CHAPTER 1 A general distinction can be made between

Obligations and Contracts  Civil law

I. Introduction to Law and the Philippine  jurisdictions in which a legislature or other central
Legal System body codifies and consolidates their laws,
Law
 Common law systems
 Law is a system of rules that are created
 where judge-made precedent is accepted
and enforced through social or
as binding law.
governmental institutions to
regulate behavior. It has been defined Religious laws
both as "the Science of Justice" and  played a significant role even in settling secular
"the Art of Justice". matters, and is still used in some religious
 Law is a system that regulates and communities.
ensures that individuals or a community Islamic Sharia law
adhere to the will of the state.
 is the world's most widely used religious law, and
 State-enforced laws can be made by a
is used as the primary legal system in some
collective legislature or by a single
countries, such as Iran and Saudi Arabia.
legislator, resulting in statutes, by the
executive through decrees and The adjudication of the law is generally divided into

regulations, or established by judges two main areas

through precedent, normally in common  Criminal law

law jurisdictions.  deals with conduct that is considered harmful

 Private individuals can create legally to social order and in which the guilty party may
binding contracts, including arbitration be imprisoned or fined.
agreements that may elect to accept
 criminal law while statutes and principles of
alternative arbitration to the normal
common law origin are evident in such areas as
court process.
constitutional law, procedure, corporation law,
 The formation of laws themselves may be
taxation, insurance, labor relations, banking and
influenced by a constitution, written or
currency.
tacit, and the rights encoded therein.
 Civil law
 The law
 (not to be confused with civil law jurisdictions
shapes politics, economics, history and s
above) deals with the resolution
ociety in various ways and serves as a
of lawsuits (disputes) between individuals and/or
mediator of relations between people.
organizations.
 Law provides a source of scholarly
inquiry into legal  The civil law operates in areas such as family
history, philosophy, economic relations, property, succession, contract
analysis and sociology.
 Law also raises important and complex
issues concerning equality, fairness,
and justice.
The Philippine legal system
 is a mixture of customary usage, Roman
(civil law) and Anglo-American (common
law) systems, and Islamic law.
 The legal system is the result of the
immigration of Muslim Malays in the
fourteenth century and the subsequent
colonization of the islands by Spain and the
United States.
The main sources of Philippine Law are:
 CONSTITUTION
 the fundamental and supreme law of the
land.
 STATUTES
 including Acts of Congress, municipal
charters, municipal legislation, court
rules, administrative rules and orders,
legislative rules and presidential
issuances.
TREATIES AND CONVENTIONS
 these have the same force of authority as
statutes.
JUDICIAL DECISIONS
 Article 8 of the Civil Code provides that
“judicial decisionsapplying to or
interpreting the laws or the Constitution
shall form a part of the legal system of
the Philippines”.
 Only decisions of its Supreme Court
establish jurisprudenceand are binding
on all other courts.
ARTICLE 1156. An obligation is a juridical
necessity to give, to do or not to do.
1. Definition of obligation
 The definition of obligation in law refers to
the responsibility to follow through on
actions agreed upon in a contract, promise,
law, oath, or vow.
 The term obligation is derived from the
Latin word “obligatio” Which means a
“tying” or “binding?”
LEGAL OBLIGTION
 It refers to obligation arising from law.
1.2 Elements
An obligation has the following essential elements:
 Parties - the actors involved in an obligation:
 Active subject (creditor/obligee)
 one who demands the fulfillment of an
obligation.
 Passive subject (debtor/obligor)
 one who has the duty to fulfill an
obligation.
 Object or Prestation - the conduct to be
performed by the passive subject for the active
subject.
 Juridical Tie (efficient cause) - the relation that
binds the parties to an obligation.
1.3 Kinds of Obligation according to:
Viewpoint of Sanction
Civil obligations
 There is judical tie between the parties
enforceable by court action.
Natural obligations
 There is judical tie between the parties which is
not enforceable by court action.
 Voluntary fulfillment of natural obligations by
the obligor produces legal effects which the
courts will recognize and protect.
Moral obligations
 There is no juridical tie between the parties.
 Voluntary fulfillment of moral obligations does
not produce any legal effect which courts will
recognize and protect
Viewpoint of subject matter
 Real obligation (obligation to give)
 or that in which the subject matter is a thing which
the obligor must deliver to the oblige
 Personal obligation (obligation to do or not to do)
 or that in which the subject matter is an act to be
done or not to be done. Kinds of personal
obligation:
  Positive obligation - The obligor is without his consent or authority; such as
obliged to give or to do something. the obligation to reimburse the expenses
 Negative obligation - The obligor is incurred by someone who voluntarily
obliged not to give or not to do saved your abandoned house from fire.
something.  Solutio Indebiti
 if one received something that does not
1.3 Sources of obligations
rightfully and legally belong to him; such
An obligation can arise from:
as the obligation to return a money
 Law
received by mistake.
 when there is an enforcement of law itself;
 Delict
the obligation cannot be presumed, and
 when there is a civil liability resulting from
should be expressly or clearly provided
criminal offense; should be governed by the
for in the law in order to
penal laws; such as the obligation of a thief
demandable; such as the obligation of
to return the money he had stolen.
income earning persons to pay taxes
 Quasi-delict
according to the National Internal
 when there is fault or negligence that causes
Revenue Code.
damage on another, there being no prior
 Contract
meeting of the minds between the parties;
 when there is a meeting of the minds
there is an obligation to pay for the damage
between the parties; the obligation have
done; such as the obligation of a driver to pay
the force of law and should be complied
for the damages he caused to another due to
with in good faith; such as the contract
negligence.
of sale of a book for Php1000.
 Acts or omissions punishable by law
Chapter 2
 Felony is defined under the code as an act
NATURE AND EFFECT OF OBLIGATIONS
or omission punishable by law,
There are many things that encompass obligations such as
committed through culpa or dolo. The
an obligation to provide basic needs to children deliver
words “punishable by law” means that
goods and services, perform agreements stated on the
the act or omission must be defined
contract and many others. When these obligations are not
and punished by the Revised Penal Code
fulfilled, the burden will be on the individual who made a
and no other law.
promise. Avoiding these obligations has legal
implications according to the provisions of Chapter 2 of
 Quasi-contract
the Civil Code of the Philippines.
 when there is no meeting of the
minds between parties, but one party
benefited at the expense of the other ARTICLE 1163. Every person obliged to give
party; there is an obligation to pay something is also obliged to take care of it with the
for compensation so that no one proper diligence of a good father of a family, unless
shall be unjustly enriched or the law or the stipulation of the parties requires
benefited at the expense of another. another standard of care. (1094
 Negotiorum Gestio
 if one (the officious manager)
voluntarily takes charge of the
agency or management of another
person's property on his behalf
Meaning of specific or determinate thing.
 The above provision refers to an obligation
to give a specific or determinate thing.
 SPECIFIC OR DETERMINATE
 when it is particularly designated or
physically segregated from all others of
the same class.
Meaning of generic or indeterminate thing.
 GENERIC OR INDETERMINATE
 when it refers only to a class or genus to
which it pertains and cannot be pointed
out with particularity.
Specific thing and generic thing distinguished.
 Determinate Thing
 is identified by its individuality. The
debtor cannot substitute it with another
although the latter is of the same kind
and quality without the consent of the
creditor. (Art. 1244.)
 Generic Thing
 is identified only by its specie. The
debtor can give anything of the same
class as long as it is of the same kind.
ARTICLE 1164. The creditor has a right to
the fruits of the thing from the time the
obligation to deliver it arises. However, he
shall acquire no real right over it until the
same has been delivered to him. (1095)
Different kinds of fruits.
 The fruits mentioned by the law refer to
natural, industrial, and civil fruits.
 NATURAL FRUITS
 are the spontaneous products of the soil,
and the young and other products of
animals, e.g., grass; all trees and plants
on lands produced without
intervention of human labor.
 NDUSTRIAL FRUITS
 are those produced by lands of any kind through
cultivation or labor, e.g., sugar cane; vegetables;
rice; and all products of lands brought about by
reason of human labor.
 CIVIL FRUITS
 are those derived by virtue of a juridical relation,
e.g., rents of buildings, price of leases of lands
and other property and the amount of perpetual
or life annuities or other similar income.
Meaning of personal right and real right.
 PERSONAL RIGHT
 is the right or power of a person (creditor) to
demand from another (debtor), as a definite passive
subject, the fulfillment of the latter’s obligation to
give, to do, or not to do.
 REAL RIGHT
 is the right or interest of a person over a
specific thing (like ownership, possession,
mortgage, lease record) without a definite
passive subject against whom the right may be
personally enforced.
Personal right and real right distinguished.
 While in personal right there is a definite active
subject and a definite passive subject, in real right,
there is only a definite active subject without any
definite passive subject.
 A personal right is, therefore, binding or
enforceable only against a particular person while a
real right is directed against the whole world.
ARTICLE 1165. When what is to be delivered is a
determinate thing, the creditor, in addition to the right
granted him by Article 1170, and 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.
the
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 affected the delivery. (1096)
Remedies of creditor in real obligation.
 SPECIFIC REAL OBLIGATION
 (obligation to deliver a determinate
thing), the creditor may exercise
the following remedies or rights in
case the debtor fails to comply with
his obligation.
 GENERIC REAL OBLIGATION
 obligation to deliver a generic
thing), on the other hand, can be
performed by a third person since
the object is expressed only
according to its family or genus
ARTICLE 1166. The obligation to give a
determinate thing includes that of delivering
all its accessions and accessories, even though
they may not have been mentioned. (1097a)
Meaning of accessions and accessories.
 ACCESSIONS
 are the fruits of, or additions to, or
improvements upon, a thing (the
principal)
 e.g., house or trees on a land; rents of
a building; airconditioner in a car;
profits or dividends accruing from
shares of stocks;
 The concept includes accession in its
three forms of building, planting,
and sowing (see Art. 445.)
 accession natural, such as alluvion
(see Art. 457.), avulsion (see Art.
459.), change of course of rivers (see
Arts. 461-462.), and formation of
islands. (see Arts. 464-465.) “Fruits
of the thing” are specifically provided
for in Article 1164.
 ACCESSORIES
 are things joined to, or included with, the
principal thing for the latter’s embellishment,
better use, or completion,
 e.g., key of a house; frame of a picture;
bracelet of a watch; machinery in a factory;
bow of a violin.
 Note that while accessions are not necessary to the
principal thing, the accessory and the principal
thing must go together but both accessions and
accessories can exist only in relation to the principal.
ARTICLE 1167. If a person obliged to do something
fails to do it, the same shall be executed at his cost.
Remedies of creditor in positive personal obligation.
If the debtor fails to comply with his obligation to do, the
creditor has the right:
• to have the obligation performed by himself,
or by another unless personal considerations are
involved, at the debtor’s expense; and
• to recover damages. (Art. 1170.)
In case the obligation is done in contravention of the
terms of the same or is poorly done, it may be ordered (by
the court) that it be undone if it is still possible to undo
what was done.
ARTICLE 1168. When the obligation consists in not
doing, and the obligor does what has been forbidden
him, it shall also be undone at his expense. (1099a)
Remedies of creditor in negative personal obligation.
In an obligation not to do, the duty of the obligor
is to abstain from an act. Here, there is no specific
performance. The very obligation is fulfilled in not doing
what is forbidden. Hence, in this kind of obligation the
debtor cannot be guilty of delay. (Art. 1169.)
As a rule, the remedy of the obligee is the undoing
of the forbidden thing plus damages. (Art. 1170.)
However, if it is not possible to undo what was done,
either physically or legally, or because of the rights
acquired by third persons who acted in good faith, or for
some other reason, his remedy is an action for damages
caused by the debtor’s violation of his obligation. (see 8
Manresa 58.)
ARTICLE 1169. Those obliged to deliver or to
do something incur in delay from the time the
obligee judicially or extra judicially demands
from them the fulfillment of their obligation.
However, the demand by the creditor shall
not be necessary in order that delay may exist:
Meaning of delay.
 The word delay, as used in the law, is not
to be understood according to its
meaning in common parlance. A will not arise unless any of the exceptions mentioned
distinction, therefore, should be made
between ordinary delay and legal delay
(default or mora) in the performance of
an obligation.
 ORDINARY DELAY
 is merely the failure to perform an
obligation on time.
 LEGAL DELAY or default or mora
 is the failure to perform an
obligation on time which failure,
constitutes a breach of the obligation.
Kinds of delay (mora)
MORA SOLVENDI
 or the delay on the part of the debtor
to fulfill his obligation (to give or to
do) by reason of a cause imputable to
him;
MORA ACCIPIENDI
 the delay on the part of the creditor
without justifiable reason to accept
the performance of the obligation;
and
 COMPENSATIO MORAE
 or the delay of the obligors in
reciprocal obligations (like in sale),
i.e., the delay of the obligor cancels
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.
When demand not necessary to put debtor in delay.
The general rule is that delay begins only from the
moment the creditor demands, judicially or extra
judicially, the fulfillment of the obligation. The demand
for performance marks the time when the obligor incurs
mora or delay and is deemed to have violated his
obligation. Without such demand, the effect of default
below is clearly proved.
ARTICLE 1170. Those who in the performance of
their obligations are guilty of fraud, negligence, or
delay, and those who in any manner contravene the
tenor thereof, are liable for damages. (1101)
ARTICLE 1171. Responsibility arising from fraud is
demandable in all obligations. Any waiver of an action
for future fraud is void. (1102a)
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 in- voluntary.
 FRAUD (deceit or dolo).
 As used in Article 1170, it is the deliberate or
intentional evasion of the normal fulfillment
of an obligation. (see 8 Manresa 72.)
 a ground for damages, it implies some kind
of malice or dishonesty and it cannot cover
cases of mistake and errors of judgment made
in good faith.
 It is synonymous to bad faith in that it
involves a design to mislead or deceive
another.
  Article 1170 refers to incidental
fraud (dolo incidente) committed in
the performance of an obligation
already existing because of contract.
 It is to be differentiated from causal
fraud (dolo causante) or fraud
employed in the execution of a
contract under Article 1338, which
vitiates consent and makes the
contract voidable and to incidental
fraud under Article 1344
employed for the purpose
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.
 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.
ARTICLE 1172. Responsibility arising from
negligence in the performance of every kind of
obligation is also demandable, but such
liability may be regulated by the courts,
according to the circumstances. (1103)
Kinds of negligence according to source of
obligation.
Culpa or negligence may be understood in three
different senses.
They are:
 CONTRACTUAL NEGLIGENCE
(culpa contractual)
 or negligence in contracts resulting
in their breach Article 1172 refers to
“CULPA CONTRACTUAL.”
 This kind of negligence is not a source of
obligation. (Art. 1157.) It merely makes the
debtor liable for damages in view of his
negligence in the fulfillment of a pre-existing
obligation resulting in its breach or non-
fulfillment. (Arts. 1170-1174, 2201.) It is a
kind of civil negligence if it does not amount
to a crime;
 CIVIL NEGLIGENCE (culpa aquiliana)
 or negligence which by itself is the source of
also
an obligation between the parties not
of
formally bound before by any pre-existing
contract.
 It is also called “tort” or “quasi-delict.”
(Art. 2176.)
 CRIMINAL NEGLIGENCE (culpa criminal)
 or negligence resulting in the commission of
a crime. (Arts. 3, 365, Revised Penal Code.)
 The same negligent act causing damages may
produce civil liability arising from a crime
under Article 100 of the Revised Penal Code
(supra.), or create an action for quasi-delict
under Article 2176, et seq., of the Civil Code.
Importance of distinction between culpa contractual
and culpa aquiliana.
 Where liability arises from a mere tort (culpa
aquiliana), not involving a breach of positive
obligation, an employer or master may excuse
himself under the last paragraph of Article 2180 by
proving that he had exercised “all the diligence of a
good father of a family to prevent the damage.” It is a
complete defense.
 This defense is not available if the liability of
the employer or master arises from a breach of
contractual duty (culpa contractual) though this
may mitigate damages. It has been held that where
the injury is due to the concurrent negligence of the
drivers of the colliding vehicles, the drivers and
owners of the said vehicles shall be primarily,
directly and solidarily liable for damages and it is
immaterial that one action is based on quasi-delict
and the other on culpa contractual as the solidarity
of the obligation (see Art. 1207.) is justified by the
very nature thereof.
ARTICLE 1173. The fault or negligence of the Meaning of fortuitous event.
obligor consists in the omission of that
 FORTUITOUS EVENT
diligence which is required by the nature of
the obligation and corresponds with the  is any extraordinary event which cannot be

circumstances of the persons, of the time and foreseen, or which, though foreseen, is

of the place. When negligence shows bad faith, inevitable. In other words, it is an event which

the provisions of Articles 1171 and 2201, is either impossible to foresee or impossible to

paragraph 2, shall apply. avoid.

Fortuitous event distinguished from force majeure.

 FAULT OR NEGLIGENCE
 Acts of man.
 of the obligor consists in the omission of
 Strictly speaking, fortuitous event is an event
the diligence which is required by the
independent of the will of the obligor but not
nature of the obligation and corresponds
of other human wills,
with the circumstances of the persons,
 e.g., war, fire, robbery, murder, insurrection,
of the time and of the place.
etc.
 Acts of God.
NEGLIGENCE (fault or culpa).
 They are those events which are totally
 It is any voluntary act or omission, there
independent of the will of every human being,
being no malice, which prevents the normal
 e.g., earthquake, flood, rain, shipwreck,
fulfillment of an obligation.
lightning, eruption of volcano, etc.
 They are also called force majeure. The term
CULPA AQUILIANA (QUASI DELICTS)
generally applies to a natural accident.
 It is the fault or negligence of a person, who,
In our law, fortuitous events and force majeure are
because of the omission of the diligence
identical in so far as they exempt an obligor from liability.
which is required by the nature of the
Both are independent of the will of the obligor.
obligations and which must correspond with
the circumstances of the persons, of the time Kinds of fortuitous events
and of the place, causes damage to another.
 Ordinary fortuitous events
 or those events which are common and
ARTICLE 1174. Except in cases expressly which the contracting parties could
specified by the law, or when it is otherwise reasonably foresee (e.g., rain); and
declared by stipulation, or when the nature of  Extraordinary fortuitous events
 or those events which are uncommon and
the obligation requires the assumption of risk,
which the contracting parties could not
no person shall be responsible for those events
have reasonably foreseen (e.g., earthquake,
which could not be foreseen, or which, though
fire, war, pestilence, unusual flood). (see
foreseen, were inevitable. (1105a)
Art. 1680, par. 2.)
Art. 1175. Usurious transactions shall be
governed by special laws. (n)
Meaning of simple loan or mutuum.
 SIMPLE LOAN OR MUTUUM I
 is a contract whereby one of the
parties delivers to another money or
other consumable thing, upon the
condition that the same amount of the
same kind and quality shall be paid. It
may be gratuitous or with
stipulation to pay interest. (Art. 1933.)
Meaning of usury.
 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.
Kinds of interest.:
 SIMPLE INTEREST.
 when the rate of interest is stipulated
by the parties (Art. 2209.);
 COMPOUND INTEREST.
 when the interest earned is upon
interest due (Arts. 2212, 1959.);
 LEGAL INTEREST.
 when the rate of interest intended by
the parties is presumed by law, as
when the loan mentions interest but
does not specify the rate thereof.
(Art. 2209.)
 The same rate is allowed
judgments where there is no express
contract between the parties in
anticipation of the same. Its use is
not justified where there is a
stipulated rate of interest in the loan
contract;
 LAWFUL INTEREST.
 when the rate of interest is within
the maximum allowed by (usury)
law (Secs. 2, 3, Usury Law, Act No. 2655, as
amended.); and
 UNLAWFUL INTEREST.
 when the rate of interest is beyond the
maximum fixed by law.
ARTICLE 1176. The receipt of the principal by the
creditor without reservation with respect to the
interest, shall give rise to the presumption that said
interest has been paid.
a 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. (1110a)
Meaning of presumption.
 PRESUMPTION
 is meant the inference of a fact not actually known
arising from its usual connection with another
which is known or proved.
Two kinds of presumption.
 CONCLUSIVE PRESUMPTION.
 one which cannot be contradicted like the
presumption that everyone is conclusively
presumed to know the law (see Art. 3.); and
 DISPUTABLE (OR REBUTTABLE)
PRESUMPTION.
 one which can be contradicted or rebutted by
presenting proof to the contrary like the
presumption established in Article 1176.
ARTICLE 1177. The creditors, after having pursued
the property in possession of the debtor to satisfy their
claims, may exercise all the rights and bring all the
in
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. (1111)
ARTICLE 1178. Subject to the laws, all rights
acquired in virtue of an obligation are transmissible, if
there has been no stipulation to the contrary. (1112)
Transmissibility of rights.

All rights acquired in virtue of an

obligation are generally transmissible. (see Art.
1311.) The exceptions to this rule are the
following:

(1) Prohibited by law. — When

prohibited by law, like the rights in
partnership, agency, and
commodatum which are purely
personal in character.
(a) By the contract of partnership,
two or more persons bind themselves to
contribute money, property or industry to a
common fund, with the intention of
dividing the profits among themselves.
(Art. 1767.)
(b) By the contract of agency, a
person binds himself to render some
service or to do something in
representation or on behalf of another,
with the consent or authority of the latter.
(Art. 1868.)
(c) By the contract of commodatum,
one of the parties delivers to another
something not consumable so that the
latter may use the same for a certain time
and return it. Commodatum is essentially
gratuitous. (Art. 1933.)

(2) Prohibited by stipulation of parties.

— When prohibited by stipulation of the
parties, like the stipulation that upon the
death of the creditor, the obligation shall
be extinguished or that the creditor cannot
assign his credit to another. The stipulation
against transmission must not be contrary
to public policy. (see Art. 1306.) Such
stipulation, being contrary to the general
rule, should not be easily implied, but must
be clearly proved, or at the very least,
clearly inferable from the provisions of the
contract itself.