INTRODUCTION

Businesses in the Philippines are governed by a large body

of laws. However, the business law course, as designed for
students of the DCBT focuses only on (a) Obligations and
Contracts, which is Book IV of the Civil Code of the Philippines
(Republic Act No. 386), and (b) the Corporation Code, which is
embodied in Batas Pambansa Blg. 68.

This limited scope is in line with the entrepreneurial thrust of

the DCBT school of Entrepreneurship, as these are the laws most
necessary to entrepreneurs who start their own businesses. The
law on obligations and contracts governs relations between
persons, whether natural or juridical (like corporations).
Familiarity with this law would allow businessmen to deal with
basic legal questions.

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CHAPTER 1

THE GENERAL NATURE OF LAW

The term law means any rule of action or any system of
uniformity. Thus the law in general, determines not only the
activities of men as rational beings but also the movements or
motions of all oblects or creation, whether animate or inanimate.
(Hector Deleon)

GENERAL DIVISION OF LAW.

1. Law promugated and enforced by the state; and
2. Law which is not promulgated and enforced by the
state.

The first refers to what is known state law while the second
includes, divine law, moral law, natural law and physical law.

SUBJECT OF LAW
The kind of laws such as divine law, natural law, and moral
law are also rule of action. They applied to men as rational
beings only, while physical law operates on all things, including
men, without regard to latter’s use of their will power and
intelligence. It is only called law in figurative sense.

DIVINE LAW
It is the law of religion and faith which is confine to the
concept of sin and salvation. Violation of this law does not
necessarily constitued as crime though there are instances that it
may consider as crime such as stealing and murder.

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 The source of this law is usually promulgated by God, deity
or divine beings, revealed to mankind by means of direct
revealtion. It is then written and a prophet, messenger, priest, or
mediator and introduced to men as sacred writngs. (Bible, Koran
etc.)

NATURAL LAW
Natural law may be defined as the divine inspiration of men
of the sense of justice, fairness, and righteousness, not by divine
revelation but by inner dictes of reason.

(1) Binding force – Natural law is present and binds all men
at all times. In every man there is a basic understanding of right
and wrong based on the understanding of of the fundamental
standard of good and evil.

(2) Compared to divine law – Divine law is said to be

revealed to mankind by means of direct revelation. On the other
hand natural law is said to be present as the core of his higher
self at the moment of his being. Example we know that stealing,
lying and killing is wrong even if there is no law because it is not
just.

MORAL LAW
Moral law is comprised of norms of good and right conduct
growing out of the collective sense of write and wrong of every
commnunity.

1. How is right and wrong detrmined?

At the early stage of mankind’s existence, they already
learned that it was good for the welfare of the group that the
privelege to determined what is right and wrong was ot left to
each member of the group. The mores or ways of life evolved

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which were always considered right and correct and obedience to
them was demanded by the group.

2. Sanction
There is no definite legal sanction, punishment like
imprisonment or payment of fines penalties but rather a sense of
disapproval and indignation by the group.

3. Binding force – Moral Law is not absolute, it varies with the

changing times, with the condition or conviction of the people.
Its application is not also universal since every culture has its
won moral values and laws.

PHYSICAL LAW
In the course of action of nature, there are uniformities,
order of sequence which are the physical phenomena that people
sense and feel.

STATE LAW
It is the kind of law law which was promulgated and
enforced by the state.

(1) Binding Force – as a rule, only state law is enforced by the

state with the aid of state law enforcement if necessarry.

(2) Concern of state law – Its concern does not include the
concerns of divine, natural, and moral unless violation of such
laws also constitute violation of state law.

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CONCEPTS OF STATE LAW

(1) General – The term refers to all laws taken together. It’s
the sum of sum of obligatory rules established to govern the
relations of persons in society, their rights and properties.
Example usage of the term, “law of the land,” “rule of law and
not of men” equality before the law etc.

(2) Specific – It is defined as rule of conduct. Just

obligatory, promulgated by legitimate authority, and of common
observance and benefit. It also connote to a particular statute or
legal rule such “rules of court” the law obligation on obligation
and contracts.

Characteristics of Specific Law

1. It is a rule of conduct
2. It is obligatory
3. It is promulgated by legitimate authority
4. It is of common observance and benefit.

Necessity and Function of Law

(1) Law is necessary – What would life would be without
law? If we can answer this question, then we can say whether law
is necessary or not. It is obvious that the law is necessary.
Society cannot exist if the members of it has no law. The
need for internal order is as constant as the need for external
defense.

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 (2) What does law do? It has been said that that the law
secures justices, resolves social conflict, orders society, protects
interests, controls social relations. Life without basic law against
theft, violence, and destruction would be solitary, nasty, brutish
and short. Life without law such as traffic regulation, sanitation
and employment regulation business regulations, etc, would be
less orderly.
(3) What is our duty as members of society? No society can
last and continue without means of social control, without rules
binding on its members.

Sources of Law
The principal source of law in the philippines are the;
1. Constitution (Supreme law of the Land)
2. Legislation (enacted by congress)
3. Administrative rules and regulations (SEC, PRC, BIR
etc)
4. Judicial Decisions (Decision of the Supreme Court base
on its intepretation and application of a law)
5. Customs ( such as marriage custom among muslims)

ASSESSMENT NUMBER #1 WILL BE UPLOADED ONLINE

AND MUST BE DONE AND SUBMITTED ONLINE
The instructor will notify you during the online class.

II. LAW ON OBLIGATION AND CONTRACTS

Definition

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 It is the body of rules which deals with the nature and
sources of obligations and the right and duties arising from
agreements and the particular contarcts.
Civil Code of the Phiippines
The law on obligation and contracts is found in Republic Act
No. 386, otherwise known as the Civil Code of The Philippines.
When we speak of civil law we refer to law found in our civil code.
The Civil Code of the Philippines is based mainly on the civil
code of Spain which took effect on December 7, 1889. It was
approved on June 18, 1949 by the republic of the Philippines.

CONCEPT OF OBLIGATION
The term obligationderived from latin word obligation which
means lying or binding.
It is a tie or band recognized by law by virtue of which one is
bound in favor of another ro render something and this may
consist in giving a thing, doing, a certain act or not doing a
certain act.
Article 1156. An obligation is a juridical necessity to give,
to do or not to do.
An obligation needs to be juridical in nature in order for it
to have the force of law. Through this, a court may be asked to
regorder the performance of an obligation.
An obligation is a juridical necessity to give, to do or not to
do. Discussion of the Law. An obligation is a legal duty,
however created, the violation of which may become. the basis of
an action of law.

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 An obligation is a juridical necessity because in case of
non-copliance, the courts of justice may be called upon by the
aggrieved party to enforce the fulfillment or, in defaults thereof,
the economic value that it represents. In a proper case the
debtor or obligor may also be made liable for damages, which
represents the sum of money given as a compensation for the
injury or harm suffered by the creditor or obligee.
In other words the debtor must comply must comply with
his obligation whether he likes it or not; otherwise his failure will
be visited with some harful or undesirable consequences.
If obligations were not enferoceable , then people can
diregard them with impunity. There are, however obligations that
cannot be enforced because they are recognized by law as
binding.
An obligation are civil or natural. 
Civil Obligation is based on a positive law and gives right
of action to compel their performance, while 
Natural Obligation is based on natural law, but on equity
and moral justice. Hence, it is not enforceable by court action,
but after voluntary performance of the debtor, he can no longer
recover what he has given.
Example: Julius executed a promissory note in favor of Cherry
for ₱50, 000. Julius is the debtor (payor) while Cherry is the
creditor (payee). If Julius does not pay on due date, Cherry can
enforce the fulfillment of the obligation by court action. If Cherry
does not file a court action against Julius within 10 years from
due date which is the prescriptive period for an action against a
written contract. Cherry looses the right to exact performance by
court action. However, if Julius, out of his love for Cherry,
voluntarily makes the payment to Cherry though such obligation

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has prescribed, Julius will no longer be allowed to recover what
he has given as payment because although the obligation has
prescribed, in equity and moral justice, Romeo still owed Juliet
the amount of ₱50, 000.
( Article 1144 (3), Civil Code of the Philippines. Upon
a written contract; actions must be brought within
10 years from the time the right of action accrues. )

CIVIL OBLIGATION AND NATURAL OBLIGATION

DISTINGUISHED
A civil obligation is based on positive law hence it is
enforceble by court action.
A Natural Obligation on th other hand , is based on natural
law hence it is not enforceble by court of action. Nevertheless
obligationin nature is based on equity and moral justice.

Here are 4 essential requisites of an obligation in order to

exist. All of these must be present:
1.  Active subject - It is the party (creditor or obligee) who has
the right to demand the performance of an obligation.
2.  Passive subject - It is the one (debtor or obligor) who is
obliged to perform the obligation.
3.  Prestation - It is the object of the obligation. It is what the
obligation is all about either to give, to do, not to do, or a
combination.
4.  Efficient Cause - The juridical tie that binds the parties to an
obligation. It is what binds the parties (e.g. contracts, quasi
contracts).

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Example:
Jessie executed a contract of loan to borrow money from
Bing whom he wishes to spend in courting Bing. Bing in turn
agreed and lend money to Jessie.
In the preceding example, Jessie is the passive subject
while Bing is the active subject. Their prestation is the money
being borrowed while their efficient cause is the contract of
loan. All of the essential requisites of an obligation is present,
hence such contract creates an obligation.

SOURCES OF OBLIGATION
Article 1157. Obligations arise from: (1)  Law; (2) Contracts; (3)
Quasi‐contracts; (4) Acts or omissions punished by law; and (5)
Quasi‐delicts. 

The law clearly defines what the different sources of an

Obligation are.
Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punishable by law; and
(5) Quasi-delicts.

A law is a binding custom or practice of a community : a rule

of conduct or action prescribed or formally recognized as binding
or enforced by a controlling authority. 4 Obligation derived from
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law must not be presumed. If the law does not include, therefore
it excludes. Only those which the law clearly stipulate or express
are demandable.
Example of this is the obligation to pay Taxes. Those which
are clearly stipulated in the National Internal Revenue Code (R.A.
8424) are demandable and those which are not clearly expressed
are not presumed.

1. Law – A rule of conduct just and obligatory, laid down by

legislative authority for common observance and benefit (Snachez
Roman) The obligation derived from law is not presumed.
Example: The obligation to pay income tax is mandatory
because it is provided in the (NRIC)
2. Contract – A contract is a meeting of minds between two
persons whereby one binds himself, with respect to the other, to
give something or to render some service. (Article 1305)
Example: A contract of lease which provides for the
payment of rental by the lessee.
3. Quasi Contracts - Certain lawful, voluntary and unilateral
acts give rise to the juridical relation of quasi-contract to the end
that no one shall be unjustly enriched or benefited at the
expense of another (n).8 Quasi-contract arises because of
these acts which might result to an unjust enrichment. There is
unjust enrichment when a person unjustly retains a benefit at the
loss of another that is against the fundamental principles of
justice, equity and good conscience.

a. Negotiorum gestio

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 Negotiorum gestio is the voluntary administration of the
property, business or affairs of another, without his consent
or authority, that creates an obligation for reimbursement
for the necessary expenses the gestor had spent.9

Example:
Cherry left her german shepherd dog named Julius
unattended for 1 week because she is having a vacation with her
friend in Korea. , a concerned lover in secrecy, noticed that
Cherry has not been around and the dog is starving and sick. Out
of affection, Joshua fed the Juius with dog foods, brought to the
veterinarian, and took care of Julius. Joshua spent necessary
expenses which needs to be reimbursed in order for Cherry not to
unjustly enrich herself at the expense of Joshua.

b. Solutio indebiti
If something is received when there is no right to demand it,
and it was unduly delivered through mistake, the obligation
to return it arises. (1895)10
Solutio indebiti refers to payment by mistake. It is receiving
payment by mistake that is not due or does not have such right
to demand such payment. It creates an obligation to return such
payment.
Example: Hannah bought goods from Damon Sari-Sari
Store. The goods cost ₱1500. Hannah gave ₱2000 to the tindera
and receive a change of ₱900. Damon is duty bound to return the
excess of ₱ 400 to the store. Otherwise, she will be unjustly
enriching himself at the expense of Damon Store.
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image source

Another example, Myrna commutes via jeepney on his

way to school. Joegen, a jeepney driver, receives Php 20 from
Myrna. Because of the beauty and cuteness of Myrna, Joegen
thought that Myrna is a student. So, she gave Myrna a change of
Php 4 rather than Php 2 if no discount given. By solutio indebiti,
Myrna has no right to receive the excess Php 2. Therefore, Myrna
is bound to return the excess Php 2 or else she will be unjustly
enriching himself at the expense of Joegen.

4. Acts or omissions punishable by law

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)11
Every person criminally liable for a felony is also civilly
liable.12 Commission of a crime makes the offender civilly liable.
Such civil liability includes:13
1. Restitution;
2. Reparation of the damage caused;

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 3. Indemnification for consequential damages.

image source

Example: Romeo, a horse racing enthusiast, steals the

horse of Juliet. Romeo commits the crime of stealing Juliet's
beloved horse. Romeo is criminally liable. In addition, Romeo is
also civilly liable. He is liable to return the horse, paying for its
value if he cannot return the horse and indemnifying Juliet of the
consequential damages she had suffered.

5. Quasi-delict
Obligations derived from quasi-delicts shall be governed by
the provisions of Chapter 2, Title XVII of this Book, and by special
laws. (1093a)14
Quasi-delict (also known as tort or culpa aquiliana ) are acts
or omissions that cause damage to another, there being fault or
negligence, is obliged to pay for the damage done but without
any pre-existing contractual relations between the party. 15 There
is quasi-delict if there is damages sustained, negligence by act or
omission, and the connection of the cause and effect between
such negligence and damages.

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 Example: Joshua, a handsome try hard volleyball player,
was playing volleyball outside Antomes's glasshouse. Upon seeing
Antomen, Joshua suddenly got excited and hit the ball so hard
that it fly straight to Antomen's glass window shattering it into
pieces and bounce right into Antome’s's face injuring her beloved
nose. Though Joshua and Antomen has no contractual relation at
all. They are now bound to each other because of quasi-delict.
Because of Joshua's negligence, he will be liable for the damages
to Antomen’s window and nose.

ASSESSMENT NUMBER 2 WILL BE UPLOADED ONLINE AND

ANNOUNCE BY THE PROFESSOR.

Article 1158. Obligations derived from law are not presumed.

Only those expressly determined in this Code or in special laws
are demandable, and shall be regulated by the precepts of the
law which establishes them; and as to what has not been
foreseen, by the provisions of this Book. (1090)

1. Legal Obligation
This articles refers to legal obligation/s arising from law.
They are not presumed because they are considered a burden
upon the obligor. They are the exception not the rule. To be
demandable, they must be clearly set forth in the law.
(1) An employer has no legal obligation to furnish free legal
assitance to his employees because there is no law requiring it.
Therefore an employee cannot recover or reimburse from the
employer the amount he may have paid to the lawyer hired by

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him to recover the damages caused to said employees by a
stranger/s while in performance of his duties. (Dela Cruz vs.
Northern Theatrical Enterprises. 95 Phil. 739)
(2) A private school has no legal obligation to provide
clothing allowance to its teachers because there is no law which
imposes this obligation upon schools. But a person who wins
money in gambling has the duty to return his winnings to the
loser. (Article 2014)

2. Contractual Obligation.
Article 1159. Obligations arising from contracts have the
force of  law between the contracting parties and should be
complied with in good faith.
The above article speaks of contractual obligations or
obligations arising from contracts or voluntary agreements.
Ofcourse the said contracts should be valid and enforceable.
A Contract is a meeting of minds between two persons
whereby one binds himself, with respect to the other, to give
something or to render some services.
(1) Binding Force – Obligations arising from contracts have
the forcce of law between the contracting perties, i.e., they have
same binding effect of obligations imposed by laws. This does
not mean however that contracts is superior to the law. Contract
must be valid and it cannot be valid if it is against the law.
(2) Requirements of a valid contract – A contract is valid if it
is not contrary to law, morals, good customs, public order, and
public policy. A contract is invalid or void if it is contrary to those
things mentiond above. In legal sense void means “It does not
exist’

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 (3) Breach of Contract – A contract may be breached or
violated by a party in a whole or in to comply, without legal
reason or justification, with his obligation under the contract
promised.

Compliance in good faith

Compliance in good faith means compliance or perpormance
in accordance with stipulations or terms of the contract or
agreement. Sincerity and honesty must be observed to prrevent
one party from taking unfair advantage over the other.

Example:
If Antomen agrees to sell her bicycle to Hannah and Hannah
agrees to buy the bicycle of Antomen, voluntarily and willingly,
then they are bound by the terms of their contract and neither
party may, upon his own will, and without any justifiable reason,
withdraw the contract or escape from obligation thereunder. That
which is agreed upon in the contract is the law between Antomen
and Hannah must be complied in good faith.

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 BUSINESS LAW
MODULE
WEEK 3

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 NATURE AND EFFECTS OF
OBLIGATION
Article 1163: Every person obliged to give something is
also obliged to take care of it with the proper diligence of
a good father of a family, unless the law or the stipulation
of the parties requires another standard of care.

Every business man or business woman must know and

understand the nature and effects of obligation because the
moment you engaged your customer in sales of contract or
service whether one like it or not, aware of it or not, there is an
obligation to fulfill with your customers, clients, supplier, seller or
service provider.

SPECIFIC AND INDETERMINATE THING

The provision in Article 1163 refers to to an obligation
specific or determinate. A thing is said to be specific or
determinate if it is particularly designated or physically
segregated, others of the same class.
Examples:
a) The watch that I am wearing
b) The car sold by X
c) My dog named Damon
d) The house at the corner of road 20 and westbank road
e) Honda car with plate number ABT8403

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Meaning of generic or indeterminate thing
A thing is generic or indeterminate when it refers only to a
class or genus to which it pertains and cannot be pointed out with
particularity.

EXAMPLES:
1) A Honda City car
2) The sum of $1000.
3) A sack of rice
4) A Labrador dog
5) A wrist watch

Distinction between Specific thing and Generic thing

1) A determnate thing is identified by its individuality. The

debtor cannot substitute it with another although the latter
is of the same kind and quality without the consent of the
creditor. (art 1244)

2) A generic thing is identified only by its specie. The debtor

can give anything of the same class as long as it is of the
same kind.

Examples:
(1) Irish posted in online selling store a boxer’s short
with a talking smiley and Yen paid through gcash for that
item. Therefore Irish has an obligation to deliver any boxer’s
shorts as long as it has a talking smiley regardless of its
brand.

But if Irish’ obligation to deliver to Yen is a particular

boxer’s shorts the one Joshua is wearing, Irish cannot
substitute it with another boxer’s short such as the one

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 weared by julius even if they are of the same kind without
Yen’s consent nor can Yen requires Irish to deliver another
boxer’s short without irish’s consent although it may be of
the same kind and value.

(2) If Damon’s obligation is to deliver to Hannah one

her guns, the object refers to a class which in itself is
determinate. Here the particular delivered is determinate
without the need of a new contract between the parties it
becomes determinate upon its delivery.

DUTIES OF A DEBTOR IN OBLIGATION TO GIVE A

DTERMINATE THING

1. Preserve The Thing – In obligations to give (real

obligation) the obligor has the incidental duty to take
care of the thing due with the diligence of a good father
od a family pending delivery.

a)Diligence of a good father of a family – The

phrase has been equated with ordinary care
or that diligence which an average person
excercises over his own property.
b)Amother standard of care – However, if the
law or stipulation of the parties provides for
another standard of care, the said law or
stipulation must prevail.

Under the law for instance a common

carrier, (such as Grab or Angkas) is bound to
carry the passengers safely as far as humn
care and foresight can provide, using utmost
diligence of very cautious persons,with a due

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 regard for all circumstances. In case of
accident, there fore the common carrier will
be liable if it excercised only ordinary
diligence or the diligence of a good father of
a family.

The parties entering into contract (Example:

a contract to supply clothes for online
selling), may agree upon diligence which is
more or less than that of a good father of a
family but is contrary to public law and policy
to stipulate for absolute exemption from
liablity of the obligor for any fault or
negligence on his part.

c) Factors to be considered – The diigence

required depends upon the nature of the
obligation and corresponds with the
circumstances of the person, of the time, and
of the place. It is not necessarily the
standard of care one always uses in the
protection of his property. As a general rule
the debtor is not liable if his failure to
preserve the thing is not due to his fault or
negligence but to fortuitous events or
force majeure.

EXAMPLE:

X binds himself to deliver a speciific dog to Y on a

certain date. Pending delivery, X has the additional or necessary
duty to take care of the dog with diligence of a good father of a
family, like feeding the dog regualarly, keping it in a safe place,

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 etc. In other words, X must exercise that diligence which he
would exercise over another dog belonging to him and which he
is not under obligation to deliver to Y.
But X cannot relieve himself from liabillity in case of
loss by claiming that he exercise the same degree of care
toward the dog as he would toward his own, if susc care is less
than the required by the circumstances. If the dog dies or is
lost or becomes sick as a consequence of X’ failure to execise
proper diligence, He shall be liable to Y for damages.

d) Reason for debtor’s obligation- The debtor

must exercise diligence to ensure that the
thing to be delivered would subsist in the
same condition as it was when the obligation
was contracted.

DUTIES OF A DEBTOR IN OBLIGATION TO GIVE A

DTERMINATE THING

1. Preserve The Thing

2. Deliver the Fruits of the Thing
3. Deliver the Accession or Accessories
4. Deliver the thing itself
5. Answer for Damages

DUTIES OF A DEBTOR TO DELIVER A GENERIC THING

They are:
1. To deliver the thing which is of the quality intended by
the parties taking into consideration the purpose of the
obligaation and other circumstances.

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 2. To be libale for damages in case of fraud, negligence, or
delay, in the performance of his obligation, or contravention of
the tenor thereof.

Article 1164. The creditor has a right to the fruits of the

thing from the time the obligation to deliver it arises.
However, he shall acquire no real right over it until the
same has been delivered to him.

The general rule is that the creditor has the right to the
fruits of the thing from the time the obligation to deliver it arises.
Ownership over the thing though, is only required when such an
object is delivered to him. The essential element therefore of
ownership is delivery.
Therefore, although the creditor has the right has the right
to the fruits of a thing from the time the obligation to deliver the
thing itself arises, his ownership will start when the thing is
delivered to him.

WHEN OBLIGATION TO DELIVER THE FRUITS ARISES

Example:
  Cherry sold her dog to Antomen for 15,000 pesos and while
in the possession of Cherry, the dog gave birth to a puppy in
which Antomen is the one entitled to the puppy if Antomen has
already paid the amount of 15, 000 pesos to Cherry.

PERSONAL RIGHT  is the right or power of a person to demand

from another — to give, to do, or not to do.

REAL RIGHT is a power over a specific thing (like the right of

ownership or possession) and is binding on the whole world.

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 Example:
  If Yen was a creditor to a house and Janine was the debtor
and both agreed that the payment for the rent of the house
would be monthly. Janine upon paying is what we call REAL
RIGHT. But upon Yen expecting Janine to pay every month is
what we call PERSONAL RIGHT.

Article 1166. The obligation to give a determinate thing

includes that of delivery of all its accessions and
accessories, even thouh they may not have been
mentioned. (1097a)

Note: Kasama sa obligasyon na magbigay ng determinadong

bagay ang pagbibigay ng lahat ng accessions at accessories nito
kahit na hindi sila nabanggit.

Discussion:

I. Accession – includes everything produced by a thing, as well

as all incorporated or attached with it, may it be natural or
artificial

1. Accession discreta – right to the fuits

2. Accession continua – includes both accession natural (i.e.

alluvial deposits) and accession industrial (i.e. those built,
planted or sowed on the land of the landowner)

Examples:
House or trees on a land, rents, of a building; airconditioner
in a car; profits or dividends accruing from share of stocks, etc.

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 II. Accessories – includes things that are united or attached as
ornaments to the principal thing, for the latter’s use or perfection
(i.e. spare tire of a car, television antennas, cellphone chargers,
moviehouse chairs, etc.)
Example:

Key of a house; frame of a picture; bracelet of a watch; machinery in a

factory; bow of a violin

Note: Although the delivery of determinate thing includes all its

accessions and accessories, the parties in the contract may
stipulate that certain accessions or accessories may not be
included in the delivery.  Both parties have the freedom to
stipulate such things.

RIGHT OF CREDITOR TO ACCESSIONS AND ACCESSORIES:

The general rule is that all accessions and accessories are

considered included in the obligation to deliver a determinate
thing although they may not have been mentioned.

Unless otherwise stipulated, an obligation to deliver the

accessions or accessories of a thing does not include the latter.

------------------------------------------------------------------------
Article 1167. If a person obliged to do something fails to do it,
the same shall be executed at his cost.
The same rule shall be observed if he does it in contravention of
the tenor of the obligation. Furthermore, it may be decreed that
what has been poorly done be undone.
------------------------------------------------------------------------

26 | P a g e
 Article 1167 refers to an obligation to do, i.e., to perform an act
or render a service. It contemplates three situations:

1. The debtor fails to perform an obligation to do;

2. The debtor performs an obligation to do but contrary to the
terms thereof; or
3. The debtor performs an obligation to do but in poor manner.

Remedies of creditor in positive personal obligation:

1. If the debtor fails to comply with his obligation to do, the

creditor has the right to:

a. to have the obligation performed by himself, or by another,

unless personal considerations are involved, at the debtor’s
expense; and
b. to recover damages (Article 1170)

2. In case the obligation is done in contravention of the terms of

the same or is poorly done, it may be ordered (by the court upon
complaint) that it be undone if it is still possible to undo what
was done.

Performance by a Third Person

A personal obligation to do, like a real obligation to

deliver a generic thing, can be performed by a third person.
While the debtor can be compelled to make the delivery of a
specific thing, a specific performance cannot be ordered in a
personal obligation to do because this may amount to
involuntary servitude which, as a rule, is prohibited under our
Constitution.

27 | P a g e
 Where, however, the personal qualifications of the
debtor are the determining motive for the obligation contracted
(e.g. to sing in a night club), the performance of the same by
another would be impossible or would result to be so different
that the obligation could not be considered performed. Hence,
the only feasible remedy of the creditor is indemnification for
damages. But where the obligation can still be performed at the
expense of the debtor notwithstanding his failure or refusal to do
so, the court is not authorized to merely grant damages to the
creditor.

Example:

1. X binds himself to construct a house for B. Among other

things, it was stipulated that the house shall have 3 bedrooms,
each of which to have an area of 5 meters by 4 meters and that
the kitchen shall be painted all white.

If X does not construct the house, B may ask C to contract the

house at the expense of X.

2. Suppose X constructed the house but the size of the bedroom

is not 5 meters by 4 meters or the kitchen is not painted all
white.

In this case, B can ask to have it done according to the

specifications. If X refuses, the obligation may be performed by
C at the expense of X.

3. Now, if the kitchen was painted white but the painting was
poorly done, B may ask X that it be undone or, in case of X’s
refusal, he may ask C to paint the kitchen at the expense of X.

28 | P a g e
 In no case, however, can X be compelled against his will to
comply with his obligations should he refuse to do so.

Example:

If the obligation contracted by Irish is to sing in a concert

and she fails to comply with her obligations, the performance of
the same by another would be impossible or would result to be
so different that the obligation could not be considered
performed.

Here the personal qualification of Irish is the determining motive

for the contract. In this case, the only practical remedy of Cherry
is indemnification for damages.

------------------------------------------------------------------------
Article 1168. When the obligation consists in not doing, and the
obligor does what has been forbidden him, it shall also be
undone at his expense.
------------------------------------------------------------------------

Remedies Of Creditor In Negative Personal Obligation:

In an obligation no to do, the duty of the obligor is to

abstain from an act. Here, there is no specific performance. The
very obligation is fulfilled in not doing what is forbidden. Hence,
in this kind of obligation the debtor cannot be guilty of delay.

As a rule, the remedy of the obligee is the undoing of the

forbidden thing plus damages. However if it is not possible to
undo what was done, either physically or legally, or because of

29 | P a g e
 the rights acquired by third persons who acted in good faith, or
for some other reason, his remedy is an action for damages
caused by the debtor’s violation of his obligation.

Example:

Hannah bought a land from Katleen. it was stipulated that

Kathleen would not construct a fence on a certain portion of her
land adjoining that sold to Hannah.

Should Kathleen construct a fence in violation of the agreement,

Hannah can bring an action to have the fence removed at the
expense of Kathleen.

------------------------------------------------------------------------
Article 1169. Those obliged to deliver or to do something incur
in delay from the time the obligee judicially or extra-judicially
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

30 | P a g e
 with what is incumbent upon him. From the moment one of the
parties fulfills his obligation, delay by the other begins.
------------------------------------------------------------------------

Meaning Of Delay:

(1) Ordinary delay is merely the failure to perform and obligation

on time.
(2) Legal delay or default or mora is the failure to perform an
obligation on time which failure constitutes a breach of the
obligation.

Kinds Of Delay Or Default:

(1) Mora solvendi or the delay on the part of the debtor to

fulfill his/her obligation (to give or to do)
(2) Mora accipiendi or the delay on the part of the creditor to
accept the performance of the obligation; and
(3) Compensatio morae or the delay of the obligors in
reciprocal obligations (like in sale), i.e., the delay of the obligor
cancels the delay of the obligee, and vice versa. The net result is
that there is no actionable default on the part of both parties.

Note: There is no delay in negative personal obligation. In an

obligation not to do, non-fulfillment may take place but delay is
impossible for the debtor fulfills by not doing what has been
forbidden him.

Requisites Of Delay Or Default By The Debtor:

There are three conditions that must be present before mora

solvendi can exist or its effects may arise:

31 | P a g e
 (1) failure of the debtor to perform his (positive) obligation on
the date agreed upon.
(2) demand (not mere reminder or notice) made by the creditor
upon the debtor to comply with his obligation which demand may
be either judicial (when a complaint is filed in court) or extra-
judicial (when made outside of court, orally or in writing)
(3) failure of the debtor to comply with such a demand

Example:

Julius obliged himself to deliver to Joshua a specific refrigerator

on December 10.

a. If Julius does not deliver the refrigerator on December 10, he

is only in ordinary delay in the absence of any demand from
Joshua although a period had been fixed for the fulfillment of the
obligation. The law presumes that Joshua is giving Julius an
extension of time within which to deliver the refrigerator. Hence,
there is no breach of the obligation and Julius is not liable for the
damages.

b. If a demand is made upon by Joshua on December 15 and

Julius fails to deliver the refrigerator; Julius is considered in
default only from the date.

c. If an action for specific performance is filed by Joshua on

December 20, the payment of damages for the default must
commence on December 15 when he made the extrajudicial
demand and not on December 20. In the absence of evidence;
as to such extra-judicial demand, the effects of default arise
from the date of the judicial demand, that is, from the filing of
the complaint.

32 | P a g e
 Effects Of Delay:

(1) In Mora solvendi the effects are:

a. The debtor is guilty of breach or violation of the obligation;

b. He/She is liable to the creditor for interest (in case of

obligations to pay money) (Art. 2209) or damages (in other
obligations) (Art. 1170). In the absence of extrajudicial demand,
the interest shall commence from the filing of the complaint.

c. He/She is liable even for a fortuitous event where the

obligation is to deliver a determinate thing (Arts. 1165, 1170).
However, if the debtor can prove that the loss would have
resulted just the same even if he had not been in default, the
court may equitably mitigate or reduce the damages (Art.
2215[4]).

(2) In Mora accipiendi the effects are:

a. The creditor is guilty of breach of obligation.

b. He/She is liable for damages suffered, if any, by the debtor
c. He/She bears the risk of loss of the thing due (Art. 1262)
d. Where the obligation is to pay money, the debtor is not liable
for interest from the time of creditor’s delay
e. The debtor may release himself from the obligation by the
consignation or deposit in court of the thing or sum due
(Art.1256)

(3) In Compensatio morae the effect is:

33 | P a g e
 a. The delay of the obligor cancels the delay of the obligee and
vice versa. Situations when demand is not necessary to put
debtor in delay:
As a general rule, delay by the debtor begins only from the
moment a demand, judicial or extra-judicial, for the fulfillment of
the former’s obligation is made by the creditor. Without such
amount, the effect of default will not arise. The exceptions are
mentioned below:

(1) When The Obligation So Provides

Example:

Yen promised to pay the sum of Php 20,000 on or before

November 30 without the need of any demand. Therefore, if Yen
fails to pay on November 30, he is automatically in default. In
this case, the parties stipulate to dispense with the demand.

(2) When The Law So Provides

Example:
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.

(3) When Time Is Of The Essence

Example:
The delivery of balloons on a particular date when a children’s
party will be held; the making of a wedding dress where the
wedding is scheduled at a certain time

(4) When Demand Would Be Useless

34 | P a g e
 Example:

S obliged himself to deliver a specific horse to B on September

5. Through S’s negligence or deliberate act, or by reason of
fortuitous event for which S has expressly bound himself
responsible (see Art. 1174), the horse died on September 2.

Under this situation, any demand for the delivery of the horse on
September 5 would be useless as S has made it impossible for
him to perform his obligation.

(5) When There Is Performance By A Party In Reciprocal

Obligations

Example:

Joshua agreed to sell his Cellphone set for Php 20,000. The
obligation of Joshua is to deliver the Cellphone while that of
Julius, to pay Php 20,000 . Since no date is set for performance
of their respective obligations, it is understood that it must be
simultaneous. Joshua cannot demand payment if he himself
cannot deliver the cellphone. From the moment Joshua delivers
the cellphone, Julius is in default if he does not pay Joshua
without the need of any demand.

------------------------------------------------------------------------
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.
------------------------------------------------------------------------

35 | P a g e
 Grounds For Liability:

(1) Fraud (deceit or dolo) – It is the deliberate or intentional

evasion of the normal fulfillment of an obligation.

Example:

S obliged himself to deliver to B 20 bottles of wine, of a

particular brand. Subsequently, S delivered 20 bottles knowing
that they contain cheaper wine. S is guilty of fraud and is liable
for damages to B.

(2) 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.

Example:

P is a passenger in a taxi. Here, there is considered a contract of

carriage between P and the owner of the taxi company. In
consideration of the fare to be paid by P, the owner of the taxi
company, through the driver, agrees to safely bring P to his
destination. If, through the recklessness of the driver an
accident occurs, as a result of which P is injured, there is
negligence which would make the owner liable for damages. If
the taxi contained defective parts, the failure to repair the same
constitutes also negligence on the part of the owner.

(3) Delay (mora) – already discussed under Article 1169.

(4) Contravention of the terms of the obligation – This is

the violation of the terms and conditions stipulated in the

36 | P a g e
 obligation. The contravention must not be due to a fortuitous
event or force majeure (Art. 1174).
Example:

E leased the apartment of R for Php 10,000 a month to be paid

in advance during the first week of every month. The obligation
of E, as lessee, is to pay the stipulated rent. The obligation of R,
as lessor, is to maintain E in the peaceful possession of the
apartment leased.

If E violates his obligation, R is entitled to eject him from the

premises and recover damages. If R does not maintain E in the
peaceful possession of the apartment (as when R is not the
owner), and E is ejected, R may be held liable for damages for
violation of the terms of his obligation.

The measure of damages to be awarded to E or to R, as the case

may be, is left to the sound discretion of the court in accordance
with the provisions of the civil code on damages.

Fraud And Negligence Distinguished:

(1) In fraud, there is deliberate intention to cause damage or

injury, while in negligence, there is no such intention.

(2) Waiver of the liability for future fraud is void (Art. 1171),
while such waiver may, in a certain sense, be allowed in
negligence (Art. 1172).

(3) Fraud must be clearly proved, while negligence is presumed

from the violation of a contractual obligation.

37 | P a g e
 (4) Lastly, liability for fraud cannot be mitigated or reduced by
the courts, while liability for negligence may be reduced
according to the circumstances Art. 1173)

------------------------------------------------------------------------
Article 1171. Responsibility arising from fraud is demandable in
all obligations. Any waiver of an action for future fraud is void.
------------------------------------------------------------------------

Responsibility Arising From Fraud Demandable

Responsibility arising from fraud can be demanded with

respect to all kinds of obligation and unlike in the case of
responsibility arising from negligence, the court is not given the
power to mitigate or reduce the damages to be awarded. This is
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 an action for future fraud is void (no effect)
as being against the law and public policy. A contrary rule would
encourage the perpetration of fraud because the obligor knows
that even if he should commit fraud, he would not be liable for it,
thus making the obligation illusory (i.e. not real)

Waiver Of Action For Past Fraud Valid

38 | P a g e
 What the law prohibits is waiver anterior (i.e. coming
before) to the fraud and to the knowledge thereof by the
aggrieved party.

A past fraud can be the subject of a valid waiver because the

waiver can be considered as an act of generosity and
magnanimity on the part of the party who is the victim of the
fraud. Here, what is renounced is the effect of the fraud, that is,
the right to indemnity of the party entitled thereto. The waiver
must be expressed in clear language which leaves no doubt as to
the intention of the obligee to give up his right against the
obligor.

Example:

Anto promised to deliver 120 cavans of rice of a particular brand

and quality to Men at the rate of 10 cavans a month.

Anto cannot make an agreement with Men, whereby Men will

not file an action in court against Anto, should commit fraud in
the performance of his obligation. This waiver of an action for
future fraud is void. Hence, Men can still bring an action against
Anto for damages arising from the fraud.

But once fraud is committed, Men, with full knowledge thereof,

can waive his right to indemnity as an act of forgiveness on his
part.

------------------------------------------------------------------------
Article 1172. Responsibility arising from negligence in the
performance of every kind of obligation is also demandable, but

39 | P a g e
 such liability may be regulated by the courts, according to the
circumstances.
------------------------------------------------------------------------

Responsibility arising from negligence demandable

In the performance of every kind of obligation, the debtor is also

liable for damages resulting from his negligence.

The courts, however, are given wide discretion in fixing measure

of damages. The reason is because negligence is a question
which must necessarily depend upon the circumstances of each
particular case. Moreover, negligence is not as serious as fraud
because in the case of the former, there is no deliberate
intention to cause injury or damages. According to the
circumstances, the court may increase or decrease the damages
recoverable. When both parties to a contract are negligent in the
performance of their respective obligations, the fault of one may
cancel or neutralize the negligence of the other.

Kinds Of Negligence According To The Source Of

Obligation

(1) Contractual Negligence (culpa contractual) or negligence

in contracts resulting in their breach. Article 1172 refers to culpa
contractual.

Example:

If Han entered into a contract of sale with Nah to deliver a

specific dog on a certain day and the dog died through the
negligence of Han before delivery, Han is liable for damages to

40 | P a g e
 Nah for having failed to fulfill a pre-existing obligation (contract
may be either express or implied) because of his negligence.
This is culpa contractual.

(2) Civil negligence (culpa aquiliana) or negligence which by

itself is the source of an obligation between the parties not so
related before by any pre-existing contract. It is also called tort
or quasi-delict.

Example:

Assume now that the dog belongs to and is in possession of

Nah. The negligence of Han which results in the death of the
horse is culpa aquiliana. In this case, there is no pre-existing
contractual relation between Han and Nah. The negligence itself
is the source of liability.

(3) Criminal Negligence (culpa criminal) or negligence

resulting in the commission of a crime.

Example:

A crime can be committed by negligence. If Ir wants, he can

bring an action for culpa criminal (damage to property through
simple or reckless imprudence). Here, the crime is the source of
the obligation of Ish to pay damages.

------------------------------------------------------------------------
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

41 | P a g e
 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.
-----------------------------------------------------------------------

Meaning Of Fault Or Negligence:

Fault or negligence is defined by the above provision. According

to the Supreme Court, “negligence is the failure to observe for
the protection of the interests of another person, that degree of
care, precaution and vigilance which the circumstances justly
demand, whereby such other person suffers injury.”

Factors to be considered:

Negligence is a question of fact, that is, its existence being

dependent upon the particular circumstances of each case. In
determining the issue of negligence, the following factors must
be considered:

(1) Nature of the obligation

Example:

Smoking while carrying materials known to be inflammable

constitutes negligence.

(2) Circumstances of the person.

Example:

42 | P a g e
 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 kph on the superhighway is permissible but

driving at the same rate of speed in Ayala Ave. Makati is gross
recklessness.

------------------------------------------------------------------------
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.
------------------------------------------------------------------------

Meaning Of Fortuitous Event

43 | P a g e
 A fortuitous event is any event which cannot be foreseen, or
which, though foreseen, is inevitable. Stated otherwise, it is an
event which is either impossible to foresee or impossible to
avoid.

The essence of a fortuitous event consists of being a happening

independent of the will of the debtor and which happening,
makes the normal 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 from the will of every
human being.

Examples:

44 | P a g e
 Covid-19 Pandemic, Earthquake, flood, rain, shipwreck,
lightning, eruption of volcano, etc.

In our law, fortuitous events and force majeure are identical

in so far as they exempt an obligor from liability. Both are
independent of the will of the obligor.

Kinds of fortuitous events

(1) Ordinary fortuitous events or those events which are

common and which the contracting parties could reasonably
foresee (e.g., rain)

(2) Extra-ordinary fortuitous events of those events which

are uncommon and which the contracting parties could not have
reasonably foreseen (e.g., earthquake, fire, war, corona virus
pandemic, unusual flood).

------------------------------------------------------------------------
Article 1175. Usurious transactions shall be governed by special
laws.
-----------------------------------------------------------------------

Meaning Of Simple Loan Or Mutuum

Simple loan or mutuum is a contract whereby one of the

parties delivers to another, money or other consumable thing,
upon the condition that the same amount of the same kind and
quality shall be paid. It may be gratuitous (i.e. given or done
free of charge) or with a stipulation to pay interest.

Meaning of usury

45 | P a g e
 Usury is contracting for or receiving interest in excess of the
amount allowed by law for the loan or use of money, goods,
chattels (an item or property other than real estate) or credits.

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

(2) The agreement must be in writing; and
(3) 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.
------------------------------------------------------------------------

Meaning Of Presumption

By presumption is meant the inference of a fact not actually

known arising from its usual connection with another which is
known or proved.

Example:

46 | P a g e
 Yen borrowed Php 1,000.00 from Ping. Later, Yen shows a
receipt signed by Ping. The fact not actually known is the
payment of Yen. The fact known is the possession by Yen of a
receipt signed by Ping.

The presumption is that the obligation has been paid unless

proved otherwise by Ping as, for example, that Yen forced Ping
to sign the receipt.

------------------------------------------------------------------------
Article 1177. The creditors, after having pursued the property
in possession of the debtor to satisfy their claims, may exercise
all the rights and bring all the actions of the latter for the same
purpose, save those which are inherent in his person; they may
also impugn the acts which the debtor may have done to defraud
them.
------------------------------------------------------------------------

(impugn – dispute the truth, honesty, validity of a

statement or motive)
(defraud – illegally obtain money from someone by
deception)

Remedies Available To Creditors For The Satisfaction Of

Their Claims

In case the debtor does not comply with his obligation, the
creditor may avail himself of the following remedies to satisfy his
claim:

47 | P a g e
 (1) exact fulfillment of (specific performance) with the right to
damages
(2) pursue the leviable (not exempt from attachment under the
law property of the debtor);
(levy – to seize or attach property by judicial order)
(3) “after having pursued the property in possession of the
debtor,” exercise all the rights (like the right to redeem) and
bring all the actions of the debtor (like the right to collect from
the debtor of his debtor) except those inherent in or personal to
the person of the latter (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) ask the court to rescind or impugn acts or contracts which
the debtor may have done to defraud him when he cannot in any
other manner recover his claim.

(rescind – annul; revoke; repeal; to invalidate by a later

action or a higher authority)

Example:

On the due date, D could not pay C his obligation in the amount
of php 400,000.00. However, D owns a car worth about php
200,000.00 and X is indebted to him for Php40,000.00. Before
the due date of the obligation, D sold his land worth php
200,000.00 to Y.

Under the circumstances, the rights granted by law to C under

the law are as follows:

(a) He may bring an action for the collection of the amount of

Php 400,000.00 with a right to damages.

48 | P a g e
 (b) If, in spite of the judgment rendered, D fails to play the
amount due, C can ask for the attachment of D’s car so that the
car may be sold and payment made from the proceeds of the
sale.
(c) He may ask the court to order X no to pay D so that payment
may be made to him
(d) He may ask the court to rescind or cancel the sale made by
D to Y on the ground that the transaction is fraudulent in case he
(C) cannot recover in any other manner his credit.

The last remedy can only be resorted to only if C could not

collect in full his credit. He must first exhaust the properties of
the debtor or subrogate himself in the latter’s transmissible
rights.

(subrogate–to  put (one person  or  thing)  in

the place of another in  respect  of  a right  or  claim)

------------------------------------------------------------------------
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.
------------------------------------------------------------------------

(stipulation- a condition, demand, or promise in an 
agreement or contract)

Transmissibility Of Rights

All rights acquired in virtue of an obligation are generally

transmissible. The exceptions to this rule are the following:

49 | P a g e
 (1) Prohibited by law – when prohibited by law 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.

(b) By the contract of 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.

(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.

(2) Prohibited by stipulation of the parties – when prohibited

by stipulation of the parties, like the stipulation that upon the
death of the creditor, the obligation shall be extinguished, or that
the creditor cannot assign his credit to another.

Such stipulation, being contrary to the general rule, must be

clearly proved, or, at the very least, clearly implied form the
wording or terms of the contract itself.

50 | P a g e