LEIDA MAE BUMANLAG

FINAL EXAM IN CIVIL LAW

REFRESHER B
ANSWERS TO 2019 BAR EXAM ON CIVIL LAW

A.1.

In January 2018, Mrs. A, a married woman on her sixth (6th) month of pregnancy, was crossing
a street when she was suddenly hit by a car being recklessly driven by Mr. X. As a result, Mrs. A
sustained serious injuries and further, suffered an unintentional abortion. Mrs. A was
hospitalized for two (2) months, during which she incurred ₱400,000.00 in medical fees. Her
expenses were all duly substantiated by official receipts. During the two (2)-month period of
her confinement, she was unable to report for work and earn any salary, which was established
at the rate of ₱50,000.00 per month. Mrs. A then filed a civil case for damages against Mr. X.

(a) Based on the case filed by Mrs. A, what is the source of Mr. X's obligation to her as
a result of his acts? Explain. (2%)

(b) May Mrs. A claim actual damages from Mr. X? If so, how much can Mrs. A claim?
Explain. (2%)

(c) May Mrs. A claim damages on behalf of her unborn baby? Explain. (3%)

(d) What must Mrs. A prove if she wants to recover moral damages from Mr. X? (2%)

ANSWERS:

a. Quasi- Delict is the source of obligation of Mr. X as a result of his act. Under the law,
whoever by act or omission causes damage to another, there being fault or negligence,
is obliged to pay for the damage done. Such fault or negligence, if there is no pre-
existing contractual relation between the parties, is called a quasi-delict.

b. Yes. Actual damages may refer to actual expenses or loss of earning capacity incurred
by an obligee due to the act or ommission of the obligor. Here, Mrs. A, an obligee,
incurred expenses for hospitalization for the period of confinement of 2 months and
was deprived to earn compensation income for the same period. Hence, Mr. A, the
obligor, may be obliged to pay the amount of P400k for hospitalization as supported
with receipts and P100k for deprivation of gainful employment for 2 months, P500k in
total sum.
 c. No, Mrs. A cannot claim damages on behalf of her unborn baby. Since an action for
pecuniary damages on account of personal injury or death pertains primarily to the one
injured, it is easy to see that if no action for such damages could be instituted on behalf
of the unborn child on account of the injuries it received, no such right of action could
derivatively accrue to its parents or heirs. In fact, even if a cause of action did accrue on
behalf of the unborn child, the same was extinguished by its pre-natal death, since no
transmission to anyone can take place from on that lacked juridical personality.

d. In order for Mrs. A to be entitled to claim for moral damages, there must be a
showing that she suffered, among others, bismirched reputation, wounded-feelings, and
depression arising from the loss of her child and resultant injuries

e. Mrs. A may still be entitled for the interest on the award for actual and moral
damages if such amount or award are not paid by Mr. X. The reckoning period for the
accrual of interest is from the finality of judgment of the case, and the interest for
forbearance of money is at 6%.

A.2.

Hand W were married in 1990. H, being a member of the Armed Forces of the Philippines (AFP),
was deployed to a rebel-infested area in 1992. Since then, W has not heard from her husband,
H.

One day, the AFP informed W that H had been declared missing since 1995. In consequence, W
diligently pursued all available means to ascertain her husband's whereabouts, but to no avail.

Firmly believing that H had already died, W filed a claim before the AFP in 2008 for the death
benefits of the missing serviceman. However, the AFP, despite being cognizant of H's status,
would not act on the claim, contending that H could not be presumed dead unless a judicial
declaration to this effect is issued by the proper court.

In what instance/s is a judicial declaration of presumptive death necessary? In this

case, is the contention of the AFP correct? Explain. (3%)

ANSWER: A judicial declaration of presumptive death is necessary under Article 41 of

the Family Code for the purpose of contracting a valid subsequent marriage. No, the
contention of the AFP is not correct. Here, W was not seeking the declaration of the
presumptive death as a prerequisite for remarriage but to claim the death benefits due
to the missing serviceman. W was relying on the presumption of death under either
Article 390 or Article 391 of the Civil Code as the basis of her petition.

A.3.
Mr. Reyes is legally married to Mrs. Reyes. During the subsistence of their marriage, Mr. Reyes
cohabited with another woman, Ms. Cruz. Out of Mr. Reyes and Ms. Cruz's illicit relationship, a
child named C was born. In C's birth certificate, "Cruz" appears as the child's surname, although
Mr. Reyes expressly acknowledged C as his child.

In 2018, Mr. Reyes and Ms. Cruz ended their relationship. Mr. Reyes thereafter lodged a
petition in court for parental custody and change or correction of C's surname in the child's
birth certificate from "Cruz" to "Reyes." At that time, C was only ten (10) years old.

(a) Should Mr. Reyes be granted custody of C? Explain. (2.5%)

(b) Can Mr. Reyes validly compel the change or correction of C's surname from "Cruz"
to "Reyes"? Explain. (2.5%)

ANSWER:

a. No, Mr. Reyes cannot be granted custody of C. C is an illegitimate child and parental
authority over illegitimate children is lodged by Art. 176 of the Family Code on the
mother; hence, Mr. Reyes’ prayer has no legal mooring. Since parental authority is
given to the mother, then custody over the minor illegitimate child also goes to the
mother, unless she is shown to be unfit.
b. No, Mr. Reyes cannot validly compel the change or correction of C's surname from
"Cruz" to "Reyes”. The general rule is that an illegitimate child shall use the surname
of his or her mother. The exception provided by R.A. 9255 s in case his or her
filiation is expressly recognized by the father through the record of birth appearing
in the civil register or when an admission in a public document or private
handwritten instrument is made by the father. In such a situation, the illegitimate
child may use the surname of the father. Art. 176 of the Family Code gives
illegitimate children the right to decide if they want to use the surname of their
father or not.

A.4.

F, a Filipina, married J, a Japanese, in the Philippines. After three (3) years, they had a falling out
and thus, separated. Soon after, F initiated a divorce petition in Japan which was not opposed
by J because under Japanese law, a grant of divorce will capacitate him to remarry. F's divorce
petition was then granted by the Japanese court with finality.

May the legal effects of the divorce decree be recognized in the Philippines, and
consequently, capacitate F to remarry here? Explain. (3%)

ANSWER: Yes, the legal effects of the divorce decree may be recognized in the
Philippines, and consequently, capacitate F to remarry here. Foreign divorce decrees
obtained to nullify marriages between a Filipino and an alien citizen may already be
 recognized in this jurisdiction, regardless of who between the spouses initiated the
divorce; provided that the party petitioning for the recognition of such foreign divorce
decree, presumably the Filipino citizen, must prove the divorce as a fact and
demonstrate its conformity to the foreign law allowing it. Whether the Filipino spouse
initiated the foreign divorce proceeding or not, a favourable decree dissolving the
marriage bond and capacitating his or her alien spouse to remarry will have the same
result: the Filipino spouse will effectively be without a husband or wife.

A.5.

X and Y were in a live-in relationship for the longest time, and were already blessed with a child,
Z. They finally decided to get married on March 15, 2020. When X's parents found about the
news, they were thrilled and thus, donated in favor of Z, the family heirloom, particularly, a
gold ring valued at ₱250,000.00, which X and Y orally accepted on behalf of their minor child.
One day, X and Y got into a serious quarrel, which resulted in them setting aside their marriage
plans.

(a) Is the donation to Z valid? Explain. (3%)

(b) Assuming that the donation to Z is valid, may X's parents revoke the donation on
the ground that the marriage of X with Y did not push through? Explain. (3%)

ANSWER:

(a) No, the donation to Z is not valid. Under Art. 748 of the Civil Code, the donation of a
movable may be made orally or in writing. An oral donation requires the
simultaneous delivery of the thing or of the document representing the right
donated. If the value of the personal property donated exceeds five thousand pesos
(P5000), the donation and the acceptance shall be made in writing. Otherwise, the
donation shall be void. In the instant case, the donated gold ring valued at P250,000
was only orally accepted, which does not conform to the formalities required by law.
As such, lacking the required written acceptance, the donation in favor of Z is void.
(b) No, assuming it is valid, X's parents may not revoke the donation on the ground that
the marriage of X with Y did not push through. First, the ground cited by X’s parents
is not one among those provided under Art.764 of the Civil Code for failure to
comply with conditions nor Art. 765 for ingratitude. Second, while the ground cited
is one among those which would allow revocation of a donation propter nuptias.
However, here, there was no donation propter nuptias. Art. 82 of the Family Code
provides that donations by reason of marriage are those which are made before its
celebration, in consideration of the same, and in favor of one or both of the future
spouses. Art. 86 of the same Code provides that non-celebration of the marriage is
one of the grounds for revocation of the donation by reason of marriage.

A.6.
Name at least two (2) exclusions from the following property regimes as enumerated under
the Family Code:

(a) Absolute community of property (2%)

(b) Conjugal partnership of gains (2%)

ANSWERS:

a.

1. Property acquired during the marriage by Gratuitous title by either spouse, and the
fruits as well as the income thereof, if any, unless it is expressly provided by the donor,
testator or grantor that they shall form part of the community property;

2. Property for personal and Exclusive use of either spouse however, jewelry shall form
part of the community property.

b.

1. That which is Brought to the marriage as his or her own;

2. That which each acquires during the marriage by Gratuitous title;

A.7.

Believing that he owned a certain parcel of land and completely unaware of any defect in his
title thereto, Mr. A started to build a house thereon. When Mr. P, the real owner of the land
learned of Mr. A's actions, Mr. P immediately demanded Mr. A to leave the premises. However,
Mr. A refused to leave, and instead, asserted that as a builder in good faith, Mr. P is obliged to
sell the land to him.

(a) Is the claim of Mr. A correct? Explain. (3%)

(b) Assuming that Mr. P all the while, knew but did not object to Mr. A's construction
of the house on his property, may Mr. A compel Mr. P to purchase the said
improvement due to Mr. P's bad faith? Explain. (3%)

ANSWERS:

(a) No, the claim of Mr. A is not correct. Under Art. 448 of the Civil Code, when the
builder believes that he is the owner of the land, the real owner of the land has two
options: (1) he may appropriate the improvements for himself after reimbursing the
builder in good faith the necessary and useful expenses under Articles 546 and 548 of
 the Civil Code; or (2) he may sell the land to the builder in good faith, unless its value is
considerably more than that of the improvements, in which case, the builder in good
faith shall pay reasonable rent. The real owner of the land cannot refuse to exercise
either option. It is the owner of the land who is authorized to exercise the option,
because his right is older, and because, by the principle of accession, he is entitled to the
ownership of the accessory. In the instant case, Mr. P would need to choose between
his options and is not simply obliged to sell the land to Mr. A as what the latter asserted.

(b) Yes, Mr. A may compel Mr. P to purchase the said improvement due to Mr. P's bad
faith. Under Art. 454 of the Civil Code, when the landowner acted in bad faith and the
builder proceeded in good faith, the provisions of Art. 447 of the Civil Code shall apply.
Art. 447 provides that owner of the land shall pay their value and, if he acted in bad
faith, he shall also be obliged to the reparation of damages.

A.8.

Mr. E leased a piece of land from Mr. F to be used for his sawmill business for a period of ten
(10) years. Consequently, Mr. E placed heavy machineries thereon to be used for his
aforementioned business, with the intention of removing them after the expiration of the lease
period.

Are Mr. E's heavy machineries considered real properties under the Civil Code?
Explain. (3%)

ANSWER: No, Mr. E's heavy machineries are not considered real properties under the
Civil Code. Art. 415 (5) of the Civil Code provides that machinery, receptacles,
instruments or implements intended by the owner of the tenement for an industry or
works which may be carried on in a building or on a piece of land, and which tend
directly to meet the needs of the said industry or works are immovable property.

A.9.

Ms. U is a usufructuary of a piece of land owned by Mr. L. During the existence of the usufruct,
Ms. U introduced various useful improvements on the land. Upon termination of the usufruct,
Mr. L requested Ms. U to remove the said improvements, but Ms. U refused, demanding
instead that Mr. L reimburse her the value of the same.

(a) What is a usufruct? (2%)

(b) Is Ms. U's demand proper? Explain. (3%)

ANSWERS:
 (a) Usufruct is a real right, of a temporary nature, which authorizes its holder to enjoy all
the benefits which results from the normal enjoyment of another’s property, with the
obligation to return, at the designated time, either the same thing or, in special cases, its
equivalent. Usufruct gives a right to enjoy the property of another with the obligation of
preserving its form and substance, unless the title constituting it or the law otherwise
provides.

(b) No, Ms. U's demand is not proper. Art. 579 of the Civil Code provides that the
usufructuary may make on the property held in usufruct such useful improvements or
expenses for mere pleasure as he may deem proper, provided he does not alter its form
or substance; but he shall have no right to be indemnified therefor. He may, however,
remove such improvements, should it be possible to do so without damage to the
property. Thus, Ms. U does not have a right to demand Mr. L to reimburse the useful
improvements introduced by her.

A.10.

Village Hand Village L are adjoining residential villages in a mountainous portion of Antipolo
City, Rizal, with Village L being lower in elevation than Village H. In an effort to beautify Village
H, its developer, X, Inc., constructed a clubhouse which included an Olympic-sized swimming
pool and an artificial lagoon on a portion of land overlooking Village L.

During the monsoon season, the continuous heavy rains caused Village H's swimming pool and
artificial lagoon to overflow, resulting into a massive spillover that damaged various properties
in Village L. Aggrieved, the homeowners of Village L filed a complaint for damages against X,
Inc. In defense, X, Inc. contended that pursuant to the Civil Code, Village L, as the lower estate,
was obliged to receive the waters descending from Village H, the higher estate. Hence, it
cannot be held liable for damages.

Is X, Inc.'s position tenable? Explain. (3%)

ANSWER: No, X, Inc.'s position is untenable. Art. 637 of the Civil Code provides that
lower estates are obliged to receive the waters which naturally and without the
intervention of man descend from the higher estates, as well as the stones or earth
which they carry with them. The owner of the lower estate cannot construct works
which will impede this easement; neither can the owner of the higher estate make
works which will increase the burden. A similar provision is found in the Water Code of
the Philippines

PART II

B.11.
Mr. R is the registered owner of a parcel of land located in Cebu City covered by Transfer
Certificate of Title (TCT) No. 1234 issued in 1955. Since his acquisition of the lot, Mr. R and his
family had been in continuous, open, and peaceful possession thereof. Mr. R died in 1980,
resulting in the land being transferred in the names of his heirs, i.e., A, B, and C, who became
registered owners thereof as per TCT No. 5678. During the entire time, said land had never
been encumbered or disposed, and that its possession always remained with them.

Sometime in 1999, A, B, and C wanted to build a concrete fence around the parcel of land, but
they were opposed by Mrs. X, who started claiming ownership over the same property on the
strength of a Deed of Absolute Sale purportedly entered into by her with Mr. R during the time
that he was still alive. Aggrieved, A, B, and C intend to file a complaint for quieting of title
against Mrs. X.

(a) What are the substantive requisites for the action to prosper? Do they obtain in
this case? Explain. (3%)

(b) Within what period should A, B, and C tile the complaint for quieting of title?
Explain. (2%)

(c) Assuming that Band Care residing abroad, may A, without the knowledge of B and
C, file the complaint for quieting of title on behalf of all the heirs? Explain. (2%)

ANSWERS:

a.) For an action to quiet title to prosper, two indispensable requisites must concur,
namely: (1) the plaintiff or complainant has a legal or an equitable title to or interest
in the real property subject of the action; and (2) the deed, claim, encumbrance, or
proceeding claimed to be casting cloud on his title must be shown to be in fact
invalid or inoperative despite its prima facie appearance of validity or legal efficacy.
Legal title denotes registered ownership, while equitable title means beneficial
ownership.

b.) An action to quiet title to property in the possession of plaintiff is imprescriptible.

One who is in actual possession of a piece of land claiming to be owner thereof may
wait until his possession is disturbed or his title is attacked before taking steps to
vindicate his right, the reason for the rule being, that his undisturbed possession
gives him a continuing right to the seek the aid of a court of equity to ascertain and
determine the nature of the adverse claim of a third party and its effect on his own
title, which right can be claimed only by one who is in possession.

c.) Yes, A, even without the knowledge of B and C, may file the complaint for quieting of
title on behalf of all the heirs. A, B and C as co-heirs are co-owners of the subject
property. As such co-owners, each of the heirs may properly bring an action for
ejectment, forcible entry and detainer, or any kind of action for the recovery of
 possession of the subject properties. Thus, a co-owner may bring such an action,
even without joining all the other co-owners as co-plaintiffs, because the suit is
deemed to be instituted for the benefit of al.

B.12.

D, an Overseas Filipino Worker, was on his way home to the Philippines after working for so
many years in the Middle East. He had saved ₱100,000.00 in his local savings account which he
intended to use to start up a business in his home country. On his flight home, tragedy struck as
a suicide bomber blew up the plane. All the passengers, including D, died. He left behind his
widowed mother M; his common-law wife, W, who is the mother of his twin sons, T and S; and
his brother, B. He left no will, no debts, no other relatives, and no other properties except the
money in his savings account.

Who are the heirs entitled to inherit from D and how much should each receive?
Explain. (5%)

ANSWER: His widowed mother and twin sons are entitled to inherit from D. Art. 991 of
the Civil Code provides that if legitimate ascendants are left, the illegitimate children
shall divide the inheritance with them taking one-half of the estate, whatever be the
number of the ascendants or of the illegitimate children. Thus, the widowed mother - M
gets ₱50,000.00 while the twin sons – T and S, shall receive the other half or ₱25,000.00
each. The common-law wife cannot inherit from him as a compulsory heir, as she is not
a legitimate spouse

B.13.

M, single, named his sister N in his will, as a devisee over a certain parcel of land that he owned,
with the obligation of preserving the land and transferring it, upon N's death, to her illegitimate
daughter 0, who was then only a year old.

Is the condition imposed on N to preserve the land and to transmit it upon her death
to O a valid case of fideicommissary substitution? Explain. (3%)

ANSWER: Yes, the condition imposed on N to preserve the land and to transmit it upon
her death to O is a valid case of fideicommissary substitution. For there to be a valid
fideicommissary substitution, Art. 863 of the Civil Code provides the following
requisites: (1) There must be a first heir (fiduciary) primarily called to the enjoyment of
the estate; (2) There must be a second heir (fideicommissary) to whom the property is
transmitted by the first heir; (3) An obligation clearly and expressly imposed by the
testator upon such first heir to preserve the estate and to transmit it to the second heir;
(4) The first and second heir must be only one degree apart; and (5) Both the first and
second heir must be living (or at least conceived) at the time of the death of the
testator. Here, all the above requisites are present as N, the supposed fiduciary is
 obliged to preserve and transmit the property to O, her illegitimate child who is one
degree apart from her.

B.14.

Prior to his death, H, married to W, with children X, Y, and Z, executed a holographic will
entirely written, dated, and signed by him. In his will, H instituted W, X, and Y as his heirs, and
consequently, made testamentary dispositions in their favor. H, however, expressly disinherited
Z on the ground that the latter once filed a civil case against him in order to collect a particular
sum of money he previously owed Z.

(a) Was the disinheritance of Z proper? Explain. (3%)

(b) Assuming that the disinheritance of Z was improper, how will it affect the
institution of heirs and testamentary dispositions made in H's will? Explain. (3%)

ANSWER:

(a) No, the disinheritance of Z is not proper. For there to be a valid disinheritance, it
must be for a cause expressly stated by law. Art. 919 (2) of the Civil Code provides that
children or descendant may be disinherited when a child or descendant has accused the
testator of a crime for which the law prescribes imprisonment for six years or more, if
the accusation has been found groundless. The requisites of this ground are: (1) the heir
must have accused the testator of a crime; (2) the penalty prescribed by law for such
must be 6 years imprisonment or more; and (3) the accusation must have been found
groundless. Here, Z filed a civil case and not a criminal case, thus the above requisites
are not present, making the disinheritance not proper.

(b) Art. 918 of the Civil Code provides that disinheritance without a specification of the
cause, or for a cause the truth of which, if contradicted, is not proved, or which is not
one of those set forth in this Code, shall annul the institution of heirs insofar as it may
prejudice the person disinherited; but the devises and legacies and other testamentary
dispositions shall be valid to such extent as will not impair the legitime.

B.15.

Mr. P offered to sell his Manila Polo Club shares to Ms. Q for ₱2,500,000.00. Ms. Q accepted on
the condition that their agreement will not take effect until after one (1) year. Mr. P then
acceded and both of them shook hands. Excited about the prospect of acquiring Mr. P's shares,
Ms. Q approached the former and offered to pay him an earnest money equivalent to 1 % of
the purchase price, which Mr. P accepted. After one (1) year, Ms. Q approached Mr. P seeking
the enforcement of their agreement for Mr. P to sell his shares to her. Mr. P refused to honor
their agreement, claiming that the same was covered by the Statute of Frauds because it was
not reduced into writing and hence, unenforceable.
 Is the position of Mr. P correct? Explain. (3%)

ANSWER: The position of P is not correct. Where the verbal contract of sale has been
partially executed through the partial payments made by one party duly received by the
vendor, the contract is taken out of the scope of the Statute. Here, the contract is
ratified by the acceptance by Mr. P of earnest money.

B.16.

C Corp. entered into a contract with D, Inc. for the construction of the latter's production
warehouse. In consideration thereof, D, Inc. was obliged to pay C Corp. the amount of
₱50,000,000.00 within a period of one (1) month from the time of the project's completion. To
secure the payment of the said sum, D, Inc. entered into a surety agreement with S Company.

After more than a month from the completion date of the project, C Corp. remained unpaid.
Claiming that it was suffering from serious financial reverses, D, Inc. asked C Corp. for an
extension of three (3) months to pay the ₱50,000,000.00 it still owed, to which C Corp. agreed.
However, after more than three (3) months, D, Inc. still refused to pay. Hence, C Corp.
proceeded to collect the above sum from the surety, S Company.

For its part, S Company refused the claim and raised the defense that the extension of time
granted by C Corp. to D, Inc. without its consent released it from liability.

(a) Will the defense of S Company against the claim bold water? Explain. (3%)

(b) Assuming that S Company instead refused the claim on the ground that C Corp. has
yet to exhaust D, Inc.'s property to satisfy the claim before proceeding against it, will
this defense prosper? Explain. (2%)

ANSWERS:

a) Yes, the defense of S Company will hold water. The Civil Code provides that an extension of
time given to a debtor by the creditor, without the consent of the guarantor, extinguishes a
guaranty. However, the Supreme Court has ruled that this provision also applies to the surety in
a contract of suretyship. Thus, because the extension of 3 months was given by C Corp to D Inc
without the consent of S Company, S Company was released from its liability as a surety.

b) No, S Company's defense will not prosper. The Civil Code provides that the benefit of
excussion is available only to a guarantor in a contract of guaranty, and is not applicable when
the guarantor binds himself solidarily with the debtor. In this case, S Company, as a surety,
bound itself to be solidarily liable with the debtor for the amount of the debt. Thus, S Company
cannot claim the benefit of excussion, or the prior exhaustion of the debtor's properties.
B.17.
In 2015, O, the original registered owner of a 300-square meter property covered by Original
Certificate of Title (OCT) No. 0-1234, appointed F as its caretaker. A year after, while O was
abroad, F surreptitiously broke open O's safe and stole the duplicate copy of the said OCT. F
then forged a Deed of Absolute Sale and made it appear that O sold the property to him.
Consequently, F was able to have OCT No. 0-1234 cancelled and in lieu thereof, a new title,
Transfer Certificate of Title (TCT) No. T-4321, was issued in his name.

A few months after, F offered the property for sale to X. After conducting the required due
diligence to verify the title of F, and finding no occupant in the property during ocular
inspection, X signed the contract of sale, and thereupon, fully paid the purchase price. A few
days later, X was able to obtain TCT No. T-5678 under his name.

When O discovered F's fraudulent acts upon his return in 2017, O immediately filed a complaint
for reconveyance against F and X, principally pointing out that F merely forged his signature in
the Deed of Absolute Sale purportedly made in F's favor and thus, F could not have validly
transferred the title thereof to X. Consequently, he sought the return of the subject property to
him.

(a) Will the prayer of O for the return of the subject property prosper? Explain. (3%)

(b) Assuming that O could no longer recover the subject property in view of X's
registration thereof in his name, may a claim against the Assurance Fund pursuant to
the provisions of the Property Registration Decree be instituted? Explain. (3%)

Answers:

a. Yes, the prayer of O will prosper since the deed of sale between him and F was
forged. Both F X were in bad faith.
b. Yes, a claim for Assurance fund may be claimed by O, assuming he could no longer
recover the subject property.

B.18.

In light of a new business venture, Mr. A entered into a lease contract with Mr. B involving one
of the latter's warehouses. One day, Mr. B, who was then encountering financial difficulties,
approached Mr. A and sought for a loan, which Mr. A readily granted to him. In order to secure
the loan obligation, Mr. B mortgaged the leased warehouse in favor of Mr. A. In addition, Mr. B
executed a promissory note in favor of A, wherein prior demand was waived by him.

When Mr. B defaulted on his loan obligation, Mr. A simply stopped paying rentals due to Mr. B
on the ground that legal compensation had already set in up to the concurrent amount.
Furthermore, since there was still a balance due on the promissory note, Mr. A foreclosed the
real estate mortgage over Mr. B's property, without any prior demand furnished to Mr. B.
Aggrieved, Mr. B opposed the foreclosure due to the lack of prior demand, contending that the
waiver of prior demand was stipulated in the promissory note and not in the mortgage
instrument. Mr. B likewise argued that when Mr. A invoked legal compensation between the
unpaid rentals and the loan arrearages, it amounted to a novation that resulted in the
extinguishment of the loan contract between them. As such, the real estate mortgage, being a
mere accessory contract to the principal loan, was necessarily extinguished.

(a) May Mr. A validly claim legal compensation? Explain. (2%)

(b) May Mr. A validly foreclose on the real estate mortgage even without prior
demand to Mr. B? Explain. (2%)

(c) Is Mr. B's claim of novation correct? Explain. (2%)

ANSWERS:

a. Yes, Mr. A may claim legal compensation. Under the law, a legal compensation exists
when both parties must be mutually creditors and debtors to each other and be
bound principally and that neither debt is held by any retention or controversy
commenced by third persons, and communicated in due time to the debtor and also
that the debts are allowed by law.
b. Yes, Mr. A validly foreclose on the real estate mortgage even without prior demand
to Mr. B. the written agreement between Mr. A and Mr. B was perfected with full
consent of both parties.
c. Yes, under the law, novation is an act of replacing an obligation to perform with
another obligation; or adding an obligation to perform; or replacing a party to
an agreement with a new party.

B.19.

Mr. A entered into a lease contract covering one of his commercial buildings with XYZ
Company, a partnership composed of X, Y, and Z, as lessee, for use as an office space. Upon
failure to receive the rental payments when they fell due, Mr. A immediately sought payment
of the same from X, Y, and Z, asserting that the individual partners are solidarily liable together
with the partnership for its debts.

X, Y, and Z disagreed with Mr. A's contention, arguing further that in any event, rentals should
not be paid up until Mr. A makes the necessary arrangements for the repair of the defective
electrical wirings in the office that caused power outages and hence, made it difficult, if not
impossible, for them to conduct their usual business operations.

Rule on the parties' respective arguments. (5%)

The argument of X,Y and Z in which rentals should not be paid up until Mr. A makes the
necessary arrangements for the repair of the defective electrical wirings in the office that
caused power outages and hence, made it difficult, if not impossible, for them to conduct their
usual business operations shall not prosper. The obligation to do of the said company where X,Y
and Z being solidary liable does not fall on any condition being claimed by them. Mr. X may
collect from either X, Y and Z the whole amount of the obligation or the whole amount of rental
fee.

B.20.

Distinguish the following:

(a) Contract of sale and contract to sell (2%)

(b) Interruption and tolling of prescription of actions (2%)

ANSWERS:

a. A contract of sale is an example of executed Contract whereas the contract to Sell is

an example of executory Contract. In the case of a sale, the right to sell the goods is
in the hands of the buyer. Conversely, in contract to sell, the seller has the right
to sell the goods.

b. Interruption is the a break in the continuity of enjoyment of a right while the tolling

of prescription of action takes place when the running of the time period is
suspended until some event specified by law takes place.