OBLIGATIONS AND CONTRACTS TITLE 1- OBLIGATION¢ 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.* Note: Art. 1156 refers only to civil obligations which are enforceable in court when breached. It does not cover natural obligations (Arts. 1423-1430, NCC) because these are obligations that cannot be enforced in court being based merely on equity and natural law and not on positive law. (Pineda, Obligations and Contract, 2000 ed. P.3) Juridical Necessity- 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.* ELEMENTS 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. ©) 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 coercive force which makes the obligation demandable.“*The object must be: 1. Licit or lawful; 2. Possible , physically and judicially; 3. Determinate and determinable; and 4. Pecuniary value or possible equivalent in money. >Note: absence of either the first three (licit/possible and/or determinate) makes the object void. »Form is generally considered essential, though sometimes it is added as the 5‘” requisite. There is no particular form to make obligations binding, except in certain rare cases. (Tolentino, Civil Code of the Philippines, Vol. IV, 2002 ed. p. 57)“*PRESTATION >It is a conduct that may consist of giving, doing, or not doing something. >Note: It is the conduct that must be observed by the debtor/obligor. > Requisites of a valid prestation: 1. Possible, physically and juridically; 2. Determinate, or at least determinable according to pre-established elements or criteria; and 3. Has a_ possible equivalent in money (Tolentino, Civil Code Vol. IV, p. 58 1999 ed).OBLIGATION TO GIVE OBLIGATION TO DO OBLIGATION NOT TODO Consists in the delivery of a movable or immovable thing to the creditor Covers all kinds of works or services whether physical or mental Consists in refraining from doing some acts ie. — Sale, deposit, pledge, donation, antichresis ie. — Contract for professional services like painting, modeling, singing, etc. ie. — Easement prohibiting building proprietor or possessor from committing nuisance(Art. 682, NCC), restraining order or injunction (Pineda, Obligations and Contracts, p. 3 2000 ed)* KINDS OF OBLIGATION = From the viewpoint of: 1. Sanction a) b) ° Civil - gives a right of action to compel their performance Natural— not based on positive law but on equity and natural law; does not grant a right of action to enforce their performance, but after voluntary fulfillment by the obligor, they authorize retention of what has been delivered/ rendered by reason thereof. Moral- cannot be enforced by action but are binding on the party who makes it in conscience and natural law.2. Performance a) Positive — to give; to do b) Negative — not to do 3. Subject matter a) Personal — to do; not to do b) Real — to give 4. Object a) Determinate / specific — particularly designated or physically segregated from all others of the same class. b) Generic— is designated merely by its class or genus. ©) Limited generic—- generic objects confined to a particular class (e.g. an obligation to deliver one of my horses) (Tolentino, Civil Code of the Philippines, Vol. IV, 2002 ed, p. 91)5. Person obliged a) Unilateral — only one party is bound b) Bilateral — both parties are bound 6. Creation a) Legal — imposed by law (Art. 1158, NCC) b) Conventional — established by the agreement of the parties like contracts 7. Susceptibility of partial fulfillment a) Divisible — obligation is susceptible of partial performance b) Indivisible — obligation is not susceptible8. Existence of burden or condition a) Pure — is not burdened with any condition or term. It is immediately demandable. b) Conditional — is subject to a condition which may be suspensive (happening of which shall give rise to the obligation) or resolutory (happening terminates the obligation). 9. Character of responsibility or liability a) Joint - each debtor is liable only for a part of the whole liability and to each creditor shall belong only a part of the correlative rights b) Solidary — a debtor is answerable for the whole of the obligation without prejudice to his right to collect from his co-debtors the latter’s shares in the obligation (Art. 1207, NCC)10. Right to choose and substitution a) Alternative - obligor may choose to completely perform one out of the several prestations (Art. 1199, NCC) b) Facultative — only one prestation has been agreed upon, but the obligor may render one in substitution of the first one (Art. 1206, NCC) 1. Imposition of penalty a) Simple - there is no penalty imposed for violation of the terms thereof b) Obligation with penalty — obligation which imposes a penalty for violation (Art. 1226, NCC) (Pineda, Obligations and Contracts, 2000 ed, p. 5-7)e ART. 1157. Obligations arise from: 1. Law; 2. Contracts; 3. Quasi-contracts; 4. Acts or omissions punished by law; and 5. Quasi-delicts. (1089a) e 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) e 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. e 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) e 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)1. LAW as a source of obligations - Obligation ex lege 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: elt is the duty of the Spouses to support each other. (Art. 291, New Civil Code) © And under the National Internal Revenue Code, it is the duty of every person having an income to pay taxes.— Characteristics of a legal obligation or obligation ex lege: 1. Does not need the consent of the obligor; 2. Must be expressly set forth in the law creating it and not merely presumed; and 3. In order that the law may be a source of obligation, it should be the creator of the obligation itself. * What governs obligations arising from law are the provisions of the law which establishes them. The Civil Code is applicable suppletorily.2. CONTRACT as a source of obligations — Obligations ex contractu > Requisites for a contract to give rise to obligations ex contractu: 1. It must contain all the essential requisites of a contract 2. It must not be contrary to law, morals, good customs, public order, and public policy > GR:These obligations shall be governed primarily by the stipulations, clauses, terms and conditions of the parties’ agreements. > XPN: Contracts with prestations that are unconscionable or unreasonable. * Note: In case of unconscionable penalty for breach of contract (Art. 1229, NCC), or liquidated damages (Art. 2226, NCC), the same may be reduced by the court. (Pineda, Obligations and Contracts, p.13, 2000 ed)v 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. Must be complied with in good faith. “Compliance in good faith”-It is performance in accordance with the stipulation, clauses, terms and conditions of the contract. The contract is the “law” between the parties. > Neither party may unilaterally evade his obligation in the contract, unless: 1. Contract authorizes it 2. Other party assents>The so-called Innominate Contracts (Contratos Innominados) 1. 2 2 4, Do ut des give that you may give. Do ut facias- | give that you may do. Facio ut des-\| do that you may give. Facio ut facias-\ do that you may do. Example: A worked for B as an interpreter. Even without express agreement as to compensation, A is entitled to compensation because of facio ut des—| do the interpreting that you may give the money.3. QUASI-CONTRACTS as a source of obligations -Obligation ex quasi contractu 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) © Since a quasi-contract is a unilateral contract created by the sole act or acts of the gestor, there is no express consent given by the other party. The consent needed in a contract is provided by law through presumption. This is called PRESUMPTIVE CONSENT (Pineda, Obligations and Contracts, p. 15, 2000 ed)>» Contracts and quasi-contracts distinguished: * 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. > Distinguished from other Sources 1. act giving rise to a quasi contract must be LAWFUL distinguishing it from delict; 2. act must be VOLUNTARY distinguishing it from quasi-delict which is based on fault or negligence; 3. act must be UNILATERAL distinguishing it from contract which is based on agreement. (Tolentino, Volume IV, p. 68)> Kinds of Quasi-Contract 1. Negotiorum gestio: unauthorized management; arises whenever a person voluntarily takes charge of the agency or management of another’s abandoned business or property without the latter’s authority (Article 2144, NCC). Reimbursment must be made to the gestor for necessary and useful expenses, as a rule (Article 2150, NCC). Solutio indebiti: undue payment. Arises when a person unduly delivers a thing through mistake to another who has no right to demand it (must not be through liberality or some other cause)4. DELICTS or acts or omissions punished by law as a source of obligations- Obligation ex maleficio or ex delicto — Acts or omission punished by law is Rnown as Delict or Felony or Crime. — RPC: Art. 100 Every person criminally liable for a felony is also civilly liable. — GOVERNING RULES 1. Articles 100-113 of the RPC and other penal laws subject to Art 2177 Civil Code (quasi-delict); 2. Chapter 2, Preliminary title, on Human Relations (Civil Code ) 3. Title 18 of Book IV of the Civil Code on damages> SCOPE OF CIVIL LIABILITY 1. Restitution 2. Reparation for damage caused 3. Indemnity for Consequential damages > EFFECT OF ACQUITTAL IN CRIMINAL CASE 1. When due to reasonable doubt — no civil liability 2. When due to exempting circumstances — there is civil liability 3. When there is preponderance of evidence — there is civil liability > CRIMES WITHOUT CIVIL LIABILITY 1. Contempt 2. Insults to persons in authority 3. Gambling 4. Violations of traffic regulations (De Leon, 2003 ed,p. 23)5. QUASI-DELICTS as ai source of ebligations- Obligation e quasi maleficio or wx quasi-delicto © 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)>It is an act or omission arising from fault or negligence which causes damage to another, there being no pre-existing contractual relations between the parties. > ELEMENTS: 1. There must be an act or omission 2. There must be fault or negligence attributable to the person charged 3. There must be damage or injury 4. There must be a direct relation of cause and effect between the act arising from fault or negligence and the damage or injury (proximate cause ); 5. There is no pre-existing contractual relation between the parties.> Scope of Civil Liability 1. Restitution; 2. Reparation for damage caused; and 3. Indemnity for consequential damages. > NEGLIGENCE * 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. (US v. Barrias, 23 Phil. 434 [1912])> Test of Negligence — ° For the existence of negligence, the following are necessary: 1. a duty on a party of the defendant to protect the plaintiff from the injury of which the letter complains; 2. a failure to perform that duty; and 3. an injury to the plaintiff through such failure. > Kinds of Negligence 1. Culpa Aquiliana, also known as quasi-delict or negligence as a source of obligation. 2. Culpa contractual or negligence in the performance of a contract.* 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)* DUTY TO EXERCISE DILIGENCE 1. To preserve or take care of the thing due with the diligence of a good father of a family. > Diligence of a Good Father of the Family- ordinary care or that diligence which an average or reasonably prudent person would exercise over his own property > NOTE: Rule on Standard of Care a) That which the law requires; or b) That stipulated by the parties; or ©) Inthe absence of the two, diligence of a good father of a family¢ ART. 1664. 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) > WHEN CREDITOR IS ENTITLED TO THE FRUITS a) Personal Right — is called “jus in personam” or “jus ad rem”; a personal right is power demandable by one person of another — to give, to do, or not to do. b) Real Right — is a “jus in re”; a real right is a power over a specific thing (as in ownership or possession) and is binding on the whole world. > Nature of the right of the creditor with respect to the fruits a) Before delivery-personal right b) After delivery- real right> Kinds of Delivery Actual Delivery (Tradition or Material Delivery) — where physically, the property changes hands. Constructive Delivery — that where the physical transfer is implied. This is done by: 1 2 a) b) 9° d) e) Symbolical Tradition — as when the keys of a bodega are given. Delivery by Mere Consent or the Pointing Out of an Object Delivery by Short Hand (Traditio Brevi Manu) — that kind of delivery whereby a possessor of a thing, not as an owner, becomes the possessor as owner. Opposite of Traditio Brevi Manu — the delivery, whereby a possessor of thing as an owner, retains possession of the thing no longer as an owner, but in some other capacity. Tradition by the Execution of Legal Forms and Solemnization — like the execution of a public instrument selling land> Kinds of fruits: a) b) ° 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. > When Obligation to Deliver Arise * GENERAL RULE: From the time of the perfection of the col ntract (i.e. meeting of the minds between the parties) + EXCEPTIONS a) b) when the parties made a stipulation as regards the right of the creditor to the fruits of the thing when the obligation is subject to a suspensive condition or period; arises upon fulfillment of the condition or arrival of the periodPERSONAL REAL Jus ad rem Jus in re Enforceable only against a definite person/group of persons Enforceable against the whole world Right to demand from another, as a definite passive subject, the fulfillment of the prestation to give, to do, or not to do. Right over a specific thing, without a definite passive subject against whom the right may be personally enforced. Has a definite passive subject No definite passive subject© 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)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)deliver a thing: * Remedies of Creditor in case of failure to SPECIFIC OBLIGATION GENERIC OBLIGATION Specific performance Specific performance (delivery of any thing belonging to the same species) Rescission (action to rescind under Art. 1380, NCC) Ask that the obligation be complied with at the debtor’s expense Resolution (action for cancellation under Art. 1191, NCC) Resolution or Specific Performance, with damages in either case (Art. 1191, NCC) Damages, in both cases (Art. 1170, NCC) Note: May be exclusive or in addition to the above-mentioned remedies (Pineda, Obligations and Contracts, 2000 ed, p. 37)> Note: In obligation to deliver a specific thing, the creditor has the right to demand preservation of the thing, its accessions, accessories, and the fruits. The creditor is entitled to the fruits and interests from the time the obligation to deliver the thing arise. * Fortuitous Events — those events which could not be foreseen or which though foreseen were inevitable. (Art. 1174, NCC) — Effect of Fortuitous Events 1. A specific obligation, that is, an obligation to deliver a specific thing is, as a rule, extinguished by a fortuitous event or act of God. 2. Upon the other hand, generic obligations are never extinguished by fortuitous events.>» Two Instances where Fortuitous Event does not exempt: 1. If the obligor delays 2. If the obligor is guilty of bad faith > ORDINARY DELAY versus DEFAULT (Legal Delay): * Ordinary Delay — this is merely non-performance at the stipulated time. * Default — is that delay which amounts to a virtual non-fulfilment of the obligation. > As a rule, to put a debtor in default, there must be a demand for fulfilment, the demand being either judicial or extrajudicial.¢ 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) > Obligation to give a determinate thing includes: 1. ACCESSORIES — those joined to or included with the principal for the latter’s better use, perfection, or enjoyment. + Example: the keys to a house, the dishes in restaurant 2. ACCESSIONS — additions or improvements upon a thing. These include alluvium and whatever is built, planted, or sown on a person’s parcel of land. > EFFECT OF STIPULATION: * Of course, if there is a stipulation to said effect, accessions and accessories do not have to be included.* Art. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost. > Positive obligation to do. > REMEDIES OF THE CREDITOR IF DEBTOR FAILS TO DO 1. To have the obligation performed (by himself or another) at the debtor’s expense (only if another can do the performance) 2. Also to obtain damages. Damages alone cannot substitute for performance if owners can do it; if purely personal or special, only damages may be asked, unless substitution is permitted. > When Thing may be Ordered Undone: 1. If made poorly — here performance by another and damages may be demanded. 2. If the obligation is a negative one — provided the undoing is possible.e 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.© 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 parties fulfills his obligation, delay by the other begins. (11000 )»>RULES TO PUT DEBTOR IN DEFAULT * Delay or Mora: means a legal delay or default and it consists of failure discharge a duty resulting to one’s own disadvantaged. * General Rule: — To put a debtor in default, as a rule, DEMAND is needed. » Two Kinds of Demand: 1. Judicial Demand — as when a complaint for specific performance is filed. 2. Extrajudicial Demand — without court proceedings. * Exceptions: — When demand is not necessary to put debtor in demand: 1. 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.2. When the obligation expressly so provides * NOTE: The mere fixing of a period is not enough. There must be a provision that if payment is not made when due, default or liability for damages or interests automatically arises. 3. When time is of the essence of the contract or when the fixing of time was the controlling motive for the establishment of the contract. + NOTE: It is not necessary for the contract to categorically state that time is of the essence; the intent is sufficient as long as that it is implied.4, When demand would be useless, as when the obligor has rendered it beyond his power to perform. * 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. When the obligor has expressly acknowledged that he really is in default. * NOTE: His mere asking of an extension of time is not an express acknowledgement of the existence of default on his part. 6. Ina 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.>» DELAY (MORA) 1. Ordinary Delay — failure to perform an obligation on time 2. Legal Delay/ Default - failure to perform an obligation on time which failure constitutes a breach of the obligation. (De Leon, 2003 edi, p.42) >» REQUISITES OF DELAY: 1. Obligation must be due, demandable and liquidated; 2. Debtor fails to perform his positive obligation on the date agreed upon; 3. A demand (not merely a reminder or notice), judicial or extra-judicial, made by the creditor upon the debtor to fulfill, perform or comply with his obligation otherwise, he will be in default; and 4. Failure of the debtor to comply with such demand.> Different kinds of Mora: 1 Mora Solvendi-— default on the part of the debtor: @) Mora Solvendi Ex re — default in real obligations b) Mora Solvendi Ex persona — default in personal obligations — REQUISITES: 1. The obligation must be due, enforceable and already liquidated or determinate in amount; 2. There must be non-performance; and 3. There must be a demand, unless demand is not required. — EFFECTS: 1. Debtor is guilty of breach of the obligation 2. Liability: If obligation to pay money- must pay interest. If no extra-judicial demand, interest runs from the filing of the complaint. In other obligations, pay damages; 3. Obligations to deliver a determinate thing, liable for fortuitous events. If debtor can prove that loss would have resulted even if he had not been in default, the court may equitably mitigate the damages (Art. 2215[4]) 4. Resolution (Art 1170, in proper cases)2. Mora Accipiendi - default on part of creditor when he unjustifiably refuses to accept the performance of the obligation. + REQUISITES: Offer of performance by the debtor 2. Offer must be to comply with the prestation as it should be performed 3. Creditor refuses the performance without just cause + EFFECTS: 1. Responsibility of debtor is limited to fraud and gross negligence 2. Debtor is exempted from risk of loss of thing; creditor bears risk of loss 3. Expenses by debtor for preservation of thing after delay is chargeable to creditor 4. If obligation bears interest, debtor does not have to pay from time of delay 5. Creditor liable for damages 6. Debtor may relieve himself of obligation by consigning the thing3. Compensatio morae — both parties are in default (in reciprocal obligations); there is no actionable default on the part of both parties >» RULES ON DEFAULT 1. Unilateral obligations * GR: Default or delay begins from extrajudicial or judicial demand - mere expiration of the period fixed is not enough in order that DR may incur delay. * XPNs: a) The obligation or the law expressly so dictates; b) Time is of the essence; ©) Demand would be useless, as debtor has rendered it beyond his power to perform; or d) Debtor has acknowledged that he is in default. 2. Reciprocal obligations * GR: Fulfillment by both parties should be simultaneous. * XPN: When different dates for the performance of obligation is fixed by the parties»>RULES ON DEFAULT 1 Unilateral obligations * GR: Default or delay begins from extrajudicial or judicial demand — mere expiration of the period fixed is not enough in order that DR may incur delay. + XPNs: a) The obligation or the law expressly so dictates; b) Time is of the essence; ©) Demand would be useless, as DR has rendered it beyond his power to perform; or d) DR has acknowledged that he is in default. 2. Reciprocal obligations ¢GR: Fulfillment by both parties should be simultaneous. * XPN: When different dates for the performance of obligation is fixed by the parties> When Damages or Interest May Be Lost: * A creditor entitled to damages or interest because of MORA may lose the same: 1. If the principal obligation is allowed to lapse by prescription; If the damages or interest are allowed to prescribe; 3. If the damages or interest are condoned (waived or remitted). * NOTE: If a debt is not paid at the stipulated period, INTEREST (as damages) should be charged not from the date of maturity but from the time the judicial action is filed, in case no extrajudicial demand was made. * NOTE: A debtor who incurs in delay or default is liable for damages plus interest, generally from extrajudicial demand or judicial demand in the form of interest.* BREACH OF OBLIGATIONS (See Arts. 1170 -1174) * 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) > GROUNDS FOR LIABILITY in the PERFORMANCE OF OBLIGATIONS: 1. Fraud (deceit or dolo) (intentional evasion of fulfilment) Negilgence (fault or culpa) Default (or Mora) (if imputable to debtor) Violation of the terms of the obligation (unless excused in proper cases by fortuitous events) PWN>NOTE: The following do not excuse fulfilment: 1. Increase in cost of performance; 2. Poverty; 3. War between the subject of neutral country and the subject of a country at war, as long as substantial compliance can still be done. > LABILITY FOR DAMAGES: * Those liable under Article 1170 should pay damages, but generally only if from the breach of contract, prejudice or damage was caused. Damages should be paid by those responsible for them. > Damages in Monetary Obligation: 1, That agreed upon; 2. In the absence of agreement, the legal rate of interest. If a contract of simple loan stipulates the time when the interest will be counted, said stipulated time controls.> KINDS of DAMAGES: (M.E.N.T.A.L) 1 2. 3. Moral Damages — for mental and physical anguish Exemplary Damages — corrective or to set an example Nominal Damages — to vindicate a right; when no other kind of damages may be recovered; the assessment of which is left to the discretion of the court. Temperate Damages — when the exact amount of damages cannot be determined Actual Damages - actual losses as well as unrealized profit Liquidated Damages - predetermined beforehand; by agreement* BREACH OF OBLIGATIONS (See Arts. 1170 - 1174) 1. Voluntary — debtor in the performance of the obligation is guilty of: 1. "Rowe fraud (Dolo) negligence (culpa) delay (mora) contravention of the tenor of the obligation NOTE: debtor is liable for damages Involuntary — debtor is unable to comply with his obligation due to fortuitous event/s NOTE: debtor is not liable for damages* BREACH OF OBLIGATIONS (See Arts. 1170 -1174) ° ART. 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for future fraud is void. (1120a) > FRAUD (Dolo) + It is the deliberate or intentional evasion of the normal fulfillment of an obligation. (8 Manresa 72) > TYPES OF FRAUD 1. Causal Fraud (Dolo Causante): fraud employed in the execution of the contract 2. Incidental Fraud (Dolo Incidente): fraud in performance of obligation already existing because of a contract> The fraud must be incidental fraud, or that which is present during the performance of the obligation, and not causal fraud, or fraud employed in the execution of a contract, which vitiates consent. > Waiver of Future Fraud = With respect to fraud that has already been committed, the law does not prohibit renunciation of the action for damages based on the same. However, the law does prohibit any waiver of an action for future fraud since the same is contrary to law and public policy. = Note: Waiver of past fraud is valid since such can be deemed an act of generosity. What is renounced is the effect of fraud, particularly the right to indemnity.FRAUD IN THE CAUSAL FRAUD INCIDENTAL FRAUD PERFORMANCE (ART. 1338) (ART. 1344) (ART. 1170) Present during the Present during the Present during the performance of a pre- | perfection of a contract | perfection of a contract existing obligation Purpose is to evade the normal fulfillment of the obligation Purpose is to secure the consent of another to enter into the contract Purpose is to secure the consent of the other party but the fraud was not the principal inducement in making the contract Results in the breach of an obligation Results in vitiation of consent; voidable contract Does not result in the vitiation of consent Gives rise to a right in favor of the creditor to recover damages Gives rise to a right of an innocent party to annul the contract Gives rise to a right of innocent party to claim for damages>» REMEDIES OF DEFRAUDED PARTY a) Insist on specific performance (Art 1233) b) Resolve contract (Art 1191) ©) Claim damages, in either case ¢ ART. 1172. Responsibility arising from negligence in the performance of every king of obligation is also demandable, but such liability may be regulated by the courts, according to the circumstances. (1130) > NEGLIGENCE * 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.FRAUD NEGLIGENCE Thre is deliberate intention to cause damage There is no deliberate intention to cause damage Liability cannot be mitigated Liability may be mitigated Waiver for future fraud is void Waiver for future negligence may be allowed in certain cases >KINDS OF NEGLIGENCE 1. Quasi-Delict (Culpa aquiliana/culpa extra contractual)- source of obligation 2. Contractual Negligence (Culpa Contractual)- negligence in the performance of a contractCULPA AQUILIANA CULPA CONTRACTUAL Negligence is substantive and independent Negligence merely an incident of performance of an obligation There may or may not be a pre- existing contractual obligation There is a pre-existing contractual relation Source of the obligation is the negligence itself Source of the obligation is the breach of contractual obligation Negligence must be proved Proof of existence of the contract and its breach is prima facie sufficient to warrant recovery Diligence in the selection and supervision of the employees is a defense Diligence in the selection and supervision of the employees is not available as a defense.>STIPULATIONS REGARDING NEGLIGENCE (Future Negligence) *RULE #1: GROSS Negligence can never be excused in advance for this would be contrary to public policy. * RULE #2: SIMPLE Negligence may in certain cases be excused or mitigated. > Rule in Contracts of Adhesion: *There is greater freedom to stipulate on negligence if the parties are on equal plane, not where they are obviously in unequal positions (CONTRACTS of ADHESION) such as in the case of employment or transportation contracts.> NOTE: STIPULATIONS ON NEGLIGENCE must be strictly construed against the party stipulated in a higher or more advantageous position. > EFFECTS OF CONTRIBUTORY NEGLIGENCE OF THE CREDITOR «GENERAL RULE: Reduces or mitigates the damages which he can recover * EXCEPTION: If the negligent act or omission of the creditor is the proximate cause of the event which led to the damage or injury complained of, he cannot recover.¢ 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)> DEGREES OF CULPA (Negligence) Under Roman Law: a) CULPA LATA - grave negligence b) CULPA LEVIS - ordinary negligence ¢) CULPA LEVISSIMA - slight negligence > DEGREE OF DILIGENCE REQUIRED 1. That agreed upon 2. In the absence of such, that which is required by the law 3. In the absence of the foregoing, diligence of a good father of a family — that reasonable diligence which an ordinary prudent person would have done under the same circumstances. - XPN: Common carriers requiring extraordinary diligence (Arts. 1998-2002)* 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 * An event which could not beforeseen, or which though foreseen, was inevitable— REQUIREMENTS: (Nakpil and Sons vs. CA): 1. 2 The cause of the breach of the obligation must be independent of the will of the debtor The event must be either unforeseeable or unavoidable The event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner The debtor must be free from any participation in, or aggravation of injury to the creditor. Note: The fortuitous event must not only be the proximate cause but it must also be the on/y and sole cause, Contributory negligence of the debtor renders him liable despite the fortuitous event. (Pineda, Obligations and Contracts, 2000 ed, p. 62)» RULE ON FORTUITOUS EVENT: * GENERAL RULE: No liability for loss in case of fortuitous event + EXCEPTIONS: 1. 2. 3. _ When expressly declared by law ( bad faith, subject matter is generic, debtor is in delay ) When expressly declared by stipulation or contract When nature of obligation requires assumption of risk 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 The debtor Contributed to the loss (Tan v. Inchausti & Co., G.R. No. L-6472, Mar. 7, 1912) The possessor is in Bad faith (Art. 552) The obligor is Guilty of fraud, negligence or delay or if he contravened the tenor of the obligation Guan Nakpil v. United Construction Co., Inc. v. CA, G.R. No. L-47851, Apr. 15, 1988)> Effects of Fortuitous Event * On determinate obligation - the obligation is extinguished * On generic obligation - the obligation is not extinguished (genus nun quam peruit — genus never perishes) ACT OF GOD Fortuitous event Event which is absolutely independent of human intervention ie.-earthquakes, storms, floods, epidemics ACT OF MAN Force Majeure Event caused by the legitimate or illegitimate acts of persons other than the obligor i.e.-armed invasion, robbery, war (Pineda, Obligations and Contract, 2000 ed, p. 60)e ART. 1175. Usurious transaction shall be governed by special laws. » Note: C.B. Circular No. 905 suspends the ceilings in the usury law. Hence, parties can agree as to the rate of interest. » Kinds of interest: 1. Moratory Interest — for the use of money 2. Compensatory Interest — interest given by way of damages; it compensates the damage caused.° ART. 1176. The receipt of the principal by the creditor without reservation with respect to the interest, shall give rise to the presumption that said interest has been paid. The receipt of a later installment of a debt without reservation as to prior installments, shall likewise raise the presumption that such installments have been paid. (1110a) >Receipt of Principal without Reservation as to Interest: * It shall give rise to the presumption that said interest has been paid already. This is because under Article 1253 of the Civil Code, payment of the interest as a rule precedes payment of the principal. * Of course, Article 1176 establishes merely rebuttable, not a conclusive presumption.— Receipt of a Later Installment: *It shall give rise to the presumption that earlier installments have already been paid. For example, if a creditor receives the fourth installment of a debt, it is under stood that the first three installments have been paid. ¢For the presumption to apply, it is not enough that the receipt for the installment paid be dated; it must also specify that the receipt is for the payment of a particular installment due, for example, for a certain month© ART. 1177. The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise alll the rights and bring all the actions of the latter for the same purpose, save those which are inherent in his person; they may also impugn the acts which the debtor may have done to defraud them. (1111) — RIGHTS OF CREDITORS: 1. Exact payment 2. Exhaust debtor’s property, generally by attachment (except properties exempted by the law) 3. Subrogatory Action — to exercise all rights and actions except those inherent in the person— Examples of Rights Inherent in the person of the Debtor which therefore cannot be exercised by the Creditors: a) The right to existence (thereby, exempting from the reach of creditors, whatever he may be receiving as support) b) Rights or Relations of a Public Character (like positions in the government) ©) Rights of an Honorary Character like a doctor’s degree. d) Rights pertaining to the affairs of the home and of the family e) Rights granted by law only to the debtor such as the action to revoke a donation on the ground of ingratitude f) Right to appear in court proceedings. 4. Accion Pauliana - impugn or rescind acts or contracts done by the debtor to defraud creditors. > Extent of Debtor’s Liability: * The debtor is liable with all his property, present and future, for the fulfillment of his obligations subject to exemptions provided by law