University of the Cordilleras

College of Accountancy

RFBT 1(Law on Obligations and Contracts)

Module 1

Introduction to Law

Law in General refers to any rule of action or system of uniformity which determines our
actions and movements regarding each other as persons and with things whether
animate or inanimate or corporeal or incorporeal.

Subjects of law are those which the law affects.

General Division, Kinds and Classifications of Law

General Division

1. Law as promulgated by a legitimate authority

a) State/Municipal/Positive Law
b) General sense – all rules established for governing relations of persons in
society
c) Specific sense - a rule of conduct, just, obligatory, promulgated by legitimate
authority, and of common observance and benefit.
2. Law which is not promulgated by a legitimate authority
a) Divine Law – based on religion and faith, believed to be the true word and
law of the Divine Deities
b) Natural Law – based on justice, fairness and equity
c) Moral Law – based on societal norms
d) Physical Law – laws of nature, based on natural phenomenon

Classifications of Law

As to its purpose
a) Substantive law – the law which provides for the rights and obligations of the
persons and entities affected by the law
b) Remedial/Procedural/Adjective Law – the law prescribing the manner or
procedure by which rights may be enforced or their violations redressed.

For Civil Cases: Rules of Civil Procedure

A civil action, the case filed in court where one party sues another for the
enforcement or protection of a right or the prevention or redress of a wrong, is
initiated by a complaint

Complaint – contains written statements alleging the plaintiffs claim or cause of

action.
 A complaint must contain a) the legal right of the plaintiff; b) the correlative
obligation of the defendant, and c) the act or omission of the defendant in violation
of said legal right.

Cause of action – the act or omission by which one violates the right of another.

As to its subject matter

a) Public Law – rules which regulates the rights and duties or the interaction of
persons arising from the relationship of persons and other entities with the state.
b) Private Law – rules which regulate the relationship of individuals or persons or
entities between themselves which only affects their own rights and obligations.

Characteristics of Law
1. It is a rule of conduct
2. It is obligatory
3. It is promulgated by legitimate authority
4. It is of common observance and benefit

Necessity of Law

Law is necessary to secure justice, resolve social conflict, maintain peace and order,
protect interests and to control social relation. Without law any person can do anything
whether good or bad without consequence.

Sources of Law

1. 1987 Philippine Constitution

2. Statutes
3. Administrative Rules
4. Administrative Regulations
5. Judicial Decisions
6. Customs
7. Generally accepted principles of International Law

Hierarchy and Organization of Courts

(Arranged form highest court to lowest court)

1. Supreme Court
2. Court of Appeals, Court of Tax Appeals, Sandiganbayan
3. Regional Trial Court
4. Municipal Trial Court/Municipal Trial Court in Cities/Municipal Circuit Trial Courts
5. Quasi-judicial agencies.
Module 2

General Provisions

An obligation is a juridical necessity to give, to do or not to do. (Art. 1156, NCC)

Obligation - a legal relation established between one person and another, whereby the
latter is bound to the fulfillment of a prestation which the former may demand of him.
(Domingo, 2019)

Obligations To Give - An obligation to give a thing may be either determinate or

generic. It is determinate when the object is particularly designated or physically
segregated from all others of the same class. It is generic or indeterminate when the
object is designated merely by its class or genus without any particular designation or
physical segregation from all others of the same class. (Aquino, 2014)

Obligor/Debtor – to whom the performance of the obligation legally demandable.

Obligee/Creditor - the person who has the right to demand fulfillment or performance
of the obligation.

For every obligation there is a correlating right, the obligation must be performed when
said corresponding right is enforced. (Ibid.)

An obligation “to do” (Personal Obligation) includes all kinds of work or service, while an
obligation “to give” (Real Obligation) consists in the delivery of a movable or an
immovable thing in order to create a real right, or the use of the recipient, or for its
simple possession, or in order to return it to its owner. (Ibid.)

A right which is violated must be redressed through the court in the proper action or
proceeding. (Ibid.)

There can be more than one debtor/obligor and more than one creditor/obligee.

A solidary or joint and several obligation is one in which each debtor is liable for the
entire obligation, and each creditor is entitled to demand the whole obligation.
Whereas when creditors are solidary, any one of them can compel performance of the
entire obligation.

A joint obligation is one in which each debtor is liable for their own personal share or
interest in the obligation, if there is no agreement as to the share, then the law
presumes that it is equal.
An obligation is only solidary when the law expressly states so or when there is an
agreement to the same, otherwise an obligation where there are multiple
debtors/obligors is joint. (Ibid.)

Elements/Requisites of an Obligation

1. A juridical or legal tie, which binds the parties to the obligation, and which may
arise from either bilateral or unilateral acts of persons;
2. An active subject known as the obligee or creditor, who can demand the
fulfillment of the obligation;
3. A passive subject known as the obligor or debtor, against whom the obligation is
juridically demandable; and
4. The fact, prestation or service which constitutes the object of the
obligation.(Domingo, 2019)

Sources of Obligations (Art. 1157, NCC)

1. Law
2. Contracts
3. Quasi-Contracts
4. Delicts(Crimes, Acts or Omissions punished by law)
5. Quasi-Delicts (Culpa Aquilina)

There are no other sources of obligations as this list is exclusive. (Art. 1158, NCC)

Law – a rule of conduct just, obligatory, promulgated by legitimate authority, and of

common observance and benefit. (Domingo, 2019)

In order for a law to be obligatory and become a source of rights and obligations, it
must be promulgated by a legitimate authority which includes following the proper
process in law making.

Obligations derived from law are not presumed. Only those expressly determined in the
Civil Code or in special laws are demandable. (Ibid.)

Contracts – a meeting of minds between two persons whereby one binds himself, with
respect to the other, to give something or to render some service.

Contracts have the force and effect of law between the contracting parties and
should be complied with in good faith. (Art. 1159, NCC)

Stages in the life of a Contract

1. Negotiation
2. Perfection (When the essential elements of the contract are present)
a) Consent -Freely given.
b) Object - The thing to be given or what is to be done or not done.
 c) Cause/Consideration - Can be anything as long as not contrary to morals,
law, and public policy.
3. Consummation – when all of the obligations arising from the contract have been
performed.

Quasi-Contract - those juridical relations arising from lawful, voluntary and unilateral
acts, by virtue of which the parties become bound to each other, based on the
principle that no one shall be unjustly enriched or benefited at the expense of another.
(Aquino, 2014)

Quasi-Contracts are based on the principle of unjust enrichment. The person who is
unjustly enriched shall have the obligation to return what he had received. (Art. 2142,
NCC)

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. (Art. 2144,
NCC)

Officious manager – one who voluntarily takes charge of the agency or management
of the business or property of another, without any power from the latter, during the
absence or inability of the latter. (Aquino, 2014)

Negotiorum Gestio is not present when: (Supra)

a) The property or business is not neglected or abandoned, In this case there can
be no valid management as the owner has complete control of his business or
property;

b) If in fact the manager has been tacitly authorized by the owner. In this case the
relationship between the owner and the officious manager is that of a contract
of agency, and thus no longer a quasi-contract.

The act of an agent is always for the benefit of the principal. An agent is empowered
by the principal to act in his name and stead. Thus all actions of the agent in this case
shall pertain to the owner/principal.

The officious manager must be reimbursed for necessary and useful expenses even if
the owner did not benefit as long as the management was done in good faith and the
property or business is returned intact. (Art. 2150, NCC)

Solution 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. (Art. 2154, NCC)

What is material here is that the delivery is made by mistake. Erroneous applications of
difficult questions of law are considered to be mistakes as regards to solution indebiti.
Someone who receives something by mistake and receives it in bad faith and the same
produces fruits, the fruits derived from when mistake by delivery was made until its
actual return must also be returned.

Delict (Crime/Act or omission punished by law)

Every person criminally liable for a felony is also civilly liable. (Art. 100, Revised Penal
Code)

Civil Liability from Delicts

a) Restitution – return of the thing

b) Reparation – compensation for damage
c) Indemnification – compensation for consequential damages (Aquino, 2014)

Employers are subsidiarily liable for the crimes committed by their employees in the
discharge of their duties. (Art. 103 in rel. to Art. 102, Revised Penal Code)

(Requisites) For employers to be made subsidiarily liable it must be proven that: (1) they
are engaged in some kind of industry; (2) the crime was committed by the employees
in the discharge of their duties; and (3) the employee is insolvent. (Joaquin, et al. v
Aniceto, et al., G.R. No. L-18719, October 31, 1964)

The death of the person who committed the crime only affects the civil liability arising
from the crime and not from other sources such as contracts or quasi-delicts. (Art. 89,
RPC)

If the acquittal of the accused is based on the ground that his guilt has not been
proved beyond reasonable doubt, a civil action to recover damages based on the
same act or omission may still be instituted. On the other hand, if the acquittal is based
on the ground that he did not commit the offense charged, or what amounts to the
same thing, if the acquittal proceeds from a declaration in a final judgment that the
fact from which the civil liability might arise did not exist, the subsequent institution of a
civil action to recover damages is no longer possible.

The injured party may only recover from one source of civil liability, whether delict or
quasi-delict, if claim is based on the same act or omission.

Principals, accomplices, and accessories to a crime are civilly liable proportionately to

their participation in the crime. However they are all solidarily and subsidiarily liable for
the whole civil obligation, but first it must be proven that the one class is incapable to
fulfil the civil liability arising from the crime. (Art. 110, RPC)

Subsidiary liability starts with the property of the principals, then the accomplices, then
the accessories. (Ibid.)
Quasi-Delicts(Culpa Aquiliana)

The fault or negligence of a person, who, by his act or omission, connected or

unconnected with, but independent from, any contractual relation, causes damage to
another person. (Art. 2176, NCC)

Requisites for liability through quasi-delict

a) The fault or negligence of the defendant;

b) The damage suffered or incurred by the plaintiff; and
c) The relation of cause and effect between the fault or negligence of the
defendant and the damage incurred by the plaintiff.

Employers are primarily liable for the negligent acts of their employees in the discharge
of their duties when it comes to quasi-delicts. (Art. 2180, NCC)

Negligence is defined as the failure to observe for the protection of the interest of
another person that degree of care, precaution, and vigilance which the
circumstances justly demand, whereby such other person suffers injury.(Aquino, 2014)

If there is a contractual relationship between the person who is negligent and the one
who suffers injury, and the negligence is in the performance of the contractual
obligation then there is no quasi-delict (culpa-aquiliana) but there is culpa contractual.

The normal standard of care is diligence of a good father of a family. Another standard
of care may be agreed or stipulated upon as long as it is not contrary to law. (Art. 1163,
NCC)

The fault or negligence must be the proximate cause of the injury suffered by the other
party for there to be liability from quasi-delict. (Art. 2179, NCC)

Proximate Cause is that which, in the natural and continuous sequence, unbroken by
any efficient, intervening cause, produces the injury, and without which the result would
not have occurred. (Domingo, 2019)

Injury suffered by one person caused by his/her own negligence does not give rise to
any obligation. (Supra)

Other Quasi-Contracts

Article 2164. When, without the knowledge of the person obliged to give support, it is
given by a stranger, the latter shall have a right to claim the same from the former,
unless it appears that he gave it out of piety and without intention of being repaid.

Article 2165. When funeral expenses are borne by a third person, without the
knowledge of those relatives who were obliged to give support to the deceased, said
relatives shall reimburse the third person, should the latter claim reimbursement.
Article 2166. When the person obliged to support an orphan, or an insane or other
indigent person unjustly refuses to give support to the latter, any third person may furnish
support to the needy individual, with right of reimbursement from the person obliged to
give support. The provisions of this article apply when the father or mother of a child
under eighteen years of age unjustly refuses to support him.

Article 2167. When through an accident or other cause a person is injured or becomes
seriously ill, and he is treated or helped while he is not in a condition to give consent to
a contract, he shall be liable to pay for the services of the physician or other person
aiding him, unless the service has been rendered out of pure generosity.

Article 2168. When during a fire, flood, storm, or other calamity, property is saved from
destruction by another person without the knowledge of the owner, the latter is bound
to pay the former just compensation.

Article 2169. When the government, upon the failure of any person to comply with
health or safety regulations concerning property, undertakes to do the necessary work,
even over his objection, he shall be liable to pay the expenses.

Article 2170. When by accident or other fortuitous event, movables separately

pertaining to two or more persons are commingled or confused, the rules on co-
ownership shall be applicable.

Article 2171. The finder of lost personal property shall have the obligation to return it to
its previous possessor and if unknown deposit the same to the proper authorities, the
owner is obligated to give a reward of 1/10th the value of the returned property.

Article 2172. The right of every possessor in good faith to reimbursement for necessary
and useful expenses.

Article 2173. When a third person, without the knowledge of the debtor, pays the debt,
the creditor is not obligated to accept such.

Article 2174. When in a small community a majority of the inhabitants of age decide
upon a measure for protection against lawlessness, fire, flood, storm or other calamity,
anyone who objects to the plan and refuses to contribute to the expenses but is
benefited by the project as executed shall be liable to pay his share of said expenses.

Article 2175. Any person who is constrained to pay the taxes of another shall be entitled
to reimbursement from the latter.

Rules on Quasi-Delicts

Article 2178. The provisions on Contributory negligence are also applicable to a quasi-
delict.

Article 2179. When the plaintiff's own negligence was the immediate and proximate
cause of his injury, he cannot recover damages. But if his negligence was only
contributory, the immediate and proximate cause of the injury being the defendant's
lack of due care, the plaintiff may recover damages, but the courts shall mitigate the
damages to be awarded.

Article 2180. The obligation imposed quasi-delicts is demandable not only for one's own
acts or omissions, but also for those of persons for whom one is responsible.
The father and, in case of his death or incapacity, the mother, are responsible for the
damages caused by the minor children who live in their company.

Guardians are liable for damages caused by the minors or incapacitated persons who
are under their authority and live in their company.

The owners and managers of an establishment or enterprise are likewise responsible for
damages caused by their employees in the service of the branches in which the latter
are employed or on the occasion of their functions.

Employers shall be liable for the damages caused by their employees and household
helpers acting within the scope of their assigned tasks, even though the former are not
engaged in any business or industry.

The State is responsible in like manner when it acts through a special agent; but not
when the damage has been caused by the official to whom the task done properly
pertains.

Lastly, teachers or heads of establishments of arts and trades shall be liable for
damages caused by their pupils and students or apprentices, so long as they remain in
their custody.
The responsibility treated of in this article shall cease when the persons herein
mentioned prove that they observed all the diligence of a good father of a family to
prevent damage.

Article 2181. Whoever pays for the damage caused by his dependents or employees
may recover from the latter what he has paid or delivered in satisfaction of the claim.

Article 2182. If the minor or insane person causing damage has no parents or guardian,
the minor or insane person shall be answerable with his own property in an action
against him where a guardian ad litem shall be appointed.

Article 2183. The possessor of an animal or whoever may make use of the same is
responsible for the damage which it may cause, although it may escape or be lost. This
responsibility shall cease only in case the damage should come from force majeure or
from the fault of the person who has suffered damage.

Article 2184. In motor vehicle mishaps, the owner is solidarily liable with his driver, if the
former, who was in the vehicle, could have, by the use of the due diligence, prevented
the misfortune. It is disputably presumed that a driver was negligent, if he had been
found guilty of reckless driving or violating traffic regulations at least twice within the
next preceding two months.
If the owner was not in the motor vehicle, the provisions of article 2180 are applicable.

Article 2185. Unless there is proof to the contrary, it is presumed that a person driving a
motor vehicle has been negligent if at the time of the mishap, he was violating any
traffic regulation.

Article 2186. Every owner of a motor vehicle shall file with the proper government office
a bond executed by a government-controlled corporation or office, to answer for
damages to third persons. The amount of the bond and other terms shall be fixed by
the competent public official.

Article 2187. Manufacturers and processors of foodstuffs, drinks, toilet articles and similar
goods shall be liable for death or injuries caused by any noxious or harmful substances
used, although no contractual relation exists between them and the consumers.

Article 2188. There is prima facie presumption of negligence on the part of the
defendant if the death or injury results from his possession of dangerous weapons or
substances, such as firearms and poison, except when the possession or use thereof is
indispensable in his occupation or business.

Article 2189. Provinces, cities and municipalities shall be liable for damages for the
death of, or injuries suffered by, any person by reason of the defective condition of
roads, streets, bridges, public buildings, and other public works under their control or
supervision.

Article 2190. The proprietor of a building or structure is responsible for the damages
resulting from its total or partial collapse, if it should be due to the lack of necessary
repairs.

Article 2191. Proprietors shall also be responsible for damages caused:

(1) By the explosion of machinery which has not been taken care of with due diligence,
and the inflammation of explosive substances which have not been kept in a safe and
adequate place;
(2) By excessive smoke, which may be harmful to persons or property;
(3) By the falling of trees situated at or near highways or lanes, if not caused by force
majeure;
(4) By emanations from tubes, canals, sewers or deposits of infectious matter,
constructed without precautions suitable to the place.

Article 2192. If damage referred to in the two preceding articles should be the result of
any defect in the construction due to the fault in the design of the engineer or architect
of the structure or use of inferior products of the contractor, the third person suffering
damages may proceed only against the engineer or architect or contractor in
accordance with said article, within the period therein fixed.

Article 2193. The head of a family that lives in a building or a part thereof, is responsible
for damages caused by things thrown or falling from the same.
Article 2194. The responsibility of two or more persons who are liable for quasi-delict is
solidary.

Module 3

Nature and Effects of Obligations

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. (Art. 1163, NCC)

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. 1164, NCC)

Real right - right pertaining to a person over a specific thing, without a passive subject
individually determined against whom such right may be personally enforced. a real
right over the object of the obligation is gained only after delivery.

Personal Right - a right pertaining to a person to demand from another, as a definite

passive subject, the fulfillment of a prestation to give, to do or not to do.

Kinds of Delivery

Actual Delivery - consists in placing the thing which is the object of the obligation in the
control and possession of the vendee.

Legal or Constructive Delivery – the thing is not actually transferred but is considered
delivered by operation of law.

1. Execution of a public instrument

2. Symbolical tradition (traditio symbolica)
3. Mere consent of parties (traditio longa manu)
4. Previous possession not in the concept of owner (traditio brevi manu)
5. Retains possession in different concept (traditio constitutum possessorium)
(Aquino, 2014)

Obligations of obligor/debtor in specific/determinate obligations

1. To perform the obligation specifically.

2. To take care of the thing with the proper diligence of a good father of a family.
3. To deliver all accessions and accessories of the thing, even though they may not
have been mentioned.
a. Accessions are the fruits of, or additions to, or improvements upon, a thing
(the principal).
 b. Accessories are things joined to, or included with, the principal thing for
the latter’s embellishment, better use, or completion.

4. To be liable for damages in case of breach of the obligation by reason of delay,

fraud, negligence or contravention of the tenor thereof. (Ibid.)

Obligations of obligor/debtor in generic/indeterminate obligations

1. To deliver a thing which is neither of superior nor inferior quality.
2. To be liable for damages in case of breach of the obligation by reason of delay,
fraud, negligence or contravention of the tenor thereof. (Ibid.)

Reciprocal Obligation – an obligation where both parties are mutually

obligees/creditors and obligors/debtors.

In reciprocal obligations, one party can rescind (to withdraw/to cancel) from the
obligation, aside from the other remedies available. To rescind a contract is not merely
to terminate it, but to abrogate and undo it from the beginning, that is, not merely to
release the parties from further obligations to each other in respect to the subject of the
contract, but to annul the contract and restore the parties to the relative positions
which they would have occupied as if no such contract had ever been made.
(Domingo, 2019)

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. (Article 1167, NCC)

Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation.
The debtor is not in delay until and unless demand has been made, whether judicially
or extrajudicially. (Article 1169, NCC)

When demand is not necessary to put obligor in delay:

1. When the obligation so provides;
2. When the law so provides;
3. When time is of the essence;
4. When demand would be useless; and
5. When there is performance by a party in reciprocal obligations. (Aquino, 2014)

Types of breach which leads to damages

1. Fraud (deceit or dolo).

2. Negligence (fault or culpa)
3. Delay (mora)
4. Contravention of the terms of the obligation – violation of terms and conditions
stipulated in the obligation. (Aquino, 2014)
Fraud differed from Negligence

Fraud Negligence
there is deliberate intention to cause No deliberate intent
damage or injury
Waiver of the liability for future fraud is void Liability for future negligence can be
waived
Fraud must be clearly proved presumed from the breach of a
contractual obligation

liability for fraud cannot be mitigated by may be reduced according to the

the court circumstances
(Domingo, 2019)

Fraud (deceit or dolo) - it is the deliberate or intentional evasion of the normal fulfillment
of an obligation.

Kinds of fraud

1. incidental fraud (dolo incidente) committed in the performance of an obligation

already existing because of contract.
2. causal fraud (dolo causante) or fraud employed in the execution of a contract,
without which the other party or person would not have entered into the
contract
3. criminal fraud or fraud amounting to criminal liability.

Delay (mora)

• Ordinary delay is merely the failure to perform an obligation on time.

• Legal delay or default or mora is the failure to perform an obligation on time
which failure, constitutes a breach of the obligation.

Kinds of Delay (Mora)

1. Mora solvendi or the delay on the part of the debtor to fulfill his obligation (to
give or to do) by reason of a cause imputable to him;
a) The debtor is guilty of breach of the obligation;
b) He is liable for interest in case of obligations to pay money. In the absence of
extrajudicial demand, the interest shall commence from the filing of the
complaint; and
c) He is liable even for a fortuitous event when the obligation is to deliver a
determinate thing. However, if the debtor can prove that the loss would have
resulted just the same even if he had not been in default, the court may
equitably mitigate the damages.

2. Mora accipiendi or the delay on the part of the creditor without justifiable reason
to accept the performance of the obligation; and
a) The creditor is guilty of breach of obligation;
 b) He is liable for damages suffered, if any, by the debtor;
c) He bears the risk of loss of the thing due;
d) Where the obligation is to pay money, the debtor is not liable for interest from
the time of the creditor’s delay; and
e) The debtor may release himself from the obligation by the consignation of
the thing or sum due.
• Consignation – to deliver to the court the thing due.

3. Compensatio morae or the delay of the obligors in reciprocal obligations or

damages in other obligations.
a) The delay of the obligor cancels out the effects of the delay of the obligee
and vice versa. The net result is that there is no actionable default on the part
of both parties, such that as if neither one is guilty of delay.
b) If the delay of one party is followed by that of the other, the liability of the first
infractor shall be equitably tempered or balanced by the courts. If it cannot
be determined which of the parties is guilty of delay, the contract shall be
deemed extinguished and each shall bear his own damages.

Damages – the pecuniary compensation, recompense, or satisfaction for an injury

sustained or as otherwise expressed, the pecuniary consequence the law imposes for
the breach of some duty or violation of some right.

Kinds of damages (Title XVIII, Art. 2195-2235, NCC)

1. Actual or compensatory
Except as provided by law or by stipulation, one is entitled to an adequate
compensation only for such pecuniary loss suffered by him as he has duly proved.
Actual damages suffered due to the act or omission. Must be proven with
certainty.
2. Moral
Moral damages include physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation, and
similar injury. Though incapable of pecuniary computation, moral damages may
be recovered if they are the proximate result of the defendant's wrongful act for
omission.
3. Nominal
Damages as vindication of a right of the plaintiff as violated by the defendant.
4. Temperate or moderate
More than nominal, but less than actual or compensatory. Used when there is
indeed damages but the amount thereof cannot be proven with certainty.
5. Liquidated
amages as agreed upon by the parties. Must not be too excessive.
6. Exemplary or corrective
Imposed, by way of example or correction for the public good, in addition to the
moral, temperate, liquidated or compensatory damages. (
 Interest may be recovered from the delay or failure to perform an obligation provided
that:
1. There is an agreement that interest shall be earned;
2. The agreement is expressly stipulated in writing; and
3. The rate is not excessive or usurious. (Domingo. 2019)

Legal interest – the debtor is liable for 6% legal interest in the following situations:
1. There is an agreement to interest but no agreement as to the rate;
2. From the time of delay if no agreement was made;
3. From the time a decision in favour of the creditor for the enforcement of the
obligation becomes final;
4. Interest due as stipulated also earns legal interest. (Aquino, 2014)

Legal interest attaches at the moment there is demand, whether judicial or

extrajudicial. All unpaid obligations, whether forming part of the principal amount or
interest thereon shall be subject to legal interest.

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. (Article 1174, NCC)

Fortuitous event - is any 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. (Domingo, 2019)

The essence of a fortuitous event consists of being a happening independent of the will
of the obligor and which happening, makes the normal fulfillment of the obligation
impossible.

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 if it could be foreseen, must
have been impossible to avoid (unavoidable)
3. The event must be of such a 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 any participation in, or the aggravation of the
injury to the obligee. (Mondragon Leisure and Resorts Corp. v. Court of Appeals
et al., G.R. No. 154188, June 15, 2005)

Instances when the obligor is still liable even if the loss is through a fortuitous event:

1. Obligation is to deliver a determinate thing and debtor is in delay. However, if

the debtor can prove that the loss would have resulted just the same even if he
had not been in default, the court may equitably mitigate the damages.
 2. Obligation is to deliver a generic/indeterminate thing. An indeterminate thing
cannot be the object of destruction by a fortuitous event because genus
nunquam perit (genus never perishes).
3. The presence of human participation amounting to a negligent act.
4. The obligor promises the same specific thing to two or more persons having
different interest in the thing because it would be impossible to comply with the
obligation.
5. 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.
6. When expressly stipulated in the contract.
7. If the common carrier negligently incurs in delay in transporting the goods, a
natural disaster shall not free such carrier from responsibility.

Primary Legal Remedies of Parties in an Obligation

Remedies of obligee in case of failure of obligor in positive personal obligations:

1. To have the obligation performed by himself, or by another unless personal
considerations are involved, at the debtor’s expense; and
2. To recover damages;
3. To have it undone if done poorly or contrary to the tenor of the obligation, at the
expense of the obligor.

Remedies of obligee in negative personal obligation:

1. To have it undone at the expense of the obligor;
2. If it cannot be undone, then the obligee can file an action for damages.

Remedies of an obligee/creditor in case of failure of the obligor/debtor if thing is

specific/determinate:
1. To compel specific performance
• Specific performance - requiring exact performance of a contract in
the specific form in which it was made, or according to the precise
terms agreed upon.
2. To recover damages for breach of the obligation.

Remedies of an obligee/creditor in case of failure of the obligor/debtor if thing is

generic/ indeterminate:
1. To ask for performance of the obligation.
2. To ask that the obligation be complied with at the expense of the debtor.
3. To recover damages for breach of the obligation. (Aquino, 2014)

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. (Article 1177, NCC)

Subsidiary Remedies of Creditor

 1. Subrogatory action or accion subrogatoria – the creditor will file a case in
behalf of the debtor with respect to another obligation that is due to the
debtor.
2. Rescissory action or accion pauliana – the creditor will impugn the acts of the
debtor that is in fraud of creditors. (Supra)

Rights as to things which are the object of an obligation are transmissible, or can be
transferred to others as long as the same is not prohibited by law or in there is no
agreement prohibiting the same or is purely personal to the debtor. (Art. 1178, NCC)