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)

Grounds for liability.

The above provision gives the four (4) grounds for liability which may entitle the injured party to
damages (infra; see Art. 2197.) for all kinds of obligations mentioned in Article 1157. Here, the breach of
the obligation is voluntary; in Article 1174, it is involuntary. There is breach when a person fails or
refuses to perform his obligation without legal justification.

(1) Fraud (deceit or dolo). -As used in Article 1170, it is the deliberate or intentional evasion of the
normal fulfillment of an obligation. (see 8 Manresa 72.) As a ground for damages, it implies some kind of
malice or dishonesty and it cannot cover cases of mere mistake and errors of judgment made in good
faith. It is synonymous to bad faith in that, it involves a design to mislead or deceive another.

EXAMPLE:
S obliged himself to deliver to B 20 bottles of wine, of a particular brand. Subsequently, S delivered 20
bottles knowing that they contain cheaper wine. S is guilty of fraud and is liable for damages to B.

Article 1170 refers to incidental fraud (dolo incidente) committed in the performance of an obligation
already existing because of contract. It is to be differentiated from causal fraud (dolo causante) or fraud
employed in the execution of a contract under Article 1338, which vitiates consent.

In the same example, if B bought the 20 bottles of wine on the false representation of 5 that the wine is
that as represented by the labels, the fraud committed by S is causal fraud. Without the fraud, B would
not have given his consent to the contract. He has the right to have the contract annulled or set aside on
the ground of the fraud. (Arts. 1390, 1391.)

But in the first example, the remedy of B is not annulment of the contract of sale which is not affected
by the incidental fraud but to claim damages. If the fraud employed by S to get B's consent was not the
principal inducement that led B to enter into the contract, the fraud is also incidental and it will likewise
give rise only to an action for damages. (see par. 2, Art. 1344.)

(2) Negligence (fault or culpa). It is any voluntary act or omission, there being no bad faith or malice,
which prevents the normal fulfillment of an obligation. (see Arts. 1173, 1174) It is the failure to exercise
that degree of care required by the circumstances. (see Art. 1173.)

EXAMPLE

P is a passenger in a taxi. Here, there is considered a contract of carriage between P and the owner of
the taxi company. In consideration of the fare to be paid by P. the owner of the taxi company, through
the driver, agrees to safely bring P to his destination. (Lasam vs. Smith, 48 Phil. 657.)
If, through the recklessness of the driver, like for example, driving at an unjustified rate of speed or
entering a one-way street, an accident occurs, as a result of which P is injured, there is negligence which
would make the owner liable for damages. If the taxi contained defective parts, the failure to repair the
same constitutes also negligence on the part of the owner. (Ibid.)

(3) Delay (mora). This has already been discussed under Article 1169.

(4) Contravention of the terms of the obligation. This is the violation of the terms and conditions
stipulated in the obligation without justifiable excuse or reason. The contravention must not be due to a
fortuitous event or force majeure. (Art. 1174.)

EXAMPLE:

E leased the apartment of R for P10,000 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

The measure of damages to be awarded to E or to R, as the case may be, is left to the sound discretion
of the court in accordance with the provisions of the Civil Code on Damages.
(Title XVIII)

Fraud And Negligence Distinguished.

Fraud may be distinguished from negligence as follows:

(1) In fraud, there is deliberate intention to cause damage or injury, while in negligence, there is no
such intention:
(2) Waiver of the liability for future fraud is void (Art. 1171.), while such waiver may, in a certain
sense, be allowed in negligence (Art. 1172.);
(3) Fraud must be clearly proved, while negligence is presumed from the violation of a contractual
obligation; and

(4) Lastly, liability for fraud cannot be mitigated or reduced by the courts, while liability for negligence
may be reduced according to the circumstances. (Art. 1173.)

They are similar in that both are voluntary, that is, they are committed with volition. Where, however,
the negligence is gross or there is failure to exercise even slight care or entire absence of care that it
shows bad faith or amounts to malice or wanton attitude on the part of the defendant, the rules on
fraud shall apply. In such case, no more distinction exists between the two, at least as to effects. In other
words, negligence that is gross or shows bad faith is equivalent to fraud.

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

Responsibility arising from fraud demandable.

This provision refers to incidental fraud which is employed in the fulfillment of an obligation. (Art. 1170.)

Responsibility arising from fraud can be demanded with respect to all kinds of obligation and unlike in
the case of responsibility arising from negligence (Art. 1172.), the court is not given the power to
mitigate or reduce the damages to be awarded. This is so because fraud is deemed serious and evil that
its employment to avoid the fulfillment of one's 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 if there is no waiver) as being against the law
and public policy. (Art. 1409[1].) 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.

Waiver of action for past fraud valid.

What the law prohibits is waiver anterior 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 8, whereby B will not file an action in court against 5, should S
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

ART. 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. (1103)

Responsibility arising from negligence demandable.

In the performance of every kind of obligation, the debtor is also liable for damages resulting from his
negligence.

(1) Discretion of court to fix amount of damages. The courts 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. (see Art. 1173.) 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.
When justified by the circumstances, the court may increase or decrease the damages recoverable.

(2) Damages where both parties mutually negligent. When both parties to a contract are mutually
negligent in the performance of their respective obligations, the fault of one may cancel or neutralize
the negligence of the other. Thus, the rights and obligations of the parties may be determined under the
equitable principle that no one shall enrich himself at the expense of another.

Validity of waiver of action arising from negligence.

(1) An action for future negligence (not fraud) may be renounced except where the nature of the
obligation requires the exercise of extraordinary diligence as in the case of common carriers. (see Art.
1733.) Thus, in the preceding example, the law allows an agreement between S and B, whereby S will
not be liable for damages arising from negligence in the performance of his obligation. But if 5 is a
common carrier (e.g., bus, shipping or airline company) such waiver is void.

(2) Where negligence is gross or shows bad faith (e deliberately committed), it is considered
equivalent to fraud. (Art. 2201, 2nd par.) Any waiver of an action for future negligence of this
kind is, therefore, void.
Kinds of negligence according to source of obligation.

They are:

(1) Contractual negligence (culpa contractual) or negligence in contracts resulting in their breach. Article
1172 refers to culpa contractual. This kind of negligence is not a source of obligation. (Art. 1157.) It
merely makes the debtor liable for damages in view of his negligence in the fulfillment of a pre-existing
obligation (Arts. 1170, 1172.);

(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
(Art.1162; see Art. 2176.); and

(3) Criminal negligence (culpa criminal) or negligence resulting in the commission of a crime. (Arts. 3.
365, Revised Penal Code.) The same negligent act causing damages may produce civil liability arising
from a crime under Article 100 of the Revised Penal Code (supra.), or create an action for quasi-delict
under Article 2176, et seq. of the Civil Code.

In negligence cases, the aggrieved party may choose between a criminal action under Article 100 of the
Revised Penal Code 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 5 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 5 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) Assume now, that the horse belongs to and is in the 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. (Art.
1157[5])
(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. (Arts. 1157/4): 1161)

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. (Art. 2177.)
Effect of negligence on the part of the injured party.

Suppose the creditor is also guilty of negligence, can he recover damages?

Article 2179 of the new Civil Code provides:

"When the plaintiff's own negligence was the immediate and proximate cause of his injury, he cannot
recover damages. But if his negligence was only contribu tory, the immediate and proximate cause of
the injury being the defendant's lack of due care, the plaintiff may recover damages, but the courts shall
mitigate the damages to be awarded." (see Arts. 2214, 2215.)

EXAMPLES:

(1) P is a passenger in a carefully driven bus. Without any warning, he jumped off the bus, as a result of
which, he suffered injuries.

The bus company is not liable for damages because the cause of P's injuries is his own negligence.

(2) Now suppose P was standing on the running board of the bus and was repeatedly told by the
conductor to go inside bat he did not pay any attention. Suddenly, the bus swerved to the left to avoid
collision with another vehicle, as a result of which P 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

In this case, P did not observe the diligence of a good father of a family to avoid injury to himself. (Art.
1761) But his contributory negligence does not bar recovery for damages for his death or injuries since
the proximate or direct cause thereof is the negligence of the common carrier. However, the amount of
damages shall be equitably reduced. (Art. 1762.)

(3) Suppose in the second example, the bus rounded a curve causing P 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 P was exposed to no greater danger than
that inherent in that particular mode of travel.

Here, P cannot recover. He should have been on his guard against a contingency as natural as that of
losing his balance to a greater or lesser extent when the bus rounded the curve. (see Lasam vs. Smith, 45
Phil. 657.)

In other words, to be entitled to damages, it is not required that the negligence of the defendant should
be the sole cause of the damage.
ART. 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 diligences which is to be observed in the performance, that
which is expected of a good father of a family shall be required. (1104a)

Meaning of fault or negligence.

Fault or negligence is defined by the above provision. (par. 1.) According to our 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." (United States vis. Barrias, 23 Phil. 434.)

Factors to be considered.

Negligence is a question of fact, that is, its existence being dependent upon the particular circumstances
of each case. There is no hard and fast rule for measuring degree of care. Generally, the degree of care is
graduated according to the danger or risk a person or property may be subjected to.

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.

(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 kilometers per hour on the superhighway is permissible but driving at the same rate of
speed in Ayala Avenue, Makati is gross recklessness.
Measure of liability for damages.

Damages signify the money compensation awarded to a party for loss or injury resulting from breach of
contract or obligation by the other. As a rule, the purpose of awarding damages is to place the innocent
party in the same (not better) position he would have occupied if the contract or obligation had been
performed according to its terms.

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:

S agreed to sell and deliver to B on a certain date 1,000 kilos of sugar of a certain quality for P30,000.
Then, B agreed to sell the sugar to be received from 5 to C for P35,000. This contract with C was made
known to S. On the date designated, 5 did not deliver the sugar, so C bought sugar from another.

The breach of the obligation by S, resulting in the loss of the atmount of P5.000 as expected profit, so
angered B that he suffered a heart attack for which he was hospitalized for five (5) days

In this case, if S acted in good faiths, the damage which B ought to receive should be the amount of
P5,000, the profit which B failed to realize. (par. 1, Art. 2200)

But, if S acted in bad faith, he is also liable to pay for the hospitalization expenses incurred by B which
clearly originated from the breach although they might not have been reasonably contemplated by the
parties at the time they entered into the contract. ( Part. 2.)

Kinds of diligence required.

Diligence is the attention and care required of a person in a given situation. Whether or not the
negligence of the obligor is excusable will depend on the degree of diligence required of them.

Under Article 1173, the following kinds of diligence are required:

(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); and

(3) if both the contract and law are silent, then the diligence expected of a good father of a family. (par.
2; see Art. 1163.)

ART. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or which though foreseen, were Inevitable.
(1105a)

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 happen ing independent of the will of the debtor
and which happening makes the normal fulfillment of the obligation impossible.

Fortuitous event distinguished from force majeure.

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

(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 of the will of every human being

EXAMPLES

Earthquake, flood, rain, shipwreck, lightning, eruption of volcano, etc.

In our law, fortuitous events and force majeure are identical insofar as they exempt an obligor
from liability. Both are independent of the will of the obligor.

Kinds of fortuitous events.

 In speaking of the contract of lease, our Civil Code distinguishes between two (2) kinds of
fortuitous events, namely:

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

(2) Extra-ordinary fortuitous events or those events which are uncommon and which the
contracting parties could not have reasonably foreseen (e.g., earthquake, fire, war, pestilence,
unusual flood). (see par. 2, Art. 1680.)

Requisites of a fortuitous event.

They are the following:

(1) The event must be independent of the human will or at least of the debtor's 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) 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.

The absence of any of the above requisites (all of which must be proved) would prevent the obligor from
being exempt from liability.

Mere pecuniary inability or poverty is not an excuse for the non-fulfillment of an obligation. Neither is
mere difficulty to foresee the happening of an event, it is different from the impossibility to foresee the
same. As stated earlier, the event must be unforeseeable, or even if it could be foreseen, must be
impossible to avoid.

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 the non-
performance of his obligation due to fortuitous events. In other words, his obligation is extinguished.
The exceptions are enumerated below.

(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.
(par. 3, Arts. 1170, 1165.)

EXAMPLE:

5 is obliged to deliver a specific horse to B on August 10. S did not deliver the horse on said date. If, on
August 11, the horse died because it was hit by lightning, 5 is not liable if no demand was made by B. His
obligation is extinguished.

If the horse died after a demand was made by B, S 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 (see, however, Art. 1262.)
but it is converted into monetary obligation to pay damages. (par. 3, Art. 1165.)

If the horse would have died in any event even if no demand had been made by B. 5 would still be liable.
A debtor in default becomes-liable even for loss due to a fortuitous event. (see Art. 1165.) However, the
court may reduce the amount of damages. (see Art. 2215[4])

(b) the debtor has promised to deliver the same (specific) thing to two (2) or more persons who do not
have the same interest. (Trid.)

EXAMPLE:

If S sold and promised to deliver the same car to B and C separately, 5 is liable even for a fortuitous
event. The reason is because it would be impossible for S to comply with his obligation to both B and C
even without any fortuitous event taking place.

(c) the obligation to deliver a specific thing arises from a crime. (Art. 1268.)

EXAMPLE:

S stole the carabao of B. S has the obligation, arising from the crime, to return the carabao. Even if the
carabao dies or is lost through a fortuitous event, S is still liable for damages unless B is in mora
accipiendi. A person is responsible for the results of whatever cause which flow from his criminal act.
(see U.S. vs. Mambang, 36 Phil. 348.)

(d) the thing to be delivered is generic. (Art. 1263.)

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" (Genus nunquam perit).
(2) When declared by stipulation. The basis for this exception rests upon the freedom of contract. (see
Art. 1306.) 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:

B insured his house against fire for P100,000 with C. an insurance company. Later, the house was
destroyed by accidental fire. Although the cause of the loss is a fortuitous event. B may recover the
amount of the policy.

In a contract of insurance, the insurer (C), in consideration of the premium paid by the insured (B),
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.

ART. 1175. Usurious transactions shall be governed by special laws. (n)

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 or with a stipulation to pay interest. (Art. 1933.)

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 or credits. (Tolentino vs. Gonzales, 50 Phil. 558.)

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 (Art. 1956);

(2) The agreement must be in writing, and
(3) The interest must be lawful. (Art. 1957.)
A stipulation for the payment of usurious interest is void, that is, as if there is no stipulation as to
interest. (see comments under Art. 1413.) The lender may still recover the principal of the loan and
demand compliance with other terms of the contract otherwise valid.

Note: By virtue, however, of Central Bank Circular No. 905 (Dec. 10, 1982, effective Jan. 1, 1983.) issued
by the Monetary Board under the authority granted to it by the Usury Law, the rate of interest and
other charges on a loan or forbearance of money, goods, or credit, regardless of maturity and whether
secured or unsecured, that may be charged or collected shall not be subject to any ceiling prescribed
under the Usury Law. Usury is now legally non-existent. Parties are now free to stipulate any amount of
interest. It does not, however, give absolute right to the creditor to charge the debtor interest that is
"iniquitous or unconscionable." (see Art. 1229.)

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)

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.

EXAMPLES

(1)X was 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 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 P1,000 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 Cas, for example, that
D forced C to sign the receipt.

Two kinds of presumption.

They are:
(1) Conclusive presumption. one which cannot be contra-dicted, like the presumption that everyone is
conclusively pre-sumed to know the law (see Art. 3.); and

(2) Disputable (or rebuttable) presumption. one which can be contradicted or rebutted by presenting
proof to the contrary, like the presumption established in Article 1176. (see Sec. 69[i]. Rule 123, Rules of
Court.)

EXAMPLES:

(1) D owes C the amount of P10,000 with interest at 15% a year. C issued a receipt for the principal. The
interest was not referred to in the payment whether or not it has been paid.

It is presumed that the interest has been previously paid by D because normally, the payment of interest
precedes that of the principal. (Art. 1253.) This, however, is only a disputable presumption and may be
overcome by sufficient evidence that such interest had not really been paid. (par. 1, Art. 1176.)

(2) E is a lessee in the apartment of R, paying P15,000 rental a month. E failed to pay the rent for the
months of February and March. In April, E paid P15,000 and Rissued 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. (par. 2, Art.
1176.; see Rubert and Guamis vs. Smith, 11 Phil. 138; Manila Trading & Supply Co. vs. Medina, 2 SCRA
549.)

When presumptions in Article 1176 do not apply.

(1) With reservation as the interest. The presumptions established in Article 1176 do not arise where
there is a reservation that no payment has been made as to interest or prior installments, as the case
may be. The reservation may be made in writing or verbally. Thus, in the preceding examples, no
presumption of payment arises where there is a reservation by C or R that no payment has been made
as to the interest or the rents for February and March, as the case may be.

(2) Receipt without indication of particular installment paid. The presumption in paragraph 2 of Article
1176 is not applicable if the receipt does not recite that it was issued for a particular installment due as
when the receipt is only dated. Thus, in the preceding example (No. 2.), the fact alone that the receipt
issued by R is dated April 5 does not justify the inference that the rents for February and March had
been paid.

(3) Receipt for a part of the principal. Such a receipt, without mentioning the interest, implies that the
creditor waives his right to apply the payment first to the interest and then to the principal as permitted
by Article 1253. (infra.) It is only when the principal is fully receipted for and there is failure by the
creditor to reserve the claim for interest, that the presumption that the said interest has been paid will
arise.

(4) Payment of taxes. Article 1176 does not apply to payment of taxes. There is no presumption that
previous taxes have been paid by the payment of later ones.

(5) Non-payment proven. Of course, Article 1176 is not applicable where the non-payment of prior
obligations has been proven. A presumption cannot prevail over a proven fact.

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)

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) "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. (see Arts. 1380-1389.)

The debtor is liable with all his property, present and future, for the fulfillment of his obligations, subject
to the exemptions provided by law. (see Art. 2236.)

EXAMPLE:

On the due date. D could not pay Chis obligation in the amount of P400,000. However, Downs a car
worth about 1280,000 and X is indebted to him for P40,000. Before the due date of the obligation, D
sold his land worth P200,000 to Y.
Under the circumstances, the rights granted to C under the law are as follows:

(a) He may bring an action for the collection of the amount of P400,000 with a right to damages.

(b) If, in spite of the judgment rendered, D fails to pay the amount due, C can ask for the attachment of
D's 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 not to pay D so that payment may be made to him (C).

(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 be resorted to only if C could not collect in full his credit. (see Arts. 1381[3], 1387.)
He must first exhaust the properties of the debtor or subrogate (see Art. 1300,) himself in the latter's
transmissible rights.

ART. 1178. Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if there
has been no stipulation to the contrary. (1112)

Transmissibility of rights.

All rights acquired in virtue of an obligation are generally transmissible or assignable. (see Art. 1311.)
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. (Art. 1767.)

(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. (Art. 1868.)
(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. (Art. 1933.)

(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 wordings or terms of the contract itself.