I.

OBLIGATIONS
A. General Provisions
a) Civil vs. Natural Obligations
b) Sources of Obligations

Art 1156
An obligation is a juridical necessity to give, to do, or not to do.
Art 1423
Obligations are civil or natural. Civil obligations give a right of action to compel their
performance. Natural obligations, not being based on positive law but on equity and natural law,
do not grant a right of action to enforce their performance, but after voluntary fulfillment by the
obligor, they authorize the retention of what has been delivered or rendered by reason thereof.
Some natural obligations are set for in the following articles.

Obligation:
- A juridical necessity to give, to do, or not to do. (Art 1156)
- Tie of law or juridical bond 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
- Legal relation established between one party and another, whereby the latter is legally
bound to the fulfillment of a prestation which the former may demand of him (Manresa)
- Art. 1156 defines the obligation in the passive (debtor/obligor) aspect.
- Civil obligations may be enforced by the courts and are based on positive law; natural
obligations are based on equity and natural law. (Art 1423)

Civil obligations Natural obligations

Based on positive law Based on equity and natural law

May pray for damages, specific performance May not recover if a debtor voluntarily fulfills

4 Essential Requisites of Obligation (Art 1156)

1. Passive subject (Debtor/Obligor) or the person who is bound to the fulfillment of the
obligation
2. Active subject (Creditor/Obligee) or the person who is entitled to demand the fulfillment
of the obligation; he who has a right;
3. Object/prestation (subject matter of the obligation) or the conduct required to be
observed by the debtor.
Conduct consists in (Art 1232)
a) Giving
b) Doing
c) Not doing
In bilateral obligations (Art. 1191) both parties may be mutually debtors and creditors.
 4. Juridical/Legal tie (efficient cause) - that which binds or connects the parties in the
obligation. This may be determined by knowing the source of the obligation. (Art 1157)
Source of obligation (Art 1157)
1) Law
2) Contracts
3) Quasi-contracts
4) Acts or omissions punishable by law
5) Quasi-delicts

Forms of obligations
The form of an obligation refers to the manner in which an obligation is manifested or incurred. It
may be in oral or in writing, or partly oral and partly in writing.

1) General Rule: The law does not require any form in obligations arising from contracts for
their validity or binding force (Art 1356).
Exception:
a) Contracts under the Statute of Frauds (Art 1403 [2]) must have a note or
memorandum, or secondary evidence to prove its existence - otherwise it will be
unenforceable.
b) If there is a form required by law. (Art 1357)
c) Those listed under Art. 1358 must be in a public document:
i) Conveyance of real or immovable property
ii) Cession, repudiation, or renunciation of hereditary rights or of those of the
conjugal partnership of gains
iii) The power to administer property, or should prejudice a third person
iv) The cession of actions or rights proceeding from an act appearing in a
public document.
v) Contracts where the amount exceeds P500.
2) Obligations arising from other sources (Art 1157) do not have any form at all.

Obligation, right, and wrong (cause of action)

Obligation - act or performance which the law will enforce
Right - the power which a person has under the law to demand from another any prestation
Wrong - cause of action

Cause of action
- An act or omission (breach of contract or tort/quasi-delict) of one party in violation of the
legal right/s of another, causing injury to the latter
- Its presence rests on the sufficiency, not the veracity of allegations in the complaint. The
veracity will be examined during trial. The test is, if assuming plaintiff’s allegations are
true, such ultimate facts would be a severe enough violation of plaintiff’s rights to entitle
them to seek relief

When does a cause of action accrue? / When to start counting prescriptive periods
 - Only arises when the last element occurs

Actions prescribe in:

a) Upon a written contract: 10 years (Art. 1144)
- It is not reckoned from the date of the execution of the contract itself, but only
accrues from when an actual breach of violation of the contract occurs. (See:
China Banking Corp v. CA)
b) To rescind a contract: 4 years (Art. 1389)
c) Upon an oral contract: 6 years (Art 1145)
d) To declare the inexistence of a void contract: Imprescriptible (Art. 1410)

- Cause of action =/= Right of action

- Right of action or right to commence and maintain an action
- Cause of action is governed by procedural law, while right of action is governed
by substantive law
- Right of action springs from the cause of action, but does not accrue until all the
facts which constitute the cause of action have occurred (See: Multi-Realty Devt
Corp v Makati Tuscany Condo Corp.)

Elements of Cause of Action (ROB)

1) Right in favor of the creditor/obligee/plaintiff [C/O]
2) Obligation on the part of another (debtor/obligor/defendant [D/O] ) to respect or not
violate the said right
3) Breach or violation of said right by the D/O resulting in consequential injury or damage
to the C/O for which he/she may seek relief from the courts

Breach
In a breach of contract, the contract violated is the subject matter, while the breach thereof by
the obligor is the cause of action. The subject matter is the item with respect to which the
controversy has arisen or concerning which the wrong has been done, and is ordinarily the right,
the thing, or the contract under dispute. (De Leon footnote, p. 3)

Injury, damage, and damages

Injury Damage Damages

Illegal invasion of a legal right Loss, hurt or harm which Sum of money recoverable
Wrongful act or omission results from the injury as amends for the wrongful
which causes loss/harm to act or omission
another

Legal wrong to be redressed Compensation awarded or

recoverable for the damage
or loss suffered.
Kinds of damages
 - Moral
- compensatory
- nominal
There may be injury without damage and damage without injury (De Leon p 6)

Kinds of obligations according to subject matter

1) Real obligation (obligation to give)
2) Personal obligation (to do or not to do)
a) Positive personal obligation (to do)
b) Negative personal obligation (not to do)

b) Sources of Obligations

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

Sources of obligations
1) Law - imposed by the law itself
2) Contracts - arise from contract stipulations
3) Quasi-contracts - when they arise from lawful, voluntary, and unilateral acts and which
are enforceable to the end that no one shall be unjustly enriched or benefitted at
expense of another (Art. 2142) They shall be governed by Chapter 2, Title XVII of Book
IV of the Civil Code. (Art. 1162)
There are two kinds of quasi-contract:
a) Negotiorum Gestio
b) Solutio Indebiti
4) Crimes or acts or omissions punishable by law - when they arise from the civil liability
which is the consequence of a criminal offense. (Art. 1161) It 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 Book IV,
regulating damages.
In addition, according to Art. 100, RPC, “Every person criminally liable for a felony is also
civilly liable.”
- General rule: People cannot be imprisoned for non-payment of debt (Art. III, Sec.
20, 1987 Constitution) - specifically purely civil debt or one arising from
contractual obligations.
- Exception: Subsidiary imprisonment - Persons may be jailed for non-
payment of civil liability attached/adjudged in a criminal case. The rate of
payment is minimum wage per day.
 5) Quasi-delicts or torts - when they arise through an act or omission therebeing fault or
negligence, but no contractual relation exists between the parties. (Art. 2176).
Obligations from quasi-delicts shall be governed by the provisions of Chapter 2, Title
XVII of Book IV, and by special laws. (Art. 1162)

The enumeration imposed by Art. 1157 is exclusive. The liability of a defendant may also arise
from more than 1 source.

Sources classified (De Leon, p. 10)

1) Sources emanating from law
2) Sources emanating from private acts
a) Licit private acts: contracts and quasi-contracts
b) Illicit private acts: delicts and quasi-delicts

c) Obligations based on Law

Art. 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 as to what has not been foreseen, by the provisions of this Book.

Legal obligations/Obligations arising from law

- Are not presumed because they are considered a burden upon the obligor
- To be demandable, it must be clearly set forth in the law via Civil Code or special laws.

d) Obligations based on Contracts

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

Contract
A 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. (Art. 1305)

DOCTRINE: OBLIGATORY FORCE OF CONTRACTS

Art. 1159 illustrates the doctrine of obligatory force of contracts - that once perfected, contracts
have the force of law/ “binding force” between the parties, who are bound to comply fully and
not selectively with its terms in good faith (Art 1315) and neither one may without the consent of
the other, renege therefrom.
According to Art. 1318, the essential elements of the contracts are:
1) consent of the contracting parties
2) object certain which is the subject matter of the contract
3) Cause of the obligation which is established.
The exception to the obligatory force of contracts are void contracts. There are two kinds of
void contracts:
1) Those that are absent an essential element of contract stated in Art. 1318.
2) Those that are void under Art. 1409:
a) Cause, object, or purpose is contrary to law, morals, good customs, public order
or public policy
b) Absolutely simulated or fictitious contracts
c) Cause or object did not exist at the time of the transaction
d) Object is outside the commerce of men
e) Contemplate an impossible service
f) Intention of the parties relative to the principal object of the contract cannot be
ascertained
g) Expressly prohibited or declared void by law

e) Obligations based on Quasi-Contracts

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

Art. 2142
Certain lawful, voluntary, and unilateral acts give rise to the juridical relation of quasi-contract to
the end that no one shall be unjustly enriched or benefitted at the expense of another.

Art. 2143
The provisions for quasi-contracts in this Chapter do not exclude other quasi-contracts which
may come within the purview of the preceding article.

Art. 2144 (Negotiorum Gestio)

Whoever voluntarily takes charge of the agency or management of the business or property of
another without any power from the latter is obliged to continue the same until the termination of
the affair and its incidents, or to require the person concerned to substitute him, if the owner is
in a position to do so. This juridical relation does not arise in either of these instances:
1) When the property or business is not neglected or abandoned;
2) If in fact the manager has been tacitly authorized by the owner.
In the first case, the provisions of Articles 1317, 1403, No. 1 and 1404 regarding unauthorized
contracts shall govern.
In the second case, the rules of agency in Title X of this Book shall be applicable.

Art. 2154 (Solutio Indebiti)

If something is received when there is no right to demand it, and it was unduly delivered through
mistake, the obligation to return it arises.
Quasi-contract
A juridical relation resulting from certain, lawful, voluntary, and unilateral acts by virtue of which
the parties become bound to each other to the extent that no one will be unjustly enriched or
benefitted at the expense of another. (Art 2142)

The list of quasi-contracts under Art. 2142-2175 is not exclusive (Art. 2143).

The cases classified as quasi-contracts are of infinite variety, and when for some reason
recovery cannot be held on a true contract, recovery may be allowed on the basis of a quasi-
contract. (PNB v CA) ; (De Leon, p. 23)

Negotiorum Gestio
Voluntary management of the property or affairs of another without the knowledge or consent of
the latter (Art. 2144)

This juridical relation does not arise in either of these instances:

a) When the property or business is not neglected or abandoned, in which case the
provisions of the Civil Code regarding unauthorized contracts. (Art. 1317, Art. 1403 [1],
Art. 1404)
b) If the manager has been tacitly authorized by the owner, in which case the rules of
agency shall govern. (Art. 2144)

Solutio Indebiti
Juridical relation created when something is received by a person when there is no right to
demand it and it was unduly delivered through mistake. (Art. 2154)
The government must restore or refund taxes paid in excess.
The payor may recover if he/she proves that the debt is not due; and the payee in turn can
counter by saying that the thing delivered was made from liberality or other just cause. (Art.
2163)
It is based on the principle that no one shall enrich himself unjustly at the expense of another.

This juridical relation arises in the following instances:

a) Payment is made when there exists no binding relation between the payor, who has no
duty to pay, and the person who received the payment
b) The payment is made through mistake and not through liberality or some other cause.

f) Civil obligations based on criminal offenses

Art. 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.
Art. 2177
Responsibility for fault or negligence under the preceding article is entirely separate and distinct
from the civil liability arising from negligence under the Penal Code. But the plaintiff cannot
recover damages twice for the same act or omission of the defendant.

Civil Liability arising from crimes of delicits

Governed by the following provisions: (Art. 1161)
a) Penal Laws: Arts. 100-113, Revised Penal Code
b) Art. 2177
c) Human Relations: Art. 29-35, Civil Code
d) Title XVIII, Book IV of Civil Code: Extra-contractual Relations

1) Civil liability in addition to the criminal liability:

The commission of an offense has a two-pronged effect: one, on the public as it
breaches the public as it breaches the social order and the other, upon the private victim
as it causes personal sufferings or injury, each of which is addressed, respectively, by
the imposition of heavier punishment on the accused and by an award of additional
damages to the victim.
2) Criminal liability without civil liability:
In crimes which cause no material damage (like contempt, insults to person in authority,
gambling, violations of traffic regulations, etc.), there is no civil liability to be enforced.
This is the exception to the general rule is that every person criminally liable for a felony
is also civilly liable for damages - civil liability ex delicto. (Art. 100, RPC)
3) Civil liability without criminal liability:
A person not criminally responsible may still be liable civilly when the obligation arises
from quasi-delict or tort not alleged and proved as constituting a criminal offense. (Art.
29; Rules of Court, Rule 111, Sec. 2[c])

Civil liability includes: (Art. 104, RPC)

1) Restitution
2) Reparation for the damage caused
3) Indemnification for consequential damages

Right to recover civil liability

1) Reservation and waiver - There is no more need for a reservation of the right to file the
independent civil actions under Arts. 32, 33, 34 and 2176 of the Civil Code.
2) Independent civil action - The reservation and waiver referred to pertain only to the civil
liability under Arts. 32, 33, 34 and 2176 of the Civil Code of the Philippines arising from
the same act or omission which may be prosecuted separately even without a
reservation.

g) Obligations based on quasi-delict

Art. 1162
Obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2, Title
XVIII of this Book, and by special laws.

Art. 2176
Whoever by act or omission causes damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing
contractual relation between the parties, is called a quasi-delict and is governed by the
provisions of this Chapter.

Quasi-delict
An act or omission by a person (tortfeasor) which causes damage to another in his person,
property, or rights giving rise to an obligation to pay for the damage done, there being fault or
negligence but there is no pre-existing contractual relation between the parties. (Art. 2176)

General rule: Recovery of damages twice for the same act or omission prohibited.
- The same negligent act or omission causing damage may produce civil liability arising
from a crime (Art. 100, RPC) or quasi-delict (Art. 2176,CC). Art. 365, RPC punishes
recklessness and negligence.
- If the same act or omission is punishable by law under different sources of obligation as
listed in Art. 1157 (ex. Culpa criminal [Art. 100 RPC] and culpa aquiliana [Art. 2177] ) the
offended party has the option to pick under which source of obligation he/she will base
his/her action.
- Special rule: Failure to recover under one of the two causes of action (ex. ex delicto and
ex quasi-delicto) will not necessarily preclude recovery in the other.

Requisites of Quasi-delict
1) There must be an act or omission by the defendant
2) There must be fault or negligence of the defendant
3) There must be damage caused to the plaintiff
4) There must be a direct relation of cause and effect between the act or omission and the
damage
5) There is no pre-existing contractual relation between the parties

Crimes distinguished from quasi-delict

Crime Quasi-delict

Criminal Malicious intent or criminal Only negligence

element negligence

Interest Public interest Private interest

Kinds of Criminal and civil liabilities Only civil liabilities

Liability
 Purpose Punishment Indemnification

Compromise Cannot be compromised or settled Can be compromised as any other civil

by the parties themselves liability

Guilt of the Beyond reasonable doubt Preponderance of evidence

accused

Liability of the Subsidiary Direct and primary

person
responsible

B. Nature and Effect of Obligations

a) Obligations to Give

Art. 1163
Every person obliged to give something is also obliged to take care of it with the proper
diligence of a good father of a family, unless the law or the stipulation of the parties require
another standard of care.

Art. 1164
The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises.
However, he shall acquire no real right over it until the same has been delivered to him.

Art. 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 debtor.

If the obligor delays, or has promised to deliver the same thing to two or more persons who do
not have the same interest, he shall be responsible for any fortuitous event until he has effected
the delivery.
Art. 1166
The obligation to give a determinate thing includes that of delivering all its accessions and
accessories, even though they may not have been mentioned.

Kinds of things due

1) Determinate or Specific
- A thing is said to be specific or determinate when it is particularly designated or
physically segregated from all others of the same class. (Art. 1460)
 - A determinate thing is identified by its individuality. The debtor cannot substitute it with
another although the latter is of the same/better kind and quality without the consent of
the creditor. (Art. 1244)
2) Indeterminate or Generic
- A generic thing is identified only by its specie. The debtor can give anything of the same
class as long as it is of the same kind.
- Art. 1163 does not apply to indeterminate things; only determinate things.

Genus nunquam perit/Genus never perishes:

- Unlike determinate things wherein the loss or destruction of that specific thing
may extinguish the obligation to give, in an obligation to deliver a generic thing,
the loss or destruction of anything of the same kind does not extinguish the
obligation. (Art. 1263)

Obligation to take care of the thing due:

An accessory obligation to take care of the thing due is so that the debtor would not be
negligent/lose/destroy the thing, rendering the obligation to give illusory. (Manresa cited in De
Leon, p. 33)

General rule: In obligations to give/real obligations, the standard required is generally the
diligence of a good father of a family/pater familias/reasonably prudent person/ordinary care.
(Art. 1163; Art. 1173 (2))

Special rule: A different standard of care may be mandated by stipulation or by law. (Art. 1163).
Examples are:
1) Common carriers - Extraordinary diligence (Art. 1755)
2) Banks - Highest degree of care due to its fiduciary nature (jurisprudence)
3) Other industries vested with public interest - also highest degree of care (jurisprudence)
4) Case to case basis: Otherwise, the diligence required depends upon the nature of the
obligation and corresponds with the circumstances of the person, of the time, and of the
place. (Art. 1173)

General rule: The debtor is not liable for the loss or destruction of a thing due in an obligation to
give if it is due to a fortuitous event. (Art. 1174)

Exceptions:
1) By law (Art. 1262)
2) By stipulation (Art. 1174, Art. 1262)
3) Nature of the obligation requires the assumption of risk (Art. 1174, Art. 1262)
4) If the debtor is in delay (Art. 1165 [3]; Art. 1169, Art. 1170; jurisprudence)
5) If the debtor promised to deliver the same thing to two or more persons (Art. 1165 [3] )

Duties of a debtor in obligation to deliver a determinate thing

1) To preserve or take care of the thing due (Art. 1163)
 2) To deliver the fruits of the thing (Art. 1164)
3) To deliver its accessions and accessories (Art. 1166)
4) To deliver the thing itself (see Arts. 1163, 1233, 1244; as to kinds of delivery, Art. 1497-
1501)
5) To answer for damages in case of nonfulfillment of obligation in case of nonfulfillment or
breach (Art. 1170)

Duties of a debtor in obligation to deliver an indeterminate thing

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 (Art. 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. (Art. 1170)

Kinds of fruits
1) Natural fruits - the spontaneous products of the soil, and the young and other products
of animals, all trees and plants on lands produced without the intervention of human
labor.
2) Industrial fruits - those produced by lands of any kind through cultivation or labor, and
all products of the lands brought about by reason of human labor.
3) Civil fruits - those derived by virtue of a juridical relation, such as the price of rent,
lease, or insurance (Art. 442)

When is the creditor entitled to the fruits of the thing to be delivered?

- When the obligation to deliver the thing arises.
- When does the obligation to deliver the thing arise?
- Contract: Upon perfection of the contract
- Law, quasi-contracts, delicts, and quasi-delicts: by provision of law
- Upon fulfillment of a suspensive condition or period
- Upon full payment of the purchase price in a contract of sale

Ownership
- A bundle of rights
- Ownership and other real rights over property are acquired and transmitted by law, by
donation, by estate and intestate succession, and in consequence of certain contracts,
by tradition. (Art. 712)
- (see Arts. 734, 774, 777; Fidelity & Deposit Co v Wilson)
- De Leon p. 34

Personal Right and Real Right

1) Personal right/in personam
Right or power of a person (obligee) to demand from another (obligor) as a definite
passive subject, the fulfillment of the latter’s obligation to give, to do, or not to do.
- A definite active subject (obligee) and definite passive subject (obligor) both
exist.
 - Binding/enforceable only on specific person/s.
2) Real right/in rem
Right or interest of a person over a specific thing (like ownership, possession, mortgage,
lease record) without a definite passive subject.
- Only a definite active subject exists.
- Directed against “the world” rather than a specific person.

When does a creditor acquire ownership of the thing due?

- Upon delivery. (Art. 1164)
- (see Art. 1496-1501)
- If there has been no delivery to the creditor yet, the proper action is not recovery of
possession (because as said, the creditor is also not yet the owner) but an action for
specific performance or rescission. (Art. 1165)

Remedies of a creditor in an obligation to give/real obligation

Specific real obligation/Obligation to give a Generic real obligation/Obligation to give an

determinate thing indeterminate thing

1) Specific performance 1) Specific performance

2) Rescission or cancellation a) By the debtor
3) Damages b) By a third person
2) Damages

*NOTE: Rescission or cancellation is almost

never a relief because genus nunquam perit.
(Art. 1263)

Accessions and Accessories

1) Accessions - fruits of, or additions to, or improvements upon a thing (the principal)
- Not necessary to the principal thing (difference with accessory)
- Exist in relation to the principal (same)
- As a right:
- The right pertaining to the owner of a thing over its products and whatever is
incorporated or attached thereto, either naturally or artificially (Art. 440, Sanchez
Roman cited in De Leon p. 39)
- In short, includes rights to the fruits and rights to the accessory
- One of the rights that make up dominion of ownership, but is not in itself a mode
of acquiring ownership

2) Accessories - things joined to, or included with the principal thing for the latter’s
embellishment, better use, or completion
- Necessary/must go together with the principal (difference with accession)
 - Exist in relation to the principal (same)

General rule: All accessions and accessories are considered included in the obligation to deliver
a determinate thing although they may not have been mentioned. (Art. 1166)
This is based on the doctrine/principle that “the accessory follows the principal.”
- Note that the reverse - the accessions and accessories being conveyed will not result in
the principal being presumed included.

b) Obligations to Do and Not to Do

Art. 1167
If a person obliged to do something fails to do it, the same shall be executed at his cost.

This same rule shall be observed if he does it in contravention of the tenor of the obligation.
Furthermore, it may be decreed that what has been poorly done be undone.

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.

Art. 1715
The contract shall execute the work in such a manner that it has the qualities agreed upon and
has no defects which destroy or lessen its value or fitness for its ordinary stipulated use. Should
the work be not of such quality, the employer may require that the contractor remove the defect
or execute another work. If the contract fails or refuses to comply with this obligation, the
employer may have the defect removed or another work executed at the contractor’s cost.

Situations contemplated in Art. 1167 (Obligations to do)

1) Debtor fails to perform an obligation to do
Remedy:
a) Specific performance by the debtor
b) Specific performance by a third person, at the debtor’s expense
c) Recover damages (Art. 1170)
2) Debtor performs an obligation to do, but contrary to the terms thereof
Remedy:
be undone at the debtor’s expense, plus possibly specific performance/damages
3) Debtor performs an obligation to do in a poor manner
Remedy:
be undone at the debtor’s expense, plus possibly specific performance/damages

Performance by a third person

General rule: Like a real obligation to deliver a generic/indeterminate thing, positive personal
obligations/obligations to do may also be performed by a third person.
Exception: Akin to delivering a specific/determinate thing, If the personal qualifications of the
debtor are the determining motive for the obligation contracted, the performance of the same by
another would be impossible or would result to be so different that the obligation could not be
considered performed. In situations like these, the only remedy is indemnification for damages.

Remedies of creditor in negative personal obligation (Art. 1168)

- Specific performance is not a remedy because the duty of the obligor is to abstain from
an act
- Under a negative personal obligation, the debtor cannot be guilty of delay
- Remedies:
- Cost of being undone + damages
- If it can not be undone, only damages

c) Irregularity of Performance

Art. 1170
Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and
those who in any manner contravene the tenor thereof are liable for damages.

Grounds for liability (Art. 1170)

Under Art. 1170, regardless of the source of the obligation, the injured party may seek damages
under the following grounds. It contemplates a situation wherein the obligation was eventually
performed but the obligor was still guilty of a voluntary breach:
1) Fraud (deceit or dolo)
Any act, omission, or concealment involving some kind of malice or dishonesty with the
deliberate intention to cause some kind of damage or prejudice.
Art. 1170 specifically refers to dolo incidente/incidental fraud committed during the performance
of an obligation.
2) Negligence (fault or culpa)
Any voluntary act or omission, there being no bad faith or malice, which prevents the normal
fulfillment of an obligation.
The failure to exercise the due diligence/degree of care required by the situation.
3) Delay (mora)
Nonfulfillment or late fulfillment of an obligation with respect to time.
4) Contravention of the terms of the obligation
Violation of the terms and conditions of the contract not due to a fortuitous event/force majeure.

Breach of contract
Failure without justifiable excuse or reason to comply with the terms of a contract.
It may be done willfully or unintentionally.
Breach gives rise to the cause of action for specific performance or rescission, plus damages in
either.
Said causes of action can help the injured party recover their losses and protect the following
interests:
a) Expectation interest
Interest in having the benefit of his bargain by being put in a good position as he would have
been had the contract been performed
b) Reliance interest
Interest in being reimbursed for loss caused by reliance on the contract by being put in as good
a position as he would have been had the contract not been made
c) Restitution interest
Interest in having restored to him any benefit that he has conferred to the other party.

(i) Fraud

Art. 1171
Responsibility arising from fraud is demandable in all obligations. Any waiver of action for future
fraud is void.

Art. 6
Rights may be waived, unless the waiver is contrary to law, public order, public policy, morals,
or good customs, or prejudicial to a third person with a right recognized by law.
Waiver for fraud
A waiver for future fraud is void as being against the law and public policy.
A waiver for past fraud is valid; must be in clear and unequivocal terms which leave no doubt as
to the intention of the obligee to give up his right of action against the obligor.

ii) Negligence

Art. 1172
Responsibility arising from negligence in the performance of every kind of obligation is also
demandable, but such liability may be regulated by the courts according to the circumstances.

Art. 1173
The fault of negligence of the obligor consists in the omission of that diligence which is required
by the nature of the obligation and corresponds to the circumstances of the persons, of the time,
and of the place. When negligence shows bad faith, the provisions of Articles 1771 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.

Art. 2201
In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is
liable shall be those that are the natural and probable consequences of the breach of the
obligation, and which the parties have foreseen or could have reasonably foreseen at the time
the obligation was constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all
damages which may be reasonably attributed to the non-performance of the obligation.

Kinds of negligence
1) Contractual negligence (culpa contractual)
- Negligence in contracts resulting in their breach
- Not a source of obligation; only makes debtor liable for damages
- Civil negligence that does not amount to a crime
2) Civil negligence (culpa aquiliana)
- Tort/Quasi-delict (Art. 2176)
- Negligence which by itself is the source of an obligation between the parties not
formally bound before any pre-existing contract
3) Criminal negligence (culpa criminal)
- Negligence resulting in the commission of a crime (Art. 365, RPC)

The injured party may choose between a criminal action under Art. 100, RPC or civil action for
damages under Art. 2176. As long as he/she does not try to recover twice.

iii) Delay

Art. 1169
Those obliged to deliver or to do something incur in delay from the moment the obligee judicially
or extrajudicially demands from them the fulfillment of the obligation.

However, the demand by the creditor shall not be necessary in order that delay may exist:
1) When the obligation/law expressly so declare
2) When from the nature and circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered for its service is to be rendered
was a controlling motive for the establishment of the contract
3) When demand would be useless, as when the obligor has rendered it beyond his power
to perform

In reciprocal obligations, neither party incurs delay if the other does not 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.

Kinds of delay mora

1) Mora solvendi
Delay on the part of the debtor to fulfill his obligation (to give or to do) by reason of a cause
imputable to him
2) Mora accipiendi
Delay on the part of the creditor without justifiable reason to accept the performance of the
obligation
3) Compensatio morae
Delay of the obligors in reciprocal obligations; the dleya of the obligor cancels the delay of the
obligee and vice versa.

Delay cannot be incurred in an obligation not to do/negative personal obligation.

Requisites of delay/default by the debtor

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 to fulfill,
perform, or comply with his legal obligation
- Demand must be due and demandable. If it is not due and demandable, the
debtor is not guilty of delay (Art. 1169)
- The creditor has the burden of proving that there was a demand.
- Kinds of demand:
i) Extrajudicial demand - made outside of court, orally or in writing
ii) Judicial demand - upon filing of complaint in court
3) Failure of the debtor to comply with such demand
Effects of delay
1) Mora solvendi’s effects:
a) The debtor is guilty of breach of the obligation
b) He is liable for interest in obligations to pay money (Art. 2209) or damages in
other obligations (Art. 1170)
c) Liable even for a fortuitous event when the obligation is to deliver a determinate
thing. (Arts. 1165, 1170)
i) If the debtor proves that the loss would be the same even if there was no
default, the court will mitigate damages.
ii) It does not apply to the obligation to deliver determinate things because
genus nunquam perit. (Art. 1263)
2) Mora accipiendi’s effects:
a) The creditor is guilty of breach of obligation
b) He is liable for damages suffered by the debtor
c) He bears the risk of the loss of the thing due (Art. 1162)
d) Where the obligation is to pay money, the debtor is not liable for interest from the
time of the creditor’s delay
e) The debtor may release himself from the obligation by the consignation of the
thing or sum due (Art. 1256)
3) Compensatio morae’s effects:
a) There is no actionable default on the part of the both parties, as if neither one is
guilty of delay.
The delay of the obligor cancels out the delay of the obligee and vice versa.
b) If the delay of one party is followed by that of the other, the liability of the first
infractor shall equitably be tempered by the courts.
 If it cannot be determined, the contract is deemed extinguished and both
parties shall bear their own damages. (Art. 1192)

General rule: Delay on the part of the debtor/obligor incurs upon demand of the creditor/obligee.
Exceptions:
a) When the obligation so provides - should be explicit with words like “the debtor will be in
default”/I will be liable for damages
b) When the law so provides
c) When time is of the essence
i) Express stipulation
ii) Nature of the contract itself
iii) Exception: if there is no express stipulation on the time of delivery/in general and
vague terms, time is not of the essence. In such situations, delivery must be
made withiin a reasonable time.
d) When demand would be useless - such as if the debtor refuses, or it is impossible for the
debtor to fulfill the obligation
e) When there is a performance by a party in reciprocal obligations (Art. 1191)

iv) Fortuitous Event

Art. 1174
Except in cases expressly stipulated by the law, or when it is otherwise declared by stipulation,
or when the nature of their obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or though foreseen, were inevitable.

Art. 1262
An obligation which consists in the delivery of a determinate thing shall be extinguished if it
should be lost or destroyed without the fault of the debtor, and before he has incurred in delay.
When by law or stipulation, the obligor is liable even for fortuitous events, the loss of the thing
does not extinguish the obligation, and he shall be responsible for damages. The same rule
applies when the nature of the obligation requires the assumption of risk. (1182a)

Art. 1263
In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind
does not extinguish the obligation. (n)

Art. 1264
The courts shall determine whether, under the circumstances, the partial loss of the object of
the obligation is so important as to extinguish the obligation. (n)

Art. 1265
Whenever the thing is lost in the possession of the debtor, it shall be presumed that the loss
was due to his fault, unless there is proof to the contrary, and without prejudice to the provisions
of article 1165. This presumption does not apply in case of earthquake, flood, storm, or other
natural calamity. (1183a)

Fortuitous Event
An extraordinary event which cannot be foreseen, or which though foreseen, is inevitable. In
other words, it is an event which is either impossible to foresee or impossible to avoid.
Its essence is that it is an event happening independent of the will of the debtor. Foreseeability
of inevitability is the fundamental consideration in imputing liability.

Fortuitous event distinguished from force majeure

(1) Acts of man /fortuitous event - independent of the will of the obligor but not of other
human wills (ex. Robbery, murder, insurrection)
(2) Acts of God/force majeure - totally independent of the will of every human (ex.
Earthquake, flood, etc)
Both exempt an obligor from liability.

Requisites of a fortuitous event

1) The event must be independent of the human will or at least of the obligor’s will
2) The event could not be foreseen (unforeseeable) or it could be foreseen but it must have
been impossible to avoid (unavoidable)
3) The event must be of such character as to render it impossible for the obligor to comply
with his obligation in a normal manner
4) The obligor must be free from participation in, or the aggravation of the injury to the
obligee.
The absence of any requisites would prevent the obligor from being exempt from liability.
To be exempt from liability, there should have been no human participation amounting to a
negligent act.

Exceptions where obligor is liable despite the presence of fortuitous event

1) When expressly specified by law - Art. 552, Art. 1740, Art. 1942, Art. 1979, Art. 2147 (De
Leon 79)
a) Debtor is guilty of fraud, negligence, delay, or contravention of the tenor of the
obligation (Arts. 1170, 1165, par. 2)
b) The debtor has promised to deliver the same (specific) thing to two or more
persons who do not have the same interest that fulfillment would be impossible,
even if there was no fortuitous event
c) The debt of a thing certain and determinate proceeds from a criminal offense,
unless the thing having been offered by the debtor to the person who should
receive it, the latter refused without justification to accept it (Art. 1268)
d) The thing to be delivered is generic (Art. 1263) since genus never perishes
2) When declared by stipulation in the contract
3) When the nature of the obligation requires an assumption of risk

Effect when risk is not impossible to foresee

 (1) Risk is quite evident - liable
(2) Mere difficulty to foresee risk - generally liable most of the time

Effect of obligor’s negligence on liability

(1) Negligence contributed to the loss or damage - liable
(2) Negligence not contributory to the loss or damage - generally not liable, but discretionary
upon the courts

d) Creditor’s remedies; in general

Art. 1177
The creditors, after having pursued the property in possession of the debtor to satisfy their
claims, may exercise all the rights and bring all the actions of the latter for the same purpose,
save those which are inherent in his person; they may also impugn the acts which the debtor
may have done to defraud them. (1111)

Art. 1178
Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if there has
been no stipulation to the contrary. (1112)

Art. 1311
Contracts take effect only between the parties, their assigns and heirs, except in case where the
rights and obligations arising from the contract are not transmissible by their nature, or by
stipulation or by provision of law. The heir is not liable beyond the value of the property he
received from the decedent.

If a contract should contain some stipulation in favor of a third person, he may demand its
fulfillment provided he communicated his acceptance to the obligor before its revocation. A
mere incidental benefit or interest of a person is not sufficient. The contracting parties must
have clearly and deliberately conferred a favor upon a third person. (1257a)

Remedies available to creditors for the satisfaction of their claims

(1) Exact fulfillment (specific performance) with the right to damages
(2) Pursue the leviable (not exempt from attachment under the law) property of the debtor
(3) Accion subrogatoria - creditor exercises all transmissible rights of the debtor
(4) Accion pauliana - court rescinds or impugn acts /contracts which the debtor he may have
done to defraud him when he cannot in any other manner recover his claim (Art. 1380-
89)

Transmissibility of rights
All rights acquired in virtue of an obligation, on the other hand, are generally transmissible (Art.
1311) except:
(1) Prohibited by law
(2) Prohibited by stipulation of parties
Requisites of accion pauliana
1) That the plaintiff asking for rescission, has a credit prior to the
alienation, although demandable later;
2) That the debtor has made a subsequent contract conveying a
patrimonial benefit to a third person;
3) That the creditor has no other legal remedy to satisfy his claim, but
would benefit by rescission of the conveyance to the third person;
4) That the act being impugned is fraudulent; and
5) That the third person who received the property conveyed, if by
onerous title, has been an accomplice in the fraud. ||| (Anchor Savings Bank v.
Furigay) SI
e) Usury
Art. 1175
Usurious transactions shall be governed by special laws

Simple loan or mutuum

A contract whereby one of the parties deliver to another money or some 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 stipulation to pay interest. (Art. 1933)

Art. 1413
Interest paid in excess of the interest allowed by the usury laws may be recovered by the
debtor, with interest thereon from the date of the payment.

Art. 1957
Contracts and stipulations, under any cloak or device whatever, intended to circumvent the laws
against usury shall be void. The borrower may recover in accordance with the laws on usury.

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.

The kind of interest under Art. 1175 refers to compensatory interest/monetary interest.
- Monetary interest - interest fixed by parties to a contract for the use or forbearance of
money
- Compensatory interest - imposed by law or by courts as penalty or indemnity for
damages, payable only upon default
The right to recover interest arises only either by virtue of a contract or as damages for delay or
failure to pay the principal loan on which the interest is demanded.

Before July 1, 2013, CB 416.

* CB 416 - This distinguishes what the source of obligation is.
* IF loan/forbearance, 12%.
* IF not loan/forbearance, 6%.
* Things changed after July 1, 2013.
* BSP 799 - There was no more distinction between loan/
forbearance or not. Absence of stipulation, 6%. Any
absence of stipulation, it’s 6%. Default rule is still the
stipulation agreed upon.
* Why are we still expected to know about this? Because even
up until today there are still obligations which are in default
even prior to July 1, 2013. What the Court has said: if default
occurred before July 1, 2013, you will still apply CB 416. But
after July 1, 2013, apply the latter circular.
* Before July 1, 2013, the legal interest was dependent on
what is the source of obligation.
* Right now, in absence of stipulation, the legal rate is 6%.
* That is the general rule, the exception is the when you have
a final and executory judgment awarding a sum of
money. This is the doctrine of immutability of judgments.
* On loan/forbearance contract - If the Court’s judgment
became final and executory before July 1, 2013, the
applicable rate is 12%. If di pa siya nagbabayad kahit after
July 1, 2013, Sir, magbabago pa yung rate? The answer is
no.
* If it attained finality from and after July 1, 2013, the legal
interest applicable is 6% and not 12%.

Kinds of interest
(1) Simple interest - when the rate of interest is stipulated by the parties (Art. 2209)
(2) Compound interest - when the interest earned is upon interest due (Art. 2212, 1959)
(3) Legal interest - when the rate of interest by the parties is presumed by law, when the
loan mentions interest but does not specify the rate thereof (Art. 2209)
(4) Lawful interest - when the rate of interest is within the maximum allowed by the usury
law (Usury Law, Act No. 2655, Sec. 2 & 3)
(5) Unlawful interest - when the rate of interest is beyond the maximum fixed by law

Interest rate rules

(1) Legal rate - 6% per annum when interest is stipulated, but there is no express contract
as to the rate there. In case of the default, the indemnity for damages in the absence of
stipulation is also 6%. (BSP Circ. No. 799, effective July 1, 2013)
(2) Maximum rate
(a) 12% per annum - if the loan is secured in whole or in part by a mortgage
(b) 14% per annum - if the loan is not secured
(c) As provided by the Monetary Board of the Central Bank
(3) Later lifted: BP 905, effective Jan. 1, 1983
- It is subject to agreement of the parties.
- Rate of interest and other charges shall not be subject to any ceiling
prescribed under the Usury Law.
- NOTE: BP 905 did not repeal the Usury Law, but merely suspended its
effectivities.
- Although there is no longer a ceiling, the stipulated interest may still be declared
illegal by the court if the same is excessive, exorbitant, or unconscionable.
(Art. 1229)
(4) Rule where escalation clause stipulated - Escalation clauses refer to stipulations
allowing an increase in the interest agreed upon by the contracting parties, which is not
void per se.