Article 1231: Chapter 4: Extinguishment of Obligations

CHAPTER 4: EXTINGUISHMENT OF OBLIGATIONS Note: a person pays a pre-existing obligation.
If no such obligation exists,

strictly speaking there is no payment
Article 1231
Obligations are extinguished: - For a payment to properly exist, the creditor has to ACCEPT
(1) By payment or performance: the same, EXPRESSLY or IMPLIEDLY
(2) By the loss of the thing due: - Effect of payment made under a void judgment: payment
(3) By the condonation or remission of the debt; made thereunder is also void
(4) By the confusion or merger of the rights of creditor and
debtor; Article 1233
(5) By compensation; A debt shall not be understood to have been paid unless the
(6) By novation. thing or service in which the obligation consists has been completely
delivered or rendered, as the case may be.
Other causes of extinguishment of obligations, such as
annulment, rescission, fulfillment of a resolutory condition, and
- Contemplates on the requisites for a valid payment:
prescription, are governed elsewhere in this Code.
o The very thing or service contemplated should be
paid
- Contemplates on how obligations are extinguished
o Fulfillment must be complete
- Ordinary classification of this Code:
- Payment or performance must be complete to result to
1. Payment or performance
extinguishment
2. Loss of the thing due
- Partial payment of debtor may be a ground for the creditor to
3. Condonation or remission of the debt
refuse such payment
4. Confusion or merger
5. Compensation
Q: how is payment or performance made?
6. Novation
A:
- Other causes mentioned but governed by other chapters of
a. If monetary obligation – delivery of money. Must be paid in
the code:
full unless otherwise stipulated in contract
1. Rescission
“indebtedness” – unconditional and legally enforceable
2. Annulment
obligation for the payment of money
3. Fulfillment of resolutory condition
b. Delivery of the thing or things
4. Prescription
c. Performance of said personal undertakings
- Other contemplated causes
d. If debt is not doing of something – by refraining from doing
1. Death of a party in case the obligation is personal
the action
2. Resolutory term – obligation ceases upon arrival of
term
Burden of Proof:
3. Change of civil stutus
a. Creditor should prove that a valid debt exist
4. Compromises
b. Debtor (upon proof of the existence of a valid debt) should
5. Mutual dissent – both parties refuse to go ahead with
prove that debt has been paid
the contract
6. Impossibility of fulfillment
Note: the best means of proving payment is through presenting
7. Fortuitous event
RECEIPTS (note also of presumptions provided for in Article 1176 on
interests and installments)
Take note: upon death of a person criminally liable, his civil liability is not
automatically extinguished. This is supported by Article 19, 20, and 21 of
Article 1234
the civil code which states that the accused would be civilly liable
If the obligation has been substantially performed in good faith,
independently of the criminal liability for which he can be held liable.
the obligor may recover as though there had been a strict and complete
This civil liability exists despite death prior to final judgment of fulfillment, less damages suffered by the obligee.
conviction.
- Substantial performance or compliance is, in a sense, a
PAYMENT OR PERFORMANCE performance according to the fair intent of the contract, with
an attempt in good faith to perform
Article 1232 - Such rule is adopted from the American law: in case of
Payment means not only the delivery of money but also the
substantial performance, the obligee is benefited
performance, in any other manner, of an obligation.
Note: the liability of the debtor for damages suffered by the creditor in
Payment
case of substantial performance does not arise under the conditions set
- Mode of extinguishing obligations which consists of:
forth in article 1235.
o Delivery of money
o Performance in any other manner of an obligation
Article 1235
(ex. Rendition of required service)
When the obligee accepts the performance, knowing its
- This embraces all performance of an obligation, regardless of incompleteness or irregularity, and without expressing any protest or
whether the obligation is REAL or PERSONAL objection, the obligation is deemed fully complied with.
1 angel‘s notes
OBLIGATIONS & CONTRACTS
Paras and Atty. Valencia’s Class Discussion
- Contemplates on QUALIFIED ACCEPTANCE of INCOMPLETE or b. When debt has been completely remitted
IRREGULAR PAYMENT c. When debt has already been paid
- When the obligee accepts the performance, knowing its d. When legal compensation had already taken place
incompleteness or irregularity, and without expressing any
protests or objection, the obligation is deemed fully complied SC’s ruling on this article:
with 1. As to whether or not payment by a third person really
- Reason behind Provision: the presence of WAIVER and benefitted the debtor is a matter to be brought up by the
ESTOPPPEL on the creditor’s part debtor and not the creditor
- What may the creditor do? refuse to accept; make a timely 2. Once the creditor has accepted payment form a stranger, it
objection to the incompleteness or irregularity cannot later or require the permission of the debtor to the
payment
EXCEPTIONS to the GR that you cannot compel creditor to accept partial 3. If the stranger pays with the knowledge of the debtor who
payment: keeps quiet and does not object, it is as if the debtor had
a. When a creditor knowingly accepts incomplete payment really consented. The debtor is not allowed to protest long
without objection after the payment
- Requisites: Note: the knowledge of the debtor that someone is paying for him
o The obligee accepts the incomplete payment can be proved INFERENTIALLY and by his CONDUCT
o Oblige knows its incompleteness
o Creditor did not register his objection or protest Article 1237
(principle of waiver) Whoever pays on behalf of the debtor without the knowledge or
b. In case of substantial compliance in good faith against the will of the latter, cannot compel the creditor to subrogate him
in his rights, such as those arising from a mortgage, guaranty, or penalty.
Accept – means to take a satisfactory or sufficient, or agree to an
incomplete or irregular performance - Whoever pays on behalf of the debtor without the knowledge
or against the will of the latter, cannot compel the creditor to
Note However: receipt for a partial payment does not necessary subrogate him in his rights, such as those rising from a
acquiesce to such incomplete payment mortgage, guaranty, or penalty
Article 1236 Subrogation – act of putting somebody into the shoes of the creditor,
The creditor is not bound to accept payment or performance by a hence, enabling the former to exercise all the rights and action that
third person who has no interest in the fulfillment of the obligation, unless could have been exercised by the latter
there is a stipulation to the contrary.
Article 1238
Whoever pays for another may demand from the debtor what he Payment made by a third person who does not intend to be
has paid, except that if he paid without the knowledge or against the will of reimbursed by the debtor is deemed to be a donation, which requires the
the debtor, he can recover only insofar as the payment has been beneficial debtor's consent. But the payment is in any case valid as to the creditor
to the debtor. who has accepted it.
- Contemplates on the thought that the creditor can refuse - Payment made by a third person who does not intend to be
payment by a stranger (3rd person) excepts: reimburse by the debtor is deemed to be a DONATION, which
o If there is a stipulation allowing this requires the debtor’s consent
o If 3rd person has an interest in the fulfillment of the - Acceptance and consent on the side of the donee is needed
obligation (co-debtor, guarantor, joint debtor) because no one is compelled to accept a donation
- Reason for this provision: - Note: payment is in any case valid as to the creditor who
o Creditor should have a right to insist on the liability accepted it
of the debtor
o Creditor should not be compelled to accept Article 1239
payment from a third person whom he may dislike In obligations to give, payment made by one who does not have
or distrust the free disposal of the thing due and capacity to alienate it shall not be
valid, without prejudice to the provisions of Article 1427 under the Title on
Payment by a Third Person (the third person may pay…) "Natural Obligations."
a. With the KNOWLEDGE and CONSENT of the DEBTOR – here
the payor is entitled to FULL REIMBURSEMENT and - Contemplates on payment made BY an INCAPACITATED
SUBROGATION of such rights as guaranty, penal clause, or person
mortgage
b. WITHOUT the debtors KNOWLEDGE or AGAINST his will – GR: if person has no capacity to give:
payor is NOT entitled to SUBROGATION but he is entitled of a. Payment is not valid – if accepted
BENEFICIAL REIMBURSEMENT b. Creditor cannot even be compelled to accept it
c. The remedy of consignation would not be proper
Note: other instance when recovery can be had from the creditor and
not from the innocent debtor: Exception: Article 1427
a. When the debt has prescribed
2 angel‘s notes
When a minor between eighteen and twenty one years of age, - Related to 1239: paid by an incapacitated person (debtor);
who has entered into a contract without the consent of the parents or
guardian voluntarily pays a sum of money or delivers a fungible thing in Payment to INCAPACITATED
fulfillment of an obligation, there shall be no right to recover the same - Valid only if:
from the obligee who has spent or consumed it in good faith a. Incapacitated person has kept the thing delivered
b. Insofar as the payment has been beneficial to him
Article 1240
Payment shall be made to the person in whose favor the Note: the one who made the payment has the burden of proving that it
obligation has been constituted, or his successor in interest, or any person benefited the incapacitated payee. Follow the rules of evidence in
authorized to receive it. proving (governed by the rules of court)
- It’s not always the creditor whose the obligation has been Benefit – may be FINANCIAL, MORAL, or INTELLECTUAL but it must be
constituted because there are certain stipulations in the proved
contract pour autrui (ex. Make a contract agreeing giving a car
to a third person (for her favor)) Q: What happens if indeed there has been no benefit, what remedy is
o There are also assignees – persons whom in whose given?
favor a certain right have been transferred. When the A: The payment is NOT valid; therefore, the legal representative of the
creditor no longer wants to be a creditor, he can sell incapacitated person can demand a new payment on behalf of his ward.
or assign that credit to another person. The ward himself, should he regain capacity is allowed to claim a new
o The law provides for another person who is authorize payment.
to receive the credit (ex. Administrator of an estate;
guardian of a minor; sheriff in garnishments; Payment to a THIRD PARTY (don’t have to prove the benefit at all times)
liquidator of a corporation during the pendency of it - Valid only to the extent of benefit (FINANCIAL, MORAL or
closure) INTELLECTUAL) to the creditor
- Contemplates on to whom the payment must be made: - Payment must be proved and is not presumed except:
o To the person in whose favor the obligation has o If after the payment the third person acquires the
been constituted (CREDITOR at the time of creditor’s rights
payment, not the original creditor at the time the o If the creditor ratifies (to condone or allow; it
obligation was constituted) happens after the receipt) the payment to the third
o The successor-in-interest (heirs) person – the defect is cured (authority came after
o To any person authorized to receive it the third person acquired the money: correction;
(authorization may be through agreement or by even if it did not really redounded to the benefit of
law) the creditor)
- Exception to this article: 1241 and 1242 o If by the creditor’s conduce, the debtor has been
led to make the payment – case of ESTOPPEL
Note: if the recipient was NOT AUTHORIZED, the payment generally is (negligence of the creditor causing the incident to
NOT valid. happen)
If the money is paid to the wrong party in good faith, the debt is NOT Article 1242
EXTINGUISHED. Moreover, the obligation carries with it the payment of Payment made in good faith to any person in possession of the
interest and the interest continues to run. credit shall release the debtor.
Why? Payment to an unauthorized agent is at the risk of the payor. - Speaks of an extinguishment by payment where payment was
not made on the people contemplated in 1240, rather to the
person in possession in credit
Article 1241 - Ex. the debtor paid to a person who is no longer the owner of
Payment to a person who is incapacitated to administer his the credit is valid, as long as it is done in good faith.
property shall be valid if he has kept the thing delivered, or insofar as the The debtor paid to the assignee not knowing that the deed of
payment has been beneficial to him. assignment was void, is still considered valid, as long as it is
done in good faith
Payment made to a third person shall also be valid insofar as it - Keyword is GOOD FAITH (will extinguish the obligation)
has redounded to the benefit of the creditor. Such benefit to the creditor
- Refers to the person who possess the credit not the evidence
need not be proved in the following cases:
of credit
(1) If after the payment, the third person acquires the creditor's
- Requisites:
rights;
(2) If the creditor ratifies the payment to the third person; a. Payment by payor must be MADE IN GOOD FAITH (this is
(3) If by the creditor's conduct, the debtor has been led to believe presumed)
that the third person had authority to receive the payment. b. The payee must be in POSSESSION OF THE CREDIT ITSELF (not
merely the document evidencing the credit)
- Contemplates on payment to INCAPACITATED person and Ex. Promissory not payable to bearer and not to a
UNAUTHORIZED third person specific person
- only applies to obligation to give (kept the thing delivered)
3 angel‘s notes
Credit – is an invisible right which is represented by a document which is o In case there is another agreement resulting in
the evidence of credit either DATION of payment or NOVATION
Note: thus you should pay to the person who has the AUTHORITY to o In case of WAIVER by the creditor
possess the document
Article 1245
Article 1243 Dation in payment, whereby property is alienated to the creditor
Payment made to the creditor by the debtor after the latter has in satisfaction of a debt in money, shall be governed by the law of sales.
been judicially ordered to retain the debt shall not be valid.
Dation in Payment – mode of extinguishing an obligation whereby the
- Payment made to the creditor by the debtor after the latter debtor alienates in favor of the creditor, property for the satisfaction of
has been judicially ordered to retain the debt shall NOT be monetary benefits (giving of a particular object in payment of a debt
valid which is monetary)
- If the court orders you not to pay, do not pay! - In order to be valid, should require the consent of the creditor
- Serves as a warning. If you disobey, you are penalize by your Ex. To pay my debt of 1,000,000 in favor of Bella, I gave her with her
own action consent a diamond ring instead worth 1,000,000.
Judicial Order – may have been prompted by an order of ATTACHMENT, - In dation – the obligation is originally in money; however in
INJUNCTION, or GARNISHMENT facultative – you can substitute anything with anything
- Novation – results from an extinguishment of the old
Garnishment – proceeding by which a debtor’s creditor is subjected to obligation and arising of a new obligation
the payment of his own debt to another - Dation is an example of novation but is considered as
payment (it may also be called a novation but the difference is
Ex. A owes B 1,000,000. B, in turn owes C 100,000. C Brings action that dation is a form of payment)
against B, however, B cannot pay but admits the credit which he has - Dation of payment shall be governed by the law on sales
over A. The debt here can be garnished thus A should not pay B, and
instead he should pay C. Any payment made by A to B in the meantime Q: Why is Dation in Payment governed by the Law of sales?
is considered invalid under the law. A: because it really partakes in one sense of the nature of sale. Creditor
is really buying property from debtor, payment for which is to be
Note: payment to the garnishing creditor is given to the CLERK, SHERIFF charged against the debtor’s debt. However, it may also be called a
or other proper officer of the court. novation.
Note: sales and novation require COMMON consent
Interpleader – an action in which a certain person in possession of
certain property wants claimants to litigate among themselves for the SALE vs. DATION IN PAYMENT
same. SALE DATION
- There is NO pre-existing credit - There is a pre-existing credit
Ex. A is to deliver goods to the person who presents the proper receipt. - This gives RISE to obligations - This EXTINGUISHES obligations
B and C both have the same kind of receipt. A should go to court to - The cause or consideration here - The cause or consideration here
settle their conflicting rights. Court then will issue an order prohibiting is the PRICE (seller); or the is the EXTINGUISHMENT OF
payment to either B or C. Any payment made to one during the OBTAINING of the object DEBT (debtor) and the
pendency is NOT valid. (buyer) ACQUISITION OF THE OBJECT
offered in credit (creditor)
Injunction – judicial process by virtue of which a person is generally - There is greater freedom in the - There is less freedom in
ordered to REFRAIN from doing something determination of the price determining the price
- The giving of the price may - The giving of the object may
Ex. A owes B 500. When he is about to pay B, B’s relatives move to stop generally end the obligation of extinguish COMPLETELY or only
the payment on the ground that B is insane. Relatives can go to court to the buyer PARTIALLY the credit
seed a writ of preliminary injunction. Payment despite such will be
INVALID. CONDITIONS UNDER WHICH A DATION IN PAYMENT WOULD BE VALID:
1. If the Creditor CONSENTS
Article 1244 2. If the dation in payment will NOT PREJUDICE the other creditors
The debtor of a thing cannot compel the creditor to receive a 3. If the debtor is NOT JUDICIALLY declared insolvent
different one, although the latter may be of the same value as, or more
valuable than that which is due.
Article 1246
When the obligation consists in the delivery of an indeterminate
In obligations to do or not to do, an act or forbearance cannot be
or generic thing, whose quality and circumstances have not been stated,
substituted by another act or forbearance against the obligee's will.
the creditor cannot demand a thing of superior quality. Neither can the
debtor deliver a thing of inferior quality. The purpose of the obligation and
- Only applies to determinate objects other circumstances shall be taken into consideration.
- Debtor cannot compel creditor to accept a DIFFERENT object
although such object is of the same value or higher - Contemplates on an obligation to give a GENERIC thing
- Exceptions (inapplicability of Article 1244): - If the contract does not specify the quality:
o In case of FACULTATIVE obligations
4 angel‘s notes
o Creditor cannot demand a thing of superior quality (but The payment of debts in money shall be made in the currency
if he desires, he may demand and accept one of inferior stipulated, and if it is not possible to deliver such currency, then in the
quality) currency which is legal tender in the Philippines.
o Debtor cannot deliver a thing of inferior quality, but if he
so desires, he may deliver one of superior quality The delivery of promissory notes payable to order, or bills of
(provided it is not of a different kind) exchange or other mercantile documents shall produce the effect of
payment only when they have been cashed, or when through the fault of
- Give the ordinary quality
the creditor they have been impaired.
Q: When is a contract void?
In the meantime, the action derived from the original obligation
A: When the KIND and QUANITITY cannot be determined without need shall be held in the abeyance.
of a new agreement of the parties.
- Under this article payment may be either in the (1) currency
Note: the object of every contract must be determinate as to its kind. stipulated or (2) if it is not possible to deliver such currency,
Quantity is not an obstacle to the validity of the contract provided it is then in Philippine legal tender
possible to determine the same without the need of a new contract - RA 529: all that the creditor can demand is payment in
between parties. Philippine legal tender measured at the exchange rate
prevailing at the time of contracting or incurring the debt;
Article 1247 illegal to demand monetary debts of currency other than that
Unless it is otherwise stipulated, the extrajudicial expenses
of legal tender (money is circulation)
required by the payment shall be for the account of the debtor. With regard
- This article is now modified by RA 4100 which states that the
to judicial costs, the Rules of Court shall govern.
parties’ agreement as to currency in which an obligation will
be paid is BINDING. Further, that the conversion rate at the
- GR: the debtor has to pay for the extrajudicial expense
time of payment of satisfaction of the Judgment is what is
incurred during the payment
applicable.
- Reason for the law: it is the debtor who benefits primarily,
- What is important here is the second paragraph: you cannot
since his obligation is thus extinguished
compel a person to accept a check because payment of
- Generally, costs shall be awarded to the winning party
monetary obligations should be in legal tender. A check is not
- Generally, no costs against the government, unless otherwise
a legal tender. It only becomes one when it is already in
provided by law
cashed
Article 1248
Legal Tender – that which a debtor may compel a creditor to accept in
Unless there is an express stipulation to that effect, the creditor
cannot be compelled partially to receive the prestations in which the payment of the debt
obligation consists. Neither may the debtor be required to make partial
payments. Note: A check and bank manager’s check are not considered legal
tender.
However, when the debt is in part liquidated and in part Q: What are the instances when a check or commercial document
unliquidated, the creditor may demand and the debtor may effect the should be accepted as payment?
payment of the former without waiting for the liquidation of the latter. A:
a. When the creditor is in estoppels or he has previously
- Contemplates on the fact that performance should generally promised he would accept a check
be complete b. When the check has lost its value because of the fault of the
- Third exception to article 1233 (1234, 1235 and 1248) creditor
- Creditor is not compelled to receive partial amount neither c. When payment occurs not because of a debt but because of
may debtor be required to make partial payments the exercise of the right of conventional redemption
- Exceptions:
o When there is stipulation to this effect Note: Promissory note – effect of payment will be produced only when
o When the different prestations are subject to the note has been CASHED
different terms and conditions
o When a debt is in partial liquidated and in partial Article 1250
unliquidated, in which case performance of the In case an extraordinary inflation or deflation of the currency
liquidated part may be insisted upon either by the stipulated should supervene, the value of the currency at the time of the
debtor or creditor (ex. 3M plus damages) establishment of the obligation shall be the basis of payment, unless there
o When a joint debtor pays his share or the creditor is an agreement to the contrary.
demands the same
o When a solidary debtor pays only the part - In case an extraordinary inflation or deflation of the currency
demandable stipulated should supervene, the value of the currency at the
o In case of compensation, when one debt is larger time of the establishment of the obligation shall be the basis
than the other, it follows that a balance is left of payment, unless there is an agreement to the contrary
o When work is to be done by parts - talks about a debt to be paid by a different currency; If that is
the case the exchange rate would be the prevailing rate
Article 1249
5 angel‘s notes
during the time when the obligation was constituted (incase
of extraordinary inflation) - Requisites for Application of Payment to Be made Use of
o There must be two or more debts
Inflation – sharp sudden increase of money or credit or both without a o Debt must be of the same kind
corresponding increase in business transaction. (value of money tends to o One debtor; one creditor
decrease) o All debts must be due
o Payment is not enough to extinguish all debts
Deflation – opposite of inflation
Q: Is article 1252 not applicable to debts not yet due?
Article 1251 A: it can but only if (1) the parties so stipulate or (2) when the
Payment shall be made in the place designated in the obligation. application of payment is made by the party for whose benefit the term
has been constituted
There being no express stipulation and if the undertaking is to
deliver a determinate thing, the payment shall be made wherever the thing General Rule: the debtor is given by the law the right to select which of
might be at the moment the obligation was constituted. his debts he is paying.
Exceptions:
In any other case the place of payment shall be the domicile of
a. If there was a valid prior but contrary agreement
the debtor.
b. The debtor cannot choose to pay part of the principal ahead
of the interest unless the creditor consents
If the debtor changes his domicile in bad faith or after he has
incurred in delay, the additional expenses shall be borne by him. c. when the application of payment is made by the party for
whose benefit the term has been constituted
These provisions are without prejudice to venue under the Rules of
Court. Note: if the debtor makes a proper application and the creditor refused,
the creditor will be in mora accipiendi
- talks about the place of payment
- Where payment must be made Q: How is application of Payment made?
o If there is a stipulation – in the place DESIGNATED A:
o If there is no stipulation a. The debtor makes the designation
 To deliver a specific thing: in the place b. If not, creditor makes it by so stating in the receipt he issues,
where the thing might be (usually or unless there is a cause for invalidation the contract (void
habitually) at the time of the obligation obligation, void application of payment; debtor’s consent in
was CONSTITUTED (if temporarily there, accepting receipt is vitiated – voidable)
payment should be at the domicile of the c. If neither made the application, then application is made by
debtor) operation of law
 If generic: delivery must be made at the
domicile of the debtor Note: if the creditor makes the application without the knowledge and
Note: Payment not at the designated place but only to the mere consent of the debtor, the application is not valid
depository of the creditor’s funds is not considered as valid
Q: Once an application of payment is made, may it be revoked?
APPLICATION OF PAYMENTS A: NO, unless both parties agree. Even if both parties agree, revocation
will not be allowed if third persons would be prejudiced
Article 1252
He who has various debts of the same kind in favor of one and Q: When must the application be made?
the same creditor, may declare at the time of making the payment, to A: when payment by the debtor is made, not afterwards
which of them the same must be applied. Unless the parties so stipulate, or
when the application of payment is made by the party for whose benefit - Examples on how a creditor makes the application:
the term has been constituted, application shall not be made as to debts o Debtor without protest accepts the receipt
which are not yet due. o Bank’s monthly statements (debtor signed said
statements)
If the debtor accepts from the creditor a receipt in which an
application of the payment is made, the former cannot complain of the Q: When can an application of Payment Cannot be Availed of?
same, unless there is a cause for invalidating the contract.
A:
a. In the case of a PARTNER-CREDITOR
- Four (4) special forms of payment
b. The right cannot be invoked by a SURETY or a SOLIDARY
o Application or imputation of payments GUARANTOR
o Dation in payment
o Assignment in favor of creditors Article 1253
o Tender of payment and consignation If the debt produces interest, payment of the principal shall not
be deemed to have been made until the interests have been covered.
Q: What does “application of payments” mean?
A: It is the designation of the debt; to show which debt, out of two or
more debts owing the same creditor is being paid
6 angel‘s notes
- Interest must be Paid First before the Principal unless the - Cession is the process by which a debtor transfers all the
creditor agrees properties not subject to execution in favor of his creditors so
- 2 types of interest contemplated by the article: that the latter may sell them, and thus apply the proceeds to
o Interest by way of compensation their credits
o Interest by way of damages due to default - Kinds or Classes of Assignment:
- PURPOSE: It is beneficial to the creditor because that means o Legal
that the principal is still a substantial amount for the o Voluntary (Art. 1255)
succeeding days - Requisites for Voluntary Assignment:
Note: If payment is not sufficient to cover principal and interest, the o More than one debt and more than one creditor
creditor can stipulate that payment to principal is first made o Complete or partial insolvency of debtor
o Abandonment of all debtor’s property not exempt
Article 1254 from execution in favor of creditors
When the payment cannot be applied in accordance with the o Acceptance or consent on the part of the creditors
preceding rules, or if application can not be inferred from other - Effects of Voluntary Assignment:
circumstances, the debt which is most onerous to the debtor, among those o Creditors does not become owners, they are only
due, shall be deemed to have been satisfied. assignees with authority to sell (note: if ownership
is transferred this becomes a dation in solutum)
If the debts due are of the same nature and burden, the payment shall o Debtor is released up to the amount of the net
be applied to all of them proportionately.
proceeds of the sale, unless there is a stipulation of
the contrary
- If payment under the preceding rules cannot be applied, the o Creditors will collect credits
debt which is the most ONEROUS to the debtor, among those
due, shall be deemed to have been satisfied CESSION vs. DACION EN PAGO
- If the debts due are the SAME nature, payment shall be
Dacion En Pago Cession
applied to all of them PROPORTIONATELY (in effect, none of
- Does not affect ALL the - In general, affects ALL the
the obligations is totally extinguished)
properties properties of the debtor
- This article contemplates payment beneficial to DEBTOR
- Does not require plurality of - Requires more than 1 creditor
creditors
Note: although one is more onerous, it should be noted that the debtor
cannot insist that the creditor accept a partial payment (ex. Debts are - Only specific or concerned - Requires the consent of all
2M and 1M) creditor’s consent is required creditors
- May take place during the - Requires full or partial insolvency
- Samples of more burdensome Debts solvency of the debtor
o Older ones in case or running accounts - Transfer of ownership upon - Does not transfer ownership
o Interest bearing even if the non-interest bearing delivery
debt is older - An act of novation - Not an act of novation
o The higher interest
o Debts secured by mortgage or by pledge TENDER OF PAYMENT AND CONSIGNATION
o Debts with a penalty clause
o Advances for subsistence are more onerous than Tender of Payment (extrajudicial)
cash advances - The act of offering the creditor what is due him together with
o A debt where the debtor is in more is more onerous a demand that the creditor accept the same. Consists in the
than one where he is not manifestation made by the debtor to the creditor of his
o An exclusive debt is more onerous that a solidary decision to comply immediately with his obligation
debt
Consignation (judicial)
Note: the more burdensome rule does not apply when the debtor has - The act of depositing the thing due with the court or judicial
made application of payment authorities whenever the creditor cannot accept or refuses to
accept payment. It generally requires a prior tender of
PAYMENT BY CESSION payment.
LESSOR-LESSE SITUATION
Article 1255 The rationale for such law is to prohibit the lessor from
The debtor may cede or assign his property to his creditors in ejecting the lessee when he unjustifiably refuses to accept payment
payment of his debts. This cession, unless there is stipulation to the
contrary, shall only release the debtor from responsibility for the net Article 1256
proceeds of the thing assigned. The agreements which, on the effect of the If the creditor to whom tender of payment has been made
cession, are made between the debtor and his creditors shall be governed refuses without just cause to accept it, the debtor shall be released from
by special laws. responsibility by the consignation of the thing or sum due.
Consignation alone shall produce the same effect in the following cases:
- Contemplates on a situation where the debtor has obligations (1) When the creditor is absent or unknown, or does not appear
in favor of MANY CREDITORS at the place of payment;
7 angel‘s notes
(2) When he is incapacitated to receive the payment at the time o Valid prior tender, unless tender is excused –
it is due; tender should be in full satisfaction of the claim,
(3) When, without just cause, he refuses to give a receipt; not a partial payment… CREDITOR REFUSES
(4) When two or more persons claim the same right to collect; WITHOUT JUST CAUSE…
(5) When the title of the obligation has been lost. o Prior notice of consignation (before deposit) -
purpose: to enable the creditor and other parties
- Contemplates about CONSIGNATION when creditor unjustly interested to reconsider the previous refusal, and
refuses to accept debtor’s payment thus, avoid litigation by the simple expedient of
- Consignation can also be applied in the following cases or accepting payment
situations (instances where prior tender of payment is not o Actual consignation (deposit) – effects of deposit:
needed): (1) property is in custodia legis (2) it will be
o Creditor is absent or unknown or does not appear exempted from attachment and execution (3) if
at the place of payment perishable, the court may order the sale of the
o Creditor is incapacitated to receive the payment the property (4) if property cannot be placed in the
time it is due hands of the court you should ask the court for a
o Without just cause, creditor refuses to give a RECEIVERSHIP
receipt (questionable: how would you know that o Subsequent notice of consignation – without such
creditor will not issue a receipt if there was no notice, the consignation is VOID unless the amount
tender of payment) due is a consequence of a FINAL JUDGMENT
o Two or more persons claim the same right to collect
o The title of the obligation has been lost (ex. Issued a Article 1258
promissory note but upon payment they creditor Consignation shall be made by depositing the things due at the
cannot return your promissory note) disposal of judicial authority, before whom the tender of payment shall be
Instances wherein Rejection of Creditor is justified: proved, in a proper case, and the announcement of the consignation in
1. Payment by a 3rd person not interested *art. 1236 other cases.
2. Payment of a different prestation *art 1244
3. Payment is partial *art 1248 The consignation having been made, the interested parties shall
4. Payment is not in legal tender *art 1249 also be notified thereof.
5. Payment is premature
- Contemplates on how consignation is actually made (judicial
Note: tender of payment without consignation does not extinguish the in nature):
debt; consignation must follow. Tender of the principal must also be o The thing must be deposited with the proper
accompanied with the tender of interest which has accrued. judicial authorities
o There must be PROOF that:
Q: When is consignation not required?  Tender had previously been made and it
A: when there really exists no debt or obligation, and where therefore was unjustifiably refused by the creditor
payment is PURELY VOLUNTARY (a right, not a duty exists; ex: legal (general rule)
redemption)  Debtor had previously notified the
creditor that consignation will be made
- Tender of payment must be made in LEGAL TENDER (lawful (tender is not required)
currency)
Article 1259
Note: if after tender, consignation is made very much later, interest The expenses of consignation, when properly made, shall be
should run until the principal is paid. charged against the creditor.
Article 1257 - The expenses of consignation, when properly made, shall be

In order that the consignation of the thing due may release the charged against the creditor
obligor, it must first be announced to the persons interested in the - Expenses include those for the preservation or warehousing
fulfillment of the obligation. of the goods pending the litigation
The consignation shall be ineffectual if it is not made strictly in Article 1260

consonance with the provisions which regulate payment. Once the consignation has been duly made, the debtor may ask
the judge to order the cancellation of the obligation.
- Stresses out that there should be notice before consignation
(must be of a reasonable time) Before the creditor has accepted the consignation, or before a
- Essential Requisites for Consignation judicial declaration that the consignation has been properly made, the
o Existence of a valid debt (the following are not debtor may withdraw the thing or the sum deposited, allowing the
debts: option, legal and conventional redemption, if obligation to remain in force.
alleged debt has prescribed, debt is founded on an
illegal cause or consideration or is null and void, if - Effects of Proper Consignation
obligation of the debtor is conditional and condition o debtor may ask the judge to order the cancellation
has not been fulfilled) of the obligation
8 angel‘s notes
o the running of interest is suspended and he shall be responsible for damages. The same rule applies when the
o before the creditor ACCEPTS or before judge nature of the obligation requires the assumption of risk.
declares the consignation to be proper, the
obligation REMAINS - GR: Obligation to deliver a specific thing is lost when it is
- Effects of Improper Consignation destroyed due to a fortuitous event before debtor has
o The obligation remains because the consignation is incurred delay
NOT EFFECTIVE - Exception: (1)stipulation of contract or by (2) law or
o If at the time of the consignation the debt was (3)obligation requires the assumption or risk
already due, the debtor is in DEFAULT
Article 1263
Q: When may the debtor withdraw the thing or sum consigned In an obligation to deliver a generic thing, the loss or destruction
A: of anything of the same kind does not extinguish the obligation.
As a matter of right
1. Before the creditor has accepted the consignation - GR: Loss of generic thing does not extinguish the obligation
2. Before there is judicial declaration that the consignation has - Exception: (1) generic thing is delimited; ex: 50 kilos of sugar
been properly made from my 1999 harvest (2) generic thing has already been
As a matter of privilege segregated or set aside, in which case it has become a specific
1. When after consignation the creditor authorizes the debtor to
withdraw the thing Article 1264
The courts shall determine whether, under the circumstances,
- In this article, the withdrawal is voluntarily made by the the partial loss of the object of the obligation is so important as to
extinguish the obligation.
debtor without the consent of the creditor
- The courts shall determine whether, under the circumstances,
Article 1261
If, the consignation having been made, the creditor should the partial loss of the object of the obligation is so important
authorize the debtor to withdraw the same, he shall lose every preference as to extinguish the obligation
which he may have over the thing. The co-debtors, guarantors and sureties
shall be released. Article 1265
Whenever the thing is lost in the possession of the debtor, it shall
- In this article, creditor allows the debtor to withdraw the be presumed that the loss was due to his fault, unless there is proof to the
thing contrary, and without prejudice to the provisions of article 1165. This
presumption does not apply in case of earthquake, flood, storm, or other
- Effects when withdrawal by debtor after consignation has
natural calamity.
been made
o The obligation remains
- Contemplates on a presumption that loss was due to debtor’s
o Creditor loses any preference (priority) over the
fault (why? Because the thing is within your control)
thing
- DISPUTABLE PRESUMPTION – loss was due to the fault of the
o Solidary co-debtors, guarantors, and sureties are
debtor. Thus, debtor can still present proof to the contrary
RELEASED (unless they consented)
- The presumption does not apply in the case of a NATURAL
CALAMITY (earthquake, flood, storm)
LOSS OF THE THING DUE
Loss includes the impossibility of performance
Article 1266
The debtor in obligations to do shall also be released when the
Q: When is there a loss?
prestation becomes legally or physically impossible without the fault of the
A: a. when the object perishes physically (destroyed) obligor.
b. when it goes out of commerce
c. when it disappears in such a way that - Contemplates on LOSS IN PERSONAL OBLIGATION:
i. its existence is unknown o Legal impossibility
ii. or it cannot be recovered o Physical impossibility
- Impossibility of Performance includes Note: impossibility must be AFTER the constitution of the obligation
o Physical impossibility
o Legal impossibility (direct: prohibited by law; Q: If the act is subjectively impossible (debtor’s side) but otherwise
indirect) objectively possible (for all others), is the obligation extinguished?
o Moral impossibility A: It depends. Usually the obligation subsists unless personal
consideration is involved (ex. A particular company is provided by law to
Article 1262 furnish work on a certain day)
An obligation which consists in the delivery of a determinate
thing shall be extinguished if it should be lost or destroyed without the fault
Q: What is the effect of loss thru a fortuitous event in reciprocal
of the debtor, and before he has incurred in delay.
obligations?
When by law or stipulation, the obligor is liable even for
fortuitous events, the loss of the thing does not extinguish the obligation,
9 angel‘s notes
A: GR – the obligation that was not extinguished by the fortuitous event d. Contributory negligence on part of the debtor (can be
remains (if after perfection the building is destroyed, the buyer must still mitigated)
pay) e. Loss of the thing occurs after the debtor incur delay
Exception – are provided by law; ex (1) lease: both the lease and the f. Debtor promise to deliver the same thing to two or more
obligation to pay rent are extinguished; (2) contracts for a piece of work persons who have different interest
g. When obligation is to deliver a generic thing
Article 1267 h. When the obligation results from a crime except if creditor is
When the service has become so difficult as to be manifestly in mora accipiendi
beyond the contemplation of the parties, the obligor may also be released
therefrom, in whole or in part. CONDONATION OR REMISSION OF THE DEBT
- Contemplates on the effect of difficulty beyond the parties Article 1270

contemplation in providing the service Condonation or remission is essentially gratuitous, and requires
- Refers to MORAL impossibility or IMPRACTICABILITY due to the acceptance by the obligor. It may be made expressly or impliedly.
change of certain conditions
- Also referred to as DOCTRINE OF THE FRUSTRATION OF THE One and the other kind shall be subject to the rules which govern
COMMERCIAL OBJECT or FRUSTRATION OF ENTERPRISE inofficious donations. Express condonation shall, furthermore, comply with
the forms of donation.
Note: real obligations (to give) are not included within this scope
- Definition: it is the gratuitous abandonment by the creditor of
- Requisites for the article to apply: his right
o Service must become so DIFFICULT that it was - Such requires the acceptance of the obligor which may be
manifestly beyond the contemplation of BOTH made expressly or impliedly
parties; the difficulty could not POSSIBLY have been - Essential Requisites for Remission
anticipated or foreseen o There must be an agreement (must be accepted by
o One of the parties must ask for relief obligor)
o The object must be a FUTURE SERVICE with FUTURE o Parties must be capacitated and must consent
UNUSUAL change in conditions o There must be a subject matter (the thing to be
condoned)
Article 1268 o The cause or consideration must be LEBERALITY
When the debt of a thing certain and determinate proceeds from (because it is essentially gratuitous)
a criminal offense, the debtor shall not be exempted from the payment of o Obligation remitted must have been demandable
its price, whatever may be the cause for the loss, unless the thing having at the time of remission
been offered by him to the person who should receive it, the latter refused o Remission must not be inofficious (when you
without justification to accept it. donate more than you could give or receive by will)
so as not to prejudice his legitimes or compulsory
- GR: In a CRIMINAL OFFENSES a fortuitous event DOES NOT heirs (leg. children, leg. par, surviving spouse,
extinguish the obligation illegitimate children)
- Exception: when the creditor is in Mora Accipiendi o Formalities of a donation are required in the case of
an express remission
Article 1269 o Waivers or remissions are not to be presumed
The obligation having been extinguished by the loss of the thing, generally
the creditor shall have all the rights of action which the debtor may have
against third persons by reason of the loss. Note: An express remission, not made in due form, cannot affect the
creditor if it is withdrawn in due time.
- Simply stated: there is a transfer of rights against third
persons from the debtor to the creditor in case of loss If remission is made in a will, it is essential that the will be
VALID extrinsically, and PROBATED.
REQUISITES SO AS NOT TO BE LIABLE DUE TO FORTUITOUS EVENT:
a. The thing which is lost must be determinate If real property, it should be extrinsically valid and should be
b. The thing is lost without any fault of the debtor. If validly published.
the thing is lost through the fault of the debtor, the
obligation is not extinguished; it is simply converted Q: What are the classes of Remission?
into an obligation to indemnify the creditor for A:
damages a. Effect or extent
c. The thing is lost before the debtor has incurred in 1. Total
delay. If not, he is liable for indemnity and damages 2. Partial
EXEPTIONS b. Date of effectivity
a. When by law the debtor is liable 1. Inter vivos (during life)
b. When by stipulation, you remain liable 2. Mortis causa (after death)
c. Nature of the obligation assumes risk c. Form
10 angel‘s notes
1. Implied or tacit (requires no formality; conduct is - If after the delivery to the creditor, the thing pledged is
sufficient) returned to the debtor or of a third person who OWNS the
2. Express or formal thing, it is presumed that the ACCESSORY OBLIGATION of
pledge has been remitted
Q: What is the effect is remission is not accepted by the debtor? - Thus, the principal obligation (loan) remains in force
A: the obligation remains. However, if the creditor does not really collect - Presumption is only DISPUTABLE
within the statute of limitations (period of prescription), the debt may
be said to have been extinguished by PRESCRIPTION. Q: What is a contract of pledge?
A: It is an accessory obligation. It is the personal property given as
Article 1271 security or collateral which is delivered to the creditor
The delivery of a private document evidencing a credit, made
voluntarily by the creditor to the debtor, implies the renunciation of the Q: What is a chattel mortgage?
action which the former had against the latter. A: It is a property or collateral which remains in the hands of the debtor
If in order to nullify this waiver it should be claimed to be CONFUSION OR MERGER OF RIGHTS

inofficious, the debtor and his heirs may uphold it by proving that the
delivery of the document was made in virtue of payment of the debt.
Article 1275
The obligation is extinguished from the time the characters of
- The delivery of a PRIVATE DOCUMENT (ex. Promissory note) creditor and debtor are merged in the same person.
evidencing the credit gives rise to a DISPUTABLE presumption
of a remission or renunciation - The obligation is extinguished from the time the characters of
- This article is an example of an IMPLIED REMISSION (other ex: creditor and debtor are merged in the same person
voluntary destruction by the creditor of the instrument) - Definition: meeting in one person of the qualities of creditor
and debtor with respect to the same obligation
Note: As between the presumption of remission and the presumption of - Requisites of a valid merger:
payment, REMISSION ordinarily prevails o Take place between the PRINCIPAL DEBTOR and
CREDITOR. Therefore , confusion of creditor with
Article 1272 the guarantor does not extinguish the principal
Whenever the private document in which the debt appears is obligation (only accessory obligation of guaranty is
found in the possession of the debtor, it shall be presumed that the creditor
extinguished)
delivered it voluntarily, unless the contrary is proved.
o Merger must be clear and definite (the merger of
the characters of CR and DR must be in the SAME
- Delivery of a PRIVATE DOCUMENT gives rise to the
PERSON)
presumption that the creditor delivered it voluntarily, unless
o The very obligation involved must be the same or
the contrary is provided
identical
- The presumption is DISPUTABLE or PRIMA FACIE, for the law
itself says, “until the contrary is proved”
Note however: if an heir is a debtor of the deceased, merger does not
necessarily follow, for other creditors may be prejudiced
Note however: if the instrument of credit is still in the hands of the
creditor, this is evidence that the debt has not yet been paid, unless the
Note: Mere transfer to a third person of rights belonging to both the
contrary be fully proved
debtor and the creditor BUT not the credit as against the debt does not
result in merger
Q: What are the Presumptions in Joint or Solidary Obligations?
A: if joint – the presumption is that only the debtor who holds such
Real rights, such as usufruct (right to the use and to the fruits)
private document debt is remitted
over property, may be extinguished by merger when the naked owner
If solidary – the presumption is that the whole obligation has been
himself becomes the usufructuary.
remitted
If the reason for the confusion ceases, the obligation is
Artilce 1273
REVIVED.
The renunciation of the principal debt shall extinguish the
accessory obligations; but the waiver of the latter shall leave the former in
force. Article 1276
Merger which takes place in the person of the principal debtor or
creditor benefits the guarantors. Confusion which takes place in the person
- The renunciation of the principal debt shall extinguish the
of any of the latter does not extinguish the obligation.
accessory obligation; but the waiver of the latter shall leave
the former in force
- Contemplates on the effects of merger:
- Follows the rule of “accessory follows the principal”
o In the person of the principal debtor and creditor –
principal and accessory obligation is extinguished;
Article 1274
guarantor is then released
It is presumed that the accessory obligation of pledge has been
o In the person of the creditor and guarantor –
remitted when the thing pledged, after its delivery to the creditor, is found
in the possession of the debtor, or of a third person who owns the thing. guaranty is extinguished but debtor’s obligation
remains
11 angel‘s notes
Article 1277 Government and taxpayer are not mutually creditor of each
Confusion does not extinguish a joint obligation except as other!
regards the share corresponding to the creditor or debtor in whom the two
characters concur. Article 1279
In order that compensation may be proper, it is necessary:
- Confusion does not extinguish a joint obligation except as (1) That each one of the obligors be bound principally, and that
regards the share corresponding to the creditor or debtor in he be at the same time a principal creditor of the other;
who the two characters concur (2) That both debts consist in a sum of money, or if the things
due are consumable, they be of the same kind, and also of the
COMPENSATION same quality if the latter has been stated;
(3) That the two debts be due;
Article 1278 (4) That they be liquidated and demandable;
Compensation shall take place when two persons, in their own (5) That over neither of them there be any retention or
right, are creditors and debtors of each other. controversy, commenced by third persons and communicated in
due time to the debtor.
- Compensation shall take place when two persons, in their
own right, are creditor and debtor of each other (balancing) - Contemplates on the Requisites of Legal compensation:
- It is the extinguishment in the concurrent amount of the o AFFIRMATIVE REQUISITES
obligations of those person who are reciprocally debtor and  Each one of the obligors be bound principally and
creditor of each other be at the same time a principal creditor of the other
- It is an abbreviated payment because the two debts are – two debts and two credits (must generally be
extinguished without requiring the transfer of money or bound as principals and not in their representative
property form one party to another capacity)
 Both debts consist in a sum of money, or if
COMPENSATION vs. PAYMENT consumable (susceptible of substitution) is of the
COMPENSATION PAYMENT same kind and quality
 Two debts are due – period has arrived or condition
Partial extinguishment is always Must be complete and indivisible
has been fulfilled; neither of the debt has
permitted as a rule
prescribed or is invalid or illegal
Takes place by operation of law Involves action or delivery
 They be liquidated and demandable – exact amount
(legal compen)
has already been determined
o NEGATIVE REQUISITES
COMPENSATION vs. MERGER
 That over neither of them there be any retention or
COMPENSATION MERGER controversy, commenced by third persons and
There must be two persons who Only one person in whom is communicated in due time to the debtor
are mutually creditor and debtor merged the qualities of creditor  Meaning, there can be no legal compensation when
to each other and debtor one’s claim against another is still the subject of
There must be two obligations There can only be one obligation COURT LITIGATION
 There must have been no waiver of the
COMPENSATION vs. SET-OFF compensation
COMPENSATION SET-OFF  Compensation of the debts must not have been
Takes place by mere operation of Must be pleaded to be effectual prohibited by law (look at book for examples; civil
law liability arising from a penal offense, claim for
Works as a sort of judicial future support
compensation (follows rules of
court Article 1280
Notwithstanding the provisions of the preceding article, the
- Kinds or classes of Compensation guarantor may set up compensation as regards what the creditor may owe
o Total – obligation are completely extinguished the principal debtor.
because they are of the same or equal amounts
o Partial – when a balance remains - Guarantor may set up compensation with respect to principal
o Legal – takes place by operation of law debt
o Voluntary or conventional – due to agreement of - Exception to Article 1279
parties - Ex: A owes B 500. C is the guarantor of A. B owes A 100. A
o Judicial (set-off) – must be pleaded; effective only cannot pay. C will only have to pay for 400 because he can set
by an order from the court up the 100 credit of A as the basis for partial compensation
o Facultative – one of the parties has the choice of
claiming the compensation or opposing it Article 1281
Note: While facultative compensation is UNILATERAL and does not Compensation may be total or partial. When the two debts are
require mutual agreement, VOLUNTARY or CONVENTIONAL of the same amount, there is a total compensation.
compensation requires MUTUAL CONSENT
12 angel‘s notes
- Compensation may be total or partial. When the two debts If the creditor communicated the cession to him but the debtor
are of the same amount, there is total compensation did not consent thereto, the latter may set up the compensation of debts
previous to the cession, but not of subsequent ones.
Article 1282
The parties may agree upon the compensation of debts which If the assignment is made without the knowledge of the debtor,
are not yet due. he may set up the compensation of all credits prior to the same and also
later ones until he had knowledge of the assignment.
- Contemplates on Conventional or Voluntary Compensation
- Requisites mentioned in Article 1279 do not apply - Contemplates on a situation where: AFTER the compensation
- It is sufficient that the agreement or contract which declares has taken place one of the extinguished debts is ASSIGNED to
the compensation should itself be valid a stranger, ordinarily this would be a useless act since there is
- Parties should have LEGAL CAPACITY and must FREELY GIVE nothing more to assign. The defense of compensation could
THEIR CONSENT then be set up
- EXCEPTION: when the assignment after compensation has
Article 1283 taken place was made WITH THE CONSENT of the debtor.
If one of the parties to a suit over an obligation has a claim for Such consent operates as a WAIVER OF THE RIGHTS to
damages against the other, the former may set it off by proving his right to compensation
said damages and the amount thereof. - EXCEPTION TO EXCEPTION: when at the time he gave his
consent, he RESERVED his right to compensation
- Contemplates on Judicial Compensation or set-off or
Counterclaim 3 situations
- PLEADING and PROOF of the counterclaim must be made, 1. Assignment be made with the consent of the debtor –
without this, the court CANNOT of its own accord declare the compensation cannot be put up
compensation (must be alleged in your answer) 2. Assignment be made with the knowledge but without the
- All the requisites in Article 1279 must be present except that consent of the debtor – compensation can be put up; this
at the time of pleading, the claim need NOT YET be refers to debts maturing before the assignment; legal
LIQUIDATED compensation has already taken place before the assignment
took place
Jurisdiction of the Court Regarding the Value of the Demand 3. Assignment may be made without the knowledge of the
debtor – the crucial time here is the time of knowledge of the
GR: depends upon the TOTALITY of the demand in all the causes of assignment, not the time of assignment itself.
action, irrespective of whether the plural cases arose out of the same or
different transactions Article 1286
Compensation takes place by operation of law, even though the
EXCEPTIONS debts may be payable at different places, but there shall be an indemnity
1. Where the claim joined under the same complaint are for expenses of exchange or transportation to the place of payment.
separately owed by, or due to, different parties, in which case
each separate claim furnishes the jurisdictional test - This article applies to compensation by operation of law
2. Where NOT ALL the causes of action joined are demands or - Contemplates that there shall be an indemnity for expenses of
claims for money exchange or transportation to the place of payment
Note: Consequential damages and attorney’s fees, when properly
claimed and recoverable as an item of damage, are not excluded from Expenses of transportation – applies to transportation of the goods
the jurisdictional amount Expenses of exchange – monetary exchange
Article 1284 Note: whoever claims compensation must pay for the exchange rate of
When one or both debts are rescissible or voidable, they may be currency.
compensated against each other before they are judicially rescinded or
avoided. Foreign Exchange - conversion of an amount of money or currency of
one country into an equivalent amount of money or currency of another
- Rescissible or voidable debts are valid until rescinded or
voided, hence, compensation is allowed Article 1287
- To avoid unfairness if rescission or annulment is later on Compensation shall not be proper when one of the debts arises
decreed by the court, it is as if NO compensation ever took from a depositum or from the obligations of a depositary or of a bailee in
place. The decree thus acts RETROACTIVELY commodatum.
Neither can compensation be set up against a creditor who has a

Article 1285
claim for support due by gratuitous title, without prejudice to the provisions
The debtor who has consented to the assignment of rights made
of paragraph 2 of Article 301.
by a creditor in favor of a third person, cannot set up against the assignee
the compensation which would pertain to him against the assignor, unless
the assignor was notified by the debtor at the time he gave his consent, - Contemplates on situations when legal compensation
that he reserved his right to the compensation. CANNOT take place:
13 angel‘s notes
o When one debt arises from a DEPOSITUM (not bank - If a person should have against him several debts which are
deposit, for this is really a loan) susceptible of compensation, the rule on the application of
o Debt arises from the obligations of a DEPOSITARY payments shall apply to the order of the compensation
o Debt arises from the obligations of a BAILEEE IN - Thus, the more onerous is to be compensated first if there
COMMODATUM (the borrower of property who was no designation made by the debtor
pays nothing for the loan)
Article 1290
Note: in the three instances, there is FACULTATIVE COMPENSATION, When all the requisites mentioned in Article 1279 are present,
such as only the DEPOSITOR and the LENDER can claim for compensation takes effect by operation of law, and extinguishes both debts
compensation, not the debtor and the borrower. to the concurrent amount, even though the creditors and debtors are not
aware of the compensation.
o Debt arises because of a claim for SUPPORT due to
GRATUITOUS title - States that automatic compensation occurs if all requisites are
present
Note: support in arrears may be compensated but NOT FUTURE - Such is applicable unless there has been valid waiver thereof
SUPPORT, for this is vital to the life of the recipient - Compensation which extinguishes principal obligations also
extinguishes accessory obligations
Obligations of a Depositary
a. Obliged to keep the thing safely and to return it when Note: if one debt is larger than the other, the balance subsists as debt.
required
b. Unless there is a stipulation to the contrary, the depositary NOVATION
cannot deposit the thing with a third person
c. If deposit to a 3rd person is allowed, the depositary is LIABLE Article 1291
for the loss if he deposited the thing with a person who is Obligations may be modified by:
manifestly careless or unfit (1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
d. Is responsible for the negligence of his employees
(3) Subrogating a third person in the rights of the creditor.
e. Depositary cannot make use of the thing deposited without
the express permission of the depositor. However, when the
Novation – the substitution or change of an obligation by another, which
preservation of the thing requires its use, it must be used but
EXTINGUISHES or MODIFIES the first, either:
only for that purpose
a. Changing its object or principal condition
b. Substituting another in place of the debtor
Article 1288
c. Subrogating a third person in the right of the creditor
Neither shall there be compensation if one of the debts consists
in civil liability arising from a penal offense.
Note: Change in period is part of the principal condition, which would
- Neither shall there be compensation if one of the debts result to a PARTIAL NOVATION, since the period merely affects the
consists in civil liability arising from a penal offense performance, not the creation of the obligation
- Why? Because the satisfaction of such obligation is imperative
- However, victim can claim compensation but limited to the - Dual Purpose or Functions of Novation:
accused to prevent his escaping liability but NOT to the victim o At the time it extinguishes the obligation, it creates
of a crime who happens to be indebted to the accused a new one in lieu of the old
Q: You owe A 3,000. A stole your watch and got convicted for such
crime. Can the accused claim compensation? Note: Novation does not operate as an absolute but only as a RELATIVE
A: No, compensation is not proper here. EXTINCTION of debt.
DEBTS WHICH CANNOT BE COMPENSATED Kinds of Novation:

1. Debts arising from the contracts of depositum - According to its object or purpose
2. Debts arising from contracts of commodatum o Real or objective – changing the object of the
3. Claims for support due by gratuitous title principal condition of the obligation
4. Obligations arising from criminal offenses o Personal or Subjective – change of debtor or of
5. Certain obligations in favor of the government, such as taxes, creditor)
fees, duties and other of a similar nature (exception: if  Substituting the person of the debtor
amount is already liquidated, you can already defend (Expormission or Delegacion)
compensation)  Subrogating a third person in the rights
of the creditor (change of creditor may
Article 1289 be by agreement or by operation of law)
If a person should have against him several debts which are o Mixed – change of object and parties
susceptible of compensation, the rules on the application of payments shall - According to the Form of its Constitution
apply to the order of the compensation. o Express
o Implied – when the two obligation are essentially
incompatible with each other
- According to its Extent or effect
14 angel‘s notes
o Total or extinctive novation – when the old incompatibility between the 2 obligations; neither is there a change in
obligation is completely extinguished and a new the obligation. But if there is a reduction or decrease of the duration of
one is created the term or period there is novation because there is a clear case of
Requisites of an extinctive novation: incompatibility.
 A previous valid obligation
 An agreement of all parties concerned to a Q: What are instances when the court held that there was NO extinctive
new contract Novation?
 Extinguishment of old obligation A: here, the original contract or obligation remains, subject only to the
 The birth of a valid new obligaiton slight modification introduced?
a. Only slight alteration on construction plans of buildings
Note: extinctive novation is never presumed; there must be an EXPRESS b. When the new contract merely contains supplementary
INTENTION to novate. If implied, it is necessary that the old obligation is agreement
completely superseded by the new one c. When additional interest is agreed upon
d. When additional security is given
o Partial or Modificatory – also termed IMPERFECT or e. When after a final judgment, a contract was entered into
IMPROPER novation; the obligation still remains in precisely to provide a method of payment other than that
force except insofar as it has been modified stated in the judgment
f. When guarantor agrees with creditor that he will also be a
Note: should there be any doubt as to whether the novation is total or principal debtor
partial, it shall be presumed to be merely modificatory. g. Creditor merely extends the term of payment
h. When the place of payment is changed or when there is
- Requisites for Novation (in General) variation in the amount of partial payment
o The existence of a VALID OLD obligation
o The intent to extinguish or modify the old Article 1293
obligation by a substantial difference; Novation which consists in substituting a new debtor in the place
extinguishment of the old obligation of the original one, may be made even without the knowledge or against
o The capacity and consent of all the parties (except the will of the latter, but not without the consent of the creditor. Payment
in the case of expromision, where the old debtor by the new debtor gives him the rights mentioned in Articles 1236 and
does not participate); agreement of the parties to 1237.
the new obligation
o The validity of the new obligation - Contemplates on personal or subject novation (2 kinds):
Note: if the new obligation is subject to a SUSPENSIVE condition, and the o Passive – change of the debtor
condition does not materialize, such new obligation never became valid o Active – change of the creditor
or effective, so no novation has resulted - This article speaks of PASSIVE SUBJECTIVE novation which may
be in the form of:
- Novation is NOT one of the means recognized by the RPC o Expromission – where the initiative comes from a
whereby criminal liability can be extinguished third person
o Delegacion – initiative comes from the debtor; the
Article 1292 three parties, old and new debtor and creditor,
In order that an obligation may be extinguished by another must agree
which substitute the same, it is imperative that it be so declared in
unequivocal terms, or that the old and the new obligations be on every EXPROMISION
point incompatible with each other. - Initiative comes from a third person
- It is essential that the old debtor be RELEASED from his
- Contemplates on express (declared in unequivocal terms) and obligation, otherwise there will be no expromision
implied (complete or substantial incompatibility of the old and - Requisites:
new obligation) novation o Initiative must come form at third person who will
be the new debtor
Q: How is implied novation may be made? o New debtor and the creditor must CONSENT
A: it is done by making SUBSTANTIAL changes: o The old debtor must be excused or released from
a. In the OBJECT or SUBJECT matter of the contract (ex. his obligation
Deliver a car instead or ring) Note: old debtor’s consent or knowledge is not required
b. In the CAUSE or CONSIDERATION of the contract (ex.
Upward change in price; note: reduction in price implies DELEGACION
a remission) - Method of novation caused by the replacement of the old
c. In the PRINCIPAL TERMS or CONDITION of the contract debtor by a new debtor, who the old debtor has PROPOSED
(ex. Conditional obligation changed to an absolute one) him to the creditor, and which replacement has been agreed
Note: change of the object, cause, or principal to by said creditor and said by new debtor
terms and conditions is not presumed; clear proof - Initiative must come from the old debtor himself
of novation must be given - The old debtor must be released from the obligation
Note: if there is an increase of the term or period, there is certainly NO - Parties in Delegacion:
NOVATION because in such cases there is no clear case of o Delgante – original debtor
15 angel‘s notes
o Delegatario – creditor Article 1296
o Delegado – new debtor When the principal obligation is extinguished in consequence of
- Requisites: a novation, accessory obligations may subsist only insofar as they may
o Initiative comes from the old debtor benefit third persons who did not give their consent.
o All the parties concerned must consent or agree
(note: creditor’s mere acceptance of payment by a - This article does not apply in cases of novation by
third party is not an implied consent) SUBROGATION of the creditor
o Acceptance by the creditor of the substitution - This article applies in particular to EXTINCTIVE NOVATION
- GR: extinguishment of the principal obligations carries with it
Q: What are the rights of the new debtor? the extinguishment of the accessory obligations
A: Article 1236 (beneficial reimbursement if payment was made without - Exception: accessory obligations or stipulations made in favor
the knowledge or against the will of the debtor) or Article 1237 of third persons (stipulations POUR AUTRUI) remains unless
(reimbursement and subrogation, if it was made with the old debtor’s said third persons have their consent to the novation
consent)
Q: If the novation is merely MODIFICATORY, are guarantors and sureties
Article 1294 released, if the novation is made WITHOUT their consent?
If the substitution is without the knowledge or against the will of A:
the debtor, the new debtor's insolvency or non-fulfillment of the obligations If the modified obligation is now MORE ONEROUS, they are
shall not give rise to any liability on the part of the original debtor. liable only for the original obligation.
If the modified obligation is now LESS ONEROUS, the
- If the substitution, is without the knowledge or against the will guarantors and sureties are still responsible
of the debtor, the new debtor’s insolvency or non-fulfillment of
the obligation shall not give rise to any liability on the part of Note: accessory obligations would still remain as accessory to the new
the original debtor obligation provided that the debtors of said accessory obligations give
- Contemplates on a new debtor through EXPROMISION their consent.
- Refers to EMPROMISION
Article 1297
Q: Why is the old debtor not responsible for the new debtor’s insolvency If the new obligation is void, the original one shall subsist, unless
or non-fulfillment? the parties intended that the former relation should be extinguished in any
A: Because the expromision was brought WITHOUT his intiative event.
Q: Does this article applies to a situation where there was knowledge or - Contemplates on the effect if the new obligation is VOID:
consent of the old debtor? o There is no novation, and the old obligation
A: It is still applicable because the initiative did not come from him generally will subsist
o If the new obligation is subject to a condition and
Article 1295 said condition does not materialize, the old
The insolvency of the new debtor, who has been proposed by the obligation subsists
original debtor and accepted by the creditor, shall not revive the action of - Rules if new obligation is merely VOIDABLE:
the latter against the original obligor, except when said insolvency was o The old obligation is novated because voidable
already existing and of public knowledge, or known to the debtor, when the obligation is valid until it is annulled
delegated his debt. o If the new obligation is annulled, the old obligation
subsists
- Effects of Insolvency by new debtor in DELEGACION (note: this - Exception: the parties intended that the former relation
does not deal with other causes of non-fulfillment): should be extinguished in any event
o GR: it can no longer be revived
o Exc1: If the insolvency was already existing and of Article 1298
Public knowledge at the time of delegation, the old The novation is void if the original obligation was void, except
debtor is LIABLE when annulment may be claimed only by the debtor or when ratification
o Exc2: If the insolvency was already existing and validates acts which are voidable.
KNOWN to the debtor at the time of delegation, the
old debtor is LIABLE - GR: the novation is void if the original obligation was void
- Exception: when annulment claimed only by the debtor is
Note: The article does NOT apply if there really was NO EXTINCTIVE made or when ratification validates acts which are void
NOVATION, such as: - Rule if old obligation was extinguished by loss:
 Third person was only an agent, messenger or employee of o If loss was purely because of fortuitous event, the
the debtor novation is VOID for there would be NO obligation
 Third person acted only as guarantor or surety to novate
 When new debtor merely agreed to make himself solidarily o If the loss made the debtor liable, there is still an
liable for the obligation or agree to make himself jointly or existing monetary obligation that may be the
partly responsible for the obligation subject of novation
Q: May a prescribed obligation be the subject of novation?

16 angel‘s notes
A: Yes, because unless the defense of prescription is set up by the This does not require the debtor’s This requires the debtor’s consent
debtor, the obligation continues, since this failure amounts to a WAIVER consent (mere notification to him
is sufficient)
Note: In Novation by Expromision, when the new debtor sues the old The defect in the credit or right is The defect of the old obligation
debtor for beneficial reimbursement, the old debtor can set up not cured simply by assigning the may be cured in such a way that
whatever defenses he could have set against the creditor. same (here, debtor generally still the new obligation becomes
has the right to present against entirely valid (thus, there is no
Article 1299 the new creditor and defense right to present against the new
If the original obligation was subject to a suspensive or available as against old creditor) creditor defenses which debtor set
resolutory condition, the new obligation shall be under the same condition, up against old creditor
unless it is otherwise stipulated.
Article 1302
- Effect if the original obligation was conditional: It is presumed that there is legal subrogation:
o GR: the conditions attached to the old obligation (1) When a creditor pays another creditor who is preferred, even
are also attached to the new obligation without the debtor's knowledge;
o Exception: if there is a CONTRARY STIPULATION (2) When a third person, not interested in the obligation, pays
with the express or tacit approval of the debtor;
Article 1300 (3) When, even without the knowledge of the debtor, a person
Subrogation of a third person in the rights of the creditor is interested in the fulfillment of the obligation pays, without
either legal or conventional. The former is not presumed, except in cases prejudice to the effects of confusion as to the latter's share.
expressly mentioned in this Code; the latter must be clearly established in
order that it may take effect. - This article speaks of LEGAL SUBROGATION which is presumed
present in the following situations:
Subrogation – is the transfer to a third person of all the rights 1. A creditor pays another creditor who is preferred, even
appertaining to the creditor, including the right to proceed against without the debtor’s knowledge – Debtor may set up against
guarantors, or possessors of mortgages, subject to any legal provision or the new creditor defense which he could have set up against
any modification that may be agreed upon the old creditor because subrogation took place by operation
of law.
Kinds of Subrogation 2. When a third person, not interested in the obligation pays
1. From the viewpoint of cause or origin: with the EXPRESS or TACIT approval of the debtor
a. Conventional or voluntary – requires an agreement 3. When even without the knowledge of a debtor, a person
of the original parties and of the creditor; this must interested (ex. Guarantor) in the fulfillment of the obligation
be CLEARLY ESTABLISHED, otherwise, it is as if no pays, without prejudice to the effects of confusion as to the
subrogation has taken place latter’s share
b. Legal – takes place by operation of law; this is NOT
PRESUMED, except in the case expressly mentioned Article 1303
in the law Subrogation transfers to the persons subrogated the credit with
2. Viewpoint of extent all the rights thereto appertaining, either against the debtor or against
a. Total subrogation third person, be they guarantors or possessors of mortgages, subject to
b. Partial subrogation (there would now be two or stipulation in a conventional subrogation.
more creditors)
- Effects of Subrogation:
Article 1301 o The credit and all the appurtenant rights, either
Conventional subrogation of a third person requires the consent against the debtor, or against third persons, are
of the original parties and of the third person. transferred
- Contemplates on conventional or voluntary subrogation Article 1304

- The CONSENT OF ALL the parties is required (debtor, old A creditor, to whom partial payment has been made, may
creditor, new creditor) exercise his right for the remainder, and he shall be preferred to the person
who has been subrogated in his place in virtue of the partial payment of the
Note: Generally, the debtor loses the right to present against the new same credit.
creditor any defense which he could have set up against the old creditor
- Contemplates on Partial Subrogation which results to 2
As between conventional subrogation and assignment of the creditors, namely:
credit, the latter, insofar as the creditor is concerned should be o The old creditor who still remains a creditor as to
preferred. balance
o New creditor who is creditor to the extent of what
ASSIGNMETN OF CREDIT vs. CONVENTIONAL SUBROGATION he had paid the creditor
ASSIGNMETN OF CREDIT CONVENTIONAL SUBROGATION Note: the original creditor should be preferred
There is mere transfer of the Extinguishes the obligation and
SAME right or credit (transfer did creates a new one
not extinguish the credit)
17 angel‘s notes

Article 1231: Chapter 4: Extinguishment of Obligations

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Article 1231: Chapter 4: Extinguishment of Obligations

Uploaded by

Copyright:

Available Formats

CHAPTER 4: EXTINGUISHMENT OF OBLIGATIONS Note: a person pays a pre-existing obligation.

If no such obligation exists,

Article 1257 - The expenses of consignation, when properly made, shall be

The consignation shall be ineffectual if it is not made strictly in Article 1260

- Contemplates on the effect of difficulty beyond the parties Article 1270

If in order to nullify this waiver it should be claimed to be CONFUSION OR MERGER OF RIGHTS

Neither can compensation be set up against a creditor who has a

DEBTS WHICH CANNOT BE COMPENSATED Kinds of Novation:

Q: May a prescribed obligation be the subject of novation?

- Contemplates on conventional or voluntary subrogation Article 1304

You might also like