Chapter 1, ILLUSTRATIVE CASES

Question 1

Under the essential elements of cause of action

S rejected or cancelled a contract to sell his property even before the arrival of the period in the exercise of the option to buy by the purchaser who has already made a downpayment.

Facts: S and B entered into a contract to sell, whereby B, after making a downpayment, was given the option to pay the balance of the purchase
price of a parcel of land. Later, S “rejected the contract to sell’’ even before the arrival of the period for the exercise of said option on the ground that
the terms and conditions of the contract are grossly disadvantageous and highly prejudicial to his interest. S sent two (2) checks to B in an apparent
effort to return the downpayment.
S contends that the complaint was prematurely fi led because at the time of the institution of the complaint, B has yet to exercise his option
under the “Option of Buyer’’ clause of the contract.

Issue: Has B a cause of action against S for prematurity?

Answer 1

Held: Yes.
(1) All the elements of a cause of action are present. First, there is a legal right in favor of B, i.e., the right to complete the payment of the purchase price should he choose to do so; there is an obligation
on the part of S to sell the subject property exclusively to B upon full payment of the purchase price; and there was a breach of S’s obligation to
sell the property, when S rejected the contract to sell even before B could exercise his option to buy notwithstanding that he had already made a
downpayment.

(2) S rejected contract to sell in no uncertain terms. The fact that the rejection or cancellation of the contract by S was not made judicially or by notarial act (see Art. 1592.) is of no moment. It is enough for purposes of determining the existence of a cause of action that S has declared in no uncertain terms his refusal to be bound by the contract to sell. Such
declaration, coupled with S’s act of returning B’s down payment, clearly indicates S’s rejection of the contract to sell. (Leberman Realty Corporation
vs. Typingco, 293 SCRA 316 [1998].)

Question 2

Existence of one without the other.

Acts of importer contesting forfeiture, delay in the delivery of goods to
highest bidder.

Facts: X imported certain goods. The Collector of Customs declared the goods forfeited in favor of the government and ordered the sale thereof at public auction. The bid of Y was approved and the goods wereawarded to him.

Under the law, X has the right to have the decision of the Collector of Customs reviewed by the Commissioner of Customs, and from the decision of the latter, to appeal to the Court of Tax Appeals (Secs. 2313, 402, Tariff and Customs Code.), and from the latter’s decision, to the Supreme Court. X will be prejudiced if the sale is not set aside. (see Art.1397.)

Issue: Is X liable to Y for damages from the consequent delay in the
delivery of the goods?

Answer 2

Held: Such delay is an incident to the exercise by X of his right to contest the forfeiture and the sale of his goods. (see Auyong Hian vs. Court
of Appeals, supra.)

Question 3

Kinds of obligation according to subject matter

X obliges himself not to build a fence on a certain portion of his lot in favor of Y who is enitled to a right of way over said lot

Answer 3

Negative personal obligation

Question 4

Kinds of obligation according to subject matter

X (seller) binds himself to deliver a piano to Y (buyer).

Answer 4

Real Obligation

Question 5

Kinds of obligation according to subject matter

X binds himself to repair the piano of Y

Answer 5

Positive personal obligation

Question 6

Essential Requisites of Obligation

Under a building contract, X bound himself to build a house for Y for P1,000,000

Where is the passive subject, active subject, object/prestation, and juridical/legal tie?

Answer 6

X is the passive subject

Y is the active subject

The building of the house is the object/prestation

The agreement/contract, which is the source of obligation, is the juridical/legal tie

Question 7

Sources of Obligations

The obligation to return money paid by mistake or which is not due (Art. 2154)

Answer 7

Quasi - Contract
(solutio indebiti)

Question 8

Sources of Obligations

The obligation of the head of the family that lives in a building or part theorof to answer for damages caused by things thrown or falling from the same (Art. 2193); the obligation of the professor of an animal to pay for the damage which it may have caused (Art. 2183)

Answer 8

Quasi - Delicts / Torts

Question 9

Sources of Obligations

The obligation to repay a loan or indebtness by virtue of an agreement

Answer 9

Contracts

Question 10

Sources of Obligations

Obligation to pay taxes; obligation to support one’s family

Answer 10

Law

Question 11

Sources of Obligations

The obligation of a theif to return the car stolen by him; the duty of a killer to indemnify the heir of his victims

Answer 11

Acts or omissions punished by law

Question 12

Sources of Obligations, classified

Liability of sheriff lawfully enforcing a judgment in an ejectment suit.

Facts: A judgment was rendered by a justice of the peace court (now municipal court) in favor of X who brought an ejectment suit against Y, the owner of the house built on the land of X. Z, the deputy sheriff who executed the judgment, was obliged to remove the house of Y from the land according to the usual procedure in the action for ejectment.

Issue: Is Y entitled to indemnity arising from the destruction of his house?

Answer 12

Held: No proof has been submitted that a contract had been entered into between plaintiff (Y) and the defendants (X and Z) or that the latter had committed illegal acts or omissions or incurred in any kind of fault or negligence, from any of which an obligation might have arisen on the part of X and Z to indemnify Y. For this reason, the claim for indemnity, on account of acts performed by the sheriff, while enforcing a judgment, cannot under any consideration be sustained. (Navales vs. Rias, 8 Phil. 508
[1907].)

Question 13

(1) An employer has no obligation to furnish free legal assistance to his employees because no law requires this, and, therefore, an em-
ployee may not recover from his employer the amount he may have paid a lawyer hired by him to recover damages caused to said employ-
ee by a stranger or strangers while in the performance of his duties.
(De la Cruz vs. Northern Theatrical Enterprises, 95 Phil. 739 [1954].)
Art. 1158 GENERAL PROVISIONS

(2) A private school has no legal obligation to provide clothing allowance to its teachers because there is no law which imposes this obligation upon schools. But a person who wins money in gambling has the duty to return his winnings to the loser. This obligation is provided by law. (Art. 2014.)

Answer 13

Article 1158 refers to legal obligations or obligations arising from law. They are not presumed because they are considered a burden upon the obligor. They are the exception, not the rule. To be demandable,
they must be clearly set forth in the law, i.e., the Civil Code or special laws.

Question 14

Under Art. 1158

Liability of husband for medical assistance rendered to his wife but contracted by his parents.

Facts: X, by virtue of having been sent for by B and C, attended as physician and rendered professional services to a daughter-in-law of B and C during a diffi cult and laborious childbirth.

Issue: Who is bound to pay the bill: B and C, the parents-in-law of the patient, or the husband of the latter?

Answer 14

Held: The rendering of medical assistance in case of illness is comprised among the mutual obligations to which spouses are bound by way of mutual support.

If spouses are mutually bound to support each
other, there can be no question that when either of them by reason of illness should be in need of medical assistance, the other is to render the
unavoidable obligation to furnish the services of a physician and is liable for all expenses, including the fees for professional services. This liability originates from the above-mentioned mutual obligation
which the law has expressly established between the married couple. B and C not having personally bound themselves to pay are not liable.
(Pelayo vs. Lauron, 12 Phil. 453 [1909].)

Question 15

Under Art. 1158

Title to property purchased by a person for his own benefi t but paid by another.

Facts: X, of legal age, bought two vessels from B, the purchase price thereof being paid by C, X’s father. Subsequently, differences arose between X and C. The latter brought action to recover the vessels, he having paid the purchase price.

Issue: Is there any obligation on the part of X to transfer the ownership of the vessel to C?

Answer 15

Held: None. If any such obligation was ever created on the part of X, said obligation must arise from law. But obligations derived from law are not presumed. Only those expressly determined in the Civil Code or
in special laws are demandable. Whatever right C may have against X either for the recovery of the money paid or for damages, it is clear that such payment gave him no title, either legal or equitable, to these vessels.
(Martinez vs. Martinez, 1 Phil. 647 [1902].)

Note: If X were a minor, the vessels would belong to C in ownership and usufruct under Article 161 of the old Civil Code. (now Art. 324) Under Article 1448, the payment may give rise to a gift or an implied trust.

Question 16

Under Art. 1158

Company XAB has decided to go on a business trip for further research on the silk weaving industry in Bogo City. They took the company car for easier transport. On the way, one of the car’s tires has exploded thus, making them take the bus to reach the destination. Now, who will shoulder the bus fare?

Answer 16

The employer will shoulder the bus fare alongside with the repair maintenace of the company car. This is because the employer has a legal obligation to reimburse employees of work-travel expenses, therefore encompassing fuel charges, hotel accommodation, meals, transportation fares, and other more expenses that are needed and related to work.

Question 17

Contractual Obligations

A big corporation, to avoid cancellation of contract it has breached, pleaded considerations of equity.

Facts: The contract between the parties (two big real estate corporations) was a contract to sell or conditional with title expressly reserved in S (seller) until the suspensive condition of full and punctual payment of the full price by B (buyer) shall have been met on pain of automatic cancellation of the contract upon failure to pay any of the monthly installments.

B failed to pay the P5,000.00 monthly installments notwithstanding that it was punctually collecting P10,000.00 monthly rentals from the les-
see of the property.

Issue: The main issue posed by B is that there has been no breach of contract by it; and assuming there was, S was not entitled to rescind or resolve the contract without recoursing to judicial process.

Answer 17

Compliance in good faith

Held: B only pleads that it be given special treatment and that the cancellation of its contract be somehow rejected notwithstanding S’s clear right under the contract and the law to do so.

The contract between S and B, entered into with the assistance of
counsel and with full awareness of the import of its terms and conditions, is the binding law between them and equity cannot be pleaded by one
who has not come with clean hands nor complied therewith in good faith but instead willfully breached the contract.

“Its time to put an end to the fi ction that corporations are people. The business of big corporations such as the protagonists at bar is business. They are bound by the lawful contracts that they enter into and they do not ask for nor are they entitled to considerations of equity.” (Luzon
Brokerage Co., Inc. vs. Maritime Bldg. Co., Inc., 86 SCRA 305 [1978].)

Question 18

Under Art. 1160

When a party benefi ted at the expense of another not liable to the latter.

Facts: By virtue of an agreement between X and Y, X assisted Y in improving a large tract of land which was later declared by the court as belonging to C.

Issue: Has X the right to be reimbursed by Z for X’s services and expenses on the ground that the improvements are being used and enjoyed by Z?

Answer 18

Held: No. From the language of Article 2142, it is obvious that a presumed quasi-contract cannot emerge as against one party when the subject matter thereof is already covered by an existing contract with another party. X’s cause of action should be against Y who, in turn, may seek relief against Z. (Cruz vs. J.M. Tuazon Co., Inc., supra.)

Question 19

Under Art. 1160

Bank paid the seller of goods under an expired letter of credit but the goods subject thereof were voluntarily received and kept by the buyer which
refused to pay the bank.

Facts: X opened with B (bank) a domestic letter of credit (LC) in favor of Y for the purchase from the latter of hydraulic loaders. B paid Y for the equipment after the expiration of the letter of credit.
X refused to pay B claiming that there was breach of contract by B which acted in bad faith in paying Y knowing that Y delivered the loaders to X after the expiry date of the subject LC
.
X offered to return the loaders to B which refused to take possession three (3) years after X accepted delivery, when B made a demand for payment.

Issue: Was it proper for B to pay the LC which had long expired or been cancelled?

Answer 19

Held: B should not have paid the LC which had become invalid upon the lapse of the period fi xed therein. Be that as it may, X should pay B the amount B expended for the equipment belatedly delivered by Y and voluntarily received and kept by X. B’s right to seek recovery from X is anchored, not upon the ineffi cacious LC, but on Article 2142 of the Civil
Code.

X was not without fault in the transactions in view of its unexplained inaction for almost four (4) years with regard to the status of the ownership
or possession of the loaders and the fact that it formalized its offer to return the equipment only after B’s demand for payment, which came
more than three (3) years after X accepted delivery.

When both parties to a transaction are mutually negligent in the performance of their obligations, the fault of one cancels the negligence of the other and as in this case, their rights and obligations may be determined equitably under the law proscribing unjust enrichment. (Rodzssen Supply, Inc. vs. Far East Bank & Trust Co., 357 SCRA 618 [2001].)

Question 20

Under Art. 1160

Recovery of taxes paid under a mistake.

Facts: X, a tax-exempt cooperative store, paid taxes to the City of Manila, believing that it was liable.

Issue: May X recover the payment?

Answer 20

**Held: **Yes, as it was made under a mistake. (UST Cooperative Store vs. City of Manila, 15 SCRA 656 [1965].)

Question 21

Under Art. 1160

Recovery of backwages paid which are legally due.

Facts: X, an employee of Cebu City, sued certain offi cials of the City for claim of backwages.

**Issue: May the City of Cebu successfully recover the payment later made by it to X on the ground that it was not made a party to the case?
**

Answer 21

**Held: **No, because a judgment against a municipal officer in his official capacity binds the city. The city was under obligation to make the payment. It cannot, therefore, be said that the payment was made by reason of mistake. (City of Cebu vs. Piccio and Caballero, 110 Phil. 870 [1969].)

Question 22

Under Art. 1162

While playing softball with his friends, X broke the window glass of Y, his neighbor. The accident would not have happened had they played a little farther from the house of Y.

Answer 22

In this case, X is under obligation to pay the damage caused to Y by his act although there is no pre-existing contractual relation between them because he is guilty of mere fault or negligence without any criminal intent.