COURSE DESCRIPTION: LAW ON OBLIGATIONS AND CONTRACTS

SUBJECT CODE: BA3

UNIT 1 MODULE: GENERAL PRINCIPLES OF OBLIGATION AND THE SOURCES OF

OBLIGATION

LESSON 1

WHAT IS AN OBLIGATION?

ARTICLE 1156 of the New Civil Code (NCC) of the Philippines states that “An obligation is a juridical
necessity, to give, to do, or not to do.

 It is a juridical relation or a juridical necessity whereby a person (creditor) may demand

from another (debtor) the observance of a determinative conduct (giving, doing or not
doing) and in case of breach may demand satisfaction from the assets of the latter (Makati
Stock Exchange versus Campos, G.R. 138814, April 16, 2009)

 It is a juridical necessity because in case of non-compliance, 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.

NOTA BENE:

 ART. 1156 refers only to civil obligations which are enforceable in court when breached and
it does not cover natural obligations (Article 1423 – 1430, NCC) because the latter are
obligations that cannot be enforce in court on equity and natural law and not in positive law
(Pineda, 2000 edition)

 When there is a right there is a corresponding obligation. Right is the active aspect while
obligation is the passive aspect. Thus, the concepts of credit and debt are two distinct
aspects of unitary concept of obligation (Pineda, 2000)

GENERAL RULE:

The law does not require any form in obligation arising from contracts for their validity or binding
force (Art. 1356)

EXCEPTIONS:

1. When the form is essential for the validity of the contract as required by law (Article
1346);
 2. When the contract I unenforceable unless it is in a certain form such as those under the
Statute of Frauds as formulated in Art. 1403.

 Obligations arising from other sources (Article 1157) do not have any form at all (De Leon,
2010)

WHAT ARE THE ELEMENTS OF AN OBLIGATION?

The following are the elements of an obligation:

1. Juridical tie or vinculum juris or efficient cause – the efficient cause by virtue of which the
debtor becomes bound to perform the prestation (Pineda, 2000)

NOTA BENE: The vinculum juris is established by:

a. Law;
b. Bilateral Acts (e.g. Sale, lease, barter);
c. Unilateral acts (e.g. Donation) (Tolentino, 2000)

2. Active Subject (creditor or obligee) – The person demanding the performance of the
obligation. It is to be in whose favour the obligation is constituted, established or created.
(Pineda, 2000)

3. Passive subject (debtor or obligor) - The person bound to perform the prestation to give, to
do, or not to do (Pineda, 2000)

4. Object or prestation – The subject matter of the obligation which has a corresponding
economic value or susceptible of pecuniary substitution in case of non-compliance. It is a
conduct that may consist of giving, doing, or not doing something (Pineda, 2000)

NOTA BENE: In order to be valid, the object or prestation must be:

1. Licit or lawful;
2. Possible, physically or judicially;
3. Determinate or determinable; and
4. Pecuniary value or possible equivalent in money

 In the absence of any of the first three requirement makes the object void (invalid).

 In the Book of Tolentino, some writers add a fifth requirement: the form in which the
obligation is manifested. This element However, cannot be considered as essential. There is
no particular form required to make obligations binding, except in certain rare cases.

DIFFERENT KINDS OF PRESTATIONS

NATURE OBLIGATION TO GIVE OBLIGATION TO DO OBLIGATION NOT TO
DO
 As to what the Consist in the delivery Covers rendering of Refraining from doing
obligation consist of a thing to the works or services certain acts
creditor whether physical or
intellectual

Examples Sale, Deposit, Pledge, Contract for Negatiive Easements,

donations, Antichresis professional services restraining orders,
such as painting, Right of way (Pineda,
modeling, singing 2000)
among others.

LESSON 2

WHAT ARE THE DIFFERENT CLASSES OF OBLIGATIONS?

From the viewpoint of:

1. Creation

a. Legal - imposed by law (Art. 1158)

b. Conventional – established by the agreement of parties (e.g. Contracts)

2. Nature

a. Personal - to do or not to do
b. Real - To give

3. Object

a. Determinate/Specific – particularly designated or physically segregated from all other

of the same class;
b. Generic – designated merely by its class or genus;
c. Limited Generic – generic objects confined to a particular class or source
(Tolentino, 2002) (e.g. An obligation to deliver one of my cars in my garage)

4. Performance

a. Positive – to give; to do;

b. Negative – not to do (e.g. An obligation not to block the right of way)

5. Person obliged

a. Unilateral – only one party is bound

b. Bilateral – both parties are bound
 TAKE NOTE: A bilateral obligation may be reciprocal or non-reciprocal. Reciprocal
obligations are those which arise from the same cause wherein each party is a debtor or a
creditor of the other such that the performance of one is conditioned upon the simultaneous
fulfillment of the other

6. Existence of burden or condition

a. Pure – Not burdened by any condition or term. It is immediately demandable (Article

1179)
b. Conditional – subject to a condition which may be:
a. Suspensive – happening of which shall give rise to an obligation
b. Resolutory – happening of which terminates the obligation

7. Character of responsibility or liability

a. Joint – each debtor is liable only for a part or a whole liability and to each creditor shall
belong only a part of the correlative rights (Art. 1207 NCC)
b. Solidary – debtor is answerable to whole obligation without prejudice of his right to
collect from his co-debtors the latter’s share in the obligation (Art. 1207 NCC)

8. Susceptibility of Partial Fulfillment

a. Divisible – obligation is susceptible of partial performance (NCC. 1223; and 1224);

b. Indivisible – obligation is not susceptible of partial performance (NCC. 1225).

9. Right to choose and substitution

a. Alternative – obligor may choose to completely perform one out of the several
prestations (NCC. 1199);
b. Facultative – only one prestation has been agreed upon, but the obligor may render one
in substitution of the first one (NCC. 1206).

10. Imposition of penalty

a. Simple – there is no penalty imposed for violation of the terms thereof (NCC. 1226);
b. Obligations with a penal clause – obligation which imposes a penalty for violation of
the terms there of (NCC. 1226; Pineda, 2000).

11. Sanction
a. Civil – gives a right of action to compel their performance.
b. Natural– not based on positive law, but on equity and natural law; does not
grant a right of action to enforce their performance, but after voluntary fulfillment
by the obligor, they authorize retention of what has been delivered rendered by
reason thereof.
 Moral – cannot be enforced by action but are binding on the party who makes it in
conscience and natural law.

LESSON 3

SOURCES OF OBLIGATIONS
- Law, Contracts, Quasi-Contracts, Crime, Quasi-Delits
1. Law;
2. Contracts;
3. Quasi-contracts;
4. Delict;
5. Quasi-delict.
This enumeration is exclusive. No obligation exists if its source is not one of those enumerated in
Art. 1157 of the NCC (Navales v. Rias, G.R. No. L3489, September 7, 1907).

Note: Actually, there are only two sources (i.e., law and contracts) because obligations arising
from quasi-contracts, delicts, and quasi-delicts are imposed by law (Leung Ben v. O’Brien, 38 Phil.
182).

Time of perfection
GR:
1. Law – from the time designated by the law creating or regulating them;
2. Contracts –from the time of the perfection of the contract.
e.g. Meeting of the minds

XPNs:
a. When the parties made a stipulation on the right of the creditor to the fruits of the thing;
b. When the obligation is subject to a suspensive condition, from which it arises upon
fulfillment of the condition;
c. When the obligation is with a period; there is already an existing obligation, but it is
only demandable when the period expires or becomes due

3. Quasi Contracts, delicts, quasi-delicts – from the time designated by the law creating
or regulating them.
 OBLIGATION EX LEGE

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

NOTE: If there is conflict between the NCC and a special law, the latter prevails unless the
contrary has been expressly stipulated in the NCC (NCC, Art. 18; Paras, 2008).

Characteristics of a legal obligation

1. Does not need the consent of the obligor;

2. Must be expressly set forth in the law creating it and not merely presumed; and
3. In order that the law may be a source of obligation, it should be the creator of the
obligation itself (NCC, Art. 1158).
Determining whether an obligation arises from law or from some other source

1. Arises from law if it establishes obligation;

2. Arises from the act itself if the law merely recognizes the existence of an obligation
generated by an act (Manresa).
e.g.
1. According to Art. 2014 of the NCC, a loser in a game of chance may recover his loss from
the winner, with legal interest from the time he paid the amount lost (Leung Ben v.
O’Brien, G.R. No. L-13602, April 6, 1918);
2. The obligation of the spouses to support each other;
3. The obligation of the employers under the Worker’s Compensation Act;
4. The obligations of the owners of the dominant and servient estates in legal easements
and others scattered in the NCC and in special laws (Jurado, 2009);
5. The obligation to pay taxes (Rabuya, 2017).

OBLIGATION EX CONTRACTU

Requisites of a contractual obligation

1. It must contain all the essential requisites of a contract (NCC, Art. 1318); and
 2. It must not be contrary to law, morals, good customs, public order, and public policy (NCC,
Art. 1306).
Rules governing the obligations arising from contract
GR:
These obligations arising from contracts shall be governed primarily by the stipulations, clauses,
terms, and conditions of the parties’ agreements.

XPN:
Contracts with prestations that are unconscionable or unreasonable (Pineda, 2009).

Binding force of obligation ex contractu

Obligations arising from contracts have the force of law between the parties and should be
complied with in good faith (NCC, Art. 1159). This is known as the “principle of obligatory force of
contracts” (Rabuya, 2017).

Good faith is performance in accordance with the stipulation, clauses, terms, and conditions of the
contract (Pineda, 2000).

GR:
Neither party may unilaterally evade his obligation in the contract.

XPNs:
Unilateral evasion is allowed when the:
1. Contract authorizes such evasion; or
2. Other party assents thereto.

Case study
Q: FBDC entered into a Trade Contract with MS Maxco Company, Inc. (MS Maxco) for the execution
of the structural and partial architectural works of one of its condominium projects. The Trade
Contract likewise provided that MS Maxco is prohibited from assigning or transferrings any of its
rights, obligations, or liabilities under the said Contract without the written consent of FBDC. FBDC
received a letter from the counsel of Fong informing it that MS Maxco had already assigned its
receivables from FBDC to him. Despite Fong’s repeated requests, FBDC refused to deliver to Fong
the amount assigned by MS Maxco. Is FBDC bound by the assignment between MS Maxco and Fong?
A: No. Obligations arising from contracts have the force of law between the contracting parties and
should be complied with in good faith. The Court finds that MS Maxco, as the Trade Contractor,
cannot assign or transfer any of its rights, obligations, or liabilities under the Trade Contract
without the written consent of FBDC (Fort Bonifacio Development Corporation vs. Valentin L. Fong,
G.R. No. 209370, March 25, 2015).

OBLIGATION EX QUASI – CONTRACTU

Quasi-contract

A juridical relation arising from lawful, voluntary, and unilateral acts based on the principle that no
one shall be unjustly enriched or benefited at the expense of another (NCC, Art. 2142).

Distinguished from “implied contracts”

An implied contract, in the proper sense, is a contract which arises when the intention of the parties
is not expressed, but an agreement in fact, creating an obligation, is implied or presumed from their
acts, or where there are circumstances which show a mutual intent to contract. An implied contract
requires consent while a quasi-contract, being a unilateral contract, does not. The basis of an
implied contract is the will of the parties while the basis of a quasi-contract is law, to the end that
there be no unjust enrichment (Rabuya, 2017).

Characteristics of a quasi-contract (LUV)

4. It must be Lawful;
5. It must be Unilateral; and
6. It must be Voluntary (Pineda, 2000).

Presumptive consent

Since a quasi-contract is a unilateral contract created by the sole act(s) of the gestor, there is no
express consent given by the other party. The consent needed in a contract is provided by law
through presumption (Pineda, 2000).
Principal forms of quasi-contracts

1. Negotiorum gestio (inofficious manager) – Arises when a person voluntarily takes charge of
the management of the business or property of another without any power from the latter
(NCC, Art. 2144);
2. Solutio indebiti (unjust enrichment) – Takes place when a person received something from
another without any right to demand for it, and the thing was unduly delivered to him
through mistake (NCC, Art. 2154).

NOTE: The delivery must not be through liberality or some other cause.

Solutio indebiti (SI) v. Accion in rem verso (AIRV)

1. Mistake is an essential element in SI which is not necessary in AIRV;
2. An AIRV is merely an auxilliary action, available only when there is no other remedy on
contract quasi-contract, crime or quasi-delict (Rabuya, 2017).
Rule in case of excess of payment of interest
If the borrower pays interest when there has been no stipulation therefor, the provisions of the
Code concerning solutio indebiti, or natural obligations, shall be applied, as the case may be.

If the payment of interest is made out of mistake, solutio indebiti applies; hence, the amount must
be returned to the debtor. If the payment was made after the obligation to pay interest has already
prescribed, natural obligation applies; hence, the creditor is authorized to retain the amount paid.
Contract v. Quasi-contract

CONTRACT QUASI-CONTRACT
There is a meeting of the minds or consent; There is no consent, but the same is supplied by
the parties must have deliberately entered fiction of law; to prevent injustice
into a formal agreement

*For further discussion on quasi contracts, please see the discussion of quasi contract on Credit
Transactions.
 OBLIGATIONS EX DELICTO
Delict

An act or omission punishable under the law.

Basis

GR:
Art. 100 of the RPC provides: “Every person criminally liable for a felony is also civilly liable.”

XPNs:
Crimes of treason, rebellion, espionage, contempt and others wherein no civil liability arises on the
part of the offender either because there are no damages to be compensated or there is no private
person injured by the crime (Reyes, 2008).

Implied institution of the civil action in a criminal case

GR:
When a criminal action is instituted, the civil action for the recovery of the civil liability arising from
the offense charged shall be deemed instituted with the criminal action (Sec. 1, Rule 111, Rules of
Court).
XPNs:
When the offended party:
1. Waives the civil action;
2. Reserves the right to institute it separately; and
3. Institutes the civil action prior to the criminal action (Rule 111, Sec. 1, Rules of Court).
4.
Scope of civil liability (IRR)

1. Restitution;
2. Reparation for damage caused; and
3. Indemnity for consequential damages (Art. 104, RPC).
Acquittal in criminal case

GR:
The acquittal of the accused in criminal case on the ground of reasonable doubt does not preclude
the filing of a subsequent civil action and only preponderance of evidence is required to prove the
latter.

XPNs:
When the acquittal is on the basis that:
1. The accused did not commit the crime charged; or
2. There is a declaration in the decision of acquittal that no negligence can be attributed
to the accused and that the fact from which the civil action might arise did not exist
(NCC, Art. 29).
Q: Petitioner was charged with estafa. Respondent averred that on February 20, 1996, she
entrusted merchandise worth P35,300.00 to petitioner as evidenced by an acknowledgment
receipt. However, petitioner was only able to remit the amount of P3,300.00 and thereafter, failed
to make further remittances and ignored respondent's demands to remit the proceeds or return the
goods. As a defense, petitioner admitted having previous business dealings with respondent not as
an agent but as a client who used to buy purchase order cards (POCs) and gift checks (GCs) from
respondent on installment basis. The RTC acquitted petitioner of the charge of estafa but held her
civilly liable to pay respondent the amount of P32,000.00, with interest from the filing of the
Information on March 11, 1999 until fully paid, and to pay the costs. The RTC adjudged petitioner
civilly liable "having admitted that she received the [GCs] in the amount of P32,000.00." In this
relation, it further considered the relationship of respondent and petitioner as in the nature of a
principal-agent which renders the agent civilly liable only for damages which the principal may
suffer due to the non-performance of his duty under the agency. CA upheld petitioner's civil
liability. Should the petitioner be held civilly liable? If yes, what is the rate of interest?

A: Yes. Respondent was able to prove by preponderance of evidence the fact of the transaction, as
well as petitioner's failure to remit the proceeds of the sale of the merchandise worth P32,000.00,
or to return the same to respondent in case such merchandise were not sold. This was established
through the presentation of the acknowledgment receipt which, as the document's name connotes,
shows that petitioner acknowledged receipt from respondent of the listed items with their
corresponding values, and assumed the obligation to return the same on March 20, 1996 if not sold

With the amendment introduced by the Bangko Sentral ng Pilipinas Monetary Board in BSP-MB
Circular No. 799, series of 2013, there is a need to partially modify the same in that the interest
accruing from the time of the finality of this Decision should be imposed at the lower rate of six
percent (6%) p.a., and not twelve percent (12%) p.a. as imposed by the CA. (Dolores Diaz v. People,
GR No. 208113, December 2, 2015)

OBLIGATIONS EX QUASI – DELICTO

Quasi-delict or tort

An act or omission arising from fault or negligence which causes damage to another, there being no
pre-existing contractual relations between the parties (NCC, Art. 2176).

NOTE: A single act or omission may give rise to two or more causes of action. Thus, an act or
omission may give rise to an action based on delict, quasi-delict, or contract.

In negligence cases, prior conduct should be examined, that is, conduct prior to the injury that
resulted, or in proper case, the aggravation thereof.

Elements of a quasi-delict

1. Negligent or wrongful act or omission;

2. Damage or injury caused to another;
3. Causal relation between such negligence or fault and damage; and
4. No pre-existing contractual relationship between the parties (NCC, Art. 2176).

Instances when Art. 2176 is inapplicable

a) When there was a pre-existing contractual relation because the breach of contract is the
source of the obligation (Robles v. Yap Wing, 41 SCRA 267, G.R. No. L-20442, October 4,
1971);

NOTE: However, if the act that breaches the contract is tortuous, the pre-existing
contractual relation will not bar the recovery of damages (Singson v. BPI, G.R. No. L-24837,
June 27, 1968);

b) When the fault or negligence is punished by law as a crime, Art. 100 of RPC shall be
applicable;
 c) If the action for quasi-delict is instituted after four years, it is deemed prescribed (Afialda v.
Hisole, G.R. No. L-2075, November 29, 1949);

d) When the injury suffered by a person is the result of a fortuitous event without human
intervention;

e) If there is no damage or injury caused to another (Walter A. Smith & Co., Inc. v. Cadwallader
Gibson Lumber Company, G.R. No. L-32640, December 29, 1930).

Delict v. Quasi-delict

BASIS DELICT QUASI-DELICT

Presence of criminal or
As to the kind of intent
malicious intent or criminal Only negligence
present
negligence.

Presence of criminal or
As to the whether private or Concerned with private
malicious intent or criminal
public interest is concerned interest.
negligence

Generally, the act or omission

The act or omission gives rise
As to the kind of liability arises gives rise to two liabilities:
only to a civil liability.
criminal and civil liability.

As to availability of a Criminal liability is not subject The civil liability can be

compromise to a compromise compromised.

As to the quantum of evidence Guilt must be proved beyond Guilt may be proved by
is required reasonable doubt. preponderance of evidence.

NOTE: Inasmuch as civil liability co-exists with criminal responsibility in negligence cases, the
offended party has the option between an action for enforcement of civil liability based on culpa
criminal under Art. 100 of the RPC and an action for recovery of damages based on culpa aquiliana
under NCC, Art. 2177.
MODULE 2
COURSE DESCRIPTION: LAW ON OBLIGATIONS AND CONTRACTS
SUBJECT CODE: BA3
SECTION: FM 2-6

UNIT 2 MODULE: NATURE AND EFFECTS OF OBLIGATION AND BREACHES OF

OBLIGATIONS

LESSON 1
NATURE AND EFFECTS OF OBLIGATIONS

Types of real obligations

1. Determinate/specific – Particularly designated or physically segregated from all others

of the same class;
2. Indeterminate/Generic – Is designated merely by its class or genus;
3. Limited generic – Generic objects confined to a particular class (Tolentino, 2002);
E.g. An obligation to deliver one of my horses.

Obligations of a debtor in an obligation to deliver

The obligations of the debtor (in an obligation to deliver) depends upon the kind thing involved:

BASIS SPECIFIC GENERIC

Deliver the thing which is
neither of superior nor
Deliver the thing agreed upon
What the obligation consists of inferior quality if quality and
(NCC, Art. 1165).
circumstances have not been
stated by the parties. (NCC,
Art. 1246).
Take care of the thing with the
proper diligence of a good
If the object is generic, but the
Required diligence to be father of a family unless the
source is specified or
observed law requires or parties
delimited, the obligation is to
stipulate another standard of
preserve the source.
care (NCC, Art.1163).

What delivery comprises of Deliver all accessions, Delivery of another thing

 accessories, and fruits of the
within the same genus as the
thing even though they may
thing promised if such thing is
not have been mentioned
damaged due to lack of care or
(NCC, Art. 1166).
a general breach is committed.
Pay damages in case of breach
Pay damages in case of breach
of obligation by reason of
of obligation by reason of
Effect of breach of obligation delay, fraud, negligence,
delay, fraud, negligence,
contravention of the tenor
contravention of the tenor
thereof (NCC, Art. 1170).
thereof (NCC, Art. 1170).

Fortuitous event extinguishes Obligation is not extinguished

Effect of fortuitous event
the obligation. (genus nunquam peruit –
genus never perishes).

Remedies of the creditor in case of failure to deliver the thing due

The following are the remedies of the creditor in case of failure to deliver the thing due (Pineda,
2000)

SPECIFIC GENERIC

Specific performance. Specific performance (delivery of anything

belonging to the same species).

Rescission (action to rescind under NCC, Art. Ask that the obligation be complied with at the
1380). debtor’s expense with a right to recover
damages.

Resolution (action for cancellation under NCC, Resolution or specific performance, with
Art. 1191). damages in either case (NCC, Art. 1191).

Damages, in both cases (NCC, Art. 1170).

NOTE: May be exclusive or in addition to the above-mentioned remedies

NOTE: In an obligation to deliver a specific thing, the creditor has the right to demand preservation
of the thing, its accessions, accessories, and the fruits. The creditor is entitled to the fruits and
interests from the time the obligation to deliver the thing arise.

Right of the creditor to the fruits

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 (NCC, Art.
1164).

SOURCE OF OBLIGATION WHEN OBLIGATION ARISES

Law, quasi-delict, quasi contract, or crime. Based on specific provisions of applicable law.

Subject to a suspensive condition. From the happening of the condition.

Subject to a supensive term/period. From the constitution, creation or perfection of

obligation.

From the constitution, creation or perfection of

Pure
the obligation.

Nature of the right of the creditor with respect to fruits

1. Before delivery – Personal right;

2. After delivery – Real right.

Personal right v. Real right

PERSONAL RIGHT REAL RIGHT

The right or power of a person (creditor) to The right or interest of a person over a specific
demand from another (debtor), as a definite thing (i.e. ownership, possession, mortgage),
passive subject, the fulfillment of the latter’s without a definite subject against whom the
obligation to give, to do, or not to do. right may be personally enforced.
There is a definite active subject and a definite There is only a definite active subject without
passive subject. any passive subject.
 Binding and enforceable only against a
Directed against the whole World.
particular person.

Principle of “balancing of equities” in actions for specific performance

In decreeing specific performance, equity requires not only that the contract be just and equitable
in its provisions, but that the consequences of specific performance likewise be just and equitable.
The general rule is that this equitable relief will not be granted if, under the circumstances of the
case, the result of the specific performance of the contract would be harsh, inequitable, and
oppressive or result in an unconscionable advantage to the plaintiff (Agcaoili v. GSIS, G.R. No.
30056, August 30, 1988).

Types of personal obligations

1. Positive - To do;
2. Negative - Not to do.

Remedies in personal obligations

1. Positive personal obligations

a. Not purely personal act – To have obligation executed at debtor's expense plus
damages;
b. Purely personal act - Damages only.
When positive personal obligations considered breached:
a. If the debtor fails to perform the obligation; or
b. Even in case of performance but the same is done either in a poor manner or in
contravention of the tenor of the obligation (NCC, Art. 1167).

2. Negative personal obligation – To have the prohibited thing undone at the expense of the
debtor plus damages. However, if thing cannot be physically or legally undone, only damages may
be demanded (8 Manresa 58).
Specific performance is not a remedy in positive personal obligations

If specific performance will be allowed, it will amount to involuntary servitude which is prohibited
by the Constitution (Pineda, 2000).

LESSON 2
BREACHES OF OBLIGATIONS

Degree of diligence required

1. That agreed upon;

2. In the absence of such, that which is required by the law;

GR:
In the absence of the foregoing, diligence of a good father of a family

XPNs:
a. Common carriers requiring extraordinary diligence (NCC, Arts. 1998-2002);
b. Banks require the highest degree of diligence, being imbued with public interest.

Diligence of a good father of a family

That reasonable diligence which an ordinary prudent person would have done under the same
circumstances.

Forms of breach of obligations

1. Voluntary – Debtor is liable for damages if he is guilty of:

a. Default (mora)
b. Fraud (dolo)
c. Negligence (culpa)
d. Breach through contravention of the tenor thereof (NCC, Art. 1170).
 2. Involuntary – Debtor is unable to perform the obligation due to fortuitous event thus not
liable for damages.
Effects of breach of obligation

If a person obliged to do something fails to do it, or if he does it in contravention of the tenor of the
obligation or what has been poorly done be undone, the same shall be executed at his cost (NCC,
Art. 1167).

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

Instances where the remedy under Art. 1168 is not available

1. Where the effects of the act which is forbidden are definite in character – Even if it is
possible for the creditor to ask that the act be undone at the expense of the debtor,
consequences contrary to the object of the obligation will have been produced which are
permanent in character.
2. Where it would be physically or legally impossible to undo what has been undone –
Because of:
a. The very nature of the act itself;
b. A provision of law; or c. Conflicting rights of third persons.

NOTE: In either case, the remedy is to seek recovery for damages (NCC, Art. 1168).

DELAY (MORA) OR DEBTOR’S DEFAULT

Those obliged to deliver or to do something incur in delay from the time the obligee (creditor)
judicially or extrajudicially demands from them the fulfillment of their obligation.

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 obligations, delay by the other begins (NCC, Art. 1169). (2002 Bar)
Kinds of delay

1. Ordinary delay – This is the mere failure to perform an obligation at the stipulated time.
2. Extraordinary delay or legal delay – This delay already equates to non-fulfillment of the
obligation and arises after the extrajudicial or judicial demand has been made upon the debtor
(Pineda, 2000).

Kinds of legal delay or default

1. Mora solvendi – Default on the part of the debtor/obligor
a. Ex re – Default in real obligations (to give);
b. Ex personae – Default in personal obligations (to do);

2. Mora accipiendi – Default on the part of the creditor/obligee;

3. Compensatio morae – Default on the part of both the debtor and creditor in reciprocal
obligations.
Causes of cessation of the effects of mora

1. Renunciation (express/implied); or
2. Prescription.

Q: American Express Card (AMEX) failed to approve Pantaleon’s credit card purchases which urged
the latter to commence a complaint for moral and exemplary damages against AMEX. He said that
he and his family experienced inconvenience and humiliation due to the delays in credit
authorization during his vacation trip in Amsterdam and in the United States. Did AMEX commit a
breach of its obligations to Pantaleon?

A: YES. Generally, the relationship between a credit card provider and its cardholders is that of
creditor-debtor, with the card company as the creditor extending loans and credit to the
cardholder, who as debtor is obliged to repay the creditor. One hour appears to be patently
unreasonable length of time to approve or disapprove a credit card purchase. The culpable failure
of AmEx herein is not the failure to timely approve petitioner’s purchase, but the more elemental
failure to timely act on the same, whether favorably or unfavorably (Pantaleon v. American Express
International, Inc., G.R. No. 174269, May 8, 2009).
 MORA SOLVENDI

Requisites (PDF-MJ)

1. Obligation Pertains to the debtor;

2. Obligation is Determinate, due and demandable, and liquidated;
3. Obligation has not been performed on its Maturity date;
4. There is Judicial or extrajudicial demand by the creditor; and
5. Failure of the debtor to comply with such demand.

Non-applicability of mora solvendi

Mora solvendi does not apply in natural obligations because performance is optional or voluntary
on the debtor’s part. One can never be late in not giving or doing something.

Instances when demand by the creditor is not necessary in order that delay may exist

GR: No demand = no default [NCC, Art. 1169 (2)].

XPNs: Demand by the creditor shall not be necessary in order that delay may exist when:

1.The obligation or the law expressly so declares; or

2.From the nature and the circumstances of the obligation it appears that the designation of
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.Demand would be useless, as when the obligor has rendered it beyond his power to perform
[Art. 1169 (2)].
Q: “A” borrowed P2,000 from “B” on December 1, 1956. He executed a promissory note promising
to pay the indebtedness on December 1, 1958. Upon the arrival of the designated date for payment,
is demand necessary in order that “A” shall incur in delay?

A: YES. In order that the first exception provided for in Art. 1169 of the NCC can be applied, it is
indispensable that the obligation or the law should expressly add that the obligor shall incur in
delay if he fails to fulfill the obligation upon the arrival of the designated date or that upon the
arrival of such date demand shall not be necessary (Bayla, et al. v. Silang Traffic Co., G.R. Nos. L-
48195 and 48196, May 1, 1942).

Effects of mora solvendi

1. Debtor may be liable for damages (NCC, Art. 1155) or interests; and NOTE: The interest
begins to run from the filing of the complaint when there is no extrajudicial demand.
2. When the obligation has for its object a determinate thing, the debtor may bear the risk of
loss of the thing even if the loss is due to fortuitous event;
3. Rescission or resolution.

Debtor’s liability may be mitigated even if he is guilty of delay

If the debtor can prove that loss would nevertheless transpire even if he had not been in default, the
court may equitably mitigate his liability [NCC, Art. 2215(4); Pineda, 2000]

MORA ACCIPIENDI
Requisites

1. Offer of Performance by a capacitated debtor;

2. Offer must be to Comply with the prestation as it should be performed; and
3. Refusal of the creditor without just cause (Pantaleon v. Amex, supra).

Effects of mora accipiendi

1. Responsibility of debtor is limited to fraud and gross negligence;

2. Debtor is exempted from risk of loss of thing; creditor bears risk of loss;
3. Expenses by debtor for preservation of thing after delay is chargeable to creditor;
4. If the obligation bears interest, debtor does not have to pay it from time of delay;
 5. Creditor liable for damages; and
6. Debtor may relieve himself of obligation by consigning the thing.

COMPENSATIO MORAE
Reciprocal obligations

Reciprocal obligations are those which arise from the same cause, wherein each party is a debtor
and a creditor of the other, such that performance of one is conditioned upon the simultaneous
fulfillment of the other from the moment one of the parties fulfills his obligation, delay by the other
party begins (ASJ Corporation v. Evangelista, G.R. No. 158086, February 14, 2008).

Delay in reciprocal obligations

One party incurs in delay from the moment the other party fulfills his obligation, while he himself
does not comply or is not ready to comply in a proper manner with what is incumbent upon him.

Demand is only necessary in order for a party to incur delay when the respective obligations are to
be performed on separate dates.

Effect of non-compliance of both parties in reciprocal obligations

If neither party complies with his prestation, default of one compensates for the default of the
other.
Rules on compensatio morae

Unilateral Obligations Reciprocal Obligations

Default or delay begins from

extrajudicial or judicial Delay by the other party
Time of delay demand – mere expiration of begins from the moment one
the period fixed is not enough of the parties fulfills his
in order that debtor may incur obligation
delay.
XPNs a. The obligation or the law When different dates for the
expressly so dictates; performance of obligation is
b. Time is of the essence; fixed by the parties.
c. Demand would be useless,
as debtor has rendered it
beyond his power to perform;
or
 d. Debtor has acknowledged
that he is in default.

FRAUD (Deceit or Dolo)

It is an intentional evasion of the faithful performance of the obligation (8 Manresa 72).

Kinds of fraud

Basis Fraud in the performance Fraud in the perfection

It occurs after the valid It occurs before or
execution of the contract. It is simultaneous with the
Time of occurrence
employed in the performance creation or perfection of the
of a pre-existing obligation. obligation
Consent is vitiated by serious
Consent is free and not
Consent deception or
vitiated.
misrepresentation
It is not a ground for It is a ground for annulment of
Effect
annulment of the contract. the contract.
Action for annulment with
Remedy Action for damages only.
damages

Dolo causante v. Dolo incidente

Basis Dolo causante (causal fraud) Dolo incidente (incidental fraud)

This is the kind of fraud which is

This is the essential cause of not the efficient cause for the
the consent without which the giving of the consent to the
Nature party would not have agreed contract, as it refers merely to an
to enter into the contract(NCC, incident therein and, which even if
Art. 1338). not present, the contracting party
would have still agreed to the
contract.

It renders the contract It does not affect the validity of the

Effect
voidable. contract.
 Contract remains valid. Remedy is
Remedy Annulment with damages.
claim for damages only.

Fraud as mentioned in Art. 1171

It is incidental fraud or fraud in the performance of the obligation and not the fraud in the execution
of the contract or causal fraud. It is the intentional evasion of the normal fulfillment of the
obligation (Pineda, 2000).

Waiver of action arising from future fraud

With respect to fraud that has already been committed (past fraud), the law does not prohibit
renunciation of the action for damages based on the same since such can be deemed an act of
generosity. What is renounced is the effect of fraud, particularly the right to indemnity. However,
the law prohibits any waiver of an action for future fraud since the same is contrary to law and
public policy. Waiver for future fraud is void (NCC, Art. 1171).
Remedies of the defrauded party

2. Specific performance (NCC, Art. 1233); or

3. Resolution of the contract (Art. 1191); and
4. Damages, in either case.
CULPA OR NEGLIGENCE
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, of the time and
the place. When negligence shows bad faith, the provisions of Art. 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 expected of a good father of a family shall be required (NCC, Art. 1173).

Test of negligence
Did the defendant in doing the alleged negligent act use the reasonable care and caution which an
ordinarily prudent person would have used in the same situation? If not, then he is guilty of
negligence. (Picart v. Smith, G.R. No. L-12219, March 15, 1918).

Fraud v. Negligence

BASIS FRAUD NEGLIGENCE

There is no deliberate
As to the intention to cause There is deliberate intention intention to cause damage or
damage to cause damage. injury even if the act was done
voluntarily.

As to the mitigation of liability Liability cannot be mitigated. Liability may be mitigated.

GR: Waiver for future

negligence may be allowed in
certain cases.
As to the waiver of future Waiver for future fraud is
fraud void. XPN: Nature of the obligation
or public policy requires
extraordinary diligence. (e.g.
common carrier).

NOTE: When negligence is so gross that it amounts to wanton attitude on the part of the debtor or
such negligence shows bad faith, the laws in case of fraud shall apply.

Effect of good faith or bad faith of the obligor

If the obligor acted in good faith, he is responsible for the natural and probable consequences of the
breach of contract and which the parties have reasonably foreseen at the time of the constitution of
the obligation.

If the obligor is guilty of fraud, bad faith, malice or wanton attitude, he shall be responsible for all
damages which may be reasonably attributed to the non-performance of the obligation.

Contributory negligence of the creditor

GR: It reduces or mitigates the damages which he can recover.

EXCEPTION: If the negligent act or omission of the creditor is the proximate cause of the event
which led to the damage or injury complained of, he cannot recover.

Q: Wenifredo Salvaña was driving the bus owned by Bachelor Express, Inc./Ceres Liner, Inc.
along the national highway when he overtook a PUJ jeepney while negotiating a blind curve
in a descending road causing him to intrude into the opposite lane and bump the 10-wheeler
Hino dump truck of petitioner Cresencio Baño running uphill from the opposite direction.
The collision resulted in damage to both vehicles, the subsequent death of the truck driver,
Amancio Asumbrado, and serious physical injuries to bus driver Salvaña. A complaint for
quasi-delict was filed against Salvaña for negligently driving the bus causing it to collide with
the dump truck. Respondents denied liability, claiming that prior to the collision the bus was
running out of control because of a problem in the steering wheel system which could not
have been avoided despite their maintenance efforts. Instead, they claimed that Asumbrado
had the last clear chance to avoid the collision had he not driven the dump truck at a very
fast speed. Was Salvaña grossly negligent?

A: Yes. When bus driver Salvañ a overtook the jeepney in front of him, he was rounding a blind
curve along a descending road. Considering the road condition and that there was only one lane on
each side of the center line for the movement of traffic in opposite directions, it would have been
more prudent for him to confine his bus to its proper place. Having thus encroached on the opposite
lane in the process of overtaking the jeepney, without ascertaining that it was clear of oncoming
traffic that resulted in the collision with the approaching dump truck driven by deceased
Asumbrado, Salvañ a was grossly negligent in driving his bus. He was remiss in his duty to
determine that the road was clear and not to proceed if he could not do so in safety (Cresencio Bañ o
v. Bachelor Express, GR No. 191703, March 12, 2012).

Kinds of negligence or culpa

1. Culpa contractual (contractual negligence) - Negligence which results from the breach of
contract;
2. Culpa aquiliana (civil negligence or tort or quasi-delict) Acts or omissions that cause damage to
another, there being no contractual relation between the parties (NCC, Art. 2176); and
3. Culpa criminal (criminal negligence) – Those which results in the commission of a crime or a
delict.

CULPA AQUILIANA/
CULPA
CULPA EXTRA- CULPA CRIMINAL
CONTRACTUAL
CONTRACTUAL (DELICT)
(CONTRACT)
(QUASI-DELICT)
 Negligence is merely
Negligence is Negligence is
Existence of an incident in the
substantive and substantive and
negligence performance of an
independent. independent.
obligation.
There is always a GR: There is no There is no
Contractual relations preexisting preexisting preexisting
contractual relation. contractual relation. contractual relation
The source of
obligation of
The source of The source of
defendant to pay
obligation is obligation is an act or
Source of obligation damages is the breach
defendant’s omission punishable
or non-fulfillment of
negligence itself. by law.
the contract.

Proof of the existence

Accused shall be
of the contract and of
The negligence of the presumed innocent
its breach or non-
Proof of negligence defendant must be until the contrary is
fulfillment is sufficient
proved. proved beyond
prima facie to warrant
reasonable doubt.
recovery.
Defense of “good
father of a family” in Defense of “good
the selection & father of a family” in
supervision of the the selection &
employees is not a supervision of the
The employee’s guilt
proper complete employees is a proper
is automatically the
Defense available defense though it may and complete defense.
employer’s civil guilt,
mitigate damages. Defense of “good
if the former is
father of a family” in
insolvent.
Respondeat superior the selection &
or command supervision of the
responsibility or the employees is not a
master and servant proper defense.
rule.
Preponderance of Preponderance of Proof of guilt beyond
Proof needed
evidence. evidence. reasonable doubt.

CONTRAVENTION OF TENOR OF OBLIGATION (VIOLATIO)

The act of contravening the tenor or terms or conditions of the contract is also known as “violatio,”
i.e. failure of common carrier to take its passenger to their destination safely (Pineda, 2000).

Under NCC, Art. 1170, the phrase “in any manner contravene the tenor” of the obligation includes
any illicit act which impairs the strict and faithful fulfillment of the obligation, or every kind of
defective performance. Such violation of the terms of contract is excused in proper cases by
fortuitous events.

FORTUITOUS EVENT / CASO FORTUITO

An occurrence or happening which could not be foreseen, or even if foreseen, is inevitable (NCC,
Art. 1174). (2002, 2008 Bar)

Requisites: (CODE)

1. Cause of breach is independent of the will of the debtor;

2. The Event is unforeseeable or unavoidable;
3. Occurrence renders it absolutely impossible for the debtor to fulfill his obligation in a normal
manner - impossibility must be absolute not partial, otherwise not force majeure; and
4. Debtor is free from any participation in the aggravation of the injury to the creditor.

NOTE: The fortuitous event must not only be the proximate cause but it must also be the only and
sole cause. Contributory negligence of the debtor renders him liable despite the fortuitous event
(Pineda, 2000).

If the negligence was the proximate cause, the obligation is not extinguished. It is converted into a
monetary obligation for damages.

Difficulty to foresee

The mere difficulty to foresee the happening is not impossibility to foresee the same (Republic v.
Luzon Stevedoring Corp., G.R. No. L-21749, September 29, 1967).

Liability for loss due to fortuitous event

GR: There is no liability for loss in case of fortuitous event.

XPNs: (LaNS-PC-BaG)

1. Law;
2. Nature of the obligation requires the assumption of risk;
3. Stipulation;
4. The debtor is guilty of dolo, malice or bad faith, has Promised the same thing to two or more
persons who does not have the same interest (NCC, Art. 1165);
5. The debtor Contributed to the loss (Tan v. Inchausti & Co., G.R. No. 6092, March 8, 1912);
6. The possessor is in Bad faith (NCC, Art. 552); or 7. The obligor is Guilty of fraud, negligence or
delay or if he contravened the tenor of the obligation (Juan Nakpil v. United Construction Co., Inc. v.
CA, G.R. No. L-47851, April 15, 1988).
Act of God v. Act of Man

ACT OF GOD ACT OF MAN

Fortuitous event Force majeure

Event which is absolutely independent of Event caused by the legitimate or illegitimate

human intervention acts of persons other than the obligor

E.g. Armed invasion, robbery, war (Pineda,

e.g. Earthquakes, storms, floods, epidemics
2000).

NOTE: There is no essential difference between fortuitous event and force majeure; they both refer
to causes independent of the will of the obligor (Tolentino, 2002).
Q: MIAA entered into a compromise agreement with ALA. MIAA failed to pay within the
period stipulated. Thus, ALA filed a motion for execution to enforce its claim. MIAA filed a
comment and attributed the delays to its being a government agency and the Christmas rush.
Is the delay of payment a fortuitous event?

A: NO. The act-of-God doctrine requires all human agencies to be excluded from creating the cause
of the mischief. Such doctrine cannot be invoked to protect a person who has failed to take steps to
forestall the possible adverse consequences of loss or injury. Since the delay in payment in the
present case was partly a result of human participation - whether from active intervention or
neglect - the whole occurrence was humanized and was therefore outside the ambit of a caso
fortuito.
First, processing claims against the government are certainly not only foreseeable and expectable,
but also dependent upon the human will. Second, the Christmas season is not a caso fortuito, but a
regularly occurring event. Third, the occurrence of the Christmas season did not at all render
impossible the normal fulfillment of the obligation. Fourth, MIAA cannot argue that it is free from
any participation in the delay. It should have laid out on the compromise table the problems that
would be caused by a deadline falling during the Christmas season. Furthermore, it should have
explained to ALA the process involved for the payment of ALA’s claim (MIAA v. Ala Industries Corp.,
G.R. No. 147349, February 13, 2004).

Effects of fortuitous events

1. On determinate obligation – The obligation is extinguished.

2. On generic obligation – The obligation is not extinguished (genus nun quam peruit – genus never
perishes).

Q. Kristina brought her diamond ring for cleaning to a jewelry shop which failed to fuilfill its
promise to return such ring in February 1, 1999. Kristina went back to the shop on February
6, 1999 but she was informed that the ring was stolen by a thief the night before. Kristina
filed an action for damages against the jewelry shop which put up the defense of force
majeure. Will the action prosper or not? (2000 Bar)

A : YES. The action will prosper. Since the defendant was already in default for not having
delivered the ring when delivery was demanded by plaintiff at due date, the defendant is liable for
the loss of the thing and even when the loss was due to force majeure.

The defendant who is obliged to deliver incurred delay from the time the plaintiff extrajudicially
demands the fulfillment of the obligation (NCC, Art. 1169). The defendant shall be held liable for the
loss of the thing even it was due to fortuitous event.
Q. AB Corp entered into a contract with XY Corp for the construction of the research and
laboratory facilities of the XY Corp. XY Corp paid 50% of the 10M contract price on the other
hand AB agreed to complete the work for 18 months. After 17 months, work was only 45%
completed as AB Corp experienced work slippage due to labor unrest.

(a) Can the labor unrest be considered a fortuitous event?

(b) Can XY Corp. unilaterally and immediately cancel the contract?
(c) Must AB Corp. return the 50% down payment? (2008 Bar)
A: a.) NO. Labor unrest is not a fortuitous event that will excuse AB Corp. from complying with its
obligation of constructing the research and laboratory facilities of XY Corp. The labor unrest, which
may even be attributed in large part to AB Corp. itself, is not the direct cause of noncompliance by
AB Corp. It is independent of its obligation. It is similar to the failure of a DBP borrower to pay her
loan just because her plantation suffered losses due to the cadangcadang disease. It does not excuse
compliance with the obligation (DBP v. Vda. De Moll, G.R. No. L25802, January 31, 1972). AB Corp.
could have anticipated the labor unrest which was caused by delays in paying the laborer’s wages.
The company could have hired additional laborers to make up for the work slowdown.

b.) YES, XY Corp. may unilaterally cancel the obligation but this is subject to the risk that the
cancellation of the reciprocal obligation being challenged in court and if AB Corp. succeeds, then XY
Corp. will be declared in default and be liable for damages.

c.) NO, under the principle of quantum meruit, AB Corp. had the right to retain payment
corresponding to his percentage of accomplishment less the amount of damages
suffered by XY Corp. because of the delay or default.

Q: X, a dressmaker, accepted clothing materials from Karla to make two dresses for her. On
the day X was supposed to deliver Karla’s dresses, X had an urgent matter to attend to and
told Karla to deliver those the next day. That night, however, a robber broke into her shop
and took everything including Karla’s dresses. X claims she is not liable to deliver Karla’s
dresses or to pay for the clothing materials considering she herself was a victim of the
robbery which was a fortuitous event and over which she had no control. Do you agree?
Why? (2015 Bar)

A: NO. The law provides that except when it is otherwise declared by stipulation or when the law
provides or the nature of the obligation requires the assumption of risk, no person shall be liable
for those events which could not be foreseen or which though foreseen were inevitable (NCC, Art.
1174).

In this case, X cannot invoke fortuitous event as a defense because she had already incurred delay
at the time of the occurrence of the loss (NCC, Art. 1165).

REMEDIES

In case of breach of obligation, the following are the remedies available:

1. Specific performance, or substituted performance by a third person in case of an obligation to
deliver a generic thing, and in obligations to do, unless it is a purely personal act;
2. Rescission (or resolution in reciprocal obligations);
3. Damages, in any case; or
4. Subsidiary remedies of creditors: a. Accion subrogatoria b. Accion pauliana c. Accion directa

SPECIFIC PERFORMANCE

Remedies in connection with specific performance

1. Exhaustion of the properties of the debtor (not exempt from attachment under the law);
2. Accion subrogatoria (subrogatory action) – An indirect action brought in the name of the
debtor by the creditor to enforce the former’s rights except: a. Personal rights of the debtor; b.
Rights inherent in the person of the debtor; c. Properties exempt from execution. e.g. family home
3. Accion pauliana (rescissory action) – An action to impugn or assail the acts done or contracts
entered into by the debtor in fraud of his creditor.

NOTE: Resort to the remedies must be in the order stated above (NCC, Art. 1177).

Q: Sacramento Steel Corporation (SSC) executed 5 separate deeds of chattel mortgage

constituted over various equipment for International Exchange Bank (IEB) which
subsequently, SSC defaulted in the payment of its obligations. IEB’s demand for payment
went unheeded. Meanwhile, Metropolitan Bank and Trust Company (Metro Bank) filed a
motion for intervention as a creditor of SSC.which it contends that the mortgage contracts
between IEB and SSC were entered into to defraud the latter’s creditors. Thus, it prayed for
the rescission of the chattel mortgaged executed by SSC in favor of IEB. Will the action to
rescind the mortgage prosper?

A: NO. Jurisprudence is clear that the following successive measures must be taken by a creditor
before he may bring an action for rescission of an allegedly fraudulent contract: (1) exhaust the
properties of the debtor through levying by attachment and execution upon all the property of the
debtor, except such as are exempt by law from execution; (2) exercise all the rights and actions of
the debtor, save those personal to him (acció n subrogatoria); and (3) seek rescission of the
contracts executed by the debtor in fraud of their rights (acció n pauliana). It is thus apparent that
an action to rescind, or an acció n pauliana, must be of last resort, availed of only after the creditor
has exhausted all the properties of the debtor not exempt from execution or after all other legal
remedies have been exhausted and have been proven futile (Metropolitan Bank and Trust Company
v. International Exchange Bank, G.R. No. 176008, August 10, 2011).

Q: Jebson entered into a Joint Venture Agreement (JVA) with Sps. Salonga which obligated
the former to construct ten (10) residential units on the latter’s three parcels of land. Out of
the ten (10) units, seven (7) units will belong to Jebson. It was also allowed to sell its
allocated units under such terms as it may deem fit, subject to the condition that the price
agreed upon was with the conformity of Sps. Salonga. Thereafter, Jebson entered into a
Contract to Sell with Buenviaje over one of its units without the conformity of Sps. Salonga.
Buenviaje was able to fully pay for Jebson’s unit through a swapping arrangement which
allows the vendee to convey certain properties as consideration for the sale. Despite this full
payment, Jebson was unable to complete said unit. This prompted Buenviaje to demand the
unit’s immediate completion and delivery. Jebson having failed to comply with the demand,
Buenviaje filed an action before the HLURB against Jebson and Sps. Salonga for specific
performance praying for the unit’s completion and delivery and rescission in the alternative.
Jebson, in its defense, claimed that they were not able to secure the necessary permits
because Sps. Salonga stubbornly refused to cause the consolidation and partition of the
parcels of land. Sps. Salonga averred that they were not liable to the complainants since
there was no privity of contract between them, adding that the contracts to sell were
unenforceable against them as they were entered into by Jebson without their conformity, in
violation of the JVA. HLURB rescinded the Contract to Sell and held Sps. Salonga Solidarily
liable with Jebson. HLURB-BOC reversed the former ruling and instead rescinded the
swapping arrangement and maintaining the validity of the Contract to Sell, thereby granting
specific performance instead. Is the grant of the remedy of specific performance in
Buenviaje's favor proper?

A: Yes. As between the two remedies made available to him, Buenviaje, had, in fact, chosen the
remedy of specific performance and therefore, ought to be bound by the choice he had made. To
add, the fundamental rule is that reliefs granted a litigant are limited to those specifically prayed for
in the complaint. Buenviaje's alternative prayer for resolution is textually consistent with that
portion of Article 1191 of the Civil Code which states that an injured party "may also seek
rescission, even after he has chosen fulfillment, if the latter should become impossible."
Nevertheless, the impossibility of fulfillment was not sufficiently demonstrated in the proceedings
conducted in this case.

Besides, mutual restitution is the proper consequence of the remedy of resolution. It cannot arise -
as it is, in fact, theoretically incompatible - with the remedy of specific performance, which is the
relief prayed for and consequently, granted to the injured party herein (Dr. Restituto C. Buenviaje
vs. Spouses Jovito R. & Lydia B. Salonga, GR No. 216023, October 05, 2016).
Q: While the case was pending, Felix donated his parcels of land in favor of his children.
Judgment was rendered against Felix. Four years after the said donation, the sheriff sought
to enforce the alias writ of execution and discovered that Felix no longer had any property
and had conveyed the subject properties to his children. Thus, Philam filed an accion
pauliana for rescission of the donations. Felix countered that an action for rescission of the
donation had already prescribed since the time of prescription has to run from the date of
registration. Has the action filed by Philam prescribed?

A: NO. Philam only learned about the unlawful conveyances made by Felix more than four years
after the donations were effected, when its counsel accompanied the sheriff to Butuan City to attach
the properties. There they found that he no longer had any properties in his name. It was only then
that Philam's action for rescission of the deeds of donation accrued because then it could be said
that Philam had exhausted all legal means to satisfy the trial court's judgment in its favor. Since
Philam filed its complaint for accion pauliana against petitioners barely a month from its discovery
that Felix had no other property to satisfy the judgment award against him, its action for rescission
of the subject deeds clearly had not yet prescribed (Khe Hong Cheng v. CA, G.R. No. 144169, March
28, 2001). - NOTE: The debtor is liable with all his property, present and future, for the fulfillment
of his obligations, subject to the exemptions provided by law (De Leon, 2003).

Substitute performance

It is a remedy of the creditor in case of nonperformance by the debtor where another party
performs the obligation or the same is performed at the expense of the debtor.

Applicability of substitute performance

1. Positive personal obligation: a. If not purely personal – Substitute performance; the obligation
shall be executed at debtor’s cost if he fails to do it (NCC, Art. 1167).
b. Purely personal – No substitute performance may be demanded because of the personal
qualifications taken into consideration. The only remedy is damages.

2. Real obligation:
a. Generic thing – Substitute performance; delivery may be made by a person other than the
debtor since the object is merely designated by its class or genus. The creditor may ask that
the obligation be complied with at the expense of the debtor (NCC, Art. 1165).
b. Specific thing – Specific performance may be demanded, that is, the creditor may compel
the debtor to make the delivery.
RESCISSION (RESOLUTION) (NCC, ART. 1191)

It refers to the cancellation of the contract or reciprocal obligation in case of breach on the part of
one, which breach is violative of the reciprocity between the parties. This is properly called
resolution. (2005, 2008 Bar)

NOTE: The rescission under Art. 1380 is rescission based on lesion or fraud upon creditors.

Applicability

Rescission or resolution is applicable in reciprocal obligations, since it is implied therein.

Characteristics of the right to rescind

1. Can be demanded only if plaintiff is ready, willing and able to comply with his own obligation
and defendant is not;
2. Not absolute;
3. Needs judicial approval in the absence of a stipulation allowing for extra-judicial rescission, in
cases of non-reciprocal obligations;
4. Subject to judicial review if availed of extrajudicially;
5. May be waived expressly or impliedly; and
6. Implied to exist in reciprocal obligations therefore need not be expressly stipulated upon.

Fulfillment or rescission of the obligation

GR: The injured party can only choose either fulfillment or rescission of the obligation, and not
both.
XPN: If fulfillment has become impossible, Art. 1191 allows the injured party to seek rescission
even after he has chosen fulfillment (Ayson-Simon v. Adamos and Feria, G.R. No. L-39378, August
28, 1984).
Q: Pikian Mining Company (PMI) entered into an Operating Agreement (OA) with Golden
Valley Exploration, Inc. (GVEI), granting the latter "full, exclusive and irrevocable
possession, use, occupancy, and control over the mining claims and the processing and
marketing of the products for a period of 25 years.” Later, PMC extra-judicially rescinded the
OA upon GVEI’s violation of Section 5.01, Article V thereof. GVEI contested PMC’s
extrajudicial rescission of the OA averring therein that its obligation to pay royalties to PMC
arises only when the mining claims are placed in commercial production which condition
has not yet taken place. PMC no longer responded to GVEI’s letter. Is the rescission of the
Operating Agreement valid?

A: Yes. The rescission is valid. As a general rule, the power to rescind an obligation must be invoked
judicially and cannot be exercised solely on a party’s own judgment that the other has committed a
breach of the obligation. This is so because rescission of a contract will not be permitted for a slight
or casual breach, but only for such substantial and fundamental violations as would defeat the very
object of the parties in making the agreement. As a well-established exception, however, an injured
party need not resort to court action in order to rescind a contract when the contract itself provides
that it may be revoked or cancelled upon violation of its terms and conditions. PMC’s unilateral
rescission of the Operating Agreement (OA) due to GVEI’s non-payment of royalties considering the
parties’ express stipulation in the OA that said agreement may be cancelled on such ground.
(Golden Valley Exploration, Inc. v. Pinkian Mining Company, G.R. No. 190080, June 11, 2014)

Q: Vermen and Seneca entered into an "offsetting agreement", where Seneca is obliged to
deliver construction materials to Vermen, who is obliged to pay Seneca and to deliver
possession of 2 condominium units to Seneca upon its completion. Seneca filed a complaint
for rescission of the offsetting against Vermen alleging that the latter had stopped issuing
purchase orders of construction materials without valid reason, thus resulting in the
stoppage of deliveries of construction materials on its part, in violation of the Offsetting
Agreement. Can the agreement be rescinded?

A: YES, because the provisions of the offsetting agreement are reciprocal in nature. Art. 1191 of the
Civil Code provides the remedy of rescission (more appropriately, the term is "resolution") in case
of reciprocal obligations, where one of the obligors fails to comply with that is incumbent upon him
(Vermen Realty Development Corp. v. CA and Seneca Hardware Co., Inc., G.R. No. 101762, July 6,
1993).

Q: Ong and spouses Robles executed an "agreement of purchase and sale" of two parcels of
land. Ong partially paid the spouses by depositing sums of money with the BPI in accordance
with their stipulation that Ong pay the loan of the spouse with BPI. To answer for Ong’s
balance, he issued 4 post-dated checks which were dishonored. Ong failed to replace the
checks and to pay the loan in full. Can the contract entered into by Ong and the spouses be
rescinded?
A: NO. The agreement of the parties in this case may be set aside, but not because of a breach on the
part of Ong for failure to complete payment of the purchase price. Rather, his failure to do so
brought about a situation which prevented the obligation of the spouses to convey title from
acquiring an obligatory force.
The agreement of purchase and sale shows that it is in the nature of a contract to sell. Ong’s failure
to complete payment of the purchase price is a non-fulfillment of the condition of full payment
which rendered the contract to sell ineffective and without force and effect. The breach
contemplated in Art. 1191 is the obligor’s failure to comply with an obligation. In this case, Ong’s
failure to pay is not even a breach but merely an event which prevents the vendor’s obligation to
convey title from acquiring binding force. (Jaime G. Ong vs. The Honorable Court Of Appeals,
Spouses Miguel K. Robles And Alejandro M. Robles, G.R. No. 97347, July 6, 1999).

Q: Petitioners and respondents entered into a Contract to Sell (subject contract) over the
subject land. The subject contract provides, inter alia, that: (a) the consideration for the sale
is P33,155,000.00 payable as follows: down payment in the amount of P11,604,250.00
inclusive of the amount of P2,000,000.00 previously paid by respondents as earnest
money/reservation fee, and the remaining balance of P21,550,750.00 payable in 36 monthly
installments, each in the amount of P598,632.00 through post-dated checks; (b) in case any
of the checks is dishonored, the amounts already paid shall be forfeited in petitioners' favor,
and the latter shall be entitled to cancel the subject contract without judicial recourse in
addition to other appropriate legal action; (c) respondents are not entitled to possess the
subject land until full payment of the purchase price; (d) petitioners shall transfer the title
over the subject land from a certain Edilberta N. Santos to petitioners' names, and, should
they fail to do so, respondents may cause the said transfer and charge the costs incurred
against the monthly amortizations; and (e) upon full payment of the purchase price,
petitioners shall transfer title over the subject land to respondents. However, respondents
sent petitioners a letter seeking to rescind the subject contract on the ground of financial
difficulties. They also sought the return of the amount they had paid.. As their letter went
unheeded, respondents filed complaint for rescission. Petitioners countered that
respondents' act is a unilateral cancellation of the subject contract as the former did not
consent to it. Moreover, the ground of financial difficulties is not a ground to effect a valid
rescission. The RTC ruled in favor of respondents and, accordingly, ordered the rescission of
the subject contract; and the return of the amounts already paid as well as the remaining
post-dated checks issued by respondent representing the remaining monthly amortizations.
The CA affirmed. Is the CA correct?

A: No. It cannot be said that petitioners' failure to undertake their obligation under paragraph 7 (to
cause the transfer of the property to their names from one Edilberta N. Santos within 90 days from
the execution of said contract) defeats the object of the parties in entering into the subject contract,
considering that the same paragraph provides respondents contractual recourse in the event of
petitioners' non-performance of the aforesaid obligation, that is, to cause such transfer themselves
in behalf and at the expense of petitioners. Indubitably, there is no substantial breach of paragraph
7 on the part of petitioners that would necessitate a rescission (or resolution) of the subject
contract.
The foregoing notwithstanding, the Court cannot grant petitioners' prayer to order the cancellation
of the subject contract and the forfeiture of the amounts already paid by respondents on account of
the latter's failure to pay its monthly amortizations, simply because petitioners neither prayed for
this specific relief nor argued that they were entitled to the same. Worse, petitioners were declared
"as in default" for failure to file the required pre-trial brief and, thus, failed to present any evidence
in support of their defense (Rogelio S. Nolasco v. Celerino S. Cuerpo, GR No. 210215, December 9,
2015).

NOTE: In a contract to sell, the payment of the purchase price is a positive suspensive condition, the
failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the
vendor to convey title from acquiring an obligatory force (Ong v. CA, G.R. No. 97347, July 6, 1999).

Q: Can a contract be rescinded extra-judicially despite the absence of a special contractual

obligation therefore?

A: YES. An extrajudicial rescission based on grounds not specified in the contract would not
preclude a party to treat the same as rescinded. The rescinding party, however, by such course of
action, subjects himself to the risk of being held liable for damages when the extrajudicial rescission
is questioned by the opposing party in court. In other words, the party who deems the contract
violated may consider it resolved or rescinded, and accordingly, without previous court action, but
it proceeds at its own risk. For it is only the final judgment of the corresponding court that will
conclusively and finally settle whether the action taken was or was not correct in law (Nissan Car
Lease Phils, Inc., v. LICA Management and Proton Pilipinas, Inc., G.R. No. 176986, January 13, 2016).

DAMAGES

Liability for damages

Those liable under Art. 1170 shall pay damages only if aside from the breach of contract, prejudice
or damage was caused (Berg v. Teus, G.R. No. L6450, October 30, 1954).

NOTE: If action is brought for specific performance, damages sought must be asked in the same
action; otherwise the damages are deemed waived (Daywalt v. La Corporacion, G.R. No. L-13505,
February 4, 1919).
Kinds of damages (MENTAL)

1. Moral;
2. Exemplary;
3. Nominal;
4. Temperate;
5. Actual;
6. Liquidated.