Bar Questions

Sales, Lease, Agency, and Partnership

1975 to 2018
1975

A borrowed from B the sum of P3,000.00. Three days after A in a letter authorized the Philippine
National Bank to pay his debt to B out of whatever crop loan might be granted to him by said
Bank. On the same day, the Bank agreed but the Bank paid B only P2,000.00. On the date of the
maturity, B sued the Bank and A for the remaining P 1,000.00.

Is the Bank liable to B? Explain.

Suggested Answer:

No, the bank is not liable to B.

The letter of A to PNB is merely an authority given to PNB to pay B. PNB, therefore, is merely
an agent of A, and an agent cannot be personally liable as long as be acts within the scope of his
authority.

Moreover, the Bank did not assume the obligation to pay A's indebtedness to B, either as co-
principal, surety or guarantor. (Hodges v. Rey, 111 Phil. 219)

Hence, the bank is not liable to B.

1976

xxx

1977

II

Q: When may a contract of sale of realty be presumed to be an equitable mortgage? Cite five (5)
instances.

A: Under Arts. 1602 and 1603 of the New Civil Code, a contract shall be presumed to be an
equitable mortgage in any of the following cases:

1. When the price of sale with right to repurchase is unusually inadequate;

2. When the vendor remains in possession as lessee or otherwise;
3. When upon or after the expiration of the right to repurchase another instrument
extending the period of redemption or granting a new period is executed;
4. When the purchaser retains for himself a part of the purchase price;
5. When the vendor binds himself to pay taxes on the thing sold;
 6. In any other case where it may be fairly inferred that the real intention of the parties is
that the transaction shall secure the payment of a debt or the performance of any other
obligation; and
7. When there is doubt as to whether the contract is a contract of sale with right of
repurchase of an equitable mortgage.
III

Q: A bought on installment a residential subdivision lot, but after the 5th year, was unable to
make further payments. Can the developer cancel the sale unilaterally, or must he go to court to
obtain rescission? Is A entitled to any refund?

A: Yes, the developer can cancel the sale unilaterally. He need not go to court in order to obtain
rescission, provided that the actual cancellation of the contract shall take place after thirty days
from receipt by the buyer of the notice of cancellation or the demand for rescission of the
contract by a notarial act and upon full payment of the cash surrender value to the buyer.

A shall be entitled to the cash surrender value, which is fifty percent of the total payment made
by him to the seller.

IV

Q: For only P100,000.00, V sold to C a house and lot valued at P200,000.00. A month later, C
stipulated in writing that V may repurchase in 2 years for P120,000.00. After 4 years, C refused
to reconvey and V sued for reformation. What legal grounds should be sustained? How should C
resist the suit? Who should prevail and why?

A: V may try to sustain his position by claiming that the instrument executed by C stipulating
that V may repurchase the property for P120,000.00 is a part or continuation of the previous
absolute sale, and that the two transactions taken together constitute a contract of sale with right
of repurchase. Hence, because the price is unusually inadequate, the contract is in reality a
contract of equitable mortgage.

C, on the other hand, should resist the suit by claiming that the two transactions taken together
are separate and distinct from each other: the first is an absolute sale, while the second, wherein
C stipulated that V may repurchase the property, is merely an option to buy. Hence, the
presumption of an equitable mortgage cannot be sustained. Besides, even assuming arguendo
that there is indeed a contract of sale with right of repurchase, such right has already prescribed
under Article 1606 of the New Civil Code.

Because of the ground stated by C, he should prevail, in line with the ruling in Villarica v. Court
of Appeals.

Q: When do conventional and legal redemptions take place?

A: Conventional redemption takes place when the vendor reserves the right to repurchase the
thing sold with the obligation to reimburse to the vendee the price of the sale, the expenses of the
contract, other legitimate payments made by reason of the sale, as well as necessary and useful
expenses made on the thing sold, under Articles 1601 and 1616 of the New Civil Code.

Legal redemption takes place when there is a right to be subrogated upon the same terms and
conditions stipulated in the contract, in the place of one who acquires a thing by purchase or
dation in payment, or by any other transaction whereby ownership is transmitted by onerous title,
under Article 1619 of the New Civil Code

VI

Q: What is tradition and give five kinds of tradition which are provided and recognized in the
Civil Code.

A: Tradition is a derivative mode of acquiring ownership and other real rights by virtue of which
they are transmitted from the patrimony of the grantor, in which they had previousl, existed, to
that of the grantee by means of a just title, there being both the intention and the capacity on the
part of both parties.

The different kinds of tradition which are recognized in the New Civil Code are:

1. Real tradition, which takes place by delivery or transfer of a thing from hand to hand if it is
movable, or by certain material and possessory acts of the grantee performed in the presence and
with the consent of the grantor if it is immovable.

2. Constructive tradition, which takes place by the delivery of a movable or immovable thing by
means of acts or signs indicative thereof. This delivery may take place in the following ways:
A. Traditio symbolica, which consists in the delivery of a symbol representing the thing which is
delivered, such as the key to a warehouse;
B. Traditio longa manu, which consists in the grantor pointing out to the grantee the thing which
is delivered which at the time must be within sight;
C. Traditio brevi manu, which takes place when the grantee is already in possession of the thing
under a title which is not of ownership, such as when the lessee purchases from the lessor the
object of the lease; and
D. Traditio constitutum possessorium, which takes place when the grantor alienates a thing
belonging to him, but continues in possession thereof under a different title, such as that of a
lessee, pledgee, or depositary.

3. Quasi-tradicion, which is used to indicate the exercise of a right by the grantee with the
acquiescence of the grantor; and

4. Tradicion por ministerio de la ley, which refers to delivery that takes place by operation of
law.

VII
Q: L leased a house to J and the contract stipulated that in the event of non-payment of the rent L
could eject J without a court action. J defaulted for 2 months and L ejected him. Can J claim
damages because the renunciation of his day in court is void?

A: J cannot claim damages. While in reciprocal obligation there is always a tacit resolutory
condition that if one party is unable to comply with what is incumbent upon him, the injured has
the power to rescind the obligation under Article 1191 of the New Civil Code, which rule is
reiterated under the law on lease under Article 1659 of the same, these rules can be applied only
to a case where the obligation is silent with respect to the power to rescind.

In this case, the right of L to eject J without court action in case of non-payment of rent was
expressly recognized, and what L did was merely to enforce what was agreed upon.

VIII

Q: O leased a building to T, the latter to pay P2,000.00 monthly and the light and water bills. The
contract stipulated that non-payment of the rent would automatically cancel the contract, but
otherwise T could stay on indefinitely. After 5 years, O tried to eject T because he planned to
tear the building down and put up another. Can O eject T?

A: Yes, O can eject T. T cannot successfully set up the defense that under the contract of lease,
he can continue occupying the building so long as he will faithfully fulfill his obligation of
paying the rentals. It is clear that under this stipulation, the continuance and fulfillment of the
contract would then depend solely and exclusively upon his uncontrolled choice between
continuing paying the rentals or not, completely depriving the owner of a say on the matter.

1978

IX

A leased a cold storage plant to B at a daily rental. B stored foodstuffs in the said storage plant
while the refrigeration facilities of one of tis vessels was out of order. After seven (7) days, B
found out that the foodstuffs in the storage were contaminated and was not fity for human
consumption. They were, therefore, thrown out to the sea. B sued A for recovery of the loss of
the foodstuffs. Is A liable? Reasons?

Answer:

Yes, A is liable for the loss.

Under the Civil Code provisions on warranty, in cases of hidden defects, the lessor is responsible
to the lessee for any hidden faults or defects in the thing leased even if the lessor is unaware of
such defects.
Here, the defect in the refrigeration facilities leased by A to B resulted in losses due to the
contamination of foodstuffs stored therein. As lessor, A effectively warrants the thing leased to
be free from such defects.

Since B suffered losses due to the defects of the thing leased, A shall be held liable.

A authorized B to sell her property for Php 20,000 subject to the condition that the purchaser
would assume the mortgage existing in favor of Plaridel Bank and agreed to pay B a commission
of 6% on the purchase price plus whatever overprice he may obtain for the property. B found a
buyer C who was willing to buy the property under the terms stipulated by A. When B
introduced C to A, A told B that she was no longer interested in selling the property and a
document was signed cancelling the written authority to sell with the agreement of B.

One month later, A directly sold the property to C for Php 22,000. A refused to pay B his
commission, contending that when the property was sold to C, the authority to sell of B was
already cancelled. B sued to collect his commission. Is B entitled to his agent’s commission?
Decide with reasons.

Answer:

Yes, B is entitled to his agent’s commission.

The Supreme Court has held that the act of the principal in terminating the agency contract to
circumvent the payment of the agent’s commission amounts to bad faith and cannot serve to
evade the payment of such commission. Here, A terminated the agency contract after B had
found a buyer C. The act of A selling the property after such termination indicates bad faith.
Hence, A cannot evade the payment of the commission. B is therefore entitled to such payment.

1979

XI

In a document dated June 10, 1960 and expressly denominated "Deed of Sale with Right to
Repurchase," AB sold his land to CD. Substantially, the document provided among others: "I,
AB, being in great need of money, hereby sell my 10- hectare coconut land to CD for P2.000 00.
It is agreed that I have the right to repurchase this land in 10 years. If I fail to buy back the
property, I shall deliver possession thereof to CD." Upon failure of AB to repurchase the
property, CD, in 1971, consolidated his title and files an action to recover possession, AB files an
answer offering to return the P2,000.00 plus interest at the legal rate. Will the action of CD
prosper? Why?

Answer:

The action will not prosper on the ground that the agreement is that of an Equitable Mortgage.
Under the doctrine of Equitable mortgage, when the purchase price is unusually inadequate,
there is a presumption that what the parties intended is an equitable mortgage.

Here, the agreement is an equitable mortgage because the price is unusually inadequate. Also,
the vendor was in a dire financial situation.

Hence, the action will not prosper.

XII

DT borrowed P50,000.00 from a bank and to secure the payment thereof, signed a Deed of Real
Estate Mortgage in favor of the bank in the usual printed form wherein it is provided among
others that "for the purpose of extra-judicial foreclosure, the mortgagor hereby appoints the
mortgagee his attorney-in-fact to sell the property mortgaged under Act 3135, as amended, to
sign all documents and perform any act requisite and necessary to accomplish said purpose."
Upon failure of DT to pay the loan, the bank foreclosed and bought the property at the
foreclosure sale. During the one year period of redemption DT died and the property was not
redeemed despite the lapse of one year. The bank, despite its actual knowledge, of DT's death,
consolidated its title by executing the affidavit of consolidation and Deed of Sale of the land in
its favor as empowered in the Deed of Real Estate Mortgage. After the bank had consolidated its
title the heirs of DT asked the bank to allow them to redeem the property by paying only the
P50,000.00 plus accrued interest and expense of foreclosure, contending that the sale in favor of
the bank was invalid due to the prior death of DT which therefore revoked the power of attorney
inserted in the Deed of Mortgage but the bank demanded payment of P200,000.00, the then fair
market value of the property. Can the bank be compelled to accept the tender of redemption by
the heirs of DT? Why?

Answer:
The bank cannot be compelled to accept the tender of redemption.

Under the law on Agency, one of the exceptions where an agency is not extinguished upon the
death of the principal is when the agency is coupled with interest.

Here, the agency is one coupled with interest because despite the death of DT, the power granted
by him to the bank to sell the property mortgaged and to sign all documents and perform any act
requisite and necessary to accomplish the extra-judicial foreclosure in case he is unable to pay
the loan is still of full force and effect. The foreclosure, therefore, and the consolidation by the
bank of its title over the mortgaged property are perfectly valid.

Hence, the bank cannot be compelled.

1980

XIII
"S" executed a Deed of Sale of a parcel of land in favor of "T" reserving for himself the right to
repurchase the same within five years from the date of the contract. The contract provided that
during the repurchase period "S" will retain possession of the land as lessee and pay the land
taxes thereon. The consideration for the sale was P10,000.00 but the land was worth double the
price. "S" failed to repurchase the land within the agreed period and "T" applied to the Court for
the consolidation of his title. "S" opposed the application and claimed that he had the right to
repurchase the land.

Whose stand should be upheld?

Suggested Answer:

The stand of "S" should be upheld.

Under Art. 1602 of the New Civil Code, the contract shall be presumed to be an equitable
mortgage.

Here, the land is merely the collateral or security for the payment of a loan of P10,000.00. This is
obvious from the deed of sale itself. First, it says that "S" will retain possession of the land as
lessee; second, it says that "S", the vendor, shall pay the taxes thereon; and last, the purchase
price is unusually inadequate.

Thus, the stand of “S” should be upheld.

XIV

"Q", the owner of a house and lot in Quezon City, gave an option to "R" to purchase said
property for P100,000.00 within ninety days from May 1, 1979. "R" gave "Q" one (Pl.00) peso
as option money. Before the expiration of the ninety-day period, "R" went to "Q" to exercise his
option and to pay the purchase price but "Q" refused because somebody wanted to buy his
property for P150,000 and because there was no sufficient consideration for the option. "R" sued
"Q" to compel him to accept payment and execute a deed of sale in his favor.

Decide the case.

Suggested Answer:

"Q" should be compelled to accept the purchase price of P100,000 and to execute a deed of sale
of the subject property in favor of "R". The reason is that there is already a perfected contract of
sale.

Under Art. 1324 of the New Civil Code, when the offerer 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, as something paid or
promised. Also under the second paragraph of Art. 1479, an accepted unilateral promise to buy
or to sell a determinate thing for a price certain is binding upon the promissor if the promise is
supported by a consideration distinct from the price.

In the instant case, there is a unilateral offer of "Q" to sell the subject property to "R". For that
purpose, the latter is given an option of ninety days from May 1, 1979 within which to exercise
the option. The consideration for the option is P1.00. Since there is a consideration for the
option, "Q" is now bound by his promise to sell the property to "R" so long as the latter will
exercise the option within the agreed period of ninety days. "R" exercised his option.

Therefore, there is already a perfected contract of sale.

XV

"CC" owned a two-story commercial building which he leased to "DD" with the agreement that
all improvements made on the building shall belong to "CC". "DD" made improvements on said
building purchasing on credit the materials needed for said improvements from "EE". "DD"
failed to pay rentals to "CC" and failed to pay the value of the materials to "EE".

"EE" sued "DD" for the unpaid value of the materials. "CC" also sued "DD" for the unpaid
rentals. "CC" levied on the materials. "EE" objected to the levy claiming that the materials
belong to him.

Who is the owner of the materials—"CC", the unpaid lessor, or "EE", the unpaid vendor?

Suggested Answer:

"CC", the unpaid lessor, is the owner of the materials.

When the materials were delivered and installed in the leased premises, "DD" became the owner
thereof. Ownership is not transferred by perfection of the contract but by delivery. This is true
even if the purchase is an credit, as in the case at bar.

Under the contract of lease entered into by and between "CC" and "DD", "CC" became the
owner of the above materials by virtue of the agreement in said contract that all improvements
shall belong to the lessor. Therefore, when levy was made by "EE" on the materials, "DD", the
judgment debtor, was no longer the owner thereof.

XVI

"AA" had an option to purchase a vessel. He entered into a contract with "BB" wherein he
assigned his option to "BB" under the condition that "BB" would appoint him as agent of the
vessel for five years. "BB" purchased the vessel and appointed "AA" as agent in accordance with
the contract. After three years of operation "BB" revoked the appointment of "AA" as agent for
loss of confidence. "AA" sued "BB" for damages.
Would you hold "BB" liable for damages?

Suggested Answer:

"BB" should be held for damages.

According to the Civil Code, the principal may revoke the agency at will. But there are
exceptions. These exceptions are sometimes denominated as agency coupled with an interest.
One of them is when the agency is the means of fulfilling an obligation already contracted.

Here, the agency is the means of fulfilling an obligation already contracted in favor of "AA".
"BB" has clearly breached his contract or undertaking by revoking the agency before the
expiration of the term or period of five years.

Hence, "BB" should be held for damages.

1981

"O", owner of a copying machine, leased it to "L" at a rental of P4,OOO.OO a month for a
period of one year with option on the part of "L" to buy the copying machine at the end of the
year for P80,000.00, to be paid by applying the rentals, so that "L" needs only to pay
P32,OOO.OO.
"L" failed to pay rentals for the 4th, 5th and 6th months so that "0" terminated the lease and
repossessed the copying machine, xathe sued "L" for the unpaid rental of three months, or
P12,000.00.
Is "0’s” suit legally tenable? Explain.

Suggested Answer:

"0's" suit is legally untenable.

By express provisions of Art. 1485 of the Civil Code, the preceding article (Art. 1484) shall be
applied to contracts purporting to be leases of personal property with option to buy, when the
lessor has deprived the lessee of the possession or enjoyment of the thing. Consequently,
applying Art. 1484, upon taking possession of the copying machine, "O" has no further action
against "L" to recover the unpaid rents.

XI

"S", an American resident of Manila, about to leave on a vacation, sold his car to "B" for U.S.
$2,000.00, the payment to be made ten days after delivery to "X", a third party depositary agreed
upon, who shall deliver the car to "B" upon receipt by "X" of the purchase price. It was
stipulated that ownership is retained by "S" until delivery of the car to "X". Five days after
delivery of the car to "X", it was destroyed in a fire which gutted the house of "X", without the
fault of either "X" or "B".

a) Is buyer "B" still legally obligated to pay the purchase price? Explain.

Suggested Answer:

(a) Yes, buyer "B" is still legally obligated to pay the purchase price. It must be observed that
"S" had already delivered the car to "X", the third party depositary or bailee. It was agreed that
ownership is retained by "S" until delivery to "X". Therefore, in effect, there was already a
transfer of the right of ownership over the car to "B". Consequently, "B" shall assume the
fortuitous loss of the car. As a matter of fact, even if it was agreed that "S" shall retain the
ownership of the car until the purchase price has been paid by "B", the end result will still be the
same. Since eventually, the purpose is to secure performance by the buyer of his obligation to
pay the purchase price, by express mandate of the law, the fortuitous loss of the car shall be
assumed by "B".

XII
"S", a landowner of an urban lot covered by a Torrens title, sold it to "B". "B" saw that the land
was occupied by lessees who paid rent on a month to month basis. "S" told "B" that some lessees
had been renting the parcels of land for twelve (12) years, other for eight (8) years. Unknown to
"S" and "B" is that the area had been declared as urban land reform area.
a) May "S" terminate the lease contracts and eject the lessees? Reasons,
b) If the lessees went to you for legal assistance, what would be your advice? Explain briefly.
c) Does "B" have a right against "S" in the event he is unable to obtain possession? Why?

Suggested Answer:

A) "S" cannot because he has already sold the property to "B". He does not have the necessary
legal personality to do so. "B" cannot because he was aware of the existence of the lease
contracts at the time when he bought the property from "S". Under the law, this is one of the
exceptions to the rule that the purchaser of a piece of land which is under a lease that is not
recorded in the Registry of Property may terminate the lease.
B) I would advice them to avail of the provisions of the Civil Code which declares that the
courts may fix a longer term or period for the lease. Under the law on obligations in general
(Art. 1197. Civil Code and under the law on lease (Art. 1687, Civil Code which declare that
the courts may fix a longer term to fix or extend the period of the lease is explicitly
recognized.
C) "B" does not have any right against "S" in the event he is unable to obtain possession of the
property. He was aware of the existence of the lease contracts. He must, therefore, assume
the consequences of his act in buying the property.

XIII

"0", lot owner, contracted with "B", builder, to build a multi-story office building designed by
"A", architect. "A" was paid a fee to supervise the construction and execution of his design.
When completed, "O" accepted the work and occupied the building, but within one year, it
collapsed in an earthquake that destroyed only the building and not the surrounding buildings.
Construction was faulty. The building cost P3,000,000.00, but reconstruction cost would reach
P10,000,000.00.
a) What are the rights of "O" against "A" and "B"? Explain briefly.
b) Could "O" demand reconstruction of the building? On what ground? Amplify.

Suggested Answer:

a) "O" can hold "A" and "B" solidarily liable for damages. This is clear from the Civil Code,
which declares that the contractor is liable for damages if within fifteen years from the
completion of the edifice or structure, the same should collapse on account of defects in the
construction. If the engineer or architect who drew up the plans and specifications of the
building supervises the construction, he shall be solidarily liable with the contractor.
Acceptance of the building, after completion, does not imply waiver of the cause of action.
However, the action must be brought within ten years following the collapse of the building.
b) "O" can demand reconstruction of the building. The obligation of both "A" and "B" is an
obligation to do. Consequently, Art. 1167 of the Civil Code is applicable. According to this
article, if a person obliged to do something does it in contravention of the tenor of the
obligation, the same shall be executed at his cost. It is obvious that the builder "B" and the
architect "A" performed their jobs in contravention of the tenor of obligation. As a matter of
fact, had' the building not collapsed, under the same article, it may even be decreed that what
has been poorly done be undone. Consequently, "O" can now demand for the reconstruction
of the building by "A" and "B" or by another at their cost.

XV
"A", an official of a mining company, was appointed by the company as its buying agent for the
acquisition of mining rights in a designated area for operation by the company. "A" proceeded to
enter into contracts with the claim owners. Claim owner "B", an illiterate, was helped by "A" in
locating and perfecting his rights and for which "A", by contract, obtained a participation in the
royalty paid by the company to the claim owner.
a) The mining company goes to you for advice as to whether it is entitled to the royalty obtained
by "A" from "B". What would your advice be and why?
b) May "B", the claim owner, question the royalty obtained by "A"? On what grounds? Explain,

Suggested Answer:
(a) I would advice the mining company to withhold the payment of the part of the royalty
corresponding to "A". This is so because of the explicit mandate of the Civil Code. According to
the law: Every agent is bound to render an account of his transactions and to deliver to the
principal whatever he may have received by virtue of the agency, even though it may not be
owing to the principal. It is crystal dear that the act of "A", agent of the mining company, falls
squarely within the purview or coverage of this rule.
(b) "B", the claim owner, may question the royalty obtained by "A" on the ground that it is "not
owing to the principal." It must be observed that the obligation of the agent to deliver to his
principal anything which he has received by virtue of the agency is followed by the phrase "even
though it may not be owing to the principal" This means that the action for recovery by "B" on
the ground of undue payment would be directed against the mining company and not against the
agent.

XIV
"A", "B" and "C" formed a partnership under the following terms and
conditions:
(a) Participation: "A" - 40%; "B" - 40%; "C" - 20%.
(b) "A" and "B" would supply the entire capital. "C" would contribute his management expertise
and be manager for the first five years without compensation.
(c) "C" shall not be liable for losses. The partnership became bankrupt.
1. Could "A" alone, opposed by "B" and "C", have "C" removed as manager? Explain.
2. Could "C" be personally held liable for debts of the partnership not satisfied with the assets of
the partnership. Amplify.

Suggested Answer:
(a) "A", alone, opposed by "B" and "C", cannot have "C" removed as manager of the partnership.
According to the Civil Code, the vote of the partners representing the controlling interest shall be
necessary for such revocation of power. Under the partnership agreement, it is crystal clear that
the vote of "A" does not represent the controlling interest.
(b) Yes, "C" eon be held personally, although jointly, liable for debts of the partnership not
satisfied with the assets of the partnership.

Under our partnership law, as among themselves, the industrial partner is always excluded from
any participation in the losses in the absence of an agreement to the contrary Hence, the
agreement that "C", the industrial partner, shall not be liable for losses is valid. It merely affirms
the law. The rule that a stipulation which excludes one or more partners in the profits or losses is
void, is applicable only to capitalist partners, not to industrial partners. However, as far as third
persons are concerned, the rule is different. An industrial partner can be held personally liable.
Of course, this is without prejudice to his right to hold his co-partners proportionately liable for
what he paid to partnership creditors.

Thus, in the instant case, the liability of "A"', "B" and "C" is joint (pro rata} and subsidiary. The
facts merely state that their participation is: "A — 40%; "B" — 40%; "C" -20%. Therefore, since
by agreement "C" is excluded from any participation in the losses, the agreement that "C's"
participation is 20% applies only to his participation in the profits. In the case of "A" and "B",
the agreement applies to both profits and losses. Despite the exclusion of "C" in the losses, such
agreement is not applicable insofar as partnership creditors are concerned. Consequently, the
liability of the three partners for partnership debts shall also be: 40% for "A", 40% for "B"; and
20% for "C". Hence, "C" can now be compelled to pay 20% of the partnership debts. After
payment, he can then proceed against his co-partners "A" and "B" for reimbursement of the
amount paid by him.
1982

XVIII

"A", "B" and "C" bought a parcel of land. Subsequently, "A" sold his share to "X".

(a) What right, if any, do "B" and "C" have with respect to the sale? Reason.
(b) May "B" exercise the same right if "A" had sold his share to "C" instead of to "X"? Reason,
(c) Assume that in question (a) neither "B" nor "C" had exercised the right and later "B" sold his
share to "Y", may "X" exercise that right referred to in question (a) ? Reason.

Suggested answer:

(a) "B" and "C" may exercise the right of legal redemption. In other words, they can be
subrogated to all of the rights of "X" under the same terms and conditions stipulated in the
contract.

(b) No, "B" cannot exercise the same right if "A" had sold his share to "C" to "X". The reason is
obvious. "C" cannot be classified as a third person meaning of the law.

(c) Yes, "X" may exercise the right of legal redemption. For all legal purposes, he has already
become a co-owner. Being a co-owner, he is, therefore all of the rights of a co-owner, including
the right of legal redemption.

XIX

By virtue of a written contract, "X" rented an apartment belonging to "Y" on June 5, 1979, for a
monthly rental of P280.00. There was no stipulation with respect to the duration of the lease. In
August 1980, desirous of increasing his rental income, "Y" devised a scheme to eject "X" from
said apartment by refusing to accept the monthly rental paid by "X". Hence, "X" deposited the
rental money with the PNB in the name of "Y" giving the latter notice of such deposit. After the
lapse of 3 months, "Y" filed a complaint against "X" for ejectment on the ground of non-
payment of rent. After trial, the court rendered judgment, dismissing "Y"'s complaint, but fixed
the period of lease to one year. "X" appealed from that portion of the decision fixing the period
of lease. Decide "X"' s appeal with reasons.
Suggested answer:

"X"' s appeal is meritorious. True, arrears in payment of rent for three months at any one time is
a ground for ejectment under Sec, 5 (b) of Batas Pambansa Big. 25, but then the law continues;
provided, that in case of refusal to accept payment of the rental agreed upon, the lessee shall
either deposit, by way of consignation, the amount in court or in a bank in the name of and with
notice to the lessor. "X", according to the facts, deposited the amount in the PNB in the name of
"Y" giving the latter notice of the deposit. Therefore, under the law, the lease is still covered by
the rental law (B.P. Blg. 23). "X" cannot be ejected, The order of the court fixing the period of
the lease at one year is contrary to law.
1983

After leasing his restaurant to B, A leased the adjoining room to C knowing fully well that C was
going to put up another restaurant, which he did.

Is A liable to B for the damage he may have suffered as a result of the opening of C’s restaurant?
Why?

Answer

No. A has not obligated himself not to allow the establishment of another restaurant adjoining
that leased to B nor is there any law which imposes such an obligation upon him.

Art. 1656 of the Civil Code, on the contrary, permits the lessor of a business to continue
engaging in the same kind of business to which the thing leased is devoted unless there is a
stipulation to the contrary. If the lessor is not forbidden, with less reason should a stronger, not a
party to the lease be prohibited.

1984

A brought a truck from B payable in installment secured by a chattel mortgage executed by A on

the truck. As additional security, A’s brother C executed a real estate mortgage in favor of B. A
defaulted in the payment of several installments. Consequently, B filed an action for replevin,
repossessed the truck, and foreclosed the chattel mortgage.

Can B proceed against the other properties of A and the real estate mortgage executed by C to
recover the deficiency if any after the chattel mortgage foreclosure sale? Explain.

Answer:

No, he cannot.

Under Article 1484, the remedies of the seller in a sale of personal property by installments is
alternative. Upon election by the seller of one remedy, he is precluded from resorting to the
others even in cases of deficiencies.

1985

A sold to B a piano for P10,000, payable in monthly installments of P1,000 each. After paying
his first
installment, B resold the piano to C who paid P2,000, leaving a balance of P8,000. Thereafter, X
sued
B for the value of services rendered to him and had the credit of P8,000, due B from C garnished.
A
thereupon filed a third party claim with the sheriff for P20,000, representing the balance of the
price
of the piano still unpaid and a loan of P11,000 he gave B. Discuss who between A or X should
prevail.

Suggested Answer:

The right of A should prevail over the right of X.

Under Article 1484 of the Civil Code, in a contract of sale of personal property on installment
basis, the vendor has a right to exact fulfillment of the obligation should the vendee fail to pay.

Here, the issue is the question of priority between the vendor’s lien and the garnishment order.
However, the vendor’s lien of A is a superior right because the sale occurred before the
garnishment. The moment A sold the piano, there was already a vendor’s lien.

Hence, A’s right should prevail over X’s right.

II

A leased to B a fishpond for 5 years. During the second year of the lease, he received only ½ of
the usual harvest from the fishpond as he could visit and supervise it only occasionally due to the
presence of armed men who were extorting money from him and other fishpond operators by
threats to their lives.

May B demand the reduction of the rent for the second year and the extension of the lease for
one year on the ground that the lessor failed to comply with his obligation to maintain the lessee
in the peaceful and adequate enjoyment of the lease?

Suggested Answer:

No, B cannot demand a reduction of the rent and an extension of the lease.

Under Article 1680 of the Civil Code, the lessee shall have a right to a reduction of rent only
when there is an extraordinary and unforeseen fortuitous event. Also, the warranty of the lessor
refers to his own acts and not to the acts of third persons beyond the lessor’s control. The
maintenance of the lessee in the peaceful and adequate enjoyment of the lease refers to the
enjoyment of the rights over the property as a lessee, and not to the physical disturbance or
bodily threat.

Here, the act of trespass and extortion by armed men is not one of the extraordinary or
unforeseeable circumstances under Article 1680.

Hence, B cannot demand a reduction of the rent and an extension of the lease.
1986

Mayroon, Magari and Kilalanin Sr. are co-owners in equal shares of a piece of land. Kilalanin Sr.
sold his undivided interest to his son Kilalanin Jr. A week later, Mayroon and Magari served
notice on Kilalanin Jr. of their intention to redeem the portion sold. However, Kilalanin Jr.
refused to allow redemption arguing that being the son of Kilalanin Sr., he was not a third person
in contemplation of law with respect to redemption by co-owners.

Is the refusal by Kilalanin Jr. justified? Explain.

Suggested Answer:

NO, the refusal of Kilalanin Jr. is not justified.

Under the Civil Code, when a share of a co-owner is sold to a third person, the other co-owners
may exercise the right of legal redemption. Furthermore, the law defines a third person as one
who is not a co- owner.

In the present case, Kilalanin Jr. is considered as a third person. The fact that he is the son of the
vendor-co-owner does not make him a co-owner as in fact the son had acquired the interest of his
father by purchase.

Hence, Kilalanin Jr’s refusal is not justified.

II

Mapusok sold his lot to Masugid under a pacto de retro sale. The lot was registered under the
Torrens system but the pacto de retro sale was not registered. Subsequently, Masigla obtained a
money judgment against Mapusok. Pursuant to a writ of execution, the lot was attached, the
attachment being annotated on the certificate of title. The purchaser at the public auction was
Masigla himself. When Masigla sought to register his title, Masugid opposed the registration on
the ground of the prior pact de retro sale to him.

Who as between Masugid and Masigla has the better right to the land? Explain.

Suggested Answer:

Masigla has a better right to the land.

Under the doctrine of Campillo vs. CA, 129 SCRA 513, a later sale of land pursuant to a writ of
execution takes precedence over a prior private sale not recorded in the Registry of Deeds.
In the present case, Masigla has a better right because at the time of attachment and sale at public
auction, the property was still registered in name of Mapusok.

Hence the rule on Torrens Titled land and Art. 1544 Civil Code of the Philippines on double sale
will apply.
1987

Miguel, Carlos and Lino are neighbors. Miguel owned a piece of registered land which both
Carlos and Lino wanted to buy. Miguel sold the land to Carlos. The sale was not registered upon
the request of Miguel. Later on, the same property was sold by Miguel to Lino. Miguel told
Carlos about the second sale. Carlos immediately tried to see Lino to discuss the matter and
inform him of the previous sale to him (Carlos) of the same property but Lino refused to see
Carlos. Thereupon Carlos annotated in the Registry of Property his adverse claim on the
property. A week later, Lino registered the sale on his favor and had a new transfer certificate of
title issued in his name. However, the adverse claim of Carlos was duly annotated in the title.
Notwithstanding, Lino took possession of the property and built a small bungalow thereon.

(a) Who is the rightful owner of the property? Explain.

(b) To whom would the bungalow built by Lino on the property belong? Explain.

Suggested Answer:

(a) Carlos is the rightful owner of the property.

In double sales, under Article 1544 of the New Civil Code, the land sold belongs to the first
registrant in good faith. If none, it belongs to the first possessor in good faith. If none it belongs
to the person with the oldest title, provided there is good faith.

In the present case, Carlos, who has the oldest title, is therefore the rightful owner of the'
property, because there was no registration in good faith by Lino.

Hence, Carlos is the rightful owner.

(b) The bungalow built by Lino on the property will also belong to Carlos.

Article 449 of the New Civil Code provides that he who builds in bad faith on the land of another
loses what he has built without right to indemnity.

In the present case, Lino built the bungalow on the property, notwithstanding, the fact that he
was aware that Carlos has an adverse claim on his property which was duly annotated in the title.
Lino, therefore, is considered as a builder in bad faith.

Hence, the bungalow built by Lino belongs to Carlos.

II

Lino entered into a written agreement for the repair of his private plane with Airo Repair Works,
Inc. for P500,000. Additional work was done upon the verbal request and authority of a duly
recognized representative of Lino. Lino refused to pay for the additional work, interposing as a
defense the absence of a written contract for the additional work done.

Is the defense put up by Lino valid? Explain.

Suggested Answer:

The defense put up by Lino is valid.

Under Article 1724 of the New Civil Code, the contractor who undertakes to build a structure or
any other work for a stipulated price, in conformity with plans and specifications agreed upon
with the land-owner, can neither withdraw from the contract nor demand an increase in the price
on account of the higher cost of labor or materials, save when there has been a change in the
plans and specifications, provided:

(1) Such change has been authorized by the proprietor in writing; and

(2) The additional price to be paid to the contractor has been determined in writing by
both parties.

In the present case, the additional work done by Airo Repair Works, Inc. was not authorized by
Lino in writing, neither was the additional price to be paid determined in writing by both parties.

Hence, the defense put up by Lino is valid.

III

Tomas, Rene and Jose entered into a partnership under the firm name "Manila Lumber."
Subsequently, upon mutual agreement, Tomas withdrew from the partnership and the partnership
was dissolved. However, the remaining partners, Rene and Jose, did not terminate the business of
"Manila Lumber." Instead of winding up the business of the partnership and liquidating its
assets, Rene and Jose continued the business in the name of "Manila Lumber" apparently without
objection from Tomas. The withdrawal of Tomas from the partnership was not published in the
newspapers.

Could Tomas be held liable for any obligation or indebtedness Rene and Jose might incur while
doing business in the name of "Manila Lumber" after his withdrawal from the partnership?
Explain.

Suggested Answer:

Yes. Tomas can be held liable.

With respect to third persons, Tomas is estopped from claiming that he is no longer a partner
because it was made to appear that he continued to be a partner despite his withdrawal therefrom.
But as regards the parties among themselves, under the New Civil Code, only Rene and Jose are
liable. Hence, if Tomas is made to pay, he can claim reimbursement from Rene and Jose.
(Articles 1837 to 1840; Goquiolay vs. Sycip, 9 SCRA 663).
1988

Q: A sold to B a house and lot for P50,000.00 payable 30 days after the execution of the deed of
sale. It was expressly agreed in the deed that the sale would ipso facto be of no effect upon the
buyer's failure to pay as agreed. B failed to pay on maturity, and A sued to declare the contract of
no force and effect. If B tendered payment before the action was filed, but subsequent to the
stipulated of payment, would the action prosper? Why?

A: The action would not prosper. Article 1592 of the New Civil Code provides that in the sale of
immovable property, although it may have been stipulated that upon failure to pay the price at
the time agreed upon the rescission of the contract shall of right take place, the vendee may pay,
even after the expiration of the period, so long as no demand for the rescission of the contract has
been made upon him either judicially or by notarial act. After the demand, the court may not
grant him an new term.

Here, at the time B tendered payment of the purchase price, there was still no demand made upon
him by A for the payment of said purchase price, either judicially or by notarial act.

II

Q: Distinguish between a contract of sale and a contract to sell.

A: The two may be distinguished from each other in the following ways:

1. In the first, title passes to the vendee upon delivery of the thing sold, whereas in the second, by
agreement, ownership is reserved in the vendor and is not to pass until full payment of the price.
2. In the first, nonpayment is a negative resolutory condition, whereas in the second, full
payment is a positive suspensive condition.
3. In the first the vendor has lost and cannot recover ownership until and unless the contract is
resolved or rescinded, whereas in the second, title remains in the vendor, and when he seeks to
eject the vendee because of noncompliance by such vendee with the suspensive condition
stipulated, he is enforcing the contract and not resolving the same.
 
III

Q: In 1950, A executed a power of attorney authorizing B to sell a parcel of land consisting of

more than 14 hectares. A died in 1954. In 1956, his four children sold more than 12 hectares of
the land to C. In 1957, B sold 8 hectares of the same land to D. It appears that C did not register
the sale executed by the children. D, who was not aware of the previous sale, registered the sale
executed by B, whose authority to sell was annotated at the back of the Original Certificate of
Title.

1. What was the effect of the death of A upon B's authority to sell the land?
2. Assuming that B still had authority to sell the land, who has a better right over said land, C or
D?

A:

1. B's authority subsisted notwithstanding the principal's death because he was unaware of such
death, and he contracted with third persons who apparently acted in good faith.

2. As the case at bar is a case of double sale of registered land, he who recorded the sale in good
faith has a better right in conformity with Article 1544 of the New Civil Code. Since D was not
aware of the previous sale, he had to rely on the face of the certificate of title of the registered
owner. Hence, he now has a better right to the land.

IV

Q: One-half of a parcel of land belonging to A and B was sold by X to Y for the amount of
P1,500.00. The sale was executed verbally. One year later, A and B sold the entire land to X. Is
the sale executed verbally by X to Y valid and binding? Reasons.

A: The sale, although not contained in a public instrument or formal writing, is nevertheless
valid and binding, for the time-honored rule is that even a verbal contract of sale of real estate
produces legal effect between the parties. Article 1434 of the New Civil Code, which declares
that when a person who is not the owner of a thing sells or alienates and delivers it, and later the
seller or grantor acquires title thereto, such title passes by operation of law to the buyer or
grantee.

1989

Question:

If the same thing should have been sold to different vendees, to whom shall the ownership be
transferred?

Answer:

If the thing sold is a movable property, ownership shall be transferred to the person who has first
taken possession of the thing in good faith.

If the thing sold is an immovable property, ownership shall belong to the person who had first
recorded the property in the Registry of Deeds in good faith. Should there be an inscription, the
ownership shall pertain to the person who in good faith was first in possession. In absence
thereof, to the person who presents the oldest title in good faith.

II
X offered to buy the house and lot of Y for Php 300,000. Since X had only Php 200,000 in cash
at the time, he proposed to pay the balance in four (4) equal monthly installments. As the title to
the property was to be immediately transferred to the buyer X, to secure the payment of the
balance, proposed to constitute a first mortgage on the property in favor of Y. Y agreed to the
proposal so that on Aprl 15, 1987, the contract of sale in favor of X was executed and on the
same date, X constituted the first mortgage. When the first installment became due, X defaulted
on the payment. Y brought an action to rescind the contract of sale which X opposed. Decide
with reasons.

Answer:

Y can rescind the contract of sale.

Under Article 1191 of the Civil Code, the power to rescind is implied in reciprocal ones in case
one of the obligors is not ready to comply with what is incumbent upon him. A contract of sale is
a reciprocal contract as the parties to such contract have an obligation to give something to the
other, the seller having the obligation to give and deliver the thing while the buyer having the
obligation to give the payment.

Here, the delivery of the property of Y to X gave rise to the obligation of X to pay the remaining
balance in installments. As X failed to do so, Y may invoke his right to rescind the contract due
to the default of X.

Hence, Y can rescind the contract of sale.

III

X came across an advertisement in the newspaper about the rush sale of three slightly used
Toyota cars for only Php 200,000 each. Finding the price very cheap and to be sure that he gets
one unit ahead of the others, X called the advertiser Y to place an order for one car. Y accepted
the order and promised to deliver the ordered unit on June 15, 1989. On the said date, Y did not
deliver the unit. X brings an action to compel Y to deliver the unit. Will the action prosper?

Answer:

The action cannot prosper.

Under the Statute of Frauds, an agreement for the sale of goods at a price not less than 500 pesos
is unenforceable by action unless such is made in writing and subscribed by the party charged.

Here, the car is priced at Php 200,000 which require that such agreement to sell the vehicle must
be in writing by the parties otherwise, it would be unenforceable. Since the agreement was not in
writing, the agreement cannot be enforced and no action can prosper from the agreement.

IV
Question

X used his saving from his salary amounting to Php 2,000 as capital in establishing a restaurant.
Y gave the amount of Php 4,000 to X as financial assistance with the understanding that Y would
be entitled to 22% of the annual profits derived from the operation of the restaurant. After the
lapse of 22 years, Y filed a case demanding his share in the profits. X denied that there was a
partnership and raised prescription as defense. Decide with reasons.

Answer:

The action of Y cannot prosper.

A contract of partnership is one where parties agree to contribute money, property, or industry to
a common fund with the intention of dividing the profits among themselves. A partnership is
imprescriptible unless repudiated.

Here, the amount provided by Y is only in the form of financial assistance and not for the
purpose of sharing profits derived from such agreement. The share of Y in the profits is merely a
payment on the amount advanced by Y and not for the purpose of establishing the partnership.

Hence, there being no partnership, the claims of Y had prescribed and thus the action cannot
prosper.

1990

A vacant lot several blocks from the center of the town was leased by its owner to a young
businessman B for a term of fifteen (15) years renewal upon agreement of the parties.After
taking possession of the lot, the lessee built thereon a building of mixed materials and a store. As
the years passed, he expanded his business, earning more profits. By the tenth (10th) year of his
possession, he was able to build a three

(3)-story building worth at least P300,000.00. Before the end of the term of the lease, B
negotiated with the landowner for its renewal, but despite their attempts to do so, they could not
agree on the new conditions for the renewal. Upon the expiration of the term of the lease, the
landowner asked B to vacate the premises and remove his building and other improvements. B
refused unless he was reimbursed for necessary and useful expenses. B claimed that he was a
possessor and builder in good faith, with right of retention.

This issue is now before the court for resolution in a pending litigation.

a) What are the rights of B?

b) What are the rights of the landowner?

ANSWER:
Under the New Civil Code, B has the right to remove the building and other improvements
unless the landowner decides to retain the building at the time of the termination of the lease and
pay the lessee one-half of the value of the improvements at that time. The lessee may remove the
building even though the principal thing may suffer damage but B should not cause any more
impairment upon the property leased than is necessary. The claim of B that he was a possessor
and builder in good faith with the right of retention is not tenable. B is not a builder in good faith
because as lessee he does not claim ownership over the property leased.

SUGGESTED ANSWER:
Under the New Civil Code, the landowner/lessor may refuse to reimburse 1/2 of the value of the
improvements and require the lessee to remove the improvements.

II

A leased a parcel of land to B for a period of two years. The lease contract did not contain any
express prohibition against the assignment of the leasehold or the subleasing of the leased
premises. During the third year of the lease, B subleased the land to C. In turn, C, without A's
consent, assigned the sublease to D. A then filed an action for the rescission of the contract of
lease on the ground that B has violated the terms and conditions of the lease agreement. If you
were the judge, how would you decide the case, particularly with respect to the validity of:

A.) B's sublease to C? and

B.) C's assignment of the sublease to D?

ANSWER:

A.) B's sublease to C is valid.

Under Art. 1650 of the Civil Code, the lessee may sublet the thing leased, in whole or in
part, when the contract of lease does not contain any express prohibition.

Here, Although the original period of two years for the lease contract has expired, the lease
continued with the acquiescence of the lessor during the third year pursuant to an implied
renewal of the lease contract.

Hence, the sublease of B to C is valid.

B.) C's assignment of the sublease to D is not valid.

Under Art. 1649, of the Civil Code, the lessee cannot assign the lease without the consent of
the lessor, unless there is a stipulation to the contrary.
Here, there is no such stipulation in the contract. If the law prohibits assignment of the lease
without the consent of the lessor, all the more would the assignment of a sublease be
prohibited without such consent.

Hence, the assignment of C is not valid.

1991

On 20 December 1970, Juliet, a widow, borrowed from Romeo P4,000.00 and, as security
therefore, she executed a deed of mortgage over one of her two (2) registered lots which has a
market value of P15,000.00. The document and the certificate of title of the property were
delivered to Romeo.

On 2 June 1971, Juliet obtained an additional sum of P3,000 from Romeo. On this date,
however, Romeo caused the preparation of a deed of absolute sale of the above property, to
which Juliet affixed her signature without first reading the document. The consideration
indicated is P7,000.00. She thought that this document was similar to the first she signed. When
she reached home, her son X, after reading the duplicate copy of the deed, informed her that
what she signed was not a mortgage but a deed of absolute sale. On the following day, 3 June
1971, Juliet, accompanied by X, went back to Romeo and demanded the reformation it, Romeo
prepared and signed a document wherein, as vendee In the deed of sale above mentioned, he
obligated and bound himself to resell the land to Juliet or her heirs and successors for the same
consideration as reflected in the deed of sale (P7,000) within a period of two (2) years, or until 3
June 1973. It Is further stated therein that should the Vendor (Juliet) fail to exercise her right to
redeem within the said period, the conveyance shall be deemed absolute and irrevocable. Romeo
did not take possession of the property. He did not pay the taxes thereon.

Juliet died in January I973 without having repurchased the property. Her only surviving heir, her
son X, failed to repurchase the property on or before 3 June 1973. In 1975, Romeo sold the
property to Y for P50,000.00. Upon learning of the sale, X filed an action for the nullification of
the sale and for the recovery of the property on the ground that the so-called deed of absolute
sale executed by his mother was merely an equitable mortgage, taking into account the
inadequacy of the price and the failure of Romeo to take possession of the property and to pay
the taxes thereon. Romeo and Y maintain that there was a valid absolute sale and that the
document signed by the former on 3 June 1973 was merely a promise to sell.

(A) If you were the Judge, would you uphold the theory of X?
(B) If you decide in favor of Romeo and Y, would you uphold the validity of the promise to sell?

Suggested Answer:

(A) I will not uphold the theory of X for the nullification of the sale and for the recovery of the
property on the ground that the so-called sale was only an equitable mortgage.

An equitable mortgage may arise only if, in truth, the sale was one with the right of
repurchase. The facts of the case state that the right to repurchase was granted after the
absolute deed of sale was executed. Following the rule in Cruzo vs. Carriaga (174 SCRA
330), a deed of repurchase executed independently of the deed of sale where the two
stipulations are found in two instruments instead of one document, the right of repurchase
would amount only to one option granted by the buyer to the seller. Since the contract cannot
 be upheld as a contract of sale with the right to repurchase, Art. 1602 of the Civil Code on
equitable mortgage will not apply. The rule could have been different if both deeds were
executed on the same occasion or date, in which case, under the ruling in spouses Claravall v.
CA (190 SCRA 439), the contract may still be sustained as an equitable mortgage, given the
circumstances expressed in Art. 1602. The reserved right to repurchase is then deemed an
original intention.

(B) If I were to decide in favor of Romeo and Y, I would not uphold the validity of the promise
to sell, so as to enforce it by an action for specific performance. The promise to sell would
only amount to a mere offer and, therefore, it is not enforceable unless it was sought to be
exercised before a withdrawal or denial thereof.

Even assuming the facts given at the end of the case, there would have been no separate
consideration for such promise to sell. The contract would at most amount to an option which
again may not be the basis for an action for specific performance.

II

A is the lessee of an apartment owned by Y. A allowed his married but employed daughter B,
whose husband works in Kuwait, to occupy it. The relationship between Y and A soured. Since
he has no reason at all to eject A, Y, in connivance with the City Engineer, secured from the
latter an order for the demolition of the building. A Immediately filed an action in the Regional
Trial Court to annul the order and to enjoin its enforcement. Y and A were able to forge a
compromise agreement under which A agreed to a twenty percent (20%) increase in the monthly
rentals. They further agreed that the lease will expire two (2) years later and that in the event that
Y would sell the property, either A or his daughter B shall have the right of first refusal. The
Compromise Agreement was approved by the court. Six (6) months before the expiration of the
lease, A died. Y sold the property to the Visorro Realty Corp. without notifying B. B then filed
an action to rescind the sale in favor of the corporation and to compel Y to sell the property to
her since under the Compromise Agreement, she was given the right of first refusal which, she
maintains is a stipulation pour atrui under Article 1311 of the Civil Code.

Is she correct?

Suggested Answer:

B is incorrect and her action cannot prosper.

Article 1311 requires that the third person intended to be benefited must communicate his
acceptance to the obligor before the revocation. There is no showing that B manifested her
acceptance to Y at any time before the death of A and before the sale.

Hence, B cannot enforce any right under the alleged stipulation pour atrui.

III
Pablo sold his car to Alfonso who issued a postdated check in full payment therefor. Before the
maturity of the check. Alfonso sold the car to Gregorio who later sold it to Gabriel. When
presented for payment, the check issued by Alfonso was dishonored by the drawee bank for the
reason that he, Alfonso, had already closed his account even before he issued his check.
Pablo sued to recover the car from Gabriel alleging that he (Pablo) had been unlawfully deprived
of it by reason of Alfonso's deception.

Will the suit prosper?

Suggested Answer:

No, the suit will not prosper because Pablo was not unlawfully deprived of the car although he
was unlawfully deprived of the price.

The perfection of the sale and the delivery of the car was enough to allow Alfonso to have a right
of ownership over the car, which can be lawfully transferred to Gregorio. Art. 559 applies only
to a person who is in possession in good faith of the property, and not to the owner thereof.
Alfonso, in the problem, was the owner and Gabriel acquired the title to the car.

Non-payment of the price in a contract of sale does not render ineffective the obligation to
deliver.

The obligation to deliver a thing is different from the obligation to pay its price.
1992

Q: A as principal appointed B as his agent granting him general and unlimited management over
A's properties, stating that A withholds no power from B and that the agent may execute such
acts as he may consider appropriate. Accordingly, B leased A's parcel of land in Manila to C for
four (4) years at P60,000.00 per year, payable annually in advance. B leased another parcel of
land of A in Caloocan City to D without a fixed term at P3,000.00 per month payable monthly. B
sold to E a third parcel of land belonging to A located in Quezon City for three (3) times the
price that was listed in the inventory by A to B. All those contracts were executed by B while A
was
confined due to illness in the Makati Medical Center. Rule on the validity and binding effect of
each of the above contracts upon A the principal. Explain your answers.

Suggested Answer: The agency couched in general terms comprised only acts of administration
(Art. 1877, Civil Code). The lease contract on the Manila parcel is not valid, not enforceable and
not binding upon A. For B to lease the property to C, for more than one (1) year, A must provide
B with a special power of attorney (Art. 1878. Civil Code).

The lease of the Caloocan City property to D is valid and binding upon A. Since the lease is
without a fixed term, it is understood to be from month to month, since the rental is payable
monthly (Art. 1687, Civil Code).

The sale of the Quezon City parcel to E is not valid and not binding upon A. B needed a special
power of attorney to validly sell the land (Arts. 1877 and 1878, Civil Code). The sale of the land
at a very good price does not cure the defect of the contract arising from lack of authority
1993

LT applied with BPI to purchase a house and lot In Quezon City, one of its acquired assets. The
amount offered was Pl,000,000.00 payable, as follows: P200,000.00 down payment, the balance
of P800,000.00 payable within 90 days from June 1, 1985. BPI accepted the offer, whereupon
LT drew a check for P200,000.00 in favor of BPI which the latter thereafter deposited in its
account. On September 5, 1985, LT wrote BP'I requesting extension until October 10, 1985.
within which to pay the balance, to which BPI agreed. On October 5, 1985, due to the expected
delay in the remittance of the needed amount by his financier from the United States, LT wrote
BPI requesting a last extension until October 30, 1985, within which to pay the balance. BPI
denied LTs request because another had offered to buy the; same property for P1,500,000.OO.
cancelled its agreement with LT and offered to return to him the amount of P200,200.00 that LT
had paid to it. On October 20, 19!85, upon receipt of the amount of P800,000.00 from his US
financier, LT offered to pay the amount by tendering a cashier's check therefor but which BPI
refused to accept. LT then filed a complaint against BPI in the RTC for specific performance and
deposited in court the amount of P800,OOO.OO.

Is BPI legally correct in canceling its contract with LT?

Suggested Answer:
BPI is not correct in canceling the contract with LT. In Lina Topacio v Court of Appeals and BPI
Investment (G. R No. 102606, July 3. 1993, 211 SCRA 291). the Supreme Court held that the
earnest money is part of the purchase price and is proof of the perfection of the contract.
Secondly, notarial or judicial rescission under Art. 1592 and 1991 of the Civil Code is necessary
(Taguba v. de Leon, 132 SCRA 722.)

II

A, B and C formed a partnership for the purpose of contracting with the Government in the
construction of one of its bridges. On June 30, 1992, after completion of the project, the bridge
was turned over by the partners to the Government. On August 30, 1992. D, a supplier of
materials used in the project sued A for collection of the indebtedness to him. A moved to
dismiss the complaint against him on the ground that it was the ABC partnership that is liable for
the debt. D replied that ABC partnership was dissolved upon completion of the project for which
purpose the partnership was formed.
Will you dismiss the complaint against B If you were the Judge?

Suggested Answer:
As Judge, I would not dismiss the complaint against A. because A is still liable as a general
partner for his pro rata share of 1/3 (Art. 1816, C. C.J. Dissolution of a partnership caused by the
termination of the particular undertaking specified in the agreement does not extinguish
obligations, which must be liquidated during the "winding up" of the partnership affairs (Articles
1829 and 1830. par. 1-a, Civil Code).
III

On January 2, 1980, A and B entered into a contract whereby A sold to B a parcel of land for and
in consideration of P10.000.00. A reserving to himself the right to repurchase the same. Because
they were friends, no period was agreed upon for the repurchase of the property.
1) Until when must A exercise his right of repurchase?
2) If A fails to redeem the property within the allowable period, what would you advise B to do
for his better protection?

Suggested Answer:
1) A can exercise his right of repurchase within four (4) years from the date of the contract (Art.
1606, Civil Code).
2) I would advise B to file an action for consolidation of title and obtain a judicial order of
consolidation which must be recorded in the Registry of Property (Art. 1607. Civil Code)

1994

xxxx

1995

Arturo gave Richard a receipt which states:

Receipt

Received from Richard as Downpayment for my 1995 Toyota Corolla with Plate no XYZ….. P
50,000.00

Balance payable….P50,000.00

September 15,2001.

(sgd) Arturo

Q: Does the receipt evidence a contract to sell.

A: No, it does not. It is a contract of sale since the seller did not reserve ownership until he was
fully paid.

II
Pauline, Patricia, and Priscilla formed a business partnership for the purpose of engaging in
advertising for a term of five years. Pauline subsequently assigned to Philip her interest in the
partnership. When Pattricia and Priscilla learned of the assignment, they decided to dissolve the
partnership before the expiration of the term as they had an unproductive business relationship
with Philip in the past. On the other hand, unaware of the move of Patricia and Priscilla but
sensing their negative reaction to his acquisition of Pauline’s interest, Philip simultaneously
petitioned for the dissolution of the partnership.

Q: Is the dissolution of Patricia and Priscilla valid?

A: Yes it was.

Under Article 1830 of the Civil Code, the dissolution was valid as the consent of Pauline is not
necessary as she had already assigned her interest to Philip. The consent of Philip is also not
necessary since the assignment does not make him a partner under Art. 1813 of the Civil Code.

Q: Does Philip have a right to petition for the dissolution?

A: No, he does not have such right

Under Article 1813, the assignment does not make the assignee a partner. Since Philip was
merely an assignee of Pauline, he is not a partner. Hence, he has no right to petition for the
dissolution.

1996

Ubaldo is the owner of a building which has been leased by Remigio for the past 20 years.
Ubaldo has repeatedly assured Remigio that if he should decide to sell the building, he will give
Remigio the right of first refusal. On June 30, 1994, Ubaldo informed Remigio that he was
willing to sell the building for P5 Million. The following day, Remigio sent a letter to Ubaldo
offering to buy the building at P4.5 Million, Ubaldo did not reply.

One week later, Remigio received a letter from Santos informing him that the building has been
sold to him by Ubaldo for P5 Million, and that he will not renew Remigio’s lease when it
expires. Remigio filed an action against Ubaldo and Santos for the cancellation of the sale, and to
compel Ubaldo to execute a deed of absolute sale in his favor, based on his right of first refusal.

1. Will the action prosper? Explain.

2. If Ubaldo had given Remigio an option to purchase the building instead of a right of first
refusal, will your answer be the same? Explain.

Suggested Answer:

1. No, the action will not prosper.

 The lessee’s right of first refusal does not give him the power to dictate on the lessor the
price at which the latter should sell his property. Under Article 1319 of the Civil Code, a
qualified acceptance constitutes a counter-offer.

Here, the lessor complied with his commitment to give the lessee the right of first refusal
when he offered to sell to Remigio the property. The lessee’s counter-offer to buy the
property at a lesser amount is a rejection of the Lessor’s offer. Therefore the Lessor has
the right to subsequently find another buyer.

Hence the action will not prosper.

2. Yes, the answer will be the same. The action will not prosper because an option must be
supported by a consideration separate and distinct from the purchase price.

Under Article 1324 of the Civil Code, an option is founded upon a consideration, as
something paid or promised.

Here, no separate consideration was paid.

Hence, the option may be withdrawn by Ubaldo at any time.

1997

(a) State the basic difference (only in their legal effects) Between a contract to sell, on the
one hand, and a contract of sale, on the other.
(b) Distinguish between a conditional sale, on the one hand, and an absolute sale, on the
other hand.

Suggested Answer:

(a) In a contract of sale, ownership is transferred to the buyer upon delivery of the object to
him and there is only one contract executed between the seller and the buyer.

While in a contract to sell, ownership is retained by the seller until the purchase price is fully
paid, the delivery of the object does not confer ownership upon the buyer and there are two
contracts, first the contract to sell (which is a conditional or preparatory sale) and a second, the
final deed of sale or the principal contract which is executed after full payment of the purchase
price.

(b) A conditional sale is one where the vendor is granted the right to unilaterally rescind the
contract predicated on the fulfillment or non-fulfillment, as the case may be, of the prescribed
condition.
An absolute sale is one where the title to the property is not reserved to the vendor or if the
vendor is not granted the right to rescind the contract based on the fulfillment or nonfulfillment,
as the case may be, of the prescribed condition.

II

Stating briefly the thesis to support your answer to each of the following cases:

Will the death - a) of the lessee extinguish the lease agreement?

Suggested Answer:

No, in the case of Heirs of Dimaculangan vs. IAC, 170 SCRA 393, the death of the lessee will
not extinguish the lease agreement, since lease is not personal in character and the right is
transmissible to the heirs.

III

Stating briefly the thesis to support your answer to each of the following cases:

Will the death – b) of a partner terminate the partnership

c) of an agent end an agency?

Suggested Answer:

b) Yes. The death of a partner will terminate the partnership, by express provision of par. 5, Art.
1830 of the Civil Code.

c) Yes. The death of an agent extinguishes the agency, by express provision of par. 3, Art 1919
of the New Civil Code.

1998

In a 20-year lease contract over a building, the lessee is expressly granted a right of first refusal
should the lessor decide to sell both the land and building. However, the lessor sold the property
to a third person who knew about the lease and in fact agreed to respect it. Consequently, the
lessee brings an action against both the lessor-seller and the buyer (a) to rescind the sale and (b)
to compel specific performance of his right of first refusal in the sense that the lessor should be
ordered to execute a deed of absolute sale in favor of the lessee at the same price. The defendants
contend that the plaintiff can neither seek rescission of the sale nor compel specific performance
of a "mere" right of first refusal.

Decide the case.

Suggested Answer:

The action filed by the lessee, for both rescission of the offending sale and specific performance
of the right of first refusal which was violated, should prosper.

The ruling in Equatorial Realty Development, Inc. vs. Mayfair Theater, Inc. (264 SCRA 483), a
case with similar facts, sustains both rights of action because the buyer in the subsequent sale
knew the existence of right of first refusal, hence in bad faith.

Hence, the action filed by the lessee should prosper.

II

Dielle, Karlo and Una are general partners in a merchandising firm. Having contributed equal
amounts to the capital, they also agree on equal distribution of whatever net profit is realized per
fiscal period. After two years of operation, however, Una conveys her whole interest in the
partnership to Justine, without the knowledge and consent of Dielle and Karlo.

1. Is the partnership dissolved?

2. What are the rights of Justine, if any, should she desire to participate in the management
of the partnership and in the distribution of a net profit of P360.000.00 which was
realized after her purchase of Una's interest?

Suggested Answer:

1. No, under Art. 1813 of the New Civil Code, a conveyance by a partner of his whole
interest in a partnership does not of itself dissolve the partnership in the absence of an
agreement.

2. Applying Art. 1813 of the New Civil Code, Justine cannot interfere or participate in the
management or administration of the partnership business or affairs. She may, however,
receive the net profits to which Una would have otherwise been entitled, which in this
case is P120.000.

1999

A granted B the exclusive right to sell his brand of maong pants in Isabela, the price for his
merchandise payable within 60 days from delivery, and promising B a commission of 20% on all
sales. After the delivery of the merchandise to B but before he could sell any of them, B's store in
Isabela was completely burned without his fault, together with all of A's pants. Must B pay A for
his lost pants? Why?
A: B must pay the price. The contract between A and B is a sale, not an agency to sell, because
the price is payable by B upon 60 days from delivery, even if B is unable to resell the items. If B
were an agent, he would not be bound to pay the price is he was unable to resell them.

Thus, as buyer, ownership passed to B upon delivery, and Article 1504, which provides that the
thing perishes for the owner, applies.

II

Q: What are the so-called Maceda and Recto laws in connection with sales on installment? Give
the most important features of each law.

A: The Maceda law (RA 6552) is applicable to sales of immovable property on installment. Its
most important features are:

1. After having paid installments for at least two years, the buyer is entitled to a mandatory grace
period of one month for every year of installment payments made, to pay the unpaid installments
without interest. If the contract is cancelled, the seller shall refund to the buyer the cash surrender
value equivalent to 50% of the total payments made, and after five years of installments, an
additional 5% every year, but not to exceed 90% of the total payments made.

2. In case the installments paid were less than two years, the seller shall give the buyer a grace
period of not less than 60 days. If the buyer fails to pay the installments due at the expiration of
the grace period, the seller may cancel the contract after 30 days from receipt by the buyer of the
notice of cancellation or demand for rescission by notarial act.

The Recto law (Article 1484 of the New Civil Code) refers to sale of movables payable in
installments and limiting the right of the seller, in case of default by the buyer, to one of three
remedies: exact fulfillment; cancel the sale if two or more installments have not been paid; or
foreclose the chattel mortgage on the things sold, also in case of default of two or more
installments, with no further action against the purchaser.

III

Q: Under what circumstances would an implied new lease or a tacita reconduccion arise?

A: An implied new lease or tacita reconduccion arises if at the end of the contract the lessee
should continue enjoying the thing leased for 15 days with the acquiescence of the lessor, and
unless a notice to the contrary by either party has previously been given, under Article 1670 of
the New Civil Code.

IV

Q: May a lessee sublease the property leased without the consent of the lessor, and what are the
respective liabilities of the lessee and sub-lessee to the lessor in case of such sublease?
A: Yes, provided that there is no express prohibition against subleasing. Under Article 1650 of
the New Civil Code, when in the contract of lease of things there is no express prohibition, the
lessee may sublet the thing leased without prejudice to his responsibility for the performance of
the contract toward the lessor.

In case there is a sublease of the premises being leased, the sublessee is bound to the lessor for
all the acts which refer to the use and preservation of the thing leased in the manner stipulated
between the lessor and the lessee.

The sublessee is subsidiarily liable to the lessor for any rent due from the lessee. However, the
sublessee shall not be responsible beyond the amount of rent due to him, under Article 1652 of
the New Civil Code.

The lessee shall still be responsible to the lessor for the rents, bring to the knowledge of the
lessor every usurpation or untoward act which any third person may have committed or may be
openly preparing to carry out upon the thing leased, advise the owner of the need for all repairs,
return the thing leased upon the termination of the lease just as he received it save what has been
lost or impaired by the lapse of time or ordinary wear and tear or from an inevitable cause, and to
be responsible for the deterioration or loss of the thing leased, unless he proves it took place
without his fault.

Q: X appoints Y as his agent to sell his products in Cebu City. Can Y appoint a sub-agent an if
he does, what are the effects of such appointment?

A: Yes, the agent may appoint a substitute or sub-agent if the principal has not prohibited him
from doing so, but he shall be responsible for the acts of the substitute:

1. When he was not given the power to appoint one, or

2. When he was given such power, but without designating the person, and the person appointed
was notoriously incompetent or insolvent.

2000

Priscilla purchased a condominium unit in Makati City from the Citiland Corporation for a price
of P10 Million, payable P3 Million down and the balance with interest thereon at 14% per
annum payable in sixty (60) equal monthly installments of P198,333.33. They executed a Deed
of Conditional Sale in which it is stipulated that should the vendee fail to pay three (3)
successive installments, the sale shall be deemed automatically rescinded without the necessity
of judicial action and all payments made by the vendee shall be forfeited in favor of the vendor
by way of rental for the use and occupancy of the unit and as liquidated damages. For 46 months,
Priscilla paid the monthly installments religiously, but on the 47th and 48th months, she failed to
pay. On the 49th month, she tried to pay the installments due but the vendor refused to receive
the payments tendered by her. The following month, the vendor sent her a notice that it was
rescinding the Deed of Conditional Sale pursuant to the stipulation for automatic rescission, and
demanded that she vacate the premises. She replied that the contract cannot be rescinded without
judicial demand or notarial act pursuant to Article 1592 of the Civil Code.

a) Is Article 1592 applicable?

b) Can the vendor rescind the contract?

Answers:

a) Article 1592 of the Civil Code does not apply to a conditional sale.

The Supreme Court has held that Article 1592 applies only to a contract of sale and not to a Deed
of Conditional Sale where the seller has reserved title to the property until full payment of the
purchase price. The law applicable is the Maceda Law.

b) No, the vendor cannot rescind the contract under the circumstances.

Under the Maceda Law, which is the law applicable, the seller on installment may not rescind the
contract till after the lapse of the mandatory grace period of 30 days for every one year of
installment payments, and only after 30 days from notice of cancellation or demand for
rescission by a notarial act.

In this case, the refusal of the seller to accept payment from the buyer on the 49th month was not
justified because the buyer was entitled to 60 days grace period and the payment was tendered
within that period. Moreover, the notice of rescission served by the seller on the buyer was not
effective because the notice was not by a notarial act. Besides, the seller may still pay within 30
days from such notarial notice before rescission may be effected. All these requirements for a
valid rescission were not complied with by the seller.

Hence, the rescission is invalid.

II

In 1995, Mark leased the rice land of Narding in Nueva Ecija for an annual rental of P1,000.00
per hectare. In 1998, due to the El Nino phenomenon, the rice harvest fell to only 40% of the
average harvest for the previous years. Mark asked Narding for a reduction of the rental to
P500.00 per hectare for that year but the latter refused. Is Mark legally entitled to such
reduction?

Answer:

No, Mark is not entitled to a reduction.

Under Article 1680 of the Civil Code, the lessee of a rural land is entitled to a reduction of the
rent only in case of loss of more than 1/2 of the fruits through extraordinary and unforeseen
fortuitous events. While the drought brought about by the "El Nino" phenomenon may be
classified as extraordinary, it is not considered as unforeseen.

III

A leased his house to B with a condition that the leased premises shall be used for residential
purposes only. B subleased the house to C who used it as a warehouse for fabrics. Upon learning
this, A demanded that C stop using the house as a warehouse, but C ignored the demand, A then
filed an action for ejectment against C, who raised the defense that there is no privity of contract
between him and A, and that he has not been remiss in the payment of rent. Will the action
prosper?

Answer:

Yes, the action will prosper.

Under Article 1651 of the Civil Code, the sublessee is bound to the lessor for all acts which refer
to the use and preservation of the thing leased in the manner stipulated between the lessor and
the lessee.

IV

A foreign manufacturer of computers and a Philippine distributor entered into a contract whereby
the distributor agreed to order 1,000 units of the manufacturer's computers every month and to
resell them in the Philippines at the manufacturer's suggested prices plus 10%. All unsold units at
the end of the year shall be bought back by the manufacturer at the same price they were ordered.
The manufacturer shall hold the distributor free and harmless from any claim for defects in the
units. Is the agreement one for sale or agency?

Answer:

The contract is one of agency, not sale. The notion of sale is negated by the following: (1) the
price is fixed by the manufacturer with the 10% mark-up constituting the commission; (2) the
manufacturer reacquires the unsold units at exactly the same price; and (3) warranty for the units
was borne by the manufacturer. The foregoing does not indicate sale because they indicate that
ownership over the units was never intended to transfer to the distributor.

2001

Arturo gave Richard a receipt which states:

"Receipt Received from Richard as down payment For my 1995 Toyota Corolla with plate No.
XYZ-1 23.............. P50.000.00 Balance payable: 12/30/01........ P50 000.00 September 15, 2001.
Does this receipt evidence a contract to sell? Why? (5%)

Answer:
No, the transaction is not a contract to sell but a contract of sale.

Under the law on Sales, a contract to sell reserves the right to ownership upon the happening of a
suspensive condition which is usually the final payment of installment of the purchase price.

Here, the seller made no reservation and merely transferred ownership immediately upon
payment of the consideration. This is indicative of a contract of sale and not of a contract to sell.

Hence, the transaction is a contract of sale.

II

On June 15,1995, Jesus sold a parcel of registered land to Jaime. On June 30. 1995, he sold the
same land to Jose. Who has a better right if:
a) the first sale is registered ahead of the second sale, with knowledge of the latter. Why? (3%)
b) the second sale is registered ahead of the first sale, with knowledge of the latter? Why? (5%)

Answer:
A.) The first buyer has the better right if his sale was first to be registered, even though the first
buyer knew of the second sale.

The Supreme Court has held that if the first buyer knows of a subsequent sale, he is not in
bad faith should he register the same property because he has a priority in right.

Hence, the first buyer will have a better right if he registers the same pursuant to the first
register rule.

B.) It is still the first buyer.

To reiterate, a buyer is held in bad faith due to the knowledge of a previous sale. It will not
apply if there is knowledge of a subsequent sale.

Here, the second buyer has knowledge of a prior sale which thereby places him in bad faith
should he register the same property.

Hence, the first buyer still has a better right.

III

Betty and Lydia were co-owners of a parcel of land. Last January 31, 2001, when she paid her
real estate tax, Betty discovered that Lydia had sold her share to Emma on November 10, 2000.
The following day, Betty offered to redeem her share from Emma, but the latter replied that
Betty's right to redeem has already prescribed. Is Emma correct or not? Why? (5%)
Answer:
Emma is not correct to assert prescription on the ground that Betty can still enforce her right to
legal redemption.

Under Article 1623 of the New Civil Code, a co-owner has 30 days from written notice of the
sale by the vendor to exercise his right of legal redemption.

Here, the period is not yet elapsed, nor has it even begun because no notice was given to Betty.

Hence, Emma is incorrect in invoking prescription.

IV

On January 1, 1980, Nestor leased the fishpond of Mario for a period of three years at a monthly
rental of P1,000.00, with an option to purchase the same during the period of the lease for the
price of P500,000.00. After the expiration of the threeyear period, Mario allowed Nestor to
remain in the leased premises at the same rental rate. On June 15, 1983, Nestor tendered the
amount of P500,000 to Mario and demanded that the latter execute a deed of absolute sale of the
fishpond in his favor. Mario refused, on the ground that Nestor no longer had an option to buy
the fishpond. Nestor filed an action for specific performance. Will the action prosper or not?
Why? (5%)

Answer:
No, the action will not prosper.
The Supreme Court has held that in an implied lease, the terms of an option to purchase
will not be renewed as the same expired at the end of the original period of the contract of lease.
Also, it is settled that one cannot be compelled to sell his property.
Hence, Nestor cannot compel Mario to sell his property.
V

Richard sold a large parcel of land in Cebu to Leo for P100 million payable in annual
installments over a period of ten years, but title will remain with Richard until the purchase price
is fully paid. To enable Leo to pay the price, Richard gave him a power-of-attorney authorizing
him to subdivide the land, sell the Individual lots, and deliver the proceeds to Richard, to be
applied to the purchase price. Five years later, Richard revoked the power of attorney and took
over the sale of the subdivision lots himself. Is the revocation valid or not? Why? (5%)

Answer:
The revocation is not valid on the ground that it is irrevocable for being coupled with
interest.
Under the New Civil Code, an Agency that is coupled with interest cannot be revoked
unilaterally on the ground that a bilateral contract is dependent on it.
Here, the special power of attorney is the means by which the buyer will fulfill his
obligation to pay the purchase price. Since there is a dependent contract on the agency, which is
the contract of sale of the land, the agency is one coupled with interest.
 Hence, the revocation is not valid

VI

Joe and Rudy formed a partnership to operate a car repair shop in Quezon City. Joe provided the
capital while Rudy contributed his labor and industry. On one side of their shop, Joe opened and
operated a coffee shop, while on the other side, Rudy put up a car accessories store. May they
engage in such separate businesses? Why? [5%]

Answer:
Joe may but Rudy may not.
Under the law on Partnerships, a capitalist partner may venture into separate business as
long as it is not in conflict with the current business of the partnership. Meanwhile, an industrial
partner cannot venture into other businesses as he/she must devote his full time to the business of
the partnership.
Here, Joe is the capitalist partner while Rudy is the industrial partner.
Hence, Joe being a capitalist partner may venture into the restaurant business while Rudy,
being an industrial partner may not.

2002

A. Explain the nature of an option contract. (2%)

Suggested Answer:

An option contract is one granting a privilege to buy or sell within an agreed time and at a
determined price. It must be supported by a consideration distinct from the price.

II

Bert offers to buy Simeon’s property under the following terms and conditions: P 1 million
purchase price, 10% option money, the balance payable in cash upon the clearance of the
property of all illegal occupants. The option money is promptly paid and Simeon clears the
property of illegal occupants in no time at all. However, when Bert tende4rs payment of the
balance and ask Simeon for the deed for absolute sale, Simeon suddenly has a change of heart,
claiming that the deal is disadvantageous to him as he has found out that the property can fetch
three time the agreed purchase price. Bert seeks specific performance but Simeon contends that
he has merely given Bert an option to buy and nothing more, and offers to return the option
money which Bert refuses to accept.

(B) Will Bert’s action for specific performance prosper? Explain. (4%)
(C) May Simeon justify his refusal to proceed with the sale by the fact that the deal is financially
disadvantageous to him? Explain. (4%)

Suggested Answer:

B. Bert’s action for specific performance will prosper because there was a binding agreement of
sale, not just an option contract.

The sale was perfected upon acceptance by Simeon of 10% of the agreed price. This amount
is in really earnest money which, under Art. 1482, “shall be considered as part of the price
and as proof of the perfection of the contract.”

C. Simeon cannot justify his refusal to proceed with the sale by the fact that the deal is
financially disadvantageous to him.

Having made a bad bargain is not a legal ground for pulling out a biding contract of sale, in
the absence of some actionable wrong by the other party and no such wrong has been
committed by Bert.

III

Adela and Beth are co-owners of a parcel of land. Beth sold her undivided share of the property
to Xandro, who promptly notified Adela of the sale and furnished the latter a copy of the deed of
absolute sale. When Xandro presented the deed for registration, the register of deeds also notified
Adela of the sale, enclosing a copy of the deed with the notice. However, Adela ignored the
notices. A year later, Xandro filed a petition for the partition of the property. Upon receipt of
summons, Adela immediately tendered the requisite amount for the redemption. Xandro
contends that Adela lost her right of redemption after the expiration of 30 days from her receipt
of the notice of the sale given by him. May Adela still exercise her right of redemption? Explain.
(5%)

Suggested Answer:

Yes, Adela may still exercise her right of redemption notwithstanding the lapse of more than 30
days from notice of the sale given to her.

Article 1623 of the New Civil Code requires that the notice in writing of the sale must come
from the prospective vendor or vendor as the case may be.

In this case, the notice of the sale was given by the vendee and the Register of Deeds. The period
of 30 days never tolled. She can still avail of that right.

Alternative Answer:

No, Adela can no longer exercise her right of redemption.

As co-owner, she had only 30 days from the time she received written notice of the sale which in
this case took the form of a copy of the deed of sale being given to her. The law does not
prescribe any particular form of written notice, nor any distinctive method for notifying the
redemptioner. So long as the redemptioner was informed in writing, he has no cause to complain.
In fact, in Distrito, a written notice was held unnecessary where the co-owner had actual
knowledge of the sale, having acted as middleman and being present when the vendor signed the
deed of sale.
2003

Q: X sold a parcel of land to Y on 01 January 2002, payment and delivery to be made on 01

February 2002. It was stipulated that if payment were not to be made by Y on 01 February 2002,
the sale between the parties would automatically be rescinded. Y failed to pay on 01 February
2002, but offered to pay three days later, which payment X refused to accept, claiming that their
contract of sale had already been rescinded. Is X’s contention correct? Why? (5%)

Suggested Answer: No, X is not correct. In the sale of immovable property, even though it may
have been stipulated, as in this case, that upon failure to pay the price at the time agreed upon the
rescission of the contract shall of right take place, the vendee may pay, even after the expiration
of the period, as long as no demand for rescission of the contract has been made upon him either
judicially or by a notarial act (Article 1592, New Civil code). Since no demand for rescission
was made on Y, either judicially or by a notarial act, X cannot refuse to accept the payment
offered by Y three (3) days after the expiration of the period.

Q: a) May a person sell something that does not belong to him? Explain.
b) May a person donate something that does not belong
to him? Explain. 5%

Suggested Answer:
(a) Yes, a person may sell something which does not belong to him. For the sale to be valid, the
law does not require the seller to be the owner of the property at the time of the sale. (Article
1434, NCC). If the seller cannot transfer ownership over the thing sold at the time of delivery
because he was not the owner thereof, he shall be liable for breach of contact.
(b) As a general rule, a person cannot donate something which he cannot dispose of at the time
of the donation (Article 751, New Civil Code).

Q: Jo-Ann asked her close friend, Aissa, to buy some groceries for her in the supermarket. Was
there a nominate contract entered into between Jo-Ann and Aissa? In the affirmative, what was
it? Explain. 5%

Suggested Answer:

Yes, there was a nominate contract.

Aissa accepted the request of her close friend Jo-Ann to but some groceries for her in the
supermarket, what they entered into was a nominate contract of Agency. Article 1868 of the New
Civil Code provides that by the contract of agency a person binds himself to render some service
or to do something in representation or on behalf of another, with the consent or authority of the
latter.
2004

A. JV, owner of a parcel of land, sold it to PP. But the deed of sale was not registered. One year
later, JV sold the parcel again to RR, who succeeded to register the deed and to obtain a transfer
certificate of title over the property in his own name.

Who has a better right over the parcel of land, RR or PP? Why? Explain the legal basis for your
answer. (5%)

Suggested Answer:

It depends on whether or not RR is an innocent purchaser for value. Under the Torrens System, a
deed or instrument operated only as a contract between parties and as an evidence of authority to
the Register of Deeds to make the registration. It is the registration of the deed that is the
operative act that conveys the land.
In cases of double sale of titled land, it is a well-settled rule that the buyer who first registers the
sale in good faith acquires a better right to the land. Persons dealing with property covered by a
Torrens title need not go beyond what appears on the title’s face. Thus, absent any showing that
RR knew of the prior sale, and being the first to register the sale, he acquired a good and clean
title to the property.

B. CX executed a special power of attorney authorizing DY to secure a loan from any bank and
to mortgage his property covered by the owner’s certificate of title. In securing a loan from
MBank, DY did not specify that he was acting for CX in the transaction with said bank. Is CX
liable for the bank loan? Why or why not? Justify your answer.

Suggested Answer:

CX would not be liable for the bank loan. CX's property would also not be liable on the
mortgage.

The Supreme Court held in the case of Rural Bank of Bombon v. CA, 212 SCRA, (1992), under
the same facts, ruled that "in order to bind the principal by a mortgage on real property executed
by an agent, it must upon its face purport to be made, signed and sealed in the name of the
principal, otherwise, it will bind the agent only. It is not enough merely that the agent was in fact
authorized to make the mortgage, if he, has not acted in the name of the principal. Neither is it
ordinarily sufficient that in the mortgage the agent describes himself as acting by virtue of a
power of attorney, if in fact the agent has acted in his own name and has set his own hand and
seal to the mortgage. There is no principle of law by which a person can become liable on a real
estate mortgage which she never executed in person or by attorney in fact".

In the case at bar, DY, in obtaining a loan from MBank did not divulge that he was acting as
attorney-in-fact of CX, DY in effect acted in his own name. To bind his principal, the deed of
real estate mortgage must upon its face purport to be made, signed and sealed in the name of the
principal. Absence of such will render DY personally liable for the loan transacted.

Hence, CX will have no liability on the loan obtained as well as his property.

2005

On July 14, 2004, Pedro executed in favor of Juan a Deed of Absolute Sale over a parcel of land
covered by TCT No. 6245. It appears in the Deed of Sale that Pedro receivedfrom Juan
P120,000.00 as purchase price. However, Pedro retained the owner's duplicate of said title.
Thereafter, Juan, as lessor, and Pedro, as lessee, executed a contract of lease over the property
for a period of one (1) year with a monthly rental of Pl,000.00. Pedro, as lessee, was also
obligated to pay the realty taxes on the property during the period of lease.

Subsequently, Pedro filed a complaint against Juan for the reformation of the Deed of Absolute
Sale, alleging that the transaction covered by the deed was an equitable mortgage. In his verified
answer to the complaint, Juan alleged that the property was sold to him under the Deed of
Absolute Sale, and interposed counterclaims to recover possession of the property and to compel
Pedro to turn over to him the owner's duplicate of title. Resolve the case with reasons. (6%)

SUGGESTED ANSWER:

The complaint of Pedro against Juan should be dismissed. The instances when a contract —
regardless of its nomenclature — may be presumed to be an equitable mortgage are enumerated
in Article 1602 of the Civil Code: "Art. 1602. The contract shall be presumed to be an equitable
mortgage, in any of the following cases:

1. When the price of a sale with right to repurchase is unusually inadequate;

2. When the vendor remains in possession as lessee or otherwise;
3. When upon or after the expiration of the right to repurchase another instrument extending
the period of redemption or granting a new period is executed;
4. When the purchaser retains for himself a part of the purchase price;
5. When the vendor binds himself to pay the taxes on the thing sold;
6. In any other case where it may be fairly inferred that the real intention of the parties is
that the transaction shall secure the payment of a debt or the performance of any other
obligation.

"In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as
rent or otherwise shall be considered as interest which shall be subject to the usury laws."

Article 1604 states "the provisions of article 1602 shall also apply to a contract purporting to be
an absolute sale."

For Articles 1602 and 1604 to apply, two requisites must concur: 1) the parties entered into a
contract denominated as a contract of sale; and 2) their intention was to secure an existing debt
by way of mortgage. (Heirs of Balite v. Lim, G.R. No. 152168, December 10, 2004)

In the given case, although Pedro retained possession of the property as lessee after the execution
of the Deed of Sale, there is no showing that the intention of the parties was to secure an existing
debt by way of mortgage. Hence, the complaint of Pedro should be dismissed.

II

Under a written contract dated December 1, 1989, Victor leased his land to Joel for a period of
five (5) years at a monthly rental of Pl,000.00, to be increased to Pl,200.00 and Pl,500.00 on the
third and fifth year, respectively. On January 1, 1991, Joel subleased the land to Conrad for a
period of two (2) years at a monthly rental of Pl,500.00.

On December 31, 1992, Joel assigned the lease to his compadre, Ernie, who acted on the belief
that Joel was the rightful owner and possessor of the said lot. Joel has been faithfully paying the
stipulated rentals to Victor. When Victor learned on May 18, 1992 about the sublease and
assignment, he sued Joel, Conrad and Ernie for rescission of the contract of lease and for
damages.

a) Will the action prosper? If so, against whom?

Explain. (2%)

SUGGESTED ANSWER:

Yes, the action of for rescission of the contract of lease and for damages will prosper.

Under Article 1659 of the Civil Code, "if the lessor or the lessee should not comply with the
obligations set forth in Articles 1654 and 1657, the aggrieved party may ask for rescission of the
contract and indemnification for damages, or only the latter, allowing the contract to remain in
force." Article 1649 of the same Code provides that "the lessee cannot assign the lease without
the consent of the lessor, unless there is a stipulation to the contrary." Consent is necessary
because assignment would cause novation by the substitution of one of the parties. (Bangayan v.
Court of Appeals, G.R. No. 123581, August 29, 1997) However, the rule is different in the case
of subleasing. When there is no express prohibition in the Contract of Lease, the lessee may
sublet the thing leased. (Art. 1650, Civil Code)

In the given case, when Joel assigned the lease to Ernie, the same was done without the consent
of Victor. The assignment is void. However, there is no indication that in the written contract of
lease between Victor and Joel, that subleasing the premises is prohibited. Hence, the sublease of
Joel with Conrad is valid. In view of the foregoing, Victor can file the case of rescission and
damages only against Joel and Ernie but he cannot include Conrad.

b) In case of rescission, discuss the rights and obligations of the parties. (2%)

SUGGESTED ANSWER:
Rescission of the lease necessarily requires the return of the thing to the lessor. Hence, the
judgment granting rescission of the contract should also order the lessee to vacate and return the
leased premises to the lessor. However, since the sublessee can invoke no right superior to that of
his sublessor, the moment the sublessor is duly ousted from the premises, the sublessee has no
leg to stand on. The sublessee's right, if any, is to demand reparation for damages from his
sublessor, should the latter be at fault. (Heirs of Sevilla v. Court of Appeals G.R. No. 49823,
February 26, 1992).
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 Pl.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 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.

Will the suit prosper? Explain.

No, the suit will not prosper. The contract of sale was perfected when Linda and Ray agreed on
the object of the sale and the price [Art. 1475, New Civil Code]. The consent of Linda has
already been given, as shown by her agreement to the price of the sale. There is therefore consent
on her part as the consent need not be given in any specific form. Hence, her consent may be
given by implication, especially since she was aware of, and participated in the sale of the
property (Pelayo v. CA, G.R. No. 141323, June 8, 2005). Her action for moral and exemplary
damages will also not prosper because the case does not fall under any of those mentioned in Art.
2219 and 2232 of the Civil Code.

Does Ray have any cause of action against Biong and Linda? Can he also recover damages
from the spouses? Explain.

Considering that the contract has already been perfected and taken out of the operation of the
statute of frauds, Ray can compel Linda and Biong to observe the form required by law in order
for the property to be registered in the name of Ray which can be filed together with the action
for the recovery of house [Art. 1357 New Civil Code]. In the alternative, he can recover the
amount of Two million pesos (P2,000,000.00) that he paid. Otherwise, it would result in solutio
indebiti or unjust enrichment.

Ray can recover moral damages on the ground that the action filed by Linda is clearly an
unfounded civil suit which falls under malicious prosecution
2007

xxxx

2008

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 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?

(b) Will the alternative prayer for extension of the lease prosper?

Suggested Answer:

(a) Yes, Iris may seek the rescission of the sale of the property to Dux’s mother.

In the case of Equatorial Realty, et al. v. Mayfair Theater, G.R. No. 106063, 21 Nov.
1996, in cases wherein the right of first refusal is included in the contract signed by the
parties. The lessor may only lawfully sell the subject property to others only if the lessee
failed to exercise the right of first refusal, under no less than the same terms and
conditions previously offered to the lessee.

Granting that the mother is not a third party, she is privy to the agreement of Dux and Iris
about the right of first refusal. Thus, making the mother a buyer in bad faith, giving more
ground for rescission of the sale to her

Hence, Iris may seek the rescission of the sale.

(b) No, the alternative prayer for extension of the lease will not prosper.

Under Article 1308 of the New Civil Code, contracts are binding between the parties and
their validity or compliance cannot be left to the will of one of them.

In the present case, the contract stipulated that it may be renewed for another 2-year
period upon mutual agreement of the parties. Iris may not therefore unilaterally ask the
court to extend lease, as it must be upon the mutual agreement of both parties.

Hence, the alternative prayer for extension of the lease will not prosper.
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 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.

Suggested Answer:

Yes, Ildefonso must respect the lease contracts between Jude and his tenants.

While it is true that the said lease contracts were not registered and annotated on the title to the
property, Ildefonso is still not an innocent purchaser for value. He ought to know the existence of
the lease because the building was already occupied by the tenants at the time he bought it.
Applying the principle of caveat emptor, he should have checked and known the status of the
occupants of their right to occupy the building before buying it.

Hence, Ildefonso must respect the lease contracts between Jude and his tenants.

II

The Ifugao Arms is a condominium project in Baguio City. A strong earthquake occurred which
left huge cracks in the outer walls of the building. As a result, a number of condominium units
were rendered unfit for use.

May Edwin, owner of one of the condominium units affected, legally sue for partition by sale of
the whole project? Explain.

Suggested Answer:

Yes, Edwin may legally sue for partition by sale of the whole condominium project.

Under Sec. 8 (b) of Republic Act No. 472 or the Condominium Act, Edwin may legally sue for
partition by sale of the whole condominium project under the following conditions:

(a) the damage or destruction caused by the earthquake has rendered one-half (1/2) or more
of the units therein untenantable, and that the condominium owners holding an aggregate
of more than thirty percent (30%) interests of the common areas are opposed to the
restoration of the condominium project.
III

TRUE or FALSE. Answer TRUE if the statement is true, or FALSE if the statement is false.
Explain your answer in not more than two (2) sentences.

(C). An oral partnership is valid.

Suggested Answer:

TRUE.

An oral is a consensual of the partnership is valid even though not in writing. However, under
the New Civil Code, if it involves contribution of an immovable property or a real right, an oral
contract of partnership is void.

2010

Q: X was the owner of an unregistered parcel of land in Cabanatuan City. As she was abroad, she
advised her sister Y via overseas call to sell the land and sign a contract of sale on her behalf.
Y thus sold the land to B1 on March 31, 2001 and executed a deed of absolute sale on behalf of
X. B1 fully paid the purchase price.
B2, unaware of the sale of the land to B1, signified to Y his interest to buy it but asked Y for her
authority from X. Without informing X that she had sold the land to B1, Y sought X for a written
authority to sell.
X e-mailed Y an authority to sell the land. Y thereafter sold the land on May 1, 2001 to B2 on
monthly installment basis for two years, the first installment to be paid at the end of May 2001.

Who between B1 and B2 has a better right over the land? Explain.

A: B-2 has a better title. This is not a case of double sale. Since the first sale was void. The law
provides that when a sale of a piece of land or any interest therein is through an agent, the
authority of the latter shall be in writing; otherwise, the sale shall be void under Article 1874 of
the New Civil Code. The property was sold by Y to B1 without any written authority from the
owner X. Hence, the sale to B1 was void.

2011

Sales

A buyer ordered 5,000 apples from the seller at P20 per apple. The seller delivered 6,000 apples.
What are the rights and obligations of the buyer?

(A) He can accept all 6,000 apples and pay the seller at P20 per apple.
(B) He can accept all 6,000 apples and pay a lesser price for the 1,000 excess apples.
(C) He can keep the 6,000 apples without paying for the 1,000 excess since the seller delivered
them anyway.
(D) He can cancel the whole transaction since the seller violated the terms of their agreement.

Knowing that the car had a hidden crack in the engine, X sold it to Y without informing the latter
about it. In any event, the deed of sale expressly stipulated that X was not liable for hidden
defects. Does Y have the right to demand from X a reimbursement of what he spent to repair the
engine plus damages?

(A) Yes. X is liable whether or not he was aware of the hidden defect.
(B) Yes, since the defect was not hidden; X knew of it but he acted in bad faith in not
disclosing the fact to Y.
(C) No, because Y is in estoppel, having changed engine without prior demand.
(D) No, because Y waived the warranty against hidden defects

A warranty inherent in a contract of sale, whether or not mentioned in it, is known as the

(A) warranty on quality.

(B) warranty against hidden defects.
(C) warranty against eviction.
(D) warranty in merchantability.

Lease

The term of a 5-year lease contract between X the lessor and Y the lessee, where rents were paid
from month to month, came to an end. Still, Y continued using the property with X’s consent. In
such a case, it is understood that they impliedly renewed the lease

(A) from month to month under the same conditions as to the rest.
(B) under the same terms and conditions as before.
(C) under the same terms except the rent which they or the court must fix.
(D) for only a year, with the rent raised by 10% pursuant to the rental control law.

Agency

An agent, authorized by a special power of attorney to sell a land belonging to the principal
succeeded in selling the same to a buyer according to the instructions given the agent. The agent
executed the deed of absolute sale on behalf of his principal two days after the principal died, an
event that neither the agent nor the buyer knew at the time of the sale. What is the standing of the
sale?

(A) Voidable. (B) Valid. (C) Void. (D) Unenforceable.

2012

99. A contract granting a privilege to a person, for which he has paid a consideration, which
gives him the right to buy certain merchandise or specified property, from another person, at
anytime within the agreed period, at a fixed price. What contract is being referred to?
 a) Option Contract
b) Contract to Sell
c) Contract of Sale
d) Lease
100. Which of the following contracts of sale is void?
a) Sale of EGM’s car by KRP, EGM’s agent, whose authority is not reduced into writing.
b) Sale of EGM’s piece of land by KRP, EGM’s agent, whose authority is not
reduced into writing.
c) Sale of EGM’s car by KRP, a person stranger to EGM, without EGM’s consent or
authority.
d) Sale of EGM’s piece of land by KRP, a person stranger to EGM, without EGM’s
consent or authority.

2013

Sergio is the registered owner of a 500-square meter land. His friend, Marcelo, who has long
been interested in the property, succeeded in persuading Sergio to sell it to him. On June 2, 2012,
they agreed on the purchase price of P600,000 and that Sergio would give Marcelo up to June30,
2012 within which to raise the amount. Marcelo, in a light tone usual between them, said that
they should seal their agreement through a case of Jack Daniels Black and P5,000 "pulutan"
money which he immediately handed to Sergio and which the latter accepted. The friends then
sat down and drank the first bottle from the case of bourbon.

On June 15, 2013, Sergio learned of another buyer, Roberto, who was offering P800,000 in ready
cash for the land. When Roberto confirmed that he could pay in cash as soon as Sergio could get
the documentation ready, Sergio decided to withdraw his offer to Marcelo, hoping to just explain
matters to his friend. Marcelo, however, objected when the withdrawal was communicated to
him, taking the position that they have a firm and binding agreement that Sergio cannot simply
walk away from because he has an option to buy that is duly supported by a duly accepted
valuable consideration.

(A) Does Marcelo have a cause of action against Sergio? (5%)

(B) Can Sergio claim that whatever they might have agreed upon cannot be enforced because
any agreement relating to the sale of real property must be supported by evidence in writing
and they never reduced their agreement to writing? (3%)

Suggested Answer:

(A) Yes. Marcelo has a cause of action against Sergio.

Under Art. 1324, when the offerer 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 consideration, as something paid or promised. Also, under
Art. 1479, an accepted unilateral promise to buy or sell a determinate thing for a price certain
 is binding upon him if the promise is supported by a consideration distinct from the price.
Consideration in an option contract may be anything of value, unlike in sale where it must be
the price certain in money or its equivalent.

Here, the case of Jack Daniels Black and the P5,000.00 “pulutan” money was a consideration
to “seal their agreement,” an agreement that Marcelo is given until June 30, 2012 to buy the
parcel of land. There is also no showing that such consideration will be considered part of the
purchase price. Thus, Sergio’s unilateral withdrawal of the offer violated the Option Contract
between him and Marcelo.

(B) No. Sergio’s claim has no legal basis.

The contract at issue in the present case is the option contract, not the contract of sale for the
real property. Therefore, Art. 1403 does not apply.

The Statute of Frauds covers an agreement for the sale of real property or of an interest
therein. Such agreement is unenforceable by action, unless the same, or some note or
memorandum, thereof, be in writing, (Art. 1403 (e), Civil Code). Here, Marcelo and Sergio
merely entered into an Option Contract, which refers to a unilateral promise to buy or sell,
which need not be in writing to be enforceable.

Alternative Answer:

No. Sergio’s claim has no legal basis.

The contract of sale has already been partially executed which takes it outside the ambit of
the Statute of Frauds is applicable only to executory contracts, not to contracts that are totally
or partially performed.

II

Anselmo is the registered owner of a land and a house that his friend Boboy occupied for a
nominal rental and on the condition that Boboy would vacate the property on demand. With
Anselmo's knowledge, Boboy introduced renovations consisting of an additional bedroom, a
covered veranda, and a concrete block fence, at his own expense.

Subsequently, Anselmo needed the property as his residence and thus asked Boboy to vacate and
turn it over to him. Boboy, despite an extension, failed to vacate the property, forcing Anselmo
to send him a written demand to vacate.

In his own written reply, Boboy signified that he was ready to leave but Anselmo must first
reimburse him the value of the improvements he introduced on the property as he is a builder in
good faith. Anselmo refused, insisting that Boboy cannot ask for reimbursement as he is a mere
lessee. Boboy responded by removing the improvements and leaving the building in its original
state.
(A) Resolve Boboy's claim that as a builder in good faith, he should be reimbursed the value of
the improvements he introduced. (4%)
(B) Can Boboy be held liable for damages for removing the improvements over Anselmo's
objection? (4%)

Suggested Answer:

(A) Boboy’s claim that he is a builder in good faith has no basis.

A builder in good faith is someone who occupies the property in concept of an owner. The
provisions on builder-planter-sower under the Civil Code cover cases in which the builder,
planter and sower believe themselves to be owners of the land, or at least, to have a claim of
title thereto.

As Boboy is a lessee of the property, even if he was paying nominal rental, Art. 1678, Civil
Code, is applicable. Under this provision, if the lessee makes, in good faith, useful
improvements which are suitable to the use for which the lease is intended, without altering
the form or substance of the property leased, the lessor upon the termination of the lease,
shall pay the lessee one-half of the value of improvements at that time. Should the
lessor refuse to reimburse said amount, the lessee may remove the improvements, even
though the principal thing may suffer damage thereby.

(B) No. Boboy cannot be held liable for damages.

Under Art. 1678, if the lessee makes, in good faith, useful improvements which are suitable
to the use for which the lease is intended, without altering the form or substance of the
property leased, the lessor upon the termination of the lease shall pay the lessee one-half of
the value of the improvements at that time. Should the lessor refuse to reimburse said
amount, the lessee may remove the improvements, even though the principal thing may
suffer damage thereby. He shall not, however, cause any more impairment upon the property
leased than is necessary.

With regard to ornamental expenses, the lessee shall not be entitled to any reimbursement,
but he may remove the ornamental objects, provided no damage is caused to the principal
thing, and the lessor does not choose to retain them by paying their value at the time the lease
is extinguished.

The lessor, Anselmo, refused to reimburse one-half of the value of the improvements, so the
lessee, Boboy, may remove the same, even though the principal thing may suffer damage
thereby. If in removing the useful improvements Boboy caused more impairment in the
property leased than is necessary he will be liable for damages (Art. 1678, Civil Code).

III

In 2005, L, M, N, 0 and P formed a partnership. L, M and N were capitalist partners who

contributed P500,000 each, while 0, a limited partner, contributed P1 ,000,000. P joined as an
industrial partner, contributing only his services. The Articles of Partnership, registered with the
Securities and Exchange Commission, designated L and 0 as managing partners; L was liable
only to the extent of his capital contribution; and P was not liable for losses. In 2006, the
partnership earned a net profit of P800,000. In the same year, P engaged in a different business
with the consent of all the partners. However, in 2007, the partnership incurred a net loss of
P500,000. In 2008, the partners dissolved the partnership. The proceeds of the sale of partnership
assets were insufficient to settle its obligation. After liquidation, the partnership had an unpaid
liability ofP300,000.

1. Assuming that the just and equitable share of the industrial partner, P, in the profit in 2006
amounted to P1 00,000, how much is the share of 0, a limited partner, in the P800,000 net
profit? (1%)
(A) P160,000.
(B) P175,000.
(C) P280,000.
(D) P200,000.
(E) None of the above.

Suggested Answer:
(C) P280,000.
First, deduct the share of P from the profits. P800,000 less P100,000 is P700,000. Next, get the
share of O by following the proportion that the shares of L, M, N, O is 1:1:1:2, respectively.

2. V. (2) In 2007, how much is the share of 0, a limited partner, in the net loss of P500,000?
(1%)
(A) P 0.
(B) P1 00,000.
(C) P125,000.
(D) P200,000.
(E) None of the above.

Suggested Answer:
(D) P200,000
A limited partner shall not become liable a s a general partner unless, in addition to the exercise
of his rights and powers as a limited partner, he takes part in the control of the business (Art
1948, Civil Code). In the absence of stipulation as to profits and losses, the share of each partner
in the losses shall be proportionate to what he may have contributed (Art 1797).

3. Can the partnership creditors hold L, 0 and Pliable after all the assets of the partnership are
exhausted? (1%)
(A) Yes. The stipulation exempting P from losses is valid only among the partners. L is liable
because the agreement limiting his liability to his capital contribution is not valid insofar as the
creditors are concerned. Having taken part in the management of the partnership, 0 is liable as
capitalist partner.
(B) No. P is not liable because there is a valid stipulation exempting him from losses. Since the
other partners allowed him to engage in an outside business activity, the stipulation absolving P
from liability is valid. For 0, it is basic that a limited partner is liable only up to the extent of his
capital contribution.
(C) Yes. The stipulations exempting P and L from losses are not binding upon the creditors. 0 is
likewise liable because the partnership was not formed in accordance with the requirements of a
limited partnership.
(D) No. The Civil Code allows the partners to stipulate that a partner shall not be liable for
losses. The registration of the Articles of Partnership embodying such stipulations serves as
constructive notice to the partnership creditors
(E) None of the above is completely accurate.

Suggested Answer:
(E) None of the above is completely accurate.
2014

IV

Nante, a registered owner of a parcel of land in Quezon City, sold the property to Monica under a
deed of sale which reads as follows:

"That for and in consideration of the sum of P500,000.00, value to be paid and delivered to me,
and receipt of which shall be acknowledged by me to the full satisfaction of Monica, referred to
as Vendee, I hereby sell, transfer, cede, convey, and assign, as by these presents, I do have sold,
transferred, ceded, conveyed and assigned a parcel of land covered by TCT No. 2468 in favor of
the Vendee."

After delivery of the initial payment of P100,000.00, Monica immediately took possession of the
property. Five (5) months after, Monica failed to pay the remaining balance of the purchase
price. Nante filed an action for the recovery of possession of the property. Nante alleged that the
agreement was one to sell,which was not consummated as the full contract price was not paid. Is
the contention of Nante tenable? Why? (4%)

Suggested Answer: The contention of Nante is not tenable. The deed itself states that for
consideration received, he sells, transfers, and conveys the land to Monica and there was delivery
of the property to the latter. The contract is clearly one of sale as there was no reservation of
ownership on the part of the seller Nante. The non-payment of the price in a contract of sale
would only entitle the seller to rescind the contract but it does not thereby prevent the transfer of
ownership particularly so as in this case, where there was already delivery to the buyer.

VIII

Tess leased her 1,500 sq. m. lot in Antipolo City to Ruth for a period of three (3) years, from
January 2010 to February 2013.

On March 19, 2011, Tess sent a letter to Ruth, part of which reads as follows:

"I am offering you to buy the property you are presently leasing at P5,000.00 per sq. m. or for a
total of P7,500,000.00. You can pay the contract price by installment for two (2) years without
interest.
I will give you a period of one (1) year from receipt of this letter to decide whether you will buy
the property."

After the expiration of the lease contract, Tess sold the property to her niece for a total
consideration of P4 million.

Ruth filed a complaint for the annulment of the sale, reconveyance and damages against Tess and
her niece. Ruth alleged that the sale of the leased property violated her right to buy under the
principle of right of first refusal.
Is the allegation of Ruth tenable? (4%)

Suggested Answer: No, the allegation of Ruth is not tenable. The letter written by Tess did not
grant a right of first refusal to Ruth. At most, it is to be construed as an option contract whereby
Ruth was given the right to buy or not to buy the leased property. An option is itself not a
purchase but it merely secures the privilege to buy. However, the option is not valid because it
was not supported by a cause or consideration distinct from the price of the property. (Article
1479) Also, Ruth does not appear to have exercised her option before the offer was withdrawn
by the subsequent sale of the property to the niece of Tess.

IX

Spouses Macario and Bonifacia Dakila entered into a contract to sell with Honorio Cruz over a
parcel of industrial land in Valenzuela, Bulacan for a price of Three Million Five Hundred
Thousand Pesos (P3,500,000.00). The spouses would give a downpayment of Five Hundred
Thousand Pesos (P500,000.00) upon the signing of the contract, while the balance would be paid
for the next three (3) consecutive months in the amount of One Million Pesos (P1,000,000.00)
per month. The spouses paid the first two (2) installments but not the last installment. After one
(1) year, the spouses offered to pay the unpaid balance which Honorio refused to accept.

The spouses filed a complaint for specific performance against Honorio invoking the application
of the Maceda Law. If you are the judge, how will you decide the case? (4%)

Suggested Answer: I will rule in favor of Honorio. The invocation of the Maceda Law is
misplaced. The law applies only to sale or financing of realty on installment payments including
residential units or residential condominium apartments and does not apply to sales of industrial
units or industrial lands like in the case presented. Another reason why the Maceda law will not
apply is that, the sale in the case at bar is not the sale on installment as contemplated by the law.
The sale on installment covered by the Maceda Law is one where the price is paid or amortized
over a certain period in equal installments. The sale to the Spouses Dakila is not a sale on
installment but more of a straight sale where a down payment is to be made and the balance to be
paid in a relatively short period of three months.

XXIX

Timothy executed a Memorandum of Agreement (MOA) with Kristopher setting up a business

venture covering three (3) fastfood stores known as "Hungry Toppings" that will be established
at Mall Uno, Mall Dos, and Mall Tres.

The pertinent provisions of the MOA provides:

1. Timothy shall be considered a partner with thirty percent (30%) share in all of the stores to be
set up by Kristopher;
2. The proceeds of the business, after deducting expenses, shall be used to pay the principal
amount of P500,000.00 and the interest therein which is to be computed based on the bank rate,
representing the bank loan secured by Timothy;
3. The net profits, if any, after deducting the expenses and payments of the principal and interest
shall be divided as follows: seventy percent (70%) for Kristopher and thirty percent (30%) for
Timothy;
4. Kristopher shall have a free hand in running the business without any interference from
Timothy, his agents, representatives, or assigns , and should such interference happen,
Kristopher has the right to buy back the share of Timothy less the amounts already paid on the
principal and to dissolve the MOA; and
5. Kristopher shall submit his monthly sales report in connection with the business to Timothy.

What is the contractual relationship between Timothy and Kristopher? (4%)

Suggested Answer: The contractual relationship between Timothy and Kristopher is a contract
of partnership as defined under Article 1767 of the Civil Code, since they have bound themselves
to contribute money, property or industry to a common fund, with the intention of dividing the
profits of the partnership between them. With a seed money of P500, 000.00 obtained by
Timothy through a bank loan, they agreed to divide the profits, 70% for Kristopher and 30% for
Timothy.

However, to be more specific, theirs is a limited partnership as defined under Article 1843 of the
Civil Code because Timothy does not take part in the control of the business pursuant to Article
1848, Civil Code. Nevertheless, Timothy is entitled to monthly sales reports in connection with
the business, a right enshrined in Article 1851 of the Civil Code.

XXX

Joe Miguel, a well-known treasure hunter in Mindanao, executed a Special Power of Attorney
(SPA) appointing his nephew, John Paul, as his attorney-infact. John Paul was given the power
to deal with treasure-hunting activities on Joe Miguel’s land and to file charges against those
who may enter it without the latter’s authority. Joe Miguel agreed to give John Paul forty percent
(40%) of the treasure that may be found on the land.

Thereafter, John Paul filed a case for damages and injunction against Lilo for illegally entering
Joe Miguel’s land. Subsequently, he hired the legal services of Atty. Audrey agreeing to give the
latter thirty percent (30%) of Joe Miguel’s share in whatever treasure that may be found in the
land.

Dissatified however with the strategies implemented by John Paul, Joe Miguel unilaterally
revoked the SPA granted to John Paul.

Is the revocation proper? (4%)

Suggested Answer: No, the revocation was not proper. As a rule, a contract of agency may be
revoked by the principal at will.10 However, an agency ceases to be revocable at will if it is
coupled with an interest or if it is a means of fulfilling an obligation already contracted. (Article
1922). In the case at bar, the agency may be deemed an agency coupled with an interest not only
because of the fact that John Paul expects to receive 40% of whatever treasure may be found but
also because he also contracted the services of a lawyer pursuant to his mandate under the
contract of agency and he therefore stands to be liable to the lawyer whose services he has
contracted. (Sevilla v. Tourist World Service, G.R. No. L-41182-3 April 16, 1988)
2015

A. X and Y are partners in a shop offering portrait painting. Y provided the capital and the
marketing while X was the portrait artist. They accepted the PS0,000.00 payment of Kyla to do
her portrait but X passed away without being able to do it. Can Kyla demand that Y deliver the
portrait she had paid for because she was dealing the with business establishment and not with
the artist personally? Why or why not? (3%)

B. In this jurisdiction, is a joint venture (i.e., a group of corporations contributing resources for a
specific project and sharing the profits therefrom) considered a partnership? (3%)

Suggested answer:

a) No Kyla cannot demand that Y deliver the portrait. The death of X has the effect of
dissolving the partnership. (Article 1830, Civil Code) Also, while the obligation was
contracted by the partnership, it was X who was supposed to create the portrait for Kyla.
Since X died before creating the portrait, the obligation can no longer be complied because
of impossibility of performance. (Article 1266) In obligations to do, the debtor shall be
released when the prestation becomes legally or physically impossible without the debtor’s
fault.
b) Yes, under Philippine law, a joint venture is understood to mean an organization formed for
some temporary purpose and is hardly distinguishable form a partnership since its elements
are similar which are: community of interest in business, sharing of profits, and losses, and a
mutual right of control. (Primelink Properties v. Lazatin June 27, 2006 citing Blackner v.
Mcdermott, 176 F. 2d 498[1949])

II

A lawyer was given an authority by means of a Special Power of Attorney by his client to sell a
parcel of land for the amount of P3 Million. Since the client owed the lawyer Pl Million in
attorney's fees in a prior case he handled, the client agreed that if the property is sold, the lawyer
was entitled to get 5% agent's fee plus Pl Million as payment for his unpaid attorney's fees. The
client, however, subsequently found a buyer of his own who was willing to buy the property for
a higher amount. Can the client unilaterallythe rescind authority he gave in favor of his lawyer?
Why or why not? (4%)
Suggested answer:
No, the agency in the case presented is one which is coupled with an interest. As a rule, agency
is revocable at will except if it was established for the common benefit of the agent and the
principal. In this case, the interest of the lawyer is not merely limited to his commission for the
sale of the property but extends to his right to collect his unpaid professional fees. Hence, it is
not revocable at will. (Article 1927)

III
Mr. A, a businessman, put several real estate properties under the name of his eldest son X
because at that time, X was the only one of legal age among his four children. He told his son he
was to hold those assets for his siblings until they become adults themselves. X then got married.
After 5 years, Mr. A asked X to transfer the titles over three properties to his three siblings,
leaving two properties for himself. To A’s surprise, X said that he can no longer be made to
transfer the properties to his siblings because more than 5 years have passed since the titles were
registered in his name. Do you agree? Explain. ( 4%)
Suggested answer:
No, the transfer of the properties in the name of X was without cause or consideration and it was
made for the purpose of holding these properties in trust for the siblings of X. If the transfer was
by virtue of a sale, the same is void for lack of cause or consideration. Hence, the action to
declare the sale void is imprescriptible. (Article Heirs of Ureta vs. Ureta September 14, 2011-
G.R. No. 165748 September 14, 2011

2016

On March 13, 2008, Ariel entered into a Deed of Absolute Sale (DAS) with Noel where the
former sold his titled lot in Quezon City with an area of three hundred (300) square meters to the
latter for the price of P300, 000.00. The prevailing market value of the lot was P3, 000.00 per
square meter. On March 20, 2008, they executed another "Agreement to Buy Back/Redeem
Property" where Ariel was given an option to repurchase the property on or before March 20,
2010 for the same price. Ariel, however, remained in actual possession of the lot. Since Noel did
not pay the taxes, Ariel paid the real property taxes to avoid a delinquency sale.

On March 21, 2010, Ariel sent a letter to Noel, attaching thereto a manager's check for P300,
000.00 manifesting that he is redeeming the property. Noel rejected the redemption claiming that
the DAS was a true and valid sale representing the true intent of the parties. Ariel filed a suit for
the nullification of the DAS or the reformation of said agreement to that of a Loan with Real
Estate Mortgage. He claims the DAS and the redemption agreement constitute an equitable
mortgage. Noel however claims it is a valid sale with pacto de retro and Ariel clearly failed to
redeem the property.
As the RTC judge, decide the case with reasons. (5%)

SUGGESTED ANSWER:

I will decide in favor of Ariel and allow the reformation of the agreement. The DAS and the
redemption agreement constitute an equitable mortgage and Ariel may ask for the reformation of
the agreement to that of a Loan with Real Estate Mortgage as allowed by Article 1605 of the
Civil Code. The circumstances clearly show that that the agreement is an equitable mortgage,
such as the: a) price of the lot was inadequate since it was only sold at P300, 000 when the
prevailing market value of such was P900, 000; b) the vendor, Ariel, remained in actual
possession of the property after the purported sale; and c). Ariel was the one who paid the real
property taxes. Under the circumstances, a presumption arises under Article 1602 C.C. that what
was really executed was an equitable mortgage. Moreover, Article 1603 C.C. provides that in
case of doubt, a contract purporting to be a sale with right to repurchase shall be construed as an
equitable mortgage.

II

Peter and Paul entered into a Contract to Sell whereby Peter, the lot owner, agreed to sell to Paul
his lot on November 6, 2016 for the price of P 1, 000,000.00 to be paid at the residence of Peter
in Makati City at 1:00 p.m. If the full price is paid in cash at the specified time and place, then
Peter will execute a Deed of Absolute Sale and deliver the title to Paul.

On November 6, 2016, Paul did not show up and was not heard of from that date on. In view of
the nonperformance by Paul of his obligation, Peter sent a letter to Paul that he is expressly and
extra-judicially declaring the Contract to Sell rescinded and of no legal and binding effect. Peter
further stated that failure on the part of Paul to contest the rescission within thirty (30) days from
receipt of said letter shall mean that the latter agreed to the rescission.

Paul did not reply to this letter for five (5) years. Thus, Peter decided to sell his lot to Henry in
2021. After hearing that Henry bought the lot, Paul now questions the sale of the lot to Henry
and files a complaint for nullification of the sale.

[a] Is the exercise by Peter of his power to rescind extra-judicially the Contract to Sell the proper
and legal way of rescinding said contract? Explain. (2.5%)
[b] In case Paul made a down payment pursuant to a stipulation in the Contract to Sell, what is
the legal remedy of Peter? (2.5%)

SUGGESTED ANSWER:

As a general rule, the power to rescind an obligation must be invoked judicially and cannot be
exercised solely on a party's own judgment that the other has committed a breach of the
obligation. This is so because rescission of a contract will not be permitted for a slight or casual
breach, but only for such substantial and fundamental violations as would defeat the very object
of the parties in making the agreement. However, rescission as a remedy for breach is applicable
only to an obligation, which is extant. Be it noted that the contract between the parties is a
contract to sell and not a contract of sale and in a contract to sell, there is a reservation of
ownership on the part of the seller and his obligation to convey title will only arise upon full
payment of the purchase price. Nonetheless, Peter may validly cancel the contract to sell
(Olivarez v. Castillo, G.R. No. 196251 July 9, 2014).
 2017

Alice agreed to sell a parcel of land with an area of 500 square meters registered in her name and
covered by TCT No. 12345 in favor of Bernadette for the amount of P900,000. Their agreement
dated October 15, 2015, reads as follows:

I, Bernadette, agree to buy the lot owned by Alice covered by TCT No. 12345 for the amount of
P900,000 subject to the following schedule of payment:
Upon signing of agreement – P100,000
November 15, 2015 – P200,000
December 15, 2015 – P200,000
January 15, 2016 – P200,000
February 15, 2016 – P200,000

Title to the property shall be transferred upon full payment of P900,000 on or before February
15, 2016.

After making the initial payment of P100,000 on October 15, 2015, and the second installment of
P200,000 on November 15, 2015, Bernadette defaulted despite repeated demands from Alice.

In December 2016, Bernadette offered to pay her balance but Alice refused and told her that the
land was no longer for sale. Due to the refusal, Bernadette caused the annotation of her adverse
claim upon TCT No. 12345 on December 19, 2016. Later on, Bernadette discovered that Alice
had sold the property to Chona on February 5, 2016, and that TCT No. 12345 had been cancelled
and another one issued (TCT No. 67891) in favor of Chona as the new owner.
Bernadette sued Alice and Chona for specific performance, annulment of sale and cancellation of
TCT No. 67891. Bernadette insisted that she had entered into a contract of sale with Alice; and
that because Alice had engaged in double sale, TCT No. 67891 should be cancelled and another
title be issued in Bernadette’s favor.

a. Did Alice and Bernadette enter into a contract of sale of the lot covered by TCT No.
12345? Explain your answer.

No, because in the agreement between Alice and Bernadette the ownership is reserved in the
vendor and is not to pass to the vendee until full payment of the purchase price, which makes the
contract one of contract to sell and not a contract of sale.

Distinctions between a contract to sell and a contract of sale are well-established in

jurisprudence. In a contract of sale, the title to the property passes to the vendee upon the
delivery of the thing sold; in a contract to sell, ownership is, by agreement, reserved in the
vendor and is not to pass to the vendee until full payment of the purchase price. Otherwise stated,
in a contract of sale, the vendor loses ownership over the property and cannot recover it until and
unless the contract is resolved or rescinded; whereas, in a contract to sell, title is retained by the
vendor until full payment of the price. In the latter contract, payment of the price is a positive
suspensive condition, failure of which is not a breach but an event that prevents the obligation of
the vendor to convey title from becoming effective.
In the case at bar, the contract entered between the parties is a contract to sell because ownership
is retained by the vendor and is not to pass to the vendee until full payment of the purchase price.

b. Did Alice engage in double sale of the property? Explain your answer

NO, because there was no previous sale of the same property prior to its sale to Chona.

Despite the earlier transaction of Alice with Bernadette, the former is not guilty of double sale
because the previous transaction with Bernadette is charactrerized as a contract to sell. In a
contract to sell, there being no previous sale of the property, a third person buying such property
despite the fulfillment of the suspensive condition such as the full payment of the purchase price,
for instance, cannot be deemed a buyer in bad faith and the prospective buyer cannot seek the
relief of reconveyance of the property. There is no double sale in such case. Title to the property
will transfer to the buyer after registration because there is no defect in the owner-sellers title per
se, but the latter, of course, may be sued for damages by the intending buyer
2018

Simon owned a townhouse that he rented out to Shannon, a flight attendant with Soleil
Philippine Airlines (SPA). They had no written contract but merely agreed on a three (3)-year
lease. Shannon had been using the townhouse as her base in Manila and had been paying rentals
for more than a year when she accepted a better job offer from Sing Airlines. This meant that
Singapore was going to be her new base and so she decided, without informing Simon, to
sublease the townhouse to Sylvia, an office clerk in SPA.

(a) Can Simon compel Shannon to reduce the lease agreement into writing? (2.5%)

(b) Does the sublease without Simon's knowledge and consent constitute a ground for
terminating the lease? (2.5%)

Suggested Answer:

(a)

Yes, Simon can compel Shannon to reduce the lease agreement into writing.

Under Article 1357, when the law requires a document, the contracting parties may compel each
other to observe that form, once the contract has been perfected. Under the Statute of Frauds, an
agreement for the leasing for a longer period than one year is unenforceable unless ratified.

Here, the lease was both an oral agreement and one which lasts longer than three years. In order
to make the lease effective and enforceable, it must be in writing.

Hence, Simon can compel Shannon to reduce the lease agreement into writing.

(b)

No, the sublease without the lessor’s knowledge and consent is not a ground for terminating the
lease.

Under Article 1650 of the Civil Code, when in the contract of lease of things there is no express
prohibition, the lessee may sublet the thing leased, in whole or in part, without prejudice to his
responsibility for the performance of the contract toward the lessor.

Here, there was no oral or written agreement or stipulation between Simon and Shannon as to
whether the townhouse may be subleased to another person. Since there is no express
prohibition, the townhouse may be subleased. Hence, the sublease without the lessor’s
knowledge and consent is not a ground for terminating the lease.