OBLIGATIONS AND CONTRACTS

SECTION 1-E
JESS RAYMUND M. LOPEZ

FINAL EXAM

INSTRUCTIONS:

(a) Answer completely but concisely. You will not finish

this exam if you are too verbose.

(b) If I cannot read something, I cannot give it any

credit. So please write legibly.

(c) Do not assume facts. However, there is a difference

between assuming facts, and making reasonable inferences
from the facts given.

(d) This questionnaire consists of 8 pages.

I.

I.1. Jack entered into the following transactions during his last year
on this earth:

(a) On June 23, 2019, Jack obtained a non-interest bearing loan

from Billie in the amount of P1Million. This loan, which was expressly
stipulated as being payable on June 24, 2020 without the need for any
demand, was secured by a mortgage on a valuable parcel of land
without any improvements that was registered in Jack’s name.

(b) Also on June 23, 2019, Jack, together with his business partner
Jill, obtained an unsecured P16.5Million loan from (a) Katy, who was
Jack’s business school classmate, (b) Taylor, who is Jack’s legitimate
daughter from his deceased first wife, and (c) Miley, who is Jack’s
bestfriend. The contract of loan signed by Jack and Jill as “Debtors”
and Katy, Taylor, and Miley as “Creditors” states: “Debtors promise to
pay the sum of P16.5Million to Creditors on June 24, 2020 without the
need for any judicial or extrajudicial demand. Should Debtors fail to
pay the loan on due date, Debtors promise to pay compensatory
interest at the rate of 6% per annum”.

(c) On December 24, 2019, Jack donated valuable paintings worth

several hundred thousand pesos to his church as a Christmas present.

I.2. On February 14, 2020, Jack married his second wife, Carla. On
June 1, 2020, Jack died of a heart attack right after he discovered that
tens of millions of pesos were swindled from him by a trusted
employee. Carla was subsequently appointed executrix of Jack’s
estate.
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Answer the following questions: (30 points)

(a) Assume that sometime in May 2020, Katy offered to pay

Billie Jack’s full indebtedness to her. May Billie be compelled to
accept Katy’s offer to pay? Explain fully.

(b) Assume that Billie accepted Katy’s offer while Jack was
still alive, but without Jack’s knowledge or consent. Which
obligations survive Jack’s death and are due and payable today,
June 24, 2020, and in what amounts? Explain fully.

(c) Assume the facts provided in (b) above. Moreover,

assume that Carla has P1Million cash on hand today, which are
the sole remaining funds belonging to Jack’s estate. Carla has
sought your advice on which debt/s you specified in (b) above
should be paid. Assume that all creditors are willing to accept
any amount that is offered to them. Advise Carla. Explain
fully.

(d) How would you characterize the penalty clause attached

to Jack and Jill’s debt to Katy, Taylor, and Miley? Explain fully.

(e) Assume that the creditors you identified in (b) above have
no other means to collect the sums due them. May they seek
the rescission of the donation that Jack made in his church’s
favor in December 2019 on the sole basis that this transaction
is presumed fraudulent under Article 1387 of the Civil Code?
Explain fully.

(f) Assume that Carla, out of her deep love and affection for
Jack, paid all of his creditors out of her own family’s funds.
Subsequently, however, Carla fell in love with another man
whose culture requires that she put up a dowry prior to
marriage. How may Carla recover the sums that she paid to
Jack’s creditors? Explain fully.

II.

2.1. You are an in-house lawyer for a corporation with several

subsidiaries operating across different industries. Disputes have arisen
between your employer’s subsidiaries and their contractual
counterparties following the COVID-19 outbreak. The management
teams of three (3) of your employer’s subsidiaries have approached
you for legal advice in respect of those disputes.

Answer the following questions based solely on the relevant

principles of Obligations and Contracts. Apart from the facts
provided below, do not consider the special laws/issuances/measures
enacted or implemented by the National Government and/or its
agencies in response to the COVID-19 pandemic. (27.5 points)
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(a) Agora is a subsidiary engaged developing various software

applications. In December 2019, Agora placed an order with Orange,
Inc. for 100 specially-configured laptops to be used in its business.
The parties agreed that the laptops should be delivered by Orange,
Inc. no later than March 20, 2020 without need of demand. Orange,
Inc. failed to deliver the laptops, invoking force majeure. In particular,
Orange, Inc. explained that some highly-technical and complex
components of the laptops were only manufactured by its factory in
Wuhan, China; however, because of the COVID-19 outbreak and
lockdown in Wuhan beginning noon on March 17, 2020, its factories
were shut down, and so the laptops could not be manufactured on
time following Orange, Inc.’s transmittal of Agora’s specifications to its
factory in the morning of March 17, 2020.

Agora seeks your advice on whether Orange, Inc.’s fortuitous

event defense is likely to be found meritorious in the event that
Agora files a breach of contract case against Orange, Inc.
Advise Agora. Explain fully.

(b) Bristol is a subsidiary that operates a hospital. A day after the

National Government placed Metro Manila on lockdown on March 17,
2020, Bristol and PPE, Inc. entered into a contract where PPE, Inc. was
to supply and deliver made-to-order personal protective equipment for
Bristol’s hospital staff at the end of one (1) week. Bristol paid for its
order in full. A week passed and PPE, Inc. failed to deliver the
equipment ordered by Bristol. On the eighth day, the National
Government took over PPE, Inc.’s manufacturing facilities and all of
the personal protective equipment that had been produced by it as at
that date, including those which had been ordered by Bristol. On the
ninth day, Bristol demanded delivery of the equipment it ordered or a
refund of its payment, together with damages for breach of contract.
PPE, Inc., argued, however, that it cannot be held liable for breach of
contract because its inability to perform its obligation was due to a
fortuitous event – i.e., the National Government’s take-over of PPE,
Inc.’s facilities and inventory.

Bristol seeks your advice on whether PPE Inc.’s fortuitous

event defense is likely to be found meritorious in the event that
Bristol files a breach of contract case against PPE Inc. Advise
Bristol. Explain fully.

(c) Assume the same facts provided in (b) above. Following PPE,
Inc.’s inability to deliver the equipment ordered, Bristol entered into
another contract with QQF, Inc. for the supply and delivery of the
same made-to-order personal protective equipment for Bristol’s
hospital staff at the end of one (1) week. Bristol paid for its order in
full. A week passed and QQF, Inc. was able to deliver only half of the
equipment that Bristol ordered. Upon receiving Bristol’s letter
demanding delivery of the remaining equipment, QQF, Inc. explained
that it had become extremely difficult for it to fulfill the complete order
because its supply chains of raw materials for the production of the
equipment were disrupted on account of the increased global demand
for personal protective equipment brought about by the COVID-19
pandemic beginning February 2020. QQF, Inc. thus alleged that it
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should be released from its obligation to deliver the remaining

equipment to Bristol pursuant to Article 1267 of the Civil Code.

Bristol seeks your advice on what Article 1267 of the Civil Code
provides, its theoretical basis, and whether QQF Inc.’s reliance
on this legal provision is likely to be found meritorious by the
courts. Advise Bristol. Explain fully.

(d) Crestholm is a subsidiary engaged in the leasing out of

residential condominium units in Makati City. Zandro is one of
Crestholm’s lessees. The lease contract between Crestholm and
Zandro contained the following provisions: (i) Zandro would pay rent
equivalent to P40,000.00 per month; (ii) Zandro was required to give
Crestholm a security deposit in the amount of P80,000.00 (the
“Security Deposit”), which Crestholm would return to him less any
expenses incurred by Crestholm in repairing any damage that may
have been caused by Zandro to the unit upon the expiration of the
contract; (iii) the term of the contract would end on April 30, 2020;
and (iv) in case Zandro breaches any of the terms of the lease
contract, including his obligation to vacate the premises on April 30,
2020, then the entire amount of the Security Deposit would be
forfeited in Crestholm’s favor as a penalty.

Although Zandro had already made arrangements with another lessor

in Pasig City, pursuant to which Zandro was supposed to move in to
the new unit on April 25, 2020, Zandro failed to vacate the unit he was
leasing from Crestholm on April 30, 2020 because of the lockdown
imposed by the National Government beginning March 20, 2020, which
made it impossible for Zandro to travel from Makati to Pasig. Zandro
was eventually able to vacate Crestholm’s unit on May 31, 2020.

In addition to considering the Security Deposit forfeited in its favor,

Crestholm demanded that Zandro pay the sum of P40,000.00 for the
additional month that he occupied the unit. In turn, Zandro argued
that his Security Deposit should not have been forfeited because his
inability to transfer to his new lessor’s unit in Pasig was caused by a
fortuitous event (i.e., the lockdown imposed by the Government).
Zandro further argued that he does not owe Crestholm rent for an
additional month because the lease contract between them, and
hence, his obligation to pay monthly rentals, expired on April 30,
2020.

Crestholm seeks your advice on: (i) whether it may consider

the Security Deposit forfeited in its favor; (ii) whether Zandro
is correct in refusing to pay rent for the month of May 2020;
and (iii) what it should do in this situation. Advise Crestholm.
Explain fully.

III.

3.1. Andrei and Bert are kumpares who separately own condominium
units which they are leasing to tenants at monthly rentals of
P30,000.00 and P35,000.00, respectively. Andrei’s son, Chris, and
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Bert’s daughter, Dianna, are students taking up law in Ateneo, and are
expected to graduate in July 2021. Andrei and Bert agree today that if
Chris and Dianna graduate with honors from Ateneo in July 2021, they
will swap their condominium units with each other.

Answer the following questions: (7.5 points)

(a) Assume that Chris and Dianna both graduate with honors
from Ateneo in July 2021, and that Andrei and Bert reciprocally
demand the performance of each other’s obligation. In
addition, Andrei demands that the sum of P60,000.00 should be
paid by Bert to him, explaining that the effects of the
fulfillment of a suspensive condition retroact to the date of
perfection, and thus, the difference of P5,000.00 per month
that Bert received from the lease of his condo unit from July
2020 to July 2021 should be turned over to Andrei. Is Andrei
correct? Explain fully.

(b) Assume that Chris and Dianna both graduate with honors
from Ateneo in July 2021, and that Andrei and Bert reciprocally
demand the performance of each other’s obligation. Upon
ocular inspection of Andrei’s condominium unit, however, Bert
discovered that it had become infested with rats during the
period of July 2020 to July 2021 because of poor property
management by Andrei. What can Bert do in this situation?
Explain fully.

(c) Assume that Chris failed Civil Law Review II during his
fourth year, second semester in Ateneo. How does this affect
the agreement between Andrei and Bert? Explain fully.

IV.

4.1. Capital owns a parcel of land which it leased to Delta for a term
of 5 years, and for a monthly rental of P50,000.00. The parties agreed
that Delta would use the parcel of land for advertising purposes only.
On the second year of Capital and Delta’s contract, Omega offered to
sub-lease the parcel of land from Delta. Delta sought Capital’s consent
to the sub-lease, which Capital gave. Delta and Omega then entered
into a sub-lease contract with the following salient terms and
conditions: (a) the sub-lease would be for a term of 3 years; and (b)
Omega would pay a monthly rental of P60,000.00. In addition, as a
gesture of goodwill and gratitude for Capital’s consent to the sub-
lease, Delta and Omega agreed and stipulated that 10% of the
monthly rental due under the sub-lease would be paid directly by
Omega to Capital, in addition to the monthly rental that was being
paid by Delta to Capital. Omega faithfully complied with its obligations
under the sub-lease contract with Delta.

4.2. Disputes arose between Capital and Delta on the third year of
their lease contract. Because of these, Delta ordered Omega to cease
paying Capital the 10% portion of the monthly rentals due under the
sub-lease contract, and to pay the full amount due under this contract
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to Delta, otherwise Delta would consider Omega in breach. Capital

learned of Delta’s instructions to Omega, and demanded that Omega
continue paying it (i.e., Capital) the 10% portion of the monthly
rentals due under the sub-lease contract.

Omega has sought your advice on what it should do. Advise

Omega. Explain fully. (5 points)

V.

5.1. Anton owns a parcel of land which he leased to Barbie for a term
of 5 years at an annual rental of P250,000.00. Barbie did not pay the
rental for Year 1 because Anton did not deliver possession of the
parcel of land to her. Anton eventually turned over possession of the
parcel of land to Barbie on Year 2, but Barbie only paid Anton the sum
of P200,000.00 for that year, for which Anton issued a receipt bearing
the statement “payment received for rental due as per contract”. At
the start of Year 3, Anton notified Barbie in writing that he was
extrajudicially rescinding the lease contract on account of (a) Barbie’s
non-payment of the rental due for Year 1, and/or (b) incomplete
payment of the rental due for Year 2. In response, Barbie argued that
Anton could not extrajudicially rescind the lease contract because it did
not contain any provision granting this remedy to him.

Rule on Anton’s and Barbie’s respective contentions. (5 points)

VI.

6.1. Roge was issued a license by the government to mine and

quarry limestone and other raw materials for the production of
cement. She entered into a contract with Pearl containing the
following terms: (a) Roge will deliver all the limestone and raw
materials she is able to mine and quarry to Pearl on a monthly basis;
and (b) Pearl will pay Roge the sum of P500,000.00 broken down as
follows: (i) P100,000.00 on or before the 15 th day of every month,
without need of demand; and (ii) the balance of P400,000.00 if Pearl is
able to export the limestone and other raw materials to a foreign
buyer. Roge delivered the limestone and other raw materials she was
able to mine and quarry from the site for the entire year of 2019.
Pearl timely paid Roge the sum of P1.2Million representing the
P100,000.00 due from her for each of the 12 months of 2019, but not
the balance, on the ground that she had not yet been able to sell the
materials to a foreign buyer, and also because she had become
insolvent.

Roge then files a collection case against Pearl. Will the action
prosper? Explain fully. (5 points)
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VII.

7.1. Mabel is a famous international recording artist with hits like

“Hello”, “When We Were Young”, “Rumour Has It”, and “Set Fire To
The Rain”. A local concert organizer was finally able to book Mabel for
a one-night only concert in Metro Manila, and proceeded to sell tickets
for the show. Agnes checked YouTube videos of Mabel’s concerts in
other countries for the same tour. In all of these concerts, Mabel
performed a total of 20 songs within the span of 2-and-a-half hours.
Mabel’s setlist and the total running time of her shows for this tour
were also posted on her social media pages. Because of this, Agnes
purchased a ticket for Mabel’s show. The night of the concert came,
and Mabel started the show 2 hours late. Mabel likewise ended the
show after performing only 5 songs. Mabel then left Metro Manila and
traveled to Boracay for a vacation.

While Mabel was still in Boracay, Agnes filed a breach of

contract case against Mabel. Will the action prosper? Explain
fully. (5 points)

VIII.

8.1. Explain the Supreme Court’s pronouncements in Henson,

Jr. v. UCPB General Insurance Co., Inc., G.R. No. 223134,
August 14, 2019 in respect of (a) subrogation, and (b)
prescription? (5 points)

IX.

9.1. Enumerate the unenforceable contracts under Article

1403 of the Civil Code. (2.5 points)

9.2. True or false (write “True” or “False”, but in either case, explain
your answer in not more than two (2) sentences):

A valid tender of payment that is refused, but is not followed by

consignation, produces no legal effects. (2.5 points)

9.3. True or false (write “True” or “False”, but in either case, explain
your answer in not more than two (2) sentences):

When an option contract is incorporated in a lease contract, the

separate and distinct consideration supporting the option
contract must be clearly specified as such in the contract.
Otherwise, there can be no perfected option contract. (2.5
points)

9.4. True or false (write “True” or “False”, but in either case, explain
your answer in not more than two (2) sentences):

An action for rescission/resolution based on Article 1191 of the

Civil Code prescribes in 10 years reckoned from the date the
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substantial breach of a reciprocal obligation occurred. (2.5

points)

BONUS: Answer only 1 of the following. Answering more than 1 will

result in 0 bonus points.

For 3 points: Give your best Oblicon-related “knock knock” joke.

Bonus points will be given depending on how funny I find the joke.

For 2 points: What memorable line from a movie – whether local or

foreign – best describes your semester in Oblicon? Explain.

For 1 point: What song best describes your semester in Oblicon?

Explain.