Obligations and Contracts PDF

1 TITLE I OBLIGATIONS (Arts. 1156-1304.) Chapter I GENERAL PROVISIONS ARTICLE 1156. An obligation is...

1 TITLE I OBLIGATIONS (Arts. 1156-1304.) Chapter I GENERAL PROVISIONS ARTICLE 1156. An obligation is a juridical necessity to give, to do or not to do. (n) Meaning of obligation. The term obligation is derived from the Latin word “obligatio” which means a “tying” or “binding.” (1) It is a tie of law or a juridical bond by virtue of which one is bound in favor of another to render something — and this may consist in giving a thing, doing a certain act, or not doing a certain act. (2) Manresa defines the term as “a legal relation established between one party and another, whereby the latter is bound to the fulfillment of a prestation which the former may demand of him.” (8 Manresa 13.) (3) Article 1156 gives the Civil Code definition of obligation, in its passive aspect. Our law merely stresses the duty of the debtor or obligor (he who has the duty of giving, doing, or not doing) when it speaks of obligation as a juridical necessity. Meaning of juridical necessity. Obligation is a juridical necessity because in case of non-compliance, the courts of justice may be called upon to enforce its fulfillment or, in default thereof, the economic value that it represents. In a proper case, 1 2 OBLIGATIONS Art. 1156 the debtor may also be made liable for damages, which represent the sum of money given as a compensation for the injury or harm suffered by the creditor or obligee (he who has the right to the performance of the obligation) for the violation of his rights. In other words, the debtor must comply with his obligation whether he likes it or not; otherwise, his failure will be visited with some harmful or undesirable legal consequences. If obligations were not made enforceable, then people can disregard them with impunity. If an obligation cannot be enforced, it may be only a natural obligation. Nature of obligations under the Civil Code. Obligations which give to the creditor or obligee a right of action in courts of justice to enforce their performance are known as civil obligations. They are to be distinguished from natural obligations which, not being based on positive law but on equity and natural law, do not grant a right of action to enforce their performance although in case of voluntary fulfillment by the debtor, the latter may not recover what has been delivered or rendered by reason thereof. (Art.* 1423.) Natural obligations are discussed under the Title dealing with “Natural Obligations.” (Title III, Arts. 1423-1430.) Essential requisites of an obligation. An obligation as defined in Article 1156 is constituted upon the concurrence of the four (4) essential elements thereof, namely: (1) A passive subject (called debtor or obligor) or the person who is bound to the fulfillment of the obligation; he who has a duty; (2) An active subject (called creditor or obligee) or the person who is entitled to demand the fulfillment of the obligation; he who has a right; (3) Object or prestation (subject matter of the obligation) or the con- duct required to be observed by the debtor. It may consist in giving, doing, or not doing. (see Art. 1232.) Without the prestation, there is nothing to perform. In bilateral obligations (see Art. 1191.), the parties are reciprocally debtors and creditors; and *Unless otherwise indicated, refers to article in the Civil Code. Art. 1156 GENERAL PROVISIONS 3 (4) A juridical or legal tie (also called efficient cause) or that which binds or connects the parties to the obligation. The tie in an obligation can easily be determined by knowing the source of the obligation. (Art. 1157.) EXAMPLE: Under a building contract, X bound himself to construct a house for Y for P1,000,000.00. Here, X is the passive subject, Y is the active subject, the building of the house is the object or prestation, and the agreement or contract, which is the source of the obligation, is the juridical tie. Suppose X had already constructed the house and it was the agreement that Y would pay X after the construction is finished. X, then, becomes the active subject and Y, the passive subject. Form of obligation. (1) As a general rule, the law does not require any form in obligations arising from contracts for their validity or binding force. (see Art. 1356.) (2) Obligations arising from other sources (Art. 1157.) do not have any form at all. Obligation, right, and wrong (cause of action) distinguished. (1) Obligation is the act or performance which the law will enforce. (2) Right, on the other hand, is the power which a person has under the law, to demand from another any prestation. (3) A wrong (cause of action), according to its legal meaning, is an act or omission of one party in violation of the legal right or rights of another, causing injury to the latter;1 1 In a breach of contract, the contract violated is the subject matter, while the breach there- of by the obligor is the cause of action. The subject matter is the item with respect to which the controversy has arisen or concerning which the wrong has been done, and is ordinarily the right, the thing or the contract under dispute. (Bachrach Corporation vs. Court of Appeals, 296 SCRA 487 ; Dela Rosa vs. Mendiola, 401 SCRA 704.) 4 OBLIGATIONS Art. 1156 Essential elements of cause of action. (1) Its essential elements are: (a) a legal right in favor of a person (creditor/plaintiff) by whatever means and under whatever law it arises or is created; (b) a correlative legal obligation on the part of another (debtor/defendant) to respect or not to violate said right; and (c) an act or omission in breach or violation of said right by the defendant with consequential injury or damage to the plaintiff for which he may maintain an action for the recovery of damages or other appropriate relief. (see Ma-ao Sugar Central Co. vs. Bar- rios, 79 Phil. 66 ; Teves vs. People’s Homesite and Housing Corp., 23 SCRA 1141 ; Development Bank of the Phils. vs. Pundogar, 218 SCRA 118 ; Parañaque King Enterprises vs. Court of Appeals, 269 SCRA 727 ; Nadela vs. City of Cebu, 411 SCRA 315.) (2) If any of these elements is absent, the complaint becomes vulnerable to a motion to dismiss on the ground of failure to state a cause of action. (San Lorenzo Village Assoc., Inc. vs. Court of Appeals, 288 SCRA 115 ; Uy vs. Evangelista, 361 SCRA 95.) The presence of a cause of action rests on the sufficiency, and not on the veracity, of the allegations in the complaint, which will have to be examined during the trial on the merits. (Pioneer International, Ltd. vs. Guadiz, Jr., 535 SCRA 584.) The test is whether the material allegations of the complaint, assuming to be true, state ultimate facts which constitutes plaintiff’s cause of action such that plaintiff is entitled to a favorable judgment as a matter of law. (Rovels Enterprises, Inc. vs. Ocampo, 391 SCRA 176.) (3) A cause of action only arises when the last element occurs, i.e., at the moment a right has been transgressed. (a) It is to be distinguished from right of action or the right to commence and maintain an action, in that the former is governed by the procedural law while the latter depends on substantive law. The right of action springs from the cause of action, but does not accrue until all the facts which constitute the cause of action have occurred. (Multi-Realty Dev. Corp. vs. Makati Tuscany Condo- minium Corp., 491 SCRA 9 ; Borbe vs. Calalo, 535 SCRA 89.) The action shall be brought in the name of the party who by law is entitled to the right to be enforced. Art. 1156 GENERAL PROVISIONS 5 (b) An obligation on the part of a person cannot exist without a corresponding right existing in favor of another, and vice-versa, for every right enjoyed by a person, there is a corresponding obligation on the part of another to respect such right. ILLUSTRATIVE CASE: S rejected or cancelled a contract to sell his property even before the arrival of the period in the exercise of the option to buy by the purchaser who has already made a downpayment. Facts: S and B entered into a contract to sell, whereby B, after making a downpayment, was given the option to pay the balance of the purchase price of a parcel of land. Later, S “rejected the contract to sell’’ even before the arrival of the period for the exercise of said option on the ground that the terms and conditions of the contract are grossly disadvantageous and highly prejudicial to his interest. S sent two (2) checks to B in an apparent effort to return the downpayment. S contends that the complaint was prematurely filed because at the time of the institution of the complaint, B has yet to exercise his option under the “Option of Buyer’’ clause of the contract. Issue: Has B a cause of action against S for prematurity? Held: Yes. (1) All the elements of a cause of action are present. — First, there is a legal right in favor of B, i.e., the right to complete the payment of the purchase price should he choose to do so; there is an obligation on the part of S to sell the subject property exclusively to B upon full payment of the purchase price; and there was a breach of S’s obligation to sell the property, when S rejected the contract to sell even before B could exercise his option to buy notwithstanding that he had already made a downpayment. (2) S rejected contract to sell in no uncertain terms. — The fact that the rejection or cancellation of the contract by S was not made judicially or by notarial act (see Art. 1592.) is of no moment. It is enough for purposes of determining the existence of a cause of action that S has declared in no uncertain terms his refusal to be bound by the contract to sell. Such declaration, coupled with S’s act of returning B’s down payment, clearly indicates S’s rejection of the contract to sell. (Leberman Realty Corporation vs. Typingco, 293 SCRA 316.) Cause of action based upon a written contract. Actions based upon a written contract should be brought within 10 years from the time the right of action accrues. (Art. 1144.) The accrual 6 OBLIGATIONS Art. 1156 refers to the cause of action. Accordingly, an action based on a contract accrues only when an actual breach or violation thereof occurs. (China Banking Corp. vs. Court of Appeals, 461 SCRA 162 ; see Art. 1169.) Therefore, the period of prescription commences, not from the date of execution of the contract but from the occurrence of the breach. The cause of action resulting from breach of contract is dependent on the facts of each particular case. (Pilipinas Shell Petroleum Corpo- ration vs. John Bordman Ltd., 473 SCRA 151.) (1) In an action to rescind a contract of sale on installment basis, for non-payment, the cause of action arises at the time the last installment is not paid. (Nabus vs. Court of Appeals, 193 SCRA 732.) (2) Where an overdraft agreement stipulates that the obligation is payable on demand, the breach starts only when demand is made. (Elido vs. Court of Appeals, 216 SCRA 637 ; China Banking Corporation vs. Court of Appeals, supra.) (3) In a contract of loan with real estate mortgage, whereby the creditor could unilaterally increase the interest rate, where the creditor foreclosed the mortgage when the debtor failed to pay the loan, the cause of action for the annulment of the foreclosure sale should be counted from the date the debtor discovered the increased interest rate (Banco Filipino Savings & Mortgage Bank vs. Court of Appeals, 388 Phil. 27, 332 SCRA 241.) (4) Where the agreement to buy and sell was conditioned upon the conduct of a preliminary survey of the land to verify, whether it contained the area stated in the tax declaration, the right of action for specific performance arose only when the plaintiff discovered the completion of the survey. (Cole vs. Gregorio, 202 Phil. 226, 116 SCRA 670.) (5) With respect to money claims arising from a contract of employment, which would prescribe in three (3) years from the time the cause of action accrued, the cause of action would arise from the date the employer made a definite denial of the employee’s claim, for prior to such denial, it is deemed that the issues had not yet been joined because the employee could have still been reinstated (Serrano vs. Court of Appeals, 415 Phil. 447, 363 SCRA 223.) (6) In an action for reformation of a contract, where the plaintiff alleged, among others, that the contract was one-sided in favor of Art. 1156 GENERAL PROVISIONS 7 the defendant, and that certain events had made the arrangement inequitable, the cause of action for reformation would arise only when the contract appeared disadvantageous. (Naga Telephone Co. vs. Court of Appeals, 230 SCRA 351.) (7) The nature of the product sold is a major factor in determining when the cause of action has accrued. For example, when fuel oil is delivered in drums, a buyer readily assumes that the agreed volume can be and actually is, contained in those drums. He is not expected to make a meticulous measurement of each and every delivery. In case of short deliveries, the cause of action will arise only from the discovery of the same with certainty. (Pilipinas Shell Petroleum Corporation vs. John Bordment, Ltd., supra.) Injury, damage, and damages distinguished. The words “injury,” “damage,’’ and “damages’’ are sometimes used synonymously, although there is a material difference among them. (1) Injury is the illegal invasion of a legal right; it is the wrongful act or omission which causes loss or harm to another, while damage is the loss, hurt, or harm which results from the injury. On the other hand, damages denote the sum of money recoverable as amends for the wrongful act or omission; and (2) Injury is the legal wrong to be redressed, while damages are the recompense or compensation awarded or recoverable for the damage or loss suffered. (Custodio vs. Court of Appeals, 253 SCRA 483.) Existence of one without the other. There may be injury without damage and damage without injury. (1) Proof of loss for injury. — A wrongful violation of his legal right is not sufficient to entitle a person to sue another in a court of justice for the enforcement or protection of said right. As a rule, there must be, in addition, loss or damage caused to him by the violation of his right. But except for actual or compensatory damages (Art. 2199.), no pecuniary proof is necessary in order that moral, nominal, temperate, liquidated, or exemplary damages may be awarded. (Art. 2216.) 8 OBLIGATIONS Art. 1156 (2) Liability for damages of a person for exercising his legal rights. — A person has the right to take all legal steps to enforce his legal and/ or equitable rights. One who makes use of his legal right does no in- jury. Qui jure suo utitur mullum damnum facit. If damage results from a person’s exercising his legal rights, it is damnum absque injuria (dam- age without injury). (Auyong Hian vs. Court of Appeals, 59 SCRA 110.) The plaintiff must establish that the damage to him resulted from a breach or violation of legal duty which the defendant owned to him; otherwise, the consequences must be borne by the plaintiff alone. In other words, in order that the law will give redress for an act (or omission) causing damage, that act must be not only hurtful, but wrongful.2 (Custodio vs. Court of Appeals, supra; see Philippine National Bank vs. Court of Appeals, 367 SCRA 198.) ILLUSTRATIVE CASE: Acts of importer contesting forfeiture, delay in the delivery of goods to highest bidder. Facts: X imported certain goods. The Collector of Customs declared the goods forfeited in favor of the government and ordered the sale thereof at public auction. The bid of Y was approved and the goods were awarded to him. Under the law, X has the right to have the decision of the Collector of Customs reviewed by the Commissioner of Customs, and from the decision of the latter, to appeal to the Court of Tax Appeals (Secs. 2313, 402, Tariff and Customs Code.), and from the latter’s decision, to the Supreme Court. X will be prejudiced if the sale is not set aside. (see Art. 1397.) Issue: Is X liable to Y for damages from the consequent delay in the delivery of the goods? Held: Such delay is an incident to the exercise by X of his right to contest the forfeiture and the sale of his goods. (see Auyong Hian vs. Court of Appeals, supra.) 2 Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. The principle of damnum absque injuria does not apply when there is an abuse of a per- son’s right. Article 19 prescribes a “primordial limitation on all rights’’ by setting certain stan- dards that must be observed in the exercise thereof. It does not permit an abuse of rights which is committed when the defendant acts with bad faith or intent to prejudice the plaintiff in the exercise of a right. Such abuse will give rise to liability for damages. Good faith, how- ever, is presumed. Art. 1157 GENERAL PROVISIONS 9 Kinds of obligation according to subject matter. From the viewpoint of the subject matter, obligation may either be: (1) Real obligation (obligation to give) or that in which the subject matter is a thing which the obligor must deliver to the obligee; or (2) Personal obligation (obligation to do or not to do) or that in which the subject matter is an act to be done or not to be done. There are thus two (2) kinds of personal obligation: (a) Positive personal obligation or obligation to do or to render service (see Art. 1167.); and (b) Negative personal obligation or obligation not to do (which naturally includes obligations “not to give”). (see Art. 1168.) ART. 1157. Obligations arise from: (1) Law; (2) Contracts; (3) Quasi-contracts; (4) Acts or omissions punished by law; and (5) Quasi-delicts. (1089a) Sources of obligations. An obligation imposed on a person and the corresponding right granted to another must be rooted in at least any of the following sources: (1) Law. — when they are imposed by the law itself, e.g., obligation to pay taxes; obligation to support one’s family (see Art. 195, Family Code.); (2) Contracts. — when they arise from the stipulation of the parties (Art. 1306.), e.g., the obligation to repay a loan by virtue of an agreement; (3) Quasi-contracts. — when they arise from lawful, voluntary and unilateral acts and which are enforceable to the end that no one shall be unjustly enriched or benefited at the expense of another (Art. 2142.), e.g., the obligation to return money paid by mistake or which is not due. (Art. 2154.) In a sense, these obligations may be considered as arising from law; 10 OBLIGATIONS Art. 1157 (4) Crimes or acts or omissions punished by law. — when they arise from civil liability which is the consequence of a criminal offense (Art. 1161.), e.g., the obligation of a thief to return the car stolen by him; the duty of a killer to indemnify the heirs of his victim; and (5) Quasi-delicts or torts. — when they arise from damage caused to another through an act or omission, there being fault or negligence, but no contractual relation exists between the parties (Art. 2176.), e.g., the obligation of the head of a family that lives in a building or a part thereof to answer for damages caused by things thrown or falling from the same (Art. 2193.); the obligation of the possessor of an animal to pay for the damage which it may have caused. (Art. 2183.) The enumeration by the law is exclusive; hence, there is no obligation as defined in Article 1156, if its source is not any of those enumerated.3 Sources classified. The law enumerates five (5) sources of obligations. They may be classified as follows: (1) Those emanating from law; and (2) Those emanating from private acts which may be further subdivided into: (a) those arising from licit acts, in the case of contracts and quasi-contracts; and (b) those arising from illicit acts, which may be either punishable by law in the case of delicts, or not punishable in the case of quasi-delicts. Actually, there are only two (2) sources: law and contracts, because obligations arising from quasi-contracts, crimes, and quasi-delicts are 3 The principle that no person may unjustly enrich himself at the expense of another is embodied in Article 22 of the Civil Code. This principle applies not only to substantive rights but also to procedural remedies. One condition for invoking this principle is that the aggrieved party has no other action based on contract, quasi-contract, crime, quasi-delict or any other provision of law. (Reyes vs. Lim, 408 SCRA 560 ; A. Tolentino, Civil Code of the Philippines, 1990, pp. 77,82.) Article 22 provides: “Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him.” A practice or custom is, as a general rule, not a source of a legally demandable or enforce- able right. (Makati Stock Exchange, Inc. vs. Campos (585 SCRA 120.) Art. 1158 GENERAL PROVISIONS 11 really imposed by law. (see Leung Ben vs. O’Brien, 38 Phil. 182.) Where the source of the obligation is a private act, the law merely recognizes or acknowledges the existence of the obligation. ILLUSTRATIVE CASE: Liability of sheriff lawfully enforcing a judgment in an ejectment suit. Facts: A judgment was rendered by a justice of the peace court (now municipal court) in favor of X who brought an ejectment suit against Y, the owner of the house built on the land of X. Z, the deputy sheriff who executed the judgment, was obliged to remove the house of Y from the land according to the usual procedure in the action for ejectment. Issue: Is Y entitled to indemnity arising from the destruction of his house? Held: No proof has been submitted that a contract had been entered into between plaintiff (Y) and the defendants (X and Z) or that the latter had committed illegal acts or omissions or incurred in any kind of fault or negligence, from any of which an obligation might have arisen on the part of X and Z to indemnify Y. For this reason, the claim for indemnity, on account of acts performed by the sheriff, while enforcing a judgment, cannot under any consideration be sustained. (Navales vs. Rias, 8 Phil. 508.) 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 fore- seen, by the provisions of this Book. (1090) Legal obligations. Article 1158 refers to legal obligations or obligations arising from law. They are not presumed because they are considered a burden upon the obligor. They are the exception, not the rule. To be demandable, they must be clearly set forth in the law, i.e., the Civil Code or special laws. Thus: (1) An employer has no obligation to furnish free legal assistance to his employees because no law requires this, and, therefore, an em- ployee may not recover from his employer the amount he may have paid a lawyer hired by him to recover damages caused to said employ- ee by a stranger or strangers while in the performance of his duties. (De la Cruz vs. Northern Theatrical Enterprises, 95 Phil. 739.) 12 OBLIGATIONS Art. 1158 (2) A private school has no legal obligation to provide clothing allowance to its teachers because there is no law which imposes this obligation upon schools. But a person who wins money in gambling has the duty to return his winnings to the loser. This obligation is pro- vided by law. (Art. 2014.) Under Article 1158, special laws refer to all other laws not contained in the Civil Code. ILLUSTRATIVE CASES: 1. Liability of husband for medical assistance rendered to his wife but contracted by his parents. Facts: X, by virtue of having been sent for by B and C, attended as physician and rendered professional services to a daughter-in-law of B and C during a difficult and laborious childbirth. Issue: Who is bound to pay the bill: B and C, the parents-in-law of the patient, or the husband of the latter? Held: The rendering of medical assistance in case of illness is comprised among the mutual obligations to which spouses are bound by way of mutual support.4 If spouses are mutually bound to support each other, there can be no question that when either of them by reason of illness should be in need of medical assistance, the other is to render the unavoidable obligation to furnish the services of a physician and is liable for all expenses, including the fees for professional services. This liability originates from the above-mentioned mutual obligation which the law has expressly established between the married couple. B and C not having personally bound themselves to pay are not liable. (Pelayo vs. Lauron, 12 Phil. 453.) —-— —-— —-— 2. Title to property purchased by a person for his own benefit but paid by another. Facts: X, of legal age, bought two vessels from B, the purchase price thereof being paid by C, X’s father. Subsequently, differences arose between X and C. The latter brought action to recover the vessels, he having paid the purchase price. Issue: Is there any obligation on the part of X to transfer the ownership of the vessel to C? Held: None. If any such obligation was ever created on the part of X, said obligation must arise from law. But obligations derived from law 4 See Arts. 194, 195, Family Code. Art. 1159 GENERAL PROVISIONS 13 are not presumed. Only those expressly determined in the Civil Code or in special laws are demandable. Whatever right C may have against X either for the recovery of the money paid or for damages, it is clear that such payment gave him no title, either legal or equitable, to these vessels. (Martinez vs. Martinez, 1 Phil. 647.) Note: If X were a minor, the vessels would belong to C in ownership and usufruct under Article 161 of the old Civil Code. (now Art. 324.5) Un- der Article 1448,6 the payment may give rise to a gift or an implied trust. ART. 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. (1091a) Contractual obligations. The above article speaks of contractual obligations or obligations arising from contracts or voluntary agreements. A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. (Art. 1305.) It is the formal expression by the parties of their rights and obligations they have agreed upon with respect to each other. (1) Binding force. — Obligations arising from contracts are governed primarily by the agreement of the contracting parties. Once perfected, valid contracts have the force of law between the parties who are bound to comply therewith in good faith, and neither one may without the consent of the other, renege therefrom. (Tiu Peck vs. Court of Appeals, 221 SCRA 618.) In characterizing contracts as having the force of law between the parties, the law stresses the obligatory nature of a binding and valid agreement (William Golangco Construction Corporation vs. Phil. Commercial International Bank, 485 SCRA 293.), absent any allegation that it is contrary to law, morals, good customs, public order, or public policy. (Art. 1306.) 5 This provision is not contained in the Family Code. 6 Art. 1448. There is an implied trust when property is sold, and the legal estate is granted to one party but the price is paid by another for the purpose of having the beneficial interest of the property. The former is the trustee, while the latter is the beneficiary. However, if the person to whom the title is conveyed is a child, legitimate or illegitimate, of the one paying the price of the sale, no trust is implied by law, it being disputably presumed that there is a gift in favor of the child. 14 OBLIGATIONS Art. 1159 (a) The law,7 recognizing the obligatory force of contracts (Arts. 1139, 1308, 1315, 1356.), will not permit a party to be set free from liability for any kind of misperformance of the contractual undertaking or a contravention of the tenor thereof. (Art. 1170.) The mere proof of the existence of the contract and the failure of its compliance justify, prima facie, a corresponding right of relief.8 (FGU Insurance Corp. vs. G.P. Sarmiento Trucking Corp., G.R. No. 141910, Aug. 6, 2002.) (b) In law, whatever fairly puts a person on inquiry is sufficient notice, where the means of knowledge are at hand, which if pursued by proper inquiry, the full truth might have been ascertained. Thus, where a purchaser of a memorial lot, on installment basis, had full knowledge of the terms and conditions of the sale, including the rules and regulations issued by the seller governing the memorial park, to which she obliged herself to abide, cannot later feign ignorance of said rules. (Dio vs. St. Ferdinand Memorial Park, Inc., 509 SCRA 453.) (c) If it occurs to one of the contracting parties to allege some defect in a contract as a reason for invalidating it, such alleged defect must be proved by him by convincing evidence since its validity or compliance cannot be left to will of one of them. (see Art. 1308.) “An experienced businessman who signs important le- gal papers cannot disclaim the consequent liabilities therefor after being a signatory thereon.’’ (Blade International Marketing Corp. vs. Court of Appeals, 372 SCRA 333.) It behooves every con- tracting party to learn and to know the contents of an instrument before signing and agreeing to it. (Dio vs. St. Ferdinand Memorial Park, Inc., supra.) (d) Courts have no alternative but to enforce contracts as they were agreed upon and written when the terms thereof are clear 7 The rule of lex loci contractus (the law of the place where the contract is made) governs in cases of Filipino workers whose employment contracts were approved by the Philippine Overseas Employment Administration (POEA) and were entered into and perfected in the Philippines. (Philippine Employment Services and Resources, Inc. vs. Paramo, 427 SCRA 732.) 8 It has been consistently ruled that a bonus is not a demandable and enforceable obliga- tion, unless the giving of such bonus has been the company’s long and regular practice, i.e., the giving of the bonus should have been done over a long period of time, and must be shown to have been consistent and deliberate. (Phil. Appliance Corp. vs. Court of Appeals, 430 SCRA 525.) Art. 1159 GENERAL PROVISIONS 15 and leave no room for interpretation. (Art. 1370.). This does not mean, however, that contract is superior to the law. Although a contract is the law between the contracting parties, the provisions of positive law which regulate such contracts are deemed included and shall limit and govern the relations between the parties. (Asia World Recruitment, Inc. vs. National Labor Relations Commission, 313 SCRA 1.) (e) A compromise agreement is immediately executory and not appealable, except for vices of consent (Art. 1330.) or forgery. Upon the parties, it has the effect and the authority of res judicata, once entired into. To have the force of law between the parties, it must comply with the requisites of contracts. (Art. 1318.) It may be either extrajudicial (to prevent litigation) or judicial (to end a litigation). (Magbanua vs. Uy, 458 SCRA 184.) (2) Requirements of a valid contract. — As a source of obligation, a contract must be valid and enforceable. (see Art. 1403.) A contract is valid (assuming all the essential elements are present, Art. 1318.) if it is not contrary to law, morals, good customs, public order, and public policy. It is invalid or void if it is contrary to law, morals, good customs, public order, or public policy. (Art. 1306; see Phoenix Assurance Co., Ltd. vs. U.S. Lines, 22 SCRA 675.) In the eyes of the law, a void contract does not exist. (Art. 1409.) Consequently, no obligations will arise. (3) Where contract requires approval by the government. — Where a contract is required to be verified and approved by the government before it can take effect (e.g., contract for overseas employment must be approved by the Philippine Overseas Employment Administration [POEA] under Art. 21[c] of the Labor Code), such contract becomes the law between the contracting parties only when approved, and where there is nothing in it which is contrary to law, etc., its validity must be sustained. (Intetrod Maritime, Inc. vs. National Labor Relations Com- mission, 198 SCRA 318.) (4) Compliance in good faith. — It means compliance or perfor- mance in accordance with the stipulations or terms of the contract or agreement.9 Good faith and fair dealing must be observed to prevent 9 Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. 16 OBLIGATIONS Art. 1159 one party from taking unfair advantage over the other. Evasion by a party of legitimate obligations after receiving the benefits under the contract would constitute unjust enrichment on his part. (see Royal Lines, Inc. vs. Court of Appeals, 143 SCRA 608.) (5) Liability for breach of contract. — Although the contract imposes no penalty for its violation, a party cannot breach it with impunity. Our law on contracts recognizes the principle that actionable injury inheres in every contractual breach. (Boysaw vs. Interphil Promotions, Inc., 148 SCRA 635 ; see Arts. 1170, 1191.) Interest may, in the discretion of the court, on equitable grounds, be allowed upon damages awarded for breach of contract. (see Art. 2210.) The failure of either party to a contract to demand performance of the obligation of the other for an unreasonable length of time may render the contract ineffective where the contract does not provide for the period within which the parties may demand the performance of their respective undertakings but the parties did not contemplate that the same could be made indefinitely. (Villamor vs. Court of Appeals, 202 SCRA 607.) The mere failure of a party to respond to a demand letter in the absence of other circumstances making an answer requisite or natural does not constitute an implied admission of liability. (Phil. First Insurance Co., Inc. vs. Wallen Phils. Shipping, Inc., 582 SCRA 457.) (6) Preservation of interest of promisee. — A breach upon the contract confers upon the injured party a valid cause for recovering that which may have been lost or suffered. The remedy serves to preserve the interest of the promisee of having the benefit of his bargain, or in being reimbursed for loss caused by reliance on the contract, or in having restored to him any benefit that he has conferred on the other party. The effect of every infraction is to create a new duty, that is, to make recompense to the one who has been injured by the failure of an- other to observe his contractual obligation unless he can show extenu- ating circumstances. (FGU Insurance Corporation vs. G.P. Sarmiento Trucking Corporation, 386 SCRA 312 ; see Art. 1170.) ILLUSTRATIVE CASES: 1. Binding force of an oral agreement inconsistent with a prior written one. Facts: X verbally agrees to pay Y the balance of an account in advance, notwithstanding the different stipulation of a prior written agreement. Art. 1159 GENERAL PROVISIONS 17 Issue: Is X bound to perform said obligation? Held: Yes. Since he agreed to pay Y the balance of the account independently of the terms of the written contract, he must perform his obligation to pay according to the tenor of his verbal agreement which has the force of law between them. (Hijos de I. de la Rama vs. Inventor, 12 Phil. 45.) —-— —-— —-— 2. Validity of contract stipulating that in case of failure of debtor to pay amount of loan, his property shall be considered sold to creditor. Facts: D borrowed from C money to be paid within a certain period, under the agreement that, if D fails to pay at the expiration of said period, the house and lot described in the contract would be considered sold for the amount of the loan. D failed to pay as promised. C brought action for the delivery of the house and lot. Issue: Are both contracts valid and, therefore, should be given effect? Held: Yes. The fact that the parties have agreed at the same time, in such a manner that the fulfillment of the promise of sale would depend upon the non-payment or return of the amount loaned has not produced any change in the nature and legal conditions of either contract, or any essential defect which would nullify them. As the amount loaned has not been paid and continues in possession of the debtor, it is only just that the promise of sale be carried into effect, and the necessary instruments be executed. That which is agreed to in a contract is law between the parties, and must be enforced. (Alcantara vs. Alinea, 8 Phil. 111.) Note: In the above case, the court found that no contract of mortgage, pledge, or antichresis was entered into. (see Arts. 2088, 2137.) —-— —-— —-— 3. Validity of contract for attorney’s fees where amount stipulated is unreasonable. Facts: D executed a promissory note in favor of C for the purchase price of a truck sold by the latter. In the note, D bound himself to pay an additional 25% as attorney’s fees in the event of becoming it necessary for C to employ counsel to enforce its collection. Issue: Has the court the power to ignore the contract as to attorney’s fees, considering that a contract has the force of law between the contracting parties? 18 OBLIGATIONS Art. 1159 Held: Yes. Where no special agreement is made by the parties with reference thereto, the courts are authorized to determine the amount to be paid to an attorney as reasonable compensation for his professional services; and even where parties have made a written agreement as to the fee, the courts have the power to ignore their contract, if the amount fixed is unconscionable or unreasonable, and to limit the fee to a reasonable amount.10 (Bachrach vs. Golingco, 35 Phil. 138.) —-— —-— —-— 4. A big corporation, to avoid cancellation of contract it has breached, pleaded considerations of equity. Facts: The contract between the parties (two big real estate corporations) was a contract to sell or conditional with title expressly reserved in S (seller) until the suspensive condition of full and punctual payment of the full price by B (buyer) shall have been met on pain of automatic cancellation of the contract upon failure to pay any of the monthly installments. B failed to pay the P5,000.00 monthly installments notwithstanding that it was punctually collecting P10,000.00 monthly rentals from the les- see of the property. Issue: The main issue posed by B is that there has been no breach of contract by it; and assuming there was, S was not entitled to rescind or resolve the contract without recoursing to judicial process. Held: B only pleads that it be given special treatment and that the cancellation of its contract be somehow rejected notwithstanding S’s clear right under the contract and the law to do so. The contract between S and B, entered into with the assistance of counsel and with full awareness of the import of its terms and conditions, is the binding law between them and equity cannot be pleaded by one who has not come with clean hands nor complied therewith in good faith but instead willfully breached the contract. “Its time to put an end to the fiction that corporations are people. The business of big corporations such as the protagonists at bar is business. They are bound by the lawful contracts that they enter into and they do not ask for nor are they entitled to considerations of equity.” (Luzon Brokerage Co., Inc. vs. Maritime Bldg. Co., Inc., 86 SCRA 305.) 10 The validity of contingent fee agreement in large measure depends on the reasonable- ness of the stipulated fees under the circumstances of each case. The reduction of unreason- able attorney’s fees is within the regulatory powers of the courts to protect clients from unjust charges. (Taganas vs. National Labor Relations Commission, 248 SCRA 133 ; see Sec. 13, Canons of Professional Ethics; Sec. 24, Rule 138, Rules of Court.) Art. 1160 GENERAL PROVISIONS 19 —-— —-— —-— 5. Corporation unconditionally undertook to redeem preferred shares at specified dates. Facts: The terms and conditions of the Purchase Agreement shows that the parties intended the repurchase of the preferred shares in question on the respective dates to be an absolute obligation made manifest by the fact that a surety was required to see to it that the obligation is fulfilled in the event of the corporation’s inability to do so. Defendant corporation contends that it is beyond its power and competence to redeem the preferred shares due to financial reverses. Issue: Can this contention serve as a legal justification for its failure to perform its obligation under the agreement? Held: No. The unconditional undertaking of the corporation does not depend upon its financial ability: it constitutes a debt which is defined “as an obligation to pay money at some fixed future time, or at a time which becomes definite and fixed by acts of either party and which they expressly or impliedly agree to perform in the contract.” The Purchase Agreement constitutes the law between the parties. (Lirag Textiles Mill, Inc. vs. Social Security System, 153 SCRA 338.) ART. 1160. Obligations derived from quasi-contracts shall be subject to the provisions of Chapter 1, Title XVII, of this Book. (n) Quasi-contractual obligations. Article 1160 treats of obligations arising from quasi-contracts or contracts implied in law. A quasi-contract is that juridical relation resulting from certain law- ful, voluntary and unilateral acts by virtue of which the parties become bound to each other to the end that no one will be unjustly enriched or benefited at the expense of another. (Art. 2142.) It is not, properly, a contract at all. In a contract, there is a meeting of the minds or consent; the parties must have deliberately entered into a formal agreement. In a quasi-contract, there is no consent but the same is supplied by fiction of law. In other words, the law consid- ers the parties as having entered into a contract, irrespective of their intention, to prevent injustice. Corollarily, if one who claims having enriched somebody has done so pursuant to a contract with a third party, his cause of action should be against the latter, who, in turn, 20 OBLIGATIONS Art. 1160 may, if there is any ground therefor, seek relief against the party ben- efited. (Cruz vs. J.M. Tuason & Co., Inc., 76 SCRA 543.) Quasi-contracts are governed by the Civil Code, more particularly, by Articles 2142-2175, Chapter I, Title XVII. ILLUSTRATIVE CASES: 1. When a party benefited at the expense of another not liable to the latter. Facts: By virtue of an agreement between X and Y, X assisted Y in improving a large tract of land which was later declared by the court as belonging to C. Issue: Has X the right to be reimbursed by Z for X’s services and expenses on the ground that the improvements are being used and enjoyed by Z? Held: No. From the language of Article 2142, it is obvious that a presumed quasi-contract cannot emerge as against one party when the subject matter thereof is already covered by an existing contract with another party. X’s cause of action should be against Y who, in turn, may seek relief against Z. (Cruz vs. J.M. Tuazon Co., Inc., supra.) —-— —-— —-— 2. Bank paid the seller of goods under an expired letter of credit but the goods subject thereof were voluntarily received and kept by the buyer which refused to pay the bank. Facts: X opened with B (bank) a domestic letter of credit (LC) in favor of Y for the purchase from the latter of hydraulic loaders. B paid Y for the equipment after the expiration of the letter of credit. X refused to pay B claiming that there was breach of contract by B which acted in bad faith in paying Y knowing that Y delivered the loaders to X after the expiry date of the subject LC. X offered to return the loaders to B which refused to take possession three (3) years after X accepted delivery, when B made a demand for payment. Issue: Was it proper for B to pay the LC which had long expired or been cancelled? Held: B should not have paid the LC which had become invalid upon the lapse of the period fixed therein. Be that as it may, X should pay B the amount B expended for the equipment belatedly delivered by Y and voluntarily received and kept by X. B’s right to seek recovery from X is Art. 1160 GENERAL PROVISIONS 21 anchored, not upon the inefficacious LC, but on Article 2142 of the Civil Code. X was not without fault in the transactions in view of its unexplained inaction for almost four (4) years with regard to the status of the ownership or possession of the loaders and the fact that it formalized its offer to return the equipment only after B’s demand for payment, which came more than three (3) years after X accepted delivery. When both parties to a transaction are mutually negligent in the per- formance of their obligations, the fault of one cancels the negligence of the other and as in this case, their rights and obligations may be deter- mined equitably under the law proscribing unjust enrichment. (Rodzssen Supply, Inc. vs. Far East Bank & Trust Co., 357 SCRA 618.) Kinds of quasi-contracts. The principal kinds of quasi-contracts are negotiorum gestio and solutio indebiti. (1) Negotiorum gestio is the voluntary management of the property or affairs of another without the knowledge or consent of the latter. (Art. 2144.) Thus, if through the efforts of X, a neighbor, the house of Y was saved from being burned, Y has the obligation to reimburse X for the expenses X incurred although Y did not actually give his consent to the act of X in saving his house on the principle of quasi-contract. This juridical relation does not arise in either of these instances: (a) When the property or business is not neglected or aban- doned, in which case the provisions of the Civil Code regarding unauthorized contracts (Arts. 1317, 1403, 1404.) shall govern; or (b) If, in fact, the manager has been tacitly authorized by the owner, in which case the rules on agency shall govern. (Art. 2144.) (2) Solutio indebiti is the juridical relation which is created when something is received when there is no right to demand it and it was unduly delivered through mistake. (Art. 2154.) The obligation to pay money mistakenly paid arises from the moment said payment was made, and not from the time the payee admits the obligation to reimburse. (Comm. of Internal Revenue vs. Esso Standard Eastern, Inc., 172 SCRA 364.) Under the principle, the government has to restore (credit or refund) to the taxpayer the amounts representing 22 OBLIGATIONS Art. 1160 erroneous payments of taxes. (Phil. Geothermal, Inc. vs. Comm. of Internal Revenue, 465 SCRA 308.) The quasi-contract of solutio indebiti is based on the ancient principle that no one shall enrich himself unjustly at the expense of another. Solutio indebiti applies where: (a) payment is made when there exists no binding relation between the payor, who has no duty to pay, and the person who received the payment; and (b) the payment is made through mistake11 and not through liberality or some other cause. (Power Commercial and Industrial Corp. vs. Court of Appeals, 274 SCRA 597 ; National Commercial Bank of Saudi Arabia vs. Court of Appeals, 396 SCRA 541 ; Moreño-Lenifer vs. Wolf, 144 SCRA 584 ; Bank of the Phil. Islands vs. Sarmiento, 484 SCRA 261.) ILLUSTRATIVE CASES: 1. Recovery of taxes paid under a mistake. Facts: X, a tax-exempt cooperative store, paid taxes to the City of Manila, believing that it was liable. Issue: May X recover the payment? Held: Yes, as it was made under a mistake. (UST Cooperative Store vs. City of Manila, 15 SCRA 656.) —-— —-— —-— 2. Recovery of backwages paid which are legally due. Facts: X, an employee of Cebu City, sued certain officials of the City for claim of backwages. Issue: May the City of Cebu successfully recover the payment later made by it to X on the ground that it was not made a party to the case? Held: No, because a judgment against a municipal officer in his of- ficial capacity binds the city. The city was under obligation to make the payment. It cannot, therefore, be said that the payment was made by rea- son of mistake. (City of Cebu vs. Piccio and Caballero, 110 Phil. 870.) 11 Art. 2163. It is presumed that there was a mistake in the payment if something which had never been due or had already been paid was delivered; but he from whom the return is claimed may prove that the delivery was made out of liberality or for any other just cause. (1901) Art. 1161 GENERAL PROVISIONS 23 (3) Other cases. — Other examples of quasi-contracts are provided in Article 2164 to Article 2175 of the Civil Code.12 The cases that have been classified as quasi-contracts are of infinite variety, and when for some reason recovery cannot be had on a true contract, recovery may be allowed on the basis of a quasi-contract in view of the peculiar circumstances or factual environment to the end that a recipient of benefits or favors resulting from lawful, voluntary and unilateral acts of another may not be unjustly enriched at the expense of the latter.13 (Phil. National Bank vs. Court of Appeals, 217 SCRA 347.) ART. 1161. Civil obligations arising from criminal offenses shall be governed by the penal laws,14 subject to the provisions of Article 2177,15 and of the pertinent provisions of Chapter 2, Preliminary Title on Human Relations,16 and of Title XVIII of this Book, regulating damages. (1092a) Civil liability arising from crimes or delicts. This article deals with civil liability arising from crimes or delicts. (1) The commission of an offense has a two-pronged effect: one, on the public as it breaches the social order and the other, upon the private victim as it causes personal sufferings or injury, each of which is addressed, respectively, by the imposition of heavier punishment on the accused and by an award of additional damages to the victim. (People vs. Catubig, 363 SCRA 621.) 12 Art. 2143. The provisions for quasi-contracts in this Chapter do not exclude other qua- si-contracts which may come within the purview of the preceding article. (n) 13 Quantum meruit allows recovery of the reasonable value regardless of any agreement as to value. It entitles the party to “as much as he reasonably deserves,’’ as distinguished from quantum valebant or to “as much as what is reasonably worth.’’ Recovery based on quantum meruit presents a justiciable question because its settlement requires the application of judg- ment and discretion and cannot be adjusted by simple arithmetical processes. (F.F. Mañacop Construction Co., Inc. vs. Court of Appeals, 266 SCRA 235.) The doctrine of quantum meruit prevents undue enrichment based on the equitable postulate that it is unjust for a per- son to retain benefit without paying for it. (Philippine National Bank vs. Shellink Planners, Inc., 473 SCRA 552.) 14 The pertinent provisions are Articles 100 to 113 of the Revised Penal Code. 15 Art. 2177. Responsibility for fault or negligence under the preceding article [Art. 2176, Note 19.] is entirely separate and distinct from the civil liability arising from negligence under the Penal Code. But the plaintiff cannot recover damages twice for the same act or omission of the defendant. (n) 16 Among the pertinent provisions are Articles 29 to 35 of the Civil Code. 24 OBLIGATIONS Art. 1161 (2) Oftentimes, the commission of a crime causes not only moral evil but also material damage. From this principle, the rule has been established that every person criminally liable for a felony17 is also civilly liable. (Art. 100, Revised Penal Code; see Albert, the Revised Penal Code Annotated, p. 276.) In crimes, however, which cause no material damage (like contempt, insults to person in authority, gambling, violations of traffic regulations, etc.), there is no civil liability to be enforced. But a person not criminally responsible may still be liable civilly. (Art. 29; Rules of Court, Rule 111, Sec. 2[c].) Reservation of right to recover civil liability. Under the present rule, only the civil liability arising from the offense charged is deemed instituted with the criminal action unless the offended party waives the civil action, reserves his right to institute it separately, or institutes the civil action prior to the criminal action. There is no more need for a reservation of the right to file the independent civil actions under Articles 32, 33, 34 and 2176 of the Civil Code. The reservation and waiver referred to refer only to the civil action for the recovery of the civil liability arising from the offense charged. This does not include recovery of civil liability under Articles 32, 33, 34 and 2176 of the Civil Code of the Philippines arising from the same act or omission which may be prosecuted separately even without a reservation. (DMPI Employees Credit Cooperative, Inc. vs. Velez, 371 SCRA 72 ; Hambon vs. Court of Appeals, 399 SCRA 255 ; see Secs. 1, 2, 3, Rule 111, Revised Rules of Criminal Procedure; see Notes 19, 25.) Scope of civil liability. The extent of the civil liability arising from crimes is governed by the Revised Penal Code and the Civil Code.18 This civil liability includes: (1) Restitution; (2) Reparation for the damage caused; and 17 A felony is an act or omission punishable by law. It is committed with criminal intent or by means of negligence. (Arts. 3, 365, Revised Penal Code.) 18 Articles 2202, 2204-2206, 2208, 2211, 2219-2220, 2222, and 2230 of the Civil Code govern the amount of damages recoverable by reason of crime. Art. 1162 GENERAL PROVISIONS 25 (3) Indemnification for consequential damages. (Art. 104, Revised Penal Code.) EXAMPLE: X stole the car of Y. If X is convicted, the court will order X: (1) to return the car (or to pay its value if it was lost or destroyed); (2) to pay for any damage caused to the car; and (3) to pay such other damages suffered by Y as a consequence of the crime. Where the trial court convicts an accused of a crime, without, however, ordering payment of any indemnity, it has been held that the Supreme Court, on appeal, may modify the decision by ordering indemnification of the offended party pursuant to Articles 100, 104(3), and 107 of the Revised Penal Code. (People vs. Peña, 80 SCRA 589 ; see Note 2.) ART. 1162. Obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2, Title XVII of this Book, and by special laws. (1093a) Obligations arising from quasi-delicts. The above provision treats of obligations arising from quasi-delicts or torts. (see Arts. 217619 to 2194.) 19 Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre- existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter. [on Quasi-delicts] The concept of quasi-delict as enunciated in Article 2176, includes not only injuries to persons but also damage to property. (Cinco vs. Canonoy, 90 SCRA 369.) The Supreme Court has held that “fault or negligence” in Article 2176 covers not only acts “not punishable by law” but also acts criminal in character, whether intentional and voluntary or negligent. Con- sequently, a separate civil action lies against the offender in a criminal act, whether or not he is found guilty or acquitted, provided, that the offended party is not allowed, if the offender is actu- ally charged also criminally, to recover damages on both scores, and would be entitled in such eventuality only to the bigger award of the two, assuming the awards made in the two cases vary. (Elcano vs. Hill, 77 SCRA 98 ; Virata vs. Ochoa, 81 SCRA 472.) Inasmuch as Articles 2176 and 2177 (see Note 2.) create a civil liability distinct and different from the civil action arising from the offense of negligence under the Revised Penal Code, no reservation of the right to file an independent civil action based on quasi-delict need be made in the criminal case. Section 2, Rule 111 of the Rules of Court is inoperative because of its inconsistency with Article 2177. Therefore, such right is not barred by the failure to reserve the same. But the action for enforcement of civil liability based on culpa criminal under Section 1, Rule 111 of the Rules of Court is deemed simul- taneously instituted with the criminal action, unless expressly waived or reserved for separate application by the offended party. (Mendoza vs. Arrieta, 91 SCRA 113.) 26 OBLIGATIONS Art. 1162 A quasi-delict20 is an act or omission by a person (tort feasor) which causes damage to another in his person, property, or rights giving rise to an obligation to pay for the damage done, there being fault or negligence but there is no pre-existing contractual relation between the parties.21 (Art. 2176.) Requisites of quasi-delict. Before a person can be held liable for quasi-delict, the following requisites must be present: (1) There must be an act or omission by the defendant; (2) There must be fault or negligence of the defendant; (3) There must be damage caused to the plaintiff; (4) There must be a direct relation or connection of cause and effect between the act or omission and the damage; and 20 It is the equivalent of tort in Anglo-American law. But “tort’’ under that system is much broader than the Spanish-Philippine concept of obligations arising from non-contractual negligence. “Tort’’ in Anglo-American jurisprudence includes not only negligence, but also intentional criminal acts, such as assault and battery, false imprisonment and deceit. In the general plan of the Philippine legal system, intentional and malicious acts are governed by the Revised Penal Code, although certain exceptions are made. (Report of the Code Commission, pp. 161-162.) However, the new Civil Code as enacted as well as rulings of the Supreme Court in a number of cases (supra), reveal an intent to adopt a broad interpretation of the provision on quasi-delicts in Article 2176 to include intentional acts. 21 Art. 2180. The obligation imposed by Article 2176 is demandable not only for one’s own acts or omissions, but also for those of persons for whom one is responsible. The father and, in case of his death or incapacity, the mother, are responsible for the dam- ages caused by the minor children who live in their company. Guardians are liable for damages caused by the minors or incapacitated persons who are under their authority and live in their company. The owners and managers of an establishment or enterprise are likewise responsible for damages caused by their employees in the service of the branches in which the latter are employed or on the occasion of their functions. Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not en- gaged in any business or industry. The State is responsible in like manner when it acts through a special agent; but not when the damage has been caused by the official to whom the task done properly pertains, in which case what is provided in Article 2176 shall be applicable. Lastly, teachers or heads of establishments of arts and trades shall be liable for damages caused by their pupils and students or apprentices, so long as they remain in their custody. The responsibility treated of in this article shall cease when the persons herein men- tioned prove that they observed all the diligence of a good father of a family to prevent dam- age. (1903a) Art. 1162 GENERAL PROVISIONS 27 (5) There is no pre-existing contractual relation between the parties.22 Crime distinguished from quasi-delict. The following are the distinctions: (1) In crime or delict, there is criminal or malicious intent or crimi- nal negligence, while in quasi-delict, there is only negligence; (2) Crime affects public interest, while quasi-delict concerns private interest; (3) In crime, there are generally two liabilities: criminal and civil,23 while in quasi-delict, there is only civil liability; (4) In crime or delict, the purpose is punishment, while in quasi- delict, indemnification24 of the offended party; (5) Criminal liability can not be compromised or settled by the parties themselves, while the liability for quasi-delict can be compromised as any other civil liability; (6) In crime, the guilt of the accused must be proved beyond rea- sonable doubt, while in quasi-delict, the fault or negligence of the de- fendant need only be proved by preponderance of evidence; and (7) In crime, the liability of the person responsible for the author of the negligent act or omission is subsidiary, while in quasi-delict, it is direct and primary. 22 A contractual obligation can be breached by tort, and when the same act or omission causes the injury, one resulting in culpa contractual and the other in culpa aquiliana, Article 2194 which imposes solidary responsibility on two or more persons who are liable for a quasi-de- lict, can well apply. In fine, a liability for tort may arise even under a contract, where tort is that which breaches the contract. Stated differently, when an act which constitutes a breach of contract would have itself constituted the source of a quasi-delictual liability had no contract existed between the parties, the contract can be said to have been breached by tort, thereby allowing the rules on tort to apply. (Light Rail Transit Authority vs. Navidad, 397 SCRA 75.) 23 Delicts are not as broad as quasi-delicts because the former are punished only if there is a penal law clearly covering them, while the latter include all acts in which any kind of fault or negligence intervenes. But not all violations of the penal laws produce civil responsibility, such as begging in violation of ordinances, violation of gambling laws, and infraction of traffic rules when no injury or damage is caused. (Barredo vs. Garcia, 73 Phil. 607.) 24 The Civil Code provisions on damages especially applicable to obligations derived from quasi-delicts (Arts. 2176-2194.) are Articles 2202, 2206, 2211, 2214-2215, 2219, 2222, and 2231. 28 OBLIGATIONS Art. 1162 Recovery of damages twice for the same act or omission prohibited. The same negligent act or omission causing damage may produce civil liability arising from a crime under Article 100 of the Revised Penal Code (supra.) or create an action for quasi-delict under Article 2176. (see Barredo vs. Garcia and Almario, 73 Phil. 607 ; see Elcano vs. Hill, 77 SCRA 98.) The Revised Penal Code in Article 365 punishes not only reckless but also simple negligence. Under Article 1157, quasi-delict and an act or omission punish- able by law are two different sources of obligations. Inasmuch as civil liability co-exists with criminal responsibility in negligence cases, the offended party has the option between an action for enforcement of civil liability based on culpa criminal under Article 100 of the Revised Penal Code and an action for recovery of damages based on culpa aq- uiliana under Article 2177.25 (see Art. 1161.) These two causes of action (ex delicto or ex quasi delicto) may be availed of subject to the caveat that the offended party cannot recover damages twice for the same act or omission or under both causes. Since these two (2) civil liabilities are distinct and independent of each other, the failure to recover in one will not necessarily preclude recovery in the other. (Equitable Leasing Corporation vs. Suyom, 388 SCRA 445.) — oOo — 25 The 2000 Rules of Criminal Procedure deleted the requirement of reserving indepen- dent civil actions and allowed these to proceed separately from criminal ones. Thus, the civil actions referred to in Articles 32, 33, 34, and 2176 of the Civil Code shall remain “separate, distinct and independent’’ of any criminal prosecution based on the same act or omission. (Neplum, Inc. vs. Orbeso, 384 SCRA 466 ; see Casupanan vs. Laroya, 388 SCRA 28 ; Cancio, Jr. vs. Isip, 391 SCRA 393.)  29 Chapter 2 NATURE AND EFFECT OF OBLIGATIONS ART. 1163. Every person obliged to give something is also obliged to take care of it with the proper diligence of a good father of a family, unless the law or the stipulation of the parties requires another standard of care. (1094a) Meaning of specific or determinate thing. The above provision refers to an obligation to give a specific or determinate thing. A thing is said to be specific or determinate when it is particularly designated or physically segregated from all others of the same class. (Art. 1459.) EXAMPLES: (1) The watch I am wearing. (2) The car sold by X. (3) My dog named “Terror.” (4) The house at the corner of Rizal and Del Pilar Streets. (5) The Toyota car with Plate No. AAV 344. (6) This cavan of rice. (7) The money I gave you. Meaning of generic or indeterminate thing. A thing is generic or indeterminate when it refers only to a class or genus to which it pertains and cannot be pointed out with particular- ity. 29 30 OBLIGATIONS Art. 1163 EXAMPLES: (1) a Bulova calendar watch. (2) a 2006 model Japanese car. (3) a police dog. (4) a cavan of rice. (5) the sum of P10,000.00. Specific thing and generic thing distinguished. (1) A determinate thing is identified by its individuality. The debtor cannot substitute it with another although the latter is of the same kind and quality without the consent of the creditor. (Art. 1244.) (2) A generic thing is identified only by its specie. The debtor can give anything of the same class as long as it is of the same kind. EXAMPLES: (1) If D’s obligation is to deliver to C a Bulova calendar watch, D can deliver any watch as long as it is Bulova with calendar. But if D’s obligation is to deliver to C a particular watch, the one D is wearing, D cannot substitute it with another watch without C’s consent nor can C require D to deliver another watch without D’s consent although it may be of the same kind and value. (see Arts. 1244, 1246.) (2) If D’s obligation is to deliver to C one of his cars, the object refers to a class which in itself is determinate. Here, the particular thing to be delivered is determinable without the need of a new contract between the parties (see Art. 1349.); it becomes determinate upon its delivery. Duties of debtor in obligation to give a determinate thing. They are: (1) To preserve or take care of the thing due; (2) To deliver the fruits of the thing (see Art. 1164.); (3) To deliver its accessions and accessories (see Art. 1166.); (4) To deliver the thing itself (see Arts. 1163, 1233, 1244; as to kinds of delivery, Arts. 1497 to 1501.); and Art. 1163 NATURE AND EFFECT OF OBLIGATIONS 31 (5) To answer for damages in case of non-fulfillment or breach. (see Art. 1170.) Obligation to take care of the thing due. (1) Diligence of a good father of a family. — In obligations to give (real obligations), the obligor has the incidental duty to take care of the thing due with the diligence of a good father of a family pending delivery. The phrase has been equated with ordinary care or that diligence which an average (a reasonably prudent) person exercises over his own property. (2) Another standard of care. — However, if the law or the stipu- lation of the parties provides for another standard of care (slight or extraordinary diligence), said law or stipulation must prevail. (Art. 1163.) (a) Under the law, for instance, a common carrier (person or company engaged in the transportation of persons and/or cargoes) is “bound to carry the passengers safely as far as human care and foresight can provide, using utmost (extraordinary) diligence of very cautious persons, with a due regard for all the circumstances.” (Art. 1755.) In case of accident, therefore, the common carrier will be liable if it exercised only ordinary diligence or the diligence of a good father of a family. (b) Banks are duty bound to treat the deposit accounts of their depositors with the highest degree of care where the fiduciary nature of their relationship with their depositors is concerned. But such degree of diligence is not expected to be exerted by banks in commercial transactions that do not involve their fiduciary relationship with their depositors. (Reyes vs. Court of Appeals, 363 SCRA 51.) (c) While parties may agree upon diligence which is more or less than that of a good father of a family, it is contrary to public policy (see Art. 1306.) to stipulate for absolute exemption from liability for any fault or negligence. (see Arts. 1173, 1174.) Thus, a stipulation exempting a carrier from liability for gross negligence is against public policy. (Heacock vs. Macondray, 32 Phil. 205 ; see Arts. 1306, 1744, 1745.) 32 OBLIGATIONS Art. 1164 (3) Factors to be considered. — The diligence required depends upon the nature of the obligation and corresponds with the circumstances of the person, of the time, and of the place. (Art. 1173.) It is not necessarily the standard of care one always uses in the protection of his own property. As a general rule, the debtor is not liable if his failure to preserve the thing is not due to his fault or negligence but to fortuitous events or force majeure. (Art. 1174.) (4) Reason for debtor’s obligation. — The debtor must exercise diligence to insure that the thing to be delivered would subsist in the same condition as it was when the obligation was contracted. Without the accessory duty to take care of the thing, the debtor would be able to afford being negligent and he would not be liable even if the property is lost or destroyed, thus rendering illusory the obligation to give. (8 Manresa 35-37.) Duties of debtor in obligation to deliver a generic thing. They are: (1) To deliver a thing which is of the quality intended by the parties taking into consideration the purpose of the obligation and other circumstances (see Art. 1246.); and (2) To be liable for damages in case of fraud, negligence, or delay, in the performance of his obligation, or contravention of the tenor thereof. (see Art. 1170.) ART. 1164. The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. However, he shall acquire no real right over it until the same has been deliv- ered to him. (1095) Different kinds of fruits. The fruits mentioned by the law refer to natural, industrial, and civil fruits. (1) Natural fruits are the spontaneous products of the soil, and the young and other products of animals, e.g., grass; all trees and plants on lands produced without the intervention of human labor. (2) Industrial fruits are those produced by lands of any kind through cultivation or labor, e.g., sugar cane; vegetables; rice; and all products of lands brought about by reason of human labor. Art. 1164 NATURE AND EFFECT OF OBLIGATIONS 33 (3) Civil fruits are those derived by virtue of a juridical relation, e.g., rents of buildings, price of leases of lands and other property and the amount of perpetual or life annuities or other similar income. (Art. 442.) Right of creditor to the fruits. This article is a logical application of the basic principle stated in Article 712, paragraph two of the Civil Code that “Ownership and other real rights over property are acquired and transmitted by law, by donation, by testate and intestate succession, and in consequence of certain contracts, by tradition.” (see Arts. 734, 774, 777; Fidelity & Deposit Co. vs. Wilson, 8 Phil. 51.) By law, the creditor is entitled to the fruits of the thing to be deliv- ered from the time the obligation to make delivery of the thing arises. The intention of the law is to protect the interest of the obligee should the obligor commit delay, purposely or otherwise, in the fulfillment of his obligation. In case of rescission, the parties are under “obligation to return the things which were the object of the contract, together with their fruits and the price with its interest.’’ (Art. 1385.) When obligation to deliver arises. (1) Generally, the obligation to deliver the thing due and, conse- quently, the fruits thereof, if any, arises from the time of the perfection of the contract. Perfection in this case refers to the birth of the contract or to the meeting of the minds between the parties. (Arts. 1305, 1315, 1319.) (2) If the obligation is subject to a suspensive condition or period (Arts. 1179, 1189, 1193.), it arises upon fulfillment of the condition or arrival of the period. However, the parties may make a stipulation to the contrary as regards the right of the creditor to the fruits of the thing. (3) In a contract of sale, the obligation arises from the perfection of the contract even if the obligation is subject to a suspensive condition or a suspensive period where the price has been paid. (4) In obligations to give arising from law, quasi-contracts, delicts, and quasi-delicts, the time of performance is determined by the specific provisions of law applicable. 34 OBLIGATIONS Art. 1164 EXAMPLE: S sold his horse to B for P15,000.00. No date or condition was stipulated for the delivery of the horse. While still in the possession of S, the horse gave birth to a colt. Who has the right to the colt? In a contract of sale “all the fruits shall pertain to the vendee from the day on which the contract was perfected.” (Art. 1537, 2nd par.) Hence, B is entitled to the colt. This holds true even if the delivery is subject to a suspensive condition (see Art. 1179; e.g., upon the demand of B) or a suspensive period (see Art. 1193; e.g., next month) if B has paid the purchase price. But S has a right to the colt if it was born before the obligation to deliver the horse has arisen (Art. 1164.) and B has not yet paid the purchase price. In this case, upon the fulfillment of the condition or the arrival of the period, S does not have to give the colt and B is not obliged to pay legal interests on the price since the colt and the interests are deemed to have been mutually compensated. (see Art. 1187.) Meaning of personal right and real right. (1) Personal right1 is the right or power of a person (creditor) to demand from another (debtor), as a definite passive subject, the fulfillment of the latter’s obligation to give, to do, or not to do. (2) Real right2 is the right or interest of a person over a specific thing (like ownership, possession, mortgage, lease record) without a definite passive subject against whom the right may be personally enforced. Personal right and real right distinguished. While in personal right there is a definite active subject and a definite passive subject, in real right, there is only a definite active subject without any definite passive subject. A personal right is, therefore, binding or enforceable only against a particular person while a real right is directed against the whole world. 1 Also called jus in personam or jus ad rem. 2 Also called jus in re. Art. 1164 NATURE AND EFFECT OF OBLIGATIONS 35 EXAMPLE: X is the owner of a parcel of land under a torrens title registered in his name in the Registry of Property. His ownership is a real right directed against everybody. There is no definite passive subject. If the land is claimed by Y who takes possession, X has a personal right to recover from Y, as a definite passive subject, the property. If the same land is mortgaged by X to Z, the mortgage, if duly registered, is binding against third persons. A purchaser buys the land subject to the mortgage which is a real right. Ownership acquired by delivery. Ownership and other real rights over property are acquired and transmitted by law, by donation, by testate and intestate succession, and in consequence of certain contracts by tradition (Art. 712.) or de- livery. Delivery in sale may be actual or real, constructive or legal, or in any other manner signifying an agreement that the possession of the thing sold is transferred from the vendor to the vendee.3 (see Arts. 1496-1501.) The meaning of the phrase “he shall acquire no real right over it until the same has been delivered to him,” is that the creditor does not become the owner until the specific thing has been delivered to him. Hence, when there has been no delivery yet, the proper action of the creditor is not one for recovery of possession and ownership but one for specific performance or rescission of the obligation. (see Art. 1165.) ILLUSTRATIVE CASE: A document transfers to a person certain funds in the possession of another but there is no actual delivery of said funds. Facts: For the security of the Government, X Company (and another company) became a surety on the official bond of W, an employee of the Government for the sum of $15,000.00. W defaulted in the amount of $8,900.00 and X Company paid the Government the sum of $14,462.00. When W was apprehended, he had on his person $750.00 which amount was turned over to B, the Insular Treasurer. 3 Contracts only constitute titles or rights to the transfer or acquisition of ownership, while delivery or tradition is the mode of accomplishing the same. Thus, sale by itself does not transfer or effect ownership. The most that a sale does is to create the obligation to transfer ownership. It is delivery, as a consequence of sale, that actually transfers ownership. (San Lorenzo Dev. Corp. vs. Court of Appeals, 449 SCRA 99.) 36 OBLIGATIONS Art. 1165 Later, W signed a document transferring to T all his rights to said $785.00 for professional services rendered by the latter as attorney’s fee. B was duly notified of the transfer. X filed an action against W to recover the sum of $785.00 in partial payment of the amount paid by X to the Government. T filed a complaint in intervention and claimed the money as his. Issue: On the basis of these facts, will the complaint of T prosper? Held: No. (1) Ownership was not acquired by T. — The delivery of a thing constitutes a necessary and indispensable requisite for the purpose of acquiring the ownership of the same by virtue of a contract. The transfer by itself, and afterwards the notification to B, did not produce the effect of delivery to T of the funds so transferred. (see Arts. 1497, 1498, 1501.) To have this effect, it would have been necessary that the delivery of the funds had been made directly to T. Therefore, by reason of the non- delivery, T did not acquire the ownership of the property transferred to him by W. (2) Mere personal right was acquired by T. — It is only the jus ad rem, and not the jus in re, that was acquired by T by virtue of the transfer made by the consent of the transferor and the transferee but not consummated by the delivery which never came to pass and which delivery was the object of such transfer. (Fidelity & Deposit Co. vs. Wilson, 8 Phil. 51 ; see also Cruzado vs. Bustos, 34 Phil. 17.) 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 inter- est, he shall be responsible for any fortuitous event until he has effected the delivery. (1096) Remedies of creditor in real obligation. (1) In a specific real obligation (obligation to deliver a determinate thing), the creditor may exercise the following remedies or rights in case the debtor fails to comply with his obligation: (a) demand specific performance or fulfillment (if it is still possible) of the obligation with a right to indemnity for damages; or Art. 1165 NATURE AND EFFECT OF OBLIGATIONS 37 (b) demand rescission or cancellation (in certain cases) of the obligation also with a right to recover damages (Art. 1170.); or (c) demand the payment of damages only (see Art. 1170.) where it is the only feasible remedy. In an obligation to deliver a determinate thing, the very thing itself must be delivered. (Art. 1244.) Consequently, only the debtor can comply with the obligation. This is the reason why the creditor is granted the right to compel the debtor to make the delivery. (Art. 1165, par. 1.) It should be made clear, however, that the law does not mean that the creditor can use force or violence upon the debtor. The creditor must bring the matter to court and the court will be the one to order the delivery. (2) A generic real obligation (obligation to deliver a generic thing), on the other hand, can be performed by a third person since the object is expressed only according to its family or genus. It is thus not necessary for the creditor to compel the debtor to make the delivery although he may ask for performance of the obligation. In any case, the creditor has a right to recover damages under Article 1170 in case of breach of the obligation. The manner of compliance with an obligation to deliver a generic thing is governed by Article 1246. Under the Constitution, no person shall be imprisoned for non-payment of debt. (Art. III, Sec. 20 thereof.) However, a person may be subject to subsidiary imprisonment for non-payment of civil liability adjudged in a criminal case. (see Art. 1161.) The constitutional prohibition refers to purely civil debt or one arising from contractual obligations only. Where debtor delays or has promised delivery to separate creditors. Paragraph 3 gives two instances when a fortuitous event does not exempt the debtor from responsibility. It likewise refers to a determinate thing. An indeterminate thing cannot be the object of destruction by a fortuitous event because genus nunquam perit (genus never perishes). (see Arts. 1174, 1263.) Delay is discussed in Article 1169, and fortuitous events, in Article 1174. 38 OBLIGATIONS Art. 1166 ART. 1166. The obligation to give a determinate thing in- cludes that of delivering all its accessions and accessories, even though they may not have been mentioned. (1097a) Meaning of accessions and accessories. (1) Accessions are the fruits of, or additions to, or improvements upon, a thing (the principal), e.g., house or trees on a land; rents of a building; airconditioner in a car; profits or dividends accruing from shares of stocks; etc. The concept includes accession in its three forms of building, planting, and sowing (see Art. 445.), and accession natural, such as alluvion (see Art. 457.), avulsion (see Art. 459.), change of course of rivers (see Arts. 461-462.), and formation of islands. (see Arts. 464-465.) “Fruits of the thing” are specifically provided for in Article 1164. (2) Accessories are things joined to, or included with, the principal thing for the latter’s embellishment, better use, or completion, e.g., key of a house; frame of a picture; bracelet of a watch; machinery in a factory; bow of a violin. Note that while accessions are not necessary to the principal thing, the accessory and the principal thing must go together but both accessions and accessories can exist only in relation to the principal. Right of creditor to accessions and accessories. The general rule is that all accessions and accessories are considered included in the obligation to deliver a determinate thing although they may not have been mentioned. This rule is based on the principle of law that the accessory follows the principal. In order that they will be excluded, there must be a stipulation to that effect. Unless otherwise stipulated, an obligation to deliver the accessions or accessories of a thing does not include the latter. Thus, a sale of the improvements (e.g., house) upon a thing (e.g., land) is not sufficient to convey title or any right to the thing. (see Pornellosa vs. Land Tenure Administration, 1 SCRA 375.) But the lease of a building or house naturally includes the lease of the lot, and the rentals include those of the lot for the occupancy of a building or house not only suggests but also implies the tenancy or possession in fact of the land on which it is constructed. (Caleon vs. Agus Development Corp., 207 SCRA 748.) Art. 1167 NATURE AND EFFECT OF OBLIGATIONS 39 Accession as a right. Accession is also used in the sense of a right. In that sense, it may be defined as the right pertaining to the owner of a thing over its prod- ucts and whatever is incorporated or attached thereto, either naturally or artificially. (3 Sanchez Roman 89; Art. 440.) Accession includes, therefore, the right to the fruits and the right to the accessory. It is one of the rights which go to make up dominion or ownership. (3 Manresa 166.) But it is not, under the law, a mode of acquiring ownership. (see Art. 712.) ART. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost. This same rule shall be observed if he does it in contra- vention of the tenor of the obligation. Furthermore, it may be decreed that what has been poorly done be undone. (1098) Situations contemplated in Article 1167. Article 1167 refers to an obligation to do, i.e., to perform an act or render a service. It contemplates three situations: (1) The debtor fails to perform an obligation to do; or (2) The debtor performs an obligation to do but contrary to the terms thereof; or (3) The debtor performs an obligation to do but in a poor manner. Remedies of creditor in positive personal obligation. (1) If the debtor fails to comply with his obligation to do, the creditor has the right: (a) to have the obligation performed by himself, or by another unless personal considerations are involved, at the debtor’s expense; and (b) to recover damages. (Art. 1170.) (2) In case the obligation is done in contravention of the terms of the same or is poorly done, it may be ordered (by the court) that it be undone if it is still possible to undo what was done. 40 OBLIGATIONS Art. 1167 Performance by a third person. A personal obligation to do, like a real obligation to deliver a generic thing, can be performed by a third person. While the debtor can be compelled to make the delivery of a specific thing (Art. 1165.), a specific performance cannot be ordered in a personal obligation to do because this may amount to involuntary servitude which, as a rule, is prohibited under our Constitution. (Art. III, Sec. 18 thereof.) Where, however, the personal qualifications of the debtor are the determining motive for the obligation contracted (e.g., to sing in a night club), the performance of the same by another would be impossible or would result to be so different that the obligation could not be considered performed. Hence, the only feasible remedy of the creditor is indemnification for damages. But where the obligation can still be performed at the expense of the debtor notwithstanding his failure or refusal to do so, the court is not authorized to merely grant damages to the creditor. ILLUSTRATIVE CASE: Liability of debtor who fails to comply with an obligation to do. Facts: A delivered to B, a typewriter repairer, a portable typewriter for routine cleaning and servicing. B was not able to finish the job after some time despite repeated reminders made by A. Finally, B returned the typewriter unrepaired, some of the parts missing. A had the typewriter repaired by F Business Machines, and the repair job cost him P58.75 for labor or service and P31.10 for the missing parts or a total of P89.85. The lower court rendered judgment ordering B to pay only P31.10. Issue: Is B liable also for P58.75, the cost of the service expended in the repair? Held: Yes. B contravened the tenor of his obligation (see Art. 1170.) because he not only did not repair the typewriter but returned it “in shambles.” For such contravention, he is liable under Article 1167 for the cost of executing the obligation in a proper manner, which in the case should be the cost of the labor or service expended in its repair, because the obligation or contract was to repair it. In addition, he is liable under Article 1170 for the cost of the miss- ing parts for in his obligation to repair the typewriter he was bound, but failed or neglected to return it in the same condition it was when he re- ceived it. (Chaves vs. Gonzales, 32 SCRA 547 ; see Tanguilig vs. Court of Appeals, 266 SCRA 78.) Arts. 1168-1169 NATURE AND EFFECT OF OBLIGATIONS 41 ART. 1168. When the obligation consists in not doing, and the obligor does what has been forbidden him, it shall also be undone at his expense. (1099a) Remedies of creditor in negative personal obligation. In an obligation not to do, the duty of the obligor is to abstain from an act. Here, there is no specific performance. The very obligation is fulfilled in not doing what is forbidden. Hence, in this kind of obliga- tion the debtor cannot be guilty of delay. (Art. 1169.) As a rule, the remedy of the obligee is the undoing of the forbidden thing plus damages. (Art. 1170.) However, if it is not possible to undo what was done, either physically or legally, or because of the rights acquired by third persons who acted in good faith, or for some other reason, his remedy is an action for damages caused by the debtor’s violation of his obligation. (see 8 Manresa 58.) EXAMPLE: S sold a land to B. It was stipulated that S would not construct a fence on a certain portion of his land adjoining that sold to B. Should S construct a fence in violation of the agreement, B can have the fence removed at the expense of S. ART. 1169. Those obliged to deliver or to do something in- cur in delay from the time the obligee judicially or extra-judicial- ly demands from them 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 so declares; or (2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a 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 or is not ready to comply in a proper manner with what is incumbent upon him. From the moment 42 OBLIGATIONS Art. 1169 one of the parties fulfills his obligation, delay by the other be- gins. (1100a) Meaning of delay. The word delay, as used in the law, is not to be understood according to its meaning in common parlance. A distinction, therefore, should be made between ordinary delay and legal delay (default or mora) in the performance of an obligation. (1) Ordinary delay is merely the failure to perform an obligation on time. (2) Legal delay or default or mora is the failure to perform an obligation on time which failure, constitutes a breach of the obligation. Kinds of delay (mora). They are: (1) Mora solvendi or the delay on the part of the debtor to fulfill his obligation (to give or to do) by reason of a cause imputable to him; (2) Mora accipiendi or the delay on the part of the creditor without justifiable reason to accept the performance of the obligation; and (3) Compensatio morae or the delay of the