Art.

1246 Creditor cannot demand a thing of superior quality nor debtor delivers
a thing of inferior quality.
Re: delivery of indeterminate or generic thing whose quality and circumstances
have not been stated.
-may be waived by the creditor by accepting a thing of inferior quality and by the
debtor by delivering a thing of superior quality
Principle of equity
Partial payment is allowed: (Art 1248)
1. when there is 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 consists are subject to
different terms or conditions which affect some of them.
4. when the parties now that the obligation reasonably cannot be expected to be
performed completely at one time
5. when there is abuse of right or if good faith requires acceptance.
Creditor may accept but may not be compelled to accept partial payment or
performance.
Art. 1249. Payment of debts in money (monetary obligation) shall be made in
currency stipulated, if not possible to deliver such currency, then in currency which
is legal tender in the Philippines.
Promissory notes, checks, mercantile doc: will produce the effect of payment only
when cashed or when through fault of creditor they have been impaired (applicable
only to those executed by the third persons and delivered by the debtor to the
creditor, does not apply to instruments executed by the debtor himself and
delivered to the creditor; acceptance of check implies undertaking of due diligence
on the part of the payee in presenting it as payment, if no such presentment was
mace, the drawer cannot be held liable irrespective of loss or injury sustained by
the payee.)
RA 8183 no legal impediment in having obligations or transactions paid in a foreign
currency as long as the parties agree to such arrangement
Legal Tender: that currency which a debtor can legally compel a creditor to accept
in payment of a debt in money when tendered by the debtor in the right amount.
BSP Circular No. 537: P1, P5, P10: P1000; P.01, P.05, P.10, P.25: P100
-creditor has right to refuse or accept
Art. 1252 Application of payment: applicable if there are various debts of same
kind. The designation of the debt to which should be applied the payment made by
a debtor who has various debts of the same kind in favour of one and the same
creditor.
Requisites:
1.
2.
3.
4.
5.

There must be one debtor and one creditor

There must be two or more debts
The debts must be of the same kind
The debts to which payment made by the debtor has been applied must be due
The payment made must not be sufficient to cover all the debts

Application as to debts not yet due:

1. There is stipulation that the debtor may so apply

2. Made by the debtor or creditor as the case may be for whose benefit the period
has been constituted.
Rules:
1. The debtor has first choice. If no choice, creditor may designate.
2. Right to make application is irrevocable unless creditor consents to change.
3. Right to apply is not mandatory but merely directory
4. If the creditor has not also made the application or if the application in not valid,
the debt most onerous to the debtor among those due shall be deemed satisfied

If no application was made by neither debtor nor creditor, application of

payment by operation of law will govern.

Payment by Cession Art. 1255

-

Assignment or abandonment of ALL the properties of the debtor for the

benefit o his creditors in order that the latter may sell and apply the proceeds
thereof to the satisfaction of their credits.
Not equivalent to ownership
Properties will be ceded to creditors authorized to sell properties and net
proceeds will be payment of debt
Distribute proportionately. If not, proceeds is insufficient

Requisites:
1.
2.
3.
4.

Two or more creditors

Debtor must be (partially) insolvent
Assignment must involve ALL the properties of the debtor
Cession must be accepted by the creditors

Tender of Payment and Consignation Art. 1256

-creditor refuses without just cause to accept tender of payment, debtor shall be
released from responsibility by the consignation of the thing or sum due.
Consignation produces the same effect in the following:
1.
2.
3.
4.
5.

When
When
When
When
When

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

ToP: act on the part of the debtor of offering to the creditor the thing or amount
due.
- Offer and demand that creditor accepts payment
- Fusion of intent, ability and capability to make such good offer which must be
absolute and must cover the amount due.
- Must comply with the rules on payment
- Must be actually made
- Must be unconditional and for the whole amount
- Precedes consignation, must be proved. If not required, notice to interested
persons of the consignation need be proved
Con: act of depositing the thing or amount due with the proper court when the
creditor does not desire or refuses to accept payment or cannot receive it after
complying with the formalities required by law.
- Must be deposited to proper judicial authority

Applicable on to payment of debt. Not applicable when there is absence of

obligation to pay

Requisites of a valid consignation:

1. existence of a valid debt which is due
2. valid and prior tender of payment by the debtor and refusal without justifiable
reason by the creditor to accept it
3. previous notice of consignation to persons interested in the fulfilment of the
obligation
4. consignation of the thing to persons interested in the fulfilment of the obligation
5. subsequent notice of consignation to the interested parties
Absence of any requisites is enough ground to render consignation ineffective.
Applicable in all kinds of real obligation
Art. 1256 authorizes consignation alone without need of prior tender of payment in
any of the 5 cases enumerated
Consignation is deemed properly made when:
1. the creditor accepts the thing or sum deposited, without objection as payment of
the obligation
2. the creditor questions the validity of the consignation and the court after hearing,
declares that it has been properly made
3. when the creditor neither accepts nor questions the validity of the consignation
and the court after hearing, orders cancellation of the obligation
*a formal complaint must be commenced of whether there was valid tender of
payment or consignation
Loss of the Thing Due Art. 1262
-

Object perishes (physically)

Goes out of commerce
Disappears in such a way that its existence is unknown or cannot be
recovered

Loss of a determinate thing is the equivalent of impossibility of performance in

obligations to do
Applicable to both obligations to give and to do
Loss of things will extinguish an obligation TO GIVE:
1. The obligation to deliver a specific or determinate thing
2. The loss of the thing occurs without fault of the debtor
3. The debtor is not guilty of delay
Loss will NOT extinguish liability:
1. When law so provides (debtor: fault, negligence, default, contravenes tenor of
obligation)
2. Stipulation so provides
3. nature of the obligation requires the assumption of risk
4. Obligation to deliver a specific thing arises from a crime
Effect of loss of a Generic thing:
-

Due to fortuitous event because the law says so based on the principle that a
generic thing never perishes

Demand delivery of same kind but not of superior quality nor debtor delivers
of inferior quality

Partial loss:
-portion of the thing is lost or destroyed or when it suffers depreciation or
deterioration
-equivalent to difficulty of performance in obligations to do
-court will decide in case of disagreement of parties
Presumption that loss is due to debtors fault when the thing is in his possession
unless there is proof to the contrary. Presumption does not apply in case of
earthquake, flood, storm, or other natural calamity.
In obligations to do, debtor shall be released when prestation becomes legally or
physically impossible without the fault of the obligor.
In obligations not to do, impossibility of performance can hardly take place.
Kinds of impossibility:
1. Physical: obligor dies, physically incapacitated to perform obligation. If
impossibility is due to fault or negligence of obligor, he shall be liable for damages
2. Legal: rendered impossible by provision of law although physically it may e
possible of performance
Rebus sic stantibus: service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom in whole or
in part.
*only applicable in personal obligations
*doctrine of unforeseen events
Obligation to deliver a specific thing arising from crimes does not extinguish
obligation (even in fortuitous events)
- The obligation subsists except when the creditor refused to accept the things
without justification after it had been offered to him
Condonation or Remission of Debt Art. 1270
-

Essentially gratuitous
Requires acceptance by the obligor
Made expressly or impliedly
Gratuitous renunciation by the creditor of his right against the debtor
resulting in the extinguishment of the latters obligation in its entirety or in
that oart of the same to which renunciation refers.
Form of donation

Requisites:
1. must be gratuituous (surrender of a right without any compensation or
counterpart)
2. must be accepted by the obligor
3. parties must have capacity
4. must not be inofficious (inofficious: redues the legitime of a ompulsory heir)
5. if made expressly, must comply with the forms of donation
-obligation is and continues to be demandable at the time of the remission
-remission, being an act of liberality, should be proved by clearer and more
convincing evidence than what is required to establish payment.
Why ask for acceptance (re donation)?

Because donee might feel uncomfortable; there may be strings attached

Kinds of Remission
1. Complete
2. Partial
3. Express
4. Implied
5. Inter vivos (will take effect during lifetime of the donor)
6. Mortis causa (will become effective upon death of donor)
*Renunciation of principal debt shall extinguish the accessory obligations , but the
waiver of the later shall leave the former in force (Art. 1273)
Pledge used as collateral, security: examples of accessory obligation
-creditor may auction; proceed may be used as payment
*
Requires acceptance;
Gratuitous;
delivery of private document;
extinguish accessory obligations but waiver of same will remain the principal in
force; must not be inofficious;
must be capacitated;
must comply with forms of donation
Confusion or Merger of Rights (Art. 1275)
-meeting of one person of the qualities of creditor and debtor with respect to the
same obligation.
*obligation becomes absurd since a person cannot claim payment from himself
Requisites:
1. must take place between the principal debtor and creditor (guarantor is not a
principal debtor)
2. must be complete and definite
-merger which takes place in the person of the guarantor , while it extinguishes the
guaranty, leaves the principal obligation in force
Rights are transmissible
Compensation (Art. 1278)
-shall take place when tow persons, in their own right, are creditors and debtors of
each other
-extinguishment to the concurrent amount of the debts or obligations of two
persons who, in their own right, are reciprocally principal debtors and creditors of
each other.
-takes effect by operation of law
Kinds:
1. Total
2. Partial
3. Legal
4. Conventional or voluntary ( not yet due; consent o sot required; compensation is
a defense)

5. Judicial (compensation can be used to defeat a claim)

6. Facultative (set up by only by one of the parties)
Requisites of proper 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 stated.
3. That two 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 has taken place after assignment
Debtor may invoke compensation because compensation takes place by operation
of law where all requisites are present. If debtor consents to the assignment, debtor
loses right of compensation unless debtor reserves his right to compensation.
Assignment with consent of debtor- cannot set up against assignee unless assignor
was notified by the debtor at the time he gave consent that he reserved his right to
the compensation.
Assignment with the knowledge but without the consent of debtor- may set up
compensation previous to the cession, but not of subsequent ones.
Assignment without the knowledge of the debtor- may set up compensation of all
credits prior to the same and also later ones until he had knowledge of the
assignment.
Depositum: person receives a thing belonging to another with the obligation of
safely keeping it and of returning it.
thing cannot be used; same thing borrowed/deposited should be returned; one who
incurred sin is not allowed to claim compensation
Commodatum: personal thing; there is right to use the thing
Support: one who is obliged and one who is entitled

Novation Art. 1291

-total or partial extinction of an obligation through the creation of a new one which
substitutes it.
1. Changing their object or principal conditions
2. Substituting the person of the debtor
3. Subrogating a third person in the rights of the creditor
Requisites:
1. The existence of a previous valid obligation
2. The intention or agreement and capacity of the parties to extinguish or modify
the obligation
3. The extinguishment or modification of the obligation
4. The creation or birth of a valid new obligation
Kinds:
1. Legal
2. Conventional

3. Express
4. Implied
5. Total
6. Partial
7. Real (object or principal conditions are changed)
8. Personal (person of the debtor is substituted and/or when a third person is
subrogated in the rights of the creditor) EXP: 1294 and 1295: Insolvency; Existing at
the time substitution is made; Substitution must be by delegation
Substitution:
1. In expromision- replacement of the old creditor is not made at his own initiative.
-requires consent of third person and creditor
2. In delegacion- general rule: old debtor is not liable to the creditor in case of
insolvency of the new debtor. EXP: insolvency was existing and of public knowledge
at the time of delegacion, and Insolvency was already existing and known to the
debtor at the time of the delegacion
Delegacion: all parties agree
9. Mixed
-Novation is not presumed hence must be clear and unequivocal; intent must be
clear. TEST: obligations should be compatible with one another in each and every
point. Both cannot co-exist side by side.
-When principal obligation is extinguished in consequence of a novation, accessory
obligation may subsist only isofar as they may benefit third persons who did not
give their consent.
-If new obligation is void, original one shall subsist unless the parties intended that
the former relation should be extinguished in any event. EXP: when parties intended
that the old obligation should be extinguished in any event.
If voidable, novation can take place.
-Novation is void if original obligation was void. EXP: when annulment may be
claimed only by the debtor or when ratification validates acts which are voidable.
-If original obligation is subject to suspensive or resolutory condition: new obligation
shall be under same condition unless otherwise stipulated. REASON: efficacy of the
new obligation depends upon whether the condition which affects the old obligation
is complied with or not.
If the condition in suspensive and not complied with, no obligation arises. If
resolutory and complied with, obligation is extinguished. In either case, previous
valid obligation is necessary
Subrogation- substitution of one person in the place of another with reference t a
lawful claim or right, so that he who is substituted succeeds to the right of the other
in relation to a debt or claim, including remedies and securities.
Kinds:
1. Conventional- takes place by express agreement of the original parties and third
person. Consent of ALL parties is an essential requirement
2. Legal- takes place without any agreement between parties; operation of law
a. when creditor pays another creditor who is preferred, even without the debtors
knowledge
b. when a third person not interested in the obligation pays with the express or tacit
approval of the debtor.

c. when even without the knowledge of the debtor, a person interested in the
fulfilment of the obligation pays without prejudice t the effects of confusion as to
the latters share
Partial Subrogation: The creditor to whom partial payment has been made by the
new creditor remains a creditor to the extent of the balance of the debt. In case of
insolvency of the debtor, he is given preferential right under the above article to
recover the remainder as against the new creditor.