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Article 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of
an action for future fraud is void.
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Responsibility arising from 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
mitigate or reduce the damages to be awarded. This is because fraud is deemed serious and evil
that its employment to avoid the fulfillment of ones obligation should be discouraged.

Waiver of action for future fraud void

According to the time of commission, fraud may be past or future. A waiver of an action for
future fraud is void (no effect) as being against the law and public policy. A contrary rule would
encourage the perpetration of fraud because the obligor knows that even if he should commit
fraud, he would not be liable for it, thus making the obligation illusory (i.e. not real)

Waiver of action for past fraud valid

What the law prohibits is waiver anterior (i.e. coming before) to the fraud and to the knowledge
thereof by the aggrieved party.

A past fraud can be the subject of a valid waiver because the waiver can be considered as an act
of generosity and magnanimity on the part of the party who is the victim of the fraud. Here, what
is renounced is the effect of the fraud, that is, the right to indemnity of the party entitled thereto.
The waiver must be expressed in clear language which leaves no doubt as to the intention of the
obligee to give up his right against the obligor.

Example:

S promised to deliver 120 cavans of rice of a particular brand and quality to B at the rate of 10
cavans a month.

S cannot make an agreement with B, whereby B will not file an action in court against S, should
commit fraud in the performance of his obligation. This waiver of an action for future fraud is
void. Hence, B can still bring an action against S for damages arising from the fraud.

But once fraud is committed, B, with full knowledge thereof, can waive his right to indemnity as
an act of forgiveness on his part.

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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.
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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 measure of damages. The reason is
because negligence is a question which must necessarily depend upon the circumstances of each
particular case. Moreover, negligence is not as serious as fraud because in the case of the former,
there is no deliberate intention to cause injury or damages. According to the circumstances, the
court may increase or decrease the damages recoverable. When both parties to a contract are
negligent in the performance of their respective obligations, the fault of one may cancel or
neutralize the negligence of the other.

Kinds of negligence according to the source of obligation

(1) Contractual Negligence (culpa contractual) or negligence in contracts resulting in their

breach. Article 1172 refers to culpa contractual.

Example:

If S entered into a contract of sale with B to deliver a specific horse on a certain day and the
horse died through the negligence of S before delivery, S is liable for damages to B for having
failed to fulfill a pre-existing obligation (contract may be either express or implied) because of
his negligence. This is culpa contractual.

(2) Civil negligence (culpa aquiliana) or negligence which by itself is the source of an obligation
between the parties not so related before by any pre-existing contract. It is also called tort or
quasi-delict.

Example:

Assume now that the horse belongs to and is in possession of B. The negligence of S which
results in the death of the horse is culpa aquiliana. In this case, there is no pre-existing
contractual relation between S and B. The negligence itself is the source of liability.

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(3) Criminal negligence (culpa criminal) or negligence resulting in the commission of a crime.

Example:

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.

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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.
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Meaning of fault or negligence:

Fault or negligence is defined by the above provision. According to the Supreme Court,
negligence 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.

Factors to be considered:

Negligence is a question of fact, that is, its existence being dependent upon the particular
circumstances of each case. In determining the issue of negligence, the following factors must 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.

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(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 100 kph on the superhighway is permissible but driving at the same rate of speed in
Ayala Ave. Makati is gross recklessness.

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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.
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Meaning of fortuitous event

A fortuitous event is any event which cannot be foreseen, or which, though foreseen, is
inevitable. Stated otherwise, it is an event which is either impossible to foresee or impossible to
avoid.

The essence of a fortuitous event consists of being a happening independent of the will of the
debtor and which happening, makes the normal fulfillment of the obligation impossible.

Fortuitous event distinguished from force majeure

A fortuitous event may either be an act of man or an act of God.

(1) Acts of man Strictly speaking, fortuitous event is an event independent of the will of the
obligor but not of other human wills.

Examples:

War, fire, robbery, murder, insurrection, etc.

(2) Acts of God They refer to what is called majeure or those events which are totally
independent from the will of every human being.

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Examples:

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 or those events which are common and which the contracting
parties could reasonably foresee (e.g., rain)

(2) Extra-ordinary fortuitous events of those events which are uncommon and which the
contracting parties could not have reasonably foreseen (e.g., earthquake, fire, war, pestilence,
unusual flood).

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Article 1175. Usurious transactions shall be governed by special laws.
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Meaning of simple loan or mutuum

Simple loan or mutuum is a contract whereby one of the parties delivers to another, money or
other consumable thing, upon the condition that the same amount of the same kind and quality
shall be paid. It may be gratuitous (i.e. given or done free of charge) or with a stipulation to pay
interest.

Meaning of usury

Usury is contracting for or receiving interest in excess of the amount allowed by law for the loan
or use of money, goods, chattels (an item or property other than real estate) 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

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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.

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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.
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Meaning of presumption

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

Example:

D borrowed Php 1,000.00 from C. Later, D shows a receipt signed by C. The fact not actually
known is the payment of 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.

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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.
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(impugn dispute the truth, honesty, validity of a statement or motive)

(defraud illegally obtain money from someone by deception)

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 of (specific performance) with the right to damages

(2) pursue the leviable (not exempt from attachment under the law property of the debtor);

(levy to seize or attach property by judicial order)

(3) after having pursued the property in possession of the debtor, exercise all the rights (like
the right to redeem) and bring all the actions of the debtor (like the right to collect from the
debtor of his debtor) except those inherent in or personal to the person of the latter (such as
the right to vote, to hold office, to receive legal support, to revoke a donation on the ground
of ingratitude, etc.); and
(4) ask the court to rescind or impugn acts or contracts which the debtor may have done to
defraud him when he cannot in any other manner recover his claim.

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 (rescind annul; revoke; repeal; to invalidate by a later action or a higher authority)

Example:

On the due date, D could not pay C his obligation in the amount of php 400,000.00. However, D
owns a car worth about php 200,000.00 and X is indebted to him for Php40,000.00. Before
the due date of the obligation, D sold his land worth php 200,000.00 to Y.

Under the circumstances, the rights granted by law to C under the law are as follows:

(a) He may bring an action for the collection of the amount of Php 400,000.00 with a right to
damages.
(b) If, in spite of the judgment rendered, D fails to play the amount due, C can ask for the
attachment of Ds car so that the car may be sold and payment made from the proceeds of
the sale.
(c) He may ask the court to order X no to pay D so that payment may be made to him
(d) He may ask the court to rescind or cancel the sale made by D to Y on the ground that the
transaction is fraudulent in case he (C) cannot recover in any other manner his credit.

The last remedy can only be resorted to only if C could not collect in full his credit. He must first
exhaust the properties of the debtor or subrogate himself in the latters transmissible rights.

(subrogate to put (one person or thing) in the place of another in respect of a right or claim)

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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.
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(stipulation a condition, demand, or promise in an agreement or contract)

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.

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 (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 form the wording or terms of the contract itself.

Reference: The Law on Obligations and Contracts 2011

by H. S. De Leon and H. M. De Leon, Jr.

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