NATURE AND EFFECTS OF OBLIGATIONS

the parties
ART. 1163. requires
Every person another
obliged to give standard of
something care
is also ART. 1163.
obliged to Every person
take care of obliged to give
it with the something
proper is also
diligence of a obliged to
good father of take care of
a family, it with the
unless the law proper
or the diligence of a
stipulation of good father of
a family, physically
unless the law segregated
or the ● Generic
stipulation of (Indeterminate
the parties ) - cannot be
requires pointed out
another with
standard of particularly
 Specific (Determinate)- particularly
care 
designated or physically segregated.
Generic (Indeterminate)- cannot be
Art. 1163- Every person obliged to give
pointed out particularly.
something is also obliged to take care of it
with proper diligence of a good father of a
family unless the law or the stipulation of
the parties requires another standard of
Specific
care.
(Determinate)
Specific - particularly
(Determinate) designated or
- particularly physically
designated or segregated
 cellphone chargers, movie
● Generic house chairs, etc.)
4. Deliver fruits of the thing- the

(Indeterminate creditor has a right to the fruits of

the thing from the time the
obligation to deliver the thing arises.

) - cannot be However, such creditor has no real

right over the thing unless such it

pointed out
has been delivered to him.
Kinds of fruits (Art. 441) that the debtor is
also obliged to deliver:
with a. Natural Fruits - They are the
spontaneous products of the soil,
particularly and the young and other products of
animals. (Art. 442) Examples: trees
Duties of the obligor to give that naturally grows. Young and
1. Deliver the thing itself. -- Delivery is other products of animals.
placing the thing in the possession b. Industrial Fruits - Industrial fruits
or control of the active subject are those produced by lands of any
(obligee) by the passive subject kind through cultivation or labor.
(obligor) either actually or (Art. 442) Examples: corn and other
constructively. crops, rice, other products that is a
2. Preserve the thing. – in obligations result of cultivation and intervention
to give, the obligor has the of human labor.
incidental duty to take care of the c. Civil Fruits -They are the result of
thing due with the diligence of a a juridical relation such as the rents
good father of a family pending of buildings, the price of leases of
delivery. lands and other property and the
3. Deliver the accessions and amount of perpetual or life annuities
accessories. or other similar income. (Art. 442)
 Accession – includes everything
produced by a thing, as well as
5. oncept of
all incorporated or attached
with it, may it be natural or
"LOSS"
artificial.
 Accessories – includes things
6. There is loss
that are united or attached as
ornaments to the principal
when:
thing, for the latter’s use or
perfection (i.e. spare tire of a
car, television antennas,
7. 1. The thing 13. Note: The
perishes. concept of loss
8. 2. Goes out is called
of commerce. "impossibility
9. 3. When it of
disappears in performance",
such a way that 14. and this must
its existence is be subsequent to
unknown the execution
10. or cannot be of the contract
recovered. in
11. Loss 15. order to
includes the extinguish the
physical or obligation, for if
legal the
impossibility impossibility
of the service existed at
in 16. the time the
12. which the contract is
obligation executed, the
consists.

result is not
extinguishment,
17. but
inefficacy of the
obligation
Effects of Loss. Art. 1262
An obligation which consists in the
delivery of a determinate thing shall be
extinguished if it should be lost or
destroyed without the fault of the
debtor, and before he has incurred in
delay.
When by law or stipulation, the
obligor is liable even for fortuitous
events, the loss of the thing does not
extinguish the obligation, and he shall
be responsible for damages. The same
rule applies when the nature of the
obligation requires the assumption of
risk.
Distinction Between Substantial and
Casual/Slight Breach
 Substantial performance of a
contract-means less than complete
performance but the level of
performance is sufficient to avoid a
claim of breach of contract. More
specifically, it means that a party has
performed all material elements of
the contract, but there are non-
material aspects left uncompleted.
 Casual/Slight breach of contract-
does not fundamentally defeat the
object of the parties in entering into
an agreement.
Modes of Breach
 Non-fulfillment of Obligations. Any
obligation or condition arising or
derived from this Contract which
any Party is unable to perform,
whether in whole or in part, shall
not be considered as a breach or
non-fulfillment of its obligations
under this Contract if such breach or
non-performance is caused by an
event of Force Majeure, provided
that there is a direct cause-and-
effect relationship between the non-
performance and the event of Force
Majeure. Notwithstanding the
foregoing, all payment obligations
owed by any Party to another must
be made when due.
Delay, Default and Mora
 Delay or Default or Mora- is the
non-fulfillment of an obligation with
respect to time. It is when someone
does not fulfill an obligation within
the time given unto him. The general
rule is “no demand, no delay”.
 In unilateral obligations, the mere
expiration of the period fixed by the
parties is not enough in order that
the debtor may incur delay. Those
obliged to deliver or to do
something incur delay from time the
obligee is judicially or extrajudicially
demands them from the fulfillment
of their obligation.
 In reciprocal obligations, neither
party incurs in delay if the other
does not comply or is not ready to
comply in a proper manner with
what is incumbent upon him. From
the moment one of the parties
 fulfills his obligation, delay by the
other begins. There is no delay if
neither of the parties perform.
Kinds of Delay (Mora)
1. 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;
a. Ex re - delay in real obligations (to
give)
Kinds of Fraud
b. Ex persona - delay in personal
obligations (to do)
The debtor can only have an
obligation to give, to do, and not to
do, so he can only be delayed
between the two, to give and to do,
because there is no delay in not to
do. One cannot be in delay for not
doing at all.
2. Mora Accipiendi – or the delay on
the part of the creditor without
justifiable reason to accept the
performance of the obligation;
A creditor can be in delay if
the debtor fulfills his obligation but
the creditor refuses to accept the
thing due without justifiable reason.
It must be an unjustifiable reason so
as delay to exist.
3. Compensatio Morae – or the delay
of the obligors in reciprocal
obligations (like in sale), ie., the
delay of the obligor cancels the
delay of the obligee, and the vice
versa.
Fraud (Dolo) In the Performance of
Obligation
 The term fraud used in obligation
used in Article 1170 is the deliberate
and intentional evasion of the
normal fulfillment of obligation.
 Fraud implies some kind of malice or
dishonesty and it cannot cover cases
of mistake and errors of judgement
made in good faith. It is synonymous
to bad faith in that it involves a
design to mislead or deceive
another.
 Dolo Incidente (Incidental Fraud)-
refers to those deceptions or
misrepresentations which are not
serious in character and without
which the other party would have
still entered into the contract.
Refers only to some
particular or accident of the
obligation. Dolo incidente renders
the party who induced the other,
liable for damages.
 Dolo Causante (Causal Fraud)-
refers to those deceptions or
misrepresentations of a serious
character employed by one party
and without which the other party
would not have entered into a
contract.
The fraud must be which
determines or is the essential cause
of the contract. The fraud
contemplated in Article 1338 and
mentioned in Article 1330 is causal
fraud involving the use of deceit or
deception. It must be distinguished
from the fraud dealt in with in the
Article 1170. Dolo causante renders
the contract voidable.

Article 1171.
Responsibility arising from fraud is
demandable in all obligations. Any waiver of
an action for future fraud is void.
Responsibility arising from fraud can be
demandable with respect to all obligations,
and any waiver for an action for future
fraud is void, there is no effect as if there is
no waiver being against the law and public
policy.
Negligence (Culpa) In The Performance of
Obligation
 Negligence (Culpa)- may be
understood as any voluntary act or
omission, there being no malice,
which prevents the normal
fulfillment of an obligation.
 The negligence referred here, in the
case of contracts (i.e. common
carrier) is culpa contractual, the lack
of diligence or carelessness.
Negligence consists in the omission
of that diligence which is required by
the nature of the obligation and
corresponds with the circumstances
of the persons, or the time and of
the place.
Culpa vs Dolo
 Dolo is a Spanish term which means
deceit. There is deceit when an act is
performed with deliberate intent.
 Culpa is also a Spanish term which
means fault. There is fault when a
wrongful act results from
negligence, imprudence, lack of skill
or foresight.
Kinds of Negligence (Culpa)
 Culpa Aquiliana (Tort or Quasi-
Delict)- Act or omission causes
damage to another, ... there being
no pre-existing contractual relation
between the parties. (Art. 2176)
 Culpa Contractual (Contractual
Negligence)- Negligence on the
performance of a contract.
Diligence of a Good father of a Family.
 Diligence of a good father of a
family means an ordinary care. Just
like a father of a family, it is a care
that an average person would do in
taking care of his property.
 Bonus Pater Familias (Ordinary
Diligence, Ordinary Foresight,
Ordinary Care)- In obligations to
give (real obligations, the obligor has
the duty to take care of the thing
due with the diligence of a good
father of a family pending delivery.
This phrase is equated with ordinary
care or that care which a reasonably
prudent person exercises over his
own property. In the absence of any
stipulation, the general rule is Bonus
Pater Familias will apply. Except:
1.) if it the law so provides,
or
2.) if it is stipulated by the
parties.
Exception: Common Carriers which are
required to exercise Extraordinary
Diligence
The higher degree of diligence will
only prevail than that of the ordinary
standard of care when:
 Common carriers (person or
company engaged in the
transportation of persons and or
 cargoes)- “is bound to carry the
passengers safely as far as human
care and foresight can provide, using
utmost (extraordinary) diligence of
very cautious persons, with a due
regard for all the circumstances.”
Contravention of the Tenor of Obligation
Those who in the performance of their
obligations are guilty of the following are
liable for damages of:
a) Fraud
b) Negligence
c) Delay
d) in any manner of contravene the
tenor means illicit act which impairs
strict and faithful fulfillment of the
obligation or every kind of defective
performance.
Fortuitous Event
To constitute a fortuitous event, the
following elements must concur:
(a) the cause of the unforeseen and
unexpected occurrence or of the failure of
the debtor to comply with obligations must
be independent of human will;
(b) it must be impossible to foresee the
event that constitutes the caso fortuito or
force majeure (which in law are identical
insofar as they exempt an obligor from
liability by definition, means extraordinary
events not forseeable or avoidable, "events
that could not be forseen, or which though
foreseen, were inevitable." It is therefore
not enough that the event should not have
been forseen or anticipated, but it must be
one impossible to foresee or to avoid.”) or,
if it can be foreseen, it must be impossible
to avoid;
(c) the occurrence must be such as to
render it impossible for the debtor to fulfill
obligations in a normal manner; and,
(d) the obligor must be free from any
participation in the aggravation of the injury
or loss.
Usurious Transactions
Article 1175. Usurious transactions shall be
governed by special laws.
What is Usury?
Usury, as defined in Black’s Law Dictionary,
is the charging of exorbitant and
unconscionable rate of interest, higher than
the interest allowed by law. In layman’s
term, it means loan sharking.
Special Laws Regulating Usury:
Central Bank Circular No. 905 which took
effect on January 1, 1983 made the Usury
Law legally non-existent.
The special laws that used to govern usury
are:
 Act No. 2655 as amended by Act No.
3998
 Commonwealth Act No. 399
 Republic Act No. 337 and
 Presidential Decree No. 116, 858
and 1684
Rules governing interest rates in relation to
usurious transactions:
1. CBC No. 905 does not repeal the
Usury Law. Only a law can repeal a
 law. The circular merely suspended
the law’s effectivity.
2. While the Usury Law ceiling on
interest rates was lifted by the CB
Circular 905, nothing in the said
circular could possibly be read as
granting carte blanche authority to
lenders to raise interest rates to
levels which would either enslave
their borrowers or lead to a
hemorrhaging of their assets
(Almeda vs. CA, 256 SCRA 292
[1996]).
3. Increase of interest rate unilaterally
without the consent of the debtor is
illegal for it violates the principle of
mutuality of contracts.
4. The determination of the illegality of
a stipulated interest rate depends
on the circumstances of the case.
5. Jurisprudence shows that an interest
rate of 12% to 25% per annum is
considered legal.
Presumption of Interest and Installments
 The receipt of the principal by the
creditor, without reservation with
respect to the interest, shall give rise
to the presumption that said
interest has been paid.
 The receipt of a later installments of
a debt without reservation as to
prior installments, shall likewise
raise the presumption that such
installments have been paid.
What is Presumption?
 Meaning the inference of a fact not
actually known arising from its usual
connection with another which
known or proved.
 Inference-Act or process of
conducting from evidence or
premises.
Two kinds of presumption
1) Conclusive presumption- one which
cannot be contradicted, like the
presumption that every is conclusively
presumed to know the law.
2) Disputable (or rebuttable)
presumption– one which can be
contradicted by presenting proof to the
contrary.
Action Subrogation
 Subrogation- is the substitution of
one person or group by another in
respect of a debt or insurance claim,
accompanied by the transfer of any
associated rights and duties. It is a
well-established rule in Philippine
Law.
Remedies Available to Creditor in Cases of
Breach
In case where the obligor breached
his/her obligation, he/she shall be liable for
damages;
1. If the obligation to give specific thing
is a breach by the debtor, the
creditor either compel the debtor to
make delivery (specific
performance);
2. or Rescind;
3. Moreover, if the debtor fails to
comply with his obligation to do and
give a generic thing, the creditor
may;
a) have obligation performed by
himself, or by another unless
 personal considerations are
involved, at the debtor expense;
b) in case the total 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 still
possible to undo what was done;
and
c) to recover damages
4. When a negative (not to do)
obligation is breached, as a rule, the
remedy of the oblige is the undoing
of the forbidden thing plus damages.
5. However, it is not possible to undo
what was done, either physically or
legally, or because the rights
acquired by third persons who acted
in good faith, or for some other
reason, his remedy in action for
damages caused by the debtor’s
violation of his obligation.
Specific Performance
 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. (1165)
 If the thing is indeterminate or
generic, he may ask that the
obligation be complied with at the
expense of the debtor. (1165)
 If a person obliged to do something
fails to do it, the same shall be
executed at his cost. (1167)
 When the obligation consists in not
doing, and the obligor does what has
been forbidden him, it shall also be
undone at his expense. (1168)
Damages In Any Event
1. Actual or compensatory damages
are those awarded in satisfaction of,
or in recompense for, loss or injury
sustained. They simply make good
or replace the loss caused by the
wrong.
2. Moral damages are awarded to
enable the injured party to obtain
means, diversions or amusements
that will serve to alleviate the moral
suffering he has undergone, by
reason of the defendant’s culpable
action.
3. Exemplary or corrective damages
are imposed under Article 2229 of
the Civil Code, by way of example or
correction for the public good, in
addition to moral, temperate,
liquidated or compensatory
damages. Article 2231 of the same
Code further states that in quasi-
delicts, exemplary damages may be
granted if the defendant acted with
gross negligence.
4. Liquidated damages are those
agreed upon by the parties to a
contract under Article 2226 of the
Civil Code, to be paid in case of
breach thereof. the parties to a
contract are allowed to stipulate on
liquidated damages to be paid in
case of breach. It is attached to an
obligation in order to ensure
performance and has a double
function:
(1) to provide for liquidated
damages, and
(2) to strengthen the coercive force
of the obligation by the threat of
 greater responsibility in the event of Subsidiary Remedies of Creditors
breach.
 ACCION SUBROGATORIA – an action
The amount agreed upon
where the creditor whose claimes
answers for damages suffered by the
had not been fully satisfied, may go
owner due to delays in the
after the debtors (third persons) of
completion of the project. As a pre-
the defendant-debtor.
condition to such award, however,
Requisites of Accion Subrogatoria
there must be proof of the fact of
1. The debtor’s assets must be
delay in the performance of the
insufficient to satisfy claims against
obligation.
him
5. Temperate damages under Article
2. The creditor must have pursued
2224 of the Civil Code, may be
all properties of the debtor subject
recovered when pecuniary loss has
to execution
been suffered but the amount
3. The right of action must not be
cannot, from the nature of the case,
purely personal
be proven with certainty. In such
4. The debtor whose right of action
cases, the amount of the award is
is exercised must be indebted to the
left to the discretion of the courts,
creditor.
according to the circumstances of
each case, but the same should be
 ACCION PAULIANA – an action
reasonable, bearing in mind that
where the creditor files an action in
temperate damages should be more
court for the rescission of acts or
than nominal but less than
contracts entered into by the debtor
compensatory.
designed to defraud the former.
6. Nominal damages may be awarded
Requisites of Accion Pauliana
in order that the plaintiff’s right
1. Defendant must be indebted to
under Article 2221 of the Civil Code,
plaintiff
which has been violated or invaded
2. The fraudulent act performed by
by the defendant, may be vindicated
the debtor subsequent to the
or recognized, and not for the
contract gives advantage to another
purpose of indemnifying the plaintiff
3. The creditor is prejudiced by such
for any loss suffered. Nominal
act.
damages are ‘recoverable where a
4. The creditor must have pursued
legal right is technically violated and
all properties of the debtor subject
must be vindicated against an
to execution
invasion that has produced no actual
5. The creditor has no other legal
present loss of any kind or where
remedy.
there has been a breach of contract
and no substantial injury or actual
 ACCION DIRECTA- it is the right of
damages whatsoever have been or
the lessor to go directly against the
can be shown. sublessee for unpaid rents of the
lessee
Under Art. 1652 of the Civil Code,
the sublessee is subsidiarily liable to
the lessor for any rent due from the
lessee.