Bar Oblicon

OBLIGATIONS
NATURE AND EFFECT OF OBLIGATIONS
Nature and effect of obligations (1986)
By means of a public instrument, Mr. Nagbibili sold his mango plantation to Abenturero effective
immediately. The document stipulated, however, that delivery would be effected six months from
the execution of the deed of sale. When the said period arrived, Abenturero demanded delivery in
writing but Nagbibili dilly-dallied. It was not until a month afterwards that Nagbibili finally gave
the land to Abenturero. In the three weeks before delivery, Nagbibili sold and delivered the entire
produce of the mango plantation to Mr.Commerciante for P200.000.00. Commerciante knew
nothing of the contract between Nagbibili and Abenturero. Abenturero now seeks to recover from
Commerciante either the full value of the mangoes or a similar amount and quality of the mangoes
sold.
Does Abenturero have this right against Commerciante? Explain.
 SUGGESTED ANSWER:
Abenturero does not have any right, whether personal or real, to proceed against
Commerciante.
In obligations to give, the creditor has a right to the thing which is the object of the
obligation and to the fruits thereof when the obligation to deliver arises. The obligation
to deliver arises from the moment of the perfection of the contract. In sales, once the
contract is perfected, the vendor is bound to deliver the thing sold and the fruits, unless
there is a stipulation to the contrary.
In the instant problem, there is a stipulation that delivery will be effected six months
from the execution of the deed of sale. Instead of delivering the mango plantation and
the fruits of Abenturero in accordance with the agreement, Nagbibili breached the
contract by delaying the delivery of the plantation beyond the period agreed upon and
by selling the fruits to Commerciante.
However, since there was still no delivery of the plantation and the fruits, it is obvious
that the only right which Abenturero had acquired was a personal right enforceable
against Nagbibili, not a real right enforceable against the whole world. Ergo, he can
now proceed against Nagbibili for indemnification for damages. He cannot proceed
against Commerciante who was not even aware of the existence of the contract between
Nagbibili and Abenturero. (Note - The above answer is based upon Arts. 1164 and
1537 of the Civil Code and upon decided cases.)
 ALTERNATIVE ANSWER:
Although the buyer is entitled to the fruits of the land from the time of perfection of the
contract, still he did not acquire a real right over the fruits until they are delivered to
him. Therefore, Abenturero has no right of action against Commerciante.
The seller is supposed to deliver to the buyer the thing sold as well as the fruits and
accessions that accrue from the moment of perfection. Abenturero is entitled to the
fruits of the mango plantation from the time of the execution of the public instrument
which provided that the sale was to be effective immediately. Delivery may be either
actual or constructive. The execution of public instrument is
one of the modes of constructive delivery.
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Natural Obligation (1977)
What are natural obligations?
Natural obligations are those based on equity and natural law, which are not
enforceable by means of a court action, but which, after voluntary fulfillment by the
obligor, authorize the retention by the obligee of what has been delivered or rendered
by reason thereof. In other words, they refer to those ''obligations without a sanction
susceptible of voluntary performance, but not through compulsion by legal means". (4
Tolentino, Civil Code, 1956 Ed., p. 588, citing Colin & Capitant)
Civil obligation; natural obligation (1989)

How is a civil obligation distinguished from a natural obligation? Give an example of a natural
obligation.
Civil obligations give a right of action to compel their performance.
Natural obligations, not being based on positive law but on equity and natural law, do
not grant a right of action to enforce their performance, but after voluntary fulfillment
by the obligor, they authorize the retention of what has been delivered on rendered by
reason thereof.
 Example of a natural obligation (one example out of any of the following):

1. When a right to sue upon a civil obligation has lapsed by extinctive
prescription, the obligor who voluntarily performs the contract cannot recover
what he has delivered or the value of the service he has rendered.
2. When without the knowledge or against the will of the debtor a third person
pays a debt which the obligor is not legally bound to pay because the action
thereon has prescribed, but the debtor later voluntarily reimburses the third
person, the obligor cannot recover what he has paid.
3. When a minor between eighteen and twenty-one years of age who has entered
into a contract without the consent of the parent or guardian, after the
annulment of the contract voluntarily returns the whole thing or price
received, notwithstanding the fact that he has not been benefited thereby,
there is no right to demand the thing or price thus returned.
4. When a minor between eighteen and twenty-one years of age, who has
entered into a contract without the consent of the parent or guardian,
voluntarily pays a sum of money or delivers a fungible thing in fulfillment of
the obligation, there shall be no right to recover the same from the obligee
who has spent or consumed it in good faith.
5. When, after an action to enforce a civil obligation has failed, the defendant
voluntarily performs the obligation, he cannot demand the return of what he
has delivered or the payment of the value of the service he has rendered.
6. When a testate or intestate heir voluntarily pays a debt of the decedent

exceeding the value of the property which he received by will or by the law of
intestacy from the estate of the deceased, the payment is valid and cannot be
rescinded by the payer.
7. When a will is declared void because it has not been executed in accordance
with the formalities required by law, but one of the intestate heirs, after the
settlement of the debts of the deceased, pays a legacy in compliance with, a
clause in the defective will, the payment is effective and irrevocable.
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Civil obligation; natural obligation (2004)
Distinguish briefly but clearly between: Civil obligation and natural obligation.
Civil obligation is a juridical necessity to give, to do and not to do. It gives the
creditor the legal right to compel by an action in court the performance of such
obligation.
A natural obligation is based on equity and natural law. There is no legal right to
compel performance thereof but if the debtor voluntarily pays it, he cannot recover
what was paid.
Civil obligation; Natural obligation (2015)

A. Sara borrowed PS0,000.00 from Julia and orally promised to pay it within six months. When
Sara tried to pay her debt on the gth month, Julia demanded the payment of interest of 12% per
annum because of Sara's delay in payment. Sara paid her debt and the interest claimed by Julia.
After rethinking, Sara demanded back from Julia the amount she had paid as interest. Julia
claims she has no obligation to return the interest paid by Sara because it was a natural obligation
which Sara voluntarily performed and can no longer recover. Do you agree? Explain. (4%)
B. Distinguish civil and natural obligations. (2%)
A. No, the case is not one of a natural obligation because even if the contract of
loan is verbal, the delay of Julia made her liable for interest upon demand by
Sara. This is not a case of a natural obligation but a civil obligation to pay
interest by way of damages by reason of delay. (Article 1956; Article 1169;
Article 2209 Civil Code)
B. A civil obligation is based on positive law which gives a right of action to

compel their performance in case of breach. A natural obligation is based on
equity and natural law and cannot be enforced by court action but after
voluntary fulfilment by the obligor, they authorize the retention of what may
have been delivered or rendered by reason thereof. (Article 1423, Civil Code)
Obligations; Without Agreement (2007)
What are obligations without an agreement"? Give five examples of situations giving rise to this
type of obligations? (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.
"Obligations without an agreement" refer to the juridical relation of quasi-contract

which arise from certain lawful, voluntary and unilateral acts to the end that no one
shall be unjustly enriched or benefited at the expense of another. (Art. 2142, NCC)
First Example of an obligation without an agreement is a case of negotiorum gestio,

whereby one who 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 (Art. 2144,
NCC).
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Second example, a case of solutio indebiti may also give rise to an obligation without
an agreement. This refers to the obligation to return which arises when something is
received when there is no right to demand it, and it was unduly delivered through
mistake (Art. 2154, NCC).
Third example, is when without the knowledge of the person obliged to give support,
it is given by a stranger, the latter shall have a right to claim the same from the former,
unless it appears that he gave it out of piety and without intention of being repaid (Art.
2164, NCC).
Fourth example, is when through accident or other causes a person is injured or

becomes seriously ill, and he is treated or helped while he is not in a condition to give
consent to a contract, he shall be liable to pay for the services of the physician or other
person aiding him, unless the service has been rendered out of pure generosity (Art.
2167, NCC).
Fifth instance of an obligation without an agreement is when the person obliged to

support an orphan or an insane or other indigent person unjustly refuses to give
support to the latter, any third person may furnish support to the needy individual,
with right of reimbursement from the person obliged to give support. The provisions
of this article apply when the father or mother of a child under eighteen years of age
unjustly refuses to support him (Art. 2166, NCC).
Unjust enrichment; Solutio indebiti (2004)

DPO went to a store to buy a pack of cigarettes worth P225.00 only. He gave the vendor, RRA, a
P500-peso bill. The vendor gave him the pack plus P375.00 change. Was there a discount, an
oversight, or an error in the amount given? What would be DPO’s duty, if any, in case of an excess
in the amount of change given by the vendor? How is this situational relationship between DPO
and RRA denominated? Explain. (5%)
There was error in the amount of change given by RRA. This is a case of solutio
indebiti in that DPO received something that is not due him. He has the obligation to
return the P100.00; otherwise, he will unjustly enrich himself at the expense of RRA.
(Art. 2154, Civil Code)
DPO has the duty to return to RRA the excess P100 as trustee under Article 1456 of
the Civil Code which provides: If property is acquired through mistake or fraud, the
person obtaining it is, by force of law, considered a trustee of an implied trust for the
benefit of the person from whom the property comes. There is, in this case, an implied
or constructive trust in favor of RRA.
Obligation to deliver a determinate thing; effect of loss (1984)
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) had 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 an accidental fire.
Has the obligation of Pedro been extinguished? Explain.
 SUGGESTED ANSWER: Furnished by Office of Justice Palma

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 been determined.
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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.
Obligations to deliver a generic thing (1985)
On September 1, 1982, A sold to B 50 heads of cattle for P150,000.00 and 60 heads of carabao for
the same price, the cattle to be loaded in Davao City on December 1, 1982, on the SS "Argus" and
delivered upon her arrival in Manila 5 days later while the carabao were be loaded in the same
city and shipped on December 15 and delivered likewise to B upon her arrival in Manila 5 days
later. Because of the breakdown of his cargo truck, A was able to ship the cattle and the carabaos
only on December 15. On her way to Manila, the SS "Argus" ran into a storm and all the animals
were thrown into the sea to prevent her from sinking. B, who paid one half of the price upon the
execution of the contract, demanded its return while A sought from B the full payment of the
price.
Decide the controversy, giving the reasons for your decision.
The obligation of A to deliver the cattle or carabao is a generic obligation, therefore, it

is not extinguished by loss, so the seller is liable. However, the question of damages
will depend on who is at fault. Since, however, there is nothing stated here as to
whether the price is for a lump sum or for each cattle, the problem here is on the partial
payment. And the partial payment of one-half is a demand. If the one-half payment is
equivalent to the value of 1/2, it is a demand for one-half and, therefore, when A
delayed the delivery of the cattle, he is "in mora" and will be liable for damages.
The question with respect to the sale is whether ownership passed to the buyer at the
time of the loss. The place of delivery and the sale is Manila. The things sold were
destroyed on the way to Manila. The ownership did not pass to the buyer and therefore
the buyer is not yet answerable for the payment of the price. B can demand therefore its
return. Aside from that there was a delay on the part of the vendor and being in delay,
he bears the loss through fortuitous event.
Obligation to give; obligation to do (1983)
A bound himself to deliver to B a 21-inch 1983 model TV set, and the 13 cubic feet White
Westinghouse refrigerator, with Motor No. WERT-385, which B saw in A's store, and to repair B's
piano. A did none of these things.
May the court compel A to deliver the TV set and the refrigerator and repair the piano? Why? If
not, what relief may the court grant B? Why?
Yes, in so far as his obligation to deliver the Westinghouse refrigerator is concerned,
the thing to be given being determinate, but no in so far as the 2 other obligations are
concerned, one being an obligation to give an indeterminate thing, and the other being
an obligation to do. In these 2 cases, the court shall order the obligations to be
performed at A's expense.
As far as the refrigerator is concerned, the Court may compel A to deliver the
refrigerator to B. The obligation to give is a determinate obligation to give. Under the
law, in this type of obligation, the principal right of the creditor against the debtor is to
compel the debtor to make the delivery. (Note; The above answer is based on Art.
1165, par. 1, Civil Code)
As far as the TV set is concerned, the Court may compel A to deliver although not
specifically. The obligation of A is a generic obligation to give. Under the law, in this
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type of obligation, once all of the circumstances of the obligation have been taken into
consideration, the Court may compel A to deliver to B a TV set which must be neither
of superior nor inferior quality. (Note: The above answer is based on Art, 1246, Civil
Code.)
As far as the repair of the piano is concerned, the court cannot compel A to repair said
piano. The obligation here is a purely personal obligation, an obligation to do. Under
the law, in this type of obligation to compel A to repair the piano of B would constitute
an infringement of A's liberty, (Note: The above answer is based by implication on Art.
1165, Civil Code.)
Anent the TV set, if the debtor refuses or is unable to comply with his obligation to
deliver a 21 inch TV get which must be neither of superior nor inferior quality, B may
ask the court to order the performance of the obligation at the expense of A.
Additionally, he can ask for damages.
Anent the repair of the piano, B may also ask the court to order the performance of the
obligation at the expense of A. (The above answers are based on Arts. 1165, par. 2 and
1170, Civil Code.)
Delay; fortuitous event (2015)
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? (3%)
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)
Aleatory Contracts; Gambling (2004)
Mr. ZY lost P100,000 in a card game called Russian poker, but he had no more cash to pay in
full the winner at the time the session ended. He promised to pay PX, the winner, two weeks
thereafter. But he failed to do so despite the lapse of two months, so PX filed in court a suit to
collect the amount of P50,000 that he won but remained unpaid.
Will the collection suit against ZY prosper? Could Mrs. ZY file in turn a suit against PX to
recover the P100,000 that her husband lost? Reason. (5%)
1. The suit by PX to collect the balance of what he won from ZY will not prosper. Under
Article 2014 of the Civil Code, no action can be maintained by the winner for the
collection of what he has won in a game of chance. Although poker may depend in part on
ability, it is fundamentally a game of chance.
2. If the money paid by ZY to PX was conjugal or community property, the wife of ZY could
sue to recover it because Article 117(7) of the Family Code provides that losses in
gambling or betting are borne exclusively by the loser-spouse. Hence, conjugal or
community funds may not be used to pay for such losses. If the money were exclusive
property of ZY, his wife may also sue to recover it under Article 2016 of the Civil Code if
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she and the family needed the money for support.
Mrs. ZY cannot file a suit to recover what her husband lost. Art 2014 of the Civil Code
provides that any loser in a game of chance may recover his loss from the winner, with
legal interest from the time he paid the amount lost. This means that only he can file the
suit. Mrs. ZY cannot recover as a spouse who has interest in the absolute community
property or conjugal partnership of gains, because under Art. 117(7} of the Family Code,
losses are borne exclusively by the loser-spouse. Therefore, these cannot be charged against
absolute community property or conjugal partnership of gains. This being so, Mrs. ZY has
no interest in law to prosecute and recover as she has no legal standing in court to do so.
DIFFERENT KINDS OF OBLIGATIONS
i. Conditional Obligations
Conditional obligation (1975)
A owed B a certain sum of money. C wrote B a letter stating that he would be the one to take care
of A's debt as soon as A had made a shipment of logs to Japan. A never made such shipment, C did
not pay B. Is C liable to B? Explain.
No, C is not liable to B. C did not assume the obligation of A. C merely stated that he will
"take care" of A's debt. Moreover, even if C assumed liability, the suspensive condition—
namely, the shipment by A of logs to Japan, was never fulfilled. C's obligation never arose.
Under Article 1181 of the Civil Code, in conditional obligations, the acquisition of rights,
as well as the extinguishment or loss of those already acquired, shall depend upon the
happening of the event which constitutes the condition. (Villanueva v. Girged, 110 Phil.
478)
Conditional Obligations; Promise (1997)
In two separate documents signed by him, Juan Valentino "obligated" himself each to Maria and to
Perla, thus - 'To Maria, my true love, I obligate myself to give you my one and only horse when I
feel like It." - and -'To Perla, my true sweetheart, I obligate myself to pay you the P500.00 I owe
you when I feel like it." Months passed but Juan never bothered to make good his promises. Maria
and Perla came to consult you on whether or not they could recover on the basis of the foregoing
settings. What would your legal advice be?
I would advise Maria not to bother running after Juan for the latter to make good his
promise. [This is because a promise is not an actionable wrong that allows a party to
recover especially when she has not suffered damages resulting from such promise. A
promise does not create an obligation on the part of Juan because it is not something which
arises from a contract, law, quasi-contracts or quasidelicts (Art, 1157)].Under Art. 1182,
Juan's promise to Maria is void because a conditional obligation depends upon the sole will
of the obligor.
As regards Perla, the document is an express acknowledgment of a debt, and the promise to
pay what he owes her when he feels like it is equivalent to a promise to pay when his
means permits him to do so, and is deemed to be one with an indefinite period under Art.
1180. Hence the amount is recoverable after Perla asks the court to set the period as
provided by Art. 1197, par. 2.
Conditional Obligations (2000)
Pedro promised to give his grandson a car if the latter will pass the bar examinations. When his
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grandson passed the said examinations, Pedro refused to give the car on the ground that the
condition was a purely potestative one. Is he correct or not? (2%)
No, he is not correct. First of all, the condition is not purely potestative, because it does
not depend on the sole will of one of the parties. Secondly, even if it were, it would be
valid because it depends on the sole will of the creditor (the donee) and not of the debtor
(the donor).
Conditional Obligations (2003)

Are the following obligations valid, why, and if they are valid, when is the obligation demandable in
each case?
a) If the debtor promises to pay as soon as he has the means to pay;
b) If the debtor promises to pay when he likes;
c) If the debtor promises to pay when he becomes a lawyer;
d) If the debtor promises to pay if his son, who is sick with cancer, does not die within one year.
(5%)
 SUGGESTED ANSWER
a) The obligation is valid. It is an obligation subject to an indefinite period because the
debtor binds himself to pay when his means permit him to do so (Article 1180, NCC).
When the creditor knows that the debtor already has the means to pay, he must file an
action in court to fix the period, and when the definite period as set by the court
arrives, the obligation to pay becomes demandable 9Article 1197, NCC).
b) The obligation ―to pay when he likes‖ is a suspensive condition the fulfillment of
which is subject to the sole will of the debtor and, therefore the conditional obligation
is void. (Article 1182, NCC).
c) The obligation is valid. It is subject to a suspensive condition, i.e. the future and
uncertain event of his becoming a lawyer. The performance of this obligation does not
depend solely on the will of the debtor but also on other factors outside the debtor’s
control.
d) The obligation is valid. The death of the son of cancer within one year is made a
negative suspensive condition to his making the payment. The obligation is
demandable if the son does not die within one year (Article 1185, NCC).
ii. Suspensive and resolutory conditions
Suspensive and resolutory condition (1988)

Distinguish between the effects of suspensive and resolutory conditions upon an obligation.
It is evident that a resolutory condition affects the obligation to which it is attached in
a manner which is diametrically opposed to that of a suspensive condition.
If the suspensive condition is fulfilled, the obligation arises or becomes effective. If

the resolutory condition is fulfilled, the obligation is extinguished.
If the first is not fulfilled, the juridical relation is created; if the second is not fulfilled,
the juridical relation is consolidated.
In other words, in the first, rights are not yet acquired, but there is a hope or
expectancy that they will soon be acquired; in the second, rights are already acquired,
but subject to the threat of extinction (8 Manresa, 5th Ed., Bk. 1, p. 311.)
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Resolutory Condition (1999)
In 1997, Manuel bound himself to sell Eva a house and lot which is being rented by another person,
if Eva passes the 1998 bar examinations. Luckily for Eva, she passed said examinations.
(a) Suppose Manuel had sold the same house and lot to another before Eva passed the 1998 bar
examinations, is such sale valid? Why? (2%)
(b) Assuming that it is Eva who is entitled to buy said house and lot, is she entitled to the rentals
collected by Manuel before she passed the 1998 bar examinations? Why? (3%)
a) Yes, the sale to the other person is valid as a sale with a resolutory condition because
what operates as a suspensive condition for Eva operates a resolutory condition for the
buyer.
 FIRST ALTERNATIVE ANSWER:

Yes, the sale to the other person is valid. However, the buyer acquired the property
subject to a resolutory condition of Eva passing the 1998 Bar Examinations. Hence, upon
Eva's passing the Bar, the rights of the other buyer terminated and Eva acquired
ownership of the property.
 SECOND ALTERNATIVE ANSWER:

The sale to another person before Eva could buy it from Manuel is valid, as the contract
between Manuel and Eva is a mere promise to sell and Eva has not acquired a real right
over the land assuming that there is a price stipulated in the contract for the contract to be
considered a sale and there was delivery or tradition of the thing sold.
b) No, she is not entitled to the rentals collected by Manuel because at the time they
accrued and were collected, Eva was not yet the owner of the property.
 FIRST ALTERNATIVE ANSWER:

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

Under Art. 1164, there is no obligation on the part of Manuel to deliver the fruits (rentals)
of the thing until the obligation to deliver the thing arises. As the suspensive condition
has not been fulfilled, the obligation to sell does not arise.
iii. Obligations with a period
Obligations with a period (1980)

"M" and "N" were very good friends. "N" borrowed P10,000 from "M".Because of their close
relationship, the promissory note executed by "N" provided that he would pay the loan "whenever
his means permit." subsequently, "M" and "N" quarreled. "M" now asks you to collect the loan
because he is in dire need of money.
What legal action, if any, would you take in behalf of "M"?
"M" must bring an action against "N" for the purpose of asking the court to fix the
duration of the term or period for payment (Arts. 1180, 1197, Civil Code). Once the
court has fixed the duration of the term or period, it becomes a part of the covenant of
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the two contracting parties. If the debtor defaults in the payment of the obligation after
the expiration of the period fixed by the court, the creditor can then bring an action
against him for collection. Any action for collection brought before that would be
premature. This is well-settled. (Gonzales vs. Jose, 66 Phil. 369) ;Conception vs.
People of the Phil, 74 Phil. 62; Pages vs. Basilan, 104 Phil. 882).
Normally, before an action for collection may be maintained by the creditor against the
debtor, the former must first bring an action against the latter asking the court to fix the
duration of the term or period for payment (Art. 1197, Civil Code). However, an action
combining such action with that of an action for collection may be allowed if it can be
shown that a separate action for collection would be a. mere formality because no
additional proofs other than the admitted facts will be presented and would serve no
purpose other than to delay. Here, there is no legal obstacle to such course of action.
(Borromeo vs. Court of Appeals, 47 SCRA 65).
Obligations; obligations with a period (1982)

"A" Corporation, engaged in the sale of subdivision residential lots, sold to "B" a lot of 1,000 square
meters. The contract provides that the corporation should put up an artesian well with tank, within a
reasonable time from the date thereof and sufficient for the needs of the buyers. Five years thereafter,
and no well and tank have been put up by the corporation, "B" sued the corporation for specific
performance. The corporation set up a defense that no period having been fixed, the court should fix the
period. Decide with reason.
The action for specific performance should be dismissed on the ground that it is
premature. It is clear that the instant case falls within the purview of obligations with a
term or period which must be judicially fixed. Thus, "B", instead of bringing an action
for specific performance, should bring an action asking the court to determine the
period within which "A" Corporation shall put up the artesian well
with tank. Once the court has fixed the period, once the court, let us say, has declared
that the period is six months, then that will become a part of the covenant between the
contracting parties. It can no longer be changed by them. If the
Corporation does not put up the artesian well with tank within the period fixed by the
court, "B" can then bring an action for specific performance.
Normally, before an action for specific performance may be maintained by "B" against
"A" Corporation, the former must first bring an action against the latter asking the court
to fix the duration of the term or period to install the artesian well with tank. However,
an action combining such action with that of an action for specific performance may be
allowed if it can be shown that a separate action for specific performance would be a
mere formality because no additional proofs other than the admitted facts will be
presented and would serve no purpose other than to delay. Here, there is no obstacle to
such course of action. (Note: The above answers are based on Art. 1197 of the Civil
Code and on decided cases. The Committee respectfully recommends that either
answers should be considered correct.)
Obligations with a period (1984)

A obtained from B a loan payable within a year. As security for its repayment, A mortgaged his
uninsured house. Three months after the loan was given, A's house was gutted by an accidental
fire. Thereupon, B demanded immediate payment from A, who refused to pay contending that the
loan was for a one-year period.
Is A's contention valid? Explain. Answer:
10
No. Under Art. 1198, the debtor shall low every right to make use of a period when the
securities disappear through a fortuitous event. A has to give satisfactory substitute
collateral.
Period; Suspensive Period (1991)
In a deed of sale of a realty, it was stipulated that the buyer would construct a commercial
building on the lot while the seller would construct a private passageway bordering the lot. The
building was eventually finished but the seller failed to complete the passageway as some of the
squatters, who were already known to be there at the time they entered into the contract, refused
to vacate the premises. In fact, prior to its execution, the seller filed ejectment cases against the
squatters. The buyer now sues the seller for specific performance with damages. The defense is
that the obligation to construct the passageway should be with a period which, incidentally, had
not been fixed by them, hence, the need for fixing a judicial period. Will the action for specific
performance of the buyer against the seller prosper?
No. the action for specific performance filed by the buyer is premature under Art.
1197 of the Civil Code. If a period has not been fixed although contemplated by the
parties, the parties themselves should fix that period, failing in which, the Court may
be asked to fix it taking into consideration the probable contemplation of the parties.
Before the period is fixed, an action for specific performance is premature.
It has been held in Borromeo vs. CA (47 SCRA 69), that the Supreme Court allowed
the simultaneous filing of action to fix the probable contemplated period of the parties
where none is fixed in the agreement if this would avoid multiplicity of suits. In
addition, technicalities must be subordinated to substantial justice.
The action for specific performance will not prosper. The filing of the ejectment suit
by the seller was precisely in compliance with his obligations and should not,
therefore, be faulted if no decision has yet been reached by the Court on the matter.
iv. Alternative and facultative obligations
Alternative/facultative obligations (1977)
Distinguish between alternative and facultative obligations.
Facultative obligations may be distinguished from alternative obligations in the
following ways:
1. As to object due: In facultative obligations only one object is due, whereas in
alternative obligations several objects are due.
2. As to compliance: Facultative obligations may be complied with by the

delivery of another object or the performance of another prestation in
substitution of that which is due, whereas alternative obligations may be
complied with by the delivery of one of the objects or by the performance of
the prestations which are alternative due.
3. As to right of choice: In the first, the right of choice pertains only to the
debtor, whereas in the second, the right of choice may pertain even to the
creditor or to a third person.
4. As to effect of fortuitous loss: In the first, the loss or impossibility of the

object or prestation which is due without any fault of the debtor is sufficient
to extinguish the obligation, whereas in the second, the loss or impossibility
of all of the objects or prestations which are due without any fault of the
debtor is necessary to extinguish the obligation.
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5. As to effect of culpable loss: In the first, the culpable loss of the object which
the debtor may deliver in substitution before the substitution is effected does
not give rise to any liability on the part of such debtor; in the second, the
culpable loss of any of the objects which are alternately due before the choice
is made may give rise to a liability on the part of the debtor.
Alternative and facultative obligations (1988)
Define alternative and facultative obligations.
Alternative obligations refer to those juridical relations which comprehend several
objects or prestations which are due, but the payment or performance of one of them
would be sufficient.
On the other hand, facultative obligations refer to those juridical relations where only
one object or prestation has been agreed upon by the parties to the obligation, but the
obligor may deliver or render another in substitution.
v. Joint and Solidary Obligations
Joint and solidary obligations (1988)
Define joint and solidary obligations.
When there is a concurrence of two or more creditors or of two or more debtors in
one and the same Obligation, such obligation may be either joint (obligacion
mancomunada) or solidary (obligacion solidaria).
A joint obligation may be defined as an obligation where there is a concurrence of

several creditors or several debtors, or of several creditors and debtors by virtue which
each of the creditors has a right to demand, while each of debtors is bound to render
compliance with his proportionate part of the prestation which constitutes the object
of the obligation. In other words, each of the creditors is entitled to demand the
payment of only a proportionate part of the credit, while each of the debtors is liable
for the payment of only a proportionate part of the debt.
A solidary obligation, on the other hand, may be defined as an obligation where there
is a concurrence of several creditors, or several debtors, or of several creditors and
debtors, by virtue which each of the creditors has a right to demand, while each of the
debtors is bound to render entire compliance with the prestation which constitutes the
object of the obligation. In other words, each of the creditors is entitled to demand the
payment of the entire credit, while each of the debtors is liable for the payment of the
entire debt. (See Art. 1207, CC; 3 Castan, 7th Ed., pp. 65-66.)
Joint or solidary obligations (1980)
"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 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?
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"GG's" defense is untenable. Had he not bind himself solidarity with "FF" to pay the
obligation, undoubtedly, as guarantor, he could have availed of the defense of benefit
of excussion. In other words, he cannot be compelled to pay the creditor unless the
latter has exhausted all the property of the debtor and he resorted to all the legal
remedies against the said 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 a defense now invoked by "GG" is no longer available.
(NOTE: The above answer is based on Arts. 2058, 2059, Civil Code,)
Obligations; joint or solidary obligations (1983)
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 extent?
Yes, Y may compel A to deliver 250 sacks of rice and B the same quantity, the
obligation being joint, not solidary.
Joint or solidary liability (1984)
A, B and C solidarity promised to pay D the amount of P3,000.00. Unfortunately, C became

insolvent.
What recourse does B have against A and B? What are the rights of A and B as against each
other?
 SUGGESTED ANSWER: Furnished by the Office of Justice Palma

D may sue either A or B, or both, and recover the whole amount of P3,000 (Art. 1207)
from either or both of them. Either party paying the entire amount may recover the
amount of P1,5000 from the other party. (Art. 1217).
Joint or solidary obligations (1988)

A, B, and C borrowed P12,000 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 15, 1962, B can be compelled to pay only on June 15, 1964,
while C can be compelled to pay only on June 15, 1966. On June 15, 1962, X made a demand upon
A to pay the entire indebtedness but the latter aid only P4,000.00. Subsequently, because of A’s
refusal to pay the balance, X brought an action against him for collection of the amount. Will such
an action prosper? Reasons.
For the present, the action will not prosper. It is of course true that the obligation here
is solidary and that its solidary character is not destroyed by the fact that the debtors
are bound by different periods for payment is expressly provided for in Art. 1211 of
the Civil Code. However, in solidary obligations of this type, the right of the creditor
is limited to the recovery of the amount owed by the debtor whose obligation has
already matured, leaving in suspense his right to recover the shares corresponding to
the other debtors whose obligations have not yet matured. This restriction upon the
creditor’s right does not destroy the solidary character of the obligation, because
ultimately, he can still compel one and the same debtor, if that is his wish, to pay the
entire obligation;
Therefore, in the instant case, X shall have to wait for June 15, 1964, when B’s
obligation shall have matured, and for June 15, 1966, when C’s obligation shall have
also matured. On June 15, 1966, he can collect P4,000 from either A or B. On June
15, 1966, he can again collect another P4,000 from either A or B or C. (See
Ynchaustivs. Yulo, 34 Phil. 978.)
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Liability; Solidary Obligation (1992)
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 interest
monthly 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 failure of X and Y 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 the obligation has been paid completely by A's acquisition of the car through "dacion
en pago" or payment by cession.
c) 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.
d) That assuming that Y is liable, he should only pay the proportionate sum of P40,000.00.
Decide each defense with reasons.
a) This first defense of Y is untenable. Y is still liable as solidary debtor. The creditor may
proceed against any one of the solidary debtors. The demand against one does not
preclude further demand against the others so long as the debt is not fully paid.
b) The second defense of Y is untenable. Y is still liable. The chattel mortgage is only
given as a security and not as payment for the debt in case of failure to pay. Y as a
solidary co-maker is not relieved of further liability on the promissory note as a result of
the foreclosure of the chattel mortgage.
c) The third defense of Y is untenable. Y is a surety of X and the extrajudicial demand

against the principal debtor is not inconsistent with a judicial demand against the surety.
A suretyship may co-exist with a mortgage.
d) The fourth defense of Y is untenable. Y is liable for the entire prestation since Y
incurred a solidary obligation with X.
(Arts. 1207, 1216. 1252 and 2047 Civil Code; Bicol Savings and Loan
Associates vs. Guinhawa 188 SCRA 642)
Liability; Solidary Liability (1998)
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.
1. How much, if any, may Joey be compelled to pay.[2%]
2. To what extent, if at all, can Jojo be compelled by Joey to contribute to such payment? [3%]
1. 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)
2. 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 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."
Since the insolvent debtor's share which Joey paid was P100,000, and there are only
14
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.
Liability; Lease; Joint Liability (2001)
Four foreign medical students rented the apartment of Thelma for a period of one year. After one
semester, three of them returned to their home country and the fourth transferred to a boarding
house. Thelma discovered that they left unpaid telephone bills in the total amount of P80,000.00.
The lease contract provided that the lessees shall pay for the telephone services in the leased
premises. Thelma demanded that the fourth student pay the entire amount of the unpaid
telephone bills, but the latter is willing to pay only one fourth of it. Who is correct? Why? (5%)
The fourth student is correct. His liability is only joint, hence, pro rata. There is
solidary liability only when the obligation expressly so states or when the law or
nature of the obligation requires solidarity (Art. 1207, CC). The contract of lease in
the problem does not, in any way, stipulate solidarity.
Liability; Solidary Obligation; Mutual Guaranty (2003)
A,B,C,D, and E made themselves solidarity indebted to X for the amount of P50,000.00. When X
demanded payment from A, the latter refused to pay on the following grounds:
a) B is only 16 years old.
b) C has already been condoned by X
c) D is insolvent.
d) E was given by X an extension of 6 months without the consent of the other four co-
debtors. State the effect of each of the above defenses put up by A on his obligation to pay
X, if such defenses are found to be true.
 SUGGESTED ANSWERS:
a) A may avail the minority of B as a defense, but only for B’s share of P 10,000.00. A
solidary debtor may avail himself of any defense which personally belongs to a solidary
co-debtor, but only as to the share of that co-debtor.
b) A may avail of the condonation by X of C’s share of P 10,000.00. A solidary debtor

may, in actions filed by the creditor, avail himself of all defenses which are derived
from the nature of the obligation and of those which are personal to him or pertain to his
own share. With respect to those which personally belong to others, he may avail
himself thereof only as regards that part of the debt for which the latter are responsible.
(Article 1222, NCC).
c) A may not interpose the defense of insolvency of D as a defense. Applying the principle
of mutual guaranty among solidary debtors, A guaranteed the payment of D’s share and
of all the other co-debtors. Hence, A cannot avail of the defense of D’s insolvency.
d) The extension of six (6) months given by X to E may be availed of by A as a partial

defense but only for the share of E, there is no novation of the obligation but only an act
of liberality granted to E alone.
Liability; Solidary Liability (2008)
Eduardo was granted a loan by XYZ Bank for the purpose of improving a building which XYZ
leased from him. Eduardo executed the promissory note ("PN") in favor of the bank, with his
friend Recardo as co-signatory. In the PN, they both acknowledged that they are "individually
and collectively" liable and waived the need for prior demand.
To secure the PN, Recardo executed a real estate mortgage on his own property. When Eduardo
defaulted on the PN, XYZ stopped payment of rentals on the building on the ground that legal
compensation had set in. Since there was still a balance due on the PN after applying the rentals,
XYZ foreclosed the real estate mortgage over Recardo's property. Recardo opposed the
15
foreclosure on the ground that he is only a co-signatory; that no demand was made upon him for
payment, and assuming he is liable, his liability should not go beyond half the balance of the loan.
Further, Recardo said that when the bank invoked compensation between the rentals and the
amount of the loan, it amounted to a new contract or novation, and had the effect of extinguishing
the security since he did not give his consent (as owner of the property under the real estate
mortgage) thereto.
Can Recardo's property be foreclosed to pay the full balance of the loan? (2%)
Yes, Recardo's property can be foreclosed to pay the full balance of the loan because
when he signed as co- signatory in the promissory note, he acknowledged he is
solidarily liable with Eduardo. In solidary obligations, a creditor has the right to
demand full payment of the obligation from any of the solidary debtors (Art. 1207,
Civil Code).
Joint obligation (2015)
Juancho, Don and Pedro borrowed P150,000.00 from their friend Cita to put up an internet cafe
orally promising to pay her the full amount after one year. Because of their lack of business know-
how, their business collapsed. Juancho and Don ended up penniless but Pedro was able to borrow
money and put up a restaurant which did well. Can Cita demand that Pedro pay the entire
obligation since he, together with the two others, promised to pay the amount in full after one
year? Defend your answer. (2%)
No, Cita cannot demand that Pedro pay the entire obligation because the obligation in
this case is presumed to be joint. The concurrence of two or more creditors or of two
or more debtors in one and the same obligation does not imply that each one of the
former has a right to demand, or that each one of the latter is bound to render, entire
compliance with the prestation. (Article 1207) In a joint obligation, there is no mutual
agency among the joint debtors such that if one of them is insolvent the others shall
not be liable for his share.
vi. Obligations with a penal clause
Obligations with a penal clause (1985)
A, agreed to build a house for B on the condition that it shall be completedwithin 6 months from
January 1, 1980, that work shall begin when B pays A P30,000.00, and that A shall pay a penalty
of P200.00 for each day of delay in the fulfillment of the contract. A finished the construction of
the house on August 31, 1980, and turned it over the same day to B who demanded payment of the
penalty of P200.00 for every day of delay in its completion. A refused to pay, alleging the delay was
caused by B who gave him the first payment only on March 1. B's answer was that he had the
money ready since January 1 but it was not until March 1, after calling A, that he went to his
house to get it.
a) Rule on the respective contentions of both parties.

b) Was there delay in the completion of the house? State your reasons.
 SUGGESTED ANSWER (a) and (b)

1. B was bound to pay A the amount of P30.000 only upon demand for such
payment by A. Hence, there was no default on the part of B who was ready to
comply with the obligation. Since the agreement was that the house was to be
completed within 6 months from Jan. 1, 1980 and the building was not
completed within the specified time, the builder is liable for the penalty
according to the terms of the agreement.
2. Even though there is a penalty, that is dependent on the fact whether time is of
the essence of the contract or not. The mere fixing of the date is not considered
16
necessarily to mean that time is of the essence. The date is only for maturity.
Generally, time is not of the essence.
3. Although B had the money, he never informed the other party. So the other
party did not get to know that he had the money. Therefore, B was not in
default. A is not entitled to collect penalty.
4. I would rule in favor of B, since the payment of P30,000.00 does not appear to
be a condition for the completion of the house within six months from January
1, 1980. But, assuming otherwise, there was no default in. the payment of the
P30.000.00 since there was no demand made for the payment thereof (Art.
1169). In addition, unless otherwise expressed in the agreement, payment shall
be made at the domicile of the obligor (Art. 1251). There was a delay in the
completion of the house; accordingly, the payment of P200 for each day of
delay could be sought since this penalty is not unconscionable considering the
total value of the contract.
Obligations with a penal clause (1986)
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 P100,000.00. The furniture delivered by Betis was made, not of narra,
but of inferior wood.
In a suit to recover damages, Bagongkasal was able to prove that the actual damages he sustained
amounted to P200,000.00, He demanded that amount plus the P100,000.00 penalty or a total of
P300,000.00. Betis, however, countered that ifit were liable for damages at all, the maximum
award should not exceed P100,000.00 as stated in the penal clause of the contract.
Whose claim would you sustain? Why?
I would sustain the claim of Betis. A penal clause is supposed to answer for damages
without the introduction of proof as to actual damages. It is to be noted that the penal
clause has been freely agreed upon between the parties precisely with the intention of
doing away with having to present proof of damages.
I shall sustain the claim of the defendant Betis Furniture Co. The Civil Code is explicit.
According to said Code, in obligations with a penal clause, the penalty shall substitute
the indemnity for damages and the payment of interests in case of non-compliance.
There are only three exceptions to this rule. They are: first, when there is a stipulation
to the contrary: second, when the creditor is compelled to sue the debtor because of the
latter's refusal to pay the agreed penalty; and third, when the debtor is guilty of fraud.
It is clear that the instant case does not fall within the purview of any of the three
exceptions Therefore, the award in favor of the plaintiff should be for P100,000.00
only.
I shall not sustain the claim of Beds Furniture Co. The Civil Code is explicit.
According to said Code, in obligations with a penal clause, the penalty shall substitute
the indemnity for damages and the payment of interests in case of noncompliance.
There are three exceptions to this rule. They are: first, when there is a stipulation to the
contrary; second, when the creditor is compelled to sue the debtor because of the
latter's refusal to pay the agreed penalty: and third, when the debtor is guilty of fraud. It
is clear that the instant case falls within the purview of the third exception. The
furniture delivered by Betis was made, not of narra but of inferior wood. That indicates
that the debtor commuted fraud in performing its obligation. Therefore, the award in
favor of the plaintiff should be for P200,000 actual damages plus the P100,000 penalty.
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Under the doctrine of G.A. Machineries, Inc. vs. Yaptinchay. 126 SCRA 78 (ponente J.
Gutierrez) there is breach of contract not breach of warranty. The breach is fraudulent.
Under the doctrine of Mariano Pamintuan vs. CA. SCRA 556, since debtor is guilty of
fraud - "The proven damages supersede the stipulated damages (penalty)" citing Art.
1226 Civil Code of the Philippines).
Here there is a breach of warranty and Betis Furniture Co. must know the difference
between "narra" and other kinds of wood. Therefore, in delivering the furniture made of
inferior quality, it undoubtedly acted fraudulently, and under the C.C, the buyer in this
case would be entitled to be reimbursed the difference in value of the furniture and the
price he paid (P200,000) and damages(penalty -P100,000).
EXTINGUISHMENT OF OBLIGATIONS
i. General Provisions
Extinguishment; Cause of Action (2004)
TX filed a suit for ejectment against BD for non-payment of condominium rentals amounting to
P150,000. During the pendency of the case, BD offered and TX accepted the full amount due as
rentals from BD, who then filed a motion to dismiss the ejectment suit on the ground that the
action is already extinguished. Is BD’s contention correct? Why or why not? Reason. (5%)
BD's contention is not correct. TX can still maintain the suit for ejectment. The acceptance
by the lessor of the payment by the lessee of the rentals in arrears even during the
pendency of the ejectment case does not constitute a waiver or abandonment of the
ejectment case. (Spouses Clutario v. CA, 216 SCRA 341 [1992]).
Extinguishment; Extraordinary Inflation or Deflation (2001)
On July 1, 1998, Brian leased an office space in a building for a period of five years at a rental
rate of P1,000.00 a month. The contract of lease contained the proviso that "in case of inflation
or devaluation of the Philippine peso, the monthly rental will automatically be increased or
decreased depending on the devaluation or inflation of the peso to the dollar." Starting March 1,
2001, the lessor increased the rental to P2,000 a month, on the ground of inflation proven by the
fact that the exchange rate of the Philippine peso to the dollar had increased from P25.00=$1.00
to P50.00=$1.00. Brian refused to pay the increased rate and an action for unlawful detainer was
filed against him. Will the action prosper? Why? (5%)
The unlawful detainer action will not prosper. Extraordinary inflation or deflation is
defined as the sharp decrease in the purchasing power of the peso. It does not necessarily
refer to the exchange rate of the peso to the dollar. Whether or not there exists an
extraordinary inflation or deflation is for the courts to decide. There being no showing that
the purchasing power of the peso had been reduced tremendously, there could be no
inflation that would justify the increase in the amount of rental to be paid. Hence, Brian
could refuse to pay the increased rate.
The action will not prosper. The existence of inflation or deflation requires an official
declaration by the Bangko Sentral ng Pilipinas.
18
The unlawful detainer action will prosper. It is a given fact in the problem, that there was
inflation, which caused the exchange rate to double. Since the contract itself authorizes the
increase in rental in the event of an inflation or devaluation of the Philippine peso, the
doubling of the monthly rent is reasonable and is therefore a valid act under the very terms
of the contract. Brian's refusal to pay is thus a ground for ejectment.
ii. Payment
Extinguishment; payment (1981)
"S", an American resident of Manila, about to leave on a vacation, sold his car to "B" for U.S.
$2,000.00, the payment to be made ten days after delivery to "X", a third party depositary agreed
upon, who shall deliver the car to "B" upon receipt by "X" of the purchase price. It was stipulated
that ownership is retained by "S" until delivery of the car to "X". Five days after delivery of the
car to "X", it was destroyed in a fire which gutted the house of "X", without the fault of either
"X" or "B".
a) Is buyer "B" still legally obligated to pay the purchase price? Explain.
b) May seller "S" demand payment in U.S. dollar? Why?
a) Yes, B is still legally obligated to pay the purchase price.
b) The seller "S" cannot demand payment in U.S. dollars. According to the law, an
agreement that payment shall be made in currency other than Philippine currency is void
because it is contrary to public policy. That does not mean, however, that "S" cannot
demand payment from "B." He can demand payment, but not in American dollars.
Otherwise, there would be unjust enrichment at the expense of another. Payment,
therefore, should be made in Philippine currency, (Note: The above answer is based on
R.A. No. 529 and on Ponce vs. CA, May 31, 1979.)
Extinguishment; payment; application (1982)
The debtor owes his creditor several debts, all of them due, to wit: (1) an unsecured debt; (2) a
debt secured with a mortgage of the debtor's property; (3) a debt bearing interest; (4) a debt in
which the debtor is solidarily liable with another.
Partial payment was made by the debtor. Assuming that the debtor had not specified the debts to
which the payment should be applied and, on the other hand, the creditor had not specified in the
receipt he issued the application of payment, state the order in which the payment should be
applied and your reasons therefore.
In this case, according to the Civil Code, the debt, which is most onerous to the debtor,
among those due, shall be deemed satisfied.
Analyzing the four debts stated in the problem, the most onerous is No. 4, the second most
onerous is No. 2, the third most onerous is No. 3, and the last onerous is No. 1,
Consequently, the payment should be applied in that order. (Note: The above answer is
based on Art. l254 of the Civil Code and on
decided cases and commentaries of recognized commentators.)
A owes B P20,000 which became due and payable last October 1, 1983. On that date, A offered B
P10,000 the only money he then had, but B refused to accept the payment. A thereafter met C, B's
22-year old son, to whom he gave the P10,000 with the request that he turn the money over to B.
The money was stolen while in C's possession. Was B justified in refusing to accept the payment of
A? May he still recover the full amount of his debt of P20,000? Why?
19
Yes, the creditor cannot be compelled to receive partial payments of the obligation due
him, there being no stipulation to the contrary. B may still demand full payment of the
sum due him. The payment to his son, who does not appear to have been authorized to
receive it, is invalid, the creditor not having received any benefit therefrom.
Extinguishment; payment; consignation, when applicable (1984)
A sold to B a parcel of land with the right to repurchase the same within three years. A tendered
the repurchase of price to B within the prescribed period, but B refused to accept it. A then
brought an action in court for specific performance. B contends that since A did not deposit the
money in court within the stipulated period for repurchase and the period has now lapsed, A can
no longer repurchase the property. Is this contention correct? Explain.

No. Consignation is not necessary to compel B to make the resale if he refused to accept
the repurchase price tendered. The provisions of consignation refer only to obligations.
They are not applicable to the right of repurchase which is not an obligation but a right
exercisable purely at the option of A.
Mr. Magaling obtained a judgment against Mr. Mayaman in the amount of P500,000.00. A writ of
execution was issued pursuant to which various personal properties of Mayaman were levied upon
by the sheriff. An auction sale was scheduled. Before the appointed day of the auction. Mayaman
delivered to the sheriff a cashier's check of Far East Bank in the amount of .P200,000.00 and
enough cash to cover the remainder of the total amount due. Magaling refused to accept the check
and asked the sheriff to proceed with the auction sale.
Did Magaling have the right to refuse the payment of part of the obligation with a cashier's check?
Explain.
Magaling did not have the right to refuse the payment of part of the obligation with a
cashier's check. The Central Dank Act provides that a check which has been cleared and
credited to the account of the creditor shall be equivalent to a delivery to the creditor in
cash in an amount equal to the amount credited to his account.
Analyzing the above provision, it is clear that the cashier's check of Far East Bank, a
reputable bank, and credited to the account of Mayaman has legal tender power.
Therefore, there was no basis for Magaling in refusing payment of the obligation. (Note:
— The above answer is based on Art. 1249 of the Civil Code. The exception in New
Pacific Timber and Supply -Co. vs. Seneris, 101 SCRA 686, refers to "Certified Check"
because the reason given in that case was based on Sec. 63 of the Central Bank Act.
However, a contrary answer that "Cashier's Check" is payment in cash may be
considered correct because the above case confused cashier's check with certified check -
hence examinee should be given benefit of doubt.)
It is well settled that a cashier's check is as good as cash. The law, however, provides that
a creditor may refuse payment if it is other than legal tender. Although the creditor has
the right to refuse the payment in the form of the check, he cannot do so without any
justifiable reason. Under the Chapter on Human Relations in the Civil Code, a person, in
the exercise of his rights, must act with justice x x x. Therefore, although technically the
creditor can refuse the check, he could be made liable if he refused the cashier's check for
no good reason or in bad faith.
20
Although a cashier's check may be as good as cash, still it is not legal tender, and the
sheriff may refuse to accept the check, as it does not produce the effect of payment until
cashed.
Special forms of payment; consignation; set off (1988)
A. Under the Civil Code, what are the different special forms of payments?
B. What are the special requisites of consignation in order that it shall produce the effect of
payment?
C. A treasury warrant payable to Rosenne and indorsed by Boni was cashed at the Philippine
National Bank. The warrant was subsequently dishonored by the Philippine Treasury. The Bank
then applied the deposit of Boni to the payment of the amount paid for the warrant. Is the action of
the Bank in accordance with law? Reasons.
A. Under the Civil Code, there are actually four special forms of payment. They are
i. application of payment (Arts. 1252-1254);

ii. dation in payment (Art. 1245);
iii. payment by cession (Art. 1255); and
iv. tender of payment and consignation (Arts. 1256-1261). Strictly speaking,
however, application of payment, by its very nature, is not a special form
of payment.
B. In order that consignation shall produce the effect of payment, it is not only
essential that it must conform with all of the requisites of payment, but it is also
essential that certain special requirements prescribed by law must be complied
with. The debtor must show:
i. That there is a debt due;
ii. That the consignation has been made either because the creditor to whom
tender of payment was made refused to accept the payment without just
cause, or because any of the cause stated by law for effective
consignation without previous tender of payment exists (Art. 1256, CC)
C. Yes, the action of the Bank is in accordance with law. The facts stated in the
above problem are exactly the same as those in the case of Gullas vs. National
Bank, 62 Phil. 519, where the Supreme Court held that a bank has a right of set-
off of the deposit in its hands for the payment of any indebtedness to it on the
part of the depositor. When a person deposits his money at a bank, whether such
deposit is fixed, savings or current, a relationship of creditor and debtor is
established between the depositor and bank. It is, therefore, evident that all of the
requisites for compensation are present in this case.
Extinguishment; Payment (1995)
In 1983, PHILCREDIT extended loans to Rivett-Strom Machineries, Inc. (RIVETTT-STROM),

consisting of US$10 Million for the cost of machineries imported and directly paid by
PHTLCREDIT, and 5 Million in cash payable in installments over a period of ten (10) years on
the basis of the value thereof computed at the rate of exchange of the U.S. dollar vis-à-vis the
Philippine peso at the time of payment.
RIVETT-STROM made payments on both loans which if based on the rate of exchange in 1983
would have fully settled the loans.
PHILCREDIT contends that the payments on both loans should be based on the rate of exchange
existing at the time of payment, which rate of exchange has been consistently increasing, and for
which reason there would still be a considerable balance on each loan. Is the contention of
PHILCREDIT correct? Discuss fully.
As regards the loan consisting of dollars, the contention of PHILCREDIT is correct. It
21
has to be paid in Philippine currency computed on the basis of the exchange rate at the
TIME OF PAYMENT of each installment, as held in Kalalo v. Luz, 34 SCRA 337.
As regards the P5 Million loan in Philippine pesos, PHILCREDIT is wrong.
The payment thereof cannot be measured by the peso-dollar exchange rate. That will
be violative of the Uniform Currency Act (RA, 529] which prohibits the payment of
an obligation which, although to be paid in Philippine currency, is measured by a
foreign currency. (Palanca v. CA, 238 SCRA 593).
Extinguishment; Payment of Check; Legal Tender (2008)
Felipe borrowed $100 from Gustavo in 1998, when the Phil P - US$ exchange rate was P56 -
US$1. On March 1, 2008, Felipe tendered to Gustavo a cashier's check in the amount of P4,135
in payment of his US$ 100 debt, based on the Phil P - US$ exchange rate at that time. Gustavo
accepted the check, but forgot to deposit it until Sept. 12, 2008. His bank refused to accept the
check because it had become stale. Gustavo now wants Felipe to pay him in cash the amount of
P5,600. Claiming that the previous payment was not in legal tender, and that there has been
extraordinary deflation since 1998, and therefore, Felipe should pay him the value of the debt at
the time it was incurred. Felipe refused to pay him again, claiming that Gustavo is estopped from
raising the issue of legal tender, having accepted the check in March, and that it was Gustavo's
negligence in not depositing the check immediately that caused the check to become stale.
A. Can Gustavo now raised the issue that the cashier's check is not legal tender? (2%)
B. Can Felipe validly refuse to pay Gustavo again? (2%)
C. Can Felipe compel Gustavo to receive US$100 instead? (1%)
A. No. Gustavo previously accepted a check as payment. It was his fault why the
check became stale. He is now estopped from raising the issue that a cashier's
check is not legal tender.
B. Yes, Felipe can refuse to pay Gustavo, who allowed the check to become
stale. Although a check is not legal tender (Belisario v. Natividad. 60 Phil
156), there are instances when a check produces the effects of payment, for
example:
i. when the creditor is in estoppel or he had previously promised he
would accept a check (Paras, Civil Code Annotated, Vol IV, 2000
ed., p. 394);
ii. when the check has lost its value because of the fault of the creditor
(Art. 1249, 2nd par.),as when he was unreasonably delayed in
presenting the check for payment (PNB v. Seeto, G.R. No, L-4388,
13 August 1952).
C. Felipe cannot compel Gustavo to receive US$100 because under RA 529,

payment of loans should be at Philippine currency at the rate of exchange
prevailing at the time of the stipulated date of payment. Felipe could only
compel Gustavo to receive US$ 100 if they stipulated that obligation be paid
in foreign currency (R.A. 4100).
Extinguishment; Payment of Check (2013)
Lito obtained a loan of P1,000,000 from Ferdie, payable within one year. To secure payment, Lito
executed a chattel mortgage on a Toyota Avanza and a real estate mortgage on a 200-square meter
piece of property.
Lito's failure to pay led to the extrajudicial foreclosure of the mortgaged real property. Within a
year from foreclosure, Lito tendered a manager's check to Ferdie to redeem the property. Ferdie
refused to accept payment on the ground that he wanted payment in cash: the check does not
qualify as legal tender and does not include the interest payment. Is Ferdie's refusal justified?
(4%)
22
A check, whether a manager’s check or an ordinary check is not legal tender, and an
offer of a check in payment of a debt is not a valid tender of payment and may be
refused receipt by the oblige or creditors (Philippine Airlines v. CA and Amelia Tan,
G.R. No. L-49188, 1990). Mere delivery of checks does not discharge the obligation
under a judgment. A check shall produce the effect of payment only when they have
been cashed or where through the fault of the creditor they have been impaired (Art
1249, Civil Code).
However, it is not necessary that the right of redemption be exercised by delivery of

legal tender. A check may be used for the exercise of right of redemption, the same
being a right and not an obligation. The tender of a check is sufficient to compel
redemption but is not in itself a payment that relieves the redemptioner from his
liability to pay the redemption price (Biana v. Gimenez, G.R. No. 132768, Sept 9,
2005, citing Fortunado v. CA).
Redemption within the period allowed by law is not a matter of intent but a question
of payment or valid tender of full redemption prices within the said period. Whether
redemption is being made under Art. 3135 or under the General Banking Law, the
mortgagor or his assignee is required to tender payment to make said redemption valid
(Heirs of Quisumbing v. PNB and SLDC, G.R. No. 178242, Jan 20, 2009).
Moreover, Ferdie’s refusal was justified on the ground that the amount tendered does
not include interest. In order to effect the redemption of the foreclosed property, the
payment to the purchaser must include the following sums:
a) the bid price;
b) the interest on the bid price, computed at one per centum (1%) per month; and
c) the assessments and taxes, if any, paid by the purchaser with the same rate of
interest (Sec 28, 1997 Rules of Civil Procedure).
Unless there is an express stipulation to that effect, the creditor cannot be compelled
to receive partial payment of the prestation (Art. 1248, Civil Code).
Consignation (2014)
Dorotea leased portions of her 2,000 sq. m. lot to Monet, Kathy, Celia, and Ruth for five (5) years.
Two (2) years before the expiration of the lease contract, Dorotea sold the property to PM Realty
and Development Corporation. The following month, Dorotea and PM Realty stopped accepting
rental payments from all the lessees because they wanted to terminate the lease contracts.
Due to the refusal of Dorotea to accept rental payments, the lessees , Ruth, et al., filed a complaint
for consignation of the rentals before the Regional Trial Court (RTC) of Manila without notifying
Dorotea.
Is the consignation valid? (4%)
No, the consignation is not valid. For consignation of the thing or sum due to be
proper, there must be prior notice to the creditor that the debtor is going to consign the
payment in court. This notice is intended to give the creditor the opportunity to accept
payment and thus avoid liability for costs in case it is found that the act of
consignation was properly made. Even on the assumption that Dorotea was no longer
the creditor as she had already sold the property to DM Realty, the facts do not state
that the realty corporation was also given notice before filing the case for
consignation.
Non-Payment of Amortizations; Subdivision Buyer; When justified (2005)
Bernie bought on installment a residential subdivision lot from DEVLAND. After having
faithfully paid the installments for 48 months, Bernie discovered that DEVLAND had failed to
23
develop the subdivision in accordance with the approved plans and specifications within the time
frame in the plan. He thus wrote a letter to DEVLAND informing it that he was stopping payment.
Consequently, DEVLAND cancelled the sale and wrote Bernie, informing him that his payments
are forfeited in its favor.
a) Was the action of DEVLAND proper? Explain. (2%)
b) Discuss the rights of Bernie under the circumstances. (2%)
c) Supposing DEVLAND had fully developed the subdivision but Bernie failed to pay further
installments after 4 years due to business reverses. Discuss the rights and obligations of the
parties. (2%)
a) No, the action of DEVLAND is not proper. Under Section 23 of Presidential Decree No.
957, otherwise known as the Subdivision and Condominium Buyer's Protection Decree,
non-payment of amortizations by the buyer is justified if non-payment is due to the
failure of the subdivision owner to develop the subdivision project according to the
approved plans and within the limit for complying.(Eugenio v. Drilon, G.R. No.
109404, January 22, 1996)
b) Under P.D. No. 957, a cancellation option is available to Bernie. If Bernie opts to cancel
the contract, DEVLAND must reimburse Bernie the total amount paid and the
amortizations interest, excluding delinquency interest, plus interest at legal rate.
(Eugenio v. Drilon, G.R. No. 109404, January 22, 1996)
c) In this case, pursuant to Section 24 of P.D. No. 957, R.A. No. 6552 otherwise known as
the Realty Installment Buyer Protection Act, shall govern. Under Section 3 thereof,
Bernie is entitled: 1) to pay without additional interest the unpaid installments due
within a grace period of four (4) months or one month for every year of installment
paid; 2) if the contract is cancelled, Bernie is entitled to the refund of the cash surrender
value equal to 50% of the total payments made.
DEVLAND on the other hand has the right to cancel the contract after 30 days from
receipt by Bernie of notice of cancellation. DEVLAND is however obliged to refund to
Bernie 50% of the total payments made. (Rillo v. Court of Appeals, G.R. 125347, June
19, 1997)
ii. Loss of the thing due
Extinguishment; Loss of the thing due (1986)
Mr. Mekanico leased some automobile repair equipment to Mr. Masipag, who was opening his auto
repair shop. The lease agreement was executed on February 15, 1985. It stipulated that the period
was one month only, at the expiration of which Masipag was to return the equipment of Mekanico.
The equipment was delivered on February 15, 1985. On March 15, 1985 Mekanico, in a telephone
call, asked Masipag to return the leased property that same day. Because his truck broke down,
Masipag was unable to comply. Early the next morning, the equipment was burned in an accidental
fire that started in a nearby restaurant and gutted Masipag's auto repair shop.
Mekaniko seeks to hold Masipag liable for the value of the lost property plus damages on the
ground that he did not return it as agreed upon. Is Mekanico's claim tenable? Explain.
Mekaniko's claim in untenable. The fire of accidental origin which destroyed the equipment
which is the object of the obligation in the instant case is clearly fortuitous in character.
Therefore, the doctrine of fortuitous events is applicable. The debtor or obligator, Masipag,
is not liable. In other words, the obligation is extinguished. The fact that the loss took place
on March 16, 1985. which is one day after Mekaniko had made a demand upon Masipag to
return the leased property, does not mean that the loss took place after the obligor had
24
already incurred in delay. It must be noted that the lease agreement was executed on
February 15, 1985, Obviously, on March 16, 1985. Masipag had not yet incurred in delay.
(Note: The above answer is based upon Arts. 13 and 1174 of the Civil Code. We
recommend that an answer based on Arts. 13 and 1262 of the Civil Code or on Arts. 13,
1665 and 1667, arriving at the same conclusion should also be considered correct)
The loss occurred by fortuitous event before Masipag incurred in delay. Therefore, the
general rule applies; No one shall be held liable for loss due to fortuitous event.
The one-month period of lease would expire only on March 18th while the fire occurred on
the 29th day. The C.C. provides that one-month consists of 30 days and February.
Extinguishment; Loss (1994)
Dino sued Ben for damages because the latter had failed to deliver the antique Marcedes Benz
car Dino had purchased from Ben, which was—by agreement—due for delivery on December 31,
1993. Ben, in his answer to Dino's complaint, said Dino's claim has no basis for the suit, because
as the car was being driven to be delivered to Dino on January 1, 1994, a reckless truck driver
had rammed into the Mercedes Benz. The trial court dismissed Dino's complaint, saying Ben's
obligation had indeed, been extinguished by force majeure. Is the trial court correct?
a) No. Article 1262, New Civil Code provides, "An obligation which consists in the
delivery of a determinate thing shall be extinguished if it should be lost or destroyed
without the fault of the debtor, and before he has incurred in delay.
b) The judgment of the trial court is incorrect. Loss of the thing due by fortuitous events
or force majeure is a valid defense for a debtor only when the debtor has not incurred
delay. Extinguishment of liability for fortuitous event requires that the debtor has not
yet incurred any delay. In the present case, the debtor was in delay when the car was
destroyed on January 1, 1993 since it was due for delivery on December 31, 1993.
(Art. 1262 Civil Code).
c) It depends whether or not Ben the seller, was already in default at the time of the
accident because a demand for him to deliver on due date was not complied with by
him. That fact not having been given in the problem, the trial court erred in dismissing
Dino's complaint. Reason: There is default making him responsible for fortuitous
events including the assumption of risk or loss.
If on the other hand Ben was not in default as no demand has been sent to him prior to
the accident, then we must distinguish whether the price has been paid or not. If it has
been paid, the suit for damages should prosper but only to enable the buyer to recover
the price paid. It should be noted that Ben, the seller, must bear the loss on the
principle of res perit domino. He cannot be held answerable for damages as the loss of
the car was not imputable to his fault or fraud. In any case, he can recover the value of
the car from the party whose negligence caused the accident. If no price has been paid
at all, the trial court acted correctly in dismissing the complaint.
Extinguishment; Loss; Impossible Service (1993)
In 1971, Able Construction, Inc. entered into a contract with Tropical Home Developers, Inc.
whereby the former would build for the latter the houses within its subdivision. The cost of each
house, labor and materials included, was P100,000.00. Four hundred units were to be constructed
within five years. In 1973, Able found that it could no longer continue with the job due to the
increase in the price of oil and its derivatives and the concomitant worldwide spiraling of prices
of all commodities, including basic raw materials required for the construction of the houses. The
cost of development had risen to unanticipated levels and to such a degree that the conditions and
25
factors which formed the original basis of the contract had been totally changed. Able brought
suit against Tropical Homes praying that the Court relieve it of its obligation. Is Able
Construction entitled to the relief sought?
Yes, the Able Construction. Inc. is entitled to the relief sought under Article 1267,
Civil Code. The law provides: "When the service has become so difficult as to be
manifestly beyond the contemplation of the parties, the obligor may also be released
therefrom, in whole or in part."
Exemption from liability due to fortuitous events; exceptions (1983)
Cite three instances where a person is made civilly liable for failure to comply with his obligations
although he was prevented from doing so by a fortuitous event.
a) When the loss is due to the debtor's fault.
b) When the debtor has incurred in delay,
c) When he has promised to deliver the same thing to 2 or more different
d) persons who do not have the same interest,
e) When it is expressly stipulated.
f) When the law expressly provides so,
g) When the nature of the obligation requires the assumption of risk, and
h) 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.
Fortuitous events (1988)
Mario received from Edgar a pendant with diamonds valued at P5,OOO.OO to be sold on
commission basis or to be returned on demand. In the evening of August 31, 1987, while he was
walking home, two men snatched his clutch bag containing the pendant and ran away.
Subsequently, the snatchers were apprehended and charged. During the pendency of the criminal
case, Edgar brought an action against Mario for the recovery of the pendant or its value and
damages. Mario interposed the defense of fortuitous event but Edgar contends—
(1) That the defense of fortuitous event is untenable because there was negligence on the part of
the defendant; and
(2) That if the defense is untenable, there must be a prior conviction of robbery before it can be
availed of.
Decide the case.
The factual setting of the above problem is identical to that of Austria vs. Court of
Appeals (39 SCRA 527). In that case the Supreme Court held that defendant is not
liable.
To constitute a caso fortuito that would exempt a person from responsibility, it is

necessary
a) that the event must be independent of the will of the debtor;
b) that it must be either unforeseeable or unavoidable;
c) that the occurrence must render it impossible for the debtor to fulfill the
obligation in a normal manner; and
d) that the debtor must be free of, participation in, or aggravation of, the injury
to the creditor.
All of the above requisites or conditions are present in this case. It is undeniable that
in order to completely exonerate the debtor by reason of a fortuitous event, such
26
debtor must, in addition into the causes itself, be free of any concurrent or
contributory fault or negligence. We believe, however, that her act in traveling alone
in the evening, carrying jewelry of considerable value, cannot be considered
as either concurrent or contributory negligence. While it may be so considered now,
we are not persuaded that the same rule should obtain ten years previously when the
robbery in question took place, for at that time criminality had not by far reached the
levels attained in the present day.
There is likewise no merit in the contention that to allow the fact of robbery to be
recognized in this case before conviction is secured in the criminal action, would
prejudice the latter case, or would result in inconsistency should the accused obtain
an acquittal or should the criminal case be dismissed. It must be realized that a court
finding that a robbery has happened would not necessarily mean that those accused
in the criminal action would be found guilty of the crime; nor would a ruling that
those actually accused did not commit the robbery be inconsistent with a finding that
a robbery did take place. The evidence to establish these facts would not necessarily
be the same.
Loss of the thing due; Force Majeure (2000)
Kristina brought her diamond ring to a jewelry shop for cleaning. The jewelry shop undertook to
return the ring by February 1, 1999." When the said date arrived, the jewelry shop informed
Kristina that the Job was not yet finished. They asked her to return five days later. On February
6, 1999, 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? (5%)
The action will prosper. Since the defendant was already in default not having
delivered the ring when delivery was demanded by plaintiff at due date, the defendant
is liable for the loss of the thing and even when the loss was due to force majeure.
Fortuitous event (2008)
AB Corp. entered into a contract with XY Corp. whereby the former agreed to construct the
research and laboratory facilities of the latter. Under the terms of the contract, AB Corp. agreed
to complete the facility in 18 months, at the total contract price of P10 million. XY Corp. paid 50%
of the total contract price, the balance to be paid upon completion of the work. The work started
immediately, but AB Corp. later experienced work slippage because of labor unrest in his
company. AB Corp.’s employees claimed that they are not being paid on time; hence, the work
slowdown. As of the 17th month, work was only 45% completed. AB Corp. asked for extension of
time, claiming that its labor problems is a case of fortuitous event, but this was denied by XY
Corp. When it became certain that the construction could not be finished on time, XY Corp. sent
written notice canceling the contract, and requiring AB Corp. to immediately vacate the premises.
A. Can the labor unrest be considered a fortuitous event? (1%)

B. Must AB Corp. return the 50% downpayment? (2%)
 A. SUGGESTED ANSWER:
Labor unrest is not a fortuitous event that will excuse AB Corp. from complying with
its obligation of constructing the research and laboratory facilities of XY Corp. The
labor unrest, which may even be attributed in large part to AB Corp. itself, is not the
direct cause of noncompliance by AB Corp. It is independent of its obligation. It is
similar to the failure of a DBP borrower to pay her loan just because her plantation
suffered losses due to the cadang-cadang disease. It does not excuse compliance with
the obligation (DBP vs. Vda. de Moll, 43 SCRA 82 [1972])
 A. ALTERNATIVE ANSWER:
The labor unrest in this case is not a fortuitous event. The requisites of fortuitous
event are:
27
1. the event must be independent of human will or at least of the debtor’s will;
2. the event could not be foreseen, or if foreseen, is inevitable;
3. the event must have rendered impossible debtor’s compliance of the obligation
in a proper manner; and
4. the debtor must not be guilty of concurrent negligence (Lasam v Smith, 45
Phils. 657 [1924]).
All the requisites are absent in this case. AB Corp. could have anticipated the labor
unrest which was caused by delays in paying the laborer’s wages. The company could
have hired additional laborers to make up for the work slowdown.
 B. SUGGESTED ANSWER
No, under the principle of quantum meruit, AC Corp. has the right to retain payment
corresponding to his percentage of accomplishment less the amount of damages
suffered by XY Corp. because of the delay or default.
iii. Condonation
Extinguishment; Condonation (2000)
Arturo borrowed P500,000.00 from his father. After he had paid P300,000.00, his father died.
When the administrator of his father's estate requested payment of the balance 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? (3%)
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.
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.
Extinguishment; condonation (2015)

Iya and Betty owed Jun P500,000.00 for advancing their equity in a corporation they joined as
incorporators. Iya and Betty bound themselves solidarily liable for the debt. Later, Iya and Jun
became sweethearts so Jun condoned the debt of P500,000.00. May lya demand from Betty
~250,000.00 as her share in the debt? Explain with legal with basis. (2%)
No, Iya may not demand the 250,000 from Betty because the entire obligation has
28
been condoned by the creditor Jun. In a solidary obligation the remission of the whole
obligation obtained by one of the solidary debtors does not entitle him to
reimbursement from his co-debtors. (Article 1220, Civil Code)
iv. Compensation
Extinguishment; compensation: payment: confusion: set-off
Differentiate compensation from payment, from confusion and from set-off.
Compensation may be distinguished from payment in the following ways:

1. The requisites prescribed by law for compensation are different from those
prescribed by law for payment.
2. Compensation takes effect by operation of law, whereas payment takes effect by
act of the parties.
3. Capacity to give and to acquire is not necessary in compensation, but it is essential
in payment.
4. Compensation is, as a rule, partial, whereas payment is, as a rule, complete and
indivisible.
Compensation may be distinguished from confusion in the following ways;

1. As to number of persons, in compensation there must be two persons, who, in their
own right, are creditors and debtors of each other, whereas in confusion there is
only one person in whom is merged the qualities of creditor and debtor.
2. As to number of obligations, in compensation there must be at least two, whereas
in confusion there is only one.
Compensation may be distinguished from set-off or counterclaim in the following ways:

1. Compensation requires that the two debts must consists in money, or if the things
due are fungibles, they must be of the same kind and quality, but in counterclaim
this is not necessary.
2. Compensation, as a general rule, requires that the debts must be liquidated, but
counterclaim does not.
3. Compensation need not be pleaded, whereas a counterclaim must be pleaded to be
effectual.
Extinguishment; Compensation vs. Payment (1998)
Define compensation as a mode of extinguishing an obligation, and distinguish it from payment.

[2%]
COMPENSATION is a mode of extinguishing to the concurrent amount, the obligations of

those persons who in their own right are reciprocally debtors and creditors of each other
(Tolentino, 1991 ed., p. 365, citing 2 Castan 560 and Francia vs. IAC. 162 SCRA 753). It
involves the simultaneous balancing of two obligations in order to extinguish them to the
extent in which the amount of one is covered by that of the other. (De Leon, 1992 ed., p.
221, citing 8 Manresa 401).
PAYMENT means not only delivery of money but also performance of an obligation
(Article 1232, Civil Code). In payment, capacity to dispose of the thing paid and capacity
to receive payment are required for debtor and creditor, respectively: in compensation,
such capacity is not necessary, because the compensation operates by law and not by the
act of the parties. In payment, the performance must be complete; while in compensation
there may be partial extinguishment of an obligation (Tolentino, supra)
29
Extinguishment; Compensation (1981)
"B" borrowed from "C" Pl,000.00 payable in one year. When "C" was in the province, "C's" 17-
year old son, borrowed P500 from "B" for his school tuition. However, the son spent it instead
nightclubbing. When the debt to "C" fell due, "B" tendered only P500, claiming compensation
on the P500 borrowed by "C's" son,
a) Is there legal compensation? Why?
b) Suppose the minor son actually used the money for school tuition, would the
answer be different? Reasons.
a) There is no legal compensation. Under the Civil Code, in order that there will be a
valid and effective compensation, it is essential that there must be two parties, who in
their own right, are principal creditors and principal debtors of eachother.
In the instant case, "C" cannot be considered as a party to the act of his 17- year old
son in borrowing P500.00 from "B ". Consequently, he did not become a principal
debtor of "B"; neither did "B" become a principal creditor of "C". Therefore, there can
be no partial compensation of the P1 ,000,00 borrowed by "B" from "C".
(Note: The above answer is based on Arts. 1278 and 1279, No. (1), of the Civil Code
and on decided cases.)
b) There would be no difference in any answer. There will still be no legal

compensation. The fact that "C's" son actually used the P500.00 for his school tuition
did not make "C" a party to the contract between his son and "B". Therefore, "C" is
not the principal debtor of "B" and "B" is not the principal creditor of "C" with respect
to said amount.
Extinguishment; Compensation/Set-Off; Banks (1998)
X, who has a savings deposit with Y Bank in the sum of P1,000,000.00 incurs a loan obligation
with the said Bank in the sum of P800.000.00 which has become due. When X tries to withdraw
his deposit, Y Bank allows only P200.000.00 to be withdrawn, less service charges, claiming that
compensation has extinguished its obligation under the savings account to the concurrent
amount of X's debt. X contends that compensation is improper when one of the debts, as here,
arises from a contract of deposit. Assuming that the promissory note signed by X to evidence the
loan does not provide for compensation between said loan and his savings deposit, who is correct?
[3%]
Y bank is correct. An. 1287, Civil Code, does not apply. All the requisites of Art. 1279,
Civil Code are present. In the case of Gullas vs. PNB [62 Phil. 519), the Supreme Court
held: "The Civil Code contains provisions regarding compensation (set off) and deposit.
These portions of Philippine law provide that compensation shall take place when two
persons are reciprocally creditor and debtor of each other. In this connection, it has been
held that the relation existing between a depositor and a bank is that of creditor and
debtor, x x x As a general rule, a bank has a right of set off of the deposits in its hands for
the payment of any indebtedness to it on the part of a depositor." Hence, compensation
took place between the mutual obligations of X and Y bank.
Stockton is a stockholder of Core Corp. He desires to sell his shares in Core Corp. In view of a
court suit that Core Corp. has filed against him for damages in the amount of P 10 million, plus
attorney’s fees of P 1 million, as a result of statements published by Stockton which are allegedly
defamatory because it was calculated to injure and damage the corporation’s reputation and
goodwill. The articles of incorporation of Core Corp. provide for a right of first refusal in favor
30
of the corporation. Accordingly, Stockton gave written notice to the corporation of his offer to
sell his shares of P 10 million. The response of Core corp. was an acceptance of the offer in the
exercise of its rights of first refusal, offering for the purpose payment in form of compensation or
set-off against the amount of damages it is claiming against him, exclusive of the claim for
attorney’s fees. Stockton rejected the offer of the corporation, arguing that compensation
between the value of the shares and the amount of damages demanded by the corporation cannot
legally take effect. Is Stockton correct? Give reason for your answer. (5%)
 SUGGESTED ANSWERS
Stockton is correct. There is no right of compensation between his price of P10 million
and Core Corp.’s unliquidated claim for damages. In order that compensation may be
proper, the two debts must be liquidated and demandable. The case for the P 10million
damages being still pending in court, the corporation has as yet no claim which is due and
demandable against Stockton.
 ANOTHER MAIN ANSWER:

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

Even if assuming that there was a perfect right of first refusal, compensation did not take
place because the claim is unliquidated.
leased from him. Eduardo, executed the promissory note ("PN") in favor of the bank, with his
and collectively" liable and waived the need for prior demand. To secure the PN, Recardo
executed a real estate mortgage on his own property. When Eduardo defaulted on the PN, XYZ
stopped payment of rentals on the building on the ground that legal compensation had set in.
Since there was still a balance due on the PN after applying the rentals, XYZ foreclosed the real
estate mortgage over Recardo's property. Recardo opposed the foreclosure on the ground that he
is only a co-signatory; that no demand was made upon him for payment, and assuming he is liable,
his liability should not go beyond half the balance of the loan. Further, Recardo said that when the
bank invoked compensation between the reantals and the amount of the loan, it amounted to a
new contract or novation, and had the effect of extinguishing the security since he did not give his
consent (as owner of the property under the real estate mortgage) thereto.
Can XYZ Bank validly assert legal compensation? (2%)
Yes, XYZ Bank can validly assert legal compensation. In the present case, all of the
elements of legal compensation are present:
1. XYZ Bank is the creditor of Eduardo while Eduardo is the lessor of XYZ
Bank;
2. Both debts consist in a sum of money, or if the things due are consumable,
they be of the same kind, and also of the same quality if the latter has been
stated;
3. The two debts be due;
4. They be liquidated and demandable, and
5. Over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor (Art. 1279, Civil
Code).
31
Sarah had a deposit in a savings account with Filipino Universal Bank in the amount of five
million pesos (P5,000,000.00). To buy a new car, she obtained a loan from the same bank in the
amount of P1,200,000.00, payable in twelve monthly installments. Sarah issued in favor of the
bank post-dated checks, each in the amount of P100,000.00, to cover the twelve monthly
installment payments. On the third, fourth and fifth months, the corresponding checks bounced.
The bank then declared the whole obligation due, and proceeded to deduct the amount of one
million pesos (P1,000,000.00) from Sarah’s deposit after notice to her that this is a form
of compensation allowed by law. Is the bank correct? Explain. (4%)
No, the bank is not correct. While the Bank is correct about the applicability of
compensation, it was not correct as to the amount compensated.
A bank deposit is a contract of loan, where the depositor is the creditor and the bank
the debtor. Since Sarah is also the debtor of the bank with respect to the loan, both are
mutually principal debtors and creditors of each other. Both obligation are due,
demandable and liquidated but only up to the extent of P300,000.00 (covering the
unpaid third, fourth and fifth monthly installments). The entire one million was not
yet due because the loan has no acceleration clause in case of default. And since there
is no retention or controversy commenced by third person and communicated in due
time to the debtor, then all the requisites of legal compensation are present but only up
to the amount of P300,000.00. The bank, therefore, may deduct P300,000.00 from
Sarah’s bank deposit by way of compensation.
v. Novation
Extinguishment ; Novation (1977)
R borrowed P5,000 from H and he authorized his bank to pay the loan. The bank agreed.
Eventually, the bank paid only P2,550.00 H sued both R and the bank. Discuss the bank's
liability.
The bank cannot be held liable for the remaining P2,500. Even assuming that H gave
his consent to R's proposal that the bank shall pay his indebtedness of P5,000, in
reality, there was no substitution of debtor by delegation resulting in a novation of the
obligation. There was merely an authorization, which was accepted by the bank, that
the latter shall pay R's debt. As it turned out, the bank paid only P2,500.00 to H.
Beyond that amount, the bank cannot be held liable. (Hodges vs. Key, 111 Phil. 219).
Etinguishment; novation (1978)
A bought from B a parcel of land and paid the purchase price except for an unpaid balance of
P6,000. A, therefore, executed a promissory note for the balance of P6,000 with interest at ten per
cent (10%) to be paid within sixty (60) days. On the same date, C surety company executed a
bond in favor of B for the amount of P6,000 representing the unpaid balance of the purchase
price of the parcel of land, without any stipulation regarding payment of interest. On the due
date, A failed to pay, and C surety company paid P6,000 to B. B then sued A for the accumulated
interest on the principal of P6,000. A claimed novation of the obligation when B accepted
unqualifiedly the surety bond which merely guaranteed payment of P6,000. Is A correct? Explain
your answer.
A is not correct. There is no novation so long as there is no agreement that the
principal debtor shall be released from responsibility, Here, there is no such
agreement. True, C surety company executed a bond in favor of B for the amount of
P6,000, but that did not have the effect of releasing A from the obligation. The surety
bond is not a new and separate contract but is merely an accessory of the original
32
contract entered into by and between A and C surety company on one hand and B on
the other hand. It provided merely for a more definite and solid arrangement for
payment. Therefore, A and B are still bound under their old contract. The former is
still liable for accumulated interests on the principal of P6,000. (NOTE: The above
answer is based on Arts. 1291, No. 1, and 1292, Civil Code, and on Dungo vs.
Lopena, L-18377, Dec. 29, 1962, and Magdalena Estate vs. Rodriguez, 18 SCRA
967.)
A is not correct. The defense of implied novation requires clear and convincing proof
of complete incompatibility between the two obligations. 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 to the instant-case, it is clear that the
original contract between A and B and the surety bond executed by C surety company
can stand together. The bond is merely an accessory of the original contract.
Therefore, there is no novation. (NOTE: The above answer-is based on decided cases
applying Arts. 1291, No. 1, and 1292 of the Civil Code.)
Extinguishment; novation (1979)
T borrowed P10,000.00 from a bank executing a promissory note therefore wherein it is expressly
stated that the note is due 120 days thereafter. On the date of maturity T pays only the very small
amount of P200.00 plus interest in advance for the renewal of the note for another 60 days. For
almost two years the bank was very lenient with T and allowed him to renew his note in the same
manner more than 10 times until finally the bank management had to make demand for payment
of the balance of P8,000.00 after the expiration of the date of last renewal. Upon T's failure to
pay, the bank filed an action for collection of said balance. T raised the defense that the action is
premature because the bank by its conduct had impliedly agreed that the payment of the note is
to be made as the financial means of T warrants. Should the defense be sustained? Why?
The defense should not be sustained. The acts of leniency of the bank in accepting
partial payments for a period of two years by virtue of BO many renewals or
extensions should not be interpreted as a novation of the original obligation. The bank
was merely compassionate. It is a well-settled rule in this jurisdiction that the
extension of the period for payment or postponement of the date of payment does not
result in a novation. There is no clear case of incompatibility between such extension
or postponement and the original obligation; neither is there a change in the obligatory
relation of the parties which will alter the essence of the original obligation.
ABC Trading Co., a domestic corporation engaged in the sale of automobile spare parts, opened
with "X" Bank letter of credit up to the extent of P450,000.00 for a period of one year. To secure
payment thereof, it executed a chattel mortgage over its stocks-in-trade valued at 7500,000.00. On
May 15, and June 15r 1981, Mr. "Y", president and general manager of ABC Trading drew
against this letter of credit by means of promissory notes in the total amount of P430,000.00,
payable within 30 days from the respective dates of the promissory notes with interest of 10%.
Upon maturity of said notes, ABC Trading failed to pay, but was able to negotiate for an
extension of six (6) months within which to pay said amount, in return for the additional security
posted by Mr. "Y" consisting- of a real estate mortgage over his land in Manila. At the end of 6
months, ABC Trading Co. failed to pay the amount due despite repeated demands by "X" Bank.
"X" Bank filed an action for foreclosure of the chattel mortgage executed by ABC Trading. ABC
Trading opposed said action contending that the chattel mortgage has been novated by the real
estate mortgage executed by Mr. "Y" in favor of "X" Bank. Is the contention of ABC Trading
Co. tenable? Reasons.
The contention of ABC Trading Co. that the chattel mortgage has been novated by the
33
real estate mortgage executed by Mr. "Y" in favor of "X" Bank is untenable. Well-
settled is the rule that in order that there will be a novation, there must be complete
incompatibility between the two obligations. And the test of incompatibility is simple.
All that we have to ask is: Can the two obligations stand together. If they can then
there is no incompatibility. If there is no incompatibility, then there is no novation.
However, if they cannot stand together, then there is incompatibility. If there is
incompatibility, then there is a novation. Applying the test to the instant case, it is
clear that the two obligations can stand together. Therefore, there is no novation.
(Note: The above answers is based on Arts. 1291(1) and 1292 of the Civil Code and
on decided cases, such as Bank of PI. vs. Herridge, 47 Phil. 57; Ynchausti & Co. vs.
Yulo, 34 Phil. 978; Pascual vs. Lacsamana,, 400 Phil. 381; La Tondena, vs. Alto
Surety & Ins. Co., 101 Phil. 879.)
Extinguishment ; Novation (1988)
Suppose that under an obligation imposed by a final judgment, the liability of the judgment
debtor is to pay the amount of P6,000.00 but both the judgment debtor and the judgment creditor
subsequently entered into a contract reducing the liability of the former to only P4,000.00, is
there an implied novation which will have the effect of extinguishing the judgment obligation and
creating a modified obligatory relation? Reasons.
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 judgment debtor of the reduced
amount of P4,000 to the creditor. Additionally, to sustain novation necessitates that
the same be so declared in unequivocal terms clearly and unmistakably shown by the
express agreement of the parties or by acts of equivalent import or that there is
complete and substantial incompatibility between the two obligations. (Sandico vs.
Piguing, 42SCRA 322.)
 ALTERNATIVE ANSWERS:
1. There remains an obligation on the basis of the facts given. There is no showing in the
facts that the P4,000 has been paid so it created a modified obligatory obligation no
longer based on the judgment but based on the novatory agreement.
2. There is no implied novation. Instead there has been a partial remission in the amount
of P2,000 leaving P4,000 still enforceable under the judgment.
3. It can amount to a compromise. A final judgment which has not yet been fully satisfied
may be the subject of a compromise. The compromise partakes the nature of a
novation. Article 204; provides that: “If one of the parties fails or refuses to abide by
the compromise, the other party may either enforce the compromise or regard it as
rescinded and insist upon his original demand.” (Gatchalian vs. Arlegui 75 SCRA 234;
Dormitorio vs. Fernandez 72 SCRA 388)
Extinguishment; Novation (1994)
In 1978, Bobby borrowed Pl,000,000.00 from Chito payable in two years. The loan, which was
evidenced by a promissory note, was secured by a mortgage on real property. No action was filed
34
by Chito to collect the loan or to foreclose the mortgage. But in 1991, Bobby, without receiving
any amount from Chito, executed another promissory note which was worded exactly as the 1978
promissory note, except for the date thereof, which was the date of its execution.
1) Can Chito demand payment on the 1991 promissory note in 1994? 2) Can Chito foreclose the
real estate mortgage if Bobby fails to make good his obligation under the 1991 promissory note?
1. Yes, Chito can demand payment on the 1991 promissory note in 1994. Although the
1978 promissory note for P1 million payable two years later or in 1980 became a
natural obligation after the lapse of ten (10) years, such natural obligation can be a
valid consideration of a novated promissory note dated in 1991 and payable two years
later, or in 1993. All the elements of an implied real novation are present:
a) an old valid obligation;
b) a new valid obligation;
c) capacity of the parties;
d) animus novandi or intention to novate; and
e) The old and the new obligation should be incompatible with each other on all
material points (Article 1292).
The two promissory notes cannot stand together, hence, the period of prescription of
ten (10) years has not yet lapsed.
2. No. The mortgage being an accessory contract prescribed with the loan. The novation
of the loan, however, did not expressly include the mortgage, hence, the mortgage is
extinguished under Article 1296 of the NCC. The contract has been extinguished by
the novation or extinction of the principal obligation insofar as third parties are
concerned.
Extinguishment; Novation (2008)
leased from him. Eduardo, executed the promissory note ("PN") in favor of the bank, with his
and collectively" liable and waived the need for prior demand. To secure the PN, Recardo
executed a real estate mortgage on his own property.
When Eduardo defaulted on the PN, XYZ stopped payment of rentals on the building on the
ground that legal compensation had set in. Since there was still a balance due on the PN after
applying the rentals, XYZ foreclosed the real estate mortgage over Recardo's property. Recardo
opposed the foreclosure on the ground that he is only a co-signatory; that no demand was made
upon him for payment, and assuming he is liable, his liability should not go beyond half the
balance of the loan. Further, Recardo said that when the bank invoked compensation between the
reantals and the amount of the loan, it amounted to a new contract or novation, and had the effect
of extinguishing the security since he did not give his consent (as owner of the property under the
real estate mortgage) thereto.
Does Recardo have basis under the Civil Code for claiming that the original contract was
novated? (2%)
No. Recardo has no basis for claiming novation of the original contract when the bank
invoked compensation because there was simply partial compensation (Art. 1290,
Civil Code) and this would not bar the bank from recovering the remaining balance of
the obligation.
No. In order that an obligation may be extinguished by another, it is imperative that it
35
be so declared in unequivocal terms, or that the old and new obligations be on every
point compatible with each other. Novation is never presumed (Art. 1292, Civil
Code).
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? (4%)
 SUGEGSTED ANSWER:
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.
vi. Dacion en pago and assignment
Obligations; extinguishment; dation en pago 1986
On due date, Mayutang, finding himself unable to pay Makaragdag his P5OO,OOO.OO
obligation, proposed in a letter to Makaragdag that he would deed over to Makaragdag his
Mercedes Benz car, "to be applied to the amount which I owe you." The following week,
Mayutang sent the car to Makaragdag with the proper deed of conveyance. It was accepted.
Was the arrangement a valid way of settling the obligation? Explain.

After the delivery of the car would Makaragdag have any further claim against Mayutang if the
value of the car is found to be Less than the P500,000.00 obligation? Explain.
The general rule according to commentators (Castan and Manresa) is that dation
extinguishes in full the obligation-the exception is a contrary agreement because then
it becomes assignment of rights - hence valid only up to the value.
 ANOTHER SUGGESTED ANSWER:

The arrangement was a valid way of settling the obligation. The law provides that
payment for an obligation may be made by delivery of other property.

The creditor can claim the deficiency because the debt shall only be extinguished up to
extent of the value of the property given to him, since the agreement was that the car
was "to be applied "to the amount owed.

Yes, the arrangement was a valid way of settling the obligation. Under the Civil Code,
there are several special forms of payment which will have all of the effects of a valid
payment. One of them is dation in payment (dacion en pago). It is defined as the
36
transmission of the ownership of a thing by the debtor to the creditor as the accepted
equivalent of the performance of an obligation, According to the Civil Code, the law on
sales shall govern the transaction. Thus, in the instant problem, the Mercedes Benz car
is considered the object of the contract of sale,while the debt of P500,000 is considered
the purchase price.
Normally, dacion en pago has the effect of extinguishing the obligation to the extent of
the value of the thing delivered either as agreed upon or as may be proved, unless the
silence of the parties signifies that they consider the delivery of the thing as the
equivalent of the performance of the obligation. It must be observed, however, that
Makaragdag accepted the delivery of the car without any protest or objection. The entire
obligation, therefore, is deemed fully complied with. (Note: The above answer is based
upon Arts. 1245 and 1235 of the Civil Code and upon Lopez vs. CA, 114 SCRA 671.)
 ANOTHER SUGGESTED ANSWER

The arrangement is a valid way of settling the obligation which is known as "dacion en
pago." As to whether the delivery of the car was in "full satisfaction" of the debt or to be
merely "applied" to the whole indebtedness is another question. The interpretation of
their agreement would depend on the difference between the value of the car and
P500,000.00. If the difference is very great, the intention of the parties would be that the
car is not in "full satisfaction" of the debt.
Dation en payment and assignment of property (1989)

What is dation in payment and how is it distinguished from assignment of property?
Dation in payment is a special form of payment whereby property is alienated to the
creditor in satisfaction of a debt in money.
Assignment of property, or payment by cession, is a special form of payment whereby

the debtor cedes or assigns his property to his creditors so that the proceeds thereof
will be applied in payment of his debts.
In dation in payment whereby property is given by the debtor to the creditor in payment
of a debt in money, there is only one creditor. In assignment of property, there are
several creditors.
In the former, the debtor may be solvent. In the latter, there may be partial insolvency.
In the former, particular property is ceded. In the latter, all the property of the debtor is
ceded. In the former, the particular obligation is extinguished in whole or in part as
agreed upon. In the latter, it releases the debtor from the net proceeds only, unless
otherwise agreed or intended.
Extinguishment; Assignment of Rights (2001)
The sugar cane planters of Batangas entered into a long-term milling contract with the Central
Azucarera de Don Pedro Inc. Ten years later, the Central assigned its rights to the said milling
contract to a Taiwanese group which would take over the operations of the sugar mill. The
planters filed an action to annul the said assignment on the ground that the Taiwanese group
was not registered with the Board of Investments. Will the action prosper or not? Explain
briefly. (5%)
(Note: The question presupposes knowledge and requires the application of the provisions of
the Omnibus Investment Code, which properly belongs to Commercial law)
 SUGGECTED ANSWER
The action will prosper not on the ground invoked but on the ground that the farmers have
not given their consent to the assignment. The milling contract imposes reciprocal
obligations on the parties. The sugar central has the obligation to mill the sugar cane of the
farmers while the latter have the obligation to deliver their sugar cane to the sugar central.
37
As to the obligation to mill the sugar cane, the sugar central is a debtor of the farmers. In
assigning its rights under the contract, the sugar central will also transfer to the Taiwanese
its obligation to mill the sugar cane of the farmers. This will amount to a novation of the
contract by substituting the debtor with a third party. Under Article 1293 of the Civil
Code, such substitution cannot take effect without the consent of the creditor. The
formers, who are creditors as far as the obligation to mill their sugar cane is concerned,
may annul such assignment for not having given their consent thereto.
 ALTERNATIVE ANSWER
The assignment is valid because there is absolute freedom to transfer the credit and the
creditor need not get the consent of the debtor. He only needs to notify him.
ESTOPPEL AND LACHES
Estoppel and laches (1989)

What do you understand by ESTOPPEL? What are the different kinds of estoppel? What is
laches?Explain.
The Civil Code enumerates only two (2) kinds of estoppel: estoppel in pais or by
conduct and estoppel by deed.
Estoppel in pais or by conduct arises when one by his act, representation, oral
admission or by his silence induces another to believe certain facts to exist and the
other realize an act on such belief.
Estoppel by deed is that by virtue of which a party to a deed and his privies are
precluded from asserting as against the other party any right or title in derogation of
the deed or any fact asserted therein.
Laches is negligence or omission to assert a right within a reasonable time giving rise
to the presumption that the party entitled to assert it either has abandoned it or
declined to assert it.
Estoppel; 1987
Fred sold to Juan a parcel of land, belonging to his minor son, Lino, then under his guardianship,
without judicial approval. After the sale, Juan immediately took possession of the land, built a
house and religiously paid the taxes thereon. Nine years thereafter, Lino, no longer a minor,
rented the ground floor of the house built by Juan. Lino paid the rent for the first month, then
stopped paying. Two years thereafter, when pressed for payment of the accrued rent. Lino
refused, claiming ownership over the property, alleging that the sale of the property to Juan while
he was a minor without the approval of the guardianship court rendered the sale null and void.
Is the claim of Lino valid and meritorious.? Explain.
No, Lino's claim is not valid and not meritorious because Lino is in estoppel. A lessee
cannot assail the right and title of the lessor and cannot claim ownership as against the
lessor. The fact that the sale was made while Lino was a minor is of no moment
because he recognized and ratified the contract after he was already of majority age.
No, Lino's claim is not valid and not meritorious because Juan had already become the
owner of the land by ordinary acquisitive prescription through adverse possession of
the land for over ten (10) years.
No, Lino's claim is not valid and not meritorious. Lino can no longer recover the land
because of laches.
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Estoppel (1988)
Since 1935, Janice possessed alone a parcel of land which she co-owned with Lenny. In 1970, with
the knowledge of Lenny, Janice obtained a Torrens title over the land in her own name alone. On
August 1, 1988, Lenny brought an action against Janice for reconveyance of her share, Janice set
up the defense of laches. Will the defense prosper? Reasons.
It is submitted that the defense of laches will prosper. As held by the Supreme Court
in several notable decisions, in order that the doctrine of laches or "stale demands"
can be applied, the following elements must concur:
1. Conduct on the part of the defendant, or of one under whom he claims, giving
rise to the situation of which complaint is made and for which the complaint
seeks a remedy;
2. Delay in asserting the complainant's rights, the complainant having had
knowledge or notice, of the defendant's conduct and having been afforded an
opportunity to institute a suit;
3. Lack of knowledge or notice on the part of the defendant that the complainant
would assert the right on which he bases the suit and
4. Injury or prejudice to the defendant in the event relief is accorded to the
complainant, or the suit is not held to be barred (Miguel vs. Catalino, 26
SCRA 234).
All of these elements are present in the instant case. As a matter of fact, the doctrine
was applied to a case wherein co-heir and another were able, through fraud, to register
a tract of land in their names. According to the Supreme Court, the action for
reconveyance brought by the other co-heirs more than twenty years later is now
barred not only by extinctive prescription but also by laches- (Fabian vs. Fabian, 22
SCRA 231)
39
CONTRACTS
ESSENTIAL REQUISITES OF CONTRACTS
Annulment Of Contracts; Capacity To Sue 1996
Sometime in 1955, Tomas donated a parcel of land to his stepdaughter Irene, subject to the
condition that she may not sell, transfer or cede the same for twenty years. Shortly thereafter, he
died. In 1965, because she needed money for medical expenses, Nene sold the land to Conrado. The
following year, Irene died, leaving as her sole heir a son by the name of Armando. When Armando
learned that the land which he expected to inherit had been sold by Irene to Conrado. he filed an
action against the latter for annulment of the sale, on the ground that it violated the restriction
imposed by Tomas. Conrado filed a motion to dismiss, on the ground that Armando did not have
the legal capacity to sue.
If you were the Judge, how will you rule on this motion to dismiss? Explain.
As judge, 1 will grant the motion to dismiss. Armando has no personality to bring the action for
annulment of the sale to Conrado. Only an aggrieved party to the contract may bring the action
for annulment thereof (Art. 1397. NCC). While Armando is heir and successor-in-interest of his
mother (Art. 1311, NCC), he [standing in place of his mother) has no personality to annul the
contract. Both are not aggrieved parties on account of their own violation of the condition of, or
restriction on, their ownership Imposed by the donation. Only the donor or his heirs would have
the personality to bring an action to revoke a donation for violation of a condition thereof or a
restriction thereon. (Garrido u. CA, 236 SCRA 450). Consequently, while the donor or his heirs
were not parties to the sale, they have the right to annul the contract of sale because their rights
are prejudiced by one of the contracting parties thereof [DBP v. CA, 96 SCRA 342; Teves vs.
PHHC. 23 SCRA 1141. Since Armando is neither the donor nor heir of the donor, he has no
personality to bring the action for annulment.
As judge, I will grant the motion to dismiss. Compliance with a condition imposed by a donor
gives rise to an action to revoke the donation under Art. 764, NCC. However, the right of action
belongs to the donor. Is transmissible to his heirs, and may be exercised against the donee's heirs.
Since Armando is an heir of the donee, not of the donor, he has no legal capacity to sue for
revocation of the donation. Although he is not seeking such revocation but an annulment of the
sale which his mother, the donee, had executed in violation of the condition imposed by the
donor, an action for annulment of a contract may be brought only by those who are principally or
subsidiarily obliged thereby (Art. 1397, NCC). As an exception to the rule, it has been held that a
person not so obliged may nevertheless ask for annulment if he is prejudiced in his rights
regarding one of the contracting parties (DBP us. CA. 96 SCRA 342 and other cases) and can
show the detriment which would result to him from the contract in which he had no intervention,
(Teves vs. PHHC, 23 SCRA 1141).
Such detriment or prejudice cannot be shown by Armando. As a forced heir, Armando's interest
In the property was, at best, a mere expectancy. The sale of the land by his mother did not impair
any vested right. The fact remains that the premature sale made by his mother (premature because
only half of the period of the ban had elapsed) was not voidable at all, none of the vices of
consent under Art. 139 of the NCC being present. Hence, the motion to dismiss should be
granted.
Consent; Invitation To Bid 1980
"K" & Co. published in the newspaper an "Invitation To Bid" inviting proposals to supply labor
and materials for a construction project described in the invitation. "L", "M", and "N" submitted
bids. When the bids were opened, it appeared that "L" submitted the lowest bid. However, "K" &
Co. awarded the contract "N", the highest bidder, on the ground that he was the most experienced
and responsible bidder. "L" brought an action against "K" & Co, to compel the award to him and
to recover damages.
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Is "L's" position meritorious?
"L's" position is not meritorious. According to the Civil Code, advertisements for bidders are
simply invitations to make proposals, and the advertiser is not bound to accept the highest or
lowest bidder, unless the contrary appears (Art. 1326). It is clear that the general rule applies in
the instant case. In its advertisements, "K" & Co., for instance, did not state that it will award the
contract to the lowest bidder. Therefore, in awarding the contract to "N", the defendant company
acted in accordance with its rights.
Consideration; Validity 2000
Lolita was employed in a finance company. Because she could not account for the funds entrusted
to her. she was charged with estafa and ordered arrested. In order to secure her release from jail,
her parents executed a promissory note to pay the finance company the amount allegedly
misappropriated by their daughter. The finance company then executed an affidavit of desistance
which led to the withdrawal of the information against Lolita and her release from jail. The parents
failed to comply with their promissory note and the finance company sued them for specific
performance. Will the action prosper or not? (3%)
The action will prosper. The promissory note executed by Lolita's parents is valid and binding,
the consideration being the extinguishment of Lolita's civil liability and not the stifling of the
criminal prosecution.
The action will not prosper because the consideration for the promissory note was the non-
prosecution of the criminal case for estafa. This cannot be done anymore because the information
has already been filed in court and to do it is illegal. That the consideration for the promissory
note is the stifling of the criminal prosecution is evident from the execution by the finance
company of the affidavit of desistance immediately after the execution by Lolita's parents of the
promissory note. The consideration being illegal, the promissory note is invalid and may not be
enforced by court action.
Inducing Another To Violate A Contract 1980
"O", a very popular movie star was under contract with "P" Movie Productions to star exclusively
in the latter's films for two years. "O" was prohibited by the contract to star in any film produced
by another producer. "X" Film Co. induced "O" to break her contract with "P" Movie
Productions by giving her twice her salary. "P" Movie Productions sued "X" Film Co. for damages
"X" Film Co contended that it had a right to compete for the services of "0" and that her contract
with "P" Movie Productions was in restraint of trade and a restriction on her freedom of contract.
Whose contention would you sustain?
The contention of "P" Movie Productions should be sustained. According to the Civil Code, any
third person who induces another to violate his contract shall be liable for damages to the other
contracting party (Art. 1314). However, the following requisites must concur: (a) the existence of
a valid contract; (b) knowledge on the part of the third person of the existence of the contract; and
(c) interference of the third person without legal justification or excuse. All of these requisites are
present in the case at bar. (See Daywalt vs. Agustinos Recoletos, 39 Phil. 587).
Obligatory Nature Of Contracts 1991
Roland, a basketball star, was under contract for one year to play-for-play exclusively for Lady
Love, Inc. However, even before the basketball season could open, he was offered a more attractive
pay plus fringes benefits by Sweet Taste, Inc. Roland accepted the offer and transferred to Sweet
Taste. Lady Love sues Roland and Sweet Taste for breach of contract. Defendants claim that the
restriction to play for Lady Love alone Is void, hence, unenforceable, as It constitutes an undue
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Interference with the right of Roland to enter into contracts and the impairment of his freedom to
play and enjoy basketball.
Can Roland be bound by the contract he entered Into with Lady Love or can he disregard the
same? Is he liable at all? How about Sweet Taste? Is it liable to Lady Love?
Roland Is bound by the contract he entered into with Lady Love and he cannot disregard the
same, under the principles of obligatoriness of contracts. Obligations arising from contracts have
the force of law between the parties.
Yes, Roland is liable under the contract as far as Lady Love is concerned. He is liable for
damages under Article 1170 of the Civil Code since he contravened the tenor of his obligation.
Not being a contracting party, Sweet Taste is not bound by the contract but It can be held liable
under Art. 1314. The basis of its liability Is not prescribed by contract but is founded on quail-
delict, assuming that Sweet Taste knew of the contract. Article 1314 of the Civil Code provides
that any third person who induces another to violate his contract shall be liable for damages to the
other contracting party.
It is assumed that Lady Love knew of the contract. Neither Roland nor Sweet Taste would be
liable, because the restriction in the contract is violative of Article 1306 as being contrary to law.
morals, good customs, public order or public policy.
Privity Of Contracts 1996
Baldomero leased his house with a telephone to Jose. The lease contract provided that Jose shall
pay for all electricity, water and telephone services in the leased premises during the period of the
lease. Six months later. Jose surreptitiously vacated the premises. He left behind unpaid telephone
bills for overseas telephone calls amounting to over P20,000.00. Baldomero refused to pay the said
bills on the ground that Jose had already substituted him as the customer of the telephone
company. The latter maintained that Baldomero remained as his customer as far as their service
contract was concerned, notwithstanding the lease contract between Baldomero and Jose.
Who is correct, Baldomero or the telephone company? Explain.
The telephone company is correct because as far as it is concerned, the only person it contracted
with was Baldomero. The telephone company has no contract with Jose. Baldomero cannot
substitute Jose in his stead without the consent of the telephone company (Art. 1293, NCC).
Baldomero is. therefore, liable under the contract.
Stipulation Pour Autrui 2002
Printado is engaged in the printing business. Suplico supplies printing paper to Printado pursuant
to an order agreement under which Suplico binds himself to deliver the same volume of paper
every month for a period of 18 months, with Printado in turn agreeing to pay within 60 days after
each delivery. Suplico has been faithfully delivering under the order agreement for 10 months but
thereafter stopped doing so, because Printado has not made any payment at all. Printado has also a
standing contract with publisher Publico for the printing of 10, 000 volumes of school textbooks.
Suplico was aware of said printing contract. After printing 1, 000 volumes, Printado also fails to
perform under its printing contract with Publico. Suplico sues Printado for the value of the unpaid
deliveries under their order agreement. At the same time Publico sues Printado for damages for
breach of contract with respect to their own printing agreement. In the suit filed by Suplico,
Printado counters that: (a) Suplico cannot demand payment for deliveries made under their order
agreement until Suplico has completed performance under said contract; (b) Suplico should pay
damages for breach of contract; and (c) with Publico should be liable for Printado’s breach of his
contract with Publico because the order agreement between Suplico and Printado was for the
benefit of Publico. Are the contentions of Printado tenable? Explain your answers as to each
contention. (5%)
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No, the contentions of Printado are untenable. Printado having failed to pay for the printing paper
covered by the delivery invoices on time, Suplico has the right to cease making further delivery.
And the latter did not violate the order agreement (Integrated Packaging Corporation v. Court of
Appeals, (333 SCRA 170, G.R. No. 115117, June 8, [2000]).
Suplico cannot be held liable for damages, for breach of contract, as it was not he who violated
the order agreement, but Printado. Suplico cannot be held liable for Printado’s breach of contract
with Publico. He is not a party to the agreement entered into by and between Printado and
Publico. Theirs is not a stipulation pour atrui. [Aforesaid] Such contracts do could not affect third
persons like Suplico because of the basic civil law principle of relativity of contracts which
provides that contracts can only bind the parties who entered into it, and it cannot favor or
prejudice a third person, even if he is aware of such contract and has acted with knowledge
thereof. (Integrated Packaging Corporation v. CA, supra.)
Stipulation Pour Autrui 1991
A is the lessee of an apartment owned by Y. A allowed his married but employed daughter B, whose
husband works in Kuwait, to occupy it. The relationship between Y and A soured. Since he has no
reason at all to eject A, Y, in connivance with the City Engineer, secured from the latter an order
for the demolition of the building. A immediately filed an action in the Regional Trial Court to
annul the order and to enjoin its enforcement. Y and A were able to forge a compromise agreement
under which A agreed to a twenty percent (20%) increase in the monthly rentals. They further
agreed that the lease will expire two (2) years later and that in the event that Y would sell the
property, either A or his daughter B shall have the right of first refusal. * The Compromise
Agreement was approved by the court. Six (6) months before the expiration of the lease, A died. Y
sold the property to the Visorro Realty Corp. without notifying B. B then filed an action to rescind
the sale in favor of the corporation and to compel Y to sell the property to her since under the
Compromise Agreement, she was given the right of first refusal which, she maintains, is a
stipulation pour atrui under Article 1311 of the Civil Code. Is she correct?
B is not correct. Her action cannot prosper. Article 1311 requires that the third person intended to
be benefited must communicate his acceptance to the obligor before the revocation. There is no
showing that B manifested her acceptance to Y at any time before the death of A and before the
sale. Hence, B cannot enforce any right under the alleged stipulation pour atrui.
Stipulation pour autrui 1977
What is stipulation pour autrui and what are its essential requisites? Give an example.
 SUGGESTED ANSWER
A stipulation pour atrui is a stipulation in a contract, clearly and deliberately conferred by the
contracting parties as a favor upon a third person, who must communicate his acceptance to the
obligor before it is revoked. Before such a stipulation may be enforced, it is necessary that the
following requisites must concur: (1) that it must be for the benefit or interest of the third person;
(2) that such benefit or Interest must not be merely incidental; (3) that the contracting parties
should have clearly and deliberately conferred such benefit or interest upon the third person; and
(4) that the third person should have communicated his acceptance of the benefit or interest to the
obligor before its revocation. (Art. 1311, par. 2, Civil Code.)
Stipulations 2004
DON, an American businessman, secured parental consent for the employment of five minors to
play certain roles in two movies he was producing at home in Makati. They worked at odd hours of
the day and night, but always accompanied by parents or other adults. The producer paid the
children talent fees at rates better than adult wages. But the social worker, DEB, reported to
OSWD that these children often missed going to school. They sometimes drank wine, aside from
being exposed to drugs. In some scenes, they were filmed naked or in revealing costumes. In his
defense. DON contended all these were part of artistic freedom and cultural creativity. None of the
parents complained, said DON. He also said they signed a contract containing a waiver of their
43
right to file any complaint in any office or tribunal concerning the working conditions of their
children acting in the movies. Is the waiver valid and binding? Why or why not? Explain.
The waiver is not valid. Although the contracting parties may establish such stipulations, clauses,
terms and conditions as they may deem convenient, they may not do so if such are contrary to
law, morals, good customs, public order, or public policy (Article 1306, Civil Code). The parents’
waiver to file a complaint concerning the working conditions detrimental to the moral well-being
of their children acting in the movies is in violation of the Family Code and Labor laws. Thus, the
waiver is invalid and not binding.
The Child Labor Law is a mandatory and prohibitory law and the rights of the child cannot be
waived as it is contrary to law and public policy.
KINDS OF CONTRACTS
Perfection Of Contracts; Obligations With A Period 1988
Merle offered to sell her automobile to Violy for P60,000.00. After inspecting the automobile, Violy
offered to buy it for P50,000.00. This offer was accepted by Merle. The next day, Merle offered to
deliver the automobile, but Violy being short of funds, secured postponement of the delivery,
promising to pay the price "upon arrival of the steamer, Helena". The steamer however never
arrived because it was wrecked by a typhoon and sank somewhere off the Coast of Samar.
(1) Is there a perfected contract in this case? Why?

(2) Is the promise to pay made by Violy conditional or with a term? Why?
(3) Can Merle compel Violy to pay the purchase price and to accept the automobile? Why?
(1) Yes, there is a perfected contract because there is already a concurrence between the offer and
the acceptance with respect to the object and the cause which shall constitute the contract. Such
concurrence is manifested by the acceptance made by Merle of the offer made by Violy.
(2) I submit that the promise to pay made by Violy is not conditional, but with a term. The
promise is to pay the P50,000 upon arrival in this port of the steamer, Helena, not if the steamer
Helena shall arrive in this port. Hence, the promise is with regard to the date of arrival and not
with regard to the fact of arrival.
(3) Yes, Merle can compel Violy to pay the purchase price and to accept the automobile. She will,
however, have to wait for the date when the steamer, Helena, would have arrived were it not for
the shipwreck. After all, there is already a perfected contract.
(2) The promise to pay is subject to a term. When there is a pre-existing obligation and the
"condition" affects only the time of payment such "condition" can be considered as a period. In
other words, the parties must be deemed to have contemplated a period,
(3) Yes Merle can compel Violy to pay the purchase price and to accept the automobile but only
after the parties would have fixed the period. Failing in that, the courts may be asked to fix the
period. Article 1180 provides that: "When the debtor binds himself to pay when his means permit
him to do so, the obligation shall be deemed to be one with a period, subject to the provisions of
article 1197."
Cause Or Consideration 2015
Mr. A, a businessman, put several real estate properties under the name of his eldest son X because
at that time, X was the only one of legal age among his four children. He told his son he was to hold
those assets for his siblings until they become adults themselves. X then got married. After 5 years,
Mr. A asked X to transfer the titles over three properties to his three siblings, leaving two
properties for himself. To A’s surprise, X said that he can no longer be made to transfer the
44
properties to his siblings because more than 5 years have passed since the titles were registered in
his name. Do you agree? Explain.
NO, the transfer of the properties in the name of X was without cause or consideration and it was
made for the purpose of holding these properties in trust for the siblings of X. If the transfer was
by virtue of a sale, the same is void for lack of cause or consideration. Hence, the action to
declare the sale void is imprescriptible (Heirs of Ureta vs. Ureta, G.R. No. 165748 September 14,
2011).
Option Contract 2005
Marvin offered to construct the house of Carlos for a very reasonable price of P900,000.00, giving
the latter 10 days within which to accept or reject the offer. On the fifth day, before Carlos could
make up his mind, Marvin withdrew his offer. What is the effect of the withdrawal of Marvin's
offer? Will your answer be the same if Carlos paid Marvin P10,000.00 as consideration for that
option? Explain. Supposing that Carlos accepted the offer before Marvin could communicate his
withdrawal thereof? Discuss the legal consequences.
The withdrawal of Marvin’s offer is valid because there was no consideration paid for the option.
An option is a separate contract from the contract which is the subject of the offer, and if not
supported by a consideration, the option contract is not deemed perfected. Thus, Marvin may
withdraw the offer at any time before acceptance of the offer.
If Carlos paid P10,000.00 as consideration for that option, Marvin cannot withdraw the offer prior
to expiration of the option period. The option is a separate contract and if founded on
consideration is a perfected option contract and must be respected by Marvin. If Carlos has
already accepted the offer and such acceptance has been communicated to Marvin before Marvin
communicates the withdrawal, the acceptance creates a perfected construction contract, even if no
consideration was as yet paid for the option.
If Marvin does not perform his obligations under the perfected contract of construction, he shall
be liable for all consequences arising from the breach thereof based on any of the available
remedies which may be instituted by Carlos, such as specific performance, or rescission with
damages in both cases.
Inexistent Vs. Annulable Contracts 2004
Distinguish briefly but clearly between: Inexistent contracts and annullable contracts.
In inexistent contracts, one or more requisites of a valid contract are absent. In annullable
contracts, all the elements of a contract are present except that the consent of one of the
contracting parties was vitiated or one of them has no capacity to give consent. Inexistent
contracts are considered as not having been entered into and, therefore, void ab initio. They do
not create any obligation and cannot be ratified or validated, as there is no agreement to ratify or
validate. On the other hand, annullable or voidable contracts are valid until invalidated by the
court but may be ratified.
Nominate Contract 2003
Jo-Ann asked her close friend, Aissa, to buy some groceries for her in the supermarket. Was there a
nominate contract entered into between Jo-Ann and Aissa? In the affirmative, what was it?
Explain.
Yes, there was a nominate contract. On the assumption that Aissa accepted the request of her
close friend Jo-Ann to buy some groceries for her in the supermarket, what they entered into was
the nominate contract of Agency. Article 1868 of the New Civil code provides that by the
contract of agency a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter.
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Yes, they entered into a nominate contract of lease of service in the absence of a relation of
principal and agent between them (Article 1644, New Civil Code).
Consensual Vs. Real Contracts
Distinguish consensual from real contracts and name at least four (4) kinds of real contracts under
the present law. (3%)
Consensual contracts are those which are perfected by mere consent (Art. 1315, Civil Code). Real
contracts are those which are perfected by the delivery of the object of the obligation. (Art. 1316,
Civil Code)
Examples of real contracts are deposit, pledge, commodatum and simple loan (mutuum).
Innominate contracts 1977
What are the different kinds of innominate contracts and how are they regulated?
 SUGGESTED ANSWER:
There are four kinds of innominate contracts. They are:
(1) Do ut des — I give that you give;
(2) Do ut facias — I give that you do;
(3) Facio ut des - I do that you give; and
(4) Facio ut facias — I do that you do. These contracts shall be regulated by the stipulation of the
parties, by the general provisions or principles of obligations and contracts, by the rules
governing the most analogous nominate contracts, and by the custom of the place (Art. 1307,
Civil Code).
OBJECTS, CAUSE AND FORM OF CONTRACTS
Forms Of Contracts 1982
"A" and "B" entered into a verbal contract whereby "A" agreed to sell to "B" his only parcel of
land for P20,000, and "B" agreed to buy at the aforementioned price. "B" went to the bank,
withdrew the necessary amount, and returned to "A" for the consummation of the contract. "A"
however, had changed his mind and refused to go through with the sale. Is the agreement valid?
Will an action by "B" against "A" for specific performance prosper? Reason.
It must be observed that there are two questions in the case at bar. They are: (1) Is the agreement
valid? The answer is yes. It is a time-honored rule that even a verbal agreement to sell land is
valid so long as there is already an agreement with respect to the object and the purchase price.
(2) Will an action by "B" against "A" for specific performance prosper? The answer is no, unless
it is ratified. The reason is obvious. The agreement, being an agreement of sale of real property, is
covered by the Statute of Frauds It cannot, therefore, be enforced by a court action because it is
not evidenced by any note or memorandum or writing properly subscribed by the party charged.
(Note: The above answer is based on No. 2 of Art. 1203 of the Civil Code and on decided cases.)
Forms of Contracts 1977
H sold a parcel of land, with right to repurchase in a private instrument to C, who sold it to D, who
transferred it to E. E took possession, and because all the transfers were in private instruments, E
after 30 years filed suit to compel the heirs of H to execute a formal deed of conveyance. Has
prescription set in? Can E prevail?
The suit filed by E against the heirs of H cannot prosper. In the first place, there is no privity of
interest between E and H or the latter's heirs. E should have directed the suit against D, his
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immediate predecessor. In the second place, said action filed by E against the heirs of H, which is
presumably based on Art. 1357 of the Civil Code (to compel each other to execute the required
form), has already prescribed. An action based on a right provided by law prescribes in 10 years.
REFORMATION OF INSTRUMENT
Reformation 1984
On June 13, 1982, A sold to B in a public instrument a parcel of land for P50,000, Simultaneously,
B granted A an option to buy the same property for P60,000 within one year. On June 13, 1983, B
allowed A an extension of the option to buy for another year, this time at the price of P72,000. All
the while, A has remained in possession of the land.
In May, 1984, A filed an action for the reformation of the deed of sale into a real estate mortgage,
alleging that the land covered thereby was given only as a security for the repayment of a loan.
Under the circumstances, will the action prevail? Why?
The option was granted on the same date that the sale was executed. The repurchase price
increased at a rate of 20% a year, which could be equivalent to interest at the rate of 20% a year.
Moreover, the seller remained in possession of the premises. All of these are indications that the
real transaction between the parties is a loan, not a sale. In case of doubt, under Article 1603, a
contract purporting to be a sale with right of repurchase shall be construed as an equitable
mortgage. The instrument should therefore be reformed.
RESCISSIBLE CONTRACTS
Rescission Of Contracts; Capacity To Sue 1996
In December 1985, Salvador and the Star Semiconductor Company (SSC) executed a Deed of
Conditional Sale wherein the former agreed to sell his 2,000 square meter lot in Cainta, Rizal, to
the latter for the price of P1,000,000.00, payable P100,000.00 down, and the balance 60 days after
the squatters in the property have been removed. If the squatters are not removed within six
months, the P100,000.00 down payment shall be returned by the vendor to the vendee.
Salvador filed ejectment suits against the squatters, but in spite of the decisions in his favor, the
squatters still would not leave. In August, 1986, Salvador offered to return the PIOO,OOO.OO
down payment to the vendee, on the ground that he is unable to remove the squatters on the
property. SSC refused to accept the money and demanded that Salvador execute a deed of absolute
sale of the property in its favor, at which time It will pay the balance of the price. Incidentally, the
value of the land had doubled by that time.
Salvador consigned the P 100,000.00 in court, and filed an action for rescission of the deed of
conditional sale, plus damages.
Will the action prosper? Explain.
No, the action will not prosper. The action for rescission may be brought only by the aggrieved
party to the contract. Since it was Salvador who failed to comply with his conditional obligation,
he is not the aggrieved party who may file the action for rescission but the Star Semiconductor
Company, The company, however, is not opting to rescind the contract but has chosen to waive
Salvador's compliance with the condition which it can do under Art. 1545, NCC.
The action for rescission will not prosper. The buyer has not committed any breach, let alone a
substantial or serious one, to warrant the rescission/resolution sought by the vendor. On the
contrary, it is the vendor who appears to have failed to comply with the condition imposed by the
contract the fulfillment of which would have rendered the obligation to pay the balance of the
purchase price demandable. Further, far from being unable to comply with what is incumbent
upon it, ie., pay the balance of the price - the buyer has offered to pay it even without the vendor
47
having complied with the suspensive condition attached to the payment of the price, thus waiving
such condition as well as the 60-day term in its favor The stipulation that the PI00,000.00 down
payment shall be returned by the vendor to the vendee if the squatters are not removed within six
months, is also a covenant for the benefit of the vendee, which the latter has validly waived by
Implication when it offered to pay the balance of the purchase price upon the execution of a deed
of absolute sale by the vendor. (Art. 1545, NCC)
VOIDABLE CONTRACTS
Voidable Contracts 1976
A, 20, contracted in 1970 with B, 22, an operator of a driving range for golfers, to supply the latter
with golf balls. May B annul the contract on the ground that A was incapable of giving consent to a
contract? Explain.
No, under the law on contracts, only the incapacitated person can bring the action to annul, based
on the ground of estoppel. Hence, only A may bring the action to annul. (Article 1397)
If A claims that he (A) was drunk when the contract was signed, may an action to annul the
contract be filed by him in 1975? Explain.
No. Contracts agreed upon in a state of drunkenness are voidable but the action to annul on that
ground must be brought within four (4) years. (Article 1328, 1391,) Here it was brought beyond
the 4-year period.
If one week after the execution of the contract, B was told by A that A would have the contract
annulled as A was drunk at the time of the signing thereof and A continued delivering golf balls for
3 years, will such action by A prosper? Explain.
No. The act of A in performing his obligation under the contract after he became of age,
constituted ratification and cleanses the contract of all its defects from the time of execution of
the agreement. (Article 1396) He may also be barred from bringing the action on the ground of
estoppel.
A purchased from XYZ subdivision company a lot of three hundred (300) square meters in Cebu
on December 3, 1973. Transfer Certificate of Title No. 2537 was issued in his name with the
annotation at the back thereof that the lot is subject to the condition that it cannot be resold within
the period of ten (10) years and if he is forced to resell, he may resell it only to XYZ subdivision
company. A year later, A executed a real estate mortgage in favor of B upon a P5,000 loan, which
was registered with the Register of Deeds. A and B were aware of the condition in favor of XYZ
subdivision company. Upon A's failure to redeem the property in 1927, B was the highest bidder at
the foreclosure sale conducted by the sheriff and was issued a certificate of sale which was
registered with the Register of Deeds. A later brought an action to annul the sale on the ground that
it violated the condition. Decide the case with reasons.
The action brought by A against B to annul the sheriff's sale will not prosper. Both parties are
equally guilty of breaching the condition in favor of XYZ subdivision, a condition known to both
of them. Under both the principle of estoppel and of pari delicto, neither one of sale. Besides, and
this is decisive, the proper party who should institute the action is XYZ subdivision and not A.
Under the law on defective contracts, in actions for annulment of rescission, it is the party who is
damaged or prejudiced who should institute the action and not the party who, with another or
others, was responsible for the breach or damage.
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Mrs. S borrowed P20,000 from PG, She and her 19-year old son, Mario, signed the promissory note
for the loan, which note did not say anything- about the capacity of the signers. Mrs. S made partial
payments little by little. After seven (7) years she died leaving a balance of P10,000.00 on the note.
PG demanded payment from Mario who refused to pay. When sued for the amount, Mario raised
the defense: that when he signed the note he was still a minor. Should the defense be sustained?
Why?
The defense should be sustained. Mario cannot be bound by his signature in the promissory note.
It must be observed that the promissory note does not say anything about the capacity of the
signers. In other words, there is no active fraud or misrepresentation; there is merely silence or
constructive fraud or misrepresentation. It would have been different if the note says that Mario is
of age. The principle of estoppel would then apply. Mario would not be allowed to invoke the
defense of minority. The promissory note would then have all of the effects of a perfectly valid
note. Hence, as far as Mario's share in the obligation is concerned, the promissory note is
voidable because of minority or non-age. He cannot,
however, be absolved entirely from monetary responsibility. Under the Civil Code, even if his
written contract is voidable because of minority he shall make restitution to the extent that he may
have been benefited by the money received by him (Art. 1399, Civil Code). (Braganza vs. Villa
Abrille, L-12471, April 13, 1959).
X was the owner of a 10,000 square meter property. X married Y and out of their union. A, B and
C were born. After the death of Y, X married Z and they begot as children, D, E and F. After the
death of X. the children of the first and second marriages executed an extrajudicial partition of the
aforestated property on May 1, 1970. D, E and F were given a one thousand square meter portion
of the property. They were minors at the time of the execution of the document. D was 17 years old,
E was 14and F was 12; and they were made to believe by A, B and C that unless they sign the
document they will not get any share. Z was not present then. In January 1974, D,E and F filed an
action in court to nullify the suit alleging they discovered the fraud only in 1973.
(a) Can the minority of D, E and F be a basis to nullify the partition? Explain your answer.
(b) How about fraud? Explain your answer.
(a) Yes, minority can be a basis to nullify the partition because D, E and F were not properly
represented by their parents or guardians at the time they contracted the extra-judicial partition.
(Articles 1327. 1391, Civil Code).
(b) In the case of fraud, when through Insidious words or machinations of one party the other is
induced to enter into the contract without which he would not have agreed to, the action still
prosper because under Art, 1391 of the Civil Code, in case of fraud, the action for annulment may
be brought within four years from the discovery of the fraud.
UNENFORCEABLE CONTRACTS
Statute Of Frauds 1988
Suppose that in an oral contract, which by its terms is not to be performed within one year from the
execution thereof, one of the contracting parties has already complied within the year with the
obligations imposed upon him by said contract, can the other party avoid fulfillment of those
incumbent upon him by invoking the Statute of Frauds?
No, he cannot. This is so, because the Statute of Frauds aims to prevent and not to protect fraud.
It is well-settled that when the law declares that an agreement which by its terms is not to be
performed within a year from the making thereof is unenforceable by action, unless the same, or
some note or memorandum thereof, be in writing, and subscribed by the party- charged, or by his
agent, it refers only to an agreement which by its terms is not to be performed on either side
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within a year from the execution thereof. Hence, one which has already been fully performed on
one side within a year is taken out of the operation of the statute. (Phil. Nat. Bank vs. Phil.
Vegetable Oil Co., 49 Phil. 857; Shoemaker vs. La Tondena, 68 Phil. 24.)
Statute Of Frauds; Ratification By Acceptance
"O" verbally leased his house and lot to "L" for two years at a monthly rental of P250 a month.
After the first year, "0" demanded a rental of P500.00 claiming that due to the energy crisis, with
the sudden increase of the price of oil, which no one expected, there was also a general increase in
prices. "O" proved an inflation rate of 100%. When "L" refused to vacate the house, "0" brought
an action for ejectment. "O" denied that he had agreed to a lease for two years.
a) Can the lessee testify on a verbal contract of lease? Reasons.

b) Assuming that "O" admits the two-year contract, is he justified in increasing the rental? Why?
(a) Yes, the lessee "L" may testify on the verbal contract of lease. Wellsettled is the rule that the
Statute of Frauds by virtue of which oral contracts {such as the contract in the instant case) are
unenforceable by court action is applicable only to those contracts which have not been
consummated either totally or partially. The reason for this rule is obvious. In effect, there is
already a ratification of the contract by acceptance of benefits. Here, "L" has been paying to "O"
in monthly rental of P250.00 for one year. The case is, therefore, withdrawn from the coverage of
the Statute of Frauds. {Note: The above answer is based on Arts. 1403, No. 2 and 1405 of the
Civil Code and on decided cases.)
(b) Yes, "O" is justified in increasing the monthly rental. Since it is admitted that the contract of
lease is for a definite term or period of two years and since he has established an inflation rate of
100%, it is crystal clear that the case is withdrawn from the coverage of the new rental law.
Statute of Frauds 1979
W and Colk a logging company, received a letter from M, the new owner of a certain property,
notifying it that the latter will close the road running thru his property and thru which W & Co.'s
trucks pass in hauling logs to its saw mill. W & Co. therefore begged M not to do so and upon the
latter's refusal, W & Co. filed an action for injunction alleging among others that it had acquired a
right of way through M's land before by virtue of a verbal agreement with the previous owner. Will
the action prosper? Why?
Yes, the action will prosper. The right of way, although arising from a verbal agreement with the
former owner of the land, still subsists. Obviously, the Statute of Frauds cannot be applied
because the agreement is not an agreement for the sale of real property or an interest therein.
Therefore, the agreement is both valid and enforceable. (Western Mindanao Lumber Co. vs.
Medalle, 79 SCR A 702).
Unenforceable Contracts 1976
C, husband of D, sold paraphernal property in her name without her (D's) consent. Was such sale
valid, void, voidable, rescissible or unenforceable? Explain.
Under the general principle on contracts, the contract is unenforceable if entered into in the name
of another without authority. (Article 1317)
Assuming that C, the husband of D was the letter's agent, under the law on agency which was
taken from the old Statute of Frauds (Art. 1874), if a sale of a piece of land or any interest therein
is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void.
To reconcile those two provisions, Article 1317 should apply if the property sold was movable
and Article 1874 shall apply if the property sold is immovable. Hence it the property is movable,
the contract is unenforceable, and if the property is immovable, the contract is void.
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VOID OR INEXISTENT CONTRACTS
In Pari Delicto Principle 1977
Discuss the principle of in pari delicto and enumerate five instances in the Civil Code which are
exceptions to the principle.
When the defect of a void contract consists in the illegality of the cause or object of the contract,
and both of the parties are at fault or in pari delicto, the law refuses them every remedy and leaves
them where they are. This rule which is embodied in Arts. 1411 of the Civil Code is what is
commonly known as the principle of in pari delicto, The exceptions to the principle of pari delicto
are the following:
(1) Payment of usurious interest. In such case, the law allows the debtor to recover the interest
paid in excess of that allowed by the usury laws, with interest thereon from the date of payment.
(Art 1413, Civil Code).
(2) Payment of money or delivery of property for an illegal purpose, where the party who paid or
delivered repudiates the contract bore the purpose has been accomplished, or before any damage
has been caused to a third person. In such case, the courts may allow such party to recover what
he has paid or delivered if the public interest will thus be sub served. (Art. 1414, Civil Code).
(3) Payment of money or delivery of property by an incapacitated person. In such case, the courts
may allow such person to recover what he has paid or delivered, if the interest of justice so
demands. (Art, 1415, Civil Code).
(4) Agreement or contract which is not illegal per se but is merely prohibited by law, and the
prohibition is designed for the protection of the plaintiff. In such case, such plaintiff, if public
policy is thereby enhanced, may recover what he has paid or delivered. (Art. 1416. Civil Code).
(5) Payment of any amount in excess of the maximum price of any article or commodity fixed by
law. In such case, the buyer may recover the excess. (Art. 1417, Civil Code).
(6) Contract whereby a laborer undertakes to work longer than the maximum number of hours
fixed by law. In such case, the laborer may demand for overtime pay. (Art. 1418, Civil Code).
(7) Contract whereby a laborer accepts a wage lower than the minimum wage fixed by law. In
such case, the laborer may demand for the deficiency, (Art. 1419, Civil Code).
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MULTIPLE CHOICE QUESTIONS
OBLIGATIONS
Elements of an Obligation
The following are the elements of an obligation, except: (2012 BAR)
a) Juridical/Legal Tie
b) Active subject 
c) Passive subject 
d) Consideration
It is a conduct that may consist of giving, doing, or not doing something. (2012 BAR) 
a) Obligation 
b) Juridical necessity
c) Prestation
d) Contract
Sources of Obligations
It is a juridical relation arising from lawful, voluntary and unilateral acts based on the principle that
no one should unjustly enrich himself at the expense of another. (2012 BAR) 
a) Quasi-contract
b) Quasi-delict
c) Cotract 
d) Delict
The following are the elements of quasi-delict, except: (2012 BAR)
a) Act or omission 
b) Fault/negligence 
c) Damage/injury 
d) Pre-existing contract
Nature and Effect of Obligations
The creditor has the right to the fruits of the thing from the time: (2012 BAR)
a) the thing is delivered. 
b) the obligation to deliver the things arises.
c) the contract is perfected. 
d) the fruits are delivered.
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A debtor is liable for damages in case of delay if he is guilty of any of the following, except: (2012
BAR)
a) default (mora) 
b) mistake 
c) negligence (culpa) 
d) breach through contravention of the tenor thereof
This term refers to a delay on the part of both the debtor and creditor in reciprocal obligations.
(2012 BAR)
a) Mora accipiendi 
b) Mora solvendi 
c) Compensation morae
d) Solution indibiti
The following are the requisites of mora solvendi, except: (2012 BAR)
a) Obligation pertains to the debtor and is determinate, due, demandable, and liquidated. 
b) Obligation was performed on its maturity date. 
c) There is judicial or extrajudicial demand by the creditor.
d) Failure of the debtor to comply with such demand.
It is an international evasion of the faithful performance of the obligation. (2012 BAR)
a) Negligence
b) Fraud 
c) Delay 
d) Mistake
The following are the requisites of fortuitous event, except: (2012 BAR)
a) Cause is independent of the will of the debtor. 
b) The event is unforeseeable/unavoidable. 
c) Occurrence renders it absolutely impossible for the debtor to fulfill his obligation in a normal
manner; impossibility must be absolute not partial, otherwise not force majeure. 
d) Debtor contributed to the aggravation of the injury to the creditor.
A debtor may still be held liable for loss or damages even if it was caused by a fortuitous event in
any of the following instances, except: (2012 BAR)
a) The debtor is guilty of dolo, malice or bad faith, has promised the same thing to two or more
persons who do not have the same interest. 
b) The debtor contributed to the loss. 
c) The thing to be delivered is generic.
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d) The creditor is guilty of fraud, negligence or delay or if he contravened the tenor of the
obligation.
Gary is a tobacco trader and also a lending investor. He sold tobacco leaves to 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 the late delivery and to pay on the ground
that the agreed term had not been complied with.
As lending investor, Gary granted a Pl,000,000 loan to Isaac to be paid within two years from
execution of the contract. As security for the loan, Isaac promised to deliver to Gary his Toyota
Innova within seven (7) days, but Isaac failed to do so. Gary was thus compelled to demand
payment for the loan before the end of the agreed two-year term. (2013 BAR)
1) Was Homer justified in refusing to accept the tobacco leaves? (1%) (2012 BAR)
(A) Yes. Homer was justified in refusing to accept the tobacco leaves. The delivery was to be made
within a month. Gary's promise of delivery on a "best effort" basis made the delivery uncertain.
The term, therefore, was ambiguous.
(B) 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 the contracting parties.
(C) Yes. Homer was justified in his refusal to accept the delivery. The contract contemplates an
obligation with a term. Since the delivery was made after 30 days, contrary to the terms agreed
upon, Gary could not insist that Homer accept the tobacco leaves.
(D) No. Homer was not justified in refusing to accept the tobacco leaves. There was no term in the
contract but a mixed condition. The fulfillment of the condition did not depend purely on Gary's
will but on other factors, e.g., the shipping company and the government. Homer should comply
with his obligation.
ANSWER:
B (obligations arising from contracts have the force of law) or D (the obligation is not with the term
but with a mixed condition –although the facts are not clear enough if it was stated in the contract
that the other factors like transportation or government regulations would be a factor)
2) Can Gary compel Isaac to pay his loan even before the end of the two-year period? (1%) (2012
BAR)
(A) Yes, Gary can compel Isaac to immediately pay the loan. Non-compliance with the promised
guaranty or security renders the obligation immediately demandable. Isaac lost his right to make
use of the period.
(B) Yes, Gary can compel Isaac to immediately pay the loan. The delivery of the Toyota Innova is
a condition for the loan. Isaac's failure to deliver the car violated the condition upon which the loan
was granted. It is but fair for Gary to demand immediate payment.
(C) No, Gary cannot compel Isaac to immediately pay the loan. The delivery of the car as security
for the loan is an accessory contract; the principal contract is still the P 1,000,000 loan. Thus, Isaac
can still make use of the period.
(D) No, Gary cannot compel Isaac to immediately pay the loan. Equity dictates that Gary should
have granted a reasonable extension of time for Isaac to deliver his Toyota Innova. It would be
unfair and burdensome for Isaac to pay the P1,000,000 simply because the promised security was
not delivered.
ANSWER:
A – Article 1198 Isaac lost his right to make use of the period because he failed to furnish the
guaranty or security in consideration of which Gary agreed to the period
54
Kinds of Civil Obligations
A natural obligation under the New Civil Code of the Philippines is one which (2011 BAR)
(A) the obligor has a moral obligation to do, otherwise entitling the obligee to damages.
(B) refers to an obligation in writing to do or not to do.  
(C) the obligee may enforce through the court if violated by the obligor.  
(D) cannot be judicially enforced but authorizes the obligee to retain the obligor’s  
payment or performance.
Joint and Solidary Obligation
Buko, Fermin and Toti bound themselves solidarily to pay Ayee the amount of P 5,000.00. Suppose
Buko paid the obligation, what is his right as against his co-debtors? (2012 BAR)
a) Buko can ask for reimbursement from Fermin and Toti.
b) Buko can sue Fermin and Toti for damages. 
c) Buko can sue for rescission. 
d) Buko can claim a refund from Ayee.
Buko, Fermin and Toti bound themselves solidarily to pay Ayee the sum of P 10,000.00. When the
obligation became due and demandable, Ayee sued Buko for the payment of the P 10,000.00. Buko
moved to dismiss on the ground that there was failure to implead Fermin and Toti who are
indispensable parties. Will the motion to dismiss prosper? Why? (2012 BAR)
a) Yes, because Fermin and Toti should have been impleaded as their obligation is solidary. 
b) No, because the creditor may proceed against any one of the solidary debtors or some or all of
them simultaneously. 
c) No, because a motion to dismiss is a prohibited pleading. 
d) Yes, because Fermin and Toti should also pay their share of the obligation.
Buko, Fermin and Toti are solidarily debtors of Ayee. Twelve (12) years after the obligation became
due and demandable, Buko paid Ayee and later on asked for reimbursement of Fermin’s and Toti’s
shares. Is Buko correct? Why? (2012 BAR)
a) No, because the obligation has already prescribed. 
b) Yes, because the obligation is solidary. 
c) No, because in solidary obligation any one of the solidary debtors can pay the entire debt. 
d) Yes, because Fermin and Toti will be unduly enriched at the expense of Buko.
Buko, Fermin and Toti are solidary debtors under a loan obligation ofP300,000.00 which has fallen
due. The creditor has, however, condoned Fermin’s entire share in the debt. Since Toti has become
insolvent, the creditor makes a demand on Buko to pay the debt. How much, if any, may Buko be
compelled to pay? (2012 BAR)
a) P 200.000.00
b) P 300,000.00
c) P 100,000.00
55
d) P 150,000.00
A, B, C and D are the solidary debtors of X for P40,000. X released D from the payment of his share
of PI 0,000. When the obligation became due and demandable, C turned out to be insolvent.
Should the share of insolvent debtor C be divided only between the two other remaining debtors, A
and B? (1%) (2013 BAR)
(A) Yes. Remission of D's share carries with it total extinguishment of his obligation to the benefit
of the solidary debtors.
(B) Yes. The Civil Code recognizes remission as a mode of extinguishing an obligation. This
clearly applies to D.
(C) No. The rule is that gratuitous acts should be restrictively construed, allowing only the least
transmission of rights.
(D) No, as the release of the share of one debtor would then increase the burden of the other
debtors without their consent.
ANSWER:
C – Under Art. 1217 when one of the solidary debtors cannot because of his insolvency reimburse
his share to the debtor paying, such share shall be borne by all his co- debtors in proportion to the
debt of each
Rudolf borrowed P1 million from Rodrigo and Fernando who acted as solidary creditors. When the
loan matured, Rodrigo wrote a letter to Rudolf, demanding payment of the loan directly to him.
Before Rudolf could comply, Fernando went to see him personally to collect and he paid him. Did
Rudolf make a valid payment? (2011 BAR)
(A) No, since Rudolf should have split the payment between Rodrigo and Fernando.
 
(B) No, since Rodrigo, the other solidary creditor, already made a prior demand for  
payment from Rudolf. 
(C) Yes, since the payment covers the whole obligation.
(D) Yes, since Fernando was a solidary creditor, payment to him extinguished the obligation.
Roy and Carlos both undertook a contract to deliver to Sam in Manila a boat docked in Subic.
Before they could deliver it, however, the boat sank in a storm. The contract provides that
fortuitous event shall not exempt Roy and Carlos from their obligation. Owing to the loss of the
motor boat, such obligation is deemed converted into one of indemnity for damages. Is the liability
of Roy and Carlos joint or solidary? (2011 BAR)
(A) Neither solidary nor joint since they cannot waive the defense of fortuitous event to which they
are entitled.
(B) Solidary or joint upon the discretion of Sam.  
(C) Solidary since Roy and Carlos failed to perform their obligation to deliver the  motor boat.
(D) Joint since the conversion of their liability to one of indemnity for damages made it joint.
Extinguishment of Obligations
Dina bought a car from Jai and delivered a check in payment of the same. Has Dina paid the
obligation? Why? (2012 BAR)
a) No, 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. 
56
b) Yes, because a check is a valid legal tender of payment. 
c) It depends. If the check is a manager’s check or cashier’s check it will produce the effect of
payment. If it’s an ordinary check, no payment. 
d) Yes, because a check is as good as cash.
The following are the requisites of legal compensation, except: (2012 BAR)
a) That each of the obligors is bound principally and that he be the same time a principal creditor of
the other. 
b) That both debts consist in a sum of money, or if the things due are consumable, they be the same
kind, and also of the same quality if the latter has been stated.
c) That the two (2) debts are not yet due. 
d) That they be liquidated and demandable.
Upon the proposal of a third person, a new debtor substituted the original debtor without the
latter’s consent. The creditor accepted the substitution. Later, however, the new debtor became
insolvent and defaulted in his obligation. What is the effect of the new debtor’s default upon the
original debtor? (2011 BAR)
(A) The original debtor is freed of liability since novation took place and this relieved him of his
obligation. 
(B) The original debtor shall pay or perform the obligation with recourse to the new debtor.
(C) The original debtor remains liable since he gave no consent to the substitution.
(D) The original debtor shall pay or perform 50% of the obligation to avoid unjust enrichment on
his part.
Allan bought Billy’s property through Carlos, an agent empowered with a special power of
attorney (SPA) to sell the same. When Allan was ready to pay as scheduled, Billy called, directing
Allan to pay directly to him. On learning of this, Carlos, Billy's agent, told Allan to pay through
him as his SPA provided and to protect his commission. Faced with two claimants, Allan consigned
the payment in court. Billy protested, contending that the consignation is ineffective since no tender
of payment was made to him. Is he correct? (2011 BAR)
(A) No, since consignation without tender of payment is allowed in the face of the conflicting
claims on the plaintiff.
(B) Yes, as owner of the property sold, Billy can demand payment directly to himself.  
(C) Yes, since Allan made no announcement of the tender.  
(D) Yes, a tender of payment is required for a valid consignation.  
Anne owed Bessy P1 million due on October 1, 2011 but failed to pay her on due date. Bessy sent a
demand letter to Anne giving her 5 days from receipt within which to pay. Two days after receipt of
the letter, Anne personally offered to pay Bessy in manager's check but the latter refused to accept
the same. The 5 days lapsed. May Anne’s obligation be considered extinguished? (2011 BAR)
(A) Yes, since Bessy’s refusal of the manager’s check, which is presumed funded, amounts to a
satisfaction of the obligation. 
(B) No, since tender of payment even in cash, if refused, will not discharge the obligation without
proper consignation in court.
(C) Yes, since Anne tendered payment of the full amount due. 
57
(D) No, since a manager’s check is not considered legal tender in the Philippines.
X borrowed money from a bank, secured by a mortgage on the land of Y, his close friend. When the
loan matured, Y offered to pay the bank but it refused since Y was not the borrower. Is the bank’s
action correct? (2011 BAR)
(A) Yes, since X, the true borrower, did not give his consent to Y’s offer to pay.  
(B) No, since anybody can discharge X’s obligation to his benefit.  
(C) No, since Y, the owner of the collateral, has an interest in the payment of the obligation. 
(D) Yes, since it was X who has an obligation to the bank.
CONTRACTS
It is a principle which holds that contracts must be binding to both parties and its validity and
effectivity can never be left to the will of one of the parties. (2012 BAR)
a) Obligatory force of contracts
b) Mutuality of contracts 
c) Autonomy of contracts 
d) Relativity of contracts
It refers to the rule that a contract is binding not only between parties but extends to the heirs,
successors in interest, and assignees of the parties, provided that the contract involved transmissible
rights by their nature, or by stipulation or by law. (2012 BAR)
c) Autonomy of contracts 
It is rule which holds that the freedom of the parties to contract includes the freedom to stipulate,
provided the stipulations are not contrary to law, morals, good customs, public order or public
policy. (2012 BAR)
c) Autonomy of contracts
Contracts take effect only between the parties or their assigns and heirs, except where the rights
and obligations arising from the contract are not transmissible by their nature, by stipulation, or by
provision of law. In the latter case, the assigns or the heirs are not bound by the contracts. This is
known as the principle of (2011 BAR)
A) Relativity of contracts. 
58
B) Freedom to stipulate. 
C) Mutuality of contracts. 
D) Obligatory force of contracts.
Essential Requisites
An offer becomes ineffective on any of the following grounds, except: (2012 BAR)
a) Death, civil interdiction, insanity/insolvency of either party before acceptance is conveyed. 
b) Acceptance of the offer by the offeree. 
c) Qualified/conditional acceptance of the offer, which becomes counter- offer.
d) Subject matter becomes illegal/impossible before acceptance is communicated.
Which of the following statements is correct? (2012 BAR)
a) Offers in interrelated contracts are perfected upon consent. 
b) Offers in interrelated contracts require a single acceptance. 
c) Business advertisements are definite offers that require specific acceptance. 
d) Advertisements for Bidders are only invitations to make proposals and the advertiser is not
bound to accept the highest/lowest bidder, unless it appears otherwise.
Kinds of Contracts
The following are the ways by which innominate contracts are regulated, except: (2012 BAR)
a) By the stipulation of the parties. 
b) By the general principles of quasi-contracts and delicts 
c) By the rules governing the most analogous nominate contracts.
d) By the customs of the place.
An obligation which is based on equity and natural law is known as: (2012 BAR)
a) pure 
b) quasi-contract
c) civil 
d) natural
Formality
Which of the following contracts of sale is void? (2012 BAR)
a) Sale of EG
b) Sale of EGM’s piece of land by KRP, EGM’s agent, whose authority is not reduced into
writing. 
c) Sale of EGM’s car by KRP, a person stranger to EGM, without EGM’s consent or authority. 
d) Sale of EGM’s piece of land by KRP, a person stranger to EGM, without EGM’s consent or
authority.
59
The following are solemn contracts (Contracts which must appear in writing), except: (2012 BAR)
a) Donations of real estate or of movables if the value exceeds P 5,000.00.
b) Stipulation to pay interest in loans. 
c) Sale of land through an agent (authority must be in writing). 
d) Construction contract of a building.
Which of the following actions or defenses are meritorious: (1%) (2013 BAR)
(A) An action for recovery of downpayment paid under a rescinded oral sale of real property.
(B) A defense in an action for ejectment that the lessor verbally promised to extend or renew the
lease.
(C) An action for payment of sum of money filed against one who orally promised to answer
another's debt in case the latter defaults.
(D) A defense in an action for damages that the debtor has sufficient, but unliquidated assets to
satisfy the credit acquired when it becomes due.
(E) None of the above.
ANSWER:
A - In Asia Productions v. Pano (205 SCRA 458) the SC allowed recovery of the partial payment
made by the buyer of a building under a verbal contract of sale because the buyer is not seeking the
enforcement of the contract and at any rate it is not covered by the statute of frauds.
Arlene owns a row of apartment houses in Kamuning, Quezon City. She agreed to lease Apartment
No. 1 to Janet for a period of 18 months at the rate of P10,000 per month. The lease was not
covered by any contract. Janet promptly gave Arlene two (2) months deposit and 18 checks
covering the rental payment for 18 months. This show of good faith prompted Arlene to promise
Janet that should Arlene decide to sell the property, she would give Janet the right of first refusal.
(2013 BAR)
(1) Not long after Janet moved in, she received news that her application for a Master of Laws
scholarship at King's College in London had been approved. Since her acceptance of the
scholarship entailed a transfer of residence, Janet asked Arlene to return the advance rental
payments she made. Arlene refused, prompting Janet to file an action to recover the payments.
Arlene filed a motion to dismiss, claiming that the lease on which the action is based, is
unenforceable.
If you were the judge, would you grant Arlene's motion? (1%)
(A) Yes, I will grant the motion because the lease contract between Arlene and Janet was not in
writing, hence, Janet may not enforce any right arising from the same contract. 
(B) No, I will not grant the motion because to allow Arlene to retain the advance payments would
amount to unjust enrichment.
(C) Yes, I will grant the motion because the action for recovery is premature; Janet should first
secure a judicial rescission of the contract of lease. 
(D) No. I will not grant the motion because the cause of action does not seek to enforce any right
under the contract of lease.
ANSWER:
D – recovery of advance rental payments made is not covered by the statute of frauds because its
purpose it not to perpetrate fraud but to prevent fraud
60
(2) Assume that Janet decided not to accept the scholarship and continued leasing Apartment No. 1.
Midway through the lease period, Arlene decided to sell Apartment No. 1 to Jun in breach of her
promise to Janet to grant her the right of first refusal. Thus, Janet filed an action seeking the
recognition of her right of first refusal, the payment of damages for the violation of this right, and
the rescission of the sale between Arlene and Jun.
Is Janet's action meritorious? (1%)
(A) Yes, under the Civil Code, a promise to buy and sell a determinate thing is reciprocally
demandable. 
(B) No, the promise to buy and sell a determinate thing was not supported by a consideration.
(C) Yes, Janet's right of first refusal was clearly violated when the property was not offered for sale
to her before it was sold to Jun. 
(D) No, a right of first refusal involves an interest over real property that must be embodied in a
written contract to be enforceable.
(E) None of the above.
ANSWER: 
D – although the lease itself is valid even if verbal, the right of first refusal is a different matter
because a verbal promise to grant a right of first refusal which in essence is a promise to sell is
unenforceable under the Statute of Frauds
Defective Contracts
If one of the parties to the contract is without juridical capacity, the contract is: (2012 BAR)
a) voidable 
b) rescissible 
c) void 
d) unenforceable
When both parties to the contract are minors, the contract is: (2012 BAR)
a) voidable 
b) rescissible 
c) void 
d) unenforceable
When the consent of one of the parties was vitiated, the contract is: (2012 BAR)
a) voidable 
b) rescissible 
c) void 
d) unenforceable
Consent was given by one in representation of another but without authority. The contract is: (2012
BAR)
a) voidable 
61
b) rescissible 
c) void 
d) unenforceable
The following are rescissible contracts, except: (2012 BAR)
a) Entered into by guardian whenever ward suffers damage more than 1⁄4 of value of property. 
b) Agreed upon in representation of absentees, if absentee suffers lesion by more than 1⁄4 of value
of property.
c) Contracts where fraud is committed on creditor (accion pauliana).
d) Contracts entered into by minors.
The following are the requisites before a contract entered into in fraud of creditors may be
rescinded, except: (2012 BAR)
a) There must be credited existing prior to the celebration of the contract.
b) There must be fraud, or at least, the intent to commit fraud to the prejudice of the creditor
seeking rescission. 
c) The creditor cannot in any legal manner collect his credit (subsidiary character of rescission) 
d) The object of the contract must be legally in the possession of a 3rd person in good faith.
The following are the characteristics of a voidable contract, except: (2012 BAR)
a) Effective until set aside. 
b) May be assailed/attacked only in an action for that purpose.
c) Can be confirmed or ratified. 
d) Can be assailed only by either party.
The following are void contracts, except: (2012 BAR)
a) Pactum commissorium
b) Pactum de non alienando
c) Pactum leonina 
d) Pacto de retro
When bilateral contracts are vitiated with vices of consent, they are rendered (2011 BAR)
(A) rescissible. 
(B) void. 
(C) unenforceable.
(D) voidable.
The presence of a vice of consent vitiates the consent of a party in a contract and this renders the
contract (2011 BAR)
62
(A) Rescissible.  
(B) Unenforceable.  
(C) Voidable.  
(D) Void.  
Which of the following expresses a correct principle of law? Choose the best answer. (2012 BAR)
a) Failure to disclose facts when there is a duty to reveal them, does not constitute fraud. 
b) Violence or intimidation does not render a contract annullable if employed not by a contracting
party but by a third person.
c) A threat to enforce one’s claim through competent authority, if the claim is legal or just, does not
vitiate consent. 
d) Absolute simulation of a contract always results in a void contract.
Effect of Contracts
Which of the following statements is wrong? (2012 BAR)
a) Creditors are protected in cases of contracts intended to defraud them.
b) Contracts take effect only between the parties, their assign and heirs, except in case where the
rights and obligations arising from the contract are not transmissible by their nature, or by
stipulation or by provision of law. 
c) If a contract should contain some stipulation in favor of a third person, he may demand its
fulfillment provided he communicated his acceptance to the obligor before its revocation. 
d) In contracts creating real rights, third persons who come into possession of the object of the
contract are not bound thereby.
Which phrase most accurately completes the statement – Any third person who induces another to
violate his contract: (2012 BAR)
a) shall be liable for damages only if he is a party to the same contract.
b) shall be liable for damages to the other contracting party. 
c) shall not be liable for damages to the other contracting party. 
d) shall not be liable for damages if the parties are in pari delicto.
X sold Y 100 sacks of rice that Y was to pick up from X’s rice mill on a particular date. Y did not,
however, appear on the agreed date to take delivery of the rice. After one week, X automatically
rescinded the sale without notarial notice to Y. Is the rescission valid? (2011 BAR)
(A) Yes, automatic rescission is allowed since, having the character of movables and consumables,
rice can easily deteriorate. 
(B) No, the buyer is entitled to a customary 30-day extension of his obligation to take delivery of
the goods.
(C) No, since there was no express agreement regarding automatic rescission.
(D) No, the seller should first determine that Y was not justified in failing to appear.
63

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OBLIGATIONS

NATURE AND EFFECT OF OBLIGATIONS

Nature and effect of obligations (1986)

Does Abenturero have this right against Commerciante? Explain.

What are natural obligations?

Civil obligation; natural obligation (1989)

 Example of a natural obligation (one example out of any of the following):

6. When a testate or intestate heir voluntarily pays a debt of the decedent

Civil obligation; Natural obligation (2015)

B. Distinguish civil and natural obligations. (2%)

B. A civil obligation is based on positive law which gives a right of action to

Obligations; Without Agreement (2007)

"Obligations without an agreement" refer to the juridical relation of quasi-contract

First Example of an obligation without an agreement is a case of negotiorum gestio,

Fourth example, is when through accident or other causes a person is injured or

Fifth instance of an obligation without an agreement is when the person obliged to

Unjust enrichment; Solutio indebiti (2004)

Obligation to deliver a determinate thing; effect of loss (1984)

 SUGGESTED ANSWER: Furnished by Office of Justice Palma

Obligations to deliver a generic thing (1985)

Decide the controversy, giving the reasons for your decision.

The obligation of A to deliver the cattle or carabao is a generic obligation, therefore, it

Obligation to give; obligation to do (1983)

Delay; fortuitous event (2015)

Aleatory Contracts; Gambling (2004)

DIFFERENT KINDS OF OBLIGATIONS

Conditional obligation (1975)

Conditional Obligations; Promise (1997)

Conditional Obligations (2000)

Conditional Obligations (2003)

ii. Suspensive and resolutory conditions

Suspensive and resolutory condition (1988)

If the suspensive condition is fulfilled, the obligation arises or becomes effective. If

 FIRST ALTERNATIVE ANSWER:

 SECOND ALTERNATIVE ANSWER:

 FIRST ALTERNATIVE ANSWER:

 SECOND ALTERNATIVE ANSWER:

iii. Obligations with a period

Obligations with a period (1980)

What legal action, if any, would you take in behalf of "M"?

Obligations; obligations with a period (1982)

Obligations with a period (1984)

Is A's contention valid? Explain. Answer:

 SUGGESTED ANSWER: Furnished by Office of Justice Palma

iv. Alternative and facultative obligations

Alternative/facultative obligations (1977)

Distinguish between alternative and facultative obligations.

2. As to compliance: Facultative obligations may be complied with by the

4. As to effect of fortuitous loss: In the first, the loss or impossibility of the

Alternative and facultative obligations (1988)

Define alternative and facultative obligations.

v. Joint and Solidary Obligations

Joint and solidary obligations (1988)

Define joint and solidary obligations.

A joint obligation may be defined as an obligation where there is a concurrence of

Joint or solidary obligations (1980)

Is "GG's" defense tenable?

Obligations; joint or solidary obligations (1983)

Joint or solidary liability (1984)

A, B and C solidarity promised to pay D the amount of P3,000.00. Unfortunately, C became

 SUGGESTED ANSWER: Furnished by the Office of Justice Palma

Joint or solidary obligations (1988)

c) The third defense of Y is untenable. Y is a surety of X and the extrajudicial demand