OBLIGATIONS & CONTRACTS
Extinguishment of Obligations – Part I it shall not as a rule, extinguish the obligation
CAUSES:
1. Payment or Performance
2. Loss of the Thing Due
3. Condonation or Remission
4. Confusion or Merger of Rights
5. Compensation
6. Novation
7. Others (Annulment, Rescission, Fulfillment
of Resolutory Condition, Arrival of
Resolutory Period, Prescription, Death in
case of personal obligation, Mutual
Desistance, Prescription, Impossibility of
Performance, and Fortuitous Event)
Enumerated in 1231.
Rescission – resolution of the contract or
obligation. “Undo the creation of the obligation
as if it can never be established by the parties”.
It also extinguishes an obligation. Consequent
obligation by mutual restitution.
Termination – puts an end to a valid contract.
PAYMENT – delivery of money, performance
of an obligation (delivery of goods, to do or not
to do, etc.)
As a general rule, “acceptance” (implied or
express) by the creditor is required to
extinguish the obligation, because the
creditor also has the right to refuse
payment for causes provided for by law.
Once a valid debt is established and proved by
the creditor, the debtor has the “burden or
proving”, by preponderance of evidence, that
the obligation has been paid. Creditor has no
obligation to prove non-payment (because
negative allegation cannot be proven).
Take note:
1. Acceptance by the creditor is required.
There are forms or manners or ways or
methods of payment that are objectionable
on the part of the creditor. The refusal on
the part of the creditor to receive the
payment may be justifiable.
In other words, even if there is payment but
the same has not been received by the creditor,
especially if the refusal is with valid cause.
2. The requirement that payment before
it can extinguish an obligation, it must
be accepted by the creditor. Implied or
express accepted.
3. Once a valid debt is established and proved
by the creditor, the debtor has the burden
of proving by preponderance of evidence
that the obligation has been paid. Take
note that the creditor has no obligation to
prove non-payment later on in the
evidence. You cannot prove a negative
allegation.
If whoever alleges this positive allegation, the
debtor has the burden of proving it. The best
evidence for payment is the receipt.
FACTORS TO CONSIDER:
❖ WHAT has been paid or delivered?
❖ HOW was it paid, delivered, or performed?
❖ WHO paid or delivered?
❖ WHO accepted the payment or delivery?
❖ WHEN was payment or delivery made?
❖ WHERE was payment or delivery made?
1232-1261 – 32 articles. They appeared to be
not so organized. See a more organized
approached to these provisions. What are the
things we need to analyze?
***Requisites on what type of payment or
performance
***Legal delay or default or rules on fortuitous
event or damages
WHAT SHOULD BE PAID OR DELIVERED:
The thing or service contemplated upon by
the parties should be delivered (1233).
NOT A DIFFERENT ONE even if it is of the same
value as, or more valuable than that which is
due, or, in case of service, a different act or
forbearance, against the will of the creditor
(1244).
If creditor consents to a different thing or
service, it could be a case of either: DACION EN
PAGO or NOVATION, which also extinguishes
an obligation.
Dacion en pago, according to Manresa, is the
transmission of the ownership of a thing by the
debtor to the creditor as an accepted equivalent
of the performance of an obligation.
ANTONETTE BADONG 1
OBLIGATIONS & CONTRACTS
In dacion en pago, as a special mode of
payment, the debtor offers another thing to
the creditor who accepts it as equivalent of
payment of an outstanding debt.
The undertaking really partakes in one sense
of the nature of sale, that is, the creditor is
really buying the thing or property of the
debtor, payment for which is to be charged
against the debtor's debt.
what actually takes place in dacion en
pago is an objective novation of the
obligation where the thing offered as an
accepted equivalent of the performance
of an obligation is considered as the
object of the contract of sale, while the
debt is considered as the purchase price.
The mere return of the mortgaged motor
vehicle by the mortgagor, the herein appellant,
to the mortgagee, the herein appellee, does not
constitute dation in payment or dacion en pago
in the absence, express or implied, of the true
intention of the parties.
NOVATION is the creation of a new obligation,
and that new obligation extinguishes the old
one. From the word “novel”.
In any case, common consent is an essential
prerequisite, be it sale or novation, to have the
effect of totally extinguishing the debt or
obligation.
There are three ways of changing an
obligation or replacing an old obligation
for a new one, it could be done by:
1. Changing the person of the debtor;
2. It could also be a case of changing the
person of the creditor, meaning someone
else substitutes the person of the debtor or
creditor;
3. Changing or substituting the very
prestation or object of the contract;
In case the object is generic thing, whose
quality and circumstances (not kind and
quantity or the contract is void under 1349)
have not been stated, the creditor cannot
demand a thing of superior quality and debtor
cannot deliver a thing of inferior quality.
(1246)
***What is generic is the kind of the object to
be delivered. (e.g., kind of service to be
rendered)
In obligation to pay MONEY, it should be in the
CURRENCY stipulated, or if not possible,
PHILIPPINE PESO. (1249)
What about checks or commercial
instruments?
See 1249; cf. New Pacific Timber & Supply case,
cf. Sec. 63 of Central Bank Act.
***Negotiable instruments, bill of exchange,
negotiable promissory note
***What if the obligor in paying a monetary
obligation delivers a check?
Because it is not a legal tender, the creditor
may refuse to accept the check. If the creditor
demands the payment to be in cash, the
creditor has the right because the check is not
a legal tender.
What is a legal tender in the Philippines?
We refer to all coins and notes issued by the
Bangko Sentral ng Pilipinas (BSP). In short,
we’re referring to the Philippine Peso.
PAYMENT BY CHECK
“A check, whether a manager’s check or
ordinary check, is NOT LEGAL TENDER, and an
offer of a check in payment of a debt is not a
valid tender of payment and may be refused
receipt by the obligee or creditor.” (see: New
Pacific Timber v. Seneris (1980), Tibajia, Jr. v.
Court of Appeals, G.R. No. 100290, (June 4,
1993), 295 PHIL 187-193)
REPUBLIC ACT NO. 265, AS AMENDED
(CENTRAL BANK ACT):
“Section 63. Legal Character – Checks
representing deposit money do not have legal
tender power and their acceptance in the
payment of debts, both public and private, is at
the option of the creditor: Provided, however,
that a check which has been cleared and
credited to the account of the creditor shall be
equivalent to a delivery of the creditor of cash in
an amount equal to the amount credited to this
account”.
LEGAL TENDER IN THE PHILIPPINES: All
coins and notes issued by the Bangko Sentral
ng Pilipinas (BSP)/Philippines Peso.
WHEN SHALL A CHECK EXTINGUISH AN
OBLIGATION?
Yes.
ANTONETTE BADONG 2
OBLIGATIONS & CONTRACTS
A. When accepted by the creditor without
protest and after the same had been
cashed or cleared and credited to
creditor’s account. (RA 265)
Obligation is only extinguished at a later time.
Not at the time the check is accepted by the
creditor.
If the creditor receives the check and the
creditor will en cash the check after 30 days,
the obligation is extinguished only after it is in
cash.
B. It has been impaired through the fault of
the creditor (1249, par. 2) [e.g. a check
deposited only after ten years have lapsed;
Note: when check becomes stale after six (6)
months from due date, it does not release the
drawer from his obligation.
Two ways of effecting payment:
1. The creditor goes to your bank and have
the cash in payment.
2. The check has been impaired through the
fault of the creditor (1249, par. 2)
***If the check is a stale check, it only
discharges the obligation of the drawee to
honor the check.
***Demand a replacement of check.
If the obligor refuses, the obligee can sue.
REDEMPTION BY CHECK
A check may be used for the exercise of the
right of redemption, the same being a right
and not an obligation. The tender of a check
is sufficient to compel redemption but is not in
itself a payment that relieves the
redemptioner from his liability to pay the
redemption price. (Fortunado v. Court of
Appeals, (G.R. No. 78556, April 25, 1991, 273
PHIL 496-507)
***Go to 1249
***May the sheriff who will receive the
redemption money and probably upon the
advice of the mortgagee creditor or
whoever won in the bidding, refused to
receive it on the ground that the check is
not a legal tender?
No. There is no basis for that refusal because
the creditor cannot avail of 1249 – Payment of
debts in money.
Obligations in foreign currency may be
discharged in Philippine currency based on
the PREVAILING RATE of exchange at the
TIME OF PAYMENT. (cf. Sharp & Co. v.
Northwest Airlines [2002]);
In CONTRACTUAL OBLIGATIONS to pay
money: In case EXTRAORDINARY INFLATION
OR DEFLATION of the currency supervenes,
the VALUE OF THE CURRENCY at the time of
establishment of the obligations shall be the
basis of payment (1250) (see: Singson v. Caltex
case [2000]; Serra v. CA [1994]; Telengtan
Brothers & Sons case; Velasco v. Meralco;
Lantion case)
TAKE NOTE: since time immemorial we
became a Republic, there had never been an
extraordinary inflation or deflation. That is
factual.
Article 1250 of the Civil Code contemplates a
situation where there is a decrease or
increase in the purchasing power of the
Philippine Currency which is unusual or
beyond the common fluctuation in the value of
said currency, and such increase or decrease
could not have been reasonably foreseen or
was manifestly beyond the contemplation of
the parties at the time of the establishment of
the obligation.
“Erosion” is the accurate description of the
trend of decline in the value of the peso in the
past three to four decades which is a
characteristic of most currencies. It is certainly
distinct from the phenomenon contemplated
by Article 1250 of the Civil Code. (Singson v.
Caltex (Phils.), Inc., G.R. No. 137798, Oct. 4,
2000)
An example of extraordinary inflation, as
cited by the Court in Filipino Pipe and Foundry
Corporation v. NAWASA, 161 SCRA 32, is that
which happened to the deutschmark in 1920.
Thus: “More recently, in the 1920’s, Germany
experienced a case of hyperinflation. In early
1921, the value of the German mark was 4.2 to
the US dollar. By May of the same year, it had
stumbled to 62 to the US dollar. And as prices
went up rapidly, so that by October 1923, it
had reached 4.2 trillion to the US dollar!”
(Bernardo M. Villegas & Victor R. Abola,
Economics, An Introduction [Third Edition].
ANTONETTE BADONG 3
OBLIGATIONS & CONTRACTS
Singson v. Caltex (Phils.), Inc., G.R. No. 137798,
October 4, 2000)
SPECIAL FORMS OF PAYMENT
AFFECTING THING OR SERVICES:
1. DACION EN PAGO (1245)
2. PAYMENT BY CESSION (1255)
AFFECTING MONEY
3. APPLICATION OF PAYMENTS
4. Tender of Payment and Consignation
PROBLEM:
X and Y are friends. Wanting to infuse more
capital to a struggling business venture, X
borrowed P2M from Y payable after two (2)
years. Three (3) years have passed but X never
paid Y his loan obligations. One day, Y asked X
if he could borrow X’s brand-new Mercedes
Benz C Class (valued at P4M) for he will be
fetching his father-in-law in the airport. Weeks
have passed and Y never returned X’s Benz.
When X demanded for the return of his car, Y
invoked dacion en pago. May X legally
recover his car? Why or why not?
There is no dacion en pago. X, therefore, can
legally recover.
DACION EN PAGO
ELEMENTS:
1. CREDITOR CONSENTS (see 1245; Filinvest
case)
2. Should not prejudice or defraud other
creditors (remedy of defrauded creditors:
Accion Pauliana)
3. Debtor has not been judicially declared
insolvent
Will you answer be the same if X agreed to
the dacion en pago but the car involved is
worth P1M only?
Yes. You don’t really determine the value of
the object. It’s all about whether the creditor
having the right to demand for money will
accept something else. That’s in lieu of the
money regardless of the value of the object.
PAYMENT BY CESSION
ELEMENTS:
1. More than one debt
2. More than one creditor
3. Insolvency of debtor
4. Abandonment of all debtor’s property
not exempt from execution
5. Consent of creditors
Vs. Financial Rehabilitation and Insolvency Act
(FRIA) of 2010 (RA No. 10142)
HOW WAS IT PAID, DELIVERED, OR
PERFORMED?
Payment or performance must be COMPLETE
(1233; 1248)
Exceptions: stipulation, different conditions
or terms, obligation is in part liquidated and in
part unliquidated, payment by a joint debtor,
partial compensation, obligation is capable of
partial performance, estoppel (1235)
Note: Debtor may recover (collect what is due
him), less damages suffered by creditor, in case
of substantial compliance “in good faith”.
(1234)
SUBSTANTIAL PERFORMANCE UNDER
1234 VS. PRINCIPLE OF QUANTUM MERUIT
SUBSTANTIAL PERFORMANCE (1234) = in
case of Slight Breach
PRINCIPLE OF QUANTUM MERUIT = in case
of Material Breach
“To avoid unjust enrichment to a party from
resulting out of a substantially performed
contract, the principle of quantum meruit may
be used to determine his compensation in the
absence of a written agreement for that
purpose. The principle of quantum meruit
justifies the payment of the reasonable value
of the services rendered by him. (International
Hotel Corp v. Joaquin, Jr., G.R. No. 158361, April
10, 2013)
Under the principle of quantum meruit, a
contractor is allowed to recover the reasonable
value of the services rendered despite the lack of
a written contract.
The measure of recovery under the
principle should relate to the
ANTONETTE BADONG 4
OBLIGATIONS & CONTRACTS
reasonable value of the services
performed.
The principle prevents undue
enrichment based on the equitable
postulate that it is unjust for a
person to retain any benefit without
paying for it.
Being predicated on equity, the
principle should only be applied if no
express contract was entered into, and
no specific statutory provision was
applicable.
WHO PAID OR DELIVERED?
MUST BE: DEBTOR himself or his AGENT.
As a rule, Creditor is NOT BOUND TO ACCEPT
PAYMENT BY THIRD PERSON (STRANGER),
unless otherwise stipulated. (1236)
If THIRD PERSON PAYS, what are HIS
RIGHTS?
Third Person is one who has no interest in the
fulfillment of the obligation.
❖ PAYMENT with debtor’s consent
o FULL REIMBURSEMENT: with
subrogation
❖ Payment without debtor’s consent
o BENEFICIAL REIMBURSEMENT ONLY:
No subrogation
ILLUSTRATION:
D borrowed P10M from C without interest.
The loan obligation is secured by a Real Estate
Mortgage (REM) covering D’s parcel of land in
Cebu City. Five days after the obligation
became due, S (not a party nor privy to the
contract between D and C) paid C P10M. Two
days earlier, however, D had already partially
paid C P6M. What are the rights of S if –
A. S paid with the consent of D?
Full reimbursement with S pay to the
creditor the amount of P10M and since it has
with the consent of D, then D must reimburse
S of the amount of 10 Million.
Why 10 million? Because this is with the
consent of D and D should have informed S
that the payable was only 4 million.
Right of S to subrogation. The moment S
demands payment from D, and D refuses to
pay, S can also foreclose the mortgage because
he is subrogated to the rights of the creditor.
B. S paid without the consent of D?
Beneficial Reimbursement – the debtor will
only reimburse the stranger of the amount
that benefitted it.
In this case, since D had already paid 6Milliion,
so when S paid 10 million, D benefitted only
the amount of 4 million which is the balance of
the obligation. S is only entitled to 4 million
which is the meaning of beneficial
reimbursement.
There is no subrogation because there was no
consent of D. S has to face the consequences.
Clearly, Jalandoni greatly benefited from the
purportedly unauthorized payments. Thus,
even if she asseverates that Encomienda’s
payment of her household bills was without
her knowledge or against her will, she
cannot deny the fact that the same still inured
to her benefit and Encomienda must
therefore be consequently reimbursed for it.
(Osmena-Jalandoni v. Encomienda, G.R. No.
205578, March 1, 2017)
A simple loan or mutuum exists when a
person receives a loan of money or any other
fungible thing and acquires its ownership.
He is bound to pay to the creditor the
equal amount of the same kind and
quality.
The principle of unjust enrichment finds
application in this case.
Unjust enrichment exists when a person
unfairly retains a benefit to the loss of another,
or when a person retains money or property of
another against the fundamental principles of
justice, equity, and good conscience.
There is unjust enrichment under Article 22 of
the Civil Code when
(1) a person is unjustly benefited, and
(2) such benefit is derived at the expense
of or with damages to another.
The principle of unjust enrichment essentially
contemplates payment when there is no duty
to pay, and the person who receives the
payment has no right to receive it.
ANTONETTE BADONG 5
OBLIGATIONS & CONTRACTS
PAYMENT BY INCAPACITATED PERSON:
❖ Payment is NOT VALID; hence, creditor is
not bound to accept it.
❖ In case of MINOR-DEBTOR, payment may
be VALID if creditor spent/consumed the
money or fungible goods in GOOD FAITH!
WHO RECEIVED THE PAYMENT?
PAYMENT TO AN INCAPACITATED OR
UNAUTHORIZED PERSON:
General Rule: NOT VALID!
EXCEPTIONS:
1. The Incapacitated Person has kept the
thing delivered (1241) or
2. It redounded to his benefit (1241) or
3. The third person was in possession of the
credit and payment to him was made in
good faith (1242)
Authorized to receive payment:
1. Creditor himself of his Agent
2. Successor-in-interest (heir or assignee)
3. Authorized by law
Payment IN GOOD FAITH to a Person in
POSSESSION OF CREDIT, shall release the
debtor! (Take note of the use of the word
“Credit”, not “document”) (1242)
***There is payment by the debtor to someone
who is not actually entitled to receive the
payment.
***CREDIT because a person may be in a
possession only of a document evidencing the
credit but not the credit itself.
***What is an example of a payment to a
person who is in a possession of the credit
because he has presented its check that is
payable to bearer and therefore, in possession
of the credit but the payment is still made in
bad faith?
***For instance, a check payable to bearer had
been drawn and minutes after, the drawer
hold up the bank and advised the bank that he
lost the check and advised the bank not to
accept payment from anyone who may have
found the check that is payable to bearer.
Payment to a creditor AFTER debtor has been
judicially ordered to retain the debt shall NOT
BE VALID. (1243)
***A bank receives a notice of garnishment
involving a specific account.
***Relationship between the bank and the
depositor is that of a debtor and creditor.
***The notice of garnishment is an example of
a judicial order.
WHERE WAS PAYMENT OR DELIVERY
MADE?
The rule says a contract provides for the place
of payment and it should be complied with,
otherwise payment if it has not followed the
contract may be refused.
APPLICATION OF PAYMENTS
(ELEMENTS):
1. Two or more debts
2. Of the same kind
3. Same debtor and same creditor
4. All debts are due
5. Payment is not enough to extinguish all
debts
Extinguishment of Obligations – PART 2
Four types of Special Forms of Payment:
1. Involving the thing itself
a. dacion en pago and
b. payment by cession
2. Two special forms of payment involving
money:
a. Application of payments
**Take note of the elements enumerated
above.
b. Tender of payment and consignation
Why is this a special form of payment?
An obligation involving the form of money
under the rules and application of payments
may be extinguished in a manner that is
probably not necessarily intended by the
parties.
RULES ON APPLICATION OF PAYMENTS
❖ Debtor is given the right to make
application, unless otherwise stipulated.
But he cannot compel the creditor to agree
ANTONETTE BADONG 6
OBLIGATIONS & CONTRACTS
on advance payment of part of principal
ahead of the interest (1253).
❖ If Debtor fails to make application, the
Creditor makes it by stating it in the
receipt.
❖ If neither part makes it, application is by
operation of law:
o Most Onerous Rule
It simply means that the payment made by the
debtor shall be applied first to the most onerous
obligation.
What makes an obligation more onerous
compared to the other obligations would
depend on the various circumstances
including the nature of the law on obligation
whether it is clean loan or secured loan, or
whether or not it is secured loan obligation
compared to a much younger loan obligation,
whether it is an obligation with guarantor or
without a guarantor and so there are many
types of a loan obligation.
***For instance, a secured loan is more or less
considered more onerous than a clean loan
assuming that this loan obligations are more
or less of the same amount, the same interest
rate, and the same age.
With all these circumstances, what
distinguishes one from the other is that the
other obligation is a secured obligation.
Unlike a clean loan, a secured obligation in
case of non-payment will result in the
mortgagor usually the debtor losing his
property if the creditor decides to close the
mortgage later on.
o Proportional Application (1254)
If the obligations involved are more or less of
the same burden to the debtor.
Article 1176 provides that:
"The receipt of the principal by the creditor,
without reservation with respect to the interest,
shall give rise to the presumption that said
interest has been paid.
xxx xxx xxx."
On the other hand, Article 1253 states:
"If the debt produces interest, payment of the
principal shall not be deemed to have been
made until the interests have been covered."
The structuring of these provisions, properly
taken into account, means that Article 1176
should be treated as a general presumption
subject to the more specific presumption
under Article 1253.
Article 1176 is relevant on questions
pertaining to the effects and nature of
obligations in general, while Article 1253 is
specifically pertinent on questions involving
application of payments and extinguishment
of obligations.
1176 (1) vs. 1253
The presumption under ART. 1176 does not
resolve the question of whether the amount
received by the creditor is a payment for the
principal or interest. Under this article the
amount received by the creditor is the
payment for the principal, but a doubt
arises on whether or not the interest is
waived because the creditor accepts the
payment for the principal without reservation
with respect to the interest. Article 1176
resolves this doubt by presuming that the
creditor waives the payment of interest
because he accepts the payment for the
principal without any reservation.
On the other hand, the presumption under
Article 1253 resolves doubts involving
payment of interest-bearing debts. It is a given
under this Article that the debt produces
interest. The doubt pertains to the
application of payment; the uncertainty is
on whether the amount received by the
creditor is payment for the principal or the
interest. Article 1253 resolves this doubt by
providing a hierarchy: payments shall first be
applied to the interest; payment shall then be
applied to the principal only after the interest
has been fully paid. (Marquez v. Elison Credit
Corp., G.R. No. 194642, [April 6, 2015]).
***Payment shall first be applied to the
interest and payment then shall be applied to
the principal ONLY after the interest has been
fully paid.
Correlating the two provisions, the rule under
Article 1253 that payments shall first be
applied to the interest and not to the
principal shall govern if two facts exist:
(1) the debt produces interest (e.g., the
payment of interest is expressly
stipulated) and
ANTONETTE BADONG 7
OBLIGATIONS & CONTRACTS
(2) the principal remains unpaid.
The exception is a situation covered under
Article 1176, i.e., when the creditor waives
payment of the interest despite the presence
of (1) and (2) above. In such case, the
payments shall obviously be credited to the
principal.
ILLUSTRATION:
***This involves real property/real estate
mortgage. Under Recto Law, sale on
installment of a personal property and there is
a chattel mortgage covering the same property
purchase on installment, you remember under
Recto Law that the remedy of the unpaid
creditor are alternative remedies and not
cumulative.
***For instance, if the creditor opts to
foreclose the chattel mortgage, the creditor
could not anymore go after the debtor for the
deficiency – that is provided for under the
Recto Law. But that is NOT applicable to real
estate mortgage.
***In real estate mortgage, after the
foreclosure, and there is still deficiency, then
the creditor-mortgagee may still go after the
original debtor for the deficiency.
In the event that the debtor failed to exercise
the right to elect, the creditor may choose to
which among the debts the payment is applied
as in the case at bar. It is noteworthy that after
the sale of the foreclosed properties at the
public auction, Lorenze Realty failed to
manifest its preference as to which among the
obligations that were all due the proceeds of
the sale should be applied. Its silence can be
construed as acquiescence to China Bank’s
application of the payment first to the
interest and penalties and the remainder
to the principal which is sanctioned by Article
1253 of the New Civil Code (Spouses Tan v.
China Banking Corp., G.R. No. 200299, [August
17, 2016])
***Obligations are extinguished, among
others, by payment or performance, the
mode most relevant to the factual situation in
the present case.
Under Article 1232 of the Civil Code,
payment means not only the delivery of
money but also the performance, in any
other manner, of an obligation.
Article 1233 of the Civil Code states that a
debt shall not be understood to have been paid
unless the thing or service in which the
obligation consists of has been completely
delivered or rendered, as the case may be.
In contracts of loan, the debtor is expected to
deliver the sum of money due the creditor.
TENDER OF PAYMENT AND CONSIGNATION
– second form of payment involving money
***This is a special form of payment because
here the obligation is extinguished assuming
the requirements, the elements, and the
procedures are complied with, the tender of
payment followed with consignation, will
extinguish the obligation whether the creditor
actually receives the payment.
***There could be a possibility that an
obligation is already deemed extinguished
even if factually the money paid or consigned
in this case never reaches the creditor yet.
IF PROPERLY MADE, it will extinguish
obligation whether the creditor actually
receives the payment or not. (1256)
ELEMENTS:
1. The valid debt (1256)
Debt refers to contractual monetary
obligation. It presupposes that there is a
monetary obligation based on contract by a
debtor in favor of a creditor.
***What it means is that there should be a
monetary obligation involving debtor-
creditor relationship because there are
other instances where one pays an amount,
but the act of paying is not as a result of a
monetary obligation because of a debtor-
creditor relationship.
***One example is when the mortgagee after
the mortgage property had been foreclosed,
after auction sale, the mortgagee still has one
year or 12 months within which to redeem the
mortgage property by tendering the amount
determined after the auction.
ANTONETTE BADONG 8
OBLIGATIONS & CONTRACTS
***If that is the situation, there is still some
sort of delivery of money but that delivery of
money is not a result of a contractual
obligation to pay money because of a debtor-
creditor relationship in which case, if there is
tender of payment, for the exercise of the right
of redemption, so this is now distinguishes a
tender of payment from redemption because
in redemption, there is an exercise of a right.
***Mere tender of payment will already
protect the mortgagor and therefore, his right
will be preserved even if the creditor or the
sheriff in this case will refuse to receive the
money. (A subsequent consignation is not
required).
***Another example is party to a pacto de retro
sale – a sale with right to repurchase. If you are
a seller, in the contract it will be provided
there as to when you can exercise your right to
repurchase. Once you exercise your right to
repurchase, you also tender payment.
2. Valid prior tender which has been
unjustly refused by the creditor (1256)
Rules on payment:
❖ Completeness
❖ Legal tender
❖ Place of payment
❖ Mode of payment
***all those rules must be complied with
***the creditor has no justifiable reason to
refuse the tender of payment.
3. Prior notice of consignation to all
interested persons (1257)
4. Actual consignation in court (1258)
***consignation here is always judicial – at the
disposal of judicial authority
5. Subsequent notice of consignation to all
interested persons (1258)
***Once all of these are complied with, it will
now extinguish all obligations.
***The payment, if refused, will be consigned
in court.
Because there are various consequences of
tender of payment and consignation:
(1) The running of the interest will stop the
moment you tender your payment and
then consign;
(2) If something happens to the money, that is
deposited and consigned in court, the
debtor has no more obligation;
(3) All expenses in these forecloses will be
charged to the creditor. Indeed, if there is
no valid reason to refuse, the creditor
might just accept the payment, otherwise
he will be exposed to all those legal
consequences of tender of payment and
consignation.
WHEN CONSIGNATION ALONE WILL
EXTINGUISH AN OBLIGATION (1256)
1. Creditor is absent
2. Creditor is incapacitated
3. Creditor refuses to give receipt
4. Two or more claimants
5. Title of obligation is lost
LOSS OF THE THING DUE (1262)
Meaning of “LOSS”: the thing (1) perishes; (2)
goes out of commerce; (3) existence became
unknown and cannot be recovered (1189)
Elements:
1. Thing is DETERMINATE (particularly
described)
2. Without fault of debtor
3. Before debtor is in default (1262)
LEGAL OR PHYSICAL IMPOSSIBILITY
(1266)
Applicable to PERSONAL OBLIGATIONS.
Impossibility takes place AFTER constitution
of obligation.
VS. NATURAL IMPOSSIBILITY (inherent
impossibility vs. factual impossibility)
Inherent Impossibility = obligation is void.
Factual Impossibility = obligation is valid,
but obligor is released therefrom.
ILLUSTRATIONS
LEGAL IMPOSSIBILITY:
❖ Ortigas & Co. v. Feati Bank and Trust Co.
***A parcel of land was sold with a condition
that the buyer will use it for residential
purposes only. During that time, the property
ANTONETTE BADONG 9
OBLIGATIONS & CONTRACTS
was situated in a zone that was residential. A
Zoning Ordinance of a local government unit
provides for the specific uses of properties in
specific areas and the zoning ordinance would
for instance, declare that this area is
residential then the use of those properties
found in the area would only be residential
such that if you intend to operate an industry
for instance, you have to do it in a zone that is
declared as industrial zone.
***However, after the sale was consummated,
the area where that property was found, after
having been located in a residential zone had
been converted into a commercial zone by the
zoning ordinance.
***Now the buyer wanted to construct a
commercial building and the seller of course
protested invoking the provision in the
contract which in fact was annotated in the
title.
***What will prevail, the zoning ordinance
or the obligations in a contract?
***Obligation, rather the non-impairment
clause under the Constitution yields to the
police power of the State and the zoning
ordinance is a police measure because it
requires the proper use of properties for the
promotion of the general welfare.
***That is an example of a LEGAL
IMPOSSIBILITY where there is impossibility
to perform to follow that obligation in the
contract because the residential area had
already been converted into a commercial
zone.
1267: “Rebus sic stantibus” also known as
“Doctrine of Frustration of Commercial Object”
or “Doctrine of Unforeseen Events”)
Rebus sic stantibus – under this theory, the
parties stipulate in the light of certain
prevailing conditions, and once these
conditions cease to exist the contract also
ceases to exist.
❖ Naga Telephone Co v. CA
“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”. (EQUITABLE
PROVISION OF THE LAW)
If you force the debtor to render the obligation
or service, it will practically compel the debtor
to perform a different type of obligation
because performance of the obligation is very
difficult.
SCOPE OF “SERVICE’ in 1267
Taking into consideration the rationale behind
this provision, the term “service” should be
understood as referring to the
“performance” of the obligation. In the
present case, the obligation of private
respondent consists in allowing petitioners to
use its posts in Naga City, which is the service
contemplated in said article. Furthermore, a
bare reading of this article reveals that it is not
a requirement thereunder that the contract be
for future service with future unusual change.
According to Senator Arturo M. Tolentino,
Article 1267 states in our law the doctrine of
unforeseen events. This is said to be based on
the discredited theory of rebus sic stantibus in
public international law; under this theory, the
parties stipulate in the light of certain
prevailing conditions, and once these
conditions cease to exist the contract also
ceases to exist. Considering practical needs
and the demands of equity and good faith, the
disappearance of the basis of a contract gives
rise to a right to relief in favor of the party
prejudiced. (Naga Telephone Co., Inc. v. Court of
Appeals, G.R. No. 107112, [February 24, 1994,
300 PHIL 367-389)
Article 1267 speaks of "service" which has
become so difficult. Taking into consideration
the rationale behind this provision, the term
"service" should be understood as referring to
the "performance" of the obligation.
In the present case, the obligation of
private respondent consists in allowing
petitioners to use its posts in Naga City,
which is the service contemplated in
said article.
REQUISITES OF 1267
For Article 1267 to apply, the following
conditions should concur, namely:
(1) The event or change in circumstances
could not have been foreseen at the time of
the execution of the contract;
ANTONETTE BADONG 10
OBLIGATIONS & CONTRACTS
(2) It makes the performance of the
contract extremely difficult but not
impossible;
(3) It must not be due to the act of any of the
parties; and
(4) The contract is for future prestation.
The requisites did not concur herein because
the difficulty of performance under Article
1267 of the Civil Code should be such that one
party would be placed at a disadvantage by the
unforeseen event. Mere inconvenience, or
unexpected impediments, or increased
expenses did not suffice to relieve the
debtor from a bad bargain. (Tagaytay Realty
Co., Inc. v. Gacutan, G.R. No. 160033, [July 1,
2015], 762 PHIL 370-385)
***Tagaytay Realty Co., as developer, refused
actually suspended and delayed the
construction of certain facilities and amenities
in the subdivision that it developed because of
the rising costs in the purchase of the
materials, construction materials, at the same
time the rising cost of the maintenance of
these facilities.
***The law PD 957 which is the Subdivision
Law actually requires developers to complete
the development usually within the period of
1 year from the issuance of the license to sell.
It may be extended but it has to be through a
grant of authority by the HLURB.
***When the developer started rather insisted
on the continued collection of installments of
buyers who purchased subdivision lots on
installment. Some of the buyers refused to pay
on the ground that the obligation on the part
of the developer have not been complied with.
So there was no basis for continued collection
of installments since the developer itself paid
to perform its own obligations.
***The developer invoked 1267.
***The Court said the developer cannot invoke
1267.
EXCEPTIONS:
❖ Law
❖ Stipulation
❖ Nature of obligation requires assumption
of risk
❖ Debtor is in bad faith (promises to
deliver the same object to two or more
persons)
❖ When the thing proceeds from a criminal
offense (unless creditor is in mora
accipiendi)
CONDONATION OR REMISSION
An act of liberality whereby the creditor
renounces the enforcement of obligation and
extinguishes the obligation in whole or in part.
Basic Elements:
1. Gratuitous
2. Accepted by the obligor
3. Demandable obligation
4. Laws on Donation shall be observed.
(1270)
LIMITATIONS: (LAW ON DONATION)
FORMALITIES REQUIRED:
Donation of real property is required to be in
a public instrument in order to be valid [749];
Donation of personal property may be made
orally provided there is simultaneous delivery
of the thing or document representing the
right donated, unless the value of the thing
donated is more than P5,000, in which case it
must be in writing [748].
Donation MORTIS CAUSA shall observe the
rules on TESTAMENTARY DISPOSITION
(through last will and testament) [728]
Acceptance should be made and
communicated to donor during the lifetime of
donor and done. [746]
Donor must reserve means for support [750].
Must not be inofficious [751] – donation
should not exceed the free portion of the estate
of the donor.
IMPLIED REMISSION
Voluntary delivery of private document
evidencing a credit by creditor to the debtor
implies renunciation of action (unless
inofficious); [1271]
“Voluntariness” of delivery of the private
document is presumed if it is found in the
possession of the debtor. [1272]
ANTONETTE BADONG 11
OBLIGATIONS & CONTRACTS
Accessory obligation of Pledge, presumed
remitted when thing pledged, after delivery to
creditor, is found in possession of debtor or
owner of the thing. [1274]
CONFUSION OR MERGER
The characters of creditor and debtor are
merged in the same person (the creditor
becomes also the debtor in the same debt)
ELEMENTS:
1. Merger of the characters of creditor and
debtor in one person;
2. In the person of the principal creditor or
debtor;
3. Merger is complete and definite.
PART 3
COMPENSATION
Compensation is defined as a mode of
extinguishing obligations whereby two
persons in their capacity as principals are
mutual debtors and creditors of each other
with respect to equally liquidated and
demandable obligations to which no retention
or controversy has been timely commenced
and communicated by third parties.
Two persons, in their own right, become
creditors and debtors of each other.
Distinguished from “Set-off” and
“Counterclaims” in the sense that the latter
are more appropriate in “judicial
compensation” (1283) and must therefore be
pleaded.
1279 refers to “legal compensation”,
meaning “by operation of law”. Voluntary
compensation only needs consent of parties.
The rule on legal compensation is stated in
Article 1290 of the Civil Code which provides
that "[w]hen all the requisites mentioned in
Article 1279 are present, compensation takes
effect by operation of law, and extinguishes both
debts to the concurrent amount, even though
the creditors and debtors are not aware of the
compensation."
ELEMENTS:
1. Principal creditor and debtor;
2. Both debts are sums of money or similar
fungible goods;
3. Two debts are due;
4. Two debts are liquidated and demandable;
5. No retention or controversy over either
party commenced by third person and
communicated to the debtor. [1279] (see
also Union Bank v. DBP [2014])
ILLUSTRATION:
Ang is the registered owner of a business
called EIDC.
On December 16, 2004, Ang executed a “Deed
of Assignment of Business Rights” (Deed)
transferring all of her business rights over the
EIDC to Figuera for P150,000.00.
ANTONETTE BADONG 12
OBLIGATIONS & CONTRACTS
In addition to the assignment of rights, the
parties also agreed that Ang shall pay the bills
for electricity, telephone, office rentals, and
the employees’ salaries up to the month of
December 2004.
Without Ang’s consent, Figuera paid all the
utility bills amounting to P107,903.21 as of
December 2004. On January 17, 2005, Figuera
tendered only the amount of P42,096.79 to
Ang, after deducting the amount paid for
the utility bills from the P150,000.00
consideration of the Deed. (Figuera v. Ang,
G.R. No. 204264, [June 29, 2016])
First, in the assignment of business rights,
Figuera stood as Ang’s debtor for the
consideration amounting to P150,000.00.
Figuera, on the other hand, became Ang’s
creditor for the amount of P107,903.21
through Figuera’s subrogation to the rights of
Ang’s creditors against the latter.
Second, both debts consist of a sum of money,
which are both due, liquidated, and
demandable.
Finally, neither party alleged that there was
any claim raised by third persons against said
obligation.
In effect, even without the knowledge and
consent of Ang or Figuera, their obligation
as to the amount of P107,903.21 had
already been extinguished. Consequently,
Figuera owes Ang the remaining due amount
of P42,096.79.
Article 1291 of the New Civil Code provides
that the subrogation of a third person to the
rights of the creditor is one of the means to
modify obligations.
Subrogation, sometimes referred to as
substitution, is "an arm of equity that may
guide or even force one to pay a debt for which
an obligation was incurred but which was in
whole or in part paid by another."
It transfers to the person subrogated
the credit, with all the rights
appertaining thereto, either against the
debtor or against third persons.
Subrogation of a third person in the rights of a
creditor may either be legal or conventional.
There is legal subrogation when:
(a) a creditor pays another preferred
creditor, even without the debtor's
knowledge;
(b) a third person who is not interested in
the obligation pays with the express or
tacit approval of the debtor; and
(c) a person interested in the fulfilment of
the obligation pays, even without the
knowledge of the debtor.
Article 1278 of the New Civil Code states
that there is compensation when two persons,
in their own right, are creditors and debtors of
one another.
These elements must concur for legal
compensation to apply:
(1) each one of the debtors is bound
principally, and that the debtor is at
the same time a principal creditor of
the other;
(2) both debts consist of a sum of money,
or if the things due be consumable,
they be of the same kind and also of
the same quality if the latter has been
stated;
(3) both debts are due;
(4) both debts are liquidated and
demandable; and
(5) there be no retention or controversy
over both debts commenced by third
persons and communicated in due
time to the debtor.
When all these elements are present,
compensation takes effect by operation of
law and extinguishes both debts to the
corresponding amount, even though both
parties are without knowledge of the
compensation.
It operates even against the will of the
interested parties and even without their
consent.
Tender of payment is the act of offering to the
creditor what is due him, together with the
demand for the creditor to accept it.
To be valid, the tender of payment must be a
"fusion of intent, ability, and capability to make
good such offer, which must be absolute and
must cover the amount due."
ANTONETTE BADONG 13
 OBLIGATIONS & CONTRACTS

NO COMPENSATION in the following: [1278;
1288]
1. Debts arising from contract of depositum
[1962], when invoked by the depositary;
2. Debts arising from contract of
commodatum [1933], when invoked by
the bailee;
3. Claims for support due by gratuitous
title [194, FC] (exception: support in
arrears);
4. Obligations ex delicto
5. Certain obligations in favor of government
COMPENSATION IN ASSIGNMENT
CREDIT
WITH THE CONSENT OF DEBTOR;
- Debtor cannot set up compensation!
WITH THE KNOWLEDGE BUT WITHOUT
THE CONSENT OF DEBTOR;
- Debtor can set up compensation regarding
debts prior to assignment!
WITHOUT THE KNOWLEDGE OF DEBTOR
- Debtor can set up compensation for all debts
maturing prior to his knowledge of
assignment [1285].
CASES:
Gullas v. National Bank:
compensation shall take place when two
persons are reciprocally creditor and
debtor of each other (Civil Code, article 1195).
In this connection, it has been held that
the relation existing between a
depositor and a bank is that of creditor
and debtor.
NOVATION
From the word “novel”, which means new. It
contemplated of a “new obligation” that
extinguishes the “old obligation”.
It takes place when there is “new” (1) object or
principal obligation; or (2) debtor; or (3)
OF
creditor, or a combination of any of them.
It may be (1) extinctive or simply (2)
modificatory.
There is extinctive novation only when there is
clear intention to (1) create a new obligation
and (2) extinguish the old obligation!
Under the Civil Code, novation is one of the
means to extinguish an obligation.
This is done either by changing the object or
principal conditions, by substituting the
person of the debtor, or by subrogating a third
person in the rights of the creditor.
It is a relative extinguishment since a new
obligation is created in lieu of the old
obligation.

The bank has a right of set-off of the deposit in
its hands for the payment of any indebtedness
to it on the part of the depositor. The
relationship between a bank and its
depositor is “debtor-creditor” relationship.
Hence, compensation is allowed.
The general rule is adopted for this
jurisdiction that a bank has a right of
set off of the deposit in its hands for the
payment of any indebtedness to it on
the part of the depositor.
Garcia v. Lim Chiu Sing:
Stockholders, as such, are not creditors of the
corporation. The capital stock of a corporation
is a trust fund for the security of creditors.
***The Civil Code contains provisions
regarding compensation (set off) and deposit.
(Articles 1195 et seq., 1758 et seq.) These
portions of Philippine law provide that
The following requisites must be met for
novation to take place:
(1) There must be a previous valid
obligation;
(2) There must be an agreement of the
parties concerned to a new contract;
(3) There must be the extinguishment of
the old contract; and
(4) There must be the validity of the new
contract.
However, novation is never presumed.
Article 1292 of the Civil Code provides:
Art. 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.
ANTONETTE BADONG 14
OBLIGATIONS & CONTRACTS

It must be established that the old and new PROBLEM 2:

contracts are incompatible on all points, or
LE and LR entered into a Contract of Lease
that the will to novate appear by express
involving LR’s apartment. The term of the
agreement of the parties or acts of equivalent
lease is 5 years at P20,000.00 per month. Sub-
import.
lease is prohibited in the Contract of Lease.
In the absence of an express provision, a
Two years into the Contract of Lease, LE and
contract may still be considered novated
LR entered into a Contract to Sell whereby LE
impliedly if it passes the test of incompatibility,
buys LR’s apartment on installment for a
that is, whether the contracts can stand
period of 5 years at P25,000.00 per month
together, each one having an independent
installment. The contract allows LE to occupy
existence.
and possess the apartment while still paying
his installments.
ELEMENTS: Four years after Contract of Lease was
executed, LE leases the apartment to SL for
1. Valid old obligation
P30,000.00. May LR sue LE for breach of the
2. Intent to extinguish or to modify the old
Contract of Lease?
obligation (animus novandi)
3. Substantial Difference (Incompatibility
Test)
FORMS OF NOVATION AFFECTING DEBTOR
4. Capacity and Consent of all parties, except
in expromision EXPROMISION: (initiative comes from the
5. Valid new obligation new debtor and the creditor consents to the
substitution with the intention to release the
original debtor)
PROBLEM 1:
DELEGACION: (initiative comes from the old
LE and LR entered into a Contract of Lease debtor and the new debtor and creditor
(CL1) involving LR’s apartment. The term of accept the substitution)
the lease is 5 years at P20,000.00 per month.
NOTE: In either form, CONSENT OF THE
Sub-lease is prohibited in the CL1.
CREDITOR is required. Such consent is also
Two years into the contract, LE and LR entered not presumed. It must be express and clear.
into another Contract of Lease (CL2) with a
term of 5 years at P25,000.00 per month. The
contract does not provide for a prohibition The general rules is that novation is never
against subleasing. presumed; it must always be clearly and
unequivocally shown.
Four years after CL1 was executed, LE
subleases the apartment to SL for P30,000.00. Thus, “the mere fact that the creditor receives
May LR, the lessor, sue LE for breach of CL1? a guaranty or accepts payments from a third
person who has agreed to assume the
obligation, when there is no agreement that
INCOMPATIBILITY TEST: the first debtor shall be released from
responsibility, does not constitute
The test whether the two or more obligations
novation, and the creditor can still enforce
can stand together without conflict, each one
the obligation against the original debtor”.
having its own independent existence.
(Ever Electrical Manufacturing, Inc. v.
Incompatibility should take place in any of the Philippine Bank of Communications, G.R. Nos.
essential elements of the obligation: 187822-23, [August 3, 2016]; see also Odiamar
v. Valencia (2016))
1. Juridical relation or tie
2. Object or principal conditions
3. Subjects (debtor or creditor)

ANTONETTE BADONG 15
 OBLIGATIONS & CONTRACTS
PROBLEM:
D owes C P10M. S, stranger to both D and C,
promised to C that he (S0 will shoulder D’s
obligation within a period of 5 days. After five
days, S could no longer be found.
a. May C still demand payment of P10M from
D? Why or why not?
b. Will your answer be the same if D knew of
S’ promise to C?
c. Will your answer be the same if S did not
only promise to shoulder D’s obligations,
but in fact paid C P10M through a check
but which bounced?
RIGHTS OF “NEW DEBTOR” UPON
PAYMENT
IN EXPROMISION: (cf. 1236, 1237, 1302,
1303)
- Substitution with the knowledge and consent
of old debtor: FULL REIMBURSEMENT and
SUBROGATION
- Substitution without knowledge:
o With consent of payment [Same]
o Without consent of payment [Beneficial
Reimbursement only; No Subrogation]
IN DELEGACION: [Full Reimbursement and
Subrogation]
RIGHTS OF CREDITOR
IN CASE OF INSOLVENCY OF NEW DEBTOR
IN EXPROMISION:
Substitution without knowledge or against the
will of old debtor, the creditor cannot go after
the old debtor (old obligation is not revived).
IN DELEGACION:
As a rule, no revival of old obligation, except
when insolvency was already existing and
known to the public or the old debtor at the
time of delegacion.
"An assignment of credit is an agreement by
virtue of which the owner of a credit, known as
the assignor, by a legal cause, such as sale,
dation in payment, exchange or donation, and
without the consent of the debtor, transfers his
credit and accessory rights to another,
known as the assignee, who acquires the
power to enforce it to the same extent as the
assignor could enforce it against the debtor.
It may be in the form of sale, but at times it may
constitute a dation in payment, such as when a
debtor, in order to obtain a release from his
debt, assigns to his creditor a credit he has
against a third person." (Liam v. UCPB, G.R. No.
194664. June 15, 2016.)
Simply, an assignment of credit is the process
of transferring the right of the assignor to the
assignee who would then have the right to
proceed against the debtor.
The assignment may be done either
gratuitously or onerously, in which case, the
assignment has an effect similar to that of a
sale.
On the other hand, subrogation is a process by
which the third party pays the obligation of the
debtor to the creditor with the latter's consent.
As a consequence, the paying third party steps
into the shoes of the original creditor as
subrogee of the latter.
It results in a subjective novation of the
contract in that a third person is subrogated to
the rights of the creditor.
The crucial distinction between
assignment and subrogation actually deals
with the necessity of the consent of the
debtor in the original transaction.
In an assignment of credit, the consent of the
debtor is not necessary in order that the
assignment may fully produce legal effects.
What the law requires in an assignment of
credit is not the consent of the debtor but
merely notice to him as the assignment takes
effect only from the time, he has knowledge
thereof. A creditor may, therefore, validly
assign his credit and its accessories
without the debtor's consent.
Meanwhile, subrogation requires an
agreement among the three parties concerned
— the original creditor, the debtor, and the new
creditor. It is a new contractual relation based
on the mutual agreement among all the
necessary parties.
ILLUSTRATIONS:
CONVENTIONAL SUBROGATION:
C has a P10M claim against D as evidenced by
a PN and secured by a REM involving D’s
building. T, with consent of D and C, paid C
ANTONETTE BADONG 16
OBLIGATIONS & CONTRACTS

P10M. T is now subrogated to the rights of C as of P300,000.00 each to the four farmers, who,
against D. If D fails to pay T, the latter can in turn, waived their redemption rights.
foreclose the REM against D. Novation, thus, arose as the old obligation
became incompatible with the new.
ASSIGNMENT OF CREDIT:
C has a P10M claim against D as evidenced by
a PN and secured by a REM involving D’s
building. C, however, is also indebted to T in
the same amount of P10M. C assigns his credit
(with respect to D) to T. T now may collect
from D. If D fails to pay, T may only sue D for
collection of Sum of Money with Damages, but
cannot foreclose the REM.

A novation arises when there is a substitution

of an obligation by a subsequent one that
extinguishes the first, either by changing the
object or the principal conditions, or by
substituting the person of the debtor, or by
subrogating a third person in the rights of the
creditor.
For a valid novation to take place, there
must be, therefore:
(a) a previous valid obligation;
(b) an agreement of the parties to make a
new contract;
(c) an extinguishment of the old contract;
and
(d) a valid new contract.
In short, the new obligation extinguishes the
prior agreement only when the substitution is
unequivocally declared, or the old and the new
obligations are incompatible on every point.
A compromise of a final judgment operates as
a novation of the judgment obligation upon
compliance with either of these two
conditions.

Novation of criminal liability: The Doctrine of

Incipient Criminal Liability
Judgement of court may be novated by a
subsequent Compromise Agreement by the
parties (see: SM Systems Corp v. Camerino
[2017]).

***In the case at bar, SMS' obligation to allow

redemption of the three parcels of land was
superseded by the terms of the compromise
agreements executed with the four farmers.
SMS' new obligation consisted of thepayment

ANTONETTE BADONG 17
OBLIGATIONS & CONTRACTS

KNOWLEDGE CHECK b. Debts arising from contract of depositum

c. Debts arising from contract of
commodatum
Question 1 d. Obligations ex delicto
e. No correct answer is given
What law shall govern remission?
Question 6
a. Donation
b. Barter Y issued a check payable to “Cash” to Z, his
c. Sale creditor. Y’s bank honored the check that
d. Mortgage was in the possession of X, a thief who stole
the check from Z. Was the payment to X by
Question 2 the bank valid?
Remission of an obligation to deliver a A. Yes, because X was in possession of the
parcel of land is valid only if it is done: “credit”.
a. in a public instrument signed by the debtor B. No, because X was not a possessor of the
b. in any private instrument check in good faith
c. in any public instrument C. Yes, because the bank could not have
d. the other choices are wrong as it can be known that the check was stolen by X
done verbally D. No, because the check was intended to Y
and not to X.
Question 3 E. No correct answer is given
Which of the following is/are rules in Question 7
application of payments?
C filed a collection suit against D, his
a. All given answers are correct debtor. C was able to obtain a writ of
b. Debtor is given the right to make preliminary attachment from the court
application, unless otherwise stipulated. handling his case which was duly served on
c. The Debtor cannot compel the creditor to D’s bank, The Bank of Asia, on January 10,
agree on advance payment of part of 2022. D has a P2M deposit in The Bank of
principal ahead of the interest. Asia. Not aware of the writ of preliminary
d. If Debtor fails to make application, the attachment that was issued by the court, D
Creditor makes it by stating it in the withdrew all his money from his bank on
receipt. January 11, 2022. In case C gets a favorable
decision, may C recover from D’s bank?
Question 4
A. Yes, because the withdrawal by D of his
Which of the following statements
bank deposit was not valid
is/are not correct?
B. Yes, because D’s bank was judicially
a. All given answers are correct ordered to retain the debt
b. Delivery of private document evidencing a C. No, because D already withdrew his
credit by creditor to the debtor implies money in good faith
renunciation of action. D. No, because C’s remedy is to go after D who
c. Voluntariness of delivery of the private now has the money
document is presumed if it is found in the
possession of the debtor.
d. The accessory obligation of pledge is
presumed remitted when thing pledged,
after delivery to creditor, is found in
possession of debtor.
Question 5
Compensation in the following situations is
not allowed, except one. Which of the
following allows compensation?
a. Claims for support in arrears

ANTONETTE BADONG 18