Potestative conditions in contracts

by Atty. Francesco Britanico | Updated: May 11, 2023 | Blog, Corporate Law, Contracts

An executive's work desk as the post deals with contracts.

Are potestative conditions valid?

The law on obligations and contracts allows to the parties of an agreement a wide latitude in the terms they set among themselves.

Art. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. (1255a)

But this latitude is subject to the requirement that the terms agreed on are not contrary to law, morals, good customs, public order, or public policy. This means that certain types of conditions are invalid, no matter that the contract signed by the parties should provide for them.

Potestative conditions are one such type of prohibited condition

A potestative condition is a condition, the fulfillment of which depends upon the sole will of the debtor, in which case, the conditional obligation is void.

NATELCO vs. COURT OF APPEALS, G.R. No. 107112 February 24, 1994

A potestative condition depends upon the exclusive will of one of the parties. For this reason, it is considered void. Article 1182 of the New Civil Code states: When the fulfillment of the condition depends upon the sole will the debtor, the conditional obligation shall be void.

PEREZ vs. COURT OF APPEALS, G.R. No. 112329, January 28, 2000

The prohibition is found in Article 1182 of the Civil Code which provides:

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. (1115)

Potestative conditions do not create any obligations

Potestative conditions do not create obligations at all, impose no duty on the parties, and for this reason are invalid as clauses in a contract. They are at odds with the basic characters of a contract.

Art. 1305. A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. (1254a)

Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. (1256a)

In consequence, a potestative condition, even though written into a contract, is void and without effect.

Atty. Francesco C. Britanico