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Toaz - Obligations and Contracts
Obligations and Contracts (LAW20013)
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CONTRACTS
Consensual vs. Real Contracts; Kinds of Real Contracts
(1998) Distinguish consensual from real contracts and name at least four
(4) kinds of real contracts under the present law. [3%]
SUGGESTED ANSWER: CONSENSUAL CONTRACTS are those which are perfected by mere consent (Art. 1315. Civil Code). REAL CONTRACTS are those which are perfected by the delivery of the object of the obligation. (Art. 1316, Civil Code) Examples of real contracts are deposit, pledge, commodatum and simple loan (mutuum).
Consideration; Validity (2000) Lolita was employed in a finance company. Because she could not account for the funds entrusted to her, she was charged with estafa and ordered arrested. In order to secure her release from jail, her parents executed a promissory note to pay the finance company the amount allegedly misappropriated by their daughter. The finance company then executed an affidavit of desistance which led to the withdrawal of the information against Lolita and her release from jail. The parents failed to comply with their promissory note and the finance company sued them for specific performance. Will the action prosper or not? (3%)
SUGGESTED ANSWER:
The action will prosper. The promissory note executed by Lolita's parents is valid and binding, the consideration being the extinguishment of Lolita's civil liability and not the stifling of the criminal prosecution.
ALTERNATIVE ANSWER:
The action will not prosper because the consideration for the promissory note was the non-prosecution of the criminal case for estafa. This cannot be done anymore because the information has already been filed in court and to do it is illegal. That the consideration for the promissory note is the stifling of the criminal prosecution is evident from the execution by the finance company of the affidavit of desistance immediately after the execution by Lolita's parents of the promissory note. The consideration being illegal, the promissory note is invalid and may not be enforced by court action.
Contract of Option; Elements (2005) Marvin offered to construct the house of Carlos for a very reasonable price of P900,000, giving the latter 10 days within which to accept or reject the offer. On the fifth day, before Carlos could make up his mind, Marvin
withdrew his offer. a) What is the effect of the withdrawal of Marvin's offer? (2%)
SUGGESTED ANSWER: The withdrawal of Marvin's offer will cause the offer to cease in law. Hence, even if subsequently accepted, there could be no concurrence of the offer and the acceptance. In the absence of concurrence of offer and acceptance, there can be no consent. (Laudico v. Arias Rodriguez, G. No. 16530, March 31, 1922) Without consent, there is no perfected contract for the construction of the house of Carlos. (Salonga v. Farrales, G. No. L-47088, July 10, 1981) Article 1318 of the Civil Code provides that there can be no contract unless the following requisites concur: (1) consent of the parties; (2) object certain which is the subject matter of the contract; and (3) cause of the obligation.
Marvin will not be liable to pay Carlos any damages for withdrawing the offer before the lapse of the period granted. In this case, no consideration was given by Carlos for the option given, thus there is no perfected contract of option for lack of cause of obligation. Marvin cannot be held to have breached the contract. Thus, he cannot be held liable for damages.
b) Will your answer be the same if Carlos paid Marvin P10,000 as consideration for that option? Explain. (2%)
ALTERNATIVE ANSWER:
My answer will be the same as to the perfection of the contract for the construction of the house of Carlos. No perfected contract arises because of lack of consent. With the withdrawal of the offer, there could be no concurrence of offer and acceptance.
My answer will not be the same as to damages. Marvin will be liable for damages for breach of contract of option. With the payment of the consideration for the option given, and with the consent of the parties and the object of contract being present, a perfected contract of option was created. (San Miguel, Inc. v. Huang, G. No. 137290, July 31, 2000) Under Article 1170 of the Civil Code, those who in the performance of their obligation are guilty of contravention thereof, as in this case, when Marvin did not give Carlos the agreed period of ten days, are liable for damages.
ALTERNATIVE ANSWER:
My answer will not be the same if Carlos paid Marvin P10,000 because an option contract was perfected. Thus, if Marvin withdrew the offer prior to the expiration of the 10-day period, he breached the option contract. (Article 1324, Civil Code)
c) Supposing that Carlos accepted the offer before Marvin could communicate his withdrawal thereof? Discuss the legal consequences.
(2%)
SUGGESTED ANSWER:
A contract to construct the house of Carlos is perfected. Contracts are perfected by mere consent manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. (Gomez v. Court of Appeals, G. No. 120747, September 21, 2000)
Under Article 1315 of the Civil Code, Carlos and Marvin are bound to fulfill what has been expressly stipulated and all consequences thereof. Under Article 1167, if Marvin would refuse to construct the house, Carlos is entitled to have the construction be done by a third person at the expense of Marvin. Marvin in that case will be liable for damages under Article 1170.
Inexistent Contracts vs. Annullable Contracts (2004) Distinguish briefly but clearly between Inexistent contracts and annullable
contracts.
SUGGESTED ANSWER:
INEXISTENT CONTRACTS are considered as not having been entered into and, therefore, void ob initio. They do not create any obligation and cannot be ratified or validated, as there is no agreement to ratify or validate. On the other hand, ANNULLABLE or VOIDABLE CONTRACTS are valid until invalidated by the court but may be ratified. In inexistent contracts, one or more requisites of a valid contract are absent. In anullable contracts, all the elements of a contract are present except that the consent of one of the contracting parties was vitiated or one of them has no capacity to give consent.
Nature of Contracts; Obligatoriness (1991) Roland, a basketball star, was under contract for one year to play-for-play exclusively for Lady Love, Inc. However, even before the basketball season could open, he was offered a more attractive pay plus fringes benefits by Sweet Taste, Inc. Roland accepted the offer and transferred to Sweet Taste. Lady Love sues Roland and Sweet Taste for breach of contract. Defendants claim that the restriction to play for Lady Love alone is void, hence, unenforceable, as it constitutes an undue interference with the right of
Roland to enter into contracts and the impairment of his freedom to play and enjoy basketball. Can Roland be bound by the contract he entered into with Lady Love or can he disregard the same? Is he liable at all? How about Sweet Taste? Is it liable to Lady Love?
SUGGESTED ANSWER: Roland is bound by the contract he entered into with Lady Love and he cannot disregard the same, under the principles of obligatoriness of contracts. Obligations arising from contracts have the force of law between the parties.
SUGGESTED ANSWER: Yes, Roland is liable under the contract as far as Lady Love is concerned. He is liable for damages under Article 1170 of the Civil Code since he contravened the tenor of his obligation. Not being a contracting party, Sweet Taste is not bound by the contract but it can be held liable under Art. 1314. The basis of its liability is not prescribed by contract but is founded on quasi-delict, assuming that Sweet Taste knew of the contract. Article 1314 of the Civil Code provides that any third person who induces another to violate his contract shall be liable for damages to the other contracting party.
ALTERNATIVE ANSWER:
It is assumed that Lady Love knew of the contract. Neither Roland nor Sweet Taste would be liable, because the restriction in the contract is violative of Article 1306 as being contrary to law morals, good customs, public order or public policy.
Nature of Contracts; Privity of Contract (1996) Baldomero leased his house with a telephone to Jose. The lease contract provided that Jose shall pay for all electricity, water and telephone services in the leased premises during the period of the lease. Six months later. Jose surreptitiously vacated the premises. He left behind unpaid telephone bills for overseas telephone calls amounting to over P20,000. Baldomero refused to pay the said bills on the ground that Jose had already substituted him as the customer of the telephone company. The latter maintained that Baldomero remained as his customer as far as their service contract was concerned, notwithstanding the lease contract between Baldomero and Jose. Who is correct, Baldomero or the telephone company? Explain.
SUGGESTED ANSWER:
The telephone company is correct because as far as it is concerned, the only person it contracted with was Baldomero. The telephone company has no
also a covenant for the benefit of the vendee, which the latter has validly waived by implication when it offered to pay the balance of the purchase price upon the execution of a deed of absolute sale by the vendor. (Art. 1545, NCC)
Aleatory Contracts; Gambling (2004) A. Mr. ZY lost P100,000 in a card game called Russian poker, but he had no more cash to pay in full the winner at the time the session ended. He promised to pay PX, the winner, two weeks thereafter. But he failed to do so despite the lapse of two months, so PX filed in court a suit to collect the amount of P50,000 that he won but remained unpaid. Will the collection suit against ZY prosper? Could Mrs. ZY file in turn a suit against PX to recover the P100,000 that her husband lost? Reason. (5%)
SUGGESTED ANSWER:
A. 1. The suit by PX to collect the balance of what he won from ZY will not prosper. Under Article 2014 of the Civil Code, no action can be maintained by the winner for the collection of what he has won in a game of chance. Although poker may depend in part on ability, it is fundamentally a game of chance.
- If the money paid by ZY to PX was conjugal or community property, the wife of ZY could sue to recover it because Article 117(7) of the Family Code provides that losses in gambling or betting are borne exclusively by the loser- spouse. Hence, conjugal or community funds may not be used to pay for such losses. If the money were exclusive property of ZY, his wife may also sue to recover it under Article 2016 of the Civil Code if she and the family needed
the money for support.
ALTERNATIVE ANSWER (2):
A. (2). Mrs. ZY cannot file a suit to recover what her husband lost. Art 2014 of the Civil Code provides that any loser in a game of chance may recover his loss from the winner, with legal interest from the time he paid the amount lost. This means that only he can file the suit. Mrs. ZY cannot recover as a spouse who has interest in the absolute community property or conjugal partnership of gains, because under Art. 117(7} of the Family Code, losses are borne exclusively by the loser-spouse. Therefore, these cannot be charged against absolute community property or conjugal partnership of gains. This being so, Mrs. ZY has no interest in law to prosecute and recover as she has no legal standing in court to do so.
Contract to Sell vs. Conditional Contract of Sale (2012) No. a) A contract to sell is the same as a conditional contract of sale. Do
you agree? Explain your answer. (5%)
SUGGESTED ANSWER:
No. A contract to sell is a species of conditional sale. The contract to sell does not sell a thing or property; it sells the right to buy property. A conditional sale is a sale subject to the happening or performance of a condition, such as payment of the full purchase price, or the performance of other prestation to give, to do or not to do. Compliance with the condition automatically gives the right to the vendee to demand the delivery of the object of the sale. In a contract to sell, however, the compliance with the condition does not automatically sell the property to the vendee. It merely gives the vendee the right to compel the vendor to execute the deed of absolute sale.
Rescission of Contract; Fortuitous Event (2008) No. AB Corp. entered into a contract with XY Corp. whereby the former agreed to construct the research and laboratory facilities of the latter. Under the terms of the contract, AB Corp. agreed to complete the facility in 18 months, at the total contract price of P10 million. XY Corp. paid 50% of the total contract price, the balance to be paid upon completion of the work. The work stated immediately, but AB Corp. later experienced work slippage because of labor unrest in his company. AB Corp.'s employees claimed that they are not being paid on time; hence, the work slowdown. As of the 17th month, work was only 45% completed. AB Corp. asked for extension of time, claiming that its labor problems is a case of fortuitous event, but this was denied by XY Corp. When it became certain that the contruction could not be finished on time, XY Corp. sent written notice cancelling the contract, and requiring AB Corp. to immediately vacate the premises.
(A). Can the labor unrest be considered a fortuitous event? (1%)
SUGGESTED ANSWER: No. The labor unrest cannot be considered a fortuitous event under Art. 1174 of the Civil Code. A fortuitous event should occur independent of the will of the debtor or without his participation or aggravation (Paras, Civil Code Annotated, vol. IV, 2000 ed., p 159). As mentioned in the facts, labor unrest of the employees was caused by AB Corp.'s failure to pay its employees on time.
(B). Can XY Corp. unilaterrally and immediately cancel the contract?
SUGGESTED ANSWER:
No, XY Corp. cannot unilaterally and immediately cancel the contract. In the absence of any stipulation for automatic rescission, rescission must be judicial (Art. 1191, Civil Code).
(C). Must AB Corp. return the 50% downpayment? (2%)
SUGGESTED ANSWER: AB Corp. need not return the 50% down payment because 45% of the work was already completed, otherwise, XY Corp. would be unjustly enriching itself at the expense of AB Corp.
Stipulation; Arbitration Clause (2009) No. XI. TRUE or FALSE. Answer TRUE if the statement is true, or FALSE if the statement is false. Explain your answer in not more than two (2) sentences.
(A). A clause in an arbitration contract granting one of the parties the power to choose more arbitrators than the other renders the arbitration contract void. (1%)
SUGGESTED ANSWER:
True. The Civil Code provides that <Any clause giving one of the parties power to choose more arbitrators than the other is void and of no effect= (Art 2045, NCC).
b) Pactum de non alienando
c) Pactum leonina
d) Pacto de retro
- The borrower in a contract of loan or mutuum must pay interest to the lender.
a) If there is an agreement in writing to the effect.
b) As a matter of course.
c) If the amount borrowed is very large. d) If the lender so demands at the maturity date.
- If one of the parties to the contract is without juridical capacity, the contract is:
a) voidable
b) rescissible
c) void
d) unenforceable
- When both parties to the contract are minors, the contract is:
a) voidable
b) rescissible
c) void
d) unenforceable
- When the consent of one of the parties was vitiated, the contract is: a) voidable
b) rescissible
c) void
d) unenforceable
Consent was given by one in representation of another but without authority. The contract is: a) voidable b) rescissible c) void d) unenforceable
Michael Fermin, without the authority of Pascual Lacas, owner of a car, sold the same car in the name of Mr. Lacas to Atty. Buko. The contract
between Atty. Buko and Mr. Lacas is --- a) void because of the absence of consent from the owner, Mr. Lacas. b) valid because all of the essential requisites of a contract are present. c) unenforceable because Michael Fermin had no authority but he sold the car in the name of Mr. Lacas, the owner. d) rescissible because the contract caused lesion to Atty. Buko.
Which of the following contracts is void? a) An oral sale of a parcel of land. b) A sale of land by an agent in a public instrument where his authority from the principal is oral. c) A donation of a wrist watch worth P 4,500. d) A relatively simulated contract
Which of the following expresses a correct principle of law? Choose the best answer. a) Failure to disclose facts when there is a duty to reveal them, does not constitute fraud. b) Violence or intimidation does not render a contract annullable if employed not by a contracting party but by a third person. c) A threat to enforce one’s claim through competent authority, if the claim is legal or just, does not vitiate consent. d) Absolute simulation of a contract always results in a void contract.
Aligada orally offered to sell his two- hectare rice land to Balane for P 10Million. The offer was orally accepted. By agreement, the land was to be delivered (through execution of a notarized Deed of Sale) and the price was to be paid exactly one-month from their oral agreement.
Which statement is most accurate? a) If Aligada refuses to deliver the land on the agreed date despite payment by Balane, the latter may not successfully sue Aligada because the contract is oral. b) If Aligada refused to deliver the land, Balane may successfully sue f or fulfillment of the obligation even if he has not tendered payment of the purchase price. c) The contract between the parties is rescissible. d) The contract between the parties is subject to ratification by the parties.
- Which of the following statements is wrong? a) Creditors are protected in cases of contracts intended to defraud them.
b) Contracts take effect only between the parties, their assign and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. c) If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. d) In contracts creating real rights, third persons who come into possession of the object of the contract are not bound thereby.
- Which phrase most accurately completes the statement – Any third person who induces another to violate his contract: a) shall be liable for damages only if he is a party to the same
contract.
b) shall be liable for damages to the other contracting party.
c) shall not be liable for damages to the other contracting party.
d) shall not be liable for damages if the parties are in pari delicto.
- The characteristics of succession are as follows, except: a) It is a legal contract. b) Only property, rights and obligations to the extent of the value of the
inheritance are transmitted.
c) The transmission takes place only at the time of death. d) The transmission takes place either by will or by operation of law.
- Which phrase most accurately completes the statement – If at the time the contract of sale is perfected, the thing which is the object of the contract has been entirely lost: a) the buyer bears the risk of loss.
b) the contract shall be without any effect.
c) the seller bears the risk of loss.
d) the buyer may withdraw from the contract.
A contract granting a privilege to a person, for which he has paid a consideration, which gives him the right to buy certain merchandise or specified property, from another person, at anytime within the agreed period, at a fixed price. What contract is being referred to? a) Option Contract b) Contract to Sell c) Contract of Sale d) Lease
Which of the following contracts of sale is void?
a) Sale of EGM’s car by KRP, EGM’s agent, whose authority is not reduced into writing. b) Sale of EGM’s piece of land by KRP, EGM’s agent, whose authority is not reduced into writing. c) Sale of EGM’s car by KRP, a person stranger to EGM, without EGM’s consent or authority. d) Sale of EGM’s piece of land by KRP, a person stranger to EGM, without EGM’s consent or authority.
Toaz - Obligations and Contracts
Course: Obligations and Contracts (LAW20013)
University: Polytechnic University of the Philippines
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