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Pure obligations ● No terms or conditions upon which depends the fulfillment of the obligation
● Demandable
● Nothing to exempt debtor from compliance
● When the period originally given has been cancelled by mutual agreement or non-fulfillment resolves the period stipulated
● A demand note is a pure obligation
No suspensive condition or period
RULING
Reversed the CA decision
No date of payment at the promissory note
“on or before UNTIL FULLY PAID”
CASE DOCTRINE
Condition
GONZALES v HEIRS OF CRUZ every future or uncertain event upon which an obligation or provision is made to happen
(DEFINITION OF CONDITION &
FUTURE AND UNCERTAIN) FACTS
Paula Cruz et al. entered into a contract of lease/purchase with Gonzales.
Petitioner took possession of the land after paying the annual rental on the half portion of the property
However, did not exercise option to purchase property after expiration of 1 year lease
Despite this, he remained in possession
Due to non-payment, letters were sent by the respondents to the petitioner however, the latter still refused
Respondents alleged breach of contract of lease/purchase; also filed recovery of possession
RTC ruled in favor of petitioner
REASONS
Respondents failed to notify petitioner
Cannot rescind contract of purchase because there was a condition precedent which the respondents failed to fulfill
PAR 9. Lessors shall obtain a separate and distinct TCT over the leased portion to the lessee within 4 years
Reversed by CA
Transfer of title cannot be considered as a condition precedent to the payment of the agreed purchased price
RULING
Respondents cannot rescind contract of sale because they have not cause the transfer of TCT (condition precendent to petitioner’s obligation)
Only after the title is assured may the obligation to buy the land and pay be enforced
Court to fix period Creditor should fix a period for the payment of the obligation
An immediate action to enforce obligation, without period having been previously fixed, would be premature
Resolutory
Condition subsequent
If condition happens the rights/obligation are extinguished
Example
If a person donates land to the City of Manila subject to the condition that the City shall transform it into a public park within 1 year, the
City’s failure to transform the land into a public park extinguishes its rights over it.
Resolutory
Creditor’s rights become absolute
CASE Topic: Determining between obligations with suspensive conditions and obligations with terms.
GAITE v FONACIER (SUSPENSIVE Facts:
OR RESOLUTORY) 1. Fonacier was the owner of 11 iron lode mineral claims.
2. Fonacier executed a “Deed of Assignment” wherein Gaite was appointed as his attorney-in-fact with powers enter into contract with any individual
or juridical person for exploration and development of mining claims for a royalty of Php 0.50 per ton of ore to be extracted.
3. Gaite began mining operations and eventually extracted approximately 24,000 metric tons of iron ore.
4. Fonacier decided to revoke the authority he granted Gaite, to which Gaite agreed but subject to conditions. Gaite agreed to transfer all his rights
over the 24000 tons of iron ore for Php 75,000, Php10,000 of which was paid upon the signing of the agreement. In regards to the remaining
Php65,000, Gaite insisted on a surety bond to be executed between the two.
5. The surety bond was executed on December 8, 1954 wherein the Php65,000 was to be paid with the condition that the sum of money will be paid
when there had been an actual sale of iron ore by the company for an amount of not less than Php65,000 and that the liability of the surety
company would expire automatically on December 8,1955.
6. On December 8, 1955 neither sale of the iron ore nor the payment to Gaite had been made. Thus the present petition.
7. Procedural Facts:
a. Gaite petitioned in CFI, which rendered judgement in favor of Gaite.
Issues:
1. WON the lower court erred in holding that the obligation of Fonacier to pay Gaite is one with A PERIOD AND NOT A SUSPENSIVE CONDITION, and
that the term expired on December 8, 1955 (Revelant) Yes
2. WON lower court erred in holding that there were only 10,954.5 tons in stockpiles of iron ore sold by appellee Gaite to Fonacier. No
Held:
Lower court affirmed.
Ratio:
First issue: Obligation with suspensive conditions vs. Obligations with terms
1. The court held that the obligation above was one with a term not a suspensive condition. Four arguments why:
a. The words of the contract show no uncertainty that payment will have to be made. Conditional obligations are based on uncertain
future events.
b. Gaite’s actions in securing a surety bond show that he had no intention to leave his compensation uncertain.
c. To support Fonacier’s version of the obligation would leave the payment at the discretion of the debtor, which would render the
conditional obligation void.
d. “The Greater Reciprocity of Interest” principle states that in cases wherein there is doubt as to the intention of the parties regarding a
suspensive period or condition, it is assumed that the version with the greatest reciprocity of interests is followed.
2. Therefore it was a obligation with a term not a condition and payment is demandable, as the term had expired.
Second Issue: Did the lower court err in holding that 10,954.5 tons in stockpiles of iron ore sold by appellee Gaite to Fonacier. – NO
Casual condition
Depends exclusively upon chance
Dependent upon the will of a 3rd person
Mixed condition
Depends upon the will of the contracting parties and other circumstances
Precept contained in the 1st sentence of ART 1182 is applicable only to suspensive condition (condition fulfilled right/obligation arises)
if the condition is resolutory and potestative at the same time = obligation and condition is valid
even if fulfillment of the obligation is based upon the exclusive will of the obligor
natural because the obligor has the interest of fulfilling the condition
only through which he can acquire rights
Mixed conditions If third person cannot carry out the condition and the obligor has done all in his power to comply with the obligation
the other party may be ordered to comply with his part of the contract
CASE TOPIC:
ii. Rules governing resolutory conditions
LIM v CA B. Potestative, Casual or Mixed (Art. 1182)
RELEVANT PROVISION/TERMS:
Art. 1182, NCC.
When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void. If it depends upon chance or upon
the will of a third person, the obligation shall take effect in conformity with the provisions of this Code.
Potestative Condition- speaks of fulfillment of an obligation that rests solely upon the will of the debtor. Potestative conditions do not create obligations at
all, impose no duty on the parties, and for this reason are invalid as clauses in a contract. An obligation which is subject to a suspensive potestative condition
is void and non-demandable, even though written into a contract or agreement.
The disputed stipulation which allows the lessee to stay on the premises as long as he needs it and can pay rents is a purely potestative condition because it
leaves the effectivity and enjoyment of leasehold rights to the sole and exclusive will of the lessee.
Pursuant to Art. 1182 of the New Civil Code, conditional obligations whose fulfillment depends upon the sole will of the debtor shall be void. The continuance,
effectivity and fulfillment of a contract of lease cannot be made to depend exclusively upon the free and uncontrolled choice of the lessee completely
depriving the owner of any say in the matter.
● In a reciprocal contract like a lease, the period of the lease must be deemed to have been agreed upon for the benefit of both parties.
● The clause "for as long as defendant needs the premises and can meet and pay the rents" is not an independent stipulation but subject to the
option for renewal upon agreement of both parties.
In Encarnacion vs. Baldomar, et al., the Court ruled that in an action for ejectment, the defense of lessees that the contract of lease authorized them to continue
occupying the premises as long as they paid the rents is untenable, because it would leave to the lessees the sole power to determine whether the lease
should continue or not.
● If this defense were to be allowed, so long as the lessees elected to continue the lease by continuing the payment of the rentals, the owner would
never be able to discontinue it.
● In such a contract of lease, mutuality is not obtain and no equality exists between the lessor and the lessee since the life of the contract is dictated
solely by the lessee.
SC: Even assuming that the clause "for as long as the defendant needed the premises and can meet and pay, said increases" gives the lessee an option to
renew the lease, the stipulation has to be construed as providing for but one renewal or extension and, therefore, was satisfied when the lease was renewed
in 1982 for another three years.
● A general covenant to renew is satisfied by one renewal and will not be construed to confer the right to more than one renewal unless provision
is clearly and expressly made for further renewals.
The respondent court erred in holding that the action for ejectment is barred by res judicata. While it is true that a compromise agreement has the effect of
res judicata, this doctrine does not apply in the present case since it is lacks the fourth requisite for a judgment to be a bar to a subsequent case: (1) it must
be a final judgment, (2) the court which rendered it had jurisdiction over the subject matter and the parties, (3) it must be a judgment on the merits.(4)
there must be identity between the two cases as to parties, subject matter and cause of action is lacking.
● The subject matter in the first ejectment case is the original lease contract in 1978 while the subject matter in the case at bar is the lease created
in 1982 under the terms provided in the subsequent compromise agreement.
● There is also no identity in the causes of action. In the case at bar, the delict or the wrong in the first case is different from that in the second, and
the evidence that will establish the cause of action in the former will not suffice to support and establish that in the latter.
MATERIAL FACTS:
Lim entered into a contract of lease with Dy for a period of 3 years (1976-1979) but after the stipulated term expired, Dy refused to vacate the premises of
Lim’s property.
● Lim filed an ejectment suit in the City Court of Manila, which was terminated after a judicially approved compromise agreement of the parties,
providing in part:
“3. That the term of the lease shall be renewed every three years retroacting from October 1979 to October 1982; after which the abovenamed
rental shall be raised automatically by 20% every three years for as long as defendant needed the premises and can meet and pay the said
increases, the defendant to give notice of his intent to renew sixty (60) days before the expiration of the term;”
● By reason of said agreement the lease continued from 1979-1982, then 1982-1985.
April 17, 1985: Lim advised Dy that he will no longer renew the contract upon its expiry on October.
● Dy informed Lim of his intention to renew the contract for another term (1985-1988), to which Lim replied that he does not agree to a renewal
of contract upon its expiration on October.
Because of Dy’s refusal to vacate his premises, Lim filed another ejectment suit at the Manila MTC
● The civil case was rejected by the Manila MTC, then RTC and then CA on the grounds that (1) the stipulation in the compromise agreement which,
in its formulation, allows the lessee to stay on the premises as long as he needs it and can pay rents is valid, and (2) that their earlier compromise
agreement has the effect of res judicata.
HELD:
The CA Decision is REVERSED AND SET ASIDE. Benito Dy is ordered to immediately vacate and return the possession of the premises and pay the monthly
rentals due thereon in accordance with the compromise agreement until he actually vacated the same. Judgment is immediately executory.
CASE Summary:
NATELCO and CASURECO II entered into a contract (Exhibit A) that
NAGA TELEPHONE v CA 1) NATELCO will provide 10 telephone connections for CASURECO II
2) In exchange, NATELCO will use electric light posts of CASURECO II
After 10 years, NATELCO sought to reform the contract stating that it is too one-sided, favoring NATELCO because the cables strung on the posts have become
heavier, and to achieve equity from rising costs, the contract needs to be reformed.
NATELCO claimed that this is a purely potestative condition, making it invalid:
That the term or period of this contract shall be as long as the party of the first part has need for the electric light posts of the party of the second part it
being understood that this contract shall terminate when for any reason whatsoever, the party of the second part is forced to stop, abandoned [sic] its
operation as a public service and it becomes necessary to remove the electric light post.
The trial court and CA affirmed the reformation to compensate both sides, but NATELCO was trying to make the initial contract void, claiming that it is purely
potestative. The SC held that the conditions of the contract are to be interpreted as a mixed provision, thus, making the contract still valid -- applying the
directive of the trial court to make each company compensate the other fairly.
TOPIC:
2. Kinds of conditional obligations
b. Potestative, Casual or Mixed
Potestative: if fulfillment of the condition depends on the will of one of the parties
Conditional obligation becomes → void
Casual: if the fulfillment of the condition depends upon chance or the will of third persons (not the will of any of the contracting parties)
Mixed: if the fulfillment of the condition depends upon the will of one of the contracting parties and other circumstances, including the will of third persons
→ depends on chance, hazard, or the will of a third person
LAWS/PROVISIONS:
From Sir’s Outline:
Art. 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void. If it depends upon chance
or upon the will of a third person, the obligation shall take effect in conformity with the provisions of this Code. (1115)
Art. 1267
When the service has become so difficult as to be manifestly beyond the contemplation of the parties, the obligor may also be released therefrom, in whole
or in part.
Rationale:
> general rule: impossibility of performance releases the obligor
> when the service becomes so difficult (beyond contemplation of the parties), the court should be authorized to release the obligor in whole or in part
> intention of the parties should govern
> it would be violence to that intention to hold the obligor still responsible
*fair and square consideration underscores the legal precept
FACTS:
> CA applied Art 1267 in favor of CASURECO II
> NATELCO insists that the complaint should have been dismissed for failure to state a cause of action
“Equity demands a certain economic equilibrium between the prestation and the counter-prestation, and does not permit the unlimited
impoverishment of one party for the benefit of the other by the excessive rigidity of the principle of the obligatory force of contracts.” (IV Tolentino,
Civil Code of the Philippines)
ISSUE:
W/N the decision of CA, to reform the initial agreement into making each company compensate one another, applying Art 1267 in favor of the electric
power company CASURECO II, is valid?
JUDGMENT:
YES. The contract is subject to mixed conditions, that is, they depend partly on the will of the debtor and partly on chance, hazard or the will of a third
person, which do not invalidate the aforementioned provision.
In relation to Art. 1267, the Court emphasized that in this case, they cannot simply release the parties from the contract:
“We have to take into account the possible consequences of merely releasing the parties therefrom: petitioners will remove the telephone
wires/cables in the posts of private respondent, resulting in disruption of their service to the public; while private respondent, in consonance
with the contract will return all the telephone units to petitioners, causing prejudice to its business. We shall not allow such eventuality. “
Lim v CA
in a contract of lease wherein the parties agreed that the lessee could stay on the leased premises "for as long as the defendant needed the premises and can
meet and pay said increases"
-- > invalid: a purely potestative condition because it leaves the effectivity and enjoyment of leasehold rights to the sole and exclusive will of the lessee
→ not the same for the current case, since NATELCO and CASURECO II entered into a mixed conditional obligation contract
In reformation of contracts, what is reformed is not the contract itself, but the instrument embodying the contract. It follows that whether the contract is
disadvantageous or not is irrelevant to reformation and therefore, cannot be an element in the determination of the period for prescription of the action to
reform.
Prescription
Article 1144 of the New Civil Code provides, inter alia, that an action upon a written contract must be brought within ten (10) years from the time the right
of action accrues. Clearly, the ten (10) years period is to be reckoned from the time the right of action accrues which is not necessarily the date of execution
of the contract. As correctly ruled by respondent court (CA), private respondents right of action arose sometime during the latter part of 1982 or in 1983
when according to Atty. Luis General, Jr. x x x, he was asked by (private respondents) Board of Directors to study said contract as it already appeared
disadvantageous to (private respondent) (p. 31, tsn, May 8, 1989). Private respondents cause of action to ask for reformation of said contract should thus
be considered to have arisen only in 1982 or 1983, and from 1982 to January 2, 1989 when the complaint in this case was filed, ten (10) years had not yet
elapsed.
ISSUE:
W/N Rustan Pulp and Paper Mills may legally exercise the right of stoppage should there be a glut of raw materials at its plant. NO.
HELD:
● A purely potestative imposition (like herein petitioners having the option to stop deliveries based solely on their will) must be “obliterated from
the face of the contract without affecting the rest of the stipulations considering that the condition relates to the fulfillment of an already existing
obligation and not to its inception”
● Petitioners assert that the letter of notice only meant for a temporary suspension of deliveries, but the contract itself “speaks loudly about
petitioners' prerogative”
● The condition attached to it which is dependent exclusively on the petitioners’ will gives this Court no alternative but to treat the controversial
stipulation as inoperative (1306, NCC)
○ The nature of the suspension itself is again conditioned upon petitioner's determination of the sufficiency of supplies at the plant
● The fact that Rustan Pulp still kept accepting Lluch’s deliveries doesn’t absolve the petitioners of their liability
TOPIC IN DISCUSSION
The condition of purchasing a lot which the party does not have ownership over is impossible, rendering the condition impossible and annulled. However,
the remaining obligation of the purchase of the original two lots remains valid.
MATERIAL FACTS
· The case involves claims to ownership over 2 parcels of land (Lots 1 and 2) in Panapan, Bacoor, Cavite
· Parties constantly fought one another for the land, involving a tug-of-war between possession over the certificate of title of the land
· On August 6, 1993, Severina’s heirs decided not to pursue anymore, instead they entered into a compromise with Dominador, et al.
· According to the compromise:
o Severina’s heirs will sell lots to Dominador, et al. for P1.5M
o After payment, they will deliver Transfer Certificate of Title No. T-223511
o This delivery is conditioned upon the purchase of another lot for an additional P300,000
§ Must be paid within 2 months from the compromise, if not, compromise will be void
· Dominador, et al. filed with RTC praying that Severina’s heirs deliver the certificate of title to them
· Severina’s heirs opposed, saying that the payment of P300,000 had not been done within 2 months
Example A person should pay a sum of money subject to the condition that a certain person shall arrive at a designated place in one year
Obligation will be extinguished
One year passes and he does not arrive OR
Such person dies in the lapse of one year
FACTS
1. Respondent Francisco Joaquin submitted a proposal to the Board of Directors of the International Hotel Corporation for him to render technical
assistance in securing a foreign loan for the construction of a hotel, to be guaranteed by DBP. The proposal encompassed 9 phases and the board
approved phase 1 to phase 6 of the same.
2. After IHC submitted its application to DBP, Joaquin wrote IHC to request payment of his fees amounting to P500, 000 for the services that he had
provided and would be providing to IHC in relation to the hotel project. He also intimidated his amenability to receive shares of stock instead of cash.
3. Stockholders of IHC met and granted Joaquin’s request, allowing payment for Joaquin and Rafael Suarez.
4. Afterwards, Joaquin recommended that the BOD consider Materials Handling Corporation based on the more beneficial terms it had offered. It was
accepted. Negotiations with Materials Handling Corporation and with its principal, Barnes ensued. While the negotiations were ongoing, Joaquin and
Jose Valero met with another financier, Weston to explore possible financing. When Barnes failed to deliver the needed loan, IHC informed DBP that it
would submit Weston for DBP’s consideration
5. IHC entered into an agreement with Weston but DBP denied the application.
6. Due to Joaquin’s failure to secure the needed loan, IHC cancelled the 17, 000 shares of stock previously issued to Joaquin as payment for their services.
7. Joaquin and Suarez commenced action for specific performance, annulment, damages and injunction by a complaint in the RTC. Joaquin avers that they
had failed to meet their obligation because
IHC’s president and his son intervened and negotiated with Barnes instead of Weston.
8. RTC held IHC liable. CA affirmed IHC’s liability.
ISSUES and RULING:
W/N IHC voluntarily prevented Joaquin from complying with his obligations: NO
W/N IHC is liable: YES, under the rule on constructive fulfilment of a mixed conditional obligation
PAR 2
No time fixed
- Condition deemed fulfilled at such time as may have probably been contemplated
Bearing in mind nature of obligation
Example Obligation to deliver a piece of land to X subject to the condition that he shall not marry within two years
Obligation shall become effective and land shall be delivered to X
2 years expired without X having married
X enters priesthood before 2 years expired
Intent to prevent compliance Where the act of the debtor did not have for its purpose the prevention of fulfillment of the condition
Will not fall under scope of article
Contracts of creditor If the creditor, before the happening of the condition, has already disposed of his expected right
Happening of the suspensive condition makes effective the act performed pendente conditione
Fruits and interests Law does not require the delivery or payment of the fruits or interest accruing before the happening of the suspensive condition
Not within the principle of retroactivity
If unilateral
Fruits received by the debtor before the happening of the condition are kept by him and are not delivered upon fulfillment of the condition
Debtor does not receive anything from the creditor in a unilateral obligation
Fruits and interests Since all vestiges of obligation must be wiped out
duty of restitution also applied to fruits and interests
ISSUE
W/N Tudtud et al. are entitled for the reconveyance of the land expropriated – YES
HELD
The condition for the extinguishment of an obligation to give had been met (no structures related to the operation of the Cebu Lahug Airport were
constructed on the land expropriated) so article 1190 will apply.
WHEREFORE, the petition is, in light of the foregoing disquisition, DENIED. The
May 8, 2006 Decision of the Court of Appeals affirming that of Branch 20 of the Cebu City Regional Trial Court is AFFIRMED with MODIFICATION as follows:
1. Respondents are ORDERED to return to the MCIAA the just compensation they received for the expropriation of Lot No. 988 plus legal interest in
the case of default, to be computed from the time the MCIAA complies with its obligation to reconvey Lot No. 988 to them;
2. Respondents are ORDERED to pay the MCIAA the necessary expenses it incurred in sustaining Lot No. 988 and the onetary value of its services to
the extent that respondents were benefited thereby;
3. The MCIAA is ENTITLED to keep whatever fruits and income it may have obtained from Lot No. 988; and
4. Respondents are also ENTITLED to keep whatever interests the amounts they received as just compensation may have earned in the meantime,
as well as the appreciation in value of Lot No. 988 which is a natural consequence of nature and time;
The case is REMANDED to Branch 20 the Regional Trial Court of Cebu City only for the purpose of receiving evidence on the amounts that respondents will
have to pay to the MCIAA in accordance with this Court's decision.
OTHER CONCEPTS
Fee Simple - one in which the owner is entitled to the entire property, with unconditional power of disposition during one's life, and descending to one's
heirs and legal representatives upon one's death intestate. Such estate is unlimited as to duration, disposition, and descendibility.
The abandonment of the particular public use or purpose for which the property was taken is not a ground for the recovery of the expropriated lot by the
previous owner, the title of the selling or donating expropriating agency being one in fee simple.
Declaration of rescission The rescission may take place by the declaration of the injured party
Rescission is a power
does not require previous declaration of rescission by the courts
However, the injured party cannot by himself resolve the obligation
Injured party should still apply to the court for a decree of rescission or resolution
If obligation has not yet been performed
Extrajudicial rescission of the party who is willing to perform will suffice
If the injured party has already performed
Ask for judicial declaration
Express resolutory condition Parties in bilateral contract may stipulate that if one of them does not comply with the obligation, the contract shall be automatically resolved