QUAMTO (1987-2019)

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.

Q: Roland, a basketball star, was under
contract for one year to play-for-play
exclusively for Lady Love, Inc. However, even
before the basketball season could open, he
was offered a more attractive pay plus
fringes benefits by Sweet Taste, Inc. Roland
accepted the offer and transferred to Sweet
Taste. Lady Love sues Roland and Sweet
Taste for breach of contract. Defendants claim
that the restriction to play for Lady Love alone
is void, hence, unenforceable, as it
constitutes an undue interference with the
right of Roland 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? (1991 Bar)


A: 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
PART IV – OBLIGATIONS AND CONTRACTS 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
SOURCES OF OBLIGATION (1991, 1997, 2002,
by contract but is founded on quasi-delict,
2008 BAR)
assuming that Sweet Taste knew of the contract.

Q: In two separate documents signed by him, Article 1314 of the Civil Code provides that any
Juan Valentino "obligated" himself each to third person who induces another to violate his
Maria and to Perla, thus -'To Maria, my true contract shall be liable for damages to the other
love, I obligate myself to give you my one and contracting party.
only horse when I feel like It."
Q: Printado is engaged in the printing
- and – business. Suplico supplies printing paper
to Printado pursuant to an order
'To Perla, my true sweetheart, I obligate agreement under which Suplico binds
myself to pay you the P500.00 I owe you himself to deliver the same volume of
when I feel like it." paper every month for a period of 18
months, with Printado in turn agreeing to
Months passed but Juan never bothered to pay within 60 days after each delivery.
make good his promises. Maria and Perla Suplico has been faithfully delivering
came to consult you on whether or not they under the order agreement for 10 months
could recover on the basis of the foregoing but thereafter stopped doing so, because
settings. What would your legal advice be? Printado has not made any payment at all.
(1997 Bar) Printado has also a standing contract with
publisher Publico for the printing of
A: I would advise Maria not to bother running 10,000 volumes of school textbooks.
after Juan for the latter to make good his Suplico was aware of said printing
promise. This is because a promise is not an contract. After printing 1,000 volumes,
Printado also fails to perform under its
actionable wrong that allows a party to recover
printing contract with Publico. Suplico
especially when she has not suffered damages
sues Printado for the value of the unpaid
resulting from such promise. A promise does not
deliveries under their order agreement. At
create an obligation on the part of Juan because
the same time Publico sues Printado for
it is not something which arises from a contract, damages for breach of contract with respect
law, quasi-contracts or quasi-delicts. (Art, 1157) to their own printing agreement. In the suit
Under Art. 1182, Juan's promise to Maria is void filed by Suplico, Printado counters that: (a)
because a conditional obligation depends upon the Suplico cannot demand payment for
sole will of the obligor. As regards Perla, the deliveries made under their order

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 CIVIL LAW
agreement until Suplico has completed total contract price, the balance to be paid
performance under said contract; (b) upon completion of the work. The work
Suplico should pay damages for breach of stated immediately, but AB Corp. later
contract; and (c) with Publico should be experienced work slippage because of labor
liable for Printado’s breach of his contract with unrest in his company. AB Corp.'s employees
Publico because the order agreement claimed that they are not being paid on time;
between Suplico and Printado was for the hence, the work slowdown. As of the 17th
benefit of Publico. Are the contentions of month, work was only 45% completed. AB
Printado tenable? Explain your answers as Corp. asked for extension of time, claiming
to each contention. (2002 Bar) that its labor problems are a case of
fortuitous event, but this was denied by XY
A: No, the contentions of Printado are untenable. Corp. When it became certain that the
Printado having failed to pay for the printing construction could not be finished on time,
paper covered by the delivery invoices on time, XY Corp. sent written notice cancelling the
Suplico has the right to cease making further contract, and requiring AB Corp. to
delivery. And the latter did not violate the order immediately vacate the premises.
agreement. (Integrated Packaging Corporation v.
Court of Appeals, G.R. No. 115117, June 8, 2000. Can the labor unrest be considered a
Suplico cannot be held liable for damages, for fortuitous event? (2008 Bar)
breach of contract, as it was not, he who violated
the order agreement, but Printado Suplico cannot A: Labor unrest is not a fortuitous event that will
be held liable for Printado’s breach of contract excuse AB Corporation from complying with its
with Publico. He is not a party to the obligation of constructing the research and
agreement entered into by and between Printado laboratory facilities of XY Corporation. The labor
and Publico. Theirs is not a stipulation pour atrui. unrest, which may even be attributed in large
Such contracts could not affect third persons like part to AB Corporation itself, is not the direct
Suplico because of the basic civil law principle of cause of non-compliance by AB Corporation. It is
relativity of contracts which provides that independent of its obligation. It is similar to the
contracts can only bind the parties who entered failure of a DBP borrower to pay her loan just
into it, and it cannot favor or prejudice a third because her plantation suffered losses due to the
person, even if he is aware of such contract and cadang-cadang disease. It does not excuse
has acted with knowledge thereof. (Integrated
compliance with the obligation. (DBP v. Vda. de
Packaging Corporation v. CA, G.R. No. 115117, June
Moll, G.R. No. L- 25802, January 31, 1972)
8, 2000)


KINDS OF OBLIGATIONS (1991, 1992, 1998,
Q: A van owned by Orlando and driven by 1999, 2000, 2001, 2003 BAR)
Diego, while negotiating a downhill slope of a
city road, suddenly gained speed, obviously Q: Are the following obligations valid, why,
beyond the authorized limit in the area, and and if they are valid, when is the obligation
bumped a car in front of it, causing severe demandable in each case?
damage to the care and serious injuries to its
passengers. Orlando was not in the car at the a. If the debtor promises to pay as soon as
time of the incident. The car owner and the he has the means to pay;
injured passengers sued Orlando and Diego for b. If the debtor promises to pay when he
damages caused by Diego’s negligence. In their likes;
defense, Diego claims that the downhill slope c. If the debtor promises to pay when he
caused the van to gain speed and that, as he becomes a lawyer;
stepped on the brakes to check the d. If the debtor promises to pay if his son,
acceleration, the brakes locked, causing the who is sick with cancer, does not die
van to go even faster and eventually to hit the within one year. (2003 Bar)
car in front of it. Orlando and Diego contend
that the sudden malfunction of the van’s A:
brake system is a fortuitous even and that, a. The obligation is valid. It is an obligation
therefore, they are exempt from any liability. subject to an indefinite period because the
Is this contention tenable? Explain. (2002 Bar) debtor binds himself to pay when his

means permit him to do so (Art. 1180).
A: No. Mechanical defects of a motor vehicle do

not constitute fortuitous event, since the
When the creditor knows that the debtor
presence of such defects would have been
already has the means to pay, he must file
readily detected by diligent maintenance check.
an action in court to fix the period, and
The failure to maintain the vehicle in safe running
when the definite period as set by the court
condition constitutes negligence.
arrives, the obligation to pay becomes

demandable (Art. 1197).
Q: AB Corp. entered into a contract with XY

Corp. whereby the former agreed to
b. The obligation to pay when he likes is a
construct the research and laboratory
suspensive condition the fulfillment of
facilities of the latter. Under the terms of the
which is subject to the sole will of the
contract, AB Corp. agreed to complete the
debtor and therefore the conditional
facility in 18 months, at the total contract
price of P10 million. XY Corp. paid 50% of the obligation is void (Art. 1182).

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 QUAMTO (1987-2019)
c. The obligation is valid. It is subject to a
suspensive condition, i.e. the future and Q: In a deed of sale of realty, it was stipulated
uncertain event of his becoming a lawyer. that the buyer would construct a commercial
The performance of this obligation does building on the lot while the seller would
not depend solely on the will of the debtor construct a private passageway bordering the
but also on other factors outside the lot. The building was eventually finished but
debtor’s control. the seller failed to complete the passageway
d. The obligation is valid. The death of the son as some of the squatters, who were already
of cancer within one year is made a known to be there at the time they entered
negative suspensive condition to his into the contract, refused to vacate the
making the payment. The obligation is premises. In fact, prior to its execution, the
demandable if the son does not die seller filed ejectment cases against the
squatters.
within one year (Art. 1185).
The buyer now sues the seller for specific
Q: Pedro promised to give his grandson a car performance with damages. The defense is
if the latter will pass the bar examinations. that the obligation to construct the
When his grandson passed the said passageway should be with a period which,
examinations, Pedro refused to give the car incidentally, had not been fixed by them,
on the ground that the condition was a hence, the need for fixing a judicial period.
purely potestative one. Is he correct or not?
(2000 Bar) Will the action for specific performance of the
buyer against the seller prosper? (1991 Bar)
A: No, he is not correct. First of all, the condition is
not purely potestative, because it does not A: No, the action for specific performance filed by
depend on the sole will of one of the parties. the buyer is premature under Art. 1197 of the
Secondly, even if it were, it would be valid Civil Code. If a period has not been fixed although
because it depends on the sole will of the contemplated by the parties, the parties
creditor (the donee) and not of the debtor (the themselves should fix that period, failing in which,
donor). the Court may be asked to fix it taking into
consideration the probable contemplation of the
Q: In 1997, Manuel bound himself to sell Eva parties. Before the period is fixed, an action for
a house and lot which is being rented by specific performance is premature.
another person, if Eva passes the 1998 bar
examinations. Luckily for Eva, she passed
Q: In June 1988, X obtained a loan from A and
said examinations. executed with Y as solidary co-maker a

promissory note in favor of A for the sum of
a. Suppose Manuel had sold the same
P200,000.00. The loan was payable at
house and lot to another before Eva
P20,000.00 with interest monthly within the
passed the 1998 bar examinations, is
first week of each month beginning July 1988
such sale valid? Why?
until maturity in April 1989. To secure the
b. Assuming that it is Eva who is entitled to
payment of the loan, X put up as security a
buy said house and lot, is she entitled to chattel mortgage on his car, a Toyota Corolla
the rentals collected by Manuel before sedan. Because of failure of X and Y to pay the
she passed the 1998 bar examinations? principal amount of the loan, the car was
Why? (1999 Bar)
extrajudicially foreclosed. A acquired the car

at A’s highest bid of P120,000.00 during the
A: auction sale.
a) Yes, the sale to the other person is valid.

However, the buyer acquired the property
After several fruitless letters of demand
subject to a resolutory condition of Eva against X and Y, A sued Y for the discovery of
passing the 1998 Bar Examinations. Hence, P80,000.00 constituting the deficiency.
upon Eva's passing the Bar, the rights of the
other buyer terminated, and Eva acquired Y resisted the suit raising the following
ownership of the property. defenses:

ALTERNATIVE ANSWER: a) That Y should not be liable at all because
X was not sued together with Y.
Yes, the sale to the other person is valid, as the b) That the obligation has been paid
contract between Manuel and Eva is a mere completely by A’s acquisition of the car
promise to sell and Eva has not acquired a real through “dacion en pago” or payment by
right over the land assuming that there is a cession.
price stipulated in the contract for the contract c) That Y should not be held liable for the
to be considered a sale and there was delivery deficiency of P80,000.00 because he was
or tradition of the thing sold. not a co-mortgagor in the chattel
mortgage of the car, which contract was
b) No, she is not entitled to the rentals executed by X alone as owner and
collected by Manuel because at the time mortgagor.
they accrued and were collected, Eva was d) That assuming he is liable, he should only
not yet the owner of the property. pay the proportionate sum of P40,000.00.

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 CIVIL LAW
Decide the defense with reasons. (1992 Bar) P50.000 Art. 1217. par. 3, Civil Code
provides. "When one of the solidary debtors
A: cannot, because of his insolvency,
reimburse his share to the debtor paying
a) The first defense of Y is untenable. Y is still the obligation, such share shall be borne by
liable as solidary debtor. The creditor may all his co-debtors, in proportion to the debt
proceed against any one of the solidary of each."
debtors. The demand against one does not
preclude further demand against the others Since the insolvent debtor's share which
so long as the debt is not fully paid. Joey paid was P100,000, and there are only
b) The second defense of Y is untenable. Y is two remaining debtors - namely Joey and
still liable. The chattel mortgage is only Jojo- these two shall share equally the
given as security and not as payment for the burden of reimbursement. Jojo may thus be
debt in case of failure to pay. Y as a solidary compelled by Joey to contribute P50.000.00.
co-maker is not relieved of further liability
on the promissory note as a result of the Q: Zeny and Nolan were best friends for a
foreclosure of the chattel mortgage. long time already. Zeny borrowed
c) The third defense of Y is untenable. Y is a P10,000.00 from Nolan, evidenced by a
surety of X and the extrajudicial demand promissory note whereby Zeny promised to
against the principal debtor is not pay the loan “once his means permit.” Two
inconsistent with a judicial demand against months later, they had a quarrel that broke
the surety. A suretyship may co-exist with a their long-standing friendship.
mortgage.
Nolan seeks your advice on how to collect
d) The fourth defense is untenable. Y is liable
from Zeny despite the tenor of the
for the entire prestation since Y incurred a promissory note. What will your advice be?
solidary obligation with X. Explain your answer. (2012, 2017 Bar)
Q: Four foreign medical students rented the A: The remedy of Nolan is to go to court and ask
apartment of Thelma for a period of one that a period be fixed for the payment of debt.
year. After one semester, three of them Article 1180 of the New Civil Code provides that
returned to their home country and the when a debtor binds himself to pay when his
fourth transferred to a boarding house. means permit him to do so, the obligation shall
Thelma discovered that they left unpaid
be deemed to be one with a period (suspensive).
telephone bills in the total amount of
Article 1197 provides that the courts may fix a
P80,000.00. The lease contract provided that
period if such was intended from the nature of
the lessees shall pay for the telephone
the obligation and may also fix the duration of
services in the leased premises. Thelma
the period when such depends on the will of the
demanded that the fourth student pay the
entire amount of the unpaid telephone bills, debtor.
but the latter is willing to pay only one fourth
of it. Who is correct? Why? (2001 Bar) EXTINGUISHMENT OF OBLIGATIONS (1996,
1998, 2001, 2002, 2003, 2008, 2009, 2016,

2018 BAR)
A: The fourth student is correct. His liability is
only joint, hence, pro rata. There is solidary
Q: Butch got a loan from Hagibis Corporation
liability only when the obligation expressly so (Hagibis) but he defaulted in the payment. A
states or when the law or nature of the case for collection of a sum of money was
obligation requires solidarity (Art. 1207). The filed against him. As a defense, Butch claims
contract of lease in the problem does not, in any that there was already an arrangement with
way, stipulate solidarity. Hagibis on the payment of the loan. To
implement the same, Butch already
Q: Joey, Jovy and Jojo are solidary debtors surrendered five (5) service utility vehicles
under a loan obligation of P300,000.00 which (SUVs) to the company for it to sell and the
has fallen due. The creditor has, however, proceeds to be credited to the loan as
condoned Jojo's entire share in the debt. payment. Was the obligation of Butch
Since Jovy has become insolvent, the creditor extinguished by reason of dacion en pago
makes a demand on Joey to pay the debt. upon the surrender of the SUVs? Decide and
explain. (2016 Bar)
1. How much, if any, may Joey be
compelled to pay? A: No, the obligation of Butch to Hagibis was not
2. To what extent, if at all, can Jojo be extinguished by the mere surrender of the SUV’s
compelled by Joey to contribute to such to the latter. Dation in payment, whereby property
payment? (1998, 2001, 2017 Bar) is alienated to the creditor in satisfaction of a
debt in money, shall be governed by the law on
A: sales. (Art. 1245) In dacion en pago, as a special
1. Joey can be compelled to pay only the mode of payment, the debtor offers another thing
remaining balance of P200.000, in view of to the credtor who accepts it as equivalent of
the remission of Jojo's share by the creditor. payment of an outstanding debt. The
(Art. 1219) undertaking really partakes in one sense of the
2. Jojo can be compelled by Joey to contribute nature of sale, that is, the creditor is really buying

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 QUAMTO (1987-2019)
the thing or property of the debtor, payment for there is no reason why the provisions of Art.
which is to be charged against the debtor’s debt. 2079 would not apply to a surety. (Autocorp
As such, the essential elements of a contract of Group v. Intra Strata Assurance Corporation, 556
sale, namely, consent, object certain, and cause SCRA 250 [2008]) Article 2079 of the Civil Code
or consideration must be present. In dacion en provides that an extension granted to the debtor
pago, there is in reality an objective novation of by the creditor without the consent of the
the obligation where the thing offered as an guarantor extinguishes the guaranty. The
accepted equivalent of the performance of an changes in the work schedule amount to an
obligation is considered as the object of the extension granted the debtor without the
contract of sale, while the debt is considered as consent of the surety. Hence, Jojo’s obligation as
the purchase price. In any case, common consent a surety is extinguished. If the change of work
is an essential pre-requisite, be it sale or schedule, on the other hand, shortens the time of
innovation to have the effect of totally completion of the project, it will amount to a
extinguishing the debt or obligation. (Filinvest novation. The old obligation, where Jojo was
Credit Corporation v. Philippine Acetylene obligated as a surety is extinguished relatively as
Company, G.R. No. L-50449, January 30, 1982) to him, leaving Ivan still bound.
There being no mention in the facts that Hagibis
has given its consent to accept the SUCs as Q: A, B, C, D and E made themselves solidarity
equivalent payment, the obligation of Butch is indebted to X for the amount of P50,000.00.
not thereby extinguished be mere delivery of the When X demanded payment from A, the
SUVs. latter refused to pay on the following
grounds:
Q: Jerico, the project owner, entered into a
Construction Contract with Ivan for the latter a) B is only 16 years old.
to construct his house. Jojo executed a Surety b) C has already been condoned by X.
undertaking to guarantee the performance of c) D is insolvent.
the work by Ivan. Jerico and Ivan later d) E was given by X an extension of 6
entered into a Memorandum of Agreement months without the consent of the
(MOA) revising the work schedule of Ivan and other four co-debtors.
the subcontractors. The MOA stated that all
the stipulations of the original contract not in State the effect of each of the above defenses
conflict with said agreement shall remain put up by A on his obligation to pay X, if such
valid and legally effective. Jojo filed a suit to defenses are found to be true. (2003 Bar)
declare him relieved of his undertaking as a
result of the MOA because of the change in A:
the work schedule. Jerico claims there is no a) A may avail the minority of B as a defense,
novation of the Construction Contract. Decide but only for B’s share of P 10,000.00. A
the case and explain. (2016 Bar) solidary debtor may avail himself of any
defense which personally belongs to a
A: I will decide in favor of Jerico as there is no solidary co-debtor, but only as to the share
novation of the Construction Contract. Novation is of that co-debtor.
never presumed, and may only take place when b) A may avail of the condonation by X of C’s
the following are present: (1) a previous valid share of P 10, 000.00. A solidary debtor may,
obligation; (2) the agreement of all the parties to in actions filed by the creditor, avail himself
the new contract; (3) the extinguishment of the of all defenses which are derived from the
old contract; (4) validity of the new one. There nature of the obligation and of those which
must be consent of all the parties to the are personal to him or pertain to his own
substitution, resulting in the extinction of the old share. With respect to those which
obligation and the creation of a new valid one. In personally belong to others, he may avail
this case, the revision of the work schedule of himself thereof only as regards that part
Ivan and the subcontractors is not shown to be
of the debt for which the latter are
so substantial as to extinguish the old contract,
responsible (Art. 1222).
and there was also no irreconcilable
c) A may not interpose the defense of
incompatibility between the old and new
insolvency of D as a defense. Applying the
obligations. It has also been held in
principle of mutual guaranty among solidary
jurisprudence that a surety may only be relieved
debtors, A guaranteed the payment of D’s
of his undertaking if there is a material change in
share and of all the other co-debtors. Hence,
the principal contract and such would make the
A cannot avail of the defense of D’s
obligation of the surety onerous. The principal
insolvency.
contract subject of the surety agreement still
d) The extension of six (6) months given by X
exists, and Jojo is still bound as a surety.
to E may be availed of by A as a partial

defense but only for the share of E, there is no
ALTERNATIVE ANSWER:
novation of the obligation but only an act of
I will decide against Jerico. The provisions of the liberality granted to E alone.
Civil Code on Guarantee, other than the benefit of
excusion (Art. 2059, CC), are applicable and Q: True or False

available to the surety because a surety is a
The renunciation by a co-owner of his
guarantor who binds himself solidarily. [Art.
undivided share in the co-owned property in
2047(2), CC] The Supreme Court has held that

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 CIVIL LAW
lieu of the performance of his obligation to a) Can Gustavo now raise the issue that the
contribute to taxes and expenses for the cashier's check is not legal tender?
preservation of the property constitutes b) Can Felipe validly refuse to pay Gustavo
dacion en pago. (2009 Bar) again?
c) Can Felipe compel Gustavo to receive
A: TRUE. Under the Civil Code, a co-owner may US$100 instead? (2008 Bar)
renounce his share in the co-owned property in
lieu of paying for his share in the taxes and A:
expenses for the preservation of the co-owned
property. In effect, there is dacion en pago a) No, because Gustavo is guilty of estoppel
because the co-owner is discharging his by laches. He led Felipe to believe he could
monetary obligation by paying it with his non- pay by cashier’s check, and Felipe relied
monetary interest in the co-owned property. The that such cahier’s check would be
fact that he is giving up his entire interest simply encashed thus extinguishing his
means that he is accepting the value of his obligation. Because of Gustavo’s inaction
interest as equivalent to his share in the taxes of more than six months the check became
and expenses of preservation. stale and Felipe will be prejudiced if he
will be required to pay $100 at the
Q: Define compensation as a mode of exchange rate of P56 to $1.00. The
extinguishing an obligation, and distinguish exchange should be the rate at the time of
it from payment. (1998 Bar) payment.
b) Yes, if the payment is valid. Since the bank
A: Compensation is a mode of extinguishing to considered the cashier’s check as being
the concurrent amount, the obligations of those stale for not having been encashed on
persons who in their own right are reciprocally time, then the cahsier’s check may be
debtors and creditors of each other. (Tolentino, issued again. At any rate, non-payment of
1991 ed., p. 365, citing 2 Castan 560 and Francia teh amount to Gustavo would constitute
v. IAC, 162 SCRA 753) It involves the unjust enrichment.
simultaneous balancing of two obligations in c) Yes, Felipe can compel Gustavo to pay
order to extinguish them to the extent in which US$100 instead. Under the prior law, RA
the amount of one is covered by that of the 529, as amended by R.A.4100, payment
other. (De Leon, 1992, ed., p. 221, citing 8 can only be in Philippine currency as it
Manresa 401) would be against publich policy, null and
void and of no effect. However, under
Payment means not only delivery of money but RA8183, payment may be made in the
also performance of an obligation. (Article 1232, currency agreed upon by the parties, and
Civil Code) In payment, capacity to dispose of the the rate of exchange to be followed is at
thing paid and capacity to receive payment are the time of payment. (C.F. Sharp & Co. Inc.
required for debtor and creditor, respectively: in vs. Northwest Airlines, Inc., 381 SCRA 314
compensation, such capacity is not necessary, [2002])
because the compensation operates by law and
not by the act of the parties. In payment, the Q: X, who has a savings deposit with Y Bank
performance must be complete, while in in the sum of P1,000,000.00, incurs a loan
compensation there may be partial obligation with the said Bank in the sum of
extinguishment of an obligation (Tolentino, P800,000.00 which has become due. When X
supra). tries to withdraw his deposit, Y Bank allows
only P200,000.00 to be withdrawn, less
Q: Felipe borrowed $100 from Gustavo in service charges, claiming that compensation
1998, when the Phil P - US$ exchange rate has extinguished its obligation under the
was P56 - US$1. On March 1, 2008, Felipe savings account to the concurrent amount of
tendered to Gustavo a cashier's check in the X’s debt. X contends that compensation is
amount of P4,135 in payment of his US$ 100 improper when one of the debts, as here,
debt, based on the Phil P - US$ exchange rate arises from a contract of deposit. Assuming
at that time. Gustavo accepted the check, but that the promissory note signed by X to
forgot to deposit it until Sept. 12, 2008. His evidence the loan does not provide for
bank refused to accept the check because it compensation between said loan and his
had become stale. Gustavo now wants Felipe savings deposit, who is correct? (1998 Bar)
to pay him in cash in the amount of P5,600.
Claiming that the previous payment was not A: Y bank is correct. Art. 1287, Civil Code, does
in legal tender, and that there has been not apply. All the requisites of Art. 1279, Civil
extraordinary deflation since 1998, and Code are present. In the case of Gullas vs. PNB
therefore, Felipe should pay him the value of (62 Phil. 519), the Supreme Court held: “The Civil
the debt at the time it was incurred. Felipe Code contains provisions regarding
refused to pay him again, claiming that compensation (set off) and deposit. These
Gustavo is estopped from raising the issue of portions of Philippine law provide that
legal tender, having accepted the check in compensation shall take place when two persons
March, and that it was Gustavo's negligence are reciprocally creditor and debtor of each
in not depositing the check immediately that other. In this connection, it has been held that
caused the check to become stale. the relation existing between a depositor and a

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 QUAMTO (1987-2019)
bank is that of creditor and debtor. xxx As a debtors and creditors of each other. Both
general rule, a bank has a right of set off of the obligations are due, demandable and liquidated
deposits in its hands for the payment of any but only up to the extent of P300,000.00 (covering
indebtedness to it on the part of a depositor.” the unpaid third, fourth and fifth monthly
Hence, compensation took place between the installments). The entire one million was not yet
mutual obligations of X and Y bank. due because the loan has no acceleration clause in
case of default. And since there is no retention or
Q: Stockton is a stockholder of Core Corp. He controversy commenced by third person and
desires to sell his shares in Core Corp. In communicated in due time to the debtor, then all
view of a court suit that Core Corp. has filed the requisites of legal compensation are present
against him for damages in the amount of P10 but only up to the amount of P300,000.00. The
million, plus attorney’s fees of P1 million, as bank, therefore, may deduct P300,000.00 from
a result of statements published by Stockton Sarah’s bank deposit by way of compensation.
which are allegedly defamatory because it
was calculated to injure and damage the Q: In 1978, Bobby borrowed P1,000,000.00
corporation’s reputation and goodwill. The form Chito payable in two years. The loan,
articles of incorporation of Core Corp. which was evidenced by a promissory note,
provide for a right of first refusal in favor of was secured by a mortgage on real property.
the corporation. Accordingly, Stockton gave No action was filed by Chito to collect the
written notice to the corporation of his offer loan or to foreclose the mortgage. But in
to sell his shares of P10 million. The 1991, Bobby, without receiving any amount
response of Core corp. was an acceptance of from Chito, executed another promissory
the offer in the exercise of its rights of first note, except for the date thereof, which was
refusal, offering for the purpose payment in the date of its execution.
form of compensation or set-off against the
amount of damages it is claiming against him, 1) Can Chito demand payment on the 1991
exclusive of the claim for attorney’s fees. promissory note in 1994?
Stockton rejected the offer of the corporation, 2) Can Chito foreclose the real estate
arguing that compensation between the value mortgage if Bobby fails to make good
of the shares and the amount of damages his obligation under the
demanded by the corporation cannot legally 1991 promissory note?
take effect. Is Stockton correct? Give reason
for your answer. (1998, 2002 Bar)
A:
A: Stockton is correct. There is no right of 1) Yes, Chito can demand payment on the
compensation between his price of P10 million 1991 promissory note in 1994. Although
and Core Corp.’s unliquidated claim for damages. the 1978 promissory note for P1 million
In order that compensation may be proper, the payable two years later or in 1980 became
two debts must be liquidated and demandable. a natural obligation after the lapse of ten
The case for the P10 million damages being still (10) years, such natural obligation can be a
pending in court, the corporation has as yet no valid consideration of a novated
claim which is due and demandable against promissory note dated in 1991 and payable
Stockton. two years later, or in 1993.

Q: Sarah had a deposit in a savings account All the elements of an implied real novation are
with Filipino Universal Bank in the amount of present:
five million pesos (P5,000,000.00). To buy a a) An old valid obligation;
new car, she obtained a loan from the same b) A new valid obligation;
bank in the amount of P1,200,000.00, payable c) Capacity of the parties;
in twelve monthly installments. Sarah issued d) Animus novandi or intention to novate;
in favor of the bank post-dated checks, each in and
the amount of P100,000.00, to cover the e) The old and the new obligation should
twelve monthly installment payments. On the be incompatible with each other on all
third, fourth and fifth months, the material points (Article 1292). The two
corresponding checks bounced. promissory notes cannot stand
together, hence, the period of
The bank then declared the whole obligation prescription of ten (10) years has not
due, and proceeded to deduct the amount of yet lapsed.
one million pesos (P1,000,000.00) from
Sarah’s deposit after notice to her that this is a 2) No. The mortgage being an accessory
form of compensation allowed by law. Is the contract prescribed with the loan. The
bank correct? Explain. (2009 Bar) novation of the loan, however, did not
expressly include the mortgage, hence, the
A: No, the bank is not correct. While the Bank is mortgage is extinguished under Article
correct about the applicability of compensation, it 1296 of the NCC. The contract has been
was not correct as to the amount compensated. A extinguished by the novation or extinction
bank deposit is a contract of loan, where the of the principal obligation insofar as third
depositor is the creditor and the bank the debtor. parties are concerned.
Since Sarah is also the debtor of the bank with
respect to the loan, both are mutually principal Q: Baldomero leased his house with a

77
 CIVIL LAW
telephone to Jose. The lease contract not operate the business without electricity
provided that Jose shall pay for all electricity, and the utility company refused to restore
water and telephone services in the leased electricity services unless the unpaid bills
premises during the period of the lease. Six were settled in full, Sergio had to pay the
months later, Jose surreptitiously vacated unpaid electricity bills. When the date for
the premises. He left behind unpaid payment arrived, Sergio only tendered
telephone bills for overseas telephone calls PhP950,000 representing the full purchase
amounting to over P20,000.00. Baldomero price, less the amount he paid for the unpaid
refused to pay the said bills on the ground utility bills. Samantha refused to accept the
that Jose had already substituted him as the tender on the ground that she was the one
customer of the telephone company. The supposed to pay the bills and Sergio did not
latter maintained that Baldomero remained have authorization to pay on her behalf.
as his customer as far as their service
contract was concerned, notwithstanding the A. What is the effect of payment made by
lease contract between Baldomero and Jose. Sergio without the knowledge and
Who is correct, Baldomero or the telephone consent of Samantha.
company? Explain. (1996 Bar) B. Is Samantha guilty of mora accipiendi?
(2018 Bar)
A: The telephone company is correct because as
far as it is concerned, the only person it A:
contracted with was Baldomero. The telephone
company has no contract with Jose. Baldomero
a. The payment by Sergio resulted in the
cannot substitute Jose in his stead without the
extinguishment of the obligation of
consent of the telephone company. (Art. 1293,
Samantha to the utility company and
NCC) Baldomero is, therefore, liable under the Sergio was legal subrogated to the utility
contract. company’s credit. Sergio, thus, became
Samantha’s new creditor. Under Article
Q: The sugar cane planters of Batangas 1302 (3), Civil Code, it is presumed that
entered into a long-term milling contract there is legal subrogation when, even
with the Central Azucarera de Don Pedro Inc. without the knowledge of the debtor, a
Ten years later, the Central assigned its rights person interested in the fulfillment of the
to the said milling contract to a Taiwanese obligation pays, without prejudice to the
group which would take over the operations effects of confusion as to the latter's share.
of the sugar mill. The planters filed an action A person interested in the fulfillment is
to annul the said assignment on the ground one who will benefit from the
that the Taiwanese group was not registered extinguishment of the obligation. Here,
with the Board of Investments. Will the action Sergio is an interested person since he
prosper or not? Explain briefly. (2001 Bar) was the business successor-in-interest of
the Samantha and he cannot conduct his
A: The action will prosper not on the ground business without paying the debtor of
invoked but on the ground that the farmers have Samantha. Since there is legal
not given their consent to the assignment. The subrogation, Sergio stepped into the shoes
milling contract imposes reciprocal obligations of the utility company as the new creditor
on the parties. The sugar central has the to the P50,000 credit; thus there can be
obligation to mill the sugar cane of the farmers valid legal compensation of the two
while the latter have the obligation to deliver credits between him and Samantha who
their sugar cane to the sugar central. As to the are principally debtors and creditors of
obligation to mill the sugar cane, the sugar each other up to the concurrent amount of
central is a debtor of the farmers. In assigning its P50,000 (Art. 1279, NCC).
rights under the contract, the sugar central will b. Yes, Samantha is guilty of mora accipiendi.
also transfer to the Taiwanese its obligation to The requisites for mora accipiendi are: (i)
mill the sugar cane of the farmers. This will offer of performance by the debtor; (ii)
amount to a novation of the contract by offer must be to comply with prestation as
substituting the debtor with a third party. Under it should be performed; and (iii) the
Article 1293 of the Civil Code, such substitution creditor refuses to accept the
cannot take effect without the consent of the performance without just cause. Here,
creditor. The formers, who are creditors as far Sergio validly made an offer to comply
as the obligation to mill their sugar cane is with the prestation of payment, albeit for
concerned, may annul such assignment for not P950,000 only. Sergio’s offer is justified
having given their consent thereto. based on the concept of partial legal
compensation up to the amount of
P50,000, since Sergio and Samantha are in
Q: Samantha sold all her business interest in
their own right principal debtors and
a sole proprietorship to Sergio for the
creditors of each other. Samantha’s refusal
amount of PhP1 million. Under the sale
was without just cause as she cannot be
agreement, Samantha was supposed to pay
permitted to benefit or use as a defense
for all prior unpaid utility bills incurred by
her own failure to fulfill her part of the
the sole proprietorship. A month after the
obligation to pay the electricity bills.
Contract to Sell was executed, Samantha still

had not paid the PhP50,000 electricity bills
CONTRACTS
incurred prior to the sale. Since Sergio could

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 QUAMTO (1987-2019)
the contract of carriage the airline is not shown to
Essential Requisites (2004, 2005 Bar) have acted fraudulently or in bad faith, liability for
damages is limited to the natural and probable
Q: Dr. and Mrs. Almeda are prominent consequence of the breach of the obligation which
citizens of the country and are frequent the parties had foreseen or could have reasonably
travellers abroad. In 1996, they booked foreseen. In such a case the liability does not
round-trip business class tickets for the include moral and exemplary damages.
Manila-Hong Kong-Manila route of the Pinoy
Airlines, where they are holders of Gold It is a requisite in the grant of exemplary damages
Mabalos Class Frequent Flier cards. On their that the act of the offender be accompanied by bad
return flight, Pinoy Airlines upgraded their faith or done in wanton, fraudulent or malevolent
tickets to first class without their consent manner. Such requisite is absent in this case.
and, in spite of their protestations to be Moreover, to be entitled thereto the claimant must
allowed to remain in the business class so that first establish his right to moral, temperate, or
they could be with their friends, they were compensatory damages. Since the Almedas are not
told that the business class was already fully entitled to any of these damages, the award for
booked, and that they were given priority in exemplary damages has no legal basis. And where
upgrading because they are elite the awards for moral and exemplary damages are
members/holders of Gold Mabalos Class eliminated, so must the award for attorney’s
cards. Since they were embarrassed at the fees.
discussions with the flight attendants, they
were forced to take the flight at the first-class The most that can be awarded for the breach of
section apart from their friends who were in contract is an award for nominal damages. Pinoy
the business class. Upon their return to Airlines may be said to have disturbed the
Manila, they demanded a written apology spouses’ wish to be with their companions at teh
from Pinoy Airlines. When it went Business Class on their flight to Manila. (Cathay
unheeded, the couple sued Pinoy Airlines Pacific v. Spouses Vasquez, 399 SCRA 207 [2003])
for breach of contract claiming moral and
exemplary damages, as well as attorney's Q: Marvin offered to construct the house of
fees. Will the action prosper? Give reasons. Carlos for a very reasonable price of
(2004, 2005 Bar) P900,000.00, giving the latter 10 days within
which to accept or reject the offer. On the
A: Yes, Pinoy Airlines breached its contract of fifth day, before Carlos could make up his
carriage by upgrading the seat accommodation of mind, Marvin withdrew his offer.
the Almedas without their consent. The object of
their contract was the transportation of the a) What is the effect of the withdrawal of
Almedas from Manila to Hongkong and back to Marvin's offer?
Manila, with seats in the business class section of b) Will your answer be the same if Carlos
the aircraft. They should have been consulted first paid Marvin P10,000.00 as
whether they wanted to avail themselves of the consideration for that option? Explain.
privilege and would consent to a change of seat c) Supposing that Carlos accepted the
accommodation. It should not have been imposed offer before Marvin could communicate
on them over their vehement objection. By insisting his withdrawal thereof? Discuss the
on the upgrade, Pinoy Airlines breached its legal consequences. (2005 Bar)
contract of carriage with the Almedas.
A:
However, the upgrading or the breach of contract a) The withdrawal of Marvin’s offer is valid
was not attended by fraud or bad faith. They were because there was no consideration paid
not induced to agree to the upgrading through for the option. An option is a separate
insidious words or deceitful machination or contract from the contract, which is the
through wailful concealment of material facts. Bad subject of the offer, and if not supported by
faith does not simply connote bad judgment or any consideration, the option contract is
negligence; it imports a dishonest purpose or not deemed perfected. Thus, Marvin may
some moral obliquity and conscious doing of a withdraw the offer at any time before
wrong, breach of a known duty through some acceptance of the offer.
motive or interest or ill will that partakes of the b) If Carlos paid P10,000.00 as consideration
nature of fraud. for that option, Marvin cannot withdraw

the offer prior to expiration of the option
Neither is Pinoy Airlines in bad faith since Section
period. The option is a separate contract
3 of the Economic Regulation No. 7 of teh Civil
and if founded on consideration is a
Aeronautics Board provides that an overbooking
perfected option contract and must be
that does not exceed ten percent is not considered
respected by Marvin.
deliberate and therefore does not amount to bad
faith. c) If Carlos has already accepted the offer and
such acceptance has been communicated to
As a result, the Almedas are not entitled to recover Marvin before Marvin communicates the
moral damages. Moral damages predicated upon a withdrawal, the acceptance creates a
breach of contract of carriage may only be perfected construction contract, even if no
recoverable in instances where the carrier is guilty consideration was as yet paid for the
of fraud or bad faith or when the mishap resulted option. If Marvin does not perform his
in the death of a passenger. Where in breaching obligations under the perfected contract of

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 CIVIL LAW
construction, he shall be liable for all time of the execution of the document. D was
consequences arising from the breach 17 years old, E was 14 and F was 12; and they
thereof based on any of the available were made to believe by A, B and C that
remedies which may be instituted by unless they sign the document they will not
Carlos, such as specific performance, or get any share. Z was not present then. In
rescission with damages in both cases. January 1974, D E and F filed an action in
court to nullify the suit alleging they
Rescissible Contracts (1998 Bar) discovered the fraud only in 1973.

Q: In a 20-year lease contract over a building, a) Can the minority of D, E and F be a
the lessee is expressly granted a right of first basis to nullify the partition? Explain
refusal should the lessor decide to sell both your answer
the land and building. b) How about fraud? Explain your answer.
(1990 Bar)
However, the lessor sold the property to a
third person who knew about the lease and A:
in fact agreed to respect it. Consequently, the a) Yes, minority can be a basis to nullify the
lessee brings an action against both the partition because D, E and F were not
lessor-seller and the buyer (a) to rescind the properly represented by their parents or
sale and (b) to compel specific performance
guardians at the time they contracted the
of his right of first refusal in the sense that
extrajudicial partition. (Articles 1327,
the lessor should be ordered to execute a
1391, Civil Code)
deed of absolute sale in favor of the lessee at
b) In the case of fraud, when through
the same price. The defendants contend that
insidious words or machinations of one of
the plaintiff can neither seek rescission of
the other is induced to enter into the
the sale nor compel specific performance of a
contract without which he would not have
“mere” right of first refusal. Decide the case.
agreed to, the action still prosper because
(1998 BAR)
under Art. 1391 of the Civil Code, in case

of fraud, the action for annulment may be
A: The action filed by the lessee, for both
brought within four years from the
rescission of the offending sale and specific
discovery of the fraud.
performance of the right of first refusal which

was violated, should prosper. The ruling in
Q: Sometime in 1955, Tomas donated a
Equatorial Realty Development, Inc. v. Mayfair
parcel of land to his stepdaughter Irene,
Theater, Inc, (264 SCRA 482), a case with similar
subject to the condition that she may not sell,
facts, sustains both rights of action because the
transfer or cede the same for twenty years.
buyer in the subsequent sale knew the existence
Shortly thereafter, he died. In 1965, because
of right of first refusal, hence in bad faith. she needed money for medical expenses,
Nene sold the land to Conrado. The following
Voidable Contracts (1990, 1996, 2004 Bar) year, Irene died, leaving as her sole heir a
son by the name of Armando. When Armando
Q: Distinguish briefly but clearly between learned that the land which he expected to
inexistent and annullable contracts. (2004 inherit had been sold by Irene to Conrado, he
Bar) filed an action against the latter for
annulment of the sale, on the ground that it
A: Inexistent contracts are considered as not violated the restriction imposed by Tomas.
having been entered into and, therefore, void ab Conrado filed a motion to dismiss, on the
initio. They do not create any obligation and ground that Armando did not have the legal
cannot be ratified or validated, as there is no capacity to sue. If you were the judge, how
agreement to ratify or validate. In the other hand, will you rule on this motion to dismiss?
annullable or voidable contracts are valid until Explain. (1996 Bar)
invalidated by the court but may be ratified.
A: As judge, I will grant the motion to dismiss.
In inexistent contracts, one or more requisites of Armando has no personality to bring the action
a valid contract are absent. In annullable for annulment of the sale to conrado. Only an
contracts, all the elements of a contract are aggrieved party to the contract may bring the
present except that the consent of one of the action for annulment thereof. (Art. 1397, NCC)
contracting parties was vitiated or one of them While Armando is heir and successor-in-interest
has no capacity to give consent. of his mother (Art. 1311, NCC), he (standing in
place of his mother) has no personality to annul
Q: X was the owner of a 10, 000 square meter the contract. Both are not aggrieved parties on
property. X married Y and out of their union, account of their own violation of the condition
A, B and C were born. After the death of Y, X of, or restriction on, their ownership imposed by
married Z and they begot as children, D, E the donation. Only the donor or his heirs would
and F. After the death of X, the children of the have the personality to bring an action to revoke
first and second marriages executed an a donation for violation of a condition thereof or
extrajudicial partition of the aforestated a restriction thereon. (Garrido v. CA, 236 SCRA
property on May 1, 1970. D, E and F were 450) Consequently, while the donor or his heirs
given a one thousand square meter portion were not parties to the sale, they have the right
of the property. They were minors at the to annul the contract of sale because their rights

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 QUAMTO (1987-2019)
are prejudiced by one of the contracting parties receiving a Certificate of Title shall hold the
thereof. (DBP v. CA, 96 SCRA 342; Teves v. PHHC, same free from all encumbrances, subject to
23 SCRA 1141) Since Armando is neither the certain exemptions.
donor nor heir of the donor, he has no b) Juan may recover because he was not a
personality to bring the action for annulment. party to the violation of the law.
c) No, the sale did not divest Maria of her title
Unenforceable Contracts precisely because the sale is void. It is as
good as if no sale ever took place.
Q: May a person sell something that does not
belong to him? In tax sales, the owner is divested of his land
initially upon award and issuance of a
A: Yes, a person may sell something which does Certificate of Sale, and finally after the lapse
not belong to him. For the sale to be valid, the of the 1 year period from date of
law does not require the seller to be the owner registration, to redeem, upon execution by
of the property at the time of the sale. (Art. 1434, the treasurer of an instrument sufficient in
NCC) If the seller cannot transfer ownership form and effects to convey the property.
over the thing sold at the time of delivery Maria remained owner of the land until
because he was not the owner thereof, he shall another tax sale is to be performed in favor
be liable for breach of contract of a qualified buyer.

Void or Inexistent Contracts (1991, 1999 Q: In 1950, the Bureau of Lands issued a
Bar) Homestead patent to A. Three years later, A
sold the homestead to B. A died in 1990, and
Q: Maria Enriquez failed to pay the realty his heirs filed an action to recover the
taxes on her unregistered agricultural land homestead from B on the ground that its sale
located in Magdugo, Toledo City. In 1989, to by their father to the latter is void under
satisfy the taxes due, the City sold it at public Section 118 of the Public Land Law. B
auction to Juan Miranda, an employee at the contends, however, that the heirs of A cannot
Treasurer’s Office of said City, whose bid at recover the homestead from him anymore
P10,000.00 was the highest. In due time, a because their action has prescribed and that
final bill of sale was executed in his favor. furthermore, A was in pari delicto. Decide.
(1999 Bar)
Maria refused to turn-over the possession of
the property to Juan alleging that (1) she had A: The sale of the land by A to B 3 years after
been, in the meantime, granted a free patent issuance of the homestead patent, being in
and on the basis thereof an Original violation of Section 118 of the Public Land Act, is
Certificate of Title was issued to her, and (2) void from its inception. The action filed by the
the sale in favor of Juan is void from the heirs of B to declare the nullity or inexistence of
beginning in view of the provision in the the contract and to recover the land should be
Administrative Code of 1987 which prohibits given due course.
officers and employees of the government
from purchasing directly or indirectly any B’s defense of prescription is untenable because
property sold by the government for non- an action which seeks to declare the nullity or
payment of any tax, fee or other public inexistence of a contract does not prescribe.
charge. (Article 1410; Banga v. Soler, 2 SCRA 755)


a) Is the sale to Juan valid? If so, is the effect
On the other hand, B’s defense of pari delicto is
of the issuance of the Certificate of Title
equally untenable. While as a rule, parties who
to Maria?
are in pari delicto have no recourse against each
b) If the sale is void, may Juan recover the
other on the principle that a transgressor cannot
P10, 000.00? If not, why not?
c) If the sale is void, did it not nevertheless, profit from his own wrongdoing, such rule does
operate to divest Maria of her not apply to violations of Section 118 of the
ownership? If it did, who then is the Public Land Act because of the underlying public
owner of the property? (1991 Bar) policy in the said Act “to conserve the land
which a homesteader has acquired by gratuitous
A: grant from the government for himself and his
a) The sale of the land to Juan is not valid, family”. In keeping with this policy, it has been
being contrary to law. Therefore, no transfer held that one who purchases a homestead
of ownership of the land was effected from within the five-year prohibitory period can only
the delinquent taxpayer to him. The original recover the price which he has paid by filing a
certificates of title obtained by Maria thru a claim against the estate of the deceased seller.
free patent grant from the Bureau of Lands (Labrador vs. Delos Santos 66 Phil. 579) under
(under Chapter VII, CA 141) is valid but in the principle that no one shall enrich himself at
view of her delinquency, the said title is the expense of another. Applying the pari delicto
subject to the right of the City Government rule to violations of Section 118 of the Public
to sell the land at public auction. The Land Act, the Court of Appeals has ruled that
issuance of the OCT did not exempt the land “the homesteader suffers the loss of the fruits
from the tax sales. Section 44 of P.D. No. realized by the vendee who in turn forfeits the
1529 provides that every registered owner improvement that he has introduced into the

81
 CIVIL LAW
land”. (Obot vs. Sandadlillas, 62 OG, April 25, performance of such obligation.
1966)
A natural obligation is based on equity and
Q: Briefly explain whether the following natural law. There is no legal right to compel
contracts are valid, rescissible, performance thereof but if the debtor
unenforceable, or void: voluntarily pays it, he cannot recover what was
paid.
(a) A contract of sale between Lana and
Andy wherein 16-year old Lana agreed ESTOPPEL (1998, 2000, 2002 BAR)
to sell her grand piano for P5, 000.00.
Q: In 1965, Renren bought from Robyn a
(b) A contract of lease of the Philippine Sea parcel of registered land evidenced by a duly
entered by and between Mitoy and Elsa. executed deed of sale. The owner presented
the deed of sale and the owner's certificate of
(c) A barter of toys executed by 12-year old title to the Register of Deeds. The entry was
Clarence and 10-year old Czar. made in the daybook and corresponding fees
were paid as evidenced by official receipt.
(d) A sale entered by Barri and Garri, both However, no transfer of certificate of title
minors, which their parents later was issued to Renren because the original
ratified. certificate of title in Robyn's name was
(e) Jenny’s sale of her car to Celestine in temporarily misplaced after fire partly gutted
order to evade attachment by Jenny’s the Office of the Register of Deeds.
creditors (2012, 2017 Bar) Meanwhile, the land had been possessed by
Robyn's distant cousin, Mikaelo, openly,
A: adversely and continuously in the concept of
a. The contract of sale is voidable, because owner since 1960. It was only in April 1998
Lana is a minor, and is thus incapable of that Renren sued Mikaelo to recover
giving consent to a contract. possession. Mikaelo invoked:
b. The contract of sale is void, because its
object, the Philippine sea, is outside the a) acquisitive prescription
commerce of men. b) laches, asking that he be
declared owner of the land.
Alternative answer: (b) the contract of sale
is void under Article 1306 of the Civil Code Decide the case by evaluating these defenses.
because it is against public policy. (1998 Bar)

Another alternative answer: (b) The A:
contract of sale is void as it is prohibited by a. Renren's action to recover possession of
a treaty, which is considered binding law in the land will prosper. In 1965, after buying
the Philippines. the land from Robyn, he submitted the
Deed of Sale to the Registry of Deeds for
[Note: Under Article 137 of the UNCLOS, the registration together with the owner's
Philippine Sea is governed by the following duplicate copy of the title, and paid the
mandates: xxx (b) No State or natural or corresponding registration fees. Under Sec.
juridical person shall appropriate any part
56 of PD No. 1529, the Deed of Sale to
thereof. xxx].
Renren is considered registered from the

time the sale was entered in the Day Book
c. The contract unenforceable, because both
(now called the Primary Entry Book). For all
parties, being minors, are incapable of
legal intents and purposes, Renren is
giving consent.
considered the registered owner of the
d. The contract is valid and may not be
annulled by either party due to the land. After all, it was not his fault that the
ratification by the parents of Barri and Garri, Registry of Deeds could not issue the
if done while both were still minors. corresponding transfer certificate of title.
Ratification extinguishes the action to annul Mikaelo's defense of prescription cannot be
a voidable contract, or an unenforceable sustained. A Torrens title is
contract, as in this case were both parties imprescriptible. No title to registered land
were minors and may be done by the in derogation of the title of the registered
parents, as guardians of the minor children. owner shall be acquired by prescription or
[Article 1407, NCC] adverse possession. (Sec. 47, P.D. No. 1529)
e. The contract is rescissible because it is in The right to recover possession of
fraud of creditors. [Article 1381, NCC] registered land likewise does not prescribe
because possession is just a necessary
NATURAL OBLIGATIONS incident of ownership.
b. Mikaelo's defense of laches, however,
Q: Distinguish briefly but clearly between appears to be more sustainable. Renren
Civil Obligation and Natural Obligation: bought the land and had the sale registered
way back in 1965. From the facts, it
A: Civil obligation is a juridical necessity to give, appears that it was only in 1998 or after an
to do and not to do. It gives the creditor the legal inexplicable delay of 33 years that he took
right to compel by an action in court the the first step asserting his right to the land.

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It was not even an action to recover membership privileges in Verde.
ownership but only possession of the land.
By ordinary standards, 33 years of neglect Winda now files a suit against Verde for the
or inaction is too long and may be annulment of the sale on the ground that she
considered unreasonable. As often held by did not consent to the sale. In answer, Verde
the Supreme Court, the principle of contends that, in accordance with the Spanish
imprescriptibility sometimes has to yield to Civil Code which was then in force, the sale in
the equitable principle of laches which can 1948 of the property did not need her
convert even a registered land owner's claim concurrence. Verde contends that in any case
into a stale demand. Mikaelo's claim of the action has prescribed or is barred by
laches, however, is weak insofar as the laches. Winda rejoins that her Torrens title
element of equity is concerned, there being covering the property is indefeasible, and
no showing in the facts how he entered into imprescriptible.
the ownership and possession of the land.
A. Define or explain the term “laches”.
Q: In an action brought to collect a sum of B. Decide the case, stating your reasons for
money based on a surety agreement, the your decision (2002 Bar)
defense of laches was raised as the claim was
filed more than seven years from the A:
maturity of the obligation. However, the A. LACHES means failure or neglect, for an
action was brought within the ten-year unreasonable and unexplained length of time, to
prescriptive period provided by law wherein do what, by exercising due diligence, could or
actions based on written contracts can be should have been done earlier. It is negligence or
instituted. omission to assert a right within a reasonable
time (De Vera v. CA, G.R. No. 97761, April 14,
a) Will the defense prosper? Reason. 1999).
b) What are the essential elements of
laches? (2000 Bar) B. While Art. 1413 of the Spanish Civil Code

did not require the consent of the wife for the
A: validity of the sale, an alienation by the husband
a. No, the defense will not prosper. The in fraud of the wife is void as held in Uy Coque v.
problem did not give facts from which Navas (G.R. No. L-20392, November 20, 1923).
laches may be inferred. Mere delay in Assuming that the alienation in 1948 was in fraud
filing an action, standing alone, does not of Winda and, therefore, makes the sale to Verde
constitute laches. (Agra v. PNB, G.R. No. void, the action to set aside the sale, nonetheless, is
133317, June 29, 1999) already barred by prescription and laches. More
than 52 years have already elapsed from her
b. The four basic elements of laches are: discovery of the sale in 1950.

1. Conduct on the part of the defendant
or of one under whom he claims, PART V – SALES
giving rise to the situation of which
complainant seeks a remedy;
2. Delay in asserting the complainant’s NATURE AND FORM OF CONTRACT (1991,
rights, the complainant having had 1993, 2002, 2006, 2017 BAR)
knowledge or notice of the
defendant’s conduct and having been Q: Bert offers to buy Simeon’s property
afforded an opportunity to institute under the following terms and conditions: P1
suit; million purchase price, 10% option money,
3. Lack of knowledge on the part of the the balance payable in cash upon the
defendant that the complainant clearance of the property of all illegal
would assert the right on which he occupants. The option money is promptly
bases his suit; and paid, and Simeon clears the property of
4. Injury or prejudice to the defendant illegal occupants in no time at all. However,
in the event relief is accorded to the when Bert tenders payment of the balance and
complainant, or the suit is not held to ask Simeon for the deed for absolute sale,
be barred. Simeon suddenly has a change of heart,
claiming that the deal is disadvantageous to
Q: Way back in 1948, Winda’s husband sold in him as he has found out that the property can
favor of Verde Sports Center Corp. (Verde) a fetch three time the agreed purchase price.
10-hectare property belonging to their Bert seeks specific performance but Simeon
conjugal partnership. The sale was made contends that he has merely given Bert an
without Winda’s knowledge, much less option to buy and nothing more, and offers to
consent. In 1950, Winda learned of the sale, return the option money which Bert refuses
when she discovered the deed of sale among to accept.
the documents in her husband’s vault after his
demise. Soon after, she noticed that the A. Will Bert’s action for specific
construction of the sports complex had performance prosper? Explain.
started. Upon completion of the construction B. May Simeon justify his refusal to
in 1952, she tried but failed to get free proceed with the sale by the fact that

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 CIVIL LAW
the deal is financially must be on the same document. In this case,
disadvantageous to him? Linda, although she was the one who
Explain. (1993, 2002 Bar) negotiated the sale, did not give her written
consent to the sale. Hence, the sale is void.
A: However, Linda will nto be entitled to
A. Bert’s action for specific performance will damages because Ray is not in any way in
prosper because there was a binding bad faith.
agreement of sale, not just an option 2) Yes, Ray has a cause of action against Linda
contract. The sale was perfected upon and Biong for the return of the 2 million
acceptance by Simeon of 10% of the agreed pesos he paid for the property. He may
price. This amount is in really earnest recover damages from the spouses, if it can
money which, under Art. 1482, “shall be be proven that they were in bad faith in
considered as part of the price and as proof backing out from the contract, as this is an
of the perfection of the contract”. (Topacio act contrary to morals and good customs
v. CA, G.R. No. 102606, July 3, 1992; under Articles 19 and 21 of the Civil Code.
Villongco Realty v. Bormaheco, G.R. No. L-
26872, July 25, 1975)
Q: Alice agreed to sell a parcel of land with an
B. Simeon cannot justify his refusal to area of 500 square meters registered in her
proceed with the sale by the fact that the name and covered by TCT No. 12345 in favor
deal is financially disadvantageous to of Bernadette for the amount of ₱900,000.00.
him. Having made a bad bargain is not a Their agreement dated October 15, 2015
legal ground for pulling out a binding reads as follows:
contract of sale, in the absence of some
actionable wrong by the other party (Vales
I, Bernadette, agree to buy the lot owned by
v. Villa, G.R. No. 10028, December 16,
Alice covered by TCT No. 12345 for the
1916) and no such wrong has been
amount of ₱900,000.00 subject to the
committed by Bert.
following schedule of payment:

Q: Spouses Biong and Linda wanted to sell
their house. They found a prospective Upon signing of agreement – ₱100,000.00
buyer, Ray. Linda negotiated with Ray for
the sale of the property. They agreed on a November 15, 2015 – ₱200,000.00
fair price of P2 Million. Ray sent Linda a
letter confirming his intention to buy the December 15, 2015 - ₱200,000.00
property. Later, another couple, Bernie and
Elena, offered a similar house at a lower January 15, 2016 - ₱200,000.00
price of P1.5 Million. But Ray insisted on
buying the house of Biong and Linda for February 15, 2016 - ₱200,000.00
sentimental reasons. Ray prepared a deed
of sale to be signed by the couple and a
manager's check for P2 Million. After Title to the property shall be transferred
receiving the P2 Million, Biong signed the upon full payment of ₱900,000.00 on or
deed of sale. However, Linda was not able to before February 15, 2016.
sign it because she was abroad. On her
return, she refused to sign the document After making the initial payment of
saying she changed her mind. Linda filed ₱100,000.00 on October 15, 2015, and the
suit for nullification of the deed of sale and second instalment of ₱200,000.00 on
for moral and exemplary damages against November 15, 2015, Bernadette defaulted
Ray. despite repeated demands from Alice.

1) Will the suit proper? In December 2016, Bernadette offered to pay
2) Does Ray have any cause of action her balance but Alice refused and told her
against Biong and Linda? Can he also that the land was no longer for sale. Due to
recover damages from the spouses? the refusal, Bernadette caused the
Explain.(2006 Bar) annotation of her adverse claim upon TCT
No. 12345 on December 19, 2016. Later on,
A: Bernadette discovered that Alice had sold the
1) The suit will prosper. The sale was void property to Chona on February 5, 2016, and
because Linda did not give her written that TCT No. 12345 had been cancelled and
consent to the sale. In Jade-Manalo v. another one issued (TCT No. 67891) in favor
Camaisa, 374 SCRA 498 (2002), the Supreme of Chona as the new owner.
Court has ruled that the sale of conjugal
property is void if both spouses have not Bernadette sued Alice and Chona for specific
given their written consent to it and even if performance, annulment of sale and
the spouse who did not sign the Deed of Sale cancellation of TCT No. 67891. Bernadette
participated in the negotiation of the insisted that she had entered into a contract
contract. In Abalos v. Macatangay, 439 SCRA of sale with Alice; and that because Alice had
649 (2004), the Supreme Court even held engaged in double sale, TCT No. 67891
that for the sale to be valid, the signatures of should be cancelled and another title be
the spouses to signify their written consent issued in Bernadette's favor.

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 QUAMTO (1987-2019)
(a) Did Alice and Bernadette enter into a A: Yes, E is legally bound to pay the balance of
contract of sale of the lot covered by TCT No. P75,000.00. The ownership of the car sold was
12345? Explain your answer. (2017 Bar) acquired by E from the moment it was delivered
to him. Having acquired ownership. E bears the
A: No, Alice and Bernadette did not enter into a risk of the loss under the doctrine of res perit
contract of sale over the lot covered by TCT No. domino. (Articles 1496, 1497, Civil Code)
12345. In a contract of sale, the ownership
passes to the vendee upon delivery of the thing Q: Pablo sold his car to Alfonso who issued a
sold. Here, the title passes only upon full postdated check in full payment therefore.
payment of the purchase price, which is a Before the maturity of the check, Alfonso sold
hallmark of a contract to sell, and not of a the car to Gregorio who later sold it to
contract of sale. Hence, Alice and Bernadette did Gabriel. When presented for payment, the
not enter into a contract of sale. check issued by Alfonso was dishonored by
the drawee bank for the reason that he,
Alfonso, had already closed his account even
Q: Distinguish the following: before he issued his check.
a. Contract of sale and contract to sell.
b. Interruption and tolling of Pablo sued to recover the car from Gabriel
prescription of actions. (2019 Bar) alleging that he (Pablo) had been unlawfully
A: deprived of it by reason of Alfonso’s
deception. Will the suit prosper? (1991 Bar)
a. A contract of sale may be absolute or
conditional. A contract to sell is a kind of A: No. The suit will not prosper because Pablo
conditional sale. In an absolute sale, title to was not unlawfully deprived of the car although
the property passes to the vendee upon the he was unlawfully deprived of the price. The
delivery of the thing sold. In both contracts perfection of the sale and the delivery of the car
to sell and contracts of conditional sale, was enough to allow Alfonso to have a right of
title to the property remains with the seller ownership over the car, which can be lawfully
despite delivery. Both contracts are subject transferred to Gregorio. Art. 559 applies only to
to the positive suspensive condition of the a person who is in possession in good faith of the
buyer’s full payment of the purchase price property, and not to the owner thereof. Alfonso,
or the fulfillment of the condition. in the problem, was the owner, and, hence,
b. The interruption of the prescriptive period Gabriel acquired the title to the car.
by written extrajudicial demand means
that the said period would commence anew Non-payment of the price in a contract of sale
from the receipt of the demand. does not render ineffective the obligation to
deliver.


Article 1155 of the Civil Code provides that
The obligation to deliver a thing is different from
the “prescription of actions is interrupted”
teh obligation to pay its price. [EDCA Publishing
inter alia, “when there is any written
Co. v. Santos (1990)]

acknowledgment of the debt by the
debtor.” This simply means that the period
of prescription, when interrupted by such a Q: A granted B the exclusive right to sell his
written acknowledgment, begins to run brand of Maong pants in Isabela, the price for
anew; and whatever time of limitation his merchandise payable within 60 days
might have already elapsed from the from delivery, and promising B a commission
accrual of the cause of action is thereby of 20% on all sales. After the delivery of the
negated and rendered inefficacious. The merchandise to B but before he could sell any
effect of the interruption spoken of in of them, B’s store in Isabela was completely
Article 1155 is to renew the obligation, to burned without his fault, together will all of A’s
make prescription run again from the date pants. Must B pay A for his lost pants? Why?
of the interruption. (1999 Bar)

OBLIGATIONS OF THE VENDOR (1990, A: The contract between A and B is a sale not an
1991, 1996, 1999, 2001, 2004, 2008, 2017 agency to sell because the price is payable by B
BAR) upon 60 days from delivery even if B is unable to
resell it. If B were an agent, he is not bound to
Q: D sold a second-hand car to E for pay the price if he is unable to resell it.
P150,000.00. The agreement between D and
E was that half of the purchase price, or As a buyer, ownership passed to B upon delivery
P75,000.00 shall be paid in five equal and, under Art. 1504 of the Civil Code, the thing
monthly instalments of P15,000.00 each. perishes for the owner. Hence, B must still pay
That car was delivered to E, and E paid the
the price.
amount of P75,000.00 to D. Less than one

month thereafter, the car was stolen from E’s
Q: On June 15, 1995, Jesus sold a parcel of
garage with no fault on E’s part and was never
registered land to Jaime. On June 30, 1995,
recovered. Is E legally bound to pay the said
he sold the same land to Jose. Who has a
unpaid balance of P75,000.00? Explain your
better right if:
answer. (1990 Bar)


a) The first sale is registered ahead of the

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 CIVIL LAW
second sale, with knowledge of the Property Registration Decree, it property,
latter. Why? Dehlma told Juliet to redeem the property
b) The second sale is registered ahead of from Elaine, and gave her an advance
the first sale, with knowledge of the payment to be used for purposes of releasing
latter? Why?(2001 Bar) the mortgage on the property. When the
mortgage was released, Juliet executed a
A: Deed of Absolute Sale over the property
which was duly registered with the Registry
a) The first buyer has the better right if his of Deeds, and a new TCT was issued in
sale was first to be registered, even though Dehlma's name. Dehlma immediately took
the first buyer knew of the second sale. The possession over the house and lot and the
fact that he knew of the second sale at the movables therein. Thereafter, Dehlma went
time of his registration does not make him to the Assessor's Office to get a new tax
as acting in bad faith because the sale to declaration under her name. She was
him was ahead in time, hence, has a surprised to find out that the property was
priority in right. What creates bad faith in already declared for tax purposes in the
the case of double sale of land is knowledge name of XYZ Bank which had foreclosed the
of a previous sale. mortgage on the property before it was sold
b) The first buyer is still to be preferred, to her. XYZ Bank was also the purchaser in
where the second sale is registered ahead the foreclosure sale of the property. At that
of the first sale but with knowledge of the time, the property was still unregistered but
latter. This is because the second buyer, XYZ Bank registered the Sheriff's Deed of
who at the time he registered his sale knew Conveyance in the day book of the Register of
that the property had already been sold to Deeds under Act. 3344 and obtained a tax
declaration in its name.
someone else, acted in bad faith (Article

1544).
a) Was Dehlma a purchaser in good faith?

b) Who as between Dehlma and XYZ Bank
Q: JV, owner of a parcel of land, sold it to PP.
has a better right to the house and lot?
But the deed of sale was not registered. One
(2008 Bar)
year later, JV sold the parcel again to RR, who

succeeded to register the deed and to
A:
obtain a transfer certificate of title over the
a) Yes, Dehlma is a purchaser in good faith.
property in his own name. Who has a better
She learned about the XYZ tax declaration
right over the parcel of land, RR or PP? Why?
Explain the legal basis for your answer. (2001, and foreclosure sale only after the sale to
2004 Bar) her was registered. She relied on the
certificate of title of her predecessor-in-
A: It depends on whether or not RR is an interest. Under the Torrens system, a
innocent purchaser for value. Under the Torrens buyer of registered lands is not required
System, a deed or instrument operated only as a by law to inquire further than what the
contract between the parties and as evidence of Torrens certificated indicates on its face. If
authority to the Register of Deeds to make the a person proceeds to buy it relying on the
registration. It is the registration of the deed or title, that person is considered a buyer in
the instrument that is the operative act that good faith. The “priority in time” rule
conveys or affects the land (Sec. 51, P.D. No. 1529). could not be invoked by XYZ Bank because
the foreclosure sale of the land in favor of
In cases of double sale of titled land, it is a well- the bank was recorded under Act No.
settled rule that the buyer who first registers 3344, the law governing transactions
the sale in good faith acquires a better right to the affecting unregistered land, and thus, does
land (Art. 1544). not bind the land.
b) Between Dehlma and the bank, the former
Persons dealing with property covered by has a better right to the house and lot.
Torrens title are not required to go beyond what
appearsonitsface (Orquiola v. CA 386, G.R. No. Q: In December 1985, Salvador and the Star
141463, August 6, 2002; Spouses Domingo v. Semiconductor Company (SSC) executed a
Races, G.R. No. 147468, April 9, 2003). Thus, Deed of Conditional Sale wherein the former
absent any showing that RR knew about, or agreed to sell his 2,000 square meter lot in
ought to have known the prior sale of the land to Cainta, Rizal, to the latter for the price of
PP or that he acted in bad faith, and being first to P1,000,000.00, payable P100,000.00 down,
register the sale, RR acquired a good and a clean and the balance 60 days after the squatters
title to the property as against PP. in the property have been removed. If the
squatters are not removed within six months,
Q: Juliet offered to sell her house and lot, the P100,000.00 down payment shall be
together with all the furniture and returned by the vendor to the vendee.
appliances therein to Dehlma. Before
agreeing to purchase the property, Dehlma Salvador filed ejectment suits against the
went to the Register of Deeds to verify Juliet's squatters, but in spite of the decisions in his
title. She discovered that while the property favor, the squatters still would not leave. In
was registered in Juliet's name under the August, 1986, Salvador offered to return the
Land Registration Act, as amended by the P100,000.00 down payment to the vendee,

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 QUAMTO (1987-2019)
on the ground that he is unable to remove the BPI requesting a last extension until October
squatters on the property. SSC refused to 30, 1985, within which to pay the balance.
accept the money and demands that Salvador BPI denied LT’s request because another had
executed a deed of absolute sale of the offered to buy the same property for
property in its favor at which time it will pay P1,500,000.00, cancelled its agreement with
the balance of the price. Incidentally, the LT and offered to return to him the amount
value of the land had doubled by that time. of P200,000.00 that LT had paid to it. On
October 20, 1985, upon receipt of the amount
Salvador consigned the P100,000.00 in court, of P800,000.00 from his US financier, LT
and filed an action for rescission of the deed offered to pay the amount by tendering a
of conditional sale, plus damages. Will the cashier’s check therefor, but which BPI
action prosper? Explain. (1996 Bar) refused to accept. LT then filed a complaint
against BPI in the RTC for specific
A: No, the action will not prosper. The action for performance and deposited in court the
rescission may be brought only by the aggrieved amount of P800,000.00.
party to the contract. Since it was Salvador who
failed to comply with his conditional obligation, Is BPI legally correct in cancelling its
he is not the aggrieved party who may file the contract with LT? (1993 Bar)
action for rescission buy the Star Semiconductor
Company. The company, however, is not opting A: BPI is not correct in cancelling the contract
to rescind the contract but has chosen to waive with LT. In Lina Topacio v. Court of Appeals and
Salvador’s compliance with the condition which BPI Investment (G.R. No. 102606, July 3, 1993, 211
it can do under Art. 1545, NCC. SCRA 291), the Supreme Court held that the
Q: Danny and Elsa were married in 2002. In earnest mone is part of the purchase price and is
2012, Elsa left the conjugal home and her two proof of the perfection of the contract. Secondly,
minor children with Danny to live with her notarial or judicial rescission under Art. 1592
paramour. In 2015, Danny sold without Elsa's and 1991 of the Civil Code is necessary (Taguba
consent a parcel of land registered in his v. De Leon, 132 SCRA 722).
name that he had purchased prior to the
marriage. Danny used the proceeds of the Q: Priscilla purchased a condominium unit in
Makati City from the Citiland Corporation for
sale to pay for his children's tuition fees.
a price of P10 Million, payable P3 Million
Is the sale valid, void or voidable? Explain down and the balance with interest thereon
your answer. (3%) (2017 BAR) at 14% per annum payable in sixty (60)
equal monthly installments of P198,333.33.
A: The sale of the parcel of land is void. There is
They executed a Deed of Conditional Sale in
no indication in the facts that Danny and Elsa
which it is stipulated that should the vendee
executed a marriage settlement prior to their
fail to pay three (3) successive installments,
marriage. As the marriage was celebrated during the sale shall be deemed automatically
the effectivity of the Family Code, absent a rescinded without the necessity of judicial
marriage settlement, the property regime action and all payments made by the vendee
between the spouses is the Absolute Community shall be forfeited in favor of the vendor by
of Property. Under the Absolute Community of way of rental for the use and occupancy of
Property regime, the parcel of land belongs to the unit and as liquidated damages. For 46
the community property as the property he had months, Priscilla paid the monthly
brought into the marriage even if said property installments religiously, but on the 47th and
were registered in the name of Danny. 48th months, she failed to pay. On the 49th
Therefore, the sale of the property is void, month, she tried to pay the installments due
because it was executed without the authority of but the vendor refused to receive the
the court or the written consent of the other payments tendered by her. The following
spouse. month, the vendor sent her a notice that it
was rescinding the Deed of Conditional Sale
OBLIGATIONS OF THE VENDEE (1993,
pursuant to the stipulation for automatic
2000, 2003, 2014 BAR)
rescission, and demanded that she vacate the

premises. She replied that the contract
Q: LT applied with BPI to purchase a house cannot be rescinded without judicial demand
and lot in Quezon City, one of its acquired or notarial act pursuant to Article 1592 of the
assets. The amount offered was
Civil Code.
P1,000,000.00 payable, as follows:
P200,000.00 down payment, the balance of a) Is Article 1592 applicable?
P800,000.00 payable within 90 days from
b) Can the vendor rescind the contract?
June 1, 1985. BPI accepted the offer,
(2000, 2014 Bar)
whereupon LT drew a check for P200,000.00

in favor of BPI which the latter thereafter
A:
deposited in its account. On September 5,
a) Article 1592 of the Civil Code does not
1985, LT wrote BPI requesting extension
apply to a conditional sale. In Valarao v. CA,
until October 10, 1985, within which to pay
304 SCRA 155, the Supreme Court held that
the balance, to which BPI agreed. On October
Article 1592 applies only to a contract of
5, 1985, due to the expected delay in the
sale and not to a Deed of Conditional Sale
remittance of the needed amount by his
financier from the United States, LT wrote where the seller has reserved title to the

87
 CIVIL LAW
property until full payment of the purchase Contract to Sell rescinded and of no legal and
price. The law applicable is the Maceda binding effect. Peter further stated that failure
Law. on the part of Paul to contest the rescission
b) No, the vendor cannot rescind the contract within thirty (30) days from receipt of said
under the circumstances. Under the letter shall mean that the latter agreed to the
Maceda Law, which is the law applicable, rescission.
the seller on installment may not rescind
the contract till after the lapse of the Paul did not reply to this letter for five (5)
mandatory grace period of 30 days for years. Thus, Peter decided to sell his lot to
every one year of installment payments, Henry in 2021. After hearing that Henry
and only after 30 days from notice of bought the lot, Paul now questions the sale of
cancellation or demand for rescission by a the lot to Henry and files a complaint for
notarial act. In this case, the refusal of the nullification of the sale.
seller to accept payment from the buyer on
the 49th month was not justified because 1. Is the exercise by Peter of his power to
the buyer was entitled to 60 days grace rescind extra-judicially the Contract to Sell
the proper and legal way of rescinding said
period and the payment was tendered
contract? Explain.
within that period. Moreover, the notice of
2. In case Paul made a down payment
rescission served by the seller on the buyer
pursuant to a stipulation in the Contract to
was not effective because the notice was
Sell, what is the legal remedy of Peter?
not by a notarial act. Besides, the seller may
(2016 Bar)
still pay within 30 days from such notarial

notice before rescission may be effected.
A:
All these requirements for a valid 1. Yes, Peter validly rescinded the contract to
rescission were not complied with by the sell his lot to Paul for the latter’s failure to
seller. Hence, the rescission is invalid. comply with the prestation to pay
P1,000,000 on November 6, 2016 at 1:00pm
Q: X sold a parcel of land to Y on 01 January at the residence of Peter so that Peter will
2002, payment and delivery to be made on 01 execute the Deed of Absolute Sale. The
February 2002. It was stipulated that if recission is actually the resolution of the
payment were not to be made by Y on 01 reciprocal obligation.
February 2002, the sale between the parties 2. If Paul made a downpayment, Peter may still
would automatically be rescinded. Y failed to cancel the contract because in a contract to
pay on 01 February 2002, but offered to pay sell, the seller does not yet agree to transfer
three days later, which payment X refused to ownership to the buyer. The non-payment of
accept, claiming that their contract of sale the price in a contract to sell is not a breach
had already been rescinded. Is X’s contention for which the remedy of rescission may be
correct? Why? (2003 Bar) availed of, but rather it is considered as a
failure to comply with a positive suspensive
A: No, X is not correct. In the sale of immovable condition which will prevent the obligation
property, even though it may have been of the seller to convey title from acquiring
stipulated, as in this case, that upon failure to pay obligatory force. (Ursal v. Court of Appeals,
the price at the time agreed upon the rescission GR No. 142411, October 14, 2005)
of the contract shall of right take place, the
vendee may pay, even after the expiration of the Q: What are the so-called "Maceda" and
period, as long as no demand for rescission of the "Recto" laws in connection with sales on
contract has been made upon him either installments? Give the most important
judicially or by a notarial act (Art.1592). Since no features of each law. (1999 Bar)
demand for rescission was made on Y, either
judicially or by a notarial act, X cannot refuse to A: The MACEDA LAW (RA 6552) is applicable to
accept the payment offered by Y three (3) days sales of immovable property on installments.
after the expiration of the period. The most important features are (Rillo v. CA, G.R.
No. 125347, June 19, 1997):
BREACH OF CONTRACT (1999, 2016 BAR)
1. After having paid installments for at
Q: Peter and Paul entered into a Contract to least two years, the buyer is entitled to a
Sell whereby Peter, the lot owner, agreed to mandatory grace period of one month
sell to Paul his lot on November 6, 2016 for the for every year of installment payments
price of P1,000,000.00 to be paid at the made, to pay the unpaid installments
residence of Peter in Makati City at 1 :00 p.m. If without interest. If the contract is
the full price is paid in cash at the specified cancelled, the seller shall refund to the
time and place, then Peter will execute a Deed buyer the cash surrender value
of Absolute Sale and deliver the title to Paul. equivalent to fifty percent (50%) of the
total payments made, and after five
On November 6, 2016, Paul did not show up years of installments, an additional five
and was not heard of from that date on. In view percent (5%) every year but not to
of the nonperformance by Paul of his exceed ninety percent (90%) of the total
obligation, Peter sent a letter to Paul that he is payments made.
expressly and extra-judicially declaring the 2. In case the installments paid were less

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than 2 years, the seller shall give the v. Filipinas Investment & Finance
buyer a grace period of not less than 60 Corporation (G.R. No. L-24772, May 27,
days. If the buyer fails to pay the 1968), is to extrajudicially foreclose the
installments due at the expiration of the mortgage after it has extrajudicially
grace period, the seller may cancel the foreclosed the chattel mortgage on the
contract after 30 days from receipt by machineries sold on instalment, because if
the buyer of the notice of cancellation or such is allowed, the protection given by
demand for rescission by notarial act. Article 1484 would be indirectly
subverted, and public policy overturned.
The RECTO LAW (Art. 1484) refers to sale of In this case, SEP has not foreclosed the
movables payable in installments and limiting chattel mortgage over the machineries.
the right of seller, in case of default by the buyer,
to one of three remedies: ALTERNATIVE ANSWER:

1. Exact fulfillment; No, because when SEP commenced the
2. Cancel the sale if two or more collection suit, it thereby waived its mortgage
installments have not been paid; lien (Caltex Philippines, Inc. v. IAC, 176 SCRA
3. Foreclose the chattel mortgage on the 741 (1989). The remedies of an ordinary action
things sold, also in case of default of two to collect the debt and foreclosure of the real
or more installments, with no further estate mortgage are alternative remedies and
action against the purchaser. not cumulative. An election of one remedy
operates as a waiver of the other. The mere act
Q: Sonny Inc., (SI) purchased several heavy of filing a collection suit for the recovery of a
machineries from Single Equipment debt secured by a mortgage constitutes waiver
Philippines, Inc. (SEP) for PhP 10 million, of the other remedy of foreclosure. (Art. 1484
payable in 36 monthly installments. A chattel (3), Civil Code)
mortgage was constituted on the same
machineries as security for the amount. As EXTINGUISHMENT OF SALE (1991, 1993,
additional security, the President of SI, Stan 1995, 2001, 2002, 2005, 2016 BAR)
Smith, mortgaged his personal house and lot.
SI failed to pay the 16th and succeeding Q: On March 13, 2008, Ariel entered into a
monthly installments. SEP then commenced a Deed of Absolute Sale (DAS) with Noel where
collection suit against SI, and in the course of the former sold his titled lot in Quezon City
the proceedings, a writ of attachment was with an area of three hundred
issued against SI’s properties, including the (300) square meters to the latter for the
mortgaged machineries. The attached price of P300,000.00. The prevailing market
properties were subsequently sold at public value of the lot was P3,000.00 per square
action, but the proceeds thereof were meter. On March 20, 2008, they executed
insufficient to satisfy the judgment credit. another "Agreement To Buy Back/Redeem
Property" where Ariel was given an option to
repurchase the property on or before March
a. Can SEP legally recover the deficiency?
20, 2010 for the same price. Ariel, however,
b. Instead of collecting the deficiency, can
remained in actual possession of the lot.
SEP commence extrajudicial
Since Noel did not pay the taxes, Ariel paid
proceedings to foreclose the mortgage the real property taxes to avoid a
on Stan’s house and lot in order to delinquency sale.
recover the deficiency? (2018 BAR)
On March 21, 2010, Ariel sent a letter to Noel,
A: attaching thereto a manager's check for
a. Yes, SEP can legally recover the P300,000.00 manifesting that he is
deficiency. The prohibition against further redeeming the property. Noel rejected the
collection under Article 1484 of the Civil redemption claiming that the DAS was a true
Code, or the Recto Law, only applies if the and valid sale representing the true intent of
seller chooses to foreclose the chattel the parties. Ariel filed a suit for the
mortgage and not when the seller opts to nullification of the DAS or the reformation of
exact the fulfilment of the obligation said agreement to that of a Loan with Real
(Tajanlangit v. Southern Motors, G.R. Estate Mortgage. He claims the DAS and the
10789, May 28, 1957). SEP chose to exact redemption agreement constitute an
the fulfillment of the obligation by equitable mortgage. Noel however claims it is
commencing a collection suit against SI. a valid sale with pacto de retro and Ariel
SEP did not opt to foreclose the chattel clearly failed to redeem the property.
mortgage over the equipment. The
machineries were sold in an execution As the RTC judge, decide the case with
sale and not in a foreclosure sale; hence, reasons. (2016 Bar)
the prohibition against further collection
does not apply. A: I will decide in favor of Ariel and allow the
b. Yes, SEP can commence extrajudicial reformation of the agreement. The DAS and the
proceedings to foreclose the mortgage. redemption agreement constitute an equitable
SEP may choose to foreclose the mortgage
mortgage and Ariel may ask for the reformation
on Stan’s house and lot. What SEP is
of the agreement to that of a Loan with Real
prohibited to do, based on the case of Cruz

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 CIVIL LAW
Estate Mortgage as allowed by Article 1605 of on 3 June 1973 was merely a promise to sell.
the Civil Code. The circumstances clearly show
that the agreement is an equitable mortgage, a) If you were the Judge, would you
such as the: a) price of the lot was inadequate uphold the theory of X?
since it was only sold at P300, 000 when the b) If you decide in favor of Romeo and Y,
prevailing market value of such was P900, 000; would you uphold the validity of the promise
b) the vendor, Ariel, remained in the actual to sell? (1991 Bar)
possession of the property after the purported
sale; and c) Ariel was the one who paid the real A:
property taxes. Under the circumstances, a a) I will not uphold the theory of X for the
presumption arises under Art. 1602, CC that nullification of the sale and for the recovery
what was really executed was an equitable of the property on the ground that the so-
mortgage. Moreover, Art. 1603, CC provides that called sale was only an equitable mortgage.
in case of doubt, a contract purporting to be a An equitable mortgage may arise only if, in
sale with right to repurchase shall be construed truth, the sale was one with the right of
as an equitable mortgage. repurchase. The facts of the case state that
the right to repurchase was granted after
Q: On 20 December 1970, Juliet, a widow, the absolute deed of sale was executed.
borrowed from Romeo P4,000.00 and, as Following the rule in Cruzo v. Carriaga (174
security therefore, she executed a deed of SCRA 330), a deed of repurchase executed
mortgage over one of her two (2) registered independently of the deed of sale where the
lots which has a market value of P15,000.00. two stipulations are found in two
The document and the certificate of title of instruments instead of one document, the
the property were delivered to Romeo. right of repurchase would amount only to
one option granted by the buyer to the
On 2 June 1971, Juliet obtained an additional seller. Since the contract cannot be upheld as
sum of P3,000.00 from Romeo. On this date, a contract of sale with the right to
however, Romeo caused the preparation of a repurchase, Art. 1602 of the Civil Code on
deed of absolute sale of the above property, equitable mortgage will not apply. The rule
to which Juliet affixed her signature without could have been different if both deeds were
first reading the document. The executed on the same occasion or date, in
consideration indicated is P7,000.00 She which case, under the ruling in spouses
thought that this document was similar to Claravall v. CA (190 SCRA 439), the contract
the first she signed. When she reached home, may still be sustained as an equitable
her son X, after reading the duplicate copy of mortgage, given the circumstances
teh deed, informed her that what she signed
expressed in Art. 1602. The reserved
was not a mortgage but a deed of absolute
sale. On the following day, 3 June 1971, Juliet right to repurchase is then deemed an
accompanied by X, went back to Romeo and original intention.
demanded the reformation. Romeo prepared b) If I were to decide in favor of Romeo and Y, I
and signed a document wherein, as vendee in would not uphold the validity of the promise
the deed of sale abovementioned, he to sell, so as to enforce it by an action for
obligated and bound himself to resell the specific performance. The promise to sell
land to Juliet or her heirs and successors for would only amount to a mere offer and,
the same consideration as reflected in the therefore, it is not enforceable unless it was
deed of sale (P7,000.00) within a period of sought to be exercised before a withdrawal
two (2) years, or until 3 June 1973. It is or denial thereof.
further stated therein that should the Vendor
(Juliet) fail to exercise her right to redeem Even assuming the facts given at the end of
within the said period, the conveyance shall the case there would have been no separate
be deemed absolute and irrevocable. Romeo consideration for such promise to sell. The
did not take possession of the property. He contract would at most amount to an option
did not pay the taxes thereon. which again may not be the basis for an
action for specific performance.
Juliet died in January 1973 without having
repurchased the property. Her only surviving Q: On July 14, 2004, Pedro executed in favor
heir, her son X, failed to repurchase the of Juan a Deed of Absolute Sale over a parcel
property on or before 3 June 1973. In 1975, of land covered by TCT No. 6245. It appears
Romeo sold the property to Y for P50,000.00. in the Deed of Sale that Pedro received from
Upon learning of the sale, X filed an action for Juan P120,000.00 as purchase price.
the nullification of the sale and for the However, Pedro retained the owner's
recovery of the property on the ground that duplicate of said title. Thereafter, Juan, as
the so-called deed of absolute sale executed lessor, and Pedro, as lessee, executed a
by his mother was merely an equitable contract of lease over the property for a
mortgage, taking into account the period of one (1) year with a monthly rental
inadequacy of the price and the failure of of P1,000.00. Pedro, as lessee, was also
Romeo to take possession of the property obligated to pay the realty taxes on the
and to pay the taxes thereon. Romeo and Y property during the period of lease.
maintain that there was a valid absolute sale Subsequently, Pedro filed a complaint
and that the document signed by the former against Juan for the reformation of the Deed

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 QUAMTO (1987-2019)
of Absolute Sale, alleging that the transaction within four (4) years from the date of the
covered by the deed was an equitable contract. (Art. 1606, Civil Code)
mortgage. In his verified answer to the 2) I would advise B to file an action for
complaint, Juan alleged that the property was consolidation of title and obtain a judicial
sold to him under the Deed of Absolute Sale, order of consolidation which must be
and interposed counterclaims to recover recorded in the Registry of Property. (Art.
possession of the property and to compel 1607, Civil Code)
Pedro to turn over to him the owner's
duplicate of title. Resolve the case with reasons. Q: Sancho and Pacifico are co-owners of a
(2005 Bar) parcel of land. Sancho sold the property to
Bart. Pacifico sued Sancho and Bart for
A: An equitable mortgage arises from a annulment of the sale and reconveyance of
transaction, regardless of its form, which results the property based on the fact that the sale
into a security, or an offer or attempt to pledge included his one-half pro-indiviso share.
land as security for a debt or liability. Its essence is Pacifico had a notice of lis pendens annotated
the intent of the parties to create a mortgage, lien on the title covering the property and ordered
or charge on the property sufficiently described or the cancellation of the notice of lis pendens.
identified to secure an obligation, which intent The notice of lis pendens could not be
must be clearly established in order that such a cancelled immediately because the title over
mortgage may exist. the property was with a bank to which the
property had been mortgaged by Bart. Pacifico
Defendant’s defense that he acquired the land appealed the case. While the appeal was
through an Absolute Deed of Sale and not through pending and with the notice of lis pendens
pacto de retro is untenable. The presumption of still uncancelled, Bart sold the property to
equitable mortgage under Art. 1602 of the Civil Carlos, who immediately caused the
Code, equally applies to a contract purporting to cancellation of the notice of lis pendens, as
be an absolute sale. (Art. 1604, NCC) The facts and well as the issuance of a new title in his
circumstances that Pedro retained possession of name.Is Carlos (a) a purchaser in good faith,
the Owner’s or (b) a transferee pendente lite? (1995, 2002
Bar)

Duplicate Copy of the Certificate of Title; that he A: Carlos is a buyer in bad faith. The notice of lis
remained in possession of the land as lessee; that he pendens was still annotated at the back of the
bound himself to pay the realty taxes during the title at the time he bought the land from Bart.
period of lease, are matters collectively and The uncancelled notice of lis pendens operates as
strongly indicating that the Deed of Absolute Sale constructive notice of its contents as well as
is an equitable mortgage. In case of doubt, the interests, legal or equitable, included therein. All
Deed of Absolute Sale should be considered as a persons are charged with the knowledge of what it
loan with mortgage, because this juridical relation contains. In an earlier case, it was held that a
involves a lesser transmission of rights and notice of an adverse claim remains effective and
interests. binding notwithstanding the lapse of the 30 days
from its inscription in the registry. This ruling is
If the transaction is proven to be an equitable even more applicable in a lis pendens. Carlos is a
mortgage, Pedro’s prayer for reformation of the transferee pendente lite insofar as Sancho’s share
instrument should be granted in accordance with in the co-ownership in the land is concerned
Art. 1605 of the Civil Code. Thus, in case of non- because the land was transferred to him during
payment, he may foreclose the mortgage and the pendency of the appeal.
consolidate his ownership of the land. In that
event, Juan’s counterclaim to recover possession of If your answer is (a), how can the right of
the land and to compel Pedro to surrender the Pacifico as co-owner be protected? Explain.
Owner’s Duplicate Copy of the title becomes a
consequential right. A: Pacifico can protect his right as a co- owner
by pursuing his appeal; asking the Court of
Q: On January 2, 1980, A and B entered into a Appeals to order the re-annotation of the lis
contract whereby A sold to B a parcel of land pendens on the title of Carlos; and by invoking
for and in consideration of P10,000.00, A his right of redemption of Bart’s share under Art.
reserving to himself the right to repurchase 1620.
the same. Because they were friends, no
period was agreed upon for the repurchase Q: Betty and Lydia were co-owners of a parcel
of the property. of land. Last January 31, 2001, when she paid
her real estate tax, Betty discovered that
1) Until when must A exercise his right of Lydia had sold her share to Emma on
repurchase? November 10, 2000. The following day, Betty
2) If A fails to redeem the property within offered to redeem her share from Emma, but
the allowable period, what would you the latter replied that Betty's right to redeem
advise B to do for his better protection? has already prescribed. Is Emma correct or
(1993 Bar) not? Why? (2001 Bar)

A: A: No, Emma, the buyer, is not correct. Betty can
1) A can exercise his right of repurchase still enforce her right of legal redemption as a co-

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 CIVIL LAW
owner. Art. 1623 of the Civil Code gives a co- becomes a Filipino citizen or transfers it to a
owner 30 days from written notice of the sale by Filipino, the flaw in the original transaction is
the vendor to exercise his right of legal considered cured and the title of the transferee
redemption. In the present problem, the 30- day is rendered valid. In this case, RBP, being a
period for the exercise by Betty of her right of foreign corporation is prohibited from acquiring
redemption had not even begun to run because private land, making the sale of Krystal to RBP
no notice in writing of the sale appears to have void ab initio. However, the subsequent transfer
been given to her by Lydia. to a Filipino citizen cured the defect, making
Gloria’s title valid and defeating Krystal’s action
LEASE OF RURAL AND URBAN LANDS (1990, for annulment and reconveyance.
1994, 2005 BAR)

PART VI – LEASE
Q: Adela and Beth are co-owners of a parcel of
land. Beth sold her undivided share of the
property to Xandro, who promptly notified
Adela of the sale and furnished the latter a Q: A leased a parcel of land to B for a period
copy of the deed of absolute sale. When Xandro of two years. The lease contract did not
presented the deed for registration, the contain any express prohibition against the
register of deeds also notified Adela of the assignment of the leasehold or the subleasing
sale, enclosing a copy of the deed with the of the leased premises. During the third year
notice. However, Adela ignored the notices. of the lease, B subleased the land to C. In
A year later, Xandro filed a petition for the turn, C, without A's consent, assigned the
partition of the property. Upon receipt of sublease to D. A then filed an action for the
summons, Adela immediately tendered the rescission of the contract of lease on the
requisite amount for the redemption. Xandro ground that B has violated the terms and
contends that Adela lost her right of conditions of the lease agreement. If you
redemption after the expiration of 30 days were the judge, how would you decide the
from her receipt of the notice of the sale given case, particularly with respect to the validity
by him. May Adela still exercise her right of of:
redemption? Explain. (2001, 2002 Bar)
a) B’s sublease to C? and
A: Yes, Adela may still exercise her right of b) C’s assignment of the sublease to D?
redemption notwithstanding the lapse of more
than 30 days from notice of the sale given to her Explain your answers. (1990 Bar)
because Art. 1623 of the New Civil Code requires
that the notice in writing of the sale must come A:
from the prospective vendor or vendor as the
case may be. In this case, the notice of the sale a) B's sublease to C is valid. Although the
was given by the vendee and the Register of original period of two years for the lease
Deeds. The period of 30 days never tolled. She can contract has expired, the lease continued
still avail of that right. with the acquiescence of the lessor during
the third year. Hence, there has been an
Q: Krystal owns a parcel of land covered by implied renewal of the contract of lease.
TCT No. 12345 in Angeles City. Due to severe Under Art. 1650, the lessee may sublet the
financial constraints, Krystal was forced to thing leased, in whole or in part, when the
sell the property to RBP Corporation, a contract of lease does not contain any
foreign corporation based in South Korea. express prohibition (Arts. 1650, 1670). A's
Subsequently, RBP Corporation sold the action for rescission should not prosper on
property to Gloria, one of its most valued this ground.
clients. b) C's assignment of the sublease to D is not
valid. Under Art. 1649, the lessee cannot
Wanting her property back, Krystal, learning assign the lease without the consent of the
of the transfer of the property from RBP lessor, unless there is a stipulation to the
Corporation to Gloria, sued both of them in contrary. There is no such stipulation in
the Regional Trial Court (RTC) for annulment the contract. If the law prohibits
of sale and for reconveyance. She alleged that assignment of the lease without the
the sale by RBP Corporation to Gloria was consent of the lessor, all the more would
void because RBP Corporation was a foreign the assignment of a sublease be prohibited
corporation prohibited by the Constitution without such consent. This is a violation of
from acquiring and owning lands in the the contract and is a valid ground for
Philippines. rescission by A.

Will Krystal’s suit for annulment of sale and Q: In January 1993, Four-Gives Corporation
reconveyance prosper? Explain your answer. leased the entire twelve floors of the GQS
(2017 Bar) Towers Complex, for a period of ten years at
a monthly rental of P3,000,000.00. There is a
A: Krystal’s suit will not prosper. The Supreme provision in the contract that the monthly
Court consistently ruled that if land is invalidly rentals should be paid within the first five
transferred to an alien who subsequently days of the month. For the month of March,

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 QUAMTO (1987-2019)
May, June, October and December 1993, the Joel, Conrad and Ernie for rescission of the
rentals were not paid on time with some contract of lease and for damages.
rentals being delayed up to ten days. The
delay was due to the heavy paper work a) Will the action prosper? If so, against
involved in processing the checks. Four- whom? Explain.
Gives Corporation also subleased five of the b) In case of rescission, discuss the rights
twelve floors to wholly-owned subsidiaries. and obligations of the parties. (2005
The lease contract expressly prohibits the Bar)
assignment of the lease contract or any
portion thereof. The rental value of the A:
building has increased by 50% since its lease a) Yes, the action for rescission of the lease
to Four-Gives Corporation. will prosper because Joel cannot assign the
lease to Ernie without the consent of Victor
1. Can the building owner eject Four-Gives (Art. 1649, Civil Code). But Joel may sublet
Corporation on grounds of the repeated to Conrad because there is no express
delays in the payment of the rent? prohibition. (Art. 1650, Civil Code; Alipio v.
2. Can the building owner ask for the Court of Appeals, 341 SCRA 441 [2000])
cancellation of the contract for violation Victor can rescind the contract of lease
of the provision against assignment? with Joel, and the assignment of the lease
(1994 Bar) to Ernie, on the ground of violation of law
and of contract. The sub-lease to Conrad
A: remained valid for two (2) years from
1. No. The building owner cannot eject Four- January 1, 1991 and had not yet lapsed
Gives Corporation on the ground of when the action was filed on May 15, 1992.

repeated delays in the payment of rentals.
b) In case of rescission, the rights and
The delay in the payment of the rentals is
obligations of the parties should be as
minimal and cannot be made the basis of
follows: At the time that Victor filed suit on
an ejectment suit. The delay was due to the
May 15, 1992, the assignment had not yet
heavy paperwork involved in processing
lapsed. It would lapse on December 1,
the checks. It would be otherwise if the
1994, the very same date that the 50-year
lease contract stated that in the payment of
basic lease would expire. Since the
rentals within the first five days of the
assignment is void, Victor can get the
month, time is of the essence or that the
property back because of the violation of
lessee will be in delay if he falls to pay
the lease. Both Joel and Ernie have to
within the agreed period without need of
surrender possession and are liable for
demand. In this case he can judicially eject
damages. But Conrad has not yet incurred
the tenant on the ground of lack of
any liability on the sublease which still
payment of the price stipulated after a
subsisted at the time of the filing of the
demand to vacate (Art. 1673[2]). action on May 15, 1992.
2. No, the lessor cannot have the lease
cancelled for alleged violation of the Ernie can file a cross-claim against Joel for
provision against assignment. The lessee damages on account of the rescission of the
did not assign the lease, or any portion contract of assignment. Conrad can file a
thereof, to the subsidiaries. It merely counter-claim against Victor for damages for
subleased some floors to its subsidiaries. lack of cause of action at the time of the
Since the problem does not state that the filing of the suit.
contract of lease contains a prohibition
against sublease, the sublease is lawful, the RIGHTS AND OBLIGATIONS OF LESSOR AND
rule being that in the absence of an express LESSEE (1990, 1996, 1999, 2000, 2001,
prohibition a lessee may sublet the thing 2004, 2010)
leased, in whole or in part, without
prejudice to his/its responsibility to the Q: May a lessee sublease the property leased
lessor for the performance of the contract. without the consent of the lessor, and what
are the respective liabilities of the lessee and
Q: Under a written contract dated December sub-lessee to the lessor in case of such
1, 1989, Victor leased his land to Joel for a sublease? (1999 Bar)
period of five (5) years at a monthly rental of
P1, 000.00, to be increased to P1,200.00 and A: Yes, provided that there is no express
P1,500.00 on the third and fifth year, prohibition against subleasing. Under the law,
respectively. On January 1, 1991, Joel when in the contract of lease of things there is
subleased the land to Conrad for a period of no express prohibition, the lessee may sublet the
two (2) years at a monthly rental of P1,500.00. thing leased without prejudice to his
On December 31, 1992, Joel assigned the responsibility for the performance of the
lease to his compadre, Ernie, who acted on contract toward the lessor. (Art. 1650)
the belief that Joel was the rightful owner
and possessor of the said lot. Joel has been In case there is a sublease of the premises being
faithfully paying the stipulated rentals to leased, the sublessee is bound to the lessor for all
Victor. When Victor learned on May 18, 1992 the acts which refer to the use and preservation
about the sublease and assignment, he sued of the thing leased in the manner stipulated

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 CIVIL LAW
between the lessor and the lessee. (Art. 1651) 2192 NCC.
The sublessee is subsidiarily liable to the lessor
for any rent due from the lessee. However, the Q: Under what circumstances would an
sublessee shall not be responsible beyond the implied new lease or a tacita reconduccion
amount of the rent due from him. (Art. 1652) arise? (1999 Bar)

As to the lessee, the latter shall still be A: An implied new lease or tacita reconduccion
responsible to the lessor for the rents; bring to arises if at the end of the contract the lessee
the knowledge of the lessor every usurpation or should continue enjoying the thing leased for 15
untoward act which any third person may have days with the acquiescence of the lessor, and
committed or may be openly preparing to carry unless a notice to the contrary by either parties
out upon the thing leased; advise the owner the has previously been given. (Art. 1670) In short,
need for all repairs; to return the thing leased in order that there may be tacita reconduccion
upon the termination of the lease just as he there must be expiration of the contract; there
received it, save what has been lost or impaired must be continuation of possession for 15 days
by the lapse of time or by ordinary wear and tear or more; and there must be no prior demand to
or from an inevitable cause; responsible for the vacate.
deterioration or loss of the thing leased, unless he
proves that it took place without his fault. Q: On January 1, 1980, Nestor leased the
fishpond of Mario for a period of three years
Q: A leased his house to B with a condition at a monthly rental of P1,000.00, with an
that the leased premises shall be used for option to purchase the same during the
residential purposes only. B subleased the period of the lease for the price of
house to C who used it as a warehouse for P500,000.00. After the expiration of the
fabrics. Upon learning this, A demanded that three-year period, Mario allowed Nestor to
C stop using the house as a warehouse, but C remain in the leased premises at the same
ignored the demand, A then filed an action rental rate. On June 15, 1983, Nestor
for ejectment against C, who raised the tendered the amount of P500,000.00 to Mario
defense that there is no privity of contract and demanded that the latter execute a deed of
between him and A, and that he has not been absolute sale of the fishpond in his favor.
remiss in the payment of rent. Will the action Mario refused, on the ground that Nestor no
prosper? (2000 Bar) longer had an option to buy the fishpond.
Nestor filed an action for specific
A: Yes, the action will prosper. Under Art. 1651, performance. Will the action prosper or not?
the sublessee is bound to the lessor for all acts Why? (2001 Bar)
which refer to the use and preservation of the
thing leased in the manner stipulated between A: No, the action will not prosper. The implied
the lessor and the lessee. renewal of the lease on a month-to-month basis
did not have the effect of extending the life of the
Q: A had a 4-storey building which was option to purchase which expired at the end of
constructed by Engineer B. After 5 years, the the original lease period. The lessor is correct in
building developed cracks and its stairway refusing to sell on the ground that the option
eventually gave way and collapsed, resulting had expired.
to injuries to some lessees. Who should the
lessees sue for damages? (2010 Bar) Q: TX filed a suit for ejectment against BD for
non-payment of condominium rentals
A: The lessees may proceed against A for breach amounting to P150,000. During the pendency
of contract, and against B for tort or statutory of the case, BD offered and TX accepted the
liability. full amount due as rentals from BD, who then
filed a motion to dismiss the ejectment suit on
Under Article 1654 (2) of the New Civil Code, the the ground that the action is already
extinguished. Is BD’s contention correct?
lessor is obliged to make all the necessary
Why or why not? Reason. (2004 Bar)
repairs in order to keep the leased property

suitable for the use to which it has been devoted.
A: BD's contention is not correct. TX can still
Consequently, under Article 1659 NCC the
maintain the suit for ejectment. The acceptance
proprietor of a building or structure is
by the lessor of the payment by the lessee of the
responsible for the damages resulting from its
rentals in arrears even during the pendency of
total or partial collapse, if it is due to the lack of
the ejectment case does not constitute a waiver
necessary repairs.
or abandonment of the ejectment case. (Spouses

Clutario v. CA, G.R. No. 76656, December 11, 1992)
Under Article 1723 NCC, the engineer or

architect who drew up the plans and
Q: A vacant lot several blocks from the center
specifications for a building is liable for damages
of the town was leased by its owner to a
if within 15 years from the completion of the
young businessman B, for a term of fifteen
structure, the same should collapse by reason of
(15) years renewal upon agreement of the
a defect in those plans and specifications, or due
parties. After taking possession of the lot, the
to the defects in the ground. This liability may be
lessee built thereon a building of mixed
enforced against the architect or engineer even
materials and a store. As the years passed, he
by a third party who has no privity of contract
expanded his business, earning more profits.
with the architect or engineer under Article

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 QUAMTO (1987-2019)
By the tenth (10th) year of his possession, he reduction of the rent only in case of loss of more
was able to build a three (3) – story than 1/2 of the fruits through extraordinary and
building worth at least P300,000.00/ unforeseen fortuitous events. While the drought
Before the end of the term of the lease, B brought about by the "El Niño" phenomenon may
negotiated with the landowner for its be classified as extraordinary, it is not considered
renewal, but despite their attempts to do so, as unforeseen.
they could not agree on the new conditions
for the renewal. Upon the expiration of the
term of the lease, the landowner asked B to PART VII – PARTNERSHIP
vacate the premises and remove his building
and other improvements. B refused unless he
was reimbursed for necessary and useful RIGHTS AND OBLIGATIONS OF PARTNERS
expenses. B claimed that he was a possessor AMONG THEMSELVES (1992, 1995, 1998
and builder in good faith, with right of BAR)
retention. This issue is now before the court
for resolution in a pending litigation. Q: True or False:

a) What are the rights of B? An oral partnership is valid. (2009 Bar)
b) What are the rights of the landowner?
(1990 Bar) A: TRUE. Partnership is a consensual contract
A: hence, it is valid even though not in writing.

a) B has the right to remove the building and Q: A, B, and C entered into a partnership to
other improvements unless the landowner operate a restaurant business. When the
decides to retain the building at the time of restaurant had gone past break-even stage
the termination of the lease and pay the and started to garner considerable profits, C
lessee one-half of the value of the died. A and B continued the business without
improvements at that time. The lessee may dissolving the partnership. They in fact
remove the building even though the opened a branch of the restaurant, incurring
principal thing may suffer damage, but B obligations in the process. Creditors started
should not cause any more impairment demanding for the payment of their
upon the property leased than is necessary. obligations.
The claim of B that he ws a possessor and
builder in good faith with the right of A. Who are liable for the settlement of the
retention is not tenable. B is not a builder in partnership’s obligations? Explain?
good faith, because as lessee he does not B. What are the creditors’ recourse/s?
claim ownership over the property leased. Explain. (2010 Bar)
b) The landowner/lessor may refuse to
reimburse ½ of the value of the A:
improvements and require the lessee to
remove the improvements. (Art. 1678, Civil A. The two remaining partners, A and B, are
Code) liable. When any partner dies and the
business is continued without any
Q: Bartolome constructed a chapel on the settlement of accounts as between him or
land of Eric. What are Batolome’s rights if he his estate, the surviving partners are held
were a lessee of the land? (1996 Bar) liable for continuing the business provided
that A and B had knowledge or notice of
A: The owner of the land, as lessor, can acquire the death of C (Art. 1841, 1785, par 2, and
the improvement by paying for one-half of its Art 1833).
value. Should the lessor refuse to reimburse said B. Creditors can file the appropriate actions,
amount, the lessee may remove the for instance, an action for collection of sum
improvement, even though the principal thing of money against the “partnership at will”
may suffer damage thereby (Art. 1678, NCC). and if there are no sufficient funds, the
creditors may go after the private
Special Rules for Lease of Rural/Urban Lands properties of A and B (Art 1816). Creditors
(2000 Bar) may also sue the estate of C. The estate is
not excused from the liabilities of the
Q: In 1995, Mark leased the rice land of partnership even if C is dead already but
Narding in Nueva Ecija for an annual rental only up to the time that he remained a
of P1,000.00 per hectare. In 1998, due to the partner (Art. 1829, 1835, par 2; Testate
El Niño phenomenon, the rice harvest fell Estate of Mota v. Serra, G.R. No. L-22825,
to only 40% of the average harvest for the February 14, 1925). However, the liability
previous years. Mark asked Narding for a of C’s individual properties shall be subject
reduction of the rental to P500.00 per to the prior payment of his separate debts.
hectare for that year but the latter refused. (Art. 1835, par 3)
Is Mark legally entitled to such reduction?
(2000 Bar) Q: Joe and Rudy formed a partnership to
operate a car repair shop in Quezon City. Joe
A: No, Mark is not entitled to a reduction. Under provided the capital while Rudy contributed
Art.1680, the lessee of a rural land is entitled to a

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 CIVIL LAW
his labor and industry. On one side of their 2. Does Philip have any right to petition for
shop, Joe opened and operated a coffee shop, the dissolution of the partnership before
while on the other side, Rudy put up a car the expiration of its specified term?
accessories store. May they engage in such Explain. (1995 Bar)
separate businesses? Why? (2001 Bar)
A:
A: Joe, the capitalist partner, may engage in the 1. Under Art. 1830 (1) (c), the dissolution by
restaurant business because it is not the same Patricia and Priscilla is valid and did not
kind of business the partnership is engaged in. violate the contract of partnership even
On the other hand, Rudy may not engage in any though Pauline and Philip did not consent
other business unless their partnership thereto. The consent of Pauline is not
expressly permits him to do so because as an necessary because she had already assigned
industrial partner he has to devote his full time her interest to Philip. The consent of Philip is
to the business of the partnership. (Art. 1789) not also necessary because the assignment
to him of Pauline's interest did not make
Q: W, X, Y and Z organized a general him a partner, under Art. 1813.
partnership with W and X as industrial 2. No, Philip has no right to petition for
partners and Y and Z as capitalist partners. Y dissolution because he does not have the
contributed P50,000.00 and Z contributed standing of a partner. (Art. 1813)
P20,000.00 to the common fund. By a

unanimous vote of the partners, W and X
Q: Dielle, Karlo and Una are general partners
were appointed managing partners, without in a merchandising firm. Having contributed
any specification of their respective powers equal amounts to the capital, they also agree
and duties. on equal distribution of whatever net profit
is realized per fiscal period. After two years
A applied for the position of Secretary and B of operation, however, Una conveys her
applied for the position of Accountant of the whole interest in the partnership to Justine,
partnership. without the knowledge and consent of Dielle
and Karlo.
The hiring of A was decided upon by W and X,
but was opposed by Y and Z.
1. Is the partnership dissolved?

2. What are the rights of Justine, if any,
The hiring of B was decided upon by W and Z, should she desire to participate in the
but was opposed by X and Y. management of the partnership and in
the distribution of a net profit of
Who of the applicants should be hired by the P360,000.00 which was realized after her
partnership? Explain and give your reasons.
purchase of Una’s interest? (1995, 1998
(1992 Bar)
Bar)


A: A should be hired as Secretary. The decision A:
for the hiring of A prevails because it is an act of 1. No, a conveyance by a partner of his whole
administration which can be performed by the interest in a partnership does not of itself
duly appointed managing partners, W and X. dissolve the partnership in the absence of an
agreement. (Art. 1813)
B cannot be hired, because in case of a tie in the 2. Justine cannot interfere or participate in the
decision of the managing partners, the deadlock management or administration of the
must be decided by the partners owning the partnership business or affairs. She may,
controlling interest. In this case, the opposition however, receive the net profits to which
of X and Y prevails because Y owns the Una would have otherwise been entitled. In
controlling interest. (Art. 1801, Civil Code) this case, P120, 000. (Art. 1813)

Q: Pauline, Patricia and Priscilla formed a OBLIGATIONS OF PARTNERSHIP/PARTNERS
business partnership for the purpose of TO THIRD PERSONS (1993, 1994, 2010 BAR)
engaging in neon advertising for a term of
five (5) years. Pauline subsequently assigned Q: A, B and C formed a partnership for the
to Philip her interest in the partnership. purpose of contracting with the Government in
When Patricia and Priscilla learned of the the construction of one of its bridges. On June
assignment, they decided to dissolve the 30, 1992, after completion of the project, the
partnership before the expiration of its term bridge was turned over by the partners to the
as they had an unproductive business Government. On August 30, 1992, D, a supplier
relationship with Philip in the past. On the of materials used in the project sued A for
other hand, unaware of the move of Patricia collection of the indebtedness to him. A moved
and Priscilla but sensing their negative to dismiss the complaint against him on the
reaction to his acquisition of Pauline's ground that it was the ABC partnership that is
interest, Philip simultaneously petitioned for liable for the debt. D replied that ABC
the dissolution of the partnership. partnership was dissolved upon completion of
the project for which purpose the partnership
1. Is the dissolution done by Patricia and was formed. Will you dismiss the complaint
Priscilla without the consent of Pauline against A If you were the Judge? (1993 Bar)
or Philip valid? Explain.

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 QUAMTO (1987-2019)
A: No, as Judge, I would not dismiss the complaint the 10% mark up constituting the commission;
against A because A is still liable as a general (2) the manufacturer reacquires the unsold units
partner for his pro rata share of 1/3 (Art. 1816). at exactly the same price; and (3) warranty for
Dissolution of a partnership caused by the the units was borne by the manufacturer. The
termination of the particular undertaking specified foregoing indicia negate sale because they
in the agreement does not extinguish obligations, indicate that ownership over the units was
which must be liquidated during the "winding up" never intended to transfer to the distributor.
of the partnership affairs. (Arts. 1829 and 1830,
par. 1[a]) Q: Jo-Ann asked her close friend, Aissa, to buy
some groceries for her in the supermarket.
Q: Can two corporations organize a general Was there a nominate contract entered into
partnership under the Civil Code of the between Jo-Ann and Aissa? In the affirmative,
Philippines? (1994 Bar) what was it? Explain. (2003 Bar)

A: No. A corporation is managed by its board of A: Yes, there was a nominate contract. On the
directors. If the corporation were to become a assumption that Aissa accepted the request of
partner, co-partners would have the power to her close friend Jo-Ann to buy some groceries for
make the corporation party to transactions in an her in the supermarket, what they entered into
irregular manner since the partners are not was the nominate contract of Agency. Art. 1898
agents subject to the control of the Board of of the New Civil Code provides that by the
Directors. But a corporation may enter into a contract of agency a person binds himself to
joint venture with another corporation as long as render some service or to do something in
the nature of the venture is in line with the representation or on behalf of another, with the
business authorized by its charter. (Tuason & consent or authority of the latter.

Co., Inc. v. Bolano, 95 Phil. 106)

Q: Can a corporation and an individual form a NATURE, FORM AND KINDS OF AGENCY

general partnership? (1994 Bar) (1992, 2004 BAR)

Q: A as principal appointed B as his agent
A: No. A corporation may not be a general granting him general and unlimited
partner because the principle of mutual agency in management over A's properties, stating that
general partnership allowing the other general A withholds no power from B and that the
partner to bind the corporation will violate the agent may execute such acts as he may
corporation law principle that only the board of consider appropriate. Accordingly, B leased
directors may bind the corporation.
A's parcel of land in Manila to C for four (4)
years at P60,000.00 per year, payable
DISSOLUTION AND WINDING UP (1997
annually in advance. B leased another parcel
BAR)
of land of A in Caloocan City to D without a

fixed term at P3,000.00 per month payable
Q: Will death of a partner terminate the
monthly. B sold to E a third parcel of land
partnership? (1997 BAR)
belonging to A located in Quezon City for

three (3) times the price that was listed in
A: Yes. Death of a partner will terminate the
the inventory by A to B. All those contracts
partnership, by express provision of par. 5, Art.
were executed by B while A was confined due
1830 of the Civil Code.
to illness in the Makati Medical Center. Rule
on the validity and binding effect of each of
the above contracts upon A the principal.
PART VIII – AGENCY Explain your answers. (1992 Bar)

A: The agency couched in general terms
DEFINITION (2000, 2003 BAR) comprised only acts of administration (Art.
1877). The lease contract on the Manila parcel is
Q: A foreign manufacturer of computers and not valid, not enforceable and not binding upon
a Philippine distributor entered into a A. For B to lease the property to C, for more than
contract whereby the distributor agreed to one (1) year, A must provide B with a special
order 1,000 units of the manufacturer’s power of attorney (Art. 1878). The lease of the
computers every month and to resell them in Caloocan City property to D is valid and binding
the Philippines at the manufacturer’s upon A. Since the lease is without a fixed term, it
suggested prices plus 10%. All unsold units is understood to be from month to month, since
at the end of the year shall be bought back by the rental is payable monthly (Art. 1687). The
the manufacturer at the same price they sale of the Quezon City parcel to E is not valid
were ordered. The manufacturer shall hold and not binding upon A. B needed a special
the distributor free and harmless from any power of attorney to validly sell the land (Arts.
claim for defects in the units. Is the 1877 and 1878). The sale of the land at a very
agreement one for sale or agency? (2000 good price does not cure the defect of the
Bar) contract arising from lack of authority.

A: The contract is one of agency not sale. The Q: CX executed a special power of attorney
notion of sale is negated by the following indicia: authorizing DY to secure a loan from any
(1) the price is fixed by the manufacturer with bank and to mortgage his property covered

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 CIVIL LAW
by the owner’s certificate of title. In securing a loan
from MBank, DY did not specify that he was
acting for CX in the transaction with said bank.
Is CX liable for the bank loan? Why or why
not? Justify your answer. (2004 Bar)

A: CX is liable for the bank loan because he
authorized the mortgage on his property to secure
the loan contracted by DY. If DY later defaults and
fails to pay the loan, CX is liable to pay. However,
his liability is limited to the extent of the value of the
said property.

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