1.
Polo Pantaleon sued American Express
International for an alleged delay is
approving his purchase while he was in a
vacation in Amsterdam. Such delay caused
not only inconvenience but also humiliation
for their family.
He filed with the RTC a breach of
contractual obligations. Rule on the case.
Suggested Answer
Pantaleon has right to moral damages under
Article 1170 of the Civil Code.
Said provision provides that those who in
the performance of their obligations are
guilty of fraud, negligence, or delay and
those who in any manner contravene the
tenor thereof, are liable for damages.
In the case, the culpable failure of American
express is not the failure to timely approve
petitioner’s purchase, but the more
elemental failure to timely act on the same,
whether favorably or unfavorably. What it
should have done is to inform the Pantaleon
of the delay.
The award for damages is not merely for
delay, but because the delay, for which
culpability lies under Article 1170, led to
particular injuries.
2. On 1990, Marquez contracted a obtained a
loan of 20, 000 pesos from Elisan Credit
Corporation subject to 26% annual interest.
And, in case of non-payment, a 10%
monthly penalty based on the amount unpaid
and another 25% of such amount for
attorney’s fees. A chattel mortgage was also
executed over a motor vehicle
On 1992, the loan reached maturity but only
10, 000 pesos was paid. Marquez asked
Elisan if she could pay in daily installments
to which the latter agreed. On 1995, Despite
Marquez having paid 20, 000, Elisan
foreclosed the chattel mortgage as the
former did not settle her balance despite
demand as her payment during the daily
installment was applied to the interest
accrued as a consequence of her delay in
payment as stipulated invoking Article 1253.
Marquez insist that it should be credited
against the principal, invoking Article 1176
of the Civil Code.
Rule on the case.
Suggested Answer:
Elisan Corporation is correct in applying
Article 1253 and crediting the daily
installments on the accrued interest
Article 1176 is applied only when there is a
waiver of interest. There is no existence of
such waiver in the case.
The loan of Marquez is interest-bearing
making Article 1253 applicable. Such
provision provides a hierarchy that
payments shall be first applied to the
interest; payment then shall be applied to the
principal only after the interest has been
fully-paid.
A portion of the loan remain unpaid at the
date of maturity, hence such loan is subject
to a 26% annual interest. Thus, the daily
installments were applied to the accruing
interest.
3. FSI entered into an agreement with FBI
whereby the former, as subcontractor,
undertook constructions of walls, capping
beam in a certain plaza.
FSI then filed a complaint for Sum of
Money stating that the FBI refused to pay
despite demand.
RTC and CA ruled in favor of FSI and was
demanded FBI to pay the claimed amount
plus 12% interest from the time of judgment.
FBI avers that the CA erred in imposing the
12% interest as its agreement with FSI was
not a “loan or forbearance of money”.
Is the FBI correct?
Suggested Answer:
Yes, the FBI is correct in the argument that
the 12% interest rate is inapplicable since
this case does not involve a loan or
forbearance.
The nature of the parties’ contract does not
involve acquiescence to the temporary use
of a party’s money but a performance of a
particular service.
As such, the Supreme Court has submitted
in landmark case of Eastern Shipping Lines,
an when and obligation, not constituting a
loan or forbearance, is breached,
necessitates the imposition of 6% annual
interest from the finality of judgment.
Therefore, only 6% and not 12% interest
rate shall be imposed upon FBI from the
time of judgment.
Suggested Answer
4. Metro Concast Steel Corporation obtained
several loans from Allied Bank. Metro failed
to pay such loans upon maturity. In order to
pay its debts, Metro entered into an
agreement with Peakstar for the sale of the
former’s scrap metals. However, Peakstar
reneged in all its obligations.
Metro interposed the defense of force
majeure for their failure to pay their loan
obligations to Allied Bank.
Is Metro Concast Correct?
Suggested Answer:
Metro Concast is not correct in invoking
fortuitous events as a defense for their non-
payment of the loans.
To constitute a fortuitous event, the
following elements must concur: a) must be
independent of human will; b) must be
unforeseen, or if can be foreseen, inevitable;
c) such event must render it impossible for
the debtor to fulfill his obligation in a proper
manner; d) the debtor must be free from
participation in aggravating the loss.
In the case, it cannot be shown that
Peakstar’s act of reneging in its obligations
rendered it impossible for Metro to pay its
loan obligations to Allied bank, thus negates
the theory of force majeure.
5. Respondent Estrella Querimit opened a
dollar savings account in FEBTC for which
she was issued 4 Certificates of Deposit. In
1989, respondent accompanied her husband
to the US for medical treatment. In 1993, her
husband died and Estrella Querimit returned
to the Philippines.
She went to petitioner FEBTC to withdraw
her deposit but she was told that her husband
had withdrawn the money in deposit.
Respondent demanded payment including
interests earned. Respondent filed a
complaint upon refusal of petitioner to pay. 
Is the petitioner bank liable?
Yes, the bank is liable under Article 1173
for failing to exercising that diligence
required by the nature of its business.
As the business of banks is impressed with
public interest, the degree of diligence
required is more than that of a good father of
the family. The fiduciary nature of their
relationship with depositors requires the
highest degree of care.
Further, responsibility arising from
negligence in the performance of every kind
of obligation is demandable.
Here, the petitioner bank is proven to be
negligent thus is liable for damages
6. Ortigas & Company, Limited Partnership
entered into a lease agreement with La Paz
Investment & Realty Corporation wherein
the former leased to the latter its parcel of
land located in San Juan. La Paz constructed
the Greenhills Shopping Arcade and
divided it into several stalls and
subleased them to other people. One of the
sub-lessees was Edsel Liga (Liga), who
obtained the leasehold right to Unit No. 26,
Level A of the GSA. As the lease expired,
 the stallholders made several attempts to The basis of such hold-out clause is for the
have their leasehold rights extended. Allegro alleged unauthorized withdrawal of
Resources became the new lessee. As the respondent.
new lessee, Allegro offered to sublease
Unit No. 26, Level A to Liga. They entered Is the issuance of the hold-out clause valid?
into a lease agreement dubbed Rental Suggested Answer:
Information in which Liga agreed to pay
rental of P40K monthly. She also agreed to No, the issuance of the hold-out clause is
pay the back rentals due Ortigas. Liga also groundless as there is no valid and existing
gave P40K as one month advance rental and obligation on the part of Rosales.
another P40K as one month security
The “Hold Out” clause applies only if there
deposit as provided in the agreement.
is a valid and existing obligation arising
Liga failed to pay the subsequent due rent.
from any of the sources of obligation
Despite repeated demands from Allegro,
enumerated in Article 1157 of
Liga had failed to pay her rentals for the
the Civil Code, to wit: law, contracts, quasi-
subleased property, as well as the back
contracts, delict, and quasi-delict. In this
rentals from January to August 2001 due
case, petitioner failed to show that
Ortigas.
respondents have an obligation to it under
any law, contract, quasi-contract, delict, or
Should Liga be required to pay back rentals
quasi-delict.
covering the period of January 1 to August
31? This enumeration of the sources of
obligation under Article 1157 is exclusive
Suggested Answer:
and should not be extended or narrowed.
No, Liga should not be required to pay back
rentals for such period as Ortigas is not a
party to the case, whether as plaintiff or 8. Under a deed of conditional sale, Castillo
otherwise. agreed to sell his property to Olivarez
Realty; with Olivarez Realty delivering the
Article 1159 provides that obligations
down payment and the rest to be paid in 30
arising from contracts shall have the force of
equal monthly installments every 8th of the
law between the stipulating parties. Thus, by
month beginning in the month.
necessary implication, the effects of a
contract shall not extend over to parties not However, Olivarez Realty failed to comply
involved therein. with the conditions therein, to wit: a) pay the
full purchase price; b) failed to file any
Here, the obligation is exclusively between
action against PTA; c) failed to clear the
Liga and Allegro. There is no indication that
land of the tenants nor paying them
Oscar is even a third party more so a
disturbance compensation. For breaching the
complainant. The agreement between the
contract, Castillo prayed for rescission of
stipulating parties should not extend to
contract under Art. 1191 of Civil Code, plus
Oscar.
damages.
Therefore, Liga should only pay back rentals
If you are the judge, will you grant the
to Allegro.
rescission?

7. Petitioner Metrobank is a domestic banking

corporation duly organized and existing
under the laws of the Philippines issued a
“hold-out” clause against respondent
Rosales is the owner of a travel agency
while Yo Yuk To is her mother.
Suggested Answer
No, the contract is a contract to sell thus
rescission is not applicable.
In a contract to sell, transfer of title to the
prospective buyer is not automatic.
Failure to fully pay the purchase price in
contracts to sell is not the breach of contract
under Art. 1191. Failure to fully pay the
purchase price is merely an event which
prevents the seller’s obligation to convey
title from acquiring binding force. This is
because there can be no rescission of an
obligation that is still nonexistent, the
suspensive condition having not happened.
Since Castillo still has to execute a deed of
absolute sale to Olivarez Realty Corporation
upon full payment of the purchase price, the
transfer of title is not automatic. The
contract to sell is instead cancelled, and the
parties shall stand as if the obligation to sell
never existed.
9. On September 3, 2012, Remarkable Laundry
and Dry Cleaning (respondent) filed a
Complaint denominated as “Breach of
Contract and Damages” against spouses
Romeo and Ida Pajares (petitioners) before
the RTC.
Respondent alleged that it entered into a
Remarkable Dealer Outlet Contract with
petitioners whereby the latter, acting as a
dealer outlet, shall accept and receive items
or materials for laundry which are then
picked up and processed by the former in its
main plant or laundry outlet; that petitioners
violated Article IV (Standard Required
Quota & Penalties) of said contract, which
required them to produce at least 200 kilos
of laundry items each week, when, on April
30, 2012, they ceased dealer outlet
operations on account of lack of personnel;
that respondent made written demands upon
petitioners for the payment of penalties
imposed and provided for in the contract,
but the latter failed to pay; and, that
petitioners’ violation constitutes breach of
contract.
Will the complaint of respondent although
denominated as one for breach of contract
give rise to either specific performance or
rescission?
Suggested Answer:
Respondent’s complaint denominated as one
for “Breach of Contract & Damages” is
neither an action for specific performance
nor a complaint for rescission of contract.
Specific performance is the remedy of
requiring exact performance of a contract.
Whereas, Article 1191 is a remedy available
to the obligee when the obligor does not
comply with what is incumbent upon him.
Respondent, however, neither asked to
compel petitioners to perform such
obligation as contemplated in said contract
nor sought the rescission thereof. There is no
such as an “action for breach of contract”.
Rather, breach of contract of a cause of
action, not the action or relief itself.
10. Dra De Llana was involved in a vehicular
accident caused by a truck driver employed
by Rebecca Biong.
Dra. dela Llana sued Rebecca for damages
She alleged that she lost the mobility of her
arm as a result of the vehicular accident,
medical expenses an average monthly
income of P30,000.00 since June 2000.
During trial showed pictures of the collision
and a medical certificate issued by Dr. Milla
as evidence of her whiplash injury.
In defense, Rebecca maintained that Dra.
dela Llana had no cause of action against her
as no reasonable relation existed between
the vehicular accident and Dra. dela Llana's
injury. Dra. dela Llana's illness became
manifest one month and one week from the
date of the vehicular accident.
Whether or not Rebecca Biong is liable for
damages for the whiplash injury of Dra.
Dela Llana?
Suggested Answer
No, Biong is not liable for damages. Dra.
Dela Llana failed to prove the chain of
causation between the collision and her
whiplash injury, thus no quasi-delict is
present.
Under the Civil Code, the elements in order
to establish a quasi-delict are: 1) damages to
the plaintiff; 2) negligence, by act or
omission, of the defendant or by some
person for whose acts the defendant must
respond, was guilty; and 3) the connection
of cause and effect between such negligence
and the damages.
In the case, the pictures showing the
collision merely showed the impact of the
same – and not the whiplash injury. Further,
a medical certificate issued by a doctor not
present during the trial must not be given
probative value. It is the doctor who issued
such certificate who has personal knowledge
of Dra. Dela Llana’s injury.
Therefore, there is not quasi-delict and Dra.
Dela Llana may not claim damages from
Rebecca Biong.
11. Respondent Mekeni offered petitioner
Antonio Locsin II the position of Regional
Sales Manager. In addition to a
compensation and benefit package, Mekeni
offered petitioner a car plan, under which
one-half of the cost of the vehicle is to be
paid by the company and the other half to be
deducted from petitioner's salary.
Subsequently, Locsin resigned. Petitioner
thus returned the vehicle to Mekeni.
Petitioner made personal and written follow-
ups regarding his unpaid salaries,
commissions, benefits, and offer to purchase
his service vehicle. Mekeni replied that the
company car plan benefit applied only to
employees who have been with the company
for five years and that the deductions on his
salary are to be treated as rentals for the car.
Petitioner filed against Mekeni and/or its
President, Prudencio S. Garcia, a Complaint
for the recovery of monetary claims
consisting of unpaid salaries, commissions,
sick/vacation leave
Is the petition meritorious?
Suggested Answer
Yes, if the deductions on Locsin’s salary are
to be treated as rentals for the car, it would
result in the unjust enrichment of Mekeni.
The principle of unjust enrichment
requires... two conditions: (1) that a person
is benefited without a valid basis or
justification, and (2) that such benefit is
derived at the expense of another.
In the case, Mekeni may not enrich itself by
charging petitioner for the use of its vehicle
which is otherwise absolutely necessary to
the full and effective promotion of its
business. It may not, under the claim that
petitioner's payments constitute rents for the
use of the company vehicle, refuse to refund
what petitioner had paid, for the reasons that
the car plan did not carry such a condition.
12. The Respondent, Permanent Homes Inc. is a
real estate development company that
applied and was an “Omnibus Line” credit
facility in the Solidbank to finance its
housing project known as “Buena Vida
Townhomes” in the amount of sixty million
pesos.
Of the sixty million available to Permanent
Homes, it availed of a total of 41.5 million
pesos, covered by three (3) promissory notes
wherein it irrevocably authorized Solidbank
to increase or decrease at any time the
interest rate based on the prevailing rates in
the local or international capital markets.
The adjustment of the interest rates shall be
effective from the date indicated in the
written notice or if no date was indicated the
time the notice was sent. There was a
standing agreement by both parties that any
increase or decrease in the interest rates
shall be subject to the mutual agreement of
the parties. There were three loan availments
done, each with a series of increases and
decreases in the interest rates as the
provisions of the promissory note stipulated.
It is now the contention of Permanent
Homes that Solidbank unilaterally and
arbitrarily accelerated the interest rates
 without any declared basis of such increases,
of which Permanent Homes did not agree to
or been informed of. That this was contrary
to their standing agreement that any interest
rate changes will be subject to mutual
agreement of the parties. They aver that they
could not protest the actions of the Bank for
fear that it would cut off their credit facility.
Solidbank, on the other hand, avers that
Permanent Homes has no cause of action
against it, as the aforementioned pertinent
provisions of the Omnibus Credit Line and
the promissory notes stipulated and agreed
to and duly signed by PERMANENT
HOMES. Thus, in accordance with said
provisions, SOLIDBANK was authorized to,
upon due notice, periodically adjust the
interest rates on PERMANENT HOMES’
loan availments during the monthly interest
repricing dates, depending on the changes in
prevailing interest rates in the local and
international capital markets.
Is the repricing of the interest rates by Solid
Bank valid?
Suggested Answer
The repricing of the interest rates made by
Solid Bank are valid.
The Supreme Court held that the validity of
the actions of the bank are (1) the parties
mutually agreed on said stipulations; (2)
repricing takes effect only upon Solidbank’s
written notice to Permanent of the new
interest rate; and (3) Permanent has the
option to prepay its loan if Permanent and
Solidbank do not agree on the new interest
rate. The interest rates implemented by
Solidbank were consistent with prevailing
rates in the local or international capital
markets.
In order that obligations arising from
contracts may have the force of law between
the parties, there must be a mutuality
between the parties based on their essential
equality. A contract containing a condition
which makes its fulfillment dependent
exclusively upon the uncontrolled will of
one of the contracting parties is void. There
was no showing that either Solidbank or
Permanent coerced each other to enter into
the loan agreements. The terms of the
Omnibus Line Agreement and the
promissory notes were mutually and freely
agreed upon by the parties.
13. The Toll Regulatory Board filed an
expropriation proceeding against
landowners whose properties would be
affected by the expansion of NLEX. One of
those affected is HTRDC. In 2002, TRB
deposited a sufficient amount to cover the
payment of 100% of the zonal value of the
affected properties. In 2003, HTRDC filed
with the RTC a Motion to Withdraw
Deposit, praying that the respondent be
allowed to withdraw the amount of PhP
22,968,000.00, out of the TRB’s advance
deposit of PhP28,406,700.00, including the
interest which accrued thereon.
On March 11, 2004, the RTC ordered that
the interest earnings from the deposit
ofP22,968,000.00 respecting 100% of the
zonal value of the affected properties in this
expropriation proceedings under the
principle of accession are considered as
fruits and should pertain to HTRDC.
They argued the HTRDC is entitled only to
an amount equivalent to the zonal value of
the expropriated property, nothing more and
nothing less as provided under Sec. 4 of RA
8974. They further argued that it is only
during the determination of just
compensation when the court will appoint
commissioners and determine claims for
entitlements to interest.
Rule on the case with reasons.
Suggested Answer
The interest shall be awarded to the HTRDC
from that time the TRB deposited the
amount to the RTC pursuant to Article 1187
of the Civil Code.
Article 1187 of the Civil Code provides that
the "effects of a conditional obligation to
give, once the condition has been fulfilled,
shall retroact to the day of the constitution of
the obligation." Hence, when HTRDC
complied with the given conditions, as
determined by the RTC in its Order dated 21
 April 2003, the effects of the constructive
delivery retroacted to the actual date of the
deposit of the amount in the expropriation
account of DPWH.
14. Spouses Conrado and Maria Victoria
Ronquillo purchased from Fil-Estate
Properties an 82-square meter condominium
unit for a pre-selling contract price of
P5,174,000.00.
Upon learning that construction works had
stopped, Spouses Ronqurllo likewise
stopped paying their monthly amortization.
Spouses now claim the rescission of the
contract and reimbursement of the amount
with damages.
Fil-estate interposes the defense of a
fortuitous event that the Asian financial
crisis constitutes a fortuitous event which
would justify delay by them in the
performance of their contractual obligation.
a. If you were the judge, would you
grant the rescission?
b. Further, is the defense of
fortuitous event tenable?
Suggested Answer:
Suggested Answer:
If I were the judge, I would grant the
rescission claimed by the spouses as the
failure of fil-estate to develop the
condominium project constitutes a
substantial breach of their obligation. This
entitled the spouses the right to rescission
and damages pursuant to Article 1191.
On the issue of Fil-Estate’s defense of force
majeure, the same does not hold water.
The Supreme Court held that the Asian
financial crisis is not a fortuitous event that
would excuse a party from performing their
contractual obligation. A real estate
enterprise engaged in the pre-selling of
condominium units is concededly a master
in projections on commodities and currency
movements and business risks.
Therefore, the said crisis cannot be deemed
as unforeseen. Further, it cannot render Fil-
Estate unable to perform their obligations to
Spouses Ronquillo in a normal manner.
15. Pikian Mining Company (PMI) is the owner
of 81 mining, 15 of which are covered by
Mining Lease Contracts, the remaining 66
had pending applications for lease. It entered
into an Operating Agreement (OA) with
Golden Valley Exploration, Inc. (GVEI),
granting the latter "full, exclusive and
irrevocable possession, use, occupancy, and
control over the [mining claims], and every
matter pertaining to the examination,
exploration, development and mining of the
[mining claims] and the processing and
marketing of the products for a period of 25
years. They stipulated also that the non-
payment of royalties is sufficient to rescind
the contract.
Later, PMI extra-judicially rescinded the OA
upon GVEI’s violation of Section 5.01,
Article V thereof. GVEI contested PMC’s
extra-judicial rescission of the OA averring
therein that its obligation to pay royalties to
PMC arises only when the mining claims are
placed in commercial production which
condition has not yet taken place.
Is the rescission valid?
Yes. The rescission is valid as the agreement
between PMI and GVEI states that the non-
payment of royalties is sufficient ground for
an extra-judicial rescission.
As a general rule, the power to rescind an
obligation must be invoked judicially and
cannot be exercised solely on a party’s own
judgment. This is so because rescission of a
contract will not be permitted for a slight or
casual breach, but only for such substantial
and fundamental violations.
A well-established exception however an
injured party need not resort to court action
in order to rescind a contract when the
contract itself provides that it may be
revoked or cancelled upon violation of its
terms and conditions.
Therefore, the stipulation of the parties
operated to allow PMI to extra-judicially
rescind the contract.
 16. Dante Lim delivered scrap papers worth
7,220,968.31 to Arco Pulp and Paper
Company, Inc. The parties allegedly agreed
that Arco Pulp and Paper would either pay
Dan T. Lim the value of the raw materials or
deliver to him their finished products of
equivalent value. Dan T. Lim alleged that
when he delivered the raw materials, Arco
Pulp and Paper issued a postdated check as
partial payment, with the assurance that the
check would not bounce. When he deposited
the check, it was dishonored for being drawn
against a closed account.
On the same day, Arco Pulp and Paper and a
certain Eric Sy executed a memorandum of
agreement where Arco Pulp and Paper
bound themselves to deliver their finished
products to Megapack Container
Corporation, owned by Eric Sy, for his
account. According to the memorandum, the
raw materials would be supplied by Dan T.
Lim, through his company, Quality Paper
and Plastic Products. Despite repeated
demands by Lim, Arco Pulp and Paper did
not pay. Lim filed a complaint for collection
of sum of money with prayer for attachment
with the RTC. The trial court rendered a
judgment in favor of Arco Pulp and Paper
and dismissed the complaint, holding that
when Arco Pulp and Paper and Eric Sy
entered into the memorandum of agreement,
novation took place, which extinguished
Arco Pulp and Paper’s obligation to. Lim.
Is the obligation extinguished as a
consequence of novation?
Suggested Answer:
No. The obligation between the parties was
an alternative obligation.
Here, Arco Pulp and Paper, after receiving
the raw materials from Lim, would either
pay him the price of the raw materials or, in
the alternative, deliver to him the finished
products of equivalent value. This is an
alternative obligation, where several
prestations are alternatively due but
compliance of one is sufficient. The tender
of check is tantamount to choosing the
option to pay, thus, converting the obligation
into a simple one.
It is not correct that the obligation is novated
when petitioner delivered the finished
products because they were made to a third
person, not the original obligation between
the parties.
17. Republic Planters Bank issued 9 promissory
notes signed by Shozo Yamaguchi
(President) and Fermin Canlas (Treasurer)
of Worldwide Garment Manufacturing Inc.
Yamaguchi and Canlas were authorized by
the corporation to apply for credit facilities
with the bank in form of export advances
and letters of credit or trust receipts
accommodations. Such promissory notes
contained “I promise to pay”.
Three years after, the bank filed an action to
recover the sums of money covered by the
promissory notes. Worldwide Garment
Manufacturing changed its name to Pinch
Manufacturing Corp. Canlas alleged he was
not liable personally for the corporate acts
that he performed, and that the notes were
still blank when he signed them.
Is Canlas liable for the amounts in the
treasury notes?
Suggested Answer:
Yes, Canlas is a co-maker of the promissory
notes, under the law, and cannot escape
liability arising therefrom. 
Where an instrument containing the words
“I promise to pay” is signed by two or more
persons, they are deemed jointly and
severally liable thereon.
Well-established in Civil Law is that a
solidary debtor is liable for either his share
or the whole obligation without prejudice to
his right to reimbursement.
Here, Canlas cannot escape his liability and
he may be sued individually or together with
his solidary debtors.
18. The Lam Spouses and Kodak Philippines,
Ltd. entered into an agreement for the sale
of three units of the Kodak Minilab System
Minilab Equipment in the amount of
P1,796,000.00 per unit.