Reviewer Oblicon

MIDTERM REVIEWER
OBLIGATIONS AND CONTRACTS

Compiled Quizzes and Answers and Additional Answers
QUIZ NO. 1
(Obligations – General Provisions [Art. 1156-1162]
January 16, 2018
I
Sometime in 1989, the general membership of Makati Stock Exchange, Inc. (MKSE)
passed a resolution amending its Articles of Incorporation which among others granted Miguel
Campos (Campos) the position of Chairman Emeritus for life to which he was allowed to
participate in the Initial Public Offerings (IPOs) of corporations registered with MKSE for being also
an active member thereof. Such right enjoyed by Campos to participate in IPOs is also a right
given to all the other members. IPOs are shares of corporations offered for sale to the public prior
to the listing in the trading floor. However, on June 3, 1993, during a meeting of the Board of
Directors of MKSE, they passed a resolution to stop giving Campos the IPOs he is entitled to.
Campos filed a petition with the SEC against MKSE and its board of directors to nullify the said
resolution. However, MKSE and its board of directors filed a motion to dismiss on the ground that
the petition failed to state a cause of action. Did the petition failed to state a cause of action?
(10%)
Answer: Makati Stock Exchange, Inc. vs. Campos, G.R. No. 138814, April 16, 2009
Yes. A cause of action is the act or omission by which a party violates a right of
another. A complaint states a cause of action where it contains three essential elements of a
cause of action, namely: (1) the legal right of the plaintiff, (2) the correlative obligation of the
defendant, and (3) the act or omission of the defendant in violation of said legal right. If these
elements are absent, the complaint becomes vulnerable to dismissal on the ground of failure to
state a cause of action.
There is no question that the Petition in SEC Case No. 02-94-4678 asserts a right in favor of
respondent, particularly, respondents alleged right to subscribe to the IPOs of corporations listed
in the stock market at their offering prices; and stipulates the correlative obligation of petitioners
to respect respondents right, specifically, by continuing to allow respondent to subscribe to the
IPOs of corporations listed in the stock market at their offering prices.
Right and obligation are legal terms with specific legal meaning. A right is a claim or title
to an interest in anything whatsoever that is enforceable by law. An obligation is defined in the
Civil Code as a juridical necessity to give, to do or not to do. For every right enjoyed by any
person, there is a corresponding obligation on the part of another person to respect such
right. Thus, Justice J.B.L. Reyes offers the definition given by Arias Ramos as a more complete
definition:
An obligation is a juridical relation whereby a person (called the creditor)

may demand from another (called the debtor) the observance of a
determinative conduct (the giving, doing or not doing), and in case of breach,
may demand satisfaction from the assets of the latter.
The Civil Code enumerates the sources of obligations:
Art. 1157. Obligations arise from:

(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts.
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Therefore, an obligation imposed on a person, and the corresponding right granted to
another, must be rooted in at least one of these five sources. The mere assertion of a right and
claim of an obligation in an initiatory pleading, whether a Complaint or Petition, without
identifying the basis or source thereof, is merely a conclusion of fact and law. A pleading should
state the ultimate facts essential to the rights of action or defense asserted, as distinguished from
mere conclusions of fact or conclusions of law. Thus, a Complaint or Petition filed by a person
claiming a right to the Office of the President of this Republic, but without stating the source of his
purported right, cannot be said to have sufficiently stated a cause of action. Also, a person
claiming to be the owner of a parcel of land cannot merely state that he has a right to the
ownership thereof, but must likewise assert in the Complaint either a mode of acquisition of
ownership or at least a certificate of title in his name.
In the case at bar, although the Petition in SEC Case No. 02-94-4678 does allege
respondents right to subscribe to the IPOs of corporations listed in the stock market at their
offering prices, and petitioners obligation to continue respecting and observing such right, the
Petition utterly failed to lay down the source or basis of respondents right and/or petitioners
obligation.
Respondent merely quoted in his Petition the MKSE Board Resolution, passed sometime in
1989, granting him the position of Chairman Emeritus of MKSE for life. However, there is nothing in
the said Petition from which the Court can deduce that respondent, by virtue of his position as
Chairman Emeritus of MKSE, was granted by law, contract, or any other legal source, the right to
subscribe to the IPOs of corporations listed in the stock market at their offering prices.
A meticulous review of the Petition reveals that the allocation of IPO shares was merely
alleged to have been done in accord with a practice normally observed by the members of the
stock exchange, to wit:
IPOs are shares of corporations offered for sale to the public, prior to their
listing in the trading floor of the countrys two stock exchanges. Normally, Twenty-
Five Percent (25%) of these shares are divided equally between the two stock
exchanges which in turn divide these equally among their members, who pay
therefor at the offering price.
A practice or custom is, as a general rule, not a source of a legally demandable or

enforceable right. Indeed, in labor cases, benefits which were voluntarily given by the employer,
and which have ripened into company practice, are considered as rights that cannot be
diminished by the employer. Nevertheless, even in such cases, the source of the employees
right is not custom, but ultimately, the law, since Article 100 of the Labor Code explicitly prohibits
elimination or diminution of benefits.
There is no such law in this case that converts the practice of allocating IPO shares to
MKSE members, for subscription at their offering prices, into an enforceable or demandable
right. Thus, even if it is hypothetically admitted that normally, twenty five percent (25%) of the
IPOs are divided equally between the two stock exchanges -- which, in turn, divide their
respective allocation equally among their members, including the Chairman Emeritus, who pay
for IPO shares at the offering price -- the Court cannot grant respondents prayer for damages
which allegedly resulted from the MKSE Board Resolution dated 3 June 1993 deviating from said
practice by no longer allocating any shares to respondent.
II
Define obligation as defined by Arias Ramos as cited in the case of Makati Stock
Exchange, Inc. vs. Miguel Campos? (10%)
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An obligation is a juridical relation whereby a person (called the creditor) may demand
from another (called the debtor) the observance of a determinative conduct (the giving, doing
or not doing), and in case of breach, may demand satisfaction from the assets of the latter.
III
What are the essential elements of obligation as cited in the case of Ang Yu Asuncion vs.
CA? (10%)
Answer:
The obligation is constituted upon the concurrence of the essential elements thereof, viz:
a) The vinculum juris or juridical tie which is the efficient cause established by the various
sources of obligations (law, contracts, quasi-contracts, delicts and quasi-delicts);
b) the object which is the prestation or conduct; required to be observed (to give, to do or
not to do); and
c) the subject-persons who, viewed from the demandability of the obligation, are the active
(obligee) and the passive (obligor) subjects.
IV
X, of legal age, bought two vessels from B, the purchase price thereof being paid by C,
X’s father. Subsequently, differences arose between X and C. The latter brought action to
recover the vessels, he having paid the purchase price. Is there any obligation on the part of X
to transfer the ownership of the vessel to C? (10%)
Answer: De Leon, pp. 13-14
None. If any such obligation was ever created on the part of X, said obligation must arise
from law. But obligations derived from law are not presumed. Only those expressly determined in
the Civil Code or in special laws are demandable. (Art. 1158, NCC). Whatever right C may have
against X either for the recovery of the money paid or for damages, it is clear that such payment
gave him no title, either legal or equitable, to these vessels. (Martinez vs. Martinez, G.R. No. 858,
January 23, 1903).
V
D borrowed money from C to be paid within a certain period, under the agreement that,
if D fails to pay at the expiration of said period, the house and lot described in the contract
would be considered sold for the amount of the loan. D failed to pay as promised. C brought
action for the delivery of the house and lot. Are both contracts valid and, should therefore be
given effect? (10%)
Answer: De Leon, pp. 18-19; Alcantara vs. Alinea, 8 Phil. 111 [1907]
Yes. The fact that both parties have agreed at the same time, in such a manner that the
fulfillment of the promise of sale would depend upon the non-payment or return of the amount
loaned has not produced any change in the nature and legal conditions of either contract, or
any essential defect which would nullify them.
As the amount loaned has not been paid and continues in possession of the debtor, it is
only just that the promise of sale be carried into effect, and the necessary instruments be
executed. That which is agreed to in a contract is law between the parties, and must be
enforced.
Note: In the above case, the Court found no contract of mortgage, pledge, or antichresis was
entered into. (See Arts. 2088, 2137).
VI
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X, a tax-exempt cooperative store, paid taxes to the City of Manila, believing that it was
liable. May X recover the payment? (10%)
Answer: De Leon, p. 24; Paras, p. 96; UST Cooperative Store vs. City of Manila, 15 SCRA 656 [1965]
Yes, because the payment is not considered voluntary in character. Clearly, the
payment was made under a mistake. (See 51 Am. Jur. 1023). The principle of solution Indebiti is
applied. “Art. 2154, NCC. If something is received when there is no right to demand it, and it was
unduly delivered through mistake, the obligation to return it arises. (See also Philippine National
Bank vs. CA, 217 SCRA 347).
VII
Armando owns a row of residential apartments in San Juan, Metro Manila, which he rents
out to tenants. On 1 April 1991, he left for the United States without appointing any administrator
to manage his apartments such that uncollected rentals accumulated for three years. Amparo,
a niece of Armando, concerned with the interest of her uncle, took it upon herself to administer
the property. As a consequence, she incurred expenses in collecting the rents and in some
instances, even spent for necessary repairs to preserve the property. Is Armando obliged to
reimburse Amparo for the expenses? (Cite your basis). (10%)
Answer: Ulep, p. 7; Bar Problem (1995)
Yes. Negotiorum Gestio existed between Amparo and Armando. She voluntarily took
charge of the agency or management of the business or property of her uncle without any
power from her uncle whose property was neglected. She is called the gestor or the officious
manager.
Art. 2144. Whoever voluntarily takes charge of the agency or management of the
business or property of another, without any power from the latter, is obliged to continue the
same until the termination of the affair and its incidents, or to require the person concerned to
substitute him, if the owner is in a position to do so. This juridical relation does not arise in either of
these instances:
(1) When the property or business is not neglected or abandoned;

(2) If in fact the manager has been tacitly authorized by the owner.
In the first case, the provisions of Articles 1317, 1403, No. 1, and 1404 regarding
unauthorized contracts shall govern. In the second case, the rules on agency in Title X of this
Book shall be applicable.
Art. 2150. Although the officious management may not have been expressly ratified, the
owner of the property or business who enjoys the advantages of the same shall be liable for
obligations incurred in his interest, and shall reimburse the officious manager for the necessary
and useful expenses and for the damages which the latter may have suffered in the
performance of his duties.
The same obligation shall be incumbent upon him when the management had for its
purpose the prevention of an imminent and manifest loss, although no benefit may have been
derived.
VIII
Ollendorf, a needlework manufacturer, hired Abrahamson for two years, on the
condition that for five years, the latter should not engage in competitive needlework
manufacture. After one year, the latter left for reasons of health. He competed with his former
employer, who now seeks to restrain him from such competition. Abrahamson argues that the
restriction is void, because it is an unreasonable restraint of trade. Is Abrahamson correct? (10%)
Answer: Paras, p. 92; Ollendorf vs. Abrahamson, 38 Phil. 585
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No. The agreement was valid, and is a reasonable restraint, considering that it was only
for five years. Inasmuch as it is enforceable and has the rule of law between the parties, the
defendant can be properly restricted.
IX
X stole the car of Y. If X is convicted, what is the scope of his civil liability? (10%)
Answer: De Leon, pp. 27-28
The extent of the civil liability arising from crimes is governed by the Revised Penal Code
and the Civil Code. This civil liability includes:
a) Restitution
b) Reparation for the damage caused; and
c) Indemnification for consequential damages. (Art. 104, Revised Penal Code)
In the instant case, the court will order X:

1. To return the car (or to pay its value if it was lost or destroyed) – restitution;
2. To pay for any damage caused to the car – reparation for the damage caused;
and
3. To pay such other damages suffered by Y as a consequence of the crime –
indemnification of consequential damages.
X
What are obligations without an agreement? Give five examples of situations giving rise
to this type of obligation. (10%)
“Obligations without an agreement” are obligations that do not arise from contract such
as those arising from:
1. Delicts;
2. Quasi-delicts;
3. Solutio indebiti;
4. Negotiorum gestio and
5. All other obligations arising from law. (Answer by UP Law Center)
QUIZ NO. 2
Nature and Effect of Obligations [Art. 1163-1178])
January 22, 2018
I
For value received, Pedro promised to deliver to Juan on or before August 15, 1984 a
Mercedes Benz with Plate No. 123 which he (Pedro) has just brought home from Germany, as
well as a 1984 18” Sony television set. Unfortunately, before the scheduled delivery date, the
Mercedes Benz and the television set which Pedro had intended to deliver to Juan were
destroyed by accidental fire. Has the obligation of Pedro been extinguished? Explain. (10%)
Answer: Ulep, p. 30-32; Bar Problem (1984)
The obligation to deliver the Mercedes Benz is an obligation to deliver a determinate

thing because the particular car to be delivered had been designated. The obligation to deliver
that particular car was therefore extinguished by the occurrence of the fire, a fortuitous event.
On the other hand, the obligation to deliver the television set is an obligation to deliver a
generic thing. The particular television set to be delivered has not yet been determined. Only the
kind of television set to be delivered was agreed upon. Pedro is therefore still obligated to deliver
a television set of the kind and quality agreed upon, since generic obligations are never
extinguished by fortuitous events. (Answer by UP Law Center).
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II
Kristina brought her diamond ring to a jewelry shop for cleaning. The jewelry shop
undertook to return the ring by February 1, 2013. When the said date arrived, the jewelry shop
informed Kristina that the job was not yet finished. They asked her to return five days after. On
February 6, 2013, Kristina went to the shop to claim the ring, but she was informed that the same
was stolen by a thief who entered the shop the night before. Kristina filed an action for damages
against the jewelry shop which put up the defense of force majeure. Will the action prosper or
not?
Answer: Aquino, p. 355
Yes. The action will prosper. Art. 1165 of the New Civil Code provides that if the obligor
delays, he shall be responsible for any fortuitous event until he has effected delivery. Thus, even
assuming for the sake of argument that the theft of the ring can be considered fortuitous event,
the jewelry shop is still liable because there was already delay when the theft occurred.
III
Atty. Felipe Lustre bought a Toyota Corolla in installment from Toyota Shaw. He paid
P164k down and issued checks for the balance. However, two checks were not signed. As a
result, he incurred default and the assignee, RCBC, filed a replevin case against him. Is this
tenable?
Answer: Ulep, pp. 32-33; RCBC vs. CA, 305 SCRA 449
No. The delay must be “malicious and negligent” which is not in this case. Atty. Lustre
was awarded P200k in damages.
IV
A delivered to B, a typewriter repairer, a portable typewriter for routine cleaning and
servicing. B was not able to finish the job after some tine despite repeated reminders made by
A. Finally, B returned the typewriter unrepaired, some parts missing. A had the typewriter
repaired by F Business Machines, and the repair job cost him P58.75 for labor or service and
P31.10 for the missing parts or a total of P89.85. The lower cost rendered judgment ordering B to
pay only P31.10. Is B liable also for P58.75, the cost of the service expended in the repair?
Answer: De Leon, pp. 43-44; Chaves vs. Gonzales, 32 SCRA 547 [1970]; see Tanguilig vs. CA, 266
SCRA 78 [1997]
Yes. B contravened the tenor of his obligation (see Art. 1170) because he not only did not
repair the typewriter but returned it “in shambles”. For such contravention, he is liable under
Article 1167 for the cost of executing the obligation in a proper manner, which in the case should
be the cost of the labor or service expended in its repair, because the obligation or contract was
to repair it.
In addition, he is liable under Art. 1170 for the cost of the missing parts for in his obligation
to repair the typewriter he was bound, but failed or neglected to return it in the same condition it
was when he received it.
V
B obliged himself to pay to S the balance of the purchase price of a subdivision lot within
two years from completion by S of the roads in said subdivision. S brought an action to foreclose
the real estate mortgage executed by B to secure the payment of the unpaid price. B contends
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lack of previous notice of the completion of the roads and the absence of a demand for
payment. Is this contention of B tenable?
Answer: De Leon, p. 48; Enriquez vs. Ramos, 73 SCRA 116 [1976]
The filing of the foreclosure suit by S is sufficient notice to S of the completion of the roads
and of S’s desire to be paid the purchase price.
VI
To secure a loan, R mortgaged a parcel of land to Development Bank of the Philippines
(formerly RFC). The plantation for which the loan was obtained was attacked by mosaic
diseases by reason of which R was unable to pay a yearly amortization. The mortgage was
foreclosed. The court rendered a deficiency judgment against R. Is R entitled to a reduction, if
not exemption, from the loan because of his inability to realize any income from the abaca he
planted?
Answer: De Leon, p. 82; Development Bank of the Philipines vs. Mirang, 66 SCRA 141 [1975]; see
also Repide vs. Alzeiluz, 39 Phil. 194 [1918]
No. His predicament may evoke sympathy, but it does not justify a disregard of the terms
of the contract he entered into. His obligation thereunder is neither conditional nor aleatory; its
terms are clear and subject to no exception.
VII
B borrowed the car of L. While about to reach his destination, the car driven by L’s driver
and with B as the sole passenger, was accidentally stoned by some “mischievous boys” playing
along the road and its windshield was broken. Did B assume the risk of the car being stoned?
Answer: De Leon, p. 87; Dioquino vs. Laureano, 33 SCRA 65 [1970]
What happened was clearly unforeseen. It was a fortuitous event which must be borne by the
owner (L) of the car. The very wording of Art. 1174 dispels any doubt that what is therein
contemplated is the resulting liability even if caused by a fortuitous event where the party
charged may be considered as having assumed the risk incident in the nature of the obligation
to be performed.
It would be an affront, not only to logic but to the realities of the situation, if B could be held as
bound to assume the risk of this nature. In the case of Republic vs. Luzon Stevedoring
Corporation, 21 SCRA 279 [1967], the risk was quite evident and the nature of the obligation such
that a party could rightfully be deemed as having assumed it. It is not so in the case at bar.
VIII
In a contract, it was agreed that for 30 years, the planters would deliver their sugar to a
milling company. However, during the war (four years) and during the period of reconstitution
(two years), the milling company could not operate its mill. Should the period of six years be
made up? In other words, should the planters be required to deliver for six more years their sugar
to the same mill to make up for what had been lost?
Answer: Paras, p. 167-168; Victorias Planters Association, et. al. vs. Victorias Milling Co., Inc., 97
Phil. 318
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No more, because war is a fortuitous event that would relieve the planters from this
obligation since fulfillment then had been rendered impossible.
IX
The share of W in the estate of her deceased husband, including a real property, was
sold by the deputy sheriff under an execution issued on a judgment against W in favor of X. The
sheriff’s certificate of sale purported to convey not only the real estate but all the shares,
actions, or interest of any kind which W might have in the estate of her deceased husband,
including usufructuary and conjugal rights.
X contends that by virtue of the sale, he is entitled not only to appear as the owner of the
property in the proceedings for the settlement of her deceased husband’s estate but also to
exclude W from further participation therein. Did the sale subrogate X to all the rights of W in the
estate?
Answer: De Leon, pp. 100-101; In re Estate of Ceballos, 12 Phil. 271 [1908]
No. In the real estate at least, W retained the right of redemption from the execution sale
(see Sec. 29, Rule 39, Rules of Court) which gave her a standing in the estate proceedings.
Moreover, the creditor is not clothed with such rights as inherent in the person of his debtor and
in this case, W’s strictly personal rights would have alone entitled her to a representation in the
estate proceedings. The existence of the right of redemption would suffice to prevent an entire
subrogation.
X
R (owner) leased his factory to E (lessee) for two (2) years, giving the latter an option to
buy said factory within the same period.
E assigned his right to X who communicated in writing his desire to exercise the option to
R who, however, refused to execute the corresponding deed of sale alleging as his reason the
fact that the option was given to E and not to any other person and E could not make the
assignment without his (R’s) consent and when E did it, he (R) withheld his approval. Under the
contract and the law, is there any impediment on the part of E to transfer his right under the
option?
Answer: De Leon, p. 102; Bastida and Ysmael & Co., Inc. vs. Dy Buncio & Co., Inc., 93 Phil. 195
[1953]
No. The contract does not contain any stipulation forbidding E from assigning the option
or requiring R’s consent for the assignment nor was the option given to E in consideration of his
personal qualifications. Article 1178 is applicable.
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QUIZ NO. 3
Nature and Effect of Obligations [Art. 1163-1178])
January 23, 2018
I
Gary is a tobacco trader. He sold tobacco leaves for Homer for delivery within a month,
although the period for delivery was not guaranteed. Despite Gary’s efforts to deliver on time,
transportation problems and government red tape hindered his efforts and he could only deliver
after 30 days. Homer refused to accept late delivery and to pay on the ground that the agreed
term had not been complied with. Was Homer justified in refusing to accept the tobacco
leaves?
Answer: Bar Question (2013); Ulep, pp. 4-5
No. Homer was not justified in refusing to accept the tobacco leaves. He consented to
the terms and conditions of the sale and must abide by it. Obligations arising from contract have
the force of law between contracting parties. It is clear under the facts that the period of delivery
of the tobacco was not guaranteed. Gary anticipated other factors which may prevent him from
making the delivery within a month. True enough, transportation problems and government red
tape did. Such a slight delay was thus, excusable. Obligations arising from contract have the
force of law between the contracting parties and should be complied with in good faith. (Art.
1159, Civil Code, Answer by UP Law Center)
II
X, a dressmaker, accepted clothing materials from Karla to make two dresses for her. On
the day X was supposed to deliver Karla's dresses, X called up Karla to say that she had an
urgent matter to attend to and will deliver them the next day. That night, however, a robber
broke into her shop and took everything including Karla's two dresses. X claims she is not liable to
deliver Karla's dresses or to pay for the clothing materials considering she herself was a victim of
the robbery which was a fortuitous event and over which she had no control. Do you agree?
Why? (10%)
Answer: Bar Question (2015); Answer by UST
No, I do not agree with the contention of X. The law provides that except when it is
otherwise declared by stipulation or when the law provides or the nature of the obligation
requires the assumption of risk, no person shall be liable for those events which could not be
foreseen or which though foreseen were inevitable. (Article 1174, Civil Code) In the case
presented, X cannot invoke fortuitous event as a defense because she had already incurred in
delay at the time of the occurrence of the loss. (Article 1165, Civil Code)
III
May a carnapping or robbery be considered fortuitous event? Explain. (10%)
Answer: Albano, p. 397; Co vs. CA, 253 SCRA Phil. 305 [1998]; Sicam, et. al. vs. Jorge, et. al., G.R.
No. 159617, August 8, 2007
Robbery per se, like carnapping, is not a fortuitous event, it does not foreclose the
possibility of negligence. To be considered as such, carnapping entails more than the mere
forceful taking of another’s property. It must be proved and established that the event was an
act of God and was done solely by third parties and that neither the claimant nor the person
alleged to be negligent has any participation.
IV
On November 4, 1967, typhoon Welming hit Central Luzon, passing through the NPC’s
Angat Hydro-Electric Project and Dam at Ipo, Bulacan. Strong winds struck the project area and
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heavy rains intermittently fell. Due to the heavy downpour, the water in the reservoir of the dam
was rising perilously at the rate of 60 centimeters per hour. To prevent an overflow of water from
the dam, since the water level had reached the danger height of 212 meters above sea level,
NPC caused the opening of the spillway gates. An extraordinarily large volume of water rushed
out of the gates and hit the installations and construction works of ECI at the Ipo site with terrific
impact, as a result of which, the latter’s stockpile of materials and supplies, camp facilities and
permanent structures and accessories were either washed away, lost, or destroyed. Sued for
damages, NPC interposed the defense of fortuitous event. Is the defense proper? Why? (10%)
Answer: Albano, pp. 397-398; NPC vs. CA, L-47379, May 16, 1988
No, because due to the negligent manner with which the spillway gates of the dam were
opened, an extraordinarily large volume of water rushed out of the gates. Maintainers of the
dam knew that it was far more safe to open them gradually. But the spillway gates were opened
only when the typhoon was already at its height. Action could have been taken as early as
November 3, 1967, when the water in the reservoir was still low. At that time, the gates of the dam
could have been opened in a regulated manner.
And even thought the typhoon was an act of God or what we may call force majeure,
NPC cannot escape liability because its negligence was the proximate cause of the loss and
damage.
Thus, if upon the happening of a fortuitous event or an act of God, there concurs a
corresponding fraud, negligence, delay or violation or contravention in any manner of the tenor
of the obligation as provided for in Article 1170 of the Civil Code, which results in loss or damage,
the obligor cannot escape liability.
The principle embodied in the act of God doctrine strictly requires that the act must be
one occasioned exclusively by the violence of nature, and human agencies are to be excluded
from creating or entering into the cause of the mischief. When the effect, the cause of which is to
be considered, is found to be in part the result of the participation of man, whether it be from
active intervention or neglect, or failure to act, the whole occurrence is thereby humanized, as it
was, and removed from the rules applicable to the acts of God.
Thus, when the negligence of a person concurs with an act of God in producing a loss,
such person is not exempt from liability by showing that the immediate cause of the damage
was the act of God. To be exempt from liability for loss because of an act of God, he must be
free from any previous negligence or misconduct by which the loss or damage may have been
occasioned.
V
In one transaction involving a telegraph company, libelous matters were included by an
employee in a message without the consent of the sender, causing humiliation to another. Is the
telegraph company liable for damages? Why? (10%)
Answer: Albano, pp. 398-399; RCPI vs. CA, L-44748, August 29, 1986
Yes, because the telegraph company’s employee was negligent. And since negligence
is hard to prove, the principle of res ipsa loquitor can be made to apply. Everytime a person
transmits a message through the facilities of a corporation engaged in the business of receiving
and transmitting messages, a contract is entered into. Upon receipt of the rate or fee fixed, the
corporation undertakes to transmit the message accurately.
10 | P a g e
In RCPI vs. CA, L-44748, August 29, 1986, the SC said that since a corporation can act
only through its employees, the acts of its employees in the pursuit of its business are the acts of
the corporation. To hold the corporation not liable directly for the acts of its employees in the
pursuit of its business is to deprive the general public availing of its services of an effective and
adequate remedy.
VI
“A” borrowed P2,000 from “B” on December 1, 1956. He executed a promissory note
promising to pay the indebtedness on December 1, 1958. Upon the arrival of the designated
date for payment, is demand necessary in order that “A” shall incur in delay?
Answer: Jurado, p. 602-603; Bayala vs. Silang Traffic Co., 73 Phil. 557; Adiarte vs. CA, 92 Phil. 758;
8 Manresa, 5th Ed., Bk. 1, p. 127
Yes. It is obvious that the first exception is not applicable. According to decisions of the
Supreme Court as well as the authoritative opinion of Manresa, in order that the first exception
provided for in Art. 1169 of the Civil Code can be applied, it is indispensable that the obligation
or the law should expressly add that the obligor shall incur in delay if he fails to fulfill the
obligation upon the arrival of the designated date or that upon the arrival of such date demand
shall not be necessary.
VII
A passenger on a truck was hurt, but in a criminal case against the driver, said driver was
acquitted. The victim now sues the owner of the truck for culpa contractual. May the suit still
prosper?
Answer: Paras, pp. 147-148; San Pedro Bus Line vs. Navarro, L-6291, April 29, 1954
Yes, because the action is based on a contract. It is sufficient for him to prove the
existence of the contract of carriage and the injuries suffered. It is not necessary for him to prove
the negligence of the driver for this is presumed here.
VIII
A driver of a jeepney was found recklessly negligent, thereby causing injuries to his
passenger. Is the owner-operator of the jeepney liable for exemplary damages (in addition to
other kinds of damages)? (10%)
Answer: Paras, p. 149; Lourdes Munsayac vs. Benedicta de Lara, L-21151, June 26, 1968
Not necessarily. A principal or master can be held liable for exemplary or punitive
damages based upon the wrongful act of his agent or servant only when he participated in the
doing of such wrongful act or has previously authorized or subsequently ratified it, with full
knowledge of the facts. Exemplary damages punishes the intent – and this cannot be presumed
on the part of the employer merely because of the wanton, oppressive, or malicious intent on
the part of the agent.
IX
A (agent) received from P (principal) a pendant with diamonds to be sold on
commission basis, which A later on failed to return because of a robbery committed upon her. P
brought action for recovery of the pendant. To avail of the exemption granted in Article 1174, is
11 | P a g e
it necessary that there be a prior finding of guilt of the person or persons responsible for the
robbery?
Answer: De Leon, pp. 89; Austria vs. CA, 39 SCRA 527 [1971]
No. It would only be sufficient to establish that the unforeseeable event, the robbery in
this case, did take place without any concurrent fault on the debtor’s (A’s) part, and this can be
done by preponderant evidence. To require in the present action for recovery the prior
conviction of the culprits in the criminal case, in order to establish robbery as a fact, would be to
demand proof beyond reasonable doubt to prove a fact in a civil case.
X
Cite five instances where a person is made civilly liable for failure to comply with his
obligations although he was prevented from doing so by a fortuitous event. (10%)
Answer: Ulep, p. 58-59; Bar Question (1983)
1. When the loss is due to debtor’s fault;

2. When the debtor has incurred delay;
3. When he has promised to deliver the same thing to two or more different persons who do
not have the same interest;
4. When it is expressly stipulated;
5. When the law expressly so provides;
6. When the nature of the obligation requires the assumption of risk; and
7. When the thing to be delivered is indeterminate, the loss of a thing of the same kind,
even if due to a fortuitous event, does not extinguish the obligation. (Answer by UP Law
Center).
QUIZ NO. 4
Pure & Conditional Obligations [Art. 1179-1192]
January 29, 2018
I
In a case, there was a contract for the purchase of 36,000 cartoons specifically designed
for the business of exporting bananas. Allegedly, the defendant failed to manufacture and
deliver the boxes and that it repeatedly followed-up the immediate production of the boxes,
but to no avail. Hence, it filed a complaint for reimbursement of the amount paid. The
defendant contended that it has completed the manufacture of the boxes. The complaint was
dismissed which was affirmed on appeal. Will the action prosper and what is the nature of the
action?
Answer: Albano, p. 407-408; Solar Harvest, Inc. vs. Davao Corrugated Cartoon Corp., G.R. No.
176868, July 26, 2010
No. The claim for reimbursement is actually one for rescission or resolution of contract
under Art. 1191, NCC, where the law provides that 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.
The right to rescind a contract arises once the other party defaults in the performance of his
obligation. In determining when default occurs, Art. 1191 should be taken in conjunction with Art.
1169 of the same law. There must be prior demand.
The “follow-up”, however, would not qualify as a demand for the fulfillment of the
obligation, hence, the action will not prosper.
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II
A sold a parcel of land to B for P20,000. In the deed of sale, there is a stipulation that the
purchase price shall be paid on a certain date and that in case of failure to pay on such date,
A can rescind the contract. Suppose that B fails to pay on the date stipulated in the contract, is
Article 1191 of the Civil Code applicable? Why?
Answer: Jurado, p. 622; Hanlon vs. Hausermann, 40 Phil. 796; De la Rama Steamship Co. vs. Tan,
99 Phil. 1034
No. Art. 1191 is not applicable. Where the contract itself contains a resolutory provision
by virtue of which the obligation may be cancelled or extinguished in case of breach, judicial
permission to rescind the contract is no longer necessary. The use of the word “implied” in the
article supports this conclusion. The right to rescind is “implied” only if not expressly granted; no
right can be said to be implied if expressly recognized. Consequently, in the instant case, Art.
1191 is not applicable. The rule that is applicable is found in Art. 1592 under the law on sales.
III
The contract between A and B provides:
“That the term or period of this contract shall be as long as the party of the first part has
need for the electric light posts of the party of the second part.”
Is the contract valid? Why?
Answer: Albano, p. 405; Art. 1182, NCC; Naga Telephone Co., Inc., et. al. vs. CA, et. al., G.R. No.
107112, February 24, 1994, 48 SCAD 539)
No, because the condition is potestative, as it depends upon the sole will of the debtor. A
potestative condition is a condition, the fulfillment of which depends upon the sole will of the
debtor, in which case, the conditional obligation is void.
IV
X sold and delivered a car to Y with the agreement that after five days, Y would pay the
amount of P200,000.00 to X. X filed an action for rescission of the contract on the ground that Y
failed to pay the price. Will the action prosper? Why?
Answer: Albano, p. 406-407
Yes, because in cases of reciprocal obligations, the power to rescind is implied if the
obligor should not comply with what is incumbent upon him. (Art. 1191, NCC). In this case, Y
failed to pay his obligation, hence, X has the right to ask for rescission.
V
Referring to Question No. IV, suppose the delay in the payment was for only one day, will
the answer be the same as above? Why?
Answer: Albano, p. 407
No, because it is a rule that in order that rescission may be availed of, the breach must
be substantial and fundamental as to defeat the objective of the parties. (Song Fo and Co. vs.
Hawaiian Phil. Co., 33 SCRA 1). The breach on the part of Y is only simple one and should not be
made to defeat the objective of the parties in entering into the contract because the law is not
concerned with trifles. (Filoil Refinery Corp. vs. Mendoza, June 15, 1987).
VI
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X entered into a contract for the purchase of two lots from Y. Each lot costs P100,000.00.
X had already paid P70,000.00 for each lot when he failed to pay his monthly installment
because he had been removed from office. Y filed an action for rescission of both contracts
contending that there was breach of the obligation. Will the action prosper? Why?
No, because rescission of both contracts would result in unfairness. One contract should
subsists considering that the payments made if added would be more than sufficient to answer
for the purchase price of one of the lots. In Legarda Hermanos vs. Saldaña, L-26578, January 28,
1974, the Supreme Court said that the installments paid were sufficient to answer for one of the
lots, hence, it would be unfair to rescind both. Rescission of one would be sufficient.
VII
In the contract of sale, B purchased three lots from S (People’s Homesite and Housing
Corp.) which provided that only construction exclusively for “residential purposes” shall be built
on the property and the terms thereof to be binding upon the successors and assignees of the
respective parties. Subsequently, B sold two lots to Meralco which established a sub-station
within the property.
Because of “severe noise” from the sub-station, B filed a complaint for the rescission of
the sale. Has B the right of action against Meralco for violation of the restriction imposed in the
contract between S and B?
Answer: De Leon, p. 111; Manila Electric Company vs CA, 114 SCRA 173 [1982]
No. It is S which has the right of action against any assignee of B. S cannot rescind the
contract between B and Meralco because it was not a party to it. S’s redress would be to directly
“seek cancellation of the title of Meralco, and to repossess the property” as provided in its
contract with B.
VIII
R, donor, gratuitously granted to E (Province of Cavite) a portion of a fishery owned by R
for the construction of a road subject to the condition that E would fill up the space where to
build the road with mud taken from the higher portions of the fishery so it would have the same
level. E failed to fulfill the condition of the grant.
R brought an action for the recovery of the value of the portion of the fishery granted
and damages covering the cost of digging up the higher portion of the fishery which E failed to
perform. Is R entitled to the damages claimed?
Answer: De Leon, p. 166-167; Osorio vs. Bennet and Prov. Board of Cavite, 41 Phil. 301 [1920]
No. The resolution of a contract and its performance are incompatible with each other.
Having elected the right to rescind, R cannot at the same time demand the fulfillment of the
obligation. If he could recover the cost of the digging, that would amount indirectly to the
compliance by E with the obligation. In that manner, R would at the same time be availing
himself of the two remedies of resolving the obligation and exacting its fulfillment.
IX
L leased a house to J. The contract stipulates that in case of non-payment of the rent, L
can eject J without court action. J defaulted for two months. As a result, L ejected him. Can J
14 | P a g e
claim damages because the renunciation of his day in court as stipulated in the contract is
void?
Answer: Jurado, p. 622-623
J cannot claim damages because the renunciation of his day in court as stipulated in the
contract is void. True, under the Civil Code, in reciprocal obligations there is always a tacit
resolutory condition that if one party is unable to comply with what is incumbent upon him, the
injured party has the power to rescind the obligation (Art. 1191). This is reiterated in the law on
lease (Art. 1659). True also, it is a well-settled rule that the injured part must invoke judicial aid.
But then, this rule can be applied only to a case where the obligation is silent with respect to the
power to rescind. The right to rescind is implied only if not expressly granted; no right can be said
to be implied if expressly recognized. This is also well-settled. In the instant case, the right of L to
eject J without a court action in case of non-payment of the rent was expressly recognized in
the contract itself. What L did was merely to enforce what was agreed upon.
X
Suppose that both of the parties in reciprocal obligations have committed a breach
thereof, who shall be liable?
Answer: Jurado, p. 624
The first infractor shall be liable, but his liability shall be equally tempered by the courts.
However, if it cannot be determined which of the parties first violated the contract, the same
shall be deemed extinguished, and each shall bear his own damage. (Art. 1192, NCC).
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QUIZ NO. 5
Pure & Conditional Obligations [Art. 1179-1192]
January 30, 2018
I
In a contract for the construction of a condominium building, it was expressly agreed
that should there be any dispute, a board of liquidators must first be resorted to before taking
any judicial action. The owner went to court because the building was not finished on time, but
there was no prior resort to arbitration. Will the case now be dismissed?
Answer: Paras, p. 200; Bengson vs. Chan, L-27283, July 29, 1977
No, the case will not be dismissed, although there was no prior resort to arbitration. This is
so because under the Arbitration Law (RA876), in a case like this, what the Court should do is to
refer the matter to the arbitrators who are supposed to be selected by the parties.
II
A owned a house rented by B. A sold the house to C, and C agreed to pay the balance
of the price as soon as B leaves the premises. C was to take care of seeing to it that B vacated
the house. A now says the contract is void because it is potestative on C’s part. Is A correct?
Answer: Paras, p. 203; Jacinto vs. Chua Leng (C.A.) 45 O.G. 2919
No. The contract is valid. It was not purely potestative on C’s part. Firstly, B might vacate
of his own accord, and C would now have to pay (so the fulfillment really in part depended on
the will of a third party). Secondly, If C did not ask B to leave, A could very well do so by an
action of unlawful detainer against B. And when B is ousted, C would have to pay. The condition
being mixed, the contract is valid.
III
Seller owned a piece of land mortgaged to X. Land was sold to buyer on the condition
that the mortgage would first be cancelled. Seller, however, could not have contact with X. Is
he still bound to sell?
Answer: Paras, p. 205-206; Litton, et. al. vs. Luzon Surety, Inc., 90 Phil. 783
No, since the condition has become impossible.
IV
A sold B a parcel of land on condition that the price would be paid as soon as B had
paid off the mortgage and other debts of the estate. A waited for some time, but since B had
not yet succeeded in paying off the debts, A brought an action to cancel the sale. Will the
action of A prosper?
Answer: Paras, p. 206-207; Martin vs. Boyero, 55 Phil. 760
No. The sale will not be cancelled. There was no time stipulated here, and besides, B was
trying his best to comply with his agreement. So, B must be given more time.
V
A employed B for two years unless within six months, machinery already ordered would
not, for any reason, arrive. A cancelled the order, so the machines did not arrive. At the end of
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six months, B was discharged. B now claims salary for the period of two years on the ground that
the debtor (A) had voluntarily prevented compliance with the condition? Is B correct?
Answer: Paras, p. 209; Taylor vs. Yu Tieng Piao, 43 Phil. 873
B has no right. First, because the condition here is resolutory and not suspensive; second,
it was expressly agreed that the failure to arrive could be for “any reason”, including A’s own
acts. Ordinary words should be given their ordinary significations, unless the parties intended
otherwise.
VI
The Philippine Long Distance Telephone Company operated a pension plan prior to the
last Pacific War, whereby, subject to certain conditions (such as age and length of service),
employees who retire would be given pensions. After the war, the plan was abolished because
of losses sustained during the Japanese occupation.
a) Pending fulfillment of the conditions (such as the employee’s service), do the employees
have any right with respect to the pension plan?
b) Would financial losses during the war authorize abolition of the plan?
Answer: Paras, p. 212-213; PLDT vs. Jeturian, L-7756, July 30, 1955
a) Pending fulfillment of the conditions, the employees have a right in expectancy, which
the law protects. Hence, under Art. 1188, appropriate actions may be taken by them.
b) Financial losses will not excuse abolition of the pension plan because the obligation to
pay money is an obligation to give a generic thing.
VII
Suppose the thing has improved, not through time or by its nature but through the
expense of the debtor, what will be the rights of said debtor?
Answer: Paras, p. 217
The debtor will have the rights granted to a usufructuary for improvements on a thing held
in usufruct. (Usufruct is the right to the enjoyment of the use and the fruits of a thing.) These rights
granted to the usufructuary with reference to improvements may be found in Art. 579 of the Civil
Code, which reads as follows: “The usufructuary may make on the property held in usufruct such
useful improvements or expenses for mere pleasure as he may deem proper, provided he does
not alter its form or substance; but he shall not have the right to be indemnified therefor. He may,
however, remove such improvements, should it be possible to do so without damage to the
property.” In other words, he is not entitled to reimbursement but he may remove the
improvements provided he does not, by doing so, damage the property. “He may however set
off the improvements he may have on the property against any damage to the same.” (Art. 580,
NCC)
VIII
A sold to B some properties. It was agreed that B, the buyer, should take care of
perfecting within six months the title papers to the property. This duty B was not able to do so.
Despite the fact that B had already paid the price, may A, the seller, rescind the contract on the
ground that B had not complied with the obligation referred to above?
Answer: Paras, p. 222; Asturias Sugar Central vs. Pure Cane Molasses Co., 60 Phil. 255
No. In a case of sale, the corresponding duties are: for the seller to deliver, and for the
buyer to pay. Here the buyer has paid. Therefore, the seller cannot rescind just because the title
17 | P a g e
papers had not yet been perfected. Had the buyer not yet paid, it would have been a different
story. (See Borromeo vs. Franco, 5 Phil. 49)
IX
Petitioner-spouses rescinded the contract of lease without judicial approval. Due to the
change in ownership of the land, petitioner-spouses decided to unilaterally cancel the contract
because Virgilio supposedly became the new owner of the house after acquiring title to the lot.
They alleged that there was no reason anymore to perform their obligations as lessees because
the lessor had ceased to be the owner of the house. Are the petitioner-spouses correct?
Answer: Paras, p. 238; Spouses Reynaldo Alcaraz & Esmeralda Alcaraz vs. Pedro M. Tangga-an,
et. al., G.R. No. 128568, April 9, 2003
No. There is nothing in the lease contract that allows the parties to extrajudicially rescind
the same in case of violation of the terms thereof. Extrajudicial rescission of a contract is not
possible without an express stipulation to that effect. (Art. 1191). What the petitioner-spouses
should have done was to file a special civil action for interpleader for claimants to litigate their
claims and to deposit rentals in court.
X
A lease contract for 15 years at P400 a month was complied for only three years, after
which the lessee did not pay rent. The lessor asked the lessee to vacate the premises, if he could
not afford to pay. The lessee then turned over the premises to the lessor. Now the lessor
demands rent for the remaining 12 years. Is the lessor correct?
Answer: Paras, p. 235; Rios vs. Jacinto Palma, et. al., 49 Phil. 7
No. Since the lessor decided to select rescission, he is now entitled to possession, but not
to the future rents for the unexpired term. He cannot have both remedies of rescission and
specific performance. Had the back rentals not been paid yet, he would have been entitled to
them. In the instant case, he can collect only special damages those that resulted from the
breach, not necessarily the unexpired rents. (See Rubio de Larena vs. Villanueva, 53 Phil. 932)
QUIZ NO. 6
Obligations with a Period [Art. 1193-1198]
February 5, 2018
I
A five-year contract of lease was entered into between R (lessor) and E (lessee). Under
the contract, the same “may be renewed after a period of five (5) years under the terms and
conditions as will be mutually agreed upon by the parties at the time of renewal.”
Notwithstanding the failure of the parties to reach an agreement on the terms and
conditions of the renewal of the contract, the lower court ordered the renewal on the ground
that the lease has never expired because the contract expressly mandated its renewal. Is the
second paragraph of Article 1197 of the New Civil Code applicable?
Answer: De Leon, p. 209-210; Millare vs. Hernando, 151 SCRA 484[1987]
No. Under the quoted clause, the duration of the renewal period was not left to the will of
the lessee alone, but rather to the will of both the lessor and the lessee. Most importantly, Article
1197 applies only where a contract of lease clearly exists. The clause can only mean that R and
18 | P a g e
E may agree to renew the contract upon reaching an agreement on the terms and conditions to
be embodied in such renewal contract.
This failure to reach such agreement prevented the contract from being renewed at all.
Hence, there was in fact no contract at all the period of which could have been fixed.
II
Under the lease contract executed between R (lessor) and E (lessee), upon the
expiration of the lease for 20 years, the factory building to be constructed by E shall belong to R.
The building constructed by E was destroyed by fire. E could not rebuild the building because
the insurance proceeds were not yet paid. R filed a suit for ejectment. Is the action of R proper?
Answer: De Leon, p. 211-212; Qui vs. CA, 66 SCRA 523[1975]
No. His remedy is to institute an action so that the court can fix the period for the
reconstruction of the burned building. Only after a competent court shall have fixed such period
in a proper action pursuant to the provisions of Article 1197 can there be breach or violation of
the lease contract entered into. R’s complaint for ejectment is dismissed.
III
S sold B a launch for P16,000 payable in quarterly installments of P1,000 each. The launch
was made security for the debt. Shortly after delivery to B, it was shipwrecked in a storm. Should
B still has to pay? If so, when?
Answer: De Leon, p.215; Paras, 263-264; Song Fo & Co. vs. Oria, 33 Phil. 3[1915]
Yes. The security for the payment of the purchase price of the launch itself having
disappeared as a result of an unforeseen event and no other security having been substituted
therefor, S was clearly entitled for the payment not only for the installments due under the terms
of the contract but also for all installments that had not matured.
IV
A executed in favor of B a promissory note for P10,000, payable after two years, secured
by a mortgage on a certain building valued at P20,000. One year after the execution of the
note, the mortgaged building was totally destroyed by a fire of accidental origin. Can B
demand from A the payment of the value of the note immediately after the burning without
waiting for the expiration of the term? Reasons.
Answer: Jurado, p. 631; Bar Question [1932];
Yes, B can demand from A the payment of the value of the note immediately after the
burning without waiting for the expiration of the term, unless A immediately gives another
security or guaranty which is equally satisfactory. This is clear from the provision of No. 3 of Art.
1198 of the Civil Code which declares that when by his own acts the debtor has impaired the
guaranty or security, or when through a fortuitous event the guaranty or security disappears, the
debtor shall lose the benefit of the term or period. It must be observed that there is a difference
between the effect of impairment and the effect of disappearance as applied to the security or
guaranty. The rules may be restated as follows: (1) If the guaranty or security is impaired through
the fault of the debtor, he shall lose his right to the benefit of the period; however, if it is impaired
without his fault, he shall retain his right. (2) If the guaranty or security disappears through any
cause, even without any fault of the debtor, he loses his right to the benefit of the period. In either
case, however, the debtor shall not lose his right to the benefit of the period if he gives a new
guaranty or security.
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A sold his entire interest in 24,000 tons of iron ore to B for P75,000, P10,000 of which was
actually paid upon the signing of the contract. With respect to the balance of P65,000, it was
agreed that it “will be paid from the first amount derived from the sale of the ore”. To insure
payment thereof, B delivered to A a surety bond which provided that the liability of the surety
would automatically expire after the lapse of two years. In as much as the ore had not yet been
sold and the surety bond had expired without being renewed and the balance had not yet
been paid in spite of repeated demands, A finally brought an action against B for the recovery
of said balance. B, however, interposed the defense that his obligation to pay is conditional and
that inasmuch as the condition has not yet been fulfilled, therefore, it is not yet due and
demandable. Is the defense tenable?
Answer: Jurado, p. 632; Gaite vs. Foncier, 112 Phil. 728
No, the defense is untenable. The sale of the iron ore is not a condition precedent to the
payment of the balance but only a suspensive term or period. There is no uncertainty
whatsoever with regard to the fact of payment; what is undetermined is merely the exact date of
payment. Normally, therefore, A will have to wait for the actual sale of the iron ore before he can
demand from B for the payment of the unpaid balance. However, inasmuch as by his own act, B
has impaired the guaranty or security after its establishment without giving another one which is
equally satisfactory, it is clear that he has now lost the benefit of the term or period.
Consequently, the case now falls squarely within the purview of pars. 2 and 3 of Article 1198 of
the Civil Code.
VI
Within what period should the action to fix the period be filed? Explain.
Answer: Albano, p. 413-414; Gonzales vs. Jose, 66 Phil. 369; Calero vs. Carreon, et. al., L-13246,
March 30, 1960
It must be filed within 10 years, otherwise, it would prescribed.
VII
X mortgaged his house as security for the payment of his obligation to Y. The obligation is
payable on or before December 1, 1995. In the meantime, X abandoned his house and made
no necessary repairs to maintain it in tenantable condition. What is the remedy of why?
Answer: Albano, p. 414; Art. 1198[3], NCC
He can demand the fulfillment of the obligation or foreclose the mortgage because X
has lost the right to make use of the period when, by his own acts, he has impaired said
guaranties or securities after their establishment, unless he immediately gives new ones equally
satisfactory.
VIII
If the happening of a future event is fixed by the parties for the fulfillment or
extinguishment of an obligation, what is the nature of the obligation – is it with a term or is it
conditional?
Answer: Jurado, p. 626; Berg vs. Magdalena Estate, Inc., 92 Phil. 110
Our answer must be qualified. If the event will necessarily come, although the date or
time when it will come may be uncertain, the event constitutes a day certain; hence, the
obligation is one with a term (Art. 1193, par. 4, NCC). However, if the uncertainty consists in
20 | P a g e
whether the day will come or not, the event constitutes a condition; hence, the obligation is
conditional (Art. 1193, par. 4, NCC). Thus, if the death of a person is fixed by the parties for the
demandability or extinguishment of the obligation, it is clear that the obligation is one with a
term or period because death is an event which will certainly come, although the date or time
when it will come is uncertain. However, if the obligor binds himself to perform his obligation as
soon as “he shall have obtained a loan” from a certain bank, it is clear that the granting of such
loan is not definite. Consequently, it cannot be considered a day certain; hence, the obligation
is conditional.
IX
Mr. A agrees to deliver a pig on March 5, 2014 to Mr. B. He delivered the pig on January
5, 2014 thinking that the date of delivery is January 5, 2014. Can Mr. A recover the pig from Mr. B
including her piglets which the pig delivered on February 14, 2014?
Answer: Aquino, p. 382.
Yes. Anything paid or delivered before the arrival of the suspensive period, the obligor
being unaware of the period or believing that the obligation has become due and demandable,
may be recovered, with the fruits and interest.
X
The parties entered into a Memorandum of Agreement whereby A has to purchase 100%
of B's shareholdings. The Memorandum of Agreement shows that what the parties agreed to
was the execution of a share purchase agreement to effect the transfer of 100% of B’s
shareholdings to A. as seen in clause 3 stating “As soon as possible, but not more than 60 days
after the signing hereof, the parties shall endeavor to prepare and sign a share purchase
agreement covering 100% of the shareholdings of Sellers to be transferred to Buyer, i.e.
10,000,000 fully paid common shares of the par value of ₱1.00 per share and subscription of an
additional 100,000,000 common shares of the par value of ₱1.00 per share of which
₱36,740,755.00 has been paid, but not yet issued. The second paragraph of clause 4 likewise
makes the execution of a share purchase agreement a condition before the purchase price
can be paid to B, since the payment of the purchase price becomes due only after five years
from the date of execution of the share purchase agreement. The evidence on record show
that the share purchase agreement was not formally executed because A claimed that the
accounts of B had to be reviewed and cleared up before the share purchase agreement is
signed. While B made its financial records available to A for his review, the latter never made
any serious effort to review the financial accounts of B, hence, effectively preventing the
execution of the share purchase agreement. B is now claiming payment because according to
him, the obligation became immediately demandable. Is B correct?
Answer: DBP vs. Sta. Ines, et. al., G.R. No. 193068 and G.R. No. 193099, February 1, 2017
Yes. On the basis of Art. 1198(4) that is, “The debtor shall lose every right to make use of
the period when the debtor violates any undertaking, in consideration of which the creditor
agreed to the period.” the buyer lost the right to make use of the period and the obligation
became immediately demandable.
QUIZ NO. 7
Alternative & Facultative Obligations [Art. 1199-1206]
February 6, 2018
I
What is this concept of alternative obligations?
Answer: Rabuya; p. 74
In an alternative obligation, there are various prestations which are due and the
obligation is fulfilled by performance of one of them. In an alternative obligation, the obligor
21 | P a g e
must completely perform one of the prestations due and he cannot compel the creditor to
receive part of one and part of the other undertaking.
II
In alternative obligations, what are the limitations upon the debtor’s right of choice?
Answer: Rabuya, p. 74
The debtor may not choose those prestations:

1. Which are impossible;
2. Which are unlawful;
3. Which could not have been the object of the obligation.
When among the various prestations only one is practicable, the dector loses the right of
choice and the obligation becomes a simple one of performing that which is practicable.
III
What is this concept of facultative obligations?
In a facultative obligation, only one prestation is due, that to which the obligation refers;
but the debtor has the power to fulfil the obligation by giving or rendering something else.
IV
Distinguish Facultative Obligations from Alternative Obligations.
a) In alternative obligations, all the things or objects of the prestation are subject to the
obligation up to the time the election is made; whereas, in facultative obligation, only the
thing promised is subject thereto, but not the other which the debtor has reserved to
himself the right to deliver in lieu of the first.
b) In alternative obligations, as all things are due, the loss of one produces, or at least may
produce, a deleterious influence on the obligation; whereas, in a facultative obligation,
since only one thing is owing, the loss of the thing which may be substituted does not
affect the juridical relations.
c) In alternative obligations, the right of choice may be granted not only to the debtor but
also to the creditor; whereas, in facultative obligations, the choice to substitute lies only
with the debtor.
V
What is the effect of loss of substitute prior to substitution?
Answer: Rabuya, p. 77-78
The substitution becomes effective only from the time that the same has been
communicated to the creditor. If the loss of the substitute occurs prior to the substitution, at which
time the substitute is not what is due, the debtor is not liable even if the loss or deterioration of the
thing be by reason of his fault.
VI
D is obliged to give C, at D’s option, either object No. 1, object No. 2 or object No. 3.
However, objects No. 1 and 2 were destroyed by D’s own fault, and later object No. 3 is lost by a
fortuitous event. Should D be held liable?
22 | P a g e
Answer: Paras, p. 274; Art. 1204, NCC
No. D should not be held liable.
Art. 1205, provides that responsibility of the debtor will be extinguish when 1) one
of the things lost in fortuitous events (2) one of the things lost in the fault of the debtor.
In this case, two of the items (object 1 and 2) were lost in the fault of the debtor
and the other one (Object No. 3) was by fortuitous event. Thus the debtor will not be
liable because the obligation will be extinguish since there are no option left for the
debtors to make.
VII
What is the effect of loss of substitute after substitution?
Once the substitution has been made, the obligation of the debtor is limited to the
performance of the substitute prestation. Hence, the loss of the substitute on account of the
debtor’s delay, negligence or fraud shall render him liable for damages. However, if the
prestation is lost by reason of fortuitous event, without any fault on the part of the debtor and
prior to him incurring delay, the obligation is extinguished.
VIII
In alternative obligations, when does the choice become effective?
The choice becomes effective only from the time that it has been communicated. Since
the Civil Code is following the cognition theory, the choice made by one becomes binding upon
the other only when the latter gains knowledge of such choice.
IX
D, etc. executed in favor of C a document wherein they bound themselves to pay their
indebtedness to C, mortgaged their house and lot as security, and agreed to the cession of said
house and lot to C, transferring to her all their rights to the ownership and possession thereof, in
case of insolvency on their part. D, etc. paid no part of their indebtedness. Is the agreement to
convey the house and lot at an appraised valuation in the event of failure to pay the debt in
money at its maturity valid?
Yes, it is valid.
Art. 119 of the NCC provide in part, that the person alternatively bound by different
prestation shall completely perform one of them.
In this case, the agreement to convey the house and lot as appraised valuation in the
event of failure to pay the debt in the money at its maturity will be the alternative obligation of C
to D, which C needs to perform upon his failure to pay in money. Thus the obligation is valid.
23 | P a g e
A is obliged to give B this car or this ring or this cigarette case. Nothing is said in the
contract as to who was given the right of choice. Suppose B selects the car, is A bound by the
choice made?
No. A is not bound by the choice made by B.
Art 1200 of the NCC, the right of choice was given to the debtor unless it was expressly
stated that the creditor has given the same right.
In this case, there is an absence of any stipulation in the contract, thus by rule, the right of
choice should be given to A.
QUIZ NO. 8
Joint and Solidary Obligations [Art. 1207-1222]
February 12, 2018
I
A, B, and C borrowed P120,000 from X. This debt is evidenced by a promissory note
wherein the three bound themselves to pay the debt jointly and severally. However, according
to the note, A can be compelled to pay only on June 1, 2005; B can be compelled to pay only
on June 1, 2006; while C can be compelled to pay only on June 1, 2007. On June 1, 2005, X
made a demand upon A to pay the entire indebtedness but the latter paid only P40,000.
Subsequently, because of A’s refusal to pay the balance, X brought an action against him for
collection of the amount. Will such action prosper? Reasons.
Answer: Aquino, p. 395; Inchausti vs. Yulo, 34 Phil. 978
No. The action will not prosper.
Article 1211 of the New Civil Code provides that the solidary character is solidary may
exist although debtors and creditors are not bound in the same period and conditions.
In this case A, B and C have different period and conditions with their obligation to X,
however it may still exist as solidarity. X may only demand for an obligation which has already
due and demandable and wait for the other obligations to expire before it can bed demanded
and will be paid by A to X.
Thus, the action of X to collect the entire amount of indebtedness will not prosper.
II
A, B, and C borrowed money from X in the amount of P3,000.00 obligating themselves to
pay on June 30, 1991. When the obligation became due and demandable, X demanded from
A the full amount of the obligation. Is the action of X correct? Why?
Answer: Albano, pp. 417-418; Pimentel vs. Gutierrez, 14 Phil. 49
No, because the obligation is only a joint one. There is no presumption of solidarity; there
is only a presumption that the obligation is joint. Hence, the amount of P3,000.00 is presumed to
24 | P a g e
be divided into as many equal shares as there are debtors unless there is an agreement to the
contrary. There is solidarity only when the obligation says so or that the nature of the obligation
requires solidarity. In this case, since there is no agreement of solidarity, X cannot compel A to
pay the full amount of the obligation.
III
A, B, and C are solidary debtors of X. Twelve years later, after the obligation became
due and demandable, A paid X and later on asked for reimbursement of B’s and C’s shares. Is A
correct? Why?

No, because the obligation has already prescribed. The law says that payment by a
solidary debtor shall not entitle him to reimbursement from his co-debtors if such payment is
made after the obligation has prescribed or become illegal. (Art. 1218, NCC).
IV
A and B sold 1,000 sacks of rice to X and Y and, on X’s request, delivered them to him. X
resold the rice, without turning over any part of it or its price to Y. May Y compel A and B to
deliver what he bought? If so, to what extend?
Answer: Jurado, p. 641; Bar Question (1983)
Yes, Y may compel A and B to deliver what he bought from them. However, A and B can
be compelled to deliver only 250 sacks of rice each. The reason is simple. The obligation is joint.
Since the obligation does not state that it is solidary and since it is clear that the law or the nature
of the obligation does not require solidarity, therefore, the presumption is that the obligation is
joint – joint with respect to X and Y and joint with respect to A and B. Consequently, the delivery
by A and B of 1,000 sacks of rice to X did not extinguish their obligation to Y. Under the law, they
are still liable to Y. In other words, since the share of Y in the credit is presumed to be to the
extent of 500 sacks of rice, therefore, A is presumed to be liable to Y to the extent of 250 sacks of
rice, while B is also presumed to be liable to Y to the extent of 250 sacks of rice. (Art. 1207 and
1208, NCC).
V
Joey, Jovy and Jojo are solidary debtors under a loan obligation of P300,000.00 which has
fallen due. The creditor has, however, condoned Jojo’s entire share in the debt. Since Jovy has
become insolvent, the creditor makes a demand on Joey to pay the debt.
a) How much, if any, may Joey be compelled to pay?
b) To what extent, if at all, can Jojo be compelled by Joey to contribute to such payment?
Answer: Ulep, p. 103; Bar Problem (1998); Answer by UP Law Center
a) Joey can be compelled to pay only the remaining balance of P200,000, in view of the
remission of Jojo’s share by the creditor. (Art. 1219, Civil Code).
b) Jojo can be compelled by Joey to contribute P50,000. Art. 1217, par. 3, Civil Code
provides, “When one of the solidary debtors cannot, because of insolvency, reimburse
his share to the debtor paying the obligation, such share shall be borne by all his co-
debtors, in proportion to the debt of each”.
Since the insolvent debtor’s share which Joey paid was P100,000, and there are only two
remaining debtors – namely Joey and Jojo – these two shall share equally the burden of
reimbursement. Jojo may thus be compelled by Joey to contribute P50,000.00.
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VI
Under a contract, the obligation of A, B, and C was solidary. However, the judgment was
rendered against them, which has become final, was for the total amount sued without stating
the nature or extent of their liability. May judgment be executed on the property of C alone to
satisfy the entire obligation?
Answer: De Leon, p. 232; Oriental Commercial vs. Abeto, 60 Phil. 723 [1934]
No. Each of the defendants is liable only for his proportionate part of the judgment which
superseded the action for the enforcement of the contract. A court has no power to amend a
judgment that has become final.
VII
Before the collection suit filed by B (bank), creditor, against the joint and solidary debtors
could be decided, A, one of the debtors dies.
After having been informed of the death, the court issued an order dismissing the case,
citing Section 6, Rule 86 of the Rules of Court which provides: “Solidary obligation of decedent. –
Where the obligation of the decedent is solidary with another debtor, the claim shall be filed
against the decedent as if he were the only debtor, without prejudice to the right of the estate
to recover contribution from the other debtor. In a joint obligation of the decedent, the claim
shall be confined to the portion belonging to him.” Is the dismissal of the case correct?
Answer: De Leon, p. 252-253, Phil. National Bank vs. Asuncion, 80 SCRA 321 [1977]
No. A cursory perusal of the cited provision reveals that nothing therein prevents a
solidary creditor from proceeding against the surviving solidary debtors. Said provision merely
sets up the procedure in enforcing collection in case a creditor chooses to pursue his claim
against the estate of the deceased solidary debtor.
To require the solidary creditor to proceed against the estate, making it a condition
precedent for any collection against the surviving debtor to prosper, would deprive him of his
substantive rights provided by Article 1216, “to proceed any one of the solidary debtors or some
or all of them simultaneously.” The choice is undoubtedly left to the solidary creditor.
VIII
A, B, and C are jointly liable to give a particular car worth P1.2 million in favor of D, E, F,
and G. A is insolvent and the debtors, therefore, cannot purchase the car to give to the
creditors. D and E have renounced their rights. The debtors are not in default. How much can
each of the creditors get from each of the debtors?
Answer: Paras, pp. 293-294
Since this is a joint and indivisible obligation and since the car cannot be given, it is
converted into an obligation to give indemnity for damages. Since this is a joint obligation, each
debtor is proportionately liable and each creditor is only entitled to his proportional credit.
P1.2M divided by 3 = P400,000 (the total debt of each debtor)
P400,000 divided by 4 = P100,000 (the credit belonging to each joint creditor, not from
each joint debtor)
A is insolvent and his share will not be included in the liability of B and C.
26 | P a g e
Therefore:
a) D and E having renounced their rights, they get nothing.

b) F has not renounced his right, so he can get P100,00 from B and P100,000 from C.
Over A, F has the rights of creditor over an insolvent debtor.
c) G has exactly the same rights as F.
IX
A, B, and C are joint and several debtors of D. D allows C an extension of two years within
which to pay his portion of the indebtedness. Upon being sued by D, may A and B interpose the
defense of the extension of the time granted to C? Should A and B eventually pay the entire
obligation, may they compel C to reimburse them with his share without waiting for the two-year
extension granted to C? Reasons.
Yes, A and B can set up the extension but only as partial defense, limited to C’s share.
Hence, they should now pay ALL minus C’s share. (See Inchausti vs. Yulo, 34 Phil. 978). If they
paid ALL (without deductions) they must wait for the two-year period before they can compel
reimbursement from C. This is because A and B merely stepped into the shoes of the creditor D,
and therefore C can plead against them the defense of extension of payment.
X
What are the three kinds of defenses that a solidary debtor may avail himself of in actions
filed by a solidary creditor?
Answer: Rabuya, pp. 97-98

1. Defenses which arise from the nature of the obligation
2. Defenses personal to the debtor being sued or pertaining only to his share
3. Defenses which belong to another debtor
QUIZ NO. 9
Joint and Solidary Obligations [Art. 1207-1222]
February 13, 2018
I
Three persons acted as surety in an obligation of another. The debtor failed to pay, but
the two sureties made a partial payment to the creditor. Thereafter, they asked for
reimbursement but the remaining debtor refused to make reimbursement, contending that there
was only partial payment to the extent of their proportionate shares. He contended that there
must be full payment before they can ask for reimbursement. Is his contention correct? Explain.
Yes. Payment of any amount will not automatically result in reimbursement. If a solidary
debtor pays the obligation in part, he can recover reimbursement from the co-debtors only in so
far as his payment exceeded his share in the obligation. This is precisely because if a solidary
debtor pays an amount equal to his proportionate share in the obligation, then he in effect pays
only what is due from him. If the debtor pays less than his share in the obligation, he cannot
demand reimbursement because his payment is less than his actual debt. (Republic Glass Corp.,
et. al. vs. Qua, G.R. No. 144413, July 30, 2004)
27 | P a g e
II
In June 1988, X obtained a loan from A and executed with Y, as solidary co-maker, a
promissory note in favor of A for the sum of P200,000.00. The loan was payable at P20,000.00 with
monthly interest within the first week of each month beginning July 1988 until maturity in April
1989. To secure the payment of the loan, X put up as security a chattel mortgage on his car, a
Toyota Corolla sedan. Because of X and Y’s failure to pay the principal amount of the loan, the
car was extrajudicially foreclosed. A acquired the car at A’s highest bid of P120,000.00 during
the auction sale.
After several fruitless letters of demand against X and Y, A sued Y alone for the recovery
of P80,000.00 constituting the deficiency.
Y resisted the suit raising the following defenses:

a) That Y should not be liable at all because X was not sued together with Y.
b) That Y should not be held liable for the deficiency of P80,000.00 because he was
not a co-mortgagor in the chattel mortgage of the car, which contract was
executed by X alone as owner and mortgagor.
c) That assuming that Y is liable, he should only pay the proportionate sum of
P40,000.00.
Decide each defense with reasons.
a) Y’s contention is untenable because the liability is solidary. Under the law, the creditor
may proceed against any one of the solidary debtors. (Art. 1216, NCC).
b) The contention of Y is untenable because he is liable for the full amount of the obligation,
even without the security, a chattel mortgage.
c) The contention of Y is untenable because the liability is solidary.
III
A contract was entered into a performance bond executed by Stronghold Insurance
Company, Inc. The principal obligor died, hence, the surety of the debtor contended that the
death of the debtor extinguished its obligation. Is the contention correct? Why?
No. 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.
Death is not a defense that he or his estate can set up to wipe out the obligations under
the performance bond. Consequently, petitioner as surety cannot use his death to escape its
monetary obligation under its performance bond. (Stronghold Insurance Company, Inc. vs.
Republic Asahi Glass Corp., G.R. No. 147561, June 22, 2006).
IV
A,B, and C borrowed P120,000 from X. This debt is evidenced by a promissory note
wherein the three bound themselves to pay the debt jointly and severally. However, according
to the note, A can be compelled to pay only on June 1, 2010; B can be compelled to pay only
on June 1, 2011 while C can be compelled to pay only on June 1, 2012. On June 1, 2010, X
made a demand upon A to pay the entire indebtedness but the latter paid only P40,000.
Subsequently, because of A’s refusal to pay the balance, X brought an action against him for
collection of the amount.
28 | P a g e
a) Will such an action prosper?
b) Suppose the obligation of the parties is joint, will the action prosper?
Answer.
a) The action will not prosper. Article 1211 of the New Civil Code provides that the solidary
character is not destroyed by the fact that the debtors are bound by different periods for
payment. Thus, the solidary nature of the obligation is not affected by the fact that the
obligors in this case are liable on different dates. In the present case, the share of each
solidary debtor in the total obligation of P120,000 is presumably P40,000. It is submitted
that since each solidary debtor can be compelled to pay on different dates, the right of
the creditor to collect is limited to the solidary debtor or debtors whose obligation/s
has/have matured and the recovery is limited to the amount owned by the debtor or
debtors whose obligation/s has/have already matured. Hence, only A is liable on June 1,
2010 and the liability is limited to P40,000. X will have to wait for June 1, 2011 when B’s
obligation shall have matured, and for June 1, 2012 when C’s obligation shall have also
matured. If X was able to recover P40,000 from A on or after June 1, 2010, he can collect
either P40,000 from either A or B on June 1, 2011. If X was able to recover to collect
P40,000 from either A or B on June 1, 2011 (in addition to the amount previously collected
from A), he can again collect another P40,000 from either A or B or C on June 1, 2012.
(See Ynchausti v. Yulo, 34 Phil. 978).
b) The action will still not prosper even if the obligation is joint. The difference, however, is
that on June 1, 2011, only B is liable (not A or B) and on June 1, 2012, only C may be
made liable (and not A, B, or C).
.V
X, Y, and Z who are joint-debtors owe P18,000 to A, B, and C, who are solidary creditors.
a) How much can B collect from X?
b) Suppose X, Y, and Z are solidary debtors and A,B, and C are solidary creditors, how much
can B recover from X?
Answer.
a) B can collect P6,000 from X. Since A, B, and C are solidary creditors, any one of them can
collect the entire amount of P18,000. However, since the debtors are joint-debtors, they
can collect the share of each debtor. They cannot recover the entire obligation of
P18,000 from one debtor. In the given problem, the share of each joint-debtor is
presumably P6,000 but each of them may be made liable by any of the solidary creditor.
Thus, B can recover P6,000 from X, P6,000 from Y and P6,000 from Z.
b) B can collect P18,000 from X. The solidary creditors can claim the entire amount from any
one of the solidary debtors.
VI
The husband and the wife bound themselves jointly and severally in favor of the obligee
for a sum of money and when the husband died, the obligee demanded payment from the
wife who resisted claiming that the obligee’s claim is barred by its failure to file a claim in the
intestate proceeding of the deceased husband. Is the wife correct?
Answer: Sta. Maria, p. 237; Imperial Insurance, Inc. vs. David, G.R. No. L-32425, November 21,
1984, 133 SCRA 317
No. The Supreme Court ruled that the obligee can properly claim from the wife as the
nature of the obligation is solidary.
VII
29 | P a g e
A, B, and C are indebted solidary to G in the amount of P1,500. But it was agreed that B
shall only pay if he passes the bar examination for lawyers in 1996; C shall pay only on January 2,
1997; and A shall pay only when he reaches the age of 18. G sues B the total amount of P1,500
in 1996 after he passes the bar. Will the action of G prosper?
Answer: Sta. Maria, p. 243
No. B can set up the defense that C’s obligation is subject to a period which has not yet
arrived, and also the defense that A’s contract is voidable considering that he was a minor at the
time he (A) contracted the solidary obligation. If B is successful in claiming such defenses, he will
nevertheless pay the amount of P500 which pertains to his share because there is no impediment
in collecting the same from him.
VIII
A, B, and C are solidarily bound to deliver to G a computer with serial number 7777 on
January 3, 1997. On January 3, 1997, G demanded delivery from A but the computer was not
delivered. Subsequently, the computer was hit by lighting making it unusable. Is A alone liable to
pay to G the price and damages to the computer? Explain.
Answer: Sta. Maria, p. 242-243
No. All of them shall be solidarily liable to pay the price and damages to the computer. B
and C however have the right to claim against A for the damages they have suffered since A
should have delivered the computer, or at least informed B and C of the demand.
IX
A, B, C and D are the solidary debtors of X for P40,000. X released D from payment of his
share of P10,000. When the obligation became due and demandable, C turned out to be
insovent. Should the share of insolvent debtor C be divided only between the two other
remaining debtors, A and B?
No, as the release of the share of one debtor would then increase the burden of the other
debtors without their consent. When one of the solidary debtors cannot, because of his
insolvency, reimburse his share to the debtor paying the obligation, such share shall be borne by
all his co-debtors, in proportion to the debt of each. (Art. 1217, Civil Code). Additionally, D was
released only from his share of P10,000 not from the solidary tie that binds him to A, B and C.
9Answer by UP Law Center)
X
“FF” and “GG” executed a promissory note binding themselves, jointly and severally, to
pay “X” Bank P10,000.00 within 90 days from January 10, 1979. “FF” signed the note as principal
and “GG” as guarantor. Upon failure to pay the note on the due date, “X” Bank sued “FF” and
“GG” for payment. “GG” interposed the defense that he was just a guarantor and the Bank
must first exhaust all the remedies against the principal “FF”. Is “GG’s” defense tenable?
“GG’s” defense is untenable. He had not bound himself solidarily with “FF” to ay the
obligation, undoubtedly, as guarantor, he could have availed the defense of benefit of
excussion. In other words, he cannot be compelled to pay the creditor unless the latter has
exhausted all properties of the debtor and he resorted to all the legal remedies against the said
30 | P a g e
debtor. But then, in the promissory note, he bound himself jointly and severally with “FF” to pay
the obligation to the creditor. According to the law, such defense now invoked by “GG” is no
longer available. (Answer by UP Law Center).
QUIZ NO. 10
Quiz No. 10 (Divisible and Indivisible Obligations [Art. 1223-1225]; Obligations with a Penal Clause
[Art. 1226-1230])
February 19, 2018
I
The Betis Furniture Co. undertook to deliver to Mr. Bagongkasal specified pieces of living room,
dining room and bedroom furniture, all made of narra, for a price stated in the contract. The
agreement had a penal clause that any violation of the contract would entitle the aggrieved
party to damages in the amount of P100,000. The furniture delivered by Betis was made, not of
narra, but of inferior wood. In a suit to recover damages, Mr. Bagongkasal was able to prove
that the actual damages he sustained amounted to P200,000. He demanded that amount plus
P100,000 penalty or a total of P300,000. Betis, however, countered that if it were liable for
damages at all, the maximum award should not exceed P100,000 as stated in the penal clause
of the contract. Whose claim would you sustain? Why?
Answer. Aquino, p. 406-407
The claim of Betis should be sustained.
Under Art. 1226, provides in part that the penalty shall substitute the indemnity of the
damages in case of non-compliance, further under Art1228, provides that no proof of damages
is necessary to enforced penal clause.
In this case, it has been stipulated in the penal clause of the contract that in violation of
the obligation the aggravated party shall be entitled of damages in the amount of P100,000.
Thus the penalty will substitute the indemnity of damages and may be awarded in the
concept of penalty in the absence of proof provided that the penal clause was freely agreed
upon.
II
X borrowed money from Y with a stipulation that the amount shall earn interest at 5% per month,
and a penalty clause of 4% per month in case of default. X defaulted; hence, Y demanded the
performance of the obligation, and having failed to pay, Y sued X. X interposed the defense
that the penalty imposed in the contract is excessive and iniquitous, hence, the court must
reduce it. Is the defense proper? Why?
Yes, the contract is excessive and iniquitous.
The law provides that the judge shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor. Even if there has been no
performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.
(Art. 1229, NCC).
31 | P a g e
In this case, the 5% interest per month and the 4% penalty rate in the top of it is very
excessive and iniquitous, which may cause too much burden for the debtor. Therefore it should
be reduced by the court.
III
A borrowed money from B with interest and penalty charges imposed in the contract. A failed to
pay his obligation; hence, B sued A for collection of sum of money. A compromise agreement
was entered into and approved by the court, with a stipulation that in case A fails to pay, he
would pay a penalty of 4% per month. He failed to pay, hence, a motion for execution was filed.
A opposed the motion on the ground that the penalty is excessive or iniquitous. Rule on the
motion.
Answer: Albano, pp. 423-424
The motion should be granted.
While it is true that the court can reduce the penalty if it is iniquitous (Art. 1229) yet the
same rule is applicable only in contracts that are subjects of litigation and not to the judgement
rendered by the court.
However, In this case there was already a judgment rendered and the same has already
become final and executory. Thus, the said provision is not applicable under the given fact,
hence, A cannot invoke the power of the court to reduce the penalty. (Commercial Credit Corp.
of Cagayan de Oro vs. CA, January 2, 1989).
IV
There was a contract of loan between SBTC and the petitioners with a stipulated penalty
of 5% per month. When the obligation became due and demandable, no payment was made,
hence, a suit was filed. Judgment was rendered by the RTC holding defendants liable imposing
5% per month penalty. The CA reduced it to 3% per month. Before the Supreme Court, they
sought to have it erased totally contending that it is grossly excessive, exhorbitant and
unconscionable. Is the contention proper? Why?
No, the contention is not proper.
Art.1229 of the NCC, provides that the judge shall reduce the penalty, even there no
performance of the obligation when it is found by the court as iniquitous or unconscionable.
In this case, the CA has already reduced the penalty into 3% per month instead of 5, thus
the Art. 1229 has already satisfied the debtor. However the said penalty is not qualified to be
extinguished, yet it is reasonable and iniquitous which is subject to be reduced. (Rizal
Commercial Bank Corporation vs. CA, 289)
Thus, the SC should concur with the decision of the CA.
V
Mila and Ligaya promised jointly to give a specific car worth P2,400,000 to Jose. In the
meantime, the car is with Honda Motors Co. Suppose Mila because of gambling does not have
the money but Ligaya has P1,200,000. What would happen of their obligation to Jose of giving
the car?
Answer: Paras, p. 322-323
Ligaya will pay her portion of share to Jose while Mila will pay for the damages and her
share.
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Art 1224 of the NCC provides that a joint indivisible obligation will give rise to indemnity of
the damages from the time one of the debtor does not comply, however the debtor who is
prepared to pay his share will not contribute the damages.
In this case, Ligaya is prepared to pay and fulfil the promise, thus she not required to pay
the damages only her share. However, Mila who is not ready of complying with the promise will
be the one to shoulder the damages and her share of 1.2 Million.
VI
What are the exceptions to the rule that a penalty clause shall be a substitute for the payment
of interest and damages?
They are: (1) when there is no stipulation to the contrary; (2) when the obligor is sued for refusal
to pay the agreed penalty; or (3) when the obligor is guilty of fraud. (Art. 1226, NCC).
VII
State the rules in case the principal obligation or the penal clause is void.
The nullity of the penal clause does not carry with it that of the principal obligation. The nullity of
the principal obligation carries with it that of the penal clause. (Art. 1230).
VIII
When is penalty reasonable or iniquitous?
The question of whether a penalty is reasonable or iniquitous can be partly subjective and partly
objective as its “resolution would depend on such factors as like the type, extent and purpose of
the penalty, the nature of the obligation, the mode of breach and its consequences, the
supervening realities, the standing and relationship of the parties, and the like, the application of
which, by and large, is addressed to the sound discretion of the court.” (Lo vs. CA; Ligutan vs.
CA, 376 SCRA 560 [2002])
IX
When may the court delete penalty clause? Explain.
The stipulated penalty might even be deleted such as when there has been substantial
performance in good faith by the obligor (Art. 1234, NCC); when the penalty clause itself suffers
from fatal infirmity; or when exceptional circumstances so exist as to warrant it. (Garcia vs. CA,
167 SCRA 815; see Palmares vs. CA, 288 SCRA 423; Ibarra vs. Aveyro, 37 Phil. 278; Ligutan vs. CA,
et. al., G.R. No. 138677, February 12, 2002).
X
What is the purpose of the penalty clause?
The penalty clause in an obligation is designed to ensure performance of the obligation.

(Country Bankers Ins. Corp. vs. CA, September 9, 1991).
33 | P a g e
QUIZ NO. 11
Modes of Extinguishing Obligations [Art. 1231]; Payment or Performance [Art. 1232-1261]
February 20, 2018
I
X is indebted to Y in the amount of P10,000.00 payable on or before December 1, 1991.
In the contract, Y agreed to be paid only to the extent of P5,000.00 when the obligation is due.
Unknown to X, Z paid the amount of P10,000.00 to Y. Subsequently, Z asked for reimbursement for
the full amount of the obligation. Is Z’s action proper? Why?
No, because Z is entitled to recover only P5,000.00 since that is the extent to which X was
benefited by the payment made by Z. Under the law, whoever pays for another may demand
from the debtor what he has paid, except that if payment was without knowledge or against the
will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor.
(Art. 1236 [par. 2], NCC).
II
X is indebted to PNB in the amount of P1M. When he failed to pay, PNB acquired into
possession the machineries belonging to X which he imported. X now contends that his
obligation has been extinguished. Decide.
Answer. Albano, p. 434; PNB vs. Pineda, 197 SCRA 1 [1991]
I would decide for the PNB because mere possession of an object belonging to the
debtor by the creditor is not equivalent to payment.
III
X bought a car from Y and delivered a check in payment of the same. Has X paid the
obligation? Why?
Answer: Albano, pp. 434; Art. 1249 [par. 2], NCC; See Filinvest Credit Corp. vs. Mendez, G.R. No.
64419, July 31, 1987
As a rule, not yet. The delivery of promissory notes payable to order or bills of exchange
or other mercantile documents shall produce the effect of payment only when they have been
cashed, or when through the fault of the creditor, they have been impaired.
IV
Mr. A borrowed P1,000 from Mr. B payable on June 5, 2013. Later, Mr. A borrowed P800
from Mr. B payable on June 13, 2013. On June 15, 2013, Mr. A delivered P1,000 to Mr. B
designating the debt that is payable on June 5, 2013 as the debt that is being paid. Can there
be application of payments? Why?
Yes, because all the requisites for application for payments are present: 1) There are two
debts, one for P1,000 and one for P800; 2) The debtor (Mr. A) and the creditor (Mr. B) are the
same in both debts; 3) The obligations are of the same kind, payment of money; 4) The
obligations are both due before the delivery of money on June 15, 2013; and 5) The amount
delivered, P1,000 is not sufficient to pay for both which totals P1,800.
34 | P a g e
V
Mr. A borrowed P1,000 from Mr. B payable on June 5, 2013. Later, Mr. A borrowed P2,000
from Mr. B payable on June 10, 2013. On June 15, 2013, Mr. A delivered P1,000 to Mr. B
designating the debt that is payable on June 10, 2013 as the debt that is being paid. Is the
designation of Mr. A binding on Mr. B?
No. The designation of Mr. A is not binding on the creditor. Mr. A cannot compel Mr. B to
accept the application of payment because what he is paying is less than the amount that is
due on June 10, 2013. Creditors cannot be compelled to accept partial payments.
VI
A delivered to B a solitaire ring for the latter to sell on commission basis. B failed to sell it
but could not return it either. She offered to return a diamond ring, but A refused, hence, this suit
to compel A to accept the same. If you were the judge, would you rule in favor of B?
No, because it is a rule that a debt shall not be considered paid unless the thing or
service in which the obligation consists has been completely delivered or rendered as the case
may be. The debtor of a thing cannot compel the creditor to receive a different one although
the latter may be of the same value or more valuable than that which is due, more so when it is
less valuable. (Hahn vs. CA, May 31, 1989).
VII
X bought a car from Y and delivered a check in payment of the same. Y presented the
check for payment two years after its issuance, and was dishonored when presented. Can X be
considered as having paid the obligation? Why?
Yes, because though his fault, the check has been impaired. (Art. 1249, NCC; Filinvest
Credit Corp. vs. Mendez, G.R. No. 64419, July 31, 1987).
VIII
A and B entered into a contract of loan for P1M whereby B obligated himself to pay A in
U.S. dollars when the obligation becomes due and demandable. Is the stipulation valid? Explain.
Yes, the stipulation is valid. R.A. No. 8183 has substantially changed some of our
jurisprudential laws. Whereas before, if there was a loan agreement, there can be no stipulation
to pay it in a currency other than Philippine Currency. Under the present law (R.A. No. 8183), the
parties in a loan undertaking can now stipulate that the same may be paid in a currency
different from Philippine Currency.
For the purpose of R.A. No. 8183, there must be an agreement that payment be made in
other currencies. If there is no agreement, such monetary obligation must still be paid in
Philippine Currency. In the absence of an agreement, the debtor cannot compel the creditor to
accept payment in other currencies.
35 | P a g e
IX
What is the effect if the check which was used as payment was a cashier’s or manager’s
check? Is it going to constitute payment? Why?
No, because a check, whether a manager’s check or an ordinary check, is not legal
tender. 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 creditor. (Tibaja, Jr., et. al. vs. CA, et. al., G.R. No. 100290, June
4, 1993, 42 SCAD 175, citing PAL vs. CA, 181 SCRA 557 [1990]; Roman Catholic Bishop of Malolos,
Inc. vs. IAC, 191 SCRA 411; Fortunado vs. CA, 196 SCRA 269 [1991]).
X
When the obligation became due and demandable, A, the creditor, refused to accept
the payment of the same. State the remedies of the debtor in order that his obligation may be
extinguished.
The debtor should make a proper tender of payment which should be in the form of a suit
or letter, then, he must make a consignation or deposit of the amount due and notify the creditor
of the same. In case of failure to comply with these requirements, the obligation is not
extinguished. (Arts. 1256, 1258, 1259, NCC).
QUIZ NO. 12
Loss of the Thing Due [Art. 1262-1269]; Remission [Art. 1270-1274]; Confusion or Merger [Art. 1275-
1277]
February 26, 2018
I
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 Construction, Inc. 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 Construction, Inc. brought a suit against Tropical
Homes praying that the Court relieve it of its obligations. Is Able Construction, Inc. entitled to the
relief sought?
Answer: Albano, p. 442; Art. 1267, NCC; Naga Tel. Co. vs. CA, et. al., G.R. No. 107112, February
24, 1994, 48 SCAD 539
Yes, because when the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may be released therefrom, in whole or in part.
II
Dino sued Ben for damages because the latter had failed to deliver the antique
Mercedes Benz car Dino had purchased from Ben, which was - by agreement – due for delivery
36 | P a g e
on December 31, 1993. Ben, in his answer on 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?
Answer: Bar Problem (1994); Ulep, p. 155-156
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. 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) (Answer by UP Law Center)
Another suggested answer:

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.
III
S sold to B an undivided ½ interest in a vessel for the sum of P36,000.00. The sum of
P10,000.00 was paid, and it was agreed that the balance of P26,000.00 was to be applied by B
to the cost of installing a new engine in the vessel. The vessel was wrecked by a storm, a
fortuitous event. Is B released from the obligation to pay the balance inasmuch as the
installation of the engine has become impossible?
Answer: De Leon, p. 380; Millan vs. Rio Olabarrieta, 45 Phil. 718 [1924]
The obligation of B was not limited to the duty to install a motor on the vessel. The true
intention of the parties under their contract was that the unpaid balance should be applied to
the installation of a motor after it had been paid by B. In other words, there was an obligation on
his part to pay the balance independently of the purpose for which it was intended to be used;
and this obligation to pay continued to subsist notwithstanding the fact that it has become
impossible to use the money in a particular way that was intended.
IV
A borrower obtained a loan from a bank. The loan was embodied in several promissory
notes. As security, the borrower executed a chattel mortgage on his standing crops. Said crops
were, however, subsequently destroyed by the Japanese forces during the last war. Is the
borrower still liable for the loan despite the destruction of the crops by someone else?
Answer: Paras, p. 440-441; Republic vs. Jose Grijaldo, L-20240, December 31, 1965
37 | P a g e
Yes, the borrower is still liable, for his obligation was not to deliver determinate things (the
crops) but to deliver a generic thing (money). The amount of money representing the value of
the crops, with interest, cannot be said to have been lost, for the account can still be paid from
sources other than the mortgaged crops.
V
Arturo borrowed P500,000.00 from his father. After he had paid P300,000.00, his father
died. When the administrator of his father's estate requested payment of the balance of
P200,000.00. Arturo replied that the same had been condoned by his father as evidenced by a
notation at the 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?
Answer: Bar Exam (2000); Ulep, p. 162-163
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. (Answer by UP Law Center)
VI
To secure its restructured loan of P1M with B, three new promissory notes were executed
by A. The parcels of land originally mortgaged were substituted by another mortgage covering
two other parcels of land and a chattel mortgage of A’s stock inventory. The released parcels of
land were then sold and the proceeds were turned over to B which was applied to the
restructured loan. Subsequently, B returned the duplicate original copies of the three promissory
notes to A with the word “PAID” stamped thereon. Despite the return of the promissory notes, B
demanded from A the amount of P500,000 representing accrued interest. According to B, the
promissory notes were erroneously released. A filed in court for specific performance for the
release of its mortgaged properties and that its obligation be declared as having been fully
paid. Is A correct?
Answer: Aquino & Cruz, p. 328-329; Trans-Pacific vs. CA, 235 SCRA 494 [1994]
No. The presumption created in Art. 1271 of the Civil Code is not conclusive but merely
prima facie. Art. 1271 states:
“Art. 1271. The delivery of a private document evidencing a credit, made voluntarily by
the creditor to the debtor, implies the renunciation of the action which the former had against
the latter.
38 | P a g e
If in order to nullify this waiver it should be claimed to be inofficious, the debtor and his
heirs may uphold it by proving that the delivery of the document was made in virtue of payment
of the debt. (1188)”
If there is no evidence to the contrary, the presumption stands. Conversely, the

presumption loses its legal efficacy in the face of proof or evidence to the contrary. In the case
at bar, the Court finds sufficient justification to overthrow the presumption of payment generated
by the delivery of the documents evidencing petitioners’ indebtedness. It may not be amiss to
add that Art. 1271 of the Civil Code raises a presumption, not payment, but of the renunciation of
the credit where more convincing evidence would be required than what normally would be
called for to prove payment.
The rationale for allowing the presumption of renunciation in the delivery of a private
instrument is that, unlike that of a public instrument, there could be just one copy of the
evidence of credit. Where several originals are made out of a private document, the intendment
of the law would thus be to refer to the delivery only of the original rather than to the original
duplicate of which the debtor would normally retain copy.
VII
A and B were co-owners of a piece of property worth P1,000,000. For some repairs
thereon, B paid P200,000. Because they were co-owners, A had to share in said expenses, and
so A owed B, P100,000. A sold his share in the property to C and B also sold his share in the
property to C. Later, B brought this action to recover P100,000 from A. A claimed that since C is
now the owner of the property, C owes himself, and therefore said merger had extinguished his
debt to B. Should A pay B?
Answer: Paras, p. 457; Testate Estate of Mota vs. Serra, 47 Phil. 464
Yes, A should pay B, since there was really no merger here. What had been sold to C
were the half shares of each of the co-owners, or P500,000 worth of property from each. C did
not acquire the indebtedness of P100,000 for the repairs, hence, there can be no merger with
reference to the debt.
VIII
A vessel collided with another vessel. The first vessel was at fault, but it sank. However, the
owner of the vessel collected insurance. Is the insurance company liable for the damages
sustained by the second vessel?
Answer: Paras, p. 447; Urrutia & Co. vs. Baco River Plantation Co., 26 Phil 632
Yes. The vessel lost was insured, and the defendant collected the insurance. That being
the case, the insurance money substitutes the vessel, and must be used, so far as necessary, to
pay the judgment rendered in this case.
IX
The transport services of G were engaged by X to deliver to Y 40 cases of mangoes from
the Philippines to South Africa by ship at the cost of $30,000 or or before April 11, 1997 and the
usual route known to the parties in going to South Africa had been suddenly closed prompting
G to look and eventually pass through another route, which was likewise closed, again leaving
G with no other choice but to attempt passing through another alternative route four times
longer than the usual route, and which route could be traversed by G’s vessel but will likely
cause damage to the vessel, entail enormous additional and unreasonable cost (i.e., G would
have to charter other vessels for the continuing voyage), and endangering the fruits to possible
harm as they would most likely spoil along such a long trip. G did not comply with its obligation
to deliver the fruits. Will G be liable? Why?
39 | P a g e
Answer: Sta. Maria, p. 341; Art. 1267 provides:
No. 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.
In the instant case, the service of G to deliver the fruits owned by X to Y clearly became so
difficult to do and was manifestly beyond their contemplation. G can demand the
extinguishment of his service and that such obligation should be deemed extinguished.
X
A Corp., the lessee in a lease contract sought its release from paying rentals and from
the said contract itself invoking Art. 1266 of the New Civil Code and claiming that, due to the
change in political climate after the EDSA revolution and change in financial condition, it was
not able to use the property for the purpose for which it intended to utilize it, i.e., to use the
leased premises as a site of a rock crushing plant. Is A Corp. correct? Why?
Answer: Sta. Maria, p. 339-340; Philippine National Construction Corporation vs. CA, G.R. No.
116896, May 5, 1997, 82 SCAD 377
No. The Supreme Court rejected such prayer for the lessee’s release by stating:
It is 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.”
Petitioner cannot, however, successfully take refuge in the said article, since it is
applicable only to obligations “to do,” and not to obligations “to give.” An obligation “to do” is a
prestation which consists in the delivery of a movable or an immovable thing in order to create a
real right or for the use of the recipient, or for its simple possession, or in order to return it to its
owner.
The obligation to pay rentals or deliver the thing in a contract of lease falls within the
prestation “to give,” hence, it is not covered within the scope of Article 1266. At any rate, the
unforeseen event and causes mentioned by the petitioner are not the legal or physical
impossibilities contemplated in the said article. Besides, petitioner failed to state specifically the
circumstances brought about by the “abrupt change in the political climate” except the alleged
prevailing uncertainties in the government policies on infrastructure projects.
40 | P a g e
QUIZ NO. 13
Compensation [Art. 1278-1290]
March 5, 2018
I
X sold and delivered various items of merchandise to Y amounting to P200,000.00. When
Y failed to pay his obligation, X sued him for collection of sum of money, but Y filed an answer
contending that there should be compensation with his commission over the merchandise X sold
and delivered to A, as it has been the practice of X to deal with Y first before he would deal with
Z. Is the defense proper? Why? (10%)
No, the defense is not proper.
Paragraph 4, of Art.1279 of the New Civil Code, provides that in order for the
compensation may be proper, they should be liquidated and demandable.
In this case, the commission which is the claim of Y is unclear and unliquidated, thus the
compensation will be improper because the claim of Y asserting a set-off against X is not clear
and liquidated. (Silahis Markting Corp Vs. IAC)
II
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. (10%)
No, the bank is incorrect with respect to the amount of compensation, yet it is correct for
the application of compensation.
Art. 1279 of the New Civil Code provides that in order for the compensation to be proper
it should be, Parag (1) that each one of the obligor be bound principally, and at the same time a
principal and a creditor of the other and parag (3) both debt are due.
In this case, the deposit made by Sarah is governed by loan contract and the bank is the
debtor for her deposit, and of the same time Sarah is also a debtor of the bank through loan, thus
there is a creditor and a debtor relationship which qualifies the compensation.
However, it is not lawful to compensate the amount which is not yet due. The only
unpaid due were the third, fourth, and fifth monthly installment. Therefore, the compensation
should only in the amount of P300,000 and not the whole obligation of Sarah.
III
A, stockholder of X Co., was made defendant in a suit instituted by the corporation for
the payment of an indebtedness of P10,000. A contends that such debt must be compensated
by his shares of stock with the plaintiff corporation. Is this correct? Reasons. (10%)
No, the defendant cannot plea for compensation.
Art. 1278 of the New Civil Code, provides that compensation shall take place when two
persons, in their own right, are creditors and debtors of each other.
In this case, there can be no compensation because there is no relationship of debtor

and creditor relationship. As decided by the Supreme Court in the case of Garcia vs. Lim Chui
Sing provides that the indebtedness of the stockholder to a banking corporation cannot be
41 | P a g e
compensated with his shares in the same institution, and with regard to that share there is no
debtor and creditor relation.
Thus, the defendant not being the creditor of the X co., has no sufficient ground to justify
a compensation.
IV
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? (10%)
Y bank is correct.
Art. 1279 of the civil code provides all the requisites for the compensation to be proper,
moreover provided in part in Art. 1290 of the same code provides that when all the requisite
mentioned in Art 1279 are present, the compensation takes effect by operation of law and
extinguishes both debts to the concurrent amount.
In this case, the there is a relation of debtor and creditor between X and Y, and all the
requisites in Art. 1279 are present. Thus, the compensation may take place between the mutual
obligation of X and Y as pursuant to the general rule that a bank has a right of set-off or
compensation of the deposits in its hands for the payment of any indebtedness to it on the part
of a depositor.
V
NCB of Jeddah, Saudi Arabia remitted through PNB $2,627.11 for the benefit of Ramon.
However, PNB, without the knowledge of Ramon, deducted said amount from his indebtedness
to PNB by way of set off or compensation. Does PNB as a local bank, while acting as local
correspondent bank, have the right to intercept funds being coursed through it by its foreign
counterpart for transmittal and deposit to the account of an individual and apply said funds to
certain obligations owed to it by the said individual? (10%)
No. the local bank has no right to intercept funds being coursed through it by its foreign
counterpart for transmittal.
Art. 1279 of the New Civil Code Provides that in order the compensation may be proper, it
is necessary that each one of the obligors be bound principally, and at the same time a
principal creditor of the other.
In this case, the remittance made by NBC of Jeddah, is not the deposit of Ramon, thus
there is no debtor and creditor relationship in respect with the remittance but only trustee-
beneficiary.
Thus the PNB, has the obligation to deliver he total amount to Ramon, and cannot off-set
the obligation Ramon from the said remittance.
VI
Brimo was a stockholder and treasurer of a corporation. Brimo paid a sum greater than
the value of his shares. As a treasurer, Brimo owed the corporation a certain sum. May Brimo’s
credit be compensated with his indebtedness as treasurer? (10%)
Yes, Brimo’s credit be compensated with his indebtedness as treasurer.
42 | P a g e
Art. 1278 of the New Civil Code, provides that compensation shall take place when two
persons, in their own right, are creditors and debtors of each other.
In this case, Brimo has paid a sum greater than the value of his shares, thus Brimo is a
creditor of the excess value of the shares but not as to the value of the share. ( Brimo Vs.
Goldenberg and Co. Inc)
Hence, in this premise there is a creditor and debtor relationship between Brimo and the
corporation. And this will qualify the credit of Brimo to be compensated from the excess values
of the share.
VII
A owes B P500,000. C is the guarantor of A. B owes A P100,000. When B sues A and A
cannot pay, for how much will C be liable? (10%)
C will be liable for 400,000.
Art .1280 of the New Civil Code provides that the guarantor may set up compensation as
regards what the creditor may owe the principal debtor.
In this case, since the B owes 1000,000 to the C who is the guarantor of A, thus C will only
be liable for 4000,000.
VIII
A owes B P500,000. C is the guarantor of A. B owes C P500,000. When B sues A for the
P500,000, may A successfully put up the defense of compensation in that, after all, his creditor
(B) owes C the same amount? (10%)
No. There can be no compensation here because in the obligation which C had
guaranteed for A, he (C) is not bound in his own right. Neither is A the creditor of B.
(NOTE: If A cannot pay and B sues the guaranty, C will not be liable anymore because the
obligation of guaranty has been extinguished by compensation.)
IX
A owes P1,000,000 due on April 2; B owes A P200,000 due also on April 2. On February 4
(when there was no legal compensation yet), B assigned his P1,000,000 credit to C, with the
knowledge but without the consent of A. On April 2, how much can C successfully collect from
A? (10%)
P1,000,000, because if at all there would be compensation here, it took place after the
assignment, not before. It does not matter that the P200,000 had been incurred prior to the
cession, for when the law speaks of “debts previous to the cession,” it refers to debts maturing
before the cession (not to debts incurred prior to such cession which have not yet matured
before said cession).
X
A owes B P1,000,000. B owes A in turn P200,000. Both debts are already due. Later, B
assigns the P1,000,000 credit to C, without the knowledge of A. This assignment was made on
July 1. On July 15, a P250,000 debt of B in favor of A matured. A learned of the assignment on
August 1. On August 23, a P150,000 debt of B in favor of A matured. Later, C asks A to pay his
debt. How much can C successfully collect from A? (10%)
43 | P a g e
C can collect P550,000 because A can set up the defense of partial compensation
regarding the P200,000 and the P250,000 debts, debts which had matured and were therefore
already compensable PRIOR to his knowledge of the assignment. But A cannot set up the last
debt of P150,000 for partial compensation because this matured only after he knew of the
assignment.
44 | P a g e
QUIZ NO. 14
Novation [Art. 1291-1304]

March 6, 2018
I
X and Y entered into a contract. Z executed a surety undertaking for Y, the debtor. X and Y
entered into an agreement changing the interest rate. Is there a novation as to release Z? Why?
(10%)
Answer. Albano, p. 449; Garcia vs. CA, G.R. No. 80201, Nov. 20, 1991
None, because the mere change of interest rate does not extinguish the surety undertaking. It is
a mere collateral agreement. The surety is still liable for the interest originally agreed upon.
II
A obtained a favorable judgment against B from the Court of First Instance of Manila for the sum
of P2,000. Subsequently, a writ of execution was issued and a jeep belonging to the latter was
seized by the sheriff. However, the two (A and B) arrived at an arrangement by virtue of which B
executed a chattel mortgage on the jeep stipulating, inter alia, that B shall satisfy the judgment
in two equal instalments, payable at designated periods. B failed to pay the first instalment, and
as a result, A obtained an alias writ of execution and levied upon certain personal properties of
B. The latter filed an urgent motion for suspension of the execution sale on the ground of
payment of the judgment obligation. He maintains that the execution of the deed of chattel
mortgage has extinguished the judgment debt because of implied novation? Is this correct?
Reasons. (10%)
Answer: Millar vs. Court of Appeals, G.R. No. L-29981 April 30, 1971
No. The contention of B that the mortgage obligation has extinguished the judgment obligation
because of implied novation is not correct. The defense of implied novation requires clear and
convincing proof of complete incompatibility between the two obligations. The law requires no
specific form for an effective novation by implication. The test is whether the two obligations can
stand together. If they cannot, incompatibility arises, and the second obligation novates the first.
If they can stand together, no incompatibility results and novation does not take place.
Applying this test, we see no substantial incompatibility between the mortgage obligation and
the judgment obligation sufficient to justify a conclusion of implied novation. The stipulation for
the payment of the obligation under the terms of the deed of chattel mortgage serves only to
provide an express and specific method for its extinguishment – payment in two equal
installments. The chattel simply gave the judgment debtor a method and more time to enable
him to fully satisfy the judgment indebtedness. (Millar vs. Court of Appeals, G.R. No. L-29981 April
30, 1971).
“The unmistakable terms of the deed of chattel mortgage reveal that the parties constituted the
chattel mortgage purposely to secure the satisfaction of the then existing liability of the
respondent arising from the judgment against him in civil case 27116. As a security for the
payment of the judgment obligation, the chattel mortgage agreement effectuated no
substantial alteration in the liability of the respondent.
The defense of implied novation requires clear and convincing proof of complete
incompatibility between the two obligations. 2 The law requires no specific form for an effective
novation by implication. The test is whether the two obligations can stand together. If they
cannot, incompatibility arises, and the second obligation novates the first. If they can stand
together, no incompatibility results and novation does not take place.
We do not see any substantial incompatibility between the two obligations as to warrant a
finding of an implied novation. Nor do we find satisfactory proof showing that the parties, by
explicit terms, intended the full discharge of the respondent's liability under the judgment by the
obligation assumed under the terms of the deed of chattel mortgage so as to justify a finding of
express novation.”
45 | P a g e
III
Supposed that under the judgment obligation, the liability of the judgment debtor is for the
amount of P6,000, but the judgment debtor and judgment creditor subsequently entered into a
contract reducing the liability of the former to only P4,000. Is there an implied novation which will
have the effect of extinguishing the judgment obligation and creating a modified obligatory
relation? Reasons. (10%)
Answer: Sandico vs. Piguing, 42 SCRA 322
There is no implied novation in this case. We see no valid objection to the judgment debtor and
the judgment creditor in entering into an agreement regarding the monetary obligation of the
former under the judgment referred to. The payment by the judgment debtor of the lesser
amount of P4,000, accepted by the creditor without any protest or objection and
acknowledged by the latter as in full satisfaction of the money judgment, completely
extinguished the judgment debt and released the debtor from his pecuniary liability.
Novation results in two stipulations – one to extinguish an existing obligation, the other to
substitute a new one in its place. Fundamental it is that novation effects a substitution or
modification of an obligation by another or an extinguishment of one obligation by the creation
of another. In the case at hand, we fail to see what new or modified obligation arose out of the
payment by the judgment debtor of the reduced amount of P4,000 to the creditor. Additionally,
to sustain novation necessitates that the same be so declared in unequivocal terms clearly and
unmistakably shown by the express agreement of the parties or by acts of equivalent import – or
that there is complete and substantial incompatibility between two obligations.
IV
J.C. Construction (J.C.) bought steel bars from Matibay Steel Industries (MSI) which is owned by
Buddy Batungbacal. J.C. failed to pay the purchased materials worth P500,000.00 on due date.
J.C. persuaded its client Amoroso with whom it had receivables to pay its obligation to MSI.
Amoroso agreed and paid MSI the amount of P50,000.00. After two (2) other payments,
Amoroso stopped making further payments.
Buddy filed a complaint for collection of the balance of the obligation and damages against
J.C. J.C. denied any liability claiming that its obligation was extinguished by reason of novation
which took place when MSI accepted partial payments from Amoroso on its behalf.
Was the obligation of J.C. Construction to MSI extinguished by novation? Why? (10%)
Answer: Bar Problem (2014)
No, the obligation of JC was not extinguished by novation. Novation may either be objective or
subjective. Subjective novation takes place by the substitution of debtor or subrogation of a
third person to the rights of the creditor. Novation by substituting a new debtor may take place
even without the knowledge or against the will of the original debtor but not without the consent
of the creditor. Moreover, novation must be expressed and it cannot be implied and there must
be an agreement that the old obligation is extinguished. In the case of JC, it does not appear
that MSI had agreed to release JC from the obligation. Hence, the obligation of JC was not
extinguished.
V
Jerico, the project owner, entered into a Construction Contract with Ivan for the latter to
construct his house. Jojo executed a Surety undertaking to guarantee the performance of the
work by Ivan. Jerico and Ivan later entered into a Memorandum of Agreement (MOA) revising
the work schedule of Ivan and the subcontractors. The MOA stated that all the stipulations of the
original contract not in conflict with said agreement shall remain valid and legally effective. Jojo
filed a suit to declare him relieved of his undertaking as a result of the MOA because of the
change in the work schedule. Jerico claims there is no novation of the Construction Contract.
Decide the case and explain. (10%)
Answer: 2016 bar exam; Paras - (apply Art. 1296 – commentaries, p. 513)
46 | P a g e
No. Art. 1296 applies in particular to extinctive novation. If the novation is merely modificatory
and the same if now more onerous, the guarantors and sureties are liable only for the original
obligation. (See Art. 2054, Civil Code). If the modified obligation is now less onerous, the
guarantors and sureties are still responsible.
VI
D and C entered into a contract whereby D was to give C P800,000 in cash. Later, they novated
the contract by stipulating that instead of cash, D would give a particular car. Subsequently, the
car was destroyed by a fortuitous event. Is D obliged to give P800,000? (10%)
No, because the original obligation had already been extinguished by the valid novation.
Moreover, the obligation to deliver the particular car is also extinguished because of the
fortuitous event.
VII
Rey borrowed from Hodges the sum of P3,000. Three days after the loan was contracted, Rey by
means of a letter, authorized PNB to pay his indebtedness to Hodges out of whatever crop loan
might be granted by said bank. On the same date, the Bank agreed. But the Bank paid Hodges
only P2,000. On the date of maturity, Hodges sued the Bank and Rey for the remaining P1,000. Is
the Bank liable? (10%)
Answer: Paras, p. 508; C.N. Hodges vs. Matias C. Rey, L-12554, Feb. 28, 1961
No, for the Bank did not assume Rey’s indebtedness. The fact that it paid P2,000 does not bind
the Bank for the remainder of P1,000, for what it did was to merely make available to the
creditor what it could lend to Rey.
VIII
A owes B P500,000. With the consent of both, C pays B P250,000. Now B and C are the creditors
of A to the amount of P250,000. Suppose A has only P250,000, who should be preferred? (10%)
B, the original creditor, should be preferred inasmuch as he is granted by the law (Art. 1304, Civil
Code) preferential right to recover the remainder, over the person subrogated in his place by
virtue of the partial payment of the same credit.
IX
A owes B P1,000,000. A proposed to B that C will pay A’s debt, and that A will be released from
all liabilities. B and C agreed to the proposal. Later, when B tries to collect from A, he finds out
that C is insolvent. It was proved that at the time of delegation, C was already insolvent but this
was not known to A. Neither was the insolvency of public knowledge. Nevertheless, B still sues A
on the ground that it was A who made the proposal, and that therefore A really guaranteed C’s
solvency. Decide. (10%)
Answer: Paras, p. 511-512
A is not liable, for the insolvency was neither of public knowledge nor known to A at the time he
delegated his debt. The law does not require A to give a blanket guaranty. (Art. 1295).
X
A promised to give B a car unless X married Y. Later, A and B agreed to change the object to a
precious stone. No mention was made regarding any condition. Is the second obligation subject
to a resolutory condition? (10%)
47 | P a g e
Yes, unless the contrary has been provided for in the contract. (Art. 1299, Civil Code).
Additional Answers and Explanation by Judge Blanza:
Quiz No. 4
Below is Question No. IV:
X sold and delivered a car to Y with the agreement that after five days, Y would pay the amount
of P200,000.00 to X. X filed an action for rescission of the contract on the ground that Y failed to
pay the price. Will the action prosper? Why?
Yes, because in cases of reciprocal obligations, the power to rescind is implied if the obligor
should not comply with what is incumbent upon him. (Art. 1191, NCC). In this case, Y failed to
pay his obligation, hence, X has the right to ask for rescission.
HERE, the underlying issue (core issue) is whether or not Art. 1191 is applicable. Though a different
period of performance is fixed which would require a demand - but unlike Question No. I -
demand is not an issue here. It is also not stated in the problem whether or not there was
demand or whether or not demand was proper. I think Albano is correct in his answer. It is just a
plain issue of whether or not Art. 1191 is applicable. One of the most important thing that I will be
training you is SPOTTING THE ISSUE. If you could not spot the issue - definitely - the succeeding
sentence of your answer will be wrong.
48 | P a g e
Quiz No. 5
Below is question No. I:

In a case, there was a contract for the purchase of 36,000 cartoons specifically designed for the
business of exporting bananas. Allegedly, the defendant failed to manufacture and deliver the
boxes and that it repeatedly followed-up the immediate production of the boxes, but to no
avail. Hence, it filed a complaint for reimbursement of the amount paid. The defendant
contended that it has completed the manufacture of the boxes. The complaint was dismissed
which was affirmed on appeal. Will the action prosper and what is the nature of the action?
Below is the ruling in Solar Harvest v Davao Corrugated Cartoon:

In reciprocal obligations, as in a contract of sale, the general rule is that the fulfillment of the
parties’ respective obligations should be simultaneous.
Hence, no demand is generally necessary because, once a party fulfills his obligation and the
other party does not fulfill his, the latter automatically incurs in delay.
But when different dates for performance of the obligations are fixed, the default for each
obligation must be determined by the rules given in the first paragraph of the present article,
that is, the other party would incur in delay only from the moment the other party demands
fulfillment of the former’s obligation.
Thus, even in reciprocal obligations, if the period for the fulfillment of the obligation is fixed,
demand upon the obligee is still necessary before the obligor can be considered in default and
before a cause of action for rescission will accrue.
In the problem above, it can be deduced that there is different date in performance of the
obligation is fixed. The plaintiff has already paid. But the obligation of defendant is to
manufacture and deliver. To manufacture the cartoons would require time. It is different when
the obligation of defendant after payment is to deliver. Hence, in this case, it requires DEMAND.
So, the answer is NO. - thus, the underlying issue is whether or not there was demand when what
was done is making the "follow-up".
The Answer Key for Question No. VIII of Quiz No, 5 shows:
A sold to B some properties. It was agreed that B, the buyer, should take care of perfecting
within six months the title papers to the property. This duty B was not able to do so. Despite the
fact that B had already paid the price, may A, the seller, rescind the contract on the ground
that B had not complied with the obligation referred to above?
Answer: Paras, p. 222; Asturias Sugar Central vs. Pure Cane Molasses Co.,60 Phil. 255
No. In a case of sale, the corresponding duties are: for the seller to deliver, and for the buyer to
pay. Here the buyer has paid. Therefore, the seller cannot rescind just because the title papers
had not yet been perfected. Had the buyer not yet paid, it would have been a different story.
(See Borromeo vs. Franco, 5 Phil. 49)
I would like to make some further discussion. In the case of Borromeo vs. Franco, the SC said
which I believe is the precise part of the jurisprudence that would answer the core issue:
“The obligation which the purchaser, Borromeo, imposed upon himself, to perfect the papers to
the property within a period of six months, is not correlative with the obligation to sell the
property. These obligations do not arise from the same cause. They create no reciprocal rights
between the contracting parties, so that a failure to comply with the stipulation contained in
clause (c) on the part of the plaintiff purchaser within the period of six months provided for in the
said contract, as he the plaintiff, himself admits, does not give the defendants the right to
cancel the obligation which they imposed upon themselves to sell the two houses in question in
accordance with the provisions of article 1124 of the Civil Code, since no real juridical bilaterality
or reciprocity existed between the two obligations, because the obligation to perfect the title
papers to the houses in question is not correlative with the obligation to fulfill the promise to sell
such property. One obligation is entirely independent of the other. The latter obligation is not
subordinate to nor does it depend upon the fulfillment of the obligation to perfect the title
49 | P a g e
deeds to the property.
Xxx
When the plaintiff, Borromeo, demanded the execution of the sale, even though the documents
were not in proper shape, it must be assumed that he was willing to buy the property even with
a defective title, the perfection of which he expressly undertook to obtain."
The Answer Key for Question No. IX in Quiz No. 5 shows:

Petitioner-spouses rescinded the contract of lease without judicial approval. Due to the change
in ownership of the land, petitioner-spouses decided to unilaterally cancel the contract because
Virgilio supposedly became the new owner of the house after acquiring title to the lot. They
alleged that there was no reason anymore to perform their obligations as lessees because the
lessor had ceased to be the owner of the house. Are the petitioner-spouses correct?
Answer: Paras, p. 238; Spouses Reynaldo Alcaraz & Esmeralda Alcaraz vs. Pedro M. Tangga-an,
et. al., G.R. No. 128568, April 9, 2003
No. There is nothing in the lease contract that allows the parties to extrajudicially rescind the
same in case of violation of the terms thereof. Extrajudicial rescission of a contract is not possible
without an express stipulation to that effect. (Art. 1191). What the petitioner-spouses should have
done was to file a special civil action for interpleader for claimants to litigate their claims and to
deposit rentals in court.
I would like to make some further discussion. In the foregoing jurisprudence, the SC said:
“The issue in the case at bar is whether the petitioner spouses, as lessees, were excused from
paying the rent because of the change in the ownership of the land on which the rented house
was built.
xxx
The said transfer allegedly included the subject house because, pursuant to Article 440 of the
Civil Code, "the ownership of the property gives the right of accession to everything which is
produced thereby, or which is incorporated or attached thereto, either naturally or artificially."
They also maintain that the NHA executed a deed of sale of both the house and the lot in favor
of Virgilio.
xxx
After examining the records, we found nothing to disprove the facts determined by the lower
courts. All the petitioner spouses presented was Virgilio’s uncertified xerox copy of the certificate
of title over the lot. No document was ever shown evidencing cession of the subject house in
Virgilio’s favor. Virgilio’s title could not be used to prove ownership over the house built on said
lot as it carried no reference at all to the house. A building by itself is a real or immovable
property distinct from the land on which it is constructed and therefore can be a separate
subject of contracts.
On the other hand, the respondents proved that, as compulsory heirs of Virginia, they were the
rightful owners of the subject house. They presented a tax declaration in the name of their
trustees, co-respondent Hermes Tangga-an and his wife, which tax declaration sufficiently
evidences their co-ownership and acquisition of title following the death of the decedent
Virginia.”
The Answer Key to Question No. I in Quiz No. 5 shows:

In a contract for the construction of a condominium building, it was expressly agreed that should
there be any dispute, a board of liquidators must first be resorted to before taking any judicial
action. The owner went to court because the building was not finished on time, but there was no
prior resort to arbitration. Will the case now be dismissed?
Answer: Paras, p. 200; Bengson vs. Chan, L-27283, July 29, 1977
50 | P a g e
No, the case will not be dismissed, although there was no prior resort to arbitration. This is so
because under the Arbitration Law (RA876), in a case like this, what the Court should do is to
refer the matter to the arbitrators who are supposed to be selected by the parties.
My further explanation is that though there is a condition that before taking of any judicial
action prior resort to arbitration must be done which in the instant case was not done, Bengson
vs. Chan teaches us that in case of differences in the law (Arbitration Law) and the agreement
of the parties, the law must prevail. Art. 1306 of the New Civil Code essentially provides that
contracting parties may establish such terms and conditions but the same should not be
contrary to law.
I read some of your answers, I noticed that you were not able to spot the core issue which is
whether or not the condition set for in the agreement is in accordance with law. If we follow
their agreement, the case should be dismissed because the case was filed with no prior resort to
arbitration as agreed upon. But the provision in the Arbitration Law provides for another
procedure wherein arbitration can be done even when the case is filed in court. The law should
be followed instead of their agreement.
Note: I had checked Question No. 1. Only one got the right answer. It's Sheerah. I know that
most of you read Bengson vs. Chan. Remember that the purpose of jurisprudence is to apply or
interpret the law. Involved here is the law on contracts and Arbitration Law. In Bengson vs. Chan,
it applies the principle that in case of conflict between contract and law, the latter shall prevail.
That is why, their agreement of resorting first to arbitration before going to court will not be
applied, instead, the Arbitration Law will apply.
The answer key for Question No. IV of Quiz No.. 5 shows:

A sold B a parcel of land on condition that the price would be paid as soon as B had paid off
the mortgage and other debts of the estate. A waited for some time, but since B had not yet
succeeded in paying off the debts, A brought an action to cancel the sale. Will the action of A
prosper?
Answer: Paras, p. 206-207; Martin vs. Boyero, 55 Phil. 760
No. The sale will not be cancelled. There was no time stipulated here, and besides, B was trying
his best to comply with his agreement. So, B must be given more time.
My further explanation to this is that in Martin vs. Boyero, the SC held:
“With reference to the period for the payment of P20,000 which the court must fix, according to
the appellant, such a period has already been fixed in the contract, which, according to the
judgment appealed from, is after the debts of the estate are paid.
xxx
Inasmuch as the record does not show that all the debts of the España Estate have been paid,
or that the defendant is responsible for their not being paid, the plaintiff has no cause of action
to ask for the relief prayed for in his complaint.”
Quiz 12
Below is my additional explanation to Question No VIII.
A vessel collided with another vessel. The first vessel was at fault, but it sank. However, the owner
of the vessel collected insurance. Is the insurance company liable for the damages sustained by
the second vessel?
Answer: Paras, p. 447; Urrutia & Co. vs. Baco River Plantation Co., 26 Phil 632
Yes. The vessel lost was insured, and the defendant collected the insurance. That being the
case, the insurance money substitutes the vessel, and must be used, so far as necessary, to pay
the judgment rendered in this case.
51 | P a g e
This is my additional explanation:
Yes. Art. 1269 of the New Civil Code (formerly Art. 1186 of the Old Civil Code) provides that “The
obligation having been extinguished by the loss of the thing, the creditor shall have all the rights
of action which the debtor may have against third persons by reason of the loss”. The Supreme
Court in the case of Urrutia & Co. vs. Baco River Plantation Co. held “we are met in this
jurisdiction with article 1186 of the Civil Code, which provides that "xxx after the obligation is
extinguished by the loss of the thing, all the actions which the debtor may have against third
persons, by reason thereof, shall pertain to the creditor," xxx” In the instant case, the vessel at
fault was insured. The second vessel becomes the creditor of the vessel at fault. Thus, the second
vessel has a right of action which the vessel at fault may have against the insurance company
by reason of its loss. However, the amount that could be collected shall not exceed the amount
of insurance money actually received.
52 | P a g e

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MIDTERM REVIEWER

OBLIGATIONS AND CONTRACTS

An obligation is a juridical relation whereby a person (called the creditor)

The Civil Code enumerates the sources of obligations:

Art. 1157. Obligations arise from:

A practice or custom is, as a general rule, not a source of a legally demandable or

Answer: De Leon, pp. 13-14

Answer: Ulep, p. 7; Bar Problem (1995)

(1) When the property or business is not neglected or abandoned;

Answer: Paras, p. 92; Ollendorf vs. Abrahamson, 38 Phil. 585

Answer: De Leon, pp. 27-28

In the instant case, the court will order X:

Answer: Ulep, p. 18; Bar Problem (2007)

Answer: Ulep, p. 30-32; Bar Problem (1984)

The obligation to deliver the Mercedes Benz is an obligation to deliver a determinate

Answer: Aquino, p. 355

Answer: De Leon, p. 48; Enriquez vs. Ramos, 73 SCRA 116 [1976]

Answer: De Leon, p. 87; Dioquino vs. Laureano, 33 SCRA 65 [1970]

Answer: De Leon, pp. 100-101; In re Estate of Ceballos, 12 Phil. 271 [1908]

Answer: Bar Question (2013); Ulep, pp. 4-5

Answer: Bar Question (2015); Answer by UST

Answer: Ulep, p. 58-59; Bar Question (1983)

1. When the loss is due to debtor’s fault;

Answer: Albano, p. 406-407

Answer: Albano, p. 407

Answer: Albano, p. 407

Answer: Jurado, p. 622-623

Answer: Jurado, p. 624

No, since the condition has become impossible.

Answer: Paras, p. 206-207; Martin vs. Boyero, 55 Phil. 760

Answer: Paras, p. 209; Taylor vs. Yu Tieng Piao, 43 Phil. 873

Answer: Paras, p. 217

Answer: De Leon, p. 209-210; Millare vs. Hernando, 151 SCRA 484[1987]

Answer: De Leon, p. 211-212; Qui vs. CA, 66 SCRA 523[1975]

Answer: Jurado, p. 631; Bar Question [1932];

Answer: Jurado, p. 632; Gaite vs. Foncier, 112 Phil. 728

It must be filed within 10 years, otherwise, it would prescribed.

Answer: Albano, p. 414; Art. 1198[3], NCC

Answer: Aquino, p. 382.

The debtor may not choose those prestations:

Answer: Rabuya, p. 77-78

No. D should not be held liable.

Answer: Paras, p. 268

No. A is not bound by the choice made by B.

Answer: Aquino, p. 395; Inchausti vs. Yulo, 34 Phil. 978

No. The action will not prosper.

Answer: Albano, pp. 417-418; Pimentel vs. Gutierrez, 14 Phil. 49

Answer: Albano, p. 420

Answer: Jurado, p. 641; Bar Question (1983)

Answer: Ulep, p. 103; Bar Problem (1998); Answer by UP Law Center

Answer: Paras, pp. 293-294

P1.2M divided by 3 = P400,000 (the total debt of each debtor)

a) D and E having renounced their rights, they get nothing.

Answer: Paras, p. 312

Answer: Rabuya, pp. 97-98

Answer: Albano, p. 416

Y resisted the suit raising the following defenses:

Decide each defense with reasons.

Answer: Albano, p. 418

Answer: Albano, p. 419

Answer: Sta. Maria, p. 243

Answer: Sta. Maria, p. 242-243

Answer: Ulep, p. 101; Bar Problem (2014)

Answer: Ulep, p. 106-107; Bar Problem (1976)