The Law on Contracts

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Midterm Phase Coverage

PART III. MODES OF EXTINGUISHMENT OF OBLIGATION

Preliminary Question197. 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- PAYMENT199. 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.(Article 1235; Civil Code of the Philippines)

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.(Article 1234; Civil Code of the Philippines)

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.(Article 1236; Civil Code of the Philippines)

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205. Question- From whom a creditor accept payment?Answer-1) the debtor2) 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.(Article 1238; Civil Code of the Philippines)

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.(Article 1238; Civil Code of the Philippines)

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."(Article 1239; Civil Code of the Philippines)

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.(Article 1240; Civil Code of the Philippines)

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.(Article 1241; Civil Code of the Philippines)

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.

(Article 1241; Civil Code of the Philippines)

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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.(Article 1242; Civil Code of the Philippines)

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.(Article 1243; Civil Code of the Philippines)

216. Question- What are special forms of payment under the Civil Code?Answer-1) Application of Payments2) Payment by Cession

a) dacion en pago or dation in payment3) 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.(Hector S. De Leon; The law on Obligation and Contracts; 2003)

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.(Hector S. De Leon; The law on Obligation and Contracts; 2003)

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.(Article 1247; Civil Code of the Philippines)

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.(Article 1247; Civil Code of the Philippines)

221. Question- Who shall bear judicial expenses of payment?Answer- With regard to judicial costs, the Rules of Court shall govern.(Article 1247; Civil Code of the Philippines)

http://www.chanrobles.com/civilcodeofthephilippinesbook4.htm

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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.(Article 1248; Civil Code of the Philippines)

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.(Article 1249; Civil Code of the Philippines)

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.(Justo P. Torres; Law on Obligation and Contract;1990)

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.(Article 1249; Civil Code of the Philippines)

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.”(Article 1249; Civil Code of the Philippines)

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.(Hector S. De Leon; The law on Obligation and Contracts; 2003)

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.(Hector S. De Leon; The law on Obligation and Contracts; 2003)

http://www.chanrobles.com/republicacts/republicactno529.html

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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.(Hector S. De Leon; The law on Obligation and Contracts; 2003)

232. Question- At what place shall payment be made?Answer-Payment shall be made in the place designated in the obligation.(Hector S. De Leon; The law on Obligation and Contracts; 2003)

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.(Hector S. De Leon; The law on Obligation and Contracts; 2003)

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. (Hector S. De Leon; The law on Obligation and Contracts; 2003)

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.(Article 1254; Civil Code of the Philippines)

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.(Article 1254; Civil Code of the Philippines)

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(Article 1252; Civil Code of the Philippines)

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.(Article 1252; Civil Code of the Philippines)

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.(Article 1253; Civil Code of the Philippines)

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.

(Justo P. Torres; Law on Obligation and Contract;2003)

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.(Hector S. De Leon; The law on Obligation and Contracts; 2003)

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.(Article 1255; Civil Code of the Philippines)

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.(Hector S. De Leon; The law on Obligation and Contracts; 2003)

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.(Article 1256; Civil Code of the Philippines)

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.(Hector S. De Leon; The law on Obligation and Contracts; 2003)

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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.(Article 1258; Civil Code of the Philippines)

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.(Hector S. De Leon; The law on Obligation and Contracts; 2003)

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.(Hector S. De Leon; The law on Obligation and Contracts; 2003)

Lesson 2- LOSS254. 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.(Hector S. De Leon; The law on Obligation and Contracts; 2003)

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.(Article 1264; Civil Code of the Philippines)

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.(Hector S. De Leon; The law on Obligation and Contracts; 2003)

260. Question- In what cases do this presumption not applicable? Answer- Incase or natural calamities. (Hector S. De Leon; The law on Obligation and Contracts; 2003)

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. (Article 1262; Civil Code of the Philippines)

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. (Article 1266; Civil Code of the Philippines)

263. Question- Explain “physical impossibility”. Answer- For example the obligor dies or becomes physically incapacitated to perform the obligation. (Hector S. De Leon; The law on Obligation and Contracts; 2003)

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.

(Justo P. Torres; Law on Obligation and Contract; 2003)

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. (Article 1269; Civil Code of the Philippines)

Lesson 3- REMISSION267. 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.(Justo P. Torres; Law on Obligation and Contract; 2003)

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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.(Article 1270; Civil Code of the Philippines)

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(Article 1270; Civil Code of the Philippines)

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.(Article 1271; Civil Code of the Philippines)

273. Question- How may the creditor nullify this waiver?Answer- It shouldbe claimed to be inofficious.(Article 1271; Civil Code of the Philippines)

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.(Article 1271; Civil Code of the Philippines)

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.(Article 1272; Civil Code of the Philippines)

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

http://www.chanrobles.com/civilcodeofthephilippinesbook3.htm

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3) As to its date of effectivity: a) Intervivos- when it will take effect during the lifetime of the donorb) 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.(Hector S. De Leon; The law on Obligation and Contracts; 2003)

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.(Justo P. Torres; Law on Obligation and Contract; 2003)

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(Hector S. De Leon; The law on Obligation and Contracts; 2003)

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.(Hector S. De Leon; The law on Obligation and Contracts; 2003)

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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- COMPENSATION286. 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.(Hector S. De Leon; The law on Obligation and Contracts; 2003)

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 obligation3) In confusion, there is impossibility of payment while in compensation, there is indirect payment.

(Hector S. De Leon; The law on Obligation and Contracts; 2003)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(Article 1279; Civil Code of the Philippines)

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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),(Article 1284; Civil Code of the Philippines)

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.(Article 1286; Civil Code of the Philippines)

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.(Hector S. De Leon; The law on Obligation and Contracts; 2003)

299. Question- What are the instances where legal compensation is not allowed places?Answer-

1) where one of the debts arises from a deposilum2) where one of the debt arises from a commodatum3) where one of the debts arises from a claim support due by gratuitous title4) 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 compensationAnswer- The rules on the application of payment shall apply to the order of the compensation.(Article 1289; Civil Code of the Philippines)

301. Question- can a compensation take place even though the creditors and debtors are not aware of the compensation

Answer- No.(Hector S. De Leon; The law on Obligation and Contracts; 2003)

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Lesson 6 – NOVATION302. Question- How are obligations are modified? Answer-

1) Changing their object or principal conditions2) Substituting the person of the debtor3) 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 obligation2)Capacity and intention of the parties to modify or extinguish the obligation3)The modification or extinguishment of t he obligation4)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.(Hector S. de Leon; Law on Obligation and Contract; 2008)

306. Question- Name some kind of novation.Answer-1) According to origin

a) Legal - that which takes place by operation of lawb) Conventional – that which takes place by agreement of the parties

2) According to how it is constitutedc) Express – when it is so declared in an equivocal termsd) 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 modified4) 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(Hector S. de Leon; Law on Obligation and Contract; 2008)

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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(Torres; Law on Obligation and Contract; 1990)

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(Torres; Law on Obligation and Contract; 1990)

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(Hector S. de Leon; Law on Obligation and Contract; 2008)

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 (Article 1293; Civil Code of the Philippines)

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(Article 1294; Civil Code of the Philippines)

314. Question- What is the effect of the new debtor’s insolvency in delegacionAnswer- There is no effect. It must be noted that the article speaks only of insolvency, the old debtor is not liable.(Hector S. de Leon; Law on Obligation and Contract; 2008)

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.(Article 1236; Civil Code of the Philippines)

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(Hector S. de Leon; Law on Obligation and Contract; 2008)

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.(Article 1298; Civil Code of the Philippines)

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(Hector S. de Leon; Law on Obligation and Contract; 2008)

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(Hector S. de Leon; Law on Obligation and Contract; 2008)

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.(Torres; Law on Obligation and Contract; 1990)

325. Question- In hat tree cases shall legal subrogation exist? Answer-

1) When creditors pays another creditor who is preferred2) When an third person without an interest in the obligation pays wit h the

approval of the debtor3) When a third person with an interest in the obligation pays even without the

knowledge of the debtor.(Hector S. de Leon; Law on Obligation and Contract; 2008)

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.(Hector S. de Leon; Law on Obligation and Contract; 2008)

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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.(Torres; Law on Obligation and Contract; 1990)

The Law on Contracts

Lesson 1: preliminaries328. 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.(Article 1305; Civil Code of the Philippines)

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.(Hector S. de Leon; Obligation and Contract; 2008)

331. Question-What are meant by “Autonomy” in contracts? Answer-Autonomy is freedom to contract.

(Hector S. de Leon; Obligation and Contract; 2008)

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.

(Hector S. de Leon: Obligation and Contract; 2008)

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.


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336. Question-How is innominate contracts regulated?

Answer- by 1) the agreement of parties2) the provision of the Civil Code on obligation and contracts3) the rules governing the most analogous contacts4) 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(Hector S. de Leon; Obligation and Contract; 2008)

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. (Article 1308; Civil Code of the Philippines)

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(Article 1309; Civil Code of the Philippines)

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.(Hector S. de Leon; Obligation and Contract; 2008)

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 person2. In contracts creating real rights3. In contracts entered into a defraud creditor4. In contracts which have been violated at the inducement of a third person5. 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”(Hector S. de Leon; Obligation and Contract; 2008)

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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.(Hector S. de Leon; Obligation and Contract; 2008)

346. Question- How are contracts classified according to perfection? Answer- by

1) Consensual contract or that is which is perfected by mere consent2) Real contract or that which is perfected by the delivery of the thing or

subject matter of the contract(Hector S. de Leon; Obligation and Contract; 2008)

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(Torres; Law on Obligation and Contract; 1990)

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(Article 1316; Civil Code of the Philippines)

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. (Hector S. de Leon; Obligation and Contract; 2008)

Lesson 2 – ESSENTIAL REQUISITES OF A CONTRACT350. Question- Answer-

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

1) Essential elements or those without which no contract can validly exista) Those common to all contracts, namely, consent, object and causesb) Those not common to all contracts

2) Natural elements of those that are presumed to exist in certain contracts3) Accidental elements or the particular stipulations, clauses., terms or conditions established by the parties in their contract


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Lesson 2A-Consent352) 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(Justo P. Torres; Law on Obligation and Contract; 1990)

354) Question- when is an offer considered certain?Answer- When the acceptance is identical with the offer to great a contrast?(Hector S. de Leon; Obligation and Contract; 2008)

355) Question- Define AcceptanceAnswer- 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.(Hector S. de Leon; Obligation and Contract; 2008)

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.(Hector S. de Leon; Obligation and Contract; 2008)

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.(Hector S. de Leon; Obligation and Contract; 2008)

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.(Hector S. de Leon; Obligation and Contract; 2008)

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.(Hector S. de Leon; Obligation and Contract; 2008)

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)

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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(Art 1324;Civil Code of the Philippines)

364) Question- How do you call the consideration given for the option period?Answer-Option Contract(Hector S. de Leon; Obligation and Contract; 2008)

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.(Hector S. de Leon; Obligation and Contract; 2008)

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.(Hector S. de Leon; Obligation and Contract; 2008)

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.(Art 1326;Civil Code of the Philippines)

368) Question- Who cannot give consent to a contract?Answer-

1) Unemancipated minors2) Insane or demanded persons, and deaf-mutes who do not know how to write.

(Art 1327;Civil Code of the Philippines)369) Question- Is the above incapacity absolute?

Answer-NoArt. 1327370) 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?YesArt. 1329371) Question- Can an emancipated minor give consent to a contract?Answer-Yes, Provided that it is for alienating or encumbering a personal property.De Leon372) 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 duress4) 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?

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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 Leon373) 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. 1331376) Question- How about mistake of account, will it vitiate consent?Answer-Yes, it shall give rise to its correction.Art. 1331377) 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 Leon378) 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 Leon380) 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. 1333381) 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 3382) Question- when is there violence to vitiate consent?Answer-When in order to wrest consent, serious or irresistible force is employedArt. 1335383) 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 grave3) The evil must be upon his person of property, or that of his spouse, descendants, of ascendants4) It is the reason why he enters into the contract.De Leon

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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 Leon385) 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. 1335386) Question- Must there be physical force to constitute intimidation?Answer-No, Intimidation need not resort to physical force. Intimidation is internal while violence is externalDe Leon387) 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 Leon388) 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 CCP389) 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 Leon391 Question- ) what is the other kind of fraud?I Answer-ncidental fraud, which only renders the party who employs it liable for damage.De Leon392) Question- which kind of fraud invalidates a contract?Answer-The casual fraud.De Leon393) 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 serious2) It should not have been employed by both contracting partiesDe Leon395) Question- How is fraud committed by concealment?

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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 Leon396) Question- Are usual exaggeration in trade in themselves fraudulent? Answer-NoDe Leon397) Question- when shall an expression of an opinion signify fraud?Answer-1) When it is made by an expert2) The other contracting party has relied on the expert’s opinions3) The opinion turned out to be false or erroneous398) 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. 1342399) Question- What is the effect if the misrepresentation has been made in good faith?Answer-It is considered a mere mistake or error.De Leon400) 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 Leon401) 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 Leon402) 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 Leon404) Question- Will relative simulation avoid a contract?Answer-No.De Leon

Lesson 2B. Objects of contract405) 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 contractDe 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 partiesDe 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. 1347408) Question- which right cannot be proper object of contracts?Answer-All rights which are not in transmissible may also be the object of contractsArt. 1347409) 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 contractArt. 1327410) 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 successionArt. 130De Leon411) 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. 1349Lesson 26- Cause of Consideration421) 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 Leon413) 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 other2) 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 remunerated3) Gratuitous or one the cause of which is the mere liberality of the benefactor or giverDe Leon414) 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 Leon415) 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 Leon416) Question- When is cause said to be unlawful?

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Answer-When there is illegality of cause that implies, there is a cause but the same is illegal.De Leon417) Question- what is the effect of unlawful cause?Answer-Cause are also null and void (Arts. 1353, 1409)De Leon418) Question- when is cause false?Answer-When the contract states a valid consideration but such statement is not true.De Leon419) what is the effect of false cause?Answer-The contract is rendered void because the same actually does not exist.De Leon420) 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 Leon421) 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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