Edlyn M.

Flores
BSA - 2
Chapter 4
EXTINGUISHMENT OF OBLIGATIONS
ARTICLE 1231.
Obligation are extinguished: (PLC3N)
(1) Section 1. By payment or performance;
(2) Section 2. By loss of the thing due;
(3) Section 3. By the condonation or remission of the debt;
(4) Section 4. By the confusion or merger of the rights or creditor and debtor;
(5) Section 5. By compensation;
(6) Section 6. By novation.
Obligation are extinguished: (Other than PLC3N)
(1) Annulment
(2) Rescission
(3) Fulfillment of a resolutory condition
(4) Prescription
(5) Death of party in case of an obligation requiring personal service
(6) Mutual desistance or withdrawal
(7) Arrival of a resolutory period
(8) Compromise
(9) Impossibility of fulfillment
(10) Happening of a fortuitous event
 SECTION 1 - PAYMENT OR PERFORMANCE
ARTICLE 1232. Payment means not only the delivery of money but also the performance,
in any other manner, of an obligation.
Debt – may refer to an obligation to deliver money, to deliver a thing, to do an act, or not to do
an act.
When a debtor pays damages or penalty in lieu of the fulfillment of an obligation, there is also
payment in the sense used in this article.
Example: Company A owes a debt of P10,000 to Company B. Instead of making the
payment in cash, the two companies may agree to a performance-based settlement. In this
case, Company A could provide Company B, a valuable piece of software (giving of a thing) as
a form of payment in exchange for the full monetary amount.

ARTICLE 1233. A debt shall not be understood to have been paid unless the thing or
service in which the obligation consists has been completely delivered or rendered, as
the case may be.
When debt is considered paid.
1. Integrity of prestation - the prestation must be fulfilled completely. Means that partial or
irregular performance will not produce the extinguishment of an obligation as a general
rule.
Example:
Warren promised to pay Gerlie P10,000. Warren is giving only P9,000.
Gerlie can refuse to accept P9,000 because the fulfillment is not complete.

2. Identity of the prestation - the very prestation must be delivered or performed. (kung
ano mismo yung napag-usapan gawin o ibigay, yun mismo ang gagawin or ibibigay hindi
pwedeng ibang bagay yung ibibigay)
Example:
Alex promises to sell a specific vintage car to Taylor. The identity of the
prestation in this case is the exact car that they discussed—a classic red 1965
Mustang. Alex cannot fulfill this obligation by giving Taylor a different car, like a
modern blue sedan. The agreement was specific about the vintage Mustang, so
the very prestation agreed upon must be delivered—no substitutions allowed. If
Alex hands over a different car, it would be a breach of the agreement because
 the identity of the prestation requires delivering the exact item specified in the
contract.

ARTICLE 1234. If the obligation has been substantially performed in good faith, the
obligor may recover as though there had been strict and complete fulfillment, less
damages suffered by the obligee.
Requisites of article 1234
● Substantial Performance in Good Faith rule (first exception to the rule of integrity of
prestation)
Example:
Kim obliged himself to deliver 500 bags of cement to Yang for a certain
price. However, despite diligent efforts on his part, Kim was able to deliver only
450 bags because of the cement shortage. Take note that Kim wants to comply
with his obligation to deliver the entire 500 bags but he could not do so for
reasons beyond his control.
Under Article 1234, Kim can recover as though there had been complete delivery
less the price of the 50 bags. Kim must show, however, that he attempted in good
faith to comply with his obligation.

ARTICLE 1235. When the obligee accepts the performance, knowing its incompleteness
or irregularity, and without expressing any protest or objection, the obligation is deemed
fully complied with.
Requisites of Article 1235
● The obligee knows that the performance is incomplete or irregular thus he still
accepts it without expressing any protest or objection. (second exception to the rule
of integrity of prestation)
Examples:
Ed agreed to paint the house of Lyn. According to their stipulation, Ed
would use a particular brand of paint.
If Lyn accepted the performance of Ed, knowing that the paint used was another
brand and without expressing any protest or objection, the obligation is deemed
fully complied with.
ARTICLE 1236. The creditor is not bound to accept payment or performance by a third
person who has no interest in the fulfillment of the obligation, unless there is a
stipulation to the contrary.
Whoever pays for another may demand from the debtor what he has paid, except that 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.
The creditor is bound to accept payment or performance from the following:
● The debtor;
● Any person who has an interest in the obligation;
● Third person who has no interest in the obligation but there is stipulation that he
can make payment.

Effect of payment by a third person/ stranger

● Without the Debtor’s knowledge and consent
- The payer only has a Beneficial Reimbursement.
● With the Debtor’s knowledge and consent
- The payer shall have the rights of:
1. Reimbursement
2. Subrogation - the payor steps into the shoes of the creditor
(means that the payor is now entitled to exercise all the rights and
actions that creditors are doing. He became entitled but only to
recover what he has been paid)
Example:
Warren owes Cedric the sum of P1,000. If Ed, a stranger to the obligation,
offers to pay Cedric, the latter may or may not accept the offer of payment.
Suppose Cedric accepts, the right of Ed to recover from Warren depends upon
whether the payment is with or without the knowledge or consent of Warren.
(1) Without the knowledge or against the will of Warren
- If the actual indebtedness is P1,000 and Ed paid P1,000, he can ask
reimbursement for P1,000 but if P400 had already been paid by Warren,
then Ed is entitled to be reimbursed only for the amount of P600 because
it is only to that amount that Warren has been benefited. Ed can recover
P400 from Cedric who should not have accepted it.
If Cedric acted in bad faith, he is liable also for interest in lieu of damages.
 (Solutio Indebiti - unjust enrichment)

(2) With the knowledge of Warren

- In either case, if the payment of P1,000 was made with the knowledge or
consent of Warren, Ed can recover from Warren P1,000 with all the rights
of subrogation to the accessory obligations such as mortgage, guaranty,
or penalty.

a. X cannot foreclose the mortgaged property because he paid C without the consent of D.
That’s why X has no rights to subrogation.
b. No, X has now right to foreclose the mortgage because he paid C with the consent of D.
That’s why X had now the rights to subrogation.
ARTICLE 1237. Whoever pays on behalf of the debtor without the knowledge or against
the will of the latter, cannot compel the creditor to subrogate him in his rights, such as
those arising from a mortgage, guaranty, or penalty.
Example:

1. Yes, as long as Pogi was benefited

2. 1,000,000 pesos
3. No, because beauty pays without the consent of Pogi. Beauty has no rights of
subrogation.

ARTICLE 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 debtor's consent. But the
payment is in any case valid as to the creditor who has accepted it.
Yung payment daw nung third person na wala namang intention na mag reimburse kay
debtor ay isang donation. Sabi dito kapag may donation, kailangan yung debtor’s consent.
However, if the creditor accepts the payment, it shall be valid as to him and the payor although
the debtor did not give his consent to the donation.
Example:

1. Yes, kasi kahit walang consent ni pogi, tinanggap naman ni Ganda (creditor) yung
payment(donation) ni Beauty, valid pa rin ito at mae extinguished parin yung obligation.
ARTICLE 1239. In obligation to give, payment made by one who does not have the free
disposal of the thing due and capacity to alienate it shall not be valid, without prejudice
to the provisions of Article 1427 under the Title on “Natural Obligations.”

CAPACITY TO MAKE PAYMENT

The person who pays the obligation should have the necessary legal capacity to effect such
payment; it is essential for the validity of the payment that the payor should have the 1) free
disposal of the thing due (the thing to be delivered is not subjected to any claim (e.g,.
Mortgage or pledge) of a third person), and 2) the capacity to alienate it (the person is not
incapacitated to enter into contracts). The absence of one or the other will make the payment
invalid. Even if the creditor has already accepted it, it may still be annulled by a proper action in
court at the instance of the payor or his legal representative, unless it falls within the purview of
the exception expressly provided for in Art. 1427.
If the creditor refuses to accept the payment because he is aware of the payor’s incapacity, the
obligation still subsists.

(Article 1239 deals with the concept that when you have an obligation to give something, like a
specific item, the person making the payment must have the legal right to do so. This means
they should both legally own the item and have the ability to transfer ownership, which is what
"free disposal" and "capacity to alienate" refer to. If the person making the payment doesn't
have these rights, the payment is considered invalid. Even if the person you owe money to
accepts the payment, it can still be canceled by a court action, unless there's a special
exception mentioned in Article 1427, which deals with "Natural Obligations." This emphasizes
the importance of legal capacity for the validity of a payment, and if the person making the
payment doesn't have this capacity, the obligation to pay still stands.)

ARTICLE 1240. Payment shall be made to the (1) person in whose favour the obligation
has been constituted, or (2) his successor in interest, or (3) any person authorized to
receive it.
(1) Creditor or the obligee, can also be the one who’s allowed to do subrogation.
(2) Like an heir or assignee
(3) Any person authorized to receive it. (only person that is authorized by the creditor and
law)(e.g., guardian, executor or administrator of the estate of a deceased, etc.)
 Example:
Darren owes Carl P10,000. In this case, Darren must pay Carl or any person
authorized by Carl or in case of his death, his heirs or any person authorized by law.
Addtnl: If Darren acted in good faith in paying but it is a wrong party where he pays, it is
not an excuse and will still be valid.

ARTICLE 1241. Payment to a person who is incapacitated to administer his property shall
be valid if he has kept the thing delivered, or insofar as the payment has been beneficial
to him. (Sabi po dito sa first paragraph, if yung pagbabayaran mo ay incapacitated to manage
their property, hindi magiging valid ang payment mo unless makakatulong ito or magkakaroon
sila ng benefit dito. Example [yung nasa baba ate].
Pero ineexplain din daw po dito sa book na in the absence of benefit, pwede parin naman mag
bayad yung debtor sa guardian or authorized person ng creditor o kaya naman e sa creditor
mismo siya mag bayad kapag na recover niya na yung capacity niya to manage his property.)

Payment made to a third person shall also be valid insofar as it has redounded to the
benefit of the creditor. Such benefit to the creditor need not be proved in the following
cases:
1. If after the payment, the third person acquired the creditor’s rights; (subrogation, or
that third person has the right to subrogate and to step in the shoes of the first creditor)
2. If the creditor ratifies the payment to the third person; (the creditor have the
agreement that the third person is avail to receive the payment)
3. If the creditor’s conduct, the debtor has been led to believe that the third person
had authority to receive the payment. (for example, yung pagbabayaran nakasuot ng
uniform ng specific company, doon nagbayad so that person has the authority to accept
the payment because the debtor believe that, that person had the authority to receive it)

Effect of payment to an incapacitated person.

Example:
Let's say your friend, who is temporarily incapacitated due to a medical condition,
lends you some money before their illness prevents them from managing their finances.
Later, understanding that your friend may have difficulty handling their finances in their
 current state, you decide to return the money to them by depositing it into a special bank
account set up by their guardian to manage their finances during the incapacitation. The
funds in this account are specifically intended to cover their medical expenses and other
essential needs.
In this example, the payment (returning the borrowed money) would be valid because
the funds are kept in a dedicated account for the benefit of your incapacitated friend. The
guardian ensures that the money is used for the intended purpose, demonstrating that
the payment is both kept and beneficial to the incapacitated person. If the money was
simply handed over without any consideration for the person's well-being or if it wasn't
used for their benefit, it might not be considered valid under the described legal
principles.

ARTICLE 1242. Payment made in good faith to any person in possession of the
credit shall release the debtor.
Requisites of 1242:
1. Payment by the debtor must be in good faith
2. Payee must be in possession of the credit

Example:
Pogi found a negotiable promissory note that is payable according to the bearer, so the
maker of the promissory note pays Pogi because it is payable according to the bearer, the
payment becomes valid and it extinguishes the obligation even if Pogi was not entitled to the
promissory note. But, if the promissory note is payable to a specific person, like it is payable to
Beauty, then the payment to Pogi was not valid because he was just the possessor of the
document not the possessor of the credit, and the obligation was not extinguished.
ARTICLE 1243. Payment made to the creditor by the debtor after the latter has
been judicially ordered to retain the debt shall not be valid.
Example:
Pogi and Ganda owe Beauty 1,000,000. Beauty files an action against Ganda
that she has to pay the debt already. Ganda, claims insolvency and she realized that Pogi has
debt to her also of 1,000,000 and asked him to pay her (for her to pay Beauty). Pogi asked the
court to retain the money in the meantime, so any payment by Pogi to Ganda is invalid.

ARTICLE 1244. The debtor of a thing cannot compel the creditor to receive a
different one, although the latter may be of the same value 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.
Mismong prestation mismo ang dapat na ibigay as payment para ma extinguished ang
obligation, hindi pwede ang substitution. First Paragraph refers to a real obligation to deliver a
specific thing. While the second paragraph, refers to a personal obligation which is to do or not
to do.
Exception:
1. Facultative obligation - substitution can be made if the obligee consents and the debtor
is given the right to render another prestation in substitution.
2. Waiver - that stipulates that the creditor allows the debtor to pay a substitute thing or
services.

ARTICLE 1245. Dation in payment, whereby property is alienated to the creditor in

satisfaction of a debt in money shall be governed by the law of sales.
Dation in payment - ay yung ibibigay ni debtor ay property in order to satisfy the
monetary debt.
Example:
Warren owes Cedric 30,000. To fulfill the obligation, Warren, with the consent of Cedric,
delivers a piano.
If the piano, however, is worth less than P30,000, the conveyance must be deemed to
extinguish the obligation to the extent only of the value agreed upon unless the parties by their
agreement have considered the piano as full payment, in which case, the obligation is totally
extinguished.

ARTICLE 1246. When the obligation consists in the delivery of an indeterminate or

generic thing, whose quality and circumstances have not been stated, the creditor
cannot demand a thing of superior quality. Neither can the debtor deliver a thing of
inferior quality. The purpose of the obligation and other circumstances shall be taken
into consideration.
The rule of medium quality. Ang creditor, pwede siyang mag accept ng inferior quality if
okay lang sa kanya, pero hindi siya pwedeng mag demand ng superior quality. While si debtor,
hindi siya pwedeng mag deliver ng inferior quality, pero pwede naman siyang mag deliver ng
superior quality if okay lang din sa kanya.
Example:
Sandy promised to deliver Ben a horse. Ben cannot compel Sandy to deliver a
price-winning race horse. Neither can Sandy require Ben to accept an old sickly horse.

(1) If Ben owns a stable of race horses and horse-racing is his main diversion in life, which fact
is known to Sandy, and the price agreed upon is the reasonable price of a race horse, then
Sandy must deliver a race horse.

(2) If Ben happens to be a calesa driver and Ben agreed to pay Sandy for the horse an amount
which is the reasonable price of a horse for calesa, then that kind of horse may be delivered.

(3) If Ben is a veterinary doctor and his only purpose in buying a horse is to examine its organs
in connection with his work, this and other relevant circumstances show that the old sickly horse
was intended by the parties to be delivered.
ARTICLE 1247. Unless it is otherwise stipulated, the extrajudicial expenses required by
the payment shall be for the account of the debtor. With regard to judicial costs,
the Rules of Court shall govern.
Si debtor ang may obligation to pay for extrajudicial expenses unless there is a
stipulation that the creditor will pay for it. If wala sa agreement kung sino ang magbabayad, then
automatically si debtor na ang magbabayad.

ARTICLE 1248. Unless there is an express stipulation to that effect, the creditor
cannot be compelled partially to receive the prestations in 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 unliquidated, the creditor
may demand and the debtor may effect the payment of the former without waiting for
the liquidation of the latter.
The performance must be completed and the debtor is not allowed to pay partial
payment.

When partial performance allowed:

1. When there is an express stipulation to that effect.
2. When the debt is in part liquidated and in part unliquidated
3. When the different prestations in which the obligation consists are subject to different
terms or conditions which affect some of them.
Example:
Warren owes Gerlie 1,000,000 due today. Warren is not allowed to compel Gerlie to
receive 500,000 (partial payment), Gerlie is also not allowed to compel Warren to pay 500,000
partial payment to her. (Paragraph 1) Unless, there is an agreement to the contrary that Warren
is allowed to pay partial payment instead of full payment. (allowed 1)
Warren owes Gerlie 1,000,000 plus damages. The exact amount of damages are not
determined yet but the debt of 1,000,000 is already known and due. Because of that, Gerlie may
demand Warren to pay for the 1,000,000 pesos because it is already known and liquidated.
Then later on nalang if how much yung amount ng damages na babayaran dapat ni pogi kasi
unliquidated pa yun. (allowed 2)
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, then in the currency which is
legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other
mercantile documents shall produce the effect of payment only when they have been
cashed, or when through the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation shall be held in
abeyance.

Paragraph 1: ang payment daw is pwedeng kung ano yung pinag-usapang currency, if hindi
naman pwede yung napag usapang currency then dun na papasok yung legal tender.
Legal tender - is that currency which a debtor can legally compel a creditor to accept in
payment of a debt in money when tendered by the debtor in the right amount.
Paragraph 2: kapag nagbayad through check or nagpadala muna ng promissory notes (not a
legal tender), magiging valid lang yung payment kapag naging cash na yun or napalitan na
mismo ng cash. Creditor is not compelled to accept those documents because it is not a legal
tender.
Example: Warren owes Gerlie 10,000 pesos, payable on Dec 25, 2020. Warren is
paying a Promissory note of 10,000
1. Gerlie can refuse to accept the delivery of a promissory note because it is not a legal
tender.
2. Gerlie can also accept the delivery of a promissory note because it is based on her. She
has her option to accept or not to accept, basta hindi siya pinipilit na tanggapin ito.
3. If Gerlie accepts the promissory note delivered by Warren, there is no effect to the
obligation unless Warren turns it in or pays it through money.
Paragraph 3: If the creditor accepts the payment of documents (checks or promissory notes)
then they cannot bring an action to recover immediately unless the stated stipulation is already
achieved.
Example: Warren owes Gerlie 10,000 pesos, payable on Dec 25, 2020. Warren is
paying a Promissory note of 10,000
1. Supposing, Gerlie consented that Warren’s payment is a Promissory note payable 2
months later. Now, during the intervening period, may Gerlie bring an action to recover
from Warren?
 - No because it is said in the last paragraph that the original obligation is in
abeyance or must be postponed.

ARTICLE 1250. In case an extraordinary inflation or deflation of the currency

stipulated should supervene, the value of the currency at the time of the establishment of
the obligation shall be the basis of payment, unless there is an agreement to the
contrary.
Inflation – is a sharp sudden increase of money or credit or both without a
corresponding increase in business transactions. It causes a drop in the value of money,
resulting in the rise of the general price level.
Deflation – is the reduction in volume and circulation of the available money or credit,
resulting in a decline of the general price level; it is the opposite of inflation.
Requisites:
1. There is an official declaration of extraordinary inflation or deflation form the banko
sentral ng pilipinas.
2. The obligation is contractual in nature.

Example:
Darren borrowed from Chen P5,000 payable after five years. On the maturity of the
obligation, the value of P5,000 dropped to P2,500 because of inflation (or increased to P10,000
because of deflation).

In this case (assuming there is extraordinary inflation or deflation), the basis of payment shall be
the equivalent value of the currency today to that five (5) years ago. Hence, Darren is liable to
pay Chen P10,000 (or P2,500) unless there is an agreement to the contrary, eg, that Darren
shall pay Chen P5,000 regardless of any extraordinary decrease or increase in the purchasing
power of the peso.
ARTICLE 1251. Payment shall be made in the place designated in the obligation.
There being no express stipulation and if the undertaking is to deliver a
determinate thing, the payment shall be made whenever the thing might be at the
moment the obligation was 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 or after he has incurred in delay, the
additional expenses shall be borne by him.
These provisions are without prejudice to venue under the Rules of Court

Place where obligation shall be paid

1. If there is a stipulation, the payment shall be made in the place designated.
2. If there is no stipulation and the thing to be delivered is specific, the payment shall be
made at the place where the thing was, at the perfection of the contract.
3. If there is no stipulation and the thing to be delivered is generic, the place of payment
shall be the domicile of the debtor. In this case, the creditor bears the expenses in going
to the debtor’s place to accept payment. (If si debtor ay nag iba ng domicile in bad faith,
then siya na ang magbabayad sa additional expenses.)
Example:
(1) Sandra obliged herself to deliver to Ben a specific refrigerator. It was agreed that the
refrigerator shall be delivered at Ben's house, The house of Ben shall be the place of
delivery.
(2) If there is no agreement as to the place of delivery and the refrigerator was in the house
of Ben when the parties entered into contract, then the delivery shall be made at the
house of Ben But if the refrigerator was temporarily at some place (e.g., on a ship in
transit), the place of delivery shall be the domicile of Sandra unless otherwise stipulated.
(3) If the obligation of Sandra is to pay Ben a sum of money (a generic thing), the place of
payment is that designated in the obligation; otherwise, Ben must have to go to the
house of Sandra to receive payment. Ben incurs the expenses incidental to such
collection. If Sandra changes her domicile in bad faith or after she has incurred in delay,
the additional expenses shall be borne by her. (par. 4.)
 Subsection 1 - Application of Payment.
ARTICLE 1252. He who has various debts of the same kind in favour 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 a cause for
invalidating.

Requisites:
(1) There must be one debtor and one creditor
(2) There must be two or more debts
(3) The debts must be of the same kind
(4) The debts to which the payment has been applied must be due
(5) The payment made must not be sufficient to cover all the debts

Example:
Warren owes Gerlie 1 million pesos, then he also owes her another 2 million pesos, and another
debt of 3 million pesos. Due on October 15, 2020, Warren has 5 million pesos only to pay
Gerlie.
(1) Warren is the debtor and Gerlie is the creditor.
(2) In our example Warren has 3 debts.
(3) All the debts are obviously the same in kind.
(4) All the debts in our example are due, October 15, 2020.
(5) The payment is obviously not enough to cover all the debts. The total debts is 6 million
pesos but Warren only has 5 million pesos.
ARTICLE 1253. If the debt produces interest, payment of the principal shall not be
deemed to have been made until the interests have been covered.

ARTICLE 1254. When the payment cannot be applied in accordance with the
preceding rules, or if application cannot be inferred from other circumstances, the
debt which is most onerous to the debtor, among those due, shall be deemed to
have been satisfied.
If the debts due are of the same nature and burden, the payment shall be applied to all of
them proportionately.

Paragraph 2: (Example):
Warren owes Gerlie 1,200,000 and 600,000. Warren pays 300,000, if there is no application of
payments applied, the payment needs to be applied proportionately. 200,000 of 300,000 is
deductible to 1,200,000. While 100,000 of 300,000 is deductible to 600,000.

Subsection 2 - Payment by Cession

ARTICLE 1255. The debtor may cede or assign his property to his 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.
Lahat ng property ni debtor ay itatransfer sa lahat ng creditors para maibenta nila ito at
ang magiging kita ay ang ibabayad sa mga utang ng debtors.

Requisites:
(1) There must be two or more creditors
(2) The debtor must be insolvent (unable to pay debts kaya properties ang kukunin sa
kanya para makabayad siya)
(3) The assignment must involve all the properties of the debtor
(4) The cession must be accepted by the creditors
Effects:
1. The assignment does not make the creditors the owners of the property of the debtor.
(they are just became the assignee)
2. The debtor is released from his obligation only up to the amount of the net proceeds of
the sale of the property assigned. Unless there is stipulation to the contrary.
Example:
Darren is indebted to several creditors in the total amount of P2 million. His assets are not
sufficient to pay all his debts.
With the consent of his creditors, Darren may assign his property to them to be sold, to satisfy
their credits. If the net proceeds of the sale amount only to P1.5 million, Darren is still liable for
the balance of P500,000 unless there is a stipulation that the assignment shall be in full
satisfaction of all his debts.

Subsection 3 - Tender of Payment and Consignation

ARTICLE 1256. If the creditor to whom tender of 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. (tender of payment without the consignation will not
extinguished the obligation)
Consignation alone shall produce the same effect in the following cases:
1. When the creditor is absent or unknown, or does not appear at the place of
payment; (wala si creditor, hindi nagpakita, so walang tender of payment, pwede na
kaagad na consignation)
2. When he is incapacitated to receive the payment at the time it is due; (incapacitated
or di kayang i handle yung financial niya, kaysa ibigay mo sa kanya at mawala niya
tapos hindi naman mag e-extinguished yung obligation kapag ganon. Edi you can just
consign it nalang. Pero applicable lang to kung walang guardian si creditor na
incapacitated)
3. When, without just cause, he refuses to give a receipt;
4. When two or more persons claim the same right to collect; (hindi mo ma determine
kung sino ang babayaran or sino talaga nagsasabi ng totoo. So, ang gawin mo nalang is
consignation sa court then let them settle the claims of two or more persons.)
5. When the title of the obligation has been lost. (kapag nawala yung written document,
much better na ideposit mo nalang sa court yung bayad.)
Tender of payment – is the act, on the part of the debtor, of offering to the creditor the thing or
amount due. The debtor must show that he has in his possession the thing or money to be
delivered at the time of the offer.
Consignation – is the act of depositing the thing or amount due with the proper court when the
creditor does not desire or cannot receive it, after complying with the formalities required by law.
It is always judicial and it generally requires a prior tender of payment which is by its very nature
extrajudicial.

Requisites of a valid consignation:

● Existence of a valid debt which is due
● Tender of payment by the debtor and refusal without justifiable reason by the creditor to
accept it
● Previous notice of consignation to persons interested in the fulfillment of the obligation
● Consignation of the thing or sum due
● Subsequent notice of consignation made to the interested parties

Requisites for valid tender of payment:

● Tenders of payment must comply with the rules on payment (Art. 1256-1258). The
tender, even if valid, does not by itself produce legal payment, unless it is completed by
consignation.
● It must be unconditional and for the whole amount.
● It must be actually made.

ARTICLE 1257. In order that the consignation of the thing due may release the
obligor, it must first be announced to the person 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.
If there is no prior notice to the person who’s interested, the consignation is void
Requisites of a valid consignation:
● Existence of a valid debt
● Valid prior tender, unless tender is excused
 ● Prior notice of consignation
● Actual consignation
● Subsequent notice of consignation made to the interested parties

ARTICLE 1258. Consignation shall be made by depositing the things due at the
disposal of 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 be notified thereof.

ARTICLE 1259. The expenses of consignation, when properly made, shall be

charged against the creditor.
The consignation is made necessary because of the fault or unjust refusal of the
creditor to accept payment; it is but just that the expenses should be charged against him.
But it will be chargeable to the debtor if the consignation is not properly made.

ARTICLE 1260. Once the consignation has been duly made, the debtor may ask the judge
or order the cancellation of the obligation.
Before the creditor has accepted the consignation, or before a judicial declaration
that the consignation has been properly made the debtor may withdraw the thing
or the sum deposited, allowing the obligation to remain in force.

ARTICLE 1261. If the consignation having been made, 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 and sureties shall be released.
 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.

There is a loss:
● When the object perishes
● Goes out of commerce
● Disappears in such a way that its existence is unknown
● Cannot be recovered
There is impossibility of performance:
● Physical impossibility
● Legal impossibility

Requisites:
1. The obligation is to deliver a specific thing
2. The loss of the thing occurs without the fault of the debtor
3. The debtor is not guilty of delay

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 never perishes (genus nunquam perit)
Example:
Sandra promised to deliver 100 cavans of rice to Ben. The 100 canvas of rice which
Sandra intended to deliver were lost in a flood.
Sandra is liable to Ben because her obligation is to deliver a generic thing, and it can still be
paid from other sources.
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.

EFFECT OF PARTIAL LOSS GENERAL RULE

- Partial loss does not extinguish the obligation.

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 Art. 1165.
This presumption does not apply in case of earthquake, flood, storm or other natural
calamity.
Kapag ang isang bagay ay nawala, it is presumed that the loss was due to his fault. Pero
bilang debtor, pwede mo naman i prove na hindi mo talaga kasalanan kung bakit na loss yung
thing.

Example:
Warren borrowed Gerlie's car. There was an accidental fire outbreak in the house of Warren that
caused the loss of Gerlie’s car. The presumption that Warren is in fault does not apply.

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.

Legal Impossibility – occurs when the obligation cannot be performed because it is rendered
impossible by provision of law, although physically it may be possible for performance.

Example: Dan obliged himself to construct a commercial building for Sam. But the
government refused to issue a building permit because the area is already declared as a
residential zone. So, in that case, the obligation became legally impossible.

Physical Impossibility – in purely personal obligations, when the personal qualifications of the
obligor are involved, this takes place, when, for example, the obligor dies or becomes physically
incapacitated to perform the obligation.
 Example: Dan obliged himself to construct a commercial building for Sam. After a week
Dan died, obviously the obligation became physically impossible.

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.

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.
If the obligation occurs because of a criminal offense. The debtor is still liable to pay the
creditor even if it loses because of a fortuitous event.

ARTICLE 1269. 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 the
third persons by reason of the loss.
Example:
Sandra is obliged to deliver to Ben a specific horse. The horse is lost through the fault of
Trish.

The obligation of Sandra is extinguished and she is not liable to Ben. Such being the
case, Sandra would not be interested in going after Trish. The law, however, protects
Ben by giving him the right to bring an action against Trish to recover the price of the
horse with damages.
 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 – is the gratuitous abandonment by the creditor of his right against
the debtor. It is thus a form of donation.

Example:
Warren owes 1000 to Gerlie, Payable on Dec 25, 2020. On Dec 25, 2020, Gerlie says to
Warren that he doesn't have to pay for the 1,000. Here the obligation was extinguished through
condonation.

Requisites:
● It must be gratuitous (no exchange and free of charge)
● It must be accepted by the obligor or debtor
● The parties must have capacity
● It must not be inofficious (hindi mo pwedeng ibigay lahat at sobra sobra. Magiwan ka
para sa sarili mo)
● If made expressly, it must comply with the forms of donations

Kinds of Remission
(1) As to its extent:
(a) Complete - when it covers the entire obligation
(b) Partial - when it does not cover the entire obligation
(2) As to its form:
(a) Express - when it is made either verbally or in writing
(b) Implied - when it can only inferred from conduct
(3) As to its date of efficiency:
(a) Inter vivos - when it will take effect during the lifetime of the donor
(b) Mortis causa - when it will become effective upon the death of the donor. It must
comply with the formalities of a will.
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 document of indebtedness is voluntarily delivered by

creditor: (speaks about private document)

(1) Presumption of implied remission - If debt is not yet paid, the creditor would need the
document to enforce payment. In case he voluntarily delivers it to the debtor, the only
logical inference is that he is renouncing his right.

Example: Rob issues a promissory note in favor of Sandra, in an amount of

1,000,000. Later on Sandra delivers the promissory note back to Rob, without collecting
the 1,000,000 (Rob has now the possession of the promissory note again.) In this case,
there is a presumption that Sandra, condone the debt (there is an implied remission, but
it was just a presumption)

(2) Contrary Evidence - Evidence is admissible to show otherwise, as when a receipt

signed by the creditor was delivered only for examination by the debtor client (lawyer) of
the amount of attorney’s fees to be paid by the latter.

(3) Extent of remission

(4) Presumption applicable only to private document

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 voluntary delivery

- Kapag yung document na doon nakalagay kung magkano ang utang, na
nagsisilbi ebidensya na may utang si debtor ay nakay debtor na ulit, may
presumption na voluntarily dineliver sa kanya (unless the contrary is proved.)
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.

Accessory follows the principal - if there is a remission/condonation/renunciation of

the principal, then the accessory follows (accessory was also renounced.)

Note: if the accessories were the only thing/s that is condoned, then the principal obligation will
still exist even without the accessory obligations.

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.

Example: Warren owes Gerlie 1,000. As security that he will pay as soon as he has
money, he delivers his watch to Gerlie worth 1,000 as a pledge. Later on, if we see the watch
back in Warren's possession, then, there is a presumption that the accessory/pledged obligation
of Warren is condoned/remitted.

Note: in this article only the accessory obligation of pledge presumed remitted/condoned.
 SECTION 4 - CONFUSION OR MERGER OF RIGHTS
ARTICLE 1275. The obligation is extinguished from the time the character of
creditors and debtors are merged in the same person.

Confusion or merger – is the meeting in one person of the qualities of creditor and debtor with
respect to the same obligation.

Requisites of Confusion
● It must take place between the principal debtor and creditor
● It must be complete and definite
● The very obligation involved must be same or identical
Example:
Darren owes Carl 10,000 for which Darren executed a promissory note in favor of Carl.
Carl endorsed the note to Ed who brought some fruits and goods to Darren. Instead of paying
cash, Ed endorsed the promissory note to Darren.
In this case, Darren owes himself. Consequently, his obligation is extinguished by merger.

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.

EFFECT OF MERGER IN THE PERSON OF PRINCIPAL DEBTOR OR CREDITOR

“Accessory follows the principal” (the guarantee being considered the

accessory obligation); hence, if there is merger with respect to the principal debt, the guarantee
is extinguished.

EFFECT OF MERGER IN THE PERSON OF GUARANTOR

The extinguishment of the accessory obligation does not carry with it that of the
principal obligation. Consequently, merger which takes place in the person of the
guarantor, while it extinguishes the guaranty, leaves the principal obligation in force.
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.

CONFUSION IN JOINT OBLIGATIONS

Confusion which takes place in one of the debtors shall only refer to the share which
corresponds to him. Consequently, there is a partial extinguishment of the debt. The
creditor can still proceed against the other debtors.

Example:
Warren and Gerlie have a joint obligation of 1,000,000 with Cedric. They issued a
promissory note to Cedric, and later on, Cedric endorsed it to Edlyn. A few days later, Edlyn
also endorsed the promissory note back to Gerlie. In other words, Warren would still have a
debt of 2.5M with Cedric, and Gerlie's obligation is extinguished. In a joint obligation, the debts
are distinct and separate from each other.

CONFUSION IN SOLIDARY OBLIGATIONS

The provision of Art. 1215 shall apply: the entire obligation is extinguished, without
prejudice to the rights and obligations of the solidary creditors and solidary debtors among
themselves.

Example:

There are three friends, Shayne, Gerlie, and Dave, they decided to rent an apartment
together. They sign a lease agreement with the landlord, and each of them agrees to be jointly
liable for the entire rent. This means that they are solidary debtors. Each of them are supposed
to contribute one-third of the rent every month. One month, due to unforeseen circumstances,
Gerlie is unable to pay her share. In this case, Landlord demanded the full rent payment and
Dave pays it, and now the landlord cannot come after Shayne and Gerlie.

Even though the rent now is fully paid, the obligations of Gerlie and Shayne are not
extinguished. Dave can still demand reimbursement from Gerlie and Shayne for their shares of
the rent. If Shayne and Gerlie refuse to pay, Dave can take legal action against either of them to
recover their respective shares.

In this case, even though the entire obligation (rent) was extinguished when Dave paid the full
amount, the rights and obligations among the solidary debtors (Shayne, Gerlie, and Dave) still
exist. The provision ensures that the paying party (Dave) has recourse to recover the shares
from the other solidary debtors (Gerlie and Shayne).
 SECTION 5 - COMPENSATION
ARTICLE 1278. Compensation shall take place when two persons, in their own right,
are creditors and debtors of each other.

Compensation – is the extinguishment to the concurrent amount of the debts of two persons
who, in their own right, are debtors and creditors of each other.

Example: Warren owes Gerlie 1000. Then Gerlie also owes Warren 700. Both debts are due
and payable today. Compensation takes place partially, that is to the concurrent amount of 700.
So, Warren shall be liable to Gerlie for only 300.

Kind of compensation
(1) By its effect and extent:
(a) Total - when both obligations are of the same amount and are entirely
extinguished
(b) Partial - when the two obligations are of different amounts and a balance
remains. (extinguished lang yung smaller amount tapos yung bigger matitira yung
balance)
(2) By its cause or origin:
(a) Legal – when it takes place by operation of law even without the knowledge of
the parties
(b) Voluntary – when it takes place by agreement of the parties
(c) Judicial – when it takes place by order from a court in a litigation
(d) Facultative – when it can be set up only by one of the parties
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;
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 Legal Compensation

1. The parties are principal creditors and principal debtors of each other
Example: Warren owes Gerlie 1000. Then Gerlie also owes Warren 1000. Both
debts are due and payable today. Compensation takes place because Warren and
Gerlie are principal creditors and debtors of each other.
2. Both debts consist in a sum of money, or of consumable things of the same kind and
quality
Example: Abby owes Sandy any horse. Later on, Sandy also owes Sandy any
horse. Compensation will take place in this case, although the things due are not
consumable since the things due are of the same kind (as to their quality)
3. The two debts are due and demandable
Example: Warren owes Gerlie 1000 that is due on dec 25. While Gerlie also owes
Warren 1000 that is due on Dec 30. Compensation cannot take place as the debts
are not due on the same date.
4. The two debts are liquidated
Example: Warren owes Gerlie 10,000. While Gerlie owes Warren a share on their
business, on which the amount is not yet known. Compensation will not take
place as the debt of Gerlie is not liquidated.
5. No retention or controversy commenced by a third person
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.

Compensation benefits guarantors

Example:
Gerlie owes Shayne 10,000, with Dave as the guarantor. Shayne, on the other
hand, owes Gerlie 3,000. If Gerlie cannot pay, as Gerlie's guarantor, Dave now has the
obligation to pay Shayne 7,000. The remaining 3,000 debt that Shayne owes Gerlie may
be offset and become a benefit to the guarantor (compensation takes place).

ARTICLE 1281. Compensation may be total or partial. When the two debts are of the
same amount, there is a total compensation.

ARTICLE 1282. The parties may agree upon the compensation of debts which are not yet
due.

Voluntary Compensation

- Includes any compensation which takes place by agreement of the parties even if
all the requisites for legal compensation are not present

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

- A compensation which is declared by a final judgment of a court in a suit. A party may

compensate his claim for damages against his obligation to the other party by proving
his right to said damages and the amount thereof.
Example:

Warren owes Cedric 10,000. When Cedric demanded payment, Warren failed to pay. In
anger, Cedric damaged the property of Warren to the extent of 8,000. Warren can judicial/set off
the obligation of Cedric to pay him damages in the amount of 8,000 against his debt of 10,000.

ARTICLE 1284. When one or both debts are rescissible or voidable, they may be
compensated against each other before they are judicially rescinded or avoided.

Example:

Darren owes Chen 10,000. Subsequently, Darren through fraud, was able to make Chen
sign a promissory note that Chen is indebted to Darren for the same amount. The debt of
Darren is valid but that of Chen is voidable. Before the debt of Chen is nullified, both debts may
be compensated against each other if all the requisites for legal compensation are present.
Suppose Chen’s debt is later on annulled by the court, Darren will still be liable to Chen as if
there had been no compensation.

ARTICLE 1285. 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 the compensation
which would pertain to him against the assignor, unless the assignor was notified
by the debtor at the time he gave his consent, that he reserved his right to the
compensation.
If the creditor communicated the cession to him but the debtor did not consent thereto,
the latter may set up the compensation of debts previous to the cession, but not of
subsequent ones.
If the assignment is made without the knowledge of the debtor, he may set up the
compensation of all credits prior to the same and also later ones until he had
knowledge of the assignment.

3 cases where compensation has taken place AFTER assignment

● Assignment with the consent of debtor – debtor cannot set up compensation against the
assignee unless he reserved his right to the compensation.
 ● Assignment with the knowledge but without the consent of debtor – debtor can set up
compensation

● Assignment without the knowledge of the debtor – debtor can set up compensation
when he learned of the assignment

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.

Example:

Warren owes Gerlie 1,000 dollars payable in New York. Then Gerlie owes Warren
50,000 pesos payable in Manila. Whoever claims compensation will be the one to pay for the
expenses of exchange.

ARTICLE 1287. Compensation shall not be proper when one of the debts arises
from a depositum or from the obligations of a depositary or of a bailee in commodatum.
Neither can compensation be set up against a creditor who has a claim for support
due by gratuitous title, without prejudice to the provisions of paragraph 2 of Article
301.

Instances when legal compensation is not allowed by law

(1) Where one of the debts arises from a depositum

- Obligation to safely keeping and of returning the same.

Example:
Peter deposited 100 sacks of rice valued at 10,000 with Sandy. On the
other hand, Peter also owes Sandy 1,000,000. When Peter tried to withdraw the
100 sacks of rice from Sandy, she refused to deliver them. Sandy is claiming
compensation because Peter has a debt to her. This is an obligation arising from
a depositum. Therefore, it is not proper for Sandy to refuse to deliver the sacks of
rice, and compensation is not appropriate.
 (2) Where one of the debts arises from a commodatum
- is a gratuitous contract whereby one of the parties delivers to another something
not consumable so that the latter may use the same for a certain time and return
it.
Example:
Gerlie borrowed a car from Warren, and Warren owes Gerlie 1,000,000.
Later on, Gerlie cannot claim that she will not return Warren's car in the name of
compensation because, according to Article 1287, compensation cannot take
place when one of the debts arises from a commodatum.

(3) Where one of the debts arises from a claim for support due by gratuitous title
- Support comprises everything that is indispensable for sustenance, dwelling,
clothing, medical attendance, education and transportation, in keeping with the
financial capacity of the family.

Example:

Ben is the father of Baby, a minor, who under the law is entitled to be supported
by Ben. Now Baby owes Ben 50,000. Ben cannot compensate for his obligation
to support Baby by what Baby owes him because the right to receive support
cannot be compensated. Ben is not allowed to say to Baby “In as much as you
owe me 50,000, I will not pay your allowance for one year”

ARTICLE 1288. Neither shall there be compensation if one of the debts consists in civil
liability arising from a penal offense.

(4) Where one of the debts consists in civil liability arising from a penal offense

Example:

Darren owes Chen 10,0000. Chen stole Darren's ring worth 10,000. Here,
compensation by Chen is not proper because it consists of civil liability which is stoling.
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.

Example:

Arrin indebted to Ben in the amount of:

1. 10,000 without interest due today
2. 10,000 wit interest of 18% due also today
Ben also owes Arrin 10,000 due today.

For the purpose of the application of payment, Arrin is the debtor. He must
specify to Ben which of the 2 debts should be compensated. If he fails to inform Ben, then the
latter should apply the compensation to the second obligation of Arrin because it is the most
onerous obligation.

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.
 SECTION 6 - NOVATION
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 – is the extinction of an obligation through the creation of a new one which substitutes
it.
Dual function of novation – it is a contract containing two stipulations: one to extinguish an
existing obligation, the other to substitute a new one in its place. It operates as a relative
extinction only.

Kinds of Novation
(1) According to origin:
(a) Legal – takes place by operation of law
(b) Conventional – takes place by agreement of the parties
(2) According to how it is constituted:
(a) Express – declared in unequivocal terms
(b) Implied – when the old and new obligations are essentially incompatible with
each other
(3) According to extent:
(a) Total or extinctive –when the old obligation is completely extinguished
(b) Partial or modificatory – when the old obligation is merely modified
(4) According to subject:
(a) Real or objective – when the object or principal conditions are changed.
Example: Warren obliged himself to deliver to Gerlie a Toyota Vios. But they
change their mind that instead of delivering a Toyota Vios, Warren has now to
deliver Toyota Fortuner.
(b) Personal or subjective – when the person of the debtor is substituted and/or
when a third person is subrogated in the rights of the creditor.
Example: Warren owes Gerlie 1000. Instead of Warren paying the 1000. Ed pays
for it. The original obligation is extinguished and the new obligation arises.
(c) Mixed – when the object and the debtor or the creditor, or both the parties, are
changed. It is a combination of real and personal novations.
 Example: Warren has to deliver his Vios Car to Gerlie. Instead of him delivering,
Ed now is the one who will deliver his Vios Car to Gerlie. First the object
changed, instead of Warren’s Car it’s now the car of ed. Then second, instead of
Warren having an obligation, now it was extinguished and a new obligation arises
which is now Ed has to deliver his Vios car to Gerlie.

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:
● The existence of previous valid obligation
● Capacity and intention of the parties to modify or extinguish the obligation
● The modification or extinguishment of the obligation
● The creation of a new valid obligation

All about Express or Implied Novation

Express - declared in unequivocal terms
Example:
Pedro owes Gerald 500,000, evidenced by a promissory note. Later,
Pedro borrows another 500,000 from Gerald. By mutual agreement, they
consolidated Pedro's two debts into one promissory note. Instead of issuing
another promissory note for the additional 500,000, Pedro issued a single
promissory note worth 1,000,000. This extinguished the first valid obligation of
Pedro, and they agreed to create a new valid obligation, which is the
consolidated promissory note.

Implied - incompatible with each other. Making substantial changes.

Example:

Zandrick agreed to construct a house on a certain parcel of land.

Subsequently, Zandrick agreed to construct an apartment on the same parcel of
land. The area of the land is such that both the house and the apartment as per
the building plans cannot be constructed on the same site.
 There is a novation in this case even in the absence of an express
agreement to that effect because the two obligations are absolutely incompatible
with each other.

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 or Substantive Novation

(1) Substitution (Passive) - when the person of the debtor is substituted
- Passive

(2) Subrogation (Active) - when a third person is subrogated in the rights of the creditor
- Active - right to demand payment or fulfillment of the obligation

Note: This article talks about Passive personal novation (substitution)

Kinds of Substitution

(1) Expromision (initiative comes from the third person) - takes place when a third
person of his own initiative and without the knowledge or against the will of the original
debtor assumes the latter’s obligation with the consent of the creditor. It is essential that
the old debtor be released from his obligation, otherwise, there is no expromission.

Example:

Pedro owes Garry 10,000, due on December 25. Ben (third person)
approaches Garry and expresses that he will assume Pedro's obligation to pay
the 10,000. He says, "I will pay Pedro's debt; consider me your new debtor."
Pedro is to be excused or released from his obligation. Before proceeding, Ben
asks Garry if he agrees. Garry agrees, and now Pedro's obligation is
extinguished because there is consent from Garry (the creditor) for the novation.

Requisites of Expromision:

1. The initiative must come from a third person

 2. The new debtor and creditor must consent
3. The old debtor must be released from his obligation

Note: There is no need for the consent of the old original debtor.

(2) Delegacion (initiatives comes from the debtor) - takes place when the creditor
accepts a third person to take the place of the debtor at the instance of the latter. All the
parties, the old debtor and the new debtor, and the creditor must agree.

Example:

Pedro owes Garry 10,000, due on December 25. Pedro informs Garry
that Ben will be the one to pay his debt, and Garry agrees. At the moment Garry
agrees, Pedro's obligation is extinguished due to the consent of Garry (the
creditor) and the agreement of both the old and new debtors for novation.

Requisites of Expromision:

1. The initiative must come from the old debtor

2. All the parties concerned must consent or agree
3. The old debtor must be released from his obligation

Note: Payment by the new debtor gives him the rights mentioned in Articles 1236
and 1237. (Beneficial Reimbursement & Reimbursement and Subrogation)

ARTICLE 1294. If the substitution is without the knowledge or against the will of the
debtor, the new debtor’s insolvency or non-fulfillment of the obligation shall not
give rise to any liability on the part of the original debtor.

Effect of Insolvency or non-fulfillment by the new debtor in expromision

General Rule: The old debtor is not liable to the creditor in case of the insolvency of the
new debtor. (The old original debtor is not liable because he’s already released from the
obligation.)
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 when said insolvency was already existing and of
public knowledge, or known to the debtor, when he delegated his debt.

Effect of Insolvency by the new debtor in delegacion

- the old debtor is not liable to the creditor in case of insolvency of the new debtor

Except:

1. The said insolvency was already existing and of public knowledge (although it
was not known to the old debtor) at the time of the delegación
2. The insolvency was already existing and known to the debtor (although it was not
of public knowledge) at the time of the delegación.
Example:

Pedro owes Garry 10,000, due on December 25. Pedro informs Garry that Ben
will be the one to pay his debt, and Garry agrees. However, without Pedro's knowledge,
it is publicly known that Garry is already insolvent. In this case, even though Garry has
agreed to the novation with Ben assuming the debt, Pedro remains liable if the new
debtor (Ben) is insolvent.

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.

Effect of novation on accessory obligations

General Rule: Extinguishment of the principal obligation carries with it that of the
accessory obligations.

Example:

Warren owes Gerlie 1,000,000 with Shayne as the guarantor. However, now
Warren informs Gerlie that Dave will be the one to pay his debt. With Dave as the new
debtor, Warren's obligation is now extinguished, and Shayne's obligation as a guarantor
is also extinguished.
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.

Effect when the new obligation is void

- If the new obligation is not valid it is void, then the old obligation shall subsist.

Effect when the new obligation is voidable

- If the new obligation is voidable, then it is valid until annulled. If it is annulled, then the
novation will not take place.

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.

Effect if the old obligation is void or voidable

- If the original obligation was void, then the novation is void.

- If the original obligation was voidable only, a valid novation can take place until 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.

Effect if the original obligation is conditional

- If the old obligation was subjected to suspensive or resolutory condition, then 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

- It is the substitution of one person in the place of another with reference to a lawful claim
or right, so that he who is substituted succeeds to the right of the other in relation to
a debt or claim, including its remedies and securities. It places the party subrogated
in the shoes of the creditor, and he may use all means which the creditor could employ
to force payment.

- Third person is put into the shoes of a creditor, he can get the rights also, proceeds
against guarantor, possession of mortgages and so on.

Kinds of Subrogation

(1) Conventional - when it takes place by express agreement of the original

parties and the third person. (need to be clearly establish)

(2) Legal - when it takes place without agreement but by operation of law

ARTICLE 1301. Conventional subrogation of a third person requires the consent of the
original parties and of the third person.

- Consent of all the parties are required in conventional subrogation.

1. Debtor – because he becomes liable under the new obligation to a new creditor
2. Old or original creditor – because his right against the debtor is extinguished.
3. New creditor – because he may dislike or distrust the debtor.
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.

Examples:

(1) Pedro has debts to both Bianca and Gaby. Bianca is a mortgage creditor, and he
owes her 1,000,000, while Gaby is an ordinary creditor, and he owes her
500,000. Without Pedro's knowledge, Bianca pays Gaby, but she still retains the
right to subrogation, and she now becomes both a mortgage and an ordinary
creditor. (Note: With or without the debtor's knowledge, there is still a chance of
subrogation.)

(2) Pedro owes Gaby 1,000,000 with a secured mortgage that is due on Dec 25.
Afterwards, Bianca went to Gaby to pay the 1,000,000, with Pedro's consent. In
this case, Bianca is subrogated to Gaby's rights, so if the debt includes
mortgaged property, Bianca now has the right to foreclose the mortgage if Pedro
cannot reimburse.

However, if Bianca pays Pedro's debt to Gaby without Pedro's consent, Bianca
cannot foreclose the mortgage property because there is no legal subrogation.
She can only have Beneficial Reimburse (Note: The third person needs to pay
with the express or tacit approval of the debtor to have legal subrogation.)

(3) Pedro owes Gaby 10,000 with a secured mortgage and guaranteed by Bianca. If
Bianca pays Gaby, even without Pedro's knowledge, Bianca still subrogates the
right of Gaby. Because as a guarantor, she is interested in the payment/fulfillment
of the obligation. (Note: The guarantee is extinguished due to confusion)
ARTICLE 1303. Subrogation transfers to the person 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

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.