1.

Fortuitous event; liability of the debtor (1932 BAR) A executed in favor of B a promissory note
for P10,000, payable after two years, secured by a mortgage on a certain building valued at
P20,000. One year after the execution of the note, the mortgaged building was totally destroyed
by a fire of accidental origin. Can B demand from A the payment of the value of the note
immediately after the burning without waiting for the expiration of the term? Reasons. 

Suggested answer:

Yes, B can demand from A the payment of the value of the note immediately after the burning
without waiting for the expiration of the term, unless A immediately gives another security or
guaranty which is equally satisfactory. This is clear from the provision of No. 3 of Art. 1198 of
the Civil Code which declares that when by his own acts the debtor has impaired the guaranty
or security, or when through a fortuitous event the guaranty or security disappears, the debtor
shall lose the benefit of the term or period. It must be observed that there is a difference
between the effect of impairment and the effect of disappearance as applied to the security or
guaranty. The rules may be restated as follows: (1) If the guaranty or security is impaired
through the fault of the debtor, he shall lose his right to the benefit of the period; however, if it is
impaired without his fault, he shall retain his right. (2) If the guaranty or security disappears
through any cause, even without any fault of the debtor, he shall lose his right to the benefit of
the period. In either case, however, the debtor shall not lose his right to the benefit of the period
if he gives a new guaranty or security.

2. Joint obligation (1971 BAR) X, Y and Z owe A and B P12,000 in a joint obligation. How many
obligations exist in this case, who are the parties in each obligation and for how much? Why? 

Suggested Answer:

There are six obligations in the above case. The parties and the amount of each obligation are:
(1) X as debtor for P2,000 in favor of A as creditor; (2) X as debtor for P2,000 in favor of B as
creditor; (3) Y as debtor for P2,000 in favor of A as creditor; 1

(4) Y as debtor for P2,000 in favor of B as creditor; (5) Z as debtor for P2,000 in favor of A as
creditor; (6) Z as debtor for P2,000 in favor of B as creditor. The above answers are clearly
deducible from Art. 1208 of the Civil Code which declares that if the obligation is joint, the credit
or debt shall be presumed to be divided into as many equal shares as there are creditors or
debtors, the credits or debts being considered as distinct from one another, subject to the Rules
of Court governing the multiplicity of suits. Take the credit of P12, 000 for instance. Since there
are two creditors there will also be two credits of P6, 000 for each creditor. In the case of the
debt of P12, 000, since there are three debtors there will also be three debts of P4,000 against
each debtor. Now, as far as A, the first creditor, is concerned, if he wants to collect his credit of
P6, 000, he must proceed against all the debtors. Thus he will be able to collect P2, 000.00 from
X, P2, 000 from Y, another P2, 000 from Z. The same is true in the case of B, the second
creditor.

3. Obligations with a period; “When his means permit him to do so” (1973 BAR) D borrowed P2,
000.00 from C in 1958. The debt is evidenced by a promissory note executed by D wherein he
promised to pay as soon as he has money or as soon as possible. C has made repeated
demands upon D for payment, but up to now no payment has been made. Suppose that C will
bring an action against D for payment of the debt, will the action prosper? 

Suggested Answer:

No, the action will not prosper. In similar cases decided by the Supreme Court (Gonzales vs.
Jose, 66 Phil. 369; Patente vs. Omega, 49 OG 4846) it was held, that where the debtor
promises to pay his obligation as soon as he has money or as soon as possible, the duration of
the term or period depends exclusively upon the will of the debtor; consequently, the only
remedy of the creditor is to bring an action against the debtor in accordance with Art. 1197 of
the Civil Code for the purpose of asking the court to fix the duration of the term or period. It is
only after the duration of the term or period has been fixed by the court that any other action
involving the fulfilment or performance of the obligation can be maintained. This has always
been the consistent doctrine in this jurisdiction.

3. Novation; Expromision (1975 BAR) 2

A owed B a certain sum of money. C wrote B a letter stating that he would be the one to take
care of A’s debt as soon as A had made a shipment of logs to Japan. A never made such
shipment. C did not pay B. Is C liable to B? Explain. 

Suggested Answer:

C is not liable to B. In the first place, in order that C may be held liable to B, there should have
been a substitution of debtor through expromision within the meaning of Art. 1291, No. 2, and
Art. 1293 of the Civil Code resulting in novation of the obligation. Here, there was none. C
merely wrote a letter to the creditor B stating that he would take care of A’s debt. The problem
does not even say that B gave his assent or consent to C’s statement. In the second place,
even assuming that there was a substitution of debtor, C’s liability depends upon a suspensive
condition, that he would take care of A’s debt as soon as A had made a shipment of logs to
Japan. A never made such shipment. Therefore, C’s liability never became effective (Villanueva
vs. Girged, 110 Phil. 478).

4. Novation; delegacion (1975 BAR) A borrowed from B the sum of P3, 000.00. Three days
after, A in a letter authorized the Philippine National Bank to pay his debt to B out of whatever
crop loan might be granted to him by said Bank. On the same day, the Bank agreed but the
Bank paid B only P2, 000.00. On the date of maturity, B sued the Bank and A for the remaining
P1, 000.00. Is the Bank liable to B? 

Suggested Answer:

The Bank is not liable to B for the remaining P1,000.00. Even assuming that B gave his consent
to A’s proposal that the Bank shall pay his indebtedness of P3, 000.00, in reality, there was no
substitution of debtor by delegacion within the meaning of Arts. 1291, No. 2, and 1293 of the
Civil Code resulting in a novation of the obligation. The Bank never assumed payment of the
obligation. There was merely an authorization, which was accepted by the Bank, that the latter
shall pay A’s debt out of whatever crop loan would be granted to him by the Bank. As it turned
out, the Bank agreed to lend A only P2, 000.00, and said amount was paid directly to B in
accordance with the Bank’s promise. Beyond that amount, the Bank cannot be held liable.
(Hodges vs. Rey, 111 Phil. 219).

5. Obligations; conditional obligations (1975 BAR) 3

A owed B a certain sum of money. C wrote B a letter stating that he would be the one to take
care of A's debt as soon as A had made a shipment of logs to Japan. A never made such
shipment, C did not pay B. Is C liable to B? Explain. 

Suggested Answer

No, C is not liable to B. C did not assume the obligation of A. C merely stated that he will “take
care” of A’s debt. Moreover, even if C assumed liability, the suspensive condition—namely, the
shipment by A of logs to Japan, was never fulfilled. C’s obligation never arose. Under Article
1181 of the Civil Code, 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. (Villanueva v. Girged, 110 Phil. 478)

6. Sources of obligation (1977 BAR) Taxi driver D, driving recklessly, killed pedestrian P and his
passenger Y. Discuss the source of the obligation of D and of his employer to P and to Y, and
the defense available to the employer. 

Suggested Answer:

There are three overlapping sources of the obligation of D and of his employer. They are: (1)
Under the Revised Penal Code: The heirs of P and Y may proceed against D and his employer
under the Penal Code. In this case, the source of the liability of D and of his employer is the
crime committed by D (culpa criminal). The liability of D is direct and primary (Art. 100, RPC);
the liability of his employer is subsidiary (Art. 103, RPC). The latter cannot relieve himself of
liability by proving due diligence of a good father of a family. This is so because of the very
nature of his obligation. (2) Under the Civil Code: (a) Heirs of P: The heirs of pedestrian P may
proceed against both D and his employer, or against the latter only. In this case, the source of
the liability of D and his employer is the quasi-delict (culpa aquiliana) committed by D (Arts.
2176, 2180, CC). The liability of both is direct and primary. D’s employer can relieve himself of
liability by proving due diligence of a good father of a family in the selection and supervision of
his drivers (Art. 2180, CC).

(b) Heirs of Y: On the other hand, the heirs of Y may proceed against D’s employer only. The
source of the liability of D’s employer, in this case, is the breach of his contract of carriage with
Y (culpa contractual). His liability is direct and primary. He cannot relieve himself of liability by
proving due diligence of a good father of a family (Art. 1759, CC). This is so because under our
law on common carriers, we do not adhere to the principle of respondent superior; we adhere to
the principle that there is always an implied duty of a common carrier to carry the passenger
safely to his place of destination. However, although not available as a defense, such proof of
due diligence may serve to mitigate the employer’s liability.

7. Reciprocal obligations; implicit resolutory condition; damages (1977 BAR) L leased a house
to J. The contract stipulates that in case of non-payment of the rent, L can eject L without court
action. J defaulted for two months. As a result, L ejected him. Can J claim damages because
the renunciation of his day in court as stipulated in the contract is void? 

Suggested Answer:

J cannot claim damages because the renunciation of his day in court as stipulated in the
contract is void. True, under the NCC, in reciprocal obligations there is always a tacit resolutory
condition that if one party is unable to comply with what is incumbent upon him, the injured party
has the power to rescind the obligation (Art. 1191). This is reiterated in the law on lease (Art.
1659). True also, it is a well-settled rule that the injured party must invoke judicial aid. But then,
this rule can be applied only to a case where the obligation is silent with respect to the power to
rescind. The right to rescind is implied only if not expressly granted; no right can be said to be
implied if expressly recognized. This is also well-settled. In the instant case, the right of L to
eject J without a court action in case of non-payment of the rent was expressly recognized in the
contract itself. What L did was merely to enforce what was agreed upon.

8. Contracts; stipulation pour autrui (1977 BAR) What is a stipulation pour autrui and what are
its essential requisites? Give an example. 

Suggested Answer

A stipulation pour autrui is a stipulation in a contract, clearly and deliberately conferred by the
contracting parties as a favor upon a third person, who must communicate his acceptance to the
obligor before it is revoked. Before such a stipulation may be enforced, it is necessary that the
following requisites must concur: (1) that it must be for the benefit or interest of the third person;
(2) that such benefit or Interest must not be merely incidental; (3) that the contracting parties
should have clearly and deliberately conferred such benefit or interest upon the third person;
and (4) that the third person should have communicated his acceptance of the benefit or interest
to the obligor before its revocation. (Art. 1311, par. 2, Civil Code.) Example: In a contract with X
Co., the Philippine National Bank, for a valuable consideration, agreed to cause a sum of money
to be paid to A in New York City. If A communicates his acceptance of the benefit to X Co.
before it could be revoked by the latter, we have what is commonly known as a stipulation pour
autrui.

9. Resolutory condition; right of usurfruct (1979 BAR) On June 5, 1960, DP delivered

possession of his house and lot in the Poblacion of Polo, Bulacan to AB who in turn delivered to
the former possession of his 2-hectare rice land. Both properties were unregistered. They
executed a document entitled “Barter’’ which, among others, provided that both parties shall
enjoy the material possession of their respective properties: that neither party shall encumber,
alienate or dispose of their respective properties as bartered without the consent of the other;
and that DP shall be obliged to return the property to AB when the latter’s son shall attain
majority and decide to return DP’s property. After AB’s death and his son S attained majority in
1977, the latter demanded for the return of the 2 hectares of rice land which had then increased
tremendously in value. DP refused and so S fi led an action for recovery of the land. Will the
action prosper? Why? 

Suggested Answer:

Yes, the action will prosper. The stipulations in the barter agreement are clear. All that the
parties intended was to transfer the material possession and use of the subject properties to the
other. There was, therefore, no conveyance of their right of ownership. In fact, the parties
retained their rights to alienate their right of ownership, a right which is one element of
ownership. What was, therefore, transferred was merely their right of usufruct. But then, the
document also says that DP shall be obliged to return the property to AB when the latter’s son
shall attain majority and decide to return DP’s property. The mutual 6

agreement, therefore, was subject to a resolutory condition the happening of which would
extinguish or terminate their right of usufruct over the subject properties. The facts are clear.
Said condition has already been fulfilled. (Baluran vs. Navarro, 79 SCRA 309).

10. Contracts; voidable contracts (1979 BAR) Mrs. S borrowed P20,000 from PG, She and her
19-year old son, Mario, signed the promissory note for the loan, which note did not say
anything- about the capacity of the signers. Mrs. S made partial payments little by little. After
seven (7) years she died leaving a balance of P10,000.00 on the note. PG demanded payment
from Mario who refused to pay. When sued for the amount, Mario raised the defense: that when
he signed the note he was still a minor. Should the defense be sustained? Why? 

Suggested Answer

The defense should be sustained. Mario cannot be bound by his signature in the promissory
note. It must be observed that the promissory note does not say anything about the capacity of
the signers. In other words, there is no active fraud or misrepresentation; there is merely silence
or constructive fraud or misrepresentation. It would have been different if the note says that
Mario is of age. The principle of estoppel would then apply. Mario would not be allowed to
invoke the defense of minority. The promissory note would then have all of the effects of a
perfectly valid note. Hence, as far as Mario's share in the obligation is concerned, the
promissory note is voidable because of minority or non-age. He cannot, however, be absolved
entirely from monetary responsibility. Under the Civil Code, even if his written contract is
voidable because of minority he shall make restitution to the extent that he may have been
benefited by the money received by him (Art. 1399, Civil Code). (Braganza vs. Villa Abrille, L-
12471, April 13, 1959).

11. Obligation with a period; courts fixing the period (1980 BAR) M and N were very good
friends. N borrowed P10, 000.00 from M. Because of their close relationship, the promissory
note executed by N provided that he would pay the loan “whenever his means permit.”
Subsequently, M and N quarrelled. M now asks you to collect the loan because he is in dire
need of money. What legal action, if any, would you take in behalf of M?


Suggested Answer: 7

“M” must bring an action against “N’’ for the purpose of asking the court to fix the duration of the
term or period for payment. According to the Civil Code, when the debtor binds himself to pay
when his means permit him to do so, the obligation shall be deemed to be one with a period,
subject to the provisions of Art. 1197. In other words, it shall be subject to those provisions of
the Code with respect to obligations with a term or period which must be judiciary fixed. Thus, in
the instant case, the court shall determine such period as may under the circumstances have
been probably contemplated by the parties. Once determined or fixed, it becomes a part of the
covenant of the two contracting parties. It can no longer be changed by them. If the debtor
defaults in the payment of the obligation after the expiration of the period fixed by the court, the
creditor can then bring an action against him for collection. Any action for collection brought
before that would be premature. This is wellsettled. (Note: The above answer is based on Arts.
1180 and 1197 of the Civil Code and on Gonzales vs. Jose, 66 Phil. 369; Concepcion vs.
People of the Phil. 74 Phil. 62; Pages vs. Basilan, 104 Phil. 882, and others). 

Alternative Answer:

Normally, before an action for collection may be maintained by “M” against “N,’’ the former must
fi rst bring an action against the latter asking the court to fi x the duration of the term or period of
payment. However, an action combining such action with that of an action for collection may be
allowed if it can be shown that a separate action for collection would be a mere formality
because no additional proofs other than the admitted facts will be presented and would serve no
purpose other than to delay. Here, there is no legal obstacle to such course of action. (Note:
The above alternative answer is based on Borromeo vs. Court of Appeals, 47 SCRA 65.
Probably, if we combine the two answers given above, the result would be a much more
impressive answer).

12. Relativity of contracts; exception (1980 BAR) O, a very popular movie star, was under
contract with P Movie Productions to star exclusively in the latter’s films for two years. O was
prohibited by the contract to star in any fi lm produced by another producer. X Film Co. induced
O to break her contract with P Movie Productions by giving her twice her salary. P Movie
Productions sued X Film Co. for damages. X Film Co. contended that it had a right to compete
for the services of O and that her contract with P Movie Productions was in restraint of trade and
a restriction on her freedom of contract. Whose contention would you sustain? 8

Suggested Answer:

The contention of P Movie Productions should be sustained. According to the Civil Code, any
third person who induces another to violate his contract shall be liable for damages to the other
contracting party. In the law of torts, we call this “interference with contractual relation.’’
However, in order that it will be actionable, it is necessary that the following requisites must
concur: (a) the existence of a valid contract; (b) knowledge on the part of the third person of the
existence of such contract; and (c) interference by the third person without legal justification or
excuse. All of these requisites are present in the case at bar. The contention of X Film Co. that
O’s contract with P Movie Productions was in restraint of trade and a restriction of her freedom
to contract, on the other hand, cannot be sustained. Well-established is the rule that in order to
determine whether or not an agreement of this nature constitutes an undue restraint of trade,
and therefore, is contrary to public policy, two tests are always applied. They are first, is there a
limitation as to time or place? And second, is the prohibition or restraint reasonably necessary
for the protection of the contracting parties? If the answer to both of these questions is in the
affirmative, then the prohibition or restraint is not contrary to public policy. It is crystal clear that
the agreement between O and P Movie Productions passes both tests. (Note: The first
paragraph of the above answer is based on Art. 1314 of the Civil Code and on Daywalt vs.
Agustinos Recoletos, 39 Phil. 587. The second paragraph, on the other hand, is based on Art.
1306 of the Civil Code and on several cases, the most notable of which is Del Castillo vs.
Richmond, 46 Phil. 697).

13. Contracts; consent; invitation to bid (1980 BAR) "K" & Co. published in the newspaper an
"Invitation To Bid" inviting proposals to supply labor and materials for a construction project
described in the invitation. "L", "M", and "N" submitted bids. When the bids were opened, it
appeared that "L" submitted the lowest bid. However, "K" & Co. awarded the contract "N", the
highest bidder, on the ground that he was the most experienced and responsible bidder. "L"
brought an action against "K" & Co, to compel the award to him and to recover damages. Is
"L's" position meritorious?

Suggested Answer

"L's” position is not meritorious. According to the Civil Code, advertisements for bidders are
simply invitations to make proposals, and the advertiser is not bound to accept the highest or
lowest bidder, unless the contrary appears (Art. 1326). It is clear that the general rule applies in
the instant case. In its advertisements, "K" & Co., for instance, did not state that it will award the
contract to the lowest bidder. Therefore, in awarding the contract to “N", the defendant company
acted in accordance with its rights.

14. Solidary liability (1981 BAR) O, lot owner, contracted with B, builder, to build a multi-storey
building designed by A, architect. A was paid a fee to supervise the construction and execution
of his design. When completed, O accepted the work and occupied the building, but within one
year, it collapsed in an earthquake that destroyed only the building and not the surrounding
buildings. Construction was faulty. The building cost P3,000,000.00, but reconstruction cost
would reach P10,000,000.00. (a) What are the rights of O against A and B? Explain briefly. (b)
Could “O’’ demand reconstruction of the building? On what ground? Amplify.  (a)

(b)

Suggested Answer: O can hold A and B solidarily liable for damages. This is clear from the Civil
Code, which declares that the contractor is liable for damages if within fifteen years from the
completion of the edifice or structure, the same should collapse on account of defects in the
construction. lf the engineer or architect who drew up the plans and specifications of the building
supervises the construction, he shall be solidarily liable with the contractor. Acceptance of the
building, after completion, does not imply waiver of the cause of action. However, the action
must be brought within ten years following the collapse of the building. (Note: The above answer
is based on Art. 1723 of the Civil Code). O can demand reconstruction of the building. The
obligation of both A and B is an obligation to do. Consequently, Art. 1167 of the Civil Code is
applicable. According to this article, if a person obliged to do something does it in contravention
of the tenor of the obligation, the same shall be executed at his cost. It is obvious that the
builder B and the architect A performed their jobs in contravention of the tenor of the obligation.
As a matter of fact, had the building not collapsed, under the same article, it may even be
decreed that what has been poorly done be undone. Consequently, C can now demand for the
reconstruction of the building by A and B or by another at their cost. (Note: The above answer is
based on Art. 1167 of the Civil Code and on Manresa, vol. 8, pp. 116-117). 10

18. Fortuitous event; Depositary or bailee; Tender of payment (1981 BAR) S, an American
resident of Manila, about to leave on a vacation, sold his car to B for US$2,000.00, the payment
to be made ten days after delivery to X, a third party depositary agreed upon, who shall deliver
the car to B upon receipt of X of the purchase price. It was stipulated that ownership is retained
by S until delivery of the car to X. Five days after delivery of the car to X, it was destroyed in a
fire which gutted the house of X, without the fault of either X or B. (a) (b)

Is buyer B still legally obligated to pay the purchase price? Explain. May seller S demand
payment in U.S. dollars? Why?

 (a)

Suggested Answer: Yes, buyer B is still legally obligated to pay the purchase price. It must be
observed that S had already delivered the car to X, the third party depositary or bailee. It was
agreed that ownership is retained by S until delivery to X. Therefore, there was already a
transfer of the right of ownership over the car to B. Consequently, B shall assume the fortuitous
loss of the car. As a matter of fact, even if it was agreed that S shall retain the ownership of the
car until the purchase price has been paid by B, the end result will still be the same. Since,
evidently, the purpose is to secure performance by the buyer of his obligation to pay the
purchase price, by express mandate of the law, the fortuitous loss of the car shall be assumed
by B. (Note: The above answer is based on Art. 1504 of the Civil Code). The seller “S’’ cannot
demand payment in U.S. dollars. According to the law, an agreement that payment shall be
made in currency other than Philippine currency is void because it is contrary to public policy.
That does not mean, however, that “S” cannot demand payment from “B.” He can demand
payment, but not in American dollars. Otherwise, there would be unjust enrichment at the
expense of another. Payment, therefore, should be made in Philippine currency. (Note: The
above answer is based on R.A. No. 529 and on Ponce vs. Court of Appeals, 90 SCRA 533).

(b)

19. Compensation; principal creditor and debtor of each other (1981 BAR) B borrowed from C
P1,000.00 payable in one year. When C was in the province, C’s 17-year-old son borrowed
P500.00 from B for his school tuition. However, the son spent it instead night-clubbing. When
the debt to C fell due, B tendered only P500.00, claiming compensation on the P500.00
borrowed by C’s son. (a)

Is there legal compensation? Why? 11

(b)

Suppose the minor son actually used the money for school tuition, would the answer be
different? Reasons.

Suggested Answer: (a) There is no legal compensation. Under the Civil Code, in order that
there will be a valid and effective compensation, it is essential that there must be two parties,
who in their own right, are principal creditors and principal debtors of each other. In the instant
case, C cannot be considered as a party to the act of his 17-year-old son in borrowing P500.00
from B. Consequently, he did not become a principal debtor of B; neither did B become a
principal creditor of C. Therefore, there can be no partial compensation of the P1,000.00
borrowed by B from C. (Note: The above answer is based on Arts. 1278 and 1279, No. 1, of the
Civil Code and on decided cases). (b) There would be no difference in my answer. There will
still be no legal compensation. The fact that C’s son actually used the P500.00 for his school
tuition did not make C a party to the contract between his son and B. Therefore, C is not the
principal debtor of B with respect to said amount. (Note: The above answer is based on Arts.
1278 and 1279, 1, Civil Code).

20. Contracts; forms of contracts (1982 BAR) "A" and "B" entered into a verbal contract whereby
"A" agreed to sell to "B" his only parcel of land for P20,000, and "B" agreed to buy at the
aforementioned price. "B" went to the bank, withdrew the necessary amount, and returned to
"A" for the consummation of the contract. "A" however, had changed his mind and refused to go
through with the sale. Is the agreement valid? Will an action by "B" against "A" for specific
performance prosper? Reason. 

Suggested Answer

It must be observed that there are two questions in the case at bar. They are: (1) Is the
agreement valid? The answer is yes. It is a time-honored rule that even a verbal agreement to
sell land is valid so long as there is already an agreement with respect to the object and the
purchase price. (2) Will an action by "B" against "A" for specific performance prosper? The
answer is no, unless it is ratified. The reason is obvious. The agreement, being an agreement of
sale of real property, is covered by the Statute of Frauds It cannot, therefore, be enforced by a
court 12

action because it is not evidenced by any note or memorandum or writing properly subscribed
by the party charged. (Note: The above answer is based on No. 2 of Art. 1203 of the Civil Code
and on decided cases.)
21. Obligations with a period; Court fixing the period (1982 BAR) A Corporation, engaged in the
sale of subdivision residential lots, sold to B a lot of 1,000 square meters. The contract provides
that the corporation should put up an artesian well with tank, within a reasonable time from the
date thereof and sufficient for the needs of the buyers. Five years thereafter, and no well and
tank have been put up by the corporation, B sued the corporation for specific performance. The
corporation set up a defense that no period having been fixed, the court should fi x the period.
Decide with reason. 

Suggested Answer:

The action for specific performance should be dismissed on the ground that it is premature. It is
clear that the instant case falls within the purview of obligations with a term or period which must
be judicially fixed. Thus, B instead of bringing an action for specific performance, should bring
an action asking the court to determine the period within which A Corporation shall put up the
artesian well with tank. Once the court has fixed the period, then such period as fixed by the
court will become a part of the covenant between the contracting parties. It can no longer be
changed by them. If the Corporation does not put up the artesian well with tank within the period
fixed by the court, “B” can then bring an action for specific performance. 

Alternative Answer:

Normally, before an action for specific performance may be maintained by B against A

Corporation, the former must first bring an action against the latter asking the court to fix the
duration of the term or period to install the artesian well with tank. However, an action combining
such action with that of an action for specific performance may be allowed if it can be shown
that a separate action for specific performance would be a mere formality because no additional
proofs other than the admitted facts will be presented and would serve no purpose other than to
delay. Here, there is no obstacle to such cause of action. (Note: The above answers are based
on Art. 1197 of the Civil Code and on decided cases. Either answer should be considered
correct.)

13

22. Application of payment (1982 BAR) The debtor owes his creditor several debts, all of them
due, to wit: (1) an unsecured debt; (2) a debt secured with a mortgage of the debtor’s property;
(3) a debt bearing interest; (4) a debt in which the debtor is solidarily liable with another. Partial
payment was made by the debtor. Assuming that the debtor had not specified the debts to
which the payment should be applied and, on the other hand, the creditor had not specified in
the receipt he issued the application of payment, state the order in which the payment should be
applied and your reasons therefore. 

Suggested Answer:

In this case, according to the Civil Code, the debt, which is most onerous to the debtor, among
those due, shall be deemed satisfied. Analyzing the four debts stated in the problem, the most
onerous is No. 4, the second most onerous is No. 2, the third most onerous is No. 3, and the
least onerous is No. 1. Consequently, the payment should be applied in that order. (Note: The
above answer is based on Art. 1254 of the Civil Code, and on decided cases and commentaries
of recognized commentators.)

23. Obligations; extinguishment; payment (1983 BAR) A owes B P20,000 which became due
and payable last October 1, 1983. On that date, A offered B P10,000 the only money he then
had, but B refused to accept the payment. A thereafter met C, B's 22-year old son, to whom he
gave the P10,000 with the request that he turn the money over to B. The money was stolen
while in C's possession. Was B justified in refusing to accept the payment of A? May he still
recover the full amount of his debt of P20,000? Why? 

Suggested Answer:

Yes, the creditor cannot be compelled to receive partial payments of the obligation due him,
there being no stipulation to the contrary. B may still demand full payment of the sum due him.
The payment to his son, who does not appear to have been authorized to receive it, is invalid,
the creditor not having received any benefit therefrom.

24. Fortuitous events; circumstances when liability still exists (1983 BAR)

14

Cite three instances where a person is made civilly liable for failure to comply with his
obligations although he was prevented from doing so by a fortuitous event. Suggested Answer:
In the following instances, a person is still civilly liable for failure to comply with his obligation
although he was prevented from doing so by a fortuitous event: (1) When by law, the debtor is
liable even for fortuitous events; (2) When by stipulation of the parties, the debtor is liable even
for fortuitous events; (3) When the nature of the obligation requires the assumption of risk; (4)
When the object of the obligation is lost and the loss is due partly to the fault of the debtor; (5)
When the object of the obligation is lost and the loss occurs after the debtor has incurred in
delay; (6) When the debtor promised to deliver the same thing to two or more persons who do
not have the same interest; (7) When the obligation to deliver arises from a criminal offense;
and (8) When the obligation is generic. 

(Note: Any 3 of the 8 should be a correct answer. Nos. 1, 2 and 3 are based on Arts. 1174 and
1262, NCC; Nos. 4, 5, and 6 are based on Arts. 1165 and 1262, NCC; while Nos. 7 and 8 are
based on Arts. 1268 and 1263, NCC.)

25. Fortuitous events; Liability of obligor (1983 BAR) A bound himself to deliver to B a 21-inch
1983i model TV set, and the 13 cubic feet White Westinghouse refrigerator, with Motor No.
WERT-385, which B saw in A’s store, and to repair B’s piano. A did none of these things. May
the court compel A to deliver the TV set and the refrigerator and repair the piano? 

Suggested Answer:

B cannot compel A to deliver the 21-inch 1983 model TV set. The reason is obvious. The
obligation is to give a generic object because the object is designated merely by its class or
genus without any particular designation or physical segregation from others of the same class.
An action for specific performance is, therefore, legally and physically impossible.
Consequently, the remedy of B is to ask for the delivery of a 21-inch 1983 model TV set which
must be neither of superior nor inferior quality. This is explicitly recognized by the New Civil
Code. As a matter of fact, he can even ask that the obligation be complied with at the expense
of the debtor. These remedies are also explicitly recognized by the New Civil Code. 15

In the case of the refrigerator, the situation is different. The court may compel A to comply with
the obligation specifically. The obligation is determinate. Under the New Civil Code, if the debtor
or obligor is refuses or is unable to comply with his obligation, assuming that the obligation is a
determinate obligation to give, the remedy of the creditor or obligee is to bring an action against
the debtor or obligor for specific performance. Additionally, he can recover damages. On the
other hand, the court cannot compel A to repair the piano. The reason is obvious. The obligation
of A is an obligation to do. In this type of obligaton, the law recognizes the individual’s freedom
to choose between doing that which he has promised to do and not doing it. It falls within what
commentators call a personal act, of which courts may not compel compliance as it is an act of
violence to do so. The remedy, therefore, of B is to have the obligation executed at the expense
of A. Additionally, he can recover damages from A. (Note: The above answer is based on Arts.
1165, par. 1, 1167 and 1170, New Civil Code.)

26. Obligations; extinguishment; payment (1983 BAR) A owes B P20,000 which became due
and payable last October 1, 1983. On that date, A offered B P10,000 the only money he then
had, but B refused to accept the payment. A thereafter met C, B's 22-year old son, to whom he
gave the P10,000 with the request that he turn the money over to B. The money was stolen
while in C's possession. Was B justified in refusing to accept the payment of A? May he still
recover the full amount of his debt of P20,000? Why? 

Suggested Answer:

Yes, the creditor cannot be compelled to receive partial payments of the obligation due him,
there being no stipulation to the contrary. B may still demand full payment of the sum due him.
The payment to his son, who does not appear to have been authorized to receive it, is invalid,
the creditor not having received any benefit therefrom.

27. Obligations; extinguishment; payment; consignation, when applicable (1984 BAR) A sold to
B a parcel of land with the right to repurchase the same within three years. A tendered the
repurchase of price to B within the prescribed 16

period, but B refused to accept it. A then brought an action in court for specific performance. B
contends that since A did not deposit the money in court within the stipulated period for
repurchase and the period has now lapsed, A can no longer repurchase the property. Is this
contention correct? Explain. 

A.

Suggested Answer: Furnished by Office of Justice Palma

No. Consignation is not necessary to compel B to make the resale if he refused to accept the
repurchase price tendered. The provisions of consignation refer only to obligations. They are not
applicable to the right of repurchase which is not an obligation but a right exercisable purely at
the option of A.

28. Contracts; perfection of contracts; obligations with a period (1988 BAR) Merle offered to sell
her automobile to Violy for P60,000.00. After inspecting the automobile, Violy offered to buy it
for P50,000.00. This offer was accepted by Merle. The next day, Merle offered to deliver the
automobile, but Violy being short of funds, secured postponement of the delivery, promising to
pay the price "upon arrival of the steamer, Helena". The steamer however never arrived
because it was wrecked by a typhoon and sank somewhere off the Coast of Samar. (1) Is there
a perfected contract in this case? Why? (2) Is the promise to pay made by Violy conditional or
with a term? Why? (3) Can Merle compel Violy to pay the purchase price and to accept the
automobile? Why? 

Suggested Answer: (1) Yes, there is a perfected contract because there is already a
concurrence between the offer and the acceptance with respect to the object and the cause
which shall constitute the contract. Such concurrence is manifested by the acceptance made by
Merle of the offer made by Violy. (2) I submit that the promise to pay made by Violy is not
conditional, but with a term. The promise is to pay the P50,000 upon arrival in this port of the
steamer, Helena, not if the steamer Helena shall

17

arrive in this port. Hence, the promise is with regard to the date of arrival and not with regard to
the fact of arrival. (3) Yes, Merle can compel Violy to pay the purchase price and to accept the
automobile. She will, however, have to wait for the date when the steamer, Helena, would have
arrived were it not for the shipwreck. After all, there is already a perfected contract. 

Alternative Answer: (2) The promise to pay is subject to a term. When there is a pre-existing
obligation and the "condition" affects only the time of payment such "condition" can be
considered as a period. In other words, the parties must be deemed to have contemplated a
period, (3) Yes Merle can compel Violy to pay the purchase price and to accept the automobile
but only after the parties would have fixed the period. Failing in that, the courts may be asked to
fix the period. Article 1180 provides that: "When the debtor binds himself to pay when his means
permit him to do so, the obligation shall be deemed to be one with a period, subject to the
provisions of article 1197."

29. Obligations; extinguishment; novation (1988 BAR) Suppose that under an obligation
imposed by a final judgment, the liability of the judgment debtor is to pay the amount of
P6,000.00 but both the judgment debtor and the judgment creditor subsequently entered into a
contract reducing the liability of the former to only P4,000.00, is there an implied novation which
will have the effect of extinguishing the judgment obligation and creating a modified obligatory
relation? Reasons. 

Suggested Answer:
There is no implied novation in this case. We see no valid objection to the judgment debtor and
the judgment creditor in entering into an agreement regarding the monetary obligation of the
former under the judgment referred to. The payment by the judgment debtor of the lesser
amount of P4,000, accepted by the creditor without any protest or objection and acknowledged
by the latter as in full satisfaction of the money judgment, completely extinguished the judgment
debt and released the debtor from his pecuniary liability. Novation results in two stipulations—
one to extinguish an existing obligation, the other to substitute a new one in its place.
Fundamental it is that novation effects a substitution or modification of an obligation by another
or an 18

extinguishment of one obligation by the creation of another. In the case at hand, we fail to see
what new or modified obligation arose out of the payment by judgment debtor of the reduced
amount of P4,000 to the creditor. Additionally, to sustain novation necessitates that the same be
so declared in unequivocal terms clearly and unmistakably shown by the express agreement of
the parties or by acts of equivalent import—or that there is complete and substantial
incompatibility between the two obligations. (Sandico vs. Piguing, 42 SCRA322.) 

Alternative Answers: (1) There remains an obligation on the basis of the facts given. There is no
showing in the facts that the P4,000 has been paid so it created a modified obligatory obligation
no longer based on the judgment but based on the novatory agreement. (2) There is no implied
novation. Instead there has been a partial remission in the amount of P2,000 leaving P4,000 still
enforceable under the judgment. (3) It can amount to a compromise. A final judgment which has
not yet been fully satisfied may be the subject of a compromise. The compromise partakes the
nature of a novation. Article 204; provides that: "If one of the parties fails or refuses to abide by
the compromise, the other party may either enforce the compromise or regard it as rescinded
and insist upon his original demand." (Gatchalian vs, Arlegui 75 SCRA 234; Dormitorio vs.
Fernandez 72 SCRA 388).

30. Contracts; voidable contracts (1990 BAR) 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 14and 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. 19

(b) How about fraud? Explain your answer. 

Suggested Answer (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
extra-judicial partition. (Articles 1327 and 1391, Civil Code). (b) In the case of fraud, when
through Insidious words or machinations of one party 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.

31. Nature of Contracts; Obligatoriness (1991 BAR) 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 any payment at all. Printado has also a standing contract 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? 

Suggested Answer:

Roland is bound by the contract he entered into with Lady Love and he cannot disregard the
same, under the principles of obligatoriness of contracts. Obligations arising from contracts
have the force of law between the parties. 

Suggested Answer:

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

20

that any third person who induces another to violate his contract shall be liable for damages to
the other contracting party. 

Alternative Answer:

It is assumed that Lady Love knew of the contract. Neither Roland nor Sweet Taste would be
liable, because the restriction in the contract is violative of Article 1306 as being contrary to law
morals, good customs, public order or public policy.

32. Period; Suspensive Period (1991 BAR) In a deed of sale of a 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? 

Suggested Answer:

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 the period is fixed, an action for
specific performance is premature. 

Alternative Answers: 1. It has been held in Borromeo vs. CA (47 SCRA 69), that the Supreme
Court allowed the simultaneous filing of action to fix the probable contemplated period of the
parties where none is fixed in the agreement if this would avoid multiplicity of suits. In addition,
technicalities must be subordinated to substantial justice. 2. The action for specific performance
will not prosper. The filing of the ejectment suit by the seller was precisely in compliance with his
obligations and should not, therefore, be faulted if no decision has yet been reached by the
Court on the matter. 21

33. Extinguishment; Loss; Impossible Service (1993 BAR) In 1971, Able Construction, Inc.
entered into a contract has been extinguished by the novation or extinction of the with Tropical
Home Developers, Inc. whereby the former would build for the latter the houses within its
subdivision. The cost of each house, labor and materials included, was P100,000.00. Four
hundred units were to be constructed within five years. In 1973, Able found that it could no
longer continue with the job due to the increase in the price of oil and its derivatives and the
concomitant worldwide spiraling of prices of all commodities, including basic raw materials
required for the construction of the houses. The cost of development had risen to unanticipated
levels and to such a degree that the conditions and factors which formed the original basis of
the contract had been totally changed. Able brought suit against Tropical Homes praying that
the Court relieve it of its obligation. Is Able Construction entitled to the relief sought? 

Suggested Answer:

Yes, the Able Construction. Inc. is entitled to the relief sought under Article 1267, Civil Code.
The law provides: "When the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole or in part."

34. Contracts; annulment of contracts; capacity to sue (1996 BAR) 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. 

Suggested Answer:
22

As a 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 u. 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 vs.
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. 

Alternative Answer:

As a judge, I will grant the motion to dismiss. Compliance with a condition imposed by a donor
gives rise to an action to revoke the donation under Art. 764, NCC. However, the right of action
belongs to the donor. Is transmissible to his heirs, and may be exercised against the donee’s
heirs. Since Armando is an heir of the donee, not of the donor, he has no legal capacity to sue
for revocation of the donation. Although he is not seeking such revocation but an annulment of
the sale which his mother, the donee, had executed in violation of the condition imposed by the
donor, an action for annulment of a contract may be brought only by those who are principally or
subsidiarily obliged thereby (Art. 1397, NCC). As an exception to the rule, it has been held that
a person not so obliged may nevertheless ask for annulment if he is prejudiced in his rights
regarding one of the contracting parties (DBP us. CA. 96 SCRA 342 and other cases) and can
show the detriment which would result to him from the contract in which he had no intervention,
(Teves vs. PHHC, 23 SCRA 1141). Such detriment or prejudice cannot be shown by Armando.
As a forced heir, Armando's interest In the property was, at best, a mere expectancy. The sale
of the land by his mother did not impair any vested right. The fact remains that the premature
sale made by his mother (premature because only half of the period of the ban had elapsed)
was not voidable at all, none of the vices of consent under Art. 139 of the NCC being present.
Hence, the motion to dismiss should be granted.

23

35. Nature of Contracts; Privity of Contract (1996 BAR) 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 on the
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. 
Suggested Answer:

The telephone company is correct because as far as it is concerned, the only person it
contracted 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.

36. Rescission of Contracts; Proper Party (1996 BAR) In December 1985, Salvador and the
Star Semiconductor Company (SSC) executed a Deed of Conditional Sale wherein the former
agreed to sell his 2,000 square meter lot in Cainta, Rizal, to the latter for the price of
P1,000,000.00, payable P100,000.00 down, and the balance 60 days after the squatters in the
property have been removed. If the squatters are not removed within six months, the
P100,000.00 down payment shall be returned by the vendor to the vendee, Salvador filed
ejectment suits against the squatters, but in spite of the decisions in his favor, the squatters still
would not leave. In August, 1986, Salvador offered to return the P100,000.00 down payment to
the vendee, on the ground that he is unable to remove the squatters on the property. SSC
refused to accept the money and demanded that Salvador execute a deed of absolute sale of
the property in its favor, at which time it will pay the balance of the price. Incidentally, the value
of the land had doubled by that time. Salvador consigned the P 100,000.00 in court, and filed an
action for rescission of the deed of conditional sale, plus damages. Will the action prosper?
Explain. 

Suggested Answer:

No, the action will not prosper. The action for rescission may be brought only by the aggrieved
party to the contract. Since it was Salvador who failed to comply with his conditional obligation,
he is not the aggrieved party who may 24

file the action for rescission but the Star Semiconductor Company. The company, however, is
not opting to rescind the contract but has chosen to waive Salvador's compliance with the
condition which it can do under Art. 1545, NCC. 

Alternative Answer:

The action for rescission will not prosper. The buyer has not committed any breach, let alone a
substantial or serious one, to warrant the rescission/resolution sought by the vendor. On the
contrary, it is the vendor who appears to have failed to comply with the condition imposed by the
contract the fulfillment of which would have rendered the obligation to pay the balance of the
purchase price demandable. Further, far from being unable to comply with what is incumbent
upon it, ie., pay the balance of the price ¬the buyer has offered to pay it even without the vendor
having complied with the suspensive condition attached to the payment of the price, thus
waiving such condition as well as the 60-day term in its favor The stipulation that the
P100,000.00 down payment shall be returned by the vendor to the vendee if the squatters are
not removed within six months, is also a covenant for the benefit of the vendee, which the latter
has validly waived by implication when it offered to pay the balance of the purchase price upon
the execution of a deed of absolute sale by the vendor. (Art. 1545, NCC)
37. Conditional Obligations; Promise (1997 BAR) 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? 

Suggested Answer:

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,
quasicontracts 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. 25

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.

38. Consensual vs. Real Contracts; Kinds of Real Contracts (1998 BAR) Distinguish consensual
from real contracts and name at least four (4) kinds of real contracts under the present law. 

Suggested Answer:

Consensual contracts are those which are perfected by mere consent (Art. 1315. Civil Code).
Real contracts are those which are perfected by the delivery of the object of the obligation. (Art.
1316, Civil Code) Examples of real contracts are deposit, pledge, commodatum and simple loan
(mutuum).

39. Extinguishment; Compensation vs. Payment (1998 BAR) Define compensation as a mode of
extinguishing an obligation, and distinguish it from payment. [2%] 

Suggested Answer:

Compensation is a mode of extinguishing to the concurrent amount, the obligations of those

persons who in their own right are reciprocally debtors and creditors of each other (Tolentino,
1991 ed., p. 365, citing 2 Castan 560 and Francia vs. IAC. 162 SCRA 753). It involves the
simultaneous balancing of two obligations in order to extinguish them to the extent in which the
amount of one is covered by that of the other. (De Leon, 1992 ed., p. 221, citing 8 Manresa
401). Payment means not only delivery of money but also performance of an obligation (Article
1232, Civil Code). In payment, capacity to dispose of the thing paid and capacity to receive
payment are required for debtor and creditor Respectively, in compensation, such capacity is
not necessary, because the compensation operates by law and not by the act of the parties. In
payment, the performance must be complete; while in compensation there may be partial
extinguishment of an obligation (Tolentino, supra).

40. Extinguishment; Compensation/Set-Off; Banks (1998 BAR) 26

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 the 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? 

Suggested Answer:

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 compensation shall 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, x x x 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.

41. Conditional Obligations; Resolutory Condition (1999 BAR) 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? 

Suggested Answer:

(a) Yes, the sale to the other person is valid as a sale with a resolutory condition because what
operates as a suspensive condition for Eva operates a resolutory condition for the buyer. 

First Alternative Answer:

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 27

Examinations. Hence, upon Eva's passing the Bar, the rights of the other buyer terminated and
Eva acquired ownership of the property. 
Second Alternative Answer:

The sale to another person before Eva could buy it from Manuel is valid, as the contract
between Manuel and Eva is a mere promise to sell and Eva has not acquired a real right over
the land assuming that there is a price stipulated in the contract for the contract to be
considered a sale and there was delivery or tradition of the thing sold. 

Suggested Answer:

(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. 

First Alternative Answer:

Assuming that Eva is the one entitled to buy the house and lot, she is not entitled to the rentals
collected by Manuel before she passed the bar examinations. Whether it is a contract of sale or
a contract to sell, reciprocal prestations are deemed imposed A for the seller to deliver the
object sold and for the buyer to pay the price. Before the happening of the condition, the fruits of
the thing and the interests on the money are deemed to have been mutually compensated
under Article 1187. 

Second Alternative Answer:

Under Art. 1164, there is no obligation on the part of Manuel to deliver the fruits (rentals) of the
thing until the obligation to deliver the thing arises. As the suspensive condition has not been
fulfilled, the obligation to sell does not arise.

42. Conditional Obligations (2000 BAR) 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? 

Suggested Answer:

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).

28

43. Extinguishment; Condonation (2000 BAR) Arturo borrowed P500,000.00 from his father.
After he had paid P300,000.00, his father died. When the administrator of his father's estate
requested payment of the balance of P200,000.00. Arturo replied that the same had been
condoned by his father as evidenced by a notation at the The action will not prosper. The
existence of inflation or back of his check payment for the P300,000.00 reading: "In full payment
of the loan". Will this be a valid defense in an action for collection? (3%) 
Suggested Answer:

It depends. If the notation "in full payment of the loan" was written by Arturo's father, there was
an implied condonation of the balance that discharges the obligation. In such case, the notation
is an act of the father from which condonation may be inferred. The condonation being implied,
it need not comply with the formalities of a donation to be effective. The defense of full payment
will, therefore, be valid. When, however, the notation was written by Arturo himself. It merely
proves his intention in making that payment but in no way does it bind his father (Yam v. CA,
G.R No. 104726. 11 February 1999). In such case, the notation was not the act of his father
from which condonation may be inferred. There being no condonation at all the defense of full
payment will not be valid. 

Alternative Answer:

If the notation was written by Arturo's father, it amounted to an express condonation of the
balance which must comply with the formalities of a donation to be valid under the 2nd
paragraph of Article 1270 of the New Civil Code. Since the amount of the balance is more than
5,000 pesos, the acceptance by Arturo of the condonation must also be in writing under Article
748. There being no acceptance in writing by Arturo, the condonation is void and the obligation
to pay the balance subsists. The defense of full payment is, therefore, not valid. In case the
notation was not written by Arturo's father, the answer is the same as the answers above.

44. Extinguishment; Extraordinary Inflation or Deflation (2001 BAR) On July 1, 1998, Brian
leased an office space in a building for a period of five years at a rental rate of P1,000.00 a
month. The contract of lease contained the proviso that "in case of inflation or devaluation of the
Philippine peso, the monthly rental will automatically be increased or decreased depending on
the devaluation or inflation of the peso to the dollar." Starting March 1, 2001, the lessor
increased the rental to P2,000 a month, on the ground of inflation proven 29

by the fact that the exchange rate of the Philippine peso to the dollar had increased from
P25.00=$1.00 to P50.00=$1.00. Brian refused to pay the increased rate and an action for
unlawful detainer was filed against him. Will the action prosper? Why? 

Suggested Answer:

The unlawful detainer action will not prosper. Extraordinary inflation or deflation is defined as the
sharp decrease in the purchasing power of the peso. It does not necessarily refer to the
exchange rate of the peso to the dollar. Whether or not there exists an extraordinary inflation or
deflation is for the courts to decide. There being no showing that the purchasing power of the
peso had been reduced tremendously, there could be no inflation that would justify the increase
in the amount of rental to be paid. Hence, Brian could refuse to pay the increased rate. 

Alternative Answer:

The action will not prosper. The existence of inflation or deflation requires an official declaration
by the Bangko Sentral ng Pilipinas. 
Alternative Answer:

The unlawful detainer action will prosper. It is a given fact in the problem, that there was
inflation, which caused the exchange rate to double. Since the contract itself authorizes the
increase in rental in the event of an inflation or devaluation of the Philippine peso, the doubling
of the monthly rent is reasonable and is therefore a valid act under the very terms of the
contract. Brian's refusal to pay is thus a ground for ejectment. 45. Obligations; joint/ solidary
liability; joint (2001 BAR) 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? (5%) 

Suggested Answer:

The fourth students are 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, NCC). The contract of lease in the problem does not, in any way,
stipulate solidarity. 30

46. Nature of Contracts; Relativity of Contracts (2002 BAR) 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 contract
with 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. 

Suggested Answer:

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, (333 SCRA 170, 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 civil law principle of 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, supra.)

47. Obligations; joint/ solidary liability; solidary (2003 BAR) 31

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. 

Suggested Answer: (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. (Article 1222, NCC). (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.

48. Liability; Solidary Obligation; Mutual Guaranty (2003 BAR) 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 32

above defenses put up by A on his obligation to pay X, if such defenses are found to be true. 

Suggested Answers: (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. (Article 1222, NCC). (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.

49. Conditional Obligations (2003 BAR) 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.  (a)

(b)

Suggested Answer: 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 (Article 1180,
NCC). 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 9Article 1197, NCC). The obligation “to pay when he
likes” is a suspensive condition the fulfilment of which is subject to the sole will of the debtor
and, therefore the conditional obligation is void. (Article 1182, NCC). 33

(c)

(d)

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. 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
(Article 1185, NCC).

50. Inexistent Contracts vs. Annullable Contracts (2004 BAR) Distinguish briefly but clearly
between Inexistent contracts and annullable contracts. 

Suggested Answer:

Inexistent contracts are considered as not having been entered into and, therefore, void ab
initio. They do not create any obligation and cannot be ratified or validated, as there is no
agreement to ratify or validate. On the other hand, annullable or voidable contracts are valid
until invalidated by the court but may be ratified. In inexistent contracts, one or more requisites
of a valid contract are absent. In annullable contracts, all the elements of a contract are present
except that the consent of one of the contracting parties was vitiated or one of them has no
capacity to give consent.