Laws on Obligations and Contracts

MODULE 1: GENERAL PROVISIONS OF OBLIGATIONS

Notes_by_ai

Article 1156. “An obligation is a juridical necessity to give, to do, or not to do.”

It is also known as the New Civil Code of the Philippines

○ There was once an old civil code, code of spain (during the spanish colonization), but it was changed when the
Philippines gained their independence. This is the New Civil Code of the Philippines and it took effect on August 30,
1950.

Terminologies mentioned in the article

a. Obligation
○ Derived from the Latin word “obligatio” which means tying or binding.
○ 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 a certain act, or not doing a certain act.
b. Juridical Necessity
○ Obligation is a juridical necessity because in the case of noncompliance, the courts of justice may be called
upon by the aggrieved party to enforce its fulfillment or, in default thereof, the economic value that it
represents.
■ In case of noncompliance with the obligation, the creditor may file a case against the debtor.
○ Hence, the debtor must comply with his obligation whether he likes it or not; otherwise, his failure will be
visited with some harmful or undesirable consequences.

Nature of Obligations under the Civil Code

To be specific, the obligations mentioned in this article are civil obligations that are enforceable by court action, unlike
natural obligations.

a. Civil Obligations - obligations which give the creditor or obligee a right under the law to enforce their performance
in courts of justice.

b. Natural Obligations - note based on positive law but on equity and natural law. It does 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. (discussed under Title III, Article 1423-1430)

Natural obligations were once civil obligations but because of the long passage of time, your rights about that subject
matter “expire” or be prescribed. (e.g., obligations arising from a written contract.)

Prescriptive Period - the length of time within which a party is allowed to bring forth a legal action or claim. Under
the Philippine Law, rights to subject matter expire after 10 years.

Example: According to the law, If nagpautang, kahit pa written siya, the creditor should put an effort to ask for their
demand within 10 years or else your rights to such claims will already be expired or prescribed. After 10 years and
the creditor still did nothing to settle the loan, such civil obligations then become natural obligations.

Natural obligations, in this sense, means that the debtor still has debts to pay you but your right to file a case against
the debtor already disappears. The debtor can only voluntarily pay you but you cannot scare him of being put into
the judicial court.

Question: Can prescribed obligations still be paid by the debtor? Yes, especially if the payor is voluntarily
paying even if after the prescriptive period.

Question: What if the debtor has already paid his prescribed obligation and one day asks for a refund? No,
the amount paid, even if it is considered as natural obligations, is already considered as a valid payment to
settle the obligations. The manner of payment is an admission on the part of the debtor that he has an
obligation; hence, prescribed or not, the debtor has already acknowledged the existence of his obligations.
Essential Requisites (or Elements) of an Obligations
Every obligation has four (4) essential requisites, namely;

a. Active Subject (creditor or obligee) - the party who is entitled to demand the fulfillment of the obligation. He who
has the right.
i. Called as active subject because at the time of the settlement of obligations (singilan), it is the creditor who
is more interested to push through with regards to the payment.
b. Passive Subject (debtor or obligor) - the party who is bound to the fulfillment of the obligation; he who has the
duty.
i. Called as passive because, usually, debtors are silent before and during the settlement of obligations
because it is them who will theoretically lose something (or pay something).
c. Prestation (object or subject matter) - the conduct required to be observed by the debtor. Consist of giving, doing
or not doing something.
i. Bilateral obligations (Art. 1191) - parties are reciprocally debtors and creditors.
d. Efficient cause (viniculum juris or juridical tie) - that which binds or connects the parties to the obligations
i. It is the reason why the debtor should give, do, or not do something for/to the creditor.

Illustration: Through a contract of loan, Diego borrowed P1,000,000 from Cardo a year ago. On the maturity date,
who/what is the active subject, passive subjective, prestation and the efficient cause?
● Active subject: Cardo
● Passive subject: Diego
● Prestation: the giving of P1,000,000 (*should be a verb)
● Efficient cause: contract of loan

Forms of an Obligation
It refers to the manner in which an obligation is manifested or incurred.
a. Oral
b. In writing
c. Partly oral and partly writing
As General Rule, the law does not require any forms of obligations arising from contracts for their validity or binding force
(Article 1356)

Kinds of Obligation according to the subject matter.

From the viewpoint of the subject matter, the obligation may be either real or personal.
1. Real Obligations
○ It came from the latin word “res” which means objects
○ Obligation of giving an object (to give)
○ The subject matter (prestation) is a thing which the obligor must deliver to the obligee.
2. Personal Obligations
○ Refers to “to do” or “not to do”
○ The subject matter is an act to be done or not to be done
○ There are two (2) kinds of personal obligations
a. Positive personal obligations - obligations “to do” or to render a service
b. Negative personal obligations - obligations “not to do”, which naturally involves obligations “not
to give” (Article 1168). E.g., right of way

Article 1157. Obligations arise from (1) Law; (2) Contracts; (3) Quasi-Contracts; (4) Acts or omissions punished by
law; and (5) Quasi-delicts.

1. Law (Article 1158) - It is a rule of conduct, just and obligatory, laid down by legitimate authority for common
observance and benefit. These are obligations that are imposed by the law itself.

2. Contracts (Article 1159) - it is the meeting of the minds between two or more persons whereby one binds himself
with respect to the other to give something or to render some service. These are obligations that arise from the
stipulation of the parties.
 3. Quasi-contracts (Article 1160) - They refer to certain lawful, voluntary, and unilateral acts giving rise to a juridical
relation to the end that no one shall be unjustly enriched at the expense of another. In a sense, these obligations
may be considered as arising from law.
○ Quasi = “parang”
○ Unilateral act - only one party decided to act as opposed to the usual bilateral act (both parties)

4. Delicts (Article 1161) - these are acts or omissions punishable by law This refer to crimes or felonies defined under
the law to be punishable as such. It arises from the Revised Penal Code.
○ In every crime committed, there is a criminal liability and civil liability involved. Meaning to say, aside from
being in jail, the criminal also have the obligation to compensate the damages they had caused (e.g., arson,
theft, vehicular accidents)

5. Quasi-Delicts (Article 1162) - These are acts or omissions that cause damage to another being fault or negligence
but without any existing contractual relation between the parties. There is now an obligation to pay for damages, It
is also known as tort or culpa aquiliana.

Article 1158. Obligations derived from law are not presumed. Only those expressly determined in this Code or in
special laws are demandable, and shall be regulated by the precepts of the law which establishes them; and to what
has not been foreseen, by the provisions of this Book.

Terminologies mentioned in the Article

a. Note presumed - There should really be a law stating it (may batas talaga)
b. In this Code or special laws - examples of this include Tax laws or Train laws (obligation to pay taxes) and Family
Code of the Philippines (obligation of family members to each other; civil obligation and criminal liability if a parent
neglects to give sustenance to their offsprings)
○ Under Article 1158, special laws refer to all other laws not contained in the Civil Code such as Corporation
Code, Negotiable Instruments Law, Insurance Code, National Internal Revenue Code, Revised Penal Code,
Labor Code, etc.

Article 1159. Obligations arising from contracts have the force of law between the contracting parties and should
be complied with good faith.

Contractual Obligations
1. Binding force - Obligations arising from contracts have the force of law between the contracting parties. The
contract, and whatever it constitutes, act as the law for both parties.
○ This does not mean, however, that contract is superior to the law. As a source of enforceable obligation, a
contract must be valid and it cannot be valid if it is against the law.
2. Requirement of a valid contract - A contact is valid if it is not contrary to law, morals, good customs, public order,
and public policy. If it is, then it is considered null and void.
3. Breach of contract - a contract may be breached or violated by a party in whole or in part. It takes place when a
party fails or refuses to comply, without legal reason or justification, with his obligation under the contract as
promised.

Compliance in good faith

● Compliance or performance in accordance with the stipulations or terms of the contract or agreement. Non-
compliance by a party with his legitimate obligations after receiving the benefits of the contract would constitute
unjust enrichment on his part.

Article 1160. Obligations derived from quasi-contract shall be subject to the provisions of Chapter 1, Title XVII of
this Book.

Quasi-contractual Obligations
● Not properly a contract. There was no meeting of mind and deliberate enter into a formal agreement, unlike a
contract. In a quasi-contract, there is no consent but the same is supplied by fiction of law.
Kinds of quasi-contracts;

1. Negotorium gestio - This refers to the voluntary administration of the property, business or affairs of another
without his consent or authority. There is now an obligation to reimburse the gestor for the necessary and useful
expenses.

○ Example. Neighbor A went overseas. Unprecedentedly, a calamity struck the city which caused neighbor
A’s animal pen to be destroyed (potentially allowing their animals to break loose). As a dutiful neighbor,
neighbor B took the initiative to buy materials, hire a carpenter, and ultimately fix the animal pen.

Analysis. Neighbor B did the act unilaterally, without the consent of neighbor A. Upon the return of neighbor
A, it shall have the obligation to reimburse everything neighbor B spent for fixing the animal pen in order
to prevent unjust enrichment (pagiging lugi) of neighbor B.

What if neighbor A questioned neighbor B as to why it fixed the pen even if neighbor A didn’t give consent?
Neighbor B can argue that it was the law who gave the consent. In the law’s perspective, reversing the
situation, neighbor A would (should) have done the same.

2. Solutio Indebiti - This refers to the payment by mistake of an obligation, in excess of what should have been paid
or payment to a person not due to receive it. It is the juridical relation which is created when something is received
when there is no right to demand it and it was unduly delivered through mistake.
○ The requisites are
i. There is no right to receive the thing delivered; and
ii. The thing was delivered through mistake

3. Other examples of quasi-contracts - provided in the Article 2164 to Article 2175 of the Civil Code. The cases that
have been classified as quasi-contracts are of infinite variety, and when for some reason recovery cannot be had on
a true contract, recovery may be allowed on the basis of quasi-contract.

○ Example. S, the seller of goat’s milk leaves milk at the house of B each morning. B uses the milk and places
the empty bottles on the porch. After one week, S asks payment for the milk delivered. Here, an implied
contract is understood to have been entered into the very acts of S and B, creating an obligation on the part
of B to pay the reasonable value of the milk, otherwise, B would be unjustly benefited at the expense of S.

Article 1161. Civil Obligations arising from criminal offenses shall be governed by the penal laws, subject to the
provisions of article 2177, and of the pertinent provisions of Chapter 2, Preliminary Title, on Human Relations, and
of Title XVIII of this Book, regulating damages.

Civil Liabilities arising from crimes or delicts.

● The commisssion of crime causes not only moral evil but also material damage. Hence, rule has been established
that every person criminally liable is also civilly liable for damages (Art. 100 of Revised Penal Code).
● In crimes which cause no material damage (e.c., contempt, hate speech, etc), there is no civil liability to be enforced.
But a person not criminally responsible, may still be liable civilly, such as failure to pay a contractual debt; causing
damage to another’s property without intent or due to negligence.

Scope of civil liability

1. Restitution - restoration or recovery of what was destroyed (or affected by the crime)
2. Reparation for the damage caused - additional payment for the damages that arise from the thing affected due to
the crime.
3. Indemnification for consequential damages - compensation for other damages caused to the other due to the crime

Examples: X stole the car of Y. If convicted, the court will order X to;
1. Return the car or pay its value if destroyed/lost
2. Pay for any damage caused to the car
3. Pay other damages suffered by Y as a consequence of the crime.
Article 1162. Obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2, Title XVII of
this Book, and by special laws.

Obligations arising from quasi-delicts

● Also known as tort or culpa aquiliana
● In contrast to a crime, quasi-delicts does not have an intent but practiced negligence
● Examples. In a car accident, party A did not intend to hit party B’s car; nonetheless, damages to party B were made.
Therefore, Party A has an obligation to pay party B for the damages incurred such as the hospital bill and car
recovery.

Requisites of quasi-delict
Before a person can be held liable for quasi-delict, the following requisites must be present;
1. There must be an act or omission
2. There must be fault or negligence
3. There must be damaged caused
4. There must be a direct relation or connection of cause-and-effect between the act or omission and the damage
5. There is no pre-existing contractual relation between the parties.

Crime distinguished from quasi-delicts

Distinctions Crime Quasi-delicts

Nature Malicious intent or criminal negligence Only negligence

Purpose punishment indemnification

Affected groups Public interest Private interest

Liabilities involved Criminal and civil liabilities Only civil liability

Possibility of Cannot be compromised or settled by Can be compromised like any other civil
compromise parties themselves liability

Measurement of guilt Must be proved beyond reasonable doubt Only be proved by preponderance*

*Preponderance - evidence must be very clear and convincing as will engender belief in an unprejudiced mind that the
accused is really guilty.
 Laws on Obligations and Contracts
MODULE 2: NATURE AND EFFECTS OF OBLIGATIONS
Notes_by_ai

Article 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.

Terminologies used in the Article

● To give something - The above provision refers to an obligation specific or determinate thing, in contrast to a
generic or indeterminate thing.
● Proper diligence of a good father of a family - one should take care of it like how a good father of a family wherein
he would do anything to not cause harm to the members of its family.
○ Example. A buyer purchased a dog from a pet seller. It does not imply that since the dog has already been
bought, the pet seller would then cease to take care of it on the remaining days that it stays within the pet
shop. Proper diligence of a good father would entail continuous care for that dog.
● Unless requires another standard of care - proper diligence of a good father is only the minimum standard of
care, and if the obligation involves another (or higher) standard of care, then another or higher standard of care
should be imposed.
○ Example. Contract of Carriage. In public transportations, drivers have the obligation to transport such
passengers to their agreed upon destination. Aside from this, the law also requires the driver to ensure
safety among those inside the vehicle for the duration of the trip. If a vehicular accident occurs, a breach of
contract would then arise due to the driver’s non compliance of extraordinary diligence.

Specific Thing vs Generic Thing

A. Determinate/Specific
○ A thing is considered to be determinate if it is particularly designated and physically segregated from all
other objects of the same class.
○ A determinate thing is identified by its individuality. The debtor cannot substitute it with another.

B. Indeterminate/Generic
○ A thing is generic or indeterminate when it refers only to a class or genus to which it pertains and cannot
be pointed out with particularity. It is identified only by its species. The debtor can give anything of the
same class as long as it is of the same kind.

Examples.
Specific or Determinate Generic or Indeterminate

I will give you a Toyota vios with plate number ABC123. I will give you a car

I will give you a house located at 54B Scout Tuazon, Quezon City. I will give you a house

I will give you the pen that I am holding right now. I will give you a ballpen

One must identify the thing, whether specific or generic, in order to take care of it. Looking back at the previous pet
example, you are not obligated to take care of just a dog, rather you are obliged to take care of Casper the dog. If the
thing is generic, you have the privilege to not give proper diligence of a good father to that one dog, as anything bad
that happens to it will not hinder your obligation to give the buyer a dog (as there are other dogs available).

Nota bene: Genus nungram perit: genus never perishes.

Duties of a Debtor in obligation to give a determinate thing

1. To take good care of the thing with the diligence of a good father of a family unless the law or agreement of the
parties requires another standard of care.
○ Diligence of a good father of a family - equated with ordinary care or that diligence which an average (a
reasonably prudent) person exercises over his own property.
○ Another standard of care - however, if the law or the stipulation of the parties provides for another standard
of care (slightly or extraordinary diligence), said law or stipulation must prevail.
 ○ Factors to be considered - the diligence required necessarily depends upon the nature of the obligation and
corresponds with the circumstances of the person, of the time, and of the place.
○ Reason for debtor’s obligation - the debtor must exercise diligence to insure 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 things (Article 1164)
3. Deliver the accessions and accessories (Article 1166)
4. Deliver the thing itself
5. Answer for damages in case of non-fulfillment or breach (Article 1170)

Duties of debtor in obligation to deliver a generic thing

● The delivery of the thing (subject matter) is the one that has the ability to transfer the ownership of things.
Misconception of ownership transfer is during the payment; in truth, the ownership only transfers when the item
is already delivered from one party to another.

1. To deliver a thing which is of the quality intended by the parties taking into consideration the purpose of
the obligation and other circumstances (Article 1246)
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 (Article 1170)

Article 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.

Right of creditor to the fruits.

● The creditor is entitled to the fruits of the thing to be delivered from the time the obligation to make delivery arises.
The intention of the law is to protect the interest of the obligate should the obligor commit delay, purposely or
otherwise, in the fulfillment of his obligations.

Different kinds of fruits.

1. Natural fruits: they are the spontaneous products of the soul and the young and other products of animals.
○ Examples: Grass; all trees and plants on lands produced without the intervention of human labor.
Furthermore, under the law, animals are also called natural fruits. A pet born with the help of a
veterinarian is considered as industrial fruit.
2. Industrial fruits: they refer to those produced by land of any kind through cultivation or labor
○ Examples: Sugar cane; vegetables; rice; and all products of lands brought about by reason of human
labor.
3. Civil fruits: refer to fruits that are the result of a juridical relation.
○ Examples: Rents of buildings, price of leases of lands and other property and the amount of
perpetual or life annuities or other similar income. Interest income is the fruits of loan. Rent
income is the civil fruits of a rent business.

When the obligation to deliver fruits arises.

● Generally, the obligation to deliver the thing due and the fruits thereof arises from the time of the “perfection of the
contract”.
○ Perfection - refers to the birth of the contract or to the meeting of the minds between the parties.
● If the obligation is subject to a suspensive condition or period, it arises upon the fulfillment of the condition or
arrival of the term. However, the parties may make a stipulation to the contrary as regards the right of the creditor
to the fruits of the thing
● In a contract of sale, the obligation arises from the perfection of the contract even if the obligation is subject to a
suspensive condition or a suspensive period where the price has been paid.
● In obligations arising from law, quasi-contract, delicts, or quasi-delicts, the time of performance is determined by
the specific provisions of the law applicable.

Illustration. On August 1, Mr. A promised to give a specific dog to Mr. B. Based on their agreement, the dog should
be delivered to Mr. B on August 15. Unfortunately, the dog was delivered on August 31. Unknown to Mr. B, the dog
gave birth to 3 puppies on August 21. Who should be entitled to the three puppies?
 Analysis. Since the delivery it set on August 15, all fruits of the dog (the puppies) will therefore be entitled to Mr. B
regardless of the circumstances. If, however, the dog gave birth on August 10, before the delivery date, the puppies
are entitled to Mr. A.

Why is the rule like that? Because if we let Mr. A have the rights regarding the puppies, it is as if we are rewarding
the unpunctuality of Mr. A of not delivering the puppies on the intended date, which is earlier before the birth of the
mother dog. If he had delivered the thing and the fruits on time, and the dog gave birth on the same day, the puppies
will still be entitled to Mr. B.

If no date or condition was stipulated for the delivery of the subject matter, then it should be delivered immediately
as it is immediately demandable (General rule of perfection of the contract).

Personal right vs real right

a. Personal right is the right to demand from another, the fulfillment of the latter’s obligation to give, to do or not to
do.
○ The right or power of a person (creditor) to demand from another (debtor), as a definite passive subject,
the fulfillment of the latter’s obligation.
b. Real right is the right or interest of a person over a specific thing without a definite passive subject against whom
the right may be personally enforced. It is binding against the whole world.
○ It is the right or interest of a person over a specific thing (like ownership, possession, mortgage), without a
definite passive subject against whom the right may be personally enforced.

Ownership acquired by delivery

● “He shall acquire no real right over it until the same has been delivered to him”
● Creditor does not become the owner until the specific thing has been delivered to him; Hence, when there has been
no delivery yet, the proper court action of the creditor is not one for recovery of possession and ownership but one
for specific performance or rescission of the obligation.

Example. A seller sells a specific dog, and as long as it has not yet been delivered to the buyer, the buyer only has,
with the presence of a perfected contract, a personal right to the dog. However, the buyer, having the personal right,
may demand the seller to deliver the dog or suffer the consequences of not doing so. Real right, on the other hand,
is only possessed when the subject matter has already reached the hands of the seller. This right may be directed
against the whole world as the seller becomes the ultimate owner of the dog. Anyone who harms or takes the dog
away from that seller may face charges brought by the seller himself.

Article 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted to
him by Article 1170, may compel the debtor to make the delivery.

If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the
debtors.

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 fortuitous event until he has effected the delivery.

Remedies of creditor in real obligation

1. Specific real obligation - the creditor may exercise the following remedies or rights in case the debtor fails to
comply with his obligations
a. Demand specific performance or fulfillment (if still possible) of the obligation with a right to indemnity for
damages
b. Demand rescission or cancellation (in certain cases) of the obligation also with a right to recover damages
c. Demand payment for damages only, where it is the only feasible remedy.

Nota bene: In an obligation to deliver a determinate thing, the very thing itself must be delivered. Consequently,
only the debtor can make the delivery (comply with the obligation). It should be made clear, however, that force
and violence may not be used upon the debtor. The creditor must bring the matter to court and the court will be the
one to order the delivery.
 2. Generic real obligation - may be performed by a third party since the object is expressed only according to its
family or genus. Under this, the creditor may ask the obligation be complied with at the expense of the debtor (to
buy in another source but will be charged to the previous seller).
a. Article 1246 - the manner of compliance with an obligation to deliver a generic thing
b. Article 1170 - Creditor’s right to recover damages in case of breach or violation of the obligation.

Article 1166. The obligations to give a determinate thing includes that of delivering all its accessions and
accessories, even though they may not have been mentioned.

Accessions - they are everything that is incorporated or attached to a thing, either naturally or artificially. These are the
fruits of a thing or additions to or improvements upon a thing (the principal). These are not necessary to the principal thing.

Example: a land bought with a mango tree. Despite being overlooked in the contact, the tree is already part of the
thing as it is considered as an accession. If, however, the contract explicitly states the exception of the tree to the
subject matter, then it will not be included in the delivery,

Accessories - those joined to or included with the principal thing for the latter’s better use, perfection or enjoyment. These
are things joined to or included with the principal thing for the latter’s embellishment, better use, or completion. Both
accessories and the principal thing must go together.

Example. Wristwatch. The principal thing is the watch itself and the strap is considered an accessory because one
cannot use the watch without the strap. Cellphone. The batter is considered as an accessory because it would not
function without it.

Article 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.

Situations contemplated in Article 1167.

Article 1167 refers to the obligation to do. It contemplates three situations;
1. The debtor fails to perform an obligation to do;
2. The debtor performs an obligation to do but contrary to the terms thereof; or
3. The debtor performs an obligation to do but in a poor manner.

Remedies of creditor in positive personal obligation.

1. If the debtor fails to comply with his obligation to do, the creditor has the right;
a. To have the obligation performed by himself, or by another, unless personal considerations are involved,
at the debtor’s expense.
b. To recover damages
2. In case the obligation is done in contravention of the terms of the same or is poorly done, it may be ordered (by the
court upon complaint) that it be undone if it is still possible to undo what was done.

Performance of a third person

● A personal obligation to do, like a real obligation to deliver a generic thing, can be performed by a third person. A
specific performance cannot be ordered in a personal obligation to do because this may amount to involuntary
servitude which, as a rule, is prohibited under our Constitution.
● The only feasible remedy of the creditor is indemnification for damages.

Article 1168. When the obligation consists in not doing, and the obligor does what has been forbidden him, it shall
be undone at his expense.

Remedies of creditor in negative personal obligation

● In an obligation not to do, the duty of the obligor is to abstain from an act. Hence, in this kind of obligation the debtor
cannot be guilty of delay.
● As a rule, the remedy of the obligee is the undoing of the forbidden thing plus damages.
● If it is not possible to undo what was done, either physically or legally, or any reasons thereof, his remedy is an
action for damages caused by the debtor’s violation of his obligation.
Article 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 exist:
1. When the obligation or the law expressly so declares
2. 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 or the service is to be rendered was a controlling motive for the
establishment of the contract; or
3. 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.

The word delay, as used in law, is not to be understood according to its meaning in the common plane.
a. Ordinary delay - merely a failure to perform an obligation on time. \
b. Legal Delay or default or mora - failure to perform an obligation on time which failure constitutes a breach of the
obligation.

Kinds of delay or default

1. Mora solvendi - delay on the part of the debtor to fulfill his obligation (to give or to do)
2. Mora accipiendi - delay on the part of the creditor to accept the performance of the obligation
3. Compensatio morae - delay of the obligors in reciprocal obligations. The net result is that there is no actionable
default on the part of both parties.
No delay in negative personal obligation - delay is impossible because there is nothing to be done.

Requisites of delay or default by the debtor

There are three conditions that must be present before mora solvendi can exist;
1. Failure of the debtor to perform his (positive) obligation on the date agreed upon
2. Demand (not mere reminder or notice) made by the creditor upon the debtor
a. Judicial demand - when a complaint is filed in court
b. Extrajudicial demand - when made outside of court; orally or in writing)
3. Failure of the debtor to comply with such demand

Example. S obliged himself to deliver to B a specific ref on Dec 10. If S does not deliver the ref on Dec 10, he is only in
ordinary delay in that absence of any demand from B. The law presumes that B is giving S an extension of time within
which to deliver the ref. Hence, there is no breach of contract and S is not liable for damages. If a demand is made upon
S on Dec 15 and S fails to deliver the ref, S is considered in default (in delay) only from that date.

Effects of delay
1. Mora solvendi
○ He (debtor) is guilty of breach or violation of the obligation.
○ He is liable to the creditor for interest (incase of money) or damages (in other obligations).
○ He is liable even for a fortuitous event when the obligation is to deliver a determinate thing. However, if
the debtor can prove that the loss would have been the same even if he is not in default, the court may
equitably mitigate the damages.
○ Ex. On September 1, tinawag mo yung seller na dapat madeliver na yung aso sayo. But on September 3,
tinamaan ng kidlat ang aso (kahit fortuitous event), liable na yung seller dahil in legal delay na sya.
2. Mora accipiendi
○ The creditor is guilty of breach of obligation. He is liable for damages suffered by the debtor
○ He bears the risk of loss of the thing due. If monetary obligation, debtor is not liable for interest
○ The debtor may release himself from the obligation by the consignation or deposit in court of the things or
sum due.
○ Ex. Usapan natin na Sept. 1, idedeliver ko yung aso sayo, pero ikaw yung humihindi, pag may nangyaring
masama sa aso, ikaw yung mawawalan and ikaw yung liable sa expenses habang inaalagaan ko yung aso
dahil ayaw mo pang tanggapin.
3. Compensation Morae
○ The delay of the obligor cancels the delay of the obligee and vice versa
Situations when demand is not necessary to put debtor in delay
As a general rule, delay begins only upon demand. The exceptions are;
1. When the obligation so provides - if explicitly said in the contract that demand is not necessary or must use words
to that effect such as “the debtor will be in default” or “I will be liable for damages”
2. When the law provides - examples are the taxes and fruits of a thing in a partnership.
3. When time is of the essence - when debtor is fully aware that the performance of the obligation after the
designated time would no longer benefit the creditor.
4. When demand would be useless - when it is apparent that it would be unavailing. E.g., death of a thing before
delivery, refusal, and manifestation that they would not comply.
5. When there is performance by a party in reciprocal obligations - under the compensation morae. Performance
of one is conditioned upon the simultaneous fulfillment on the part of the other.

Article 1170. 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.

Damages vs Injury
● Damages: refer to the harm done or the sum of money that may be recovered in reparation for the harm done.
○ Talks about the pinsala brought upon you
● Injury: refers to the wrongful, unlawful or tortious act which causes loss or harm to another. It is the legal wrong to
be redressed.
○ Violation of one’s right

“Damnum Asbque Injuria” - damage without injury

● Example: When your car was set on fire. Damage refers to your car being lit up while injury refers to your violation
as the owner of the car.
● However, not all damage incurs injury
○ Squatter cases. Despite being forced to leave a place where you have no right to establish a house/home,
one may incur damages from the demolition but one does not incur an injury as they initially have no rights
in that area.

Kinds of Damages
1. Actual/ Compensatory Damages - These refer to the pecuniary loss that was actually incurred by the plaintiff. It
includes the actual value of the loss suffered and profits not realized.
○ The damages caused by a vehicular accident, where the victims are hospitalized, are considered as actual
damages. Under this damage, a proof of actual damages must be present to demand compensation.
2. Moral Damages - They include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock and social humiliation
○ Examples would be those that were taken advantage of.
3. Nominal Damages - Damages awarded to a party whose right has been violated
○ Example: In a car accident wherein the damage is miniscule, parties may agree upon “areglo” and merely
estimate the amount of damage to compensate. In most cases, it does not require proof or receipt.
4. Temperate or moderate Damages - they are more than nominal but less than actual damages. The court may
award temperate damages if the court finds some pecuniary loss has been suffered but its amount cannot, from the
nature of the case, be proved with certainty.
5. Liquidated Damages - Damages agreed upon by the parties to a contract, to be paid in case of breach.
○ In the beginning of the contract, the parties have already agreed of the amount or consequence of breach
in contract.
6. Exemplary or corrective Damages - These are imposed by way of example or correction for public good, in
addition to the moral, temperate, liquidated or compensatory damages.
○ Example: heinous crimes, aside from being charged of compensatory, moral, and otherss, also charges
exemplary damages as a means to set a warning to the public to not emulate such cases.
Grounds for liability
1. Fraud (deceit or dolo) - Is the deliberate or intentional evasion by the debtor of the normal compliance of his
obligation.
○ Fraud in obtaining consent
i. Causal Fraud or Dolo Causante - fraud of a serious kind, without which, consent would not have
been given. It renders the contract voidable for it is a defect in one of the essential elements of a
contract, “consent”.
● A type of fraud wherein such lack of fraud would result in no contract at all.
● Example: Person A bought a bottle of beer in hopes to get wasted. Seller A, despite
knowing that there are no more beers, proceeds to sell the vinegar bottle instead,
convincing person A that it is a bottle of beer. If you would have known the truth. You
would have not bought the bottle at all.
ii. Incidental Fraud or Dolo Incidente - fraud of a serious kind, without which, consent would not
have been given. It renders the contract voidable for it is a defect in one of the essential elements
of a contract, “consent”.
● A type of fraud wherein consent is ultimately given but in a different context or condition
● Example: Seller A does indeed have a bottle of wine and sold it to Person A. He charged
10,000 pesos for the goods. Person A, dumbfounded by its price, asked why it was
expensive. Seller A explained that it was a 20 year old wine; and person A accepts the
reason. Unknowingly, the bottle of beer was only 2 months old. If you would have known,
the transaction would still occur but in a price lower than 10,000

○ Fraud in the performance of the obligation

i. This is the deliberate act of evading fulfillment of an obligation in a normal manner. The party
committing fraud shall be liable for damages.
● Example: Suppose the seller did sell the actual bottle of beer for 400 pesos (actual price) .
No fraud was committed in getting your consent so a contract of sale was made. However,
while going to the restroom, the seller took a sip of the beer. To go unnoticed, the seller
added water to the bottle. This type of fraud was made during the contract; hence, the
seller should be liable for damages.

2. Negligence (fault or culpa) - is the omission of that diligence which is required by the nature of the obligation and
corresponds with the circumstance of the person, of the time, and of the place. It is the failure to observe the
required degree of care, precaution and vigilance that the circumstances justly demand.
○ Example: a security guard sleeping during his duty hours. Driving a jeepney without headlights during the
night. High-speeding in front of a school or church.Such acts would have been normal but due to the
circumstance they are in, it is considered inappropriate (therefore, neglectful).

3. Delay or default (mora) - already discussed in Article 1169.

○ Delay is the non-fulfillment of an obligation with respect to time or delay in the fulfillment of an obligation,
contrary to what was agreed upon.
○ Kinds of Delay
i. Mora Solvendi - delay on the part of the debtor
ii. Mora Accipiendi - delay on the part of the creditor. It exists when the creditor unjustly refuses to
accept the thing.
iii. Compensatio Morae - delay in reciprocal obligations, both parties are in default. It is as if there is
no delay.

4. Contravention of the terms of the obligations - violation of terms and conditions stipulated in the obligation
without justifiable excuse or reason. The contravention must not be due to a fortuitous event of force majeure
(Article 1174)
Article 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for future
fraud is void.

Responsibility arising from fraud demandable

● Responsibility arising from fraud can be demanded with respect to all kinds of obligation and unlike in the case of
responsibility arising from negligence, the court is not given the power to mitigate or reduce the damages to be
awarded.

Rules in waiver of fraud

1. Future Fraud or fraud still to be committed cannot be waived even if there is an agreement to that effect. Such
stipulation is void for being contrary to public policy.
○ A contrary rule would encourage the perpetration of fraud because the obligor knows that even if he should
commit fraud, he would not be liable for it, thus making the obligation illusory.
○ Example: For the fraud to happen in the future, the obligee should be made aware of such fraud. One cannot
ask for a waiver, an advance forgiveness, for the future possible (certain) acts of fraud.

2. Past Fraud or fraud committed in the past can be waived. Such an act is considered as liberality on the part of the
creditor.
○ Past fraud occurred in the past, meaning the fraud was already done. It can be waived.
○ Example: If the fraud was committed in the past, the obligor may ask for forgiveness in which the creditor
may accept. This is valid as

Article 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 the circumstances.

Diligence to be observed.
● If the law or contract does not state the diligence which is to be observed in the performance of that obligation, the
debtor must observe the diligence of a good father of a family, as required by the nature of the obligation and which
corresponds with the circumstances of the person, of the time or of the place.

Kinds of Negligence:
1. Contractual Negligence (Culpa Contractual): negligence in the performance of a contract. It supposes a pre-
existing contractual relationship between the parties. This is negligence in the performance of the obligation arising
from a contract resulting in damages. It merely makes the debtor liable for damages in view of his negligence in the
fulfillment of a pre-existing obligation.
○ Example: Contract of carriage: negligence of driver resulting to damages to passengers

2. Civil Negligence (Culpa Aquiliana or tort or quasi-delict or culpa extra contractual): this is quasi-delict where
negligence itself is the independent source of the obligation.
○ Example: A jeep ran over street passerbys which makes him liable for those damages.

3. Criminal Negligence (Culpa Criminal): this is negligence that results in commission of a crime.
○ Example: being negligent with bad intention (to break or lose something)

Article 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 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.

Factors to be considered.
Negligence is a question of fact, that is, its existence being dependent upon the particular circumstance of each case. In
determining the issue of negligence, the following factors must be considered.
1. Nature of the obligation
2. Circumstance of the person
3. Circumstances of time
4. Circumstances of the place
Kinds of diligence required
Under the Article 1173, the following kinds of diligence are required
1. That agreed upon by the parties, orally or in writing
2. In the absence of a stipulation, that required by law in the particular case
3. If both the contract and law are silent, then the diligence expected of a good father of a family

Article 1174. Except in cases expressly specified by law, or which 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 (ex. lindol), or which, though foreseen, were inevitable (ex. bagyo).

Fortuitous event - These are events that could not be foreseen or which, though foreseen, are inevitable. It is not enough
that the event should not be foreseen or anticipated, but it must be one impossible to foresee or avoid.

Fortuitous event distinguished from force majeure

In our law, fortuitous event and force majeure are identical in so far as they exempt an obligor from liability. Both are
independent of the will of the obligor.

1. Acts of man (fortuitous event) - event independent of the will of the obligor but not of other human wills. E.g.,
war, fire, robbery, theft, murder, etc.

2. Acts of God (majeure) - events which are totally independent of every human being. E.g, earthquake, flood rain,
shipwreck, volcanic eruption, etc.

Kinds of fortuitous event

1. Ordinary fortuitous events - events that are common and which the contracting parties could reasonably foresee
(e.g., rain)
2. Extra-ordinary fortuitous events - events which are uncommon and which the contracting parties could not have
reasonably foreseen. (e.g., earthquake, pestilence, unusual flood, etc)

Requisites of fortuitous event to be accepted as a justification for the non-performance of an obligation to deliver a
determinate thing:
a. The cause must be independent of the debtor’s will
b. There must be impossibility of foreseeing the event or if it can be foreseen, it must be impossible to avoid
c. The occurrence must be of such magnitude as to render it impossible for the debtor to perform his obligation.
d. The debtor must be free from participation in the non-performance, damage or loss of the property brought about
by the fortuitous event.

Example. Ikaw yung seller at natamaan yung specific na aso na iddeliver mo ng kidlat, pag lahat ito present hindi na
liable yung seller/ debtor, wala na siyang obligation sa buyer dahil yung obligation niyana-extinguish na because of
the fortuitous event.

General Rule: If the foregoing requisites are present in a case, then the debtor shall not be liable for non-performance of
the obligation due to a fortuitous event. His obligation is extinguished.

Exceptions to the rule:

1. When expressed specified by law
a. The debtor is guilty of fraud, negligence, delay, or contravention of the tenor of the obligation
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

2. When declared by stipulation - When the parties stipulate or agree that the debtor will not be exempted from
liability even if non-performance of the obligation is due to a fortuitous event

3. When the nature of the obligation requires the assumption of risk. - Example, an insurance policy will cover
the damages caused by fire despite it being a fortuitous event.
Article 1175. Usurious transactions shall be governed by special laws.

Simple Loan or mutuum - 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. It may be gratuitous or with a stipulation to
pay interest.

Usury - contracting for or receiving interest in excess of the amount allowed by law for the loan or use of money, goods,
chattels or credits. Usury is now legally non-existent. Parties are now free to stipulate any amount of interest. This is due to
Central Bank Circular No. 905 that took effect on January 1, 1983.
● It does not, however, give absolute right to the creditor to charge the debtor interest that is “iniquitous or
unconscionable.” (wala nang limit sa interest ngayon pero wag naman yung masyadong abusado)

Article 1176. The receipt of the principal by the creditor without reservation as to interest, shall give rise to the
presumption that the interest has been paid. The receipt of the later installment without reservation as to prior
installments, shall give rise to the presumption that prior installments have been paid.

Presumption - the interference of a fact not actually known arising from its usual connection with another which is known
or proved.

Kinds of presumption
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 rebutted by presenting proof to the
contrary.

The receipt of the principal without reservation as to interest, shall give rise to the presumption that the interest
has been paid

● Example. Pinautang kita 1,000 ang usapan natin after one year ay 100 so ang total na utang mo sakin is 1,100. Nung
bayaran na 1,000 lang yung inaabot mo. Ang tamang pag resibo ay yung 100 ay bayad don sa interest at yung 900
ay bayad sa principal. Hindi mo pwedeng resibo na yung 1,000 lang (yung principal lang) dahil may nag-aarise na
isang presumption: na dahil ini-indicate mo na ang payment, yung 1,000 ay para sa buong payment ng principal,
iniimply mo na bayad na yung interest, which in reality hindi pa bayad interest. Logic states na una mo dapat
bayaran yung interest bago yung principal.

Kung magresibo ka ng 1,000 na for principal lang, ilagay mong “Received 1,000 for the payment of principal but the
interest is not yet paid.” , para hindi mag-arise yung presumption

The receipt of a later installment without reservation as to prior installments, shall give rise to the presumption
that prior installments have been paid.

● Example. I have a boarding house, per room is 5,000 per month. Yung isang nagdorm, tatlong buwan na hindi
nakapagbayad, January-March. Then nung nakasalubong mo siya, nagbayad siya ng 5,000. Under the law, ang pinaka
tamang buwan para sa resibo ng 5,000 ay para sa buwan ng January. Kasi kung ang nilagay mo na ang bayad niya
ay para sa February or March, it gives rise to the presumption: na dahil nagreresibo ka na para sa March, bayad na
siya ng January at February.

Kung gagawin mong for March yung bayad sa resibo idagdag mo na January and February has not yet been paid.
Para hindi mag give rise sa assumption na bayad na yung ibang buwan.

The foregoing are mere disputable presumptions (not conclusive) and the creditor may rebut such with clear and convincing
evidence to the contrary.
Article 1177. The creditors, after having pursued the property in possession of the debtor to satisfy their claims,
may exercise all the right and bring all the actions of the latter for the same purpose, save those which are inherent
in hir person; they may also impugn the acts which the debtor may have done to defraud them.

In case the debtor does not comply with his obligation, the creditor may avail himself of the following remedies to satisfy his
claim.
a. Specific performance - Exact fulfillment of the obligation by specific or substitute performance with a right to
damages in either case.
○ if may utang sayo yung isang tao, pwede ka mag-file ng collection case at yung judge ang mag-uutos sa
debtor na magbayad ng utang niya sayo
b. Attachment - Pursue the property in the possession of the debtor, except those exempt by law
○ Hihilain ng korte ang mga ari-arian ng debtor, ibebenta para ikaw ay mabayaran
○ Properties exempt by law: Family home unless ito yung nakasangla, gamit sa paghahanapbuhay, clothing
and kailangan mag-iwan ng provision for at least 3 months.
c. Accion subrogatoria - To be subrogated to all the rights and actions of the debtor save those which are inherent in
his person
○ Si A may utang sayo, si B naman may utang kay A. Pwedeng utusan na lang ng korte si B na direktang
magbayad sayo, this process is called process of garnishment
d. Accion pauliana - Asking the court to rescind or to impugn all the acts which the debtor may done to defraud the
creditors
○ minsan may loko-lokong debtors na, pinapasok sa sa deed of sale yung properties nila para hindi mo ma-
attach or mahila. Pwede mo i-request sa korte na i-impugn or i-cancel yung mga kontrata na pinasok nung
loko-lokong debtors sa ibang tao, para bumalik yung ownership sa debtor at pwede mo na ma-attach.

Before using the remedy of accion pauliana, you need to exhaust the three remedies first, making it your last resort, because
in accion pauliana, there is a third party affected.

Article 1178. Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if there has been
no stipulation to the contrary.

Relativity of Contracts
● A contract can only bind the parties who have entered into it or their successors who have assumed their personality
or their juridical position and that, as a consequence, such contract can neither favor nor prejudice a third person.
○ Ang pwede lang maapektuhan ng isang kontrata ay kung sino lang mismo ang pumasok doon at yung
successors nila. Ang hahabulin lang nung kontrata ay kung sino ang nakapirma.
○ Hindi mo pwedeng manahin ang utang ng ibang tao. Under the relativity of contracts, hindi mo dapat utang
yon. Lumalabas lang na utang ang minana mo dahil konti na lang ang matitira sa assets niya pagkabayad sa
mga utang ng lolo mo.
○ Bago makuha ng successors ang mana sa assets ng lolo nila, kailangan bayaran muna yung utang ng lolo
noong buhay pa siya. Lahat ng hindi mababayaran na liabilities ng lolo niya, kailangan i-write off na ito ng
creditors. Hindi ka dapat habulin o hindi dapat maapektuhan yung personal assets mo para pambayad sa
utang ng lolo mo.
○ Yung ibang tao na binabayaran yung utang ng kamag-anak nila, it is not a civil obligation but more of a
moral obligation.

Transmissibility of rights
All rights acquitted in virtue of an obligation are generally transmissible or assignable. The exceptions are the following;
1. Prohibited by law - when prohibited by law like the rights in partnership, agency, and commodatum which are
purely personal in character
a. By the 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. By the 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. By the contract of commodatum, one of the parties delivers to another something not consumable so that
the latter may use the same for a certain time and return it. Commodatum is essentially gratuitous.
2. Prohibited by stipulation of the parties - when prohibited by stipulation of the parties, like the stipulation that
upon the death of the creditor cannot assign his credit to another.