Pointers in Business Law (For CPA Reviewees) 1

PART

OBLIGATIONS AND cONTRACTTS

OBLIGATIONS
1. Q What is the law on "Obligations and
Contracts"?
A The law on obligations and contracts is the body of
rules which deals with the nature and sourcesof
obligations and rights and duties arising from
agreements and contracts.
2. Q Source of the "Law on Obligations and
Contracts":
A The source of the Lawon Obligations and Contracts
is the Civil Code of the Philippines (Republic Act
No. 386), which was approved on June 18, 1949
and took effect on August 30, 1950. The Civil Code
of the Philippines is based on the Civil Code of
Spain which took effect in the Philippines on
December 7, 1889.

3. Q What is an obligation?
A 1. Civil
Code Definition
An obligation is a juridical necessity to
do, or not to do. (Art. 1156)
give, to

2. Manresa's Definition
An obligation is the legal relation between one
party and another, the latter is bound to the
fulfillment of the prestation which the fomer may
demand of him.
 Part 1/Obligationsand Contracts
2
4. Requisites or elements of an obligation.
1. Active subject- known as the creditor or obligee; the
person who is entitled to demand the fulfillment of an
obligation.
2. Passive subject- known as the debtoror obligor; the
person who is bound to the fulfillment of an obligation.
3. Prestation - the promise or the particular contract to
be observed in the performance of an obligation, and
may consist of giving, doing, or not doing a thing.
4. Efficient cause - the legal tie which binds the parties
to the obligation; otherwise known as juridical tie or
Vinculum juris.
Example
D promises to buy C's car as a result of an
agreement. (Here D is the obligor, C is the obligee; the
car is the object or prestation; the agreement or contract
is the efficient cause.)

5. Kinds of obligations:
A. Viewpoint of sanction
a. Civil Obligations give a right of action to compel
-

their performance.
b. Natural Obligations- not based on
on
positive law but
equity and natural law do not grant but
a
right or
action to enforce their performance, after
voluntary fulfillment by the obligor, they authorize the
retention of what has been deliveted or rendered
by reason thereof.
C. Moral Obligations- those that cannot be
enforced
by action but which is binding on the party who
makes it in conscience and natural law. Under
our
law, moral obligations are now merged with natural
obligations.
Pointers in Business Law (For CPA
Reviewees) 3
Civil Obligations
Example- D promise to pay C his (D's) debt of
P50,000.
Natural Obligations
Example- D is indebted to C in the amount of
P50,000. But the debt has already
prescribed. Still, D paid C. D cannot
later on get back what he voluntarily
paid.
Moral Obligations
Example- The duty of a husband and wife to
observe fidelity. The duty of Catholics
to hear mass on Sundays and holy days
of obligations.

B. Viewpoint of performance
a. Positive to give or to do
-

b. Negative not to do
C. Viewpoint of subject matter
a. Real obligation - to give

b. Personal obligation-to do or not to do

D. Viewpoint of persons obliged
a. Unilateral-where only one ofthe parties is bound
are bound.
b. Bilateral-where both parties

6. Q Sources of obligations: (Art. 1157, CC)

A 1 . Law
2. Contracts
3. Quasi-contracts
law
4. Act or omission punishable by
5. Quasi-delicts
 Part 1/Obligations and Contracts
4
of obligation
7. Law as a source

Obligation derived from law are not presumed. Only

those expressly determined in this code or by special laws
are demandable, and shall be regulated by the precepts of
the law which established them;and as to what has not been
foreseen, by the provisions of this book. (Art. 1158, CC)

8. Contract as a source of obligation

Obligations arising from contracts have the full force of
law between the contracting parties and should be complied
with in good faith. (Art. 1159, CC)

9 Quasi-contract as a source of obligation

It is the 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.
(Art. 2142,
CC)
Kinds of quasi-contracts
1. Negotiorum Gestio-the voluntary management of the
property or affairs of another without the knowledge or
consent of the latter. (Art. 2144, Civil
Code)
2. Solutio Indebiti -the
juridical relation which is created
when something is received when
there is no right to
demand it and it was unduly delivered
(Art. 2154, CC)
through mistake.

10. Delict as a source of obligation

Every person criminally liable for a felony is also civilly liable.
(Article 100, Revised Penal Code)
Pointers in Business Law (For CPA Reviewees) 5
11. Quasi-delict or culpa aquiliana or tort as a
obligation source of
One which causes
damage to another, there being fault or
negligence, but there is no pre-existing contractual relaton
between the parties. (Art. 2176, Civil Code)

12. Obligations ex lege not presumed.

Obligations arising from law are not presumed. To be
demandable and enforceable, the obligation must be
stated by the law which created the obligation. Such being
the case, the agreement of the parties under this obligation
is no longer necessary because it is the law which governs
their obligation.

13. Law governing obligations derived from law.

Obligations derived from law shall be governed by the
law which establishes them. In case of insuficiency,the
same shall be supplemented by the provisions of the Civil
Code.

Examples:
a. The obligation of husband and wife to support each
other. (Art. 68, Family Code)
b. The obligation ofa taxpayer to file his income tax retun.
(Title VI, Section 44, NIRC)
C. The obligation of the legitimate
ascendants and
descendants to support each other. (Art. 70, Family
Code)
14. Meaning of the article "Obligations derived from law
are not presumed."
The law says "obligations derived from law are not
presumed". This merely means that the obligation must
be clearly set forth in the Civil Code or special laws.
6 Part 1/Obligations and Contracts

ILLUSTRATIVE CASE. SG, while employed as a guard

of a moviehouse by 0, shot and killed a gatecrasher, X,
who attacked SG with a knife after having been refused
entrance without first providing himself with a ticket. SG
was criminally charged with homicide but the case was
dismissed by the trial court. For the expenses incurred in
his defense, SG demanded reimbursement from the owner.
When the owner refused, he filed his action for the recovery
of the amount paid to his lawyer plus moral damages.
HELD: The owner, "O", is not liable because the giving
of legal assistance to an employee is not a legal obligation.
While it may be true that it may be considered as a
moral obligation, it does not, at present, count with the legal
sanction of any man-made law. If the owner is not legally
obliged to give legal assistance to the employee, then the
latter cannot recover the amount paid by him to his lawyer.
In short, obligations arising from law cannot be presumed,
it must be stated before it becomes obligatory. (Dela Cruz
vs. Northern Theatrical Ent. 50 O.G. 422, Sept. 1954)

15. Validity of Contracts

In contracts, as to their general formation, it is what
call freedom to contract or autonomy of will. The
we
"contract
entered into between the parties shall have the force of
between them. Any violation by either party shall
la
produce
a cause of action against the violator. However, in order tor
a contract to be valid and enforceable, it must not
De
contrary to law, morals, good customs, publicorder public
or
policy, otherwise, the contract is void. (Arts. 1306, 1409
Civil Code)
Pointers in Business Law (For CPA Reviewees)

16. Effect if part of the contract is void.

If part of the contract is void but the contract is
Susceptible of division, that part which is not affected may
be enforced disregarding that part which is void. Such that
if the contract is falsified by the unauthorized insertion of
additional stipulation, this falsified insertion shall be
considered inexistent and the part unaffected shall be
enforced.

17. Concept of Quasi - Contracts

It is a juridical relation which arises from certain lawful

voluntary, and unilateral acts, to the end that no one may be
unjustly enriched or benefited at the expense of another.
A quasi-contract is not an implied contract because in
there is no
a quasi-contract (unlike in an implied contract)
meeting of the minds.

Two principal kinds of Quasi-Contracts.

administration of the
1 Negotiorum Gestio voluntary
-

business of a third person without

or affairs
property,
the consent or authority of its owner.
of an obligation
2 Solutio Indebiti payment by mistake
-

which was not due when paid.

from contract
The distinctive mark of a quasi-contract
the parties, while in
is that in contract, there is consent of
quasi-contract, the obligation
arises without a contract.

18. Some examples of Quasi-Contracts

takes charge of the
1) Art. 2144. Whoever voluntarily
of the business or property of
agency or management
8 Part 1/Obligations and Contracts

another, without any power from the latter, is obliged to

continue the same until the termination of the affair and
its incidents, or to require the person concerned to
substitute him, if the owner is in a position to do so.

Example
D, a merchant-farmer and owner of a ten-hectare
agricultural land, left for USA on a pleasure trip. While
enroute to USA, yphoon "Yolanda" devastated the entire
Philippines, including the land owned by D. Before the
typhoon reached our area of responsibility, C, a
neighbor of D, employed six (6) farmers to harvest the
palay planted on the land of D. The expenses incurred
is P600. In here, the obligation of D upon arrival is to
reimburse C P600 because he must not be enriched
at the expense of another.

2) Art. 2154. If something is received when there is no

right to demand it, and it was unduly delivered through
mistake, the obligation to return it arises.

Example
D owes CP10,000 payable on December 25, 2018.
On December 10, 2018, D, thinking that the obligation
was already due paid C the full amount of the obligation.
In this case, C's
obligation is to return the amount paid
because the obligation is not yet due and the
(C) has no right to demand it. obligee

3) Art. 2164. When, without the

obliged to knowledge of the person
give support, it is given by a stranger, the
latter shall have a right to claim the same
from the fomer,
unless it appears that he
gave it out of piety and without
intention of being repaid.
Pointers in Business Law (For CPA Reviewees) 9

4) Art. 2167. When,

through an accident or other cause, a
person is injured or becomes seriously ill, and he is
treated or helped while he is not in a condition to give
consentto a contract, he shall be liable to pay for the
services of the physician or other person aidirng him,
unless the service has been rendered out of pure
generosity.
5) Art. 2168. When, during a fire, flood, storm, or other
calamity, property is saved from destruction by another
person without the knowledge of the owner, the latter is
bound to pay the formerjust compensation.

6) Art. 2174. When, in a small community, a majority of

the inhabitants of age decides upon a measure for
protection against lawlessness, fire, flood, storm or other
refuses to
calamity, anyone who objects to the plan and
contribute to the expenses but is benefited by the prOject
as executed shall be liable to pay his
share of said
expenses.

ex delicto or ex maleficio.
19. Rules governing obligation
Code and other penal laws,
1) Philippine Revised Penal of Article 2177 of the Civil
subject to the provisions
Code. the
Preliminary Title, on Human Relations of
2) Chapter II,
Civil Code.
of Book IV.
3) Civil Code on damages, Title 18

as a source of an obligation
20. Commission of a crime
liable
Every person who is criminally liable is also civilly
the Revised Penal Code.
If a person
under Art. 100 of must not only be
is guilty of the crime charged, he
therefore also answer for damages
as a civil
imprisoned but he shall
Such civil obligation is
a necessary
obligation.
10 Part 1/Obligations and Contracts

consequence of criminal responsibility, and is to be

declared and enforced in the same criminal
proceeding
except when the injured party reserved his right to file the
civil action independently from the criminal action.
Rule 111, Revised Rules of Court). (Sec. I,

21. Commission of a crime or felony will not always make

a person civilly liable.

As a rule, when a person commits a crime, he

can be
held criminally liable and in addition, he can also
be held
civilly liable because most often the commission of a crime
causes not only moral evil but also material
damage.
However, not all crimes cause material injury. Therefore, if
there is no material damage to be compensated or to be
indemnified, there is no civil liability to be indemnified.
22. What is included in civil
liability??
1) Restitution - Art. 105, Revised Penal Code - The
restitution of the thing itself must be made whenever
possible, with allowance for any deterioration or
diminution of value as determined by the court.
The thing itself shall be restored, even though it be
found in the possession of a third who
person
acquired it by lawful means, saving to the has
latter his action
against the proper person who may be liable to him.
This provision is not applicable in cases in which
the thing has been acquired
by the third person in the
manner and under the
an action for its
requirements which, by law, Da
recovery.
2) Reparation ofthe damage caused-Art. 106, Revise
Penal Code-The court shall determine the amount of
damage, taking into consideration the price of the thing.
Pointers in Business Law (For CPA 11
Reviewees)
whenever possible, and its special sentimental value
to the injured party, and reparation shall be made
accordingly.
3) Indemnification for consequential damages-Art. 107,
Revised Penal Code - Indemnification for
consequential damages shall include not only those
caused by the injured party, but also those suffered by
his family or by a third person by reason of the crime.

Example:
D stole the car of C. While driving the stolen car
looking for a buyer, a 6x6 truck sideswiped the car
causing a damage of P50,000. In this case, the
obligatjon of D is to restore or return the car to the owner
C and to pay the damage caused amounting to
P50,000. Dmust also paythe consequential damage
suffered by C, and those suffered by his family or by
third persons by reason of the crime.
23. Proof or evidence required.

1. Proof or evidence beyond reasonable doubt when

-

civil liability for damage is included in the criminal case.

claim for
2. Mere preponderance of evidence when
-

damage is filed separately with the criminal action.

24. Effect if the guilty party died pending trial.

The civil obligation is not extinguished. The injured party
the estate of the offender, but the
may file his claim against
heirs are not liable beyond the value of the property they
received from the decedent. (Arts. 1178 and 1311, CC)
 Part 1/Obligations and Contracts
12
is acquitted of the criminal
25. Effect if the guilty party
action fled.
does not carry with it
The extinction of the penal action
civil action based
extinction of the civil action. However, the
on delict shall be deemed extinguished if there finding
is a
in a final judgment in the criminal action
that the act or
omission from which the civil liability may arise did not exist.
(Section 2, Rule 111, Revised Rules of Court).
26. Minimum amount recoverable in case of death.
The minimum amount of damages recoverable in case
of death caused by a crime or quasi-delict is P75,000
without the need of presenting evidence or proof of
damages. However, other damages may be recovered by
the injured party. (People vs. Mariano Dandasan, Jr., G.R.
No. 194605, June 14, 2016)

27. May a person who committed an act constituting a

crime be exempted from criminal liability?
Yes, this is provided for in Article 12 of the Revised
Penal Code. The following persons are exempted from
crimina' liability even if the act committed constitutes a
crime
1. Animbicile orinsane person, unless he acted during
a lucid interval.
2. A person under 9 years old.
3. Aperson over 9 years old but below 15, unless he
acted with discernment.
4. Accident
5. Persons acting under the compulsion of an
irresistable force.
6. Persons acting under the impulse of an
uncontrollable fear of an equal or greater injury.
Pointers in Business Law (For CPA Reviewees) 13

7. Persons who fail to perform an act required by law

when prevented by some lawful or insuperable
cause.

Note: These persons are exempted from criminal liability

but not from civil liability, except paragraphs 4 and
7. This civil liability shall devolve upon their
guardians or persons whom they are under contro
or authority.

28. Concept of quasi-delict or culpa aquiliana

Quasi-delict, or tort, or Culpa Aquiliana, is the wrong
committed against a person independent of contract and
without criminal intent.

Example:
D, while driving his car negligently hit a pedestrianX,
liable
inflicting upon the latter bodily injury. In here, D is
because of his negligent act and this is called quasi-delict.

29. Basis of liability.

Manresa, aSpanish Commentator in Civil law states
that the liability for quasi-delict is founded upon
an
the fault or
indisputable principle of equity; namely, besides its
else
negligence cannot prejudice anyone
be born by
author, and in no case should its consequences the victim
becomes
him who, without will or fault on his part,
such fault or
of the result or suffers the harm produced by
negligence.
is responsible
He goes further and opined that a
man
consciously
executed
not only for his voluntary willful act with lack
and intentionally, but also for those acts performed
caused material
of foresight, care and diligence, which
harm to society or to other individuals.
14
Part 1/Obligations and Contracts

elements to concur before the person

30. Requisites or
is liable for quasi-delict.

1) The act or omission complained of is due to the fault or

negligence of the offending party.
2) The act or omission causes damage or injury.
3) There is a direct relation of cause and effect between
the fault or negligence and the damage or injury.
4) There is no pre-existing relation between the offender
and the offended parties.

31. Definition of negligence

Negligence is the omission of that diligence which is
required by the circumstances of person, place, and time.

Kinds of negligence
1. Culpa acquiliana orquasi-delict-The negligence as a
source of an obligation.
2. Culpa contractual-The negligence in the perfomance
of an obligation arising from contract.
3. Culpa criminal-That negligence that results to a crime.

32. Culpa or negligence distinguished from Dolo or Fraud.

In Culpa, it is not the act or omission which gives rise to
the responsibility, but the want of care required from the
circumstances. In dolo, the act done or executed by the
actor is wilful or deliberate with an intention to cause the
resulting loss.
33. Culpa or negligence as distinguished from crimes.
1) In culpa or quasi-delict, whenever in the execution oT
the act or its omission fault or
negligence supervenes,
Pointers in Business Law (For CPA Reviewees) 15
the actor is liable; while in crimes, there is no crime

unless there is a law penalizing it. The notion is "Nullum

Crimen, Nulla Poena sine lege".
2) In culpa or quasi-delict, criminal intent is not necessary
while in crimes, riminal intent is necessary, except in
criminal negligence.
3) In culpa or quasi-delict, damages are awarded to the
injured party; while in crimes, some violations will not
make the person liable for damages because there is
no one injured.
4) In culpa or quasi-delict, the right violated is a private
right; while in crimes, the right violated is a public right.

5) In culpa or quasi-delict, the proof of fault or negligence

will only be by preponderance of evidence; while in
crimes, it is beyond reasonable doubt.
climb
Ilustrative Case: X ordered a 10-year old boy, C, to
a high and slippery santol tree,
with a promise to give himn
fell on the ground and died
parts of the fruits. C slipped,
instantenously. Is Xliable?
act in making the order.
Yes, in view of his negligent
the standard conduct
His act was clearly a departure from ordered
man. He should not have
required of a prudent because it is treacherous, a
the boyto climb the tree
veritable trap. In this case,
there is no criminal liability
kill the boy, but only
because there is no intention to
or torts.
damages based on culpa aquiliana

The prestation in an obligation.

34.
1) to give
2) to do
3) not to do
16 Part 1/Obligations and Contracts

35. Obligations of a person obliged to give something

35.
A. Obligation is determinate.
1. To deliver the thing
2 To take care of the thing with the proper diligence of
a good father of a family (Art. 1163, CC).
3 To deliver all accessions and accessories (Art. 1166,
CC)
4 To pay damages in case of breach of the obligation
(Art. 1170, CC)

B. Obligation is indeterminate or generic.

1. To deliver a thing which must be neither ofsuperior
nor inferior quality. (Art. 1246, CC)
2. To pay damages in case of breach ofthe obligation.
(Art. 1170, CC)
36. Diligence required in the preservation and delivery
of a determinate thing.
1) By provision of law. Example, the extraordinary
diligence required of a common carrier with respect to
its passengers. (Art. 1755, Civil Code)
2) By stipulation of the parties.
3) In theabsence of both, the diligence of a good father of
a family.

37. Meaning of the phrase "good father of a family or

bonum pater familia".
If a person is obliged to give something. he must
take
good care of it as. if he is the real owner. Short of that
expectation, he will answer for damages.
Pointers in Business Law (For CPA Reviewees)_ 17

Example: January 1, 2017, D obliged himself to give

Ca specific racing horse on December 25, 2017. The
obligation of D in this case is to deliver the horse on
December 25, 2017. But from January 1 up to December
25, he must take good care of the horse as if he is the
owner. Since this is a racing horse, D must feed the horse
three times a day until the date of delivery. Failure to do so,
and the horse, as a consequence, dies, D will answer for
damages because he is guilty under this article.

38. Creditor's right to the fruits of the thing.

The creditor has a right to the fruits of the thing from the
time the obligation to delivery it arises. (Art. 1164, CC)

Example: On June 1, 2017, D obliged himselfto give

Ca specific parcel of land on December 31, 2017.
However, this land was leased to X for P20,000 per month.
In here, the only right of C on December 31 is to demand
delivery, but he cannot require D to give the rentais X paid
D from June up to December, because he is entitled to the
fruits only from the moment the obligation to deliver it arises.
However, if D could not deliver the land after demand on
December 31, 2017, and delivers it only on December 31,
2018. C now can demand payment of the rentals for
P20,000 because C is entitled to the fruits from December
31, 2017 to December 31, 2018.
39. Creditor's right to the fruits, personal and real rights
explained.
the creditor's right is
1) Before delivery of the fruits
personal or jus in personam, a right which is enforceable
only against a definite passive subject, the debtor.
18 Part 1/Obligations and Contracts

2) After delivery of the fruits - the creditor has now a real

right over the fruits from the time of delivery and

becomes enforceable against the whole world. In short,
it gives a person a direct and immediate juridical power
over a thing which can be exercised not only against a
definite passive subject but against the whole world
The rights of ownership and possession are real
rights.
40. Delivery or tradition is a requisite for the purpose of
acquiring ownership.
It is a fundamental principle in contract of sales that what
transfers ownership of a thing is not the agreement but thee
delivery of the object. So, before delivery, the creditor's
right is only personal, that is, to demand delivery of the object
and its fruits.

Example:
1) Personal right orjus in personam.
On June 1, 2017, D obliged himself to deliver to
Ca specific horse on June 30, 2017. D
fails to
deliver on the date promised and in the meantime
the horse gave birth to a colt on July 15, 2017. In
here, C can demand from D the delivery of the
horse
undo the colt which was born after the due date of
the obligation. This right is
personal to be directed
only against the passive subject which is D.
However, if D sold and delivered the horse and
the colt to X, a buyer in
good faith, C has no right
against X because what transfers
ownership is tne
delivery of the object. X now is the owner but CS
right is to ask for damages because of D's failure
to deliver.
Pointers in Business Law (For CPA Reviewees)_ 19
2) Realright or jus in rem.
In the previous example, if D delivered the horse
and the colt to C on July 16, C becomes the owner
of the horse and colt on July 16, the date ofdelivery.
Take note that C's right is converted into a real right
enforceable against the whole world.

41. Kinds offruits: N I1C

1) Naturalfruits-spontaneous products ofthe soil without
the intervention of human labor, and the young and other
product of animals with or without the intervention of
human labor, such as forest products.
2) Industrial fruits-products ofthe soil through cultivation
or human labor, such as palay and vegetables planted
by farmers.
3) Civilfruits-fruits as a result of civilization or fruits arising
out of a juridical relation, such as rent of lands,
apartments and buildings.

42. Definition of terms and examples

1) Deteminate or specific -

particularly designated or
class.
physically segregated from all others of the
same

Examples: 007
a) A 2016 Chevrolet Camaro ZL1, with engine No.
and plate No.MIC-010.
No. 9, situated at the of Refen
corner
b) Apartment
Street and San Anton Street, Sampaloc, Manila.

2) Indeteminate orgeneric- not particularly designated

or separated from the others of the same class.
 Part 1/Obligations and Contracis
20

Examples: ZL1
a) 2016 Chevrolet Camaro
a
b) a horsse
c)P10,000

bound himself to deliver to B the

43. lustrative Case: S
following
a) 32-inch 2018 model TV set
b) 14 cubic feet, white Westinghouse refrigerator, with
Motor No. 007.
S did none of these things. May the court compel S to
deliver the TV set and the refrigerator? Why?

a) TV set No, because the object is generic. The

-

right of B is to demand a TV set which is neither

superior nor inferior in quality as provided for in
Article 1246 ofthe Civil Code which states that
"when the obligation consists in the delivery of
an indeterminate or generic thing, whose
quality and circumstances have not been
stated, the creditor cannot demand a thing of
superior quality. Neither can the debtor deliver
a thing of inferior quality". Therefore, specific
performance is physically or legally impossible.
b) Refrigerator Yes, because the object is
determinate.

B. Suppose that the object of the obligation to give is lost

or destroyed through a fortuitous event, can the debtor
or obligor still be held liable for damages?
Pointers in Business Law (For CPA Reviewees) 21

Answer: It depends. Ifthe obligation is determinate,

as a general rule, the obligor or debtor cannot be held
liable for damages (Art. 1174, CC)
f the obligation, however, is indeterminate or

generic, the debtor or obligor can still be held liable for

damages (Art. 1263, CC). An indeterminate or generic
thing can never perish (genus nunquam peruit).
44. Accessions and accessories defined and exemplified.

1) Accessories those things which are used for the

are
of
embellishment, use, or preservation of another thing
more importance.

to
Example: Tools and spare parts, with respect
a
the jack with
machine, the keys with respect to a house,
respect to a specific car.

2) Accessions include everything which is produced bya

either naturally
thing, incorporated or attached thereto, such as
or scientifically. It includes natural accession,
such as building,
alluvion, and industrial accession,
planting and sowing.

accessories of a
45. Creditor's right to the accession or

determine thing.
The creditor is entitled to everything that attached,
is

naturally or artificially, to the principal thing. Accordingly,

even when the accessions
and accessories have been
make
temporarily separated, the obligor is still bound to
the necessary delivery. However, the parties may stipulate
excluded from
that the accession and accessories may be
the obligation to deliver.
22 Part 1/ Obligations and Contracts

46. Creditor's right in an obligation to do something.

1. Ifthe debtor fails to perfom the obligation.
a) The creditor may demand that the obligation be
performed by the debtor himself or by a third person
at the expense of the debtor. However, the debtor
cannot be compelled to comply with his obligation
for this will amount to involuntary servitude in violation
of his constitutional right. Even when the obligation
is too personal that only the debtor can do it, the
only remedy is to recover damages in case of non-
performance.
b) To demand damages against the debtor for breach
of contract under Article 1170.

2 If the debtor performed the obligation but in

contravention of the agreement.

a) The creditor may ask that another person perfom

the obligation at the expense of the debtor.
b) The creditor may demand damages against the
debtor for breach of contract underArticle 1170.

3. If the obligation is poorly done.

his
a) The creditor may ask that it be undone at
(debtor's) expense
b) The creditor may demand damages against the
debtor under Article 1170.

47. llustrative Case:

D obliges himself to construct a Sabo

one-kilometer
to protect the property of
dam in Bacolor, Pampanga,
Pointers in Business Law (For CPA Reviewees) 23
against the lahar fury of the Mount Pinatubo eruption. It was

stipulated that the of the dam from the basement

height two
shall be tfour (4) meters, and crushed stone measuring
inches in diameter shall be used.

1. If D does not construct the dam on time, C may ask

contractor to do the at the expense of D
job
another
plus damages.
2. IfD constructed the dam but used 1/2-inch diameter of
crushed stone, C may ask that D comply with his

obligation
or may ask another contractor to do the job
at the expense of D plus damages.

If D constructed the dam according to specification

combination but the height is only (3) meters, C may
ask another contractor to do the job for C at D's expense
plus damages.
48. When an obligation is breached.
When an obligation, regardless of its source, i.e., law,
is
contracts, quasi-contracts, delicts or quasi-delicts,
breached, the contravenor can be held liable for damages.
The provisions under Title XVIll on "damages" of the Civil
recoverable
Code govern in determining the measure of
damages.
With regard particulary to an award of interest in the
the rate of
concept of actual and compensatory damages,
interest, as well as the accrual thereof, is imposed as
follows:

1. When the obligation is breached, and it consists in the

payment of a sum of money, i.e., a loan or forbearance of
that which may have
money, the interest due should be
been stipulated in writing. Furthermore, the interest due
 Part 1/ Obligations and Contracts
24
shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of
interest shall be 12% per annum to be computed from
default, i.e., from judicial or extra-judicial demand under
and subject to the provisions of Art. 1169 ofthe Civil Code

2. When an obligation, not constituting a loan or forbearance

of money, is breached, an interest on the amount of
damages awarded may be imposed at the discretion of
the court at the rate of 6% per annum. No interest, however,
shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with
reasonable certainty. Accordingly, wherethe demand is
established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or
extra-judicially (Art. 1169, Civil Code), but when such
certainty cannot so reasonably established at the time
demand is made, the interest shall begin to run only from
the date the judgment of the court is made (at which time
the qualification of damages may be deemed to have
been reasonably ascertained). The actual base for the
on the
computation of legal interest shall, in any case, beInc. vs.
emount finally adjudged. (Eastern Shipping Lines,
Court of Appeals, 234 SCRA 78)

does
49. Creditor's right against the debtor if the debtor
what has been forbidden.
debtof.
1. To ask that it be undone at the expense of the
2. Demand damages for breach of contract.

lustrative Case: X andY are owners of two adjoining

Bulacan. The partE
pieces of land situated in Bocaue, that
that X will give P10,000 to Y on the condition t,
agreed
wIll not construct any tenement, temporary or perma
use it as his galay
on his land for five years because X wil
PointersinBusiness Law (For CPA Reviewees) 25

for five(5) years. After one year, Y constructed a semi-

structuregarageto house his three (3) for hire tricycles.
or to ask a
here, X may ask that Y demolish the structure,
third person to do the job at the expense of Y plus damages.

50. Q When Does the Obligation to Deliver Arise?

from the
A 1 . If there is no term or condition, then
perfection of the cortract.
then from the
2. If there is a term or a condition,
moment the term arrives or
the condition
happens.

51. Concept of delay, default or mora.

or nonfulfillment of an obligation with

It is the delay
respect to time.

Kinds of Mora or Delay.

debtor's part.
1. Mora solvendi-
creditor's part.
2. Mora accipiendi- defaultad.
Compensatio Morae both parties
-

3.
de, istiern does the
52. Q - I n obligations to give or to
incur in delay?
obligor or debtor reditor
The debtor incurs in delay from the t i e he
A demands from him the
judicially orextrajudicially
and in sp:e of sucli
fulfillment of his obligation
with the sbligaion.
demand, he is unable to coniply
(Art. 1169, par. 1.)
Solvendi
Requisites of Mora
must be liquidated, due and
1. The obligation
deimandable.
of non-performance.
2. The debtor is guilty
made judicially or exira-juricialy.
3. There was demand