When demand is useless?

When the performance is rendered impossible (PRI)

Rule 1: when in doubt, resolve it in favor of the debtor.
Reasons:
1. Because this involves the application of an exception; it must be strictly construed such that when there is doubt, the
general rule must be applied.
2. Because the burden is on the creditor. He is the plaintiff and he is supposed to establish default on the part of the
debtor. If his evidence is not clear and convincing, he fails to discharge his burden. Debtor wins.
Schedule of payments ≠ Waiver of the demand Term must be specific (that demand is no longer
requirement necessary)
Stipulation on installments to the effect that failure to pay  Does not say anything about the demand requirement
makes the entire obligation due is not enough being waived
 Merely fulfills the first requirement (demandability)
 Must state that the debtor shall be in default (default
≠ due) after the lapse of a given period “without need
of demand”
RULE:
 Performance must be simultaneous (one cannot demand if he himself cannot perform)
 If both do not perform
 There is no compensatio morae
 Set off: delay of one cancels out the other’s delay
 Implication: As if no one is in default (no one is in delay)
 If one party performs, and the other does not (not simultaneous), the other party is in delay.

Time of the essence

Factors to look for Classic examples:
Time is controlling  Nature of the obligation  Delivery of wedding cake on
 Circumstances wedding day

When default begins:

 Particular date of extrajudicial demand - If the creditor has evidence of the date
 Date of filling of the complaint - If the creditor has no evidence of the date of extrajudicial demand

Effect/ Importance
 Creditor suffers the risk of loss due to fortuitous event
a) By the act of the debtor
- Hides or disposes the thing
- Debtor is in hiding/ absent/ absconds
b) Caused by fortuitous event
- If the debtor assumed the risk

Real life situations illustrating time is of the essence

1. Delivery/ Service rendered in agricultural work (if the time of agricultural work is designated as the date of fulfillment
of the obligation.
2. In industrial operations which have a definite period for completion.
3. Date of payment is fixed and the creditor will use the money to pay another debt which is also due on that date.
4. Goods to be delivered will be loaded on a best scheduled to leave on the date fixed.
5. School building to be completed on a date when class is supposed to open.

WHEN IS THE CREDITOR IN DEFAULT?

Requirements:
1. Refusal to accept
2. No valid reason

IMPORTANCE OF DEFAULT
1. Assumption of Risk
 2. Damages in the form of interest
FRAUD (Article 1171) DOLO CAUSANTE (Art. DOLO INCIDENTE (Art.
1338) 1134)
AS TO WHEN IT During the performance of a During the perfection of the During the perfection of the
HAPPENS pre-existing obligation contract contract
PURPOSE To avoid the normal To induce consent to the To induce consent to the
fulfillment of the obligation contract contract BUT fraud is not
the principal inducement
EFFECT Breach Vitiates consent; contract Not a vice of consent
voidable
REMEDY Damages Annulment Damages

PCI BANK VS. CA (1996)

 Stipulation completely exempting a party from any liability in case of loss notwithstanding bad faith, fault or
negligence is void.

MODES OF BREACH
1. Fraud
2. Negligence
3. Delay
4. Contravention of the tenor of the obligation

CONCEPT OF RECIPROCAL OBLIGATIONS

 There is no RECIPROCITY
 Necessarily, two obligations are created at the same time
 Each party is a creditor and debtor of the other
 They are to perform simultaneously (If set on different dates, not simultaneous)
Examples:
 Contract of sale where the performance is not set on different dates
 Contract of lease where payment is periodic/ by installments

MORA ACCIPIENDI - Default on the part of the creditor

WHEN IN DELAY (Article 1169)

 In reciprocal obligations, neither party incurs in delay if the other DOES NOT COMPLY or is NOT READY to
comply in a proper manner with what is incumbent upon him
 From the moment ONE of the parties fulfills his obligation, delay by the other begins.

COMPENSATIO MORAE - Default in Reciprocal Obligations

DEMAND:
1. Mere reminder is not a demand
2. Form - any form; Burden of proof
3. Triggers default

Note: It does not cover mistake and errors of judgement made in good faith

 Fraud here is synonymous to BAD FAITH (Connotes dishonest purpose and conscious doing of wrong)
 Test is the element of INTENT and not the harm done

CONCEPT OF FRAUD
 Bad faith or malice in performing a pre-existing obligation
 Conscious and intentional design to avoid the normal fulfillment of obligations
 Consequence: damages
EXCEPTIONS TO THE REQUIREMNET OF DEMAND (The debtor is deemed in default)
1. By express provision of law (EPL)
2. By express stipulation (ES)
3. When time is of the essence (TIO-E)
4. Demand is useless (DIU)

Rule being NA to gratuitous obligations

 Reason: the consideration really is not the impossible condition, but the liberality of the donor. The contract and
consequently the obligation remains valid.
 Remuneratory donation - a donation out of gratitude fo services rendered. It is given for services not constituting
demandable debt. And there should be no pre-existing contractual relationship.
Example:
A good samaritan replaces a flat tire. You ask him how much he should be paid, but he refuses. You pull out 100 pesos
and you say it’s not payment but only out of gratitude for the services rendered.
Three things to remember on the status of impossible conditions
1. Void even if Art. 1183 says it “Shall annul the obligation”
2. The impossibility must exist at the point of creation of the obligation (if it exists later, it is a ground for extinguishment
of the obligation.)
3. The rule does not apply to gratuitous obligations (simple and remuneratory donations and testamentary provisions),
where only the condition is rendered void.
Impossible and Unlawful conditions
 Conditions that are physically impossible
 And even those unlawful or juridically impossible conditions (hiring a hitman to eliminate the competition)
Status: The obligation is void

Hold out clause - the bank is authorized to hold any deposit or money of the depositor kung meron pagkakautang itong
si depositor

X, may 1 M sa Metrobank. May payable si X kay Metrobank na 500k. Since may utang si X kay Metrobank, pwede na
iapply si holdout clause. (Article 1157 of the Civil Code)

Note: There should be an existing obligation. Metrobank vs. Rosales - The criminal intent had not yet in filed at the time
of issuance.
Was Rosales convicted? No, because the trial is still pending.
Is there any civil liability? None.
Is there any delict? In delict, obigation is not required.

PSBA
Quasi-delicts

Obligation where a day certain is fixed for the fulfillment of the obligation
Obligation with a Suspensive Period Obligation with a Resolutory Period
When effective: Effective only when the day arrives When effective: Effective immediately, but ends when the
day arrives
Example: Promissory note issued on Jan. 1, 2019, Example: usufruct that ends after 5 years
payable on Jan 1, 2020

Before fulfillment of suspensive condition

 Rules on improvement, loss or deterioration in obligations to give a determinate thing (Art. 1189)
IN CASE OF LOSS
 No fault on the part of the debtor (Obligation extinguished)
 If lost through the fault of the debtor - debtor pays damages
When considered lost
 Perishes
 Goes out of commerce (as when land as expropriated)
 Disappears such that its existence is unknown or that it cannot be recovered (jewelry is stolen)

Effect of loss or deterioration

Without debtor’s fault
 Extinguished (unless there is a stipulation to the 
contrary)
 Implication: debtor not liable for the damage; creditor 
must accept the thing in impaired condition
With debtor’s fault
Debtor liable for damages upon fulfillment of condition
Creditor may demand the thing or ask for rescission;
in either case, creditor may recover damages

Effect of improvement
 If improved by nature of time - inures to the benefit of the creditor by virtue of principles of retroactivity of
conditional obligations
 If improved at debtor’s expense - only usufructuary rights;
- useful improvement or those of mere pleasure can be removed if it is possible to reove them without damage to
property
- and set off the improvements against any damage he caused

Payment by mistake
 Anything paid or delivered before the arrival period, the obligor being unaware of the period OR
 Believing that the obligation has become due and demandable
 May be recovered, with fruits and interests

When the debtor losses the benefit of the period

Concept: preference/ protection given to one party.
 Debtor has the benefit
- can resist a premature demand, but if he wants, debtor can validly pay any time before the lapse of the period. (Bullet-
proof against premature demand)
- Rationale for the protection: he may need time to raise money
 On or before -period is for the benefit of the debtor
 Within - period is for the benefit of the debtor
Example:
X binds himself to pay Y within 30 days from the execution of the contract.
- X can pay one week after the signing of the contract if he likes.
- But if he doesn’t like to pay on the 1 st week, the creditor cannot do anything about it. The creditor cannot insist on
compliance.

Article 1198
Question: When will the debtor lose the right to make us of the period?
1. When the debtor become insolvent unless he gives a guaranty or security of the debt
Note: The insolvency referred to is supervening insolvency.
- The benefit of the period is not lost when the debtor became insolvent before contracting the loan.
Q: Is there a need for judicial declaration?
A: No, there is no need for judicial declaration. All that is required is that the debtor must be in a state of financial
difficulty or cannot meet obligations in the ordinary course of business.

2. When the debtor breaks his promise to furnish guaranties and securities
3. When the debtor impairs the guaranties or securities after their establishment, and when through fortuitous event they
disappear, unless he immediately gives new ones equally satisfactory
4. When the debtors violates any undertaking, which is a consideration for the granting the period
5. When the debtor attempts to abscond