7. Fortuitous Event, Essential Conditions, Exceptions: Anton Mercado 1-E 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. (1105a)

Fortuitous Event An occurrence or happening which could not be foreseen, or even if foreseen, is inevitable. Events beyond the control of the obligor. Must be impossible to foresee or to avoid.

Essential Conditions: 1. Cause of the breach must be independent of the debtors will 2. Event must either be unforeseeable or unavoidable 3. Event must be such as to render it impossible for the debtor to fulfill his obligation in a normal

manner 4. Debtor must be free from any participation in, or aggravation of, the injury to the creditor

Exceptions:

1. Express stipulation by the parties that there is liability even though non-performance is due to fortuitous events

2. Nature of the obligation requires assumption of risk 3. Obligor is in delay 4. Obligor promised the same thing to 2 or more persons who do not have the same interest 5. Possessor in bad faith and thing is lost or deteriorated due to fortuitous event 6. Obligor contributed to the loss of the thing 7. Obligor is guilty of fraud, negligence, delay, or violation of the tenor of the agreement 8. If the adverse consequence is found to be partly the result of a persons participation or neglect to

act and take steps in forestalling the damage/injury. Nakpil vs. CA

- The negligence of United Construction Inc. and Juan Nakpil and Sons Inc. in the planning, specification, and construction of the Philippine Bar Association Building led to its collapse during an unusually powerful earthquake. This is evidenced by the fact that many other buildings older than it remained standing. If the happening of the fortuitous event or an act of God, there concurs a corresponding fraud, negligence, delay or violation or contravention in any manner of the tenor of the obligation as provided in Article 1170 which results in the loss or damage, the obligor cannot escape liability.

Sia vs. CA

- The banks negligence aggravated the injury or damage to the stamp collection. SBTC was aware of the floods of 1985 and 1986; it also knew that the floodwaters inundated the room where the safe deposit box was located. In view thereof, it should have lost no time in notifying the petitioner in order that the box could have been opened to retrieve the stamps, thus saving the same from further deterioration and loss. In this respect, it failed to exercise the reasonable care and prudence expected of a good father of a family, thereby becoming a party to the aggravation of the injury or loss.

RP vs. Luzon Stevedoring

- The collision of Luzon Stevedorings barge with the supports of the Nagtahan Bridge was not caused by a fortuitous event or force majeure. The Nagtahan bridge was an immovable and stationary object provided with openings for the passage of water craft, thus, it is undeniable that the unusual event that the barge rammed the bridge raises a presumption of negligence on the part of its employees manning the barge or the tugs that towed it. Luzon Stevedoring voluntarily entered the swollen stream knowing the dangers that it posed. It therefore assured the risk and cannot shed responsibility merely because the precautions it adopted turned out insufficient.

NPC vs. Philipp Brothers - Strikes are included in the definition of force majeure since it is an event which takes place by accident and

could not have been foreseen and by law and by stipulation of the parties as per their agreement, Philipp Brothers is exempted from the liability of the effects of the delay in delivery of the coal. The Court stressed that even considering force majeure as the reason for the delay in the first shipment, which exempted Philipp Brothers from liability does not mean NAPOCOR is bound under any contract to approve Philipp Brothers pre-qualification for subsequent biddings as it expressly reserved its right to reject bids.

8. Usury: Article 1175. Usurious transactions shall be governed by special laws. (n)

Usury - The action or practice of lending money at unreasonably high rates of interest. CBP Circular No. 905-82 suspended the effectivity of the Usury Law. Usurers are no longer criminally

liable. If stipulation on the interest rate is unconscionable, they are void for being contrary to morals. Unilateral increase of interest rate by the lender is not allowed. Absent any evidence of fraud, undue

influence or any vice of consent exercised by one party against the other, the interest rate agreed upon is binding upon them.

Medel vs. CA

- A stipulated rate of interest at 5.5% per month on the 500,000.00 pesos loan is excessive, iniquitous, unconscionable and exorbitant, but it cannot be considered usurious because Central Bank Circular No. 905 has expressly removed the interest ceilings prescribed by the Usury Law and that the Usury Law is now legally inexistent. Jurisprudence provides that CB Circular did not repeal nor in a way amend the Usury Law but simply suspended the latters effectivity. Interest can now be charged as lender and borrower may agree upon. However, the interest of 5.5% a month or 66% perineum is unconscionable, contrary to moral and thus this stipulation is VOID.

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. (1110a) The presumption in the codal provision is rebuttable. Until the principal sum due is returned to the creditor, regular interest continues to accrue since the debtor continues to use such principal amount. 9. Remedies for Breach of Obligations (Extra-judicial and Judicial; Principal and Subsidiary) 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. (1111)

Extrajudicial Remedies: Ex. A demand letter, interest rates

Judicial Remedies: Ex. Action for performance, damages, rescission

Principal Remedies: a. Action for Performance (Specific Performance or Obtain Compliance) b. Action for Damages (Exclusively or in addition to either of the first actions) c. Action for Rescission (In a reciprocal obligation)

Subsidiary Remedies: a. Accion Subrogatoria Creditor steps in the position of the debtor to collect valid and demandable

credit from those who owe the debtor. May be done extrajudicially Limits: Not allowed to pursue actions which are personal to the debtor Ex. The right to revoke a donation, right to exercise parental authority.

b. Accion Pauliana Action for the rescission of acts/contracts entered into by the debtor designed to defraud the creditor

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. (1112) General rule: Rights of obligations or those rights which are acquired by virtue of an obligation are transmissible in character.

Exceptions: 1. Where they are not transmissible in their very nature (i.e. purely personal rights); 2. Where there are stipulations by the parties that they are not transmissible; 3. Where they are not transmissible by operation of law.

Pure and Conditional Obligations: (Articles 1179 1192) Article 1179. Every obligation whose performance does not depend upon a future or uncertain event, or upon a past event unknown to the parties, is demandable at once. Every obligation which contains a resolutory condition shall also be demandable, without prejudice to the effects of the happening of the event. (1113) 1. Pure Obligations: Pure Obligation

No condition or term upon which the fulfillment of the obligation is made to depend Immediately demandable by the creditors and debtor cannot be excused from complying Demandability is different from fulfillment, thus, when the court gives a grace period, this cannot be

seen as impairing the attribute of immediate demandability. If debtor does not fulfill, he is in default (after a demand has been made)

Examples:

Bare acknowledgement of a debt by the debtor Period originally given in a contract is cancelled by mutual agreement

HSBC vs. Spouses Broqueza

The RTC is correct in ruling that since the Promissory Notes do not contain a period, HSBCL-SRP has the right to demand immediate payment. Article 1179 of the Civil Code applies. The spouses Broquezas obligation to pay HSBCL-SRP is a pure obligation. The fact that HSBCL-SRP was content with the prior monthly check-off from Editha Broquezas salary is of no moment. Once Editha Broqueza defaulted in her monthly payment, HSBCL-SRP made a demand to enforce a pure obligation.

2. Kinds and Effects of Conditions, Suspensive vs. Resolutory: Conditional Obligations

Obligation which is subject to a condition. The effectivity of the conditional obligation is subjected to the fulfillment or the non-fulfillment of a

future and uncertain event.

Futurity and uncertainty must concur. If event is not uncertain, then it is a period/term. Ex. An obligation subjected upon death is not a conditional obligation because death is certain. Suspensive Condition Fulfillment of the condition gives rise to the obligation. Ex. Ill buy your land if you pass the 2014 bar examinations Resolutory Condition Fulfillment of the condition extinguishes an already existing obligation. Ex. In donation propter nuptias, marriage is a resolutory condition.

If condition is made to be dependent upon past events, it is not a condition because the element of uncertainty is no longer present. Proof of the past event can become a condition, but not the past event itself.

Santiago vs. Millar

Two units of tickets for the sweepstakes draw and race were given to Santiago as a gift for his birthday. However, he lost them along with the winning ticket that it contained. As the ticket bears the notation prizes of tickets sold locally will be paid to holder of ticket upon surrender of same, PCSO is under no obligation to pay Santiago if he is not able to present the required ticket. This is because the contract is aleatory in nature (Art. 1790 Civil Code) and the contracting parties may establish any agreements, terms, and conditions they may deem advisable, provided that they are not contrary to law, morals, or public order. Obligations arising from contracts have the force of law between the contracting parties (Art 1091).

Article 1180. When the debtor binds himself to pay when his means permit him to do so, the obligation shall be deemed to be one with a period, subject to the provisions of article 1197. (n) Patente vs. Omega

Omegas promissory note to Patente contained the condition that he will pay as soon as he has the money. This is a void condition for its fulfillment is left solely to the will of the debtor. Still, the original intention was to grant the debtor a deadline for the payment, and to make it a pure and unconditional obligation is to impose a completely different approach than agreed upon. Thus, when the time for payment of an obligation is left to the sole will of the debtor, and the condition is annulled, the obligation does not become a pure and unconditional obligation. The recourse of the creditor is to go to court and ask for setting a time limit for the payment.

Gaite vs. Fonacier

The shipment or sale of the iron ore is not a condition or suspensive to the payment of the balance of P65,000.00, but was only a suspensive period or term. It was intended Merely to fix the future date of the payment. It is certain that the payment will be made. What is uncertain is the exact date at which it will be made. Nothing is found in the contract that Gaite assumed to run a risk of losing his right over the ore without getting paid for it. This is proved by the fact that Gaite insisted on a bond to guarantee the payment of P65,000.00.

Article 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. (1114) Coronel vs. Court of Appeals

Since the condition contemplated by the parties which is the issuance of a certificate of title in petitioners names was fulfilled on February 6, 1985, the respective obligations of the parties under the contract of sale became mutually demandable, that is, petitioners, as sellers, were obliged to present the transfer certificate of title already in their names to private respondent Ramona P. Alcaraz, the buyer, and to immediately execute the deed of absolute sale, while the buyer on her part, was obliged to forthwith pay the balance of the purchase price amounting to P1,190,000.00.

It is also significant to note that in the first paragraph in page 9 of their petition, petitioners conclusively admitted that: The sale was still subject to a suspensive condition. (Emphasis supplied.)

The third party is not a buyer in good faith because a notice of a pending suit was attached in the TCT which was impossible to have been overlooked by the buyer.

Javier vs. Court of Appeals

Tiro assigned his shares of stock in Timberwealth Corp for 120k. Plus 30k if additional area is granted. The said agreement in this case is a bilateral contract which gave rise to reciprocal oligations, that is the obligation of Tiro to transfer his rights over the concession once approved by the BOF to the petitioners and on the other hand, the petitioners to pay 30,000. The demandability of the obligation of one depends upon the fulfillment of the other. Tiros non fulfillment of his end of the deal negates his right to demand from the Javiers.

Heirs of Atienza vs. Espidol

In a contract to sell, the buyers full payment of the price is a positive suspensive condition to the coming into effect of the agreement. Admittedly, Espidol was unable to pay the second installment of P1,750,000.00 that fell due in December 2002. That payment, said both the RTC and the CA, was a positive suspensive condition failure of which was not regarded a breach in the sense that there can be no rescission of an obligation (to turn over title) that did not yet exist since the suspensive condition had not taken place. since Espidol failed to pay the installment on a day certain fixed in their agreement, the Atienzas can afterwards validly cancel and ignore the contract to sell because their obligation to sell under it did not arise. Since the suspensive condition did not arise, the parties stood as if the conditional obligation had never existed. The Court directs petitioner Heirs of Atienza to reimburse the P130,000.00 down payment to respondent Espidol.

3. Effects of Potestative, Casual or Mixed Conditions: Article 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void. If it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity with the provisions of this Code. (1115)

This provision applies only to suspensive conditions. If the resolutory condition is dependent upon the sole will of the debtor, the condition may be valid.

This article speaks of three conditions:

1. Potestative or Facultative Condition The fulfillment of the condition depends on the exclusive will of one of the parties, that is either the debtor or creditor. However, this article refers only to the debtor.

Ex. I promise to pay when my house is sold. 2. Casual Condition The fulfillment of the condition depends upon chance or the will of a third person.

Ex. Ill buy your house if you win the lotto. 3. Mixed Condition The fulfillment of the condition depends partly upon the will of the parties and

partly upon chance or the will of a third person. Ex. Ill pay as soon as I received funds derived from the sale of my car in Spain. Effect of Potestative (Facultative) Condition

- The conditional obligation is void, that is, both the obligation and the condition are void. This is to prevent the establishment of obligations which are illusory.

Ex. A promises to sell if A finds it convenient to do so. B would pay her shares after she had harvested from her fishpond.

- If the fulfillment depends upon the will of the creditor, the condition and obligation are valid. This is because a creditor is naturally interested in the fulfillment of the condition which will benefit him.

Parks vs. Province of Tarlac

- Parks contends that a condition precedent having been imposed in the donation and the same not having been complied with, the donation never became effective. We find no merit in this contention. The appellant refers to the condition imposed that one of the parcels donated was to be used absolutely and exclusively for the

erection of a central school and the other for a public park, the work to commence in both cases within the period of six months from the date of the ratification by the parties of the document evidencing the donation. It is true that this condition has not been complied with. The allegation, however, that it is a condition precedent is erroneous. The characteristic of a condition precedent is that the acquisition of the right is not effected while said condition is not complied with or is not deemed complied with. In the present case the condition that a public school be erected and a public park made of the donated land, work on the same to commence within six months from the date of the ratification of the donation by the parties, could not be complied with except after giving effect to the donation. Also, action to revoke donation has already prescribed.

Osmena vs. Rama

- It was suggested during the discussion of the case in this court that, in the acknowledgment above quoted of the indebtedness made by the defendant, she imposed the condition that she would pay the obligation if she sold her house. If that statement found in her acknowledgment of the indebtedness should be regarded as a condition, it was a condition which depended upon her exclusive will, and is therefore, void. (Art. 1115, Civil Code.) The acknowledgment, therefore, was an absolute acknowledgment of the obligation and was sufficient to prevent the statute of limitation from barring the action upon the original contract.

Trillana vs. Quezon Colleges

- Indeed, the need for express acceptance on the part of the Quezon College, Inc. becomes the more imperative, in view of the proposal of Damasa Crisostomo to pay the value of the subscription after she has harvested fish, a condition obviously dependent upon her sole will and, therefore, facultative in nature, rendering the obligation void. It cannot be argued that the condition solely is void, because it would have served to create the obligation to pay, unlike a case, exemplified by Osmea vs. Rama (14 Phil., 99), wherein only the potestative condition was held void because it referred merely to the fulfillment of an already existing indebtedness.

Hermosa vs. Longara

- If the condition were "if he decides to sell his house." or "if he likes to pay the sums advanced," or any other condition of similar import implying that upon him (the debtor) alone payment would depend, the condition would be protestativa, dependent exclusively upon his will or discretion. In the form that the condition was found by the Court of Appeals however the condition implies that the intestate had already decided to sell his house, or at least that he had made his creditors believe that he had done so, and that all that we needed to make his obligation (to pay his indebtedness) demandable is that the sale be consummated and the price thereof remitted to the islands. Note that if the intestate would prevent or would have prevented the consummation of the sale voluntarily, the condition would be or would have been deemed or considered complied with (article 1119, old Civil Code)

Smith Bell vs Matti

- Under these stipulations, it cannot be said that any definite date was fixed for the delivery of the goods. As to the tanks, the agreement was that the delivery was to be made "within 3 or 4 months," but that period was subject to the contingencies referred to in a subsequent clause. With regard to the expellers, the contract says "within the month of September, 1918," but to this is added "or as soon as possible." And with reference to the motors, the contract contains this expression, "Approximate delivery within ninety days," but right after this, it is noted that "this is not guaranteed." And as the export of the machinery in question was, as stated in the contract, contingent upon the sellers obtaining certificate of priority and permission of the United States Government, subject to the rules and regulations, as well as to railroad embargoes, since this was done during the world war, then the delivery was subject to a condition the fulfillment of which depended not only upon the effort of the herein plaintiff, but upon the will of third persons who could in no way be compelled to fulfill the condition.

Lao Lim vs. Court of Appeals

- Contrary to the ruling of respondent court, the disputed stipulation "for as long as the defendant needed the premises and can meet and pay said increases" is a purely potestative condition because it leaves the effectivity and enjoyment of leasehold rights to the sole and exclusive will of the lessee. It is likewise a suspensive condition because the renewal of the lease, which gives rise to a new lease, depends upon said

condition. The continuance, effectivity and fulfillment of a contract of lease cannot be made to depend exclusively upon the free and uncontrolled choice of the lessee between continuing the payment of the rentals or not, completely depriving the owner of any say in the matter. Mutuality does not obtain in such a contract of lease and no equality exists between the lessor and the lessee since the life of the contract is dictated solely by the lessee.

Catungal vs. Rodriguez

- Such a condition is not purely potestative as petitioners contend. It is not dependent on the sole will of the debtor but also on the will of third persons who own the adjacent land and from whom the road right of way shall be negotiated. In a manner of speaking, such a condition is likewise dependent on chance as there is no guarantee that respondent and the third party-landowners would come to an agreement regarding the road right of way. This type of mixed condition is expressly allowed under Article 1182 of the Civil Code.

- In sum, Rodriguez's option to rescind the contract is not purely potestative but rather also subject to the same mixed condition as his obligation to pay the balance of the purchase price - i.e., the negotiation of a road right of way. In the event the condition is fulfilled (or the negotiation is successful), Rodriguez must pay the balance of the purchase price. In the event the condition is not fulfilled (or the negotiation fails), Rodriguez has the choice either (a) to not proceed with the sale and demand return of his downpayment or (b) considering that the condition was imposed for his benefit, to waive the condition and still pay the purchase price despite the lack of road access. This is the most just interpretation of the parties' contract that gives effect to all its provisions.

- After thorough review of the records of this case, we have come to the conclusion that petitioners failed to demonstrate that the Court of Appeals committed any reversible error in deciding the present controversy.

4. Effects of Possible or Impossible Conditions: Article 1183. Impossible conditions, those contrary to good customs or public policy and those prohibited by law shall annul the obligation which depends upon them. If the obligation is divisible, that part thereof which is not affected by the impossible or unlawful condition shall be valid. The condition not to do an impossible thing shall be considered as not having been agreed upon. (1116a)

This article applies only to cases where the condition was already impossible from the time of the constitution of the obligation. Hence, any supervening possibility will not make the impossible condition possible unless the parties agree again, nor will a supervening impossibility make the possible condition an impossible one.

Possible Condition If it is capable of realization according to nature, law, public policy or good

customs. Otherwise, it is an impossible condition. When the condition is impossible, the obligation is void.

Physically impossible Contrary to the law of nature Ex. Drink the water of the Pasig River until it runs dry. Juridically impossible Contrary to law, public policy, morals, and good customs. Ex. Ill give you money if you kill X. Condition is contrary to law, hence impossible.

Condition not to do an impossible thing shall be considered as not written, because the rule has always been that no person is allowed to commit an unlawful act. The obligations will then stand as simple, pure and immediately demandable.

Impossible conditions differ from those found in obligations and in donations and wills. In the latter, it is

considered as not written but the will remains valid.

Luneta Motor vs. Abad - Plaintiff sought recovery of the sum of P2,674.05 with accrued stipulated interest and attorney's fees

for balance due on four promissory notes executed by the defendant on March 12, 1931. The complaint sued for a writ of attachment which was issued. Luneta Motor filed a suit against Abad, and asked for a writ to attach Abads properties. The writ was granted, but Abad asked for its cancellation, and for this purpose offered a bond, secured by two sureties. The bond contained a statement that in case Luneta Motor should WIN, the sureties would answer for Abads liability. Because of this bond, the writ was dissolved. Later, Luneta Motor lost the case, it having been dismissed since Abad died. Are Abads sureties still bound?

- No more, because Luneta Motor can never win, the case having been dismissed. The condition has become a legal impossibility. Therefore, the obligation dependent upon this condition must be deemed extinguished, according to article 1116 of our Civil Code. (1183 NCC)

Article 1184. The condition that some event happen at a determinate time shall extinguish the obligation as soon as the time expires or if it has become indubitable that the event will not take place. (1117)

This refers to positive conditions, while 1185 refers to negative conditions. Ex. A binds himself to give B, a 3rd year law student, a car if he becomes a lawyer in 2016. Year 2016 has lapsed and B is still not a lawyer, obligation is extinguished. If B travels abroad on a 5-year contract of employment in 2014, then obligation is also extinguished due to the certainty that it will not take place. Article 1185. The condition that some event will not happen at a determinate time shall render the obligation effective from the moment the time indicated has elapsed, or if it has become evident that the event cannot occur. If no time has been fixed, the condition shall be deemed fulfilled at such time as may have probably been contemplated, bearing in mind the nature of the obligation. (1118) The condition that some event will not happen at a specified time will make the obligation effective only when:

a. Specified time has already lapsed without the event occurring b. Or if it has become definite that the event will not occur

Ex. A binds himself to give B a parcel of land if B does not run for Mayor in their City within 6 years. Time elapsed and B did not run for Mayor, obligation to deliver land becomes effective. Also, if the City was erased due to a nuclear bomb, B can no longer run for Mayor in that City, hence, obligation becomes effective too. 5. Constructive Fulfillment of Condition: Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment. (1119)

The Article refers to a constructive and not an actual fulfillment of the condition. Mere intent to prevent the fulfillment is not enough without actual prevention of fulfillment. The prevention must be consummated. These are the 2 requisites.

When an obligor committed an act voluntarily which is not intended to prevent the fulfillment of the

condition, but nevertheless resulted in the frustration of the condition, there shall be no constructive fulfillment.

This article is brought about by the principle that no person shall profit by his own wrong.

If the parties stipulate that the obligation shall be extinguished if the condition could not be fulfilled for

any reason, then even if the obligor prevents its fulfillment, the obligation shall still be extinguished.

PLDT vs Jeturian

When PLDT abrogated the pension plan after the war, it voluntarily prevented the fulfillment of its obligation to provide pension plans to its employees, thus, whether or not the employees have reached the age of 50, their rights are reserved for such benefits.

Valencia vs. RFC

Valencia is liable for damages. The putting up of a performance bond is not a condition before he could be compelled to make the installation. Assuming that the bond is a condition, it was he who voluntarily prevented its fulfillment. In either case, the existence of the contractual relation between the parties did not depend upon the posting the performance bond. Although, the latter was essential to the birth of some of the rights stipulated in favor of petitioner herein, those of respondent were not conditioned upon the giving of said performance bond.

Labayan vs. Talisay

There is another aspect to the case which has to do with the tenth paragraph of the mutual obligations of the contract and which concerned the securing of the right- of-way for the proposed railroad. To get from the Hacienda Esmeralda No. 2 to the Hacienda Dos Hermanos, the railroad would have to pass through the haciendas of Esteban de la Rama. But he would not grant permission to use his land for this purpose in 1920, and only consented to do so in 1924. Here then was a clear case of such a condition of affairs as was contemplated by the contract.

Article 1187. The effects of a conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation. Nevertheless, when the obligation imposes reciprocal prestations upon the parties, the fruits and interests during the pendency of the condition shall be deemed to have been mutually compensated. If the obligation is unilateral, the debtor shall appropriate the fruits and interests received, unless from the nature and circumstances of the obligation it should be inferred that the intention of the person constituting the same was different. In obligations to do and not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with. (1120)

This article only applies to suspensive conditions where there was fulfillment.

Since the condition is merely an accidental element of the obligation, the effect of a conditional obligation to give, once the suspensive condition is fulfilled, shall retroact to the date of the constitution of the obligation. This is similar to the legitimation of a natural child.

If the object of the obligation is the delivery of a determinate thing, obligor should not be allowed to

alienate the property during the pendency of the suspensive condition. If the obligor alienates the property, alienation will be abrogated upon the happening of the condition unless the third person acted in good faith. If that is the case, the only remedy then is to file for damages against the debtor. If the third person acted in bad faith, he can be compelled to deliver upon the happening of the suspensive condition.

If it is the obligee who alienates the property before the condition is fulfilled, then fulfillment of the

condition will convalidate the alienation.

For practical reasons, delivery of fruits and interests accruing before the fulfillment of the suspensive conditions is not required. When the obligation imposes reciprocal prestations, the fruits and interests they receive during the pendency of the condition shall be deemed to have been mutually compensated.

If obligation is unilateral like in donation, debtor is allowed to appropriate the fruits and interests received

since the debtors has not received anything from the creditor. Article 1188. The creditor may, before the fulfillment of the condition, bring the appropriate actions for the

preservation of his right. The debtor may recover what during the same time he has paid by mistake in case of a suspensive condition. (1121a)

Pending the happening of the suspensive condition, the creditor cannot compel the debtor to perform the prestation.

Article does not grant any preference of credit but only allows the bringing of proper action for its

preservation.

However, the creditor may avail himself of some remedies such as: 1. Action for Prohibition restraining alienation of the thing during pendency 2. Petition for the Annotation of the creditors right 3. Action to demand security if debtor has become insolvent 4. Action to set aside alienations made by the debtor in fraud of creditors 5. Actions against adverse possessors to interrupt the running time of prescriptive periods.

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

(1) Lost without the fault of the debtor: obligation extinguished (2) Lost through the fault of the debtor: obliged to pay damages; A thing is lost when it:

a. Perishes b. Goes out of the commerce of man c. Disappears in such a way that its existence is unknown or it cannot be recovered

Ex. Diamond ring falls into magma (3) Deteriorates without the fault of the debtor: impairment is to be borne by the creditor; (4) Deteriorates through the fault of the debtor: creditor may choose between the rescission of the obligation and its fulfillment, with indemnity for damages in either case (5) Improved by its nature, or by time: inure to the creditor (6) Improved at the expense of the debtor: no other right than that granted to the usufructuary. (1122)

This article applies only to obligations to deliver a determinate or specific thing. No application to generic

objects. Also, it applies only when the suspensive condition is fulfilled.

During pendency, the thing can undergo some changes:

a. Loss b. Deterioration or Impairment c. Improvement or Betterment

Gone out of commerce means that it is used to be sold in the market but is not a prohibited good.

Ex. A land where a public plaza is built can no longer be alienated.

Deterioration is making worse the condition of the thing. It is the impairment or reduction of its value.

Improvement is anything which increases the value of the thing. a. If improvement is due to nature/time, it belongs to the creditor. b. If at the expense of the debtor, cannot claim indemnification but may enjoy usufructuary rights.

Inure means belong Usufructuary means the right to enjoy the use and advantages of another persons property.

Article 1190. When the conditions have for their purpose the extinguishment of an obligation to give, the parties, upon the fulfillment of said conditions, shall return to each other what they have received. In case of the loss, deterioration or improvement of the thing, the provisions which, with respect to the debtor, are laid down in the preceding article shall be applied to the party who is bound to return. As for the obligations to do and not to do, the provisions of the second paragraph of article 1187 shall be observed as regards the effect of the extinguishment of the obligation. (1123)

This article refers to the fulfillment of a resolutory condition. If the event happens, the obligation is considered as if it did not exist. Thus, the parties are bound to return what they have received from each other and return to the status quo.

In reciprocal restitutions, the fruits and interests shall be compensated against each other. Same rules for loss, deterioration, or improvement in Art. 1189 will be applicable except the party bound

to return something shall be considered as the debtor under the present article. Retroactivity of the fulfillment of the condition shall be determined by the courts, taking into

consideration the intention of the parties if they are determinable. 7. Power to Rescind in Reciprocal Obligations: Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law. (1124) Article 1192. In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages. (n) Ang vs. Court of Appeals

While it is true that in reciprocal obligations, such as the contract of purchase and sale in this case, the power to rescind is implied and any of the contracting parties may, upon non-fulfillment by the other party of his part of the obligation, resolve the contract, rescission will not be permitted for a slight or casual breach of the contract. Rescission may be had only for such breaches that are so substantial and fundamental as to defeat the object of the parties in making the agreement. The two aforementioned conditions that were breached by petitioners are not essential for the fulfillment of the obligations on their part but merely an incidental undertaking. The rescission of the contract may not be allowed on this ground alone. The Court holds that when petitioners refused to proceed with the sale unless private respondent agreed to pay the higher price of P2,340,000.00, the petitioners thereby committed a serious breach of the agreement. Private respondent had the right to rescind the agreement as petitioners committed a serious breach of the terms of the same.

Heirs of Gaite vs. The Plaza Inc

When Rhogen Builders failed to secure a proper and sufficient permit in due to non-compliance with the provisions of the National Building Code, it had committed a serious breach in the terms of contract with the Plaza for the purposes of constructing a restaurant in Makati. The construction contract between

Rhogen and The Plaza provides for reciprocal obligations whereby the latters obligation to pay the contract price of the progress billing is conditioned upon simultaneous fulfillment of the other of its contractual obligation to undertake to complete the works within the stipulated period and in accordance with the approved plans and specifications of the owner.

Lalicon vs. NHA

NHA executed a deed of sale with mortgage over a Quezon City lot in favor of the Alfaros, with the contidion that the Alfaros could sell the land within 5 years from the date of release of the mortgage without NHAs prior consent. The Alfaros were forbidden from selling the property within the five-year period prescribed by the NHA. However, the Alfaros sold the lot to their son when the mortgage was not yet released and thereby committing a substantial breach of the obligation for failure to secure NHAs consent to selling the lot while the mortgage payments were not yet completed. This entitled the NHA to rescind the contract, but the Lalicons were arguing that the action has already prescribed.

It has been held that Article 1191 speaks of rescission in reciprocal obligations within the context of Article 1124 of the Old Civil Code which uses the term resolution. Resolution applies only to reciprocal obligations such that a breach on the part of one party constitutes an implied resolutory condition which entitles the other party to rescission. Resolution grants the injured party the option to pursue, as principal actions, either a rescission or specific performance of the obligation, with payment of damages in either case.

Rescission under Article 1381, on the other hand, was taken from Article 1291 of the Old Civil Code, which is a subsidiary action, not based on a partys breach of obligation. The four-year prescriptive period provided in Article 1389 applies to rescissions under Article 1381. Here, the NHA sought annulment of the Alfaros sale to Victor because they violated the five-year restriction against such sale provided in their contract. Thus, the CA correctly ruled that such violation comes under Article 1191 where the applicable prescriptive period is that provided in Article 1144 which is 10 years from the time the right of action accrues.

Spouses Fernando and Lourdes Viloria vs. Continental Airlines Inc.

While CAIs refusal to allow Fernando to use the value of Lourdes ticket as payment for the purchase of a new ticket is unjustified as the non-transferability of the subject tickets was not clearly stipulated, it cannot, however be considered substantial. The endorsability of the subject tickets is not an essential part of the underlying contracts and CAIs failure to comply is not essential to its fulfillment of its undertaking to issue new tickets upon Spouses Vilorias surrender of the subject tickets. This Court takes note of CAIs willingness to perform its principal obligation and this is to apply the price of the ticket in Fernandos name to the price of the round trip ticket between Manila and Los Angeles. CAI was likewise willing to accept the ticket in Lourdes name as full or partial payment as the case may be for the purchase of any ticket, albeit under her name and for her exclusive use. In other words, CAIs willingness to comply with its undertaking under its March 24, 1998 cannot be doubted, albeit tainted with its erroneous insistence that Lourdes ticket is non-transferable.

Therefore, CAIs liability for damages for its refusal to accept Lourdes ticket for the purchase of Fernandos round trip ticket is offset by Spouses Vilorias liability for their refusal to pay the amount, which is not covered by the subject tickets. Moreover, the contract between them remains, hence, CAI is duty bound to issue new tickets for a destination chosen by Spouses Viloria upon their surrender of the subject tickets and Spouses Viloria are obliged to pay whatever amount is not covered by the value of the subject tickets.

F.F. Cruz vs. HR Construction

The right to rescind, however, may be waived, expressly or impliedly. Hence, in spite of the existence of dispute or controversy between the parties during the course of the Subcontract Agreement, HRCC had agreed, via a stipulation in the subcontract, to continue the performance of its obligations pursuant to the Subcontract Agreement. In view of the provision of the Subcontract Agreement quoted above, HRCC is deemed to have effectively waived its right to effect extrajudicial rescission of its contract with FFCCI. Accordingly, HRCC, in the guise of rescinding the Subcontract Agreement, was not justified in implementing a work stoppage.

a. Resolution vs. Rescission:

Article 1191 Rescission is different from Article 1381 Rescission. The original term used for the Rescission in 1191 is RESOLUTION:

Rescission is a resolution or a cancellation of a contract.

Power to Rescind: Means the right to cancel or resolve the contract or reciprocal obligations in case of non-

fulfillment on the part of one of the contracting parties. Failure without legal reason to comply with the terms of a contract is called a breach of

contract. There can be no rescission of an obligation that is non-existent, hence when a suspensive

condition has not happened yet, then there cannot be a rescission. The right to rescind is implied even absent any provision providing for a right to rescind.

Breach of Faith:

Resolution is predicated on a breach of faith by the other party, a failure to comply with an obligation already existing, that violates the reciprocity between them.

This article applies only to reciprocal obligations where two parties are mutually debtor and creditor. Reciprocity must arise from identity of cause. This means 2 obligations are created at the same time.

Does not apply to non-reciprocal obligations. Ex. Non-payment of the purchase price of a property.

Effect of Rescission: General rule: to rescind a contract is not merely to terminate it, but to abrogate and undo it

from the beginning. Annuls the contract and restores the parties to the relative positions which they would have

occupied if no such contract had ever been made. Mutual restitution of the benefits received is required.

Who has the Right to Rescind:

The party who can demand rescission is the one who is ready, willing, and able to comply with his own obligations while the other is not capable to perform his own.

Also, he must be in a position to return whatever he may be obliged to return. A party who has not performed his part of the obligation cannot rescind. A guilty party cannot rescind because he has unclean hands. Power to rescind is given to the injured party in reciprocal obligations.

Remedies available to Aggrieved Party:

1. Specific performance or fulfillment of the obligation WITH damages 2. Rescission of the contract WITH damages

v Injured parties CANNOT seek BOTH remedies. v Specific performance and rescission are ALTERNATIVE remedies, not conjunctive.

Exceptions:

1. If fulfillment was chosen but the same had become impossible, rescission may still be sought. 2. If there is a valid basis for the extension of the performance of the reciprocal obligation, the court

will not decree rescission but will rather fix a period for the fulfillment of the obligation. 3. Partial rescission and partial fulfillment may be allowed.

Not applicable in the following cases:

a. Sales of real property by installments (Maceda Law governs) b. Sales of personal property by installments (Recto Law governs. If not by installment, 1191 governs.) c. Contracts of partnerships (Governed by 1786 and 1788)

Basis Article 1191 Rescission (Resolution) Article 1381 Rescission

Nature

A principal action which seeks the resolution or cancellation of the contract. Prescriptive period: 10 years

A subsidiary action limited to cases or rescission for lesion as enumerated in Art. 1381. Prescriptive period: 4 years

Grounds

Only ground is the non-performance of ones obligation or what is incumbent upon him.

Five grounds enumerated in Art. 1381. Non-performance by the other party is not important.

Applicability

It applies only to reciprocal obligations.

Applies to both unilateral and reciprocal obligations.

Person who

may institute the action

Only the a party to the contract may demand the fulfillment or seek the rescission (cancellation) of the contract.

Even a third person who is prejudiced by the contract may demand the rescission of the contract.

Fixing of

period by the court

Court may fix a period or grant extension of time for the fulfillment of the obligation.

Court cannot grant extension of time for the fulfillment of the obligation.

Purpose

To cancel the contract.

To seek reparation for the damage or injury caused, thus allowing partial rescission of contract.

b. Restrictions on the Power:

1. Due process must be observed:

Rescission authorized under 1191 is a judicial rescission. Other party must be given his day in court, hence, the aggrieved party must not take justice in

his own hands and decide by himself along the right of the parties on the matter. In the absence of a contrary stipulation, the power to rescind an obligation must be invoked in

court.

2. Right to rescind is subordinated to the rights of 3rd persons who acquired the thing in GOOD FAITH. If the 3rd person acquired the thing in accordance with 1385 and 1388 of the Civil Code, the

innocent party can no longer recover the property. The remedy is to seek indemnification for the value of the thing and damages.

3. Power of the Court to fix period in lieu of decreeing Rescission.

If the court finds a just cause for giving the debtor time to perform his obligation, such as when the default was not willful or is excusable under the circumstances, then rescission will not be granted.

4. Slight breaches of the contract will not justify Rescission.

Rescission will not be permitted for a slight or casual breach of a contract, but only for such breaches as are so substantial and fundamental as to defeat the object of the parties in entering into the agreement.

5. A judicial or notarial act is necessary before a valid rescission can take place, whether or not automatic

rescission has been stipulated. Proof of violation of the agreement is a condition precedent to the declaration of rescission.

Tan vs. Court of Appeals It is a settled principle of law that rescission will not be permitted for a slight or casual breach of the

contract but only for such breaches as are so substantial and fundamental as to defeat the object of the parties in making the agreement.

A court, in determining whether rescission is warranted, must exercise its discretion judiciously considering that the question of whether a breach of a contract is substantial depends upon the attendant circumstances

Time not being of the essence in the agreement, a slight delay on the part of the private respondents in the performance of their obligation, is not sufficient ground for the resolution of the agreement, more so when the delay was not totally attributable to them. In this case, as to the lot covered by TCT No. T-13826, it is true that as of June 25, 1984, the date set for the execution of the final deed of sale, the mortgage lien in favor of DBP annotated in the title has not yet been cancelled as it took DBP some time in processing the papers relative thereto. However, just a few days after, or on July 12, 1984, the cancellation of the DBP mortgage was entered by the Register of Deeds and duly noted on the title. Petitioner is given a period of ninety (90) days within which to pay the sum of one million and five hundred fifty thousand pesos (Pl,550,000.00) representing the balance of the purchase price, with interest.

c. Necessity of Judicial Approval:

In specific performance, there is always a need for judicial action if the other party refuses to make the delivery of the thing promised.

However in rescission, the rule is different:

1. If there is an express stipulation of automatic rescission without need of judicial action, rescission is authorized without court intervention.

Where the contract provides that it may be revoked and cancelled for violation of any of its terms and conditions, no judicial action is necessary.

Where the contract provides a resolutory provision by which the obligation may be resolved or extinguished in case of a violation of the terms, judicial action is not necessary.

A stipulation of automatic rescission is in the nature of a facultative resolutory condition Rescission shall take effect only after the creditor has notified the debtor of his choice of

rescission, as the creditor may choose between rescission or performance. Cancellation of a contract based on such stipulation is provisional, and still subject to judicial

scrutiny. This means that the party must proceed at his own risk, as only the final judgment of the corresponding court shall conclusively settle whether the action taken was correct in law.

2. If there is no express stipulation of automatic rescission in case of breach:

a. When the object has already been delivered, judicial approval is needed unless the debtor voluntarily returned the thing.

b. Not yet delivered, judicial approval is not needed to rescind the contract.

If there is an arbitration clause, breaches by a party arising from the contract must be brought first and resolved by arbitration, not through extrajudicial rescission or judicial action.

Rescission of contract is a power vested in the Regional Trial Courts, not Municipal Trial Courts. Courts have no power to relieve parties from obligations voluntarily assumed, simply because

their contracts turned out to be disastrous or unwise investments. Heirs of JBL Reyes vs. CA

We rule that there is no need for a judicial rescission of the lease contract between lessors heirs of Justice J. B. L. Reyes, et al. and lessee MMB, Inc. The contract provides: "Section 18, paragraph 4 (a) In the event of default or breach of any of the condition of this contract, the LESSOR may, in his absolute discretion declare the contract cancelled and terminated and require the TENANT to vacate the leased premises.

The law on obligations and contracts does not prohibit parties from entering into agreement providing that a violation of the terms of the contract would cause its cancellation even without judicial intervention. This is what petitioners and respondent entered into, a lease contract with stipulation that the contract is rescinded upon violation of its substantial provisions, which MMB, Inc. does not deny they violated.

d. Effects of Slight Breaches:

The breach of the contract should be substantial and fundamental as to defeat the object of the parties in entering into the contract.

Non-substantial breach of a contract cannot give rise to a rescission. The aggrieved party cannot seek the rescission of the contract based merely on slight infractions

committed by the other party. The law is not concerned with trifles. Song Fo vs. Hawaiian Phil

The general rule is that rescission will not be permitted for a slight or casual breach of the contract, but only for such breaches as are so substantial and fundamental as to defeat the object of the parties in making the agreement. A delay in payment for a small quantity of molasses for some twenty days is not such a violation of an essential condition of the contract was warrants rescission for non-performance. Not only this, but the Hawaiian-Philippine Co. waived this condition when it arose by accepting payment of the overdue accounts and continuing with the contract. Thereafter, Song Fo & Company was not in default in payment so that the Hawaiian-Philippine co. had in reality no excuse for writing its letter of April 2, 1923, cancelling the contract. the appellant had no legal right to rescind the contract of sale because of the failure of Song Fo & Company to pay for the molasses within the time agreed upon by the parties.

Filoil vs. Mendoza

A contract of lease of a 750 sq. meter lot between Fil-Oil Refinery and Jesus and Severina Garcia was entered into. FilOil Refinery violated the terms of the contract for it subleased the property to FilOil Marketing and PetroPhil and delayed in a number of times in their payment of monthly rentals. In rescinding the contract of lease between petitioner Filoil Refinery Corporation and private respondents, the lower court found that petitioners illegally subleased the lot to petitioner Filoil Marketing Corporation and that the latter, in turn, assigned its sublease to petitioner Petrophil Corporation. However an examination of the lease contract reveals that there is no express prohibition against the assignment of the leasehold right. Under the law, when there is no express prohibition, the lessee may sublet the thing leased and all rights acquired by virtue of an obligation are transmissible, if there has been no stipulation to the contrary. Also delay in payment for a few days does not constitute a substantial breach of the obligation. Such breaches were not fundamental as to defeat the object of the parties in making the agreement because the law is not concerned with such trifles. Arguments are moot and academic for the lease of contract has already expired, and the petitioners are ordered to vacate the premises.

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Obligations with a Period: (Articles 1193 1198) 1. Classification, In diem vs. Ex die, Legal, Conventional, Judicial, Article 1193. Obligations for whose fulfillment a day certain has been fixed: shall be demandable only when that day comes. Obligations with a resolutory period take effect at once, but terminate upon arrival of the day certain. A day certain is understood to be that which must necessarily come, although it may not be known when. If the uncertainty consists in whether the day will come or not, the obligation is conditional, and it shall be regulated by the rules of the preceding Section. (1125a) Arrival of the Term/Period is either Definite or Indefinite

a. Definite Exact date or time is known b. Indefinite Exact date or time is not known but is sure to come or happen.*

*Uncertainty of the date does not convert it into a condition as long as there is no uncertainty as to whether it will happen or not. Classification of Terms/Periods in Roman Law

1. Ex Die Term or period with a suspensive effect Obligation becomes effective only from the arrival of a certain day

Example: A binds himself to support B from the death of Bs father. Obligation begins only after Bs father dies.

2. In Diem Term or period with a resolutory effect Obligation will subsist up to a certain day, the arrival of which terminates the obligation

Example: A binds himself to support B until B reaches the 18 years old. Obligation terminates upon B turning 18. Other Classifications

1. Legal Period is fixed by law 2. Conventional/Voluntary Period is agreed upon by the parties 3. Judicial Period is fixed by the courts for the performance of the obligation or for its

extinguishment On or About Fulfillment may be made on the date, or a few days after, but not on a remote date. On or Before Fulfillment may be made before the date, but the deadline is fixed. Requisites for a Valid Term/Period

1. It must be future 2. It must be certain, that is, sure to come but may be extended by mutual agreement 3. It must be possible physically and legally

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Period Distinguished from Condition

B a s i s P e r i o d C o n d i t i o n

As to Time

Period always refers to the future.

Condition can refer to a past event unknown to the parties.

As to Fulfillment

Sure to happen at an exact date

known from the start, or at an indefinite time, but is sure to arrive.

May or may not happen being

an uncertain event.

As to its Influence on the Obligation to be Fulfilled

or Performed

No effect or influence upon the

existence of the obligation but only in its demandability or

performance.

While a period has a suspensive or resolutory effect, nonetheless, in the former, it cannot prevent the

birth of the obligation in due time, and in the latter, does not militate

against its existence.

May cause the arising of an

obligation, or the cessation of one already existing.

The former is known as a suspensive condition and the latter

a resolutory condition.

PNB vs. Lopez Vito

Defendant spouses entered into a mortgage contract with PNB payable in 10 installments. The mortgage contact has a condition stating that if the mortgagors at any time neglect, fail or refuse to comply with any or all the stipulations or conditions of the contract., the mortgagee shall have the right to declare such stipulations or condition violated and to proceed for the foreclosure of the mortgage. However, the Lopez Vito were not able to pay the sums corresponding to six annual installments. Thus, PNB instituted an action demanding the defendants to pay the installments due and unpaid, and the spouses contended that such action is premature. The trial court ordered the spouses to pay PNB the unpaid installments but reserved to PNB the proper action on the last installment since it is not yet demandable, hence the recourse to the Supreme Court.

To determine whether the obligation is demandable, it has to be resolved first whether the obligation was with a period or an obligation subject to a resolutory condition. The Court ruled that it is an obligation subject to a resolutory condition. The non-fulfillment of the conditions of the contract renders the period ineffective, and makes the obligation demandable at the will of the creditor.

Victorias Planters vs. Victorias Milling

Victoria and Negros Planters entered into milling contracts with North Negros Sugar Inc. for 30 years. War broke and destroyed the central that was being used and so North Negros Inc. made an arrangement with Victoria Milling Inc. for respondents to mill their sugar canes with them. Thirty years had lapsed and respondent corporation refused for execution of new contract and accepting the petitioners contention of the 6 year extension. The court ruled that the 6 year period comprising 4 years of the last World War II and 2 years of post-war reconstruction of respondent's central at Victorias, Negros Occidental cannot be deducted in the 30 year period contract of plaintiff and defendant.

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The seventh paragraph of one of the contracts, quoted by the appellant in its brief, where the parties stipulated that in the event of flood, typhoon, earthquake, or other force majeure, war, insurrection, civil commotion, organized strike, etc., the contract shall be deemed suspended during said period, does not mean that the happening of any of those events stops the running of the period agreed upon. It only relieves the parties from the fulfillment of their respective obligations during that time the planters from delivering sugar cane and the central from milling it.

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

Loss F Through the fault of debtor Obligor to pay damages F Without the fault of debtor Obligation extinguished

Deterioration

F Through the fault of debtor Creditor may choose between rescission or fulfillment, with damages F Without the fault of debtor Impairment to be borne by the creditor

Improvement

F By its nature or time Inure to the creditor F At the expense of the debtor No other right than usufructuary

Article 1195. Anything paid or delivered before the arrival of the period, the obligor being unaware of the period or believing that the obligation has become due and demandable, may be recovered, with the fruits and interests. (1126a) Applicability:

This article only applies to obligations to give because it speaks of payment or delivery. Rationale:

Article 1126 of the Old Civil Code provides that in such cases, only the fruits and interests may be recovered and not what the debtor has paid or delivered prematurely. This was seen as unjust, hence the modification.

Effects of Good and Bad Faith

If debtor was not aware of the period or he was of the belief that the obligation has become due and demandable, he can recover what he paid or delivered including fruits and interest.

If debtor was aware of the period and he paid voluntarily, he cannot recover the payment or delivery he made. He is deemed to have waived the benefit of the term and the obligation is considered as already matured. Hence, recovery is barred.

Good faith or Bad faith of the Creditor is immaterial, since it is unfair if the creditor will be allowed to hold on the thing when it is not yet due and leave the debtor without any relief.

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Comparison with Solutio Indebiti

In Solutio Indebiti, where there is payment of what is not due, the recipient will pay legal interest only if money is involved. If he acted in bad faith, he will be liable for the fruits or fruits which he might have received. If he acted in good faith, no interests or fruits will be returned, only the thing received.

The big difference is that in the present article, the debtor already has an existing debt or obligation to the creditor which will become demandable upon the arrival of the period; While in solutio indebiti, the payer has no debt or obligation to pay the recipient.

Exceptions

Even if the conditions in the Article are present, there can be no recovery in the following situations: a. Obligation is reciprocal and there has been premature performance on both sides. b. Obligation is a loan on which the debtor is bound to pay interest. c. Period is exclusively for the benefit of the creditor because debtor paying in advance loses

nothing. 2. Benefit of the Period

Article 1196. Whenever in an obligation a period is designated, it is presumed to have been established for the benefit of both the creditor and the debtor, unless from the tenor of the same or other circumstances it should appear that the period has been established in favor of one or of the other. (1127) Applicability:

Applies only when the parties themselves have fixed a period on the performance of the obligation. Does not apply to a case where the Court was authorized by the parties to fix a reasonable term.

Effects of the Presumption:

Creditor cannot demand the performance of the obligation before the expiration of the designated period.

Debtor cannot perform the obligation before the expiration of the period. This is because the creditor is interested in the interest, and the debtor is interested in the time given him

within which to pay the obligation. Debtor has no right, unless the creditor consents, to accelerate the time for the payment, even if the

payment includes not only the principal but also the interests in full. Presumption is Rebuttable:

If it can be shown that the period was established for the benefit of the creditor, he can compel performance even before the arrival of the period. He may also waive this right if he so desires.

If it can be shown that the period was established for the benefit of the debtor, he can oppose the premature demand for the performance of the obligation. He may also waive the benefit of the period by paying the creditor in before the arrival of the period.

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Reasons why Creditor cannot be compelled to accept before period arrives:

1. Payment of Interest: The interest expected to be realized will be lessened if premature payment is done.

2. Desire of the creditor to have his money invested safely instead of having it in his hands: By the fixing of the period, he is able to protect himself against the sudden decline in the purchasing

power of the currency loaned specially at a time when there are many facts that influence the fluctuation of the currency.

Ponce de Leon vs. Syjuco

Ponce de Leon executed two promissory notes in favor of Syjuco for P20,000 and P16,000. Both loans are payable within one year from May 5, 1948. However, on several occasions in November 1944, Ponce de Leon tendered payment to Syjuco but the latter refused to accept the same so the former deposited the payment to the court (consignation). The Court ruled that Ponce de Leons consignation is invalid because the tender of payment was prematurely done and he cannot compel Syjuco to accept the same since the period is for the benefit of both of them.

The benefit of the period is both for the debtor and the creditor hence the debt owed by de Leon to Syjuco is not yet due and demandable. Furthermore, it may be argued that the creditor has nothing to lose but everything to gain by the acceleration of payment of the obligation because the debtor has offered to pay all the interests up to the date it would become due, but this argument loses force if we consider that the payment of interests is not the only reason why a creditor cannot be forced to accept payment. One of them is that the creditor may want to keep his money safely invested instead of having it in his hands. Another is that the creditor wants to protect himself from sudden decline in the purchasing power.

3. When Courts May Fix a Period: Article 1197. If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended, the courts may fix the duration thereof. The courts shall also fix the duration of the period when it depends upon the will of the debtor. In every case, the courts shall determine such period as may, under the circumstances, have been probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them. (1128a) Note:

The status of the obligation is suspended before the period of compliance had been fixed. Rationale for fixing a period is to prevent debtors from not fulfilling their obligations forever without

being liable for delay. Prescriptive period for filing an action to fix the period is 10 years from the perfection of the

contract.

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Situations When The Court Will Fix A Period

1. When no period is mentioned, but it is inferrable from the nature and circumstances of the obligation that a period was intended.

Examples:

Contract of sale on credit without any time fixed for the payment Contract for construction where the period of completion was not stated but intended Contract of lease that states as long as the tenant pays the stipulated rent When the period is for a reasonable time agreed upon, there is a period fixed. The court

will determine whether the reasonable time had elapsed. When the seller of a property is given the right to redeem but no period was stipulated for the

redemption, the court may fix the period.

2. When the period is dependent upon the will of the debtor. Examples:

When the debtor binds himself to pay when his means permit him to do so When the debtor binds himself to pay as soon as possible or little by little When the debtor shall pay as soon as he has the money When the duration of the lease is left to the will of the lessee

Significance of The Courts Fixing of The Period

It is the duty of the court to fix the period if the parties intended it. When the court fixes the period, it merely ascertains the will of the parties and gives effect thereto. The court does not modify or amend the obligation but carries out an implied stipulation in the contract. It is essential that it be alleged that a period was clearly intended by the parties. Specific performance cannot be demanded simultaneously with the petition for fixing a period because

the former is premature, unless the latter action will only be a formality and serves no purpose but to delay.

Period Fixed By The Court Cannot Be Extended

Once the court has fixed the period, the period cannot be changed or extended. Cases Where Article Was Not Applied

A stipulation in a contract that the agent will turn over the proceeds of the sale of the tobacco as soon as the same was sold, does not fall under this article.

When the duration of the lease is left to the sole will of the lessor. Contract of lease had not been renewed, there could be no contract on which a period could be fixed. When the obligation agreed upon is payable on demand. When the obligation is pure, simple and unconditional. Duration of contracts of employment or service is implicitly fixed by the period for the payment of the

salary of the employee. This article is inapplicable in such a case. Barretto vs. City of Manila

Barretto offered to donate his land situated in front of Malacaang palace on the following condition: That no building will be erected and it will be used for the beautification of the vicinity. The agreement entered into did not fix a period as to which the donee would commence the conditions, therefore, after 18 years, Barretto filed an action reclaiming the land alleging that the city of Manila has not fulfilled the terms stipulated therefrom. Court fixed the period in question to 30th September 1907, But days later, the court modified and extended the period.

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Before you quit, remember why you started

The issue is WON the Court can validly modify a period it has fixed. When the terms of the donation do not fix the time of the performance of a condition, the proper period will be determined by the court. Once the court has fixed the period , such period acquires the nature of the contract, becoming the law governing the contract and once it has been agreed upon by the parties, IT CANNOT BE CHANGED OR MODIFIED through any subsequent action.

Peoples Bank vs. Odom

Odom was contracted by Gibbs to construct two buildings. The contract provides that the respondent shall bear all the expenses of the construction until its completion in exchange for Gibbs transfer of rents which the building may produce in 8 years. Respondent entered into a contract with the petitioner bank to obtain an overdraft which was increased twice. To secure its payment, respondent assigned all his rights, title and interest in the contracts of lease in the buildings with interest at 9% per annum in favor of the petitioner. Based on their contracts, the payment shall be due and demandable upon demand of the petitioner bank.

Issue: WON the petitioner should have first brought an action to fix the date of payment as provided by Article 1228 of the Civil Code

It was expressly stipulated in that the obligation contracted by Odom shall expire and be due upon demand of the petitioner, and in view of the fact that the latter deed was incorporated in Exhibit D and that Odom was required by the petitioner to pay all his indebtedness, it is plain that the obligation was without a term and that it became due and is demandable.

Gonzales vs. Jose

Jose issued two promissory notes (PNs) in favor of Gonzales. The PNs were worded as I promise to pay as soon as possible. Benito Gonzales instituted an action to recover from Florentino de Jose the amount of two promissory notes. CFI of Manila ordered Jose to pay Gonzales within 30 days from notice of the decision. Jose, in defense, asserted that the complaint is uncertain since it does not specify when the indebtedness was incurred or when it was demandable, and that, granting that the plaintiff has any cause of action, the same has prescribed in accordance with law.

The Court held that such are governed by Article 1128 (Art.1197 NCC) of the Civil Code because under the terms thereof, the plaintiff (Gonzales) intended to grant the benefit of the period to De Jose. As the PNs do not fix the period, it is for the court to fix. But, the action to ask the court to fix the period has already prescribed (10-year prescription period) in accordance with Sec. 43 (1) of the Code of Civil Procedure.

Eleizegui vs. Manila Lawn Tennis Club

Elezegui leased his piece of land to Manila Lawn Tennis Club. The contract thereof stipulates the ff: The lease to Mr. Williamson is subject to a lease for all time the members of the club shall see fit. The owners of the land undertake to maintain the club as tenant as long as the latter shall see fit without altering in the slightest degree the conditions of the contract, even though the estate be sold.

Elezegui maintains that the contract of lease was terminated on Aug. 28 of the recent year and such theory is maintained by Article 1581 which substantially provides that if theres no conventional term, the legal term will be applied.

In this case, a conventional term was established. That being the case, it erases the assumption that the lease was terminated by the notice given by the plaintiffs. Notice is only necessary when it becomes necessary to recourse to the legal term. It was apparent that the lessors did not intend to reserve to themselves the right to rescind the contract when they expressly conferred upon the lessee this right by stipulating it in the contract. Generally, if the term of the lease whose termination is at the sole will of the lessee, the courts must fix the period according to the character and conditions of the mutual undertakings. Legal term will not be applied in this case as to the existence of an express stipulation stating a conventional term at the sole will of the lessee.

Obligations and Contracts Pineda Reviewer Following Misons syllabus plus Case List Doctrines : Anton Mercado 1-E

Where the gifts are, that is where the giver is

Araneta vs. Phil Sugar

Gregorio Araneta Inc, sold a portion of land to Philippine Sugar Estates Development Co Ltd. In their contract they agreed that the buyer will build on the said parcel of land the Sto. Domingo Church and Convent, and the seller will construct streets on the NE, NW and SW sides of the land sold and the NE street will be named Sto. Domingo Avenue. The buyer was able to build on such the Sto. Domingo Church and Convent but the seller was not able to perform his end of the bargain because of a third party. The land sold was inhabited by informal settlers wherein one of them, Manuel Abundo, refused to vacate the same. Because of the failure of the petitioners to perform their part, the defendants filed a complaint. The lower court gave Gregorio Araneta Inc, a period of 2 years to comply with its obligation. CA affirmed the decision of the lower court. Hence, this appeal.

No basis is stated to support the conclusion that the period should be set at two years after finality of the judgment. According to Art. 1197, the courts cannot set the period arbitrarily. As the parties must have known that they could not take the law into their own hands, but must resort to legal processes in evicting the squatters, they must have realized that the duration of the suits to be brought would not be under their control nor could the same be determined in advance. The conclusion is thus forced that the parties must have intended to defer the performance of the obligations under the contract until the squatters were duly evicted, as contended by the petitioner Gregorio Araneta, Inc.

4. Loss of Benefit of the Period

Article 1198. The debtor shall lose every right to make use of the period: (1) When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt; (2) When he does not furnish to the creditor the guaranties or securities which he has promised; (3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory; (4) When the debtor violates any undertaking, in consideration of which the creditor agreed to the period; (5) When the debtor attempts to abscond. (1129a)

Applicability: Applies only if the parties have designated or fixed a period for the fulfillment of the obligation. It cannot apply to a case where no period is fixed by the parties. (Article 1197 shall apply)

Elaboration on the Five Instances

a. Insolvency Insolvency terminates the period. Obligation becomes due and demandable unless the debtor gives

a guaranty or security for the payment of the debt. Insolvency does not have to be declared by the insolvency court. It is enough that the debtor could

not pay his financial obligations due to lack of money or funds. Insolvency must be one occurring after the fixing of the term.

Obligations and Contracts Pineda Reviewer Following Misons syllabus plus Case List Doctrines : Anton Mercado 1-E

Before you quit, remember why you started

b. Failure to Provide Guaranties or Securities When the debtor failed to provide the creditor the guaranties or securities he had promised, he

loses the right to use the period. Thus, failure of the mortgagors to register the mortgage they had executed in favor of the mortgagee,

and in mortgaging the same parcel of land to another entity, there is a non-fulfillment of the promise to furnish the creditor with the agreed security. Obligation becomes due and demandable.

c. Impairment of the Guaranties or Securities When there is an impairment of the guaranties or securities caused thereon by the fault of the

debtor, or got lost by fortuitous event, the obligation becomes due and demandable immediately- unless the debtor immediately provides the creditor with new guaranties or securities equally satisfactory as the first ones.

d. Violation of any undertaking If the debtor has violated any undertaking, which undertaking is the reason for the creditor to agree

to the contract, the term is terminated and the obligation becomes due and demandable at once. Thus, the employer may terminate the employment of an employee who made a substantial

breach of his employment contract, even if there was a fixed duration for the job.

e. Attempt to Abscond The debtors act of absconding (leaving hurriedly and secretly, escaping) with the intention to hide

from and defraud creditors is an indication of bad faith. The term is thus terminated. Mere attempt to abscond is enough to render the obligation pure and immediately demandable.

Gaite vs. Fonacier Fonacier was an owner of two iron ore mineral claims in which he executed a Deed of

Assignment with his attorney-in-fact, Gaite. Gaite executed a General Assignment conveying the development and exploration to HIS OWN COMPANY Larap Iron Mines. He has developed, paved roads and extracted 24,000 metric tons of iron. Fonacier decided to revoke the authority of Gaite and agreed to exchange the right and possession in consideration of 75,000 pesos, 10,000 of which was fully paid upon signing of the agreement. In order to secure payment Gaite required Fonacier to secure a bond, with Fonacier as principal and the stockholders of Larap Iron Mines as sureties upon the stipulation that: 65,000 will be paid upon the first shipment and local sale of iron ore. HOWEVER, Gaite insisted on another bond for which Fonacier obtained from Far Eastern Sureties and it provided that the liability of the surety company would attach only when there had been an actual sale of iron ore by the Larap Mines & Smelting Co. for an amount of not less then P65,000.00, and that, furthermore, the liability of said surety company would automatically expire on December 8, 1955. Come Dec. 8 1955, no sale of iron ore was made and bond with Far Eastern Sureties expired. On the theory that they had lost right to make use of the period given them when their bond, automatically expired and when Fonacier and his sureties failed to pay as demanded by Gaite, the latter filed the present complaint.

The period granted wherein Gaite should wait for the sale or shipment of the ore before receiving payment was lost because of their failure to renew the bond of the Far Eastern Surety Company or else replace it with an equivalent guarantee. The expiration of the bonding company's undertaking substantially reduced the security of the vendor's rights as creditor for the unpaid P65,000.00. All the alternatives, therefore, lead to the same result: that Gaite acted within his rights in demanding payment and instituting this action one year from and after the contract was executed, either because the appellant debtors had impaired the securities originally given and thereby forfeited any further time within which to pay; or because the term of payment was originally of no more than one year, and the balance of P65,000.00 became due and payable thereafter.

Obligations and Contracts Pineda Reviewer Following Misons syllabus plus Case List Doctrines : Anton Mercado 1-E

Where the gifts are, that is where the giver is

Abesamis vs. Woodcraft "East Samar Lumber Mills" (owned by Jose Abesamis) and Woodcraft Works, Ltd. entered

into two agreements wherein Woodcraft is to purchase logs from East Samar Lumber. In the first agreement, Jose Abesamis maintains that due to the failure of appellant to send a

vessel to Dolores, Samar, the storm on May 5, 1951 swept away almost all the logs then awaiting shipment, amounting to 410,000 board feet. It should be noted that under the contract, shipment was to be made before the end of July 1951, but not to commence earlier than April of the same year. The obligation between the parties was a reciprocal one, appellant to furnish the vessel and appellee to furnish the logs. It was also an obligation with a term, which obviously was intended for the benefit