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SECTION 2: LOSS OF THE THING DUE

ARTICLE 1262
An obligation which consists in the delivery of a
determinate thing shall be extinguished if it should
be lost or destroyed without the fault of the debtor,
and before he has incurred in delay.
When by law or stipulation, the obligor is liable
even for fortuitous events, the loss of the thing
does not extinguish the obligation, and he shall be
responsible for damages. The same rule applies
when the nature of the obligation requires the
assumption of risk.
A Thing

Is Considered Loss When:


it perishes
it goes out of commerce
it disappears in such a way that its existence is
unknown or cannot be recovered

When Loss Of A Determinate Thing Will Extinguish


An Obligation To Give Requisites:
The obligation is to deliver a specific or determinate
thing
The loss of the thing occurs without the fault of the
debtor
The debtor is not in delay
When Loss Of A Determinate Thing Will Not
Extinguish An Obligation To Give Requisites:
When the law so provided
When the stipulation so provides
When the nature of the obligation requires the
assumption of risk
When the obligation arises from a crime

ARTICLE 1263
In an obligation to deliver a generic thing, the loss
or destruction of anything of the same kind does
not extinguish the obligation.
Generic thing does not perishes (genus nunquam perit). The
debtor is compelled to deliver the same kind of thing. The
creditor cannot demand for an inferior or superior quality.

ARTICLE 1264
The courts shall determine whether, under the
circumstances, the partial loss of the object of the
obligation is so important as to extinguish the
obligation.
Partial Loss when only a portion of the thing is lost or
destroyed or when it suffers a depreciation or deterioration.
The courts will decide whether the partial loss is such as to be
equivalent to a complete or total loss, depending upon the
purpose of the obligation and other circumstances.

ARTICLE 1265
Whenever the thing is lost in the possession of the
debtor, it shall be presumed that the loss was due
to his fault, unless there is proof to the contrary,
and without prejudice to the provisions of article
1165. This presumption does not apply in case of
earthquake, flood, storm, or other natural calamity.
Disputable Presumption: Loss Is Due To The Fault
Of The Debtor (Based On Article 1165)
Delay
Promise to deliver the same thing to two or more
persons

ARTICLE 1266
The debtor in obligations to do shall also be
released when the prestation becomes legally or
physically impossible without the fault of the
obligor.
The impossibility of performance will result in the extinction of
the obligation. Impossibility must take place after the
constitution of the obligation. If the obligation is impossible from
the very beginning is it void and it is immaterial whether the
impossibility was known or unknown to the parties.
Kinds Of Impossibility:
Physical Impossibility for purely personal
obligations (when the obligor dies or becomes
physically incapacitated to perform the obligation)
Legal Impossibility occurs when the obligation
cannot be performed because it is rendered
impossible by the provision of law
General Rule: Impossibility of performance releases
the obligor (debtor).

ARTICLE 1267
When the 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.
The court is authorized to release the obligor in whole of in part.
Partial loss of a specific thing is the equivalent of difficulty of
performance in obligations to do.
Applies to both personal and real obligations.

ARTICLE 1268
When the debt of a thing certain and determinate
proceeds from a criminal offense, the debtor shall
not be exempted from the payment of its price,
whatever may be the cause for the loss, unless the
thing having been offered by him to the person who
should receive it, the latter refused without
justification to accept it.
Mora Accipiendi (The obligation subsists except when the
creditor refused to accept the thing without justification, after it
had been offered to him.)

ARTICLE 1268
The obligation having been extinguished by the loss
of the thing, the creditor shall have all the rights of
action which the debtor may have against third
persons by reason of the loss.

SECTION 3: CONDONATION OR REMISSION OF DEBT


ARTICLE 1270
Condonation or remission is essentially gratuitous,
and requires the acceptance by the obligor. It may
be made expressly or impliedly.
One and the other kind shall be subject to the
rules which govern inofficious donations. Express
condonation shall, furthermore, comply with the
forms of donation.
Condonation or Remission - an act of liberality whereby
the creditor waives the enforcement of the obligation contracted
in his favor ; it is the gratuitous abandonment by the creditor of
his right against the debtor ; it is a form of donation

Requisites Of Condonation Or Remission:


It must be gratuitous (giving without expecting
anything in return)
It must be accepted by the obligor
The parties must have the capacity
It must not be inofficious; and
If made expressly, it must comply with the forms of
donation.
Kinds Of Remission (As To Its Date Of Effectivity):
Inter Vios when it will take effect during the lifetime of the
donor
Mortis Causa when it will become effective upon the death
of the donor ; it must comply with the formalities of a will
Inofficious Remission No one can give more than that
which he can give by will.
Collation returning of excess donation
Formalities Required in a Donation:
Movable Property (5,000 & below - may be oral
or written, if oral it must be with simultaneous delivery
of thing/document & acceptance need not be in
writing ; above 5,000 - must be written and accepted
also in writing)

Immovable Property (must be in a public


instrument & acceptance must also be in a public
instrument in same)

ARTICLE 1271
The delivery of a private document evidencing a
credit, made voluntarily by the creditor to the
debtor, implies the renunciation of the action which
the former had against the latter.
If in order to nullify this waiver it should be claimed
to be inofficious, the debtor and his heirs may
uphold it by proving that the delivery of the
document was made in virtue of payment of the
debt.
Presumption In Case Of Voluntary Delivery Of
Private Document Evidencing Credit:
Presumption of Implied Remission
(Disputable Presumption if debt is not yet paid, the
creditor would need to document to enforce payment.
In case he voluntarily delivers it to the debtor, the
only logical inference is that he is renouncing his
right.)
Contrary Evidence
Extent of Remission If the obligation is joint,
the presumption of remission pertains only to the

share of the debtor who is in possession of the


document ; if solidary, to the total obligation.
Presumption applicable only to private
document

How To Nullify/Dispute Remission?


By the debtor
- delivery of the document was
made in virtue of payment
By the creditor remission made is inofficious

ARTICLE 1272
Whenever the private document in which the debt
appears is found in the possession of the debtor, it
shall be presumed that the creditor delivered it
voluntarily, unless the contrary is proved.

Presumption of
possession by
the debtor

Presumption
that it was
voluntarily
delivered

Presumption of
Remission

ARTICLE 1273
The renunciation of the principal debt shall
extinguish the accessory obligations; but the waiver
of the latter shall leave the former in force.

SECTION 4: CONFUSION OR MERGER OF RIGHTS


ARTICLE 1275
The obligation is extinguished from the time the
characters of creditor and debtor are merged in the
same person.
Confusion or Merger - It is the meeting in one person of
the qualities of the creditor and the debtor with respect to the
same obligation.
Reason for Confusion:
The debtor becomes his own creditor, hence, enforcement of
the obligation becomes absurd since one cannot claim against
himself.
Requisites Of Confusion/Merger:
It must take place between the principal debtor and
creditor
It must be complete
The obligation involved must be of the same kind

ARTICLE 1276
Merger which takes place in the person of the
principal debtor or creditor benefits the
guarantors.
Confusion which takes place in the person of any of
the latter does not extinguish the obligation.

Accessory follows the principal.


Example: Obligation of a Principal and a Guarantor

Merger in the person of the principal debtor or creditor


extinguishes the obligation.

ARTICLE 1274
It is presumed that the accessory obligation of
pledge has been remitted when the thing pledged,
after its delivery to the creditor, is found in the
possession of the debtor, or of a third person who
owns the thing.

ARTICLE 1277
Confusion does not extinguish a joint obligation
except as regards the share corresponding to the
creditor or debtor in whom the two characters
concur.

Only the accessory obligation of pledge is presumed remitted,


not the obligation itself.

In joint obligation, the debts and/or the credits being considered


distinct and separate from one another.
In solidary obligations, It shall extinguish the entire obligation
because it is also a merger in the other solidary debtors.
However, the solidary debtors will have to reimburse the person
to whom confusion took place.

SECTION 5: COMPENSATION
ARTICLE 1278
Compensation shall take place when two persons, in
their own right, are creditors and debtors of each
other.
Compensation - it is the extinguishment to the concurrent
amount of debts of two persons who, in their own right, are
debtors and creditors of each other.
Object Of Compensation:
The prevention of unnecessary litigations and payments.
Confusion And Compensation Distinguished:

(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.
Requisites Of A Legal Compensation
The parties are principal creditors and principal
debtors of each other.
Both debts consist in a sum of money, or of
consumable things of the same kind and quality.
Both debts are due and demandable.
The two debts are liquidated and demandable.
No retention or controversy commenced by a third
person.
Retention when the credit of one of the parties is subject to
the satisfaction of the claims of one of the third persons.
(examples: writ of attachment, garnishments, levy or execution
on the thing due)
Controversy when a third person claims he is the creditor
of one of the parties.

Kinds Of Compensation:
By its effect or extent
Total when both obligations are of the same
amount and are entirely extinguished
Partial when the two obligations are of different
amounts and only a portion of the debt is
extinguished.
By its cause or origin
Legal when it takes place by operation even
without the knowledge of the parties.
Voluntary when it takes place by agreement of
the parties.
Judicial when it takes place by order from a court
in a litigation. (stems from counterclaims)
Facultative when it can be set up only by one of
the parties, the person who can object to the
compensation.

ARTICLE 1279
In order that compensation may be proper, it is
necessary:
(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 the two debts be due;

ARTICLE 1280
Notwithstanding the provisions of the preceding
article, the guarantor may set up compensation as
regards what the creditor may owe the principal
debtor.
Exception To The First Requisite (Reason):
Although the guarantor is only a subsidiary, not a principal party
to the obligation, he is given the right to set up compensation
because the extinguishment of the principal obligation through
compensation carries with it the extinguishment of the accessory
obligation of guaranty.

ARTICLE 1281
Compensation may be total or partial. When the two
debts are of the same amount, there is a total
compensation.
If they are of different amounts, compensation is total as
regards the smallest debt, and partial only with respect to the
larger debt.

ARTICLE 1282
The parties may agree upon the compensation of
debts which are not yet due.
Voluntary or Conventional Compensation - usually
takes place when one or more of the requisites of legal
compensation is absent.

ARTICLE 1283
If one of the parties to a suit over an obligation
has a claim for damages against the other, the
former may set it off by proving his right to said
damages and the amount thereof.
Judicial Compensation - takes place when declared by a
final judgment of a court in a suit.

ARTICLE 1286
Compensation takes place by operation of law, even
though the debts may be payable at different
places, but there shall be an indemnity for
expenses of exchange or transportation to the
place of payment.

Where one of the debts consists in civil liability arising


from a penal offense

Depositum a loan which creates the relationship of debtor


and creditor
General Rule:
A bank has a right to set-off of the deposists in its
hands for the payment og any indebtedness to it on
the part of the depositor.
Commodatum a gratuitous contract whereby one of the
parties delivers to another something not consumable so that
the latter may use for a certain time and return it.

ARTICLE 1289
If a person should have against him several debts
which are susceptible of compensation, the rules on
the application of payments shall apply to the order
of the compensation.
Compensation is similar to payment.

The indemnity must be paid by the person who raises the


defense of compensation.

ARTICLE 1290
When all the requisites mentioned in Article 1279
are present, compensation takes effect by
operation of law, and extinguishes both debts to
the concurrent amount, even though the creditors
and debtors are not aware of the compensation.

Foreign Exchange the conversion amount of money or


currency of one country into an equivalent amount of money or
currency of another.

SECTION 6: NOVATION

Indemnity for expenses of transportation


Indemnity for expenses of exchange

Exchange Rate the price of the currency expressed or


quoted in relation to another currency.

ARTICLE 1288
Neither shall there be compensation if one of the
debts consists in civil liability arising from a penal
offense.
Instances When Legal Compensation Is Not Allowed
By Law:
Where one of the debts arises from a depositum
Where one of the debt arises from commodatum
Where one of the debts arises from a claim for
support due by gratuitous title.

ARTICLE 1291
Obligations may be modified by:
(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.
Novation - It is the extinction of an obligation through the
creation of a new one which substitutes it ; it is the substitution
or change of an obligation by another, which extinguishes or
modifies the preceding one
Dual Function Of Novation:
Extinguish or modify an existing obligation
Substitute a new one in place of the old obligation

Kinds Of Novation:
According to Origin:
Legal takes place by operation of law
Conventional takes place by agreement of the
parties
According to How it is Constituted:
Express when it is so declared in unequivocal
terms
Implied when the old and the new obligation are
essentially incompatible with each other
According to Extent or Effect:
Total or Extinctive when the old obligation is
completely extinguished
Partial or Modificatory when the old obligation
is merely modified
According to the Subject:
Real or Objective change in the object or
principal condition of the obligation
Personal or Subjective change in the person
of either the debtor or the creditor
Mixed change of both the object and/or principal
condition and parties in an obligation

ARTICLE 1292
In order that an obligation may be extinguished by
another which substitutes the same, it is imperative
that it be so declared in unequivocal terms, or that
the old and the new obligations be on every point
incompatible with each other.
Requisites Of Novation:
A previous valid obligation (It applies to a valid,
voidable, rescissible obligation but not to a VOID
obligation.)
Creation of a new valid obligation (The new obligation
must also be a valid obligation, otherwise, if it is void,
there will be no novation and the old obligation will
subsist.)
Modification or extinguishment of the obligation
Capacity of the parties to modify or extinguish the
obligation (Parties must have the capacity to act ; not
incompetent or minors)
Animus Novandi Intent of the parties to extinguish
or modify the old obligation
Novation is never presumed:
Express Novation declared in unequivocal
terms
Implied Novation if the old and new obligation
be on every point incompatible with each other

Test Of Incompatibility Between Two Obligations Or


Contracts: whether they can stand together, each one having
an independent existence.

ARTICLE 1293
Novation which consists in substituting a new
debtor in the place of the original one, may be
made even without the knowledge or against the
will of the latter, but not without the consent of the
creditor. Payment by the new debtor gives him the
rights mentioned in Articles 1236 and 1237.
Kinds Of Personal Novation:
Substitution change in the the person of the
debtor (passive)
Subrogation - a third person is subrogated in the
rights of the creditor (active)
Kinds Of Substitution:
Expromision - when the substitution comes from
the initiative of a 3rd person, who will be the new
debtor, with the consent of the creditor but without
the knowledge or against the will of the debtor ; if
payment is made without the knowledge or against
the will of the debtor, the new debtor can recover
only insofar as the payment has been beneficial to
the old debtor. (beneficial reimbursement) ; the new
debtors insolvency or non-fulfillment of the obligation
shall not give rise to any liability on the part of the
debtor.
Delegacion - when the substitution comes from the
initiative of the old debtor, where he proposes a 3rd
person to the creditor who will assume his obligation
with the debtor (old), creditor and new debtor
agreeing or consenting ; since payment is with
debtors consent, new debtor is entitled to
reimbursement and subgrogation ; gr: insolvency of
the new debtor does not revive the action of the
creditor against the original debtor ; xcp - insolvency
already existing and of public knowledge at the time
of the delegacion - insolvency be known to debtor
when he made the delegacion)
The consent of the creditor is an indispensable requirement.

ARTICLE 1294
If the substitution is without the knowledge or
against the will of the debtor, the new debtors
insolvency or non-fulllment of the obligation shall
not give rise to any liabil-ity on the part of the
original debtor.
In expromision, the replacement of the old debtor is not made at
his own initiative.

ARTICLE 1295
The insolvency of the new debtor, who has been
proposed by the original debtor and accepted by
the creditor, shall not revive the action of the latter
against the original ob-ligor, except when said
insolvency was already existing and of public
knowledge, or known to the debtor, when he
delegated his debt.
General Rule: The old debtor is not liable to the
creditor in case of the insolvency of new debtor.
Exceptions:
Insolvency was already existing and of public
knowledge at the time of delegacion
Insolvency was already existing and known to the
debtor

ARTICLE 1296
When the principal obligation is extinguished in
consequence of a novation, accessory obligations
may subsist only insofar as they may benefit third
persons who did not give their consent.
General Rule: Extinguishment of the principal
obligation carries with it the extinguishment of the
accessory obligation
Exception:
If the accessory obligation is created in favor of a third person
which remains in force unless said third person gave his consent
to the novation
Reason For The Exception:
A person should not be prejudiced by the act of another without
his consent.

ARTICLE 1297
If the new obligation is void, the original one shall
subsist, unless the parties intended that the former
relation should be extinguished in any event.
General Rule: There is no novation if the new
obligation is void and therefore, the original one
shall subsist, for the reason that the second one
being inexistent, cannot extinguish nor modify the
first obligation
Exception:
When the parties intended that the old obligation should be
extinguished in any event.
Effect If New Obligation Is Voidable:
Novation can take place but the moment the obligation is
annulled, the novation must be considered as not having taken
place, and the original obligation can be enforced, unless the
intention of the parties is otherwise.

ARTICLE 1298
The novation is void if the original obligation was
void, except when annulment may be claimed only
by the debtor or when ratification validates acts
which are voidable.
Void Obligation cannot be novated because there is
nothing to novate
Voidable Obligation (valid until annulled in court) can be
novated as long as not yet annulled

ARTICLE 1299
If the original obligation was subject to a
suspensive or resolutory condition, the new
obligation shall be under the same condition,
unless it is otherwise stipulated.

ARTICLE 1300
Subrogation of a third person in the rights of the
creditor is either legal or conventional. The former
is not presumed, except in cases expressly
mentioned in this Code; the latter must be clearly
established in order that it may take effect.
Subrogation is the substitution of one person in the place
of a creditor with reference to a lawful claim or right, giving the
former all the rights of the latter, including right to employ all
remedies to enforce payment.

Kinds Of Subrogation:
Conventional Subrogation - takes place by
express agreement of the original parties and the
third person (new creditor). It must be clearly
established in order that it may take place.
Legal Subrogation takes place without
agreement but by operation of law. It is not presumed
except in cases expressly provided for by law.

ARTICLE 1301
Conventional subrogation of a third person requires
the consent of the original parties and of the third
person.
In conventional subrogation, the consent of all the parties is an
essential requirement (debtor, old creditor and new creditor).

ARTICLE 1302
It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is
preferred, even without the debtor's knowledge;
(2) When a third person, not interested in the
obligation, pays with the express or tacit approval
of the debtor;
(3) When, even without the knowledge of the
debtor, a person interested in the fulfillment of the
obligation pays, without prejudice to the effects of
confusion as to the latter's share.
Cases of Legal Subrogation:
When a creditor pays another creditor who is
preferred, even without the debtor's knowledge
(mortgages)
When a third person, not interested in the obligation,
pays with the express or tacit approval of the debtor
When, even without the knowledge of the debtor, a
person interested in the fulfillment of the obligation
pays, without prejudice to the effects of confusion as
to the latter's share

ARTICLE 1303
Subrogation transfers to the persons subrogated
the credit with all the rights thereto appertaining,
either against the debtor or against third person,
be they guarantors or possessors of mortgages,
subject
to
stipulation
in
a
conventional
subrogation.
Transfer to the new creditor the credit and all the rights and
actions that could have been exercised by the former creditor
either against the debtor or against third persons, be they
guarantors or mortgagors. (Total Subrogation)

ARTICLE 1304
A creditor, to whom partial payment has been
made, may exercise his right for the remainder, and
he shall be preferred to the person who has been
subrogated in his place in virtue of the partial
payment of the same credit.
The creditor whom partial payment has been made by the new
creditor remains a creditor to the extent of the balance of the
debt. (Partial Subrogation)