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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.
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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)
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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.
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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.)
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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
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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
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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.
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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.
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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
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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.
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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
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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.
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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)
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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.
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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.
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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 and Contracts Pineda Reviewer Following Misons
syllabus plus Case List Doctrines : Anton Mercado 1-E
Before you quit, remember why you started
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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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
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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Obligations and Contracts Pineda Reviewer Following Misons
syllabus plus Case List Doctrines : Anton Mercado 1-E
Before you quit, remember why you started
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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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
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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Obligations and Contracts Pineda Reviewer Following Misons
syllabus plus Case List Doctrines : Anton Mercado 1-E
Before you quit, remember why you started
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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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
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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Obligations and Contracts Pineda Reviewer Following Misons
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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.
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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.
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Obligations and Contracts Pineda Reviewer Following Misons
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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.
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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