1. A partnership borrowed P20,000 from A at clearly usurious interest.

Can the creditor revoke

anything from the debtor? Explain.
Answer:
Yes, the creditor can recover the principal together with legal interest thereon from the date of
demand (Art. 2209) and legal interest on the interests paid in excess of the lawful rate from the
date of payment (Art. 1413).
The whole usurious interest cannot be recovered, because of Article 1413 of the Civil Code and
Section 6 of the Usury Law. However, the illegality of the stipulation concerning the usurious
interests does not affect the creditors right to recover the principal, inasmuch as a contract of
loan with usurious interest is a divisible contract. The illegal terms can be separated from the
legal ones.
2. A borrowed P10,000.00 from X. To secure payment thereof, A executed a chattel mortgage on his
Toyota car. The condition of the mortgage having been breached, (a) What right does the
mortgage have? (b) How should he proceed to enforce that right? (c) If the proceeds of the sale
after deducting expenses are not sufficient to pay the mortgage debt, is A entitled to collect the
deficiency? Reason.
Answer:
(a) He may foreclose the mortgage either judicially or extrajudicially.
(b) Judicial foreclosure should follow the provision of the Rules of Court. Extrajudicial foreclosure
is made in accordance with the Chattel Mortgage Law and is by means of sale at public auction
conducted by a public officer in the municipality where the mortgagor resides or where the
property is situated. Notice of the time, place and purpose of the sale should be given in
accordance with law.
(c) Yes, he may collect the deficiency since the chattel is given only as security and not as payment
of the debt. The provision of the Civil Code barring deficiency judgments in case of pledge is not
applicable to chattel mortgage, which is governed by a special law. Neither is it a sale by
installments. (Garrido v. Tuazon, 24 SCRA 727)
3. A executed a chattel mortgage on certain personal properties in favor of B to secure a debt. The
chattel properties were attached by C, knowing that said properties had been mortgaged to B. As
between B and C who has a better right to the properties? Reason.
Answer:
C has a better right to the properties. The Chattel Mortgage Law expressly provides that an
unregistered chattel mortgage is not valid against any person. Registration is essential for the
validity of the chattel mortgage.
4. Differentiate mutuum from commodatum. Answer.
Answer:
In mutuum, the object is money or any consumable (fungible) thing; in commodatum, the object is,
as a general rule, a non-consumable (fungible) thing. The former may or may not be gratuitous;
the latter is essentially gratuitous. The purpose of the former is consumption; the purpose of the
latter is use. In the former, ownership passes to the debtor, in the latter, ownership remains with
the bailor. In the former, the debtor must pay or return an equal amount of the same kind or
quality; in the latter, the bailee must return the specific thing loaned.
5. F obtained a loan from W, to secure the payment of which he mortgaged his sugar crop. F
delivered to W the warehouse quedans and authorized W to sell the sugar in the event of default.
The warehouse and the sugar were burned. Who bears the loss?
Answer:
The debtor F bears the loss of the sugar. Although F constructively delivered the sugar to W, it was
only a security for the payment of the debt. The ownership of the sugar remained with F. by reason
of the principle of res perit domino, the owner should bear the loss.

6. Alfonso borrowed P10,000.00 from Bernabe payable in 10 equal monthly installments of P1,000.00
per month. To secure payment of the loan, Alfonso executed a chattel mortgage on his sports car.
The condition of the mortgage was violated.
a. What right does Bernabe have against Alfonso?
b. How should he enforce that right?
c. The proceeds of the sale after deducting expenses was not sufficient to pay the mortgage debt.
Bernabe now wants to collect the deficiency. Is he correct? Why?
Answer:
A.
Bernabe has the right to:
(i)
Exact fulfillment of the obligation; or
(ii)
Foreclose the chattel mortgage on the car.
B.
Should he elect fulfillment of the obligation, he should institute the proper case in court;
cause the chattel to be attached as provided under the Rules of Court, and after a favorable
judgment, have it sold at public auction in the manner prescribed by the Rules of Court. On the
other hand, should he elect to foreclose the mortgage all he has to do is to cause the car to be sold
at public auction pursuant to Sec.14 of the Chattel Mortgage Law.
C.
Yes. The creditor is entitled to a deficiency judgment in a chattel mortgage contract. Under
Sec. 14 of the Chattel Mortgage Law, it can be inferred that if the price of the sale of the thing
mortgage is less than the amount of the principal obligation an action may still be maintained by
the creditor against the debtor for the deficiency. The only exception to this rule is that which is
provided for in Art 1484 (3) of the Civil Code. According to this provision, should the vendee fail to
pay two or more installments, the vendor may foreclose the chattel mortgage, but he shall not
have further action against the vendee to recover any unpaid balance of the price. (Ablaza v.
Ignacio, L-11463, May 23, 1958 and Garrido v. Tuason. L-23768, August 23, 1968)
7. To guarantee the payment of his obligation, the defendant A mortgaged to plaintiff B his sugar,
then stored in a warehouse in San Fernando, Pampanga authorizing said plaintiff B to sell sugar in
case he (A) failed to pay. During the initial days of martial rule in 1972, all of As sugar were
burned or looted in the warehouse. Plaintiff B sued defendant A for his obligation
(1)
Will the suit prosper?
(2)
Who shall bear the loss? Explain
Answer:
(1)
Yes, Bs suit will prosper. As held by the Supreme Court in Martinez v. PNB, the mortgageecreditor B has the right to demand the fulfillment of mortgagor-debtor As obligation after its
security was lost due to the looting and destruction during the initial days of martial law.
(2)
A, as the mortgagor, will bear the loss consistent with the ruling of the Supreme Court in
Martinez v. PNB. The mortgagor is still the owner of the said sugar and as such it will bear the
said loss.
8. A, as guarantor, executed a real estate mortgage in the amount of P50,000.00 to secure payment
of the indebtedness of XYZ Transit Co. for the purchase of two GM trucks with a total value of
P152,000.00. XYZ Transit Co. paid BMC Motors Co., the seller of the trucks, the sum of
P92,000.00, thus leaving a balance of P60,000.00. The obligation guaranteed is further secured by
a deed of chattel mortgage on the trucks executed by XYZ Transit Co., in favor of BMC Motors Co.
To collect the balance of P60,000.00, BMC Motors Co. later filed an action against XYZ Transit Co.
with CFI, Manila to foreclose the chattel mortgage. The suit resulted in the sale of the trucks at
public auction in the amount of P50,000.00. A, the real estate mortgagor, filed an action for the
cancellation of the real estate mortgage above-mentioned. Will the action prosper? Give reasons.
Answer:
Yes, As action for the cancellation of the real estate mortgage will prosper. The foreclosure of the
chattel mortgage bars further recovery by the vendor of any unpaid balance of the price.

9. DL borrowed P200,000 from T & Co. with which he imported 400 heads of breeding cows from
New Zealand. Upon their arrival in the Phil., the cattle were sent to the ranch of T & Co. for
pasture under the agreement that for as long as DL hasnt paid the P200,00.00, he cant get his
cattle from the ranch; that the cattle is to be taken care of by T & Co.s personnel there, & that
of all the offspring shall go to T & Co. tfor these services. Without anybodys fault, all the cattle
died of disease & the P200,00.00 remained unpaid. T & Co. therefore sued DL for the
P2000,000.00 plus interest. Will the action prosper? Why?
Answer:
The Action will prosper. It is given that the 400 heads of New Zealand cows were pledged by DL to
T & Co. in order to secure the payment of the loan of P200,00.00. As an addition of the accessory
contract of pledge, the parties also concurred that the cows shall be kept at the ranch of T & Co.
for pasture, that the personnel of the latter shall take care of them, & that for these services, the
latter shall be qualified to of the offsproing. Unfortunately, they all died without the fault of
anybody. The loss was due to a fortuitous even, it is clear that both the accessory contract of
pledge and the corollary contract of services are totally extinguished. The principal contract of
loan still subsists. The obligation of DL to pay the loan plus interest has become immediately
demandable (Art. 1198 par. 3 Civil Code)
10. Creditor A filed action for recovery of a sum of money against debtor B, and secured a preliminary
attachment on a personal property of B. Subsequently, B executed a deed of chattel mortgage over
the same property in favor of C, who filed a third party claim over the property attached. A now
files a motion for disapproval of the third party claim. C opposes the motion on the ground that the
chattel mortgage being in the nature of a conditional sale, title passed to him in the meantime and
therefore he is entitled to possession of the property. Decide the motion and opposition.
Answer:
As motion for disapproval of Cs third party claim may be sustained, because C was merely a
chattel mortgagee. Chattel mortgage is merely a security for a loan and does not transfer title of
the property mortgaged to the chattel mortgagee. (Serra v. Rodriguez, L-25546, April 22, 1974; 56
SCRA 538). Cs allegation that the chattel mortgage being in the nature of a conditional sale,
cannot be sustained. The old view that a chattel mortgage is a conditional sale has been expressly
repudiated by the new Civil Code. (Art. 2140, Civil Code; Serra v. Rodriguez, supra)
11. On September 6, 1978, A convened his principal creditors, including B, and informed them that he
was in a state of insolvency. Knowing of this, B immediately transferred his credit against the
property of A located in another jurisdiction to C, a close relative, who immediately filed action in
said jurisdiction against A and attached the property of A. Later, a petition for insolvency was filed
by A, and D was appointed assignee. Learning of the transfer, D now sues B for damages. Can D
recover? Give reasons.
Answer:
D may not sue B for damages. Under the Insolvency Law, D may have the attachment made by C
dissolve if levied within one month next preceding the commencement of the insolvency
proceedings. (Sec. 32, Insolvency Law.)
12. A, owner of negotiable warehouse receipt for tobacco, sold and indorsed it (the receipt) to B, with
the understanding that B would pay after 2 days. Thereafter, B pledged it to C by indorsement, to
secure a previous debt to C, who did not know that B had not paid A. Before B could pay A, B died.
A now sues C to recover the value of the unpaid receipt. Decide the case with brief reason.
13. Answer:
As action cannot prosper. The negotiable warehouse receipt, being duly indorsed and negotiated,
C had a perfect right to accept the said warehouse receipt from B in security of pre-existing debts.
(Sec. 47, Warehouse receipts Law; and Siy Cong Bieng & Co., Inc. v. Hongkong & Shanghai
Banking Corp., 56 Phils. 598).
14. XYZ Warehousing Corporation receives from A 30 bales of cotton for deposit in said warehouse
for which a negotiable receipt was issued. While the goods were stored in said warehouse, C
obtains judgment against A for the recovery of a sum of money. The sheriff proceeded to levy

upon the goods upon a writ of execution and directed the warehouseman to deliver the goods. Is
the warehouseman under obligation to comply with the sheriffs order? Why?
Answer:
No, the warehouseman is not under obligation to comply with the sheriffs order. If goods are
delivered to a warehouseman by the owner or by a person whose act would bind the owner, and a
negotiable receipt is issued for them, they cannot thereafter, while in the possession of the
warehouseman, be attached by garnishment or otherwise, or be levied upon under execution,
unless the receipt be first surrendered to the warehouseman, or its negotiation enjoined. (Sec. 25,
Warehouse Receipts Law.)
15. A Corporation, engaged in the sale of subdivision residential lots, sold to B a lot of 1,000
square meters. The contract provides that the corporation should put up an artesian well with
tank, within a reasonable time from the date thereof and sufficient for the needs of the buyer. Five
years thereafter, and no well and tank have been put up by the corporation, B sued the
corporation for specific performance. The corporation set up a defense that no period having been
fixed, the court should fix the period. Decide the reason.
Answer:
First Answer: The action for specific performance should be dismissed on the ground that it is
premature. It is clear that the instant case falls within the purview of obligations with a term or
period which must be judicially fixed. Thus, B, instead of bringing an action for specific
performance, should bring an action asking the court to determine the period within which A
Corporation shall put up the artesian well with tank. Once the court has fixed the period, once the
court, let us say, has declared that the period is six months, then that will become a part of the
covenant between the contracting parties. It can no longer be changed by them. If the Corporation
does not put up the artesian well with tank within the period fixed by the court, B can then bring
action for specific performance.
Second Answer: Normally, before an action for specific performance may be maintained by B
against A Corporation, the former must first bring an action against the latter asking the court to
fix the duration of the term or period to install the artesian well with tank. However, an action
combining such action with that of an action for specific performance may be allowed if it can be
shown that a separate action for specific performance would be a mere formality because no
additional proofs other than the admitted facts will be presented and would serve no purpose
other than to delay. Here, there is no obstacle to such course of action.
16. The debtor owes his creditor several debts, all of them due, to wit: (1) an unsecured debt; (2) a
debt secured with a mortgage of the debtors property; (3) a debt bearing interest; (4) a debt in
which the debtor is solidarily liable with another.
Partial payment was made by the debtor. Assuming that the debtor had not specified the debts to
which the payment should be applied and, on the other hand, the creditor had not specified in the
receipt he issued the application of payment, state the order in which the payment should be
applied and your reasons therefore.
Answer:
In this case, according to the Civil Code, the debt, which is most onerous to the debtor, among
those due, shall be deemed satisfied.
Analyzing the four debts stated in the problem, the most onerous is No.4, the second most onerous
is No. 2, the third most onerous is No. 3, and the last onerous is No.1, Consequently, the payment
should be applied in that order.
17. Question:
A and B entered into a verbal contract whereby A agreed to sell to B his only parcel of land
for P20,000, and B agreed to buy at the aforementioned price. B went to the bank, withdrew
the necessary amount, and returned to A for the consummation of the contract. A however, had
changed his mind and refused to go through with the sale. Is the agreement valid? Will an action
by B against A for specific performance prosper? Reason.
Answer:

(1)
Is the agreement valid? The answer is yes. It is a time-honored rule that even a verbal
agreement to sell land is valid so long as there is already an agreement with respect to the object
and the purchase price.
(2)
Will an action by B against A for specific performance prosper? The answer is no, unless
it is ratified. The reason is obvious. The agreement, being an agreement of sale of real property, is
covered by the Statue of Frauds. It cannot, therefore, be enforced by a court action because it is
not evidenced by any note or memorandum or writing properly subscribed by the party charged.
18. Question:
ABC Trading Co., a domestic corporation engaged in the sale of automobile spare parts, opened
with X Bank letter of credit up to the extent of P450,000.00 for a period of one year. To secure
payment thereof, it executed a chattel mortgage over its stocks-in-trade valued at 7500,000.00. On
May 15, and June 15r 1981, Mr. Y, president and general manager of ABC Trading drew against
this letter of credit by means of promissory noted in the total amount of P430,000.00, payable
within 30 days from the respective dates of the promissory notes with interest of 10%. Upon
maturity of said notes, ABC Trading failed to pay, but was able to negotiate for an extension of six
(6) months within which to pay said amount, in return for the additional security posted by Mr. Y
consisting- of a real estate mortgage over his land in Manila. At the end of 6 months, ABC Trading
Co. failed to pay the amount due despite repeated demands by X Ban. X Bank filed an action
for foreclosure of the chattel mortgage executed By ABC Trading. ABC Trading opposed said
action contending that the chattel mortgage has been novated by the real estate mortgage
executed by Mr. Y in favor of X Bank. Is the contention of ABC Trading Co. tenable? Reasons.
Answer:
The contention of ABC Trading Co. that the chattel mortgage has been novated by the real estate
mortgage executed by Mr. Y in favor of X Bank is untenable. Well-settled is the rule that in
order that there will be a novation, there must be complete incompatibility between the two
obligations. And the test of incompatibility is simple. All that we have to ask is: Can the two
obligations stand together. If they can then there is no incompatibility. If there is no
incompatibility, then there is no novation. However, if they cannot stand together, then there is
incompatibility. If there is incompatibility, then there is novation. Applying the test to the instant
case, it is clear that the two obligations can stand together. Therefore, there is no novation.
19. Last July 20, 1982, A sold to B his negotiable warehouse receipt covering 100 sacks of rice
stored in X Warehouse, Inc. In payment thereof, B issued a check for P10,000, dated July 22,
1982, in favor of A. On the same date, the check was dishonored by the bank for lack of funds.
A immediately instructed X Warehouse in writing not to deliver the 100 sacks of rice to anyone.
On July 23, 1982, an employee of X Warehouse, unaware of the written instruction received by
its president, delivered the 100 sacks of rice to B. State the cause or causes of action, if any,
which A may have against X Warehouse and B. Give reasons.
Answer:
A may make X Warehouse, Inc. liable for damages, the warehouseman having been instructed
already in writing not to make delivery of the sacks of rice to anyone. The X Warehouse, Inc. is
liable for the act of his employee, its agent, and for its negligence in not duly informing its
employee/agent. B, on the other hand, will be liable with the X Warehouse, Inc. for said rice;
besides his liability for estafa, the check having been dishonored by the drawee bank for lack of
funds. (Sec. 10, Warehouse Receipts Law; B.P. 22)
20. Without complying with the requirements of the Bulk Sales Act, a merchants sells all or
substantially all of his machineries and equipment to an innocent purchaser for value.
a) Discuss the validity of the transfer as between the purchaser and the seller?
b) Discuss the validity of the transfer as between the purchaser and the creditors of the seller,
specifying the remedies of the credits, if any.
Answer:
a) The Bulk Sales Law does not in any way affect the validity of the transfer between immediate
partied thereto. A sale not in compliance with the Bulk Sales Law is valid as against all persons
other than the creditors of the seller.
b) A purchaser in violation of the Bulk Sales Law acquired no rights in the property purchased as
against the creditors of the seller. His status is that of trustee or receiver for the benefit of all

creditors of the seller. The creditors may subject the said goods to the payment of their credits,
such as execution, attachment or garnishment, as remedies.
21. To secure a loan or P100,000, Mr. Pons executed in favor of Mr. Sy a chattel mortgage on his
house built on a leased property belonging to another. They agreed to consider said house as a
personal property for purposes of the mortgage. In the ensuing foreclosure sale, the house was
sold by the sheriff to Mr. Sy, who in turn sold it to Mr. Roque. Subsequently, Mr. Manapla filed a
complaint and obtained judgment against Mr. Pons for the sum of P120,000. The same house,
formerly owned by Mr. Pons but, as above stated, acquired by Mr. Sy and sold to Mr. Roque, was
levied upon by Mr. Manapla. To prevent the sale at public auction, Mr. Roque and Mr. Sy filed an
action against Mr. Pons and Mr. Manapla. Will such action prosper?
Answer:
The action by Mr. Sy and Mr. Roque against Mr. Pons and Mr. Manapla will not prosper, since
plaintiffs have no cause of action against the defendants herein. Regardless of the validity of a
contract constituting a chattel mortgage on a house which is a real property, as between the
parties to said contract, the same cannot and does not bind third persons, who are not parties to
the aforementioned contract or their privies. As a consequence, the sale of the house in question
in the proceedings for extrajudicial foreclosure or said chattel mortgage, is null and void in so far
as Mr. Manapla is concerned, and did not confer upon Mr. Sy, as buyer in said sale, any dominical
right in and to said house, so that he had not transmitted to his assignee, plaintiff Mr. Roque any
such right as against defendant Mr. Manapla. (Piansay, et al. v. David , et al., Oct. 30, 1964; 12
SCRA 228)
22. The Mahal Building and Loan Association was organized for the main purpose of encouraging
savings and construction of homes among its members. As a matter of policy, it extends financial
assistance to its members in the form of loans with funds deposited by them. The depositors are
called participating members and funds deposited are referred to as savings. Anybody can be a
depositor or become a participating member. To qualify for loan, a member must, among others,
have sufficient collateral and deposit equal to of the loan granted. The power to grant building
loans is placed under the exclusive authority of the Board controlled by Andreas Family.
Participating members are denied the right to vote or be voted for. The association is open to the
public for ordinary demand deposit accounts so as to augment the funds to be granted as building
Loans. Further, the Association, as another source for its funding for its financial operations, sells
its own bonds to the public. Does the Mahal Building and Loan Association violate the law on
building and loan associations? Is it in fact operating as banking institution? Explain.
Answer:
Yes, the Mahal Building and Loan Association violated the law on building and loan associations.
Said association is not considered as a banking institution, duly authorized by the Monetary Board
of the Central Bank, yet it engages in the lending of funds obtained from the public through the
receipt of deposits of any kind, which only banks may do so.
23. X, a dealer in imported textiles, opened with Y Bank an irrevocable letter of credit in favor of
his American supplier, ABC Textiles, Inc. in the amount of $50,000 covering the full invoice value
of 200 bales of suiting materials. He paid Y Bank a marginal deposit of $40,000, and the amount
of $50,000. The clothing materials were subsequently shipped by ABC Textiles to Manila, with Y
Bank as consignee. Y Bank took delivery of the shipment and had it stored in its bodega.
Thereafter, X executed the corresponding trust receipt, but before X could take possession of
the goods, a fire of unknown origin gutted the bodega of Y Bank, resulting in the total loss of the
goods. When sued for the balance of $10,000 X denied liability, contending that Y Bank, as
consignee and owner of the goods, should bear the loss. Is the contention of X tenable? Reasons.
Answer:
Yes, the contention of X is tenable. Y bank, in said trust receipt, is the entruster who, according to
law, owns or holds absolute title on said goods, and the goods were still in the bodega of Y Bank
and not yet actually delivered to the entrustee X, when the goods were totally burned by a fire of
unknown origin. Hence, the goods are deemed to be lost for the account of Y Bank.
24. Jose makes a note payable to bearer with the amount blank and delivers it to Karen for
safekeeping. Marina fills up the note for P20,000 and negotiates it to Adriano. Can Jose dishonor

the note and refuse payment to Adriano on the ground that the note (A) was incomplete and (B)
was originally delivered to Karen for safekeeping only and not for negotiating? Reason.
Answer:
Yes, Jose can dishonor the note. This is a case of incomplete and not delivered instrument. When
an incomplete instrument has not been delivered it will not, if completed and negotiated without
authority, be a valid contract in the hands of any holder (whether Adriano is a holder in due course
or not), as against any person (Jose) whose signature was placed thereon before. (Sec. 15, N.I.L.)
25. X, owner of a general merchandise store, departed from the Philippines with intent to defraud
her creditors and has remained absent from the country. While she has liabilities totaling
P100,000, her assets, however, are worth P120,000.
(a) May X be declared an insolvent? Reason.
(b) Assuming that X is declared an insolvent but all her assets consisting of general merchandise
and office equipment were sold only for P60,000 how would you distribute said amount in the
order and proportion established by law among the following creditors whose claims are indicated
hereunder:
(1) Creditor for a loan to the insolventP20,000.00
(2) Assignees fees and legal expenses.P10,000.00
(3) Creditor by virtue of a final judgmentP10,000.00
(4) Land taxes due to city government...P3,000.00
(5) Rental of the store for 6 months before insolvency.P20,000.00
(6)
Amounts
due
to
employees
entitled
to
indemnity
lawP7,000.00
(7)
For
merchandise
sold
to
insolvent
and
disposed
insolvencyP30,000.00

under
of

the
before

Answer:
(a) Yes, X may be declared insolvent. Under the Insolvency Law, although the debtor has more
than sufficient property to pay all his creditors, yet if she would commit any act of insolvency, she
should be declared insolvent. One of the acts of insolvency out of the 13 enumerated by the
Insolvency Law, is: that being absent from the Philippines, with intent to defraud his/her creditors,
he/she remains absent. (Sec. 20, Insolvency Law)
(b) (Note: The question in letter (b) calls for the classification and preference of creditors which
are exclusively governed by the new Civil Code and already excluded from the coverage of
Insolvency Law, for purposes of Bar Examination.)
26. A borrowed Bs truck. During a fire which broke out in As garage, he had time to save only one
vehicle and he saved his car instead of the truck. Is he liable for the loss of Bs truck? Why?
Suggested Answer:
Yes, the bailee in commodatum is liable for the loss of the thing loaned even if through a fortuitous
event where, being able to save it or his own thing, he chose to save the latter.
27. A stole 5 bales of hemp from the pier and stored them in W Warehouse. The latter issued a
negotiable warehouse receipt under the terms of which the hemp id deliverable to A or order. A
indorsed the receipt in blank to B, who paid value for it without knowing about the theft. In the
meantime, M, the owner of the hemp, with the help of the police, was able to trace the hemp to X
Warehouse and demanded delivery of the same. X Warehouse, after being satisfied that M was the
real owner of the hemp, delivered the same to him despite the fact that the negotiable warehouse
receipt was outstanding and was not in Ms possession, and therefore could not be surrendered or
cancelled. Subsequently, B demanded delivery of the hemp and, since he could not obtain it, now
claim damages from X warehouse on the ground that he, B, was the only one entitled to the
delivery because he was the holder for value in good faith of the negotiable warehouse receipt
covering the hemp. Is X Warehouse liable to B for damages? Explain.
Answer:
No, X Warehouse is not liable for such damages. Under Sec.41 of the Warehouse Receipts Law, a
person to whom a negotiable receipt has been negotiated acquires only such title to the goods as
the person negotiating the receipt to him had or had ability to convey to a purchaser in good faith

for value. Since A who negotiated the receipt to B was a thief and thus had no title to the goods
covered by the receipt, there was no title which he could transfer to B. Therefore, B has no right
to delivery as against the true owner, M, and X Warehouse cannot be held liable to him for failure
to deliver.
28. ABC Commercial Bank extends a loan to A, one of its stockholders. As security for the repayment
of the loan, A pledges his ABC Commercial Bank shares of stocks. Is the loan valid? Why?
ANSWER:
The loan is invalid, contrary to Sec. 24 of the General Banking Act, which provides that no
commercial bank shall make any loan on the security of shares of its own capital stock, unless
such security be necessary to prevent loss upon a debt previously contracted in good faith.
29. On January 1, 1983, A borrowed P10, 000 from B payable on December 1, 1983. As security
therefore, A pledged his car to B with an agreement that B could use it. On June 30, 1983, A
offered to pay the loan in full and asked for the return of his car.
Can A compel B to accept the payment and to return the car? Why?
ANSWER:
No. Under the agreement with A, B is authorized to use the car. The creditor may use the thing
pledged with the consent of the owner (Art. 2104). A period for the payment of the obligation was
also stipulated. Under Article 1196, it is presumed that whenever a period is designated, it is
presumed to have been established for the benefit of both the creditors and the debtor. Hence, A
cannot prepay the loan and demand the return of the pledged property until the term had arrived.
30. Mr. Matunod lent Mr. Maganaka the amount of P100,000.00 as security of the payment of said
amount, Maganaka delivered to Matunod two rings in pledge. When Maganaka failed to pay,
Matunod foreclosed, and had the rings sold at auction. The proceeds of the sale, after deducting
expenses, amounted to only P70,000.00.
a. May Matunod demand the deficiency from Maganaka? Explain.
b. Assume that the proceeds, after deducting expenses, had come up to P150,000.00. Would
Matunod have been entitled to the excess? Explain.
c. Suppose the rings, instead of being pledged, had been mortgaged to Matunod, would Matunod
have been entitled to the deficiency if the sales proceeds were less than the indebtedness or to
the excess, if the proceeds were more? Explain.
ANSWER:
(a)
No. Article 2115 of the NCC provides that [i]f the price of the sale is less, neither shall the
creditor be entitled to recover the deficiency, notwithstanding any stipulation to the contrary.
Hence, Matunod, as the creditor, cannot recover any deficiency from the sale of the pledged rings
of Maganaka.
(b)
Yes. There is no law that prescribes that a creditor is not entitled to the excess of the sale
of a pledge. Hence, Matunod is entitled to the excess.
(c)
Yes. Sec. 14 of Act No. 1508, as amended, or the Chattel Mortgage Law, provides that
[t]he proceeds of such sale shall be applied to the payment, first, of the costs and expenses of
keeping and sale, and then to the payment of the demand or obligation secured by such mortgage,
and the residue shall be paid to persons holding subsequent mortgages in their order, and the
balance, after paying the mortgage, shall be paid to the mortgagor or persons holding him on
demand. Hence, Matunod would be entitled to the deficiency
31. Without going into unnecessary details, discuss the legal consequences of a creditors failure to
comply with the Truth in Lending Act, including the effect on the validity or enforceability of the
contract or transaction involved.
ANSWER:
Sec. 6 of RA 3765, or otherwise known as the Truth in Lending Act, provides that the failure of a
creditor to comply with the provisions of the statute would give the debtor the right to recover the
interest payment from the creditor.

32. Siga-an granted a loan to Villanueva in the amount of P540,000.00. Such agreement was not
reduced to writing. Siga-an demanded interest which was paid by Villanueva in cash and checks.
The total amount Villanueva paid accumulated to P1,200,000.00. Upon advice of her lawyer,
Villanueva demanded for the return of the excess amount of P660,000.00 which was ignored by
Siga-an.
a. Is the payment of interest valid? Explain.
b. Is solutio indebiti applicable? Explain.
ANSWER:
(a)
No. Article 1956 of the NCC provides that [n]o interest shall be due unless it has been
expressly stipulated in writing.
(b)
Yes. Article 2154 of the NCC provides that [i]f something is received when there is nor
right to demand it, and it was unduly delivered through mistake, the obligation to return it arises.
33. Ana rented a safety deposit box at the Alto Bank, paid the rental fee and was given the key. Ana
put her jewelry and gold coins in the box. Days after, three armed men gained entry into the Alto
Bank, opening its vault and several safety deposit boxes, including Anas and emptied them of
their contents.
Could Ana hold the Alto Bank liable for the loss of the contents of her deposit box? Explain
SUGGESTED ANSWER:
No, because under Art. 1990 of the Civil Code, if the depository by force majueure loses the thing
and receives money or another thing in its place, he shall deliver the sum or other thing to be
depositor. There being no showing that there was anything received in place of the things
deposited, the Alto Bank is not liable for the contents of the safety box
ALTERNATIVE ANSWER:
The Alto Bank is not liable because the contract is not a deposit but a rental of the safety deposit
box. Hence, the Alto Bank is not liable for the loss of the contents of the box.
34. Mr. Bakal deposited with a warehouseman two crates of goods for which he received two
warehouse receipts (one for each crate)one being a negotiable warehouse receipt and the other
a non-negotiable warehouse receipt. Title to both warehouse receipts were transferred on
December 1, 1985 to Mr. Tigas. The warehouseman was not notified of the transfer of the receipts.
Meanwhile, Mr. Tapang, a judgment creditor of Mr. Bakal, served a notice of levy over the goods
on the warehouseman.
a) Between Mr. Tigas and Mr. Bakal, who would have preference over the goods covered by the
negotiable warehouse receipt? Reasons.
b) Who would have preference over the goods covered by the non-negotiable warehouse receipt?
Reasons.
Answer:
a) Mr. Tigas would have preference over the goods covered by the negotiable warehouse receipt.
In negotiation, the transferees rights over the goods vests from the very moment of transfer and
the transferee there upon acquires the direct obligation of the warehouseman to hold the goods
for him.
b) Mr. Tapang, in this case, would have preference over the goods since the transferee of a nonnegotiable warehouse receipt merely acquires (1) rights no better than those of the transferor and
(b) the direct obligation of the warehouseman only upon notice to him of the transfer.
35. X boarded an airconditioned Pantranco Bus bound for Baguio. X was given notice that the carrier
is not liable for baggage brought in by passengers. X kept in his custody his attache case
containing $10,000. In Tarlac, all the passengers, including X, were told to get off and to take their
lunch, the cost of which is included in the ticket. X left his attach case on his seat as the door of
the bus was locked. After lunch and when X returned to the bus, he discovered that his attach
case was missing. A vendor said that a man picked the lock of the door, entered the bus and ran
away with the attach case. What, if any, is the liability of the carrier?

Answer:
Hand-carried pieces of luggage of passengers are governed by the rules on necessary deposit.
Under Article 2000 of the Civil Code the responsibility of the depository shall, among other cases,
include the loss of property of the guest caused by strangers but not that which may proceed from
force majeure. Article 2001 of the same Code considers an act of a thief as not one of force
majeure unless done with the use of arms or through an irresistible force. Accordingly, the carrier
may, given the factual setting in the problem, still be held liable.
36. X took the Benguet Bus from Baguio going to Manila. He deposited his maleta in the baggage
compartment of the bus common to all passengers. He did not declare his baggage nor pay its
charges contrary to the regulations of the bus company. When X got off, he could not find his
baggage which obviously was taken by another passenger. Determine the liability of the bus
company.
Answer:
The bus company is liable for the loss of the maleta. The duty of extraordinary diligence in the
vigilance over the goods is due on such goods as are deposited or surrendered to the common
carrier for transportation. The fact that the maleta was not declared nor the charges paid thereon,
would not be consequential so long as it was received by the carrier for transportation.
37. Question:
X deposited 1,000 sacks of wheat flour with Luzon Warehouse Company, for which he was issued a
negotiable receipt. Y was able to get hold of the receipt, forged the signature of X, presented the
receipt to Luzon Warehouse and was able to withdraw the wheat flour. What are the rights of X?
Answer:
If under the terms of the negotiable warehouse receipt, the goods are deliverable to the depositor
or to his order, X may proceed against Luzon Warehouse and/or Y. Without the valid indorsement
of X to the holder or in blank, the warehouseman is liable to X for conversion in the misdelivery. If
however, by the terms of the negotiable warehouse receipt, the goods are deliverable to bearer
(either because it is so expressed in the warehouse receipt or because of a blank indorsement by
the person to whose order the goods are deliverable, X may only proceed against Y. the
Warehouseman is not liable for conversion where the goods are delivered to a person in
possession of a bearer negotiable warehouse receipt.
38. The law (RA 6832) creating a Commission to conduct a Thorough Fact-Finding Investigation of the
Failed Coup detat of Dec 1989, Recommend Measures to Prevent the Occurrence of Similar
Attempts At a Violent Seizure of Power and for Other Purposes, provides that the Commission may
ask the Monetary Board to disclose information on and/or to grant authority to examine any bank
deposits, trust or investment funds, or banking transactions in the name of and/or utilized by a
person, natural or juridical, under investigation by the Commission, in any bank or banking
institution in the Philippines, when the Commission has reasonable ground to believe that said
deposits, trust or investment funds, or banking transactions have been used in support or in
furtherance of the objectives of the said coup detat. Does the above provision not violate the Law
on Secrecy of Bank Deposits (RA 1405)?
Suggested Answer:
The Law on Secrecy of Bank Deposits is itself merely a statutory enactment, and it may, therefore,
be modified, or amended (such as by providing further exceptions therefrom), or even repealed,
expressly or impliedly, by a subsequent law. The Secrecy of Bank Deposits Act did not amount to a
contract between the depositors and depository banks within the meaning of the non-impairment
clause of the Constitution. Even if it did, the police power of the State is superior to the nonimpairment clause. RA 6832, creating a commission to conduct an investigation of the failed 1989
coup detat and to recommend measures to prevent similar attempts to seize power is a valid
exercise of police power.
39. Dana Gianina purchased on a 36 month installment basis the latest model of the Nissan Sentra
Sedan car from the Jobel Cars Inc. In addition to the advertised selling price, the latter imposed
finance charges consisting of interests, fees and service charges. It did not, however, submit to
Dana a written statement setting forth therein the information required by the Truth in Lending

Act (RA 3765). Nevertheless, the conditional deed of sale which the parties executed mentioned
that the total amount indicated therein included such finance charges.
a.
Has there been substantial compliance of the aforesaid Act?
b.
If your answer to the foregoing question is in the negative, what is the effect of the
violation on the contract?
c.
In the event of a violation of the Act, what remedies may be availed of by Dana?
Suggested Answer:
a.
There was no substantial compliance with the Truth in Lending Act. The law provides that
the creditor must make a full disclosure of the credit lost. The statement that the total amount due
includes the principal and the financial charges, without specifying the amounts due on each
portion thereof would be insufficient and unacceptable.
b.
A violation of the Truth in Lending Act will not adversely affect the validity of the contract
itself.
c.
It would allow Dana to refuse payment of financial charges or, if already paid, to recover
the same. Dana may also initiate criminal charges against the creditor.
40. X and Y staged a daring bank robbery in Manila at 10:30 AM in the morning of a regular business
day, and escaped with their loot of two (2) bags, each bag containing P50,000,00. During their
flight to elude the police, X and Y entered the nearby locked house of A, then working in his
Quezon City office. From A's house, X and Y stole a box containing cash totaling P50,000.00 which
box A had been keeping in deposit for his friend B.
In their hurry, X and Y left in A's bedroom one (1) of the bags which they had taken from the bank.
With X and Y now at large and nowhere to be found, the bag containing P50.000.00 is now claimed
by B, by the Mayor of Manila, and by the bank.
B claims that the depository. A, by force majeure had obtained the bag of money in place of the
box of money deposited by B. The
Mayor of Manila, on the other hand, claims that the bag of money should be deposited with the
Office of the Mayor as required of the finder by the provisions of the Civil Code.
The bank resists the claims of B and the Mayor of Manila.
To whom should A deliver the bag of money? Decide with reasons.
ANSWER:
B would have no right to claim the money. Article 1990 of the Civil Code is not applicable. The law
refers to another thing received in substitution of the object deposited and is predicated upon
something exchanged.
The Mayor of Manila cannot invoke Article 719 of the Civil Code, which requires the finder to
deposit the thing with the Mayor only when the previous possessor is unknown.
In this case, A must return the bag of money to the bank as the previous possessor and known
owner (Arts. 719 and 1990. Civil Code.)
41. For a cargo of machinery shipped from abroad to a sugar central in Dumaguete, Negros Oriental,
the Bill of Lading (B/L) stipulated to shippers order, with notice of arrival to be addressed to the
Central. The cargo arrived at its destination and was released to the Central without surrender of
the B/L on the basis of the latters undertaking to hold the carrier free and harmless from any
liability.
Subsequently, a Bank to whom the central was indebted, claimed the cargo and presented the
original of the B/L stating that the Central had failed to settle its obligations with the Bank.
Was there misdelivery by the carrier to the sugar central considering the non-surrender of the
B/L? Why?
ANSWER:

1) There was no misdelivery by the carrier since the cargo was considered consigned to the Sugar
central per the Shippers Order (Eastern Shipping Lines v CA 190 s 512)
ALTERNATIVE ANSWER:
2) There was misdelivery. The B/L was a negotiable document of title because it was to the
Shippers Order. Hence, the common carrier should have delivered the cargo to the Central only
upon surrender of the B/L. The non-surrender of the B/L will make it liable to holders in due
course.
42. To guarantee the payment of a loan obtained from a bank, Raul pledged 500 bales of tobacco
deposited in a warehouse to said bank and endorsed in blank the warehouse receipt. Before Raul
could pay for the loan, the tobacco disappeared from the warehouse. Who should bear the loss
the pledgor or the bank? Why?
ANSWER:
The pledgor should bear the loss. In the pledge of a warehouse receipt the ownership of the goods
remain with depositor or his transferee. Any contract or real security, among them a pledge, does
not amount to or result in an assumption of risk of loss by the creditor. The Warehouse Receipts
Law did not deviate from this rule.
43. A, upon request, loaned his passenger Jeepney to B to enable B to bring his sick wife from Paniqui,
Tarlac to the Philippine General Hospital in Manila for treatment. On the way back to Paniqui,
after leaving his wife at the hospital, people stopped the passenger Jeepney. B stopped for them
and allowed them to ride on board, accepting payment from them just in case of ordinary
passenger Jeepneys plying their route, As B was crossing Bamban, there was an onrush of Lahar
from Mt. Pinatubo, the Jeep that was loaned to him was wrecked.
1. What do you call the contract that was entered into by A and B with respect to the passenger
Jeepney that was loaned by A to B to transport the latters sick wife to Manila?
2. Is B obliged to pay A for the use of the passenger Jeepney?
3. Is B liable to A for the loss of the Jeepney?
Suggested Answer:
1. The contract is called commodatum. [Article 1933 of the Civil Code]
2. No, B is not obliged to pay A for the use of the passenger Jeepney because commodatum is
essentially gratuitous.
3. Yes, because B devoted the thing to a purpose different from that for which it has been loaned
(Article 1942, par. 2, Civil Code).
44. Miguel, a special customs agent is charged before the Ombudsman with having acquired property
out of proportion to his salary, in violation of the Anti-Graft and Corrupt Practices Act. The
Ombudsman issued a subpoena duces tecum to the Banco de Cinco commanding its representative
to furnish the Ombudsman records of transactions by or in the name of Miguel, his wife and
children. A second subpoena was issued expanding the first by including the production of records
of friends of Miguel in said bank and in all its branches and extension offices, specifically naming
them.
Miguel moved to quash the subpoenas arguing that they violate the Secrecy of Bank Deposits Law.
In addition, he contends that the subpoenas are in the nature of fishing expedition or general
warrants and are constitutionally impermissible with respect to private individuals who are not
under investigation. Is Miguels contention tenable?
SUGGESTED ANSWER:
No. Miguels contention is not tenable. The inquiry into illegally acquired property extends to
cases where such property is concealed by being held by or recorded in the name of other
persons. To sustain Miguels theory and restrict the inquiry only to property held by or in the
name of the government official would make available to persons in government who illegally
acquire property an easy means of evading prosecution. All they have to do would be to simply
place the property in the name of persons other than their spouses and children (Banco Filipino
Savings vs. Purisima 161 scra 576; Sec 8 Anti-Graft Law as amended by BP 195)

45. In order to secure a bank loan, XYZ Corporation surrendered its deposit certificate, with a
maturity date of 01 September 1997 to the bank. The corporation defaulted on the due repayment
of the loan, prompting the bank to encash the deposit certificate. XYZ Corporation questioned the
above action taken by the bank as being a case of pactum commissorium. The bank disagrees.
What is your opinion?
SUGGESTED ANSWER:
We submit that there is no pactum commissorium here. Deposits of money in banks and similar
institutions are governed by the provisions on simple loans (Art. 1980. Civil Code). The
relationship between the depositor and a bank is one of creditor and debtor. Basically this is a
matter of compensation as all the elements of compensation are present in this case (BPI vs. CA,
232 SCRA 302).
ADDITIONAL ANSWER:
Where the security for the debt is also money deposited in a bank, it is not illegal for the creditor
to encash the time deposit certificates to pay the debtor's overdue obligation. (Chu us. CA, et al.,
G.R 78519, September 26, 1989).
46. On 1 January 1980, Minerva, the owner of a building, granted Petronila a usufruct over the
property until 01 June 1998 when Manuel, a son of Petronila, would have reached his 30th
birthday. Manuel, however, died on 1 June 1990 when he was only 26 years old.
Minerva notified Petronila that the usufruct had been extinguished by the death of Manuel and
demanded that the latter vacate the premises and deliver the same to the former.
Petronila refused to vacate the place on the ground that the usufruct in her favor would expire
only on 1 June 1998 when Manuel would have reached his 30th birthday and that the death of
Manuel before his 30th birthday did not extinguish the usufruct. Whose contention should be
accepted?
SUGGESTED ANSWER:
Petronila's contention is correct. Under Article 606 of the Civil Code, a usufruct granted for the
time that may elapse before a third person reaches a certain age shall subsist for the number of
years specified even if the third person should die unless there is an express stipulation in the
contract that states otherwise. In the case at bar, there is no express stipulation that the
consideration for the usufruct is the existence of Petronila's son. Thus, the general rule and not
the exception should apply in this case.
ALTERNATIVE ANSWER:
This is a usufruct which is clearly intended for the benefit of Manuel until he reaches 30 yrs. of
age with Petronila serving only as a conduit, holding the property in trust for his benefit. The
death of Manuel at the age of 26 therefore, terminated the usufruct.

47. Distinguish usufruct from commodatum and state whether these may be constituted over
consumable goods. [2%]
Answer:
USUFRUCT is a right given to a person (usufructuary) to enjoy the property of another with the
obligation of preserving its form and substance. (Art. 562. Civil Code)
On the other hand, COMMODATUM is a contract by which one of the parties (bailor) delivers to
another (bailee) something not consumable so that the latter may use it for a certain time and
return it.
In usufruct the usufructuary gets the right to the use and to the fruits of the same, while in
commodatum, the bailee only acquires the use of the thing loaned but not its fruits.

Usufruct may be constituted on the whole or a part of the fruits of the thing. (Art. 564. Civil Code).
It may even be constituted over consumables like money (Alunan v. Veloso, 52 Phil. 545). On the
other hand, in commodatum, consumable goods may be subject thereof only when the purpose of
the contract is not the consumption of the object, as when it is merely for exhibition. (Art. 1936,
Civil Code)
48. Distinguish clearly but briefly between mutuum and commodatum.
Answer:
In mutuum or simple loan, one of the parties delivers to another money or consumable thing, upon
the condition that the same amount of the same kind and quality shall be paid. In commodatum,
one of the parties delivers to another something not consumable so that the latter may use the
same thing for a certain time. The purpose of the former is to consume what was borrowed, while
the purpose of the latter is to use the thing. The former may be onerous or gratuitous, while the
latter is essentially gratuitous. In the former, the borrower becomes the owner of the thing
delivered. In the latter, the lender retains ownership over the thing.
49. The parties in a contract of loan of money agreed that the yearly interest rate is 12% and it can be
adjusted if there is a law that would authorize the increase in interest rates. (1) Suppose OB, the
lender, would increase by 5% the rate of interest to be paid by TY, the borrower, without a law
authorizing such increase, would OBs actions be just and valid? Why? (2) Has TY a remedy
against the imposition of the rate increase. Explain.
Answer:
(1)
No, OBs actions would not be just and valid. Interest shall only be due under the following
conditions, namely: (1) the stipulation to pay interest is agreed upon, (2) the stipulation to pay
interest must be in writing, and (3) the rate must not be against the law or against morals and
public policy. As stated in the facts, it was agreed upon by both parties that an increase would only
be allowed if there is a law that would allow such increase. No such law exists given that the Civil
Code provides that the rate of interest must be previously agreed upon. A party cannot allow the
unilateral increase of interest rate. Such stipulation will make the loan invalid.
(2)
Article 1960 of the Civil Code provides that remedy in case the borrower pays interest
when there has been no stipulation thereof. It refers to the provisions of the said code on solutio
indebiti to govern such situation. Article 2154 of the Civil Code states that if a person receives
something when there is no right to demand it, and it was unduly delivered through mistake, the
obligation to return it arises. Applying this, if TY has paid such unlawful interest rate, s/he can
demand OB to return the same.
50. Eduardo was granted a loan by XYZ Bank for the purpose of improving a building which XYZ
leased from him. Eduardo, executed the promissory note ("PN") in favor of the bank, with his
friend Recardo as co-signatory. In the PN, they both acknowledged that they are "individually and
collectively" liable and waived the need for prior demand. To secure the PN, Recardo executed a
real estate mortgage on his own property. When Eduardo defaulted on the PN, XYZ stopped
payment of rentals on the building on the ground that legal compensation had set in. Since there
was still a balance due on the PN after applying the rentals, XYZ foreclosed the real estate
mortgage over Recardo's property. Recardo opposed the foreclosure on the ground that he is only
a co-signatory; that no demand was made upon him for payment, and assuming he is liable, his
liability should not go beyond half the balance of the loan. Further, Recardo said that when the
bank invoked compensation between the reantals and the amount of the loan, it amounted to a
new contract or novation, and had the effect of extinguishing the security since he did not give his
consent (as owner of the property under the real estate mortgage) thereto. Can XYZ Bank validly
assert legal compensation?
Answer:
Yes, XYZ Bank can validly assert legal compensation. In the present case, all of the elements of
legal compensation are present: (1) XYZ Bank is the creditor of Eduardo while Eduardo is the
lessor of XYZ Bank; (2) both debts consist in a sum of money, or if the things due are consumable,
they be of the same kind, and also of the same quality if the latter has been stated; (3) the two
debts be due; (4) they be liquidated and demandable, and (5) over neither of them there be any

retention or controversy, commenced by third persons and communicated in due time to the
debtor (Art. 1279, Civil Code).
51. Eduardo was granted a loan by XYZ Bank for the purpose of improving a building which XYZ
leased from him. Eduardo, executed the promissory note ("PN") in favor of the bank, with his
friend Recardo as co-signatory. In the PN, they both acknowledged that they are "individually and
collectively" liable and waived the need for prior demand. To secure the PN, Recardo executed a
real estate mortgage on his own property. When Eduardo defaulted on the PN, XYZ stopped
payment of rentals on the building on the ground that legal compensation had set in. Since there
was still a balance due on the PN after applying the rentals, XYZ foreclosed the real estate
mortgage over Recardo's property. Recardo opposed the foreclosure on the ground that he is only
a co-signatory; that no demand was made upon him for payment, and assuming he is liable, his
liability should not go beyond half the balance of the loan. Further, Recardo said that when the
bank invoked compensation between the reantals and the amount of the loan, it amounted to a
new contract or novation, and had the effect of extinguishing the security since he did not give his
consent (as owner of the property under the real estate mortgage) thereto.
Does Recardo have basis under the Civil Code for claiming that the original contract was novated?
Answer:
No. Recardo has no basis for claiming novation of the original contract when the bank invoked
compensation because there was simply partial compensation (Art. 1290, Civil Code) and this
would not bar the bank from recovering the remaining balance of the obligation.
52. Felipe borrowed $100 from Gustavo in 1998, when the Phil P - US$ exchange rate was P56 - US$1.
On March 1, 2008, Felipe tendered to Gustavo a cashier's check in the amount of P4,135 in
payment of his US$ 100 debt, based on the Phil P - US$ exchange rat at that time. Gustavo
accepted the check, but forgot to deposit it until Sept. 12, 2008. His bank refused to accepted the
check because it had become stale. Gustavo now wants Felipe to pay him in cash the amount of
P5,600. Claiming that the previous payment was not in legal tender, and that there has been
extraordinary deflation since 1998, and therefore, Felipe should pay him the value of the debt at
the time it was incurred. Felipe refused to pay him again, claiming that Gustavo is estopped from
raising the issue of legal tender, having accepted the check in March, and that it was Gustavo's
negligence in not depositing the check immediately that caused the check to become stale.
(A) Can Gustavo now raised the issue that the cashier's check is not legal tender?
(B). Can Felipe validly refuse to pay Gustavo again?
(C) Can Felipe compel Gustavo to receive US$100 instead?
Answer:
(A)
No. Gustavo previously accepted a check as payment. It was his fault why the check
became stale. He is now estopped from raising the issue that a cashier's check is not legal tender.
(B)
Yes, Felipe can refuse to pay Gustavo, who allowed the check to become stale. Although a
check is not legal tender (Belisario v. Natividad. 60 Phil 156), there are instances when a check
produces the effects of payment, for example: (a) when the creditor is in estoppel or he had
previously promised he would accept a check (b) when the check has lost its value because of the
fault of the creditor (Art. 1249, 2nd par.), as when he was unreasonably delayed in presenting the
check for payment.
(C)
Felipe cannot compel Gustavo to receive US$100 because under RA 529, payment of loans
should be at Philippine currency at the rate of exchange prevailing at the time of the stipulated
date of payment. Felipe could only compel Gustavo to receive US$ 100 if they stipulated that
obligation be paid in foreign currency (R.A. 4100).
53. True or False. An oral promise of guaranty is valid and binding.
Answer:
FALSE. An oral contract of guaranty, being a special promise to answer for the debt of another, is
unenforceable unless in writing (Article 1403 [2] b, NCC ).
Alternative Answer:

TRUE. An oral promise of guaranty is valid and binding. While the contract is valid, however ,it is
unenforceable because it is not writing . Being a special promise answer for the debt, or
miscarriage of another, the Statute of Frauds requires it to be in writing to be enforceable (Article
1403 [2] b, NCC).The validity of the contract should be distinguished from its enforceability.
54. Rosario obtained a loan of P100,000.00 from Jennifer, and pledged her diamond ring. The contract
signed by the parties stipulated that if Rosario is unable to redeem the ring on due date, she will
execute a document in favor of Jennifer providing that the ring shall automatically be considered
full payment of the loan. Is the contract valid? Explain.
Answer:
The contract is valid because Rosario has to execute a document in favor of Jennifer to transfer
the ownership of the pledged ring to the latter. The contract does not amount to pactum
commissorium because it does not provide for the automatic appropriation by the pledgee of the
thing pledged in case of default by the pledgor.
(B) Will your answer to [a] be the same if the contract stipulates that upon failure of Rosario to
redeem the ring on due date, Jennifer may immediately sell the ring and appropriate the entire
proceeds thereof for herself as full payment of the loan? Reasons.
Answer:
No, my answer will be different. While the contract of pledge is valid, the stipulation authorizing
the pledgee to immediately sell the thing pledged is void under Art 2088 of the New Civil Code,
which provides that the creditor cannot appropriate the things given by way of pledge or
mortgage, or dispose of them xxx. Jennifer cannot immediately sell by herself the thing pledged.
It must be foreclosed by selling it at a public auction in accordance with the procedure under Art
2112 of the New Civil Code.
55. True or False. Under the Warehouse loses his lien upon the goods when he surrenders possession
thereof.
Answer:
True. A lien is dependent on possession. When a warehouseman surrenders possession, he thereby
loses his lien on the goods over which hi no longer has possession (Sec.29 (a), Warehouse Receipts
Law).
56. What is the difference between guaranty and suretyship?
ANSWER:
a.)
The obligation in guaranty is secondary; whereas, in suretyship, it is primary.
b.)
In guaranty, the undertaking is to pay if the principal debtor cannot pay; whereas, in
suretyship, the undertaking is to pay if the principal debtor does not pay.
c.)
In guaranty, tha guarantor is entitled to the benefit of excussion; whereas, in suretyship the
surety is not entitled.
d.)
Liability in guaranty depends upon an independent agreement to pay the obligations of the
principal if he fails to do so; whereas, in suretyship, the surety assumes liability as a regular party.
e.)
The Guarantor insures the solvency of the principal debtor; whereas, the surety insures the
debt.
f.)
In a guaranty, the guarantor is subsidiarily liable; whereas, in a suretyship, the surely binds
himself solidarity with the principal debtor (Art 2047, Civil Code.)
57. Amador obtained a loan of P300,000 from Basilio payable on March25, 2012. As security for the
payment of his loan, Amador constituted a mortgage on his residential house and lot in Basilio's
favor. Cacho, a good friend of Amador, guaranteed and obligated himself to pay Basilio, in case
Amador fails to pay his loan at maturity.
(1) If Amador fails to pay Basilio his loan on March 25, 2012, can Basilio compel Cacho to pay?
(1%)
(A) No, Basilio cannot compel Cacho to pay because as guarantor, Cacho can invoke the principle
of excussion, i.e., all the assets of Basilio must first be exhausted.

(B) No, Basilio cannot compel Cacho to pay because Basilio has not exhausted the available
remedies against Amador.
(C) Yes, Basilio can compel Cacho to pay because the nature of Cacho's undertaking indicates that
he has bound himself solidarily with Amador.
(D) Yes, Basilio can compel Cacho who bound himself to unconditionally pay in case Amador fails
to pay; thus the benefit of excussion will not apply.
SUGGESTED ANSWER:
(B) No, Basilio cannot compel Cacho to pay because Basilio has not exhausted the available
remedies against Amador. The guarantor cannot be compelled to pay the creditor unless the latter
has exhausted all the property of the debtor and has resorted to all the legal remedies against the
debtor (Art. 2058, Civil Code)
(2) If Amador sells his residential house and lot to Diego, can Basilio foreclose the real estate
mortgage? (1%)
(A) Yes, Basilio can foreclose the real estate mortgage because real estate mortgage creates a real
right that attaches to the property.
(B) Yes, Basilio can foreclose the real estate mortgage. It is binding upon Diego as the mortgage is
embodied in a public instrument.
(C) No, Basilio cannot foreclose the real estate mortgage. The sale confers ownership on the
buyer, Diego, who must therefore consent.
(D) No, Basilio cannot foreclose the real estate mortgage. To deprive the new owner of ownership
and possession is unjust and inequitable.
SUGGESTED ANSWER:
(B) Yes, Basilio can foreclose the real estate mortgage. It is binding upon Diego as the mortgage is
embodied in a public instrument. Since the mortgage is in a public instrument, there is
constructive notice to Diego, who is the buyer if the mortgaged property.
ALTERNATIVE ANSWER:
(C) No, Basilio cannot foreclose the real estate mortgage. The sale confers ownership on the
buyer, Diego, who must therefore consent.
The mortgage is not registered, thus, cannot be binding against third persons (Art. 2125, Civil
Code)
58. Cruz lent Jose his car until Jose finished his Bar exams. Soon after Cruz delivered the car, Jose
brought it to Mitsubishi Cubao for maintenance check up and incurred costs of P8,000. Seeing the
car's peeling and faded paint, Jose also had the car repainted for P10,000. Answer the two
questions below based on these common facts.
(1) After the bar exams, Cruz asked for the return of his car. Jose said he would return it as soon
as Cruz has reimbursed him for the car maintenance and repainting costs of P 18,000. Is Jose's
refusal justified? (1%)
(A) No, Jose's refusal is not justified. In this kind of contract, Jose is obliged to pay for all the
expenses incurred for the preservation of the thing loaned.
(B) Yes, Jose's refusal is justified. He is obliged to pay for all the ordinary and extraordinary
expenses, but subject to reimbursement from Cruz.
(C) Yes, Jose's refusal is justified. The principle of unjust enrichment warrants the reimbursement
of Jose's expenses.
(D) No, Jose's refusal is not justified. The expenses he incurred are useful for the preservation of
the thing loaned. It is Jose's obligation to shoulder these useful expenses.
SUGGESTED ANSWER:
(D) No, Jose's refusal is not justified. The expenses he incurred are useful for the preservation of
the thing loaned. It is Jose's obligation to shoulder these useful expenses.
In commodatum, the bailee is obliged to pay for the ordinary expenses for the use and
preservation of the thing loaned (Art 1941, Civil Code).
The bailee, Jose, has no right of retention on the ground that the bailor owes him something, even
if it may be by reason of expenses. He can only retain it if he suffers damages by reason of a flaw
or defect in the thing loaned of which the bailor knows (Art 1951, Civil Code).

59. (2) During the bar exam month, Jose lent the car to his girlfriend, Jolie, who parked the car at the
Mall of Asia's open parking lot, with the ignition key inside the car. Car thieves broke into and took
the car. Is Jose liable to Cruz for the loss of the car due to Jolie's negligence? (1%)
(A) No, Jose is not liable to Cruz as the loss was not due to his fault or negligence.
(B) No, Jose is not liable to Cruz. In the absence of any prohibition, Jose could lend the car to Jolie.
Since the loss was due to force majeure, neither Jose nor Jolie is liable.
(C) Yes, Jose is liable to Cruz. Since Jose lent the car to Jolie without Cruz's consent, Jose must
bear the consequent loss of the car.
(D) Yes, Jose is liable to Cruz. The contract between them is personal in nature. Jose can neither
lend nor lease the car to a third person.
SUGGESTED ANSWER:
(C) Yes, Jose is liable to Cruz. Since Jose lent the car to Jolie without Cruz's consent, Jose must
bear the consequent loss of the car. The bailee is liable for the loss of the thing, even if it should
be through a fortuitous event if he lends or leases the thing to a third person, who is not a member
of his household (Art 1942, Civil Code).
60. Gary is a tobacco trader and also a lending investor. He sold tobacco leaves to Homer for delivery
within a month, although the period for delivery was not guaranteed. Despite Gary's efforts to
deliver on time, transportation problems and government red tape hindered his efforts and he
could only deliver after 30 days. Homer refused to accept the late delivery and to pay on the
ground that the agreed term had not been complied with.
As lending investor, Gary granted a Pl,000,000 loan to Isaac to be paid within two years from
execution of the contract. As security for the loan, Isaac promised to deliver to Gary his Toyota
Innova within seven (7) days, but Isaac failed to do so. Gary was thus compelled to demand
payment for the loan before the end of the agreed two-year term.
(l) Was Homer justified in refusing to accept the tobacco leaves? (1%)
(A) Yes. Homer was justified in refusing to accept the tobacco leaves. The delivery was to be made
within a month. Gary's promise of delivery on a "best effort" basis made the delivery uncertain.
The term, therefore, was ambiguous.
(B) No. Homer was not justified in refusing to accept the tobacco leaves. He consented to the
terms and conditions of the sale and must abide by it. Obligations arising from contract have the
force of law between the contracting parties.
(C) Yes. Homer was justified in his refusal to accept the delivery. The contract contemplates an
obligation with a term. Since the delivery was made after 30 days, contrary to the terms agreed
upon, Gary could not insist that Homer accept the tobacco leaves.
(D) No. Homer was not justified in refusing to accept the tobacco leaves. There was no term in the
contract but a mixed condition. The fulfillment of the condition did not depend purely on Gary's
will but on other factors, e.g., the shipping company and the government. Homer should comply
with his obligation.
SUGGESTED ANSWER:
(B) No. Homer was not justified in refusing to accept the tobacco leaves. He consented to the
terms and conditions of the sale and must abide by it. Obligations arising from contract have the
force of law between the contracting parties.
It is clear under the facts that the period of delivery of the tobacco leaves was not guaranteed.
Gary anticipated other factors which may prevent him from making the delivery within a month.
True enough, transportation problems and government red tape did. Such slight delay was, thus,
excusable. Obligations arising from contract have the force of law between the contracting parties
and should be complied with in good faith (Art. 1160, Civil Code)
(2) Can Gary compel Isaac to pay his loan even before the end of the two-year period? (1%)

(A) Yes, Gary can compel Isaac to immediately pay the loan. Non-compliance with the promised
guaranty or security renders the obligation immediately demandable. Isaac lost his right to make
use of the period.
(B) Yes, Gary can compel Isaac to immediately pay the loan. The delivery of the Toyota Innova is a
condition for the loan. Isaac's failure to deliver the car violated the condition upon which the loan
was granted. It is but fair for Gary to demand immediate payment.
(C) No, Gary cannot compel Isaac to immediately pay the loan. The delivery of the car as security
for the loan is an accessory contract; the principal contract is still the P 1,000,000 loan. Thus,
Isaac can still make use of the period.
(D) No, Gary cannot compel Isaac to immediately pay the loan. Equity dictates that Gary should
have granted a reasonable extension of time for Isaac to deliver his Toyota Innova. It would be
unfair and burdensome for Isaac to pay the P1,000,000 simply because the promised security was
not delivered.
SUGGESTED ANSWER:
(A) Yes, Gary can compel Isaac to immediately pay the loan. Non- compliance with the promised
guaranty or security renders the obligation immediately demandable. Isaac lost his right to make
use of the period.
Under Art 1198 (2) of the Civil Code, the debtor shall lose every right to make use of the period
when he does not furnish to the creditor the guaranties or securities which he has promised.
61. Lito obtained a loan of P1,000,000 from Ferdie, payable within one year. To secure payment, Lito
executed a chattel mortgage on a Toyota Avanza and a real estate mortgage on a 200-square
meter piece of property. (A) Would it be legally significant - from the point of view of validity and
enforceability - if the loan and the mortgages were in public or private instruments? (6%)
SUGGESTED ANSWER:
From the point of view of validity and enforceability, there would be legal significance if the
mortgage was in a public or private instrument. As for the loan, there is no legal significance
except of interest were charged on the loan, in which case, the charging of interest must be in
writing.
A contract of loan is a real contract and is perfected upon delivery of the object of the obligation
(Art 1934, Civil Code). Thus, a contract of loan is valid and enforceable even if it is neither in a
private nor in a public document.
As a rule, contracts shall be obligatory in whatever form they may have been entered into
provided all the essential requisites for their validity are present. With regards to its
enforceability, a contact of loan is not among those enumerated under Art. 1403 (2) of the Civil
Code, which are covered by the Statute of Frauds.
It is important to note that under Art. 1358 of the Civil Code, all the other contracts where the
amount involved exceeds Five Hundred pesos (P500.00) must appear in writing, even in private
one. However, the requirement is not for validity of the contract, but only for its greater efficacy.
With regard to the chattel mortgage, Art. 1508, the Chattel Mortgage Law, requires an affidavit of
good faith stating that the chattel mortgage is supposed to stand as security of the loan; thus, for
the validity of the chattel mortgage, it must be in a public document and recorded in the Chattel
Mortgage Register in the Register of Deeds. A real estate mortgage, under the provisions of Art.
2125 of the Civil Code, requires that in order that a mortgage may be validly constituted the
document in which it appears be recorded. If the instrument is not recorded, the mortgage is
nevertheless valid and binding between the parties. Hence, for validity of both chattel and real
estate mortgages, they must appear in a public instrument. But the purpose of enforceability, it is
submitted that the form of the contract, whether in a public or private document, would be
immaterial (Mobil Oil v. Diocaresa, 29 SCRA 656, 1969).
Also, under Art 1358, acts and contracts which have for their object the creation or transmission
of real rights over immovable property must be in a public document for greater efficacy and a
real estate mortgage is a real right over immovable property.