Control No.

005

OBLIGATIONS AND CONTRACTS

Atty. Fretti G. Ganchoon FINAL EXAM SY 2020-2021

Instruction: Answer the following problems/questions. For the essay questions, provide
explanations for your answers based on law and jurisprudence.

ABC Inc. leased the building of XYZ Co. for a term of 10 years, starting 2019. Five years after the
end of the pandemic, XYZ Co. wants to renegotiate the terms of the lease contract in order to
increase the monthly rentals and refuses to accept any more rental payments from ABC Inc. in order
to force it to renegotiate the terms of the contract. In view of the refusal to accept payments by XYZ
Co., what is your legal advice to ABC Inc.? (10%)

Answer: ABC Inc. can invoke its incapability to pay a higher rental due to the event happened in a
fortuitous event which is the pandemic. A typical provision in some leases is the force majeure
clause under 1174 of the Civil Code which can help in the case of an event that can’t be reasonably
anticipated. It cannot be denied, that pandemic which is considered to be a fortuitous event
shutdown many of businesses which make him incapable to pay a higher rent.

X borrowed money from his cousin, Y, in the amount of P2 million, in order to start his own business
of selling PPEs, payable after 5 years, with 12% interest per annum. X also used the warehouse of Y
for free to store the PPEs that he imported from Taiwan. His business thrived, but after 5 years when
the demand for PPEs dwindled, he started losing revenues. When Y demanded payment from X for
his outstanding obligation with interest, X could not pay. So Y padlocked the warehouse and filed a
case against X for collection of sum of money. X alleged that the remaining PPEs stored in Y’s
warehouse, valued at P3.5 million, can already be considered payment for his outstanding obligation
to Y with interest. Will the case filed by Y against X prosper? (10%)

Answer: Yes. It may fall under the provisions of the Consignation of the payment under Art. 1176 of
the Civil Code. Consignation is the act of depositing the thing due with the court or judicial authorities
whenever the creditor cannot accept or refuses to accept payment and generally requires a prior
tender of payment.

X was contracted by Hotel ABC to install a water supply facility for its new hotel. For this, water
needs to be drawn from the water table under the adjacent lot owned by Y. X entered into a
memorandum of agreement (MOA) with Y, in order to allow X to install a water pump in the lot and
give X possessory rights over the portion of the lot where the water pump is installed.

Five years after, the water supply facility of the hotel became inadequate to meet the hotel’s water
requirements. Hence, the hotel hired Z, another contractor, to install a water submersible to increase
the pressure of the water being pumped from the lot owned by Y. When the hotel asked permission
from Y to allow Z to inspect the water pump, Y refused. Hotel ABC was accordingly forced to file a
complaint for damages against Y for his refusal to allow the hotel’s new contractor to inspect and
improve the water pump. Y countered that the MOA was entered into between himself and X only,
and the hotel and its new contractor are not parties thereto. Will the complaint filed by Hotel ABC
against Y prosper? (10%)

Answer: No. the counter of the counter of is merely correct for Article 1311 of the Civil Code
stresses the principle of relativity that is, contracts are generally effective only between the parties,
their assigns, and their heirs.

1
 Control No. 005

OBLIGATIONS AND CONTRACTS

X leased the lot of Y for a term of five years, with option to buy the lot within the first four years of the
of lease. Per their contract, Y allowed X to construct a building on the land. However, such building
would belong to Y upon the end of the lease if X failed to exercise his option to buy the land. During
the fourth year of the lease, Y decided to sell the land to his brother, Z. X objected to the sale, but Y
reasoned that as landowner, he has the right to withdraw the option given to X prior to his receipt of
X’s acceptance of the option to buy. Rule whether Y can sell his land to Z. (10%)

Answer: Yes. can sell his land to Z provided X has not yet signified his acceptance
of the offer to buy the land and provided that Y communicates such withdrawal to X. Thus, Y
may, without liability to Y, sell the land to another, as per Art. 1324 of the Civil Code, as a general
rule, If the offeror has allowed the offeree a certain period to accept, the offer may be withdrawn at
any time before acceptance by communicating such withdrawal.

A, an actress, sued ABC Co. to recover P2 million, representing the balance due to her for the
services she rendered as supporting actress in the sci-fi movie produced by the company, plus
damages. The trial court dismissed the complaint on the ground that “the claim of the plaintiff was
not evidenced by any written document, whether private or public.” Do you agree with the ruling of
the trial court? (10%)

Answer: No, the dismissal was not proper. Generally, under Art. 1356 all contracts are valid,
regardless of form. There are only two exceptions first, when the contractual form is needed for
validity as in the case of a donation of real property which needs a public instrument; secondly, when
form is needed for enforceability under the statute of frauds. The contract for her services falls under
neither exception. Moreover, the contracts covered by Art. 1358 are binding and enforceable by
action or suit despite the absence of any writing because said article nowhere provides that the
absence of written form will make the agreement invalid or unenforceable. In the matter of form, the
contractual system of our Civil Code still follows that of the Spanish Civil Code of 1889. hence,
generally, oral contracts are valid and enforceable.

During his lifetime, X made it appear that he sold his hacienda to his daughters A and B, both of
legal age and studying medicine, via a contract of sale for which his daughters did not pay him any
money for the sale. Upon his death, it appears that X also had an illegitimate son, C, who questioned
the sale of the hacienda to A and B, which prejudiced his valid share in the estate of his father. Is the
sale made by X to A and B a void contract or a rescissible contract? (10%)

Answer: It is a rescissible contract, since there is non-performance or non-fulfillment of the obligation

which is important in the contract of sale. The daughters did not pay X any money for the sale.The
Rescission is under Art. 1191 which states that 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.

2
 Control No. 005

OBLIGATIONS AND CONTRACTS

In your own words, give an example for each: (10%)

a. Natural Obligation

Answer: Natural Obligation an obligation that has no legal basis and hence does not give a right of
action to enforce its performance. It is based on equity, morality, and natural law, and should be
voluntary. For example, Anna has an existing debt with Ella, but Ella fails to ask for a civil action for
the performance, because Anna knows that she is indebted to Ella, she payed it knowing that it is
her natural obligation to pay.

b. Estoppel

Answer: Estoppel concludes the truth in order to prevent fraud and falsehood, and imposes silence
on a party only when in conscience and honesty he should not be allowed to speak. For example,
A landlord informs a tenant that rent has been reduced, for example, because there was
construction or a lapse in utility services. If the tenant relies on this statement in choosing to remain
in the premises, the landlord could be estopped from collecting the full rent.

c. Trust

Answer: A trust is a fiduciary relationship with respect to property which involves the existence
of equitable duties imposed upon the holder of the title to the property to deal with it for the
benefit of another. For example, the Attorney-client relationship. When a client grants power of
attorney to a lawyer or law firm, the attorney has a legal duty to act in total fairness and fidelity
towards the client.

d. Quasi-contract

Answer: Quasi-contract involves an agreement between at least two parties who had no prior
obligation to each other. It is a contract that's legally recognized in a court of law. For example, you
pay for a chicken to be delivered. If that chicken is delivered to another house, and someone else
enjoys the chicken, a quasi-contract could be initiated. Now, the restaurant could be court ordered to
reimburse you for the amount you paid for that chicken.

X brought her diamond ring to a jewelry shop for cleaning and repair. The jewelry shop undertook to
return her ring by 14 February 2020. When the said date arrived, the shop informed X that the repair
of the ring was not yet finished. They asked her to return five days after. On 22 February 2020, an
8.5 magnitude earthquake plus tsunami occurred, wiping almost the entire metropolis. Because of
the sentimental value of the ring to X, X decided to file an action for damages against the jewelry
shop for the loss of the ring due to the earthquake and tsunami. The shop put up the defense of
fortuitous event. Will X’s action prosper? (10%)

Answer: No, X’s action will not prosper. Article 1174 of the Civil Code provides that no person shall
be responsible for those events which had occurred during a fortuitous event. A fortuitous event
under Article 1174 may either be an act of God or natural occurrences such as floods or typhoons,
storms, earthquakes or other cataclysmic events; or an “act of man,” such as riots, strikes, wars,
governmental prohibitions, robbery, and others.

3
 Control No. 005

OBLIGATIONS AND CONTRACTS

Four foreign students rented the apartment of X for a period of one year, under a lease contract
which provided that, in addition to the monthly rentals, the lessees shall shoulder the payment of
utilities. After one semester, three of the students returned to Beijing and the fourth transferred to a
nearby dormitory. X subsequently discovered that the students left unpaid electricity and phone bills
in the total amount of P100,000. May X demand the payment of the entire amount of the unpaid bills
from the fourth student who is still here in the Philippines? (10%)

Answer: No. X demand the payment of the entire amount of the unpaid bills from the fourth student
for it is a joint obligation. But X can demand a part of the payment which is the obligation of the
fourth student. Art. 1207 of the Civil Code provides that, in a joint obligation “each obligor answers
only for a part of the whole liability and to each oblige belongs only a part of the correlative rights.

10

X, Y and Z borrowed P900,000 from A, evidenced by a promissory note which states that they are
solidarily liable to pay A the entire amount upon demand. The promissory note also provides that the
obligation to pay of X can only be demanded on 21 October 2021. If A demands payment from X
today for the amount stated in the promissory note, will his demand prosper? (10%)

Answer: Yes. Art. 1207 of the Civil Code provides that, in a solidary obligation, the relationship
between the active and the passive subjects is so close that each of the former or of the latter may
demand the fulfillment of or must comply with the whole obligation. Since X, Y and Z are solidarily
liable to pay A the entire amount upon demand provided also the promissory note that consist the
obligation, A may demand payment from X for the amount stated in the promissory note.

- Lux in Domino -