NATURE AND EFFECT OF OBLIGATIONS

Article 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.

Specific thing and Generic thing distinguished
A determinate thing is identified by its individuality. The debtor cannot substitute it
with another although the latter is of the same kind and quality without the consent
of the creditor.
Ex: the house at the corner of Rizal and del Pilar Streets; the 2002 Toyota
car with Plate No. WVR 247, the money I gave you.
A generic thing is identified only by its specie. The debtor can give anything of the
same class as long as it is of the same kind.
Ex: a Guess watch; the sum of P1,000.00; a 1998 Toyota car

Scenario: If Sharons obligation is to deliver to Kiko a Casio watch with a built-in
altimeter, can Sharon deliver any watch? If Sharons obligation is to deliver to Kiko
a particular watch, the one she is wearing, can Sharon substitute it with another
watch?

Duties of debtor in obligation to give a determinate thing
1. Preserve the thing In obligations to give, the obligor has the incidental
duty to take care of the thing due with the diligence of a good father of a
family pending delivery.
a. Diligence of a good father of a family The phrase has been equated
with ordinary care which an average person exercises over his own
property.
b. Another standard of care However, if the law or the stipulation of
the parties provides for another standard of care, said law or
stipulation must prevail.
c. Factors to be considered. As a general rule, the debtor is not liable if
his failure to preserve the thing is not due to his fault or negligence
but to fortuitous events or force majeure.
Example: Sam binds himself to deliver a specific horse to Bert on a
certain date.
Pending delivery, Sam has the additional or accessory duty to take care of
the horse with the diligence of a good father of a family, like feeding the
horse regularly, keeping it in a safe place, etc. In other words, Sam must
exercise that diligence which he would exercise over another horse
belonging to him and which he is not under obligation to deliver to Bert.
If the horse dies or is lost or becomes sick as a consequence of Sams
failure to exercise proper diligence, is he liable to B for damages?
2. Reason for debtors obligation. The debtor must exercise diligence to
insure that the thing to be delivered would live on in the same condition as it
was when the obligation was contracted.
3. Deliver the fruits of the thing Discussed under Article 1164
4. Deliver the accessions and accessories Discussed under Article 1166
5. Deliver the thing itself Arts. 1163, 1233, 1244
6. Answer for damages in case of non fulfillment or breach Discussed under
Article 1170

Duties of debtor in obligation to deliver a generic thing
1. To deliver a thing which is of the quality intended by the parties taking into
consideration the purpose of the obligation
2. To be liable for damages in case of fraud, negligence or delay, in the
performance of his obligations

Article 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.

Types of Fruits
Natural fruits - spontaneous products of the soil, and the young and other products
of animals
Ex: Grass; all trees and plants on lands produced without the intervention of
human labor.
Industrial fruits - produced by lands of any kind through cultivation or labor.
Ex: Sugar cane; vegetables; rice; and all products of lands brought about by
reason of human labor
Civil fruits - those derived by virtue of a juridical relation
Ex: Rents of buildings, price of leases of lands and other property

Right of creditor to the fruits
The creditor is entitled to the fruits of the thing to be delivered from the time
the obligation to make delivery arises. The intention of the law is to protect the
interest of the obligee should the obligor commit delay, purposely or otherwise, in
the fulfillment of his obligation.

Scenario: Sam sold his horse to Bert for P60,000.00. No date or condition was
stipulated for Sam the delivery of the horse. While still in the possession of Sam,
the horse gave birth to a colt. (a) Generally, who has a right to the colt? (b) If it
was born before the obligation to deliver the horse has arisen and Bert has not yet
paid the purchase price.

Personal right and real right distinguished
In personal right there is a definite active subject and a definite passive subject,
while in real right, there is only a definite active subject without any definite
passive subject.
A personal right is binding or enforceable only against a particular person, while a
real right is directed against the whole world.
Scenario: Mike is the owner of a parcel of land under a torrens title registered in his
name in the Registry of Property. Is his ownership is a real right or a personal
right?
If the land is claimed by Ben who takes possession, what right can Mike use to
recover his property?

Ownership acquired by delivery
Ownership and other real rights over property are acquired and transmitted
in consequence of certain contracts by tradition or delivery. Mere agreement does
not effect transfer of ownership.
Scenario:
Sam is obliged to give to Bert on May 25 a particular horse. (a) Before May 25, who
has a right over the horse? Before May 25, Bert has no right over the horse. Bert
will acquire a personal right against Sam to fulfill his obligation only from May 25.
(b) If the horse is delivered on May 30, when does Bert acquire ownership? (c) On
May 20, Sam sold and delivered the same horse to Charlie, a third person, who
acted in good faith (without knowledge of the said contract), who acquires
ownership over the horse and entitled to it? Who is liable to whom for damages?

Article 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 fortuitous
event until he has effected the delivery.

Remedies of creditor in real obligation
In a specific real obligation, the creditor may exercise the following in case the
debtor fails to comply with his obligation:
1. demand specific performance or fulfillment of the obligation with a right to
indemnity for damages; or
2. demand rescission or cancellation (in certain cases) of the obligation also
with a right to recover damages; or
3. demand payment of damages only where it is the only feasible remedy.
A generic real obligation, on the other hand, can be performed by a third person
since the object is expressed only according to its family or genus. It is not
necessary for the creditor to compel the debtor to make the delivery, although he
may ask for performance of the obligation.

Scenarios:
1. Sam sells his piano to Bert for P10,000.00. If Sam refuses to comply with his
obligation to deliver the piano, what actions can Bert bring? In case of
rescission, what should both parties do if previous actions were taken?
2. Sam obliges himself to deliver to Bert 100 sacks of rice on December 4 for
P150,000.00. If Sam does not comply with his obligation, (a) can Bert buy
rice from Charles, a third person? (b) If B paid C P160,000.00, may he
recover (assuming Bert has not yet paid Sam) P10,000.00 from Sam?

Article 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.

Accessions - fruits of a thing or additions to or improvements upon a thing (the
principal).
Examples: House or trees on a land; rents of a building; air-conditioner in a
car; profits or dividends accruing from shares of stocks, etc.
Accessories - things joined to or included with the principal thing for the latters
embellishment, better use, or completion.
Examples: key of a house; frame of a picture; bracelet of a watch;
machinery in a factory; bow of a violin.

Right of creditor to accessions and accessories
The general rule is that all accessions and accessories are considered
included in the obligation to deliver a determinate thing although they may not
have been mentioned. This rule is based on the principle of law that the accessory
follows the principal. In order that they will be excluded, there must be a stipulation
to that effect.

Article 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.

Situations contemplated in Article 1167
Article 1167 refers to an obligation to do, that is, to perform an act or render a
service. It contemplates three situations:
1. The debtor fails to perform an obligation to do;
2. The debtor performs an obligation to do but contrary to the terms thereof; or
3. The debtor performs an obligation to do but in poor manner.

Remedies of creditor in positive personal obligation.
1. If the debtor fails to comply with his obligation to do, the creditor has the
right:
a. to have the obligation performed by himself, or by another, unless
personal considerations are involved, at the debtors expense; and
b. to recover damages.
2. In case the obligation is done in contravention of the terms of the same or is
poorly done, it may be ordered (by the court) that it be undone if it is still
possible to undo what was done.

Scenarios:
(1) X binds himself to construct a house for B. Among other things, it was
stipulated that the house shall have 3 bedrooms, each of which to have an area of
5 meters by 4 meters and that the kitchen shall be painted all white. If X does not
construct the house, may B ask C to contract the house at the expense of X?
(2) Suppose X constructed the house but the size of the bedroom is not 5 meters
by 4 meters or the kitchen is not painted all white. In this case, can B ask to have it
done according to the specifications? If X refuses, may the obligation be performed
by C at the expense of X?
(3) Now, if the kitchen was painted white but the painting was poorly done, may B
ask X that it be undone? In case of Xs refusal, may he ask C to paint the kitchen at
the expense of X? B may ask X that it be undone or, in case of Xs refusal, he may
ask C to paint the kitchen at the expense of X.
(4) If the obligation contracted by X is to sing in the night club of B and he fails to
comply with his obligation, is the performance of the same by another be
impossible?

Article 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.

Remedies of creditor in negative personal obligation
In an obligation not to do, the duty of the obligor is to abstain from an act.
Here, there is no specific performance. The very obligation is fulfilled in not doing
what is forbidden. Hence, in this kind of obligation the debtor cannot be guilty of
delay.

Example:
Bert bought a land from Sam. It was stipulated that Sam would not construct
a fence on a certain portion of his land adjoining that sold to Bert.
Should Sam construct a fence in violation of the agreement, Bert can bring
an action to have the fence removed at the expense of Sam.

Article 1169. Those obliged to deliver or to do something incur in delay from the
time the obligee judicially or extra-judicially demands from them the fulfillment of
their obligation.
However, the demand by the creditor shall not be necessary in order that
delay may exist:
(1) When the obligation or the law expressly so declares; or
(2) 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
(3) When demand would be useless, as when the obligor has rendered it beyond his
power to perform.
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. From the moment one of the parties fulfills his obligation, delay by the other
begins.

Ordinary delay - failure to perform an obligation on time
Legal delay or default - failure to perform an obligation on time which failure
constitutes a breach of the obligation

Kinds of delay or default
Mora solvendi - the delay on the part of the debtor to fulfill his obligation
Mora accipiendi - the delay on the part of the creditor to accept the performance of
the obligation; and
Compensatio morae - the delay of the obligors in reciprocal obligations (like in
sale), i.e., the delay of the obligor cancels the delay of the obligee, and vice versa.

NO delay in negative personal obligation
In an obligation not to do, non-fulfillment may take place but delay is
impossible for the debtor fulfills by not doing what has been forbidden him.

Requisites of mora solvendi
1. Failure of the debtor to perform his (positive) obligation on the date agreed
upon;
2. Demand made by the creditor upon the debtor to comply with his obligation
which demand may be either judicial (when a complaint is filed in court) or
extra-judicial; and
3. Failure of the debtor to comply with such demand.

Example:
Sam obliged himself to deliver to Bert a specific refrigerator on December 10.
(a) If Sam does not deliver the refrigerator on December 10, what type of delay
was committed in the absence of any demand from Bert? (b) If a demand is made
upon Sam by Bert on December 15 and Sam fails to deliver the refrigerator, when
is Sam considered in default? (c) If an action for specific performance is filed by
Bert on December 20,when does the payment of damages for the default
commence?

When demand is not necessary to put debtor in delay
As a general rule, delay by the debtor begins only from the moment a
demand, judicial or extra-judicial, for the fulfillment of the formers obligation is
made by the creditor except:

(1) When the obligation so provides
Example: D promised to pay C the sum of P20,000.00 on or before November 30
without the need of any demand. Therefore, if D fails to pay on November 30, he is
automatically in default.

(2) When the law so provides
Example: Under the law, taxes should be paid on or before a specific date;
otherwise, penalties and surcharges are imposed without the need of demand for
payment by the government.

(3) When time is of the essence
Example: The delivery of balloons on a particular date when a childrens party will
be held; the making of a wedding dress where the wedding is scheduled at a
certain time
In these cases, the debtor is fully aware that the performance of the
obligation after the designated time would no longer benefit the creditor.

(4) When demand would be useless
Example: Sam obliged himself to deliver a specific horse to Bert on September 5.
Through Sams negligence or by reason of fortuitous event for which Sam has
expressly bound himself responsible, the horse died on September 2. Under this
situation, any demand for the delivery of the horse on September 5 would be
useless as Sam has made it impossible for him to perform his obligation.

(5) When there is performance by a party in reciprocal obligations The
performance of one is conditioned upon the simultaneous fulfillment on the part of
the other. So 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. This is
compensatio morae. From the moment, however, a party fulfills or is ready to fulfill
his obligation, delay by the other begins.
Example: Sam agreed to sell to Bert his television set for P10,000.00. The
obligation of Sam is to deliver the television set while that of Bert, to pay
P10,000.00. Since no date is set for performance of their respective obligations, it
is understood that it must be simultaneous. Sam cannot demand payment if he
himself cannot deliver the television set. From the moment Sam delivers the
television set, Bert is in default if he does not pay Sam without the need of any
demand.

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.

Grounds for liability
(1) Fraud (deceit or dolo) the deliberate or intentional evasion of the normal
fulfillment of an obligation. As a ground for damages, it implies some kind of
dishonesty and it cannot cover cases of mistake and errors of judgment made in
good faith. It is synonymous to bad faith.
Example: Sam obliged himself to deliver to Bert 20 bottles of wine, of a
particular brand. Subsequently, Sam delivered 20 bottles knowing that they contain
cheaper wine. Sam is guilty of fraud and is liable for damages to Bert.
(2) Negligence (fault or culpa) any voluntary act or omission, there being no
malice, which prevents the normal fulfillment of an obligation.
(3) Delay (mora) Discussed under Article 1169.
(4) Contravention of the terms of the obligation - violation of the terms and
conditions stipulated in the obligation. The contravention must not be due to a
fortuitous event or force majeure.
Example: E leased the apartment of R for P8,000.00 a month to be paid in
advance during the first week of every month. The obligation of E, as lessee, is to
pay the stipulated rent. The obligation of R, as lessor, is to maintain E in the
peaceful possession of the apartment leased. If E violates his obligation, R is
entitled to eject him from the premises and recover damages. If R does not
maintain E in the peaceful possession of the apartment (as when R is not the
owner), and E is ejected, R may be held liable for damages for violation of the
terms of his obligation.


Article 1171. Responsibility arising from fraud is demandable in all obligations. Any
waiver of an action for future fraud is void.

Responsibility arising from incidental fraud demandable
Responsibility arising from fraud can be demanded with respect to all kinds of
obligation and unlike in the case of responsibility arising from negligence, the court
is not given the power to reduce the damages to be awarded. This is so because
fraud is so serious and evil that its employment to avoid the fulfillment of ones
obligation should be discouraged.

Article 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.

Responsibility arising from negligence demandable
In the performance of every kind of obligation, the debtor is also liable for damages
resulting from his negligence. 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 upon the circumstances of each particular case.

Kinds of negligence according to source of obligation
Civil negligence (culpa aquiliana) - negligence which by itself is the source of an
obligation between the parties not so related before by any preexisting contract. It
is also called tort or quasi-delict.
Contractual negligence (culpa contractual) - negligence in contracts resulting in
their breach.
Criminal negligence (culpa criminal) - negligence resulting in the commission of a
crime. The same negligent act causing damages may produce civil liability arising
from a crime under Article 100 of the Revised Penal Code, or create an action for
quasi-delict under Article 2176 of the Civil Code.
In negligence cases, the aggrieved party may choose between a criminal
action or a civil action for damages under Article 2176 of the Civil Code. What is
prohibited under Article 2177 of the Civil Code is to recover twice for the same
negligent act.

Examples:
(1) If Sam entered into a contract with Bert to deliver a specific horse on a certain
day and the horse died through the negligence of Sam before delivery, Sam is liable
for damages to Bert for having failed to fulfill a pre-existing obligation because of
his negligence.
(2) Assume now, that the horse belongs to and is in the possession of Bert. The
negligence of Sam which results in the death of the horse is __.
(3) A crime can be committed by negligence. If B wants, he can bring an action for
culpa criminal (damage to property through simple or reckless imprudence). Here,
the crime is the source of the obligation of S to pay damages.
But B cannot recover damages twice for the same act or omission of S. In other
words, responsibility for quasi-delict is not demandable together with the civil
liability arising from a criminal offense.
Effect of negligence on the part of the inj ured party
Suppose the creditor is also guilty of negligence, can he recover damages?
Article 2179 of the new Civil Code provides:
When the plaintiffs own negligence was the immediate and proximate cause of his
injury he cannot recover damages. But if his negligence was only contributory, the
immediate and proximate cause of the injury being the defendants lack of due
care, the plaintiff may recover damages, but the courts shall mitigate the damages
to be awarded.

Scenarios:
(1) Pat is a passenger in a carefully driven bus. Without any warning, he jumped off
the bus, as a result of which, he suffered injuries. Is the bus company is liable for
damages?
(2) Now suppose Pat was standing on the running board of the bus and was
repeatedly told by the conductor to go inside but he did not pay any attention.
Suddenly, the bus swerved to the left to avoid collision with another vehicle, as a
result of which, Pat was thrown off the bus. At the time of the mishap, the driver
was intoxicated and was driving recklessly at a very high rate of speed. Who is/are
liable for damages?
(3) Suppose in the second example, the bus rounded a curve causing Pat to lose his
balance and fall off the platform, sustaining injuries. The bus at the time of the
accident was travelling at a moderate rate of speed and there was no infraction of
law and regulations, and Pat was exposed to no greater danger than that inherent
in that particular mode of travel. Can Pat recover for damages?

Article 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 person, 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.

Fault or negligence - 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

Factors to be considered
(1) Nature of the obligation
Example: Smoking while carrying materials known to be inflammable constitutes
negligence.
(2) Circumstances of the person.
Example: A guard a man in the prime of life, robust and healthy, sleeping while on
duty is guilty of negligence.
(3) Circumstances of time.
Example: Driving a car without headlights at night is gross negligence but it does
not by itself constitute negligence when driving during the day.

(4) Circumstances of the place.
Example: Driving at 80 kilometers per hour on the superhighway is permissible but
driving at the same rate of speed in Rizal Avenue, Manila is gross recklessness.

Measure of liability for damages
Article 2201 of the Civil Code states:
In contracts and quasi-contracts the damages for which the obligor who
acted in good faith is liable shall be those that are the natural and probable
consequences of the breach of the obligation, and which the parties have foreseen
or could have reasonably foreseen at the time the obligation was constituted.
In case of fraud, bad faith, malice or wanton attitude, the obligor shall be
responsible for all damages which may be reasonably attributed to the non-
performance of the obligation.

Example: Sam agreed to sell and deliver to Bert on a certain date 1,000 kilos of
sugar of a certain quality for P60,000.00. Then, Bert agreed to sell the sugar to be
received from Sam to Charlie for P75,000.00. This contract with Charlie was made
known to Sam. On the date designated, Sam did not deliver the sugar so that
Charlie bought sugar from another.
The breach of the obligation by Sam resulting in the loss of the amount of
P15,000.00 as expected profit, so angered Bert that he suffered a heart attack for
which he was hospitalized for five days. What damage(s) is/are attributable if Sam
acted in (a) good faith; (b) bad faith?

Kinds of diligence required under Article 1173
1. That agreed upon by the parties, orally or in writing;
2. In the absence of stipulation, that required by law in the particular case (like
the extraordinary diligence required of common carriers); an
3. If both the contract and law are silent, then the diligence expected of a good
father of a family.

Article 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.

Fortuitous event - any event which cannot be foreseen, or which, though foreseen,
is inevitable.
The essence of a fortuitous event consists of being a happening independent
of the will of the debtor and which happening, makes the normal fulfillment of the
obligation impossible.

Fortuitous event distinguished from force maj eure
Acts of man Strictly speaking, fortuitous event is an event independent of the will
of the obligor but not of other human wills.
Ex: War, fire, robbery, murder, insurrection, etc.
Acts of God refer to what is called force majeure or those events which are
totally independent will of every human being.
Ex: Earthquake, flood, rain, shipwreck, lightning, eruption of volcano, etc.

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.

Kinds of fortuitous events
1. Ordinary fortuitous events - events which are common and which the
contracting parties could reasonably foresee (e.g., rain); and
2. Extra-ordinary fortuitous events - events which are uncommon and which the
contracting parties could not have reasonably foreseen (e.g., earthquake,
fire, war, pestilence, unusual flood)

Requisites of a fortuitous event
1. The event must be independent of the human will or at least of the debtors
will;
2. The event could not be foreseen, or if foreseen, is inevitable;
3. The event must be of such a character as to render it impossible for the
debtor to comply with his obligation in a normal manner; and
4. The debtor must be free from any participation in, or the aggravation of, the
injury to the creditor, that is, there is no concurrent negligence on his part.

Rules as to liability in case of fortuitous event
A person is not, as a rule, responsible for loss or damage caused to another
resulting from fortuitous events. In other words, his obligation is extinguished. The
exceptions are as follows:
(1) When expressly specified by law. In exceptions (a), (b), and (c) below, the
special strictness of the law is justified.
(a) the debtor is guilty of fraud, negligence or delay, or contravention of the tenor
of the obligation
Example: Sam is obliged to deliver a specific horse to Bert on August 10.
Sam did not deliver the horse on said date. If, on August 11, the horse died
because it was hit by lightning, Sam is not liable if no demand was made by Bert.
His obligation is extinguished.
If the horse died after a demand was made by Bert, Sam is liable for
damages because he is guilty of (legal) delay. In this case, the obligation of S to
deliver the horse is also extinguished but it is converted into monetary obligation to
pay damages.
(b) the debtor has promised to deliver the same (specific) thing to two or more
persons who do not have the same interest
Example: If Sam promised to deliver the same car to Bert and Charlie
separately, Sam is liable even for a fortuitous event. The reason is because it would
be impossible for Sam to comply with his obligation to both Bert and Charlie even
without any fortuitous event taking place.
(c) the obligation to deliver a specific thing arises from a crime
Example: Sam stole the carabao of Bert. Sam has the obligation, arising from
the crime, to return the carabao. Even if the carabao dies or is lost through a
fortuitous event, Sam is still liable for damages unless Bert is in mora accipiendi. A
person is responsible for the results of whatever cause which flow from his criminal
act.
(d) the thing to be delivered is generic
Example: The loss or destruction of a generic thing like rice, corn, sugar, etc.
does not produce the extinction of the obligation because the debtor can still
comply with his obligation by delivering another thing of the same kind in
accordance with the principle that genus never perishes

(2) When declared by stipulation The basis for this exception rests upon the
freedom of contract. 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.
(3) When the nature of the obligation requires the assumption of risk Here, risk
of loss or damage is an essential element in the obligation.
Example: Bert insured his house against fire for P500,000.00 with Charlies
Insurance, an insurance company. Later, the house was destroyed by accidental
fire. Although the cause of the loss is a fortuitous event, Bert may recover the
amount of the policy.
In a contract of insurance, the insurer (Charlie), in consideration of the
premium paid by the insured (Bert), undertakes to indemnify the latter for the loss
of the thing insured by reason of the peril insured against even if the cause of the
loss is a fortuitous event.

Article 1175. Usurious transactions shall be governed by special laws.

Simple loan or mutuum - 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.
Usury - contracting for or receiving interest in excess of the amount allowed by law
for the loan or use of money, goods chattels or credits.

Requisites for recovery of interest
In order that interest may be recovered, the following requisites must be present:
1. The payment of interest must be expressly stipulated;
2. The agreement must be in writing; and
3. The interest must be lawful.
A stipulation for the payment of usurious interest is void, that is, as if there is
no stipulation as to interest.

Article 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.

By presumption is meant the inference of a fact not actually known arising
from its usual connection with another which is known.

Examples:
(1) X was shot dead. Nobody witnessed the shooting. Y, however, was seen at the
scene of the crime just after its commission holding the fatal gun. The fact not
actually known is the person who fired the gun. The fact known is the presence of Y
at the scene of the crime holding the fatal gun.
The inference is that Y is the person who killed X unless contradicted by
competent evidence.
(2) D borrowed P10,000.00 from C. Later, D shows a receipt signed by C. The fact
not actually known is the payment by D. The fact known is the possession by D of a
receipt signed by C.
The presumption is that the obligation has been paid unless proved otherwise
by C as, for example, that D forced C to sign the receipt.

Two kinds of presumption
Conclusive presumption one which cannot be contradicted, like the presumption
that everyone is conclusively presumed to know the law; 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.

Example:
E is a lessee in the apartment of R, paying p5,000.00 rental a month. E failed
to pay the rent for the months of February and March. in April, E paid P5,000.00
and R issued a receipt that the payment is for the month of April.
The presumption is that the rents for the months of February and March had
already been paid. This is also in accordance with the usual business practice
whereby prior installments are first liquidated before payments are applied to the
later installments. Again, this presumption is merely disputable.

Article 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.

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:
1. exact fulfillment (specific performance) with the right to damages;
2. pursue the leviable (not exempt from attachment under the law) property of
the debtor;
3. 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
4. ask the court to withdraw or charge acts or contracts which the debtor may
have done to defraud him when he cannot in any other manner recover his
claim.
The debtor is liable with all his property present and future, for the
fulfillment of his obligations, subject to the exemptions provided by law.

Example:
On the due date, Dina could not pay Cathy his obligation in the amount of
P400,000.00. However, Dina owns a car worth about P280,000.00 and Irene is
indebted to her for P40,000.00. Before the due date of the obligation, Dina sold his
land worth P200,000.00 to Yeng.
Under the circumstances, the rights granted to Cathy under the law are as follows:
(a) She may bring an action for the collection of the amount of P400,000.00 with a
right to damages.
(b) If, in spite of the judgment rendered, Dina fails to pay the amount due, Cathy
can ask for the attachment of Dinas car so that the car may be sold and payment
made from the proceeds of the sale.
(c) She may ask the court to order Irene not to pay Dina so that payment may be
made to her (Cathy).
(d) She may ask the court to cancel the sale made by Dina to Yeng on the ground
that the transaction is fraudulent in case she (Cathy) cannot recover in any other
manner her credit. Note that this last remedy can be resorted to only if Cathy could
not collect in full his credit. She must first exhaust the properties of the debtor or
subrogate herself in the latters transmissible rights.

Article 1178. Subject to the laws, all rights acquired in virtue of an obligation are
transmissible, if there has been no stipulation to the contrary.

Transmissibility of rights
All rights acquired in virtue of an obligation are generally transmissible. The
exceptions to this rule are the following:
(1) Prohibited by law. When prohibited by law like the rights in partnership,
agency, and commodatum which are purely personal in character.
(a) 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.
(b) 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.
(c) By the contract of commodatum, one of the parties delivers to another
something not consumable (e.g., car) so that the latter may use the same for a
certain time and return it. Commodatum is essentially gratuitous.
(2) Prohibited by stipulation of the 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. Such
stipulation, being contrary to the general rule, must be clearly proved, or, at the
very least, clearly implied from the provisions of the contract itself.