Obligatio

ns and
contracts
 01
OBLIGATIONS
WITH A
02 03 04
PENAL FORTUITOUS negligence Delay
CLAUSE EVENTS
Obligations with a
Under Article 1226, In obligations with a
penal clause
penal clause, the penalty shall
substitute the indemnity for
damages and the payment of
interests in case of noncompliance,
if there is no stipulation to the contrary.

Nevertheless, damages shall be paid

if the obligor refuses to pay the
penalty or is guilty of fraud in the
fulfillment of the obligation.

Read in relation to Article 1170.

Those who in the performance of their

obligations are guilty of fraud,
negligence, or delay, and those who in
any manner contravene the tenor
thereof, are liable for damages.
Principal and accessory
obligations
Principal Obligations may be defined as
those that can stand alone
independently of the existence of other
obligations and have their independent
and individual purpose.

Accessory Obligations are those

attached to a principal obligation in
order to complete the same or take
their place in case of breach.
Concept of a penal clause
• A penal clause has been defined as an accessory obligation which the parties
attach to a principal obligation in order to complete the same or take their
place in case of breach

• Is an accessory undertaking to assume greater liability in case of a breach. It

is attached to an obligation to ensure performance.
PENALTY AND DAMAGES
GENERAL RULE: The penalty shall substitute the indemnity for damages and
payment of interests in case of non-compliance

• EXCEPTIONS:

1. If there is a stipulation to the contrary;

2. If the debtor refuses to pay the penalty;

3. If the debtor is guilty of fraud in the fulfillment of the obligation.

WHEN PENAL CLAUSE IS
DEMANDABLE
In order that the penalty may be demandable, it is necessary that: (1) the total
non-fulfillment of the obligation or the defective fulfillment is chargeable to the
fault of the debtor; and (2) that the penalty may be enforced in accordance with
the provisions of law.
Effect of nullity of principal or penalty clause
• Being an accessory only, the nullity of the penal clause does not carry with it
that of the principal obligation.

• The nullity of the principal obligation carries with it that of the penal clause.
SPECIFIC CIRCUMSTANCES
AFFECTING OBLIGATIONS
IN GENERAL
1. FORTUITOUS EVENT

2. FRAUD

3. NEGLIGENCE

4. DELAY

5. BREACH OF CONTRACT
FORTUITOUS EVENT (CAS FORTUITO)
• are extraordinary events not foreseeable or avoidable. It is therefore,
not enough that the event should not have been foreseen or anticipated, as is
commonly believed but it must be one impossible to foresee or to avoid. The
mere difficulty to foresee the happening is not impossibility to foresee the
same. (Republic v. Luzon Stevedoring Corporation, 128 Phil. 313, 318 (1967)

• To constitute a fortuitous event, the following elements must concur: (a) the
cause of the unforeseen and unexpected occurrence or of the failure of
the debtor to comply with obligations must be independent of human will;
(b) it must be impossible to foresee the event that constitutes the caso
fortuito or, if it can be foreseen, it must be impossible to avoid; (c) the
occurrence must be such as to render it impossible for the debtor to fulfill
obligations in a normal manner; and, (d) the obligor must be free from
any participation in the aggravation of the injury or loss.
FORTUITOUS EVENT
• GENERAL RULE: No person shall be responsible for those events which could
not be foreseen, or which, though foreseen, were inevitable.

• EXCEPTION:

1. In cases expressly stated by law (Article 1165 and 1942)

2. When declared by stipulation

3. When the nature of the contract requires the assumption of risk (i.e.
insurance contracts)
Fraud (DOLO)
• Under Article 1338 of the Civil Code, there is fraud when, through insidious
words or machinations of one of the contracting parties, the other is
induced to enter into a contract which, without them, he would not
have agreed to.

• One of the parties may resort to dolo or fraud only during the fullfilment of
the obligation or for the purpose of inducing another to enter into a contract.

• Fraud is the voluntary execution of a wrongful act or a willful

omission, while knowing and intending the effects that naturally and
necessarily arise from that act or omission. In its general sense, fraud
is deemed to comprise anything calculated to deceive -- including all
acts and omission and concealment involving a breach of legal or
equitable duty, trust, or confidence justly reposed ---- resulting in
damage to or in undue advantage over another.

• Responsibility arising from fraud is demandable in all obligations. Any

waiver of an action for future fraud is void. (Article 1171)
Kinds of fraud
1. DOLO CAUSANTE – or fraud in obtaining consent, is applicable only to
contracts where consent is necessary and thus affects the validity of the
contract, making it voidable.

Under this kind of fraud, the party would not have entered into the contract were
it not for the fraud; annulment is the remedy of the party who’s consent was
obtained through fraud. (Art. 1338 of the civil code)

2. DOLO INCIDENTE – or fraud in the performance of the obligation and

applicable to obligations arising from any source. This kind, however, does not
affect the validity of the contract and makes the party guilty of fraud liable for
damages. (Article 1170)

Under this kind, a party would have entered the obligation with or without the
fraud. Remedy is damages.
Negligence (CULPA)
Negligence or Fault 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. (Article 1173)

Standard of Care

1. Ordinary Care - that which is expected of a good father of a family (bonus

pater pamilyas); In obligation, parties are obliged to exercise ordinary care
(proper diligence of a good father of a family, 1163)

2. Extraordinary: utmost diligence. E.g., common carriers, banks, public utility

companies (Meralco vs. Ramoy) and realty firms.
Kinds of negligence

1. Simple Negligence – failure to comply with the diligence required;

2. Gross Negligence – amounts to bad faith and may thus be the source of
moral damages. (Telefast vs. Castro)

• Note: Waiver of action for future negligence is not contrary to public policy
thus, is considered valid.
Delay or default
• Delay is the non-fulfillment of the obligation with respect to time.

• Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the
fulfillment of their obligation. (Article 1169)
Kinds of delay
• Mora Solvendi – Delay on the part of the debtor

• Mora Accipiendi – Delay on the part of the creditor

• Compensatio Morae – Delay on the part of both parties

Mora solvendi
• Delay in the fulfillment of an obligation by reason of a cause imputable to the
debtor.

• Delay may occur only in obligations which are positive (to give and to do) but
not in obligations not to do.

• Requisites in order that debtor may be in default: (1) The obligation must be
demandable and already liquidated; (2) The debtor delays performance; and
(3) The creditor requires the performance judicially or extrajudicially.

• Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the
fulfillment of their obligation. (Article 1169)
Mora solvendi
Instances where demand is not necessary:

1. When the obligation expressly so declare

2. When the law expressly so declare

3. When from the nature and the circumstances of the obligation it appears that
the designation of the time when the thing is to be delivered or the service is
to be rendered was a controlling motive for the establishment of the
contract; or

4. When demand would be useless, as when the obligor has rendered it beyond
his power to perform.
Effects of delay
• Party who incurs delay will be liable for damages (Article 1170)

• Party maybe held liable for interest on payments due, if no stipulation,

interest shall be in lieu of indemnity as to damages.

• Party maybe held liable for fruits as well

• Party will be liable for the loss of the thing to be delivered even it is due to
fortuitous event. (Article 1165)
Mora accipiendi
• The requisites of mora accipiendi are the following: (1) An offer of
performance by the debtor who has the required capacity; (2) The offer must
be to comply with the prestation as it should be performed; and (3) the
creditor refuses the performance without just cause.
Compensation morae
• Delay on the part of both parties because neither has completed their part in
their reciprocal obligations.

• Mutual delay of the parties cancels out the effects of default.

Reciprocal obligations
• In reciprocal obligations, as in a contract of sale, the general rule is that
the fulfillment of the parties' respective obligations should be
simultaneous. Hence, no demand is generally necessary because, once a
party fulfills his obligation and the other party does not fulfill his, the latter
automatically incurs in delay.

• But when different dates for performance of the obligations are fixed, the
default for each obligation must be determined by the rules given in the first
paragraph of the present article, that is, the other party would incur in delay
only from the moment the other party demands fulfillment of the former's
obligation.
Duties of an obligor
• To perform his obligation in accordance with the tenor and nature of the
obligation

• To comply with his obligation in good faith

• To pay for damages in cases of delay, negligence, or fraud in the performance

of the obligation
Duties of an obligee
• To act in good faith in accordance with the terms and conditions of the
obligations

• To exercise his rights accordingly when required by the nature and

circumstances of the obligations.

• To pay for damages, in cases of fraud, negligence, and delay.