OBLIGATIONSNature and Effect of Obligations

ART. 1156 – AN OBLIGATION IS A JURIDICAL NECESSITY TO GIVE, TO DO OR NOT TO DO.

• an obligation is a legal bond whereby constraint is laid upon a person or group of persons to act or forbear on behalf of another person or group of persons.• obligation arises from the concurrence of:

a) the vinculum juris or juridical tie; b) the object which is the prestation; c) subject-persons (Ang Yu Asuncion v. CA)

ART. 1157- OBLIGATIONS ARISE FROM: 1)LAW; 2)CONTRACTS; 3)QUASI-CONTRACTS; 4)ACTS OR OMISSIONS PUNISHED BY LAW; 5)QUASI-DELICTS.

• obligations are civil or natural. Civil obligations give a right of action to compel performance. Natural obligations, not being based on positive law but on equity and natural law, do not grant a right of action to enforce performance, but after their voluntary fulfillment by the obligor, they authorize the retention of what has been delivered or rendered by reason thereof.

ART. 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 FORSEEN, BY THE PROVISIONS OF THIS BOOK.

• among sources of obligation, the law is the most important one. It does not depend upon the will of the parties. It is imposed by the state and is generally imbued with some public policy considerations.

• It cannot be presumed.• Hence, the payment of taxes must be specifically

directed by our tax statutes. Also, parents and children are obliged to support each other as mandated by the provisions of the Family Code.

ART. 1159- OBLIGATIONS ARISING FROM CONTRACTS HAVE THE FORCE OF LAW BETWEEN THE CONTRACTING PARTIES AND SHOULD BE COMPLIED WITH IN GOOD FAITH.

• a contract is a meeting of minds between 2 or more persons whereby a person (or a group of persons) binds himself, with respect to the other (or others) to give something or to render some service.

• a contract may likewise involve mutual and reciprocal obligations and duties between and among the parties.

• Whatever stipulations, clauses, terms and conditions are included in a contract, as long as they are not contrary to law, morals, good customs, public policy or public order, such contract is the law between the parties (Gaw v. IAC)

• Contracts which are the private laws of the contracting parties should be fulfilled according to the literal sense of their stipulations, if their terms are clear and leave no room for doubt as to their intention of the contracting parties, for contracts are obligatory, no matter what form they may be, whenever essential requirements for their validity are present (PAGICO v. Mutuc)

ART 1160 - OBLIGATIONS DERIVED FROM QUASI-CONTRACTS SHALL BE SUBJECT TO THE PROVISIONS OF CHAPTER 1 TITLE 17 OF THIS BOOK.

• certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-contract to the end that no one shall be unjustly enriched or benefited at the expense of the other.

• A good example of an obligation arising from a quasi-contract is the obligation to return what has been obtained by mistake (solutio indebiti)

ART 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 18 OF THIS BOOK, REGULATING DAMAGES.

ART. 1162- OBLIGATIONS DERIVED FROM QUASI-DELICTS SHALL BE GOVERNED BY THE PROVISIONS OF CHAPTER 2, TITLE 17 OF THIS BOOK AND BY SPECIAL LAWS.

• quasi-delict: whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault, if there is no pre-existing contractual relation between the parties, is called quasi-delict.

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.

• this article involves the prestation “to give.” The word “something” connotes a determinate object which is definite, known, and has already been distinctly decided and particularly specified as the matter to be given from among the same things belonging to the same kind.

• “diligence of a good father of a family” because it is a commonly-accepted notion that a father will always do everything to take care of his concerns.

• If the law does not state the diligence which is supposed to be observed in the performance of an obligation, that which is expected of a good father of a family is required.

• In case of a contrary stipulation of the parties, such stipulation is should not be one contemplating a relinquishment or waiver of the most ordinary diligence.

• An example where the law requires another standard of care is that which involves common carriers (persons or firms engaged in the business of carrying, transporting passengers or goods of both, by land, water, air for

compensation, offering their service to the public)- they are bound to observe extraordinary diligence

ART 1164- THE CREDITOR HAS THE RIGHTS TO THE FRUITS OF THE THING FROM THE TIME THE OBLIGATION TO DELIVER IT ARISES. HOWEVER, HE SHALL ACQUIRE NO REAL RIGHT OIVER IT UNTIL THE SAME HAS BEEN DELIVERED TO HIM.

• after the right to deliver the object of the prestation has arisen in favor of the creditor but prior to the delivery of the same, there is no real right enforceable or binding against the whole over the object and its fruits in favor of the person to whom the same should be given.

• The acquisition of a real right means that such right can be enforceable against the whole world and will prejudice anybody claiming the same object of the prestation.

• The real right only accrues when the thing or object of the prestation is delivered to the creditor.

• He only has a personal right over the same if it is enforceable only against the debtor who is under an

obligation to give. This means that the personal right of the creditor can be defeated by a third party in good faith who has innocently acquired the property prior to the scheduled delivery regardless of whether or not such third party acquired the property after the right to the delivery of the thing has accrued in favor of the creditor. In this case, however, the aggrieved creditor can go against the debtor for damages as the debtor should have known that the fruits should have been delivered to the creditor alone.

ART 1165- WHEN WHAT IS TO BE DELIVERED OS A DETERMINATE THING, THE CREDITOR, IN ADDITION TO THE RIGHT GRANTED HIM BY ART 1170, MAY COMPEL THE DEBTOR TO MAKE 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 REPSONSIBLE FOR ANY FORTUITOUS EVENT UNTIL HE HAS EFFECTED DELIVERY.

• In the event that there is non-delivery of a generic thing, the creditor may have it accomplished or delivered in any reasonable and legal way charging all expenses in connection with such fulfillment to the debtor. The same creditor can ask a third party to deliver the same thing of the same kind with all the expense charged to the debtor.

• In case of non-delivery of a determinable thing, the remedy is to file an action to compel the debtor to make the delivery. This action is called specific performance.

• If the debtor is guilty of fraud, negligence, delay or contravention in the performance of the obligation, the creditor can likewise seek damages against the debtor.

• A fortuitous even- an event which could not be foreseen, or which though foreseen, were inevitable.

• The last paragraph of art 1165 however provides that a fortuitous event will not excuse the obligor from his obligation in 2 cases namely: 1) if the obligor delays; and 2) if he has promised to deliver the same thing to 2 or

• more persons who do not have the same interest. In both cases, the obligor will be liable for damages or will be bound to replace the lost object of the prestation in cases when the obligee agrees to the replacement.

ART 1166- THE OBLIGATIONTO GIVE A DETERMINATE THING INCLUDES THAT OF DELIVERING ALL ITS ACCESSIONS AND ACCESSORIES, EVEN THOUGH THEY MAY NOT HAVE BEEN MENTIONED.

ART 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 OBLIGATIONS. FURTHERMORE, IT MAY BE DECREED THAT WHAT HAS BEEN POORLY DONE BE UNDONE.

ART 1168- WHEN THE OBLIGATION CONSISTS IN NOT DOING AND THE OBLIGOR DOES WHAT HAS BEEN FORBIDDEN, IT SHALL ALSO BE UNDONE AT HIS EXPENSE.

• the debtor can ask any third person to perform the obligation due from the debtor should the latter fail to do the same.

• The debtor will be liable for all the expenses in connection with the performance or fulfillment of the obligation undertaken by the third person.

• The words “at his cost” imply both the right to have somebody else perform the obligation and the right to charge the expenses thereof to the debtor.

• With respect to the situation wherein the debtor poorly undertook the obligation, the creditor has the right to have everything be undone at the expense of the debtor. The reason for this rule is to prevent the debtor from taking his obligation lightly.

• In case the prestation is for the debtor not to do a particular act or service and he nevertheless performs it, it shall likewise be undone at his own expense.

• In Chaves v. Gonzales, the Supreme Court ruled that the original repairer can be held liable not only for the missing parts but also for the cost of the execution of the obligation for repairing the typewriter by another company.

ART 1169- THOSE OBLIGED TO DELIVER OR TO DO SOMETHING INCUR IN DELAY FOR THE TIME THE OBLIGEE JUDICIALLY OR EXTRAJUDICIALLY DEMANDS 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; 2) WHEN FROM THE NATURE AND 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;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.

• Delay or default can be committed by the debtor in which case it is known as mora solvendi.

• If it is committed by the creditor, it is known as mora accipiendi.

• Delay in the performance of the obligation, however, must be either malicious or negligent. Hence, if the delay was only due to inadvertence without any malice or negligence, the obligor will no be held liable under Art 1170.

• Default generally begins from the moment the creditor demands the performance of the obligation. Without such demand, judicial or extra-judicial, the effects of default will not arise.

• Commencement of suit is a sufficient demand.• Art 1169 is only applicable when the obligation is to do

something other than the payment of money (Picson v. Picson).

• In obligations for the payment of money, Art 2209 shall apply which provides that 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 6 percent per annum.

• Hence, it the case of obligation for the payment of sum of money, the interest replaces the damages.

• If the contract stipulates from what time interest will be counted, said stipulated time controls, and therefore, interest is payable from such time and not from the date of filing of the complaint(Firestone Tire and Rubber Co.Phils.Inc. v. Delgado)

• If the contract involving a sum of money does not stipulate any interest and/or the time when it will be counted, interest will run only from the time of judicial or extra-judicial demand.

• However, damages or interest shall start to run only after judicial or extra-judicial demand. Hence, if the obligation were due on March 1, 2011, the aggrieved party can file suit for specific performance immediately after March 1, 2011. If extra-judicial demand however was made on March 5, 2011, damages shall be counted not from March 1, 1998 but from March 5, 2011.

• The 2 cases where an extra-judicial demand should first be made prior to the filing of a civil suit are: ejectment cases and consignment cases. If there is no extra-judicial demand made prior to the filing of the civil suit, the ejectment case will be dismissed. In consignment cases, the debtor must first make an extra-judicial demand for the creditor to accept payment of the obligation. If the creditor unjustifiably refuses to accept payment, the debtor can now consign the amount in court for purposes of extinguishing the obligation.

• Demand not necessary in 3 cases: 1) when the obligation or the law expressly so declares (ex. Promissory note providing for payment on a particular date without necessity of demand; Also the law expressly declares that taxes should be paid on a particular date); 2) when time is of the essence in a particular contract (ex. Stock market transactions; delivery for a one-day car exhibit); 3) when it would be useless, as when the obligor has rendered it beyond his power to perform (ex. A debtor promised to constitute his house as a collateral for a particular loan which is payable at a particular date but before he can make the mortgage, he donates the house to his friend, demand from the creditor to constitute the house as a collateral is useless. In this case, his obligation becomes immediately demandable considering that he loses his right to the period within which to pay the loan).

• Reciprocal obligations are those created and established at the same time, out of the same cause and which results in a mutual relationship of creditor and debtor between parties. In reciprocal obligations, the performance of one is conditioned upon the simultaneous fulfillment of the other.

• In Agcaoili v. GSIS, the GSIS and Agcaoili entered into a contract of sale of a government housing unit on the condition that Agcaoili should occupy the same within 3 days from the receipt of the notice. Failure to immediately occupy contractually allowed the GSIS to terminate the contract. Agcaoili upon receipt of the notice, immediately went to the place and found a

in a state of incompleteness that civilized occupation was not possible. The buyer paid the 1st monthly installment but refused to make further payments until and unless GSIS completed the housing unit. GSIS cancelled the award and required Agcaoili to vacate the premises. The Supreme Court ruled that the GSIS had no right to rescind the sale saying : By any objective interpretation of its terms, the contract can only be understood as imposing on the GSIS an obligation to deliver the Agcaoili a reasonably habitable dwelling in return for his undertaking to pay the stipulated price. Since it did not fulfill that obligation, and was not willing to put the house in habitable state, it cannot invoke Agcaoili’s suspension of payment of amortizations as cause to cancel the contract between them.

• In Tanguiling v. CA, the petitioner and the respondent entered into a contract for the construction of a windmill for a consideration with a one-year guaranty, and where after completion, the petitioner sued the respondent for non-payment of the balance of the construction price but the respondent did not pay bec. The windmill collapsed due to defects in construction. The SC ruled that: when the windmill failed to function properly it became incumbent upon petitioner to institute the proper repairs in accordance with the guaranty. Thus, respondent cannot be said to have incurred in delay; instead, it is the petitioner who should bear the expenses for the reconstruction of the windmill.

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.

• The law specifically provides that damages can be awarded to any person who may have been prejudiced in the performance of the obligation as a result of fraud, negligence, delay or contravention of the tenor of the obligation.

• Significantly, if any of these 4 bases of liability co-exist with a fortuitous event or aggravates the loss caused by a fortuitous event, the obligor cannot be excused from being liable on his obligation.

ART 1171- RESPONSIBILITY ARISING FROM FRAUD IS DEMANDABLE IN ALL OBLIGATIONS. ANY WAIVER OF AN ACTION FOR FUTURE FRAUD IS VOID.

• When a party complies with or performs his obligation fraudulently, he is liable for damages.

• If, in the contract of sale, A and B stipulated that any fraudulent act by another in the performance of his obligation shall not be a ground for the aggrieved party to file a suit against the other for fraud is a void stipulation. By express provision of law, such waiver is void.

• The dolo or fraud which is committed to induce a party to enter into a contract, thereby making the agreement annullable is not the one contemplated by Art 1171.

• The dolo or fraud under Art 1171 necessarily involves a valid agreement but, in the performance of the same, fraud is committed.

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.

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 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.

• In essence, negligence is that want of care required by the circumstances.

• As a general rule, negligence must be proven.• In Syquia v. CA, the law defines negligence as 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.” In the absence of stipulation or legal provision providing the contrary, the diligence to be observed in the performance of the obligation is that which is expected of a good father of a family.

• In PNB v. CA, where the bank negligently dishonored the check of its depositor, the SC said, “This court has ruled that a bank is under the obligation to treat the accounts of its depositors with meticulous care whether such account consists only of a few hundred pesos or of millions of pesos. Responsibility arising from negligence in the performance of every kind of obligation is demandable. While petitioner’s negligence in this case may not have been attended with malice and bad faith, nevertheless, it caused serious anxiety, embarrassment and humiliation to private respondent for which she is entitled to recover reasonable moral damages.

• The law likewise provides that when negligence shows bad faith, the provisions of Articles 1171 and 2201, par 2 shall apply.

• In Samson v. CA, the SC discussing bad faith said: “Bad faith is essentially a state of mind affirmatively operating with furtive design or with some motive of ill-will. It does not simply connote bad judgment or negligence. It imports a dishonest purpose or some moral obliquity and conscious doing of wrong. Bad faith is thus synonymous with fraud and involves a design to mislead or deceive another, not prompted by an honest mistake as to one’s rights or duties, but by some interested or sinister motive.”

• Pursuant to Art 2201, par 2, the obligor shall be responsible for all damages which may be reasonably attributed to the non-performance of the obligation.

ART 1174- EXCEPT IN CASES EXPRESSLY SPECIFIED BY THE LAW, OR WHEN IT IS OTHERWISE DECLARED BY STIPULATION, OR WHEN THE NATURE OR 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.

• The general rule is that “no one should be held to account for fortuitous cases” which are those situations that could not be foreseen, or which though foreseen, were inevitable. An act of God has been defined as an accident, due directly and exclusively to natural causes without human intervention, which by no amount of foresight, pains or care, reasonably to have expected, could have been prevented.

• In Nakpil v. CA, the SC said, “To exempt the obligor from liability under Art 1174 of the Civil Code, for a breach of an obligation due to an “act of God,” the ff. must concur: a) the cause of the breach of the obligation must be independent of the will of the debtor;

b) the event must either be unforeseeable or unavoidable; c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and d) the debtor must be free from any participation in, or aggravation of the injury. Thus, it has been held that when the negligence of a person concurs with an act of God in producing a loss, such person is not exempt from liability by showing that the immediate cause of the damage was the act of God. To be exempt from liability for loss because of an act of God, he must be free from any previous negligence or misconduct by which that loss or damage may have been occasioned.”

• In Sia v. CA, where the bank failed to notify its client of the flooding of its safety deposit box containing the said client’s valuable stamp collection resulting in the destruction of the said collection, and where the said bank already had two previous experiences of the flooding of the said safety deposit box located inside the bank that was guarded 24 hrs a day, the SC reversed the ruling of the CA in not holding the bank for damages on the basis of fortuitous event and held that the bank was negligent.

• In Dioquino v. Laureano, the SC considered the sudden and unexpected throwing of stone directed at the

car of the plaintiff causing damage to the said car a fortuitous event.

• In Ace-Agro Development Corp. v. CA, where the petitioner was engaged by the private respondent to clean its bottles and repair wooden shells inside its plant from Jan. 1, 1990 up to Dec. 31, 1990, and where, because of the burning on April 25, 1990 of the said plant, work of the petitioner was suspended for a certain period of time, thereby prompting the petitioner to seek an extension of the contract period to compensate for the suspension and refusing to work without such extension despite notification from the private respondent for the resumption of the contract on