Obligations and Contracts
Chapter 3 Nature and Effect of Obligations Section 2 Obligations with a Period
Article 1193
Obligations for whose fulfillment a day certain has been fixed, shall be demandable only when that day comes.
Obligations with a resolutory period take effect at once, but terminate upon arrival of the day certain.
A day certain is understood to be that which must necessarily come, although it may not be known when
If the uncertainty consists in whether the day will come or not, the obligation is conditional and it shall be regulated by the rules of the preceding section.
Concept of Term – a space of time which, exerting an influence on obligations as a consequence of a juridical act, either:
1. suspends their demandability, or 2. determines their extinguishment
Condition Term or Period
In general Refers to an event Refers to an interval of time As to requisites Future Uncertain Future Certain Possible As to
fulfillment May or may not happen (even if event must happen as in arts. 1184 and 1185)
Will SURELY come to pass, although may not be known when As to influence upon obligation Exerts an influence upon the very existence of the obligation itself (either gives rise or extinguishes obligation)
Has no effect upon existence of obligations and exerts an influence only upon its
demandability or performance As to
retroactive effect
Has retroactive effects NO retroactive effects unless there is a special agreement to the
contrary As to Time May refer to past event
unknown to the parties Always refers to the future As to effect
of will of debtor
When a condition is left exclusively to the will of the debtor, the very validity of he obligation is affected
When the duration or period is left exclusively to the will of the debtor, the obligation is still valid
Impossible periods:
1. performance is to be made on the 380th day because there
are only 365 days of the year
2. act is to be done on the next birthday of one already dead 3. period is too short for the prestation
4. period is contrary to the very nature of the juridical act involved
Kinds of Terms
Roman Law Classification
1. Suspensive (ex die) – period that MUST lapse before the performance of an obligation / from a day certain
2. Resolutory (in diem) – period after which the performance must terminate / to a day certain
According to Source 3. Legal – period fixed by law
4. Voluntary – stipulated by the parties 5. Judicial – allowed by the courts 6. Express – specifically stated
7. Tacit – when a person undertakes to do some work which can be done only during a particular season
8. Original
9. Period of Grace – an extension fixed by the parties or in court
10. Definite – fixed known date and time
11. Indefinite or indeterminate – event which will necessarily happen but date of its happening is unknown
*uncertainty referred to here does not convert the period into a condition, as long as there is NO UNCERTAINTY as to whether the event WILL HAPPEN OR NOT
Effect of Period
Obligations with a term are demandable ONLY when the day fixed for their performance arrives
- In actions for recovery of debts payable in installments, those not yet due and payable cannot be demanded in the complaint
- Right of action arises only when the date fixed has arrived; right of prescription must also be counted only from such date of maturity, NOT from the date of obligation
- Once date stipulated arrives, obligation can be enforced An action may be brought IMMEDIATELY to ENFORCE an obligation that is originally with a term in the following situations:
1. If contract in which the terms is imposed has been cancelled by mutual agreement of parties
2. When non-fulfillment of the terms of the contract resolves the period and authorizes the creditor to immediately demand performance
In such cases, obligation is converted to PURE obligation Suspension of Period
In the event of a fortuitous event or force majeure, contract shall be deemed SUSPENDED during said period
- Does not mean that the happening of those events stops the running of the period which the contract has agreed upon to run
- Only relieves the parties from the fulfillment of their respective obligations during that time
- If contract is stipulated to run for x number of years as abc as board of directors. Before x years arrive, c was
prevented to perform his function throughout the stipulated years. Upon the lapse of x years, c cannot extend so as to make up for years he missed
Effect of Moratorium
Moratorium – a postponement of the fulfillment of an
obligation; an extension of of the period for the performance of the obligation, decreed by statute
- TEST to determine constitutionality of a moratorium law: check the period of suspension of the remedy
o Must be definite and reasonable Article 1194
Iin cases of loss, deterioration or improvement of the thing before the arrival of the day certain, the rules in article 1189 shall be observed Article 1195
Anything paid or delivered before the arrival of the period, the obligor being unaware of the period or believing that the obligation has become due and demandable, may be recovered, with the fruits and interests.
Old civil code does not provide for recovery if debtor pays in advance, only by way of exception is a debtor allowed to recover WITH fruits and interest IF he paid in ignorance. The present civil code therefore provides an EXCEPTION without providing for the general rule, which in effect bars recovery
for paying in advance with knowledge of the period.
General rule is merely left to implication.
1164 – right to the fruits pertain to the creditor ONLY from the moment the obligation to deliver the thing arises;
Reason and equity dictate that the fruits and interests be recovered for payments made in advance because
1. The creditor has no right to it yet
2. If fruits and interests for the whole period were paid
together with the principal before the end of the period, (or before maturity) then the debtor would in effect be paying the creditor in excess of what he owes
Cannot recover the principal money or thing itself that is paid in advance because there is an obligation to pay such and merely paying in advance means fulfillment of that obligation
- But the code commission believes that allowing the
creditor to keep what has been paid in advance is contrary to the intent of the parties
Applies ONLY to obligations TO GIVE Effect of the arrival of the term
- Allows recovery of the THING AND MONEY ITSELF, PLUS fruits and interests which has accruied from the moment of payment to the date of recovery
- If action is not brought by debtor before the actual date of maturity, right to recover will CEASE
o But ratione legis (reason of the law) will still justify recovery of fruits and interest from the time of payment to the date of maturity
Right to Fruits and Interests
- Present article allows debtor to recover fruits and interests in ALL CASES where he paid under a mistake as to the period
- Should be construed in relation to provisions on solution indebiti or payment of what is NOT DUE.
o Under solution indebiti, a creditor who accepts payment in BAD FAITH, or with knowledge that period has not yet arrived, shall pay LEGAL
INTEREST for money or shall be liable for FRUITS for things that produce fruits
o If creditor acted in GOOD FAITH or under a MISTAKEN belief that payment was already due, liable for the fruits that have so far benefited him Notwithstanding premature payments (regardless of), fruits and interest CANNOT be recovered in the following cases: 1. When the obligation is reciprocal and there has been
premature performance on both sides
2. When the obligation is a loan on which the debtor is
bound to pay interest
3. When the period is exclusively for the benefit of the creditor, because debtor, when paying in advance loses nothing
Burden of proof of ignorance of the period lies with debtor; it is PRESUMED that debtor knows of the period and that obligation is not yet due
- Same rule equally applies to creditor Payment WITH KNOWLEDGE of term
- If payment was made VOLUNTARILY, WITH KNOWLEDGE of period, payment CANNOT be recovered
- Considered as debtor having tacitly waived benefit of the term, therefore not entitled to recover anything since the obligation, at that time of payment, is considered to be already matured
Article 1196
Whenever in an obligation a period is designated, it is presumed to have been established for the benefit of both the creditor and the debtor, unless form the tenor of the same or other circumstances it should appear that the period has been established in favor or one or of the other
Presumption – that the benefit is for both parties - Credit cannot DEMAND payment
- Debtor cannot make an effective TENDER and
CONSIGNATION of payment before the period stipulated (debtor cannot pay in advance)
o payment in advance would deprive creditor of his benefit to the interest that is due him
- benefit due to creditor: interest and such other benefits arising from the reasons that the creditor gave money which may depend upon economic circumstances like fluctuating of value of currency or for safekeeping of the money instead of him holding on to it (*look below)
- benefit due to debtor: use of the thing or money obtained If benefit is for CREDITOR ONLY
- Creditor may demand performance at any time
- BUT debtor CANNOT compel creditor to accept payment before the period expires
If benefit for DEBTOR only
- Debtor may oppose a premature demand for payment - Debtor may also validly pay at any time before the period
expires
In contracts of loan
- If gratuitous or without interest: Term is for exclusive benefit of debtor
- If interest is stipulated: period is for the benefit of both parties
o Therefore debtor cannot pay in advance UNLESS he also pays the FULL INTEREST for the period agreed upon
Other circumstances that the parties may have taken into consideration in fixing the period, making the term for the benefit for both debtor and creditor:
1. creditor may want to keep his money invested safely instead of having it in his hands
2. creditor sought to protect himself from sudden decline in the purchasing power of the currency
3. any other reason which the creditor may have to derive some advantage
4. even if there is no interest stipulated, period may still be for the benefit of both when the credit receives OTHER BENEFITS by reason of the term (in which case the benefits derived may take the place of the interest)
Because of these circumstances, creditor cannot be compelled to accept payment before stipulated period expires, even if debtor offers to pay full interest
Waiver of the creditor by means of acceptance of payment (even partial payment) by the creditor before the end of the stipulated period
- considered a WAIVER by the creditor of the agreed term - a relinquishment of the creditor’s right to refuse any
payment before the expiration of the term - But must not be considered a novation of the
contract/agreement
Period for the benefit of DEBTOR
- When stipulation states that payment is to be made “within” the agreed period
- Since it is for the benefit of the debtor, the debtor may waive the period and pay in advance; but the creditor cannot demand payment before - end of period.
- Payable “for a term of 5 years counted from this date” has been held to mean either that payment be made at the end of 5yrs or at any time within 5 yrs from date of contract, which means that debtor can waive period and offer to pay before 5 yrs and creditor cannot refuse 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.
Application
- Only to obligations without a period fixed by the parties - Whenever a period is fixed by the court pursuant to this
provision, court does not amend or modify the obligation; it may only enforce or carry out an implied stipulation in the contract
Courts may fix a term in the following cases:
1. When term of a lessee has been left to the will of the lessee/debtor
2. Terms of a donation imposing certain conditions do not fix the time for the performance of the conditions
3. When building contract did not fix a definite period within which the engineer was to complete the construction 4. When there is unreasonable interpretation of the
immediate demandability of pure obligations, courts may fix a reasonable time in which the debtor may pay
When a decision is rendered conformably with a compromise agreement but no time is specified within which the parties should comply with their commitments, EITHER PARTY may move the court to have a period fixed for the compliance of their respective commitments
- HOWEVER, mere failure of the parties to fix a period will NOT ALWAYS JUSTIFY the court in fixing one
The following stipulations constitute a period that is fixed by the parties and the courts cannot be justified in fixing a period:
1. Obligation to pay another the proceeds of the latter’s tobacco as soon as they are disposed of
2. Obligation is payable on demand
3. When the obligation is pure, simple and unconditional, debtor cannot ask for the period to be fixed by the court when he cannot show that the intention of the creditor was to grant him one
The only action that may be maintained based on this article is the ACTION TO ASK THE COURT TO FIX A TERM WITHIN WHICH THE OBLIGOR MUST COMPLY WITH HIS OBLIGATION. - Fulfillment of the obligation itself cannot be demanded
until after the court has fixed a period of compliance and such period has arrived
- Action for collection without a period being fixed is improper
- For Cuba, But it is not necessary for the period to be fixed first in a previous final judgment on a case filed for that purposeThe period may be granted in the same judgment in which payment is ordered
- In the Philippines, rules of pleading and procedure prohibit the above ruling.
o Fixing a period and ordering of payment cannot be made in the same action – this would imply 2 causes of action in the same complaint
First cause of action is for courts to fix a period
Second cause of action is for specific performance
Second cause Is premature because as of the filing of the complaint the first cause, the fixing of the period, has not yet been settled by judgment. The period for
compliance for the second has not yet been fixed.
Period to be fixed by the court becomes
part of contract and until such time as that period expires, NO ACTION to enforce payment may be validly brought
NOTE: both causes of action are subject to the rules of prescription and the
corresponding prescriptive periods
o BUT SC has ruled that a separate action rule may not be adhered to when such technicality need not be adhered to and when such separate action would just a cause of delay
In fixing the period, the court must ascertain the term probably contemplated by the parties
- It CANNOT ARBITRARILY fix a period
- Once a period is fixed by the court, such period becomes a part of the contract
o Such period being already part of the contract can no longer be extended or changed by the court WITHOUT THE CONSENT OF BOTH THE PARTIES o Default of debtor commences only AFTER THE
EXPIRATION of the period fixed by the court Article 1198
The debtor shall lose every right to make use of the period:
1. When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt; 2. When he does not furnish to the creditor the guaranties or
3. When by his own acts he has impaired said guaranties or securities after their establishment, and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory;
4. When the debtor violates any undertaking, in consideration of which the creditor agreed to the period;
5. When the debtor attempts to abscond
In cases provided for in this article, the obligation becomes immediately due and demandable even if the period has not yet expired, converting the obligation into a PURE one. Insolvency of debtor NEED NOT be declared in an insolvency proceeding. It is enough that he is in such a state of financial difficulty that is unable to pay his debts.
- DEGREE of insolvency to JUSTIFY immediate enforcement is a matter left to the courts
- Such insolvency must occur after the obligation was constituted
Art1198 does not apply to the extension of the period fixed by moratorium statutes
- Moratorium: a temp period wherein debtors may postpone payment of debts
- Moratorium laws are specifically enacted because of the financial difficulty of the debtors
Loss of Securities
- If caused by acts of debtor: disappearance or impairment need not be total
- If caused by fortuitous event, there must be TOTAL
disappearance in order to deprive the debtor of the benefit of the term
- Disappear = loss (perished, gone out of commerce or disappeared in a way that its existence is unknown or it cannot be recovered)
