OBLIGATIONS AND CONTRACTS

CHAPTER 3: DIFFERENT KINDS OF OBLIGATION

A. PURE OBLIGATION (Art. 1179)

- immediately demandable
- no conditions imposed as to its fulfillment or non-fulfillment
- there is no period stipulated
- obligee can demand immediate performance/fulfillment of the obligation.
However, obligor may still be given consideration.

B. CONDITIONAL OBLIGATION
- there is a condition imposed

Condition:
General Rule: The condition must be future and uncertain event, the
happening of which may result in the acquisition or extinguishment of an
obligation

Exception: Past event may be a condition, provided that:

- it has happened in the past; AND
- at the moment, the parties do not have knowledge yet of
the condition or event.

Kinds of Condition:

1. Suspensive Condition 2. Resolutory Condition

- its fulfillment gives rise to an - the happening of which extinguishes

obligation the obligation
e.g. conditions imposed on Deed of
Donation

Effect of non-payment in:

Contract to Sell Contract of Sale

The non-payment is considered as The non-payment of price is

positive suspensive condition considered as resolutory condition

The title remains with the vendor until The remedy is specific performance
fully paid or rescission

Failure to pay the purchase price Failure to pay the price constitutes
merely prevents the obligation of the breach of contract
vendor to convey title
Exercises:

In 1997, Andoks bound himself to sell Chooks a house and lot which is
being rented by another person if Chooks passes the 1998 Board Examinations.
Luckily, Chooks passed the said examination.

(a) Suppose Andoks had sold the same house and lot to another before
Chooks passed the 1998 examination, is such sale valid? Why?

(b) Assuming that it is Chooks who is entitled to buy said house and lot, is
she entitled to the rentals collected by Andoks before she passed the
examination?

3. Potestative/Facultative Condition (Art. 1182)

Suspensive Condition

- the fulfillment of the condition depends upon the will of the debtor or the
creditor

DEBTOR - the conditional obligation is VOID

- If there is a pre-existing obligation, only the condition is void,
and the pre-existing obligation is VALID.

CREDITOR - the obligation is VALID

Note: Art. 1182 applies only to SUSPENSIVE CONDITION

Resolutory Condition

- depends upon the will of the debtor

- the obligation is VALID (Pacto de retro Sale)

Exercises:

1. X and Y executed an agreement stipulating that: “The term or period of

this contract shall be as long as the party of the fisrt part (X) has need for
the electric light posts of the party of the second part (Y)”.

Is the agreement valid?

2. Penoy promised to give his grandson a car if the latter will graduate
from his course. When his grandson graduated, Penoy refused to give the
car on the ground that the condition was a purely potestative one. Is the
argument correct?

4. Casual Condition
- the fulfillment of which depends upon chance or will of a third person
- the obligation is still valid
5. Mixed Condition
- the fulfillment of which depends upon the will of the parties, upon chance
or upon third person

Other Notes:

Art. 1180: The debtor binds himself to pay when his means permits him to
do so (obligation with period)

Art. 1197: If the obligation does not fix a period, … the court may fix the
duration thereof (the obligation is still valid even without period)

6. Possible/Impossible Condition (Art. 1183)

- There must be physical or legal impossiblity

- refers only to suspensive condition
- if the impossible condition is existing upon the creation of the
obligation/contract, the obligation is ANNULED
- if it is couched in negative terms “not to do an impossible thing” then the
obligation is not affected

7. Positive Condition Negative Condition

- the fulfillment of an event or - the non-fulfillment of an event or the

performance of an act gives rise to an non-performance of an act will give
obligation rise to an obligation

Exercises:

Are the following obligations valid, why, and if they are valid, when is the
obligation demandable in this case?

a) If the debtor promises to pay as soon as he has the means to pay;

b) If the debtor promises when he likes;
c) If the debtor promises to pay when he becomes a lawyer;
d) If the debtor promises to pay if his son, who is sick from cancer, does
not die within one year

Art. 1186: Constructive fulfillment of a suspensive condition

- the condition shall be deemed fulfilled when the obligor
voluntarily prevents its fulfillment

Art. 1191: Rescission

- applies to RECIPROCAL OBLIGATIONS only - both parties

have their respective obligation, which is required to be simultaneously
performed. Failure of one party to comply with his obligation constitutes
BREACH, subject to:

1. Rescission Mutually
2. Specific Performance Exclusive
Effects of Rescission:

1. Mutual restitution
2. Contract is abrogated from its inception - contract is VOID from the
beginning

Note: Rescission is different from Termination

Rescission - VOID from the beginning

Termination - VALID from its inception

Recourse of the injured party:

1. The injured party may demand rescission
2. He cannot question the validity of the contract

Mutual Restitution
- the return of the amount received as a consequence of the
rescission

XPN:
1. There is an express stipulation
2. The buyer was given possession or was able to transfer title

Rescission, how made?

1. Judicial (Art. 1191) - party may apply to court for a decree of rescission
2. Extrajudicial - parties may agree to automatically rescind the contract
without court intervention

Automatic Rescission Clause

- if it is included in the agreement, then it is valid. Judicial
order/decree for rescission is no longer necessary. Parties may
extrajudicially rescind the contract

When is a contract considered rescinded?

- it takes effect immediately, but the aggrieved party may still
question the validity of the extrajudicial rescission

Limitations on the right to demand rescission:

1. The court has discretionary power to grant it
2. If the thing is in the hands of a third person in good faith,
rescission is not a remedy
- the injured party may recover damages from the person
who caused the thing in the hands of a third person
3. Rescission is not available for slight and casual breach
4. A party cannot demand performance of the other party’s
obligation unless he is in a position to comply with his own
obligation
5. Art. 1191 applies only to RECIPROCAL OBLIGATION and not to
obligation arising from judicial compromise
6. Rescission cannot be exercised if there is an ARBITRATION
CLAUSE - any ambiguity in the contract must be resolved first
7. The right to rescind may be waived expressly or impliedly
C. OBLIGATION WITH A PERIOD

- the lapse of time may produce or extinguish an obligation

PERIOD VS. CONDITION

a. PERIOD is always certain, while CONDITION in uncertain
b. PERIOD has no retroactive effect, while CONDITION has retroactive
effect

Requisites:

1. Futurity; AND
2. Certainty

Art. 1194: If the thing is lost, deteriorates or is improved before the arrival of the
period/term, the rules in Art. 1189 shall be observed

Art. 1195: Payment before the arrival of period

- recovery can still be done for the payments made (thing/fruit), provided
the obligor did so in good faith, and that he can show that the period did not
arrived yet
- applies only to REAL obligation

Art. 1196: Period is for the benefit of both parties (General Rule)

DEBTOR CREDITOR
Cannot be forced to perform the Cannot demand the fulfillment of the
obligation before the arrival of period obligation prior to the arrival of period

XPN: If the tenor of the obligation or from other circumstance provides

that the period is for the benefit of either party

Art. 1197: The court may fix the duration of a term/period

Instances:
1. If the obligation does not fix a period
2. If the duration of the period depends upon the will of the debtor
3. If the debtor binds himself to pay when his means permits him to do so
(Art. 1180)

Note: Before a period is fixed, an action for specific performance is

PREMATURE.

Exercises:

Zeta and Beta were best friends for a long time already. Zeta borrowed
P300,000 from Beta, evidenced by a promissory note whereby Zeta will pay the
loan “when his means permits him”. Two months later, they had a quarrel that
broke their friendship. Beta would like to collect from Zeta. What will Zeta do?

D. ALTERNATIVE AND FACULTATIVE OBLIGATION (ART 1199-1206)

ALTERNATIVE
 - several objects are due, but the performance of one is sufficient (Art.
1199)

FACULTATIVE
- one object is agreed upon, but the obligor may deliver another is
substitution (Art. 1206)

Art. 1206: Right to choose/Right of Choice

General Rule: The DEBTOR has the right to choose

XPN:
1. When the right is expressly granted to the creditor
2. When the right is expressly granted to third person (parties may
freely stipulate)

Art. 1201: Notice of Choice must be communicated

- upon communication of choice, the obligation becomes simple/pure

- there is no prescribed form of notice (can be ORAL or in WRITING)
- once communicated, the choice is IRREVOCABLE

Art. 1203: Rescission

- remedy available to the debtor when the latter cannot make a choice due
to the fault of the creditor

Art. 1204 &1205: Effect of the loss of the thing due (ALTERNATIVE)

(a) Right of Choice: DEBTOR Reason: FORTUITOUS EVENT

1. If two or more objects remain, OBLIGATION SUBSISTS, retaining its
alternative character
2. If only one remains, OBLIGATION SUBISTS, ceases to be alternative
3. If none remains, obligation is EXTINGUISHED

Note:Debtor is not liable for damages

(b) Right of Choice: DEBTOR Reason: FAULT OF DEBTOR
1. If two or more objects remain, OBLIGATION SUBSISTS, retaining its
alternative character
2. If only one remains, OBLIGATION SUBISTS, ceases to be alternative
3. If none remains, the obligation is converted into an obligation to indemnify for
damages; value of indemnity - VALUE OF THE LAST OBJECT LOST

(c) Right of Choice: CREDITOR Reason: FORTUITOUS EVENT

1. If two or more objects remain, OBLIGATION SUBSISTS, retaining its
alternative character
2. If only one remains, OBLIGATION SUBISTS, ceases to be alternative
3. If none remains, obligation is EXTINGUISHED
(d) Right of Choice: CREDITOR Reason:FAULT OF DEBTOR
1. If two or more objects remain, OBLIGATION SUBSISTS, retaining its
alternative character
⚫ If the creditor choose any of the remaining, debtor is not liable for
damages
⚫ If the creditor choose any of those LOST, debtor is liable for the
VALUE OF THE OBJECT + DAMAGES

2. If only one remains, OBLIGATION SUBISTS, ceases to be alternative

3. If none remains, the obligation is converted into an obligation to indemnify for
damages; value of indemnity - VALUE OF THE OBJECT CHOSEN BY THE
CREDITOR + DAMAGES

Art. 1206: Effect of the loss of the thing due (FACULTATIVE)

(a) Before Substitution

Reason:
1. FORTUITOUS EVENT - obligation is extinguished
2. DEBTOR’S FAULT - debtor is liable for damages

Thing lost: PRINCIPAL OBJECT

- the loss of the substitute with or without the fault of the debtor
does not render him liable

(b) After Substitution

Thing lost: PRINCIPAL OBJECT

- No liability

Thing lost: SUBSTITUTE

Reason:
1. FORTUITOUS EVENT - obligation is extinguished
2. DEBTOR’S FAULT - debtor is liable for damages

E. JOINT AND SOLIDARY OBLIGATION (ART. 1207-1222)

General Rule: No stipulation, the obligation is JOINT when there is concurrence

of debtors or creditors, or both.

XPN: The obligation is SOLIDARY (ART. 1207)

1. If the obligation expressly states that the is SOLIDARITY;
2. When the law or nature of an obligation requires SOLIDARITY;

Art. 1209: Joint Indivisible Obligation

- if one of the parties does not perform the obligation, the aggrieved
party/parties may ask for damages for the value of the object to be divided
equally between the parties

Rules for JOINT OBLIGATION:

1. Demand of creditor to one of the debtors, does not place the other
debtors in default (all must be given demand);
2. Interruption of the prescriptive period to one debtor, does not bind the
other debtors;
3. Defenses of one debtor is not a valid defense of others

Rules for SOLIDARY OBLIGATION:

1. Solidary creditor may do an act beneficial to others but not prejudicial to

them (Art. 1212)
2. A solidary creditor cannot assign his rights to third persons without the
consent of other creditors (Art. 1213)
 3. Debtor may pay anyone of the solidary creditor, except when demand
was made by one of them (Art. 1214)
4. Novation, compensation, confusion or remission by any solidary creditor
or with any solidary debtor extinguishes the obligation (Art. 1215)
5. Payment made by one solidary debtor extinguishes the obligation (Art.
1217)

Exercises:

1. A, B and C are solidary debtors under a loan obligation of P300,000.00

which has fallen due. The creditor has, however, condoned C’s entire share
in the debt. Since B has become insolvent, the creditor makes a demand on
A to pay the debt.

b) How much, if any, may A be compelled to pay?

c) To what extent, if at all, can C be compelled by A to contribute to such
payment?

2. Itong and Bitong owed Jutong P500,000.00 for advancing their equity in a
corporation they joined as incorporators. Itong and Bitong bound themselves
solidarily liable for the debt. Later, Itong and Jutong became sweethearts so
Jutong condoned the debt of P500,000.00. May Itong demand from Bitong the
P250,000.00 as her share in the debt?

F. DIVISIBLE AND INDIVISIBLE OBLIGATION (Art. 1223)

Divisible - susceptible of partial performance

Indivisible - not susceptible of partial performance

G. OBLIGATIONS WITH A PENAL CLAUSE (Art. 1226)

- with an accessory undertaking which the obligor assumes greater liability

in case of breach of the obligation

Note:
1. Penalty is not a substitute for the performance of an obligation (art.
1227)
2. Creditor cannot demand the fulfillment of the obligation and payment of
penalty at the same time (Art. 1227)

General Rule: Remedies are alternative - the penalty shall substitute the
indemnity for damages and payment of interest (Art. 1226)

XPN:
1. Contrary stipulation
2. When the obligor is sued for refusal to pay the agreed penalty
3. The obligor is guilty of fraud

Art. 1230: The nullity of the principal carries with it the nullity of the penal clause.
While the nullity of the penal clause does not carry with it the nullity of the
principal.