REGULATORY FRAMEWORK OF BUSINESS TRANSACATIONS

BOOKLET 1

MAY 2018 BATCH

TOPICS:

RFBT 0501 LAW ON OBLIGATIONS

RFBT 0502 LATIN TERMS

ATTY. MARY ANN R. SAGANA

 THE CPA LICENSURE EXAMINATION SYLLABUS
REGULATORY FRAMEWORK for BUSINESS TRANSACTIONS

Effective May 2016 Examination

This subject covers the candidates’ knowledge of the regulatory framework of business
transactions, business associations, and business laws as well as their legal implications.
Candidates should know and understand the pertinent legal provisions, general principles,
concepts, and underlying philosophy of the law. The candidates must have sufficient knowledge
to enable them to recognize the legal implications of business situations or transactions and to
know when to seek legal counsel or recommend that it be sought.

The candidates must have a working knowledge to apply the various regulatory framework
measures.

The candidates must also be familiar with the clients’ rights and remedies, handling disputes on
regulatory issues, knowing the various regulatory offices that they will be interacting and basic
regulations to derive the benefits thereto..

The candidates must also be able to communicate effectively matters pertaining to the regulatory
work that will be handled.

The knowledge of the candidates in the competencies cited above is that of an entry level
accountant who can address the fundamental requirements of the various parties that the
candidates will be interacting professionally in the future.
.
Only new laws, implementing rules and regulations, jurisprudences and other issuances shall be
included in the examinations if these are in effect for at least six (6) months at the date of the
examination..

The examination shall have one hundred (100) multiple choice questions.

The syllabus for the subject is presented below.

1.0 LAW ON BUSINESS TRANSACTIONS

1.1 Obligations
1.1.1 Sources of obligations and their concepts
1.1.1.1 Law
1.1.1.2 Contracts
1.1.1.3 Quasi-contracts
1.1.1.4 Delicts
1.1.1.5 Quasi-delicts
1.2 Kinds of obligations in general under the Civil Code
1.3 Specific circumstances affecting obligations in general
1.3.1 Fortuitous events
1.3.2 Fraud
1.3.3 Negligence
1.3.4 Delay
1.3.5 Breach of contract
1.4 Duties of obligor in obligation to do or not to do
1.5 Extinguishment of obligation with special emphasis on
1.5.1 Payment of debts of money
1.5.2 Mercantile documents as means of payment
1.5.3 Special forms or modes of payment
 1.5.4 Remission or condonation, confusion, compensation and novation
1.5.5 Effect of insolvency and bankruptcy on extinguishment of obligation

2.0 Contracts
2.1 Concepts and classification
2.2 Elements and stages
2.3 Freedom from contract and limitation
2.4 Persons bound
2.5 Consent
2.5.1 Capacitated persons
2.5.2 Requisites
2.5.3 Vices of consent
2.6 Objects of contracts
2.7 Considerations of contracts
2.8 Formalities of contracts
2.9 Interpretation and reformation of contract
2.10 Defective contracts
2.10.1 Rescissible
2.10.2 Voidable
2.10.3 Unenforceable
2.10.4 Void

3.0 Sales
3.1 Nature, forms and requisites
3.2 Earnest money as distinguished from option money
3.3 Rights/obligations of vendor and vendee
3.4 Warranties (in relation to consumer laws)
3.5 Installment sales
3.5.1 Personal property – Recto Law
3.5.2 Real Property – Maceda Law
3.5.3 PD 957 / Condominium Act

4.0 LAW ON CREDIT TRANSACTIONS

4.1 Pledge, Real Mortgage and Chattel Mortgage
4.1.1 Nature and requisites
4.1.2 Requirements to bind the parties and third persons
4.1.3 Obligations and rights of pledgor and pledge
4.1.4 Obligations and rights of mortgagor and mortgagee
4.1.5 Effect of pactum commissorium
4.1.6 Modes of extinguishment
4.2 Insolvency Law *
4.2.1 Definition of insolvency
4.2.2 Suspension of payments
4.2.3 Voluntary insolvency
4.2.4 Involuntary insolvency
4.3 Corporate Rehabilitation *
4.3.1 Definition of Terms
4.3.2 Stay Order
4.3.3 Receiver
4.3.4 Rehabilitation Plan
4.3.5 Contents of Petition and other types of Rehabilitations

5.0 NEGOTIABLE INSTRUMENTS AND BOUNCING CHECKS LAW

5.1 Negotiable Instruments
5.1.1 Negotiability of instrument
5.1.2 Abnormal negotiable Instruments
 5.1.3 Incomplete but delivered instruments
5.1.4 Incomplete and undelivered instruments
5.1.5 Complete but undelivered instruments
5.1.6 Instruments with forged signature
5.2 Bouncing Checks *
5.2.1 Checks without insufficient funds
5.2.2 Evidence of knowledge of insufficient funds
5.2.3 Duty of Drawee
5.2.4 Credit Construed

6.0 LAW ON BUSINESS ASSOCIATIONS

6.1 Partnership
6.1.1 Nature and as distinguished from corporation
6.1.2 Elements and kinds
6.1.3 Formalities required
6.1.4 Rules of management
6.1.5 Distribution of profits and losses
6.1.6 Sharing of losses and liabilities
6.1.7 Modes and retirement requirements
6.1.8 Limited partnership
6.2 Corporations
6.2.1 Nature and classes of corporation
6.2.2 Incorporation and organization of Private Corporation
6.2.3 Powers of a corporation
6.2.3.1 Expressed
6.2.3.2 Implied
6.2.3.3 Incidental
6.2.4 Board of Directors/Corporate Officers
6.2.4.1 Qualifications
6.2.4.2 Election and removal
6.2.4.3 Powers and fiduciary duties
6.2.5 Classes of stocks
6.2.5.1 Concepts
6.2.5.2 Subscriptions
6.2.6 Powers, duties, rights and obligations of stockholders
6.2.7 Majority and minority control
6.2.8 By Laws
6.2.9 Meetings
6.2.10 Corporate reorganization
6.2.10.1 Mergers
6.2.10.2 Consolidations
6.2.10.3 Other business combinations
6.2.11 Non-stock corporation
6.2.12 Modes of dissolution and liquidation
6.2.12.1 Retirement Requirements
6.2.13 Foreign corporations
6.2.13.1 License to do business
6.2.13.1.1 Purpose of the license
6.2.13.2 Requirements for application/issuance of license
6.2.13.3 Consequence of doing business without a license
6.2.14 Definition and rights of foreign corporations
6.2.15 Definition of doing business and its relation to foreign investments
6.2.16 Purpose and qualifications of Resident agent
6.2.17 Suits against foreign corporations
6.2.18 Suspension or revocation of license
6.2.19 Withdrawal from business
 6.2.20 Kinds and availability of corporate books
6.2.21 Securities Regulation Code
6.2.21.1 Kinds of securities
6.2.21.2 Protection of investors, private tender offer and Insider
Trading
6.2.21.3 SEC Circulars and Issuances
6.2.21.4 Code of Corporate Governance
6.2.21.5 Filing of General Information Sheet
6.2.21.6 Filing of Annual Audited Financial Statements
6.3 Cooperatives *
6.3.1 Organization and Registration of Cooperatives
6.3.2 Administration
6.3.3 Responsibilities, Rights and Privileges of Cooperatives
6.3.4 Capital, Property of Funds
6.3.5 Audit, Inquiry and Members’ Right to Examine
6.3.6 Allocation and Distribution of Funds
6.3.7 Types and Categories of Cooperatives
6.3.8 Merger and Consolidation of Cooperatives
6.3.9 Dissolution of Cooperatives

7.0 Law on other Business Transactions

7.1 PDIC Law *
7.1.1 Insurable deposits
7.1.2 Maximum liability
7.1.3 Requirements for Claims
7.2 Secrecy of Bank Deposits and Unclaimed Balances Law *
7.3 General Banking Law *
7.3.1 Definition of Banks
7.3.2 Loans
7.3.2.1 SBL
7.3.2.2 DOSRI
7.4 AMLA Law *
7.4.1 Covered transactions
7.4.2 Suspicious transactions
7.4.3 Reportorial Requirement
7.5 The New Central Bank Act *
7.5.1 Legal tender power over coins and note
7.5.2 Conservatorship
7.5.3 Receivership and Closures
7.6 Intellectual Property Law (except provisions under Part 1
(Intellectual Property Office) *
7.6.1 The Law on Patents
7.6.2 The Law on Trademark, Service Marks and Trade Names
7.6.3 The Law on Copyright

*- Effective October 2017 CPA Board Exam

NOTES:

1. The following items can be incorporated in the syllabus of Partnership and

Corporation:

a. Securities Regulation Code

b. SEC Circulars and Issuances
c. Cooperatives
 2. The Insolvency Law and Corporate Rehabilitation can be incorporated in the syllabus
of Pledge & Mortgage.

3. The Bouncing Checks Law and Banking Laws can be taught in the Negotiable
Instruments Law.

4. Intellectual Property Law can be discussed in Financial Reporting re: Intangible

Assets

LECTURE AID – LAW ON OBLIGATIONS

OBLIGATION - a juridical necessity to give, to do or not to do.

SOURCES:
1. Law (obligation ex lege)
2. Contracts (obligation ex contractu)
3. Quasi – contracts lawful, voluntary and unilateral acts give rise to the juridical relation of
quasi-contract to the end that no one shall be unjustly enriched or benefited at the
expense of another.
Common Kinds:
a. Negotiorum gestio – voluntary management of the property or affairs of another
without the knowledge or consent of the latter.
b. Solution indebiti - juridical relationship which is created when something is
received when there is no right to demand for it and it was delivered through
mistake.
4. Delicts (crimes) – acts or omission punished by law
5. Quasi – delicts/culpa aquiliana/torts – acts or omission causing damage or injury to
another person due to the fault or negligence of another person but there is no pre-
existing contract between them.

REQUISITIES of a valid obligation:

1. Parties: a. Passive subject known as the obligor or debtor
b.Active subject known as the oblige or creditor
2. Object: The presentation, act or service constituting the object of the obligation (to
give, to do or not to do)
3. Juridical or legal tie/vinculum juris

RELATED TERMS:
1. Specific or determined thing – a thing which is particularly designated or physically
segregated from all of the same class.
2. Generic or indeterminate thing – a thing which refers only to a class or genus to which
it pertains and cannot be pointed out with particularity.
3. Accessories – things joined to the principal thing for its Better use, Embellishment or
Completion.
4. Accessions – fruits of a thing or anything produced by it, attached or incorporated
thereto as an addition or improvement.
Kinds; Natural, Industrial and Civil

IMPORTANT: The creditor shall be entitled to the fruits of the thing at the time the obligation to
deliver the principal thing arises. The creditor however, will acquire real right or ownership over
the fruit only after the same has been delivered to him.
OBLIGATION OF THE DEBTOR:
In obligations to give determined things:
1. Specific performance;
2. Take care of the thing with the proper diligence of a good father of a
family;(unless another degree of diligence will be required by law of stipulation of
the parties)
3. Deliver all accessions and accessories of the thing even though they may not
have been mentioned;
4. Pay damaged in case of breach of the obligation by reason of delay, fraud
negligence or contravention of the tenor thereof.
In generic obligations:
1. Deliver the thing which is neither of superior nor inferior quality.
2. To pay damaged in case of breach of the obligation by reason of delay, fraud
negligence or contravention of the tenor thereof.

CIRCUMSTANCE AFFECTINF OBLIGATIONS:

RULE: A person in the performance of his obligation will be liable to pay DAMAGES in case he
will be guilty of: Delay, Fraud, Negligence or Contravention of the tenor of the obligation (breach
of obligation)

Kinds of Damages: (MENTAL)

1. Moral – includes physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation, and similarly injury
2. Exemplary – corrected damaged are imposed, by way of example or correction for the
public goods, in addition to the moral, temperate, liquidate or compensatory damages.
3. Nominal – adjudicated in order that a right of a person, which has violated or invaded by
another, may be vindicated or recognized
4. Temperate – moderate damages, which are more nominal but less than compensatory
damages, may be recovered when the court finds that some pecuniary loss has been
suffered but its amount cannot, from the nature of the case, be provided with certainty
5. Actual – adequate compensation only for such pecuniary loss suffered by a person as
duly proved
6. Liquidated – agreed upon by the parties to a contract to be paid in case of breach
thereof.

DELAY (MORA)
Kinds:
a. Mora solvendi – delay on the part of the debtor
b. Mora accipiendi – delay on the part of the creditor
c. Compensatio morae – delay on the part of both parties in reciprocal obligations

GENERAL RULE: Demand (judicial/extra-judicial) is necessary before one incurs in delay.

EXCEPTIONS:
1. The law expressly so declares;
2. The obligation itself so stipulates;
3. Time is of the essence;
4. Demand is useless as when obligor has rendered it beyond his power to perform;
5. When there is performance by a party in reciprocal obligations

FRAUD (Dolo)
- Must be present during the performance of the obligation and not fraud at the time of the
birth of the obligation.
Kinds of Dolo:
1. Dolo causante – causal fraud, vitiating consent
2. Dolo incedente – incidental fraud, giving rise to the right to demand damages.
NEGLIGENCE(Culpa)
- Consists in the omission of that diligence which is required by the nature of the obligation
corresponding to the circumstances of the circumstances of the person, of the time and
of the place.
TEST: Diligence of a good father of a family.
Kinds of Negligence:
1. Culpa contractual
2. Culpa criminal
3. Culpa aquiliana

BREACH OF OBLIGATIONS:
Kinds:

FRAUD NEGLIGENCE

1. Deliberate intention to cause damage or 1.No such intention exist

injury
2. Waiver of the liability for future fraud – void 2.Waiver of future negligence may be allowed in
certain cases
3. Must be clearly proven 3.Can be presumed from the violation of a
contractual obligation
4. Liability cannot be mitigated or reduced by 4.Liability may be reduced according to the
courts circumstances
1. Voluntary – debtor is liable for damages if in the performance of his obligation debtor is
guilty of:
a. Default (mora)
b. Fraud (dolo)
c. Negligence (culpa)
d. In any manner contravene the nature thereof
RIGHTS OF THE CREDITOR:
In determinate obligation:
1. Ask for specific performance
2. Damages, exclusive or in addition to specific performance
In generic obligations:
1. Ask for specific performance
2. Ask that the obligation be complied with at the debtor’s expenses
3. Damages
2. Involuntary – debtor is not liable for damages

FORTUITOUS EVENT – events that cannot be foreseen or although foreseeable are inevitable

Essential Characteristics:
1. Cause is independent of the will of the debtor
2. The event must be unforeseeable or unavoidable
3. Occurrence must be such as to render it impossible for the debtor to fulfill his
obligation in a normal manner
4. The debtor must be free from any participation in the aggravation of the injury
resulting to the creditor

GENERAL RULE: No liability in case of fortuitous event

EXCEPTIONS:
1. When expressly declared by stipulation
 2. When the nature of the obligation requires the assumption of risk
3. When expressly declared by law
Examples:
a. When the debtor has incurred in delay or is guilty of fraud negligence or
contravention of the debtor of the tenor of the obligation
b. When the debtor has promised to deliver the same thing to 2 or more different
persons who do not have the same interest
c. When the thing to be delivered is indeterminate/generic
d. When the obligation to deliver a specific thing arises from crime
e. When the bailee in commodatum allowed a third person to use the thing
borrowed

RELATED RULES:
1. All rights acquired by virtue of an obligation are transmissible
Exception:
a. When the law prohibits the transfer of rights
b. When the stipulation of the parties prohibits the transfer of rights
2. The creditor has the following remedies to satisfy his claims against his debtor
a. Exact fulfillment/specific performance
b. Pursue the leviable properties of the debtor
c. Accionsubrogatoria – exercise all rights and actions of the debtor except those which
are inherent in his person
d. Accionpauliana – rescind contracts entered into by the debtor to defraud the creditor
PRESUMPTIONS:
1. When the creditor received the principal amount of an obligation without reserving his
right with respect to the interest, it is presumed that said interest has been paid
2. When the creditor received a later installment of a debt without reserving his right as to
the prior installments, it is presumed that such prior installment have been paid.
KINDS OF OBLIGATIONS

1. Unilateral and Bilateral

2. Real and Personal (positive and negative)
3. Determinate and Generic
4. Civil and Natural
5. Legal and Conventional
PRIMARY CLASSIFICATION
Pure Obligation – An obligation which is not any condition; no specific date is mentioned
for its fulfilment; demandable at once.
RULE: An obligation is demandable at once –
a. When it is pure
b. When it is subject to a resolutory condition
c. When it is subject to a resolutory period
Conditional Obligation – An obligation which is subject to the fulfillment of a condition

CHARACTERISTICS of a condition:
a. Future and Unclear
b. Past but unknown
c. Must not be impossible

Two principal kinds of condition:

1. Suspensive condition (condition precedent or condition antecedent) or one the fulfillment
of which will give rise to an obligation
 2. Resolutory condition (condition subsequent) or one the fulfillment of which will extinguish
an obligation
Suspensive Condition Resolutory Condition
1.if fulfilled, obligation arises or becomes 1.if fulfilled, obligation is extinguished
effective
2.if NOT fulfilled, NO judicial relation is created 2.if NOT fulfilled, juridical relation is
consolidated
3.rights are not yet acquired, but there is hope 3.rights are already acquired, but subject to the
or expectancy that they will soon be acquired threat or danger of extinction

Other Kinds of Conditions:

a. Possible – capable of fulfillment, legally or physically
b. Impossible – if the condition is not capable of fulfillment, legally or physically
c. Positive – an act is supposed to be performed
d. Negative – an act is supposed to be omitted
e. Potestative – the condition depends upon the will of one of the contracting parties
f. Casual – the condition depends upon chance or upon the will of the third person
g. Mixed – the condition depends partly upon chances and partly upon the will of a third
person
Rules in case of imposition of condition
Suspensive positive impossible condition – shall annul the obligation
Exceptions:
a. Pre-existing obligation
b. If obligation is divisible
c. In simple and remuneratory donation
d. In testamentary disposition
e. In case of conditions not to do an impossible thing
Retroactive effect of the fulfillment of a condition:
1. In an obligation to give: retroacts to the day of the constitution of the obligation.
2. In an obligation to do or not to do: the courts shall determine whether or not there will be
a retroactive effect or when retroactivity will take effect

Rules during the pendency of the fulfillment of a suspensive condition:

1. Loss
a. Without debtor’s fault – obligation is extinguished
b. With the debtor’s fault – debtor pays damages

There is loss when the thing:

a. Perishes
b. Goes out of commerce
c. Disappears in such a way that its existence is unknown or it cannot be recovered

2. Deterioration
a. Without debtor’s fault – impairment to be borne by the creditor
b. With debtor’s fault – creditor may choose between the rescission of the obligation
and its fulfillment with indemnity for damages in either case
3. Improvement
a. By the thing’s nature or by time – improvement shall inure to the benefit of the
creditor
b. At the debtor’s expense – debtor shall have no other right than that granted to a
usufructuary
Obligation with a period
 - An obligation with a period is one whose consequences are subjected in one way or
another to the expiration of said period or term
- A period is a future and certain event upon the arrival of which the obligation subject
to it either arises or is terminated
- In an obligation with a period, it is presumed that the period have been established
for the benefit of both the debtor and the creditor, unless from the tenor or other
circumstances of the obligation, it should appear that the period was established in
favor of either the debtor or the creditor.
PERIOD CONDITION
1.certain event 1.uncertain event (it may or may not happen)
2.refers to the future 2.refers to a future event and an unknown past
event
3.merely fixes the time for the efficaciousness 3.causes an obligation to arise or cease
of an obligation
4.arrival of a period does not have any 4.the happening of a condition has retroactive
retroactive effect, absent any agreement to the effect
contrary
5.if the period depends upon the will of the 5.if the fulfillment of the suspensive condition
debtor, the court will fix the duration of the depends upon the sole will the debtor, the
obligation obligation is void

WHEN THE DEBTOR LOSSES THE RIGHT TO MAKE USE OF THE PERIOD
1. Debtor becomes Insolvent unless he gives a guaranty or a surety for the debt
2. Debtor fails to furnish the creditor the Guaranties promised
3. Debtor’s own acts has Impaired said guaranties, or when through a fortuitous event they
disappear, unless he immediately gives new ones equally satisfactory
4. Debtor Violates any undertaking, in consideration of which the creditor agreed to the
period
5. Debtor attempts to Abscond
Alternative obligation
- An obligation where several prestation are due but the performance of one is
sufficient

General rule: the right to choose the prestation belongs to the debtor
Exceptions:
1. It may be exercised by the creditor but only when it was expressly granted to him
2. By a third person when the right is given to him by common agreement of the parties
Limitations:
1. The debtor cannot choose those prestations which are:
a. Impossible
b. Unlawful
c. Which could not have been the object of the obligation
2. The debtor has no more right to choose when, among the prestations whereby
alternatively bound, only one is practicable
3. The debtor cannot choose part of one prestation and part of another prestation

Facultative obligation
- An obligation where only one prestation has been upon but the obligor may render
another in substitution.

Effect of loss in facultative obligations:

1. Before substitution – if the principal thing is lost through a fortuitous event, the
obligation is extinguished; otherwise, the debtor is liable for damages. The loss of the
 thing intended as a substitute with or without the fault of the debtor does not render
him liable.
2. After substitution – if the principal thing is lost, the debtor is not liable whatever may
be the cause of the loss, because it is no longer due. If the substitute is lost, the
liability of the debtor depends upon whether or not the loss is due to his fault.

Facultative Obligation Alternative Obligation

1.only one object is due
2.may be complied with by substitution of
one that was due
3.choice pertains only to the debtor
4.fortuitous loss of prestation extinguishes
the obligation
5.after substitution, culpable loss of the
original obliges the debtor to deliver
substitute prestation without liability to the
creditor
1.several objects are due
2.may be complied with by fulfilling any of
those alternatively due
3.choice pertain even to the creditor or a 3rd
person
4.fortuitous loss of all prestations will
extinguish the obligation

Joint obligation
– An obligation where the whole obligation is to be paid or fulfilled proportionately by the
different debtors and/or is to be demanded proportionately by the different creditors.

Words used to indicate joint liability:

Mancomunada; mancomunadamente; pro rata; proportionately; separately, “we promise
to pay” signed by two or more persons

RULES:
1. Insolvency of one debtor does not make the others liable for his share
2. Vitiated consent on the part of one debtor does not affect consent of the others
Solidary obligation
– An obligation where each one of the debtors is bound to render, and/or each one of the
creditors has a right to demand from any of the debtors, entire compliance with the
prestation.

Words used to indicate solidary liability:

Solidaria; in solidum; mancomunadasolidaria; together and/or separately; individually
and/or collectively; jointly and severally; “I promise to pay” signed by two or more
persons
General rule: Obligation is presumed to be joint if there is concurrence of two or more debtors
and/or two or more creditors in the same obligations.
Exceptions: There is solidarity only when:
1. The stipulation of the parties expressly so states
2. The law requires solidarity
3. The nature of the obligation requires solidarity

Kinds of Solidarity:
1. Active- creditors
2. Passive – debtors
3. Mixed – creditors and debtors

Related rules:
1. The insolvency of one of the debtors will obligate the others to shoulder his share in
proportion to their respective obligations
 2. A solidary debtor paying the entire obligation shall be entitled to reimbursement plus
interest computed as follows:
a. If paid at or after maturity, interest shall run from the date of payment until
reimbursement is made
b. If paid before maturity, interest shall run from the date of maturity until
reimbursement is made
3. Remission or condonation of the share of one of the creditors will not affect his liability as
a solidary debtor
4. Remission of the entire obligation in favor of one of the creditors shall NOT give rise to
the right to demand reimbursement from the other debtors
5. Remission that will take place after payment was made by one of the debtors will not bar
the debtor who made the payment from demanding reimbursement
6. Payment made by one of the debtors after the prescription of the obligation shall NOT
give rise to the right to demand reimbursement
Divisible obligation
– An obligation where the object in its delivery or performance, is capable of partial
fulfillment
Indivisible obligation
– An obligation where the object in its delivery or performance, is not capable of partial
fulfillment
TEST: The purpose of the obligation or the intention of the parties.
Joint indivisible obligation – where the parties are merely proportionately liable
but the object or subject matter thereof is not physically divisible in different parts.

INDIVISIBILITY
1.it refers to the prestation or object of the
contract
2.it does not require plurality of subjects or
parties
3.it is converted into one of indemnity for
damages. As a result, indivisibility of the
obligation is terminated and so each debtor is
liable only for his part of the indemnity
4.the heirs of the debtor remain bound to
perform the same prestation
SOLIDARITY
1.it refers to the vinculum or tie existing
between the subjects or parties to the
obligation
2.it requires plurality of subjects or parties
3.when there is breach of the obligation, the
liability of the solidary debtors although
converted into one of indemnity for damages
shall remain solidary
4.the debt of the solidary debtor terminates the
intrasmissible to the heirs

Obligation with a penal clause

– An obligation which contains an accessory undertaking to pay a previously stipulated
indemnity in case of breach.

General rule: The penalty fixed by the parties is a compensation or substitute for damages in
case of breach of obligation.

Exceptions: (obligee can recover penalty plus damages)

1. Stipulation to the contrary
2. Obligor is sued for refusal to pay the agreed penalty
3. Obligor is guilty of fraud
When penalty may be reduced:
a. If the principal obligation has been partly complied with
b. If the principal obligation has been irregularly complied with
c. If the penalty is iniquitous or unconscionable even if there has been no performance.

MODES OF EXTINGUISHMENT AN OBLIGATION:

 1. Payment or performance;
2. Loss of the thing due;
3. Condonation or remission of the debt;
4. Confusion or merger of rights of the debtor and the creditor;
5. Compensation ;
6. Novation;
7. Annulment;
8. Rescission;
9. Fulfillment of a resolutory condition;
10. Prescription;
11. Death – In personal obligations;
12. Mutual desistance/withdrawal;
13. Arrival of resolutory period;
14. Compromise;
15. Impossibility of fulfillment;
16. Happening of fortuitous event

PAYMENT OR PERFORMANCE – the delivery of the sum or thing due or the performance of the
obligation in any other manner

General rule: Creditor is not bound to accept payment or performance by a third person

Exceptions:
1. When made by a third person who has an interest in the fulfillment of the obligation
2. Contrary stipulation

Rights of the third party who paid the obligation of another:

1. Payment with knowledge and consent of the debtor –
a. Can recover entire amount paid
b. Can be subrogated to all of the rights of the creditor
2. Payment without the knowledge or against the will of the debtor – can recover only
insofar as payment has been benefial to the debtor.

Rules in Monetary obligations:

1. Payment in cash – must be made in the currency stipulated, if not possible, then in the
legal tender in the Philippines
2. Payment in check or other negotiable instrument – not considered payment, they are not
considered legal tender and may be refused by the creditor
Exceptions:
a. When the document has been cashed
b. When it had been impaired through the fault of the creditor

APPLICATION OF PAYMENT
- Designation of the debt to which the payment must be applied when the debtor has
several obligations of the same kind in favor of the same creditor.

Requisites:
1. One debtor and one creditor
2. Two or more debts of the same kind
3. All debts must be due
4. Amount paid by the debtor must not be sufficient to cover all debts
DATION IN PAYMENT (dacion en pago)
 - Property alienated by the debtor to the creditor is satisfaction of the debt in money;
the transmission of the ownership of a thing by the debtor to the creditor as an
accepted equivalent of the performance of the obligation
- Governed by the law on Sales
PAYMENT BY CESSION (cession en pago)

- Debtor abandons all of his properties for the benefit of his creditors in order that from
the proceeds thereof, the latter may obtain payment of their credits.

Dation in Payment Payment in Cession

1.one creditor
2.not necessarily in state of financial difficulty
3.thing delivered which is considered as
equivalent of performance
4.payment extinguishes obligation to the extent
of the value of the thing delivered as agreed
upon, proved or implied from the conduct of the
creditor
1.plurality of creditors
2.debtor must be partially or relatively insolvent
3.universality of property of debtor is what is
ceded
4.merely releases debtor for net proceeds of
things cede or assigned, unless there is
contrary intention

CONSIGNATION
– Deposit of the object of the obligation in a competent court in accordance with the rules
prescribed by law after refusal or inability of the creditor to accept the tender of payment

Rule: Consignation shall produce effects of payment only if there is a valid tender of
payment.

Exceptions:
1. Creditors is absent or unknown, or does not appear at the place of payment
2. Creditors is incapacitated to receive payment at the time it is due
3. When two or more persons claim the right to collect
4. When the title of the obligation has been lost
5. When without just cause the creditor refuses to give a receipt
LOSS OF THE THING DUE
A thing is considered loss when:
1. It perishes
2. Goes out of commerce
3. Disappears in such a way that its existence is unknown or it cannot be recovered

EFFECT OF LOSS
1. In obligations to Give Determinate/Specific things: will extinguish the obligation if the
thing is lost.
Except:
a. When by law, obligor is liable even for fortuitous event
b. When by stipulation, obligor is liable for fortuitous event
c. When the nature of the obligation requires the assumption of risk
d. When the loss of the thing is due partly to the fault of the debtor
e. Then the loss of the thing occurs after the debtor incurred in delay
f. When the debtor promised to deliver the same thing to two or more person who do
not have the same interest
g. When the debt of a certain and determinate thing proceeds from a criminal offense

2. In Obligations to Give Generic thing: obligations is not extinguished; the genus of a thing
cannot perish.
 Exception: In case of generic obligation whose object is a particular class or group with
specific or determinate qualities (limited generic obligations)
3. In Obligation to Do: obligation is extinguished when the prestation becomes legally or
physically impossible
REMISSION OR CONDONATION
- The gratuitous abandoned by the creditor of his right against the debtor. It is thus a
form of donation.
Requisites:
1. There must be an agreement
2. The parties must be capacitated
3. There must be a subject matter
4. The cause or consideration is generosity/gratuitous
5. Obligation is demandable at the time of remission
6. Remission must not be inofficious
7. Must be accepted by the obligor
8. If made expressly, it must comply with the forms of donation

CONFUSION OR MERGER OF RIGHTS

- Merger of the characteristics of the creditor and the debtor in one or the same person
by virtue of which the obligation is extinguished

COMPENSATION
- Extinguishment in the concurrent amount of the obligation of those persons who are
reciprocally debtors and creditors of each other

Requisites of Compensation:
1. That each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other
2. That both debts consist in a sum of money, or if the things due are consumable, they
be of the same kind, and also of the same quality if the latter has been sated
3. That the debts be due
4. That they be liquidated and demandable
5. That over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor.

Compensation
1.takes effect by operation of law
2.capacity to give and to acquire not
necessary
Compensation
1.two persons who are mutual creditors of
each other
2.there must be at least two obligation
Payment
1.takes effect by action of the parties
2.capacity to give and to acquire
essential
Confusion
1.one person where qualities of debtor
and creditor are merged
2.only one obligation

Debts Not Susceptible of Compensation:

1. Debts arising from contract of deposit;
2. Debts arising from contracts of commodatum;
3. Claims for su[[ort due by gratuitous title;
4. Obligations arising from criminal offense;
5. Certain obligations in favor of government.
NOVATION
– Substitution or change of an obligation by another, resulting in the extinguishment of
modification either by:
 a. Changing the object or principal conditions (objective)
b. Substituting another in place of debtor (passive subjective)
c. By subrogating a third person in the rights of the creditor (active subjective)
Requisites:
1. A previous valid obligation;
2. Capacity and intention of the parties to modify or extinguish the obligation;
3. The modification or extinguishment of the obligation;
4. The creation of new and valid obligation.
Kinds of Novation:
a. Legal or conventional
b. Real, personal or mixed
Two forms of Subrogating a Third Person in the Right of the Creditor:

1. Expromission –substitution of the old debtor by a third person without the knowledge or
against the will of the old debtor but the third person acts on his own initiative to assume
the debtor’s obligation with the consent of the creditor. It is essential that the old debtor
be released from obligation
2. Delegacion – substitution of the older debtor, when the creditor accepts a third person to
take the place of the debtor at the instance of the latter. The creditor may withhold
approval. All parties, the old debtor, the new debtor and the creditor must agree.
General rule: Subrogation cannot be presumed
Except:
1. Creditor pays another creditor who is preferred, without debtor’s knowledge
2. A third person not interested in the obligation, pays with the express or tacit approval of
the debtor
3. When even without the debtor’s knowledge, a person interested in the fulfillment of the
obligation pays, without prejudice to the effects of confusion as the latter’s share.
 I. LATIN TERMS

Ab initio From the very beginning

Right to rescind contracts entered into to defraud
Accion pauliana the creditors
The right of the creditor to exercise all the rights
of his debtor to satisfy his claim, except rights
which are inherent and personal on the part of
Accion subrogatoria the debtor
Agente del credere Guaranty commission agent
Alter ego Another “I”
Bona fide In good faith
Caso fortuito Fortuitous events
Caveat emptor Buyer beware
Caveat venditor Vendor is liable for hidden defects
Cestui que trust Beneficiary of a trust agreement
Compensation morae Delay on the part of both parties
Constitutum possessorium The seller will continue in possession even after
the sale
Cuentas en participacion Joint account
Culpa Negligence
Culpa aquiliana Tort or quasi-delict, which is the wrong
committed against a person independent of
contract and without criminal intent. It is the
negligence as a source of an obligation
Culpa criminal Criminal negligence
Culpa contractual The negligence in the performance of an
obligation arising from contract
Dacion en pago Property is alienated to the creditor in satisfaction
of a debt in money
De facto In fact
De jure In law
Delectus personam/ Based on mutual trust and confidence
personarum
Delegacion When the creditor accepts a third person to take
the place of the debtor with the consent of the
 debtor, the creditor and the third person
Dolo Fraud
Dolo causante Casual fraud, fraud employed was the reason
why the deceived party entered into the contract.
Committed before or at the time of perfection of
the contract
Dolo incidente Incidental fraud, committed in the performance of
the obligation
Du ut des I give that you may give – BARTER
Du ut facias I give that you may do
Emptio rei sperati/ speratae Sale of future things
Emptio spei Sale of hope or expectancy
Expromission When a third person without the knowledge or
against the will of the original debtor assumes
the obligation with the consent of the creditor
Facio ut des I do that you may give
Facio ut facias I do that you may do
Fraud in factum/ esse Exists in cases where a person, without
contractus negligence, has signed a negotiable instrument,
but was deceived as to the character of the
instrument and without knowledge of it
Genus nunquam peruit Generic thing never perishes
In pari delecto Both parties are in bad faith
In transit In transit
In solidum Solidarily liable
Intra vires Within the powers
Mancomunada; Joint obligation
mancomunadamente
Mora Delay
Mora accipiendi Delay on the part of the creditor
Mora solvendi Delay on the part of debtor
Mutuum Simple loan of money or consumable goods
Negotiorum gestio Voluntary management if the property or affairs
of another without knowledge or consent of the
latter
Emo dat qui non habet You cannot give what you do not have
Pacto de retro sale Contract of sale whereby the right of the seller to
repurchase the thing sold is reserved
Pactum commissorium Stipulation in a contract of pledge or mortgage
whereby the thing pledged or mortgaged shall
become the property of the creditor in the event
that the debt is not paid on maturity
Pactum reservati domini Reservation of ownership by the seller
conditioned upon the payment of the buyer of the
purchase price
Per diem Per day
Per se By itself
Pro rata For the rate/ proportionate
Quasi As if
Quantum meruit As much as he deserves
Quantum valebant As much as what is reasonably worth
Quorum Of whom
Res perit domino The thing perishes with its owner/ the owner
bears the risk of loss
 Respondeat superior Negligence of the servant is the negligence of
the master
Sans recourse Without recourse
Solution indebiti Juridical relation which is created when
something is received when there is no right to
demand it and it was unduly delivered through
mistake
Stipulation pour autrui Stipulation in favor of the third person
Tradition brevi manu Buyer is already in possession prior to the sale
Traditio longa manu Delivery og things by mere pointing at the object
Traditio simbolica Delivery through the use of token or symbol to
represent the thing delivered
Ultra vires Beyond powers
Vinculum juris Juridical tie
Waiver conciente Waiver without assumption of the risk of eviction
Waiver intencionada Waiver with the knowledge of the risk of eviction
coupled with an assumption of its consequences

REVIEW EXERCISES – OBLIGATIONS

1. Which of the following is true?

a. The creditor has a right to the fruits of the thing subject matter of the obligation from
the perfection of the contract
b. The creditor has a right to the fruits of the thing subject matter of the obligation from
the time the fruits are physically delivered to him
c. The creditor has a right to the fruits of the thing subject matter of the obligation from
the time the obligation to deliver the principal thing arises
d. The creditor has a right to the fruits of the thing subject matter of the obligation. The
creditor has a right to the thing subject matter of the obligation from the moment of
the meeting of the minds

2. Which of the following is true?

a. Industrial fruits are those produced by lands of any kind through cultivation
b. Quasi-delicts are certain lawful, voluntary and unilateral acts which give rise to a
juridical relation to the end that no person may unjustly enrich himself at the expense
of another
c. The fulfillment of a resolutory condition shall as a general rule give riste to an
obligation
d. A period depending upon the sole will of the debtor will invalidate the obligation

3. 1st statement – In an obligation to deliver a specific car with a motorcycle as a substitute, the
choice may be given either to the creditor or the debtor.
2nd statement – Charlotte borrowed P60,000 from Isko. It was agreed that Charlotte will
give Isko P100,000 or her car, or her new motorcycle. Charlotte can compel Isko to
receive part of one and part of the other undertaking?
a. False, false c. True, true
b. True, false d. False, true

4. 1st statement – If the penalty clause is void, the principal obligation can still subsist provided it
is not contrary to law, morals, public policy or good customs.
2nd statement – In solidary obligation, there is only one debt and one credit regardless of
the number of debtors and creditors
a. Wrong, wrong c. Correct, correct
b. Correct, wrong d. Wrong, correct
5. Which of the following is true?
a. Acquittal in the criminal case will excuse the accused from civil liability
b. If the obligation consists of giving, the creditor is entitled to the fruits and accessories
c. A quasi-contract does not require contract of the contracting parties
d. Responsibility arising from fraud is demandable in all obligations and any waiver of
right to sue for damages arising from fraud is void.

6-30. Matching Type

6. The obligation to return what was not lawfully required is A. Real obligation
governed by this principle B. Passive object
7. The person liable for the loss of the subject matter by C. Negligence
fortuitous event D. Payment
8. A kind of obligation where each one of the debtors is E. Application of payment
proportionately liable and the object is not F. Fortuitous event
physically divisible into different parts. G. Joint-indivisible
obligation
9. An obligation performance of which does not depend H. Cession en pago
upon a future or uncertain event, or upon a past event I. Facultative obligation
unknown to the parties. J. Tender of payment
10. The passage of time which extinguishes the obligation K. Dacion en pago

11. Strictly considered not an alternative mode of L. Consignation

payment
12. An alternative mode of extinguishing an obligation M. Incidental fraud
which is govern by law on sale N. Mora accipiendi
13. The failure to observe the care that the law requires to be O. Negotiorum gestio
observed in a given situation P. Compensation
14. Extinguishes the obligation when the creditor will Q. Mora solvendi
gratuitously abandon all his rights against the debtor R. Expromission
15. An obligation where only one prestation has been agreed S. Default
upon T. Simple obligation
16. Fraud in the performance of pre-existing obligation U. Prescription

17. The delay on the part of the creditor in accepting the V. Divisible obligation
performance of obligation W. Causal fraud
18. When a person voluntarily takes charge of the neglected X. Alternative obligation
business of another without the latter’s authority where Y. Solution indebiti
reimbursement must be made for necessary and useful Z. Nobody
expenses AA. Condonation
19. Events which cannot be foreseen or avoided BB. Delegacion
20. An obligation the subject matter of which is a thing which CC. Pure obligation
the obligor must deliver to the oblige DD. Fraud
21. The person who is bound to the fulfillment of an EE. Active subject
obligation
22. Assignment or abandonment of all properties FF. Indivisible obligation
of the debtor for the benefit of his creditors in
order that the latter may sell the same and apply
the proceeds thereof to the satisfaction of his
credits
23. The delay which is tantamount to non-fulfillment of
the obligation arises after an extra-judicial
or judicial demand has been made upon the
debtor
24. Obligation which is susceptible of partial
performance based on the purpose of the
obligation
25. The act of offering the creditor what is due him
together with a demand that the creditor accept
the same
26. It means not only the delivery of money but also
the performance of an obligation in any other
manner.
27. An obligation where only one prestation has been
agreed upon but the obligor may deliver another
as a substitute
28. This is a deposit of the thing due made by the
debtor in lawful for, whenever the creditor refuses
or cannot accept payment
29. An obligation where several prestations are due
but the performance of one is sufficient
30. This takes place when the third person on his
own initiative and without the knowledge or against
the will of the original debtor assumes the obligation

31. X is indebted to Y. X voluntarily, and even after the prescription of the debt, paid Y. Changing
his mind X would like to recover what he paid Y. In this case?
Answer No.1 – X can recover because under the law the creditor has no right to demand
payment of an obligation after it has prescribed.
Answer No.2 – X cannot recover because the obligation became a natural obligation
wherein recovery of what was voluntarily delivered or paid can no longer be made.
a. Wrong, wrong c. Correct, correct
b. Correct, wrong d. Wrong, correct

32. X obliged himself to Y P100,000 as soon as his means permit him. 60 days later Y demanded
payment but X refused on the ground that the obligation is not yet due and demandable.
What can Y do?
a. Go to court to ask for damages
b. Go to court to fix the period of maturity of the obligation
c. Go to the court and sue X for specific performance
d. The obligation is extinguished

33. Tenten and Binggoy are liable to deliver a car with plate no. AMB 121 valued at P1 M to
Taps. In this case:
a. On due date, Taps can demand performance of the obligation from either Tenten or
Binggoy
b. Tenten is liable for the proportionate of the obligation but not for damages if Binggoy
will refuse to deliver.
c. On due date, Taps can demand performance of the obligation from Tenten and
Binggoy
d. The liabily of is Tenten and Binggoy is solidary

34. Mr. Lim obliged himself to give to Chris his mobile phone if the latter will fly like a bird.
 a. The obligation is void but the condition is valid
b. The obligation is valid because only the impossible condition is void
c. The obligation is valid because the impossible condition cannot be performed
d. The obligation is void

35. Through some mistake on the part of the bank personnel, Jake was given Php 1,200 instead
of Php 1,000. This situation will governed by the provisions of the law on:
a. Contracts c. Obligations
b. Quasi-delicts d. Quasi-contract

36. Boy agreed to finish the term paper of Nene. This is an example of:
a. Real obligation c. Positive personal obligation
b. Negative personal obligation d. Unilateral obligation

37. Roy promised to give his car if Joy will pass CPA board exams on May 2016. The car was
destroyed by typhoon Pepeng even before the results of the exam. Eventually Joy passed
the exams. In this case
a. Roy is excused as his obligation was extinguished by a fortuitous event
b. Roy should give another car to Joy
c. Roy will deliver the value of the car plus damages
d. Joy can ask for any other object of the same value

38. X sold his cow to Y for P35,000. No date was stipulated for the delivery of the cow. While still
in the possession of X, the cow gave birth to a calf. In this case:
Answer NO. 1 – X can claim the calf as the ownership of the cow is not yet transferred to
Y
Answer NO. 2- Y has preference to claim the calf if he will pay for it
a. Wrong, wrong c. Correct, correct
b. Correct, wrong d. Wrong, correct

39. X promised to give his cow to Y. before the date stipulated for the delivery of the cow it gave
birth to a calf. In this case:
Answer NO.1 – Y is entitled to the calf as the principal is a specific thing
Answer No. 2 – Y has a real right over the calf upon perfection of the contract
a. Wrong, wrong c. Correct, correct
b. Corrent, wrong d. Wrong, correct

40. A, B, C and D are solidary debtors of X in the amount of P60,000. X remitted A’s share. B
paid X P60,000. How much can B demand from C if B will ask for reimbursement?
a. P12,500 c. P30,000
b. P15,000 d. P20,000

41. A, B and C are solidary debtors of D in the amount of P15,000. D remitted A’s share. B paid
D P10,000. How much can B demand from A if B will ask for reimbursement and C is
insolvent?
a. P10,000 c. P2,500
b. P5,000 d. P0

42. A, B, C and D are debtors of E, F and G, in the amount of P180,000. A’s obligation is:
a. Pay E P45,000 c. Pay E P15,000
b. Pay E, F and G P180,000 d. Pay E P20,000

43. X borrowed P100,000 from Y secured by a mortgage contract. Without the knowledge of X, Z
paid Y to release the debt of X. as a result:
a. Z cannot recover what he paid from X because the payment was made without the
X’s consent
 b. Z can recover what he paid from Y in case X is insolvent
c. Z can foreclose the mortgaged property of X
d. Z can recover what he paid from X

44. A, B and C are solidarily liable to X for P300,000 which will mature August 31, 2016. On
March 1,2016, A paid X for the whole amount of the debt. If on September 15, 2016 A will be
reimbursed by B, the latter will be liable for:
a. P100,000 without interest
b. P100,000 with interest from March 1, 2016 to September 15, 2016
c. P100,000 with interest from March 1, 2016 to September 15, 2016
d. P100,000 with interest from August 31, 2016 to September 15, 2016

45. Glenn ordered Clarence, a nine year old boy, to climb a slippery tree, and promised to share
with him part of the fruits. They boy fell and was killed. Glenn is liable for damages because
of his fault or negligence, which is referred to as a:
a. Contract b. Quasi-delict c. Delict d.Quasi-contract

46. Cecilia owes Rachel Php1M. With the consent of both, Joy pays Rachel Php500,000. Now
Rachel and Joy are the creditors of Cecilia. Supposed Cecilia has only P500,000. Which
statement is correct?
a. Rachel and Joy should divide the P500,000 equally
b. Joy should be preferred
c. Cecilia’s intent will prevail
d. Rachel should be preferred

47. X owes Y Php2M due on April 30, 2016. X mortgaged his house as guaranty for the debt. On
January 6, 2016 the mortgaged house was completely destroyed by typhoon “Juaning”. A
week after Y demanded payment. Is the demand valid?
a. Yes, the debt become demandable because the security established is for the benefit
of the creditor
b. Yes, the debt becomes demandable because the collateral was lost thru a fortuitous
event
c. No, because the obligation is one with a definite period and the demand would be
prejudicial to right of the debtor
d. No, the obligation is extinguished because the object of the obligation is lost thru a
fortuitous event

48. Which of the following is false?

a. The voluntary acceptance by the creditor of a certified cashier’s a check produces
payment
b. If the suspensive condition depends upon chance or upon the will of a third person,
the obligation subject to it is valid
c. The creditor, as a rule, is not bound to accept payment or performance by at third
person, unless such person has an interest in the fulfillment of the obligation
d. Unless the application of payment is expressly stated, the payment shall be applied
to the obligation most onerous to the debtor

49. Which of the following is true?

a. If the obligation consists giving a specific thing, the debtor must exercise extra-
judicial diligence
b. There is the debtor's solidary liability only when the obligation expressly so states
c. If person obligated to give a specific thing fails to do it, the same shall be executed at
his cost
d. Mora accepiendi is one which is the delay on the part of the creditor to accept the
performance of the obligation
50. Which of the following is false?
a. Payment made in good faith to a person in possession of the credit shall extinguish
the debtor’s obligation
b. There is no delay in a negative personal obligation
c. Condonation is generally gratuitous
d. I will pay you P100,000 “soonest” is an example of an obligation with a period

51. Which of the following is true?

a. The condition not to do an impossible thing does not render the obligation void
b. A condition always refers to the future
c. In alternative obligations the right to select which of the prestation shall be delivered
belongs to the creditor, unless expressly given to the creditor
d. The debtor losses the right to the period if he does not give any security to the
creditor

52. Which of the following is true?

a. The condition that some event will not happen at a determinate time shall extinguish
the obligation from the moment the time indicated has lapsed or it has become
evident that the event cannot occur
b. The condition that some event happens at a determinate time shall give rise to the
obligation as soon as the time expires or it has become indubitable that the event will
not take place
c. Whoever pays for another may demand reimbursement from the debtor what he has
paid
d. The debtor who is obligation to deliver a specific thing cannot compel the creditor to
receive an object of the same kind.

53. Which of the following is false?

a. When the debtor is guilty of fraud in the fulfillment of an obligation, a creditor can
demand payment of damages and interests in addition to the penalty clause
b. Those who in the performance of their obligations are guilty of fraud, negligence or
delay will be liable for damages
c. If the condition is potestative on the part of the creditor, the obligation is void
d. If the condition is protestative on the part of the debtor, the obligation is valid

54. Which of the following is false?

a. An obligation to do suggests that the debtor will impart with an object
b. All rights acquired in virtue of an obligation are generally transmissible except when
prohibited by law or when prohibited by stipulation of the parties. - T
c. An example of an obligation with a period is when Mar promises to pay Negro P 10M
one month after Rodrigo wins the 2016 Presidential elections. - F
d. Loss of a generic thing which is the object of an obligation, even without the fault of
the debtor, does not extinguish the debtor’s obligation – T

55. Which of the following is true?

a. Solidarity cannot exist if the creditors and the debtors are not bound in the same
manner and by the same periods and conditions
b. A solidary debtor is at all times entitled to reimbursement from his co-debtors if he
pays for their respective shares in the obligation
c. A condition is considered fulfilled if the debtor voluntarily prevents its fulfillment
d. A solidarily obligation is one where the whole obligation is to be paid or fulfilled
proportionately by the different debtor and is to be demanded proportionately by the
different creditors

56. In which of the following is non-performance of an obligation excuse due to a fortuitous

event?
 a. When stipulated by the parties
b. When the law so provides
c. When the obligation involves the assumption of risk
d. When the object is specific

57. Where demand by the creditor shall be necessary in order that delay may exist:
a. When demand would be useless
b. When the debtor requested for an extension of the period
c. When the demand is excused by a provision of law
d. When time is of the essence

58. Which of the following is not an element of legal compensation:

a. Debts to be compensated are due and demandable
b. There is controversy or adverse claim over any debts to be compensated
c. There are two or more debts of the same kind
d. There are two persons who are creditors and debtors of each other

59. Three of the requisites of cession in payment. Which is the exception?

a. One debtor and one creditor
b. Complete or partial insolvency
c. More than one debt
d. Abandonment of all debtor’s property not exempt from execution

60. Which of the following illustrates suspensive period?

a. A will support B until December 31, 2010
b. A will support B if C will marry B
c. A will support B after the death of C
d. A will support B until B pass the CPA board exam

61. The debtor losses the benefit of the period, and his obligation becomes demandable when:
a. After contracting the obligation, the creditor suspects that the debtor is becoming
insolvent.
b. The debtor attempts to abscond.
c. The guarantees as promised and delivered by the debtor are not acceptable to the
creditor.
d. Demand by the creditor would be useless.

62. Anything paid or delivered before the arrival of a period can be recovered by the debtor who
paid by mistake:
a. With interest c. with interest and other fruits
b. Without interest d. may not be recovered

63. Compensation cannot take place except:

a. When one debt arises from bank deposit
b. When one debt arises from support be reason of a gratuitous title
c. When one debt arises from an obligation of a depositary
d. When one debt arises from the obligation of the bailee in a contract of commodatum

64. It is the meeting of one person of the qualities of creditor and debtor with respect to the same
obligation:
a. Confusion c. Compensation
b. Remission d. Novation

65. When the thing deteriorates pending the fulfillment of the suspensive condition without the
fault of the debtor, the impairment is to be borne:
a. By the party who caused the deterioration
 b. By the debtor
c. Partly by the debtor and partly by the creditor
d. By the creditor

66. The prestation is also known as:

a. Subject matter
b. Debtor
c. Creditor
d. Efficient cause.

67. The efficient cause of an obligation is also known as:

a. Active subject
b. Passive subject
c. Subject matter
d. Legal tie

68. F and M are the parents of S, a government employee who is married to D. F is an employee
of a private firm, while M is a housewife. While S was on out-of-town assignment, D was
brought to the hospital for medical treatment by F and M, her parents-in-law. The hospital
wants to collect either from F and M for the medical expenses. In this case:
a. Only F is liable because he is the one employed.
b. Both F and M are liable because it was they who brought D to the hospital
c. Only S, the husband of D, is liable as he is the one obliged by law to support his wife.
d. The three of them is liable because they belong to the same family and are obliged
by law to support D.

69. A juridical relation arising from certain lawful, voluntary and unilateral acts, and which has for
its purpose the payment of indemnity to the end that no one shall be unjustly enriched at the
expense of another.
a. Quasi-delict
b. Quasi-contract
c. Quasi-tradition
d. Quasi-relation

70. The return of what has been paid by mistake is known as:
a. Negotorium gestio.
b. Solution indebiti.
c. Quasi-delict.
d. Culpa aquiliana.

71. J and K are the owners of neighboring stalls in Baclaran. J got sick and had no one tend to
his store which contained some perishable items, when K noticed that J had not been around
already for almost a week, K had that perishable items owned by J placed in a cold storage to
preserve them . K incurred P1,000 for the purpose.
a. J must reimburse P1,000.00 to K since he was benefited by the act of K.
b. J has no obligation to reimburse K since he did not authorize K to place the
perishable items in a cold storage.
c. J must reimburse P1,000.00 to K because K had an authority to do so they being
neighbors
d. J need not reimburse P1,000.00 to K because no one should intrude into the affairs
or business of another.

72. D, 30 years old, asked B , a 10-year old boy, to climb a santol tree with a promise to give him
P5.00 for every coconut picked. B climbed the tree but he fell and died. D is obliged to pay
damages to the heirs of B on the basis of: The right of the creditor that is enforceable against
a definite debtor is
 a. Quasi-delict
b. Quasi-contract
c. Acts and omission punished by law.
d. D is not liable because it was not through his negligence that B fell to his death.

73. It is a thing that is particularly designated or physically segregated from all others of the same
class.
a. Generic thing.
b. Indeterminate thing
c. Determinate things
d. Special thing

74. A person obliged to give a determinate thing is also obliged to take care of the thing with:
a. The good diligence of a father of a family
b. The diligence of a father of a good family
c. The diligence of a good father of a family
d. Extraordinary diligence

75. The rice, corn and other products of the land that come into existence through human labor
are examples of:
a. Natural fruits
b. Civil fruits
c. Legal fruits
d. Industrial fruits

76. They refer to the products of a juridical relation such as the rents of buildings, the rice of
leases of lands and other property and the amount of perpetual or life annuities or other
similar income
a. Civil fruits
b. Natural fruits
c. Legal fruits
d. Industrial fruits

77. On August 1, 2017, D promised to give his agricultural lot to C if C passes the October 2017
CPA Board Exams. C took the examination on Oct 1, 2, 8 & 9, 2017. The result of your
examination was released on October 15, 2017 and C passed it.
The obligation of D to give his agricultural lot arose:
a. On August 1, 2017
b. On September 20, 2017
c. On October 15, 2017
d. At any time after April 18, 2017 when D had taken his oath as a new lawyer.

78. The right of C to demand delivery of the agricultural lot and the crops from the time the
obligation to deliver the lot arose is known as:
a. Real right
b. Personal right
c. Civil right
d. Natural right

79. These statements are presented to you:

I. Accessions include everything which is produced by a thing or which is
incorporated or attached thereto, either naturally or artificially.
II. Accessories are those that are attached to or included in another thing of more
importance to add to the utility, ornamentation, preservation or completion of the
latter.
a. Both statements are true.
 b. Both statements are false.
c. Only statement I is true.
d. Only statement II is true.

80. Which of the following is not an accessory?

a. The bracelet of a wristwatch.
b. The keys to a house.
c. The building constructed on a lot.
d. The wheels on a car.

81. These statements concerning the accessions and accessories of a determinate thing are
presented to you:
I. The debtor has to deliver the accessions and accessories even if they have not
been mentioned.
II. The debtor must deliver the accessions and accessories only if they have been
mentioned.
III. The debtor and the creditor may validly stipulate that the accessions and
accessories will be excluded from the obligation to deliver the thing.

In you evaluation of the foregoing statements:

a. Statement I and II are true.
b. Statement II and III are true.
c. Statement I and II are true.
d. All statements are true.

82. These statements concerning delay are presented to you:

I. There is no delay in obligation not to do.
II. As a rule, the debtor will be in default if he does not perform his obligation on due
date.

In your evaluation of the foregoing statements:

a. Both statements are true.

b. Both statements are false.
c. Only statement I is true.
d. Only statement II is true.

83. They include physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation and similar injury.
a. Compensatory damages
b. Corrective damages
c. Exemplary damages
d. Moral damages

84. D is obliged to deliver 5 sacks of “Jasmine” rice to C after two weeks. On due date, D
intentionally delivered 5 sacks of rice of a lower class. The obligation of D is:
a. Void
b. Rescissible
c. Voidable
d. Still valid and is not affected by the fraud in performance

85. D is obliged to deliver 20 bottles of King’s Castle whisky to C. The parties agreed that should
D commit fraud in one way or another in the performance of his obligation, C would not sue
him for damages. On due date, D intentionally delivered to C 20 bottles of adulterated whisky.
Upon learning of the fraud, C threatened to sue D for damages.
 a. C cannot sue D for damages on account of the fraud because he waived his rights
thereto
b. C can sue D for damages because the waiver was made by C is void.
c. C can file an action for the declaration of the nullity of the contract.

Items 86 and 87 are based on the following statements:

I. There is deliberate intention to cause damage to another
II. There is no deliberate intention to cause damage to another
III. Liability for damages maybe mitigated by the court according to the circumstances
IV. Liability for damages cannot be mitigated by the court

86. The statements is applicable to fraud are:

a. I and III
b. II and IV
c. I and IV
d. II and III

87. The statements that are applicable to negligence are:

a. I and III
b. II and IV
c. I and IV
d. II and III

88. These statements are presented to you:

I. The receipt of the principal without reservation with respect to the interest shall not
give rise to the presumption that the interest has been paid.
II. The receipt of a later installment without reservation with respect to prior installment
shall give rise to the presumption that such prior installments have been paid.

In your evaluation of the foregoing statement

a. Both statements are true
b. Bothe statements are false
c. Only statement I is true
d. Only statement II is true

89. Aside from exacting payment of the obligation, the creditor is entitled to which of the following
remedies?
a. Pursue the properties in the possession of the debtor, except those exempt from
execution
b. Exercise all rights and bring all the action of the debtor, except those that are
inherent in his person.
c. Impugn all the acts which the debtor may have done to defraud his creditors.
d. All of the foregoing.

90. D borrowed P100,000 from C, the debt which bears interest at 10% per annum and is
payable at the end of the one year, is evidence by a promissory note which D executed and
deliver to C. Two months before the due date, C died, he was survived by S, his only son and
heirs to whom the executor of D’s estate deliver a promissory note.
a. The credit right is transmitted to S; S can collect from D.
b. The credit right is not transmitted to S since it is purely personal; hence, S cannot
collect from D.
c. The law prohibits the transmission of the credit right; hence, S cannot collect from D.
d. The credit right is not transmitted to S because there was no stipulation to that effect;
hence, S cannot collect from D
91. Mr. X died recently. His executor presented to you for evaluation the following documents left
by Mr. X
I. Stock certificate indicating that Mr. X was the owner of 10,000 shares of stock of
San Juan Corporation
II. Articles of partnership of Good Company showing Mr. X as a general partner
III. Agreement engaging the services of Mr. X as consultant of Marble Mining
Corporation

The rights that will not be transmitted to heirs of X are those that arise from:
a. Documents I and II
b. Documents II and III
c. Documents I and III
d. None of the foregoing

92. A pure obligation that is:

a. Immediately demandable
b. Not subject to any condition
c. Without any term
d. All of the above

93. D oblige himself to allow the use of his car by C until C finishes his course in law. The
condition imposed upon the obligation is:
a. Suspensive condition
b. Condition precedent
c. Condition antecedent
d. Resolutory condition

94. Which of the following combinations of conditions will render an obligation void?
a. Suspensive – postestative (creditor)
b. Suspensive – postestative (debtor)
c. Resolutory – postestative (creditor)
d. Resolutory – postestative (debtor)

95. One of the following obligations is void. Which is it?

a. D to give C P10,000 if D goes to Baguio
b. D to give C P10,000 if C goes to Baguio
c. D to give C P1,000 a month until D return from Baguio
d. D to give C P10,000 if C does not fly to the moon.

96. Which of the following is not an obligation?

a. “I will pay you little by little”
b. “I will pay you when I have the means”
c. “I will pay you as soon as possible”
d. “I will pay when my loan is approve by the bank”

97. D is oblige to give C a house and lot if C will not marry X within one year. Which of the
following statements is incorrect?
a. D’s obligation becomes demandable if the one year period expires without C having
married X.
b. D’s obligation becomes demandable if X dies before the one-year period expires
without C having married X.
c. D’s obligation is extinguish if C marries X within the one–year period
d. D’s obligation is demandable if C marries X within the one–year period

98. These statements are presented to you.

 I. The condition shall be deemed fulfilled if the debtor voluntarily prevents its
fulfillment
II. The condition not to do an impossible thing shall be deemed as not having
agreed upon.

In your evaluation of the foregoing statements:

a. Both statements are true
b. Both statements are false
c. Only statement I is true
d. Only statement II is true

99. D agreed to give C a specific tractor if C would complete his course in agriculture. C
completed his course in agriculture but D earlier had the tractor overhauled thereby improving
its efficiency.
a. The improvement in the tractor shall inure to the benefit of C without any right on the
part of D to demand reimbursement.
b. D and C must equally share in the cost of improvement
c. C should reimburse D for the cost of the improvement
d. D may withhold delivery to the tractor until he and C arrive at an agreement on how
the cost of improvement shall be divided between them.

100. The following statements concerning reciprocal obligations are presented to you:
I. The power to rescind is implied in the case one of the obligors does not comply with
what is incumbent upon him.
II. The injured party may choose fulfillment with a right to damages, instead of
rescinding the obligation.

In your evaluation of the foregoing statements:

a. Both statements are true
b. Both statements are false
c. Only statement I is true
d. Only statement II is true

101. The period established in an obligation is presumed to be for the benefit of:
a. The debtor
b. The creditor
c. Both the debtor and the creditor
d. Neither, because it must be clearly established by stipulation.

102. On May 1, 2017, D borrowed P100,000.00 from C. The loan is payable on or before April
30, 2017 and bears interest at 12% per annum. Which of the following statements is
incorrect?
a. D may pay on April 30,2017
b. D may pay before April 30,2017
c. C may demand payment before April 30,2017
d. C may demand payment on April 30,2017

103. In an alternative obligation, the right of choice as a rule belongs to the:

a. Debtor
b. Creditor
c. Both the debtor and the creditor whoever exercises it first
d. Neither the debtor not the creditor because the parties must stipulate on who has the
right of choice.

104. In a facultative obligation, the choice as to whether the substitute will be delivered or not
belongs to:
 a. The debtor only
b. The creditor only
c. Both parties
d. Neither of the parties

105. A facultative obligation differs from an alternative obligation in that in facultative

obligation:
a. Only one prestation is due
b. The right of choice belongs to the debtor unless it is expressly granted to the creditor.
c. If there are void prestations, the obligation remains if there are others that are valid.
d. If all prestations are impossible except one, that which is possible must still be given.

Items 106 to 109 are based on the following information:

If A,B,C and D are indebted to X, Y and Z, in the amount of P12,000.00

106. If the debtors are joint debtors and the creditors are joint creditors, X may collect from A :
a. P12,000.00
b. P4,000.00
c. P3,000.00
d. P1,000.00

107. If the debtors are joint debtors and the creditors are solidary creditors, X may collect from
A:
a. P12,000.00
b. P4,000.00
c. P3,000.00
d. P1,000.00

108. If the debtors are solidary debtors and the creditors are joint creditors, X may collect from
A:
a. P12,000.00
b. P4,000.00
c. P3,000.00
d. P1,000.00

109. If there is mixed solidary, X may collect from A:

a. P12,000.00
b. P4,000.00
c. P3,000.00
d. P1,000.00
110. A, B, and C are jointly indebted to X in the amount of P30,000.00. Before due date, A
becomes insolvent. On the due date, X can collect.
a. P15,000.00 from B, and P15,000.00 from C.
b. P10,000.00 from B, and P10,000.00 from C.
c. P20,000.00 from B, or P20,000.00 from C.
d. P30,000.00 from B, or P30,000.00 from C

111. A,B and C are solidary debtors of X in the amount of P6,000.00. X condones the share of
A. A accepts the condonation. Later, B pays X P4,000.00. When B demanded reimbursement
from C, C could not pay because he was already insolvent. In this case, B may collect from
A:
a. Nothing because the share of A had already been extinguished by condonation.
b. P4,000.00
c. P2,000.00
d. P1,000.00
112. These statements are presented to you:
I. A solidary creditor may assign his right to a third person without the consent of the
creditors.
II. A solidary debtor, on the ground of equity, is entitled to reimbursement from his fellow
debtors if he paid the obligation after it has prescribed.

In the evaluation of the foregoing statements:

a. Both statements are true.
b. Both statements are false.
c. Only statement I is true.
d. Only statement II is true.

113. A promissory note reads as follows:

“I promise to pay Rufino Rodriguez or order the sum of P9,000.00.
(Sgd.) Anastacia Reyes (Sgd.) Datu Absalom (Sgd.) Sophia Manuel”
Note: Sophia Manuel is insolvent

How much may Rufino Rodriguez collect from Anastacia Reyes?

a. P9,000.00
b. P6,000.00 says “ I promise to pay”
c. P3,000.00
d. Nothing, because the note is void, since it is signed by three persons.

114. The following obligations are divisible, except:

a. When the obligation has for its object the execution of certain number of days of
work.
b. When the obligation has for its object the accomplishment of work by metrical units.
c. Analogous things which by their nature are susceptible of partial performance.
d. Obligation to give definite things.

115. These obligations are presented to you:

I. Obligation to paint a house in 5 days.
II. Obligation to deliver a specific car
III. Obligation to give a vocal solo rendition of the Philippine National Anthem
IV. Obligation to construct a fence which is 10 meters long and 2 meters high.

Which of the foregoing obligations are divisible?

a. I and II
b. III and IV
c. I and IV
d. II and III

116. Aside from the penalty, damages and interest may be demanded in which of the following
cases?
a. When there was a stipulation the aside from the penalty, damages and interests may
be also recoverable.
b. When the debtor refuses to pay the stipulated penalty.
c. When the debtor is guilty of fraud in the performance of the obligation.
d. All of the above

117. D is obliged to paint the car of C in three days. The parties stipulated that in case D failed
to paint the car within the period, D would give 5 grams of “shabu” as penalty for every.
Principal Obligation Penalty
a. Valid Valid
b. Void Void
c. Void Valid
 d. Valid Void

118. It transfers to the person who assumes the credit right with all the rights thereto
appertaining, either against the debtor or against third persons, be guarantors or possessors
of mortgages.
a. Substitution
b. Subrogation
c. Assignment
d. Negotiation

119. One peso (P1.00) coins and other coins of higher denomination are legal tender up to:
a. P20.00
b. P1,000.00
c. P100.00
d. P500.00

120. These statements are presented to you:

I. Monetary obligations, as a rule, shall be settled in the currency which is legal tender
in the Philippines
II. The parties are prohibited b law from stipulating that the obligation or transaction
shall be settled in any other currency at the time of payment.

In your evaluation of the foregoing statements:

a. Both are true.
b. Both are false.
c. Only Statement I is true.
d. Only Statement II is true.

121. It refers to the designation of the debt to which a payment shall apply.
a. Tender of payment
b. Consignation
c. Application of payment
d. Assignment

122. Consignation will extinguish as obligation:

I. Upon the declaration by the court that consignation has been properly made.
II. Upon acceptance by the creditor of the consignation.

The statement is true with respect to:

a. I only c. Both I and II
b. II only d. Neither I nor II

123. Consignation may be made even without previous tender of payment in the following
cases, except:
a. When the creditor is absent or unknown or does not appear at the place of payment.
b. When the creditor is incapacitated but the debtor knows that the creditor has a legal
representative to receive payment.
c. When two or more persons claim the same right to collect.
d. When the creditor refuses to give a receipt without just cause.

124. M is the maker of a promissory note payable to the order of P, payee, G signed the note
as a guarantor of the debt. P indorses the note to A, A and B, and B and C. On the date of
maturity, C indorsed the note back to M. The indorsement of the note to M extinguished:
a. Both the principal debt and the guaranty.
b. Only the principal debt.
c. Only the guaranty.
 d. Neither the principal debt nor the guaranty.

125. Refer to No. 124 If the note was instead indorsed by C to G on the date of maturity, such
indorsement extinguished:
a. Both the principal debt and the guaranty.
b. Only the principal debt.
c. Only the guaranty.
d. Neither the principal debt nor the guaranty.

126. D owes C P20,000.00 payable on or before March 31, 2017. C owes D P20,000.00 due
on March 1, 2017. On March 1, 2017;
a. Only C may claim the compensation.
b. Only D may claim compensation.
c. Only C may oppose any compensation being claimed by D.
d. Either D or C may claim the compensation.

127. The compensation referred to in the preceding number is known as:

a. Legal compensation
b. Facultative compensation
c. Voluntary compensation
d. Compensation is not allowed in such situation.