1. State 5 ways to lose every debtor’s right under Article 1198.

a. Insolvency after contracting obligation without any security or guaranty for the debt;
b. Failure to deliver the promised guaranty or security;
c. Impairment of the security or guaranty due to the debtor’s act after their establishment, and
when through fortuitous events they disapper. Unless the debtor provides new equally
satisfactorily security or guaranty;
d. Violation of any undertaking of the debtor to which the creditor agreed to a period; and
e. The debtor attempted to abscond.
2. What is novation?
Novation is a mode of extinguishing an obligation by changing its object or principal condition,
substituting the person of the debtor or subrogating a third person in the rights of a creditor. It’s
not presumed and must be with the consent of the creditor.
3. What are the rules to modify obligation?
Art. 1291 – Changing their object or principal condition
Substituting the person of a debtor
Subrogating a third person in the rights of a creditor
4. When can an obligation be extinguished in terms of novation?
Art. 1292 – For the obligation to be extinguished by another which substitute the same, it be so
declared unequivocal terms or the old and new obligation are incompatible with each other.
5. What provision rules for alternative prestation?
Article 1199 – A person alternatively bound by different prestation shall completely perform one
of them. The creditor can not be compelled to receive a part of one and a part of the other
undertaking.
6. What are the two modes in substituting the person of a debtor?
a. Expromicion - initiative for the change does not came from or w/o knowledge of the debtor;
consist of a third person assuming the obligation; requires consent of the creditor and third
person.
b. Delegacion – the debtor offers and the creditor accepts; a third person who consents of
substitution by the debtor; requires the consent of the creditor.
7. When can novation occur?
Art. 1293 – Only when the new contract declares so in unequivocal terms or old and new contracts
are not compatible.
8. What are the kinds of novation?
Extinctive – old obligation is terminated by the creation of the new one that takes place of the
former
Modificatory – old obligation subsists to the extent that it remains compatible with the
amendatory agreement
9. What is novation objective or real obligation? Novation of subjective or personal novation?
A novation made either changing the object or principal.
A novation made by substituting the person of a debtor or subrogating a third person to the rights
of the creditor.
10. What are the requisites of novation?
a. There must be a valid contract;
b. Parties concerned must agree to a new contract;
 c. The old contract must be extinguished.
d. There must be a valid new contract.
11. What is implied novation? What is express novation?
A new obligation is incompatible with the old one on every point.
A new obligation declares in unequivocal terms and that the old obligation is extinguished.
12. What is the test of incompatibility of obligation in novation?
Whether two obligations can stand together, each one with its own independent existence.
13. Novatio Non Praesumitur – Novation is never presumed.
14. What does it mean if obligor undertakes “jointly and severally”?
It means obligation is solidary to the principal regardless of his solvency.
15. What is the nature of suretyship? Solidary obligation.
16. What is the presumption of the law with regard to solidary or joint obligation?
Article 1207– There is only solidary liability when the obligation expressly so states or when the
law or nature of the obligation requires solidarity.
Article 1208 – The credit or debt shall not be presumed to be divided into as may equal shares as
there are creditors or debtors.
17. What do you mean by solidary obligation? Joint obligation?
One which each of the debtors is liable for the entire obligation and each creditor is entitled to
demand the satisfaction of the whole obligation from any / all debtors.

Joint obligation each debtor is liable for a proportionate part of the debt and the creditor is
entitled to demand only a proportionate part of the credit from each debtor.
18. Grounds for an escalation or de-escalation clause.
a. Circumstances relevant to escalation/de-escalation
b. Within limits allowed by the law
c. Upon agreement by both parties

Note : they are not wrong or legally objectionable as long as they are not potestative and has valid
grounds.

19. What is a penal clause?

It is an accessory obligation which the parties attach to a principal obligation for the purpose of
insuring the performance thereof by imposing on debtor a special prestation in case the obligation
is not fulfilled or is irregularly/inadequately fulfilled.
20. What are the 3 purposes of penal clause?
1. Funcion Coercitiva or De Guarantia – insure the performance of the obligation. (general
purpose)
2. Funcion Liquidatoria – to liquidate the amt of damages to be awarded to the injured party in
case of breach of principal obligation. (compensatory)
3. Funcion Estractemente Penal – to punish obligor in a case of breach of the principal obligation,
in certain exceptional cases. (punitive)
21. Classification of Penal Clause
According to source
1. Legal – provided by law
2. Conventional – Provided by stipulation of the parties
 According to demandability

a. Subsidiary – when only the penalty may be enforced

b. Complementary – when both the principal obligation and the penalty may be enforced.

According to purpose

a. Cumulative – when damages may be collected in addition to penalty

b. Reparatory – when the penalty substitutes indemnity for damages
22. What are the exceptions of Art. 1226, penal clause?
1. When there is a stipulation to the contrary
2. When debtor or obligor is sued for refusal to pay the agreed penalty
3. When the obligor or debtor is guilty of fraud.
23. Define condonation, waive and accrue.
Condonation – is the creditors act of extinguishing an obligation by renunciation.
Waive – is an abandonment or relinquishment of an existing legal right.
Accrue – legal parlance meaning to come into existence as an enforceable claim.
24. How are obligations extinguished?
Art 1231 –
By payment or performance
By loss of a thing due
By the condonation or remission of debt
By the confusion or merger of the rights of creditor and debtor
By compensation
By novation

25. Cases were consignation produce same effect as to releasing a debtor from his responsibility. (If
creditor refuses the payment made by the debtor; 1256)

1. When the creditor is absent or unknown or does not appear at the place of payment
2. When he is incapacitated to receive the payment at the time it is due
3. When without just cause he refuses to give a receipt
4. When two or more persons may claim the same right to collect
5. When the title of the obligation has been lost.

26. Requisites of a proper compensation. Art. 1279

a. That each one of the obligors be bound principally and that he be at the same time a
principal creditor of the other
b. That both debts consist in a sum of money or if the things due are consumable they be of
the same kind and also of the same quality if the latter has been stated
c. That the two debts be due
d. That they be liquidated ad demandable
e. That over neither of them there be any retention or controversy commenced by third
persons and communicated in due time to the debtor
27. What is consignation – the act of depositing the thing due with the court or judicial authorities
whenever the creditor cannot accept or refuses to accept payment. It generally requires a prior
tender of payment.
28. What is tender of payment – the act of offering the creditor what is due him together with a
demand that the creditor accept the same.
29. Define Inflation. Define Deflation
a. Inflation – it is a sharp sudden increase of money or credit or both without a
corresponding increase in business transaction. (Decrease in the value of money =
increase price of goods and services)
b. (Inflation)
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Cession distinguished from Dacion en Pago

Dacion en Pago
1. Does not affect all the properties
2. Does not require plurality of creditors
3. Only the specific or concerned creditors consent is required
4. May take place during the solvency of the debtor
5. Transfers ownership upon delivery
6. This is really an act of novation

Cession

1. Affects all the properties of the debtor

2. Requires more than one creditor
3. Requires the consent of all the creditors
4. Requires full or partial insolvency
5. Does not transfer ownership
6. Not an act of novation