Conditional obligations, A1179-A1188 Civil Code

1. Concepts

Article 1179. x x x
Every obligation which contains a resolutory condition shall also be demandable, without prejudice to the effects of the happening of the event. (1113) (CIVIL CODE)

Condition – means “every future and uncertain event upon which an obligation or provision is made to depend. It is a future and uncertain event upon which the acquisition or resolution of rights is made to depend by those who execute the juridical act.” (Saguin v. ANZ Global Services and Operations (Manila), Inc., G.R. No. 220399, August 22, 2016, Per Perlas-Bernabe, J.)

Conditional obligations – refer to obligations whose performance depends upon a future or uncertain event. (CIVIL CODE, Article 1179)

De Guzman v. J.M. Tuason & Co., En Banc, G.R. No. L-2624, December 26, 1969, Per Reyes, J.B.L., J.:

• We do not find it necessary to inquire at this stage whether or not the compromise entered into by appellees Tuason and the Deudors was rescinded. It is enough to observe that the complaint does not state a cause of action, because it fails to allege that the conditions precedent to the effectivity of the defendants’ obligation under the compromise agreement, to deliver to the plaintiff a lot of 4,000 square meters, have been complied with. The conditions were “that the certificate of title to the lands reserved for the above persons (one of them the herein plaintiff-appellant) shall be issued (1) soon after the delivery to the OWNERS of the lots marked ‘refund’ in Annex ‘C’ shall have been effected and (2) the subdivision plan approved by the National Planning Commission and the Bureau of Lands” (Emphasis supplied). Pursuant to the very terms of the compromise, therefore, the obligation of the defendants to deliver the lot claimed was not a pure obligation that is immediately demandable, but depended on the compliance with the two conjunctive conditions stated in the agreement (See Articles Nos. 1179 & 1181, Civil Code; Wise & Co. vs. Kelly, 37 Phil. 696; Phil. National Bank vs. Phil. Trust Co., 68 Phil. 48). Hence, unless it is alleged in the complaint that these conditions were or have been complied with, and the plaintiff’s complaint in the present case does not so allege, the complaint would state no cause of action against the defendants.

2. Types of conditions

There are two (2) general types of conditions:

1) Suspensive conditions; and

2) Resolutory conditions.

a. Suspensive conditions

Article 1181. In conditional obligations, the acquisition of rights x x x shall depend upon the happening of the event which constitutes the condition. (1114) (CIVIL CODE)

Suspensive conditions – refer to conditions where the acquisition of rights “depend upon the happening of the event which constitutes the condition.” (See CIVIL CODE, Article 1181)

[W]hen a contract is subject to a suspensive condition, its effectivity shall take place only if and when the event which constitutes the condition happens or is fulfilled. (Saguin v. ANZ Global Services and Operations (Manila), Inc. [2016], supra.)

Estipona v. Estate of Aquino, G.R. No. 207407, September 29, 2021, Per Caguioa, J.:

• [In a contract to sell] What the seller agrees or obliges himself to do is to fulfill is promise to sell the subject property when the entire amount of the purchase price is delivered to him. In other words the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and thus, ownership is retained by the prospective seller without further remedies by the prospective buyer.

• Stated positively, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, the prospective seller’s obligation to sell the subject property by entering into a contract of sale with the prospective buyer becomes demandable…

• A contract to sell may thus be defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price.

• A contract to sell as defined hereinabove, may not even be considered as a conditional contract of sale where the seller may likewise reserve title to the property subject of the sale until the fulfillment of a suspensive condition, because in a conditional contract of sale, the first element of consent is present, although it is conditioned upon the happening of a contingent event which may or may not occur. If the suspensive condition is not fulfilled, the perfection of the contract of sale is completely abated (cf. Homesite and housing Corp. vs. Court of Appeals, 133 SCRA 777 [1984]). However, if the suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if there had already been previous delivery of the property subject of the sale to the buyer, ownership thereto automatically transfers to the buyer by operation of law without any further act having to be performed by the seller.

• In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, ownership will not automatically transfer to the buyer although the property may have been previously delivered to him. The prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute sale.

• It is essential to distinguish between a contract to sell and a conditional contract of sale specially in cases where the subject property is sold by the owner not to the party the seller contracted with, but to a third person, as in the case at bench. In a contract to sell, there being no previous sale of the property, a third person buying such property despite the fulfillment of the suspensive condition such as the full payment of the purchase price, for instance, cannot be deemed a buyer in bad faith and the prospective buyer cannot seek the relief of reconveyance of the property. There is no double sale in such case. Title to the property will transfer to the buyer after registration because there is no defect in the owner-seller’s title per se, but the latter, of course, may be used for damages by the intending buyer.

• In a conditional contract of sale, however, upon the fulfillment of the suspensive condition, the sale becomes absolute and this will definitely affect the seller’s title thereto. In fact, if there had been previous delivery of the subject property, the seller’s ownership or title to the property is automatically transferred to the buyer such that, the seller will no longer have any title to transfer to any third person. Applying Article 1544 of the Civil Code, such second buyer of the property who may have had actual or constructive knowledge of such defect in the seller’s title, or at least was charged with the obligation to discover such defect, cannot be a registrant in good faith. Such second buyer cannot defeat the first buyer’s title. In case a title is issued to the second buyer, the first buyer may seek reconveyance of the property subject of the sale.

Saguin v. ANZ Global Services and Operations (Manila), Inc., G.R. No. 220399, August 22, 2016, Per Perlas-Bernabe, J.:

• In this case, the Court agrees with the finding of the CA that there was already a perfected contract of employment when petitioner signed ANZ’s employment offer and agreed to the terms and conditions that were embodied therein. Nonetheless, the offer of employment extended to petitioner contained several conditions before he may be deemed an employee of ANZ. Among those conditions for employment was the “satisfactory completion of any checks (e.g. background, bankruptcy, sanctions and reference checks) that may be required by ANZ.” 40 Accordingly, petitioner’s employment with ANZ depended on the outcome of his background check, which partakes of the nature of a suspensive condition, and hence, renders the obligation of the would-be employer, i.e., ANZ in this case, conditional…

• While a contract may be perfected…, the efficacy of the obligations created thereby may be held in suspense pending the fulfillment of particular conditions agreed upon. In other words, a perfected contract may exist, although the obligations arising therefrom – if premised upon a suspensive condition – would yet to be put into effect.

• Here, the subject employment contract required a satisfactory completion of petitioner’s background check before he may be deemed an employee of ANZ. Considering, however, that petitioner failed to explain the discrepancies in his declared information and documents that were required from him relative to his work experience at Siemens, namely: (a) that he was only a Level 1 and not a Level 2 Technical Support Representative that conducts troubleshooting for both computer hardware and software problems; and (b) that he was found to have been terminated for cause and not merely resigned from his post, that rendered his background check unsatisfactory, ANZ’s obligations as a would-be employer were held in suspense and thus, had yet to acquire any obligatory force. 45 To reiterate, in a contract with a suspensive condition, if the condition does not happen, the obligation does not come into effect. Thus, until and unless petitioner complied with the satisfactory background check, there exists no obligation on the part of ANZ to recognize and fully accord him the rights under the employment contract. In fact, records also show that petitioner failed to report for work on or before July 11, 2011, which was also a suspensive condition mandated under sub-paragraph 4 of Schedule 1 of the contract.

• Consequently, no employer-employee relationship was said to have been created between petitioner and ANZ under the circumstances…

1) Improvement, loss or deterioration of the thing

Article 1189. When the conditions have been imposed with the intention of suspending the efficacy of an obligation to give, the following rules shall be observed in case of the improvement, loss or deterioration of the thing during the pendency of the condition:
(1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished;
(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is understood that the thing is lost when it perishes, or goes out of commerce, or disappears in such a way that its existence is unknown or it cannot be recovered;
(3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor;
(4) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its fulfillment, with indemnity for damages in either case;
(5) If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor;
(6) If it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary. (1122) (CIVIL CODE)

b. Resolutory conditions

Article 1181. In conditional obligations, x x x the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. (1114) (CIVIL CODE)

Resolutory conditions – refer to conditions were the extinguishment or loss of rights already acquired “depend upon the happening of the event which constitutes the condition.” (See CIVIL CODE, Article 1181)

A resolutory condition is one which extinguishes rights and obligations already existing. (Baluran v. Navarro, G.R. No. L-44428, September 30, 1977, Per Muñoz Palma, J.)

[O]bligations with a resolutory period also take effect at once but terminate upon arrival of the day certain. (Olivarez Realty Corporation v. Castillo, G.R. No. 196251, July 9, 2014, Per Leonen, J.)

Article 1190. When the conditions have for their purpose the extinguishment of an obligation to give, the parties, upon the fulfillment of said conditions, shall return to each other what they have received. x x x (1123) (CIVIL CODE)

Clemente v. Republic, G.R. No. 220008, February 20, 2019, Per Carpio, J.:

• The nature of the donation made by the Clemente Siblings is a donation subject to a condition – the condition being the construction of a government hospital and the use of the Subject Property solely for hospital purposes. Upon the non-fulfillment of the condition, the donation may be revoked and all the rights already acquired by the donee shall be deemed lost and extinguished. This is a resolutory condition because it is demandable at once by the donee but the non-fulfillment of the condition gives the donor the right to revoke the donation.

• In this case, upon the execution of the Deed of Donation and the acceptance of such donation in the same instrument, ownership was transferred to the Republic, as evidenced by the new certificate of title issued in the name of the Province of Quezon. Because the condition in the Deed of Donation is a resolutory condition, until the donation is revoked, it remains valid. However, for the donation to remain valid, the donee must comply with its obligation to construct a government hospital and use the Subject Property as a hospital site. The failure to do so gives the donor the right to revoke the donation…

• In this case, the property donated shall be returned to the donor, the alienations made by the donee and the mortgages imposed thereon by him being void, with the limitations established, with regard to third persons, by the Mortgage Law and the Land Registration Laws.

• This action shall prescribe after four years from the non-compliance with the condition, may be transmitted to the heirs of the donor, and may be exercised against the donee’s heirs.

• Respondent argues that the obligation to construct a hospital was fulfilled when respondent started to construct a hospital.

• We do not agree. It is clear from the records that the donee failed to comply with its obligation to construct a government hospital and to use the premises as a hospital site.

• When the parties provided in the Deed of Donation that the donee should construct a government hospital, their intention was to have such hospital built and completed, and to have a functioning hospital on the Subject Property. This can be evidenced by the accompanying words in the Deed of Donation – “solely for hospital site only and for no other else, where a [g]overnment [h]ospital shall be constructed.” The condition imposed upon the donee has two parts – first, to construct a government hospital, and second, to use the Subject Property solely as a hospital site. The argument of respondent that the mere construction of the foundation of a building complies with the condition that a government hospital be constructed on the Subject Property is specious. A foundation of a building is obviously not a government hospital. The other condition in the Deed of Donation, which is to use the Subject Property solely as a hospital site, is also not complied with when the Subject Property is left idle, which means the Subject Property is not being used as a hospital site. The foundation of a building cannot function as a hospital site. Thus, even if we are to consider, for the sake of argument, that the construction of the foundation of a hospital building is enough to comply with the obligation to construct a government hospital, the subsequent abandonment of the construction results in the non-compliance with the second part of the donee’s obligation – which is to use the Subject Property solely as a hospital site.

• Based on the foregoing, we find that the donee failed to comply with the resolutory condition imposed in the Deed of Donation.

Quijada v. CA, G.R. No. 126444, December 4, 1998, Per Martinez, J.:

• The donation made on April 5, 1956 by Trinidad Quijada and her brother and sisters was subject to the condition that the donated property shall be “used solely and exclusively as a part of the campus of the proposed Provincial High School in Talacogon.” The donation further provides that should “the proposed Provincial High School be discontinued or if the same shall be opened but for some reason or another, the same may in the future be closed” the donated property shall automatically revert to the donor.

• When the Municipality’s acceptance of the donation was made known to the donor, the former became the new owner of the donated property — donation being a mode of acquiring and transmitting ownership — notwithstanding the condition imposed by the donee. The donation is perfected once the acceptance by the donee is made known to the donor. According[ly], ownership is immediately transferred to the latter and that ownership will only revert to the donor if the resolutory condition is not fulfilled.

• In this case, that resolutory condition is the construction of the school. It has been ruled that when a person donates land to another on the condition that the latter would build upon the land a school, the condition imposed is not a condition precedent or a suspensive condition but a resolutory one. Thus, at the time of the sales made in 1962 towards 1968, the alleged seller (Trinidad) could not have sold the lots since she had earlier transferred ownership thereof by virtue of the deed of donation. So long as the resolutory condition subsists and is capable of fulfillment, the donation remains effective and the donee continues to be the owner subject only to the rights of the donor or his successors-in-interest under the deed of donation. Since no period was imposed by the donor on when must the donee comply with the condition, the latter remains the owner so long as he has tried to comply with the condition within a reasonable period. Such period, however, became irrelevant herein when the donee-Municipality manifested through a resolution that it cannot comply with the condition of building a school and the same was made known to the donor. Only then — when the non-fulfillment of the resolutory condition was brought to the donor’s knowledge — that ownership of the donated property reverted to the donor as provided in the automatic reversion clause of the deed of donation.

1) Loss, deterioration, improvement of thing

a) Obligation to give
Article 1190. x x x
In case of the loss, deterioration or improvement of the thing, the provisions which, with respect to the debtor, are laid down in [Article 1189] shall be applied to the party who is bound to return. x x x (1123) (CIVIL CODE)
Article 1189. When the conditions have been imposed with the intention of suspending the efficacy of an obligation to give, the following rules shall be observed in case of the improvement, loss or deterioration of the thing during the pendency of the condition:
(1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished;
(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is understood that the thing is lost when it perishes, or goes out of commerce, or disappears in such a way that its existence is unknown or it cannot be recovered;
(3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor;
(4) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its fulfillment, with indemnity for damages in either case;
(5) If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor;
(6) If it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary. (1122) (CIVIL CODE)
b) Obligation to do and not to do
Article 1190. x x x
As for the obligations to do and not to do, the provisions of the second paragraph of article 1187 shall be observed as regards the effect of the extinguishment of the obligation. (1123) (CIVIL CODE)
Article 1187. x x x
In obligations to do and not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with. (1120) (CIVIL CODE)

3. Retroactive effects

a. Obligation to give

Article 1187. The effects of a conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation. x x x (1120) (CIVIL CODE)

1) Reciprocal obligations

Article 1187. x x x when the obligation imposes reciprocal prestations upon the parties, the fruits and interests during the pendency of the condition shall be deemed to have been mutually compensated. x x x (1120) (CIVIL CODE)

2) Unilateral obligations

Article 1187. x x x If the obligation is unilateral, the debtor shall appropriate the fruits and interests received, unless from the nature and circumstances of the obligation it should be inferred that the intention of the person constituting the same was different. x x x (1120) (CIVIL CODE)

b. Obligation to do or not to do

Article 1187. x x x
In obligations to do and not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with. (1120) (CIVIL CODE)

4. Things to note

a. When means permit to pay debt

Article 1180. When the debtor binds himself to pay when his means permit him to do so, the obligation shall be deemed to be one with a period, subject to the provisions of article 1197. (n) (CIVIL CODE)
Article 1197. If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended, the courts may fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon the will of the debtor.
In every case, the courts shall determine such period as may under the circumstances have been probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them. (1128a) (CIVIL CODE)

b. Preservation of creditor’s right

Article 1188. The creditor may, before the fulfillment of the condition, bring the appropriate actions for the preservation of his right.
The debtor may recover what during the same time he has paid by mistake in case of a suspensive condition. (1121a) (CIVIL CODE)

Estipona v. Estate of Aquino, G.R. No. 206407, September 29, 2021, Per Caguioa, J.:

• In the case at bar, the subject matter of the contract is… a lease, which is a property right. The death of a party does not excuse nonperformance of a contract which involves a property right, and the rights and obligations thereunder pass to the personal representatives of the deceased. Similarly, nonperformance is not excused by the death of the party when the other party has a property interest in the subject matter of the contract.

• In the present case, what Raquel acquired upon the constitution of the SREI, being an obligation subject to a suspensive condition, was only a mere hope or expectancy. But, pursuant to Article 1188 of the Civil Code, “[t]he creditor may, before the fulfillment of the condition, bring the appropriate actions for the preservation of his right.” In case of the fulfillment of the suspensive condition, which was the full payment of the purchase price, the right that would have been vested was clearly a property right; and the obligation of the vendor, Anacleto, to transfer ownership to the buyer, Raquel, involved a patrimonial obligation, which was definitely transmissible.

• Since the SREI never attained obligatory force or did not become binding by virtue of the non-payment of the purchase price as stipulated, the first requisite for the application of Section 8, Rule 89 — the contract must be “binding in law” — is absent. Thus, the probate court could not have authorized the administrator to execute a deed of absolute sale over unit 632A in favor of spouses Estipona. Since the P600,000.00 paid by Raquel to Victor Espinosa is acknowledged in the “Compliance (Submission of Inventory)” as having been received by the estate of Anacleto, the latter should be obligated to return the same in case the SREI is subsequently determined with finality in the appropriate proceeding to be without obligatory force. As well, the claim of spouses Co with respect to unit 632A pursuant to the Extrajudicial Settlement of Estate with Absolute Deed of Sale, which purportedly transferred ownership thereof to them from spouses Estipona, will have to be settled in the said appropriate proceeding.

c. Debtor’s right to recover

Article 1188. x x x
The debtor may recover what during the same time he has paid by mistake in case of a suspensive condition. (1121a) (CIVIL CODE, Paragraph 2)

Sps. Buot v. CA, G.R. No. 119679, May 18, 2001, Per De Leon, Jr., J.:

• An examination of said Memorandum of Agreement shows that it is neither a contract of sale nor an option to purchase, but it is a contract to sell.

• [Based on the MOA], it appears that the agreement was in the nature of a contract to sell as the vendor, Encarnacion Diaz Vda. de Reston, clearly reserved to herself ownership and possession of the property until full payment of the purchase price by the vendees, such payment being a positive suspensive condition, the failure of which is not considered a breach, casual or serious, but simply an event which prevented the obligation from acquiring obligatory force.

• Petitioners, however, argue that their obligation to pay the balance of the purchase price had not arisen as the Memorandum of Agreement stipulated that the balance of P18,042.00 was payable within six (6) months from the date the vendor would notify them that the certificate of title of the property could already be transferred in their names. Said argument, however, does not change the nature of the contract they entered into, being a contract to sell, so that there was no actual sale until full payment was made by the vendees, and that on the part of the vendees, no full payment would be made until a certificate of title was ready for transfer in their names. In her Answer, Encarnacion even stated that it was agreed that any consummated sale of the property would be necessarily reflected in another instrument. Thus, petitioners clearly had no right to ask for reconveyance of the property on the ground of fraud as there was no perfected contract of sale between them and the late Encarnacion Diaz Vda. de Reston…

• However, under the second paragraph of Article 1188 of the New Civil Code, even if the Buot spouses did not mistakenly make partial payments, inasmuch as the suspensive condition was not fulfilled, it is only fair and just that the Buot spouses be allowed to recover what they had paid in expectancy that the condition would happen; otherwise, there would be unjust enrichment on the part of Encarnacion Diaz Vda. de Reston, now substituted by her heirs.56 Hence, the heirs of Encarnacion Diaz Vda. de Reston should return the sum of P3,774.00 received from the Buot spouses with interest at twelve (12) per cent per annum from the time the Regional Trial Court rendered its original decision on June 20, 1977.

d. Debtor’s prevention of condition

Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment. (1119) (CIVIL CODE)

[Article 1186] refers to the constructive fulfillment of a suspensive condition. (International Hotel Corporation v. Joaquin, G.R. No. 158361, April 10, 2013, Per Bersamin, J.)

1) Requisites

The requisites for constructive fulfillment of a suspensive condition:

1) The intent of the obligor to prevent the fulfillment of the condition, and

2) The actual prevention of the fulfillment. (International Hotel Corporation v. Joaquin [2013], supra.)

Mere intention of the debtor to prevent the happening of the condition, or to place ineffective obstacles to its compliance, without actually preventing the fulfillment, is insufficient. (International Hotel Corporation v. Joaquin [2013], supra.)

Sps. Bonrostro v. Sps. Luna, G.R. No. 172346, July 24, 2013, Per Del Castillo, J.:

• The spouses Bonrostro want to be relieved from paying interest on the amount of ₱214,492.62 which the spouses Luna paid to Bliss as amortizations by asserting that they were prevented by the latter from fulfilling such obligation. They invoke Art. 1186 of the Civil Code which provides that “the condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.”

• However, the Court finds Art. 1186 inapplicable to this case. The said provision explicitly speaks of a situation where it is the obligor who voluntarily prevents fulfillment of the condition. Here, Constancia is not the obligor but the obligee. Moreover, even if this significant detail is to be ignored, the mere intention to prevent the happening of the condition or the mere placing of ineffective obstacles to its compliance, without actually preventing fulfillment is not sufficient for the application of Art. 1186.37 Two requisites must concur for its application, to wit: (1) intent to prevent fulfillment of the condition; and, (2) actual prevention of compliance.

• In this case, while it is undisputed that Constancia indeed instructed Bliss on March 4, 1994 not to accept payment from anyone but her, there is nothing on record to show that Bliss heeded the instruction of Constancia as to actually prevent the spouses Bonrostro from making payments to Bliss. There is no showing that subsequent to the said letter, the spouses Bonrostro attempted to make payment to and was refused by Bliss. Neither was there a witness presented to prove that Bliss indeed gave effect to the instruction contained in Constancia’s letter. While Bliss’ Project Development Officer, Mr. Ariel Cordero, testified during trial, nothing could be gathered from his testimony regarding this except for the fact that Bliss received the said letter.39 In view of these, the spouses Luna could not be said to have placed an effective obstacle as to actually prevent the spouses Bonrostro from making amortization payments to Bliss.

• On the other hand, there are telling circumstances which militate against the spouses Bonrostro’s claimed keenness to comply with their obligation to pay the monthly amortization. After the execution of the contract in January 1993, they immediately took possession of the property but failed to make amortization payments. It was only after seven months or on November 18, 1993 that they made payments to Bliss in the amount of ₱46,303.44.40 Whether the same covers previous unpaid amortizations is also not clear as the receipt does not indicate the same and per Statement of Account as of March 8, 1994 issued by Bliss, the unpaid monthly amortizations for February to November 1993 in the total amount of ₱78,271.69 remained outstanding. There was also no payment made of the amortizations due on December 4, 1993 and January 4, 1994 before the filing of the Complaint on January 11, 1994.

International Hotel Corporation v. Joaquin, G.R. No. 158361, April 10, 2013, Per Bersamin, J.:

• The error lies in the CA’s failure to determine IHC’s intent to pre-empt Joaquin from meeting his obligations. The June 20, 1970 minutes of IHC’s special board meeting discloses that Joaquin impressed upon the members of the Board that Materials Handling was offering more favorable terms for IHC, to wit:

x x x x

At the meeting all the members of the Board of Directors of the International Hotel Corporation were present with the exception of Directors Benjamin J. Bautista and Sergio O. Rustia who asked to be excused because of previous engagements. In that meeting, the President called on Mr. Francisco G. Joaquin, Jr. to explain the different negotiations he had conducted relative to obtaining the needed financing for the hotel project in keeping with the authority given to him in a resolution approved by the Board of Directors.

Mr. Joaquin presently explained that he contacted several local and foreign financiers through different brokers and after examining the different offers he narrowed down his choice to two (2), to wit: the foreign financier recommended by George Wright of the Roger Dunn & Company and the offer made by the Materials Handling Corporation.

After explaining the advantages and disadvantages to our corporation of the two (2) offers specifically with regard to the terms and repayment of the loan and the rate of interest requested by them, he concluded that the offer made by the Materials Handling Corporation is much more advantageous because the terms and conditions of payment as well as the rate of interest are much more reasonable and would be much less onerous to our corporation. However, he explained that the corporation accepted, in principle, the offer of Roger Dunn, per the corporation’s telegrams to Mr. Rudolph Meir of the Private Bank of Zurich, Switzerland, and until such time as the corporation’s negotiations with Roger Dunn is terminated, we are committed, on one way or the other, to their financing.

It was decided by the Directors that, should the negotiations with Roger Dunn materialize, at the same time as the offer of Materials Handling Corporation, that the funds committed by Roger Dunn may be diverted to other borrowers of the Development Bank of the Philippines. With this condition, Director Joaquin showed the advantages of the offer of Materials Handling Corporation. Mr. Joaquin also informed the corporation that, as of this date, the bank confirmation of Roger Dunn & Company has not been received. In view of the fact that the corporation is racing against time in securing its financing, he recommended that the corporation entertain other offers.

After a brief exchange of views on the part of the Directors present and after hearing the clarification and explanation made by Mr. C. M. Javier who was present and who represented the Materials Handling Corporation, the Directors present approved unanimously the recommendation of Mr. Joaquin to entertain the offer of Materials Handling Corporation.

• Evidently, IHC only relied on the opinion of its consultant in deciding to transact with Materials Handling and, later on, with Barnes. In negotiating with Barnes, IHC had no intention, willful or otherwise, to prevent Joaquin and Suarez from meeting their undertaking. Such absence of any intention negated the basis for the CA’s reliance on Article 1186 of the Civil Code.

2) Immediately demandable

A condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfilment and a debtor loses the right to make use of the period when a condition is violated, making the obligation immediately demandable. (Development Bank of the Philippines v. Sta. Ines Melale Forest Products Corporation, G.R. No. 193068, February 1, 2017, Per Leonen, J.)

Development Bank of the Philippines v. Sta. Ines Melale Forest Products Corporation, G.R. No. 193068, February 1, 2017, Per Leonen, J.:

• We uphold the Court of Appeals’ finding that the failure to execute the share purchase agreement was brought about by NDC’s delay in reviewing the financial accounts submitted by Galleon’s stockholders. The Memorandum of Agreement was executed on August 10, 1981, giving the parties no more than sixty days or up to October 9, 1981, to prepare and sign the share purchase agreement. However, it was only on April 26, 1982, or more than eight months after the Memorandum of Agreement was signed, did NDC’s General Director submit his recommendation on Galleon’s outstanding account. Even then, there was no clear intention to execute a share purchase agreement as compliance with the Memorandum of Agreement. Article 1186 of the Civil Code is categorical that a “condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfilment.” Considering NDC’s delay, the execution of the share purchase agreement should be considered fulfilled with NDC as the new owner of 100% of Galleon’s shares of stocks.

e. Potestative condition

Article 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void. x x x (1115) (CIVIL CODE)

Potestative condition – is “a condition the fulfillment of which depends exclusively upon the will of the debtor, in which case, the conditional obligation is void.” (Yupangco v. O.J. Development and Trading Corporation, G.R. No. 242074, November 10, 2021, Per Carandang, J.)

1) Kinds of potestative condition

The two (2) kinds of potestative conditions:

1) Potestative condition imposed on the birth of the obligation; and

2) Potestative condition imposed on the obligation’s fulfillment. (Yupangco v. O.J. Development and Trading Corporation [2021], supra.)

a) On the birth of the obligation

Romero v. CA, G.R. No. 107207, November 23, 1995, Per Vitug, J.:

• The object of the sale, in the case before us, was specifically identified to be a 1,952-square meter lot in San Dionisio, Parañaque, Rizal, covered by Transfer Certificate of Title No. 361402 of the Registry of Deeds for Pasig and therein technically described. The purchase price was fixed at P1,561,600.00, of which P50,000.00 was to be paid upon the execution of the document of sale and the balance of P1,511,600.00 payable “45 days after the removal of all squatters from the above described property.”

• From the moment the contract is perfected, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. Under the agreement, private respondent is obligated to evict the squatters on the property. The ejectment of the squatters is a condition the operative act of which sets into motion the period of compliance by petitioner of his own obligation, i.e., to pay the balance of the purchase price. Private respondent’s failure “to remove the squatters from the property” within the stipulated period gives petitioner the right to either refuse to proceed with the agreement or waive that condition in consonance with Article 1545 of the Civil Code. This option clearly belongs to petitioner and not to private respondent.

b) On the obligation’s fulfillment.

[W]here the so-called “potestative condition” is imposed not on the birth of the obligation but on its fulfillment, only the obligation is avoided, leaving unaffected the obligation itself. (Romero v. CA, G.R. No. 107207, November 23, 1995, Per Vitug, J.)

Yupangco v. O.J. Development and Trading Corporation, G.R. No. 242074, November 10, 2021, Per Carandang, J.:

• In this case, the condition found in the Second MOA, that is, the full payment of the obligation through the best efforts of OJDTC and Oscar is a pure potestative condition, dependent on the sole will or discretion of OJDTC and Oscar. However, the said condition is imposed not on the inception or birth of the contract/obligation as the Second MOA was already perfected and even partially executed (OJDTC and Oscar provided for partial payment in the same document). Rather, the condition is imposed on the performance or fulfillment of OJDTC and Oscar’s obligation to reimburse or pay their outstanding obligation with petitioner. Hence, conformably with jurisprudence, only the condition providing for payment on a “best effort” basis is treated as void, the obligation to return petitioners’ money is unaffected. Simply put, the obligation of OJDTC and Oscar to pay petitioners is considered as unconditional.

Gemudiano v. NAESS Shipping Philippines, Inc., G.R. No. 223825, January 20, 2020, Per Reyes, J., Jr., J.:

• [T]he condition set forth in the Addendum is one that is imposed not on the birth of the contract of employment since the contract has already been perfected, but only on the fulfillment or performance of their respective obligations, i.e., for petitioner to render services on board the ship and for respondents to pay him the agreed compensation for such services. A purely potestative imposition, such as the one in the Addendum, 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.15 Moreover, the condition imposed for the commencement of the employment relations offends the principle of mutuality of contracts ordained in Article 1308 of the Civil Code which states that contracts must bind both contracting parties , and its validity or compliance cannot be left to the will of one of them. The Court is thus constrained to treat the condition as void and of no effect, and declare the respective obligations of the parties as unconditional. Consequently , the employer-employee relationship between petitioner and respondents should be deemed to have arisen as of the agreed effectivity date of the contract of employment, or on March 12, 2013.

f. Will of a third person

Article 1182. x x x If [the fulfillment of the condition] depends x x x upon the will of a third person, the obligation shall take effect in conformity with the provisions of this Code. (1115) (CIVIL CODE)

Catungal v. Rodriguez, G.R. No. 146839, March 23, 2011, Per Leonardo-De Castro, J.:

• At the outset, it should be noted that what the parties entered into is a Conditional Deed of Sale, whereby the spouses Catungal agreed to sell and Rodriguez agreed to buy Lot 10963 conditioned on the payment of a certain price but the payment of the purchase price was additionally made contingent on the successful negotiation of a road right of way. It is elementary that “[i]n conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition.”

• In the past, this Court has distinguished between a condition imposed on the perfection of a contract and a condition imposed merely on the performance of an obligation. While failure to comply with the first condition results in the failure of a contract, failure to comply with the second merely gives the other party the option to either refuse to proceed with the sale or to waive the condition. This principle is evident in Article 1545 of the Civil Code…

• Paragraph 1(b) of the Conditional Deed of Sale, stating that respondent shall pay the balance of the purchase price when he has successfully negotiated and secured a road right of way, is not a condition on the perfection of the contract nor on the validity of the entire contract or its compliance as contemplated in Article 1308. It is a condition imposed only on respondent’s obligation to pay the remainder of the purchase price. In our view and applying Article 1182, such a condition is not purely potestative as petitioners contend. It is not dependent on the sole will of the debtor but also on the will of third persons who own the adjacent land and from whom the road right of way shall be negotiated. In a manner of speaking, such a condition is likewise dependent on chance as there is no guarantee that respondent and the third party-landowners would come to an agreement regarding the road right of way. This type of mixed condition is expressly allowed under Article 1182 of the Civil Code.

g. Chance

Article 1182. x x x If [the fulfillment of the condition] depends upon chance x x x, the obligation shall take effect in conformity with the provisions of this Code. (1115) (CIVIL CODE)

h. Impossible conditions

Article 1183. Impossible conditions, those contrary to good customs or public policy and those prohibited by law shall annul the obligation which depends upon them. If the obligation is divisible, that part thereof which is not affected by the impossible or unlawful condition shall be valid.
The condition not to do an impossible thing shall be considered as not having been agreed upon. (1116a) (CIVIL CODE)

Government Service Insurance System v. Manila Railroad Company, En Banc, G.R. No. L-13276, February 25, 1961, Per Concepcion, J.:

• [P]laintiff alleges that said provision of the management contract constitutes an impossible condition, because the goods in question were discharged on May 22, 1956 and delivery thereof to the consignee took place 21 days later, or on June 12, 1956, so that it was physically impossible for the consignee to file its claim for short delivery within the period fixed in the aforementioned contract. The possibility or impossibility of compliance’ with the aforementioned condition depended, however, not upon the date on which the consignee had chosen to take delivery of the goods, but upon the time of the notice if there was any, of the arrival of said goods, placing the same at its disposal, and of its diligence thereafter in examining the goods before the delivery thereof. In the case at bar, it appears that as early as June 2, 1956, the consignee had expressed its readiness to take delivery of the goods, thus indicating that it knew of the arrival thereof prior thereto, but the record does not show how it learned of said arrival, or whether notice thereof was given to the consignee or its representative by the arrastre operator and, in the affirmative case, on what date. Thus it is necessary that evidence on these points be taken with a view to ascertaining whether or not the consignee had had reasonable opportunity to comply with the disputed condition of the management contract, and, in the negative case, whether or not, considering the date when it was notified of the arrival of the goods, the consignee should be deemed to have acted with he diligence required by the spirit and purpose of said disputed condition, in filing its claim on June 16, 1956.

Heirs of Severina San Miguel v. CA, G.R. No. 136054, September 5, 2001, Per Pardo, J.:

• Under the facts of the case, Severina’s heirs are not in a position to transfer title. Without passing on the question of who actually owned the land covered by LRC Psu -1312, we note that there is no proof of ownership in favor of Severina’s heirs. In fact, it is a certain Emiliano Eugenio, who holds a tax declaration over the said land in his name. Though tax declarations do not prove ownership of the property of the declarant, tax declarations and receipts can be strong evidence of ownership of land when accompanied by possession for a period sufficient for prescription.39 Severina’s heirs have nothing to counter this document.

• Therefore, to insist that Dominador, et al. pay the price under such circumstances would result in Severina’s heirs’ unjust enrichment. Basic is the principle in law, “Niguno non deue enriquecerse tortizamente condano de otro.” The essence of a sale is the transfer of title or an agreement to transfer it for a price actually paid or promised. In Nool v. Court of Appeals, we held that if the sellers cannot deliver the object of the sale to the buyers, such contract may be deemed to be inoperative.

• Severina’s heirs insist that delivery of the certificate of title is predicated on a condition — payment of three hundred thousand pesos (P300,000.00) to cover the sale of Lot 3 of LRO Psu 1312. We find this argument not meritorious. The condition cannot be honored for reasons afore-discussed. Article 1183 of the Civil Code…

• Hence, the non-payment of the three hundred thousand pesos (P300,000.00) is not a valid justification for refusal to deliver the certificate of title.

Government Service Insurance System v. CA, G.R. Nos. 124208 and 124275, January 28, 2008, Per Azcuna, J.:

• In this case, Osteosarcoma is not listed as an occupational disease in the Amended Rules on Employees’ Compensation. Hence, it is supposed to be upon the claimant or private respondents to prove by substantial evidence that the risk of contracting Osteosarcoma was increased by the working conditions of the late Abraham. Substantial evidence means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. The records show that Abraham failed to present evidence to establish that the development of his ailment was traceable to his working conditions in the Philippine Navy, the now defunct Philippine Constabulary and the PNP. Further, private respondents’ allegation in their petition for review with the CA that Abraham, as a rifleman in the Philippine Navy, may have been exposed to elements like a virus which could have contributed to his ailment does not satisfy the requirement of substantial evidence. The rule is that awards of compensation cannot rest on speculations and presumptions as the claimant must prove a positive thing. The application of the rules would mean that absent any proof that the risk of contracting the ailment was increased by the working conditions of the late Abraham, private respondents would not be entitled to compensation.

• Considering, however, that it is practically undisputed that under the present state of science, the proof referred by the law to be presented by the deceased private respondent claimant was unavailable and impossible to comply with, the condition must be deemed as not imposed.

• Stated otherwise, before the amendment, the law simply did not allow compensation for the ailment of respondent. It is under this set-up that the Raro case was decided. However, as the ECC decision noted, the law was amended and now “the present law on compensation allows certain diseases to be compensable if it is sufficiently proven that the risk of contracting is increased by the working conditions.” It, therefore, now allows compensation subject to requirement of proving by sufficient evidence that the risk of contracting the ailment is increased by the working conditions.

• As earlier noted, however, in the specific case of respondent, the requirement is impossible to comply with, given the present state of scientific knowledge. The obligation to present such as an impossible evidence must, therefore, be deemed void. Respondent, therefore, is entitled to compensation, consistent with the social legislation’s intended beneficial purpose.

i. Determinate time

1) Occurrence of an event

Article 1184. The condition that some event happen at 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. (1117) (CIVIL CODE)

Clemente v. Republic, G.R. No. 220008, February 20, 2019, Per Carpio, J.:

• [I]n 2003, Socorro already wrote to DPWH asking for updates on the construction of the government hospital. However, the DPWH informed her that there were no plans to build any hospital on the Subject Property. Thus, it is clear that the donee no longer has the intention of fulfilling its obligation under the Deed of Donation. It has now become evident that the donee will no longer comply with the condition to construct a hospital because a government hospital was already built in another barangay, Barangay Polo. If it becomes indubitable that the event, in this case the construction of the hospital, will not take place, then the obligation of the donor to honor the donation is extinguished.

Megaworld Properties and Holdings, Inc. v. Majestic Finance and Investment Co., Inc., G.R. No. 169394, December 9, 2015, Per Bersamin, J.:

• According to Article 1184 of the Civil Code, the condition that some event happen at 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.ℒαwρhi৷ Here, the common cause of the parties in entering into the joint venture was the development of the joint venture property into the residential subdivision as to eventually profit therefrom. Consequently, all of the obligations under the JVA were subject to the happening of the complete development of the joint venture property, or if it would become indubitable that the completion would not take place, like when an obligation, whether continuous or activity, was not performed. Should any of the obligations, whether continuous or activity, be not performed, all the other remaining obligations would not ripen into demandable obligations while those already performed would cease to take effect. This is because every single obligation of each party under the JVA rested on the common cause of profiting from the developed subdivision.

• It appears that upon the execution of the JVA, the parties were performing their respective obligations until disagreement arose between them that affected the subsequent performance of their accrued obligations. Being reciprocal in nature, their respective obligations as the owner and the developer were dependent upon the performance by the other of its obligations; hence, any claim of delay or non-performance against the other could prosper only if the complaining party had faithfully complied with its own correlative obligation.

• Yet, the record is bereft of the proof to support the lower courts’ unanimous conclusion that the owner had already performed its correlative obligation under the JVA as to place itself in the position to demand that the developer should already perform its obligation of providing the round-the-clock security on the property. In issuing its order of November 5, 2002, therefore, the RTC acted whimsically because it did not first ascertain whether or not the precedent reciprocal obligation of the owner upon which the demanded obligation of the developer was dependent had already been performed. Without such showing that the developer had ceased to perform a continuous obligation to provide security over the joint venture property despite complete fulfillment by the owner of all its accrued obligations, the owner had no right to demand from the developer the round-the-clock security over the 215 hectares of land.

2) Non-occurrence of an event

Article 1185. The condition that some event will not happen at a determinate time shall render the obligation effective from the moment the time indicated has elapsed, or if it has become evident that the event cannot occur.
If no time has been fixed, the condition shall be deemed fulfilled at such time as may have probably been contemplated, bearing in mind the nature of the obligation. (1118) (CIVIL CODE)

[U]nder Art. 1185, if an obligation is conditioned on the non-occurrence of a particular event at a determinate time, that obligation arises” (a) at the lapse of the indicated time, or (b) if it has become evident that the event cannot occur. (Osmeña III v. Power Sector Assets and Liabilities Management Corporation, G.R. No. 212686, October 05, 2016, Per Velasco, Jr., J.)

The Wellex Group, Inc. v. U-Land Airlines, Co., Ltd., G.R. No. 167519, January 14, 2015, Per Leonen, J.)

• Petitioner Wellex and respondent U-Land bound themselves to negotiate with each other within a 40-day period to enter into a share purchase agreement. If no share purchase agreement was entered into, both parties would be freed from their respective undertakings.

• It is the non-occurrence or non-execution of the share purchase agreement that would give rise to the obligation to both parties to free each other from their respective undertakings. This includes returning to each other all that they received in pursuit of entering into the share purchase agreement.

• At the lapse of the 40-day period, the parties failed to enter into a share purchase agreement. This lapse is the first circumstance provided for in Article 118.5 that gives rise to the obligation. Applying Article 1185, the parties were then obligated to return to each other all that they had received in order to be freed from their respective undertakings.

• However, the parties continued their negotiations after the lapse of the 40-day period. They made subsequent transactions with the intention to enter into the share purchase agreement. Despite that, they still failed to enter into a share purchase agreement. Communication between the parties ceased, and no further transactions took place.

• It became evident that, once again, the parties would not enter into the share purchase agreement. This is the second circumstance provided for in Article 1185. Thus, the obligation to free each other from their respective undertakings remained.

• As such, petitioner Wellex is obligated to return the remittances made by respondent U-Land, in the same way that respondent U-Land is obligated to return the certificates of shares of stock and the land titles to petitioner Wellex.

Osmeña III v. Power Sector Assets and Liabilities Management Corporation, G.R. No. 212686, October 05, 2016, Per Velasco, Jr., J.:

• In the case at bar, PSALM’s obligation to award the contract in TPVI’s favor was dependent on the non-occurrence of an event: SPC’s legal and valid exercise of its Right to Top. As phrased by PSALM: “the approval of the sale to TPVI was a conditional one, the consummation of which is dependent on the non-exercise by SPC of its right to top.”13 It has become apparent, however, that such event will never occur. SPC can never legally and validly invoke its Right to Top in view of its nullity. The condition, therefore, is deemed complied with by operation of law, and the obligation to execute the purchase contracts in favor of TPVI, due and demandable.

References

Chapter 1 – General Provisions, Title I, Book IV, Republic Act No. 386, Civil Code

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