Law on Obligations and Contracts

Course Outline 3. Characteristics of Business Law

PART I – INTRODUCTION TO LAW AND BUSINESS
LAW - In Philosophy, the human mind consists principally of
1) Definition of Law and Business Law two faculties:
2) Sources of Business Law 1. the Intellect – the object of which is the
3) Characteristics of Business Law TRUTH.
2. the Will – the object of which is the GOOD.
PART II – OBLIGATIONS - The infinite truth and infinite good is infinite beauty
1) In General of God.
a. Definition - The person was created by God and destined for
b. Sources of Obligations God, the people can attain the final destiny by
Law; Contracts; Quasi-Contracts; following the law.
Delicts or Crimes; Quasi-Delicts - The laws that contained the instructions of God given
c. Essential requisites of obligation to us are the COMMANDMENTS.
Parties; object; Juridical tie or vinculu
Law
2) Nature and Effect of Obligation - The most basic, simple, and concise definition of law
a. According to the Object or Prestation was defined by Sanchez Roman, a Spanish Civilist
Obligations to give; Obligations to do; and he defined Law as:
Obligations not to do - “A RULE OF CONDUCT, JUST AND OBLIGATORY
b. Liability of Damages PROMULGATED BY LEGITIMATE AUTHORITY FOR
Fraud – Dolo incidente; Dolo causante THE COMMON OBSERVANCE AND BENEFIT.”
Negligence – Culpa - Edgardo Paras defined Law as “an ordinance of
Delay – Mora solvendi, accipiendi, reason promulgated for the common good by
compensatio morae Him who is in charge.”
Contravention of tenor of obligation
Characteristics of Law
PART III – GENERAL PROVISIONS ON CONTRACT 1. A Rule of Conduct
§ Contracts Defined § Meaning any action, things, dictate of reason if
§ Elements of Contract: regulated or gathered together could become a
§ Stages of A Contract conglomeration of rules, regulations that can
§ Characteristics of Contracts: create an orderly, peaceful, harmonious relations
§ Classification of A Contract:(FROM) among the people concerned so that in the end
§ Contract Binds by Both Parties justice will prevail.
§ Cases Where Third person May Be Affected By a
Contract 2. Promulgated by Legitimate Authority
§ Forms of Contracts § That is, made known to those who are expected
§ Reformation of Instruments to follow it. In a Republican State like the
§ Interpretation Of Contracts Philippines, we have three branches of
§ Cause of Contracts government – legislative body (like Congress,
Sanggunian) is the law-making body; the
PART IV – DEFECTIVE CONTRACTS executive body is the implementing body and the
§ Rescissible Contracts judiciary as the enforcing body.
§ Voidable Contracts
§ Unenforceable Contracts 3. Just and Obligatory
§ Void or inexistent contracts § Treatment of Law should be equal, regardless of
sex, creed, age and status in life and to follow the
law there should be equivalent punishment or
Introduction to Law and Business Law penalties to enforce them. The dictum “Justice
1. Definition of Law and Business Law delayed is Justice denied” is commonly abused
2. Sources of Business Law term on the relation of a criminally inclined poor

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 Law on Obligations and Contracts

person and a moneyed person on the treatment § Thus, our country adhere to the Doctrine of Stare
of the application of law. Obligatory means any Decisis (Let it Stand), the doctrine which in reality
duty binding parties to perform their agreement. is “adherance to precedents” stated that once a
(Black’s dict. P. 1074). case has been decided, then another case
involving the same point at issue, should be
4. For the Common Observance and Benefit decided in the same manner. Therefore, if the
§ The application of law should not be titled or Supreme Court being a Court of last resort, has
favoring an individual but by the observance of all decided that a certain law passed by Congress is
and the benefits that may be derived from it. constitutional, the law becomes binding and has
its full force and effect.
Sources of Law
1. Legislative 5. Custom
§ It consists of legal rights by a competent § It consists of those habits and practices which
authority. In the Philippines, being a democratic through long and uninterrupted usage have
form of government, the Legislative is the law- become acknowledged and approved by society
making body. For national government, Congress as binding rule of conduct. Thus, it has been a
comprising the House of Representatives and the custom for a person to enter and exit a door.
Senate. For provinces, the Sangguniang Once a person uses the window for his entrance
Panlalawigan for every province. For a town, the and exit, it runs counter to the custom of use of
Sangguniang Pambayan or the local Municipal the door. Even our Lord said as a good shepherd,
council. For a Barangay level, the Sangguniang if a person does not pass the gate, he is a thief
Pambarangay. for a marauder.

2. Constitution 6. Other Sources

§ The fundamental law that governs a nation in its § To add, the principle of justice and equity,
relation to its citizens. All laws must conform and decisions of foreign tribunals, opinions of text
comply with the provisions of the Constitution, writers and even religion may also be sources of
otherwise it becomes unconstitutional. law.

3. Administrative or Executive Orders, Kinds of Law

Regulations and Rulings 1. Divine Law
§ The fundamental law that governs a nation in its § It is formally promulgated by God, revealed or
relation to its citizens. All laws must conform and divulged to mankind by means of direct revelation
comply with the provisions of the Constitution, like the Ten Commandments.
otherwise it becomes unconstitutional.
2. Natural Law
4. Judicial Decisions or Jurisprudence § Promulgated impliedly in our conscience and
§ Judicial decisions or interpreting the laws or the body. It is the divine interpretation in man in the
Constitution shall form a part of the legal system sense of justice, fairness, right and equity by
of the Philippines. (Art. 8, New Civil Code) Judicial internal dictate of reason on our mind. Like for
decisions, though, are part of the legal system in instance, it is better to do good than to do evil for
the Philippines still are not laws for if this were being a God-fearing person.
so, the Courts exists for stating what the law is,
but not for giving it. Judicial decisions, though not 3. Physical Law
law, are evidence of what the law means. This is § Refers to the act of rules governing the action and
why they are part of the legal system in the movement of things like the law on gravity by
Philippines. So, f an interpretation is placed by the Newton.
Supreme Court upon a law, it constitute in a way,
part of the law since the Courts interpretation 4. Human Law
merely establishes the legislative intent. § Those promulgated by man to regulate human
relations.

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Classification of Human Law 1. The New Civil Code of the Philippines – the
A. GENERAL or PUBLIC LAW collection of laws which regulates the private
§ Body of rules which regulates the rights and relations of the members of civil society, determining
duties arising from the relationship between the the defective rights and obligations with reference to
State and its inhabitants. persons, things and civil acts.
§ It includes the following: § A civil code is a compilation of existing Civil Laws,
1. International Law – consists of those rules scientifically arranged into books, titles, chapters
and principles which govern the relations and subheads and promulgated by legitimate
and dealing of nations with each other. authority. (Black Law Dict. 334).
2. Constitutional Law – It simply governs the
relations between the State and its citizens. 2. Special laws or statutes, Presidential decrees and
3. Administrative Law – it fixes the other social legislation.
organization and determines the
competence of the authorities that execute 3. Jurisprudence – there is need to mention that,
the law and indicates to the individual jurisprudence in our system of government, cannot
remedies for the violation of his rights. be considered as an independent source of law; but
4. Political Law – deals with the organization the Court’s interpretation of a statute that constitute
and operation of the governmental organs of part of the law as of the date it was originally passed
the State and defines the relations of the since the Court’s construction merely establishes
state with the inhabitants of its territory. contemporaneous legislative intent, that the
5. Criminal Law – guaranties the coercive interpreted law could take into effect.
power of the law so that it will be obeyed.
Governs the methods of trial and punishment 4. Customs and Traditions – Custom is a judicial rule
of crimes. which results from a constant and continuous
uniform practice by the members of a social group.
B. INDIVIDUAL or PRIVATE LAW
§ Those law which govern the private relation 5. The Code Commission itself – A Code commission
person. of five members was created by Pres. Manuel Roxas
§ It includes the following: through Exec. Order No. 48 dated Mar. 20,1947 in
1. Civil Law – branch of law which has for its view of the need of revision in keeping with
double purpose the organization of the progressive modern legislation. The Civil Code was
family and the regulation of property. It is finished on Dec. 15, 1947 and Congress approved
defined as the mass of precepts which the draft on June, 1949.
determines and regulate the relation of
assistance, authority and obedience among Books of the Civil Code
the members of a society for the protection § Book I – Person and Family Relations
of private interests. o This was re-codified as Family Code of the
2. Commercial Law – defined as a whole Philippines embodied in Exec. Order No. 209 as
body of substantial jurisprudence applicable amended by Exec. Order No. 227. The Family
to the rights, intercourse and relation of Code effectuates the long-felt reforms and
persons engaged in commerce, trade or changes to the Civil Code provisions on Family
mercantile pursuits. (Black’s law dict. 338) relations consistent with Filipino values,
3. Procedural Law – defined as the branch of customs and traditions vis-à-vis recent
law which prescribes the method of developments in the social-cultural scene.
enforcing rights or obtaining redress for their (Pineda, Family Code).
invasion, Procedural law otherwise known as § Book II – Property, Ownership and its
Remedial Law, as distinguished from modifications.
Substantive law which creates, defines and § Book III – Different Modes of Acquiring Ownership
regulate rights. (Ballantine Law Dict. P. 36) (Succession)
§ Book IV – Obligations and Contracts
Sources of Philippine Civil Code § Book V – Special contracts

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o The Civil Code begins with preliminary titles and ART. 1156. An obligation is a juridical necessity to give,
ends up with the repealing clause. This module to do or not to do.
is taken from the Civil Code of the Philippines § OBLIGATIONS as defined by ARIAS RAMOS is a
from Articles 1156 to 1422 inclusive. juridical relation whereby a person (called the
creditor) may demand from another (called the
Kinds of Procedural Law debtor) the observance of a determinate conduct,
1. Public Remedial Law – affords a remedy in favor and, in case of breach, may obtain satisfaction from
of the State against the individual, like criminal the assets of the latter. (Approved by Mr. Justice J.
procedure or in favor of the individual against the B. L. Reyes)
State, like Habeas Corpus. § The obligations referred to in our manual is a
2. Private Remedial Law – affords a remedy in favor patrimonial obligations that is, those obligations
of an individual against another individual, like the with pecuniary value or assessable in terms of
civil procedure. money.

Philippine Remedial Law Characteristics of patrimonial obligations:

§ Principally contained in the Rules of Court, which is § They represent an exclusively private interest.
a combination of rules promulgated by the Supreme § They create ties that are by nature transitory.
Court for the easy, orderly, adequate and effective § They exist a power to make effective in case of non-
compliance with the law. The Rules of Court have the fulfillment, the economic equivalent obtained at the
force and effect of law. (Alvero V. dela Rosa, 76 Phil patrimony of a debtor.
428).
§ COURTS DEFINED – § Meaning of Juridical Necessity – it means the
o It is the entity, body or tribunal vested with a rights and duties arising from obligation are legally
portion of the judicial power. (Lontok V. Battung demandable and the courts of justice may be called
63 Phil 1054Ω upon through proper action to order the
§ JUDICIAL POWER performance.
o Includes the duty of the courts of justice to § Action means an ordinary suit in court of justice by
settle actual controversies involving rights which which one party prosecutes another for the
are legally demandable and enforceable, and to enforceable or protection for a right or a prevention
determine whether or not there has been a or redress of a wrong ( Sec. 1. Rules of court ).
grave abuse of discretion amounting to lack or § Example –
excess of jurisdiction on the part of any branch Jad bought refrigerator from Jozef but Jad did not pay
or instrumentality of the Government. (Const. for the refrigerator. If after demand, Jad still refuses to
Art. VIII, Sec. 1, par.2) pay, Jozef can sue Jad in Court either to demand
payment or for recovery of the refrigerator.

Different Courts of Justice

Essential Requisites of an obligation
1. Supreme Court
a) An active subject, who has the power to demand
2. Sandiganbayan
the prestation, known as the creditor or oblige;
3. Court of Appeals
b) A passive subject, who is bound to perform the
4. Regional Trial Court; and 5.Metropolitan / Municipal
prestation, known as debtor or obligor.
Trial Courts
c) An object or the prestation which may consist in
the act of giving, doing or not doing something.
d) The vinculum juris or the juridical tie between
Lesson 1: General Provisions on Obligation
the two subjects by reason of which the debtor is
§ The definition of obligations establishes the unilateral
bound in favor of the creditor to perform the
act of the debtor either to give, to do or not to do as
prestation. It is the legal tie which constitutes the
a patrimonial obligation. It means that the debtor has
source of obligation— the coercive force which
the obligation while the creditor has its rights.
makes the obligation demandable. It is the legal tie
§ On the sources of obligation, the main sources are
which constitutes the devise of obligation... the
really Law and Contracts. The other sources are
also established by law.

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 Law on Obligations and Contracts

coercive force which makes the obligation Quasi-delicts. (1089a)

demandable.
ART. 1158. Obligations derived from law are not
Juridical Tie presumed. Only those expressly determined in this Code
or in special laws are demandable, and shall be regulated
To give, to
Debtor or Creditor or by the precepts of the law which establishes them; and
do, or not to
Obligor Obligee as to what has not been foreseen, by the provisions of
do
this Book. (1090)
§ Illustration:
Jun enters into a contract of sale with Jose who paid ART.1159. Obligations arising from contracts have the
the purchase of a GE refrigerator. Jun did not deliver force of law between the contracting parties and should
the refrigerator. Jun is the passive subject or debtor
be complied with in good faith. (1091a)
and Jose is the active subject or creditor. The object or
prestation is the delivery of the GE refrigerator and the
obligation to deliver arose from a contract which is the ART. 1160. Obligations derived from quasi-contracts
legal tie or the vinculum juris which binds Jun and Jose. shall be subject to the provisions of Chapter 1, Title XVII,
of this Book.
This is also known as a unilateral obligation, that is, the
obligation of the debtor to fulfill or comply his ART. 1161. Civil obligations arising from criminal
commitment, in this case, the delivery of the offenses shall be governed by the penal laws, subject to
refrigerator. the provisions of article 2177, and of the pertinent
provisions of Chapter 2, Preliminary Title, on Human
On the other hand, if Jun, delivered the refrigerator
Relations, and of Title XVIII of this Book, regulating
and Jose did not pay, then Jose becomes the debtor
who is bound to pay while Jun is the creditor who has damages. (1092a)
the right to demand the prestation.
ART. 1162. Obligations derived from quasi-delicts shall
Distinctions between Obligations and Contracts be governed by the provisions of Chapter 2, Title XVIII of
§ Contract is the only one of the sources of obligation, this Book, and by special law. (1093a)
while obligations have other sources like law, quasi-
contracts, delicts or quasi-delicts; Sources of Obligations
§ Contract is a bilateral obligation while obligation is a 1. LAW as a source of obligations
unilateral; § The provisions of Art. 1158 refers to the legal
§ All contracts are obligations while not all obligations obligations or obligations imposed by specific
are contracts. provisions of law, which means that obligations
arising form law are not presumed and that to
Civil obligations as distinguished from Natural be demandable must be clearly provided for,
obligations expressly or impliedly in the law.
§ Civil obligations derive their binding force from § Examples:
positive law; Natural Obligation derives their binding o It is the duty of the Spouses to support each
other. (Art. 291, New Civil Code)
effect from equity and natural justice.
o And under the National Internal Revenue Code, it
§ Civil can enforced by court action of the coercive
is the duty of every person having an income to
power of public authority; pay taxes.
§ Natural – the fulfillment cannot be compelled by
court action but depends on the good conscience of 2. CONTRACT as a source of obligations
debtor. § Contract as defined in Art. 1305, NCC is the
meeting of minds between two person whereby
one binds himself with respect to the other,
ART. 1157. Obligations arise from: § Obligations arising from contracts have the force
Law; of law between the contracting parties because
Contracts; that which is agreed upon in the contract by the
Quasi-contracts; parties is the law between them, thus, the
Acts or omissions punished by law; and

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 Law on Obligations and Contracts

agreement should be complied with in good faith. farm thereby incurring expenses. When Victor
(Art. 1159). returns, he has the obligation to reimburse
§ For examples: Ramon for the expenses incurred by him and
o A contract of lease was executed between Keisha as to pay him for his services. It is bases on the
the lessee and Nathan as the lessor for the rent of an principle that no one shall enrich himself at
apartment. the expense of another.
§ Although contracts have the force of law, it does
3. DELICTS or acts or omissions punished by a
not mean that contract are over and above the
law as a source of obligations
law. Contracts are with the limitations imposed by
§ Acts or omission punished by law is known as
law in Art. 1306, NCC, it states that the
Delict or Felony or Crime.
contracting parties may establish such
§ While an act or omission is felonious because it is
stipulations, clauses terms and conditions as, they
punished by law, the criminal act gives rise to civil
may deem convenient, provided that are not
liability as it caused damage to another.
contrary to law, morals, good custom, public
§ Civil liability arising from delicts:
order or public policy.
o Restitution – which is the restoration of
or returning the object of the crime to the
3. QUASI-CONTRACTS as a source of obligations
injured party.
§ The ‘quasi’ literally means ‘as if’.
o Reparation – which is the payment by the
§ Quasi-contract is the juridical relation resulting
offender of the value of the object of the
from a lawful, voluntary and unilateral act which
crime, when such object cannot be
has for its purpose the payment of indemnity to
returned to the injured party.
the end that no one shall unjustly enrich or
o Indemnification – the consequential
benefited at the expense of another. (Art. 2142,
damages which includes the payment of
NCC)
other damages that may have been
§ Contracts and quasi-contracts distinguished:
caused to the injures party.
o in a contract, consent is essential requirement
§ Illustration:
for its validity while in quasi-contract, there is
Mario was convicted and sentenced to
no consent as the same is implied by law;
imprisonment by the Court for the crime of theft,
contract is a civil obligation while quasi- the gold wrist watch, of Rito. In addition to
contract is a natural obligation. whatever penalty that the Court may impose, Mario
§ 2 Kinds of Quasi-Contracts may also be ordered to return (restitution) the gold
1. Solutio Indebiti (Payment by mistake) wrist watch to Rito. If restitution is no longer
- It is the juridical relation which arises when possible, for Mario to pay the value (reparation) of
a person is obliged to return something the gold wrist watch. In addition to either
received by him through error or mistake. restitution or reparation, Mario shall also pay for
damages (indemnification) suffered by Rito.
- Example-
Arvin owed Ian the sum of P1, 000.00. By
mistake, Arvin paid P2, 000.00. Ian has the 4. QUASI-DELICTS as a source of obligations
obligation to return the P1, 000.00 excess Concepts of Quasi-Delict
because there was payment by mistake. § Quasi-delict is one where whoever by act or omission
causes damage to another, there being fault of
2. Negotiorum gestio (management of negligence, is obliged to pay for the damage done.
another’s property) Such fault of negligence, if there is no pre-existing
- It is the voluntary management or contractual relation between the parties. (Art. 2176)
administration by a person of the § Example-
abandoned business or property of another If Pedro drives his car negligently and because of his
without any authority or power from the negligence hits Jose, who is walking on the sidewalk of
the street, inflicting upon him physical injuries. Then
latter. (Art. 2144, NCC)
Pedro becomes liable for damages based on quasi-
- Example-
delict.
Victor, a wealthy landowner suddenly left for
abroad leaving his livestock farm unattended.
Ramon, a neighbor of Victor managed the
Requisites of a Quasi-delicts

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 Law on Obligations and Contracts

§ There must be fault or negligence attributable to the ART. 1164. The creditor has a right to the fruits of the
offender; thing from the time the obligation to deliver it arises.
§ There must be damage or injury caused to another; However, he shall acquire no real right over it until the
§ There is no pre-existing contract. same has been delivered to him. (1905)

Negligence ART. 1165. When what is to be delivered is a

§ is the failure to observe for the protection of the determinate thing, the creditor, in addition to the right
interests of another person, that degree of care, granted him by article 1170, may compel the debtor to
precaution and vigilance which the circumstances make the delivery.
justly demand, whereby such other person suffers § If the thing is indeterminate or generic, he may ask
injury. (Judge Cooley) that the obligation be complied with at the expense
of the debtor.
Test of Negligence
§ For the existence of negligence, the following are § If the obligor delays, or has promised to deliver the
necessary: same thing to two or more persons who do not have
o a duty on a party of the defendant to protect the same interest, he shall be responsible for any
the plaintiff from the injury of which the letter fortuitous event until he has effected the deliver.
complains; (1906)
o a failure to perform that duty; and
o an injury to the plaintiff through such failure. ART. 1166. The obligation to give a determinate thing
includes that of delivering all its accessions and
Kinds of Negligence accessories, even though they may not have been
§ Culpa Aquiliana also known as quasi-delict (culpa- mentioned. (1097a)
extra contractual) or negligence as a source of
obligation. Obligations of the Debtor to Give a Determinate
§ Culpa contractual or negligence in the performance Thing
of a contract. 1. To preserve or take care of the thing with the proper
§ Culpa criminal – negligence resulting in a criminal act diligence of a good father of a family. It means the
ordinary diligence that a prudent man would exercise
An illustration showing this difference is founding in taking care of his own property taking into
Gutierrez vs. Gutierrez, 56 Phil 177- consideration the nature of the obligation, of the
While trying to pass each other on a narrow bridge, a passenger time and of the place, like a person who is obliged to
truck and private automobile collided, and the plaintiff, a deliver a determinate horse to another should,
passenger in the truck, was injured. pending its delivery, preserve it by taking care of the
same as if the horse is his own.
The owner of the passenger truck was made a defendant,
although a driver was driving the truck and the owner of the car
was also made a defendant, although he was not in the car but
To deliver the object or thing when the obligation to
which was being driven by his 18 year old son and in which deliver arises, including:
members of his family were then riding. The court found both Fruits of the thing if any. Kinds of fruits: Natural;
drivers negligent, basing the liability of the owner of the truck industrial or civil.
to the plaintiff on the contract of carriage; while the liability of § Natural - spontaneous product of the soil;
the owner of the car was based on Quasi-delict of the Civil Code. the young and other products of animal. E.g.
As against the owner of the truck, there was Culpa contractual, tress, plants on lands without he intervention
while as against the owner of the car there was culpa Aquiliana.
of man.
§ Industrial - produced by lands of any king
through cultivation and labor. E.g. sugar
Lesson 2: Nature and Effect of Obligations
cane, vegetables, rice.
ART. 1163. Every person obliged to give something is
§ Civil - derived by virtue of juridical relations.
also obliged to take care of it with the proper diligence of
E.g., rents of a building; prices of leases of
a good father of a family, unless the law or the stipulation
lands and other similar income.
of the parties requires another standard of care. (1904a)

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2. Accessions and accessories. § Being a personal positive obligation, The creditor has
§ Accession – is the right pertaining to the the right to secure the services of third person to
owner of a thing over its products and perform the obligation at the expense of the debtor
whatever is attached thereto either naturally under the following instances:
or artificially. o When the debtor fails to do the obligation;
§ Example- o When the debtor performs the obligation but
o Accretion which refers to the gradual contrary to the tenor; or
and addition of sediment to the shore by o When the obligor poorly performs the
action of water. obligation.
o Accessories – are those things which are
joined attached to the principal object as ART. 1168. When the obligation consists in not doing,
ornament or to render it perfect. and the obligor does has been forbidden him, it shall also
§ Example- be undone at his expense, (1099a)
o Radio attached to a car; or key to a car.
Obligation of the Debtor NOT To Do
3. To be liable for damages in case of breach of § This is negative personal obligation which is
obligation (Art. 1170, NCC) consisting of an obligation, of not doing something.
§ When creditor acquire a right to the thing to If the debtor does what has been forbidden him to
be delivered and its fruits- do, the obligee can ask the debtor to have it undone.
o The creditor has a right to the fruits If it is impossible to undo what was done, the remedy
of the thing from the time the of the injured party is for an action of damages.
obligation to deliver it arises. Example
However, he shall acquire no real A bought a land from B. It was stipulated that A would not
right over it until the same have been construct a fence in a certain portion of his land adjoining that
delivered to him. (Art. 1164, NCC) land sold by B. Should A construct a fence in violation of the
o Example – a binds himself to sell his agreement, B. can bring an action to have the fence remove at
horse to B for fro P10, 000. No date nor the expense of A.
condition is stipulated for delivery of the
horse. Later, the horse gave birth to a ART. 1169. Those oblige to deliver or to do something
colt. A has right to the colt, if B has not incur in delay from the time the obligee judicially or extra
paid the horse. Before delivery, B does - judicially demands from theme the fulfillment of their
not acquire ownership over it. obligation.

Definition of Terms However, the demand by the creditor shall not be

1. Determinate thing – a thing is determinate when it is necessary in order that delay may exist:
particularly designated or physically segregated from
all others from the same class. (Art. 1460, NCC) 1) When the obligation or the law expressly
2. Indeterminate or generic thing – A thing is generic declares; or
when it refers to a class or thing or genus and cannot 2) When from the nature and the circumstances of
be designated with particularity. (Art. 1460, NCC) the obligation it appears that the destination of
3. Fortuitous Events – those events which could not be the time when the thing is to be delivered or the
foreseen or which though foreseen were inevitable. service is to rendered was controlling motive for
(Art. 1174, NCC) the establishment of the contract; or
3) When demand would be useless, as when the
Art. 1167. If a person obliged to do something fails to obligor has rendered it beyond his power to
do it, the same shall be executed at his cost. perform.
This same rule shall be observed if he does it in
contravention of the tenor of the obligation. Furthermore, In reciprocal obligations, neither party incurs in delay if
it may be decreed that what has been poorly done be the other does not comply in a proper manner with what
undone. (1098) is incumbent upon him. From the moment one of the

Obligation of the Debtor To Do

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 Law on Obligations and Contracts

parties fulfills his obligation, delay by the other begins. obligation is lost or destroyed through the
(1100a) fault of the debtor, demand is not necessary.
5. In a reciprocal obligation, from the moment
Delay (Mora) one of the parties fulfills his obligation,
§ means a legal delay or default and it consists of delay to the other begins
failure discharge a duty resulting to one’s own § For instance, in a contract of sale, if the seller
disadvantaged. delivers the object to the buyer and the
§ The debtor incurred delay if: The debtor fails to buyer does not pay, then delay by the buyer
perform his obligation when it falls due; and A begins and vice versa, if the buyer pays and
demand has been made by the creditor judicially or the seller did not deliver the object, then the
extra judicially. seller is on delay.
Example –
Keisha obliged herself to deliver a determinate horse Kinds of Delay
to Nathan on June 20. this year. Keisha failed to § Mora solvendi – delay on the part of the debtor.
delivered on the agreed date, Is Keisha already on § Mora accipiendi – delay on the part of the creditor,
delay on June 20, only when Nathan makes a judicial
like when the creditor unjustifiably refused to accept
or extra-judicial demand and from such date of
payment at the time it was due, is in delay.
demand when Keisha is on default or delay.
§ Compensatio morae – delay both parties in a
§ However, there are instances when the demand by reciprocal obligation.
the Creditor is not necessary to place the debtor on
delay: ART. 1170. Those who in the performance of their
1. When the obligation expressly so provides obligations are guilty of fraud, negligence, or delay, and
§ The mere fixing of the period is not sufficient those who in any manner contravene the tenor thereof,
to constitute a delay. An agreement to the are liable for damages. (1101)
effect that fulfillment or performance is not
made when the obligation becomes due, ART. 1171. Responsibility arising from fraud is
default or delay by the debtor will demandable in all obligations. Any waiver of an action for
automatically arise. future fraud is void. (1120a)

2. When the law so provides ART.1172. Responsibility arising from negligence in the
§ The express provision of law that a debtor is performance of every kind of obligation is also
in default. For instance, taxes must be paid demandable, but such liability may be regulated by the
on the date prescribed by law, and demand courts, according to the circumstances. (1130)
is not necessary in order that the taxpayer is
liable for penalties. ART. 1173. The fault or negligence of the obligor
consists in the omission of that diligence which is required
3. When time is of the essence by the nature of the obligation and corresponds with the
§ Because time is the essential factor in the circumstances of the persons, of the time and of the
fulfillment of the obligation. Example, Keisha place. When negligence shows bad faith, the provisions
binds herself to sew the wedding gown of of articles 1171 and 2201, paragraph 2, shall apply.
Maya to be used by the latter on her wedding
date. Keisha did not deliver the wedding If the law or contract does not state the diligence of which
gown on the date agreed upon. Even without is to be observed in the performance, that which is
demand, Keisha will be in delay because time expected of a good father of a family shall be required.
of the essence. (1104a)

4. When demand would be useless Sources of Liability for Damages

§ When the debtor cannot comply his 1. Fraud (dolo) – is the intentional deception made by
obligation as when it is beyond his power to one person resulting in the injury of another.
perform. Like when the object of the

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 Law on Obligations and Contracts

§ The fraud referred to is incidental fraud, that is, loss suffered by him as he has duly proved. (Art.
fraud incident to the performance of a pre- 2199, NCC)
existing obligation. § Damages may be recovered:
o For loss or impairment of earning capacity
2. Negligence (culpa) – consists in the omission by the in cases of temporary or permanent
obligor of that diligence which is required by the personal injury;
nature of the obligation and corresponds with the o For injury, to the plaintiff’s business
circumstances of the person, of the time and of the standing or commercial credit.
place. (Art. 1173, NCC) 6. Liquidated damages – are those agreed upon by
parties to a contract to be paid in case of breach
3. Delay (Mora) – like when there has been judicial or thereof. (Art. 2226, NCC)
extra-judicial demand and the debtor does not
comply his obligation, delay will occur. Distinguish Fraud (Dolo) from Negligence (culpa)
1. Dolo – there is deliberate intent to cause damage or
4. In contravention of the tenor of the obligation – injury.
refers to the violation of the terms and conditions or Culpa – there is no deliberate intent to cause
defects in the performance of the obligation, like damage.
when a landlord fails to maintain a legal and peaceful
possession of a tenant being leased by the latter 2. Dolo – waiver of liability of future fraud is void.
because the landlord was not the owner and the real Culpa – waiver may in some cases be allowed.
owner wants to occupy the land, there is
contravention of the tenor of the obligation. 3. Dolo – fraud must be clearly proved.
Culpa – presumed from breach of contractual
Other sources of liability for damages obligation.
• Loss of the thing with the fault of debtor.
• Deterioration with the fault of debtor. (Art. 1189) 4. Dolo – liability cannot mitigated by the courts.
Culpa – may be reduced according to circumstances.
Kinds of Damages
1. Moral damages – include physical sufferings, mental ART. 1174. Except in cases expressly specified by the
anguish, fright, serious anxiety, besmirched law, or when it is otherwise declared by stipulation, or
reputation, wounded feeling, moral shock, social when the nature of the obligation requires the assumption
humiliation and similar injury. of risk, no person shall be responsible for those events
2. Exemplary damages – imposed by way of example which could not be foreseen, or which, though foreseen,
or correction for the public good. were inevitable (1105a)
§ Like in quasi-delicts, if the defendant acted with
gross negligence. (Art. 2231, NCC) Fortuitous event – is an event which cannot be foreseen
3. Nominal damages – are adjudicated in order that a or which though foreseen is inevitable.
right of the plaintiff, which has been violated by the Fortuitous event proper are acts of God such as volcanic
defendant, may be vindicated or recognized and not eruption, earthquake, lightning, etc. is now similar with
for the purpose of indemnifying the plaintiff for any force majeur or acts of man such as conflagration, war,
loss suffered by him. (Art. 2221, NCC) robbery, etc.
4. Temperate or moderate damages – are more than
nominal but less than compensatory damages may Requisite necessary to constitute fortuitous event
be recovered when the courts finds that its amount § The failure of the debtor to comply with the
cannot, from the nature of the case, be proved with obligation must be independent from the human will;
certainty. Pecuniary loss means loss of money, or of § The occurrence makes it impossible for the debtor to
something by which money or something of money fulfill the obligation on a normal manner, and the
value may be acquired. (Black Law Dict. P. 1131) obligor did not take part as to aggravate the injury
5. Actual or compensatory damages – except as of the creditor. (Vasquez v.C.A. G.R. 42926)
provided by law, or a stipulation, one is entitled to
an adequate compensation only for such pecuniary

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 Law on Obligations and Contracts

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

ART. 1175. Usurious transaction shall be governed by

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

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