Answers to BAR Questions 2000-2009 - Obligations and Contracts

2009
Jude owned a building which he had leased to several tenants. Without
informing his tenants, Jude sold the building to Ildefonso. Thereafter, the latter
notified all the tenants that he is the new owner of the building. Ildefonso ordered
Q the tenants to vacate the premises within thirty (30) days from notice because he
had other plans for the building. The tenants refused to vacate, insisting that they
will only do so when the term of their lease shall have expired. Is Ildefonso bound
to respect the lease contracts between Jude and his tenants? Explain your answer.
I Yes, he is bound to respect the lease because he had actual knowledge of the
existence of lease.
The Civil Code provides that the purchaser of piece of land which is under lease
that is not recorded in the Registry of Property may terminate the lease save in
A
cases when there is stipulation to the contrary or when the purchaser knows of the
existence of the lease. ( Article 1676 NCC)
Moreover, well-settled rule that actual knowledge of the purchaser of the
contract is equivalent to registration on his part.
Rommel’s private car, while being driven by the regular family driver, Amado, hits a
pedestrian causing the latter’s death. Rommel is not in the car when the incident
happened.
Q
a) Is Rommel liable for damages to the heirs of the deceased? Explain.
II Would your answer be the same if Rommel was in the car at the time of the
accident? Explain. (2%)
Yes, by virtue of vicarious liability or the master-servant rule. But, here
A(a)
Rommel can seek for reimbursement
A(b) Yes, by virtue of solidary liability
Sarah had a deposit in a savings account with Filipino Universal Bank in the
amount of five million pesos (P5,000,000.00). To buy a new car, she obtained a loan
from the same bank in the amount of P1,200,000.00, payable in twelve monthly
installments. Sarah issued in favor of the bank post-dated checks, each in the
amount of P100,000.00, to cover the twelve monthly installment payments. On the
Q
third, fourth and fifth months, the corresponding checks bounced.
III The bank then declared the whole obligation due, and proceeded to deduct
the amount of one million pesos (P1,000,000.00) from Sarah’s deposit after notice
to her that this is a form of compensation allowed by law. Is the bank correct?
Explain.
Yes, the bank is correct. Under the law, when a person deposited money from
the bank, creditor/debtor relationship was created. Since the bank and Sarah in the
A
given case was creditor and debtor with respect to each other and considering that
the debt was already due and demandable, compensation takes place.
Rosario obtained a loan of P100,000.00 from Jennifer, and pledged her
diamond ring. The contract signed by the parties stipulated that if Rosario is unable
to redeem the ring on due date,
IV she will execute a document in favor of Jennifer providing that the ring shall
Q
automatically be considered full payment of the loan.
a) Is the contract valid? Explain.
b) Will your answer to a) be the same if the contract stipulates that upon

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 Answers to BAR Questions 2000-2009 - Obligations and Contracts

failure of Rosario to redeem the ring on due date, Jennifer may

immediately sell the ring and appropriate the entire proceeds thereof for
herself as full payment of the loan? Reasons.
Yes, This is not considered Pactum Commissorium since the debtor will have to
A(a) execute a document before the ownership is to be transferred. The transfer of
ownership in this case is not automatic.
Yes, the answer will still be the same. It is not considered Pactum
Commissorium. There is only Pactum Commissorium if the ownership will
A(b) automatically be transferred in the event of default. In this case, the property must
be sold and the proceeds will be applied to the loan. Any excess will be returned to
the debtor.
2008
Eduardo was granted a loan by XYZ Bank for the purpose of improving a
building which XYZ leased from him. Eduardo, executed the promissory note (“PN”)
in favor of the bank, with his friend Recardo as co-signatory. In the PN, they both
acknowledged that they are “individually and collectively” liable and waived the
need for prior demand. To secure the PN, Recardo executed a real estate mortgage
on his own property. When Eduardo defaulted on the PN, XYZ stopped payment of
rentals on the building on the ground that legal compensation had set in. Since
there was still a balance due on the PN after applying the rentals, XYZ foreclosed
the real estate mortgage over Recardo’s property. Recardo opposed the foreclosure
I on the ground that he is only a co-signatory; that no demand was made upon him
Q
for payment, and assuming he is liable, his liability should not go beyond half the
balance of the loan. Further, Recardo said that when the bank invoked
compensation between the rentals and the amount of the loan, it amounted to a
new contract or novation, and had the effect of extinguishing the security since he
did not give his consent (as owner of the property under the real estate mortgage)
thereto.
a) Can XYZ Bank validly assert legal compensation?
b) Can Recardo’s property be foreclosed to pay the full balance of the loan?
c) Does Recardo have basis under the Civil Code for claiming that the original
contract was novated?
Yes, XYZ Bank can validly assert legal compensation.
In the present case, all of the elements of legal compensation are present: 1)
XYZ Bank is the creditor of Eduardo while Eduardo is the lessor of XYZ Bank; 2) both
debts consist in a sum of money, or if the things due are consumable, they may be
A(a)
of the same kind, and also of the same quality if the latter has been stated; 3) the
two debts be due; 4) they be liquidated and demandable; and 5) over neither of
them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor (Art. 1279, Civil Code)
Yes, Ricardo’s property can be foreclosed to pay the full balance of the loan
because when he signed as a co-signatory in the promissory note, he acknowledged
A(b) he is solidarily liable with Eduardo. In solidary obligations, a creditor has the right to
demand full payment of the obligation from any of the solidary debtors. (Art. 1207,
Civil Code)

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No, Ricardo has no basis for claiming novation of the original contract when
the bank invoked compensation because there was simply a partial compensation
A(c)
(Art. 1290, Civil Code) and this would not bar the bank from recovering the
remaining balance of the obligation.
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
Q
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 Dux’s mother?
II
b) Will the alternative prayer for extension of the lease prosper?
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
A(a)
party, this would make her privy to the agreement of Dux and Iris, hence 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 v. Mayfair Theater, 21
November 1996).
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;
A(b)
validity or compliance cannot be left to the will of one of the parties (Art. 1308, Civil
Code).
Felipe borrowed $100 from Gustavo in 1998, when the Phil P – US $ exchange
rate was P56 – US$1. On March 1, 2008, Felipe tendered to Gustavo a cashier’s
check in the amount of P4,135 in payment of his US $ 100 debt, based on the Phil P
– US $ exchange rate at that time. Gustavo accepted the check, but forgot to
deposit it until Sept. 12, 2008. His bank refused to accept the check because it had
become stale. Gustavo now wants Felipe to pay him in cash the amount of P5,600.
Claiming that the previous payment was not in legal tender, and that there has been
extraordinary deflation since 1998, and therefore, Felipe should pay him the
III Q value of the debt at the time it was incurred. Felipe refused to pay him again,
claiming that Gustavo is estopped from raising the issue of legal tender, having
accepted the check in March, and that it was Gustavo’s negligence in not depositing
the check immediately that caused the check to become stale.
a) Can Gustavo now raise the issue that the cashier’s check is not legal
tender?
b) Can Felipe validly refuse to pay Gustavo again?
c) Can Felipe compel Gustavo to receive US$100 instead?

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No. Gustavo previously accepted a check as payment. It was his fault why the
A(a) check became stale. He is now estopped from raising the issue that a cashier’s
check is not legal tender.
Yes, Felipe can refuse to pay Gustavo, who allowed the check to become stale.
Although a check is not legal tender (Belisario v. Natividad, 60 Phil 156), there
are instances when a check produces the effects of payment, for example: a) when
A(b) the creditor is in estoppel or he had previously promised he would accept a check,
b) when the check has lost its value because of the fault of the creditor (Art. 1249
(par. 2)), as when he has unreasonably delayed in presenting the check for payment
(PNB v. Seeto, 13 August 1952)
Felipe cannot compel Gustavo to receive US $ 100 because under R.A. 529,
payment of loans should be in Philippine currency at the rate of exchange prevailing
A(c) at the time of the stipulated date of payment. Felipe could only compel Gustavo to
receive US $ 100 if they stipulated that the obligation be paid with foreign currency
(R.A. 4100)
AB Corp. entered into a contract with XY Corp. whereby the former agreed to
construct the research and laboratory facilities of the latter. Under the terms of the
contract, AB Corp. agreed to complete the facility in 18 months, at the total
contract price of P10 million. XY Corp. paid 50% of the total contract price, the
balance to be paid upon completion of the work. The work started immediately, but
AB Corp. later experienced work slippage because of labor unrest in his company.
AB Corp.’s employees claimed that they are not being paid on time; hence, the work
slowdown. As of the 17th month, work was only 45% completed. AB Corp. asked for
Q
extension of time, claiming that its labor problems is a case of fortuitous event, but
this was denied by XY Corp. When it became certain that the construction could not
be finished on time, XY Corp. sent written notice canceling the contract, and
requiring AB Corp. to immediately vacate the premises.
a) Can the labor unrest be considered a fortuitous event?
IV b) Can XY Corp. unilaterally and immediately cancel the contract?
c) Must AB Corp. return the 50% downpayment?

No. The labor unrest cannot be considered a fortuitous event under Art. 1174
of the Civil Code. A fortuitous event should occur independent of the will of the
A(a) debtor or without his participation or aggravation. As mentioned in the facts, the
labor unrest of the employees was caused by AB Corp.’s failure to pay its employees
on time.
No. XY Corp. cannot unilaterally and immediately cancel the contract. In the
A(b) absence of any stipulation for automatic rescission, rescission must be judicial (Art.
1191, Civil Code).
AB Corp. need not return the 50% downpayment because 45% of the work was
A(c) already completed, otherwise, XY Corp. would be unjustly enriching itself at the
expense of AB Corp.
2007
Illegal and impossible conditions in a simple donation v. illegal and impossible
I Q
conditions in an onerous donation.
A Illegal and impossible conditions in a simple donation are considered as not

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written. Such conditions shall, therefore, be disregarded but the donation remains
valid (Article 727, NCC).
On the other hand, illegal and impossible conditions imposed in an onerous
donation shall annul the donation (Article 1183, NCC). This is so, because onerous
donations are governed by the law on contracts.
What are obligations without an agreement? Give five examples of situations
Q
giving rise to this type of obligation
“Obligations without an agreement” are obligations that do not arise from contract
such as those arising from:
II a) delicts;
A b) quasi-delicts;
c) solution indebiti;
d) negotiorum gestio; and
e) all other obligations arising from law.
The parties to a bailment are the:
a.) bailor;
b.) bailee;
III Q
c.) comodatario;
d.) all of the above;
e.) letters a and b
A e. (letters a and b)
A deposit made in compliance with a legal obligation is:
a.) an extrajudicial deposit;
b.) a voluntary deposit;
IV Q
c.) a necessary deposit;
d.) a deposit with a warehouseman;
e.) letters a and b
A c. (necessary deposit)
A contract of antichresis is always:
a.) a written contract;
b.) a contract with a stipulation that the debt will be paid through receipt of the
V Q fruits of an immovable;
c.) involves the payment of interests, if owing;
d.) all of the above;
e.) letters a and b
A d (all of the above)
An assignee in a proceeding under the insolvency Law does not have the duty of:
a.) suing to recover the properties of the estate of the insolvent debtor;
b.) selling property of the insolvent debtor;
Q
c.) ensuring that a debtor corporation operate the business efficiently and
VI effectively while the proceedings are pending;
d.) collecting and discharging debts owned to the insolvent debtor
c. ensuring that a debtor corporation operate the business efficiently and effectively
A while the proceedings are pending

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In order to obtain approval of the proposed settlement of the debtor in an

insolvency proceeding:
a.) the court must initiate the proposal;
Q b.) 2/3 of the number of creditors should agree to the settlement;
VII c.) 3/5 of the number of creditors should agree to the settlement;
d.) 1/3 of the total debts must be represented by the approving creditors;
e.) letters a and b
None of the choices is the correct answer. In order to obtain approval of the
A proposed settlement, 2/3 of the number of creditors representing 3/5 of the total
liabilities must approve the same.
2006
Spouses Biong and Linda wanted to sell their house. They found a prospective
buyer, Ray. Linda negotiated with Ray for the sale of the property. They agreed on
a fair price of P2 Million. Ray sent Linda a letter confirming his intention to buy the
property. Later, another couple, Bernie and Elena, offered a similar house at a
lower price of P1.5 Million. But Ray insisted on buying the house of Biong and Linda
for sentimental reason. Ray prepared a deed of sale to be signed by the couple and
a manager’s check for P2 Million. After receiving the P2 Million, Biong signed the
Q
deed of sale. However, Linda was not able to sign it because she was abroad. On
her return, she refused to sign the document saying she changed her mind. Linda
filed suit for nullification of the deed of sale and for moral and exemplary damages
against Ray.
a) Will the suit prosper? Explain.
b) Does Ray have any cause of action against Biong and Linda? Can he also
recover damages from the spouses? Explain.
I The suit will prosper. The sale was void because Linda did not give her written
consent to the sale. In Jader-Manalo v. Camaisa, 374 SCRA 498 (2002), the Supreme
Court has ruled that the sale of conjugal property is void if both spouses have not
given their written consent to it and even if the spouse who did not sign the Deed of
Sale participated in the negotiation of the contract. In Abalos v. Makatangay, 439
A(a)
SCRA 649, the Supreme Court even held that for the sale to be valid, the signatures
of the spouses, to signify their written consent, must be on the same document. In
this case, Linda, although she was the one who negotiated the sale, did not give her
written consent to the sale. Hence, the sale is void. However, Linda will not be
entitled to damages because Rey is not in any way in bad faith.
Yes, Rey has a cause of action against Linda and Biong for the return of the
P2,000,000.00 he paid for the property. He may recover damages from the
A(b) spouses, if it can be proven that they were in bad faith in backing out from the
contract, as this is an act contrary to morals and good customs under Articles 19
and 21 of the Civil Code.
Alberto and Janine migrated to the United States of America, leaving behind
their 4 children, one of whom is Manny. They own a duplex apartment and allowed
II Manny to live in one of the units. While in the United States, Alberto died. His
Q widow and all his children executed an Extrajudicial Settlement of Alberto’s estate
wherein the 2-door apartment was assigned by all the children to their mother,
Janine. Subsequently, she sold the property to George. The latter required Manny

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to sign a prepared Lease Contract so that he and his family could continue
occupying the unit. Manny refused to sign the contract alleging that his parents
allowed him and his family to continue occupying the premises. If you were
George’s counsel, what legal steps will you take? Explain.
As George’s counsel, I will give Manny a written demand to vacate within a
definite period, say fifteen days. After the lapse of the fifteen day period I will file
for an action for Unlawful Detainer to recover the possession of the apartment from
Manny. Manny’s occupation of the premises was by mere tolerance of his parents.
When all the co-heirs/co-owners assigned the two-door apartment to Janine in the
A extra-judicial partition, Janine became the sole owner of the same. He continued to
occupy it under the same familial arrangement. Upon the sale of the property to
George, Manny’s lawful occupation of the property was terminated and Manny’s
refusal to sign the lease contract and to vacate the premises after the period to
vacate lapsed made his occupation unlawful, hence, entitling George to the remedy
of Unlawful Detainer.
Spouses Alfredo and Racquel were active members of a religious congregation.
They donated a parcel of land in favor to that congregation in a duly notarized Deed
of Donation subject to the condition that the Minister shall construct thereon a
place or worship within 1 year from the acceptance of the donation. In an affidavit
he executed in behalf of the congregation, the Minister accepted the donation. The
Deed of Donation was registered with Registry of Deeds.
However, instead of constructing a place of worship, the minister constructed
Q a bungalow on the property he used as his residence. Disappointed with the
Minister, the spouses revoked the donation and demanded that he vacate the
premises immediately. But the Minister refused to leave, claiming that aside from
III using the bungalow as his residence, he is also using it as a place of worship on
special occasions. Under the circumstances, can Alfredo and Racquel evict the
Minister and recover possession of the property.
If you were the couple’s counsel, what action will you take to protect the
interest of your clients?
As counsel for the couple, I may file an action for reconveyance of the property
on the ground that the donation was not perfected. It was not perfected because
although it was made in a public document and was accepted by the donee in a
A separate public document, the donee failed to notify the donor of such acceptance
in an authentic form before the donation was revoke under article 729 of the Civil
Code. Such notification was necessary for the donation to become valid and
binding.
2005
Marvin offered to construct the house of Carlos for a very reasonable price of
P900,000, 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.
I a) What is the effect of the withdrawal of Marvin’s Offer?
Q
b) Will your answer be the same if Carlos paid Marvin P10,000.00 as
consideration for that option? Explain.
c) Supposing that Carlos accepted the offer before Marvin could communicate
his withdrawal thereof? Discuss the legal consequences.

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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. Without consent, there is no perfected contract for the construction of
the house of Carlos. 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
A(a)
certain which is 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.
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
A(b) 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.
Under Art. 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.
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.
Under Article 1315 of the Civil Code, Carlos and Marvin are bound to fulfil
A(c)
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
construction done by a third person at the expense of Marvin. Marvin in that case
will be liable for damages under Article 1170.
TX filed a suit for ejectment against BD for non-payment of condominium
rentals amounting to P150,000. During the pendency of the case, BD offered and TX
Q accepted the full amount due as rentals from BD, who then filed a motion to dismiss
the ejectment suit on the ground that the action is already extinguished. Is BD’s
II contention correct? Why or why not? Reason.
BD's contention is not correct. TX can still maintain the suit for ejectment. The
acceptance by the lessor of the payment by the lessee of the rentals in arrears even
A during the pendency of the ejectment case does not constitute a waiver or
abandonment of the ejectment case. (Spouses Clutario v. CA, 216 SCRA 341
[1992]).
Bernie bought on installment a residential subdivision lot from DEVLAND. After having
faithfully paid the installments for 48 months, Bernie discovered that DEVLAND had failed to
III develop the subdivision in accordance with the approved plans and specifications within the
Q time frame in the plan. He thus wrote a letter to DEVLAND informing it that he was stopping
payment. Consequently, DEVLAND cancelled the sale and wrote Bernie, informing him that
his payments are forfeited in its favor.

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a) Was the action of DEVLAND proper? Explain.

b) Discuss the rights of Bernie under the circumstances.
c) Supposing DEVLAND had fully developed the subdivision but Bernie failed to
pay further installments after 4 years due to business reverses. Discuss the
rights and obligations of the parties.
No, the action of DEVLAND is not proper. Under Section 23 of Presidential
Decree No. 957, otherwise known as the Subdivision and Condominium Buyer's
Protection Decree, non-payment of amortizations by the buyer is justified if non-
A(a)
payment is due to the failure of the subdivision owner to develop the subdivision
project according to the approved plans and within the limit for complying.
(Eugenio v. Drilon, G.R. No. 109404, January 22, 1996)

Under P.D. No. 957, a cancellation option is available to Bernie. If Bernie opts
to cancel the contract, DEVLAND must reimburse Bernie the total amount paid and
A(b)
the amortizations interest, excluding delinquency interest, plus interest at legal
rate. (Eugenio v. Drilon, G.R. No. 109404, January 22, 1996)

In this case, pursuant to Section 24 of P.D. No. 957, R.A. No. 6552 otherwise
known as the Realty Installment Buyer Protection Act, shall govern. Under Section 3
thereof, Bernie is entitled: 1) to pay without additional interest the unpaid
installments due within a grace period of four (4) months or one month for every
year of installment paid; 2) if the contract is cancelled, Bernie is entitled to the
A(c)
refund of the cash surrender value equal to 50% of the total payments made.
DEVLAND on the other hand has the right to cancel the contract after 30 days
from receipt by Bernie of notice of cancellation. DEVLAND is however obliged to
refund to Bernie 50% of the total payments made. (Rillo v. Court of Appeals, G.R.
No. 125347, June 19,1997)
Before he left for Riyadh to work as a mechanic, Pedro work his adventure van
with Tito, with the understanding that the latter could use it for one year for his
personal or family use while Pedro works in Riyadh. He did not tell to 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, 0000.00. 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
IV to return the van. Unfortunately while being driven by Tito, the van was accidentally
Q
damaged by a cargo truck without his fault.
a) Who shall bear the P15, 000.00 spent for the repair of the van?
b) Who shall bear for the costs for the van’s fuel, oil and other materials while
it was with Tito? Explain.
c) Does Pedro have the right to retrieve the van even before the lapse of one
year?
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.
The contract between Tito and Pedro is one of commodatum. Of the P15,
000.00 spent, Pedro, the bailor, shall bear the expenses for the repair of the faulty
A(a) brakes, they being extraordinary expenses incurred due to the non-disclosure by
the bailor of the defect or fault; Tito on the other hand, shall shoulder the part of

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the P15, 000.00 spent for the tune-up, said expense being ordinary for the use and
preservation of the van.
The costs for the fuel and other materials are considered ordinary expenses,
A(b)
and consequently Tito, the bailee, shall shoulder them.
No, Pedro cannot demand the return of the van until the expiration of the one-
A(c) year period stipulated. However, if in the meantime he should have urgent need of
the van, he may demand its return or temporary use.
Both Tito and Pedro shall bear equally the costs of the extraordinary expenses,
A(d) having been incurred in the occasion of actual use of the van by Tito, the bailee,
even though he acted without fault.
2004
Q Distinguish briefly but clearly between Civil Obligation and Natural Obligation
Civil obligation is a juridical necessity to give to do or not to do. It gives a
creditor the legal right to compel by an action in court the performance of such
I obligation.
A
A natural obligation is based on equity and natural law. There is no legal right
to compel performance thereof but if the debtor voluntarily pays it, he cannot
recover what was paid.
Q Distinguish briefly but clearly between Inexistent contracts and annullable contracts
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,
II ANNULLABLE or VOIDABLE CONTRACTS are valid until invalidated by the court but
A
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.
DT and MT were prominent members of the frequent traveler’s club of FX
Airlines. In Hong Kong, the couples were assigned seats in Business Class for which
they had bought tickets. On checking in, however, they were told that they were
upgraded by computer to First Class for the flight to Manila because the business
section was overbooked.
Both refused to transfer despite better seats, food, beverage and other
services in First Class. They said they had guests in Business Class they should attend
Q to. They felt humiliated, embarrassed and vexed, however, when the stewardess
allegedly threatened to offload them if they did not avail the upgrade. Thus they
III gave in, but during the transfer of luggage DT suffered pain in his arm and wrist.
After arrival in Manila, they demanded an apology from FX’s management as well as
indemnity payment. When none was forthcoming, they sued the airline for a million
pesos in damages.
Is the airline liable for actual and moral damages? Why or why not? Explain
briefly.
FX Airlines committed breach of contract when it upgraded DT and MT, over
their objections, to First Class because they had contracted for Business Class
A
passenger. However, although there is a breach of contract, DT and MT are entitled
to actual damages only for such pecuniary losses suffered by them as a result of

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