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 thereason 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

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

LEGAL BASIS: (Art. 1475 & 1319, NCC)

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.

(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.

LEGAL BASIS: (Article 1222, NCC).

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 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

LEGAL BASIS: (Article 1180, NCC). ( 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.

(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

LEGAL BASIS: (Article 1182, NCC).

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,

LEGAL BASIS: (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.

LEGAL BASIS: (Integrated Packaging Corporation)

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, abatement of a nuisance does not preclude recovery of damages by Lauro even for the past existence of a nuisance.

LEGAL BASIS: Under Act. 697 NCC

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 actionprosper? 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.

LEGAL BASIS: Article 494 of the New Civil Code

(b) Senens action will prosper. This is a case of implied trust. For purposes of prescription under the concept of an owner. 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.

LEGAL BASIS: (Art 1441, NCC) (Art. 540, NCC). Art. 1431, NCC.

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.

LEGAL BASIS: Article 457(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.

LEGAL BASIS: (Grande v. CA, 115 521 (1962); Jagualing v. CA, 194 SCRA 607 (1991).

Chattel Mortgage; Immovables (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. 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.

LEGAL BASIS: (Evangelista v. Alto Surety Col, inc. 103 Phil. 401 [1958])

(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 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.

LEGAL BASIS: Torrens system of land registration

Bar Questions for years 2002-2003