TITLE I, CHAPTER 2 – Nature & Effect of Obligations (Articles 1163-1178)

CHAPTER 2
NATURE AND EFFECT OF OBLIGATIONS
(Arts. 1163-1178)

STUDY GUIDE :

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

¤ A. 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)

 The delivery must be personal (made by the debtor himself), exclusive
(made to the creditor only) and timely (without delay).

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5. Answer for damages in case of breach. (Art. 1170)

 Remedies of the creditor in case of the debtor’s failure to perform his
obligation :
(a) specific performance (if compliance is still possible) + damages; OR
(b) rescission + damages; OR
(c) damages only (where it is the ONLY possible remedy).

¤ B. 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 the 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).

¤ C. 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

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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 and/or poor execution → proper execution of the obligation

at the 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.

¤ D. NEGATIVE PERSONAL OBLIGATION ¤

1. The forbidden act shall be undone at the debtor’s expense. (Art. 1168)
2. REMEMBER : Non-fulfillment may take place BUT specific performance is
NOT a remedy. This is because the debtor fulfils by not doing what has
been forbidden him. Hence, there can be NO delay in a negative personal
obligation.

¤ E. DELAY ¤

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

2. When 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)]

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(e) When there is performance by one of the parties in reciprocal

obligations. (Art. 1169, par. 3)

3. 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

4. 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.

5. 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).

6. “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 installment). Default in the payment of
one installment does not mean default in the whole amount. If there is an
acceleration clause, and there is default in the payment of one instalment,
what will happen merely is that the whole amount under the obligation
becomes due. However, demand is still necessary to put the debtor in
default with respect to the whole amount.

7. Effects of Compensatio Morae : (Art. 1169, par. 3)

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(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.

¤ F. 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

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3. DELAY (already discussed above)

4. BREACH – contravention of the tenor of the contract

¤ G. 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 (i.e., 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.

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(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)

¤ H. ARTICLE 1175 ¤

1. Usury is now legally non-existent. The parties are now free to

stipulate any amount of interest.

2. Article 1956, however, of the Civil Code states: “No interest shall be
due unless it has been expressly stipulated in writing.”

¤ I. ARTICLE 1176 ¤

1. Disputable presumptions on payments of interest and prior

installments.
2. When the presumptions do not apply.

¤ J. GENERAL REMEDIES OF THE 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
(accion subrogatoria)

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4. rescind or impugn fraudulent acts or contracts of the debtor

(accion pauliana)
NOTE: No. 3 & No. 4 are subsidiary remedies to No. 2

¤ K. 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

¤ L. 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.

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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, 2016, Lito and Liza entered into a lease contract covering the
said lot. The term of the lease was 2 years, or until January 14, 2018, and
the monthly rental agreed upon by the parties was P100,000.00. On June
15, 2016, Liza sold her Makati lot to Rene and promised to deliver the lot to
Rene on November 15, 2016. On November 15, 2016, however, Liza failed
to deliver the lot and instead made delivery only on December 15, 2016. As
the new owner, Rene now claims from Liza Lito’s rental payments starting
June 15, 2016. Is Rene’s demand well-founded?
à 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 July 15, 2016, his BMW with plate No. HRL-512 as well as a 2016 24-
inch Sony Wega television set. Unfortunately, on July 10, 2016, 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
completely extinguished?
à 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, 2016, 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

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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. Under the factual
circumstances obtaining in this case, what are the remedies of Mr. Oni?
à Clue: Creditor’s right in a positive personal obligation (Art. 1167)

4. Budoy and Inday are the owners of two adjoining pieces of land in
Allen, Samar. On April 10, 2016, Budoy and Inday entered into an
agreement. In the agreement, Inday obliged herself not to construct any
structure, whether temporary or permanent, on her 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 P200,000.00. On March 20,
2017, however, Inday constructed a semi- structure to accommodate five live-
in employees from her carinderia. What is the liability of Inday under the
facts?
à Clue: Creditor’s right in a negative personal obligation (Art. 1168)

5. On July 2, 2016, 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 July 4,
2016. On July 8, 2016, Moo demanded from Hiss delivery of the DVD’s.
Hiss, however, informed Moo that on the night of July 6, 2016 a burglar
entered their house and robbed them of personal effects amounting to
P300,000.00 which were never recovered. Hiss’ original set of Harry Potter
DVD’s were among the things stolen.

(a) What is the liability of Hiss?

(b) If, on July 4, 2016, 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?
à Clue: Correlate Art. 1165, par. 3 with Art. 1169, par. 1.

6. John and Bea were engaged to be married on July 6, 2016. 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

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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. Is Goldi-
Cooks liable for damages under the facts of this case?
à Clue: Art. 1169, par. 2.

7. On December 31, 2014, Brad advanced P100,000.00 from Angie

and promised to pay the amount on December 31, 2015 at 10% per annum
interest. In case of default, Brad also obliged himself to pay to Angie
additional interest on the principal amount (as penalty for the delay)
computed at 5% per month. On December 31, 2015, Brad failed to pay Angie
his loan. For the next six months, Angie did not hear anything from Brad. On
June 30, 2016, Angie filed a case in court to recover the amount of
P140,000.00, computed as follows:

Principal amount  P100,000.00

10% agreed annual interest  P 10,000.00
5% agreed penalty interest for delay  P 30,000.00
Total liability as of 30 June 2015  P140,000.00

Under the factual circumstances obtaining, does the computation of Angie on

Brad’s liability for interest on account of default have legal basis?
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, 2014, Dean’s best friend
Techie bought a 2008 Nissan Patrol car from Dean for P1M. Dean agreed to
extend payment of the car to December 15, 2014. In the early part of 2015,
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 May 31, 2016. As of July 10, 2016, 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

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business associate that, on June 18, 2016, Dean sold his 800 square-meter
lot Manila for P5M to Gaby, who was embarking on a renovation project on
the subject property. What, under the factual circumstances of this case, are
the successive rights of James against Dean? à Clue: Art. 1177.

9. On July 31, 2015, Procopio sold to Cordapio his Nikon D700 camera
for P100,000.00. Upon delivery of the camera on the same day, Cordapio
paid P20,000.00 as down payment. Procopio agreed to accept payment on
the balance in instalments, as follows :

September 30, 2015  P10,000.00

November 30, 2015  P15,000.00
January 31, 2016  P15,000.00
March 31, 2016  P20,000.00
May 30, 2016  P20,000.00
Balance Payable  P80,000.00

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, and will be charged a 5%
monthly interest until completely paid. On January 31, 2016, Cordapio did
not remit the instalment thus due to Procopio. Until the end of March, 2016,
Procopio did not hear from Cordapio. On April 15, 2016, Procopio filed an
action for collection against Cordapio demanding payment of the entire
balance due from January 31, 2016 in the amount of P55,000.00. From what
time should the 5% interest for damages start to be computed on the total
amount due?
à 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.

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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. Will you be liable
for damages to the injured man?
à Clue: Art. 2179. (See Note 2[e], Grounds for Damages)
LIST OF CASES FOR STUDY

1. Jimmy Co. vs. CA, G.R. No. 124922, 22 June 1998.

(Articles: 1165; 1174 in relation to 1262; 1265)

2. Equatorial Realty Development, Inc. vs. Mayfair Theatre, Inc.,

G.R. No. 133879, 21 November 2001. (Article 1169)

3. DBP vs. Licuanan, G.R. No. 150097, 26 February 2007. (Article 1169)

4. Comsavings Bank vs. Sps. Capistrano,

G.R. No. 170942, 28 August 2013.
(Article 1170 in relation to Article 1173;
when gross negligence amounts to fraud)

5. Spouses Batal vs. Spouses San Pedro & Tominaga,

G.R. No. 164601, 27 September 2006.
(Article 1173; negligence –
culpa aquiliana and culpa contractual distinguished)

6. Wildvalley Shipping Co., Ltd. vs. CA, G.R. No. 119602, 6 October 2000.
(Article 1173; negligence; ordinary diligence)

7. Crisostomo vs. CA, G.R. No. 138334, 25 August 2003.

(Article 1173; ordinary vs. extraordinary diligence; allegation of negligence
must be positively proven as a fact)

*** END ***

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“Opportunities are usually disguised as hard work, so most people don’t recognize them.”
Ann Landers

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