OBLIGATIONS AND CONTRACTS

Pointers to review (all are discussed in the book of De Leon)

We’ve already discussed these topics but are reiterated here since these are some of the common
topics asked in the CPA Board Exams.

1. Meaning of obligation
a. Under Art. 1156
b. It is a tie or bond recognized by law by virtue of which one is bound in favor of another to
render something – and this may consist in giving a thing, doing certain act, or not doing a
certain act.
2. Nature of obligations under the Civil Code
a. Civil Obligations – give to the creditor or obligee a right under the law to enforce their
performance in courts of justice.
b. 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 although in case of voluntary fulfillment
by the debtor, the latter may not recover what has been delivered or rendered by reason
thereof.
3. Essential requisites of an obligation
a. Passive subject – debtor or obligor.
b. Active subject – creditor or obligee.
c. Object or prestation – subject matter of the obligation.
d. Juridical tie – legal tie or efficient cause.
4. Form of obligations – manner in which an obligation is manifested or incurred. It may be oral, or
in writing, or partly oral and partly in writing.
5. Distinguish obligation, right, wrong or injury (page 20).
6. Kinds of obligations according to subject matter:
a. Real obligation (obligation to give)
b. Personal obligation (obligation to do or not to do)
i. Positive personal obligation – obligation to do or to render some service.
ii. Negative personal obligation – obligation not to do.
7. Sources of obligations (read the examples)
a. Law
b. Contracts
i. Compliance in good faith – compliance or performance in accordance with the
stipulations or terms of the contract or agreement.
c. Quasi-contracts
i. Negotiorum gestio
ii. Solutio indebiti
d. Crimes or acts or omissions punished by law.
i. Scope of civil liability
1. Restitution
2. Reparation for the damage caused
3. Indemnification for consequential damages
e. Quasi-delicts or torts.
i. Requisites (page 30)
8. Crime distinguished from quasi-delict (page 31)
9. Specific or determinate thing – particularly designated or physically segregated from others of the
same class.
10. Generic or indeterminate thing – refers only to a class or genus to which it pertains and cannot be
pointed out with particularity.

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11. Duties of debtor in obligation to give a determinate thing
a. Preserve the thing
i. Diligence of a good father of a family – ordinary care or that diligence which an
average (a reasonably prudent) person exercises over his own property.
b. Deliver the fruits of the thing
i. Kinds of fruits (read the examples: page 39)
1. Natural
2. Industrial
3. Civil
ii. Right of creditor to the fruits
1. Art. 1164. The creditor has the right to the fruits of the thing from the time
the obligation to deliver it arises
iii. When obligation to deliver the fruits arises (page 39)
1. From the time of the perfection of the contract.
2. If the obligation is subject to a suspensive condition or period, from the
fulfillment of the condition or arrival of the term.
3. In a contract of sale, from the perfection of a contract even if the obligation
is subject to a suspensive condition or a suspensive period.
4. In obligations to give arising from law, quasi-contracts, delicts, and quasi-
delicts – specific provisions of the law applicable.
c. Deliver the accession and accessories.
i. 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.
ii. In order that they will be excluded, there must be a stipulation to that effect.
d. Deliver the thing itself.
e. Answer for damages in case of non-fulfillment or breach.
12. Personal right and real right distinguished (page 41)
13. Art. 1169 (Very important)
a. What is delay or default or mora?
b. Kinds of delay
i. Mora solvendi – delay on the part of the debtor to fulfill his obligation.
ii. Mora accepiendi – delay on the part of the creditor to accept the performance of
the obligation.
iii. Compensatio morae – delay of the obligation in reciprocal obligations.
c. No delay in negative personal obligation (page 50)
d. Effects of delay (page 52-53)
e. When is demand not necessary
14. 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.
a. Grounds for liability to damages
i. Fraud or deceit or dolo
1. Dolo incidente
2. Dolo causante
3. Waiver of action for future fraud is void.
ii. Negligence of fault or culpa (Art. 1173)
1. Contractual negligence or Culpa contractual
2. Civil negligence or Culpa aquiliana
3. Criminal negligence or Culpa criminal
iii. Delay or default or mora
iv. Contravention of the terms of the obligation.
b. Fraud and negligence distinguished (page 59)

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 15. Art. 1174 Fortuitous event
a. What is fortuitous event?
b. Kinds of fortuitous event
c. Requisites for fortuitous event
i. The event must be independent of the human will or at least of the debtor’s will.
ii. The event could not be foreseen, or if foreseen, is inevitable.
iii. The event must be of such character as to render it impossible for the debtor to
comply with his obligation in a normal manner.
iv. The debtor must be free from any participation in, or the aggravation of, the injury
to the creditor, that, is there is no concurrent negligence on his part.
d. Exceptions to the rule that a person is not responsible for loss or damage caused to another
resulting from the non-performance of his obligation due to a fortuitous event.
i. When expressly specified by law.
ii. When declared by stipulation.
iii. When the nature of the obligation requires the assumption of risk.
16. Art. 1176. Presumption
a. 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.
b. 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.

Different Kinds of Obligations

17. Pure obligation
18. Conditional obligation
a. Kinds of conditions as to effect:
i. Suspensive condition
ii. Resolutory condition
iii. Distinctions between suspensive and resolutory conditions
19. When obligations is demandable at once (page 85-86)
a. When it is pure
b. When it is subject to a resolutory condition
c. When it is subject to a resolutory period
20. Art. 1180. When the debtor binds himself to pay when his means permit him to do so, the obligation
shall be deemed to be one with a period.
21. Kinds of condition as to cause or origin (potestative, casual, or mixed)
a. Potestative conditional obligation
i. Suspensive condition depends upon the sole will of the debtor – conditional
obligation is void.
ii. Only the condition is void – if the obligation is pre-existing one and, therefore,
does not depend for its existence upon the fulfillment by the debtor of the
potestative condition, only the condition is void leaving unaffected the obligation
itself.
iii. If the condition depends solely upon the will of the creditor, the obligation is valid.
22. Kinds of condition as to possibility
a. Possible condition
b. Impossible condition (Art. 1183)
i. Physical impossible condition
ii. Legal impossible condition
iii. Effects of impossible conditions:
1. Impossible conditions annul the obligations which depends upon them.

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 2. If the condition is negative, that is, not to do an impossible thing, it is
disregarded, and the obligation is rendered pure and valid.
3. If the obligation is divisible, the part thereof not affected by the impossible
condition shall be valid.
4. If the obligation is pre-existing one obligation, and therefore, does not
depend upon the fulfillment of the condition which is impossible, for its
existence, only the condition is void.
23. Kinds of condition as to mode
a. Positive condition (page 97)
b. Negative condition (page 98)
24. Retroactive effects of fulfillment of suspensive condition (page 101)
25. Retroactive effects as to fruits and interest in obligations to give (page 103)
26. Rules in case of loss, deterioration or improvement of thing during the pendency of suspensive
condition (page 106-108)
27. Effects of fulfillment of resolutory condition (art. 1190)
28. Kinds of obligation according to the person obliged
a. Unilateral – only one party is obliged to comply with a prestation.
b. Bilateral – when both parties are mutually bound to each other.
29. Obligations with a Period (Art. 1193)
a. Meaning of obligations with a period (page 121)
b. Period (page 121)
c. Period and condition distinguished (page 122)
d. Kinds of period according to effect:
i. Suspensive period or ex die
ii. Resolutory period or in diem
e. Kinds of period according to source:
i. Legal period
ii. Conventional or voluntary
iii. Judicial
f. Kinds of period according to definiteness:
i. Definite
ii. Indefinite
30. Art. 1196 Presumption as to benefit of the period
a. General rule: for the benefit of both the creditor and debtor
b. Exceptions:
i. Term is for the benefit of the debtor alone.
ii. Term is for the benefit of the creditor.
31. Art. 1198 (Important)
a. General rule: The obligation is not demandable before the lapse of the period.
b. Exceptions: The debtor shall lose every right to make use of the period:
i. When the debtor becomes insolvent.
ii. When the debtor does not furnish guaranties or securities promised.
iii. When guaranties or securities given have been impaired or have disappeared.
iv. When the debtor violates an undertaking.
v. When the debtor attempts to abscond.
32. Alternative Obligations
a. Meaning (page 137)
b. Right of choice
i. General rule: belongs to the debtor
ii. Exceptions: when expressly granted to the creditor
iii. Right of choice of debtor not absolute – subject to limitations (page 138-139)

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 iv. Communications of notice that choice has been made
1. Art. 1201. The choice shall produce no effect except from the time it has
been communicated.
2. Once notice of the election has been given to the creditor, the obligation
ceases to be alternative and becomes simple.
3. Such choice one properly made and communicated is irrevocable and
cannot, therefore, be changed wither by either part without the consent of
the other.
4. When the choice has been expressly given to the creditor, such choice shall
likewise produce legal effects upon being communicated to the debtor.
v. Art. 1202. The debtor shall lose the right of choice when among the prestations
whereby he is alternatively bound, only one is practicable.
vi. Art. 1204. The creditor shall have a right to indemnity for damages when, through
the fault of the debtor, all the things which are alternatively the object of the
obligation have been lost, or the compliance of the obligation has become
impossible.
The indemnity shall be fixed taking as a basis the value of the last thing which
disappeared, or that of the service which last became impossible.
Damages other than the value of the last thing or service may also be awarded.
33. Take note of the rules in case of loss before debtor has made the choice or creditor if expressly
given the right of choice.
34. Facultative obligation (Art. 1206)
a. Meaning (page 146)
b. Effect of loss
i. Before substitution
1. Principal
2. Substitute
ii. After substitution
1. Principal
2. Substitute
35. Joint obligation and solidary obligation (Art. 1207-1208)
a. Joint and solidary, meaning (page 152)
b. Obligation is presumed to be joint
c. When obligation is solidary (page 154)
d. Kinds of solidarity
i. Passive solidarity – solidarity on the part of the debtors.
ii. Active solidarity – solidarity on the part of the creditors.
iii. Mixed solidarity – solidarity on the part of the debtors and creditors.
e. Read the examples
f. Read Arts. 1210 to 1220.
36. Divisible and indivisible obligations (Art. 1223)
a. Meaning (page 180)
37. Obligations with a penal clause (Art. 1226)
a. Principal obligation – one which can stand by itself and does not depend for its validity
and existence upon another obligation.
b. Accessory obligation – one which is attached to a principal obligation and, therefore,
cannot stand alone.
c. Obligations with a penal clause – one which contains an accessory undertaking to pay a
previously stipulated indemnity in case of breach of the principal prestation intended
primarily to induce its fulfillment.

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d. Penal clause – is an accessory undertaking attached to an obligation to assume greater
liability in case of breach.
i. Purposes:
1. To insure their performance by creating an effective deterrent against
breach, making the consequences of such breach as onerous as it may be
possible.
2. To substitute a penalty for the indemnity for damages and the payment of
interest in case of non-compliance; or to punish the debtor for the non-
fulfillment or violation of his obligation.
ii. Kinds (page 191-192)
e. Penalty substitutes for damages and interests
i. General rule: The penalty takes the place of the indemnity for damages and the
payment of interest in case of non-compliance.
ii. Proof of actual damages suffered by the creditor is not necessary in order that the
penalty may be enforced. (Art. 1228)
iii. Exceptions: The creditor, in addition to penalty, may recover damages and
interests:
1. When so stipulated by the parties.
2. When the obligor refuses to pay the penalty, in which case the creditor
may recover legal interest thereon.
3. When the obligor is guilty of fraud in the fulfillment of the obligation, in
which case the creditor may recover damages caused by such fraud.
f. Art. 1227.
i. The debtor cannot exempt himself from the performance of the obligation by
paying the penalty, save in the case where this right has been expressly reserved
for him.
ii. Neither can the creditor demand the fulfillment of the obligation and the
satisfaction of the penalty at the same time, unless this right has been clearly
granted him.
iii. However, if after the creditor has decided to require the fulfillment of the
obligation, the performance thereof should become impossible without his fault,
the penalty may be enforced.
g. Art. 1230.
i. The nullity of the penal clause does not carry with it that of the principal obligation.
ii. The nullity of the principal obligation carries with it that of the penal clause.

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