CHAPTER 2

NATURE AND EFFECT OF OBLIGATIONS

(Arts. 1163-1178)

STUDY GUIDE :

« Distinguish: Specific/Determinate vs. Generic/Indeterminate Thing

¤ DUTIES IN A SPECIFIC REAL OBLIGATION ¤

1. Preserve the thing. (Arts. 1163 & 1173, par. 2)

- Reason for the duty
- Standard of care required :
(a) Law (b) Contract
(c) Diligence of a good father of a family
(c.1.) Factors to be considered : (Art. 1173, par. 1)
i. nature of obligation iii. circumstances of time
ii. circumstances of person iv. circumstances of place
2. Deliver the fruits of the thing. (Art. 1164)
- Kinds of fruits (natural, industrial & civil)
- Creditor’s right to the fruits :
(a) personal right (jus in personam) – when the obligation to deliver arises
(b) real right (jus in rem) – when there is delivery [= ownership]
3. Deliver the accessions and accessories. (Art.1166)
4. Deliver the thing itself. (Art. 1165, pars. 1&3)
 - delivery must be personal (made by the debtor himself), exclusive (made to the creditor only) and timely
(without delay)
5. Answer for damages in case of breach. (Art. 1170)
- Remedies of the creditor in case of debtor’s failure to perform his obligation :
(a) specific performance (if compliance is still possible) + damages; OR
(b) damages only (where it is the only possible remedy).

¤ DUTIES IN A GENERIC REAL OBLIGATION ¤

1. Deliver a thing of the quality intended by the parties. (Art. 1246)

2. Answer for damages in case of breach. (Art. 1170)
- Remedies of the creditor in case of debtor’s failure to perform his obligation :
(a) specific performance or compliance; OR
(b) substitute performance (i.e., the obligation is performed by another person at the debtor’s expense)
[Art. 1165, par. 2) + damages; OR
(c) damages only (where it is the only possible remedy).

¤ POSITIVE PERSONAL OBLIGATION ¤

1. Specific performance is not available as a remedy to the creditor as this may amount to violation of the
constitutional prohibition on involuntary servitude.
2. Remedies of the creditor in case of : (Arts. 1167&1170)
(a) Failure TO DO – substitute performance + damages
Exception : If the personal qualifications of the debtor was the determining motive for the obligation
contracted – the ONLY remedy of the creditor is to recover damages.
(b) Breach/poor execution - proper execution of obligation at debtor’s expense + damages
2. REMEMBER : If substitute performance is still available (i.e., the obligation can still be performed at the
expense of the debtor notwithstanding his failure or refusal to do so), the court is NOT authorized to merely
grant damages to the creditor.

¤ NEGATIVE PERSONAL OBLIGATION ¤

1. The forbidden act shall be undone at debtor’s expense. (Art. 1168)

2. REMEMBER : Non-fulfillment may take place BUT specific performance is NOT a remedy for the debtor fulfils by
not doing what has been forbidden him. Hence, also, there can be NO delay in a negative personal obligation.

¤ DELAY ¤

1. Distinguish:
(a) Ordinary Delay
(b) Legal Delay – requires extrajudicial/judicial demand (Art. 1169, par. 1)

2. Demand is NOT necessary to establish debtor’s delay : (Art. 1169, par. 2)

(a) When provided by contract; [Art. 1169, par. 2(1)]
(b) When provided by law; [Art. 1169, par. 2(1)]
(c) When time is of the essence in the contract; [Art. 1169, par. 2(2)]
(d) When demand would be useless; [Art. 1169, Par. 2(3)]
(e) When there is performance by one of the parties in reciprocal obligations. (Art. 1169, par. 3)
2. Kinds of Default :
(a) Mora Solvendi (Art. 1169, par. 1) – delay on the part of the debtor
(b) Mora Accipiendi – delay on the part of the creditor
(c) Compensatio Morae (Art. 1169, par. 3) – delay of obligors in reciprocal obligations
3. Requisites of Mora Solvendi :
(a) Failure of the debtor to perform his positive obligation on the date agreed upon;
 (b) Judicial and extrajudicial demand made by the creditor; and
(c) Failure of the debtor to comply with such demand.
4. Effects of Mora Solvendi :
(a) The debtor is guilty of breach of the obligation.
(b) He is liable to the creditor for interest (in obligations to pay money – Art. 2209) or damages (in other
obligations).
(c) In a specific real obligation, he is liable even for a fortuitous event (Art. 1165, par. 3).
5. “Acceleration Clause” – In a purchase by installments, the contract may provide for an “acceleration clause” (a
clause which would make all installments due, upon default in one instalment). Default in the payment of one
instalment does not mean default in the whole amount. If there is an acceleration clause, all that happens will
be that the whole amount becomes due. And demand is still needed to put the debtor in default.
6. Effects of Compensatio Morae : (Art. 1169, par. 3)
(a) The delay of the obligor cancels the delay of the obligee and vice versa.
(b) The net result is that there is no default on the part of both parties.

¤ GROUNDS FOR DAMAGES – ARTICLE 1170 ¤

See Art. 2201 – Measure of liability for damages :

i. if there is good faith ii. if there is bad faith

1. FRAUD (deceit or dolo)

(a) refers to dolo incidente as differentiated from dolo causante
(b) waiver of action for future fraud - VOID (Art. 1171)
(c) waiver of action for past fraud - valid
2. NEGLIGENCE (culpa)
(a) Defined (Art. 1173, par. 1)
 (b) Distinguish: fraud vs. negligence
(c) Validity of waiver of action for future negligence :
(c.1.) simple negligence – valid
(c.2.) gross negligence (amounting to fraud) - VOID
(d) Kinds of negligence
(d.1.) contractual (culpa contractual)
(d.2.) civil (tort/culpa aquiliana)
(d.3.) criminal (culpa criminal)
(e) Effect of negligence on the part of the injured party (Art. 2179)
(e.1.) if immediate and proximate cause of injury – NO recovery
(e.2.) if contributory to injury – recovery is reduced
3. DELAY (already discussed above)
4. BREACH – contravention of the tenor of the contract

¤ FORTUITOUS EVENTS – ARTICLE 1174 ¤

1. Defined.
2. Refers to both : (a) acts of man & (b) acts of God
3. Requisites : (a) independent of the debtor’s will
(b) unforeseeable or unavoidable
(c) renders debtor’s normal compliance with obligation impossible
(d) no concurrent negligence on debtor’s part
4. Debtor’s liability in case of fortuitous event :
(a) General rule: A person is NOT responsible for loss or damage caused to another resulting from fortuitous
events. In such a case, his obligation is extinguished. (Art. 1174)
(b) Exceptions (positive liability even with a fortuitous event) : (Art. 1174)
 (b.1.) When expressly specified by law, as when there is :
(b.1.1.) Fraud, negligence, delay or breach (Art. 1170)
(b.1.2.) Dual promise to deliver the same specific thing (Art. 1165, par. 3)
(b.1.3.) Obligation to deliver specific things arising from crimes (Art. 1268)
(b.2.) When declared by stipulation.
(b.3.) When the nature of the obligation requires the assumption of risk.
(b.4.) When the thing to be delivered is generic (“genus never perishes” - Art. 1263)

¤ ARTICLE 1175 ¤
1. Usury is now legally non-existent. The parties are now free to stipulate any amount of interest.
2. Art. 1956, however, of the Civil Code states: “No interest shall be due unless it has been expressly stipulated in
writing.”

¤ ARTICLE 1176 ¤
1. Disputable presumptions on payments of interest and prior installments.
2. When the presumptions do not apply.

¤ GENERAL REMEDIES OF CREDITOR TO PROTECT OR ENFORCE HIS RIGHTS AGAINST THE DEBTOR -
ARTICLE 1177 ¤
1. specific performance + damages
2. exhaustion of debtor’s properties
3. exercise all rights and bring all actions of the debtor (subrogation)
4. rescind or impugn fraudulent acts or contracts of the debtor
NOTE: No. 3 & No. 4 are subsidiary remedies to No. 2

¤ TRANSMISSIBILITY OF RIGHTS - ARTICLE 1178 ¤

1. General rule: Rights are transmissible.
2. Exceptions :
(2.1.) when prohibited by law (2.2.) when prohibited by stipulation
(2.3.) in purely personal obligations

¤ OTHER CITED CIVIL CODE PROVISIONS ¤

ART. 2179. 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.

ART. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is
liable shall be those that are the natural and probable consequences of the breach of the obligation, and which the
parties have foreseen or could have reasonably foreseen at the time the obligation was constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which
may be reasonably attributed to the non-performance of the obligation.

ART. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay,
the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed
upon, and in the absence of stipulation, the legal interest, which is six per cent per annum.

APPLICATION/PROBLEMS :

1. Liza is the owner of a 200 square-meter lot sited in Makati. On January 15, 2007, Lito and Liza entered into
a lease contract covering the said lot. The term of the lease was 2 years, or until January 14, 2009, and the
monthly rental agreed upon by the parties was P50,000. On June 15, 2008, Liza sold her Makati lot to Rene and
promised to deliver the lot to Rene on November 15, 2008. On November 15, 2008, however, Liza failed to deliver
the lot and instead made delivery only on December 15, 2008. As new owner, Rene now claims from Liza Lito’s
rental payments starting June 15, 2008. Is Rene’s demand well-founded?
Clue question: When does the obligation to deliver arise? (Art. 1164)
2. For a consideration of P2M, Mike promised to deliver to Joe, on or before December 15, 2008, his BMW with
plate No. HRL-512 as well as a 2008 24-inch Sony Wega television set. Unfortunately, on December 10, 2008, an
unusual bolt of lightning stroke onto the roof of Mike’s house and started fire. The fire completely gutted down
Mike’s property. As a result, the BMW and the TV set were both reduced to ashes. Has the obligation of Mike to Joe
been extinguished?
Clue question: If the thing to be delivered is generic, and the same is lost or destroyed, is the obligation to
deliver extinguished? (Art. 1263)
3. On March 15, 2008, Engr. Fabi entered into a building contract with Mr. Oni. It was agreed that in six
months, Engr. Fabi will finish the construction of a one-kilometer dam in Bacolor, Pampanga to protect the property
of Mr. Oni from damage caused by the lahar mud flow consequent of the Mount Pinatubo eruption. It was also
stipulated that the height of the dam from the basement shall be four meters, and crushed stone measuring two
inches in diameter shall be used. Later, Mr. Oni found out that Engr. Fabi used 1/2-inch diameter of crushed stone
for the dam. What are the remedies of Mr. Oni?
Clue: Creditor’s right in a positive personal obligation (Art. 1167)
4. Budoy and Intoy are the owners of two adjoining pieces of land in Allen, Samar. On April 10, 2008, Budoy
and Intoy entered into an agreement. In the agreement, Intoy obliged himself not to construct any structure,
whether temporary or permanent, on his (Intoy’s) land for five years because Budoy will use it as his garage for five
years. As consideration for the promise, Budoy paid Intoy the amount of P200,000. On March 20, 2010, however,
Intoy constructed a semi- structure to accommodate five live-in employees from his carinderia. What is the liability
of Intoy?
Clue: Creditor’s right in a negative personal obligation (Art. 1168)
5. On October 2, 2008, Hiss agreed to sell his original set of Harry Potter DVD’s to Moo and promised to
deliver the same to Moo’s house on October 2, 2008. On October 8, Moo demanded from Hiss delivery of the
DVD’s. Hiss, however, informed Moo that on the night of October 6, 2008, a burglar entered their house and
robbed them of personal effects amounting to P200,000 which were never recovered. Hiss’ original set of Harry
Potter DVD’s were among the things stolen. What is the liability of Hiss? If, on October 3, 2008, Moo had asked his
brother-lawyer to write a demand letter addressed to Hiss insisting on the delivery of the DVD set, would your
answer to the preceding question be the same?
Clue: Interrelate Art. 1165, par. 3 with Art. 1169, par. 1.
6. John and Bea were engaged to be married on June 6, 2008. For the wedding cake, they contracted Goldi-
Cooks to bake a five-layered chocolate cake with walnut, which was Bea’s favourite. On the day of the wedding,
and up to the time when the newly weds were about to share their first slice of cake as husband and wife, no cake
arrived. So, they had to make do with the leche flan the caterer had prepared for the wedding. When John and Bea
arrived from their honeymoon, they filed an action for damages against Goldi-Cooks who now denies liability on the
ground that the spouses never made any demand on Goldi-Cooks for the delivery of the wedding cake. Decide. à
Clue: Art. 1169, par. 2.
7. On January 31, 2007, Brad advanced P100,000 from Angie and promised to pay the amount on January 31,
2008 at 10% per annum interest. In case of default, Brad also obliged himself to pay to Angie additional interest
(as penalty for the delay) computed at 5% per month. On January 31, 2008, Brad failed to pay Angie his loan. For
the next six months, Angie did not hear anything from Brad. On June 30, 2008, Angie filed a case in court to
recover the amount of the loan. Assuming that you were the lawyer hired by Angie, when will you start computing
the penalty interest of 5%/month on the matured loan of Brad? Explain. à Clue: Art. 1169, par. 1.
8. Dean is a businessman engaged in the buy and sell of second hand cars. He owns a 500 square-meter lot
in Manila valued at P5M and a Mercedez Benz car worth P1.5M. On January 1, 2006, Dean’s best friend Techie
bought a 2004 Nissan Patrol from Dean for P1M. Dean agreed to extend payment of the car to December 15, 2007.
In the early part of 2008, due to financial reverses, Dean was able to borrow money from a wealthy friend, James,
who loaned him the amount of P10M without interest and payable on October 31, 2008. As of November 10, 2008,
however, Dean, despite repeated demands from James since the obligation became due, has not been able to
settle his obligation. Worst, James came to know from another business associate that, as of October 5, 2008,
Dean had already sold his P5M Manila property which was under renovation under the supervision of its new owner
Gaby. What, under the factual circumstances of this case, are the successive rights of James? à Clue: Art. 1177.

9. On July 31, 2008, Procopio sold to Cordapio his Nikon D700 camera for P100,000. Upon delivery of the
camera on the same day, Cordapio paid P20,000 as downpayment. Procopio agreed to accept payment on the
balance in instalments, as follows :
September 30, 2008 - P10,000
November 30, 2008 - P15,000
January 31, 2008 - P15,000
March 31, 2008 - P20,000
May 30, 2008 - P20,000
It was also agreed by the parties that if any instalment was not paid by Cordapio on time, the remainder of
the unpaid instalments would automatically become due and demandable. On January 31, 2008, Cordapio did not
remit the instalment thus due to Procopio. Until end of March, 2008, Procopio did not hear from Cordapio. So, on
April 15, 2008, Procopio filed an action for collection against Procopio demanding payment of the entire balance
due from January 31, 2008 in the amount of P55,000. From what time should interest for damages start to be
computed?
Clue: Art. 1169, par. 1. (See Note No. 6 on DELAY)

10. At around 10:00 in the evening, you are driving along Roxas Boulevard within the area of Buendia. Your
family is in the car with you. The highway is normally free from pedestrians who are required by local ordinances
to cross the boulevard using the designated overpass. Suddenly, from out of nowhere, a man in his mid-30’s
crosses the road. The man was wearing a black shirt which made him even more invisible to moving vehicles.
Before you realize it, he was already right in front of the car a few feet away and it became impossible to steer
clear of the man after a rapid full step on the brakes. As a result, the man suffered serious injuries. What is your
liability? Can the man recover damages? à Clue: Art. 2179. (See Note 2[e], Grounds for Damages)

PLEASE MEMORIZE: Arts. 1165, ar. 3, 1170 & 1174.