Dear PAO,

Would like to seek legal advice regarding the money that I lent to my friend. We agreed that he will return it with interest of 10 percent after a year. After the lapse of one year, however, he failed to pay the said loan with interest as discussed. To show that he will not run from his obligation, we executed a formal contract of loan where it was stipulated, among others, that he will exert his best effort to pay his obligation. I have sent him a demand letter requesting that he pay his obligation plus interest since I no longer have a job and I am having some financial problems. Now, he claims that the phrase “[to] exert his best effort to pay his obligation” is a potestative condition, which makes the said contract void. Is he correct on this?

Babigirl

Dear Babigirl,

No, your friend is not correct in claiming that the potestative condition found in your written contract makes your loan agreement null and void.

To begin with, a potestative condition is a conditional obligation whose fulfillment depends upon the will of one of the contracting parties. Article 1182 of the New Civil Code of the Philippines provides that, “when the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void…” From the aforementioned provision, it follows that not all potestative conditions are void. If a condition depends solely on the sole will of the debtor, both the condition and the obligation are void. However, if it depends upon the will of the creditor, or if it is a simple/mixed condition, the obligation is valid.

In connection with those conditions which depend on the sole will of the debtor, the case of Roberto L. Yupanhco and Regina y de Ocampo vs. O.J. Development and Trading Corporation, et al. (G.R. No. 242074, November 10, 2021), penned by Associate Justice Rosmari Declaro Carandang, distinguishes between a potestative condition imposed on the birth of the obligation and one imposed on the obligation’s fulfillment. In the latter situation, only the condition is considered void, leaving unaffected the obligation itself.

In your case, the condition found on the written contract of loan between you and your friend, that is, “he will exert his best effort to pay his obligation,” clearly partakes the nature of a pure potestative condition which depends solely on the will or discretion of your friend as a borrower/debtor. However, the said condition is imposed not at the inception or birth of the contract as the said agreement was already perfected when he received the money and agreed to return it with interest within one year. Rather, the condition is imposed on the fulfillment of his obligation to pay the loan.

Thus, only the condition providing for payment on a “best effort” basis is considered void. The obligation to return your money with interest is unaffected, making the contract of loan valid.

We hope that we were able to answer your query. This advice was solely based on the facts you have narrated and our appreciation of the same. Our opinion may vary when other facts are changed or elaborated.

Thank you for your unwavering trust and support.

Editor’s note: Dear PAO is a daily column of the Public Attorney’s Office. Questions for Chief Acosta may be sent to [email protected]