NOTES- Obligation and Contracts
Accessions – produced by a thing or
1. Determinate things—that which is
particularly designated or physically
segregated from all others of the same
class .
2. Indeterminate thing—example is 10,000
pesos.
It is important to know whether a thing is
determinate or generic because as a rule
the loss of a determinate thing through a
fortuitous event extinguishes the
obligation.
Obligation when giving determinate thing:
1. Diligence of a good father of a family –
ordinary care that an average person
exercises in taking care of his property.
2. Deliver the thing – actual or constructive.
3. Deliver the fruits ( 3 kinds) :
a. Natural -
products of the soil and animals
b. Industrial - produced by land through
intervention of labor
c. Civil -- that is produced thru juridical
relation such as the rent of the
building, lease price, life annuities.
The creditor has the right to the fruits
of the thing from the time the obligation
to deliver it arises (personal right). If
the thing has been delivered to him, he
shall acquire REAL right over it
Personal right – right to demand the
delivery of the things and its fruits.
Real right – ownership or possession.
Enforceable against the whole world upon
the receipt of the object.
4. Deliver the accessions and accessories
even if they are not mentioned.
a.
attached thereto.
b. Accessory–that is joined or included
with the principal thing for
the latter’s better use. Essential part
of the thing.
REMEDIES of the creditor (if the debtor fails
to make delivery):
1. Compel the debtor to make the delivery
(determinate thing)/obligation be
complied with in good faith at the
expense of the debtor (indeterminate
thing, obligation to do).
2. Demand damages
In obligation to do, the creditor cannot compel
the debtor because it will amount to involuntary
servitude.
Grounds for Liability to pay damages
1. Fraud
2. Negligence
3. Delay
4. Contravention of the tenor of the
obligation
Damage – harm done and the sum of money that
may be recovered.
Injury – wrongful unlawful act.
Kinds of damages :
a. Actual or compensatory–value of the loss
suffered and profits not realized. Proof
is required.
b. Moral ( court discretion)
c. Nominal (court discretion)
d. Liquidated damages – agreed by
the parties to be paid in case of breach.
e. Exemplary damage – correction for public
good ( court discretion)
Fraud –deliberate or intentional evasion by
the debtor of the normal compliance of his
obligation.
Kinds of fraud:
1. Fraud in obtaining consent (affects the
validity of the contract):
a. Causal fraud –Consent would not have
been given
-Voidable
b. Incidental fraud– Consent would have
still been given but the person giving it
would have agreed on different terms.
-Valid
-Liable for damages
2. Fraud in the performance of obligation
-Does not affect the
validity of the contract
because it happens after
perfect of the contract
-Party employing it shall
be liable to damages
Waiver of an action for future fraud is
void because it will encourage commission
of fraud.Thus, the debtor will still be
liable for damages if he commits fraud in
the performance of hisobligation despite
the waiver.
Waiver of an action for past fraud is ok
because it happened already. Such waiver
is an act of liberality on the part of the
creditor.
Negligence –omission of diligence which is
required by the nature of the obligation.
The test of negligence is whether the defendant
used that reasonable care and caution
which an ordinary person wouldhave used in the
same situation.
Kinds of negligence (culpa):
1. Culpa contractual – example is breach of
contract of carriage as when the
a passenger in the bus is hurt during trip.
Master servant rule applies. The
negligence of the employee is the
negligence of the master.
2. Culpa aquiliana – quasi-delict. Master-
servant rule does not apply.
3. Culpa criminal – negligence that results to
crime or DELICT.
Delay or default or more is the non-fulfillment
of an obligation on time.
a. Mora solvendi - delay on the part of the
debtor.
b. Mora accipiendi – creditor
c. Compensatio morae – delay in reciprocal
obligation. Both parties are in delay.
Hence, as if there is nodelay.
General rule: No Demand, No Delay
Exception to the rule:
a. When the law so provides. Example. In
the payment of taxes.
b. When the contract expressly so declares.
Stipulation
c. Time is the essence of the contract.
d. When demand would be useless. If the
thing he is obliged to deliver has
been destroyed through his fault orhe
has delivered it to another person.
e. In reciprocal obligation – from the
moment one party fulfills his obligation
and the other party cannotcomply at the
same time.
Fortuitous event– one that is inevitable.
Example, act of GOD and act of MAN.
General rule: No person shall be liable for
fortuitous event. His obligation will be
extinguished.
Exceptions:
1. The debtor is in delay or he has promised
to deliver it to two or more person who
do not have the same interest.
2. When there is stipulation
3. When the nature of the obligation
requires the assumption of risk. Example,
the liability of the insurer.
 Receipt of principal payment
without reservation as to interest,
shall give rise to the presumption
that the interest has been paid or
covered.
Receipt of later installment
without reservation as to prior
installments shall give rise to the
presumption the prior installments
have been paid.
These presumptions however are
disputable. Meaning, evidence may
be introduced to the contrary.
Remedies of the creditor to enforce payment of
his claims:
1. By Attachment – the creditor may ask
the court to set aside a property
belonging to the debtor and ordered it to
be sold and the proceeds applied to the
payment of the obligation
2. Accion subrogation. The creditor will take
the rights of the debtor.
3. Accion pauliana. Cancel the acts the
debtor may have done to defraud his
creditors
General rule. All rights are transmissible.
Exceptions:
1. Law prohibits the transmission of the
right. Rights of the general partners are
not transmitted to the heirs upon his
death.
2. Stipulation
3. The right by nature is not transmissible—
when the right is strictly personal. An
obligation with a period is one
where there is a day certain when the
obligation will arise or cease.
Period is a space of time which determines the
effectivity or extinguishment of an obligation.
Day certain is that which must necessarily come.
Example: death.
Condition:
1. may or may not happen
2. refers to future or to a past event
unknown to the parties
 while period must necessarily come
(day certain) and only refers to
future event.
 Potestative debtor, period ---court
fixes the duration
 Potestative debtor, condition-
suspensive – VOID
Designating a period shall be presumed to
have been established for the benefit of
the creditor and debtor.
 At the benefit of the debtor, he cannot
be compelled to pay before the maturity
date. He can pay anytime he wishes.
 At the benefit of the creditor means the
creditor can at any time demand or
accept payment when he wishes.
The debtor loses his right to make use of the
period if it is for his benefit under the
ff circumstances:
1. He becomes insolvent unless he gives a
guarantee or security
2. He fails to furnish the guarantee
or security he promised
3. The guaranty or security is impaired
or lost
4. Violates any covenant
5. He attempts to abscond
Alternative obligation is one where several
prestations are due but complete performance
of one of them is sufficient.
The right of choice belongs to the debtor unless
it has been expressly given to the creditor.
When the debtor or the creditor communicated
his choice, the obligation ceases to be
alternative and becomes simple obligation.
 If all prestations are lost thru debtors
fault(debtor has the right to choose), the
 debtor shall pay the value of the last
thing that was lost plus damages.
 If the other things
were lost due to fortuitous
and the last one was lost
thru the debtor’s fault, the
debtor shall just pay
damages
 if it was lost thru
fortuitous event, obligation
is extinguished.
 If things were lost thru debtors fault
(creditor has the right to choose), the
creditor may claim any of those
subsisting or the price of those which
were lost thru debtors fault plus
damages.
 If all things were lost thru
debtors fault, creditor may
claim the price of any of
them plus damages.
Facultative obligation. Only one prestation is
due but the debtor may render another in
substitution. If the principal is impossible or
void, the debtor is not required to give the
substitute.
IMPORTANT NOTE: A solidary creditor who has
caused the extinguishment of an obligation by
remission, novation, compensation or confusion,
or who has collected the debt shall be liable to
the others for the shares corresponding to
them. A solidary creditor may not do anything
prejudicial to his co-solidary creditors.
In case the debt has been totally paid by any of
the solidary debtors before the remission of a
proportionate share in an obligation
corresponding to the other solidary debtor, the
latter is still responsible to the paying co-
debtor.
X, Y and Z are solidary creditors. X makes a
demand against A. A must pay to X. if A pays to
other creditor, his payment is valid only with
respect to other creditor’s share. A can still be
held liable if the other creditors did not receive
their share from the receiving co-creditor.
So long as the debt has not been collected, a
creditor may proceed against any of the solidary
debtors or some or all of them simultaneously.*
Interest from the date of payment accrues to
the benefit of the paying solidary debtor.
If an insolvent debtor cannot reimburse his
share to the paying debtor, such share shall be
borne by all his co-debtors, in proportion to the
debt of each.
Payment by a solidary debtor after the
obligation has prescribed does not entitle him to
reimbursement.
The solidary debtor making the payment can
recover what he paid from the guilty debtor (
price of the thing, damages and interest)
A solidary creditor cannot assign his right to a
3rd person without the consent of the other
solidary creditors (bound by mutual trust and
confidence).
Joint indivisible obligation. Debtors or creditors
are jointly bound but the prestation or object is
indivisible :
1. Creditors must act collectively: all of them
must make the demand unless one is
authorized to act for the others.
2. The demand must be made against all the
debtors since compliance is possible only if
debtors act together.
3. A renunciation made by a joint creditor
extinguishes only his own share. In such
case, the obligation is converted into a
monetary obligation to pay the value of the
thing
4. If one of the debtors does not comply with
his undertaking, he has to pay damages.
5. If one of the debtors is insolvent, the
others shall not be liable for his share.
Indivisibility of an obligation refers to subject
matter or object not capable of partial
performance.
Examples:
1. Obligation to give definite things
2. Those personal (to sing one song in a
program)
Examples of Divisible obligation (capable of
partial performance):
1. Execution of a certain number of days of
work.
2. Accomplishment of work by metrical units
3. Provision of law ( full payment of tax)
4. By stipulation of the parties
Penal clause attached to an obligation is an
accessory undertaking on the part of the debtor
which provides that in case of non-compliance,
debtor assumes a greater liability. This is to
insure performance.
Proof of actual damages is not necessary in
order that penalty may be demanded. It is
sufficient that there is breach of contract.
General rule: Penalty takes place of the damages
and interest in case of non-compliance
Exceptions:
1. When there is stipulation to that effect
2. The debtor refuses to pay the penalty
3. Debtor is guilty of fraud in the
performance of an obligation
Creditor cannot demand
fulfillment of the obligation and
the payment of penalty at the
same time unless the right has
been granted to him.
Payment must be made in legal
tender in the Philippines. However,
parties may stipulate currency
other than Philippine legal tender.
General rule: Payment or performance must be
complete
Exceptions:
1. Obligation substantially performed
2. Obligee accepts the performance without
expressing any protest. (deemed
fulfilled).
Debtor must possess the following
for the payment to be valid:
1. He has FREE DISPOSAL OF
THE THING DUE. There
should be no encumbrances or
liens or claims by third parties.
2. CAPACITY TO ALIENATE
THE THING. The guardian of
the incapacitated or the
incapacitated person himself
when he regains or attains his
capacity may annul the
payment.
Payment made by the debtor
after the court has ordered
him to retain debt is not valid.
He can be required to pay again
the to the creditor who asked
for the retention of debt.
Creditor is not bound to
accept payment or
performance by a third person
except :
1. By stipulation
2. The third person is a
guarantor or co-debtor
If a third party pays with the consent of the
debtor, the third party is subrogated in the
rights of the original creditor. He is now the new
creditor.
If he pays without the knowledge and against
the will of the debtor, he is not subrogated. He
can recover the payment to the extent of the
amount that was beneficial to the debtor.
If a third party doesn’t want to be reimbursed,
it shall be deemed as a DONATION, which
requires the consent of the debtor. If the
debtor does not consent, it is still valid to the
creditor who has accepted the payment. Third
party is not subrogated.
Payment to an incapacitated creditor is not valid
except:
1. It has kept the thing delivered. Valid to
the extent of the amount kept.
2. To the amount beneficial to him
Payment to an unauthorized third person is not
valid except:
1. Third person acquires the creditor’s
rights
2. Creditor ratifies the payment
3. By the creditors conduct the debtor
believes he can pay to the 3rd person.
4. Payment in good faith to a 3rd person
in possession of the credit
If there was no stipulation as to the place of
payment, it would be at wherever the thing
might be at the time the obligation was
constituted
if the obligation is to give a determinate thing.
If the obligation is to give a generic thing or an
obligation to do, then at the domicile of the
debtor
Dation in payment is where the ownership of
property is transferred to the creditor to pay a
debt in money. It partakes the nature of a sale
with the creditor in effect buying the property
of the debtor.
Dation is actually objective novation (changing
the object), a thing is substituted in place of
paying the obligation in money.
Debtor/creditor cannot apply payment to the
debt not yet due unless the period is for his
benefit or that he is allowed by stipulation
Only apply payment to the debt of the same
kind.
Cession requirements:
1. 2 or more creditors
2. The debtor is insolvent
Effects:
All properties are assigned to the creditors,
except those exempt from execution. Title is
not passed, however, creditors are authorized to
sell the properties and have the proceeds
applied to their claims.
Requisites of valid tender of payment and
consignation:
1. There is valid payment. (it must be
the thing contemplated, in legal
tender and complete)
2. Creditor refuses to accept the
payment without just cause
3. Notify the persons interested in the
fulfillment of the obligation
(guarantors, sureties, co-debtors)
4. The sum is deposited with the judicial
authorities
 5. The persons interested is again
notified of the consignation.
The debtor may withdraw the sum or thing
consigned before the creditor accepts the
consignation or before the judge has declared
that the consignation has been properly made.
The debtor may withdraw the sum even after
the creditor accepted the consignation only with
the consent of the creditor. The effects would
be:
1. The guarantors are released unless they
consented
2. The obligation will become joint
3. Creditor can no longer proceed against
the guarantor if later on the debtor
cannot pay.
Consignation without tender of payment is still
valid if:
1. The debtor cannot see the creditor at
the place of payment.
2. Creditor is incapacitated to receive
payment at the time it is due.
3. He refuses to give receipt
4. 2 or more persons claim the same right to
collect
5. Title of the obligation has been lost
Generic thing does not perish (nunquam genus
perit). Obligation remains in force.
Creditor has the right to proceed against the
3rd person who has caused the lost of the
prestation.
Condonation or remission – forgiveness of
indebtedness. To extinguish the obligation,
consent of the debtor is required.
Formalities of donation must be observed in
express condonation (oral or in writing):
1. IF the remission involves an immovable
property , the remission and the acceptance
must be in public instrument
2. If the remission involves personal or
movable property, the remission and
acceptance must be in writing if the value of
the property exceeds 5,000.
3. If the value is 5000 or less, remission and
acceptance may be in any form. The
remission however if made orally, requires
the simultaneous delivery of the thing or the
document representing the right remitted
The private document is presumed to have been
delivered voluntarily by the creditor to the
debtor if it is found in the possession of the
debtor
Legal compensation can take place when:
1. Debtors and creditors of each other are
bound principally
2. Both consist in money or things that can
be interchanged (same kind and quality)
3. Both debts are due
4. There should be no order of retention
Damages claimed can be set-off against
the obligation to pay.
If it is a contract of deposit (different
from bank deposit)/ commodatum, the
period is for the benefit of the
depositor/lender meaning he is the one to
oppose or claim compensation.
Reservation of right is needed for
compensation to take place against the
credit assignee (i.e, if the debtor
 consented to the assignee, he cannot set
up against the assignee the compensation
that would pertain to him against the
assignor unless he reserved his right to
the compensation). If the debtor was
notified but did not consent, he can claim
compensation against the assignee for
debts due before the assignment but not
of subsequent ones.
If the debtor has no knowledge of the
assignment, he can set up compensation
for debts due as of the date he learns of
the assignment.
Compensation in solidary obligation is possible.
Novation means modification or extinguishment
of an obligation, either by:
1. Changing the object or principal
obligation
2. Substitution of the person of the
debtor/creditor
a. Expromision (with creditor’s consent
always). 3rd person initiates the
substitution. If the old debtor has no
knowledge or he did not consent, the
new debtor can only recover insofar
as the payment has been beneficial to
the old debtor (i.e, he is not entitled
to subrogation).
The old debtor is released from
liability in any case, by the mere fact
the creditor consented.
b. Delegacion (consent of all parties is
required) –Debtor initiates the
substitution. The new debtor can fully
recover from the old debtor with
subrogation.
Creditor has the right to proceed against
the original debtor if the former acted in
bad faith, meaning he knows that the new
debtor is insolvent when he initiates the
substitution or that, the insolvency is of
public knowledge.
Effect: extinguishment of old obligation
giving rise to a new obligation
The original and new obligation must be valid for
novation to be valid.
Novation is still valid even if there is a defect in
the original obligation (voidable). Here, a
novation cures whatever defects present in the
original obligation.
If the original obligation is subject to a
condition, the new obligation shall be subject to
the same condition.
The original creditor shall be preferred over
another creditor subrogated for the partial
payment of the credit.
Novation executed by any of the solidary
creditor shall render him liable to the others for
the share in the obligation corresponding to
them.
A debtor who is adjudged to be insolvent and
subsequently discharged by the court shall be
released from the obligation of all debts.
In order to be discharged, one has to comply
with the law requirements in the: (1) surrender
of property (2) rendition of an account of assets
and liabilities (3) not guilty of fraud.
No discharge shall be granted to any
corporation.