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De L a S alle University

College of L aw

OBLI GATI ONS AND

CONTRACTS


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Atty. Chato Olivas-Gallo

De L a S alle UniversityOBLIGATIONS

AND

CONTRACTS

TABLE OF CONTENTS

I. OBLIGATIONS page/s

Chapter 1: General Provisions of Obligations .................................................................1-3Chapter 2: Nature and Effects of Obligations....... ........................................................3-12Chapter 3: Different Kinds of Obligations......................................................12-34

Section 1: Pure and Conditional Obligations..................................................12-19Section 2: Obligations with a Period....................................................19-23Section 3: Alternative Obligation..........................................................23-24Section 4: Joint and Solidary Obligations................................................24-30Section 5: Divisible and Indivisible..................................................................30-32Section 6: Obligations with a Penal Clause................................................... 32-34

Chapter 4: Modes of Extinguishing Obligations...........................................................34-58Section 1: Payment or Performance........................................................38-45Section 2: Loss of the Thing Due....................................................................46-48Section 3: Condonation or Remission of Debt ...............................................48-50Section 4: Confusion and Merger of Rights..................................................50Section 5: Compensation................................................................................50-53Section 6: Novation.................................................53-58

II. Contracts

Chapter 1: General Provisions.....................................................................................58-67Chapter 2: Essential Requisites...................................................................................67-78Chapter 3: Formal Contracts..............................................................78-80Chapter 4: Reformation of Instruments................................................................80-84Chapter 5: Interpretation of Contracts..................................................................84-90Chapter 6: Rescissible Contracts..............................................................90-97Chapter 7: Voidable Contracts.............................................................97-111

Chapter 8: Unenforceable Contracts.......................................................................111-119Chapter 9: Void and Inexistent Contracts................................................................119-126

III. Natural Obligations....................................................................................127-128

IV. Estoppel..................................................................................128-138

V. Trusts

Chapter 1: General Provisions...........................................................138-140Chapter 2: Express Trust.........................................................................................140-144Chapter 3: Implied Trust.............................................................144-150

BAR EXAMINATION QUESTIONS......................................................................................151-153

BIBLIOGRAPHY


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ADVISERAtty. Chato Olivas-Gallo

AUTHORS

Ang, Victor Reynaldo

Baluyut, Maria Corazon

Batonghinog, Minrado, Jr.

Bongon, Danna Magnolia

Bordeos, James Aris

Caluag, Bon Jeffrey

Calugay, Katrina

Celles, Leandro

Chavez, Marian Camille

Chua, Chantal

Cua, Bryan Oneal

De Leon, Dino

Del Castillo, JanEmmanuel

Espinosa, Jose JovenPaulo

Gador, Ken

Guinto, Aleli

Haulo, Oilie

Hernandez, Ana Victoria

Intal, Pauline Grace

Labares, Gallard Kevin

Lucero, Paula Bettina

Marquez, Jerika Everly

Mendoza, Othello II

Millete, Martin Angelo

Mojica, Ma. Cristina

Reonal, Reannah

Rico, Danilo II

Rubio, Darwin Perry

Salas, Maria Patricia

Sison, Kimberly Rae

Sucgang, Justin

Uy, Michael Vincent


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Ack now ledgment

The authors of this reviewer would like to thank, our professor in Obligations andContracts, Atty. Chato Olivas-Gallo, for her guidance and unending support in the making of thisreviewer. Her notes on the subject discussed in class are also part of this reviewer.

The authors would also like to acknowledge the book in Obligations and Contracts writtenby Atty. Ernesto Pineda. Most of the information used in this reviewer was from Atty. Pinedasbook.

The authors would also like to thank De La Salle University- College of Law, forchallenging its students to be better and to pursue excellence.

Lastly, full credit goes to the thirty-one (31) students who did their part to make thisreviewer possible.


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Atty. Chato Olivas-Gallo Page 1


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CHAPTER 1: GENERALPROVISIONS OF OBLIGATIONS

Art . 1156. An obligat ion is a juridicalnecessity to give to do or n ot to do. (n)

Art . 1157. Obligations arise from:(1) Law;(2) Contracts ;(3) Quasi-contracts;(4) Acts or omissions punished by law;and(5) Quasi-delic ts. (1089a)

Art . 1158. Obligations derived from laware not presumed. Only those expressly

determined in this Code or in speciallaws are d emandableand shall be regulated by the precepts ofthe law which establishes them; and asto what has not been foreseen by theprovis ions of this Book. (1090)

Art . 1160. Obligat ions derived from

quasicontracts shall be subject to theprovisions of Chapter 1 Title XVII of thisBook. (n)

Art . 1161. Civ il ob ligatio ns aris ing fromcriminal offenses shall be governed bythe penal laws subject to the provisionsof Article 2177 and of the pertinentprovis ions of Chapter 2 Preliminary Titleon Human Relations and of Title XVIII ofthis Book regulating damages. (1092a)

Art . 1162. Obligations derived from quasi

delicts shall be governed by theprovisions of Chapter 2 Title XVII of thisBook and by special laws . (1093a)

Elements of Obligation:

1) Active Subject the one who isdemanding the performance ofthe obligation. Also called thecreditor or obligee.

2) Passive Subject the onebound to perform the prestation

to give, to do or not to do. Alsocalled as debtor or obligor.

3) Prestation or object the

subject matter of the obligationwhich has an economic value orsusceptible of pecuniarysubstitution in case ofnoncompliance. It is theparticular conduct of the debtor(Pineda).

4) Efficient cause the juridical tieor vinculum by virtue of whichthe debtor has become bound toperform the prestation.

Kinds of Obligations:

(a) As to juridical enforceability1. Civil obligation2. Natural obligation3. Moral obligation

(b) As to the Subject Matter1. Real obligation2. Personal obligation

(c) As to the number of personsbound to perform1. Unilateral obligation2. Bilateral obligation

(d) As to the capability of fulfillment1. Possible obligation2. Impossible obligation

(e) As to the susceptibility of partialfulfillment1. Divisible obligation2. Indivisible obligation

(f) As to their dependence uponone another1. Principal obligation

2. Accessory obligation

(g) As to the existence of a burdenor condition1. Pure obligation2. Conditional obligation3. Obligation with a term

(h) As to the nature of performance1. Positive obligation2. Negative obligation

Art . 1159. Obligat ions arising fromcontracts have the force of law betweenthe contracting parties and should becomplied wi th in good faith . (1091a)


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(i) As to the character ofresponsibility or liability1. Joint obligation

2. Solidary obligation

(j) As to the nature of creation ofthe obligation1. Legal obligation2. Conventional obligation

(k) As to the grant of right tochoose one prestation out ofseveral, or to substitute the firstone1. Alternative obligation2. Facultative obligation

(l) As to the imposition of penalty1. Simple obligation2. Obligation with penalty

Characteristics of a Quasi- Contract:1. The acts executed must be

lawful to distinguish it from adelict or crime where the actsare unlawful.

2. The acts executed must bevoluntary to distinguish it fromquasi- delict where the actsinvolved constitutes a fault,

negligence, or lack of foresight(Art. 2176).

3. The acts executed must beunilateral to distinguish it froman ordinary contract where thereis meeting of the minds betweentwo parties (Art. 1305).

Principal Kinds of Quasi- Contract:1. Negotiorium Gestio- A juridical

relation which takes place whensomebody takes charge of theagency or management of the

business or property of anotherwithout any power from thelatter (Art. 2150).

2. Solution Indebiti- A juridicalrelation which takes place whensomebody received somethingfrom another without any right todemand for it, and the thing wasunduly delivered to him throughmistake. The obligation to returnthe thing arises on the part ofthe recipient (Art. 2154).

Elements of a Quasi- Delict :1. There is fault or negligent on the

part of the defendant resulting in

the wrongful act or omission,whether voluntary or not, andwhether criminal or not;

2. There is damage and injurysuffered by another person;

3. There is a direct causal relationbetween the fault or negligenceand the resulting damage andinjury. (proximate cause)

Doctrine of Proximate Cause:- A proximate cause is such an

adequate and efficient cause as,in the natural order of events,and under the particularcircumstances surrounding thecase, would necessarilyproduce the event (Urbano vs.IAC 157 SCRA 1).

___________________________________

Narciso Gutierrez v BonifacioGutierrez, Maria De Gutierrez, Manuel

Gutierrez, Abelardo Velasco andSaturnino Cortez

G.R. No. 34840 September 23, 1931Digested by: Victor Reynaldo Ang

Facts: A collision between a passengertruck driven by Abelardo Velasco and anautomobile driven by an 18 year-oldBonifacio Gutierrez resulted to injuries to theplaintiff, Narciso Gutierrez who suffered aleg fracture which required medical attentionfor a considerable amount of time.

Issue: (1) Is Manuel Gutierrez, beingnot only the owner of the car butthe head of the house liable forthe damages caused by his

son?(2)Are Abelardo Velasco and

Saturnino Cortez, the owner of the truckalso liable?

Held: Yes. They are jointly andseverally liable for the damagesbecause of their negligence. Culpacontractual for the owner of the bus forbreach of contract of carriage whileCulpa aquillana for the owner of the car.It is uniformly held that the head of ahouse, the owner of an automobile, who


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maintains it for the general use of hisfamily is liable for its negligent operationby one of his children, whom he

designates or permits to run it, wherethe car is occupied and being used atthe time of the injury for the pleasure ofother members of the owner's familythan the child driving it. The theory ofthe law is that the running of themachine by a child to carry othermembers of the family is within thescope of the owner's business, so thathe is liable for the negligence of thechild because of the relationship ofmaster and servant.

NATURE AND EFFECT OF OBLIGATIONS1) Obligor's duty to take care (Art.

1163)2) Right to fruits (Art. 1164)3) Right to demand

compliance (Art. 1165)4) Obligor's duty to deliver

accessions andaccessories (Art. 1166)

5) Do it properly or pay theprice (Art. 1167)

6) Don't do or pay the price (Art.1168)

7) No demand, no delay (Art.1169)

8) FNDV (Art. 1170)9) Fraud does not pay (Art. 1171)10) Negligence (Art. 1172)11) Diligence (Art. 1173)12) Fortuitous Event (Art. 1174)13) Usurious Transactions (Art.

1175)14) Interest and installments (Art.

1176)15) Accion subrogatoria (Art. 1177)16) Transmissibility of rights (Art.

1178)

CHAPTER 2: NATURE AND EFFECTS OFOBLIGATIONS

Art . 1163. Every person obliged to givesomething is also ob liged to take care ofit with the proper diligence of a goodfather of a family unless the law or thestipulation of the parties requires anotherstandard of care. (1094a)

Art . 1164. The creditor has a right to thefruits of the thing from the time theobligation to deliver it arises. However heshall acquire no real right over it until thesame has been delivered to him. (1095)

Art . 1165. When what is to be del ivered isa determinate thing the creditor inaddition to the right granted him by

Art ic le 1170 may compel the debtor tomake the delivery .

If the thing is indeterminate or generic hemay ask that the obligation be compliedwith at the expense of the debtor.

If the obligor delays or has promised todeliver the same thing to two or morepersons who do not have the sameinterest he shall be responsible for anyfortuitous event until he has effected thedelivery. (1096)

Art . 1166. The obligation to give adeterminate thing includes that ofdelivering all its accessions andaccessories even though they may nothave been mentioned. (1097a)

Art . 1167. If a person ob liged to dosomething fails to do it the same shall beexecuted at his cost.

This same rule shall be observed if he

does it in contravention of the tenor ofthe obligation. Furthermore it may bedecreed that what has been poorly donebe undone. (1098)

Art . 1168. When the ob lig ation cons istsin not doing and the obligor does whathas been forbidden him it shall also beundone at h is expense. (1099a)


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Art . 1170. Those who in the perf ormanceof their obligations are guilty of fraudnegligence or delay and those who in anymanner contravene the tenor thereof areliable for damages. (1101)

Art . 1171. Respons ibili ty arising fromfraud is demandable in all obligations.

Any waiver of an ac tion for future fraud isvo id. (1102a)

Art . 1172. Respons ibili ty arising fromnegligence in the performance of everykind of ob ligation is also demandable butsuch liability may be regulated by thecourts according to the circumstances.(1103)

Art . 1173. The faul t or negligence of the

obligor consists in the omission of thatdiligence which is required by the natureof the obligation and corresponds with

the circumstances of the persons of thetime and of the place. When negligenceshows bad faith the provisions of

Art ic les 1171 and 2201 paragraph 2 shallapply.If the law or contract does not state thediligence which is to be observed in theperformance that which is expected of agood father of a family shall be required.(1104a)

Art . 1174. Except in cases expresslyspecified by the law or when it is

otherwise declared by stipulation orwhen the nature of the obligationrequires the assumption of risk noperson shall be responsible for thoseevents which could not be foreseen orwhich though foreseen were inevitable.(1105a)

Art . 1175. Usurious transact ions shall begoverned by special laws. (n)

Art . 1176. The receipt of the pr inc ipal bythe creditor without reservation withrespect to the interest shall give rise tothe presumption that said interest hasbeen paid.The receipt of a later ins tallment of a debtwithout reservation as to priorinstalments shall likewise raise thepresumption that such installments havebeen paid. (1110a)

Art . 1177. The creditors after havingpursued the property in possession ofthe debtor to satisfy their claims mayexercise all the rights and bring all theactions of the latter for the same purpose

save those which are inherent in hisperson; they may also impugn the actswhich the debtor may have done todefraud them. (1111)

Art . 1178. Subject to the laws all rig htsacquired in virtue of an obligation aretransmissible if there has been nostipulation to the cont rary. (1112)

Nature and Effects of Obligations

Art . 1169. Those obl iged to deliver or to

do something incur in delay from thetime the obligee judicially orextrajudicially demands from them thefulfillment o f their obligation.

However, the demand by the creditorshall not be necessary in order that delaymay exist:

(1) When the obligation or the lawexpressly so declare; or

(2) When from the nature and thecircumstances of the obligation itappears that the designation of the timewhen the thing is to be delivered or theservice is to be rendered was acontrolling motive for the establishmentof the contract; or

(3) When demand would be useless, aswhen the obligor has rendered it beyondhis power to perform.

In reciprocal obligations, neither party

incurs in delay if the other does notcomply or is not ready to comply in aproper manner with what is incumbentupon him. From the moment one of theparties fulfills h is obligation, delay by theother begins. (1100a)


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1. Obligor's duty to take care (Art. 1163)2. Right to fruits (Art. 1164)3. Right to demand compliance (Art. 1165)

4. Obligor's duty to deliver accessions andaccessories (Art. 1166)5. Do it properly or pay the price (Art. 1167)6. Don't do or pay the price (Art. 1168)7. No demand, no delay (Art. 1169)8. FNDV (Art. 1170)9. Fraud does not pay (Art. 1171)10. Negligence (Art. 1172)11. Diligence (Art. 1173)12. Fortuitous Event (Art. 1174)13. Usurious Transactions (Art. 1175)14. Interest and installments (Art. 1176)15. Accion subrogatoria (Art. 1177)16. Transmissibility of rights (Art. 1178)

NATURE AND EFFECT OF OBLIGATIONS

Art . 1163 Obligor's d uty to take care Every person obliged to give something isalso obliged to take care of it with the properdiligence of a good father of a family, unlessthe law or the stipulation of the partiesrequires another standard of care.

Art . 1164 Right to fruits The creditor has a right to the fruits of thething from the time the obligation to deliver itarises. However, he shall acquire no realright over it until the same has beendelivered to him.

Art . 1165 Right to demand compliance When what is to be delivered is adeterminate thing, the creditor, in addition tothe right granted him by Article 1170, maycompel the debtor to make the delivery.

Art . 1166 Obligor's duty to deliveraccessions and accessories The obligation to give a determinate thing

includes that of delivering all its accessionsand accessories, even though they may nothave been mentioned.

Art . 1167 Do it properly or pay the price If a person obliged to do something fails todo it, the same shall be executed at his cost.

This same rule shall be observed if he doesit in contravention of the tenor of theobligation. Furthermore, it may be decreedthat what has been poorly done be undone.

Art . 1168 Don't do or pay the price When the obligation consists in not doing,and the obligor does what has been

forbidden him, it shall also be undone at hisexpense.

Art . 1169 No demand, no delay Those obliged to deliver or to do somethingincur in delay from the time the obligee

judicially or extrajudicially demands fromthem the fulfillment of their obligation.However, the demand by the creditor shallnot be necessary in order that delay mayexist:

(1) When the obligation or the lawexpressly so declare; or

(2) When from the nature and thecircumstances of the obligation itappears that the designation of thetime when the thing is to bedelivered or the service is to berendered was a controlling motivefor the establishment of the contract;or

(3) When demand would be useless, aswhen the obligor has rendered it beyondhis power to perform.

In reciprocal obligations, neither partyincurs in delay if the other does notcomply or is not ready to comply in aproper manner with what is incumbentupon him. From the moment one of theparties fulfills his obligation, delay by theother begins.

Art . 1170 FNDV fraud, negligence, delay,violation of contract

Those who in the performance of theirobligations are guilty of fraud, negligence, or

delay, and those who in any mannercontravene the tenor thereof, are liable fordamages.

Art . 1171 Fraud does not pay Responsibility arising from fraud isdemandable in all obligations. Any waiver ofan action for future fraud is void.

Art . 1172 Negligence Responsibility arising from negligence in theperformance of every kind of obligation isalso demandable, but such liability may be


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regulated by the courts, according to thecircumstances.

Art . 1173 DiligenceThe fault or negligence of the obligorconsists in the omission of that diligencewhich is required by the nature of theobligation and corresponds with thecircumstances of the persons, of the timeand of the place. When negligence showsbad faith, the provisions of Articles 1171 and2201, paragraph 2, shall apply.

If the law or contract does not state thediligence which is to be observed in theperformance, that which is expected of agood father of a family shall be required.

Art . 1174 Fortuitous Event Except in cases expressly specified by thelaw, or when it is otherwise declared bystipulation, or when the nature of theobligation requires the assumption of risk,no person shall be responsible for thoseevents which could not be foreseen, orwhich, though foreseen, were inevitable.

Art . 1175 Usurious Transactions Usurious transactions shall be governed byspecial laws.

Art . 1176 Interest and installments The receipt of the principal by the creditorwithout reservation with respect to theinterest, shall give rise to the presumptionthat said interest has been paid.

The receipt of a later installment of a debtwithout reservation as to prior installments,shall likewise raise the presumption thatsuch installments have been paid.

Art . 1177 Accion subrogatoria

The creditors, after having pursued theproperty in possession of the debtor tosatisfy their claims, may exercise all therights and bring all the actions of the latterfor the same purpose, save those which areinherent in his person; they may alsoimpugn the acts which the debtor may havedone to defraud them.

Art . 1178 Transmissibility of rights Subject to the laws, all rights acquired invirtue of an obligation are transmissible, ifthere has been no stipulation to the contrary.

Diligence of a good father of afamily:The Civil Code explains-

Art. 1173. The fault or negligence ofthe obligor consists in the omissionof that diligence which is required bythe nature of the obligation andcorresponds with the circumstancesof the persons, of the time and ofthe place. When negligence showsbad faith, the provisions of Articles1171 and 2201, paragraph 2, shallapply.

Exception:- If the law or by agreement

of the parties, extraordinarydiligence is required, thenthe obligor shall exerciseextraordinary diligence.

The Roman Catholic Bishop of Jaro vGregorio de la Pena

G.R. No. 6913 November 21, 1913Digested by : Vic Reynaldo Ang

Facts: In 1898 Father de la Pena, as trusteeof a charitable bequest made for theconstruction of a leper hospital had in himthe funds collected for the said charitablepurposes amounting to P6,641. In the sameyear he deposited in his personal account inthe Hongkong and Shanghai Bank theamount of P19,000. He was then arrestedduring the war as a political prisoner. Whilehe was detained, the authorities confiscatedthe money in his account because theybelieved that he was an insurgent and thatthe funds were to be used for revolutionarypurposes.

Issue: Is he liable for the loss of the money

forcibly taken from him since he deposited itin his personal account?

Held : No. Although the Civil Code statesthat "a person obliged to give something isalso bound to preserve it with the diligencepertaining to a good father of a family" (art.1094), it also provides, following theprinciple of the Roman law,major casus est,cui humanainfirmitasresistere non potest,that "no one shall be liable for events whichcould not be foreseen, or which having beenforeseen were inevitable, with the exception


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of the cases expressly mentioned in the lawor those in which the obligation so declares."(Art. 1105.)

By placing the money in the bank andmixing it with his personal funds De la Peadid not thereby assume an obligationdifferent from that under which he wouldhave lain if such deposit had not beenmade, nor did he thereby make himselfliable to repay the money at all hazards. Ifthe had been forcibly taken from his pocketor from his house by the military forces ofone of the combatants during a state of war,it is clear that under the provisions of theCivil Code he would have been exempt fromresponsibility. The fact that he placed thetrust fund in the bank in his personalaccount does not add to his responsibility.Such deposit did not make him a debtor whomust respond at all hazards.

Classes o f Delivery or Tradition:

1. Real or Actual Tradition-contemplates the actual deliveryof the thing from the hand of thegrantor to the hand of thegrantee.

2. Constructive Tradition- thedelivery of the thing is not actualbut representative or symbolicalin essence. Kinds-

a. TradicionSymbolica-delivery of certainsymbols or thingsrepresenting the thingbeing delivered such askeys or titles.

b. Tradicion Instrumental-delivery of theinstrument or

conveyance to thegrantee by the grantor.

c. Tradicion Longa Manu-pointing of the thing(movable property)within sight.

d. TradicionBrevi Manu-grantees continuationof his possession overthe thing delivered butnow under a title ofownership.

e. TradicionConstitutumPossessorium- consists inthe owners continuous

possession of theproperty he had sold toanother person.

f. Tradicion by Operationof Law- delivery of thething by operation oflaw.

g. Quasi- Tradicion-delivery of incorporealproperty.

Personal and Real Right: (Hector S. deLeon, The Law on Obligations andContracts)

1. Personal Right- is the right orpower of a person (creditor) todemand from another (debtor),as a definite passive subject,the fulfillment of the lattersobligation to give, to do, or notto do.

2. Real Right- is the right orinterest of a person over aspecific thing, without a definitepassive subject against whomthe right may be personally

enforced.

Determinate or specific thing- somethingwhich is susceptible of particular designationor specification.

Indeterminate or generic thing- somethingwhich is not particularized or specified buthas reference only to a class or genus.

Remedies of Creditor when Debtor failsto deliver a determinate thing:

a) Complaint for specific performance-an action to compel the fulfillment ofthe obligation. This actionpresupposes that it is based on acontractual relationship betweencontracting parties.

b) Complaint for rescission of theobligation- is an action to rescindunder Art. 1380.

c) Complaint for resolution- an actionfor cancellation under Art. 1191.

d) Complaint for damages- an action toclaim for compensation of damages


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suffered, either in addition to the firstthree actions or independently.

Kinds of Delay:

(a) Ordinary Delay- the mere failure toperform an obligation at theappointed time.

(b) Extraordinary Delay or Legal Delay-delay which is tantamount to non-fulfillment of the obligation andarises after an extrajudicial or

judicial demand had been madeupon the debtor. The debtor is saidto be in default now.

Remedies of the Creditor:

SITUATION REMEDY

Failure of debtor tofulfil the obligation

The same be doneby the creditorhimself or by anotherperson but at theexpense of thedebtor

Obligation was donein violation of theagreement

The creditor oranother may executethe obligation at theexpense of thedebtor

Poor performance Undo the act at theexpense of thecreditor

Legal Delay- For an obligor to be in default,there must be a demand made upon him forthe performance of the obligation either

judicially or extrajudicially

Exceptions to the Rule: (ENU)1. (Express declaration)When the

law or obligation Expresslydeclares

2. (Nature of Contract) When fromthe nature of the contract, itappears that time is of theessence and such is themotivating factor in theestablishment of the contract

3. (Useless ) When demandbecomes useless

4. (not in the Codal Provision)Admission of the debtor that he isin default

Classes of Default

1. Mora Solvendi- default on the partof the Debtor

2. Mora Accipiendi- default on the

part of the Creditor/Obligee3. CompensatioMorae- default onthe part of both debtor andcreditor which arises in reciprocalobligation

Rufina Causing v . Alfonso BencerG. R. No. L-11328 January 15, 1918Digested by: Maria Corazon Baluyut

Facts: Causing wants to annul a contract ofsale of a parcel of land and to recover theproperty from Bencer. She along with her

minor nieces are the owners of the saidproperty. In 1909 Causing negotiated withBencer to sell the property for P1,200. Shewent to an attorney; however when theattorney learned that the minors had aninterest in the property he informed Causingthat there is a need for judicial sanction. Thiscaused the transfer of the title (to Bencer) tobe abandoned but nevertheless Bencer paidP800 of the purchase price and tookpossession o the land knowing that he wasto pay the balance later. Subsequently,Causing took steps to acquire judicialapproval. In 1910 a new engagement wasmade when Bencer was advised to pay anadditional P600 to what he already paid(making the purchase price P1400 in all).

After some time neither party performed theengagement.

When the minors were now of age Causingbecame the possessor of their shares, theproperty increased in value and she nowhad the desire to rescind the contract andrecover the property from Bencer. The lowercourt dismissed the action to recover theproperty but ordered for the payment of the

P600 balance with interest.

Issue: Can Causing rescind the contractbecause Bencer failed to pay the purchaseprice?

Holding: No, the Supreme Court finds novalid reason for them to permit a rescissionof the contract.

Ratio: It is evidently a case where thecontract entailed mutual obligation, and ifeither party can be said to have been in


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default it was the plaintiff, Rufina Causing,rather than the defendant, Bencer. In article1100 of the Civil Code it is declared that in

mutual obligations neither party shall bedeemed to be in default if the other does notfulfill, or offer to fulfill his own obligation, andthat from the time one person obligatedfulfills his obligation the default begins forthe other party. We find that the contractcontemplated a conveyance of the entireinterest in the land; and the plaintiff clearlyobligated herself to that extent. She wastherefore not in a position to compel thedefendant to pay until she could offer to hima deed sufficient to pass the whole legalestate; and for the same reason, she cannotnow be permitted to rescind the contract onthe ground that the defendant hasheretofore failed to pay the purchase price.

Fraud- Intentional evasion of the faithfulperformance of the obligation

Negligence/Fault- omission of the diligencerequired by the nature of obligation andcommensurate with the demands of thesubsisting circumstances of time, place,condition of persons involved

Delay- this is the default or tardiness in the

performance of the obligation after it hasbecome due and demandable. Also calledmora

Violation of terms of contract- the act ofcontravening the tenor or terms orconditions of the contract; also calledvolatio

FRAUD INEXECUTION

FRAUD INPERFROMANCE

ReferenceArticle

1338 1170 and 1171

Time ofexistence

Exists aheadof thecontractualobligationbetween theparties andcan only befound incontractsand wills

Already inexistence;performance ofan obligationalready inexistence

Effect Nullity Gives rise todamages andrecission

Negligence v. Fraud: the former has nodeliberate intention to cause damage even

voluntarily done while the latter has adeliberate intention or plan to causedamage.

Due Diligence- measure of prudence,activity or assiduity, as is properly to beexpected from, and ordinarily exercised by,a reasonable and prudent man under theparticular circumstances

Test of Negligence: Would an prudent manin the position of the person whomnegligence is attributed, foresee harm to theperson injured as a reasonableconsequence of the course to be pursued?

Fortuitous event- is an occurrence orhappening which could not be foreseen oreven if foreseen, is inevitable

Requisites to Exempt Obligor fromLiability By Reason of Fortuitous Event

C - "Cause" of the breach must beindependent of the debtor's willU - "Unforseeable" or "Unavoidable"event

P - debtor had no "Participation" inthe aggravation or injury of thecreditorI - the event must be such as torender it "Impossible" forD - the "Debtor" to fulfill hisobligation in a normal manner.

Exceptions which make an Obligor Liablefor Fortuitous Events w ith examples

1) When it is expressly stipulated that heshall be liable even if the non-compliance is

due to a fortuitous event.

A and B entered into a contract where Bundertakes to deliver bundles of couponbond to As office on specific dates specifiedin the contract, for a period of 6 months. Thecontract clearly states the B shall incurliability for... failure to deliver such items to

As office on any of the specific datesstipulated in the contract, even if such failureis due to a fortuitous event.On one of thedates of delivery, as B just finished loadingthe last bundle of paper inside the delivery


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truck and to proceed to As office, a lightningstruck his vehicle. Within a matter ofseconds, the truck bursts into flames as the

gas tank exploded due to the heavy amountof electricity caused by the lightning. B couldno longer save the vehicle nor the bundlesof paper inside, much less to deliver them to

A. B is still liable even if the non-performance of the obligation was due to anact of God, because of the expressstipulation found in his contract with A.

2) When the nature of the obligationrequires the assumption of risk.

A and B entered into a contract where Bundertakes to deliver meat products, suchas poultry, pork, and beef, to As canteen. Indelivering such products, B uses his deliverytruck which was equipped with built infreezer that is so cold that a bottle of waterplaced inside would turn into ice with lessthan a minute. Because of this, B isconfident that the meat products to bedelivered would not perish in transit. On thedate of one of his deliveries to A, it wasreported that the country would beexperiencing its hottest day of the year,even to a point that people can cook a 2inch thick steak under the heat of the sun.

Because of such, the built in freezer of thedelivery truck could not sustain thenecessary temperature to keep the meatproducts from perishing. The result is thatthe meat products reached As canteen witha rotten state and no longer edible. B isliable even if the cause of his failure tocomply with his obligation was due tonatures wrath because meet products areperishable, and the nature of such obligationrequires the assumption of risks.

3) When the obligor is in delay.

A and B are friends. A sold to B a brandnew cell phone for P 12,000.00 only, thephone is to be delivered 3 days after fullpayment by B. After 3 days, B texted Aasking for the delivery of the phone but Asaid he could not do so on at the time andsaid that hell give the phone the followingday. After their conversation, As house wassubmerged into water because of a flashflood due to typhoon Ondoy. The cell phonewas soaked and is now beyond repair. Abears liability, regardless if the non-

performance of the obligation was due to afortuitous event, because he was in delay ofsuch performance.

4) When the obligor has promised thesame thing to two or more persons who donot have the same interest.

A promised to deliver a sala-set to B inexchange for P 5,000.00. A also promisedthe same thing to spouses C and D. Thesala-set perished when the bodega, wherethe sala-set was stored, caught fire last NewYears Eve. Eventually, a stray quitis foundits way inside the bodega and caused thefire. A bears the loss of the thing because hepromised the same sala-set to two or morepersons who do not have the same interest.

5) When the possessor is in bad faith andthe thing is lost or deteriorated due tofortuitous event

On 21 January 2011, R sold his BMW car toM for 5,000 Euros. After paying the agreedamount, M demanded R to deliver the car tohis residence. However, instead of heedingthe demand, R, for sentimental reasons,simply parked the car in his garage. ...On 25January 2011, an earthquake occurred,

causing Rs garage to cave-in and ultimatelyshredding the car into pieces.R is liable despite the fortuitous event,because he was a possessor in "bad faith"after continuously possessing the car inspite of Ms demand.

6) When the obligor contributed to the lossof the thing

X gave Y company a package to bedelivered to Z via air mail. However, YCompany placed the package on a ship.

While traversing the sea, the ship wascaught by a storm and sank. Y is liable

7) When the obligor is guilty of fraud,negligence, or delay or if he contravened thetenor of the obligation

A ordered 3 boxes of chocolates from B, tobe delivered at a certain date. On the day ofthe delivery, B rode his old car and placedthe boxes on the passenger sit where heknew that the door was broken. On his wayto A's house an earthquake occurred that


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shook the broken car door open and thusthe 3 boxes of chocolates fell and wasdestroyed.

B is liable for the destroyed chocolatesdespite the fact that an earthquakehappened causing the boxes to fall, becausehe acted negligently when he placed theboxes in the passenger sit when he had fullknowledge that the car door on that sidewas broken.

8) An act of God cannot be invoked toprotect a person who has failed to takesteps to forestall the possible adverseconsequence of that loss- when the effect isfound to be partly the result of the person'sparticipation, whether by active intervention,neglect or failure to act, the wholeoccurrence is humanized and removed fromthe rules applicable to the acts of God.On February 7, 2001, P and R had a verbalagreement to lease to R the van of P for twoweeks in consideration of a P5,000payment. R, while driving P's van on thehighway, noticed that the car's hood wassmoking but R still continued to drive to hisdestination which was still 500 meters away.Before he could even reach his destinationthe engine exploded and caused a fire. R is

liable for the damage in the car because heshould have stopped when he saw thesmoke from the hood.

Medel vs. Court o f AppealsG.R. No. 131622 November 27, 1998

Digested by Maria Corazon Baluyut

Facts: Veronica R. Gonzales is engaged inthe money lending business under the nameGonzales Credit Enterprises. Hereinpetitioners Servando Franco and Leticia

Medel were able to obtain loans fromVeronica on three separate occasions. Onall occasions Servando and Leticia wereunable to pay the loan upon its maturity. Dr.Rafael Medel consolidated all unpaid loanscoming to a total of P 440,000 and was ableto obtain another loan of P 60,000 bringingtheir debt to a total of P 500,000. Petitionersexecuted a promissory note stating that theywill pay the loan at a rate of 5.5% per monthplus 2% service charge per annum from thedate of execution of the promissory note.Moreover, failure to pay will mean an

additional amount equivalent to 1% permonth of the amount due and demandable,as penalty; and another additional 25% in

full without deductions as Attorneys fees.Upon maturity of the loan, petitioners(borrowers) were unable to pay. Veronicaand her husband Danilo G. Gonzales filed acomplaint before the Regional Trial Court forthe collection of the full amount of the loanincluding all interest and other charges asstated in the promissory note. In his defenseServando asserts that he did not obtain anyloan and that he was only signatory as oneof the witness to the promissory note. Onthe other hand, Leticia and Rafael Medelassert that (a) the interest rate is excessiveat 5.5% per month with additional servicecharge of 2% per annum, and penaltycharge of 1% per month; (b) stipulation forattorneys fees of 25% of the amount due isunconscionable, illegal and excessive. Thetrial court decided that although the UsuryLaw had been repealed, the interestcharged by the plaintiffs on the loans wasrevolting to the conscience. Thus it appliedthe provision on the New Civil Code thatlegal rate of interest for loan xxx of moneyxxx is 12% per annum. However on appeal,the Court of appeals reversed the decisionof the trial court by saying that the Usury

Law having become legally inexistent withthe promulgation by the Central Bank xxxthe lender and borrower could agree on anyinterest that may be charged on the loan.

Issue: Is the promissory note valid? Will itbe the basis for the payment of interest andother charges?

Held: No. The Supreme Court held that thestipulated rate of interest at 5.5% per monthon the P 500,000 loan is excessive,iniquitous, unconscionable and exorbitant.

However, the court did not consider the rateas usurious because it has beenconsistently held that the Central Bankcircular has removed the interest ceilingsprescribed by the Usury Law and that thishas become legally inexistent. Under thecircumstances the interest rate at 12% perannum and an additional 1% per monthpenalty charge as liquidated damages maybe more reasonable.


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Actions or Remedies Available to theCreditor for protection of interest:

1. Exhaustion of debtors properties still inhis possession. This is effected by a writof attachment before the judgment orwrit of execution if there is already afinal and executory judgement

2. Accion Subrogatoria- an action wherethe creditor whose claims had not beenfully satisfied, may go the debtors (thirdpersons) of the defendant-debtor.

Limitation: Creditor is not allowed topursue actions on behalf of the debtorwhich are personal to the latter (e.g.right to revoke donation due toingratitude, right to exercise parentalauthority etc.)

3. Accion Pauliana- where the creditor filesan action for the rescission of acts orcontracts entered into by the debtordesignated to defraud the former (See1380, 1382[3] and 1389)

CHAPTER 3: DIFFERENT KINDSOF OBLIGATIONS

Section 1:Pure and ConditionalObligations

Art . 1179. Every obligation whoseperformance does not depend upon afuture or uncertain event, or upon a pastevent unknown to the parties, isdemandable at once.

Every obligation which contains aresolutory condition shall also bedemandable, without prejudice to the

effects of the happening of the event.(1113)

Art . 1180. When the debtor binds himselfto pay when his means permit him to doso, the obligation shall be deemed to beone with a period, subject to theprov isions of Art icle 1197. (n)

Art . 1181. In condit ional obligations, theacquisition of rights, as well as theextinguishment or loss of those alreadyacquired, shall depend upon the

happening of the event which co nstitutesthe condi tion. (1114)

Art . 1182. When the fulf illmen t of thecondition depends upon the sole will ofthe debtor, the conditional obligationshall be void. If it depends upon chanceor upon the will of a third person, theobligation shall take effect in conformitywith the provis ions of this Code. (1115)

Art . 1183. Imposs ible condit ions, thosecontrary to good customs or publicpolicy and those prohibited by law shallannul the obligation which depends uponthem. If the obligation is divisible, that

part thereof which is not affected by theimpossible or unlawful condition shall bevalid.

The condition not to do an impossiblething shall be considered as not havingbeen agreed upon. (1116a)

Art . 1184. The condi tion that some eventhappen at a determinate time shallextinguish the obligation as soon as thetime expires or if it has becomeindubitable that the event will not take

place. (1117)

Art . 1185. The condi tion that some eventwill not happen at a determinate timeshall render the obligation effective fromthe moment the time indicated haselapsed, or if it has become evident thatthe event cannot occur.

If no time has been fixed, the conditionshall be deemed fulfilled at such time asmay have probably been contemplated,bearing in mind the nature of the

obligation. (1118)

Art . 1186. The c ond it ion shall be deemedfulfilled when the obligor voluntarilyprevents i ts fulfillment. (1119)

Art . 1187. The effects of a condi tionalobligation to give, once the condition hasbeen fulfilled, shall retroact to the day ofthe constitution of the obligation.Nevertheless, when the obligationimposes reciprocal prestations upon theparties, the fruits and interests during the


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pendency of the condition shall bedeemed to have been mutuallycompensated. If the obligation is

unilateral, the debtor shall appropriatethe fruits and interests received, unlessfrom the nature and c ircumstances of theobligation it should be inferred that theintention of the person constituting thesame was different.

In obligations to do and not to do, thecourts shall determine, in each case, theretroactive effect of the condition thathas been compl ied wi th. (1120)

Art . 1188. The creditor may , before the

fulfillment of the condition, bring theappropriate actions for the preservationof his right.

The debtor may recover what during thesame time he has paid by mistake in caseof a sus pensive condition. (1121a)

Art . 1189. When the condit ions h ave beenimposed with the intention of suspendingthe efficacy of an obligation to give, thefollowing rules shall be observed in caseof the improvement, loss o r deterioration

of the thing during the pendency of thecondition:

(1) If the thing is lost without thefault of the debtor, the obligationshall be extinguished;

(2) If the thing is lost through thefault of the debtor, he shall beobliged to pay damages; it isunderstood that the thing is lostwhen it perishes, or goes out ofcommerce, or disappears in such

a way that its existence isunknown or it cannot berecovered;

(3) When the thing deteriorateswithout the fault of the debtor, theimpairment is to be borne by thecreditor;

(4) If it deteriorates through thefault of the debtor, the creditormay choose between the

rescission of the obligation andits fulfillment, with indemnity fordamages in either case;

(5) If the thing is improved by itsnature, or by time, theimprovement shall inure to thebenefit of the creditor;

(6) If it is improved at the expenseof the debtor, he shall have noother right than that granted tothe usufructuary. (1122)

Art . 1190. When the conditi ons have fortheir purpose the extinguishment of an

obligation to give, the parties, upon thefulfillment of said cond itions, shall returnto each other what they have received.

In case of the loss, deterioration orimprovement of the thing, the provisionswhich, with respect to the debtor, are laiddown in the preceding article shall beapplied to the party who is bound toreturn.

As for the obl igations to do and not todo, the provisions of the second

paragraph of Article 1187 shall beobserved as regards the effect of theextingu ishment of the obligation. (1123)

Art . 1191. The power to resc indobligations is implied in reciprocal ones,in case one of the obligors should notcomply with what is incumbent uponhim.

The injured party may choose betweenthe fulfillment and the rescission of theobligation, with the payment of damages

in either case. He may also seekrescission, even after he has chosenfulfillment, if the latter should becomeimpossible.

The court shall decree the rescissionclaimed, unless there be just causeauthorizing the fixing o f a period.

This is understood to be withoutprejudice to the rights of third personswho have acquired the thing, in


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accordance with Articles 1385 and 1388and the Mortg age Law. (1124)

Art . 1192. In case both parties havecommitted a breach of the obligation, theliability of the first infractor shall beequitably tempered by the courts. If itcannot be determined which of theparties first violated the contract, thesame shall be deemed extinguished, andeach shall bear his own damages. (n)

Pure ObligationThe effectivity or extinguishment does notdepend on the fulfillment or non-fulfillment ofa condition or on the expiration of a term or

period, and is immediately demandable.

Note: The quality of immediatedemandability is not violated when areasonable period is granted forperformance.

Conditional ObligationEffectivity is subordinated to the fulfillment ornon-fulfillment of a future and uncertain actor event.

Characteristics of a condition:1)Future and uncertain2) Past event but unknown to parties (theknowledge to be acquired in the future of apast event which at the moment is unknownto parties interested. It is only in that sensethat the event is to be deemed uncertain).3) Not impossible

Note:When the debtor binds himself to paywhen his means permit him to do so, theoblication shall be deemed to be one with aperiod (Article 1180).

Effects of failure to comply withcondition:

1) If condition is imposed on theperfection of a contract results in thefailure of the contract

2) If condition is imposed on theperformance of the obligation: givesother party an option either to refuseto proceed with the compliance ofthe obligation of to waive thecondition.

When obligation demandable at once:

1) When it is pure;2) When it is subject to a resolutory

condition;

3) When it is subject to a resolutoryperiod.

Traditional Classifications of conditions:1) Suspensive- fulfillment of condition

results in acquisition of rights arisingout of the obligation

2) Resolutory- fulfillment of thecondition results in extinguishmentof rights arising out of obligation

3) Potestative- fulfillment of thecondition depends on the will of aparty to the obligation

4) Casual- fulfillment of the condition

depends on chance and/or the willof third person

5) Mixed- fulfillment of conditiondepends partly on the will of a partyto the obligation and partly chanceand/or will of a third person

6) Possible- condition is capable ofreal action according to nature, law,public policy, or good customs

7) Impossible- condition is not capableof realization according to nature,law, public policy, or good customs

8) Positive- involves performance of an

act9) Negative- involves the omission of

an act10) Divisible- susceptible of a partial

performance or realization11) Indivisible- not susceptible of partial

performance or realization12) Conjunctive- There are several

conditions which must all berealized

13) Alternative- there are severalconditions, but only one must berealized

14) Express- condition is satedexpressly15) Implied- condition is tacit

Effects of suspensive, resolutory,potestative, mixed, casual condition(Art icle 1181-1182)

1) Suspensive ConditionObligation shall only be effectiveupon the fulfillment of the condition,upon constitution of obligation,before fulfillment, oblige acquired a


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mere hope of expectancy, protectedby law.

a. Before fulfillment-

demandability and theacquisition of the rightsarising from the obligation issuspended. Obligation ofobligor to comply with theprestation is held insuspense until fulfillment ofcondition. Anything paid bymistake during such timemay be recovered.

b. After the fulfillment-theobligation arises orbecomes effective; obligorcan be compelled to complywith what is incumbent uponhim.

2) Resolutory conditionObligation becomes demandableimmediately after its constitution andrights are immediately vested in theobligee, but such rights are alwayssubject to the threat or danger ofextinction. Principle of retroactivityapplies (Article 1190)

a. Before fulfillment-rightrecognized in Art. 1188. N

case of a suspensivecondition should likewise beavailable in obligations witha resolutory condition.

b. After fulfillment-whatevermay have been paid ordelivered by one or both ofthe parties upon theconstitution of the obligationshall have to be returnedupon the fulfillment of thecondition. There is a returnto the status quo. Aside

from the actual thingsreceived, the fruits or theinterests thereon shouldalso be returned afterdeducting the expensesmade for their production,gathering and preservation.When condition is notfulfilled, rights areconsolidated and theybecome absolute.

3) Potestative condi tion

a. When it dependsexclusively upon the will ofthe creditor-condition and

obligation is validb. When it dependsexclusively upon the will ofdebtor in case of asuspensive condition, it isvoid; illusory

c. When it dependsexclusively upon the will ofdebtor in case of aresolutory condition-it isvalid; not illusory

Noted: If the obligation is a pre-existing one, and does not

depend for its existence uponthe fulfillment by the debtor ofthe potestative condition, onlythe condition is void leavingunaffected the obligation itself.(valid)

4) Both Mixed and Casual cond ition-the obligation and condition shalltake effect

Effects of impossible conditions(Art . 1183)

1) Voids both obligation andcondition

2) If condition is negative, it isdisregarded and obligationbecomes pure

3) Only affected obligation is void4) Only the specific condition is

void5) It is considered as not imposed

Effects of positive and negativecondition

In positive condition,

obligation is extinguished assoon as the time expires orit becomes obvious that theevent will not take place

In negative condition, theobligation is effective fromthe moment the timeindicated has lapsed or if ithas become evident that theevent cannot occur,although indicated time hasnot yet lapsed.


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Intention of parties shallgovern if no time has beenfixed.

Doctrine of constructive fulfillment ofsuspensive condition (Art. 1186)

1) Deemed fulfilled when obligorprevented the obligee fromcomplying. Prevention must bewillful

2) Only applies to suspensive condition3) Mere intention to prevent is not

enough. There must be actualprevention

Requisites:a) Condition must be suspensive

b) Debtor actually prevents thefulfillment of the condition

c) He acts voluntarily

Brigido Valencia v. RFC and CAG.R. No. L-10749 April 25, 1958

Digest by: Minrado Batonghinog, Jr.

Facts: Respondent RFC issued andadvertised an invitation to bid for theconstruction of a building in Davao City.Petitioner Valencia submitted his bid inaccordance with the respondents invitation,

indicating 4 items: 1) complete constructionof the building including electrical andplumbing installations for P 389,980.00; 2)complete construction of the building only forP 358,480.00; 3) electrical installations onlyfor P 18,900.00; 4) plumbing installationsonly for P 12,600.00. The plumbinginstallation was awarded to the petitionerand he was notified through a letter datedJuly 28, 1952. Petitioner replied to suchnotice expressing his gratitude for the awardbut indicated that it would be advantageousfor the respondent to have the plumbing

installation awarded to the contractor whichwould undertake the construction of thebuilding as well. Petitioner failed to sign thecontract which led the respondent to awardthe plumbing installation to the contractorthat would construct the building in theamount of P 19,000. Respondent institutedan action in the CFI of Manila for therecovery of damages amounting to P 6,200(difference from the amount awarded to thepetitioner and the amount of the sameundertaking awarded to the contractor forbuilding construction) and attorneys fees

amounting to P 1,000. CFI ruled in favor ofpetitioner, but CA reversed the CFI rulingand ordered the petitioner to pay P 6,200

representing damages and attorneys fee ofP 1,000 to the respondent.

Issue: Is the petitioner under obligation toundertake the plumbing installation in favorof the respondent, non compliance of whichresulted to the damages sought by therespondent?

Held: YES. SC ruled that there alreadyexists a contractual obligation between thepetitioner and the respondent resulting fromthe petitioners offer consisting of 4 items,and the acceptance of one of the offers,specifically item no. 4 (plumbing installationonly). The acceptance of such offer, whichwas made by petitioner based on theinstructions given by the respondent,perfected the contract which gave rise tocontractual obligations of the petitioner.

Contrary to the petitioners argument thatthe acceptance was made after the lapse ofthe duration of his bid and therefore thecontract was not perfected, was notconsidered by the Court because in the firstplace his bid did not specify its duration.What lapsed was the bond that the petitionerissued. In addition to such, the acts of thepetitioner at the time he was given notice ofthe acceptance of his offer shows that heknew that the contract was perfected.

By submitting his bid in accordance with theconditions and requirements imposed by therespondent, there was already anacceptance of the respondents terms andcondition by the petitioner, and because ofthe un-qualified acceptance of his offer doneby the respondent, the contract was deemed

perfected. Petitioners failure to comply withthe notice sent to him regarding the signingof the contract did not relieve him of hisobligation nor affect the existence of acontract between him and the respondent.

Ratio: Each one of these items wascomplete in itself, and, as such, it wasdistinct, separate and independent from theother items. The award in favor of petitionerherein, implied, therefore, neithera modification of his offer nor a partial


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acceptance thereof. It wasan unqualified acceptance of the fourth itemof his bid, which item constituted a complete

offer or proposal on the part of petitionerherein. The effect of said acceptance was toperfect a contract, upon notice of the awardto petitioner herein.

As regards the second argument,petitioner's bid did not specify its duration. Itenclosed therewith a bond for ten percentum (10%) of the amount of said bid, incompliance with paragraph 10 of theinstruction to bidders. Althoughthe bond itself stated that it expired on June15, 1952, this does not mean that

the bid lapsed on the same date. The bondmerely guaranteed the performance ofaprincipal obligation of petitioner herein.Needless say, this principal obligation maystand without said bond, which ismerely accessory thereto, although the lattercannot exist without the former. Moreover,the bond was given for the benefit, not ofpetitioner, but of respondent, so that the

latter could legally waive said benefit.

Referring now to the third argument,paragraph 10 of the aforementioned

instruction to bidders, imposed upon themthe obligation to execute the correspondingdocuments "within five (5) days after noticeof the acceptance of his bid." Paragraph 15of said instruction to bidders, furtherprovided:

The contract shall be made and executed inquadruplicate and shall be accompanied bya bond or bonds given by the contractor withtwo or more good and sufficient sureties orwith a surety company, satisfactory to theManager, Industrial Department, RFC in a

penal sum equal to twenty (20) per cent ofthe full contract price of the work,conditioned for the faithful performance ofthe contract according to its tenor and effectand the satisfaction of obligation formaterials used and labor employed upon thesame.

The obligation to give the performance bondmentioned in this paragraph, as well as toexecute the instrument incorporating theconstruction contract, within five (5) daysfrom notice of acceptance of the bid, as

stated in paragraph 10 of the instruction tobidders, were accepted by petitioner herein,for he submitted his bid "subject to all

conditions and requirements" ofrespondent's invitation for bids. Hence, his(petitioner's) bid explicitly says:

We (or I) make this proposal with a fullknowledge of the kind, quantity, and qualityof the articles and services required andsaid proposal is accepted will, after receivingwritten notice of such acceptance, enter intocontract within five (5) days, with good andsufficient securities for the faithfulperformance thereof.

Accordingly, respondent's communication ofJune 16, 1952, advised petitioners that thecontract for plumbing installations wasawarded to him for P12,800 "withperformance bond of 20% thereof." Again,the letter of respondent's manager in Davao,dated July 28, 1952, in-formed petitionerthat the contract for the plumbinginstallations had been received from thehead office and asked him to call at thewriter's office for the purpose of affixing hissignature on said contract, and requestedhim to post said performance bond.Petitioner's failure to do so did not relieve

him of the obligation arising from the un-qualified acceptance of his offer. Much lessdid it affect the existence of a contractbetween him and respondent.

Petitioner insists that the giving of aperformance bond was a conditionprecedent. But such condition presupposesthe existence of a contract, which is qualifiedthereby. Compliance with said condition isessential to the existence of petitioner's rightto undertake the plumbing installations andcollect the price thereof. But, he had

a contractual right to give the performancebond, in the sense that respondent hadgranted him by agreement the right to postsaid bond, and, once this had been done, hecould invoke and enforce his other rights byvirtue of the award in his favor. At the sametime, respondent had a contractual right todemand the posting of the performancebond, and, upon failure of petitioner to doso, respondent had a similar right to refuseto allow petitioner to under-take theplumbing installations and to demanddamages for breach of petitioner's


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obligations. In either case, the existence ofthe contractual relation between the partiesdid not depend upon the posting the

performance bond. Although, the latter wasessential to the birth of some of the rightsstipulated in favor of petitioner herein, thoseof respondent were not conditioned upon the

giving of said performance bond.

Reynaldo Labayen, et. al. v . Talisay-SilayMilling Co., Inc.

G.R. No. L-29298 December 15, 1928Digest by: Minrado Batonghinog, Jr.

Facts: Labayen, the plaintiff, ownsHacienda Dos Hermanos. He entered into a

contract with the defendant, Talisay-SilayMilling Co., Inc. for the grinding of theplaintiffs sugar cane. The contract wassubject to a condition, that in order for thedefendant company to proceed with thegrinding of the sugar canes, it must first beallowed to construct a permanent railroad forthe transportation of the sugar canes. Therailroad construction of the company did notreach Hacienda Dos Hermanos. Accordingto the defendant, it could construct a railroadto the plaintiffs hacienda but it would bevery dangerous. The plaintiff sued thecompany for damages resulting from abreach of their contract to grind the formerssugar cane. After the re-hearing of the case,the defendant company was absolved andthe plaintiff was condemned to pay damagesto the defendant.

Issue: Is the defendant company liable fordamages for non-compliance with hisobligation to grind sugar, if such obligation isburdened with a condition performance ofwhich would result to undesirable harm?

Held: No. SC affirmed the decision of the

lower court.

Ratio: SC ruled that one cannot obligatehimself to do something which is dangerousand harmful to life and property. The generalcontract entered into by the plaintiff anddefendant was intended to be limited tohaciendas susceptible of having apermanent railroad for the operation of thedefendant company. According to the Court,not to allow an exception would be againstpublic policy by forcing the performance of

such condition upon the defendant companywhich is harmful and undesirable.

Another aspect of the case is the finding thatthe railroad could have been made to reachthe plaintiffs hacienda, but it would have topass through the haciendas of Esteban de laRama, but the latter did not allow at thattime. This was a scenario contemplated bythe 10th paragraph of the Mutual Obligationsprovision of the contract where thedefendant is absolved from any liability dueto non-compliance of the terms of thecontract grounded under reasonableconditions.

The Court added that:

The foregoing points being admitted, itlogically follows that the defendant canrecover on its cross-complaint. The defenseto the cross-complaint is identical with thetheory of the complaint. For the samereasons that the plaintiff cannot recovermust be make good for his debt to thedefendant.

Retroactivity in suspensive conditionRationale: condition is only an accidentalelement of the obligation. An obligation canexist even without a conditionRetroactivity has not application to realcontracts and contracts which can only berealized within successive intervals. Inreciprocal and unilateral obligations, theresno retroactivity.

Rights pending fulfillment of suspensiveconditions

1) Creditor-bring actions forpreservation of his rights

2) Debtor-to recover what had beenpaid by mistake. If payment is not

made by mistake, debtor is impliedto have waived the condition

Effects f loss, deterioration andimprovement in real obligations

a. Loss-with debtors fault,obligation is notextinguished; withoutdebtors fault, it isextinguished.

b. Deterioration- with debtorsfault, creditor may choosebetween bringing an action


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for rescission or specificperformance with damages;without debtors fault, it is

extinguished; withoutdebtors fault, impairment tobe borne by creditor.

c. Improvement-by nature ortime, inure to the benefit ofthe creditor; at the debtorsexpense, debtor shall haveno right other than thatgranted to a usufructuary.

Rescission of reciprocalobligations in general

Definition: right to cancel or resolvethe contract or reciprocal obligationsin case of non-fulfillment on the partof one. It is not absolute as the courtis given discretionary power to fixperiod within which defaulting partymay comply (art. 1191). Right torescind may be waived explicitly andimpliedly.

Section 2: Obligations with a Period

Art . 1193. Obligat ions for whosefulfillment a day certain has been fixed,

shall be demandable only when that daycomes.

Obligations with a resolutory period takeeffect at once, but terminate upon arrivalof the day certain.

A day certain is understood to be thatwhich must necessarily come, although itmay not be known when.

If the uncertainty consists in whether the

day will come or not, the obligation isconditional, and it shall be regulated bythe rules of the preceding Section.(1125a)

Art . 1194. In case o f loss, deterioration orimprovement of the thing before thearrival of the day certain, the rules in

Art ic le 1189 shall be observed. (n)

Art . 1195. Anything paid or deliveredbefore the arrival of the period, theobligor being unaware of the period or

believing that the obligation has becomedue and demandable, may be recovered,with t he fruits and interests. (1126a)

Art . 1196. Whenever in an obligat ion aperiod is designated, it is presumed tohave been established for the benefit ofboth the creditor and the debtor, unlessfrom the tenor of the same or othercircumstances it should appear that theperiod has been established in favor ofone or of the other. (1127)

Art . 1197. If the ob lig ation does not fix aperiod, but from its nature and thecircumstances it can be inferred that a

period was intended, the courts may fixthe duration thereof.

The courts shall also fix the duration ofthe period when it depends upon the willof the debtor.

In every case, the courts shall determinesuch period as may under thecircumstances have been probablycontemplated by the parties. Once fixedby the courts, the period cannot bechanged by them. (1128a)

Art . 1198. The debtor shall lose everyright to make use of the period:

(1) When after the obligation has beencontracted, he becomes insolvent,unless he gives a guaranty o r security f orthe debt;

(2) When he does not furnish to thecreditor the guaranties or securitieswhich he has promised;

(3) When by his own acts he hasimpaired said guaranties or securitiesafter their establishment, and whenthrough a fortuitous event theydisappear, unless he immediately givesnew ones equally satisfactory;

(4) When the debtor violates anyundertaking, in consideration of whichthe creditor agreed to t he period;

(5) When the debtor attempts t o abscond.


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(1129a)

Obligations with a term or period are

demandable only when the day fixed fortheir performance arrives

Classifications o f periods:1. Ex die- with a suspensive effect; it

becomes effective only upon thearrival of a certain day

2. In diem- with a resolutory effect;obligation will subsist up to a certainday

3. Legal - granted by law4. Voluntary - stipulated by parties5. Judicial -fixed by courts6. Definite - date/time is known

beforehand

Requisites1. It must be future,2. Certain (sure to come but may be

extended)3. Possible, legally and physically

Term/Period and Condition Distinguished

Basis Period ConditionTime Always refers

to the futureCan refer toan unknownpast event

Fulfillment Sure tohappen at anexact dateknown fromthe start or atan indefinitetime, but issure to arrive

May or maynot happenbeing anuncertainevent

Influenceon theobligation

Affects onlythe obligationsdemandabilityorperformance

May causethe arisingor cessationof theobligation

Ernest Berg v. Magdalena Estate, inc.G.R. No. L-3784 October 17, 1952

Digest by: James Aris Bordeos

Facts: This is an action for partition of theproperty known as Crystal Arcade situatedin Manila. The plaintiff and defendant are co-owners of said property, the former owning1/3 and the latter 2/3.

Hemady claims that it sold to Berg 1/3 of theproperty in litigation subject to the expresscondition that should either one decide to

sell his undivided share, the party sellingwould grant to the other part first anirrevocable option to purchase it. Hemadyclaims that Berg offered to sell his part forP200k and it was accepted. But Bergrefused to accept the payment of the price,and for this refusal Hemady suffereddamages in the amount of P100k, and asksfor specific performance. Berg claims thathis offer with Hemady was P350k, whileHemady claims that Berg offered to sell it forP200k subject to the condition that thenecessary permit be obtained from theUnited States Treasury Department.

The lower court ruled in favor of the plaintiffholding that no agreement has beenreached between the parties relative to thepurchase and sale of the property inquestion, and, recognizing the right ofplaintiff to demand partition under theprovisions of Rule 71 of the Rules of Court,it granted the relief prayed for in thecomplaint. Hence this appeal.

Issue:1. Whether an agreement to sell has

actually been reached between plaintiff anddefendant?

Held:No. SC found no error in the decisionappealed from and affirmed RTC decision."when the fulfillment of the conditiondepends upon the exclusive will of thedebtor the conditional obligation shall bevoid."

Ratio:Aside from the testimony of Berg andHemady, no document has been presentedevidencing that alleged agreement to sell.

Berg invoked the rule that such agreementcan only be established by a contract inwriting, or by a note or memorandumsubscribed by the party sought to becharged, as prescribed by the statute offrauds. So Hemady submitted in evidenceexhibits "3" (Berg's application) and "4"(Hemady's application), contending thatthese documents, read in connection withexhibit "1"(deed of sale containing theirrevocable option), constitute a written proofcontemplated by said statute. SC found theevidence in the exhibits satisfactory, all the


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requirements of the statute as to contentsand signature and, as such, they constitutesufficient proof to evidence the agreement in

question.

[T]he clause on which defendant relies forthe enforcement of its right to buy theproperty, is not a term, but a condition.Considering the first alternative, that is, untildefendant shall have obtained a loan fromthe National City Bank of New York, it isclear that the granting of such loans is notdefinite and cannot be held to come withinthe terms "day certain" provided for in theCivil code, for it may or it may not happen.

And if we consider that the period given was

until such time as defendant could raisemoney from other sources, we also find it tobe indefinite and contingent and so it is alsoa condition and not a term within themeaning of the law. In any event it isapparent that the fulfillment of the conditioncontained in this second alternative is madeto depend upon the defendant's exclusivewill, and viewed in this light, we are of theopinion that plaintiff's obligation to sell didnot arise, for, under Article 1115 of the oldCivil Code, "when the fulfillment of thecondition depends upon the exclusive will ofthe debtor the conditional obligation shall bevoid."

La Compaia General de Tabacos deFilipina v . Vicente Araza

GR No. 3019-February 9, 1907Digest by: Bon Jeffrey Caluag

Facts:Araza (the defendant) has a debt of8000 pesos to Compania General which ispayable by installment (500 pesos on the30th of June, 1901, and the remainder at therate of 100 pesos a month, payable on the

30th day of each month). Defendant failedto pay the installment only paying 400pesos. Thus, Compania General Institutedthis action seeking the foreclosure of themortgage for 8,000 pesos (the entire amountof mortgage). The defendant alleges that thedocument, which was the basis of theplaintiff's claim was executed by error on hispart and through fraud on the part of theplaintiff.

Issue: Does the creditor hold a right torecover the whole amount of the mortgage

on the ground that debtor failed to pay theinstallment?

Held: NO. The case was instituted on thetrial court on June 12, 1901. Given that, theonly demandable payment is the 100 pesosto complete the first agreed installment. Thecourt gave credit to the 400 pesos which

Arza admitted to have paid and wasreceived by the plaintiff. The CompaniaGeneral has no right to recover what is notyet demandable nor due. Likewise, thecontract contains no provision that upon thefailure of the debtor to pay one of theinstallment, the total amount of debt shouldbe paid at once.

Rationale: We are of the opinion that theobligation can be enforced in this action foronly the amount due and payable on the12th day of June, 1903.

The contract does not provide for thepayment of any interest. There is noprovision in it declaring expressly that thefailure to pay when due should put thedebtor in default. There was therefore nodefault which would make him liable forinterest until a demand was made. (CivilCode, Art. 1100; Manresa, Com. on Civil

Code, vol 8, p. 56.)

A Day Certain -understood to be that whichmust necessarily come, although it may notbe known (Par. 3, Art. 1193, CC)

General Rule: anything paid in good faithbefore the arrival of the period may berecoveredExceptions:

1. When obligation is reciprocal, andthere has been prematureperformance on both sides

2. Obligation is a loan on which thedebtor is bound to pay interest

3. Period is exclusively for the benefitof the debtor

Consequences of Premature Payment orDeliveryIf debtor is in:

1. Good faith- he may recover2. Bad faith- he cannot recover


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Benefit of the PeriodAs a general rule, it is for the benefit of boththe obligor and oblige, unless it can be

proved that it was established in favor of oneof tem

If the period was for the benefit of:Creditor- may demand the fulfillment of theobligation at any time but the obligor cannotcompel him to accept payment before theexpiration of periodDebtor- cannot be compelled to performobligation prematurely, but he can do so ifhe desires

Instances when the court may fix theperiod:1. If the obligation does not fix a period,

but from its nature circumstances it canbe inferred that a period was intended;

2. If the duration of the period dependsupon the will of the debtor; and

3. Ife the debtor binds himself when hismeans permit him to do so (Art. 1180)

Cosmic Lumber Company, Inc. V. GapitaManaois

GR No. L-12692-January 30, 1960Digest by: Bon Jeffrey Caluag

Facts: Manaois (defendant- appellant) ondifferent dates (from November 10, 1952 toJune 30, 1953) bought and received variousconstruction materials and hardware goodsfrom Cosmic Lumber (plaintiff-appellee)amounting to P12,127.57. She paidP6,979.83 from November 04, 1952 toMarch 10, 1954 and was credited to theaccount of the appellant. After instituting theoriginal complaint on March 24, 1954,Manaois paid Cosmic Lumber with 1,000pesos reducing her debt to P4, 147.74.

Appellant argues that no stipulation of timeor fixed time of payment where in the natureof the circumstances of the obligation, theperiod was intended; and thus the Court istasked to fix the period of payment. Theparties in the case entered into a contract ofsale on credit which among others statesthat hereby agreed that all may/orpurchases from this Company are payablein the said City of Dagupan. It is agreed thatif this bill is not paid within... days from datehereof I/we will pay interest at the rate of 10per centum per annum on all overdue

accounts. The buyer hereby agrees to payand all attorney's fees and court costsshould the seller institute legal action.

Goods travel at buyer's risk.

Issue:1. Was there an intended date?2. Should the Court set the date?

Held: Yes on both issues. The nature andcircumstance of the contract shows that theparties intended to have a date but failed todo so. Note that in the contract it says bill isnot paid within . . . days. In such casepursuant to Article 1197 of the Civil Code,the Court may fix the date.

Rationale: The parties intended to fix aperiod for payment of the appellant'sobligation but failed to do so. Under article1197 of the new Civil Code, the Court mayfix it. Taking into consideration that from 10November 1952, the first sale, and 30 June1953, the last sale, to the present, morethan six and nearly seven years alreadyhave elapsed, the appellant who does notdeny her obligation must be ordered to paythe appellee the amount she still owes itwithin fifteen (15) days from the date the

judgment shall have become final.

The debtor shall lose the right to makeuse of the period if:1. He becomes insolvent, unless he gives

a guaranty or security for the debt (theinsolvency need not be judiciallydeclared)

2. He does not furnish to the creditor theguaranties or securities which he haspromised

3. By his own act he has impaired saidguaranties or securities after theirestablishment , and when through

fortuitous event they disappear, unlesshe immediately gives new ones equallysatisfactory

4. He violates any undertaking inconsideration of which the creditoragreed to the period

5. He attempts to abscond


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Section 3: Alternative Obligation

Art . 1199. A person alternatively bound

by different prestations shall completelyperform one of them.

The creditor cannot be compelled toreceive part of one and part of the otherundertaking. (1131)

Art . 1200. The rig ht of choice belongs tothe debtor, unless it has been expresslygranted to the creditor.

The debtor shall have no right to choosethose prestations which are impossible,

unlawful or which could not have beenthe ob ject of the obligat ion. (1132)

Art . 1201. The cho ice shall produce noeffect except from the time it has beencommunicated. (1133)

Art . 1202. The debtor shall lose the rightof choice when among the prestationswhereby he is alternatively bound, onlyone is practicable. (1134)

Art . 1203. If th rough the creditor 's acts

the debtor cannot make a choiceaccording to the terms of the obligation,the latter may rescind the contract withdamages. (n)

Art . 1204. The creditor shall have a rightto indemnity for damages when, throughthe fault of the debtor, all the thingswhich are alternatively the object of theobligation have been lost, or thecompliance of the obligation has becomeimpossible.

The indemnity shall be fixed taking as abasis the value of the last thing whichdisappeared, or that of the service whichlast became impossible.

Damages other than the value of the lastthing or service may also be awarded.(1135a)

Art . 1205. When the choic e has beenexpressly given to the creditor, theobligation shall cease to be alternative

from the day when the selection hasbeen communicated to the debtor.

Until then the responsibi lity of the debtorshall be governed by the following rules:

(1) If one of the things is lostthrough a fortuitous event, heshall perform the obligation bydelivering that which the creditorshould choose from among theremainder, or that which remainsif only one subsists;

(2) If the loss o f one of the thingsoccurs through the fault of the

debtor, the creditor may claimany of those subsisting, or theprice of that which, through thefault of the former, hasdisappeared, with a right todamages;

(3) If all the things are lostthrough the fault of the debtor,the choice by the creditor shallfall upon the price of any one ofthem, also with indemnity fordamages.

The same rules shall be applied toobligations to do or not to do in caseone, some or all of the prestationsshou ld become impossib le. (1136a)

Art . 1206. When on ly one prestation hasbeen agreed upon, but the obligor mayrender another in substitution, theobligation is called facultative.

The loss or deterioration of the thingintended as a substitute, through thenegligence of the obligor, does notrender him liable. But once thesubstitution has been made, the obligoris liable for the loss of the substitute onaccount of his delay, negligence or fraud.(n)

Conjunctive- debtor has to perform all theseveral prestations in the contract in thecontract to extinguish the obligation

Alternative- alternatively bound by differentprestations but the complete performance of


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Atty. Chato Olivas-Gal