OBLIGATIONS AND CONTRACTS

Prelim Exam
Atty. Bernice Piñol

I.
What is diligence of a good father of a family? State the rule and the
exceptions. (4%)

ANS:
DILIGENCE OF A GOOD FATHER OF A FAMILY is the care needed to be
exercised by a debtor to deliver/give determinate thing.
Exception: When law/stipulation of parties requires a different standard of care
(slight/extraordinary diligence).

II.
Jane, a dressmaker, accepted clothing materials from Karla to make two
dresses for her. On the day Jane was supposed to deliver Karla's dresses, Jane
called up Karla to say that she had an urgent matter to attend to and will deliver
them the next day. That night, however, a robber broke into her shop and took
everything including Karla's two dresses. Jane claims she is not liable to deliver
Karla's dresses or to pay for the clothing materials considering she herself was
a victim of the robbery which was a fortuitous event and over which she had no
control. Do you agree? Why? (5%)

SUGGESTED ANSWER:
No, I do not agree with the contention of Jane. The law provides that
except when it is otherwise declared by stipulation, or when the law provides, or
the nature of the obligation requires the assumption of risk, no person shall be
liable for those events which could not be foreseen or which though foreseen
were inevitable. (Article 1174, Civil Code) In the case presented, Jane cannot
invoke fortuitous event as a defense because she had already incurred in delay
at the time of the occurrence of the loss. (Article 1165, Civil Code)

III.
a) Sara borrowed P50,000.00 from Julia and orally promised to pay it within six
months. When Sara tried to pay her debt on the 9th month, Julia demanded
 the payment of interest of 12% per annum because of Sara's delay in
payment. Sara paid her debt and the interest claimed by Julia. After
rethinking, Sara demanded back from Julia the amount she had paid as
interest. Julia claims she has no obligation to return the interest paid by Sara
because it was a natural obligation which Sara voluntarily performed and can
no longer recover. Do you agree? Explain. (4%)

b) Distinguish civil and natural obligations. (4%)

SUGGESTED ANSWER:
a) Partly. Julia was incorrect to say that it is a natural obligation. The case is
not one of a natural obligation because even if the contract of loan is verbal,
the delay of Sara made her liable for interest upon demand by Julia. This is
not a case of a natural obligation but a civil obligation to pay interest by way
of damages by reason of delay. (Article 1169) However, Julia was correct to
refuse the return of the interest, precisely by reason of the civil obligation of
Sara.

b) A civil obligation is based on positive law which gives a right of action to

compel their performance in case of breach. A natural obligation is based on
equity and natural law and cannot be enforced by court action but after
voluntary fulfilment by the obligor, they authorize the retention of what may
have been delivered or rendered by reason thereof.

IV.
What are the modes of breach of obligations? Briefly explain each. (6%)

ANS:
1) Fraud
2) Negligence
3) Delay
4) Contravention of the tenor of obligation

V.
Are the following obligations valid? Why? And if they are valid, when is the
obligation demandable in each case? (3% each)

a) If the debtor promises to pay as soon as he has the means to pay;

 b) If the debtor promises to pay when he likes;
c) If the debtor promises to pay when he becomes a lawyer;
d) If the debtor promises to pay if his son, who is sick with cancer, does
not die within one year.

SUGGESTED ANSWER:
(a) The obligation is valid. It is an obligation subject to an indefinite period
because the debtor binds himself to pay when his means permit him to do so
(Article 1180, NCC). When the creditor knows that the debtor already has
the means to pay, he must file an action in court to fix the period, and when
the definite period as set by the court arrives, the obligation to pay becomes
demandable Article 1197, NCC).

(b) The obligation “to pay when he likes” is a suspensive condition the fulfillment
of which is subject to the sole will of the debtor and, therefore the conditional
obligation is void. (Article 1182, NCC).

(c) The obligation is valid. It is subject to a suspensive condition, i.e. the

future and uncertain event of his becoming a lawyer. The performance of this
obligation does not depend solely on the will of the debtor but also on
other factors outside the debtor’s control.

(d) The obligation is valid. The death of the son of cancer within one year is made
a negative suspensive condition to his making the payment. The obligation is
demandable if the son does not die within one year (Article 1185, NCC).

VI.
What are obligations without an agreement"? (3%)

SUGGESTED ANSWER:
"Obligations without an agreement" are obligations that do not arise
from contract such as those arising from: 1. delicts; 2. quasi-delicts; 3.
solutio indebiti; 4. negotiorum gestio; and 5. all other obligations arising from
law.
"Obligations without an agreement" refer to the juridical relation of quasi-
contract which arise from certain lawful, voluntary and unilateral acts to the
end that no one shall be unjustly enriched or benefited at the expense of another.
 VII.
When conditions have been imposed with the intention of suspending the
efficacy of an obligation to give, what are the rules that shall be observed in case
of the improvement, loss or deterioration of the thing during the pendency of the
condition? (8%)

ANS:
Art. 1189. When the conditions have been imposed with the intention of
suspending the efficacy of an obligation to give, the following rules shall be
observed in case of the improvement, loss or deterioration of the thing during
the pendency of the condition:

1) If the thing is lost without the fault of the debtor, the obligation shall be
extinguished;
2) If the thing is lost through the fault of the debtor, he shall be obliged to
pay damages; it is understood that the thing is lost when it perishes, or
goes out of commerce, or disappears in such a way that its existence is
unknown or it cannot be recovered;
3) When the thing deteriorates without the fault of the debtor, the
impairment is to be borne by the creditor;
4) If it deteriorates through the fault of the debtor, the creditor may choose
between the rescission of the obligation and its fulfillment, with indemnity
for damages in either case;
5) If the thing is improved by its nature, or by time, the improvement shall
inure to the benefit of the creditor;
6) If it is improved at the expense of the debtor, he shall have no other right
than that granted to the usufructuary.

VIII.
In 1997, Manuel bound himself to sell Eva a house and lot which is being
rented by another person, if Eva passes the 2016 bar examinations. Luckily for
Eva, she passed said examinations.

Since Eva is entitled to buy said house and lot, is she entitled to the rentals
collected by Manuel before she passed the 1998 bar examinations? Why? (5%)

SUGGESTED ANSWER:
No, she is not entitled to the rentals collected by Manuel because at the
time they accrued and were collected, Eva was not yet the owner of the property.
 Moreover, even if Eva is entitled to buy the house and lot, she is not
entitled to the rentals collected by Manuel before she passed the bar
examinations. Whether it is a contract of sale or a contract to sell, reciprocal
prestations are deemed imposed for the seller to deliver the object sold and for
the buyer to pay the price. Before the happening of the condition, the fruits of
the thing and the interests on the money are deemed to have been
mutually compensated under Article 1187.

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

IX.
D is obliged to deliver 5 bags of powder soap to C, 7 days from their
agreement. However, on due date, D delivered 5 out of the 7 bags of powder soap
mixed with chalk. What is the status of the agreement between D and C? (5%)

SUGGESTED ANSWER:
The agreement is valid. The fraud was committed during the performance
of the obligation and not during the agreement of the parties. This is a case of
incidental fraud (dolo incidente), not causal fraud (dolo causante).

X.
Adonis constituted a real estate mortgage over his land in Digos City, to
secure the performance of his loan obligation with MetroBank. Adonis failed to
pay the principal obligation thus Metrobank foreclosed the mortgage. The parcel
of land was then sold to Metrobank as the highest bidder. The one-year
redemption period thereafter expired.

Adonis negotiated with Metrobank to repurchase the land on installment basis.

He subsequently made the downpayment, which Metrobank formally accepted
through a Deed of Conditional Sale, with the condition that he must first pay
amortization of three months from the execution of the deed, and the remaining
amortizations to be due and payable every month thereafter. Otherwise, in case
of default in payment, Metrobank has the right to rescind the Deed of Conditional
Sale.
He timely paid for the first 3 amortizations; but incurred delays in his
subsequent installments, all in all leaving 10 amortizations unpaid. Metrobank
demanded the immediate remittance of the promised amount, but when Adonis
still failed to pay the remaining amortizations, Metrobank rescinded the deed of
conditional sale.

Adonis argues that despite the right to rescind due to nonpayment being
stipulated in the deed of conditional sale, Metrobank could not exercise its right
because his nonpayment of an obligation constituted only a slight or casual
breach that did not warrant rescission. Moreover, he posits that Article
1191 empowers the court to fix the period within which the obligor may comply
with the obligation.

Were the contentions of Adonis correct? Did Metrobank validly exercise its right
to rescind the deed of conditional sale? (10%)

ANSWER:
No, Adonis was not correct. Metrobank validly exercised its right to rescind.

The validity of the stipulation in the Deed of Conditional Sale providing for
automatic rescission upon non-payment cannot be doubted. It is in the nature
of an agreement granting a party the right to rescind a contract unilaterally in
case of breach without need of going to court.

There is nothing in the law which prohibits the parties from entering into
an agreement which provides that a violation of the terms of such would cause
its cancellation, even without court intervention.

Moreover, in contracts providing for automatic revocation, judicial

intervention is necessary not for purposes of obtaining a judicial declaration
rescinding a contract already deemed rescinded by virtue of an agreement
providing for rescission even without judicial intervention, but in order to
determine whether or not the rescission was proper. Where such propriety is
sustained, the decision of the court will be merely declaratory of the revocation,
but it is not itself the revocatory act.

Thus, rescission under Article 1191 was inevitable due to Adonis’ failure
to pay the stipulated price within the original period fixed in the agreement.
(based on CALILAP-ASMERON v. DBP,GR No. 157330, Nov. 23, 2011)
 XI.
The Bureau of Fire Protection (BFP) published an invitation to bid for its
acquisition of 5 brand new fire truck units. Lopez Corp. secured the contract
with BFP, with a contract price of P3,000,000.00 per truck.

The contract awarded to Lopez Corp. stipulated that it was to deliver to the
BFP the brand fire trucks within 30 days from receipt of a purchase order. A
further stipulation stated that in case of failure to deliver the trucks on the date
specified, the supplier agrees to pay penalty at the rate of .15% of the total
contract price for each day of delay.

The BFP furnished Lopez with a purchase order dated Jan. 1, 2018. Lopez
failed to deliver the trucks within 30 days, as it had committed, which prompted
the BFP to make formal demands on the former. As Lopez still failed to comply,
the BFP filed a Complaint for rescission of contract and damages.

In its defense, Lopez contended that if the BFP asks for the rescission of
the contract, which will thereby be declared void ab initio, then a stipulation for
liquidated damages or penalty contained in that very same contract cannot
anymore be given force and effect.

a) Is BFP entitled to damages even if the contract is rescinded? (6%)

b) What is the essence of Rescission? (6%)

ANSWER:
a) Yes, the BFP is still entitled to damages.

A contract of sale, such as that entered into by the BFP and Lopez, entails
reciprocal obligations. Rescission on account of breach of reciprocal
obligations is provided for in Article 1191 of the Civil Code:

Article 1191. The power to rescind obligations is implied

in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.

The injured party may choose between the fulfillment

and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should
become impossible. xxx
 Article 1191 itself clearly states that the options of rescission and specific
performance come with "with the payment of damages in either case." The very
same breach or delay in performance that triggers rescission is what makes
damages due.

When the contracting parties, by their own free acts of will, agreed on what
these damages ought to be, they established the law between themselves. Their
contemplation of the consequences proper in the event of a breach has been
articulated. When courts are, thereafter, confronted with the need to award
damages in tandem with rescission, courts must not lose sight of how the parties
have explicitly stated, in their own language, these consequences. To uphold
both Article 1191 of the Civil Code and the parties' will, contractually stipulated
liquidated damages must, as a rule, be maintained.

Article 1191 states that "the injured party may choose between fulfillment
and rescission of the obligation, with the payment of damages in either case."

b) Rescission under Article 1911 results in mutual restitution. Jurisprudence

has long settled that the restoration of the contracting parties to their original
state is the very essence of rescission.

Rescission creates the obligation to return the object of the contract. It

can be carried out only when the one who demands rescission can return
whatever he may be obliged to restore. To rescind is to declare a contract void
at its inception and to put an end to it as though it never was. It is not merely
to terminate it and release the parties from further obligations to each other,
but to abrogate it from the beginning and restore the parties to their relative
positions as if no contract has been made. (based on PEZA v. PILHINO SALES
CORP., GR No. 185765, Sept. 28, 2016)

XII.

When is demand not necessary in order that delay may exist? (6%)

ANS:
Art. 1169. Those obliged to deliver or to do something incur in delay from the
time the obligee judicially or extrajudicially demands from them the fulfillment
of their obligation.

However, the demand by the creditor shall not be necessary in order that delay
may exist:
1) When the obligation or the law expressly so declare; or
2) When from the nature and the circumstances of the obligation it appears
that the designation of the time when the thing is to be delivered or the
service is to be rendered was a controlling motive for the establishment of
the contract; or
3) When demand would be useless, as when the obligor has rendered it
beyond his power to perform.

XIII.
Peter and Paul entered into a Contract to Sell whereby Peter, the lot owner,
agreed to sell to Paul his lot on November 6, 2016 for the price of Pl ,000,000.00
to be paid at the residence of Peter in Makati City at 1 :00 p.m. If the full price
is paid in cash at the specified time and place, then Peter will execute a Deed of
Absolute Sale and deliver the title to Paul.

On November 6, 2016, Paul did not show up and was not heard of from
that date on. In view of the nonperformance by Paul of his obligation, Peter sent
a letter to Paul that he is expressly and extra-judicially declaring the Contract to
Sell rescinded and of no legal and binding effect. Peter further stated that failure
on the part of Paul to contest the rescission within thirty (30) days from receipt
of said letter shall mean that the latter agreed to the rescission.

Paul did not reply to this letter for five (5) years. Thus, Peter decided to sell
his lot to Henry in 2021. After hearing that Henry bought the lot, Paul now
questions the sale of the lot to Henry and files a complaint for nullification of the
sale.

Is the exercise by Peter of his power to rescind extra-judicially the Contract

to Sell the proper and legal way of rescinding said contract? Explain. (8%)

(Cannot find Suggested Answer, 2017 BAR)

 XIV.
In two separate documents signed by him, Juan Valentino “obligated”
himself each to Maria and to Perla, thus –

“To Maria, my true love, I obligate myself to give you my one and only horse
when I feel like it.” – and –

“To Perla, my true sweetheart, I obligate myself to pay you the P500.00 I
owe you when I feel like it.”

Months passed but Juan never bothered to make good his promises. Maria
and Perla came to consult you on whether or not they could recover on the basis
of the foregoing settings. What would your legal advice be to (a) Maria, (b) Perla?
(4% each)

SUGGESTED ANSWER:
I would advise Maria not to bother running after Juan for the latter to
make good his promise. [This is because a promise is not an actionable wrong
that allows a party to recover especially when she has not suffered damages
resulting from such promise. A promise does not create an obligation on the part
of Juan because it is not something which arises from a contract, law, quasi-
contracts or quasi- delicts (Art. 1157)]. Under Art. 1182, Juan’s promise to
Maria is void because a conditional obligation depends upon the sole will of the
obligor.

As regards Perla, the document is an express acknowledgment of a debt, and the

promise to pay what he owes her when he feels like it is equivalent to a promise
to pay when his means permits him to do so, and is deemed to be one with an
indefinite period under Art. 1180.