Chapter 4: Extinguishment of Obligations mga deposits pending liquidation and settlement of any other oblis of the

bank which they are now prohibited bc they are under receivership
Art. 1231. Obligations are extinguished: (controlled ng central bank). It took time for the receivership to end, years.

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(1) By payment or performance: Fortunately nabayaran naman ung depositors after 10 years. The amounts

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(2) By the loss of the thing due: they got did not carry the interest pertaining to the period when the bank was

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(3) By the condonation or remission of the debt; asked/ordered to close until the time depositors got their money. Sinisingil
(4) By the confusion or merger of the rights of creditor and debtor; nila yun ngayon. Di daw sinama sa bayad ung interest.

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(5) By compensation;
(6) By novation. Issue: Does bank still have obli to pay interest?
001: Other causes of extinguishment of obligations, such as annulment,

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rescission, fulfillment of a resolutory condition, and prescription, are Held: NO. BC the bank was ordered to cease and desist they are therefore
governed elsewhere in this Code. (1156a) excused the institution/bank from paying the obli/ interest incurred. This is a
xxx mode of extinguishing an obligation by jurisprudence. A bank’s obli to pay

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interest to depositors is extinguished. This case was cited in Filinvest Inc. in

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This is not an exclusive enumeration. There are several other 3 of their cases involving an asian crisis. They claimed that they be
modes/methods of extinguishing obligations. exempted to pay their clients who have made their payments BUT SC did
not agree. This ruling is only applicable to BANKS and their obli to pay

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Most of textbooks provide for a complete enumeration of diff types of oblis: interests that should have been paid for from the time that they were asked
Manresa, De leon, Jurado, Caguioa and Tolentino. to cease and desist from operating until that they are able to release the

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money of their depositors.
Mentioned ni Dean: Voluntary causes, performance, payment and

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consignation, substitution of performance, compensation, dacion en pago, Dean: Pag nangutang ka for negosyo, pero nalugi negosyo mo, dahil don di
novation, assignment in favor of creditors by release of agreement, ka nakabayad sa bank. Ang bank ba mawawalan din karapatan na singilin
agreement subsequent to constitution of obligation, mutual desistance, interest sa inutang mo? HNDE. Sinisingil parin daw ng banko.
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unilateral waiver, remissions, agreement simultaneous constitution (?),
resolutory, involuntary causes. 002: There are 10 but only 6 are defined and governed in Chapter 4. The
others are governed elsewhere.
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***Look these up daw sa ibang book***

Even jurisprudence may provide for a new method of extinguishing an In the bar, they ask about this and novation. The rest, we wont be discussing
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obligation. exhaustively.

EX. Overseas Bank of MNL vs CA 1. Payment or Performance

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Here, SC came out with another mode of extinguishing obli referring to the This is the only mode that Dean refers to as ordinary means by which the
obli of a bank to pay interest to its bank depositors. Jurado and Caguioa and parties expect the obligation to be extinguished or manner by which D is to
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Dean do not agree to this ruling. Halatang kinampihan lang ung bank. be released from the juridical tie.
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Facts: Overseas Bank bc of the fault of mismanagement, pinasara siya The ordinary / expected means: At the moment the obli is constituted, both C
temporarily by central bank of the PH. May mga depositors di nakuha yung and D expect their relationship to be severed, to be extinguished only by

Badillo, Firaza, Gutierrez, & Mechure

payment/ performance. The other modes are extinguished with Payment not just means delivery of a sum of money, but also a thing
supervening events (events that in a way, may have lead to an whether generic or specific. Performance will not just be limited to doing a
extinguishment other than P&P) positive act or negative act, but also an obligation not to do.

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1ST ASK: WHAT IS THE CONCEPT OF PAYMENT/PERFORMANCE? The law requires it to be broad enough to cover fulfillment of all types of

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prestation of an obligation.
2ND: HOW DO YOU MAKE P&P? (1244-1246 Table)

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The manner (pay and perform) is the only way by which D may compel C to 006: HOW IS THE MANNER OF PAYMENT?
release him from juridical tie.
Remember the table and thorough explanation on manner of fulfilling diff

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3RD: WHO IS TO MAKE PAYMENT/PERF? types of prestation in relation to Chap 2.
The law identifies persons who are to make payment. This is important bc if
you are to find out that a party who is not identified by law, who could make Why is it important to strictly in accord with how? That is to create obli of C

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payment even if such payment was in accordance to how, C may opt not to to accept such payment and release D from tie.

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accept. It has to be by the WHO ang magpapay.
HOW?
4TH: TO WHOM PAYMENT SHOULD BE MADE?

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If you pay someone who is not identified by law to whom payment should be Presentation to give specific:
made, di maeextinguish ang obligation mo noon. May utang ka sakin, pero ● Art. 1244. Par. 1. The debtor of a thing cannot compel the creditor

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ang binayaran mo sarili mong asawa. NOT RIGHT! to receive a different one, although the latter may be of the same
value as, or more valuable than that which is due

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5TH: WHERE SHOULD PAYMENT BE MADE?
Ex. D wants to pay C sa bahay nya kasi may covid pa. Ayaw ni C dapat sa Prestation to give generic:
bahay nya. How do we resolve this issue? IT will be discussed further. ● Art. 1246. When the obligation consists in the delivery of an
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indeterminate or generic thing, whose quality and circumstances
004 (1): WHAT IS THE CONCEPT OF P&P? have not been stated, the creditor cannot demand a thing of
superior quality. Neither can the debtor deliver a thing of inferior
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Art. 1232. Payment means not only the delivery of money but also the quality. The purpose of the obligation and other circumstances shall
performance, in any other manner, of an obligation. (n) xxx be taken into consideration. (1167a)
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NOTE: When we talk of P&P, it should not be referred to in its Prestation to do (Personal) Positive / Negative:
limited/common concept. Pag sinabing payment, sum of money BUT rather ● Art. 1244. Par. 2. In obligations to do or not to do, an act or
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it should be considered to be broad enough to cover all the normal forbearance cannot be substituted by another act or forbearance
ways of fulfilling any prestation of an obligation whether to give money or against the obligee's will. (1166a)
to give generic or specific objects. It even refers to a fulfillment of an obli to
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do or not to do. These are GENERAL RULES in regard to proper P&P.

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THREE (3) REQUISITES FOR A VALID P&P:

1. Integrity

Badillo, Firaza, Gutierrez, & Mechure

 2. Identity naman significant na. It Is trivial. Maliit na lang naman yung kulang. Pag
3. Indivisibility malaki yung deperensya or kualng, hindi ito substantial performance.

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007: Nantitrip lang si Dean dito. Yung 3 “I”s.

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Requisites of Substantial Performance:

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004: INTEGRITY ● The deficiency should not be significant.
● Debtor must be in good faith

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INTEGRITY: Requires “COMPLETENESS”.
1st requisite EX. Dean should deliver 1000 dressed chickens to you. Dapat
Art. 1233. A debt shall not be understood to have been paid unless the thing bibihisan niya yung manok na kinatay in 3 piece: shirt, vest, tie (LOL)

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or service in which the obligation consists has been completely delivered or
rendered, as the case may be. (1157) The completeness of this: 1000 dapat and dressed lahat.

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EX. IF Dean is to pay P100K, he is to pay it in complete P100K. If Dean is to However, Dean was not able to fulfill nakulangan ng 50 chickens. Bali 950

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deliver a horse, he must deliver the entire horse, not just the tail, hoops. If a lang yung nagawa.
car, he is to give the entire car, not just wheels. If he is to paint your portrait,
dapat full/whole portrait not just your nose, tongue, or hair. Can Dean compel you to accept this kahit kulang? Eh requirement nga yung

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completeness sa integrity.
Unless D is able to comply with integrity (complete), the Creditor or C, can

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refuse. Pag nagbayad lang si Dean ng P50K utang pero P100k dapat, that is Ask first: is the deficiency or kakulangan, insignificant or trivial? Dean says
not complete. You should not be forced to accept an incomplete P&P. yes. Pwede na yan kahit kulang ng 50. Pasado na sa 1st requisite.

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The issue: Is this an ABSOLUTE RULE? When do you know if the deficiency is insignificant? It will depend on
Does that mean if D does not comply with integrity, in all cases, there can be each and every obligation. In this case, 50 nalang yung kulang out of 1000.
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no way by which C can be compelled to accept and release D from the tie? BUT if 50 yung kulang out of 100, considered significant yung deficiency kasi
kalahati ng 100 yung kulang. Hindi pasado sa 1st requisite.
TWO (2) EXCEPTIONS TO INTEGRITY: or instances when although
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integrity or completeness is not complied by D, still it could result to Good faith - Means that Debtor has exercised all efforts to really complete
extinguishment of obligation or acceptance by C- Creditor: the payment / performance pero unfortunately due to circumstances beyond
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control, napigilan yung kanyang pag complete ng P&P.

(1) Substantial Performance: 2nd requisite EX. In the recent example, napigilan yung pagfulfill dahil may
covid at bawal lumabas kaya di mo na-complete. You are in good faith.
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Art. 1234. If the obligation has been substantially performed in good faith,
the obligor may recover as though there had been a strict and complete Can Dean now compel you to accept the 950 dressed chickens when the 2
fulfillment, less damages suffered by the obligee. (n) requisites of substantial performance were met? YES! Apply substantial
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compliance.
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There is what you call fulfillment, delivery and performance but in substantial
performance, it's not complete. However, yung incompleteness nya ay di In this regard, what does “less damages suffered by the obligee” mean
in Article 1234?

Badillo, Firaza, Gutierrez, & Mechure

 mukhang zombie mukha.Still, it is irregular. No need to establish such
This refers to reciprocal obligations. Go back to the case of 1000 deficiency, or irregularity to be insignificant. It may be substantial, a defect or
chickens, binili mo yung dressed chickens for P100K. But Dean delivered substantial deficiency.

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950 only so P95K nalang yung bayad ofc. Dean cannot require P100K kasi

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di naman complete yung 1000 chickens. Pwede mo tanggapin yung 950 The most important thing is that notwithstanding such obvious deficiency,

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chickens pero di pwedeng i-require ka to pay P100K. Ibabawas syempre such grave, obvious irregularity in the fulfillment, YOU as a Creditor still
yung halaga ng kulang. Common sense hehe. This is the meaning of “less accepts it without objection or reservation to go after the deficiency or the

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damages suffered by the obligee (buyer)”. right to have you fix the defects or remedy it in the fulfillment.

(2) Estoppel: In short, hindi ka nagreklamo. Hindi ka nagsabe ng “ay mali ito”, “kulang ito”.

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Or “ayusin mo ito.” Pero ang sinabi mo “okay na ito”. Salamat. That is where
Art. 1235. When the obligee accepts the performance, knowing its the principle of Estoppel comes in. The absence of objection / reservation to
incompleteness or irregularity, and without expressing any protest or still enforce the obligation for its completeness and your having manifested

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objection, the obligation is deemed fully complied with. (n) satisfaction and willingness to release the debtor. The debtor relies on that

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manifestation of the Creditor. Okay na pala ito eh, okay na si Creditor dito.
Art. 1431. Through estoppel an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or disproved as Issue: Assuming you are the creditor, and you accepted what Debtor gave

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against the person relying thereon. incompletely, can you still change your mind at bigla mo habulin si Debtor?
NO MORE. You are in Estoppel already.

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Art. 1176. The receipt of the principal by the creditor without reservation with
respect to the interest, shall give rise to the presumption that said interest 1235: No requisite in substantial performance is required. What is only

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has been paid important is that Creditor fails to object or reserve his right, and has
manifestation that he is satisfied and that Debtor relied on this, it is sufficient
009: Application of Estoppel to prove Estoppel.
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Memorize Article 1431. This is the justification of Article 1235. Refer to the
provisions stated in Estoppel. Obligation is deemed EXTINGUISHED.
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1176 and 1235 = 1431 Estoppel Recap: Exception to the rule on integrity: Substantial Performance and
Estoppel.
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BOTH are presumptions that are justified under the principle of Estoppel
010: Illustrative Cases
Distinctions of 1176 and 1235:
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1176: Disputable Substantial Performance:

1235: Conclusive
Diesel Construction inc. vs UPSI Property Holdings Inc.
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How does Estoppel work? Here, Irrespective of the deficiency, whether

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substantial or insignificant, it is NOT a requirement. Even if deficiency is Facts: The owner got this contractor. The contractor has already completed
significant, still the possibility of this provision to apply even if in an obligation 97. 56% of the work expected of him. Now, because there was less than 3%
to perform, to do, it is irregular, halatang mali, panget, paint portrait mo pero that was still unfinished, ayaw tanggapin ng owner yung project.

Badillo, Firaza, Gutierrez, & Mechure

Issue: Can contractor compel owner to accept the project as finished and Obligations to deliver a specific:
release him from the tie? Art. 1244. The debtor of a thing cannot compel the creditor to receive a
Held: Yes. There is substantial compliance and that there was also proof to different one, although the latter may be of the same value as, or more

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show that the failure to complete it was due to some excuses that are valuable than that which is due.

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justified.

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Obligations to deliver indeterminate or generic thing:
Application of Estoppel Art. 1246. When the obligation consists in the delivery of an indeterminate or

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generic thing, whose quality and circumstances have not been stated, the
Manila Int’l Airport vs Velayo 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

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Facts: There was an agreement on the part of the airport authority lessor circumstances shall be taken into consideration. (1167a)
with lessee Ding Velayo, a property located right in front of Terminal 4. Yung
harap na property pinaupa kay Velayo with the agreement that Velayo Obligations to do and not to do:

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should come out with certain specified improvements as lessee. Art. 1244 Par. 2. In obligations to do or not to do, an act or forbearance

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cannot be substituted by another act or forbearance against the obligee's
Velayo was not able to fulfill the required fulfillments, but notwithstanding, will. (1166a)
the airport continued to allow them to use the property and receive rent

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payments from Velayo. EXCEPTIONS TO IDENTITY: Instances where the Debtor does not comply
with identity, still it could result in the extinguishment of obli orthat Creditor is

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After several years, the airport decided to abruptly terminate the contract compelled to accept such payment.
alleging the non-compliance of Velayo of the required improvements.

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THE ONLY EXCEPTION: Facultative Obligations
Issue: Is the Airport right in pre-terminating the contract?
Held: No. SC did not allow that because the airport was already in Estoppel. Art. 1206. When only one prestation has been agreed upon, but the obligor
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They should have raised the issue as soon as they were not complied with may render another in substitution, the obligation is called facultative.
by Velayo but they allowed him and continued to accept his payment.
Facultative Obligations: Obligations where there is a prestation but the
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xxxxxxxxxxxxxx Debtor is given an option to substitute it with another. If the Debtor opts to
fulfill the substitute, mawawala na yung identity. No more identity. This is the
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We go back to the THREE (3) REQUISITES FOR A VALID P&P: only exception.
Integrity: DONE
Identity: EX. Dean promises to deliver to you the cellphone used to video his lectures
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Indivisibility: but at the same time you allow Dean to substitute it with another , modern
and latest iphone.
IDENTITY: Magkamukha dapat. How is it complied with?
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To give: The phone used

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Compliance should be identical with what was described in the ff. To give substitute: latest edition of iphone
provisions:

Badillo, Firaza, Gutierrez, & Mechure

If Dean opts to deliver the latter instead of the former, there is no more EX. Utang na P100K. Dean pays you first P50K and then another P50K.
identity (hence, an exception) and he can compel you to accept because it Complete na. May integrity but done through partial P&P.
is facultative in nature.

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EXCEPTIONS TO INDIVISIBILITY:

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NOTE: Some authors insist on another exception called “Dacion en pago” (1) By agreement, Debtor is allowed to make partial P&P

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but Dean disagrees. (2) Law allows divisibility
(3) Nature itself of obligation will require partial fulfilments

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Dacion en pago: One of the 4 Special Modes of P&P: Application of
payment; Payment by cession; Tender of Payment and Consignation and; Art. 1248. Unless there is an express stipulation to that effect, the creditor
Dacion en pago. cannot be compelled partially to receive the prestations in which the

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obligation consists. Neither may the debtor be required to make partial
Dean’s opinion: If they are to include DEP, then they should also include payments.
the three others.

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In effect with complying with the three Is: Integrity, Identity, and Indivisibility,

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These are referred to as Special Modes of P&P because theses are what are the requisites of a valid P&P?
payments that do not comply with the rule of identity, integrity or indivisibility
and are no longer referred to as P&P (kasi nga special modes na sila) Requisites of a valid P&P:

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(1) Must be complete (INTEGRITY). T
BUT in facultative obligations, it is still P&P. It is not a special mode of (2) Tendered by the proper party.

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payment, rather F.O is still a regular means of fulfilling the obligation except (3) Party must have CAPACITY to pay
that it only did not comply with IDENTITY. (4) Paid to the proper person to whom

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(5) Capacity of the recipient
011: INDIVISIBILITY (6) Identity of the pretation preserved (1244 and 1246)
(7) Made in the proper place
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INDIVISIBILITY: Principle of indivisibility is when the Debtor cannot be
obliged to deliver a part and neither can Creditor be compelled to accept We go now to WHO is to make payment 2 and 3 of the abovementioned
partial fulfillment. enumeration.
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Difference of Indivisibility to Integrity? 012: WHO ARE THE PARTIES TO MAKE PAYMENT?
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Integrity: When not done, kulang, or may deficiency. Art. 1236. Par. 1. The creditor is not bound to accept payment or
performance by a third person who has no interest in the fulfillment of the
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EX. Utang na P100K. Dean pays only P50K. May deficiency in the fulfillment obligation, unless there is a stipulation to the contrary.
and P&P. Not complete. No integrity.
From here, we are led to identify whom. The Creditor be compelled to accept
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Indivisibility: There is complete fulfillment but is done through partial payment from whom?
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payment or performance.
Who are they? Based on 1236.
1. The Principal Debtor or authorized representative

Badillo, Firaza, Gutierrez, & Mechure

 2. A third person who has an interest in the obligation Debtor mo incurred a loan with agreement to pay interest and agreement
3. A designated third person with no interest in obligation BUT was that you be constituted as a surety. Pag di nabayaran ni D and it continues
agreed to by parties from whom the creditor would have to accept. to exist, the interest will pile up and in the end, kung D can’t pay, ikaw ang

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(Agreement should be made PRIOR to fulfillment. May usapan hahabulin. Mas malaki ngayon ang babayaran mo dahil na pile up na yung

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dapat). interest. Mas gugustuhin mo nalang ma extinguish.

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EX. Mr X friend ni Dean sabe ni Dean na tanggapin ni Creditor na
kay Mr X manggaling yung bayad. A guarantor is also someone who can be a third person with material

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interest. He is subsidiary liable. In effect, he can be held liable if Principal D
013: Dean focuses on the second person who shall make payment. is unable to pay C. Kahit subsidiary lang, may interest parin siya. If the
obligation is continued, mag papile up lang din yan. Mas gugustuhin nlng

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2nd Person: A third person who has an interest in the obligation. Who ma-extinguish.
are they?
A third person who may have allowed Debtor to use his property as security

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Accdg to jurisprudence these / they are the parties who do have an interest for Debtor’s obligation.

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in the fulfillment of the obligation. They have an interest in extinguishing
the obligation. EX. Debtor umuutang kay Creditor. Si Creditor na walang confidence
masyado kay Debtor, told him na mag sangla sya ng bahay at lupa as a

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What is the interest referred to here? IT IS NOT A PERSONAL security na mababayaran yung utang. Pero walang bahay at lupa si Debor
INTEREST or some other interest like romantic interest. IT IS A kaya kinausap nya friend nya na may bahay at lupa, kung pwedeng pagamit

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MATERIAL INTEREST. ng titulo, gawing collateral sa inuutang kay Creditor. Pumayag yung friend.

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EX. You have a fiance, na mukhang dalmatian tapos di makabayad ng Would that third party have an interest in the fulfillment of obligation?
utang. Dahil mahal mo yung fiance you have an interest in fulfilling the YES. Kasi if the Debtor does not pay, Creditor will now have a right to
obligation of your fiance. Ikaw ngayon ang nagbabayad sa Creditor ng utang foreclose the property. Mawawalan pa ng property yung friend na 3rdP.
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ng fiance mo.
Applies also to co-owners ng property. Co-owner 1, nangutang. As
Can the Creditor be compelled to accept? No. You are not considered a collateral, hiningi ni co-owner 1 yung permission at authority mo. You
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third party with material interest kasi mejo personal ang interest mo. obviously have an interest.
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Material Interest - The continued existence of the obligation of the Debtor An heir can also have an interest in the obligation of his/her ascendants. If
may result in your prejudice. It would be detrimental to you financially, parents are unable to pay their debts, heirs will be affected. Insofar as the
materially. Gugustuhin niyo nalang na ma-extinguish yung obligation keas sa amount of inheritance to be received.
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manatili ans existence nya that would affect you in the long run.
The issue: SC declared that a joint debtor is a party who has an interest in
EX. You are a surety (distinguished from a solidary debtor). Surety is not a the obligation of another co-joint debtor. They are joint debtors A and B and
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debtor. Although you are principally liable. As a surety you have an interest they have a debt to C.
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in fulfilling the obligation of the principal debtor.

Badillo, Firaza, Gutierrez, & Mechure

Si A and B are joint debtors, they owe C 1M pesos. Hati sila sa bayad tig valid, without prejudice to the provisions of Article 1427 under the Title on
500K. It can be recalled na pag joint, C can only collect the share of A and "Natural Obligations." (1160a)
not the share of B.

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Implication: The payment made by D to C, may be TAKEN BACK.

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Is A considered to be a third party with interest in the proportionate share of Pwedeng mabawi. Can Creditor insist on retaining the payment? Because

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B in the obligation or vice versa? anyway, it is a legal payment of an existing debt.

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SC: Yes daw ( Montepiebedad vs Rodrigo), but Dean disagrees. WHY? ANS: NO. C cannot insist. If a party making payment who actually did not
Because they are separate, independent and distinct from each other. Wala have the capacity to do so, would want to take it back, he MAY as the
naman pakialam si B sa obli ni A. Pag nag fail si A at di nya mabayaran payment (Art. 1239) is not VALID.

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yung utang niya, walang adverse effect yun kay B kasi nga separate,
independent and distinct. What if that person who made payment, incapacitated, accepeted by C,
and he did not take it back anymore?

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Bakit nabanggit ng SC ito? Because the annotation cited by the authors did

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not mention certain facts related to the obligation. Effect: Obligation is EXTINGUISHED. It is VALID but a VOIDABLE act.
Meaning, valid until annulled.
Dito kase, si A and B were joint debtors. To secure their loans, B constituted

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a mortgage. His house ‘n lot to secure not only his portion but also A’s Who could effect the annulment which would result in the returning of
portion. Which means B would definitely have an interest now. Pag di payment made? The party who was incapacited and not the creditor. (1239)

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nabayaran ni A, then that will justify foreclosing the mortgage of the h&l
owned by B. 017: We can recall the persons that are to make payment and that the

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Creditor is compelled to accept payment from them.
Are solidary debtors considered third party in interest? NO because
they are principal debtors mismo (1st number). There is no application of a ● Principal Debtor
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third party who has an interest. ● 3RD Person w/ interest
● Designated 3RD Person w/ no interest but was agreed upon by
xxxx FOLDER 2 xxxx parties.
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016: Capacity to make Payment Any other person, other than these three, will be considered as a THIRD
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PARTY W/O INTEREST IN THE OBLIGATION.

Capacity to make Payment
THIRD PARTY W/O INTEREST IN THE OBLIGATION :
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Aside from knowing / identifying the parties from whom C may be compelled These are parties where Creditors CANNOT be compelled to accept
to accept payment, in order for it to be valid, that party should have the payment from.
CAPACITY to make payment.
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BUT Can Creditor choose to accept payment from them? YES (kalito
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Art. 1239. In obligations to give, payment made by one who does not have lol).
the free disposal of the thing due and capacity to alienate it shall not be

Badillo, Firaza, Gutierrez, & Mechure

And if their payments were accepted by the Creditor, do they need When the obligation was due, SD paid C P250K, kulang pero tinanggap
consent / knowledge from the Debtor? NO. parin ni C and C still has the right to go after the chatel mortgaged luxury car
if the balance of P750K was not paid by SD. When SD can no longer pay,

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In short, a third party w/o interest in the obligation may make payment and and C was about to run after the mortgage, pumasok si HYM at binayaran

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the creditor may or may not choose to accept the payment from them. niya ng P1M si C.

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IF ACCEPTED: Obligation extinguished even w/o consent or knowledge of HYM did not know na nakapag down naman na si SD ng P250K kay C.

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Debtor. What’s important is that Creditor accepts payment. Naligtas yung car ni SD and nawala na si C. Ngayon si HYM, inexpect niya
na sasagutin siya ni SD pero di naman siya gusto ni SD. Nagalit si HYM and
Would there be a difference if payment was made by the third party w/o now he wants to get back the P1M.

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interest in the obligation in regards to having consent or no consent from
the debtor? NONE! As long as it was accepted by C, obligation Issue: What is the right of HYM against SD?
extinguished na siya.

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Ask first: Is HYD a third person with interest in fulfilling the obligation of

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However, there would only be differences with regards to the rights of these SD? NO! He has interest in the body of SD not in the obligation of SD.
third parties w/o interest in the obligation who made the payment against the Remember, the interest should not be personal or romantic. Dapat Material
DEBTOR. interest.

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Art. 1237. Whoever pays on behalf of the debtor without the knowledge or Meaning, HYM is actually considered a third party without (material) interest

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against the will of the latter, cannot compel the creditor to subrogate him in in the obligation.
his rights, such as those arising from a mortgage, guaranty, or penalty.

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(1159a) Now, we apply the provisions of Article 1237 regarding HYM’s rights against
SD.
Meaning of the provision: This provision introduces us to the two possible What would now be his rights? Subrogation or Reimbursement?
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rights of the third parties w/o interest in the obligation against debtor.
Subrogation: IF HYM obtained the consent and knowledge of SD in paying
Two rights: P1M then his right is under the right to Subrogation. HYM can run after SD
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● Right of Reimbursement: The payments of 3rdP against D not only for the amount of P750K (his choice) but also the choice to claim
WITHOUT CONSENT will be reimbursed. the whole P1M from SD. Si SD ang maghahabol kay C. Kung di magawa ni
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SD, pwede masubstitute yung na-surety niya kay C na luxury car (chattel
● Right to subrogation (Art 1301): The payments of 3rdP against D mortgage). HYM enters the shoes of C.
WITH CONSENT will be subrogated. This right is better than
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reimbursement. Reimbursement: IF HYM did not obtain the consent and knowledge of SD
in paying P1M then his right is under the right to Reimbursement only. How
019: Illustration ni Dean: SD (Sexy Debtor), umutang kay C (Creditor) ng much lang makukuha? The amount in which SD benefitted from HYM:
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P1M. Now, C required SD to put up a surety. So SD constituted her luxury P750K lang. Si HYM na ngayon maghahabol na kay C for the remaining
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car as a chattel mortgage for the P1M. Now, there is also HYM (Handsome P250K. No right to the chattel mortgaged luxury car.
young man), who is desperately in love with SD.

Badillo, Firaza, Gutierrez, & Mechure

020: What if the 3rd person has no intention of being reimbursed for 1. Creditor (The party to whose favor the obligation was constituted)
the payment that he made to the creditor? 2. His successor in interest (This should be qualified muna:
(1) Assignee when C assigns his right to a 3rd party, there is a valid

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It will be considered as a DONATION: contract of assignment,

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(2) Heirs of C. (Only when successor rights already took place.

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Art. 1238. Payment made by a third person who does not intend to be Namatay na yung original creditors at bumaba na sa heirs through
reimbursed by the debtor is deemed to be a donation, which requires the intestate ot testamentary succession. Dapat mangyari muna ito. Di

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debtor's consent. But the payment is in any case valid as to the creditor who pwedeng buhay pa ang Creditor)
has accepted it. (n) 3. Authorized Representatives

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Implication: Requires the Debtor’s consent. This is required in a donation. Implication: Any payment to a 3RDP not included in this enumeration, will be
The donee / beneficiary needs to give his consent for the donation to be INVALID and it will NOT extinguish the obligation. However, this is not
VALID. absolute.

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What if the Debtor DID NOT consent? The obligation is still considered EXCEPTIONS: Instances where a payment to a 3RDP not included in the
extinguished but it will not be a donation anymore and the 3RDP can get the list will also result in the extinguishment of obligations.
payment back from Debtor.

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In summary: EXCEPTIONS
READ: Moreno Liuther vs Wolf and other cases Dean will mention that ● The payment made to the 3RDP redounded to the benefit of the

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should be read in the original. Creditor.
● The payment to tha party who is in possession of the credit made in

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We go back to the matter as TO WHOM (Proper Party) PAYMENT good faith
SHOULD BE MADE? ● The debtor pays the creditor PRIOR to acquiring knowledge of the
assignment of credit made by the latter.
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TO WHOM SHOULD WE MAKE PAYMENT?
EXCEPTIONS EXPLAINED:
Tama yung What, How and Who should pay pero if you have not paid to the 1. The payment made to the 3RDP redounded to the benefit of
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proper party, wala rin. the Creditor:

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EX. Dean may utang kay Pedro pero ang binayaran niya si Jose. Nge! Sabe Art. 1241. Par. 2. Payment made to a third person shall also be valid insofar
ni Pedro hahahaha. as it has redounded to the benefit of the creditor. Such benefit to the creditor
need not be proved in the following cases:
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Proper parties to whom payment would be made:

(1) If after the payment, the third person acquires the creditor's rights;
Art. 1240. Payment shall be made to the person in whose favor the (2) If the creditor ratifies the payment to the third person;
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obligation has been constituted, or his successor in interest, or any person (3) If by the creditor's conduct, the debtor has been led to believe that the
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authorized to receive it. (1162a) third person had authority to receive the payment. (1163a)

Three Persons to whom payment would be made:

Badillo, Firaza, Gutierrez, & Mechure

022: Illustration: D owes C P1M. At the same time, C also owes X P1M. X is
a 3rd person insofar as the obligation of D to C. Ang nangyari, D paid X
P1M. In effect, it will be construed as payment made by a 3RDP kasi si D ay

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considered 3RDP sa obligation ni C kay X.

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Can X accept the payment by D? Know first if D is a 3RDP with interest or
w/o interest. Now, D is a 3RDP without interest and X accept payment, it

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extinguishes the obligation of C to X.

The payment by D to X, it resulted to one that benefited C. This is now

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considered a mode of extinguishing the obligation of D to C. Dahil binayaran
ni D yung utang ni C kay X, extinguished na rin yung obli ni D kay C (kasi
023: FOLDER 2
nga may utang din sya kay C in the first place.)

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2. The payment to tha party who is in possession of the credit

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Burden of proof if payment made by 3RDP benefitted the Creditor would be
made in good faith:
on the shoulder of Debtor. D should prove this.
Art. 1242. Payment made in good faith to any person in possession of the

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BUT Such burden no longer will be applied IF it is shown that when Debtor
credit shall release the debtor. (1164)
paid a 3RDP the ff cases occurs:

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Dean: We discussed who is a person in possession of the credit. This is
● Subrogation: 3RDP acquires Creditor’s rights after payment:
distinguished from a person who is merely in possession of a DOCUMENT

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Subrogation. (EX. X now takes the position of C, D does not need
evidencing the credit.
to show proof that it benefitted C). Extinguished na.
● Ratification: Debtor ratifies the payment to 3RDP (EX. C now
What is required here is that a 3RDP must appeal (appear?) to be a creditor.
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ratifies D’s payment to X. Sinabe ni C na okay na yun, yung
Usually, it would entail possession of a document evidencing the existence
payment ni D kay X, considered na yun as payment ng utang ni D
of a credit. BUT it does not necessarily mean he is a person in possession of
kay C. Extinguished na and no proof needed)
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a credit.
● If by Creditor’s conduct, Debtor believes that 3RDP had authority to
receive the payment. (If from statements, documents issued by C to
Payment to a person in possession of a credit. It is NOT enough that a
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X, it appears that X is an authorized representative of C to collect

person is ONLY in possession of the document evidencing the existence of
the debt of D. In good faith, D believes it. No proof needed and
the credit.
extinguished nayung obligation).
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EX. Assuming that D acquired a loan from C. To ensure payment, C required

D to issue a post dated check to be encashed by C upon the obli falling due
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and demandable.
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Nego. Law: Checks may be issued in 2 ways:

Badillo, Firaza, Gutierrez, & Mechure

(1.) Through order of a specified person, the name of the payee or person EX. C being the creditor of D, the amount of P1M. Now, C has the right to
entitled to the amount reflected in the check “Pay to the order of Mr. C.”. If transfer it through assignment. C assigned it to A. In effect, the creditor now
that check falls in the hands of 3RDP, say, A. Is a person in possession of is A and C will now be a 3RDP. So payment should now be made to A

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the credit? NO. A may be a person in possession of the DOCUMENT instead of C.

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evidencing the existence of the credit of D in favor of C but A cannot be

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considered to be the person who has the right to enforce fulfillment of the BUT if D pays to C, because he was not informed of the assignment made
obligation against D. If payment is made to A, will that extinguish D’s obli to by C to A, then that will also extinguish his obli.

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C? NO.
BUT if C assigning A, and D WAS INFORMED, still pays to C, then that is
(2) Through the order of the bearer. A check payable to cash “pay to cash”. not proper anymore. Can A still run after D? YES. Can D say that he has

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Meaning, the check is payable to any person who is in possession of that paid? NO. That is not proper. D needs to chase C and pay A.
check.
EXCEPTIONS: Instances where payment to a 3RDP will extinguish

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In this case, if that check is payable to the bearer in cash, to the hands of A, obligations.

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and upon presentation the funds were released to A, will this be a VALID
payment that will extinguish obli of D to C? YES. 1. Payments made to an incapactiated person (Generally,
payments should be made to capacitated persons only). Payments

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Good faith as defense: This time the payment to A was to a person who is made to incapacitated are VOIDABLE. BUT this is not absolute.
in possession of the credit. However, it was also proven that payment made There are exceptions.

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to A was in good faith. The bank, who is now the authorized agent of D to
make payment, was in good faith. There was no way for the bank to Art. 1241. Par. 1. Payment to a person who is incapacitated to administer

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determine that A was the creditor. May good faith. If the bank knew that A his property shall be valid if he has kept the thing delivered, or insofar as the
was NOT the creditor entitled to the proceeds of the check, and payment payment has been beneficial to him.
was made to A, it is not considered good faith anymore.
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As long as it benefitted him, then it will result to the extinguishment of
Two Requisites for payment to be VALID: obligation.
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● Payment must be made to a person who appears to be in EX. Assuming the successor in interest of the creditor is a MINOR. Namatay
possession of the credit. yung magulang bago masingil, so yung right natransfer dito sa minor na ito.
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● It was made in good faith. The debtor pays the minor. Is it VALID and would result in the
extinguishment of obli even if payment was made to an incapacited person
3. The debtor pays the creditor PRIOR to acquiring knowledge of which is a minor? Generally, this is VOIDABLE.
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the assignment of credit made by the latter: BUT if the child keeps the payment, nasakanya or the payment may have
been expended and benefited him, then it will extinguish the obligation.
Art. 1626. The debtor who, before having knowledge of the assignment,
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pays his creditor shall be released from the obligation. (1527) When will we know if the payment benefitted the creditor (as what was
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required in opayments made to incapacitated persons)?

024: Here is a Creditor who assigns his right to a 3RDP.

Badillo, Firaza, Gutierrez, & Mechure

ANS: Expenses incurred by minor / incap. in his NECESSITIES. In the obligation consists. Neither may the debtor be required to make partial
concept of support, these are: payments.

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Shelter, food, clothing, medications, hospital bills, education. All these are However, when the debt is in part liquidated and in part unliquidated, the

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considered the minors’ necessities. Payment falls under the exception to the creditor may demand and the debtor may effect the payment of the former

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general rule. without waiting for the liquidation of the latter. (1169a)

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What if used for gambling? NO. Debtor is still compelled to make Discussion:
payment. He must ensure that his payment benefits the minor in his basic
necessities. Art. 1249. Par. 1. The payment of debts in money shall be made in the

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currency stipulated, and if it is not possible to deliver such currency, then in
026: Matter of reading nalang daw kasi natackle na the currency which is legal tender in the Philippines.

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Art. 1243. Payment made to the creditor by the debtor after the latter has Explained: This talks about the identity of the currency that is to be paid by

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been judicially ordered to retain the debt shall not be valid. (1165) debtor to creditor. This is the currency that debtor should use in making
payment of an obligation requiring the delivery of a sum of money.
Art. 1244. The debtor of a thing cannot compel the creditor to receive a

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different one, although the latter may be of the same value as, or more What currency should be used? Anything that the parties have agreed to.
valuable than that which is due. It can be dollars, euros, yen, etc.

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In obligations to do or not to do, an act or forbearance cannot be substituted BUT if there is no agreement stipulated by the parties, then the default

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by another act or forbearance against the obligee's will. (1166a) would be the legal tender of the Republic of the Philippines: PESO.

Art. 1245. Dation in payment, whereby property is alienated to the creditor in Legal tender: The notes, bills, coins issued by the Central Bank of the
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satisfaction of a debt in money, shall be governed by the law of sales. (n) Philippines that is guaranteed by the Republic of PH as payment for any
indebtedness. (Ex. P20, P500, P1000)
Art. 1246. When the obligation consists in the delivery of an indeterminate or
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generic thing, whose quality and circumstances have not been stated, the EX. Utang ni Dean P1M pero wala stipulation on what currency. Can you
creditor cannot demand a thing of superior quality. Neither can the debtor insist on paying dollars? NO. Because the default is legal tender in PH which
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deliver a thing of inferior quality. The purpose of the obligation and other is peso.
circumstances shall be taken into consideration. (1167a)
How about if it was stipulated that Dean pays in dollars. Can Dean insist on
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Art. 1247. Unless it is otherwise stipulated, the extrajudicial expenses paying in peso? NO. Follow what was agreed upon by the parties.
required by the payment shall be for the account of the debtor. With regard
to judicial costs, the Rules of Court shall govern. (1168a) Important Trivia: Marcos issued an order stating all agreements and
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stipulation in contracts entered into PH where it requires that payment

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Art. 1248. Unless there is an express stipulation to that effect, the creditor should be made in another currency rather than the legal tender of PH, is
cannot be compelled partially to receive the prestations in which the VOID.

Badillo, Firaza, Gutierrez, & Mechure

Noon daw kahit may agreement na si debtor is to pay in dollars, pwede bang
igiit ni creditor yung agreement na tanggihan yung debtor if he wants to pay If payment was made by check, Creditor has the option to accept or reject. If
in peso. Hindi pwede kasi VOID yung agreement. he opts to accept it, it still does NOT extinguish an obligation. It is clear that

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in Art 1249, it must first be turned into cash before the extinguishment of its

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Now, Creditors can insist bc of a circular ordered by Banko Sentral. Pwede obligation.

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na raw other currencies.

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The legal tender is that amount of money which debtor can compel Creditor Illustrative cases:
to accept payment. Kunware bumili kayo ng isang bagay worth P100, ang ● Philippine Airlines vs CA
bigay mo P1000, sinuklian ka ng P900 na puro barya. Ayaw mo tanggapin, ● Roman Catholic Bishop of Malolos Inc. vs Intermediate Appellate

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can you refuse to accept? NO bc that is legal tender. Court
● Tibahiya vs CA
The coins actually have limited character of legal tenders: ● Cebu Int’l Finance Corp. vs CA

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For P1, P5, P10 = Until P1000 only These cases have reiterated that payments in checks are not legal tender
For 25 centavo coins = Until P100 only and the creditor has the option to not accept it and it does not extinguish obli
EX. May utang ka P3M kay C, inasar mo si C by paying P3M na puro tig until checks are encashed.

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centavos. You paid in centavo coins worth P3M lol.
Can you compel C to accept this? No. The coins have limited character of Important Bar Question: Determine payment obligation thru check with the

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legal tenders. As issued by Banko Sentral, 1 peso, 5 peso and 10 peso tender of a cash in the exercise of a right of redemption.
coins will only be legal tender for indebtedness in an amount not exceeding

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P1000. For centavo coins, it will only be legal tender for indebtedness in Fortunato vs CA
amounts not exceeding P100.
Issue: WON the tendering by the debtor of a check to exercise his right of
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Therefore, you cannot compel C to accept centavo coins worth P3M as it is redemption would suffice. And that will prevent the creditor mortgagee from
only legal tender in the amount of P100 lang. finally acquiring ownership of the property.
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In Special Contracts:
027: Rule on Checks and Promissory notes: Right of Redemption- (In my own understanding) This is the right of the
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owner of the property whose property was sold in public auction and his
Art. 1249. Par. 2. The delivery of promissory notes payable to order, or bills property will not yet be under the bidder’s name after one year from the date
of exchange or other mercantile documents shall produce the effect of of auction.
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payment only when they have been cashed, or when through the fault of the
creditor they have been impaired. Explained: If there is a loan and there is a security constituted, say, a real
estate mortgage and if the debtor is not able to pay, the creditor will run after
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Most common promissory note: Check the mortgage property. The property now is old at public auction and it will be
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awarded to the highest bidder. More often than not, there would only be the
A Check is NOT considered a legal tender: Personal, manager, creditor that would bid up to the extent of the obligation of the debtor.
comercial, cashier’s checks are not legal tender.

Badillo, Firaza, Gutierrez, & Mechure

It is possible that a 3RDP may participate in the bidding and if he is the one 1. Checks are not legal tender. It can be rejected by Creditor. This
who gives the highest bid, he is the one who gets the property and the was explained by Dean.
proceeds will be applied to the obligation of the debtor to the creditor. 2. It shall only produce payment when (1) encashed and (2)

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impaired through the fault of the creditor.

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However, the right of whoever wins in bidding will not be finalized until one

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year. Because of this one year period, the owner (debtor) of the property still Impairment through the fault of the creditor: Under jurisprudence there
has a right of redemption. are two ways that this could happen.

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1. If the Creditor upon receiving a check, unreasonably holds to
Assuming the property was forfeited, sold in public auction and the highest it and does not encash it for a llength of time (Ang tagal
bidder was Creditor himself. He cannot immediately register the sale and i-encash ni C)

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have the title of the property changed under his name because this could
only be done one year from the date of the auction. This is because the Illustrative case: Papa vs AU Valencia Company Inc.
owner still has the right of redemption.

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A check was given by debtor to Creditor. C held onto the check for 10 years

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In the exercise of the right of redemption, can the owner of the property (Checks are only good for 6 months from the date it was issued). Check was
(debtor-mortgagor) use a check? already stale kasi 10 years na.

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Meaning he is trying to recover the property using a check. Can Creditor SC Held: This is now a case that was impaired through the fault of the
who bought the property refuse this saying this is not a legal tender? And if creditor. Kasi naman 10 years na di pa ineencash.

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Debtor uses this upon refusal of C, the period of the right will continue and if
done, debtor will lose the right to redeem his property. IF the check was not held onto that long, say for example, one year has

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passed, is the obligation extinguished? Not yet. Creditor can still compel the
SC HELD: (Fortunado vs CA) The tender of the check is sufficient to hold Debtor to pay cash or to change the check. In the case mentioned kasi, 10
the running of the redemptive period. This is a VALID exercise of the right. years na yon.
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This is because payment made was not payment of an obligation but rather
it was an accersion of a right of redemption. 2. Impairment due to the fault of Creditor when instrument was
executed by a 3RDP and issued to debtor and he uses it to pay
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In obligations, there is no option, he must make payment and it must be in his creditor.
legal tender.
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Explanation: A Check payable to cash, the negotiability of that is as fluid as

In the right to exercise redemption, there is an option that a debtor may cash kasi whoever is in possession of the check he is deemed to be the
choose to not exercise the right. Therefore, it is not an obligation that must person in possession of the credit.
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be fulfilled because the debtor has the choice to do or not to do it. In that
case, the debtor may use a check to manifest his intention to use the right. It EX. X is a debtor of A. Now, A is the debtor of C. So, in reverse, C is the
is VALID. creditor of A and A is the creditor of D.
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Summary of the rules: X pays A a check payable to cash dated April 1. Thi means anyone who has
the check is a person in possession of the credit. A now uses the check to

Badillo, Firaza, Gutierrez, & Mechure

pay C. Nandoon na yung check na inissue ni X kay A, nakay C na. Hindi
naman inencash ni C. 6months passed, the check became stale. Generic: Law is silent. Law says in any other case, payment shall be made
in the domicile of the debtor. Si Creditor dapat pumunta kay Debtor para

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Is there an extinguishment of obligation of A to C? YES MERON. tanggapin ang bayad.

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Because it was C’s fault that impaired the possibility of enforcing or

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encashing the check issued originally in favor of A by his own debtor X. WHAT IF lumipat ng domicile si Debtor? Creditor should still go where the
Debtor is residing as the law says.

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028: WHERE TO MAKE PAYMENT
Remember the scene: Nagaaway si D at C. Babayaran daw ni D si C pero Bad faith in changing domicile by Debtor: Additional expenses can now
ayaw nya lumabas bahay nya kasi pandemic. Si C nalang daw pumunta. C be charged against debtor by Creditor who follows him and demands

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refused and insisted si D ang pumunta sa bahay. Answer is found in this payment.
provision:
Tatanong daw ni Dean ito: Assuming Dean promised to deliver to you a

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Art. 1251. Payment shall be made in the place designated in the obligation. horse, when the obli was constituted, the horse was in a jet liner as it was

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being transported from Australia to Manila. When the obli was constituted,
There being no express stipulation and if the undertaking is to deliver a nasa ere yung horse 33K feet above. Where should the delivery now be
determinate thing, the payment shall be made wherever the thing might be made?

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at the moment the obligation was constituted.
Hindi nya sinagot di ko rin alam sagot HAHAAAHA

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In any other case the place of payment shall be the domicile of the debtor.
*****DONE MICAH’S PART*****

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If the debtor changes his domicile in bad faith or after he has incurred in
delay, the additional expenses shall be borne by him. PART 8-LEE
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Rules: WHERE should payment be made. PART 8

First, take into consideration if there was an agreement of the parties. Tignan 4 different special modes of payment:
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nyo sa bank, pag may utang kayo, sa business office or any branch ng bank
ka magbabayad. 1. Application of payment
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IF NOT STATED where payment should be made, you now distinguish 2. Tender of payment
what type of obligation it is to give a determinate or generic.
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3. Payment by cession
Determinate/Specific: Law states payment should be made where the thing
is to be found at the moment it is constituted.
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4. Da cion in pago / in payment Art.1245 (special mode of payment)

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EX. Dean should deliver a horse, at the time obligation was made and the Da Cion in Pago vs. Payment in cession
horse is found in the Manila Club in Makati, then that is where Dean should
make delivery. BOTH Dean and the creditor should go there.

Badillo, Firaza, Gutierrez, & Mechure

Both are similar in sale of the properties of the debtor or revenues realized Payment by Cession:
from the sale used to pay for the existing obligations. Both involve a sale of
the assets (personal or real properties). Proceeds of sale will be used as 1255. Cession. The debtor may cede or assign his property to his creditors

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payment. in payment of his debts. This cession, unless there is stipulation to the

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contrary, shall only release the debtor from responsibility for the net

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Da cion in payment 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

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-The delivery and transmission of ownership po from the debtor to the by special laws.
creditor as an accepted equivalent of the performance of the obligation
Similarity to Da cion in Payment: There is alienation or offering of assets

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-This is why it is considered as a sale, so that rule in sales will apply here for payment of existing money obligation.

-May utang si debtor kay creditor, debtor ayaw muna magbayad in cash so There is alienation

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he proposes to deliver a thing in lieu of payment of cash if agreed by creditor

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there is a sale that transpires where the creditor becomes the buyer and the Requisites of Cession:
debtor is the seller
1. Presupposed several debts

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Requisites of Da cion in payment: Rockville Int vs Sella 602 CRA 128
2. There is partial or relative insolvency (presupposes that debtor no longer

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1. Existence of a money obligation/any other obligation. has sufficient assets to pay for all existing obligations. Kulang pera pero
may assets pa naman.)

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According to Tolentino (should not be construed in a its restrictive
sense that twill only appl tot obligation to give a certain money but 3. Acceptance by the creditor (agree in payment by cession, no other
should be in a broad sense to apply in any other prestation to give recourse)
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2. Alienation that is the transfer to the creditor, the property / asset, Relate to 1177: Enumerates steps that law would allow the creditor to fully
by the debtor with the consent of the creditor. satisfy his claim:
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The alienation is not only an alienation of a thing. It should include 1. Enforcement (There is already a judgment claim, now the task is to look
for liquid assets)
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transfer of ownership and possession from the debtor to the

creditor
2. Payment by cession (look for existing assets personal and real properties)
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3. It is for the satisfaction of the money obligation of the debtor

3. Assets will be attached and will be sold in public auction by the Sheriff in
charge to solve the judgment claim. It will be awarded to the highest bidder.
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Pangbayad sa utang ng Debtor. Utang 10K, pero pinambayad yung

TV set nalang pag nag agree si Creditor.
Distinction:
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Badillo, Firaza, Gutierrez, & Mechure

1. Dacion en pago- one creditor. On the other hand cession, several -Art 1196. If solely benefit of. Even before arrival of term, as far as the debtor
creditors is concerned, it is due and demandable (anytime pwede singilin ni creditor
anytime or compel debtor). Insofar as debtor is concerned in relation to

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2. Dacion- does not presuppose insolvency (insolvency in fact) while creditor, di pa due and demandable. D cannot compel C to accept payment

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payment by cession now partially or relatively insolvent until it is D&D).

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3. Dacion- there is alienation transfer of possession and ownership but for 4. Amount paid by the debtor is insufficient to cover all obligations.

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cession include alienation but does not automatically transfer to creditor
but instead it may go to 3rd party which can be subject to public bidding Illustration: Debtor owes 1M then debtor borrowed again 2M then 3M
(Sold at public auction, awarded to highest bidder), may it be one of the then 2M= 8M + 10% interest per annum. Total now is P8M8K. All due

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creditors (proceeds will now go to remaining balance) and demandable as far as debtor is concerned. He pays only 3M.
Kulang.
EX. Sale of asset of D is a car / laptop/ iphone/jewelry amounting to 2M, now

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bawas sa 8M debt, magiging 6M ang natirang balance. Where will you now apply the 3M payment?

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4. Dacion extinguishes obligation pag pumayag si creditor but in cession The Rules of application of payment applies. Apply it in accord with the
may happen that proceed may not be enough to fulfill obligation which agreement. This agreement was entered into by the parties prior to making

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does not automatically extinguishes obligation the payment / prior to obligation being due and demandable.

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3RD TYPE OF SMOP: APPLICATION OF PAYMENT Prior agreement scenario:

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-The designation of the debt in which a payment must be applied when C: Pare parang ang dami mo na utang and bayad mo kulang pa, i-apply nlng
the debtor would have several debts to the same creditor but amount of natin yung 3M sa debt number 2.
payment is not sufficient.
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Assuming no prior agreement. What is the rule? Who will have the
A has debt to B,1M then 2 M then 3M then 2M (different loans), so 8M right to choose?
ang utang. If all of these become due and demandable, nagbayad
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naman pero kulang, only partially paid. What should you do? You will now have to make a choice. The Debtor has the right to choose. The
debtor will decide saan niya gusto iapply yung binayad nya don sa apat na
,F

Requisites of Application of payment: utang and it will be binding to the creditor (Unilateral decision, need not be
agreed to by the creditor).
1. There must be one debtor and one creditor (not to be take literally
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because it may involve 2/more debtors but SOLIDARY bound.) However, right is not absolute, debtor’s choice will be binding as long as
such choice does not disregard or violates the limitations.
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2. There must be two or more debts of the same kind. Puro pera.
Limitations:
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3. All the debts must be due. Except if there is stipulation to the contrary or
application if payment is made by the party for whose benefit, the term
has been constituted.

Badillo, Firaza, Gutierrez, & Mechure

1. Pay interest first: Art 1253. If the debt produces interest, payment of the tira pang utang 800k. Does this affect divisibility of payments? NO if may
principal shall not be deemed to have been made until the interests agreement naman pala sila eh. The rights provided for in the limitations is
have been covered. only to protect the parties but if they agreed on something, ok na yun.

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Before C could insist on paying the second debt, 2M, need muna ipay un 3M B. If the debtor did not exercise his right and the creditor did not make

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(binayad ni D na kulang) sa interest: 800k interest. a proposal. Therefore, no basis of agreement?

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2. Art .1248. Debtor cannot choose to apply where it can disregard Art.1254 When the payment cannot be applied in accordance with the
indivisibility preceding rules, or if application cannot be inferred from other
circumstances, the debt which is most onerous to the debtor, among those

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-800,000 for interest and now 2.2 M natira BUT it cannot be used to pay the due, shall be deemed to have been satisfied.
If the debts due are of the same
3rd obligation which is 3M, only in 1st,2nd or 4th obligation because it will nature and burden, the payment shall be applied to all of them
disregard indivisibility. Pwede siguro sa unang debt: 1M or second debt: 2M proportionately

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but not on 3RD kasi 3M yun.

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- Apply it to the most onerous debt. According to debtor alin doon yung
3. In cases when the obligation is made by him to a debt where there is a pinaka mabigat para saknaya?
term that was fixed solely for the benefit of the creditor (debtor cannot

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force payment before arrival of the term) C. How to determine the most onerous for the debtor?

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- i.e 1M due April 4, 2M due April 4 due 3M April 4 but 2M April 8, Ngyon -No provision about what is the onerous debt.
April 4 palang. BUT April 8 term was fixed just to favor creditor, it is

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considered already due and demandable BUT debtor cannot apply payment -SC: The age of debt. The older the debt, the more onerous they are than
to it unless the creditor allow. Agreement muna. the younger.
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A. What if the Debtor does not make an application of payment? -SC: You do not take into consideration the amount of the principal
obligation. Porket mas malaki amount, di ibig sabihin yun onerous.
-The Creditor acquires the opportunity to propose. This is not to say
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magkakaroon ng right si Creditor but only an opportunity to propose. Art First debt: 1M = onerous bc ito naunang utang.
1252 par. 3.
,F

Illustration: Debtor owes 1M then debtor borrowed again 2M then 3M then

2M= 8M + 10% interest. Biggest principal does not make it the most
Art 1252. Par. 3. If the debtor accepts from the creditor a receipt in which onerous.
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an application of payment is made, the former cannot complain the same,

unless there is a cause for invalidating the contract. Illustrations:
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-It needs to be agreed upon by the debtor to be binding. 1. First debt is the most onerous but if interest is increasing in every
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-EX. C proposes gamitin nlng sa second utang? D agrees. OK yun. Receipt debt/obligation, that which is the highest interest rate is the most
was made 800k interest paid, remaining 2.2M sobrang balance to be applied onerous.
sa second utang na 2M. Remaining 200k, i-appy sa first utang na 1M. May

Badillo, Firaza, Gutierrez, & Mechure

2. If one debt there was a guarantor but others do not have= yung may General Steps: TOP and then C
guarantor yung mabigat
1.Tender of payment- It involves intent, ability and capability of debtor to

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3. If surety vs guarantor vs interest= Surety ang pinakamabigat fulfill obligation in accordance to how it should be properly made, therefore,

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creating the obligation of the creditor to accept (no court intervention) and be

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4. Sinanla condo sa 2nd then bahay at lupa sa 3rd ,3rd will be the most released from juridical tie. (Art. 1256).
onerous kasi bahay at lupa

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Issue: Does TOP extinguish obligation? Kahit Pinipiit na nga TOP? Not yet
D. Whati if on the basis of age and the accessory you cannot utilize extinguished obli. You have to go to the second step.
how to determine what is the most onerous. OR magkakaparehas sila

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ng age. This is where 2nd par. of Art.1254 applies. 2. Consignation- deposit of object of obligation in a competent court in
accordance the rules prescribed by law after refusal or inability of creditor to
Art. 1254. Par. 2: Apply it to them all PROPORTIONATELY. accept the tender of payment, principal act and judicial in character (requires

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intervention of court)

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- Ratio in proportion; divide 2.2 M in different obligations
May courts na, pag di tinanggap bayad mo, di mo iiwan lang. You will seek
- 2,200,000/8 = 275,000 (1 share) help from the court. File a petition of Consignation and it is to be approved

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by the Court.
a. Hindi nagapply si debtor b.Walang proposal si creditor

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NOTE: Before consignation, dapat may tender of payment muna.
c.Walang debt na most onerous d. Proportionately

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Relieve debtor from the liability arising from delay or liability to pay interest
Mora accipiendi-delay on part of creditor in accepting payment performance
without cause Art.2209 “If the obligation consists in the payment of sum of money, and the
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debtor incurs in delay, the indemnity for damages, there being no stipulation
Debtor will rely on in case if creditor refuses to accept without reason. What to the contrary, shall be the payment of the interest agreed upon, and in the
should the debtor do? absence of stipulation,the legal interest, which is six percent (6%) per
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annum.
4TH SMOE: Tender of Payment and Consignation (TOPAC)
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-It does not extinguish obligation, BUT now the debtor cannot be held liable
Art.1256 If the creditor to whom tender of payment has been made refuses for delay and interest payment. Di na liable for interest. BUT we to first
without just cause to accept it, the debtor shall be released from distinguish the interest.
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responsibility by the consignation of the thing or sum due.

-Two types of interest
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Remember: Mora accipiendi- Delay on the part of C to accept payment by

D without cause. 1. Monetary-interest set by the parties as compensation for the use or
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forbearance of the money

This will now be the provisions to do if C refuses to accept his payment. He
will go through the process of TOPAC.

Badillo, Firaza, Gutierrez, & Mechure

2. Compensatory interest-payment or penalty in cases of damages caused *Only after there has been complete consignation, obligation is considered
to the creditor because of delay, fraud, negligence o contravention of the extinguished.
Tenor. Art. 2209.

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Consignation:

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Art.2209 “If the obligation consists in the payment of sum of money, and the

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debtor incurs in delay, the indemnity for damages, there being no stipulation Art. 1256 Consignation immediately affected by the debtor which if approved
to the contrary, shall be the payment of the interest agreed upon, and in the by the court will extinguish obligation

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absence of stipulation,the legal interest, which is six percent (6%) per
annum. General Rule: There could be no consignation if there is no tender of
payment. He needs to go through TOP and Consignation.

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NOTE: Does not relieve D from monetary interest but ONLY Compensatory
interest. Exception: Art,. 1256 par .2. Consignation alone shall produce the same
effect in the following cases:

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CASES TO STUDY:
What are these instances?

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● PNB VS RELATIVO 92 PH 203
● INVESTMENT HOUSE INC CA 1. When creditor is absent or does not appear in the place

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● BONRATIRO VS LUNA
● BIESTERBOSS VS CA 2. Incapacitated to receive the payment at the time it is due, to

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● GREGORIO ARANETA INC VS be sure just consign it

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SC: If there is tender of payment and debtor puts the funds in the situation it 3. Without any causes refuses to give receipt/acknowledgement
may be withdrawn anytime by the creditor, where C can withdraw the of receipt
payment anytime --this will exempt the debtor from monetary and
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compensatory. 4. When two or more persons claim the same right to collect

Effect of tender that is beneficial to debtor is suspension of payment interest; 5. When title of obligation has been lost
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compensatory not monetary but if tender of payment is coupled with the

debtor’s act of placing the funds at the disposal of the creditor then the 6. Before due, creditor stated that he won't accept. Express
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debtor is exempted in both kinds of interest intention.

Illustration: *Not exclusive enumerations 1-5, some included #6

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- 1M 10% interest, not due may interest na agad =Monetary interest Requisites of valid consignation:
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-Obligation fell due and you are ate default and transformed it to legal delay 1, Existence of valid debt which is due
Ba

where you are to pay the damages= Compensatory interest

1. Tender of payment except for 6 instances

Badillo, Firaza, Gutierrez, & Mechure

 2. Previous notice of consignation to the person interested in the 1.Obligation to give specific object (Not applicable to generic object
fulfillment of the obligation in order to give the creditor the because the genus never perishes)
opportunity to reconsider his unjustified refusal and to accept

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payment to avoid consignation in subsequent litigation Art.1263 In an obligation to deliver a generic thing, the loss or destruction of

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anything of the same kind does not extinguish the obligation

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Lack of previous notice does not invalidate the consignation but simply
makes the debtor liable fir the expenses occasion hereby -If generic, loss of thing due cannot be applied

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-Can be made simultaneously with the tender of payment Thing considered to be loss in C
a. Thing perishes i.e tinamaan ng Kidlat kotse at Nawala

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-Separate notice for guarantor b. Whereabouts could no longer be determined; it may be
existing but cannot be found and there is impossibility to
4. Consignation amount /thing due placed in the disposition of the court, retrieve the same

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nasa court na wala na sayo. You must have physically transferred c. When thing goes out of Commerce of Men

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possession to court itself. Nasa court na ung payment?
(In commerce of men, things are susceptible of being an object of a contract)
5. Subsequent notice of consignation to enable creditor to withdraw the

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goods or money deposited. Outside commerce of man: Public Properties, contrary to law; illegal drugs
and firearms.

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-It would be unjust to the creditor to suffer the risk of deterioration or loss of
such goods by reason of lack of knowledge of consignation, that is why Illustration:

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notice is needed -I.aw road widening of government affected a certain agricultural land, land
is considered loss
Art.1260 Once the consignation has been duly made, the debtor may ask -10 truck of cigarettes it is within commerce of men, bago ko ideliver it is
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the judge to order the cancellation of the obligation. already legislated na bawal na, it will go out in commerce of men--
obligation to deliver generic object is extinguish
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Before the creditor has accepted the consignation, or before the judicial 2. Impossibility of performance/ obligation To do
declaration that the consignation has been properly made, the debtor may
withdraw the thing or the sum deposited, allowing the obligation to remain in
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-Instances when obligation continue to exist—it actually is not the same

force. obligation
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-If thing is lost absolutely it extinguishes original obligation because of

5TH SMOP: LOSS OF THING DUE
impossibility to fulfill in its original tenor
-reiteration of Art. 1174
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Not loss with the loss of the things due, there is an exception where debtor
Two ways / Applies to:
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would still be liable not of the original tenor but liable for damages

A. When the law provides

Badillo, Firaza, Gutierrez, & Mechure

 B. Stipulation if parties Important to Remember: Rule in reciprocal obligation.: If the obligations
C. Nature of obligation requires assumption of risk of one of the parties rendered impossible due to the loss of thing, it is
D. Loss of things is partly due to creditor’s fault(contributory extinguished

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negligence

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E. Loss of the things occurs after the debtor incurs dela Illustration: A promise to deliver B a house in exchange for B delivering a

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F. Debtor promises to deliver to two or more persons who do not condo unit
have the same interest

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G. Obligation arises from criminal offense (1268) Before delivery, house is lost by fortuitous event, A’s obligation is
H. Obligation delivered is generic, exception if there is loss of genus extinguished but how about B’s obligation?
but fall out in commerce of men

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Two Principles to apply:
What if loss is only partial?
1. Res perit domino- risk is with the debtor: A is the debtor in regard

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Art 1264. The courts shall determine whether, under the circumstances, the to obligation, risk is with him because impossibility of fulfillment

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partial loss of the object of the obligation is so important as to extinguish the automatically releases the Creditor(B) to fulfill his obligation
obligation.
Art.1191-Failure of one party to fulfill is due to his fault,B is excused in

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EX. Insurance company piinipilit na partial loss ang ung sira ng car mo ikaw delivering object
insist total loss.

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2. Res Perit Creditory -risk is with the creditor. B is at loss because
Art.1265 Whenever the thing is lost in the possession of the debtor, it shall A's obligation was extinguished it does not relieve B of his

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be presumed that the loss was due to his fault, unless there is proof to the obligation to deliver the condo unit
contrary, and without prejudice to the provisions of Article 1165. This
presumption does not apply in case of earthquake, flood, storm, or other Which one will now be applicable? Mas better daw yung Res Perit Creditory.
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natural calamity.
Res Perit Domino applies to Art 1191. This provision presupposes that the
-Presumption here is disputable failure on the part of one party is due to his fault. Kasalanan niya eh.
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Debtor has the burden to prove that the object that was lost due to a IF A was not able to deliver the house due to hus fault, Res perit domino
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fortuitous event and not his fault. applies. Tacit resolutory.

Exception to rule If at the time loss was because of natural calamity, BUT if failure was due to a fortuitous event, then Res perit creditori. There
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earthquake and flood are provisions that imply the application of Res Perit Domino. All others you
apply to RPC.
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Loss of the thing due that will extinguish obligation, thing should have been
loss after obligation was constituted otherwise if it is before we do not talk Provisions
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about extinguishment because in the first place there is no obligation

(impossible obligation) a. Art.1504 Sale of Personal Property. Unless otherwise agreed, the goods
remain at the seller's risk until the ownership therein is transferred to the

Badillo, Firaza, Gutierrez, & Mechure

buyer, but when the ownership therein is transferred to the buyer the goods How do you determine whether an object of prestation is specific or generic?
are at the buyer's risk whether actual delivery has been made or not, except It is the manner constituted in the obligation
that:

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i.e Contract depends on tenor of agreement

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(1) Where delivery of the goods has been made to the buyer or to a bailee

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for the buyer, in pursuance of the contract and the ownership in the goods i.e Person entrusted to a bishop sum of money to deposit to bank,
has been retained by the seller merely to secure performance by the buyer unfortunately the account of bishop was confiscated. SC held that the

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of his obligations under the contract, the goods are at the buyer's risk from obligation was extinguished because of a fortuitous event.
the time of such delivery;
De Leon Soriano- Debtors committed to deliver certain cavans of palay

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(2) Where actual delivery has been delayed through the fault of either the annually until end of debt, Debtor made deliveries to the creditor of a total of
buyer or seller the goods are at the risk of the party in fault 2300 Cavans, 2400 Cavans short of agree 5700. Debtor sought ot be
excused because their rice supplier was from a rice field that was taken over

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- Res Perit Domino should apply. Dinedeliver na yung aircon pero nasira by the HUKS.

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Nawala due to a fortuitous event. Can the seller compel you to pay? No.
Art.1504 applies SC did not agree because there is nothing in the agreement that it should be
taken from the specific rice field.

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b. Art.1655 Lease Contracts. If the thing leased is totally destroyed by a
fortuitous event, the lease is extinguished. If the destruction is partial, the UTECH & Co. vs GONZALES

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lessee may choose between a proportional reduction of the rent and a
rescission of the lease Plaintiff advance 3000 PHP to the defendant in payment of 600 sacks of

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sugar, but the contract in writing did not specify that sugar was to come from
Illustration: Rented for 1 year and pay 100,000 a month, April lumindol—no a crop of the defendant’s land which was destroyed. It was held that sale
need to pay for the remaining period of the contract was not perfect and laws of the crop even though a fortuitous event did not
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extinguish the defendant's obligation to deliver the sugar.
c. Contract for a piece of work
Impossibility of Performance
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Illustration: Nagpagawa ka upuan na may initials mo,nagawa na pero bago

ideliver nasira/Nawala.Can the carpenter compel you to pay? No. 1770 uses Art. 1266. The debtor in obligations to do shall also be released when the
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Res Perit Domino prestation becomes legally or physically impossible without the fault of the
obligor. (1184a)
***All other contracts if not under these 3, general rule will apply which is the
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Res Perit Creditory*** After the obligation has been constituted, there came the impossibility of
performance.
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REYES VS CALTEX-Res Perit Creditory

Extinguishment of obligation to do by impossibility of the performance
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VILLARUEL VS MANILA MOTORS - Res Perit Creditory of that prestation

CHRISNER PHILIPPINES VS CA-Res Perit Domino 1. Physically impossible to fulfill

Badillo, Firaza, Gutierrez, & Mechure

2. Fulfillment of which will be contrary to law issue said permit, he failed to fulfill his undertaking, he should be
absolved and released from the observation.
When should impossibility occur in order for it to extinguish an

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obligation? In the cases above it talks about permanent impossibility.

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-It should be after the obligation has been constituted if before What if Impossibility is temporary?
obligation, obligation to do is already impossible to do (no talk about

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extinguishment because there is no obligation constituted) Rule: Temporary impossibility delays performance of obligation but does
not extinguish the same except when there is an agreement.
Macolm vs Haragan

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1. There was already a previous agreement which was entered into by
Surety company issued bond to guarantee return of defendant Haragan the parties contemplated of the possibility of the fulfillment of the
who went to US .Haragan failed to return, DOF banned him from obligation of one will be temporarily impossible, pag nangyari yan

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returning to Philippines. kahit temporary lang extinguish yan

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2. Where the performance of the obligation will have to be within a
Issue: Whether surety company is ,liable under the bond in failure of definite time. I.e obligation within 1 year period but there is
Haraga to return to Philippines temporary impossibility of the duration for the remaining 1-year

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period. Duration of the impossibility is determined.
SC said Surety company was released from the obligation under the

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bond because of impossibility of the performance now. He can no What if the duration is not determined? If duration is not known of the
longer fulfill it because there was a banned order. impossibility, obligation may be considered judicially impossible to perform,

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hence, extinguished.
TABORA VS LASATIN
Pag napansin niyo na ang tagal ng temporary nitong impossibility nito,
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Facts: Contract of Lease, where a lessee entered into a contract with debtor may ask now the court a judicial declaration of the impossibility of the
the lessor over an old movie theater with the understanding that the fulfillment of the obligation to do.Court will then declare of judicial declaration
lessee would build and rehabilitate the old movie theater despite the of impossibility and not factual determination of impossibility
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lessee diligence report to obtain necessary permit to reconstruct theater,

lessee failed to do so because it was the plan of the local government to -Once court declared with finality that obligation is extinguished, and there is
,F

widen Legarda’s Street where building is located which plan greatly now possibility, it will not resurrect the obligation.
affect the location of the theater. Renovation is now impossible.
The Effect of Relative impossibility /Partial impossibility of the
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Held: SC held that in absolving the lessee and ordering that he be fulfillment:
release from the obligation. Court finds that his effort to secure the
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permit for the reconstruction and only failed due to unfavorable attitude Art. 1267 When the service has become so difficult as to be manifestly
of the urban planning commission towards reconstruction unless they beyond the contemplation of the parties, the obligor may also be released
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conform to the plan of widening the city street, finding that the defendant therefrom, in whole or in part.
had done all he could to secure the permit and to comply with his
obligation, but because of the refusal of the government authorities to

Badillo, Firaza, Gutierrez, & Mechure

-There is no total impossibility (relative impossibility) also called Doctrine of entered and proposed to use the electric post for telephone lines and will
Unforeseen events/ Theory or lack of basis/Doctrine of Frustration of provide several free telephone units for a period of 10 years.
enterprise. These all refer to difficulty of performance.

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CASURECO agreed, NATELCO can use the electric post. However, after 3

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Requisites: years, there are more clients of NATELCO which produced more telephone

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lines in the electric post. CASURECO stated “parang lugi na kami dyan” and
1. Events could not have been foreseen at the time of execution of wanted to end the contract but NATELCO did not agree. They asked for the

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performance contract to be terminated on the basis of difficulty of performance.
2. It makes performance extremely difficult, not impossible.
3. Event must not be due to an act of nay of the parties Held: SC agreed since an avalanche of subscriptions was an unforeseen

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4. Contrast is for a long period of time or for successive performances vent and was never thought of by CASURECO. To require CASURECO to
continue the contract with only a few phone lines with them is no longer
May contract na pinasok under circumstances with the thinking that these equitable. But not totally terminate the contract because it will affect the

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circumstances will stay for a duration but unfortunately there have been general welfare or most of the citizens using phone lines

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some changes which were never contemplated by both parties making it not
impossible for you to fulfill but rather extremely difficult for you to do it. PNCC VS CA-Difficulty of performance was brought about by
assassination of Ninoy Aquino. Not agreed by SC

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Difficulty of fulfillment of the obligation to do
COMLASCO CORP VS SANTOS CAR-CHECK CENTER CORP-allegation

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-not only physically but also when such performance will play one party at a of 1997 Asian Financial Crisis which made it difficult for them
disadvantaged position by the unforeseen event (unfair)

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Art.1268 When the debt of a thing certain and determinate proceeds from a
Illustration: Bus Companies buses uses the same route MNL-Pagupdup. criminal offense, the debtor shall not be exempted from the payment of its
BLTB has station in City X and City Z while Pantrangco has station in City Y price, whatever may be the cause for the loss, unless the thing having been
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and City A. They entered into a long-term agreement wherein it was agreed offered by him to the person who should receive it, the latter refused without
that BLTB will be allowed to uses the stations in Y and A, Pantrangco then justification to accept it
will use station in City X and City Z. Dur to unfortunate events, Station Y and
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A was covered with landslide. Art.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
,F

Would BLTB still fulfill the obligation of allowing Pantrangco to use their against third persons by reason of the loss.
stations. Here it would be unfair for BLTB, BLTB could ask for the contract to
be terminated before 20 years expiration of contract. Here there is subrogation illustration: Debtor A is supposed to deliver to
llo

D a particular car but was lost due to fault with third party C. Right of D
NATELCO VS CASURECO & CA (Feb 24,1994) against A will now be transferred to C.
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Facts: Naga Tel Com and Cam Sur Electric Cooperative. NATELCO was PART 9-CHA: (CONDONATION, CONFUSION and COMPENSATION)
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formed to provide telephone services, CASURECO were already distributing

electricity to all other cities within the province of Camarines Sur. NATELCO MODES IN EXTINGUISHING OBLIGATIONS (CCCN)

Badillo, Firaza, Gutierrez, & Mechure

 A. CONDONATION OR REMISSION OF DEBT b. Partial – If only a part of the Obligation is being condoned or
B. CONFUSION “ipinapalista sa tubig’.
C. COMPENSATION

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D. NOVATION EXPRESS Condonation or Remission (As to the form)

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A. Condonation or Remission of Debt ART.1270 “ Condonation or Remission is essentially gratuitous, and
requires the acceptance by the obligor. It may be made expressly or

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Dean: Ano ito sa tagalog? “ilista mo sa tubig ‘yung utang mo” or “sige na, impliedly. one and the other kind shall be subject to the rules which govern
wag mo na bayaran” inofficious donations. express condonation shall, furthermore, comply with
the forms of donation.”

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:You are condoning or forgiving the debtor of his debt to you.
-In order for Express to be valid it must comply with the requisites of a
NOTE: ART.1270 considers this as gratuitous and because it’s gratuitous it

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donation. And must be accepted by the Debtor (Donee). Since this is
would be construed therefore as DONATION. It is a donation. And since it is construed as DONATION per se.

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considered by law as donation, it must comply With the requisites of a valid
donation. Requisites:

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-but it would only apply if the Condonation or Remission is EXPRESS not a. It must be gratuitous -means that the condonation must be inofficious it
when it is implied. must not be something that will be considered to be as invalid or as being

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violative of certain provisions or requirement for a valid donation
3 Types/Kinds of Condonation or Remission

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b. It must be accepted by the Obligor/Debtor- the Creditor is the Donor; the
1.As to the Form Debtor is the Donee. The DEBTOR/DONEE must accept it for its validity.
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a. Express c. The Obligation must be Demandable- it has already matured and due and
it can now be enforced by the creditor anytime.
b. Implied
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d. The Parties must have the capacity- The Creditor and the Debtor must in
2.As to its Effectivity (when will it take effect) a way have the capacity to accept and enter into such a donation or what we
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call now as Remission of Debt.

a. Inter vivos- takes effect during the lifetime of the creditor
Question: Does this mean that the Debtor must be capacitated also in order
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b. Mortis Causa- takes effect only at the death or after the death of for such remission to be valid?
the creditor
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Answer: It appears to be that way. The Debtor must be of age, but what it
3. As to the Extent really refers to is that “The Debtor must be the proper person or party who
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would really be obligated to pay for that obligation were it not condoned or
a. Total – condoning everything. no remission was effected”.

Badillo, Firaza, Gutierrez, & Mechure

Also, even if the Debtor Is incapacitated it being a Donation and it is -It is obvious, because if you will still require it, it would be Express and no
Gratuitous, it could already be valid as long as the Consent has been given longer Implied.
to,by him or through his Authorized Representative or Guardian

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-But there are certain limitations for the validity of a Donation (Implied

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e. Not inofficious, not Void or Invalid Donations). Dean will discuss daw later ‘yung limitations.

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f. Must comply with the forms of Donation if it is merely EXPRESS When do we consider that there is CONDONATION or REMISSION?

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What are the forms and Conditions (Art 748 and Art 749) ART.1271 “ The delivery of private document evidencing a credit, made
voluntarily by the creditor to the debtor, implies the renunciation of the action

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“Art. 748. The donation of a movable may be made orally or in writing. which the former had against the latter.

An oral donation requires the simultaneous delivery of the thing or of the

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If in order to nullify this waiver it should be claimed to be inofficious, the
document representing the right donated. debtor and his heirs may uphold it by proving that the delivery of the

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document was made in virtue if payment of the debt”
If the value of the personal property donated exceeds five thousand pesos,
the donation and the acceptance shall be made in writing, otherwise, the
Dean’s discussion:

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donation shall be void. (632a)”

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“Art. 749. In order that the donation of an immovable may be valid, it must be When a private document evidencing payment is voluntarily delivered by the
made in a public document, specifying therein the property donated and the Creditor to the Debtor. It will imply Renunciation of the debt.

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value of the charges which the donee must satisfy.
-Example:Assuming that D acquired a loan from C. And to show proof or
The acceptance may be made in the same deed of donation or in a separate establish the existence of obligation. D was required by C to execute a
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public document, but it shall not take effect unless it is done during the promissory note or Check.
lifetime of the donor.
And obviously, the promissory note/check will be required by C to be
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If the acceptance is made in a separate instrument, the donor shall be delivered to him.
notified thereof in an authentic form, and this step shall be noted in both
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instruments.(633)” While the loan is still outstanding, C will keep the promissory note/check until
the loan was paid by D.
IMPLIED Condonation or Remission (As to the form)
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But if the promissory note/check will be voluntarily returned to the Debtor by

Dean’s Discussion:
the Creditor—even there has been no payment made yet. This will now be
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an Implied Renunciation or Remission of the debt.

-Does it need to comply with the requisites of Donation? NO. except of the
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certain requirements for a validity of the particular donation (Implied

NOTE: the law only refers to PRIVATE DOCUMENT only in order to apply
donations) that you will find this applicable.
this presumption. Why not also Public Document? Because it may consist of

Badillo, Firaza, Gutierrez, & Mechure

several true copies, and it is not only the Creditor who may be in possession Example.
of such document (other individual or entities may have the copy of “true
copies of document”) Debtor might have acquired it from other sources if

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public sya, unfair kay Creditor. Kasi nga once na hawak n ani debtor yung

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docs ang presumption is binalik na ito sa kanya ni Creditor.

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NOTE: This PRESUMPTION OF REMISSION OF DEBT by mere

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possession of Debtor of the document evidencing credit is PRIMA FACIE. It
may be refuted if it is found to be INOFFICIOUS or is not valid.

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Example of INOFFICIOUS remission of debt:

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-The violation of the provisions of Civil Code in DONATION when it comes to Art 1219 “The remission made by the creditor of the share which affects one
SUBSTANTIVE REQUIREMENT. of the solidary debtors does not release the latter from his responsibility

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towards the co-debtors, in case the debt had been totally paid by anyone of
them before the remission was effected.”
“Art.752 The provisions of Art.750 notwithstanding, no person may give or
receive, by way of donation, more than he may give or receive by will.

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A and B are solidary debtors to pay X and Y Php 1M. X and Y are also
solidary.

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The donation shall be inofficious in all that it may exceed this limitation.”
Scenario: Y makes demand to A to pay Php 1M. A then paid Y.

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Dean’s discussion:
-no person may give or receive by way of donation more than that he may =The payment of A now extinguishes the obligation.
give o receive by will. Scenario: After ng payment ni A kay Y. Si X nag-magaling, he condoned B,
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sabi nya “B okay na ‘yung utang nyo ni A, ‘wag nyo na bayaran.”
-this is applicable on Implied remission or condonation
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Question: Would this condonation or remission of X be valid?

-if the creditor allows the condonation or remission by returning the Answer: No, because there is no obligation that is existing as the
DOCUMENT EVIDENCING CREDIT voluntarily to the Debtor but the condonation was made only after the obligation was extinguish by the
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amount in effect that he would be condoning goes beyond what he would payment of A to Y.
have right to give out, (you cannot give out something that in excess of your
present assets) Issue: First and foremost, nag bayad si A to Y. (the solidary debtor “A” who
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makes payment would have the right to be reimburse by his solidary debtor
*Kahit may 10 million ka, tapos ang utang mo is 20million. You cannot which is B)
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donate 10Million. It is INOFFICIOUS.

Question: Can A still ran after B for his share in the solidary obligation?
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Dean: We go back to the provisions of Solidary Obligation as to what is the

Effect of Condonation and Remission in cases of Solidary obligations. In
relation to Art 1219 and Art 1220. (Illustrate daw ni dean)

Badillo, Firaza, Gutierrez, & Mechure

Answer: YES, B cannot put the defense that he was condoned by X, a.Testate or Intestate succession
because there is no condonation that actually took effect since the obligation Example: A father who has a son, during his lifetime, he extends a
was already extinguished. loan to the son, but before the son could pay for the loan to his

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father, the father died leaving no other heir but the son. In this case,

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ART 1220 “ The remission of the whole obligation, obtained by one f the the son will acquire the rights of the father and one of which is the

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solidary debtors, does not entitle him to reimbursement from his co-debtors.” right of the father to enforce an obligation against his own son.
=Extinguish na ‘yung obligation.

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Dean: The remission of the whole obligation obtained by one of the solidary
debtors does not entitle him to reimbursement from his co-debtors. Requisites of Confusion or Merger

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This time, the condonation was valid. 1.The merger of the characters of the creditor and debtor must be on the
same person.
Scenario: (Please refer to the above illustration) X condones B for the entire

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obligation 2.Must take place in the person of either the principal creditor or the principal

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debtor
=Effect? It shall extinguish the obligation
3. Whether the merger refers to the entire obligation or only part thereof

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Scenario: X will condone B (pretty gurl) if she will give him what he wants there must be complete and definite meeting of all the qualities of creditor
(yes bastos daw sabi ni dean). B then complied with X’s request. Kaya and debtor in the obligation or in the part thereof affected by the merger.

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na-condone na yung obligation.
DEAN: EFFECTS of the Confusion or Merger as a mode of extinguishing the

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Then B ask A to pay her, since she paid X by rendering some XXX service to obligation;
X.
As provided in Art.1276 and Art 1277.
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Can B (who clearly benefited from the condonation) require A to reimburse
him of his proportionate share? No, there is no right to be reimbursed if one Art. 1276. “ Merger which takes place in the person of the principal debtor
of the solidary debtors was condoned which clearly favors both debtors. or creditor benefits the guarantors. Confusion which takes place in the
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person of any of the latter does not extinguish the obligation.”

B. CONFUSION or MERGER OF RIGHTS
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Dean: The merger or confusion of obligation where there is a guarantor.

Art.1275. “The obligation is extinguished from the time the characters of
creditor and debtor are merged in the same person.” Illustration: D owes C. D constituted A as a guarantor.
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Dean: The Person of the Debtor is now confused or merged with the Person Assuming that there is a confusion of the person of the Creditor with that of
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of the Creditor (you become your own creditor and debtor) the Debtor. (Si Debtor na ang naging Creditor)
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This will result to the extinguishment of the obligation. =Would that result to the releasing A(guarantor)? Yes in accordance with
Art.1276
It is very common in cases of:

Badillo, Firaza, Gutierrez, & Mechure

However ART.1215 “Novation, compensation, confusion or remission of the debt,
made by any of the solidary creditors or with any of the solidary debtors,
Scenario: D owes C. A as guarantor of D. The merger takes place in regard shall extinguish the obligation, without prejudice to the provisions of Article

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to the person of C with that of A (Si A na ang naging Creditor) 1219.”

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=Would that also extinguish the obligation and release D? NO. (why?
Self-explanatory na daw sabi ni dean)

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

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characters concur.”

Dean: This expressly governs the effect of a merger in cases of joint

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obligations.

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There is a confusion or merger of the rights of X and Y with that of A.

=What will the effect be? Extinguish ang obligation, it releases A and B from

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the juridical tie. BUT B would still be liable to A for the reimbursement of his
share.

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Further explanion: Because of the confusion of character of A as to that of X

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and Y, it releases B from X and Y but it does not exempt him from
reimbursing A of his proportionate share.
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C. COMPENSATION OF THE OBLIGATION
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Scenario: Y as Creditor was merged with A. (Creditor na si A) The Dean: kumbaga sa tagalog ito ‘yung tinatawag na quits, may utang ako
extinguishment will only be up to the extent of share of A in the obligation sa’yo , may utang ka sa’kin, ‘kwits/quits”.
which is Php 500k.
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Compensation- is the mode of extinguishing the concurrent amount of the

=Will B still have obligation to X and Y? YES. He would still be liable to pay obligation of those persons who are reciprocally debtors and creditors of
X and Y corresponding to his obligation. each other. Most fundamental effect, it extinguishes both debts to the extent
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that the amount covered by the amount of the other. (utang mo 1M, utang ko
SCENARIO: 1M din. Oks na ‘yun)
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What if it is solidary? Relate to Art.1215. However, if utang ni A is 1M and si B ay 2M pwede pa rin mag-compensate
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in the extent of the amount that they owe to each other.

Badillo, Firaza, Gutierrez, & Mechure

TYPES OF COMPENSATION (LV-JF) (2) That both debts consist in a sum of money, or if things due are
consumable, they be of the same kind, and also of the same quality
1.Legal- takes effect by law if the latter has been stated;

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(3) That the two debts be due;

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2.Voluntary or Conventional -takes effect by agreement of parties (4) That they be liquidated and demandable;

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(5) That over neither of them there be any retention or controversy,
3.Judicial- declared to by a court commenced by third persons and communicated in due time to the

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debtor.
4.Facultative- the compensation can be claimed by the party who actually (6) The compensation must not be prohibited by law (Art. 1286 and
can oppose it and who is the only one who may be prejudiced by the Art.1287)

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compensation. (7) Compensation is not waived (not included here in Civil code pero
in-add ko na din dito)
-Compensation initiated by the party who actually could oppose it if it was

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initiated by the other. As per Dean (Art.1279): 7 REQUISITES

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Dean: gets nyo? Parang sya na mismo, pwede na nya sanang pigilin dahil (1) There must be two parties who in their own right are principal
wala ‘yung requisites and dahil dito sa kanyang sariling hiling na creditors and principal debtors of each other except in case of

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magcompensate na, he is the only one who may be prejudiced by said guarantors.
compensation(---hindi ko gets ito gurrls)

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-because if he is a guarantor he is not a principal debtor or principal creditor.
Illustration for Facultative: A and B are debtor and creditor to each other. A is

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indebted to B for 1Million which is payable on April 5 and B is also indebted (2) General rule: It is not possible in obligations to do because of the
to A for the same amount but is only demandable on April 15. difference in the respective capacities of the obligors.
(3) Debts must be due, except in Facultative compensation which
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In this case, there can be no compensation yet that could be effected if it is happens in voluntary compensation
objected to by B, because his obligation is not yet due and demandable. (4) Liquidated- the amount is already determined
(5) There must be no retention or controversy commenced by third
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But if B was the one who says that “ A wag na natin hintayin ‘yung April 15, persons over either of the debts and communicated in due time to
i-compensate na natin.” Then, what took place here is FACULTATIVE the debtor
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compensation.
-the parties must have no issue in so far as their respective rights as against
REQUISITES provided in ART.1279: the other—no third party is claiming the right that these party to the
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obligation may assert against the other.

ART.1279 In order that compensation may be proper, it is necessary:
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(6) The compensation must not be prohibited by law (Art. 1286 and
(1) That each one of the obligors be bound principally, and that he be Art.1287)
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at the same time a principal creditor of the other; (7) Compensation is not waived (not included here in Civil code- gawa
lang ni Dean)

Badillo, Firaza, Gutierrez, & Mechure

“Dean will discuss some of these requisites na medyo unclear” -A owes B Php1M which is due on April 5(today) and B is obligated to pay A
PHp1M on April 15
Illustration;

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Can A tell B na quits na lang sila? NO, because in this example it is only A’s

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obligation that is due and demandable.

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BUT if A tells B na “i-compensate na lang natin ‘yung utang ng isa’t isa” and

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B agrees.

Would this extinguish the obligation? YES, this would be an example of

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facultative compensation (voluntary palagi ito)

It is facultative if it is either (a) initiated by B (b) If it has been agreed to by

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the party who can oppose the compensation

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First Requisite In effect if that compensation takes place, who will be prejudiced? It is B, in
regard to losing his right to make use of the period. (Is that clear?!

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(1)-A and B ( two parties who is Principal Creditor and Principal Debtor) Napakalinaw naman na nyan-sabi ni dean haha)

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-A and B owes each other 1million Fourth Requisite (won’t discuss it)

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-The obligation of A, is secured by a guarantor which is G. Fifth Requisite

Guarantor- a party who is subsidiarily liable (5) There must be no retention or controversy commenced by a third person
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over either of the debts and communicated in due time to the debtor.
-Question: can G also effect compensation? YES it is allowed in Art.1280- a
guarantor although is mere subsidiarily liable may still insist on -A and B owes each other 1M, and X ,as the third party, asserts that the right
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compensation. of B against A should be his.

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Second requisite There is now a controversy that X has ascertained, and that allegation of X
has already been communicated to B and A.
(2) Self explanatory na daw ituuu.
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Question: In effect, can there still be a compensation? NO MORE, because

Third Requisite there’s an issue na sa right ni B against A, which B could have utilized to
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compensate for the right of A against him.

(3) Both debts must be due except in voluntary compensation where there is
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facultative compensation that takes place (so pwede na ma-extinguish ‘yung ART. 1283 “If one of the parties to a suit over an obligation has a claim for
obligation) damages against the other, the former may set it off by proving his right to
said damages and the amount thereof.”

Badillo, Firaza, Gutierrez, & Mechure

Dean: Art.1283 is the JUDICIAL COMPENSATION the assignor was notified by the debtor at the time he gave his consent, that
he reserved his right to the compensation.
Here it may be an exception to the rule in so far as the 4th requisite of

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compensation (where both debt must be liquidated and demandable) If the creditor communicated the cession to him but the debtor did not

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consent thereto, the latter may set up the compensation of debts previous to

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In a Judicial Compensation there is still no debt that becomes liquidated and the cession, but not of subsequent ones.
demandable as it would exactly bbe the final determination of the existence

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of the debt itself and the amount of damages that would be awarded to If the assignment is made without the knowledge of the debtor, he may set
either of the party so they could compensate it. up the compensation of all credits prior to the same and also later ones until
he had knowledge of the assignment.

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ART.1284 “ When one or both debts are rescissible or voidable, they may be
compensated against each other before they are judicially rescinded or Illustration by Dean:
avoided.”

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Dean: ART 1284 tells us that rescissible and voidable obligations are really
valid until they are either rescinded or annulled.

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-So if the party who has a right to assail either the validity or rescissibility of
an obligation ,because it is either voidable or rescissible, does not do so and

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instead agrees to a compensation with the other party. IT CAN in a way
EXTINGUISH the obligation.

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Why? Because obviously an obligation that is rescissible or voidable are
both valid until it is rescinded or avoided.
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-(syempre pag ni-rescind na there is already a final declaration of rescission
or there is already a declaration of the annulment of the voidable obligation.
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1st paragraph:
Then there can no longer be compensation in so far as that obligation is
concerned.
There’s an assignment that takes place
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Note: THE MOST COMMON QUESTIONS IN THE BAR AS TO

Scenario; Both B and A is indebted to each other for Php 1Million (there
COMPENSATION:
could have already been a compensation, assuming that other requisites are
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present)
Is the application of ART.1285
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Take note: before there is the compensation, A is the Creditor of B for the
ART. 1285 “The debtor who has consented to the assignment of righs made
1million, assigns his right to C.
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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

Badillo, Firaza, Gutierrez, & Mechure

In effect what becomes of A? A now is the assignor, he will no longer be DEAN: ART.1287, ART.1288 and ART.1289 are self-explanatory.
considered as the proper party to whom payment was made, especially if it
was with the knowledge of B Basahin na lang daw sa book ‘yung illustrations dito.

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Considering now that C is the Assignee (sya na ang may karapatang ART.1287 “ Compensation shall not be proper when one of the debts arises

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maningil ng 1M kay B) from a depositum or from the obligations of a depositary or of a bailee in
Question: Can B now set up a compensation with C? IT WILL DEPEND, if commodatum.

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there is a consent as to the assignment of A to C, he cannot set up the
compensation. 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

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However, if B reserved his right to compensation before the assignment of paragraph 2 of Article 301.
C, then he can set up compensation to the Assignee.
ART.1288 ‘’Neither shall there be compensation if one of the debts consists

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3rd Paragraph in civil liability arising from a penal offense”

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Scenario: If there was no consent of B, then A assigned his rights to C. ART.1289 “If a person should have against him several debts which are
susceptible of compensation, the rules on the application of payments shall

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Question: Can B set up compensation? YES. As stated in the last paragraph apply to the order of the compensation.”
of Art.1285.

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Part 10: NOVATION
ART.1286 “Compensation takes place by operation of law even though the

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debts may be payable at different places, but there shall be an indemnity for The last mode of extinguishing an obligation as defined and governed by
expenses of exchange or transportation to the place of payment.” Chapter 4: Novation
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Dean: Legal compensation takes effect by operation of law so there need Reminder: Read thoroughly the BOOKS on Novation because it is as
not be any agreement between the parties in regard to the extinguishment of popular as payment of performance to bar examiners.
the obligation through compensation.
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For his term and final examinations

Dean: So,When is there such legal compensation? It is stated in ART.1290.
,F

Aside from depending on listening and visual aids, read the books about
ART.1290 ”When all the requisites mentioned in Art.1279 are present, Apurado and Tolentino.
compensation takes effect by operation of law, and extinguishes both debts
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to the concurrent amount, even though the creditors and debtors are not Novation Article 1291
aware of the compensation.
Note:
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=Total Amount- exact ‘yung utang nila sa isa’t isa ● Words of the probation obligations may be modified by;
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● There is no extinguishment but merely a modification.

=Partial amount- magkaiba, A owes 500k, B owes 1M ● A misnomer - aside from modification of old debtor, there is also
-B’s obligation will still exist with regard to the balance. extinguishment.

Badillo, Firaza, Gutierrez, & Mechure

 ● Novation could either be extinguishing the old obligation, replacing Refers to types of obligation that no longer could be enforced in a way the
it with a new or merely modifying the existing obligation. debtor could already set up a defense that would refute the creditor from
● There is no extinguishment, it merely modifies its tenor. enforcing the obligation.

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● It tells you that Novation takes place when;

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EX. An obligation that has already been prescribed - a natural obligation =

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1. Changing the object or principal conditions voluntary fulfillment not valid and existing enforceable obligation.
2. Substituting the person of the debtor

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3. Subrogating a third person in the rights of the creditor (1203) If the debtor, who is actually the party who made it up to the defense of
prescription to refute the enforceability of the prescribed obligation, does not
From this enumeration, we discover the two general classes of novation do so. When he waives it, he allows the creditor to consider for purposes of

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novation.
Two general classes of novation:
1. REAL NOVATION: The novation where there is a: THere would be a Valid novation = creating a new obligation which will not

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● Change in the object of the obligation (change of the presentation) be valid in all aspects and the old that has been considered as natural

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● Change in the principal condition of the obligation obligation will no longer apply to the new.

2. PERSONAL NOVATION: EX. Assuming that DOC, a contract of loan executed in writing, who has a

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● Substituting the person of the debtor: The original got substituted prescribing period of 10 years. Recon from the time, the obligation became
by a third person. due and-demandable.

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● Subrogating a third person in the rights of the creditor: New creditor
will be included and the old creditor will be excluded. Within the 10 year period, the creditor has a civil right to enforce that

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obligation against the debtor.
From this definition and classification, the important thing that must be
remembered is the requisites of novation. Assuming that in a 10 year period, the creditor didn’t act on the right to
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enforce it. The obligation of the debtor becomes natural, it prescribes. The
Novation: the only mode that extinguishes the old and creates a new. creditor can no longer enforce it. The obligation that is not existing anymore
in regard to it being enforceable but it is natural.
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Requisites of novation.
Assuming that the creditor proposes a change in the object of that obligation.
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1. Previous valid in existing obligation

Creditor: “Instead of you paying me a sum of money, let change an
General RULE: There must be an old obligation that is valid and existing. If agreement. I require you to bring me your Porsche”
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there is a void obligation or no obligation, there will be no novation. Whether

you go extinguish when in the first place does not exist. There is a novation, a change in principal in prestation or object of
obligation.
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EXCEPTION: Article1198. “The novation is void if the original obligation

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was void except when annulment may be claimed only by the debtor or NOTE: The old obligation that consists of delivery of money, which is being
when ratification validate acts which are voidable.” changed by the new which is the Proshe is now prescribed.

Badillo, Firaza, Gutierrez, & Mechure

The debtor can set the enforceability; but the debtor agreed with the Q: Would the defect from the old be carried to the new? NO MORE.
agreement. Debtor: Instead of giving you a sum of money, I will give you this
Porsche. Q: If creditor enforce against the debtor, the new obligation, can the

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debtor set up a defense? NO MORE.

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So, is this novation valid? YES. That new obligation that delivers the

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Porsche, will be free from the defects that the old had. 2. Capacities of the contracting parties to the new contract : The New
contact must be free from any defect that may render it voidable or even

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This is the exception to the rule. void.

EXCEPTION: Article 1198 3. The Animus Novandi: The Intent to novate especially for implied

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● When ratification validates acts which are voidable. novation and substitution of debtors.
● Obligations are either voidable or rescissible. Are they subject of
novation? YES. 4. Substantial difference between the old obligation and new

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● Voidable and rescissible contracts or obligations are valid until they obligation: Especially for implied novation. Consequently, the

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are annulled or rescinded.. extinguishment of the obligation.

In this case, there may be ratification by simply waving for the right to ask for 5. The validity of the new obligation: Unless there is an exception in

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the annulment or rescission of the obligation then, there is novation taking Article 1298 if the parties clearly intended that the old obligation be
place. extinguished.

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EX. The debtor is still a minor incurred an obligation loan from the creditor. From the enumeration of the requisite of valid novation, we find out of

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another set of types of novations.
The status of the obligation is voidable/defective because the debtor is
incapacitated. Aside from real and personal, novation could be expressed or implied.
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If the creditor enforces the debtor, the debtor can put up the defense of the EXPRESSED: Expressing the parties to make the agreement clear
minority. He can annul the obligation. particularly when it comes to the personal novation.
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But after he reached majority age, the creditor proposed a novation. Either the change of the party by a; third person change or, by a third person
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of the party of the debtor or, subrogating in the third person by the rights of
The debtor didn’t object to the novation. the creditor. There must be an express novation.
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The old voidable novation was replaced by the new which is completely valid IMPLIED: No expression of the intention to novate. But the old obligation is
because it was done and was signed by the debtor after he became in all aspects irreconcilable to the new obligation.They can’t stand to be
capacitated. together so that it is declared that the old is extinguished because of the
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new.
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Q: Is it considered as valid novation? YES. It extinguish the old defective

voidable obligation

Badillo, Firaza, Gutierrez, & Mechure

NOTE: You may be raising the issue that requisites of valid novation are Issue: What if there is a change in period or a term? Would it be the result of
different from the books that you read and they have basis through supreme novation? If the old were extinguished by the new, would we get to find a
court decision. new term/period?

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Supreme Court Requisites of Valid Novation PROF: This time, we will rely on the decision of the supreme court.

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1. There must be a previous valid obligation.
2. There must be an agreement to the parties concerned to the new Rules change in period:

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contract (animus). In the case of Ynchausti v Yulo, mere extension of the term of payment does
3. There must be extinguishment of the old contract. not constitute what you call novation, extinctive novation. Not novation.
4. There must be the validity of the new contract.

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EX. I owe you P500,000 which I am supposed to pay in a year, 1 year period
PROF: I don’t agree with this just like Caguioa and Jurado book, they don’t is given to me. Now, before the expiration of one year period, we agreed,
adhere with this enumeration of requisites particularly with the number 3 you granted me an extension of another year. Which changes the period.

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because that is the effect of novation, nor the requisite of novation.

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The old obligation to pay you was not extinguished by the new obligation to
When we talk about Requisites, this is the facts established prior to the pay you? The answer is NO. (Ynchausti vs Yulo)
result. We first talk about the Novation happening. BUT the number 3 that

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was enumerated by the supreme court is the effect of the happening of However: Sonya vs Azarraga
novation.

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Extension of time coupled with payment of interest on the amount due
PROF: My position is better enumeration of the req are those I provided to will result in novation. Why? Because a new consideration has been

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you. What the supreme court provided is the wrong one. established by the parties.

Article 1292: The provision that establishes express novation or Go back to example: Originally, the debtor has a loan payable to the creditor
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implied novation. in 1 year. If the creditor extends 2 years, there is no novation.

Article 1292. In order that an obligation may be extinguished by another BUT in this case, the creditor agrees to the extension of another year but
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which substitutes the same, it is imperative that it be so declared in this time it requires payment of interest which was not then stipulated with
unequivocal terms, or that the old and the new obligations be on every point the original term.
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incompatible with each other. (1204)

SUPREME COURT: There is novation. It will be considered an obligation
Let’s talk about the Concept of novation which is affected by the change of different from the old and the new will be more burdensome.
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the objection or principal condition.

IF However, if the term was shortened, the obligation is payable within 6
The Provision did not make mention of novation taking place when there is months instead of 1 year, will there be a novation?
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change in the term of the period.

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SUPREME COURT: There is novation (Kabangkalan Sugar Co. v. Pacheco,

It merely refers to novation if there is a change in the principal condition. 55 Phil 555)

Badillo, Firaza, Gutierrez, & Mechure

SUMMARY: ● The acceptance by the creditor of a new cheque in replacement to
Extension: No additional new obligation created = No novation the dishonored cheque does not result in an extinctive novation in
Extension but new obligation that now imposed to be applied in the absence of the express agreement that debtor is already discharge

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extended period, there is novation. from his liability caused by dishonored cheque neither is there

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Shortening of the original period, there is novation. incompatibility because both cheques were given precisely to

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terminate the same obligation.
Rules change in rate:

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National Exchange Company vs Ramos
1. A change in the rate of the interest is merely collateral agreement NOTE: Involves authored capital stocks in corporation. Can’t be understand
between the creditor and principal debtor that did not affect the by this point and will not be appeared in finals but will be helpful for the

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surety. It did not affect the original contract. Thus, despite the corporation law
compounding of the interest, the liability of the surety remains only ● They secured a money judgment against P. Subsequently, B and P
up to the original uncompounded interest. entered into a contract whereby the said judgment was to be

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extinguished by monthly payment and that incase to failure to pay

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(Garcia Jr. v Court of Appeals) the monthly payment, B, shall be at liberty to enter suit against P.
● The debtor has a surety to the creditor. ● Was there a novation of the judgment?
● This obligation of the debtor in which there is a surety carried with ● It contemplates the situation where B was able to acquire a

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an interest. favorable judgment against P.
● Say there is 12% interest then there is change in rate of interest. ● The original tenor of the judgment did not provide for the manner of

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The interest rate increases. Nagging 15%. payment which is expected it shall be paid in one instance in
● Surety says because the rate changes, the old obligation of which presumption of indivisibility.

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he was a surety should be considered as novated and extinguished ● However, B and P agreed.
and will be released from his responsibility as a surety.
B: You can pay the judgment debt in installments
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SUPREME COURT: NO NOVATION. So, the surety will still continue to be P: ok. Novated the old obligation arising from the judgment debt.
with the new higher interest. BUT the liability would be only limited to the old
rate of the interest because it was without his consent. SUPREME COURT: No novation The contract did not expressly extinguish
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obligation existing in said judgment. On the contrary, it expressly recognized

Foundation Specialist Inc. v Bent Oval Ready Concrete Inc. and modified the obligation existing in said judgment and expressly provided
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● Obligation to pay a sum of money is not novated by the instrument a method giving P more time to extinguish the same that is by monthly
that changes only the terms of payments. payment. (Zapanta v De Rotaeche(21 PHIL 15)
● Adds other obligations not incompatible with old as the new merely
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supplements the old. Review of kind of novation:

● No novation that happens when initially may be their obligation was ● Real or objective Novation
to be paid in several installments and it changes ( became 24 ● Personal or subjective Novation
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months installment). There is no change, no novation. ● Mixed: if both occurs: There is Not just change in the prestation
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but also change in the parties.

Salazar v JY Brother Corp

Badillo, Firaza, Gutierrez, & Mechure

PERSONAL NOVATION. Substitution by a third party of the debtor on the Novation can’t be invalid. The consent of the debtor is not important, hence,
obligation. it is initiated by the third party and agreed to by the creditor.

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Two classifications of Personal / Subjective Novation: Two Kinds of Expromission

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1. Substitution with a knowledge and consent of the old debtor

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1. Expromission 2. Substitution without a knowledge or may have been with knowledge
but against the consent of the debtor.

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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 Not important: Consent of Debtor
shall not give rise to any liability on the part of the original debtor. “ Important in expromission:

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● Must have been at the initiative with a third person.
This is the effecting of the novation with the consent of the creditor at the ● Consent of the creditor
instance of the new debtor even without the consent/against the will of the ● Must there be an express intention that this person would want to

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old debtor. substitute as a party to the obligation.

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Important element regarding to the party of who may initiate the change of
the party of the debtor in the obligation. Villanueva v George (110 Phil)
A=DEBTOR

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Parties involved: B=CREDITOR
1. Original debtor C=THIRD PERSON

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2. Creditor
3. Third party A owes B money. C wrote B, the creditor, that he will take care of the debt of

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A but that A will make shipment of logs to Japan., A did not ship the logs to
The third party will initiate the replacement of the old debtor by him.This Japan. C didn’t pay B. May C liable to B?
could either be affected without the consent of the old debtor or even without
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his knowledge. NO. Expromission did not take place for there was no consent on the part of
B (creditor) to the proposal of C to shoulder the debt of A. The liability of C is
The important thing is it was initiated with the third party and with the there is a condition that is needed to fulfill. However, the condition did
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consent of the creditor. Not necessarily with the knowledge or consent of the happen. Therefore, there is no liability to C.
debtor.
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Delegacion
Three requisites under expromission: Always w/ consent of C not D. Important in understanding Art 1295
1. Initiative for the substitution must emanate from the new debtor. ● Initiative is from the debtor to a third person. The debtor is the one
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2. Consent of the creditor to the substitution. who’s asking the third party for his replacement.
3. Old debtor must be released from the obligation. ● Consent of the third party and the creditor.
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Creditors consent cannot be presumed it must be given expressly. There Delegante: Effected with the consent of the creditor as the instance of the
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would be a clarification for this issue. old debtor.

Delegato: With the concurrence of the new debtor. similar to the payment
made by a third person depends on the right of the third person.

Badillo, Firaza, Gutierrez, & Mechure

 What do we mean by being expressed insofar as the creditor’s concern?
Against the debtor, there is reimbursement or subrogation depending on Cases must be considered.
whether or not there is knowledge or consent not on the part of the debtor.

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The issue is that whether it is an expromission or delegacion, the consent of

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CASES: the creditor must be present.

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Hodges v. Rey 111 Phil 219
Mercantile Insurance Company v. Court of Appeals Law appears that such consent must be expressed > Art 1293

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The mere fact that the creditor receives a guarantee/ accepts payment from Art 1293: Novation which consists in substituting a new debtor in the place
the third person who agrees to assure the obligation when there is no of the original one, may be made even without the knowledge or against the

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agreement that the first debtor shall be released from the responsibility does will of the latter, but not without the consent of the creditor.
not constitute the novation and the creditor can still enforce the obligation
against the original debtor. Deliverance Consent Appears as Being Expressed

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The third person becomes merely a co-debtor, surety or co-surety. Testate Estate of Mota et al., v Cera (47 Phil 464)
Aside from expromission, it is an initiative of the third person who agreed
with the creditor, it must be clear from 3rdp, to replace the old debtor thereby The Supreme Court: YES it implies on the part of the creditor a waiver of the

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releasing the debtor from the responsibility or juridical tie. right that he had before the donation, the right to Run after the right of the
original debtor = A waiver of a right of the creditor.

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In the absence of clearness, so far the debtor is being released in that Which therefore would require express waiver under the principle that
obligation. The act of the third person may still solve some legal effect where renunciation non premasimitior (Meaning: Renunciation of the waiver is not

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he can come merely a third party that will be entitled either to subrogation or presumed.)
reimbursement.
A waiver of right may not be presumed/ may not be performed, unless the
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BUT because it did not result to expromission, the creditor may still run after will to waive it unexputadely shown by him who holds the right.
the original debtor even if the creditor was already accepting payment from
the third party. Or they have already to be constituted as a surety or a The agreement to substitute the debtor with that of the third party, is in
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solidary debtor in that regard. effect, a waiver of his, the creditor signed right to go after the original detor.
Being a waiver, it is neccerasilty it should be expressed, it cannot be
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NOTE: The issue is, whether it is expromission or delegacion, we said that presumed. The case will never be presumed
the consent of the creditor must be present. The law appears that such
consent must be expressed. QUESTION: May be implied? Latter case
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Article 1293. “Novation which consists in substituting a new debtor in the Asia Banking Corp. v Elzer
place of the original one may be made even without the knowledge or
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against the will of the latter but not without the consent of the creditor. “ SC held: Art 1293 “Does not say that the creditor”s consent must be
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expressed or given at the time of the substitution. “

We need now to know how this consent should appear. It must be
EXPRESSED.

Badillo, Firaza, Gutierrez, & Mechure

According to Spanish jurisprudence, it is sufficient that consent be given at The decision: Conviction must be upheld. Y novation theory may prior
any time and in anyform in whatever, while the agreement of the debtor apply to the criminal action in court. Up to that time, original trust relations
subsists. The existence of the consent may be inferred therefore from the may be converted by parties to an ordinary creditor-debtor relationship.

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acts of the creditor since volition may as well be expressed by deeds as by

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words. But after that, The offended party may no longer divest the prosecution f the

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power to exact criminal liability as distinguished from civil.
The holding in Testate Estate of Mota v Cera (47 phil 464) is not meant to Cases: People v Nery, People v Benitez

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convey the impression the words express was to be given an unqualified
meaning contrary to the American and Spanish cases cited in the said Exception: If done in preliminary investigation, there can be subsequent
decision. agreement if X entered into the proposed agreement of Y that he will pay in

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installment of his embezzlement as long as it is still not in the supreme court.
The consent must be expressed by and must not be presumed. All it will transform into debtor-creditor relationship and is considered as civil
Whether it could be implied by the suspect acts of the credito himself. It may liability.

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be the consent required for the validity of either the expromission or

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deligacion. Deganios v People

EX. Expromission There was consignment of jewelry for sale or return, if unsold. However, the

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There is a third party who is willing to substitute the debtor. The creditor did accused did not return it so he/she was filed for estafa. (Why? because the
not expressly clearly (absence of word of agreement) but the action speaks relation between agent and owner would result in the principal agent (trust

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(accepting payment from third party) = Acts that are considered as consent. and relationship). If the relationship breach, there will be action for criminal
liability. )

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CASE
X sued Y for estafa, pending court; while the case is pending, Y entered into Accused claim explains that his partial payments novated the contract to
a contract with X where Y promised to pay X in installment the amount which agency to loan thereby converting the liability to criminal to civil.
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is misappropriated by Y. However, Y was still convicted for estafa. There was no file given to him that he paid the partial payment.
He insisted that his failure to complete the payment prior to the criminal
It is disposition when he was accused of estafa, the obligation arises for complaint, complainants requiring the accused to make a formal proposal to
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criminal responsibility. And that is how the court recognized the issue finding the barangay authorities of payment of balance confirm the novation.
out whether there is an obligation of Y arising from criminal act, the estafa.
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However, while the case is pending, Y made an agreement that he will pay Supreme Court: There was no novation.
in installment and X (private complainant) agrees. Y assumes that the case
must be dismissed or that will in effect result in his acquittal (the obligation Partial payment made and purported did not equate to novation of the
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will transform into one rising originally from a criminal act to one that will original contractual relationship to one of sale.
arise to civil = will only be considered as debt.) There must be intent to extinguish the old relations, intent cannot be inferred
from mere acceptance of the partial payment. Similarly, there was proposal
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Supreme Court: NO. The criminal complaint was in the jurisdiction already. of payment.
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So the agreement made between X and Y is not considered anymore. Court

is the one who will decide. BUT here payment was made before the case was filed in court.

Badillo, Firaza, Gutierrez, & Mechure

Why was the debtor not acquitted with the criminal responsibility? Horado: Art 1294 only covers the when expromission without knowledge or
BC He did not make any express proposal of changing the nature of his consent. If there is consent of the original debtor, there will still be liability.
obligation. One of the agents from the principal brought about the contact of

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the agency to one that is mere payment of a loan by the debtor. PROF: Tolentino is more in accordance with justice and fair play. It is in

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accord with the natural law itself.

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EFFECT OF INSOLVENCY OR NON-FULFILLMENT BY A NEW DEBTOR Delegacion: Insolvency is only applicable if the reason for the new debtor not

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Article 1294 and Article 1295 to be able to pay the creditor is insolvency.

Article 1294 “If the substitution is without the knowledge or against the will The insolvency of the new debtor who has been proposed original debtor

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of the debtor, the new debtor insolvency on non-fulfillment of the obligation and accepted by the creditor shall not revive the action of the latter against
shall not give rise to any liability on the part of the original debtor.” the og debtor except when said said insolvency was already existing or with
public knowledge or known to the og debtor when he delegated his debt.

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The novation took place substituting the original debtor with the third party

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Exception: In effect under the delegacion can't be revived except the ff.
The new debtor did not pay either because he is in insolvent or for any other Cases:
reason— non-fulfilment 1. insolvency was already existing and of public knowledge

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2. At the time the og debtor has delegated his debt and insolvency
Not just limited to insolvency has already existed and known to og debtor when he delegated his

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The sample is under the expromission - with the initiative of a third party but debt.
did not pay the debt.

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It is submitted that actual knowledge of the creditor that the new debtor was
Question: can the creditor reach out for the debtor when the third party insolvent at the time of the delegacion, will also bar. Bar him from recovering
didn't pay the debt? NO the old debtor. He must bear a consequence of the acts knowingly done.
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Especially if the debtor did not agree or if he didn't have any knowledge that Reiteration in Delegacion, it will not revive EXCEPT If it is known to debtor or
he was replaced by the third party. If the substitution is without knowledge or to the public, ibig sabihin the creditor will know it also kasi public daw e.
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will of the debtor, the new debtor of insolvent, non-fulfillment shall not give
rise to any liability on the part of the original debtor. But if only the creditor and debtor has knowledge, without the knowledge of
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the public, the creditor cannot run after the debtor in case of insolvency.
Question: what is the expromission was with knowledge and consent of the
original debtor? Law is silent in that regard Article 1296. Novation of the old obligation which has an accessory
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obligation. Pag extinguished na si principal obli then it goes with it the

Jurado and Tolentino’s claim accessory obli too.
Tolentino: It shall not revive the og debtor liability to the creditor Exception: the extinguishment of the principal obligation by novation would
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Whether or not it was a knowledge or with consent of the original debtor as not necessarily extinguish the accessory and this is when the old
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long as it is expromission. obligation has an accessory obligation that creates a right or benefit to
third person who did not give consent to such novation

Badillo, Firaza, Gutierrez, & Mechure

 NOTE:
Contract Pour Autrui: There is an Agreement between parties of the debtor COMPATIBLE: can stand together
and creditor that a benefit will be provided for a third party “Contract Pour INCOMPATIBLE: in order for the novation to take place, the obligation must

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Autrui. This is an exception to the rule The extinguishment of the principal be fulfilled is the fulfillment of the new obligation conditions. No need for the

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will not necessarily release the debtor’s obligation to the third person created fulfillment of the old obligation.

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by that contrac
Subrogation: The Personal novation affected by subrogating a third person

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NOTE: Art 1311 Par. 2 (exception to the rule) in the rights of the creditor. A Third party replaces the creditor in regar to
whatever the rights this creditos had against the debtor.
Discussed already: Art 1297 & Art 1298

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Analyze: Subrogacio- entering the shoes. This is Similar to an assignment
Article 1299. “If the original obligation was subject to a suspensive or of right (Creditor assigns his right to a third party, Assignor and assignee.
resolutory condition, the new obligation shall be under the same condition, Similar daw.) A third person takes the place of the creditor in regard to the

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unless it is otherwise stipulated.” enforcement of the latter’s rights against the debtor.

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Old obligation subject to a condition and the new one may not be or may Question: Subrogation is in effect assignment of rights? NO.
also be subject to condition

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Prof Tolentino - Distinction between the two concepts
Three Circumstances for the article 1299 will be applicable. Subrogation is distinguished from assignment of rights especially when we

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are talking about the conventional subrogation.
1. The Old obli w/ a condition while the new has w/o condition:

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In Conventional subrogation- The debtor consent is necessary.
The New obligation must be the subject of the condition attached to the old In Assignment of rights- debtor’s consent is not necessary as long as
obligation. Meaning, the existence of the new obligation will now be there is valid transfer/ assignment of rights by a creditor to a third party.
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dependent on the fulfillment of the condition then attached to the old obli. Bc
that is deemed to be applicable insofar as the new obli is concerned. In Conventional subrogation- It extinguishes the obligation, the original
and creates a new one. New one - new debtor, new obligation with a third
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2. Old obli has w/o condition while the new is w/ condition: party.
No novation until the condition is not fulfilled to the new. There must be a In Assignment of rights- It does not extinguish the old obligation. Still the
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fulfillment of the condition of the new so as old will be replaced. same obligation needs to be fulfilled. Except, it would be in favor of the
assignee.
3. Both old obligation and new obligation w/ conditions:
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MUST: If the conditions of both obligations are compatible, the conditions of In Conventional subrogation - The nullity or the defect in the old obligation
both would have to be fulfilled in order for the novation to take place. If the may be cured by the subsequent conventional subrogation. Even if the old
condition on the old obligation is not fulfilled even if the condition on the new obligation is voidable and there is a conventional subrogation that takes
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obligation is fulfilled there is no novation because there is a failure of the first place, that defect in the old obligation would not be carried over to the new
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important requirement of a valid existence of old obligation. obligation that is created by conventional subrogation.

Badillo, Firaza, Gutierrez, & Mechure

In Assignment of rights- Whatever the defects of the old obli, is carried
over now to the obligation of the debtor to be a new creditor assignee. 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

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How do we know what was affected between conventional subrogation and who has been subrogated in his place in virtue of the partial payment of the

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assignment of rights? same credit. (1213)

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Licaros v Gatmaitan (526 cra 379) Situation

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SC: To determine if Subrogation or Assignment of rights, know the intention S=THIRD PARTY
of the parties. D=DEBTOR

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C=CREDITOR
A Memorandum of the agreement was entered into between the
creditor-debtor. Stated the orig creditor is to transfer his right to the third EX. Debtor owes the creditor with P2 million. There is S who pays the

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person. But this has to be with the conformity of the debtor, may conforme creditor only with P1 million with the consent of D (or even without the

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yung debtor bago matransfer yung right. consent of the debtor. This is the third party who has an interest with the
fulfillment of D’s obligation to C. )
SUPREME COURT: It was Conventional Subrogation. The Validity of

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Conventional Subrogation would only take place if there is consent of the If there is a payment by S either S paid C with the consent of D or S is a
debtor even if the third part was referred to as an assignee. Validity would third party of interest paid. But the payment paid by S is only P1 million - S

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only take place when there is a consent of the debtor. became only partially subrogated in the rights of C against D. So, D will now
have 2 creditors which are C and S.

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​Article 1301. Conventional subrogation of a third person requires the
consent of the original parties and of the third person. (n) Except to In Article 1304, it also provides a rule. D lacked funds for his payment for C
assignment of rights that does not need for the consent of the the debtor. and S. C will have preference - a better right over the remaining 1 million of
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D as against that of S.
Article 1302. It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is preferred, even without the ***END****
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debtor's knowledge;
(2) When a third person, not interested in the obligation, pays with the
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express or tacit approval of

the debtor;
(3) When, even without the knowledge of the debtor, a person interested in
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the fulfillment of the obligation pays, without prejudice to the effects of

confusion as to the latter's share. (1210a)
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Article 1303. Subrogation transfers to the persons subrogated the credit with
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all the rights thereto appertaining, either against the debtor or against third
person, be they guarantors or possessors of mortgages, subject to
stipulation in a conventional subrogation. (1212a)

Badillo, Firaza, Gutierrez, & Mechure