Art. 1156. An obligation is a juridical necessity to give, to do or not to do.

Why is obligation a juridical necessity?

Obligation is a juridical necessity because in case of non-compliance, the courts of justice may be called upon by the aggrieved party to enforce its fulfillment or, in default thereof, the economic value that it represents. 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 consequences.

TWO KINDS OF OBLIGATION

Civil obligation is one which has a binding force in law, and which gives to the obligee or creditor the right of enforcing it against the obligor or debtor in a court of justice. This is the obligation which is defined in Art. 1156 of the Civil Code.

Natural obligation is one which cannot be enforced by action but which is binding on the party who makes it in conscience and according to the natural law.

ESSENTIAL REQUISITES OF OBLIGATION

1. Juridical or legal tie (vinculum juris) - which binds the parties to the obligation, and which may arise from either bilateral or unilateral acts of persons;

2. Active subject - known as the obligee or creditor, who can demand the fulfillment of the obligation;

3. Passive subject - known as the obligor or debtor, against whom the obligation is juridically demandable; and

4. Object or prestation - the subject matter of the obligation; the conduct required to be observed by the debtor. It may consist in giving, doing, or not doing.

How is vinculum juris established?

Vinculum juris is established by law, by bilateral acts (contracts) and by unilateral acts (crimes and quasi-delicts)

Requisites of a valid object

The object must be:1) licit or lawful; 2) possible, physically and judicially;3) determinate or determinable; and 4) there must be pecuniary value or

possible equivalent in money.

(Note: Absence of the first three makes the object void.)

DIFFERENT KINDS OF PRESTATION

1. Obligation to give - consists of the delivery of a movable or immovable thing to the creditor.

2. Obligation to do - covers all kinds of works or services whether physically or mentally.

3. Obligation not to do - consists of refraining from doing some acts.

Art. 1157. Obligations arise from (1) law, (2) contracts, (3) quasi-contracts, (4) acts or omissions

punished by law, and (5) quasi-delicts.

What are the sources of obligations?

The sources of obligations are Law, Contracts, Quasi-contracts, Delicts, and Quasi-delicts.

Art. 1158. Obligations derived from law are not presumed. Only those expressly determined in this book or in special laws are demandable, and shall be regulated by the precepts of law which establishes them, and as to what has not been foreseen by the provisions of this book.

Why do legal obligations or obligations arising from law not presumed?

Legal obligations 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 the special law.

CHARACTERISTICS OF A LEGAL OBLIGATION OR OBLIGATION ARISING FROM LAW

1. It does not need the consent of the obligor;

2. It must be expressly set forth in the law creating it and not merely presumed;

3. In order that the law may be a source of obligation, it should be the creator of the obligation itself.

What governs obligation arising from law?

Obligations arising from law shall be governed by the provisions of the law which establishes them.

When does obligations arising from law perfected?

Obligations arising from law shall be perfected from the time designated by the law creating or regulating them.

How can one determine if the law itself is the source of the obligation or some other act?

According to Manresa, “when the law establishes the obligation and the act or condition upon which it is based is nothing more than a factor for determining the moment when it becomes demandable, then the law itself is the source of the obligation; however, when the law merely recognizes the existence of an obligation generated by an act which may constitute a contract, quasi-contract, criminal offense, or quasi-delict, and the purpose of the law is to regulate such obligation, then the act itself is the source of the obligation and not the law.”

Cite some examples of obligations arising from law?

Some examples of obligations derived from law are: 1) the obligation of the spouses and close relatives to support each other under the Family Code; 2) the obligation of employers to pay 13th

month pay; and 3) the obligation to pay taxes under the National Internal Revenue Code.

Art. 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.

CONTRACT - A contract is a meeting of two minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.

TWO KINDS OF CONTRACT

1. Consensual contract - contracts which are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all of the consequences which according to their nature may be in keeping with good faith, usage and law.

2. Real contract - which are not perfected until the delivery of the object of obligation, i.e., deposit, pledge, and commodatum.

What is compliance in good faith?

Compliance in good faith means performance in accordance with the stipulations, clauses, terms and conditions of the contract. Good faith must be observed to prevent one party from taking unfair advantage over the other party. Evasion by a party of legitimate obligations after receiving the benefits under the contract would constitute unjust enrichment on his part.

What rules logically flow from Art. 1159?

1. One party cannot unilaterally change the provisions of the contract without the consent of the other.

2. The parties cannot refuse to comply with the obligations stated in the contract.

3. Any party can file a case in court if the other party will fail to perform his obligation.

When do contractual obligations arise?

General rule: Contractual obligations arise from the moment it is perfected (i.e. meeting of the minds), obligations which may be either reciprocal or unilateral arise.Exceptions: 1) Where the parties made stipulations

on the right of the creditor to the fruits of the thing; or

2) When the obligation is subject to suspensive condition or period, the obligations arises upon fulfillment of the condition or expiration of the period.

What governs obligations arising from contracts?

General rule: Obligations arising from contracts shall be governed primarily by the stipulations, clauses, terms and conditions as agreed by the contracting parties.Exception: Those contracts with prestations that are unconscionable or unreasonable.

What kinds of obligations arise from the moment of perfection of the contract?

1. Unilateral obligation - where only one party is obliged to do or to give something

2. Bilateral/Reciprocal obligation - both parties are mutually obliged to do or to give something to one another

May a party unilaterally evade his obligation in the contract?

GENERAL RULE: Neither of the parties may unilaterally evade his obligations in the contract.EXCEPTIONS:1) Where the contract itself authorizes

such evasion, or 2) When the other party assents

thereto.

Is there a limitation on the right of the parties to freely enter into stipulation?

Yes. Parties may freely enter into any stipulations provided such are not contrary to law, morals, good customs, public order or public policy.

Art. 1160. Obligations derived from quasi-contracts shall be subject to the provisions of chapter 1, title xvii of this book.

QUASI-CONTRACT - A quasi-contract is that juridical relation resulting from lawful, 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.

ELEMENTS OF QUASI-CONTRACT

1. There must be a lawful, voluntary and unilateral act; and

2. If no obligation is imposed, one will be unjustly enriched at the expense of another.

Distinguish quasi-contract from an implied contract?

It is important that the act is unilateral because if there was mutual agreement, a contract arises rather than a quasi-contract. Hence, quasi-contracts should be distinguished from implied contracts because in the latter, consent of both parties although not expressly given, may be inferred from their acts or declarations. In quasi-contract, there is no such consent of both parties.

TWO PRINCIPAL TYPES OF QUASI-CONTRACT

1. NEGOTIORUM GESTIO - is the voluntary management of the property or affairs of another without the knowledge or consent of the latter.

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.

When does negotiorum gestio arise?

Negotiorum gestio arises whenever a person voluntary takes charge of the agency or management of the business or property of another without the consent or authority from the latter.

When does negotiorum gestio not arise?

Negotiorum gestio does not arise (1) when the property or business is not neglected or abandoned; and (2) if in fact the manager has been tacitly authorized by the owner.

Requisites of negotiorum gestio ?

1. A person voluntarily takes charge of the agency or management of the business or property of another;

2. There was no agreement express or implied or authority from the owner;

3. The property or business was abandoned or neglected.

When does Solutio Indebiti arise?

Solutio indebiti arise if something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises.

Requisites of solutio indebiti?

1. There is an unduly delivery of a thing through mistake;

2. The object was delivered to another who has no right to demand it.

What is presumptive consent?

Presumptive consent refers to a case in a quasi-contract where no express consent is given by the other party, the consent needed in a contract is provided by law through presumption.

Art. 1161. Obligations arising from criminal offenses shall be governed by the penal laws, subject to the

provisions of Art. 2177, and of the pertinent provisions of Chapter 1, Preliminary Title, on Human Relations, and of Title XVIII of this Book, regulating damages.

What is the nature and the basis for obligations arising from delicts or crimes?

Art. 1161 deals with civil liability for damages arising from criminal offenses or delicts since generally, 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 an act or omission is also civilly liable for damages (Art. 100, Revised Penal Code), except for those offenses or special crimes which causes no material damage, hence there is no civil liability to be enforced thereof (Ex. crimes of treason, rebellion, illegal possession of firearm, gambling, violations of traffic regulations, et al)

DUAL ASPECTS OF A CRIME

1. Criminal aspect - one that affects the social order, the purpose of which is to punish or correct the offender

2. Civil aspect - one that affect the private rights and the purpose of which is to repair the damages suffered by the aggrieved party.

What includes civil liability arising from crimes or delicts?

1. Restitution;2, Reparation for the damage caused;

and

3. Indemnification for consequential damages.

What are the rules to be observed in the enforcement or prosecution of civil liability arising from criminal offenses?

1. Institution of criminal and civil actions - when a criminal action is instituted, the civil action for recovery of civil liability is impliedly instituted, except:a. the offended party expressly

waives the civil actionb. the offended party reserves his

right to institute it separately, orc. the offended party institutes the

civil action prior to the criminal action.

2. Independent civil action - where the civil action shall proceed independently of the criminal prosecution and shall require only a preponderance of evidence.

3. Other civil actions arising from offenses - criminal and civil actions arising from the same offense may be instituted separately except:a. When the criminal action has

already commenced, the civil action cannot be instituted until final judgment has been rendered in the criminal action.

b. If the civil action has been filed ahead of the criminal action, the civil action shall be suspended in whatever stage until final judgment in criminal action has been rendered; If no final judgment has been rendered in the civil action, the same may be consolidated with the criminal action and both the criminal and the civil action shall be tried and decided jointly.

c. Extinction of the penal action does not carry with it extinction of the civil, unless provided in the final judgment.

4. Judgment in civil action not a bar - a final judgment rendered in a civil action absolving the defendant from civil liability is no bar to a criminal action.

5. Suspension by reason of prejudicial question - a previously instituted civil action which involves an issue similar or intimately related to the issue raised in the subsequent criminal action, and the resolution of such issue determines whether or not the criminal action may proceed.

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.

QUASI-DELICT - A quasi-delict is the fault of negligence of a person, who, by his act or omission, connected or unconnected with, but independent from any contractual relation, causes damage to another person.

REQUISITIES OF QUASI-DELICT

1. There must be an act or omission;2. There must be fault or negligence;3. There must be damage or injury

caused;4. There must be a direct relation or

connection of cause and effect between the act or omission and the damage; and

5. There is no pre-existing contractual relation between the parties.

Distinctions between Crime and Quasi-delict

CRIME QUASI-DELICTThere is criminal or malicious intent or criminal negligence

There is only negligence

The purpose is punishment

The purpose is indemnification of the offended party

Affects the public interest

Concerns private interest

There are generally two liabilities, criminal and civil liability

There is only civil liability

The guilt of the accused must be proved beyond reasonable doubt

The fault or negligence of the defendant need be proven by preponderance of evidence

Persons liable for obligations arising from quasi-delicts

Except from the person directly responsible for the damage incurred, obligations arising from quasi-delicts are demandable also against the following:

1. The father, and, in case of his death or incapacity, the mother, are liable for any damages caused by the minor children who live with them;

2. Guardians are liable for damages done by minors or incapacitated persons subject to their authority and living with them;

3. Owners or directors of an establishment or business are equally liable for any damages caused by their employees while engaged in the branch of the service in which employed, or on occasion of the performance of their duties;

4. Employers with respect to 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 if the damage shall have properly devolved the duty of doing the act performed, in which case the provisions of the next preceding article shall be applicable;

6. Teachers or directors of arts and trades are liable for any damages caused by their pupils or apprentices while they are under their custody.

(Note: The liability shall cease in case the persons mentioned therein prove that they exercised all the diligence of a good father of a family to prevent the damage)

Requisites of liability arising from quasi-delicts

1. The fault or negligence of the defendant;

2. The damage suffered or incurred by the plaintiff; and

3. The relation of cause and effect between the fault or negligence of the defendant and the damage incurred by the plaintiff.

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.

Things to be delivered in an Obligation to Give

1. DETERMINATE or GENERIC Determinate/Specific - when the

object is particularly designated or physically segregated from all others of the same class. The object is a concrete, particularized thing, indicated by its own individuality.

Generic or Indeterminate - 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. The object is one whose determination is confined to that of its nature.

2. FUNGIBLE or NON-FUNGIBLE Fungibles – things that can be

replaced by another of the same kind

Non-Fungibles – things that cannot be replaced and not equivalent of others even if similar things

3. CONSUMABLE or NON- CONSUMABLE Consumable – movables which

cannot be used in a manner appropriate to their nature without their being consumed.

Non-Consumable – those which can be used in a manner appropriate to their nature without being consumed

4. REAL (IMMOVABLE) or PERSONAL (MOVABLE) Real or Immovable – those

specified in Art. 415 of the New Civil Code such as land and building

Personal or Immovable – those specified in Art. 416 an 417 of the New Civil Code such as a pencil, a sack of rice, table or chair.

What are the principal purposes in obligations to give?

1. To transfer ownership2. To transfer mere possession

NATURE OF OBLIGATION UNDER ART. 1163

Under Art. 1163, the obligor/debtor has the following obligations to the oblige/creditor:

1. Principal obligation to give a determinate or specific thing

2. Accessory obligations that are deemed included in the obligation to give a determinate thing. These include the following:a. To take care of the thing to be

delivered with the diligence of a good father of a family;

b. To deliver the accessions and accessories; and

c. To deliver the fruits from the moment the obligation to deliver arises.

DILIGENCE OF A GOOD FATHER OF A FAMILYThe duty to exercise due diligence is imposed because if the same is not present, the obligation may be rendered illusory. If the thing will not be preserved, then it would be unfair to the oblige or creditor who may be receiving a property that is already damages or he may not receive the property altogether because it may have been destroyed in the meantime.

The standard being used is the diligence of a good father of a family. Sometimes, the good father of a family is called a reasonable man or a man of ordinary diligence or prudence. What this means

is that the diligence should be the behaviour of an ordinary man in a particular situation.

What could be the effect if there is failure to exercise due diligence?

1. The obligor or debtor may be liable for damages;

2. The obligor or debtor is liable even if there was fortuitous event.

When does diligence of a good father not required?

1. When the law requires a different degree of diligence as in the case of common carriers which requires the exercise of extraordinary or utmost diligence in the vigilance over goods and passengers that they contracted to carry. Also, members of the Monetary Board, officials and examiners and employees of the Bangko Sentral ng Pilipinas are required to exercise extraordinary diligence in the performance of their duties.

2. When the parties stipulate a different standard of care.

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 delivered to him.

When does the obligation to deliver the thing and the fruits arise?

In obligations arising from law, quasi-contracts, criminal offenses, and quasi-delicts - from the time designated by the provisions of the Civil Code or of

special laws creating or regulating them.

In obligations arising from contracts, as a general rule, from the moment of the perfection of the contract.Exception: If there is a contrary stipulation of the parties as to the time when the thing or fruits shall be delivered, such stipulation shall govern.

To illustrate:1. If the obligation is subject to

suspensive condition, the obligation to deliver arises only from the moment of the fulfillment of the condition.

2. If the obligation is subject to a suspensive term or period, the obligation to deliver arises only upon the expiration of the designated term or period.

NATURE OF RIGHT OF CREDITOR

1. Personal right - a right pertaining to a person to demand from another, as a definite passive subject, the fulfillment of a prestation to give, to do or not to do. It is a jus ad rem, a right enforceable only against a definite person or group of persons.

2. Real right - a right pertaining to a person over a specific thing, without a passive subject individually determined against whom such right may be personally enforced. It is a jus in re, a right enforceable against the whole world.

Therefore, before delivery, the creditor, in obligations to give, has merely personal right against the debtor - a right to ask for delivery of the thing and

the fruits thereof. Once the thing and the fruits are delivered, then he acquires a real right over them, a right which is enforceable against the whole world.

Art. 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by Art. 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.

RIGHTS OF CREDITOR IN DETERMINATE OBLIGATIONS

1. To compel specific performance - the creditor may compel the debtor to make the delivery, likewise the debtor of a thing cannot compel the creditor to receive a different one, although the latter may be of the same value as, or more valuable than that which is due. If the debtor does not comply with his obligation at the time when the obligation to deliver arises or if he insists on delivering a different one, the remedy of the creditor is to file an action against the debtor to compel specific performance.

2. To recover damages for breach of the obligation through delay,

fraud, negligence or contravention of the tenor thereof.

RIGHTS OF CREDITOR IN GENERIC OBLIGATIONS

1. To ask for performance of the obligation - in indeterminate or generic obligations to give, the creditor can only ask for the delivery of a thing or object belonging to the class or genus stipulated which must be neither of superior nor inferior quality.

2. To ask that the obligation be complied with at the expense of the debtor.

3. To recover damages for breach of the obligation non-compliance of the debtor with his obligation, or in case of breach by reason of fraud, negligence, delay or contravention of the tenor of the obligation.

OBLIGATIONS OF DEBTOR IN DETERMINATE OBLIGATIONS

1. To perform the obligation specifically. The obligor or debtor binds himself to deliver to the obligee or creditor a thing or object which is particularly designated or physically segregated from all others of the same class.

2. To take care of the thing with the proper diligence of a good father of a family.

General rule: The standard of care which must be exercised for the preservation of the thing must be the diligence of a good father of a family.

Exceptions:1. If the law requires another standard of care.2. If the parties stipulate another standard of care.

3. To deliver all accessions and accessories of the thing, even though they may not have been mentioned.

Accessions - signifies 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.

Accessories - signifies 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.

4. To be liable for damages in case of breach of the obligation by reason of delay, fraud, negligence, or contravention of the tenor thereof.

Exception: This liability does not arise if the breach is due to a fortuitous event.

Exceptions to the exception: 1. If there is delay on the part of the

obligor to deliver a determinate thing.2. If the obligor promised to deliver

the same thing to two or more persons who do not have the same interest.

OBLIGATIONS OF DEBTOR IN GENERIC OBLIGATIONS

1. To deliver a thing which is neither of superior nor inferior quality.

2. To be liable for damages in case of breach of the obligation by reason of delay, fraud, negligence or contravention of the tenor thereof.

OBLIGATIONS TO DO, EFFECTS OF BREACH

1. Failure of the obligor to comply with the obligation to do

Remedy: The obligee can have the obligation performed or executed by another at the expense of the obligor.

Exception: When such prestation consists of an act where the personal and special qualifications of the obligor is the principal motive for the establishment of the obligation.

2. If the obligation has been performed but in contravention of the tenor thereof

Remedies:a. The obligee can have the

obligation performed or executed at the expense of he obligor

b. The obligee can ask that what has been poorly done be undone

c. The obligee can recover damages because of breach of the obligation.

OBLIGATIONS NOT TO DO, EFFECTS OF BREACH

If the obligor does what has been forbidden him, two remedies are available to the obligee:

1. To have it undone at the expense of the obligor in accordance with Art. 1168.

Exceptions: a. Where the effects of the act

which is forbidden are permanent or definite in character.

b. Where it would be physically or legally impossible to undo what has been done because of the very nature of the act itself, or because of a provision of the law, or because of conflicting rights of third persons.

2. To ask for damages in accordance with Art. 1170.

BREACH OF OBLIGATIONS - In general, the breach of an obligation may either be voluntary or involuntary.

1. Voluntary - if the debtor or obligor in the performance of his obligation is guilty of default (mora), or fraud (dolo), or negligence (culpa), or in any manner contravenes the tenor thereof. The obligor is liable for damages.

2. Involuntary - if he is unable to comply with his obligation because of an event which cannot be foreseen, or which, though foreseen, was inevitable (fortuitous event). The obligor is not liable for damage.

VOLUNTARY BREACH THROUGH DEFAULT OR MORA - Default or mora signifies the idea of delay in the fulfillment of an obligation with respect to time.

Three Kinds of Default or Mora

1. Mora solvendi - the delay of the obligor or debtor to perform his obligation.

Mora solvendi ex re - when the obligation is to giveMora solvendi ex persona - when the obligation is to do

2. Mora accipiendi - the delay of the obligee or creditor to accept the delivery of the thing which is the object of the obligation

3. Compensatio morae - the delay of the parties or obligors in reciprocal obligations

Requisites of Default

1. When the obligation is demandable and already liquidated;

2. When the obligor or debtor delays performance; and

3. When the creditor requires the performance judicially or extra-judicially.

Default in Positive Obligations

In obligations to give or to do, the obligor or debtor incurs in delay from the time the obligee or creditor demands from him the fulfillment of the obligation.

Two Kinds of Demand

1. Judicial - if the creditor files a complaint against the debtor for the fulfillment of the obligation

2. Extrajudicial - if the creditor demands from the debtor the

fulfillment of obligation either orally or in writing.

When Demand is Not Necessary

1. When the obligation or the law expressly so declares;

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 (when time is of the essence).

3. When demand would be useless, as when the obligor has rendered it beyond his power to perform.

Default in Negative Obligations

The obligor can not possibly incur in delay in obligations not to do for these obligations have a peculiarity of their own which the law does not show bu which is evidence from their special nature.

Default in Reciprocal Obligations

In reciprocal obligations, one party incurs in delay from the moment the other party fulfills his obligation, while he himself does not comply or is not ready to comply in a proper manner with what is incumbent upon him.

General rule: Fulfillment by both parties should be simultaneous or at the same time.

Exception: Where different dates for performance or fulfillment of the reciprocal obligations may be fixed

by the parties, in which case, Art. 1169 par. 1 shall apply.

Effect of Default

- Once the obligor or debtor has incurred in delay, he can be held liable for damages even if the thing which constitutes the object of the obligation may have been lost or destroyed through a fortuitous event.

- If the obligation consists in the payment of sum of money, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest which is computed from the time it is judicially demanded.

- Damages where one is injured by a breach of a contract, or by a wrongful act or omission, shall have a fair and just compensation commensurate to the loss sustained as a consequence of the defendant's act.

VOLUNTARY BREACH THROUGH FRAUD OR DOLO - Fraud or dolo consists in the conscious and intentional proposition to evade the normal fulfillment of an obligation.

Two Kinds of Civil Fraud

1. Fraud or Dolo in the Performance of an Obligation

a. Present only during the performance of a pre-existing obligation

b. Employed for the purpose of evading the normal fulfillment of an obligation

c. Results in the non-fulfillment or breach of the obligation

d. Gives rise to a right of the creditor or obligee to recover damages from the debtor or obligor

2. Fraud or Dolo in the Constitution or Establishment of an Obligation

a. Present only at the time of the birth of the obligation.

b. Employed for the purpose of securing the consent of the other party to enter into the contract.

c. Results in the vitiation of his consent.

d. Gives rise to a right of the innocent party to ask for the annulment of the contract if the fraud is causal or to recover damages if it is incidental.

Effect of Fraud

- If there is a breach or non-fulfillment of the obligation by reason of fraud or dolo, the obligor or debtor can be held liable for damages.

- Malice or dishonesty is implied as a ground for damages. Fraud or dolo is synonymous with bad faith.

- Waiver or renunciation of liability made in anticipation of the fraud is VOID for being contrary to law and public policy.

- Waiver or renunciation of liability made after the fraud has already

been committed is VALID since such waiver can be deemed an act of generosity.

- What is renounced is the effect of fraud or the right of the party to indemnity.

Extent of Damages in Case of Breach or Non-Fulfillment of the Obligation by Reason of Fraud or Dolo

- All damages which may be attributable to the breach or non-fulfillment of the obligation, regardless of whether such consequences are natural or unnatural, probable or improbable, foreseeable or unforeseeable.

- Moral and exemplary damages.

VOLUNTARY BREACH THROUGH NEGLIGENCE OR CULPA - 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 simply the absence of due care required by the nature of the obligation.

Two Kinds of Civil Negligence

1. Culpa Contractual - fault of 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 - the fault of 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.

Distinction between Culpa Contractual (CC) and Culpa Aquiliana (CA)

1. As regards the character of the negligence of the defendant

CC - incidental in the performance of an obligationCA - substantive and independent

2. As regards the relationship of the parties

CC - there is always a pre-existing contractual relationCA - there may or may not be a pre-existing contractual relation

3. As regards the source of obligation

CC - breach or non-fulfillment of the contractCA - defendant's negligent act or omission itself

4. As regards the proof required for recovery

CC - existence of the contract and of its breach or non-fulfillment is sufficient prima facie to warrant recoveryCA - negligence of the defendant must be proved

5. As regards the availability of due diligence as a defense

CC - proof of diligence in the selection and supervision of employees is not available as a defenseCA - proof of diligence in the selection and supervision of employees is available as a defense.

Negligence (Culpa) Distinguished from Fraud (Dolo) in Relation to Obligations

1. As to the element of intention

Negligence - if there is merely abandonment, inattention, carelessness, or lack of diligenceFraud - if there is intent to cause damage or injury

2. As to characteristics

Negligence - the act or omission is voluntary in characterFraud - conscious and intentional proposition to evade the fulfillment of an obligation

3. As to governing rule

Negligence - Art. 1173 shall also govern if the act or omission shows bad faithFraud - Art. 1173 par. 1

4. As to waiver of a future action

Negligence - can be waived unless the nature of the obligation and public policy requires extraordinary diligence

Fraud - any waiver of an action for future fraud is void.

Test of Negligence

Did the defendant in doing the alleged negligent act use the reasonable care and caution which an ordinarily prudent person would have used in the same situation? If not, then he is guilty of negligence.

Effects of Negligence

If the debtor or obligor is unable to comply with his obligation because of his fault or negligence, the creditor or obligee can hold him liable for damages even if he has been acquitted in a criminal action based on his negligent act or omission.

Waiver to an action for future negligence is allowed unless the nature of the obligation and public policy should require extraordinary diligence, as in the case of common carriers.

Regulatory Powers of the Court

- The Court may increase or decrease the liability of the party at fault depending upon the circumstances of each case. The Court may take into consideration the good or bad faith of the obligor or the conduct of the obligee when the damage was incurred.

- If there is bad faith, the provisions of Art. 1173 and Art. 2201, par. 2 will apply. If done in good faith, liability will only be on natural and probable consequences of the breach of obligation.

- Damages resulting from negligence is reduced or mitigated if there was contributory negligence of the obligee.

- Other circumstances that can mitigate the damages:

a. When the plaintiff himself contravenes the terms of the contract;

b. Where the plaintiff has derived some benefit as a result of the contract;

c. In cases where exemplary damages are to be awarded, where the defendant acted upon advice of counsel;

d. Where the loss would have resulted in any event;

e. Where upon filing of the action, the defendant has done his best to lessen the plaintiff's loss or injury.

- If the negligent act of the obligee is the proximate cause of the event which led to the damage or injury complained of, he cannot recover.

VOLUNTARY BREACH THROUGH CONTRAVENTION OF TENOR OF OBLIGATION - The phrase “in any manner that contravenes the tenor” of the obligation includes not only any illicit act which impairs the strict fulfillment of the obligation but also every kind of defective performance.

CONCEPT OF FORTUITOUS EVENT (Art. 1174)

Fortuitous event (caso fortuito) - an event which could not be foreseen, or which, though foreseen, was inevitable.

Elements of Fortuitous Event

1. Unforeseability2. Inevitability

Two General Causes of Fortuitous Event (Arturo M. Tolentino)

1. By nature, such as earthquakes, storms, floods, epidemics, fires, etc.

2. By the act of man, such as an armed invasion, attack by bandits, governmental prohibitions, robbery, etc.

Classification of Fortuitous Event

As to fortuitous even proper

1. Acts of God - those which are absolutely independent of human intervention such as rains, typhoons, floods, cyclones, earthquakes or any other similar calamity brought about by natural forces.

2. Force Majeure - events which arise from legitimate or illegitimate acts of persons other than the obligor, such as commotions, riots, wars, robbery, and similar acts.

As to foreseeability

1. Ordinary - an event which usually happens or which could have been reasonably foreseen.

2. Extraordinary - an event which does not usually happen and which could not have been reasonably foreseen, such as fire, war, pestilence, unusual

flood, locust, earthquake, and others of a similar nature.

Effect Upon Obligation

General rule: If the obligor is unable to comply with his obligation by reason of a fortuitous event, he is exempted from any liability whatsoever. In other words, his obligations is extinguished.

Exceptions:1. Where such liability is expressly specified by law (Arts. 552 (2), 1165 (3), 1268, 1942, 1979, 2147, 2148 and 2159 NCC)

2. Where it is declared by stipulation of the parties - if the contracting parties expressly agree that the debtor can be held liable even in case of fortuitous events, such agreement shall be binding.

3. Where the nature of the obligation requires the assumption of risk. this is an aspect of what is known as the Doctrine of Assumption of Risk where the obligor or debtor, with full knowledge of the risk, voluntarily enters into some obligatory relation with the creditor or obligee.

PRINCIPLE OF VOLENTI NON FIT INJURIA - no wrong is done to one who consents. If the obligor enters into an obligation which by its nature involves the assumption of risks, he shall be liable to the obligee for breach even in case of fortuitous events.

Essential Requisites or Conditions to be Exempted from Liability by Caso Fortuito

1. The event must be independent of the will of the obligor;

2. The event must be either unforeseeable or inevitable;

3. The event must be of such character as to render it impossible for the obligor to fulfill his obligation in a normal manner;

4. The obligor must be free from any participation in the aggravation of hte injury resulting to the obligee or creditor;

5. There must be an entire exclusion of human agency from the cause of injury or loss.

In the following instances, a person is still civilly liable for failure to comply with his obligation although he was prevented from doing so by a fortuitous event:

1. When by law, the debtor is liable even for fortuitous event;

2. When by stipulation of the parties, the debtor is liable even for fortuitous events;

3. When the nature of the obligation requires the assumption of risk;

4. When the object of the obligation is lost and the loss is due partly to the fault of the debtor;

5. When the object of the obligation is lost and the loss occurs after the debtor has incurred in delay;

6. When the debtor promised to deliver the same thing to two or more persons who do not have the same interest;

7. When the obligation to deliver arises from a criminal offense; and

8. When the obligation is generic.

USURIOUS TRANSACTIONS

Usury - contracting for or receiving something in excess of the amount allowed by law for the loan or forbearance of money, goods or chattels. It is the taking of more interest for the use of money, goods or chattels or credit than the law allows.

Extinguishment of Interests and Prior Installments (Art. 1176)

- There is a presumption that the interests has been paid if on the face of the receipt that the creditor issued to the obligor that the principal has been paid without reservation with respect to the interest. (in accordance with Art. 1253).

- If the debtor is issued a receipt by the creditor acknowledging payment of a latter installment without reservation to prior installments, there is also a presumption that such prior installments have already been paid.

- For the presumption to arise, the receipt should clearly state that the payment is for the installment for a latter installment or as payment for the interest. This presumption, however, can be properly rebutted by competent evidence to the contrary.

Remedies of Creditor to Protect Credit

1, To exhaust the property in possession of the debtor;

2. To be subrogated to all of the rights and actions of the debtor

save those which are inherent in his person;

3. To impugn all of the acts which the debtor may have done to defraud him.

Exhaustion of Debtor's Property - the debtor is liable with all his property, present and future, for the fulfillment of his obligations subject to the exemptions provide by law.

Accion Subrogatoria - actually, the debtor may defeat the right of the creditor by mere omission or inaction. He may simply fail, or neglect, or refuse to collect any credit which he may have against a third person. In order to prevent this, the law expressly grants to the creditor the right to exercise all of the rights and bring all of the actions which the debtor may have against third persons.

Conditions for the Creditor to Avail of the Remedy of Accion Subrogatoria

1. The debtor to whom the right or action properly pertains must be indebted to the creditor;

2. The latter must be prejudiced by the inaction or failure of the debtor to proceed against the third person;

3. The creditor must have first pursued or exhausted all of the properties of the debtor which are not exempted from execution.

Exception: Rights which are purely personal in the sense that they are inherent in the person of the debtor, such as rights arising from purely personal or family relations or those which are public or honorary in

character, cannot be included within the scope of this remedy.

Accion Pauliana - refers to the right available to the creditor by virtue of which he can secure the rescission of any act of the debtor which is in fraud and to the prejudice of his rights as a creditor. This can only be availed of in the absence of any other legal remedy to obtain reparation for the injury.

Transmissibility of Rights

General rule: Rights of obligations or those rights which are acquired by virtue of an obligation are transmissible in character. They may be alienated or assigned to third persons.

Exceptions:1. Where they are not transmissible

by their very nature, such as in the case of purely personal right;

2. Where there is a stipulation of the parties that they are not transmissible; and

3. Where they are not transmissible by operation of law.

(Note: Intransmissibility by stipulation of the parties, being exceptional and contrary to the general rule, must be clearly established or clearly inferable from the provisions of the contract itself.)

CHAPTER 3 - DIFFERENT KINDS OF OBLIGATIONS

Section 1 - Pure and Conditional Obligations

Pure Obligations - one whose effectivity or extinguishment does not depend upon the fulfillment or non-fulfillment of a condition or upon the expiration of a term or period, and which, as a consequence, is characterized by the quality of immediate demandability.

Conditional Obligations - one whose effectivity is subordinated to the fulfillment or non-fulfillment of a future and uncertain fact or event.

Requisites of Conditional Obligations

1. The event must be future2. The event must be uncertain

Classification of Conditions

1. Suspensive - when the fulfillment of the condition results in the acquisition of rights arising out of the obligationResolutory - when the fulfillment of the condition results in the extinguishment of rights arising out of the obligation.

2. Potestative - when the fulfillment of the condition depends upon the will of a party to the obligationCasual - when the fulfillment of the condition depends upon chance and/or upon the will of a third personMixed - when the fulfillment of the condition depends partly upon the will of a party to the obligation and partly upon chance and/or the will of a third person

3. Possible - when the condition is capable of realization according

to nature, law, public policy or good customsImpossible - when the condition is not capable of realization according to nature, law, public policy or good customs

4. Positive - when the condition involves the performance of an actNegative - when the condition involves the omission of an act

5. Divisible - when the condition is susceptible of partial realizationIndivisible - when the condition is not susceptible of partial realization

6. Conjunctive - when there are several conditions, all of which must be realizedAlternative - when there are several conditions, but only one must be realized

7. Express - when the condition is stated expresslyImplied - when teh condition is tacit.

I. SUSPENSIVE and RESOLUTORY CONDITIONS

Suspensive Condition - is a future and uncertain event upon the happening or fulfillment of which rights arising out of the obligation are acquired. Here, the birth or effectivity of the obligation is suspended until the happening or fulfillment of the event which constitutes the condition.

Resolutory Condition - is a future and uncertain even upon the happening or fulfillment of which rights which are

already acquired by virtue of the obligation are extinguished or lost. Here, when the obligation is subject to a resolutory condition, the juridical relation which is established as a result of the obligation is subject to the threat of extinction.

Effects of Suspensive and Resolutory Conditions

1. If an obligation is subject to a suspensive condition:

a. The acquisition of right shall depend upon the happening or fulfillment of the fact or event whcih constitutes the condition.

b. The obligation shall become effective only upon the fulfillment of the condition.

c. What is acquired by the obligee or creditor upon the constitution of the obligation is only a mere hope or expectancy, however, it is protected by law.

2. If an obligation is subject to a resolutory condition:

a. Becomes demandable immediately after its establishment or constitution.

b. Rights arising out of the obligation are acquired immediately and vested in the obligee or creditor, however, this is without prejudice to the happening or fulfillment of the event which constitutes the condition.

c. Although rights are immediately vested in the obligee or creditor upon the constitution of the obligation, such rights are always

subject to the threat or danger of extinction.

Distinctions of Suspensive and Resolutory Conditions

1. In a Suspensive Condition --

a. If the suspensive condition is fulfilled, the obligation arises or becomes effective.

b. If the suspensive condition is not fulfilled, no juridical relation is created.

c. In a suspensive condition, rights are not yet acquired, but there is a hope or expenctancy that they will soon be acquired.

2. In a Resolutory Condition --

a. If the resolutory condition is fulfilled, the obligation is extinguished.

b. If the resolutory condition is not fulfilled, the juridical relation is consolidated.

c. In a resolutory condition, rights are already acquired, but subject to the threat of extinction.

II. POTESTATIVE, CASUAL and MIXED CONDITIONS

1. Potestative - one whose fulfillment depends exclusively upon the will of either one of the parties to the obligation.

2. Casual - one whose fulfillment depends exclusively upon chance and/or upon the will of third person.

3. Mixed - one whose fulfillment depends jointly upon the will of either one of the parties to the obligation

and upon chance and/or the will of the third person.

Effects of Potestative Conditions

1. If the fulfillment of the condition depends exclusively upon the will of the creditor, the conditional obligation shall be valid.

2. If the fulfillment of the condition depends exclusively upon the will of the debtor, the conditional obligation shall be void.

Exceptions to No. 2:1. The rule is applicable only to a

suspensive condition. Hence, if the condition is resolutory and at the same time potestative, the obligation is valid even if the fulfillment of the condition is made to depend upon the sole will of the debtor.

2. If the obligation refers to a pre-existing indebtedness.

Effects of Casual Conditions

- If the condition is casual in teh sense that its fulfillment depends upon chance and/or upon will of a third person, the obligation shall be valid.

Effects of Mixed Conditions

- If the condition is mixed in the sense that its fulfillment depends partly upon the will of a party to the obligation and partly upon chance and/or will of a third person, the obligation shall be valid.

III. POSSIBLE and IMPOSSIBLE CONDITIONS

1. Possible - when it is capable of realization not only according to its nature, but also according to the law, good customs and public policy.

2. Impossible - when it is not capable of realization either according to its nature or according to law, good customs or public policy.

Effects

1. Impossible conditions as well as those which are contrary to good customs or public policy and those which are prohibited by law shall annul the obligation which depends upon them.

2. If the obligation, however, is a pre-existing obligation, and therefore, does not depend upon the fulfillment of the condition for its perfection, it is quite clear that only the condition is void, but not the obligation.

3. If the obligation is divisible, that part which is not affected by the impossible or unlawful condition shall be valid.

4. If the condition is not to do an impossible thing, it shall be considered as not having been agreed upon.

IV. POSITIVE and NEGATIVE CONDITIONS

1. Positive - if the condition involves the performance of an act or fulfillment of an event

2. Negative - if the condition involves the non-performance of an act or the non-fulfillment of an event.

Effects

1. The condition that some event happen at a determinate time shall extinguish the obligation as soon as the time expires or if it becomes indubitable that the event will not take place.

2. The condition that some event will not happen at a determinate time shall render the obligation effective from the moment the time indicated has elapsed, or if it has become evident that the event cannot occur.

DOCTRINE OF CONSTRUCTIVE FULFILLMENT OF SUSPENSIVE CONDITIONS

Conditions or Requisites of the Doctrine

1. The obligor must have actually prevented the obligee from complying with the condition; and

2. That such prevention must have been voluntary or willful in character.

Exception:1. The doctrine can be applied only to

suspensive and not to resolutory conditions.

Effect of Suspensive Conditions Before Fulfillment

1. Demandability as well as the acquisition or effectivity of rights arising from the obligation is suspended.

2. The right of the creditor is mere hope and expectancy.

Effect of Suspensive Conditions After Fulfillment

1. The obligation arises and becomes effective.

2. The right of the creditor is perfected.3. Effects are retroactive (applicable

only to consensual contracts).

Retroactivity of Effect

- Once the event which constitutes the condition is fulfilled thus resulting in the effectivity of the obligation, its effects must logically retroact to the moment when the essential elements which gave birth to the obligation have taken place and not to the moment when the accidental element was fulfilled.

- The principle of retroactivity can only apply to consensual contracts.

- In obligations to give, when the obligation imposes reciprocal prestations upon the parties, the fruits and interests during the pendency of the condition shall be deemed to have been mutually compensated.

- When the obligation is unilateral, the debtor shall appropriate the fruits and interests received, unless from the nature and circumstances of the obligation it can be inferred that the intention of the person constituting the same was different.

- In obligations to do or not to do, in case of personal obligaitons, the courts will have to determine in each case the retroactive effect of the condition that has been complied with.

Effect of Loss, Deterioration or Improvement

1. Losses- A thing is lost (1) when it perishes; or

(2) when it goes out of commerce; or (3) when it disappears in such a way that its existence is unknown or it cannot be recovered.

- If the thing is lost without any fault of the debtor, the obligation is extinguished.

- If the thing is lost through the fault of the debtor, the obligation is converted into one of indemnity for damages.

2. Deterioration- If the thing deteriorates without the

fault of the debtor, the impairment is to be borne by the creditor.

- If the thing deteriorates through the fault of the debtor, the creditor may choose between bringing an action for rescission of the obligation with damages and bringing an action for specific performance with damages.

3. Improvements- If the thing is improved by its nature

or by time, the improvement shall inure to the benefit of the creditor

- If the thing is improved at the expense of the debtor, he shall have no right than that granted by usufructuary.

- The debtor cannot ask the creditor to reimburse his expenses for useful improvements and improvement for mere pleasure, but he has the right to remove the same provided it is possible to do so without damage to the thing or property.

- The debtor may also set off the improvements he may have made

on the property against any damage to the same.

Usufruct - right or enjoyment of a thing, the property of which is vested in another and to draw from the same all the profit, utilities, and advantage it may produce without altering the form/substance of the thing.

Effect of Resolutory Conditions Before Fulfillment

1. The obligation is subject to the threat of extinction

2. The obligor or debtor is placed in a position which is very similar to that of the obligee or creditor in obligations with suspensive condition such as he has also a hope or expectancy during the pendency of the condition.

Effect of Resolutory Conditions After Fulfillment

1. The rights vested in the obligation is extinguished.

2. Whatever is paid or delivered to any of the parties should be returned (return to status quo).

Retroactivity of effect

- There are no exceptions in the retroactive effect of resolutory condition.

- In obligations to give, upon the fulfillment of the resolutory condition, the parties shall return to each other what they have received.

- In obligations with a resolutory condition, the fulfillment of the condition signifies the nonexistence of the obligation and what is

nonexistent must not give rise to any effect whatsoever.

- There is no provision of mutual compensation of fruits and interests but in connection with the concept of justice, restitution in Art. 1190 carries with it the consequence of reimbursement for all the expenses incurred for the production, gathering, and preservation of the fruits.

- Mutual restitution is absolute in resolutory conditions because the obligation is extinguished, and it ceases to have effect thus does not carry with it fruits and interests.

- In obligations to do or not to do, the retroactive effects shall depend upon the discretion of the courts as in the case of suspensive conditions.

Effect of Loss, Deterioration or Improvement

- Art. 1189 is also applicable with regard the effects of loss, deterioration, and improvements of things during the pendency of resolutory condition.

- In resolutory condition the “debtor” is the person obliged to return while the “creditor” is the person to whom the thing must be returned.

CONCEPT OF RECIPROCAL OBLIGATIONS - are those which are created or established at the same time, out of the same cause, and which result in mutual relationships of creditor and debtor between the parties.

Tacit Resolutory Condition

General rule: If one of the parties fails to comply with what is incumbent upon

him, there is a right on the part of the other to rescind (or resolve) the obligation.

Necessity of Judicial Action

General rule: The right to rescind or resolve the obligation is a right which belongs to the injured party alone. However, it is essential that it must be invoked jucially. The party entitled to rescind must invoke judicial aid by filing the proper action for rescission or resolution of the contract if he so elects for it is the judgment of the court and not the mere will of the vendor which produces the rescission of the sale.

Exception: Where the contract itself contains a resolutory provision by virtue of which the obligation maybe cancelled or extinguished by the injured party in case of breach, judicial permission to cancel or rescind the contract is no longer necessary.

Notes:

- If there is no express provision of rescission inhe contract, rescission should be invoked judicially.

- The termination of a contract must not be contrary to law, morals, good customs, public order, or public policy.

- Notice is always important in rescission so the alleged infractor can question the propriety of the rescission.

- Art. 1191 is not applicable to contracts of partnership. There are special provisions that govern the latter, thus the general provision will not prevail. The same applies to sales of real property (Recto Law)

and sales of personal property by installment (Maceda Law).

Nature of Breach

General rule: Rescission will be ordered only where the breach complained of is substantial as to defeat the object of he parties in entering into the agreement It will not be granted where the breach is slight or casual.

Alternative Remedies of Injured Party

In case one of the parties should not comply with what is incumbent upon him, the injured party may choose between:

1. Fulfillment of the obligation with payment for damages (specific performance with damages)

2. Rescission of the obligation with payment for damages (resolution with damages)

Note: The injured party can still seek the rescission or resolution of the obligation even if he has opted to choose the fulfillment of such obligation if fulfillment should become impossible.

Damages to be Awarded

1. In case of rescission - only those elements of damages can be admitted that are compatible with the idea of rescission.

2. In case of specific performance - only the elements of damages can be admitted which are compatible with the idea of specific performance.