PAST BAR QUESTIONS

Consensual vs. Real Contracts; Kinds of Real Contracts

(1998)

Distinguish consensual from real contracts and name at least four

(4) kinds of real contracts under the present law. [3%]

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 PAST BAR QUESTIONS

Consensual vs. Real Contracts; Kinds of Real Contracts

(1998)

SUGGESTED ANSWER:

CONSENSUAL CONTRACTS are those which are perfected by

mere consent (Art. 1315. Civil Code). 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).

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 PAST BAR QUESTIONS

Consideration; Validity (2000)

Lolita was employed in a finance company. Because she could not

account for the funds entrusted to her, she was charged with estafa and
ordered arrested. In order to secure her release from jail, her parents
executed a promissory note to pay the finance company the
amount allegedly misappropriated by their daughter. The finance
company withdrawal of the information against Lolita and her
releasefrom jail. The parents failed to comply with their promissory
note and the finance company sued them for specific performance.
Will the action prosper or not? (3%)

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 PAST BAR QUESTIONS

Consideration; Validity (2000)

SUGGESTED ANSWER:
The action will prosper. The promissory note executed by Lolita's parents is valid
and binding, the consideration being the extinguishment of Lolita's civil liability
and not the filing of the criminal prosecution.

ALTERNATIVE ANSWER:
The action will not prosper because the consideration forthe promissory
note was the non-prosecution of thecriminal case for estafa. This cannot
be done anymorebecause the information has already been filed in court andto
do it is illegal. That the consideration for the promissorynote is the stifling of
the criminal prosecution is evidentfrom the execution by the finance company
of the affidavitof desistance immediately after the execution by
Lolita'sparents of the promissory note. The consideration beingillegal, the
promissory note is invalid and may not beenforced by court action.

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 PAST BAR QUESTIONS

Contract of Option; Elements (2005)

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

a) What is the effect of the withdrawal of Marvin's offer? (2%)

b) Will your answer be the same if Carlos paid Marvin P10,000.00 as
consideration for that option? Explain.(2%)
c) Supposing that Carlos accepted the offer before Marvin could
communicate his withdrawal thereof? Discuss the legal consequences.
(2%)

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 PAST BAR QUESTIONS

Contract of Option; Elements (2005)

A. The withdrawal of Marvin's offer will cause the offer to cease in law. Hence, even if subsequently accepted, there could
be no concurrence of the offer and the acceptance. In the absence of concurrence of offer and acceptance, there can be no consent.
(Laudico v. Arias Rodriguez, G.R. No. 16530, March 31, 1922) Without consent, there is no perfected contract for the construction
of the house of Carlos. (Salonga v. Farrales, G.R. No. L-47088, July 10, 1981) Article 1318 of the Civil Code provides that there
can be no contract unless the following requisites concur: (1) consent of the parties; (2) object certain which is the subject matter
of the contract; and (3) cause of the obligation. Marvin will not be liable to pay Carlos any damages for withdrawing
the offer before the lapse of the period granted. In this case, no consideration was given by Carlos for the option given, thus
there is no perfected contract of option for lack of cause of obligation. Marvin cannot be held to have breached the contract.
Thus, he cannot be held liable for damages.
ALTERNATIVE ANSWER: My answer will be the same as to the perfection of the contract for the construction of the house
of Carlos. No perfected contract arises because of lack of consent. With the withdrawal of the offer, there could be no
concurrence of offer and acceptance.

B. My answer will not be the same as to damages. Marvin will be liable for damages for breach of contract of option. With the payment
of the consideration for the option given, and with the consent of the parties and the object of contract being pr esent, a
perfected contract of option was created. (San Miguel, Inc. v. Huang, G.R. No. 137290, July 31, 2000) Under Article 1170 of the
Civil Code, those who in the performance of their obligation are guilty of contravention thereof, as in this case, when
Marvin did not give Carlos the agreed period of ten days, are liable for damages.
ALTERNATIVE ANSWER: My answer will not be the same if Carlos paid Marvin P10,000.00 because an option contract was
perfected. Thus, if Marvin withdrew the offer prior to the expiration of the 10-day period, he breached the option contract. (Article
1324, Civil Code)

C. A contract to construct the house of Carlos is perfected. Contracts are perfected by mere consent manifested by the meeting
of the offer and the acceptance upon the thing and the cause which are to constitute the contract. (Gomez v. Court of Appeals, G.R.
No. 120747, September 21, 2000) Under Article 1315 of the Civil Code, Carlos and Marvin are bound to fulfill what has be en
expressly stipulated and all consequences thereof. Under Article 1167, if Marvin would refuse to construct the house, Carlos is
entitled to have the construction be done by a third person at the expense of Marvin. Marvin in that case will be liable for
damages under Article 1170.

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 PAST BAR QUESTIONS

Inexistent Contracts vs. Annullable Contracts (2004)

Distinguish briefly but clearly between Inexistent contracts and annullable

contracts.

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 PAST BAR QUESTIONS

Inexistent Contracts vs. Annullable Contracts (2004)

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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 PAST BAR QUESTIONS

Nature of Contracts; Obligatoriness (1991)

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 fringe benefits by
Sweet Taste, Inc. Roland accepted the offer and transferred to Sweet
Taste. Lady Love sues Roland and Sweet Taste for breach of contract.
Defendants claim that the restriction to play for Lady Love alone is void,
hence, unenforceable, as it constitutes an undue interference with the right
of Roland to enter into contracts and the impairment of his freedom to play and
enjoy basketball. Can Roland be bound by the contract he entered into with
Lady Love or can he disregard the same? Is he liable at all? How about Sweet
Taste? Is it liable to Lady Love?

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 PAST BAR QUESTIONS

Nature of Contracts; Obligatoriness (1991)

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 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.

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 PAST BAR QUESTIONS

Nature of Contracts; Privity of Contract (1996)

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.

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 PAST BAR QUESTIONS

Nature of Contracts; Privity of Contract (1996)

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.

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 PAST BAR QUESTIONS

Nature of Contracts; Relativity of Contracts (2002)

Printado is engaged in the printing business. Suplico supplies printing paper
to Printado pursuant to an order agreement under which Suplico binds himself to
deliver the same volume of paper every month for a period of 18 months, with
Printado in turn agreeing to pay within 60 days after each delivery. Suplico has
been faithfully delivering under the order agreement for 10 months but thereafter
stopped doing so, because Printado has not made any payment at all. Printado has
also a standing contract with publisher Publico for the printing of 10,000 volumes
of school textbooks. Suplico was aware of said printing contract. After printing 1,000
volumes, Printado also fails to perform under its printing contract with Publico. Suplico
sues Printado for the value of the unpaid deliveries under
their order agreement. At the same time Publico sues Printado for damages for
breach of contract with respect to their own printing agreement. In the suit filed by
Suplico, Printado counters that: (a) Suplico cannot demand payment for deliveries
made under their order agreement until Suplico has completed performance under
said contract; (b) Suplico should pay damages for breach of contract; and (c) with
Publico should be liable for Printado’s breach of his contract with Publico because
the order agreement between Suplico and Printado was for the benefit of Publico. Are
the contentions of Printado tenable? Explain your answers as to each contention. (5%)

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 PAST BAR QUESTIONS

Nature of Contracts; Relativity of Contracts (2002)

SUGGESTED ANSWER:
No, the contentions of Printado are untenable. Printado having failed to
pay for the printing paper covered by the delivery invoices on time, Suplico
has the right to cease making further delivery. And the latter did not
violate the order agreement (Integrated Packaging Corporation v. Court of
Appeals, (333 SCRA 170, G.R. No. 115117, June 8, [2000]). Suplico cannot
be held liable for damages, for breach of contract, as it was not he who
violated the order agreement, but Printado. Suplico cannot be held liable for
Printado’s breach of contract with Publico. He is not a party to the
agreement entered into by and between Printado and Publico. Theirs is not a
stipulation pour atrui. [Aforesaid] Such contracts do could not affect third
persons like Suplico because of the basic civil law principle of relativity
of contracts which provides that contracts can only bind the parties who
entered into it, and it cannot favor or prejudice a third person, even if he
is aware of such contract and has acted with knowledge thereof. (Integrated
Packaging Corporation v. CA, supra.)

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 PAST BAR QUESTIONS

Rescission of Contracts; Proper Party (1996)

In December 1985, Salvador and the Star Semi-conductorCompany (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.
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 PAST BAR QUESTIONS

Rescission of Contracts; Proper Party (1996)

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 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)

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 PAST BAR QUESTIONS

Extinguishment; Assignment of Rights (2001)

The sugar cane planters of Batangas entered into a long- term milling contract with the
Central Azucarera de Don Pedro Inc. Ten years later, the Central assigned its rights to the said
milling contract to a Taiwanese group which would take over the operations of the sugar mill. The
planters filed an action to annul the said assignment on the ground that the Taiwanese group was
not registered with the Board of Investments. Will the action prosper or not? Explain briefly. (5%)

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 PAST BAR QUESTIONS

Extinguishment; Assignment of Rights (2001)

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

ALTERNATIVE ANSWER:
The assignment is valid because there is absolute freedom to transfer the credit
and the creditor need not get the consent of the debtor. He only needs to notify him.

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 PAST BAR QUESTIONS

Extinguishment; Cause of Action (2004)

TX filed a suit for ejectment against BD for non-payment of

condominium rentals amounting to P150,000. During the
pendency of the case, BD offered and TX accepted the full amount
due as rentals from BD, who then filed a motion to dismiss the
ejectment suit on the ground that the action is already
extinguished. Is BD’s contention correct? why not? Reason. (5%)

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 PAST BAR QUESTIONS

Extinguishment; Cause of Action (2004)

SUGGESTED ANSWER:
BD's contention is not correct. TX can still maintain the suit
for ejectment. The acceptance by the lessor of the payment
by the lessee of the rentals in arrears even during the pendency
of the ejectment case does not constitute a waiver or
abandonment of the ejectment case. (Spouses Clutario v. CA,
216 SCRA 341 [1992]).

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 PAST BAR QUESTIONS

Extinguishment; Compensation (2002)

Stockton is a stockholder of Core Corp. He desires to sell his shares in Core Corp. In
view of a court suit that Core Corp. has filed against him for damages in the amount of
P10 million, plus attorney’s fees of P 1 million, as a result of statements published by
Stockton which are allegedly defamatory because it was calculated to injure and
damage the corporation’s reputation and goodwill. The articles of incorporation of Core
Corp. provide for a right of first refusal in favor of the corporation.
Accordingly, Stockton gave written notice to the corporation of his offer to
sell his shares of P 10 million. The response of Core corp. was an acceptance of the
offer in the exercise of its rights of first refusal, offering for the purpose payment in
form of compensation or set-off against the amount of damages it is claiming
against him, exclusive of the claim for attorney’s fees. Stockton rejected the offer of
the corporation, arguing that compensation between the value of the shares and the
amount of damages demanded by the corporation cannot legally take effect. Is Stockton
correct? Give reason for your answer. (5%)

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 PAST BAR QUESTIONS

Extinguishment; Compensation (2002)

SUGGESTED ANSWERS:
Stockton is correct. There is no right of compensation between his price of P10
million and Core Corp.’s unliquidated claim for damages. In order that compensation
may be proper, the two debts must be liquidated and demandable. The case for
the P 10million damages being still pending in court, the corporation has as yet
no claim which is due and demandable against Stockton.

ANOTHER MAIN ANSWER:

The right of first refusal was not perfected as a right for the reason that there was a
conditional acceptance equivalent to a counter-offer consisting in the amount of
damages as being credited on the purchase price. Therefore, compensation
did not result since there was no valid right of first refusal (Art. 1475 & 1319, NCC)

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 PAST BAR QUESTIONS

Extinguishment; Compensation vs. Payment (1998)

Define compensation as a mode of extinguishing an obligation,

and distinguish it from payment. [2%]

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 PAST BAR QUESTIONS

Extinguishment; Compensation vs. Payment (1998)

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)

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 PAST BAR QUESTIONS

Extinguishment; Compensation/Set-Off; Banks (1998)

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? [3%]

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 PAST BAR QUESTIONS

Extinguishment; Compensation/Set-Off; Banks (1998)

SUGGESTED ANSWER:

Y bank is correct. An. 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.

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 PAST BAR QUESTIONS

Extinguishment; Condonation (2000)

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 ofP200,000.00. Arturo replied that the same had been condoned by
his father as evidenced by a notation at the 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%)

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 PAST BAR QUESTIONS

Extinguishment; Condonation (2000)

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.
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 PAST BAR QUESTIONS

Extinguishment; Extraordinary Inflation or Deflation (2001)

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 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? (5%)

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 PAST BAR QUESTIONS

Extinguishment; Extraordinary Inflation or Deflation (2001)

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.

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 PAST BAR QUESTIONS

Extinguishment; Loss (1994)

Dino sued Ben for damages because the latter had failed to deliver the antique Marcedes
Benz car Dino had purchased from Ben, which was— by agreement—due for delivery
on December 31, 1993. Ben, in his answer to Dino's complaint, said Dino's claim has no
basis for the suit, because as the car was being driven to be delivered to Dino on
January 1, 1994, a reckless truck driver had rammed into the Mercedes Benz. The trial
court dismissed Dino's complaint, saying Ben's obligation had indeed, been
extinguished by force majeure.

Is the trial court correct?

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 PAST BAR QUESTIONS

Extinguishment; Loss (1994)

SUGGESTED ANSWER:

a) No. Article 1262, New Civil Code provides, "An obligation which consists in the delivery of a
determinate thing shall be extinguished if it should be lost or destroyed without the fault of the debtor, and before
he has incurred in delay.

b) The judgment of the trial court is incorrect. Loss of the thing due by fortuitous events or force majeure is
a valid defense for a debtor only when the debtor has not incurred delay. Extinguishment of liability for
fortuitous event requires that the debtor has not yet incurred any delay. In the present case, the debtor was in
delay when the car was destroyed on January 1, 1993 since it was due for delivery on December 31, 1993. (Art.
1262 Civil Code)

c) It depends whether or not Ben the seller, was already in default at the time of the accident because a
demand for him to deliver on due date was not complied with by him. That fact not having been given in the
problem, the trial court erred in dismissing Dino's complaint. Reason: There is default making him responsible
for fortuitous events including the assumption of risk or loss. If on the other hand Ben was not in default as no
demand has been sent to him prior to the accident, then we must distinguish whether the price has been
paid or not. If it has been paid, the suit for damages should prosper but only to enable the buyer to recover the
price paid. It should be noted that Ben, the seller, must bear the loss on the principle of res perit domino.
He cannot be held answerable for damages as the loss of the car was not imputable to his fault or fraud. In any
case, he can recover the value of the car from the party whose negligence caused the accident. If no price has
been paid at all, the trial court acted correctly in dismissing the complaint.

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 PAST BAR QUESTIONS

Extinguishment; Loss; Impossible Service (1993)

In 1971, Able Construction, Inc. entered into a contract 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?

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 PAST BAR QUESTIONS

Extinguishment; Loss; Impossible Service (1993)

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."

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 PAST BAR QUESTIONS

Extinguishment; Novation (1994)

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

1) Can Chito demand payment on the 1991 promissory note in 1994?

2) Can Chito foreclose the real estate mortgage if Bobby fails to make good his
obligation under the 1991 promissory note?

Agpawa | 35
 PAST BAR QUESTIONS

Extinguishment; Novation (1994)

SUGGESTED ANSWER:
1) Yes, Chito can demand payment on the 1991 promissory note in 1994. Although
the 1978 promissory note for P1 million payable two years later or in 1980 became a
natural obligation after the lapse of ten (10) years, such natural obligation can be
a valid consideration of a novated promissory note dated in 1991 and payable two
years later, or in 1993.

All the elements of an implied real novation are present:

a) an old valid obligation;

b) a new valid obligation;
c) capacity of the parties;
d) animus novandi or intention to novate; and
e) The old and the new obligation should be incompatible with each other on all
material points (Article 1292). The two promissory notes cannot stand
together, hence, the period of prescription of ten (10) years has not yet lapsed.

Agpawa | 36
 PAST BAR QUESTIONS

Extinguishment; Payment (1995)

In 1983 PHILCREDIT extended loans to Rivett-Strom Machineries, Inc. (RIVETTT
STROM), consisting of US$10 Million for the cost of machineries imported and
directly paid by PHTLCREDIT, and 5 Million in cash payable in installments over a
period of ten (10) years on the basis of the value thereof computed at the rate of
exchange of the U.S. dollar vis-à-vis the Philippine peso at the time of payment. RIVETT-
STROM made payments on both loans which if based on the rate of exchange
in 1983 would have fully settled the loans.

PHILCREDIT contends that the payments on both loans should be based on the rate
of exchange existing at the time of payment, which rate of exchange has been
consistently increasing, and for which reason there would still be a considerable
balance on each loan. Is the contention of PHILCREDIT correct? Discuss fully.

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 PAST BAR QUESTIONS

Extinguishment; Payment (1995)

SUGGESTED ANSWER:

As regards the loan consisting of dollars, the contention of PHILCREDIT is

correct. It has to be paid in Philippine currency computed on the basis of
the exchange rate at the TIME OF PAYMENT of each installment, as held
in Kalalo v. Luz, 34 SCRA 337. As regards the P5 Million loan in Philippine
pesos, PHILCREDIT is wrong. The payment thereof cannot be measured by
the peso-dollar exchange rate. That will be violative of the Uniform
Currency Act (RA, 529] which prohibits the payment of an obligation which,
although to be paid in Philippine currency, is measured by a foreign
currency. (Palanca v. CA, 238 SCRA 593).

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 PAST BAR QUESTIONS

Contract to Sell vs. Conditional Contract of Sale (2012) No.X.a)

A contract to sell is the same as a conditional contract of sale. Do you agree?

Explain your answer. (5%)

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 PAST BAR QUESTIONS

Contract to Sell vs. Conditional Contract of Sale (2012) No.X.a)

SUGGESTED ANSWER: No. A contract to sell is a species of conditional sale.

The contract to sell does not sell a thing or property; it sells the right to buy
property. A conditional sale is a sale subject to the happening or performance
of a condition, such as payment of the full purchase price, or the performance
of other prestation to give, to do or not to do. Compliance with the condition
automatically gives the right to the vendee to demand the delivery of the object
of the sale. In a contract to sell, however, the compliance with the condition
does not automatically sell the property to the vendee. It merely gives the
vendee the right to compel the vendor to execute the deed of absolute sale.

Agpawa | 40
 PAST BAR QUESTIONS

Rescission of Contract; Fortuitous Event (2008) No.XVIII

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

(A). Can the labor unrest be considered a fortuitous event? (1%)

(B). Can XY Corp. unilaterrally and immediately cancel the contract? (2%)
(C). Must AB Corp. return the 50% downpayment? (2%)

Agpawa | 41
 PAST BAR QUESTIONS

Rescission of Contract; Fortuitous Event (2008) No.XVIII

A. No. The labor unrest cannot be considered a fortuitous event under Art. 1174
of the Civil Code. A fortuitous event should occur independent of the will of the
debtor or without his participation or aggravation (Paras, Civil Code Annotated,
vol. IV, 2000 ed., p 159). As mentioned in the facts, labor unrest of the
employees was caused by AB Corp.'s failure to pay its employees on time.

B. No, XY Corp. cannot unilaterally and immediately cancel the contract. In the
absence of any stipulation for automatic rescission, rescission must be judicial
(Art. 1191, Civil Code).

C. AB Corp. need not return the 50% down payment because 45% of the work was
already completed, otherwise, XY Corp. would be unjustly enriching itself at the
expense of AB Corp.

Agpawa | 42
 PAST BAR QUESTIONS

Extinguishment; Compensation (2009) No.XV.

Sarah had a deposit in a savings account with Filipino Universal Bank in the
amount of five million pesos (P5,000,000.00). To buy a new car, she obtained
a loan from the same bank in the amount of P1,200,000.00, payable in twelve
monthly installments. Sarah issued in favor of the bank post-dated checks, each
in the amount of P100,000.00, to cover the twelve monthly installment
payments. On the third, fourth and fifth months, the corresponding checks
bounced. The bank then declared the whole obligation due, and proceeded to
deduct the amount of one million pesos (P1,000,000.00) from Sarah’s deposit
after notice to her that this is a form of compensation allowed by law. Is the bank
correct? Explain. (4%)

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 PAST BAR QUESTIONS

Extinguishment; Compensation (2009) No.XV.

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

Agpawa | 44
 PAST BAR QUESTIONS

Extinguishment; Compensation (2008) No. XV.

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

A) Can XYZ Bank validly assert legal compensation? (2%)

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 PAST BAR QUESTIONS

Extinguishment; Compensation (2008) No. XV.

SUGGESTED ANSWER: Yes, XYZ Bank can validly assert legal

compensation. In the present case, all of the elements of legal compensation
are present: (1) XYZ Bank is the creditor of Eduardo while Eduardo is the lessor
of XYZ Bank; (2) both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the latter
has been stated; (3) the two debts be due; (4) they be liquidated and
demandable, and (5) over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the debtor (Art.
1279, Civil Code).

Agpawa | 46
 PAST BAR QUESTIONS

Extinguishment; Novation (2008) No. XV.

Eduardo was granted a loan by XYZ Bank for the purpose of improving a
building which XYZ leased from him. Eduardo, executed the promissory note
("PN") in favor of the bank, with his friend Recardo as co-signatory. In the PN,
they both acknowledged that they are "individually and collectively" liable and
waived the need for prior demand. To secure the PN, Recardo executed a real
estate mortgage on his own property. When Eduardo defaulted on the PN, XYZ
stopped payment of rentals on the building on the ground that legal
compensation had set in. Since there was still a balance due on the PN after
applying the rentals, XYZ foreclosed the real estate mortgage over Recardo's
property. Recardo opposed the foreclosure on the ground that he is only a co-
signatory; that no demand was made upon him for payment, and assuming he
is liable, his liability should not go beyond half the balance of the loan. Further,
Recardo said that when the bank invoked compensation between the reantals
and the amount of the loan, it amounted to a new contract or novation, and had
the effect of extinguishing the security since he did not give his consent (as
owner of the property under the real estate mortgage) thereto. (C). Does
Recardo have basis under the Civil Code for claiming that the original contract
was novated? (2%)
Agpawa | 47
 PAST BAR QUESTIONS

Extinguishment; Novation (2008) No. XV.

SUGGESTED ANSWER: No. Recardo has no basis for claiming novation of the
original contract when the bank invoked compensation because there was
simply partial compensation (Art. 1290, Civil Code) and this would not bar the
bank from recovering the remaining balance of the obligation.

ALTERNATIVE ANSWER: No. In order that an obligation may be extinguished

by another, it is imperative at it be so declared in unequivocal terms, or that the
old and new obligations be on every point compatible with each other. Novation
is never presumed (Art. 1292, Civil Code).

Agpawa | 48
 PAST BAR QUESTIONS

Extinguishment; Payment of Check (2013) No.VI.

Lito obtained a loan of P1,000,000 from Ferdie, payable within one year. To
secure payment, Lito executed a chattel mortgage on a Toyota Avanza and a
real estate mortgage on a 200-square meter piece of property. (B) Lito's failure
to pay led to the extra-judicial foreclosure of the mortgaged real property. Within
a year from foreclosure, Lito tendered a manager's check to Ferdie to redeem
the property. Ferdie refused to accept payment on the ground that he wanted
payment in cash: the check does not qualify as legal tender and does not
include the interest payment. Is Ferdie's refusal justified? (4%)

Agpawa | 49
 PAST BAR QUESTIONS

Extinguishment; Payment of Check (2013) No.VI.

A check, whether a manager’s check or an ordinary check is not 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 oblige or
creditors (Philippine Airlines v. CA and Amelia Tan, G.R. No. L-49188, 1990). Mere delivery of checks
does not discharge the obligation under a judgment. A check shall produce the effect of payment only
when they have been cashed or where through the fault of the creditor they have been impaired (Art
1249, Civil Code). However, it is not necessary that the right of redemption be exercised by delivery
of legal tender. A check may be used for the exercise of right of redemption, the same being a right
and not an obligation. The tender of a check is sufficient to compel redemption but is not in itself a
payment that relieves the redemptioner from his liability to pay the redemption price (Biana v.
Gimenez, G.R. No. 132768, Sept 9, 2005, citing Fortunado v. CA). Redemption within the period
allowed by law is not a matter of intent but a question of payment or valid tender of full redemption
prices within the said period. Whether redemption is being made under Art. 3135 or under the General
Banking Law, the mortgagor or his assignee is required to tender payment to make said redemption
valid (Heirs of Quisumbing v. PNB and SLDC, G.R. No. 178242, Jan 20, 2009). Moreover, Ferdie’s
refusal was justified on the ground that the amount tendered does not include interest. In order to
effect the redemption of the foreclosed property, the payment to the purchaser must include the
following sums: (a) the bid price; (b) the interest on the bid price, computed at one per centum (1%)
per month; and (c) the assessments and taxes, if any, paid by the purchaser with the same rate of
interest (Sec 28, 1997 Rules of Civil Procedure). Unless there is an express stipulation to that effect,
the creditor cannot be compelled to receive partial payment of the prestation (Art. 1248, Civil Code).
Agpawa | 50
 PAST BAR QUESTIONS

Extinguishment; Payment of Check;

Legal Tender (2008) No. XVII. Felipe borrowed $100 from Gustavo in 1998,
when the Phil P - US$ exchange rate was P56 - US$1. On March 1, 2008, Felipe
tendered to Gustavo a cashier's check in the amount of P4,135 in payment of
his US$ 100 debt, based on the Phil P - US$ exchange rat at that time. Gustavo
accepted the check, but forgot to deposit it until Sept. 12, 2008. His bank
refused to accepted the check because it had become stale. Gustavo now
wants Felipe to pay him in cash the amount of P5,600. Claiming that the
previous payment was not in legal tender, and that there has been extraordinary
deflation since 1998, and therefore, Felipe should pay him the value of the debt
at the time it was incurred. Felipe refused to pay him again, claiming that
Gustavo is estopped from raising the issue of legal tender, having accepted the
check in March, and that it was Gustavo's negligence in not depositing the
check immediately that caused the check to become stale.

(A). Can Gustavo now raised the issue that the cashier's check is not legal
tender? (2%)
(B). Can Felipe validly refuse to pay Gustavo again? (2%)
(C). Can Felipe compel Gustavo to receive US$100 instead? (1%)

Agpawa | 51
 PAST BAR QUESTIONS

Extinguishment; Payment of Check;

A. No. Gustavo previously accepted a check as payment. It was his fault
why the check became stale. He is now estopped from raising the
issue that a cashier's check is not legal tender.
B. Yes, Felipe can refuse to pay Gustavo, who allowed the check to
become stale. Although a check is not legal tender (Belisario v.
Natividad. 60 Phil 156), there are instances when a check produces
the effects of payment, for example: (a) when the creditor is in estoppel
or he had previously promised he would accept a check (Paras, Civil
Code Annotated, Vol IV, 2000 ed., p. 394); (b) when the check has lost
its value because of the fault of the creditor (Art. 1249, 2nd par.),as
when he was unreasonably delayed in presenting the check for
payment (PNB v. Seeto, G.R. No, L-4388, 13 August 1952).
C. Felipe cannot compel Gustavo to receive US$100 because under RA
529, payment of loans should be at Philippine currency at the rate of
exchange prevailing at the time of the stipulated date of payment.
Felipe could only compel Gustavo to receive US$ 100 if they stipulated
that obligation be paid in foreign currency (R.A. 4100).

Agpawa | 52
 PAST BAR QUESTIONS

IV (2018)
Severino died intestate, survived by his wife Saturnina, and legitimate children Soler,
Sulpicio, Segundo and the twins Sandro and Sandra. At the time of his death, the twins
were only 11 years of age, while all the older children were of age. He left only one
property: a 5,000 sq. m. parcel of land. After his death, the older siblings Soler, Sulpicio,
and Segundo sold the land to Dr. Santos for PhPS00,000 with a right to repurchase, at
the same price, within five (5) years from the date of the sale. The deed of sale was
signed only by the three (3) old siblings, and covered the entire property. Before the five
(5) years expired, Sole and Sulpicio tendered their respective shares of PhP166,666
each to redeem the property. Since Segundo did not have the means because he was
still unemployed, Saturnina paid the remaining PhP166,666 to redeem the property. After
the property was redeemed from Dr. Santos, the three (3) older children and Saturnina,
for herself and on behalf of the twins who were still minors, sold the property to Dr. Sazon,
in an absolute sale, for PhP1 million. In representing the twins, Saturnina relied on the
fact that she was the natural guardian of her minor children.
(a) Was the first sale to Dr. Santos, and the subsequent repurchase, valid? (2.5%)
(b) Was the second sale to Dr. Sazon valid? May the twins redeem their share after they
reach the age of majority? (2.5%)

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 PAST BAR QUESTIONS

Suggested Answer to Q IV (b), 2018 Civil Law Bar Exam:

B) Sale is valid with respect to the shares of Saturnina and the three older children,
who all gave their consent to the sale of the entire property, but unenforceable
with respect to the shares of the minors. Saturnina, as the natural guardian of
the minors, does not have the power to dispose of the property of the latter
because such power belongs only to a judicial guardian and the disposition
requires court approval. Any disposition or encumbrance of the property of the
minor without judicial authority, unless ratified by them upon reaching the age
of majority, is unenforceable [Neri v. Heirs of Hadji Yusop Uy and Julpha
Ibrahim Uy, 683 SCRA 553 (2012)] Hence, there is no need on the part of the
twins to redeem their shares upon reaching the age of majority because the
sale of their shares is not binding upon them.

Agpawa | 54
 PAST BAR QUESTIONS

IX (2018)

Newlyweds Sam and Sienna had contracted with Sangria Hotel for their
wedding reception. The couple was so unhappy with the service, claiming,
among other things, that there was an unreasonable delay in the service of
dinner and that certain items promised were unavailable. The hotel claims that,
while there was a delay in the service of the meals, the same was occasioned
by the sudden increase of guests to 450 from the guaranteed expected number
of 350, as stated in the Banquet and Meeting Services Contract. In the action
for damages for breach of contract instituted by the couple, they claimed that
the Banquet and Meeting Services Contract was a contract of adhesion since
they only provided the number of guests and chose the menu. On the other
hand, the hotel's defense was that the proximate cause of the complainant's
injury was the unexpected increase in their guests, and this was what set the
chain of events that resulted in the alleged inconveniences.

(a) Does the doctrine of proximate cause apply in this case? (2.5%)
(b) Was the Banquet and Meeting Services Contract a contract of adhesion? If
yes, is the contract void? (2.5%)

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 PAST BAR QUESTIONS

Suggested Answer to IX, 2018 Civil Law Bar Exam:

(a), 2018 Civil Law Bar Exam: No. The doctrine of proximate case is applicable
only in actions for quasi-delict, not in actions for breach of contract. The doctrine
is a device for imputing liability to a person where there is no relation between
him and another party. [Calalas v. CA, G.R. No. 122039, May 31, 2000] Here,
since the action filed by the couple was for breach of contract, the doctrine of
proximate cause is inapplicable.

(b) No, because a contract of adhesion is a ready-made contract where all the
terms and conditions thereof are prepared by only one side and the only
participation of the other is affixing his signature thereto [Geraldez v. CA, 230
SCRA 320 (1994)]. In the case at bar, it appears that the contract between the
parties is entered into verbally, hence, the contract cannot be one of adhesion.
On the assumption that the contract is one of adhesion, the same is not void
because a contract of adhesion is generally valid, the reason being that the
party who adheres to the contract is free to reject it entirely [PCI Bank v. CA,
255 SCRA 299].

Agpawa | 56
 PAST BAR QUESTIONS

XI (2018)
Samantha sold all her business interest in a sole proprietorship to Sergio for the
amount of PhP1 million. Under the sale agreement, Samantha was supposed
to pay for all prior unpaid utility bills incurred by the sole proprietorship. A month
after the Contract to Sell was executed, Samantha still had not paid the
PhP50,000 electricity bills incurred prior to the sale. Since Sergio could not
operate the business without electricity and the utility company refused to
restore electricity services unless the unpaid bills were settled in full, Sergio had
to pay the unpaid electricity bills. When the date for payment arrived, Sergio
only tendered PhP950,000 representing the full purchase price, less the amount
he paid for the unpaid utility bills. Samantha refused to accept the tender on the
ground that she was the one supposed to pay the bills and Sergio did not have
authorization to pay on her behalf.

a) What is the effect of payment made by Sergio without the knowledge

and consent of Samantha? (2.5%)
b) Is Samantha guilty of mora accipiendi? (2.5%)

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 PAST BAR QUESTIONS

Suggested Answer to Q XI, 2018 Civil Law Bar Exam

a) The payment made by Sergio of Samantha’s unpaid utility bills is a payment

made a third person without the debtor’s consent, hence, Sergio can demand
reimbursement from Samantha up to the extent that such payment has been
beneficial to Samantha [Art. 1236, NCC]. Sergio is a third person not interested
in the fulfillment of the debtor’s obligation because he does not become liable
for the payment of the unpaid utility bills.

b) Yes, Samantha is guilty of mora accipiendi. When Sergio paid Samantha’s

unpaid utility bills, he became entitled to demand reimbursement from the latter
because his payment has redounded to the benefit of the debtor. Hence, as to
his demand for reimbursement, Samantha became indebted to Sergio for the
amount of P50,000. As such, legal compensation has taken place with respect
to said amount because all the requisites of legal compensation are present
with respect to the amount of P50,000. Therefore, when Sergio tendered the
amount of P950,000 only after deducting the amount of P50,000, his tender of
payment is valid. As a consequence, the refusal by Samantha to accept said
tender of payment, without just cause, results in the latter being guilty of mora
accipiendi.
Agpawa | 58
 PAST BAR QUESTIONS

XX (2018)
Simeon was returning to Manila after spending a weekend with his parents in
Sariaya, Quezon. He boarded a bus operated by the Sabbit Bus Line (SBL) on
August 30, 2013. In the middle of the journey, the bus collided with a truck
coming from the opposite direction, which was overtaking the vehicle in front of
the truck. Though the driver of the SBL bus tried to avoid the truck, a mishap
occurred as the truck hit the left side of the bus. As a result of the accident,
Simeon suffered a fractured leg and was unable to report for work for one week.
He sued SBL for actual and moral damages. SBL raised the defense that it was
the driver of the truck who was at fault, and that it exercised the diligence of a
good father of a family in the selection and supervision of its driver.

a. Is SBL liable for actual damages? Moral damages? (2.5%)

b. Will SBL be liable to pay interest if it is required to pay damages, and delays
in the payment of the judgment award? What is the rate of interest, and
from when should the interest start running? (2.5%)

Agpawa | 59