Consensual vs.Real Contracts; Kinds of Real Contracts (1998)
Distinguish consensual from real contracts and name at least four (4) kinds of real contracts under the present law.
SUGGESTED ANSWER:
CONSENSUAL CONTRACTS are those which are perfected by mere consent (Art. 1315. Civil Code). REAL CONTRACTS are those which are perfected by the delivery of the object of the obligation. (Art. 1316, Civil Code) Examples of real contracts are deposit, pledge, commodatum and simple loan (mutuum).
Consideration; Validity (2000)
Lolita was employed in a finance company. Because she could not account for the funds entrusted to her, she was charged with estafa and ordered arrested. In order to secure her release from jail, her parents executed a promissory note to pay the finance company the amount allegedly misappropriated by their daughter. The finance company then executed an affidavit of desistance which led to the withdrawal of the information against Lolita and her release from jail. The parents failed to comply with their promissory note and the finance company sued them for specific performance. Will the action prosper or not?
SUGGESTED ANSWER:
The action will prosper. The promissory note executed by Lolita’s parents is valid and binding, the consideration being the extinguishment of Lolita’s civil liability and not the stifling of the criminal prosecution.
ALTERNATIVE ANSWER:
The action will not prosper because the consideration for the promissory note was the non-prosecution of the criminal case for estafa. This cannot be done anymore because the information has already been filed in court and to do it is illegal. That the consideration for the promissory note is the stifling of the criminal prosecution is evident from the execution by the finance company of the affidavit of desistance immediately after the execution by Lolita’s parents of the promissory note. The consideration being illegal, the promissory note is invalid and may not be enforced by court action.
Contract of Option; Elements (2005)
Marvin offered to construct the house of Carlos for a very reasonable price of P900,000.oo, giving the latter 10 days within which to accept or reject the offer. On the fifth day, before Carlos could make up his mind, Marvin withdrew his offer.
a) What is the effect of the withdrawal of Marvin’s offer?
SUGGESTED ANSWER:
The withdrawal of Marvin’s offer will cause the offer to cease in law. Hence, even if subsequently accepted, there could be no concurrence of the offer and the acceptance. In the absence of concurrence of offer and acceptance, there can be no consent (Laudico v. Arias Rodriguez, G.R. No. 16530, March 31, 1992). Without consent, there is no perfected contract for the construction of the house of Carlos (Salonga v. Farrales, G.R. No. L-47088, July 10, 1981). Article 1318 of the Civil Code provides that there can be no contract unless the following requisites concur: (1) consent of the parties; (2) object certain which is the subject matter of the contract; and (3) cause of the obligation.
Marvin will not be liable to pay Carlos any damages for withdrawing the offer before the lapse of the period granted. In this case, no consideration was given by Carlos for the option given, thus there is no perfected contract of option for lack of cause of obligation. Marvin cannot be held to have breached the contract. Thus, he cannot be held liable for damages.
b) Will your answer be the same if Carlos paid Marvin P10,000.00 as consideration for that option?
ALTERNATIVE ANSWER:
My answer will be the same as to the perfection of the contract for the construction of the house of Carlos. No perfected contract arises because of lack of consent. With the withdrawal of the offer, there could be no concurrence of offer and acceptance.
My answer will not be the same as to damages. Marvin will be liable for damages for breach of contract of option. With the payment of the consideration for the option given, and with the consent of the parties and the object of contract being present, a perfected contract of option was created (San Miguel, Inc. v. Huang, G.R. No. 137290, July 31, 2000). Under Article 1170 of the Civil Code, those who in the performance of their obligation are guilty of contravention thereof, as in this case, when Marvin did not give Carlos the agreed period of ten days, are liable for damages.
ALTERNATIVE ANSWER:
My answer will not be the same if Carlos paid Marvin P10,000.00 because an option contract was perfected. Thus, if Marvin withdrew the offer prior to the expiration of the 10-day period, he breached the option contract. (Article 1324, Civil Code)
c) Supposing that Carlos accepted the offer before Marvin could communicate his withdrawal thereof? Discuss the legal consequences.
SUGGESTED ANSWER:
A contract to construct the house of Carlos is perfected. Contracts are perfected by mere consent manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. (Gomez v. Court of Appeals, G.R. No. 120747, September 21,2000)
Under Article 1315 of the Civil Code, Carlos and Marvin are bound to fulfill what has been expressly stipulated and all consequences thereof. Under Article 1167, if Marvin would refuse to construct the house, Carlos is entitled to have the construction be done by a third person at the expense of Marvin. Marvin in that case will be liable for damages under Article 1170.
Inexistent Contracts vs.Annullable Contracts (2004)
Distinguish briefly but clearly between Inexistent contracts and annullable contracts.
SUGGESTED ANSWER:
INEXISTENT CONTRACTS are considered as not having been entered into and, therefore, void ob initio. They do not create any obligation and cannot be ratified or validated, as there is no agreement to ratify or validate. On the other hand, ANNULLABLE or VOIDABLE CONTRACTS are valid until invalidated by the court but may be ratified. In inexistent contracts, one or more requisites of a valid contract are absent. In anullable contracts, all the elements of a contract are present except that the consent of one of the contracting parties was vitiated or one of them has no capacity to give consent.
Nature of Contracts; Obligatoriness (1991)
Roland, a basketball star, was under contract for one year to play-for-play exclusively for Lady Love, Inc. However, even before the basketball season could open, he was offered a more attractive pay plus fringes benefits by Sweet Taste, Inc. Roland accepted the offer and transferred to Sweet Taste. Lady Love sues Roland and Sweet Taste for breach of contract. Defendants claim that the restriction to play for Lady Love alone is void, hence, unenforceable, as it constitutes an undue interference with the right of Roland to enter into contracts and the impairment of his freedom to play and enjoy basketball.
Can Roland be bound by the contract he entered into with Lady Love or can he disregard the same? Is he liable at all? How about Sweet Taste? Is it liable to Lady Love?
SUGGESTED ANSWER:
Roland is bound by the contract he entered into with Lady Love and he cannot disregard the same, under the principles of obligatoriness of contracts. Obligations arising from contracts have the force of law between the parties.
SUGGESTED ANSWER:
Yes, Roland is liable under the contract as far as Lady Love is concerned. He is liable for damages under Article 1170 of the Civil Code since he contravened the tenor of his obligation. Not being a contracting party, Sweet Taste is not bound by the contract but it can be held liable under Art. 1314. The basis of its liability is not prescribed by contract but is founded on quasi-delict, assuming that Sweet Taste knew of the contract. Article 1314 of the Civil Code provides that any third person who induces another to violate his contract shall be liable for damages to the other contracting party.
ALTERNATIVE ANSWER:
It is assumed that Lady Love knew of the contract. Neither Roland nor Sweet Taste would be liable, because the restriction in the contract is violative of Article 1306 as being contrary to law morals, good customs, public order or public policy.
Nature of Contracts; Privity of Contract (1996)
Baldomero leased his house with a telephone to Jose. The lease contract provided that Jose shall pay for all electricity, water and telephone services in the leased premises during the period of the lease. Six months later. Jose surreptitiously vacated the premises. He left behind unpaid telephone bills for overseas telephone calls amounting to over P20,000.00. Baldomero refused to pay the said bills on the ground that Jose had already substituted him as the customer of the telephone company. The latter maintained that Baldomero remained as his customer as far as their service contract was concerned, notwithstanding the lease contract between Baldomero and Jose. Who is correct, Baldomero or the telephone company? Explain.
SUGGESTED ANSWER:
The telephone company is correct because as far as it is concerned, the only person it contracted with was Baldomero. The telephone company has no contract with Jose. Baldomero cannot substitute Jose in his stead without the consent of the telephone company (Art. 1293, NCC). Baldomero is, therefore, liable under the contract.
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 Printado’s 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.
SUGGESTED ANSWER:
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).
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 Printado’s 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 v. CA, supra.).
Rescission of Contracts; Proper Party (1996)
In December 1985, Salvador and the Star Semiconductor Company (SSC) executed a Deed of Conditional Sale wherein the former agreed to sell his 2,000 square meter lot in Cainta, Rizal, to the latter for the price of P1,000,000.00, payable P100,000.00 down, and the balance 60 days after the squatters in the property have been removed. If the squatters are not removed within six months, the P100,000.00 down payment shall be returned by the vendor to the vendee, Salvador filed ejectment suits against the squatters, but in spite of the decisions in his favor, the squatters still would not leave. In August, 1986, Salvador offered to return the P100,000.00 down payment to the vendee, on the ground that he is unable to remove the squatters on the property. SSC refused to accept the money and demanded that Salvador execute a deed of absolute sale of the property in its favor, at which time it will pay the balance of the price. Incidentally, the value of the land had doubled by that time.
Salvador consigned the P 100,000.00 in court, and filed an action for rescission of the deed of conditional sale, plus damages. Will the action prosper? Explain.
SUGGESTED ANSWER:
No, the action will not prosper. The action for rescission may be brought only by the aggrieved party to the contract. Since it was Salvador who failed to comply with his conditional obligation, he is not the aggrieved party who may file the action for rescission but the Star Semiconductor Company. The company, however, is not opting to rescind the contract but has chosen to waive Salvador’s compliance with the condition which it can do under Art. 1545, NCC.
ALTERNATIVE ANSWER:
The action for rescission will not prosper. The buyer has not committed any breach, let alone a substantial or serious one, to warrant the rescission/resolution sought by the vendor. On the contrary, it is the vendor who appears to have failed to comply with the condition imposed by the contract the fulfillment of which would have rendered the obligation to pay the balance of the purchase price demandable. Further, far from being unable to comply with what is incumbent upon it, ie., pay the balance of the price – the buyer has offered to pay it even without the vendor having complied with the suspensive condition attached to the payment of the price, thus waiving such condition as well as the 60-day term in its favor The stipulation that the P100,000.00 down payment shall be returned by the vendor to the vendee if the squatters are not removed within six months, is also a covenant for the benefit of the vendee, which the latter has validly waived by implication when it offered to pay the balance of the purchase price upon the execution of a deed of absolute sale by the vendor. (Art. 1545, NCC)
From the ANSWERS TO BAR EXAMINATION QUESTIONS in CIVIL LAW by the UP LAW COMPLEX and PHILIPPINE ASSOCIATION OF LAW SCHOOLS.
