PART I - OBLIGATIONS

I. In General

A. Definition, NCC 1156

Art. 1156. An obligation is a juridical necessity to give, to do or not to do. (n)

B. Sources, NCC 1157

Art. 1157. Obligations arise from:

(1) Law;

(2) Contracts;

(3) Quasi-contracts;

(4) Acts or omissions punished by law; and

(5) Quasi-delicts. (1089a)

MetroBank v. Rosales, G.R. No. 183204, January 13, 2014

The “Hold Out” clause applies only if there is a valid and existing obligation arising from any of
the sources of obligation enumerated in Article 1157 of the Civil Code, to wit: law, contracts,
quasi-contracts, delict, and quasi-delict.— In this case, petitioner failed to show that
respondents have an obligation to it under any law, contract, quasi-contract, delict, or
quasi-delict. And although a criminal case was filed by petitioner against respondent Rosales,
this is not enough reason for petitioner to issue a “Hold Out” order as the case is still pending
and no final judgment of conviction has been rendered against respondent Rosales. In fact, it is
significant to note that at the time petitioner issued the “Hold Out” order, the criminal complaint
had not yet been filed. Thus, considering that respondent Rosales is not liable under any of the
five sources of obligation, there was no legal basis for petitioner to issue the “Hold Out” order.
Accordingly, we agree with the findings of the RTC and the CA that the “Hold Out” clause does
not apply in the instant case. In view of the foregoing, we find that petitioner is guilty of breach of
contract when it unjustifiably refused to release respondents’ deposit despite demand. Having
breached its contract with respondents, petitioner is liable for damages.

Bank deposits, which are in the nature of a simple loan or mutuum, must be paid upon demand
by the depositor.

(a) Law, NCC 1158

Art. 1158. Obligations derived from law are not presumed. Only those expressly
determined in this 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 this Book. (1090)

(b) Contract, NCC 1159

Art. 1159. Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith. (1091a)

PSBA v CA, GR 84698, Feb. 4, 1992

An academic institution enters into a contract when it accepts students for enrollment; The
contract between school and student is one "imbued with public interest".— Institutions of
learning must also meet the implicit or "built-in" obligation of providing their students with an
atmosphere that promotes or assists in attaining its primary undertaking of imparting
knowledge. Certainly, no student can absorb the intricacies of physics or higher mathematics or
explore the realm of the arts and other sciences when bullets are flying or grenades exploding
in the air or where there looms around the school premises a constant threat to life and limb.
Necessarily, the school must ensure that adequate steps are taken to maintain peace and order
within the campus premises and to prevent the breakdown thereof.

A contractual relation is a condition sine qua non to the school's liability. The negligence of the
school cannot exist independently on the contract, unless the negligence occurs under the
circumstances set out in Article 21 of the Civil Code.

Cruz v Gruspe, GR 191431, March 13, 2013

Contracts are obligatory no matter what their forms may be, whenever the essential requisites
for their validity are present. In determining whether a document is an affidavit or a contract, the
Court looks beyond the title of the document, since the denomination or title given by the parties
in their document is not conclusive of the nature of its contents. In the construction or
interpretation of an instrument, the intention of the parties is primordial and is to be pursued. If
the terms of the document are clear and leave no doubt on the intention of the contracting
parties, the literal meaning of its stipulations shall control. If the words appear to be contrary to
the parties’ evident intention, the latter shall prevail over the former.

In order that the debtor may be in default, it is necessary that the following requisites be
present: (1) that the obligation be demandable and already liquidated; (2) that the debtor delays
performance; and (3) that the creditor requires the performance judicially and
extrajudicially.—The 15% interest (later modified by the CA to be 12%) was computed from
November 15, 1999—the date stipulated in the Joint Affidavit of Undertaking for the payment of
the value of Gruspe’s car. In the absence of a finding by the lower courts that Gruspe made a
demand prior to the filing of the complaint, the interest cannot be computed from November 15,
1999 because until a demand has been made, Cruz and Leonardo could not be said to be in
default. Default generally begins from the moment the creditor demands the performance of the
obligation. In this case, demand could be considered to have been made upon the filing of the
complaint on November 19, 1999, and it is only from this date that the interest should be
computed.

ACE Foods, Inc. v. Micro Pacific, G.R. No. 200602, December 11, 2013.
The essential issue in this case is whether ACE Foods should pay MTCL the purchase price for
the subject products.
 The petition lacks merit.
 A contract is what the law defines it to be,
taking into consideration its essential elements, and not what the contracting parties call it. The
real nature of a contract may be determined from the express terms of the written agreement
and from the contemporaneous and subsequent acts of the contracting parties. However, in the
construction or interpretation of an instrument, the intention of the parties is primordial and
is to be pursued. The denomination or title given by the parties in their contract is not
conclusive of the nature of its contents. The very essence of a contract of sale is the transfer of
ownership in exchange for a price paid or promised. This may be gleaned from Article 1458
of the Civil Code which defines a contract of sale as follows:

Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the
ownership and to deliver a determinate thing, and the other to pay therefor a price certain in
money or its equivalent.

A contract of sale may be absolute or conditional. (Emphasis supplied)
 Corollary thereto, a

contract of sale is classified as a consensual contract, which means that the sale is perfected
by mere consent. No particular form is required for its validity. Upon perfection of the contract,
the parties may reciprocally demand performance, i.e., the vendee may compel transfer of
ownership of the object of the sale, and the vendor may require the vendee to pay the thing
sold. In contrast, a contract to sell is defined as a bilateral contract whereby the prospective
seller, while expressly reserving the ownership of the property despite delivery thereof to the
prospective buyer, binds himself to sell the property exclusively to the prospective buyer upon
fulfillment of the condition agreed upon, i.e., the full payment of the purchase price. A contract
to sell may not even be considered as a conditional contract of sale where the seller may
likewise reserve title to the property subject of the sale until the fulfillment of a suspensive
condition, because in a conditional contract of sale, the first element of consent is present,
although it is conditioned upon the happening of a contingent event which may or may not
occur.

(c) Quasi-Contract, NCC 1160

Art. 1160. Obligations derived from quasi-contracts shall be subject to the provisions
of Chapter 1, Title XVII, of this Book. (n)

Locsin II v. Mekeni Food Corporation, G.R. No. 192105, December 9, 2013.

In the absence of specific terms and conditions governing the car plan arrangement between
the petitioner and Mekeni, a quasi- contractual relation was created between them.
Consequently, Mekeni may not enrich itself by charging petitioner for the use of its vehicle
which is otherwise absolutely necessary to the full and effective promotion of its
business.—Under Article 22 of the Civil Code, “[e]very person who through an act of
performance by another, or any other means, acquires or comes into possession of something
at the expense of the latter without just or legal ground, shall return the same to him.” Article
2142 of the same Code likewise clarifies that there are certain lawful, voluntary and unilateral
acts which give rise to the juridical relation of quasi-contract, to the end that no one shall be
unjustly enriched or benefited at the expense of another. In the absence of specific terms and
conditions governing the car plan arrangement between the petitioner and Mekeni, a
quasi-contractual relation was created between them. Consequently, Mekeni may not enrich
itself by charging petitioner for the use of its vehicle which is otherwise absolutely necessary to
the full and effective promotion of its business. It may not, under the claim that petitioner’s
payments constitute rents for the use of the company vehicle, refuse to refund what petitioner
had paid, for the reasons that the car plan did not carry such a condition; the subject vehicle is
an old car that is substantially, if not fully, depreciated; the car plan arrangement benefited
Mekeni for the most part; and any personal benefit obtained by petitioner from using the vehicle
was merely incidental.

(d) Delict, NCC 1161

Art. 1161. Civil obligations arising from criminal offenses shall be governed by the penal laws,
subject to the provisions of Article 2177, and of the pertinent provisions of Chapter 2,
Preliminary Title, on Human Relations, and of Title XVIII of this Book, regulating damages.
(1092a)

(e) Quasi-Delict, NCC 1162

Art. 1162. Obligations derived from quasi-delicts shall be governed by the provisions
of Chapter 2, Title XVII of this Book, and by special laws. (1093a)

Garcia v. Ferro Chemicals, Inc. (2014)

The civil liability asserted by Ferro Chemicals, Inc. before the CA arose from the criminal act. It
is in the nature of civil liability ex delicto. Ferro Chemicals did not reserve the right to institute
the civil action for the recovery of civil liability ex delicto or institute a separate civil action prior to
the filing of the criminal case. Thus, it is an adjunct of the criminal aspect of the case.

People of the Philippines v. Dionaldo (2015)

The death of the accused pending appeal of his conviction extinguishes his criminal liability as
well as his civil liability ex delicto.

Barredo v Garcia, 73 Phil. 607 (1942)

There are two actions available for parents of Garcia. One is under the A100RPC wherein the
employer is only subsidiarily liable for the damages arising from the crime thereby first
exhausting the properties of Fontanilla. The other action is under A1903CC (quasi-delict or
culpa aquiliana) wherein as the negligent employer of Fontanilla, Barredo is held primarily liable
subject to proving that he exercising diligence of a good father of the family. The parents simply
took the action under the Civil Code as it is more practical to get damages from the employer
bec he has more money to give than Fontanilla who is yet to serve his sentence.

Obiter: Difference between Crime and Quasi-delict 1) Crimes – public interest; Quasi-delict –
only private interest 2) Penal code punishes or corrects criminal acts; Civil Code by means of
indemnification merely repairs the damage 3) Delicts are not as broad as quasi-delicts; Crimes
are only punished if there is a penal law; Quasi-delicts include any kind of fault or negligence.
(NOTE: Not all violations of penal law produce civil responsibility, e.g. contravention of
ordinances, violation of game laws, infraction of rules of traffic when nobody is hurt); 4) Crime –
guilt beyond reasonable doubt; Civil – mere preponderance of evidence.

Gutierrez v Gutierrez, No. 34840, September 23, 1931

BG was an incompetent chauffer as he was driving in an excessive speed. The guarantee the
father gave at the time the son was granted a license to operate motor vehicles gave the father
responsible for the acts of his son. - SCor and AV’s liability is based on the contract. The
position of the truck on the bridge and the speed in operating the machine and the lack of care
employed reached such conclusion. The fact that 2 drivers were approaching a narrow bridge,
neither willing to slow up and give right of way inevitably resulted to the collision and the
accident.

- The contention that there was contributory negligence as the plaintiff kept his foot outside the
truck was not pleaded and was dismissed as speculative. Ratio In the US it is uniformly held
that the head of the house, the owner of the vehicle, who maintains it for the general use of his
family is liable for its negligent operation by one of his children, whom he designates or permits
to run it, where the car is occupied and being used for the pleasure of the other members of the
family, other than the child driving it.

Llana v. Biong, G.R. No. 182356, December 4, 2013.

Elements of Quasi-Delicts—Article 2176 of the Civil Code provides that “[w]hoever by act or
omission causes damage to another, there being fault or negligence, is obliged to pay for the
damage done. Such fault or negligence, if there is no pre-existing contractual relation between
the parties, is a quasi-delict.” Under this provision, the elements necessary to establish a
quasi-delict case are: (1) damages to the plaintiff; (2) negligence, by act or omission, of the
defendant or by some person for whose acts the defendant must respond, was guilty; and (3)
the connection of cause and effect between such negligence and the damages. These
elements show that the source of obligation in a quasi-delict case is the breach or omission of
mutual duties that civilized society imposes upon its members, or which arise from
non-contractual relations of certain members of society to others.

Under Article 2176 of the Civil Code, in relation with the fifth paragraph of Article 2180, “an
action predicated on an employee’s act or omission may be instituted against the employer who
is held liable for the negligent act or omission committed by his employee.”—Once negligence,
the damages and the proximate causation are established, this Court can then proceed with the
application and the interpretation of the fifth paragraph of Article 2180 of the Civil Code. The
rationale for these graduated levels of analyses is that it is essentially the wrongful or negligent
act or omission itself which creates the vinculum juris in extra-contractual obligations.
II. Nature and Effect of Obligations

A. Kinds of Prestations

1. To give, NCC 1163-1166

Art. 1163. Every person obliged to give something is also obliged to take care of it with the
proper diligence of a good father of a family, unless the law or the stipulation of the parties
requires another standard of care. (1094a)
Art. 1164. 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. (1095)

Art. 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the
right granted him by Article 1170, may compel the debtor to make the delivery.

If the thing is indeterminate or generic, he may ask that the obligation be complied with at the
expense of the debtor.

If the obligor delays, or has promised to deliver the same thing to two or more persons who do
not have the same interest, he shall be responsible for any fortuitous event until he has effected
the delivery. (1096)

Art. 1166. The obligation to give a determinate thing includes that of delivering all its accessions
and accessories, even though they may not have been mentioned. (1097a)

a. Rules regarding improvement, loss, or deterioration,

NCC 1189, 1190, 1194, 566-571

Art. 1189. When the conditions have been imposed with the intention of
suspending the efficacy of an obligation to give, the following rules shall be observed in
case of the improvement, loss or deterioration of the thing during the pendency of the
condition:

(1) If the thing is lost without the fault of the debtor, the obligation shall be
extinguished;

(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay
damages; it is understood that the thing is lost when it perishes, or goes out of
commerce, or disappears in such a way that its existence is unknown or it cannot be
recovered;

(3) When the thing deteriorates without the fault of the debtor, the impairment
is to be borne by the creditor;

(4) If it deteriorates through the fault of the debtor, the creditor may choose
between the rescission of the obligation and its fulfillment, with indemnity for damages
in either case;

(5) If the thing is improved by its nature, or by time, the improvement shall inure
to the benefit of the creditor;

(6) If it is improved at the expense of the debtor, he shall have no other right
than that granted to the usufructuary. (1122)
 Art. 1190. When the conditions have for their purpose the extinguishment of an
obligation to give, the parties, upon the fulfillment of said conditions, shall return to
each other what they have received.
In case of the loss, deterioration or improvement of the thing, the provisions
which, with respect to the debtor, are laid down in the preceding article shall be applied
to the party who is bound to return.

As for the obligations to do and not to do, the provisions of the second
paragraph of Article 1187 shall be observed as regards the effect of the extinguishment
of the obligation. (1123)

Art. 1194. In case of loss, deterioration or improvement of the thing before the
arrival of the day certain, the rules in Article 1189 shall be observed. (n)

Art. 566. The usufructuary shall be entitled to all the natural, industrial and civil
fruits of the property in usufruct. With respect to hidden treasure which may be found
on the land or tenement, he shall be considered a stranger. (471)
Art. 567. Natural or industrial fruits growing at the time the usufruct begins,
belong to the usufructuary.

Those growing at the time the usufruct terminates, belong to the owner.

In the preceding cases, the usufructuary, at the beginning of the usufruct, has
no obligation to refund to the owner any expenses incurred; but the owner shall be
obliged to reimburse at the termination of the usufruct, from the proceeds of the
growing fruits, the ordinary expenses of cultivation, for seed, and other similar
expenses incurred by the usufructuary.

The provisions of this article shall not prejudice the rights of third persons,
acquired either at the beginning or at the termination of the usufruct. (472)

Art. 568. If the usufructuary has leased the lands or tenements given in
usufruct, and the usufruct should expire before the termination of the lease, he or his
heirs and successors shall receive only the proportionate share of the rent that must be
paid by the lessee. (473)

Art. 569. Civil fruits are deemed to accrue daily, and belong to the usufructuary
in proportion to the time the usufruct may last. (474)

Art. 570. Whenever a usufruct is constituted on the right to receive a rent or

periodical pension, whether in money or in fruits, or in the interest on bonds or
securities payable to bearer, each payment due shall be considered as the proceeds or
fruits of such right.

Whenever it consists in the enjoyment of benefits accruing from a participation

in any industrial or commercial enterprise, the date of the distribution of which is not
fixed, such benefits shall have the same character.

In either case they shall be distributed as civil fruits, and shall be applied in the
manner prescribed in the preceding article. (475)

Art. 571. The usufructuary shall have the right to enjoy any increase which the
thing in usufruct may acquire through accession, the servitudes established in its favor,
and, in general, all the benefits inherent therein. (479)

2. To do, NCC 1167

Art. 1167. If a person obliged to do something fails to do it, the same shall be
executed at his cost.
 This same rule shall be observed if he does it in contravention of the tenor of the
obligation. Furthermore, it may be decreed that what has been poorly done be
undone. (1098)

Chavez v Gonzales, 32 SCRA 547

Under Article 1167 of the Civil Code, a person who is obliged to do something and fails to do it
shall be liable for the cost of executing the obligation in a proper manner. The cost of execution
of the obligation to repair a typewriter is the cost of the labor or service expended in the repair of
the typewriter. In addition, the obligor, under Article 1170 of the Code, is liable for the cost of the
missing parts because in his obligation to repair the typewriter he is bound to return the
typewriter in the same condition it was when he received it.

Tanguilig v CA, 266 SCRA 78 (1997)

Petitioner’s argument that private respondent was already in default in the payment of his
outstanding balance of P15,000.00 and hence should bear his own loss, is untenable. 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. When the windmill failed to
function properly it became incumbent upon petitioner to institute the proper repairs in
accordance with the guaranty stated in the contract. Thus, respondent cannot be said to have
incurred in delay; instead, it is petitioner who should bear the expenses for the reconstruction of
the windmill. Article 1167 of the Civil Code is explicit on this point that if a person obliged to do
something fails to do it, the same shall be executed at his cost.

Mackay v. Caswell (2014)

For Owen’s failure to provide quality work, he is to reimburse the rectification costs the
Caswells had shouldered as the latter’s actual damages; the unpaid compensation Owen is
claiming shall be set-off from the Caswell’s monetary claims supported by receipts.

3. Not to do, NCC 1168

Art. 1168. When the obligation consists in not doing, and the obligor does what has
been forbidden him, it shall also be undone at his expense. (1099a)

B. Irregularity in Performance

1. Attributable to Debtor, NCC 1170

Art. 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. (1101)

(a) Fraud (dolo), NCC 1170, 1171, cf. NCC 1338

Art. 1171. Responsibility arising from fraud is demandable in all obligations. Any
waiver of an action for future fraud is void. (1102a)

Art. 1338. 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. (1269)
Woodhouse v Halili, 93 Phil 526 (1953)
False Representatiom ; Damages, for dolo incident.—Plain-tiff is entitled under the terms of the
agreement to 30 per cent of the net profits of the business. Against this amount of damages, the
damage the defendant suffered by plaintiff's misrepresentation that he had the exclusive
franchise, must be set off. (Art. 1101, Span. Civ. Code.) When the defend-ant learned, in Los
Angeles, California, that plaintiff did not have the exclusive franchise which he pretended be
had and which he had agreed to transfer to the partnership, his spontaneous reaction was to
reduce the plaintiff's share from 30 per cent to 15 per cent only, to which reduction plaintiff
appears to have readily given his assent. Held: By the mis-representation of the plaintiff, he
obtained a very high per-centage (30%) of share in the profits. Upon learning of the
misrepresentation, defendant reduced plaintiff's share to 15 per cent, to which defendant
assented. The court can do no better than follow such appraisal of the damages as the parties
themselves had adopted.

The causal fraud which may be a ground for the annulment of a contract, and the incidental
deceit which only renders the party who employs it liable for damages. In order that fraud may
vitiate consent, it must be the causal (dolo causante), not merely the incidental (dole in-
cidente), inducement to the making of the contract (art. 1270, Span. Civ. Code; Hill vs, Yeloso,
31 Phil., 160). In the case at bar, inasmuch as the principal consideration, the main cause that
induced. defendant to enter into the partnership agreement with plaintiff, was the ability of
plaintiff to get the exclusive franchise to bottle and distribute for the defendant or for the
partnership, the false representation made by the plaintiff was not the casual consideration, or
the principal inducement, that led the defendant to enter into the partnership agreement,.

Geraldez v CA, 230 SCRA 329 (1994)

Under dolo causante or causal fraud (in NCC Art. 1338) are deceptions or misrepresentations
of a party to a contract without which the other party/parties would not have entered into the
contract. The fraud was employed in order to secure the consent of the defrauded party, thus
existing before and during creation of the contract. The fraud itself is the essential source of the
consent. Its effects are nullity of the contract and indemnification of damages.

On the other hand, dolo incidente or incidental fraud (in NCC Arts. 1170 and 1344) is of minor
character, without which the other party will still enter the contract. The fraud refers only to
some particular or accident of the obligation. Since the fraud did not vitiate consent of the party
while entering in the contract, said contract is valid. The party who committed dolo incidente is
liable for damages as well.

Private respondent committed fraud in the inducement (or dolo causante), with promising the
attendance of a European tour manager that would take care of her and her sister during the
entirety of the tour. The other breaches of contract committed by private respondent, whether
considered as dolo causante or dolo incidente, likewise will bring about to said respondent the
obligation to pay moral and exemplary damages.
Metropolitan v. Prosperity, G.R. No. 154390, March 17, 2014
According to Article 1338 of the Civil Code, there is fraud when one of the contracting parties,
through insidious words or machinations, induces the other to enter into the contract that,
without the inducement, he would not have agreed to. Yet, fraud, to vitiate consent, must be the
causal (dolo causante), not merely the incidental (dolo incidente), inducement to the making of
the contract. In Samson v. Court of Appeals, 238 SCRA 397 (1994), causal fraud is defined as
“a deception employed by one party prior to or simultaneous to the contract in order to secure
the consent of the other.” Fraud cannot be presumed but must be proved by clear and
convincing evidence. Where the consent was given through fraud, the contract was voidable,
not void ab initio. This is because a voidable or annullable contract is existent, valid and
binding, although it can be annulled due to want of capacity or because of the vitiated consent
of one of the parties.—Contrary to their modified defense of absence of consent, Vicky Ang’s
testimony tended at best to prove the vitiation of their consent through insidious words,
machinations or misrepresentations amounting to fraud, which showed that the contract was
voidable. Where the consent was given through fraud, the contract was voidable, not void ab
initio. This is because a voidable or annullable contract is existent, valid and binding, although it
can be annulled due to want of capacity or because of the vitiated consent of one of the parties.
Article 1390, in relation to Article 1391 of the Civil Code, provides that if the consent of the
contracting parties was obtained through fraud, the contract is considered voidable and may be
annulled within four years from the time of the discovery of the fraud. The discovery of fraud is
reckoned from the time the document was registered in the Register of Deeds in view of the rule
that registration was notice to the whole world. Thus, because the mortgage involving the seven
lots was registered on September 5, 1984, they had until September 5, 1988 within which to
assail the validity of the mortgage. But their complaint was instituted in the RTC only on October
10, 1991. Hence, the action, being by then already prescribed, should be dismissed.

Effects of fraud

i. Specific Performance, NCC 1233

Art. 1233. A debt shall not be understood to have been paid unless the thing
or service in which the obligation consists has been completely delivered or rendered, as the
case may be. (1157)

(1) Specific/determinate thing, NCC 1244, 1170, 1165 (1), 11767

Art. 1244. The debtor of a thing cannot compel the creditor to receive a different one,
although the latter may be of the same value as, or more valuable than that which is
due.

In obligations to do or not to do, an act or forbearance cannot be substituted by

another act or forbearance against the obligee's will. (1166a)

Art. 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. (1101)

Art. 1165. When what is to be delivered is a determinate thing, the creditor, in addition
to the right granted him by Article 1170, may compel the debtor to make the delivery.

If the thing is indeterminate or generic, he may ask that the obligation be complied
with at the expense of the debtor.

If the obligor delays, or has promised to deliver the same thing to two or more persons
who do not have the same interest, he shall be responsible for any fortuitous event
until he has effected the delivery. (1096)

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 defraud them. (1111)

(2) Generic thing, NCC 1246

Art. 1246. 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. The purpose of the obligation and other circumstances shall be taken into
consideration. (1167a)

(3) Preserve, NCC 1163

Art. 1163. Every person obliged to give something is also obliged to take care of it with
the proper diligence of a good father of a family, unless the law or the stipulation of the
parties requires another standard of care. (1094a)

(4) Deliver all its accessions, NCC 1166, 1164

Art. 1166. The obligation to give a determinate thing includes that of delivering all its
accessions and accessories, even though they may not have been mentioned.
(1097a)

Art. 1164. 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. (1095)

(5) Interest, NCC 1176

Art. 1176. The receipt of the principal by the creditor without 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. (1110a)

(6) Deliver all its accessories, NCC 1166

Art. 1166. The obligation to give a determinate thing includes that of delivering all its
accessions and accessories, even though they may not have been mentioned.
(1097a)

(7) Analogous Circumstances

Marquez v. Elisan Credit (2015)

The rule under Art. 1253 that payments shall first be applied to the interest and not to the
principal shall govern if two facts exist: (1) the debt produces interest (i.e. the payment of
interest is expressly stipulated) and (2) the principal remains unpaid.

The exception is a situation covered under Art. 1176, i.e. when the creditor waives payment of
the interest despite the presence of (1) and (2) above. In such case, the payments shall
obviously be credited to the principal.

Since the doubt in the present case pertains to the application of the daily payments, Art. 1253
shall apply. Only when there is a waiver of interest shall Article 1176 become relevant. Under
this analysis, we rule that the respondent properly credited the daily payments to the interest
and not to the principal because: (1) the debt produces interest, i.e. the PN securing the second
loan provided for payment of interest; (2) a portion of the second loan remained unpaid upon
maturity; and (3) the respondent did not waive the payment of interest.

Surviving Heirs versus Lindo, et al., G.R. No. 208232, March 10, 2014
While the deeds of sale do not explicitly contain the stipulation that the sale is subject to
repurchase by the applicant within a period of five (5) years from the date of conveyance
pursuant to Sec. 119 of CA 141, still, such legal provision is deemed integrated and made part
of the deed of sale as prescribed by law. It is basic that the law is deemed written into every
contract. Although a contract is the law between the parties, the provisions of positive law which
regulate contracts are deemed written therein and shall limit and govern the relations between
the parties. Thus, it is a binding prestation in favor of Bautista which he may seek to enforce.
That is precisely what he did. He filed a complaint to enforce his right granted by law to recover
the lot subject of free patent. Ergo, it is clear that his action is for specific performance, or if not
strictly such action, then it is akin or analogous to one of specific performance. Such being the
case, his action for specific performance is incapable of pecuniary estimation and cognizable
by the RTC.

ii. Substituted performance, NCC 1165(3)

Art. 1165. When what is to be delivered is a determinate thing, the creditor, in addition
to the right granted him by Article 1170, may compel the debtor to make the delivery.

If the thing is indeterminate or generic, he may ask that the obligation be complied with at the
expense of the debtor.

If the obligor delays, or has promised to deliver the same thing to two or more persons who do
not have the same interest, he shall be responsible for any fortuitous event until he has effected
the delivery. (1096)

iii. Rescission, NCC 1191-1192, 1786, 1788, 1484-1486, RA 6552

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with
the payment of damages in either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing
of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the
thing, in accordance with Articles 1385 and 1388 and the Mortgage Law. (1124)

Art. 1192. In case both parties have committed a breach of the obligation, the liability of the first
infractor shall be equitably tempered by the courts. If it cannot be determined which of the
parties first violated the contract, the same shall be deemed extinguished, and each shall bear
his own damages. (n)

Art. 1786. Every partner is a debtor of the partnership for whatever he may have promised to
contribute thereto.

He shall also be bound for warranty in case of eviction with regard to specific and determinate
things which he may have contributed to the partnership, in the same cases and in the same
manner as the vendor is bound with respect to the vendee. He shall also be liable for the fruits
thereof from the time they should have been delivered, without the need of any demand.
(1681a)

Art. 1788. A partner who has undertaken to contribute a sum of money and fails to do so
becomes a debtor for the interest and damages from the time he should have complied with his
obligation.

The same rule applies to any amount he may have taken from the partnership coffers, and his
liability shall begin from the time he converted the amount to his own use. (1682)
Art. 1484. In a contract of sale of personal property the price of which is payable in installments,
the vendor may exercise any of the following remedies:

(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;

(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the
vendee's failure to pay cover two or more installments. In this case, he shall have no further
action against the purchaser to recover any unpaid balance of the price. Any agreement to the
contrary shall be void. (1454-A-a)

Art. 1485. The preceding article shall be applied to contracts purporting to be leases of personal
property with option to buy, when the lessor has deprived the lessee of the possession or
enjoyment of the thing. (1454-A-a)

Art. 1486. In the case referred to in two preceding articles, a stipulation that the installments or
rents paid shall not be returned to the vendee or lessee shall be valid insofar as the same may
not be unconscionable under the circumstances. (n)

RA 6552
AN ACT TO PROVIDE PROTECTION TO BUYERS OF REAL ESTATE ON INSTALLMENT
PAYMENTS
Section 1. This Act shall be known as the “Realty Installment Buyer Act.”

Sec. 2. It is hereby declared a public policy to protect buyers of real estate on installment
payments against onerous and oppressive conditions.

Sec. 3. In all transactions or contracts involving the sale or financing of real estate on
installment payments, including residential condominium apartments but excluding industrial
lots, commercial buildings and sales to tenants under Republic Act Numbered Thirty-eight
hundred forty-four, as amended by Republic Act Numbered Sixty-three hundred eighty-nine,
where the buyer has paid at least two years of installments, the buyer is entitled to the following
rights in case he defaults in the payment of succeeding installments:

(a) To pay, without additional interest, the unpaid installments due within the total grace period
earned by him which is hereby fixed at the rate of one month grace period for every one year of
installment payments made: Provided, That this right shall be exercised by the buyer only once
in every five years of the life of the contract and its extensions, if any.

(b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of
the payments on the property equivalent to fifty per cent of the total payments made, and, after
five years of installments, an additional five per cent every year but not to exceed ninety per
cent of the total payments made: Provided, That the actual cancellation of the contract shall
take place after thirty days from receipt by the buyer of the notice of cancellation or the demand
for rescission of the contract by a notarial act and upon full payment of the cash surrender value
to the buyer.

Down payments, deposits or options on the contract shall be included in the computation of the
total number of installment payments made.

Sec. 4. In case where less than two years of installments were paid, the seller shall give the
buyer a grace period of not less than sixty days from the date the installment became due.

If the buyer fails to pay the installments due at the expiration of the grace period, the seller may
cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or the
demand for rescission of the contract by a notarial act.
Sec. 5. Under Section 3 and 4, the buyer shall have the right to sell his rights or assign the same
to another person or to reinstate the contract by updating the account during the grace period
and before actual cancellation of the contract. The deed of sale or assignment shall be done by
notarial act.

Sec. 6. The buyer shall have the right to pay in advance any installment or the full unpaid
balance of the purchase price any time without interest and to have such full payment of the
purchase price annotated in the certificate of title covering the property.

Sec. 7. Any stipulation in any contract hereafter entered into contrary to the provisions of
Sections 3, 4, 5 and 6, shall be null and void.

Sec. 8. If any provision of this Act is held invalid or unconstitutional, no other provision shall be
affected thereby.

Sec. 9. This Act shall take effect upon its approval.

Approved: August 26, 1972

Boysaw v Interphil Promotions, 148 SCRA 364 (1987)

The refusal of appellants to accept a postponement without any other reason but the
implementation of the terms of the original boxing contract entirely overlooks the fact that by
virtue of the violations they have committed of the terms thereof, they have forfeited any right to
its enf orcement. Where a party violates some of the terms of a contract the other has the right
to rescind it or to enforce one particular covenant thereof.—On the validity of the fight
postponement, the violations of the terms of the original contract by appellants vested the
appellees with the right to rescind and repudiate such contract altogether. That they sought to
seek an adjustment of one particular covenant of the contract, is under the circumstances,
within the appellee's rights.

U.P. v De los Angeles, 35 SCRA 365 (1970)

Effect of unilateral rescission without court intervention.—In the first place, UP and ALUMCO
had expressly stipulated in the “Acknowledgment of Debt and Proposed Manner of Payment”
that, upon default by the debtor ALUMCO, the creditor (UP) has “the right and the power to
consider the Logging Agreement dated 2 December 1960 as rescinded without the necessity of
any judicial suit.” As to such special stipulation, and in connection with Article 1191 of the Civil
Code, this Court stated in Froilan vs. Pan Oriental Shipping Co., et al., L-11897, 31 October
1964, 12 SCRA 276: “there is nothing in the law that prohibits the parties from entering into
agreement that violation of the terms of the contract would cause cancellation thereof, even
without court intervention. In other words, it is not always necessary for the injured party to
resort to court for rescission of the contract.”

Vda. de Mistica v Sps. Naguiat, 418 SCRA 72 (2003)

In a contract of sale, the remedy of an unpaid seller is either specific performance or
rescission.—The transaction between Eulalio Mistica and respondents, as evidenced by the
Kasulatan, was clearly a Contract of Sale. A deed of sale is considered absolute in nature when
there is neither a stipulation in the deed that title to the property sold is reserved to the seller
until the full payment of the price; nor a stipulation giving the vendor the right to unilaterally
resolve the contract the moment the buyer fails to pay within a fixed period. In a contract of sale,
the remedy of an unpaid seller is either specific performance or rescission. Under Article 1191
of the Civil Code, the right to rescind an obligation is predicated on the violation of the
reciprocity between parties, brought about by a breach of faith by one of them. Rescission,
however, is allowed only where the breach is substantial and fundamental to the fulfillment of
the obligation.

The failure of the vendee to pay the balance of the purchase price within ten years from the
execution of the Deed does not amount to a substantial breach where in the contract it was
stipulated that payment could be made even after ten years provided the vendee paid 12
percent interest.—In the present case, the failure of respondents to pay the balance of the
purchase price within ten years from the execution of the Deed did not amount to a substantial
breach. In the Kasulatan, it was stipulated that payment could be made even after ten years
from the execution of the Contract, provided the vendee paid 12 percent interest. The
stipulations of the contract constitute the law between the parties; thus, courts have no
alternative but to enforce them as agreed upon and written.

Fil-Estate v Vertex, G.R. No. 202079, June 10, 2013

Mutual restitution is required in cases involving rescission under Article 1191” of the Civil Code;
such restitution is necessary tion in the agreement by reneging on his original promise to
contribute P32.5M. Fong’s dimunition of his capital share to P5M amounted to a substantial
breach as well which occured before Fong decided to rescind his JVA with Duenas. Thus, Art.
1192 applies.

Cupino v. Pacific Rehouse (2015)

The obligation of the petitioners under the Deed of Conditional Sale is to “guarantee removal of
tenants” and not merely to pay disturbance compensation. It is an undertaking specifically given
to petitioners under the Deed, considering that Pacific is not yet the owner of the property and
will have no personality to evict the property’s present occupants. Petitioners failed to fulfill this
obligation, as well as the obligation to deliver the necessary documents to complete the sale.

iv. Damages, NCC 1170

Art. 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.
(1101)

(1) Unilateral obligations, NCC 1171

Art. 1171. Responsibility arising from fraud is demandable in all
obligations. Any waiver of an action for future fraud is void. (1102a)

(2) Reciprocal obligations, NCC 1192

Art. 1192. In case both parties have committed a breach of the
obligation, the liability of the first infractor shall be equitably tempered
by the courts. If it cannot be determined which of the parties first
violated the contract, the same shall be deemed extinguished, and
each shall bear his own damages. (n)