Section 1. Pure and Conditional Obligations

Summary:

• The pure obligation is the one that is not subject to any restrictions and has no set deadline for completion is immediately demandable.

• The conditional obligation is the one whose effectiveness is contingent on the occurrence of a future and unpredictable situation or event.

• Both requisites must concur - it must not only be future, but it must also be uncertain;

• If the past occurrence is unknown to the parties as well as the rest of the world, so that the understanding of it may or may not occur or occur, it represents a condition.

• When we say suspensive this is the result in the acquisition of the right arising out of the obligation to fulfill the conditions.

• Resolutory refers to the extinguishment of rights.

SCENARIO:

• Consider this scenario involving two pals, Alice and Bob. Alice is in financial distress and has borrowed P1,000 from Bob to pay her rent.

PURE OBLIGATION SOLUTION

• Alice agreed to return Bob P1,000 by a certain date, say, one month from today. Alice's obligation to refund the money is a pure obligation in this example since it is absolute, unconditional, and not contingent on any future occurrence or circumstance. The contract simply stipulates that Alice must reimburse the P1,000 on a certain date, with no other restrictions attached.

CONDITIONAL OBLIGATION SOLUTION

• If Alice finds a new job during the following two months, she will refund the P1,000 with 5% interest; otherwise, she will reimburse it without interest.

• Alice's obligation to repay the money is conditional in this scenario since it is contingent on a future occurrence - whether she finds a new employment within two months. If she does, the obligation becomes conditional (with interest); otherwise, it remains a pure obligation (without interest).

The promise to pay when one means to permit him to do so is a period, not a condition, It is certain to occur that one will have or acquire a means of payment, and that the acquisition of the means of payment is a period that occurs upon the arrival of the future and certain event upon which the obligation subject to it either arises or is extinguished, it is not condition because it is not certain to happen

How about the duration of the period depends upon the will of the Debtor?

• The debtor agrees to pay when his means allow him to do so; this creates an obligation with a period.

•  If the parties are unable to reach an agreement on the deadline, the court will set one upon application from either side and the creditor's remedy is to go to court and request that it establish or set the deadline by which the debtor must fulfill his obligations under the contract.

INDICATIONS OF A TERM OR PERIOD

1. When his means permit him to do so

2. Little by little

3. As soon as possible

4. From time to time

5. As soon as I have the money

6. A partial payment

7. When in the position to pay

Example:

Julie borrowed money from Jean in the amount of P10,000 promising to pay the amount “as soon as I have the money” If later on, they cannot agree on the specific date of payment, the remedy of Jean is to go to court to fix the date when the debt is to be paid.

Take note:

SUSPENSIVE: The fulfillment of the event will give rise to an obligation, Because the occurrence of the event that creates the condition is necessary for the creditor to acquire rights; if the condition is not met, it will be as though the conditional obligation never existed

Example: Promise to pay after his phone fully charged

RESOLUTORY: The fulfillment of the event will extinguish an obligation already existing, the rights and obligations already existing are under threat of extinction upon the happening or fulfillment of such conditions.

In conditional obligations, the acquisition of rights and the loss of rights already acquired depends upon the happening of the event that constitutes the condition, If the suspensive condition is certain to be not fulfilled/impossible to be fulfilled, the parties would stand as if the conditional obligation had never existed but  If the suspensive condition is incapable of fulfillment, the OBLIGATION is VALID, but the CONDITIONAL OBLIGATION is deemed by law or considered by law to have never existed. The only thing that the law will disregard is the impossible conditional obligation. If the conditional obligation is DISREGARDED by law, that obligation becomes a PURE OBLIGATION (because it is now not  subject to a condition) and  If an obligation is subject to a resolutory condition, then the happening of the condition produces the extinguishment or loss of rights already acquired.

Take note:

Applies only to suspensive conditions. 

POTESTATIVE CONDITION

• A condition suspensive (happening of which will give rise to the obligation) in nature and depends upon the sole will of one of the contracting parties 

CASUAL CONDITION

• The suspensive condition depends upon chance or upon the will of a third person

MIXED CONDITION

• The suspensive condition depends partly upon chance and partly upon the will of a third person, the obligation is valid and Combination of casual conditions.

1. Suspensive Condition depends upon the sole will of the debtor.

> Condition is void but obligation is valid if the obligation is pre-existing and both condition and obligation are void if the obligation does not pre-exist, the condition is void, Because if we allow the debtor to decide whether the suspensive condition will be fulfilled or not, then the obligation is rendered nugatory (no value). 

The debtor will not fulfill the obligation, it is but natural for the debtor to avoid or evade fulfillment of a suspensive condition because he is naturally reluctant to perform his own part of the contract.

2. Suspensive Condition depends upon the sole will of the creditor.

> Both conditions and obligations are valid, the condition is valid, because naturally the creditor is interested in the fulfillment of the suspensive condition.

3. Resolutory Condition depends upon the will of the debtor.

> Both conditions and obligations are valid, the condition is valid because the debtor is interested in the termination of the rights acquired by the creditor.

This article refers to suspensive conditions wherein it applies only to cases where the impossibility already existed at the time the obligation was constituted.

IMPOSSIBLE CONDITION

• Those contrary to good customs or public policy and those prohibited by law shall annul the obligation which depends upon them, both obligation and condition are void and the reason behind the law is that the obligor knows his obligation cannot be fulfilled. He has no intention to comply with his obligation.

KINDS OF IMPOSSIBLE CONDITIONS

1. Physically

> in nature of things, cannot exist or cannot be done.

Example: I will pay you ₱10,000 if you can fly using your hands

2. Legally

> can be physically done but is contrary to law, morals, good customs, public order or public policy.

Example: I will pay you ₱10,000 if you kill your own family 

EFFECT OF IMPOSSIBLE CONDITION

• The condition and obligation are void, If the condition is negative, not to do an impossible thing, the condition is disregarded and the obligation is valid, if the obligation is divisible, only the affected obligation is void and those that are not affected by the impossible, condition shall be valid last, If the obligation is pre-existing, the condition is void but the obligation is still valid.

POSSIBLE CONDITION

• If it is capable of realization or actualization according to nature, law, public policy or good customs.

POSITIVE CONDITION

> Refers to the fulfillment of an event or performance of an act, the condition that some event happen a determinate time shall extinguish the obligation, as soon as the time expires or if it has become indubitable that the event will not take place

Example:

Julie promised to give Jean a parcel of land if Jean will marry his daughter, JJ, this year. If JJ died or married someone else, or Jean has not still married JJ within the said year, the obligation of Julie to give is extinguished

POSITIVE (SUSPENSIVE) CONDITION

> Is the happening of an event at a determinate time, the obligation is extinguished, as soon as the time expires without the event taking place, as soon as it has become indubitable/certain that the event will not take place although the specified time has not expired and if no time is fixed, the circumstances shall be considered to arrive depending upon the intention of the parties.

NEGATIVE CONDITION

> Refers to the non-fulfillment or non-performance of an act, that an event will not happen at determinate time and the obligation shall become effective and binding from the moment the time indicated has elapsed without the event taking place 

> This is a condition of non-happening of a future event.

> The obligation is effective and legally enforceable as soon as the specified period has passed without the event occurring and as soon as it becomes clear that the event cannot happen even though the specified time has not yet passed.

Example:

Mario agreed to not run for vice mayor in their municipality for the next nine years in exchange for Jun giving him a piece of land.

Mario had not run for Vice-Mayor in more for 9 years.  As soon as the land is delivered, the obligation to do so takes effect.

• The article requires three requisites for application: 

1. 1. the condition is suspensive, 

   2. the obligor prevents fulfillment, and 

   3. the obligor acts voluntarily. 

• The law doesn't require malice or fraud, but both parties are mutually obligors and obligees in reciprocal obligations.

Example:

A promised B that if B passed the board exam, B would get his car. A hit B with his car on the day of the exam, causing B to be admitted to the hospital and unable to take the examination. As a result, B missed and did not pass the board examination.

Because of the provision, A is still bound to give his car to B. The same rule is applied in resolutory conditions. 

• Article 1186 applies to obligations with resolutory conditions, requiring the debtor to return received goods upon fulfillment.

• Retroactive effects of fulfillment of suspensive condition. 

1. In obligations to give - An obligation subject to a suspensive condition becomes demandable only upon fulfillment, but its effects retroact to the day when the obligation was constituted. This is because the condition is an accidental element of a contract, and an obligation can exist without being subject to a condition. Parties should consider the obligation from the time it is constituted, not from the time the condition is fulfilled. The rule on retroactivity does not apply to real contracts, which are perfected only by delivery of the object of the obligation.

Example: 

On July 4, 2023, A commits to giving B a car if she passes the board exam on August 4. A continues to be the car's owner from July 4, 2023, to August 4, 2023, because B has not yet passed the board exam. B obtained ownership of the car retroactively, or as of the day the obligation was established, back to July 4, 2023, when B passed the test on August 4, 2023. On July 20, 2023 A sold his car to C, Is the sale valid? 

Yes, because A is still the owner of the car at that time.

2. In obligations to do or not to do - The retroactive effect of completing a suspensive condition is not established, but courts can assess it using sound discretion and the parties' intentions. They can choose whether the condition will have a retroactive effect or when that effect will be taken into account.

• Retroactive effects as to fruits and interests in obligations to give

1. In reciprocal obligations - When fruits and interests received during pendency are considered to be mutually compensated, no retroactivity applies, allowing parties to avoid mutual accounting. Fruits can be natural, industrial, or civil.

Example: A does not have to give the fruits of the car that he promised to sell. In the same way, B does not have to give the interests to A. They are deemed mutually compensated.

2. In unilateral obligations - Unless the debtor's intention differs from the nature and circumstances, the creditor cannot take retroactive action against the debtor, therefore the debtor owns all fruits and interests.

• Rights of creditor - In order to prevent the alienation or hiding of property, the debtor may nugatory the obligation. In the same way that obligations subject to solutory criteria are recorded in the property registration, the debtor's right may be as well.

• Rights of debtor - In accordance with solutio indebiti, which forbids self-enrichment at the expense of another, the debtor is entitled to recoup incorrect payments before a suspensive condition takes effect.

• It is important to note that the payment made before the fulfillment of the condition must be "by mistake"; otherwise, the condition is assumed to have been waived by the debtor. If the suspensive requirement is met, he will in any case be unable to get a refund for what he prematurely paid. But even if the payment was made intentionally, the debtor should be permitted to collect it if the condition was not met.

Case:

Due to the non-fulfillment of a suspensive provision in a contract to sell a piece of land, the vendee did not make complete payment; yet, the property was afterward sold absolutely by the vendor to another. 

A and B entered into a contract to sell a piece of land, which is attested by a memorandum of agreement that, among other things, states that A, the vendor, retains ownership and possession of the property until B has paid the full purchase price and that the remaining balance is due within six (6) months of the date A notifies B that the property's certificate of title may be transferred to B. The property was afterward sold absolutely by A to C through the execution of a deed. It looked that A made an attempt to register the property whereas B was merely interested in working with other buyers to generate money and had no intention of purchasing the home. A even begged him repeatedly to buy the property, minus the registration costs, because there were other prospective bidders. 

 Is B qualified to pursue C for the lost property? 

 No. No genuine purchase was made. B agreed that no complete payment would be made until the property's certificate of title was ready for transfer into his name.

Requisites for application of Article 1189

Article 1189 applies only if: 

1. The obligation is a real obligation; 

2. The object is a specific or determinate thing; 

3. The obligation is subject to a suspensive condition; 

4. The condition is fulfilled; and 

5. There is loss, deterioration, or improvement of the thing during the pendency of the happening on one condition.

Kinds of loss

1. Physical loss - when a thing perishes

2. Legal loss - when a thing goes out of commerce or when a thing becomes illegal

3. Civil loss - when a thing disappears in such a way that its existence is unknown

Rules in case of loss, deterioration, or improvement of thing during the pendency of suspensive condition

1. Loss of the thing without debtor’s fault

Example: A promised to give B his one and only car if B passed the board exam. The car is lost due to an earthquake while awaiting exam results. 

When B passes the board examination is A still liable? 

No, since the thing is specific, the obligation is therefore extinguished because a person, as a general rule, is not liable for a fortuitous event. If in another situation where the prestation is generic A is still liable because genus never perish.

2. Loss of thing through debtor’s fault

Example: In the same example, if the loss occurred because of the negligence of A, B will be entitled to demand damages.

3. Deterioration of thing without debtor’s fault

Example: Pending the results of the bar exam, A's car deteriorates because it took B too long to pass the exam. 

Is A still liable? No, B will have to suffer the deterioration or impairment of the car.

4. Deterioration of thing through debtor’s fault

Example: In this case, B may choose between rescission with damages or fulfillment of the obligation also with damages.

5. Improvement of thing by nature or time

Example: The improvement shall inure to the benefit of B. In as much as A would suffer in case of deterioration of the car through a fortuitous event, it is fair that he should be compensated in case of improvement of the car.

6. Improvement of thing at expense of debtor

Example: A will have the right granted to a usufructuary with respect to improvements made on the thing held in usufruct.

Effects of fulfillment of resolutory condition

1. In obligations to give - Fulfilling resolutory condition in obligation extinguishes obligation, requiring parties to return received goods.

Example: A obliges himself to allow B to use the former’s car until A returns from the province. Upon the return of A from the province, B must give back the car. The effect of the happening of the condition is to annul the obligations if it had never been constituted at all. In this case, the parties intend the return of the car.

2. In obligations to do or not to do - In some circumstances, the courts must decide whether the resolutory requirement was satisfied retroactively, much as they would in a suspensive condition. Depending on the facts of each case, the courts may even refuse to allow retroactive application. 

Kinds of obligation according to the person obliged

1. Unilateral - only one party is obliged to comply with a prestation

2. Bilateral - both parties are mutually bound to each other

1. Reciprocal obligations - which each party is a debtor and creditor of the other.

2. Non-reciprocal obligations - which do not impose simultaneous and correlative performance on both parties.

Remedies in reciprocal obligations

1. Choice of remedies - can either be (a) action for specific performance with damages or (b) action for rescission also with damages.

2. Remedy of rescission for non-compliance - Breach of an obligation occurs when there is a failure or refusal, by a party without legal reason or excuse to perform, in whole or in part the obligation or undertaking which is incumbent upon him.

Court may grant guilty party term for performance

Unless there is a good reason to give the party in default a grace period to fulfill his commitment, the court must rule on the requested rescission. This exception obviously does not apply in cases when the offender refuses to execute; rather, it only applies when he is ready to fulfill his commitment but needs some additional time.

Remedies are alternative

The injured or aggrieved party may choose only one remedy, not both, with the exception that he may still seek rescission even after he has chosen fulfillment if the latter should prove impossible. The remedies are alternative and not cumulative. However, once he decides to rescind the duty, he is not permitted to demand its performance going forward or to work toward partial performance while seeming to be seeking damages. 

Although the plaintiff still has the freedom of choice, the court may allow an alternate petition in the complaint for fulfillment or rescission because in that scenario, it cannot be stated that the plaintiff is using both remedies.

Limitations on right to demand rescission

1. Resort to the courts - the rescission contemplates is a juridical rescission or one granted by a court.

2. Power or court to fix period - the court has discretionary power to allow a period within which a person in default may be permitted to perform his obligation if there is just a cause for giving time to the debtor.

3. Right of third person - If the thing subject matter of the obligation is in the hands of a third person who acted in good faith, rescission is not available as a remedy.

4. Substantial violation - the violation should be substantial as to defeat the object of the parties in making the agreement.

5. Waiver of right - the right to rescind may be waived, expressly or impliedly.

Rescission without previous judicial degree

1. Where automatic rescission expressly stipulated - The parties may validly enter into an agreement that violation of the terms of the contract would cause cancellation thereof even without judicial intervention or permission.

2. Where contract still executory - Where there is no performance yet by both of the parties, but one is ready and willing to comply with what is incumbent upon him and the other is not.

There are situations where both parties have violated their contractual obligations. In this case, the first offender shall be identified and shall be assigned a fair share of responsibility by the courts. However, there are instances where it is impossible to determine the initial offender. In these cases, the contract shall be terminated and each party shall be responsible for their own losses.

Where both parties are guilty of breach

1. First infractor known. – The liability of the first infractor shall be equitably reduced.

2. First infractor cannot be determined. – The contract shall be extinguished and each shall bear his own damages.

Case:

Marlon hired a painter, Zaden, to paint his new office. Zaden agreed to finish the painting job by a specific date, and Marlon was supposed to provide all the necessary paint and supplies. As the deadline approached, Marlon could only provide half of the promised paint, and Zaden was unable to complete the work on time. After a thorough court review, it was determined that both parties had not fully met their obligations. The court found that Marlon had breached the contract first by failing to provide adequate materials as per the agreement. Consequently, the court ruled that Zaden should be paid for the work she had done but was not obligated to finish the job. Since Marlon had not provided the required materials initially, he cannot insist on the completion of the painting or claim damages for Zaden's delay. The court's decision made it clear that both Marlon and Zaden were free from any further obligations regarding the contract.