Extinguishment; Compensation (2002)

Stockton is a stockholder of Core Corp. He desires to sell his shares in Core Corp. In view of a
court suit that Core Corp. has filed against him for damages in the amount of P 10 million, plus
attorneys fees of P 1 million, as a result of statements published by Stockton which are allegedly
defamatory because it was calculated to injure and damage the corporations reputation and
goodwill. The articles of incorporation of Core Corp. provide for a right of first refusal in favor
of the corporation. Accordingly, Stockton gave written notice to the corporation of his offer to
sell his shares of P 10 million. The response of Core corp. was an acceptance of the offer in the
exercise of its rights of first refusal, offering for the purpose payment in form of compensation or
set-off against the amount of damages it is claiming against him, exclusive of the claim for
attorneys fees. Stockton rejected the offer of the corporation, arguing that compensation
between the value of the shares and the amount of damages demanded by the corporation cannot
legally take effect. Is Stockton correct? Give reason for your answer. (5%)
SUGGESTED ANSWERS:
(a)

Stockton is correct. There is no right of compensation between his price of P10 million
and Core Corp.s unliquidated claim for damages. In order that compensation may be
proper, the two debts must be liquidated and demandable. The case for the P 10million
damages being still pending in court, the corporation has as yet no claim which is due and
demandable against Stockton.

(b) The right of first refusal was not perfected as a right for the
reason that there was a conditional acceptance equivalent to a counter-offer consisting in
the amount of damages as being credited on the purchase price. Therefore, compensation
did not result since there was no valid right of first refusal (Art. 1475 & 1319, NCC)
(c)

Even [if] assuming that there was a perfect right of first refusal, compensation did not
take place because the claim is unliquidated.

Bar Questions for years 2002-2003

Liability; Solidary Obligation; Mutual Guaranty (2003)

A,B,C,D, and E made themselves solidarity indebted to X for the amount of P50,000.00. When
X demanded payment from A, the latter refused to pay on the following grounds.
a) B is only 16 years old.
b) C has already been condoned by X
c) D is insolvent.
d) E was given by X an extension of 6 months without the consent of the other four co-debtors.
State the effect of each of the above defenses put up by A on his obligation to pay X, if such
defenses are found to be true.
SUGGESTED ANSWERS:
(a)

A may avail the minority of B as a defense, but only for Bs share of P 10,000.00. A
solidary debtor may avail himself of any defense which personally belongs to a solidary
co-debtor, but only as to the share of that codebtor.

(b)

A may avail of the condonation by X of Cs share of P 10, 000.00. A solidary debtor may,
in actions filed by the creditor, avail himself of all defenses which are derived from the
nature of the obligation and of those which are personal to him or pertain to his own
share. With respect to those which personally belong to others, he may avail himself
thereof only as regards that part of the debt for which the latter are responsible. (Article
1222, NCC).

(c)

A may not interpose the defense of insolvency of D as a defense. Applying the principle
of mutual guaranty among solidary debtors, A guaranteed the payment of Ds share and
of all the other co-debtors. Hence, A cannot avail of the defense of Ds insolvency.

(d)

The extension of six (6) months given by X to E may be availed of by A as a partial

defense but only for the share of E, there is no novation of the obligation but only an act
of liberality granted to E alone.

Bar Questions for years 2002-2003

Conditional Obligations (2003)

Are the following obligations valid, why, and if they are valid, when is the obligation
demandable in each case? a) If the debtor promises to pay as soon as he has the means to pay; b)
If the debtor promises to pay when he likes; c) If the debtor promises to pay when he becomes a
lawyer; d) If the debtor promises to pay if his son, who is sick with cancer, does not die within
one year. 5%
SUGGESTED ANSWERS:
(a)

The obligation is valid. It is an obligation subject to an indefinite period because the

debtor binds himself to pay when his means permit him to do so (Article 1180, NCC).
When the creditor knows that the debtor already has the means to pay, he must file an
action in court to fix the period, and when the definite period as set by the court arrives,
the obligation to pay becomes demandable 9Article 1197, NCC).

(b)

The obligation to pay when he likes is a suspensive condition the fulfillment of which
is subject to the sole will of the debtor and, therefore the conditional obligation is void.
(Article 1182, NCC).

(c)

The obligation is valid. It is subject to a suspensive condition, i.e. the future and uncertain
event of his becoming a lawyer. The performance of this obligation does

Bar Questions for years 2002-2003

Nature of Contracts; Relativity of Contracts (2002)

Printado is engaged in the printing business. Suplico supplies printing paper to Printado pursuant
to an order agreement under which Suplico binds himself to deliver the same volume of paper
every month for a period of 18 months, with Printado in turn agreeing to pay within 60 days after
each delivery. Suplico has been faithfully delivering under the order agreement for 10 months
but thereafter stopped doing so, because Printado has not made
any payment at all. Printado has also a standing contract with publisher Publico for the printing
of 10,000 volumes of school textbooks. Suplico was aware of said printing contract. After
printing 1,000 volumes, Printado also fails to perform under its printing contract with Publico.
Suplico sues Printado for the value of the unpaid deliveries under their order agreement. At the
same time Publico sues Printado for damages for breach of contract with respect to their own
printing agreement. In the suit filed by Suplico, Printado counters that: (a) Suplico cannot
demand
payment for deliveries made under their order agreement until Suplico has completed
performance under said contract; (b) Suplico should pay damages for breach of contract; and (c)
with Publico should be liable for Printados breach of his contract with Publico because the order
agreement between Suplico and Printado was for the benefit of Publico. Are the contentions of
Printado tenable? Explain your answers as to each contention.
(5%)
SUGGESTED ANSWER:
(a)

No, the contentions of Printado are untenable. Printado having failed to pay for the
printing paper covered by the delivery invoices on time, Suplico has the right to cease
making further delivery. And the latter did not violate the order agreement (Integrated
Packaging Corporation v. Court of Appeals, (333 SCRA 170, G.R. No. 115117, June 8,
[2000]).

(b)

Suplico cannot be held liable for damages, for breach of contract, as it was not he who
violated the order agreement, but Printado. Suplico cannot be held liable for Printados
breach of contract with Publico. He is not a party to the agreement entered into by and
between Printado and Publico. Theirs is not a stipulation pour atrui. [Aforesaid] Such
contracts do could not affect third persons like Suplico because of the basic civil law
principle of relativity of contracts which provides that contracts can only bind the parties
who entered into it, and it cannot favor or prejudice a third person, even if he is aware of
such contract and has acted with knowledge thereof. (Integrated Packaging Corporation)

Bar Questions for years 2002-2003

Defense; Due Diligence in Selection (2003)

As a result of a collision between the taxicab owned by A and another taxicab owned by B, X, a
passenger of the first taxicab, was seriously injured. X later filed a criminal action against both
drivers.
May both taxicab owners raise the defense of due diligence in the selection and supervision of
their drivers to be absolved from liability for damages to X? Reason. 5%
SUGGESTED ANSWER:
It depends. If the civil action is based on a quasi-delict the taxicab owners may raise the defense
of diligence of a good father of a family in the selection and supervision of the driver; if
the action against them is based on culpa contractual or civil liability arising from a crime, they
cannot raise the defense.

Bar Questions for years 2002-2003

Easement; Nuisance; Abatement (2002)

Lauro owns an agricultural land planted mostly with fruit trees. Hernando owns an adjacent land
devoted to his piggery business, which is two (2) meters higher in elevation. Although Hernando
has constructed a waste disposal lagoon for his piggery, it is inadequate to contain the waste
water containing pig manure, and it often overflows and inundates
Lauros plantation. This has increased the acidity of the soil in the plantation, causing the trees to
wither and die. Lauro sues for damages caused to his plantation. Hernando invokes his right to
the benefit of a natural easement in favor of his higher estate, which imposes upon the lower
estate of Lauro the obligation to receive the waters descending from the higher estate. Is
Hernando correct? (5%)
SUGGESTED ANSWER:
Hernando is wrong. It is true that Lauros land is burdened with the natural easement to accept or
receive the water which naturally and without interruption of man descends from a higher estate
to a lower estate. However, Hernando has constructed a waste disposal lagoon for his piggery
and it is this waste water that flows downward to Lauros land.
Hernando has, thus, interrupted the flow of water and has created and is maintaining a nuisance.
Under Act. 697 NCC, abatement of a nuisance does not preclude recovery of damages by Lauro
even for the past existence of a nuisance.

Bar Questions for years 2002-2003

Ownership; Co-Ownership; Prescription (2002)

Senen and Peter are brothers. Senen migrated to Canada early while still a teenager. Peter stayed
in Bulacan to take care of their widowed mother and continued to work on the Family farm even
after her death. Returning to the country some thirty years after he had left, Senen seeks a
partition of the farm to get his share as the only co-heir of Peter. Peter interposes his opposition,
contending that acquisitive prescription has already set in and that estoppel lies to bar the action
for partition, citing his continuous possession of the property for at least 10 years, for almost 30
years in fact. It is undisputed that Peter has never openly claimed sole ownership of the property.
If he ever had the intention to do so, Senen was completely ignorant of it. Will Senens action
prosper? Explain. (5%).
SUGGESTED ANSWERS:
(a)

Senens action will prosper. Article 494 of the New Civil Code provides that no
prescription shall run in favor of a co-owner or co-heir against his co-owners or co-heirs
so long as he expressly or impliedly recognizes the coownership nor notified Senen of his
having repudiated the same.

(b)

Senens action will prosper. This is a case of implied trust. (Art 1441, NCC) For purposes
of prescription under the concept of an owner (Art. 540, NCC). There is no such concept
here. Peter was a co-owner, he never claimed sole ownership of the property. He is
therefore estopped under Art. 1431, NCC.

Bar Questions for years 2002-2003

Accretion; Avulsion (2003)

Andres is a riparian owner of a parcel of registered land. His land, however, has gradually
diminished in area due to the current of the river, while the registered land of Mario on the
opposite bank has gradually increased in area by 200square meters.
(a)

Who has the better right over the 200-square meter area that has been added to Marios
registered land, Mario or

(b)

Andres? May a third person acquire said 200-square meter land by prescription?

SUGGESTED ANSWERS:
(a)

Mario has a better right over the 200 square meters increase in area by reason of
accretion, applying Article 457 of the
New Civil Code, which provides that to the owners of lands adjoining the banks of
rivers belong the accretion which they gradually received from the effects of the current
of the waters.
Andres cannot claim that the increase in Marios land is his own, because such is an
accretion and not result of the sudden detachment of a known portion of his land and its
attachment to Marios land, a process called avulsion. He can no longer claim
ownership of the portion of his registered land which was gradually and naturally eroded
due to the current of the river, because he had lost it by operation of law. That portion of
the land has become part of the public domain.

(b)

Yes, a third party may acquire by prescription the 200 square meters, increase in area,
because it is not included in the Torrens Title of the riparian owner. Hence, this does not
involve the imprescriptibility conferred by Section 47, P.D. No. 1529. The fact that the
riparian land is registered does not automatically make the accretion thereto a registered
land. (Grande v. CA, 115 521 (1962); Jagualing v. CA, 194 SCRA 607 (1991).

Chattel Mortgage; Immovables (2003)

Bar Questions for years 2002-2003

X constructed a house on a lot which he was leasing from Y. Later, X executed a chattel
mortgage over said house in favor of Z as security for a loan obtained from the latter. Still later,
X acquired ownership of the land where his house was constructed, after which he mortgaged
both house and land in favor of a bank, which mortgage was annotated on the Torrens Certificate
of Title. When X failed to pay his loan to the bank, the latter, being the highest bidder at the
foreclosure sale, foreclosed the mortgage and acquired Xs house and lot. Learning of the
proceedings conducted by the bank, Z is now demanding that the bank reconvey to him Xs
house or pay Xs loan to him plus interests. Is Zs demand against the bank valid and
sustainable? Why? 5%
SUGGESTED ANSWERS:
(a)

No, Zs demand is not valid. A building is immovable or real property whether it is

erected by the owner of the land, by a usufructuary, or by a lessee. It may be treated as a
movable by the parties to chattel mortgage but such is binding only between them
and not on third parties (Evangelista v. Alto Surety Col, inc. 103 Phil. 401 [1958]). In this
case, since the bank is not a party to the chattel mortgage, it is not bound by it, as far as
the Bank is concerned, the chattel mortgage, does not exist. Moreover, the chattel
mortgage does not exist. Moreover, the chattel mortgage is void because it was not
registered. Assuming that it is valid, it does not bind the Bank because it was not
annotated on the title of the land mortgaged to the bank. Z cannot demand that the
Bank pay him the loan Z extended to X, because the Bank was not privy to such loan
transaction.

(b)

No, Zs demand against the bank is not valid. His demand that the bank reconvey to him
Xs house presupposes that he has a real right over the house. All that Z has is a personal
right against X for damages for breach of the contract of loan. The treatment of a house,
even if built on rented land, as movable property is void insofar as third persons, such as
the bank, are concerned. On the other hand, the Bank already had a real right over the
house and lot when the mortgage was annotated at the back of the Torrens title. The bank
later became the owner in the foreclosure sale. Z cannot ask the bank to pay for Xs loan
plus interest. There is no privity of contract between Z and the bank.

(c)

The answer hinges on whether or not the bank is an innocent mortgagee in good faith or a
mortgagee in bad faith. In the former case, Zs demand is not valid. In the latter case, Zs
demand against the bank is valid and sustainable.
Under the Torrens system of land registration, every person dealing with registered land
may rely on the correctness of the certificate of title and the law will not in any way
oblige to him to look behind or beyond the certificate in order to determine the condition
of the title. He is not bound by anything not annotated or reflected in the certificate. If he
proceeds to buy the land or accept it as a collateral relying on the certificate, he is

Bar Questions for years 2002-2003

considered a buyer or a mortgagee in good faith. On this ground, the Bank acquires a
clean title to the land and the house.
However, a bank is not an ordinary mortgagee. Unlike private individuals, a bank is
expected to exercise greater care and prudence in its dealings. The ascertainment of the
condition of a property offered as collateral for a loan must be a standard and
indispensable part of its operation. The bank should have conducted further inquiry
regarding the house standing on the land considering that it was already standing there
before X acquired the title to the land. The bank cannot be considered as a mortgagee in
good faith. On this ground, Zs demand against the Bank is valid and sustainable.

Bar Questions for years 2002-2003