Bar Questions

Question 1

In two separate documents signed by him, Juan Valentino “obligated” himself each to Maria and to Perla, thus -‘To Maria, my true love, I obligate myself to give you my one and only horse when I feel like It.”
- and –
‘To Perla, my true sweetheart, I obligate myself to pay you the P500.00 I owe you when I feel like it.”
Months passed but Juan never bothered to make good his promises. Maria and Perla came to consult you on whether or not they could recover on the basis of the foregoing settings. What would your legal advice be? (1997 Bar)

Answer 1

I would advise Maria not to bother running after Juan for the latter to make good his promise.This is because a promise is not an actionable wrong that allows a party to recover especially when she has not suffered damages resulting from such promise. A promise does not create an obligation on the part of Juan because it is not something which arises from a contract, law, quasi-contracts or quasi-delicts (Art, 1157). Under Art. 1182, Juan’s promise to Maria is void because a conditional obligation depends upon the sole will of the obligor. As regards Perla, the document is an express acknowledgment of a debt, and the promise to pay what he owes her when he feels like it is equivalent to a promise to pay when his means permits him to do so, and is deemed to be one with an indefinite period under Art. 1180. Hence the amount is recoverable after Perla asks the court to set the period as provided by Art. 1197, par. 2.

Question 2

Roland, a basketball star, was under contract for one year to play-for-play exclusively for Lady Love, Inc. However, even before the basketball season could open, he was offered a more attractive pay plus fringes benefits by Sweet Taste, Inc. Roland accepted the offer and transferred to Sweet Taste. Lady Love sues Roland and Sweet Taste for breach of contract. Defendants claim that the restriction to play for Lady Love alone is void, hence, unenforceable, as it constitutes an undue interference with the right of Roland to enter into contracts and the impairment of his freedom to play and enjoy basketball. Can Roland be bound by the contract he entered into with Lady Love or can he disregard the same? Is he liable at all? How about Sweet Taste? Is it liable to Lady Love? (1991 Bar)

Answer 2

Yes, Roland is liable under the contract as far as Lady Love is concerned. He is liable for damages under Article 1170 of the Civil Code since he contravened the tenor of his obligation. Not being a contracting party, Sweet Taste is not bound by the contract but it can be held liable under Art. 1314. The basis of its liability is not prescribed by contract but is founded on quasi-delict, assuming that Sweet Taste knew of the contract. Article 1314 of the Civil Code provides that any third person who induces another to violate his contract shall be liable for damages to the other contracting party.

Question 3

Printado is engaged in the printing business. Suplico supplies printing paper to Printado pursuant to an order agreement under which Suplico binds himself to deliver the same volume of paper every month for a period of 18 months, with Printado in turn agreeing to pay within 60 days after each delivery. Suplico has been faithfully delivering under the order agreement for 10 months but thereafter stopped doing so, because Printado has not made any payment at all. Printado has also a standing contractwith publisher Publico for the printing of 10,000 volumes of school textbooks. Suplico was aware of said printing contract. After printing 1,000 volumes, Printado also fails to perform under its printing contract with Publico. Suplico sues Printado for the value of the unpaid deliveries under their order agreement. At the same time Publico sues Printado for damages for breach of contract with respect to their own printing agreement. In the suit filed by Suplico, Printado counters that: (a) Suplico cannot demand payment for deliveries made under their order agreement until Suplico has completed performance under said contract; (b) Suplico should pay damages for breach of contract; and (c) with Publico should be liable for Printado’s breach of his contract with Publico because the order agreement between Suplico and Printado was for the benefit of Publico. Are the contentions of Printado tenable? Explain your answers as to each contention. (2002 Bar)

Answer 3

No, the contentions of Printado are untenable. Printado having failed to pay for the printing paper covered by the delivery invoices on time, Suplico has the right to cease making further delivery. And the latter did not violate the order agreement (Integrated Packaging Corporation v. Court of Appeals, G.R. No. 115117, June 8, 2000). Suplico cannot be held liable for damages, for breach of contract, as it was not he who violated the order agreement, but Printado Suplico cannot be held liable for Printado’s breach of contract with Publico. He is not a party to the agreement entered into by and between Printado and Publico. Theirs is not a stipulation pour atrui. [Aforesaid] Such contracts do could not affect third persons like Suplico because of the basic civillawprincipleof relativity of contracts which provides that contracts can only bind the parties who entered into it, and it cannot favor or prejudice a third person, even if he is aware of such contract and has acted with knowledge thereof (Integrated Packaging Corporation v. CA, G.R. No. 115117, June 8, 2000).

Question 4

A van owned by Orlando and driven by Diego, while negotiating a downhill slope of a city road, suddenly gained speed, obviously beyond the authorized limit in the area, and bumped a car in front of it, causing severe damage to the care and serious injuries to its passengers. Orlando was not in the car at the time of the incident. The car owner and the injured passengers sued Orlando and Diego for damages caused by Diego’s negligence. In their defense, Diego claims that the downhill slope caused the van to gain speed and that, as he stepped on the brakes to check the acceleration, the brakes locked, causing the van to go even faster and eventually to hit the car in front of it. Orlando and Diego contend that the sudden malfunction of the van’s brake system is a fortuitous even and that, therefore, they are exempt from any liability. Is this contention tenable? Explain. (2002 Bar)

Answer 4

No. Mechanical defects of a motor vehicle do not constitute fortuitous event, since the presence of such defects would have been readily detected by diligent maintenance check. The failure to maintain the vehicle in safe running condition constitutes negligence.

Question 5

AB Corp. entered into a contract with XY Corp. whereby the former agreed to construct the research and laboratory facilities of the latter. Under the terms of the contract, AB Corp. agreed to complete the facility in 18 months, at the total contract price of P10 million. XY Corp. paid 50% of the total contract price, the balance to be paid upon completion of the work. The work stated immediately, but AB Corp. later experienced work slippage because of labor unrest in his company. AB Corp.’s employees claimed that they are not being paid on time; hence, the work slowdown. As of the 17th month, work was only 45% completed. AB Corp. asked for extension of time, claiming that its labor problems is a case of fortuitous event, but this was denied by XY Corp. When it became certain that the construction could not be finished on time, XY Corp. sent written notice cancelling the contract, and requiring AB Corp. to immediately vacate the premises.Can the labor unrest be considered a fortuitous event? (2008 Bar)

Answer 5

Labor unrest is not a fortuitous event that will excuse AB Corporation from complying with its obligation of constructing the research and laboratory facilities of XY Corporation. The labor unrest, which may even be attributed in large part to AB Corporation itself, is not the direct cause of non-compliance by AB Corporation. It is independent of its obligation. It is similar to the failure of a DBP borrower to pay her loan just because her plantation suffered losses due to the cadang-cadang disease. It does not excuse compliance with the obligation (DBP v. Vda. de Moll, G.R. No. L-25802, January 31, 1972).

Question 6

Are the following obligations valid, why, and if they are valid, when is the obligation demandable in each case?

a. If the debtor promises to pay as soon as he has the means to pay;
b. If the debtor promises to pay when he likes;
c. If the debtor promises to pay when he becomes a lawyer;
d. If the debtor promises to pay if his son, who is sick with cancer, does not die within one year. (2003 Bar)

Answer 6

a. The obligation is valid. It is an obligation subject to an indefinite period because the debtor binds himself to pay when his means permit him to do so (Art. 1180).
When the creditor knows that the debtor already has the means to pay, he must file an action in court to fix the period, and when the definite period as set by the court arrives, the obligation to pay becomes demandable (Art. 1197).
b. The obligation to pay when he likes is a suspensive condition the fulfillment of which is subject to the sole will of the debtor and therefore the conditional obligation is void (Art. 1182).
c. The obligation is valid. It is subject to a suspensive condition, i.e. the future and uncertain event of his becoming a lawyer. The performance of this obligation does not depend solely on the will of the debtor but also on other factors outside the debtor’s control.
d. The obligation is valid. The death of the son of cancer within one year is made a negative suspensive condition to his making the payment. The obligation is demandable if the son does not die within one year (Art. 1185).

Question 7

Pedro promised to give his grandson a car if the latter will pass the bar examinations. When his grandson passed the said examinations, Pedro refused to give the car on the ground that the condition was a purely potestative one. Is he correct or not? (2000 Bar)

Answer 7

No, he is not correct. First of all, the condition is not purely potestative, because it does not depend on the sole will of one of the parties. Secondly, even if it were, it would be valid because it depends on the sole will of the creditor (the donee) and not of the debtor (the donor).

Question 8

In 1997, Manuel bound himself to sell Eva a house and lot which is being rented by another person, if Eva passes the 1998 bar examinations. Luckily for Eva, she passed said examinations.

a. Suppose Manuel had sold the same house and lot to another before Eva passed the 1998 bar examinations, is such sale valid? Why?
b. Assuming that it is Eva who is entitled to buy said house and lot, is she entitled to the rentals collected by Manuel before she passed the 1998 bar examinations? Why? (1999 Bar)

Answer 8

Yes, the sale to the other person is valid. However, the buyer acquired the property subject to a resolutory condition of Eva passing the 1998 Bar Examinations. Hence, upon Eva’s passing the Bar, the rights of the other buyer terminated and Eva acquired ownership of the property.
ALTERNATIVE ANSWER:
Yes, the sale to the other person is valid, as the contract between Manuel and Eva is amere promise to sell and Eva has not acquired a real rightover the land assuming that there is a price stipulated in thecontract for the contract to be considered a sale and therewas delivery or tradition of the thing sold.
b) No, she is not entitled to the rentals collected by Manuel because at the time they accrued and were collected, Eva was not yet the owner of the property.

Question 9

In a deed of sale of realty, it was stipulated that the buyer would construct a commercial building on the lot while the seller would construct a private passageway bordering the lot. The building was eventually finished but the seller failed to complete the passageway as some of the squatters, who were already known to be there at the time they entered into the contract, refused to vacate the premises. In fact, prior to its execution, the seller filed ejectment cases against the squatters.
The buyer now sues the seller for specific performance with damages. The defense is that the obligation to construct the passageway should be with a period which, incidentally, had not been fixed by them, hence, the need for fixing a judicial period.
Will the action for specific performance of the buyer against the seller prosper? (1991 Bar)

Answer 9

No, the action for specific performance filed by the buyer is premature under Art. 1197 of the Civil Code. If a period has not been fixed although contemplated by the parties, the parties themselves should fix that period, failing in which, the Court maybe asked to fix it taking into consideration the probable contemplation of the parties. Before teh period is fixed, an action for specific performance is premature.

Question 10

In June 1988, X obtained a loan from A and executed with Y as solidary co-maker a promissory note in favor of A for the sum of P200,000.00. The loan was payable at P20,000.00 with interest monthly within the first week of each month beginning July 1988 until maturity in April 1989. To secure the payment of the loan, X put up as security a chattel mortgage on his car, a Toyota Corolla sedan. Because of failure of X and Y to pay the principal amount of the loan, the car was extrajudicially foreclosed. A acquired the car at A’s highest bid of P120,000.00 during the auction sale.
After several fruitless letters of demand against X and Y, A sued Y for the discovery of P80,000.00 constituting the deficiency.
Y resisted the suit raising the following defenses:
a) That Y should not be liable at all because X was not sued together with Y.
b) That the obligation has been paid completely by A’s acquisition of teh car through “dacion en pago” or payment by cession.
c) That Y should not be held liable for the deficiency of P80,000.00 because he was not a co-mortgagor in teh chattel mortgage of the car, which contract was executed by X alone as owner and mortgagor.
d) That assuming he is liable, he should only pay the proportionate sum of P40,000.00.
Decide the defense with reasons. (1992 Bar)

Answer 10

a) The first defense of Y is untenable. Y is still liable as solidary debtor. The creditor may proceed against any one of the solidary debtors. The demand against one does not preclude further demand against the others so long as the debt is not fully paid.
b) The second defense of Y is untenable. Y is still liable. The chattel mortgage is only given as security and not as payment for the debt in case of failure to pay. Y as a solidary co-maker is not relieved of further liability on the promissory note as a result of the foreclosure of teh chattel mortgage.
c) The third defense of Y is untenable. Y is a surety of X and the extrajudicial demand against the principal debtor is not inconsistent with a judicial demand against the surety. A suretyship may co-exist with a mortgage.
d) The fourth defense is untenable. Y is liable for the entire prestation since Y incurred a solidary obligation with X.

Question 11

Four foreign medical students rented the apartment of Thelma for a period of one year. After one semester, three of them returned to their home country and the fourth transferred to a boarding house. Thelma discovered that they left unpaid telephone bills in the total amount of P80,000.00. The lease contract provided that the lessees shall pay for the telephone services in the leased premises. Thelma demanded that the fourth student pay the entire amount of the unpaid telephone bills, but the latter is willing to pay only one fourth of it. Who is correct? Why? (2001 Bar)

Answer 11

The fourth student is correct. His liability is only joint, hence, pro rata. There is solidary liability only when the obligation expressly so states or when the law or nature of the obligation requires solidarity (Art. 1207). The contract of lease in the problem does not, in any way, stipulate solidarity.

Question 12

Joey, Jovy and Jojo are solidary debtors under a loan obligation of P300,000.00 which has fallen due. The creditor has, however, condoned Jojo’s entire share in the debt. Since Jovy has become insolvent, the creditor makes a demand on Joey to pay the debt.

1. How much, if any, may Joey be compelled to pay?
2. To what extent, if at all, can Jojo be compelled by Joey to contribute to such payment? (1998, 2001, 2017 Bar)

Answer 12

1. Joey can be compelled to pay only the remaining balance of P200.000, in view of the remission of Jojo’s share by the creditor (Art. 1219).
2. Jojo can be compelled by Joey to contribute P50.000 Art. 1217. par. 3, Civil Code provides. “When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the debtor paying the obligation, such share shall be borne by all his co-debtors, in proportion to the debt of each.”
   Since the insolvent debtor’s share which Joey paid was P100,000, and there are only two remaining debtors - namely Joey and Jojo- these two shall share equally the burden of reimbursement. Jojo may thus be compelled by Joey to contribute P50.000.00.

Question 13

Zeny and Nolan were best friends for a long time already. Zeny borrowed P10, 000.00 from Nolan, evidenced by a promissory note whereby Zeny promised to pay the loan “once his means permit.” Two months later, they had a quarrel that broke their long-standing friendship.
Nolan seeks your advice on how to collect from Zeny despite the tenor of the promissory note. What will your advice be? Explain your answer. (2012, 2017 Bar)

Answer 13

The remedy of Nolan is to go to court and ask that a period be fixed for the payment of debt. Article 1180 of the New Civil Code provides that when a debtor binds himself to pay when his means permit him to do so, the obligation shall be deemed to be one with a period (suspensive). Article 1197 provides that the courts may fix a period if such was intended from the nature of the obligation and may also fix the duration of the period when such depends on the will of the debtor.

Question 14

Butch got a loan from Hagibis Corporation (Hagibis) but he defaulted in the payment. A case for collection of a sum of money was filed against him. As a defense, Butch claims that there was already an arrangement with Hagibis on the payment of the loan. To implement the same, Butch already surrendered five (5) service utility vehicles (SUVs) to the company for it to sell and the proceeds to be credited to the loan as payment. Was the obligation of Butch extinguished by reason of dacion en pago upon the surrender of the SUVs? Decide and explain. (2016 Bar)

Answer 14

No, the obligation of Butch to Hagibis was not extinguished by the mere surrender of the SUV’s to the latter. Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law on sales (Art. 1245). In dacion en pago, as a special mode of payment, the debtor offers another thing to the credtor who accepts it as equivalent of payment of an outstanding debt. 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 debtor’s debt. As such, the essential elements of a contract of sale, namely, consent, object certain, and cause or consideration must be present. In dacion en pago, there is in reality an objective novation of the obligation where the thing offered as an accepted equivalent of the performance of an obligation is considered as the object of the contract of sale, while the debt is considered as the purchase price. In any case, common consent is an essential pre-requisite, be it sale or innovation to have the effect of totally extinguishing the debt or obligation (Filinvest Credit Corporation v. Philippine Acetylene Company, G.R. No. L-50449, January 30, 1982). There being no mention in the facts that Hagibis has given its consent to accept the SUCs as equivalent payment, the obligation of Butch is not thereby extinguished be mere delivery of the SUVs.

Question 15

Jerico, the project owner, entered into a Construction Contract with Ivan for the latter to construct his house. Jojo executed a Surety undertaking to guarantee the performance of the work by Ivan. Jerico and Ivan later entered into a Memorandum of Agreement (MOA) revising the work schedule of Ivan and the subcontractors. The MOA stated that all the stipulations of the original contract not in conflict with said agreement shall remain valid and legally effective. Jojo filed a suit to declare him relieved of his undertaking as a result of the MOA because of the change in the work schedule. Jerico claims there is no novation of the Construction Contract. Decide the case and explain. (2016 Bar)

Answer 15

I will decide in favor of Jerico as there is no novation of the Construction Contract. Novation is never presumed, and may only take place when the following are present: (1) a previous valid obligation; (2) the agreement of all the parties to the new contract; (3) the extinguishment of the old contract; (4) validity of the new one. There must be consent of all the parties to the substitution, resulting in the extinction of the old obligation and the creation of a new valid one. In this case, the revision of the work schedule of Ivan and the subcontractors is not shown to be so substantial as to extinguish the old contract, and there was also no irreconcilable incompatibility between the old and new obligations. It has also been held in jurisprudence that a surety may only be relieved of his undertaking if there is a material change in the principal contract and such would make the obligation of the surety onerous. The principal contract subject of the surety agreement still exists, and Jojo is still bound as a surety.
ALTERNATIVE ANSWER:
I will decide against Jerico. The provisions of the Civil Code on Guarantee, other than the benefit of excusion (Art. 2059, CC), are applicable and available to the surety because a surety is a guarantor who binds himself solidarily [Art. 2047(2), CC]. The Supreme Court has held that there is no reason why the provisions of Art. 2079 would not apply to a surety (Autocorp Group v. Intra Strata Assurance Corporation, 556 SCRA 250 [2008]). Article 2079 of the Civil Code provides that an extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty. The changes in the work schedule amount to an extension granted the debtor without the consent of the surety. Hence, Jojo’s obligation as a surety is extinguished. If the change of work schedule, on the other hand, shortens the time of completion of the project, it will amount to a novation. The old obligation, where Jojo was obligated as a surety is extinguished relatively as to him, leaving Ivan still bound.

Question 16

A, B, C, D and E made themselves solidarity indebted to X for the amount of P50,000.00. When X demanded payment from A, the latter refused to pay on the following grounds:
a) B is only 16 years old.
b) C has already been condoned by X.
c) D is insolvent.
d) E was given by X an extension of 6 months without the consent of the other four co-debtors.
State the effect of each of the above defenses put up by A on his obligation to pay X, if such defenses are found to be true. (2003 Bar)

Answer 16

a) A may avail the minority of B as a defense, but only for B’s share of P 10,000.00. A solidary debtor may avail himself of any defense which personally belongs to a solidary co-debtor, but only as to the share of that co-debtor.
b) A may avail of the condonation by X of C’s share of P 10, 000.00. A solidary debtor may, in actions filed by the creditor, avail himself of all defenses which are derived from the nature of the obligation and of those which are personal to him or pertain to his own share. With respect to those which personally belong to others, he may avail himself thereof only as regards that part of the debt for which the latter are responsible (Art. 1222).
c) A may not interpose the defense of insolvency of D as a defense. Applying the principle of mutual guaranty among solidary debtors, A guaranteed the payment of D’s share and of all the other co-debtors. Hence, A cannot avail of the defense of D’s insolvency.
d) The extension of six (6) months given by X to E may be availed of by A as a partial defense but only for the share of E, there is no novation of the obligation but only an act of liberality granted to E alone.

Question 17

True or False
The renunciation by a co-owner of his undivided share in the co-owned property in lieu of the performance of his obligation to contribute to taxes and expenses for the preservation of the property constitutes dacion en pago. (2009 Bar)

Answer 17

TRUE. Under the Civil Code, a co-owner may renounce his share in the co-owned property in lieu of paying for his share in the taxes and expenses for the preservation of the co-owned property. In effect, there is dacion en pago because the co-owner is discharging his monetary obligation by paying it with his non-monetary interest in the co-owned property. The fact that he is giving up his entire interest simply means that he is accepting the value of his interest as equivalent to his share in the taxes and expenses of preservation.

Question 18

Felipe borrowed $100 from Gustavo in 1998, when the Phil P - US$ exchange rate was P56 - US$1. On March 1, 2008, Felipe tendered to Gustavo a cashier’s check in the amount of P4,135 in payment of his US$ 100 debt, based on the Phil P - US$ exchange rate at that time. Gustavo accepted the check, but forgot to deposit it until Sept. 12, 2008. His bank refused to accept the check because it had become stale. Gustavo now wants Felipe to pay him in cash in the amount of P5,600. Claiming that the previous payment was not in legal tender, and that there has been extraordinary deflation since 1998, and therefore, Felipe should pay him the value of the debt at the time it was incurred. Felipe refused to pay him again, claiming that Gustavo is estopped from raising the issue of legal tender, having accepted the check in March, and that it was Gustavo’s negligence in not depositing the check immediately that caused the check to become stale.

a) Can Gustavo now raised the issue that the cashier’s check is not legal tender?
b) Can Felipe validly refuse to pay Gustavo again?
c) Can Felipe compel Gustavo to receive US$100 instead?(2008 Bar)

Answer 18

a) No, because Gustavo is guilty of estoppels by laches. He led Felipe to believe he could pay by cashier’s check, and Felipe relied that such cahier’s check would be encashed thus extinguishing his obligation. Because of Gustavo’s inaction of more than six months the check became stale and Felipe will prejudiced if he will be required to pay $100 at the exchange rate of P56 to $1.00. The exchange should be the rate at the time of payment.
b) Yes, if the payment is valid. Since the bank considered the cashier’s check as being stale for not having been encashed on time, then the cahsier’s check may be issued again. At any rate, non-payment of teh amount to Gustavo would constitute unjust enrichment.
c) Yes, Felipe can compel Gustavo to pay US$100 instead. Under the prior law, RA 529, as amended by R.A.4100, payment can only be in Philippine currency as it would be against publich policy, null and void and of no effect. However, under RA8183, payment may be made in the currency agreed upon by the parties, and the rate of exchange to be followed is at the time of payment (C.F. Sharp & Co. Inc. vs. Northwest Airlines, Inc., 381 SCRA 314 [2002]).

Question 19

X, who has a savings deposit with Y Bank in the sum of P1,000,000.00, incurs a loan obligation with the said Bank in teh sum of P800,000.00 which has become due. When X tries to withdraw his deposit, Y Bank allows only P200,000.00 to be withdrawn, less service charges, claiming that compensation has extinguished its obligation under the savings account to the concurrent amount of X’s debt. X contends that compensation is improper when one of the debts, as here, arises from a contract of deposit. Assuming that the promissory note signed by X to evidence the loan does not provide for compensation between said loan and his savings deposit, who is correct? (1998 Bar)

Answer 19

Y bank is correct. Art. 1287, Civil Code, does not apply. All the requisites of Art. 1279, Civil Code are present. IN the case of Gullas vs. PNB (62 Phil. 519), the Supreme Court held: “The Civil Code contains provisions regarding compensation (set off) and deposit. These portions of Philippine law provide that compensationshall take place when two persons are reciprocally creditor and debtor of each other. In this connection, it has been held that the relation existing between a depositor and a bank is that of creditor and debtor. xxx As a general rule, a bank has a right of set off of the deposits in its hands for the payment of any indebtedness to it on the part of a depositor.” Hence, compensation took place between the mutual obligations of X and Y bank.

Question 20

Stockton is a stockholder of Core Corp. He desires to sell his shares in Core Corp. In view of a court suit that Core Corp. has filed against him for damages in the amount of P10 million, plus attorney’s fees of P1 million, as a result of statements published by Stockton which are allegedly defamatory because it was calculated to injure and damage the corporation’s reputation and goodwill. The articles of incorporation of Core Corp. provide for a right of first refusal in favor of the corporation. Accordingly, Stockton gave written notice to the corporation of his offer to sell his shares of P10 million. The response of Core corp. was an acceptance of the offer in the exercise of its rights of first refusal, offering for the purpose payment in form of compensation or set-off against the amount of damages it is claiming against him, exclusive of the claim for attorney’s fees. Stockton rejected the offer of the corporation, arguing that compensation between the value of the shares and the amount of damages demanded by the corporation cannot legally take effect. Is Stockton correct? Give reason for your answer. (1998, 2002 Bar)

Answer 20

Stockton is correct. There is no right of compensation between his price of P10 million and Core Corp.’s unliquidated claim for damages. In order that compensation may be proper, the two debts must be liquidated and demandable. The case for the P10 million damages being still pending in court, the corporation has as yet no claim which is due and demandable against Stockton.

Question 21

Sarah had a deposit in a savings account with Filipino Universal Bank in the amount of five million pesos (P5,000,000.00). To buy a new car, she obtained a loan from the same bank in the amount of P1,200,000.00, payable in twelve monthly installments. Sarah issued in favor of the bank post-dated checks, each in the amount of P100,000.00, to cover the twelve monthly installment payments. On the third, fourth and fifth months, the corresponding checks bounced.
The bank then declared the whole obligation due, and proceeded to deduct the amount of one million pesos (P1,000,000.00) from Sarah’s deposit after notice to her that this is a form of compensation allowed by law. Is the bank correct? Explain. (2009 Bar)

Answer 21

No, the bank is not correct. While the Bank is correct about the applicability of compensation, it was not correct as to the amount compensated. A bank deposit is a contract of loan, where the depositor is the creditor and the bank the debtor. Since Sarah is also the debtor of the bank with respect to the loan, both are mutually principal debtors and creditors of each other. Both obligation are due, demandable and liquidated but only up to the extent of P300,000.00 (covering the unpaid third, fourth and fifth monthly installments). The entire one million was not yet due because the loan has no acceleration clause in case of default. And since there is no retention or controversy commenced by third person and communicated in due time to the debtor, then all the requisites of legal compensation are present but only up to the amount of P300,000.00. The bank, therefore, may deduct P300,000.00 from Sarah’s bank deposit by way of compensation.

Question 22

In 1978, Bobby borrowed P1,000,000.00 form Chito payable in two years. The loan, which was evidenced by a promissory note, was secured by a mortgage on real property. No action was filed by Chito to collect the loan or to foreclose the mortgage. But in 1991, Bobby, without receiving any amount from Chito, executed another promissory note, except for the date thereof, which was the date of its execution.

1) Can Chito demand payment on the 1991 promissory note in 1994?
2) Can Chito foreclose the real estate mortgage if Bobby fails to make good his obligation under the 1991 promissory note?

Answer 22

Yes, Chito can demand payment on the 1991 promissory note in 1994. Although the 1978 promissory note for P1 million payable two years later or in 1980 became a natural obligation after the lapse of ten (10) years, such natural obligation can be a valid consideration of a novated promissory note dated in 1991 and payable two years later, or in 1993.
All the elements of an implied real novation are present:
a) An old valid obligation;
b) A new valid obligation;
c) Capacity of the parties;
d) Animus novandi or intention to novate; and
e) The old and the new obligation should be incompatible with each other on all material points (Article 1292). The two promissory notes cannot stand together, hence, the period of prescription of ten (10) years has not yet lapsed.
2) No. The mortgage being an accessory contract prescribed with the loan. The novation of the loan, however, did not expressly include the mortgage, hence, the mortgage is extinguished under Article 1296 of the NCC. The contract has been extinguished by the novation or extinction of the principal obligation insofar as third parties are concerned.

Question 23

Baldomero leased his house with a telephone to Jose. The lease contract provided that Jose shall pay for all electricity, water and telephone services in the leased premises during the period of the lease. Six months later, Jose surreptitiously vacated the premises. He left behind unpaid telephone bills for overseas telephone calls amounting to over P20,000.00. Baldomero refused to pay the said bills ont he ground that Jose had already substituted him as the customer of the telephone company. The latter maintained that Baldomero remained as his customer as far as their service contract was concerned, notwithstanding the lease contract between Baldomero and Jose.Who is correct, Baldomero or the telephone company? Explain. (1996 Bar)

Answer 23

The telephone company is correct because as far as it is concerned, teh only person it contracte with was Baldomero. The telephone company has no contract with Jose. Baldomero cannot substitute Jose in his stead without the consent of the telephone company (ART. 1293, NCC). Baldomero is, therefore, liable under the contract.

Question 24

The sugar cane planters of Batangas entered into a long-term milling contract with the Central Azucarera de Don Pedro Inc. Ten years later, the Central assigned its rights to the said milling contract to a Taiwanese group which would take over the operations of the sugar mill. The planters filed an action to annul the said assignment on the ground that the Taiwanese group was not registered with the Board of Investments. Will the action prosper or not? Explain briefly. (2001 Bar)

Answer 24

The action will prosper not on the ground invoked but on the ground that the farmers have not given their consent to the assignment. The milling contract imposes reciprocal obligations on the parties.The sugar central has the obligation to mill the sugar cane of the farmers while the latter have the obligation to deliver their sugar cane to the sugar central. As to the obligation to mill the sugar cane, the sugar central is a debtor of the farmers. In assigning its rights under the contract, the sugar central will also transfer to the Taiwanese its obligation to mill the sugar cane of the farmers. This will amount to a novation of the contract by substituting the debtor with a third party. Under Article 1293 of the Civil Code, such substitution cannot take effect without the consent of the creditor. The formers, who are creditors as far as the obligation to mill their sugar cane is concerned, may annul such assignment for not having given their consent thereto.

Question 25

Dr. and Mrs. Almeda are prominent citizens of the country and are frequent travellers abroad. In 1996, they booked round-trip business class tickets for the Manila-Hong Kong-Manila route of the Pinoy Airlines, where they are holders of Gold Mabalos Class Frequent Flier cards. On their return flight, Pinoy Airlines upgraded their tickets to first class without their consent and, in spite of their protestations to be allowed to remain in the business class so that they could be with their friends, they were told that the business class was already fully booked, and that they were given priority in upgrading because they are elite members/holders of Gold Mabalos Class cards. Since they were embarrassed at the discussions with the flight attendants, they were forced to take the flight at the first class section apart from their friends who were in the business class. Upon their return to Manila, they demanded a written apology from Pinoy Airlines. When it went unheeded, the couple sued Pinoy Airlines for breach of contract claiming moral and exemplary damages, as well as attorney’s fees. Will the action prosper? Give reasons. (2004, 2005 Bar)

Answer 25

Yes, Pinoy Airlines breached its contract of carriage by upgrading the seat accommodation of the Almedas without their consent. The object of their contract was the transportation of the Almedas from Manila to Hongkong and back to Manila, with seats in the business class section of the aircraft. They should have been consulted first whether they wanted to avail themselves of the privilege and would consent to a change of seat accommodation. I should not have been imposed on them over their vehement objection. By insisting on the upgrade, Pinoy Airlines breached its contract of carriage with the Almedas.
However, the upgrading or the breach of contract was not attended by fraud or bad faith. They were not induced to agree to the upgrading through insidious words or deceitful machination or through wilful concealment of material facts. Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious doing of a wrong, breach of a known duty through some motive or interest or ill will that partakes of the nature of fraud.
Neither is Pinoy Airlines in bad faith since Section 3 of the Economic Regulation No. 7 of teh Civil Aeronautics Board provides that an overbooking that does not exceed ten percent is not considered deliberate and therefore does not amount to bad faith.
As a result, the Almedas are not entitled to recover moral damages. Moral damages predicated upon a breach of contract of carriage may only be recoverable in instances where the carrier is guilty of fraud or bad faith or when the mishap resulted in the death of a passenger. Where in breaching the contract of carriage the airline is not shown to have acted fraudulently or in bad faith, liability for damages is limited to the natural and probable consequence of the breach of the obligation which the parties had foreseen or could have reasonably foreseen. In such a case the liability does not include moral and exemplary damages.
It is a requisite in the grant of exemplary damages that the act of the offender be accompanied by bad faith or done in wanton, fraudulent or malevolent manner. Such requisite is absent in this case. Moreover, to be entitled thereto the claimant must first establish his right to moral, temperate, or compensatory damages. Since the Almedas are not entitled to any of these damages, the award for exemplary damages has no legal basis. And where the awards for moral and exemplary damages are eliminated, so must the award for attorney’s fees.
The most that can be awarded for the breach of contract is an award for nominal damages. Pinoy Airlines may be said to have disturbed the spouses’ wish to be with their companions at teh Business Class on their flight to Manila (Cathay Pacific v. Spouses Vasquez, 399 SCRA 207 [2003]).

Question 26

Marvin offered to construct the house of Carlos for a very reasonable price of P900,000.00, giving the latter 10 days within which to accept or reject the offer. On the fifth day, before Carlos could make up his mind, Marvin withdrew his offer.

a) What is the effect of the withdrawal of Marvin’s offer?
b) Will your answer be the same if Carlos paid Marvin P10,000.00 as consideration for that option? Explain.
c) Supposing that Carlos accepted the offer before Marvin could communicate his withdrawal thereof? Discuss the legal consequences. (2005 Bar)

Answer 26

a) The withdrawal of Marvin’s offer is valid because there was no consideration paid for the option. An option is a separate contract from the contract which is the subject of the offer, and if not supported by any consideration, the option contract is not deemed perfected. Thus, Marvin may withdraw the offer at any time before acceptance of the offer.
b) If Carlos paid P10,000.00 as consideration for that option, Marvin cannot withdraw the offer prior to expiration of the option period. The option is a separate contract and if founded on consideration is a perfected option contract and must be respected by Marvin.
c) If Carlos has already accepted the offer and such acceptance has been communicated to Marvin before Marvin communicates the withdrawal, the acceptance creates a perfected construction contract, even if no consideration was as yet paid for the option. If Marvin does not perform his obligations under the perfected contract of construction, he shall be liable for all consequences arising from the breach thereof based on any of the available remedies which may be instituted by Carlos, such as specific performance, or rescission with damages in both cases.

Question 27

In a 20-year lease contract over a building, the lessee is expressly granted a right of first refusal should the lessor decide to sell both the land and building.
However, the lessor sold the property to a third person who knew about the lease and in fact agreed to respect it. Consequently, the lessee brings an action against both the lessor-seller and the buyer (a) to rescind the sale and (b) to compel specific performance of his right of first refusal in the sense that the lessor should be ordered to execute a deed of absolute sale in favor of the lessee at the same price. The defentdants contend that the plaintiff can neither seek rescission of teh sale nor compel specific performance of a “mere” right of first refusal. Decide the case. (1998 BAR)

Answer 27

The action filed by the lessee, for both rescission of the offending sale and specific performance of the right of first refusal which was violated, should prosper. The ruling in Equatorial Realty Development, Inc. v. Mayfair Theater, Inc, (264 SCRA 482), a case with similar facts, sustains both rights of action because the buyer in the subsequent sale knew the existence of right of first refusal, hence in bad faith.

Question 28

X was the owner of a 10, 000 square meter property. X married Y and out of their union, A, B and C were born. After the death of Y, X married Z and they begot as children, D, E and F. After the death of X, the children of the first and second marriages executed an extrajudicial partition of the aforestated property on May 1, 1970. D, E and F were given a one thousand square meter portion of the property. They were minors at the time of the execution of the document. D was 17 years old, E was 14 and F was 12; and they were made to believe by A, B and C that unless they sign the document they will not get any share. Z was not present then. In January 1974, D E and F filed an action in court to nullify the suit alleging they discovered the fraud only in 1973.

a) Can the minority of D, E and F be a basis to nullify the partition? Explain your answer
b) How about fraud? Explain your answer. (1990 Bar)

Answer 28

a) Yes, minority can be a basis to nullify the partition because D, E and F were not properly represented by their parents or guardians at the time they contracted the extrajudicial partition (Articles 1327, 1391, Civil Code).
b) In the case of fraud, when through insidious words or machinations of one of the other is induced to enter into the contract without which he would not have agreed to, the action still prosper because under Art. 1391 of the Civil Code, in case of fraud, the action for annulment may be brought within four years from the discovery of the fraud.

Question 29

Sometime in 1955, Tomas donated a parcel of land to his stepdaughter Irene, subject to the condition that she may not sell, transfer or cede the same for twenty years. Shortly thereafter, he died. In 1965, because she needed money for medical expenses, Nene sold the land to Conrado. The following year, Irene died, leaving as her sole heir a son by the name of Armando. When Armando learned that the land which he expected to inherit had been sold by Irene to Conrado, he filed an action against the latter for annulment of the sale, on the ground that it violated the restriction imposed by Tomas. Conrado filed a motion to dismiss, on the ground that Armando did not have the legal capacity to sue. If you were the judge, how will you rule on this motion to dismiss? Explain. (1996 Bar)

Answer 29

As judge, I will grant the motion to dismiss. Armando has no personality to bring the action for annulment of the sale to conrado. Only an aggrieved party to the contract may bring the action for annulment thereof (Art. 1397, NCC). While Armando is heir and successor-in-interest of his mother (Art. 1311, NCC), he (standing in place of his mother) has no personality to annul the contract. Both are not aggrieved parties on account of their own violation of the condition of, or restriction on, their ownership imposed by the donation. Only the donor or his heirs would have the personality to bring an action to revoke a donation for violation of a condition thereof or a restriction thereon (Garrido v. CA, 236 SCRA 450). Consequently, while the donor or his heirs were not parties to the sale, they have the right to annul the contract of sale because their rights are prejudiced by one of the contracting parties thereof (DBP v. CA, 96 SCRA 342; Teves v. PHHC, 23 SCRA 1141). Since Armando is neither the donor nor heir of the donor, he has no personality to bring the action for annulment.

Question 30

May a person sell something that does not belong to him?

Answer 30

Yes, a person may sell something which does not belong to him. For the sale to be valid, the law does not require the seller to be the owner of the property at the time of the sale. (Art. 1434, NCC). If the seller cannot transfer ownership over the thing sold at the time of delivery because he was not the owner thereof, he shall be liable for breach of contract

Question 31

Maria Enriquez failed to pay the realty taxes on her unregistered agricultural land located in Magdugo, Toledo City. In 1989, to satisfy the taxes due, the City sold it at public auction to Juan Miranda, an employee at the Treasurer’s Office of said City, whose bid at P10,000.00 was the highest. In due time, a final bill of sale was executed in his favor.
Maria refused to turn-over the possession of the property to Juan alleging that (1) she had been, in the meantime, granted a free pantent and on the basis thereof an Original Cetificate of Title was issued to her, and (2) the sale in favor of Juan is void from the beginning in view of the provision in the Administrative Code of 1987 which prohibits officers and employees of the government from purchasing directly or indirectly any property sold by the government for non-payment of any tax, fee or other public charge.
a) Is the sale to Juan valid? If so, is the effect of the issuance of the Certificate of Title to Maria?
b) If the sale is void, may Juan recover the P10, 000.00? If not, why not?
c) If the sale is void, did it not nevertheless, operate to divent Maria of her ownership? If it did, who then is the owner of the property? (1991 Bar)

Answer 31

a) The sale of the land to Juan is not valid, being contrary to law. Therefore, no transfer of ownership of the land was effected from the delinquent taxpayer to him. The original certificates of title obtained by Maria thru a free patent grant from the Bureau of Lands (under Chapter VII, CA 141) is valid but in view of her delinquency, the said title is subject to the right of the City Government to sell the land at public auction. The issuance of the OCT did not exempt the land from the tax sales. Section 44 of P.D. No. 1529 provides that every registered owner receiving a Certificate of Title shall hold the same free from all encumbrances, subject to certain exemptions.
b) Juan may recover because he was not a party to the violation of the law.
c) No, the sale did not divest Maria of her title precisely because the sale is void. It is as good as if no sale ever took place.
In tax sales, the owner is divested of his land initially upon award and issuance of a Certificate of Sale, and finally after the lapse of the 1 year period from date of registration, to redeem, upon execution by the treasurer of an instrument sufficient in form and effects to convey the property. Maria remained owner of the land until another tax sale is to be performed in favor of a qualified buyer.

Question 32

Briefly explain whether the following contracts are valid, rescissible, unenforceable, or void:

(a) A contract of sale between Lana and Andy wherein 16-year old Lana agreed to sell her grand piano for P5, 000.00 (2%)
(b) A contract of lease of the Philippine Sea entered by and between Mitoy and Elsa. (2%)
(c) A barter of toys executed by 12-year old Clarence and 10-year old Czar. (2%)
(d) A sale entered by Barri and Garri, both minors, which their parents later ratified. (2%)
(e) Jenny’s sale of her car to Celestine in order to evade attachment by Jenny’s creditors. (2%) (2012, 2017 BAR)

Answer 32

(a) The contract of sale is voidable, because Lana is a minor, and is thus incapable of giving consent to a contract.
(b) The contract of sale is void, because its object, the Philippine sea, is outside the commerce of men.
Alternative answer: (b) the contract of sale is void under Article 1306 of the Civil Code because it is against public policy.
Another alternative answer: (b) The contract of sale is void as it is prohibited by a treaty, which is considered binding law in the Philippines.
[Note: Under Article 137 of the UNCLOS, the Philippine Sea is governed by the following mandates:
(b) No State or natural or juridical person shall appropriate any part thereof. xxx].
(c) The contract unenforceable, because both parties, being minors, are incapable of giving consent.
(d) The contract is valid and may not be annulled by either party due to the ratification by the parents of Barri and Garri, if done while both were still minors. Ratification extinguishes the action to annul a voidable contract, or an unenforceable contract, as in this case were both parties were minors and may be done by the parents, as guardians of the minor children [Article 1407, NCC].
(e) The contract is rescissible because it is in fraud of creditors [Article 1381, NCC].

Question 33

XV. Eduardo was granted a loan by XYZ Bank for the purpose of improving a building which XYZ leased from him. Eduardo, executed the promissory note (“PN”) in favor of the bank, with his friend Recardo as co-signatory. In the PN, they both acknowledged that they are “individually and collectively” liable and waived the need for prior demand. To secure the PN, Recardo executed a real estate mortgage on his own property. When Eduardo defaulted on the PN, XYZ stopped payment of rentals on the building on the ground that legal compensation had set in. Since there was still a balance due on the PN after applying the rentals, XYZ foreclosed the real estate mortgage over Recardo’s property. Recardo opposed the foreclosure on the ground that he is only a co-signatory; that no demand was made upon him for payment, and assuming he is liable, his liability should not go beyond half the balance of the loan. Further, Recardo said that when the bank invoked compensation between the reantals and the amount of the loan, it amounted to a new contract or novation, and had the effect of extinguishing the security since he did not give his consent (as owner of the property under the real estate mortgage) thereto.
(A). Can XYZ Bank validly assert legal compensation?
(C). Does Recardo have basis under the Civil Code for claiming that the original contract was novated? (2008)

Answer 33

Yes, XYZ Bank can validly assert legal compensation. In the present case, all of the elements of legal compensation are present: (1) XYZ Bank is the creditor of Eduardo while Eduardo is the lessor of XYZ Bank; (2) both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; (3) the two debts be due; (4) they be liquidated and demandable, and (5) over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor (Art. 1279, Civil Code).
C.No. Recardo has no basis for claiming novation of the original contract when the bank invoked compensation because there was simply partial compensation (Art. 1290, Civil Code) and this would not bar the bank from recovering the remaining balance of the obligation.
ALTERNATIVE ANSWER: No. In order that an obligation may be extinguished by another, it is imperative that it be so declared in unequivocal terms, or that the old and new obligations be on every point compatible with each other. Novation is never presumed (Art. 1292, Civil Code).

Question 34

X, a dressmaker, accepted clothing material from Karla to make two dresses for her. on the day X was supposed to deliver Karla’s dresses, X called up Karla to say that she had an urgent matter to attend to and will deliver them the next day. that night, however, a robber broke into her shop and took everything including Karla’s two dresses. X claims she is not liable to deliver Karla’s dresses or to pay for the clothing materials considering she herself was a victim of the robbery which was a fortuitous event and over which she had no control. Do you agree? Why?

Answer 34

Yes, I agree that X is not liable. The contract between the parties is a contract for a piece of work wherein the contractor, X, bound herself to execute a piece of work for the employer, Karla, in consideration of a certain price or compensation (Art. 1713, Civil Code). Article 1717 of the Civil Code provides that if the contractor bound himself to furnish the material, he shall suffer the loss if the work should be destroyed before its delivery, save when there has been delay in receiving it. Since the contractor X did not furnish the material, she shall not suffer the loss of the work which took place before its delivery. There was no delay in the receipt of the work since the parties agreed to the delivery of the dresses on the day after the original date of delivery. Hence, X is not bound to suffer the loss, and is liable for neither the delivery of the dresses nor the cost of the materials.

Alternative Answer:
No, I do not agree. The obligation involved in this case is an obligation to do, since X’s obligation is to make dresses for Karla. Under Article 1167 of the Civil Code, if a person obliged to do something fails to do it, the same shall be executed at his cost. Although X may not be compelled to deliver the dresses to Karla, she may be held liable for the cos of having another person to make the dresses for Karla, which including the cost of the materials.

Question 35

Iya and Betty owed Jun P500,000.00 for advancing their equity in a corporation they joined as incorporators. Iya and Betty bound themselves solidarily liable for the debt. Later, Iya and Jun became sweethearts so Jun condoned the debt of P500,000.00. May Iya demand from Betty P250,000.00 as her share in the debt. Explain with legal basis?

Answer 35

No, Iya cannot demand reimbursement from Betty. The remission f the whole obligation, obtained by one of the solidary debtors, does not entitle him or her to reimbursement from his co-debtors. (Art. 1220, CC)

Question 36

Juancho, Don and Pedro borrowed P150,000.00 from their friend Cita to put up an internet cafe orally promising to pay her the full amount after one year. Because of their lack of business know-how, their business collapsed. Juancho and Don ended up penniless, but Pedro was able to borrow money and put up a restaurant which he did well. Can Cita demand that Pedro pay the entire obligation since he, together with the two others, promised to pay the amount in full after one year.

Answer 36

No, Cita cannot demand payment of the entire obligation from Pedro. The concurrence of two or more creditors or of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance with the prestation. There is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity (Art. 1207, NCC). In this case, there is no indication that they bound themselves solidarily to pay Cita, nor does the law or nature of the obligation require solidarity. Hence, Juancho, Don and Pedro’s obligation is joint and Cita cannot demand payment of 1/3 of the obligation in the absence of stipulation to the contrary. (Art. 1208, NCC)

Question 37

X and Y are partners in a shop offering portrait painting. Y provided the capital and the marketing while X was the portrait artist. They accepted the 50,000.00 down payment of Kyla to do her portrait but X passed away without being able to do it. Can Kyla demand that Y deliver the portait she had paid for because she was dealing with business establishment and not with the artist personally? Why and Why not?

Answer 37

No, Kyla cannot validly demand that Y deliver the portrait. Although she may be correct that it is the partnership that she contracted with, Kyla cannot demand that Y deliver the portrait if the intention of the parties was that the portrait should be done by X and this is precisely why the obligation was constituted. With the death of X, the obligation was extinguished because it is a purely personal obligation which is extinguished upon the death of the obligor. Finally, the obligation is an obligation to do. To oblige the surviving partner, Y, to deliver the painting (do the painting) would be tantamount to an involuntary servitude, which is against the law.

Alternative Answer:
Yes. Art. 1768 states that a partnership has a juridical personality separate and distinct from that of each of the partners. The facts do not allege that Kyla contracted for a purely personal service, hence the partnership is the entity which she contracted with, so even upon the death of X, she can demand that Y as the remaining partner deliver the portrait in fulfillment of the obligation of the partnership to her.

Question 38

Sara borrowed P50,000.00 from Julia and orally promised to pay it within six months. When Sara tried to pay her debt on the 8th month, Julia demanded the payment of interest of 12% per annum because of Sara’s delay in payment. Sara paid her debt and interest claimed by Julia. After rethinking, Sara demanded back from Julia the amount she has paid as interest. Julia claims she has no obligation to return the interest paid by Sarah because it was a natural obligation which Sara voluntarily performed and can no longer recover. Do you agree? Explain.

Answer 38

No, I do not agree with Julia. For a creditor to be entitled to compensatory interest, the debtor must be in delay. As a rule, in order for delay to exist, demand must have been made. In this case, there was no demand made upon the expiration of the 6-month period; thus, Sara cannot be considered in delay, and is not liable to pay compensatory interest. There being no obligation to pay compensatory interest, Julia must return the interest mistakenly paid since she was not entitled thereto, and delivery was made merely through mistake. If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises.