Article 1174

- yung pwede naman palang maforesee,

- except in cases expressly specified by the law, although no entirely

or when it is otherwise declared by stipulation,

2. Extraordinary fortuitous events - uncommon

or when the nature of the obligation requires - couldn’t have been reasonably foreseen

the assumption of risk, no person shall be - earthquakes, fire, war, unusual flood,
responsible for those events which could not be PANDEMIC

foreseen, or which, though foreseen, were

inevitable.

REQUISITES OF A
Fortuitous event

- any extraordinary event which cannot be FORTUITOUS EVENT

foreseen

- or though foreseen, is inevitable

1. The event must be independent of the human
- impossible to foresee or avoid
will, or at least the obligor’s will;

- a happening independent of the will of the

obligor and which happening, makes the normal 2. The event could not be foreseen
fulfillment of the obligation impossible.
(unforeseeable), or must have been impossible
to avoid (unavoidable)

FORTUITOUS EVENT VS FORCE 3. Event must be of such a character as to

render it impossible for the obligor to comply
MAJEURE
with his obligation in a normal manner

*Fortuitous events and force majeure are identical

4. The obligor must be free from any
in so far as they exempt an obligor from liability.

participation in, or the aggravation of the

injury to the obligee

1. Acts of man - fortuitous event is free from

the will of the obligor but not other human
wills
 *The absence of any of the above requisites (all
- war, fire, robbery, murder, insurrection, etc.

of which must be proved) would prevent the

2. Acts of God - events totally independent from obligor from being exempt from liability.

the will of every human being; out of anyone’s * All or nothing lmaoo

control

- force majeure

- natural accident

- earthquake, flood, rain, shipwreck, etc.
CONCURRENT OR PREVIOUS
NEGLIGENCE OF OBLIGOR

KINDS OF FORTUITOUS - There must be no concurrent or previous

negligence or impudence on the part of the
EVENTS
obligor by which the loss or injury may have
been occasioned

Civil Code distinguishes between two kinds of

fortuitous events!!
- When the effect is found to be, in part, the
result of the participation of man, whether due
1. Ordinary fortuitous events - events which are to his active intervention or neglect or failure to
common
 act, the whole occurrence is then humanized
- contracting parties could reasonably foresee

 and removed from the rules applicable to the during a state of war, he would have been
acts of God.
exempted from responsibility. Placing his trust
- Bale, if there was any active intervention fund in the bank, in his personal account, does
not add to his responsibility.

or negligence by man, then it no longer

counts as an act of God.

- If the loss or injury could have been avoided

by human precaution, the defense of fortuitous RULES AS TO LIABILITY IN
event cannot be successfully evoked.

CASE OF FORTUITOUS EVENT

- In order to be exempt from liability arising from

a fortuitous event, there should have been no
- A person is not, as a rule, responsible for loss or
human participation amounting to a negligent damage resulting from fortuitous events.

act.
- His obligation is extinguished.

For example:
Exceptions are:

::Robbery or carnapping per se is not a fortuitous 1. When expressly specified by law - in

event.
exceptions listed below, the special strictness
:::Merely presenting the police report on the crime of the law is justified.

is NOT SUFFICIENT to establish that it happened, A. The debtor is guilty of fraud, negligence, or
nor prove that the obligor was not at fault.
delay, or contravention of the tenor of the
The burden of proving that the loss was due to obligation. (refers to the violation of the
terms and conditions or defects in the
a fortuitous event rests on him who invokes it.

performance of the obligation)

B. The debtor has promised to deliver the

ILLUSTRATIVE CASES:
same (specific) thing to two or more
persons who do not have the same interest.
1. Where the car was driven by an unlicensed It would be impossible for the debtor to
chauffeur, the breach of the contract of comply with his obligation to two or more
carriage cannot be said to be due to a creditors even without any fortuitous event
fortuitous event.
 taking place.

- X is liable in damages, because yes— X’s

liability is contractual. By entering into the
contract of carriage, X bound himself to carry
B and C safely and securely to their
destination. Having failed to do so, he is liable
in damages unless he shows that the failure to
fulfill his obligation was due to causes
C. If 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.

mentioned in Article 1605 (now Art. 1174).

D. If the thing to be delivered is generic; for

2. Trust funds deposited by trustee in a band in
his personal account are lost due to a
fortuitous event.

- Is T liable to repay the money removed and
confiscated by the military authorities of the
the debtor can still comply with his
obligation by delivering another thing of
the same kind, in accordance with the
principle that “genus never perishes” (genus
nunquam perit)

United States of America?


- Nah. Under Article 1163, if military forces 2. When declared by stipulation - basis for this
forcibly took money from his pocket or house exception rests upon the freedom of contract.

 - such a stipulation is usually intended to (b) A real estate enterprise engaged in the
better protect the interest of the creditor and pre-selling of condominium units is concededly a
procure greater diligence on the part of the master in projections on commodities and
debtor in the fulfillment of his obligation.
 currency movements and business risks. The
- intention to make the debtor liable even in fluctuating movements of the Philippine peso in
case of a fortuitous event should be clearly the foreign exchange market is an everyday
expressed.
 occurrence, and fluctuations in currency exchange
- basically, if the debtor and creditor have rates happen everyday; thus, not an instance of
reached an agreement, ganern
caso fortuito.

3. When the nature of the obligation requires

the assumption of risk - here, risk of loss or ILLUSTRATIVE CASES:

damage is an essential element in the

obligation.
1. Happening of event was foreseen

- like insurance!!

EFFECT WHERE RISK IS NOT

IMPOSSIBLE TO FORESEE

1. Where the risk is quite evident such that the

possibility of danger is not only foreseeable,
but actually foreseen; it could be said that
the nature of the obligation is such that a
party could rightfully be deemed to have
assumed it.

- bASICALLY, if it could be deemed predictable,

then it likely is.

- under Article 1174, the event must be one

impossible to foresee or avoid so that a party
may not be said to have assumed the risk
resulting from the nature of the obligation
itself. (like,, they won’t out themselves, they’ll
have to prove that they were not able to
assume the risk??)

2. Mere difficulty to foresee the happening of

an event is different from impossibility to
foresee or anticipate the same

(a) The 1997 financial crisis in Asia did not

constitute a valid justification to renege on
obligations; it is not among the fortuitous events
contemplated under Article 1174. (It could have
been predicted and taken note of)

2. Happening of event was clearly unforeseen

EFFECT OF OBLIGOR’S
NEGLIGENCE UPON HIS
LIABILITY

1. NEGLIGENCE CONTRIBUTED TO THE LOSS

OR DAMAGE

- in order that fortuitous event may release a

debtor from his obligation, it is necessary
that he be free from previous negligence or
misconduct by which the loss or damage may
have been occasioned.

- When the negligence of a person concurs

with a fortuitous event in producing a loss, he
is not exempted from liability by showing that
the immediate cause of the damage was the
fortuitous event. -> kapag may kasabay na
negligence of the person yung fortuitous
IMPOSSIBILITY OF event, he is not released from his liability.

PERFORMANCE MUST RESULT A. Otherwise stated, in order to

completely exonerate the debtor by
FROM OCCURRENCE OF reason of a fortuitous event, such
debtor must, in addition to the casus
FORTUITOUS EVENT
itself, be free of any concurrent or
- For the purpose of releasing the debtor from contributory fault or negligence.

his obligation, the occurrence of the fortuitous
event does not suffice. The impossibility of
fulfilling the obligation must be the direct
consequence of the event. If even
notwithstanding its occurrence the obligation
- This is apparent from Article 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.)

can be fulfilled, it will subsist even if only in

part.
- Thus, one who has placed property
- In order to see whether or not the fortuitous of another, entrusted to his care, in
an unseaworthy vessel, upon
event produces the impossibility of fulfilling the
dangerous waters, cannot absolve
obligation, the nature of the obligation must himself by crying “an act of God”
be considered, and according to whether it be when every effect which a typhoon
specific or general, etc., it will or will not be produced upon that property could
extinguished.
have been avoided by the exercise
of common care and prudence.
B. Where the loss is caused by an “act of
God”, “if the negligence of the
[defendant] mingles with it as an active
and cooperative cause, he is still
 responsible”. Stated differently, “one Article 1175

who negligently creates a dangerous - Usurious transactions shall be governed by

condition cannot escape liability for the special laws. (n)

natural and probable consequences

thereof, although the act of a third
person, or an act of God for which he is Simple loan or mutuum

not responsible, intervenes to

precipitate the loss.”
- a contract whereby one of the parties delivers
to another, money or any other consumable
2. Negligence not contributory to the loss or thing, upon the condition that the same amount
damage
of the same kind and quality shall be paid.

- but where both fortuitous event and lack - It may be gratuitous or with a stipulation to pay
of due diligence are present under interest (Art. 1933)

conditions that the loss would have

happened with or without the negligence
of the obligor— hence, the consequences USURY

are all a derivation of the fortuitous event - contacting for or receiving interest in excess of
— it cannot be said that responsibility
the amount allowed by law for the loan or use
arises therefrom.

of money, goods, chattels, or credits

- In such a case, however, the courts are not

bound to discharge the obligor from all
liability. Under the law (Art. 2215[4]),
where “the loss would have resulted in any KINDS OF INTEREST

event”, they “may equitably mitigate the

Simple interest - when the rate of interest is
damages” which in view of the
stipulated by the parties

circumstances, the obligor must pay.

Compound interest - when the interest earned is

upon interest due

Legal interest - when the rate of interest

intended by the parties is presumed by law, as
when the loan mentions interest but does not
specify the rate thereof.

- The same rate is allowed in judgements

where there is no express contract
between the parties in anticipation of the
same. Its use is not justified when there
is a stipulated rate of interest in the loan
contract

Lawful interest - when the rate of interest is

within the maximum allowed by (usury) law

Unlawful interest - when the rate of interest is

beyond the maximum fixed by law

 INTEREST RULES
REQUISITES FOR RECOVERY
1. Legal rate - 12% per annum
OF MONETARY INTEREST

- the legal rate is 12% (from default until fully

Monetary Interest - interest fixed by the parties
paid) if the transaction is a loan or
to a contract for the ease or forbearance of
forbearance of money, goods, or credits; or
money

the judgement involves a loan or forbearance

of money, goods, or credits, as prescribed in Compensatory Interest - if it is imposed by law or
Central Bank Circular No. 416
by courts as penalty, or indemnity for damages

- otherwise (e.g.indemnity for damages

occasioned by an injury to a person or loss of
In order that monetary interest may be recovered,
property), it is only 6% as provided in Article
the following requisites must be present:

2209 of the Civil Code.

1. The payment of interest must be expressly

2. Maximum rate:

stipulated

• 12% per annum - if the loan is secured in

whole or in part by a mortgage upon real 2. The agreement must be in writing, and

estate with a Torrens Title or by any 3. The interest must be lawful


agreement conveying such real estate (also
registered) or an interest therein

A stipulation for the payment of usurious interest

- For purposes of the ceiling, loans secured is void, that is, as if there is no stipulation as to
by government securities such as interest.

treasury bills, CB certificates of
indebtedness, etc., qualify as secured Note: By virtue of Central Bank Circular No. 905
loans
issued by the Monetary Board under the authority
granted to it by the Usury Law, the rate of
• 14% per annum - if the loan is not secured
interest and other charges on a loan or
as provided above

forbearance of money, goods, or credit, regardless

• The rate prescribed by the Monetary Board of maturity and whether secured and unsecured,
of the Central Bank
that may be charged or collected, shall not be
Under Section 2 (secured loan) of the Usury Law, subject to any ceiling prescribed under the Usury
Law.

the taking or receiving (not mere agreeing) of

usurious interest is the act penalized.
Usury Law is now legally nonexistent.

Under Section 3 (unsecured loan), the mere Interest can be charged as lender and borrower
demanding or agreeing to charge excessive may agree upon.

interest is also punishable.

According to the Supreme Court, the circular did

In either case, it is only the creditor (obligee) who not repeal or in any way, amend the Usury Law by
is criminally liable.
simply suspended the latter’s effectivity.

To conceal usury, various devices (e.g. sale with Only a law can repeal or amend another law.

right of repurchase under Art. 1602 of the Civil While the Usury Law ceiling on interest rates was
Code) have been resorted to whereby the true
lifted by C.B. Circular No. 905, nothing in the said
nature of the transaction is concealed from what
may be viewed from the written agreement.
circular grants lenders carte blanche authority
(authority/freedom to act) to raise interest rates
to levels which will either enslave their borrowers, where he offered checks backed by
or lead to a hemorrhaging of their assets.
sufficient deposit or is ready to pay
cash if the creditor chose that
QUESTION FOR MISS: Even if lenders aren’t means of payment.

granted carte blanche authority, what is stopping

them from raising interest rates to unethical
levels, if the Usury Law’s effectiveness is null?
the rate of 12% interest referred to in C.B.
LIABILITY FOR LEGAL
2. Other than loan or forbearance of money -
Circular No. 416 applies only to loan or
forbearance of money, goods or credit, or to
cases where money is transferred from one
person to another, and the obligation to return
the same or a portion thereof is adjudged.

INTEREST

- When na obligation, not constituting a loan

1. Loan or forbearance of money - when the or forbearance of money (e.g., obligation
obligation consists in the payment of money arises from a contract of purchase and
(i.e. loan or forbearance of money, goods, or sale) is breached, an interest on the
credits), the interest due should be that which amount of damages awarded may be
may have been stipulated in writing
imposed at the discretion of the court, at
- legal interest in the nature of (actual and the rate of 6% per annum, as provided in
compensatory) damages for non-compliance Article 2209 of the Civil Code.

with an obligation to pay a sum of money is

3. Final and executory judgement awarding a
recoverable even if not expressly stipulated
in writing.
sum of money - when the judgement of the
court awarding a sum of money becomes final
A. The debtor in delay is liable to pay and executory, the rate of legal interest
interest which is 6% per annum, (where the case falls under Nos. 1 or 2 above),
now 12% by virtue of Central Bank shall be 12% per annum from such finality until
Circular No. 416 and No. 905, as its satisfaction, the interim period being
indemnity for damages even in the deemed to be by then an equivalent to a
absence of stipulation for the forbearance of credit.

payment of interest computed from

default, i.e., from judicial or
- the actual base for the computation of this
extrajudicial demand.
12% interest is the amount due upon the
finality of the judgement.

B. Furthermore, interest due shall earn

legal interest from the time it is 4. Summary - the above rulings may be
judicially demanded although the summarized as follows:

obligation may be silent upon this • For loan or forbearance of money, the rate of
point.

interest due is that stipulated; otherwise, 12%
Where no interest had been
per annum computed from judicial or
stipulated by the parties, the debtor
extrajudicial demand until fully paid. In
is not liable to pay compound
addition, interest due shall earn legal interest
interest even after judicial demand.
(compound interest) from the time it is
In such case, there can be no
accrues (conventional) interest which judicially demanded

can further earn interest upon

• For other than loan or forbearance of money,
judicial demand.
the interest shall be 6% as indemnity (security
C. A debtor cannot be considered or protection against a loss or other financial
delinquent and liable to pay interest burden) at the discretion of the court.

 - When the amount of the obligation is

reasonably established, the interest shall
run from judicial or extrajudicial
demand; otherwise, from the time the
amount is fully adjudged.

• Where a judgement awarding a sum of money

under (a) or (b) above, has become final and
executory, the legal rate of interest shall be
12% from such finality, based on the adjudged
principal and unpaid interest, until full
satisfaction

Article 1176

- The receipt of the principal by the creditor,

without reservation with respect to the interest,
shall give rise to the presumption that said
interest has been paid.

- The receipt of a later installment of a debt

without reservation as to prior installments,
shall likewise raise the presumption that such
installments have been paid.

Presumption - the inference of a fact not actually

known arising from its usual connection with
another which is known or proved