BOOK IV OBLIGATIONS AND CONTRACTS
Title I. Obligations
Chapter 1: General Provisions
1156. An obligation is a juridical necessity to give, to do or not to do.
 Obligation
: a juridical relation whereby the creditor may demand from the debtor the
observance of a determinative conduct (the giving, doing, or not doing),
and in case of breach, may demand satisfaction from the assets of the
latter
: result of a contract, a meeting of the minds
 Always involves more than one party
 ELEMENTS APOE
1) Active Subject (obligee, creditor): possessor of a right, in whose
favour the obligation is constituted
2) Passive Subject (obligor, debtor): has the duty of giving, doing, or not
doing
3) Object/Prestation: subject matter of the obligation; may consist of
giving a thing, doing or not doing a certain act
4) Efficient Cause (vinculum, juridical tie): the reason why the obligation
exists
5) *1Form: manner in which the obligation is manifested
 KINDS of OBLIGATIONS
1) “Sanction”
a. Civil – Art 1156; judicial process (s)2
b. Natural – duty not to recover what has voluntarily been paid
although payment was no longer required; law (s)
c. Moral – duty of a Catholic to hear Sunday mass etc.;
conscience or morality, or the law of the church (s)
2) Subject Matter
a. Real – obligation to give; power over a specific thing, binding
on the whole world
i. Giving a specific thing
ii. Giving a generic/indeterminate thing
b. Personal – obligation to do or not to do; power demandable
by one person of another
3) Affirmativeness & Negativeness of the Obligation
a. Positive/Affirmative – obligation to give or to do
b. Negative – obligation not to do/give
1
In a few cases
2
Sanction
4) Persons Obliged
a. Unilateral – where only one of the parties is bound
b. Bilateral – where both parties are bound
i. Reciprocal: performance of one obligation is
conditioned on the simultaneous fulfilment of the other
obligation (i.e. obligations under an option to buy)
ii. Non-reciprocal: performance by one is non-
dependent upon performance by the other
Right of First Refusal/PD 1517
Mataas na Lupa Tenants’ Assoc v. Dimayuga
 Tenants-lessees are given pre-emptive or preferential rights if they have
occupied the land or lot for over 10 years.
 An owner cannot sell to a third person without first offering the same to the
lessee.
 Waiver of such right must be in a public instrument
Santos v. CA
 Refers only to urban land
 Law does not apply if both the land and the house belong to the lessor
1157.
 Exclusive SOURCES of OBLIGATIONS LCQcCQd
1) Law e.g. duty to pay taxes & to support one’s family
2) Contracts – has the force of law e.g. duty to repay a loan by virtue of
an agreement
3) Quasi-contracts - e.g. duty to refund an “over change” of money
because of the quasi-contract of “undue payment”
4) Crimes or Acts or Omissions Punished by Law e.g. duty to return a
stolen cow
5) Quasi-delicts or Torts e.g. duty to repair damage due to negligence
 Once contestants accept the offer by submitting entries, there is a sort of
implied that prizes would eventually be awarded.
1158.
Obligations derived from law are not presumed.
Only those expressly determined in this Code or in special laws are
demandable, and shall be regulated by the precepts of the law which
establishes them;
and as to what has not been foreseen, by the provisions of this Book.
 The obligation must be clearly (expressly or impliedly) set forth in the law.
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  Special Law > New Civil Code in case of conflict between the two unless
the contrary has been expressly stipulated in the NCC
 In case of overpayment of taxes, the Government cannot be required to
pay interest in the amount refundable in the absence of a statutory
provision expressly directing or authorizing such payment.
1159. Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith.
 Neither party may unilaterally and upon his own exclusive volition, escape
his obligations under the contract, unless the other party assented thereto,
or unless for causes sufficient in law and pronounced adequate by a
competent tribunal.
 Before a contract can be enforced, it must first be valid, and it cannot be
valid if it is against the law.
 Right of the parties to stipulate is limited (not contrary to law, morals, good
customs, public order, or public policy). 1306
 INNOMINATE CONTRACTS (I – You)
1) Give-Give
2) Give-Do
3) Do-Give
4) Do-Do
 In contracts where public interest is involved (e.g. labor agreements), the
Government has a right to intervene for the protection of the whole.
1160. Obligations derived from quasi-contracts shall be subject to the provisions
of Chapter 1, Title XVII, of this Book.
 Quasi-contract
: juridical relation resulting from a lawful, voluntary, and unilateral act, and
which has for its purpose the payment of indemnity to the end that no one
shall be unjustly enriched or benefitted at the expense of another
: not an implied contract because there is no meeting of minds
 KINDS
1) Negotiorum Gestio/Unauthorized Management
- When a person voluntarily takes charge of another’s abandoned
business or property without the owner’s authority
- Reimbursement must be made to the for necessary and useful
expenses
2) Solutio Indebiti/Undue Payment
- When something is received when there is no right to demand it,
and it was unduly delivered thru mistake
- Recipient has the duty to return it
 Examples of QC
 When during a fire, flood, or other calamity, property is saved from destruction by another person
without the knowledge of the owner, the latter is bound to pay the former just compensation
 Any person who is constrained to pay the taxes of another shall be entitled to reimbursement from
the latter. 2175
1161. Civil obligations arising from criminal offenses shall be governed by the
penal laws, subject to the provisions of Art 2177, and of the pertinent provisions of
Chapter 2, Preliminary Title, on Human Relations, and of Title XVIII of this Book,
regulating damages.
 Art 100, RPC: Every person criminally liable for a felony is also civilly
liable.
 Whenever a criminal action is instituted, the civil action for the civil liability
is also impliedly instituted together with the criminal action.
 CIVIL LIABILITY Arising from a Crime
1) Restitution
2) Reparation of the damage
3) Indemnification for consequential damages
 Kind of PROOF NEEDED:
1) CIVIL: preponderance of evidence
2) CRIMINAL: guilt must be established by proof beyond reasonable
doubt
 EFFECT of ACQUITTAL in Criminal Case
1) Accused could not have committed the act: NO civil action can later on
be brought
2) Exempting circumstance: Still civilly liable
3) Independent civil action: Civil liability may still arise if this action is
instituted and the defendant’s liability is proved by mere
preponderance of evidence (e.g. Art 33, CC)
 There is a need for making a reservation of the civil case (where
the law grants an independent civil action) if a criminal case is first
brought to Court. Rule 111 of the New Rules on Criminal Procedure
 Art 12 and 101, RPC: An insane man who commits a crime is exempted
from criminal liability, but his guardian can be held civilly liable unless the
latter was diligent in his task of taking care of the insane. If there is no
guardian, or if said guardian is insolvent, the property of the insane man
can be made liable.
 Art 2206, CC: At least P5,000 must be given to the heirs of the victim (loss
of earning capacity and moral damages included)
 In a criminal case, civil liability may be claimed even if there is no specific
allegation of damages in the information or complaint that has been filed.
Badiong v. Judge Apalisok
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1162. Obligations derived from quasi-delicts (torts) shall be governed by the
provisions of Chapter 2, Title XVII of this Book, and by special laws.
 Quasi-delict
: a fault or act of negligence (or omission of care) which causes damages
to another, there being no pre-existing contractual relations between
parties
: acts which are criminal in character, whether the same be voluntary or
negligent
 Negligence
: 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
: omission of that diligence which is required by the circumstances of
person, place, and time | question of fact

 REQUIREMENTS before a person can be held liable for a quasi-delict

1) Fault or negligence attributable to the person charged
2) Damage or injury
3) Direct relation of cause and effect between the fault or negligence on
the one hand and the damage or injury on the other hand
— Proximate cause: adequate and efficient cause, which in the natural
order of events necessarily produces the damages or injury
complained of

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Chapter 2: Nature and Effect of Obligations
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.
 First effect of an obligation: To deliver a determinate thing
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 3 over it until the same
has been delivered to him.
 As a consequence of certain contracts, it is not agreement but tradition or
delivery that transfers ownership.
 It depends when the obligation to deliver arises.
 No term or condition: from the perfection of contract
 With term or condition: from the moment the term arrives or
condition happens
 KINDS of DELIVERY
1) Actual – where physically, the property changes hands
2) Constructive – where the physical transfer is implied
a. Symbolical tradition
b. Delivery by mere consent or the pointing out of the object
c. Delivery by short hand – where a possessor of a thing not as
an owner, becomes the possessor as owner (e.g. when a
tenant already in possession buys the house he is renting)
d. Traditio Constitutum Possessorium – opposite of (c);
where a possessor of a thing as an owner, retains possession
no longer as an owner, but in some other capacity (e.g. a
house owner, who sells a house, but remains in possession as
tenant of the same house)
e. Tradition by the execution of legal forms and solemnities
1165.
When what is to be delivered is a determinate thing, the creditor, in addition to the
right granted him by Art 11704, 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.
3
Power over a specific thing
4
Those who in the performance of their obligation are guilty of fraud, negligence, or delay
and those who in any manner contravene the tenor thereof, are liable for damages.
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
fortuitous event until he has effected the delivery.
 Real Obligation
o Specific/Determinate – capable of particular designation
o Generic/Indeterminate – refers only to a class, to a genus, and
cannot be pointed out with particularity; lack of physical
segregation
 Creditor’s REMEDIES when the Debtor fails to comply
1) Specific performance (G + S)
2) Rescission or cancellation
3) Damages
 Ordinary Delay: non-performance at the stipulated time
 Default: delay which amounts to a virtual nonfulfillment of the obligation
o To put a debtor in default, there must be a judicial or extrajudicial
demand for fulfilment.
 Fortuitous events extinguish specific obligations, but never generic
obligations.
o When a Fortuitous Event DOES NOT Exist
a. If the obligor delays
b. If the obligor is guilty of bad faith
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.
 Accessories – those joined to or included with the principal for the
latter’s better use, perfection, or enjoyment
 Accessions – additions to or improvements upon a thing; whatever is
built, planted, or sown on a person’s parcel of land
 If there is a stipulation to said effect, accessions and accessories do not
have to be included.
1167. Positive Personal Obligation
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.
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 Creditor’s REMEDIES when the Debtor fails to Do
1) Performance by himself or by another at debtor’s expenses
2) Damages
 When a Thing may be Ordered Undone
1) Poorly made
2) Negative obligation (provided the undoing is possible)
1168. Negative Personal Obligation
When the obligation consists in not doing, and the obligor does what has been
forbidden him, it shall also be undone at his expenses.
 REMEDY: Undoing of the prohibited thing + Damages
1169.
Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfilment 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 fulfils his obligation, delay by the other
begins.
 To put a debtor in default, demand is needed.
o Judicial – when a complaint for specific performance is filed
o Extrajudicial – without court proceeding
 When Demand is NOT NEEDED to Put Debtor in Default
1) When the law so provides (e.g. paying taxes)
2) When the obligation expressly so provides
3) When time is of the essence of the contract (e.g. wedding dress)
4) When demand would be useless, as when the obligor has rendered it
beyond his power to perform (e.g. disposal of subject matter)
5) When the obligor has expressly acknowledged that he really is in
default (e.g. asking for extension of time)
 KINDS of DEFAULT
1) Mora Solvendi
- Default on the part of the debtor
- NONE in negative obligations & natural obligations
- Requisites
o Obligation must be due, enforceable, and already
liquidated or determinate in amount
o Non-performance
o Demand
o Demand must be for the obligation that is due
- Effects
o Liable for interest or damages
o Bear the risk of loss
o Liable even for a fortuitous event
a. Ex Re – debtor’s default in real obligations
b. Ex Persona – debtor’s default in personal obligations
2) Mora Accipiendi – default on the part of the creditor when he
unjustifiably refuses to accept payment or performance at the time
said payment or performance can be done
 If an obligation arises as the result of a crime, the debtor-
criminal is responsible for loss, even though this be through a
fortuitous event, unless the creditor is in mora accipiendi.
3) Compensatio Mora – when in a reciprocal obligation both parties are
in default; here it is as if neither is in default
- RECIPROCAL OBLIGATIONS
o Depend upon each other for performance
o May be set on different dates;
If not set on different dates, either by the law, contract, or
custom, it is understood that performance must be
simultaneous.  One party cannot demand performance
by the other, if the former himself cannot perform.
 When DAMAGES or INTEREST may be LOST
1) If principal obligation is allowed to lapse by prescription
2) If damages or interest are allowed to prescribe
3) If damages or interest are condoned
 If a debt is not paid at the stipulated period, interest (as damages) should
be charged not from the date of maturity, but from the time the judicial
action is filed, in case NO extrajudicial demand was made. Compania
General de Tabacos v. Araza
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  Imposition of Interest BSP v. Santamaria 1171. Responsibility arising from fraud is demandable in all obligations. Any
1) When an obligation, not constituting a loan or forbearance of money, waiver of an action for future fraud is void.
is breached, an interest on the amount of damages awarded may be
imposed at the court’s discretion with 6% rate per annum.  Fraud may be past or future.
In the event that demand is established with reasonable certainty,  CLASSIFICATION of FRAUD
interest shall begin to run from the time claim is made judicially 1) Fraud in obtaining consent
or extrajudicially. However, when such certainty cannot be a. Causal
reasonably established at the time demand is made, interest shall b. Incidental
begin to run only from the date the court judgment is made. 2) Fraud in performing a contract
2) When court judgment awarding a sum of money becomes final and a. Causal – important as it vitiates consent (allowing therefore
executor, the rate of legal interest, whether the case falls under par. 1 annulment)
or par. 2 above, shall be 12% per annum from such finality until its b. Incidental – not important
satisfaction, this interim period being deemed to be by then an
equivalent to forbearance of credit.  Tax Evasion: connotes fraud thru the use of pretenses and forbidden
devices to lessen or defeat taxes
1170. Those who in the performance of their obligation are guilty of fraud,
negligence, or delay and those who in any manner contravene the tenor 1172. Responsibility arising from negligence in the performance of every kind of
thereof, are liable for damages. obligation is also demandable, but such liability may be regulated by the courts,
 Grounds for LIABILITY in the PERFORMANCE of an OBLIGATION according to the circumstances.
FNDV
1) Fraud – intentional evasion of fulfilment
2) Negligence Fault Negligence
3) Default
4) Violation of the terms of obligation (unless excused in proper cases DELIBERATE intent to cause damage NO deliberate intent to cause damage
by fortuitous events) Liability CANNOT be mitigated or Liability may be REDUCED in certain
a. Increase in cost of performance reduced by the courts cases
b. Poverty Waiver of action to enforce liability due Waiver of action to enforce liability due
c. War to future fraud = VOID to future negligence
= MAY BE ALLOWED
 KINDS of DAMAGES MENTAL
1) Moral – mental and physical anguish  Stipulations regarding Negligence
2) Exemplary – corrective or to set an example 1) Gross Negligence – never excused in advance because it would be
3) Nominal – to vindicate a right; when no other kind of damages may be contrary to public policy
recovered 2) Simple Negligence – may be excused or mitigated in some cases
4) Temperate – when the exact amount of damages cannot be 3) Kinds of Stipulation in a Bill of Lading
determined a. Exempts the carrier from all liabilities for loss or damage
5) Actual – actual losses as well as unrealized profit occasioned by its own negligence; void
6) Liquidated – predetermined beforehand b. Limits the liability to an agreed valuation, no matter how much
damage is caused; void
c. Limits the liability to an agreed value UNLESS the shipper
declares a higher value and pays a higher rate of freight; valid
 KINDS of NEGLIGENCE according to SOURCE of OBLIGATION
1) Contractual – results in a breach of contract

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 2) Civil – tort or quasi-delict plaintiff may recover damages, but the courts shall mitigate the
3) Criminal – results in the commission of a crime or a delict damages to be awarded.
 Negligence as a QUESTION OF FACT depending upon the facts of each
Contractual Civil Criminal particular case
NEGLIGENCE Incidental Direct , substantive, Direct ,
and independent substantive, and 1173.
independent of a The fault or negligence of the obligor consists in the omission of that diligence
contract which is required by the nature of the obligation and corresponds with the
PRE- PEO (implied or No PEO (except No PEO (except circumstances of the person, of the time and of the place. When negligence
EXISTING express contract) duty to be careful in duty never to harm shows bad faith, the provisions of Art 1171 and 2201, par. 2, shall apply.
OBLIGATION all human acts) others)
PROOF Preponderance of Preponderance of Proof of guilt If the law or contract does not state the diligence which is to be observed in the
NEEDED evidence evidence beyond performance, that which is expected of a good father of a family shall be
reasonable doubt required.
“GOOD Not a proper Proper and complete Not a proper  KINDS of Diligence
FATHER” complete defense defense insofar as defense 1) That agreed upon by parties
DEFENSE though this may employers/guardians 2) If (1) is absent, that required by law
mitigate damages are concerned 3) If (2) is absent, that expected of a good father of a family
TO BE Existing contract, Negligence of the Accused is
PROVED but not carried out defendant presumed 1174. Except in cases expressly specified by the law, or when it is otherwise
innocent until the declared by stipulation or when the nature of the obligation requires the
Debtor’s duty to contrary is proved, assumption of risk, no person shall be responsible for those events which could
prove that there so prosecution not be foreseen, or which though foreseen, were inevitable.
was no culpa in has the burden of  Fortuitous Event (aka Caso fortuito, Act of God, Force Majeure,
carrying out the proving the Unavoidable accident)
terms of the negligence of the o Cause must be independent of the will of the debtor
contract accused o Impossibility of foreseeing or of avoiding it, even if foreseen
Master-servant Bonus Familias Owner’s o Occurrence must be such as to render it impossible for the debtor
rule: negligence of (Good Father of a subsidiary to fulfil his obligation in a normal manner
the servant is the Family): negligence liability if the  EXCEPTIONS
negligence of the of the employer is driver is insolvent 1) When expressly declared by the law OR is in default
master only presumptive, e.g. when the possessor is in bad faith
may be rebutted / 2) When expressly declared by stipulation or contract
primary liability 3) When the nature of the obligation requires the assumption of risk
(Doctrine of Created Risk)
 Contracts of Adhesion: Stipulations on negligence must be strictly
construed against the party situated in a higher or more advantageous 1175. Usurious transactions shall be governed by special laws.
position.  Usury
 When a victim’s own negligence was the immediate and proximate : contracting for or receiving something in excess of the amount allowed by
cause of his injury, he cannot recover damages. law for the loan or use of money, goods, chattels, or credits
If the victim’s negligence was only contributory, the immediate and : exaction of excessive interest
proximate cause of the injury being the defendant’s lack of due care, the  KINDS of Interest:
1) Moratory Interest – given for compensation or use of the money
2) Compensatory Interest – given by way of damages
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  Simple Loan: one of the parties delivers to another money or other
consumable things upon the condition that the same amount of the same
kind and quality shall be paid

 The contract of loan (principal contract) with usurious interest (accessory

element) is valid as to the loan, and void only with respect to the
interest (if already paid, may be recovered by the debtor).

1176.
The receipt of the principal by the creditor without reservation with the 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

instalment, shall likewise raise the presumption that such installments have been
paid.

 Payment of the interest precedes payment of the principal.

 Receipt of a Later Installment
o It is not enough that the receipt for the installment paid be dated; it
must also specify that the receipt is for the payment of a particular
installment due.

1177. The creditors, after having pursued the property in the 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.
 RIGHTS of CREDITORS
1) Exact payment
2) Exhaust debtor’s properties, generally by attachment
3) Subrogatory action – exercise all rights and actions except those
inherent in the person
4) Impugn or rescind acts or contracts done by the debtor to defraud
the creditors

1178. Subject to the laws, all rights acquired in virtue of an obligation are
transmissible, if there has been no stipulation to the contrary.
GR: Rights are transmissible.
E:
1) If the law provides otherwise
2) If the contract provides otherwise
3) If the obligation is purely personal

 Even if a promissory note is not negotiable, it may still be given, donated,

or assigned to another.
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Chapter 3: Different Kinds of Obligation E.
Express Condition is stated
Section 1 Pure and Conditional Obligations Implied Condition is merely inferred
F.
1179. Possible Capable of fulfilment in nature and in
Every obligation whose performance does not depend upon a future or uncertain law
event, or upon a past event unknown to the parties, is demandable at once. Impossible Not capable of fulfilment
G.
Every obligation which contains a resolutory condition shall also be Conjunctive If all the conditions must be performed
demandable, without prejudice to the effects of the happening of the event. Alternative If only a few of the conditions have to
be performed
 Pure Obligation – one without a condition or a term; demandable at once
 Conditional Obligation – when there is a condition
1180. When the debtor binds himself to pay when his means permit him to do so,
o Condition: a future and certain event
the obligation shall be deemed to be one with a period, subject to the provisions of
o Term/Period: necessarily must come whether the parties know
Article 1197.
when it will happen or not
 Obligation demandable at once: PURE & RESOLUTORY 1181. In conditional obligations, the acquisition of rights as well as the
extinguishment or loss of those already acquired, shall depend upon the
 Future knowledge of a past event will determine whether or not an happening of the event which constitutes the condition.
obligation will arise.  Suspensive Conditions (conditions precedent or conditions antecedent)
- The happening of which will give rise to the acquisition of a right
CLASSIFICATION OF CONDITIONS
- Its efficacy or obligatory force is subordinated to the happening of
a future and uncertain event
A. - If it does not take place, the parties would stand as if the
Suspensive Happening of the condition gives rise to conditional obligation had never existed.
the obligation  Resolutory Conditions (conditions subsequent)
Resolutory Happening of the condition extinguishes - Rights already acquired are lost once the condition is fulfilled
the obligation
B.  If the perfection of a contract depends upon the fulfilment of a condition,
Potestative Depends upon the will of the debtor non-fulfillment thereof means the non-perfection of the contract since the
Casual Depends on chance or hazard or the suspensive condition should have been first fulfilled.
will of a third person
Mixed Depends partly on the will of one of the 1182. When the fulfilment of the condition depends upon the sole will of the
parties and partly on chance or the will debtor, the conditional obligation shall be void. If it depends upon chance or upon
of a third person the will of a third person, the obligation shall take effect in conformity with the
C. provisions of this Code.
Divisible Capable of partial performance  Potestative on the part of the DEBTOR
Indivisible Not capable of partial performance b/c o If suspensive: VOID
of the nature of the thing or the intention o If resolutory: VALID
of the parties  Potestative on the part of the CREDITOR - VALID
D.
Positive An act is to be performed
Negative Something will be omitted

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