Buslaw 1

De La Salle University
Comlaw Department
Obligations and
Contracts
Book IV, New Civil Code
Title 1, Chapter 4[S2]
Loss of the Thing Due
SECTION 2. – Loss of the Thing Due
ARTICLE 1262. An obligation which consist 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
obligation requires the assumption of risk.

Requisite for Loss of the Thing Due to Extinguish the Obligations

1. The obligation is to deliver a specific thing
2. The loss of the thing occurs without the fault of the debtor; and
3. The debtor is not guilty of delay
SECTION 2. – Loss of the Thing Due
ARTICLE 1263. In an obligation to deliver a generic thing the loss or
destruction of anything of the same kind does not extinguished the
obligation.

This is based on the principle that the class of things never dies. In the event that it
does, then the last of the class becomes a determine object if possible.

ARTICLE 1264. The court shall determine whether, under the circumstances,
the partial loss of the object of the obligation is so important as to extinguish
the obligation.

Partial loss means that a portion of the object has been lost or that the object has been
damaged prior to delivery. The court shall decide whether the loss extinguishes the
obligation.
SECTION 2. – Loss of the Thing Due
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 a proof to
the contrary, and without prejudice to the provisions of article 1165. This
presumption does not apply in case of earthquake, flood, storm, or other
natural calamity.

This presumption is made because the debtor has to show that the appropriate diligence
had been exercised in the care of the object to be delivered.

ARTICLE 1266. The debtor in obligations to do shall also be released when

the prestation becomes legally or physically impossible without he fault of
the obligor.
Legal Impossibility – when the law makes the obligation impossible to perform
Physical Impossibility – Loss or becomes prohibitive
SECTION 2. – Loss of the Thing Due
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.
Circumstances may make the service manifestly beyond the contemplation of the parties may be
considered loss of the thing due even if the “service” can be considered generic.

ARTICLE 1268. When the debt of a thing certain and determinate proceeds from a
criminal offense, the debtor shall not be exempted from he 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.

Loss of the thing due does not exempt criminals from his/her liability to restore to the victim
what was stolen unless the victim had unjustifiably refused to accept the object when offered by
the criminal.
SECTION 2. – Loss of the Thing Due
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 person by reason of loss.

In cases where loss of the thing due extinguishes the an obligation, the creditor acquires
all the rights of redress that the debtor may have had against the ones who caused the
loss of the thing due.

Example: Insurance Claims

Obligations and
Contracts
Book IV, New Civil Code
Title 1, Chapter 4[S3]
Condonation or Remission of the Debt
SECTION 3. – Condonation
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 governs
inofficious donations. Express condonation shall, furthermore, comply with
the forms of donation.

Condonation is the gratuitous waiver by the creditor of his rights against the debtor.

Etymology: “Con” and “Donation”

While a person may make donations, no one can give more than that which he can give
by will, otherwise, the excess shall be inofficious and shall be reduced by the court
accordingly.
SECTION 3. – Condonation
Requisites of Condonation:
it must be gratuitous;
it must be accepted by the obligor;
the parties must have capacity;
it must not be inofficious; and
if made expressly, it must comply with the forms of donation

Kinds of Condonation:
As to Form
 Express and Implied
As to Extent
 Complete and Partial
As to Date of Effectivity
 Inter Vivos or Mortis Causa
SECTION 3. – Condonation
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 providing that the delivery of the
document was made in virtue of payment of the debt.

NOTE : Note that this article speaks of a private document. The legal
presumption of remission does not apply in the case of a public document
because it is easy to obtain a copy of the same, being a public record

If the obligation is joint, the presumption of remission pertains only to the share of the
debtor who is in the possession of the document; if solidary, to the total obligation
SECTION 3. – Condonation
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.

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 a third person who owns the thing.

The last two articles refers to presumptions in condonation similar to Art. 1271
Obligations and
Contracts
Book IV, New Civil Code
Title 1, Chapter 4[S4]
Confusion or Merger of Rights
SECTION 4. – Confusion
ARTICLE 1275. The obligation is extinguished from the time the characters
of creditor and debtor are merged in the same person.

Confusion or Merger of Rights 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
Of the same obligation
It must be complete and definite

Issued a Endorsed to Endorsed to

James Negotiable Dan Jen Ger
PN to
Endorsed to
SECTION 4. – Confusion
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.

Only the Merger in the person of the principal debtor or creditor extinguishes the
obligation. Merger of accessory or subsidiary parties may extinguish the accessory or
subsidiary obligation but not the principal obligation.

ART. 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.

Nature of Joint Obligation. Rule is different in Solidary Obligations.

Obligations and
Contracts
Book IV, New Civil Code
Title 1, Chapter 4[S5]
Compensation
SECTION 5. – Compensation
ARTICLE 1278. Compensation shall take place when two person, in their
own right, are creditor 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

Owes P50,000.00
Compensation to
James the extent of Dan
P40,000
Owes P40,000.00

Compensation may be partial or total depending on the amounts of the

concurring debts.
SECTION 5. – Compensation
Kinds of Compensation:
As to cause or origin:
Legal – when it takes place by operation of law even without the knowledge of the
parties
Voluntary – when it takes place by agreement of the parties
Judicial – when it takes place by order from a court in a litigation
Facultative – when it can be set up only by one of the parties

As to extent or effect
Total – extinguishes the entirety of both concurring debts.
Partial – extinguishes the smaller of the concurring debt but the balance of the larger
debt remains subsisting.
SECTION 5. – Compensation
ARTICLE 1279. In order that compensation may be proper, it is necessary:
1. That each of the obligors be bound principally, 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 thing due are
consumable, they be of the same kind, and also of the same quality if the
latter had 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.

This article enumerates the requisites for Compensation to take place.

SECTION 5. – Compensation
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.

Note: This article is an exception to the general rules that only the principal debtor
can set up to his creditor what the latter owes him.

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

Total compensation results when the two debts are of the same amount; if they are of
different amounts, compensation is total as regards the smaller debt, and partial only
with respect to the larger debt
SECTION 5. – Compensation
ARTICLE 1282. The parties may agree upon the compensation of debts
which are not yet due.

In compensation, even obligations not yet due may be compensated by agreement of the
parties.

ARTICLE 1283. If one of the parties to a suit over an obligation has a claim
over the damages against the other, the former may set it off by proving his
right to said damages and the amount thereof.

Compensation may take place when so declared by the final judgment of a court in a
suit.

In simple terms, Art. 1283 refers to situations where a party can offset his/her claim for
damages from the other party with any receivables due to the other party
SECTION 5. – Compensation
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.

Recissible or Voidable Obligations are defective obligations that remain valid and
subsisting until rescinded or voided.

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 been notified by the debtor at the time he gave his
consent, that he reserved his rights 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.
SECTION 5. – Compensation
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 latter ones
until he had knowledge of the assignment.
This Article refers to instances where one of the concurring debts have been assigned
by a creditor to a third party.
Compensation can only take place if the right to compensation was reserved.

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.
Compensation is automatic and takes place by operation of law
Different places of payment is not a hindrance to compensation of mutual obligations
SECTION 5. – Compensation
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.

ARTICLE 1288. Neither shall there be compensation if one of the debts

consists in civil liability arising from a penal offense.
Depositum or Deposit is a contract where a person receives a thing belonging to
another with the obligation of keeping it safe and returning the same back.
Commodatum is a gratuitous contract where a person delivers to another something
not consumable so that the latter may use it and then return the same later.
SECTION 5. – Compensation
The previous two Articles refers to instances where Compensation cannot take place
because the obligations mentioned above are incompatible with a regular obligation to
pay a sum of money for one reason or another.

INSTANCES WHEN LEGAL COMPENSATION IS NOT ALLOWED BY LAW:

Where one of the debts arises from a depositum
Where one of the debts arises from a commodatum
Where one of the debts arises from a claim for support due by gratuitous title
Where one of the debts consist in civil liability arising from a penal offense
SECTION 5. – Compensation
ARTICLE 1289. If a person should have against him several debts which are
susceptible of compensation, the rules on the application of payments shall
apply to the order of the compensation.

Compensation is similar to payment and follows the same rules in application of

payment

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.

This is the provision that declares that compensation is theoretically automatic and does
not need the consent of the parties for it to take place provided the requisites under
Article 1279 are present.
Obligations and
Contracts
Book IV, New Civil Code
Title 1, Chapter 4[S6]
Novation
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
substitute it.
In effect, in Novation there are actually 2 stipulations:
 Extinguish the original obligation
 Replacing the original obligation with a new obligation.
SECTION 6. – Novation
Requisites of Novation

1. a previous valid obligation;

2. capacity and intention of the parties to modify or extinguish the obligation;
3. the modification or extinguishment of the obligation; and the creation which consist
in the 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.

Kinds of Novation

1. According to origin:
a) Legal – that which takes place by operation of law
b) Conventional – that which takes place by agreement of the parties
SECTION 6. – Novation
Kinds of Novation

2. According to how it is constituted:

a) Express – when it is so declared in unequivocal terms
b) Implied – when the old and the 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 modifiacatory – when the old obligation is merely modified

4. According to subject:
a) Real or objective - when he object or the principal conditions are changed
b) Personal or subjective – when the object or principal conditions are changed
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 novation
SECTION 6. – Novation
ARTICLE 1292. In order that an obligation may be extinguished by another
which substitute the same, it is imperative that it is so declared in
unequivocal terms, or that the old and the new obligations be on every point
incompatible with each other.

Novation can never be implied.

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.

Personal Novation
 Substitution – when the person of the debtor is substituted
 Subrogation – when the third person is subrogated in the rights of the creditor
SECTION 6. – Novation
Kinds of Substitution (Creditor consent is necessary)
Expromision – takes place when a third person assumes the obligation of the debtor
without the knowledge or consent of the original debtor. (Art. 1293-1294)
Delegacion – takes place when a third person assumes the obligation of the debtor
with the consent of the original debtor. (Art. 1295)

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.

This is the risk of the creditor in the case of Expromision!!

SECTION 6. – Novation
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.

In Delegacion, the responsibility of the original debtor would subsist if the

insolvency of the new debtor was already known when the novation took place.
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.

Same as article 1230, 1273, 1280

SECTION 6. – Novation
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.

This stresses as one of the essential requirement for a novation, to wit; the new
obligation must be valid.

ARTICLE 1298. The novation is void if the original obligation is void, except
when annulment may be claimed only by the debtor, or when ratification
validates acts, which are voidable.

a void obligation cannot be novated because there is nothing to novate

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.
SECTION 6. – Novation
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.

Kinds of Subrogation
Conventional – when it takes place by the express agreement of the original parties
and the third parties
Legal – when it takes place without agreement but by operation of law

ARTICLE 1301. Conventional subrogation of a third person requires consent

of the original parties and of the third person.
SECTION 6. – Novation
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
fulfilling the obligation pays, without prejudice to the effects of confusion as to
the latter’s share.

These are the instance where there is Novation by operation of law and requires no other
participation from the parties.
SECTION 6. – Novation
ARTICLE 1203. 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.
In Subrogation, the new creditor essentially steps into the shoes of the old creditor.
But this may be modified by the stipulations of the parties.

ARTICLE 1204. A creditor, to whom partial payment has been made, may
exercise his rights for the remainder, and he shall be preferred to the person
who has been subrogated in his place in virtue of partial payment of the
same credit.
Buslaw 1
Study Guide
MODIFIED TRUE OR FALSE
1. Loss of the thing due will always extinguish an obligation provided the
debtor was not at fault or in delay.
2. If a thing is only damaged, it can still be considered lost
3. If the location of the thing is known, the thing cannot be considered lost.
4. If a thing is lost in the possession of the debtor, the loss cannot be presumed
to have been lost with the fault of the debtor because of presumption of
innocence unless proven otherwise.
5. Loss of the thing during a calamity is presumed to be with the fault of the
debtor unless proven otherwise.
6. If a thing is lost by fortuitous event, creditor can no longer run after any
other person to ask for damages or recover what was lost.
7. Condonation is extinguishing an obligation by donation.
MODIFIED TRUE OR FALSE
8. Because condonation is made by condoning the obligation, it must always
be expressly made.
9. If a person to whom a check is delivered tears the check, it is considered an
act of condonation.
10. Condonation must be accepted by the debtor to be valid.
11. Confusion occurs when parties cannot ascertain the nature of the obligation
which extinguishes the obligation.
12. Confusion occurs when a party is both debtor and creditor in the same
obligation.
13. Confusion occurs when a party is both a debtor and creditor in an
obligation.
14. Confusion in one party of a joint obligation cannot extinguish an obligation.
MODIFIED TRUE OR FALSE
15. Compensation normally occurs when two people owe each other .
16. Compensation must always be total to extinguish an obligation.
17. Compensation may be partial.
18. Criminal liability can be offset by a debtor with an existing debt owed by
the victim to the offender.
19. Debts which are not yet due cannot normally be the subjected to
compensation
20. An object in a contract deposit cannot be subjected to compensation by the
person in possession of the object.
21. Objects of a voidable contract cannot be subjected to compensation by the
parties because the contract can be annulled.
MODIFIED TRUE OR FALSE
22. An obligation to support cannot be compensated for a debt.
23. Compensation can be subjected to application of payment.
24. Novation is a two stage extinguishment. Creation of an obligation and
extinguishing the old obligation.
25. Subrogation is an example of novation.
26. Rescissible obligations cannot be novated.
27. An obligation cannot be impliedly novated by the parties.
28. Novation of the contract needs the consent of both parties for it to
extinguish an obligation.
29. Void obligations cannot be novated.
30. A void obligation cannot be used to extinguish a valid obligation.
ENUMERATIONS/DEFINITIONS
1. What are the requisites of loss of the thing due to extinguish an obligation?
2. What are the kinds of impossibility?
3. Define condonation.
4. What are the requisites of condonation?
5. What are kinds of condonation as to date of effectivity?
6. Define confusion.
7. What are the requisites for confusion?
8. Define compensation.
9. What are the kinds of compensation as to origin?
10. What are the requisites for compensation to be proper?
ENUMERATIONS/DEFINITIONS
11. When can compensation not be allowed by law?
12. Define novation.
13. When does novation occur?
14. What are the kinds of novation as to subject?
15. What are the kinds of personal novation?
16. What are the kinds of substitution of debtors?
17. When is legal subrogation presumed?
PROBLEM SOLVING
Problem 1. – Daniel owed James a P50,000 for which he issued a check payable
to the order of Cash to James for the said amount. As it turned out, James owed
Mike an amount of P50,000 and to pay this amount to Mike, James gave Mike
the check that Daniel gave to him. Mike on the other hand owed Daniel P50,000
and seeing that the check that Mike has was signed by Daniel, Mike gave the
check to Daniel and called the obligation quits.
When Daniel issued to James the check in payment of his obligation, was
Daniel’s obligation extinguished? Justify.
When James gave the check to Mike, did Mike become Daniel’s creditor and
as such can extinguish the obligation he had with Daniel but compensation?
Justify.
Was Daniel’s obligation extinguished by payment, by confusion or by
compensation? Justify
PROBLEM SOLVING
Problem 2. – Mitchie promised to give to Monmon P20,000 next Wednesday.
On due date Mitch realized that Monmon needed and really wanted to get a
new cellphone. But when she looked for Monmon, she discovered that
Monmon had gone to Cebu and would be back in town only by Friday. So
Mitchie decided to buy a P20,000 top of the line cellphone and decided to give
the phone as payment to Monmon.
 Is Mitchie’s obligation to Monmon extinguished by Dacion en Pago? Justify.
Is Mitchie’s obligation extinguished by Novation? Justify.
Is Mitchie’s obligation extinguished? Justify.
Buslaw 1