does happen, the obligor will have to give something to
OBLIGATIONS & CONTRACTS
ARTICLES 1179-1192
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.
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.
1. Pure – Every obligation whose performance does not
depend upon a future or uncertain event or upon a
past event unknown to the parties; one without a
condition or term hence demandable at once.
2. Conditional – 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.
3. Subject to period or term – the period or term must
come whether the parties know when it will happen or
not.
With these two articles, we can classify obligations
from the viewpoint of demandability as pure and
conditional obligations. There is also an obligation with a
term or period but is not defined in these articles.
Examples:
 Pure Obligation: “I promise to pay you 10 million pesos.”
So, the obligation is pure because there is no condition
attached to it and therefore demandable at once.
 Conditional Obligation: “I will buy your phone for
P100,000 if you pass the subject of Obligation &
Contracts.”
What is Condition? According to Manresa,
Condition is an uncertain event which yields an influence
in a legal relationship Condition may or may not happen,
whether it does or does not happen affects the
relationship between the creditor and the debtor.
For example, “I will give you a car if you pass the
bar exam.” What is the condition? The passing of the bar
exam. It may or may not happen. So, if it does not happen,
the obligor will not give anything to the obligee. But if it
the obligee.
Can a condition be based on a past event? Yes,
so long as both parties have yet no knowledge of the past
event already happening. So technically the future
knowledge of a past event will determine whether or not
the obligation will arise.
For example, “I will give you a car when Pluto is
declared as a planet once again.” But you did not know
that Pluto was declared as a planet the other day. So,
when it does come to your knowledge then the obligation
becomes demandable. This is just an example.
The next kind of obligation is subject to period or
term. Like “At the end of the year I will give you 10 million
pesos” or “At the end of the semester I will give you 10
million pesos.” So, the term or the period is the “end of the
year” and “end of semester.” This will be discussed a little
more after your first exam coverage. So, let’s not concern
ourselves with this kind of obligation.
Obligations Demandable at Once
1. Pure Obligations
 Demandable at once
 Example: I will give you a phone
2. Obligations Subject to a Resolutory Condition
 The happening of which extinguishes the
obligation
 Example: I will give you a phone, but you should
not use Facebook this year.
When we say Demandable at once, it doesn’t
mean that they are to be performed immediately, there
must still be a reasonable time allowed for the
performance of the obligation. And what is reasonable is
to be determined by the court. So here, Pure Obligations
and Obligations Subject to a Resolutory Condition is
demandable at once.
What differentiates Pure Obligation with
Obligations Subject to a Resolutory Condition? In
obligation Obligations Subject to a Resolutory Condition,
the obligation is also demandable at once, but the
performance of the condition will extinguish the obligation.
So, in our example, the obligation to give a phone is
demandable at once, but if you should use Facebook that
obligation is terminated, and you should return the phone
back.
Conditional Obligations
1. Suspensive – happening of event/condition gives
rise to the obligation
2. Resolutory – happening of event/condition
extinguishes the obligation
 3. Potestative – depends upon the will of the debtor
4. Causal – depends upon chance/will of a third
person
5. Mixed – depends partly on the will of a third
person and partly on chance
6. Divisible – capable of partial fulfilment
7. Indivisible – not capable of partial fulfilment
8. Positive – an act is to be performed
9. Negative – something will be omitted
10. Conjunctive – if all the conditions must be
performed
11. Alternative – if only a few of the conditions have
to be performed
A conditional Obligation is one which 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.
What are classifications of conditions?
So, the first classification is the suspensive or
resolutory condition. This classification is as to whether the
obligation will arise or be terminated based on condition.
So when we say suspensive, the happening of the
event or the condition gives rise to the obligation. But when
we say resolutory, the happening of the event or the
condition extinguishes the obligation.
Another classification is as to whom the condition
attaches. So we have potestative obligation, which
depends upon the will of the debtor. We have the casual
obligation, which depends upon the chance or will of a
third person. We have the mixed obligation, which
depends partly on the will of a third person and partly by
chance.
The third classification is as to how the condition,
or the manner of the condition can be fulfilled. Divisible
obligation is capable of partial fulfillment since it can be
divided. Indivisible obligation has to be complied with fully.
It is not susceptible to fulfillment in installments or partial
fulfillment.
The fourth classification is as to whether something
should be done or not. Positive obligation is an act to be
performed. Negative obligation is something which should
be omitted, or something is not to be performed.
And finally, the last classification is as to whether
one or many conditions must be done for the obligation to
arise. A conjunctive condition is where all the conditions
must be performed. An alternative condition, on the other
hand, is only one, two, or a few of the conditions have to
be performed.
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.
Article 1180 is an example of a condition that is
subject to a term or period. If you read 1180, you would
think that it is dependent on the will of the debtor, which
would have been void under Article 1182. But here, the law
says it is not void, it is merely subject to a period. The fact
remains that under Article 1180, the time of payment is
what is made dependent on the debtor’s will, not the fact
of payment itself. Sometimes it would be unfair for us to
completely leave this in the will of the debtor, what if he
delays for the sake of it? The remedy of the creditor where
the obligation is subject to a period under 1180, is to ask
the court to fix a period or term so that he can demand
fulfillment.
Article 1197. If the obligation does not fix a period, but from
its nature of the circumstances it can be inferred that the
period was intended, the courts me fix the duration thereof.
The court shall also fix the duration of the period when it
depends upon the will of the debtor.
In every case, the court shall determine such period as
maybe under the circumstances have been probably
contemplated by the parties. Once fixed by the courts, the
period cannot be changed by them. [1128a]
Under 1197, the courts will fix the duration of the
period, looking into the circumstances that may have
been contemplated by the parties.
Example, A lends B P1,000,000. The court finds B to be a
middle-class income earner, so it fixes the time to 1 year to
give B sufficient time to pay.
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.
Potestative suspensive conditions render the condition and
obligation void
Example: I will give you P1,000,000 next month if I live.
Potestative resolutory condition render the condition and
obligation valid
Example: I’ll employ you now as my supervisor, but if the
building I had built for my office is not finished by June, the
employment will end.
Potestative on the part of the creditor is also valid
Example: I’ll give you my fountain pen if you desire to have
it.
1182 speaks of a potestative obligation but is also
suspensive. Meaning, the performance of the condition
will give rise to the obligation.
Why is it that the potestative suspensive condition
will render both the condition and obligation void?
Because how else do you expect the obligation to ever
arise if it is solely dependent on the will of the debtor? This
is based on human nature, that no one will voluntarily take
on an onerous obligation. So why else would he perform
the condition? That is why it is void.
To prevent the creation of illusory obligations altogether,
the law has declared obligation, subject to a potestative
suspensive condition void.
How about potestative but resolutory? Would it be
void? It is valid because the obligation is demandable at
once. Unlike in a potestative suspensive condition, the
debtor would have to perform the condition still, and he
will have the motivation to perform the condition because
the obligation is already demandable at once, and the
performance of the condition will terminate the obligation.
So it’s unlike a potestative suspensive condition
that will only arise if the debtor decides to perform the
condition that is why a potestative resolutory condition
attached to an obligation will still be valid. Take note that
only obligations subject to a potestative suspensive
condition on the part of the debtor will render a condition
and obligation void. But if it is potestative and resolutory,
or potestative but subject to the will of the creditor, then it
is still valid.
DEVELOPMENT BANK v COURT OF APPEALS
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.
The deed of conditional sale between petitioner and
private respondents was executed on April 6, 1984. Private
respondents had religiously paid the agreed installments
on the property until they completed payment on April 6,
1990. Petitioner, in fact, allowed private respondents to
fulfill the condition of effecting full payment, and invoked
Section 6 of Rep. Act 6657 only after private respondents,
having fully paid the repurchase price, demanded the
execution of a Deed of Sale in their favor.
It will be noted that Rep. Act 6657 was enacted on June 10,
1988. Following petitioner’s arguments in this case, its
prestation to execute the deed of sale was rendered
legally impossible by Section 6 of said law. In other words,
the deed of conditional sale was extinguished by a
supervening event, giving rise to an impossibility of
performance. xxx
The CARL (Rep. Act 6657) was not intended to take away
properly without due process of law. Nor is it intended to
impair the obligation of contracts. In the same manner
must E.O. 407 be regarded. It was enacted two (2) months
after private respondents had legally fulfilled the condition
in the contract of conditional sale by the payment of all
installments on their due dates. These laws cannot have
retroactive effect unless there is an express provision in
them to that effect.
DISCUSSION:
Here, the spouses Orquisa who owned a parcel of land in
Ozamis. So they obtained a loan from DBP and to secure
the loan, they executed a mortgage on the land in
Ozamis. The spouses defaulted in their loan obligation, so
DBP foreclosed on the mortgage and a Certificate of Title
was issued under DBP’s name.
BDP entered into a Deed of Conditional Sale with the
spouses Orquisa for the repurchase of the land where it
was agreed that the spouses would pay monthly
installments until the payment will be completed. Upon
completion of the payment, DBP would execute a Deed
of Conveyance in their favor.
Eventually, the spouses were able to complete the
payment, but DBP informed them that the prestation to
deliver had become legally impossible due to the
Comprehensive Agrarian Reform Law which covered the
said land in Ozamis.
Is DBP excused from fulfilling its obligations?
SC said NO, 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.
The deed of conditional sale between petitioner
and private respondents was executed on April 6, 1984.
Private respondents had religiously paid the agreed
installments on the property until they completed payment
on April 6, 1990. Petitioner, in fact, allowed private
respondents to fulfill the condition of effecting full
payment, and invoked Section 6 of Rep. Act 6657 only
after private respondents, having fully paid the repurchase
price, demanded the execution of a Deed of Sale in their
favor.
It will be noted that Rep. Act 6657 was enacted
on June 10, 1988. So the payment was completed prior to
the enactment of CARL. Therefore, there was no
impossibility on the part of DBP to convey the property to
the spouses Orquisa. In this case, the obligation of DBP still
existed and they still have to perform the obligation under
the Deed of Conditional Sale.
CENTRAL PHILIPPINE UNIVERSITY vs CA
Under Art. 1181 of the Civil Code, on 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. Thus, when a person donates
land to another on the condition that the latter would build
upon the land a school, the condition imposed was not a
condition precedent or a suspensive condition but a
resolutory one. It is not correct to say that the schoolhouse
had to be constructed before the donation became
effective, that is, before the donee could become the
owner of the land, otherwise, it would be invading the
property rights of the donor. The donation had to be valid
before the fulfillment of the condition. If there was no
fulfillment or compliance with the condition, such as what
obtains in the instant case, the donation may now be
revoked and all rights which the donee may have
acquired under it shall be deemed lost and extinguished.
The claim of petitioner that prescription bars the instant
action of private respondents is unavailing.
The condition imposed by the donor, i.e., the building of a
medical school upon the land donated, depended upon
the exclusive will of the donee as to when this condition
shall be fulfilled. When petitioner accepted the donation, it
bound itself to comply with the condition thereof. Since the
time within which the condition should be fulfilled
depended upon the exclusive will of the petitioner, it has
been held that its absolute acceptance and the
acknowledgment of its obligation provided in the deed of
donation were sufficient to prevent the statute of limitations
from barring the action of private respondents upon the
original contract which was the deed of donation.
Moreover, the time from which the cause of action
accrued for the revocation of the donation and recovery
of the property donated cannot be specifically
determined in the instant case. A cause of action arises
when that which should have been done is not done, or
that which should not have been done is done. In cases
where there is no special provision for such computation,
recourse must be had to the rule that the period must be
counted from the day on which the corresponding action
could have been instituted. It is the legal possibility of
bringing the action which determines the starting point for
the computation of the period. In this case, the starting
point begins with the expiration of a reasonable period
and opportunity for petitioner to fulfill what has been
charged upon it by the donor.
The period of time for the establishment of a medical
college and the necessary buildings and improvements on
the property cannot be quantified in a specific number of
years because of the presence of several factors and
circumstances involved in the erection of an educational
institution, such as government laws and regulations
pertaining to education, building requirements and
property restrictions which are beyond the control of the
donee.
Thus, when the obligation does not fix a period but from its
nature and circumstances it can be inferred that a period
was intended, the general rule provided in Art. 1197 of the
Civil Code applies, which provides that the courts may fix
the duration thereof because the fulfillment of the
obligation itself cannot be demanded until after the court
has fixed the period for compliance therewith and such
period has arrived.
This general rule however cannot be applied considering
the different set of circumstances existing in the instant
case. More than a reasonable period of fifty (50) years has
already been allowed petitioner to avail of the opportunity
to comply with the condition even if it be burdensome, to
make the donation in its favor forever valid. But
unfortunately, it failed to do so. Hence, there is no more
need to fix the duration of a term of the obligation when
such procedure would be a mere technicality and
formality and would serve no purpose than to delay or lead
to an unnecessary and expensive multiplication of suits.
Moreover, under Art. 1191 of the Civil Code, when one of
the obligors cannot comply with what is incumbent upon
him, the obligee may seek rescission and the court shall
decree the same unless there is just cause authorizing the
fixing of a period. In the absence of any just cause for the
court to determine the period of the compliance, there is
no more obstacle for the court to decree the rescission
claimed.
DISCUSSION:
In this case, sometime in 1939, the late Don Ramon
Lopez, Sr., who was then a member of the Board of Trustees
of the Central Philippine College (now Central Philippine
University [CPU]) executed a deed of donation in favor of
the latter of a parcel of land. Part of the conditions for the
donations were for the land to be used by CPU exclusively
for the establishment and used of a medical college with
all its buildings as part of its curriculum that it would not be
sold or transferred and could be named Ramon Lopez
Campus. In 1989, the heirs of Lopez filed an action for
annulment of donation against CPU alleging that since
1939, CPU did not comply with the conditions of the
donation, hence, it should be reverted to them. Is this
correct?
SC said normally, in instances like this, the donation is
treated as one that is an obligation subject to a resolutory
condition. In this case, the non-performance of the
conditions attached to it made by Don Ramon Lopez was
treated as a resolutory condition that terminated the
effectivity of the donation. So the land was transferred to
CPU immediately but since 50 years had passed, and the
latter still did not perform the condition in the donation,
then their non-performance nullify the obligation. SC said
that it would ideally fix the time for the parties to perform
the obligation because in this case, there was no period
set for the building of the medical college. If it was filed
earlier, then maybe the Court would have fixed the period.
But in this case, it’s already 50 years since the donation was
made but nothing was done by the CPU. So SC said that
there is no need to fix the period anymore because it’s
been too long, and the heirs can validly seek the rescission
of the donation.
HILLTOP MARKET v YARANON
Since Hilltop exercised its right as lessee based on the
contract of lease and the law, it has no basis in claiming
that the contract of lease did not commence.
Contrary to Hilltop's contention, the issuance of the
Certificate was not a suspensive condition which
determines the perfection of the contract or its effectivity.
The contract of lease specifically provides that: "x x x the
annual lease rental shall be P25,000 payable within the first
30 days of each and every year; the first payment to
commence immediately upon issuance by the City
Engineer's Office of the Certificate of full occupancy of the
entire building to be constructed thereon x x x."26 Clearly,
the issuance of the Certificate is only a condition that will
make Hilltop start paying the annual lease rental to the City
of Baguio. Because the Certificate was not issued, the
payment of annual lease rental did not commence. A
contract constitutes the law between the parties, and they
are, therefore, bound by its stipulations. If the terms of a
contract are clear and leave no doubt as to the intention
of the contracting parties, the literal meaning of its
stipulations shall control.
Hilltop failed to distinguish between a condition imposed
upon the perfection of the contract and a condition
imposed on the performance of an obligation. Failure to
comply with the first condition results in the failure of a
contract, while the failure to comply with the second
condition only gives the other party the option either to
refuse to proceed or to waive the condition.29 In this case,
the condition, which is the issuance of the Certificate, was
imposed only for the obligation to pay the rent to
commence. Payment of the price, or the rent, in this case,
goes into the performance of the contract and has nothing
to do with the perfection of the contract.
DISCUSSION:
Hilltop entered into a contract of lease with the
City of Baguio in 1974 for a period of 25 years with the first
payment commencing upon the issuance by the city
engineer's office of the certificate of full occupancy of the
building to be constructed by Hilltop. The building was
erected in 1975 but the engineer's office did not issue a
certificate. Still the members of Hilltop occupied the
building and conducted business in it.
In 1980 the City of Baguio rescinded the contract of lease
with Hilltop for its failure to comply with its obligation to
compete to build a building. Eventually, Hilltop filed the
complaint with the court to prevent the implementation of
the recission and the closure of the building.
So 10 years later, in 1990, the City of Baguio issued a closure
order against the building, but Hilltop still tried to negotiate
the completion of the requirements for the occupation of
the building. But the City of Baguio said no because
madaming issues yung building eh.
In 2005, it issued another order to close the building and
have it completed in preparation for commercial use.
Hilltop file the complaint for injunction saying that this
agreement had not yet commenced because no
certificate for the building was ever issued so the City of
Baguio could not take over the building. In response, the
City of Baguio said that the certificate only signaled the
start of the payment of the lease and not the effectivity of
the contract.
Was this contention correct?
The Supreme Court said yes. The problem with Hilltop was
that their argument as to the certificate was misplaced
because the issuance of the certificate was not a
suspensive condition that determined the perfection of
the contract. Rather it specifically provides that the annual
lease with the rent of 25,000 would be payable to
commence immediately upon the issuance of the
certificate of occupancy. So clearly the certificate is only
a condition that will make Hilltop start paying the annual
lease rental. But because the certificate was not issued,
the payment of the least did not commence.
Hilltop failed to distinguish between a condition imposed
upon the perfection of a contract and a condition
imposed on the performance of an obligation. Failure to
comply with the first condition results in the failure of a
contract while the failure to comply with the second
condition only gives to other party the option either to
refuse, to proceed, or to waive the condition. And in this
case, the condition which is the issuance of the certificate
was imposed only for the obligation to pay the rent, to
commence payment of the price or the rent. In this case,
it goes into the performance of the contract and has
nothing to do with the perfection of the contract.
So, in this case, the least had in fact started from the time
of execution and therefore Hilltop Market should already
evacuate the premises considering that the lease
contract had already expired.
GERMUDIANO v NAESS SHIPPING
The stipulation contained in Section D of the Addendum is
a condition which holds in suspense the performance of
the respective obligations of petitioner and respondents
under the contract of employment, or the onset of their
employment relations. It is a condition solely dependent
on the will or whim of respondents since the
commencement of the employment relations is at the
discretion or prerogative of the latter’s master of the ship
through the issuance of a boarding confirmation to the
petitioner. The Court in Naga Telephone Co., Inc. v. Court
of Appeals referred to this kind of condition as a
“potestative condition,” the fulfillment of which depends
exclusively upon the will of the debtor, in which case, the
conditional obligation is void. Article 1182 of the Civil Code
of the Philippines reads: x x
In this regard, the Court stressed in Romero v. Court of
Appeals:
We must hasten to add, however, that where the so-
called” potestative condition” is imposed not on the birth
of the obligation but on its fulfillment, only the condition is
avoided, leaving unaffected the obligation itself.
Clearly, the condition set forth in the Addendum is one that
is imposed not on the birth of the contract of employment
since the contract has already been perfected, but only
on the fulfillment or performance of their respective
obligations, i.e., for petitioner to render services on board
the ship and for respondents to pay him the agreed
compensation for such services. A purely potestative
imposition, such as the one in the Addendum, must be
obliterated from the face of the contract without affecting
the rest of the stipulations considering that the condition
relates to the fulfillment of an already existing obligation
and not to its inception.[15] Moreover, the condition
imposed for the commencement of the employment
relations offends the principle of mutuality of contracts
ordained in Article 1308 of the Civil Code which states that
contracts must bind both contracting parties , and its
validity or compliance cannot be left to the will of one of
them. The Court is thus constrained to treat the condition
as void and of no effect and declare the respective
obligations of the parties as unconditional. Consequently,
the employer-employee relationship between petitioner
and respondents should be deemed to have arisen as of
the agreed effectivity date of the contract of employment,
or on March 12, 2013.
DISCUSSION:
The next case is the case of Germudiano versus
Naess Shipping. This is a very simple case. What is at issue
here is the employment of Germudiano and whether there
was already a perfected contract of employment that
would make the issue within the jurisdiction of the labor
arbiter. Kasi pag labor arbiter kasi, dapat labor related
mismo yung kaso. If there is no employer-employee
relationship, then the labor arbiter cannot have jurisdiction
over the case.
So what happened in this case? Germudiano applied for
a job with Naess Shipping. He went through the interview,
medical exam, etc. He was declared fit for sea service. In
fact, Sweden signed an embarkation order in 2013. The
same year, Naess Shipping executed a contract of
employment engaging the services of Germudiano as a
second officer aboard MV11. Subsequently, they
executed an addendum which stated that the
employment relationship between them shall commence
once the master of the vessel issues a boarding
confirmation to Germudiano. Unfortunately, in the month
when Germudiano was supposed to board, he received a
call that they have canceled his embarkation. So he filed
a case for damages before the NLRC. Naess Shipping
alleged that the labor arbiter has no jurisdiction because
there was yet no employer-employee relationship
between Ness Shipping and Germudiano.
Is contention correct?
The Supreme Court said there was already, in fact,
an employer-employee relationship between
Germudiano and Naess Shipping. And the addendum
which they both signed contains a suspensive potestative
condition that is dependent solely on the will of Naess
Shipping. Therefore, this was considered void because you
know that potestative suspensive conditions on
obligations, if there are made dependent on the will of the
debtor alone, these are void because it would render the
obligation illusory.
This is exactly what happened in this case
because it was Naess Shipping that had the power to
determine when Germudiano could come aboard, and it
was the sole determinant. In this case, the provision was
deemed to be completely reliant on the will of the debtor
and therefore void and as a consequence, the Supreme
Court found that there was already an employer-
employee relationship between Germudiano and Naess
Shipping the moment that Germudiano signed the
embarkation order in 2013.
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)
· If the condition is to do an impossible or illegal thing,
BOTH the condition and the obligation are VOID.
· If the condition is NEGATIVE, that is, not to do the
impossible, just disregard the condition, BUT the obligation
remains.
· If the condition is NEGATIVE, i.e., not to do an illegal
thing, both the condition and the obligation are VALID.
*1183 refers to impossible conditions. So impossible
conditions under Article 1183 deals with impossible and
illegal conditions. So when we say impossible, we mean
physically it cannot be done. When we say illegal, its
prohibited by law, good customs, public policy, etc.
What are the effects if the conditions are impossible or
illegal?
If the condition is to do an impossible or illegal thing, BOTH
the condition and the obligation are VOID. (Example: I'll
sell you my land if you can make a dead man alive again.
Obviously this is impossible so both the condition and the
obligation are void.)
 If the condition is NEGATIVE, that is, not to do the
impossible, just disregard the condition, BUT the obligation
remains. (Example: I'll sell you my land if you cannot fly.
Obviously a human being on his own he really cannot fly,
so the condition here can always be fulfilled and therefore
the obligation will remain.) If the condition is NEGATIVE,
i.e., not to do an illegal thing, both the condition and the
obligation are VALID. (Example: I'll sell you my land if you
do not kill X. This is valid because it is preventing you from
doing an illegal thing. So the obligation as well as the
conditions the obligation to sell the land and the condition
is not to kill, so both the condition and the obligation are
valid.
Article 1184. The condition that somee event happen at a
determinate time shall extinguish the obligation as soon as
the time expires or if it has become indubitable that event
will not take place. (1117)
Example: A brought B’s land on the condition that within
five years, B would obtain Torrens Title for the land. B did
not do so within the stipulated term, so A is released from
his obligation to purchase the land.
*Article 1184 deals with positive conditions. Pag sinabi
mong indubitable, inevitable lang yan.
MEGAWORLD VS. MAJESTIC FINANCE
FACTS: Megaworld entered into a JOINT VENTURE
AGREEMENT with Majestic Finance for the development of
a subdivision in Cavite. Under the Joint Venture
Agreement, the development of the land would be for the
sole account of Megaworld. Upon completion, Majestic
Finance would compensate
Megaworld in the form of Saleable residential subdivision
lots. Eventually however Majestic Finance filed a
complaint for specific performance against MEgaworld
alleging that Megaworld had failed to comply with its
obligations under the Joint Venture agreement including
the obligation to maintain a strong security force to
safeguard the property.
HELD: In each activity, the obligation of each party was
dependent upon the obligation of the other. Although their
obligations were to be performed simultaneously, the
performance of an activity obligation was still conditioned
upon the fulfillment of the continuous obligation, and vice
versa. Should either party cease to perform a continuous
obligation, the other's subsequent activity obligation
would not accrue. Conversely, if an activity obligation was
not performed by either party, the continuous obligation
of the other would cease to take effect. The performance
of the continuous obligation was subject to the resolutory
condition that the precedent obligation of the other
party, whether continuous or activity, was fulfilled as it
became due. Otherwise, the continuous obligation would
be extinguished.
According to Article 1184 of the Civil Code, 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. Here, the common cause of the parties in entering
into the joint venture was the development of the joint
venture property into the residential subdivision as to
eventually profit therefrom. Consequently, all of the
obligations under the JVA were subject to the happening
of the complete development of the joint venture
property, or if it would become indubitable that the
completion would not take place, like when an obligation,
whether continuous or activity, was not performed. Should
any of the obligations, whether continuous or activity, be
not performed, all the other remaining obligations would
not ripen into demandable obligations while those
already performed would cease to take effect. This is
because every single obligation of each party under the
JVA rested on the common cause of profiting from the
developed subdivision.
It appears that upon the execution of the JVA, the parties
were performing their respective obligations until
disagreement arose between them that affected the
subsequent performance of their accrued obligations.
Being reciprocal in nature, their respective obligations as
the owner and the developer were dependent upon the
performance by the other of its obligations; hence, any
claim of delay or non-performance against the other
could prosper only if the complaining party had faithfully
complied with its own correlative obligation. Yet, the
record is bereft of the proof to support the lower courts'
unanimous conclusion that the owner had already
performed its correlative obligation under the JVA as to
place itself in the position to demand that the developer
should already perform its obligation of providing the
round-the-clock security on the property. In issuing its order
of November 5, 2002, therefore, the RTC acted whimsically
because it did not first ascertain whether or not the
precedent reciprocal obligation of the owner upon which
the demanded obligation of the developer was
dependent had already been performed. Without such
showing that the developer had ceased to perform a
continuous obligation to provide security over the joint
venture property despite complete fulfillment by the
owner of all its accrued obligations, the owner had no right
to demand from the developer the round-theclock
security over the 215 hectares of land.
*So here the Supreme Court said, looking at the
obligations of MEgaworld and MAjestic Finance
according to the provisions of their Joint Venture
Agreement. All of their obligations were in fact reciprocal
in nature. So kumbaga, because the owner was not able
to perform his own reciprocal obligation, si Developer
Megaworld is also not expected to fulfill the obligations
under the Joint Venture Agreement considering that the
other party was not yet prepared to comply with its own
obligation.
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 probable been
contemplated, bearing in mind the nature of the
obligation. (1118)
Example: I will give you P1,000,000 if by January 2022 you
have not yet married X.
*Article 1185 on the other hand refers to a Negative
condition.
In the example, if you have not yet married X by January
2022 or X dies before January 2022, the obligation is
effective after January 2022 in the first case or from X's
death in the second case.
Article 1186. The condition shall be deemed fulfilled when
the obligor voluntarily prevents its fulfillment.
• Constructive or presumed fulfillment
• Requisites:
o Voluntarily made – the intent to prevent must
be present
o Actually prevents – prevention
must have been successful
Example: A promised to sell to B a car if C could pass the
bar. On the day of the examination, A caused C to be
poisoned. A is still bound to sell the car to B.
*Article 1186 deals with constructive or presumed
fulfillment.
Why does this article exist? It's because of the principle
that one must not profit by his own fault. Kumbaga hindi
dapat sya mag benefit sa naging kasalanan nya.
Kailangan both requisites exist. Without voluntariness or
without actual prevention then there can be no
constructive fulfillment.
In the example, A is the debtor because sya yung
nangako na ibebenta yung sasakyan. So as a debtor
because he didn't want to perform his obligation he
poisoned C. In this case there was constructive fulfillment
because the act was voluntarily made and it actually
prevented the condition from being met. So A is still bound
to sell the car to B. Because it is as if the condition was
already fulfilled.
TAYAG VS COURT OF APPEALS
FACTS: Galicia executed a Deed of Conveyance in favor
of Leyva over a piece of property in Nueva Ecija for the
sum of 50,000 payable in installments. What is at issue here
is the 3rd condition in the deed which says that Leyva will
assume Galicia's indebtedness with the Philippine
Veterans Bank. Regarding the 3rd condition, the Trial Court
noted that Tayag paid more than 6,000 pesos to the
Philippine Veterans Bank. Kasi diba isa sa mga conditions
nya is dapat iassume nila yung utang ni Galicia sa
Philippine Veterans Bank. B
But Celerina Labuguin the sister and co-vender of Juan
Galicai paid the balance of the loan with Veterans Bank
which circumstance was construed to be a ploy under
Article 1186 that prematurely prevented the Tayag from
paying the installment fully and for the purpose of
withdrawing the title to the lot. The acceptance by
petitioners of the various payments even beyond the
periods agreed upon was perceived by the lower court as
tantamount to the faithful performance of the obligation to
Article 1235 of the Civil Code. So the Tayag's argued why
would you apply 1186 when we are creditors under the
Deed of Sale, not debtors.
HELD
Insofar as the third item of the contract is concerned, it
may be recalled that respondent court applied Article
1186 of the Civil Code on constructive fulfillment which
petitioners claim should not have been appreciated
because they are the obligees while the proviso in point
speaks of the obligor. But, petitioners must concede that
in a reciprocal obligation like a contract of purchase,
(Ang vs. Court of Appeals, 170 SCRA 286 [1989]; 4 Paras,
supra, at p. 201), both parties are mutually obligors and
also obligees (4 Padilla, supra, at p. 197), and any of the
contracting parties may, upon non-fulfillment by the other
privy of his part of the prestation, rescind the contract or
seek fulfillment (Article 1191, Civil Code). In short, it is
puerile for petitioners to say that they are the only obligees
under the contract since they are also bound as obligors
to respect the stipulation in permitting private respondent
to assume the loan with the Philippine Veterans Bank
which petitioners impeded when they paid the balance of
said loan. As vendors, they are supposed to execute the
final deed of sale upon full payment of the balance as
determined hereafter.
*The SC said that insofar as the contract is concerned, the
argument was that under 1186, constructive fulfillment as
a concept only applies to obligors. But sina Tayag they
were saying we are Obligees we're creditors, why would
you apply 1186 to us? The SC said in Reciprocal obligations
like contract of purchase, both parties are mutually
obligors and also obligees. Just because they appear to
be the creditor, does not mean that they are just a
creditor na especially if its a reciprocal obligation so
simultaneously the debtor and the creditor are debtors
and creditors of each other.
DEVELOPMENT BANK VS STA. INES
FACTS: Galeon here is a shipping corporation and one of
their major investors is Sta. Ines. Galeon secured a loan
from DBP, but it defaulted. So there was an agreement with
NDC that they would enter into a Share Purchase
Agreement with Galleon to improve Galleons financial
standing. Without executing the Share Purchase
Agreement however NDC took over the operations of
Galleon. So Sta.
Ines and the other investor filed a complaint.
HELD:
We uphold the Court of Appeals' finding that the failure to
execute the share purchase agreement was brought
about by NDC's delay in reviewing the financial accounts
submitted by Galleon's stockholders. The Memorandum of
Agreement was executed on August 10, 1981, giving the
parties no more than sixty days or up to October 9, 1981,
to prepare and sign the share purchase agreement.
However, it was only on April 26, 1982, or more than eight
months after the Memorandum of Agreement was signed,
did NDC's General Director submit his recommendation on
Galleon's outstanding account. Even then, there was no
clear intention to execute a share purchase agreement as
compliance with the Memorandum of Agreement. Article
1186 of the Civil Code is categorical that a "condition shall
be deemed fulfilled when the obligor voluntarily prevents
its fulfilment." Considering NDC's delay, the execution of
the share purchase agreement should be considered
fulfilled with NDC as the new owner of 100% of Galleon's
shares of stocks.
*So here since the NDC caused the delay, the SC deemed
NDC at fault and obliged to pay the value of the Share
Purchase Agreement wherein they require the stocks of
Galleon in exchange for a sum of money.
VILLAMIL VS. SPOUSES ERGUIZA
FACTS: Villamil alleges that she is an absolute and
exclusive owner of a lot in Dagupan. She alleges that there
are cases of residing on her property by mere tolerance
and Villamil had demanded several times that they leave.
Truth however it was found that there was an agreement
between Villamil and Erguiza as they entered into a
Contract to Sell. The question however is whether Villamil's
act of failing to file a petition in court in behalf of the minor
owners is considered an act that prevented the fulfillment
of the suspensive condition as to warrant the application
of the
doctrine of constructive fulfillment
HELD: Principle of constructive fulfillment applies Article
1186 of the Civil Code reads:
Article 1186. The condition shall be deemed fulfilled when
the obligor voluntarily prevents its fulfillment.
This provision refers to the constructive fulfillment of a
suspensive condition, whose application calls for two
requisites, namely: (a) the intent of the obligor to prevent
the fulfillment of the condition, and (b) the actual
prevention of the fulfillment. Mere intention of the debtor
to prevent the happening of the condition, or to place
ineffective obstacles to its compliance, without actually
preventing the fulfillment, is insufficient.
Petitioner and her then co-owners undertook, upon
receipt of the down payment from respondent-spouses,
the filing of a petition in court, after which they promised
the latter to execute the deed of absolute sale whereupon
the latter shall, in turn, pay the entire balance of the
purchase price. The balance of the consideration shall be
paid only upon grant of the court's approval and upon
execution of the deed of absolute sale.
Here, there is no doubt that petitioner prevented the
fulfillment of the suspensive condition. She herself
admitted that they did not file any petition to seek
approval of the court as regards the sale of the shares of
the minor owners. In addition, the other coowners sold
their shares to petitioner such that she was able to
consolidate the title in her name. Thus, the condition is
deemed constructively fulfilled, as the intent to prevent
fulfillment of the condition and actual prevention thereof
were definitely present. Consequently, it was incumbent
upon the sellers to enter into a contract with respondent-
spouses for the purchase of the subject property.
Respondent-spouses' obligation to pay the balance of the
purchase price arises only when the court's approval of
the sale of the minor owners' shares shall have been
successfully secured, in accordance with Article 1181 of
the New Civil Code. Judicial approval is a condition the
operative act of which sets into motion the period of
compliance by respondent-spouses of their own
obligation, i.e., to pay the balance of the purchase price.
Accordingly, an obligation dependent upon a suspensive
condition cannot be demanded until after the condition
takes place because it is only after the fulfillment of the
condition that the obligation arises. Petitioner cannot
invoke the non-fulfillment of the condition in the contract
to sell when she and her then co-owners themselves are
guilty of preventing the fulfillment of such condition. When
it has become evident that the condition would no longer
be fulfilled, it was incumbent upon petitioner to inform
respondent-spouses of such circumstance because the
choice whether to waive the condition or continue with
the agreement clearly belongs to the latter. Petitioner's
claim that respondentspouses should have known that the
condition would no longer be necessary because the
latter knew that the minor owners had already reached
the age of majority and that they should have been more
proactive in following up the status of the contract to sell,
deserves scant consideration. While petitioner may have
been right in the aforementioned instances, the same will
not negate her obligation to inform respondent-spouses of
the non-fulfillment of the condition especially in view of the
fact that it was her fault that the condition became
irrelevant and unnecessary.
* The answer is YES.So Villamil, no doubt prevented the
fulfillment of the suspensive condition. In this case there
was a constructive fulfillment and the order was for the
respondent-spouses' obligation to pay the balance of the
purchase price arises only when the court's approval of
the sale of the minor owners' shares shall have been
successfully secured. Since yun nga Villamil did not file the
petition in court of behalf the minor owners, this was
considered as a constructive fulfillment and therefore the
obligation already arose.
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 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)
*Article 1187 provides as with the general rule that with
respect to obligations to give, once the suspensive
condition has been fulfilled the obligation becomes
effective and it retroacts to the day of the constitution of
the obligation.
Example: Erwin promise Levi in 2020 that he would sell his
house in Walrose provided Levi passes the survey core
exam in 2021. Now Levi passed the exam in 2021. So it is as
if Levi was entitled to the land beginning 2020 when the
obligation was promised by Erwin. For example, Levi
donated the property between 2020 and 2021, the
donation becomes valid in 2021, granted donation of
future property is not allowed but as to the property
becomes property of Levi in 2021 anyway, then the
property is no longer considered a future property in 2021
and the donation can be considered valid.
This rule however on retroactivity, take note does not
apply to fruits or interest in unilateral and reciprocal
obligations. In unilateral obligations, the debtor gets the
fruits and interest unless there is a contrary intent. In
reciprocal obligations, the fruits and interest during the
pendency of the condition shall for the purpose of
convenience and practical effectiveness be deemed to
compensate each other.
So what do we need to remember under 1187, between
the constitution of the obligation and the happening of
the condition, the creditor cannot enforce the obligation.
The right of a creditor between the constitution of the
obligation and the happening of the condition is merely
expectancy. Third, the moment the suspensive conditions
happen, the right becomes enforceable and the debtor
may be compelled to perform the obligation. The cause
of action accrues and prescription is computed from that
particular time. Fourth, The effects of the obligation
retroacts to the moment of the constitution of the
obligation because the suspensive condition is merely
accidental to the obligation, it is not an essential element
of the obligation. An obligation is deemed constituted
when all the necessary elements are present. The
suspensive condition only prevents the efficacy of the
obligation. These are the rules under 1187.
Article 1188. The creditor may, before the fulfillment of the
condition, bring the appropriate actions for the
preservation of his right.
The debtor may recover what during the same time he has
paid by mistake in case of a suspensive condition. (1121a)
Actions to preserve a creditor’s rights:
1. Action for prohibition restraining the alienation of
the thing pending the happening of the condition.
2. Petition for the annotation of the creditor’s right, if
real property is involved.
3. Action to demand security in case the debtor
becomes insolvent.
4. Action to set aside alienations made by the
debtor in fraud of the creditors.
*Article 1188 says that the creditor is allowed to take the
appropriate action to protect his interest or preserve his
right prior to the fulfillment of the condition. This is so
because it is possible that the creditor may end up
receiving nothing as when the object is deliberately
destroyed, hidden or alienated. What are the actions that
the creditor can bring?
1. Action for prohibition restraining the alienation of
the thing pending the happening of the condition.
2. Petition for the annotation of the creditor’s right, if
real property is involved.
3. Action to demand security in case the debtor
becomes insolvent.
4. Action to set aside alienations made by the
debtor in fraud of the creditors.
This list of course is not exclusive as there are plenty of
remedies under the law depending on one's cause of
action.
Paragraph 2 refers to what we call Solutio Indebiti. Again,
what was paid by mistake may be recovered because
after all the condition may not materialize. In the
meantime, the debtor has lost the use of the object. It is
does unfair for the creditor to unjustly enrich himself, the
debtor is also entitled to fruits or legal interest if the creditor
be in bad faith. That is the creditor knew that the payment
was being made prior to the fulfillment of the condition.
If the payment was not made by mistake, can there be
recovery? It depends, if the condition is fulfilled, no
recovery because of retroactivity as discussed under 1187.
But if the condition is not fulfilled there should be recovery
because this would be tantamount to unjust enrichment.
Take note of the following things:
First, before the happening of the suspensive condition, if
the obligation is an obligation to deliver a determinate
thing cannot alienate the thing.
Second, if the obligor alienated the determinate thing to
a third person in good faith, the creditor cannot ask for the
return of the property as delivery of the thing rests
ownership. The creditor's recourse then would be to file a
complaint for damages against the debtor. But if the 3rd
party is in bad faith, he can be compelled to return the
thing to the creditor.
As we said earlier, creditors can alienate an inchoate
right. It's just that it should be subject to a condition that
the obligation must be
fulfilled. Please remember 188
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) 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)
*Article 1189 only applies when the suspensive condition
has been fulfilled. The obligation is to deliver a specific
thing. Again, the suspensive condition has been fulfilled
and the obligation is an obligation to deliver a specific
thing. So these are the rules that govern:
(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; (the thing is considered lost when it perishes,
goes out of commerce, or disappears in such a way that
its existence is unknown or it cannot be recovered. When
we say it disappear pwedeng hindi na sya binebenta or
hindi na sya minamanufacture same for goes out of
commerce.)
(3) When the thing deteriorates without the fault of
the debtor, the impairment is to be borne by the creditor;
(what if there is a partial deterioration without the fault of
the debtor. Your expected to deliver bananas to the
creditor but the creditor fails to be at home on the day
you both agreed for the delivery to happen. So nasira
yung saging kasi tatlong araw na ulit befor nagpakita si
debtor, so in this case the impairment should be born 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; (baiktad naman kung ang debtor ang
nagkasalanan in which case the creditor can choose
whether he wants the obligation fulfilled or he'd rather ask
for indemnity by being paid damages.)
(5) If the thing is improved by its nature, or by time,
the improvement shall inure to the benefit of the creditor;
(if the thing deteriorates in its own without the fault of the
debtor then the creditor will answer for the deterioration.
if a thing deteriorates and the cause of deterioration
pertains to the creditor then the thing that improves must
also inure to the benefit of the creditor. So kung meron
mga fruit-bearing trees for example then the creditor
should be allowed to benefit from those particular things.)
(6) If it is improved at the expense of the debtor, he
shall have no other right than that granted to the
usufructuary.
Q: Suppose the thing has improved, not through time or
by its nature but through the expense of the debtor, what
will be the rights of said debtor?
A: The debtor will have the rights of a usufructuary for
improvements on a thing held in usufruct. Usufruct is the
right to the enjoyment of the use and the fruits of a thing.
Article 579. The usufructuary may make on the property
held in usufruct such useful improvements or expenses for
mere pleasure as he may deem proper, provided he does
not alter its form or substance; but he shall have no right to
be indemnified therefor. He may, however, remove such
improvements, should it be possible to do so without
damage to the property. (487)
*The last statement of Article 1189 refers to a usufructuary.
This might be a new term but when we say usufructuary,
he has the right to enjoy and reuse the fruits of the thing.
The definition more or less of a usufructuary and what he
may do is found on Article 579. So the rights of a
usufructuary are outlined under Article 579.
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 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)
Article 1190 provides us the effects on the obligation when
the resolutory condition has been fulfilled:
1. The obligation is obviously extinguished
 2. The parties must return what they have received
including fruits and interests
3. The court shall determine the retroactivity of the
resolutory condition
4. In case of loss, deterioration, or improvement, we
apply the rules in Art. 1189
Example: A gave B a parcel of land on the condition that
B would never go to the casino. A month later, B went to
the casino so B broke the condition. What happens to the
obligation?
- A’s obligation is extinguished and will be as if there
was no obligation at all. B, therefore, will have to
return the land and the fruits he had received
therefrom from the moment A had given the land.
Now what if there were improvements on the land? Should
B be allowed to keep them if he made them?
- No because A now becomes the creditor upon
the return of the land. The original owner now
becomes the creditor and he should be allowed
to keep the improvements on the land.
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 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 1191 is an important provision in obligations and
contracts and memorize it so you can resort to it.
The power to rescind as indicated in Art. 1191 means the
right to cancel or resolve the contract or reciprocal
obligations in case of non-fulfillment on the part of one of
the parties. Thus, the rescission in Art. 1191 is not predicated
on injury to the economic interests on the part of the
plaintiff unlike in Art. 1380 and 1381.
Kasi there is also rescission in Art. 1380 and 1381 but this is
different from that in Art. 1191 kasi yung sa 1380 and 1381
are outlined in very specific instances but 1191 is more or
less is broader because it refers to reciprocal obligations.
Now what are the characteristics of the power to rescind
under Art. 1191?
“Rescission” under Art. 1191
1. It only exists in reciprocal obligations. If there is a
fixed period for when the obligations of the parties
fall due, no action can be brought before the
expiration of the period.
2. It can be demanded only if the plaintiff is ready,
willing and able to comply with his own obligation
and the other is not.
3. It is not absolute. Slight breach is not sufficient to
warrant rescission.
4. In cases where the default is not willful or is
excusable, the court may fix the period for
performance.
Example for # 1, if an action falls due on January 31, you
cannot bring an action for rescission before the period.
For #2, this is inherent for reciprocal obligations. The one
who is not ready to perform his obligations in a reciprocal
obligation is in default from the moment the other one is
ready to perform his obligation and there is no need for
demand.
For #3, so it will not be granted if there is substantial
performance of the obligation by partial payments or if the
breach is only slight then the court will exercise prudence
in granting rescission because it might not be the equitable
solution for the parties involved. Especially if for example,
the debtor already began to perform his obligation it
appears that there is no bad faith in the debtor’s part.
For #4, for example the obligor already finished large
percentage of the work and reason for his delay or not
being able to finish the obligation is justifiable like due to
delays beyond the control of the obligor, the court will not
order the rescission but instead give the obligor a certain
period to finish the remaining work. The exception to this is
if the period will serve no other purpose but to delay like if
the obligor has been in delay for 10 years. If the court will
have to fix a period after that delay of 10 years, it will only
unjustly cost the creditor, so the court will no longer fix the
period. So you may recall the case of Ramon-Lopez,
where it has been 50 years since the land has been given
to CPU but they still failed to perform their obligation. So in
that instance, the court did not fix a period anymore
seeing that it would only further delay the obligation and it
would be unfair to the creditors.
5. Rescission under this Article is essentially judicial
once one of the parties have performed their
obligation.
6. The remedy of rescission is alternative to the
remedy of specific performance.
7. The remedy of rescission can be filed only by one
who is not at fault/ injured party.
8. The right to rescind is subordinated to the rights of
third persons who acquired the thing in good faith.
For #5, why is this so? The general rule is in the absence of
stipulation to the contrary, the power to rescind under Art.
1191 must be invoked judicially. This is especially true if
there is performance or delivery already as parties are not
allowed to determine on their own if the parties have
committed a breach entitling him or her to rescission.
However, parties can stipulate for extrajudicial rescission.
Meaning, no need to resort to the courts when you rescind.
And so if it is stipulated in the contract, in case of breach
the aggrieved party may rescind a contract just by
sending a notice to the other party without necessity of
any judicial action, that is a valid stipulation. When you
have that stipulation, you no longer apply Art. 1191
because you would be enforcing a contractual stipulation
not the rescission implied in reciprocal obligations but the
extrajudicial rescission that is being upheld by the two
parties.
For #6, if there is breach committed by the obligor, the
obligee can either apply for specific performance or
rescission. He cannot apply for both damages in either
case – this is the general rule.
But as exception, wherein for example you file a case for
specific performance, performance of the obligation has
already become impossible then you are allowed to sue
for rescission as an alternative. Or in contracts of lease, for
example the lessee has been occupying the property for
3 years but since the beginning of your contract of lease,
the lessee never paid the lease. So what is your remedy?
You need to sue them for specific performance for the sum
of money for the first 3 years that they occupied the
property and if for example the contract is good for 5 years
and he still has 2 more years but you don’t want him to stay
there because he is not paying, you can resort to rescission
to cancel the contract of lease.
For # 7, if you are in bad faith or you are the one who cost
the breach, the law will not allow you to benefit from your
wrongdoing by allowing you to rescind the contract.
For #8 – what you need to understand about rescission is
that mutual restitution is required. You cannot rescind if you
cannot return what you received by reason of the
contract.
For example, you are the buyer and you did not yet pay
the purchase price, if it is an absolute sale it’s possible even
if the buyer has not yet paid the purchase price, the seller
has already delivered the property to buyer.
- So what if the buyer already sold it to a third
person even if he had not yet paid the purchase
price? Is the sale to the third person valid? Yes,
because again, delivery transfers ownership.
- So what is the remedy of the seller, can he ask for
the rescission? In this case, rescission is no longer
possible because the property is already in the
possession of a third person. But then again, it is
important that the third person acquired the
property in good faith or was unaware of any
defect in the title of the property in order for the
order of rescission to be barred.
The remedy of the seller would be to file an action
for specific performance or sum of money with
damages because the buyer acted in bad faith
by selling the property without first paying the
purchase price.
Veladre vs. CA
As pointed our earlier, the breach committed by
petitioners was not so much their nonpayment of the
mortgage obligations, as their nonperformance of their
reciprocal obligation to pay the purchase price under the
contract of sale. Private respondents’ right to rescind the
contract finds basis in Art. 1191 of the Civil Code, which
explicitly provides as follows:
“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 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 right of rescission of a party to an obligation under Art.
1191 of the CC is predicated on a breach of faith by the
other party who violates the reciprocity between them. The
breach contemplated in the said provision is the obligor’s
failure to comply with an existing obligation. When the
obligor cannot comply with what is incumbent upon it, the
obligee may seek rescission and, in the absence of any
just cause for the court to determine the period of
compliance, the court shall decree the rescission.
In the present case, private respondents validly exercised
their right to rescind the contract, because of the failure of
petitioners to comply with their obligation to pay the
balance of the purchase price. Indubitably, the latter
violated the very essence of reciprocity in the contract of
sale, a violation that consequently gave rise to private
respondents’ right to rescind the same in accordance with
the law.
True, petitioners expressed their willingness to pay the
balance of the purchase price on month after it became
due; however, this was not equivalent to actual payment
as would constitute a faithful compliance of their
reciprocal obligation. Moreover, the offer to pay was
conditioned on the performance by private respondents of
additional burdens that had not been agreed upon in the
original contract. Thus, it cannot be said that the breach
committed by petitioners was merely slight or casual as
would preclude the exercise of the right to rescind.
In this case, you have David who executed a deed of sale
with assumption of mortgage in favor of Avelina Velarde
for a parcel of land covered by TCT 142177. So the land
together with the house and the improvements thereon
were mortgaged by David Reymundo to BPI to secure a
loan of Php 1.8 Million. As part of the consideration of the
sale, Avelina assumes to pay the obligations on the
mortgage of the property.
The application for the assumption of mortgage was not
approved so this prompted Velarde not to make any
further payment. So David, through counsel wrote the
Velardes informing the latter that their nonpayment to the
mortgage bank constituted nonperformance of their
obligation. The response of Velarde was that they were
willing to pay the balance in cash before 1987, provided
that among others, possession be delivered to her and that
the deed of sale be executed in her favor. David did not
agree so they sent the Velardes the notarial notice of
cancellation or rescission.
So in this case, was there breach and who committed the
breach?
The SC said that the breach committed by petitioners was
not so much their nonpayment of the mortgage
obligations, as their nonperformance of their reciprocal
obligation to pay the purchase price under the contract
of sale. So David was actually entitled to rescission. The
injured party, David, may choose between fulfillment and
the rescission of the obligation, with the payment of
damages in either case. The right of David is predicated
on a breach of faith by the other party who violates the
reciprocity between them.
David validly exercised their rights to rescind the contract
because of the failure of the Velardes to comply with their
obligation to pay the balance of the purchase price.
Indubitably, the latter violated the very essence of
reciprocity in the contract of sale, a violation that
consequently gave rise to private respondents’ right to
rescind the same in accordance with the law.
While it is true that the petitioners expressed their willingness
to pay the balance of the purchase price on month after
it became due; however, this was not equivalent to actual
payment as would constitute a faithful compliance of their
reciprocal obligation. Moreover, the offer to pay was
conditioned on the performance by private respondents
of additional burdens that had not been agreed upon in
the original contract. Thus, it cannot be said that the
breach committed by petitioners was merely slight or
casual as would preclude the exercise of the right to
rescind.
Cannu vs Galang
Settled in the rule that rescission or, more accurately,
resolution of a party to an obligation under Aticle 1191 is
predicated on a breach of faith by the other party that
violates the reciprocity between them. Article 1191 reads:
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 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.
Recission will not be permitted for a slight or casual breach
of the contracts. Recission may be had only for such
breaches that are substantial and fundamental as to
defeat the objects of the parties in the making the
agreement. The question of whether a breach of contract
is substantial depends upon the attending circumstances
and not merely on the percentage of the amount not paid.
In the case at bar, we find petitioners’ failure to pay the
remaining balance of P45,000 to be substantial. Even
assuring arguendo that only said amount was left out of
line supposed consideration of P250,000, or eighteen
percent (18%) thereof, this percentage is still substantial.
Taken together with the fact that the last payment made
was on 28 November 1991, eighteen months before the
respondent Fernandina Galang paid the outstanding
balance of the mortage loan with NHMFC, the intention of
petitioners to renege on their obligation is utterly clear.
In this case, respondents-spouses Gil and Fernandina
Galang obtained a loan from Fortune Savings & Loan
Association forP173,800.00 to purchase a house and lot
located at Pulang Lupa, Las Piñas, with an area of 150
square meters covered by Transfer Certificate of Title (TCT)
No. T-8505 in the names of respondents-spouses. To secure
payment, a real estate mortgage was constituted on the
said house and lot in favor of Fortune Savings & Loan
Association. In early 1990, NHMFC purchased the
mortgage loan of respondents-spouses from Fortune
Savings & Loan Association for P173,800.00.
Respondent Fernandina Galang authorized her attorney-
in-fact, Adelina R. Timbang, to sell the subject house and
lot.
Petitioner Leticia Cannu agreed to buy the property for
P120,000.00 and to assume the balance of the mortgage
obligations with the NHMFC and with CERF Realty (the
Developer of the property).
A Deed of Sale with Assumption of Mortgage Obligation
dated 20 August 1990 was made and entered into by and
between spouses Fernandina and Gil Galang (vendors)
and spouses Leticia and Felipe Cannu (vendees) over the
house and lot in question
Petitioners paid the “equity” or second mortgage to CERF
Realty.
Despite requests from Adelina R. Timbang and Fernandina
Galang to pay the balance of P45,000.00 or in the
alternative to vacate the property in question, petitioners
refused to do so.
In a letter dated 29 March 1993, petitioner Leticia Cannu
informed Mr. Fermin T. Arzaga, Vice President, Fund
Management Group of the NHMFC, that the ownership
rights over the land covered by TCT No. T-8505 in the
names of respondents-spouses had been ceded and
transferred to her and her husband per Deed of Sale with
Assumption of Mortgage, and that they were obligated to
assume the mortgage and pay the remaining unpaid loan
balance. Petitioners’ formal assumption of mortgage was
not approved by the NHMFC.
Because the Cannus failed to fully comply with their
obligations, respondent Fernandina Galang, on 21 May
1993, paid P233,957.64 as full payment of her remaining
mortgage loan with NHMFC.
Petitioners opposed the release of TCT No. T-8505 in favor
of respondents-spouses insisting that the subject property
had already been sold to them. Consequently, the NHMFC
held in abeyance the release of said TCT.
ISSUES
WON there is breach
Who committed the breach
HELD
In the case at bar, we find petitioners’ failure to pay the
remaining balance of P45,000 to be substantial. Even
assuring arguendo that only said amount was left out of
line supposed consideration of P250,000, or eighteen
percent (18%) thereof, this percentage is still substantial.
Taken together with the fact that the last payment made
was on 28 November 1991, eighteen months before the
respondent Fernandina Galang paid the outstanding
balance of the mortage loan with NHMFC, the intention of
petitioners to renege on their obligation is utterly clear.
So in this case, even if there is only 18% left, Supreme Court
said, it is still substantial because if they have not paid the
18%, the property would have been closed, and they
would have to repurchase the property. SC ruled it is a
substantial breach.
Maglasang vs Northwestern Univ
Evidently, the materials delivered were less likely to pass
the CHED standards, because the navigation system to be
installed might not be accurately point to the true north;
and the steering wheel delivered was one that came from
an automobile, instead of one used in ships. Logically, by
no stretch of the imagination could these form part of the
most modern IBS complaint with the IMO and CHED
standards.
Even in the instant appeal, GL Enterprise does not refute
that the equipment it delivered was substandard. However
it reiterates its rejected excuse that Northwestern should
have made an assessment only after the completion of the
IBS. Thus, petitioner stresses that it was Northwestern that
breached the agreement when the latter halted the
installation of the materials for the IBS, even if the parties
had contemplated a completed project to be evaluated
by CHED. However, as aptly considered by the CA,
respondent could not just “sit still and wait for such day that
its accreditation may not be granted by CHED due to the
apparent substandard equipment installed in the bridge
system.” The appellate court correctly emphasized that,
by the time, both parties would have incurred more costs
for nothing.
Additionally, GL Enterprises reasons that, based on the
contracts, the materials that were hauled all the way from
Quezon City to Laoag City under the custody of the four
designated installers might not have been that
components to be used. Without belaboring the point, we
affirm the conclusion of the CA and the RTC that the excuse
is untenable for being contrary to human experience.
Given that the petitioner, without justification, supplied
substandard components for the new IBS, it is thus clear
that its violation was not merely incidental, but directly
related to the essence of the agreement pertaining to the
installation of an IBS complaint with the CHED and IMO
standards.
Consequently, the CA correctly found substantial breach
on the part of the petitioner.
In contrast, Northwestern’s breach, if any, was
characterized by the appellate court as slight or casual. By
the way of negative definition, a breach is considered
casual if it does not fundamentally defeat the objects of
the parties in entering into an agreement. Furthermore, for
there to be breach to begin with, there must be a “failure,
without legal excuse, to perform aby promise which forms
the whole or part of the contract.”
Here, as discussed, the stoppage of the installation was
justified. The action of Northwestern constituted a legal
excuse to prevent the highly impossible rejection of the
IBS. Hence, just as the CA concluded, we find that
Northwestern exercised ordinary prudence to avert a
possible wastage of time., effort, resources and also of the
P2.9 million representing the value of the new IBS.
In this case, for compliance with CHED’s requirement,
before a school could offer maritime transportation
programs, NW engaged the services with GL enterprises to
install a new integrated bridge system. After the installation
of the program, GL started to deliver the materials but as
they were installing the parts, NW halted the operations.
NW explained that the stoppage was because the
materials being delivered were substandard, old, and did
not have the manual and warranty certificates and did
not meet with CHED and IMO’s standards. So GL field a
complaint for breach of contract. So, who was in breach?
In this case, the SC said it was actually GL’s because if you
look at what was delivered, the equipment delivered was
substandard however, they were insisting that NW
should’ve made the assessment only after the completion
of the intergraded bridge system. However, as
reconsidered by the CA, NW could not just “sit still and wait
for such day that its accreditation may not be granted by
CHED due to the apparent substandard equipment
installed in the bridge system.
Given that GL, without justification, supplied substandard
components for the new IBS, it is thus clear that its violation
was not merely incidental, but directly related to the
essence of the agreement pertaining to the installation of
an IBS complaint with the CHED and IMO standards.
Consequently, the CA correctly found substantial breach
on the part of the petitioner.
What about NW? Was there a breach on the part of NW?
SC said, NW’s breach was characterized as slight or
casual. for there to be breach to begin with, there must be
a “failure, without legal excuse, to perform aby promise
which forms the whole or part of the contract. The
stoppage of the installation was justified.
Swire Realty vs Yu
Basic is the rule that the right of rescission of a party to an
obligation under Article 1191 of the Civil Code is
predicated on a breach of faith by the other party who
violates the reciprocity between them. The breach
contemplated in the said provision is the obligor’s failure to
comply with an existing obligation. When the obligor
cannot comply with what is incumbent upon it, the oblige
may seek rescission and, in the absence of any just cause
for the court to determine the period of compliance, the
court shall decree the rescission.
In the instant case, the CA aptly found that the completion
date of the condominium unit was November 1998
pursuant to License No. 97-12-3202 dated November 2,
1997 but was extended to December 1999 as per license
to Sell no. 99-05-3401 dated May 8, 1999. However, at the
time of the ocular inspection conducted by the HLURB
ENCRFO, the unit was not yet completely finished as the
kitchen cabinets and fixtures were not yet installed and the
agreed amenities were not yet available.
From the foregoing, it is evident that the report on the
ocular inspection conducted on the subject condominium
project and subject unit shoes that the amenities under the
approved plan have not yet been provided as of May 3,
2002, and that the subject unit has not been delivered to
respondent as of August 28, 2002, which is beyond the
period of development of December 1999 under the
license to sell. Incontrovertibly, petitioner had incurred
delay in the performance of its obligation amounting to
breach of contract as it failed to finish and deliver the unit
to respondent within the stipulated period. The delay in the
completion of the project as well as the delay in the
delivery of the unit are breaches of statutory and
contractual obligations which entitle respondent to rescind
the contracts, demand a refund and payment of
damages.
Yu bought a condo in Swire Realty which she already paid
for in full, however Swire Reality failed to deliver the unit on
time. Was there breach? Supreme Court said yes. It noted
in the inspection report that there were differences on
what was promised to be installed and what was actually
installed in the condominium unit. There were defects in
the master’s bedroom, some of the workmanship shows
signs of poor quality, etc.
SC said Yu is entitled to rescission and a refund, because,
aside from the fact that it was not delivered on time, if you
look at the unit itself there was substantial breach as to the
agreement on what should be in the condo unit.
Fong vs Dueñas
Reciprocal obligations are those which arise from the
same cause, in which each party is a debtor and a creditor
of the other, such that the obligation of one is dependent
on the obligation of the other.
Fong and Dueñas' execution of a joint venture agreement
created between them reciprocal obligations that must be
performed in order to fully consummate the contract and
achieve the purpose for which it was entered into.
Both parties verbally agreed to incorporate a company
that would hold the shares of Danton and Bakcom and
which, in turn, would be the platform for their food business.
Fong obligated himself to contribute half of the capital or
P32.5 Million in cash. On the other hand, Dueñas bound
himself to shoulder the other half by contributing his Danton
and Bakcom shares, which were allegedly also valued at
P32.5 Million. Aside from this, Dueñas undertook to process
Alliance's incorporation and registration with the SEC.
When the proposed company remained unincorporated
by October 30, 1997, Fong cancelled the joint venture
agreement and demanded the return of his P5 Million
contribution. XXX
Under these circumstances, the Court agrees with the trial
court that Dueñas violated his agreement with Fong. Aside
from unilaterally applying Fong's contributions to his two
companies, Dueñas also failed to deliver the valuation
documents of the Danton and Bakcom shares to prove that
the combined values of their capital contributions actually
amounted to P32.5 Million.
These acts led to Dueñas' delay in incorporating the
planned holding company, thus resulting in his breach of
the contract.
On this basis, Dueñas' breach justified Fong's rescission of
the joint venture agreement under Article 1191. As the
Court ruled in Velarde v. Court of Appeals:
The right of rescission of a party to an obligation under
Article 1191 of the Civil Code is predicated on a breach of
faith by the other party who violates the reciprocity
between them. The breach contemplated in the said
provision is the obligor's failure to comply with an existing
obligation. When the obligor cannot comply with what is
incumbent upon it, the oblige may seek rescission and in
the absence of any just cause for the court to determine
the period of compliance, the court shall decree the
rescission
In the present case, private respondents validly exercised
their right to rescind the contract, because of the failure of
petitioners to comply with their obligation to pay the
balance of the purchase price. Indubitably, the latter
violated the very essence of reciprocity in the contract of
sale, a violation that consequently gave rise to private
respondents' right to rescind the same in accordance with
law.
In this case, Dueñas here is engaged with the bakery and
food manufacturing and retailing business. He all
operated his business under the companies Danton and
Bakcom. He was an old acquaintance of Fong. Dueñas
and Fong entered into a verbal joint venture agreement
where they agreed to engage in the food business and
incorporate a holding company under the Alliance
Holding which would require capitalization of P 65Million. It
was agreed that Fong would contribute P32 Million in cash
while Dueñas would also contribute the same amount but
in shares. Eventually remitting his shares, Fong, informed
Dueñas of his decision to reduce his contribution from Not part of the syllabus but important to know:
P32M to P5 Million and there was also failure to incorporate
with the Security and Exchange Commission. So, Fong was What is the difference between contract of sale and
convinced that Duenas would not honor his obligation Contract to Sell?
under the joint venture agreement. So he wrote Dueñas
informing his decision to cancel the joint venture
agreement. He asked for the refund of 5 Million as well, in Contract of Sale Contract to Sell
advance.
Nonpayment of the price Full payment is a positive
So, in this case who was in breach? SC said, Fong and is a negative resolutory suspensive condition
Dueñas’ execution of JVA created between them is a conditions the happening
reciprocal obligation that must be performed in order to or fulfillment thereof will
fully consummate the contract and achieve the purpose extinguish the obligation
for which it was entered into. So, under these
circumstances, the court agrees that Dueñas violated his Seller has lost and cannot The title remains with the
agreement with Fong aside from unilaterally applying recover the ownership of seller with if the buyer does
Fong’s contribution to his two companies, Dueñas also the land sold until and not comply with the
failed to deliver the valuation documents of the Danton unless the contract of sale condition precedent of
and Bakcom to prove that their combined capital is itself resolved and set making payment at the
contributions amounted to P32.5Million. These acts led to aside time specified in the
Dueñas' delay in incorporating the planned holding contract
company, thus resulting in his breach of the contract. On
this basis, Dueñas' breach justified Fong's rescission of the Reciprocal= can rescind Not reciprocal= cannot
joint venture agreement and cited Velarde v. Court of under 1191 rescind under 1191
Appeals. Dueñas was found to be in breach.

But what about Fong? Because if you look at the

agreement, Fong also agreed to contribute P32M, instead
he said he just going to contribute P5M. Does this also
constitute to a breach? SC said, YES. Fong also breach his
obligations of the JVA from the fact of reducing his
contribution to P5M. If it were not for the fact that he
reduced his contribution to P5M, probably, Dueñas would
have able to perform his own obligation.
Although the reasons supplied by Fong were valid, it does
not erase the fact that Fong reneged on his original
promise to contribute P32.5 Million. The JVA was not
reduced to writing and the evidence does not show if the
parties agreed on valid causes that would justify the
limitation of the parties’ capital contributions. Their only
admission was that they obligated themselves to
contribute P32.5M.
Hence. Fong's diminution of his capital share to P5 Million
also amounted to a substantial breach of the joint venture
agreement, which breach occurred before Fong decided
to rescind his agreement with Dueñas. Thus, Fong also
contributed to the non- incorporation of Alliance that
needed P65 Million as capital to operate.
Fong cannot entirely blame Dueñas since the substantial
reduction of his capital contribution also greatly impeded
the implementation of their agreement to engage in the
food business and to incorporate a holding company for
it.
When we say ‘Nonpayment of the price is a negative
resolutory conditions’ means that the nonpayment of the
purchase price will not give rise to the obligation to transfer
the property.
For example:
The property has already been transferred to the buyer by
virtue of the execution of the deed of sale but the buyer
fails to pay the purchase price despite the transfer, then
the obligation to deliver on the part of the seller is
extinguished and the buyer will have the corollary
obligation to return the property.
On the other hand, in the contract to sell, the buyer has to
pay the purchase price first otherwise the obligation of the
seller to deliver the property will never arise. That is why full
payment is a positive suspensive condition in a contract to
sell.
So naturally, the contract of sale gives rise to a reciprocal
obligation, then 1191 is a remedy available when a
contract of sale has been breached by the contract to sell
since it does not create a reciprocal obligation but rather
a positive suspensive condition on the part of the buyer
without which the obligation of the seller to deliver will
never arise, then 1191 is not an available remedy in a
contract to sell.

As both parties failed to comply with their respective

reciprocal obligations, we apply Article 1192 of the Civil
Code, which provides: Art. 1192. In case both parties have This was demonstrated in the case of spouses Valenzuela
committed a breach of the obligation, the liability of the vs. Kalayaan Development.
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.
Sps. Valenzuela vs. Kalayaan Dev’t
In the present case, the nature and characteristics of a
contact to sell is determinative of the property of the
remedy of rescission and the award of attorney’s fees.
Under a contract to sell, the seller retains title to the thing
to be sold until the purchaser fully pays the agreed
purchase price. The full payment is a positive suspensive
condition, the non-fulfillment of which is not a breach of
contract, but merely an event that prevents the seller from
conveying title to the purchaser. The non-payment of the
purchase price renders the contract ineffective and
without force and effect. Unlike a contract of sale, where
the title to the property passes to the vendee until the full
payment of the purchase price. Otherwise stated, in a
contract of sale, the vendor loses ownership over the
property and cannot recover it until and unless the
contract is resolved or rescinded; whereas, in a contract to
sell, title is retained by the vendor until full payment of the
purchase price. In the latter contract, payment of the price
is a positive suspensive condition, failure of which is not a
breach of contract but an event that prevents the
obligation of the vendor to convey title from becoming
effective.
without force and effect. The parties stand as if the
conditional obligation had never existed. Inasmuch as the
suspensive condition did not take place, Kalayaan cannot
be compelled to transfer ownership of the property to
petitioners.
In this case, Kalayaan owned a parcel of land in Manila
which spouses Valenzuela occupied and introduced
improvements on because of this, Kalayaan Dev’t
negotiated with the spouses to let them purchase the lot
which they occupy. in 1994 they executed a contract to
sell where the spouses will provide P500,000 upon signing
and pay the balance in 12 equal monthly installments.
Kalayaan would execute deed of absolute sale only upon
full payment of the purchase price but the Valenzuela’s
defaulted the payment of the installments. They left
around a balance of 50%. So, eventually Kalayaan
brought an action for rescission. Would this prosper? SC
said, NO, because in fact of the Spouses Valenzuela and
Kalayaan is a contact to sell. Under the contract to sell, the
seller retains the ownership to land until the full payment of
the purchase price.

Since the obligation of respondent did not arise because

of the failure of petitioner to fully pay the purchase price, Article 1192. In case both parties have committed a
Article 1191 of the Civil Code would have no application. breach of the obligation, the liability of the first infractors
shall be equitably tempered by the court. If it cannot be
Rayos v. CA elucidates: determined which of the parties first violated the contract,
the same shall be deemed extinguished and each shall
Construing the contracts together, it is evident that the bear his own damages.
parties executed a contract to sell and not a contract of
sale. The petitioners retained ownership without further
remedies by the respondents until the payment of the
purchase price of the property in full. Such payment is a This rule is created to be just whereby the first rules is fair to
positive suspensive condition, failure of which is not really both parties because the second infractor thought he
a breach, serious or otherwise, but an event prevents the would derive some advantages by his own neglect.
obligation of the petitioners to convey title from arising in
The second rule is likewise just because it is presumed that
accordance with Article 1184 of the Civil Code.
both about the same time tried to reap some benefit from
The non-fulfillment by the respondent of his obligation to the fact of their breach. Stated in the case of Fong vs
pay, which is a suspensive condition to the obligation of Dueñas, the SC said the because both of them were at
the petitioners to sell and deliver the title to the property, fault, we apply 1192 because both parties breached the
rendered the contract to sell ineffective and without force agreement.
and effect. The parties stand as if the conditional obligation
has never existed. Article 1191 of the New Civil Code will
not apply because it presupposes an obligation already
extant. There can be no rescission of an obligation that is
still non-existing, the suspensive condition not having
happened.

The parties’ contract to sell explicitly provides that

Kalayaan “shall execute and deliver the corresponding
deed of absolute sale over” the subject property,
Kalayaan’s obligation to convey title to the property did
not arise. Thus, Kalayaan may validly cancel the contract
to sell its land to petitioner, not because it had the power
to rescind the contract, but because their obligation there
under did not arise.

Petitioners failed to pay the balance of the purchase price.

Such payment is a positive condition, failure of which is not
a breach, serious or otherwise, but an event that prevents
the obligation of the seller to convey the tittle to the
property, rendered the Contract to Sell ineffective and