Obligations and

Contracts
Concept of Obligation
◈ Article 1156 (NCC) provides:

❑ An obligation is a juridical necessity to

give, to do or not to do.

◈ Obligation as a whole is a juridical relation

between two or more parties (creditor and
debtor), wherein, creditor may demand the
debtor a certain prestation or conduct.
Elements of an Obligation
◈ Elements of an Obligations:
⬩ 1. Active Subject - Creditor
⬩ 2. Passive Subject - Debtor
⬩ 3. Object - Subject Matter
⬩ 4. Juridical Tie - Efficient Cause
Active Subject
◈ Also referred to as Creditor or Obligee
◈ In an obligatory relationship, is the party who has the right
to demand compliance of the obligation.

◈ RIGHT
⬩ Is a privilege granted to a party, guaranteed under the
constitution and statutes, enforceable by law against
another.
Passive Subject
◈ Also referred to as Debtor or Obligor
◈ In an obligatory relationship, is the party who has the
obligation to perform a conduct (to give, to do, or not to do),
as demanded.
Object
◈ Also referred to as a prestation or the subject matter of the
obligation.
◈ It is the act or conduct required from the passive subject to
fulfil the obligation.

◈ Kinds of Object/Prestation:
⬩ To Give - Real Obligation
⬩ To Do - Positive Personal Obligation
⬩ Not to Do - Negative Personal Obligation
Requisites of a Valid Prestation
◈ a. Physically and juridically possible
◈ b. Determinate or at least determinable according to pre-established
elements or criteria
◈ c. Possible equivalent in money
❖ Pecuniary interest need not be for one of the parties, it maybe
for the benefit of 3rd person/s distinct from the parties to the
contract
❖ Prestation need not be of economic character to have
pecuniary value, if it does not have value the law attributes to
it economic value e.g. moral and nominal damages
Juridical Tie
◈ Also referred to as “Legal tie or Vinculum Juris”
◈ Is the reason that binds the parties of the obligation, which
constitutes the concurrence of the essential elements of the
obligation.
❑ Efficient Cause as provided by the source of obligation
❑ Object or prestation of the obligatory relationship
❑ Subject-persons, (Active and Passive Subject)
◈ A relationship between the elements are established:
❑ By-law
❑ Bilateral Acts
❑ Unilateral Acts
Civil Obligation v Natural Obligation
◈ Unlike civil obligations, a Natural Obligation has
no binding force of law and hence does not give a
right of action to enforce its performance. It is
based however, on equity and natural law, and
should be voluntary
Source of Obligation
◈ Article 1157 (NCC), provides:
⬩ Obligations arise from:
❑ (1) Law;
❑ (2) Contracts;
❑ (3) Quasi-contracts;
❑ (4) Acts or omissions punished by law; and
❑ (5) Quasi-delicts.
Law
◈ A rule promulgated by a legitimate authority with the
purpose of common observance and benefit.
◈ Obligations derived from law are not presumed, only those
expressly determined in the New Civil Code or other special
laws, are demandable.
⬩ Examples:
❑ National Internal Revenue Code
❑ Family Code
❑ Labor Code
❑ Traffic Laws
Contract
◈ Is a meeting of the minds, between two persons whereby one
binds himself, with respect to the other, to give something or
to render some service.
◈ Contracts have the force of law between the contracting
parties and is expected to be complied in good faith.
Therefore, the parties are bound to comply with their
obligations as per the contract, as it expresses their
agreement.
Quasi-contract
◈ Certain lawful, voluntary, and unilateral acts give rise to the
juridical relation of quasi-contract to the end that no one
shall be unjustly enriched or benefited at the expense of
another.
◈ Kinds of Quasi-contract:
❑ Negotiorum Gestio
❑ Solutio Indebiti
❑ Other Quasi-Contracts
Acts or omissions punished by law
◈ Also referred to as delict
◈ Civil obligations arising from criminal offenses shall be governed
by the penal laws, subject to the provisions of article 2177, and of
the pertinent provisions of Chapter 2, Preliminary Title, on Human
Relations, and of Title XVIII of this Book, regulating damages.
◈ Accordingly, the Revised Penal Code states under Article 100
“Every person criminally liable for a felony is also civilly liable”
⬩ Exceptions: (Felony without civil liability)
❑ Criminal contempt
❑ Gambling
❑ Traffic Violations
Quasi-delicts
◈ Article 2176 (NCC), provides:
⬩ Whoever by act or omission causes damage to another,
there being fault or negligence, is obliged to pay for the
damage done. Such fault or negligence, if there is no
pre-existing contractual relation between the parties, is
called a quasi-delict.
◈ Requisites of Quasi-delict
1. Damage suffered by plaintiff
2. Fault or negligence of defendant
3. Connection of cause and effect between fault/
negligence and the damage suffered
Kinds of Obligation as to Prestation
◈ To Give - Real Obligation
◈ To Do - Positive Personal Obligation
◈ Not to Do - Negative Personal Obligation
Real Obligation
◈ Also referred to as the “obligation to give”
◈ In this type of obligation, the passive subject is expected to
fulfil the obligation by delivering a thing, movable or
immovable, to the active subject.
◈ The fulfilment of a real obligation, creates a real right or for
the use of the recipient or for custody or returning to the
owner, of the thing.
Real Obligation
◈ Kinds of Real Obligation
⬩ Generic (Indeterminate)
⬩ - To deliver a thing that is generic, if it is simply
stated as a class of thing with no specific designation, thus,
cannot be identified and separated from other things of
same class.
Ex: To deliver a P100.00 bill.

⬩ Specific (Determinate)
⬩ - To deliver a thing that is specific, if it can be physically
identified and separated from other things of same class.

⬩ Ex: To deliver a P100.00 bill with serial number MB106973

⬩ Note: The P100.00 bill became specific because of a particular designation – in this
⬩ case through its serial number.
Positive Personal Obligation
◈ Also referred to as the “obligation to do”
◈ In this type of obligation, the passive subject is expected to
fulfil the obligation by performing a work or service for the
active subject.
◈ The fulfilment of a positive personal obligation, requires the
debtor to do something for the creditor.
Negative Personal Obligation
◈ Also referred to as the “obligation not to do”
◈ In this type of obligation, the passive subject is expected to
fulfil the obligation by refraining from performing an action
or work as required by the active subject.
◈ The fulfilment of a positive personal obligation, requires the
debtor not to do something in favor of the creditor.
21

Real Obligation
Obligation to give
Real Obligation: Specific and Generic Thing
◈ Specific thing - when the object is particularly designated or
physically segregated from all others of the same class. In
here, the object is concrete, particularized thing, indicated by
its own individuality.
◈ Generic thing - when the object is designated merely by its
class or genus without any particular designation or physical
segregation from all others of the same class. In here, the
object is one whose determination is confined to that of its
nature – to the genus to which it pertains.
DUTIES OF DEBTOR IN AN OBLIGATION TO GIVE A
DETERMINATE THING
◈ 1. To preserve or take care of the thing due with the diligence of a
good father of a family
⬩ Also referred to as “Diligence of a good father of a family”.
The obligor is required by law to practice ordinary diligence or
the diligence of a good father of a family to fulfil its specific
real obligation.
⬩ Exception to the standard diligence of a good father of a
family is the practice of a higher degree of diligence.
DUTIES OF DEBTOR IN AN OBLIGATION TO
GIVE A DETERMINATE THING
◈ 2. To deliver the fruits of the thing: Right to the fruits of the thing
from the time the obligation to deliver it arises.
⬩ GENERAL RULE: From the time of the perfection of
the contract (i.e. meeting of the minds between the
parties)
⬩ EXCEPTIONS
⬩ a. when the parties made a stipulation as regards the
right of the creditor to the fruits of the thing
⬩ b. when the obligation is subject to a suspensive
condition or period; arises upon fulfillment of the
condition or arrival of the period
Kinds of Delivery
◈ Actual Delivery
⬩ The obligor transfers the possession of the thing
immediately to the obligee.
⬩ Ex: The seller of isopropoyl alcohol to the buyer.

◈ Constructive Delivery
⬩ The obligor transfers the control or title of the thing to
the obligee by operation of law.
⬩ Ex: The seller of a parcel of land will transfer ownership
of said land to the buyer by means of a notarized deed of
sale.
Kind of Fruits
◈ Natural fruits are the spontaneous products of the soil, and
the young and other products of animals.

◈ Industrial fruits are those produced by lands of any kind

through cultivation or labor.

◈ Civil fruits are the rents of buildings, the price of leases of

lands and other property and the amount of perpetual or life
annuities or other similar income.
DUTIES OF DEBTOR IN AN OBLIGATION TO
GIVE A DETERMINATE THING
◈ 3. To deliver its accessions and accessories
⬩ Accessions – additions to or improvements
upon a thing.
⬩ Accessories – things joined to, or included
with the principal thing for its better use,
embellishment or completion.
◈ 4. To deliver the thing itself 5. To pay damages in
case of breach of the obligation by reason of delay,
fraud, negligence or contravention of the tenor of
the obligation.
RIGHTS OF CREDITOR IN DETERMINATE
OBLIGATIONS
◈ (1) To compel specific performance. This right is expressly
recognized in the first paragraph of Art. 1165.
◈ (2) To recover damages for breach of the obligation. Besides
the right to compel specific performance, the creditor has
also the right to recover damages from the debtor in case of
breach of the obligation through delay, fraud, negligence or
contravention of the tenor thereof.
◈ (3) To compel the delivery of accessories and accessions.
Personal Right v Real Right
◈ A PERSONAL RIGHT is “a right pertaining to a person to demand
from another the fulfillment of a Prestation to give, to do, or not to
do.” It is a jus ad rem, a right enforceable only against a definite
person or group of persons, such as the right of a creditor to
demand from the debtor the delivery of the object of the obligation
after the perfection of the contract.
◈ A REAL RIGHT is a “right pertaining to a person over a specific
thing, without a passive subject individually determined against
whom such right may be personally enforced. It is a jus in re, a
right enforceable against the whole world, such as the right of
ownership, possession, usufruct, or easement.
DUTIES OF DEBTOR IN AN OBLIGATION TO
GIVE A GENERIC THING
◈ 1. To deliver the thing which is neither of
superior nor of inferior quality
◈ 2. To pay damages in case of breach of the
obligation by reason of delay, fraud,
negligence or contravention of the tenor of the
obligation.
RIGHTS OF CREDITOR IN GENERIC
OBLIGATIONS:
◈ (1) To ask for performance of the obligation.
◈ (2) To ask that the obligation be complied with
at the expense of the debtor if the debtor
refuses or is unable to comply with his
obligation.
◈ (3) To recover damages for the breach of
obligation.
32

Positive Personal Obligation

Obligation to do
Remedies available to creditor
◈ If debtor obliged to do something fails to do it or if he does it
in contravention of the tenor of the obligation
❖ If the debtor obliged to do something fails to do it, the
same shall be executed at his cost
❖ Ask for damages under Article 1170 (NCC)

◈ If debtor has to do something but it was poorly done:

❖ May be decreed that what was poorly done be undone
❖ Ask for damages under Article 1170 (NCC)
34

Negative Personal Obligation

Obligation not to do
Remedies available to creditor
◈ If debtor is obliged in not to doing, and the debtor
does what has been forbidden:
❖ Demand that it shall be undone at the expense
of the debtor
❖ Ask for damages under Article 1170 (NCC)
Damages
◈ Refer to the harm done and the sum of money
that may be recovered, whereas, injury refers
to the wrongful, unlawful or tortuous act. It is
the legal wrong to be redressed.
Kinds of Damage
◈ Actual or compensatory damages – These refer to the
pecuniary loss, (such as loss in business or profession) that
may be recovered. It Includes the value of the loss suffered
and profits not realized, (Art 2199)
◈ Moral Damages – They include physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation, and
similar injury. (Art 2217)
◈ Nominal damages – They refer to damages to vindicate a
right. (Art. 2221)
Kinds of Damage
◈ Temperate or moderate damages – They are more than
nominal but less than compensatory damages, but may be
recovered if the court finds that some pecuniary loss has
been suffered but its amount cannot, from the nature of the
case, be proved with certainty. (Art 2224)
◈ Liquidated damages – Those agreed upon by the parties to a
contract, to be paid in case of breach. (Art 2226)
◈ Exemplary or corrective damages – These are imposed by
way of example or correction for the public good, in addition
to the moral, temperate, liquidated or compensatory
damages. (Art 2229)
BREACH OF OBLIGATIONS
◈ (1) Fraud
◈ (2) Negligence
◈ (3) Delay
◈ (4) Contravention of the tenor of the obligation
Fraud
◈ Fraud is the deliberate or intentional evasion
by the debtor of the normal compliance of his
obligation.
◈ Types:
⬩ Causal Fraud (Dolo Causante)
⬩ Incidental Fraud (Dolo Incidente)
⬩ Fraud in Performance of Obligation
Negligence
◈ It is the omission of the 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. (Art. 1173)
◈ It is the failure to observe for the protection of the interest of
another person, that degree of care, precaution and vigilance which
the circumstances justly demand, whereby such other person suffers
injury.
◈ Kinds of Negligence:
⬩ Culpa Contractual (contractual negligence)
⬩ Culpa Aquiliana (civil negligence or tort or quasi-delict or
culpa extra-contractual)
⬩ Culpa criminal (criminal negligence)
EFFECTS OF CONTRIBUTORY NEGLIGENCE OF THE
CREDITOR

◈ GENERAL RULE: Reduces or mitigates the

damages which he can recover
⬩ EXCEPTION: If the negligent act or omission
of the creditor is the proximate cause of the
event which led to the damage or injury
complained of, he cannot recover.
Delay
◈ Delay or default or mora is the non-fulfillment
of an obligation with respect to time.

◈ Kinds:
⬩ Mora solvendi
⬩ Mora accipiendi
⬩ Compensatio morae
DEBTOR IN DELAY: REQUISITES
◈ GENERAL RULE:
• Debtor does not perform his obligation on date due
• The creditor demands performance of obligation
• Debtor does not comply with creditor’s demands
◈ EXCEPTION: (Delay exists even without demand)
• When the law so provides
• When the obligation expressly declares so
• When time is of the essence in the contract
• When demand would be useless
• In reciprocal obligations, fulfilment of one obligation requires
the other obligation to be fulfilled, notwithstanding the
absence of demand
EFFECTS OF DELAY
◈ Debtor shall be liable for the payment of
damages
◈ If the obligation consists in the delivery of a
specific thing, he shall be liable until delivery,
despite occurrence of a fortuitous event.
Fortuitous Event
◈ An event which could not be foreseen, or which though
foreseen, was inevitable.
◈ ELEMENTS:
⬩ 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
◈ GENERAL RULE: No person shall be liable for fortuitous
event
⬩ EXCEPTIONS:
⬩ 1. When the law expressly provides so ( bad faith,
subject matter is generic, debtor is in delay)
⬩ 2. When stipulated in contract of such liability in a
fortuitous event
⬩ 3. When nature of obligation requires assumption of risk
⬩ 4. When the obligor is in default or has promised to
deliver the same thing to two or more persons who do
not have the same interest
USURY
◈ Art. 1175 (NCC), provides:
⬩ Usurious transactions shall be governed by special laws
◈ INTEREST – the income produced by money in relation to its
amount and to the time that it cannot be utilized by its owner. It can
either be moratory or compensatory.
⬩ MORATORY – paid in contractual obligations to pay a sum
of money, either as price for the use of the
⬩ money OR as stipulated advanced determination of the
damages due to the delay in the fulfillment of the obligation.
⬩ COMPENSATORY – interests on obligations which have an
extra-contractual or delictual origin
Presumptions in Usurious Transactions
◈ Presumption No. 1: 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
◈ Presumption No. 2: 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.
REMEDIES OF CREDITOR TO PROTECT CREDIT:

◈ (1) to EXHAUST the property in possession of

the debtor;
◈ (2) to be SUBROGATED to all of the rights
and actions of the debtor save those which are
inherent in his person
◈ (3) to IMPUGN all of the acts which the
debtor may have done to defraud him.
TRANSMISSIBILITY OF RIGHTS
◈ GENERAL RULE: Rights of obligations or rights
acquired by virtue of obligation are transmissible.
◈ EXCEPTION:
⬩ (1) They are a personal right;
⬩ (2) There is a stipulation between parties;
⬩ (3) Not transmissible by operation of law.
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