1) A quasi contract will not arise if the act is not unilateral and voluntary and no unjust enrichment exists.

TRUE

2) A quasi-contract may be nominate or innominate. TRUE

3) The rights under quasi-contract prescribes in six years. TRUE

4) Negotiorum gestio arises when a person takes charge of an abandoned property of another who does
not oppose notwithstanding knowledge. FALSE? There is tacit authorization since there is knowledge,
rules on agency will apply

5) A gestor who attempts to appropriate the property is governed by the rules on implied trust. TRUE?

6) Solutio indebiti arises when payment is made through mistake, liberality or some other cause. FALSE
There will be no solutio indebiti if payment is made through liberality.

7) Where negligence is punishable under the Penal Code, the responsibility for quasi-delict is distinct from
civil liability arising from the felony and may therefore be pursued separately. TRUE subject to the
proscription against double recovery.

8) A breach of contract may result from a quasi-delict. FALSE The act that breaks the contract may also be
a tort.

9-10) Define proximate cause – That cause which, in natural and continuous sequence, unbroken by any
efficient intervening cause, produces the injury, without which the result would not have occurred.

11-12) What is the doctrine of contributory negligence? - If the negligence of the plaintiff cooperated
with the negligence of the defendant in bringing about the accident causing the injury complained of, such
negligence of the plaintiff would be an absolute bar to recovery. If the negligence of the plaintiff was
merely contributory to his injury, the immediate and proximate cause of the accident causing the injury
being the defendant’s negligence, such negligence would not be a bar to recovery, but the amount
recoverable shall be mitigated by the court.

13-14) Explain the doctrine of discovered peril? – Last Clear Chance Doctrine – Where both parties are
negligent in such a way that it would be impossible to determine whose negligence was the proximate
cause of the accident, the party who had the last clear chance or opportunity to avoid the accident by the
use of proper care but failed to do so is considered in law solely responsible for the consequence of the
incident,

15) Under the doctrine of “supervening negligence”, the antecedent negligence of a telephone company
in not providing warning signs on its excavations would not make it liable if the plaintiff had a clear chance
to avoid the accident. FALSE telephone company will still be liable.

16) The “volunti non fit injuria” rule does not apply if a person, aware of the possible danger, takes some
risks in order to preserve life. TRUE

17-18) What is the doctrine of imputed negligence? Vicarious Liability - a person is not only liable for torts
committed by himself, but also for torts committed by others with whom he has a certain relationship
and for whom he is responsible.
19) The burden of proof is the same in actions culpa contractual and culpa aquiliana. TRUE if proof in
general. FALSE if proof of negligence, in contractual relationships burden lies with the defendant if
plaintiff proved there was a breach of contract.

20-21) Explain the res ipsa loquitor rule. – Where a thing is shown to be under the management of the
defendant or of his servants, and the accident is such as is in the ordinary course of events does not
happen if those who have the management had used proper care, it affords reasonable evidence, in the
absence of explanation by the defendant, that the accident arose from want of care.

22) Philippine law also recognizes the “strict liability in torts” rule. TRUE

23) Liability may be created even if there is no fault or negligence. TRUE

24) If the driver and owner of a cargo truck which figured in a road mishap were found liable for tort, their
liability is solidary. TRUE?

25-30) Requisites of “negotiorum gestio”.

 No meeting of the minds
 Taking charge of another’s business or property
 The business or property must be either neglected or abandoned.
 The agency or management must not be authorized by the owner either expressly or impliedly.
 The gestor must voluntarily assume the agency or management of the business or property of
another.
 The assumption of the the agency or management must be made in good faith.

31-38) When is the gestor in “negotiorum gestio” liable for damages even if due to fortuitous event.
 if he undertakes risky operations which the owner was not accustomed to embark upon
 if he has preferred his own interest to that of the owner
 if he fails to return the property or business after demand by the owner
 if he assumed the management in bad faith
 if he is manifestly unfit to carry the management
 If by his intervention he prevented a more competent person from taking up the management




39-46) Modes of extinguishing “negotiorum gestio”.

 When the owner repudiates it or puts an end thereto;
 When the officious manager withdraws from the management, subect to the provisions of Art
2144;
 By the death, civil interdiction, insanity, or insolvency of the owner or the officious manager.

47) If the payer was in doubt whether the debt was due, he may recover upon proof that it was not due.
TRUE

48) Negotiorum gestio and solutio indebiti may apply in one and the same situation. TRUE
49) Negotiorum gestio is the management of affairs or property of another without the latter’s consent
whether express or implied and for his benefit. TRUE?

50) A person who receives in good faith a payment made erroneously by the payor shall only answer for
the thing and its accessories to the extent of his enrichment. TRUE

51-54) Requisites of “solutio indebiti”

 Something has been received
 there was no right to demand it
 The same was unduly delivered through mistake
 Payor is under no obligation to do so

55) If the thing paid to the payee in good faith was thereafter alienated, the payee may restore the price
or assign the action to collect it. TRUE

56) The payee in bad faith must restore the capital with interest, or the thing with fruits which were
received or should have been received, if the thing produces fruits plus damages. TRUE

57) The payee in bad faith can demand reimbursement for necessary and useful expenses with right to
retention. FALSE

58) If the thing paid belongs to third person, the payee who finds out the true owner must notify the latter
to claim the thing within 60 days. FALSE One month not 60 days (Art. 2158 in rel. to Art. 1984)

59) The liability of two or more payees in solution indebiti is joint unless solidarity is stipulated. FALSE
Solidary

60) A stranger who gives support has a right to claim from the one legally bound unless he gave it out of
piety and without intention of being repaid. TRUE

61) When through an accident, a person was injured and is treated or helped by another while not in a
condition to give consent, he shall be liable to pay for the services rendered him even when they were
rendered on pure generosity. FALSE he is not liable when rendered out of pure generosity.

62) Exceptionally, the crime of rape may be considered a quasi-delict. TRUE

63-66) Requisites of quasi-delict.

 there must be an act or omission
 such act or omission causes damage to another
 such act or omission is caused by fault or negligence
 there is no pre-existing contractual relation between the parties.

67) Culpa contractual and culpa aquiliana both give rise to an obligation to indemnify. TRUE

68) As a general rule, quasi-delict covers all negligent or culpable acts or omissions whether punished by
law or not so long as they do not constitute breach of contract. FALSE Act that breaks the contract may
also be tort.

69) Factors affecting negligence are person, time, place and skills. TRUE
70) A person may be held responsible for the acts and negligence of others under his control and
supervision as in injury caused by stray animals. TRUE

71-75) Enumerate the persons responsible for the acts and negligence of others.
 The father and, in case of his death or incapacity, the mother, are responsible for the damages
caused by the minor children who live in their company.
 Guardians are liable for damages caused by the minors or incapacitated persons who are under
their authority and live in their company.
 The owners and managers of an establishment or enterprise are likewise responsible for damages
caused by their employees in the service of the branches in which the latter are employed or on
the occasion of their functions.
 Employers shall be liable for the damages caused by their employees and household helpers
acting within the scope of their assigned tasks, even though the former are not engaged in any
business or industry.
 The State is responsible in like manner when it acts through a special agent; but not when the
damage has been caused by the official to whom the task done properly pertains, in which case
what is provided in article 2176 shall be applicable.
 Lastly, teachers or heads of establishments of arts and trades shall be liable for damages caused
by their pupils and students or apprentices, so long as they remain in their custody.

76) The head of families that live in buildings or parts thereof shall be liable for damages caused by things
thrown or falling from the same and no proof of negligence is required to hold them liable. TRUE

77) Damages recoverable for quasi-delicts include damnum emergens and lucrumcessans. TRUE

78) Fault must be the proximate and need to be the only cause for the damage in order to recover
indemnification. FALSE

79) Actual damages are reparation of pecuniary losses. TRUE

80) Moral damages are reparation for non-pecuniary losses. TRUE

81) Liquidated damages must be proved by the claimant. FALSE

82) Exemplary damages are for deterring future violations. TRUE

83) Fixing the amount of indemnity may only be by law or by the courts. FALSE may be by agreement such
as liquidated damages or penalties in contracts.

84-85) What is the extent of compensatory damages

 Dano emergente – value of the loss suffered
 Lucro Cessante – Profits which the oblige failed to obtain.

86-88) Give the requisites for the recovery of actual damages.

 A person suffered pecuniary loss
 By reason of the act or omission of another
 Such loss must be proven with a reasonable degree of certainty
89) Equitable mitigation of damages may be decreed if loss would have resulted in any event if there was
no breach by the defendant. TRUE?

90) No interest may be recovered on unliquidated claims or damages, except when the demand can be
established with reasonable certainty at the Court’s discretion. TRUE?

91-94) Enumerate the cases where attorney’s fees and costs of litigation may be recovered.
 When exemplary damages are awarded;
 When the defendant's act or omission has compelled the plaintiff to litigate with third persons or
to incur expenses to protect his interest;
 In criminal cases of malicious prosecution against the plaintiff;
 In case of a clearly unfounded civil action or proceeding against the plaintiff;
 Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's
plainly valid, just and demandable claim;
 In actions for legal support;
 In actions for the recovery of wages of household helpers, laborers and skilled workers;
 In actions for indemnity under workmen's compensation and employer's liability laws;
 In a separate civil action to recover civil liability arising from a crime;
 When at least double judicial costs are awarded;
 In any other case where the court deems it just and equitable that attorney's fees and expenses
of litigation should be recovered.

95-99) In what cases may an award for moral damages be made?

 A criminal offense resulting in physical injuries
 Quasi-delicts causing physical injuries
 Seduction, abduction, rape, or other lascivious acts
 Adultery or concubinage
 Illegal or arbitrary detention or arrest
 Illegal search
 Libel, slander or any other form of defamation
 Malicious prosecution
 Acts mentioned in Article 309
 Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35

100-102) Characteristics of liquidated damages.

 agreed upon by the parties in a contract
 its essence is a genuine covenanted pre-estimate of damages
 the injured party need not prove his damages in order that the sum stipulated may be demanded
 should the principal obligation be void, the stipulation on liquidated damages shall also be void
 purpose is to prevent breach of obligations between the contracting parties
 can be reduced if they are inequitably iniquitous or unconscionable

103) Liquidated damages are those damages agreed upon by the parties to a contract and may not be
equitably reduced. FALSE can be equitably reduced by the courts.
104) Exemplary damages cannot be awarded alone. TRUE

105) The preference provided in art. 2241 of the Civil Code can only be applied if there is an insolvency
proceeding. FALSE

106) With reference to specific movable property, the claims of employees of the owner now enjoy
preference over taxes. FALSE

107) With respect to specific immovable property, only taxes enjoy absolute preference and the other
preferred credits must be paid pro rata. TRUE

1. If after demand the defaulting mortgagor failed to surrender the car to the mortgagee for the
foreclosure proceedings, the later is justified seeking police assistant to recover the same. FALSE

A mortgagee may take steps to recover the mortgaged property to enable it to enforce or protect its
foreclosure right thereon. There is, however, a well-defined procedure for the recovery of possession of
mortgaged property: if a mortgagee is unable to obtain possession of a mortgaged property for its sale on
foreclosure, he must bring a civil action either to recover such possession as a preliminary step to the sale,
or to obtain judicial foreclosure.

2. A may unilaterally withdraw from a perfected contract provided he can return what he had already
received from the other party. FALSE

From the moment of perfection, the parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which, according to their nature, may be in keeping
with good faith, usage, and law. The contract has the force of law between the parties and they are
expected to abide in good faith by their respective contractual commitments, not weasel out of them.
Just as nobody can be forced to enter into a contract, in the same manner, once a contract is entered into,
no party can renounce it unilaterally or without the consent of the other.

3.The principle of solution indebiti applies in a claim for the issuance of a tax credit certificate representing
a taxpayer’s authorized input taxes (VAT) on local purchases of goods and services attributable to
effectively zero-rated sales. FALSE

There is solutio indebiti when (1) Payment is made when there exists no binding relation between the
payor, who has no duty to pay, and the person who received the payment; and (2) Payment is made
through mistake, and not through liberality or some other cause. Though the principle of solutio indebiti
may be applicable to some instances of claims for a refund, the elements thereof are wanting in this case.
First, there exists a binding relation between petitioner and the CIR, the former being a taxpayer obligated
to pay VAT. Second, the payment of input tax was not made through mistake, since petitioner was legally
obligated to pay for that liability. The entitlement to a refund or credit of excess input tax is solely based
on the distinctive nature of the VAT system. At the time of payment of the input VAT, the amount paid
was correct and proper.

4. In a reciprocal obligation, the delay of one cancels the effects of delay of the other and they shall stand
as if no one is guilty of delay. TRUE
Considering that both parties were in delay and that their obligation was reciprocal, performance thereof
must be simultaneous. The mutual inaction of Cortes and the Corporation therefore gave rise to a
compensatio morae or default on the part of both parties because neither has completed their part in
their reciprocal obligation. This mutual delay of the parties cancels out the effects of default such that it
is as if no one is guilty of delay.

5. The failure of the bank’s employees to credit the amount of Php 34,000.00 to A’s account resulting as
it did in the dishonour of his checks constitutes actionable negligence in law. TRUE

Article 1172 of the Civil Code ordains that responsibility arising from negligence in the performance of an
obligation is demandable. The failure of the bank’s employees to credit the amount of P34,000.00 to
respondent’s savings account, resulting as it did in the dishonor of respondent’s checks, constitutes
actionable negligence in law. From another perspective, the negligence of the bank constitutes a breach
of duty to its client. It is worthy of note that the banking industry is impressed with public interest. As
such, it must observe a high degree of diligence and observe lofty standards of integrity and performance.
By the nature of its functions, a bank is under obligation to treat the accounts of its depositors with
meticulous care and always to have in mind the fiduciary nature of its relationship with them.

6. The Fiduciary nature of banking requires banks to assume a degree of diligence of a good father of a
family in handling the money of a depositor. FALSE

The diligence of required of banks is more than that of a good father of a family. The highest dgrees of
diligence is expected.

7. In an action based on culpa contractual, a causal connection between the delay in the performance of
his obligation and the injury suffered buy the aggrieved party must be proved. FALSE

In culpa contractual, the mere proof of the existence of the contract and the failure of its compliance
justify, prima facie, a corresponding right of relief.

8. A credit card holder is liable to pay the interests and surcharges imposed by the bank for non-payment
of his obligations even if he did not sign a formal agreement because it is a natural element of a contract
on the ice of credit cards. FALSE

Absence of any proof that the terms and conditions of the credit card use has been shown to its client,
and failure to by respondent to show that an application form or document prior to the issuance of the
credit card has been submitted or signed by the same, the client should not be condemned to pay the
interest and charges provided under its terms and conditions.

9. A party in delay shall pay moral damages. FALSE. Mere delay shall not entitle the injured party to moral
damages; there must have been fraud or bad faith involved.

Article 2220. Willful injury to property may be a legal ground for awarding moral damages if the court
should find that, under the circumstances, such damages are justly due. The same rule applies to breaches
of contract where the defendant acted fraudulently or in bad faith.

10. The doctrine of proximate cause is applicable to a breach of contract. FALSE. The doctrine only applies
in actions for quasi-delicts, not in actions involving breach of contract.
Article 2179 (which is under the chapter on Quasi-Delicts). When the plaintiffs own negligence was the
immediate and proximate cause of his injury, he cannot recover damages. But if his negligence was only
contributory, the immediate and proximate cause of the injury being the defendants lack of due care, the
plaintiff may recover damages, but the courts shall mitigate the damages to be awarded.

Recall: Proximate cause is defined as that cause, which, in natural and continuous sequence, unbroken by
any efficient intervening cause, produces the injury, and without which the result would not have
occurred.

11. The 1997 Asian Financial Crisis is a fortuitous event under 1174 such that the debtor is excused from
the agreement? (Hindi malinaw ang mismong question) pero based sa Asian Financial Crisis

TRUE. The debtor could not have foreseen the upcoming market bubble brought about by the Asian
Financial Crisis.

12. The shortage of supplies and cement may be characterized as force majeure to excuse a contractor
from the delay of the construction of a project. FALSE. Force Majeure or a Fortuitous event is
characterized as independent of human will and is unforeseeable, lack of materials is dependent on the
actions of the contract and therefore cannot be used as an excuse.

13. An occupant of a parcel of land is liable to pay an obligation in the form of rentals even if there is an
express *grant/agreement onsuch land and no such agreement to pay rentals exist. FALSE, such
agreement have the force of law between the contracting parties.

14. A party in a reciprocal obligation who did not make a formal demand cannot rescind an obligation if
the other party *shows hiswillingness to pay one month after the obligation became due. FALSE.
rescission may be had when one of the parties in a reciprocal obligation does not comply with what is
incumbent upon him.

15. A partner's false representation in execution of the contract of partnership that he has exclusive
franchise in order to get a big slice in net profit will give the other contracting party the right to annul the
partnership agreemen FALSE. Fraud in the execution of contract gives only the right to recover damages
but not the right to annul the obligation as opposed to fraud in the perfection of the contract or dolo
causante which gives the other party the right to annul.

16. The non-fulfillment of suspensive condition allows a party to rescind the same under Art.1191 of Civil
Code FALSE. A suspensive condition is a condition which may or may not happen in which the obligation
depends upom to exist, before fulfillment of such condition the obligee acquires a mere hope or
expectancy

17. A partially unpaid seller may rescind the sale for failure of the buyer to pay the balance of the price
and within the period agreed upon. FALSE. Only when he has expressly reserved the right to do so in case
of default and provided that the default in payment is for an unreasonable time (Art. 1534)

"Article 1534. An unpaid seller having the right of lien or having stopped the goods in transitu, may rescind
the transfer of title and resume the ownership in the goods, where he expressly reserved the right to do
so in case the buyer should make default, or where the buyer has been in default in the payment of the
price for an unreasonable time. The seller shall not thereafter be liable to the buyer upon the contract of
sale, but may recover from the buyer damages for any loss occasioned by the breach of the contract.
xxx"

18. The court may annul a contract on the ground that its object is a disastrous deal or an unwise
investment. FALSE. The principle of autonomy of contract applies: the contracting parties may establish
such stipulations etc, as the may them convenient provided that they are not contrary to laws, etc (Art.
1306)

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

19. A Pacto De Recto Sale may be rescinded through a notarial act.TRUE. Art. 1592. In the sale of
immovable property, even though it may have been stipulated that upon failure to pay the price at the
time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after
the expiration of the period, as long as no demand for rescission of the contract has been made upon him
either judicially or by a notarial act. After the demand, the court may not grant him a new term.

20. A contract to sell may be rescinded upon failure to pay the agreed down payment.


Suggested Answer: FALSE. 
Basis: Art.1191. The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with what is incumbent upon him.
A contract to sell
is not a contract of sale. Article 1191 applies only in reciprocal contracts. A contract to sell is not a
reciprocal contract. Under a contract to sell, the seller retains title to the thing to be sold until the
purchaser fully pays the agreed purchase price. The full payment is a positive suspensive condition, the
non - fulfilment of which is not a breach of contract but merely an event that prevents the seller from
conveying title to the purchaser. The non-payment of the purchase price renders the contract to sell
ineffective and without force and effect. Nevertheless, while rescission does not apply in this case,
petitioners may cancel the contract to sell, their obligation not having arisen. (Darrel Cordero, et al. vs.
F.S. Management and Development Corporation G.R. No. 167213. October 31,
2006)
*****************************21. A surety company’s liability under a performance bond is
joint upon the death of the principal debtor.


Suggested Answer: FALSE.
Basis: Jurisprudence
A surety company’s liability under the

performance bond it issues is solidary. 
The death of the principal obligor does not, as a rule, extinguish
the obligation and the solidary nature of that liability. As a general rule, the death of either the creditor
or the debtor does not extinguish the obligation. Obligations are transmissible to the heirs, except when
the transmission is prevented by the law, the stipulations of the parties, or the nature of the obligation.
Only obligations that are personal or are identified with the persons themselves are extinguished by
death. (Stronghold Insurance Company, Inc. v. Republic-Asahi Glass Corporation G.R. No. 147561. June
22, 2006)


22. Partial payment made by one of the solidary debtors is enough to extinguish the liability of all the
debtors.


Suggested Answer: FALSE.
Basis: .1217. Payment made by one of the solidary debtors extinguishes the
obligation.
When speaking of payment that extinguishes an obligation, the law refers to payment in full. (DE LEON,
The Law on Obligations and Contracts (2011), p.160) [hereinafter DE LEON, Obligations and Contracts]


23. As a rule, the liability of corporate officers and the corporation for unpaid salaries of an employee is
solidary.
Suggested Answer: FALSE.
Basis: Art.1207. (Last Sentence) ***There is a solidary liability only
when the obligation expressly so states, when the law or the nature of the obligation requires solidarity.

MAM Realty Development Corporation v. NLRC on solidary liability of corporate officers in labor disputes,
enlightens:

A corporation being a juridical entity, may act only through its directors, officers and employees.
Obligations incurred by them, acting as such corporate agents are not theirs but the direct accountabilities
of the corporation they represent. True solidary liabilities may at times be incurred but only when
exceptional circumstances warrant such as, generally, in the following cases:

1.When directors and trustees or, in appropriate cases, the officers of a corporation:

(a) vote for or assent to patently unlawful acts of the corporation;

(b)act in bad faith or with gross negligence in directing the corporate affairs. (Alba v.
Yupangco G.R. No. 188233)


24. Penalty charges of 1% per day of delay is unconscionable even if the principal obligation is only 100
pesos.
Suggested Answer: TRUE

The Court agrees with the Court of Appeals in ruling that the 1% penalty per day of delay is highly
unconscionable. Applying Article 1229 of the Civil Code, courts shall equitably reduce the penalty when
the principal obligation has been partly or irregularly complied with, or if it is iniquitous or unconscionable.
(First Fil-Sin Lending Corporation v. Gloria D. Padillo G.R. No. 160533. January 12, 2005)

25. The stipulated penalty charge of 8% per annum and interest rates of 18% per annum are unreasonable,
inquitous and unconscionable? FALSE. It is a basic principle in civil law that parties are bound by the
stipulations in the contracts voluntarily entered into by them. Parties are free to stipulate terms and
conditions that they deem convenient, provided these are not contrary to law, morals, good customs,
public order, or public policy. (DBP v. Family Foods Manufacturing Co. LTD.)

26. The court may reduce the stipulated interest rate and penalty charge of 3% per month to 1% per
month or consider the excessive interest and penalty charged not imposed.

TRUE Stipulated interest rates are illegal if they are unconscionable and the Court is allowed to temper
interest rates when necessary. In exercising this vested power to determine what is iniquitous and
unconscionable, the Court must consider the circumstances of each case. What may be iniquitous and
unconscionable in one case, may be just in another.

27.A manager's check may be used for the excercise of the right of redemption. FALSE A manager's check
is not a legal tender and an offer of a check in payment of a debt is not a valid tender of payment and may
be refused receipt by the obligee or creditors (PAL v. CA Gr. l-49188, 1990)
28. There is extraordinary inflation if the peso-dollar rate climbs to p60? TRUE. In rel to Art 1250, if there
is extraordinary in/def value of the currency at the time of the est of the obli shall be the basis. Inflation
is the decrease of the value of PHP, deflation is the increase of value.

29. Debtors right to apply payment is considered directory? FALSE. Art 1252 gives the debtor the right to
choose which debt is to be paid, thus, mandatory unless there is an express stipulation to the contrary.

30. Exceptionally, the unjust refusal of a creditor to accept payment is equivalent to payment. FALSE.
ARTICLE 1256. If the creditor to whom tender of payment has been made refuses without just cause to
accept it, the debtor shall be released from responsibility by the consignation of the thing or sum due.

In short, a refusal without just cause is not equivalent to payment; to have the effect of payment and the
consequent extinguishment of the obligation to pay, the law requires the companion acts of tender of
payment and consignation.

31. Failure to notify the creditor will render the consignation void. TRUE. The giving of notice to the
persons interested in the performance of the obligation is mandatory. Failure to notify the persons
interested in the performance of the obligation will render the consignation void. In Ramos v. Sarao, the
Court held that, "All interested parties are to be notified of the consignation. Compliance with [this
requisite] is mandatory. (Dalton v FGR Realty and Development Corp., G.R. No. 172577, January 19, 2011)

32. Dacion en pago may result only to partial payment. FALSE. Dacion en pago is the delivery and
transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the
performance of the obligation. It is a special mode of payment where the debtor offers another thing to
the creditor, who accepts it as an equivalent of the payment of an outstanding debt. In its modern
concept, what actually takes place in dacion en pago is an objective novation of the obligation where the
thing offered as an accepted equivalent of the performance of an obligation is considered as the object
of the contract of sale, while the debt is considered as the purchase price. (D.B.T. Mar-Bay Construction,
Inc. v Ricardo Panes, G.R. No. 167232, July 31, 2009)

33. The debtor in an obligation to give shall also be released when the prestation becomes legally or
physically impossible. FALSE. It is a fundamental rule that contracts, once perfected, bind both contracting
parties, and obligations arising therefrom have the force of law between the parties and should be
complied with in good faith. But the law recognizes exceptions to the principle of the obligatory force of
contracts. One exception is laid down in Article 1266 of the Civil Code, which reads: ‘The debtor in
obligations to do shall also be released when the prestation becomes legally or physically impossible
without the fault of the obligor. (Ayala Construction and Development Corporation v. Philippine
Commercial International Bank, G.R. No. 153827, April 25, 2006)

34. The writing-off of a loan as a bad debt is condonation. FALSE This Court rules that writing-off a loan
does not equate to a condonation or release of a debt by the creditor. Write-off is not one of the legal
grounds for extinguishing an obligation under the civil code. It is not a compromise of liability. Neither is
it a condonation, since in condonation gratuity on the part of the obligee and acceptance by the obligor
are required. In making the write-off, only the creditor takes action by removing the uncollectible account
from its books even without the approval or participation of the debtor. (Ruben Reyna v. COA , G.R. No.
167219; February 8, 2011)
35. In compensation, the rights of creditors or obligations of debtors need not spring from one contract.
TRUE. Compensation, be it legal or conventional, requires confluence in the parties of the characters of
mutual debtors and creditors, although their rights as such creditors or their obligations as such debtors
need not spring from one and the same contract or transaction. (Spouses Ramon Nisce vs. Equitable PCI
Bank Inc. G.R. No. 167434 February 19, 2007)

36. There can be compensation for the amount of expenses due to a possessor in bad faith as against
rentals due from him to the lawful possessor. TRUE. The amount of reimbursable or refundable expenses
due to a possessor in bad faith under Articles 443 and 546 can be compensated under Article
1278 which reads: Compensation shall take place when two persons, in their own right, are
creditors and debtors of each other. (Aloria vs. Clemente, G.R. No. 165644 . February 28, 2006)

*Art. 443. He who receives the fruits has the obligation to pay the expenses made by a third person in
their production, gathering, and preservation.

Art. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith
may retain the thing until he has been reimbursed therefor.

Useful expenses shall be refunded only to the possessor in good faith with the same right of retention,
the person who has defeated him in the possession having the option of refunding the amount of the
expenses or of paying the increase in value which the thing may have acquired by reason thereof. (453a)

37. There is compensation between debt and a claim. FALSE. For compensation to take place, a distinction
must be made between debt and a mere claim. A debt is a claim which has been formally passed upon by
the highest authority to which it can in law be submitted nad has been declared a debt. A claim is a debt
embryo. It is a mere evidence of a debt. (EGV Realty Development vs CA)

38. There is no novation when the creditor reconstructs the loan and the debtor issues a promissory note
for the same. FALSE. It depends on the case reconstruction of the loan if it is extended or shortened

When an easement of right way is one of the principal conditions of a contract, and the duration of said
easement is specified, the reduction of said period in a subsequent contract, wherein the same obligation
is one of the principal conditions, constitutes a novation and to that extent extinguishes the former
contractual obligation.(KABANKALAN SUGAR CO., INC. PACHECO, G.R. No. L-33654 December 29, 1930)

There exist no incompatibility between the old and the new obligation as will be demonstrated in the
resolution of the last point, and for the present we will merely reiterate the legal doctrine that an
obligation to pay a sum of money is not novated in a new instrument wherein the old is ratified, by
changing only the term of payment and adding other obligations not incompatible with the old one.
(INCHAUSTI & CO.vs.GREGORIO YULO, G.R. No. L-7721, March 25, 1914)

39. Stipulated adjustments in the contract price arising from changes in project design results to novation.
FALSE. it merely modifies the contract.

We have carefully gone over the records of this case and are convinced that the redesign of the podium
structure and the reduction in the contract price merely modified the contract. (GAMMON PHILIPPINES,
INC., vs. METRO RAIL TRANSIT DEVELOPMENT CORPORATION, G.R. No. 144792, January 31, 2006)
40. The acceptance of a new check in replacement of a previous one is a novation. FALSE. There is no
incompatibility.

Respondents acceptance of the Solid Bank check, which replaced the dishonored Prudential Bank check,
did not result to novation as there was no express agreement to establish that petitioner was already
discharged from his liability to pay. Moreover, respondents acceptance of the Solid Bank check did not
result to any incompatibility, since the two checks − Prudential and Solid Bank checks − were precisely for
the purpose of paying the amount of P214,000.00, i.e., the credit obtained from the purchase of the 300
bags of rice from respondent. Indeed, there was no substantial change in the object or principal condition
of the obligation of petitioner as the indorser of the check to pay the amount of P214,000.00.

41. A subsequent agreement to receive shares of stocks instead of money as consideration of a contract
is novation. TRUE. There is incompatibility between the share of stocks and money as consideration.

The Court of Appeals noted that the incompatibility in the terms of the MOA and the DAC clearly signified
the intention of the parties to have the MOA novated by subsequent agreement and have the properties
conveyed to the Asset Pool in exchange for PMRDC shares to be issued to Demetrio. (HERNANDEZ, JR., vs.
HOME INSURANCE AND GUARANTY CORPORATION, PROJECT MOVERS REALTY AND DEVELOPMENT
CORPORATION, G.R. No. 171165, February 14, 2011)

42. The right arising from lease may be transmitted to the heirs of the lessee. TRUE.

Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where
the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation
or by provision of law. The heir is not liable beyond the value of the property he received from the
decedent.

A lease contract is not essentially personal in character. Thus, the rights and obligations therein are
transmissible to the heirs. The general rule, therefore, is that heirs are bound by contracts entered into
by their predecessors-in-interest except when the rights and obligations arising therefrom are not
transmissible by (1) their nature, (2) stipulation or (3) provision of law. (Inocencio vs. Hospicio San Jose,
G.R. No. 201787, September 25, 2013)

43. The principle of autonomy of contracts is not absolute. TRUE. The NCC provides that it must not be
contrary to law.

Art. 1306 --- "provided they are not contrary to law"

44. A escalation clause granting the creditor the power to impose an increased rate of interest without a
written notice from the debtor is void. TRUE. must be consensual to both parties.

Art. 1308 principle of mutuality of contracts - the fulfilment of the contract cannot be left to the will of
one of the parties.

It is now settled that an escalation clause is void where the creditor unilaterally determines and imposes
an increase in the stipulated rate of interest without the express conformity of the debtor. (Sps. Juico vs
china banking corporation G.R. No. 187678, April 10, 2013)

45. An undertaking in a joint affidavit may result to a contractual obligation. TRUE. Contracts are
obligatory no matter what their forms may be, whenever the essential requisites for their validity are
present. In determining whether a document is an affidavit or a contract, the Court looks beyond the title
of the document, since the denomination or title given by the parties in their document is not conclusive
of the nature of its contents. In the construction or interpretation of an instrument, the intention of the
parties is primordial and is to be pursued. If the terms of the document are clear and leave no doubt on
the intention of the contracting parties, the literal meaning of its stipulations shall control. If the words
appear to be contrary to the parties' evident intention, the latter shall prevail over the former. A simple
reading of the terms of the Joint Affidavit of Undertaking readily discloses that it contains stipulations
characteristic of a contract. (Rodolfo G. Cruz and Esperanza Ibias v. Atty. Delfin Gruspe)

46. Generally, the effects of failure to pay consideration are the same as lack of consideration. FALSE.
Failure to pay the consideration results in a right to demand the fulfillment or cancellation of the
obligation under an existing contract, while lack of consideration prevents the existence of a valid
contract. Where there was no price or consideration for the sale and in fact had not received any
consideration for the said sale, it is null and void ab initio for lack of consideration. (Spouses Azaro M.
Zulueta and Perla Sucayan-Zulueta v. Jose Wong, et al.)

47. An option in a lease agreement allowing the lessee to buy the property without stating the period for
its exercise is valid. FALSE. No. An option contract is a preparatory contract in which one party grants to
the other, for a fixed period and under specified conditions, the power to decide Whether to enter into a
principal contract. (Navotas Industrial Corporation V. Cruz, et al.)

48. Old age and illiteracy incapacitates a person to execute a contract. FALSE. It has been held that “[a]
person is not incapacitated to contract merely because of advanced years or by reason of physical
infirmities. It is only when such age or infirmities impair the mental faculties to such extent as to prevent
one from properly, intelligently, and fairly protecting her property rights, is she considered incapacitated.”
(Francisco Landicho vs. Felix Sia)

49. A statement of a false cause in the contract to conceal the real agreement makes the contract void.
FALSE. If the parties state a false cause in the contract to conceal their real agreement, such a contract is
relatively simulated. Here, the parties real agreement binds them but the agreement though relatively
simulated is enforceable. (Heirs of Balite vs. Lim)

50. A waiver of hereditary rights executed by X in favor of his brother taking care of their sick father is
valid. FALSE. Pursuant to Art 1347 of the CC, no contract may be entered into upon a future inheritance
except in cases authorized by law. A contract may be classified as a contract upon a future inheritance
under 2nd par of Art1347 where the ff requisites concur: 1. That the succession has not yet been opened
2. The object of the contract forms part of the inheritance 3. The promissor has, with respect to the object,
an expectancy of a right which is purely hereditary in nature. (Atty. Ferrer vs Sps. Diaz GR 165300)

EXTENT OF LIQUIDATED DAMAGES:

Art. 2226: Those agreed upon by the parties in a contract, to be paid in case of breach thereof.
Art. 2227: Liquidated damages, whether intended as an indemnity or a penalty, shall equitably reduced if
they are iniquitous or unconscionable.

Art. 2228. When the breach of the contract committed by the defendant is not the one contemplated by
the parties in agreeing upon the liquidated damages, the law shall determine the measure of damages,
and not the stipulation.