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1.

In 1972, Luciano de la Cruz sold to Chua Chung Chun, a Chinese citizen, a


parcel of land in Binondo. Chua died in 1990, leaving behind his wife and three
children, one of whom, Julian, is a naturalized Filipino citizen. Six years after Chuas
death, the heirs executed an extrajudicial settlement of estate, and the parcel of
land was allocated to Julian. In 2007, Luciano filed suit to recover the land he sold to
Chua, alleging that the sale was void because it contravened the Constitution,
which prohibits the sale of private lands to aliens. Julian moved to dismiss the suit
on grounds of pari delicto, laches and acquisitive prescription. Decide the case with
reasons.
Bar Question 2009
The case must be dismissed. Julian, who is a naturialized Filipino citizen
and to whom the property was allocated in a n extra-judicial partition of
the estate, is now the owner of the property. The defect in ownership of
the property of Julians alien father has already been cured by its transfer
to Julian. It has been validated by the transfer of the property to a Filipino
citizen. Hence, there is no more violation of the Constitution because the
subject real property is now owned by a Filipino citizen (Halili v. CA, 287
SCRA 465, [1998]). Further, after the lapse of 35 year, laches has set in
and the motion to dismiss may be granted, for the failure of Luciano to
question the ownership of Chua before its transfer of ownership to Julian.
2. Dux leased his house to Iris for a period of 2 years, at the rate
of
P25,000.00 monthly, payable annually in advance. The contract stipulated that it
may be renewed for another 2-year period upon mutual agreement of the parties.
The contract also granted Iris the right of first refusal to purchase the property at
any time during the lease, if Dux decides to sell the property at the same price that
the property is offered for sale to a third party. Twenty-three months after execution
of the lease contract, Dux sold the house to his mother for P2 million.
Iris
claimed that the sale was a breach of her right of first refusal.
Dux said there
was no breach because the property was sold to his mother who is not a third party.
Iris filed an action to rescind the sale and to compel Dux to sell the property to her
at the same price. Alternatively, she asked the court to extend the lease for another
2 years on the same terms. (a) Can Iris seek rescission of the sale of the property
to Duxs mother? (b) Will the alternative prayer for extension of the lease prosper?
Bar Question 2008
Yes, because the right of first refusal is included in the contract signed by
the parties. Only if the lessee failed to exercise the right of first refusal
could the lessor lawfully sell the subject property to others, under no less
than the same terms and conditions previously offered to the lessee.
Granting that the mother is not a third party, this would make her privy to
the agreement of Dux and Iris, aware of the right of first refusal. This
makes the mother a buyer in bad faith, hence giving more ground for
rescission of the sale to her (Equatorial Realty, et al. v. Mayfair Theater,
G.R. No. 106063, 21 Nov. 1996).

ALTERNATIVE ANSWER: No, Iris cannot seek rescission of the sale of the
property to Duxs mother because the sale is not one of those rescissible
contracts under Art. 1381 of the Civil Code.
(b) Will the alternative prayer for extension of the lease prosper?
SUGGESTED ANSWER: No. The contract stipulated that it may be renewed
for another 2-year period upon mutual agreement of the parties. Contracts
are binding between the parties; validity or compliance cannot be left to
the will of one of the parties (Art. 1308, Civil Code).
ALTERNATIVE ANSWER:
It depends. The alternative prayer for the extension of the lease may
prosper if (a) there is a stipulation in the contract of sale; (b) Dux's
mother is aware of the existing contract of lease; or (c) the lease is
recorded in the Registry of Property (Art. 1676, Civil Code).
3. M owned Lot No. 123 with an area of 5 hectares located in Tabogon, Cebu. He
sold a portion of his property to the Municipality of Tabogon with an unspecified
area, but stipulating only that the sale covers the area needed for the construction
of a city hall site, avenues and parks according to the Mayor Lapid Plan. 5 years
later, M sold another portion his property to Pio again with an unspecified area, but
stipulating only that the sale covers the remaining area not already sold to the
Municipality of Tabogon. Pio then sued the Municipality of Tabogon for the nullity of
the sale executed by M in its favor for the reason that the subject matter is not
determinate. You are the Honorable Presiding Judge. Will you rule in Pios favor?
Why?
No.
Under Article 1460 of the New Civil Code, a thing sold is determinate if at the time
the contract is entered into, the thing is capable of being determinate without
necessity of a new or further agreement between the parties.
The area sold to the Municipality is determinable without need of new or further
agreement because the construction of the buildings are based on the Mayor Lapid
Plan.

4.
To pay for the tuition of their children, Ogie and Regine pledged their wedding
rings at RF Pawnshop in Manalili St., Cebu City. Two weeks after submitting their
wedding rings for pledge, armed robbers looted the safety deposit box of RF
Pawnshop, including the wedding rings of Ogie and Regine. When Ogie and Regine
came to redeem their rings, RF Pawnshop informed them that they could no longer
return these rings, because of the fortuitous events of armed robbery. Ogie and
Regie, henceforth, sued RF Pawnshop for Damages. In its Defense, RF Pawnshop
proved only one fact, that the Robbery was beyond their control, and argued that
being so, they are excused from liability because of the fortuitous event. You are the
Honorable Presiding Judge. In whose favor will you rule?

Bar Tips
RF Pawnshop is liable for actual and other damages to Ogie and Regine. To
constitute a fortuitous event, the following elements must concur: (a) the cause of
the unforeseen and unexpected occurrence or of the failure of the debtor to comply
with obligations must be independent of human will; (b) it must be impossible to
foresee the event that constitutes the caso fortuito or, if it can be foreseen, it must
be impossible to avoid; (c) the occurrence must be such as to render it impossible
for the debtor to fulfill obligations in a normal manner; and, (d) the obligor must be
free from any participation in the aggravation of the injury or loss. RF Pawnshop
May have Proved that the robbery was independent of human will. As the party
invoking fortuitous events as a defense, however, RF Pawnshop Likewise had The
burden Of proving The other Elements of the Fulfillment of the Fortuitous events.
More importantly, RF Pawnshop Failed to Prove that It exercised Due diligence To
protect The wedding Rings of Ogie And Regine From the Unfortunate loss. Therefore,
their Defense must Fail and They must Pay damages To Ogie And Regine. (Roberto
Sicam vs. Lulu Jorge, G.R. No. 159617. August 8, 2007.)

5.
Josephine needed cash worth 2 Million Pesos, 1 Million Pesos to pay for her
existing very onerous loan to a loan shark and 1 Million as further capital for her
business. She did not, however, possess good credit standing with MetroCity Bank.
Her friend, Rica, had good credit standing with MetroCity Bank, but she needed
collateral to borrow money from said bank. In consideration of their intention to
allow Rica to mortgage the lot to MetroCity Bank to loan for Josephine, therefore,
Josephine feigned the sale of one of her lots to Rica for the sum of P100,000.00
Pesos only. Rica thereafter mortgaged the transferred lot to MetroCity Bank.
MetroCity Bank released a loan of 2 Million Pesos. Rica did not inform Josephine.
Upon learning of the release of said loan proceeds, Josephine demanded from Rica
her 2 Million Pesos. Rica refused saying Josephine had no right to do so, because
she did not execute the loan with MetroCity Bank and she already freely sold her lot
to Rica. As such Josephine would be barred by Estoppel by Deed if she questions
Ricas ownership of her lot. Is Rica correct?
Bar Tips
Rica is incorrect. In Selling the lotto her, Josephine, in fact, only entered into a
relatively Simulated contract Of sale to Rica. Under Article 1346, a relatively
simulated contract, when it does not violate the law or prejudice 3 rd parties, Binds
the Parties to their Real agreement. The real Agreement between Rica and
Josephine in This case Is not The contract Of sale but that of agency, i.e., to allow
Rica to Borrow oney From MetroCity Bank and Execute a real estate Mortgage on
Behalf of Josephine In favor Of the Same MetroCity Bank. Josephine And Rica, hence,
are bound to their real agreement of agency.
As such Rica only Held the 2 Million Pesos loan Proceeds released By MetroCity Bank
In trust In favor Of Josephine. Upon Josephines Demand Rica Must turn Over these
Funds to Her under Pains of committing criminal Breach of Trust or Of

misappropriation. (Please see Spouses Villaceran vs. De Guzman, G.R. No.


169055, February 22, 2012.)
6. Penelope applied for a loan from EPCIB submitting her condominium flat as Real
Estate Mortgage. EPCIB then directed Penelope to sign blank promissory notes, a
loan agreement and a real estate mortgage. After 3 years, EPCIB gave Penelope a
copy of the contracts they signed. Penelope was surprised to discover that although
EPCIB was the creditor-mortgagee in the signed Loan Agreement; EPCIB filled up the
name of another party, that of Equitable Savings Bank (or EBS), in the Real Estate
Mortgage and Promissory Notes. EBS is a completely owned subsidiary of EPCIB but
is a completely separate juridical entity. Penelope suspended her payments and
requested to EPCIB to correct the documentation. EBS commenced extra-judicial
foreclosure proceedings against the condominium flat of Penelope. Constrained,
Penelope sued for a Writ of Preliminary injunction, contending that EBS had no right
to foreclose her unit. Is Penelope correct?
Bar Tips

7.
An Isuzu elf truck owned by AA and driven by BB was hit by an ABC
Transportation bus registered under the name of CC and driven by DD. A criminal
case for reckless imprudence resulting in damage to property and multiple physical
injuries was filed against DD. However, DD eluded arrest, thus, respondents filed a
separate complaint for damages against DD and CC, seeking actual damages,

compensation for lost income, moral damages, exemplary damages, attorneys fees
and costs of the suit. For their part, petitioners capitalized on the issue of ownership
of the bus in question. CC argued that, although the registered owner was him, the
actual owner of the bus was SPO1 EE, who had the bus attached with ABC
Transportation Company under the so-called kabit system. Is SPO1 EE liable?
Yes SPO1 EE is liable. The registered owner is primarily responsible but with a right
to be indemnified by the real or actual owner of the amount that he may be
required to pay as damage for the injury caused. (Villanueva v Domingo, G.R. No.
144274. September 20, 2004)
The kabit system is an arrangement whereby a person who has been granted a
certificate of public convenience allows other persons who own motor vehicles to
operate them under his license, sometimes for a fee or percentage of the earnings.
[9]
Although the parties to such an agreement are not outrightly penalized by law,
the kabit system is invariably recognized as being contrary to public policy and
therefore void and inexistent under Art. 1409 of the Civil Code.
In the early case of Dizon v. Octavio[10] the Court explained that one of the primary
factors considered in the granting of a certificate of public convenience for the
business of public transportation is the financial capacity of the holder of the
license, so that liabilities arising from accidents may be duly
compensated. The kabit system renders illusory such purpose and, worse, may still
be availed of by the grantee to escape civil liability caused by a negligent use of a
vehicle owned by another and operated under his license. If a registered owner is
allowed to escape liability by proving who the supposed owner of the vehicle is, it
would be easy for him to transfer the subject vehicle to another who possesses no
property with which to respond financially for the damage done. Thus, for the safety
of passengers and the public who may have been wronged and deceived through
the baneful kabit system, the registered owner of the vehicle is not allowed to prove
that another person has become the owner so that he may be thereby relieved of
responsibility.
However, while a suit will prosper against the registered owner, it is the actual
owner who is ultimately liable

8.
MIAA, owner of Lot 2-A, entered into a contract of lease with Ding Velayo
Sport Center, Inc. The term of the contract was for 25 years and renewable for 25
years at the option of the lessee on the condition that the lessee would notify the
lessor at least 60 days before the expiration of the original contract. The contract
stipulated that the lessee shall build improvements thereon (shops, parking, sports
facilities) that lessee shall not sublease the subject property; and that the
ownership of the improvements thereon shall transfer to the lessor upon the
expiration of the contract.
More than 60 days before the expiration of the contract, Ding Velayo sent a letter to
MIAA that it wanted to renew the lease. MIAA declined on the ground that the

stipulation granting Ding Velayo the option to renew the contract is void as it is a
potestative condition, and that Ding Velayo violated the terms of the lease by
subleasing the shops. Has MIAA the right to decline the renewal of the contract?
NO
Article 1308 of the Civil Code expresses what is known in law as the principle of
mutuality of contracts. It provides that "the contract must bind both the contracting
parties; its validity or compliance cannot be left to the will of one of them." This
binding effect of a contract on both parties is based on the principle that the
obligations arising from contracts have the force of law between the contracting
parties, and there must be mutuality between them based essentially on their
equality under which it is repugnant to have one party bound by the contract while
leaving the other free therefrom. The ultimate purpose is to render void a contract
containing a condition which makes its fulfillment dependent solely upon the
uncontrolled will of one of the contracting parties.
An express agreement which gives the lessee the sole option to renew the
lease is frequent and subject to statutory restrictions, valid and binding
on the parties. This option, which is provided in the same lease agreement, is
fundamentally part of the consideration in the contract and is no different from any
other provision of the lease carrying an undertaking on the part of the lessor to act
conditioned on the performance by the lessee. It is a purely executory contract and
at most confers a right to obtain a renewal if there is compliance with the conditions
on which the right is made to depend. The right of renewal constitutes a part of the
lessee's interest in the land and forms a substantial and integral part of the
agreement.

The fact that such option is binding only on the lessor and can be
exercised only by the lessee does not render it void for lack of
mutuality. After all, the lessor is free to give or not to give the option to
the lessee. And while the lessee has a right to elect whether to continue with the
lease or not, once he exercises his option to continue and the lessor accepts, both
parties are thereafter bound by the new lease agreement. Their rights and
obligations become mutually fixed, and the lessee is entitled to retain possession of
the property for the duration of the new lease, and the lessor may hold him liable
for the rent therefor. The lessee cannot thereafter escape liability even if he should
subsequently decide to abandon the premises. Mutuality obtains in such a contract
and equality exists between the lessor and the lessee since they remain with the
same faculties in respect to fulfillment.[48] (MIAA v Ding Velayo Sports Center, GR
161718, Dec 14, 2011)

9.
Red Co. entered into a Trade Contract with Yellow Co. for the construction of a
Condominium. Under the Trade contract, Red Corporation had the right to withhold
5% of the contact price as retention money for any negligence, act, omission, or

default committed by Yellow Corp. The Trade Contract likewise provided that Yellow
Corp. is prohibited from assigning or transferring any of its rights, obligations, or
liabilities under the said contract without the written consent of Red Corporation.
Subsequently, Gold Co., informing it that Yellow Co., had already assigned its
receivables from Red Co., to Gold Co., by virtue of a Deed of Assignment. Red Co.,
refused to deliver as the same was not yet due and demandable. Finally, Red Co.,
informed Gold Co., that nothing was left of the retention money due to the
rectification of defective works in the project. This prompted Gold Co., to file a case
against Red and Yellow Co. Is Red Co. bound by the Deed of Assignment?
NO
Obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith. 50 As such, the stipulations in
contracts are binding on them unless the contract is contrary to law, morals, good
customs, public order or public policy.51
The same principle on obligatory force applies by extension to the contracting
partys assignees, in turn, by virtue of the principle of relativity of contracts which is
fleshed out in Article 1311 of the Civil Code, viz.:
Art. 1311. Contracts take effect only between the parties, their assigns 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. The heir is not
liable beyond the value of the property he received from the decedent.
x x x x (Emphasis supplied)
The reason that a contracting partys assignees, although seemingly a third party to
the transaction, remain bound by the original partys transaction under the relativity
principle further lies in the concept of subrogation, which inheres in assignment.
Case law states that when a person assigns his credit to another person, the latter
is deemed subrogated to the rights as well as to the obligations of the former. 52 By
virtue of the Deed of Assignment, the assignee is deemed subrogated to
the rights and obligations of the assignor and is bound by exactly the
same conditions as those which bound the assignor.53 Accordingly, an
assignee cannot acquire greater rights than those pertaining to the
assignor.54 The general rule is that an assignee of a non-negotiable chose
in action acquires no greater right than what was possessed by his
assignor and simply stands into the shoes of the latter. 55
Applying the foregoing, the Court finds that MS Maxco, as the Trade Contractor,
cannot assign or transfer any of its rights, obligations, or liabilities under the Trade
Contract without the written consent of FBDC, the Client, in view of Clause 19.0 on
Assignment and Sub-letting of the Trade Contract between FBDC and MS Maxco

which explicitly provides that:


19.0 ASSIGNMENT AND SUB-LETTING
19.1 The Trade Contractor [Ms Maxco] shall not, without written consent of the
Client [FBDC], assign or transfer any of his rights, obligations or liabilities
under this Contract. The Trade Contractor shall not, without the written consent
of the Client, sub-let any portion of the Works and such consent, if given, shall not
relieve the Trade Contractor from any liability or obligation under this
Contract.56 (Emphases supplied)
Fong, as mere assignee of MS Maxcos rights under the Trade Contract it
had previously entered with FBDC, i.e., the right to recover any credit
owing to any unutilized retention money, is equally bound by the
foregoing provision and hence, cannot validly enforce the same without
FBDCs consent.
Without any proof showing that FBDC had consented to the assignment, Fong
cannot validly demand from FBDC the delivery of the sum of P1,577,115.90 that
was supposedly assigned to him by MS Maxco as a portion of its retention money
with FBDC. The practical efficacy of the assignment, although valid between Fong
and MS Maxco, remains contingent on FBDCs consent. Without the happening of
said condition, only MS Maxco, and not Fong, can collect on the credit. Note,
however, that this finding does not preclude any recourse that Fong may take
against MS Maxco. After all, an assignment of credit for a consideration and
covering a demandable sum of money is considered as a sale of personal property
(G.R. No. 209370, March 25, 2015 - FORT BONIFACIO DEVELOPMENT CORPORATION, Petitioner,
v. VALENTIN L. FONG, Respondent.)

10.
In a complaint, petitioners alleged that respondents obtained a loan from
them in the amount of P500,000.00. Petitioners added that respondents were able
to pay a total of P200,000.00 P100,000.00 paid on two separate occasions
leaving an unpaid balance of P300,000.00.
Respondents claimed that they were approached by petitioners, who proposed that
if respondents were to undertake the management of whatever money
[petitioners] would give them, [petitioners] would get 2.5% a month with a 2.5%
service fee to [respondents]. The 2.5% that each party would be receiving
represented their sharing of the 5% interest that the joint venture was supposedly
going to charge against its debtors. Moreover, they claimed that the entire amount
of P500,000.00 was disposed of in accordance with their agreed terms and
conditions and that petitioners terminated the joint venture, prompting them to
collect from the joint ventures borrowers. They were, however, able to collect only
to the extent of P200,000; hence, the P300,000 balance remained unpaid.
Petitioners insist that respondents consistent payment of interest in the year
following the perfection of the loan showed that interest at 2.5% per month was

properly agreed upon despite its not having been expressly stated in the
acknowledgment receipt. They add that during the proceedings before the Regional
Trial Court, respondents admitted that interest was due on the loan.
If it was ruled that the agreement above-stated was that of a simple loan or
mutuum, did the parties validly stipulate the payment of interest? If not, what rate
of interest should be imposed?
Yes, there was a stipulation on interest as stated in the acknowledgment
receipt.
Article 1956 of the Civil Code spells out the basic rule that "[n]o interest
shall be due unless it has been expressly stipulated in writing."
On the matter of interest, the text of the acknowledgment receipt is
simple, plain, and unequivocal. It attests to the contracting parties intent
to subject to interest the loan extended by petitioners to respondents.
The controversy, however, stems from the acknowledgment receipts
failure to state the exact rate of interest.
Jurisprudence is clear about the applicable interest rate if a written
instrument fails to specify a rate. In Spouses Toring v. Spouses Olan,35 this
court clarified the effect of Article 1956 of the Civil Code and noted that
the legal rate of interest (then at 12%) is to apply: "In a loan or
forbearance of money, according to the Civil Code, the interest due should
be that stipulated in writing, and in the absence thereof, the rate shall be
12% per annum."36
Spouses Toring cites and restates (practically verbatim) what this court
settled in Security Bank and Trust Company v. Regional Trial Court of
Makati, Branch 61: "In a loan or forbearance of money, the interest due
should be that stipulated in writing, and in the absence thereof, the
rate shall be 12% per annum."37
Security Bank also refers to Eastern Shipping Lines, Inc. v. Court of
Appeals, which, in turn, stated:38
1. When the obligation is breached, and it consists in the payment of a
sum of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing. Furthermore,
the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interestshall be 12%
per annum to be computed from default, i.e., from judicial or extrajudicial
demand under and subject to the provisions of Article 1169 of the Civil
Code.39 (Emphasis supplied)
The rule is not only definite; it is cast in mandatory language.
From Eastern Shipping to Security Bank to Spouses Toring, jurisprudence
has repeatedly used the word "shall," a term that has long been settled to
denote something imperative or operating to impose a duty. 40 Thus, the

rule leaves no room for alternatives or otherwise does not allow for
discretion. It requires the application of the legal rate of interest.
Our intervening Decision in Nacar v. Gallery Frames41 recognized that the
legal rate of interest has been reduced to 6% per annum:
Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSPMB), in its Resolution No. 796 dated May 16, 2013, approved the
amendment of Section 2 of Circular No. 905, Series of 1982 and,
accordingly, issued Circular No. 799, Series of 2013, effective July 1, 2013,
the pertinent portion of which reads:
The Monetary Board, in its Resolution No. 796 dated 16 May 2013,
approved the following revisions governing the rate of interest in the
absence of stipulation in loan contracts, thereby amending Section 2 of
Circular No. 905, Series of 1982:
Section 1. The rate of interest for the loan or forbearance of any money,
goods or credits and the rate allowed in judgments, in the absence of an
express contract as to such rate of interest, shall be six percent (6%) per
annum.
Section 2. In view of the above, Subsection X305.1 of the Manual of
Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the
Manual of Regulations for
Non-Bank Financial Institutions are hereby amended accordingly.
This Circular shall take effect on 1 July 2013.
Thus, from the foregoing, in the absence of an express stipulation as to
the rate of interest that would govern the parties, the rate of legal
interest for loans or forbearance of any money, goods or credits and the
rate allowed in judgments shall no longer be twelve percent (12%) per
annum as reflected in the case of Eastern Shipping Lines and Subsection
X305.1 of the Manual of Regulations for Banks and Sections 4305Q.1,=
4305S.3 and 4303P.1 of the Manual of Regulations for Non- Bank Financial
Institutions, before its amendment by BSP-MB Circular No. 799 but will
now be six percent (6%) per annum effective July 1, 2013. It should be
noted, nonetheless, that the new rate could only be applied prospectively
and not retroactively. Consequently, the twelve percent (12%) per annum
legal interest shall apply only until June 30, 2013. Come July 1, 2013 the
new rate of six percent (6%) per annum shall be the prevailing rate of
interest when applicable.42 (Emphasis supplied, citations omitted)
Nevertheless, both Bangko Sentral ng Pilipinas Circular No. 799, Series of
2013 and Nacar retain the definite and mandatory framing of the rule
articulated in Eastern Shipping, Security Bank, and Spouses
Toring. Nacar even restates Eastern Shipping:

To recapitulate and for future guidance, the guidelines laid down in the
case of Eastern Shipping Lines are accordingly modified to embody BSPMB Circular No. 799, as follows:
....
1. When the obligation is breached, and it consists in the payment of a
sum of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing. Furthermore,
the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interestshall be 6%
per annum to be computed from default, i.e., from judicial or extrajudicial
demand under and subject to the provisions of Article 1169 of the Civil
Code.43 (Emphasis supplied, citations omitted)
Thus, it remains that where interest was stipulated in writing by the
debtor and creditor in a simple loan or mutuum, but no exact interest rate
was mentioned, the legal rate of interest shall apply. At present, this is 6%
per annum, subject to Nacars qualification on prospective application.
Applying this, the loan obtained by respondents from petitioners is
deemed subjected to conventional interest at the rate of 12% per annum,
the legal rate of interest at the time the parties executed their agreement.
Moreover, should conventional interest still be due as of July 1, 2013, the
rate of 12% per annum shall persist as the rate ofconventional interest.
Even if it can be shown that the parties have agreed to monthly interest at
the rate of 2.5%, this is unconscionable. As emphasized in Castro v.
Tan,50 the willingness of the parties to enter into a relation involving an
unconscionable interest rate is inconsequential to the validity of the
stipulated rate:
The imposition of an unconscionable rate of interest on a money debt,
even if knowingly and voluntarily assumed, is immoral and unjust. It is
tantamount to a repugnant spoliation and an iniquitous deprivation of
property, repulsive to the common sense of man. It has no support in law,
in principles of justice, or in the human conscience nor is there any reason
whatsoever which may justify such imposition as righteous and as one
that may be sustained within the sphere of public or private morals. 51
The imposition of an unconscionable interest rate is void ab initio for
being "contrary to morals, and the law."52
Apart from respondents liability for conventional interest at the rate of
12% per annum, outstanding conventional interestif any is due from
respondentsshall itself earn legal interest from the time judicial demand
was made by petitioners, i.e., on July 31, 2002, when they filed their
Complaint. This is consistent with Article 2212 of the Civil Code, which
provides:

Art. 2212. Interest due shall earn legal interest from the time it is
judicially demanded, although the obligation may be silent upon this
point.
So, too, Nacar states that "the interest due shall itself earn legal interest
from the time it is judicially demanded."53
Consistent with Nacar, as well as with our ruling in Rivera v. Spouses
Chua,54 the interest due on conventional interest shall be at the rate of
12% per annum from July 31, 2002 to June 30, 2013. Thereafter, or starting
July 1, 2013, this shall be at the rate of 6% per annum.
(SPOUSES SALVADOR ABELLA AND ALMA ABELLA vs. SPOUSES ROMEO
ABELLA AND ANNIE ABELLA July 8, 2015 G.R. No. 195166)

11.
Andi Aganaman (Andi) entered into a Joint Venture Agreement with Antoine
Aurthur (Antoine), a French National, for the operation of an ice cream shop. With
Andi as the industrial partner and Antoine as the capitalist partner, the parties
agreed that they would each receive 40% of the net profit, with the remaining 20%
to be used for the payment of the ice-making machine, which was purchased for the
business. For and in consideration of the sum of P900,000, however, Antoine
subsequently executed a Deed of Assignment transferring all his rights and interests
in the business in favor of Amalia Agimat (Amalia). Amalia caused her lawyer to
send Andi a letter apprising her of her acquisition of Antoines share in the business
and formally demanding an accounting and inventory thereof as well as the
remittance of their portion of its profits. Upon Andis unjustified failure to heed her
demand, Amalia then commenced an action for specific performance, accounting,
examination, audit and inventory of assets and properties, dissolution of the joint
venture, appointment of a receiver, and damages.
Did Amalia acquire the title of being a partner based on the Deed of Assignment?
NO
Generally understood to mean an organization formed for some temporary
purpose, a joint venture is likened to a particular partnership or one which
has for its object determinate things, their use or fruits, or a specific
undertaking, or the exercise of a profession or vocation.[27] The rule is
settled that joint ventures are governed by the law on
partnerships[28] which are, in turn, based on mutual agency or delectus
personae.[29] Insofar as a partners conveyance of the entirety of his
interest in the partnership is concerned, Article 1813 of the Civil Code
provides as follows:
Art. 1813. A conveyance by a partner of his whole interest in the
partnership does not itself dissolve the partnership, or, as against the
other partners in the absence of agreement, entitle the assignee, during

the continuance of the partnership, to interfere in the management or


administration of the partnership business or affairs, or to require any
information or account of partnership transactions, or to inspect the
partnership books; but it merely entitles the assignee to receive in
accordance with his contracts the profits to which the assigning partners
would otherwise be entitled. However, in case of fraud in the management
of the partnership, the assignee may avail himself of the usual remedies.
In the case of a dissolution of the partnership, the assignee is entitled to
receive his assignors interest and may require an account from the date
only of the last account agreed to by all the partners.
From the foregoing provision, it is evident that (t)he transfer by a partner
of his partnership interest does not make the assignee of such interest a
partner of the firm, nor entitle the assignee to interfere in the
management of the partnership business or to receive anything except
the assignees profits. The assignment does not purport to transfer an
interest in the partnership, but only a future contingent right to a portion
of the ultimate residue as the assignor may become entitled to receive by
virtue of his proportionate interest in the capital. [30] Since a partners
interest in the partnership includes his share in the profits, [31] we find that
the CA committed no reversible error in ruling that the Spouses Jaso are
entitled to Biondos share in the profits, despite Juanitas lack of consent to
the assignment of said Frenchmans interest in the joint
venture. Although Eden did not, moreover, become a partner as a
consequence of the assignment and/or acquire the right to require an
accounting of the partnership business, the CA correctly granted her
prayer for dissolution of the joint venture conformably with the right
granted to the purchaser of a partners interest under Article 1831 of
the Civil Code. (JOSEFINA P. REALUBIT v. PROSENCIO D. JASO and EDENG.
JASO, G.R. No. 178782, September 21, 2011)

12.
P executed an SPA in favor of A, authorizing the latter to sell the property of
P to B and to receive payment therefore. B made partial payment in the amount of
P950,000 to A and is occupying the property. A Contract To Sell was executed by A
in favor of B and signed by P as buyer-principal but P, as vendor, did not reserve his
title to the property until the vendee had fully paid the purchase price. A did not
remit the payment to P. B filed an action for rescission of contract and demanded for
the return of the P950,000 he paid to A. Is Bs action proper?
Yes. In a contract of sale rescission is a remedy under Article 1191 of the Civil Code
wherein the right to rescind an obligation is predicated on the violation of the
reciprocity between parties, brought about by a breach of faith by one of
them. [11] Rescission, however, is allowed only where the breach is substantial and
fundamental to the fulfillment of the obligation. [12]

In Dignos vs. Court of Appeals this Court stated:


Thus, it has been held that a deed of sale is absolute in nature although
denominated as a "Deed of Conditional Sale" where nowhere in the contract in
question is a proviso or stipulation to the effect that title to the property sold is
reserved in the vendor until full payment of the purchase price, nor is there a
stipulation giving the vendor the right to unilaterally rescind the contract the
moment the vendee fails to pay within a fixed period (Taguba v. Vda. de Leon, 132
SCRA 722; Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 86 SCRA 305).
In a contract to sell, "there can be no rescission or resolution of an obligation as yet
non-existent, because the suspensive condition did not happen" but in a contract of
sale, the non-payment of the price is a resolutory condition, 13 the remedy of the
seller under Article 1191 of the Civil Code is to exact fulfillment or to rescind the
contract. In respect, however, to the sale of immovable property, this Article must
be read together with Article 1592 of the same Code: Art. 1592. In the sale of
immovable property, even though it may have been stipulated that upon failure to
pay the price at the time agreed upon the rescission of the contract shall of right
take place, the vendee may pay, even after the expiration of the period, as long as
no demand for rescission of the contract has been made upon him either judicially
or by a notarial act. After the demand, the court may not grant him a new term.
(Jacinto v Kaparaz, G.R. No. 81158 May 22, 1992)

13.
On July 2, 2015 A executed a Continuing Suretyship in favor of B to secure
any and all types of credit accommodation in the amount of P2,000,000.00 which is
covered by a Credit Agreement / Promissory Note. The Continuing Suretyship
executed by petitioner stipulated that the liability of the Surety is solidary and not
contingent upon the pursuit of the Bank of whatever remedies it may have against
the Debtor or the collaterals/liens it may possess. If any of the Guaranteed
Obligations is not paid or performed on due date the Surety shall, without need for
any notice, demand or any other act or deed, immediately become liable therefor
and the Surety shall pay and perform the same. On August 2, 2015 B obtained a
loan from Security Bank in the amount of P1,000,000.00 payable on November 2,
2015. On due date, B failed to pay the loan, hence Security Bank demanded
payment from A. A did not agree to pay the loan. He argued that he did not execute
a surety contract on August 2, 2015 to secure the loan obtained by B. Is the
contention of A correct?
NO. By executing such an agreement, the principal places itself in a
position to enter into the projected series of transactions with its creditor;
with such suretyship agreement, there would be no need to execute a
separate surety contract or bond for each financing or credit
accommodation extended to the principal debtor

The nature of a suretyship is elucidated in Philippine Charter Insurance Corporation


v. Petroleum Distributors & Service Corporation11 in this wise:
A contract of suretyship is an agreement whereby a party, called the surety,
guarantees the performance by another party, called the principal or obligor, of an
obligation or undertaking in favor of another party, called the obligee. Although the
contract of a surety is secondary only to a valid principal obligation, the surety
becomes liable for the debt or duty of another although it possesses no direct or
personal interest over the obligations nor does it receive any benefit therefrom. This
was explained in the case of Stronghold Insurance Company, Inc. v. Republic-Asahi
Glass Corporation, where it was written:
The surety's obligation is not an original and direct one for the performance of his
own act, but merely accessory or collateral to the obligation contracted by the
principal. Nevertheless, although the contract of a surety is in essence secondary
only to a valid principal obligation, his liability to the creditor or promisee of the
principal is said to be direct, primary and absolute; in other words, he is directly and
equally bound with the principal.
xxxx
Thus, suretyship arises upon the solidary binding of a person deemed the surety
with the principal debtor for the purpose of fulfilling an obligation. A surety is
considered in law as being the same party as the debtor in relation to whatever is
adjudged touching the obligation of the latter, and their liabilities are interwoven as
to be inseparable. x x x.12
In this case, what petitioner executed was a Continuing Suretyship, which the Court
described in Saludo, Jr. v. Security Bank Corporation 13 as follows:
The essence of a continuing surety has been highlighted in the case of Totanes v.
China Banking Corporation in this wise:
Comprehensive or continuing surety agreements are, in fact, quite commonplace in
present day financial and commercial practice. A bank or financing company which
anticipates entering into a series of credit transactions with a particular company,
normally requires the projected principal debtor to execute a continuing surety
agreement along with its sureties. By executing such an agreement, the
principal places itself in a position to enter into the projected series of
transactions with its creditor; with such suretyship agreement, there
would be no need to execute a separate surety contract or bond for each
financing or credit accommodation extended to the principal debtor.14
The terms of the Continuing Suretyship executed by petitioner, quoted earlier, are
very clear.1wphi1 It states that petitioner, as surety, shall, without need for any
notice, demand or any other act or deed, immediately become liable and shall pay
"all credit accommodations extended by the Bank to the Debtor, including
increases, renewals, roll-overs, extensions, restructurings, amendments or
novations thereof, as well as (i) all obligations of the Debtor presently or hereafter

owing to the Bank, as appears in the accounts, books and records of the Bank,
whether direct or indirect, and
(ii) any and all expenses which the Bank may incur in enforcing any of its rights,
powers and remedies under the Credit Instruments as defined hereinbelow." 15 Such
stipulations are valid and legal and constitute the law between the parties, as
Article 2053 of the Civil Code provides that "[a] guaranty may also be given as
security for future debts, the amount of which is not yet known; x x x." Thus,
petitioner is unequivocally bound by the terms of the Continuing Suretyship. There
can be no cavil then that petitioner is liable for the principal of the loan, together
with the interest and penalties due thereon, even if said loan was obtained by the
principal debtor even after the date of execution of the Continuing Suretyship.
(MARIANO LIM vs. SECURITY BANK CORPORATION, G.R. No. 188539, March
12, 2014)

14.
Alvin, a well-known basketball player entered into a business venture with
Nap, a friend. In the course of their business, Alvin pre-signed several checks to
answer for the expenses of the business. Although signed, these checks had no
payees name, date, or amount. The blank checks were entrusted to Nap with the
specific instructions not to fill them out without previous notification to and approval
by Alvin. Nap, without the knowledge and consent of Alvin, secured a loan from
Gerry. He used the pre-signed check to and filled out the blank portions thereof.
When Nap was unable to pay his obligation, Gerry went after Alvin and filed BP 22.
Is Alvin liable to pay for the contract of loan?

15.
Delos Santos was riding his car along the Katipunan Road that collided with
an over speeding shuttle bus owned by FSFC. FSFC argue that they should not be
held liable, because it was admitted that De los Santos made a turn along
Katipunan Road without exercising the necessary care which could have prevented
the accident from happening. The sudden turn of the vehicle used by the Delos
Santos should also be considered as negligence, thus, mitigating, if not absolving
FSFCs liability. If you were the Judge, is FSFC liable?

16.
ABC Corporation through its representative B enters into a contract of
partnership with A. C, as a director of ABC Corporation questions it on the ground
that there is no express authorization under its charter empowering ABC to be a
partner. Is C correct?
17.

What is a Constitutum Possessorium?

18.
In the performance of an AGENCY contract wherein the Principal authorizes
the agent to exercise general powers of administration, this is not ultra vires:

19.

What is Traditio Brevi Manu?

20.
Mike, an enterprising person, sold Lot No. 123 to Lito. Immediately they
registered the Deed of Absolute Sale in the Register of Deeds. In that Deed of
Absolute Sale, Mike signed as the duly-authorized representative of Gloria, but his
only evidence of authority was his own Sworn Statement that Gloria did previously
authorized him to sell Lot No. 123 on her behalf. One month after the sale, Gloria by
herself sold the property to Benjamin. When Benjamin went to the Register of Deeds
he discovered that the property was already registered in the name of Lito. In his
defense, Lito argued, among others, that applying Article 1544 of the New Civil
Code to their case, Benjamin would definitely have inferior rights, since he
attempted to register his sale only one month after Lito already registered the Deed
of Absolute Sale executed in his favor. Does Article 1544 of the Civil Code apply in
this case?

21.

What is Traditio Longa Manu?

22. Donna bought a Billboard Printing Machine from LEXMARK for the sum of 6
Million Pesos with no down payment and payable in 36 equal monthly installments,
for which she issued 36 postdated checks. After 12 successful payments, Donna
failed to pay 4 successive monthly installments. LEXMARK then sent her a FORMAL
NOTICE OF CANCELLATION of their Contract of Sale. Thereafter filed a case for
REPLEVIN and recovered possession of the Billboard Printing Machine. LEXMARK did
not, however, return Donnas remaining 24 post-dated checks. When these checks
bounced, LEXMARK sued Donna for damages with a prayer for a writ of preliminary
attachment, imputing that Donna committed fraud in incurring and performing her
obligations to them, on the bases of her bounced checks. Donna claimed that their
case for Damages was against the Law, illegal and invalid. You are the Honorable
Presiding Judge, how would you rule?

23. What is Delivery by Negotiable Document of Title?


There is delivery of a negotiable document to another if by the terms thereof, the
goods are deliverable to bearer, or when the document was endorsed in blank by
the person to whose order the goods are deliverable. Article 1508

24.
ABC, Inc., is a company in the business of printing leaflets for political ads.
In January 2005 ABC, Inc., began to experience serious cash flow problems. In
February 2005, ABC, Inc., despite the existence of its creditors for loan obligations
up to TWENTY MILLION (Php20,000,000.00) PESOS, ABC decided to sell all of
its printing machines to XYZ, Inc., for Ten Million (Php10,000,000.00) Pesos.
To save on taxes, ABC, Inc., and XYZ, Inc., stipulated to place only the amount
ofOne Million (Php1,000,000.00) Pesos in their Deed of Absolute Sale.Is the
Contract between ABC, Inc., and XYZ, Inc. valid? Explain.
YES
Petitioners contend that the Deed of Absolute Sale is null and void, because the
undervalued consideration indicated therein was intended for an unlawful
purpose -- to avoid the payment of higher capital gains taxes on the transaction.
According to them, the appellate courts reliance on Article 1353 of the Civil Code
was erroneous. They further contend that the Joint Affidavit is not proof of a true
and lawful cause, but an integral part of a scheme to evade paying lawful taxes and
registration fees to the government.
We have before us an example of a simulated contract. Article 1345 of the Civil
Code provides that the simulation of a contract may either be absolute or relative.
In absolute simulation, there is a colorable contract but without any substance,
because the parties have no intention to be bound by it. An absolutely simulated
contract is void, and the parties may recover from each other what they may have
given under the contract.[8] On the other hand, if the parties state a false cause in
the contract to conceal their real agreement, such a contract is relatively simulated.
Here, the parties real agreement binds them. [9]
In the present case, the parties intended to be bound by the Contract, even if it did
not reflect the actual purchase price of the property. That the parties intended the
agreement to produce legal effect is revealed by the letter of Esperanza Balite to
respondent dated October 23, 1996[10] and petitioners admission that there was a
partial payment of P320,000 made on the basis of the Deed of Absolute Sale. There
was an intention to transfer the ownership of over 10,000 square meters of the
property . Clear from the letter is the fact that the objections of her children
prompted Esperanza to unilaterally withdraw from the transaction.
Since the Deed of Absolute Sale was merely relatively simulated, it remains valid
and enforceable. All the essential requisites prescribed by law for the validity and
perfection of contracts are present. However, the parties shall be bound by their
real agreement for a consideration of P1,000,000 as reflected in their Joint Affidavit.
[11]

The juridical nature of the Contract remained the same. What was concealed was
merely the actual price. Where the essential requisites are present and the
simulation refers only to the content or terms of the contract, the agreement is
absolutely binding and enforceable[12] between the parties and their successors in
interest.

Petitioners cannot be permitted to unmake the Contract voluntarily entered into by


their predecessor, even if the stated consideration was included therein for an
unlawful purpose. The binding force of a contract must be recognized as far as it is
legally possible to do so.[13] However, as properly held by the appellate court, the
government has the right to collect the proper taxes based on the correct purchase
price.
Being onerous, the Contract had for its cause or consideration the price
of P1,000,000. Both this consideration as well as the subject matter of the contract
-- Esperanzas share in the property covered by OCT No. 10824 -- are lawful. The
motives of the contracting parties for lowering the price of the sale -- in the present
case, the reduction of capital gains tax liability -- should not be confused with the
consideration.[14] Although illegal, the motives neither determine nor take the place
of the consideration. [15] ([G.R. No. 152168. December 10, 2004] HEIRS OF THE
LATE SPOUSES AURELIO AND ESPERANZA BALITE; Namely, ANTONIO T.
BALITE, FLOR T. BALITE-ZAMAR, VISITACION T. BALITE-DIFUNTORUM,
PEDRO T. BALITE, PABLO T. BALITE, GASPAR T. BALITE, CRISTETA T. BALITE
and AURELIO T. BALITE JR., All Represented by GASPAR T.
BALITE, petitioners, vs. RODRIGO N. LIM, respondent.)

25.
Gretchen bought a property from Amana Homes for 1 Million Pesos. They
signed a Contract to Sell wherein they stipulated that should Gretchen fail to pay 3
successive installments of the purchase price, Amana Homes may unilaterally and
extra-judicially rescind the contract to Sell without asking permission from Gretchen.
Gretchen complains that this stipulation violates Article 1308: the principle of the
Mutuality of Contracts, and is void from the very beginning. Is Gretchen correct?
No. Stipulations are valid but subject to Maceda Law.
R.A. No. 6552, otherwise known as the Realty Installment Buyer Protection Act,
recognizes in conditional sales of all kinds of real estate (industrial, commercial,
residential) the right of the seller to cancel the contract upon non-payment of an
installment by the buyer, which is simply an event that prevents the obligation of
the vendor to convey title from acquiring binding force. [10] The Court agrees with
petitioner that the cancellation of the Contract to Sell may be done outside the
court particularly when the buyer agrees to such cancellation.
However, the cancellation of the contract by the seller must be in accordance
with Sec. 3 (b) of R.A. No. 6552, which requires a notarial act of rescission and the
refund to the buyer of the full payment of the cash surrender value of the payments
on the property. Actual cancellation of the contract takes place after 30 days from
receipt by the buyer of the notice of cancellation or the demand for rescission of the
contract by a notarial act and upon full payment of the cash surrender value to the
buyer.

However, the sale of real estate in installments are subject to Republic Act No.
6552,[22] otherwise known as the Maceda Law. Section 3 of said law provides:
SEC. 3. In all transactions or contracts involving the sale or financing of real estate
on installment payments, including residential condominium apartments but
excluding industrial lots, commercial buildings and sales to tenants under Republic
Act Numbered Thirty-eight hundred Forty-four as amended by Republic Act
Numbered Sixty-three hundred eighty-nine, where the buyer has paid at least two
years of installments, the buyer is entitled to the following rights in case he defaults
in the payment of succeeding installments:
(a) To pay, without additional interest, the unpaid installments due within the total
grace period earned by him, which is hereby fixed at the rate of one month grace
period for every year of installment payments made: Provided, That this right shall
be exercised by the buyer only once in every five years of the life of the contract
and its extensions, if any.
(b) If the contract is cancelled, the seller shall refund to the buyer the cash
surrender value of the payments on the property equivalent to fifty percent of the
total payments made and, after five years of installments, an additional five percent
every year but not to exceed ninety percent of the total payments
made: Provided, That the actual cancellation of the contract shall take place after
thirty days from receipt by the buyer of the notice of cancellation or the demand for
rescission of the contract by a notarial act and upon full payment of the cash
surrender value to the buyer.
Down payments, deposits or options on the contract shall be included in the
computation of the total number of installments made.

26. Death does not terminate this contract of agency. Cite the instances
Article 1931 is the applicable law. Under this provision, an act done by the agent
after the death of his principal is valid and effective only under two conditions, viz:
(1) that the agent acted without knowledge of the death of the principal and (2)
that the third person who contracted with the agent himself acted in good faith.
Good faith here means that the third person was not aware of the death of the
principal at the time he contracted with said agent. These two requisites must
concur the absence of one will render the act of the agent invalid and
unenforceable.

27.
Robin, who is married to Leizl, fell in love with Mariel. To win Mariels love, he
decided to sell a Toyota Camry, latest edition, worth Two Million (P2,000,000.00)
Pesos to Mariel for a cheap price of One Hundred Thousand (Php100,000.00)
Pesos. After the sale, Mariel ditched Robin, not even giving him a chance to
propose. Hence Robin changed his mind and decided to assail the validity of the
contract with the help of Liezl. Is the contract valid?

28. What is pactum commisorium under Article 2088, NCC?

29. When is the buyer of registered land deemed to be a buyer in good faith?

30. What are the rights of an unpaid seller?

31. Explain the requisites to apply Article 1544, NCC, in the matter of contracts
of Double Sale.

32.

When is consent of either party deemed vitiated?

33.

What is fraud in the concept of dolo causante?

34.

What is fraud in the concept of dolo incidente?

35.

What is an absolutely simulated contract?

36.
What are relatively simulated contracts? Examples of valid and invalid
relatively simulated contracts.

37.
S entered into a contract of sale with B, binding himself to deliver to B
10 kilos of Angus Beef. On the day of delivery, S surreptitiously delivered to B,
instead, ordinary beef from Lorega slaughterhouse. At that time, B had a party and
bragged to everybody that the steak they were eating prepared medium rare
was top-rate imported Angus beef. But when B took the time to eat, he discovered
the anomaly; he felt muscle pain in his jaws for all the chewing. B felt so
embarrassed and outraged; and so he consulted his two lawyers. Lawyer X advised
B to file for the Annulment of his Sale Contract with Mr. S on the basis of fraud and
the vitiation of his consent. Lawyer Y, on the other hand, recommended for the
filing for a suit of damages. Who gave the correct advise? Why is his advise correct?

38.
At a time when "Ecstacy" was not yet a prohibited drug, B paid S the
sum of Php150,000.00 Pesos in consideration of Ss commitment to deliver Ecstacy
to B in 30 days. In 15 days, however, Congress passed a Law declaring Ecstacy to
be an illegal drug. S then refused to deliver any Ecstacy to B. After due demand, B
filed for a suit of specific performance and damages against S. You are the
Honorable Presiding Judge. In whose favor and how would you rule and why?
Further to the preceding question and as the Honorable Presiding Judge, what
happens to the Php150,000.00 Pesos paid by B to S and why?

39.
1381?

40.

What is a defective contract that is rescissible under Articles 1380 to

What contracts need not be in a public instrument to be valid?

41.
In case a contract fails to reflect the meeting of the minds of the parties by
virtue of a mistake, when is reformation available / not available?

42.

Under Article 1385, NCC, rescission creates what obligations?

43.
Robin, who is married to Leizl, fell in love with Mariel. To win Mariels love,
he decided to sell a Toyota Camry, latest edition, worth Two Million
(P2,000,000.00) Pesos to Mariel for a cheap price of One Hundred Thousand
(Php100,000.00) Pesos. After the sale, Mariel ditched Robin, not even giving him
a chance to propose. Hence Robin changed his mind and decided to assail the
validity of the contract with the help of Liezl. Is the contract valid?

44.
What are the consequent remedies available to aggrieved parties in the
case of void contracts subject to in pari delicto? What void contract are exception/s
to the pari delicto rule?

45.
In consideration of 10 thousand Pesos, X granted Y the exclusive option to
buy his house and lot for the sum of 10 Million Pesos within 90 days from the
signing of said option agreement. 30 days later, X and Y had an altercation. In
reaction thereto, X also granted Z the exclusive option to buy the same house and
lot for the sum of 12 Million Pesos within the next 60 days from the signing of their
agreement. Z has no idea whatsoever that X already signed an option contract with
Y. He also paid nothing for the contract. On the 50th day from the execution of the

option contract between X and Z, Z tendered payment of 12 Million Pesos in cash in


favor of X in consideration of Xs house and lot.
Is X bound to respect his option contract with Z?

Further to preceding question and under the same facts, X indeed sold his house
and lot to Z for the sum of 12 Million Pesos. When Y learned about it, he sued X and
Z for the specific performance of X and Ys option contract with damages, praying
for the court to force X and Z to sell the house and lot to him for 10 Million Pesos.
Would you rule in favor of Y? On what basis?
Lastly, assuming that you are Ys lawyer, what remedy would you recommend to Y
to seek any redress for any possible injury Y may have suffered?

46.
Rita bought a property from Camella Houses for 1 Million Pesos. They
signed a Contract to Sell wherein they stipulated that should Rita fail to pay 3
successive installments of the purchase price, Camella Houses may unilaterally and
extra-judicially rescind the contract to Sell without asking permission from Rita. Rita
paid 14 monthly installments already. On the 15th, 16th, and 17th monthly
installments, Rita failed to pay. The day after Ritas payment due date, hence,
Camella Houses immediately sent Rita a notarized Notice of Cancellation of
Contract to Sell on the ground of breach of contract. Rita complains that, according
to the Maceda Law, the cancellation is invalid because she is entitled to a grace
period and to reimbursement of a portion of the purchase price.
Does the Maceda Law apply in this case?
Yes. Maceda Law apply in this case.
There are two categories of qualified buyers who are afforded protection. Under
Section 3 of RA 6552, a qualified buyer is one who has paid at least two years of
installments in all transactions or contracts involving the sale or financing of real
estate on installment payments. Properties covered include residential
condominiums, apartments, houses, townhouses, and house and lots, among
others, but exclude industrial lots, commercial buildings, and sales of properties to
existing tenants.

Section 4. In case where less than two years of installments were paid, the seller
shall give the buyer a grace period of not less than sixty days from the date the
installment became due.
If the buyer fails to pay the installments due at the expiration of the grace period, the
seller may cancel the contract after thirty days from receipt by the buyer of the notice
of cancellation or the demand for rescission of the contract by a notarial act.

Under Section 4, on the other hand, a qualified buyer is also one who has purchased
any of the properties enumerated above, but who has paid less than two years of
installments. The case of Rita falls under Section 4.

Assuming for the sake of argument that the Maceda Law applies, when is the
earliest time that Ritas Contract to Sell may be deemed validly cancelled?
The earliest time Ritas contract is after 30 days from the receipt of the buyer of the
notice of cancellation or demand for rescission.
Finally, is Rita entitled to the reimbursement of a portion of the purchase price? If
so, what percentage should be reimbursed to Rita?
No. Rita is not entitled.
A defaulting buyer has the right to reimbursement if it has paid installments for at
least two years as stated in Section 3 of RA 6552.

47.
A leased Bs House and Lot and they signed a Contract of Lease valid for 5
years with a Right of First Refusal. She built a small structure to serve as sleeping
quarters for the servants worth about Five Hundred Thousand (Php500,000.00)
Pesos. On the 6th year, A and B did not sign a new Contract observation Lease but
A continued to occupy the House and Lot paying monthly rentals to B in the exact
amount stipulated in their Contract of Lease.
What happens to the Lease between A and B?
An implied new lease was created pursuant to Article 1670 of the Civil Code, which
expressly provides:
Article 1670. If at the end of the contract the lessee should
continue enjoying the thing leased for fifteen days with the
acquiescence of the lessor, and unless a notice to the contrary
by either party has previously been given, it is understood that
there is an implied new lease, not for the period of the original
contract, but for the time established in Articles 1682 and 1687.
The other terms of the original contract shall be revived.
An implied new lease or tacita reconduccion will set in when the following
requisites are found to exist: a) the term of the original contract of lease has
expired; b) the lessor has not given the lessee a notice to vacate; and c) the lessee
continued enjoying the thing leased for fifteen days with the acquiescence of the
lessor. All these requisites have been fulfilled in the present case.

Article 1687 of the Civil Code on implied new lease provides:

Article 1687. If the period for the lease has not been fixed, it is
understood to be from year to year, if the rent agreed upon is
annual; from month to month, if it is monthly; from week to
week, if the rent is weekly; and from day to day, if the rent is to
be paid daily.

Further to the preceding question, on the 7th year, B then decided to sell the House
and Lot to X for the price of Two Million (Php2,000,000.00) Pesos. A then
demanded that B honored the Right of First Refusal in their Lease. Does B have the
obligation to honor the subject Right of Refusal?
Yes.
The right of first refusal, also referred to as the preferential right to buy, is available
to lessees only if there is a stipulation thereto in the contract of lease or where
there is a law granting such right to them (i.e., Presidential Decree No. 1517 (1978),
which vests upon urban poor dwellers who merely lease the house where they have
been residing for at least ten years, preferential right to buy the property located
within an area proclaimed as an urban land reform zone). Unlike co-owners and
adjacent lot owners, there is no provision in the Civil Code which grants to lessees
preemptive rights. Nonetheless, the parties to a contract of lease may provide in
their contract that the lessee has the right of first refusal.

48.
Citiesbank issued a credit card to Mr. X. Citiesbank also entered into a
contract with Caf Valeria for the latter to honor all Citiesbank cards presented in its
establishment for payment. On the night of his 1st year anniversary, Mr. X treated
his girlfriend to a meal at Caf Valeria. Mr. X did not carry cash with him. Without
valid reason, an employee of Caf Valeria negligently and without authority
dishonored the card. Can Mr. X sue Caf Valeria?
YES.
A stipulation pour autrui is a stipulation in a contract clearly and deliberately
conferring a benefit upon a third person who has the right to demand its fulfillment,
provided he communicated his acceptable of the benefit to the obligor before its
revocation by the obligee or the original parties.
An "Agreement" entered into by Citiesbank and with Caf Valeria provides that the
latter shall honor credit cards presented by its holders as long as the same has not
yet expired. While Mr. X may not be a party to the said agreement, the stipulation in
the Agreement between Citiesbank and with Caf Valeria conferred a favor upon Mr.
X, a holder of credit card validly issued by Citiesbank. This stipulation is a stipulation
pour autrui and under Article 1311, Mr. X may demand its fulfillment provided he
communicated his acceptance to the petitioner before its revocation. In this case,
Mr. X offer to pay by means of his BANKARD credit card constitutes not only an
acceptance of the said stipulation but also an explicit communication of his

acceptance to the obligor. (MANDARIN VILLA, INC. VS. COURT OF APPEALS, and
CLODUALDO DE JESUS G.R. No. 119850. June 20, 1996)
49.

50.

The concept of right of first refusal.

The concept of earnest money.

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