LLMM0011-E-ECCDEEL

023134

Learning Module 01

Fundamentals of
Law,
Obligations and
Contracts

Knowledge Area Code : BSEC

Course Code : ECEL0213
Learning Module Code : LM01- ECEL0213
Course Module : ECE Laws, Contracts, Ethics, Standards and Safety
 Lesson Proper

Introduction to Law
Law means any rule of action or any system of uniformity. There are two general divisions of

law: Law in the strict legal sense and law in the non-legal sense. The first division of law is

the state law, which is promulgated and enforced by the state. The second division of law

which is not promulgated and enforced by the state are divine law, natural law, moral law

and physical law.

Divine law is the law of religion and faith which concerns itself with the concept of sin and

salvation. The source of this law is God, promulgated by God to mankind. The sanction of

divine law lies in the assurance of rewards and punishments in the life to come.

Natural law is the divine inspiration in man of the sense of justice, fairness and

righteousness, not by divine revelation or formal promulgation, but by internal dictates of

reason alone. There are acts or conduct which man knows in his heart and his conscience, not

by theorizing, but by the dictates of his moral nature.

Moral law refers to the totality of the norms of good and right conduct growing out of the

collective sense of right and wrong of every community. Meaning, it is based on what the

group believes to be right or wrong. Moral law influences or shapes the state law. Moral law

is not absolute. It varies with the changing times, conditions or conviction of the people.

Physical law in general is consists of the uniformities of actions and orders of sequence which

are the physical phenomena that we sense and feel. Examples of this are law of gravity, and

law of chemical combination.

State law is the law promulgated and enforced by the state. This is also known as positive

law, municipality law, civil law, or imperative law.

State law refers to all the laws taken together. It is defined as the rule of conduct, just,

obligatory, promulgated by legitimate authority and of common observance and benefit.

CHARACTERISTICS OF STATE LAW

1
1. It is a rule of conduct – law tells us what shall be done and shall not be done

2. It is obligatory – law is considered as positive command imposing a duty to obey

and involving a sanction which forces obedience.

3. It is promulgated by legitimate authority – In Philippines, the legitimate or competent

authority is the legislature (congress)., local governor units are also empowered to enact

ordinances which have the binding force of laws.

4. It is of common observance and benefit – Law must be observed by all for the benefit of all,

SOURCES OF LAW

CONSTITUTION – It is a written instrument by which the fundamental powers of the

government are established, limited and defined.

LEGISLATION – It consists in the declaration of legal rules by a competent authority. Acts

passed by the legislature are so called enacted law or statute law. Legislation includes

ordinances enacted by local government units.

ADMINISTRATIVE OR EXECUTIVE ORDER, REGULATION and RULINGS – Issued by

administrative officials under legislative authority. They are valid only when they are not

contrary to the laws and constitution.

JUDICIAL DECISION OR JURISPRUDENCE – The decision of the courts particularly the

Supreme Court, applying or interpreting the laws or the Constitution form part of the legal

system of the Philippines. This is called the doctrine of precedent or stare decisis.

CUSTOM – It consist of those habits and practices which through long and uninterrupted

usage have become acknowledged and approved by the society as binding rules of conduct.

OTHER SOURCES – May consists of principles of justice and equity, decisions of foreign

tribunals opinion of text writers and religion.

ORGANIZATION OF COURTS

REGUALR COURTS – The Philippine judicial system consists of hierarchy of courts

resembling a pyramid with the Supreme Court at the apex. Under present legislation, the

other courts are:

Court of appeals

Regional Trial Courts in provinces and cities

Metropolitan Trial Courts

SPECIAL COURTS – There is, under Constitution, a special anti-graft court, the

Sandiganbayan. It forms part of the judicial hierarchy together with the Court of Tax

Appeals, a special tax court created by law, on the same level as the Court of Appeals.

QUASI-JUDICIAL AGENCIES – Administrative bodies under the executive branch

performing quasi-judicial functions, like the

National Labor Relations Commission

Securities and Exchange Commission

Land Transportation Franchising and Regulatory Board

Insurance Commission

And the independent Constitutional

Commissions Civil Service Commission

Commission on Election and Commission on Audit

CLASSIFICATION OF LAW

AS TO ITS PURPOSE

Substantive law or that portion of the body of law creating and defining rights and

duties which may be either public or private in character.

Adjective law or that portion of the body of law prescribing the manner or procedure

by which rights may be enforced r their violations redressed. Also called remedial law or

procedural law.
 Course Packet
LM01-ECDE
02 0314

Learning Module 01
Fundamentals of
Law,
Obligations and
Contracts
Course Packet 02

Obligations and Contracts

Knowledge Area Code : BSEC

Course Code : ECEL0213
Learning Module Code : LM01-ECEL0213
Course Packet Code : LM01-ECEL0213-02
 LM01-ECEL

0213

Lesson Proper

The term obligation is derived from the Latin word obligatio which means tying or binding.

It is a tie or bond recognized by law by virtue of which one is bound in favor of

another to render something—and this may consist in giving a thing, doing a certain act, or

not doing a certain act.

Civil Code Definition of Obligation

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

Meaning of Juridical Necessity

Obligation is a juridical necessity because in case of noncompliance, the courts of

justice may be called upon by the aggrieved party to enforce its fulfillment or, in default

thereof, the economic value that it represents.

Essential Requisites of an Obligation

1. Passive subject (called debtor or obligor) – the person who is bound to the fulfillment of the

obligation; he who has a duty;

2. Active Subject (called creditor or obligee) – the person who is entitled to demand the

fulfillment of the obligation; he who has a right;

3. Object or Prestation (subject matter of the oblgation) – the conduct required to be observed

by the debtor. It may consist in giving doing, or not doing. Without the prestation, there is

nothing to perform.

4. Juridical or legal tie (also called efficient cause) – that which binds or connects the parties to

the obligation.

Forms of Obligations

5
The form of an obligation refers to the manner in which an obligation is manifested or incurred.

It may be:

1. oral

2. in writing

3. partly oral and partly in writing

The difference between obligation, right, and wrong

1. Obligation is the act or performance which the law will enforce.

2. Right is the power which a person has under law, to demand from one another any

presentation.

3. A wrong is an act or omission of one party in violation of the legal right or rights of another.

In law, the term injury is also used to refer to the wrongful violation of the legal right of

another.

An obligation on the part of a person cannot exist without a corresponding right in

favor of another, and vice versa. A wrong or cause of action only arises at the moment a right

has been transgressed or violated.

Kinds of Obligation according to the subject matter

1. Real Obligation (obligation to give) is that in which the subject matter is a thing which the

obligor must deliver to the obligee.

2. Personal Obligation (obligation to do or not to do) is that in which the subject matter is an act

to be done or not to be done. There are two kinds:

a. Positive personal obligation or obligation to do or to render service.

b. Negative personal obligation is obligation not to do or not to give.

Sources of Obligations
1. Law – when they are imposed by law itself.

Legal Obligations are obligations 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.

2. Contracts – when they arise from the stipulation of the parties

A contract is a meeting of minds between two parties whereby one binds himself, with respect

to the other, to give something or to render some service.

Contractual Obligations are obligations arising from contracts or voluntary agreements. It is

presumed that the contracts entered into are valid and enforceable.

3. Quasi-contracts – when they arise from lawful, voluntary and unilateral acts which are

enforceable to the end that no one shall be unjustly enriched or benefited at the expense of

another.

A quasi-contract is that juridical relation resulting from lawful, voluntary and unilateral acts

by virtue of which the parties become bound to each other to the end that no one will be

unjustly enriched or benefited at the expense of another.

Kinds of Quasi-contracts:

a. Negotiorum gestio is the voluntary management of the property or affairs of another

without the knowledge or consent of the latter.

b. Solutio indebiti is the juridical relation which is created when something is received

when there is no right to demand it and it was unduly delivered through mistake.

The requisites are:

Quasi-contractual obligations are obligations that arise from quasi-contracts or contracts implied

by law.

4. Crimes or acts or omissions punished by law – when they arise from civil liability which is the

consequence of a criminal offense

Oftentimes the commission of a crime causes not only moral evil but also material

damage. From this principle, the rule has been established that every person criminally liable

for an act or omission is also civilly liable for damages.

In crimes however, which cause no material damage, there is no civil liability to be

enforced. But a person not criminally responsible may still be liable civilly, such as failure to

pay a contractual debt; causing damage to another’s property without malicious or criminal

intent or negligence, etc.

The extent of the civil liability for damages arising from crimes is governed by the

Revised Penal Code and the Civil Code. This civil liability includes:

a. Restitution

b. Reparation for the damages caused

c. Indemnification for consequential damages

5. Quasi-delicts or torts – when they arise from damage caused to another through an act or

omission, there being fault or negligence, but no contractual relation exists between the

parties

A quasi-delict is an act or omission by a person (tortfeasor) which causes damage to

another in his person, property, or rights giving rise to an obligation to pay for the damage

done, there being fault or negligence but there is no pre-existing contractual relation between

the parties.

Before a person can be held liable for quasi-delict, the following requisites must be

present:
a. There
must be an
act or
omission;
 b. There must be fault or negligence;

c. There must be damage caused;

d. There must be a direct relation or connection of cause and effect between the act or

omission and the damage; and

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

NATURE AND EFFECT OF OBLIGATIONS

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.

“Something” in the above provision refers to an obligation involving a specific or determinate

thing.

A specific or determinate thing is a particularly designated or physically segregated thing from

others of the same class.

A generic or indeterminate thing refers only to a class or genus to which it pertains and cannot

be pointed out with particularity.

Duties of the debtor in an obligation to give a determinate thing

1. Preserve the thing. – in obligations to give, the obligor has the incidental duty to take care of

the thing due with the diligence of a good father of a family pending delivery.

2. Deliver the fruits of the thing. – discussed under Article 1164

3. Deliver the accessions and accessories. – discussed under Article 1166

4. Deliver the thing itself.

5. Answer for damages in case of non-fulfillment or breach. – discussed under Article 1170

Duties of the debtor in an obligation to give a generic thing

1. To deliver a thing which is of the quality intended by the parties taking into consideration

the purpose of the obligation and other circumstances

2. To be liable for the 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.

Kinds of fruits mentioned by the law:

1. Natural fruits are the spontaneous products of the soil, and the young and other products of

animals.

2. Industrial fruits are those produced by lands of any kind through cultivation or labor.

3. Civil fruits are those derived by virtue of a juridical relation.

The creditor is entitled to the fruits of the thing to be delivered from the time the obligation to

make delivery arises. The intention of the law is to protect the interest of the obligee should

the obligor commit delay, purposely or otherwise, in the fulfillment of his obligation.

Generally, the obligation to deliver the thing due and, consequently, the fruits thereof, if any

arises from the time of the “perfection of the contract”.

Meaning of Personal right and Real right:

1. Personal right is the right or power of a person (creditor) to demand from the another

(debtor), as a definite passive subject, the fulfillment of the latter’s obligation to give, to do,

or not to do.
2. Real right is the right or interest of a person over a specific thing (like ownership, possession,

mortgage), without a definite passive subject against whom the right may be personally

enforced.

Ownership and other real rights over property are acquired and transmitted in consequence

of certain contracts by tradition (Article 712) or delivery.

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

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

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

the expense of the debtor.

If the obligor delays, or has promised to deliver the same thing to two or more persons who

do not have the same interest, he shall be responsible for fortuitous event until he has effected

the delivery.

Remedies of creditor in real obligation:

1. In a specific real obligation (obligation to deliver a determinate thing), the creditor may

exercise the following remedies or rights in case the debtor fails to comply with his

obligation:

a. demand specific performance or fulfillment (if it is still possible) of the obligation with a

right to indemnity for damages: or

b. demand rescission or cancellation (in certain cases) of the obligation also with a right to

recover damages (Article 1170.); or

c. demand payment of damages only, where it is the only feasible remedy.

In an obligation to deliver a determinate thing, the very thing itself must be delivered (Article

1244). Consequently, only the debtor can comply with the obligation. This is the reason why
the creditor is granted the right to compel the debtor to make the delivery (Article 1165, par.

1.)

It should be clear, however, that the law does not mean that the creditor can use force or

violence upon the debtor. The creditor must bring the matter to court and the court will be

the one to order the delivery.

2. A generic real obligation (obligation to deliver a generic thing), on the other hand, can be

performed by a third person since the object is expressed only according to its family or

genus. It is, thus, not necessary for the creditor to compel the debtor to make the delivery,

although he may ask for performance of the obligation. In any case, the creditor has the

right to recover damages under Article 1170 in case of breach or violation of the obligation.

The manner of compliance with an obligation to deliver a generic thing is governed by

Article 1246.

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.

Meaning of accessions and accessories:

1. Accessions are the fruits of a thing or additions to or improvements upon a thing (the

principal).

2. Accessories are things joined to or included with the principal thing for the latter’s

embellishment, better use, or completion.

Note: While accessions are not necessary to the principal thing, the accessory and the

principal thing must go together.

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.

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.

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.

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.

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 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.

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 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:

(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 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:

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

(2) When the law so provides

(3) When time is of the essence

(4) When demand would be useless

(5) When there is performance by a party in reciprocal obligations

Article 1170. Those who in the performance of their obligations are guilty of fraud,

negligence, or delay and those who in any manner contravene the tenor thereof, are liable

for damages.

Grounds for liability:

(1) Fraud (deceit or dolo) – It is the deliberate or intentional evasion of the normal fulfillment of

an obligation.

(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.

(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 obligation. The contravention must not be due to a fortuitous event or

force majeure (Art. 1174).

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.

(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

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.

Article 1172. Responsibility arising from negligence in the performance of every kind of

obligation is also demandable, but such liability may be regulated by the courts, according

to 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.

(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.
(3) Criminal negligence (culpa criminal) or negligence resulting in the commission of a crime.

Article 1173. The fault or negligence of the obligor consists in the omission of that

diligence which is required by the nature of the obligation and corresponds with the

circumstances of the person, of the time and of the place. When negligence shows bad

faith, the provisions of articles 1171 and 2201, paragraph 2 shall apply.

If the law or contract does not state the diligence which is to be observed in the performance,

that which is expected of a good father of a family shall be required.

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

(2) Circumstances of the person.

(3) Circumstances of time

(4) Circumstances of the place

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

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.

(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.

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,

pestilence, 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

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.

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.

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:

(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);

(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.

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.

Article 1178. Subject to the laws, all rights acquired in virtue of an obligation are

transmissible, if there has been no stipulation to the contrary.

Transmissibility of rights
All rights acquired in virtue of an obligation are generally transmissible. The exceptions to this

rule are the following:

(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.

PURE AND CONDITIONAL OBLIGATIONS

Classification of Obligations:

(1) Primary classification of obligations under the Civil Code

a. Pure and conditional obligations

b. Obligations with a period

c. Alternative and facultative obligations

d. Joint and solidary obligations

 e. Divisible and indivisible obligations

f. Obligations with a penal clause

(2) Secondary classification of obligations under the Civil Code

a. Unilateral and bilateral obligations

b. Real and personal obligations

c. Determinate and generic obligations

d. Civil and natural Obligations

e. Legal, conventional, and penal obligations

Article 1179. Every obligation whose performance does not depend upon future or

uncertain event, or upon a past event unknown to the parties, is demandable at once.

Every obligation which contain a resolutory condition shall also be demandable, without

prejudice to the effects of the happening of the event.

Meaning of pure obligation:

A pure obligation is one which is not subject to any condition and specific date is mentioned for

its fulfillment and is, therefore, immediately demandable.

Meaning of conditional obligation:

A conditional obligation is one whose consequences are subject in one way or another to the

fulfillment of a condition.

Meaning of condition:

Condition is a future and uncertain event, upon the happening of which, the effectivity or

extinguishment of an obligation (or right) subject to it depends.

Two principal kinds of condition:

(1) Suspensive condition (condition precedent or condition antecedent) or one the fulfillment of

which will give rise to an obligation (or right). In other words, the demandability of the

obligation is suspended until the happening of the uncertain event which constitutes the

condition

(2) Resolutory condition (condition subsequent) or one the fulfillment of which will extinguish an

obligation (or right) already existing.

Article 1180. When the debtor binds himself to pay when his means permit him to do so,

the obligation shall be deemed to be one with a period, subject to the provisions of article

1179.

A period is a future and certain event upon the arrival of which the obligation subject to it

either arises or is extinguished.

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

extinguishment or loss of those already acquired, shall depend upon the happening of the

event which constitutes the condition.

(1) Acquisition of rights – In obligations subject to a suspensive, the acquisition of rights by the

creditor depends upon the happening of the event which constitutes the condition.

(2) Loss of rights already acquired – In obligations subject to a resolutory condition, the

happening of the event which constitutes the condition produces the extinguishment or

loss of rights already acquired.

Article 1182. When the fulfillment of the condition depends upon the sole will of the

debtor, the conditional obligation shall be void. If it depends upon chance or upon the will

of a third person, the obligation shall take effect in conformity with the provisions of this

Code.

Classification of conditions:
(1) As to effect:

a. Suspensive – the happening of which gives rise to the obligation

b. Resolutory – the happening of which extinguishes the obligation

(2) As to form:

a. Expressed – the condition is clearly stated

b. Implied – the condition is merely inferred

(3) As to possibility:

a. Possible – the condition is capable of fulfillment, legally and physically

b. Impossible – the condition is not capable of fulfillment, legally or physically

(4) As to cause or origin:

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

b. Casual – the condition depends upon chance or upon the will of a third person;

c. Mixed – the condition depends partly upon chance and partly upon the will of a

third person

(5) As to mode:

a. Positive – the condition consists in the performance of an act

b. Negative – the condition consists in the omission of an act

(6) As to numbers:

a. Conjunctive – there are several conditions and all must be fulfilled

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

fulfilled

(7) As to divisibility:

a. Divisible – the condition is susceptible of partial performance

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

Examples:

(1) I will pay you if I want.

(2) I will pay you after I receive a loan from a

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

owes.
(4)I will pay you upon the sale of the house in which I live.

Article 1183. Impossible conditions, those contrary to good customs or public policy and

those prohibited by law shall annul the obligation which depends upon them. If the

obligation is divisible, that part thereof which is not affected by the impossible or

unlawful condition shall be valid.

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

upon.

Article 1183 refers to suspensive conditions. It applies only to cases where the

impossibility already existed at the time the obligation was constituted. If the

impossibility arises after the creation of the obligation, Article 1266 governs.

Two kinds of impossible conditions:

(1) Physically impossible conditions – when they, in nature of things, cannot exist or cannot be

done

(2) Legally Impossible conditions – when they are contrary to law, morals, good customs, public

order, or public policy

Article 1184. The condition that some event happen at a determinate time shall extinguish

the obligation as soon as the time expires or if it has become indubitable that the event

will not take place.

The above article refers to positive (suspensive) condition---the happening of an event at a

determinate time.

Article 1185. The condition that some event will not happen at a determinate time shall

render the obligation effective from the moment the time indicated has elapsed, or if it has

become evident that the event cannot occur.

The above provision speaks of a negative condition---that an event will not happen at a

determinate time.

Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily

prevents its fulfillment.

Three requisites for the application of this article:

(1) The condition is supensive;

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

(3) He acts voluntarily.

The law does not require that the obligor acts with malice or fraud as long as his purpose is to

prevent the fulfillment of the condition. He should not be allowed to profit from his own fault

or bad faith.

Article 1187. The effects of a conditional obligation to give, once the condition has been

fulfilled, shall retroact to the day of the constitution of the obligation. Nevertheless, when

the obligation imposes reciprocal prestations upon the parties, the fruits and interests

during the pendency of the condition shall be deemed to have been mutually

compensated. If the obligation is unilateral, the debtor shall appropriate the fruits and

interest received, unless from the nature and circumstances of the obligation it should be

inferred that the intention of the person constituting the same was different.

In obligations to do and no to do, the courts shall determine, in each case, the retroactive

effect of the condition that has been complied with.

(1) In obligations to give

(2) In obligations to do or not to do

Article 1188. The creditor may, before the fulfillment of the condition, bring the

appropriate actions for the preservation of his right.

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

suspensive condition.

Article 1189. When the conditions have been imposed with the intention of suspending the

efficacy of an obligation to give, the following rules shall be observed in case of the

improvement, loss or deterioration of the thing during the pendency of the condition:

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

(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; It is

understood that the thing is lost when it perishes, or goes out of commerce, or disappears

in such a way that its existence is unknown or it cannot be recovered;

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

by the creditor;

(4) If it deteriorates through the fault of the debtor, the creditor may choose between the

rescission of the obligation and its fulfillment, with indemnity for damages in either case;

(5) If the thing is improved by its nature, or by time, the improvement shall inure to the

benefit of the creditor;

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

granted to the usufructuary.

Requisites for the application of Article 1189:

(1) The obligation is a real obligation

(2) The object is a specific or determinate thing;

(3) The obligation is subject to suspensive conditions;

(4) The condition is fulfilled; and

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

condition.

Kinds of loss in civil law:

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

(2) Legal loss – when a thing goes out of commerce (e.g. a product becomes obsolete) or when

a thing heretofore legal becomes illegal (e.g., during the Japanese occupation, American

dollars had become impossible since their use was forbidden by the belligerent

occupant); or
(3) Civil loss – when a thing disappears in such a way that its existence is unknown (e.g., a

particular dog has been missing for some time); or even if known, it cannot be recovered,

whether as a matter of fact (e.g., a particular ring is dropped from a ship at sea) or of law

(e.g., a property is lost through prescription).

Article 1190. When the conditions have for their purpose the extinguishment of an

obligation to give, the parties, upon the fulfillment of said conditions, shall return to each

other what they have received.

In case of loss, deterioration or improvement of the thing, the provisions which, with respect

to the debtor, are laid down in the preceding article shall be applied to the party who is

bound to return.

As for obligations to do and not to do, the provisions of the second paragraph of Article 1187

shall be observed as regards the effect of the extinguishment of the obligation.

Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of

the obligors should not comply with what is incumbent.

The injured party may choose between the fulfillment and the rescission of the obligation,

with the payment of damages in either case. He may also seek rescission, even after he has

chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing

of a period.

This is understood to be without prejudice to the rights of third persons who have acquired

the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.

Kinds of obligation according to the person obliged:

(1) Unilateral – when only one party is obliged to comply with a prestation.
(2) Bilateral – when both parties are mutually bound to each other. Both parties are debtors

and creditors of the other.

(a) Reciprocal obligations are those which arise from the same cause and in which each

party is a debtor and creditor of the other, such that the performance of one is designed to

be the equivalent and the condition for the performance of the other.

Article 1192. In case both parties have committed a breach of the obligation, the liability of

the first infractor shall be equitably tempered by the courts. If it cannot be determined

which of the parties first violated the contract, the same shall be deemed extinguished, and

each shall bear his own damages.