QUIZ NO.

1
(Obligations – General Provisions [Art. 1156-1162]
January 16, 2018

I
Sometime in 1989, the general membership of Makati Stock Exchange, Inc. (MKSE) passed a
resolution amending its Articles of Incorporation which among others granted Miguel Campos
(Campos) the position of Chairman Emeritus for life to which he was allowed to participate in
the Initial Public Offerings (IPOs) of corporations registered with MKSE for being also an active
member thereof. Such right enjoyed by Campos to participate in IPOs is also a right given to all
the other members. IPOs are shares of corporations offered for sale to the public prior to the
listing in the trading floor. However, on June 3, 1993, during a meeting of the Board of Directors
of MKSE, they passed a resolution to stop giving Campos the IPOs he is entitled to. Campos
filed a petition with the SEC against MKSE and its board of directors to nullify the said
resolution. However, MKSE and its board of directors filed a motion to dismiss on the ground
that the petition failed to state a cause of action. Did the petition failed to state a cause of action?
(10%)

Answer: Makati Stock Exchange, Inc. vs. Campos, G.R. No. 138814, April 16, 2009

Yes. A cause of action is the act or omission by which a party violates a right of another. A
complaint states a cause of action where it contains three essential elements of a cause of action,
namely: (1) the legal right of the plaintiff, (2) the correlative obligation of the defendant, and (3)
the act or omission of the defendant in violation of said legal right. If these elements are absent,
the complaint becomes vulnerable to dismissal on the ground of failure to state a cause of action.

There is no question that the Petition in SEC Case No. 02-94-4678 asserts a right in favor of
respondent, particularly, respondents alleged right to subscribe to the IPOs of corporations listed
in the stock market at their offering prices; and stipulates the correlative obligation of petitioners
to respect respondents right, specifically, by continuing to allow respondent to subscribe to the
IPOs of corporations listed in the stock market at their offering prices.

Right and obligation are legal terms with specific legal meaning. A right is a claim or title to an
interest in anything whatsoever that is enforceable by law. An obligation is defined in the Civil
Code as a juridical necessity to give, to do or not to do. For every right enjoyed by any person,
there is a corresponding obligation on the part of another person to respect such right. Thus,
Justice J.B.L. Reyes offers the definition given by Arias Ramos as a more complete definition:

An obligation is a juridical relation whereby a person (called the creditor)

may demand from another (called the debtor) the observance of a determinative
conduct (the giving, doing or not doing), and in case of breach, may demand
satisfaction from the assets of the latter.

The Civil Code enumerates the sources of obligations:

Art. 1157. Obligations arise from:

(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts.

Therefore, an obligation imposed on a person, and the corresponding right granted to

another, must be rooted in at least one of these five sources. The mere assertion of a right and

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claim of an obligation in an initiatory pleading, whether a Complaint or Petition, without
identifying the basis or source thereof, is merely a conclusion of fact and law. A pleading should
state the ultimate facts essential to the rights of action or defense asserted, as distinguished from
mere conclusions of fact or conclusions of law. Thus, a Complaint or Petition filed by a person
claiming a right to the Office of the President of this Republic, but without stating the source of
his purported right, cannot be said to have sufficiently stated a cause of action. Also, a person
claiming to be the owner of a parcel of land cannot merely state that he has a right to the
ownership thereof, but must likewise assert in the Complaint either a mode of acquisition of
ownership or at least a certificate of title in his name.

In the case at bar, although the Petition in SEC Case No. 02-94-4678 does allege respondents
right to subscribe to the IPOs of corporations listed in the stock market at their offering prices,
and petitioners obligation to continue respecting and observing such right, the Petition utterly
failed to lay down the source or basis of respondents right and/or petitioners obligation.

Respondent merely quoted in his Petition the MKSE Board Resolution, passed sometime in
1989, granting him the position of Chairman Emeritus of MKSE for life. However, there is
nothing in the said Petition from which the Court can deduce that respondent, by virtue of his
position as Chairman Emeritus of MKSE, was granted by law, contract, or any other legal
source, the right to subscribe to the IPOs of corporations listed in the stock market at their
offering prices.

A meticulous review of the Petition reveals that the allocation of IPO shares was merely alleged
to have been done in accord with a practice normally observed by the members of the stock
exchange, to wit:

IPOs are shares of corporations offered for sale to the public, prior to their listing
in the trading floor of the countrys two stock exchanges. Normally, Twenty-Five
Percent (25%) of these shares are divided equally between the two stock
exchanges which in turn divide these equally among their members, who pay
therefor at the offering price.

A practice or custom is, as a general rule, not a source of a legally demandable or enforceable
right. Indeed, in labor cases, benefits which were voluntarily given by the employer, and which
have ripened into company practice, are considered as rights that cannot be diminished by the
employer. Nevertheless, even in such cases, the source of the employees right is not custom, but
ultimately, the law, since Article 100 of the Labor Code explicitly prohibits elimination or
diminution of benefits.

There is no such law in this case that converts the practice of allocating IPO shares to MKSE
members, for subscription at their offering prices, into an enforceable or demandable right. Thus,
even if it is hypothetically admitted that normally, twenty five percent (25%) of the IPOs are
divided equally between the two stock exchanges -- which, in turn, divide their respective
allocation equally among their members, including the Chairman Emeritus, who pay for IPO
shares at the offering price -- the Court cannot grant respondents prayer for damages which
allegedly resulted from the MKSE Board Resolution dated 3 June 1993 deviating from said
practice by no longer allocating any shares to respondent.

II
Define obligation as defined by Arias Ramos as cited in the case of Makati Stock Exchange, Inc.
vs. Miguel Campos? (10%)

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An obligation is a juridical relation whereby a person (called the creditor) may demand from
another (called the debtor) the observance of a determinative conduct (the giving, doing or not
doing), and in case of breach, may demand satisfaction from the assets of the latter.
III
What are the essential elements of obligation as cited in the case of Ang Yu Asuncion vs. CA?
(10%)
Answer:
The obligation is constituted upon the concurrence of the essential elements thereof, viz:

a) The vinculum juris or juridical tie which is the efficient cause established by the various
sources of obligations (law, contracts, quasi-contracts, delicts and quasi-delicts);
b) the object which is the prestation or conduct; required to be observed (to give, to do or
not to do); and
c) the subject-persons who, viewed from the demandability of the obligation, are the active
(obligee) and the passive (obligor) subjects.

IV
X, of legal age, bought two vessels from B, the purchase price thereof being paid by C, X’s
father. Subsequently, differences arose between X and C. The latter brought action to recover the
vessels, he having paid the purchase price. Is there any obligation on the part of X to transfer the
ownership of the vessel to C? (10%)

Answer: De Leon, pp. 13-14

None. If any such obligation was ever created on the part of X, said obligation must arise from
law. But obligations derived from law are not presumed. Only those expressly determined in the
Civil Code or in special laws are demandable. (Art. 1158, NCC). Whatever right C may have
against X either for the recovery of the money paid or for damages, it is clear that such payment
gave him no title, either legal or equitable, to these vessels. (Martinez vs. Martinez, G.R. No.
858, January 23, 1903).

V
D borrowed money from C to be paid within a certain period, under the agreement that, if D fails
to pay at the expiration of said period, the house and lot described in the contract would be
considered sold for the amount of the loan. D failed to pay as promised. C brought action for the
delivery of the house and lot. Are both contracts valid and, should therefore be given effect?
(10%)

Answer: De Leon, pp. 18-19; Alcantara vs. Alinea, 8 Phil. 111 [1907]

Yes. The fact that both parties have agreed at the same time, in such a manner that the fulfillment
of the promise of sale would depend upon the non-payment or return of the amount loaned has
not produced any change in the nature and legal conditions of either contract, or any essential
defect which would nullify them.

As the amount loaned has not been paid and continues in possession of the debtor, it is only just
that the promise of sale be carried into effect, and the necessary instruments be executed. That
which is agreed to in a contract is law between the parties, and must be enforced.

Note: In the above case, the Court found no contract of mortgage, pledge, or antichresis was
entered into. (See Arts. 2088, 2137).

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 VI
X, a tax-exempt cooperative store, paid taxes to the City of Manila, believing that it was liable.
May X recover the payment? (10%)

Answer: De Leon, p. 24; Paras, p. 96; UST Cooperative Store vs. City of Manila, 15 SCRA 656
[1965]

Yes, because the payment is not considered voluntary in character. Clearly, the payment was
made under a mistake. (See 51 Am. Jur. 1023). The principle of solution Indebiti is applied. “Art.
2154, NCC. If something is received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises. (See also Philippine National Bank
vs. CA, 217 SCRA 347).

VII
Armando owns a row of residential apartments in San Juan, Metro Manila, which he rents out to
tenants. On 1 April 1991, he left for the United States without appointing any administrator to
manage his apartments such that uncollected rentals accumulated for three years. Amparo, a
niece of Armando, concerned with the interest of her uncle, took it upon herself to administer the
property. As a consequence, she incurred expenses in collecting the rents and in some instances,
even spent for necessary repairs to preserve the property. Is Armando obliged to reimburse
Amparo for the expenses? (Cite your basis). (10%)

Answer: Ulep, p. 7; Bar Problem (1995)

Yes. Negotiorum Gestio existed between Amparo and Armando. She voluntarily took charge of
the agency or management of the business or property of her uncle without any power from her
uncle whose property was neglected. She is called the gestor or the officious manager.

Art. 2144. Whoever voluntarily takes charge of the agency or management of the business or
property of another, without any power from the latter, is obliged to continue the same until the
termination of the affair and its incidents, or to require the person concerned to substitute him, if
the owner is in a position to do so. This juridical relation does not arise in either of these
instances:

(1) When the property or business is not neglected or abandoned;

(2) If in fact the manager has been tacitly authorized by the owner.

In the first case, the provisions of Articles 1317, 1403, No. 1, and 1404 regarding unauthorized
contracts shall govern. In the second case, the rules on agency in Title X of this Book shall be
applicable.

Art. 2150. Although the officious management may not have been expressly ratified, the owner
of the property or business who enjoys the advantages of the same shall be liable for obligations
incurred in his interest, and shall reimburse the officious manager for the necessary and useful
expenses and for the damages which the latter may have suffered in the performance of his
duties.

The same obligation shall be incumbent upon him when the management had for its purpose the
prevention of an imminent and manifest loss, although no benefit may have been derived.

VIII
Ollendorf, a needlework manufacturer, hired Abrahamson for two years, on the condition that for
five years, the latter should not engage in competitive needlework manufacture. After one year,
the latter left for reasons of health. He competed with his former employer, who now seeks to
restrain him from such competition. Abrahamson argues that the restriction is void, because it is
an unreasonable restraint of trade. Is Abrahamson correct? (10%)

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Answer: Paras, p. 92; Ollendorf vs. Abrahamson, 38 Phil. 585

No. The agreement was valid, and is a reasonable restraint, considering that it was only for five
years. Inasmuch as it is enforceable and has the rule of law between the parties, the defendant
can be properly restricted.

IX
X stole the car of Y. If X is convicted, what is the scope of his civil liability? (10%)

Answer: De Leon, pp. 27-28

The extent of the civil liability arising from crimes is governed by the Revised Penal Code and
the Civil Code. This civil liability includes:

a) Restitution
b) Reparation for the damage caused; and
c) Indemnification for consequential damages. (Art. 104, Revised Penal Code)

In the instant case, the court will order X:

1. To return the car (or to pay its value if it was lost or destroyed) – restitution;
2. To pay for any damage caused to the car – reparation for the damage caused; and
3. To pay such other damages suffered by Y as a consequence of the crime –
indemnification of consequential damages.

X
What are obligations without an agreement? Give five examples of situations giving rise to this
type of obligation. (10%)

Answer: Ulep, p. 18; Bar Problem (2007)

“Obligations without an agreement” are obligations that do not arise from contract such as those
arising from:

1. Delicts;
2. Quasi-delicts;
3. Solutio indebiti;
4. Negotiorum gestio and
5. All other obligations arising from law. (Answer by UP Law Center)

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