2013

#3

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.

ANSWER: B – Basilio has in his favor a REM and he should exhaust his legal remedies against Amador. (Art.
2058)

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 unjustand inequitable.

ANSWER: A- Art. 2126 The mortgage directly and immediately subjects the property upon which it is
imposed, whoever the possessor may be to the fulfillment of the obligation for whose security it was
constituted.

#4.

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 forall 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.

ANSWER: NO CORRECT CHOICE – in commodatum, the bailee has no right of retention Article 1944 the
bailee (Jose) has no right of retention even if it may be by reason of expenses, Article 1951 he can only
retain if he suffers damage by reason of a flaw or defect in the thing

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.

ANSWER: D – Commodatum is purely personal in nature (Article 1939) the bailee can neither lend
nor lease the object of the contract to a third person.

QUESTION VI. 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%)

(B) Lito's failure to pay led to the extra-judicial foreclosure of the mortgaged real property. Within a
year from foreclosure, Lito tendered a manager's check to Ferdie to redeem the property. Ferdie
refused to accept payment on the ground that he wanted payment in cash: the check does not
qualify as legal tender and does not include the interest payment. Is Ferdie's refusal justified? (4%)

SUGGESTED ANSWER: A) With respect to the loan, the same is both valid and enforceable
regardless of whether it is in a private or public document because 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. A loan is a contract which the law does not require to be in a
particular form in order that it may be valid or enforceable. However, with regard to the chattel
mortgage, since the law (Act 1508) requires an affidavit of good faith stating that the chattel
mortgage is supposed to stand as security for the loan, it is submitted that for validity of the
chattel mortgage, it must be in a public document. A real estate mortgage under the provisions of
Article 2125 requires that in order that a mortgage may be validly constituted that the document
in which it appears must be recorded. If it is not recorded, the mortgage is nevertheless valid and
binding between the parties. Hence, for validity both chattel and real estate mortgages must be in
a public document. But for purposes of enforceability, it is submitted that the form of the contract
whether in a public or private document would be immaterial. (Mobil Oil vs. Diocares 29 SCRA
656).
B) Ferdie’s refusal to accept the check on the ground that it does not qualify as legal tender is
correct because a check, whether a manager's check or ordinary check, is not legal tender, and an
offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt
by the obligee or creditor. (Philippine Airlines vs. CA and Amelia Tan – January 30, 1990) Mere
delivery of checks does not discharge the obligation under a judgment. The obligation is not
extinguished and remains suspended until the payment by commercial document is actually
realized (Art. 1249, Civil Code, par. 3). Also, redemption within the period allowed by law is not a
matter of intent but a question of payment or valid tender of full redemption price within the said
period. Whether the redemption is being made under Act 3135 or under the General Banking Law,
the mortgagor or his assignee is required to tender payment to make said redemption valid. (Heirs
of Quisumbing vs. PNB aand SLDC –G.R. No. 178242 January 20, 2009)

2014
#7
Due to the continuous heavy rainfall, the major streets in Manila became flooded. This compelled
Cris to check-in at Square One Hotel. As soon as Crisgot off from his Toyota Altis, the Hotel’s
parking attendant got the key of his car and gave him a valet parking customer’s claim stub. The
attendant parked his car at the basement of the hotel. Early in the morning, Cris was informed by
the hotel manager that his car was carnapped. (4%) (A) What contract, if any, was perfected
between Cris and the Hotel when Cris surrendered the key of his car to the Hotel’s parking
attendant? (B) What is the liability, if any, of the Hotel for the loss of Cris’ car?

SUGGESTED ANSWER: a) The contract between Cris and Square One Hotel is one of necessary
deposit. Deposit of effects made by travelers or guests in hotels or inns is considered a necessary
deposit. 2 This includes not only the personal effects brought inside the hotel premises but also
vehicles or animals and articles which have been introduced or placed in the annexes of the hotel.

b) In the case of Durban Apartments vs. Pioneer Insurance,3 the Supreme Court held the hotel
liable for the loss of the vehicle of the guest after its valet parking attendant parked the vehicle in
front of a bank near the hotel premises. The court ruled that the bank’s parking area became an
annex of the hotel when the management of the bank allowed the hotel to park vehicles there on
the night in question. The contract of deposit was perfected when the guest surrendered the keys
to his vehicle to the parking attendant and the hotel is under obligation of safely keeping and
returning it. Ultimately, Square One Hotel is liable for the loss of the vehicle.

2015
XVI

Donna pledged a set of diamond ring and earrings to Jane for P200,000.00 She was made to sign
an agreement that if she cannot pay her debt within six months, Jane could immediately
appropriate the jewelry for herself. After six months, Donna failed to pay. Jane then displayed the
earrings and ring set in her jewelry shop located in a mall. A buyer, Juana, bought the jewelry set
for P300,000.00.
a) Was the agreement which Donna signed with Jane valid? Explain with legal basis. (2%)

b) Can Donna redeem the jewelry set from Juana by paying the amount she owed Jane to Juana?
Explain with legal basis. (2%)

c) Give an example of a pledge created by operation of law. (2%)

SUGGESTED ANSWER: a) appropriate the jewelry upon default of Donna is considered pactum
commissorium and it is considered void by law. ( Article 2088)

b) No, Donna cannot redeem it from Juana because the pledge contract is between her and Jane.
Juana is not a party to the pledge contract. (Article 1311, Civil Code)
 c) One example of a pledge created by operation of law is the right of the depositary to retain the
thing deposited until the depositor shall have paid him whatever may be due to the depositary by
reason of the deposit. (1994) Another is the right of the agent to retain the thing which is the
object of the agency until the principal reimburses him the expenses incurred in the execution of
the agency. (Article 1914, Civil Code)

2016
XI

XI

Ellen entrusted her title over the lot where she is residing to Patrick, her nephew, for
safekeeping because of her poor eyesight. Patrick, a gambler, prepared a Special Power of Attorney
empowering him to mortgage the lot. Ellen's signature was forged. With the help of Julia who
represented herself as Ellen, Mega Bank granted a loan to Patrick secured by a mortgage on Ellen's lot.
Due to non-payment, Mega Bank foreclosed the mortgage and was declared the highest bidder. Title was
later registered in the name of the bank. When Ellen was notified that she should vacate the premises, she
filed a complaint to nullify the loan with mortgage, the auction sale and the title of Mega Bank on the
ground that the bank is not a mortgagee in good faith. Decide the case with reasons. (5%)

SUGGESTED ANSWER

I will decide in favor of Ellen. Banks, their business being impressed with public
interest, are expected to exercise more care and prudence than private individuals in their
dealings, even those involving registered lands. The highest degree of diligence is expected,
and high standards of integrity and performance are even required of it.

A mortgagee — usually, can rely on what appears on the certificate of title presented by
the mortgagor and an innocent mortgagee is not expected to conduct an exhaustive investigation
on the history of the mortgagor's title. This rule is, however, strictly applied against banking
institutions. Mega Bank cannot be considered a mortgagee in good faith as it failed to inspect
the disputed property when offered to it as security for the loan, which could have led it to
discover the forged Special Power of Attorney.

ALTERNATIVE ANSWER:
I will decide in favor of Ellen, the victim of a forged document. Section 52 of P.D. No.
1529 provides that after the entry of a decree of registration, any subsequent registration
procured by a forged deed shall be null and void, even if accompanied by the owner's duplicate
certificate of title. In this case, the registered owner, Ellen, did not lose her title, and
neither did the mortgagee, Mega Bank, acquire any right to the property (Joaquin v. Madrid,
106 Phil. 1060 [1960]). The bank was defrauded because it believed the imposter who had,
without authority, gained possession of Ellen's certificate

XII

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

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

As the RTC judge, decide the case with reasons. (5%)

SUGGESTED ANSWER:

I will decide in favor of Ariel and allow the reformation of the

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

2017

IVB
b. Distinguish commodatum from mutuum. (3%)

They are distinguished, as follows:

(1) As to subject matter: The subject matter of commodatum is ordinarily non-consumable while the
subject matter of mutuum is either money or consumable;

(2) As to compensation: Commodatum is essentially gratuitous while mutuum may be gratuitous or with a
stipulation to pay interest;

(3) As to right in subject matter: In commodatum, there is no transmission fo ownership of the thing
loaned while in mutuum, the borrower acquires ownership of the thing borrowed.

(4) As to duty of borrower: In commodatum, the same thing borrowed is required to be returned while in
mutuum, the borrower discharges himself, not by returning the identical thing loaned, but by paying its
equivalent in kind, quality and quantity. [Discussed in pp. 725-726, Vol. 1, Rabuya’s Civil Law Reviewer]

XV

Kevin signed a loan agreement with ABC Bank. To secure payment, Kevin requested his girlfriend Rosella
to execute a document entitled “Continuing Guaranty Agreement” whereby she expressly agreed to be
solidarily liable for the obligation of Kevin. Can ABC Bank proceed directly against Rosella upon Kevin’s
default even without proceeding against Kevin first? Explain your answer. (3%)

SUGGESTED ANSWER: Yes, ABC Bank may proceed directly against Rosella upon Kevin’s default even
without proceeding against Kevin first because Rosella is a surety after she bound herself solidarily with
the principal debtor. Notwithstanding the use of the word “guaranty” circumstances may be shown which
convert the contract into one of suretyship. Under the Civil Code, when the guarantor binds himself
solidarily with the principal debtor, the contract becomes one of suretyship and not of guaranty proper. In
a contract of suretyship, the liability of the surety is direct, primary and absolute. He is directly and equally
bound with the principal debtor. Such being the case, a creditor can go directly against the surety
although the principal debtor is solvent and is able to pay or no prior demand is made on the principal
debtor. [Basis: Article 2047, Civil Code; Ong v. PCIB, 448 SCRA 705; discussed in pp. 810-812, Vol. 2,
Rabuya’s Civil Law Reviewer] In this case, since Rosella is a surety, ABC Bank can go directly against her
even without proceeding against the principal debtor because the surety insures the debt, regardless of
whether or not the principal debtor is financially capable to fulfil his obligation.

XII. Saachi opened a savings bank account with Shanghainese Bank. He made an initial deposit of
PhP100,000. Part of the bank opening forms that he was required to sign when he opened the account
was a Holdout Agreement which provided that, should he incur any liability or obligation to the bank, the
bank shall have the right to immediately and automatically take over his savings account deposit. After he
opened his deposit account, the Shanghainese Bank discovered a scam wherein the funds in the account
of another depositor in the bank was withdrawn by an impostor. Shanghainese Bank suspected Saachi to
be. the impostor, and filed a criminal case of estafa against him. While the case was still pending with the
Prosecutor's office, the bank took over Saachi's savings deposit on the basis of the Holdout Agreement.

(a) What kind of contract is created when a depositor opens a deposit account with a bank?

(b) In this case, did the bank have the right to take over Saachi's bank deposit?

a.) The contract created when a depositor opens a deposit account with a bank is a simple loan or
mutuum. Article 1980 of the NCC provides fixed, savings, and current deposits of money in banks and
similar institutions shall be governed by the provisions of concerning simple loan or mutuum. When a
savings account is opened, a creditor-debtor relationship ensues with the depositor as the creditor and
the bank as the debtor.

b.) No, the bank had no right to take over Saachi’s bank deposit. The Hold over agreement states that the
right may be exercised by the bank only after the depositor incurs any liability to the bank. In this case, the
depositor is only suspected of estafa by another bank in the Prosecutor’s office. Absent a court order, the
bank cannot withhold the deposit of the depositor.
of title, and who then forged her signature to the deed of mortgage (De Lara v. Ayroso, 95 Phil. 185,
[1954/). It is not a mortgagee in good faith.