BOOK

IV, TITLE I: OBLIGATIONS

Chapter 4: Extinguishment of Obligations PAYMENT OR PERFORMANCE
What is Payment or performance?
10 Modes of Extinguishing Obligations in the Civil • Not only pay money but also thru delivery
Code (Art. 1231): • Perform – broad enough to cover things to
1. Payment or Performance do and not to do
2. Loss of the thing due Article 1232. Payment means not only the delivery of money but also
the performance, in any other manner, of an obligation. (n)
3. Condonation or remission of debt
4. Confusion or merger of the rights of creditor How is Payment / Performance done?
and debtor • Obligation of the creditor to accept
5. Compensation fulfillment of the debtor; otherwise, there is
6. Novation mora accipiendi
7. Annulment* • If the debtor performs in accordance with
8. Rescission* the how, creditor is obliged to accept it.
9. Fulfillment of a resolutory condition* Characteristics of a proper Payment/Performance
10. Prescription* [3 I’s]
*other causes of extinguishment of obligations 1. Integrity
governed elsewhere in this Code 2. Identity
NOTE: this is not an an EXCLUSIVE enumeration 3. Indivisibility
unlike Art. 1157. *Integrity and Identity are covered by Art. 1233: A
debt shall not be understood to have been paid
Overseas Bank of MNL v. CA [GR No. L-45866, April unless the thing or service in which the obligation
19, 1989] consists has been completely delivered or
SC: a new mode to extinguish an obligation rendered, as the case may be. (1157)
specifically by a BANK to deposit interest of the
client : IF THERE IS AN ORDER FROM A NOTE: if any of the I’s would not be found in the
COMPETENT AUTHORITY TO CEASE AND DESIST HOW, creditor IS NOT OBLIGED TO ACCEPT.
FROM CONTINUALLY OPERATING AS A BANK
• The bank was asked to cease and desist Integrity
from operations • Refers to the completeness of the obligation
• They had the obligation to return distribute Exceptions:
money • Art. 1234: Substantial performance
If the obligation has been substantially performed in good
• They were also required to pay interest faith, the obligor may recover as though there had been a
• However, no interest was added to the strict and complete fulfillment, less damages suffered by
the obligee. (n)
deposits. They were obliged to pay interest
from the cease and desist order Requisites:
1. Debtor must be in good faith
• Interest- for profit and operation; no longer
2. There is a deficiency
in operation therefore no need to pay
3. Deficiency is insignifacnt or minimal
interest
Eg: I ordered 1000 breast chickens; there

was a shortage of chickens; only delivered
*One mode expected from the parties to extinguish
900 chickens, can you compel me to accept?
obligation is through payment/performance in Art.
Yes. IF substantial perfeomance would be
1232 – the other modes are only created due to
applicable
supervening events
SIGNIFICANCE: would dpend on the
prestation
- cannot apply if there is SUBSTANTIAL
deficiency
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 - it also depends on the complication and Article 1245. Dation in payment, whereby property is
alienated to the creditor in satisfaction of a debt in money,
if there has been no damage done to the shall be governed by the law of sales. (n)
creditor
- applies to reciprocal obligations • Presented as payment to the debt
Note: less suffered by the oblige; can • Creditor is the buyer and the debtor is the
accept but cannot compel to pay the seller
entire amount • Purchase price is the outstanding debt
• Art. 1235: Doctrine of estoppel • NCC - Limited only: to the payment of sum
When the obligee accepts the performance, knowing its
incompleteness or irregularity, and without expressing any of money
protest or objection, the obligation is deemed fully • SC: any types of obligation
complied with. (n)
• This is clustered as a special mode of
- no reservation or objections
payment
- no need good faith and

significance of deficiency
Indivisibility
- must be obvious when delivered; Article 1248. Unless there is an express stipulation to that effect, the
- must show that the creditor is creditor cannot be compelled partially to receive the prestations in
fully satisfied which the obligation consists. Neither may the debtor be required to
make partial payments.
However, when the debt is in part liquidated and in part
Identity unliquidated, the creditor may demand and the debtor may effect
Article 1244. The debtor of a thing cannot compel the creditor to the payment of the former without waiting for the liquidation of the
receive a different one, although the latter may be of the same value latter. (1169a)
as, or more valuable than that which is due.
In obligations to do or not to do, an act or forbearance cannot be
substituted by another act or forbearance against the obligee's will.
Exceptions:
(1166a) 1. Stipulated by the parties
Article 1246. When the obligation consists in the delivery of an 2. Required by the law
indeterminate or generic thing, whose quality and circumstances
have not been stated, the creditor cannot demand a thing of superior
3. Nature of the obligation
quality. Neither can the debtor deliver a thing of inferior quality. The
purpose of the obligation and other circumstances shall be taken into Who will make payment?
consideration. (1167a)
• Effected by the person identified by the law

• What if it is in accordance with the HOW but
• If you perform an obligation not in
not with the WHO, to whom may not accept
accordance With Articles 1244 and 1246,
1. Debtors
you do not comply with identity.
2. Authorized representatives
Exceptions:
3. 3rd person WHO HAS AN INTEREST in the
1. Art. 1206: Facultative obligations
Article 1206. When only one prestation has been agreed fulfillment of the obligation
upon, but the obligor may render another in substitution, Article 1236. The creditor is not bound to accept payment
the obligation is called facultative. or performance by a third person who has no interest in
The loss or deterioration of the thing intended as a the fulfillment of the obligation, unless there is a
substitute, through the negligence of the obligor, does not stipulation to the contrary.
render him liable. But once the substitution has been Whoever pays for another may demand from the debtor
made, the obligor is liable for the loss of the substitute on what he has paid, except that if he paid without the
account of his delay, negligence or fraud. (n) knowledge or against the will of the debtor, he can recover
only insofar as the payment has been beneficial to the
Debtor may compel to accept
• debtor. (1158a)
payment although he may not Article 1237. Whoever pays on behalf of the debtor
comply with identity because of the without the knowledge or against the will of the latter,
cannot compel the creditor to subrogate him in his rights,
SUBSTITUTE such as those arising from a mortgage, guaranty, or
• Not to alternative = because all of penalty. (1159a)
the prestations are part of the Article 1238. Payment made by a third person who does
not intend to be reimbursed by the debtor is deemed to be
obligation a donation, which requires the debtor's consent. But the
2. Art. 1245: DACION EN PAGO payment is in any case valid as to the creditor who has
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 accepted it. (n) pesos. M came to save the day and paid 2M pesos.
Already in excess of what is due
Who has interest in the obligation?
• What is the basis of interest? Questions:
• If the continued existence of the 1. Can C be compelled to accept payment by
obligation will be prejudicial or M?
detrimental ot such parsen o Ans: depends if he is a party in
NOTE: any party NOT COVERED by the three may be interest. In this case,NO he is not.
rejected Thus, C may refuse the payment of
M
Party with interest in the fulfillment of an 2. C accepts, what happens to the obligation of
obligation: D?
• You and the heirs of your parents o It is extinguished
• Guarantors 3. M is going after D for the debt. What is the
• Surety? NO. because they are actually right of M against D?
SOLIDARY DEBTORS; they are principally o Subgrogation or reimbursement
liable; parties to the obligation o Depends: if with consent and
knowledge of D
Is a solidary debtor a 3rd party in interest of a o w/o consent: reimbursement only to
debtor? NO. They are actual parties to the the amount benefited. In this
obligation case,1.7M pesos; may go to the C for
subrogation
How about a joint debtor? Yes. only principal to § D cannot pay 1.8M – remit
share the condo, initially as
reimbursement
Will the continued existence of a debt of a joint § Can M consider the condo
debtor be prejudicial to the other joint debtor? as his? NO. because
Dean Ulan: NO. reimbursement only
o w/ consent: D can go after C. M may
Any other party not identified is a party whose subrogate the mortgage. There is
payment may be refused. But still can opt to accept legal subrogation. 1302(2)
which will extinguish the obligation o if is a party in interest- also
subrogation whether or not with
REIMBURSEMENT & LEGAL SUBROGATION consent
rd
Art. 1302: Legal Subrogation Rights of a 3 party:
Article 1302. It is presumed that there is legal subrogation: 1. WITHOUT INTEREST
(1) When a creditor pays another creditor who is preferred, even
without the debtor's knowledge; • Without consent, reimbursement
(2) When a third person, not interested in the obligation, pays with • With consent and knowledge,
the express or tacit approval of the debtor;
(3) When, even without the knowledge of the debtor, a person
subrogation
interested in the fulfillment of the obligation pays, without prejudice 2. WITH INTEREST
to the effects of confusion as to the latter's share. (1210a) • Always suborgation
• Reimburse only to the amount where debtor • With or without consent
is benefited
TO WHOM SHALL PAYMENT BE MADE?
Example: D, a girl, is indebted to C for 2 million 1. Creditor
pesos. With a condo to secure the debt as real Article 1240. Payment shall be made to the person in
estate mortgage. M is a suitor of D. When the whose favor the obligation has been constituted, or his
successor in interest, or any person authorized to receive it.
obligation became due, she can only pay 300,000 (1162a)
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 constituted. In any other case the place of payment shall be the
domicile of the debtor. If the debtor changes his domicile in bad faith
2. Successor in interest or after he has incurred in delay, the additional expenses shall be
borne by him. These provisions are without prejudice to venue under
Article 1240. Payment shall be made to the person in whose the Rules of Court. (1171a)
favor the obligation has been constituted, or his successor in
interest, or any person authorized to receive it. (1162a) Article 1241. Payment to a person who is incapacitated to administer
Assignment
• his property shall be valid if he has kept the thing delivered, or
Succession (heirs)
• insofar as the payment has been beneficial to him.
Payment made to a third person shall also be valid insofar as it has
Heir – only after the succession takes
• redounded to the benefit of the creditor. Such benefit to the creditor
place; when parents die, property need not be proved in the following cases:
(1) If after the payment, the third person acquires the creditor's
will go to the children; takes effect rights; (2) If the creditor ratifies the payment to the third person;
AFTER successional rights (3) If by the creditor's conduct, the debtor has been led to believe
3. Any person authorized to receive that the third person had authority to receive the payment. (1163a)
• Agent SPECIAL MODES OF PAYMENT:
• When at the time of the payment is 1. Dacion en Pago – Art. 1245
due, and not when it was constituted 2. Payment by Cession- Art. 1255
rd
4. 3 party who is in possession of the credit 3. Application of Payment
• not only possession of the document 4. Tender of Payment and Consignation
• Checks: payable to bearer – cash;
payable to order- person; there Compare & Contrast of Dacion & Cession
exists a credit DACION EN PAYMENT BY
• EG: X acquires checks and presented PAGO CESSIONS
it to BPI; enchased to X, is the No. of Parties Only one Plurality of
obligation extinguished? IT creditor creditors is
DEPENDS: essential
a. If in favor of creditor, even if gotten As to sale There is a Forced sale
by X, possess document of credit- contract of thru a public
NO- liable BPI – C may run after D sale; no forced auction;
b. If check to CASH, and X encashed it sale; proceeds are
with BPI – yes- justify- extinguished – remitted to the
payment in good faith of BPI. X debt.
entitled to the benefit of the credit As to The ownership Ownership not
rd
5. 3 party that redounds to the benefit of the ownership is transferred transferred to
creditor. to the creditor the creditor
• EG: D owes 100,000 to C. C owes unless the
100,000 to A. What if D pays A, can A creditor himself
refuse the payment of D? Yes. D is a is the highest
3rd party without interest of the debt bidder
of C Financial Debtor is not Debtor is in a
o If A accepts the payment of Condition of necessarily in a state of partial
D, obligation is extinguished, Parties state of or relative
there is a legal compensation. financial insolvency
C was benefited. difficulty
As to Object A thing to be Universality of
Where shall payment be made? considered as all his property
Article 1251. Payment shall be made in the place designated in the the equivalent
obligation. There being no express stipulation and if the undertaking of the
is to deliver a determinate thing, the payment shall be made
wherever the thing might be at the moment the obligation was performance of

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 an obligation • solidary bound debtors and creditors
As to Effect Extinguishes To release the are contemplated
the obligation debtor for the • if joint, not allowed
to the extent of net proceeds of 2. There are several obligations
the thing the thing ceded 3. Obligations are of the same kind and nature
delivered ; does not • Same object of prestation
extinguish the • Generally: sum of money
entire • If to give or to do, this does not apply
obligation 4. All due and demandable
because it still 5. Debtor’s payment is not sufficient to cover
depends on the the entire obligation
proceeds of the
sale Rules on the application of payment:
Supposing, D is indebted to C.
Note: they are called special modes of payment • 500K with 10% interest
because they do not comply with the 3 I’s but still • 1M with 10% interest
result to the extinguishment of the obligation. • 2M with 10% interst
• 3M with 10% interest
Remedy in case of insolvency: • 500k with 10% interst
Article 1177. The creditors, after having pursued • TOTAL: 7.7 M
the property in possession of the debtor to satisfy Ø D pays only 3M. Kulang
their claims, may exercise all the rights and bring all Ø How do you apply that 3M? apply in the
the actions of the latter for the same purpose, save absences of pre-arranged agreement
those which are inherent in his person; they may Who has the right to choose? Law says DEBTOR
also impugn the acts which the debtor may have 1. DEBTOR
done to defraud them. (1111) Ø Generally has right to choose and
FOLLOW THESE STEPS STRICTLY compel debtor to accept it
1. Enforcement in court Ø Exceptions:
2. Payment by Cession ( sold at a public a. voluntarily relinquishes such right to
auction; proceeds are applied to the debt) the creditor
3. Go to the other real properties also thru a b. he allows a 3rd party – no need for
public auction consent of creditor- unilateral
4. Accion Pauliana- right available to the Limitations:
creditor by virtue of which he can secure the a. Interest muna
rescission of any act of the debtor which is • Before applying 3M to debt,
in fraud and to the prejudice of his rights as
ALWAYS apply it to interest
creditor first.
5. Accion Subrogatoria - right to exercise all of
• supposing 700,000 interest
the rights and bring all of the actions which
• what’s left is 2.3 M
the debtor may have against third persons.
b. Indivisibility

• apply to debts as a WHOLE
Application of Payment
• not partially otherwise it is
• Issue is where payment should be
partial payment
applied
c. If the obligation is with a term but
Requisites:
solely for the benefit of the creditor
1. one debtor and one creditor only
• It is demandable before
• not literally
arrival due; C may enforce it
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 at any time debtor/ liability – but DEBTOR
• If 2M is subject to a term- first before the guarantor
sole benefit of C – all debts • With security (mortgage) > no
due so far as debtor is security
concerned; d may not choose • Secured by real estate > secured by
for the choice belongs to C chattel mortgage
Issue: if delegated to C, will all limits be applicable?
To third persons? Will choice bind upon such limits? PRINCIPAL AMOUNT IS NEVER CONSIDERED.
YES(?) If the same age, do not consider 3M because it is
the biggest; also because equal debts, apply pro
2. CREDITOR rata
• Opportunity to propose payment
• It is not necessarily binding upon D unless 4. PRO RATA
expressly or impliedly accepts • Always bawas interest first
• If C acknowledges a receipt designating • Divide the 2.3M equally to them; distribute
where payment was made and accepted by
C, deemed valid application of payment in TENDER OF PAYMENT
accordance with the creditr. Ergo, binding. Note:
• UNLESS,there is a ground to invalidate the 1. Definition of Tender of Payment
contract. • Manifestation made by the debtor to
• What contract does the code refer to? the creditor of his decision to comply
Accessorry contracts; not principal; immediately with his obligation
impliedly entered into on how the payment • Preparatory act
is applied • extrajudicial
2. Definition of Consignation
3.MOST ONEROUS DEBT • Deposit of the object of the
* always bawas interest first!!! obligation in a competent court in
Article 1245. Dation in payment, whereby property is alienated to accordance with the rules prescribed
the creditor in satisfaction of a debt in money, shall be governed by
the law of sales. (n) by law after refusal or inability of the
creditor to accept the tender of
• What was the most burdensome to the payment
debtor only • Principal act
• The obligation that if continually existing will • Judicial
be the most difficult for the debtor to pay 3. Requisites of Tender of Payment
• JURISPRUDENCE: does not take into 4. Requisites of Consignation
consideration the amount of the obligation a. There is a debt due
RULES: b. Consignation has been made either
1. AGE – older debtor is more onerous because the creditor to whom
2. ACCESSORY OBLIGATION tender of payment was made
• Accessory to both or all refused to accept the payment
• Most onerous accessories without just cause or because of any
• With interest > without interest of the causes stated by the law for
• 20% interest > 5% interest effective consignation without
• surety > debt with guarantor previous tender of payment exists
o Surety- solidary liable; c. Previous notice of consignation had
becomes a debtor himself been given to the persons interested
o Guarantor- also a solidary in the fulfillment of the obligation

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 d. Placed at the disposal of judicial court.
authority
e. After consignation had been made, Summons- consignation is approved by the court;
persons interested in the fulfillment will extinguish obligation’ no final judgment for
of the obligation had been notified damages needed
thereof.
• Effect of extinguishment is only after the Art. 1249: Identity of the Currency in the
approval of the court Obligation
• C does not accept payment in order; valid 3 Article 1249. The payment of debts in money shall be made in the
currency stipulated, and if it is not possible to deliver such currency,
I’s then in the currency which is legal tender in the Philippines.
• What will D do if C refuses without just The delivery of promissory notes payable to order, or bills of
exchange or other mercantile documents shall produce the effect of
case? Ans: effect consignation payment only when they have been cashed, or when through the
• As long as there is consignation, obligation is fault of the creditor they have been impaired.
extinguished; no need to wait for the In the meantime, the action derived from the original obligation shall
be held in the abeyance. (1170)
termination for delay
• legal tender of the PH
• Interst will cease when approved by the
court for consignation • parties may stipulated another currency
• Interest will not cease when there is tender • D cannot compel legal tender if there is an
of payment; need to CONSIGN. TOP alone agreement
does not extinguish the obligation; must be • Revised by BSP law: PD 72- suspended; all
followed by consignation transactions should be made payable in
• Consignation will extinguish obligation but legal tender
need TOP first • In the absence of stipulation, PH legal
tender, Philippine Peso
No need for TOP(Art. 1256) :
Consignation alone shall produce the same effect in LOSS OF THE THING DUE
the following cases: • Only to give a specific thing
• Does not apply to generic things
(1) When the creditor is absent or unknown, or LOST:
does not appear at the place of payment; 1. Perishes/ disappears
2. Cannot be found or determined – may still
(2) When he is incapacitated to receive the exist but impossible to retrieve
payment at the time it is due; 3. Goes out the commerce of man – no longer
susceptible of private transactions; not
(3) When, without just cause, he refuses to give a
subject to obligations; EG: expropriations,
receipt;
contraband –NOW LOST
(4) When two or more persons claim the same right Note: the impossibility refers for TO DO
to collect;
• No cause of action for damages when there
(5) When the title of the obligation has been lost. is no fault on the part of the debtor; if with
(1176a) fault, extinguish obligation but with
payment of damages
cause: mora accipiendi
Art. 1264: Partial Loss
REQUIRED NOTICES: Article 1264. The courts shall determine whether, under the
circumstances, the partial loss of the object of the obligation is so
1. initial notice for the intention to consign important as to extinguish the obligation. (n)
2. notice after approval of consignation by the

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These rules shall apply: Two types of Impossibility:
Article 1189. When the conditions have been imposed with the 1. OBJECTIVE
intention of suspending the efficacy of an obligation to give, the
following rules shall be observed in case of the improvement, loss or • Irrespective to who parties are; such
deterioration of the thing during the pendency of the condition: prestation is impossible
2. SUBJECTIVE
(1) If the thing is lost without the fault of the debtor, the obligation
shall be extinguished; • Only important insofar as certain
individuals but NOT ALL persons
(2) If the thing is lost through the fault of the debtor, he shall be NOTE: not only refers to physical impossibility, but
obliged to pay damages; it is understood that the thing is lost when it
perishes, or goes out of commerce, or disappears in such a way that
also if they are contrary to law, morals, good
its existence is unknown or it cannot be recovered; customs, public order, and public policy

(3) When the thing deteriorates without the fault of the debtor, the
impairment is to be borne by the creditor;
NOTE: MOST IMPORTANT
On Reciprocal Obligations:
(4) If it deteriorates through the fault of the debtor, the creditor may Seller will sell something to buyer and buyer shall
choose between the rescission of the obligation and its fulfillment, pay in return. What if the subject of the sale is lost?
with indemnity for damages in either case;
Ans: extinguishes the obligation of the Seller.
(5) If the thing is improved by its nature, or by time, the How about buyer? Is he still obliged TO PAY?
improvement shall inure to the benefit of the creditor; Ans: equity tells us that Buyer’s obligation is
(6) If it is improved at the expense of the debtor, he shall have no
other right than that granted to the usufructuary. (1122) likewise extinguished
Generally: partial loss will not extinguish the
obligation; d may compel C to accept the thing at What is the effect of the loss with regard to the
deterioration stage obligation of the other party?
However, if the loss is so significant and substantial
and the principal thing is useless; partial loss is Art. 1191: Tacit Resolutory Condition pertains to
total loss. Ergo, OBLIGATION IS EXTINGUISHED. resperit domino – presupposes that it is due to the
fault of the seller; the seller who loses in the
Art. 1265: Presumption agreement shall pay and obligation will be
Article 1265. Whenever the thing is lost in the possession of the extinguished. There is fault contemplated.
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 What if there is no fault of seller?
earthquake, flood, storm, or other natural calamity. (1183a) RES PERIT CREDITORY RES PERIT DOMINO
• Refers to the person in possession at the Risk lodged with creditor risk lodged with debtor
time Even if S is unable to Art. 1191: Tacit
• Resolutory condition: with creditor delivery the thing; B still resolutory condition
• Suspensive condition: with debtor has to pay
Creditor is at a loss Seller at a loss; buyer is
On obligations to do, it refers to impossibility. not
• Consider the time and moment when
impossibility occurs GENERAL RULE: Res Perit Creditory
• Impossible BEFORE or at the TIME of the Exceptions:
constititution- it is a void contract; there is 1. Art. 1504: Contract of sale of movable
no obligation ; prestation is impossible property
thereore no obligation Article 1504. Unless otherwise agreed, the goods remain at
the seller's risk until the ownership therein is transferred to
the buyer, but when the ownership therein is transferred
Art. 1266: Impossibility Occurs After Constitution to the buyer the goods are at the buyer's risk whether
Article 1266. The debtor in obligations to do shall also be released actual delivery has been made or not, except that:
when the prestation becomes legally or physically impossible without (1) Where delivery of the goods has been made to the
the fault of the obligor. (1184a) buyer or to a bailee for the buyer, in pursuance of the

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 contract and the ownership in the goods has been retained the obligation impossible.
by the seller merely to secure performance by the buyer of
his obligations under the contract, the goods are at the • Whether or not buyer still has to pay
buyer's risk from the time of such delivery; seller becaue of the loss of the thing
(2) Where actual delivery has been delayed through the due?
fault of either the buyer or seller the goods are at the risk
of the party in fault. (n) • Buyer’s obligation becomes
• Fortuitious loss before it is due impossible because of a loss, no
• If sale is movable, RPD. If the case is more renovation; but that is not the
personal, RPC. prestation
• Res perit domino applies • The renovation is an act to be done
after the execution of the obligation
2. Art. 1655: Contract of Lease • AGREEMENT TO DO A THING AFTER
Article 1655. If the thing leased is totally destroyed by a THE FULFILLMENT OF AN
fortuitous event, the lease is extinguished. If the OBLIGATION
destruction is partial, the lessee may choose between a
proportional reduction of the rent and a rescission of the • RENOVATION is to be done after the
lease. (n) delivery of the yacht
• Destruction of thing will extinguish • Commitment to perform act after
the obligation to pay rent the performance of the ORIGINAL
• Res perit domino applies obligation
• The original prestation is already
extinguished by performance
3. Art. 1717: Contracts for Piece of Work
Article 1717. If the contractor bound himself to furnish the Art. 1267: difficulty of performance
material, he shall suffer the loss if the work should be
Article 1267. When the service has become so difficult as to be
destroyed before its delivery, save when there has been
manifestly beyond the contemplation of the parties, the obligor may
delay in receiving it. (1589)
also be released therefrom, in whole or in part. (n)
• If destroyed before delivery, apply • Also known as the:
RPD o DOCTRINE OF UNFORESEEN EVENTS
o FRUSTRATION OF ENTERPRISE

o Theory of impre-visibility
NOTE: If in reciprocal obligations, they do not fall
o Theory of lack of Bac…?
within the three exceptions, ALWAYS APPLY RES
International law: rebus sic stantibus
PERIT CREDITORY.
-parties tipulate in the light of certain

prevailing conditions and once these conditions
Impossibility
cease to exist, the contract also ceases to exist
CASE: Julia Millan v. Rio y Olabarrieta [GR NO. L-

21087, FEBRUARY 23,1924]
• Obligation is not rendered impossible if only
• Not prestation that has become impossible
difficult
but the act to be performed after, the
o Not just physical difficulty but also
obligation is not extinguished
the enforcement or performance will
• Sell a yacht for 5M pesos; 1M pesos of the
lead to an inequitable situation
5M to use for the renovation of the yacht;
• Enforcement- inequitable situation not
before renovation, it was anchored in Manila
contemplated
Bay, stormed and ate the yacht; excused to

pay the yacht? NO. What could no longer be
Requisites of Difficulty:
done is AFTER the prestation has been
1. It involves an obligation to do
effected; not the prestation itself
2. Event/change of circumstances never
o If the fortuitous event is
foreseen or contemplated by parties at the
AFTER prestation, impossible
time of the constitution of the
to do the act will not render
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 obligation/execution of the contract a. Express- it is made in accordance with the
3. It makes the performance of the obligation formalities prescribed by law for donations
extremely difficult but not impossible b. Implied- although it is not made in
4. Event must not be due to any act of the accordance with the formalities prescribed
parties by law for donatons, it can b deduced from
5. Contract is for a long period of time the acts of the obligee or creditor.

Case: Naga Telephone Co. V. CA, February 24,1994 As to extent, it may be:
• Difficulty not a. Total – entire obligation is extinguished
• only actual execution but the enforcement b. Partial- it refers only to the principal or to
• EG: Bus A and Bus B have their own the accessory obligation or to an aspect
respective bus stations; for a 20-year thereof which affects the debtor as for
period, they allow each other to use each instance solidarity
other’s bus stations. However, B’s bus
station is lost; to allow B to use A’s station As to constitution, it may be:
would be inequitable; no longer reciprocal a. Inter Vivos – constituted by agreement of
the oblige or obligor
Art. 1268: Exemption to Fortuitous Event b. Mortis Causa – last will and testament
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
*Provisions on Donation:
Article 748. The donation of a movable may be made orally or in
loss, unless the thing having been offered by him to the person who
writing.
should receive it, the latter refused without justification to accept it.
An oral donation requires the simultaneous delivery of the thing or of
(1185)
the document representing the right donated.
• Obligations arising from criminal offenses If the value of the personal property donated exceeds five thousand
are not exempted pesos, the donation and the acceptance shall be made in writing.
Otherwise, the donation shall be void. (632a)
Article 749. In order that the donation of an immovable may be valid,
CONDONATION it must be made in a public document, specifying therein the
property donated and the value of the charges which the donee must
• Just really means DONATION satisfy.
• Except in implied condonation The acceptance may be made in the same deed of donation or in a
• In all other cases, to be valid, must comply separate public document, but it shall not take effect unless it is done
during the lifetime of the donor.
with the requisites of DONATION= IN If the acceptance is made in a separate instrument, the donor shall
WRITING. be notified thereof in an authentic form, and this step shall be noted
in both instruments. (633)
Article 1270. Condonation or remission is essentially gratuitous, and Article 750. The donation may comprehend all the present property
requires the acceptance by the obligor. It may be made expressly or of the donor, or part thereof, provided he reserves, in full ownership
impliedly. or in usufruct, sufficient means for the support of himself, and of all
One and the other kind shall be subject to the rules which govern relatives who, at the time of the acceptance of the donation, are by
inofficious donations. Express condonation shall, furthermore, law entitled to be supported by the donor. Without such reservation,
comply with the forms of donation. (1187) the donation shall be reduced in petition of any person affected.
(634a)
Article 751. Donations cannot comprehend future property. By
Remission: an act of liberality by which the oblige, future property is understood anything which the donor cannot
without receiving any price or equivalent, dispose of at the time of the donation. (635)
Article 752. The provisions of article 750 notwithstanding, no person
renounces the enforcement of the obligation, as a may give or receive, by way of donation, more than he may give or
result of which it is extinguished in its entirety or in receive by will.
the part or aspect of the same to which the The donation shall be inofficious in all that it may exceed this
limitation. (636)
remission refers Article 771. Donations which in accordance with the provisions of
- it is a gratuitous abandonment by article 752, are inofficious, bearing in mind the estimated net value
the creditor of his right of the donor's property at the time of his death, shall be reduced
with regard to the excess; but this reduction shall not prevent the
As to form, it may be: donations from taking effect during the life of the donor, nor shall it

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bar the donee from appropriating the fruits. obligation except as regards the share
For the reduction of donations the provisions of this Chapter and of
articles 911 and 912 of this Code shall govern. (654) corresponding to the creditor or debtor in whom
the two characters concur. (1194)
Requisites of Condonation:
1. Gratuitous COMPENSATION
2. Accepted by the Obligor • “Quits na tayo”
3. Obligation must be demandable
Article 1278. Compensation shall take place when
Article 1271. The delivery of a private document evidencing a credit, two persons, in their own right, are creditors and
made voluntarily by the creditor to the debtor, implies the
renunciation of the action which the former had against the latter.
debtors of each other. (1195)

If in order to nullify this waiver it should be claimed to be inofficious, Definition:
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. (1188)
• mode of extinguishing in their concurrent
amount those obligations of persons who in
CONFUSION their own right are creditor and debtors of
• Merger and consolidation each other
• 2 into 1 new • figurative operation of weighing two
• one eats the identity of the other; obligations simultaneously in order to
swallowed extinguish them to the extent in which the
amount of one is covered by the amount of
• creditors and debtors of each other
the other
• BPI + RCBC = New Bank
• a more convenient and less expensive
Definition:
method of effecting the payments of two
• merger of the characters of creditor and
obligations
debtor in one and the same person by virtue
• simplified payment : pago abreviado
of which the obligation is extinguished

• the meeting in one and the same person of
Requisites (ART. 1279):
the qualities of the creditor and debtor with
1. There must be two parties, who in their own
respect to one and the same obligation
right, are principal creditors and principal

debtors of each other
Requisites:
2. Both debts must consist in money or if the
1. Merger of the characters of creditor and
things due are fungibles(consummables),
debtor must be in the same person
they must be of the same kind and quality
2. It must take place in the person of either the
3. Both debts must be due
principal creditor or the principal debtor
4. Both debts must be liquidated and
3. It must be complete and definite
demandable

5. There must be no retention or controversity
Article 1275. The obligation is extinguished from
commenced by third persons over either of
the time the characters of creditor and debtor are
the debts and communicated in due time to
merged in the same person. (1192a)
the debtor

6. Compensation must not be prohibited by
Article 1276. Merger which takes place in the
law.
person of the principal debtor or creditor benefits

the guarantors. Confusion which takes place in the
Modes of Compensation:
person of any of the latter does not extinguish the
1. Legal – takes effect by operation of law from
obligation. (1193)
the moment all of the requisites are present

(art. 1278 & art. 1279)
Article 1277. Confusion does not extinguish a joint
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 2. Voluntary – parties are mutually creditors • Art. 1291 provides the term “modified”; not
and debtors agree to compensate their extinguish
respective obligations, even though all of
the requisites for companesation may not TYPES OF NOVATION
then be present 1. REAL NOVATION / OBJECTIVE NOVATION
a. Facultative Compensation – effected a. there is a change in the object
by a party who is entitled to oppose b. change in the principal obligation
the compensation because he would c. change in the cause of the obligation
be prejudiced thereby.
2. PERSONAL NOVATION / SUBJECTIVE
Can there be compensation with depositor and NOVATION
bank? a. change of old debtor to a new one
Ans: yes since they are creditors and debtors of b. subrogating a third person in the
each other rights of the creditor
3. MIXED NOVATION
CASE: Garcia v. Lim Chiu Sing, 59 Phil 562 - combination of objective and subjective
• Stockholders are not creditors of the novations
corporation
• No creditor and debtor requirement Requisites of Novation:
• Stockholder is in fact an investor; 1. Previous valid obligation
corporation is not obligated to pay him 2. Agreement of parties to new obligation
3. Extinguishment of old obligation
4. Validity of new obligation
NOVATION
Definition: Defect: #3 is not a requisite; it is an event after the
• It is the substitution or change of an fact; requisites should be before the effect. NO. 3 IS
obligation by another, resulting in its AN EFFECT – NOT A REQUISITE
extinguishment or modification, either by: *Novation is NEVER PRESUMED
1. changing its object or principal
conditions NOTE: Castan- Proper enumeration:
2. Substituting the person of the debtor 1. Valid old obligation
3. Subrogating a third person in the rights 2. Valid new obligation
of the creditor (Art. 1291) 3. Substantial difference of no. 1 and no. 2
4. Capacity of the parties
Distinctive feature: although it extinguishes the 5. Animus novandi: Intent to extinguish old
obligation, it also gives birth to another obligation. obligation and make a new obligation
It has a two-fold purpose:
1. extinguishment of an old obligation ART. 1292: REAL NOVATION
Article 1292. In order that an obligation may be extinguished by
2. giving birth to a new obligation to take the another which substitute the same, it is imperative that it be so
place of the old declared in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other. (1204)

• this is the only mode that results to a • Objective novation

SIMULTANEOUS CREATION of a NEW There is a change in:
OBLIGATION 1. Object – prestation
• old obligation is extinguished and replaced o To give then now to do
by a new o If novation takes place, no cause of
• modification of old obligation action for the old obligation
2. Cause – source of obligation
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 o Source may not be really changed; Two ways this is effected:
but the classification may be 1. Expromission – initiative does not emanate
changed from the debtor
o Eg: contract of lease to contract to 1.1 Without knowledge of old debtor
sell 1.2 against the will of the old debtor
3. Principal Condition 1.3 With knowledge and consent of old
What if there is a change in the term??? debtor

Requisites:
CHANGE IN THE TERM (either extend or shorten) 1. initiative for the substitution must emanate
1. SC: Ynchausti & Co v. Yulo , 34 Phil 978 from the new debtor
o Extension on the period 2. consent of the creditor to the substitution
o It is NOT NOVATION; not extinctive
novation 2. Delegacion – substitution of debtors is
2. SC: Kongkaya v. Ararata (not sure with the effected with the consent of the creditor at
name) the instance of the old debtor with the
o Extension is coupled with imposition concurrence of the new debtor; debtor
of the accessory obligation offers and the creditor accepts a third
o Additional burden person who consents to the substitution
o New accessory obligation that is
burdensome to the debtor = Requisites:
novation 1. initiative must emanate from the old debtor
o Eg: loan of one year to two years but 2. consent of the new debtor
agree to pay interest = NOVATION 3. acceptance by the creditor
3. SC: Garcia JR v. CA
o Change in accessory obligation which • always note as to who initiated the change
was extinguished in the old
o Whether to increase or decrease, Jesus Christ- expromision- because of the love of
there is no novation; only a change christ
in the rate of the existing interest
4. Kabangkalan Sugar Co. v. Pacheco, 55 Phil Whether it be expromision or delegacion, the
555 creditor’s consent IS IMPORTANT-- needed for the
o Reduction of the term or period birth of the novation
would result to a NOVATION
Case: Villanueva v. Girged 110 Phil 478
Rules: • D owes a sum of money
• If new one is more burdensome to the old, • A wrote to C that he will take care of the
there is novation rest as soon as D pays
• Not make a new obligation that is • No novation: no showing of consent of C
burdensome, only modification; not o Consent must always be expressed
extinctive novation o In the absence of document by
replacing the debtor with the
Art. 1293: Personal Novation consent of creditor, SC rejects it.
Article 1293. Novation which consists in substituting a new debtor in o NO EXPRESS ACCEPTANCE
the place of the original one, may be made even without the
knowledge or against the will of the latter, but not without the • Condition- if novation is substituted with
consent of the creditor. Payment by the new debtor gives him the condition- NOT HAPPEN
rights mentioned in articles 1236 and 1237. (1205a)

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 • No novation – there is a cuase of action? effected; risk on his part and it’s his
None? responsibility but because the law is
explicit = apply
Case: Hodges v. Rey 111 Phil 219 2. Insolvency existing and known to the
• Alleged that there is novation debtor at the delegation of the debt; C
• SC: no novation; even if consent but what did not know and D knows; BAD FAITH
actually transpired is a contract of agency
where P authorized PNB to pay in his own Art. 1296 : Effect on Accessory Obligation
Article 1296. When the principal obligation is extinguished in
behalf consequence of a novation, accessory obligations may subsist only
insofar as they may benefit third persons who did not give their
Example: consent. (1207)
X sued Y for estafa, pending court; while the case is
pending, Y entered into a contract with X where Y • Extinguishment on principal obligation by
promised to pay X in installment of what was novation will also extinguish the accessory
embezzled; when contract was consummated- obligations
Court refused to recognize it and proceeded with Exceptions:
the action; ruled that Y is guilty. The defense that 1. Parties agree to be bound by the same
there is no cause of action for estafa because its accessory obligation with the new obligation
basis no longer existed because of the installment IS 2. Accessory obligation consists of surety or
UNTENABLE guaranty and they agree to still continue
SC: no cannot be. Conviction is upheld. Y’s theory with the same in regard to the new
may apply prior to the filing of the criminal case. obligation
• Trust relation may be convertent into 3. Accessory obligation extends to a third party
another tie o Stipulated to benefit a 3rd party
• Offended party may no longer ask o Must be with consent of the
prosecution to divert authority beneficiary
• Effective if only for civil liability o If did not give consent to extinguish
the obligation, not extinguished.
Art. 1294/1295: INSOLVENCY
Article 1294. If the substitution is without the knowledge or against Art. 1297: Effect of Validity
the will of the debtor, the new debtor's insolvency or non- fulfillment Article 1297. If the new obligation is void, the original one shall
of the obligations shall not give rise to any liability on the part of the subsist, unless the parties intended that the former relation should
original debtor. (n) be extinguished in any event. (n)
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 obligor, except o Voidable new obligation
when said insolvency was already existing and of public knowledge, o Exists until annulled
or known to the debtor, when the delegated his debt. (1206a) o Yes- novation
o But note, as soon as the obligation is
• In expromision, subsequent insolvency will annulled, extinguished also the new -à
NOT REVIVE the old obligation novation is ineffective
• In delegacion, the general rule is NO- it will *it revives the old:
not revive the old obligation o Ineffective is novation – not the obligation
Exceptions: o Unless parties had intention to extinguish
1. Insolvency already existing and of public the obligation
knowledge when the debt made not
only to D but the whole world Art. 1298
Opinion of Caguiao: not revive; C now Article 1298. The novation is void if the original obligation was void,
estopped to allege the existence of except when annulment may be claimed only by the debtor or when
ratification validates acts which are voidable. (1208a)
insolvency before the delegation was
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 • Old obligation void and new obligation is Novation depends on the fulfillment
•
valid of the obligation attached to the new
• No novation obligation
• Fails to meet the requisites • If not fulfilled, no novation , no valid
• Same if the new obligation is void, no subsequent obligation
novation
• What if the old obligation is voidable? 3. Both NEW and OLD obligations have
o There is still a valid novation if there CONDITIONS
is a ratification of old obligation -- • Determine whether or not the
changing or curing the defects obligation in the new and old are
o old obligation when ratified is now incompatible
valid o If incompatible, old obligation
o no ratification yet, valid novation? extinguished, new one is
NO NOT VALID. Defect can only be subject to the fulfillment of
ascertained by the debtor. If D the condition
acceded to the novation, ratification o IF new does not exist yet, and
also of the obligation the old exists, already a cuase
o also ratified because entered into a of action
completely new one – only in • If the old obligation with a condition
DELEGACION – NOT EXPROMISION and the new obligation with a
condition are INCOMPATIBLE, they
TEST: If in the facts that novation is that of a new cannot exist together. We do not
obligation, voidable old and took place, not change need to wait for the conditions to be
the object and cause but PERSONAL change, fulfilled. The old obligation is
novation take place? disregarded and the new condition is
- expromision – initiative of the 3rd the subject.
party • Fulfillment of the condition in the
- delegacion- initiated by the new is necessary for the
debtor and did not object to the enforcement of the obligation
novation – acceded to the defect • If condition of the old is fulfilled, still
enforce the old obligation? NO.
Art. 1299: Effect of Novation of the Condition • NOTE: it is the conditions that are
incompatible, not the obligations. If
Article 1299. If the original obligation was subject to a suspensive or
the conditions are incompatible, the
resolutory condition, the new obligation shall be under the same
condition, unless it is otherwise stipulated. (n) obligations can still stand together.
Effectivity will depend on the
1. Old obligation with CONDITION and New fulfillment of ALL ocnditions.
obligation PURE
• Novation depends in the fulfillment 4. Objects of the NEW obligation is to REMOVE
of the condition attached to the old THE CONDITION OF THE OLD OBLIGATION
• If condition is not fulfilled, no
obligation to talk about, no novation.
Legal Subrogation
Article 1301. Conventional subrogation of a third person requires the
2. Old obligation PURE and New obligation consent of the original parties and of the third person. (n) Article
with CONDITION 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

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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. (1210a)
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.
(1212a)
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. (1213)

Types of Subrogation:
1. Legal Subrogation
• By law
a. if payment by a third party with
interest in the obligation – need not
with or without consent of debtor;
right of subrogator is right of debtor
Eg: credit transactions, taxes,
employees, Assignment of credits. P.
809 of Jurado notes, no. 197
b. 3rd party without interest-
suborgation is only valid with
knowledge and consent of debtor
2. Conventional Subrogation
a. Stipulated by the parties

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