2.

2015
XII.
A. Iya and Betty owed Jun P500,000.00 for advancing their equity in a
corporation they joined as incorporators. Iya and Betty bound themselves
solidarily liable for the debt. Later, Iya and Jun became sweethearts so Jun
condoned the debt of P500,000.00. May lya demand from Betty ~250,000.00 as her
share in the debt? Explain legal with basis. (2%)
B. Juancho, Don and Pedro borrowed ~150,000.00 from their friend Cita to
put up an internet cafe orally promising to pay her the full amount after one year.
Because of their lack of business know-how, their business collapsed. Juancho
and Don ended up penniless but Pedro was able to borrow money and put up a
restaurant which did well. Can Cita demand that Pedro pay the entire obligation
since he, together with the two others, promised to pay the amount in full after
one year? Defend your answer. (2%)
SUGGESTED ANSWER:
A. No, Iya may not demand the 250,000 from Betty because the entire obligation
has been condoned by the creditor Jun. In a solidary obligation the remission of the
whole obligation obtained by one of the solidary debtors does not entitle him to
reimbursement from his co-debtors. (Article 1220, Civil Code)
B. No, Cita cannot demand that Pedro pay the entire obligation because the
obligation in this case is presumed to be joint. The concurrence of two or more
creditors or of two or more debtors in one and the same obligation does not imply that
each one of the former has a right to demand, or that each one of the latter is bound to
render, entire compliance with the prestation. (Article 1207) In a joint obligation, there is
no mutual agency among the joint debtors such that if one of them is insolvent the
others shall not be liable for his share.

XV.

A. Sara borrowed P50,000.00 from Julia and orally promised to pay it

within six months. When Sara tried to pay her debt on the (9)th month, Julia
demanded the payment of interest of 12% per annum because of Sara's delay in
payment. Sara paid her debt and the interest claimed by Julia. After rethinking,
Sara demanded back from Julia the amount she had paid as interest. Julia claims
she has no obligation to return the interest paid by Sara because it was a natural
obligation which Sara voluntarily performed and can no longer recover. Do you
agree? Explain. (4%)

B. Distinguish civil and natural obligations. (2%)

SUGGESTED ANSWER:

A. No, the case is not one of a natural obligation because even if the contract of
loan is verbal, the delay of Sara made her liable for interest upon demand by Julia. This
is not a case of a natural obligation but a civil obligation to pay interest by way of
damages by reason of delay. (Article 1956; Article 1169; Article 2209 Civil Code)
B. A CIVIL OBLIGATION is based on positive law which gives a right of
action to compel their performance in case of breach. A natural obligation is based
on equity and natural law and CANNOT be enforced by court action but after
voluntary fulfilment by the obligor, they authorize the retention of what may have
been delivered or rendered by reason thereof. (Article 1423, Civil Code)

XVI.
Donna pledged a set of diamond ring and earrings to Jane for P200,000.00
She was made to sign an agreement that if she cannot pay her debt within six
months, Jane could immediately appropriate the jewelry for herself. After six
months, Donna failed to pay. Jane then displayed the earrings and ring set in her
jewelry shop located in a mall. A buyer, Juana, bought the jewelry set for
P300,000.00.
a) Was the agreement which Donna signed with Jane valid? Explain
with legal basis. (2%)
b) Can Donna redeem the jewelry set from Juana by paying the amount
she owed Jane to Juana? Explain with legal basis. (2%)
c) Give an example of a pledge created by operation of law. (2%)

SUGGESTED ANSWER:
a. Appropriate the jewelry upon default of Donna is considered pactum
commissorium and it is considered void by law. ( Article 2088)
b. No, Donna cannot redeem it from Juana because the pledge contract is between
her and Jane. Juana is not a party to the pledge contract. (Article 1311, Civil Code)
c. One example of a pledge created by operation of law is the right of the
depositary to retain the thing deposited until the depositor shall have paid him whatever
may be due to the depositary by reason of the deposit. (1994) Another is the right of the
agent to retain the thing which is the object of the agency until the principal reimburses
him the expenses incurred in the execution of the agency. (Article 1914, Civil Code)
4. 2013

Lito obtained a loan of P1,000,000 from Ferdie, payable within one year. To secure
payment, Lito executed a chattel mortgage on a Toyota Avanza and a real estate
mortgage on a 200-square meter piece of property.

(A) Would it be legally significant - from the point of view of validity and
enforceability - if the loan and the mortgages were in public or private
instruments? (6%)

(B) Lito's failure to pay led to the extra-judicial foreclosure of the mortgaged real
property. Within a year from foreclosure, Lito tendered a manager's check to
Ferdie to redeem the property. Ferdie refused to accept payment on the ground
that he wanted payment in cash: the check does not qualify as legal tender and
does not include the interest payment. Is Ferdie's refusal justified? (4%)

SUGGESTED ANSWER

A. With respect to the loan, the same is both valid and enforceable regardless of
whether it is in a private or public document because as a rule, contracts shall be
obligatory in whatever form they may have been entered into provided all the essential
requisites for their validity are present. A loan is a contract which the law does not
require to be in a particular form in order that it may be valid or enforceable.

However, with regard to the chattel mortgage, since the law (Act 1508) requires an
affidavit of good faith stating that the chattel mortgage is supposed to stand as
security for the loan, it is submitted that for validity of the chattel mortgage, it must
be in a public document. A real estate mortgage under the provisions of Article 2125
requires that in order that a mortgage may be validly constituted that the
document in which it appears must be recorded. If it is not recorded, the
mortgage is nevertheless valid and binding between the parties. Hence, for validity
both chattel and real estate mortgages must be in a public document. But for purposes
of enforceability, it is submitted that the form of the contract whether in a public or
private document would be immaterial. (Mobil Oil vs. Diocares, 29 SCRA 656).

B. Ferdie’s refusal to accept the check on the ground that it does not qualify as
legal tender is CORRECT because a check, whether a manager's check or ordinary
check, is not legal tender, and an offer of a check in payment of a debt is NOT a
valid tender of payment and may be refused receipt by the obligee or creditor.
(Philippine Airlines vs. CA and Amelia Tan – January 30, 1990) Mere delivery of checks
does not discharge the obligation under a judgment. The obligation is NOT extinguished
and remains suspended until the payment by commercial document is actually realized
(Art. 1249, Civil Code, par. 3). Also, redemption within the period allowed by law is
NOT a matter of intent BUT a question of payment or valid tender of full
redemption price within the said period. Whether the redemption is being made
under Act 3135 or under the General Banking Law, the mortgagor or his assignee is
required to tender payment to make said redemption valid. (Heirs of Quisumbing vs.
PNB aand SLDC –G.R. No. 178242 January 20, 2009)

12. 2005
Before he left for Riyadh to work as a mechanic, Pedro left his adventure van with
Tito, with the understanding that the latter could use it for one year for his
personal or family use while Perdo works in Riyadh. He did not tell Tito that the
brakes of the van were faulty. Tito had the van tuned up and the brakes repaired.
He spent a total amount of P15, 000.00. After using the vehicle for two weeks, Tito
discovered that it consumed too much fuel. To make up for the expenses, he
leased it to Annabelle.
Two months later, Pedro returned to the Philippines and asked Tito to return the
van. Unfortunately, while being driven by Tito, the van was accidentally damaged
by a cargo truck without his fault.
A) Who shall bear the P15,000.00 spent for the repair of the van? Explain. (2%)

Alternative Answer:
Tito must bear the P15,000.00 expenses for the van. Generally, extraordinary
expenses for the preservation of the thing loaned are paid by the bailor, he being
the owner of the thing loaned. In this case however, Tito should bear the
expenses because he incurred the expenses without first informing Pedro about
it. Neither was the repair shown to be urgent. Under Article 1949 of the Civil
Code, bailor generally bears the extraordinary expenses for the preservationof
the thing and should refund the said expenses if made by the bailee; Provided,
The bailee brings the same to the attention of the bailor before incurring them,
except only if the repair is urgent that reply cannot be awaited.

Alternative Answer:
The P15,000.00 spent for the repair of the van should be borne by Pedro. Where
the bailor delivers to the bailee a non-consumable thing so that the latter may
use it for a certain time and return the identical thing, the contract perfected is a
Contract of Commodatum. (Article 1933, Civil Code) The bailor shall refund the
extraordinary expenses during the contract for the preservation of the thing
loaned provided the bailee brings the same to the knowledge of the bailor before
incurring the same, except when they are so urgent that the reply to the
notification cannot be awaited without danger. (Art. 1949 of the Civil Code).

In the given problem, Pedro left his Adventure van with Tito so that the latter
could use it for one year while he was in Riyadh. There was no mention of a
 consideration. Thus, the contract perfected was commodatum. The amount of
P15,000.00 was spent by Tito to tune up the van and to repair its brakes. Such
expenses are extra-ordinary expenses because they are necessary for the
preservation of the van. Thus, the same should be borne by the bailor, Pedro.

B) Who shall bear the costs for the van’s fuel, oil and other materials while it
was with Tito? Explain. (2%)

Suggested Answer
Tito must also payfor the ordinary expenses for the use and preservation of the
thing loaned. He must pay for the gasoline, oil, greasing and spraying. He cannot
ask for the reimbursement because he has the obligation to return the identical
thing to the bailor. Under Article 1941 of the Civil Code, the bailee is obliged to
pay for the ordinary expenses for the use and preservation of the thing loaned.
C) Does Pedro have the right to retrieve the van even before the lapse of one
year? Explain. (2%).

Alternative Answer:
No, Pedro does not have the right to retrieve the van before the lapse of one
year. The parties are mutually bound by the terms of the contract. Under the Civil
Code, there are only 3 instances when the bailor could validly ask for the return
of the thing loaned even before the expiration of the period. These are when: (1)
a precarium contract was entered (Article 1947); (2) if the bailor urgently needs
the thing (Article 1946); and (3) if the bailee commits acts of ingratitude (1948).
Not one of the situations is present in this case.

The fact that Tito had leased the thing loaned to Annabelle would not justify the
demand for the return of the thing loaned before the expiration of the period.
Under Article 1942 of the Civil Code, leasing of the thing loaned to a third person
not member of the household of the bailee, will only entitle bailor to hold bailee
liable for the loss of the thing loaned.

Alternative Answer:
As a rule, Pedro does not have the right to retrieve the van before the lapse of
one year. Article 1946 of the Code provides that “the bailor cannot demand the
return of the thing loaned till after the expiration of the period stipulated, or after
the accomplishment of the use for which the commodatum has been constituted.
However, if in the meantime, he should have urgent need of the thing, he may
demand its return or temporary use,” in the given problem, Pedro allowed Tito to
use the van for one year. Thus, he should be bound by the said agreement and
he cannot ask for the return of the car before the expiration of the one year
period. However, if Pedro has urgent need of the van, he may demand for its
return use.
 D) Who shall bear the expenses for the accidental damage caused by the
cargo truck, granting that the truck driver and truck owner are insolvent?
Explain, (2%)

Suggested Answer:
Generally, extraordinary expenses arising on the occasion of the actual use of
the thing loaned by the bailee, even if incurred without fault of the bailee, shall be
shouldered equally by the bailor and the bailee. (Art. 1949 of the Civil Code),
however, If Pedro had an urgent need for the vehicle, Tito would be in delay for
failure to immediately return the same, then Tito would be held liable for the
extraordinary expenses.

Equitable Mortgage Vs. Sale (2005)

On July 14, 2004, Pedro executed in favor of Juan a Deed of Absolute Sale over a
parcel of land covered by TCT No. 6245. It appears in the Deed of Sale that Pedro
received from Juan P120, 000.00 as purchase price. However, Pedro retained the
owner’s duplicate of said title. Thereafter, Juan, as lessor, and Pedro, as lessee,
executed a contract of lease over the property for a period of one year with a
monthly rental of P1,000.00. Pedro, as lessee, was also obliged to pay the realty
taxes on the property during the period of lease.
Subsequently, Pedro filed a complaint against Juan for the reformation of the
Deed of Absolute Sale, alleging that the transaction covered by the deed was an
equitable mortgage. In his verified answer to the complaint, Juan alleged that the
property was sold to him under the Deed of Absolute Sale, and interposed
counterclaims to recover possession of the property and to compel Pedro to turn
over to him the owner’s duplicate of title. Resolve the case with reasons.(6%)
Suggested answer:
The complaint of Pedro against Juan should be dismissed. The instances when a
contract-regardless of its nomenclature-may be presumed to be an equitable mortgage
are enumerated in Article 1602 of the Civil Code”
Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the
following cases:
(1) When the price of a sale with right to repurchase is unusually inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another
instrument extending the period of redemption or granting a new period is
executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
 (6) In any other case where it may be fairly inferred that the real intention of the
parties is that the transaction shall secure the payment of a debt or the
performance of any other obligation.
In any of the foregoing cases, any money, fruits, or other benefit to be received by the
vendee as rent or otherwise shall be considered as interest which shall be subject to the
usury laws.

Article 1604 states that “the provisions of article 1602 shall also apply to a contract
purporting to be an absolute sale.”
For Article 1602 and 1604 to apply, two requisites must concur: 1) the parties entered
into a contract denominated as a contract of sale; and 2) their intention was to secure
an existing debt by way of mortgage. (Heirs of Balite v. Lim, G.R. No, 152168,
December 10, 2004).
In the given case, although Pedro retained possession of the property as lessee after
the execution of the Deed of sale, there is no showing that the intention of the parties
was to secure an existing debt by way of mortgage. Hence, the complaint of Pedro
should be dismissed.

13. 2004
Mutuum vs. Commodatum
Distinguish briefly but clearly between Mutuum and Commodatum.
SUGGESTED ANSWER:
In MUTUUM the object borrowed must be a consumable thing the ownership of
which is transferred to the borrower who incurs the obligation to return the same
consumable to the lender in an equal amount, and of the same kind and quality. In
COMMODATUM, the object borrowed is usually a non-consumable thing the ownership
of which is not transferred to the borrower who incurs the obligation to return the very
same thing to the lender.
Mutuum; Interests
The parties in a contract of loan of money agreed that the yearly interest
rate is 12% and it can be increased if there is a law that would authorize the
increase of interest rates. Suppose OB, the lender, would increase by 5% the rate
of interest to be paid by TY, the borrower, without a law authorizing such
increase, would OB’s action be just and valid? Why? Has TY a remedy against the
imposition of the rate increase? Explain.
SUGGESTED ANSWER:
OB’s action is not just and valid. The debtor cannot be required to pay the
increase in interest there being no law authorizing it, as stipulated in the contract.
Increasing the rate in the absence of such law violates the principle of mutuality of
contracts.
ALTERNATIVE ANSWER:
Even if there was a law authorizing the increase in interest rate, the stipulation is
still void because there is no corresponding stipulation to decrease the interest due
when the law reduces the rate of interest.
Pledge
ABC loaned to MNO P40,000 for which the latter pledged 400 shares of
stock in XYZ Inc. It was agreed that if the pledger failed to pay the loan with
10%yearly interest within four years, the pledgee is authorized to foreclose on the
shares of stock. As required, MNO delivered possession of the shares to ABC
with the understanding that the shares would be returned to MNO upon the
payment of the loan. However, the loan was not paid on time. A month after 4
years, may the shares of stock pledged be deemed owned by ABC or not?
SUGGESTED ANSWER:
The shares of stock cannot be deemed owned by ABC upon default if MNO.
They have to be foreclosed.
Under Article 2088 of the Civil Code, the creditor cannot appropriate the things given by
way of pledge. And even if the parties have stipulated that ABC becomes the owner of
the shares in case MNO defaults on the loan, such stipulation is void for being a pactum
commissorium.