. Law On Obligations and Contracts (Latest Edition –
Introductory to Law

Page 1
 INTRODUCTION TO LAW AND BUSINESS LAW

Answer the following questions before the start of discussion.

ACTIVITY 1 (to be submitted on ________)

Please practice Integrity in answering the activity.

(link will be provided at Google classroom)

To begin, we start with what a law is.

A. Concepts of Law. – The term law may be understood in two concepts: (1)
general or abstract sense, and (2) specific or material sense. First sense
equivalent to Spanish term derecho; in the second, to Spanish term ley.

General Sense. – In the general or abstract sense, law has been defined as
“the science of moral rules, founded on the rational nature of man, which
govern his free activity, for the realization of the individual and social
ends,of a nature both demandable and reciprocal.” (1 Sanchez Roman 3)
Briefly, it is the mass of obligatory rules established for the purpose of
governing the relations of persons in society. (1 Salvat 1-3)

Specific Sense. – In a specific or material sense, law has been defined as

a “juridical proposition or an aggregate of juridical propositions,
promulgated and published by the competent organs of the State in
accordance with the Constitution.” (1-I Ennecerus, Kipp & Wolf 136) It is a
norm of human conduct in social life, established by a sovereign
organization and imposed for the compulsory observance of all. (1 Ruggiero
5-6).

The most basic, simple and concise definition of law was defined by
Sanchez Roman, a Spanish Civilist and he defined Law as: “A RULE OF
CONDUCT, JUST AND OBLIGATORY PROMULGATED BY LEGITIMATE AUTHORITY FOR THE
COMMON OBSERVANCE AND BENEFIT.”

Edgardo Paras defined Law as “an ordinance of reason promulgated for

the common good by Him who is in charge.”

B. Foundations of Law. – Law is a product of social life and is a creation

of human nature. It was intended by man to serve man. It regulates the
relations of human beings so that harmony can be maintained in the social
group, by placing restrictions on individual liberty in order to make co-
existence possible. Law, therefore, rests upon the concepts of order, co-
existence, and liberty.

C. Characteristics of Law. –
1. A RULE OF CONDUCT - Meaning any action, things, dictate of reason if
regulated or gathered together could become a conglomeration of
rules, regulations that can create an orderly, peaceful,
harmonious relations among the people concerned so that in the
end justice will prevail.
2. PROMULGATED BY LEGITIMATE AUTHORITY - That is, made known to those
who are expected to follow it. In a Republican State like the
Philippines, we have three branches of government – legislative
body (like Congress, Sanggunian) is the law-making body; the
executive body is the implementing body and the judiciary as the
oblicon-module/mecabas Page 2
 enforcing body.
3. JUST and OBLIGATORY - Treatment of Law should be equal,
regardless of sex, creed, age and status in life and to follow the
law there should be equivalent punishment or penalties to enforce
them. The dictum “Justice delayed is Justice denied” is commonly
abused term on the relation of a criminally inclined poor person
and a moneyed person on the treatment of the application of law.
Obligatory means any duty binding parties to perform their
agreement. (Black’s dict. P. 1074).
4. FOR THE COMMON OBSERVANCE and BENEFIT The application of law should
not be titled or favoring an individual but by the observance of
all and the benefits that may be derived from it.

D. Law and Morals. – Not all human conduct is regulated by law. There are
other forms of regulation, such as morals and religion. Only the rules of
law, however, have a legal sanction and can be enforced by public
authority. Law and morals have a common ethical basis and spring from the
same source – the social conscience. In fact, there was a time in the
remote past, when the mind of man was still in its childish state,
confused, unable to analyze and abstract, when spiritual and moral concepts
were indistinguishable from the juristic and legal. It was useless then to
search for the traces of law as distinct from morals. This confusion
continued even into the classical age, as may be seen from the writings of
Plato and Aristotle. In Greece, there was no word to signify law, because
it was included in the universal concept of justice. Among the Romans, the
term jus is derived from justice, and it has been defined as the art of
being good and fair. Since they spring from a common source, law and morals
have many identical precepts. But the Romans began to distinguish between
law and morals, and the distinction has remained to the present day. The
law in many cases takes into account moral concepts; however, not all moral
duties have been converted into juridical obligations, because if this were
to happen, morals would lose their essential characteristic of being
voluntary. The field of morals is more extensive than that of law. Law
covers only social activities, or the relations of man to his fellow-man;
but the field of morals includes, not only the duties of man to his fellow-
being, but also those to himself and to his God. Even among our duties to
our fellow-men, many are still dictated by morals, such as those which have
a psychological basis, including the duties of assistance and self-
sacrifice. The purpose of law and morals is basically the same: happiness,
which cannot exist for man, except through a permanent and stable
equilibrium between human personalities. But because of the distinction
between them, an act may be entirely in conformity with law but contrary to
morals; and vice versa, conduct may be justifiable from the point of view
of morals but contrary to law. Law and morals according to Colin and
Capitant are like two concentric circles; it is, however, perhaps more
accurate to say that they are like two intersecting circles, with many
principles in a common zone, and yet with some principles of one at
variance with those of the other.

E. General Divisions of Law. – Law in its most comprehensive sense has

been divided into two general groups: divine law and human law. By divine
law is meant that in which God himself is the legislator who has
promulgated the law; by human law is meant that which is promulgated by man
to regulate human relations.

Natural law is promulgated impliedly in our conscience and body. It is

the divine interpretation in man in the sense of justice, fairness,
right and equity by internal dictate of reason on our mind. Like for
instance, it is better to do good than to do evil for being a God-
fearing person. Physical law refers to the act of rules governing the
action and movement of things like the law on gravity by Newton.

oblicon-module/mecabas Page 3
Human law is in turn divided into two main classes: general or public law
and individual or private law. These in turn are subdivided as follows:

I. General or public law - Body of rules which regulates the rights and
duties arising from the relationship between the State and its inhabitants:

(a) International law, or that which governs the relations between nations
or states, that is, between human beings in their collective concept.
(b) Constitutional law, or that which governs the relations between human
beings as citizens of a state and the governing power.
(c) Administrative law, or that which governs the relations between
officials and employees of the government.
(d) Criminal law, or that which guaranties the coercive power of the law so
that it will be obeyed.
(e) Political Law – deals with the organization and operation of the
governmental organs of the State and defines the relations of the state
with the inhabitants of its territory.
(f) Religious law, or that which regulates the practice of religion.

II. Individual or private law - Those law which govern the private relation
person:

(a) Civil law, or branch of law which has for its double purpose the
organization of the family and the regulation of property. It is defined
as the mass of precepts which determines and regulate the relation of
assistance, authority and obedience among the members of a society for
the protection of private interests.
(b) Mercantile law, defined as a whole body of substantial jurisprudence
applicable to the rights, intercourse and relation of persons engaged in
commerce, trade or mercantile pursuits or that which regulates the special
relations produced by commercial transactions.
(c) Procedural law, or that which provides for the means by which private
rights may be enforced. defined as the branch of law which prescribes the
method of enforcing rights or obtaining redress for their invasion,
Procedural law otherwise known as Remedial Law, as distinguished from
Substantive law which creates, defines and regulate rights. (Ballantine
Law Dict. P. 36)

F. Kinds of Specific Law. – Law, in the specific sense, is generally

classified into mandatory, prohibitory, and permissive. In one sense, every
law commands, because it is obligatory; but it commands in three different
ways: (1) it commands that something be done, in which case it is
mandatory; (2) it commands that something should not be done, in which
case it is prohibitory; and (3) it commands that what it permits to be done
should be tolerated or respected, in which case it is permissive. (3 Fabres
90)

This classification has been criticized by some, including Savigny, as

unscientific. It is said that the more important classification is that of
absolute and suppletory. The first has an obligatory character; while the
second leaves the will of the individual free to act, and only when this
has not manifested itself does the law present the rule to determine the
juridical fact. (1 Borja 4)

CLASSIFICATION OF LAWS ACCORDING TO NATURE

> Substantive and procedural law
> Substantive law is the law that creates, defines and regulates
> Procedural law defines the method or proceedings in the enforcement
of the rights and duties defined in substantive law

oblicon-module/mecabas Page 4
CLASSIFICATION OF LAWS ACCORDING TO APPLICATION
> Public and private law
> Public law: laws that define the relationship between the State
and the individual (e.g Constitution, Revised Penal Code)
> Private law: laws that define the relationship between individuals (e.g
Civil Code, Commercial laws)

G. Sources of Law
1. Constitution - The fundamental law that governs a nation in its
relation to its citizens. All laws must conform and comply with the
provisions of the Constitution, otherwise it becomes
unconstitutional.

2. Legislative - It consists of legal rights by a competent

authority. In the Philippines, being a democratic form of government,
the Legislative is the law-making body. For national government,
Congress comprising the House of Representatives and the Senate.
For provinces, the Sangguniang Panlalawigan for every province. For
a town, the Sangguniang Pambayan or the local Municipal council. For
a Barangay level, the Sangguniang Pambarangay

3. Administrative or Executive Orders, Regulations and Rulings

4. Judicial Decisions or Jurisprudence - Judicial decisions or

interpreting the laws or the Constitution shall form a part of the
legal system of the Philippines. (Art. 8, New Civil Code) Judicial
decisions, though, are part of the legal system in the Philippines
still are not laws for if this were so, the Courts exists for
stating what the law is, but not for giving it. Judicial decisions,
though not law, are evidence of what the law means. This is why they
are part of the legal system in the Philippines. So, f an
interpretation is placed by the Supreme Court upon a law, it
constitutes in a way, part of the law since the Courts interpretation
merely establishes the legislative intent. Thus, our country adhere
to the Doctrine of Stare Decisis (Let it Stand), the doctrine
which in reality is “adherence to precedents” stated that once a
case has been decided, then another case involving the same point at
issue, should be decided in the same manner. Therefore, if the
Supreme Court being a Court of last resort, has decided that a
certain law passed by Congress is constitutional, the law becomes
binding and has its full force and effect.

5. Custom - It consists of those habits and practices which through

long and uninterrupted usage have become acknowledged and approved
by society as binding rule of conduct. Thus, it has been a custom
for a person to enter and exit a door. Once a person uses the
window for his entrance and exit, it runs counter to the custom of
use of the door. Even our Lord said as a good shepherd, if a
person does not pass the gate, he is a thief for a marauder.

6. Other Sources - To add, the principle of justice and equity,

decisions of foreign tribunals, opinions of text writers and even
religion may also be sources of law

Civil Law Definition

Branch of Law that treats the personal and family relations of a person,
his property and successional rights, and the effects of obligation and
contracts.

oblicon-module/mecabas Page 5
"Civil" is derived from the Latin "civiles", a citizen. Originally, the
word pertained to a member of "civitas" or a free political community
(Black's Law Dictionary)

The Law on Obligations and Contracts is defined as a kind of positive law

which deals with the nature and sources of obligations as well as the
rights and duties arising from agreements in contracts.

Before discussing the particular concepts on the Law on Obligations and

Contracts, it is important to know that in every obligation, one must
always observe the general principles on human relations, to wit:
―ART. 19. Every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and
observe honesty and good faith. (Civil Code of the Philippines). Failure to
observe the above principle makes a person civilly liable.

And in all cased, be reminded that “IGNORANCE OF THE LAW EXCUSES NO ONE
FROM COMPLIANCE THEREWITH” (Article 3 of the New Civil Code of the
Philippines)

ACTIVITY 2 (to be submitted on ________)

Please practice Integrity in answering the activity.

(link will be provided at Google classroom)

MODULE 1
Part 2

REQUIRED READING
De Leon, Hector. Law On Obligations and Contracts (Latest Edition) –
Chapter on General Provisions

1. OBLIGATIONS
Obligation, concept

Art. 1156. An obligation is a juridical necessity to give, to do or not to

do.

Obligations is also defined as a juridical relation whereby a person

(called the creditor) may demand from another (called the debtor) the
observance of a determinate conduct, and, in case of breach, may obtain
satisfaction from the assets of the latter.

Juridical necessity means the rights and duties arising from obligation are
legally demandable and the courts of justice may be called upon through
proper action to order the performance. The court may be asked to order the
performance of an obligation if the debtor refuses to perform it. If an
obligation cannot be enforced through the courts, it may be disregarded
with impunity.

(Note: Unless otherwise indicated, articles of law refer to provisions of

the Civil Code of the Philippines.)

oblicon-module/mecabas Page 6
Example: If RJ sold his cellular phone to Nico but Nico did not pay the
purchase price. If after demand and still Nico refuses to pay, RJ can go to
Court to sue Nico either to demand payment or for recovery of the
cellphone.

ELEMENTS:

Every obligation has four definite elements, without which no obligation

can exist, to wit:

(1) an active subject, also known as the obligee or creditor, who has the
power to demand the prestation; the one in whose favor the obligation is
constituted

(2) a passive subject, also known as the obligor or debtor, who is bound
to perform the prestation; the one who has the duty of giving, doing or
not doing

(3) an object or the prestation, which is an object or undertaking to

give, to do or not to do; the conduct which has to be observed by the
debtor/obligor

(4) The juridical or legal tie, the vinculum which binds the contracting
parties.

Notes: The juridical tie or vinculum is based on the sources of

obligation arising from either the law or contract. Law is defined
as a rule of conduct, just and obligatory, promulgated by the legitimate
authority, for common observance and benefit. On the other hand,
contract is defined as ―meeting of minds between two persons whereby
one binds himself, with respect to the other, to give something or
render service.

It is important to identify the prestation/object in the obligation.

It can easily be determined who the passive subject is and whom the
active subject can demand fulfillment of the obligation once the
prestation is identified.

A contract of sale and a contract of loan are examples of

prestations to give;

A contract of labor or a service contract is an example of a

prestation to do.

Requisites of Object:
a. licit - if illicit, it is void
b. possible - if impossible, it is void
c. determinate or determinable - or else, void
d. pecuniary value or possible equivalent in money

The different kinds of prestations are

OBLIGATION TO OBLIGATION TO DO OBLIGATION NOT TO DO

GIVE

oblicon-module/mecabas Page 7
 Consists in the Covers all kinds of Consists in refraining from
delivery of a works or services doing some acts
movable or whether physical or
immovable thing mental
to the creditor

i.e. – Sale, i.e. – Contract for i.e. – Easement prohibiting

deposit, professional building proprietor or
pledge, services like possessor from committing
donation, painting, nuisance; restraining order or
antichresis modeling, injunction
singing, etc.

ACTIVITY 3 (to be submitted on ________)

Please practice Integrity in answering the activity.

(link will be provided at Google classroom)

KINDS OF OBLIGATION:
A: From the viewpoint of:
1. Sanction
a. Civil – gives a right of action to compel their performance
b. Natural– not based on positive law but on equity and natural
law; does not grant a right of action to enforce their
performance, but after voluntary fulfillment by the obligor,
they authorize retention of what has been delivered/ rendered
by reason thereof.
c. Moral– cannot be enforced by action but are binding on the
party who makes it in conscience and natural law.

2. Performance
a. Positive – to give; to do
b. Negative – not to do

3. Subject matter
a. Personal – to do; not to do
b. Real – to give

4. Object
a. Determinate / specific – particularly designated or
physically segregated from all others of the same class.
b. Generic– is designated merely by its class or genus.
c. Limited generic– generic objects confined to a particular
class (e.g. an obligation to deliver one of my horses)

5. Person obliged
a. Unilateral – only one party is bound
b. Bilateral – both parties are bound

6. Creation
a. Legal – imposed by law (Art. 1158, NCC)
b. Conventional – established by the agreement of the

oblicon-module/mecabas Page 8
 parties like contracts

7. Susceptibility of partial fulfillment

a. Divisible – obligation is susceptible of partial
performance
b. Indivisible – obligation is not susceptible

8. Existence of burden or condition

a. Pure – is not burdened with any condition or term. It is
immediately demandable.
b. Conditional – is subject to a condition which may be
suspensive (happening of which shall give rise to the
obligation) or resolutory (happening terminates the
obligation).

9. Character of responsibility or liability

a. Joint – each debtor is liable only for a part of the
whole liability and to each creditor shall belong only a
part of the correlative rights
b. Solidary – a debtor is answerable for the whole of the
obligation without prejudice to his right to collect from his
co‐debtors the latter’s shares in the obligation (Art. 1207,
NCC)

10. Right to choose and substitution

a. Alternative – obligor may choose to completely perform one
out of the several prestations Art. 1199, NCC)
b. Facultative – only one prestation has been agreed upon,
but the obligor may render one in substitution of the
first one

11. Imposition of penalty.

a. Simple – there is no penalty imposed for violation of
the terms thereof
b. Obligation with penalty – obligation which imposes a
penalty for violation

SOURCES OF OBLIGATION:

Art. 1157. Obligations arise from:

(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts.

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.

Art. 1159. Obligations arising from contracts have the force of law between
the contracting parties and should be complied with in good faith.

Art. 1160. Obligations derived from quasi-contracts shall be subject to the

provisions of Chapter 1, Title XVII, of this Book.

Art. 1161. Civil obligations arising from criminal offenses shall be

governed by the penal laws, subject to the provisions of Article 2177, and

oblicon-module/mecabas Page 9
of the pertinent provisions of Chapter 2, Preliminary Title, on Human
Relations, and of Title XVIII of this Book, regulating 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.

DISCUSSION:

1. LAW (OBLIGATION EX LEGE) - Must be expressly or impliedly set forth

and cannot be presumed

What are the characteristics of a legal obligation or an

obligation ex lege?
1. Does not need the consent of the obligor;
2. Must be expressly set forth in the law creating it and not
merely presumed; and
3. In order that the law may be a source of obligation, it should
be the creator of the obligation itself.

What governs obligations arising from law?

These obligations shall be regulated by the provisions of the law which
establishes them. The Civil Code is applicable suppletorily.

Examples:

It is the duty of the Spouses to support each other. (Art. 291, New
Civil Code)

And under the National Internal Revenue Code, it is the duty of every
person having an income to pay taxes.

2. CONTRACT (OBLIGATION EX CONTRACTU) - Must be complied with in good

faith because it is the “law” between parties; neither party may
unilaterally evade his obligation in the contract, unless:
a) contract authorizes it
b) other party assents

Parties may freely enter into any stipulations, provided they are not
contrary to law, morals, good customs, public order or public policy

What are the requisites for a contract to give rise to obligations ex

contractu?
1. It must contain all the essential requisites of a contract
2. It must not be contrary to law, morals, good customs,
public order, and public policy

What is “compliance in good faith”?

It is performance in accordance with the stipulation, clauses,
terms and conditions of the contract.

Note: The contract is the “law” between the parties.

For example:

oblicon-module/mecabas Page 10
 A contract of lease was executed between RJ as the lessee and Nico as
the lessor for the rent of a condominium unit.
Although contracts have the force of law, it does not mean that
contract are over and above the law. Contracts are with the
limitations imposed by law in Art. 1306, NCC, it states that the
contracting parties may establish such stipulations, clauses terms and
conditions as, they may deem convenient, provided that are not
contrary to law, morals, good custom, public order or public policy.

3. QUASI-CONTRACT (OBLIGATION EX QUASI-CONTRACTU) - That juridical

relation resulting from a lawful, voluntary and unilateral act, and
which has for its purpose, the payment of indemnity to the end that no
one shall be unjustly enriched or benefited at the expense of another

2 kinds:
a. Negotiorum gestio - unauthorized management; This takes place when
a person voluntarily takes charge of another’s abandoned business
or property without the owner’s authority
b. Solutio indebiti - undue payment; This takes place when something
is received when there is no right to demand it, and it was unduly
delivered thru mistake

Examples:
RJ owed Nico the sum of P100,000.00. By mistake, RJ paid
P200,000.00. Nico has the obligation to return the P100,000.00
excess because there was payment by mistake.
Gina, a wealthy landowner was in Manila when Enhanced Community
Quarantine was implemented in her province leaving her livestock farm
unattended. Andro, a neighbor of Gina managed the farm thereby
incurring expenses. When Gina returns, she has the obligation to
reimburse Andro for the expenses incurred by him and to pay him for
his services. It is bases on the principle that no one shall enrich
himself at the expense of another.

4. DELICTS (OBLIGATION EX MALEFICIO OR EX DELICTO)

Governing rules:
1. Pertinent provisions of the RPC and other penal laws subject to Art
2177 Civil Code
 Art 100, RPC – Every person criminally liable for a felony is
also civilly liable
2. Chapter 2, Preliminary title, on Human Relations (Civil Code)
3. Title 18 of Book IV of the Civil Code – on damages

While an act or omission is felonious because it is punished by law,

the criminal act gives rise to civil liability as it caused damage to
another.

Civil liability arising from delicts:

1. Restitution – which is the restoration of or returning the object
of the crime to the injured party.
2. Reparation – which is the payment by the offender of the value of
the object of the crime, when such object cannot be returned to the
injured party.

oblicon-module/mecabas Page 11
 3. Indemnification – the consequential damages which includes the
payment of other damages that may have been caused to the injures
party.

Effect of acquittal in criminal case:

 when acquittal is due to reasonable doubt – no civil liability
 when acquittal is due to exempting circumstances – there is civil
liability
 when there is preponderance of evidence – there is civil liability

Example:

Juan Carlo was convicted and sentenced to imprisonment by the Court for
the crime of theft, the Panera watch, of RJ. In addition to whatever
imprisonment or penalty that the Court may impose, Juan Carlo may also be
ordered to return (restitution) the Panera watch to RJ. If restitution
is no longer possible, for Juan Carlo to pay the value (reparation) of
the Panera watch. In addition to either restitution or reparation, Juan
Carlo shall also pay for damages (indemnification) suffered by RJ.

5. QUASI-DELICT (CULPA AQUILIANA OR TORT)(OBLIGATION EX QUASI-DELICTO or

EX-QUASI MALEFICIO) - It is a fault or act of negligence (or omission
of care) which causes damage to another, there being no pre-existing
contractual relations between the parties. These are acts or omissions
with no malicious intentions.

Note:
If there is a contractual relation between the parties then it is
called culpa contractual.
In order that an act or omission can be considered a quasi-delict, it
is necessary that the negligence or fault is not punishable by law
otherwise, it will be classified as crime or misdemeanor.
The basis of liability is equity. A person is liable not only for his
voluntary willful act executed intentionally, but also for those
performed with lack of foresight, care and diligence which caused harm
to society and individuals.

Elements:

a) The must be wrongful act or omission imputable to the defendant

b) There must be fault or negligence attributable to the person
charged
c) There must be damage or injury
d) There must be a direct relation of cause and effect between the
fault or negligence on the one hand and the damage or injury on the
other hand (proximate cause)

Example:
If Pedro drives his car negligently and because of his negligence hits
Jose, who is walking on the sidewalk of the street, inf licting upon
him physical injuries. Then Pedro becomes liable for damages based on
quasi-delict.

ACTIVITY 4 (to be submitted on ________)

Please practice Integrity in answering the activity.

oblicon-module/mecabas Page 12
(link will be provided at Google classroom)

MODULE 1
Part 3

REQUIRED READING
De Leon, Hector. Law On Obligations and Contracts (Latest Edition) –
Chapter on Nature and Effects of Obligations

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

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. (1095)

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 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. (1096)

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. (1097a)

EFFECTS OF OBLIGATION
1. Obligation to give - obligation to deliver the thing agreed upon
2. Obligation to do/not to do - obligation to do/not to do the service
agreed upon

ACCESSORY OBLIGATIONS:
1. Exercise diligence / Preserve the thing
 standard of care: that of a good father of a family – unless the law
or stipulation requires another standard of care

2. Delivery of fruits
 When does the right begin to exist: from the time to deliver arises
a) when there is no term/condition – from the perfection of the
contract
b) when there is a term/condition – from the moment the term or
condition arises

3. Delivery of accessories & accessions ( obligation to deliver determinate

thing, even if the stipulation does not mention delivery of accessories
& accessions)
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  Accessories - those joined to or included with the principal for the
latter’s better use, perfection or enjoyment
 Accessions – additions to or improvements upon a thing
 When does right to fruits arise? – from the time the obligation to
deliver arises
a) Conditional – from the moment the condition happens
b) With a term/period – upon the expiration of the term/period
c) Simple – from the perfection of the contract

FAILURE TO COMPLY WITH PERFORMANCE/REMEDIES:

3 kinds of Performance:
1. SPECIFIC PERFORMANCE - performance of the prestation itself
2. SUBSTITUTE PERFORMANCE - someone else performs or something else is
performed at the expense of debtor
3. EQUIVALENT PERFORMANCE - damages

I. Obligation to give Obligations to do

Remedies (Real Obligation) (Personal Obligation)

Specific generic To do Not to do

SPECIFIC undo the things

PERFORMANCE X X X already done

EQUIVALENT Can only be

PERFORMANCE X X demanded if X
obligation is
not very
personal

SUBSTITUTE Undo the things

PERFORMANCE X X already done at
debtor's expense

RESCISSION/
CANCELLATION X X X

IRREGULARITY OF PERFORMANCE/BREACH
A. CAUSES ATTRIBUTABLE TO DEBTOR

1. Contravention of tenor
2. Delay/ Mora - Non performance with respect to time
Mora solvendi – default on the part of the debtor; 2 kinds:
(1) Mora Solvendi Ex re – default in real obligations
(2) Mora Solvendi Ex persona – default in personal obligations

Elements:
(1) The obligation must be due, enforceable and already
liquidated or determinate in amount
(2) There must be non-performance
(3) There must be a demand, unless demand is not required

When demand is not necessary:

(1) When law declares
(2) When obligation expressly declares
(3) When designation of time of delivery or rendering the
service was a controlling motive

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 (4) When demand would be useless as when debtor has rendered it
beyond his powers to perform

Effects:
a. if determinate thing - debtor bears risk of loss (even when there
is fortuitous event)
b. debtor liable for damages/interest
c. resolution (art 1170, in proper cases)

3. Fraud / Dolo – Voluntary execution of a wrongful act or willful

omission, knowing and intending the effects which naturally and
necessarily arise from such act or omission
a. Causante ( causal ) - makes contract voidable
b. incidente – ( incidental ) - fraud in performance of obligation;
does not affect validity of obligations

Remedies of Person in fraud under obligations are:

a. insist on specific performance (art 1233)
b. resolve contract (art 1191)
c. claim damages, in either case

4. Negligence /Culpa - absence of due diligence

Elements:
a) Omission of diligence required
b) Diligence required – per nature of obligation, circumstances of
persons, time and place

FRAUD DISTINGUISHED FROM NEGLIGENCE

FRAUD NEGLIGENCE
There is deliberate intention There is no deliberate
to cause damage. intention to cause damage.

Liability cannot be Liability may be mitigated.

mitigated.

Waiver for future fraud is Waiver for future negligence

void. may be allowed in certain
cases:
a) gross – can never be
excused in advance; against
public policy
b) simple – may be excused in
certain cases

B. CAUSES NOT ATTRIBUTABLE TO DEBTOR

1. Delay/ Mora - non fulfillment with respect to time

Mora accepiendi – default on part of creditor; Creditor is guilty of
default when he unjustifiably refuses to accept payment or performance
at the time payment/performance can be done

Effects:
(1) responsibility of debtor is reduced to fraud and gross
negligence
(2) debtor is exempted from risk of loss of thing / creditor bears
risk of loss
(3) expenses by debtor for preservation of thing after delay is
chargeable to creditor
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 (4) if obligation bears interest, debtor does not have to pay from
time of delay
(5) creditor liable for damages
(6) debtor may relieve himself of obligation by consigning the
thing

Compensatio morae – both parties are in default (in reciprocal

obligations); the effect: is as if there is no default

2. Fortuitous Events - event which could not be foreseen, or which though

foreseen, were inevitable

REQUIREMENTS (Nakpil & Sons vs. CA):

1. The cause of the breach of the obligation must be independent of
the will of the debtor
2. The event must be either unforeseeable or unavoidable
3. The event must be such as to render it impossible for the debtor to
fulfill his obligation in a normal manner
4. The debtor must be free from any participation in, or aggravation
of injury to the creditor

Rule on Fortuitous Event:

1. General Rule – no liability for fortuitous event
2. Exemption –
a) when expressly declared by law ( bad faith, subject matter is
generic, debtor is in delay )
b) when expressly declared by stipulation or contract
c) when nature of obligation requires assumption of risk

REMEDIES OF CREDITORS - generally transmissible (except: law,

stipulation, personal obligation):
1. Exact performance - specific, substitute, equivalent
2. Attach and execute debtor's property which is not exempt (art 2236)
3. Accion subrogatoria (art 1171)
Requisites:
a. Creditor must have right of return against debtor
b. The debt is due and demandable
c. There is a failure of the debtor to collect his own debt from
3rd persons either through malice or negligence
d. Debtor's assets are insufficient
e. The right of account is not purely personal
4. Accion directa (arts 1729 & 1652)
5. Accion pauliana
Requisites:
a. There is a credit in favor of plaintiff
b. The debtor has performed an act subsequent to the contract,
giving advantage to other persons
c. The creditor is prejudiced by the debtor's act which are in
favor of 3rd parties and rescission will benefit the creditor
d. The creditor has no other legal remedy
e. The debtor's acts are fraudulent

ACTIVITY 5 (to be submitted on ________)

Please practice Integrity in answering the activity.

(link will be provided at Google classroom)

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MODULE QUIZ/FORMATIVE ASSESSMENT

Two (2) set of quizzes will be given. (link will be provided at

Google classroom)

EVALUATION/REFLECTION

1. What am I learning from this module?

2. Which topics I have understand better?
3. Which topics are still unclear to me or I am finding hard or
challenging?
4. What was the most important thing I learned from this module

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