Case Analysis on Extinguishment of Obligations:

Novation, Code of Ethics, General Provisions,

Essential Requisites of Constracts
Cortez, Gracie Dan V.
School of EECE
Mapúa University
gdvcortez@mymail.mapua.edu.ph

Abstract—The contents of this paper mainly discuss the
contents and concepts of sections from Chapter 3, the code of
ethics. Also, it covers general provisions and sections from the
essential requisites of contracts.
Keywords—laws, contracts, code of ethics
Chapter 3 – Different Kinds of Obligations
(Section 6)
I. CASE ANALYSIS
Problem 1:
T (third person) tells C (Creditor) that T will pay the
debt of D (debtor), C agrees. Is D released from his obligation
to C?
Answer to Problem 1:
The scenario given is that T binds himself to C that T
will pay the debts of D. According to Article 1293, “Novation
which consists in substituting a new debtor in the place of the
original one, may be made even without the knowledge or
against the will of the latter, but not without the consent of the
creditor. “, in this article it relates to the situation in the
problem given. Although, there is nothing mentioned about T
asking permission to D but nonetheless, T could pay the debt
and D will be released from his obligation. Since, T will be in
place with the debtor that is supported by the article
mentioned. Though, D is out of his obligations to C, T may
still demand to D.
Problem 2:
Suppose in Problem 1, D proposed to C that T would
substitute D as the new debtor to which C agreed. Is D still
liable to C in case of insolvency of T?
Answer to Problem 2:
In the same situation but D is the one to proposed to
C that T will be the substitute to D that will pay the creditor
which C (creditor) agreed in. But problems may arise such that
T becoming insolvent. In this situation, it can fall under
Article 1295, in which is law implies that D may not be liable
if T was not able to pay for the debts that now T was in since,
C agreed that D may substitute his obligations to T. However,
D can be liable to C if D had the knowledge of T’s insolvency
and did not disclosed it to C.
Code of Ethics Problem: Bayani Case
I. CASE ANALYSIS
Problem 1:
Jose Bonifacio, the majority stockholder, and chairman of
the board of directors of Bayani Company, was dissatisfied
with the top executives of the company, a manufacturer of
LED screens. The stockholders had invested P50 million and
the return on their investment had been poor for the past 3
years. In the last meeting of the Board at the start of the year,
Bonifacio fired the chief executive officer and (with Board
approval) appointed himself as the new CEO. At the first
management meeting, he asked two of the managers to stand
up and then fired them on the spot. At the budget review
meeting that followed, he ripped up the departmental budgets
that had been submitted for his review and yelled at the
managers for submitting weak targets. He then ordered
everyone to submit new budgets calling for at least a 13%
increase in sales and announced that he would not accept
excuses for results that fell below target. 
Andres Mabini, an ECE engineer working for the
production manager, discovered toward the end of the year
that his boss, Manuel Aguinaldo, had not been scrapping
defective LED screens that had been returned by customers.
Instead, he had been shipping them (repaired) as new to
customers to avoid booking losses and increase production
output. Quality control had deteriorated during the year
because of the higher production rate and returns of defective
screens were running as high as 17% (previously 3%) of the
new screens shipped. Mabini even managed to derive an
equation showing linear relationship between production
volume and returns. When he confronted his boss with his
discovery, Manuel told him to mind his own business. And
then, in the way of a rationalization for his actions, Manuel
said, “Lahat kaming manga managers ay ginagawa lahat nang
paraan para maabot ang target”. 
 Manuel Aguinaldo and Bonifacio are both ECE engineers,
Rizal from MIT and Bonifacio from the other MIT. Bonifacio
also has an MBA from Ateneo. STATE THE CORE ETHICS
PROBLEM THEN SOLVE, List different possible answers to
this one question, cite consequences
Answer to Problem 1:
Given with two scenarios, the first scenario is about Jose
Bonifacio who is a majority stockholder and a chairman of
BODs. Whom also, became the CEO. During a meeting, he
fired two managers and created new standards for budgets. In
this, we can see that the decision that Bonifacio made is
because of the poor performance of the company has in the
past. However, in the Philippines there is also a code that
protects the rights of the Filipino employees. In which is
means that Bonifacio must have taken an action in which
observance of termination processes must be done.
There are certain processes that can be done for dismissals:
1. Giving a written note, which serves as a notice
that states the reasons for termination and giving
opportunity to the employee to have an enough
time to explain their side
2. Giving a hearing or meeting, this to better
determine the response of the employee to the
charges given, and refute the evidence
3. After the review of the evidence, notice of
judgement will be given and penalties to the
employee will be applied
As for the second problem, Andres Mabini is an ECE.
Give the situation that the engineer wanted to lessen the
booking losses of the company by sending repaired LED lights
to the customers. In this situation, the main objective of Engr.
Mabini is to increase sales and to maintain his job due to the
standard set by his company. Although, Engr. Mabini’s act is
out of pure goodness, the repaired LED lights does not
guarantee a complete satisfactory performance when a certain
time comes. In this, as an engineer there are also standards is
expected for them to be applied which are the following:
1. Be accountable to the safety, health, and welfare of
the public.
2. Perform services under the field of their competence.
3. Give public statements that are purely true and
objective.
4. Act for each employer as faithful trustees.
5. Do not do deceptive acts.
6. Be honorable, responsible, ethical, and lawful.
Thus, in this it is not justifiable for Engr. Mabini to do
such acts. Also, in this action might be fired and tarnishing the
reputation of the company and his name as a professional
engineer.
Chapter 1 – General Provisions
I. CASE ANALYSIS
Problem 1:
A and B entered a contract not specifically provided in the
Civil Code. Is the contract valid and binding?
Answer to Problem 1:
A and B entered a contract that is not specifically provided
in the Civil Code and the question if is that still valid or
binding? This situation is under the Article 1307, in which the
situation that A and B is in is called a innominate contract
which is being regulated by the stipulation of the two parties
involved. Moreover, this is supported by Article 1318, which
states that there are conditions needed to be considered an
agreement a contract:
1. Consent in both the parties
2. Object certain which is the subject of the contract
3. The cause of the obligation established
Thus, the contract between A and B is valid and binding.
Problem 2:
S (seller) and B (buyer) entered a contract of sale. It was
agreed that the price shall be determined by, T, a third person.
Can S or B refuse to be bound by T’s determination of the
price if he does not agree with the amount thereof?
Answer to Problem 2:
In this situation, S and B entered a contract sale which T, a
third person will be the one to determine the price. In this
situation it can be reflected to Article 1309, whereas T is to
decide the price, but it will not bind S and B unless it was
recognized by the two parties involved. Also, S and B can say
their opinion towards T’s decision for the price. So, yes, either
S or B can refuse to T’s price determination even if the two
parties agreed that T will determine the price.
Chapter 2- Essential Requisites of
Contracts (Section 1)
I. CASE ANALYSIS
Problem 1:
In a contract containing an option period, when is the
offerer not allowed to withdraw his offer even before
acceptance by the offeree? When is the offerer allowed to
withdraw his offer even after the acceptance?
Answer to Problem 1:
In this problem, in accordance to Article 1324,
“When the offeror has allowed the offeree a certain period
to accept, the offer may be withdrawn at any time before
acceptance by communicating such withdrawal, except
when the option is founded upon a consideration,
something paid or promised.”
Therefore, the offerer can withdraw his offer before
the acceptance unless there is a promise made to offer in
their contract. For the second question, no, the offerer
cannot withdraw to his offer after the acceptance of the
offeree.
Problem 2:
 Suppose in the same problem, what S sold to B,
hardware owner, are 500 bags of cement. S had every
reason to believe that the price of the cement would go
down. After two weeks, it did go down. Has B the right to
have the sale annulled?
Answer to Problem 2:
In the given problem, S sold to B are 500 bags of
cement. Also, S have every reason that the bags of cement
sold will go down in price. In this situation it falls under
Article 1339, whereby states that, “Failure to disclosed
facts, when there is a duty to reveal them, as when the
parties are bound by confidential relations, constitutes
fraud.”. In this scenario, what S did is not considered fraud,
because as per definition, a fraud is the failure to disclose
facts. What S is thinking are just beliefs and not facts
therefore, B has no rights to annul the sale.
Chapter 2 – Essential Requisites of
Contracts (Section 2)
I. CASE ANALYSIS
Problem 1:
S sold to B for P100,000 a parcel of land belonging
to S located in his hometown without specifying its exact
location and area. Is the sale valid?
Answer to Problem 1:
In this scenario, S sold B a land located in his
hometown, but S did not specify the exact location and the
area of the land to B. This situation falls under Article 1349,
which it states that, “The object of every contract must be
determinate as to its kind.”. Therefore, the land that S sold B is
not legal under the Article 1349 since the arrangement
identifies an indeterminate parcel of land.
Problem 2:
S has several pigs. Under a contract of sale, S binds
himself to deliver a pig to a B for P3,000 if the pig has a
weight of at least 30 kilos. State the binding effect of the sale.
Answer to Problem 2:
S has several pigs and under the contract of sale S
bind himself to deliver the pig for a certain amount of price if
the pig has a weight of 30 kilos. In this situation, conditions
must be met for a service to be considered as a contract:
1. It must be on the realm of human commerce
2. It must not be morally or physically impractical
3. It must be determinate or capable of being rendered
determinate
Therefore, B will pay the price of P 3000 if the pig weights
30 kilos. If the pig weighs less than the agreement, S cannot
compel to B to accept the pig.
Chapter 2 – Essential Requisites of
Contracts (Section 3)
I. CASE ANALYSIS
Problem 1:
S sold to B a specific parcel of land for P500,000. B
failed to pay. Has C the right to have the sale declared void by
the court on the ground of absence of cause for non-payment
of the price?
Answer to Problem 1:
In this situation S sold B a parcel of land for P50,000
and B fails to pay the price. C is the third person and asked if
C has the rights. In this situation, S and B are the only parties
involved in the agreement. C, however, is just a third party
and did not actually exist at the time of the agreement between
S and B. Under Article 1352, that contracts entered in for
cause or with wrongful intent have no effect. Therefore, since
C is not actually the one who is involved in the agreement
between S and B, C have not the right to have the sale
declared void.
Problem 2:
X gave P10,000 to Y who signed a receipt stating:
“This is to acknowledge payment by X in the amount of
P10,000.” X later complains that he received nothing from Y
for the P10,000. Is Y bound to return the P10,000?
Answer to Problem 2:
X gave Y the money who signed a receipt that
acknowledges that X has paid in the amount of P10,000. Then
later X complained that he receives nothing from Y. The
problem here is should Y return the P10,000. In this problem it
falls under Article 1354, since in the problem it is seen that no
reason was given why X must pay the P10,000. Though it is
presumed that it is legal thus, making their deal intact.
Therefore Y, is not bound to refund the money. It is possible if
X has proven that they had an illegal deal.