OBLICON Module 2:

Continuation of

B. NATURE AND EFFECT OF OBLIGATIONS

DELAY (MORA) OR DEBTOR’S DEFAULT

 Those obliged to deliver or to do something incur in delay from the time the obligee (creditor)
judicially or extrajudicially demands from them the fulfillment of their obligation.

 In reciprocal obligations, neither party incurs in delay if the other does not comply or is not
ready to comply in a proper manner with what is incumbent upon him. From the moment one
of the parties fulfills his obligations, delay by the other begins (NCC, Art. 1169). (2002 Bar)

 Q: American Express Card (AMEX) failed to approve Pantaleon’s credit card purchases which
urged the latter to commence a complaint for moral and exemplary damages against AMEX. He
said that he and his family experienced inconvenience and humiliation due to the delays in
credit authorization during his vacation trip in Amsterdam and in the United States. Did AMEX
commit a breach of its obligations to Pantaleon?

 A: YES. Generally, the relationship between a credit card provider and its cardholders is that of
creditor-debtor, with the card company as the creditor extending loans and credit to the
cardholder, who as debtor is obliged to repay the creditor. One hour appears to be patently
unreasonable length of time to approve or disapprove a credit card purchase. The culpable
failure of AmEx herein is not the failure to timely approve petitioner’s purchase, but the more
elemental failure to timely act on the same, whether favorably or unfavorably (Pantaleon v.
American Express International, Inc., G.R. No. 174269, May 8, 2009).

CONTRAVENTION OF TENOR OF OBLIGATION (VIOLATIO)

 The act of contravening the tenor or terms or conditions of the contract is also known as
“violatio,” i.e. failure of common carrier to take its passenger to their destination safely (Pineda,
2000).

 Under NCC, Art. 1170, the phrase “in any manner contravene the tenor” of the obligation
includes any illicit act which impairs the strict and faithful fulfillment of the obligation, or every
kind of defective performance. Such violation of the terms of contract is excused in proper cases
by fortuitous events.

FORTUITOUS EVENT / CASO FORTUITO

 An occurrence or happening which could not be foreseen, or even if foreseen, is inevitable (NCC,
Art. 1174). (2002, 2008 Bar)

Requisites: (CODE)

1. Cause of breach is independent of the will of the debtor;

 2. The Event is unforeseeable or unavoidable;

3. Occurrence renders it absolutely impossible for the debtor to fulfill his obligation in a normal
manner - impossibility must be absolute not partial, otherwise not force majeure; and

4. Debtor is free from any participation in the aggravation of the injury to the creditor.

 NOTE: The fortuitous event must not only be the proximate cause but it must also be the only
and sole cause. Contributory negligence of the debtor renders him liable.

Liability for loss due to fortuitous event

 GR: There is no liability for loss in case of fortuitous event.

 EXCEPTIONS XPNs:

1. Law;

2. Nature of the obligation requires the assumption of risk;

3. Stipulation;

4. The debtor is guilty of dolo, malice or bad faith, has Promised the same thing to two or more
persons who does not have the same interest (NCC, Art. 1165);

5. The debtor Contributed to the loss (Tan v. Inchausti & Co., G.R. No. 6092, March 8, 1912);

6. The possessor is in Bad faith (NCC, Art. 552); or

7. The obligor is Guilty of fraud, negligence or delay or if he contravened the tenor of the
obligation (Juan Nakpil v. United Construction Co., Inc. v. CA, G.R. No. L-47851, April 15, 1988).

ACT OF GOD ACT OF MAN

Fortuitous event Force majeure

Event which is absolutely independent of human Event caused by the legitimate or illegitimate acts
intervention of persons other than the obligor

e.g. Earthquakes, storms, floods, epidemics e.g. Armed invasion, robbery, war (Pineda, 2000).

NOTE: There is no essential difference between fortuitous event and force majuere; they both refer to
causes independent of the will of the obligor (Tolentino, 2002).

 Q: MIAA entered into a compromise agreement with ALA. MIAA failed to pay within the period
stipulated. Thus, ALA filed a motion for execution to enforce its claim. MIAA filed a comment
and attributed the delays to its being a government agency and the Christmas rush. Is the delay
of payment a fortuitous event?
 A: NO. The act-of-God doctrine requires all human agencies to be excluded from creating the
cause of the mischief. Such doctrine cannot be invoked to protect a person who has failed to
take steps to forestall the possible adverse consequences of loss or injury. Since the delay in
payment in the present case was partly a result of human participation - whether from active
intervention or neglect - the whole occurrence was humanized and was therefore outside the
ambit of a caso fortuito.

 First, processing claims against the government are certainly not only foreseeable and
expectable, but also dependent upon the human will. Second, the Christmas season is not a caso
fortuito, but a regularly occurring event. Third, the occurrence of the Christmas season did not
at all render impossible the normal fulfillment of the obligation. Fourth, MIAA cannot argue that
it is free from any participation in the delay. It should have laid out on the compromise table the
problems that would be caused by a deadline falling during the Christmas season. Furthermore,
it should have explained to ALA the process involved for the payment of ALA’s claim (MIAA v.
Ala Industries Corp., G.R. No. 147349, February 13, 2004).

 Effects of fortuitous events

 1. On determinate obligation – The obligation is extinguished.

 2. On generic obligation – The obligation is not extinguished (genus nun quam peruit – genus
never perishes).

Q: Kristina brought her diamond ring for cleaning to a jewelry shop which failed to fulfill its promise
to return such ring in February 1, 1999. Kristina went back to the shop on February 6, 1999 but she
was informed that the ring was stolen by a thief the night before. Kristina filed an action for
damages against the jewelry shop which put up the defense of force majeure.

Will the action prosper or not? (2000 Bar)

A : YES. The action will prosper. Since the defendant was already in default for not having delivered
the ring when delivery was demanded by plaintiff at due date, the defendant is liable for the loss of
the thing and even when the loss was due to force majeure.

The defendant who is obliged to deliver incurred delay from the time the plaintiff extrajudicially
demands the fulfillment of the obligation (NCC, Art. 1169). The defendant shall be held liable for the
loss of the thing even it was due to fortuitous event.

Q. AB Corp entered into a contract with XY Corp for the construction of the research and laboratory
facilities of the XY Corp. XY Corp paid 50% of the 10M contract price on the other hand AB agreed to
complete the work for 18 months. After 17 months, work was only 45% completed as AB Corp
experienced work slippage due to labor unrest.

(a) Can the labor unrest be considered a fortuitous event?

(b) Can XY Corp. unilaterally and immediately cancel the contract?

(c) Must AB Corp. return the 50% down payment? (2008 Bar)

A: a.) NO. Labor unrest is not a fortuitous event that will excuse AB Corp. from complying with its
obligation of constructing the research and laboratory facilities of XY Corp. The labor unrest, which
may even be attributed in large part to AB Corp. itself, is not the direct cause of noncompliance by
AB Corp. It is independent of its obligation. It is similar to the failure of a DBP borrower to pay her
loan just because her plantation suffered losses due to the cadangcadang disease. It does not excuse
compliance with the obligation (DBP v. Vda. De Moll, G.R. No. L25802, January 31, 1972). AB Corp.
could have anticipated the labor unrest which was caused by delays in paying the laborer’s wages.
The company could have hired additional laborers to make up for the work slowdown.

b.) YES, XY Corp. may unilaterally cancel the obligation but this is subject to the risk that the
cancellation of the reciprocal obligation being challenged in court and if AB Corp. succeeds, then XY
Corp. will be declared in default and be liable for damages.

c.) NO, under the principle of quantum meruit, AB Corp. had the right to retain payment
corresponding to his percentage of accomplishment less the amount of damages suffered by XY
Corp. because of the delay or default.

Q: X, a dressmaker, accepted clothing materials from Karla to make two dresses for her. On the day
X was supposed to deliver Karla’s dresses, X had an urgent matter to attend to and told Karla to
deliver those the next day. That night, however, a robber broke into her shop and took everything
including Karla’s dresses. X claims she is not liable to deliver Karla’s dresses or to pay for the
clothing materials considering she herself was a victim of the robbery which was a fortuitous
event and over which she had no control. Do you agree? Why? (2015 Bar)

A: NO. The law provides that except when it is otherwise declared by stipulation or when the law
provides or the nature of the obligation requires the assumption of risk, no person shall be liable for
those events which could not be foreseen or which though foreseen were inevitable (NCC, Art.
1174).

In this case, X cannot invoke fortuitous event as a defense because she had already incurred delay at
the time of the occurrence of the loss (NCC, Art. 1165).

Remedies available to Creditor in cases of Breach

 In case of breach of obligation, the following are the remedies available:

 1. Specific performance, or substituted performance by a third person in case of an obligation to

deliver a generic thing, and in obligations to do, unless it is a purely personal act;

 2. Rescission (or resolution in reciprocal obligations);

 3. Damages, in any case; or

 4. Subsidiary remedies of creditors:

  a. Accion subrogatoria

 b. Accion pauliana

a. Principal remedies of creditors

Obligation to Give a Specific Thing Obligation to Give a Generic Thing and
Obligation to Do

Alternative Remedies

Compel the debtor to make delivery Ask the obligation be complied with at the
(Specific Performance) expense of the debtor. [par. 2, Art. 1165, CC]
[par. 1, Art. 1165, CC]

Rescission [Art. 1191] If a person obliged to do something fails to

do it, the same shall be executed at his cost
[Art. 1167, CC ]

What has been poorly done [may] be

undone. [Art. 1167]

Rescission [Art. 1191]

Damages in any event

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,

 Art. 1191, CC. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
 The injured party may choose between the fulfillment and the rescission of the obligation, with
the payment of damages in either case. He may also seek rescission, even after he has chosen
fulfilment, if the fulfillment of the obligation should become impossible.
 Rescission The unmaking of a contract, or its undoing from the beginning, and not merely its
termination [Pryce Corp v. Pagcor, G.R. No. 157480 (2005)]
 Right to Rescind The rescission on account of breach of stipulations is not predicated on injury
to economic interests of the party plaintiff but on the breach of faith by the defendant, that
violates the reciprocity between the parties. [Universal Food Corporation v. CA, G.R. No. L29155
(1970)]
 RESCISSION or RESOLUTION (NCC, ART. 1191) It refers to the cancellation of the contract or
reciprocal obligation in case of breach on the part of one, which breach is violative of the
reciprocity between the parties. This is properly called resolution. (2005, 2008 Bar)
 NOTE: The rescission under Art. 1380 is rescission based on lesion or fraud upon creditors.
Applicability Rescission or resolution is applicable in reciprocal obligations, since it is implied
therein.

Characteristics of the right to rescind

1. Can be demanded only if plaintiff is ready, willing and able to comply with his own obligation
and defendant is not;

2. Not absolute;

3. Needs judicial approval in the absence of a stipulation allowing for extra-judicial rescission, in
cases of non-reciprocal obligations;

4. Subject to judicial review if availed of extrajudicially;

5. May be waived expressly or impliedly; and

6. Implied to exist in reciprocal obligations therefore need not be expressly stipulated upon.

Fulfillment or rescission of the obligation

 GR: The injured party can only choose either fulfillment or rescission of the obligation, and not
both.
 XPN: If fulfillment has become impossible, Art. 1191 allows the injured party to seek rescission
even after he has chosen fulfillment (Ayson-Simon v. Adamos and Feria, G.R. No. L-39378,
August 28, 1984).

Effect of Rescission under Art 1191

 Extinguishes the obligatory relation as if it had never been created, the extinction having a
retroactive effect. Both parties must surrender what they have respectively received and return
each other as far as practicable to their original situation. [Tolentino]
 Rescission may take place extrajudicially, by declaration of the injured party. The party who
deems the contract violated may consider it resolved or rescinded, and act accordingly, without
previous court action, but it proceeds at its own risk. For it is only the final judgment of the
corresponding court that will conclusively and finally settle whether the action taken was or was
not correct in law. But the law definitely does not require that the contracting party who
believes itself injured must first file suit and wait for a judgment before taking extrajudicial steps
to protect its interest. [UP v. Delos Angeles, G.R. No. L28602 (1970)]
 Under Art 1191, the right to rescind an obligation is predicated on the violation of the
reciprocity between parties, brought about by a breach of faith by one of them.
 Rescission, however, is allowed only where the breach is substantial and fundamental to the
fulfillment of the obligation. [Del Castillo Vda de Mistica v. Naguiat,G.R. No. 137909 (2003);
Cannu v. Galang, G.R. No. 139523 (2005)].
  It will not be permitted in casual or slight breach. [Song Fo v. Hawaiian Philippines, G.R. No.
23769, (1925)]

Damages

 Liability for damages

 Those liable under Art. 1170 shall pay damages only if aside from the breach of contract,
prejudice or damage was caused (Berg v. Teus, G.R. No. L6450, October 30, 1954).

 NOTE: If action is brought for specific performance, damages sought must be asked in the same
action; otherwise the damages are deemed waived (Daywalt v. La Corporacion, G.R. No. L-
13505, February 4, 1919).

Kinds of damages (MENTAL)

 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 estimation, moral damages may be recovered if they are the proximate result of the
defendant’s wrongful act or omission. These kind avail in cases of breach of contract where the
defendant acted fraudulently or in bad faith, and the court should find that under the
circumstances, such damages are due.
 Exemplary or corrective damages
 Nominal damages are damages recoverable if no actual, substantial or specific damages were
shown to have resulted from the breach. The amount for such is addressed to the sound discretion
of the court. 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.
 Temperate or moderate damages may be recovered when the court finds that some pecuniary
loss has been suffered but its amount cannot, from the nature of the case, be provided with
certainty.
 Actual damages refer to the financial amount that is paid to a victim that suffered loss that can be
calculated. Actual damages are often known as real damages or, legally, as compensatory
damages.
 Liquidated damages are those agreed upon the parties to a contract, to be paid in case of breach.

Subsidiary Remedies of Creditors

 ACCION SUBROGATORIA
 An indirect action brought in the name of the debtor by the creditor to enforce the
former’s rights; Except:
 a. Personal rights of the debtor;
 b. Rights inherent in the person of the debtor;
 c. Properties exempt from execution. e.g. family home
  Art. 1177, CC. The creditors, after having pursued the property in possession of the debtor to
satisfy their claims, may exercise all the rights and bring all 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.
 Right of the creditor to exercise all of the rights and bring all the actions which his debtor may
have against third persons.
 In order to satisfy their claims against the debtor, creditors have the ff. successive rights:

1. To levy by attachment and execution upon all the property of the debtor, except those
exempt from execution;

2. To exercise all the rights and actions of the debtor, except such as are inherently personal to
him; and

3. To ask for rescission of the contracts made by the debtor in fraud of their rights.

 Requisites
 1. The person to whom the right of action pertains must be indebted to the creditor
 2. The debt is due and demandable
 3. The creditor must be prejudiced by the failure of the debtor to collect his debts due him from
third persons, either through malice or negligence
 4. The debtors assets are insufficient (debtor is insolvent)
 5. The right of action is not purely personal to the debtor
 * Previous approval of the court is not necessary to exercise the accion subrogatoria.
 Creditors may also impugn the acts which the debtor may have done to defraud them. [Art.
1177, CC]
 Par. 3, Art. 1381. The following contracts are rescissible:
 (3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect
the claims due them.

 ACCION PAULIANA
 An action to impugn or assail the acts done or contracts entered into by the debtor in
fraud of his creditor.
 Requisites [Cheng v. CA, G.R. No. 144169 (2001)]

1. There is a credit in favor of the plaintiff prior to the alienation by the debtor

2. The debtor has performed a subsequent contract conveying patrimonial benefit to third person/s.

3. The debtor’s acts are fraudulent to the prejudice of the creditor.

4. The creditor has no other legal remedy to satisfy his claim

5. The third person who received the property is an accomplice to the fraud.

 An accion pauliana thus presupposes the following:

 1. A judgment;
 2. the issuance by the trial court of a writ of execution for the satisfaction of the judgment, and;
 3. the failure of the sheriff to enforce and satisfy the judgment of the court. It requires that the
creditor has exhausted the property of the debtor.
 It requires that the creditor has exhausted the property of the debtor. The date of the decision
of the trial court is immaterial. What is important is that the credit of the plaintiff antedates that
of the fraudulent alienation by the debtor of his property. After all, the decision of the trial court
against the debtor will retroact to the time when the debtor became indebted to the creditor.
[Cheng v. CA, supra]