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Arts. 1163-1178 NATURE AND EFFECT OF OBLIGATIONS

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. (1094a)

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

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 any fortuitous event until he has effected the
delivery. (1096)

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 any fortuitous event until he has effected the
delivery. (1096)

Art. 1166. The obligation to give a determinate thing includes


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

Art. 1167. If a person obliged to do something fails to do it, the


same shall be executed at his cost.
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Arts. 1163-1178 NATURE AND EFFECT OF OBLIGATIONS

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


the tenor of the obligation. Furthermore, it may be decreed that
what has been poorly done be undone. (1098)

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)

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 declare; 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)

Art. 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. (1101)

Art. 1171. Responsibility arising from fraud is demandable in


all obligations. Any waiver of an action for future fraud is void.
(1102a)

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)

Art. 1173. The fault or negligence of the obligor consists in the


omission of that diligence which is required by the nature of the
obligation and corresponds with the circumstances of the persons,
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Arts. 1163-1178 NATURE AND EFFECT OF OBLIGATIONS

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. (1104a)

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)

Art. 1175. Usurious transactions shall be governed by special


laws. (n)

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)

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)

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)

How do you distinguish between a specific real

obligation and a generic real obligation?

A specific real obligation is an obligation to deliver (to


give) a specific or determinate thing; on the other hand, a generic
real obligation is an obligation to deliver (to give) a generic or
indeterminate thing.
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Arts. 1163-1178 NATURE AND EFFECT OF OBLIGATIONS

How do you distinguish between a specific or


determinate thing, and a generic or indeterminate thing?

Generic or indeterminate
Specific or determinate thing
thing

A thing is specific if it is particularly A thing is generic if it refers only to


designated or physically a class or genus to which it
segregated from others of the pertains and cannot be pointed out
same class. with particularity.

No other thing of its kind exists; Other things of the same kind exist;
hence, it is not replaceable if lost. hence, it is replaceable if lost.

EXAMPLES :
the dress I wore on my 18th birthday a blue floral Kamiseta dress
my 5-year old german shepherd a 5-year old german shepherd
the blue car with plate no. ABC-123 a 2010 Toyota Fortuner silver car
the P1,000 bill Alex paid for the shabu the amount of P1,000
My brothers girlfriend a Filipino girl with blond hair

What are the duties of the debtor in a specific real

obligation?

(A) To preserve the thing

The debtor in a specific real obligation has the accessory duty to


preserve the thing until its delivery to the creditor. This is called an
accessory duty because the debtor has to preserve the thing even if
the duty has not been specifically agreed upon by the parties in their
contract.
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Arts. 1163-1178 NATURE AND EFFECT OF OBLIGATIONS

The standard of care required to preserve the thing. - Under


Article 1163, (E)very 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.

What does proper diligence of a good father of a family mean?


This standard of care required of the debtor has been equated
with ordinary care, or that diligence which a reasonably prudent
person would exercise over his own property.

Example 1 : D promised to deliver his goat to C on July 15, 2011.


From the time the promise is made, up to the time that the goat is delivered
to C, D has to feed the goat and provide it with adequate shelter to protect it
from harm. D has to take care of the goat in the same manner that he would
have taken care of it even if he did not promise to deliver it to C.

If the debtor fails to exercise ordinary diligence over the thing,


and such failure results in the loss and/or non-delivery of the thing
promised, then he will be guilty of fault or negligence under Article
1170, and may be held liable by the creditor for damages.

In Example 1 above, if the goat dies before July 15, 2011 due to
severe dehydration because it was not given a drink by D or his
caretake for one whole week, C can hold D liable for damages.

Example 2 : In Example 1 above, let us assume that Ds goat is


worth P25,000. Also, after D promised to deliver the goat to C, C contacted
E who agreed to buy the goat for P30,000.
On July 15, C demanded for the delivery of the goat. D, however, could
not make the delivery because the goat died on July 12 due to severe
dehydration caused by Ds failure to give the goat a drink for one whole
week. In this case, since the loss of the goat was due to Ds fault or
negligence, C can hold D liable for the value of the goat in the amount of
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Arts. 1163-1178 NATURE AND EFFECT OF OBLIGATIONS

P25,000, plus consequential damages in the amount of P5,000, which is


what C should have profited from the sale of the goat to E if D had effected
the delivery.

What is the rationale for this accessory duty?


Without the accessory duty to preserve the thing to be delivered,
the debtor can conveniently and carelessly lose or damage the
specific thing before it is delivered to the creditor. And even if the
loss or damage is due to the debtors fault or negligence, he would
have no liability for damages to the creditor. This would render
useless the nature of an obligation the performance of which is
considered a juridical necessity on the part of the debtor. In other
words, the debtor will be given a choice whether to perform the
prestation or not, and to assume no liability in case he chooses not to
perform the prestation.
Note, however, that the duty to preserve the thing is applicable
only in a specific real obligation. This is because once a specific
thing is lost, it can no longer be replaced. The duty does not apply in
a generic real obligation because a generic thing, even if lost, is
replaceable, and delivery can still be made by the debtor.

(B) To deliver the fruits of the thing

What are the different kinds of fruits?

(1) Natural fruits are the spontaneous products of the soil, and
the young and other products of animals. (Art. 442)
Examples:
trees and plants that grow naturally from the soil without
the intervention of human labor
the kid delivered by a goat
the milk produced by a cow
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Arts. 1163-1178 NATURE AND EFFECT OF OBLIGATIONS

(2) Industrial fruits are those produced by land of any kind


through cultivation or labor. (Art. 442)
Examples:
lanzones and rambutan trees planted on land
any other products of agriculture or farming
(3) Civil fruits are those which are the result of a juridical
relation. (Art. 442)
Examples:
rents of buildings
the price of leases of lands and other property
interest on a loan

When is the creditor entitled to the fruits of the thing?


Under Article 1164, the creditor has a right to the fruits of the
thing from the time the obligation to deliver it arises. In other words,
the day when the debtor is obliged to deliver the thing is the very
same day that the creditor is entitled to its fruits. When then is the
debtor obliged to deliver the thing?

If the obligation does not specify a delivery date, it


means that the obligation is immediately demandable. Hence, the
creditor is entitled to whatever fruits of the thing from the time of the
perfection of the contract.

Example 3 : D has a land planted with 250 mango trees due for
harvest on June 6, 2011. On June 5, 2011, D promised to deliver his land to
C without specifying the date when delivery is to be made.
Q: Who has the right to harvest the mango fruits?
A: In this case, since there is no specific delivery date in the obligation,
C can immediately demand the delivery of the land at the time that the
promise is made. In addition, C will have the right to harvest all the fruits
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Arts. 1163-1178 NATURE AND EFFECT OF OBLIGATIONS

from the mango plantations existing at the time that D is obliged to deliver the
land.

If the obligation specifies a delivery date, the creditor is


entitled to the fruits of the thing from the time of the delivery date
because it is only on the specified delivery date that the debtor will be
obliged to deliver the thing.

Example 4 : On June 15, 2011, D promised to deliver his pig to C. It


was also agreed by the parties that delivery was to be made on July 1, 2011.
On June 18, a few days after the parties perfected their contract, the pig
gave birth to 3 piglets.
Q: Who has the right to the piglets?
A: In this case, since there is a specified delivery date, C will be
entitled to the fruits of thing only from the time of the delivery date. In other
words, all fruits from the thing before delivery date will still pertain to D.
Hence, although the piglets were born after perfection of the parties contract
on June 15, 2011, they still pertain to D because the birth of the piglets
happened before July 1, 2011 the day D is obliged to deliver the pigs to C.
Q2: What if the piglets were born on July 2, 2011, but D made actual
delivery of the pig only on July 3, 2011. Who has now the right to the piglets?
A: If the piglets were born after the specified date of delivery in the
contract, it is now C who has the right to the piglets. Remember that Article
1164 states that the creditor has the right to the fruits from the time the
obligation of the debtor to deliver the thing arises, and NOT from the moment
of actual delivery of the thing. Hence, even if the piglets were born before
actual delivery of the pig, the piglets will now pertain to C because they were
born after the specified delivery date in the contract.

If the performance of the obligation is subject to a


condition, the creditor has a right to the fruits only from the time the
condition is fulfilled. This is because it is only at such time that the
obligation of the debtor to deliver the thing arises.
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Example 5 : On December 1, 2010, D promised to give his


apartment to C if C will pass the September 2010 Bar Exams. The
apartment is earning P100,000 every month in the form of rentals collected
by D from its four (4) tenants. On April 1, 2011, the results were released
and C passed.
Q: From what time will C be entitled to collect the rentals from the
apartment?
A: In this case, the obligation of D to deliver the apartment arose only
on April 1, 2011. It is only on this date that C will also be entitled to the
rentals (civil fruits) of the apartment. Hence, all rentals collected from
December 1, 2010 (when the contract was perfected) until March 30, 2011
(before the fulfilment of the condition for Ds obligation) still belongs to D.

In any event, the time when the creditor is entitled to the


fruits of the thing may be specifically agreed upon by the parties in
their contract.

What is the nature of the creditors right?


! Before the delivery of the thing, under the first sentence
of Article 1164, the only right that the creditor has is to demand the
delivery of the thing and its fruits. This right can be enforced only
against D (a definite passive subject) and is known as a personal
right.
! After the delivery of the thing and its fruits to the creditor,
the creditor now acquires a real right over them. (2nd sentence of
Article 1164) A real right is the right or power of a person over a
specific thing (e.g., ownership, possession or mortgage) without a
definite passive subject against whom the right may be personally
enforced just like in a personal right. A real right is enforceable
against the whole world.

Example 6 : Examine again Example 4 above. If the piglets were


born on July 2, 2011, and D made the delivery on July 3, 2011, C acquires a
real right over the pig and the piglets from July 3, 2011.
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Arts. 1163-1178 NATURE AND EFFECT OF OBLIGATIONS

Let us assume, however, that instead of delivering the pig to C, D


delivers the pig and the piglets to E on July 3, 2011. It is E who will acquire
ownership over the pig and the piglets a real right over the thing and its
fruits. In such a case, C will have no right of action against E because all
that C possesses before actual delivery is a personal right against D to
demand delivery of the pig and its piglets. But since delivery is no longer
possible because the pig had already been delivered to E, C can claim
damages from D for non-performance of the obligation under Article 1170.

(C) T o d e l i v e r t h e a c c e s s i o n s a n d
accessories of the thing

Under Article 1166, the obligation to give a determinate thing


includes that of delivering all its accessions and accessories, even
though they may not have been mentioned. This rule is based on
the principle of law that the accessory follows the principal. The
parties, however, may stipulate that the accessions and accessories
will not be included when the thing is delivered.

What are accessions of a thing?


Accessions include the fruits of a thing, or additions to or
improvements upon a thing.
Examples:
the air-conditioner in a car
plantation of grapes on a farmland
stipulated interest on money borrowed by the debtor

What are accessories of a thing?


Accessories include anything that is attached to or included
with the principal thing for its embellishment, usefulness, or
completion.
Examples:
the tires of a car
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Arts. 1163-1178 NATURE AND EFFECT OF OBLIGATIONS

the doors and windows of a house


the bracelet of a wrist watch

(D) To deliver the thing itself

The debtor cannot deliver any other thing (even if superior in


quality) to replace the thing promised without the consent of the
creditor.

Duties of the debtor in a generic real obligation.

In a generic real obligation, the debtor is obliged to deliver to the


creditor a thing of the quality intended by the parties in their contract.
Under Article 1246, when the obligation consists in the delivery of a
generic thing, the creditor cannot demand a thing of superior quality.
Neither can the debtor deliver to the creditor a thing of inferior quality.

Example 7 : D promised to deliver a 2010 Toyota Fortuner car to C.


On delivery date, D cannot compel C to accept delivery of a 2009 Toyota
Fortuner. Neither can C compel D to deliver a 2011 Toyota Fortuner.

What are the remedies of the creditor in a real

obligation?

Specific real obligation If the debtors obligation is to deliver a


specific thing, and the debtor fails to deliver on the agreed delivery
date, the creditor is given the right :
(a) to compel the debtor to personally make the delivery; and
(b) to demand the payment of damages from the debtor.
(See Art. 1165, par. 1 in relation to Art. 1170)
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Example 8 : D promised to deliver his 2010 white Toyota Camry car


with plate number ABC-123 to C on June 15, 2011. Cs daughter had then
decided to use the car for her wedding on June 16, 2011. D, however, failed
to deliver the car on June 15. Hence, C was forced to contact the services of
a car rental company for which he paid the amount of P20,000.
Q : What is the remedy of C in this case?
A : C can file a case in court against D for specific performance. He
can ask the court to order D to make the delivery of the car and to pay for
damages amounting to P20,000 as car rental payments which C would not
have incurred if only D made the delivery of the car on time.
C is given the right to compel D to make the delivery because the car is
in Ds possession and cannot, therefore, be substituted by another.

Generic real obligation If the debtors obligation is to deliver a


generic thing, and the debtor fails to deliver on the agreed delivery
date, the creditor is given the right :
(a) to ask that the obligation be complied with at the expense of
the debtor; and
(b) to demand the payment of damages from the debtor.
(See Art. 1165, par. 2 in relation to Art. 1170)

Example 9 : D promised to deliver 300 kilos of dinorado rice to C


before 7:00 a.m. on June 15, 2011 for use in the restaurant owned by C. On
the other hand, C promised to pay P40.00 per kilo for the rice, or a total
consideration of P12,000. On June 15, D did not make good his promise.
Q : What is the remedy of C?
A : C can avail of the remedy of substitute performance. He can ask
another rice dealer to make the delivery of the 300 kilos of dinorado rice for
his restaurants needs. Since the obligation is generic, C can get the 300
kilos of rice from another person because they can be substituted with
another of the same kind. If C is able to obtain delivery of the rice needed
but for the price of P50.00 per kilo, then D can be made liable for the
difference. Thus, C can ask the court to hold D liable in damages for the
amount of P3,000 (300 kilos X P10.00).
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What are the remedies of the creditor in a positive

personal obligation? (Article 1167)

If the debtor fails or refuses to perform his obligation to do, the


creditor cannot compel the debtor to perform the obligation because
this would violate the debtors constitutional right against involuntary
servitude (Art. III, Sec. 18[2], Philippine Constitution). The creditor
can, however, exercise the following remedies:
(a) The creditor may perform the obligation himself at the
expense of the debtor (Art. 1167, par. 1); or
(b) The creditor may ask another person to perform the
obligation at the debtors expense (Art. 1167, par. 1); and
(c) The creditor can recover damages from the debtor in either
case (Art. 1170).

Example 10 : C brought his television set for repair to the shop of D.


D promised to complete the repair in 1 week. After 1 week, D returned the
television set to C unrepaired.
In this case, C can have the television set repaired by another repair
service center, and he can charge the cost of the repairs to D. In addition, C
can demand the payment of damages from D.

The same remedies above is available to the creditor if the debtor


performs the obligation but does it in contravention of the tenor of the
obligation, i.e., not in accordance with the stipulations agreed upon
with the creditor.

Example 11 : D promised to do the printing job on 200 pieces of


shirts for the sportsfest celebration in the office of C. It was agreed upon by
the parties that the color of the office logo on the shirt would be neon orange.
When the job was done, C found that the color of the office logo printed on
the shirt was dark red orange.
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In this case, C can hire another printing company to do a reprinting with


the specified color, and charge the cost for reprinting to D. C can also
demand the payment of damages from D.

If the debtor performs the obligation but does it poorly, the


creditor has the following remedies:
(a) The creditor can ask that what has been poorly done be
undone at the debtors expense (Art. 1167, par. 2); and
(b) The creditor can demand for the payment of damages from
the debtor (Art. 1170).
Example 12 : D obliged himself to assemble the wooden sliding
doors in the house of C. After the work was finished, C found that the doors
could not be opened with ease and needed two persons to move the doors
from side to side.
In this case, C can demand that D fix the jammed mechanisms in the
sliding doors to make them trouble-free. If D refuses to make the repair, C
can ask another contractor to mend the jammed doors, and charge the cost
of the repairs to D. C can also demand the payment of damages from D.

What are the remedies of the creditor in a negative

personal obligation? (Article 1168)

In a negative personal obligation, if the debtor does what has


been forbidden him, the creditor can avail of the following remedies:
(a) The creditor can demand that the debtor undo the forbidden
act at the debtors expense; or
(b) The creditor can ask another person to undo the forbidden
act and charge the cost to the debtor; and
(c) The creditor can demand the payment of damages from the
debtor (Art. 1170).
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Example 13 : D and C entered into a lease contract for a term of


two (2) years covering a house and lot owned by C. D also promised not to
build any structure in the backyard of the house and devote it only to
vegetable farming. One year after the perfection of the contract, D
constructed a concrete pigpen worth P30,000 in the backyard of the property.
In this case, C can demand that D demolish the pigpen immediately at
Ds expense. If D refuses to do so, C can ask another person to demolish
the pigpen and charge the cost therefor to D. In any event, C can demand
the payment of damages from D for violation of the terms of their agreement.

How do you distinguish between ordinary delay and


legal delay?

Ordinary delay is simply the failure of the debtor to perform the


obligation on time, or on the day designated for the performance of
the obligation.

Legal delay (default or mora) is the debtors failure to perform


the obligation on time, and after the creditor has demanded from the
debtor, either judicially or extrajudicially, the performance of the
obligation. (Art. 1169, par. 1.) Judicial demand is made by the
creditor when he files a complaint in court against the debtor
demanding for the performance of the obligation. On the other hand,
extrajudicial demand is made when the creditor demands, either
orally or in writing, from the debtor the performance of the obligation
but outside of the court.

Remember that it is only when the debtor incurs legal delay that
he will be liable for damages to the creditor under Article 1170.

What are the kinds of delay or default?


(a) Mora solvendi default on the part of the debtor to fulfil his
obligation;
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(b) Mora accipiendi default on the part of the creditor to accept


the performance of the obligation;
(c) Compensatio morae default of both parties in reciprocal
obligations; here, there is no actionable default on the part of
both parties because the default of the debtor neutralizes the
default of the creditor.
What are the requisites of mora solvendi?
In order that the debtor may be held liable for damages
under Article 1170 on the ground of mora or legal delay, the following
requisites must be present:
(a) The debtor fails to perform his obligation on the date agreed
upon;
(b) The creditor makes a judicial or extrajudicial demand upon
the debtor to comply with his obligation; and
(c) The debtor fails to comply with his obligation despite the
demand already made by the creditor.

Example 14 : On June 1, 2011, D borrowed P100,000 from C due


for payment on June 1, 2012. In the promissory note signed by D, he also
obliged himself to pay C 5% interest (P5,000) per month for late payment.
On June 1, 2012, D did not pay his obligation. On August 1, 2012, C sent D
a demand letter asking D to pay his P100,000 debt.
Q : As of what date is D considered in legal delay? When will you start
computing the stipulated interest of 5% per month as penalty for delay?
A : Even if D failed to perform his obligation on June 1, 2012, he is
only considered in ordinary delay at that point. It is only after C makes a
demand for the performance of Ds obligation that D will be considered in
legal delay. In this case, C made an extrajudicial demand for the payment of
the debt on D only on August 1, 2012. Hence, the penalty interest of P5,000
per month will be computed starting August 1, 2012, and not from June 1,
2012.
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When is demand by the creditor not required to put the debtor in


delay? In other words, what are the instances when the debtor can
already be considered in default after non-performance of the
obligation even if the creditor did not make a judicial or extra-judicial
demand for the performance of the obligation?

(a) When the law specifically provides that the debtor will be guilty of
legal delay even without demand from the creditor. (Art.
1169, par. 2[1])
Example 15: Our internal revenue laws provide that an individual taxpayer
who fails to pay his income tax on or before April 15 of every tax year is
already considered in default and liable for interest and penalties even without
demand from the government.

(b) When the obligation expressly provides that the debtor will be
considered in legal delay if the debtor fails to perform the
obligation on maturity date of the obligation, even if the creditor
does not make a demand for its performance. (Art.
1169, par. 2[1])
Example 16: In Example 14 above, let us assume that D and C also
agreed that if D fails to pay his P100,000 loan to C on June 1, 2012, D will
already be considered in default, and will be liable for the 5% per month
penalty interest even without need of any demand from C. In such case, if D
tenders payment to C only on August 1, 2012, D will already be liable to pay a
1 month penalty interest in the amount of P5,000 even if C did not demand for
the payment of the obligation.

(c) When the fixing of the time when the obligation is to be


performed was the primary reason why the parties entered into
the contract. (Art. 1169, par. 2[2])
Example 17: D agreed to deliver to C 250 pieces of pink balloons with the
inscription, Happy 80th Birthday, Mom! 15 June 2011(.), to be used for the
birthday celebration in the residence of Cs mother on June 15, 2011 at 7:00
oclock in the evening. Even if C does not demand for the delivery of the
balloons, if D fails to deliver on the date designated in the contract, D will be
guilty of legal delay under the first paragraph of Article 1169, and will be liable
for damages under Article 1170. Here, time is of the essence in the contract
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because delivery of the balloons on a date other than the party date will
render the delivery useless.

(d) When demand by the creditor for the performance of the


obligation would be useless. (Art. 1169, par. 2[3])
Example 18: D promised to deliver her emerald necklace to C on June 30,
2011. On June 28, 2011, D sold the same necklace to F for P300,000. In this
case, D will be considered in default and liable for damages if she fails to
deliver the necklace on June 30, 2011 even without need of a demand from C.
This is because a demand by C will be useless considering that even if C
made the demand, D would no longer be able to perform her obligation
because she had already previously sold the necklace to F even before the
maturity of the obligation.

(e) When there is performance by one of the parties in a reciprocal


obligation. (Art. 1169, par. 3)
Reciprocal obligations1 are obligations arising out of the
same cause and are to be fulfilled at the same time by the parties to
the obligation. Neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with his
obligation. However, the moment one of the parties in a reciprocal
obligation performs his obligation, the other party is already
considered in default.
Example 19: S sold his BMW car to B for P5.5M. No date was set by the
parties for the performance of their respective obligations under their contract
of sale. In the this case, it is understood that both parties must perform their
obligations at the same time. Hence, S cannot be compelled to deliver the car
if B does not pay the P5.5M. On the other hand, B cannot be compelled to
pay the purchase price if S does not deliver the car. However, once S delivers
the car, B will be considered in default or mora if he does not pay the
purchase price even if S does not demand for its payment.

1 For a better understanding of the concept of a reciprocal obligation,


refer to the commentaries of de Leon in your book under Article 1191.
19
Arts. 1163-1178 NATURE AND EFFECT OF OBLIGATIONS

Basis for liability for damages. What are the

grounds for which the debtor may be held liable for the payment of
damages by the injured party under Article 1170?

Fraud (deceit or dolo)

In fraud there is bad faith or malicious intention on the part of the


debtor. It is the deliberate or intentional evasion by the debtor of the
normal fulfilment of his obligation.

How do you distinguish between the effects of fraud employed at


the time of the perfection of the contract, and fraud employed at the
time of the performance of an obligation arising from a contract?

(a) Fraud employed at the time of the perfection of the contract by


the guilty party will make the consent of the innocent party to the
contract defective. Since the consent of one of the parties to the
contract is defective, it becomes voidable. The remedy,
therefore, of the innocent party in this kind of fraud is to file an
action for the annulment of the contract so that the contract will
be declared no longer effective by the court.2
Example 20: Jojo offered to sell to Cathy a Rolex wrist watch for
P250,000. Jojo represented to Cathy that the Rolex was a genuine. On the
basis of that representation, Cathy bought the watch and paid the purchase
price in cash. A week after the sale, Cathy found out that the watch was not
genuine but was merely an imitation.
Here, Jojo employed the fraud in order to obtain the consent of Cathy to
the contract of sale. In other words, had Cathy known that the Rolex was a
fake, she would not have bought and paid for the watch. The remedy of Cathy
then is to file for an annulment of the contract of sale on the ground of fraud
under Article 1390 (2).

2 Art. 1390(2).
20
Arts. 1163-1178 NATURE AND EFFECT OF OBLIGATIONS

(b) Fraud employed at the time of the performance of the obligation.


The employment of this kind of fraud assumes the existence of a
previously valid contract. In other words, the debtor and the
creditor first enter into a valid contract, one which possesses no
defect whatsoever. The fraud is only employed by the debtor
only at the time of the performance of the obligation under the
contract. This is the kind of fraud referred to under Article 1170.
The remedy of the creditor is not to have his contract with the
debtor annulled, but to ask for damages for fraud.
Example 21: In Example 20 above, let us assume that what Jojo offered
for sale to Cathy was really a genuine Rolex unit. Cathy, who was also an
expert on watches, examined the watch and found it to be genuine. Cathy
then buys and pays for the watch. However, on delivery date, Jojo substitutes
the watch with an imitation which is the unit he delivers to Cathy.
Here, the contract of sale between Jojo and Cathy was perfected because
the consent of Cathy was not defective at the time of its perfection. The fraud
was employed by Jojo at the time of the performance of the obligation when
he delivered the watch to Cathy. The remedy of Cathy then is to claim for
damages from Jojo under Article 1170.

Future fraud. Under Article 1171, any waiver of an action


for future fraud is void. In other words, any stipulation between the
parties exempting the debtor from liability for whatever fraud he may
commit in the future under the contract is void and of no effect for
being contrary to law and public policy.
Example 22: D agreed to deliver to C 150 bottles of DKNY womens
perfume. It was also agreed by the parties that C will not hold D liable for
damages under the contract should D later on commit fraud in the
performance of his obligation. On delivery date, D delivered the 150 bottles of
perfume to C, but half of each of the bottles were replaced with water.
In this case, D cannot evade the payment of damages by relying on the
above waiver made by C in their contract. The waiver for future fraud made
by C is void and does not bind C. Hence, C can still demand from D the
payment of damages grounded on Ds fraud in the performance of his
obligation.
21
Arts. 1163-1178 NATURE AND EFFECT OF OBLIGATIONS

Past fraud. Any waiver of an action for fraud already


committed is, however, valid and will simply be considered an act of
generosity on the part of the creditor who is the victim of the fraud.
Example 23: D agreed to deliver a 21-K white gold bracelet to C for
P100,000. On due date, D delivered only a 14-K white gold bracelet and
received the P100,000 from C. When C discovered about the fraud, he
threatened to sue D for damages. D begged C not to pursue with the suit and
promised that he would just replace the bracelet. C, out of compassion,
agreed not to file a case against D.
Here, C made a waiver of his right to hold D liable for damages for fraud
already committed by D. This waiver of an action for past fraud is valid.

Negligence (culpa)

What is negligence? Under 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. It
is the failure to observe, for the protection or interest of another
person, that degree of care, precaution and vigilance which the
circumstances justly demand, whereby such person suffers injury.3
Factors to consider in assessing negligence. As a
general rule, the party alleging negligence has the duty to prove the
existence of negligence by convincing evidence. Under Article 1173,
the following factors are considered in determining whether the
debtor is negligent or not:
(a) Nature of the obligation EXAMPLE: The debtors obligation is to
deliver perishable goods (e.g., fresh seafood and dressed chicken). The
nature of his obligation requires that the debtor must store the goods in
adequate temperature to preserve the freshness of the goods. If the debtor

3 Guillang vs. Bedana, G.R. No. 162987, May 21, 2009.


22
Arts. 1163-1178 NATURE AND EFFECT OF OBLIGATIONS

fails in this duty resulting in the spoiling of the goods, he will be considered
guilty of negligence.
(b) Circumstances of the person EXAMPLE: The obligation of the
debtor
(c) Circumstances of time EXAMPLE: The obligation of the
(d) Circumstances of the place EXAMPLE: A driver who drives at 80
kilometers per hour in the North Luzon Express Way is not guilty of
negligence because his speed is allowed in the highway. However, if a driver
drives at 50 kilometers per hour in a school zone and runs over a child, he will
be considered negligent taking into consideration the circumstances of the
place which require him to drive at a restricted speed.

What are the kinds of negligence according to the


source of the obligation?

(a) Contractual negligence (culpa contractual)


This is the negligence committed by the debtor in the
performance of an obligation under a contract. This kind of
negligence is not a source of an obligation under Article 1157. It
merely makes the debtor liable for damages under Article 1170
and 1172 because of his negligence in the fulfilment of an
obligation already existing because of a contract between the
parties.

(b) Civil negligence (culpa aquiliana or tort) This


is the negligence committed by the debtor without criminal intent
and independent of a pre-existing contract between the debtor
and the creditor. This kind of negligence is itself the source of an
obligation under Article 1157 and 1162 also known as quasi-
delict.

(c) Criminal negligence (culpa criminal) This is


negligence that results in the commission of a crime.
23
Arts. 1163-1178 NATURE AND EFFECT OF OBLIGATIONS

Illustrative Example 24: Mang Canor, a taxi driver was driving beyond the
speed limit along a school zone. It was too late when he caught sight of a sixth
grader, Paula, who was crossing the pedestrian lane. Paula was sideswiped by the
taxi. While trying to avoid Paula, the taxi slammed to a nearby acacia. As a result,
Mang Canors passenger, Benjo, sustained injuries.

Breakdown of Facts :
1. Mang Canor is definitely guilty of negligence for driving beyond the
speed limit specified by law in a school zone.
2. As a result of his negligence, Paula (a pedestrian) and Benjo (the
taxicabs passenger) sustains injuries.
Issues:
1. Who is liable for damages for the injuries sustained by Paula?
2. Who is liable for damages for the injuries sustained by Benjo?
Resolution:
1. There is no pre-existing contractual relation between Paula and the taxi
driver or the owner of the taxicab company. Hence, the negligence of the
driver gives rise to culpa aquiliana. This will be the source of the liability for
damages of the driver and operator to Paula.
2. After Benjo boarded the taxi, a contract of carriage was already
perfected between Benjo (passenger) and the owner of the taxicab company.
Under this contract, the taxicab company obliges itself to bring the passenger
safely to its destination. In this case, the taxicab company is guilty of
contravention or breach of its contract of carriage with Benjo because of the
negligence of its authorized driver, Mang Canor. Hence, Benjo can file an
action for damages for contractual negligence against the taxicab company
for the injuries sustained by him arising from the negligence of Mang Canor
which is also considered the negligence of the taxicab company.
3. The same negligent act of Mang Canor may also be the basis for filing
an action for damages based on criminal negligence. This is because Mang
Canors act of negligently driving beyond the speed limit in a school zone also
resulted in a crime known as Reckless Imprudence (Art. 365, Revised Penal
Code). Hence, aside from the action for civil negligence, Paula can also file
an action for criminal negligence against Mang Canor for Reckless
Imprudence Resulting in Physical Injuries. In the same manner, Benjo the
passenger can also file an action against Mang Canor claiming for damages
arising from criminal negligence in a similar case for Reckless Imprudence
Resulting in Physical Injuries.

Can the injured party still recover damages if he


himself is guilty of negligence?
24
Arts. 1163-1178 NATURE AND EFFECT OF OBLIGATIONS

(a) If the injured partys own negligence was the immediate and
proximate or direct cause of his injury, he cannot recover
damages. (Art. 2179)
Example 25: At 10:00 oclock in the evening, Dionisio was run over by a car
that was travelling at a moderate speed along the South Luzon Express Way
(SLEX). Dionisio suffered serious injuries and filed an action against the owner of
the car.
Question : Is the owner of the car liable for damages to Dionisio?
Answer: In this case, Dionisios act of crossing the highway in the SLEX is an act
of gross negligence because pedestrians are not allowed anywhere in the area.
No negligence can be attributed to the driver of the car who was travelling at
moderate speed, and could not have foreseen the presence of a pedestrian in the
middle of a high road at that time of the night.

(b) If the injured partys own negligence merely contributed to


his injury, but the proximate cause of the injury was still the
negligence of the party causing the damage, then the injured
party can still recover damages. (Art. 2179)
Example 26: Dina and Cesar agreed to visit a friend in Pampanga. Cesar then
invited Dina to ride in his car and instructed her to fasten her seat belt before the
trip. Dina, however, did not comply. In the NLEX, Cesar drove the car beyond the
speed limit despite the heavy rains. The car slipped and bumped into a ten-
wheeler truck travelling on the same lane. As a result, Dina sustained serious
injuries. In the investigation, it was found that Dina would have sustained only
minor injuries if she had only fastened her seat belt during the trip.
Question : Can Dina still recover damages for her injuries from Cesar?
Answer: In this case, Cesars act of overspeeding in the NLEX is an act of
negligence which was the proximate cause of the injuries sustained by Dina.
Hence, even if Dina was herself negligent in not having fastened her seat belt
during the trip, this will not prevent her from recovering damages from Cesar.

! Delay (default or mora)


(See the discussion under No. above.)

What is a fortuitous event? (Article 1174)


25
Arts. 1163-1178 NATURE AND EFFECT OF OBLIGATIONS

A fortuitous event is an event which cannot be foreseen, or,


even if foreseen, is inevitable event.

To exempt the debtor from the performance of his obligation


because of a fortuitous event, it is required that :
(a) the happening of the event must be independent of the will of
the debtor;
(b) there must be impossibility of foreseeing the event or of
avoiding it even if it was foreseen; and
(c) the happening of the event makes it impossible for the debtor
to perform his obligation in a normal manner.

Examples:
(a) Acts of God
A singer fails to sing at the concert due to typhoid fever. Illness is a
fortuitous event which will exempt the debtor from liability for damages
for non-performance of her obligation under her contract with the
producers of the concert.
D promised to deliver his car to C on June 30, 2011. D fails to deliver
the car because it sank in a flash flood during a typhoon on June 28,
2011. Ds obligation to C is now extinguished because the loss of the car
and the reason for non-delivery was due to a fortuitous event.
(b) Acts of Man
D promised to deliver his car to C on June 30, 2011. D fails to deliver
the car because it was carnapped while parked outside his home on
June 28, 2011. The car was never recovered. Ds obligation to C is now
extinguished because the loss of the car and the reason for non-delivery
was due to a fortuitous event.

What are the rules as to liability in case of a fortuitous event?

GENERAL RULE : The general rule, under Article 1174,


is that the debtor shall not be responsible for loss or damage caused
26
Arts. 1163-1178 NATURE AND EFFECT OF OBLIGATIONS

to the creditor resulting from the non-performance of his obligation


due to a fortuitous event. The effect is that the debtors obligation is
extinguished, meaning :

(i) The debtor is exempt from performance of his obligation;


AND
(ii) The debtor is not liable for any damages resulting from the
non-performance of his obligation.

EXCEPTIONS : However, the following are some


instances when the debtor may still be liable even if he is not able to
normally comply with his obligation by reason of a fortuitous event :

(A) When expressly specified by law (Art. 1174)

Under Article 1170, if the debtor is guilty of fraud, negligence, or


delay, or contravention of the tenor of his obligation, he will still be
liable for damages even if a fortuitous event prevented the normal
performance of his obligation.

Example 27: D promised to deliver his goat to C on June 30, 2011. On


July 1, 2011, C demanded for the delivery of the goat. On July 2, 2011, a
landslide in the farm of C buried the goat alive.
Question : Is the obligation of D to deliver the goat to C now extinguished?
Answer: NO. In this case, C already made a demand on D for delivery of
the goat on July 1, 2011. When the goat died due to a fortuitous event on
July 2, 2011, it can be said that D was already in default. Therefore, D will
still be liable to C for the payment of damages for his failure to deliver the
goat as agreed upon even if the non-performance was due to a fortuitous
event.

Under Article 1165, par. 3, if the debtor has promised to deliver


the same specific thing to two or more persons who do not have the
same interest over the thing, he will still be liable for damages even if
27
Arts. 1163-1178 NATURE AND EFFECT OF OBLIGATIONS

a fortuitous event would have prevented the normal performance of


the debtors obligation to the creditor.

Example 28: ln Example 27 above, let us assume that the landslide in


the farm happened on June 20, 2011 before the delivery date set in their
contract. Assume also that in addition to C, D had earlier promised to deliver
the same goat to F on June 25, 2011.
Question : Since the goat died due to a fortuitous event on June 20, 2011,
is the obligation of D to deliver the goat to C now extinguished?
Answer: NO. In this case, even if the fortuitous event did not happen on
June 20, 2011 and the goat did not perish, D would still be unable to deliver
the goat to C because it was already promised for delivery to F on an earlier
date. There was bad faith on the part of D for promising to deliver the same
specific thing to two different creditors. The result is that only one of the
creditors will be able to accept delivery of the goat. Hence, the law makes
the debtor liable for damages even if it would appear that the debtors non-
performance was due to a fortuitous event.

Under Article 1268, if the debtors obligation to deliver a specific


thing arises from his commission of a crime, he will nonetheless be
liable for damages even if the specific thing is lost by virtue of a
fortuitous event.

Example 29: D stole the goat of C. Later, D was convicted of the crime
of theft and was ordered by the court to return the goat to C. While on his
way to the farm of C to return the goat, the goat was run over by a reckless
driver of a ten-wheeler truck.
Question : Is the obligation of D to deliver the goat to C now extinguished?
Answer: NO. Under Article 1268, D is still liable for damages to C. This is
because the obligation of D in this case arises from his criminal liability for
the crime of theft.

(B) When it is declared by stipulation of the


parties (Art. 1174)
28
Arts. 1163-1178 NATURE AND EFFECT OF OBLIGATIONS

The parties may stipulate in their contract that the debtor will still
be liable for damages even if his failure to perform the obligation was
due to a fortuitous event.

Example 30: ln Example 27 above, let us assume that C and D agreed


in their contract that D will be liable for damages even if he fails to deliver the
goat due to a fortuitous event. Also assume that the landslide in the farm
happened on July 28, 2011 before the delivery date set in their contract.
Question : Is the obligation of D to deliver the goat to C now extinguished?
Answer: NO. In this case, even if the goat perished in a fortuitous event,
Ds obligation will not be extinguished. D will still be liable to C for damages
because it was specifically agreed upon in their contract.

(C) When the nature of the obligation requires


the assumption of risk (Art. 1174)

Example 31: D, a resident of Bocaue, Bulacan, is engaged in the


business of selling firecrackers. He owns a 1,200 square-meter factory-
warehouse where he manufactures and stores his stocks. On June 15, 2011,
the factory caught fire and gutted down the property of C just beside the
warehouse for which C incurred damages amounting to P450,000. In the
investigation conducted by the city of Bocaue, it was found that an explosion
immediately preceded the fire which was caused by a fragments of a falling
meteorite from space. D seeks to excuse himself from liability saying that
there was no fault or negligence on his part and the damage was caused by
a fortuitous event.
Question : Can D be made liable to C for damages?
Answer: YES. D would still be liable to C for damages because Ds
business of selling firecrackers involved the assumption of risk. Therefore, D
cannot exempt himself from liability for damages by claiming that the fire
which caused damage to Cs property was due to a fortuitous event.

(D) When the thing to be delivered is generic


(Art. 1263)
29
Arts. 1163-1178 NATURE AND EFFECT OF OBLIGATIONS

We said that in a specific real obligation, the debtors obligation is


extinguished when the specific thing subject matter of the obligation
is lost due to a fortuitous event. This is because once the specific
thing agreed to be delivered is lost, it can no longer be replaced with
another one because the debtor cannot find another thing of its kind.
However, even if the object of the obligation is a specific thing, if the
loss is due to the fault of the debtor, the debtors obligation will not be
completely extinguished. While he can longer be compelled to
deliver the specific thing because it no longer exists, the debtors
obligation will be converted into a monetary obligation for the
payment of damages to the creditor arising from debtors fault or
negligence.

Example 32: D promised to deliver to C a blue 2009 BMW car with plate
number ABC-123 on June 30, 2011. On June 25, 2011, a falling meteorite
from space crashed onto the property of D and completely burned the car to
ashes.
Question 1 : Is the obligation of D to deliver the car to C now extinguished?
Answer: YES. Since the obligation is a specific real obligation, the loss of
the specific thing by virtue of a fortuitous event completely extinguishes the
debtors obligation. He is then completely released from any kind of liability
to the creditor.
Question 2 : What if the cause of the loss of the car was not due to a falling
meteorite? What if the car was completely wrecked on June 25, 2011 after D
drove it while under the influence of alcohol? Will the obligation of D to
deliver the car to C be extinguished due to loss of the car before its delivery
date?
Answer: This time the answer is NO. Even if the obligation is to deliver a
specific thing which was completely wrecked beyond repair before its agreed
delivery of June 30, 2011, the debtor D will still be liable to C for damages for
failing to exercise due diligence.

The rule above discussed does not, however, apply in a generic


real obligation. Under Article 1263, (I)n an obligation to deliver a
generic thing, the loss or destruction of anything of the same kind
does not extinguish the obligation. This is based on the principle
that a generic thing never perishes (genus nunquam perit).
30
Arts. 1163-1178 NATURE AND EFFECT OF OBLIGATIONS

Therefore, despite the loss of a generic thing object of the obligation


(whether due to a fortuitous event, or due to the fault or negligence of
the debtor), the debtor can still be compelled by the creditor to deliver
a thing of the same kind. The creditor, however, cannot demand a
thing of superior quality; neither can the debtor deliver a thing of
inferior quality (Art. 1246).

What is usury? (Article 1175)

Usury is the contracting for or receiving something in excess of


the amount allowed by law for the loan or forbearance of money
the taking of more interest for the use of money than the law allows.4
Hence, a person becomes liable if he charges more than the
prescribed lawful rates of interest under the Usury Law.

The Usury law, however, is now legally inexistent after Central


Bank Circular No. 905 (Dec. 10, 2982, effective January 1, 1983) was
issued by the Central Bank Monetary Board repealing the maximum
rates of interest prescribed under the Usury Law. Hence, interest
can now be charged depending on the mutual agreement of the
debtor and creditor.

Note, however, that under Article 1956, in order for the creditor to
be able to recover interest on a loan or forbearance of money, the
payment of interest must be expressly stipulated between the parties
and put down in writing.

Example 33: D borrowed P100,000 from C. The parties orally agreed


that D will pay his loan one year after plus 20% interest in the amount of
P20,000, or a total of P120,000 on maturity date.
Question : How much can C collect from D on maturity date?

4 Tolentino vs. Gonzales, 50 Phil. 573.


31
Arts. 1163-1178 NATURE AND EFFECT OF OBLIGATIONS

Answer: C will have the right to collect only P100,000 - the principal amount
of the loan. D cannot be compelled to pay the P20,000 amount due as
interest because the parties agreement with respect to payment of interest in
this case was not put down in writing. The agreement was merely verbal.

Presumptions on the payment of interest and

prior instalments under Article 1176.

What is a presumption?
A presumption is an inference as to the existence of a fact
not actually known, arising from its usual connection with another
which is known.

What are the two kinds of presumptions?


(A) Conclusive presumption This kind of presumption
cannot be contradicted by evidence to the contrary.

Example 34: D failed to file his income tax return on April 15, 2001. As a
result, the BIR charged him interest and penalties. Ds defense is that he is
not aware that the due date for filing his return is on April 15 of every tax
year.
In this case, D cannot evade the payment of interest and penalties by
putting up the defense that he was not aware of the existence of the
provision in the Philippine Tax Code prescribing the deadline for the filing of
income tax returns. There is a conclusive presumption that everyone knows
the law. Hence, D will not be allowed to introduce evidence to rebut this
presumption, and prove that he did not in fact know the existence of that law.

(B) Disputable (rebuttable) presumption This kind of


presumption can be contradicted or rebutted by presenting
evidence to prove the contrary.
32
Arts. 1163-1178 NATURE AND EFFECT OF OBLIGATIONS

The presumptions outlined under Article 1176 are examples of


disputable presumptions because evidence can always be
introduced to disprove them.

(1) When the creditor issues a receipt acknowledging the debtors


payment of the principal obligation, without reserving his
(creditors) right to collect the unpaid interest, there is a
presumption that the interest has already been paid by the debtor
(Art. 1176, par. 1). This is based on the rule stated in Article 1253
that, (I)f the debt produces interest, payment of the principal
shall not be deemed to have been made until the interests have
been covered.

Example 35: D borrowed P100,000 from C payable on July 1, 2011 plus


10% interest in the amount of P10,000. On July 1, 2011, D paid C P100,000.
C then issued a receipt acknowledging the payment of the principal amount
of P100,000 without specifying whether the interest on the loan had been
paid.
In this case, it is presumed that the interest of P10,000 had already
been paid by D. However, C is allowed to present evidence to prove that the
interest on the loan had not yet been paid. If the court finds the evidence of
C in order, C will be allowed to recover the unpaid interest. However, if C
fails to present convincing evidence that D had not yet paid the interest, the
presumption in favour of D will stand, and C will not be allowed to recover.

(2) When the creditor issues a receipt acknowledging the debtors


payment of a later instalment, without reserving his (creditors)
right to collect previous instalments under the obligation, there is
a presumption that the previous installments have already been
paid by the debtor (Art. 1176, par. 2).

Example 36: Assume in Example 35 that the debt of D to C is payable in


4 equal monthly instalments as follows :
Installment due Maturity Date
P25,000 1 August 2011
33
Arts. 1163-1178 NATURE AND EFFECT OF OBLIGATIONS

P25,000 1 September 2011


P25,000 1 October 2011
P25,000 1 November 2011
D paid the first instalment but failed to pay the second instalment due on
September 1. On October 1, D tendered payment to C in the amount of
P25,000. C issued a receipt dated October 1, 2011 acknowledging receipt of
the amount of P25,000 for the third instalment. C, however, did not indicate
in the same receipt that the second instalment had not yet been paid.
In this case, there is a presumption that the first two instalments have
already been paid. But since the presumption is merely disputable, C can
still present evidence to prove that the second instalment had not yet been
paid by D. If C is able to present convincing evidence of the fact of non-
payment, C can still recover the second instalment from D.

In case the debtor fails to comply with his

obligation, what are the remedies of the creditor to


enforce the payment of his claims? (Article 1177)

(A) The creditor can file an action for specific performance to


compel the debtor to comply with his obligation;
(B) If specific performance is no longer possible, the creditor can
pursue or run after the properties (real or personal) in possession
of the debtor;
(C) If the debtor does not have sufficient properties to answer for
the creditors claims, the creditor can exercise all the rights, and
bring all the actions of the debtor, except those that are personal
to the debtor; and
(D) If the claim remains unsatisfied after having availed of the
preceding remedies, the creditor can ask the court to rescind or
impugn any act or contract which the debtor may have entered
into to defraud the creditor.

Example 37: D owes C P5M due on June 30, 2011. F owes D P2M due
on July 10, 2011. D has a house worth P4M, a car worth P1.5M, and a rolex
34
Arts. 1163-1178 NATURE AND EFFECT OF OBLIGATIONS

watch worth P500,000. On June 15, 2011, D sold his house to B for P4M.
On June 30, 2011, D failed to pay his obligation because he was already
bankrupt as of that date.
Question : What are the legal remedies available to C?
Answer:
1. An action for specific performance to compel D to pay his obligation in
this case will be unavailing considering that D is already bankrupt.
2. C can, however, ask the court to attach the remaining properties of D
the car worth P1.5M, and the rolex watch worth P500,000. After these
properties are sold at public auction to pay for the obligation, there still
remains a balance in the obligation in the sum of P3M.
3. Since C has still a P3M collectible, he can ask the court to order F to
pay his P2M obligation to C instead of paying it to D. After the court orders
the payment, only P1M of the obligation remains.
4. Since C has no other way of recovering the balance of his credit, C
can now ask the court to rescind or cancel the contract of sale between D
and B over the house on the ground that the sale was made by D to defraud
C and to evade the performance of his obligation. Once the sale is rescinded
and reverted back to the ownership of D, it may be sold at public auction
under the courts processes so that part of the proceeds may be used to
cover the balance of the obligation in the amount of P1M.

What is the rule with respect to transmissibility

of rights? (Article 1178)

General rule: All rights acquired in virtue of an obligation are


transmissible.

Example 38: D borrowed P250,000 from C payable on July 1, 2011. As


evidence of the debt, D signed a promissory note in favour of C. Before
maturity date, C endorses the note to E.
The right of C to collect the P250,000 from D on maturity date is a
transmissible right. Hence, by endorsing the note to E, C in effect transmits
or assigns his right under the promissory note to E. The effect is that on July
1, 2011, E, who is now in possession of the promissory note, will have the
right to collect the amount on the note from D.
35
Arts. 1163-1178 NATURE AND EFFECT OF OBLIGATIONS

Exceptions: Rights cannot be transmitted :

(A) When the parties stipulate against the transmission of the


right.

Example 39: In Example 38 above, D and C can expressly agree that C


cannot assign his right under the promissory note. In such case, C is the
only person given the right to collect, and C cannot transfer this right to a
third person.

(B) When the law prohibits the transmission of the right.

Example 40: Under our Election laws, the right to hold office of an
elective official is not transmitted to his heirs upon his death. The law
provides for the procedure for succession to office.