(BL 01) Obligation and Contract

Module 3:

(DOLO) FRAUD, DEFINED

FRAUD is the deliberate or intentional evasion by the debtor/obligor of the fulfillment of his obligation
in a normal manner. The commission of fraud gives rise to liability to pay damages to the aggrieved party.

Kinds of fraud
a. CAUSAL FRAUD AND INCIDENTAL FRAUD
1. CAUSAL FRAUD (DOLO CAUSANTE) - is the fraud committed to obtain the consent of
another party, without which consent would not have been given. This type of fraud renders the
contract voidable.

Example:
A bought a pair of “diamond” earrings to B, who told him that the diamonds are genuine.
A is a long-time jeweler and B honestly accept the representation of A that it is indeed a true
diamond, when A knew all along that it was fake. Here, B’s consent was obtained through
fraudulent representation made by A. The contract is thus voidable.

2. INCIDENTAL FRAUD (DOLO INCIDENTE) – refers to fraud where consent would still be
given but the person giving it would have agreed on a different term. The resulting contract is
valid but the party employing the fraud shall be liable for damages.

Example:
A agreed to buy from to B sacks of well-milled rice at P1,500 per sack. However, the rice
B is selling is actually regular-milled rice at P1,200 per sack. Had A known the said fact, A
would still agree to buy from B anyway but for a reduced price. The fraud here is incidental and
B only liable for damages.

b. PAST FRAUD AND FUTURE FRAUD

1. PAST FRAUD – fraud already committed by one of the parties. A waiver of an action for past
fraud may be made, since the commission of fraud can no longer be encouraged. Such waiver is
an act of liberality on the part of the creditor.

2. FUTURE FRAUD – fraud which a party intends to commit in the future. A waiver of an action
for future fraud cannot be made. Agreement made for waiver of future fraud is void. It is thus
held that the debtor/obligor will still be liable for damages if he commits fraud in the
performance of his obligation despite of waiver previously agreed upon by both parties.

(CULPA) NEGLIGENCE DEFINED

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.
(Judge Cooley)
Negligence is the omission of that diligence required by the nature of the obligation and corresponds
with the circumstances of the person, time and place. (Art. 1173)
The required degree of diligence to be observed by the debtor is provided by law or stipulation of
parties.
If the law or contract does not state the diligence which is to be observed in the performance of the
obligation, the debtor must exercise the diligence of a good father of a family.

Examples:
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1. REQUIRED BY LAW – the owner of a public utility transport is required by law to observe extra-
ordinary diligence in transporting its passengers from point of embarkation until disembarkation. Thus,
when passengers are injured because of vehicular accident, regardless of which vehicles is/are at fault,
the owner is guilty of negligence.

2. REQUIRED BY CIRCUMSTANCE – if the obligation is to deliver highly flammable materials, the

obligor shall observe extra-ordinary diligence of care. Any slightest fault that results to damage to the
product or to any third person will held the obligor guilty of negligence

3. If a driver drive’s without or with expired driver’s license, drives at night without headlight, or driving
while texting in his cellular phone, will be considered guilty of negligence under the circumstances

Test of Negligence
For the existence of negligence, the following are necessary:
 a duty on a party of the defendant to protect the plaintiff from the injury of which the letter complains;
 a failure to perform that duty; and
 an injury to the plaintiff through such failure

KINDS OF NEGLIGENCE
1. CONTRACTUAL NEGLIGENCE (CULPA CONTRACTUAL) – refers to the negligence in the
performance of a contract. A common example is the contract of carriage between the owner of public
utility jeepneys and its passenger. Thus, when negligence is committed by the driver, causing death or
injury to its passenger, the owner of the said PUJ is liable for damages.
In contractual negligence, the master-servant rule applies. The master (owner) is liable for the
negligent acts of his servant (driver). The defense of diligence of good father of family (as when the
owner employed strict procedures in selection and supervision of drivers) is not a valid defense of the
owner to escape liability, but this can mitigate the liability min some instances.

2. CIVIL NEGLIGENCE (CULPA AQUILIANA, TORT, QUASI-DELICT OR CULPA EX-

CONTRACTUAL) – these are acts or omission that cause damage to another, there being no
contractual relation between the parties.
Civil negligence arises from acts which a prudent man expected to observe, has failed to do so
resulting to damage to another person, such as when a person is throwing a stone in a busy street,
resulting to damaging the window or causing physical injury to a passenger in a passing vehicle, is liable
for culpa aquiliana.
The master-servant rule does not apply here. Thus, when a pedestrian is hit by a bus because of
his reckless driver, the negligence of the servant (driver) is not the negligence of the master (owner).
The defense of ordinary diligence in the careful selection and supervision of its driver is a valid defense
by the owner to escape liability.

3. CRIMINAL NEGLIGENCE (CULPA CRIMINAL) – refers o negligence that results to a

commission of a crime. Examples are reckless imprudence resulting to homicide, physical injuries
and/or damage to properties.
Defense of diligence of good father of a family will not prosper because when the driver is held guilty of
criminal negligence, it automatically makes the owner civilly liable when the said driver is insolvent.

Thus, it has been held in vehicular accidents that:

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 The passenger of the public transport may bring action of culpa contractual against the owner by
reason of breach of contract of carriage. He may also bring an action for culpa criminal against the
driver for physical injuries resulting from reckless imprudence.
 The pedestrian may bring action for culpa aquiliana against the owner to recover damages. He may
likewise file a case for culpa criminal against the driver for injuries sustained because of the latter’s
reckless driving. When the driver is held guilty, but declared insolvent, the owner is automatically
held liable for damages by reasonof culpa aquiliana,

An illustration showing this difference is founding Gutierrez vs. Gutierrez, 56 177- Phil
 While trying to pass each other on a narrow bridge, a passenger truck and private automobile collided,
and the plaintiff, a passenger in the truck, was injured.

 The owner of the passenger truck was made a defendant, although a driver was driving the truck and
the owner of the car was also made a defendant, although he was not in the car but which was being
driven by his 18-year-old son and in which members of his family were then riding. The court found
both drivers negligent, basing the liability of the owner of the truck to the plaintiff on the contract of
carriage; while the liability of the owner of the car was based on Quasi-delict of the Civil Code. As
against the owner of the truck, there was CULPA CONTRACTUAL, while as against the owner of
the car there was CULPA AQUILIANA.

(MORA) DELAY, DEFINED

DELAY (MORA), DEFAULT or MORA is the non-fulfillment of an obligation with respect to time.,
It also means a legal delay or default and it consists of failure discharge a duty resulting to one’s own
disadvantaged.

THE DEBTOR INCURRED DELAY IF:

 The debtor fails to perform his obligation when it falls due; and
 A demand has been made by the creditor judicially or extra judicially.

Example –
Gaya obliged herself to deliver a determinate horse to Tito on June 20. this year. Gaya failed to
delivered on the agreed date, Is Gaya already on delay on June 20, only when Tito makes a judicial or
extra-judicial demand and from such date of demand when Gaya is on default or delay

However, there are instances when the demand by the Creditor is not necessary to place the debtor on
delay:
1. When the obligation expressly so provides
- The mere fixing of the period is not sufficient to constitute a delay. An agreement to the
effect that fulfillment or performance is not made when the obligation becomes due,
default or delay by the debtor will automatically arise.
2. When the law so provides
- The express provision of law that a debtor is in default. For instance, taxes must be paid
on the date prescribed by law, and demand is not necessary in order that the taxpayer is
liable for penalties.
3. When time is of the essence
- Because time is the essential factor in the fulfillment of the obligation. Example, Gaya
binds herself to sew the wedding gown of Maya to be used by the latter on her wedding
date. Gaya did not deliver the wedding gown on the date agreed upon. Even without
demand, Gaya will be in delay because time of the essence
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4. When demand would be useless

- When the debtor cannot comply his obligation as when it is beyond his power to perform.
Like when the object of the obligation is lost or destroyed through the fault of the debtor,
demand is not necessary.
5. In a reciprocal obligation, from the moment one of the parties fulfills his obligation, delay
to the other begins
- For instance, in a contract of sale, if the seller delivers the object to the buyer and the
buyer does not pay, then delay by the buyer begins and vice versa, if the buyer pays and
the seller did not deliver the object, then the seller is on delay

KINDS OF DEFAULT/ DELAY

1. MORA SOLVENDI, MORA ACCIPIENDI AND COMPENSATIO MORAE
a. MORA SOLVENDI – delay on the part of the debtor, as when the debtor fails to deliver the
thing when it is due and after the demand made by the creditor.

b. MORA ACCIPIENDI – delay on the part of the creditor, as when the creditor refuses to
accept delivery of the thing due without justifiable reason.

c. COMPENSATIO MORAE – delay by both parties in reciprocal obligations, as when in a

contract of sale, the buyer delays in payment while the seller was also in delay in the delivery
of the thing due. Here, it is as if there is no delay.

2. MORA EX RE AND MORA EX PERSONA

a. EX RE – delay in real obligation (obligation to give)

b. EX PERSONA – delay in personal obligation (obligation to do)

Note: there is no delay in obligation not to do as one cannot be held in delay for doing nothing.

REQUISITES BEFORE A DEBTOR IS CONSIDERED IN DELAY

General rule: (NO DEMAND, NO DELAY) The debtor incurs delay from the time the creditor
demands fulfillment of the obligation but the debtor fails to comply with such demand. Thus, the requisites of
delay are:
a. The debtor does not perform his obligation on the date it is due
b. The creditor demands the performance of the obligation
c. The debtor does not comply with the creditor’s demand

Example: D promised to pay E the amount of P100,000 on June 31, 2013. On due date, D failed to
comply his obligation. E was a busy businessman and he only noticed that the obligation has already matured
on July 15, 2013, and immediately demand payment from D on the said date. If despite the demand made, D
still fails to perform his obligation, he is considered in delay only after the demand made on July 15, 2013.

Exceptions: the debtor is considered in delay even without demand from creditor in the following cases:
1. When the law so provides
Thus, demand from the government is not necessary for the taxpayer (debtor) be considered in
delay for non-payment of income tax due on or before April 15 of the year following the close of the
taxable period.
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2. When the obligation expressly stipulates that demand in not necessary to put the obligor in delay.
Example: “A promises to pay B the amount of P10,000 on December 31, 2013. Notice of
demand waived.” Here, the parties expressly stipulate that no demand is necessary on maturity date to
put the debtor in delay.

3. When time is of the essence of the contract

Example: “X obliged himself to deliver a wedding cake for Y’s wedding reception on September
8, 2013 at Casablanca Hotel in Legazpi City.” If on the said date, X failed to deliver the wedding cake,
demand is not necessary to put X on delay since time is the controlling motive of the obligation.

4. When demand would be useless

A debtor is considered in delay even without demand from the creditor if the thing he is obliged
to deliver has been destroyed through his fault or he has delivered it to another person.

5. In reciprocal obligations, here the obligations arise out of the same cause and must be fulfilled at the
same time. From the moment one of the parties fulfills his obligation, the other party becomes in delay
notwithstanding the absence of a demand.

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 foreseen, or which, though foreseen, were inevitable
(1105a

FORTUITOUS EVENT, DEFINED

Events that cannot be foreseen, or which though foreseen, are inevitable (Art.1174)
Fortuitous event proper are acts of God such as volcanic eruption, earthquake, lightning, etc. is now
similar with FORCE MAJUERE or acts of man such as conflagration, war, robbery, etc.

Examples of fortuitous event

1. Natural calamities or acts of God – such as lightning, earthquakes, typhoon, flashfloods and similar
catastrophe
2. Acts of man – such as war and armed robbery

Characteristics of fortuitous event

a. The cause must be independent of the debtor’s will
b. The event must be impossible to foresee, or even can be foreseen, it is inevitable
c. The occurrence of the event must be of such character as to render it impossible for the debtor to
perform his obligation in a normal manner.

Liabilities for fortuitous event

General rule: No person shall be liable for fortuitous event, thus the obligation is extinguished.

EXCEPTIONS: Under Art.1174 of the New Civil Code, the debtor is still liable even in case of
fortuitous event in the following circumstances:
1. When the law expressly provides for liability even in case of fortuitous event, as when the obligor is
liable for fortuitous event if he delays or has promised to deliver the same thing to two or more persons
who do not have the same interest.
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When the law expressly so provides, such as:

 The debtor is guilty of fraud, negligence or in contravention of the tenor of the obligation.
(Art, 1170, NCC)
 The debtor has proved to deliver the same thing to two or more persons who do not have the
same interest. (Art. 1165, NCC)
 The thing to delivered is generic.
 The debtor is guilty of default or delay. (Art. 1169, NCC)
 The debtor is guilty of concurrent negligence.
2. When the parties stipulate that the obligor is liable even in case of fortuitous event.
3. When the nature of the obligation requires the assumption of risk such as the obligation of the insurer to
indemnify the policy holder or his beneficiary even if the loss is through fortuitous event is the caused
thereof is the risk insured against.

Presumption on receipt of principal or later installment, concept

1. The receipt of the principal without reservation as to interest shall give rise to the presumption that the
interests have already been paid.

Thus, if A obtained a loan from B the amount of P100,000 with interest rate of 15% per annum,
and with maturity date on December 31, 2013. On maturity date, B issued an official receipt in the name
of A for P100,000, it is presumed that the interests have also been paid, unless there is a reservation to
the contrary that the payment does not include the interests.

2. The receipt of a later installment without reservation as to prior installment/s shall give rise to a
presumption that such prior installments have been paid.

The above presumptions are disputable; hence, they may be rebutted by contrary evidence.

KINDS OF PRESUMPTION
1. CONCLUSIVE PRESUMPTION – no evidence may be admitted to dispute the presumption.
2. DISPUTABLE PRESUMPTION (PRIMA FACIE) – assumed to be true unless contrary evidence is
presented and admitted

Remedies of creditor to enforce payment of his claims against debtor (Art. 1177)
1. Pursue the property in possession of the debtor, except those exempts by law

This remedy allows the creditor to protect his interest by filing an action for attachment before
the court. Attachment is a legal process by which a court of law, at the request of a creditor, designates
specific property owned by the debtor to be transferred to the creditor, or sold for the benefit of the
creditor. The property attached can be sold to a public auction and the proceeds thereof will be applied
as payment for the obligation.

2. Exercise all the rights and ring action of the debtor except those personal to him (ACCION
SUBROGATORIA)

Example: D owes C a sum of money. Meanwhile A is indebted to D. C can file an action to

collect from D, and likewise include in his prayer that the court to order A not to pay D the amount he

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owed to the latter. The court may further require A to pay directly to C as a consequence of ACCION
SUBROGATORIA.

3. Impugn the acts which the debtor may have done to defraud his creditors (ACCION PAULIANA)

Example: A is indebted to B for the amount of P100,000. To defraud B, A “sold” the only parcel
of land to his cousin X, who knows the intention of A. here, B can ask the court to rescind the fraudulent
sale between A and X.

Rules on transmissibility of rights

General rule: all rights acquired by virtue of an obligation are transmissible. Thus, a creditor may
assign his credit to a third person, or such right is transmitted to his heirs upon his death.

Exception: the following rights are intransmissible

1. If the law prohibits the transmission of rights
Examples: The rights of a general partner in a partnership are not transmitted to the heirs upon
his death.

2. If the parties stipulates that the right in not transmissible.

The parties may freely stipulate that the rights and obligations between them shall not be
transmitted to their heirs, assigns or any third person.

3. If the right by its nature is intransmissible

Examples: the right to scholarship grant is not transmissible. Personal rights such as the right to
vote, right to run for public office, marital and parental rights, and hereditary rights are not
transmissible.

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