Obligation conditioned on non-occurence of a particular event at a determinate time

The Supreme Court found application of Articles 1181 and 1185 of the Civil Code find application in the case of Osmeña v. PSALM (G.R. No. 212686, October 05, 2016).

The award of the NPPC-LLA and NPPC-LLA to TPVI further finds justification under Arts. 1181 and 1185 of the Civil Code, viz:
Article 1181. In 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. xxx

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. xxx
The Supreme Court explained in another case, The Wellex Group, Inc. v. U-Land Airlines, Co., Ltd.[11] that, under 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. To illustrate:[12]
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 1185 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.
In Osmeña v. PSALM, 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 became apparent, however, that such event would never occur. SPC could never legally and validly invoke its Right to Top in view of its nullity. The condition, therefore, according to the Court, was deemed complied with by operation of law, and the obligation to execute the purchase contracts in favor of TPVI, due and demandable.

[11] G.R. No. 167519, January 14, 2015.

[12] G.R. No. 167519, January 14, 2015.

[13] Osmeña v. PSALM (G.R. No. 212686, October 05, 2016).

Popular Posts