Obligations with a Period – Art.

1193, 1180 The lapse of the estimated 6-year period did not deem the project
completed much less bring about the fulfillment of the condition
Solante v. COA stipulated in the MOA (on the shift of ownership over the
G.R. No. 207348, 19 August 2014 demolished properties). As it were, the Mandaue-F.F.Cruz MOA
FACTS: states that the structures built by F .F. Cruz on the property of the
city will belong to the latter only upon the completion of the
The City of Mandaue and F.F. Cruz Inc. entered into a Contract of project. Clearly, the completion of the project is a suspensive
Reclamation with land-sharing agreement to be undertaken by the condition that has yet to be fulfilled. Until the condition arises,
latter. The project was estimated to be completed within six (6) ownership of the structures properly pertains to F.F. Cruz. Petition
years as stipulated in the contract. The parties executed an MOA is granted.
wherein all improvements by the F.F. Cruz on the City’s portion of
the land shall belong to the latter after project completion. The
project was not completed within 6 years. Thereafter, the DPWH
contracted with F.F. Cruz to demolish improvements on the City’s
parcel of land for a road-widening project. Petitioner Solante,
prepared disbursement vouchers in favor of F.F. Cruz as payment
for the demolished improvements. COA disallowed the
disbursement, stating that the failure of FF. Cruz to finish the
project within 6 years means the project is deemed completed and
that the City now owns the rights to the demolished
improvements, hence, F.F. Cruz cannot collect payments from the
demolition of the same.

ISSUE:

WON F.F. Cruz owned the improvements demolished.

RULING:

Yes. F.F. Cruz owned said properties and can collect the payments
for their demolition.

SC ruled that a mere estimate of a period of project completion

does not fall under the definition of a fixed period or day certain as
defined in law. Art. 1193 of the Civil Code provides that:
“Obligations for whose fulfillment a day certain has been fixed,
shall be demandable only when that day comes; Obligations with a
resolutory period take effect at once, but terminate upon arrival of
the day certain; A day certain is understood to be that which must
necessarily come, although it may not be known when; If the
uncertainty consists in whether the day will come or not, the
obligation is conditional, and it shall be regulated by the rules of
the preceding Section.”
Presumption – Art. 1196
Ponce de Leon v. Syjuco
G.R. No. L-3316, 31 October 1951
FACTS:
Plaintiff obtained from defendant Syjuco two loans in 1944. One is
for P200,000 obtained on May 5, 1944, and another for P16,000
obtained on July 31, 1944. These two loans appear in two
promissory notes signed by the plaintiff which were couched in
practically the same terms and conditions and were secured by
two deeds of mortgage covering the same parcels of land. In said
promissory notes it was expressly agreed upon that plaintiff shall
pay the loans “within one year from May 5, 1948, . . . peso for
peso in the coin or currency of the Government of the Philippines
that, at the time of payment above fixed it is the legal tender for
public and private debts, with interests at the rate of 6% per
annum, payable in advance for the first year, and semi-annually
in advance during the succeeding years”, and that, the period
above set forth having been established for the mutual benefit of
the debtor and creditor, the former binds himself to pay, and the
latter not to demand the payment of, the loans except within the
period above mentioned. And as corollary to having the above
stipulations, it was likewise agreed upon in the two deeds of
mortgage that “if either party should attempt to annul or alter any
of the stipulations of this deed or of the note which it secures, or
do anything which has for its purpose or effect an alteration or
annulment of any of said stipulations, he binds himself to
indemnify the other for the losses and damages, which the parties
hereby liquidate and fix the amount of P200,000”.
The facts show that, on November 15, 1944, or thereabouts,
contrary to the stipulation above mentioned, plaintiff offered to
pay to the defendant not only the principal sum due on the two
promissory notes but also all the interests which said principal
sum may earn up to the dates of maturity of the two notes, and as
the defendant refused to accept the payment so tendered, plaintiff
deposited the money with the clerk of court and brought this
action to compel the defendant to accept it to relieve himself of
further liability.
ISSUE:
Is the consignation made by the plaintiff valid in the light of the law and
the stipulations agreed upon in the two promissory notes signed by the
plaintiff?
RULING:
Negative. In order that consignation may be effective, the debtor
must first comply with certain requirements prescribed by law.
The debtor must show (1) that there was a debt due; (2) that the
consignation of the obligation had been made because the creditor
to whom tender of payment was made refused to accept it, or
because he was absent for incapacitated, or because several
persons claimed to be entitled to receive the amount due (Art.
1176, Civil Code); (3) that previous notice of the consignation has
been given to the person interested in the performance of the
obligation (Art. 1177, Civil Code); (4) that the amount due was
placed at the disposal of the court (Art 1178, Civil Code); and (5)
that after the consignation had been made the person interested
was notified thereof (Art. 1178, Civil Code). In the instant case,
while it is admitted a debt existed, that the consignation was made
because of the refusal of the creditor to accept it, and the filing of
the complaint to compel its acceptance on the part of the creditor
can be considered sufficient notice of the consignation to the
creditor, nevertheless, it appears that at least two of the above
requirements have not been complied with. Thus, it appears that
plaintiff, before making the consignation with the clerk of the
court, failed to give previous notice thereof to the person interested
in the performance of the obligation. It also appears that the
obligation was not yet due and demandable when the money was
consigned, because, as already stated, by the very express
provisions of the document evidencing the same, the obligation
was to be paid within one year after May 5, 1948, and the
consignation was made before this period matured. The failure of
these two requirements is enough ground to render the
consignation ineffective. And it cannot be contended that plaintiff
is justified in accelerating the payment of the obligation because
he was willing to pay the interests due up to the date of its
maturity, because, under the law, in a monetary obligation
contracted with a period, the presumption is that the same is
deemed constituted in favor of both the creditor and the debtor
unless from its tenor or from other circumstances it appears that
the period has been established for the benefit of either one of
them (Art. 1127, Civil Code). Here no such exception or
circumstance exists.
 lessors prerogative to terminate the lease at its expiration. The
Presumption – Art. 1196 fulfillment of a contract of lease cannot be made to depend
exclusively upon the free and uncontrolled choice of the lessee and
Buce v. CA completely depriving the owner of any say in the matter. Mutuality
G.R. No. 136913, 12 May 2000 does not obtain in such a contract of lease and no equality exists
between the lessor and the lessee since the life of the contract
FACTS: would be dictated solely by the lessee.

Petitioner Anita Buce leased a 56 square meter of land located at

Quirino Avenue, Pandacan, Manila. The lease was for a period of
15 years to commence on June 1, 1979 and subject to renewal for
another 10 years, under the same terms and conditions.
Respondent Jose Tiongco, demanded a gradual increase in the
rent for Php 1,000 on 1991. On December 1991, respondent wrote
petitioner informing the increase of rent pursuant to the Rent
Control Law, effective on January 1992. However, petitioner
tendered checks dated October 1991 to January 1993 for only Php
400 payable to respondent as administrator which the latter
refused to accept. Petitioner filed a complaint for specific
performance which the trial court ruled in favor of petitioner.
Appellate court reversed the decision.

ISSUE:

Whether or Not the period of lease is to renew the contract be

given to the lessor.

RULING:

Yes. In the given case of contract of lease, it is given to the lessor.

As a general rule under Article 1196 of the Civil Code, the period
of the lease contract is deemed to have been set for the benefit of
both parties. Renewal of the contract may be had only upon their
mutual agreement or at the will of both of them. In the given case,
“this lease shall be for a period of fifteen years effective June 1,
1979, subject to renewal for another ten (10) years, under the
same terms and conditions” does not mean an automatic
extension of the contract. The fact that the lessee was allowed to
introduce improvements on the property is not indicative of the
intention of the lessors to automatically extend the contract.
However, in the given case, Tionco were not amenable to a
renewal, they cannot be compelled to execute a new contract when
the old contract terminated on 1 June 1994. It is the owner-

When court may fix a period – Art. 1197
Araneta v. Philippine Sugar Estate Development Co.
G.R. No. L-22558, 31 May 1967
FACTS:
J.M. Tuason & Co., Inc. through Gregorio Araneta, Inc. sold a
portion of their land to Philippine Sugar Estates Development with
a condition that the buyer will build a church in the said land
while the seller will construct a street within the property. The
buyer had already finished building the church while the seller
had failed to do the construction of the street in Northeast side
because a certain person was occupying its middle portion and
refused to vacate.
Now the buyer filed a case in court contending that the seller must
evict the person occupying the property and finish the
construction. The seller now contends that the case was
premature because it is without definite period. The lower court
then gave a two year period to seller to evict the squatter and to
construct the street.
period but from the nature and the circumstances it can be
inferred that a period was intended”. The Court must then proceed
to the second step, and decide what period was “probably
contemplated by the parties” So the Court cannot fix a period
merely because in its opinion it is or should be reasonable, but
must set the time that the parties are shown to have intended.
In this connection, it is to be borne in mind that the contract
shows that the parties were fully aware that the land described
therein was occupied by squatters. As the parties must have
known that they could not take the law into their own hands, but
must resort to legal processes in evicting the squatters, they must
have realized that the duration of the suits to be brought would
not be under their control nor could the same be determined in
advance. The conclusion is thus forced that the parties must have
intended to defer the performance of the obligations under the
contract until the squatters were duly evicted, as contended by the
petitioner Gregorio Araneta, Inc.

ISSUE:

Whether or not the parties agreed that the petitioner should have
reasonable time to perform its part of the bargain

RULING:

If the contract so provided, then there was a period fixed, a

“reasonable time;” and all that the court should have done was to
determine if that reasonable time had already elapsed when suit
was filed if it had passed, then the court should declare that
petitioner had breached the contract, as averred in the complaint,
and fix the resulting damages. On the other hand, if the
reasonable time had not yet elapsed, the court perforce was bound
to dismiss the action for being premature.

Article 1197 of the Civil Code involves a two-step process. The

Court must first determine that “the obligation does not fix a
Alternative Obligation debtor who generally has the right of election.” The right of
election is extinguished when the party who may exercise that
Arco Pulp and Paper Co, v. Lim option categorically and unequivocally makes his or her choice
G.R. No. 206806, 25 June 2014 known.

FACTS:

Lim works in the business of supplying scrap papers, cartons, and

other raw materials, under the name Quality Paper and Plastic
Products, Enterprises, to factories engaged in the paper mill
business. Lim delivered scrap papers to Arco Pulp and Paper
Company, Inc. The parties allegedly agreed that Arco Pulp and
Paper would either pay Dan T. Lim the value of the raw materials
or deliver to him their finished products of equivalent value. Arco
Pulp and Paper and a certain Eric Sy executed a memorandum of
agreement where Arco Pulp and Paper bound themselves to deliver
their finished products to Megapack Container Corporation, owned
by Eric Sy. The liability of Arco Pulp was now transferred to
Megapack in paying Lim. Dan T. Lim sent a letter to Arco Pulp and
Paper demanding payment but no payment was made to him. Now
Lim filed a case against Arco Pulp. The Arco Pulp now contends
that their agreement was novated because of the MOA agreed
upon Sy and Arco.

ISSUE:

Whether or not the obligation between the parties was an

alternative obligation

RULING:

Yes. The rule on alternative obligations is governed by Article 1199

of the Civil Code, which states:

Article 1199. A person alternatively bound by different prestations

shall completely perform one of them.

The creditor cannot be compelled to receive part of one and part of

the other undertaking.

In an alternative obligation, there is more than one object, and the

fulfillment of one is sufficient, determined by the choice of the
Divisible and Indivisible Obligations
Capalla v. COMELEC
G.R. No. 201112, 23 October 2012
FACTS:
The Comelec and Smartmatic-TIM entered into a Contract for the
Provision of an Automated Election System for the May 10, 2010
Synchronized National and Local Elections (AES Contract) which
is a Contract of Lease with Option to Purchase (OTP) the goods
listed therein consisting of the Precinct Count Optical Scan
(PCOS), both software and hardware. The Comelec opted not to
exercise the same except for 920 units of PCOS machines.
Subsequently, the Comelec issued Resolution resolving to
seriously consider exercising the OTP subject to certain
conditions. It issued another Resolution resolving to exercise the
OTP in accordance with the AES Contract.Later, the COMELEC
issued Resolution resolving to accept Smartmatic-TIM’s offer to
extend the period to exercise the OTP. The agreement on the
Extension of the OTP under the AES Contract (Extension
Agreement) was eventually signed. Finally, it issued Resolution
resolving to approve the Deed of Sale between the Comelec and
Smartmatic-TIM to purchase the latter’s PCOS machines to be
used in the upcoming elections. The Deed of Sale was forthwith
executed.
ISSUE:
Whether or not assailed resolutions and transactions entered are
valid.
RULING:
Yes. The SC decided in favor of respondents and placed a stamp of
validity on the assailed resolutions and transactions entered into.
Based on the AES Contract, the Court sustained the parties’ right
to amend the same by extending the option period. Considering
that the performance security had not been released to
Smartmatic-TIM, the contract was still effective which can still be
amended by the mutual agreement of the parties, such
amendment being reduced in writing. To be sure, the option
contract is embodied in the AES Contract whereby the Comelec
was given the right to decide whether or not to buy the subject
goods listed therein under the terms and conditions also agreed
upon by the parties.
Clearly, under the AES Contract, the Comelec was given until
December 31, 2010 within which to exercise the OTP the subject
goods listed therein including the PCOS machines. The option
was, however, not exercised within said period. But the parties
later entered into an extension agreement giving the Comelec until
March 31, 2012 within which to exercise it. With the extension of
the period, the Comelec validly exercised the option and eventually
entered into a contract of sale of the subject goods. The extension
of the option period, the subsequent exercise thereof, and the
eventual execution of the Deed of Sale became the subjects of the
petitions challenging their validity in light of the contractual
stipulations of respondents and the provisions of RA 9184.
As the Court simply held in the assailed decision that the moment
the performance security is released, the contract would have
ceased to exist. However, since it is without prejudice to the
surviving provisions of the contract, the warranty provision and
the period of the option to purchase survive even after the release
of the performance security. While these surviving provisions may
have different terms, in no way can we then consider the provision
on the OTP separate from the main contract of lease such that it
cannot be amended under Article 19. Thus, not only the option
and warranty provisions survive but the entire contract as well. In
light of the contractual provisions, the SC sustained the
amendment of the option period.
Obligation with a Penal Clause of article 1229. The penal clause, in this case, was inserted not to
indemnify the Makati Development Corporation for any damage it
Makati Dev’t Corp. v. Empire Insurance Co. might suffer as a result of a breach of the contract but rather
G.R. No. L-21780, 30 June 1967 compel performance of the so-called “special condition” and thus
encourage home building among lot owners in the Urdaneta
FACTS: Village.

On March 31, 1959, the Makati Development Corporation sold to
Rodolfo P. Andal a lot. A so-called “special condition” contained in
the deed of sale provides that “the VENDEE/S shall commence the
construction and complete at least 50% of his/her/their/its
residence on the property within two (2) years to the satisfaction
of the VENDOR and, in the event of his/her/their/its failure to do
so will be forfeited in favor of the VENDOR by the mere fact of
failure of the VENDEE/S to comply with this special condition.” To
ensure faithful compliance with this “condition,” Andal gave a
surety bond the sum of P12,000 in case Andal failed to comply
with his obligation under the deed of sale.
Andal did not build his house; instead, he sold the lot to Juan
Carlos. As neither Andal nor Juan Carlos built a house on the lot
within the stipulated period, the Makati Development Corporation,
sent a notice of claim to the Empire Insurance Co. advising it of
Andal’s failure to comply with his undertaking. Demand for the
payment was refused, whereupon the Makati Development
Corporation filed a complaint against the Empire Insurance Co. to
recover on the bond in the full amount, plus attorney’s fees. In
due time, the Empire Insurance Co. filed its answer with a third-
party complaint against Andal.
Considering that a house had been built shortly after the period
stipulated, the substantial, if tardy, performance of the obligation,
having in view the purpose of the penal clause, fully justified the
trial court in reducing the penalty.
The stipulation, in this case, to commence the construction and
complete at least 50 percent of the vendee’s house within two
years cannot be construed as imposing a strictly personal
obligation on Andal. To adopt such a construction would be to
limit Andal’s right to dispose of the lot. There is nothing in the
deed of sale restricting Andal’s right to sell the lot at least within
the two-year period and we think it plain that a reading of such a
limitation on one of the rights of ownership must rest on more
explicit language in the contract. It cannot be left to mere
inference.

ISSUE:
WHETHER OR NOT Andal is entitled to pay the surety bond of
Php12,000 as a penal sanction.

RULING:
No. The so-called “special condition” in the deed of sale is, in
reality, an obligation1 — to build a house at least 50 percent of
which must be finished within two years. It was to secure the
performance of this obligation that a penal clause was inserted.
Here the trial court found that Juan Carlos had finished more
than 50 percent of his house or barely a month after the
expiration of the stipulated period. There was, therefore, a partial
performance of the obligation within the meaning and intendment
Obligation with a Penal Clause

Country Bankers Insurance v. CA

G.R. No. 85161, 9 September 1991

FACTS:

Sy (petitioner) leased theaters owned by Oscar Ventanilla

Enterprises Corporation (OVEC) (respondent). Despite numerous
demands and a supplemental agreement, Petitioner failed to pay
the monthly rentals and amusement taxes as stipulated in their
contract. Respondent thereafter repossessed said properties in
accordance with their written agreement. Sy filed to enjoin said
action of OVEC.

ISSUE:

WON the repossession is valid.

RULING:

Yes. The repossession is valid as the same constitutes a penal

clause.

Article 1226 of the Civil Code provides that as a general rule, in

obligations with a penal clause, the penalty shall substitute the
indemnity for damages and the payment of interests in case of
non-compliance.

There is no merit in petitioners’ argument that the forfeiture

clause stipulated in the lease agreement would unjustly enrich the
respondent at the expense of petitioners is contrary to law, morals,
good customs, public order or public policy. A provision which
calls for the forfeiture of the remaining deposit still in the
possession of the lessor, without prejudice to any other obligation
still owing, in the event of the termination or cancellation of the
agreement by reason of the lessee’s violation of any of the terms
and conditions of the agreement is a penal clause that may be
validly entered into. The petition is denied.