ATTY. JOHNSON A.H.
ONG, CPA, MBA
LAW1101 - Law on Obligations and Contracts
LECTURE NOTES
OBLIGATION
OBLIGATION – originate from the latin word obligatio,
means tying or binding.
Civil obligations - is a juridical necessity to give, to do or not
to do. It gives a right of action to compel their performance
➢ Juridical necessity to give, to do or not to do (1156)
➢ Right of action to compel their performance
➢ Right to enforce the obligation against the obligor in a
court of law in case of breach
ELEMENTS:
1. Active subject (obligee/creditor/lender/plaintiff/he who has
the right) – the one in whose favor the obligation is
constituted
2. Passive subject - obligor/debtor/borrower/defendant/he
who has the obligation) – the one who has the duty of
giving, doing or not doing
3. Object – prestation; the conduct which has to be observed
by the debtor/obligor
4. Vinculum Juris/ juridical tie /legal tie/ causa/ causa
debendi/ causa obligations – This arise form law, contract,
quasi contract, delict and quasi delict.
Natural obligations - not being based on positive law but on
equity and natural law, 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. (Art. 1423)
➢ Based on equity and natural law
➢ Duty not to recover what has voluntary been paid although
payment was no longer required.
➢ Basic understanding of right and wrong based on an
understanding of a right and wrong.
➢ Based on conscience
Illustration of Natural obligation
➢ When a right to sue upon a civil obligation has lapsed by
extinctive prescription, the obligor who voluntarily
performs the contract cannot recover what he has delivered
or the value of the service he has rendered. (1424)
➢ When without the knowledge or against the will of the
debtor, a third person pays a debt which the obligor is not
legally bound to pay because the action thereon has
prescribed, but the debtor later voluntarily reimburses the
third person, the obligor cannot recover what he has paid.
(1425)
➢ When a minor between eighteen and twenty-one years of
age who has entered into a contract without the consent of
the parent or guardian, after the annulment of the contract
voluntarily returns the whole thing or price received,
notwithstanding the fact the he has not been benefited
thereby, there is no right to demand the thing or price thus
returned. (1426)
➢ When a minor between eighteen and twenty-one years of
age, who has entered into a contract without the consent of
the parent or guardian, voluntarily pays a sum of money or
delivers a fungible thing in fulfillment of the obligation,
there shall be no right to recover the same from the obligee
who has spent or consumed it in good faith. (1427)
➢ When, after an action to enforce a civil obligation has
failed the defendant voluntarily performs the obligation, he
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1st Semester 2020-2021
cannot demand the return of what he has delivered or the
payment of the value of the service he has rendered.
(1428)
➢ When a testate or intestate heir voluntarily pays a debt of
the decedent exceeding the value of the property which he
received by will or by the law of intestacy from the estate
of the deceased, the payment is valid and cannot be
rescinded by the payer. (1429)
➢ When a will is declared void because it has not been
executed in accordance with the formalities required by
law, but one of the intestate heirs, after the settlement of
the debts of the deceased, pays a legacy in compliance
with a clause in the defective will, the payment is effective
and irrevocable. (1430)
Sources of obligation (1157)
1. Law (obligation ex lege)– Not presumed (1158)
a. Law
- Taxes, duty of husband and wife to support family,
minimum wage, 13th month pay law, workmen
compensation act.
b. Quasi contract (obligation ex quasi contractu) (Chapter
1, Title XVII) – juridical relation resulting from
lawful, voluntary and unilateral (LUV) act to the
end that no one shall be unjustly enriched or benefited
at the expense of another.
Rule: No meeting of the mind hence consent of the
parties is not required. It is quasi contract not an
implied contract.
1. Nominate quasi contract
a. Solutio indebiti – Something is received when
there is no right to demand it, and it was
unduly delivered thru mistake, the recipient
has the duty to return it.
b. Negotiorum gestio – When a person voluntary
takes charge of another’s abandoned business
or property without the owner’s authority
where reimbursement must be made for
necessary and useful expenses.
Requisites:
a.) Property or business is abandoned or
neglected
b.) The manager is unauthorized (express or
implied)
c.) The unauthorized manger voluntary take
charge the abandoned property.
2. Innominate quasi contract
Art. 2164. When, without the knowledge of the
person obliged to give support, it is given by a
stranger, the latter shall have a right to claim the
same from the former, unless it appears that he
gave it out of piety and without intention of being
repaid.
Art. 2165. When funeral expenses are borne by a
third person, without the knowledge of those
relatives who were obliged to give support to the
deceased, said relatives shall reimburse the third
person, should the latter claim reimbursement.
Art. 2166. When the person obliged to support an
orphan, or an insane or other indigent person
unjustly refuses to give support to the latter, any
third person may furnish support to the needy
individual, with right of reimbursement from the
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person obliged to give support. The provisions of
this article apply when the father or mother of a
child under eighteen years of age unjustly refuses
to support him.
Art. 2167. When through an accident or other
cause a person is injured or becomes seriously ill,
and he is treated or helped while he is not in a
condition to give consent to a contract, he shall be
liable to pay for the services of the physician or
other person aiding him, unless the service has
been rendered out of pure generosity.
Art. 2168. When during a fire, flood, storm, or
other calamity, property is saved from destruction
by another person without the knowledge of the
owner, the latter is bound to pay the former just
compensation.
Art. 2169. When the government, upon the
failure of any person to comply with health or
safety regulations concerning property, undertakes
to do the necessary work, even over his objection,
he shall be liable to pay the expenses.
Art. 2170. When by accident or other fortuitous
event, movables separately pertaining to two or
more persons are commingled or confused, the
rules on co-ownership shall be applicable.
Art. 2171. The rights and obligations of the
finder of lost personal property shall be governed
by articles 719 and 720.
Art. 2172. The right of every possessor in good
faith to reimbursement for necessary and useful
expenses is governed by article 546.
Art. 2173. When a third person, without the
knowledge of the debtor, pays the debt, the rights
of the former are governed by articles 1236 and
1237.
Art. 2174. When in a small community, a
nationality of the inhabitants of age decide upon a
measure for protection against lawlessness, fire,
flood, storm or other calamity, anyone who objects
to the plan and refuses to contribute to the
expenses but is benefited by the project as
executed shall be liable to pay his share of said
expenses.
Art. 2175. Any person who is constrained to pay
the taxes of another shall be entitled to
reimbursement from the latter.
c. Delict (obligation ex maleficio or delicto)
Governing rules:
1. Pertinent provisions of the RPC and other penal
laws subject to Art 2177 Civil Code.
• Art 100, RPC – Every person criminally liable
for a felony is also civilly liable
2. Chapter 2, Preliminary title, on Human Relations
(Civil Code)
3. Title 18 of Book IV of the Civil Code – on
damages
Civil liability arising from crime includes:
1. Restitution – The thing itself must be returned or
restored.
2. Reparation - The court shall determine the amount
of damage, taking into consideration the price of
the thing, whenever possible, and its special
sentimental value to the injured party
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ATTY. JOHNSON A.H. ONG, CPA, MBA
3. Indemnification - Indemnification for
consequential damages shall include not only
those caused the injured party, but also those
suffered by his family or by a third person by
reason of the crime.
Effect of acquittal in criminal case:
• when acquittal is due to reasonable doubt – no
civil liability
• when acquittal is due to exempting circumstances
– there is civil liability
• when there is preponderance of evidence – there is
civil liability
d. Quasi delict (obligation ex quasi maleficio or quasi
delicto) (Chapter 2, Title XVII and special law) – Act
or omission causes damage to another, there being
fault or negligence, is obliged to pay for the damage
done there being no pre-existing contractual relation
between the parties.
Elements:
a) There must be fault or negligence attributable to
the person charged
b) There must be damage or injury
c) There must be a direct relation of cause and effect
between the fault or negligence on the one hand
and the damage or injury on the other hand
(proximate cause)
Obligation expressly arising from Quasi delict
1. The father and, in case of his death or incapacity,
the mother, are responsible for the damages caused
by the minor children who live in their company.
2. Guardians are liable for damages caused by the
minors or incapacitated persons who are under
their authority and live in their company.
3. The owners and managers of an establishment or
enterprise are likewise responsible for damages
caused by their employees in the service of the
branches in which the latter are employed or on
the occasion of their functions.
4. Employers shall be liable for the damages caused
by their employees and household helpers acting
within the scope of their assigned tasks, even
though the former are not engaged in any business
or industry.
5. The State is responsible when it acts through a
special agent; but not when the damage has been
caused by the official to whom the task done
properly pertains.
6. Teachers or heads of establishments of arts and
trades shall be liable for damages caused by their
pupils and students or apprentices, so long as they
remain in their custody.
➢ The possessor of an animal or whoever may make
use of the same is responsible for the damage
which it may cause, although it may escape or be
lost. This responsibility shall cease only in case
the damage should come from force majeure or
from the fault of the person who has suffered
damage. (2183)
➢
2. Contract (obligation ex contractus) – Meeting of mind
between two (2) person whereby one binds himself with
respect to another to give something or render some
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service. (1306) It has a force of law between the
contracting party and must be complied with n good faith
(1159)
Kinds of obligation according to subject matter
a. Real obligation
a. Specific or determinate object – particularly
designated or physically segregated from all others
of the same class.
Loss of the object without fault of debtor –
obligation extinguish
b. Generic or indeterminate – Thing refers to a class,
to a genus and cannot be pointed out with
particularity.
Loss of the object without fault of the debtor –
Obligation remain. Genus nunquam perit (Generic
never perishes)
b. Personal obligation
a. Positive personal obligation (to do)
b. Negative personal obligation (not to do)
Duty of debtor to deliver specific thing
1. Preserve the thing (1163)
Rule: Diligence of good father of a family (ordinary
diligence)
Except:
a. Law (ex: common carrier)
b. Stipulation
2. Deliver the fruits (1164)
➢ Natural fruit – Spontaneous product of the soil, and the
young and other products of animals. (No human
intervention)
➢ Industrial fruit - Produce by lands of any kind through
cultivation or labor.
➢ Civil fruit – Rents of building, price of lease of lands
and other property and the amount of perpetual or life
annuities or other similar income.
Rule: The creditor has the right to the fruits of the thing
from the time the thing to deliver arises.
Exception: Obligation to deliver the fruits arises from:
a. Suspensive condition – fulfillment of the condition
b. Suspensive period – arrival of the period
c. Arise from law, quasi contract, delict, quasi delict –
provision of law
3. Deliver of accessions and accessories (1166)
➢ Accessions - fruits of a thing/ addition/ improvement
upon a thing. (i.e. House/trees on a land)
➢ Accessories – thing joined with the principal for
embellishment, better use or completion (i.e. Key of
house, bracelet of a watch)
4. Deliver the thing itself
➢ Actual
➢ Constructive
a. Traditio symbolica – delivery of key
b. Traditio brevi manu – A possessor of a thing not
as an owner, becomes the possessor as owner (i.e.
Lessor sells the thing leased to the lessee)
c. Taditio longa manu – mere consent or agreement
of the parties. (pointing out the object)
d. Traditio constitutum possessorium – A possessor
of a thing as an owner retains possession no longer
as an owner, but in some other capacity. This is
the opposite of tradition brevi manu. (i.e. A
possessor vendor stay as tenant on the vendee)
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ATTY. JOHNSON A.H. ONG, CPA, MBA
e. Execution of a public instrument
Rule:
a. Before delivery of the thing – Creditor has personal
right (jus in personam or jus ad rem). (1164)
b. Creditor acquires real right (jus in re) only at the time
of delivery.
5. Damages in case of breach
With the fault of the debtor (1170)
I. Fraud (dolo)
a. Dolo causante - (consent is defective –voidable)
b. Dolo incidente (fraud in performance –
damages)
Period
a. Future fraud – Responsibility arising from
fraud is demandable in all obligation. Any
waiver of an action for future fraud is void.
(1171) same rule in case of negligence which
shows bad faith. (1173)
b. Past fraud – can be waive
II. Negligence (culpa) – Omission of diligence required
by the nature of the obligation and corresponds
with circumstances of the person, time and place.
(1173) It is also demandable in every kind of
obligation but such liability may be regulated by
the courts according to the circumstances. (1172)
a. Culpa contractual – performance of the contract
b. Culpa criminal – Result from criminal act
c. Culpa aquiliana – No pre existing contract
Degree of Culpa under the Roman Law are as follows:
1.) Culpa lata – grave negligence
2.) Culpa levis – ordinary negligence
3.) Culpa levissima – slight negligence
FRAUD DISTINGUISHED FROM NEGLIGENCE
FRAUD NEGLIGENCE
There is deliberate There is no deliberate intent to
intent to cause cause damage.
damage.
Liability cannot be Liability may be mitigated.
mitigated.
Waiver for future Waiver for future negligence may
fraud is void. be allowed in certain cases:
a) gross – can never be excused
in advance; against public
policy
b) simple – may be excused in
certain cases
III. Delay (mora)
a. Ordinary delay – Failure to pay on the period fixed
by the parties without demand judicial or
extrajudicial
b. Legal delay – Failure to pay after demand by the
creditor (judicial/extrajudicial)
1. Mora solvendi - Delay of debtor
1.1 Mora solvendi ex re – Debtor delay/default in
real obligation
1.2 Mora solvendi ex persona – Debtor
delay/default in personal obligation
2. Mora accipiendi – – default on part of creditor;
Creditor is guilty of default when he
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unjustifiably refuses to accept payment or

performance at the time payment/performance Duty of debtor not to do (Positive personal obligation)
can be done ➢ When the obligation consists in not doing, and the
3. Compensatio morae – both parties (debtor and obligor does what has been forbidden him, it shall also
creditor) are in default (in reciprocal be undone at his expense. (1168)
obligations); the effect: is as if there is no
3 kinds of Performance:
Elements of legal delay: 1. SPECIFIC PERFORMANCE - performance of the
(1) The obligation must be due, enforceable and already prestation itself
liquidated or determinate in amount 2. SUBSTITUTE PERFORMANCE - someone else performs
(2) There must be non-performance or something else is performed at the expense of debtor
(3) There must be a demand, unless demand is not 3. EQUIVALENT PERFORMANCE - damages
required
Real Obligations to do
Effects of legal delay: Remedies Obligation (Personal Obligation)
a. if determinate thing - debtor bears risk of loss (even Spe Gen To do Not to do
when there is fortuitous event) cifi eric
b. debtor liable for damages/interest c
SPECIFIC undo the
c. resolution (Art 1170, in proper cases)
PERFORMANCE Y Y NO things
already done
Rule: No demand (judicial or extrajudicial) no delay EQUIVALENT Can only
(1169) PERFORMANCE Y Y be Y
Exception: demanded
1. Law if
2. Stipulation obligation
3. Time is of the essence is not very
4. Demand would be useless personal
5. Performance of one party in case of reciprocal SUBSTITUTE Undo the
obligation PERFORMANCE N Y Y things
already done
IV. Contravention of tenor of obligation
at debtor's
expense
Without the fault of the debtor RESCISSION/
Requisites of fortuitous event (Nakpil & Sons vs. CA): CANCELLATION Y Y Y
1. The cause of the breach of the obligation must be
independent of the will of the debtor Damages (MENTAL)
2. The event must be either unforeseeable or unavoidable 1. Moral – Include physical suffering, mental anguish, fright,
3. The event must be such as to render it impossible for serious anxiety, besmirched reputation, wounded feelings,
the debtor to fulfill his obligation in a normal manner moral shock, social humiliation and similar injury.
4. The debtor must be free from any participation in, or 2. Exemplary or corrective – imposed by way of example or
aggravation of injury to the creditor correction for the public good. It may be awarded if the
defendant acted in a wanton, fraudulent, reckless,
Rule: Not liable in case of Fortuitous event (1174) oppressive or malevolent manner. (bad faith).
Exception: 3. Nominal – Adjudicated in order that a right of the plaintiff,
1. Law which has been violated or invaded by the defendant, may
a. Delay be vindicated or recognized and not for the purpose of
b. Promised to deliver the same thing to 2 or indemnifying the plaintiff for any loss suffered by him.
more persons who do not have the same Awarded in every case where any property right has been
interest invaded. (Damages awarded to vindicate a right)
c. Lost of generic thing 4. Temperate – More than nominal but less than actual.
d. Obligation arising from crime Awarded when some pecuniary loss has been suffered but
2. Stipulation its amount cannot, from the nature of the case be proved
3. Assumption of risk with certainty. (Exact amount of damage cannot be
ascertained)
Duty of debtor (Generic thing) 5. Actual or compensatory – value of loss suffered but also
1. Deliver the thing based on quality intended by the include profits which the creditor failed to obtain.
parties. Pecuniary loss must be duly proved.
2. Damages in case of breach 6. Liquidated – those agreed upon by the parties to a contract
to be paid in case of breach. (Damage predetermined
Duty of debtor to do (Positive personal obligation) beforehand)
➢ If a person obliged to do something fails to do it, the
same shall be executed at his cost. ➢ Usurious transaction shall be governed by special law.
This same rule shall be observed if he does it in (1175)
contravention of the tenor of the obligation. ➢ Presumption (1176)
Furthermore, it may be decreed that what has been a. Receipt of principal without reservation as to interest -
poorly done be undone. (1167) interest is already paid

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b. Receipt of a later installment of debt without 4. The diligence of a good father of a family as required of a
reservation as to prior installment – later installment person obliged to give simply means –
have been paid. a. inferior diligence;
b. superior diligence;
REMEDIES OF CREDITOR AGAINST THE DEBTOR c. average diligence;
1. Exact performance - specific, substitute, equivalent d. None of the above
2. Attach and execute debtor's property which is not 5. This is delay in doing –
exempt (art 2236) a. Mora solvendi ex re;
3. Accion subrogatoria - Exercise all rights and actions b. Mora solvendi ex persona;
except those inherent in the person (parental authority, c. Mora accipiendi;
hold office, carry out agency d. compensatio morae
Requisites: 6. Statement 1: The law does not allow waiver of an action
a. Creditor must have right of return against debtor for future fraud.
b. The debt is due and demandable Statement 2: Damages arising from fraud cannot be
c. There is a failure of the debtor to collect his own reduced or mitigated by the courts unlike damages arising
debt from 3rd persons either through malice or from negligence especially if there is contributory
negligence negligence.
d. Debtor's assets are insufficient a. Both statements are true.
e. The right of account is not purely personal b. Both statements are false.
4. Accion pauliana - (impugn or rescind acts or contracts c. Statement 1 is true, but statement 2 is false.
done by the debtor to defraud the creditors. d. Statement 1 is false, but statement 2 is true.
Requisites: 7. The principle that "No one shall be unjustly enriched or
a. There is a credit in favor of plaintiff benefited at the expense of another " is the basis of:
b. The debtor has performed an act subsequent to the a. Contracts
contract, giving advantage to other persons b. Delicts
c. The creditor is prejudiced by the debtor's act c. Quasi-contracts
which are in favor of 3rd parties and rescission will d. Quasi-delicts
benefit the creditor 8. Which of these obligation is real in character?
d. The creditor has no other legal remedy a. to paint a house
e. The debtor's acts are fraudulent b. to repair a car
c. to write a book
➢ All right by virtue of obligation are transmissible (1178) d. all of them
Exception: e. None of the above
1. Law 9. A wife is under obligation to support her husband and it
2. Stipulation arises from:
3. Strictly personal a. Law
b. quasi-delict
Multiple Choice - GENERAL PROVISIONS/ NATURE c. contract
AND EFFECT OF OBLIGATIONS d. quasi-contract
1. The father or in his absence the mother becomes liable for 10. Delay or default on the part of the creditor is known as –
the damage that a minor son may cause to others and the a. Mora solvendi ex re
liability arises from: b. Mora solvendi ex persona
a. Delict c. Mora accipiendi
b. Contracts d. Compensatio morae
c. Quasi-delict 11. Delay or default on the part of the obligor in giving is
d. Quasi-contracts known as –
2. D is driver of a passenger bus which is owned and a. Mora solvendi ex re
operated by O. While D is driving said bus, it met an b. Mora solvendi ex persona
accident through his negligence where P, a passenger, was c. Mora accipiendi
injured. D is liable to P for damages which arises from: d. Compensatio morae
a. law 12. This kind of damage is awarded for physical suffering,
b. crime metal anguish, serious anxiety, wounded feeling, moral
c. quasi-contracts shock, social humiliation and the like –
d. quasi-delict a. Actual or compensatory damage
e. contracts b. Moral damage
3. A mango tree in the land of O is reclining towards the c. Nominal damage
road. All of a sudden, without a storm or an earthquake or d. temperate damage
even strong wind, the tree falls hitting a car belonging to X 13. This damage consists of a small amount but is awarded to
causing a P20,000 damage. The liability of O to X arises vindicate a wrong or to redress a grievance.
from: a. Actual or compensatory damage
a. Law b. Moral damage
b. Delict c. Nominal damage
c. Contract d. Temperate damage
d. Quasi-delict e. Exemplary damage
e. quasi-contract

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14. Due diligence in the selection or supervision of employees ➢ Negative condition + determinate time = Effective
is defence available in – form the time indicated elapsed or evident that event
a. Culpa contractual cannot occur. (1185)
b. Culpa aquiliana ➢ Constructive fulfillment - The condition shall be
c. Both culpa contractual and culpa aquiliana deemed fulfilled when the obligor voluntarily prevents
d. neither culpa contractual nor culpa aquiliana its fulfillment. (1186)
15. The following are the requisites for the filling of rescissory ➢ Retroactivity of the conditional obligation. (1187)
action except: a. Reciprocal – fruit and interest deemed mutually
a. The third person who received the property conveyed compensated
of, by onerous title, has been an accomplice in the b. Unilateral – Debtor appropriate the fruits an
fraud. interest except Nature and circumstances of
b. The right and actions are not purely personal or obligation the intention of the person constituting
inherent in the person of the debtor. the same was different.
c. The act impugned is fraudulent c. Obligation to do or not to do – court shall
d. The debtor has made a subsequent contract conveying determine the retroactivity.
a patrimonial benefit to a third person. ➢ Before condition is fulfilled (1188)
c. Creditor bring action for the preservation of
Primary classification of obligation under the civil Code his right
1. Pure –without condition and period d. Debtor may recover payment by mistake.
➢ Immediately demandable ➢ Loss, deterioration, improvement before condition is
2. Conditional fulfilled
a.) effect
➢ Suspensive – give rise to obligation Without fault With fault
➢ Resolutory – extinguish the obligation (Debtor) (Debtor)
b.) Form Loss Extinguish Damages
➢ Express – clearly stated Deterioration Impairment borne Rescission or
➢ Implied – merely inferred by the creditor fulfillment +
c.) Possibility damages
➢ Possible – capable of fulfillment
➢ Impossible (1183) Nature or Time Expense of the
a. Physically impossible – Nature of the thing debtor
b. Legally impossible – contrary to law, moral, good Improvement Benefit of the The debtor is
customs, public order or public policy creditor given only the
d.) Cause or origin right of a
➢ Potestative - depend upon will of one of the usufructuary
contracting parties (debtor/creditor) (1182)
➢ Casual – depend upon chance or will of a third ➢ Condition for purpose of extinguishing obligation
person (resolutory) – return to each other what they have
➢ Mixed – partly upon chance and partly upon will received. In case of loss, deterioration or
of third person improvement – same rule above to the party bound to
e.) Mode return. (1190)
➢ Positive – performance ➢ Power to rescind is implied in reciprocal obligation in
➢ Negative – omission case one of the obligor should not comply with what
f.) Numbers is incumbent upon him. (1191)
➢ Conjunctive – several conditions, all must be a. Injured party may choose fulfillment or
complied with Rescission + damages.
➢ Disjunctive – several conditions, one or some must b. Court decree the rescission unless there is just
be complied with cause authorizing the fixing of a period.
g.) Divisibility ➢ Both parties committed a breach (1192)
➢ Divisible – susceptible of partial performance a. First infractor shall be equitably tempered.
➢ Indivisible – not susceptible of partial performance b. If cannot determined the first infractor –
Conditional obligation Obligation extinguish and each shall bear own
➢ Future and uncertain event or past event unknown to damages.
parties (1179)
➢ Resolutory condition immediately demandable Art. 1189. When the conditions have been imposed
➢ When the debtor binds himself to pay when his means with the intention of suspending the efficacy of an
permit him to do so, the obligation shall be deemed to obligation to give, the following rules shall be
be one with a period. (1180) observed in case of the improvement, loss or
➢ Acquisition or extinguishment of obligation depend deterioration of the thing during the pendency of the
upon the happening of the condition (1181) condition:
➢ Positive condition + determinate time = extinguish as (1) If the thing is lost without the fault of the
soon as the time expire or become indubitable that the debtor, the obligation shall be extinguished;
event will not take place (1184) (2) If the thing is lost through the fault of the
debtor, he shall be obliged to pay damages; it is
understood that the thing is lost when it perishes, or

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goes out of commerce, or disappears in such a way
that its existence is unknown or it cannot be recovered;
(3) When the thing deteriorates without the fault
of the debtor, the impairment is to be borne by the
creditor;
(4) If it deteriorates through the fault of the
debtor, the creditor may choose between the rescission
of the obligation and its fulfillment, with indemnity for
damages in either case;
(5) If the thing is improved by its nature, or by
time, the improvement shall inure to the benefit of the
creditor;
(6) If it is improved at the expense of the debtor,
he shall have no other right than that granted to the
usufructuary.
3. With a period - Future and certain. If uncertain it is
conditional. (1193)
a.) Effect
1. Suspensive (Ex die) – arrival- give rise to
obligation. Before arrival of the period no right to
demand. (1193)
➢ Payment before arrival of the period (Payment
made by mistake), the debtor is unaware of the
period – may recover with the fruits and
interests. (1195)
➢ Loss, deterioration, improvement before
arrival of the period. Apply Art 1189.
2. Resolutory (In diem) – arrival- extinguish the
obligation. The obligation is immediately
demandable.
b.) Source
1. Legal – provided by law
2. Conventional/voluntary – by agreement
3. Judicial – fixed by the court
c.) Definiteness
1. Definite – fixed or known when it will come
2. Indefinite – not fixed or not known when it will
come.
General Rule: The court is not authorized to fix a period:
(Reason: The court cannot make a contract for the parties)
Exception: Court authorizes to fix the period. (1197)
a.) No period fixed but period was intended (nature and
circumstances)
b.) Period depend upon the sole will of the debtor.
➢ Court shall determine such period as probably
contemplated by the parties. Once fixed by the courts,
the period cannot change by them. (by the court not
party)
General Rule:
Whenever period is designated, it is presumed for the
benefit of both creditor and debtor except when expressly
provided otherwise. (1196)
Hence, neither the creditor can demand performance nor
the debtor pay before arrival of the period.
Exception:
The debtor shall lose every right to make use of the period:
(1198) Hence, immediately demandable.
1. When after the obligation has been contracted, he
becomes insolvent, unless he gives a guaranty or
security for the debt;
2. When he does not furnish to the creditor the guaranties
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ATTY. JOHNSON A.H. ONG, CPA, MBA
or securities which he has promised;
3. When by his own acts, he has impaired said guaranties
or securities after their establishment, and when
through a fortuitous event they disappear, unless he
immediately gives new ones equally satisfactory;
4. When the debtor violates any undertaking, in
consideration of which the creditor agreed to the
period;
5. When the debtor attempts to abscond.
4. Alternative obligation
a. Simple – only one prestation is due
b. Compound
1. Conjunctive – Several prestation and all are due
2. Distributive – 2 or more prestation is due
a. Alternative – several prestation are due but
performance of one is sufficient.
b. Facultative – Only one is due but debtor may
substitute
Gen rule: Right of choice belong to the debtor (1200)
except when expressly grated to the creditor.
Limitation on the right of choice:
a. Impossible
b. Unlawful
c. Not the object of obligation
d. Only one is practicable (1202). In this case, the debtor
loss the right of choice and the alternative obligation is
converted into a simple obligation.
➢ Choice produces no effect except from the time it has
been communicated. (1201)
➢ Communication of choice convert alternative
obligation to a simple obligation. (1205)
➢ Creditor fault, the debtor cannot make a choice =
rescind the contract + damages (1203)
➢ All object loss – Debtor is liable for damages (last
object)
Right of choice: General rule: right of choice belongs to
debtor
a. The choice is with debtor
(1) If only 1 is left either because of fortuitous events
or due to debtor's acts, perform what is left. The
effect is that the debtor loses the right of choice
(2) if the choice is limited because of the creditor's
acts, the debtor has the right of resolution and
damages
(3) if all are lost due to debtor, the creditor is entitled
to damages
(4) if some are lost, the debtor can choose from the
remaining
b. The choice is with creditor
(1) if one or some are lost due to fortuitous event, the
creditor chooses the remainder
(2) if one or some is lost because of the fault of
debtor, the creditor may choose either the
remainder or the value of any which disappeared,
and damages in either case
(3) if all is lost due to the debtor's fault, the creditor
may choose the value of any if some is lost due to
debtor's fault, the creditor chooses the remainder
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(4) if all is lost due to fortuitous event, obligation is
extinguished
(5) if all is lost due to creditor's fault, the obligation is
extinguished
Summary: Rule on loss
1. Debtor choice – Last item lost
2. Creditor’s choice - Any item lost through the fault of the
debtor
Art. 1205. When the choice has been expressly given to the
creditor, the obligation shall cease to be alternative from the
day when the selection has been communicated to the debtor.
Until then the responsibility of the debtor shall be governed by
the following rules:
(1) If one of the things is lost through a fortuitous event, he
shall perform the obligation by delivering that which the
creditor should choose from among the remainder, or
that which remains if only one subsists;
(2) If the loss of one of the things occurs through the fault of
the debtor, the creditor may claim any of those
subsisting, or the price of that which, through the fault of
the former, has disappeared, with a right to damages;
(3) If all the things are lost through the fault of the debtor,
the choice by the creditor shall fall upon the price of any
one of them, also with indemnity for damages.
The same rules shall be applied to obligations to do or not to
do in case one, some or all of the prestations should become
impossible. (1136a)
5. Facultative - When only one prestation has been agreed
upon, but the obligor may render another in substitution
(1206)
Before substitution
➢ Loss of the object without fault – not liable
➢ Loss of the object with fault of the debtor - Liable
➢ Loss/deterioration of the substitute with or without
fault of the debtor – Not liable
After substitution
➢ Loss of the object with or without fault – not liable
➢ Loss of the substitute with fault – liable
➢ Loss of the substitute without fault – not liable
Rule:
➢ Right of choice always to debtor
➢ Only one prestation is due but the debtor may
substitute
DISTINCTIONS BETWEEN ALTERNATIVE AND
FACULTATIVE OBLIGATIONS
ALTERNATIVE FACULTATIVE
a) Various things are due a) Only one thing is due but
but the giving a substitute may be given to
principally of one is render payment/fulfillment
sufficient easy
b) If one of prestations is b) If principal obligations is
illegal, others may be void and there is no
valid but obligation necessity of giving the
remains substitute; nullity of P
carries with it nullity of S
c) If it is impossible to give c) If it is impossible to give
all except one, the last one the principal, the
must still be given substitute does not have
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ATTY. JOHNSON A.H. ONG, CPA, MBA
to be given; if it is
impossible to give the
substitute, the principal
must still be given
d) Right to choose may be d) The right of choice is
given either to debtor or given only to the debtor
creditor
6. Joint /Solidary
a.) Individual – one debtor and one creditor
b.) Collective – Two or more debtor and two or more
creditors
1. Joint – 2or more debt/credit as there are
debtor/creditor (mancomunada,
mancomunadamente, pro rata, proportionately, We
promise to pay signed by 2 or more person)
2. Solidary - Each debtor/creditor is bound to
pay/right to demand payment the entire
compliance of the obligation (Joint and/or
severally, solidaria, in solidum, juntos o
separademente, Individually and/or collectively, I
promise to pay signed by 2 or more persons, each
will pay the whole value)
Gen Rule: Joint obligation
Exception:
a. Law
b. Stipulation
c. Nature of obligation requires solidarity (real solidarity)
Solidarity imposed by law (under the New Civil Code)
1. 2 or more heirs take possession of the estate - loss or
destruction of a thing devised or bequeathed, even though
only one of them should have been negligent. (Art. 927)
2. Death or injury is due to the negligence of a fellow worker,
the latter and the employer shall be solidarily liable for
compensation. (Art. 1712)
3. The collapse of building or structure within fifteen years
(15) from completion of the structure, the engineer or
architect who supervises the construction shall be
solidarily liable with the contractor. (Art 1723)
4. Any wrongful act or omission of any partner acting in the
ordinary course of the business of the partnership or with
the authority of co-partners, loss or injury is caused to any
person. (Art. 1822 and 1824
5. Partner received money or property from 3rd person and
misapplies it or Partnership receives money or property of
a 3rd person and such property was misapplied by any
partner while in partnership custody. (Art 1823 and 1824)
6. Even when the agent has exceeded his authority, the
principal is solidarily liable with the agent if the former
allowed the latter to act as though he had full powers. (Art.
1911)
7. Two or more persons have appointed an agent for a
common transaction or undertaking. - Liable to the agent
for all the consequences of the agency. (Art. 1915)
8. Two or more bailees (Commodatum) to whom a thing is
loaned in the same contract (1945)
9. The responsibility of two or more officious managers
(negotiorum gestio) shall be solidary, unless the
management was assumed to save the thing or business
from imminent danger. (Art. 2146)
10. The owner and his driver in a motor vehicle mishaps, if the
former, who was in the vehicle, could have, by the use of
the due diligence, prevented the misfortune. (Art. 2184)
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11. The responsibility of two or more persons who are liable
for quasi-delict. (Art. 2194)
Solidarity under special Law (related law only)
1. Liability of directors for watered stocks. (Sec. 65, BP 68)
2. When the director or trustee who willfully and knowingly
vote for or assent to patently unlawful acts of the
corporation or who are guilty of gross negligence or bad
faith in directing the affairs of the corporation or acquire
any personal or pecuniary interest in conflict with their
duty (Sec 31 BP 68)
3. Workmen compensation act
4. Where an instrument containing the word "I promise to
pay" is signed by two or more persons, they are deemed to
be jointly and severally liable thereon. (Sec 17, g, Act
2031)
5. Joint payees or joint indorsees who indorse are deemed to
indorse jointly and severally. (Sec 68, Act 2031)
Kinds of solidarity
1. Parties bound
a. Passive solidarity – Debtor
b. Active solidarity – Creditor
c. Mixed solidarity – both creditor and debtor
2. Source
a. Conventional – by agreement
b. Legal solidarity – imposed by law
c. Real solidarity – nature of the obligation
3. Legal tie
a. Uniform – bound by the same stipulation
b. Non-uniform or varied – not subject to the same
stipulation
Invisibility vs solidarity
1. Prestation vs. juridical tie or legal tie
2. Debtor guilty of breach is only liable vs. all debtor are
liable
3. Exist even only 1 debtor and 1 creditor vs. at least 2
debtor/creditor
4. Other debtor not liable in case of insolvency of one
debtor vs. other debtor are proportionately liable
Solidarity creditor
➢ Can do useful to but not prejudicial to other solidary
creditor
➢ Cannot assign without the consent of the other solidary
creditor
➢ Novation, compensation, confusion or remission by
solidary creditor extinguish the obligation but liable to
the other solidary creditor
➢ Debtor may pay any one of the solidary creditor.
Except when one of the solidary creditor demand
judicial or extrajudicial payment must be made to him.
Solidary debtor
➢ Creditor can proceed to any solidary debtor as long as
the debt has not been fully collected
➢ Payment by one of solidary debtor extinguishes the
obligation. If 2 or more debtors offers, the creditor
may choose which offer to accept.
➢ Solidary debtor who pay, may claim from his co-
debtor + interest from the date of payment (except
when not yet due, no interest for intervening period)
➢ Insolvency of one of solidary debtor – to be borne by
all his co-debtor in proportion to the debt of each.
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ATTY. JOHNSON A.H. ONG, CPA, MBA
Payment by solidary debtor after the obligation has
prescribed or become illegal – Not entitled to
reimbursement.
➢ Remission made by the creditor of the share of one of
the solidary debtor – Does not release such solidary
debtor toward other co-debtor when the debt was
totally paid before remission.
➢ Remission of whole obligation obtained by one of the
solidary debtors – not entitled for reimbursement
➢ Loss without fault of any debtor– obligation
extinguished
➢ Loss with fault of any debtor – All debtors are liable
without prejudice to the action against guilty or
negligent debtor.
➢ Loss due to fortuitous event after delay by any of the
solidary debtor – same all debtors are liable.
➢ Claim for Compensation under Workmen’s
compensation law. (Sec 2, workmen compensation
law)
➢ Article 19, 20, 21, 22 of the Civil code (Human
relations)
Defense of solidary debtor
a. Nature of the obligation – payment, fraud,
prescription, remission, illegality, absence of
consideration, res judicata, non-performance of
suspensive condition
b. Those personal to him - incapacity, mistake, violence,
minority. (personal or complete defense)
c. Those personal to the other.
7. Divisible – Capable of partial fulfillment
8. Indivisible – Not capable of partial fulfillment
Kinds of division
a. Qualitative division – based on quality
b. Quantitative division – based on quantity
c. Ideal or intellectual division – exist only in mind of the
parties
Kinds of indivisibility
a. Legal indivisibility – by law
b. Conventional indivisibility - by agreement
c. Absolute or natural indivisibility – nature of the
object/prestation
➢ Divisibility or indivisibility is determined by the
purpose or intention of the parties not the possibility or
impossibility of partial performance. (except of nature
indivisibility)
➢ Divisible or indivisible refer to the object of the
obligation not on the cause or legal tie.
➢ Joint indivisible obligation give rise to indemnity for
damages – one debtor does not comply with his
undertaking.
a. Effect – Obligation is converted into one for
damages. Specific performance or rescission is not
a remedy because the other debtors are willing to
fulfill.
➢ Obligation to give definite thing and not susceptible of
partial performance – Indivisible
➢ Object the execution of a certain number of days of
work – Divisible
➢ Accomplishment of work by metrical units or
analogous things
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➢ Nature are susceptible of partial performance –
Divisible
➢ Obligation not to do – Determined by the character of
the prestation in each particular case.
9. Obligation with a penal clause – Penalty shall substitute
the indemnity for damages and the payment of interests in
case of non-compliance (absence of agreement).
a. Principal
b. Accessory
Kinds of penal clause
a. Origin
1.) Legal penal clause - by law
2.) Conventional penal clause – by agreement
b. Purpose
1.) Compensatory penal clause – take the place of
damages (1226)
2.) Punitive penal clause – imposed as punishment for
breach
c. Demandability or effect
1.) Subsidiary or alternative penal clause - only penal
clause can be enforce.
2.) Joint or cumulative – both principal and penal clause
can be enforced
➢ The penal clause shall substitute the indemnity for
damages and the payment of interest in case of non-
compliance. (1226) However, Penalty may be
enforced only when it is demandable.
➢ Proof of actual damages suffered by the creditor not
necessary to enforce the penalty. (1228)
However, damages shall be paid
a. There is stipulation
b. Obligor refuses to pay the penalty
c. Guilty of fraud in the fulfillment of the obligation.
➢ Debtor cannot exempt himself from performance and
to pay only the penalty (except when expressly granted
to him). Neither can the creditor demand the
fulfillment of the obligation and the satisfaction of the
penalty at the same time, unless this right has been
clearly granted him. (1227) However, if creditor
choose performance but become impossible without
his fault, the penalty may be imposed.
Causes for reduction of penalty:
a. Principal obligation has been partly or irregularly
complied with;
b. Penalty is iniquitous or unconscionable
➢ Nullity of the penal clause does not carry of the
principal obligation but the nullity of the principal
carries with that of the penal clause. (Rule: Accessory
follows the principal)
Multiple Choice – DIFFERENT KINDS OF OBLIGATIONS
1. This obligation is demandable at once:
a. pure obligation
b. obligation subject to a resolutory condition
c. obligation with an in diem period
d. all of the above
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ATTY. JOHNSON A.H. ONG, CPA, MBA
2. D, on June 19, 2019 obligated himself to C to sell to the
latter his house and lot for the very cheap price of
P5,000,000 on condition that C passes the CPA board
examinations to be given in October 2019. In the
meantime, not believing that C will pass the board exams,
D sold the house to T sometime in August 2019, In
November 2019, C passed the exams unexpectedly. Who
has a better right to the house and lot? Assume that C and
T did not record their transaction with the Registration of
Deeds and neither did they take possession.
a. C has a better right to the house and lot because said
right goes back to the time when the obligation was
contracted on June 19, 2019 although the condition
was complied with only in November 2019.
b. T has a better right since it was sold to him in August,
2019 whereas the condition in favor of C was
complied only sometime in November 2019.
c. Because of the controversy between C and T can
decide not to sell the house and lot anymore.
d. Correct conclusion not given.
3. A condition which, if imposed on an obligation, will be
disregarded and will, therefore, make the debt immediately
demandable:
a. If X passes the CPA examination
b. If X swims across the Pacific Ocean
c. If X does not swim across the Pacific Ocean
d. If X kills Y
4. D borrowed from C P5,000,000 promising to pay upon the
sale of his house and lot at 123 Rizal Avenue, Manila. The
obligation of D to C is:
a. an obligation with a period
b. an obligation with a potestative condition the
fulfillment of which solely depends on the will of the
debtor and therefore void
c. C can collect only when D is able to sell the house and
lot
d. only the condition is nullified, but not the obligation in
which case C can collect even if the house and lot is
not sold.
5. D binds himself to pay C P30,000 as soon as the PNB
approves his application for a loan. Said obligation is –
a. A condition obligation
b. An obligation with a period
c. A pure obligation
d. A joint obligation
6. D is under obligation to pay C P500,000 on December 15,
2020. Before due date, D wants to pay C P500,000 but the
latter refuses to accept because the obligation is not yet
due. Decide,
a. D can compel C to accept payment because when an
obligation is with a period, said period is for the
benefit of the debtor only.
b. C can refuse to accept payment because when an
obligation is with a period, the benefit is only for the
creditor.
c. C can refuse to accept because when an obligation is
with a period, said period is presumed to be for the
benefit of both debtor and creditor.
d. Correct answer not indicated.
7. In the following cases, the debtor loses the right to use the
period in which case the obligation becomes immediately
demandable. Choose the exception:
a. When after the obligation is contracted, the debtor
becomes insolvent but he gives a collateral security or
guaranty.
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b. When he fails to furnish the collateral security that he a. On the basis of the value of the cow.
has promised. b. On the basis of the value of the carabao.
c. When the collateral is impaired whether through his c. On the basis of the value of the horse.
fault or by fortuitous event. d. On the basis of the value of the cow or the carabao or
d. When the debtor attempts to abscond. the horse at the choice of C.
8. D obligates himself to pay C P100,000 on August 19, 16. In a facultative obligation, which of these is not a correct
2019. The benefit of the period belongs to – statement?
a. D only; a. If the principal is lost without the fault on the part of
b. Both C and D; the debtor and before he incurs in delay, the obligation
c. C only; is extinguished.
d. Neither c nor D. b. If the principal is lost through the fault of the debtor,
9. D obligates himself to pay C P100,000 on or before he becomes liable for damages.
August 19, 2020. The benefit of the period belongs to – c. That the debtor can avoid having to pay damages to
a. D only; the creditor by delivering the substitute.
b. C only d. The right to give the substitute by law belongs to the
c. Both C and D; creditor.
d. Neither C nor D. 17. D bound himself to deliver to C jeep and a car. The
10. D borrowed from C P1,000,000 mortgaging in favor of the obligation is:
latter his house and lot. Said obligation is due December a. alternative
15, 2020. On July 20, 2019 the house was hit by a lighting b. simple
and was destroyed. In this case: c. facultative
a. C can validly demand payment from D on July 20, d. complex
2019 because the latter losses the right to make use of e. Joint
the period upon the impairment of the collateral. 18. D binds himself to deliver to C a specific jeep and specific
b. C cannot collect on July 20, 2019 because in the nature car. This is:
of an obligation with a period the debt can only a. An alternative obligation
become demandable upon the arrival of the period. b. A facultative obligation
c. C can validly demand payment from D on July 20, c. Both of (a) and (b)
2019 unless D gives another collateral equally d. None of the above
satisfactory. 19. A, B, and C jointly and severally borrowed from X
d. The obligation of D to C is extinguished because of P90,000. The obligation is classified as:
the loss of the collateral through a fortuitous event. a. Joint
11. D binds himself to pay C P30,000 when his means permit b. Passive solidarity
him to do so. Said obligation is: c. Active solidarity
a. a conditional obligation d. Mixed Solidarity
b. an obligation with a period 20. A, B and C borrowed from T, W, X, Y and Z P90,000.
c. a pure obligation come maturity date, T can collect from A:
d. none of the above a. P90,000
12. D will support C until end of this year is an obligation b. P6,000
with: c. P30,000
a. a suspensive condition d. P10,000
b. a resolutory condition 21. A, B and C borrowed P90,000 from X, Y and Z. X can
c. an EX DIE period hold liable B for:
d. an IN DIEM period a. P90,000
13. An obligation with a period: b. P20,000
a. D will pay C P1,000.00 X dies. c. P30,000
b. D will pay C P1,000.00 when X dies of TB. d. P10,000
c. D will pay C P1,000.00 when he finishes his course in 22. A, B and C, joint debtors in the amount of P90,000 in
Business Administration. favor of X and Y, solidary creditors. When the obligation
d. None of the above matures, how much can X collect from A?
14. D is under obligation to deliver to C either a cow or a a. P90,000
carabao or a horse. Due to the fault of D the cow, the b. P18,000
carabao and the horse are lost in that order. The obligation c. P30,000
of D is to pay damages to C: d. P45,000
a. On the basis of the value of the cow. 23. A, B and C, solidary debtors in the amount of P90,000 in
b. On the basis of the value of the carabao. favor of X and Y, joint creditors. When the obligation
c. On the basis of the value of the horse or the last thing matures, how much can Y collect from B?
that was through his fault. a. P90,000
d. On the basis of the value of any of the animals due at b. P18,000
the choice of D. c. P30,000
15. D is under obligation to deliver to C either a cow or a d. P45,000
carabao or a horse. Due to the fault of D the cow, the 24. A, B and C are jointly and severally indebted to X, Y and
carabao and the horse are lost in that order. If the right of Z in the amount of P90,000. The above obligation is:
choice belongs to C, then D now becomes liable for a. Joint
damages to C: b. mixed solidarity

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c. passive solidarity
d. active solidarity
25. A, B and C borrowed jointly and severally from X, Y and
Z P90,000 payable on December 15, 2020. At the time of
the transaction A was only 16 years old, while on August
19, 2019 X gave an extension of time for C to pay on July
20,2022. On December 15, 2020, how much can X collect
from B?
a. P90,000 because the obligation is solidary.
b. P60,000 because B can present as against X the
defense of minority on the part of A, but only for
P30,000.
c. P30,000 because B can present as against X the
defense of minority on the part of A and the extension
of time in favor of C amounting to P30,000 each.
d. P10,000 only because the obligation is joint.
26. A, B and C obligated themselves to deliver to X specific
car worth P300,000. On due date, said car is not delivered
to X due to the fault of A causing a P9,000 damage to the
former. In this case:
a. X can compel any of A, B and C to pay P309,000.
b. The obligation of A, B and C is presumed to be joint
and therefore, X cam compel A, B and C to each
deliver 1/3 of the car plus damages of P3,000.
c. The obligation of A, B and C is presumed to be joint,
but the action is converted into one for damages where
X can collect from A, B and C P103,000 each.
d. The obligation of A, B and C is presumed to be joint
but the action is converted into one for damages where
X can collect from A P109,000 and from B and C
P100,000 each.
27. A, B and C jointly and severally obligated themselves to
deliver to X a determinate car worth P600,000. On due
date, because of B's fault, said car was not delivered
causing a P9,000 damage to X. B is insolvent.
a. X can collect from A, B and C P203,000 each.
b. X can collect from A the sum of P600,000 only
because he is not the party at fault but can recover
reimbursement from C in the amount of P309,000.
c. X can collect from C the whole of P609,000 and
collect reimbursement from A P200,000 only.
d. X can collect from C the whole amount of P609,000
and collect reimbursement from A in the amount of
P304,500.
28. In which of these cases is the solidary debtor who paid not
entitled to recover reimbursement from his co-debtor?
a. If when the debtor paid, the debt has already
prescribed;
b. If when the debtor paid, the debt has already become
illegal;
c. If the debtor paid even without a demand from any of
the solidary creditors;
d. Both a and b;
e. All of a, b and c
29. The general rule is that where a penal clause is provided
for, such penal clause or penalty already takes the place of
the payment of interest or indemnity for damages. Which
of these is an exception to the rule?
a. Where there is an stipulation to the effect.
b. When the debtor defaults in the payment of the
penalty.
c. When the debtor commits fraud in the fulfillment of
the obligation.
d. All of the above.
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ATTY. JOHNSON A.H. ONG, CPA, MBA
30. D borrowed from C P100,000 with an agreement that upon
failure to pay on due date, a penalty of 20% shall be
imposed. On due date, the P100,000 was not paid. C can
collect from D:
a. P100,000 only
b. P100,000 plus penalty
c. P100,000 plus penalty plus interest at 12%
d. P100,000 plus penalty plus interest plus damages
31. In the following cases, interest or damages can be
collected by the creditor from the debtor in addition to the
penalty agreed upon.
a. If there is a stipulation to that effect.
b. If the debtor defaults in the payment of the penalty.
c. Where the debtor commits fraud in the fulfillment of
the obligation.
d. All of the above
Extinguishment of Obligation
Art. 1231. Obligations are extinguished:
(1) By payment or performance:
(2) By the loss of the thing due:
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor and
debtor;
(5) By compensation;
(6) By novation.
Other causes of extinguishing an obligation
a. Annulment
b. Rescission
c. Fulfillment of a resolutory condition
d. Prescription
e. Arrival of resolutory period
f. Death of the party
g. Mutual desistance/withdrawal
h. Compromise
i. Impossibility of performance
j. Happening of a fortuitous event
1. Payment or performance – not only delivery of money but
also the performance in any other manner of an obligation.
(1232)
Gen rule: There must be total performance. Partial or
irregular performance does not extinguish obligation.
(1233)
Exception:
a. Substantial performance in good faith. (1234)
Requisites of Substantial Performance
1. Attempt in Good Faith to perform without willful
or intentional departure
2. Deviation is slight
3. Omission/Defect is technical or unimportant
4. Must not be so material that intention of parties is
not attained
Effect of Substantial performance in good faith
1. Obligor may recover as though there has been
strict and complete fulfillment, less damages
suffered by the obligee
2. Right to rescind cannot be used for slight breach
b. Creditor accepts performance knowing its
incompleteness or irregularity without expression of
protest. (principle of estoppels) (1235)
➢ Creditor may refuse to accept payment
1. Payment by 3rd person
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2. Partial performance
3. When the debtor has no capacity to alienate or free
disposal of the thing

➢ General rule: Creditor not bound to accept

performance by 3rd person. (1236) The creditor is
bound to accept payment only by:
1. Debtor
2. Has interest in the performance of obligation
(guarantor, surety)
3. 3rd person if there is stipulation.
But the payment in any case valid if the creditor accepts.
The option to accept is granted to the creditor.

➢ Payment by 3rd person to creditor may recover to the

debtor
a.) With knowledge of the debtor – right of
reimbursement (amount paid, not amount of debt)
+ subrogation (acquire all the right of the creditor)
(1236 par 2)
b.) Without knowledge/against the will of the debtor –
only benefit to the debtor. 3rd person cannot
compel the creditor to subrogate in his rights such
as those arising from mortgage, guaranty or
penalty. (1237)
c.) No recovery - Payment by 3rd person who does not
intend to be reimburse is deemed donation which
requires debtor’s consent.
➢ Payment by one who does not have free disposal of the
thing due and capacity to alienate – Not valid without
prejudice to natural obligation. (1239)
➢ Payment must be to the person in whose favor the
obligation has been constituted. (creditor, creditor
successor in interest, any person authorized to receive
payment) (1240)
a. Payment to a person who is incapacitated to
administer his property shall be valid if he has
kept the thing delivered or insofar as the payment
has been beneficial to him.
b. Payment to 3rd person shall also be valid insofar as
it has redounded to the benefit of the creditor.
(1241)
Payment to 3rd person: Presumed that it redounded to the
benefit of the creditor:
a. 3rd person acquires the creditor’s right (subrogation)
b. Creditor ratifies the payment to the 3rd person (ratification)
c. Creditors’ led to believe that the 3rd person had authority to
receive the payment (Estoppels)
➢ Payment made in good faith to any person in
possession of the credit shall release the debtor. (1242)
Requisites:
1. Payment by debtor must be made in good faith
2. Creditor must be in possession of the credit & not
merely the evidence of indebtedness
➢ Payment made to the creditor by the debtor after the
latter has been judicially ordered to retain the debt
shall not be valid. (1243)
➢ Debtor cannot compel the creditor to receive a
different one although of the same value or more
valuable than that which is due. (1244)
➢ Obligation to do or not to do, an act or forbearance
cannot be substituted by another act or forbearance
against the obligee’s will. (1242 par 2)
➢ Obligation to deliver an indeterminate or generic
thing whose quality and circumstances have not been
stated. (1246)
a. Creditor cannot demand a thing of superior
quality.
b. Debtor cannot deliver a thing of inferior quality.
➢ Extrajudicial expense – account of the debtor
➢ Judicial expense – The Rules of court apply. Judicial
expense is shouldered by the losing party.

Place of payment (1251)

1. Place designated in the obligation
2. No express stipulation
a. Determinate thing – Place where the thing was, at
the perfection of the contract
b. Generic thing – domicile of the debtor.

General Rule:
The creditor cannot be compelled to receive partial
performance. Neither may the debtor be required to make
partial payment. (1248)
Exception:

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1. Express stipulation
2. Debt is part liquidated and in part unliquidated.
3. Different prestation are subject to different terms or
conditions which affect some of them.
➢ The payment of debts in money shall be made in the
currency stipulated, and if it is not possible to deliver
such currency, then in the currency which is legal
tender in the Philippines. (1249)
➢ The delivery of promissory notes payable to order, or
bills of exchange or other mercantile documents shall
produce the effect of payment only when they have
been cashed, or when through the fault of the creditor
they have been impaired.
In the meantime, the action derived from the original
obligation shall be held in the abeyance.
➢ In case an extraordinary inflation or deflation of the
currency stipulated should supervene, the value of the
currency at the time of the establishment of the
obligation shall be the basis of payment, unless there
is an agreement to the contrary (1250)
Nota Bene:
Section 52. Legal Tender Power. - All notes and coins issued
by the Bangko Sentral shall be fully guaranteed by the
Government of the Republic of the Philippines and shall be
legal tender in the Philippines for all debts, both public and
private: Provided, however, That, unless otherwise fixed by
the Monetary Board, coins shall be legal tender in amounts
not exceeding Fifty pesos (P50.00) for denominations of
Twenty-five centavos and above, and in amounts not
exceeding Twenty pesos (P20.00) for denominations of Ten
centavos or less. (R.A. 7653)
Hence, Philippine currency notes have no limit to their legal
tender power. However, pursuant to BSP Circular No. 537,
Series 2006 (Dated: July 18, 2006), coins in denomination of
1-,5- and 10-piso shall be legal tender in amounts not
exceeding P1,000.00 while coins in denomination of 1-,5- and
10- and 25 sentimo shall be legal tender in amounts not
exceeding P100.00.
Special forms of payment
a. Dation in payment / Adjudication or dacion en pago –
governed by law on sales
➢ Property is alienated to the creditor in satisfaction
of debt in money
b. Application of payment
1. One debtor and one creditor
2. Two or more debts
3. Debt must be of the same kind
4. The payment for the debt applied must be due
5. Payment must not sufficient to cover all the debts
Note: Not really a special form of payment
➢ Debtor has the 1st choice – must indicate at the
time of payment
➢ If the debtor does not apply, the creditor may
make the designation. Specify in the receipt which
debt is being paid
➢ In the absence of above, debt which is most
onerous to the debtor
➢ If the same nature and burden – applied to all of
them proportionately.
➢ Payment applies to interest, then to principal.
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ATTY. JOHNSON A.H. ONG, CPA, MBA
c. Payment by cession
1. Two or more creditors
2. Debtor must be partially insolvent
3. Assignment/cession must be accepted by the
creditors.
d. Tender of payment (extrajudicial) and consignation
(judicial) – Creditor refuse to accept payment without
just cause
➢ Must comply with the rules on payment (must be
total)
➢ Unconditional and total
➢ Actual. Manifestation of a desire or intention to
pay is enough.
➢ The debtor must show possession of the thing at
the time of the offer (tender).
➢ Before creditor accepts the consignation or before
judicial declaration, the debtor may withdraw the
thing deposited.
➢ Should the creditor authorize to withdraw the
thing consigned – He lose every preference over
the thing (co-debtor, guarantors and sureties are
released)
Tender of payment alone cannot extinguish valid debt.
However, consignation alone when allowed
extinguished obligation.
Requisites:
1. Existence of valid debt which is due and
demandable
2. Tender of payment by the debtor
3. Refusal without justifiable reason by the creditor
to accept it.
4. Previous notice of consignation to persons
interested in the fulfillment of the obligation.
(guarantor, mortgagee, solidary debtors, solidary
creditors).
5. Consignation of the thing
6. Subsequent notice of consignation to in interested
parties.
When tender of payment not required
2. Creditor is absent or unknown or does not appear
in the place of payment
3. Creditor is incapacitated at the time of payment
4. Creditor refuse to give receipt without just cause
5. Two or more person claim the same right to
collect
6. Title of the obligation has been lost
Dation in payment vs. Payment by cession
1. One creditor vs. several creditors
2. Debtor not insolvent vs. debtor insolvent
3. Not all property of the debtor vs. all property of
the debtor
4. Creditor become the owner vs. creditor acquire
only the right to dispose the thing and apply the
proceeds to their credit proportionately.
5. Act of novation vs. not act of novation
2. Loss of determinate thing
Kinds of loss
a. Physical loss – perishes
b. Legal loss – goes out of commerce
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c. Civil loss – thing disappears in a such way that its
existence is unknown.
Loss of a thing due
1. Obligation to give specific thing
a. Total loss
2. Loss with the fault of the debtor – (Liable)
3. Loss without the fault of the debtor -
Fortuitous event (not liable)
Exception:
ii. Law
a. Delay
b. Promised to deliver the same thing to
2 or more persons who do not have
the same interest
c. Lost of generic thing
d. Obligation to deliver a specific thing
arises from crime. (1268)
iii. Stipulation
iv. Assumption of risk
b. Partial loss – Court shall determine under the
circumstances (importance of the partial loss of
the object) whether partial loss is as to be
equivalent to a complete or total loss. (i.e. Broken
leg - horse for race or horse to be slaughtered)
2. Obligation to do
➢ The debtor in obligations to do shall also be
released when the prestation becomes legally or
physically impossible without the fault of the
obligor. (1266)
a. Impossibility at the beginning - void
b. Impossibility after the constitution of the
obligation
➢ When the service has become so difficult as to be
manifestly beyond the contemplation of the
parties, the obligor may also be released
therefrom, in whole or in part. (1267)
Kinds of impossibility
➢ Physical impossibility – (Accident/death)
➢ Legal impossibility – Ordinance declaring an area
residential zone (i.e. obligation to construct
commercial building; Lawyer appointed as judge)
General rule: When a thing is loss in possession of the debtor
it is presumed that it was loss due to his fault. (1265)
Exception:
1. Earthquake
2. Flood
3. Storm
4. Other natural calamity
• The obligation having been extinguished by the loss of
the thing, the creditor shall have all the rights of action
which the debtor may have against third persons by
reason of the loss. (1269)
3. Condonation/remission of debt - Condonation or remission
is essentially gratuitous, and requires the acceptance by
the obligor. It may be made expressly or impliedly. One
and the other kind shall be subject to the rules which
govern inofficious donations. Express condonation shall,
furthermore, comply with the forms of donation (1270)
Kinds of remission
a. Extent
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ATTY. JOHNSON A.H. ONG, CPA, MBA
1. Complete – cover the entire obligation
2. Partial – Not cover the entire obligation
b. Form
1. Express – verbal or in writing
2. Implied – Inferred from conduct
Voluntary delivery of private document
evidencing the credit by the creditor to the debtor
(Art 1271)
c. Date of effectivity
1. Inter vivos – take effect during lifetime of the
donor
2. Mortis cause – effective upon death of the donor
➢ The delivery of a private document evidencing a
credit, made voluntarily by the creditor to the debtor,
implies the renunciation of the action which the former
had against the latter.
If in order to nullify this waiver it should be claimed to
be inofficious, the debtor and his heirs may uphold it
by proving that the delivery of the document was made
in virtue of payment of the debt. (1271)
➢ Whenever the private document in which the debt
appears is found in the possession of the debtor, it
shall be presumed that the creditor delivered it
voluntarily, unless the contrary is proved. (1272)
➢ The renunciation of the principal debt shall extinguish
the accessory obligations; but the waiver of the latter
shall leave the former in force. (1273) (accessory
follows the principal)
➢ It is presumed that the accessory obligation of pledge
has been remitted when the thing pledged, after its
delivery to the creditor, is found in the possession of
the debtor, or of a third person who owns the thing.
(1274)
4. Merger/confusion – The character of creditor and debtor
are merged in the same person. (1275)
➢ Merger which takes place in the person of the principal
debtor or creditor benefits the guarantors. (principal
obligation is extinguish as well as accessory
obligation) Confusion which takes place in the person
of any of the latter does not extinguish the obligation.
(Only accessory obligation is extinguished) (1276)
➢ Confusion does not extinguish a joint obligation
except as regards the share corresponding to the
creditor or debtor in whom the two characters concur.
(1277)
5. Compensation - When two persons, in their own right, are
creditors and debtors of each other, (1278)
Confusion vs. Compensation
1. Only one person who is a debtor and creditor of
himself vs. two persons involved, each of whom is a
debtor and a creditor of the other
2. Only one obligation vs. 2 obligation
3. Impossiblity of payment vs. indirect payment
Kinds of compensation
1. Effect or extent
a. Total – Both obligations are of the same amount
b. Partial – Two obligation are of different amount
2. Cause or origin
a. Legal – Takes place by operation of law
b. Voluntary – by agreement
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c. Judicial – takes place by order from a court in a
litigation.
d. Facultative – can be set up only by one of the
parties.
Art. 1279. In order that compensation may be proper, it is
necessary: (Legal compensation)
1.) That each one of the obligors be bound principally, and
that he be at the same time a principal creditor of the other;
2.) That both debts consist in a sum of money, or if the things
due are consumable, they be of the same kind, and also of
the same quality if the latter has been stated;
3.) That the two debts be due;
4.) That they be liquidated and demandable;
5.) That over neither of them there be any retention or
controversy, commenced by third persons and
communicated in due time to the debtor.
➢ The parties may agree upon the compensation of debts
which are not yet due. (1282)
➢ If one of the parties to a suit over an obligation has a claim
for damages against the other, the former may set it off by
proving his right to said damages and the amount thereof.
(1283)
➢ When one or both debts are rescissible or voidable, they
may be compensated against each other before they are
judicially rescinded or avoided. (1284)
➢ The debtor who has consented to the assignment of rights
made by a creditor in favor of a third person, cannot set up
against the assignee the compensation which would pertain
to him against the assignor, unless the assignor was
notified by the debtor at the time he gave his consent, that
he reserved his right to the compensation. (1285)
➢ If the creditor communicated the cession to him but the
debtor did not consent thereto, the latter may set up the
compensation of debts previous to the cession, but not of
subsequent ones.
➢ If the assignment is made without the knowledge of the
debtor, he may set up the compensation of all credits prior
to the same and also later ones until he had knowledge of
the assignment. (1198a)
➢ Compensation takes place by operation of law, even
though the debts may be payable at different places, but
there shall be an indemnity for expenses of exchange or
transportation to the place of payment. (1286)
➢ If a person should have against him several debts which
are susceptible of compensation, the rules on the
application of payments shall apply to the order of the
compensation. (1289)
Art. 1287. Compensation shall not be proper when one of the
debts arises from a depositum or from the obligations of a
depositary or of a bailee in commodatum.
Neither can compensation be set up against a creditor who has
a claim for support due by gratuitous title, without prejudice to
the provisions of paragraph 2 of article 301. (1200a)
Art. 1288. Neither shall there be compensation if one of the
debts consists in civil liability arising from a penal offense. (n)
6. Novation – Obligations may be modified by: (1) Changing
their object or principal conditions; (2) Substituting the
person of the debtor; (3) Subrogating a third person in the
rights of the creditor. (1291)
Kinds of novation
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ATTY. JOHNSON A.H. ONG, CPA, MBA
1. Origin
a. Legal – operation of law
b. Conventional – agreement of the parties
2. How it s constituted
a. Express – Declared in unequivocal term
b. Implied – Old and new obligation are essentially
incompatible with each other
3. Extent or effect
a. Total or extinctive – Old obligation is completely
extinguished
b. Partial or modificatory – Old obligation is merely
modified
4. Subject
a. Real or objective – Object or principal condition are
changed
b. Personal or subjective – person of the debtor is
substituted/ or when a third person is subrogated in the
right of the creditor.
1. Substitution – Person of the debtor is substituted
1.1. Expromision – 3rd person on his own initiative
and without the knowledge or against the will
of the original debtor assumes the latter’s
obligation with the consent of the creditor.
(Only the consent of the creditor and 3 rd
person is made)
1.2. Delegacion – Creditor accepts a third person
to take the place of the debtor at the instance
of the latter. It requires that the old debtor be
release from the old obligation. (all parties,
old debtor, new debtor and the creditor must
agree)
2. Subrogation – Third person is subrogated in the
rights of the creditor.
c. Mixed – Combination of real and personal novation.
➢ Novation is never presumed.
➢ Test: Is the old and new obligation having an
independent existence. Positive - compatible (No
novation); Negative – incompatible - Novation.
➢ Conventional subrogation be clearly established
(1300) and it requires the consent of the original
parties and of the third person. (1301)
➢ Legal subrogation is not presumed except in cases
provided for by law. (1300)
➢ When the principal obligation is extinguished in
consequence of a novation, accessory obligations may
subsist only insofar as they may benefit third persons
who did not give their consent. (1296)
➢ If the new obligation is void, the original one shall
subsist, unless the parties intended that the former
relation should be extinguished in any event. (1297)
➢ The novation is void if the original obligation was
void, except when annulment may be claimed only by
the debtor or when ratification validates acts which are
voidable. (1298)
➢ If the original obligation was subject to a suspensive or
resolutory condition, the new obligation shall be under
the same condition, unless it is otherwise stipulated.
(1299)
➢ Subrogation transfers to the persons subrogated the
credit with all the rights thereto appertaining, either
against the debtor or against third person, be they
guarantors or possessors of mortgages, subject to
stipulation in a conventional subrogation. (1303)
➢ A creditor, to whom partial payment has been made,
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may exercise his right for the remainder, and he shall
be preferred to the person who has been subrogated in
his place in virtue of the partial payment of the same
credit. (1304)
Art. 1302. It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is
preferred, even without the debtor's knowledge;
(2) When a third person, not interested in the obligation,
pays with the express or tacit approval of the debtor;
(3) When, even without the knowledge of the debtor, a
person interested in the fulfillment of the obligation pays,
without prejudice to the effects of confusion as to the
latter's share. (1210a)
Multiple Choice - EXTINGUISHMENT OF
OBLIGATIONS
1. Delivery of property in satisfaction of a debt in money is:
a. ADJUDICACION EN PAGO
b. Payment by cession
c. Consignation
d. None of the above
2. D is indebted to C in the amount of P2,000,000 and to
secure the payment of which D mortgaged his house and
lot. Later on, C became indebted to D in the amount of
P500,000 which is now due and demandable. T, a third
person, without the consent of D made payment to C in the
amount of P2,000,000. On due date:
a. T can collect from D reimbursement of P2,000,000 as
this is the amount that he paid to C.
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ATTY. JOHNSON A.H. ONG, CPA, MBA
b. By T's payment to C, he became subrogated into all
the rights of C as against D and therefore, if D cannot
pay T, T can foreclose on the mortgage of the house
and lot.
c. T can foreclose on the mortgage but can recover only
P1,500,000 from the proceeds.
d. T cannot foreclose on the mortgage but can recover
only P1,500,000 as reimbursement from D up to the
extent that D was benefited by T's payment to C.
3. D is indebted to C in the amount of P500,000. By dacion
en pago D conveyed to C the ownership of a car with an
agreed appraised value of P700,000.
a. The obligation of D to C is automatically extinguished.
b. The obligation of D to C is not extinguished because
they agreed to sell the car from which the payment of
P500,000 is to be derived.
c. The obligation of D to C is automatically extinguished
and on top of that C has to pay D P200,000.
d. Correct answer not indicated.
4. D owes C P1,000.00 C tells D that he is willing to forego
collection if the latter will just give him his tape recorder.
D consents and gives C the tape recorded. D's obligation is
extinguished by:
a. Payment
b. Confusion
c. Condonation
d. Compensation
5. D is indebted to C in the amount of P500,000. By dacion
en pago, D conveyed to C the ownership of his car.
Afterwards, it was ascertained that the car has a value of
P400,000 only.
a. The obligation of D to C in the amount of P500,000 is
automatically extinguished even if the actual value of
the car is only P400,000.
b. D would still be liable for the balance of P100,000 in
favor of C.
c. C can return to D the car and compel him to pay
P500,000.
d. Dacion en pago does not apply because the subject
matter is a car and not an immovable property.
6. Strictly speaking, the following are special modes of
payment, except:
a. dacion en pago
b. application of payment
c. payment by cession
d. tender of payment and consignation
7. Payment by the debtor to a third person instead of the
creditor extinguishes the obligation if such payment
redounded to the benefit of the latter which must be
proven, except:
a. If the creditor ratifies the payment
b. If after payment, the third person acquires the rights of
the creditor
c. If creditor is in estoppel to question the authority of
the third person
d. All of the above
8. Which of these modes of special payment is governed by
the law of sales?
a. Dacion en pago;
b. Payment by cession;
c. Tender of payment and consignation;
d. Application of payment;
e. None of the above
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9. D is indebted to C for the amount of P100,000 which is
guaranteed by G. D made to C a partial payment of
P30,000. T, without the consent of D, paid C P100,000
where the prevailing rate of interest is 12%. T can recover
from D:
a. P100,000 without interest
b. P100,000 with interest
c. P70,000 with interest
d. P70,000 without interest
10. Strictly speaking, this is not a mode of special payment:
a. Dacion en pago
b. Payment by cession
c. Tender of payment and consignation
d. Application of payment
11. D is under obligation to deliver to C a champion calibre
racehorse by the name of WINDBLOWN on May 15,
2020. While D was on his way to deliver WINDBLOWN
on June 13, 2020, the racehorse died. Choose the
conclusion with the correct reasoning –
a. D is liable for damages because the object
WINDBLOWN is generic;
b. D is liable because at the time of the loss of
WINDBLOWN, he was already in delay;
c. D is not liable because all of the factors affecting loss
of the thing due are present in the case;
d. D is liable for damages because WINDBLOWN died
while in his possession and there is no indication in the
problem that it was on the occasion of a storm, flood,
earthquake or other calamity. The presumption,
therefore, is that WINDBLOWN was lost through the
fault of D.
12. D is under obligation to deliver to C a Toyota Altis with
engine no. 1234567. When D was on the way to deliver
the car, it was destroyed at a time when D was not yet in
delay. The law presumes that the loss is due to –
a. the defective nature of the car
b. A fortuitous event.
c. default on the pat of D
d. the fault or negligence of the debtor or D
13. This mode of extinguishment occurs when a person
becomes both debtor and creditor of himself:
a. Payment
b. Delict
c. Condonation
d. Novation
e. Merger
14. Insolvency of the debtor is required in:
a. Dation in payment
b. Payment by cession
c. Tender of payment and consignation
d. Application of payment
15. When two persons in their own right, are debtors and
creditors of each other, there is
a. Confusion
b. Novation
c. condonation
d. compensation
16. When the characters, of debtor and creditor are merged in
the same person with respect to the same obligation, there
is:
a. Remission
b. Novation
c. compensation
d. None of the above
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17. The delivery of a private document evidencing a credit,
made voluntarily by the creditor to the debtor even before
the debt is paid, extinguishes the obligation by:
a. Express remission
b. Compensation
c. Implied remission
d. Novation
18. In payment by cession, which of these statements is not
correct?
a. There is one debtor and several creditors.
b. It is more advantageous to the debtor than insolvency.
c. The debtor is in a state of insolvency, more or less.
d. The obligations of the debtor are not automatically
extinguished upon the cession of the assets and
properties.
19. This is exception to legal compensation –
a. Where one of the debts arises from commodatum;
b. Where one of the debts arises from depositum;
c. Where one of the debts arises support by gratuitous
title;
d. Where one of the debts arises from a civil liability on
crime;
e. All of the above
20. This kind of compensation takes place by operation of law
or automatically even without the knowledge or consent of
the parties –
a. Voluntary compensation;
b. Judicial compensation or set-off;
c. Legal compensation;
d. None of the above
21. D is indebted to C for 5,000 sacks of rice while C later on
became indebted to D also for the payment of 5,000 sacks
of rice. Both items are due and demandable, except that T
claims that the rice loaned by D to C was stolen from his
bodega and such claim has been transmitted to D and C.
a. There is compensation that both debts consists in
consumables of the same kind which are both due and
D and C are bound to each other in a principal manner.
b. There is no legal compensation here because there is a
controversy or right of retention by a third person and
communicated to D and C.
c. There is compensation because while T is claiming
that D stole 5,000 sacks of rice from him, there is no
such claim as against C.
d. The conclusions and reasoning in b and c are correct.
22. These novations take place automatically or by operation
of law. Choose the exception:
a. Where a creditor pays another creditor who is
preferred.
b. Where a third person who has no interest in the
obligation makes payment with the consent of the
debtor.
c. Where a third person who has an interest in the
obligation makes payment to the creditor.
d. None of the above.
23. D owes C P3,000,000 which is collateralized by a
mortgage on the house and lot of D. Subsequently, D
borrowed P5,000,000 from E and also mortgaged the same
house and lot in favor of the latter. If E pays C P3,000,000,
there will arise –
a. Conventional subrogation
b. Legal subrogation
c. Real novation
d. Payment by a third person
24. Personal novation:
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Accountancy Review Center Inc. ATTY. JOHNSON A.H. ONG, CPA, MBA

a. Substitution of debtor
b. Subrogation of a third person in the place of the
creditor
c. Both of (a) and (b)
d. None of the above
25. In one of these cases there is no novation. Which is it?
a. Where D is indebted to C in a promissory note for
P200,000 and another one is executed extending the
time of payment;
b. Where D is indebted to C in a promissory note for
P200,000 and another one is executed shortening the
time of payment;
c. Where D is indebted to C and they agreed that T will
substitute D in the payment of the debt;
d. Where D is indebted to C and C and T, a person,
agreed that the former shall substitute D in the
payment of the debt.
26. When a third person of his own accord and even without
the knowledge of the original debtor assumes the
obligation with the consent of the creditor:
a. Expromission
b. Subrogation
c. Delegacion
d. Real novation
27. D owes C. Later, the parties agreed that instead of D
paying C, he will just pay X. This is an instance of:
a. Expromission
b. Convertional subrogation
c. Delegacion
d. Legal subrogation
28. When a creditor pays another creditor who is preferred,
even without the debtor's knowledge, there is:
a. Real novation c. Delegacion
b. Expromission d. Legal subrogation
29. D owes C P2,000,000. Then C and T, and third person,
agree that the latter will substitute D in the payment of the
debt. Thereafter, T became insolvent.
a. C can revive his action to compel D to pay.
b. C can revive his action against D provided that D did
not know of T's insolvency or that T's insolvency is of
public or common knowledge.
c. C cannot revive his action against D because the law
does not allow this in expromission.
d. Correct answer not indicated
30. D owes C P1,000,000. T, a third person, agreed with C that
he will replace D in the payment of the debt. The
transaction is one of –
a. Expromission
b. Delegacion
c. Conventional subrogation
d. Legal subrogation
31. D owes C P100,000. T, a third person, with the consent of
D and C pays C P50,000. On due date, T has P50,000 and
no other assets. In this case –
a. T will have a preference over the P50,000
b. C will have a preference over the P50,000 as provided
by law.
c. T and C will just share proportionately the P50,000 of
D.
d. Of the P50,000 only remaining asset of D, T will get
P15,000 and C will get P35,000 because of C being
the original creditor.

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