I.

ILLUSTRATION:

Juan owes Pedro P10,000.00.

Complete the given problem in order to show how the obligation is extinguish by:

a. Merger (5 points)
• Juan owes Pedro P 10,000.00 for which Juan executed a negotiable promissory note in
favor of Pedro. Pedro indorsed the note to Jose who, in turn, indorsed it to Mario. Now
Mario bought goods from the store of Juan. So Mario indorsed the note to Juan. The
obligation is extinguished by merger.

b. Compensation (5 points)
• Juan Owes Pedro P 10,000.00
Pedro owes Juan P 10,000.00

c. Novation (5 points)
• Juan owes Pedro P 10,000.00. Jose pays Pedro without the knowledge of Juan, Jose
subrogated in the rights of Pedro.

d. Condonation (5 points)
• Juan owes Pedro P 10,000.00 with Jose as guarantor.

e. Payment (5 points)
• Juan owes Pedro P 10,000.00. If Jose, a stranger to the obligation, offers to pay Pedro, the
latter may or may not accept the offer of payment. Supposed Pedro accepts, the right of Jose
to recover from Juan depends upon whether payment is with or without the knowledge or
Consent of Juan.

II. TRUE OR FALSE: Write TRUE if the statement is correct and FALSE if the statement is
incorrect. (1 point each)

FALSE 1. Payee must be made to the creditor only.

TRUE 2. The stipulation in the agreement between the parties that the loss of the thing will not
extinguish the obligation is valid.

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 FALSE 3. Condonation, as a form of donation, is effective without the acceptance by the obligor.

FALSE 4. A stipulation in the agreement that the amount borrowed shall be paid in U.S. Dollar is not
valid.

FALSE 5. The debtor can compel the creditor to accept a different thing.

FALSE 6. Novation is presumed.

FALSE 7. Payment to third person who acquires the creditor’s right after payment is not valid.

FALSE 8. Compensation will take place if the things are not of the same kind.

FALSE 9. Merger that takes place in the person of the principal debtor and creditor will not affect
the guarantor.

FALSE 10. Payment by a minor as a general rule is valid.

III. ESSAY: Provide justification and/or legal explanation for your answers. For questions requiring
“Yes” or “No” answer, a mere “Yes” or “No” without corresponding explanation will not be given full
points.

1. 1. Juan borrowed Php50,000 from Pedro. Mario is the guarantor of Juan.

1.a. Is there a valid payment if Mario will pay the obligation of Juan? (5 points)

• Yes, The remission of debt of Juan by Pedro shall extinguish the guaranty of Mario. But if only the
guaranty of Mario is condoned, the obligation of Juan shall remain in force.

1.b. Supposed, Maria will pay the obligation. What is/are the effect/s of such payment? (5 points)

• If Mario offers to pay Pedro, the latter may or may not accept the offer of payment. Supposed
Pedro accepts the right of Mario to recover from Juan. The obligation is extinguished by payment.

1.c. Supposed the loan was secured by a mortgage on Juan’s property and Maria paid. Maria cannot
collect Juan the amount paid. Can she foreclose the mortgage? (5 points)

• If Juan cannot pay, Mario cannot foreclose the mortgage on Juan. It is true that the original creditor
Pedro had the right to foreclose in case of non-payment, but in this case, the new creditor Mario had not
been subrogated in the rights of Pedro, in as much as Mario paid without the knowledge of Juan. The
only right of Mario therefore is reimbursement up to the amount Juan benefited, but NOT the right of
subrogation. "Whoever pays on behalf of the debtor without the knowledge or against the will of the
latter, cannot compel the creditor to subrogate him in his rights, such as those arising from a mortgage,
etc." (Art. 1237, Civil Code).

2. Juan and Pedro entered into an agreement wherein Pedro will construct a commercial building of in
the lot owned by Juan. When securing for permit, the government refused to issue the building permit
because the area has been declared by law as residential area.

2.a. Is there an impossibility of performance by the debtor? (5 points)

• Yes, there an impossibility of performance by the debtors. It is Legal Impossibility, occurs when the
obligation cannot be performed because it is rendered impossible by provision of law, although
physically it may be impossible of performance.

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 2.b. Is there an extinguishment of obligation? (5 points)

• The obligation of Pedro is, therefore, extinguished because it has become legally impossible. Here,
the performance of the prestation is directly prohibited by law.

3. Juan borrowed Php50,000 from Pedro evidenced by a promissory note executed by Juan in favor of
Pedro. Pedro sent the note to Juan to collect the amount. Juan is already in possession of the promissory
note and alleged that there is already remission of his debt. Is Juan correct? (5 points)

• No, because if the promissory note is voluntarily delivered to Juan, the presumption is that the
debt must have been paid by Juan. If it is known that Juan has not yet paid Pedro, it must be presumed
that the obligation has been remitted by Pedro. (Art.1271)

4. Juan and Pedro, joint debtors, borrowed Php100,000 from Mario. Mario assigns the entire credit to
Juan. Explain the liability of each the debtors. (5 points)

• Juan and Pedro are liable in equal shares unless the contract or the law provides otherwise. If Juan
or Pedro has performed more than his share, he may claim the excess from any of each them
unperformed share.

5. Juan owes Pedro P5,000 due April 29. Pedro owes Juan P3,000 due May 14.

5.a. On May 15, Pedro assigned his right to Mario. Explain the rights and/or liabilities of each parties. (10
points)

• If Pedro a assigns his right to Mario on May 15, the latter can collect P 2,000.00. However, if Juan
give his consent to the assignment before it was made or subsequently (par. 1, Article 1285, NICC), Juan
loses the right to set up the defense of compensation. So Juan will be liable to Mario for P 5,000.00, but
he can collect the P 3,000.00 owed by Pedro. In other words, the compensation shall be deemed not to
have taken place.

5.b. What if on April 18, Pedro assigned his right to Mario. Explain the rights and/or liabilities of the
parties. (10 points)

• Compensation cannot take place as the debts are not due as the same date. However, if Juan has
not yet paid Mario on the date that the obligation of Mario becomes due, there will be compensation on
that date.

6. Juan and Pedro entered into agreement wherein Juan will paint the house of Pedro blue.
Subsequently, they agreed to paint the house white. Is the original agreement extinguished? (5 points)

• Yes, the original agreement is extinguished because both parties agreed to paint the house into
white.

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