WEEK TWO

A. GENERAL PRINCIPLES IN
LAW ON OBLIGATIONS AND CONTRACTS
(BUSINESS LAW I)

LAW—a rule of conduct, just, obligatory, promulgated by legitimate authority, and of common
observance and benefit.

CIVIL LAW—the mass of precepts which determines and regulates those relations of assistance,
authority and obedience existing among members of a family as well as among members of a society for
the protection of private interests.

CIVIL CODE—a collection of laws which regulates the private relations of the members of civil society,
determining their respective rights & obligations, with reference to persons, things and civil acts.

PHYSICAL/ MECHANICAL COMPOSITION OF THE CIVIL CODE OF THE PHILIPPINES

( Aug 30, 1950)
--2270 articles
1. Preliminary title—Arts. 1-36
2. Book I—Persons—Arts 37-51, Arts. 1-257 Family Code, Arts 305-310, Arts 356-396, Arts. 407-413
3. Book II—Property, ownership and its modifications—Art. 414-711
4. Book III- Modes of acquiring ownership—Art 712-1155
5. Book V-Obligations and contracts—Art 1156-2251
6. Transitional provisions—Arts 2252-2269
7. Repealing clause—Art. 2270.

Title 1
OBLIGATIONS
Chapter 1
GENERAL PROVISIONS

Art. 1156. Definition of Obligation-- a juridical necessity to give, to do or not to do.

--a juridical relation whereby a person (called the creditor) may demand from another (called the
debtor) the observance of a determinate conduct (the giving, doing, or not doing), and in case of
breach, may demand satisfaction from the assets of the latter.” ( Arias Ramos, p. 74)
-- “Juridical necessity” because non-compliance can result in judicial or legal sanction.

-- Elements/requisites of Obligation:
1) an active subject (obligee or creditor): the possessor of a right; he in whose favor the obligation
is constituted;
2) a passive subject (obligor or debtor): he who has the duty of giving, doing or not doing;
3) the object or prestation: the subject matter of the obligation; it may consist of giving a thing,
or doing or not doing a certain act; and
4) the efficient cause (vinculum or juridical tie): the reason why the obligation exists.

PERSONAL NOTES IN OBLIGATIONS AND CONTRACTS BY ATTY. EASMACATO 1

 --Kinds of Obligations
1) From the viewpoint of sanction
a) civil obligation (perfect obligation): defined in Art. 1156, Civil Code, and sanctioned by
judicial process
b) natural obligation: the duty not to recover what has voluntarily been paid although
payment was no longer required
-- it is sanctioned by law, but only because conscience had originally motivated the
payment
c) moral obligation: sanctioned by conscience or morality, or the laws of the church.

2) From the viewpoint of subject

matter
a) real obligation: the obligation to give
b) personal obligation: to obligation to do or not to do

3) From the affirmativeness and negativeness of the obligation

a) positive or affirmative obligation: the obligation to give or to do
b) negative obligation: the obligation not to give or not to do

4) From the persons obliged

a) unilateral: when only one of the parties is bound
b) bilateral: where both parties are or may be bound
i) reciprocal: the performance of one is dependent upon the performance of the other
ii) non-reciprocal: the performance of one is not dependent on the performance by
the other

Article 1157 in Articles 1158-62

Art. 1157 Sources of Obligation

1) Law,
2) Contracts,
3) Quasi-contracts,
4) Acts or omissions punishable by law, and
5) Quasi delicts.

Art. 1158: Law

 Obligations derived from law are

1) not presumed but must be expressly determined in this Code or other special laws;
2) regulated by the precepts of law which establishes them; and as to what not has been
foreseen, by the provisions of this book.
 Test to determine whether an obligation arises from law or other sources:
1. If the law establishes the obligation and the act or condition upon which it is based is nothing
more than a factor for determining the moment it becomes demandable, then the source is LAW;
2. If the law merely recognizes or acknowledges the existence of an obligation generated by an act
which may constitute a contract, quasi-contract, delict or quasi-delict and its purpose is only to
regulate such obligation, then the ACT ITSELF is the source of the obligation.

Art. 1159: Contracts

 Obligations arising from contracts:

1) have the force of law between the parties; and
- neither party may unilaterally and upon his own exclusive volition, escape his obligations
under the contract, unless the other party assented thereto, or unless for causes sufficient in
law and pronounced adequate by a competent tribunal.
2) should be complied with in good faith.
- “Compliance in good faith” means that we must interpret “not by the letter that killeth
but by the spirit that giveth life.”

PERSONAL NOTES IN OBLIGATIONS AND CONTRACTS BY ATTY. EASMACATO 2

 Principle of Privity of Contracts: The terms of the contract cannot be extended to third parties or
those not included in the contract.
 have the force of law between the contracting parties and should be complied with in good faith

Article 1160: Quasi-contracts

 Obligations derived from quasi-contract shall be subject to the provisions of Chapter 1, Title XVII, of
this Book.
 Definition of Quasi-contract: that juridical relation resulting from a lawful, voluntary, and
unilateral act, and which has for its purpose the payment of indemnity to the end that no one shall be
unjustly enriched or benefited at the expense of another. (Art. 2142, Civil Code)
 Kinds of Quasi-contract
1) Negotiorium gestio (unauthorized management): takes place when a person
voluntarily takes charge of another’s abandoned business or property without the owner’s
authority;
- Reimbursement should be made to the gestor for necessary and useful expenses.
2) Solutio Indebiti (undue payment) : takes place when something is received when there is no
right to demand it, and it was unduly delivered by mistake.
- The recipient has the duty to return what was received.

Art. 1161: Ex Delicto or Ex Maleficio (civil liability arising from crimes or delicts)

 The commission of a crime causes not only moral evil but also material damage=every person criminally
liable is also civilly liable (art 100 RPC)
 Rules that govern:
1) pertinent provisions of the Revised Penal Code and other penal laws, subject to the provisions of
Art. 2177, Civil Code;
2) Chapter 2, Preliminary Title, on Human Relations of the Civil Code;
3) Title 18 of Book IV of the Civil Code (on damages).
 Scope of civil liability
1) Restitution
2) Reparation for the damage caused
3) Indemnification for consequential damages

Art. 1162: Ex Quasi-Delicts or Ex Quasi-Maleficio

 Rules that govern:
1) Chapter 2, Title 17, Book IV, Civil Code
2) Special laws.
 Definition of Quasi-delict: a fault or act of negligence (or omission of care), which causes damages
to another, there being no pre-existing contractual relations between the parties. (Art 2176)
 Definition of Negligence: the omission of that diligence which is required by the circumstances of
person, place and time (Art. 1173)
 Requirements before a Person can be held Liable for a Quasi-Delict
1) There must be an act or ommission
2) There must be fault or negligence attributable to the person charged;
3) There must be damage or injury;
4) There must be a direct relation of cause and effect between the fault or negligence on the one
hand and the damage or injury on the other hand (proximate cause).
- Proximate cause” is that adequate and efficient cause, which in the natural order of events,
necessarily produces the damages or injury complained of.
There is no pre-existing contractual relation between the parties

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 B. NATURE AND EFFECTS OF OBLIGATIONS

Art. 1163: The obligation of every person to take care of a DETERMINATE/SPECIFIC THING with proper
diligence of a GOOD FATHER OF A FAMILY.
 Specific/determinate thing—it is particularly designated or physically segregated from all others
of the same class. (Art. 1459)
 Generic /indeterminate thing—refers to a class or genus to which it pertains and cannot be
pointed out with particularity.
 Distinction:
Specific/determinate thing Generic /indeterminate thing

Debtor cannot substitute it with another Debtor can give anything of the same class as
although the latter is of the same kind and long as it is of the same kind
quality without the consent of the creditor
 Duties of debtor in obligation to give determinate thing
1) Preserve the thing under ordinary care (diligence of a good father of a family)
2) Deliver the fruits of the thing (art. 1164)
3) Deliver the accessions and accessories (Art. 1166)
4) Deliver the thing itself (Art. 1163. 1233, 1244)
5) Answer for damages in case of non-fulfillment breach (Art. 1170)
 Duties of debtor in obligation to give generic thing
1) To deliver a thing which is of the quality intended by the parties
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

Art. 1165 Remedies of Creditor in real obligation

 WHEN THE DEBTOR FAILS TO COMPLY WITH HIS OBLIGATION, THE CREDITOR
CAN:

1. Demand specific performance or compliance

a. If the thing is determinate – compel obligor to deliver the thing
b. If the thing is generic – demand obligor to comply with his obligation – you cannot
compel him to deliver a specific thing.
2. Demand rescission or cancellation
3. Demand Damages

Art. 1167: The Obligation TO DO

 Situations contemplated
1) The debtor fails to perform an obligation to do
- Remedies of the Creditor
a. Have the obligation performed by himself or another at the debtor’s expense (only if
another can do the performance)
b. Obtain Damages – only if personal or special, or if others or the creditor can’t do it
2) The debtor performs an obligation to do but contrary to the terms thereof;
3) The debtor performs an obligation to do but in a poor manner.
- Remedies of the creditor under #2 and #3
a. Court may order that the obligation may be undone if it is still possible to undo what
was done
 Specific performance is not a remedy in personal obligations, otherwise, this may amount to
involuntary servitude, which is prohibited under our Constitution

PERSONAL NOTES IN OBLIGATIONS AND CONTRACTS BY ATTY. EASMACATO 4

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.
 Obligor must refrain from doing a negative personal obligation
 Obligor cannot be guilty of delay
 Remedy of the Creditor
1) Undoing what has been done plus damages
2) If undoing is not possible—action for damages

PERSONAL NOTES IN OBLIGATIONS AND CONTRACTS BY ATTY. EASMACATO 5

 LAW 101-2 BUSINESS LAW (LAW ON OBLIGATIONS AND CONTRACTS) LESSON TWO
NATURE AND EFFECTS OF AN OBLIGATION

A. LEARNING OUTCOMES:
- Understood the different kinds of rights and how they are related to obligations;
- Identified two major kinds of obligations; and
- Identified the different modes of delivery in every kind of obligation

B. KEY CONCEPTS:

NATURE AND EFFECT OF OBLIGATIONS

Art. 1163: The obligation of every person to take care of a DETERMINATE/SPECIFIC THING with proper
diligence of a GOOD FATHER OF A FAMILY.
 Specific/determinate thing—it is particularly designated or physically segregated from all others of
the same class. (Art. 1459)
 Generic /indeterminate thing—refers to a class or genus to which it pertains and cannot be pointed
out with particularity.
 Distinction:
Specific/determinate thing Generic /indeterminate thing
Debtor cannot substitute it with another although Debtor can give anything of the same class as
the latter is of the same kind and quality without long as it is of the same kind
the consent of the creditor

 Duties of debtor in obligation to give determinate thing

1) Preserve the thing under ordinary care (diligence of a good father of a family)
2) Deliver the fruits of the thing (art. 1164)
3) Deliver the accessions and accessories (Art. 1166)
4) Deliver the thing itself (Art. 1163. 1233, 1244)
5) Answer for damages in case of non-fulfillment breach (Art. 1170)
 Duties of debtor in obligation to give generic thing
1) To deliver a thing which is of the quality intended by the parties
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

Art. 1164: Rights of the Creditor to the fruits

 The creditor has the rights 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.
 Different kinds of fruits
1) Natural fruits—the spontaneous products of the soil, and the young and other products of
animals
2) Industrial fruits—those produced by lands of any kind through cultivation or labor
3) Civil fruits—those delivered by virtue of a juridical relation.
 When obligation to deliver fruits arises
1) From the time of the perfection of the contract
2) If subject to a condition or period-it arises upon the fulfillment of the condition or arrival of the term

 Right of Creditor to the fruits:

1. Before delivery—personal right
2. After delivery—real right
PERSONAL NOTES IN OBLIGATIONS AND CONTRACTS BY ATTY. EASMACATO 6
 Personal right and real right
Personal right Real right
Jus ad rem-- Power demandable by one Jus in re-- power over a specific thing and it is
person of another (obligation to give, to do or binding on the whole world.
not to do)
There is a definite active subject and a definite Only a definite active subject without any
passive subject definite passive subject
 Binding and enforceable only against a Directed against the whole world
particular person
 When is ownership/real rights acquired—by tradition or delivery
 Kinds of Delivery
A. ACTUAL OR TRADITION – physically, the property changes hands
B. CONSTRUCTIVE DELIVERY – where the physical transfer is implied
1. Traditio Simbolica (symbolical tradition) – as when the keys to the bodega are given
2. Tradition Longa Manu (delivery by mere consent or the pointing out of the object) – like
pointing out to the car, which is the object of a sale.
3. Tradition Brevi Manu (delivery by short hand) – a possessor of a thing not as an owner,
becomes the possessor as owner – like when a tenant already in possession buys the
house he is renting.
4. Tradition Constitutum Possessorium – opposite of Brevi Manu – the delivery whereby
a possessor of a thing as an owner retains possession no longer of a thing as an owner but
in some other capacity.
5. Tradition by the Execution of Legal Forms and Solemnities – like the execution of a
public instrument selling land.

REAL OBLIGATIONS: RIGHTS AND OBLIGATIONS

A. LEARNING OUTCOMES:
- Understood the different kinds of rights and how they are related to obligations;
- Identified two major kinds of obligations; and
- Identified the different modes of delivery in every kind of obligation

B. KEY CONCEPTS:
RIGHTS AND OBLIGATIONS IN REAL OBLIGATIONS

Art. 1165 Remedies of Creditor in real obligation

 WHEN THE DEBTOR FAILS TO COMPLY WITH HIS OBLIGATION, THE

CREDITOR CAN:
1. Demand specific performance or compliance
a. If the thing is determinate – compel obligor to deliver the thing
b. If the thing is generic – demand obligor to comply with his obligation – you cannot
compel him to deliver a specific thing.
2. Demand rescission or cancellation
3. Demand Damages
 FORTUITOUS EVENTS CANNOT EXEMPT ONE FROM COMPLIANCE IF:
1. The obligor defaults or is in delay
2. The obligor is guilty of Bad Faith (for having promised to deliver to two or more persons
who do not have the same interest).
* “DELAY” in this article means LEGAL DELAY or DEFAULT
a. ORDINARY DELAY - merely the non-performance at the stipulated time
b. LEGAL DELAY or DEFAULT – that delay which amounts to a virtual non-fulfillment of the
obligation. AS A RULE, to put a debtor in default, there must be a JUDICIAL or
EXTRAJUDICIAL DEMAND or fulfillment

Art. 1166—Obligation to deliver determinate thing with accessions and Accessories.

 ACCESSORIES – those joined to or included in the principal for the latter’s better use, perfection
or enjoyment. (Example: keys to a house, jack of a car)
 ACCESSIONS – additions to improvements upon a thing (Examples: whatever is built, planted
or sown on a parcel of land).
 GR: allPERSONAL
accessionsNOTES IN OBLIGATIONS
and accessories AND CONTRACTS
are considered BY in
included ATTY.
the EASMACATO
obligation to deliver a 7
determinate thing although they may not have been mentioned.

Art. 1167: The Obligation TO DO

 Situations contemplated
1) The debtor fails to perform an obligation to do
- Remedies of the Creditor
a. Have the obligation performed by himself or another at the debtor’s expense (only if
another can do the performance)
b. Obtain Damages – only if personal or special, or if others or the creditor can’t do it
PERSONAL NOTES IN OBLIGATIONS AND CONTRACTS BY ATTY. EASMACATO 8
 2) The debtor performs an obligation to do but contrary to the terms thereof;
3) The debtor performs an obligation to do but in a poor manner.
- Remedies of the creditor under #2 and #3
a. Court may order that the obligation may be undone if it is still possible to undo what was
done
 Specific performance is not a remedy in personal obligations, otherwise, this may amount to
involuntary servitude, which is prohibited under our Constitution

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.
 Obligor must refrain from doing a negative personal obligation
 Obligor cannot be guilty of delay
 Remedy of the Creditor
1) Undoing what has been done plus damages
2) If undoing is not possible—action for damages

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PERSONAL NOTES OF ATTY. EVANGELINE A. SANTIAGO-MACATO
 WEEK FOUR
BREACHES OF OBLIGATIONS: CAUSES AND EFFECTS

 The different breaches of contract are:

1. Delay
2. Fraud
3. Negligence
4. Contravention of the Terms of the agreement

Art 1169 Delay

“Those obliged to deliver or to do something incur in delay from the time the obligee judicially
or extra-judicially demands from them the fulfillment of their obligation.
However, the demand from the creditor shall not be necessary in order that delay may exist:
a. When the obligation or the law expressly so declares.
b. When from the nature and the circumstances of the obligation it appears that the designation of
the time when the thing is to be delivered to the service is to be rendered was a controlling
motive for the establishment of the contract
c. When demand would be useless, as when the obligor has rendered it beyond his power to
perform In reciprocal obligations, neither party incurs in delay if the other does not comply or is not
ready to comply in a proper manner with what is incumbent upon him. From the moment one of the
parties fulfills his obligation, delay by the other begins.”
 DELAY/DEFAULT—
a. ORDINARY DELAY - merely the non-performance at the stipulated time
b. LEGAL DELAY or DEFAULT – that delay which amounts to a virtual non-fulfillment of the
obligation. AS A RULE, to put a debtor in default, there must be a JUDICIAL or EXTRAJUDICIAL
DEMAND or fulfillment
 Kinds of Default
a. Mora Solvendi- default on the part of the debtor
- Requisites
1. Failure on the debtor to perform his positive obligation on the date agreed upon
2. Demand (not mere reminder or notice) made by the creditor on the debtor with his
obligation
3. Failure of the debtor to comply with such demand
- Effects
1. The debtor is guilty of the breach of the obligation
2. He is liable for interest or damages
3. He is liable for fortuitous event when the obligation is to deliver a determinate thing.
b. Mora Accipiende- default on the part of the creditor
- Effects
1. Creditor is guilty of the breach of the obligation
2. He is liable for damages
3. He bears the risk of loss of the thing due
4. Where the obligation is to pay money, the debtor is not liable for interest at the time of the
creditor’s delay;
5. The debtor may release himself from the obligation by the consignation or deposit in
court of the thing oor sum due
c. Compensatio Morae- when in a reciprocal obligation both parties are in default, here it is as if
neither is in default

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PERSONAL NOTES OF ATTY. EVANGELINE A. SANTIAGO-MACATO
 - BUT IN THE PHILIPPINE LAW, THIS IS NO LONGER SO because it is expressly provided
that in reciprocal obligations, neither party incurs default if the other does not comply with
what is incumbent upon him. Even if there were (written) demands from both sides, there is
no default when neither has done his obligation.
- Effect
1. The delay of the obligor cancels the delay of the obligee and vice versa
2. There is no actionable default on the part of both parties

 Extra-judicial demands may be written or oral-but best if written because it can be presented as
evidence.
 AS A RULE-to put a debtor in default, DEMAND is needed.
 Demand is not Needed to Put Debtor in Default When:
a. When the law so provides
b. When the obligation expressly so provides
c. When the fixing of the time was the controlling motive for the establishment of the contract
d. When demand would be useless
e. When the obligor has expressly acknowledged that he really is in default

Art 1171 Responsibility arising from Fraud

“Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for
future fraud is void.”
 FRAUD or “DOLO” is the deliberate or intentional evasion of the fulfillment of an obligation
- as a ground for damages, it implies some kind of malice or dishonesty
- use of deceit or other machinations to intentionally evade the fulfillment of the obligation
- Kinds of Fraud:
1. Incidental Fraud (dolo incidente)—fraud committed in the performance of an
obligation already existing because of contract
2. Causal fraud (dolo causante)—fraud employed in the execution of a contract (Art.
1338); it is a vitiation of consent
- This type of fraud is applicable in obligations only-it is different from CAUSAL OR
INCIDENTAL fraud (fraud that exists the between parties when there is no pre-existing
contractual relations or obligations between them).
 Waiver of action for FUTURE fraud is void
 A PAST fraud can be the subject of a valid waiver

Art 1173 Negligence

“The fault or negligence of the obligor consists in that omission of the 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. When negligence shows bad faith, the provisions of Articles 1171 and 2201
paragraph 2, shall apply.
If the law or contract does not state the diligence which is to be observed in the performance, that
which is expected of a good father of a family shall be required.”
 Negligence or “Culpa”—the failure to observe for the protection of the interests of another
person, that degree of care, precaution and vigilance which the circumstances justly demand,
whereby such other person suffers injury.
 Factors to be considered:
1. Nature of the obligation
2. Circumstances of the person
3. Circumstances of time
4. Circumstances of the place
 Kinds of Diligence Under the Civil Code
a. That agreed upon by the parties orally or in writing
b. In the absence of that agreed upon by the parties, that required by law in a particular case
c. In the absence of that required by law, that expected of a good father of a family.

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PERSONAL NOTES OF ATTY. EVANGELINE A. SANTIAGO-MACATO
Art 1172 Responsibility arising from Negligence
“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 the circumstances.”
 NEGLIGENCE -- any voluntary act or omission, there being malice, which prevents the
normal fulfillment of an obligation
 Validity of waiver of action arising from negligence:
1. An action for future negligence may be renounced except where the nature of the
obligation requires the negligence of extra-ordinary diligence
2. Where negligence shows bad faith, it is considered equivalent to fraud and any waiver of an
action for future negligence is void
 Kinds of Negligence
1. Contractual negligence (Culpa contractual)-negligence in contracts resulting in their
breach
- not a source of obligation
- merely makes the debtor liable for damages in view of his negligence in the fulfillment of
a pre-existing obligation
2. Civil negligence (culpa aquiliana or tort or quasi-delict)- negligence which is by itself
is the source of an obligation between the parties not so related before any pre-existing contract
3. Criminal negligence (culpa criminal)—negligence resulting in the commission of a crime
 Effect of Negligence on the inured party
-for the creditor to be entitled to damages, it is not required that the negligence of the defendant
should be the sole cause of the damage.

 Distinction: FRAUD VS. NEGLIGENCE

FRAUD NEGLIGENCE
There is deliberate intention to cause damage or No intention to cause damage or injury
injury
waiver of the liability for future fraud is void Waiver for liability for future negligence may be
allowed, in certain sense

Must be clearly proved Presumed from the breach of a contractual

obligation
Liability cannot be mitigated by the courts Liability may be reduced according to the
circumstances

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PERSONAL NOTES OF ATTY. EVANGELINE A. MACATO
 WEEK FIVE REMEDIES
IN CASE OF BREACH

A. Remedies in Case of Breach

1.Specific performance: necessity
2.Resolution/ Rescision
3.Damages
4.Exhaustion of All Property of the Debtor
5.Accion Subrogatoria: How, Exceptions
6.Accion pauliana
B. Fortuitous Event/ Caso fortuito
C. Transmissibility of Rights and Obligations

A. Remedies in Case of Breach

1. Specific Performance—if the obligation consists in

Kind of obligation How is specific performance done
To give- generic thing Deliver or give the generic thing or its
substitute
To do Perform the act to be done
Not to do Require the undoing of the obligation

2. Resolution/ Rescission—this means the cancellation of the obligation

3. Damages

Art 1170 when liability for damages may arise

“Those who in the performance of their obligation are guilty of fraud, negligence or delay
and those who in any manner contravene the tenor thereof are liable for damages.”

 Grounds for Liability in the Performance of Obligations

a. Fraud (deceit or dolo) –deliberate or intentional evasion of the fulfillment of an
obligation
- as a ground for damages, it implies some kind of malice or dishonesty
- use of deceit or other machinations to intentionally evade the fulfillment of the obligation
b. Negligence (fault or culpa)—any voluntary act or omission, there being malice, which
prevents the normal fulfillment of an obligation
c. Delay/Default or mora
d. Contravention of the terms of Obligation (unless excused in proper cases by
fortuitous events)

 The Following do not Exempt from the Fulfillment of the Obligation

a. Increase in the cost of the performance
b. Poverty
c. War between the subject of the neutral country and the subject of a country at war, as
long as the substantial compliance can still be done.

 Kinds of Damages (MENTAL)

a. Moral-for moral and physical anguish
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PERSONAL NOTES OF ATTY. EVANGELINE A. MACATO
 b. Exemplary-corrective or to set an example
c. Nominal-to vindicate a right-when no other kind of damages may be recovered
d. Temperate-when the exact amount of damages cannot be determined
e. Actual-actual losses as well as unrealized profits
f. Liquidated-predetermined beforehand by agreement.

4. Exhaustion of All Property of the Debtor

Art. 1177 Remedies available to creditors for the satisfaction of their claims
“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.”
 Remedies of the creditor
1. Specific performance with the right to damages
2. Levy the property of the debtor
3. Exercise all the rights (eg. Redemption) and bring all actions of the debtor except those
inherent in or personal to the person of the latter;
4. Rescission or cancellation of the contract

Art 1175 Usury

“Usurious transactions shall be governed by special laws”
 Simple Loan/ Mutuum—a contract whereby one of the parties delivers to another
money or other consumable thing, upon the condition that 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 the use of mo0ney, goods, chattels or credits
 Requisites for the recovery of interest:
1. The payment of interest must be expressly stipulated
2. the agreement must be in writing
3. The interest must be lawful
 A stipulation for the payment of usurious interest is VOID (as if there is no
stipulation as to interest.
 Central Bank circular No. 905 (December10, 1982)
- Prescribes the legal rate of interest at
a. 6% per annum— general rule
b. 12% per annum--damages

Art 1176 Presumption of payment of interest/ prior installment

“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”
 Presumption—the inference of a fact not actually known arising from its usual
connection with another which is known
 Kinds of presumption:
5. Conclusive presumption—one which cannot be contradicted like the presumption
that everyone is conclusively presumed to know the law
6. Disputable/rebuttable presumption—one which can be contradicted or rebutted by
presenting proof to the contrary
 When is Art. 1176 not applicable
1. When there is reservation that no payment has been made as to interest or prior
installments
2. If the receipt does not recite that it was issued for a particular installment due (as when

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 the receipt is only dated)

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 3. In payment of taxes
4. Non-payment of prior obligations has been proven

5. Accion Subrogatoria: (correlate with Art. 1177)

- In ACCION SUBROGATORIA, once the creditor has exhausted the property of debtor,
he can step into the shoes of the debtor and sue the debtor’s debtor. The requirement is that,
there must be a prior exhaustion of property.

1. The debtor’s assets must be insufficient to satisfy claims against him

2. The creditor must have pursued all properties of the debtor subject to execution
3. The right of action must not be purely personal
4. The debtor whose right of action is exercised must be indebted to the creditor.

6. Accion pauliana
- Accion Pauliana:-impugn the acts which the debtor may have done to defraud them (1177)
- This has the same concept as Art1381 P3(Rescissible Contracts): “Those undertaken infraud
of creditors when the latter cannot in any other manner collect the claims due them.”
- This allows the creditor to attack contracts contracted by a debtor towards another:
- Significance:
(1) If the debtor has no property
(2) but, saw transactions by the debtor as regards the sale of his property.

B. Fortuitous Event/ Caso fortuito

Art 1174 Fortuitous Event
“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.”
 Fortuitous Event (acts of man)—any event which cannot be foreseen, or which though
foreseen, is inevitable, an event independent of the will of the obligor but not other human wills
 Force majeure (Acts of god)—those which are totally independent of the will of every human
being.
 Kinds of Fortuitous events:
1. Ordinary Fortuitous Events—those events which are common and which the contracting
parties could reasonably foresee
2. Extra-ordinary Fortuitous events—those events which are uncommon and which the
contracting parties could not have reasonably foreseen
 Requisites of a fortuitous event
1. The event must be independent of the human will or at least of the debtor’s will
2. The event could not be foreseen, or if foreseen, is inevitable
3. The event must be of such a character as to render it impossible for the debtor to comply with his
obligation in the normal manner, and
4. The debtor must be free from any participation in, or the aggravation of the injury of the creditor,
or there is no concurrent negligence on his part.
 General Rule for Fortuitous Events-No liability for a fortuitous event (that which could not
be foreseen, or which even if foreseen, was inevitable)
 Exceptions on the General Rule-the debtor is responsible for a fortuitous event when;
a. Expressly declared by the law
1. the debtor is guilty of fraud, negligence or delay, or in contravention of the tenor of the
obligation
2. the debtor has promised to deliver the same (specific) thing to two or more persons who do
not have the same interest
3. the obligation to deliver a specific thing arises from a crime
b. Expressly declared by the stipulation or contract

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 c. The nature of the obligation requires the assumption of risk (Doctrine of Created Risk)

C. Transmissibility of Rights and Obligations

Art. 1178 Transmissibility of Rights

“subject to the laws, all rights acquired by virtue of an obligation are transmissible, if there has
been no stipulation to the contrary.”
 General Rule: all rights acquired in virtue of an obligation are generally transmissible
 Exceptions:
1. When prohibited by law like the rights in partnership, agency, and commodatum, which are
purely personal in character
a. contract of partnership—two or more persons bind themselves to contribute money,
property or industry to a common fund, with the intention of dividing the profits among
themselves
b. contract of agency—a person binds himself to render some service or to do something
in representation or on behalf of another, with the consent or authority of the latter
c. contract of commodatum—one of the parties, delivers to another something not
consumable so that the latter may use it for a certain time and return it.
2. When prohibited by stipulation of the parties

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