Catungal v.

Rodriguez [646 SCRA 130, 2011] Obligations and Contracts doctrine

: In conditional sales, the acquisition of rights as well as extinguishment or loss of
those already acquired shall depend upon the happening of the event, which
constitutes the condition. An obligation dependent upon a suspensive condition
cannot be demanded until after the condition takes place because it is only after the
fulfillment of the condition that the obligation arises. When the condition is imposed
merely on the performance of an obligation and not on the perfection of the
contract, it gives the other party the option to either refuse to proceed with the sale
or to waive the condition.
Facts: The petitioners and respondent entered into a Conditional Deed of Sale
wherein spouses Catungal agreed to sell and Rodriguez agreed to buy the lot
conditioned on the payment of a certain price but the obligation to pay the balance
of the purchase price would only arise if Rodriguez would successfully negotiate and
secure a road right of way. Petitioners requested for an advance of on the purchase
price but Rodriguez objected stating that in view of the terms of the Conditional
deed he would only pay balance of the purchase price if he would obtain the a road
right of way and he was given sufficient time to do so and he was given the right to
rescind the contract. But spouses Catungal rescinded the contract. Rodriguez
contends that the spouses unilateral rescission was unjustified while the spouses
Catungal contends that the terms of the Conditional Deed of #ale violated the
principle of mutuality under Art. 1308 of the Civil Code stating the contract was a
potestative condition because it was dependent on the sole will of the debtor
0$odrigue%1.
Issue: WON the stipulations of their Conditional Deed of Sale constitute a
potestative condition?
Held: no. The stipulation wherein Rodriguez 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. It is a condition imposed only on respondents obligation to pay
the remainder of the purchase price. 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 the third persons who own the adjacent land and from whom the road right of
way shall be negotiated. Such a condition is likewise dependent on chance as there
is no guarantee that respondent and the 3rd party landowners would come to an
agreement regarding the road right of way. This type of mixed condition is expressly
allowed Art 1182
When the fulfillment of the condition depends upon the sole will of the debtor, the
conditional obligation shall be void. If it depends upon chance or upon the will of a
third person, the obligation shall take effect in conformity with the provisions of this

code. In other words, the obligation to pay the balance is conditioned upon the
acquisition of the road right of way. Therefor, spouses Catungal cannot rescind the
contract nor demand the fulfillment of Rodriguez obligation to pay the balance. In
the event the condition is not fulfilled, Rodriguez can either proceed with the sale
and demand return of his down payment or to waive the condition and still pay the
purchase price despite the lack of road access

LO V. KJS ECO-FRAMEWORK SYSTEM PHIL INC G.R. NO 149420 (2003)

FACTS: Respondent KJS Eco-Framework System is a corporation engaged in the sale

of steel scaffoldings, while petitioner Sonny Lo, doing business under the name of
Sans Enterprises, is a building contractor. In February 1990, petitioner ordered
scaffolding equipments from the respondent amounting to P540, 425.80. He paid a
down payment of P150,000 and the balance was to be paid in 10 monthly
installments. However, Lo was only able to pay the first 2 monthly installments due
to financial difficulties despite demands from the respondent. In October 1990,
petitioner and respondent executed a deed of assignment whereby petitioner
assigned to respondent his receivables of P335,462.14 from Jomero Realty Corp but
when respondent tried to collect the said credit from Jomero Realty Corp, the latter
refused to honor the deed of assignment because it claimed that the petitioner was
also indebted to it. As such, KJS sent Lo a demand letter but the latter refused to
pay, claiming that his obligation had been extinguished when they executed the
deed of assignment. Subsequently, respondent filed an action for recovery of sum of
money against petitioner. Petitioner argued that his obligation was extinguished
with the execution of the deed of assignment of credit. Respondent alleged that
Jomero Realty Corp refused to honor the deed of assignment because it claimed
that the petitioner had outstanding indebtedness to it.
The trial court dismissed the complaint on the ground that the assignment of credit
extinguished the bligation. Upon appeal, CA reversed the trial court decision and
held in favor of KJS. CA held that: Petitioner failed to comply with his warranty
under the deed; The object of the deed did not exist at the time of the transaction,
rendering it void under Art 1409 NCC and; Petitioner violated the terms of the deed
of assignment when he failed to execute and do all acts necessary to effectually
enable the respondent to recover the collectibles
ISSUE: WON the deed of assignment extinguished the petitioners obligation
HELD: No, the petitioners obligation was not extinguished with the execution of the
deed of assignment.

An assignment of credit is an agreement by virtue of which the owner of a credit,

known as the assignor, by a legal cause, such as sale, dacion en pago, exchange or
donation, and without the consent of the debtor, transfers his credit and accessory
rights to another, known as the assignee, who acquires the power to enforce it to
the same extent as the assignor could enforce it against the debtor.
In dacion en pago, as a special mode of payment, the debtor offers another thing to
the creditor who accepts it as equivalent of payment of an outstanding debt. In
order that there be a valid dation in payment, the following are the requisites: (1)
There must be the performance of the prestation in lieu of payment (animo
solvendi) which may consist in the delivery of a corporeal thing or a real right or a
credit against the third person; (2) There must be some difference between the
prestation due and that which is given in substitution (aliud pro alio); (3) There must
be an agreement between the creditor and debtor that the obligation is immediately
extinguished by reason of the performance of a prestation different from that due.
The undertaking really partakes in one sense of the nature of sale, that is, the
creditor is really buying the thing or property of the debtor, payment for which is to
be charged against the debtors debt. As such, the vendor in good faith shall be
responsible, for the existence and legality of the credit at the time of the sale but
not for the solvency of the debtor, in specified circumstances.
Hence, it may well be that the assignment of credit, which is in the nature of a sale
of personal property, produced the effects of a dation in payment which may
extinguish the obligation. However, as in any other contract of sale, the vendor or
assignor is bound by certain warranties. More specifically, the first paragraph of
Article 1628 of the Civil Code provides:
The vendor in good faith shall be responsible for the existence and legality of the
credit at the time of the sale, unless it should have been sold as doubtful; but not
for the solvency of the debtor, unless it has been so expressly stipulated or unless
the insolvency was prior to the sale and of common knowledge.
From the above provision, petitioner, as vendor or assignor, is bound to warrant the
existence and legality of the credit at the time of the sale or assignment. When
Jomero claimed that it was no longer indebted to petitioner since the latter also had
an unpaid obligation to it, it essentially meant that its obligation to petitioner has
been extinguished by compensation. In other words, respondent alleged the nonexistence of the credit and asserted its claim to petitioners warranty under the
assignment. Therefore, it is necessary for the petitioner to make good its warranty
and pay the obligation.
Furthermore, the petitioner breached his obligation under the Deed of Assignment,
to execute and do all such further acts and deeds as shall be reasonably necessary
to effectually enable said ASSIGNEE to recover whatever collectibles said ASSIGNOR
has in accordance with the true intent and meaning of these presents.

Indeed, by warranting the existence of the credit, petitioner should be deemed to

have ensured the performance thereof in case the same is later found to be
inexistent. He should be held liable to pay to respondent the amount of his
indebtedness