Junior Philippine Institute of Public Accountants – Region III

Philippine Business Law Questions

EASY 1
Which of the following statement is false?

I. Contracts must bind both contracting parties and its validity or compliance cannot be
left to the will of one of them. This is the principle of relativity of contracts.
II. Contracts are perfected by mere consent of the contracting parties. This is the principle
of obligatory force of contracts.

ANSWER: I and II

The first sentence refers to the principle of obligatory force of contracts.

The second sentence refers to the principle that contracts are consensual in nature.

EASY 2
Which of the following is not considered as quasi-contract?

I. Solutio Indebiti
II. Negotiorum gestio
III. When the third person with the consent of the debtor pays the debt
IV. Reimbursement due the person who saved the property during calamity without the
knowledge of the owner

ANSWER: III only

Reference can be made from TITLE XVII of the Civil Code EXTRA-CONTRACTUAL OBLIGATIONS,
CHAPTER 1 Quasi-contracts includes section for Negotiorum gestio (section 1), Solutio Indebiti
(section 2) and Other quasi-contracts (section 3).

Item IV takes the nature of Quasi contract under the purview of what is called Negotiorum Gestio.

Item III is not a quasi-contract because the same has been agreed upon there being the presence of
consent which makes it a contract.

Article 1305 of the Civil Code provides that “A contract is a meeting of minds between two persons
whereby one binds himself, with respect to the other, to give something or to render some service.”

ELIMINATION ROUND: EASY 3

Acceptance of an offer made by letter or telegram shall bind the offeror from the time:

I. the offeree has knowledge of the offer

II. the offeree sent his acceptance
III. the acceptance is communicated
IV. the offeror made the offer

ANSWER: III

Article 1319 of the Civil Code provides that “Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the contract. The offer must be
certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer.

Acceptance made by letter or telegram does not bind the offerer except from the time it came to his
knowledge. The contract, in such a case, is presumed to have been entered into in the place where
the offer was made.”

The above article presupposes that acceptance shall only take place when the same has come to the
knowledge of the offeror and is only coming unto him if the same has been communicated to him.
EASY 4
A contract of sale whereby the seller acquires the right to repurchase the object of the sale from the
buyer within a certain period agreed upon:

I. Equitable Mortgage
II. Legal Redemption
III. On Sale or Return
IV. Conventional Redemption

ANSWER: IV

Article 1601 of the Civil Code provides that “Conventional redemption shall take place when the
vendor reserves the right to repurchase the thing sold, with the obligation to comply with the provisions
of article 1616 and other stipulations which may have been agreed upon.

EASY 5
This is not an implied warranty in a contract of sale:

I. Right to sell the thing at the time of perfection of the contract

II. Reasonably fit for the purpose they are acquired
III. Merchantable Quality
IV. Free for charges or encumbrances not declared or known to the buyer

ANSWER: I

Article 1547 of the Civil Code provides that “In a contract of sale, unless a contrary intention appears,
there is:

(1) An implied warranty on the part of the seller that he has a right to sell the thing at the time when the
ownership is to pass, and that the buyer shall from that time have and enjoy the legal and peaceful
possession of the thing.”

Article 1562 of the Civil Code also provides that “In a sale of goods, there is an implied warranty or
condition as to the quality or fitness of the goods, as follows:

(1) Where the buyer, expressly or by implication, makes known to the seller the particular purpose for
which the goods are acquired, and it appears that the buyer relies on the seller's skill or judgment
(whether he be the grower or manufacturer or not), there is an implied warranty that the goods shall be
reasonably fit for such purpose;

(2) Where the goods are brought by description from a seller who deals in goods of that description
(whether he be the grower or manufacturer or not), there is an implied warranty that the goods shall be
of merchantable quality.”

SUBSECTION 2. Warranty Against Hidden Defects of or Encumbrances Upon the Thing Sold

Article 1561 of the Civil Code provides “The vendor shall be responsible for warranty against the
hidden defects which the thing sold may have, should they render it unfit for the use for which it is
intended, or should they diminish its fitness for such use to such an extent that, had the vendee been
aware thereof, he would not have acquired it or would have given a lower price for it; but said vendor
shall not be answerable for patent defects or those which may be visible, or for those which are not
visible if the vendee is an expert who, by reason of his trade or profession, should have known them.”

The answer would only be I since; the same has been stated expressly as there should be the right
when the ownership is to pass, not at the exact time of perfection of the contract.

AVERAGE 1
The following are the elements of both contract of pledge and mortgage, except:
 I. Pledgor or mortgagor must be the absolute owner
II. Pledgor or mortgagor must have free disposal of the thing pledged.
III. The thing pledged or mortgaged may be appropriated if the debtor cannot pay.
IV. Pledge and mortgage are accessory contracts.

ANSWER: III

Article 2085 of the Civil Code provides that “The following requisites are essential to the contracts of
pledge and mortgage:

(1) That they be constituted to secure the fulfillment of a principal obligation;

(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;

(3) That the persons constituting the pledge or mortgage have the free disposal of their property, and
in the absence thereof, that they be legally authorized for the purpose.

Third persons who are not parties to the principal obligation may secure the latter by pledging or
mortgaging their own property.”

There being no express provision from the civil code that pledge and mortgage are accessory
contracts, the same may be the implication of the (1) above, since pledge and mortgage must be
constituted only to secure the fulfillment of a principal obligation. Pledge and mortgage are contracts
which are accessory which arise due to the institution of a principal contract which (1) states above.

Article 2088 of the Civil Code provides further that “The creditor cannot appropriate the things given by
way of pledge or mortgage, or dispose of them. Any stipulation to the contrary is null and void.”

AVERAGE 2
Y sold his horse to Z for P50, 000. No payment has yet been made and the sales document does not
provide the date of delivery. Before delivery and payment the horse gave birth to a baby horse, who is
has the right to the said baby horse?

I. Z, because it was born after the perfection of the contract

II. Y, because Z hasn’t paid yet
III. Y, because it was born before the obligation to deliver the horse arise
IV. Z, provided he is to pay additional amount

ANSWER: I

Under Article 1521 of the Civil Code, “Whether it is for the buyer to take possession of the goods or of
the seller to send them to the buyer is a question depending in each case on the contract, express or
implied, between the parties. Apart from any such contract, express or implied, or usage of trade to the
contrary, the place of delivery is the seller's place of business if he has one, and if not his residence;
but in case of a contract of sale of specific goods, which to the knowledge of the parties when the
contract or the sale was made were in some other place, then that place is the place of delivery.

Where by a contract of sale the seller is bound to send the goods to the buyer, but no time for sending
them is fixed, the seller is bound to send them within a reasonable time.

Sale is a reciprocal contract which imposes parallel obligations and rights among the buyer and the
seller. Since there is no fixing of time, the obligation to deliver arises as the parties entered into the
contract. Stretching the discussion further, the right of the seller in this case is to receive payment but
its obligation is to deliver. Conversely, the right of the buyer is to demand the delivery consequently
making him obligated to pay the reasonable price of the article thereof. As regards, the fruit, since the
in this case, the buyer awaits the delivery, making him in essence a creditor in this point of view. The
provision of the Law below applies.

Article 1164 of the Civil Code provides that “The creditor has a right to the fruits of the thing from the
time the obligation to deliver it arises. However, he shall acquire no real right over it until the same has
been delivered to him. (1095)”

Based on the foregoing, the answer should be I.

AVERAGE 3
A sold her specific car to B for P200, 000 payable in 5 equal installments. A delivered the car to B but
a mortgage was constituted on the car to answer for the unpaid installments. B paid the first 2
installments but failed to pay the last 3 installments. A foreclosed the mortgaged property and sold it at
public auction for P100, 000. Which of the following is not correct?

I. A can recover from B the balance of P 20,000 even if there is no stipulation

II. A can recover from B the balance of P20,000 only if there is stipulation
III. A cannot recover the deficiency except if there is stipulation
IV. A cannot recover the deficiency even if there is stipulation

ANSWER: I, II and III

Article 1484 of the Civil Code provides that “In a contract of sale of personal property the price of
which is payable in installments, the vendor may exercise any of the following remedies:

(1) Exact fulfillment of the obligation, should the vendee fail to pay;

(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;

(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's
failure to pay cover two or more installments. In this case, he shall have no further action against the
purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void.
(1454-A-a)

Applying (3) of the above article, there can no longer be recovery on the part of A on the deficiency he
suffered even if the same has been stipulated. Because any agreement or stipulation to that effect is
void.

AVERAGE 4
O, the owner of a Xerox Machine, leased it to L, at a rental of P4, 000 a month for a period of one year
with option to buy the said machine at the end of the year for P80, 000, to be paid by applying the
rentals, so that L needs only to pay P 32,000. L failed to pay rentals for the 4th, 5th and 6th months so
that O terminated the lease and repossessed the machine, then sued L for the unpaid rentals of three
months or for the amount of P12, 000. Up to what amount is L liable?

ANSWER: 0

Article 1484 of the Civil Code provides that “In a contract of sale of personal property the price of
which is payable in installments, the vendor may exercise any of the following remedies:

(1) Exact fulfillment of the obligation, should the vendee fail to pay;

(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;

(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's
failure to pay cover two or more installments. In this case, he shall have no further action against the
purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void.
(1454-A-a)

Article 1485 of the Civil Code provides further that “The preceding article shall be applied to contracts
purporting to be leases of personal property with option to buy, when the lessor has deprived the
lessee of the possession or enjoyment of the thing. (1454-A-a)”

Because of the application of Article 1485 on the case at hand, the same shall therefore be subjected
to the provisions of the preceding article 1484 (3). Since L, in this case the purchaser, was deprived of
the possession or enjoyment of the thing leased, the vendor shall have no further action against
purchaser to recover any unpaid balance of the price. Thus, it can be assumed that L is no longer
liable to any unpaid balance, making his liability 0.

AVERAGE 5
In two separate documents signed by A, he “obligated” himself each to B and C, thus:

“To B, my true love, I obligate myself to pay you my one and only car when I feel I like it. “ and
“To C, my true sweetheart, I obligate myself to pay you the P 1M I owe you when I feel I like it.”

In which of the two obligations is A liable?

I. A is liable to B because his written promise to give his car makes it enforceable
II. A is not liable to B because the obligation is void being one with a void potestative
condition
III. A is liable to C because the obligation is one with a suspensive condition which is valid.
IV. A is liable to C because the obligation is one with a period which depends upon the will
of the debtor.

ANSWER: IV

First, the document signed by A which pertains to B, is not a valid obligation because the same is
subject to a suspensive condition which is potestative in nature. The instrument therefore doesn’t
make A liable to B. Thereby, rendering Item I not the possible answer. The provision below amplifies
this explanation.

Article 1182 of the Civil Code provides that “When the fulfillment of the condition depends upon the
sole will of the debtor, the conditional obligation shall be void. If it depends upon chance or upon the
will of a third person, the obligation shall take effect in conformity with the provisions of this Code.
(1115)”

Second, the document signed by A which pertains to C, is a valid obligation, making A liable to C
under the circumstances. However, the same obligation is subject to a period.

Article 1193 of the Civil Code provides that “Obligations for whose fulfillment a day certain has been
fixed, shall be demandable only when that day comes.

Obligations with a resolutory period take effect at once, but terminate upon arrival of the day certain.

A day certain is understood to be that which must necessarily come, although it may not be known
when.

If the uncertainty consists in whether the day will come or not, the obligation is conditional, and it shall
be regulated by the rules of the preceding Section. (1125a)”

The timing of payment of an obligation although not mentioned expressly must necessarily come,
therefore making the obligation in the second statement above subject to a period.

Based on the foregoing rationale, Item III can’t be the possible answer.

Among II and IV the best answer would be IV since; II is not a responsive answer to the question at
hand.

DIFFICULT 1
A sold to B a motor vehicle for P 1.2M to be paid in twelve equal monthly installments starting on the
15th of February 2014. To secure the payment of the car, B executed a chattel mortgage on the
subject motor vehicle and furnished a surety bond issued by C. B failed to pay two installments. A
went after the surety but was able to obtain only ¾ of the total amount still due from B. Can A still
collect the deficiency from B?
 I. A can still recover the deficiency from B because the amount received from the surety was
only payment pro tanto of the obligation
II. A can still foreclose the chattel mortgage on the car for the deficiency.
III. A cannot recover the deficiency anymore applying the Recto Law, that is, A cannot
maintain an action for deficiency.
IV. A can still recover the deficiency after he forecloses the chattel mortgage on the vehicle.
V. A cannot recover applying the principle of “Nemo cum alterius detriment locupletari potest”

ANSWER: I

Article 1484 of the Civil Code provides that “In a contract of sale of personal property the price of
which is payable in installments, the vendor may exercise any of the following remedies:

(1) Exact fulfillment of the obligation, should the vendee fail to pay;

(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;

(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's
failure to pay cover two or more installments. In this case, he shall have no further action against the
purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void.
(1454-A-a)

Take note that the list above is mutually exclusive, meaning when one of the available recourse has
been chosen by the vendor; he cannot further exercise the other rights as stated. So when A chooses
to went after the Surety (C), what he did is to exact the fulfillment of the obligation of B which renders
the other remedies like cancellation (2 above) and foreclosure (3 above) unavailable as further action.
Thereby removing Items II, III and IV in the list of possible answer.

This transforms the characteristics of A, from a Seller with available rights, to a Creditor who is
exacting the fulfillment of obligation of B. Hence, all the rights available to a creditor may now be
exercised by A.

Invoking the provision below, the payment made by the surety is not an indication of the insolvency of
the debtor, collection proceedings until the exhaustion of all the leviable assets of the debtor may still
commence, of course needless to say, not thru the alternative remedies of the vendor stated above.

Article 2047 of the Civil Code “By guaranty a person, called the guarantor, binds himself to the creditor
to fulfill the obligation of the principal debtor in case the latter should fail to do so.

If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3,
Title I of this Book shall be observed. In such case the contract is called a suretyship. (1822a)”

Item V is just an additional choice for distraction purposes.

DIFFICULT 2
Which of the following instruments is negotiable?

I. “I promise to pay B or order P20, 000 if he will pass the CPA board exam on Oct. 2014.
(Sgd. A)
II. “I promise to pay B or order P20, 000 in four installments.” (Sgd. A)
III. “I promise to pay B or order P20, 000, 30 days before the death of his father”. (Sgd. A)
IV. “I promise to pay B P20, 000. (Sgd. A)
V. “Good to B or order, P20, 000” (Sgd. A)
VI. “I hereby authorize you to pay B or order 20,000” (Sgd. A)
VII. “I promise to pay B or order P20, 000 worth in sugar”. (Sgd. A)
VIII. “I promise to pay B or order P20, 000 on May 25. (Sgd. A)

ANSWER: V only
Section 1 of the Negotiable Instruments Law refers to the essential requisites to make an instrument
negotiable.

Form of Negotiable Instruments. — An instrument to be negotiable must conform to the following

requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated
therein with reasonable certainty.

Instrument I and VI are not negotiable since those are not compliant to (b) above being both
conditional.

Instrument III and VIII are not negotiable since those are not compliant to (c) above being both are not
payable on a determinate future time.

Instrument II and VII are not negotiable since those are not compliant to (b) above being both are
payable in sum certain in money.

Instrument IV is not negotiable since this is not compliant to (d) above lacking that it should be payable
to order or bearer.

The only instrument which is negotiable is the one falling under V. Mere use of the word Good doesn’t
make it non-negotiable under Section 10 of the same law which is amplified below.

Section 10 of the Negotiable Instruments Law

Terms, When Sufficient — The instrument need not follow the language of this Act, but any terms are
sufficient which clearly indicate an intention to conform to the requirements hereof.

DIFFICULT 3
To which of the following instances will there be imposition of joint liability?

I. Obligations arising from torts.

II. Obligations of bailees in commodatum.
III. Liability of principals to their common agent.
IV. Obligations in favor of partnership suppliers by virtue of sales contract with regard to
each partner.
V. Obligations in favor of a partnership client for return of deposits misappropriated by one
of the partners.
VI. Obligations in favor of a pedestrian hit by the delivery van driven by one of the partners
in the course of partnership business.

ANSWER: IV only

Article 1207 of the Civil Code provides that “The concurrence of two or more creditors or of two or
more debtors in one and the same obligation does not imply that each one of the former has a right to
demand, or that each one of the latter is bound to render, entire compliance with the prestation. There
is a solidary liability only when the obligation expressly so states, or when the law or the nature of the
obligation requires solidarity. (1137a)

Article 1822 of the Civil Code provides that “Where, by any wrongful act or omission of any partner
acting in the ordinary course of the business of the partnership or with the authority of his co-partners,
loss or injury is caused to any person, not being a partner in the partnership, or any penalty is
incurred, the partnership is liable therefor to the same extent as the partner so acting or omitting to act.
(n)”

Article 1823 of the Civil Code provides further that “The partnership is bound to make good the loss:
(1) Where one partner acting within the scope of his apparent authority receives money or property of
a third person and misapplies it; and

(2) Where the partnership in the course of its business receives money or property of a third person
and the money or property so received is misapplied by any partner while it is in the custody of the
partnership. (n)

Moreover, Article 1824 of the Civil Code provides that “All partners are liable solidarily with the
partnership for everything chargeable to the partnership under articles 1822 and 1823. (n)

Items I, V and VI are cases where the law imposes solidarity among partners.

Article 1945 of the Civil Code provides that “When there are two or more bailees to whom a thing is
loaned in the same contract, they are liable solidarily. (1748a).”

The above provision makes choice II a case where the law also requires bailees to have solidary
liability among them.

Article 1915 of the Civil Code provides that “If two or more persons have appointed an agent for a
common transaction or undertaking, they shall be solidarily liable to the agent for all the consequences
of the agency. (1731).”

The above provision also imposes solidary liability to principals with common agent.

Again from Article 1207, since solidarity is not presumed and may only be drawn under strict
circumstances as stated above, transactions entered into by partners which are incidental to transact
the business of a partnership can’t impose solidary liability among those partners. Henceforth, item IV
is the only answer.

DIFFICULT 4
The note reads as follows:
I promise to pay B or order P200,000, 30 days after date. Sgd. A. The above promissory note was
issued by A to B on Feb. 8, 2013 for the Lancer car sold by B to A. A few days later, Feb. 15, 2013, A
was deprived of the car because it turned out to be a stolen car and the true owner was able to
recover it from A. On Feb. 25, 2013, B negotiated the promissory note to C. Terms- 50% payable on
Feb. 25, 2013 and the balance of P100,000 payable on Feb. 28, 2013, C paid the P100,000 on Feb.
25, 2013 as agreed upon. On Feb 27, 2013, C learned of the unlawful consideration between A and B.
Despite such knowledge, C paid the P100,000 balance on Feb. 28, 2013. On maturity of the
instrument, how much, if any, can C collect from A?

ANSWER: P100,000.00

C can only collect P100,000.00 from A, because A can setup a defense against C, which is the
illegality of the consideration between him and B, right after C learned of the infirmity on the
instrument. C as far as the law is concerned is no longer a holder in due course to which personal
defenses can be used. Thus being not a holder in due course anymore, the following rights below
which are available to a holder in due course can’t be invoked by C.

SECTION 57 of the Negotiable Instruments Law

Rights of Holder in Due Course. — A holder in due course holds the instrument free from any defect of
title of prior parties and free from defenses available to prior parties among themselves, and may
enforce payment of the instrument for the full amount thereof against all parties liable thereon.

However, to the extent of P100,000 which is paid by C when he is still a holder in due course not
knowing any defect on the instrument, recovery of such may still commence against A. This is
amplified by the provision below.
SECTION 54 of the Negotiable Instruments Law

Notice Before Full Amount Paid. — Where the transferee receives notice of any infirmity in the
instrument or defect in the title of the person negotiating the same before he has paid the full amount
agreed to be paid therefor, he will be deemed a holder in due course only to the extent of the amount
theretofore paid by him.

DIFFICULT 5
A, B and C are best friends. After graduating in BSA, they all enrolled in the same review school. After
the first preboard, A got his grades, and was demotivated to see his grades on Auditing Theory and
Theory of accounts. So he went to B, to borrow B’s book in Auditing Theory, B agreed and told him to
take good care of the book because the same is yet to be read by B. After seeing B, A then went to C
to borrow C’s book in Theory of Accounts. C agreed to the lending of the book; however C told A to
take good care of the book, since C hasn’t read it yet and it costs him PhP 400.00, at this juncture,
there was appraisal.

Unfortunately, on his way home, A engaged armed holdapers and they demanded the bag of A. A due
to his fear, surrendered the bag which at that time contained the books he borrowed from B and C.
The books were gone due to fortuitous event.

Applying the provision of Article 1942 of the Civil Code, to whom is A liable?

ANSWER: TO C ONLY

A is not liable to be B. But A can be held liable to C. Under Article 1942, the bailee is liable for the loss
of the thing, even if through fortuitous event, if the thing loaned has been delivered with appraisal of its
value. The book given by C, as the problem suggest, was appraised. Therefore the latter sentence
should apply. However, in case of the book borrowed from B, the provision is not applicable.
Therefore, applying “RES PERIT DOMINO” (the thing perishes with the owner), the loss of the book
from B shall be borne by the owner, in this case B.

CLINCHER 1
Joy borrowed PhP 50,000.00 from Sadness. The obligation bears interest of 10% per annum. To
secure the debt, Joy agreed with Sadness that the fruits from the agricultural lot of Joy shall answer for
the interest and the principal obligation. Assuming the form required by the law was complied with, the
contract entered into between Joy and Sadness for the application of the fruits of the lot to the interest
and principal obligation is known as:

ANSWER: ANTICHRESIS

A contract whereby the creditor acquires the right to receive the fruits of an immovable of his debtor,
with the obligation to apply them to the payment of the interest, and thereafter to the principal of his
credit. (Article 2132)

CLINCHER 2
Legal compensation shall not be proper in the following cases, except?

I. Commodatum
II. Civil liability arising from a criminal offense
III. Gratuitous support
IV. Deposit

ANSWER: NONE OF THE ABOVE

Following are instances when legal compensation cannot take place:

1. When one of the debts arises from a deposit (Article 1287). A deposit is a contract where a
person receives a thing belonging to another for safely keeping it and of returning the same
 (Article 1962).
2. When one of the debts arises from the obligations of a bailee in commadatum. (Article 1287)
3. When one of the debts arises because of a claim for support by gratuitous title. (Article 1287)
4. When one of the debts consists in civil liability arising from a penal offense. (Article 1288)

CLINCHER 3
These are obligations which are not based on positive law but on equity and natural law. Also these do
not grant a right of action to enforce their performance, but after voluntary fulfillment by the obligor,
they authorize the retention of what has been delivered or rendered by reason thereof.

ANSWER: NATURAL OBLIGATIONS

Reference: Article 1423

CLINCHER 4
One early morning, A was awakened by the noise outside. So he suddenly stood up to see what is
happening outside. He was surprised to see that the houses of his neighbors were on fire. But their
houses were on the opposite side of the street where A’s house stand, therefore A’s house is safe. At
the time, A’s neighbors were crying for help and were immediately vacating their places putting their
things on the open garage of A without his permission. At this juncture, a contract was created by
operation of law. What contract is it?

ANSWER: CONTRACT OF DEPOSIT

Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to another,
with the obligation of safely keeping it and of returning the same. If the safekeeping of the thing
delivered is not the principal purpose of the contract, there is no deposit but some other contract.

Applying the provision above, even though there was no permission on side of A, he becomes a
depositary by virtue of necessary deposits. A legal tie was created even in the absence of express
assent from A because there was calamity.

CLINCHER 5
On August 15, 2015, A borrowed the car of B with the stipulation that the same shall be returned by A
on August 30, 2015. B delivered his car to A on the same day. On the early morning of August 16,
2015, noises outside the house of A awakened him and was surprised to see his neighbors panicking
because of a fire which broke out of his garage where the borrowed car was placed.

Unluckily, the garage from which the fire broke out was the same garage which his wife used to clean
during mornings. A was rattled when he realized this, and rushed to the garage, only to find out that
his wife was nearly burned and can’t run due to cramps. At that time, he can only save one among the
car he borrowed, the jeepney he owns and his wife. He chose to save his wife therefore the car and
jeepney burnt into ashes.

Based on the foregoing facts, is A liable to B for the loss of the borrowed car under Article 1942 of the
Civil Code?

ANSWER: NO

A is not liable under Article 1942 (5), because it is not his thing that he saved. It is his wife. It is life that
has been saved.

Art. 1942. The bailee is liable for the loss of the thing, even if it should be through a fortuitous event:

1. If he devotes the thing to any purpose different from that for which it has been loaned;
2. If he keeps it longer than the period stipulated, or after the accomplishment of the use
for which the commodatum has been constituted;
3. If the thing loaned has been delivered with appraisal of its value, unless there is a
stipulation exemption the bailee from responsibility in case of a fortuitous event;
4. If he lends or leases the thing to a third person, who is not a member of his household;
5. If, being able to save either the thing borrowed or his own thing, he chose to save the
latter.