CHAPTER 2

NATURE AND EFFECT

OF OBLIGATIONS
 Art. 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. (1094a)

- refers to an obligation to give a specific or

determinate thing

*A thing is said to be specific or

determinate when it is particularly
designated or physically segregated from all
others of the same class.
 Specific thing and generic thing
distinguished.

(1) A 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.)

(2) A 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.
 Obligation to take care of
the thing due.

(1) Diligence of a good father of a family. —

In obligations to give (real obligations), the obligor has the incidental

duty to take care of the thing due with the diligence of a good father of a
family pending delivery. The phrase has been equated with ordinary care or
that diligence which an average (a reasonably prudent) person exercises
over his own property.

(2) Another standard of care. —

If the law or the stipulation of the parties provides for another standard
of care (slight or extraordinary diligence), said law or stipulation must
prevail. (Art. 1163.)
(3) Factors to be considered. —

The diligence required depends upon the nature of the obligation and
corresponds with the circumstances of the person, of the time, and of the place.
(Art. 1173.) It is not necessarily the standard of care one always uses in the
protection of his own property. As a general rule, the debtor is not liable if his
failure to preserve the thing is not due to his fault or negligence but to fortuitous
events or force majeure. (Art. 1174.)

(4) Reason for debtor’s obligation. —

The debtor must exercise diligence to insure that the thing to be delivered
would subsist in the same condition as it was when the obligation was contracted.
Without the accessory duty to take care of the thing, the debtor would be able to
afford being negligent and he would not be liable even if the property is lost or
destroyed, thus rendering illusory the obligation to give. (8 Manresa 35-37.)
Art. 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 in LAW

(1) 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 the intervention of human labor.

(2) INDUSTRIAL 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.

(3) 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. (Art. 442.)
Right of creditor to the fruits.
By law, the creditor is entitled to the fruits
of the thing to be delivered from the time the
obligation to make delivery of the thing
arises.

The intention of the law is to protect the interest of the

obligee should the obligor commit delay, purposely or
otherwise, in the fulfillment of his obligation.
 When obligation to deliver arises.
(1) Generally, the obligation to deliver the thing due and, consequently, the fruits
thereof, if any, arises from the time of the perfection of the contract. Perfection
in this case refers to the birth of the contract or to the meeting of the minds between
the parties. (Arts. 1305, 1315, 1319.)

(2) If the obligation is subject to a suspensive condition or period (Arts. 1179,

1189, 1193.), it arises upon fulfillment of the condition or arrival of the period.
However, the parties may make a stipulation to the contrary as regards the right of the
creditor to the fruits of the thing.

(3) In a contract of sale, the obligation arises from the perfection of the contract
even if the obligation is subject to a suspensive condition or a suspensive period where
the price has been paid.

(4) In obligations to give arising from law, quasi-contracts, delicts, and quasi-
delicts, the time of performance is determined by the specific provisions of law
applicable.
PERSONAL RIGHT (JUS IN PERSONAM)

→ 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 (JUS IN RE)

→ 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.
Art. 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. (1096)
Remedies of creditor in real obligation.
(1) In a 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:
(a) demand specific performance or fulfillment (if it is still possible) of the
obligation with a right to indemnity for damages;
(b) demand rescission or cancellation (in certain cases) of the obligation also with
a right to recover damages (Art. 1170.);
(c) demand the payment of damages only (see Art. 1170.) where it is the only
feasible remedy.

(2) A 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. It is thus not necessary for the creditor to compel the debtor to make the
delivery although he may ask for performance of the obligation. In any case, the creditor
has a right to recover damages under Article 1170 in case of breach of the obligation.
Art. 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)

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; etc.

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.
 Art. 1167. If a 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. Furthermore, it
may be decreed that what has been poorly done be undone. (1098)

ILLUSTRATIVE CASE:

Liability of debtor who fails to comply with an obligation to do.

Facts: A delivered to B, a typewriter repairer, a portable typewriter for routine cleaning and servicing. B
was not able to finish the job after some time despite repeated reminders made by A. Finally, B
returned the typewriter unrepaired, some of the parts missing. A had the typewriter repaired by F
Business Machines, and the repair job cost him P58.75 for labor or service and P31.10 for the missing
parts or a total of P89.85. The lower court rendered judgment ordering B to pay only P31.10.
Issue: Is B liable also for P58.75, the cost of the service expended in the repair?
Held: Yes. B contravened the tenor of his obligation (see Art. 1170.) because he not only did not repair
the typewriter but returned it “in shambles.” For such contravention, he is liable under Article 1167 for
the cost of executing the obligation in a proper manner, which in the case should be the cost of the
labor or service expended in its repair, because the obligation or contract was to repair it.
In addition, he is liable under Article 1170 for the cost of the missing parts for in his obligation to repair
the typewriter he was bound, but failed or neglected to return it in the same condition it was when he
received it. (Chaves vs. Gonzales, 32 SCRA 547 [1970]; see Tanguilig vs. Court of Appeals, 266
SCRA 78 [1997].)
Art. 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)

EXAMPLE:

S sold a land to B. It was stipulated that S would not

construct a fence on a certain portion of his land
adjoining that sold to B. Should S construct a fence in
violation of the agreement, B can have the fence
removed at the expense of S.
ART. 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:
(1) When the obligation or the law expressly so declares; 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 power 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. (1100a)
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)
(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;
(2) Mora accipiendi or the delay on the part of the
creditor without justifiable reason to accept the
performance of the obligation; and
(3) 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.
Effects of DELAY
(1) MORA SOLVENDI. — The following are the
effects:
(a) The debtor is guilty of breach of the obligation;
(b) He is liable for interest in case of obligations to
pay money
(Art. 2209.) or damages in other obligations. (Art.
1170.) In the absence of extrajudicial demand, the
interest shall commence from the filing of the
complaint; and
(c) He is liable even for a fortuitous event when the
obligation is to deliver a determinate thing. (Arts.
1165, 1170.) However, if
Effects of DELAY
(2) MORA ACCIPIENDI. — The effects are as
follows:

(a) The creditor is guilty of breach of obligation;

(b) He is liable for damages suffered, if any, by the
debtor;
(c) He bears the risk of loss of the thing due (see Art.
1162.);
(d) Where the obligation is to pay money, the debtor
is not
liable for interest from the time of the creditor’s
delay;
Effects of DELAY
(3) COMPENSATIO MORAE. —
The delay of the obligor cancels out the effects of 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.
If the delay of one party is followed by that of the other,
the liability of the first infractor shall be equitably
tempered or balanced by the courts. If it cannot be
determined which of the parties is guilty of delay, the
contract shall be deemed extinguished and each shall
bear his own damages. (Art. 1192.)
Art. 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)

Grounds for Liability

(1) Fraud (deceit or dolo). — As used in Article 1170, it is the deliberate or
intentional evasion of the normal fulfillment of an obligation.

(2) Negligence (fault or culpa). — It is any voluntary act or omission,

there being no malice, which prevents the normal fulfillment of an obligation.

(3) Delay (mora). —It has been ruled that the delay in the performance of the
obligation under Article 1170 must be either malicious or negligent.

(4) Contravention of the terms of the obligation. — This is the violation of the terms
and conditions stipulated in the obligation. The contravention must not be due to a
fortuitous event or force majeure. (Art. 1174.)
Breach of contract
is the failure without justifiable excuse to
comply with the terms of a contract. The breach
may be willful or done unintentionally.
It has been defined as the failure, without legal
excuse, to perform any promise which forms the
whole or part of the contract.
(Nakpil vs. Manila Towers Dev. Corp., 502 SCRA
470 [2006].)
ud and negligence distinguished
(1) In fraud, there is deliberate intention to cause damage or
injury, while in negligence, there is no such intention;
(2) Waiver of the liability for future fraud is void (Art. 1171.),
while such waiver may, in a certain sense, be allowed in
negligence;
(3) Fraud must be clearly proved, mere preponderance of evidence
not being sufficient, while negligence is presumed from the
breach of a contractual obligation; and
(4) Lastly, liability for fraud cannot be mitigated by the courts,
while liability for negligence may be reduced according to the
circumstances. (Art. 1173.)
When negligence equivalent to
fraud.
Where the negligence shows bad faith or is so gross
that it amounts to malice or want on attitude on the part
of the defendant, the rules
on fraud shall apply. (see Art. 1173.)

Gross Negligence
→isfailure
negligence characterized by want or absence of or
to exercise even slight care or diligence, or the
entire absence of care, acting or omitting to act on a
situation where there is a duty to act, not
inadvertently but willfully and intentionally
 Art. 1171. Responsibility arising from fraud is
demandable in all obligations. Any waiver of an
action for future fraud is void. (1102a)
Responsibility arising from fraud can be demanded with
respect to all kinds of obligation and unlike in the case of
responsibility arising from negligence (Art. 1172.), the court is
not given the power to mitigate or reduce the damages to be
awarded. This is so because fraud is deemed serious and evil that
its employment to avoid the fulfillment of one’s obligation
should be discouraged.
 Waiver of action for future fraud void.
According to the time of commission, fraud may be past or
future.

A waiver of an action for future fraud is void (no effect, as if

there is no waiver) as being against the law and public policy.
(Art. 1409[1].)

A contrary rule would encourage the perpetration of fraud

because the obligor knows that even if he should commit fraud
he would not be liable for it thus making the obligation illusory.
Waiver of action for past fraud valid.
What the law prohibits is waiver anterior to the fraud and
to the knowledge thereof by the aggrieved party.

A past fraud can be the subject of a valid waiver because

the waiver can be considered as an act of generosity and
magnanimity on the part of the party who is the victim of
the fraud.
Here, what is renounced is the effects of the fraud, that is,
the right to indemnity of the party entitled thereto.
Art. 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)

Validity of waiver of action arising

from negligence.
(1) An action for future negligence (not fraud) may be renounced except where the
nature of the obligation requires the exercise of
extraordinary diligence as in the case of common carriers. (see Art. 1733.)

(2) Where negligence is gross or shows bad faith, it is considered equivalent to fraud.
Bad faith does not simply connote negligence or bad judgment causing damages to
another. Any waiver of an action for
future negligence of this kind is, therefore, void.
 Kinds of negligence according
to source of obligation.
(1) 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;

(2) Civil negligence (culpa aquiliana) or negligence which by itself is the source of an
obligation between the parties not formally bound before by any pre-existing contract. It
is also called “tort” or “quasidelict.” (Art. 2176.10);
(3) 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.
(see Barredo vs. Garcia and Almario, 73 Phil. 607 [1942]; Elcano vs. Hill, 77
SCRA 98 [1977].)
Effect of negligence on the part of the
injured party.
Article 2179 of the Civil Code provides:
“When the plaintiff’s own negligence was the immediate and
proximate cause of his injury, he cannot recover damages. But if his
negligence was only contributory, the immediate and proximate cause
of the injury being the defendant’s lack of due care, the plaintiff may
recover damages, but the courts shall mitigate the damages to be
awarded.” (see Arts. 2214, 2215.)

In other words, to be entitled to damages, the law does not

require that the negligence of the defendant should be the sole
cause of the damage.
(Astudillo vs. Manila Electric Co., 55 Phil. 427 [1930].)
 Art. 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 is
to be observed in the performance, that which is expected
of a good father of a family shall be required. (1104a)
Test for determining whether a person is
negligent.
(1) Reasonable care and caution expected of
an ordinary prudent person.

(2) No hard and fast rule for measuring

degree of care.
Factors to be considered.
(1) Nature of the obligation. — e.g., smoking while carrying
materials known to be inflammable constitutes negligence;
(2) Circumstances of the person. — e.g., a guard, a man in the
prime of life, robust and healthy, sleeping while on duty is guilty
of negligence;
(3) Circumstances of time. — e.g., driving a car without
headlights at night is gross negligence but it does not by itself
constitute negligence when driving during the day; and
(4) Circumstances of the place. — e.g., driving at 60 kilometers
per hour on the highway is permissible but driving at the same rate
of speed in Quezon Boulevard, Manila, when traffic is always
heavy is gross recklessness.
DILIGENCE
→ is “the attention and care required of a person
in a given situation and is the opposite of
negligence.’’ (Sambijon vs. Suing, 503 SCRA 1
[2006].)
Art. 1174. Except in cases expressly specifi ed 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. (1105a)

FORTUITOUS EVENT
→ is any extraordinary event which cannot be
foreseen, or which, though foreseen, is
inevitable
(1) Acts of man. — Strictly speaking, fortuitous event is an
event independent of the will of the obligor but not of other
human wills, e.g., war, fi re, robbery, murder, insurrection, etc.

(2) Acts of God. — They are those events which are totally
independent of the will of every human being, e.g., earthquake,
flood, rain, shipwreck, lightning, eruption of volcano, etc. They
are also called force majeure. The term generally applies to a
natural accident.
Requisites of a fortuitous event
Whether an act of man or an act of God, to constitute a fortuitous
event, it is essential that:

(1) The event must be independent of the human will or at least of

the obligor’s will;

(2) The event could not be foreseen (unforeseeable), or if it could

be foreseen, must have been impossible to avoid (unavoidable);

(3) The event must be of such a character as to render it impossible

for the obligor to comply with his obligation in a normal manner;

(4) The obligor must be free from any participation in, or the aggravation of
the injury to the obligee. (see Lasam vs. Smith, 45 Phil. 657 [1923]; see General
Enterprises, Inc. vs. Lianga Bay Logging Co., Inc., 11 SCRA 733 [1964]; Tugade
vs. Court of Appeals, 85 SCRA 226 [1978]; Juntilla vs. Fontaner, 136 SCRA 624
[1985].)
 Art. 1175. Usurious transactions shall be
governed by special laws.

SIMPLE LOAN OR MUTUUM

→ 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 a stipulation to pay
interest. (Art. 1933.)
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. (Tolentino vs.
Gonzales, 50 Phil. 558 [1927].)
KINDS OF INTEREST
(1) Simple interest. — when the rate of interest is stipulated by the parties

(2) Compound interest. — when the interest earned is upon interest due

(3) 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.

(4) Lawful interest. — when the rate of interest is within the maximum allowed
by (usury) law

(5) Unlawful interest. — when the rate of interest is beyond the maximum
fixed by law.
Art. 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.

PRESUMPTION
→ is meant the inference of a fact not
actually known arising from its usual
connection with another which is known
or proved.
2 KINDS OF PRESUMPTION
(1) Conclusive presumption. — one which cannot be
contradicted like the presumption that everyone is
conclusively presumed to know the law (see Art. 3.);
and

(2) Disputable (or rebuttable) presumption. — one

which can be contradicted or rebutted by presenting
proof to the contrary like the presumption established
in Article 1176. (see Sec. 69[i], Rule 123, Rules of
Court.)
 When presumptions in Article 1176
do not apply.
(1) With reservation as to interest. — The presumptions established in Article 1176 do not
arise where there is a reservation as to interest or prior installments, as the case may be.
The reservation may be made in writing or verbally.
(2) Receipt for a part of principal. — The first paragraph of Article 1176 only applies to the
receipt of the last installment of the entire capital, not to a mere fraction thereof. This is
logical. A receipt for a part of the principal, without mentioning the interest, merely implies
that the creditor waives his right to apply the payment first to the interest and then to the
principal, as permitted by Article 1253.
(3) Receipt without indication of particular installment paid. — It has been held that the
presumption in paragraph 2, Article 1176 is not applicable if the receipt does not recite that it
was issued for a particular installment due as when the receipt is only dated.
(4) Payment of taxes. — Article 1176 does not apply to the payment of taxes. Taxes payable
by the year are not installments of the same obligation.
(5) Non-payment proven. — Of course, Article 1176 is not applicable where the non-payment
of the prior obligations has been proven. Between a proven fact and a presumption pro tanto,
the former stands, and the latter falls.
 Art. 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 available to creditors for the

satisfaction of their claims.
(1) exact fulfillment (specific performance) with the right to damages;
(2) pursue the leviable (not exempt from attachment under the
law) property of the debtor;
(3) “after having pursued the property in possession of the debtor,’’ exercise all the rights
(like the right to redeem) and bring all the actions of the debtor(like the right to collect
from the debtor of his debtor) except those inherent in or personal to the person of the
latter (such as the right to vote, to hold office, to receive legal support, to revoke a
donation on the ground of ingratitude, etc.); and
(4) ask the court to rescind or impugn acts or contracts which the debtor may have
done to defraud him when he cannot in any other manner recover his claim.23 (see Arts.
1380-1389.)
Art. 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
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.)