Nature and Effects of

Obligations
Article 1170

Those who in the performance of their

obligations are guilty of fraud,
negligence, or delay and those who in
any manner contravene the tenor
thereof, are liable for damages
Grounds for Liability for
Damages
 Damages arise when obligations are
breached.

 Main Grounds:
◦ Fraud (Dolo)

◦ Negligence (Culpa)

◦ Contravention of the tenor of the

obligation
Fraud (Deceit or dolo)
 It is the deliberate or intentional evasion of
the normal fulfillment of an obligation.

 Implies some kind of malice or dishonesty

and it cannot cover cases of mere mistake
and errors of judgment made in good faith.
Kinds of Fraud
 Dolo Incidente- fraud which is not serious
in character and without which the other
party would still have entered into the
contract.

◦ -the presence of this kind of fraud will make the

debtor liable for damages only.

◦ -annulment of contract is not a remedy.

Kinds of Fraud
 Dolo Causante (Causal fraud)- a fraud
serious enough to render a contract
voidable.

 This refers to fraud without which the

consent of the other party would not have
been given.

 The effect: annulment of contract plus

damages
Dolo Causante Dolo Incidente
Are those deceptions or Are those which are not
misrepresentations of a serious in character and
serious character without which the other
employed by one party party would still have
and without which the entered into the contract.
other party would not
have entered into the
contract
Determines or is the Some particular or
essential cause of accident of the obligation
consent
Effects: nullity of the Effect: obliges the person
contract and the employing it to pay
indemnification of damages
damages
Negligence (fault or culpa)
 It is any voluntary act or omission, there
being no bad faith or malice, which
prevents the normal fulfillment of an
obligation.

 Failure to exercise that degree of care

required by the circumstances.
Kinds of Negligence
 Culpa Contractual (Contractual
Negligence)

◦The fault or negligence incident in the

performance of an obligation which
already existed, and which increases
the liability from such already existing
obligation.
Kinds of Negligence
 Culpa Aquiliana– is the wrongful or
negligent act or omission which creates
vinculum juris (juridical tie) and gives
rise to an obligation between two
persons not formally bound by any
other obligation.
Delay (mora)

 Default or mora– which means delay in

the fulfillment of obligations.

 It is the non-fulfillment of the obligation

with respect to time.
Kinds
 Mora Solvendi- debtor which is delay

 Mora Accipiendi- creditor which is delay

 Compensatio Morae- delay on the part of

both parties
Requisites to make the debtor
liable for delay

 That the obligation be demandable and

already liquidated,

 That the debtor delays performance, and

 That the creditor requires (demanded) the

performance judically or extrajudicially
GENERAL LAW:

No demand No
delay
 What then is the
purpose of putting a
date?
Exceptions

◦When the law so provides- the law

itself provides that there is no need to
demand on the part of the creditor.
 Example Article 1788 of the New
Civil Code
Exceptions

◦When the obligation provides- the

parties agree that demand is no
longer required when the maturity
date arrived.
Exceptions

◦When time is of the essence

◦When demand would be useless

Effect of the delay- Debtor
Delay

 The debtor will be liable for:

◦Breach of obligation or contracts
◦He will be liable for damages
◦The debtor is liable even if the loss of
the thing is due to fortuitous event
because of the delay
Effect of the delay- Creditor
Delay

 The creditor will be liable for:

◦ Breach of obligation or contracts
◦ The debtor shall be relieved from
responsibility if the thing is lost
◦ The creditor is liable to pay for the
expenses incurred by the debtor in
preserving the object.
◦ The debtor’s obligation may be
extinguished by consignation by the debtor
Compensatio Morae

 The delay here is caused by both

parties in a bilateral obligation or
reciprocal obligation.

 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.
Way to demand the fulfillment
of the Obligation

 Judicial Demand

 Extrajudicial Demand
Contravention of the terms of
the obligation

 This is the violation of the terms and

conditions stipulated in the obligation
without justifiable excuse or reason.

 The contravention must not be due to a

fortuitous event or force majeure.
Fraud Negligence
There is deliberate No such intention
intention to cause
damage or injury
Waiver of liability for Waiver, in certain sense,
future fraud is void. may be allowed
Fraud must be clearly Negligence is presumed
proved from the violation of a
contractual obligation
Liability for fraud cannot Liability for negligence
be mitigated or reduced may be reduced
by courts according to
circumstances
Article 1171

Responsibility arising from fraud is

demandable in all obligations. Any
waiver of an action for future fraud is
void.
 According to the time of the commission,
fraud may be past or future.

 A waiver of an action for future fraud is void

a being against the law and public policy.

 What the law prohibits is waiver anterior to

the fraud and to the knowledge thereof by
the aggrieved party.
Article 1172

Responsibility arising from negligence in

the performance of every kind of
obligation is also demandable, but such
liability may be regulated by the courts,
according to circumstances.
Article 1173

The fault or negligence of the obligor

consists in the omission of that diligence
which is required by the nature of the
obligation and corresponds with the
circumstances of the 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.
Kind of diligence

 That agreed upon by the parties, orally or in

writing.

 In absence of stipulation, that required by

law in the particular case

 If both contract and law is silent, diligence

expected of a good father of a family.
Article 1174

Except in cases expressly specified by

the law, or when it is otherwise declared
by stipulation, or when the nature of the
obligation requires the assumption of
risk, no person shall be responsible for
those events which could not be
foreseen, or which though foreseen, were
inevitable.
Fortuitous Events

 Definition: An event that cannot be

foreseen or avoided or inevitable.

 Event which is either impossible to

foresee or impossible to avoid.
 Acts of Man- an event independent of the
will of the obligor but not of other human
wills.

 Acts of God- majeure; those events which

are totally independent of the will of every
human being
 Requisites:

◦Independent of debtor's will

◦Unforeseeable or inevitable
◦Renders fulfillment
impossible
◦Debtor not at fault
Fortuitous Events: Rule and
Exceptions

 General Rule: Debtor is not liable.

 Exceptions:

◦When expressly declared by law or

contract
◦When debtor is in delay
◦When debtor has promised to
deliver same thing to multiple
parties
Group Activity
 Form 5 groups; each group gets one scenario.

Within each group:

Half argue Debtor is NOT LIABLE (General
Rule).
Half argue Debtor IS LIABLE (Exceptions).

 Prepare 2-minute arguments for each side.

 Present to the class; classmates vote on which

side wins.
Usurious Transactions
 It is the practice of charging interest on
loans at a rate that is considered excessive
or unfair.

 it is the imposition of interest beyond what

is deemed reasonable by law or public
policy.

 charging interest itself is not illegal, usury

becomes unlawful when the rate is so high
that it exploits the borrower.
 Usury Law (Act No. 2655), enacted
in the early 20th century, originally set
strict ceilings on interest rates in the
Philippines.

 However, due to economic changes,

inflation, and the need for a more
flexible credit market, Presidential
Decree No. 1684 (1980s) and
subsequent policies gradually removed
these fixed ceilings.
 BSP Regulation: Interest Rates Now
Subject to Agreement Unless
Unconscionable

 the Bangko Sentral ng Pilipinas

(BSP) no longer sets a maximum legal
interest rate.

Rule:
 Parties are free to agree on the rate of

interest.
 Courts can intervene when the agreed

rate is “unconscionable”
Loan
 Simple Loan or Mutuum- is a
contract whereby one of the parties
delivers to another, money or other
consumable thins, upon the condition
that the same amount of the same kind
and quality shall be paid

 May be gratuitous or with stipulation to

pay interest
Loan
 Commodatum- loan for use only and
involves non-consumable goods (things
that can be used without being destroyed,
like a laptop, car, or house).

 Ownership remains with the lender,

and the borrower must return the exact
same item after the agreed period or
purpose.
Requisites-for Recovery of
Interest
 The payment of interest must be expressly
stipulated.

 The agreement must be in writing

 The interest must be lawful

Article 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.
Presumptions under Civil
Code
◦Payment presumed if creditor
accepts without reservation

◦Receipt of principal without

interest implies interest paid

◦Debtor presumed liable unless

proven otherwise
Two kinds of Presumption

 Conclusive Presumption- one which cannot

be contradicted

 Disputable (rebuttable) presumption- one

which can be contradicted or rebutted by
presenting proof to the contrary
When presumptions in Article
1176 do not apply
 With reservation as the interest

 Receipt without indication of particular

installment paid

 Receipt for a part of the principal

 Payment of taxes

 Non-payment proven
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.
Creditor Remedies

◦Exhaust the properties of the

debtor through levying by
attachment and execution upon all
the property of the debtor, except
those that are exempt by law from
execution
Creditor Remedies

 Exercise all rights and actions of the

debtor, save those personal to him–
Accion Subrogatoria
Requisites must concur for
accion subrogatoria

The assets of the debtor must be insufficient to

satisfy the claims against him by the creditor;

The creditor must have pursued all the

properties of the debtor;

The right of action must be personal; and

The debtor whose right of action is exercised

must be indebted to the creditor.
Creditor Remedies

 Seek rescission of the contracts

executed by the debtor in fraud of their
rights---Accion Pauliana
Requisites for this action to
prosper
 The plaintiff asking for rescission has a credit prior to the
alienation, although demandable later;

 The debtor has made a subsequent contract conveying a

patrimonial benefit to a third person;

 The creditor has no other legal remedy to satisfy his claim;

 The act being impugned is fraudulent;

 The third person who received the property conveyed, if it

is by onerous title, has been an accomplice in the fraud.
Article 1178

Subject to the laws, all rights acquired in

virtue of an obligation are transmissible,
if there has been no stipulation to the
contrary.
Transmissibility of Rights
General Rule: Rights and obligations are
transmissible

Exceptions:
◦ When the law prohibits the same.

◦ It the parties entered into an agreement that there

shall be no transmission or assignments of rights. It
should be expressly stated in the contract of such
stipulation.

◦ If the right is purely personal.

Right of Rescission

 Resolution- is a remedy available in reciprocal

obligations.

 It allows an injured party to cancel (rescind) the

contract if the other party substantially fails to
perform their obligation.

 This is a retaliatory remedy, meaning it is

based on the principle of fairness: “It is unjust to
compel one party to comply when the other
refuses or fails to do so.”
 When Applicable?
◦There is a substantial and
fundamental breach of contract.
◦The breach defeats the very purpose
of the contract.
Requirements & Procedure
 Judicial Action: As a rule, rescission
requires court intervention to determine
if the breach justifies rescission.

 Exception: If the contract contains a valid

unilateral rescission clause, the injured
party may rescind extrajudicially, but the
other party may still contest it in court.
Effects of Rescission
 The contract is terminated.

 Mutual restitution: Each party must return what

they have received under the contract.

 Damages: The injured party may also claim

damages caused by the breach.
Nature of Rescission
 the right to rescind a contract for non-
performance of its stipulations is not
absolute.

 The general rule is that rescission of a

contract will not be permitted for a slight or
casual breach, but only for such substantial
and fundamental violations as would defeat
the very object of the parties in making the
agreement.
The Remedy of Rescission is
Alternative
 In the event one of the parties should not
comply with his obligation, the other party
which is the injured one has the right to file
an action.

 The injured party may file a case for specific

performance (fulfillment of the obligation)
or to file a case for rescission, with payment
of damages in either case.