Law on obligation on contract

1. 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)
2. Positive Obligation. This article refers to positive (suspensive) conditionthe happening of an
event at a determinate time. The obligation is extinguished: 1) As soon as the time expires without
the event taking place 2) As soon as it has become indubitable that the event will not take place
although the time specified has not expired.
3. 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)
4. Negative Obligation. This provision speaks of a negative condition- that an event will not
happen at a determinate time. (see Art. 879.) The obligation shall become effective and binding:
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 can not occur, although the time indicated has not
yet elapsed. 1) If no time is fixed, the circumstances shall be considered to arrive at the intention
of the parties. This rule may also be applied to a positive condition.
5. ART. 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its
fulfillment. (1119)
6. Kinds or classifications of condition: 1) Suspensive – the happening of the condition gives rise
to an obligation. Example: Maya binds herself to deliver a determinate car to Tito if he marries
Gaya. The obligation is only demandable upon the happening of the condition that is, if Tito
marries Gaya. The obligation is suspended and not yet demandable. 2) Resolutory – the
happening of the condition extinguishes the obligation already existing. Example: Arvin binds
himself to lend his only car to Ian until the latter passes the CPA Board. The obligation to lend is
immediately demandable. Ian’s right over the car is extinguished upon his passing the CPA board.
Ian is now obliged to return the car.
7. 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 prestation 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)
8. Effects of the obligation to give: Once the condition is fulfilled, the effects of the conditional
obligations shall retroact to the day of the constitution of the obligation and not on the date when
the condition was fulfilled. Example – On Jan. 1, 1999 A agreed to give B a parcel of land if he
passes the May, 1999 CPA exams. If B passes the CPA exams in May, 1999, he is entitled to the
land effective Jan. 1, 1999 because B’s right over the land retroacts to the date when the obligation
was constituted.

9. As to the fruits and interest – The effect of conditional obligation to give, as a rule, do not
retroact to the date of the constitution of the obligation. The following rules shall govern:

1) In reciprocal obligation (like a contract of sale) - the fruits and interest during the pendency of
the condition shall be deemed to have been mutually compensated. Example: A agrees to sell
and B agrees to buy A’s parcel of land if B passes the May, 1999 CPA exams. If B passes the
May, 1999 CPA Board, the obligation becomes demandable. B is entitled to all the interests that
his money (with which to pay A) may earn while A is entitled to the fruits which the parcel of land
may have produced during the pendency of the condition.

10. 2) In unilateral obligation – the debtor shall appropriate the fruits and interests received during
the pendency of the condition unless a contrary intention appears. Example – X agreed to give Y
a parcel of land if Y passes the CPA Board in May, 1999 exams. Pending the happening of the
condition, X is entitled to the fruits which the land may produce, X will deliver only the parcel of
land if the condition is fulfilled, unless a contrary intention appears.
11. 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)

12. Paragraph I of the above article authorizes the creditor to take any appropriate actions for
the preservation of creditor’s right during the pendency of the condition: Example: On Jan. 1,
1999, Raul obliged himself to sell a parcel of land to Dennis if he passes the CPA exams in
October, 1999. From the time the obligation was constituted and pending the happening of the
condition (passing the CPA Exams) Dennis may cause the annotation of the condition in the
certificate of title in the Register of Deeds where the land is located, to preserve his right over the
parcel of land.

13. Paragraph II in order that debtor may recover what he has paid by mistake, during the
pendency of the condition, the following requisites may be present: a) The debtor paid the creditor
before the fulfillment of the condition; b) Payment made by debtor was through mistake and error;
a) The action to recover what was paid by mistake should be made before the fulfillment of the
condition. Example – Pedro obliged himself to pay Santos P20, 000 if a PAL plane crashes at
Cebu before Dec. 30, 1998. After the obligation was constituted and before Dec. 30, 1998, a plane
crushed in Cebu. Pedro honestly and believing that the condition was fulfilled paid the P20, 000
to Santos. It turned out however that it was a Cebu airline that crushed. Thus, Pedro may recover
the amount paid to Santos by mistake for the reason that the condition has not yet been fulfilled.

14. 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:

15. I. In case of loss of the thing: a) If the thing is lost without the fault of the debtor, the obligation
shall be extinguished. Ex: Reyes obliged himself to give Santos a determinate car if he passes
the CPA Exams in Oct. the current year. If during the pendency of the condition the car was lost
through fortuitous event without the fault of Reyes, the obligation to deliver the car is extinguished
even if the condition is fulfilled later.

16. b) 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; Ex: If the thing is lost through the
fault of the debtor, he shall be obliged to pay damages. If in the example above, the specific car
was lost through the fault of Reyes, he shall be liable for damages upon the fulfillment of the
condition.

17. II. When the thing deteriorate c) When the thing deteriorates during the pendency of the
condition, without the fault of the debtor, the impairment is to be borne by the creditor. Ex: Arvin
obliged himself to give Ian a determinate Toyota car if Ian passes the October CPA Exams. During
the pendency of the condition, the car was partially damaged by flood, without the fault on the
part of Arvin. If the condition is fulfilled, Ian will bear the impairment. d) If the thing deteriorates,
during the pendency of the condition, through the fault of the debtor, the creditor may choose,
after the fulfillment of the condition, between the rescission of the obligation or its fulfillment, with
indemnity for damages in either case.

18. III. When the thing improved e) If the thing improved during the pendency of the condition, by
its nature, or by time, the improvement shall inure to the benefit of the creditor. The reason for
this is to compensate the creditor who would suffer in case, instead of improvement, there would
be deterioration without the fault of the debtor. f) If the thing is improved at the expense of the
debtor, he have no other right than that granted to the usufructuary. By usufruct is meant the right
to enjoy the property of another which includes the right to enjoy and use the fruits of the property.

19. Kinds of Loss Loss in civil law may be: 1) Physical loss - When it perishes (as when a house
is burnt to ashes) 2) Legal loss - When it goes out of commerce (as when the object before is un-
prohibited becomes prohibited) 3) Civil loss - When disappears in such a way that its existence is
unknown (as when a particular car has been missing for some time). When it disappears in such
a way that it cannot be recovered (as when a particular diamond ring is dropped in the middle of
the Atlantic Ocean).
20. 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 to the preceding article shall be applied to the party who is
bound to return. As for obligations to do or 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)

21. Effects when resolutory condition is fulfilled 1. 2. 3. 4. 5. The obligation is extinguished. (Art.
1181, NCC) Because the obligation is extinguished and considered to have had no effect, the
parties should restore to each other what they have received. The fruits and interests thereon
should also be returned after deducting of course the expenses made for the production, gathering
and preservation, if any. The rules given in Art. 1189, will apply to whoever has the duty to return
in case of loss, deterioration or improvement of the thing. The courts are given power to determine
the retroactivity of the fulfillment of a resolutory conditions. Example : A gave B a parcel of land
on condition that B will pass the CPA Exams on May, this year. B did not pass the CPA Exams.
The obligation is extinguished and therefore, it is as if there was never an obligation at all. B will
therefore have to return both the land and the fruits he had received there from the moment A has
given him the land.

22. ART. 1191. The power to rescind obligatios 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 later 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. (1123)
23. Right to rescind: The right to rescind means the right to cancel or to resolve in case of
reciprocal obligation in case of nonfulfillment on the part of one. Example: In a contract of sale,
the buyer can rescind if the seller does not deliver or the seller can rescind if the buyer does not
pay. The power to rescind is given to the injured party and the injured party has the following
alternative remedies: Demand fulfillment of the obligation plus damages; or 2. Demand rescission
of the obligation plus damages.
1.
24. 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 first violated the contract, the same shall be deemed extinguished, and each shall bear
his own damages.

25. Rules if Both Parties Have Committed a Breach The above rules are deemed just. The first
one is fair to both parties because the second infract or, though they would derive some
advantage by his own act or neglect. The second rule is likewise just, because it is presumed that
both parties at about the same time tried to reap some benefits. (Report of the Code Commission)
26. Period defined: A period is a future and certain length of time which determines the
effectivity or the extinguished of obligation. Obligation with a period is one whose consequences
are subject in one way or another to the expiration of said period or term. A day certain is
understood to be that which must necessarily come, although it may not be known when.