1. Extinguishment; Novation (1994) 3.

Maceda Law (2000)

In 1998, Bobby borrowed Pl,000,000.00 from Chito payable in two years. The loan, Priscilla purchased a condominium unit in Makati City from the Citiland Corporation
which was evidenced by a promissory note, was secured by a mortgage on real for a price of P10 Million, payable P3 Million down and the balance with interest
property. No action was filed by Chito to collect the loan or to foreclose the thereon at 14% per annum payable in sixty (60) equal monthly installments of
mortgage. But in 2001, Bobby, without receiving any amount from Chito, executed P198,333.33. They executed a Deed of Conditional Sale in which it is stipulated that
another promissory note which was worded exactly as the 1998 promissory note, should the vendee fail to pay three (3) successive installments, the sale shall be
except for the date thereof, which was the date of its execution. deemed automatically rescinded without the necessity of judicial action and all
payments made by the vendee shall be forfeited in favor of the vendor by way of
Can Chito demand payment on the 2001 promissory note in 2004? rental for the use and occupancy of the unit and as liquidated damages. For 46
months, Priscilla paid the monthly installments religiously, but on the 47th and 48th
YES, Chito can demand payment on the 2001 promissory note in 2004 months, she failed to pay. On the 49th month, she tried to pay the installments due
because there was a valid novation since the two promissory notes cannot stand but the vendor refused to receive the payments tendered by her. The following
together for being incompatible. Since there was novation, the prescriptive period month, the vendor sent her a notice that it was rescinding the Deed of Conditional
of 10 years has not yet lapsed. Although the 1998 promissory note for P1 million Sale pursuant to the stipulation for automatic rescission, and demanded that she
payable two years later became a natural obligation after the lapse of ten (10) years, vacate the premises. She replied that the contract cannot be rescinded without
such natural obligation can be a valid consideration of a novated promissory note judicial demand or notarial act pursuant to Article 1592 of the Civil Code.
dated in 2001 and payable two years later, or in 1993.
a) Is Article 1592 applicable?
All the elements of an implied real novation are present: b) Can the vendor rescind the contract?
a) an old valid obligation;
b) a new valid obligation; a. NO. Article 1592 of the Civil Code does not apply to a conditional sale.
c) capacity of the parties; It applies only to a contract of sale and not to a Deed of Conditional
d) animus novandi or intention to novate; and Sale where the seller has reserved title to the property until full
e) The old and the new obligation should be incompatible with each other payment of the purchase price. The law applicable is the Maceda Law.
on all material points
b. NO, the vendor cannot rescind the contract because under the
2. Extinguishment; Condonation (2000) Maceda Law, the seller on installment may not rescind the contract
until after the lapse of the mandatory grace period of 30 days for every
Arturo borrowed P500,000.00 from his father. After he had paid P300,000.00, his one year of installment payments, and only after 30 days from notice
father died. When the administrator of his father's estate requested payment of the of cancellation or demand for rescission by a notarial act. In this case,
balance of P200,000.00. Arturo replied that the same had been condoned by his the refusal of the seller to accept payment from the buyer on the 49th
father as evidenced by a notation at the back of his check payment for the month was not justified because the buyer was entitled to 60 days
P300,000.00 reading: "In full payment of the loan". grace period and the payment was tendered within that period.
Moreover, the notice of rescission served by the seller on the buyer
Will this be a valid defense in an action for collection?
was not effective since it was not notarized. Besides, the seller may
NO. The defense of Arturo is invalid because even if the notation was still pay within 30 days from such notarial notice before rescission may
written by Arturo's father that amounted to an express condonation of the balance be effected. All these requirements for a valid rescission were not
it must still comply with the formalities of a donation to be valid. Since the amount complied with by the seller. Hence, the rescission is not valid.
of the balance is more than 5,000 pesos, the acceptance by Arturo of the condonation
must also be in writing under Article 748. There being no acceptance in writing by
Alternative answer: Section 3 of Maceda Law indicates that the buyer has a right to
Arturo, the condonation is void and the obligation to pay the balance subsists. The
a refund and grace periods as long as the buyer has paid at least two years. However,
defense of full payment is, therefore, not valid.
if there’s still less than 2 years of installment payments made, the buyer is only
If in case the said notation was written by Arturo himself, the answer will entitled to 60 days grace period as indicated in Section 4. The seller, on the other
still be the same since it merely proves his intention in making payment of the loan hand, is entitled to the cancellation of the contract, if the buyer fails to pay the
but in no way does it bind his father. (Yam vs CA) installments due at the end of the grace period. The seller, however, must first notify
the buyer of the cancellation, or of the demand for rescission of the contract. This
 notice or demand must be by a notarial act and shall only render the cancellation or hence the failure of Carlos to accept the offer before it has been withdrawn by Marvin
rescission effective 30 days after such notice or demand has been made. had the effect of extinguishing the offer.

.
6. Non-Payment of Amortizations; Subdivision Buyer; When justified (2005)
4. Sublease; Validity; Assignment of Sublease (1990)
Bernie bought on installment a residential subdivision lot from DEVLAND. After
A leased a parcel of land to B for a period of two years. The lease contract did not having faithfully paid the installments for 48 months, Bernie discovered that
contain any express prohibition against the assignment of the leasehold or the DEVLAND had failed to develop the subdivision in accordance with the approved
subleasing of the leased premises. During the third year of the lease, B subleased the plans and specifications within the time frame in the plan. He thus wrote a letter to
land to C. In turn, C, without A's consent, assigned the sublease to D. A then filed an DEVLAND informing it that he was stopping payment. Consequently, DEVLAND
action for the rescission of the contract of lease on the ground that B has violated cancelled the sale and wrote Bernie, informing him that his payments are forfeited
the terms and conditions of the lease agreement. in its favor.
If you were the judge, how would you decide the issues in the case? Was the action of DEVLAND proper? Explain.
B'S SUBLEASE TO C IS VALID because the contract did not contain any NO, the action of DEVLAND is not proper. Under Section 23 of Presidential
express prohibition for the sublease. Under the Civil Code, the lessee may sublet the Decree No. 957, otherwise known as the Subdivision and Condominium Buyer's
thing leased, in whole or in part, when the contract of lease does not contain any Protection Decree, non-payment of amortizations by the buyer is justified if non-
express prohibition. Moreover, although the original period of two years for the lease payment is due to the failure of the subdivision owner to develop the subdivision
contract has expired, the lease continued with the acquiescence of the lessor during project according to the approved plans and within the limit for complying.
the third year. Hence, there has been an implied renewal of the contract of lease. A's
action for rescission should not prosper on this ground.

C'S ASSIGNMENT OF THE SUBLEASE TO D IS NOT VALID. Under Art. 1649, 7. Liability; Airline Company; Non-Performance of an Obligation (2005)
of the Civil Code, the lessee cannot assign the lease without the consent of the lessor,
unless there is a stipulation to the contrary. Since no consent was obtained and there Dr. and Mrs. Almeda are prominent citizens of the country and are frequent travelers
is no such stipulation in the contract. If the law prohibits assignment of the lease abroad. In 1996, they booked round-trip business class tickets for the Manila-Hong
without the consent of the lessor, then all the more would the assignment of a Kong-Manila route of the Pinoy Airlines, where they are holders of Gold Mabalos
sublease be prohibited without such consent. This is a violation of the contract and is Class Frequent Flier cards. On their return flight, Pinoy Airlines upgraded their tickets
a valid ground for rescission by A. to first class without their consent and, inspite of their protestations to be allowed
to remain in the business class so that they could be with their friends, they were
5. Contract of Option; Elements (2005) told that the business class was already fully booked, and that they were given
priority in upgrading because they are elite members/holders of Gold Mabalos Class
Marvin offered to construct the house of Carlos for a very reasonable price of cards. Since they were embarrassed at the discussions with the flight attendants,
P900,000.00, giving the latter 10 days within which to accept or reject the offer. On they were forced to take the flight at the first class section apart from their friends
the fifth day, before Carlos could make up his mind, Marvin withdrew his offer. who were in the business class. Upon their return to Manila, they demanded a
written apology from Pinoy Airlines. When it went unheeded, the couple sued Pinoy
What is the effect of the withdrawal of Marvin's offer?
Airlines for breach of contract claiming moral and exemplary damages, as well as
The withdrawal of Marvin had the effect of extinguishing the offer. The attorney's fees.
withdrawal of Marvin’s offer is valid because there was no consideration paid for the
Will the action prosper? Give reasons.
option. Marvin may withdraw the offer at any time before acceptance of the offer.
Yes, the action will prosper since Pinoy Airlines breached its contract of
Article 1324 of the Civil Code provides that when the offeror has allowed
carriage by upgrading the seat accommodation of the Almedas without their
the offeree a certain period to accept, the offer may be withdrawn at any time before
consent. Jurisprudence provides that when an airline issues ticket to a passenger
acceptance by communicating such withdrawal, except when the option is founded
confirmed on a particular flight, a contract of carriage arises and the passenger
upon consideration, something paid or promised. In this case Marvin can validly
expects that he would fly on that day. When the airline deliberately overbooked, it
withdraw and communicate such withdrawal of the offer at anytime before
took the risk of having to deprive some passengers of their seat in case all of them
acceptance of the offer by Carlos except when anchored upon a consideration. Since
would show up. The Civil Code entitles the person to recover damages due to the non-
there was no consideration in the offer, the option contract had not been perfected,
performance of an obligation. In this case, spouses Almeda had a booked roundtrip
 business class ticket with Pinoy Airlines. When their tickets were upgraded to first In case of doubt, the Deed of Sale should be considered as a loan with mortgage, because this
class without their consent, Pinoy Airlines breached the contract. In case of juridical relation involves a lesser transmission of rights and interests.
overbooking, airline is in bad faith. Hence being in bad faith, spouses Almeda are
entitled to damages. It is further established that when doubt exists as to the true nature of the parties’
transaction, courts must construe such transaction purporting to be a sale as an equitable
mortgage, as the latter involves a lesser transmission of rights and interests over the
8. Equitable Mortgage vs. Sale (2005) property in controversy.34 Thus, in several cases, the Court has not hesitated to declare a
purported contract of sale to be an equitable mortgage based solely on one of the
On July 14, 2004, Pedro executed in favor of Juan a Deed of Absolute Sale over a enumerated circumstances under Article 1602.
parcel of land covered by TCT No. 6245. It appears in the Deed of Sale that Pedro
received from Juan P120,000.00 as purchase price. However, Pedro retained the
owner's duplicate of said title. Thereafter, Juan, as lessor, and Pedro, as lessee, An equitable mortgage arises from a transaction, regardless of its form, which results into a
executed a contract of lease over the property for a period of one (1) year with a security, or an offer or attempt to pledge land as security for a debt or liability. Its essence is
monthly rental of Pl,000.00. Pedro, as lessee, was also obligated to pay the realty the intent of the parties to create a mortgage, lien or charge on the property sufficiently
taxes on the property during the period of lease. Subsequently, Pedro filed a described or identified to secure an obligation, which intent must be clearly established in
complaint against Juan for the reformation of the Deed of Absolute Sale, alleging order that such a mortgage may exist.
that the transaction covered by the deed was an equitable mortgage. In his verified
answer to the complaint, Juan alleged that the property was sold to him under the
Deed of Absolute Sale, and interposed counterclaims to recover possession of the
property and to compel Pedro to turn over to him the owner's duplicate of title.

Resolve the case with reasons.

I will resolve the case in favor of Pedro.

Despite the property being subject of a Deed of Absolute Sale, it is actually one of an
equitable mortgage. The facts and circumstances that Pedro retained possession of
the Owner's Duplicate Copy of the Certificate of Title; that he remained in possession
of the land as lessee; that he bound himself to pay the realty taxes during the period
of lease, are matters collectively and strongly indicating that the Deed of Absolute
Sale is an equitable mortgage.

The presumption of equitable mortgage under Article 1602 of the Civil

Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the
following cases:
(1) When the price of a sale with right to repurchase is unusually inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another instrument
extending the period of redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of the parties is
that the transaction shall secure the payment of a debt or the performance of any other
obligation.