COMPLETION EXAMINATION

OBLIGATIONS & CONTRACTS

Atty. Teresita L. Cruz

I. Pablo, lessor, and Rodrigo, lessee, entered into a Contract of Lease for five (5) years
over Pablo's 1,000 sq. m. lot where Rodrigo would construct a 3-storey building. An
option to buy in Rodrigo’s favor during the 5-year lease period was included in the
Contract of Lease which provided that “if Rodrigo does not avail of the option to
buy, Pablo shall become the owner of Rodrigo’s building without any
compensation paid by Pablo”. Rodrigo finished his building’s construction 3 months
after the execution of the Contract of Lease. On the 2 nd year of the lease period,
Rodrigo notified Pablo that he was exercising his option to buy. On the 3 rd year of the
lease period, Pablo wrote to Rodrigo stating that he was withdrawing the offer since
Rodrigo did not give an option money. Is Pablo’s contention correct? Explain fully.
(5%)

II. Assume in the case above (# I) that the Contract of Lease provided: “If the lessor
decides to sell the leased premises, the lessee shall be given first priority to buy
the property. If the lessee cannot avail of the first option to buy the lot, the lessor
can offer the lot to another person who may be willing and capable to buy the
leased property”. Pablo decided to sell the lot and offered it to Rodrigo for P5M
payable in cash. Rodrigo failed to exercise the right of first refusal since he cannot
pay the P5M in cash. Pablo sold the lot to Santiago for P4.5M, P1M payable in cash
and the balance of P3.5M payable in 10 monthly installments. Rodrigo learned of the
terms and conditions in the Contract of Sale between Pablo and Santiago. Rodrigo
filed a case in court for the rescission of the said Contract of Sale. Should the court
rescind the Contract of Sale? Why? Explain well. (5%)

III. Pablo and ABC Bank executed a Contract of Loan for P500K which provided that
Pablo shall pay the debt within two (2) years, starting from July 1, 2019. Pablo
received the money but failed to sign the contract. After failing to pay 3 monthly
amortizations on his obligation, the bank sent a demand letter to Pablo for the payment
of the defaulted amortizations. Pablo refused to pay contending that since he did not
sign the Contract of Loan, there was no binding contract between him and the bank and
that the contract was unenforceable as it violated the Statute of Frauds. Rule on
Pablo’s two (2) contentions (2.5% each) explaining fully your answer.

IV. Rolly borrowed P100,000.00 from Sammy. Expressly stipulated in the Contract of
Loan that on December 30, 2019, Rolly shall pay Sammy P80,000.00 and P20,000.00
shall be given to Terry, Sammy’s creditor. Terry signified his acceptance of this
stipulation by signing on the same document. Explain this stipulation in the Contract
of Loan. (5%)

V. For a contract price of P100K, Abigail agreed to deliver 100 sacks of rice to Annie on
Dec. 20, 2018. Due to a flashflood, Abigail lost 10,000 sacks of rice stored inside her
warehouse. Upon Annie’s demand for the rice delivery, Abigail contended that her
obligation has been extinguished by a fortuitous event. Can Abigail be compelled to
deliver the 100 sacks of rice? Why? (2.5%).

VI. Arnold, 15 years old, and Charlie, 18 years old, entered into a Contract of Sale of
Charlie’s car for the purchase price of P500,000.00 on December 15, 2018. Arnold’s
parents, Dennis and Elisa, were furious when they learned of this transaction. On
December 20, 2018, Dennis was seen by their neighbors driving the car and for the
next six months, he was the one using said car, with Arnold and Elisa as passengers on
the vehicle. On July 1, 2019, Dennis and Elisa filed an action in court for the
annulment of the Contract of Sale contending that their son Arnold, being a minor, did

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 not have the capacity to give consent to the Contract of Sale. Will the annulment of
the Contract of Sale filed by the spouses prosper? Why? (5%)
1. If Charlie was the one who filed for the annulment of the
Contract of Sale, will his case prosper? Explain fully. (2.5%)

VI. Abigail, a law student, who is a “fashionista”, very fond of wearing costume jewelries
and buys real jewelry when she can afford to do so, found a ring at the UST school
grounds. She offered the ring to Benilda, who inquired if it was a real diamond ring.
Abigail said: “I think It is a diamond ring.” Benilda bought the ring for P25,000.00.
A week later, Benilda went to a jewelry appraiser and was informed that the stone on
the ring she bought was merely a semi-precious crystal. Benilda wants to sue Abigail
claiming that her consent was vitiated by fraud. Will this case prosper? Why? (2.5%).

VIII. Pedro wanted to donate to Juan his Mercedes Benz car. Through the clerk’s
inadvertence, the Deed of Donation stated that Pedro’s Ford Cressida car, not the
Mercedes Benz, is being donated. Explain Pedro’s available legal remedy on this
situation citing all its requisites. (5%)

IX. Pablo borrowed P25K from Romeo on January 1, 2019 with a promissory note
wherein Pablo promised to pay Romeo as soon as he has money. Romeo has made
repeated oral and written demands on Pablo to pay his loan but up to now, no payment
has been made.
1. What kind of obligation was entered into by Pablo? (2.5%)
2. What is Romeo’s legal remedy to compel payment from Pablo? Explain
well. (2.5%)

X. On January 1, 2017, Arnold borrowed P2M from Benjie with a promissory note that
the debt was payable on January 1, 2019. Arnold executed a real estate mortgage over
his house in Makati in favor of Benjie to secure this debt. On June 1, 2017, Arnold’s
house was totally destroyed by a strong earthquake. On June 30, 2017, Benjie
demanded full payment of P2M from Arnold who refused to pay contending that the
debt is due and demandable only on January 1, 2019. Can Arnold be compelled to pay
his debt on June 30, 2017? Why? (5%)

XI. Percival owed Oscar P50,000.00 payable on or before December 25, 2019. On due date,
Percival offered a manager’s check in payment of his obligation.
1. May Oscar be compelled to accept the check being offered by Percival
as payment of the loan? Why? (2.5%).
2. If Oscar accepted the check, state the two (2) instances when under the
law, payment has already been made by the debtor to his creditor.
(2.5%)

XII. On January 1, 2019, Araceli and Agaton entered into a Contract of Loan of P100K
secured by a promissory note whereby Agaton obligated himself to pay on or before
December 31, 2019. On June 1, 2019, Agaton wrote to Araceli stating that Armando
shall take care of his debt to Araceli. Araceli did not reply to Agaton’s letter. On
January 5, 2020, Araceli sued Agaton for the payment of the loan. Agaton contends
that he is no longer liable as there was substitution of debtors by delegacion, hence,
Armando shall now be liable for this obligation. Rule on Agaton’s contention citing
the requisites of novation. (5%)

XIII. Amy and Bonnie borrowed P1M from Cristy and Donna evidenced by a promissory
note which states:
“We promise to pay Cristy & Donna P1M on or before June 30, 2020.”
Signed: Amy & Bonnie

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 The note is now due and demandable. How much can be collected by Cristy from Amy?
Explain well. (2.5%)

XIV. When Percival’s obligation to pay his P100,000.00 debt to Rey became due and
demandable, Percival tendered his payment but Rey, without justifiable cause, refused
to accept the payment. State the remedy available to Percival and the procedure he
must follow to validly extinguish his obligation to Rey. (5%)

XV. Distinguish dacion en pago from cession citing 5 differences (5%)

XVI. MCQs. Use CAPITAL LETTERS for your answers. (2% each)

1. Ratification
A. extinguishes the action to annul a rescissible contract.
B. cleanses the contract from all its defects from the moment it was constituted.
C. needs conformity of the other party who has no right to annul the contract.
D. may be effected expressly or tacitly.

2. A contract is rescissible when

A. one of the contracting parties is incapable of giving consent to the contract.
B. there is financial or economic injury to a contracting party.
C. both contracting parties are incapable of giving consent to the contract.
D. the object is inexistent at the time of the constitution of the obligation.

3. Reformation of instrument is proper when:

A. the true intention of the contracting parties is not expressed in the
instrument.
B. one of the parties has brought an action to enforce the instrument.
C. mistake, fraud, inequitable conduct, or accident has prevented the meeting
of the minds of the parties.
D. one party acted with mistake, the other party acted in good faith.
4. Rescission
A. creates the obligation for mutual restoration of the object and the cause of
the contract.
B. can be carried out even when he who demands rescission cannot return
whatever he may be obliged to restore.
C. can take place when the object of the contract is legally in the possession
of a 3rd person who did not act in BF.
D. can be instituted when the party suffering damage has other legal means to
obtain reparation for the said damage.

5. Statement # 1: If the terms of a contract are clear and leave no doubt upon the intention
of the contracting parties, the literal meaning of its stipulations shall control.
Statement # 2: When the nullity proceeds from the illegality of the cause or
object of the contract, and the act constitutes a criminal offense, both parties being
in pari delicto, they shall have no action against each other and both shall be
prosecuted.
A. Statement # 1 is correct; statement # 2 is wrong.
B. Statement # 1 is wrong; statement # 2 is correct.
C. Both statements are correct.
D. Both statements are wrong.

6. Susan, seller and Terry, buyer, both 17 years old, entered into a Contract of Sale of
Susan’s car, without both their parents’ consent. The contract entered into by Susan &
Terry is
A. valid C. voidable
B. rescissible D. unenforceable

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 7. Payments made in a state of insolvency for obligations to whose fulfillment the debtor
could not be compelled at the time they were effected are
A. valid C. voidable
B. rescissible D. unenforceable

8. If a voidable contract is susceptible of ratification, which of the following is NOT a

consequence of ratification?
A. Any action for its annulment is extinguished.
B. The right to ratify is a transmissible right.
C. The contract is purged of its defects from the moment of ratification.
D. Ratification makes the defective contract an untainted and regular
contract.

9. The following, except one, are void contracts. Which is the exception?
A. Where the stipulation is contrary to law, public order, morals or public policy.
B. Where the consideration is not reflected in the contract.
C. Where the object of the contract is inexistent.
D. Where the contract contemplates an impossible service.

10. A contract where the buyer has not yet paid the price agreed upon in the Contract of Sale
is
A. valid C. rescissible
B. void D. unenforceable

11. Statement # 1: Contracts shall be obligatory, in whatever form they may have been
entered into, provided all the essential requisites for their enforceability are
present.
Statement # 2: Condonation or remission is essentially gratuitous, and requires no
acceptance by the obligor.
A. Statement No. 1 is correct; statement No. 2 is wrong.
B. Statement No. 1 is wrong; statement No. 2 is correct
C. Both statements are correct.
D. Both statements are wrong.

12. The requisites of cession are the following, except:

A. One debtor, several creditors
B. Transfer of ownership from debtor to creditors of all properties ceded to the
creditors.
C. Debtor is in a state of partial or total insolvency.
D. Debtor delivers all his properties to the creditors.

13. An obligation based on positive law and which gives a right to a party to enforce its
performance is called a
A. natural obligation C. moral obligation
B. legal obligation D. civil obligation

14. Melai and Jason contracted with Gerard to deliver a P2M live horse to be used for
Gerard’s horseracing hobby. This obligation of Melai and Jason is a
A. Solidary divisible obligation.
B. Solidary indivisible obligation.
C. Joint indivisible obligation.
D. Joint divisible obligation.

15. Cherry entered into an insurance contract with PhilAm Life Insurance Company.
During the medical examination conducted by the physician of the insurance company,

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Cherry concealed that she has diabetes which runs in her family and asthma which she
acquired since birth. This contract is
A. valid, because there was consent, object and consideration.
B. voidable, because consent was given through fraud since one of the contracting
parties failed to disclose facts when there is a duty to reveal them.
C. rescissible, because there is economic/financial injury to one of the contracting
parties.
D. unenforceable, because both contracting parties are incapable of giving consent.
E. void, because there was absence of consent of one of the contracting parties.

CmpletionTest-UST-OC-2020.12.06