MIDTERM EXAMINATION

CIVIL LAW
ATTY. MARIA LOURDES P. GARCIA

1. The contract entered into by and between the parties in Engineering and
Machinery Corp. vs. CA, et al;, 67 SCAD 113, G.R. No. 52267, Jan. 24,
1996, was a situation where the petitioner undertook to fabricate, furnish,
and install the air-conditioning system in the respondent's building for
P210,000.00. Is the contract one of sale or a contract for a piece of work?
Answer:
1. It is a contract for a piece of work because it is not petitioner's line of
business to manufacture air-conditioning systems to be sold “off-
the-shelf.” Its business and particular field of expertise is the
fabrication and installation of such systems as ordered by
customers and in accordance with particular plans and specifications
provided by customers. Naturally, the price or compensation for
the system manufactured and installed will depend greatly on the
particular plans and specifications agreed upon by the customers.

2. When is a contract of sale deemed perfected and state the effects of its perfection.
Answer:
2. A sale is at once perfected when a person (the seller) obligates
himself, for a price certain, to deliver and to transfer ownership of a
specified thing or right to another (the buyer) over which the latter
agrees.
From the moment the contract is perfected, the parties are bound not
only to the fullfillment of what has been expressly stipulated but also
to all the consequences which, according to their nature, may be in
keeping with good faith, usage and law.

3. The contract between Ayala Corporation and Dr. Daniel Vasquez provided that “The Buyer
agrees to give the Sellers first option to purchase four developed lots next the Retained
Area at the prevailing market price at the time of the purchase. When the sellers decided
to sell, the notified and offered to sell the lot at 6,500.00 per square meter. The buyer
insisted on paying at the prevailing market price in 1984 at P460.00 per square meter.
Ayala reduced it to P5,000.00 but the buyer rejected and offered P2,000.00. It was
rejected by Ayala.

Is the contract an option contract or one with right of first refusal? Explain.

Answer:
3. The contract is sale with right of first refusal. Although it has a definite
object, i.e., the sale of subject lots. The period within which they will be
offered for sale to petitioners and, necessarily, the price for which the
subject lots will be sold are not specified. The phrase “at the prevailing
market price at the time of the purchase” connotes that there is no definite
period within which Ayala Corporation is bound to reserve the subject lots
for the buyers to exercise their privelege to purchase. Neither is there a
fixed or determinable price at which the subject lots will be offered for sale.
The price is considered certain if it may be determined with reference to
another thing certain or if the determination thereof is left to the judgment
of a specified person or persons. (Art. 1469, NCC; Vasquez, et al. vs. Ayala
Corp., G.R. No. 149734. November 19, 2004, Tinga, J.)

4. In a contract of a lease, there is a stipulation that if the lessor should desire to sell the
leased premises, the lessee shall have a 30-day exclusive option to purchase the same. In
the event however that it is sold to another, the lessor is bound and obligated to stipulate
in the deed of sale that the purchaser shall recognize the lease and be bound by all the
terms and conditions thereof. What right was granted to the lessee, a right of first refusal
or an option contract. Explain.
Answer:
The lessee was granted a right of first refusal. It is not an option clause or
 an option contract.

An option is a contract granting a privilege to buy or sell within an agreed time

and at a determined price. It is a separate and distinct contract from that which
the parties may enter into upon the consummation of the option. It must be
supported by consideration. The right of first refusal is an integral part of the
contract of lease. The consideration is built into the reciprocal obligations of the
parties. (Sps. Reynaldo Litonjua and Erlinda Litonjua, et al. vs. L and R, Corp., et
al., G.R. 130722, March 27, 2000).

5. What is the remedy of an aggrieved party like a lessee in case of violation of the right of
first refusal? Explain.
Answer:
Rescission is the necessary relief arising out of the violation of the right of
first refusal. The reason for the rule is that, if the grantor violates it, the
aggrieved party may have the right to recourse for rescission because there
is a breach of an obligation if the grantor sells it to another.

6. One of the terms and conditions in a contract of lease is that within one (1) year after the
expiration of the lease, the lessee would have the right and option to buy the leased
premises and should the lessee fail to exercise this option, the improvements shall be
evaluated and thereafter, the lessor shall have the option to buy the improvements within
one (1) year after the expiration of the contract. Should neither of them exercise the
option, both shall be free to look for a buyer for his or her respective property. It was
contended that the option is void for lack of consideration. Is the contention correct? Why?
Answer
6. No. In reciprocal contracts, the obligation or premises of each party is
the consideration for that of the other. The consideration for the
lessor's obligation to sell the leased premises to the lessee, should he
choose to exercise his option to purchase the same, is the obligation
of the lessee to sell to the lessor the building or improvements
constructed, if he fails to exercise his option to buy said premises.
The amount of rentals was undoubtedly part of the consideration of
his option to purchase the leased premises.

7. Is there any distinction between earnest money and option money?

Answer:
Yes. They are the following: (a) earnest money is aprt of the purchase
price, while option money is given as a distinct consideration for an option
contract; (b) earnest money is given only where there is already a sale,
while option money applies to a sale not yet perfected; (c) when the
earnest money is given, the buyer is bound to pay the balance, while when
the would-be buyer gives option money, he is not required to buy. (Adelfa
Properties, Inc. vs. CA, G.R. No. 111238, Jan. 25, 1995, 58 SCAD 462).

8. On Oct. 5, 1981, a person identifying himself to be Prof. Jose Cruz, an alleged De La Salle
Colege dean, called up the petitioner asking the delivery of books to him. They were
delivered covered by an invoice and a delivery receipt. He then sold 120 of the books to
Leonor Santos, who, after verifying the seller's ownership from the invoice he showed her,
paid him P1,700.00. He again placed a second order, making petitioner suspicious, hence,
inquiries were made at La Salle College but he was informed that no such person was
employed at the said school. The check he issued also bounced. With the aid of WPD
elements, the petitione was able to get back the books, seized without warrant from
Santos. Hence, an action to recover them was filed.

Was the petitioner unlawfully deprived as to entitle him to recover the books considering that the
check issued to him bounced? Why?
Answer:
No, because the impostor acquired title to the books when the same were
delivered to him.

The contract of sale is consensual and is perfected once an agreement is

reached between the parties on the subject matter and the
consideration. Ownership in the thing sold shall not pass to the buyer
 until full payment of the purchase price only if there is a stipulation to
that effect. Otherwise, the rule is that ownership shall pass from the
vendor to the vendee upon the actual or constructive delivery of the
thing even if the purchase price has not yet been paid.

9. X unilaterally promised to sell to Y his car for P50,000.00 within a period of one month. Y
accepted the promise. On the 16th day, Y received a note from X telling him that he is
withdrawing the promise.

(a) Can Y hold X liable for damages if he persists on withdrawing the promise? Why?
Answer:
(a) No. An accepted unilateral promise to buy or to sell a
determinate thing for a price certain upon the promissor if the
promise is suspported by a consideration distinct from the price. (Art.
1479[par. 2], NCC; Art. 1324, NCC). In the case at bar, no
consideration distinct from the price has been delivered to X; the offer
or promise can be withdrawn at anytime.

(b) Assume that Y gave an option money when he accepted the promise, and on the 16 th day,
he backed out, can X compel him to buy the car? Explain.
Answer:
No, because the option to buy or not to buy depends upon Y.

10. A Contract of Lease with Option to Buy a parcel of land was entered into by
the parties for twenty-five (25) years for a consideration not greater than
P200.00 per square meter. The option was to be exercised within 10
years from the signing of the contract. Within four (4) years
from the commencement of the contract, the respondent RCBC decided to
exercise the option, but the owner of the land, Mr. Serra, refused as he
was no longer selling the property, thus, an action for specific
performance was filed by RCBC. Mr. Serra interposed the defense that the
option was not supported by a consideration, hence, not binding upon him. Is
the defense proper? Why?
Answer:
No. There was a consideration distinct from the price. The consideration for the
lessor's obligation to sell the leased premises to the lessee, should he choose to
exercise his option to purchase the same, is the obligation of the lessee to sell to
the lessor the building and/or improvements constructed and/or made by the
former if he fails to exercise to buy said premises. The consideration in this case
is even more onerous on the part of the lessee since it entails transferring the
building and/or improvements on the property to the petitioner should
respondent bank fail to exercise its option within the period stipulated.

GOOD LUCK

RETURN THIS QUESTIONNAIRE WITH YOUR BOOKLET

. CA, et al., G.R. No. 103338, Jan. 4, 1994, 47 SCAD 55).