OBLIGATIONS CHAPTER 2 - ART. 1171-1178
ART. 1171. Responsibility arising from fraud is demandable
in all obligations. Any waiver of an action for future fraud is
void.
Responsibility arising from fraud demandable.
This article refers to incidental fraud which is employed in the
fulfillment of an obligation. (Art. 1170.)
Responsibility arising from fraud can be demanded with respect to
all kinds of obligation and unlike in the case of responsibility arising from
negligence (Art. 1172.), the court is not given the power to mitigate or reduce
the damages to be awarded. This is so because fraud is deemed serious and
evil that its employment to avoid the fulfillment of one’s obligation should be
discouraged.
Waiver of action for future fraud void.
According to the time of commission, fraud may be past or future.
A waiver of an action for future fraud is void (no effect, as if there is no
waiver) as being against the law and public policy. (Art. 1409[1].) A contrary
rule would encourage the perpetration of fraud because the obligor knows
that even if he should commit fraud he would not be liable for it thus making
the obligation illusory.
upon the circumstances of each particular case. Moreover, negligence is not
as serious as fraud because in the case of the former, there is no bad faith or
deliberate intention to cause injury or damages. The courts, however, may
increase the damages.
​ When both parties to a transaction are mutually negligent in the
performance of their obligations, the fault of one cancels the negligence of
the other. (Remington Industrial Sales Corp. vs. Chinese Young Men’s
Christian Assoc., 531 SCRA 750 [2007]; see Arts. 1160, 1192.)
Validity of waiver of action arising from negligence.
​ An action for future negligence (not fraud) may be renounced except
where the nature of the obligation requires the exercise of extraordinary
diligence as in the case of common carriers. (see Art. 1733.)
​ Where negligence is gross or shows bad faith, it is considered
equivalent to fraud. Bad faith does not simply connote negligence or bad
judgment causing damages to another. Any waiver of an action for future
negligence of this kind is, therefore, void.
Kinds of negligence according to source of obligation.
Culpa or negligence may be understood in three different senses.
They are:
Waiver of action for past fraud valid.
What the law prohibits is waiver anterior to the fraud and to the
knowledge thereof by the aggrieved party.
A past fraud can be the subject of a valid waiver because the waiver can
be considered as an act of generosity and magnanimity on the part of the
party who is the victim of the fraud. Here, what is renounced is the effects of
the fraud, that is, the right to indemnity of the party entitled thereto.
ART. 1172. Responsibility arising from negligence in the
performance of every kind of obligation is also demandable, but such
liability may be regulated by the courts, according to the circumstances.
​ Contractual negligence (culpa contractual) or negligence in
con-tracts resulting in their breach Article 1172 refers to “culpa
contractual.” This kind of negligence is not a source of obligation. (Art.
1157.) It merely makes the debtor liable for damages in view of his
negligence in the fulfillment of a pre-existing obligation resulting in its
breach or non-fulfillment. (Arts. 1170-1174, 2201.) It is a kind of civil
negligence if it does not amount to a crime;
​ Civil negligence (culpa aquiliana) or negligence which by itself is
the source of an obligation between the parties not formally bound before by
any pre-existing contract. It is also called “tort” or “quasi-delict.” (Art.
2176.10);
Responsibility arising from negligence demandable.
​ In the performance of every kind of obligation, the debtor is also
liable for damages resulting from his negligence or culpa. The courts,
however, are given wide discretion in fixing the measure of damages. The
reason is because negligence is a question which must necessarily depend
​ Criminal negligence (culpa criminal) or negligence resulting in the
commission of a crime. (Arts. 3, 365, Revised Penal Code.) The same
negligent act causing damages may produce civil liability arising from a
crime under Article 100 of the Revised Penal Code (supra.), or create an
action for quasi-delict under Article 2176, et seq., of the Civil Code.
ART. 1173. The fault or negligence of the obligor consists in
the omission of that diligence which is required by the nature of
the obligation and corresponds with the circumstances of the
persons, of the time and of the place. When negligence shows bad
faith, the provisions of Articles 1171 and 2201, paragraph 2, shall
apply.
If the law or contract does not state the diligence which is to
be observed in the performance, that which is expected of a good
father of a family shall be required.
Meaning of fault or negligence.
Fault or negligence is defined by the above provision. (par. 1.)
According to our Supreme Court, “negligence is conduct that creates
undue risk or harm to another. It is the failure to observe for the protection of
the interests of another person, that degree of care, precaution and vigilance
which the circumstances justly demand, whereby such other person suffers
injury.” (Jarco Marketing Corporation vs. Court of Appeals, 321 SCRA 375
[1999].) It is “the want of care required by the circumstances.’’ (Cortes vs.
Manila Railroad Company, 27 SCRA 674 [1969];
​
Factors to be considered.
Negligence is a question of fact, its existence being dependent upon the
particular circumstances of each case. It is never presumed but must be
proven by the party who alleges it. In determining the issue of negligence
where loss or damage occurs, the following factors must be considered:
​ Nature of the obligation. — e.g., smoking while carrying materials
known to be inflammable constitutes negligence;
​ Circumstances of the person. — e.g., a guard, a man in the prime of
life, robust and healthy, sleeping while on duty is guilty of negligence;
​ Circumstances of time. — e.g., driving a car without headlights
at night is gross negligence but it does not by itself constitute negligence
when driving during the day; and
​ Circumstances of the place. — e.g., driving at 60 kilometers per
hour on the highway is permissible but driving at the same rate of speed in
Quezon Boulevard, Manila, when traffic is always heavy is gross
recklessness.
When the source of an obligation is derived from a contract, the mere
breach or non-fulfillment of the prestation gives rise to the presumption of
fault on the part of the obligor. (Sabena Belgian World Airlines vs. Court of
Appeals, 255 SCRA 38 [1996].)
Kinds of diligence required.
Diligence is “the attention and care required of a person in a given
situation and is the opposite of negligence.’’ (Sambijon vs. Suing, 503 SCRA
1 [2006].) Under Article 1173, the following kinds of diligence are required:
​
(a), that agreed upon by the parties, orally or in writing;
​ (b). in the absence of stipulation, that required by law in the
particular case (like the extraordinary diligence18 required of common
carriers); and if both the contract and law are silent, then (c) the diligence
expected of a good father of a family (par. 2.) or ordinary diligence.
Whether or not the negligence of the obligor is excusable will depend on
the degree of diligence required of him. Under No (3), for example, the
obligor is not liable for damages where his negligence is one which ordinary
diligence and prudence could not have guarded against.
ART. 1174. Except in cases expressly specified by the law, or
when it is otherwise declared by stipulation, or when the nature
of the obligation requires the assumption of risk, no person shall
be responsible for those events which could not be fore-seen, or
which, though foreseen, were inevitable.
Meaning of fortuitous event.
A fortuitous event is any extraordinary event which cannot be foreseen,
or which, though foreseen, is inevitable. In other words, it is an event which
is either impossible to foresee or impossible to avoid.
The essence of a fortuitous event consists of being a happening
independent of the will of the obligor and which happening, makes the
normal fulfillment of the obligation impossible.
Fortuitous event distinguished from force majeure.
​ Acts of man. — Strictly speaking, fortuitous event is an event
independent of the will of the obligor but not of other human wills, e.g., war,
fire, robbery, murder, insurrection, etc.
​ Acts of God. — They are those events which are totally independent
of the will of every human being, e.g., earthquake, flood, rain, shipwreck,
lightning, eruption of volcano, etc. They are also called force majeure. The
term generally applies to a natural accident.
In our law, fortuitous events and force majeure are identical in so far as
they exempt an obligor from liability. Both are independent of the will of the
obligor. (Republic vs. Luzon Stevedoring Corp., 21 SCRA 279 [1967];
University of Santo Tomas vs. Descals, 38 Phil. 287 [1918].)
Kinds of fortuitous events.
In speaking of the contract of lease, our Civil Code distinguishes
between two kinds of fortuitous events, namely:
​
​ Ordinary fortuitous events or those events which are common and
which the contracting parties could reasonably foresee (e.g., rain); and
​ Extraordinary fortuitous events or those events which are
uncommon and which the contracting parties could not have reasonably
foreseen (e.g., earthquake, fire, war,19 pestilence, unusual flood). (see Art.
1680, par. 2.)
Requisites of a fortuitous event.
Whether an act of man or an act of God, to constitute a fortuitous event,
it is essential that:
​ The event must be independent of the human will or at least of the
obligor’s will;
​ The event could not be foreseen (unforeseeable), or if it could be
foreseen, must have been impossible to avoid (unavoidable);
​ The event must be of such a character as to render it impossible for
the obligor to comply with his obligation in a normal manner; and
​ The obligor must be free from any participation in, or the
ag-gravation of the injury to the obligee. Juntilla vs. Fontaner, 136 SCRA
624 [1985].)
The absence of any of the above requisites (all of which must be proved)
would prevent the obligor from being exempt from liability.
Rules as to liability in case of fortuitous event.
A person is not, as a rule, responsible for loss or damage resulting from
fortuitous events. In other words, his obligation is extinguished. The
exceptions are enumerated below.
​ When expressly specified by law.21 — In exceptions (a), (b), and
​
below, the special strictness of the law is justified.
​
The debtor is guilty of fraud, negligence, or delay, or
contravention of the tenor of the obligation. (Arts. 1170, 1165, par. 3.)
​
The debtor has promised to deliver the same (specific) thing
to two or more persons who do not have the same interest for it would be
impossible for the debtor to comply with his obligation to two or more
creditors even without any fortuitous event taking place. (Ibid.)
​
The debt of a thing certain and determinate proceeds from a
criminal offense, unless the thing having been offered by the debtor to
the person who should receive it, the latter refused without justification
to accept it. (Art. 1268.)
​
The thing to be delivered is generic (Art. 1263.) for the
debtor can still comply with his obligation by delivering another thing of
the same kind in accordance with the principle that “ge-nus never
perishes” (genus nunquam perit).
​ When declared by stipulation. — The basis for this exception rests
upon the freedom of contract. (See Art. 1306.) Such a stipulation is usually
intended to better protect the interest of the creditor and procure greater
diligence on the part of the debtor in the fulfillment of
his obligation. But the intention to make the debtor liable even in case of a
fortuitous event should be clearly expressed.
Happening of event was clearly unforeseen.
Facts: B borrowed the car of L. While about to reach his destination,
the car driven by L’s driver and with B as the sole passenger, was
accidentally stoned by some “mischievous boys” playing along the road
and its windshield was broken.
Issue: Did B assume the risk of the car being stoned?
Held: No. What happened was clearly unforeseen. It was a fortuitous
event which must be borne by the owner (L) of the car. The very wording
of Article 1174 dispels any doubt that what is therein contemplated is the
resulting liability even if caused by a fortuitous event where the party
charged may be considered as having assumed the risk incident in the
nature of the obligation to be performed. (Dioquino vs. Laureano, 33
SCRA 65 [1970].)
ART. 1175. Usurious transactions shall be governed by
special laws.
Meaning of simple loan or mutuum.
Simple loan or mutuum is a contract whereby one of the parties delivers
to another money or other consumable thing, upon the condition that the
same amount of the same kind and quality shall be paid. It may be gratuitous
or with a stipulation to pay interest. (Art. 1933.)
Meaning of usury.
Usury is contracting for or receiving interest in excess of the amount
allowed by law for the loan or use of money, goods, chattels, or credits.
(Tolentino vs. Gonzales, 50 Phil. 558 [1927].)
Kinds of interest.
They are:
​ Simple interest. — when the rate of interest is stipulated by the
parties (Art. 2209.);
​ Compound interest. — when the interest earned is upon interest due
(Arts. 2212, 1959.);
​ Legal interest. — when the rate of interest intended by the parties is
presumed by law, as when the loan mentions interest but does not specify the
rate thereof. (Art. 2209.) The same rate is allowed in judgments where there
is no express contract between the parties.
​ Legal rate. — 12% per annum. (see Sec. 1, Ibid.) The legal rate is
12% (from default until fully paid) if the transaction is a loan or forbearance
of money, goods, or credits or the judgment involves a loan or forbearance of
money, goods or credits, as prescribed in Central Bank Circular No. 416
(infra.); otherwise (e.g., indemnity for damages occasioned by an injury to
person or loss of property), it is only 6% as provided in Article 2209 of the
Civil Code. (infra.)
Requisites for recovery of monetary interest.
In order that monetary interest may be recovered, the following requisites
must be present:
​ The payment of interest must be expressly stipulated (Art.1956;
​
The agreement must be in writing; and
​
The interest must be lawful. (Art. 1957.)
A stipulation for the payment of usurious interest is void, that is, as if
there is no stipulation as to interest. (Art. 1413.)
ART. 1176. The receipt of the principal by the creditor,
with-out reservation with respect to the interest, shall give rise to
the presumption that said interest has been paid.
The receipt of a later installment of a debt without
reservation as to prior installments, shall likewise raise the
presumption that such installments have been paid.
Meaning of presumption.
By presumption is meant the inference of a fact not actually known
arising from its usual connection with another which is known or proved.
Two kinds of presumption.
​ Conclusive presumption. — one which cannot be contradicted like
the presumption that everyone is conclusively presumed to know the law (see
Art. 3.); and
​ Disputable (or rebuttable) presumption. — one which can be
contradicted or rebutted by presenting proof to the contrary like the
presumption established in Article 1176. (Sec. 69[i], Rule 123, Rules of
Court.)
When presumptions in Article 1176 do
not apply.
​ With reservation as to interest. — The presumptions established in
Article 1176 do not arise where there is a reservation as to interest or prior
installments, as the case may be. The reservation may be made in writing or
verbally.
​ Receipt for a part of principal. — The first paragraph of Article
1176 only applies to the receipt of the last installment of the entire capital,
not to a mere fraction thereof. This is logical. A receipt for a part of the
principal, without mentioning the interest, merely implies that the creditor
waives his right to apply the payment first to the interest and then to the
principal, as permitted by Article 1253.
​ Receipt without indication of particular installment paid. — It has
been held that the presumption in paragraph 2, Article 1176 is not applicable
if the receipt does not recite that it was issued for a particular installment due
as when the receipt is only dated. Thus, in the preceding example (No. 2), the
fact alone that the receipt issued by R is dated April 5, does not justify the
inference that the rents for February and March had been paid. (see Manila
Trading & Co. vs. Medina, supra.)
​ Payment of taxes. — Article 1176 does not apply to the payment of
taxes. Taxes payable by the year are not installments of the same obligation.
​ Non-payment proven. — Of course, Article 1176 is not applicable
where the non-payment of the prior obligations has been proven. Between a
proven fact and a presumption pro tanto, the former stands, and the latter
falls. (Ledesma vs. Realubin, 8 SCRA 608 [1963].)
ART. 1177. The creditors, after having pursued the property
in possession of the debtor to satisfy their claims, may exercise
all the rights and bring all the actions of the latter for the same
purpose, save those which are inherent in his person; they may
also impugn the acts which the debtor may have done to
de-fraud them.
Remedies available to creditors for the
satisfaction of their claims.
In case the debtor does not comply with his obligation, the creditor may
avail himself of the following remedies to satisfy his claim:
​ Exact fulfillment (specific performance) with the right to
damages;
​
Foreclose the property of the debtor;
​ Exercise all the rights (like the right to redeem) and bring all the
actions of the debtor (like the right to collect from the debtor of his debtor)
except those inherent in or personal to the person of the latter (such as the
right to vote, to hold office, to receive legal support, to revoke a donation on
the ground of ingratitude, etc.); and
​ Ask the court to rescind or impugn acts or contracts which the
debtor may have done to defraud him when he cannot in any other manner
recover his claim.23 (see Arts. 1380-1389.)
The debtor is liable with all his property, present and future, for the
fulfillment of his obligations, subject to the exemptions provided by law.24
(see Art. 2236.)
ART. 1178. Subject to the laws, all rights acquired in virtue
of an obligation are transmissible, if there has been no stipulation
to the contrary. (1112)
Transmissibility of rights.
All rights acquired in virtue of an obligation are generally transmissible.
(see Art. 1311.) The exceptions to this rule are the following:
​ Prohibited by law. — When prohibited by law, like the rights in
partnership, agency, and commodatum which are purely personal in character.
By the contract of partnership, two or more persons bind
​
themselves to contribute money, property or industry to a common fund,
with the intention of dividing the profits among themselves. (Art. 1767.)
By the contract of agency, a person binds himself to render
​
some service or to do something in representation or on behalf of
another, with the consent or authority of the latter. (Art. 1868.)
By the contract of commodatum, one of the parties delivers
​
to another something not consumable so that the latter may use the same
for a certain time and return it. Commodatum is essentially gratuitous.
(Art. 1933.)
​ Prohibited by stipulation of parties. — When prohibited by
stipulation of the parties, like the stipulation that upon the death of the
creditor, the obligation shall be extinguished or that the creditor cannot
assign his credit to another. The stipulation against transmission must not be
contrary to public policy. (see Art. 1306.)