Chapter 3 Different Kinds

of Obligations
Pure Obligation

pure and conditional obligations

its an unqualified obligation that is immediately

demandable

performance does not depend upon a future or uncertain

event or past event unknown to the parties

promissory note payable upon demand is a pure obligation that

is immediately demandable; action to collect filed 15 years
after will not prosper due to prescription

Conditional Obligation

conditional obligation is the reverse of pure obligation

performance depends upon a future or uncertain event or past

event unknown to the parties

its efficacy is predicated on the happening of a future or

uncertain event

condition: any act/event except which must happen before a

duty to perform can arise or one which discharges a duty to
perform that already exists

resolutory condition is demandable at once; right already

exists; hence, obligation can already be demanded; however,
once the future/uncertain event happens, the obligation is
discharged

obligation is extinguished by operation of law; resolution

takes effect at a date specified by the parties

Chapter 3 Different Kinds of Obligations 1

 example:
contract provides that purchaser can obtain a refund for
as long as the Government allows the same; disallowance of
refund by Government is the resolutory condition

Suspensive Condition

suspensive condition is not demandable at once; can be

demanded only upon the happening of the future, uncertain
event or past even unknown to the parties

suspensive condition gives rise to the performance of an

obligation; if the event does not happen, the parties stand
as if the obligation did not exist

example:
contract to sell involving payment in installments where
title remains vested in the seller until full payment;
payment of the last installment is the future event,
giving rise to obligation to execute a final deed of sale
and transfer of ownership

Obligation with a period

Art. 1180, CC
does not entitle the creditor to file a complaint for a sum
of money; must first fix the period for payment; in case of
non-payment, can file complaint for collection of sum of
money

Conditional contract and Conditional obligation

condition imposed on the perfection is distinct from

condition imposed on performance of obligation

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 non-compliance with the first does not result in a contract;
non-compliance with the second gives the other party to
either proceed with the contract or waive the condition

Potestative condition

Art. 1182, CC
potestative condition completely depends on the will of one
party, which makes the conditional obligation itself void

mixed potestative condition depends on the will of one party

to the contract and a third person

where the potestative condition only depends on the

fulfillment of the obligation, the condition is avoided but
the obligation remains valid

Kinds of Potestative condition

deoends upon the will of the debtor

depends upon chance; and

depends upon the will of a third person

Example of potestative condition

contract of lease containing a stipulation that the lease

will remain effective “for as long as the lessee needed the
premises and can meet and pay said increases.” (Lao Lim v.
CA)

Mixed potestative condition

considered valid as these do not exclusively depend upon the

will of the debtor

example:

Chapter 3 Different Kinds of Obligations 3

 contract of sale in which the buyer agreed to pay the balance
of the purchase price upon the seller’s ejectment of
squatters therein

Where condition is on fulfillment only

where potestative condition depends on the fulfillment of the

obligation, the condition is negated but the obligation is
valid

example:
sale of land where the buyer agreed to pay the balance
after the squatters are ejected; buyer may waive condition
and insist on the sale, which obligates the buyer to pay
the balance and the seller to transfer title in favor of
the buyer

Impossibility of performance

natural impossibility: renders contract void

impossibility in fact such as inability of a party to perform

does not negate the contract

Art. 1183, CC

those contrary to good customs or public policy

those prohibited by law

impossible conditions annul the obligation; impossibility

at the time obligation is created annuls the obligation

however, impossibility may occur thereafter, which will

annul obligation if legal impossibility is predicated on
force majeure

Constructive fulfillment of condition

Chapter 3 Different Kinds of Obligations 4

 Art. 1186, CC

when the obligor prevents the fulfillment of a condition, the

law deems the condition constructively fulfilled

Recession in reciprocal obligations

Art 1191, CC

“The power to rescind obligations is implied in reciprocal

ones, in case one of the obligors should not comply with
what is incumbent upon him.”

“The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in
either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.”

“The court shall decree the rescission claimed, unless there

be just cause authorizing the fixing of a period.”

“This is understood to be without prejudice to the rights of

third persons who have acquired the thing, in accordance with
Articles 1385 and 1388 and the Mortgage Law.”

Rescission defined

rescission is abrogation of the contract and restoration of

the parties to their respective positions before they entered
into a contract

refers to revocation of a contract by the aggrieved party for

material breach thereof by the offending party, either
judicially or extrajudicially

Rescission implied in reciprocal obligations

the power to rescind is implied in reciprocal obligations, in

case one of the obligors should not comply with what is

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 incumbent upon him

reciprocal obligations are those created or established at

the same time, out of the same cause, and which result in a
mutual relationship of creditor and debtor between the
parties

example:

contract of sale gives rise to a reciprocal obligation of

the parties; obligations are performed simultaneously, so
that the performance of one is conditioned upon the
simultaneous fulfillment of the other

Instances of rescission under the Civil Code

Art. 1191

general provision on rescission of reciprocal obligations

Art. 1659

rescission as an alternative remedy, insofar as the rights

and obligations of the lessor and the lessee are concerned

Art. 1380

rescission of contracts

Art. 1592
sale of immovable property which can only be rescinded by
judicial or notarial act

Special laws on rescission

Recto Law
rescission of sale of personalty payable on installments as
provided in Art. 1434

Maceda Law

Chapter 3 Different Kinds of Obligations 6

 sale of realty payable in installments; under this law,
general law on rescission of reciprocal obligations are not
applicable

Rescission presupposes extant obligation

rescission under Art. 1191

refers to a binding obligation; the failure to pay the price

in a contract to sell is not a breach but an event that
prevents the vendor from conveying ownership to the buyer;
thus, contract to sell is not rescissible under Art. 1191, CC

Art. 1191

also does apply to a contract with a suspensive condition

Rescission requires material breach

breach under Art. 1191

refers to obligor’s failure to comply with an existing

obligation

it pertains to a substantial breach that defeats the

parties’ purpose in entering into the agreement

Rescission requires material breach

example:

failure of the obligor to execute the deed of assignment

is a substantial breach that warrants rescission

power to rescind under Art. 1191 is not absolute; court can

allow the defaulting party to comply within a certain period

Indications of substantial breach

Chapter 3 Different Kinds of Obligations 7

 corporation and patentee agreed that patentee will be
appointed as vice president thereof in exchange for the
corporation’ use of his patent and trademark; patentee was
later dismissed without a valid cause; patentee can validly
sue for rescission and damages based on substantial breach,
that is, illegal dismissal

Substantial breach

failure of the buyer to pay 25% of the purchase price within

a certain period is a substantial breach

Only the injured party can seek rescission

under Art. 1191, CC

injured party can seek rescission or sue for specific

performance

delay in the performance of an obligation entitles the other

party to rescind; mutual delay, however, proscribes
rescission (Cortes v. CA)

Rescission is done judicially; exceptions

general rule: injured party must seek rescission plus damages

from the court through an action

exception: parties can stipulate that a violation of the

terms and conditions will result in rescission without
judicial action

Requirement for extrajudicial rescission

the injured party must notify the other who may agree or
disagree with the basis for rescinding the contract

Chapter 3 Different Kinds of Obligations 8

 the other party can either accept or oppose the rescission;
if not, other party must question the same in court, which
may sustain or deny it

Unopposed rescission produces effect

extrajudicial rescission acquires legal effect where the

other party does not question the same before the proper
court

inability to challenge the rescission for more than a year

indicates assent by the other party to the rescission
(Agustin v. CA)

Mutual restitution in case of rescission

mutual restitution is required in rescission, should this be

possible; if not, as when the land which is the object of the
contract has been foreclosed, court can award damages instead
of restitution

Exception to mutual rescission

where rescission is decreed by reason of a material breach of

the contract, the lot developer was ordered to return the
current market value of the land, not the amount that was
actually paid to it by the buyers (Solid Homes v. Spouses Tan
and de Jesus Tan)

Injured party may ask for specific performance

Art. 1191, CC

allows the injured party to seek specific performance,

instead of rescission

Chapter 3 Different Kinds of Obligations 9

 general rule: injured party can either seek rescission or
specific performance, with damages in either case; remedies
are mutually exclusive

exception: injured party may still seek rescission, even if

he has chosen specific performance, if fulfillment has become
impossible

example:

bank that agreed to lend money to a borrower, who already

received a portion thereof, remains obligated to perform
the same notwithstanding a Central Bank resolution
prohibiting it from conducting further transactions; but,
specific performance cannot be decreed in favor of
borrower because of the CB resolution barring the bank
from the undertaking further banking operations; in this
case, rescission with damages is proper with respect to
the unreleased portion of the loan (Central Bank v. CA)

Waiver of right or option to rescind

right to rescind is waived once substantial compliance is

made as in the case of partial payment of installments

unqualified acceptance of late payment amounts to a waiver of

the period and ground to rescind under Art. 1592, CC

creditor is estopped from seeking rescission once he accepts

delayed installment payments

Distinction between rescission under Art. 1191 and rescission

under Art. 1381, CC

rescission under Art. 1191 is due to breach while rescission

under Art. 1381 is due to lesion or economic prejudice

under Art. 1191, rescission is a principal remedy while under

Art. 1381, rescission is merely subsidiary

Chapter 3 Different Kinds of Obligations 10

 rescission under Art. 1191 was originally termed resolution,
which is a principal action

Rescission and termination distinguished

rescission declares a contract void in its inception and

restores the parties to their previous positions

termination or cancellation entails enforcement of the terms

and conditions prior to the contract’s cancellation

in rescission, parties are restored to their original

situations

in termination or cancellation, parties are not restored to

their original situations; parties are just released from
further contractual obligations

Reformation or rescission

where the agreement does not reflect the parties’ real

intention, and a material breach of the contract is
committed, the injured party can choose between reformation
of the contract or rescission with damages

injured party can choose the more effective remedy to protect

his interest

Mandamus does not lie to enforce a contract

mandamus is not a proper remedy to enforce the terms and

conditions of a contract

contractual obligation does not arise from an office, trust,

or station

not proper because the performance of an obligation is

completely dependent on the will of the other party; not
subject to compulsion

Chapter 3 Different Kinds of Obligations 11

 Remedies under Recto Law (Now Art. 1484, CC)

applies to sale of personal property payable in installments

vendor has the following remedies:

exact fulfillment of the obligation, should the vendee

fail to pay

cancel the sale, should the vendee’s failure to pay cover

two or more installments

foreclose the chattel mortgage on the thing sold, if any,

should vendee fail to pay two or more installments; if
foreclosure is availed of, unpaid balance cannot be recovered

remedies are alternative, not cumulative

Rescission under Maceda law of realty in installment

covers all transactions/contracts, involving sale or

financing of real estate on installment payments, including
residential condominium apartments, where the buyer has paid
at least two years of installments

Rescission under Maceda law

excludes industrial lots, commercial buildings and sales to

tenants

buyer is entitled to:

pay, without additional interest, the unpaid installments

due within the total grace period for every year of
installment payments made

can be exercised by the buyer only once in every five years

of the life of the contract and its extensions

Chapter 3 Different Kinds of Obligations 12

 if the contract is cancelled, the seller shall refund to the
buyer the cash surrender value of the payments of the
property equivalent to fifty percent of the total payments
made

Obligations with a period

period

duration or series of years, moths, or days in which

something is completed

Period to accept offer

a period to accept an offer, if not supported by a

consideration, can be withdrawn before acceptance or before
offeror learns of acceptance

a period supported by a consideration is a contract of option

and cannot be withdrawn without committing a breach thereof

option is an independent contract; different from the

projected main agreement

Day certain

that which must necessarily come, although it may not be

known when

if arrival is uncertain, the obligation is conditional

an employment contract with a fixed period does not depend

upon the nature of the work of the employee will perform; it
depends upon a day certain agreed upon for the commencement
and termination of the employment relationship

Alternative obligation defined

Chapter 3 Different Kinds of Obligations 13

 debtor has assumed two or more alternative prestations; in
which case, he may choose to fully perform one, resulting in
the discharge of the other

debtor has the right to choose, unless by agreement the

creditor is given the right

once the creditor chooses, obligations is no longer

alternative

example:

A is indebted to B in the amount of Php 10,000,000; A

agreed to pay amount on a fixed date or in case of non-
payment at the fixed time, A will sell the property
mortgaged to the creditor

policy agreement provides that in case property insured is

destroyed, insurer (obligor) may pay the value of the
insured property or build one in a more or less
substantial manner

Joint and Solidarity Obligation

Joint obligation

each of the debtors is liable only for a proportionate

part of the debt, and each creditor is entitled only to a
proportionate part of the credit

presupposes two or more obligations

Solidarity obligation

solidarity liability is present when the obligation

expressly provides, or when the law or the nature of the
obligation requires solidarity

each debtor is liable for the entire obligation, and each

creditor is entitled to demand for the whole obligation

also known as joint and several obligation

Chapter 3 Different Kinds of Obligations 14

 Solidarity obligation is not lightly inferred

when solidarity liability is not clearly expressed, no

conclusion of solidarity liability can be made

final judgement not providing solidarity liability cannot be

changed even if contract involved expressly provided for
solidary liability

Joint and several liability; husband and wife

husband does not automatically incur solidary liability with

wife who enters into contract in the exercise of her
profession, occupation or business

contracts only affect parties to the contract

Joint liability cannot be converted into solidary liability by

admission

a joint liability remains as such notwithstanding admission

that it is solidary; nature of the obligation prevails over
the admission

Principles of joint and several liability

joint tortfeasors are jointly and severally liable

joint tortfeasors are not liable pro rata; they cannot pay an
aliquot part of the obligation

General rule; exception in joint or solidary obligation

general rule: concurrence of two or more creditors/debtors in

an obligation does not imply solidary obligation

Chapter 3 Different Kinds of Obligations 15

 presumption: liability of two or more debtors/claim of two or
more creditors is joint

Instances of solidary obligation

instrument containing the words “i promise to pay” signed by

two or more persons indicates solidary liability (Section 17,
Negotiable Instruments Law);

surety’s liability is solidary; surety is viewed as the same

party as the debtor in relation to the debtor’s liability or
obligation

surety’s liability to creditor is direct, primary and

absolute

Mortgagor not solidarily liable with borrower

a third-party mortgagor is not solidarily liable with the

principal debtor

third-party mortgagor answers only when the mortgaged

property is foreclosed

in case debtor defaults, third-party mortgagor is held liable

through foreclosure of mortgaged property

liability extends only to the mortgaged property

deficiency amount can be recovered from principal debtor, not

from third-party mortgagor

Divisible and Indivisible Obligations

General rule on divisibility and indivisibility

divisible obligation can be performed in parts; susceptible

of partial performance

Chapter 3 Different Kinds of Obligations 16

 indivisible obligation can only be performed in its
entirety; obligee can refuse partial performance

examples

divisible obligation by agreement; construction contract

- parties may agree on a stage-by-stage construction
payment

law can provide for indivisibility of obligation; pledge

or mortgage is indivisible (Art. 2089, CC)

Where obligation is divisible, nullity of one prestation does

not nullify the whole obligation

in a divisible obligation consisting of two or more

prestations, the nullity of one prestation does not affect
the validity of the other prestations

examples

contract of loan, consisting in the payment of the

principal amount plus interest

usurious interest, which is null and void, does not render

invalid the obligation to pay the principal amount

in an indivisible obligation, the nullity of one prestation

affects the validity of the other prestations

it renders the whole obligation null and void

example

nullity of a mortgage contract for want of HLURB approval

affects the entire contract

Other Principles

debtor cannot ask for release of one or some of the

properties mortgage unless and until the loan has been fully

Chapter 3 Different Kinds of Obligations 17

 paid

in mortgage, there is no partial or proportionate

extinguishment

however, under PD 957, partial redemption of the mortgage is

allowed to enable the buyer to pay installments for the lot
or unit and obtain title over the lot or unit

parties may agree on partial release of the mortgage

corresponding the payment of a part of the obligation;
indivisibility of the mortgage is modified by agreement of
the parties (Metrobank v. SLGT Holdings, Inc.)

Obligations with a Penal Clause

penalty clause: accessory obligation attached to a principal

obligation to ensure performance

it imposes a special prestation on the debtor generally

consisting in the payment of a sum of money in case of non-
fulfillment

general rule: penalty takes the place of indemnity for

damages and the payment of interests in case of non-
performance

exceptions: contrary stipulation; obligor is sued for refusal

to pay penalty; obligor is guilty of fraud

Functions/Purposes of penalty clause

penalty clause is an accessory undertaking to assume greater

liability in case of breach of contract

two functions:

to provide for liquidated damages

to strengthen the coercive force of the obligation by the

threat of greater responsibility in the event of breach

Chapter 3 Different Kinds of Obligations 18

 Penalty must be expressly provided

penalty must be expressly provided in the contract;

otherwise, it cannot be imposed and collected from the debtor

Reduction of Penalty

court can reduce the penalty if it is iniquitous or

unconscionable

addressed to the sound discretion of the court

Proof of damages not necessary

penalty clause in a contract is a sufficient basis for the

imposition of liquidated damages arising from the breach

proof of the existence and the measure or extent of damages

is unnecessary (Florentino v. Supervalue, Inc.)

Penalty and interests may be stipulated

parties are allowed to agree upon the penalty, aside from the
monetary interest (cost of money); these two concepts are
distinct, hence can be separately demanded

compounding of interest is allowed, by agreement of the

parties (Tan v. CA)

Rate of Interest

when the obligation is breached, and it consists in the

payment of a sum of money, i.e., a loan or forbearance of
money, the interest due is that stipulated in writing; in the
absence of stipulation, the rate of interest shall be 12% per

Chapter 3 Different Kinds of Obligations 19

 annum to be computed from default, i.e., from judicial or
extrajudicial demand

Chapter 3 Different Kinds of Obligations 20