UST – AMV COLLEGE OF ACCOUNTANCY

LAW ON OBLIGATIONS & CONTRACTS – CA51011

MODULE 1
(Art. 1156 to 1178)

“An obligation is a juridical necessity to give, to do or not to do.” (Art. 1156 of the Civil Code of
the Philippines). A civil obligations is enforceable by court action, unlike natural obligations.

Requisites/elements of an obligation:

a. Active Subject (creditor or obligee) – the party who has the right to demand performance of the
obligation
b. Passive Subject (debtor or obligor) – the party who is obliged to perform the obligation
c. Prestation – (object or subject matter) - it may consist of giving, doing or not doing something
d. Efficient Cause – (vinculum juris or juridical tie) - that which binds the parties to an obligation

Sources of Obligation:

a. Law – it is a rule of conduct, just and obligatory, laid down by legitimate authority for common
observance and benefit.

b. Contracts – it is the meeting of the minds between two or more persons whereby one binds
himself with respect to the other, to give something or to render some service. It has the force
of law between the parties and must be complied with in good faith.

c. Quasi-contracts – they refer to certain lawful, voluntary and unilateral acts giving rise to a
juridical relation to the end that no one shall be unjustly enriched at the expense of another.

 Nominate Quasi-Contracts:

1. Negotiorum Gestio – this refers to the voluntary administration of the property,

business or affairs of another without his consent or authority. There is now an obligation
to reimburse the gestor for the necessary and useful expenses.

2. Solutio Indebiti – this refers to the payment by mistake of an obligation, in excess of

what should have been paid or payment to a person not due to receive it.

d. Delicts – acts or omissions punishable by law; this refer to crimes or felonies defined under the
law to be punishable as such.

e. Quasi-delict (also known as tort or culpa aquiliana) – these are acts or omissions that cause
damage to another there being fault or negligence but without any existing contractual relation
between the parties. There is now an obligation to pay for damages.

Nature and effect of Obligations:

a. Determinate/specific thing vs. Generic thing – A thing is considered to be determinate if it is
particularly designated and physically segregated from all other objects of the same class

b. What are the obligations of a debtor obliged to give a determinate thing?

1. To take good care of the thing with the diligence of a good father of a family unless the
law or agreement of the parties requires another standard of care.

2. To deliver the thing.

3. To deliver the fruits of the thing.

 Kinds of Fruits

i. Natural Fruits – they are the spontaneous products of the soil and the young and
other products of animals.

ii. Industrial Fruits – they refer to those produced by land of any kind through
cultivation or labor.

iii. Civil Fruits – they refer to fruits that are the result of a juridical relation.

 The creditor has the right to the fruits of a thing from the time the
obligation to deliver it arises. Prior to delivery, the buyer only possess a
personal right over the subject matter. Upon delivery, the personal right
becomes a real right that is now binding against the whole world.

4. To deliver its accessions and accessories even if they have not been mentioned.

a. Accessions – they are everything that is incorporated or attached to a thing, either

naturally or artificially.

b. Accessories – those joined to or included with the principal thing for the latter’s better
use, perfection or enjoyment.

Remedies of the creditor

 If the debtor fails to perform his obligation to deliver a determinate thing:

o To compel the debtor to make the delivery
o To demand damages from the debtor

 If the debtor fails to perform his obligation to deliver a generic thing:

o To ask that the obligation be complied with at the expense of the debtor
o To demand damages from the debtor

 If the debtor fails to perform his obligation in obligations to do:

o If the debtor fails to perform the obligation or performs it but contravenes the tenor
thereof, the creditor may have the obligation executed at the expense of the debtor
or he may also demand damages from the debtor.
o If the debtor performs the obligation but does it poorly, the creditor may have the
same be undone at debtor’s expense or he may also demand damages from the
debtor.

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  If the debtor does what has been forbidden him:
o The creditor may demand that what has been done be undone
o He may also demand damages from the debtor

Grounds for liability to pay damages:

 Damages vis-à-vis Injury – Damages refer to the harm done and the sum of money that may be
recovered in reparation for the harm done. Injury refers to the wrongful, unlawful or tortuous
act which causes loss or harm to another. It is the legal wrong to be redressed.

 Kinds of damages

1. Actual/Compensatory Damages – these refer to the pecuniary loss that was actually
incurred by the plaintiff. It includes the actual value of the loss suffered and profits not
realized

2. Moral Damages – they include physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock and social humiliation

3. Nominal Damages – Damages awarded to a party whose right has been violated

4. Temperate or moderate Damages – they are more than nominal but less than actual
damages. The court may award temperate damages if the court finds some pecuniary loss
has been suffered but its amount cannot, from the nature of the case, be proved with
certainty.

5. Liquidated Damages – damages agreed upon by the parties to a contract, to be paid in case
of breach.

6. Exemplary or corrective Damages - These are imposed by way of example or correction

for public good, in addition to the moral, temperate, liquidated or compensatory damages.

 Fraud

1. Fraud is the deliberate or intentional evasion by the debtor of the normal compliance of his
obligation (Art. 1170)

 Art. 1170 – refers to the fraud committed by the debtor at the time of the
performance of the obligation.
 Art. 1338 – 1344 – refers to fraud employed in obtaining consent

2. Kinds of Fraud

a. Fraud in obtaining consent

i. Causal Fraud or Dolo Causante – fraud of a serious kind, without which, consent
would not have been given. It renders the contract voidable for it is a defect in one of
the essential elements of a contract, “consent”.

ii. Incidental Fraud or Dolo Incidente – this refers to fraud without which consent
would have still been given but the person giving such consent would have agreed on

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 different terms. It would not render the contract void but the party committing the
fraud shall be liable for damages.

b. Fraud in the performance of the obligation – this is the deliberate act of evading
fulfillment of an obligation in a normal manner. The party committing fraud shall be liable
for damages.

3. Rules in waiver of Fraud

a. Past Fraud or fraud committed in the past can be waived. Such act is considered as
liberality on the part of the creditor.

b. Future Fraud or fraud still to be committed cannot be waived even if there is an

agreement to that effect. Such stipulation is void for being contrary to public policy.

 Negligence

1. Negligence is the omission of that diligence which is required by the nature of the obligation
and corresponds with the circumstance of the person, of the time, and of the place. It is the
failure to observe the required degree of care, precaution and vigilance that the
circumstances justly demand.

2. Diligence to be observed – if the law or contract does not state the diligence which is to be
observed in the performance of the obligation, the debtor must observe the diligence of a
good father of a family, as required by the nature of the obligation and which corresponds
with the circumstances of the person, of the time or of the place.

3. Kinds of Negligence

a. Culpa Contractual - negligence in the performance of a contract. It supposes a

preexisting contractual relationship between the parties. This is negligence in the
performance of the obligation arising from a contract results to damages.

b. Culpa Aquiliana – (civil negligence, or tort or quasi-delict or culpa extra contractual) –

this is quasi delict where the negligence itself is the independent source of the obligation.

c. Culpa Criminal (Criminal Negligence) – this is negligence that results in the commission
of a crime.

 Delay or Default or Mora

1. Delay is the non-fulfillment of an obligation with respect to time or delay in the fulfillment
of an obligation, contrary to what was agreed upon.

2. Kinds

a. Mora Solvendi – delay on the part of the debtor

b. Mora Accipiendi – delay on the part of the creditor. It exists when the creditor unjustly
refuses to accept the thing

c. Compensatio Morae – delay in reciprocal obligations, both parties are in default. It is as

if there is no delay.

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 3. When is there delay?
 As a rule, the debtor incurs delay from the time the creditor demands fulfillment of the obligation
(either judicially or extra-judicially) and the debtor fails to comply with such demand. Hence, no
demand, no delay.

4. Exceptions to the no demand, no delay rule:

a. When the law or the obligation so provides

 When there is an express provision of the law or stipulation by the parties that there
is no need for a demand for the performance of the obligation.

b. When the time is of the essence of the contract

 When the designation of the time for the performance of the obligation is the
controlling motive for the establishment of the obligation.

c. When demand would be useless as when the obligor has rendered it beyond his
power to perform.

d. In reciprocal obligations, from the moment one of the parties fulfills his obligation,
delay by the other begins notwithstanding the absence of a demand.

5. Effects of Delay

a. On the part of the debtor:

i. The debtor shall be liable for the payment of damages.

ii. If the obligation consists in the delivery of a determinate thing, he shall be liable even
if the thing is lost due to a fortuitous event.

b. On the part of the creditor:

i. He shall bear the risk of loss and shall shoulder the expenses for the preservation of
the thing

ii. The debtor may resort to the consignation of the thing due.

 Fortuitous Events

 These are events that could not be foreseen or which, though foreseen are inevitable. It is
not enough that the event should not been foreseen or anticipated, but it must be one
impossible to foresee or avoid.

 Requisites of fortuitous event to be accepted as a justification for the non-performance of an

obligation to deliver a determinate thing:

o The cause must be independent of the debtor’s will

o There must be impossibility of foreseeing the event or if it can be foreseen, it
must be impossible to avoid
o The occurrence must be of such magnitude as to render it impossible for the
debtor to perform his obligation

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 o The debtor must be free from participation in the non-performance, damage
or loss of the property brought about by the fortuitous event.

 General Rule: If the foregoing requisites are present in a case, then the debtor shall not be
liable for non-performance of the obligation due to a fortuitous event. His obligation is
extinguished.

 Exceptions:

o When the debtor is in delay

o When the debtor promised the same thing to two or more persons who do not have the
same interest
o When the parties stipulate or agree that the debtor will not be exempted from liability
even if non-performance of the obligation is due to a fortuitous event
o When the nature of the obligation requires the assumption of risk
o When the thing to be delivered is generic.

 Presumptions on receipt of principal and installment payments (Art. 1176)

o The receipt of the principal without reservation as to interest, shall give rise to the
presumption that the interest has been paid

o The receipt of a later installment without reservation as to prior installments, shall

give rise to the presumption that prior installments have been paid.

 The foregoing are mere presumptions and the creditor may rebut such with clear and
convincing evidence to the contrary.

 Different remedies of the creditor to enforce payment of his claims against the debtor (Art.
1177):

a. Specific performance - Exact fulfillment of the obligation by specific or substitute

performance with a right to damages in either case

b. Attachment - Purse the property in the possession of the debtor, except those exempt
by law.

c. Accion subrogatoria - To be subrogated to all the rights and actions of the debtor save
those which are inherent in his person

d. Accion pauliana - Asking the court to rescind or to impugn all the acts which the debtor
may done to defraud the creditors

 Relativity of Contracts

o A contract can only bind the parties who had entered into it or their successors who
have assumed their personality or their juridical position and that, as a consequence,
such contract can neither favor nor prejudice a third person.

o Exceptions are intransmissible rights and obligations:

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 By their nature as when the special or personal qualification of the obligor
constitutes one of the principal motives for the establishment of the contract
 By stipulation of the parties, as when the contract expressly provides that the
obligor shall perform an act by himself and not through another
 By provision of law, as in the case of those arising from a contract of
partnership or of agency