The Law On Contracts

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Midterm Phase Coverage
PART III. MODES OF EXTINGUISHMENT OF OBLIGATION
Preliminary Question
197. Question- How are obligation extinguished?
Answer-
1) by payment or performance
2) by the loss of the thing due
3) by the condonation or remission of the debt
4) by the confusion or merger of the remission of the
debt 5) by the compensation
6) by novation
(Article 1231; Civil Codes of the
Philippines)
198. Question- Name the other causes for the extinguishment of obligation.
Answer- Annulment, Recession, Fulfillment of a resolutory condition and
precision.
( Article 1232; Civil Code of the Philippines)
Lesson I- PAYMENT
199. Question- Define payment as a means to extinguish an obligation.
Answer- Payment means not only the delivery of money but also the
performance in any other manner of obligation.
( Article 1232; Civil Code of the Philippines)
200. Question- Is there difference between payment and performance?

Answer- None. Because payment as a cause of extinguishing an obligation does
not refer merely to payment of money debts, but it applies as well to the
performance of any other obligation to give, to do or not to do.
(Justo R. Torres Jr.; Law on obligation and Contract; 2003)
201. Question- In law, when is a debt understood to have been paid?

Answer- A debt shall be understood when the thing or service in which the
obligation has been completely delivered or rendered as the case may be.
(Article 1233; Civil Code of the Philippines)
202. Question- When is an obligation considered paid, although there has been no
complete performance?
Answer- When the oblige accepts the performance, knowing its incompleteness
or iregulatority and who expressing any protest or objection, the obligation is
deemed fully complied with.
203. Question- If an obligation has been substantially performed in good faith, what
can the obligor recover?
Answer- The obligor may recover as though there had been a strict and complete
fulfillment, less damages suffered by the obligee.
204. Question- Can a creditor be compelled to accept payment from a third person
who shall have no interest in the fulfillment of the obligation?
Answer- No.
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205. Question- From whom a creditor accept payment?

Answer-
1) the debtor
2) any person who has an interest in the obligation( like guarantor )
3) a third person who has no interest in the obligation when there is
stipulation that he can make payments
(Hector S. De Leon; The law on Obligation and Contracts; 2003)
206. Question- What are the effects by a third person who is not interested in the
obligation once accepted by a creditor?
Answer-
a) If made without the knowledge or against the will of the debtor- the
payer can recover from the debtor only insofar as the payment has been
beneficial to the latter
b) If made with the knowledge of the debtor- the payer shall have
the rights of reimbursement and subrogation, that is, to recover what he
has paid and to acquire all the rights of the creditor.
(Hector De Leon; The law on Obligation and Contracts; 2003)
207. Question- If the third person who pays does not intend to be reimbursed by the
debtor, will this payment extinguish to obligation?
Answer- Yes. The payment is in any case valid as to the creditor who has
accepted it.
208. Question- Can the payment be considered as a donation?

Answer- Yes. 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.
209. Question- In obligation to give will payment by one who does not have free
disposal of the thing due and capacity to alienate it, be valid?
Answer- No. In obligations to give, payment made by one who does not have the
free disposal of the thing due and capacity to alienate it shall not be valid, without
prejudice to the provisions of Article 1427 under the Title on "Natural
Obligations."
210. Question- To whom shall payment be made.

Answer- To the person in whose favor the obligation has been constituted,
or his successor in interest, or any person authorized to receive it.
211. Question- Will payment to a person who is incapacitated to administer or mage

his property be valid?
Answer- Yes, if he has kept the thing delivered or insofar as the payment has
been beneficial to him.
212. Question- When shall the payment to a third person be valid?

Answer-
1) if after the payment, the third person acquires the creditor’s right.
2) if by the creditor ratifies the payment to the third person.
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213. Question- When is proof of benefit to the creditor not necessary, yet the
payment to the third person is valid to extinguish the obligation?
Answer- 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.
(http://www.chanrobles.com/civilcodeofthephilippinesbook4.htm)
214. Question- Is the payment made to person in possession of credit valid, to release
the debtor of the obligation?
Answer- Yes.Payment made in good faith to any person in possession of the
credit shall release the debtor.
215. Question- What is the effect if payment is made to creditor by the debtor, after
the latter has been judicially ordered to retain the debt?
Answer- It shall not be valid.
216. Question- What are special forms of payment under the Civil Code?
Answer-
1) Application of Payments
2) Payment by Cession
a) dacion en pago or dation in payment
3) Tender of Payment and Consignation
(Justo P. Torres; Law on Obligation and Contract;1990)
217. Question- What is “Donation in Payment”

Answer- ( adjudication or dacation en pago) is the conveyance of ownership as
an accepted equivalent of performance.
218. Question- What law shall govern donation in payment?

Answer- Law of sales governs because donation in payment may be considered
specie of sale in which the amount of the money debt becomes the price of the
thing alienated.
219. Question- How shall an obligation be paid if it consist of an indeterminate or

generic thing, whose quality and circumstances have not been started?
Answer- According to article 1243, the creditor cannot demand a thing of superior
quality. Neither can the debtor deliver a thing of inferior quality. The purpose of
the obligation and other circumstances shall be taken into consideration .
220. Question- Who shall bear extra-judicial expenses of payment?

Answer- article 1247 states that unless it is otherwise stipulated, the extrajudicial
expenses required by the payment shall be for the account of the debtor.
221. Question- Who shall bear judicial expenses of payment?

Answer- With regard to judicial costs, the Rules of Court shall govern.
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222. Question- In payment, may the creditor be required to accept partial

performance?
Answer- No, the creditor cannot be compelled partially to receive the prestations
in which the obligation consist.
223. Question- Under what case may partial performance be allowed?

Answer-
1) when there is an express stipulation to that effect.
2) when the debt is in part liquidated and in part unliquidated.
3) when the different prestations in which the obligation consist are
subject to different terms or conditions.
224. Question- If an obligation is stipulated as payable in US $,can be debtor be

obliged to pay in US dollars?
Answer- Yes, because the payment of debt in money in the currency stipulated.
225. Question-If a money obligation contracted in the Philippines requires payment in

currency other than Philippines currency will such obligation be considered void.
Answer- yes, because agreement to pay the obligation is a currency other than
Philippines currency is null and void as contrary to public policy.
226. Question-Republic Act no.529 Republic Act of Philippines. What does legal
tender means?
Answer-The currency which a debtor can legally compel a creditor to accept in a
payment of a debt in money when tendered by the debtor in the right amount.
(http://www.chanrobles.com/republicacts/republicactno529.html)
227. Question-When shall the delivery of promissory notes payable to order or bills of
exchange or other mercantile document produce the effect of payment?
Answer-When they have been cashed or when through the fault of the creditor
they have been impaired.
228. Question-What would be the effect if the creditor accepts the delivery of
promissory notes payable to order if such would not effect as payment.
Answer- according to article 1249, “In the meantime, the action derived from the
original obligation shall be held in the abeyance.”
229. Question-What is the basis of payment in case an extraordinary inflation or

deflation of the currency stipulated should supervene.
Answer-the purchasing value of the currency of the time of the establishment of

the obligation.
230. Question-What does inflation mean?

Answer-A sharp sudden increase of money or credit or both without a
corresponding increase in business transaction. It causes a drop in the value of
money resulting in the rise of the general price level.
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231. Question-What does deflation mean?

Answer-It is the reduction in volume and circulation of the available money or
credit resulting in a decline of the general price level, It is opposite in inflation.
232. Question- At what place shall payment be made?

Answer-Payment shall be made in the place designated in the obligation.
233. Question-Who shall bear the additional expenses in payment?

Answer-the debtor because if the debtor changes his domicile in bad faith or after
he has incurred in delay, the additional expense shall be borne by him.
234. Question-When shall application take place?

Answer-it is when the application of payment is made by the party for whose
benefit the term has been constituted.
235. Question- May application of payment be made as to debts not yet due?
Answer- No application shall not be made as to debts which are not yet due.
236. Question- If the various debts of the debtor are all onerous and burdensome as
to which debts shall application of payment be made?
Answer- the debt which is most onerous to the debtor, among those due, shall be
deemed to have been satisfied.
237. Question- If all the debts are equally burdensome, how shall application of
payment be made?
Answer- If the debts due are of the same nature and burden, the payment shall
be applied to all of them proportionately .
238. Question- Who has the first choice of application of payment?

Answer- He who has various debts of the same kind in favor of one and the
same creditor
239. Question- When shall the debtor make use of application of payment?
Answer- it is when the debtor incur several debts of the same kind into one
creditor.
240. Question- When will the principal be considered paid should the debtor produces
interest?
Answer- If the debt produces interest, payment of the principal shall not be
deemed to have been made until the interests have been covered.
241. Question- Give examples of more onerous debts.

Answer-
a) an exclusive debt which is not solidary is more onerous than a solidary
debt.
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b) older debts in case of running accounts bearing debt is older pledge.

c) debts with interest even if the non-interest.
d) debts with penalty.
e) debts secured by mortgage.
f) advances for subsistence are more onerous than cash advances.
242. Question- What is mean by “payment by cession”?

Answer- Another special form of payment. It is the assignment of abandonment
of all the properties of the debtor for the benefits of his creditors in order that the
latter may sale the same and apply the proceeds thereof to the satisfaction of
their credit.
243. Question- What are the requisites of payment be cession?

Answer-
1) there must be two or more creditors.
2) the debtor must be (partially) insolvent.
3) the cession must be accepted by creditors.
244. Question- Will the total obligations of the debtor be extinguished by payment be
cession?
Answer- it is said in article 1255 that unless there is stipulation to the contrary, it
shall only release the debtor from responsibility for the net proceeds of the thing
assigned.
245. Question- Distinguish between donation in payment and cession.

Answer-
1) In donation there is usually only one creditor while in cession, there are
several creditors.
2) Donation does not presuppose the insolvency of the debtor, while in
cession the debtor is insolvent at the time of assignment.
3) Donation does not involve all the property of the debtor while cession
extend to all the property of the debtor.
246. Question- What is meant be tender of payment?

Answer- it is the act of the part of debtor of offering the creditor the thing or
amount due. The debtor must show that he has in his possession the thing or
money to be delivered at the time of the offer.
247. Question- If the debtor makes a valid tender of payment which is refused by the
creditor which just cause, will the obligation be extinguished?
Answer- Yes, the debtor shall be released from responsibility by the consignation
of the thing or sum due.
248. Question- What is consignation?

Answer- the act of depositing the thing or amount due with the proper court when
the creditor does not desire or cannot receive it, after complying with the
formalities required by law. It is always judicial and it generally requisites a prior
tender payment which is by its very nature extrajudicial.
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249. Question- Can consignation take place without a previous valid tender of
payment?
Answer- No. according to article 1258, Consignation shall be made by depositing
the things due.
250. Question-
251. Question- Can the debtor withdraw the thing or the sum deposited?
Answer- Yes, the debtor, however, may withdraw as a matter of right the things
or sum deposited :
a) before the creditor has accepted the consignation.
b) before a judicial declaration that the consignation has been property made, as
he is still the owner of the same.
252. Question-
253. Question- What is the effect if the withdrawal is consented to by the creditor?
Answer- The creditor shall lose every preference which he may have over the
thing, and the co-debtor, guarantors, and sureties shall released.
Lesson 2- LOSS
254. Question- When is a thing considered lost?
Answer- When it perishes, or goes out of commerce or disappears in such a way
that its existence is unknown or it cannot be recovered. Loss of the thing is the
equivalent of impossibility of performance on obligation to do.
255. Question- What obligation are extinguished by loss of the thing due?
Answer- It is applicable ob obligations to give but also extends to those which are
personal embracing therefore all cases which may render impossible
performance of the prestation.
(Justo P. Torres; Law on Obligation and Contract; 2003)
256. Question-What requisites must be fulfilled so that the obligations be extinguished

by the loss of the thing due?
Answer-
1) the obligation is to deliver a specific thing.
2) the loss of the thing occurs without the fault of the debtor.
3) the debtor is not guilty of delay.
257. Question- What are the cases where loss of the determinate thing due in the
absence of fault or delay will not extinguish the debtor’s obligation?
Answer-
1) when the law so provides
2) when the stipulation so provides
3) when the nature of the obligation requires the assumption of risk
4) when the obligation to deliver a specific thing arises from a crime.
258. Question- Will the obligation be extinguished in case of partial loss of the specific
thing which is the object of the obligation?
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Answer- It depends. The courts shall determine whether, under the

circumstances, the partial loss of the object of the obligation is so important as to
extinguish the obligation.
259. Question- What is the presumption in case the thing is loss in the possession of
the debtor?
Answer- A disputable presumption of fault whenever the thing to be delivered is
lost in the possession of the debtor.
260. Question- In what cases do this presumption not applicable?

Answer- Incase or natural calamities.
261. Question- Does the principle of “loss of the thing due” apply to extinguish an
obligation to do?
Answer- Yes because an obligation which consist in the delivery of a determinate
thing shall be extinguished if it should be lost or destroyed without the fault of the
debtor and before he has incurred in delay.
262. Question- When shall the debtor be released in obligations to do?

Answer – The debtor in obligations to do shall also be released when the
prestation becomes legally or physically impossible without the fault of obligor.
263. Question- Explain “physical impossibility”.

Answer- For example the obligor dies or becomes physically incapacitated to
perform the obligation.
264. Question-Explain “Legal Impossibility”. Answer- Legal impossibility occurs when

the obligation cannot performed because it is rendered impossible by provision of law
although physically it may be possible of performance.
265. Question- What is the effect of fortuitous event where the obligation proceeds
from a criminal offense? Answer- The debtor shall not be exempted from the payment of
its price, whatever maybe the cause of cause for the loss, unless the thing having been
offered by him to the payor who should receive it, the latter refused without justification
to accept it.
266. Question- Does the creditor lose all his rights in case the obligation is
extinguished by the loss of the thing due?
Answer- No, the creditor shall have all the rights of action which the debtor may
have against third person by reason of the loss.
Lesson 3- REMISSION
267. Question- Define condonation or remission. Answer- it is an act of liberality by
which the obligee, who receives no price or equivalent thereof, renounces the
enforcement of the obligation, which is extinguished in it’s entirely or in that part
or aspect of the same to which the remission refers.
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268. Question- Can condonation or remission be considered a donation?

Answer- yes if one and the other kind shall be subject to the rules which govern
inofficious donations. Express condonation shall, furthermore, comply with the
forms of donation.
269. Question- What are requisites of condonation or remission?

Answer-
1) it must be gratuitous.
2) it must be accepted by the obligor.
3) the parties must have capacity.
4) it must not be inofficious.
5) if made expressly, it must comply with the forms of donation.
6) the obligation must be demandable at the time of remission.
270. Question- What is meant by inofficious donation?

Answer- it is the revocation or reduction of donation.
(http://www.chanrobles.com/civilcodeofthephilippinesbook3.htm)
271. Question- What are rules on forms of donation?

Answer- it shall be essentially gratuitous, and requires the acceptance by the
obligor
272. Question- When is the creditor implied to have renounced the action against his
debtor?
Answer- When the delivery of a private document evidencing a credit, made
voluntarily by the creditor to the debtor.
273. Question- How may the creditor nullify this waiver?

Answer- It shouldbe claimed to be inofficious.
274. Question- Should the debtor or his heirs want to uphold such waiver, what should
the prove?
Answer- the debtor and his heirs may uphold it by proving that the delivery of the
document was made in virtue of payment of debt.
275. Question- What presumption applies in the case where the private document in
which the debt appears is found in possession of the debtor?
Answer- Whenever the private document in which the debt appears is found in
the possession of the debtor, it shall be presumed that the creditor delivered it
voluntarily, unless the contraty is proved.
276. Question- What are the kinds of remission or condonation?

Answer-
1) As to its extent:
a) Complete- when it covers the entire obligation
b) partial- when it does not cover the entire obligation
2) As to its form:
a) Express- when it is made either verbally or in writing
b) Implied- when it can only be inferred from conduct
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3) As to its date of effectivity:

a) Intervivos- when it will take effect during the lifetime of the donor
b) Mortis causa- when it will become effective upon the death of the
donor. It must comply with the formalities of a will.
277. Question- If the principal debt is remitted, what is its effect upon accessory
obligation?
Answer- Obligation which are remitted must have been demandable at the time
of remission.
(Ateneo Central Bar Operation 2007, Civil Law summer Reviewer)
278. Question- When is the accessory obligation of pledge presumed to have been
remitted?
Answer- when the thing pledged, after its delivery to the creditor, is found in the
possession of the debtor, or of a third person who owns the thing.
(Article 1274 Civil Code of the Philippines )
279. Question- When the accessory obligation of pledge presumed to have been
remitted?
Answer- when the thing pledge, after its delivery to the creditor, is found in the
possession of the debtor, or of a third person who owns the thing.
(Article 1274 Civil Code of the Philippines)
Lesson 4- MERGER OR CONFUSION

280. Question – Define confusion.
Answer- confusion is the meeting in one person of the equalities of creditor and
debtor with respect to the same obligation.
281. Question- What is the requisites of obligation?

Answer-
1) that the characters of creditor and debtor must be int the same person.
2) That it must take place in the person of either the principal creditor or the
principal creditor or the principal debtor.
3) That it must complete and definite.
282. Question- Who are benefited by merger which take place in the person of the
principal debtor or creditor?
Answer- The guarantors
(Article 1276 Civil Code of the Philippines)
283. Question- What is the effect of merger take place in the person of guarantor?
Answer- the extinguishment the guaranty leaves the principal obligation in force
284. Question- What is the effect if merger or confusion takes place in the person of
one of the joint debtors in a joint obligation.
Answer- None because each debtor has his own creditor to whom he is liable
and confusion taking place in the person of any debtor or creditor does not affect
the others.
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285. Question- What is the effect if mergers take place in the person of one of the
solidary debtors in a solidary obligation?
Answer- It extinguishes the entire obligation because it is also a merger in the
other solidary debtors.
(Article 1215 Civil Code of the Philippines and Hector De Leon; The law on
Obligation and Contracts; 2003)
Lesson 5- COMPENSATION
286. Question- Define compensation
Answer- The extinguishment to the concurrent amount of the debts of two
persons who, in their own right, are debtors and creditors of each other.
287. Question- Distinguish between compensation and confusion.

Answer-
1) In confusion, there is only one person who is a creditor and debtor of
himself, while in compensation there are two persons involved, each of
whom is a debtor and a creditor of the other.
2) In confusion, there is but one obligation, while in compensation, there
are two obligation
3) In confusion, there is impossibility of payment while in compensation,
there is indirect payment.
288. Question- What are the kinds of compensation?
Answer-
1) By its effect or extent:
a) total- when both obligation are of the same amount and are
entirely extinguished.
b) partial- when the two obligation are different amount and balance
remains.
2) By its cause or origin:
a) legal- when it takes place by operation of law even without the
knowledge of parties.
b) voluntary- when it takes by agreement of parties.
c) judicial- when it takes place by order from a court un a litigation.
d) facultative- when it can be set up only by one of the parties.
289. Question- What are the requisites of compensation?

Answer-
1) the parties are principal creditors and principal debtors of each other.
2) both debts consist in a sum of money, or of consumable thing of the
same kind and quality.
3) the two debts are due and demandable.
4) the two debts are liquidated.
5) no retention or controversy commenced by a third person.
290. Question- May compensation takes place to extinguish both obligations if one of
the principal creditors is a secondary debtor in the former obligation?
Answer- no because it is stated in article 1279 that each one of the obligors be
bound principally, and that he be at the same time a principal creditor of the other
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291. Question- Who is benefited if compensation takes place between the principal
debtor?
Answer- The guarantor.
(Hector S. De Leon; The law on Obligation and Contracts; 2003),
292. Question- May compensation takes place between a bank and its depositor?
Answer-.
293. Question- Can shareholder compensation what he gives the corporation as loan
with his shareholdings?
294. Question- Distinguish between set-off or counterclaim from compensation.
295. Question- Can compensation take place if one or both debts are rescissible or
voidable?
Answer – Yes, prior to annulment. also according to article 1284,when one or
both debts are rescissible or voidable, they may be compensated against each
other before they are judicially rescinded or avoided
(Hector S. De Leon; The law on Obligation and Contracts; 2003),
296. Question- What are the effect of assignment of a debt which would be subject to
compensation?
297. Question- Can compensation takes place by operation of law?

Answer- Yes, compensation take place by operation of law, even the debts may
be payable at different places, but there shall be an indemnity for expensed of
exchange or transportation to the place of payment.
298. Question- Can compensation takes place if debts are payable at different place?
Answer – Yes, the indemnity contemplated above does not refer to the difference
in the value of the things in their respective places but to the expenses of
monetary exchange and expenses of transportation.
299. Question- What are the instances where legal compensation is not allowed
places?
Answer-
1) where one of the debts arises from a deposilum
2) where one of the debt arises from a commodatum
3) where one of the debts arises from a claim support due by gratuitous
title
4) where one of the debts consists in civil liability arising from a penal
offense
300. Question- If a person should have against him several debts, which are
susceptible of compensation
Answer- The rules on the application of payment shall apply to the order of the
compensation.
301. Question- can a compensation take place even though the creditors and debtors
are not aware of the compensation
Answer- No.
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Lesson 6 – NOVATION
302. Question- How are obligations are modified?
Answer-
1) Changing their object or principal conditions
2) Substituting the person of the debtor
3) Subrogating a third person in the right of the creditor
303. Question-Define novation.

Answer- It is the extinction of an obligation through the creation of a new one
which substitutes it. It is the substitution or change of an obligation by another,
which extinguish or modifies the first, either changing its object or principal
conditions, or substituting another in place of the debtor, or subrogating a third
person in the rights of the creditor.
(Hector S. de Leon; Law on Obligation and Contract; 2008)
304. Question- What are requisites of

Answer-
1) A previous valid obligation
2)Capacity and intention of the parties to modify or extinguish the
obligation
3)The modification or extinguishment of t he obligation
4)The creation of new valid obligation
305. Question-In what forms may novation exist?

Answer- It exist on the instance of extinguishing an existing obligation and in
substituting a new one in its place.
306. Question- Name some kind of novation.

Answer-
1) According to origin
a) Legal - that which takes place by operation of law
b) Conventional – that which takes place by agreement of the parties
2) According to how it is constituted
c) Express – when it is so declared in an equivocal terms
d) Implied – when the old and the new obligation are essentially incompatible
with each other.
3) According to extent
a) Total or extinctive- When the old obligation is completely extinguish
b) Partial or modificatory – when the old obligation is merely modified
4) According to the subject
a) Real or objective – when the object or the principal conditions are changed
b) Personal or Subjective – when the person of the debtor is substituted
and/or when a third person is subrogated in the right of the creditor
c) Mixed – when the object and the debtor or the creditor or both the parties
are changed
307. Question- What is real novation?

Answer- The change in the object or principal conditions of the obligations
(Torres; Law on Obligation and Contract; 1990)
308. Question- What is personal novation?

Answer- It is when another person is substituted in place of the debtor or he is
subrogated to the rights of the creditor
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309. Question- What is mixed novation?

Answer- it is the change in the person of the parties and the object s or the
modifications of principal conditions
310. Question- Is novation presumed?

Answer- No. Novation is never presumed. It must be clearly and unmistakably
establi8shed either by the express agreement of the parties or acts of the
equivalent import or by the incompatibility of the two obligations which each other
in every material respects
311. Question- in what forms may substation of the person of the debtors exist?
Answer-
312. Question- may Substitution of the person of the debtor take place without
consent of the debtor?
Answer- Yes but not without the consent of the creditor
313. Question-What is the effect of the new debtor’s insolvency or non fulfillment of the
obligation, where the substitution is without the knowledge or against the will of the
debtor?
Answer- There is no effect for the reason that 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 give rise to any liability on the part of the
original debtor
314. Question- What is the effect of the new debtor’s insolvency in delegacion
Answer- There is no effect. It must be noted that the article speaks only of
insolvency, the old debtor is not liable.
315 Question- In expromision what are the rights of the new debtor in case he pays
the creditor?
Answer- The right to beneficial reimbursement under the second paragraph of
Article 1236.
316. Question- In Delegacion, what are the rights of the new debtors who pays?
Answer- The new debtor is entitled to reimbursement and subrogation
317. Question- What is the effect of the accessory obligation where the principal
obligation is extinguished in consequence of the novation?
Answer- It provides the exemption in the case of an accessory obligation created I
n favor of a third person which remains in force unless said third person give his
consent to the novation
318. Question- In novation the new obligation is void will the old obligation be
extinguished?
Answer- Yes. If the new obligation is void, the original one shall subsist, unless
then parties intended that the former relation should be extinguished in any event.
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319. Question- When is novation considered void?

Answer- It is void when the original obligation was void, except when annulment
may be claimed only by the debtor, or when ratification validates acts which are
voidable.
320. Question- If the original obligation is the subject to a susceptive or resolutory

condition but the new obligation which novates it is not subject to any condition, is
the new obligation immediately demandable?
Answer- No for the reason contained in article 1299 that the efficacy of the new
obligation depends upon whether the condition which affects the old obligation is
complied with or not
321. Question- In how many ways may subrogation takes place?

Answer- Subrogation may takes place in two (2) ways.
322. Question- What is conventional subrogation?

Answer- It must be clearly established in order that it, may take effect. Hence in
order for it to exist, the consent of the original parties and of the third person must
be secured
323. Question- Can conventional subrogation be presumed or implied?

Answer- Conventional subrogation can be presumed.
324. Question- What is meant by legal subrogation?

Answer- It takes place by the operation of law, and such, even without the consent
of the parties, the obligation is extinguished while a new one is created by
novation.
325. Question- In hat tree cases shall legal subrogation exist?

Answer-
1) When creditors pays another creditor who is preferred
2) When an third person without an interest in the obligation pays wit h the
approval of the debtor
3) When a third person with an interest in the obligation pays even without the
knowledge of the debtor.
326. Question- State the effect of subrogation.

Answer- the effect of legal subrogation is to transfer to the new creditor the credit
and all the rights and actions that could have been exercised by the former
creditor either against the debtor or against the third person, be they are
guarantors or mortgagors.The effect of legal sub rogation as provided in article
1303 may not be modified by agreement. The effects of conventional subrogation
are subject to the stipulation of the parties.
bdp
327. Question- If A is Indebted to B for P1, 000 which is a preferred credit. C an

ordinary creditor of A, pays B P500. Who is the creditor of A as regards the
balance of P500?
Answer- C is the creditor of A as regards to the balance of P500.

The Law on Contracts
Lesson 1: preliminaries
328. Question- Define contract?
Answer-Contract is a meeting of minds between two persons whereby one binds
himself, with respect to other, to give something or to render some service.
329. Question-Distinguish contract from obligation.

Answer-Contract is one source of obligation. On the other hand, obligation is the
legal tie or relation itself that exist after a contract has been entered into. There can
be no contract if there’s no obligation. But obligation may exist without a contract.
(Hector S. de Leon; Obligation and Contract; 2008)
330. Question-Are contract and agreement the same?

Answer- no. contract are agreement enforceable through legal proceedings those
agreement which cannot be enforce by action in the court of justice are not
contracts but merely moral or social agreement. So all contracts are agreement
but not all agreement is contracts.
331. Question-What are meant by “Autonomy” in contracts?

Answer-Autonomy is freedom to contract.
332. Question-what are the limitations to freedom to contract?

Answer-
1) Law- it is a fundamental requirement that the contract entered into must be
accordance with, and not repugnant to an applicable statute. Its terms are
embodied in every contract. Thus the law set limits.
2) Police power- contractual obligation are subject as an implied reservation
there in to the possible exercise of the police power of the state
(Hector S. de Leon: Obligation and Contract; 2008)
333. Question-what are innominate contracts?

Answer- it is that which has no specific name or designation.
334. Question-Which are the kind of innominate contracts?

Answer
1) do ut des (I give that you may give)
2) do ut facials(I give that you may do)
3) facio ut facias (I do that you may do)
4) facio ut des (I do that you may give)
335 Question-What are innominate contracts?

Answer: - it is that which has no specific name or designation.
bdp
336. Question-How is innominate contracts regulated?
Answer- by
1) the agreement of parties
2) the provision of the Civil Code on obligation and contracts
3) the rules governing the most analogous contacts
4) the customs of the place
337. Question- upon whom shall a contract be binding?

Answer- A contract be bind to both parties in order that it can be enforced
against either
338. Question- can the validity or compliance of a contract be left to the will of either
party?
Answer- No. it cannot be left to the will of either party.
339. Question- can the determination of performance of a contract be left to a third

person?
Answer-Yes it can be left to a third person
340. Question- Will the third person’s determination be obligatory upon the parties?
Answer- It’s not if it is evidently inequitable. In such case, the courts shall decide
what is equitable under the circumstances.
341. Question- is a contract binding only between the contracting parties?

Answer- it is not only between them.
342. Question- when shall a contract take effect only between the contracting parties
and no one else?
Answer- When the right s and obligations arising from the contract are not
transmissible by their nature, by stipulation and by provision of law.
343. Question- To what extent shall an heir be bound under a contract?

Answer-
344. Question- What are the cases when a contract binds no only the parties, heirs
and assigns but even third persons
Answer-
1. In contracts containing stipulation in favor of a third person
2. In contracts creating real rights
3. In contracts entered into a defraud creditor
4. In contracts which have been violated at the inducement of a third person
5. In contracts creating “status”
6. In the quasi-contract or negotiurum gestio, the owner is bound in a proper
case by contract entered by the “gestor”
bdp
345. Question- What is a “stipulation” pour autrui?

Answer- It is a stipulation in a contract clearly and deliberately conferring a favor
upon a third person who has a right to demand its fulfillment provided he
communicate his acceptance to the obligor before its revocation.
346. Question- How are contracts classified according to perfection?

Answer- by
1) Consensual contract or that is which is perfected by mere consent
2) Real contract or that which is perfected by the delivery of the thing or
subject matter of the contract
347. Question- Define consensual contract.

Answer- it is a contract which is perfected by mere consent. No delivery is
necessary in order that it may be perfected
348. Question- Define a real contract.

Answer- it is perected by the delivery of the thing subject matter of the contract
such as depositum, pledge, or comodatum
349. Question- What are the three stages in the life of a contract?
Answer-
1)Preparation or conception – this includes all the steps taken by the
parties leading to the perfection of the contract. At this stage, the parties have not
yet arrived at any definite agreement.
2) Perfection or birth – this is when the parties have come to a definite
agreement or meeting of minds regarding the subject matter and cause of
contract
3) Consummation or termination – this is when the parties had performed
their respective obligation and the contract may be said to have been fully
accomplished or executed.
Lesson 2 – ESSENTIAL REQUISITES OF A CONTRACT

350. Question-
Answer-
351) Question- Name the classes of elements of a contract?

Answer -
1) Essential elements or those without which no contract can validly exist
a) Those common to all contracts, namely, consent, object and
causes
b) Those not common to all contracts
2) Natural elements of those that are presumed to exist in certain
contracts
3) Accidental elements or the particular stipulations, clauses., terms or
conditions established by the parties in their contract
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Lesson 2A-Consent
352) Question- how is consent manifested?
Answer- By the meeting of the offer and acceptance upon the thing and the
cause with are constitutes the contract.
(Art.1319: Civil Code of the Philippines)
353) Question- If A tells B that he is considering to sell his only car for 10,000 and B
replies by saying that he will buy the car for 10,000. Is there a valid contract
perfected?
Answer- Yes
354) Question- when is an offer considered certain?

Answer- When the acceptance is identical with the offer to great a contrast?
355) Question- Define Acceptance

Answer- Is the manifestation by the offence of his asset to the terms of the offer.
Without acceptance, there can be no meeting of minds between the parties.
356) Question- What kind of acceptance must be in order to perfect a contract

absolute and unqualified acceptance?
357) Question- When is acceptance consider qualified?

Answer-When it is accepted absolutely in order that there will be a contract.
358) Question- When does an acceptance made by letter or telegram bind the
offerer?
359) How may acceptance be made?

Answer-By an identical in all respect with that of the offer so as to produce
consent or meeting of minds.
360) Question- Who shall fix the time, place and the manner of acceptance?
Answer-The person making the offer may prescribe the time, the place and the
manner of acceptance.
361) Question- When is a contract perfected in the case where the offer is made
through an agent?
Answer-When it is duly authorized, the act of agent is, in law, the act of principal.
362) Question- When does an offer become ineffective?

Answer-An offer become ineffective upon the death, civil interaction, insanity or
insolvency of either party before acceptance is conveyed.
(Art 1323;Civil Code of the Philippines)
bdp
363) Question- If the offence has been given a certain period within which to accept,
can the offeror still withdraw his offer?
Answer-Yes, the offer may be withdrawn at any time before acceptance by
communicating such withdrawal
364) Question- How do you call the consideration given for the option period?
Answer-Option Contract
365) Question- Distinguish option money from earnest money.

Answer-Option money is the money paid or promised to be paid in consideration
for the option while earnest money is a partial payment of the purchase price and
is considered as proof of the perfection of the contract.
366) Question- Are business advertisements considered definite offers?

Answer-No, business advertisements or thing for sales are not definite offer, but
mere invitation to make offer.
367) Question- f an advertisement for bidder is made, is the advertiser bound to

accept the highest or lowest bidder?
Answer-No, the advertiser is not bound to accept the highest or lowest bidder.
368) Question- Who cannot give consent to a contract?

Answer-
1) Unemancipated minors
2) Insane or demanded persons, and deaf-mutes who do not know how to
write.
369) Question- Is the above incapacity absolute?
Answer-No
Art. 1327
370) Question- If a contract is entered into by any one of the person declared by law as
incapacitated, will the contract be null and void?
Yes
Art. 1329
371) Question- Can an emancipated minor give consent to a contract?
Answer-Yes, Provided that it is for alienating or encumbering a personal property.
De Leon
372) Question- What are the vices of concent?
Answer-1) error or mistake (Art. 1331)
2)violence or force (Art 1335)
3) intimidation or threat or duress
4) undue influence (Art. 1337)
5) fraud or deceit (Art. 1338)
373) Question- what is the nature of a contract where consent is given through
mistakes or any of the vices consent?
bdp
Answer-It is may be of fact or of law. The mistake contemplated by law is substantial

mistake of law, that is, the party would not have given his consent had he known of
mistake.
De Leon
373) Question- When is the mistake to invalidated consent?
375) Question- Will mistake as to the identity or qualifications of one the parties vitiate
consent?
Answer-Yes, only when such identity or qualifications have been the principal cause of
the contract.
Art. 1331
376) Question- How about mistake of account, will it vitiate consent?
Answer-Yes, it shall give rise to its correction.
Art. 1331
377) Question- what must be the nature of mistake in order to vitiate consent?
Answer-Mistake may be of fact or of law. In general, mistake to which Art. 1331 refers is
mistake of fact. The mistake contemplated by law is substantial mistake of fact, that is,
the party would not have given his consent had he known of the mistake.
De Leon
378) Question- A sold his car to B thinking that B is a doctor, but it turn out that B is a
lawyer. Here the mistake refers to the identity or qualification of one of the parties which
is not the principal cause of the contract.
Answer-The contract is valid.
379) Question- what must a party prove in order to enforce a contract where the other
party alleges that the contract is in a language not understood by him or that he is
unable to read?
Answer-To prove that there has been no fraud or mistake and that the terms of the
contract have been fully explained to the former.
De Leon
380) Question- will the contract be invalidated if one of the parties alleging mistakes
knows that doubt, contingency or risk affecting the object of the contract?
Answer-No, because if the party knows beforehand the doubt, contingency, or risk
affecting the object of the contract, it is to be assumed that he was willing to take
chances and cannot therefore, claim mistakes.
De Leon: Art. 1333
381) Question- Will mistake of law invalidate consent?
Answer-No, because “ignorance of the law excuses no one from compliance therewith”.
This doctrine is based on public policy, dictated by expediency and necessary.
De Leon: Art 3
382) Question- when is there violence to vitiate consent?
Answer-When in order to wrest consent, serious or irresistible force is employed
Art. 1335
383) Question- So that intimidation shall vitiate the consent of the party to a contract,
what requisites must be present?
Answer-1) It must produce a reasonable and well grounded fear of an evil;
2) The evil must be imminent and grave
3) The evil must be upon his person of property, or that of his spouse, descendants, of
ascendants
4) It is the reason why he enters into the contract.
De Leon
bdp
384) Question- what factor must be considered in order to determine to degree of

intimidation?
Answer-Whether or not the fear is reasonable and well grounded of the evil imminent
and grave depends upon the circumstances, including the age, sex, and condition of the
person.
De Leon
385) Question- When is there intimidation to vitiate consent?
Answer-When one of the contracting parties is compelled by reasonable and well
grounded fear of an imminent and grave evil upon his person or property, or upon the
person of property of his spouse, descendants of ascendants, to give his consent Ar.
1335
386) Question- Must there be physical force to constitute intimidation?
Answer-No, Intimidation need not resort to physical force. Intimidation is internal while
violence is external
De Leon
387) Question- Must violence or intimidation necessarily be employed by a contracting
party in order to vitiate consent?
Answer-No, such the threat of a court action as a means to enforce a just or legal claim
is justified and does not vitiate consent. It is a practice followed by creditors to demand
payment of their accounts with the threat that upon failure to do so an action would be
instituted in court.
De Leon
388) Question- What is there undue influence to vitiated a consent?
Answer-When a person takes improper advantage of this power over the will of another,
depriving the latter of a reasonable freedom of the choice.
Art. 1337 CCP
389) Question- what are the circumstances to consider to determine whether the
influence is undue?
Answer-The confidential, family, spiritual, and other relations between the parties, or the
fact that the person alleged to have been unduly influenced was suffering from mental
weakness, or was ignorant of in financial distress.
390) Question- What do you mean by casual fraud?
Answer-The fraud committed before or at the time of the celebration of the contract. It is
the fraud used by a party to induce the other to enter into a contract without which the
latter would not have agreed to.
De Leon
391 Question- ) what is the other kind of fraud?
I Answer-ncidental fraud, which only renders the party who employs it liable for damage.
De Leon
392) Question- which kind of fraud invalidates a contract?
Answer-The casual fraud.
De Leon
393) Question- what is the effect if there is incidental fraud?
394) Question- So what casual fraud will invalidate a contract, what requisites must be
present?
Answer-1) It should be serious
2) It should not have been employed by both contracting parties
De Leon
395) Question- How is fraud committed by concealment?
bdp
Answer-By a neglect of failure to communicate that which a party to a contract knows

and oath to communicate, in other words misrepresentation.
De Leon
396) Question- Are usual exaggeration in trade in themselves fraudulent?
Answer-No
De Leon
397) Question- when shall an expression of an opinion signify fraud?
Answer-1) When it is made by an expert
2) The other contracting party has relied on the expert’s opinions
3) The opinion turned out to be false or erroneous
398) Question- When shall misrepresentation by a third party vitiate consent?
Answer-None. Misrepresentation by a third person does not vitiate consent unless such
misrepresentation has create substantial mistake and the same is mutual.
Art. 1342
399) Question- What is the effect if the misrepresentation has been made in good
faith?
Answer-It is considered a mere mistake or error.
De Leon
400) Question- In how many ways may simulation of contract be made?
Answer-Simulation of contract be made in two (2) ways, first is, absolute simulation and
second is, relative simulation.
De Leon
401) Question- when is there absolute simulation?
Answer-When the contract does not really exist and the parties do not intent to be
bound at all. It is inexistent and void.
De Leon
402) Question- When is it a relative simulation?
Answer-When the contract entered into by the parties is different from their true
agreement. The parties are bound by their real agreement provided it does not
prejudice a third person and is not intended for a purpose contrary to law, morals, good
customs, public order or public policy.
403) Question- If a contract is absolutely simulated, is it valid or void?
Answer-Void, because a contract does not really exist.
De Leon
404) Question- Will relative simulation avoid a contract?
Answer-No.
De Leon
Lesson 2B. Objects of contract

405) Question- What may be valid objects of a contract?
I Answer-n reality, the object of every contract is the obligation created but since a
contract cannot exist without an obligation, it may be said that the thing, service, or
right which Is the object of the obligation is also the object of the contract
De Leon
406) Question- What are the requisites of thing as valid object of contract?
Answer-1) The thing must be within the commerce of men, that is, it can legally be the
subject of commercial transaction (Art. 1347)
2) It must not be impossible illegally or physically (Art. 1348)
3) It must be in existence or capable of coming into existence
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4) It must be determinate or determinable without the need of a new contract between

the parties
De Leon
407) Question- Which services cannot be valid object of contract?

Answer-All service which are not contrary to law, moral, good customs, public order or
public policy may like wise be the object of a contract.
Art. 1347
408) Question- which right cannot be proper object of contracts?
Answer-All rights which are not in transmissible may also be the object of contracts
Art. 1347
409) Question- Can future inheritance be a valid object of a contract?
Answer-No, according to Art. 1347. All things which are not outside the commerce of
men including future things, may be the object of contract
Art. 1327
410) Question- Give an example where the law allows contracts on future inheritance.
Answer-In the case of marriage settlement between future spouses who may give each
other as much as one fifth of their present property and with respect to their future
property only in the event of death, to the extent laid down by law in testamentary
succession
Art. 130
De Leon
411) Question- In the event the quantity of the object of a contract is not determinate,
will the contract be still valid?
Answer-Yes. The fact that the quantity is not determinate shall not be obstacle to the
existence of the contract, provided it is possible to determine the same, without the
need of a new contract between the parties (land)
Art. 1349
Lesson 26- Cause of Consideration
421) Question- Define cause as an essential requisites of a contract.
Answer-Is the essential or more proximate purpose which the contracting parties have
in view at the time of entering into the contract.
De Leon
413) Question- How are contracts classified as to cause>
Answer-1) Onerous or one the cause of which for each contracting party, is the
presentation or promise of a thing or service by the other
2) Remuneratory or remunerative or one the cause of which is the service or benefit
which is remunerated. The purpose of the contract is to reward the service that had
been previously rendered by the party remunerated
3) Gratuitous or one the cause of which is the mere liberality of the benefactor or giver
De Leon
414) Question- is motive an essential requisite for a contract?
Answer-No, because it is purely personal or private reason with a party ahs in entering
into a contract. It is different from the cause of the contract.
De Leon
415) Question- What is the effect of absence of cause?
Answer-Confer no rights and produce no legal effect whatever thus, a contract which is
absolutely simulated or fictitious is inexistent and void.
De Leon
416) Question- When is cause said to be unlawful?
bdp
Answer-When there is illegality of cause that implies, there is a cause but the same is
illegal.
De Leon
417) Question- what is the effect of unlawful cause?
Answer-Cause are also null and void (Arts. 1353, 1409)
De Leon
418) Question- when is cause false?
Answer-When the contract states a valid consideration but such statement is not true.
De Leon
419) what is the effect of false cause?
Answer-The contract is rendered void because the same actually does not exist.
De Leon
420) Question- Will inadequacy of cause or Lesion of cause invalidate a contract?
Answer-No, because in general rule, Lesion or inadequacy of cause does not of it
invalidates a contract.
De Leon
421) Question- what do you mean by lesion?
Answer-Any damage caused by the fact that the price is unjust or inadequate. It is injury
suffered in consequence of inequality of situation, by one party who does not receive
the full equivalent for what he gives in a commutative contract, like a sale.
422) Question- For a valid contract, must cause be always stated?
Answer-No, because the presumption is that the cause exists and is lawful unless the
debtor proves the contrary.

The Law On Contracts

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Midterm Phase Coverage

PART III. MODES OF EXTINGUISHMENT OF OBLIGATION

200. Question- Is there difference between payment and performance?

201. Question- In law, when is a debt understood to have been paid?

205. Question- From whom a creditor accept payment?

208. Question- Can the payment be considered as a donation?

210. Question- To whom shall payment be made.

211. Question- Will payment to a person who is incapacitated to administer or mage

212. Question- When shall the payment to a third person be valid?

217. Question- What is “Donation in Payment”

218. Question- What law shall govern donation in payment?

219. Question- How shall an obligation be paid if it consist of an indeterminate or

220. Question- Who shall bear extra-judicial expenses of payment?

221. Question- Who shall bear judicial expenses of payment?

222. Question- In payment, may the creditor be required to accept partial

223. Question- Under what case may partial performance be allowed?

224. Question- If an obligation is stipulated as payable in US $,can be debtor be

225. Question-If a money obligation contracted in the Philippines requires payment in

229. Question-What is the basis of payment in case an extraordinary inflation or

Answer-the purchasing value of the currency of the time of the establishment of

230. Question-What does inflation mean?

231. Question-What does deflation mean?

232. Question- At what place shall payment be made?

233. Question-Who shall bear the additional expenses in payment?

234. Question-When shall application take place?

238. Question- Who has the first choice of application of payment?

241. Question- Give examples of more onerous debts.

b) older debts in case of running accounts bearing debt is older pledge.

242. Question- What is mean by “payment by cession”?

243. Question- What are the requisites of payment be cession?

245. Question- Distinguish between donation in payment and cession.

246. Question- What is meant be tender of payment?

248. Question- What is consignation?

256. Question-What requisites must be fulfilled so that the obligations be extinguished

Answer- It depends. The courts shall determine whether, under the

260. Question- In what cases do this presumption not applicable?

262. Question- When shall the debtor be released in obligations to do?

263. Question- Explain “physical impossibility”.

264. Question-Explain “Legal Impossibility”. Answer- Legal impossibility occurs when

268. Question- Can condonation or remission be considered a donation?

269. Question- What are requisites of condonation or remission?

270. Question- What is meant by inofficious donation?

271. Question- What are rules on forms of donation?

273. Question- How may the creditor nullify this waiver?

276. Question- What are the kinds of remission or condonation?

3) As to its date of effectivity:

Lesson 4- MERGER OR CONFUSION

281. Question- What is the requisites of obligation?

287. Question- Distinguish between compensation and confusion.

289. Question- What are the requisites of compensation?

294. Question- Distinguish between set-off or counterclaim from compensation.

297. Question- Can compensation takes place by operation of law?

303. Question-Define novation.

304. Question- What are requisites of

305. Question-In what forms may novation exist?

306. Question- Name some kind of novation.

307. Question- What is real novation?

308. Question- What is personal novation?

(Torres; Law on Obligation and Contract; 1990)

309. Question- What is mixed novation?

310. Question- Is novation presumed?