CHAPTER 2

NATURE AND EFFECTS OF

OBLIGATIONS
KINDS OF PRESTATIONS
• Real Obligation – is a prestation which consists in the delivery of a
movable or an immovable thing in order to create a real right, or for the
use of the recipient, or for its simple possession, or in order to return it
to its owner.

• Personal Obligation – includes all kinds of work or service.

• Personal Obligation – consists of refraining from doing some acts.

 REAL OBLIGATIONS

• In a real obligation or an obligation to give a thing, the

thing itself may be specific or generic.
 SPECIFIC VS. GENERIC

• A thing is specific or determinate when it is particularly

designated or physically segregated from all others of the
same class.
• A thing is generic when its determination is confined to that
of its nature or to the genus to which it pertains.
 ARTICLE 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.
 OBLIGATION TO TAKE CARE OF THE THING
WITH DILIGENCE.

In an obligation to give a specific thing, the debtor has the

obligation to take care of the thing with diligence.
Diligence – is the attention and care required of a person in a
given situation and is the opposite of negligence.
 THREE KINDS OF DILIGENCE

• Extraordinary diligence
• Ordinary diligence
• Slight diligence
 DILIGENCE OF A GOOD FATHER OF A FAMILY

The debtor’s obligation under Art. 1163 is to take care of

the specific thing with ordinary diligence or the diligence of a
good father of a family, unless the law or the stipulation of
the parties requires another standard of care.
WHEN EXTRAORDINARY DILIGENCE REQUIRED
BY LAW

The law requires banks and common carriers to exercise

extraordinary diligence in the performance of their
obligations. Extraordinary diligence necessitates that service
be rendered with the greatest skill and foresight to avoid
causing harm or damage.
Philippine Bank of Commerce v. Court of Appeals, G.R. No. 97626, 14
March 1997.

The diligence required of banks is more than that of a good father of a

family. The highest degree of diligence is expected, considering the
nature of the banking business which is imbued with public interest.
R. Transport Corporation v. Pante, G.R. No. 162104, 15 September 2009

From the nature of their business and for reasons of public policy,
common carriers are bound to observe extraordinary diligence in relation
to the safety of passengers transported by them, according to the
circumstances of each case.
Westwind Shipping Corporation v. UCPB General Insurance Co., Inc. G.R. 200289,
25 November 2013

Common carriers are also bound to observe extraordinary diligence in the

vigilance over the goods they carry. The extraordinary responsibility of a common
carrier lasts from the time the goods are unconditionally placed in the possession of,
and received by, the carrier for transportation, until the same is delivered, actually or
constructively, by it to the person who has a right to receive them.
 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.
 FRUITS OF THE THING

 Natural Fruits

 Industrial Fruits

 Civil Fruits
WHEN THE OBLIGATION TO DELIVER ARISES

Under Art. 1164, the creditor has the right to the fruits of
the specific thing from the time the obligation to deliver arises.

The time the obligation to deliver the thing arises is the due
date or the time when the creditor can demand the
performance of the obligation.
 DUE DATE VS. ACTUAL DELIVERY DATE

Although the creditor has a right to the thing and the fruits
of the thing on the due date, the creditor acquires only
ownership over the thing upon the delivery.
The creditor may have a personal or a real right over a thing.

• A personal right is the power of one person to demand of

another, as a definite passive subject, the fulfillment of a
prestation to give, to do, or not to do. (Ex. On the due date,
the creditor may demand the delivery of the thing due)
• A real right is the power belonging to a person over a specific
thing without a passive subject individually determined against
whom such right may be personally exercised.

• Under the New Civil Code, ownership does not pass by mere
stipulation but only by delivery.
 KINDS OF DELIVERY

Delivery may be either actual or constructive.

(a) Actual delivery (or tradition) – where physically, the

property changes hands.
(b) Constructive delivery – that where the physical transfer is
implied.
 KINDS OF CONSTRUCTIVE DELIVERY

(1) traditio simbolica (symbolical tradition) - (as when the keys of a bodega are given)
(2) traditio longa manu – delivery by mere consent or the pointing of the object. (Ex. pointing out the
car, which is the object of the sale.)
(3) traditio brevi manu – that kind of delivery whereby a possessor of a thing not as an owner, becomes
the possessor as owner.
(4) traditio constitutum possessorium – the opposite of brevi manu; thus, the delivery whereby a
possessor of a thing, as an owner, retains possession no longer as an owner, but in some other
capacity.
(5) tradition by execution of legal forms and solemnities – (like the execution of the public instrument
selling land)
 ARTICLE 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.
 REMEDIES OF THE CREDITOR WHEN THE
DEBTOR FAILS TO COMPLY WITH HIS
OBLIGATION
(a) Demand Specific Performance of the obligation.
(b) Demand Rescission or Cancellation.
(c) Demand Damages either with or without either of the first
two, (a) or (b).
 EFFECT OF FORTUITOUS EVENTS

Another important differences between a generic and a

specific obligation is that, a specific obligation, that is, an
obligation to deliver a specific things, is, as a rule,
extinguished by a fortuitous event or act of God. Upon the
other hand, generic obligations are never extinguished by
fortuitous events.
Examples:
(a) Juan is obliged to give Pedro this car. Before delivery, an
earthquake destroys completely the car. The obligation to deliver
is extinguished.
(b) Juan is obliged to give Pedro a book. Since this is a generic thing,
even if one particular book is lost, other books may take its place.
Hence, the obligation is not extinguished (genus nunquam perit)
TWO INSTANCES WHERE A FORTUITOUS EVEN
DOES NOT EXEMPT

(a) If the obligor “delays”.

(b) If the obligor is guilty of bad faith.
 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.
 ARTICLE 1167

If the person obliged to do something fails to do it, the

same shall be executed at his cost.

This same rule shall be observed if he does it in

contravention of the tenor of the obligation. Furtherance, it
may be decreed that what has been poorly done be undone.
 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.
EFFECT OF VIOLATING AN OBLIGATION NOT TO
DO

In an obligation not to do, the creditor may avail of the following

remedies if the debtor does an act that he should have refrained
from doing:

(1) Undo the act at the expense of the debtor, plus damages; or
(2) When the act cannot be undone, demand damages (Art. 1170).
 ARTICLE 1169
Those obliged to deliver or to do something incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their obligation.

However, the demand by the creditor shall be necessary in order that delay may exist:

(1) when the obligation or the law expressly so declare; or

(2) when from the nature and the circumstances of the obligation it appears that the designation of the
time when the thing is to be delivered or the service is to be rendered was a controlling motive for the
establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his powers to perform.

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.
Delay (default or mora) – delay in the fulfillment of obligations.

Philippine Charter Insurance Corporation v. Central Colleges of the

Philippines (G.R. Nos. 180631-33, 22 February 2012)

The civil law concept of delay commences from the time the creditor demands,
judicially or extrajudicially, the fulfillment of the obligation from the debtor.
 NO DEMAND, NO DELAY

General Rule: Demand is necessary to put the debtor on

default.

Note: If the creditor does not make a demand for the

fulfillment of the obligation from the debtor when it becomes
due, the debtor is not in delay.
 REQUISITES FOR DELAY

The following are the requisites before the debtor may be held in
delay:
(1) The obligation is demandable and already liquidated;
(2) The creditor requires the performance judicially or extrajudicially;
and
(3) The debtor does not perform the obligation after the demand of the
creditor because of dolo (malice) or culpa (negligence).
Note: Demand, whether judicial or extrajudicial, is not
required before an obligation becomes due and demandable. A
demand is necessary to put the debtor in delay to make him
liable for interest or damages. (Autocorp group v. Intra Strata
Assurance Corporation, G.R. No, 166662, 27 June 2008)
Atlantic Erectors, Inc. v. Court of Appeals, G.R. No. 170732, 11
October 2012.

When the contractor fails to finish the work within the period
agreed upon by the parties without a justifiable reason and after the
owner makes a demand, the liability for the damages as a
consequence of such default or delay arises.
 INTEREST AS DAMAGES

Under Article 2209, if the obligation consists in the

payment of a sum of money, and the debtor incurs delay, the
indemnity for damages, there being no stipulation to the
contrary, is payment of the interest agreed upon. In the
absence of such stipulation, the legal interest is paid.
(Bonrosto v. Luna, G.R. No. 172346, 24 July 2014)
S.C. Megaworld Construction v Parada, G.R. No. 183804, 11 September 2013

In Resolution No. 796 dated May 16, 2013, the Monetary Board of the Bangko
Sentral ng Pilipinas (BSP) approved the revision of the interest rate to be
imposed on the loan or forbearance of any money, goods, or credits as well as
that allowed in judgments in the absence of an express stipulation. Under BSP
Circular No. 799, effective since July 31, 2013, the legal interest is now 6% per
annum.
 KINDS OF DELAY

 Mora Solvendi – is delay in the fulfillment of an obligation by reason of a cause

imputable to the debtor.

 Mora accipiende – is the delay in the fulfillment of an obligation by reason of

the cause imputable to the creditor.

 Compensatio morae – is the mutual delay of the parties. It cancels out the effects
of default.
EXCEPTIONS TO THE ”NO DEMAND, NO DELAY”
RULE.
Article 1169 provides the instances when demand is NOT necessary before delay is incurred:

(1) The law declares that demand is not necessary;

(2) The parties stipulate that demand is not necessary;
(3) Time is of the essence;
(4) Demand would be useless as when the debtor renders its beyond his power to perform; and
(5) In reciprocal obligations, where one party already complies with or is ready to comply with his
obligation.
 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.
 GROUNDS FOR LIABILITY IN THE
PERFORMANCE OF OBLIGATIONS

(a) fraud (deceit or dolo)

(b) Negligence (fault or culpa)
(c) Default (mora)
(d) violation of the terms of the obligation.
 LIABILITY FOR DAMAGES

 Fraud or Malice (dolo) – is defined as a “conscious and intentional

design to evade the normal fulfillment of existing obligations” and is thus
incompatible with good faith.

 Negligence – when the act is done without exercising the competence or

degree of care that a reasonable person in the position of the actor would
recognize as necessary to prevent in unreasonable risk of harm to another.
 Default – is delay in the fulfillment of obligations or the failure
of delivery because of dolo (malice) or cupla (negligence) as
discussed in Article 1169.

 Contravention of the tenor of the obligation – is the doling of an

act which is contrary to what was stipulated by the parties.
 AMOUNT OF DAMAGES

Continental Cement Corporation v. Asea Brown Boveri, Inc.,

G.R. No. 171660, 17 October 2011.

The damages claimed must be the natural and probable

consequences of the breach which the parties have foreseen or
could have reasonably foreseen at the time the obligation was
constituted.
 KINDS OF DAMAGES

(a) MORAL – (for mental and physical anguish)

(b) EXEMPLARY – (corrective or to set an example)
(c) NOMINAL - (to vindicate a right – when no other kind of damages may be
recovered)
(d) TEMPERATE – (when the exact amount of damages cannot be determined)
(e) ACTUAL - (actual losses as well as unrealize profit)
(f) LIQUIDATED – (predetermined beforehand – by agreement)
De Guzman v. Tumolva, G.R. No. No. 188072, 19 October 2011

In determining actual damages, one cannot rely on mere assertions,

speculations, conjectures, or guesswork, but must depend on
competent proof and the best evidence obtainable regarding specific
facts that could afford some basis in the measurement of compensatory
or actual damages.
Continental Cement Corporation v. Asea Brown Boveri, Inc., G.R. No.
171660, 17 October 2011.

Consequential damages, such as loss of profits on account of delay or failure

of delivery, may be recovered only if such damages were reasonably
foreseen or were brought within the contemplation of the parties as the
probable result of a breach at the time of or prior to contracting.
 ARTICLE 1171

Responsibility arising from fraud is demandable in all

obligations. Any waiver of an action for future fraud in void.
 WAIVER OF ACTION FOR FRAUD

General Rule: Rights granted by law may be waived.

Exceptions: (a) contrary to public interest (b) contrary to public order; or (c) prejudicial
to a third person. (Art. 6, NCC)

Note: The waiver of action for future fraud is void because it gives a license to perpetrate
fraud without liability, rendering inutile the obligation of the party (Art. 1171)
 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.
 FRAUD DISTINGUISHED FROM NEGLIGENCE
DOLO
(a) There is DELIBERATE
intention to cause damage.
(b) Liability arising from dolo
cannot be mitigated or reduced by
the courts.
(c) Waiver of action to enforce
liability due to future fraud is void.
NEGLIGENCE
(a) Although voluntary (that is, not
done thru force) still there is NO
DELIBERATE intention to cause
damage.
(b) Liability due to negligence may
be reduced in certain cases.
(c) Waiver of an action to enforce
liability due to future culpa may in
certain sense be allowed.
 ARTICLE 1173

The fault or negligence of the obligor consists in the omission of that diligence
which is required by the nature of the obligation and corresponds with the
circumstances of the persons, of the time, and of the place. When negligence shows
bad faith, the provisions of Articles 1171 and 2201, paragraph 2, shall apply.

If the law or contract does not state the diligence which to be observed in the
performance, that which is expected of a good father of a family shall be required.
NEGLIGENCE IS THE OMISSION OF DILIGENCE

Negligence is defined as the failure to observe for the

protection of the interests of another person that degree of
care, precaution, and vigilance which the circumstances justly
demand, whereby such other person suffers injury. (Gaid v.
People, G.R. No. 171636, 7 April 2009.)
 NEGLIGENT DEBTOR IN GOOD FAITH

A debtor who is guilty of negligence in the performance of

his obligation is liable for damages. The award of damages
due to negligence is LESS than the award for damages for
fraud.
Good faith – is ordinarily used to describe the state of mind
denoting honesty of intention and freedom from the
knowledge of circumstances which ought to put the holder
upon inquiry (Bascasar v. Civil Service Commission, G.R. No.
1800853, 20 January 2009)
 NEGLIGENT DEBTOR IN BAD FAITH

When the negligent debtor acted in bad faith, it is as if the

debtor committed fraud in the performance of his obligation.

 Bad faith – means the breach of a known duty through some

motive of ill will.
 TEST OF NEGLIGENCE

The test of negligence is whether the defendant when doing

the alleged negligent act used that reasonable care and caution
which an ordinary person would have used in the same
situation. (Guillang v. Bedania, G.R. No. 162987, 21 May
2009)
 FORESEEABILITY

Foreseeability - is the fundamental test of negligence.

 DEGREE OF NEGLIGENCE

 If the required diligence is not stated by law, then the parties

may stipulate on the kind of diligence to be observed.
 General Rule: Diligence of a good father of a family.
 ARTICLE 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. – (underscoring
supplied)
NO PERSON IS LIABLE FOR FORTUITOUS EVENTS

Caso fortuito or force majeure - are extraordinary events not

foreseeable or which, though foreseeable, are inevitable.

• A fortuitous events are extraordinary events not foreseeable or

avoidable, and events which are foreseeable but inevitable.
(Sicam v. Jorge, G.R. No. 159617, 8 August 2007)
 EXCEPTIONS TO THE LIABILITY FOR
FORTUITOUS EVENTS

A person is liable for fortuitous events in the following cases:

(1) When the law specifies;

(2) When the parties declare by stipulation; and
(3) When the nature of the obligation requires the assumption
of risk.
LIABILITY FOR FORTUITOUS EVENTS UNDER
THE LAW

(1) When the debtor is in delay [Art. 1165 (3)].

(2) When the debtor promise to deliver the same specific thing
to two persons with different interests [Art. 1165 (3)].
(3) When the obligation to give a generic thing [Art. 1263).
(4) When the debt of a specific thing proceeds from a
criminal offense [Art. 1268].
 ELEMENTS OF FORTUITOUS EVENTS

1. The cause of the unforeseen and unexpected occurrence is independent of

human will.
2. The event that constituted the caso fortuito is impossible to foresee or, if
foreseeable, impossible to avoid.
3. The occurrence is such to render it impossible for the debtor to fulfill his
obligation in a normal manner; and
4. The obligor is free from any participation in the aggravation of the resulting
injury to the creditor.
FORTUITOUS EVENT IS THE PROXIMATE CAUSE
AND ONLY CAUSE OF THE LOSS

FGU Insurance Corporation v. Court of Appeals, G.R. No.

118889, 23 March 1998.

To be exempted from responsibility, the fortuitous even

should have been the proximate and only cause of the loss.
 ARTICLE 1175

Usurious transactions shall be governed by special laws.

 USURY LAW IS LEGALLY INEFFECTIVE

The ceiling on interest rates for secured and unsecured loans

regardless of the maturity date was removed. (PNB v. Encina)

As usury is legally non-existent, the interest can now be charged

as the lender and the borrower may agree upon (Bacolor v. Banco
Filipino Savings and Mortgage Banks)
Carpo v. Chua

Although the Central Bank removed the ceiling on the interest

rates for loans, the Supreme Court has held that this removal did
not mean that lenders could impose excessive iniquitous,
unconscionable, and exorbitant interest rates on loans.
WHEN THE INTERESTS STIPULATED ARE VOID

Svendsen v. People

The Supreme Court held that an obligation to pay 10%

interest per month on the loan is unconscionable and against
public policy.
WHEN THE INTERESTS STIPULATED ARE VOID

Chua v. Timan

The Supreme Court resolved that the stipulated interest

rates of 3% per month and higher are excessive, iniquitous,
unconscionable, and exorbitant. Again, such stipulations are
void for being contrary to morals, if not illegal.
WHEN INTERESTS STIPULATED ARE EXCESSIVE

Toring v. Sps. Ganzon-Olan

The stipulated interest rates were 3% and 3.81% per month

on a P10 – million loan which the Supreme Court found
excessive and reduced the same to 1% per month.
WHEN THE INTERESTS STIPULATED ARE VALID

Garcia v. Court of Appeals

The Supreme Court sustained the interest rates of 18% and

24% per annum on the loans obtained by the debtor from
Security Bank.
WHEN THE INTERESTS STIPULATED ARE VOID

Svendsen v. People

The Supreme Court held that an obligation to pay 10%

interest per month on the loan is unconscionable and against
public policy.
WHEN THE INTERESTS STIPULATED ARE VALID

Mallari v. Prudential Bank (now BPI)

The Supreme Court did not consider the interest rate of

23% per annum agreed upon by debtors and respondent bank
to be unconscionable.
 INTEREST RATES IN THE ABSENCE OF
STIPULATIONS

Andal v. Philippine National Bank

Pursuant to BSP Circular No. 799, effective July 1, 2013,

the rate of interest for the loan or forbearance of money,
goods, or credits, as well as judgments, in the absence of an
express contract as to such rate of interest, is 6% per annum.
 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.

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.
 PRESUMPTIONS UNDER THE LAW

Mabunga v. People of the Philippines

A presumption is an assumption of facts that the law

requires to be made from another fact or group of facts found
or otherwise established in the action.
 TWO KINDS OF PRESUMPTIONS

• Conclusive or absolute presumptions.

Ex. “Ignorance of the law excuses no one”

• Disputable or rebuttable presumption.

EXAMPLES OF REBUTTABLE PRESUMPTIONS
(ART. 1176)

(1) It is presumed that interest has been paid when the creditor
receives the payment of the principal without reservation
as to the interest.
(2) It is presumed that prior installments have been paid when
the creditor receives a later installment of a debt without
reservation as to the prior installments.
 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 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.
REMEDIES OF THE CREDITOR TO ENFORCE DEBT

1. Exhaust the properties of the debtor through a levy, attachment,

and execution of all the property of the debtor, except those which
are exempted by the law from execution.
2. Exercise all the rights and actions of the debtor, save those
personal to him (accion subrogatoria)
3. Seek all the rights of the contracts executed by the debtor in fraud
of their rights (accion pauliana)
 REQUISITES OF ACCION PAULIANA

1. That the creditor asking for rescission has a credit prior to the alienation, although
demandable later;
2. That the debtor has made a subsequent contract conveying a patrimonial benefit to a
third person;
3. That the creditor has no other legal remedy to satisfy his claim, but would benefit by
rescission of the conveyance to the third person;
4. That the act being impugned is fraudulent; and
5. That the third person who received the property conveyed, if by onerous title, has been
an accomplice in the fraud.
An action to rescind or an accion pauliana, must be of the last
resort, availed of only after the creditor exhausts all of the
properties of the debtor NOT exempt from execution, or after all
other legal remedies are exhausted and proven futile.
(Metropolitan Bank and Trust Company v. International
Exchange Bank, G.R. Nos. 176008 & 176131, 10 August 2011)
 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.
 TRANSMISSIBILITY OF RIGHTS

General Rule: Obligations are transmissible to the heirs.

Exceptions: When the transmission is purely personal or

prevented by law, stipulation of the parties or nature of the
obligation.