Obligations and Contracts

2016 Lecture by Atty. Elmer Rabuya (Arellano)

PART 2: Kinds of Obligation

I. Civil, Natural and Moral Obligation
A. Civil Obligation - is that obligation which gives a right of action to demand its performance. You can go to court to demand the
performance of the obligation.
B. Natural Obligation
1. it does not give a right of action
2. one cannot go to court to demand its performance
3. it is not legally compellable
4. the performance resides in the conscience of the debtor
5. Nonetheless it is still recognized obligation under the law
C. Moral Obligation
1. The concept of Purely Moral Obligation is not recognized in our laws as a source of obligation.
2. WHY? Because a Purely Moral Obligation does not produce any legal consequence
3. Distinction of Natural and Moral Obligation:
NATURAL MORAL
1. Existence of Juridical Tie No Juridical tie
- Though one cannot go to court
- Circumstances affecting Juridical Tie (e.g. prescription)
2. Produces Legal Consequences It does not
3. Found in NCC Not found in NCC.
- If an obligation is seen in NCC and recognized as natural
obligation, then it is a natural obligation.
- Art. 1424-30
- Art. 1960 and 1956
- Other natural obligations are scattered in NCC.
D. Natural Obligation:
1. Legal consequences of a natural obligation: (2)
a. It can be ratified or converted into a civil obligation.
b. If natural obligation has been voluntarily fulfilled by the Debtor, the Creditor is authorized to retain the payment.
- If the Debtor is bothered by his conscience and chooses to voluntarily perform the obligation, although it is a natural one, the Debtor can
no longer change his mind and recover payment (wala ng solian).
- In order for the Creditor to retain the payment, the performance must have been done by the Debtor voluntarily.
2. “Voluntary Fulfillment of a Natural Obligation”
a. Requisites: (2)
(1) Freedom from coercion
(2) Freedom from error or mistake
b. Example: Art. 1956 and 1960
(1) Art. 1956 requires the stipulation of interest to be in writing.
Art. 1956 No interest shall be due unless it has been expressly stipulated in writing.

Suppose agreement is made verbally as to the interest?

- Agreement is still valid
- As to the interest, it is not valid (simply, the interest is not due)
(2) Art. 1960 if borrower pays interest kahit walang stipulation over interest, pwdeng Nat. Ob. Or SI
Art. 1960 If the borrower pays interest when there has been no stipulation therefor, the provisions of this
Code concerning solutio indebiti, or natural obligations, shall be applied, as the case may be.

Suppose agreement is made verbally as to the interest, and the Debtor still paid the interest?
- it is either a case of a Natural Obligation (if intentional payment) or Solutio Indebiti (if payment by mistake).
Voluntary Fulfillment of Natural Obligation Quasi Contract of Solution Indebiti
Payment of interest is made intentionally Payment of interest is made by mistake or error
3. Examples of a natural obligation: Art. 1424-1430
TITLE III: NATURAL OBLIGATIONS
Article 1423. Obligations are civil or natural. Civil obligations give a right of action to compel their performance. Natural obligations, not being based on
positive law but on equity and natural law, do not grant a right of action to enforce their performance, but after voluntary fulfillment by the obligor, they
authorize the retention of what has been delivered or rendered by reason thereof. Some natural obligations are set forth in the following articles.
Article 1424. When a right to sue upon a civil obligation has lapsed by extinctive prescription, the obligor who voluntarily performs the contract cannot
recover what he has delivered or the value of the service he has rendered.
Article 1425. When without the knowledge or against the will of the debtor, a third person pays a debt which the obligor is not legally bound to pay because
the action thereon has prescribed, but the debtor later voluntarily reimburses the third person, the obligor cannot recover what he has paid.
Article 1426. When a minor between eighteen and twenty-one years of age who has entered into a contract without the consent of the parent or guardian,
after the annulment of the contract voluntarily returns the whole thing or price received, notwithstanding the fact that he has not been benefited thereby,
there is no right to demand the thing or price thus returned.
Article 1427. When a minor between eighteen and twenty-one years of age, who has entered into a contract without the consent of the parent or guardian,
voluntarily pays a sum of money or delivers a fungible thing in fulfillment of the obligation, there shall be no right to recover the same from the obligee who
has spent or consumed it in good faith. (1160A)

Article 1428. When, after an action to enforce a civil obligation has failed the defendant voluntarily performs the obligation, he cannot demand the return of
what he has delivered or the payment of the value of the service he has rendered.
Article 1429. When a testate or intestate heir voluntarily pays a debt of the decedent exceeding the value of the property which he received by will or by the
law of intestacy from the estate of the deceased, the payment is valid and cannot be rescinded by the payer.
Article 1430. When a will is declared void because it has not been executed in accordance with the formalities required by law, but one of the intestate heirs,
after the settlement of the debts of the deceased, pays a legacy incompliance with a clause in the defective will, the payment is effective and irrevocable.
 4. Distinction of Civil and Natural Obligation
CIVIL NATURAL
With right of action Without right of action
- Cr may no longer go to court and demand
- If Dr pays it is a case of Voluntary Fulfillment of Natural
Obligation
Original obligation ~nico Converted obligation
- extinguished civil obligation by way of, say, extinctive
prescription
- Note: what is extinguished is only the civil obligation and not
the natural obligation.

II. Real and Personal Obligation 15:40

REAL PERSONAL
As to the kind of prestation Giving Doing

A. Real Obligation – “to give”

1. The prestation is “giving”
a. The Principal Obligation is to deliver that which is due
b. The Accessory Obligation is that which attached to the principal obligation
2. Two kinds of prestation under Real Obligation (or what may be given):
a. Determinate Thing – Determinate Obligation or Specific Obligation
- an Obligation to give or deliver a determinate or specific thing
b. Indeterminate Thing - Indeterminate Obligation or General Obligation
- an Obligation to give or deliver an indeterminate or generic thing
3. Legal Implications: (3)
a. If the obligation is determinate or specific, there are 3 accessory obligations: (3)
(1) Art. 1163
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.

GR: Degree of care is Proper Diligence of a Good Father of a Family (PDGFF)

XPN: The law or the stipulation of parties provide another degree of care

STANDARD OF CARE
I. Bonus Pater Familias – “the diligence of a good father of a family”
A. Def. it is what would have been the action of a very prudent and reasonable person if he is confronted with a given
situation.
B. It is the default standard of care in a Specific Obligation
II. Higher degree of care than PDGFF:
A. Extra-ordinary diligence – Dr is still liable even for fortuitous event Art. 1174
Article 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.
III. Lower degree of care than PDGFF:
A. E.g. Dr will only observe slight care
B. Note: INVALID if Dr becomes absolutely free from any liability even those arising from his own negligence.
Why? Violation of public policy
IV. Note: the law or stipulation may provide for a standard of care. Absence of which, the default standard is PDGFF

(2) If the Cr has already acquired the rights to the fruits, then the Dr is also obliged to deliver the fruits
 Art. 1164 The creditor has a right to the fruits of the thing from the time the obligation to deliver it (the principal thing
which is due) arises. However, he shall acquire no real right over it until the same has been delivered to him.

Q: When is the Cr’s right to the fruits of the thing arises?

A: “Fruits existing at the time the obligation
Q: When the Cr demand for the delivery of the fruits?
A: thing from the time the obligation to deliver it (the principal thing which is due) arises.

Q: When will the obligation (to deliver the principal thing which is due) considered to be arisen?
A1: If the source of obligation is other than contract, the obligation will arise as provided for by law
A2: If the source of obligation is contract, the obligation will arise:
GR: from the moment of the perfection of the contract
XPN: ___, unless the obligation is subject to a suspensive condition
XPN XPN: if the obligation is subject to a suspensive term, the obligation is considered arisen from moment of the
perfection of the contract.
Art. 1165 – Remedies available in case of Breach

I. Remedies available to the Cr in case of breach in specific obligation:

Article 1165 (par. 1). When what is to be delivered is a determinate thing, the creditor, in addition to the right granted
him by article 1170 (damages), may compel the debtor to make the delivery.
A. Specific Performance – to compel the Dr to deliver what is due
B. Damages
II. Remedies available to the Cr in case of breach in generic obligation:
Article 1165 (par. 2). If the thing is indeterminate or generic, he may ask that the obligation be complied with (by
another or the Dr himself) at the expense of the debtor.
A. The Cr may ask another person to make the delivery and charge the cost to the Dr
B. Damages
C. NOTE: The Cr may compel the Dr himself to make the delivery (even if not expressly provided in NCC). Rationale: the
obligation is that of “giving”; there will be no violation of personal liberty even if the Cr chooses to direct his action
against the debtor himself.

(3) The Dr has the Obligation to deliver the accessions or the accessories even if they have not been mentioned in the
obligation
Art. 1166 The obligation to give a determinate thing includes that of delivering all its accessions and accessories, even though
they may not have been mentioned.

B. Personal Obligation – “to do” or “not to do” 28:03

Two kinds:
1. Positive Personal Obligation - Prestation is “doing”
a. Remedies available to the Cr in case of breach in specific obligation:

(1) To ask another person to perform the obligation to do and charge the cost to the Dr.
- NOTE: The Cr cannot compel the Dr himself against the DR’s wishes to perform the obligation. Rationale: that will be
tantamount to involuntary servitude (bawal sa Const).
- the remedy to ask another person is only available if the personal circumstances of the Dr have not been taken into
account in the constitution of th]e Obligation.
- e.g. Painter (Dr) to paint the portrait (doing). You hired him because of his talent (personal circumstance). The only
available remedy for you to recover is damages
(2) To demand for the undoing, either because:
(a) It was poorly done
(b) Done in contravention of the tenor of the obligation
(3) Damages
Art. 1167 – Positive Personal Obligation “doing”
Article 1167. If a person obliged to do something fails to do it, the same shall be executed (by another person, not by the Dr
himself) 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.

b. Negative Personal Obligation - Prestation is “not doing”

Art. 1168 – Negative Personal Obligation “not doing”
Article 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.
III. Pure Obligations, Conditional Obligations, and Obligations with Term or Period 33:00
A. Pure obligation – an obligation which is not been subject to any term/period or condition.
1. Legal consequences of pure obligation:
a. Immediately demandable
Note: immediately demandable obligations are not confined with pure obligations. An obligation which is subject to a
resolutory condition and resolutory term is likewise immediately demandable.
B. Conditional obligation – an obligation that is subject to a condition or dependent upon a condition
1. Condition, def – any event that is both future and uncertain
a. Elements of condition: 1. Futurity 2. Uncertainty
b. Passing the bar
2. Term or period, def – is either an interval of time OR any event which is future, but the happening of which is certain
a. Element of term or period: 1. Futurity 2. Certainty
b. E.g. death
3. Two kinds of conditional Obligation:
a. Suspensive condition / conditions precedent or antecedent – when the rights and obligations will only be created upon the
happening of the event; the existence of the right and obligation will only come into existence upon the happening of future
event; the rights and obligations have not yet come into existence prior to the happening of the event or condition.
(1) Expectant Creditor – prior to the happening of the event there is no actual creditor yet.
(a) His right is merely a “hope” or “expectancy”
(b) This hope/expectancy enjoys protection under A. 1188: Right to bring the appropriate action for the protection of his
interest (e.g. of appropriate action: registration of his interest in the civil registry to make everyone in bad faith)
(c) The expectant creditor must protect his hope or expectancy, otherwise, his interest may be lost.
e.g. In the case of a Double sale: the object was sold (first sale) under a conditional obligation subject to a suspensive
condition AND the object was sold again (second sale) under a pure obligation
- Who has the better right? ANS: the creditor under the pure obligation because he is the ACTUAL CREDITOR (he can
already demand the delivery of the object), while the creditor under the suspensive condition has merely a hope or
expectancy.
Art. 1188 – Rights of Expectant Cr/Dr
Article 1188. The creditor may, before the fulfillment of the condition, bring the appropriate actions for the preservation of his
right. (nico~he must protect his expectancy or hope by means of bringing the appropriate actions)
The debtor may recover what during the same time he has paid by mistake in case of a suspensive condition.

(d) Appropriate action: e.g. registration in the civil registry

 Purpose: It gives constructive notice to the whole world
 Effect: It will make everyone in Bad Faith
 In case of Double Sale, Good Faith is important. The 1st buyer always enjoys priority, but he can be
displaced by the 2nd buyer if (a) the 2nd was able to register his interest first in Good Faith or (b) in the
absence of registration, the delivery is done in Good Faith
(2) Retroactivity: Upon the happening of the suspensive condition, the effect will retroact on the day of the constitution of the
obligation
Art. 1187 – Retroact
Article 1187. The effects of a conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of
the obligation. Nevertheless, when the obligation imposes reciprocal prestations upon the parties, the fruits and interests during the pendency of the
condition shall be deemed to have been mutually compensated. If the obligation is unilateral, the debtor shall appropriate the fruits and interests
received, unless from the nature and circumstances of the obligation it should be inferred that the intention of the person constituting the same was
different.
In obligations to do and not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied
with.

(3) Effect: If the Obligation is to give and the obligation is reciprocal, with respect to the fruits and interest, they are deemed
MUTUALLY COMPENSATED (Wala ng solian; Ratio: avoid accounting)(A. 1187)
b. Resolutory condition / condition subsequent– if the rights or obligations already exist but that right and obligation is subject to
an extinguishment upon the happening of a certain event
(1) Retroactivity: upon the happening of the resolutory condition the obligation is extinguished as if there is no obligation that
took place at all.
(2) Effect
c. Suspensive Condition v. Resolutory Condition
SUSPENSIVE CONDITION RESOLUTORY CONDITION
AKA Condition precedent or antecedent Condition subsequent
Prior to the happening of the event or There is no obligation; There is an existing obligation
45:55 the condition Expectant Creditor
- the right of Exp. Cr. is “expectancy”
or “hope”
Upon the happening of the event Obligation will come into existence Obligation will be extinguished
Everything is obliterated
Effect of the condition (If the Fruits and interest will no longer be Fruits and interest will be returned
Obligation is to give and the obligation returned - Ratio: it is as if there was no
is reciprocal, with respect to the fruits - Ratio: The Cr and Dr are deemed obligation that took place in the first
and interest) MUTUALLY COMPENSATED () place. Producing of nothing to
something.
NCC 1187-1188

4. Constitution of the obligation v the existence of the obligation

5. Interest of the creditor: hope and expectancy
6. What is the effect of a suspensive condition and resolutory condition
7. Is there a resolutory condition in every suspensive condition?
8. Is there a suspensive condition in every resolutory condition?
9. Reciprocal obligation
10. 1191 ground of rescission
11. 1192 in case both breached; first and second infractor; 1st rule v 2nd rule
12. Potestative condition – E.g. A (Debtor) will give B (Creditor) an Iphone X (the prestation) if B will kiss (the condition) A.
Potestative on the part of the creditor. What is the effect upon the obligation if the condition is potestative?
a. Potestative on the part of the Debtor – debtor nagbigay ng condition. A will give B an Iphone X if A will kiss B. Void (Art.
1182)
b. Potestative on the part of the Creditor – creditor nagbigay ng condition. A will give B an Iphone X if B will kiss A.
Breach

I. Fraud and Culpa

A. Situation where fraud and culpa become one: when negligence is grossly committed
B. Culpa aquiliana ( ) - it creates vinculum juris; one of the sources of obligation
C. Culpa contractal (1170)
D. When is negligence committed? Failure to observe
II. Caso furtuito or fortuitous event
A. Two kinds: acts of God (fortuitous event proper) and acts of Man (force majure)
B. What is the effect of fortuitous event in an obligation?
1. GR: Not liable
a. Requisites: 1174
2. XPN: liable
a. When expressly required by law,, stipulation
C. What if there is a presence of fortuitous event as a principal reason for failure to fulfill the obligation and at the same time there is a
presence of contributory negligence on the debtor’s part, is the debtor liable?
1. E.g. A had his vehicle fixed in the Casa. The mechanic did a test drive. It was carnapped. Is the Casa liable?
D. Tire low out – not a fortuitous event as they are human factors
E. Mechanical defect
F. Failure to exercise a right over a fortuitous event. E.g. coup d etat closed all banks, after two weeks operations of banks continued, but
the bank did not allow the debtor to exercise its right, say, his right of redemption