Law on Obligations and Contracts
Course Outline 3. Characteristics of Business Law
PART I – INTRODUCTION TO LAW AND BUSINESS
LAW
1) Definition of Law and Business Law
2) Sources of Business Law
3) Characteristics of Business Law
PART II – OBLIGATIONS
1) In General
a. Definition
b. Sources of Obligations
Law; Contracts; Quasi-Contracts;
Delicts or Crimes; Quasi-Delicts
c. Essential requisites of obligation
Parties; object; Juridical tie or vinculu
2) Nature and Effect of Obligation
a. According to the Object or Prestation
Obligations to give; Obligations to do;
Obligations not to do
b. Liability of Damages
Fraud – Dolo incidente; Dolo causante
Negligence – Culpa
Delay – Mora solvendi,
compensatio morae
Contravention of tenor of obligation
PART III – GENERAL PROVISIONS ON CONTRACT
§ Contracts Defined
§ Elements of Contract:
§ Stages of A Contract
§ Characteristics of Contracts:
§ Classification of A Contract:(FROM)
§ Contract Binds by Both Parties
§ Cases Where Third person May Be Affected By a
Contract
§ Forms of Contracts
§ Reformation of Instruments
§ Interpretation Of Contracts
§ Cause of Contracts
PART IV – DEFECTIVE CONTRACTS
§ Rescissible Contracts
§ Voidable Contracts
§ Unenforceable Contracts
§ Void or inexistent contracts
Introduction to Law and Business Law
1. Definition of Law and Business Law
2. Sources of Business Law
- In Philosophy, the human mind consists principally of
two faculties:
1. the Intellect – the object of which is the
TRUTH.
2. the Will – the object of which is the GOOD.
- The infinite truth and infinite good is infinite beauty
of God.
- The person was created by God and destined for
God, the people can attain the final destiny by
following the law.
- The laws that contained the instructions of God given
to us are the COMMANDMENTS.
Law
- The most basic, simple, and concise definition of law
was defined by Sanchez Roman, a Spanish Civilist
and he defined Law as:
- “A RULE OF CONDUCT, JUST AND OBLIGATORY
PROMULGATED BY LEGITIMATE AUTHORITY FOR
THE COMMON OBSERVANCE AND BENEFIT.”
- Edgardo Paras defined Law as “an ordinance of
accipiendi, reason promulgated for the common good by
Him who is in charge.”
Characteristics of Law
1. A Rule of Conduct
§ Meaning any action, things, dictate of reason if
regulated or gathered together could become a
conglomeration of rules, regulations that can
create an orderly, peaceful, harmonious relations
among the people concerned so that in the end
justice will prevail.
2. Promulgated by Legitimate Authority
§ That is, made known to those who are expected
to follow it. In a Republican State like the
Philippines, we have three branches of
government – legislative body (like Congress,
Sanggunian) is the law-making body; the
executive body is the implementing body and the
judiciary as the enforcing body.
3. Just and Obligatory
§ Treatment of Law should be equal, regardless of
sex, creed, age and status in life and to follow the
law there should be equivalent punishment or
penalties to enforce them. The dictum “Justice
delayed is Justice denied” is commonly abused
term on the relation of a criminally inclined poor
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person and a moneyed person on the treatment
of the application of law. Obligatory means any
duty binding parties to perform their agreement.
(Black’s dict. P. 1074).
4. For the Common Observance and Benefit
§ The application of law should not be titled or
favoring an individual but by the observance of all
and the benefits that may be derived from it.
Sources of Law
1. Legislative
§ It consists of legal rights by a competent
authority. In the Philippines, being a democratic
form of government, the Legislative is the law-
making body. For national government, Congress
comprising the House of Representatives and the
Senate. For provinces, the Sangguniang
Panlalawigan for every province. For a town, the
Sangguniang Pambayan or the local Municipal
council. For a Barangay level, the Sangguniang
Pambarangay.
2. Constitution
§ The fundamental law that governs a nation in its
relation to its citizens. All laws must conform and
comply with the provisions of the Constitution,
otherwise it becomes unconstitutional.
3. Administrative or Executive Orders,
Regulations and Rulings
§ The fundamental law that governs a nation in its
relation to its citizens. All laws must conform and
comply with the provisions of the Constitution,
otherwise it becomes unconstitutional.
4. Judicial Decisions or Jurisprudence
§ Judicial decisions or interpreting the laws or the
Constitution shall form a part of the legal system
of the Philippines. (Art. 8, New Civil Code) Judicial
decisions, though, are part of the legal system in
the Philippines still are not laws for if this were
so, the Courts exists for stating what the law is,
but not for giving it. Judicial decisions, though not
law, are evidence of what the law means. This is
why they are part of the legal system in the
Philippines. So, f an interpretation is placed by the
Supreme Court upon a law, it constitute in a way,
part of the law since the Courts interpretation
merely establishes the legislative intent.
§ Thus, our country adhere to the Doctrine of Stare
Decisis (Let it Stand), the doctrine which in reality
is “adherance to precedents” stated that once a
case has been decided, then another case
involving the same point at issue, should be
decided in the same manner. Therefore, if the
Supreme Court being a Court of last resort, has
decided that a certain law passed by Congress is
constitutional, the law becomes binding and has
its full force and effect.
5. Custom
§ It consists of those habits and practices which
through long and uninterrupted usage have
become acknowledged and approved by society
as binding rule of conduct. Thus, it has been a
custom for a person to enter and exit a door.
Once a person uses the window for his entrance
and exit, it runs counter to the custom of use of
the door. Even our Lord said as a good shepherd,
if a person does not pass the gate, he is a thief
for a marauder.
6. Other Sources
§ To add, the principle of justice and equity,
decisions of foreign tribunals, opinions of text
writers and even religion may also be sources of
law.
Kinds of Law
1. Divine Law
§ It is formally promulgated by God, revealed or
divulged to mankind by means of direct revelation
like the Ten Commandments.
2. Natural Law
§ Promulgated impliedly in our conscience and
body. It is the divine interpretation in man in the
sense of justice, fairness, right and equity by
internal dictate of reason on our mind. Like for
instance, it is better to do good than to do evil for
being a God-fearing person.
3. Physical Law
§ Refers to the act of rules governing the action and
movement of things like the law on gravity by
Newton.
4. Human Law
§ Those promulgated by man to regulate human
relations.
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Classification of Human Law
A. GENERAL or PUBLIC LAW
§ Body of rules which regulates the rights and
duties arising from the relationship between the
State and its inhabitants.
§ It includes the following:
1. International Law – consists of those rules
and principles which govern the relations
and dealing of nations with each other.
2. Constitutional Law – It simply governs the
relations between the State and its citizens.
3. Administrative Law – it fixes the
organization and determines the
competence of the authorities that execute
the law and indicates to the individual
remedies for the violation of his rights.
4. Political Law – deals with the organization
and operation of the governmental organs of
the State and defines the relations of the
state with the inhabitants of its territory.
5. Criminal Law – guaranties the coercive
power of the law so that it will be obeyed.
Governs the methods of trial and punishment
of crimes.
B. INDIVIDUAL or PRIVATE LAW
§ Those law which govern the private relation
person.
§ It includes the following:
1. Civil Law – branch of law which has for its
double purpose the organization of the
family and the regulation of property. It is
defined as the mass of precepts which
determines and regulate the relation of
assistance, authority and obedience among
the members of a society for the protection
of private interests.
2. Commercial Law – defined as a whole
body of substantial jurisprudence applicable
to the rights, intercourse and relation of
persons engaged in commerce, trade or
mercantile pursuits. (Black’s law dict. 338)
3. Procedural Law – defined as the branch of
law which prescribes the method of
enforcing rights or obtaining redress for their
invasion, Procedural law otherwise known as
Remedial Law, as distinguished from
Substantive law which creates, defines and
regulate rights. (Ballantine Law Dict. P. 36)
Sources of Philippine Civil Code
1. The New Civil Code of the Philippines – the
collection of laws which regulates the private
relations of the members of civil society, determining
the defective rights and obligations with reference to
persons, things and civil acts.
§ A civil code is a compilation of existing Civil Laws,
scientifically arranged into books, titles, chapters
and subheads and promulgated by legitimate
authority. (Black Law Dict. 334).
2. Special laws or statutes, Presidential decrees and
other social legislation.
3. Jurisprudence – there is need to mention that,
jurisprudence in our system of government, cannot
be considered as an independent source of law; but
the Court’s interpretation of a statute that constitute
part of the law as of the date it was originally passed
since the Court’s construction merely establishes
contemporaneous legislative intent, that the
interpreted law could take into effect.
4. Customs and Traditions – Custom is a judicial rule
which results from a constant and continuous
uniform practice by the members of a social group.
5. The Code Commission itself – A Code commission
of five members was created by Pres. Manuel Roxas
through Exec. Order No. 48 dated Mar. 20,1947 in
view of the need of revision in keeping with
progressive modern legislation. The Civil Code was
finished on Dec. 15, 1947 and Congress approved
the draft on June, 1949.
Books of the Civil Code
§ Book I – Person and Family Relations
o This was re-codified as Family Code of the
Philippines embodied in Exec. Order No. 209 as
amended by Exec. Order No. 227. The Family
Code effectuates the long-felt reforms and
changes to the Civil Code provisions on Family
relations consistent with Filipino values,
customs and traditions vis-à-vis recent
developments in the social-cultural scene.
(Pineda, Family Code).
§ Book II – Property, Ownership and its
modifications.
§ Book III – Different Modes of Acquiring Ownership
(Succession)
§ Book IV – Obligations and Contracts
§ Book V – Special contracts
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o The Civil Code begins with preliminary titles and
ends up with the repealing clause. This module
is taken from the Civil Code of the Philippines
from Articles 1156 to 1422 inclusive.
Kinds of Procedural Law
1. Public Remedial Law – affords a remedy in favor
of the State against the individual, like criminal
procedure or in favor of the individual against the
State, like Habeas Corpus.
2. Private Remedial Law – affords a remedy in favor
of an individual against another individual, like the
civil procedure.
Philippine Remedial Law
§ Principally contained in the Rules of Court, which is
a combination of rules promulgated by the Supreme
Court for the easy, orderly, adequate and effective
compliance with the law. The Rules of Court have the
force and effect of law. (Alvero V. dela Rosa, 76 Phil
428).
§ COURTS DEFINED –
o It is the entity, body or tribunal vested with a
portion of the judicial power. (Lontok V. Battung
63 Phil 1054Ω
§ JUDICIAL POWER
o Includes the duty of the courts of justice to
settle actual controversies involving rights which
are legally demandable and enforceable, and to
determine whether or not there has been a
grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of any branch
or instrumentality of the Government. (Const.
Art. VIII, Sec. 1, par.2)
Different Courts of Justice
1. Supreme Court
2. Sandiganbayan
3. Court of Appeals
4. Regional Trial Court; and 5.Metropolitan / Municipal
Trial Courts
Lesson 1: General Provisions on Obligation
§ The definition of obligations establishes the unilateral
act of the debtor either to give, to do or not to do as
a patrimonial obligation. It means that the debtor has
the obligation while the creditor has its rights.
§ On the sources of obligation, the main sources are
really Law and Contracts. The other sources are
also established by law.
ART. 1156. An obligation is a juridical necessity to give,
to do or not to do.
§ OBLIGATIONS as defined by ARIAS RAMOS is a
juridical relation whereby a person (called the
creditor) may demand from another (called the
debtor) the observance of a determinate conduct,
and, in case of breach, may obtain satisfaction from
the assets of the latter. (Approved by Mr. Justice J.
B. L. Reyes)
§ The obligations referred to in our manual is a
patrimonial obligations that is, those obligations
with pecuniary value or assessable in terms of
money.
Characteristics of patrimonial obligations:
§ They represent an exclusively private interest.
§ They create ties that are by nature transitory.
§ They exist a power to make effective in case of non-
fulfillment, the economic equivalent obtained at the
patrimony of a debtor.
§ Meaning of Juridical Necessity – it means the
rights and duties arising from obligation are legally
demandable and the courts of justice may be called
upon through proper action to order the
performance.
§ Action means an ordinary suit in court of justice by
which one party prosecutes another for the
enforceable or protection for a right or a prevention
or redress of a wrong ( Sec. 1. Rules of court ).
§ Example –
Jad bought refrigerator from Jozef but Jad did not pay
for the refrigerator. If after demand, Jad still refuses to
pay, Jozef can sue Jad in Court either to demand
payment or for recovery of the refrigerator.
Essential Requisites of an obligation
a) An active subject, who has the power to demand
the prestation, known as the creditor or oblige;
b) A passive subject, who is bound to perform the
prestation, known as debtor or obligor.
c) An object or the prestation which may consist in
the act of giving, doing or not doing something.
d) The vinculum juris or the juridical tie between
the two subjects by reason of which the debtor is
bound in favor of the creditor to perform the
prestation. It is the legal tie which constitutes the
source of obligation— the coercive force which
makes the obligation demandable. It is the legal tie
which constitutes the devise of obligation... the
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 Law on Obligations and Contracts
coercive force which makes the obligation
demandable.
Juridical Tie
To give, to
Debtor or Creditor or
do, or not to
Obligor Obligee
do
§ Illustration:
Jun enters into a contract of sale with Jose who paid
the purchase of a GE refrigerator. Jun did not deliver
the refrigerator. Jun is the passive subject or debtor
and Jose is the active subject or creditor. The object or
prestation is the delivery of the GE refrigerator and the
obligation to deliver arose from a contract which is the
legal tie or the vinculum juris which binds Jun and Jose.
This is also known as a unilateral obligation, that is, the
obligation of the debtor to fulfill or comply his
commitment, in this case, the delivery of the
refrigerator.
On the other hand, if Jun, delivered the refrigerator
and Jose did not pay, then Jose becomes the debtor
who is bound to pay while Jun is the creditor who has
the right to demand the prestation.
Distinctions between Obligations and Contracts
§ Contract is the only one of the sources of obligation,
while obligations have other sources like law, quasi-
contracts, delicts or quasi-delicts;
§ Contract is a bilateral obligation while obligation is a
unilateral;
§ All contracts are obligations while not all obligations
are contracts.
Civil obligations as distinguished from Natural
obligations
§ Civil obligations derive their binding force from
positive law; Natural Obligation derives their binding
effect from equity and natural justice.
§ Civil can enforced by court action of the coercive
power of public authority;
§ Natural – the fulfillment cannot be compelled by
court action but depends on the good conscience of
debtor.
ART. 1157. Obligations arise from:
Law;
Contracts;
Quasi-contracts;
Acts or omissions punished by law; and
Quasi-delicts. (1089a)
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. (1090)
ART.1159. Obligations arising from contracts have the
force of law between the contracting parties and should
be complied with in good faith. (1091a)
ART. 1160. Obligations derived from quasi-contracts
shall be subject to the provisions of Chapter 1, Title XVII,
of this Book.
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. (1092a)
ART. 1162. Obligations derived from quasi-delicts shall
be governed by the provisions of Chapter 2, Title XVIII of
this Book, and by special law. (1093a)
Sources of Obligations
1. LAW as a source of obligations
§ The provisions of Art. 1158 refers to the legal
obligations or obligations imposed by specific
provisions of law, which means that obligations
arising form law are not presumed and that to
be demandable must be clearly provided for,
expressly or impliedly in the law.
§ Examples:
o It is the duty of the Spouses to support each
other. (Art. 291, New Civil Code)
o And under the National Internal Revenue Code, it
is the duty of every person having an income to
pay taxes.
2. CONTRACT as a source of obligations
§ Contract as defined in Art. 1305, NCC is the
meeting of minds between two person whereby
one binds himself with respect to the other,
§ Obligations arising from contracts have the force
of law between the contracting parties because
that which is agreed upon in the contract by the
parties is the law between them, thus, the
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 Law on Obligations and Contracts
agreement should be complied with in good faith.
(Art. 1159).
§ For examples:
o A contract of lease was executed between Keisha as
the lessee and Nathan as the lessor for the rent of an
apartment.
§ Although contracts have the force of law, it does
not mean that contract are over and above the
law. Contracts are with the limitations imposed by
law in Art. 1306, NCC, it states that the
contracting parties may establish such
stipulations, clauses terms and conditions as, they
may deem convenient, provided that are not
contrary to law, morals, good custom, public
order or public policy.
3. QUASI-CONTRACTS as a source of obligations
§ The ‘quasi’ literally means ‘as if’.
§ Quasi-contract is the juridical relation resulting
from a lawful, voluntary and unilateral act which
has for its purpose the payment of indemnity to
the end that no one shall unjustly enrich or
benefited at the expense of another. (Art. 2142,
NCC)
§ Contracts and quasi-contracts distinguished:
o in a contract, consent is essential requirement
for its validity while in quasi-contract, there is
no consent as the same is implied by law;
contract is a civil obligation while quasi-
contract is a natural obligation.
§ 2 Kinds of Quasi-Contracts
1. Solutio Indebiti (Payment by mistake)
- It is the juridical relation which arises when
a person is obliged to return something
received by him through error or mistake.
- Example-
Arvin owed Ian the sum of P1, 000.00. By
mistake, Arvin paid P2, 000.00. Ian has the
obligation to return the P1, 000.00 excess
because there was payment by mistake.
2. Negotiorum gestio (management of
another’s property)
- It is the voluntary management or
administration by a person of the
abandoned business or property of another
without any authority or power from the
latter. (Art. 2144, NCC)
- Example-
Victor, a wealthy landowner suddenly left for
abroad leaving his livestock farm unattended.
Ramon, a neighbor of Victor managed the
farm thereby incurring expenses. When Victor
returns, he has the obligation to reimburse
Ramon for the expenses incurred by him and
to pay him for his services. It is bases on the
principle that no one shall enrich himself at
the expense of another.
3. DELICTS or acts or omissions punished by a
law as a source of obligations
§ Acts or omission punished by law is known as
Delict or Felony or Crime.
§ While an act or omission is felonious because it is
punished by law, the criminal act gives rise to civil
liability as it caused damage to another.
§ Civil liability arising from delicts:
o Restitution – which is the restoration of
or returning the object of the crime to the
injured party.
o Reparation – which is the payment by the
offender of the value of the object of the
crime, when such object cannot be
returned to the injured party.
o Indemnification – the consequential
damages which includes the payment of
other damages that may have been
caused to the injures party.
§ Illustration:
Mario was convicted and sentenced to
imprisonment by the Court for the crime of theft,
the gold wrist watch, of Rito. In addition to
whatever penalty that the Court may impose, Mario
may also be ordered to return (restitution) the gold
wrist watch to Rito. If restitution is no longer
possible, for Mario to pay the value (reparation) of
the gold wrist watch. In addition to either
restitution or reparation, Mario shall also pay for
damages (indemnification) suffered by Rito.
4. QUASI-DELICTS as a source of obligations
Concepts of Quasi-Delict
§ Quasi-delict is one where whoever by act or omission
causes damage to another, there being fault of
negligence, is obliged to pay for the damage done.
Such fault of negligence, if there is no pre-existing
contractual relation between the parties. (Art. 2176)
§ Example-
If Pedro drives his car negligently and because of his
negligence hits Jose, who is walking on the sidewalk of
the street, inflicting upon him physical injuries. Then
Pedro becomes liable for damages based on quasi-
delict.
Requisites of a Quasi-delicts
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 Law on Obligations and Contracts
§ There must be fault or negligence attributable to the
offender;
§ There must be damage or injury caused to another;
§ There is no pre-existing contract.
Negligence
§ is the failure to observe for the protection of the
interests of another person, that degree of care,
precaution and vigilance which the circumstances
justly demand, whereby such other person suffers
injury. (Judge Cooley)
Test of Negligence
§ For the existence of negligence, the following are
necessary:
o a duty on a party of the defendant to protect
the plaintiff from the injury of which the letter
complains;
o a failure to perform that duty; and
o an injury to the plaintiff through such failure.
Kinds of Negligence
§ Culpa Aquiliana also known as quasi-delict (culpa-
extra contractual) or negligence as a source of
obligation.
§ Culpa contractual or negligence in the performance
of a contract.
§ Culpa criminal – negligence resulting in a criminal act
An illustration showing this difference is founding
Gutierrez vs. Gutierrez, 56 Phil 177-
While trying to pass each other on a narrow bridge, a passenger
truck and private automobile collided, and the plaintiff, a
passenger in the truck, was injured.
The owner of the passenger truck was made a defendant,
although a driver was driving the truck and the owner of the car
was also made a defendant, although he was not in the car but
which was being driven by his 18 year old son and in which
members of his family were then riding. The court found both
drivers negligent, basing the liability of the owner of the truck
to the plaintiff on the contract of carriage; while the liability of
the owner of the car was based on Quasi-delict of the Civil Code.
As against the owner of the truck, there was Culpa contractual,
while as against the owner of the car there was culpa Aquiliana.
Lesson 2: Nature and Effect of Obligations
ART. 1163. Every person obliged to give something is
also obliged to take care of it with the proper diligence of
a good father of a family, unless the law or the stipulation
of the parties requires another standard of care. (1904a)
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. (1905)
ART. 1165. When what is to be delivered is a
determinate thing, the creditor, in addition to the right
granted 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 deliver.
(1906)
ART. 1166. The obligation to give a determinate thing
includes that of delivering all its accessions and
accessories, even though they may not have been
mentioned. (1097a)
Obligations of the Debtor to Give a Determinate
Thing
1. To preserve or take care of the thing with the proper
diligence of a good father of a family. It means the
ordinary diligence that a prudent man would exercise
in taking care of his own property taking into
consideration the nature of the obligation, of the
time and of the place, like a person who is obliged to
deliver a determinate horse to another should,
pending its delivery, preserve it by taking care of the
same as if the horse is his own.
To deliver the object or thing when the obligation to
deliver arises, including:
Fruits of the thing if any. Kinds of fruits: Natural;
industrial or civil.
§ Natural - spontaneous product of the soil;
the young and other products of animal. E.g.
tress, plants on lands without he intervention
of man.
§ Industrial - produced by lands of any king
through cultivation and labor. E.g. sugar
cane, vegetables, rice.
§ Civil - derived by virtue of juridical relations.
E.g., rents of a building; prices of leases of
lands and other similar income.
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 Law on Obligations and Contracts
2. Accessions and accessories.
§ Accession – is the right pertaining to the
owner of a thing over its products and
whatever is attached thereto either naturally
or artificially.
§ Example-
o Accretion which refers to the gradual
and addition of sediment to the shore by
action of water.
o Accessories – are those things which are
joined attached to the principal object as
ornament or to render it perfect.
§ Example-
o Radio attached to a car; or key to a car.
3. To be liable for damages in case of breach of
obligation (Art. 1170, NCC)
§ When creditor acquire a right to the thing to
be delivered and its fruits-
o 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 have been
delivered to him. (Art. 1164, NCC)
o Example – a binds himself to sell his
horse to B for fro P10, 000. No date nor
condition is stipulated for delivery of the
horse. Later, the horse gave birth to a
colt. A has right to the colt, if B has not
paid the horse. Before delivery, B does
not acquire ownership over it.
Definition of Terms
1. Determinate thing – a thing is determinate when it is
particularly designated or physically segregated from
all others from the same class. (Art. 1460, NCC)
2. Indeterminate or generic thing – A thing is generic
when it refers to a class or thing or genus and cannot
be designated with particularity. (Art. 1460, NCC)
3. Fortuitous Events – those events which could not be
foreseen or which though foreseen were inevitable.
(Art. 1174, NCC)
Art. 1167. If a person obliged to do something fails to
do it, the same shall be executed at his cost.
This same rule shall be observed if he does it in
contravention of the tenor of the obligation. Furthermore,
it may be decreed that what has been poorly done be
undone. (1098)
Obligation of the Debtor To Do
§ Being a personal positive obligation, The creditor has
the right to secure the services of third person to
perform the obligation at the expense of the debtor
under the following instances:
o When the debtor fails to do the obligation;
o When the debtor performs the obligation but
contrary to the tenor; or
o When the obligor poorly performs the
obligation.
ART. 1168. When the obligation consists in not doing,
and the obligor does has been forbidden him, it shall also
be undone at his expense, (1099a)
Obligation of the Debtor NOT To Do
§ This is negative personal obligation which is
consisting of an obligation, of not doing something.
If the debtor does what has been forbidden him to
do, the obligee can ask the debtor to have it undone.
If it is impossible to undo what was done, the remedy
of the injured party is for an action of damages.
Example
A bought a land from B. It was stipulated that A would not
construct a fence in a certain portion of his land adjoining that
land sold by B. Should A construct a fence in violation of the
agreement, B. can bring an action to have the fence remove at
the expense of A.
ART. 1169. Those oblige to deliver or to do something
incur in delay from the time the obligee judicially or extra
- judicially demands from theme 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
declares; or
2) When from the nature and the circumstances of
the obligation it appears that the destination of
the time when the thing is to be delivered or the
service is to rendered was 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 in a proper manner with what
is incumbent upon him. From the moment one of the
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 Law on Obligations and Contracts
parties fulfills his obligation, delay by the other begins.
(1100a)
Delay (Mora)
§ means a legal delay or default and it consists of
failure discharge a duty resulting to one’s own
disadvantaged.
§ The debtor incurred delay if: The debtor fails to
perform his obligation when it falls due; and A
demand has been made by the creditor judicially or
extra judicially.
Example –
Keisha obliged herself to deliver a determinate horse
to Nathan on June 20. this year. Keisha failed to
delivered on the agreed date, Is Keisha already on
delay on June 20, only when Nathan makes a judicial
or extra-judicial demand and from such date of
demand when Keisha is on default or delay.
§ However, there are instances when the demand by
the Creditor is not necessary to place the debtor on
delay:
1. When the obligation expressly so provides
§ The mere fixing of the period is not sufficient
to constitute a delay. An agreement to the
effect that fulfillment or performance is not
made when the obligation becomes due,
default or delay by the debtor will
automatically arise.
2. When the law so provides
§ The express provision of law that a debtor is
in default. For instance, taxes must be paid
on the date prescribed by law, and demand
is not necessary in order that the taxpayer is
liable for penalties.
3. When time is of the essence
§ Because time is the essential factor in the
fulfillment of the obligation. Example, Keisha
binds herself to sew the wedding gown of
Maya to be used by the latter on her wedding
date. Keisha did not deliver the wedding
gown on the date agreed upon. Even without
demand, Keisha will be in delay because time
of the essence.
4. When demand would be useless
§ When the debtor cannot comply his
obligation as when it is beyond his power to
perform. Like when the object of the
obligation is lost or destroyed through the
fault of the debtor, demand is not necessary.
5. In a reciprocal obligation, from the moment
one of the parties fulfills his obligation,
delay to the other begins
§ For instance, in a contract of sale, if the seller
delivers the object to the buyer and the
buyer does not pay, then delay by the buyer
begins and vice versa, if the buyer pays and
the seller did not deliver the object, then the
seller is on delay.
Kinds of Delay
§ Mora solvendi – delay on the part of the debtor.
§ Mora accipiendi – delay on the part of the creditor,
like when the creditor unjustifiably refused to accept
payment at the time it was due, is in delay.
§ Compensatio morae – delay both parties in a
reciprocal obligation.
ART. 1170. Those who in the performance of their
obligations are guilty of fraud, negligence, or delay, and
those who in any manner contravene the tenor thereof,
are liable for damages. (1101)
ART. 1171. Responsibility arising from fraud is
demandable in all obligations. Any waiver of an action for
future fraud is void. (1120a)
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. (1130)
ART. 1173. The fault or negligence of the obligor
consists in the omission of that diligence which is required
by the nature of the obligation and corresponds with the
circumstances of the persons, of the time and of the
place. 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 of which
is to be observed in the performance, that which is
expected of a good father of a family shall be required.
(1104a)
Sources of Liability for Damages
1. Fraud (dolo) – is the intentional deception made by
one person resulting in the injury of another.
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 Law on Obligations and Contracts
§ The fraud referred to is incidental fraud, that is,
fraud incident to the performance of a pre-
existing obligation.
2. Negligence (culpa) – consists in the omission by the
obligor 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. (Art. 1173, NCC)
3. Delay (Mora) – like when there has been judicial or
extra-judicial demand and the debtor does not
comply his obligation, delay will occur.
4. In contravention of the tenor of the obligation –
refers to the violation of the terms and conditions or
defects in the performance of the obligation, like
when a landlord fails to maintain a legal and peaceful
possession of a tenant being leased by the latter
because the landlord was not the owner and the real
owner wants to occupy the land, there is
contravention of the tenor of the obligation.
Other sources of liability for damages
• Loss of the thing with the fault of debtor.
• Deterioration with the fault of debtor. (Art. 1189)
Kinds of Damages
1. Moral damages – include physical sufferings, mental
anguish, fright, serious anxiety, besmirched
reputation, wounded feeling, moral shock, social
humiliation and similar injury.
2. Exemplary damages – imposed by way of example
or correction for the public good.
§ Like in quasi-delicts, if the defendant acted with
gross negligence. (Art. 2231, NCC)
3. Nominal damages – are adjudicated in order that a
right of the plaintiff, which has been violated by the
defendant, may be vindicated or recognized and not
for the purpose of indemnifying the plaintiff for any
loss suffered by him. (Art. 2221, NCC)
4. Temperate or moderate damages – are more than
nominal but less than compensatory damages may
be recovered when the courts finds that its amount
cannot, from the nature of the case, be proved with
certainty. Pecuniary loss means loss of money, or of
something by which money or something of money
value may be acquired. (Black Law Dict. P. 1131)
5. Actual or compensatory damages – except as
provided by law, or a stipulation, one is entitled to
an adequate compensation only for such pecuniary
loss suffered by him as he has duly proved. (Art.
2199, NCC)
§ Damages may be recovered:
o For loss or impairment of earning capacity
in cases of temporary or permanent
personal injury;
o For injury, to the plaintiff’s business
standing or commercial credit.
6. Liquidated damages – are those agreed upon by
parties to a contract to be paid in case of breach
thereof. (Art. 2226, NCC)
Distinguish Fraud (Dolo) from Negligence (culpa)
1. Dolo – there is deliberate intent to cause damage or
injury.
Culpa – there is no deliberate intent to cause
damage.
2. Dolo – waiver of liability of future fraud is void.
Culpa – waiver may in some cases be allowed.
3. Dolo – fraud must be clearly proved.
Culpa – presumed from breach of contractual
obligation.
4. Dolo – liability cannot mitigated by the courts.
Culpa – may be reduced according to circumstances.
ART. 1174. Except in cases expressly specified by the
law, or when it is otherwise declared by stipulation, or
when the nature of the obligation requires the assumption
of risk, no person shall be responsible for those events
which could not be foreseen, or which, though foreseen,
were inevitable (1105a)
Fortuitous event – is an event which cannot be foreseen
or which though foreseen is inevitable.
Fortuitous event proper are acts of God such as volcanic
eruption, earthquake, lightning, etc. is now similar with
force majeur or acts of man such as conflagration, war,
robbery, etc.
Requisite necessary to constitute fortuitous event
§ The failure of the debtor to comply with the
obligation must be independent from the human will;
§ The occurrence makes it impossible for the debtor to
fulfill the obligation on a normal manner, and the
obligor did not take part as to aggravate the injury
of the creditor. (Vasquez v.C.A. G.R. 42926)
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 Law on Obligations and Contracts

As a general rule, no person shall be held presumption that such installments have been paid.
responsible for fortuitous events (1110a)
Example – Keisha obliged herself to deliver a determine car to
Nathan on Dec. 30, 1998. Before the arrival of the period, the Presumption means “the inference as to the existence
car was struck by lightning and was totally destroyed. Keisha of a certain fact which if not contradicted is considered as
cannot be held responsible for the destruction of the car, hence
true.”
her obligation to deliver is extinguished.
§ The presumption in the above article is a disputable
presumption, whereby one which can be
Exceptions (when the person is responsible despite the
contradicted by presenting proof to the contrary
fortuitous event).
while a conclusive presumption does not admit any
a. When the law expressly so provides, such as:
evidence or proof, hence, it is considered as a fact.
§ The debtor is guilty of fraud, negligence or
in contravention of the tenor of the
§ Presumption under this article:
obligation. (Art, 1170, NCC)
1. Receipt of the principal, without reservation as
§ The debtor has proved to deliver the same
to the interest, shall give rise to the presumption
thing to two or more persons who do not
that the said interest has been paid.
have the same interest. ( Art. 1165,NCC )
2. When the creditor issues a receipt of a later
§ The thing to delivered is generic.
installment of a debt without reservation as to
§ The debtor is guilty of default or delay. ( Art.
prior installment is presumed to have been paid.
1169,NCC )
§ The debtor is guilty of concurrent
ART.1177. The creditors, after having pursued the
negligence.
property in possession of the debtor to satisfy their claims,
b. When declared by stipulation;
may exercise all the rights and bring all the actions of the
c. When the nature of obligation requires the
latter for the same purpose, save those which are
assumption of risk. An example of this is a
inherent in his person; they may also impugn the acts
contract of insurance.
which the debtor may have done to defraud them. (1111)

ART. 1175. Usurious transaction shall be governed by

Rights of Creditors
special laws.
§ In order to satisfy their claims against the debtor,
Note: C.B. Circular No. 905 suspends the ceilings in
creditors have the following successive rights:
the usury law. Hence, parties can agree as to the rate
o to levy by attachment and execution upon all
of interest.
the property of the debtor, except such as are
exempt by law from execution;
Kinds of Interest
o to exercise all the rights and actions of the
Conventional The rate which is agreed upon by
debtor, except, such as are inherently personal
the parties.
to him; and
Legal Interest The rate which is prescribed by
o to ask for the rescission of the contracts made
law.
by the debtor in fraud of their rights.
Lawful Interest The rate which is agreed upon by
the parties but which rate is within
ART.1178. Subject to the laws, all rights acquired in
the rate authorized by law.
virtue of an obligation are transmissible, if there has been
Usurious The rate which is in excess of the no stipulation to the contrary. (1112)
Interest maximum rate of interest allowed
by law. As a rule, all rights acquired in virtue of an obligation are
transmissible, except in the following cases:
ART. 1176. The receipt of the principal by the creditor 1. When the law so provides.
without reservation with respect to the interest, shall give 2. When the parties stipulate otherwise – by agreement
rise to the presumption that said interest has been paid. of parties that the rights acquired by them will not
The receipt of a later installment of a debt without be transmitted to any other person.
reservation as to prior installments, shall likewise raise the 3. When the obligation is purely personal in nature.

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