OBLIGATION AND CONTRACTS

Obligation – is a JURIDICAL NECESSITY to give, to do, or not to do. (Article 1156, Civil Code of the
Phillippines)

“Obligare” – Latin word meaning tying or binding

Ob – to

Gare – To bind

Obligation is a juridical necessity because in case of non-compliance, the court of justice may called
upon the aggrieved party to enforce its fulfillment or, in default thereof, the economic value that its
represent. There are, however, obligations that cannot be enforce because there are not recognized by
law in binding.

Explanation

• This means that an Obligation is legally binding, meaning if a person fails to fulfill it, the
aggrieved party can seek legal action to enforce their obligation. And if the obligation cannot
be fulfilled as originally intended, the court may require compensation in the form of money or
equivalent value. However, not all obligations can be legally enforced. Some agreements,
even if they involve promises or expectations, may be not me recognized by law. (It means,
while obligations generally require fulfillment, they must be recognized by law to be legally
enforce.

Nature of Obligations under the Civil code of the Philippines:

1. Civil Obligations – Obligations which give to the creditor or oblige a right of actions in courts of
justice to enforce their performance.
2. Natural Obligations – NOT based on Positive law (Law recognized by gov’t authority). Does NOT
grant a Right of actions to enforce their performance; if a voluntarily fulfillment by debtor,
cannot recover what has been delivered.

Essential REQUISITES of an obligation

• Juridical or Legal tie (also called efficient cause) or that which binds or connects the
parties to the obligation. The tie in an obligation can easily be determined by knowing the
source of the obligation (Article 1157)
• Object or Prestation (Subject matter of the obligation) or the conduct required to be
observed by the debtor. It may consist in giving, doing, or not doing (Article 1232)
• Active Subject (called creditor or oblige) or the person who is entitled to demand the
fulfillment of the obligation; he who has a right
• Passive subject (called the debtor or obligor) or the person who is bound to the
fulfillment of the obligation; he who has a duty
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EXAMPLE:

Under a building contract, X bound himself to construct a house for Y for P1,000,000

X is the passive subject, Y is the active subject, the building of the house is the object or prestation, and
the contract or agreement, which is the source of the obligation, is the juridical tie.

Form of obligation

1. As a general rule, the law does not require any form in obligations arising from contracts for
their validity or binding force. (Art. 1356)
• Most agreements don’t need to be in writing or follow a specific form to be valid. As long as
both parties agree and meet the legal requirements (like consent, object, and cause), the
contract is binding.
For example, if you agree to buy a book from someone for P200, that verbal agreement is
already a valid contract. It doesn’t have to be written down unless the law specifically requires
it (like contracts involving real estate or large sums of money)
The general rule is; contracts don’t need to be a special form to be valid – what matters is the
agreement between parties.

2. Obligations arising from other sources (Art. 1157) do not have any form at all.
• Obligations does not need to follow specific form (such as being written or notarized) to be
valid and don’t need a specific form to exist.

Sources of obligations

1. Law – they are imposed by law itself, e.g., obligation to pay taxes
2. Contracts – they arise from stipulation of the parties (Art. 1306), e.g., obligation to repay a loan
by virtue of an agreement
3. Quasi- contracts – they arise from lawful, voluntary and unilateral acts and which are
enforceable to the end that no one shall be unjustly enriched or benefited at the expense of
another (Art. 2142) e.g., the obligation to return money paid by mister or which is not due. In
sense, these obligations may be considered arising from law
4. Crimes or act or omission punished by law (Delict) – They arise from civil liability which is the
consequences of a criminal offense (Art. 1161) e.g., the obligation of a thief to return the car
stolen by him
5. Quasi-delicts or torts - they arise from damage cause to another through an act or omission,
there being fault or negligence, but no contractual relation exist between parties (Art. 2176)
e.g., the obligation of the possessor of an animal to pay for the damage which it may have
caused. (Art. 2183)

*NOTE: the list is EXCLUSIVE

If an obligation does not originate from law, contracts, quasi-contracts, delicts, or quasi-delicts,
then it does not legally exist as an obligation under the Philippine law.
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Effects of obligations

A. Obligations to Give
1. To transfer ownership – If the obligation involves delivering something (e.g., a car
purchase), ownership is transferred when delivered.
2. To transfer a mere possession – in some cases obligation only involve giving possession
(e.g., renting a house)

Things to be delivered:

• Generic or indeterminate – refers only to a class or genus to which it pertains and cannot be
pointed out with particularity (An item belongs to a catergory)
Examples: 5 mangoes, 2006 model Japanese car, police dog, cavan of rice, the sum of
P10,000
• Specific or determinate – is identified by its individuality
Example: A toyota car with a plate no. ABC 888, dog named “bebe”

▪If you order a custom-made phone case, the seller must deliver that exact case (specific
obligation).
▪ If you order a regular case, the seller can deliver any of the same model (generic
obligation).
B. Obligations that are included in obligation to give a determinate thing
1. Principal Obligations – The main duty; deliver the specific thing. It is the core obligation
that must be fulfilled
2. Accessory Obligations – supports or enhances the principal obligation. Deemed
included
▪ Obligations to take care of the thing to be delivered with the diligence of a good father of a
family (the phrase has been equated with ordinary care or that diligence which an average (a
reasonably prudent) person exercises over his own property)
Explanation of the Parenthesis:
➢ "Ordinary care" → This means the usual level of care that an average, responsible person
exercises over their own belongings. It does not require extreme caution but simply reasonable
care.
➢ "That diligence which an average (a reasonably prudent) person exercises over his own
property" → This means that a person should handle the thing with the same level of care and
caution that a reasonable person would use in protecting their own possessions.
▪ Example: if you promised to give your friend a specific book, you must keep it in
good condition until you hand it over.
▪ Obligation to deliver the accession and accessories (accession are the fruits of a thing or
additions to or improvements upon a thing (the principal or accumulation) examples house or
trees on a land, rents of a building. While accessories are things joined to or included with the
principal thing for the latter’s embellishment, better use, or completion. Example key of a house,
frame of a picture) anything attached to or included with the main thing must also be delivered
▪ Example: if you are giving a specific phone, the charger and earphones that
originally came with it should also be given.
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▪ Obligation to deliver the fruits from the moment the obligation to deliver arises. If the thing
produces any fruits (natural or legal), they must also be given from the moment the obligation to
deliver starts. *Fruits refer to any benefit or yield that a thing naturally or legally produces
Example: You promised to give your friend a specific cow. Before you deliver it, the cow
gives birth to a calf. Since the obligation to deliver the cow already existed when the calf
was born, your friend also has the right to the calf because it is considered a fruit of a cow
➢ Different kinds of fruits
1. Natural fruits – things that are produced naturally, such as crops, trees or animals
2. Civic fruits – are the amounts or benefits received from the use of a thing by another party
like rent or interest
3. Industrial fruits – products that come from human labor, like items that are made or
produced from a thing. Wine produced from grapes, furniture made from wood, clothes
made from cotton.
Effects of failure to exercise due diligence
1. Liability for damages – if a person fails to take proper care of a product or property and it
results in harm or loss, they are responsible for paying for the damages.
• Damages – represents the SUM OF MONEY given as a compensation for the injury or harm
suffered by the creditor/oblige for the violation of his rights
• Diligence – is the attention and care required of a person in a given situation
2. Liable even if there was fortuitous event – a fortuitous event is unexpected event, like
natural disaster, that may usually relieve someone from responsibility. However, if the
person was already negligent (is the failure to observe for the protection of the interest of
another person, that degree of care, precaution and vigilance which the circumstances justly
demand, whereby such other person suffers injury) in the first place, they are still liable for
the damages, even if the event was outside of their control.
Remedies of the obligee/creditor in obligation to give a determinate thing
1. Action for specific performance – this is when the creditor demands that the debtor delivers
the specific thing they promised to give. The creditor wants the exact item, and they can go
to court to force the debtor to fulfill their obligation
2. Action for damages – if the debtor can’t or refuses to deliver the specific thing, the creditor
can ask for compensation for the damages caused by the failure to deliver them.
Remedies in obligation to deliver a generic thing
1. Specific performance – in this case, the creditor can still demand that the debtor deliver the
thing they promised. However, since the thing is generic (not specific item), the debtor can
provide any item of the same kind and quality as what was agreed upon
2. Substitute performance – if the debtor fails to deliver the agreed thing, the creditor can
demand that the debtor substitute the undelivered thing with an equivalent one of the
same kind and quality.
3. Action for damages – if the debtor does not deliver the generic thing as promised, the
creditor can sue for damages(compensation) for any loss or harm caused by the failure to
deliver the item.
Remedies of oblige/creditor in case of failure of obligations to do
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1. Total failure to do – activity shall be performed at the debtor’s cost (ex. House painting –
debtor will pay someone to pain the house instead).
If only debtor can perform, the creditor’s remedy is to recover damages for the failure to
perform
2. if not done in the tenor of the obligation, creditor can have it done by somebody else at
debtor’s expense – if the debtor doesn’t do the task as promised 9 meaning the job isn’t
done according to the agreed terms), the creditor has the right to hire someone else to
complete the task at the debtor’s expense.
3. Failure to do correctly or performing the obligation poorly – 1. Creditor can have it undone
and done by somebody else at the expense of debtor – if the debtor does the task poorly or
incorrectly, the creditor can have It undone and done properly by someone else, and the
debtor must pay the cost.
PERFORMANCE OF THE OBLIGATION
1. Identity of obligations – The debtor must exactly fulfill what was agreed upon. This mean
they should do the task or deliver the thing as it was precisely described or promised in the
agreement. No changes or substation are allowed unless agreed upon by both parties
2. Integrity of obligations – the debtor must fulfill the obligation in full. The performance must
be complete, meaning nothing should be left out or incomplete. If the obligation involved
multiple parts (like delivering goods or performing a service), all parts must be fully
completed.
Summary:
Identity means doing exactly what was agreed, without changes.
Integrity means doing the whole task, not leaving parts undone.
Breach of obligations
1. if there was non-compliance – the debtor does not perform the obligation at all.
2. Compliance is without identity or integrity – the debtor does something but doesn’t do it
properly
Summary:
Non-compliance means the debtor does nothing to fulfill the obligation
Breach due to lack of identity or integrity means the debtor either does the task incorrectly
or only partly
Modes of breaching the obligation
1. Fraud (Deceit or dolo) – intentional deception
Example: A seller knowingly delivers a fake product instead of an original one.
2. Negligence (fault or culpa) – lack of care
Example: A courier loses a package due to careless handling.
3. Delay (mora) – failure to perform on time
Example: A contractor fails to complete a house by the agreed deadline
4. Any manner that contravenes the tenor thereof – doing something differently from what
was agreed
Example: A supplier delivers a different product than what was ordered.
EFFECT OF NON-PERFORMANCE
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1. Liable for damages – means that if the debtor fails to perform the obligation, they must
compensate the creditor for any loss or harm caused by the failure to fulfill the obligation.
REQUISITES OF ACTION FOR DAMAGES
1. Perfected contract – there must be a valid and completed agreement (contract) between
parties. The contract must be legally binding and properly formed for the creditor to claim
damages
2. Breach by the obligor/debtor – the debtor (the person who is bound) must have failed to
perform the obligation in the contract. This could mean not doing task at all, doing it
incorrectly, or failing to meet the terms of the agreement.
3. Damages obtained by the obligee/creditor due to the breach - the creditor must have
suffered some loss or harm due to debtor’s breach of the contract. The creditor must prove
that the failure to perform caused them damages
Summary:
- A valid contract exists.
- The debtor has breached the contract.
- The creditor has suffered damages as a result of the breach.
REQUIREMENTS BEFORE DEBTOR CAN BE CONSIDERED IN DELAY
1. The obligation is positive – to give or To
- The obligatiom must be active (positive) in nature, meaning the debtor is required to
give something (like thing or property) or perform an action (like providing a service
2. The obligation is demandable and liquidated
- The obligation must be demandable (it can be asked for) and liquidated (the terms are
clear and the amount or subject is determined). This means that the debtor knows
exactly what they owe, and the creditor can make a clear demand for performance.
3. The obligor delays for reason imputable to him
- The delay must be the debtor’s fault. In other words, the debtor caused the delay and is
responsible for not performing the obligation on time
4. There must be demand, whether judicial or extra judicial
- The creditor must demand the performance of the obligation before the debtor can be
considered in delay. This demand can be:
• Judicial – a formal demand made through the court
• Extrajudicial – an informal demand made outside of court, like verbal or written
request from the creditor to the debtor

Summary:

1. The obligation must be about doing something or giving something (positive

▪ Deliberate intention to cause damage – breach through fraud occurs when debtor
intentionally deceives or misinterprets information with deliberate intention to cause
damage to the creditor. This type of breach involved dishonesty or trickery, where the
debtor’s actions are aimed at benefitting at the expense of the creditor.
Breach through negligence (Kinds of negligence according to source of
obligation)
- Breach though negligence happens when a debtor fails to exercise the necessary care or
diligence in fulfilling an obligation, leading to harm or damage. The debtor’s failure to
perform the obligation is caused by there carelessness or lack of attention to the
required standard of conduct.
1. Culpa Aquiliana (Civil negligence)
- This type of negligence occurs in non-contractual situations (outside of a specific
agreement between parties)
- It involves the failure to exercise the diligence that a reasonable person would have
used under the same circumstances, resulting in harm or damage.
Example: if you are walking and carelessly leave a banana peel on the floor in a store,
causing someone to slip and get hurt, you can be held liable for civil negligence because
your failure to act with proper care led to someone else’s injury.
2. Culpa Contractual (Contractual negligence)
- This type of negligence happens within the context of contractual relationship. It refers
to the failure to fulfill an obligation with the required degree of care that was agreed
upon in the contract.
- Even if the debtor doesn’t intentionally cause harm, failing to meet the standard
diligence agreed in the contract can result in a breach
Example: If you promised to deliver a product on a certain date, but due to negligence
(like not preparing the product on time), you fail to meet the deadline, causing loss to
the creditor, this is contractual negligence.
3. Culpa criminal (Criminal negligence)
- Criminal negligence occurs when the debtor’s failure to exercise proper care results in
criminal act or endangers the safety of others, potentially leading to criminal charges.
- It involves actions that show recklessness or gross lack of caution, endangering, public
safety
Example: If someone is driving a car and fails to stop at a red light, causing an accident
that harms others, this could be criminal negligence because it endangers the lives of
others.
Summary:
Culpa Aquiliana is civil negligence that causes harm outside of a contract (e.g.,
accidents).
Culpa Contractual is negligence within a contract where the debtor fails to perform as
promised (e.g., breaching a delivery deadline).
Criminal Negligence involves reckless behavior that could lead to criminal consequences
(e.g., dangerous driving).
Fortuitous event
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Requisites:
1. Independent of the human will
• The event cannot be controlled or caused by human actions. It’s something that
happens naturally or unexpected, and no one can influence or prevent it
Example: Natural disasters like earthquakes or typhoons are considered fortuitous
events because they are beyond anyone’s control
2. Impossible to foresee
• The event is unpredictable or unexpected. It is something that could not have been
anticipated even with reasonable care or preparation.
Example: A sudden flood in an area where floods are uncommon is a fortuitous
event because it wasn’t foreseeable.
3. Occurrence must render it impossible for debtor to fulfill obligation
• The event makes it impossible for the debtor to perform the obligation. It must
completely prevent the debtor from fulfilling their duties, and they cannot be
blamed for not fulfilling the obligation
Example: If a warehouse burns down in a fire, and the goods the debtor was
supposed to deliver are destroyed, the debtor can’t fulfill the obligation to deliver
the goods because they no longer exist.
4. Obligor free from any participation in the aggravation of the injury
• the debtor must not have done anything that worsened or contribute to the
damage caused by the event. The fortuitous event must be the only reason for the
non-performance
Example: If the debtor’s warehouse is destroyed by a storm, but the debtor had
failed to take basic precautions (like not maintaining the building properly), the
debtor might still be held responsible because they contributed to the damage.
However, if the damage was solely due to the storm, then it’s a true fortuitous
event.
Summary:
- Beyond human control (independent of human will).
- Unpredictable or unforeseeable.
- Makes it impossible for the debtor to fulfill the obligation.
- The debtor is not responsible for worsening the situation.
LIABILITY TO PAY INTEREST
Requisites:
1. There is an agreement that the interest shall be earned
• Interest will only be due if there is a clear agreement between the parties that
interest will be charged on the debt or loan. Without such an agreement, the debtor
is not liable to pay interest.
Example: if you borrow money and the agreement sates that interest will be
charged, then you are liable for that interest.
2. The agreement that interest shall be due shall be expressly stipulated in writing
• The agreement to pay interest must be clearly stated in writing. It cannot be
assumed or implied. Both parties must explicitly agree to the interest terms in a
written contract
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Example: if you sign a loan agreement that clearly states the interest rate and when
interest is due, it becomes enforceable
3. The rate of interest must not be usurious or excessive or unconscionable
• the interest rate should not be excessive, unreasonable, or unfair. There are legal
limits to how much interest can be charged, which prevents leaders from taking
advantage of borrowers
Example: charging 100% interest on a loan would be considered usurious
(unreasonably high) and illegal in many jurisdictions

Summary
- There must be a clear agreement that interest will be charged.
- The agreement must be in writing and expressly state the interest terms.
- The interest rate must be fair and not excessive or unconscionable.