LAW ON OBLIGATIONS AND CONTRACTS - Nature and Effect of Obligations; Chapter 2 (copy)

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)

Specific or determinate thing

- The above provision refers to an obligation specific or determinate thing. A thing is said to be specific or determinate particularly designated or physically segregated from others of the same class. Example: "The watch that I am wearing."

*Generic or indeterminate thing.

- A thing is generic or indeterminate when it refers only to a class or genus to which it pertains and cannot be pointed out with particularity. Example: 'A Bulova calendar watch,' 'A 2016 Toyota car.'

Specific thing vs. Generic thing

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.

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.

Duties of debtor in obligation to give a determinate thing.

They are:

1. Preserve or take care of the thing - In obligations to give (real obligation), 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.

• Diligence of a good father of a family. - The phrase has been equated with ordinary care or that diligence which an average person exercises over his own property.

• Another standard of care. - However, if the law or the stipulation of the parties provides for another standard of care, said law or stipulation must prevail.

• Factors to be considered - The diligence required necessarily depends upon the nature of the obligation and corresponds with the circumstances of the person, or the time, and of the place. 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.

• Reason for debtor’s obligation - The debtor must exercise diligence to ensure that the thing to be delivered would subsist in the same condition as it was when the obligation was contracted. Without the accessory duty (Duty that is connected to another obligation) 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.

  • Deliver the fruits of the thing - under Article 1166

  • Deliver the accessions and accessories - under Article 1166

  • Deliver the thing itself

  • Answer for damages in case of non-fulfillment or breach - under Article 1170

Duties of debtor in obligation to deliver a generic thing

They are:

1. To deliver a thing which is of the quality intended by the parties taking into consideration the purpose of the obligation and other circumstances; and

2. To be liable for damages in case of fraud, negligence, or delay, in the performance of his obligation, or contravention of the tenor thereof.

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.

Different kinds of fruits.

1. Natural fruits - spontaneous products of the soil, and the young and other products of animals.

2. Industrial fruits - those produced by lands of any kind through cultivation

3. Civil fruits - those derived by virtue of a juridical relation

Right of creditor to the fruits.

• The creditor is entitled to the fruits of the thing to be delivered from the time the obligation to make delivery 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 fruits 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 the meeting of the minds between the parties.

2. If the obligation is subject to a suspensive condition or period, it arises upon the fulfillment of the condition or arrival of the term. 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 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 the law applicable.

Meaning of personal right and real right

1. Personal right is 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.

2. Real right - is the right or interest of a person over a specific thing (like ownership, possession), without a definite passive subject against whom the right may be personally enforced.

Personal right and real right distinguished

1. In personal right, there is a definite active subject and a definite passive subject, while in a real right, there is only a definite active subject without any definite passive subject.

2. A personal right is, therefore, binding or enforceable only against a particular person, while a real right is directed against the whole world.

Ownership acquired by delivery

• Ownership and other real rights over property are transmitted in consequence of certain contracts by tradition or delivery.

• The meaning of the phrase “he shall acquire no real over it until the same has been delivered to him.” is that the creditor does not become the owner until the specific thing has been delivered to him. hence, there has been no delivery yet, the proper court action of the creditor is not only for recovery of possession and ownership.

ART. 1165. When what is to be delivered is a determinate thing, in addition to the right granted by 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 fortuitous event until he has affected the delivery.

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:

   1. Demand specific performance or fulfillment (if it is still possible) of the obligation with a right to indemnity for damages; or

   2. Demand recission or cancellation (in certain cases) of the obligation also with a right to recover damages; or

   3. Demand payment of damages only, where it is the only feasible remedy.

However, it must be clear that the law does not mean that the creditor can use force or violence upon the debtor. The creditor must bring the matter to court and the court will be the one to order the delivery.

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 the right to recover damages under Article 1170 in case of breach or violation of the obligation.

Where debtor delays or has promised delivery to separate creditors.

• Paragraph 3 gives two instances when a fortuitous event does not exempt the debtor from responsibility. It likewise refers to a determinate thing. An indeterminate thing cannot be the object to destruction by a fortuitous event because genus nunquam perit (genus never perishes).

Meaning of accessions and accessories.

1. Accessions are the fruits of a thing or additions to or improvements upon a thing (the principal)

2. Accessories are things joined to or included with the principal thing for the latter’s embellishment, better use, or completion.

While accessions are not necessary to the principal thing, the accessory and the principal thing must go together. Both can exist only in relation to the principal. Accession is also used in the sense of a right, i.e., right to the fruits and/or accessories of a thing.

Right of creditor to accessions and accessories

The general rule is that all accessions and accessories are considered included in the obligation to deliver a determinate thing although they may not have been mentioned. This rule is based on the principle of law that the accessory follows the principal. In order that they will be excluded, there must be a stipulation to that effect.

Unless otherwise stipulated, an obligation to deliver the accessions or accessories of a thing does not include the latter. Thus, a sale of the improvement upon a land is not sufficient to convey title or any right to the land. But the lease of a building or house naturally includes the lease of the lot on which is constructed for the possession of the lot is implied in the lease of the improvement.

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.

Situations contemplated in Article 1167.

Article 1167 refers to an obligation to do, to perform an act or render a service. It contemplates three situations:

1. The debtor fails to perform an obligation to do;

2. The debtor performs an obligation to do but contrary to the terms thereof; or

3. The debtor performs an obligation to do but in poor manner.

Remedies of creditor in positive personal obligation

1. If the debtor fails to comply with his obligation to do, the creditor has the right:

   1. To have the obligation performed by himself, or by another, unless personal considerations are involved, at the debtor’s expense; and

   2. To recover damages.

2. In case the obligation is done in contravention of the terms of the same or is poorly done, it may be ordered (by the court upon complaint) that it be undone if it is still possible to undo what was done.

Performance by a third person.

1. Compelling performance by debtor prohibited - A personal obligation to do, like a real obligation to deliver a generic thing, can be performed by a third person. While the debtor can be compelled to make the delivery of a specific thing, a specific performance cannot be ordered in a personal obligation to do because this may amount to involuntary servitude which as a rule, is prohibited under our Constitution.

2. Indemnification of creditor for damages. - Where, however, the personal qualifications of the debtor are the determining motive for the obligation contracted, the performance of the same by another would be impossible or would result to be so different that the obligation could not be considered performed. Hence, the only feasible remedy of the creditor is indemnification for damages. But where 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.

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.

Remedies of creditor in negative personal obligation

In an obligation not to do, the duty of the obligor is to abstain from an act. Here, there is no specific performance. The very obligation is fulfilled in not doing what is forbidden. Hence, is this kind of obligation, the debtor cannot afford to delay the obligation as stated in the contract.

As a rule, the remedy of the obligee is the undoing of the forbidden thing plus damages. However, if it is not possible to undo what was done, either physically or legally, or because of the rights acquired by third persons who acted in good faith, or for some other reason, his remedy is an action for damages caused by the debtor’s violation of his obligation.

ART. 1169 Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially 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 delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or

3. When the demand would be useless, as when the obligor has rendered it beyond his power to perform

In reciprocal obligations, neither party incurrs in delay if the other does not comply or is not incumbent upon him. From the moment one of the parties fulfills his obligations, delay by the other begins.

Meaning of delay.

1. Ordinary delay - is merely the failure to perform an obligation on time.

2. 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 or default.

They are:

1. Mora solvendi or delay on the part of the debtor to fulfill his obligation (to give or to do);

2. Mora accipiendi or the delay on the part of the creditor to accept the performance of the obligation; and

3. Compensatio morae or the delay of the obligors in reciprocal obligations (like in sale), the delay of the obligor cancels the delay of the obligee, and vice-versa. The net result is that there is no actionable default on the part of both parties.

No delay in negative personal obligation.

Requisites of delay or default by the debtor.

Three conditions for mora solvendi:

1. Failure of the debtor to perform his (positive) obligation on the date agreed upon;

2. Demand made by the creditor upon the debtor to comply with his obligation which demand may be either judicial or extrajudicial;

3. Failure of the debtor to comply with such demand.

Effects of delay.

1. Mora solvendi

   1. The debtor is guilty of breach or violation of the obligation;

   2. He is liable to the creditor for interest or damages. In the absence of extrajudicial demand, the interest shall commence from the filing of complaint;

   3. He is liable even for a fortuitous event when the obligation is to deliver a determinate thing. However, if the debtor can prove that the loss would have resulted just the same even if he had not been in default, the court may equitably mitigate or reduce the damages.

In an obligation to deliver a generic or indeterminate thing, the debtor is not relived from the liability for loss due to a fortuitous event.

2. Mora accipiendi

   1. The creditor is guilty of breach or violation of the obligation;

   2. He is liable for damages suffered, if any, by the debtor;

   3. He bears the risk of loss of the thing due

   4. Where the obligation is to pay money, the debtor is not liable for interest from the time of creditor’s delay; and

   5. The debtor may release himself from the obligation by the consignation or deposit in court of the thing or sum due.

3. Compensatio Morae - The delay of the obligor cancels the delay of the obligee and vice-versa. Legally speaking, there is no default or delay on the part of both parties.

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 th eparties is guilty of delay, the contract shall be deemed extinguished and each shall bear his own damages.

When demand is not necessary to put debtor in delay

1. When the obligation so provides

2. When the law so specifies

3. When time is of the essence

4. When demand would be useless

5. When there is performance by a party in reciprocal obligations

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.

Grounds for liability

The above provision gives the 4 grounds for liability which may entitle the injured party to damages.

1. Fraud (deceit or dolo) - It is deliberate or intentional evasion of the normal fulfillment of an obligation. As a ground for damages, it implies some kind of malice or dishonesty and it cannot cover cases of mere mistakes and errors of judgement made in good faith. It is synonymous to bad faith in that, it involves a design to mislead or deceive another

   1. Incidental fraud (dolo incidente) - commiteed in the performance of an obligation already existing because of a contract.

   2. Casual fraud (dolo causante) - fraud employed in the execution of a contract under article 1338 which vitiates consent.

2. Negligence (fault or culpa) - It is any voluntary act or omission, there being no bad faith or malice, which prevents the normal fulfillment of an obligation.

3. Delay (mora)

4. Contravention of the terms of the obligation - Violation of the terms and conditions stipulated in the obligations without justifiable excuse or reason.

Fraud and negligence distinguished

Fraud may be distinguished from negligence as follows:

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, while such waiver may in a certain sense be allowed in negligence.

3. Fraud must be clearly proved while negligence is presumed from the violation of a contractual obligation

4. Lastly, liability for fraud cannot be mitigated or reduced by the courts, while for negligence it can be reduced.

ART 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for future fraud is void.

Responsibility arising from fraud demandable.

This refers to incidental fraud which is employed in the fulfillment of an obligation

Responsibility arising from fraud can be demanded with respect to all kinds of obligation and unlike in the case of responsibility arising from negligence.

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 as being against the law and public policy.

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. Waiver is valid as it is considered as an act of generosity and magnanimity on the part of the party who is the victim of the fraud. Aggrieved has the right to indemnity.

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.

Responsibility arising from negligence demandable.

1. Discretion of court to fix amount damages - The courts are given wide discretion in fixing the measure of damages. The reason is because negligence is a question which must necessarily depend upon the circumstances of each particular case.

2. Damages where both parties mutually negligent - When both parties to a contract are mutually negligent in the performance of their respective obligations, the fault of one may cancel or neutralize the negligence of the other. Obligations are under the equitable principle that no one shall enrich himself at the expense of another.

Validity of waiver of action arising from negligence

1. An action for future negligence may be renounced except where the nature of obligation requires the exercise of extraordinary diligence as in the case of common carriers.

2. Where negligence is gross or shows bad faith, it is considered equivalent to fraud.

Kind of negligence according to source of obligation

They are:

1. Contractual negligence (culpa contractual) - negligence in contracts resulting in their breach.

2. Civil negligence (culpa aquiliana) - negligence which by itself is the source of an obligation between the parties not so related by an pre-existing contract.

3. Criminal negligence (culpa criminal) - negligence resulting in the commission of crime.

In negligence cases, the aggrieved party may choose between a criminal action or a civil action.

Effect of negligence on the part of the injured party

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 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 person, of the time and of the place.

Meaning of fault or negligence

1. According to our supreme court, “Negligence is the failure to observe for the protection of the interest of another person, that degree of care, precaution, and vigilance which the circumstance justly demand, whereby such other person suffer injury.”

Factors to be considered

1. Nature of obligation

2. Circumstances of the person

3. Circumstances of time

4. Circumstances of the place

Measure of liability for damages.

Damages signify the money compensation awarded to a party for loss or injury resulting from breach of contract or obligation by the other.

Article 2201 of the Civil Code states:

“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 damages which may be reasonably attributed to the non-performance of the obligation.”

Kinds of diligence required

Diligence is the attention and care required of a person in a given situation.

The following kinds of diligence are required:

1. agreed upon by the parties orally or in wriitng

2. in the absence of stipulation, that required by law in the particular case; and

3. if both the contract and law are silent, then the diligence expected of a good father of a family.

ART. 1174. Except in cases expressly specified 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)

Meaning of a fortuitous event

• Any event which cannot be foreseen or which, though foreseen, is inevitable.

Fortuitous event distinguished from force majeure.

1. Acts of man - Strictly speaking, fortuitous event is an event independent of the will of the obligor but not of other human wills.

2. Acts of God - They refer to what is called majeure or those events which are totally independent of the will of every human being.

Kinds of fortuitous events

In speaking of the contract of lease, our civil Code distinguishes between two (2) kinds of fortuitous events:

1. Ordinary fortuitous events or those events which are common and which the contradicting parties could reasonably foresee

2. Extraordinary fortuitous events - events which are uncommon and which the contracting parties could not have reasonably foreseen.

Requisites:

1. Event must be independent of the human will

2. Event could not be foreseen, or if foreseen, inevitable.

3. Event must be of such a character as to render it impossible for the debtor to comply with the obligation in normal manner

4. The debtor must be free from any participation in the aggravation of the injury to the creditor.

Rules as to liability in case of fortuitous event.

1. When expressly specified by law

   1. The debtor is guilty of fraud, negligence, or delay, or contravention of the tenor of the obligation.

   2. Debtor promised to deliver the same thing to two or more persons who do not have the same interest.

   3. Obligation to deliver a specific thing arises from a crime.

   4. Thing to be delivered is generic

2. When declared by stipulation - The basis for the stipulation rests upon the freedom of contract. Such a stipulation is usually intended to better protect the interest of the creditor and procure greater diligence on the part of the debtor.

3. When the nature of the obligation requires the assumption of risk

ART 1175 Usurious transaction shall be governed by special laws.

Meaning of simple loan or mutuum

• 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.

Meaning of usury.

• 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.

Requisites for recovery of interest:

1. The payment of interest must be expressly stipulated

2. The agreement must be in writing

3. The interest must be lawful

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.

Meaning of Presumption

• The interference of a fact not actually known arising from its usual connection with another which is known or proved.

Two kinds of presumption

They are:

1. Conclusive Presumption - one which cannot be contradicted, like the presumption that everyone is conclusively presumed to know the law

2. Disputable Presumption - one which can be contradicted or rebutted by presenting proof to the contrary.

When presumptions in Article 1176 do not apply.

1. With reservation as the interest. - The presumption do not arise where there is reservation that no payment has been made as to interest on prior installments as the case may be.

2. Receipt without indication of particular installment paid

3. Receipt for a part of the principal

4. Payment of taxes

5. Non-payment proven

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

In case the debtor does not comply with his obligation, the creditor may avail himself of the following remedies to satisfy his claim:

1. Exact fulfillment with the right to damages

2. Pursue the leviable property of the debtor

3. After having pursuesd the property in possession of the debtor, exercise all the rights and bring all the actions of the debtor except hose inherent in or personal to the person of the latter

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.

The debtor is liable with all his property, present and future, for the fulfillment of his obligations, subject to the exemptions provided by law.

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 or assignable. The exception to this rule are the following:

1. Prohibited by law - when prohibited by law like the rights in partnership, agency, and commomdatum which are purely personal in character.

   1. 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 profit among themselves.

   2. By the contract of agency, a person binds himself to render service or do something in representation of another with the consent or authority of the latter

   3. 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.

2. Prohibited by stipulation of the parties - When prohibited by stipulation of the parties.