Sto.

Tomas College of Agriculture, Sciences, and Technology

Sto. Tomas, Davao del Norte

BACHELOR OF SCIENCE IN OFFICE ADMINISTRATION

Course Code: OA13

Course Title: BUSINESS LAW

Prepared by: GILDA O. NARET, MPA

Course Description and Course Objective:

The course covers basic principles in law in relation to contracts and obligations. It
provides the students with an understanding of ethics and social responsibility, and
the ethical application of the law. (CMO 19, series 2017)

Intended Learning:

At the end of the semester the students are expected:

1. To gain knowledge of the legal provisions governing business transactions in

general, and the law on obligations and contracts in particular

2. To prepare the students for advance studies on business law;

3. To develop analytical skills of applying the law on obligations and contracts on

certain situations or business transactions.

TAKE THE CHALLENGE!

In this lesson, challenge yourself to:

a. define the general nature of law;

b. know the classification of law; and

c. value the importance of law

ACTIVITY

Hi! For this activity, I need you to think any idea that you have in mind about the
introduction of business law.

INTRODUCTION TO LAW
 THE NATURE OF LAW IN GENERAL

Meaning of law in general

Law refers to any rule of action or uniformity scheme in its broadest and most
inclusive sense.

As a result, law governs not only men's actions as rational beings, but also the
gestures and motions of all objects of life, whether animate or inanimate.

General divisions of law

As previously established, law can be divided into two (2) categories: (1) law (in the strict
legal sense) that is promulgated and enforced by the state, and (2) non-legal law that is not
promulgated and enforced by the state. The first applies to state law, while the second encompasses
biblical law, natural law, moral law, and physical law. (Introduction by M.J. Gamboa) Introduction
to Philippine Law, 6th ed., p. 3.)

Subjects of law

The concept of law as a rule of conduct includes state law, divine law, natural
law, and moral law. They only refer to men who are human beings. Physical law, on
the other hand, acts on all things, including persons, regardless of their use of will
power and intellect. It is only referred to as law in a figurative sense.

Let us first deal with certain rules that are not specifically relevant to state law
before moving on to the topic of state law.

Divine law

The divine law is a religious and faith-based law that deals with the concepts
of sin (as opposed to crime) and redemption.

(1) It is officially promulgated by God and revealed or divulged to mankind by direct

revelation.

(a) The Ten Commandments are the embodiment of divine law in the Old
Testament. Christians believe that God gave these laws in writing through Moses,
the great Hebrew prophet and king. (See pp. 7-8 of C. Pascual's Legal System, 2nd
ed.) (b) Divine law, of course, varies depending on what one believes was created
and communicated to mankind by revelation. Thus, to the Mohammedans, divine law
is embodied in the Muslim Quoran.

(2) Sanction. - The sanction of divine law lies in the assurance of certain rewards
and punishments in the present life or in the life to come. (Clark, Elementary Law, p.
5.)

Natural law
 Natural law can then be characterized as the divine instillation in man of a
sense of justice, fairness, and righteousness, based solely on internal dictates of
reason rather than divine revelation or formal promulgation.

(1) The force of adhesion. Natural law exists at all times and in all places, and
it binds all persons. Every man possesses a fundamental understanding of right and
wrong based on a grasp of the fundamental standard or criterion of good and evil. In
other words, there are certain actions or behaviors that a person knows in his heart
and conscience rather than through theorizing but are literally good, bad, or evil
according to the dictates of his spiritual existence.

As a result, we know that killing for the sake of killing or stealing for the sake
of stealing is bad or evil because it contradicts our beliefs about what is just, fair, or
righteous. We're talking about moral law or the law of nature when we talk about
man's inward propensity for justice, fairness, and righteousness, which is divinely
inspired through the rules of his higher nature. (See C. Pascual's The Essence of
Things.)

(2) In relation to the divine law. While natural and divine law are quite similar,
they are not identical. Direct revelation makes divine law, as well as religious faith
law, known to man. Natural law, on the other hand, is said to have been imprinted on
man as the center of his higher self from the moment of his birth or perhaps even
before. (see C. Pascual, Legal Method, 2nd ed., p. 111.)

(3) Position in state law. - Natural law has long been recognized as a
reasonable foundation for state law.

Moral law

When we talk about moral law, we're referring to the entirety of the good and
right behavior norms that emerge from each community's collective sense of right
and wrong.

(1) Determination of what is right and wrong. - "Human beings discovered

early on that it was best for the group's wellbeing if the decision-making authority
over right and wrong was not delegated to each person. The community then formed
mores or ways of life that were often considered right and proper, and adherence to
them was requested."

(2) Sanction - There is no definite legal penalty (punishment levied by statute

such as imprisonment and/or payment of fines or dam ages) for breach of solely
moral law, unlike state law. When a member of the society disregards moral values,
a spontaneous social reaction such as public displeasure, disdain, or even
indignation occurs. If, on the other hand, there is conformity to the moral norms,
there is created spontaneous social response which may be in the form of public
pleasure, approval or even joy." (see C. Pascual, The Nature and Elements of Law,
1954 ed., p. 16.)
 (3) Binding force. - There is no such thing as an absolute moral code. It varies
with changing times, circumstances, and people's convictions. Polygamy, for
example, is considered unethical (and illegal) in the Philippines, but it is legal in other
parts of the world. Women's fashions today are socially appropriate, but they would
have been morally inappropriate at other times.

(4) Place in state law. Moral law, to a great extent, influences or shapes state
law.

Physical law

"There are uniformities of acts and orders of series in the operation or course
of nature, which are the physical phenomena that we perceive and feel. The rules of
physical science, or physical law, are what they're called."

(1) Order or regularity in nature. - A physical law is nothing more than an

order or regularity in nature by which certain results follow certain causes, and it is
addressed to objects that have no power to disobey it. (Page 34 of Clark's
Elementary Law.)

(2) Called law only by analogy. - To put it another way, this order or regularity
is just called rule by comparison. "There are various examples of physical law. The
laws of gravitation and chemical combination are two of the most well-known." (See
p. 13 of C. Pascual's Legal System, 2nd ed.)

State law

The kind of law, however, which particularly concerns us in this work is the
state law or the law that is promulgated and enforced by the state.

(1) Other terms used. Positive law, municipal law, civil law, and imperative law
are all terms used to describe this type of law. When we talk about law in relation to
responsibilities and contracts, marriage, the administration of justice, the conduct of
elections, and the whole governmental process, we're talking about it.

(2) Binding force. - Only state law is implemented by the state as a rule, with
the use of physical force if appropriate.

(3) Concern of state law. - State law is distinct from divine law, natural law,
and moral law in that it is not concerned with violations of the latter's laws of conduct
unless they also constitute violations of its commands. A detailed analysis of divine
law belongs in metaphysical theology; natural law, in metaphysics; moral law, in
ethics; and physical law, in physics or physical science. (M.J. Gamboa, op. cit., P.5.)

Leaving aside these topics, we proceed now with the consideration of state
law.
Concepts of (state) law

The term law can be interpreted in two ways: in a broad, abstract sense, and
in a more specific, material sense.

(1) In its general sense, the term refers to all the laws taken together. "The
mass of mandatory rules created for the purpose of regulating the relations of
persons in society," according to one definition. (see A. Tolentino, Civil Code of the
Philippines, 1953 ed., Vol. 1, p. 1.) Examples of the use of law in this sense are: "law
of the land," "rule of law and not of men," "equality before the law," "enforcement of
the 11 law," etc.

(2) In its specific sense, the term has been defined as "a rule of conduct, just,
obligatory, promulgated by legitimate authority, and of common observance and
benefit." (I Sanchez Roman 3.) It has this second connotation when we refer to a
particular statute or legal rule, e.g., the law on obligations and contracts.

Characteristics of law

The characteristics of law (in its specific sense) are:

(1) It is a rule of conduct. The legislation defines what should and should not
be done. Only external actions are taken into account by statute as a norm of human
behavior.

(2) It is obligatory. A positive order enforcing an obligation to obey and

requiring a punishment that forces compliance is referred to as law.

(3) It is promulgated by legitimate authority. – The legislature is the legal or

competent authority in a democratic country like the Philippines. The legislative
branch of our government, known as Congress, is responsible for enacting laws
known as "statutes"; local government units are also empowered to enact
ordinances that have the same legal force as statutes; and the executive branch of
our government is responsible for enacting laws known as "proclamations."

(4) It is of common observance and benefit. Man created law in order for it to
represent him. It controls men's interactions in order to preserve social stability and
allow for order and coexistence. As a consequence, the rule must be enforced by all
for the good of all.

Necessity and functions of law

(1) What would it be like if there were no laws? If we can answer this
question, we will be able to answer the more important question of whether or not
law is needed. If life will be the same without law as it is now, then law is clearly
unnecessary.
 Society evolves as a result of the inability of its citizens to survive without it.
As constant as the need for external security is the need for internal order. In order
for a community to be stable, it must meet all of these conditions. (see F. Pollack, A
First Book on Jurisprudence, 5th ed., p. 6.)

(2) What does law do? Law, it is said, secures justice, settles social tension,
orders society, protects interests, and governs social relationships. Life would be
lonely, dirty, brutish, and short if there were no simple laws against robbery, crime,
and destruction. Life would be less organized if there were no other laws governing
traffic, sanitation, employment, industry, redress of harm or broken agreements, and
so on. (see Howard and Summers, Law, Its Functions, and Its Limits, 1965 ed., Pp.
35-37.)

(3) What is our duty as members of society? Without social regulation,

without laws of social order binding on its members, no society will last and continue.
What we commonly refer to as law, or the legal system, is the total of all the laws
that exist in a given society, in whatever form they take. Since we believe that law is
important, every person should have a basic understanding of it and follow it for the
greater good.

Sources of law

The Constitution, laws, administrative rules and regulations, judicial rulings,

and customs are the primary sources of law in the Philippines.

(1) Constitution. It can be characterized as "the written instrument by which

the fundamental powers of the government are created, restricted, and defined, and
by which these powers are distributed among the various departments for their safe
and useful exercise for the benefit of the people," with particular reference to the
Philippine Constitution. (see Malcolm & Laurel, Phil. Constitutional Law, 1936 ed., p.
6.)

Since it is promulgated by the people and is binding on all private citizens and
government institutions, it is also referred to as the constitutional law, supreme law,
or highest law of the land. It is the rule to which all other legislation passed by the
legislature must comply (as well as administrative or executive acts, directives, and
regulations of legal force).This means that laws which are declared by the courts to
be inconsistent with the Constitution shall be void and the latter shall govern. (see
Art. 7, Civil Code.)

(2) Legislation. – It requires a competent authority issuing a statement of legal

law. (P. 209 in Salmond's Jurisprudence, 9th ed.) In the Philippines, it is the most
popular source of law. Enacted law, also known as statute law, refers to laws
enacted by the legislature. Ordinances passed by municipal governments units are
included in law.
 (3) Administrative or executive orders, regulations, and rulings. Administrative
officials are the ones who issue them under legislative authority. Administrative rules
and regulations are meant to clarify or justify the law and put its general provisions
into effect. Administrative acts are only legal if they do not violate the law or the
Constitution. (Art. 7, Civil Code.)

(4) Judicial decisions or jurisprudence. - The legal system of the Philippines is

made up of court decisions, especially those of the Supreme Court, that apply or
interpret the laws or the Constitution. (Ibid., art. 8) Both subordinate courts are bound
by the decisions of a supreme court on a point of law. The law of precedent, also
known as governs this situation.

The Supreme Court, on the other hand, has the power to overturn or amend
any of its previous decisions. Until then, the Supreme Court's rulings defining or
enforcing the laws or the Constitution are "laws" in and of themselves because they
specify what the laws say or mean. Unlike lower court rulings, which bind the parties
to specific cases only, its decisions apply to all. (Phil. Veterans Affairs Office vs.
Segundo, 164 SCRA 365.)

(5) Custom. –"It consists of those behaviors and practices that have become
recognized and authorized by society as binding rules of conduct as a result of long
and continuous use." When the state acknowledges and enforces it, it has the force
of law. (Op. cit., p. 15.) M.J. Gamboa. For example, in a contract for services
provided where no specific fee is specified, the amount to be paid may be
determined by local customs and usages. (see Smith vs. Lopez, 5 Phil. 78.)

According to the rules of proof, a tradition must be proven as a fact. (infra-red)

(Article 12 of the Civil Code.) It may be used by the courts where there is no existing
law or regulation that relates to the problem at hand. Customs that are in violation of
the constitution, public order, or public policy, on the other hand, are not tolerated.
(Ibid., Art. 11)

(6) Other sources. - Principles of justice and equity, judgments of

international tribunals, text writers' opinions, and faith can be added to the above.
They are, however, just secondary, meaning that the courts can use them after any
other options have been exhausted. They are not, however, enforceable by the
courts. (See also ibid., pp. 11–14.)

Rule in case of doubt in interpretation or application of laws

"No judge or court shall fail to make judgment because of the silence,
obscurity, or insufficiency of the statutes," according to our Civil Code. (Article 9 of
the Civil Code.) "It is assumed that the lawmaking body intended right and justice to
prevail in cases of doubt in the interpretation or application of laws." (Ibid., Art. 10)

Courts are not only courts of law, but also courts of justice in our country.
When faced with a judgment that will serve justice over one that will reject it due to
an excessively stringent reading of the rule, courts must prefer the former, since the
primary purpose of the law is justice. (Pangan vs. Court of Appeals, 166 SCRA 375.)
This is particularly true where what is at stake is the life, liberty, or property of an
individual, and more so if he is poor or disadvantaged.

Organs of social control

Law isn't a target in and of itself. It could be considered a type of social

control, or the control of social behavior that has an impact on others. (Op. cit., p. 38;
Howards and Summers, op. cit., p. 38.)

There are various social control organs in modern pluralistic societies. In the
Philippines, for example, there are churches, businesses, political parties, trade
groups, colleges, labor unions, professional societies, social clubs, communities, and
a slew of other organizations in addition to national and local legal institutions. Such
organizations, through rules, regulations and orders, control some of the behavior of
their members.

Law compared with other means of social control

There are many main distinctions between social regulation by statute and
control by other means, including:

(1) Laws are enacted and enforced by the only entities of society with the
authority to act on behalf of all citizens. Churches, for example, behave solely in the
interests of their members.

(2) Only the legal authorities of a state have the power to enact laws,
regulations, and orders that must be followed by all people. For example, the rules of
social and economic organizations regulate only a small number of people.

(3) People who are affiliated with an organization will usually end their
relationship and thus be free of the organization's rules and regulations. Citizens of a
state, on the other hand, can only do so if they want to leave the state's sovereign
territory.

(4) The legal prohibitions or techniques of regulation are more diverse and
nuanced than those used by churches, trade unions, and political parties. Expulsion
is typically the most effective weapon at a company's disposal to ensure compliance
with its rules, regulations, and procedures. For the employee, it means losing his or
her work.

Apart from incarceration and expulsion, the legislation also provides for the
denial or revocation of a license, the confiscation of land, the imposition of civil
liability for certain forms of actions, the dissolution of organizations, and the denial of
privileges. A sentence is remedial if the object is to compensate a person who has
sustained damages or injuries as a result of a legal breach, and punitive if the object
is to punish the violator.

(5) A number of procedural steps must be completed before the law

"operates" against a person. As a result, the defendant is usually entitled to a
hearing and a reasonable chance to demonstrate why he should not, for example, be
compelled to pay money to a complainant or be stripped of his liberty. These
processes are referred to as "due process of law."

Organs of social regulation other than those imposed by statute are rarely
required to obey those procedures when operating against people, unless their laws
explicitly prescribe it. (See pp. 43-44 in the above publication.)

Organization of courts

The power to determine actual cases and disputes concerning the

interpretation and enforcement of laws is "vested in one Supreme Court and such
lower courts as may be created by laws," according to the Constitution. (Article VIII,
Section 1 of the Constitution.) One of the three (3) primary branches of authority in
our form of government is the judiciary, which consists of the courts.

(1) Regular courts. – The Philippine judicial system is structured in the form of
a pyramid, with the Supreme Court at the top. The other courts are: (a) one Court of
Appeals, (b) Regional Trial Courts in various provinces and cities, and (c)
Metropolitan Trial Courts in designated metropolitan areas under current legislation.
Municipal Trial Courts in cities and counties that are not part of a metropolitan
region, as well as Municipal Circuit Trial Courts in municipal circuits. Two (2) or more
cities and/or counties are subject to the jurisdiction of circuit courts.

Courts with general or superior jurisdiction include the Supreme Court, the
Court of Appeals, and the State Trial Courts.

(2) Special courts. - In addition to these courts, the Constitution establishes

the Sandiganbayan, a special anti-graft court. (Article XI, Section 4 of the
Constitution.) It is on the same rank as the Court of Appeals and is part of the judicial
hierarchy with the Court of Tax Appeals, a separate tax court established by statute.

(3) Quasi-judicial agencies. The National Labor Relations Commission, the

Securities and Exchange Commission, the Land Transportation Franchising and
Regulatory Board, the Insurance Commission, and the separate Constitutional
Commissions are administrative bodies under the executive branch that conduct
quasi-judicial functions. (Civil Service Commission, Commission on Elections and
Commission on Audit) do not form part of the integrated judicial system

Since they often include the resolution or adjudication of controversies or

disputes, their roles are defined as "quasi-judicial."
Classifications of law

There are several methods for classifying law. For our purposes, it's best to
think about the two major classifications of law: first, intent, and second, design.

(1) As to its purpose

(a) Substantive law, or that portion of the body of law that establishes,
describes, and governs public and private rights and obligations. The law of
duties and contracts is an example of substantive private law; and

(b) Adjective rule, or that part of the body of law that specifies the
manner or procedure for enforcing or redressing violations of rights. This is
often referred to as "remedial" or "procedural" rule. A private adjective law
provision specifies that actions for the recovery of real property must be
lodged with the Regional Trial Court of the area where the property or any
portion thereof is located.

Rights and responsibilities are meaningless if they can't be executed. It

is not enough for the state to govern the rights and obligations of all those
who are subject to the law; it must also include legal redress for the
administration of substantive law. As a consequence, adjective law is
necessary.

The adjective law in the Philippines is governed by the Rules of Court

promulgated by the Supreme Court and by special laws.

(2) As to its subject matter:

(a) Public law or the body of legal rules which regulates the rights and
duties arising from the relationship of the state to the people.

Criminal law, which describes offences and allows for their punishment,
is an example of public law. According to legal theory, when a criminal
commits a crime, he not only violates the rights of the individual victim, but
also those of the state, since the crime disrupts the state's peace and order.

International law, or the law that governs relations between nations or

states; constitutional law, or the law that governs relations between the state
and its citizens; it defines the government's fundamental powers;
administrative law, or the law that governs the methods through which
administrative authorities are to execute their functions; as well as criminal
procedure and

(b) Private law or the body of rules which controls people's

relationships with one another for solely personal reasons. Since it only deals
with the rights and responsibilities of contracting parties, the law on
obligations and contracts falls under this heading. The state, on the other
 hand, is interested in private law; it enforces private law as an arbiter rather
than as a party.

Civil law, business or mercantile law, and civil procedure are all part of private
law. Civil procedure is the branch of private law that governs the methods for
enforcing private rights.

Law on obligations and contracts defined

"The law of obligations and contracts is a set of laws that governs the meaning and
origins of obligations, as well as the rights and obligations resulting from agreements
and specific contracts."

Civil Code of the Philippines

The Civil Code of the Philippines, also known as Republic Act No. 386,
includes the rule on duties and contracts. When we talk about civil law, we're talking
about the rules that are mainly found in our Civil Code.

The Philippine Civil Code is largely based on the Civil Code of Spain, which
went into effect in the Philippines on December 7, 1889. (Mijares vs. Neri, 3 Phil.
196; Mijares vs. Neri, 3 Phil. 196.) On June 18, 1949, it was signed into law as
Republic Act No. 386, and it went into effect on August 30, 1950. (94 Phil. 778, Lara
vs. Del Rosario.)

Civil Code provisions on obligations and contracts

Obligations and contracts are dealt with in Book IV of the Civil Code. Title I,
Articles 1156-1304, contains general provisions on commitments, while Title II,
Articles 1305-1422, contains provisions on contracts. In addition to the special
provisions of law, the general rules of law regulating contracts apply to specific types
of contracts (such as sale, agency, relationship, barter, and so on).

Book IV also contains new provisions dealing with natural obligations which
are found in Title III, Articles 1423-1430.

Conclusive presumption of knowledge of law

Ignorance of law excuses no one from compliance therewith. (Art. 3, Civil

Code.)

"As a result, everybody is believed to be aware of the rules." This assumption

is far from accurate, but it has been founded due to the law's binding force.

The following arguments have been made in support of this assumption:

(1) If laws are not binding until they are actually understood, social life would
be impossible because most laws cannot be followed because many people are
unaware of them.
 (2) When an individual argues ignorance of the law, it is nearly impossible to
prove the contrary;

(3) It is absurd to absolve those who do not know the law while increasing the
responsibilities of those who do; and

(4) We hold norms of right and wrong, as well as a sense of obligation, in our
conscience, such that our justification always indicates what we must do, and in
more complex legal matters, lawyers should be consulted (A. Tolentino, op. cit., pp.
18-19.) as well as

(No. 5) "When legal persons successfully claim ignorance of the law to avoid
the repercussions of their actions or to justify non-performance of their legal duties,
evasion of the law will be encouraged and the administration of justice would be
defeated. As a consequence, the law is determined by need as well as expediency."

As a consequence, ignorance of the provisions of the legislation imposing a

punishment for unlawful weapons possession or punishing the possession of
controlled substances does not constitute a legitimate reason for violating them.
 TITLE 1
OBLIGATIONS
(Art. 1156-1304, Civil Code)

Chapter 1

GENERAL PROVISIONS

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

Meaning of obligation.

The word obligation comes from the Latin word obligation, which means to
bind or tie.

It is a legal tie or contract in which one is obligated to make something to

another, which may be in the form of giving something, performing a certain act, or
not performing a certain act.

Civil Code definition

The Civil Code defines duty in its passive form in Article 1156. When it speaks of
responsibility as a legal requirement, it simply emphasizes the debtor's or obligor's
duty under the law (he who has the duty of giving, doing, or not doing).

Meaning of juridical necessity

Obligation is a legal requirement and, in the event of noncompliance, the

aggrieved party may ask the courts to impose its fulfillment or, without that, the
economic benefit it reflects. In the right circumstances, the debtor or obligor can also
be held liable for damages, which is the sum of money awarded as compensation for
the harm or disability sustained by the creditor or obligee (he who has the right to the
performance of the obligation) for the violation of his rights.

In other terms, whether the debtor likes it or not, he must meet his obligation;
otherwise, his failure would result in any detrimental or unfavorable consequences.
People may violate obligations with impunity if they are not rendered enforceable.
However, there are certain commitments that cannot be followed because they are
not legally binding.

Nature of obligations under the Civil Code

 Civil obligations are obligations that grant the creditor or obligee the legal right
to enforce their performance in a court of law. Natural obligations, on the other hand,
do not grant a right of action to enforce their performance because they are not
founded on positive law but on equity and natural law, and they do not grant a right
of action to enforce their performance in the case of voluntary fulfillment by the
debtor.

Natural obligations are discussed under the Title dealing with "Natural
Obligations."

Essential requisites of an obligation

Every obligation has four (4) essential requisites, namely:

(1) A passive subject (called debtor or obligor), He who is obligated to fulfill a

duty, he who has a responsibility:

(2) An active subject (called creditor or obligee). the person who has the
authority to demand that an obligation be fulfilled; he who has a right;

(3) Object or prestation (subject matter of the obligation). - the action that the
debtor is supposed to obey. It may take the form of giving, doing, or not doing. There
is little to do without the prestation. The parties are reciprocally debtors and creditors
in bilateral obligations, and

(4) A juridical or legal tie (also called efficient cause). - that which links or ties
the parties to the obligation together. Knowing the source of an obligation makes
determining the tie in the obligation easy.

EXAMPLE

X agreed to build a house for Y for P1,000,000 under the terms of a

construction contract.

The passive subject is X, the active subject is Y, the object or

prestation is the property, and the juridical tie is the arrangement or contract,
which is the source of the duty.

If X had already designed the house and Y decided to pay X after it was
completed, X becomes the active subject and Y becomes the passive subject.

Form of obligations

The manner in which a duty is manifested or incurred is referred to as its type.

It could be either oral or written, or a combination of both.

(1) In general, the law does not require any form in contractual obligations in
order for them to be true or binding.
 (2) Other-than-contractual obligations (Art. 1157.) have no shape at all.

Obligation, right, and wrong distinguished

(1) The act or performance that the statute would impose is referred to as an
obligation.

(2) On the other hand, the right is a person's legal right to claim some
prestation from another.

(3) A wrong (cause of action) is an act or omission by one party that infringes
on the legal right or rights (i.e., those recognized by law) of another. The word injury
is often used in law to refer to the unjust breach of another's human rights.

The following are the basic elements of a legal wrong or injury:

(a) a legal right in favor of an individual (creditor/ obligee/plaintiff);

(b) a correlative legal duty on the part of another (debtor/obligor/defendant);

to respect or not to violate said right and obligation; and to respect or not to violate
said right and obligation.

(c) the latter's act or omission in violation of said right, which causes the
former harm or damage.

A person's duty cannot occur without a corresponding right in his or her favor, and
vice versa. And when a right is transgressed or violated does a wrong or cause of
action occur.

EXAMPLE:

In the previous example, Y has the legal right to have his house built by X,
who also has the legal duty to build Y's house under their contract. X is entitled to the
agreed-upon fee if the house is constructed in accordance with the contract's terms
and conditions. Failure to comply with those terms and conditions allows the other
party a cause of action to enforce his right and/or recover indemnity for the loss or
harm he suffers as a result of the breach of his right.

Kinds of obligation according to the subject matter

Obligation can be either actual or personal, depending on the circumstances.

(1) The subject matter of a real obligation (obligation to give) is a thing that the
obligor must offer to the obligee.

EXAMPLE: X (for example, a seller) agrees to send a piano to Y. (buyer).

(2) A personal duty (obligation to do or not do) is one in which the subject
matter is a particular act to be performed or prevented. There are two forms of
personal responsibility:
 (a) A positive personal duty to act or provide support.

EXAMPLE: X commits himself to restoring Y's piano.

(b) A negative personal responsibility is an obligation to refrain from doing

anything (which naturally includes obligations "not to give").

EXAMPLE: X decided not to install a fence on a certain X portion of his property in

favor of Y, who has a right of way over the property.

ART. 1157. Obligations arise from:

(1) Law;

(2) Contracts;

(3) Quasi-contracts;

(4) Acts or omissions punished by law;

(5) Quasi-delicts

Sources of obligations

The following are the origins of obligations:

(1) Law. - when they are mandated by the statute.

Taxes must be paid, and one must support one's family.

EXAMPLES:

(2) Contracts. – when they are a product of the part stipulation.

EXAMPLE:

An arrangement that allows a borrower to repay a loan or indebtedness.

(3) Quasi-contracts. when they are the product of legal, voluntary, and
unilateral actions that are enforceable with the intention of ensuring that no one is
unjustly enriched or gained at the expense of another. (See Article 2142.) In certain
ways, these responsibilities may be called legal obligations.

EXAMPLE:

The duty to refund money that was paid in error or that was not due (Art.
2154.)

(4) Law-enforced crimes, actions, or omissions – where they emerge from

civil responsibility as a result of a criminal offense.
 EXAMPLE:

A thief's responsibility to return the car he stole; a killer's responsibility to

pay the victim's heirs.

(5) Torts or quasi-delicts. — when they result from harm caused to

someone by an act or omission, and there is blame or negligence, but the
parties do not have a contractual relationship. (See Article 2176.)

EXAMPLES: The duty of the head of a family who resides in a building or a portion
of one to account for damages caused by objects thrown or falling from the same
(Art. 2193); the obligation of the possessor of an animal to compensate for any harm
that it may have caused (Art. 2183.)

Sources classified

There are five (5) sources of obligations mentioned in the statute. They
can be divided into the following categories:

(1) Those arising from the law; and

(2) Those arising from private actions, which can be further divided
into:

(a) Those arising from licit acts, such as contracts and quasi-contracts
(described below); and (b) Those arising from illegal acts, which may be punishable
as delicts or crimes or not punishable as quasi-delicts or torts. (infra-red)

Since obligations arising from quasi-contracts, delicts, and quasi-delicts

are truly enforced by statute, there are only two (2) sources: law and
contracts. (See Leung Ben vs. O'Brien, 38 Phil. 182, for more information.)

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

Legal obligations

Article 1168 applies to civil duties or statutory obligations. They are not
presumed that the obligor considers them a burden. They're the exception rather
than the law. They must be explicitly specified in the law, such as the Civil Code or
special laws, in order to be demandable. As an example:

(1) Since no statute requires an employer to provide free legal help to its
workers, an employee does not recover from his employer the sum he may have
paid a lawyer hired by him to recover damages caused to said employee by a
stranger or strangers while performing his duties. (De la Cruz vs. Northern Theatrical
Enterprises, 95 Phil. 739.)

(2) Since there is no regulation requiring private schools to offer clothing

allowances to their students, there is no legal requirement for them to do so. A
person who wins money in gambling, on the other hand, owes it to the loser to return
his winnings. The law imposes this duty. (2014, art.)

Special laws, as described in Article 1158, are all other laws not included
in the Civil Code. Corporation Code, Negotiable Instruments Rule, Insurance Code,
National Internal Revenue Code, Revised Penal Code, Labor Code, among others
are examples of such codes.

ART. 1159. Obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good faith.
(1091a)

Contractual obligations

Contractual obligations, or obligations resulting from contracts or voluntary

arrangements, are discussed in the preceding article. It is presumptively true and
enforceable contracts are entered into.

A contract is a meeting of minds between two (2) per sons in which one binds
himself to give something or make a service to the other. (Article 1305)

(1) Binding force. - Contractual obligations have the force of law between the
contracting parties, i.e., they have the same contractual effect as legal obligations.
This does not suggest, however, that the contract takes precedence over the statute.
Contracts must be legal as sources of enforceable obligations, and they cannot be
valid if they violate the rule.

(2) Requirement of a valid contract. - A contract is legitimate if it does not

violate the statute, morality, good customs, public order, or public policy (assuming
all necessary elements are present; Art. 1318.). If it breaches the statute, morality,
good customs, public order, or public policy, it is null and void. (Article 1306)

A void contract does not occur in the eyes of the law. (Articles 1409, 1410,
1411, 1412, 1413, As a result, there will be no commitments. And if a contract is
legal, it cannot be enforced. In the case of unenforceable contracts, this is valid.
(See Art. 1317 and Art. 1403.)

(3) Breach of contract. - A party can breach or violate a contract in whole or

in part. A breach of contract occurs when a party fails or refuses to comply with his
contractual obligations as promised for no lawful reason or excuse.
Compliance in good faith

Compliance in good faith requires adhering to the contract's or agreement's

stipulations or conditions. To avoid one party from taking undue advantage of the
other, sincerity and fairness must be observed.

Since earning the benefits of a contract, a party's failure to comply with his
legal obligations will be considered unjust enrichment.

EXAMPLES

(1) If S agrees to sell his house to B freely and happily, they are bound by the
terms of their contract, and neither party can withdraw from the contract or escape
from his obligations thereunder for any reason.

That which is agreed upon in the contract is the law between S and B and
must be complied with in good faith.

(2) A contract in which S agrees to kill B in exchange for P1,000 to be paid by

C is void and non-existent because killing anyone is illegal. Similarly, an
arrangement in which S agrees to provide free domestic service before his loan to B
is repaid is invalid because it is against the law and morals. (see Art. 1689; De los
Reyes vs. Alejado, 16 Phil. 499.)

In both cases, S has no obligation to comply with his agreements.

ART. 1160. Obligations derived from quasi contracts shall be subject

to the provisions of Chapter 1, Title XVII of this Book. (n)

Quasi-contractual obligations.

Article 1160 deals with obligations arising from "quasi-contracts" or "implied

contracts."

A quasi-contract is the legal relationship that arises from legitimate, voluntary,

and unilateral actions that bind the parties to one another such that no one is unjustly
enriched or gained at the expense of another. (See Article 2142.)

It isn't even close to becoming a deal. A meeting of the minds or consent is

necessary in a contract (see Arts. 1318, 1319); the parties must have consciously
entered into a formal agreement. There is no consent in a quasi-contract, but it is
given by legal fiction. To put it another way, the law considers the parties to have
made a deal, regardless of whether they have done so or not, they have the power
to avoid discrimination or undue enrichment of one citizen at the detriment of
another.

Kinds of quasi-contracts
 The principal kinds of quasi-contracts are negotiorum gestio and solutio
indebiti.

(1) Negotiorum gestio refers to the voluntary management of another's

property or affairs without the latter's knowledge or consent. (See Article 2144.)

EXAMPLE:

X took his family to Baguio without leaving anyone to look after his
house in Manila. A massive fire broke out near X's house when he was in
Baguio. The house of X was spared from being burned down thanks to the
efforts of Y, a friend. Y, on the other hand, incurred costs.

On the basis of quasi-contract, X has the duty to repay Y for said

expenses, despite the fact that he did not explicitly give his consent to Y's act of
saving his home.

(2) Solutio indebiti is the legal relationship established when something is

obtained when there is no legal right to claim it and it was delivered in an erroneous
manner. (See Article 2154.)

(a) There is no legal right to possess the item; and (b) the item was shipped
by mistake.

D owes C P1,000, for example. If D paid T under the assumption that T was
allowed to receive payment for C, T is obliged to return the money. If D charged C
P2,000 in error, C must refund the P1,000 difference.

(3) Other examples of quasi-contracts. They are outlined in the Civil Code's
Articles 2164 to 2175. There are an infinite number of situations that have been
identified as quasi-contracts, and where a true contract cannot be implemented for
any reason, recovery can be permitted on the basis of a quasi-contract.

EXAMPLE:

S, a goat milk vendor, leaves milk at the Beach morning home. B

drinks the milk and then throws the empty bottles out on the porch. S
demands payment for the milk delivered after one (1) week.

In this case, the very actions of S and B are understood to have

created an implicit contract, obliging B to pay the appropriate value of
the milk; otherwise, B will unfairly profit at the cost of S.

ART. 1161. Civil obligations arising from criminal offenses

shall be governed by the penal laws, subject to the provisions of
article 2177, and of the pertinent provisions of Chapter 2,
 Preliminary Title, on Human Relations, and of Title XVIII of this
Book, regulating damages. (1092a)

Civil liability arising from crimes or delicts

The topic of this article is civil responsibility for damages incurred by crimes or
delicts. (Article 1157(4).)

(1) Committing a crime often results in not only moral wrongdoing but also
material harm. The law has been developed based on this theory that someone who
is criminally responsible for an act or omission is therefore civilly liable for damages.
(Revised Penal Code, Art. 100.)

(2) However, there is no civil liability to be imposed in offences that cause

(such as harm without material contempt, insults to persons in authority, gambling,
violations of traffic laws, and so on). However, even if an individual is not criminally
liable, he or she can be held civilly liable (Art. 29; Sec. 2[c],

111, Laws of Justice. ), such as failing to pay a contracted debt; causing property
harm to another without malicious or criminal intent or neglect, and so on.

Scope of civil liability

The Amended Penal Code and the Civil Code regulate the scope of civil
responsibility for damages incurred by crimes. This civil liability includes:

(1) restitution;

(2) compensation for the harm caused; and

(3) punitive damages.

(4) Indemnification for damages suffered indirectly. (Article 104 of the Revised
Penal Code.)

FOR EXAMPLE,

X stole Y's car. If X is found guilty, the court will order him to: (1) return the
car or pay its value if it was lost or destroyed; (2) pay for any damage to the car; and
(3) pay any other damages Y has sustained as a result of the crime.

ART. 1162. Obligations derived from quasi delicts shall be governed

by the provisions of Chapter 2, Title XVII of this Book, and by special laws.
(1093a)

Obligations arising from quasi-delicts

The above provision treats of obligations arising from quasi-delicts or torts.

(see Arts. 2176 to 2194.)
A quasi-delict is an act or omission by a party (tort-feasor) that causes harm to
another's person, property, or rights, resulting in an obligation to compensate for the
damage done where there is no pre-existing contractual relationship between the
parties and there is no blame or negligence. (Article 2176)

Requisites of quasi-delict

The following conditions must be met before an individual can be held liable
for quasi-delict:

(1) An act or omission must occur:

(2) There must be some kind of mistake or negligence;

(3) There must be some kind of harm done;

(4) There must be a clear cause-and-effect relationship between the act or

omission and the harm; and

(5) The parties should not have a prior contractual relationship.

EXAMPLE:

X smashed his neighbor's window glass while playing softball with his
buddies. If they had played a little farther away from Y's home, the accident may not
have occurred.

In this case, despite the lack of a prior contractual relationship between them,
X is obligated to pay the damages incurred to Y by his act because he is at fault or
negligent.

Crime distinguished from quasi-delict

The distinctions are as follows:

(1) There is criminal or malicious intent or criminal negligence in crime,

whereas there is only negligence in quasi-delict

(2) The object of crime is retribution, whereas the purpose of quasi-delict is

indemnification of the offended party.

(3) Public interest is affected by crime, while quasi-delict interest is not.

(4) Under criminal law, there are two types of liability: criminal and civil.

(5) Criminal responsibility cannot be undermined or resolved by the parties

themselves, while quasi-delict liability can be compromised like any other civil
liability, and
 (6) In felony, the accused's guilt must be proven beyond a reasonable doubt,
whereas in quasi-delict, the defendant's fault or negligence must only be
demonstrated by a preponderance (i.e., greater weight) of evidence.

ACTIVITY 1
I. Definitions
Define or give the meaning of the following:
1. obligation
2. quasi-contract
3. compliance in good faith
4. wrong
5. solutio indebiti

II. Discussions
1. What are the basic conditions for a legal obligation? Give an example to
demonstrate your point.
2. What makes the Civil Code's duties a legal requirement? Justify your
role.
3. What are the elements or requirements for an individual to obtain a right
of action in court against another to compel the latter to exercise his or her
obligation?
4. Will a person be obligated even though he or she does not enter into a
contract or voluntary agreement? Justify your role.

III. Problems

Explain or state briefly the rule or reason for your answer.

1. X saw a kid alone in a shopping mall about one o'clock (1:00 p.m.). The child who
had wandered away from Y, his mother, was crying and looked very hungry. X
brought him to a restaurant, where he spent P150, out of pity. Y did not give her
approval to X's good deed. They were both on their way home when the child went
missing. Is X qualified to receive a P150 reimbursement from Y?

2. A jeep belonging to Y struck the back of X's car when it was parked along the
roadside. X's car was the only one that was damaged. Is it reasonable to assume
that Y is liable to X for the harm as a result of the circumstances?
3. In the same case, would X have the right to demand indemnification from R, X's employer,
on the grounds that when the accident happened, X was on his way to do business with R's
client?

4. D (debtor) took out a P10,000 loan from C. (creditor). D was unable to repay C on the
loan's due date because the P10,000 intended for C was stolen by a thief. Furthermore, he
had financial losses, and he was cash-strapped, even for his new family's needs. Is D's
refusal to pay C legally justified?

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.

Meaning of specific or determinate thing

The preceding clause applies to a particular or fixed duty.

A thing is said to be unique or determinate when it is physically isolated from those of the
same class. (See 1459.)

EXAMPLES:

(1) I'm wearing a watch.

(2) X's vehicle

(3) "Terror," my dog's name.

(4) the house on Rizal and del Pilar Avenues.

(5) the Toyota with the license plate AAV 316 (2008).

(6) This rice cavan.

(7) the money I handed over to you.

Meaning of generic or indeterminate thing

When a thing refers only to a class or genus to which it belongs and cannot be pointed out
with particularity, it is generic or indeterminate.
EXAMPLE:

(1) A Bulova calendar watch is an example of an example of an example of an example of

an example of an example of an example of an example of an

(2) a one-thousand-pesos-pesos-pes

(3) Toyota car from 1995

(4) a rice caravan

(5) a police canine

Specific thing and generic thing distinguished

(1) A determine thing. The debtor cannot replace it with another, even though it is of the
same kind and nature, without the creditor's permission. (See Article 1244.)

(2) A generic thing. Anything of the same class, as long as it is of the same type, may be
provided by the debtor.

EXAMPLES:

(1) If S is required to deliver a Bulova calendar watch to Ba, S will deliver any watch
as long as it is a Bulova with calendar.

However, if S's duty is to send to B a specific watch, such as the one S is currently
wearing. S cannot replace it with another watch without B's permission, and B cannot
demand that S deliver another watch without S's permission, even though it is of the same
kind and importance. (See also Arts 12)

(2) If S's duty is to deliver one of his cars to Bone, the item refers to a class that is
determinate in and of itself.

The specific item to be shipped may be determined without the need for a new contract
between the parties (see Art 1349. ); it becomes determinate upon delivery.

Duties of debtor in obligation to give a determinate thing.

They are:

(1) Preserve the thing - In obligations to give (real obligations), the obligor has the
incidental duty to take care of the thing awaiting delivery with the vigilance of a good father
of a house.

(a) The diligence of a good family father. The phrase has been equated with ordinary
care or the diligence that an average (reasonably prudent) person applies to his or her own
land.

(b) Another standard of care. - Where the legislation or the parties' agreement provides
for a different standard of care (slight or exceptional diligence), the law or agreement must
take precedence. (See 1163.)
 A common carrier, for example, is "bound to carry the passengers safely as far as
human care and foresight can provide, using utmost i.e., extraordinary) vigilance of very
careful persons, with due regard for all the circumstances," according to the rule. In the
event of an accident, the common carrier would be kept responsible if it only exercised
ordinary diligence or the diligence of a good family parent.

The parties may agree on a level of diligence that is greater or less than that of a good father
of a family, but it is against public policy (see Art. 1306) to provide for the obligor's complete
immunity from liability for any fault or negligence on his part. (For more information, see Arts.
1173 and 1174.)

c) Factors to be onsidered - The amount of diligence necessary is based on the nature of the
responsibility and corresponds to the circumstances of the individual, the time, and the
place. (See 1173.) It is not always the level of care applied to the defense of one's property.
In general, the debtor is not responsible if the inability to maintain the thing is due to
fortuitous circumstances or force majeure rather than his fault or negligence. (See 1174.)

EXAMPLE:

S binds himself to deliver a specific horse to B on a certain date.

In the meantime, S has the additional or ancillary responsibility of caring for the horse
with the vigilance of a good father of a family, such as feeding the horse on a regular basis,
keeping it in a secure location, and so on. In other words, S must treat another horse that he
owns with the same respect that he will treat another horse that he is not obliged to deliver to
B.

S, on the other hand, cannot absolve himself of responsibility in the event of a failure
by saying that he took the same care with the horse as he would with his own, if that care
was less than that needed by the circumstances. S is liable to B for damages if the horse
dies, is lost, or becomes ill as a result of S's failure to exercise due diligence.

Even if no mention of it is made in the contract, S's additional duty to care for the horse is
demandable.

(d) Reason for debtor's obligation. - The debtor must ensure that the item to be delivered is
in the same condition as it was when the duty was contracted by exercising diligence.
Without the accessory duty to care for the thing, the debtor could afford to be reckless, and
he would not be held responsible even if the property was lost or ruined, making the
obligation to offer illusory (8 Manresa, 35-37.) ;

(2) Deliver the fruits of the thing. This is discussed under Article 1164:

(3) Deliver the accessions and accessories. This is discussed under Article 1166;

(4) Deliver the thing itself - (Arts. 1163, 1233, 1244; as to kinds delivery 1501.); see Arts.
1497

(5) Answer for damages in case of non-fulfillment or breach. This is discussed under Article
1170.

Duties of debtor in obligation to deliver a generic thing

 They are:

(1) To deliver a thing of the quality intended by the parties, taking into account the intent of
the obligation and other circumstances (see Art. 1246); and

(2) to be liable for damages in the event of fraud, neglect, or delay in executing his
obligation, or in contravention of its tenor (see Art. 1170.)

ART. 1164. The creditor has a right to the fruits of the thing from the time the
obligation to deliver it arises. However, he shall acquire no real right over it until the
same has been delivered him. (1095)

Different kinds of fruits

The fruits mentioned by the law refer to natural. industrial, and civil fruits.

(1) Natural fruits are the soil's spontaneous goods, as well as animals' young and other
products.

EXAMPLES:

Grass, as well as all trees and plants on lands that were grown without the use of
human labor.

(2) Industrial fruits are those that are produced by any type of land through
cultivation or labor.

EXAMPLES:

Sugar cane; vegetables; rice; and all products of lands brought about by reason of
human labor.

(3) Civil fruits are those that result from a legal relationship.

EXAMPLES: Building rents, land and other property lease prices, and the value of
permanent or life annuities or other related profits. (Articles 442)

Right of creditor to the fruits

From the moment the duty to deliver happens, the creditor is entitled to the fruits of the item
to be delivered. The law's aim is to protect the obligee's interests if the obligor delays in
fulfilling his duty, whether intentionally or unintentionally.

When obligation to deliver fruits arises

(1) In general, the duty to produce the due thing and, as a result, the fruits thereof, if
any, occurs at the time of "contract perfection." In this case, perfection applies to the birth of
the contract or the parties' minds coming together. (See also Arts. 1305, 1315, and 1319.)

(2) Whether the duty is subject to a suspensive condition or time (Articles 1179,
1189, 1193), it occurs upon the condition's fulfillment or the term's arrival. The parties can,
however, make an agreement to the contrary about the creditor's right to the thing's fruits.
 (3) Even though the obligation is subject to a suspensive condition or a suspensive
time where the price has been paid, the obligation derives from the perfection of the
contract.

(4) The duration of performance is determined by the relevant provisions of the

applicable law in obligations to offer arising from law, quasi-contracts, delicts, and quasi-
delicts.

EXAMPLE:

For P15,000, S sold his horse to B. The horse's delivery was not subject to any deadlines or
conditions. The horse gave birth to a colt while still in S's custody.

Who is the legal owner of the colt?

"All the fruits shall belong to the vendee from the day on which the contract was perfected,"
according to a contract of sale. If B has paid the price, this is valid even if the delivery is
subject to a suspensive condition (e.g., upon B's demand) or a suspensive time (e.g., next
month).

However, if the colt was born before the duty to deliver the horse (Art. 1164.) arose, and B
has not yet paid the purchase price, S has a right to it. In this situation, S is not obligated to
offer the colt and B is not obligated to pay legal interest on the price upon the fulfillment of
the condition or the arrival of the time, since the colt and the interest are considered to have
been mutually paid. (see Art. 1187.)

Meaning of personal right and real right

(1) A personal right is the right or power of one person (creditor) to demand from another
(debtor) the fulfillment of the latter's duty to give, do, or not do, as a definite passive subject.

(2) A real right is a person's right or interest in a particular thing (like ownership, possession,
mortgage) without a specific passive subject against whom the right may be exercised
directly

Personal right and real right distinguished

(1) There is a definite active subject and a definite passive subject in personal right, but only
a definite active subject and no definite passive subject in actual right. (For more information,
see Art. 1156.)

(2) As a result, a personal right is only binding or enforceable against a single individual,
while a real right is directed against the entire world. (See the example below.)

EXAMPLE:

X owns a piece of property with a torrens title that is registered in his name with the
Registry of Property. His possession is a legal right that he claims against all. There's no
such thing as a passive subject.

If Y claims the land and takes ownership, X has a personal right to reclaim the
property from Y as a definite passive subject. If X and Z both mortgage the same piece of
property, the mortgage, if properly registered, is binding against third parties. The land is
bought subject to a mortgage, which is a real right.

Ownership acquired by delivery

Ownership and other real rights to land are gained and passed on through the
generations as a result of such contracts (Art. 712.) or execution. In the absence of delivery,
simple agreement on the terms of a transaction does not result in the transfer of ownership
of the thing sold. of the thing, whether real or constructive

The creditor does not become the owner until the particular item is delivered to him,
as stated in the phrase "he shall gain no real right over it until the same has been delivered
to him." When there has been no delivery, the creditor's proper court action is for clear
execution or rescission of the obligor's contract, not for restitution of possession and
ownership. (see Art. 1165.)

EXAMPLE:

S is obliged to give to B on July 25 a particular horse. Before July 25, B has no right
over the horse. B will acquire a personal right against S to fulfill his obligation only from July
25

If the horse is delivered on July 30, B only owns or has a real right to the horse as of
that date. However, if on July 20, S sold and delivered the same horse to C, a third party (not
a party to the contract between S and B) who acted in good faith (without knowledge of the
contract), C acquires ownership of the horse and is entitled to it as against B. S will be held
accountable. (Art. 1170.)

ART. 1165. When what is to be delivered is a determinate thing, the creditor, in

addition to the right granted him by Article 1170, may compel the debtor to make the
delivery.

If the thing is indeterminate or generic, he may ask that the obligation be complied
with at the expense of the debtor.

If the obligor delays, or has promised to deliver the same thing to two or more
persons who do not have the same interest, he shall be responsible for fortuitous
event until he has effected the delivery. (1096)

Remedies of creditor in real obligation

(1) In a specific real obligation (obligation to deliver a determinate thing), If the debtor
fails to fulfill his obligations, the creditor can seek the following remedies or rights:

(a) demand specific performance or fulfillment (if it is still possible) of the obligation
with a right to indemnity for damages; or

(b) seek revocation or termination of the obligation, as well as the right to recover
damages (Art. 1170); or
 (c) demand only payment of damages if it is the only viable solution.

In order to fulfill a contractual obligation to deliver a specific item, the item must be
shipped in its entirety. (See Article 1244.) As a consequence, only the debtor can satisfy the
duty. This is why the creditor has the authority to force the debtor to supply the goods.
(Paragraph 1 of Art. 1165.)

However, it should be noted that the statute does not permit the borrower to use force or
abuse against the debtor. The creditor must take the matter to court, and the court will issue
the delivery order.

EXAMPLE:

The rights to demand fulfillment and rescission with damages (see Art. 1170.) are
mutually exclusive, i.e., choosing one is a denial of the right to use the other. (For more
information, see Art. 1191.) Even if Article 1165 does not directly address it, B can only bring
a damages suit (see Art. 1170.)

(2) On the other hand, since the entity is represented only according to its family or
genus, a generic real obligation (obligation to produce a generic thing) may be performed by
a third party. As a result, the creditor is not required to force the debtor to make the payment,
though he may request that the obligation be fulfilled. In this case, the creditor has the right
to sue for damages under the terms of the contract.

Article 1246 governs the manner in which a generic thing delivery duty is fulfilled.

EXAMPLE:

S agrees to supply 100 sacks of rice to B for P50,000 on December 4th.

If S fails to fulfill his obligation, B will purchase rice from a third party, C. If B
paid C P55,000, he will be able to recover P5,000 from S (assuming B has not yet paid S).
Furthermore, in the case of the distribution of a determinate thing, B will hold S responsible
for damages under Article 1170. (paragraph 1)

Where debtor delays or has promised delivery to separate creditors

In paragraph 3, there are two (2) cases in which a fortuitous occurrence does not
absolve the debtor of liability. It also applies to a definite object. Since genus nunquam perit,
an indeterminate thing cannot be killed by a fortuitous occurrence (genus never perishes).
(See, for example, Arts. 1174 and 1263.)

Delay is discussed in Article 1169, and fortuitous events, in Article 1174.

ART. 1166. The obligation to give a de terminate thing includes that of delivering all its
accessions and accessories, even though they may not have been mentioned. (1097a)

Meaning of accessions and accessories

(1) Accessions are the results of a thing, as well as additions to or changes to it (the
principal).

EXAMPLES
House or trees on a piece of land; building rents: air conditioner in a car; gains or dividends
from stock shares, and so on.

(2) Accessories are items that are attached to or included with the main thing for the
purpose of enhancing, improving, or completing it.

EXAMPLES:

A house key, a picture frame, a watch bracelet, factory equipment, and a violin bow

It's worth noting that while accessions aren't needed for the main item, the accessory and
the main item must match. Only in relation to the principal will both occur. Accession may
also refer to a right, such as the right to a thing's fruits and/or accessories.

Right of creditor to accessions and accessories

The general rule is that all accessions and accessories, even if not specifically
specified, are considered part of the responsibility to produce a specific item. This rule is
founded on the legal theory that the accessory always comes after the principal. There must
be a stipulation to that effect in order for them to be removed.

An obligation to supply the accessions or accessories of a thing does not include the
latter unless otherwise stated. As a result, selling the improvements (such as a house) on a
piece of land does not convey title or other rights to the land. However, the lease of a
building or house invariably involves the lease of the land on which it is built, since
ownership of the land is implied in the lease of the building or house.

ART. 1167. If a person obliged to do something fails to do it, the same shall be
executed at his cost.

This same rule shall be observed if he does it in contravention of the tenor of

the ob. ligation. Furthermore, it may be decreed that what has been poorly done be
undone. (1098)

Situations contemplated in Article 1167

Article 1167 refers to a duty to do something, such as perform an act or provide a

service. It covers three (3) scenarios:

(1) the debtor fails to execute an obligation,

(2) the debtor performs an obligation but not in accordance with its terms, or

(3) the debtor performs an obligation but not in accordance with its terms.

(4) The debtor performs a mission, but in an inadequate manner.

Remedies of creditor in positive personal obligation

(1) If the debtor fails to fulfill his obligations, the creditor has the right to:

(a) have the duty performed at the debtor's expense by himself or another, unless
personal interests are involved, and (b) to recover damages. (See 1170.)
 (2) If the duty is performed in violation of the terms of the agreement or in a poor
manner, the court can order that it be undone if it is still possible to undo what was done.

Performance by a third person

A third party may fulfill a personal obligation to do something, such as delivering a

generic thing. Although the debtor may be forced to produce a specific item (Article 1165), a
specific performance cannot be ordered in a personal duty to do because this may amount
to compulsory servitude, which is forbidden by our Constitution. (Article III, Section 3)

Where, on the other hand, the debtor's personal credentials are the deciding motive
for the obligation contracted (e.g., to sing in a nightclub), the performance of the same by
someone will be unlikely or would result in the obligation being deemed unfulfilled. As a
result, the creditor's only recourse is to pursue damages indemnification. However, where
the duty can still be fulfilled at the debtor's expense despite his inability or rejection, the court
is not allowed to simply award damages to the borrower.

EXAMPLES:

(1) X commits to building a house for B. The house had to have three (3) bedrooms,
each of which had to be five (5) meters by four (4) meters in size, and the kitchen had to be
all white.

If X does not build the house, B will request that the house be constructed at X's
expense.

(2) Assume X built the home, but the bedroom isn't five (5) meters by four (4) meters
and the kitchen isn't completely white.

In this case, B can request that it be completed in accordance with the requirements.
If X declines, C will be forced to fulfill the duty at X's expense.

(3) If the kitchen was painted white but the job was done badly, B could ask X to
have it redone or, if X declines, he could ask C to paint the kitchen at X's expense.

However, if X refuses to comply with his duty, he cannot be required to do so against

his will.

(4) If X contracts an obligation to sing in B's nightclub and fails to fulfill it, another's
performance of the same will be unlikely or so dissimilar that the obligation could not be
considered fulfilled.

In this case, X's personal qualification is the contract's deciding factor. In this case, B's only
realistic recourse is damages indemnification.

ART. 1168. When the obligation consists in not doing and the obligor does what has
been forbidden him, it shall also be undone at his expense. (1099a)

Remedies of creditor in negative personal obligation

The obligor's responsibility in a not to do obligation is to refrain from doing anything.

There isn't any particular success here.
 The very act of not doing what is prohibited fulfills the duty. As a result, the debtor
cannot be held liable for late payment under this type of obligation. (See 1169.)

The obligee's solution is usually the undoing of the forbidden thing plus damages.
(See 1170.) If undoing what was done is not practicable, either physically whether legally, or
because rights were gained by third parties acting in good faith, or for some other purpose,
his recourse is a suit for damages incurred by the debtor's breach of his duty.

EXAMPLE:

S sold a piece of land to B. It was decided that S would not erect a fence on a portion
of his land adjacent to the land sold to B.

Should I build a fence in breach of the agreement, B will file a lawsuit to get it
removed at S' expense.

ART. 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. (1100a)

Meaning of delay

The term "delay" as used in the statute is not to be understood in the sense that it is
commonly understood. In the performance of a duty, a distinction should be made between
ordinary delay and legal delay (default or mora).

(1) An ordinary delay is simply the failure to meet a deadline.

(2) The failure to fulfill an obligation on time is referred to as legal delay, default, or mora.

Kinds of delay or default

They are:

(1) Mora solvendi or the debtor's failure to fulfill his duty (to give or to perform);
 (2) Mora accipiendi or the creditor's reluctance to recognize the performance of the
obligation; and

(3) Compensatio morae The obligors' delay in mutual commitments (such as in

sales), i.e. the obligator's delay cancels the oblige, and vice versa. As a consequence, no
party may be held liable for any actionable default.

No delay in negative personal obligation

Non-fulfillment is possible in a not-to-do obligation, but delay is unlikely since the debtor
fulfills his obligation by not doing what has been forbidden to him. (For more information, see
Art. 1168.)

Requisites of delay or default by the debtor

Before mora solvendi can exist or its effects can manifest, three (3) conditions must be
met:

(1) the debtor's failure to fulfill his (positive) duty on the agreed-upon date;

(2) A creditor's demand (not merely a reminder or notice) on the debtor to fulfill his
obligations, which demand may be judicial (when a case is lodged in court) or extrajudicial
(when rendered verbally or in writing outside of court):

(3) the debtor's inability to comply with the demand

The preceding implies that the debt is already due or demandable. (See Art. 1279[4] for
more information.) The duty of proof is on the creditor to show that a demand has been
made. Similarly, the debtor must claim that the delay was not caused by his negligence in
order to be freed from liability (see Arts. 1173, 1174.)

EXAMPLE:

S obliged himself to deliver to B a specific refrigerator on December 10.

S is only in ordinary delay if he does not deliver the refrigerator by December 10 in

the absence of any demand from B, despite the fact that a deadline for completion of the
obligation had been set. B is giving S an extension of time to produce the refrigerator,
according to the statute. As a consequence, there is no breach of contract, and S is not
responsible for any damages.

If B makes a claim on S on December 15 and S fails to deliver the refrigerator, S is

only in default from that date forward.

If B files a particular performance case on December 20, the payment of damages for
the default must begin on December 15, not December 20, when he made the extrajudicial
demand. In the absence of proof, the consequences of default begin on the date of the
judicial demand, i.e. the filing of the complaint.

Effects of delay

(1) Mora solvendi - The following are the effects:

 (a) The debtor has breached or violated the obligation;

(b) He is liable to the creditor for interest (in the case of money obligations) or
damages (Art. 2209.) (in other obligations). (See 1170.) In the absence of an extrajudicial
demand, the interest will begin to accrue from the moment the complaints are filed.

(c) He is responsible even if an unforeseeable accident occurs while the

responsibility is to supply a specific item. (See Arts. 1165 and 1170.) The court could
equitably mitigate or minimize the damages if the debtor can show that the loss would have
occurred regardless of whether he had been in default. (See Art. 2215[4]).

I'm under a deadline to produce something generic. A debtor's responsibility for a

loss caused by a fortuitous circumstance is not absolved. He may also be forced to produce
a similar item or held responsible for damages (see Art. 1263.). (See 1170.)

(2) Mora accipiendi, - The effects are as follows:

(a) The borrower has breached his obligation; (b) He is responsible for the debtor's
damages, if any; and (c) He faces the risk of losing the thing due (see Art. 1262)

(d) The debtor is not liable for interest from the time of the creditor's delay if the duty
is to pay money; and

(e) The debtor may be freed from the duty by consignment or deposit in the court of
the t.

(3) Compensatio more. The delay of the obligor cancels the delay of the obligee and
vice versa. Legally speaking, there is no default or delay on the part of both parties.

If one (1) party's delay is preceded by another's, the courts will equitably temper or
offset the responsibility of the first infractor. If it cannot be known which of the parties is late,
the contract will be considered null and void, and each party will be responsible for his own
damages. (See 1192.)

When demand is not necessary to put debtor in delay

In most cases, the debtor's pause starts only when the borrower makes a judicial or
extra-judicial claim for the debtor's duty to be met. The effect of default will not occur if such
a sum is not given. The exceptions are mentioned further down.

(1) When the obligation so provides. -

EXAMPLE:

D confirmed that he would pay the amount of P20,000 on or before November 30th,
without any claim. As a result, if D does not pay by November 30, he will be in default. The
parties have agreed to waive the demand in this situation.

Fixing the time alone is insufficient. The arrival of the deadline simply makes the
responsibility enforceable. The creditor cannot expect output until it arrives. Demand must
be specifically stated in the obligation, or terms to that effect must be used, such as "the
debtor will be in default" or "I will be liable for damages."
EXAMPLE

The loan arrangement between D and C stipulates that if D fails to pay any of the
installments due, the entire debt will mature. It does not mention that D will be in default as a
result of this.

Demand is still needed to put D in default if all of these installments are not paid.
Until a judicial or extra-judicial claim for payment is imposed on him, he is not responsible for
interest for default on the entire debt.

(2) When the law so provides.

EXAMPLES:

(1) Under the law, taxes should be paid on or before a specific date; otherwise,
penalties and surcharges are imposed without the need of demand for payment by the
government

(2) The partner is liable for the fruits of the thing he may have promised to contribute
to the partnership from the time they should have been delivered without the need of any
demand. (Art. 1786; see Art. 1788.)

(3) When time is of the essence. -

EXAMPLES:

The distribution of balloons on a specific date for a children's party; the production of
a wedding gown for a specific date; the payment of money at a specific time so that the
borrower can pay off such debts due on the same date; the delivery of a vehicle to be used
in a trip at a specific time; and so on.

The debtor is well aware that performing the duty after the specified period will no
longer favor the creditor in any of the preceding situations. In these types of agreements, the
time factor is just as critical as the output itself. Time is not of the nature of the contract
where the time of performance is not set or specified in general or indefinite terms, in which
case performance must be rendered within a reasonable time. What constitutes a fair period
will be determined by the facts of the case.

It is not appropriate for the contract to expressly state that time is of the essence;
simply stating that time is of the essence is sufficient.

(4) When demand would be useless. -

EXAMPLE:

On September 5, S promised to deliver a particular horse to B. The horse died on

September 2 as a result of S's incompetence or deliberate act, or as a result of a fortuitous
incident for which S has expressly bound himself liable (see Art. 1174.).

Any demand for the horse's delivery on September 5 would be futile in this case, as S has
rendered him unable to fulfill his obligation.
Demand is also needless when it is clear that it will be pointless, such as when S has
previously expressed an absolute refusal or has stated that he will not fulfill his obligation.

(5) When a party fulfills his or her mutual obligations. When it comes to mutual
commitments, one's success is contingent on the other's simultaneous fulfillment. As a
result, neither party faces a delay if the other fails to comply or is not prepared to comply in a
timely manner with what is expected of him. This is referred to as compensatio morae.

However, the delay by the other party starts when one party fulfills or is able to fulfill
his duty.

EXAMPLES:

(1) Agreed to sell his television set to B for a price of P10,000. Sis is responsible for
delivering the television set, while B is responsible for paying P10,000.

Since no deadline for completing their respective obligations has been set, it is
assumed that they must be completed simultaneously. S is unable to claim payment if he is
unable to deliver the television set himself. B is in default from the moment S delivers the
television set if he does not pay S without any demand.

(2) If the delivery and payment are agreed to be made on December 10,
S(Bdelivery )'s (payment) on December 5 does not entitle him to claim payment (delivery)
from B. (S). Neither party will be late before December 10, despite the fact that the other has
already fulfilled his obligations.

The performance is scheduled for the same day in this case.

(3) Assume, in the same case, that delivery is scheduled for December 10 and payment is
scheduled for December 15.

In this case, a demand from B on December 10 is needed to put Sin on hold in

accordance with the general rule. (Paragraph 1 of Art. 1169.) Similarly, S's delivery of the
television set does not cause B to be late until a demand is placed on him on December 15,
or later. Performances are scheduled on various dates in this situation.

ART. 1170. Those who in the performance of their obligations are guilty of fraud, negli
gence, or delay and those who in any manner contravene the tenor thereof, are liable
for damages. (1101)

Grounds for liability

The above provision gives the four (4) grounds for liability which may entitle the
injured party to damages (infra; see Art. 2197.) for all kinds of obligations mentioned in
Article 1157. Here, the breach of the obligation is voluntary in Article 1174, it is involuntary.
There is breach when a person fails or refuses to perform his obligation without legal
justification.

(1) Fraud (deceit or dolo).- It is the deliberate or malicious avoidance of the usual fulfillment
of an obligation, as specified in Article 1170. (For more information, see 8 Manresa 72.) It
implies some form of malice or dishonesty as a basis for damages, and it cannot include
cases of genuine mistakes and errors of judgment. It is similar to bad faith in that it involves
a deliberate attempt to deceive or mislead another.

EXAMPLE:

S promised to offer 20 bottles of a specific brand of wine to B. S then shipped 20

bottles, recognizing that they contained less expensive wine. Sis has committed fraud and is
responsible for B's losses.

The word "accidental fraud" (dolo incidente) refers to deception committed in the
fulfillment of a contractual obligation. It is to be distinguished from causal fraud (dolo
causante), which vitiates consent, and fraud used in the execution of a contract under Article
1338.

In the same example, if B purchased 20 bottles of wine based on S's false

representation that the wine was as described on the labels, S's fraud is causal fraud. B
would not have agreed to the deal if the fraud had not occurred. In the basis of the
deception, he has the right to get the contract annulled or set aside. (Articles 1390 and
1391.)

However, in the first instance, B's recourse is to demand damages rather than annul
the contract of sale, which is unaffected by the incidental fraud. If S's deceit to gain B's
consent was not the primary inducement for B to enter into the contract, the deception was
unintentional, and it would therefore result in only a damages suit. (See Art. 1344, par. 2) act
or omission that prohibits the usual fulfillment of a duty, in the absence of bad faith or malice.
(See also Arts.)

(2) Negligence (fault or culpa). - It is a voluntary act or omission that prevents the usual
fulfillment of a duty where there is no bad faith or intent involved.(see Arts 1173, 1174.)

EXAMPLE:

In a taxi, P is a passenger. There is a contract of carriage between P and the owner

of the taxi company in this case. The owner of the taxi firm, via the driver, agrees to safely
transport P to his destination in return for the fare to be paid by P. (See, for example, Lasam
vs. Smith, 48 Phil. 657.)

If an accident happens as a result of the driver's recklessness, such as driving at an

excessively high speed or entering a one-way street, and P is injured, there is negligence,
and the owner will be responsible for damages. If there were faulty parts in the taxi, the
owner's failure to fix them is also considered negligence. (See ibid.)

(3) Delay (mora). - This has already been discussed under Article 1169.

(4) Contravention of the terms of the obligation. This is a breach of the obligation's terms and
conditions. A fortuitous circumstance or force majeure cannot be the cause of the breach.
(See 1174.)

EXAMPLE:
 E rented R's apartment for P10,000 a month, payable in advance the first week of
each month. E's duty as a lessee is to pay the agreed-upon rent. R's duty as a lessor is to
keep E in peaceful possession of the leased apartment.

R has the right to evict E from the premises and sue him for damages if he breaks his
duty. If R fails to keep E in peaceful possession of the apartment (as if he is not the owner)
and E is expelled, R may be held responsible for damages for breaching his duty.

In compliance with the provisions of the Civil Code on Damages, the amount of
damages to be paid to E or R, as the case may be, is left to the sound discretion of the
judge. (This is Title XVIII.)

Fraud and negligence distinguished

Fraud may be distinguished from negligence as follows:

(1) There is a deliberate intent to cause harm or injury in fraud, whereas there is no such
purpose in negligence;

(2) Waiver of responsibility for potential fraud is void (Art.1171), but such waiver may be
permitted in a restricted sense in negligence (Art. 1172);

(3) Fraud must be explicitly demonstrated, whereas negligence is inferred from the breach of
a contractual obligation; and

(4) Finally, while courts cannot minimize or reduce liability for fraud, they may reduce liability
for negligence depending on the circumstances. (See 1173.)

They are similar in that they are both voluntary, that is, they are made voluntarily. However,
if the defendant's neglect is egregious, or there is a failure to exercise even a smidgeon of
care, or a total lack of care, the rules on fraud apply. In this case, there is no longer any
difference between the two, at least in terms of functionality.

ART. 1171. Responsibility arising from fraud is demandable in all obligations. Any
waiver of an action for future fraud Is vold. (1102a)

Responsibility arising from fraud demandable

This provision refers to incidental fraud which is employed in the fulfillment of an

obligation. (Art. 1170.)

Responsibility arising from fraud can be demanded with respect to all kinds of
obligation and unlike in the case of responsibility arising from negligence (Art. 1172.), the
court is not given the power to mitigate or reduce the damages to be awarded. This is so
because fraud is deemed serious and evil that its employment to avoid the fulfillment of
one's obligation should be discouraged.

Waiver of action for future fraud void

According to the time of commission, fraud may be past or future.

A waiver of a potential fraud action is void (has no effect, as though there was no
waiver) because it violates the law and public policy. (Article 1409(1).) A rule to the contrary
would promote fraud because the obligor knows that even though he commits fraud, he
would not be held liable, rendering the responsibility illusory.

Waiver of action for past fraud valid

The statute forbids waiver prior to the occurrence of the fraud and the aggrieved
party's knowledge of it.

A legal waiver can be granted in the case of a past fraud because the waiver can be seen as
an act of kindness and magnanimity on the part of the fraud victim. The consequence of the
fraud, that is, the right to indemnity of the party entitled to it, is renounced here. The waiver
must be written in plain language, leaving no question as to the obligor's purpose.

EXAMPLE:

At a rate of 10 cavans per month, 6 promised to deliver 120 cavans of rice of a

specific brand and quality to B.

S cannot agree with B that if I commit misconduct in the performance of my

obligation, B will not file a lawsuit against S. This waiver of a potential fraud action is null and
void. As a result, B will also sue S for damages resulting from the deceit.

However, after fraud has been committed, B will waive his right to indemnity as an act of
redemption, even though he is fully aware of it.

ART. 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 circumstances. (1103)

Responsibility arising from negligence demandable

The debtor is also responsible for damages arising from his negligence while
performing some kind of duty.

The courts, on the other hand, are given broad leeway in determining the amount of
damages. The explanation for this is that negligence is an issue that must be decided based
on the facts of each case. (For more information, see Art. 1173.) Furthermore, negligence is
not as bad as fraud since there is no intentional attempt to cause harm or damages in the
former. The court can increase or decrease the amount of damages that can be recovered
depending on the circumstances. If both parties to a contract are negligent in carrying out
their respective responsibilities, one's fault can cancel or neutralize the other's negligence.

Validity of waiver of action arising from negligence

(1) Except in the case of common carriers, where the existence of the duty
necessitates the exercise of exceptional caution, an action for future negligence (not fraud)
can be waived. (See, for example, Art. 1733.) As a result, in the preceding case, the law
permits S and B to conclude an agreement in which S agrees not to be liable for damages
resulting from negligence in the execution of his duty. However, such a waiver is null and
void if S is a common carrier (e.g., a bus, shipping, or airline company).

(2) Negligence that reflects bad faith (i.e., is done on purpose) is called fraud. (Article
2201, second paragraph) As a result, any waiver of a claim for future negligence of this kind
is null and void.

Kinds of negligence according to source of obligation

They are:

(1) Contractual negligence (culpa contractual) or Contracts that have been violated
due to negligence. Contractual culpa is mentioned in Article 1172. This form of
irresponsibility is not a source of liability. (See 1157.) It simply holds the debtor responsible
for damages as a result of his failure to meet a prior duty (Articles 1170, 1172);

(2) Civil negligence (culpa aquiliana) or negligence, which, by itself, creates an

obligation between parties that were not previously related by any preexisting contract. It's
also known as a tort or a quasi-delict (Art. 2176.)

(3) Criminal negligence (culpa criminal) or criminal negligence that leads to the
commission of a crime (Revised Penal Code, Art. 3, 365.) The same negligent act that
causes damages will result in civil liability under Article 100 of the Revised Penal Code
(supra.) or a quasi-delict proceeding under Article 2176 et seq. of the Civil Code.

In cases of negligence, the aggrieved party has the option of pursuing a criminal
charge under Article 100 of the Revised Penal Code or pursuing a civil claim for damages
under Article 2176 of the Civil Code. Recovering again for the same negligent act is
forbidden by Article 2177 of the Civil Code.

EXAMPLES:

(1) If S entered into a contract with B to deliver a specific horse on a specific day, and
the horse died before delivery due to S's negligence, S is liable to B for damages for failure
to meet a pre-existing duty (contract may be express or implied) due to his negligence. This
is a statutory culpa.

(2) Assume that the horse is owned by B and is in his possession. S is culpa
aquiliana for the horse's death as a result of his negligence. There is no pre-existing
contractual relationship between S and B in this situation. Liability stems from the act of
negligence itself. (Article 1157, paragraph 51.)

(3) Negligence may be used to commit a crime. If B so wishes, he will file a culpa
criminal action (damage to property caused by simple or careless imprudence). In this case,
the offense is the source of S's duty to pay damages. (Arts. 1157[4,] and 1161.)

B, on the other hand, cannot be paid twice for the same act or omission by S. In
other words, civil liability arising from a criminal act cannot be combined with responsibility
for quasi-delict. (See Article 2177.)

Effect of negligence on the part of the injured party

 Suppose the creditor is also guilty of negligence, can he recover damages?

Article 2179 of the new Civil Code provides:

"When the plaintiff's own negligence was the immediate and proximate cause of his
injury, he cannot recover damages. But if his negligence was only contributory, the
immediate and proximate cause of the injury being the defendant's lack of due care, the
plaintiff may recover damages, but the courts shall mitigate the damages to be awarded."
(see Arts. 2214, 2215.)

EXAMPLES:

(1) Pisa passenger in a carefully driven bus. He jumped off the bus without warning,
sustaining injuries as a result of his actions.

Since P's accidents were caused by his own fault, the bus operator is not responsible
for damages.

(2) Let's say P was standing on the bus's running board and was repeatedly ordered
by the conductor to go inside, but he ignored him. P was thrown off the bus when the bus
abruptly swerved to the left to avoid colliding with another car. The driver was inebriated at
the time of the accident and driving recklessly at a high rate of speed.

In this case, P did not observe the diligence of a good father of a family to avoid
injury to himself. (Art. 1761.) However, since the common carrier's negligence is the
proximate or direct cause of his death or injury, his contributory negligence does not
preclude recovery for damages. However, the amount of damages must be reduced
equitably.

(3) Assume the bus rounded a curve in the second example, causing P to lose his
balance and fall off the bridge, injuring himself. The bus was traveling at a moderate pace at
the time of the crash, there were no violations of law or legislation, and P was exposed to no
greater danger than that which is inherent in that mode of transportation.

P is unable to recover in this case. When the bus rounded the curve, he should have
been on the lookout for a normal phenomenon such as losing his balance to a greater or
lesser degree. (see Lasam vs. Smith, 45 Phil. 657.)

To put it another way, to be entitled to damages, the defendant's negligence had to

be the sole cause of the injury.

ART. 1173. The fault or negligence of the obligor consists in the omission that
diligence which is required by the nature of the obligation and corresponds with the
circumstances of the person, 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.
(1194a)

Meaning of fault or negligence

 Fault or negligence defined by the above provision (par 1.) “Negligence is the failure
to observe that degree of caution, precaution, and diligence which the circumstances justly
require for the security of the interests of another person, whereby such other person suffers
injury,” according to our Supreme Court." (United States s Harris 23 Phil 434.)

Factors to be considered

Negligence is a factual problem, meaning that its presence is contingent on

the facts of each case. The following considerations must be considered when
assessing the question of negligence:

(1) Nature of the obligation.

EXAMPLE

Smoking while carrying materials known inflammable constitutes negligence

(2) Circumstances of the person.

EXAMPLE

A guard, a man in the prime of life, robust and healthy, sleeping while on duty
is guilty of negligence.

(3) Circumstances of time.

EXAMPLE:

Driving a car without headlights at night is gross negligence but it does not by
itself constitute negligence when driving during the day.

(4) Circumstances of the place.

EXAMPLE:

Driving at 100 kilometers per hour on the highway is legal, but doing so on
Ayala Avenue in Makati is reckless.

Measure of liability for damages

Damages are monetary compensation awarded to a party for damage or injury

caused by the other's breach of contract or responsibility. Damages are typically awarded to
put the innocent party in the same (not better) role that he would have been in if the contract
or duty had been fulfilled according to its terms.

Article 2201 of the Civil Code states:

" The damages that the obligor who acted in good faith is liable for in
contracts and quasi-contracts are those that are the normal and probable effects of
the violation of the obligation, and which the parties foresaw or might have
reasonably foreseen at the time the obligation was constituted.

I n the event of deception, bad faith, malice, or a willful attitude, the obligor is
liable for any damages that can be reasonably due to the failure to fulfill the duty.
 EXAMPLE

S agreed to sell and supply 1,000 kilos of sugar of a certain quality to B on a

specific date for P30,000. Then, for B P35,000, they decided to sell the sugar they
were going to get from S to C. S. was made aware of this deal. On the specified date.
S failed to supply the sugar, so I had to purchase it from another source.

S's breach of the contract, which resulted in a loss of P5,000 in expected

benefit, enraged him so much that he had a heart attack and was hospitalized for five
(5) days.

In this scenario, if S behaved in good faith, B should be compensated for the

loss of P5,000, which is the benefit that B failed to understand .(par. 1; Art. 2200)

However, if S behaved in bad faith, he is therefore responsible for B's

hospitalization costs, which obviously arose from the violation, even if they were not
adequately anticipated by the parties at the time they signed the contract. (par. 2.)

Kinds of diligence required

Under Article 1173, the following kinds of diligence are required:

(1) that agreed upon by the parties, orally or in writing

(2) in the absence of stipulation, that required by law in the particular case (like the
extraordinary diligence required of common carriers); and
(3) if both the contract and law are silent, then the diligence expected of a good
father of a family. (par. 2 see Art. 1163.)

ART. 1174. Except in cases expressly specified by the law, or when it is

otherwise declared by stipulation, or when the nature of the obligation requires
the assumption of risk, no person shall be responsible for those events which
could not be foreseen, or which though foreseen, were inevitable. (1105a)

Meaning of fortuitous event

Any event that cannot be predicted or that, even if predicted, is unavoidable is

referred to as a fortuitous event. In other words, it is an occurrence that is either difficult to
predict or impossible to prevent.

A fortuitous event is characterized as a circumstance that occurs independently of

the debtor's will and renders the usual fulfillment of the obligation impossible.

Fortuitous event distinguished from force majeure

A fortuitous event may either be an act of man or an act of God.

(1) Acts of man. Strictly speaking fortuitous event is an event independent of the will
of the obligor but not of other human wills.

EXAMPLES:

War, fire, robbery, murder, insurrection, etc.

 (2) Acts of God. -- They refer to what is called majeure or those events which are
totally independent will of every human being

EXAMPLES

Earthquake, flood, rain, shipwreck, lightning, eruption of volcano, etc.

Fortunate accidents and force majeure are similar in our law in terms of exempting an
obligor from liability. Both are independent of the obligor's will.

Kinds of fortuitous events

When it comes to lease contracts, our Civil Code distinguishes between two (2) types
of fortuitous events:

(1) Ordinary fortuitous events or those events which are common and which the
contracting parties could reasonably foresee (e.g., rain); and

(2) Extraordinary fortuitous occurrences, or events that are rare and that the
contracting parties could not have reasonably predicted (e.g., earthquake, fire, war,
pestilence, unusual flood). (see Art. 1680, par. 2.)

Requisites of a fortuitous event

They are the following:

(1) The event must be independent of the human will or at least of the debtor's will;

(2) The event could not be foreseen, or if foreseen, is inevitable;

(3) The case must be of such a nature that it renders the debtor's ability to meet his
obligations in a normal manner impossible; and

(4) The debtor must be free of any involvement in, or aggravation of, the creditor's
injury, that is, no concurrent negligence on his part.

The obligor would not be excluded from responsibility if any of the above
requirements were missing.

A person's financial failure or poverty is not an excuse for failing to meet a promise. It is not
the same as being unable to predict the occurrence of an event; it is not the same as being
unable to foresee the occurrence of an event. As previously said, the incident must be
unforeseeable, or if it can be predicted, it must be difficult to prevent.

Rules as to liability in case of fortuitous event

In most cases, a person is not liable for the loss or damage caused to another as a
result of his failure to meet his obligations due to unexpected circumstances. In other words,
he is no longer obliged. There are a few exceptions, which are listed below.

(1) When expressly specified by law. 4 In exceptions (a), (b), and (c) below, the
special strictness of the law is justified.
 (a) the debtor is guilty of fraud, negligence, or delay, or contravention of the
tenor of the obligation. (Arts. 1170, 1165, par 3.)

EXAMPLE:

On August 10, S must deliver a particular horse to B. S failed to supply the

horse on the agreed-upon date. If the horse died on August 11 as a result of a
lightning strike, S is not liable if B has not made a demand. His duty is no longer
valid.

S is responsible for damages if the horse died after B made a demand

because he was guilty of (legal) delay. S's duty to supply the horse is thus nullified in
this situation. (see, however, Art. 1262.) but it is converted into monetary obligation to
pay damages. (Art. 1165, par. 3.)

S would be responsible if the horse would have died regardless of whether or

not B had made a demand. And if a fortuitous occurrence happens, a debtor in
default becomes liable. (see Art. 1165.) However, the court may reduce the amount
of damages. (see Art. 2215[4].) Art, 1174

(b) the debtor has promised to deliver the same (specific) thing to two (2) or
more persons who do not have the same interest. (Ibid.)

EXAMPLE:

S is responsible even though a fortuitous incident occurs because S sold and agreed
to sell the same car to B and C separately. The explanation for this is that it would be difficult
for him to fulfill his obligations to both B and C even though no fortuitous occurrence
occurred. (c) the obligation to deliver a specific thing arises from a crime. (Art. 1268.)

EXAMPLE:

S has a legal duty to return the carabao to BC resulting from the crime. Even
though the carabao dies or is lost due to a fortuitous incident, S is still responsible for
damages unless B is in mora accipiendi. A individual is liable for the consequences
of his criminal act, regardless of the cause. (see U.S. vs. Mambang, 36 Phil. 348.)

(d) the thing to be delivered is generic. (Art. 1263.)

EXAMPLE:

The loss or destruction of a generic item such as rice, corn, sugar, or other
similar items does not result in the disappearance of the obligation because the
debtor can still fulfill his obligation by supplying another item of the same kind, as the
concept of "genus never perishes" states. (Genus nunquam perit).

(2) When declared by stipulation - The basis for this exception rests upon the
freedom of contract. (see Art. 1306.) Such a stipulation is usually intended to better protect
the interest of the creditor and procure greater diligence on the part of the debtor in the
fulfillment of his obligation. But the intention to make the debtor liable even in case of a
fortuitous event should be clearly expressed.
 (3) When the essence of the duty necessitates risk inference. The chance of loss or
injury is an important part of the responsibility in this case.

EXAMPLE

B With C, an insurance firm, he insured his house against fire for P100,000.
The house was later destroyed by an unintentional fire. Despite the fact that the loss
was caused by a chance case, B will be able to recover the full sum of the policy.

In a contract of insurance, the insurer (C) agrees to indemnify the insured (B)
for the loss of the item insured due to the peril insured against, even though the
cause of the loss is a fortuitous occurrence, in exchange for the premium charged by
the latter.

ART. 1175. Usurious transactions shall be governed by special laws. (n)

Meaning of simple loan or mutuum

A simple loan, also known as a mutuum, is a contract in which one party delivers
money or another consumable item to the other on the condition that the same amount of
the same kind and quality be paid. It may be free or come with a condition that you pay
interest. (Art. 1933.)

Meaning of usury

For the loan or use of money, products, chattels, or credits, usury is contracting for or
earning interest in excess of the amount permitted by statute. (Tolentino vs. Gonzales, 50
Phil. 558.)

Requisites for recovery of interest

In order that interest may be recovered, the following requisites must be present:

(1) The payment of interest must be expressly stipulated (Art. 1956.);

(2) The agreement must be in writing, and

(3) The interest must be lawful. (Art. 1957.)

A stipulation for the payment of usurious interest is invalid, meaning that it is as

though there is no interest stipulation at all. (see comments under Art. 1413.)

Note: By virtue, however, of Central Bank Circular No. 905 (Dec. 10, 1982, effective
Jan. 1, 1983.) The rate of interest and other charges that may be paid or levied on a loan or
forbearance of money, goods, or credit, regardless of maturity and whether secured or
unsecured, provided by the Monetary Board under the authority granted to it by the Usury
Law, shall not be subject to any limit prescribed under the Usury Law. Usury is now legally
non-existent. Parties are now free to stipulate any amount of interest. It does not, however,
give absolute right to the creditor to charge the debtor interest that is "iniquitous or
unconscionable." (see Art. 1229.)
 ART. 1176. The receipt of the principal by the creditor, without
reservation with respect to the interest, shall give rise to the presumption that said
interest has been paid.

The receipt of a later installment of a debt without reservation as to prior

installments, shall likewise raise the presumption that such installments have been
paid. (1110a)

Meaning of presumption

The assumption of a truth not already known based on its ordinary relation with
another fact that is known or proven is referred to as presumption.

EXAMPLES

(1) X was killed by a bullet. The shooting was not observed by anyone. Y, on
the other hand, was seen carrying the fatal gun at the crime scene shortly after it
occurred. The identity of the person who shot the gun is unknown. The presence of Y
at the crime scene with the fatal gun is a proven fact.

Unless qualified proof contradicts the conclusion, Y is the individual who killed
X.

(2) D C gave me P1,000 as a loan. D later shows C a receipt that he signed.

The payment by D. is a fact that is unknown. The possession by D of a receipt signed
by C is a proven fact..

Unless C may show that the obligation has been paid, such as by proving that D compelled
C to sign the receipt, the assumption is that the obligation has been paid.

Two kinds of presumption

They are:

(1) Conclusive presumption- one which cannot be contradicted, like the presumption
that everyone is conclusively presumed to know the law (see Art. 3.); and

(2) Disputable (or rebuttable) presumption. - one which can be contradicted or

rebutted by presenting proof to the contrary, like the presumption established in Article 1176.
(see Sec. 69[i], Rule 123, Rules of Court.)

EXAMPLES:

(1) D owes C P10,000 plus interest at a rate of 15% per year. The principal
received a receipt from C. Whether or not the interest was paid was not included in
the payment.

D is said to have paid the interest first since interest payments usually come
first before principal payments. (Art. 1253.) This, however, is just an assumption that
can be disproved if there is ample evidence that such interest was not actually paid..
(Art. 1176. par. 1.)
 2. E is a lessee in R's apartment, paying a monthly rent of P5,000. For the
months of February and March, E did not pay his rent. E charged P5,000 in April, and
R received a receipt indicating that the payment was for the month of April.

The rents for the months of February and March were presumed to have
already been paid. This is also in line with standard business practice, in which prior
installments are paid off first before payments are applied to subsequent
installments. This presumption is, once again, debatable. (Art. 1176, par 2: see
Rubert and Guamis vs. Smith, 11 Phil. 138: Manila Trading & Supply Co. vs. Medina,
2 SCRA 549.)

When presumptions in Article 1176 do not apply

(1) With reservation as the interest. – Where there is a reservation that no payment
has been made as to interest or prior installments, as the case may be, the presumptions
defined in Article 1176 do not apply. The reservation can be made orally or in writing. Thus,
in the preceding examples, no presumption of payment arises where there is a reservation
by Cor R that no payment has been made as to the interest or the rents for February and
March, as the case may be.

(2) Receipt without indication of particular installment paid - If the receipt does not
specify that it was given for a specific installment due, such as when the receipt is only
dated, the assumption in paragraph 2 of Article 1176 does not apply. Thus, in the preceding
example (No. 2.), the fact alone that the receipt issued by R is dated April 5 does not justify
the inference that the rents for February and March had been paid.

(3) Receipt for a part of the principal. - Without considering interest, such a receipt
means that the borrower waives his right to apply the payment first to the interest and then to
the principal, as allowed by law. Article 1253. (infra.) It is only when the principal is fully
receipted for and there is failure by the creditor to reserve the claim for interest, that the
presumption that the said interest has been paid will arise.

(4) Payment of taxes. Article 1176 does not apply to payment of taxes. The payment
of later taxes does not imply that prior taxes have been charged.

(5) Non-payment proven - Of course, Article 1176 is not applicable where the non-
payment of prior obligations has been proven. A presumption cannot prevail over a proven
fact

ART. 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. (1111)

Remedies available to creditors for the satisfaction of their claims

In the event that the debtor fails to meet his obligations, the creditor may seek the
following remedies to satisfy his claim:

(1) exact fulfillment (specific performance) with the right to damages;

 (2) pursue the leviable (not exempt from attachment under the law) property of the
debtor,

(3) " after having pursued the debtor's property in his possession," exercise all of the
debtor's rights (such as the right to redeem) and carry all of the debtor's acts (such as the
right to allege from the debtor of his debtor) except those inherent in or personal to the
latter's individual (such as the right to vote to hold office, to receive legal support, to revoke a
donation on the ground of ingratitude, etc.) and;

(4) When he can't recover his claim any other way, he may petition the court to
cancel or impugn actions or contracts that the debtor might have done to defraud him. (see
Arts. 1380-1789)

Subject to the exemptions given by statute, the debtor is responsible for the
satisfaction of his obligations with all of his land, present and potential. (see Art. 2236.)

EXAMPLE 1

D was unable to meet his duty to C in the balance of P400,000 on the due
date. Downs, on the other hand, owns a car worth around P280,000, and X owes him
P40,000. D sold his P200,000 worth of land to Y before the obligation's due date.

Under the circumstances, the rights granted to under the law are as follows

(a) He may bring an action for the collection of the amount of P400,000 with a
right to damages

(b) If D fails to pay the sum due despite the judgment, C may request the
attachment of D's vehicle, which will be sold and payment made from the proceeds of
the sale.

(c) He may ask the court to order not to pay D so that payment may be made
to hum (C)

(d) In the event that he (C) is unable to recover his credit in any other way, he
may ask the court to rescind or cancel the sale made by D to Y on the grounds that
the transaction was fraudulent.

It is possible to use the last cure. C was unable to collect the entirety of his credit
(see Arts. 1381 31 1387) He must first exhaust the debtor's or subrogate's assets. (see Art.
1300,) himself in the latter's transmissible rights

ART. 1178. Subject to the laws, all rights acquired in virtue of an obligation are
transmissible, if there has been no stipulation to the contrary. (1112)

Transmissibility of rights

All rights acquired in virtue of an obligation are generally transmissible or assignable.

(see Art. 1311.) The exceptions to this rule are the following:

(1) Prohibited by law. When prohibited by like the rights in partnership,

agency, and commodatum which are purely personal in character.
 (a) By the contract of partnership, two or more persons bind themselves to
contribute money, property or industry to a common fund, with the intention of
dividing the profits among themselves. (Art. 1767.)
(b) By the contract agency, a person binds himself to render some service or
to do something in representation or on behalf of another, with the consent or
authority of the latter. (Art. 1868.)
(c) By the contract of commodatum, one of the parties delivers to another
something not consumable (e.g., car) so that the latter may use the same for a
certain time and return it. Commodatum is essentially gratuitous. (Art. 1933.)

(2) Prohibited by stipulation of the parties - When the parties have agreed that the
duty will be terminated upon the death of the borrower, or that the creditor will not be
able to grant his credit to another.

Since such a stipulation is contradictory to the general law, it must be explicitly shown or, at
the very least, clearly inferred by the contract's wordings or words.

ACTIVITY 2
I. Definitions

Define or give the meaning of the following:

1. generic or indeterminate thing;

2. personal right;

3. legal delay or default;

4. fortuitous event;

5. diligence of a good father of a family.

II. Discussions

1. Give the rules as to the liability of a person for loss or damage resulting
from a fortuitous event.

2. What rights are given by law to the creditor in case the debtor fails to
comply with his obligation to deliver a specific thing?

3. What are included to be delivered in an obligation to give a definite thing?

Explain them.

4. Suppose the obligation of the debtor is to do something and he fails to do it

or performs it in contravention of the agreement, what are the remedies available to
the creditor?

5. Can a debtor be put in delay and consequently, incur liability even without
demand from creditor? Explain.

6. May an action arising from fraud be waived? Explain

 7. May an action arising from negligence be waived? Explain.

III. Problems

Explain or state briefly the rule or reason for your answer.

1. On July 5, S (seller) sold a horse named Silver to B (buyer), with delivery

scheduled for July 20. S, on the other hand, sold the horse again on July 15 and delivered it
to T. Who has a stronger claim to Silver?

2. S sold B a particular refrigerator, which S promised to deliver by July 31. However,

S failed to deliver the refrigerator by that date. Is S making a legal blunder?

3. On July 10, S promised to deliver a female horse called Suzie to B. On July 5,

Suzie gave birth to a colt.

a) What are the obligations of S?

b) Who has a right to the colt?

c) Who is the lawful owner of Şuzie in case it was sold and delivered by S to
T on July 8?

4. D (debtor) borrowed P20,000 from C (creditor) with a one-year repayment period?

Is D responsible for paying interest?

5. E (lessee) has paid the rent for the months of March 2008, according to R (lessor).
Is it still possible for R to receive the rents from E for the months of January and February
2008?
 Chapter 3

DIFFERENT KINDS OF OBLIGATIONS

Classifications of obligations

(1) Primary classification of obligations under the Civil Code:

(a) Pure and conditional obligations (Arts. 1179-1192.);

(b) Obligations with a period (Arts. 1193-1198.);

(c) Alternative (Arts. 1199-1205.) and facultative obligations (Art. 1206.);

(d) Joint and solidary obligations (Arts. 1207-1222.);

(e) Divisible and indivisible obligations (Arts.1223-1225.); and

(f) Obligations with a penal clause. (Arts. 1226-1230)

(2) Secondary classification of obligations under the Civil Code:

(a) Unilateral and bilateral obligations (Arts.1169-1191.);

(b) Real and personal obligations (Arts. 1163-1168.);

(c) Determinate and generic obligations (Art. 1165)

(d) Civil and natural obligations (Art. 1423.) and

(e) Legal, conventional, and penal obligations (Arts. 1157, 1159, 1161.)

SECTION 1. - Pure and Conditional Obligations

 ART. 1179. Every obligation whose performance does not depend upon
a future or uncertain event, or upon a past event unknown to the parties, is
demandable at once.

Every obligation which contain a resolutory condition shall also be

demandable, without prejudice to the effects of the happening of the event.

Meaning of pure obligation

A pure duty is one that is not subject to any conditions and has no fixed deadline for
fulfillment, rendering it instantly demandable.

EXAMPLES:

(1) C P1,000, which he agrees to pay Since there are no requirements and no
deadline for delivery, the obligation is instantly demandable.

Of course, if D has just signed the loan contract, the parties may have
intended for a period of performance, but the length of that period would be
determined by the essence of the commitment and the circumstances.

(Art. 1197.) (2) D binds himself to pay C P1,000 "upon demand of C. The
obligation is immediately due and demandable.

Meaning of conditional obligation

A conditional duty is one whose consequences are contingent on the fulfillment of a

condition in some way.

Meaning of condition

The effectivity of the extinguishment of a duty (or right) subject to it depends on the
occurrence of a future and unknown event.

Characteristics of a condition

(1) Future and unpredictability- It is not enough for an incident to be future to qualify
as a condition; it must also be unknown. Article 1179's first paragraph clearly uses the
disjunctive "or" between "future" and "uncertain" to differentiate sole duty from both
conditional and time obligations. Regardless, the word "or" should be replaced with "and."

(2) Past but unknown - A condition could refer to a previously unseen incident
between the parties. (infra-red) If it applies to a potential event, both the event's occurrence
and the timing of it must be uncertain: It is not a condition if it is not otherwise.

A condition must not be impossible.

Two principal kinds of condition

They are:

(1) Suspensive condition - Condition precedent or condition antecedent) or one the

fulfillment of which will give rise to an obligation (or right). In other words, the demandability
of the obligation is suspended until the happening of the uncertain event which constitutes
the condition.

EXAMPLE

I f the land is adjudicated to me in the division of my deceased father's properties, I

will sell it to you. My duty is only enforceable until the condition of my being the land's owner
is met. Meanwhile, I am not responsible to you.

(2) Resolutory condition (following condition) of one whose satisfaction would

extinguish a current duty for right.

EXAMPLE:

Payment of his debt to C obligates him to pay a monthly allowance of P3,000

before C graduates from college.

D's obligation is demandable now but it shall be extinguished or terminated

upon the happening of the resolutory condition - C's graduating from college

Distinctions between suspensive and resolutory conditions

The distinction between the two (2) conditions is clear: both have an effect on the life
of the duty, but in opposite ways.

(1) The duty exists if the suspensive condition is met, while the obligation is
extinguished if the resolutory condition is met.

(2) If the first does not occur, the legal bond (juridical or legal tie) does not appear; if
the second occurs, the legal tie is consolidated; and if the third occurs, the legal tie is
consolidated.

(3) The nature of the duty is merely a hope before the first happens, while its
consequences flow in the second, but the probability of termination looms over it.

When obligation is demandable at once

An obligation is demandable at once

(1) when it is pure;

(2) when it is when it is subject to a resolutory condition; or

(3) when it is subject to a resolutory period

Past event unknown to the parties

A situation only applies to an unforeseen and unforeseeable occurrence. Since the

demandability of a duty subject to a condition depends on whether the event will occur or
not, a past event cannot be considered to be a condition occur. What the law actually applies
to is the information that can be learned in the future regarding a past occurrence that is still
unknown to the parties concerned, and it is only in that context that the event may be
considered ambiguous. This information decides whether or not the responsibility would
occur.

EXAMPLE

X owns a piece of property that is being contested by Y. The Supreme Court

released a final ruling last week upholding X's right. X, on the other hand, has yet to
obtain notification that he has secured the lawsuit. Now, if he wins the case against
Y, he is obligated to sell his land to B.

- According to the truth, until X receives notification that he has won the case
against Y, he is obliged to sell the land to B.

ART. 1180. When the debtor binds himself to pay when his means
permit him to do so, the obligation shall be deemed to be one with a period,
subject to the provisions of article 1197.

Where duration of period depends upon the will of debtor

A duration is a potential and certain occurrence that occurs when the duty that is
subject to it arises or expires.

(1) The debtor agrees to pay when his financial circumstances allow him to do so -
the responsibility is considered to be one with to do so. Indefinitely In this situation, it is not
the debtor's will that determines whether he can pay or not, since he has already agreed to
pay. Only his will determines how long the time will last.

If the debtor and the creditor cannot agree as to the specific time for payment, the
court shall fix the same on the application of either party.

(2) Other cases. – As when the debtor binds himself to pay:

(a) "little by little" (Scone vs. Francisco, 24 Phil. 309.);

(b) "as soon as possible" (Gonzales vs. Jose, 66 Phil. 369.);

(c) "from time to time";

(d) "at any time I have the money" (Soriano vs. (Levy Hermanos vs. Abalos,
84 Phil. 206.);

(e) "in partial payments" Paterno, 18 Phil. 353.); and

(f) "when I am in a position to pay." (see Luding Hahn vs. Lazatin, [unrep.]
105 Phil. 1358.)

Obligations with a period are discussed in the next sections.

ART. 1181. In conditional obligations, the acquisition of rights, as well

as the extinguishment or loss of those already acquired, shall depend upon the
happening of the event which constitutes the condition.

Effect of happening of condition.

 The distinction between a suspensive (or antecedent) condition and a resolutory (or
subsequent) condition is reiterated in this article.

(1) Acquisition of rights. The creditor's acquisition of rights in obligations subject to a

suspensive condition is dependent on the occurrence of the incident that constitutes the
condition.

This form of obligation is characterized by the fact that its effectiveness or mandatory
force (as opposed to demandability) is dependent on the occurrence of a future and
unknown event. As a result, if the suspensive condition is not met, and it is almost inevitable
that it will not be met, the parties would act as though the conditional commitment didn't exist
at all. The creditor has only a hope or expectancy of obtaining a right while the suspensive
condition is in effect. (Art. 1188, par. 1.)

EXAMPLES:

(1) T, testator, in his last will and testament gave some property to H (heir) provided
T would die within two (2) years.

In this situation, H would only have a claim to the land if the suspensive
condition was met: T's death within two (2) years. The duty is one with a time limit if
the death must occur within a certain amount of time.) If T passed away after two
years, (2) years, the condition would be the same as if Tin had made no provision in
his will for H. The surrender of the sweepstakes ticket is a condition precedent to the
payment of the prize (Santiago vs. Millar, 68 Phil. 39.)

(2) Loss of previously acquired rights. The occurrence of the incident that constitutes the
circumstance results in the extinguishment or deprivation of rights already acquired in
commitments subject to a resolutory condition.

EXAMPLES:

(1) X commits to supporting YOU until I complete college. Once the condition
is met, the right that Y has already acquired—the right to obtain support—will be
extinguished or lost.

(2) S sold a piece of land to B that was subject to S's right of repurchase.
Should S exercise his right to repurchase, the ownership that B has already gained
under the contract will be extinguished or lost.

(3) A lease contract specifically states that ARE, the lessor, has the right to
terminate the lease if his children require the leased space. The condition's
occurrence is dependent on the will of a third party - R's children.

ART. 1182. When the fulfillment of the condition depends upon the sole
will of the debtor, the conditional obligation shall be void. If it depends upon
chance or upon the will of a third person, the obligation shall take effect in
conformity with the provisions of this Code.

Classification of conditions.

Conditions may be classified as follows:

 (1) As to effect:

(a) Suspensive. -- the happening of which gives rise to the obligation; and

(b) Resolutory. - the happening of which extinguishes the obligation

(2) As to form:

(a) Express the condition is clearly stated;

(b) implied. the condition is merely inferred.

(3) As to possibility:

(a) Possible. -- the condition is capable of fulfillment, legally and physically;

and (b) Impossible. - the condition is not capable of fulfillment, legally or
physically.

(4) As to cause or origin:

(a) Potestative. – the condition depends upon the will of one of the contracting
parties;

(b) Casual the condition depends upon chance or upon the will of a third
person; and

(c) Mixed. - the condition depends partly upon chance and partly upon the will
of a third person.

(5) As to mode:

(a) Positive. - the condition consists in the performance of an act; and

(b) Negative - the condition consists in the omission of an act.

(6) As to numbers:

(a) Conjunctive. - there are several conditions and all must be fulfilled; and

(b) Disjunctive there are several conditions and only one or some of them
must be fulfilled.

(7) As to divisibility:

(a) Divisible. 10 partial performance; and the condition is susceptible of

(b) Indivisible. - the condition is not susceptible of partial performance.

Potestative condition

Potestative condition is a condition that is suspensive in nature and is dependent on the sole
will of one of the contracting parties.

Where suspensive condition depends upon will of debtor

 (1) Conditional obligation void - If the potestative condition is solely dependent on the
debtor's will, the conditional obligation is void since the debtor's will determines its validity
and enforcement. (Art. 1308.) As a result, it cannot be easily requested. The debtor would
not necessarily satisfy the condition in order to escape liability. There is no financial burden
on the debtor, and therefore no legal ties are established. (Art. 1156.)

EXAMPLES:

(1) "I will pay you if I want."

(2) "I will pay you after I receive a loan from a bank" (Berg vs. Magdalena
Estate, Inc., 92 Phil. 110.)

(3) "I will pay you after I recover what X owes."

(4) "I will pay you after I have harvested fish." (Trillana vs. Quezon College,
Inc., 93 Phil. 383.)

(5) "I will pay you upon the sale of the house in which I live." (Osmeña vs.
Rama, 14 Phil. 99.)

(6) "I will pay you the price of the forest concession you sold me upon my
operation of the same." (Tible vs. Aquino, 65 SCRA 207.)

(7) "I will continue to lease your property for as long as I need the premises
and the rent."

Both the terms and the duties are null and void in any of the above situations. The
conditions in examples 2–6 are akin to a debtor telling a borrower that he will pay his debt
whenever and however he wishes. In the case of No.

7, The lessee's uncontrollable will determines the les contract's continuation,

effectiveness, and fulfillment.

(2) Only the condition did-it the obligation is pre-existing and therefore does not
depend on the debtor's fulfillment of the potestative condition for its existence; only
the condition is invalid, leaving the obligation itself unchanged. The condition is put
here not on the occurrence of the duty, but on its completion.

EXAMPLE

D borrowed P10,000 from C, which he would pay back in two months. D then offered to pay
after he sold his car, which C agreed to. Only the condition is invalid in this case; the pre-
existing duty of D to pay C is not.

Where suspensive condition depends upon will of creditor

The duty is true if the condition is solely dependent on the creditor's will.

EXAMPLE:

"If you demand it, I will pay you my debt."

The duty does not deteriorate into a phantom. The borrower is generally involved in the
contract being met because it benefits him. He has the choice of imposing his right or not.

Where resolutory condition depends upon will of debtor.

If the condition is resolutory in nature, such as the right to repurchase in a pacto de

retro sale, the duty is applicable even if its execution is contingent on the debtor's sole will
(seller). The fulfillment of the condition merely results in the extinction or diminution of
previously acquired rights. (Art. 1181.) The debtor is naturally interested in its fulfillment.

When the situation is resolutory, the debtor's status is similar to that of the borrower when
the condition is suspensive.

Casual condition.

The duty subject to the suspensive condition is legitimate whether it is dependent on

chance or the will of a third party.

EXAMPLES:

(1) Where X, the building contractor, agrees to repair any damage to the
building caused by an earthquake occurring within 10 years of its completion at X's
expense

(2) Where S agrees to sell his land to B if he wins a case before the Supreme
Court.

Mixed condition.

If the suspensive situation is partly due to chance and partly due to the will of a third
party, the duty is legitimate.

EXAMPLE:

If a panel of arbitrators finds that design flaws contributed in some way to the
destruction, X, the building contractor, owes it to Y, the owner, to repair any damage
to the building that occurs during an earthquake at X's expense.

In order for X's duty to arise, all requirements must be met. Unless it can be
shown that the panel (third party) was incompetent to act in that capacity or was
explicitly biased in favor of X or Y, the judgment of the panel (third party) must be
recognized as final by X and Y.

Where suspensive condition depends partly upon will of debtor.

According to Manresa, the word "exclusive" (now "sole") makes it clear that
contractual obligations whose fulfillment is dependent on the debtor's will and a third party's
will, or on chance, are perfectly true. (Jacinto vs. Chua Leng, (C.A.), 45 O.G. 2919, citing 4
Manresa 126.)

It is assumed, however, that if the debtor's compliance with the obligation is still
contingent on the fulfillment of that part of the condition that is contingent on his will, the
obligation is invalid because it is within his power to comply or not comply with the same.
The case is the same as if the debtor's will alone determines the outcome.

ART. 1183. Impossible conditions, those contrary to good customs or

public policy and those prohibited by law shall annul the obligation which
depends upon them. If the obligation is divisible, that part thereof which is not
affected by the impossible or unlawful condition shall be valid.

The condition not to do an impossible thing shall be considered as not

having been agreed upon.

When Article 1183 applies

Article 1183 refers to suspensive conditions. It applies only to cases where the
impossibility already existed at the time the obligation was constituted. If the impossibility
arises after the creation of the obligation Article 1266 governs.

Two kinds of impossible conditions

They are:

(1) Physically impossible conditions.! - when they, in nature of things, cannot

exist or cannot be done.

EXAMPLES:

(1) "I will pay you P10,000 if it will not rain for one year in the
Philippines."

(2) "I will pay you P10,000 if you can carry twenty (20) cavans of palay
on your shoulder."

(2) Legally impossible conditions. - when they are contrary to law,

morals, good customs, public order, or public policy

EXAMPLES:

X will give Y P1,000 if Y –

(1) will kill Z (against the law); or

(2) will be the common-law wife of X (against
(3) will slap his father (against good customs), or
(4) will publicly advocate the overthrow of the government (against public
order); or
(5) will not appear as a witness against X in a. criminal case (against public
policy.)

Effect of impossible conditions

(1) Conditional obligation void. --- Conditions that are difficult to fulfill
nullify the duty that is focused on them. The duty as well as the condition are both
null and void. The rule exists because the obligor is aware that his duty will not be
met. He has no intention of honoring his commitment.
 (2) Conditional obligation valid. - If the condition is negative, that is, not to do
anything that is unlikely, it is ignored, and the duty becomes pure and true.

2.) In truth, the condition is still met because it is not to do anything difficult, so it is as if
there were no condition.

It's likely that the negative condition isn't to offer an unlikely thing.

EXAMPLES:

(1) "If you don't bring 20 cavans of palay on your back, I'll sell you my
property."

(2) "I'll sell you my land if you don't give me a talking dog." The obligations are
pure and therefore demandable at any time.

(3) Only the affected obligation void. - If the duty is divisible, only the portion
of it not affected by the impossible condition is true.

EXAMPLE:

"If you sell my land, I'll give you P10,000, and if you kill Pedro, I'll give you a
car." The obligation to give P10,000 is valid, but the obligation to give a car is null
and void because it is conditional on an impossibility.

(4) Only the condition world. -- Only the provision is invalid if the duty is a pre-
existing obligation that does not depend on the fulfillment of the impossible condition
for its survival.

EXAMPLE:

D took out a P10,000 loan from C. If C agrees to kill X before D pays him, the condition to all
X" is nullified, but the pre-existing requirement of D "to pay C" remains in effect.

ART. 1184. The condition that some event happen at a determinate time
shall extinguish the obligation as soon as the time expires or If it has become
indubitable that the event will not take place.

Positive condition

The above article discusses a positive (suspensive) state, which is the occurrence of
an incident at a specific time. The duty is terminated: (1) when the time limit expires without
the event occurring; or (2) when it becomes indubitable that the event will not occur despite
the fact that the time limit has not expired.

EXAMPLE:

X obliges himself to give B P10,000 if B will marry C before B reaches the age
of 23.

(a) X is liable if B marries before he reaches the age

 (b) If B marries C at the age of 23 or after he reaches the age of 23, X is not
responsible. In this scenario, the time limit for marrying C before reaching the age of
23 has elapsed without the condition being met. As B reaches the age of 23, the duty
is terminated.

(c) If B dies before marrying C at the age of 22, the obligation is nullified since
it is now certain that the requirement will not be fulfilled. While the time limit (before
reaching the age of 23) has not yet elapsed, the duty of X is considered extinguished
as a result of his death.

ART. 1185. 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.

If no time has been fixed, the condition shall be deemed fulfilled at such
time as may have probably been contemplated, bearing in mind the nature of
the obligation.

Negative condition

The preceding provision refers to a negative situation in which an occurrence does

not occur at a certain time. (For more information, see Art. 879.) The duty becomes valid and
binding:

(1) when the specified time has elapsed without the occurrence occurring; or

(2) when it becomes apparent that the event cannot occur even if the specified time
has not yet elapsed. If no time is fixed, the circumstances shall be considered to arrive at the
intention of the parties. This rule may also be applied to a positive condition.

EXAMPLE:

X binds himself to give B P10,000 if B is not yet married to Con December 30.

(a) X is not liable to B if B marries C on December 30 or prior thereto.

(b) X is liable to B if on December 30, B is not married to C and if B marries C

after December 30. In the latter case, the condition (not marrying C) is fulfilled upon
the expiration of the time indicated, which is December 30.

(c) Suppose C dies on November 20 without having been married to B. The

obligation is rendered effective because it is certain that the condition not to marry C
will be fulfilled. In this case, the obligation becomes effective from the moment of C's
death on November 20 although the time indicated (December 30) has not yet
elapsed.

ART. 1186. The condition shall be deemed fulfilled when the obligor
voluntarily prevents its fulfillment.

Constructive fulfillment of suspensive condition

 There are three (3) requisites for the application of this article:

(1) The condition is suspensive;

(2) The obligor actually prevents the fulfillment of the condition; and

(3) He acts voluntarily.

The law does not require the obligor to act with intent or deceit if his aim is to prevent
the condition from being fulfilled. He should not be permitted to benefit from his own error or
bad faith.

EXAMPLES:

(1) X agreed to pay Y a 5% commission if Y could sell the former's land for a
certain amount. Y found a buyer who was completely committed to
purchasing the property on X's terms. To avoid paying the agreed-upon
fee, X sold the property to the buyer at a lower price without the
assistance of Y.

In this situation, it can be argued that X deliberately hindered Y from

conducting his undertaking, which was a prerequisite for the payment of the
commission, and it is considered fulfilled.

(2) S agreed to sell his land to Y if Y could receive a loan from a particular
bank. S later changed his mind about selling his property. He persuaded
the bank to deny Y a loan.

The requirement is deemed met under the preceding article, and S is

obligated to sell his estate. S should not benefit from his own mistakes or bad faith.

(3) Is there constructive fulfillment if S's inducement was motivated by some

other factor? Yes, the law does not require S to act with intent or deceit if
his aim is to prevent the condition from being fulfilled.

Article 1186, however, does not apply if the act of the obligor is in the
exercise of a right

Constructive fulfillment of resolutory condition

A Article 1186 applies also to an obligation subject to resolutory condition with

respect to the debtor who is bound to return what he has received upon the fulfillment of the
condition. (Art. 1190.)

EXAMPLE:

As long as X is allocated by their company in the province, X decides to let Y

live in the former's house in Manila. When Y heard that X would be transferred to
Manila, he was able to persuade the company's president to appoint someone else in
his place.

Since Y voluntarily avoided the fulfillment of the resolutory provision, X's duty
is nullified. As a result, Y must leave the building. (see Art. 1190.)
ART. 1187. The effects of a conditional obligation to give, once the condition has been
fulfilled, shall retroact to the day of the constitution of the obligation. Nevertheless,
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. If the obligation 1s unilateral, the debtor shall appropriate the fruits and
Interests received, unless from the nature and circumstances of the obligation it
should be inferred that the intention of the person constituting the same was
different.

In obligations to do and not to do, the courts shall determine, In each case, the ret-
roactive effect of the condition that has been complied with.

Retroactive effects of fulfillment of suspensive condition.

(1) In obligations to give.- An obligation to give subject to a suspensive condition becomes

demandable only upon the fulfillment of the condition. However, once the condition is
fulfilled, its effects shall retroact to the day when the obligation was constituted. (par. 1; see
Enriquez vs. Ramos, 73 SCRA 116.)

The reason is because the condition is only an accidental element of a contract. (see Art.
1318.) An obligation can exist without being subject to a condition. Had the parties known
beforehand that the condition would be fulfilled they would have bound themselves under a
pure obligation. Hence, the obligation should be considered from the time it is constituted
and not from the time the condition is fulfilled.

EXAMPLE:

On January 20, S agreed to sell his parcel of land to B for P50,000 should B lose a case
involving the recovery of another parcel of land. On April 10, S sold his land to C, B lost the
case on December 4.

Before December 4, B had no right to demand the sale of the land by S. When the condition,
however, was fulfilled on December 4, it is as if B was entitled to the land beginning January
20. Hence, as between B and C, B will have a better right over the land. (It is required,
however, under the Property Registration Decree [Pres. Decree No. 1529, Sec. 51.J that the
promise of S be annotated on the back of the certificate of title a third person like C)

If the land was sold by B to D on May 15, D would still have a better right as against C since
the sale by B will be considered valid.

(2) In obligations to do or not to do. - (2) With respect to the retroactive effect of the
fulfillment of a suspensive condition, in obligations to do or not to do, no fixed rule is
provided.

This does not mean, however, that in these obligations the principle of retroactivity is not
applicable. The courts are empowered by the use of sound discretion and bearing in mind
the intent of the parties, to determine, in each case the retroactive effect of the suspensive
condition that has been complied with. (par. 2.) It includes the power to decide that the
fulfillment of the condition shall have no retroactive effect or from what date such retroactive
effect shall take effect.
EXAMPLES:

(1) C obliged himself to condone the debt of D, his lawyer, should the latter win C's case in
the Supreme Court.

In this case, upon the fulfillment of the condition, shall not be entitled, unless the
contrary has been stipulated, to the earned interests of the capital during the pendency of
the condition as the intention of C is to extinguish the debt. Here, the fulfillment of the
condition has a retroactive effect.

(2) Suppose, in the preceding example, the obligation contracted by C was to construct
gratis the house of D upon the fulfillment of the condition.

In this case, unless the contrary clearly appears, there is no retroactive effect if the
condition is fulfilled, taking into consideration the nature of the obligation and the intent of the
parties. Therefore, C is not liable to pay interest on the money value of the obligation for the
intervening period.

Retroactive effects as to fruits and interests in obligations to give.

(1) In reciprocal obligations -- There is no retroactivity because the fruits and interests
received during the pendency of the condition are deemed to have been mutually
compensated. This rule is necessary for purposes of convenience since the parties would
not have to render mutual accounting of what they have received. Fruits here may be
natural, industrial, or civil fruits. (see Art. 1164.)

EXAMPLE:

In the first example under the preceding topic, when B lost the case in court on
December 4, S must deliver the land and B must pay P50.000.

S does not have to give the fruits received from the land before December 4 and B is
not obliged to pay legal interests on the price since the fruits and interests received are
deemed to have been mutually compensated.

(2) In unilateral obligations. There is usually no retroactive effect because they are
gratuitous. The debtor receives nothing from the creditor. Thus, fruits and interests belong to
the debtor unless from the nature and other circumstances of the obligation it should be
inferred that the intention of the person constituting the same was different.

EXAMPLE

Suppose, in the same example, the promise of S was to donate the parcel of land to
B.

Upon the fulfillment of the condition, S has to deliver the land but he has the right to
keep to himself all the fruits and interests he may have received during the pendency of the
condition, that is, from January 20 to December 4, unless a contrary intention by S may be
inferred, as when it is stipulated that once the condition is fulfilled, S shall render an
accounting of fruits received during its pendency.
ART. 1188. The creditor may, before the fulfillment of the condition, bring the appropriate
actions for the preservation of his right.

The debtor may recover what during the same time he has paid by mistake in case of
a

suspensive condition. (1121a)

Rights pending fulfillment of suspensive condition.

(1) Rights of creditor. - He may take or bring appropriate actions for the preservation
of his right, as the debtor may render nugatory the obligation upon the happening of the
condition. Thus, he may go to court to prevent the alienation or concealment of the property
the debtor has bound himself to deliver or to have his right annotated on the title to the
property in the registry of deeds.

The rule in paragraph one applies by analogy to obligations subject to a resolutory

condition. (see Art. 1190 par. 1.)

(2) Rights of debtor. He is entitled to recover what he has paid by mistake prior to the
happening of the suspensive condition. This right is granted to the debtor because the
creditor may or may not be able to fulfill the condition imposed and hence, it is not certain
that the obligation will arise. This is a case of solutio indebiti which is based on the principle
that no one shall enrich himself at the expense of another.

Note that the payment before the fulfillment of the condition must be "by mistake";
otherwise, the debtor is deemed to have impliedly waived the condition. In any case, he
cannot recover what he has prematurely paid once the suspensive condition is fulfilled.

ART. 1189, When the conditions have been imposed with the intention of suspending
the efficacy of an obligation to give, the following rules shall be observed in case of
the improvement, loss or deterioration of the thing during the pendency of the
condition:

(1) If the thing is lost without the fault of the debtor, the obligation shall be
extinguished;

(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay
damages; it is understood that the thing is lost when it perishes, or goes out of
commerce, or disappears in such a way that its existence is unknown or it cannot be
recovered;

(3) When the thing deteriorates without the fault of the debtor, the impairment is to be
borne by the creditor;

(4) If it deteriorates through the fault of the debtor, the creditor may choose between
the rescission of the obligation and its fulfillment, with indemnity for damages in
either case;
(5) If the thing is improved by its nature, or by time, the improvement shall inure to the
benefit of the creditor;

(6) If it is improved at the expense of the debtor, he shall have no other right than that
granted to the usufructuary. (1122)

Requisites for application of Article 1189.

Article 1189 applies only if:

(1) The obligation is a real obligation;

(2) The object is a specific or determinate things:

(3). The obligation is subject to a suspensive conditions:

(4) The condition is fulfilled, and

(5) There is loss, deterioration, or improvement of the thing during the pendency of the
condition.

Kinds of loss

Loss in civil law may be:

(1) Physical loss - when a thing perishes as when a house is burned and reduced to ashes;

(2) Legal loss. - when a thing goes out of commerce (e.g., when it is expropriated) or when a
thing heretofore legal becomes illegal (e.g., during the Japanese occupation, American
dollars had become impossible since their use was forbidden by the belligerent occupant); or

(3) Civil loss. = when a thing disappears in such a way that its existence is unknown (e.g., a
particular dog has been missing for sometime); or even if known, it cannot be recovered (Art.
1189[2].), whether as a matter of fact (e.g., a particular ring is dropped from a ship at sea) or
of law (e.g., a property is lost through prescription).

Rules in case of loss, deterioration, or improvement of thing during pendency of

suspensive condition

(1) Loss of thing without debtor's fault.

EXAMPLE

X obliged himself to give YOU his car worth P100,000 if Y will sell X's property. The
car was lost without the fault of X.

The obligation is extinguished and X is not liable to Y even if Y sells the property. A
person, as a general rule, is not liable for a fortuitous event. (Art. 1174.)

(2) Loss of thing through debtor's fault.

EXAMPLE:
 In the same example, if the loss occurred because of the negligence of X, Y will be
entitled to demand damages (Art. 1170.), i.e., P100,000 plus incidental damages, if any.

(3) Deterioration of thing without debtor's fault. A thing deteriorates when its value is reduced
or impaired with or without the fault of the debtor.

EXAMPLE:

If the car figured in an accident, as a result of which its windshield was broken and some of
its paints were scratched away without the fault of X, thereby reducing its value to P90,000,
Y will have to suffer the deterioration or impairment in the amount of P10,000. (Art. 1174.)

(4) Deterioration of thing through debtor's fault.

EXAMPLE:

In this case, B may choose between:

(a) Rescission (or cancellation) of the obligation with damages; in this case, X is
liable to pay MY P100,000, the value of the car before its deterioration plus incidental
damages, if any; or

(b) Fulfillment of the obligation also with damages. (see Art. 1191.) In this case, X is
bound to Y to give the car and pay P10,000 plus incidental damages, if any.

(5) Improvement of thing by nature or by time. - A thing is improved when its value is
increased or enhanced by nature or by time or at the expense of the debtor or creditor. (see
Art. 1187.)

EXAMPLE:

Suppose the market value of the car increased, who gets the benefit?

The improvement shall inure to the benefit of Inasmuch as Y would suffer in case of
deterioration of the car through a fortuitous event, it is but fair that he should be
compensated in case of improvement of the car instead.

(6) Improvement of thing at expense of debtor

EXAMPLE

During the pendency of the condition, X had the car painted and its seat cover
changed at his expense.

In this case, X will have the right granted to a usufructuary with respect to
improvements made on the thing held in usufruct.

Usufruct is the right to enjoy the use and fruits of thing belonging to another. (Art. 562.)

The rights granted to the usufructuary are:

"The usufructuary may make on the property held in usufruct such useful
improvements or expenses for mere pleasure as he may deem proper provided he does not
alter its form or substance; but he shall have no right to be indemnified therefor. He may,
however, remove such improvements should it be possible to do so without damage to the
property." (Art. 579.)

"The usufructuary may set off the improvements he 'may have made on the property
against any damages to the same," (Art. 580.)

ART. 1190. When the conditions have for their purpose the extinguishment of an
obligation to give, the parties, upon the fulfillment of said conditions, shall return to
each other what they have received.

In case of loss, deterioration or improvement of the thing, the provisions

which, with respect to the debtor, are laid down in the pre ceding article shall be
applied to the party who is bound to return.

As for obligations to do and not to do, the provisions of the second paragraph
of article 1187 shall be observed as regards the effect of the extinguishment of the
obligation. (1123)

Effects of fulfillment of resolutory condition.

(1) In obligations to give. When the resolutory condition in an obligation to give is

fulfilled, the obligation is extinguished (Art. 1181.) and the parties are obliged to return to
each other what they have received under the obligation (par. 2.)

(a) There is a return to the status quo. In other words, the effect of the fulfillment of
the condition is retroactive.

(b) In case the thing to be returned is legally in the possession of a third person who
did not act in bad faith (see Art. 1387, par. 2.), the remedy of the party entitled to restitution
is against the other.

(c) The obligation of mutual restitution is absolute. It applies not only to the thing
received but also to the fruits and interests.

(d) In obligations to give subject to suspensive condition, the retroactivity admits

exceptions according as the obligation is bilateral or unilateral. (see Art. 1187.)

The reason for the difference is quite plain. The happening of the suspensive
condition gives birth to the obligation. On the other hand, the fulfillment of the resolutory
condition produces the extinguishment of the obligation as though it had never existed. (see
8 Manresa 149-150.) The only possible exception is when the intention of the parties is
otherwise

EXAMPLES

(1) X allows to use the former's car until X returns from the province. Upon the return
of X from the province, Y must give back the car. The effect of the happening of the
condition is to annul the obligation as if it had never been constituted at all. In this case, the
parties intend the return of the car.

(2) X binds himself to give Y P500 a month until Y passes the CPA examination. If
Ypasses the CPA examination he need not return the amounts he has received. It is clear
that the parties do not intend the return of the same.

(2) In obligations to do or not to do. - In such obligations, the courts shall determine
the retroactive effect of the fulfillment of the resolutory condition (par. 2.) as in the case
where the condition is suspensive. (Art. 1187, par. 2.) The courts in the exercise of discretion
may even disallow retro activity, taking into account the circumstances of each case.

Applicability of Article 1189 to party with obligation to return.

In the first example above, X is the debtor and Y, the creditor, pending fulfillment of
the resolutory condition the return of X from the province. Upon the happening of the
condition, X becomes the creditor with a right to demand the return of the car and Y, the
debtor, with the obligation to return the car.

Stated in another way, the happening of a resolutory condition has the same effect
on the creditor as the happening of a suspensive condition has on the debtor - an obligation
arises. The fulfillment of the resolutory condition converts the creditor into debtor, and the
debtor into creditor. Hence, the applicability of the provisions of Article 1189 in case of loss,
deterioration or improvement of the thing. Pending the fulfillment of the condition, the parties
are entitled to the rights granted by Article 1188.

ART. 1191. The power to rescind obligations is implied in reciprocal ones, in

case one of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing
the fixing of a period. This is understood to be without prejudice to the rights of third
persons who have acquired the thing, in accordance with articles 1385 and 1388 and
the Mortgage Law. (1124)

Kinds of obligation according to the person obliged.

They are:

(1) Unilateral. - when only one party is obliged to comply with a prestation.

EXAMPLES:
Donation: In a contract of loan, the lender has the obligation to give. After the lender has
complied with his obligation, the debtor has the obligation to pay.

(2) Bilateral. -- when both parties are mutually bound to each other. In other words, both
parties are debtors and creditors of each other. Bilateral obligations may be reciprocal or
non-reciprocal.

(a) Reciprocal obligations are those which arise

from the same cause and in which each party is a debtor and creditor of the other, such that
the performance of one is designed to be the equivalent and the condition for the
performance of the other.

Each party may treat the fulfillment of what is incumbent upon the other as a
suspensive condition to his obligation (see Art. 1169, last par.) and its nonfulfillment, as a
tacit or implied resolutory condition, giving him the right to demand the rescission of the
contract.

EXAMPLE:

In a contract of sale, in the absence of any stipulation, the delivery of the thing sold
by the seller is conditioned upon the simultaneous payment of the purchase price by the
buyer, and vice versa.

The seller is the creditor as to the price and debtor as to the thing, while the buyer is the
creditor as to the thing and debtor as to the price.

(b) Non-reciprocal obligations are those which do not impose simultaneous and
correlative performance on both parties: In other words, the performance of one party is not
dependent upon the simultaneous performance by the other.

X arises from the contract of loan, while that of Y, from the contract of commodatum. The
obligations are not dependent upon each other and are not simultaneous Article 1191
applies only if the reciprocity arises from the same cause.

Remedies in reciprocal obligations.

(1) Choice of remedies. -In case one of the obligors does not comply with what is incumbent
upon him, the aggrieved party may choose between two (2) remedies:

(a) action for specific performance (fulfillment) of the obligation with damages, or

(b) action for rescission of the obligation also with damages.

(2) Remedy of rescission for non-compliance. – The principal action for rescission for non-
performance under Article 1191 must be distinguished from the subsidiary action for
rescission by reason of lesion or damage under Article 1381, et seq., and from cancellation
of a contract based, for example, on defect in the consent (see Arts. 1318, 1330.) and not on
violation by a party of his obligation.
Article 1191 governs where there is non-compliance by one of the contracting parties in case
of reciprocal obligations. The remedy is granted for breach by the other contracting party that
violates the reciprocity between them.

EXAMPLE:

in contract of sale of a car between S and B, it was agreed that S, the owner, would deliver
the car and the necessary document duly signed by him to B at the house of C on December
1, and B would deliver the payment a at same place and on the same date.

If S does not comply with his obligation:

(a) B may, in an action for specific performance, demand the delivery of the car with
damages; or

(b) B may demand from the court the rescission of the contract also with damages.

When a party demands rescission in reciprocal obligations be, in effect, treats the
non-fulfillment by the other party of his obligatión as a resolutory condition.

Court may grant guilty party term for performance.

The court shall order the rescission claimed unless there should be just cause for
granting the party in default a term or period for the performance of his obligation (par. 3.)

Obviously, this exception applies only where the guilty party is willing to comply with
his obligation but needs time to do so and not where he refuses to perform.

Remedies are alternative.

The remedies of the injured or aggrieved party are alternative and not cumulative,
that is, he is privileged to choose only one of the remedies, and not both, subject only to the
exception in paragraph 2, to wit: he may also seek rescission even after he has chosen
fulfillment if the latter should become impossible. But after choosing rescission of the
obligation, he cannot thereafter demand its compliance

EXAMPLE:

In the preceding example, B may not choose both fulfillment and rescission. If he has
chosen rescission, he may not subsequently ask for fulfillment and if he has selected to
enforce compliance with the contract, he may not later seek rescission

However, if fulfillment becomes impossible because the car was lost or destroyed through
the fault of S. B is allowed to convert his action into that of rescission.

Limitations on right to demand rescission.

The right to rescind by the injured party (the one who has performed what is
incumbent upon him) is not absolute. Thus
 (1) Resort to the courts. The rescission contemplated by Article 1191 is a judicial
rescission (par. 3.) or one granted by a court. The injured party has to resort to the courts to
assert his rights judicially (e.g., to recover what he has delivered under the contract) for the
same article provides that ... "the court shall decree the rescission claimed, unless there be
just cause authorizing the fixing of a period."

No person can take justice or the law in his own hands and decide by himself what
are his rights in the matter. The other party must be given an opportunity to be heard.

(2) Power of court to fix period. - The court has discretionary power to allow a period
within which a person in default may be permitted to perform his obligation if there is a just
cause for giving time to the debtor (par. 3.), as where the default incurred was not willful or
could be excused in view of the surrounding circumstances.

(3) Right of third person. -- If the thing subject matter of the obligation is in the hands of a
third person who acted in good faith, rescission is not available as a remedy. (par. 4; Arts.
1385, 1388.)

(4) Substantial violation - The general rule is that rescission will not be granted for slight
breaches of contract: the violation should be substantial as to defeat the object of the parties
in making the agreement. Thus, in a case, it was held that delays on four (4) occasions in
the payment of rentals for a few days were not substantial violations in a contract of lease to
justify rescission because the law is not concerned with trifles. (Fil Oil Refinery Corp. vs.
Mendoza, 150 SCRA 632 [1987].)

(5) Waiver of right-The right to rescind may be waived, expressly or impliedly. Thus, the
acceptance by the seller of the land sold as security for the balance of the price is an implied
waiver of the right to rescind in case of nonpayment by the buyer. His remedy is to recover
the balance. (Roman vs. Blas, (C.A.) 51 O.G. 1920, April 1955

Rescission without previous judicial decree.

(1) Where automatic rescission expressly stipulated. -The parties may validly enter into an
agreement that violation of the terms of the contract would cause cancellation thereof even
without judicial intervention or permission (U.P. vs. De Los Angeles, 35 SCRA 102.) Where
the contract itself contains such a stipulation, the right to rescind is not "implied" but
expressly recognized by the parties, Hence, Article 1191 is not applicable.

However, there must be at least a written notice sent to the other party informing him
of the rescission. The extra judicial rescission has legal-effect where such party does not
oppose it. Where it is objected to, a determination of the issues by the court is still
necessary. (Palay, Inc. vs. Clare, 124 SCRA 638.

(2) Where contract still executory-Where there is no performance yet by both parties, but'one
is ready and willing to comply with what is incumbent upon him and the other is not (see Art:
1169, last par.), the willing party may, by his own declaration, rescind the contract without a
previous judicial decree of rescission. In such a case, is not necessary that there be
stipulation providing, for automatic rescission.
 In any case, where the extrajudicial rescission is contested by the other party, he is
free to resort to judicial action, and only the final decision of the court can finally settle
whether the rescission was proper or not.

ART. 1192. In case both parties have com mitted a breach of the obligation, the
liability of the first infractor shall be equitably tempered by the courts. If it cannot be
determined which of the parties first violated the contract, the same shall be deemed
extinguished, and each shall bear his own damages. (n)

Where both parties are guilty of breach.

The above article contemplates two (2) situations:

(1) First infractor known. - One party violated his obligation; subsequently, the other
also violated his part of the obligation. In this case, the liability of the first infractor should be
equitably reduced.

(2) First infractor cannot be determined- One party violated his obligation followed by
the other, but it cannot be determined which of them was the first infractor. The rule is that
the contract shall be deemed extinguished and each shall bear his own damages.

In effect, the court shall not provide remedy to either of the parties, who must suffer
the damages allegedly sustained by them.

"The above rules are deemed just. The first one is fair to both parties because the
second infractor also derived, or thought he would derive, some advantage by his own act or
neglect. The second rule is likewise just because it is presumed that both at about the same
time tried to reap some benefit." (Report of the Code Commission, p. 130.)

EXAMPLE:

S sold his television set to B. The agreement is that the set shall be delivered on
October 1 at the house of B and payment shall be made by B upon delivery. S did not deliver
the set on October 1 in spite of a demand made by B. Five (5) days later, S delivered the set
but B incurred in delay in paying the purchase price.

In a suit between S and B, the liability of S for damages should be equitably

tempered by the court, taking into consideration the breach also of the obligation on the part
of B.

If both alleged that the other was the first infractor and the court cannot determine
who of the two is telling the truth, the contract shall be deemed extinguished and each shall
bear his own damages. This means that the contract shall not be enforced.
 ACTIVITY 3

1. Definitions

Define or give the meaning of the following:

1. condition

2. civil loss

3. reciprocal obligations

4. pure obligation

5. potestative condition
II. Discussions

1. Illustrate an obligation subject to:

(a) suspensive condition

(b) resolutory condition

III. Problems

What is the effect of the fulfillment of the condition in a conditional obligation?

2. Give two (2) cases when the conditional obligation is valid although the condition depends
entirely upon the will of the debtor. Explain.

3. May an obligor be liable under an obligation subject to a suspensive condition although

the condition has not yet been fulfilled? Explain.

4. In an obligation to give a parcel of land subject to a suspensive condition, who is entitled

to the fruits that accrued during the pendency of the condition once said condition is fulfilled?

5. State the rules in case the thing to be delivered:

(a) is lost with the debtor's fault; without his fault;

(b) deteriorates with the debtor's fault; without his fault.

III. Problems

Explain or state briefly the rule or reason for your answer.

1. D (debtor) borrowed P20,000 from C (creditor) payable on or before August 30. Before the
arrival of the due date, C agreed to the promise of B to pay C if B wants. Can C insist that B
pay not later than August 30?

2. Suppose in the same problem, D obliges himself to pay C P10,000 after Chas paid his
obligation to T. Is the obligation valid?

3. S (seller) agreed to sell to B (buyer) a specific car for P200,000, delivery of the car and
the payment of the price to be made on June 15. Suppose S delivered the car on June 15
but B failed to pay the price, what are the remedies of S?

4 S sold a parcel of land to B for P240,000 payable in installments of P20,000 a year. The
land was delivered to B who obtained ownership thereof. After B had paid P200,000, he
could no longer continuing paying in view of financial reverses but he was willing to pay the
balance of P40,000 if given more time Thereupon, S sued for rescission under Article 1191.
If you were the judge, would you grant rescission?

5. D(debtor) binds himself to pay C (creditor)a sum of money. Give the three cases when the
obligation of Dis demandable at once by C?
SECTION 2 Obligations with a Period

ART. 1193. Obligations for whose fulfillment a day certain has been fixed, shall
be demandable only when that day comes.

Obligations with a resolutory period take effect at once, but terminate upon
arrival of the day certain.

A day certain is understood to be that which must necessarily come, although

it may not be known when.

If the uncertainty consists in whether the day will come or not, the obligation is condi-
tional, and it shall be regulated by the rules of the preceding section. (1125a)

Meaning of obligation with a period.

 An obligation with a period is one whose effects or consequences are subjected in
one way or another to the expiration or arrival of said period or term.

Meaning of period or term.

A period is a future and certain event upon the arrival of which the obligation (or right)
subject to either arises or is terminated. It is a day certain which must necessarily come like
the year 2010; next Christmas), although it may not be known when, like the death of a
person. (Art. 1193, par. 3.)

Period and condition distinguished.

The differences are as follows:

(1) As to fulfillment. - A period is a certain event which must happen sooner or later at
a date known beforehand, or at a time which cannot be determined, while a condition is an
uncertain event:

(2) As to time. - A period refers only to the future, while a condition may refer also to
a past event unknown to the parties;

(3) As to influence on the obligation. - A period merely fixes the time for the
efficaciousness of the obligation. If suspensive, it cannot prevent the birth of the obligation in
due time; if resolutory, it does not invalidate the fact that the obligation existed. On the other
hand, a condition causes an obligation either to arise or to cease;

(4) As to effect, when left to debtor's will.- A period which depends upon the will of
the debtor empowers the court to fix the duration thereof (Art. 1197, par. 2.), while a
condition which depends upon the sole will of the debtor invalidates the obligation (Art.
1182.); and

(5) As to retroactivity of effects. - Unless there is an agreement to the contrary, the

arrival of a period does not have any retroactive effect, while the happening of a condition
has retroactive effect.

Like a condition (see Art. 1183.), a period must be possible. If the period is
impossible (e.g., February 30 because it will never come; construction of a building within 24
hours because it is too short), the obligation is void.

Kinds of period or term

(1) According to effect:

(a) Suspensive period (ex die). - The obligation begins only from a day certain upon the
arrival of period (Art. 1193, par. 1.), and
(b) Resolutory period (in diem). The obligation is valid up to a day certain and terminates
upon arrival of the period. (par. 2; 8 Manresa 160-162.)

EXAMPLES

(1) "I will pay you 30 days from today" (or on Jan. 1, next year, or at the end of this month).

(2) "I will support you from the time your father dies." Here, the uncertainty consists not in
whether the day (death) will come or not, but only in the exact date or time of its taking
place. (pars. 3 and 4, Art. 1193.)

(3) "I will pay you when my means permit me to do so." This is considered by law as an
obligation with a period. (Art. 1180.)

In diem:

(1) "I will give you P500 a month until the end of the year"

(2) "I will support you until you die."

(2) According to source:

(a) Legal period. - When it is provided for by laws;

(b) Conventional or voluntary period. - When it is agreed to by the parties (Art:

1196.); and (c) Judicial period When it is fixed by the court. (Art. 1197.)

(3) According to definiteness:

(a) Definite period. - When it is fixed or it is known when it will come (Art. 1193, par.
3.); and

(b) indefinite period. When it is not fixed or it is not known when it will come. Where
the period is not fixed but a period is intended, the courts are usually empowered by law to
fix the same. (see Art. 1197.)

ART 1194. In case of loss, deterioration of Improvement of the thing before the arrival
the day certain, the rules in article 1189 sha be observed, (n)

Effect of loss, deterioration, or improvement before arrival of period.

See comments under Article 1189.

ART. 1195. Anything paid or delivered before the arrival of the period, the
obligor being unaware of the period or believing that the obligation has become due
and demandable, may be recovered with the fruits, and interests. (1126a)

Payment before arrival of period

Article 1195 applies only to obligation to give. It is similar to Article 1188, paragraph 2, which
allows the recovery of what has been paid by mistake before the fulfillment of a suspensive
condition.
 The creditor cannot unjustly enrich himself by retaining the thing or money received
before the arrival of the period

Debtor presumed aware of period

The presumption, however, is that the debtor knew that the debt was not yet due. He
has the burden of proving that he was unaware of the period. Where the duration of the
period depends upon the will of the debtor (see Art 1197, par. 3.), payment by him amounts,
in effect, to his determination of the arrival of the period.

The obligor may no longer recover the thing or money once the period has arrived
but he can recover the fruits of interests thereof from the date of premature performance to
the date of maturity of the obligation.

EXAMPLE:

D owes C P10,000 which was supposed to be paid on December 31 this year. By

mistake, B paid his obligation on December 31 last year.

Assuming that today is June 30, D can recover the P10,000 plus P600 which is the
interest for one half year at the legal rate of 12% or a total of P10,600. But cannot recover,
except the interest, if the debt had already matured.

Neither can there be a right to recovery if D had knowledge of the period. The theory
under solutio indebiti obviously will not apply. (Art. 2154.) D is deemed to have impliedly
renounced the period.

No recovery in personal obligations

Article 1195 has no application to obligations to do or not to do because as to the

former, it is physically impossible to recover the service rendered, and as to the latter, as the
obligor performs by not doing, he cannot, of course, recover what he has not done. (see 8
Manresa 166.)

ART. 1196. Whenever in an obligation a period is designated, it is presumed to

have been established for the benefit of both the creditor and the debtor, unless from
the tenor of the same or other circumstances, it should appear that the period has
been established in favor of one or of the other. (1127)

Presumption as to benefit of period

In an obligation subject to a period fixed by the parties, the period is presumed to

have been established for the benefit of both the creditor and debtor. This means that before
the expiration of the period, the debtor may not fulfill the obligation and neither may the
creditor demand its fulfillment without the consent of the other especially if the latter would
be prejudiced or inconvenienced thereby.

The presumption of course, is rebuttable.

EXAMPLE:
 On January 1. D borrowed from C P10,000 payable on December 31 at 15% interest,
D cannot pay before December 31 without the consent of C. Neither can compel D to pay
before the expiration of the term.

It is presumed that the period designated, which is December 31, has been
established for the benefit of both. D is benefited because he can use the money for one
year. C is also benefited because of the interest the money would earn for one (1) year.

In a contract of loan with interest, the term is generally for the benefit of both the
lender and the borrower. This is also the case even where there is no interest stipulated but
where under the contract, the creditor receives, in place of interest, other benefits by reason
of the period. (Osorio vs. Salutillo, 87 Phil. 356.)

Obviously, in the above example, D can pay C before December 31 provided the
payment includes the interest for one year. Where the obligation of D is to deliver, say 100
bags of rice, C cannot be compelled to accept performance before the expiration of the
period especially if he would be prejudiced or inconvenienced thereby.

Exceptions to the general rule

The tenor of the obligation or the circumstances may however, show that it was the
intention of the parties to constitute the period for the benefit of either the debtor or the
creditor. The benefit of the period may be the subject of express stipulation of the parties.

(1) Term is for the benefit of the debtor alone. - He cannot be compelled to pay
prematurely, but he can, if he desires to do so.

EXAMPLES:

(1) D borrowed from C P1,000 to be paid within one (1) year without interest.

In this case, the period of one (1) year should be deemed intended for the benefit of
D only. Therefore, he can pay any time but he cannot be compelled to pay before one (1)
year.

(2) D promised to pay his debt "on or before December 31, 2008."

Here, the payment is to be made within a stipulated period. D can pay before said date.

(3) D promised to pay his debt "for a term of five (5) years counted from this date." It
has been held that the debt is payable within five (5) years. (Sia vs. Court of Appeals and
Valencia, 92 Phil. 355.)

(2) Term is for the benefit of the creditor. He may demand fulfillment even before the arrival
of the term but the debtor cannot require him to accept payment before the expiration of the
stipulated period.

EXAMPLE:
 D borrowed from C P1,000 payable on December 31 with the stipulation that D
cannot make payment before the lapse of the period but C may demand fulfillment even
before said date.

Here, C can demand payment at any time but D cannot shorten the one-year period
without the consent of C. Ordinarily, there must be a stipulation granting the benefit of the
term to only the creditor.

Computation of term or period

(1) The Administrative Code of 1987; however, provides:

Legal Periods. "Year" shall be understood to be twelve calendar months; "month" of

thirty days, unless it refers to a specific calendar month in which case it shall be computed
according to the number of days the specific month contains; "day" to a day of twenty-foo
hours and "night" from sunset to sunrise. (Chap. VI. Book L Sec. 31 thereof.)

(2) A calendar month is a month designated in the calendar without regard to the number of
days it may contains "It is the period of time running from the beginning of a certain
numbered day up to, but not if there is no sufficient number of days in the next month, then
up to and including the I st day of that month."

To illustrate: One calendar month from December 31, 2010 will be from January 1, 2011 to
January 31, 2011; one calendar month from January 31, 2011 will be from February 1, 2011
until February 28, 2011.

Under the Administrative Code, a year is composed of 12 calendar months, the number of
days being irrelevant

ART. 1197. If the obligation does not fix a period, but from its nature and the
circumstances it can be inferred that a period was intended, the courts may fix the
duration thereof.

The courts shall also fix the duration of the period when it depends upon the "will of
the debtor.

In every case, the courts shall determine such period as may under the
circumstances have been probably contemplated by the par ties. Once fixed by the
courts, the period cannot be changed by them. (1128a)

Court generally without power to fix a period

The period mentioned in the above provision refers to a judicial period as distinguished from
the period fixed by the parties in their contract which is known as contractual period

If the obligation does not state a period and no period is intended the court is not authorized
to fix a period. The courts have no right to make contracts for the parties. (Tolentino vs.
Gonzales, 50 Phil. 577.)

EXAMPLE
 D obliges himself to pay C P10,000. Since the obligation does not fix a period, not
even the court may fix a period.

The reason is because the contract is the law between the parties and its terms
cannot be changed by the court (Art. 1159.)

Exceptions to the general rule

Under Article 1197, there are two (2) cases when the court is authorized to fix the
duration of the period. Article 1197 is part and parcel of all obligations contemplated therein.
Hence, whenever the court fixes the term of an obligation, it does not thereby amend or
modify the same. It merely enforces or carries out the intention of the parties. It cannot
arbitrarily fix a period out of thin air.

(1) No period is fixed but a period was intended – The obligation does not fix a period but it
can be inferred from its nature and the circumstances that a period was intended.

EXAMPLES

(1) D agreed to construct the house of C. The parties failed to fix the period within
which the construction is to be made.

Here, the court can fix the term for it is evident that the parties intended that D should
construct the house within a certain period. (see Concepcion vs. People, 74 Phil. 63.)

(2) B bought lumber from the store of S on credit. The period for payment in the
invoice is left blank

From the nature of the obligation, it can be inferred that a period is intended. (see
Cosmic Lumber Co., Inc. vs. Manaois, 106 Phil 1015 see Qui vs. Court of Appeals, 66 SCRA
523.)

(3) S sold a parcel of land to B with a right of repurchase. No term is specified in the
contract for the exercise of the right

The court is authorized to fix the period.

(2) Duration of the period depends upon the will of the detta - For examples, see
comments under Article 1180.

In these two (2) cases, the court must fix the duration of the period to forestall the
possibility that the obligation may never be fulfilled. In fixing the term, the court is merely
enforcing the implied stipulation of the parties. In every case, the court shall determine such
period as may under the circumstances have been probably contemplated by the parties.
(Art. 1197, par. 3.)

Legal effect where suspensive period/ condition depends upon will of debtor

(1) The existence of the obligation is not affected although the period depends upon the sole
will of the debtor. It is only the performance with respect to time that is left to the will of the
debtor.
(2) If the obligation is subject to a condition which depends upon the sole will of the debtor,
the conditional obligation is void (Art. 1182.) because in such case, it is actually the
fulfillment of the obligation that depends upon the will of the debtor. (see Art. 1308.)

Period fixed cannot be changed by the courts

(1) If there is a period agreed upon and it has already lapsed, the court cannot fix
another period. (Gonzales vs Jose, 66 Phil. 369; Millar vs. Nadres, 74 Phil. 307.)

(2) From the very moment the parties give their acceptance and consent to the
period fixed by the court said period acquires the nature of a contract, because the effect of
such acceptance and consent by the parties is exactly the same as if they had expressly
agreed upon it, and having been agreed upon by them, it becomes a law governing their
contract. (Barretto vs. City of Manila, 11 Phil. 624.) However, the parties may modify the
term by a new agreement.

ART. 1198. The debtor shall lose every right to make use of the period:

(1) When after the obligation has been contracted, he becomes insolvent, unless he
gives a guaranty or security for the debt;

(2) When he does not furnish to the creditor the guaranties or securities which he has
promised;

(3) When by his own acts he has impaired said guaranties or securities after their
establishment, and when through a fortuitous event they disappear, unless he immediately
gives new ones equally satisfactory;

(4) When the debtor violates any under taking, in consideration of which the creditor
agreed to the period;

(5) When the debtor attempts to abscond. (1129a)

When obligation can be demanded before lapse of period

The general rule is that the obligation is not demandable before the lapse of the
period. However, in any of the cases mentioned in Article 1198, the debtor shall lose every
right to make use of the period, that is, the period is disregarded and the obligation becomes
pure and therefore, immediately demandable.

The exceptions are based on the fact that the debtor might not be able to comply with
his obligation.

(1) When debtor becomes insolvent

EXAMPLE

D owes C P10,000 due and payable on December D becomes insolvent, say on

September 10, C can demand immediate payment from D even before maturity unless gives
sufficient guaranty or security

The insolvency in this case need not be judicially declared. It is sufficient that the
assets of D are less than has liabilities or Dis unable to pay his debts as they mature
 Note that the insolvency of D must occur after the obligation has been contracted.

(2) When debtor does no furnish guaranties or securities promised.

EXAMPLE

Suppose in the same example, D promised to mortgage his house to secure the
debt. If he fails to furnish said security as promised, he shall lose his right to the period. (see
Daguhoy Enterprises, Inc. vs. Ponce, 96 Phil. 15; Laplana vs Garchitorena Chereau, 48 Phil.
163.)

(3) When guaranties or securities given have been impaired or have disappeared.

EXAMPLE:

If the debt is secured by a mortgage on the house of D but the house was burned
through his fault, the obligation also becomes demandable unless D gives a new security
equally satisfactory.

In this case, the house need not be totally destroyed as it is sufficient that the
security be impaired by the act of p. But in case of a fortuitous event it is required that the
security must disappear.

If the security given deteriorates in such a manner as to become illusory, it must be

deemed to have disappeared or lost as contemplated in paragraph 3.

If the debt is secured by a bond, the failure of D to renew the bond or replace it with
an equivalent guarantee upon its expiration will likewise give the right to demand immediate
payment. (Gaite vs. Fonacier, 2 SCRA 831-)

(4) When debtor violates an undertaking

EXAMPLE

Now, suppose that C agreed to the period in consideration of the promise of D to repair the
piano of C. The violation of this undertaking by D gives the right to demand immediate
payment of the loan.

(5) When debtor attempts to abscond.

EXAMPLE:

Before the due date of the obligation, D changed his address without informing C and
with the intention of escaping from his obligation. This act of D is a sign of bad faith which
results in the loss of his right to the benefit of the period stipulated.

Observe that a mere attempt or intent to abscond is

Define or give the meaning of the following:

1 obligation with a period

2. period

3 indefinite period

Discussions

1. Has the debtor the right to recover what he has paid to the creditor before the arrival of
the period agreed upon? Explain

2 If an obligation does not state a period for its performance, has a party the right to ask a
court to fix a period or the duration thereof? Explain.

3. Give the cases when the obligee can demand the performance of an obligation even
before the arrival of the period agreed upon.

III. Problems

Explain or state briefly the rule or reason for your answer.

1. D (debtor) borrowed P10,000 from C (creditor) at 15% interest per annum payable on
December 31. Can D require C to accept payment before December 31?

2. D binds himself to give P10,000 to C upon the death of the father of D. Is the obligation of
D conditional or one with a period.

3. D obtained a loan from C in the amount of P50,000, payable on August 10. As security for
his debt, D mortgaged his car in favor of C. The car, however, was substantially damaged
without the fault of D. What rights, if any, does C have under the law? May C demand
payment from D even before August 10?