Lesson 2: Nature & Effect of Obligations

A. 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. (1094a)

1. Concurrent obligations in obligations to give a specific or determinate thing and generic

or Indeterminate thing

Meaning of specific or determinate thing Meaning of generic or indeterminate thing

- The above provision refers to an - A thing is generic or indeterminate when
obligation to give a specific or it refers only to a class or genus to which
determinate thing. it pertains and cannot be pointed out with
- A thing is said to be specific or particularity.
determinate when it is particularly
designated or physically segregated from
all others of the same class. (Art. 1459.)
DISTINGUISHED
- A determinate thing is identified by its - A generic thing is identified only by its
individuality. specie.
- The debtor cannot substitute it with - The debtor can give anything of the same
another although the latter is of the same class as long as it is of the same kind.
kind and quality without the consent of - Duties of debtor
the creditor. (Art. 1244.) 1. To deliver a thing which is of the
- Duties of debtor quality intended by the parties taking
1. To preserve or take care of the thing into consideration the purpose of the
due obligation and other circumstances
2. To deliver the fruits of the thing 2. To be liable for damages in case of
3. To deliver its accessions and fraud, negligence, or delay, in the
accessories performance of his obligation, or
4. To deliver the thing itself (see Arts. contravention of the tenor thereof.
1163, 1233, 1244; as to kinds of
delivery, Arts. 1497 to 1501.)
5. To answer for damages in case of
non-fulfillment or breach.
- Obligation to take care of the thing due.
1. Diligence of a good father of a family
 In obligations to give (real
obligations), the obligor has the
incidental duty to take care of the
thing due with the diligence of a
good father of a family pending
delivery.
 The phrase has been equated
with ordinary care or that
diligence which an average (a
reasonably prudent) person
exercises over his own property.
2. Another standard of care
 If the law or the stipulation of the
parties provides for another
 standard of care (slight or
extraordinary diligence), said
law or stipulation must prevail.
3. Factors to be considered
 The diligence required depends
upon the nature of the obligation
and corresponds with the
circumstances of the person, of
the time, and of the place.
 As a 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.
4. Reason for debtor’s obligation
 The debtor must exercise
diligence to insure that the thing
to be delivered would subsist in
the same condition as it was
when the obligation was
contracted.
 Without the accessory duty to
take care of the thing, the debtor
would be able to afford being
negligent and he would not be
liable even if the property is lost
or destroyed, thus rendering
illusory the obligation to give.

ART. 116
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)

2. Kinds of Fruits
- The fruits mentioned by the law refer to natural, industrial, and civil fruits.
a. Natural fruits
 Spontaneous products of the soil, and the young and other products of animals
 Ex: grass; all trees and plants on lands produced without the intervention of human
labor.
b. Industrial fruits
 produced by lands of any kind through cultivation or labor
 ex: sugar cane; vegetables; rice; and all products of lands brought about by reason
of human labor.
c. Civil fruits
 derived by virtue of a juridical relation
 rents of buildings, price of leases of lands and other property and the amount of
perpetual or life annuities or other similar income.
 Right of creditor to the fruits
- This article is a logical application of the basic principle stated in Article 712,
paragraph two of the Civil Code that “Ownership and other real rights over property
are acquired and transmitted by law, by donation, by testate and intestate succession,
and in consequence of certain contracts, by tradition.”
- By law, the creditor is entitled to the fruits of the thing to be delivered from the time
the obligation to make delivery of the thing arises. The intention of the law is to
protect the interest of the obligee should the obligor commit delay, purposely or
otherwise, in the fulfillment of his obligation.
- In case of rescission, the parties are under “obligation to return the things which
were the object of the contract, together with their fruits and the price with its
interest.’’

3. Obligations to do or not to do

When obligation to deliver 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.
- Perfection in this case refers to the birth of the contract or to the meeting of the
minds between the parties.
2. If the obligation is subject to a suspensive condition or period, it arises upon
fulfillment of the condition or arrival of the period.
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 specifi c provisions of law applicable.
PERSONAL RIGHT REAL RIGHT
The right or power of a person (creditor) The right or interest of a person over a
to demand from another (debtor), as a specific thing (like ownership, possession,
definite passive subject, the fulfillment of mortgage, lease record) without a definite
the latter’s obligation to give, to do, or not passive subject against whom the right may
to do. be personally enforced.
DISTINGUISHED
1. there is a definite active subject and a 1. there is only a definite active subject
definite passive subject without any definite passive subject
2. binding or enforceable only against a 2. directed against the whole world
particular person
Ownership acquired by delivery
- Ownership and other real rights over property are acquired and transmitted by law,
by donation, by testate and intestate succession, and in consequence of certain
contracts by tradition or delivery.
- Delivery in sale may be actual or real, constructive or legal, or in any other manner
signifying an agreement that the possession of the thing sold is transferred from the
vendor to the vendee.
- The meaning of the phrase “he shall acquire no real right over it until the same has
been delivered to him,” is that the creditor does not become the owner until the
specific thing has been delivered to him.
- Hence, 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.

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)

4. Remedies in case of non-performance

SPECIFIC REAL OBLIGATION GENERIC REAL OBLIGATION

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 the obligation
also with a right to recover damages
c. demand the payment of damages
only where it is the only feasible
remedy.
- In an obligation to deliver a determinate
thing, the very thing itself must be
delivered.
- Only the debtor can comply with the
obligation.
 This is the reason why the creditor is
granted the right to compel the
debtor to make the delivery.
- The law does not mean that the creditor
can use force or violence upon the
debtor.
- The creditor must bring the matter to
court and the court will be the one to
order the delivery.
Can be performed by a third person since
the object is expressed only according to its
family or genus.
 It is not necessary for the creditor to
compel the debtor to make the delivery
although he may ask for performance
of the obligation.
 In any case, the creditor has a right to
recover damages under Article 1170 in
case of breach of the obligation.
- The manner of compliance with an
obligation to deliver a generic thing is
governed by Article 1246.
- Under the Constitution, no person shall
be imprisoned for non-payment of debt.
- A person may be subject to subsidiary
imprisonment for non-payment of civil
liability adjudged in a criminal case.
- The constitutional prohibition refers to
purely civil debt or one arising from
contractual obligations only

5. Damages
- DAMAGES RECOVERABLE WHERE OBLIGATION TO PAY MONEY
a. Penalty interest for delay or non-performance
 Damages may be recovered under Article 1170 when the obligation is to do
something other than the payment of money but when the obligation which the
debtor failed to perform consists only in the payment of money, the rule of
damages is that laid down in Article 2209 of the Civil Code.
 The damage dues (or penalty interest) do not include and are not included in the
computation of interest as the two are distinct claims which may be demanded
separately
b. Rate of the penalty interest.
  The rate of the penalty interest payable shall be that agreed upon.
 In the absence of stipulation of a particular rate of penalty interest, then the
additional interest shall be at a rate equal to the regular monetary interest; and
if no regular interest had been agreed upon, then the legal interest shall be
paid.
 The payment of the regular interest constitutes the price or cost of the use of
money and thus, until the principal due is returned to the creditor, such interest
continues to accrue since the debtor continues to use such principal amount.
- MEASURE OF LIABILITY FOR DAMAGES
a. Civil Code provisions
b. Contractual breach committed in good faith/bad faith
c. With respect to moral damages
d. Code of Commerce provisions

B. Specific circumstances affecting obligations in general

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. (1105a)

1. Fortuitous Event
- A fortuitous event is any extraordinary event which cannot be foreseen, or which, though
foreseen, is inevitable.
- It is an event which is either impossible to foresee or impossible to avoid.
- The essence of a fortuitous event consists of being a happening independent of the will of
the obligor and which happening, makes the normal fulfi llment of the obligation
impossible.

FORTUITOUS EVENT FORCE MAJEURE

Acts of man Acts of God
- fortuitous event is an event independent - those events which are totally
of the will of the obligor but not of other independent of the will of every human
human wills being
- ex: war, fi re, robbery, murder, - Ex: earthquake, flood, rain, shipwreck,
insurrection, etc lightning, eruption of volcano, etc.
- The term generally applies to a natural
accident.
 In our law, fortuitous events and force majeure are identical in so far as they
exempt an obligor from liability.
 Both are independent of the will of the obligor.
KINDS OF FORTUITOUS EVENT
a. Ordinary fortuitous events
- those events which are common and which the contracting parties could reasonably
foresee (ex. Rain)
b. Extraordinary fortuitous events
- those events which are uncommon and which the contracting parties could not have
reasonably foreseen
 - ex. earthquake, fire, war, pestilence, unusual flood
REQUISITES OF A FORTUITOUS EVENT
Whether an act of man or an act of God, to constitute a fortuitous event, it is essential that:
a. The event must be independent of the human will or at least of the obligor’s will
b. The event could not be foreseen (unforeseeable), or
if it could be foreseen, must have been impossible to avoid (unavoidable)
c. The event must be of such a character as to render it impossible for the obligor to
comply with his obligation in a normal manner
d. The obligor must be free from any participation in, or the aggravation of the injury
to the obligee.
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:
a. When expressly specified by law (1, 2 and 3 - special strictness of the law is
justified.)
1. The debtor is guilty of fraud, negligence, or delay, or contravention of the tenor
of the obligation.
2. The debtor has promised to deliver the same (specific) thing to two or more
persons who do not have the same interest for it would be impossible for the
debtor to comply with his obligation to two or more creditors even without any
fortuitous event taking place.
3. The debt of a thing certain and determinate proceeds from a criminal offense,
unless the thing having been offered by the debtor to the person who should
receive it, the latter refused without justification to accept it.
4. The thing to be delivered is generic (Art. 1263.) for the debtor can still comply
with his obligation by delivering another thing of the same kind in accordance
with the principle that “genus never perishes” (genus nunquam perit)
b. When declared by stipulation.
- The basis for this exception rests upon the freedom of contract.
- intended to better protect the interest of the creditor and procure greater
diligence on the part of the debtor in the fulfillment of his obligation
- the intention to make the debtor liable even in case of a fortuitous event should
be clearly expressed.

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. (1101)

GROUNDS FOR LIABILITY

 Article 1170 gives the four grounds for liability which may entitle the injured party to
damages (see Art. 2197.) for all kinds of obligations regardless of their source,
mentioned in Article 1157, whether the obligations are real or personal. (supra.)
 It contemplates that the obligation was eventually performed but the obligor is guilty of
breach thereof. Here, the breach of the obligation is voluntary; in Article 1174, it is
involuntary.

2. Fraud
- As used in Article 1170, it is the deliberate or intentional evasion of the normal fulfi
llment of an obligation.
 - 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
 Moral damages may be recovered in addition to other damages
- Incidental Fraud (dolo incidente) - committed in the performance of an obligation
already existing because of contract.
 Causal Fraud (dolo causante) - fraud employed in the execution of a contract under
Article 1338, which vitiates consent and makes the contract voidable and to
incidental fraud under Article 1344 also employed for the purpose of securing the
consent of the other party to enter into the contract but such fraud was not the
principal inducement to the making of the contract.
- Under Article 1170, the fraud is employed for the purpose of evading the normal
fulfillment of an obligation and its existence merely results in breach thereof giving rise
to a right by the innocent party to recover damages.
 The Civil Code refers to civil fraud. Criminal fraud gives rise to criminal liability.

ART. 1171. Responsibility arising from fraud is demandable in all obligations. Any
waiver of an action for future fraud is void. (1102a)
RESPONSIBILITY ARISING FROM FRAUD DEMANDABLE
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.
- because fraud is deemed serious and evil
Waiver of action for future fraud void
According to the time of commission, fraud may be past or future.
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
What the law prohibits is waiver anterior to the fraud and to the knowledge thereof by the
aggrieved party.
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.

3. Negligence (fault or culpa)

- It is any voluntary act or omission, there being no malice, which prevents the normal
fulfillment of an obligation.

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. (1103)

RESPONSIBILITY ARISING FROM NEGLIGENCE DEMANDABLE

a. In the performance of every kind of obligation, the debtor is also liable for damages
resulting from his negligence or culpa.
b. 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.
VALIDITY OF WAIVER OF ACTION ARISING FROM NEGLIGENCE
a. 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.
b. Where negligence is gross or shows bad faith, it is considered equivalent to fraud.
Kinds of negligence according to source of obligation
a. Contractual negligence (culpa contractual)
- negligence in contracts resulting in their breach
- kind of negligence is not a source of obligation.
- 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-fulfi llment
- kind of civil negligence if it does not amount to a crime
b. Civil negligence (culpa aquiliana)
- negligence which by itself is the source of an obligation between the parties not
formally bound before by any pre-existing contract
- called “tort” or “quasidelict.”
c. Criminal negligence (culpa criminal)
- negligence resulting in the commission of a crime.
- may produce civil liability arising from a crime under Article 100 of the Revised
Penal Code

FRAUD NEGLIGENCE
deliberate intention to
Yes No
cause damage or injury
Waiver of the liability for
Void in a certain sense, be allowed
future fraud/negligence
Needed to be proved presumed from the breach of a
must be clearly proved
contractual obligation
Liability cannot be mitigated by the may be reduced according to
courts the circumstances
They are similar in that both are voluntary, that is, they are committed with volition but in
fraud, a party, by his voluntary execution of a wrongful act, or a willful omission, knows and
intends the effects which naturally and necessarily arise from such act or omission which
deliberate intent is lacking in negligence.
WHEN NEGLIGENCE EQUIVALENT TO FRAUD
- Where the negligence shows bad faith or is so gross that it amounts to malice or
wanton attitude on the part of the defendant, the rules on fraud shall apply.
- Gross negligence - negligence characterized by want or absence of or failure to
exercise even slight care or diligence, or the entire absence of care, acting or omitting
to act on a situation where there is a duty to act, not inadvertently but willfully and
intentionally.
- It evinces a thoughtless disregard of or conscious indifferences to consequences insofar
as other persons may be affected, without exerting any effort to avoid them.

4. Delay
- The word delay, as used in the law, is not to be understood according to its meaning in
common parlance.
a. Ordinary delay - merely the failure to perform an obligation on time
b. Legal delay or default or mora - failure to perform an obligation on time which
failure, constitutes a breach of the obligation.
- KINDS OF DELAY
 a. Mora solvendi - the delay on the part of the debtor to fulfi ll his obligation (to give or
to do) by reason of a cause imputable to him
b. Mora accipiendi - the delay on the part of the creditor without justifi able reason to
accept the performance of the obligation
c. Compensatio morae - the delay of the obligors in reciprocal obligations
- REQUISITES OF DELAY OR DEFAULT BY THE DEBTOR
a. failure of the debtor to perform his (positive) obligation on the date agreed upon
b. demand (not mere reminder or notice) made by the creditor upon the debtor to fulfi
ll, perform, or comply with his obligation which demand, may be either judicial
(when a complaint is fi led in court) or extra-judicial (when made outside of court,
orally or in writing)
c. failure of the debtor to comply with such demand
- EFFECTS OF DELAY

a. Mora solvendi - The debtor is guilty of breach of the obligation

- He is liable for interest in case of obligations to pay
money or damages in other obligations.
- He is liable even for a fortuitous event when the
obligation is to deliver a determinate thing
b. Mora accipiendi - The creditor is guilty of breach of obligation
- He is liable for damages suffered, if any, by 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 the creditor’s delay
- The debtor may release himself from the obligation by the
consignation of the thing or sum due.
c. Compensatio morae - The delay of the obligor cancels out the effects of the
delay of the obligee and vice versa.
- The net result is that there is no actionable
default on the part of both parties, such that as if
neither one is guilty of delay.
- If the delay of one party is followed by that of the other,
the liability of the first infractor shall be equitably
tempered or balanced by the courts.
- If it cannot be determined which of the parties is guilty of
delay, the contract shall be deemed extinguished and
each shall bear his own damages.

- WHEN DEMAND NOT NECESSARY TO PUT DEBTOR IN DELAY

a. When the obligation so provides
 The obligation must expressly so declare that demand is not necessary or must
use words to that effect, as for instance, “the debtor will be in default” or “I will
be liable for damages.”
b. When the law so provides
c. When time is of the essence
d. When demand would be useless
e. When there is performance by a party in reciprocal obligations
 In case of reciprocal obligations (see Art. 1191.), the performance of one is
conditioned upon the simultaneous fulfillment on the part of the other.
5. Breach of Contract
- Breach of contract - failure without justifiable excuse to comply with the terms of a
contract.
- MEASURE OF RECOVERABLE DAMAGES
 The provisions under Title XVIII on “Damages’’ of the Civil Code govern in
determining the measure of recoverable damages.
 Fundamental in the law on damages is that one injured by a breach of a contract, or
by a wrongful or negligent act or omission shall have a fair and just compensation
commensurate to the loss sustained as a consequence of the defendant’s act.
- CONTRACTUAL INTERESTS OF OBLIGEE OR PROMISEE, REMEDY SERVES
TO PRESERVE
 A breach upon the contract confers upon the injured party a valid cause for
recovering that which may have been lost or suffered.
 Remedies:
a. Expectation interest - his interest in having the benefit of his bargain by being
put in as good a position as he would have been had the contract been performed
b. Reliance interest - his interest in being reimbursed for loss caused by reliance on
the contract by being put in as good a position as he would have been had the
contract not been made
c. Restitution interest - his interest in having restored to him any benefit that he has
conferred on the other party.
d. Excuse from ensuing liability - The effect of every infraction is to create a new
duty, that is, to make recompense to the one who has been injured by the failure
of another to observe his contractual obligation.
e. Duty of obligee to minimize his damages - An obligee is duty bound to minimize
the damages for which he intends to hold any obligor responsible.