Table of Contents

PAYMENT.......................................................1
APPLICATION OF PAYMENT............................3
CESSION.......................................................3
TENDER OF PAYMENT AND CONSIGNATION...4
LOSS OF THE THING DUE..............................5
CONDONATION OR REMISSION OF DEBT.......6
CONFUSION OR MERGER OF RIGHTS............7
COMPENSATION............................................7
 Integrity of Prestation
The very thing or service
contemplated
Fulfillment of prestation is
complete
123 The very thing or service
3 contemplated must be paid
1244 Right of Creditor to Refuse to
Accept a different Object in obligations
to give and a different act or
Obligations are extinguished by: forbearance in personal obligations
1. Payment 1232-1254 EXPNS to 1244:
2. Cession 1255
In facultative obligations
3. Tender of Payment and Consignation
1256-1261 When there is another
4. Loss and Impossibility 1262-1269 agreement resulting in either
5. Condonation or Remission 1270-1274 dation or novation
6. Confusion or merger 1275-1277 When creditor waives his right
7. Compensation 1278-1290 expressly or impliedly
8. Novation -1291-1304 Dation of payment/datio in
solutum/adjudicacion en pago
PAYMENT 1245 RULE OF MEDIUM QUALITY In
Valid Payments obligations to give generic things
wherein the quality of the thing is NOT
123 Delivery of money
specified, the creditor cannot demand
2 Performance in any other manner
123 Substantial performance in good faith one of superior quality nor can the
4 debtor deliver a thing of inferior
124 Payment made in good faith to any quality but he may deliver one of
2 person in possession of the credit superior quality as long as it is the
124 Dation in payment Debtor alienates same object
5 his property in favor of the creditor to NOTE: When the kind and quantity
satisfy his monetary debt cannot be determined as well without
CONDTN: Governed by law on sales need of new agreement, the contract
Requisites of valid dation in payment is VOID unless the parties can
determine the same without need of
1. Consent of both parties
new contract
2. It will not prejudice other
creditors Completeness of Payment
3. Debtor must not be JUDICIALLY Payment must be complete as
DECLARED INSOLVENT (Ratio: evidenced by a receipt
because only the assignee of an EXPNS:
insolvent debtor can dispose all 1234 When there is substantial
of his properties) compliance in good faith but creditor
may demand damages
Requisites of a valid payment 1235 When creditor accepts
1. Integrity of prestation payment knowing it is incomplete or
2. Identity of parties irregular. No damages may be claimed
 by creditor but he may give qualified
or conditional acceptance of partial
payment.
1248 The creditor cannot be
compelled to accept partial payment
nor the debtor be required to make
partial payments
EXPNS:
1. UOP
2. Different prestations subject to
different terms and conditions
3. Debt is in part liquidated and in
part unliquidated, the liquidated
part may be insisted upon by
either creditor or debtor
4. Joint debtor pays his share or
joint creditor demands the
same (it is complete as to the
share of the DR or CR but still a
partial fulfillment of the
obligation)
5. When work is to be done in
parts
Identity of Parties
123 Payment is made BY the right
6 person, the debtor
GR: The creditor has the right to
refuse payment by a third
person/stranger
EXPNS:
Payment by the third person who
has interest in the obligation or UOP
Rules on Payment by Third
Persons
1236 Whoever pays for another
may demand from the debtor what he
has paid
EXPN: if he paid without the
knowledge or against the will of the
debtor, he can recover only insofar as
the payment has been beneficial to
the debtor
1238 Payment made by a third
person who does not intend to be
reimbursed by the debtor is deemed
to be a donation, which requires the
debtors consent.
But the payment is in any case valid
as to the creditor who has accepted it.
123 Payment by one who does not have
9 free disposal of the thing due and
capacity to alienate it shall NOT be
valid, without prejudice to the
provisions of Article 1427 [no recovery
when a minor who made payment of a
fungible thing to a creditor in good
faith who has already spent it] under
the Title on Natural Obligations.
Payment is made TO the right
person
124 Payment shall be valid when it is
0 made to:
1. Creditor
2. His successors-in-interest
3. His authorized representative
1242 Payment made in good faith to
any person in possession of the credit
shall release the debtor
Ex. Negotiable instrument
payable to bearer
Payment shall not be valid when made
to an incapacitated person:
EXPNS
1. When the incapacitated person
kept the thing or
2. Insofar as the incapacitated
person benefited
Payment shall not be valid when made
to an unauthorized person:
EXPNS:
1. When it is proven that the
creditor benefited, payment
shall be valid to the extent of
the proven benefit
EXPNS to Proving Benefit
1. When third person acquires
creditors rights
2. When creditor ratifies payment
When debtor has been led to believe
that the third person had authority
INVALID PAYMENTS BY THE
DEBTOR
1243 - When debtor made payment
after judicial order to retain the debt
The debtors debtor must retain
the debt so that the payment
 may be given to the creditor
Orders included are attachment,
garnishment, injunction
Payment of debts in money
124 Monetary debts shall be paid in:
9 1. The currency stipulated
2. Legal tender
Check is not legal tender
Delivery of commercial documents
shall produce the effect of payment
only when:
it is cashed
it is impaired through the
creditors fault
The action derived from the original
obligation shall be held in abeyance.
Legal tender:
1cent & 5cents up to P20
10/25/50 cents, 1 peso up to P50
All other bills for any other amount
125 In case an extraordinary inflation or
0 deflation of the currency stipulated
should supervene, the value of the
currency at the time of
establishment of the obligation
shall be the basis of the payment,
UOP
Where Payment is Made
125 If there is stipulation, in the place
1 designated
If there is no stipulation, if the
obligation is:
- to deliver a determinate thing,
in the place where the thing
is at the moment the
obligation is constituted
In any other case, it shall be at the
domicile of the debtor. if the debtor
changes his domicile in bad faith or
incurred in delay, additional expenses
shall be borne by him
1247 The debtor shall be bear the
extrajudicial expenses required by the
payment, UOP
APPLICATION OF PAYMENT
- How to designate payment when 1
debtor owes several debts to 1
creditor
12 He who has various debts of the same
52 kind, in favor of one and the same
creditor, may declare at the time of
making the payment, to which of them
the same must be applied.
Unless the parties so stipulate, or when
the application of payment is made by
the party for whose benefit the term
has been constituted, application shall
not be made as to debts which are not
yet due.
If the debtor accepts from the creditor
a receipt in which an application of the
payment is made, the former cannot
complain of the same, unless there is
cause for invalidating the contract.
12 The interest must be paid first
53 before the principal
12 If no application has been
54 voluntarily made,
The most onerous debt among those
due must be satisfied first.
If the debts due are of the same nature
and burden, the payment shall be
applied to all of them
proportionately.
Onerous debts:
1. Older ones
2. Interest bearing debts even if
there are older debts
3. Between two interest-bearing
debts, the one with higher
interest
4. Debts secured by mortgage or
pledge
5. Debts with penalty clause
6. Unsecured portion of the debt
12 If a person should have against him
89 several debts which are susceptible of
compensation, the rules on the
application of payments shall apply to
the order of the compensation.
Requisites:
 1. There are two or more debts
2. The debts are of the same kind
3. The debts are owed by the same
debtor to the same creditor
4. All debts are due
EXPN - ONLY if the parties so stipulate
- When made BY the party for
whose benefit the term is constituted
5. The payment is not enough to
extinguish all debts
The DEBTOR has the preferential right
to select which of his debts he is paying
EXPN:
- If there is VALID, PRIOR, CONTRARY
agreement
- Debtor cannot choose to pay part of
the principal ahead of the interest
How Application is Made
1. The debtor makes the designation
2. If not, the creditor makes it but the
debtor must have knowledge or must
give consent. Knowledge/consent
evidenced by receipt of application of
payment
3. If neither the DR nor the CR makes the
application, or if the application is NOT
VALID, the application is made by
Operation of valid
Once application is made it may not be
revoked
EXPN: if both parties agree and if it does not
prejudice third persons
CESSION
- The debtor transfers all his properties
not subject to execution, to his
creditors so that the creditors may sell
them and apply the proceeds to their
debts
- Different from 1245 - Dation in
Payment. In dation, not all properties
are affected, does not require more
than one creditor, debtor does not
need to be insolvent, ownership is
transferred to creditor and it is a
novation.
Kinds of assignment:
1. Legal governed by Insolvency Law;
only majority of creditors must agree
2. Voluntary governed by 1255, NCC;
all creditors must agree
12 The debtor may CEDE or ASSIGN his
55 property to creditors in payment of his
debts.
This cession, unless there is stipulation
to the contrary, shall only release the
debtor from responsibility for the NET
PROCEEDS of the thing assigned.
The agreements which, on the effect of
the cession, are made between the
debtor and his creditors, shall be
governed by special laws.
REQUISITES:
1. More than one debt
2. More than one creditor
3. Complete or partial insolvency of the
debtor
4. Abandonment of all debtors
properties not exempt from execution
in favor of creditors
5. Acceptance or consent of the creditors
Effects:
- Creditors do not become owners,
merely assignees authorized to sell
- Debtor is released only up to the
amount of the net proceeds, the
balance of his debts is still collectible
- Creditors will collect according to
order of preference agreed upon. In
default of agreement, in the order
established by law
Exempted Properties:
1. family home
2. amount need for debtors support and
those he is required to support
TENDER OF PAYMENT AND
CONSIGNATION
Tender of payment act of offering the
creditor what is due him with a demand that
the creditor accept the same. May be done
extrajudicially
Consignation act of depositing the thing
due with the court when the creditor cannot
accept or refuses to accept payment.
Consignation generally requires a prior
tender of payment
12 If the creditor, to whom tender of
56 payment has been made, refuses,
without just cause to accept it, the
 debtor shall be released from
responsibility by the consignation of
the thing or sum due.
When TENDER IS NOT NEEDED:
1. the creditor is absent or
unknown or does not appear at
place of payment
2. the CR is incapacitated to
receive the payment at the time
it is due
3. the CR refuses to give a receipt
without just cause
4. two or more persons claim the
same right to collect
Interpleader
5. the title to the obligation has
been lost
6. when the debtor had been
previously notified by the
creditor that he would not
accept payment
When consignation is not needed
- only tender is needed when
there is no debt or obligation ex.
Options to buy, right to redeem,
pacto de retro
12 In order that the consignation may
57 release the debtor, it must first be
announced to the persons interested in
the fulfillment of the obligation.
The consignation shall be ineffectual if
it is not made strictly in consonance
with the provisions which regulate
payment.
12 Consignation shall be made by
58 depositing the things die at the
disposal of the judicial authority,
before whom the tender of payment
shall be proved, in a proper case, and
the announcement of the consignation
in other cases.
The consignation having been made,
the interested parties shall also be
notified thereof.
12 The expenses of the consignation
59 when properly made shall be charged
against the creditor
12 Once the consignation is made, the
60 debtor may ask the judge to order the
cancellation of the debt.
Withdrawal as a Matter of Right
Before the creditor has accepted the
consignation, or before judicial
declaration, the debtor may withdraw
the thing or sum deposited, allowing
the obligation to remain in force.
Withdrawal as a Matter of
Privilege
When the creditor authorizes the
debtor to withdraw the thing
12 If, the consignation having been made,
61 the creditor should authorize the
debtor to withdraw the same, he shall
lose every preference which he may
have over the thing.
The co-debtors, guarantors or sureties
shall be released.
Requisites of valid tender of payment:
1. made in legal tender or the very
object agreed upon
2. includes interest or tax/assessment
paid by creditor
3. unconditional
4. the debt is already due
5. the payment to be made is complete
Tender of payment is a fusion of INTENT,
ABILITY, and CAPABILITY to make good each
offer which must be absolute and cover the
amount due.
Requisites for valid consignation:
1. there is valid debt
2. valid prior tender, unless tender is
excused
3. prior notice of consignation before
deposit
EXPN: when notice would be useless;
sum to be deposited is due to final
judgment
4. actual consignation
5. subsequent notice of consignation
mere filing of complaint and service of
summons to creditor can take the
place of the second notice
EFFECT of DEPOSIT:
- property is in custodia legis
- it will be exempt from attachment and
execution
- Perishable property may be sold by
the court
- Immovable property debtor must ask
for receivership. In the meantime, the
 debtor makes himself an agent or
receiver of the court
EFFECT OF DECLARATION OF CONSIGNATION
- It shall cancel the debt
- Creditor bears the expenses of
consignation
- Running of interest is suspended
- Creditor bears the loss
LOSS OF THE THING DUE
- When the object perishes
- When it goes out of commerce
- When its existence is unknown
- When it cannot be recovered
- Impossibility of performance
o Physical impossibility
o Legal impossibility
o Moral impossibility
Loss of a specific thing
12 GR: An obligation which consists in the
62 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.
EXPNS:
1. ART 1262 - 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 obligation is
converted into a monetary obligation
for damages. Ex.
1165 the DR is in default
1165 the DR promised the
same thing to two or more
persons who do not have the
same interest
1191 - In reciprocal obligations,
the obligation that was not
extinguished by a fortuitous
event remains except in the
case of lease and in contracts
for a piece of work (prior to the
delivery)
1268 the obligation arises from
a crime
1942 when a borrower of an
object has lent the thing to
another who is not a member of
his own household
1942 when the thing loaned is
delivered with appraisal of the
value
2159 when the payee in
solutio indebiti is in bad faith
2. The same rule applies when the
nature of the obligation requires the
assumption of risk.
Loss of a generic thing
12 GR: In an obligation to deliver a
63 generic things, the loss or destruction
of anything of the same kind does not
extinguish the obligation
EXPNS:
If the generic thing is delimited
If the generic thing has been
segregated or set aside
12 PARTIAL LOSS may be EQUIVALENT
64 to TOTAL LOSS as DETERMINED by
the COURTS
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
12 Presumption: Loss is due to
65 DEBTORS FAULT
GR: Whenever the thing is lost in the
possession of the DR, 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.
EXPN: This presumption does not
apply in case of earthquake, flood,
storm, or other natural calamity.
Loss in Personal obligations
12 The debtor in obligations to do shall
66 also be released when the
prestation becomes legally or
physically impossible without the
fault of the obligor.
12 Moral impossibility /Doctrine of difficult and the difficulty is beyond
67 the Frustration of the Commercial the contemplation of the parties
Object/Frustration of Enterprise When Loss/Impossibility Does NOT
EXTINGUISH
When the service has become so
difficult as to be manifestly beyond 1. 1263 Loss of a generic thing. With
EXPNS
the contemplation of the parties,
2. 1268 When the obligation to give the
the obligor may also be released thing arises from a criminal offense,
therefrom, in whole or in part. Unless the creditor does not accept it
Requisites:
1. Service has become so difficult
2. Difficulty is beyond
contemplation of BOTH parties CONDONATION OR REMISSION OF
3. One of the parties must ask for DEBT
relief
4. The object must be a future 12 Condonation or remission is
service with future unusual 70 essentially gratuitous and requires
change in conditions the acceptance by the obligor. It may
12 When the debt of a thing certain and be made expressly or impliedly.
68 determinate, proceeds from a criminal Both express and implied
offense, the debtor shall NOT be condonation shall be subject to the
exempted from the payment of its rules which govern inofficious
price, whatever may be the cause donations.
for the loss Express condonation shall,
EXPN: Unless the thing offered by him furthermore, comply with the forms
to the person who should receive it, of donation.
the latter refused without justification 12 IMPLIED REMISSION
to accept it 71 PRESUMPTION OF REMISSION
12 Rights of Action of the Creditor The delivery of a private document
69 The obligation having been evidencing a credit, made
extinguished by the loss of the thing, voluntarily by the creditor to the
the CREDITOR shall have all the debtor, IMPLIES the renunciation of
RIGHTS OF ACTION which the debtor the action which the former had
may have against third persons by against the latter.
reason of the loss. *Presumption of remission prevails
over presumption of payment
When LOSS/IMPOSSIBILITY Extinguishes If in order to nullify this waiver
Obligations
[remission of the debt], it should be
1. 1262 - In obligations to give a specific claimed to be inofficious [by the
thing, if the thing is lost without the
heirs of the donor], the debtor and
debtors fault. With EXPNS
2. 1264 - When the court decrees that his heirs may uphold it by proving
partial loss is equivalent to complete that the delivery of the document was
loss made in virtue of payment of the
3. 1266 In personal obligations when it debt.
becomes legally or physically 12 PRESUMPTION OF VOLUNTARY
impossible to do the obligation 72 DELIVERY
WITHOUT FAULT of the debtor
Whenever the private document in
4. 1267 Moral impossibility to do the
service, the service has become so which the debt appears is found in the
possession of the debtor, it shall be
 presumed that the creditor delivered it
voluntarily,
EXPN: Unless the contrary is proved
12 The Accessory follows the
73 Principal
The renunciation of the principal debt
shall extinguish the accessory
obligation;
But waiver of the accessory shall leave
the principal debt in force.
12 It is presumed that the accessory
74 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.
Requisites for Valid Remission:
1. There must be an agreement
2. The parties must be capacitated and
must consent
3. There must be subject matter or
object of the remission
4. The cause or consideration must be
liberality, it is unconditional
5. The obligation remitted must have
been demandable at the time of
remission
6. The remission made must not be
inofficious, it must not exceed the free
portion of the estate of the donor so
as not to impair the legitimes of the
compulsory heirs. Otherwise, the
remission made would be reducible.
7. Formalities of a donation must be
complied with in an express remission
Classes of remission
1. According to effect
a) Total
b) partial
2. According to form
a) Implied or tacit requires no
formality, conduct is sufficient
b) Express or formal
a. if inter vivos, it requires formalities
of donation donation of
immovables must be given in a
public instrument and accepted in
writing
b. if mortis cause, the formalities of
wills valid extrinsically and
probated
When REMISSION EXTINGUISHES DEBTS
1. 1270 When made expressly or
impliedly
2. 1271 Delivery to the DR of private
document evidencing credit by the CR
3. 1274 When the thing pledged is back
in the possession of the DR or of third
persons who owns the thing
PRESUMPTIONS when instrument of
credit is delivered to the DEBTOR:
1. That payment has been made (ROC)
2. Remission has been made (Art 1271)
3. The delivery was voluntary (Art 1272)
But in case of conflict, presumption
of remission of prevails over
presumption of payment because the
Rules of Court may not override a
law.
CONFUSION OR MERGER OF
RIGHTS
12 The obligation is extinguished from the
75 time the characters of creditor and
debtor are merged in the same
person
Requisites:
1. It should take place between
principal creditor and debtor
2. Merger must be clear and definite
3. The very obligation involved must
be the same or identical. Mere
transfer of rights is not merger
unless the very credit as against
the debt is transferred
If the reason for the confusion
ceases, the obligation is revived.
12 Effect of Merger on Guarantors
76 Merger which takes place in the person
of the principal debtor or creditor
BENEFITS the guarantors.
*Principle of Accessory follows the
Principal applies. The principal debt
having been extinguished through the
merger, the guaranty which is the
accessory obligation, is also
extinguished
Confusion which takes place in the
 person of any of the latter [guarantors]
does NOT extinguish the obligation.
12 GR: Confusion does NOT extinguish a
77 JOINT obligation
Except: as regards the share
corresponding to the creditor or
debtor in whom the two characters
concur.
COMPENSATION
Compensation takes place by operation of
law, it does not need to be pleaded.
An extinguishment in the concurrent amount
of the obligations of those persons who are
reciprocally debtors and creditors of each
other.
A simplified or abbreviated payment because
the two debts are extinguished without
requiring the transfer of money or property
to the other.
In payment, it must be complete and
indivisible as a rule but in compensation,
partial extinguishment is always permitted.
In confusion, there is only one person in
whom the creditor and debtor is merged and
there is only one obligation involved; but in
compensation, there must be two persons
who are mutually creditor and debtor of each
other and there must be two obligations
involved.
Kinds of Compensation:
1. Legal - 1279
2. Voluntary or Conventional - 1282
3. Judicial - 1283
4. Facultative - 1287
12 Compensation shall take place when
78 two persons, in their own right, are
creditors and debtors of each other.
- A debtor of a corporation cannot
compensate his debt with his
share of stock in the corporation
12 Legal Compensation
79 Requisites of Legal Compensation:
In order that compensation may be
proper, it is necessary:
1. That there is a relationship of debtor
and creditor; there must be two
debts and two credits; and they are
bound as principals (not in their
representative capacity)
EXPN: 1280 The guarantor [who
is just subsidiarily, not principally,
bound] may set up compensation as
regards what the creditor may owe
the principal debtor.
2. The debt consists in a sum of
money OR fungible things of the
same kind and quality
3. The two debts must be DUE
4. That the debts are liquidated and
demandable. If damages are asked
for, the debt is not yet liquidated.
5. No pending controversy
commenced by third persons
12 Compensation may be total or partial.
81 When the two debts are of the same
amount, there is a total compensation.
12 Conventional or Voluntary
82 Compensation
The parties may agree upon the
compensation of debts which are not
yet due.
- Requisites of Art 1289 are NOT
applicable.
Requisite of Conventional
Compensation:
1. The agreement or contract on the
compensation should be valid
2. Legal capacity of the parties
3. Consent freely given
12 Judicial Compensation or Set-off
83 Counterclaim can offset a claim
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.
- Must be pleaded and proved
- All requisites of 1279 except
that the debt must be liquidated
12 When one or both debts are rescissible
84 or voidable, they may be compensated
against each other before they are
judicially rescinded or voided.
- If rescission or annulment is
later on decreed, it is as if NO
COMPENSATION took place
12 Effect of Assignment on Compensation
85 of Debts
GR: Compensation is automatic or ipso
jure and it extinguishes the debt thus
there is nothing to assign.
EXPN:
1285 par 1: with consent of debtor
[consent is a waiver of the right to
compensation]
The debtor who has consented to the
assignment of rights made by a
creditor in favor of a third person,
CANNOT set up against the assignee
(new CR) the compensation which
would pertain to him against the
assignor (previous CR).
EXPN: unless the assignor
(previous CR) was notified by the
debtor at the time he gave his consent,
that he reserved his right to
compensation.
If the debtor did not give his
consent, the debtor may set up the
compensation of debts previous to the
cession, but not subsequent ones.
If the assignment is done without the
knowledge of the debtor, he may set
up compensation of all credits up until
he had knowledge of the assignment.
12 COMPENSATION TAKES PLACE BY
86 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.
-Whoever claims compensation shall
pay for the exchange rate of currency
12 When Compensation is Prohibited
87 Facultative Compensation
Compensation shall not be proper
when one of the debts arises from:
1. A depositum [depositum is
different from a bank deposit
because bank deposits are really
mutuum, a loan contract]
2. From the obligations of a
depository
3. From the obligations of a bailee in
commodatum [a loan of personal
movable property]
4. A creditor who has a claim for
support due by gratuitous title
5. 1288 if one of the debt consists
in a civil liability arising from a
penal offense. But the victim can
claim compensation.
Rationale: The law protects the
fiduciary relations in depositum and
commodatum. The person in whom the
trust has been reposed or the one
obliged to return, cannot invoke
compensation. Compensation is not
allowed in instances when one has an
obligation to support another as
required by law.
The lender or the depositor is allowed
to invoke compensation however, that
is why it is called FACULTATIVE
compensation.
Obligations of a Depositary
1. To keep the thing safely and to
return it when required
2. Not to deposit it to a third person
3. If deposit to a third person is
allowed, to answer for the loss when
the third person is manifestly
careless or unfit
4. To be responsible for the negligence
of his employees
5. Not to use the thing deposited
without express permission. When
the preservation of the thing
requires its use, it can only be used
for that purpose.
12 Applicability of Rules on
89 Application of Payment
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.
12 AUTOMATIC COMPENSATION
90 When all the requisites mentioned in
Article 12799 are present,
compensation takes effect by
operation of law, and extinguished
both debts to the concurrent amount,
even though the creditors and debtors
are not aware of the compensation
Novation
12 Obligations may be modified by:
91 1. Changing their object or
principal conditions;
2. Substituting the person of the
debtor;
3. Subrogating a third person in
the right of the creditor.
12 Express and Implied Novation
92 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, EXPRESS
NOVATION
- that the old and the new
obligations be on every point
incompatible with each other.
IMPLIED NOVATION
Extinctive novation is never presumed.
In cases where it is implied, the acts of
the parties must CLEARLY demonstrate
intent to dissolve the old obligation. If
there is any doubt, it shall be
presumed to be merely modificatory
(partial novation), not extinctive (total
novation).
How Implied Novation May be Made:
Making SUBSTANTIAL CHANGES:
- in the object or subject matter
- in the cause or consideration
- in the principal terms or
conditions
Personal or Subjective Novation -
Change in the Subject or Parties
- Passive Subjective Novation
- Active Subjective Novation
12 Passive Subjective Novation
93 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 original
debtor, but not without the
consent of the creditor [for the
reason that the creditor cannot be
compelled to accept payment from a
third person].
Payment by the new debtor gives him
the rights mentioned in Articles 1236
[right to beneficial reimbursement if
the payment was made without
knowledge or consent of the old
debtor] and 1237 [right to
reimbursement and subrogation if
made with the old debtors consent].
Passive subjective novation a
change of the debtor. Two kinds:
1. Expromision initiave from a third
person. The original debtor must
be TOTALLY RELEASED.
2. Delegacion initiative of the
debtor. Consent of all parties are
need
Expromision requisites:
1. Initiative comes from a third
person
2. The creditor and the new debtor
MUST CONSENT
3. The original debtor must be
excused or released from the
debt.
Delegacion requisites:
1. Initiative comes from the old
debtor
2. All the parties must consent
- The creditors consent may be:
given in any form
express or implied
before or after the new
 debtor has given his consent
conditional and the condition
must be fulfilled
12 If the substitution is without the
94 knowledge or against the will of the
debtor, the new debtors insolvency or
non-fulfillment of the obligation shall
NOT give rise to any liability on the
part of the original debtor.
12 Insolvency of the new debtor shall not
95 revive the action against the old debtor
EXPN:
When said insolvency was already
existing:
1. and of public knowledge OR
2. and known to the debtor
Rules on Extinctive Novation
12 Extinction of the accessory carries with
96 it the extinction of the principal
obligation,
EXPN:
1. When the debtors of the accessory
obligation consent that the accessory
obligation will remain
2. Accessory obligations may subsist
only insofar as they may BENEFIT
third persons [sureties and guarantors]
who did not give their consent
If it is only modificatory novation:
- if the obligation is now MORE
ONEROUS, third persons are
liable only for the original
obligation
- if LESS ONEROUS, third persons
are still responsible
Active Subjective Novation
13 Subrogation of a third person in the
00 rights of the creditor is either legal or
conventional.
Legal subrogation is not presumed,
except in cases in expressly mentioned
in this Code.
Conventional subrogation must be
clearly established in order that it may
take effect.
13 Conventional subrogation of a third
01 person requires the consent of the
original parties and of the third person.
13 It is presumed that there is legal
02 subrogation:
1. When a creditor pays another
creditor who is preferred, even
without the debtors
knowledge
- The debtor may set up against
the new creditor the same
defenses available as to the old
debtor
- Even when there is just partial
payment to the old creditor, the
new creditor subrogates all the
rights of the old creditor
- If the new creditor overpays the
other creditor, the new creditor
can only recover to the extent
that the debtor benefited
- Same rules apply even with the
debtors knowledge
2. When a third person, not
interested in the obligation,
pays with the express or tacit
approval of the debtor
- If the debtor did not approve,
the third person can only
recover what was disbursed,
there is no subrogation of rights
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 interested
persons share
- The guarantor or the surety or
the owner of the mortgaged
property subrogates the
creditors rights, but the
guaranty or surety or mortgage
is extinguished
13 Subrogation transfers to the person
03 subrogated the credit with all the
rights thereto appertaining, either
against the debtor or against third
persons, be they guarantors or
possessors of mortgages, subject to
stipulation in a conventional
subrogation
13 In Partial Subrogation, the Original
04 Creditor with the Remaining
 Balance is Preferred
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 preference to the original
creditor applies only to the
assets remaining to the debtor
like those that are still in hands
of the sheriff who has levied the
properties or those remaining
that are not yet assigned to
others.
- A surety or guarantor is not
preferred over the original
creditor
12 If the new obligation is void, the
97 original one shall subsist,
EXPN: Unless the parties intended that
the former relation should be
extinguished in any event.
12 The novation is void if the original
98 obligation was void
If the original obligation is merely
voidable, and has not yet been
annulled, novation may still be valid
provided:
1. that annulment maybe claimed
only by the debtor [since the
debtor is the injured party, only
the injured party has the cause
of action to annul voidable
contracts]
2. when RATIFICATION validates
acts which are voidable
If original obligation has been
extinguished by loss:
1. when loss is valid, the novation
is void for there is no obligate to
novate.
2. when loss is due to debtors
fault, the existing monetary
obligation for damages can be
the subject of novation.
A prescribed obligation may be the
subject of novation since it still persists
unless the defense of prescription is
invoked.
12 If the original obligation was subject to
99 a suspensive or resolutory condition,
the new obligation shall be under the
same condition, EXPN unless it is
otherwise stipulated.