Obligations and Contracts

Sample Questions:
1. Dux leased his house to Iris for a period of two years, at the rate of
P25,000.00 monthly, payable annually in advance. The contract stipulated that
it may be renewed for another two-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 two 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? (Bar
Question)

2. AB Corp. entered into a contract with XY Corp. whereby the former agreed to
construct the research and laboratory facilities of the latter. Under the terms of
the contract, AB Corp. agreed to complete the facility in 18 months, at the total
contract price of P10 million. XY Corp. paid 50% of the total contract price, the
balance to be paid upon completion of the work. The work started
immediately, but AB Corp. later experienced work slippage because of labor
unrest in its company. AB Corp.'s employees claimed that they are not being
paid on time; hence, the work slowdown. As of the 17th month, work was only
45% completed. AB Corp. asked for extension of time, claiming that its labor
problems is a case of fortuitous event, but this was denied by XY Corp. When it
became certain that the construction could not be finished on time, XY Corp.
sent written notice cancelling the contract, and requiring AB Corp. to
immediately vacate the premises.
a.) Can the labor unrest be considered a fortuitous event?
b.) Can XY Corp. unilaterally and immediately cancel the contract? (Bar
Question)

3. On January 15, 2010, D borrowed P10,000 from C and executed a promissory

note whereby he obligated himself to pay the said amount "as soon as
possible." C is presently in need of money and has consulted you on the legal
steps he should take to be able to collect from D since the latter has refused to
pay, saying that "it is not yet possible" for him to pay the debt. What advice
will you give C?
4. A obligated himself to deliver a particular cow to B. It was agreed that the
cow would be delivered on Jan. 1, 2010. On Jan. 6, 2010, while A was taking the
cow to B, the animal was struck by a passenger bus owned by X Co. and driven
by D, as a result of which the cow died. A passenger on the bus, C, was also
injured. It was ascertained that the cause of the accident was a defect in the
steering knuckle of the bus, which caused the driver to lose control of the
vehicle.
a.) B has sued A for damages for failure to deliver the cow. Will the action
prosper?
b.) C has also sued X Co. for damages for the injuries he sustained. Will the

action prosper? Why?

5. On January 1, 1985, A, B, and C, solidary debtors, obligated themselves to
pay X and Y, solidary creditors, the amount of P12,000. It was ascertained that
the debt would be paid on January 5, 1988. On February 3, 1986, however, X,
acting alone and without the knowledge of Y, agreed with A that the amount of
debt will be reduced to P9,000 and that the payment will be made on March 7,
1994. Y demanded payment of P12,000 from B on January 5, 1988 and, when
the latter failed to pay, sued him. How much, if any, can Y legally collect from
B as of January 5, 1988?
6. A, B, C, D, and E, solidary debtors owe the following due and demandable
debts to X, Y, and Z, solidary creditors.
(a) P500,000 + 10% interest
(b) P1,000,000 + 10% interest
(c) P2,500,000 + 10% interest
(d) P3,000,000 secured by a real estate
(e) P4,000,000 + 10 % interest

(f) P750,000 + 20% interest; and

(g) P250,000 + 10% interest
Of the total amount of debt due and demandable, A's obligation consists of
16% of the total amount; B's share is 8%; C is 25%; D is also 16%; and the
remaining is the obligation of E. The proportionate shares of the creditors are X-40%; Y-30%; and Z-30%.
When Y demanded from A payment of the entire obligation, the latter paid only
P6,000,000. Hence, Y went to E who paid only P3,000,000. After those
payments were made, B and C became insolvent making it financially
impossible for them to reimburse A and E.
a.) Assuming there was no prior agreement among the debtors and creditors
on the manner the said payments were to be applied, how should application
of payments be made?
b.) Assuming the debtors do not exercise their rights to choose as to how to
apply the payments and the creditors do not propose, how should application

of payments be effected?
c.) Since B and C are now insolvent, how much can A collect from D and B?
d.) How much should X give to Y and Z? How much should Y give to X and Z?
e.) Can A and E extinguish their obligation to each other by compensation?
How about X and Y?
7. Lorna Tolentino filed a complaint against Regal Films to recover P250,000
representing the balance of her compensation as leading actress in a motion
picture produced by the company. The lower court dismissed the complaint
because the claim of Lorna Tolentino was not evidenced by any written
document, either public or private in violation of Article 1358 of the New Civil
Code. Was the ruling correct?
8. A taxi cab owned by Lester and driven by Johnny collided with another taxi
cab also owned by Lester driven by Pedro. As a consequence of the accident
Korina, a passenger in the cab driven by Johnny was seriously injured; while a
pedestrian, Mary, a wife and mother of three children was killed.
a.) May Lester, Johnny, and Pedro be held liable for the injuries sustained and

for the death of Mary?

b.) In a "Yes" answer above, if Johnny and Pedro cannot pay the damages, may
Lester be held accountable for whatever amount his drivers are liable for?
9. X borrowed money from Y with a stipulation that the amount shall earn
interest at 5% per month, and a penalty of 4% per month in case of default. X
defrauded; hence, Y demanded the performance of the obligation. X interposed
the defense that the penalty imposed in the contract is excessive and
inequitous. Hence, the court must reduce it. Is the defensce proper?
10. A borrower agreed to pay his debt in 60 days, and in case of non-payment
to render free service as driver/servant. When due date came, borrowr refused
to render free service. Decide the case.