MEMBERS:

Allanigue, Irvin Hayes

Arciaga, Jernelyn Czarina
Chua, John Blaire
Salazar, Luz Juliana

Chapter 4
Extinguishment of obligations: Please note that the Article mentioned in each number is the
answer to the problem.
1. X delivers to Y his one and only dog in accordance with their contract. Is there payment
and therefore, the obligation is extinguished? (Art. 1232)
ARTICLE 1232:
Payment means not only the delivery of money but also the performance, in any other
manner, of an obligation
RULING:
Under Article 1232, means that payment consists not only in the delivery of money but
also the giving of a thing (other than money), the doing of an act, or not doing of an
act. The payment is valid and the obligation is extiguished.

2. A owes B P10,000 payable on Oct.30, 2021. If on due date A has P9,000.00 only, what are
the effects or consequences on his obligation? (See par. 1 Art. 1248)
ARTICLE 1248:
par. 1
Unless there is an express stipulation to that effect, the creditor cannot be compelled
partially to receive the prestations in which the obligation consists. Neither may the
debtor be required to make partial payments.
RULING:
General rule: In order to extinguish your obligation, your payment/performance must
be complete.
Exception:
-If there is a stipulation
-When the debt is partly liquidated and partly unliquidated.
The creditor has the right to refuse/not to accept the performance. (If P9,000
only)

3. X binds himself to pay W P5,000 and whatever commission she will receive from Avon
Co. for the month of November 2021. Suppose the commission is not yet liquidated, can
X pay W the amount of P5,000 ahead of the commission? (Art. 1248 par.2)
ARTICLE 1248:
par. 2
 However, when the debt is in part liquidated and in part unliquidated, the creditor may
demand and the debtor may effect the payment of the former without waiting for the
liquidation of the latter.
RULING:
Under the Article 1248, this is possible, since when a debt is in part liquidated and in
part unliquidated, in which case performance of the liquidated part may be insisted
upon either by the debtor or the creditor.

4. F agrees to give E a brand new Panasonic electric stand fan in black. If F delivers to E a
brand new Panasonic electric stand fan in navy blue, may the creditor refuse to accept the
performance by F? ( See Art. 1244)
ARTICLE 1244:
The debtor of a thing cannot compel the creditor to receive a different one, although
the latter may be of the same value as, or more valuable than that which is due. In
obligations to do or not to do, an act or forbearance cannot be substituted by another
act or forbearance against the obligee’s will.
RULING:
- Payment must be regular. (In accordance with the terms of obligations)
- The creditor can deny/not accept the obligations.
- The creditor cannot be compelled to accept the obligation even if the value is the
same, or even more than that.

5. Referring to no. 4, if E knowing that the electric fan was not in the color agreed upon still
accepts it without any objection or protest, what is the effect? (Art. 1235)
Note: failure to object or protest amounts to waiver or estoppel
Waiver is the abandonment or relinquishment of a right.
Through estoppel an admission or representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the person relying thereon.
ARTICLE 1235:
When the obligee accepts the performance knowing its incompleteness or irregularity,
and without expressing any protest or objection, the obligation is deemed fully
complied with.
RULING:
The word “Accept” on this article means to take as satisfactory or sufficient or to give
assent to an incomplete performance. The creditor has waived his right to question the
defect/s by accepting the incompleteness without making any protest or objection.

6. A owes B P5,000 guaranteed by X payable on Oct. 30, 2021. If C, a third person offers to
pay A’s obligation, is B obliged to accept the payment? What are the effects? (Arts. 1236-
1238).
ARTICLE 1236-1238:
 Article 1236. The creditor is not bound to accept payment or performance by a third
person who has no interest in the fulfillment of the obligation, unless there is a
stipulation to the contrary. Whoever pays for another may demand from the debtor
what he has paid, except that if he paid without the knowledge or against the will of the
debtor, he can recover only insofar as the payment has been beneficial to the debtor.

Article 1237. 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, guaranty, or penalty

Article 1238. Payment made by a third person who does not intend to be reimbursed by
the debtor is deemed to be a donation, which requires the debtor’s consent. But the
payment is in any case valid as to the creditor who has accepted it.
RULING:
Third-person – not included in the parties of the contract, not interested in the
fulfillment of the obligation. General rule: The creditor is not obliged to accept
payment from the third person except when there is a stipulation. If the creditor accepts
payment from third person, it is valid, therefore, the obligation is extinguished.

7. Referring to no. 6, to whom should A pay his obligation? Give the effects. (Art. 1240)
ARTICLE 1240:
Payment shall be made to the person in whose favor the obligation has been
constituted, or his successor in interests, or any person authorized to receive.
RULING:
C can ask for reimbursement from the debtor. Rule: If the third person paid the
obligation without the knowledge/consent of the debtor, he can only reimburse to the
extent of the benefit of the debtor from his payment. (Example: C paid 5,000 without
A’s knowledge. He asked for reimbursement not knowing that A partially paid 2,000,
therefore, A can only reimburse 3,000 to C. C can demand refund from B via quasi-
contract, solution-indebiti)

8. If payment or performance is made or rendered to a third person, is it valid or not? (Art.

1241 par.2)
ARTICLE 1241:
par.2
Payment made to a third person shall also be valid insofar as it has redounded to the
benefit of the creditor. Such benefit to the creditor need not be proved in the following
cases:
1.) If after the payment, the third person acquires the creditor’s rights;
2.) If the creditor ratifies the payment to the third person;
3.) If by the creditor’s conduct, the debtor has been led to believe that the third person
had authority to receive the payment. (1163a)
 RULING:
Payment or performance rendered to a third person is considered valid – to the extent
that the creditor benefited.

9. X , 18 years old, borrows P2,000 from Y, 16 years old. On due date X pays Y the amount
of P2,000. Is the payment valid? (Art. 1241 par. 1)
ARTICLE 1241:
par.1
Payment to a person who is incapacitated to admnister his property shall be valid if he
has kept the thing delivered, or insofar as the payment has been beneficial to him.
RULING:
The payment is valid – as long as the creditor kept the delivered thing, or the payment
has benefited the creditor.

10. A owes B P10,000. On due date B goes to A’s residence to collect the payment and A is
ready to pay the full amount. However, they agreed that instead of cash B will accept A’s
wristwatch worth more or less P10,000 as full payment. What special form of payment is
this? (Art.1245)
ARTICLE 1245:
Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt
in money, shall be governed by the law of sales. (n)
RULING:
This special form of payment is known as Dation in payment. A kind of payment
wherein the debtor delivers and transmits to the creditor the former’s ownership over a
thing as an accepted equivalent of the payment or performance of an outstanding debt.
Dation in payment extinguishes the obligation to the extent of the value of the thing
delivered, either as agreed upon by the parties or as may be proved, unless the parties by
agreement

11. X owes several creditors in the amount of P1M all due and demandable. A has no enough
money to pay for all his obligations but he owns personal and real properties. May A use
these properties to pay off his obligations? (Art.1255)
ARTICLE 1255:
The debtor may cede or assign his property to his creditors in payment of his debts. This
cession, unless there is stipulation to the contrary, shall only release the debtor from
responsibility for the net proceeds of the thing assigned. The agreements which, on the
effect of the cession, are made between the debtor and his creditors shall be governed by
special laws.
RULING:
According to Art.1255, A may use his personal and real properties in paying off his
obligations.
12. A owes B the following: P1,000 due and demandable and P500 due (not yet due). A has
P500 only. To which debt is the payment to be applied? Who shall apply the payment?
What if both debts are due and demandable? What if both debts are of the same amount,
let’s say P500 and are already due? (Arts. 1252-1254)
ARTICLE 1252-1254:
Article 1252. He who has various debts of the same kind in favor of one and the same
creditor, may declare at the time of making the payment, to which of them the same must
be applied.
Unless the parties so stipulate, or when the application of payment is made by the party
for whose benefit the term has been constituted, application shall not be made as to debts
which are not yet due.
If the debtor accepts from the creditor a receipt in which an application of the payment is
made, the former cannot complain of the same, unless there is a cause for invalidating
the contract.

Article 1253. If the debt produces interest, payment of the principal shall not be deemed
to have been made until the interests have been covered.

Article 1254. When the payment cannot be applied in accordance with the preceding
rules, or if application can not be inferred from other circumstances, the debt which is
most onerous to the debtor, among those due, shall be deemed to have been satisfied.
If the debts due are of the same nature and burden, the payment shall be applied to all of
them proportionately.
RULING:
A cannot choose to apply his payment of five hundred pesos to the debt, which is higher,
as B cannot be compelled to accept partial payment as per Art.1248. The right to choose
which of the several dues shall be paid in this situation belongs to the debtor. However,
if the debtor failed to exercise his rights, the creditor makes the application.
In a situation wherein both debts are the same amount, due, and demandable, the debtor
is the one who has the right to choose which of debts the payment shall be applied.

13. What if the creditor refuses to accept your payment without valid reason? What if he is
willing to accept the payment but he does not want to issue a receipt? What will you do?
(Art. 1256)
ARTICLE 1256:
If the creditor to whom tender of payment has been made refuses without just cause to
accept it, the debtor shall be released from responsibility by the consignation of the thing
or sum due.
Consignation alone shall produce the same effect in the following cases:
(1) When the creditor is absent or unknown, or does not appear at the place of payment;
 (2) When he is incapacitated to receive the payment at the time it is due;
(3) When, without just cause, he refuses to give a receipt;
(4) When two or more persons claim the same right to collect;
(5) When the title of the obligation has been lost. (1176a)
RULING:
If the creditor refuses payment without a valid reason or willingly accept payment but
refuses to issue a receipt, debtor’s obligation shall be extinguished by consignation.
Consignation is the act of depositing the thing or amount due with the proper court when
the creditor does not want, refuses, or cannot receive payment after complying with the
legal formalities.

14. Legal tender - It is the form of money recognized by law to settle financial obligations
within a specific jurisdiction.

15. A pays B the amount of P100,000 by way of a check. If B accepts the check, is A considered
to have paid the obligation? (Art. 1249 par. 2)
ARTICLE 1249:
par.2
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.
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.
RULING:
A's obligation is not considered extinguished until the check is cashed, or it has been
impaired due to the creditor's fault.

16. X binds himself to deliver to B a specific object. While the object is in his possession it
was lost. What is the presumption under the law? Is there such a presumption when there’s
fortuitous event? (Art.1265)
ARTICLE 1265:
Whenever the thing is lost in the possession of the debtor, it shall be presumed that the
loss was due to his fault, unless there is proof to the contrary, and without prejudice to
the provisions of Article 1165. This presumption does not apply in case of earthquake,
flood, storm, or other natural calamity.
RULING:
The presumption if the debtor is at fault is he is in the possession of the thing, therefore
it it is rebuttable. He will only be liable if X incurred delain in the process or he had
 promised to deliver the thing to two or more persons with a different interests. The
presumption does not apply in cases of loss or destruction due to fortuitous events, with
that the debtor will not be liable as discussed in Article 1164 and 1262

17. A binds himself to deliver a specific truck to B. Before delivery, the truck engine was stolen
without fault on the part of A. Since there was only a partial loss, is the obligation of A
extinguished or not extinguished? (Art.1264)
ARTICLE 1264:
The court shall determine whether, under the circumstances, the partial loss of the object
of the obligation is so important as to extinguish the obligation.
RULING:
The obligation of A to deliver a specific truck to B is now extinguish because the thing
that was stolen which is the truck engine is a important part of the said thing. If the loss is
due to the fault of A, he shall obliged himself to pay the value of the horse with
indemnity for damages

18. Condonation or Remission of the debt - A liberal act in which the creditor gives up his
right against the debtor, either in whole or partially, resulting in the extinguishment of the
debtor's obligation.

19. X is indebted to W in the sum of P2,000 evidenced by a promissory note executed in long
hand by X. If W returns the promissory note to X, what is the presumption? (Art. 1271 par.
1)
ARTICLE 1271:
par 1
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. (1188)
RULING:
At this case, there’s a 4 presumption for a voluntary delivery of indebtness by the
creditor:

1.) Pressumtion of implied remission- If the debt is not yet paid by the creditor, it
would need the document to enforce payment. In case he voluntarily delivers it to
the debtor, the only logical interference is that he is renouncing his right.
2.) Contrary Evidence- the pressumption is prima facieor rebuttable by contrary
evidence. Evidence is admissible to show otherwise, as when a receipt signed by
the creditor was delivered only for examination by the debtor client of the the
amount of attorney’s fee to be paid by the latter
 3.) Extent of remission- If the obligation is joint, the presumption of the remission
partains only to the share of the debtor who is in the possession of the document.
If its solidary, to the total obligation.
4.) Presumption applicable only to private document- The legal presumption of
remission does not apply in the case of a public document because it is easy to
obtain a copy of the same, being a public record.

20. A and B are indebted to X in the sum of P2,000 evidenced by a promissory note executed
by the former (A and B). If the promissory note is found in the possession of A, what is the
presumption? Does it mean that the obligation of both A and B are condoned or only A’s
share in the debt? What if the obligation of A and B is solidary? (See Joint & Solidary
obligations)
ARTICLE 1207:
The concurrence of two or more creditors or of two or more debtors in one and the same
obligation does not imply that each one of the former has a right to demand, or tat each
one of the latter is bound to render, entire compliance with the prestation. There is a
solidary liability only when the obligation expressly so states or when the law or the
nature of the obligation requires solidarity.
RULING:
Joint Obligation is where the obligation is to be paid or fulfilled proportionately by the
different debtors and demanded proportionately by the different creditors. This is the
presumption in all collective obligation unless solidarity is expressly stated.

While, Solidary Obligation is where eachone of the debtors is bound render, and or each
creditor has the right to demand from any debtors, the entire compliance with the
prestation.

Therefore, A and B are joint obligation is the promisor note is found in A, then only the
obligation of A is condone. If the scenario will is solidary obligation, even the promisory
is found in the possesion of A , the obigation of both A and B will be condone.

21. W is indebted to Y for P5,000 secured by a pledge of wristwatch. If Y condones the debt
in the sum of P5,000, what is the effect? (Art.1273)
ARTICLE 1273:
The renunciation of the prinicipal debt shall extinguish the accessory obligations; but the
waiver of the latter shall leave the former in force.
RULING:
The accessory obligation is extinguished once the principal debt is remitted, because the
existence of the accessory obligation is dependent upon the existence of the principal
obligation. Also, if the accessory obligation alone is extinguished the prinicipal
obligation reminas, because the existence of the prinicipal obligation is not dependent
upon the accessory obligation.
22. Confusion or Merger of rights – meeting in one person the qualities of both creditor and
debtor in one and the same obligation.

23. A borrows P5,000 from B and executed a negotiable promissory note payable to the latter
on January 15, 2022. B pays the promissory note to C for a certain celphone. C pays the
promissory note to D for repairing the former’s car. D pays the promissory note to A for a
specific puppy sold to him by A. There is confusion or merger of rights in the person of A.

24. D owes C P1,000 the same being evidenced by a promissory note with G as guarantor.
Subsequently, C indorses back the promissory note to D. D, therefore became the debtor
and creditor with respect to the same obligation resulting in the extinguishment of the
obligation. As such, the accessory obligation of guaranty of G is also extinguished. (Art,
1276)
ARTICLE 1276:
Merger which takes place in the person of the principal debtor benefits the guarantors.
Confusion which takes place in the person of any of the latter does not extinguish the
obligation.
RULING:
On this article, there are two kinds of merger:
1. Merger in the person of the principal debtor or principal creditor- this results in
the extinguishment if the guranty because the latter is just an accessory
obligation. When the principal obligation is extinguished, the accessory
obligation is also extinguished.
2. Merger in the person the guarantor- it will not extinguish the principal obligation
because the efficacy of the principal obligation is not dependent upon the
accessory obligation.

25. Suppose in number 24, C indorses the promissory note to F and the latter indorses the same
promissory note to G, then the characters of creditor and guarantor are merged in the same
person. In such a case, the accessory obligation of guaranty is extinguished but the principal
obligation of D still subsists. Because G is now the creditor, he can demand from D the
amount of P1,000. (Art. 1276)
ARTICLE 1276:
Merger which takes place in the person of the principal debtor or creditor benefits the
guarantors. Confusion which takes place in the person of any of the latter does not
extinguish the obligation.
RULING:
G can demand from D with a 1,000 amount since became the creditor which is formerly
a guarantor. The second merger will not extinguish the principal obligation because the
efficacy of the principal obligation is not dependent upon the accessory obligation.
26. COMPENSATION takes place when two persons, in their own right, are creditors and
debtors of each other.

27. Legal compensation- This takes place when compensation extinguishes the two debts in
their concurrent amounts even without the express agreement of the parties, that is,
extinguishment by operation of law or automatically as when all the requisites in Art. 1279
are present.

28. Voluntary compensation- This takes place when there is compensation by agreement of the
parties.

29. X owes Y P500 which is now due and demandable. Y also owes X P500 also due and
demandable. There is compensation. (Arts. 1278; 1279)
ARTICLE 1278-1279:
Article 1278. Compensation shall take place when two persons, in their own right, are
creditors and debtors of each other (1195)

Article 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligators be bound principality, 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. (1196)
RULING:
Both X and Y are demandable to pay their debt with each other as both are creditors and
debtors of each other and on due of their debt with the same amount and quantity,
therefore there is compensation.

30. D owes C P1,000. In another obligation, X owes D P1,000 with C as guarantor.

Compensation will not take place because D and C are not bound principally to each other,
C being merely a guarantor in another obligation. (Art. 1279 par. no. 1)
ARTICLE 1279 :
par. no. 1
(1) That each one of the obligators be bound principality, and that he be at the same
time a principal creditor of the other
RULING:
 It is said that compensation would take place if there were a principal debtor and creditor
that has an obligation only with each other. However, with the given situation, there
would be no compensation as C is a guarantor between X and D, but C can demand
payment from D.

31. X owes Y P1,000 with G as guarantor due and demandable. Y owes X P1,000 due and
demandable. Suppose X becomes insolvent and Y demands payment from G (as
guarantor), G may set up compensation as regards the debt of Y to X. (Art. 1280)
ARTICLE 1280:
Notwithstanding the provisions of the preceding article, the guarantor may set up
compensation as regards what the creditor may owe the principal debtor (1197)
RULING:
As a guarantor, G can give compensation to the existing debt of X to Y for the obligation
to be extinguished. However, if G would give a partial payment for the debt of X, but X
cannot pay the remaining, G would still be liable of the balance.

32. Compensation may be total or partial. (Art.1281)

33. Facultative compensation- when compensation can be set up only by one of the parties
(Art. 1287 par. 1; 1288)

34. The parties may agree upon the compensation of debts which are not yet due (Art. 1282)

35. X will deliver to Y ten (10) sacks of first class white rice due and demandable. Y is also
obliged to deliver to X ten (10) sacks of first class white rice due and demandable.

36. A will deliver to B a narra dining table. B binds himself to deliver to A a bed made of dao
wood. Both obligations are due and demandable. There will be no compensation because
the things which are the object of the obligation are not of the same kind or nature.

37. Compensation shall not take place in deposit/depositum, commodatum, in support and in
debts arising from a crime (Arts. 1287; 1288)

38. NOVATION is the change or modification of obligation. The change may be done by (a)
replacing an old obligation with a new one (b) replacing the original debtor with a new
 debtor (Substituting the person of the debtor) (c) replacing the original creditor with a new
creditor (Subrogating a third person in the rights of the creditor)

39. NOVATION IS NEVER PRESUMED. (See Art. 1292)

40. Art. 1292. In order that an obligation may be extinguished by another which substitute the
same, it is imperative that it be so declared in unequivocal terms, or that the old and the
new obligations be on every point incompatible with each other.

41. X binds himself to give Y a male German shepherd puppy. Later on, X agrees to give Y a
male Labrador puppy. Is there novation? (Art. 1292)
ARTICLE 1292:
In order that an obligation may be extinguished by another which substitutes the same, it
is imperative that it be so declared in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other (1204)
RULING:
There is no novation as either one is incompatible if they are both obliged to do at the
same time as neither of them are independent if they are together. With the
incompatibility of the situation, it is said in Article 1291 that obligations may be
modified by:
(1) Changing the object or principal conditions
(2) Substituting the existing debtor
(3) Subrogating a third person in the rights of the creditor.

42. A agrees to deliver to W 50 bottles of multivitamins. But later they agreed to change the
object to ecstasy party drug. Is there novation? Is X still obliged to sell to W 50 bottles of
multivitamins? (Art. 1297)
ARTICLE 1297:
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
RULING:
According to article 1297, there would be no novation if the new obligation is void and
the original obligation shall remain in existence if the new obligation cannot extinguish.
Therefore, there is no novation in the given situation as the new obligation is void due to
the usage of illegal products. Moreover, X is still obliged to sell to W 50 bottles of
multivitamins if the new obligation is still in existence.

43. A owes B P5,000 due on December 31, 2021. X, a third person, went to B and obliged
himself to pay the debt of A. If B accepts X in place of A, then a substitution of debtor by
 EXPROMISION takes place and the obligation of A to B is extinguished and a new one
(the obligation of X to B) is created resulting in novation. (Art. 1294)
ARTICLE 1294:
If the substitution is without the knowledge or against the will of the debtor, the new
debtor’s insolvency or non-fulfillment of the obligation shall not rise to any liability on
the part of the original debtor
RULING:
As expromision existed, the obligation of A is already extinguished as X would be
responsible and liable of the obligation to B which there has a novation. Moreover, if
there is an insolvency of the obligation by X, A would not be liable of the obligation.

44. X obliged himself to deliver to Y 20 sacks of first class white rice. Later on, X brought to
Y his friend W and proposed to Y that W will take his place as debtor with respect to the
obligation to deliver 20 sacks of first class white rice. If Y agrees to the proposal of X, then
X’s obligation is extinguished and a substitution of debtor by DELEGACION takes place
resulting in novation of the obligation. In this kind of novation, the consent of the three
parties is necessary. (Art. 1295)
ARTICLE 1295:
The insolvency of the new debtor, who has been proposed by the original debtor and
accepted by the creditor, shall not revise the action of the latter against the original
obligor, except when said insolvency was already existing and of public knowledge, or
known to the debtor, when he delegated his debt (1206 a)
RULING:
With the said situation, delegacion is existed as both the debtor and creditor agreed with
the proposed proposal that the existing debtor would be replaced by a new debtor with
the consent of the new debtor and the approval of the creditor. Therefore, results to
having an agreement of three parties with a novation of the obligation existing.
However, if the new debtor is experiencing insolvency the old debtor is not liable, but
there are exceptions:

(1) If the insolvency is already existing and of public knowledge at the time of
delegacion, but not known by the old debtor
(2) If the insolvency is already existing and known by the debtor at the time of
delegacion, but not known by the public.

45. Subrogation is the substitution of one person in the place of a creditor with reference to a
lawful claim or right, giving the former all the rights of the latter including the right to
employ all remedies to enforce payment.

46. Kinds of subrogation:

 47. Conventional subrogation takes place by express agreement of the parties ( debtor, original
creditor and third person (new creditor)
Ex. A owes B P5,000. With the consent of A, B entered into a contract assigning (transfer) his
credit to X.
48. Legal which takes place by operation of law even without the agreement of the parties
Ex.
• X owes St. Peter funeral parlor the sum of P10,000. X also owes W P3,000. Knowing the
debt of X to St. Peter, W pays the obligation without the consent of X. In this case, W is
subrogated in the rights of St. Peter as preferred creditor and he (W) is entitled to be paid
ahead of other obligations.
• A owes B P5,000 guaranteed by X. A becomes insolvent. X paid the obligation of A to B.
X is subrogated in the rights of B.

• W owes Z P10,000. With the consent of W, X paid W’s indebtedness to Z. X is subrogated

in the rights of Z.