Obligations and Contracts Summary on Different Kinds of Obligation

OBLIGATIONS AND CONTRACTS SUMMARY

CHAPTER 3 DIFFERENT KINDS OF OBLIGATIONS SECTION 1. — Pure and Conditional Obligations ART. 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) Pure Obligation- one which is not subject to any condition and no specific date is mentioned for its fulfillment and is, therefore, immediately demandable. Conditional obligationone whose consequences are subject in one way or another to the fulfillment of a condition Condition -a future and uncertain event, upon the happening of which, the effectivity or extinguishment of an obligation (or rights) subject to it depends Characteristics of a condition (1) Future and uncertain (2) Past but unknown Two principal kinds of condition (1) Suspensive condition (condition precedent or condition antecedent) or one the fulfillment of which will give rise to an obligation (or right).

will extinguish an obligation (or right) already existing. When obligation demandable at once (1) when it is pure (Art. 1179, par. 1.); (2) when it is subject to a resolutory condition (par 1.,par. 2.); or (3) when it is subject to a resolutory period. (Art. 1193, par. 2.) What is really contemplated by the law is the knowledge to be acquired in the future of a past event which at the moment is unknown to the parties interested, for it is only in that sense that the event can be deemed uncertain. This knowledge determines whether the obligation will arise or not. ART. 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) Period- a future and certain event upon the arrival of which the obligation subject to it either arises or is extinguished (1) The debtor promises to pay when his means permit him to do so. (2) Other cases. — As when the debtor binds himself to pay: (a) “little by little” (b) “as soon as possible” (c) “from time to time;” (d) “as soon as I have the money” (e) “at any time I have the money” (f) “in partial payments” (g) “when I am in a position to pay.”

(2) Resolutory condition (condition subsequent) or one the fulfillment of which

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ART. 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) Effect of happening of condition (1) Acquisition of rights (2) Loss of rights already acquired Effect of non-compliance with resolutory condition Where a contract is subject to a resolutory condition, non-compliance with or nonfulfillment of the condition resolves the contract by force of law without need of judicial intervention. ART. 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)

(a) Possible. — the condition is capable of fulfillment, legally and physically; and (b) Impossible. — the condition is not capable of fulfillment, legally or physically. (4) As to cause or origin. (a) Potestative. — the condition depends upon the will of one of the contracting parties; (b) Casual. — the condition depends upon chance or upon the will of a third person; and (c) Mixed. — the condition depends partly upon chance and partly upon the will of a third person. (5) As to mode. (a) Positive. — the condition consists in the performance of an act; and (b) Negative. — the condition consists in the omission of an act. (6) As to number. (a) Conjunctive. — there conditions and all must and (b) Disjunctive. — there conditions and only one them must be fulfilled.

are several be fulfilled; are several or some of

Classifications of conditions (1) As to effect. (a) Suspensive. — the happening of which gives rise to the obligation; and (b) Resolutory. — the happening of which extinguishes the obligation.

(7) As to divisibility. (a) Divisible. — the condition is susceptible of partial performance; and (b) Indivisible. — the condition is not susceptible of partial performance.

(2) As to form. (a) Express. — the condition is clearly stated; and (b) Implied. — the condition is merely inferred.

Potestative conditiona condition suspensive in nature and which depends upon the sole will of one of the contracting parties

(3) As to possibility.

(1) Conditional obligation void. — Where the potestative condition depends solely upon the will of the debtor, the conditional obligation shall be void because its validity

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and compliance is left to the will of the debtor (Art. 1308.) and it cannot, therefore, be legally demanded. (2) Only the condition void. — If the obligation is a pre-existing one, and, therefore, does not depend for its existence upon the fulfillment by the debtor of the potestative condition, only the condition is void leaving unaffected the obligation itself. Here, the condition is imposed not on the birth of the obligation but on its fulfillment. If the condition depends exclusively upon the will of the creditor, the obligation is valid. If the condition is resolutory in nature, like the right to repurchase in a sale with pacto de retro, the obligation is valid although its fulfillment depends upon the sole will of the debtor. The fulfillment of the condition merely causes the extinguishment or loss of rights already acquired. (Art. 1181.) The debtor is naturally interested in its fulfillment. Casual condition (1) If the suspensive condition depends upon chance or upon the will of a third person, the obligation subject to it is valid. (2) When the fulfillment of the condition does not depend on the will of the obligor, but that on a third person who can in no way be compelled to carry it out, and it is found by the court that the obligor has done all in his power to comply with his obligation, his part of the contract is deemed complied with and he has a right to demand performance of the contract by the other party. Mixed condition The obligation is valid if the suspensive condition depends partly upon chance and partly upon the will of a third person.

ART. 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) Article 1183 refers to suspensive conditions. It applies only to cases where the impossibility already existed at the time the obligation was constituted. If the impossibility arises after the creation of the obligation, Article 1266 governs. (1) Physically impossible conditions. — when they, in the nature of things, cannot exist or cannot be done; and (2) Legally impossible conditions. — when they are contrary to law, morals, good customs, public order, or public policy. Effect of impossible conditions (1) Conditional obligation void. — Impossible conditions annul the obligation which depends upon them. Both the obligation and the condition are void. (2) Conditional obligation valid. — If the condition is negative, that is, not to do an impossible thing, it is disregarded and the obligation is rendered pure and valid. (par. 2.) Actually, the condition is always fulfilled when it is not to do an impossible thing so that it is the same as if there were no condition. The negative condition may be not to give an impossible thing. (3) Only the affected obligation void. — If the obligation is divisible, the part thereof not affected by the impossible condition shall be valid.

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(4) Only the condition void. — If the obligation is a pre-existing obligation, and, therefore, does not depend upon the fulfillment of the condition which is impossible, for its existence, only the condition is void. ART. 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) Positive (suspensive) condition - the happening of an event at a determinate time. The obligation is extinguished: (1) as soon as the time expires without the event taking place; or (2) as soon as it has become indubitable that the event will not take place although the time specified has not yet expired. ART. 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) Negative condition- an event will not happen at a determinate time. The obligation shall become effective and binding:

although the time indicated has not yet elapsed. If no time is fi xed, the circumstances shall be considered to determine the intention of the parties. This rule may also be applied to a positive condition. ART. 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment. (1119) Constructive fulfillment of suspensive condition Three (3) requisites: (1) The condition is suspensive; (2) The obligor actually prevents the fulfi llment of the condition; and (3) He acts voluntarily. The law does not require that the obligor acts with malice or fraud as long as his purpose is to prevent the fulfillment of the condition. He should not be allowed to profi t from his own fault or bad faith to the prejudice of the obligee. In a reciprocal obligation like a contract of sale, both parties are mutually obligors and also obligees. (see Art.1167.) Constructive condition

fulfillment

of

resolutory

Article 1186 applies also to an obligation subject to a resolutory condition with respect to the debtor who is bound to return what he has received upon the fulfillment of the condition.

(1) from the moment the time indicated has elapsed without the event taking place; or (2) from the moment it has become evident that the event cannot occur,

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ART. 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)

Retroactive effects of suspensive condition

fulfillment

of

(1) In obligations to give. — An obligation to give subject to a suspensive condition becomes demandable only upon the fulfillment of the condition. However, once the condition is fulfilled, its effects shall retroact to the day when the obligation was constituted. (2) In obligations to do or not to do. — With respect to the retroactive effect of the fulfillment of a suspensive condition in obligations to do or not to do, no fixed rule is provided. This does not mean, however, that in these obligations the principle of retroactivity is not applicable. The courts are empowered by the use of sound discretion and bearing in mind the intent of the parties, to determine, in each

case, the retroactive effect of the suspensive condition that has been complied with. It includes the power to decide that the fulfillment of the condition shall have no retroactive effect or from what date such retroactive effect shall be reckoned. Retroactive effects as to fruits and interests in obligations to give (1) In reciprocal obligations. — There is no retroactivity because the fruits and interests received during the pendency of the condition are deemed to have been mutually compensated. This rule is necessary for purposes of convenience since the parties would not have to render mutual accounting of what they have received. Fruits here may be natural, industrial, or civil fruits. (2) In unilateral obligations. — There is usually no retroactive effect because they are gratuitous. The debtor receives nothing from the creditor. Thus, fruits and interests belong to the debtor unless from the nature and other circumstances it should be inferred that the intention of the person constituting the same was different. ART. 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) Rights pending fulfillment of suspensive Condition (1) Rights of creditor. — He may take or bring appropriate actions for the preservation of his right, as the debtor may render nugatory the obligation upon the happening of the condition. Thus, he may go to court to prevent the alienation or concealment of the

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property of the debtor or to have his right annotated in the registry of property. The rule in paragraph one applies by analogy to obligations subject to a resolutory condition. (2) Rights of debtor. — He is entitled to recover what he has paid by mistake prior to the happening of the suspensive condition. This right is granted to the debtor because the creditor may or may not be able to fulfill the condition imposed and hence, it is not certain that the obligation will arise. This is a case of solutio indebiti which is based on the principle that no one shall enrich himself at the expense of another. ART. 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) If the thing is lost without the fault of the debtor, the obligation shall be extinguished; (2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is understood that the thing is lost when it perishes, or goes out of commerce, or disappears in such a way that its existence is unknown or it cannot be recovered; (3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor;

(4) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its fulfillment, with indemnity for damages in either case; (5) If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor; (6) If it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary. (1122) Requisites for application of Article 1189 (1) The obligation is a real obligation; (2) The object is a specific or determinate thing; (3) The obligation is subject to a suspensive condition; (4) The condition is fulfilled; and (5) There is loss, deterioration, or improvement of the thing during the pendency of the happening on one condition. Kinds of loss (1) Physical loss. — when a thing perishes as when a house is burned and reduced to ashes; or (2) Legal loss. — when a thing goes out of commerce or when a thing heretofore legal becomes illegal (3) Civil loss. — when a thing disappears in such a way that its existence is unknown or even if known, it cannot be recovered whether as a matter of fact or of law Rules in case of loss, etc. of thing during pendency of suspensive condition (1) Loss of thing without debtor’s fault. (2) Loss of thing through debtor’s fault. (3) Deterioration of thing without debtor’s fault. — A thing deteriorates when its value is reduced or impaired with or without the fault of the debtor. (4) Deterioration of thing through debtor’s fault. (5) Improvement of thing by nature or by time.

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(6) Improvement of thing at expense of debtor. ART. 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 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)

Effects of condition

fulfillment

of

ART. 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 rescission7 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.8 (1124)

resolutory

Kinds of obligation according to the person obliged

(1) In obligations to give. — When the resolutory condition in an obligation to give is fulfilled, the obligation is and the parties are obliged to return to each other what they have received under the obligation.

(1) Unilateral. — when only one party is obliged to comply with a prestation.

(2) In obligations to do or not to do. — In some obligations, the courts shall determine the retroactive effect of the fulfillment of the resolutory condition (par. 2.) as in the case where the condition is suspensive. The courts in the exercise of discretion may even disallow retroactivity taking into account the circumstances of each case.

(2) Bilateral. — when both parties are mutually bound to each other. In other words, both parties are debtors and creditors of each other. Bilateral obligations may be reciprocal or nonreciprocal. (a) Reciprocal obligations- those which arise from the same cause and in which each party is a debtor and creditor of the other, such that the performance of one is designed to be the equivalent and the condition for the performance of the other. (b) Non-reciprocal obligations- those which do not impose simultaneous and correlative performance on both

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parties. In other words, the performance of one party is not dependent upon the simultaneous performance by the other. Remedies in reciprocal obligations Article 1191 is the general provision on rescission of reciprocal obligations. It speaks of the right of the “injured party’’ to choose between rescission or fulfillment of the obligation, with the right to claim damages in either case. It governs where there is noncompliance by one of the contracting parties in case of reciprocal obligations. The remedy granted is predicated on a breach of obligation by the other party that violates the reciprocity between them. The breach contemplated is the obligor’s failure to comply with an existing obligation, not a failure of a condition to render binding that obligation. Choice of remedy by injured party (1) action for specific performance (fulfillment) of the obligation with damages; or (2) action for rescission of the obligation also with damages. Breach of obligation on part of plaintiff Breach of an obligation- when there is a failure or refusal, by a party without legal reason or excuse to perform, in whole or in part the obligation or undertaking which is incumbent upon him Under the rule of exceptio non adimpleti contractus, the party who has not performed his part of the agreement is not entitled to sue.

Effect of rescission Generally, to rescind a contract is not merely to terminate it, but to abrogate and undo it from the beginning, that is, not merely to release the parties from further obligations

to each other in respect to the subject of the contract, but to annul the contract and restore the parties to the relative positions which they would have occupied as if no such contract had ever been made. In case of rescission of contract based on Article 1191, mutual restitution is required to bring back the parties, as far as practicable, to their original situation prior to the inception of the contract. Rescission creates the obligation to return the object of the contract. It requires a mutual restitution of the benefits each party may have received as a result of the contract. It can be carried out only when the one who demands rescission can return whatever he may be obliged to restore. To rescind is to declare a contract void and to abrogate it from its inception. Court may grant guilty party term for performance. The court shall decree the rescission claimed unless there should be just cause for granting the party in default a term for the performance of his obligation. Obviously, this exception applies only where the guilty party is willing to comply with his obligation but needs time to do so and not where he refuses to perform. Remedies are alternative. The remedies of the injured or aggrieved party are alternative and not cumulative, that is, he is privileged to choose only one of the remedies, and not both, subject only to the exception in paragraph 2, to wit: he may also seek rescission even after he has chosen fulfillment if the latter should become impossible. But after choosing rescission of the obligation, he cannot thereafter demand its compliance, nor seek partial fulfillment under the guise of recovering damages. (Siy vs. Court of Appeals, 138 SCRA 536 [1985]) Limitations on right to demand

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Rescission (1) Resort to the courts. — The rescission contemplated by Article 1191 is a judicial rescission. (2) Power of court to fix period. — The court has discretionary power to allow a period within which a person in default may be permitted to perform his obligation if there is a just cause for giving time to the debtor (3) Compliance by aggrieved party with his obligation. — A party to a contract cannot demand performance of the other party’s obligation unless he is in a position to comply with his own obligations. Similarly, the right to rescind a contract can be demanded only if a party thereto is ready, willing, and able to comply with his own obligations thereunder. (4) Right of third persons. — Rescission creates the obligation of mutual restitution. However, if the thing, subject matter of the obligation, is in the hands of a third person who acted in good faith, rescission is not available as a remedy. (5) Slight or substantial violation. — The general rule is that rescission will not be granted for slight or casual breaches of contract. The violation should be substantial and fundamental as to defeat the object of the parties in making the agreement. (6) Waiver of right. — The right to rescind may be waived, expressly or impliedly. (7) Contract to sell. — In a contract to sell, the payment of the purchase price is a positive suspensive condition the failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force. The breach contemplated in Article 1191 is the obligor’s failure to comply with an obligation already extant, not a failure of a condition to render binding that obligation.

9 (8) Sales of real property and of personal property in installments. — In sales of real property, Article 1592,16 as impliedly amended by R.A. No. 6552, governs the exercise of the right of rescission. Article 1191 is subordinated to the provision of Article 1592 which speaks of nonpayment of the purchase price as a resolutory condition, when applied to sales of immovable property. (9) Judicial compromise. — Article 1191 applies only to reciprocal obligations in general and not to obligations arising from a judicial compromise. Judgment upon agreement of the parties is more than a mere contract binding upon them. (10) Arbitration clause in a contract. — The act of treating a contract as rescinded on account of infractions by the other contracting party is valid albeit provisional as it can be judicially assailed. The right cannot be exercised where there is a valid stipulation on arbitration. Rescission of contract without previous judicial decree (1) Where automatic rescission expressly stipulated. — The parties, may validly enter into an agreement that violation of the terms of the contract would cause cancellation thereof even without judicial intervention or permission or termination. This stipulation is in the nature of a resolutory condition. (2) Where contract still executory. — In the absence of stipulation to the contrary, the right to rescind a contract must be invoked judicially; it cannot be exercised solely on a party’s own judgment that the other has committed a breach of the obligation. Action for rescission not required upon breach of compromise agreement Compromise- an agreement between two or more persons who, for preventing or putting

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an end to a lawsuit, adjust their respective positions by mutual consent in the way they feel they can live with. Rescission termination

distinguished

from

Rescission has likewise been defi ned as the “unmaking of a contract, or its undoing from the beginning, and not merely its termination.” Rescission may be effected by both parties by mutual agreement; or unilaterally by one of them declaring a rescission of contract without the consent of the other, if a legally sufficient ground exists or if a decree of rescission is applied for before the courts.

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(1) First infractor known. — One party violated his obligation; subsequently, the other also violated his part of the obligation. In this case, the liability of the first infractor should be equitably reduced.

(2) First infractor cannot be determined. — One party violated his obligation followed by the other, but it cannot be determined which of them was the first infractor. The rule is that the contract shall be deemed extinguished and each shall bear his own damages.

On the other hand, termination refers to an “end in time or existence; a close, cessation or conclusion.” When an agreement is rescinded, it is deemed inexistent, and the parties are returned to their status quo ante. Hence there is mutual restitution of benefi ts received. However, when it is terminated, it is deemed valid at its inception. Prior to termination the contract binds the parties who are thus obliged to observe its provisions. The consequences of termination may be anticipated and provided by the contract. As long as the terms of the contract are not contrary to law, morals, good customs, public order or public policy they shall be respected by the courts ART. 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 fi rst violated the contract, the same shall be deemed extinguished, and each shall bear his own damages. (n)

Where both parties guilty of breach

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