Law On Obligations and Contracts PDF

**Law on Obligations and Contracts** \- is the body of rules which deals with the nature and sources of obligations, rights and duties arising from agreements and contracts. **Nature of Agreement and Contract** \- All contracts contain agreements, but not all agreements are contracts. An agreemen...

**Law on Obligations and Contracts** \- is the body of rules which deals with the nature and sources of obligations, rights and duties arising from agreements and contracts. **Nature of Agreement and Contract** \- All contracts contain agreements, but not all agreements are contracts. An agreement may or may not be legally enforceable. An agreement to take your friend to a basketball game would not be a legally enforceable agreement because your friend has not given you anything in exchange for that promise. However, an agreement to buy your friend a ticket to the Valentine\'s Day concert of Martin Nievera in exchange for your friend\'s repairing your leaking faucet would be legally enforceable. In this case, there has been an **exchange of value** that **binds each party to the other**, hence, a contract is created. **To be enforceable, an agreement must conform to the law of contracts**. The courts have never been agreeable to the enforcement of social agreements such as dinner engagements, agreements to date or to marry one another, or to live together without the benefit of a marriage contract. **TITLE I** **Obligations** **CHAPTER 1: General Provisions** **ARTICLE 1156 -** An obligation is a juridical necessity to give, to do or not to do. **Obligation Defined** - An obligation is a **juridical necessity** **to give, to do or not to do**. - The word obligation is derived from the Latin word ***\"obligare\"*** which means ***\"to bind\".*** - Obligations may be either civil or natural. **Civil obligations** - give a right of action to compel their performance (Art. 1423.) Hence, the obligee or creditor has a *right to enforce the obligation* against the obligor or debtor in a court of justice. This is the obligation being referred to in **Art. 1156 of the Civil Code.** **Natural obligations** - not being based on positive law but on equity and natural law, do not grant a right of action to enforce their performance, but after the voluntary fulfillment by the obligor, they authorize the retention of what has been delivered or rendered by reason thereof (Art. 1423.) **Manresa** - a Spanish commentator in Civil Law, defines obligation as a legal relation established between one person and another whereby the latter is bound to the fulfillment of a prestation which the former may demand of him. **Elements of Obligation** a. **Active subject (*obligee or creditor*)** - possessor of a right. b. **Passive subject (*obligor or debtor*)** - has the duty of giving, doing or not doing. c. **Object or prestation** - It is the subject matter of the obligation. d. **Efficient cause (*vinculum juris or juridical tie*)** - It is in this consideration that the obligation exists. **Kinds of Obligation** **Viewpoint of Sanction** a. **Civil Obligations** - There is juridical tie between the parties enforceable by court action. b. Natural Obligations. There is juridical tie between the parties which is not enforceable by court action. Voluntary fulfillment of natural obligations by the obligor produces legal effects which the courts will recognize and protect. c. Moral Obligations. There is no juridical tie between the parties. Voluntary fulfillment of moral obligations does not produce any legal effect which courts will recognize and protect. *\*Employee gives assistance to co-employee.* **Viewpoint of Performance** a. **Positive Obligation** - the obligor is obliged to give or to do something. b. **Negative Obligation** - The obligor is obliged not to give or not to do something. **Viewpoint of Subject Matter** a. **Real Obligation** - the obligation consists in giving something. b. **Personal Obligation** - the obligation consists in doing or not doing something. **Viewpoint of Persons Obligated to Perform** a. **Unilateral Obligation** - only one party is bound in this obligation. b. **Bilateral Obligation** - the two parties are mutually or reciprocally bound in this obligation. **ARTICLE 1157. Obligations arise from:** **Sources of obligations** a. Law (Art. 1158) b. Contracts (Art. 1159) c. Quasi-contracts (Art. 1160) d. Acts or omissions punished by law (Art. 1161) e. Quasi-delicts (Art. 1162) **ARTICLE 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 established them; and as to what has not been foreseen, by the provisions of this Book. **Obligations ex lege** are not presumed. The Civil Code and specid laws are specific as to which obligations are demandable. The rules set forth under special laws regulate obligations established therein Obligations not foreseen in the special laws, however, shall be regulated by the provisions of Book IV of the Civil Code, Obligatiors and Contracts. If regarding an obligation ex lege, there is a conflict between the new Civil Code and a special law, the latter prevails unless the contrary has been expressly stipulated in the new Civil Code (Art. 18). *\*Art 2014 a person who wins money in gambling has the duty to return his winnings to the loser.* **Obligations Derived from Law** **Examples of obligations derived from law** a. obligation of husband and wife to render mutual help and support under the **Family Code**; b. obligation of taxpayers to pay their taxes to the goverriment under the **National Internal Revenue Code**. **ARTICLE 1159** - Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. **Contract Defined** \- 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. **Freedom of contract** Obligations arising from contracts can be enforced between the contracting parties provided such contract is not contrary to law. Although the contracting parties have the right to establish terms as may be convenient to them, this right is limited. For a contract to be valid, stipulations therein must not be contrary to law, morals, good customs, public order, or public policy (Art. 1306.) Contracting parties of a valid contract must comply with its terms and conditions in good faith. **ARTICLE 1160** - Obligations derived from quasi-contracts shall be subject to the provisions of Chapter 1, Title XVII, of this Book. **Quasi-Contract Defined** \- is the juridical relation that arises from certain lawful, voluntary and unilateral acts to the end that no one shall be unjustly enrich or benefited at the expense of another (Art. 1160.) A quasi-contract can be imposed by a court when someone is unjustly enriched. It is used when a contract cannot be enforced or when there is no actual written or oral agreement. Applying reasons of justice and fairness, a court may obligate one who has unfairly benefited at the innocent expense of another. In a quasi-contract, there is **no meeting of the minds** between two persons. It may be distinguished from a contract where there is mutual consent. **Two Principal Kinds of Quasi-Contract** a. Negotiorum Gestio b. Solutio Indebiti **Negotiorum Gestio** In this case, a person voluntarily takes charge of the agency-or management of the business or property of another, without any power or authority from the latter (Art. 2144.) Here, there is unauthorized management. The owner of the business or property must reimburse the officious manager necessary and useful expenses, and for the damages which the manager may have suffered in the performance of his duties (Art. 2150.) **Solutio Indebiti** In this case, a person receives something when he has no right to demand it. Here, there is undue payment or undue delivery resulting from a mistake. The recipient, therefore, is obliged to return the thing (Art. 2154.) **Liability in Case of Undue Payment or Delivery** In an undue payment, the person who accepts such payment in bad faith shall be liable for legal interest; while in an undue delivery of a thing that produces fruits, the person shall be liable for fruits received or fruits which should have been received. Furthermore. he shall also be answerable for any loss or impairment of the thing from any cause, and for damages to the person who delivered the thing, until it is recovered (Art. 2159.) In quasi-contracts, the damages for which the obligor who acted in good faith is liable shall be those that are the natural and probable consequences of the breach of the obligation, and which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted. In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be reasonably attributed to the non-performance of the obligation (Art. 2201.) **Examples of Quasi-Contract** A quasi-contract is likewise created in each of the following situations: 1\. A third person who supports an orphan, insane or other indigent person has a right to be reimbursed by the person obliged to give support. This provision also applies to a person who gives support to a child under eighteen years of age when the child\'s father or mother unjustly refuses to support the child (Art. 2166.) 2\. When through an accident or other cause, a person is injured or becomes seriously ill, and he is treated or helped while he is not in a condition to give consent to a contract, he shall be liable to pay for the services of the physician or other person aiding him, unless the service has been rendered out of pure generosity (Art. 2167.) 3\. When the government, upon the failure of any person to comply with health or safety regulations concerning property. undertakes to do the necessary work, even over the person\'s objection, such person shall be liable to pay the expenses borne by the government (Art. 2168.) 4\. When in a small community a majority of the inhabitants of age decide upon a measure for protection against lawlessness, fire. flood, storm or other calamity, any one who objects to the plan and refuses to contribute to the expenses but is benefited by the project as executed shall be liable to pay his share of said expenses (Art. 2174.) 5\. Any person who is constrained to pay the taxes of another shall be entitled to reimbursement from the latter (Art. 2175.) **ARTICLE 1161** - Civil obligations arising from criminal offenses shall be governed by the penal laws, subject to the provisions of Article 2177, and of the pertinent provisions of Chapter 2, Preliminary Title, on Human Relations, and of Title XVIII of this Book, regulating damages. **Rules Governing Obligation Ex Delicto or Ex Maleficio** 1. Revised Penal Code (RPC) and other penal laws, subject to the provisions of Article 2177 of the Civil Code. Under Art. 2177, in quasi-delicts, the responsibility for fault or negligence is entirely separate and distinct from the civil liability arising from negligence under the Revised Penal Code. But the plaintiff cannot recover damages twice for the same act or omission of the defendant. 2. Chapter 2, Preliminary Title of the Civil Code, on Human Relations. 3. Title 18, Book IV of the Civil Code, on Damages. **Felony and Crime Defined** **Felony** is an act or omission punishable by law. Felonies are committed not only by means of deceit (dola) but also by means of fault (culpa). There is deceit when the act is performed with deliberate intent; and there is fault when the wrongful act results from imprudence, negligence, lack of foresight, or lack of skill (Art. 3.) A violation of the **Revised Penal Code** is called a **felony** while a violation of any other **penal statute** is called a **crime**. In practice the two terms are used interchangeably. **When a Person Liable for Felony is Civilly Liable** As a rule, every person liable for a felony is also civilly liable (Art. 100, Revised Penal Code.) This article merely states a general rule. The general rule that a person criminally liable is also civilly liable stems from the fact that a crime does not only cause moral evil but material damage as well. But not every felony or crime carries with if civil liability. When a crime did not cause material damage, no civil action may be brought because there is no civil liability in the first place. Generally crimes against persons, property and chastity result in civil liability. Although the criminal aspect and the civil aspect of a particular crime are distinct in that the former affects social order while the latter private rights, these two are in a sense intertwined because the basis of the civil liability is the criminal liability itself. Another thing that distinguishes one aspect from the other is that in a criminal case, the purpose is to punish the offender while in a civil case, the purpose is to repair the damage suffered by the aggrieved party. **Enforcement of Civil Liability** Generally, the following rules shall be observed in the enforcement of civil liability arising from criminal offenses: **1. Criminal and civil actions**. When the offended party institutes a criminal action, a civil action arising from the same offense is impliedly instituted. Here, the guilt of the offender as to the crime committed must be proved beyond reasonable doubt, However, the offended party may expressly reserve his right to institute a separate civil action. **2. Independent civil action.** The offended party expressly reserving his right to institute a separate civil action may bring an independent civil action during the pendency of the criminal case. Such civil action shall require only a preponderance of evidence. This applies to cases provided in Articles 31, 32, 33, 34 and 2177 all of the Civil Code. Examples of independent civil actions may be those for defamation, fraud and physical injuries. **What Civil Liability Arising from Crime Includes** 1\. Restitution. The restitution of the thing itself must be made whenever possible, with allowance for any deterioration or diminution in value as determined by the court. The thing itself shall be restored, even though it be found in the possession of a third person who has acquired it by lawful means, saving to the latter his action against the proper person who may be liable to him (Art. 105. Revised Penal Code.) 2\. Reparation of the damage caused. The court shall determine the amount of damage, taking into consideration the price of the thing, whenever possible, and its special sentimental value to the injured party, and reparation shall be made accordingly (Art. 106.) 3\. Indemnification for consequential damages. It shall include not only those caused the injured party, but also those suffered by his family or by a third person by reason of the crime (Art. 107, Revised Penal Code.) Indemnification for damages shall comprehend not only the value of the loss suffered, but also that of the profits which the obligee failed to obtain (Art. 2200.) M- physical Suppering E- example for public good N- to recognize the right of plaintiff. T - loss which are not proven A-loss of profits L-agreed in contract **Effect of Acquittal in a Criminal Case** A defendant in a criminal case was acquitted. May he still be held liable civilly? It depends on the basis of acquittal, as follows: 1\. If the reason for the acquittal was because the accused could not have committed the crime, no civil action can be brought subsequently. 2\. If there was an exempting circumstance for an acquittal as when the accused-defendant is insane, his guardian is still civilly liable. He shall be personally liable civilly if he has no guardian or if his guardian is insolvent. 3\. If a person is acquitted because guilt was not proven beyond reasonable doubt and there is an independent civil action, civil liability may still arise and the defendant\'s liability is proved by mere preponderance of evidence. **Effect of Defendant\'s Death Pending Trial** The death of the defendant in a criminal case before final judgment does not extinguish his civil liability. The civil action shall be directed against the administrator of the defendant\'s estate. The heirs shall be the ones civilly liable but such liability shall not exceed the value of their inheritance. **Damages Recoverable in Case of Death** The amount of damages for death caused by a crime or quasi- delict shall be at least three thousand pesos (Art. 2206.) This minimum amount has now been raised to P50,000. In addition, the defendant shall be liable for the loss of the earning capacity of the deceased, moral damages and others as may be deemed necessary. **Persons Exempt From Criminal Liability** Under Article 12 of the Revised Penal Code, the following persons are exempt from criminal liability: 1\. An imbecile of insane person. But if he acted during lucid interval, then, he may be held criminally liable. 2\. A person under 9 years old. 3\. A person over 9 years old but below 15. But if he acted with discernment, then, he may be held criminally liable. 4\. Any person who acts under the compulsion of an irresistible force. 5\. Any person who acts under the impulse of an uncontrollable fear of an equal or greater injury. **ARTICLE 1162** - Obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2, Title XVII of this Book, and by special laws. **Rules Governing Obligation Ex Quasi-Delict** 1. Chapter 2. Title 17, Book IV of the Civil Code 2. Special Laws **Quasi-delict** is that fault or negligence where a person causes damage to another in the absence of a contractual relation between the parties. In such case, the person at fault is obliged to pay for the damage done. Quasi-delict is also known as ***tort*** or ***culpa aquiliana.*** **Negligence** is the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required (Art. 1173). **Test to Determine Negligence** \"The test in determining whether a person is negligent\... is this: Would a prudent man (in his position) foresee harm to the person injured as a reasonable consequence of the course about to be pursued? If so, the law imposes a duty on the actor to refrain from that course, or to take precaution against its mischievous results, and the failure to do so constitutes negligence. Reasonable foresight of harm, followed by the ignoring of the admonition bornm of this provision, is the constitute fact of negligence.\" (Picart v. Smith, 37 Phil. 809.) **Persons Civilly Liable** The obligation arising from quasi-delict is demandable not only for one\'s own acts or omissions, but also for those of persons for whom one is responsible. The following persons shall be civilly liable: 1\. The father and, in case of his death or incapacity, the mother. are responsible for the damages caused by the minor children who live in their company. 2\. Guardians are liable for damages caused by the minors or incapacitated persons who are under their authority and who live in their company. 3\. The owners and managers of an establishment or enterprise 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. 4\. Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry. 5\. The State 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. 6\. Teachers or heads of establishments of arts and trades for damages caused by their pupils and students or apprentices, so long as they remain in their custody. The responsibility of the enumerated persons shall cease if they can prove that they observed all the diligence of a good father of a family to prevent damage (Art. 2180.) **Requisites to Civil Liability** The plaintiff or the offended party in a civil action arising from quasi- delict must prove the following facts before he could recover damages from the defendant: 1\. The fault or negligence of the defendant. 2\. The damage or injury suffered by the plaintiff. 3\. The direct relation between fault or negligence of the defendant and the damage suffered by the plaintiff. **Kinds of Negligence** 1. **Culpa aquiliana or quasi-delict.** In culpa aquiliana, the source of the obligation is negligence with no criminal intent. There may or may not be an existing contract. 2. **Culpa contractual.** In culpa contractual, the source of the obligation is the contract. There is negligence in carrying out the terms and conditions under an existing contract. **Quasi-Delict as Distinguished from Crime** 1. Quasi-delict affects private interests while crime, public interest. 2. Civil Code provisions that primarily govern quasi-delicts merely repair damages sustained or incurred while the Revised Pendl Code and other penal laws punish and correct criminal acts. 3. Quasi-delicts include all acts in which any kind of fault of lovence intervenes while crimes which is kindly if there are laws that clearly cover them. **CHAPTER 2** **Nature and Effect of Obligations** ***ARTICLE 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. **Article 1163** speaks of the obligation to give a determinate thing. The person obliged to give a determinate thing 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. **Prestations in an Obligation** There are three prestations in an obligation: to give, to do or not to do. In an obligation to give, the thing may either be determinate (specific) or indeterminate (generic.) The thing is determinate when the object is particularly designated or physically segregated from all others of the same class. Example is eight-cubic-feet GE refrigerator with serial no. 8888. On the other hand, the thing is said to be generic when the object is designated merely by its class or genus without any particular designation or physical segregation from all others of the same class. Example is an eight-cubic feet refrigerator. Hence, the refrigerator may be eight-cubic-feet National refrigerator or eight- cubic-feet Kelvinator. **Diligence of a Good Father of a Family** The law made the \"diligence of a good father of a family\" as the reference point as to the kind of diligence a person obliged to deliver a determinate thing must observe. It is an accepted notion that no father would ever want to risk his family. Hence, when a person is obliged to give something, he is likewise obliged to preserve and take good care of the thing and this he may achieve by treating the same as his own. The diligence of a good father of a family is best described as that which is required by the nature of the obligation and corresponds with the circumstances of person, time and place (Art. 1173.) **Diligence Required** The kind of diligence required may vary if there is a law or stipulation by the contracting parties that requires another standard of care. The order of priority is as follows: 1\. By provision of the law. An example of provision of law which requires a standard of care is Article 1733 of the Civil Code. It requires another standard of care where common carriers are involved. Common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passenger transported by them, according to all circumstances of each case. 2\. By stipulation of the parties. If another standard of care other than the diligence of a good father of a family is stipulated in a contract, then such stipulation shall prevail. However, the stipulation shall not be one that waives the most standard care. 3\. In the absence of law and stipulation, the diligence of a good father of a family shall apply. **Obligations of a Person Obliged to Give Something** 1\. To preserve and take good care of the thing. 2\. To deliver the thing including the fruits of the thing. 3\. To deliver the accessions and accessories of the thing. ***ARTICLE 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 delivered to him. **Kinds of Fruits** 1\. **Natural fruits** are the spontaneous products of the soil, and the young and other products of animals. Examples are plants and trees that grow without human intervention. 2\. **Industrial fruits** are those produced by lands of any kind through cultivation or labor. Examples are vegetables, rice and sugar cane planted and cared for by man. 3\. **Civil fruits** are the rents of building, the price of leases of lands and other property. **Personal and Real Rights** 1\. Personal right or jus in personam. A personal right is a power demandable by one person of another to give, to do, or not to do. 2\. Real right or jus in re. A real right is a power over a specific thing and is binding on the whole world. **Creditor\'s Right to Fruits** The creditor has a personal right to the fruits of the thing from the time the obligation to deliver it arises. However, he shall acquire no real right over it until the same has been delivered to him. **When Obligation to Deliver Arises** The question as to when the obligation to deliver arises depends on whether the parties have agreed on a term or condition: 1\. If there is no term or condition, then from the perfection of the contract. A contract is said to be perfected when there is a meeting of the minds between the parties. 2\. If there is a term or condition, then from the moment the term arrives or the condition happens. **Kinds of Delivery** Delivery may either be actual or constructive. 1\. **Actual delivery (or tradition)**. The property changes hands physically. For example, A buys cake from Red Ribbon. The giving of the cake by Red Ribbon\'s staff to A is actual delivery. **2. Constructive delivery.** The physical transfer of the property is implied. a. Traditio simbolica (symbolical tradition.) Example: When the keys of a house are given to the new owner, the house being the object of the sale. b. Traditio longa manu (delivery by mere consent or by pointing out the object.) Example: When pointing out a van which is the object of the sale. c. Traditio brevi manu (delivery by the short hand). A possessor of a thing not as an owner, becomes the possessor as owner. Example: When a tenant already in possession of a house buys the house he is renting. d. Iraditio constitutum possessorium. This is the opposite of brevi manu. A possessor of a thing as an owner, retains possession no longer as an owner, but in some other capacity. Example: A house owner, who sells his house, but remains in possession as tenant of the same house. e. Tradition by the execution of legal forms. Example: The execution of a public instrument selling land. ***ARTICLE 1165*** When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by article 1170, may compel the debtor to make the delivery. ***If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor.*** ***If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery.*** **Determinate and Indeterminate Things** 1\. Determinate or specific. When the object is particularly designated or physically segregated from all others of the same class. Examples: a. the lot with TCT-14344 b. the mountain bike A bought on Jan. 25, 2000 c. the 29-inch Sony colored TV A donated to B d. the belt B is wearing 2\. Indeterminate or generic. When the object is designated merely by its class or genus without any particular designation or physical segregation from all others of the same class. Examples: a. a 100-square meter lot b. a mountain bike c. a 29-inch colored TV d. a belt **Rights of Creditor if Debtor Failed to Deliver** 1\. If thing is determinate a. Compel the debtor to make the delivery. This action is called specific performance. b. Demand damages from the debtor if the debtor is guilty of fraud, negligence, delay or contravention contrave in the performance of the obligation (Art. 1170.) 2\. If thing is indeterminate a. Ask for compliance of the obligation either by the debtor himself or by a third person at the debtor\'s expense. The creditor can ask the debtor or a third party to deliver the thing belonging to the class or genus stipulated which must be neither of superior nor of inferior quality charging all the expenses to the debtor. b. Demand damages from the debtor under Article 1170. **Effect of Fortuitous Events** A fortuitous event is an event which could not be foreseen, or which though foreseen, were inevitable. An obligation to deliver a determinate or specific thing is, as a rule, extinguished by a fortuitous event. On the other hand, an obligation to deliver an indeterminate or generic thing is not extinguished by fortuitous events because genus never perishes (genus nunquam perit). **When Fortuitous Event Does Not Exempt** ***Article 1165*** mentions two instances when the occurrence of a fortuitous event shall not extinguish an obligation. 1\. If the obligor delays. Here, legal delay (or default) is required. There is default when there has been a demand for the fulfillment of the obligation, be it judicially or extrajudicially. 2\. If the obligor has promised to deliver the same thing to two or more persons who do not have the same interest. The obligor, in this case, is guilty of bad faith. In the two instances cited, the obligor shall be responsible for any fortuitous event until he has effected the delivery. ***ARTICLE 1166*** The obligation to give a determinate thing includes that of delivering all its accessions and accessories, even though they may not have been mentioned. **Accessions and Accessories** **1. Accessions -** All of those things which are produced by the thing which is the object of the obligation as well as all of those which are naturally or artificially attached thereto. These include natural, industrial and civil fruits; in case of a parcel of land, those built, planted and sown thereon. **2. Accessories** - All of those things which have for their object the embellishment, use or preservation of another thing which is more important and to which they are not incorporated or attached. These include equipment of a factory, tools of a machine and key of a house. **Effect of Stipulation** ***Article 1166*** assumes that there is no stipulation as to the inclusion of the accessions and accessories in the delivery of the principal (determinate thing). However, should there be a stipulation to the contrary, meaning accessions and accessories are not to be included, then that stipulation shall supervene. **ARTICLE 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 contravention of the tenor of the obligation. Furthermore, it may be decreed that what has been poorly done be undone.** *Article 1167 refers to a personal positive obligation \"to do.\"* Remedies of the Creditor If the debtor fails to do what is expected of him, the creditor has the following rights: 1\. To have the obligation performed or executed by the debtor himself or by a third party, if possible, at the expense of the debtor. 2\. To claim for damages because of breach. (Art. 1170) The same remedies apply when the obligation has been performed contrary to the terms agreed upon or when the obligation was poorly done. Pertaining to the first remedy, the debtor cannot be ordered specific performance as this may amount to involuntary servitude which, as a rule, is prohibited under our Constitution. Still on the first remedy, performance by a third person may not be possible when the personal qualification of the debtor is the primary consideration of the contract. **ARTICLE 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. **Creditor\'s Right Against Debtor** Article 1168. refers to a negative personal obligation \"not to do\". Here what is being demanded of the debtor is not the performance of an act but an omission. The obligation is fulfilled so long as the obligor refrains from doing what has been forbidden him. In case of breach by the obligor, the remedy of the creditor is to ask that what has been done be undone at the obligor\'s expense. In addition, he is entitled to claim for damages under Article 1170. **ARTICLE 1169** Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. 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 one of the parties fulfills his obligation, delay by the other begins.** Concept of Delay The word delay may be used in its ordinary sense and its legal sense. The two are distinguished as follows: 1\. **Ordinary delay** is the failure to perform an obligation on time. This does not constitute breach. 2\. **Legal delay,** also known as default or mora, is the failure to perform an obligation on time which failure constitutes a breach of the obligation. Article 1169 speaks of legal delay. **Kinds of Default or Mora** 1\. **Mora solvendi** - This is the delay of the obligor or debtor to perform his obligation. Delay in an obligation to give is also called ***mora solvendi ex re*** while delay in an obligation to do is ***mora solvendi ex persona.*** **2. Mora accipiendi** - This is the delay of the obligee or creditor to accept the delivery of the thing which is the object of the obligation. **3. Compensatio morae** - This is the delay of the parties or obligors in reciprocal obligations. **Requisites of Mora** In obligations to give or to do (positive obligations), the obligor a debtor incurs in delay from the time the obligee or creditor demands from him the fulfillment of the obligation. The demand may be judicial or extra-judicial. There is judicial demand when the creditor files a complaint in court against the debtor for the fulfillment of the obligation. There is extra-judicial demand when the creditor demands from the debtor either orally or in writing. If after judicial or extra-judicial demand of the creditor the debtor fails to perform his obligation, he shall be in mora solvendi and therefore, shall be liable for damages. **When Demand is Not Necessary** Article 1169 mentions three exceptions when demand is not necessary at all. This means that when due date comes, the debtor need not wait for the creditor to demand from him fulfillment of the obligation Fist is when the obligation or the law expressly so declares. This means that the obligation itself must include an statement to the effect that demand is not necessary in order that the debtor shall incur in delay. **Delay in Reciprocal Obligations** In reciprocal obligations, the fulfillment of an obligation by one party depends upon the fulfillment of the obligation by the other. The fulfillment of obligation by both parties is simultaneous. One party must comply or must be ready to comply so that the other party incurs in delay. Hence, if both parties do not comply with what are incumbent upon them, delay by one party compensates for the delay of the other. In such case, no delay is incurred by either party. **ARTICLE 1170** Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. **Grounds for Damages** 1\. Fraud or dolo 2\. Negligence or culpa 3\. Delay or mora 4\. **Contravention of term of the agreement** This includes not only any illicit act which impairs the strict and faithful fulfillment of the obligation, but also every kind of defective performance. **Kinds of Damages** **1. Actual or compensatory.** To adequately compensate for pecuniary loss suffered, including profits. Actual damages may be recovered for loss or impairment of earning capacity in cases of temporary or permanent personal injury and for injury to the plaintiff\'s business standing or commercial credit (Art. 2205.) **2. Moral** Include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock. social humiliation, and similar injury. Moral damages may be recovered in criminal offense and quasi-delict resulting in physical injuries; and willful injury to property (Arts. 2219 & 2220.) **3. Nominal** They are only token damages awarded to parties who have experienced an injury to their legal rights but no actual loss. The purpose is to vindicate the right that has been violated. **4. Temperate or moderate** The amount of pecuniary loss suffered cannot be proved with certainty. It is more than nominal but less than compensatory damages. **5. Liquidated** Agreed upon by the parties to a contract in case of breach. Liquidated damages must be realistic and in proportion to the losses that might be reasonably anticipated should there be a breach. **6. Exemplary or corrective**. To set an example or to correct for the public good. Exemplary damages cannot be recovered as a matter of right; the court will decide whether or not they should be adjudicated (Art. 2233.) This is in addition to moral, temperate, liquidated or compensatory damages. **Contravention of the Tenor of the Agreement** In contracts, the damages for which the obligor who acted in good faith is liable shall be those that are the natural and probable consequences of the breach of the obligation, and which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted. In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be reasonably attributed to the non- performance of the obligation, including moral and liquidated damages (Arts. 2201, 2220 & 2226.) Interest may, in the discretion of the court, be allowed upon damages awarded for breach of contract (Art. 2210.) Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point (Art. 2212.) **ARTICLE 1171** Responsibility arising from fraud is demandable in all I obligations. Any waiyer of an action for future fraud is void. ***Fraud or dolo*** is a false representation of a matter of fact, whether by words or by conduct, by false or misleading allegations, or by concealment of that which should have been disclosed which deceives and is intended to deceive another so that he shall act upon it to his legal injury (Black\'s.) Any waiver of an action for future fraud is void. Liability for fraud that has not been committed cannot be waived or renounced. In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be reasonably attributed to the non-performance of the obligation (Art. 2201.) General Classification of Fraud 1\. Civil fraud 2\. Criminal fraud Classification of Civil Fraud **1. Fraud in the performance of the obligation.** This fraud or dolo consists in the conscious and intentional proposition to evade the normal fulfillment of an obligation. This fraud results in breach or non-fulfillment of the obligation. The obligor or debtor in this case can be held liable for damages. **2. Fraud in the constitution of an obligation.** The purpose of this fraud is to secure the consent of the party to enter into the contract. This results in vitiated consent. **a. Causal fraud** refers to those deceptions or misrepresentations of a serious character employed by one party without which the other party would not have entered into the contract. The innocent party may ask for the annulment of the contract. **b. Incidental fraud** refers to those which are not serious in character and without which the other would still have entered into the contract. The innocent party may ask to recover damages. **ARTICLE 1172** Responsibility arising from negligence in the performance of every kind of obligation is also demandable, but such liability may be regulated by the courts, according to the rate of circumstances. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. Negligence is the absence of due care required by the nature of the obligation. If in the nature of the obligation the danger is great, a high degree of care is necessary. Under Article 1172, liability arising from negligence in the performance of every kind of obligation may be regulated by the courts. The liability of the offending party may be increased or decreased depending upon the circumstances of the case. **ARTICLE 1173** The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. When negligence shows bad faith, the provisions of Articles 1171 and 2201, paragraph 2, shall apply. If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required. **Kinds of Negligence** 1\. Civil negligence governed by the New Civil Code 2\. Criminal negligence governed by the Revised Penal Code **Kinds of Civil Negligence** **1. Culpa contractual**. It is the fault or negligence of the obligor by virtue of which he is unable to perform his obligation arising from a pre-existing contract, because of the omission of the diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. 2\. Culpa aquiliana (Quasi delicts). It is the fault or negligence of a person, who, because of the omission of the diligence which is required by the nature of the obligation and which must correspond with the circumstances of the persons, of the time and of the place, causes damage to another. **Negligence Distinguished from Fraud** In fraud, there is intent to cause damage or injury while in negligence, there is mere abandonment, inattention, carelessness, or lack of diligence. When negligence shows bad faith, the provisions governing fraud shall apply. In a quasi-delict, the defendant shall be liable for all damages which are the natural and probable consequences of the act or amission complained of. It is not necessary that such damages have been foreseen or could have reasonably been foreseen by the defendant (Art. 2202.) The amount of damages for death caused by quasi-delict has been raised to P50,000. Interest as part of damages may, in a proper case, be adjudicated in the discretion of the court. Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point (Arts. 2211 & 2212.) **ARTICLE 1174.** Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable. Article 1174 defines fortuitous event as an event which could not be foreseen, or which, though foreseen were inevitable. An event is fortuitous even if it were not inevitable as long as it could not have been foreseen. An event is also fortuitous even though it could been have foreseen if it were inevitable. **Classification of Fortuitous Event** **1. Act of God or fortuitous event proper.** Those which are absolutely independent of human intervention. Examples are rains, typhoons, floods, earthquakes and similar ones brought about by natural forces. **2. Force majeure or fuerza mayor.** Those that arise from legitimate ar illegitimate acts of persons other than the obligor. Examples are robbery, war, riot and similar acts. In the first classification, there is no human intervention while in the second, there is. Both refer to an event independent of the obligor\'s will. **Effect upon Obligation** As a general rule, if the obligor is unable to fulfill his obligation by reason of a fortuitous event, the obligation is extinguished. Consequently, he cannot be held liable for damages. **Exceptions to the General Rules** Under Article 1174, there are three exceptions to the general rule that an obligor cannot be held liable for the non-fulfillment of his obligation due to a fortuitous event. first is if such liability is expressly specified by law; second, if such liability has been declared by stipulation of the parties; and third where the nature of the obligation requires the assumption of risk. The first exception is illustrated in various provisions of the Civil Code. In the third exception, the obligor is aware of and acknowledges the risk involve in performing the obligation. Having such knowledge, the obligor still assumes said risk voluntarily. Hence, if the obligor enters into an obligation which by nature requires assumption of risk, he shall be liable to the obligee for breach even in case of fortuitous event. **ARTICLE 1175**. Usurious transactions shall be governed by special laws. Usury is the contracting for or receiving something in excess of the amount allowed by law for the loan or forbearance of money, goods or chattels. This means that the interest being charged is more than that allowed by law. The Usury Law or Act No. 2655 and the laws amending it govern usurious transactions. **ARTICLE 1176**. The receipt of the principal stipulation by the creditor without reservation with respect to the interest, shall give rise to the presumption that said interest has been paid. **The receipt of a later installment of a debt without reservation as to prior installments, shall likewise raise the presumption that such installments have been paid.** **Receipt of Principal** Article 1253 states: \"If the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered.\" Hence, if the creditor issues a receipt which shows that the principal has been paid without mentioning anything about the interest, it shall be presumed that the interest has also been paid. This presumption is not absolute and is rebuttable. **Receipt of Later Installment** If the debt consists in the payment of installments, and the creditor issues a receipt acknowledging payment of a later installment without any reservation with respect to prior installments, it shall be presumed that such prior installments have already been paid. This presumption is disputable in the presence of evidence to the contrary. **ARTICLE 1177.** The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all the rights and bring all the actions of the latter for the same purpose, save those which are inherent in his person; they may also impugn the acts which the debtor may have done to defraud them. **Remedies of the Creditor** There are three remedies available to the creditor to protect and enforce his claims against the debtor under Article 1177: 1\. To pursue the property in possession of the debtor. This is the principal remedy of the creditor against the debtor. 2\. To be subrogated to all the rights and actions of the debtor save those which are inherent in his person or accion subrogatoria. After exhausting all of the properties of the debtor not exempt from execution, the creditor can then proceed against third person against whom the debtor has claims. The creditor now acts in the name of the debtor. It is easy for the debtor not to collect credit he has against third persons. This he can do by mere inaction or by not doing anything at all. Hence, to prevent this, the law is expressly granting the creditor the right to exercise all of the rights and bring all of the actions which the debtor may have against third persons. However, rights of the debtor which arise from personal or family relations, or rights which are public or honorary in character, cannot be included within the scope of this remedy. 3\. To impugn all acts which the debtor may have done to defraud the creditor or accion pauliana. The debtor, in an attempt to defeat the right of the creditor against him, may alienate or convey his property to third persons in fraud of his creditor. The law expressly grants the creditor the right to impugn or attack such acts by rescinding the same. This remedy can only be availed of in the absence of any other legal remedy. **ARTICLE 1178.** Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if there has been no stipulation to the contrary. **Transmissibility of Rights** As a general rule, rights acquired in virtue of an obligation are transmissible. Hence, these rights may be alienated or assigned to third persons. However, there are certain rights which are not transmissible. The exceptions follow: 1\. Rights which are not transmissible because of their nature. For example, purely personal rights; 2\. Rights not transmissible as stipulated by the parties; and 3\. Rights not transmissible by operation of law.