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Obligations and Contracts Chapter 3 Nature and Effect of Obligations Section 1 Pure and Conditional ObligationsClassification of Obligations

1. Pure2. Conditional 3. With a term4. Alternative 5. Joint or mancommunada6. Solidary or several or in solidum7. Divisible 8. Indivisible 9. With a penal clause

Other provisions implying other classes:1. Unilateral and bilateral 1169 11912. Determinate and generic 11653. Legal, conventional and penal 1156 and 1162

Sanchez Roman classifications1. By their judicial quality and efficaciousness

a. Natural b. Civil c. Mixed

2. By their subjecta. Unilateral and bilateralb. Simple or individualc. Multiple or collective

i. Joint or solidary3. By their object

a. Simple and compound or multipleCompound may be conjunctive or distributiveDistributive may be specific or generic, alternative or facultative

b. Positive and negativec. Real and personal d. Possible and impossiblee. Divisible and indivisible f. Principal and accessory

Accessory may be: fide jusorias, hipotecarias, pignoraticias, ejecutivas, and with a penal clause

4. By their judicial perfectiona. Pureb. Conditionalc. With a termCondition and term may be either suspensive or resolutory

[Reviewer] Kinds of Obligations1. Pure and conditional2. Obligations with a period3. Alternative and facultative4. Joint and solidary5. Divisible and indivisible6. Obligations with a penal clause

Article 1179Every 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.

Pure obligationso When the obligation contains NO term or condition whatever upon

which depends the fulfillment of the obligation contracted by the debtor, the obligation is a pure obligation

o Immediately demandable o Nothing to exempt debtor from complianceo [R] Those which are demandable at once; no conditions imposed, EXCEPT

if resolutory

Demand Noteo Not subject to either suspensive CONDITION or suspensive PERIODo Note is binding even before the demand is made, effectivity and binding

effect of the note is BINDING even BEFORE the demand is made

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o Neither does the demand constitute an implied suspensive period (term ex die) since there is nothing to prevent the creditor from making a demand at any time

o STRICTLY a PURE obligation

Must be considered as pure when:1. Period originally given has been CANCELLED by MUTUAL agreement of

the parties2. NON-FULFILLMENT of a condition RESOLVES the period stipulated

IMMEDIATE DEMANDABILITY- Should not lead to absurd interpretations or requirements IMPOSSIBLE of

instantaneous compliance- Court setting a period for payment DOES NOT alter the character of the

obligation as pure and immediately demandable- Must be distinguished from obligations for which a REASONABLE period

may be granted

Conditional Obligations- One which is subject to condition - [R] where acquisition of right or extinguishment or loss of those already

acquired shall DEPEND upon the happening of an event which constitutes the condition

Condition- Every future or uncertain event upon which an obligation or provision is

made to depend- .by those who execute the juridical act- Future and uncertain MUST CONCUR; must be read as “AND” not or- If not uncertain but must necessarily happen, NOT a condition; obligation

is considered as one with a TERM- Death since it is certain is NOT a condition but a TERM- Must be imposed by the WILL of a PARTY, not a legal requisite of the act

(donation propter nuptias is a legal requisite and is therefore not a condition)

- Event MUST be POSSIBLE- 2 requisites:

o Future

o Uncertain

Past Events- Should be more accurately termed as BASIS since a past or present event

is NOT uncertain- Occurrence must be UNKNOWN to the parties; the condition therefore is

FUTURE KNOWLEDGE or PROOF of a past event that is unknown to the parties, not the event itself

- Therefore does NOT have quality of suspending effects of a judicial act- Uncertainty of a past event exists only in the MINDS of the parties, not in

the event itself since it has already happened or has not happenedo If it has happened = obligation immediately exists purelyo If it has not happened = no obligation

Classification of Conditions [R]1. Resolutory – demandable at once, but the happening of an event would

extinguish the obligation2. Suspensive – happening of an event gives rise to an obligation3. Potestative – depends upon will of debtor4. Casual – depends on chance or hazard or will of 3rd person5. Mixed – depends partly upon will of one of the parties and partly on

chance or will of 3rd person6. Divisible – capable of partial performance according to its nature,

agreement or the law7. Indivisible – incapable of partial performance according to its nature,

agreement or the law8. Positive – an act is to be performed9. Negative – something will be omitted10. Express – condition stated11. Implied – condition is merely inferred12. Possible – capable/possible of fulfillment in nature and in law13. Impossible – incapable of fulfillment due to physical or legal reasons14. Conjunctive – all conditions must be performed 15. Alternative – only one [a few] conditions have to be performed

INDIVISIBILITY of Conditions - GENERAL rule: Fulfillment of conditions is indivisible - Even when the object is a divisible thing

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- Partial fulfillment of the condition does not give rise to the existence of part of the obligation

- Indivisibility passes on to heirs of debtor; some heirs cannot demand partial performance by offering to fulfill their part of the condition

PLURALITY of Conditions- If there are several conditions for one obligation, necessity of complying

with all or one DEPENDS upon INTENTION of the parties (alternative or conjunctive)

Article 1180When 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

Art1197 – if the obligation does not fix a period, but from its nature and circumstances can be inferred that a period is intended, COURTS may fix the duration. COURTS may also fix the duration of the period when it depends upon the will of the debtor (ex. When construction contract did not indicate term for the completion of the construction)

COURT to fix period- creditor should file an action to fix a period for the payment of the

obligation- PREMATURE: any IMMEDIATE action to ENFORCE the obligation without

a period having been previously fixed by courtPatente vs. Omega- If period of payment is left solely to will of debtor, condition should be

annulled; but its annulment does NOT convert the obligation to simple and unconditional; remedy of creditor: go to court to obtain judgment to fix the period

Article 1181In 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

Suspensive and Resolutory

- Affect obligations in DIAMETRICALLY OPPOSED ways- Suspensive: condition PRECEDENT or ANTECEDENT

o if the suspensive condition happens, obligation ariseso if condition does NOT happen, obligations does not come into

existenceconditional creditor will not become a real creditor and loses the power to exercise actions granted by 1188

Article 1188 – creditor may, before fulfillment of condition, bring the appropriate actions for the preservation of his rights

- Resolutory: condition SUBSEQUENTo Extinguishes rights and obligations already EXISTINGo The obligations and rights MUST already EXIST under the threat

of extinction upon the happening of the resolutory conditiono If resolutory condition does NOT happen, creditor’s rights

become ABSOLUTE- When RIIGHTS EXIST BEFORE PERFORMANCE OF CONDITION, condition

cannot be called suspense - Ex: contract not perfected, right to rescind cannot be exercised,

obligation cannot be enforced UNLESS suspensive condition is fulfilled

Article 1182When 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.

Potestative – a condition that depends upon the WILL of one of contracting parties; one which is in the power of one of the parties to realize or prevent

Casual – condition which depends EXCLUSIVELY upon chance or other factors; NOT upon the will of contracting parties

Mixed – depends upon WILL of one of contracting AND OTHER circumstances, including will of third person

Kinds of Potestative

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1. Simple – will + realization of external act (if you sell your house); if on the part of the debtor, does NOT prevent the formation of a valid obligation since it not only depends on will but also on external circumstances

2. Purely Potestative – depends SOLELY on will o ONLY when potestative condition depends EXCLUSIVELY upon

will of DEBTOR will the conditional obligation be VOIDReason: to allow conditions exclusively dependent on debtor’s will is to sanction illusory obligations

o If depends exclusively on will of CREDITOR, valid3. Mixed – if depends on chance or will of third persons, valid

In reciprocal obligations, both parties are mutual creditors and debtors of each othe, rule applies to EACH in his capacity as DEBTOR.

Mixed – the condition depends not only will of debtor but also upon chance or will of others

Article 1183Impossible 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.

Impossible conditions – physical or juridical

Physically impossible - Contrary to the law of nature

Juridically impossible or illicit - SUBJECTIVE, not the fact but the INTENTION and EFFECT that determine

whether condition is illicit- Contrary to law, morals, good customs and public policy- Also when it restricts certain ESSENTIAL rights which are necessary for

the free development of human activity like political, family, consti rights and liberties like condition not to change domicile, condition to change or not to change religion and condition not to contract marriage

- NECESSARY that it consist of an act or fact for ONE of the parties - Illicit character not determined by the fact or act itself but by its EFFECTS

on ONE of the parties and the INTENTION of the one imposing condition

Reason – one who promises something under a condition that is impossible or illicit knows that condition cannot be fulfilled and thus manifests that he does not intend to be bound which in effect nullifies the promise

Scope – impossible or illicit conditions annul obligations dependent upon them ONLY when - Conditions are POSITIVE and SUSPENSIVE- If negative, condition is simply considered not written which converts obli

to pure and simple one- Principle of nullity of condition applies only to CONTRACTS, no

application to donations and testamentary dispositions

Time of Impossibility - impossibility MUST exist at the time of the CREATION of the obligation so

that the impossible condition may annul the obligation- a supervening impossibility does not affect existence of obligation- if condition was impossible when obligation was constituted, it REMAINS

VOID even if it subsequently becomes possible, UNLESS parties later AGREE again

Obligations with impossible conditions NEVER come into existence for they are VOID FROM THE BEGINNING, since present article applies only to cases where condition was already impossible or illicit at the TIME when contract was made

Illogical conditions- similar in effect to impossible conditions- CONDITION is NOT impossible- impossibility lies in the OBLIGATION, which is affected by an INTRINSIC

ABSURDITY

In divisible obligations, part not affected by impossible or illicit condition shall remain valid

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Negative Impossible conditions- 2nd paragraph of provision provides condition NOT TO DO but should be

understood as to include ALL negative impossible conditions - Condition is considered NOT written or imposed and obligation must be

regarded as a pure and simple one- Same as a negative UNINTELLIGIBLE condition

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

When no period is stated, rule is 2nd par of 1185 wherein INTENTION of parties is controlling and the time is that which the parties may have probably contemplated, taking into account the nature of the obligation

Article 1185The 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

Example: obligation to deliver land if x shall not marry within 2 years will become effective and land should be delivered to x if:1. 2 yrs expires without x getting married2. X enters priesthood before the 2 years expire

Kinds of Period [R]1. Suspensive (ex die) – when obligation becomes demandable only upon

the arrival of a day certain 2. Resolutory (in diem) – when the obligation is demandable at once,

although it is terminated upon arrival of a day certain3. Legal – when granted by law4. Conventional – stipulated by parties5. Judicial – fixed by court6. Definite – date or time is known beforehand

7. Indefinite – can only be determined by an event wc must necessarily come to pass, although it may not be known when

Article 1186The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment

Obligor = debtor

Constructive Fulfillment - A condition which although not exclusively within the will of the debtor,

may in some way be prevented by the debtor from happening - NOT SUFFICIENT: mere INTENTION of debtor to prevent its happening or

the mere PLACING of INEFFECTIVE OBSTACLES to compliance wo actually preventing fulfillment

Requisites:1. Intent of the obligor to prevent fulfillment of the condition2. Actual prevention of compliance

Principle – a party to a contract may NOT be excused from performing his promise by the non-occurrence of an event which he himself prevented

Intent to prevent compliance- ESSENTIAL - ANY ACT imputable to the debtor, even if wo fraud or malice will suffice

in order to be considered as voluntarily preventing fulfillment - But it may also include acts with fraud or malice- If VOLUNTARY act of debtor did not have for its purpose the prevention

of fulfillment of condition, it will not be considered constructive fulfillment (debtor prosecutes creditor for a crime)

Exercise of debtor’s right- If in preventing fulfillment of a condition, debtor acts PURSUANT TO A

RIGHT, condition will NOT be deemed as fulfilled (violation of city ordinances so building construction must be stopped)

Actual Prevention of compliance

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- Constructive fulfillment ONLY if the act of debtor had in fact prevented compliance with the condition

Provoking Resolutory Condition - When condition is resolutory but NOT dependent of will of debtor, and

he UNJUSTIFIABLY provokes or produces the condition wc would not have happened without his doing so, condition will NOT be considered as fulfilled and there will be NO extinguishment of rights

- Debtor cannot be excused from compliance by occurrence of an event which he himself brought about UNLESS such possibility is PERMITTED by the contract

Article 1187The 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.

Retroactivity of Obligations- Article refers to the EFFECTS of the happening of SUSPENSIVE conditions - Moment between the creation of the conditional obligation and the

fulfillment of suspensive condition: creditor CANNOT enforce obligation since his right is a mere EXPECTANCY

- The moment the suspensive condition happenso obligation becomes EFFECTIVE and ENFORCEABLE o debtor may be LEGALLY COMPELLED to PERFORM from this

moment o CAUSE OF ACTION for the enforcement of the obligation accrueso Period of PRESCRIPTION of the above action is to be computed

from this moment

o But EFFECTS of obligation RETROACT to the moment when such obligation was constituted or created

Juridical reason – condition is only ACCIDENTAL, not an essential element of the obligation

An obligation is CONSTITUTED when the ESSENTIAL elements which give rise to the obligation CONCUR

Hence, when condition is fulfilled resulting to the EFFECTIVITY of the obligation, only logical that the effects of such obligation is deemed to COMMENCE from the time the obligation itself was constituted, NOT from the time that the accidental element (the condition) was fulfilled

- Principle of Retroactivity – a FICTION is created, whereby the BINDING tie of the conditional obligation is produced from the time of its (obligation’s) PERFECTION and NOT from the happening of the condition

Contracts of DebtorIf the conditional obligation’s object is the delivery of a DETERMINATE thing, BEFORE the happening of the suspensive condition- Debtor cannot:

o Make contracts DISPOSING or ALIENATING or ENCUMBERING the thing to be delivered

o Or otherwise creating a REAL RIGHT over the thing which is INCOMPATIBLE with the right of the creditor

- If debtor does those mentioned above, all such contracts are ABROGATED and cease to have any effect upon the happening of the suspensive condition

- Because of the RETROACTIVITY of the obligation, creditor retains a SUPERIOR right

- Ex: X sells land to A subject to suspensive condition. Before suspensive happens, X sells to B (unconditionally?). Upon the happening of the suspensive, sale to A will retroact from the date when it was made and A will have a BETTER right over land than B.

- BUT BUT BUT under Phil Law, TRADITION or DELIVERY transfers ownership or REAL RIGHTS over the thing.

o If the third party with whom the debtor has made a contract pendente conditione acted in GOOD FAITH, and the thing has

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been delivered, the happening of the suspensive condition WILL NOT SERVE TO DEFEAT his right of ownership

o creditor CANNOT recover the thing by an accion reinvindicatoria (action for recovery) because there was no delivery to him and he does not have ownership

o debtor will be liable for damages to creditor- IF third person acted in BAD FAITH, or with knowledge of the pending

condition:o Cannot invoke protection o Cannot be in a better position than the debtor himselfo May be compelled to deliver the thing to the creditor

Contracts of CreditorBefore the happening of the condition, If creditor has already disposed of his expected right (like by creating a mortgage over property) the happening of the suspensive condition CONSOLIDATES or makes EFFECTIVE that act performed by the creditor pendente conditione

Increase in Value- Increase in value that the thing may acquire before the happening of the

suspensive condition is to the BENEFIT of the creditor (1189)

Limitations on Retroactivity- Application of retroactivity is NOT ABSOLUTE- Subject to certain limitations:

o Dictated by justiceo Required by practicabilityo Required by convenience

1. If thing is lost by fortuitous event before the happening of the condition, DEBTOR suffers LOSS because he is still the owner

2. Acts of Administration performed by debtor before the happening of the condition are NOT AFFECTED by retroactivity of the effects of obligation and can be asserted AGAINST CREDITOR after happening of condition

o However, those acts in ABUSE OF RIGHT, in the guise of administration, committed by debtor, will not be allowed to defeat the right of the creditor

o Also, the WILL of the parties must be taken into account3. Law DOES NOT require delivery of the fruits or interests ACCRUING

BEFORE the happening of the suspensive conditiono Reason: practicability or convenienceo Right to the fruits is NOT within the principle of retroactivity of

conditional obligationso In RECIPROCAL OBLIGATIONS TO GIVE, fruits and interests

pending the happening of the conditions are deemed to MUTUALLY COMPENSATE each other

Ex. X agrees to deliver a piece of land to Y who agrees to pay 20k for it; and the agreement is subject to a suspensive condition. Upon the happening of condition, X will ONLY deliver the land and Y will ONLY pay 20k (no fruits and no interest).

o In UNILATERAL obligations, fruits received by debtor before the happening of the condition are KEPT by him and NOT delivered together with the thing upon fulfillment.

Reason: debtor does not receive anything from the creditor in a unilateral obligation

o Rules on fruits and their retention or otherwise must YIELD to the intent or agreement of the parties, if contrary

Obligations to do and not to do - Courts, using SOUND DISCRETION, shall determine the retroactive effet

of the fulfillment of the conditiono Court may determine to WHAT DATE retroactivity shall be

allowedo Or court may REFUSE to permit retroactivity, DEPENDING on the

circumstances of each caseo Intent of the parties should be taken into account

Article 1188The 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.

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TAKE appropriate action is better: some acts are not suits brought to courtPreservation of Creditor’s rights- Since before the happening of the condition, creditor only has a mere

EXPECTANCY and cannot compel debtor to perform, acts or events may take place during that period that will render his right ILLUSORY. Law allows him to take appropriate steps or to bring proper action for the preservation of his right

- Actions for the preservation of creditor’s right must have the following objectives:

o To PREVENT the LOSS or DETERIORATION of the things which are the subjects of the obligation by ENJOINING or RESTRAINING acts of alienation or destruction by the debtor or by 3rd persons

o To PREVENT CONCEALMENT of the debtor’s properties which constitute the guaranty in case of non-performance

o To DEMAND security if the debtor becomes insolvento To COMPEL the acknowledgment of the debtor’s signature on a

PRIVATE document or the execution of PUBLIC document for registration so as to affect third persons

o To REGISTER the deeds of sale or mortgages evidencing the contract

o To SET ASIDE fraudulent alienations made by the debtoro To INTERRUPT the period of prescription of actions against

adverse possessors of the things which are the objects of obligation

- NO PREFERENCE of credit granted; only the PRESERVATION of creditor’s rights

Payment before condition- Debtor is allowed to recover what he has paid before the happening of

the condition ONLY when:o He paid by MISTAKEo Action to recover is BROUGHT BEFORE condition happens

- If payment was of a determinate thing, it still exists in the hands of the creditor, accion reivindicatoria (action to recover) will lie, otherwise, solution indebiti (quasi-contract arising from the fact that debtor pays by mistake) will apply

- If payment is made WITH KNOWLEDGE of the CONDITION, there is an IMPLIED WAIVER OF THE CONDITION and whatever has been paid CANNOT BE RECOVERED.

- If debtor is ignorant of condition, SUBSEQUENT FULFILLMENT of the condition will bar the recovery of what has been prematurely paid (because of the retroactivity of the obligation from moment of constitution)

- If there was NO mistake in payment BUT condition is not fulfilled, debtor is ENTITLED to recovery otherwise creditor will be unjustly enriched

o In such case, creditor must return the thing with all accessionso If non fulfillment of condition is due to the fault of the creditor,

he shall ALSO return the FRUITS

Fruits and Interest- This article 1188 does NOT provide for recovery of fruits or interest by

the debtor who has paid by mistake before the happening of the condition (unlike art 1195)

- Silence of law should not bar recovery of fruits and interest- Support for this contention:

o Illogical that the law will allow debtor to recover fruits and interest when he has paid prematurely an EXISTING obligation but does not allow the same if he has paid prematurely an obligation that has NOT YET come into existence because the suspensive condition has not yet happened

o Article 2159: whoever in bad faith accepts undue payment shall pay LEGAL INTEREST or shall be liable for FRUITS

o Article 2160: he who accepts in GOOD faith accepts undue payment shall only be responsible for its accessions and accessories insofar as he has already been benefited

- BAD FAITH in the above articles means: the creditor KNOWS that the debtor is paying BEFORE the suspensive condition has happened.

Article 1189When the conditions has 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:

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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 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 not other right than that granted to the usufructuary

Usufructuary – somebody with the right to usufructUsufruct – legal right to use another’s property

Scope1. applies ONLY to obligations to deliver a DETERMINATE or SPECIFIC thing;

NO application to generic objects2. applies ONLY when suspensive condition is FULFILLED

Loss of a Thing when:1. It PERISHES (animal dies,house destroyed, crops destroyed by flood,

fruits rot)2. It GOES OUT OF COMMERCE OF MAN (private land belonging to

municipality is converted into a public plaza, thing declared by law to be contraband)

3. It DISAPPEARS in such a manner that its existence is UNKNOWN or it CANNOT BE RECOVERED (when a ship sinks in the middle of ocean, thing stolen by unknown persons, dropped somewhere in forest and cannot be found)

- If fault of debtor, debtor liable for damages to creditor upon the fulfillment of the condition.

- If debtor is without fault, obligation extinguished, UNLESS there is stipulation to the contrary (in conformity with art1262)

Deterioration- Any REDUCTION or IMPAIRMENT in the substance or value of a thing

which does not amount to a loss- thing still exists at the time condition is fulfilled but NO LONGER INTACT

or is LESS than what it was when the obligation was constituted - if NOT IMPUTABLE to debtor, debtor NOT liable for damages; creditor

must ACCEPT the thing in its impaired condition- if due to fault of the debtor, creditor may:

o demand the thing o or ask for rescission, with damages

Improvement - anything added to or incorporated in or attached to the thing that is due- if caused by the NATURE of the thing, or by TIME, improvement shall

inure to the benefit of the CREDITOR (retroactivity of effects of conditional obligations)

- If expense of debtor, debtor shall have the SAME RIGHTS AS A USUFRUCTUARY, governed by art 579 and 580

o Art 579: usufructuary may make useful improvements for his pleasure as long as the FORM or the SUBSTANCE is not altered; BUT he shall have not right to be indemnified; he may however remove the improvements as long as removal will not damage property; if improvement cannot be removed without damaging the property, improvement must be delivered also WITHOUT the creditor paying indemnity to the debtor

o Art 580 – usufructuary may set off any improvement on the property against any damage to the same (if debtor causes damage but then also made improvements, the damage and the improvements off set against each other)

Article 1190When 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.

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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 returnAs for obligations to do and not to do, the previsions of the second paragraph of Article 1187 shall be observed as regards the effect of the extinguishment of the obligation

Extinguishment of an obligation = resolutoryObligations with Resolutory conditions- Rights of the creditor are IMMEDIATELY vested, but always in danger of

being extinguished by the happening of a resolutory condition- If resolutory condition DOES NOT HAPPEN, such rights of creditor are

consolidated and become ABSOLUTE- If RCondition happens, such rights are extinguished and it’s as if

obligation DID NOT EXIST: therefore, each is BOUND to return to the other what has been received to RETURN TO THE ORIGINAL CONDITION before the creation of the obligation

o Process of Restitution seeks to wipe out as much of the vestige of the obligation

Rights of Third Persons- A gives B a cellphone subject to the condition that it be returned if A gets

on the deans list this second sem. Before end of 2nd sem, B gives cellphone to C. A eventually gets on deans list. A cannot demand from C directly

- Upon delivery ownership is passed to the possessor, WITHOUT PREJUDICE to the happening of the resolutory condition

- If possessor transfers the thing to a third person and the resolutory condition happens, the party entitled to restitution cannot sue third person in an action for recover because party entitled is no longer the owner

- Happening of the resolutory condition does NOT ipso jure (by act of the law itself) REVEST ownership to party entitled to restitution

o He is however entitled to the DELIVERY which would give him ownership anew

o But this is a right which can enforce ONLY against HIS CREDITOR, who has become the debtor obliged to make restitution

- Party entitled to restitution has NO real right that can be enforced against 3rd persons in good faith

Loss, Deterioration, Improvement- Before resolutory condition happens, party who has a right to restitution

is practically in the same situation as the one who has an obligation upon the happening of a suspensive condition

o there is the possibility that he may have to return or deliver the thing which becomes a POSITIVE DUTY when the resolutory condition is fulfilled

- In case of loss or deterioration, or improvements, Art 1189 shall apply to the party who has to make restitution (since he is considered as the debtor in this case)

- Lost: loss must be borne by person who is the OWNER at the time of loss; if he has paid a price to obtain the thing, he cannot recover that price

o If loss occurred by his fault, he will be liable for damages to the party entitled to restitution

Fruits and Interests- Since upon the occurrence of the resolutory condition, all vestiges of the

obligation must be wiped out to return to the status quo, then the duty of MUTUAL RESTITUTION not only applies to the object and price but also to the fruits and interests

- Fruits and interests may be compensated against each other- In determining the fruits, Art 443 states: he who receives the fruits has

the obligation to pay the expenses made by a third party in production, gathering and preservation

o Expenses incurred by person obliged to make restitution SHOULD be DEDUCTED from the gross value of the fruits to be returned

Protection of Rights- Person entitled to restitution is like the creditor before the happening of

the suspensive condition: he has a MERE EXPECTANCY of RECOVERY of the thing

o Pending fulfillment of RCondition therefore, he is entitled to actions for the preservation of creditor’s rights (1st par of 1188)

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Article 1191The 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

Art 1385: rescission creates obligation to return the object of the contract with fruits, and price with interests Art 1388: whoever acquires in bad faith the things alienated in fraud of creditors shall indemnify the creditors for damages, whenever it is impossible to return the thing

Rescission – a SUBSIDIARY action, not based on breach by other partyResolution – a PRINCIPAL action; based on breach by the other party

Reciprocal obligations- This article applies ONLY to reciprocal obligations; NOT to every case

wherein two persons are mutual debtors and creditors of each other; there must be RECIPROCITY between them for this article to apply

- Requisites:o Obligations which arise from the SAME CAUSEo Each party is a debtor and a creditor to the other, such that

obligation of one is dependent upon the obligation of the other o To be performed SIMULTANEOUSLY, such that performance of

one is conditioned upon the simultaneous fulfillment of the other

Tacit Resolutory Condition- Imposed exclusively by law, even if there is no corresponding agreement

between the parties- The party who has performed or is ready to perform may rescind the

obligation if the other does not perform or is not ready to perform because the latter is already in delay

- Power to rescind is given to injured party; injured party is given the choice of either specific performance or resolution

Declaration of Rescission - Rescission may take place by the declaration of the injured party- Rescission is a POWER, which does NOT require the previous declaration

of rescission by the COURTSo This power is regulated by the current provision (1191)o A power of the INJURED PARTY to CHOOSE rescission or

fulfillment - Rescission can be made:

o Judicially o Or extra-judicially upon the declaration of the creditor/injured

party; But if the debtor shall impugn such declaration of

rescission, it shall be SUBJECT TO JUDICIAL DETERMINATION

If other party does not oppose or impugn, such extra-judicial declaration shall produce legal effect

- Nothing in this article prohibits rescission without judicial intervention- Upon non-compliance of one, the other may declare rescission by

refusing to perform his own obligation- But jurisprudence and the provision that states that “the court shall

decree rescission claimed unless there is just cause authorizing the fixing of a period” has led SC to rule that

o Mere failure of a party to perform his undertaking does not ipso jure produce the resolution of the contract

o Party entitled to resolve should apply to the court for a DECREE of rescission or resolution

- (Tolentino still believes that extra-judicial declaration of resolution or rescission upon failure to comply of one party will suffice)

Right to resolve or rescind is NOT ABSOLUTE- 3rd paragraph: court is given discretionary power to ALLOW A PERIOD

within which a person in default may be permitted to perform the stipulation upon which the claim for rescission is based

Tiu, Christy 2014

OBLICON 1D BERNARDO

- Right to rescind or resolve, even if agreed upon, may be questioned in court by the affected party

- Rescission will NOT be permitted for a slight or casual breach, ONLY for such breaches as are so substantial and fundamental as to defeat the object of the parties in making the agreement

- Right to rescind is SUBORDINATE to the right of a third person to whom bad faith is not imputable

Court does NOT have discretion to grant a period within which the debtor may comply after failure to fulfill in a contract of lease and of sale when time fixed is essential to transaction

Effect of Rescission:1. Obligatory relation extinguished as if obligation has never been created2. Extinction has retroactive effect, unmaking the juridical tie3. Abrogation of the whole contract: Duty of the court to require both

parties to surrender that which they have respectively received and to place each other as far as practicable in his original situation

4. Party seeking rescission cannot have performance for a part and rescission for another part

Alternative Remedies:Injured party may ask for EITHER specific performance OR rescission; injured party CANNOT HAVE BOTH- However, where performance has become IMPOSSIBLE or there are

INSUPERABLE and LEGAL obstacles, rescission with damages is proper even though specific performance was already sought

- 4 years from final judgment of specific performance is the prescriptive period for the filing of such action

Damages Recoverable- In case of rescission, ONLY those elements of damages that are

compatible with the idea of rescission - In case of specific performance, ONLY those elements of damages which

are compatible with SP

Waiver – contracting parties MAY WAIVE right to rescind reciprocal obligations

Express Resolutory Condition – parties may also expressly stipulate right to rescind.

DISAPPEARANCE of the basis of a contract gives rise to right for resolution in favor of the party prejudiced.

Article 1192In 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.

First sentence is fair to both because the second infractor also derived or thought he would derive some advantage by his own act or neglect.

Offset equitably – where BOTH parties are in DEFAULT, their respective liabilities will be offset equitably

Tiu, Christy 2014