BOOK

IV, TITLE I: OBLIGATIONS

Chapter 4: Extinguishment of Obligations

10 Modes of Extinguishing Obligations in the Civil
Code (Art. 1231):
1. Payment or Performance
2. Loss of the thing due
3. Condonation or remission of debt
4. Confusion or merger of the rights of creditor
and debtor
5. Compensation
6. Novation
7. Annulment*
8. Rescission*
9. Fulfillment of a resolutory condition*
10. Prescription*
*other causes of extinguishment of obligations
governed elsewhere in this Code
NOTE: this is not an an EXCLUSIVE enumeration
unlike Art. 1157.

Overseas Bank of MNL v. CA [GR No. L-45866, April
19, 1989]
SC: a new mode to extinguish an obligation
specifically by a BANK to deposit interest of the
client : IF THERE IS AN ORDER FROM A
COMPETENT AUTHORITY TO CEASE AND DESIST
FROM CONTINUALLY OPERATING AS A BANK
The bank was asked to cease and desist
from operations
They had the obligation to return distribute
money
They were also required to pay interest
However, no interest was added to the
deposits. They were obliged to pay interest
from the cease and desist order
Interest- for profit and operation; no longer
in operation therefore no need to pay
interest

*One mode expected from the parties to extinguish
obligation is through payment/performance in Art.
1232 the other modes are only created due to
supervening events

PAYMENT OR PERFORMANCE
What is Payment or performance?
Not only pay money but also thru delivery
Perform broad enough to cover things to
do and not to do

Article 1232. Payment means not only the delivery of money but also
the performance, in any other manner, of an obligation. (n)

How is Payment / Performance done?

Obligation of the creditor to accept
fulfillment of the debtor; otherwise, there is
mora accipiendi
If the debtor performs in accordance with
the how, creditor is obliged to accept it.
Characteristics of a proper Payment/Performance
[3 Is]
1. Integrity
2. Identity
3. Indivisibility
*Integrity and Identity are covered by Art. 1233: A
debt shall not be understood to have been paid
unless the thing or service in which the obligation
consists has been completely delivered or
rendered, as the case may be. (1157)

NOTE: if any of the Is would not be found in the
HOW, creditor IS NOT OBLIGED TO ACCEPT.

Integrity
Refers to the completeness of the obligation
Exceptions:
Art. 1234: Substantial performance

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If the obligation has been substantially performed in good

faith, the obligor may recover as though there had been a
strict and complete fulfillment, less damages suffered by
the obligee. (n)

Requisites:
1. Debtor must be in good faith
2. There is a deficiency
3. Deficiency is insignifacnt or minimal
Eg: I ordered 1000 breast chickens; there
was a shortage of chickens; only delivered
900 chickens, can you compel me to accept?
Yes. IF substantial perfeomance would be
applicable
SIGNIFICANCE: would dpend on the
prestation
- cannot apply if there is SUBSTANTIAL
deficiency
1

it also depends on the complication and

if there has been no damage done to the
creditor
- applies to reciprocal obligations
Note: less suffered by the oblige; can
accept but cannot compel to pay the
entire amount
Art. 1235: Doctrine of estoppel

Article 1245. Dation in payment, whereby property is

alienated to the creditor in satisfaction of a debt in money,
shall be governed by the law of sales. (n)

When the obligee accepts the performance, knowing its

incompleteness or irregularity, and without expressing any
protest or objection, the obligation is deemed fully
complied with. (n)

Identity

no reservation or objections
no need good faith and
significance of deficiency
must be obvious when delivered;
must show that the creditor is
fully satisfied

Article 1244. The debtor of a thing cannot compel the creditor to

receive a different one, although the latter may be of the same value
as, or more valuable than that which is due.
In obligations to do or not to do, an act or forbearance cannot be
substituted by another act or forbearance against the obligee's will.
(1166a)
Article 1246. When the obligation consists in the delivery of an
indeterminate or generic thing, whose quality and circumstances
have not been stated, the creditor cannot demand a thing of superior
quality. Neither can the debtor deliver a thing of inferior quality. The
purpose of the obligation and other circumstances shall be taken into
consideration. (1167a)

If you perform an obligation not in

accordance With Articles 1244 and 1246,
you do not comply with identity.
Exceptions:
1. Art. 1206: Facultative obligations

Article 1206. When only one prestation has been agreed

upon, but the obligor may render another in substitution,
the obligation is called facultative.
The loss or deterioration of the thing intended as a
substitute, through the negligence of the obligor, does not
render him liable. But once the substitution has been
made, the obligor is liable for the loss of the substitute on
account of his delay, negligence or fraud. (n)

Indivisibility

Article 1248. Unless there is an express stipulation to that effect, the

creditor cannot be compelled partially to receive the prestations in
which the obligation consists. Neither may the debtor be required to
make partial payments.
However, when the debt is in part liquidated and in part
unliquidated, the creditor may demand and the debtor may effect
the payment of the former without waiting for the liquidation of the
latter. (1169a)

Exceptions:
1. Stipulated by the parties
2. Required by the law
3. Nature of the obligation

Who will make payment?
Effected by the person identified by the law
What if it is in accordance with the HOW but
not with the WHO, to whom may not accept
1. Debtors
2. Authorized representatives
3. 3rd person WHO HAS AN INTEREST in the
fulfillment of the obligation

Debtor may compel to accept

payment although he may not
comply with identity because of the
SUBSTITUTE
Not to alternative = because all of
the prestations are part of the
obligation
2. Art. 1245: DACION EN PAGO
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Presented as payment to the debt

Creditor is the buyer and the debtor is the
seller
Purchase price is the outstanding debt
NCC - Limited only: to the payment of sum
of money
SC: any types of obligation
This is clustered as a special mode of
payment

Article 1236. The creditor is not bound to accept payment

or performance by a third person who has no interest in
the fulfillment of the obligation, unless there is a
stipulation to the contrary.
Whoever pays for another may demand from the debtor
what he has paid, except that if he paid without the
knowledge or against the will of the debtor, he can recover
only insofar as the payment has been beneficial to the
debtor. (1158a)
Article 1237. Whoever pays on behalf of the debtor
without the knowledge or against the will of the latter,
cannot compel the creditor to subrogate him in his rights,
such as those arising from a mortgage, guaranty, or
penalty. (1159a)
Article 1238. Payment made by a third person who does
not intend to be reimbursed by the debtor is deemed to be
a donation, which requires the debtor's consent. But the
payment is in any case valid as to the creditor who has

accepted it. (n)

Who has interest in the obligation?

What is the basis of interest?
If the continued existence of the
obligation will be prejudicial or
detrimental ot such parsen
NOTE: any party NOT COVERED by the three may be
rejected

Party with interest in the fulfillment of an
obligation:
You and the heirs of your parents
Guarantors
Surety? NO. because they are actually
SOLIDARY DEBTORS; they are principally
liable; parties to the obligation

Is a solidary debtor a 3rd party in interest of a
debtor? NO. They are actual parties to the
obligation

How about a joint debtor? Yes. only principal to
share

Will the continued existence of a debt of a joint
debtor be prejudicial to the other joint debtor?
Dean Ulan: NO.

Any other party not identified is a party whose
payment may be refused. But still can opt to accept
which will extinguish the obligation

REIMBURSEMENT & LEGAL SUBROGATION
Art. 1302: Legal Subrogation
Article 1302. It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is preferred, even
without the debtor's knowledge;
(2) When a third person, not interested in the obligation, pays with
the express or tacit approval of the debtor;
(3) When, even without the knowledge of the debtor, a person
interested in the fulfillment of the obligation pays, without prejudice
to the effects of confusion as to the latter's share. (1210a)

Reimburse only to the amount where debtor

is benefited

pesos. M came to save the day and paid 2M pesos.

Already in excess of what is due

Questions:
1. Can C be compelled to accept payment by
M?
o Ans: depends if he is a party in
interest. In this case,NO he is not.
Thus, C may refuse the payment of
M
2. C accepts, what happens to the obligation of
D?
o It is extinguished
3. M is going after D for the debt. What is the
right of M against D?
o Subgrogation or reimbursement
o Depends: if with consent and
knowledge of D
o w/o consent: reimbursement only to
the amount benefited. In this
case,1.7M pesos; may go to the C for
subrogation
D cannot pay 1.8M remit
the condo, initially as
reimbursement
Can M consider the condo
as his? NO. because
reimbursement only
o w/ consent: D can go after C. M may
subrogate the mortgage. There is
legal subrogation. 1302(2)
o if is a party in interest- also
subrogation whether or not with
consent
rd
Rights of a 3 party:
1. WITHOUT INTEREST
Without consent, reimbursement
With consent and knowledge,
subrogation
2. WITH INTEREST
Always suborgation
With or without consent

TO WHOM SHALL PAYMENT BE MADE?
1. Creditor

Example: D, a girl, is indebted to C for 2 million
pesos. With a condo to secure the debt as real
estate mortgage. M is a suitor of D. When the
obligation became due, she can only pay 300,000
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Article 1240. Payment shall be made to the person in

whose favor the obligation has been constituted, or his
successor in interest, or any person authorized to receive it.
(1162a)

2. Successor in interest
Article 1240. Payment shall be made to the person in whose
favor the obligation has been constituted, or his successor in
interest, or any person authorized to receive it. (1162a)

Assignment
Succession (heirs)
Heir only after the succession takes
place; when parents die, property
will go to the children; takes effect
AFTER successional rights
3. Any person authorized to receive
Agent
When at the time of the payment is
due, and not when it was constituted
rd
4. 3 party who is in possession of the credit
not only possession of the document
Checks: payable to bearer cash;
payable to order- person; there
exists a credit
EG: X acquires checks and presented
it to BPI; enchased to X, is the
obligation extinguished? IT
DEPENDS:
a. If in favor of creditor, even if gotten
by X, possess document of credit-
NO- liable BPI C may run after D
b. If check to CASH, and X encashed it
with BPI yes- justify- extinguished
payment in good faith of BPI. X
entitled to the benefit of the credit
rd
5. 3 party that redounds to the benefit of the
creditor.
EG: D owes 100,000 to C. C owes
100,000 to A. What if D pays A, can A
refuse the payment of D? Yes. D is a
3rd party without interest of the debt
of C
o If A accepts the payment of
D, obligation is extinguished,
there is a legal compensation.
C was benefited.

Where shall payment be made?

Article 1251. Payment shall be made in the place designated in the

obligation. There being no express stipulation and if the undertaking
is to deliver a determinate thing, the payment shall be made
wherever the thing might be at the moment the obligation was

constituted. In any other case the place of payment shall be the

domicile of the debtor. If the debtor changes his domicile in bad faith
or after he has incurred in delay, the additional expenses shall be
borne by him. These provisions are without prejudice to venue under
the Rules of Court. (1171a)

Article 1241. Payment to a person who is incapacitated to administer

his property shall be valid if he has kept the thing delivered, or
insofar as the payment has been beneficial to him.
Payment made to a third person shall also be valid insofar as it has
redounded to the benefit of the creditor. Such benefit to the creditor
need not be proved in the following cases:
(1) If after the payment, the third person acquires the creditor's
rights; (2) If the creditor ratifies the payment to the third person;
(3) If by the creditor's conduct, the debtor has been led to believe
that the third person had authority to receive the payment. (1163a)

SPECIAL MODES OF PAYMENT:

1. Dacion en Pago Art. 1245
2. Payment by Cession- Art. 1255
3. Application of Payment
4. Tender of Payment and Consignation

Compare & Contrast of Dacion & Cession

DACION EN
PAYMENT BY
PAGO
CESSIONS
No. of Parties
Only one
Plurality of
creditor
creditors is
essential
As to sale
There is a
Forced sale
contract of
thru a public
sale; no forced auction;
sale;
proceeds are
remitted to the
debt.
As to
The ownership Ownership not
ownership
is transferred
transferred to
to the creditor the creditor
unless the
creditor himself
is the highest
bidder
Financial
Debtor is not
Debtor is in a
Condition of
necessarily in a state of partial
Parties
state of
or relative
financial
insolvency
difficulty
As to Object
A thing to be
Universality of
considered as
all his property
the equivalent
of the
performance of

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As to Effect

an obligation
Extinguishes
the obligation
to the extent of
the thing
delivered

solidary bound debtors and creditors

are contemplated
if joint, not allowed
There are several obligations
Obligations are of the same kind and nature
Same object of prestation
Generally: sum of money
If to give or to do, this does not apply
All due and demandable
Debtors payment is not sufficient to cover
the entire obligation

To release the
debtor for the
net proceeds of
the thing ceded
; does not
extinguish the
entire
obligation
because it still
depends on the
proceeds of the
sale

Note: they are called special modes of payment
because they do not comply with the 3 Is but still
result to the extinguishment of the obligation.

Remedy in case of insolvency:
Article 1177. The creditors, after having pursued
the property in possession of the debtor to satisfy
their claims, may exercise all the rights and bring all
the actions of the latter for the same purpose, save
those which are inherent in his person; they may
also impugn the acts which the debtor may have
done to defraud them. (1111)
FOLLOW THESE STEPS STRICTLY
1. Enforcement in court
2. Payment by Cession ( sold at a public
auction; proceeds are applied to the debt)
3. Go to the other real properties also thru a
public auction
4. Accion Pauliana- right available to the
creditor by virtue of which he can secure the
rescission of any act of the debtor which is
in fraud and to the prejudice of his rights as
creditor
5. Accion Subrogatoria - right to exercise all of
the rights and bring all of the actions which
the debtor may have against third persons.

Application of Payment
Issue is where payment should be
applied
Requisites:
1. one debtor and one creditor only
not literally

2.
3.

4.
5.

Rules on the application of payment:
Supposing, D is indebted to C.
500K with 10% interest
1M with 10% interest
2M with 10% interst
3M with 10% interest
500k with 10% interst
TOTAL: 7.7 M
D pays only 3M. Kulang
How do you apply that 3M? apply in the
absences of pre-arranged agreement
Who has the right to choose? Law says DEBTOR
1. DEBTOR
Generally has right to choose and
compel debtor to accept it
Exceptions:
a. voluntarily relinquishes such right to
the creditor
b. he allows a 3rd party no need for
consent of creditor- unilateral
Limitations:
a. Interest muna
Before applying 3M to debt,
ALWAYS apply it to interest
first.
supposing 700,000 interest
whats left is 2.3 M
b. Indivisibility
apply to debts as a WHOLE
not partially otherwise it is
partial payment
c. If the obligation is with a term but
solely for the benefit of the creditor
It is demandable before
arrival due; C may enforce it

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at any time
If 2M is subject to a term-
sole benefit of C all debts
due so far as debtor is
concerned; d may not choose
for the choice belongs to C
Issue: if delegated to C, will all limits be applicable?
To third persons? Will choice bind upon such limits?
YES(?)

2. CREDITOR
Opportunity to propose payment
It is not necessarily binding upon D unless
expressly or impliedly accepts
If C acknowledges a receipt designating
where payment was made and accepted by
C, deemed valid application of payment in
accordance with the creditr. Ergo, binding.
UNLESS,there is a ground to invalidate the
contract.
What contract does the code refer to?
Accessorry contracts; not principal;
impliedly entered into on how the payment
is applied

3.MOST ONEROUS DEBT
* always bawas interest first!!!
Article 1245. Dation in payment, whereby property is alienated to
the creditor in satisfaction of a debt in money, shall be governed by
the law of sales. (n)

What was the most burdensome to the

debtor only
The obligation that if continually existing will
be the most difficult for the debtor to pay
JURISPRUDENCE: does not take into
consideration the amount of the obligation
RULES:
1. AGE older debtor is more onerous
2. ACCESSORY OBLIGATION
Accessory to both or all
Most onerous accessories
With interest > without interest
20% interest > 5% interest
surety > debt with guarantor
o Surety- solidary liable;
becomes a debtor himself
o Guarantor- also a solidary

debtor/ liability but DEBTOR

first before the guarantor
With security (mortgage) > no
security
Secured by real estate > secured by
chattel mortgage

PRINCIPAL AMOUNT IS NEVER CONSIDERED.
If the same age, do not consider 3M because it is
the biggest; also because equal debts, apply pro
rata

4. PRO RATA
Always bawas interest first
Divide the 2.3M equally to them; distribute

TENDER OF PAYMENT
Note:
1. Definition of Tender of Payment
Manifestation made by the debtor to
the creditor of his decision to comply
immediately with his obligation
Preparatory act
extrajudicial
2. Definition of Consignation
Deposit of the object of the
obligation in a competent court in
accordance with the rules prescribed
by law after refusal or inability of the
creditor to accept the tender of
payment
Principal act
Judicial
3. Requisites of Tender of Payment
4. Requisites of Consignation
a. There is a debt due
b. Consignation has been made either
because the creditor to whom
tender of payment was made
refused to accept the payment
without just cause or because of any
of the causes stated by the law for
effective consignation without
previous tender of payment exists
c. Previous notice of consignation had
been given to the persons interested
in the fulfillment of the obligation

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d. Placed at the disposal of judicial

authority
e. After consignation had been made,
persons interested in the fulfillment
of the obligation had been notified
thereof.
Effect of extinguishment is only after the
approval of the court
C does not accept payment in order; valid 3
Is
What will D do if C refuses without just
case? Ans: effect consignation
As long as there is consignation, obligation is
extinguished; no need to wait for the
termination for delay
Interst will cease when approved by the
court for consignation
Interest will not cease when there is tender
of payment; need to CONSIGN. TOP alone
does not extinguish the obligation; must be
followed by consignation
Consignation will extinguish obligation but
need TOP first

No need for TOP(Art. 1256) :
Consignation alone shall produce the same effect in
the following cases:
(1) When the creditor is absent or unknown, or
does not appear at the place of payment;
(2) When he is incapacitated to receive the
payment at the time it is due;
(3) When, without just cause, he refuses to give a
receipt;

(4) When two or more persons claim the same right

to collect;
(5) When the title of the obligation has been lost.
(1176a)
cause: mora accipiendi

REQUIRED NOTICES:
1. initial notice for the intention to consign
2. notice after approval of consignation by the

court.

Summons- consignation is approved by the court;
will extinguish obligation no final judgment for
damages needed

Art. 1249: Identity of the Currency in the
Obligation

Article 1249. The payment of debts in money shall be made in the

currency stipulated, and if it is not possible to deliver such currency,
then in the currency which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of
exchange or other mercantile documents shall produce the effect of
payment only when they have been cashed, or when through the
fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation shall
be held in the abeyance. (1170)

legal tender of the PH

parties may stipulated another currency
D cannot compel legal tender if there is an
agreement
Revised by BSP law: PD 72- suspended; all
transactions should be made payable in
legal tender
In the absence of stipulation, PH legal
tender, Philippine Peso
LOSS OF THE THING DUE
Only to give a specific thing
Does not apply to generic things

LOST:
1. Perishes/ disappears
2. Cannot be found or determined may still
exist but impossible to retrieve
3. Goes out the commerce of man no longer
susceptible of private transactions; not
subject to obligations; EG: expropriations,
contraband NOW LOST
Note: the impossibility refers for TO DO

No cause of action for damages when there
is no fault on the part of the debtor; if with
fault, extinguish obligation but with
payment of damages

Art. 1264: Partial Loss
Article 1264. The courts shall determine whether, under the
circumstances, the partial loss of the object of the obligation is so
important as to extinguish the obligation. (n)

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These rules shall apply:

Article 1189. When the conditions have been imposed with the
intention of suspending the efficacy of an obligation to give, the
following rules shall be observed in case of the improvement, loss or
deterioration of the thing during the pendency of the condition:
(1) If the thing is lost without the fault of the debtor, the obligation
shall be extinguished;
(2) If the thing is lost through the fault of the debtor, he shall be
obliged to pay damages; it is understood that the thing is lost when it
perishes, or goes out of commerce, or disappears in such a way that
its existence is unknown or it cannot be recovered;
(3) When the thing deteriorates without the fault of the debtor, the
impairment is to be borne by the creditor;
(4) If it deteriorates through the fault of the debtor, the creditor may
choose between the rescission of the obligation and its fulfillment,
with indemnity for damages in either case;
(5) If the thing is improved by its nature, or by time, the
improvement shall inure to the benefit of the creditor;
(6) If it is improved at the expense of the debtor, he shall have no
other right than that granted to the usufructuary. (1122)

Generally: partial loss will not extinguish the

obligation; d may compel C to accept the thing at
deterioration stage
However, if the loss is so significant and substantial
and the principal thing is useless; partial loss is
total loss. Ergo, OBLIGATION IS EXTINGUISHED.

Art. 1265: Presumption
Article 1265. Whenever the thing is lost in the possession of the
debtor, it shall be presumed that the loss was due to his fault, unless
there is proof to the contrary, and without prejudice to the
provisions of article 1165. This presumption does not apply in case of
earthquake, flood, storm, or other natural calamity. (1183a)

Refers to the person in possession at the

time
Resolutory condition: with creditor
Suspensive condition: with debtor

On obligations to do, it refers to impossibility.
Consider the time and moment when
impossibility occurs
Impossible BEFORE or at the TIME of the
constititution- it is a void contract; there is
no obligation ; prestation is impossible
thereore no obligation

Art. 1266: Impossibility Occurs After Constitution

Two types of Impossibility:

1. OBJECTIVE
Irrespective to who parties are; such
prestation is impossible
2. SUBJECTIVE
Only important insofar as certain
individuals but NOT ALL persons
NOTE: not only refers to physical impossibility, but
also if they are contrary to law, morals, good
customs, public order, and public policy

NOTE: MOST IMPORTANT
On Reciprocal Obligations:
Seller will sell something to buyer and buyer shall
pay in return. What if the subject of the sale is lost?
Ans: extinguishes the obligation of the Seller.
How about buyer? Is he still obliged TO PAY?
Ans: equity tells us that Buyers obligation is
likewise extinguished

What is the effect of the loss with regard to the
obligation of the other party?

Art. 1191: Tacit Resolutory Condition pertains to
resperit domino presupposes that it is due to the
fault of the seller; the seller who loses in the
agreement shall pay and obligation will be
extinguished. There is fault contemplated.

What if there is no fault of seller?
RES PERIT CREDITORY
RES PERIT DOMINO
Risk lodged with creditor risk lodged with debtor
Even if S is unable to
Art. 1191: Tacit
delivery the thing; B still resolutory condition
has to pay
Creditor is at a loss
Seller at a loss; buyer is
not

GENERAL RULE: Res Perit Creditory
Exceptions:
1. Art. 1504: Contract of sale of movable
property

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

when the prestation becomes legally or physically impossible without
the fault of the obligor. (1184a)

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Article 1504. Unless otherwise agreed, the goods remain at

the seller's risk until the ownership therein is transferred to
the buyer, but when the ownership therein is transferred
to the buyer the goods are at the buyer's risk whether
actual delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the
buyer or to a bailee for the buyer, in pursuance of the

contract and the ownership in the goods has been retained

by the seller merely to secure performance by the buyer of
his obligations under the contract, the goods are at the
buyer's risk from the time of such delivery;
(2) Where actual delivery has been delayed through the
fault of either the buyer or seller the goods are at the risk
of the party in fault. (n)

Fortuitious loss before it is due

If sale is movable, RPD. If the case is
personal, RPC.
Res perit domino applies

2. Art. 1655: Contract of Lease

Article 1655. If the thing leased is totally destroyed by a

fortuitous event, the lease is extinguished. If the
destruction is partial, the lessee may choose between a
proportional reduction of the rent and a rescission of the
lease. (n)

Destruction of thing will extinguish

the obligation to pay rent
Res perit domino applies

3. Art. 1717: Contracts for Piece of Work

Article 1717. If the contractor bound himself to furnish the

material, he shall suffer the loss if the work should be
destroyed before its delivery, save when there has been
delay in receiving it. (1589)

If destroyed before delivery, apply

RPD

the obligation impossible.

Whether or not buyer still has to pay
seller becaue of the loss of the thing
due?
Buyers obligation becomes
impossible because of a loss, no
more renovation; but that is not the
prestation
The renovation is an act to be done
after the execution of the obligation
AGREEMENT TO DO A THING AFTER
THE FULFILLMENT OF AN
OBLIGATION
RENOVATION is to be done after the
delivery of the yacht
Commitment to perform act after
the performance of the ORIGINAL
obligation
The original prestation is already
extinguished by performance

Art. 1267: difficulty of performance

Article 1267. When the service has become so difficult as to be

manifestly beyond the contemplation of the parties, the obligor may
also be released therefrom, in whole or in part. (n)

Also known as the:

o DOCTRINE OF UNFORESEEN EVENTS
o FRUSTRATION OF ENTERPRISE
o Theory of impre-visibility
o Theory of lack of Bac?
International law: rebus sic stantibus

-parties tipulate in the light of certain
prevailing conditions and once these conditions
cease to exist, the contract also ceases to exist

Obligation is not rendered impossible if only
difficult
o Not just physical difficulty but also
the enforcement or performance will
lead to an inequitable situation
Enforcement- inequitable situation not
contemplated

Requisites of Difficulty:
1. It involves an obligation to do
2. Event/change of circumstances never
foreseen or contemplated by parties at the
time of the constitution of the

NOTE: If in reciprocal obligations, they do not fall
within the three exceptions, ALWAYS APPLY RES
PERIT CREDITORY.

Impossibility
CASE: Julia Millan v. Rio y Olabarrieta [GR NO. L21087, FEBRUARY 23,1924]
Not prestation that has become impossible
but the act to be performed after, the
obligation is not extinguished
Sell a yacht for 5M pesos; 1M pesos of the
5M to use for the renovation of the yacht;
before renovation, it was anchored in Manila
Bay, stormed and ate the yacht; excused to
pay the yacht? NO. What could no longer be
done is AFTER the prestation has been
effected; not the prestation itself
o If the fortuitous event is
AFTER prestation, impossible
to do the act will not render
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obligation/execution of the contract

3. It makes the performance of the obligation
extremely difficult but not impossible
4. Event must not be due to any act of the
parties
5. Contract is for a long period of time

Case: Naga Telephone Co. V. CA, February 24,1994
Difficulty not
only actual execution but the enforcement
EG: Bus A and Bus B have their own
respective bus stations; for a 20-year
period, they allow each other to use each
others bus stations. However, Bs bus
station is lost; to allow B to use As station
would be inequitable; no longer reciprocal

Art. 1268: Exemption to Fortuitous Event

Article 1268. When the debt of a thing certain and determinate

proceeds from a criminal offense, the debtor shall not be exempted
from the payment of its price, whatever may be the cause for the
loss, unless the thing having been offered by him to the person who
should receive it, the latter refused without justification to accept it.
(1185)

Obligations arising from criminal offenses

are not exempted

CONDONATION
Just really means DONATION
Except in implied condonation
In all other cases, to be valid, must comply
with the requisites of DONATION= IN
WRITING.

Article 1270. Condonation or remission is essentially gratuitous, and

requires the acceptance by the obligor. It may be made expressly or
impliedly.
One and the other kind shall be subject to the rules which govern
inofficious donations. Express condonation shall, furthermore,
comply with the forms of donation. (1187)

Remission: an act of liberality by which the oblige,
without receiving any price or equivalent,
renounces the enforcement of the obligation, as a
result of which it is extinguished in its entirety or in
the part or aspect of the same to which the
remission refers
- it is a gratuitous abandonment by
the creditor of his right
As to form, it may be:

a. Express- it is made in accordance with the

formalities prescribed by law for donations
b. Implied- although it is not made in
accordance with the formalities prescribed
by law for donatons, it can b deduced from
the acts of the obligee or creditor.

As to extent, it may be:
a. Total entire obligation is extinguished
b. Partial- it refers only to the principal or to
the accessory obligation or to an aspect
thereof which affects the debtor as for
instance solidarity

As to constitution, it may be:
a. Inter Vivos constituted by agreement of
the oblige or obligor
b. Mortis Causa last will and testament

*Provisions on Donation:

Article 748. The donation of a movable may be made orally or in

writing.
An oral donation requires the simultaneous delivery of the thing or of
the document representing the right donated.
If the value of the personal property donated exceeds five thousand
pesos, the donation and the acceptance shall be made in writing.
Otherwise, the donation shall be void. (632a)
Article 749. In order that the donation of an immovable may be valid,
it must be made in a public document, specifying therein the
property donated and the value of the charges which the donee must
satisfy.
The acceptance may be made in the same deed of donation or in a
separate public document, but it shall not take effect unless it is done
during the lifetime of the donor.
If the acceptance is made in a separate instrument, the donor shall
be notified thereof in an authentic form, and this step shall be noted
in both instruments. (633)
Article 750. The donation may comprehend all the present property
of the donor, or part thereof, provided he reserves, in full ownership
or in usufruct, sufficient means for the support of himself, and of all
relatives who, at the time of the acceptance of the donation, are by
law entitled to be supported by the donor. Without such reservation,
the donation shall be reduced in petition of any person affected.
(634a)
Article 751. Donations cannot comprehend future property. By
future property is understood anything which the donor cannot
dispose of at the time of the donation. (635)
Article 752. The provisions of article 750 notwithstanding, no person
may give or receive, by way of donation, more than he may give or
receive by will.
The donation shall be inofficious in all that it may exceed this
limitation. (636)
Article 771. Donations which in accordance with the provisions of
article 752, are inofficious, bearing in mind the estimated net value
of the donor's property at the time of his death, shall be reduced
with regard to the excess; but this reduction shall not prevent the
donations from taking effect during the life of the donor, nor shall it

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bar the donee from appropriating the fruits.

For the reduction of donations the provisions of this Chapter and of
articles 911 and 912 of this Code shall govern. (654)

Requisites of Condonation:
1. Gratuitous
2. Accepted by the Obligor
3. Obligation must be demandable

Article 1271. The delivery of a private document evidencing a credit,

made voluntarily by the creditor to the debtor, implies the
renunciation of the action which the former had against the latter.
If in order to nullify this waiver it should be claimed to be inofficious,
the debtor and his heirs may uphold it by proving that the delivery of
the document was made in virtue of payment of the debt. (1188)

CONFUSION
Merger and consolidation
2 into 1 new
one eats the identity of the other;
swallowed
creditors and debtors of each other
BPI + RCBC = New Bank
Definition:
merger of the characters of creditor and
debtor in one and the same person by virtue
of which the obligation is extinguished
the meeting in one and the same person of
the qualities of the creditor and debtor with
respect to one and the same obligation

Requisites:
1. Merger of the characters of creditor and
debtor must be in the same person
2. It must take place in the person of either the
principal creditor or the principal debtor
3. It must be complete and definite

Article 1275. The obligation is extinguished from
the time the characters of creditor and debtor are
merged in the same person. (1192a)

Article 1276. Merger which takes place in the
person of the principal debtor or creditor benefits
the guarantors. Confusion which takes place in the
person of any of the latter does not extinguish the
obligation. (1193)

Article 1277. Confusion does not extinguish a joint

obligation except as regards the share

corresponding to the creditor or debtor in whom
the two characters concur. (1194)

COMPENSATION
Quits na tayo

Article 1278. Compensation shall take place when
two persons, in their own right, are creditors and
debtors of each other. (1195)

Definition:
mode of extinguishing in their concurrent
amount those obligations of persons who in
their own right are creditor and debtors of
each other
figurative operation of weighing two
obligations simultaneously in order to
extinguish them to the extent in which the
amount of one is covered by the amount of
the other
a more convenient and less expensive
method of effecting the payments of two
obligations
simplified payment : pago abreviado

Requisites (ART. 1279):
1. There must be two parties, who in their own
right, are principal creditors and principal
debtors of each other
2. Both debts must consist in money or if the
things due are fungibles(consummables),
they must be of the same kind and quality
3. Both debts must be due
4. Both debts must be liquidated and
demandable
5. There must be no retention or controversity
commenced by third persons over either of
the debts and communicated in due time to
the debtor
6. Compensation must not be prohibited by
law.

Modes of Compensation:
1. Legal takes effect by operation of law from
the moment all of the requisites are present
(art. 1278 & art. 1279)

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2. Voluntary parties are mutually creditors

and debtors agree to compensate their
respective obligations, even though all of
the requisites for companesation may not
then be present
a. Facultative Compensation effected
by a party who is entitled to oppose
the compensation because he would
be prejudiced thereby.

Can there be compensation with depositor and
bank?
Ans: yes since they are creditors and debtors of
each other

CASE: Garcia v. Lim Chiu Sing, 59 Phil 562
Stockholders are not creditors of the
corporation
No creditor and debtor requirement
Stockholder is in fact an investor;
corporation is not obligated to pay him


NOVATION
Definition:
It is the substitution or change of an
obligation by another, resulting in its
extinguishment or modification, either by:
1. changing its object or principal
conditions
2. Substituting the person of the debtor
3. Subrogating a third person in the rights
of the creditor (Art. 1291)

Distinctive feature: although it extinguishes the
obligation, it also gives birth to another obligation.
It has a two-fold purpose:
1. extinguishment of an old obligation
2. giving birth to a new obligation to take the
place of the old

this is the only mode that results to a
SIMULTANEOUS CREATION of a NEW
OBLIGATION
old obligation is extinguished and replaced
by a new
modification of old obligation

Art. 1291 provides the term modified; not

extinguish

TYPES OF NOVATION
1. REAL NOVATION / OBJECTIVE NOVATION
a. there is a change in the object
b. change in the principal obligation
c. change in the cause of the obligation

2. PERSONAL NOVATION / SUBJECTIVE
NOVATION
a. change of old debtor to a new one
b. subrogating a third person in the
rights of the creditor
3. MIXED NOVATION
- combination of objective and subjective
novations

Requisites of Novation:
1. Previous valid obligation
2. Agreement of parties to new obligation
3. Extinguishment of old obligation
4. Validity of new obligation

Defect: #3 is not a requisite; it is an event after the
fact; requisites should be before the effect. NO. 3 IS
AN EFFECT NOT A REQUISITE
*Novation is NEVER PRESUMED

NOTE: Castan- Proper enumeration:
1. Valid old obligation
2. Valid new obligation
3. Substantial difference of no. 1 and no. 2
4. Capacity of the parties
5. Animus novandi: Intent to extinguish old
obligation and make a new obligation

ART. 1292: REAL NOVATION
Article 1292. In order that an obligation may be extinguished by
another 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 point incompatible with each other. (1204)

Objective novation
There is a change in:
1. Object prestation
o To give then now to do
o If novation takes place, no cause of
action for the old obligation
2. Cause source of obligation
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o Source may not be really changed;

but the classification may be
changed
o Eg: contract of lease to contract to
sell
3. Principal Condition
What if there is a change in the term???

CHANGE IN THE TERM (either extend or shorten)
1. SC: Ynchausti & Co v. Yulo , 34 Phil 978
o Extension on the period
o It is NOT NOVATION; not extinctive
novation
2. SC: Kongkaya v. Ararata (not sure with the
name)
o Extension is coupled with imposition
of the accessory obligation
o Additional burden
o New accessory obligation that is
burdensome to the debtor =
novation
o Eg: loan of one year to two years but
agree to pay interest = NOVATION
3. SC: Garcia JR v. CA
o Change in accessory obligation which
was extinguished in the old
o Whether to increase or decrease,
there is no novation; only a change
in the rate of the existing interest
4. Kabangkalan Sugar Co. v. Pacheco, 55 Phil
555
o Reduction of the term or period
would result to a NOVATION

Rules:
If new one is more burdensome to the old,
there is novation
Not make a new obligation that is
burdensome, only modification; not
extinctive novation

Art. 1293: Personal Novation
Article 1293. Novation which consists in substituting a new debtor in
the place of the original one, may be made even without the
knowledge or against the will of the latter, but not without the
consent of the creditor. Payment by the new debtor gives him the
rights mentioned in articles 1236 and 1237. (1205a)

Two ways this is effected:

1. Expromission initiative does not emanate
from the debtor
1.1 Without knowledge of old debtor
1.2 against the will of the old debtor
1.3 With knowledge and consent of old
debtor

Requisites:
1. initiative for the substitution must emanate
from the new debtor
2. consent of the creditor to the substitution

2. Delegacion substitution of debtors is
effected with the consent of the creditor at
the instance of the old debtor with the
concurrence of the new debtor; debtor
offers and the creditor accepts a third
person who consents to the substitution

Requisites:
1. initiative must emanate from the old debtor
2. consent of the new debtor
3. acceptance by the creditor

always note as to who initiated the change

Jesus Christ- expromision- because of the love of
christ

Whether it be expromision or delegacion, the
creditors consent IS IMPORTANT-- needed for the
birth of the novation

Case: Villanueva v. Girged 110 Phil 478
D owes a sum of money
A wrote to C that he will take care of the
rest as soon as D pays
No novation: no showing of consent of C
o Consent must always be expressed
o In the absence of document by
replacing the debtor with the
consent of creditor, SC rejects it.
o NO EXPRESS ACCEPTANCE
Condition- if novation is substituted with
condition- NOT HAPPEN

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No novation there is a cuase of action?

None?

Case: Hodges v. Rey 111 Phil 219
Alleged that there is novation
SC: no novation; even if consent but what
actually transpired is a contract of agency
where P authorized PNB to pay in his own
behalf

Example:
X sued Y for estafa, pending court; while the case is
pending, Y entered into a contract with X where Y
promised to pay X in installment of what was
embezzled; when contract was consummated-
Court refused to recognize it and proceeded with
the action; ruled that Y is guilty. The defense that
there is no cause of action for estafa because its
basis no longer existed because of the installment IS
UNTENABLE
SC: no cannot be. Conviction is upheld. Ys theory
may apply prior to the filing of the criminal case.
Trust relation may be convertent into
another tie
Offended party may no longer ask
prosecution to divert authority
Effective if only for civil liability

Art. 1294/1295: INSOLVENCY
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 obligations shall not give rise to any liability on the part of the
original debtor. (n)
Article 1295. The insolvency of the new debtor, who has been
proposed by the original debtor and accepted by the creditor, shall
not revive the action of the latter against the original obligor, except
when said insolvency was already existing and of public knowledge,
or known to the debtor, when the delegated his debt. (1206a)

effected; risk on his part and its his

responsibility but because the law is
explicit = apply
2. Insolvency existing and known to the
debtor at the delegation of the debt; C
did not know and D knows; BAD FAITH

Art. 1296 : Effect on Accessory Obligation
Article 1296. When the principal obligation is extinguished in
consequence of a novation, accessory obligations may subsist only
insofar as they may benefit third persons who did not give their
consent. (1207)

Extinguishment on principal obligation by
novation will also extinguish the accessory
obligations
Exceptions:
1. Parties agree to be bound by the same
accessory obligation with the new obligation
2. Accessory obligation consists of surety or
guaranty and they agree to still continue
with the same in regard to the new
obligation
3. Accessory obligation extends to a third party
o Stipulated to benefit a 3rd party
o Must be with consent of the
beneficiary
o If did not give consent to extinguish
the obligation, not extinguished.

Art. 1297: Effect of Validity

Article 1297. If the new obligation is void, the original one shall
subsist, unless the parties intended that the former relation should
be extinguished in any event. (n)

Voidable new obligation

Exists until annulled
Yes- novation
But note, as soon as the obligation is
annulled, extinguished also the new -
novation is ineffective
*it revives the old:
o Ineffective is novation not the obligation
o Unless parties had intention to extinguish
the obligation

Art. 1298
o
o
o
o

In expromision, subsequent insolvency will

NOT REVIVE the old obligation
In delegacion, the general rule is NO- it will
not revive the old obligation
Exceptions:
1. Insolvency already existing and of public
knowledge when the debt made not
only to D but the whole world
Article 1298. The novation is void if the original obligation was void,
Opinion of Caguiao: not revive; C now
except when annulment may be claimed only by the debtor or when
estopped to allege the existence of
ratification validates acts which are voidable. (1208a)
insolvency before the delegation was
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Old obligation void and new obligation is

valid
No novation
Fails to meet the requisites
Same if the new obligation is void, no
novation
What if the old obligation is voidable?
o There is still a valid novation if there
is a ratification of old obligation --
changing or curing the defects
o old obligation when ratified is now
valid
o no ratification yet, valid novation?
NO NOT VALID. Defect can only be
ascertained by the debtor. If D
acceded to the novation, ratification
also of the obligation
o also ratified because entered into a
completely new one only in
DELEGACION NOT EXPROMISION

TEST: If in the facts that novation is that of a new
obligation, voidable old and took place, not change
the object and cause but PERSONAL change,
novation take place?
- expromision initiative of the 3rd
party
- delegacion- initiated by the
debtor and did not object to the
novation acceded to the defect

Art. 1299: Effect of Novation of the Condition

Article 1299. If the original obligation was subject to a suspensive or
resolutory condition, the new obligation shall be under the same
condition, unless it is otherwise stipulated. (n)

1. Old obligation with CONDITION and New

obligation PURE
Novation depends in the fulfillment
of the condition attached to the old
If condition is not fulfilled, no
obligation to talk about, no novation.

2. Old obligation PURE and New obligation
with CONDITION

Novation depends on the fulfillment

of the obligation attached to the new
obligation
If not fulfilled, no novation , no valid
subsequent obligation

3. Both NEW and OLD obligations have
CONDITIONS
Determine whether or not the
obligation in the new and old are
incompatible
o If incompatible, old obligation
extinguished, new one is
subject to the fulfillment of
the condition
o IF new does not exist yet, and
the old exists, already a cuase
of action
If the old obligation with a condition
and the new obligation with a
condition are INCOMPATIBLE, they
cannot exist together. We do not
need to wait for the conditions to be
fulfilled. The old obligation is
disregarded and the new condition is
the subject.
Fulfillment of the condition in the
new is necessary for the
enforcement of the obligation
If condition of the old is fulfilled, still
enforce the old obligation? NO.
NOTE: it is the conditions that are
incompatible, not the obligations. If
the conditions are incompatible, the
obligations can still stand together.
Effectivity will depend on the
fulfillment of ALL ocnditions.

4. Objects of the NEW obligation is to REMOVE
THE CONDITION OF THE OLD OBLIGATION


Legal Subrogation

Article 1301. Conventional subrogation of a third person requires the

consent of the original parties and of the third person. (n) Article
1302. It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is preferred, even
without the debtor's knowledge; (2) When a third person, not
interested in the obligation, pays with the express or tacit approval of

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the debtor;
(3) When, even without the knowledge of the debtor, a person
interested in the fulfillment of the obligation pays, without prejudice
to the effects of confusion as to the latter's share. (1210a)
Article 1303. Subrogation transfers to the persons subrogated the
credit with all the rights thereto appertaining, either against the
debtor or against third person, be they guarantors or possessors of
mortgages, subject to stipulation in a conventional subrogation.
(1212a)
Article 1304. A creditor, to whom partial payment has been made,
may exercise his right for the remainder, and he shall be preferred to
the person who has been subrogated in his place in virtue of the
partial payment of the same credit. (1213)

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

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