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)

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A owed B a certain sum of money. C wrote B a letter stating that he

would be the one to take care of As 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 As debt. The problem does not
even say that B gave his assent or consent to Cs statement. In the second
place, even assuming that there was a substitution of debtor, Cs liability
depends upon a suspensive condition, that he would take care of As debt as
soon as A had made a shipment of logs to Japan. A never made such shipment.
Therefore, Cs 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 As 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 As 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 Banks
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 As debt. Moreover, even if C assumed
liability, the suspensive conditionnamely, the shipment by A of logs to
Japan, was never fulfilled. Cs 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. Ds 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 Ds
employer only. The source of the liability of Ds 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 employers
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 latters son shall attain majority and decide to
return DPs property. After ABs 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 latters
son shall attain majority and decide to return DPs 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 latters 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 Os 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, Cs 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 Cs
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 Cs 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 debtors 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 As store, and to repair Bs 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 individuals 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 stipulationsone 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 importor 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 donees
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 quasidelicts (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
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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).

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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.
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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 Printados 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 Printados 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)

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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 Bs 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 Cs 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 Ds share and of all the other
co-debtors. Hence, A cannot avail of the defense of Ds 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 Bs 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 Cs 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 Ds share and of all the other co-debtors.
Hence, A cannot avail of the defense of Ds 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).
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(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 debtors 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.

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References:
Icao, J & Icao, A. (2005). Answers to Bar Examination Questions in Civil Law
Arranged Topic (1975-2004). Dumaguete, Negros Oriental: Siliman
University College of Law. Retrieved February 6, 2015 from
https://www.scribd.com/doc/185962564/Civil-Law-Q-A-1975-to-2004
Icao, J & Icao, A. (2005). Answers to Bar Examination Questions in Civil Law
Arranged Topic (1990-2006). Dumaguete, Negros Oriental: Siliman
University College of Law. Retrieved February 6, 2015 from
https://upangphinmalaw.files.wordpress.com/2011/03/suggested-answersin-civil-law-bar-exams1990-2006.pdf
Jurado, D. (2010). Comments and Jurisprudence on Obligations and Contracts
(12th ed.). Metro Manila: Rex Publishing.

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