By Archill B.

Yapparcon

A Learning Module in

BUSINESS LAW
BAC 2

MODULE 3: NATURE AND

EFFECTS OF OBLIGATIONS

PSU-PCAT CUYO
BUSINESS
ADMINISTRATION
Module 3: NATURE AND EFFECT OF OBLIGATION

OVERVIEW

Let’s get started.

“To know that everything we say and do to this new little human being may have a profound effect
on him or her is a daunting obligation.” --Gloria Estefan--

As we move on to another chapter of obligation and contract which is the nature and effect
of Obligation, let us always remember the elements, kinds and sources of obligation which will help
us identify and differentiate cases from cases of Obligations.
In this module we are going to learn the nature and effect of Obligation which cover the
meaning of specific and generic thing, personal right, legal delay or default, fortuitous event, and
diligence of a good father of a family.
Time frame of this module is one week and a half which is equivalent to 4 hrs. and 30 minutes
of our total contact hours.
Submission of Assessment and other acitivities is on December 9-10, 2021
Submission of Performance Task - December 9-10, 2021

LEARNING OUTCOMES

What are expected from you?

At the end of this chapter, you will be able to:

1. Identify, distinguished and illustrate the Nature and Effects of obligations

LET US EXPLORE

Activity 3.1. Let us check your prior knowledge.

In a simple sentence describe the underline words:

1. What is the nature of Obligation?

______________________________________________________________________

2. What is the effect of obligation?

______________________________________________________________________

BAC 2 – BUSINESS LAW 2

Module 3: NATURE AND EFFECT OF OBLIGATION

CHAPTER 2: NATURE AND EFFECT OF OBLIGATIONS

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)
TWO KINDS OF THING
The following are the rights available to a creditor in obligations to give:
1. Specific or determinate thing - particularly designated or physically segregated others of
the same class. (Art. 1459)
- it 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. (Art. 1244)
Examples: (a) the watch I am wearing.
(b) the car sold by X.
(c) my parrot name “Hello.”
(d) the money I gave you.

2. Generic or indeterminate thing - refers only to a class or genus to which it pertains and
cannot be pointed out with particularity.
-it is identified only by its specie.
- the debtor can give anything of the same class as long as it is of the same kind.
Examples: (a) a Bulova calendar watch.
(b) a sum of P1,000.
(c) a cavan of rice.

Determinate and generic thing distinguish;

A contract of sale uses a determinate thing, while a contract of loan uses a generic thing.
Examples:
(1) If S’s obligation is to deliver to B a Bulova calendar watch,
S can deliver any watch as long as it is a Bulova with
calendar.
But if S’s obligation is to deliver to B a particular
watch, the one S is wearing, S cannot substitute it with
another watch without B’s consent nor can B require S
to deliver another watch without S’s consent although it
may be of the same kind or value (see Arts. 1244, 1246)

(2) If S’s obligation is to deliver to B of his cars, the object

refers to a class which in itself is determinate.
Here the particular thing to be delivered is
determinable without the need of a new Contract
between the parties (see Art. 1349); it becomes
determinate upon its delivery.

BAC 2 – BUSINESS LAW 3

Module 3: NATURE AND EFFECT OF OBLIGATION

Duties of debtor in obligation to give a determinate thing

1. Preserve the thing
a. Diligence of a good father of a family – with ordinary care or
diligence which an
average person exercises over his own property.
- a good father does not abandon his family, he is always
ready to provide and protect his family; ordinary care which
an average and reasonably prudent man would do. -Defined in
the negative in Article 1173
b. Another standard of care – slight or extraordinary diligence
provided in the stipulation of parties.
Under the law, for an instance, a
common carrier is “bound to carry the
passengers safely as far as human care and foresight can provide,
using utmost or extraordinary diligence of very cautious persons,
with a due regard for all the circumstances.” (Art. 1755.) In case of
accident, therefore, the common carrier will be liable if it exercised
only ordinary diligence or the diligence of a good father of a family.
c. Factors to be considered – diligence
depends on the nature of obligation and
corresponds with the circumstances of
the person, time, and place.
** Debtor is not liable if his failure to
deliver the thing is due to fortuitous
events or force majeure… without
negligence or fault in his part.

d. Reason for debtor’s obligation – The debtor must exercise diligence to insures that the
thing to be delivered would subsist in the same condition as it was when the obligation was
contracted.

2. Deliver the fruits of the thing

3. Deliver the accessions and accessories
4. Deliver the thing itself
5. Answer for damages in case of non-fulfillment or breach

*Duties of debtor in obligation to deliver a generic / indeterminate thing

1. To deliver a thing this is of the quality intended by the parties taking into consideration the
purpose of the obligation and other circumstances.
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. (see Art. 1170.)

Activity 3.2. What I am? (Am I Determinate or Generic?)

Input the correct Thing on each number.
1. This cavan of rice. ___________________________
2. The house at the corner of Rizal and Del Pilar. _____________________
3. A Village inside the forest. _____________________________
4. The Toyota car with plate No. AAV316 (2008). _______________________________
5. A Police Dog? ____________________________

BAC 2 – BUSINESS LAW 4

Module 3: NATURE AND EFFECT OF OBLIGATION
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. (1095)

REAL RIGHT (jus in re) – right pertaining to person over a specific thing, without a passive
subject individually determined against whom such right may be personally enforced.
− a right enforceable against the whole world

PERSONAL RIGHT (jus ad rem) – a right pertaining to a person to demand from another, as a
definite passive subject, the fulfillment of a prestation to give, to do or not to do.
− a right enforceable only against a definite person or group of persons.
• Before the delivery, the creditor, in obligations to give, has merely a personal right against the
debtor – a right to ask for delivery of the thing and the fruits thereof.
• Once the thing and the fruits are delivered, then he acquires a real right over them.
• Ownership is transferred by delivery which could be either actual or constructive. (Art. 1477)
• The remedy of the buyer when there is no delivery despite demand is to file a complaint for
“SPECIFIC PERFORMANCE AND DELIVERY” because he is not yet the owner of the
property before the delivery.
Example:
X is the owner of a parcel of land under a torrens title registered in his
name in the Registry of Property. His ownership is a real right directed against
everybody. There is no definite passive subject.
If the land is claimed by Y who takes possession, X has a personal right
to recover from Y, as a definite passive subject, the property.
If the same land is mortgaged by X to Z, the mortgage, if duly
registered, is binding against third persons. A purchaser buys the
land subject to mortgage which is a real right.

ACTUAL DELIVERY – actual delivery of a thing from the hand of the grantor to the hand of the
grantee (personally), or manifested by certain possessory acts executed by the grantee with the
consent of the grantor (realty).

Example: S is obliged to give B on July 25 a particular horse. Before July

25, B has no right over the horse. B will acquire a personal right against S
to fulfill his obligation only from July 25.
If the horse is delivered on July 30, B acquires ownership or real
right only from that date. But if on July 20, S sold and delivered the same
horse to C, a third person (meaning that he is not a party to contract
between S and B) who acted in good faith (without knowledge of the said contract), C acquires ownership
over the horse and shall be entitled to it as against B. S shall be liable to B for the damages. (Art. 1170.)

*Kinds of Fruits
1. Natural fruits – spontaneous products of the soil, and the young and other products of
animals.
Examples: grass; all trees and plants on lands without the intervention of human
labor
2. Industrial fruits – produced by lands of any kind through cultivation or labor
Examples: sugar cane, vegetables, rice

3. Civil fruits – those derived by virtue or juridical relation

Examples: rent of buildings, price of leases of lands and other property

BAC 2 – BUSINESS LAW 5

Module 3: NATURE AND EFFECT OF OBLIGATION
Art. 1165 When what is to be delivered is a determinate thing, the creditor … may compel
the debtor to make 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 any fortuitous event until he has affected the delivery.
(1096)

*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:
a. Demand specific performance or fulfillment of the obligation with a right to
indemnity for damages; or
b. Demand rescission or cancellation of the obligation also with a right to recover damages;
or
c. Demand payment of damages only, where it is the only feasible remedy
2. A generic real obligation (obligation to deliver an indeterminate thing) – can be performed by
a third person since the object is expressed only according to its family or genus. The creditor
has the right to recover damages in case of breach or violation of the obligation.
>>An indeterminate/generic thing cannot be the object of destruction by a fortuitous event because
genus nunquam perit (genus never perishes)

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. (1097a)
*Accessions and Accessories
1. Accessions – fruits of a thing or additions to or improvements upon a thing (the principal)
(Examples: House or trees on a land, Rents of a building, Airconditioner in a car)
2. Accessories – things joined to or included with the principal thing for the latter’s
embellishment, better use, or completion (Examples: Key of a house, Frame of a picture,
Bracelet of a watch, Machinery in a factory)
NOTE: Accessions are not necessary to the principal thing.
Accessory and the principal thing must go together. Both can exist in relation to the
principal.
>>All accessions and accessories are considered included in the obligation to deliver a
determinate thing although they may not have been mentioned.

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.
(1098)

* This provision applies to an obligation to do.

THREE SITUATIONS:
a) Debtor’s failure to perform an obligation
creditor may do the obligation, or by another, at the expense of the debtor;
recover damages
b) Performance was contrary to the terms agreed upon
order of the court to undo the same at the expense of the debtor
c) Performance in a poor manner
order of the court to undo the same at the expense of the debtor

BAC 2 – BUSINESS LAW 6

Module 3: NATURE AND EFFECT OF OBLIGATION
Examples:

(1) X binds himself to construct a house for B. Among other things, it was stipulated that the house
shall have three (3) bedrooms, each of which to have an area of five (5) meters by four (4) meters
and that the kitchen shall be painted all white.
If X does not construct the house, B may ask C to contract the house at the expense of X.
(2) Suppose X constructed the house but the size of the bedroom is not five (5) meters by four (4)
or the kitchen is not painted all white.
In this case, B can ask to have it done according to the specifications. If X refuses, the
obligation may be performed by C at the expense of X.
(3) Now, if the kitchen was painted white but the painting was poorly done, B may ask X that it be
undone or, in case of X’s refusal, he may ask C to paint the kitchen at the expense of X.
In no case, however, can X be compelled against his will to comply with his obligation
should he refuses to do so.
Activity 3.3. What did you learn?
Distinguished and identify the following words.
1. Distinguished real right from personal right.
2. Distinguished Accession from Accessories.
3. Identify what kind of fruits are the following:
a. organic rice, cabbage, corn, pineapples, grapes. _______________________________
b. Coconut trees, Paper tree, Pine tree, Tall fescue. _______________________________
c. real property tax, annual income tax, Monthly SSS contribution. ____________________

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. (1099a)

* This provision applies to an obligation not to do.

Example: B bought a land from S. It was stipulated that S would not construct a fence on a certain
portion of his land adjoining that sold to B.
Should S construct a fence in violation of the agreement, B can bring an action to have the
fence removed at the expense of S.

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 exists:

• When the law or obligation so expressly declares;

• When from the nature of the contract, time us the essence and motivating factor for its
establishment;
• When demand would be useless (prestation is impossible);
• In reciprocal obligations, from the moment one of the parties fulfills his obligation;
• When the debtor admits he is in default (1100a)

BAC 2 – BUSINESS LAW 7

Module 3: NATURE AND EFFECT OF OBLIGATION
*Meaning of Delay
1. Ordinary delay – is merely the failure to perform an obligation on time.
2. Legal delay (default/mora) – is the failure to perform an obligation on time which failure
constitutes a breach of the obligation.
KINDS OF DEFAULT :
1.) MORA SOLVENDI – delay on the part of the debtor to fulfill his obligation;
REQUISITES:
a) failure of the obligor to perform obligation on the DATE agreed upon;
b) demand (judicial/extrajudicial) by the creditor;
c) failure to comply with such demand
Example:
S obliged himself to deliver to B a specific refrigerator on December 10.
If S does not deliver the refrigerator on December 10, he is only in ordinary delay in the
absence of any demand from B although a period had been fixed for the fulfillment of the obligation.
The law presumes that B is giving S an extension of time within which to deliver the refrigerator.
Hence, there is no breach of obligation and S is not liable for damages.
If a demand is made upon S by B on December 15 and S fails to deliver the refrigerator, S is
considered in default only from the date. If an action for a specific performance is filed by B on
December 20, the payment of damages for the default must commence on December 20. In the
absence of evidence; as to such extra-judicial demand, the effects of default arise from the date of
judicial demand that is from the filing of the complaint.

EFFECTS:
a) debtor- guilty of breach or violation of the obligation
b) debtor – liable for damages and interests
c) debtor – liable for the loss of a thing due to a fortuitous event
KINDS:
a) mora solvendi ex re – default in real obligations (to give)
b) mora solvendi ex persona – default in personal obligations (to do)
2. MORA ACCIPIENDI – delay on the part of the creditor to accept the performance of the obligation;
EFFECTS:
a) Creditor – guilty of breach of obligation
b) creditor – liable for damages
c) creditor – bears the risk of loss of the thing
d) debtor – not liable for interest from the time of creditor’s delay
e) debtor – release himself from the obligation
3. COMPENSATIO MORAE – delay of the obligors in reciprocal obligation.
EFFECT: the default of one compensates the default of the other; their respective liabilities
shall be offset equitable.
- the delay of the obligor cancels the delay of the oblige, and vice versa. The net result is
that there is no actionable default on the part of both parties.

*When demand is not necessary to put debtor in delay

-delay by the debtor begins only from the moment of demand, judicial or extra-judicial, for the
fulfillment of the former’s obligation is made by the creditor. Without such amount, the effect of
default will not rise.
Exceptions are:
1. When the obligation so provides
Example: D promised to pay C the sum of P20,000 on or before November 30 without the need
of any demand. Therefore, if D fails to pay on November 30, he is automatically in default. In
this case, the parties stipulate to dispense with the demand.

BAC 2 – BUSINESS LAW 8

Module 3: NATURE AND EFFECT OF OBLIGATION
2. When the law so provides
Example: Under the law, taxes should be paid on or before a specific date; otherwise, penalties
and surcharges are imposed without the need of demand for payment by the government.
3. When time is of the essence
Example: The delivery of balloons on a particular date when a children’s party will be held.
4. When demand would be useless
Example: S obliged himself to deliver a horse to B on September 5. Through S’s negligence or
deliberate act, or by reason of fortuitous event for which S has expressly bound himself
responsible (see art. 1174), the horse died on September 2. Under this situation, any demand
for the delivery of the horse on September 5 would be useless as S has made it impossible for
him to perform his obligation. Demand is also unnecessary where it is unavailing, as where
there has been a prior absolute refusal by S, or S has manifested an intension not to comply
with his obligation.
5. When there is performance by a party in reciprocal obligations
Example: S agreed to sell B his television set for P10,000. The obligation of S is to deliver the
television set while that of b, to pay P10,000.
Since no date is set, it is understood that it must be simultaneous. S cannot demand payment if
he himself cannot deliver the television set.
If the agreement is that the delivery and payment shall be made on December 10, the delivery
(payment) by S(B) on December 5 does not give him the right to demand payment (delivery) from
B(S). Neither party will incur in delay before December 10 notwithstanding that the other has
already complied with obligation. Here, performance is set on the same date.

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.
(1101)

*Grounds for damages / liability

1. Fraud (deceit or dolo)
2. Negligence (fault or culpa)
3. Delay (default or mora)
4. Contravention of the terms of the obligation

FRAUD (dolo) – A false representation of a matter of fact, whether by words, or by conduct, or misleading
obligations, or by concealment of that which should have been disclosed.
NEGLIGENCE (culpa or fault) – voluntary act or omission of diligence, there being no malice,
which prevents the normal fulfillment of an obligation;
DELAY (mora) – default or tardiness in the performance of an obligation after it has been due and
demandable;
CONTRAVENTION OF TERMS OF OBLIGATION (violation)– violation of terms and conditions
stipulated in the obligation; this must not be due to a fortuitous event.

Art. 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of
an action for future fraud is void. (1102a)

• To allow such waiver will necessarily render the obligatory force of contracts illusory.
• The law does not prohibit waiver of an action for damages based on fraud already committed.
• Any deliberate deviation from the normal way of fulfilling the obligation may be a proper basis
for claim for damages against the guilty party.

BAC 2 – BUSINESS LAW 9

Module 3: NATURE AND EFFECT OF OBLIGATION
*Fraud (deceit or dolo) – is the deliberate or intentional evasion of the normal fulfillment of an
obligation.
1. INCIDENTAL FRAUD (dolo incidente) – refers to committed in the performance of an
obligation already existing because of contract. (applicable provisions are Arts. 1170 &
1344)
2. CASUAL FRAUD (dolo causante) – refers to fraud employed in the execution of a contract
under Art. 1338, which vitiates consent.

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 circumstances. (1103)

Court’s discretion because:

(a) negligence depends upon the circumstances of a case – good or bad faith of the obligor may
be considered as well as the conduct or misconduct of the obligee; (b) it is not as serious as
fraud.
*Negligence (fault or culpa) – 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.
>>In determining the issue of negligence, the following factors must be considered:
1. Nature of the obligation
2. Circumstances of time
3. Circumstances of the place
*Kinds of negligence according to source of obligation
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 before by any pre-existing contract.
- it is also called tort or quasi-delict
3. CRIMINAL NEGLIGENCE (culpa criminal) – negligence resulting in the commission of a crime.

Basis 1. Culpa Aquiliana 2. Culpa Contractual

(Quasi-delict) (Breach of contract)
DEFINITION Negligence between parties Negligence in the performance of
not so related by pre-existing contractual obligation
contract
NATURE OF Direct, substantive and Incidental to the performance of the
NEGLIGENCE independent obligation.
GOOD FATHER OF Complete and proper defense Not complete and proper defense in
THE FAMILY (parents, guardian, the selection of employees.
DEFENSE employers)
PRESUMPTION OF No presumption – injured There is presumption – defendant
NEGLIGENCE party must prove negligence must prove that there was no
of the defendant. negligence in the carrying out of the
terms of the contract.

BAC 2 – BUSINESS LAW 10

Module 3: NATURE AND EFFECT OF OBLIGATION
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 persons, of the time and of the place… If the law or contract does not state the
diligence which is to be observed in the performance, that which is expected if a good
father of a family shall be required. (1104a)

- This provision provides for a negative definition of “proper diligence of a good father of a family”

FRAUD distinguished from NEGLIGENCE

FRAUD NEGLIGENCE
There is deliberate intention to cause There is no deliberate intention to cause damage.
damage.
Liability cannot be mitigated. Liability may be mitigated.
Waiver for future fraud is void. Waiver for future negligence may be allowed in
certain cases:

DILIGENCE – the attention and care required of a person in a given situation and is opposite of
negligence.
NEGLIGENCE – consists in the omission of that diligence which is required by the nature of the
particular obligation and corresponds with the circumstances of the persons, of the time, and of the
place.
KINDS of DILIGENCE:
1. DILIGENCE OF A GOOD FATHER – a good father does not abandon his family, he is
always ready to provide and protect his family; ordinary care which an average and
reasonably prudent man would do.
2. Diligence required by the law governing the particular obligation
3. Diligence stipulated by the parties

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)

FORTUITOUS EVENT – an occurrence or happening which could not be foreseen or even if

foreseen, is inevitable; absolutely independent of human intervention; acts of God.
Examples: Earthquake, flood, rain, shipwreck.

FORCE MAJEURE - an event caused by the legitimate or illegitimate acts of persons other than
the obligor; there is human intervention; acts of man.

Examples: War, Robbery, fire, etc.

REQUISITES OF FORTUITOUS EVENT: [IU-IF]

1. Independent of the human will (or at least of the obligor’s)
2. Unforeseen or unavoidable
3. Of such character as to render it impossible for the obligor to comply with his obligation in a
normal manner
4. Obligor / debtor– free from any participation/aggravation of the injury to the obligee (no
negligence or imprudence)

BAC 2 – BUSINESS LAW 11

Module 3: NATURE AND EFFECT OF OBLIGATION
Rules as to liability in case of fortuitous event.
1. When expressly specified by law.
(a) The debtor is guilty of fraud, negligence, or delay, or contravention of the tenor of the
obligation. (Art. 1170. 1165, par. 3)
(b) The debtor has promised to deliver the same (specific) thing to two (2) or more persons
who do not have the same interest.
(c) The obligation to deliver a specific thing arises from a crime.
(d) The thing to be delivered is generic
2. When declared by stipulation – rest upon the freedom of contract.
3. When the nature of the obligation requires the assumption of risk. – risk of loss or damage is
an essential element in the obligation.

Art. 1175. Usurious transactions shall be governed by special laws.

SIMPLE LOAN OR MUTUUM – is a contract whereby one of the parties delivers to another,
money or other consumable thing, upon the condition thst the same amount of the same kind and
quality shall be paid.

USURY – contracting for or receiving interest in excess of the amount allowed by law for the loan
or use of money, goods, etc.

USURY LAW – makes the usurers criminally liable if the interest charged on loans are more than
the limit prescribed by law.
• This law is repealed – Circular No. 905 of the Central Bank has expressly removed the
interest ceilings prescribed by the USURY LAW.

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. (1110a)

• These are mere presumptions.

• To be sure – write the interest and the dates covered by such payment in the receipt.
Presumptions – is the inference of a fact not actually known arising from its usual connection with
another which is known or proved.
TWO KINDS OF PRESUMPTIONS:
(1) Conclusive presumption. – one which cannot be contradicted, like the presumption that
everyone is conclusively presumed to know the law.
(2) Disputable (or rebuttable) presumption. – one which can be contradicted or rebuteted by
presenting proof to the contrary, like presumptions established in Article 1176.

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. (1111)

BAC 2 – BUSINESS LAW 12

Module 3: NATURE AND EFFECT OF OBLIGATION

REMEDIES AVAILABLE TO CREDITORS FOR THE SATISFACTION OF THEIR CLAIMS:

1. Exact fulfillment with right to damages
2. Exhaustion of the debtor’s properties still in his possession – writ of attachment (before
judgment) or writ of execution (for final judgment not yet executed)
3. ACCION SUBROGATORIA – an action where the creditor whose claims had not been fully
satisfied, may go after the debtors (3rd person) of the defendant debtor.
4. ACCION PAULIANA – an action where the creditor files an action in court for the
RESCISSION of acts or contracts entered into by the debtor designed to defraud the former.

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.

EXCEPTIONS:
(1) Prohibited by Lawn – (a) Those not transmissible by their nature like purely personal rights; (b)
Those not transmissible by provision of law; (c) those not transmissible by stipulation of parties.
(2) Prohibited by stipulation of the parties. – prohibited by stipulation of the parties, like the
stipulation that upon the death of the creditor, the obligation shall extinguished, or that the
creditor cannot assign his credit to another.

LET US WRAP UP

NATURE AND EFFECT OF OBLIGATION

Civil Code of the Philippine Article 1164 - 1178.
▪ Determinate or specific things – particularly designated or physically
segregated others of the same class.
▪ Generic or indeterminate things – refers only to class or genus to which
it pertains and cannot be pointed out particularly.

❖ Different kinds of Fruits: (a) natural fruits; (b) Industrial fruits; (c) Civil fruits

❖ Two types of Rights: Personal right and real right

❖ Kinds of Delay: Mora Solvendi, Mora Accipiende; Compensatio Morae.

Grounds for damages / liability
1. Fraud (deceit or dolo)
2. Negligence (fault or culpa)
3. Delay (default or mora)
4. Contravention of the terms of the obligation

❖ Kinds of Fraud: Incidental Fraud, Causal Fraud

❖ Kinds of negligence: Contractual Negligence; Civil Negligence; Criminal Negligence.

 Kinds of Diligence: (a) diligence of a good father; (b) required by the law governing a particular
obligations; (c) stipulated by the parties.

BAC 2 – BUSINESS LAW 13

Module 3: NATURE AND EFFECT OF OBLIGATION
LET US ASSESS

WO4.Part 1. Identification (1 pt. each)

__________________ 1. It is merely the failure to perform an obligation on time

and which failure constitutes a breach of the obligation.
__________________ 2. a right pertaining to a person to demand from another, as a definite
passive subject, the fulfillment of a prestation to give, to do or not to do.
__________________ 3. What kind of thing is this; The mountain bike Ally bought on November 1,
2021.
__________________ 4. the creditor may exercise the following remedies or rights in case the
debtor fails to comply with his obligation
__________________ 5. right pertaining to person over a specific thing, without a passive subject
individually determined against whom such right may be personally
enforced.
__________________ 6. These are things joined to or included with the principal thing for the latter’s
embellishment, better use, or completion.
__________________ 7. This fruit is derived by virtue or juridical relation.

__________________ 8. It is a failure of the obligor to perform obligation on the DATE agreed upon,
thus, making the debtor guilty of breach or violation of the obligation.
__________________ 9. negligence which by itself is the source of an obligation between the
parties not so related before by any pre-existing contract.
__________________ 10. violation of terms and conditions stipulated in the obligation; this must
not be due to a fortuitous event.

Part 2. Multiple Choice (1 pt. each)

_____ 1. The creditor has the right to the fruits of the thing from the time
a. The fruits are actually delivered
b. The obligation to deliver the fruits arises
c. The thing is actually delivered
d. The obligations to deliver the thing arises

_____ 2. Which statement is false? In an obligation to do something, in which case is demand

by the creditor not necessary in order that delay may exist?
a. When stipulate by the parties
b. When the law expressly declares
c. When the time is of the essence
d. When the obligor has rendered it within his power to perform

_____ 3. A person shall be responsible for fortuitous even in the following cases. Which is
the exception?
a. When the law expressly provides liability
b. When the law is silent as to liability
c. When stipulation declares responsibility
d. When the obligation requires the assumption of risk

_____ 4. When the subject of the obligation is lost through fortuitous event who is liable?
a. Debtor b. Creditor c. Debtor and Creditor d. none of the above

BAC 2 – BUSINESS LAW 14

Module 3: NATURE AND EFFECT OF OBLIGATION
_____ 5. Time as a controlling motive for the establishment of the contract appears from the
a. Demand by the creditor c. Nature and circumstances of the case
b. Good faith of either party d. Inability of the obligor to deliver on time

_____ 6. X is bound to deliver to Y a specific Wimpex Air Cooler with remote control. The
right of Y is to
a. Demand X to make the delivery c. Ask Z to make the delivery and charge it to X
b. Demand damage from X d. All of the above

_____ 7. When there is contravention of the tenor of the contract, interest due shall earn legal
interest from the time
a. It is judicially demanded c. It is judicially or extra-judicially demanded
b. It is demanded extra-judicially d. None of the above

_____ 8. Debtors incur in delay from the time the;

a. Creditor files a complaint in court c. Creditors demands in writing
b. Creditor demands orally d. All of the above

_____ 9. As a general rule, every person obliged to give something is

a. Not obliged to take care of the thing
b. Obliged to take care of the thing if stipulated
c. Obliged to take care of the thing
d. Not obliged to observe diligence in taking care of the thing

_____ 10. Which is not true? In an obligation to do something, in which case is demand by
the creditor not necessary in order that delay may exist?
a. When the obligation so provides
b. When the law so declares
c. When time is of the essence
d. When demand is possible

Part 3. Essay

1. Give the rules as to the liability of a person for loss or damage resulting to fortuitous event. (5
pts)
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________

2. What are included to be delivered in an obligation to give a definite thing? Explain them. (10 pts)
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________

3. Suppose the obligation of the debtor is to do something and he fails to do it or performs it in

contravention of the agreement, what are the remedies available to the creditor? (5 pts.)
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________

BAC 2 – BUSINESS LAW 15

Module 3: NATURE AND EFFECT OF OBLIGATION
PERFORMANCE TASK:

PT3. Case study for Portfolio / E-portfolio (50 pts.)

Case problem: Explain or state the rule or reason for your case analysis.

Elijah promise to deliver to Jacob a female horse named Maria on December 29. Maria give
birth to a colt on December 25.

(a) What are the obligations of Elijah?

(b) Who has the right to the colt?
(c) Who is the lawful owner of Maria in case it was sold and deliver by Elijah to Noah on
December 27?

PT4. Movie Review Assignment (Film Analysis) (50pts)

You have to watch the movie “Catch me if you can.” Find out what
this movie is all about and make an analysis.

GUIDELINES: A film analysis is not a review or summary of the plot,

it should go deeper into analysis and reaction. It should discuss the
issues raised by the film, address the film’s importance and purpose,
state reactions to the content and quality of the film, and connect it
to ideas and material presented in the module. You may include the
following (in any order you choose).

Procedure:
You have to describe the film in general terms. What subjects does it cover? What issues
does it
raise? What do you see as the main purpose of the film?
What is the major theme of the film?
Relate the film to the lessons, readings, notes or knowledge. Is the film historically (or
factually) accurate and realistic? Does it contradict or support anything you have learned?
Explain why?
Summarize briefly emphasizing the strengths and weaknesses of the film.
You may submit a hard copy or via Google classrooms. Please note, your paper WILL be
checked for plagiarism.

Requirements:
✓ All papers must be typed with Arial Font and 12 pt.
✓ All papers must contain information detailed in the procedure section of these guidelines.
✓ All papers must be compiled in a folder or submitted via Google Classroom

*Remember that sections should be at least a paragraph or more and that you should fully
answer and analyze the five points (last page) in the body of your paper.

BAC 2 – BUSINESS LAW 16

Module 3: NATURE AND EFFECT OF OBLIGATION

Analysis Rubrics:

SECTIONS 5 Pts 4 Pts. 3 Pts. 2 Pts.

Demonstrates an Demonstrates a Demonstrates a Demonstrates less
excellent thorough good than competent
understanding of the understanding of the understanding of understanding of the
assignment. assignment. the assignment. assignment.
- has an engaging - has a good - has a good - has little or no
INTRODUCTION
introductory introductory introductory introductory
sentence, context. sentence, some sentence, limited sentence, context,
- has a strong context, context, and no thesis
thesis. - has a good thesis. - has a competent statement
thesis.
Demonstrates an Demonstrates a Demonstrates a Demonstrates a less
excellent thorough good than competent
understanding of the understanding of the understanding of understanding of the
assignment. assignment. the assignment. assignment. It has
- All questions are - All questions are - Most questions little or no analysis.
answered fully with answered fully with are answered The paper may lack
in depth analysis analysis and with in analysis answers and the
and interpretation. interpretation. and writing is poor.
- the writing is - the writing is interpretation. Limited facts and
BODY articulate and articulate and - the writing is multiple grammatical
sophisticated. sophisticated. articulate. There error. Organization
- The facts are vivid, - The facts are vivid, are a few facts. is poor and over
explicit, effective explicit and - There are quality is not
and material. effective. grammatical present.
-few grammatical - There are some mistakes and
mistakes and overall grammatical overall the paper
the paper is well mistakes and overall is acceptable.
written. the paper is well
written.
Demonstrates an Demonstrates a Demonstrates a Demonstrates a less
excellent thorough good than competent
understanding of the understanding of the understanding of understanding of the
assignment. It has assignment. It has a the assignment. It assignment. It has
an engaging good conclusion that has a conclusion little or no
CONCLUSIONS
conclusion that summarizes the which restates conclusion.
summarizes the evidence and the introduction
evidence and connects to the and summarizes
connects to the thesis and body the evidence
thesis and body. somewhat

Overall grade / rating: 5 = 50/50; 4 = 40/50; 3 = 30/50; 2 = 20/50

BAC 2 – BUSINESS LAW 17

Module 3: NATURE AND EFFECT OF OBLIGATION

ANSWER KEY

Activity 3.2. What I am? (Am I Determinate or Generic?)

Input the correct Thing on each number.
1. This cavan of rice. Determinate
2. The house at the corner of Rizal and Del Pilar. Determinate
3. A Village inside the forest. Generic
4. The Toyota car with plate No. AAV316 (2008). determinate
5. A Police Dog? Generic

Activity 3.3. What did you learn?

Distinguished and identify the following words.
1. Distinguished real right from personal right. See Article 1164.
2. Distinguished Accession from Accessories. See Article 1166.
3. Identify what kind of fruits are the following:
a. organic rice, cabbage, corn, pineapples, grapes. Industrial fruits
b. Coconut trees, Paper tree, Pine tree, Tall fescue Natural fruits
c. real property tax, annual income tax, Monthly SSS contribution. Civil fruits

REFERENCES
H. S. De Leon, H. M. De Leon, 2014 Edition, The Law on Obligations and Contracts.
S. Ballada, Atty. D. J. C. Mendoza, 2007 Issue 2 nd Edition, Simplified Law on Obligations and
Contracts.
C. B. Suarez, A. Q. Suarez, 2006 Edition, Pointers in Business Law

Online Supplementary Reading Materials

Atty. C. P. Carpio – Aldequer, posted 2014, Law on Obligations and Contracts in the Philippines,
An overview, downloaded from Academia.edu.com.

BAC 2 – BUSINESS LAW 18