Differences Between an Obligation and a Contract

An obligation is the result of a contract (or some other source). Hence, while a
contract, if valid, always results in obligations, not all obligations come fro
m contracts. A contract always presupposes a meeting of the minds; this is not n
ecessarily true for all kinds of obligations.
Be it noted, however, from another viewpoint that a contract may itself be the r
esult of an obligation. Thus, if P engages A as the former s agent, we have the co
ntract of agency. As an
agent, A has the obligation, say to look around for clients or buyers, as in the
real estate business. As a result of such obligation, A may enter into a contra
ct of sale with C, a customer. The contract of sale itself results in the obliga
tions to pay and to deliver. The obligation to deliver may result in a contract
of carriage, and so on, ad infi nitum.
VALID CONTRACT
FACTS: In a validly made contract, some provisions were later on inserted by a f
alsifier.
Issue: Is the whole contract void?
HELD: Only the additional provision should be disregarded, and the original term
s should be considered valid and subsisting.

The So-called Innominate Contracts For want of an express name, the following ar
e termed contratos innominados :
(a) Do ut des I give that you may give.
(b) Do ut facias I give that you may do.
(c) Facio ut des I do that you may give.
(d) Facio ut facias I do that you may do.

FACTS: Dr. Vicente Aldaba and his daughter, Dr. Jane Aldaba, rendered services t
o Belen Aldaba, a rich woman of Malolos, Bulacan for 10 years without receiving
any compensation. It was admitted that for such services, the two doctors did NO
T expect to be paid.
Issues: Was there a contract, whether express or implied? Was Belen obliged to c
ompensate the two doctors?
HELD: There was no contract, whether express or implied,and therefore Belen was
not obliged to compensate the two doctors; no express contract, for nothing on t
his point was agreed upon; and no implied contract, for the doctors did not expe
ct to be paid for their services. When a person does not expect to be paid for h
is services, there cannot be a contract implied in fact to give compensation for
such services. To give rise to an implied contract to pay for services, said se
rvices must have been rendered by one party in expectation that the other party
would pay for them and must have been accepted by the other party with knowledge
of that expectation. express agreement as to compensation, A is entitled to com
pensation because of facio ut des I do the interpreting that you may give the mo
ney.
Art. 1169. Those obliged to deliver or to do something incur in delay from the t
ime the obligee judicially or extrajudicially demands from them the fulfi llment
of their obligation.
However, the demand by the creditor shall not be necessary in order that delay m
ay exist:
2. When from the nature and the circumstances of the obligation it appea
rs that the designation of the time when the
thing is to be delivered or the service is to be rendered was a controlling moti
ve for the establishment of the contract;
When Demand Is Not Needed to Put Debtor in Default:
A. When time is of the essence of the contract (or when the fixing of th
e time was the controlling motive for the establishment of the contract).
Examples:
The making of a wedding dress, if the wedding is scheduled at the time the dress
is due; agricultural contracts where implements are needed at a particular time
; the selling of land with payment at specifi ed time, so
that the seller could pay off certain debts that were due on said date (Abella v
. Francisco, 55 Phil. 447); money needed to fi nance mining installations if sai
d installations had to be made on a certain date. (Hanlon v. Hausserman, 40 Phil
. 796).
[NOTE: It is not essential for the contract to categorically state that time is
of the essence; the intent is suffi - cient as long as this is implied. (Hanlon
v. Hausserman, Supra.)]
RECIPROCAL OBLIGATION- RESCIND CONTRACT
FACTS: Plaintiff A, acting as guardian of some minors, agreed to sell to defenda
nt B a parcel of land owned in common by her and her wards on the condition that
A would fi rst obtain judicial approval with regard to the wards share. B immedi
ately paid part of the purchase price and proceeded to occupy the land. Although
judicial approval had been obtained, A did not execute a deed suffi cient to co
nvey the whole parcel. Instead, she asked for the balance of the purchase price.
Failing in this, she charged B with default and now wants to rescind or cancel
the contract on the ground of non-payment.
HELD: In reciprocal obligations like this, default on the part of one begins onl
y from the moment the other party fulfills
what is incumbent upon him or her. Since the plaintiff Rufi na Causing has not y
et executed a deed sufficient to pass the whole estate, she is not now in a posi
tion to rescind the contract.
Art. 1170. Those who in the performance of their obligation are guilty of fraud,
negligence, or delay and those who in any manner contravene the tenor thereof,
are liable for damages.
FACTS: Regarding a contract with a construction firm, the owner wrote the fi rm
that he intended to cancel the contract, whereupon the fi rm stopped constructio
n work for alleged non-payment of fees at the proper time. Is the fi rm liable?
HELD: No, for after all, the adverse party had already informed the fi rm of the
former s intention to cancel or rescind the contract.

FRAUD IN OBLIGATION
Art. 1171. Responsibility arising from fraud is demandable in all obligations. A
ny waiver of an action for future fraud is void.
According to meaning, fraud may be classified as follows:
1) fraud in obtaining consent (may be causal or merely incidental)
2) fraud in performing a contract (inaccurately referred to by some as incidenta
l fraud). Fraud here may be either:
a) dolo causante (causal fraud)
 b) dolo incidente (incidental fraud)
NO MEETING OF THE MINDS - dolo causante (causal fraud)
FACTS: Would-be buyers, knowing fully well that they could not pay the required
P2,000 asked of them at once and totally, nevertheless answered YES, keeping thi
s mental reservation to themselves. Issue: Was there a meeting of the minds?
HELD: There was no meeting of the minds in view of the mental reservation. And g
ranting that there was, still the presence of causal fraud (dolo causante) neces
sarily voids the contract.
FRAUD (DOLO)
(a) There is a DELIBERATE intention to cause damage or prejudice.
(b) Liability arising from dolo cannot be mitigated or reduced by the courts.
(c) Waiver of an action to enforce liability due to future fraud is void.
NEGLIGENCE (CULPA)
(a) Although voluntary (that is, not done thru force) still there is NO DELIBERA
TE intention to cause damage.
(b) Liability due to negligence may be reduced in certain cases.
(c) Waiver of an action to enforce liability due to future culpa may in a certai
n sense be allowed.
FACULTATIVE OBLIGATION (LIABLE DUE TO FRAUD)
1206. When only one prestation has been agreed upon, but the obligor may render
another in substitution, the obligation is called facultative. The loss or deter
ioration of the thing intended as a substitute, through the negligence of the ob
ligor, does not render him liable. But once the substitution has been made, the
obligor is liable for the loss of the substitute on account of his delay, neglig
ence or fraud.
(FRAUD THROUGH INSIDOUS WORDS OR MACHINATIONS)
Art. 1338. There is fraud when, through insidious words or machinations of one o
f the contracting parties, the other is induced to enter into a contract which,
without them, he would not have agreed to.

Kinds of Fraud
(a) Fraud in the CELEBRATION of the contract (this is fraud proper):
1) Dolo causante (or causal fraud): Here, were it not for the fraud, the
other party would not have consented. (This is the fraud referred t
o in Art. 1338, Civil Code.) Effect of this kind of fraud: The contract is VOIDA
BLE.
2) Dolo incidente (or incidental fraud): Here, even without the fraud th
e parties would have agreed just the same, hence the fraud was only i
ncidental in causing consent. Very likely though, different terms would have bee
n agreed upon. Effect of this kind of fraud: The contract is valid, bu
t there can be an action for damages. (See Woodhouse v. Halili, 93 Phil. 526).
(b) Fraud in the PERFORMANCE of the obligations stipulated in the contract.
(NOTE: This kind of fraud presupposes the existence of an already perfected cont
ract.)
(Example: Although real vinegar was sold, what was really delivered was diluted
vinegar.)
Requisites of Dolo Causante
(a) The fraud must be material and serious, that is, it really induced the conse
nt. (Art. 1344, Civil Code).
(b) The fraud must have been employed by only one of the contracting parties, be
cause if both committed fraud, the contract would remain valid. (See Art. 1344,
Civil Code).
(c) There must be a deliberate intent to deceive or to induce; therefore, misrep
resentation in GOOD FAITH is not fraud. (See Art. 1343, Civil Code).
(d) The other party must have relied on the untrue statement, and must himself n
ot be guilty of negligence in ascertaining the truth. (See Songco v. Sellner, 37
Phil. 254).
ANNULMENT OF THE CONTRACT DUE TO FRAUD
FACTS: The vendor was intelligent and well-educated. She was accustomed to handl
ing her own business affairs. She was ably assisted by legal counsel. Her son wa
s a leading businessman.
Issue: Under the circumstances, can she ordinarily say that she was deceived whe
n she entered into a real estate deal?
HELD: No. In a case like this, the party who alleges the fraud must present full
and convincing evidence thereof.
(a) If one party is able to read and understand, and yet affixes his signature w
ithout reading, his negligence will prevent
the annulment of the contract. (See Ayola v. Valderrama
Lumber Manufacturing Co., Inc., [C.A.] 49 O.G. 980).
RESCIND CONTRACT DUE TO FRAUD (ACCION PAULIANA)
FACTS: A was a defendant in a civil case. He lost, and attachment was issued aga
inst his property. B, the winner, could
not collect his claim because it was discovered that A had sold his warehouse to
his son, C, after attachment had been issued on such property. B, who could not
collect in any other way because A had no money, brought an action to rescind t
he contract allegedly made to defraud him. It was proved that:
1) Although the warehouse was worth P25,000, the son allegedly paid only P15,000
for it;
2) The son probably did not have the P15,000 or any other sum of importance with
which to buy the said warehouse.
HELD: The transaction is fraudulent and since B, the creditor, cannot recover in
any other way, the contract ought to be rescinded.