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Extinguishment of Obligations (CIVIL CODE, Art. 1231): (NoCoMeRePaLo Pre Re Ful An)
1. Novation
2. Compensation
3. Confusion or Merger
4. Rescission
5. Payment/performance
6. Loss of the thing due
7. Prescription
8. Rescission
Juridical act which is voluntary, licit and made with the intent to extinguish the obligation (JURADO, Obligations and
Contracts, supra at 213).
Burden of Proving Payment
When the existence of a debt is fully established by the evidence, the settle rule is that the burden of proving
extinguishment by payment devolves upon the debtor who pleads payment or offers such a defense to the claim of the
credit rather than on the latter to prove non-payment. The debtor has the burden of showing with legal certainty that the
obligation has been discharged by payment. Only when the debtor introduces evidence that the obligation has been
extinguished doe the burden shift to the creditor (Cham v. Paita-Moya, A.C. No. 7494, June 27, 2008)
Requisites of Payment:
1. Normal when the debtor voluntarily performs the prestation as agreed upon
2. Abnormal when debtor is forced by means of judicial proceeding either to comply with the prestation or pay indemnity
Characteristics of a valid payment:
1. Identity only the prestation agreed upon and no other must be complied with
1. When the obligation has been substantially performed in good faith, the obligor may recover as through there has been a
strict and complete fulfillment less damages surfed by the obligee (CIVIL CODE, Art. 1234); and
2. When the oblige accepts performance, knowing its incompleteness or irregularity and without
Expressing any protest or objection; based on the principle of estopppel (CIVIL CODE, Art. 1235).
Who must pay
In general:
1. Debtor;
2. Anyone acting on the debtors behalf;
a. Duly authorized agent or legal representative;
b. hes (provided that the debtor is already dead for otherwise they are considered as third persons interested in the
obligation); and
c. Successors-in-interest and assignees (JURADO, Obligations and Contracts, supra at 239).
Third person who is an Interested party
Interested Party
One who has an interest in the extinguishment of the obligation such as:
1. Co-debtors;
2. Sureties;
3. Guarantors; and
4. Owners of mortgages property of pledge
Note: Even without the knowledge of the debtor, a person interested in the fulfillment of the obligation can pay (CIVIL
CODE, Art. 1302, par. 3).
Effects of Payment:
1. The obligation is extinguished;
2. The debtor is to fully reimburse the third person who is an interested party; and
3. The third person interested is subrogated to the rights of the creditor.
Note: The creditor cannot refuse valid tender of payment from the above mentioned individuals (Monte de Piedad v.
Rodrigo, G.R. No. L-42928, August 18, 1936).
Third Person who is Not an Interested Party but with debtors Consent
General Rule: The creditor is not bound to accept payment or performance by a third person who has no interest in the
fulfillment of the obligation (CIVIL CODE, Art. 1236, par. 1).
Exception: Unless there is a stipulation to the contrary.
Effects of Payment:
1. Third perspon is entitled to full reimbursement.
2. There is legal subrogation as the third person, i.e. steps into the shoes of the creditor.
Note: The creditor may refuse to accept payment.
Third Person who is Not an Interested Party and Without knowledge or Against the Will of the Debtor
General Rule: Whoever pays for another may demand from the debtor what he has paid (CIVIL CODE, Art. 1236, par. 2).
Exceptions: If payment was made without the knowledge or against the will of the debtor.
In such case, he can only recover insofar as the payment has been beneficial to the debtor.
Effects of Payment:
1. Third person can only be reimbursed insofar as payment has been beneficial to the debtor.
Benefit to the creditor is presumed in the following cases (CIVIL CODE, Art. 1241, par.2): (RES)
a. Is the creditor ratifies the payment to the third person (Ratification)
b. If bye the creditors conduct, the debtor has been led to believe that the third person authority to receive the payment
(Estoppel)
c. If after the payment, the third person acquires the creditors rights (Subrogation)
Art. 1237 states that 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.
Payment Made by a Third Person Who Does Not Intend to be reimbursed by the Debtor
Effects of Payment:
1. Presumed to be a donation. Thereof, the consent of the debtor is necessary, as in the case of a done in ordinary
donations;
2. Once the consent is secured, the rules on ordinary donation will apply; and
3. If the consent is not secured, Art/ 1236 an 1237 will apply (JURADO, Obligations and contracts, supra at 238)
To whom Payment must be Made (CIVIL CODE, Art. 1240)
1. The person in whose favor the obligation has been constituted;
2 His successor in interest; or
3. Any person authorized to receive it.
Effect of Payment to Unauthorized Person in Obligation to Give:
General Rule: It shall not be valid even though made in good faith.
Exceptions:
1. Payment made to a third person, provided that it has redounded to the benefit of the creditor.
Benefits to the creditor is presumed in the following cases (CIVIL CODE, Art. 1241, par. 2): (RES)
a. Is the creditor ratifies the payment to the third person (Ratification)
b. If bye the creditors conduct, the debtor has been led to believe that the third person authority to receive the payment
(Estoppel)
c. If after the payment, the third person acquires the creditors rights (Subrogation)
2. Payment to the possessor of the credit not the document faith (CIVIL CODE, Art. 1242)
This refers to the possession of credit not the document evidencing it.
Note: In obligations to give, payment to incapacitated has kept is valid when:
a. The incapacitated has kept the amount or thing paid or delivered; or
b. Payment has been beneficial to the incapacitated person (CIVIL CODE, Art. 1241, par. 1).
Payment made to the creditor by the debtor after the latter has been judicially ordered to retain the debt shall not be valid
(CIVIL CODE, Art. 1243); unless otherwise stipulated, extrajudicial expenses required by the payment shall be for the
account of the debtor (CIVIL CODE, Art. 1247).
Thing to be Paid
Rule in Monetary Obligations (CIVIL CODE, Art. 1249)
1. Must be paid in the currency stipulate if its not possible to deliver such currency, then in the currency which is legal
tender in the Philippines.
2. Delivery of promissory notes payable to order or bills of exchange or other mercantile document shall not produce the
effect of payment except:
a. When they have been cashed or credited; or
b. When through the fault of the creditor they have been impaired.
Note: The impairment of the negotiable instrument through the fault of the creditor contemplated by Art. 1249 is
applicable only to a document executed by a third person and delivered by the debtor to the creditor and does not apply to
instruments executed by debtor himself and delivered to the creditor (JURADO, Obligation and Contracts, supra at 261)
Pending the cashing if the mercantile document, the creditor cannot bring an action against the debtor during the
intervening period as the action derived from the original obligation shall be held in abeyance (Id. at 253).
Legal Tender: Such currency which may be used for the payment of all debts, whether private or public. Its significance is
manifested by the fact that it is such which the debtor may compel a creditor to accept in payment of the debt (Id. at 251).
Legal tender in the Philippine would be all notes and coins issued by the Bangko Sentral (Circular No. 573, series of 2006):
1. 1-Peso, 5-Pesos and 10-Peso coins: in amounts not exceeding P1, 000.00
2. 25 centavo coin or les: in amounts not exceeding P100.00
Take note that bills, regardless of denomination, are legal tender up to whatever amount.
R.A. 8183 provides that all monetary obligations shall be settled I the Philippine currency which is legal tender in the
Philippines, However, the parties, may agree that the obligation or transaction shall be settled in any other currency at the
time of payment (R.A.8183, Sec.1)
Extraordinary Inflation or Deflation (CIVIL CODE, Art. 1250)
Requisites:
1. There must be a decrease or increase in the purchasing power of the currency which is unusual or beyond the common
fluctuation in the value of the currency; and
2. Such decrease or increase could not have been reasonably foreseen or which was manifestly beyond the contemplation of
the parties at the time the obligation was established.
Take note that Art. 1250 mention Iin the currency stipulated. Thus, it applies only to contractual obligations.
Value of currency at the time of the establishment of the obligation shall be the basis of payment. The law does not say it
should be the amount paid (JURADO, Obligation and Contracts, supra at 263)
Note: Even if the price index of the goods and services may have risen during the intervening period (Sangradorv.
Valderrama, G.R. No. 79552, November 29, 1988), this increase, without more, cannot be considered as resulting in
extraordinary inflation as to justify the application of Article 1250 (Telengfan & Sons, Inc. v. United
States Lines, Inc., et. al., G.R. NO. 132284, February 28, 2006)
There must be a declaration of such extraordinary inflation or deflation by the Bangko Sentral. Without such declaration,
the creditors cannot demand an increase and debtors a decrease, of what is due to or from them (Ramos v.CA, G.R. No.
119872, July 7, 1997 and Mobil Oil Phils. v. CA, G.R. NO. 103072, August 20, 1993).
Rule when the Obligation Consists in the Delivery of a Determinate or Specific Thing
Debtor cannot fulfill his obligation by delivering a thing which is a different one, although the latter maybe of the same
value as, r more valuable than that which is due (CIVIL CODE, Art. 1244, par. 1)
Rule when the Obligation is to Do or Not to Do and the Object is an Act or Forbearance which is Specific or
Determinate
Obligor cannot fulfill his obligation by substituting another act or forbearance against the obligees will (CIVIL CODE, Art.
1244, par.2)
Rules when the Obligation Consist in the Delivery of Indeterminate or Generic Things
Art. 1251 governs unilateral obligations. Reciprocal Obligations are governed by special rules.
Special Forms of Payment
Application of Payment (CIVIL CODE, Art. 1252).
Designation of the debt to which the payment must be applied when the debtor has several obligation of the same kind in
favor of the same creditor.
Requisites:
1. There must be only debtor and only creditor;
Under Art. 1792, application of payment may be had even if there are tow creditors the partnerships and the managing
partner (JURADO, Obligations and Contracts, supra at 265), but the law allows such application in favor of the managing
partner only if the personal credit of the partner should be more onerous to him.
Neither the requirement that there must be only one debtor militates against the possibility of extending the rules on
application of payment to solidary obligation. The solidary debtor who paid may have their obligation in favor of the
creditor.
2. There must be two or more debts of the same kind;
It is also essential that each of the debt must be identical or homogenous specie (JURADO, Obligations and Contracts,
supra at 270).
Exception: When some of the obligations are not identical specie at the time of their constitution, and at the time of
designation or application is made, such obligation and already been converted into obligation to indemnify with damages
by reason of breach or nonfulfillment (JURADO, Obligations and Contracts, supra at 270).
If the creditor did not apply or if application is void, debt which is the most onerous is the one satisfied. It is evident in the
circumstances laid by At. 1254 that it is law which makes the application.
Legal Application of Payment (CIVIL CODE, Art. 1254).
The debt which is more onerous to the debtor, among those due, shall be deemed to have been satisfied.
The rule applies:
1. When the payment cannot be applied in accordance with the preceding rules; or
2. If the application cannot be inferred from the circumstances (JURADO, Obligations and Contracts, supra at 272-273).
Why the most onerous debt
In making the application of payments, the law considers particularly the interest of the debtor. It is assumed that if the
debtor has chosen the debt to be paid, he would have relieved himself first of the most burdensome debt.
This is more onerous:
1. Oldest debts are more onerous that more recent ones;
2. Interest bearing debts are more onerous than those which do not, even If the latter were incurred at an earlier date;
3. Between interest bearing debts, the debt with a higher rate of interest is more onerous;
4. A secured debt is more onerous than that which is not;
5. A debt in which the debtor is principally bound is more onerous than that which is he is merely a guarantor or surety;
6. A debt in which he is solidarily bound is more onerous than that which he is only a sole debtor;
7. Within a solidary obligation, the share which corresponds to a solidary debtor would be most onerous;
8. An obligation for indemnity is more onerous than that which is by way of penalty; or
9. Liquidated debts are more onerous than unliquidated one (JURADO, Obligations and Contracts, supra at 272-273).
Note: No hard and fast rule, however, can be put up.
When it is fairly impossible to determine which of the debts due is the most onerous or burdensome o the debtor, or when
the debts due are of the same nature and burden, payment shall be apply proportionately (Id. at 274).
Must conform to the general rules on payment found under Art. 1232-1251of the Civil Code.
Illustration: Applying both rules, should a debtor have two debts of the same nature and burden amounting to P100 and
P200 and he pays only P100, the same shall not be applied proportionately as the creditor cannot be compelled to accept
partial payment. Consequently, his payment shall be full applied to the debt amounting to P100.
Note: If the debt produces interest, payment of the principal shall not be deemed to have been made until the interest have
been covered (CIVIL CODE, Art. 1253); applies only in the absence of an agreement to the contrary and is merely directory
and not mandatory. It means that the benefits of Art. 1253 may be waived by way of stipulation.
Dation in Payment (Dacion en pago)
Delivery and transmission of ownership of a thing by the debtor to
performance of the obligation.
Requisites:
1. Existence of a money obligation;
Take note, however, that it is precisely in obligation which are not money debts, in which the true juridical nature of dation
in payment becomes manifest. The fact that there must be a prior agreement of the parties on the delivery of the thing in
lieu of the original prestation shows that there is a novation which extinguishes the original obligation, and the delivery is
a mere performance of the obligation (TOLENTINO, Civil Code, supra at 294).
Thus, if the creditor is evicted from the thing given in dating in payment, the original obligation is not revived.
It is submitted that the question of whether the pre-existing obligation in dation in payment is in money has significance
only in determining whether the resulting contract is that of sale and not whether the original obligation has been
extinguished.
2. Alienation to the creditor of a property by the debtor with the consent of the former; and
3. Satisfaction of the money obligation of the debtor.
Payment by Cession (CIVIL CODE, Art. 1255);
A special form of payment whereby the debtor assigns or abandons all of his property for the benefit of his creditors in
order that from the proceeds thereof, the latter may obtain payment of their credits.
Requisites:
1. Plurality of debts
2. Partial or relative insolvency of the debtor; and
3. Acceptance of the cession by the creditors (JURADO, Obligations and Contracts, supra at 275).
Kinds of Payment by Cession:
Payment by Cession
As to Number of Parties
One creditor
Plurality
Creditors
of
Debtor
must
be
partially
or
relatively insolvent
As to Object
Thing delivered is
considered
as
equivalent
of
performance
Universality
of
property of debtor is
what is ceded
As to effect
Extinguishes
obligations to the
extent
of
the
value of the thing
delivered
as
agreed
upon,
proved or implied
from the conduct
of the creditor.
Does not involve
all properties of
debtor
Involves
all
the
properties of debtor
Creditor becomes
owner of property
of debtor
Creditor
does
not
become the owner.
Possession is only
transmitted.
Consignation
Manifestation of the
debtor
to
the
creditor
of
his
decision to comply
immediately
with
his obligation
Preparatory act
Principal act
Extra judicial
character
in
Judicial
character
in
Tender of Payment
Definition: Consist in the manifestation made by the debtor to the creditor of his decision to comply
immediately with his obligation (JURADO, Obligations and Contracts, supra at 277)
Tender of payment, even if valid, does not by itself produce legal payment, unless it is completed by
consignation (Phil. National Bank v. Relativo, G. R. No. L-5298, October 29, 1952).
Effects on Interest:
1. When a tender of payment is made in such a form that the creditor could have immediately realized payment if he
had accepted the tender followed by a prompt attempt of the debtor to deposit the means of payment in court by way
of consignation, the accrual of interest on the obligation will be suspended from the date of such tender; or
2. When the tender of payment is not accompanied by the means of payment, and the debtor did not take any
immediate step to make a consignation, then interest is not suspended from the time of such tender (TOLENTINO,
Civil Code, supra at 321).
Exercise of Right of Repurchase
In case of exercise of right of repurchase by tender of check, such tender is valid because it is an exercise of a right
and not made as mode of payment of an obligation. Article 1249 is not applicable (Adelfa PropertiesInc., v. CA G.R.
No. 111238, January 25, 1995).
Consignation
Note: Consignation being a form of payment presupposes that there must be a debt that must be paid. Tender of
payment alone would be sufficient to preserve the right of the redemptioner of the vendee retro.
General Requisites of Consignation (see previous discussion in connection with payment in general CIVIL CDE,
Art. 1232-1251)
Special Requisites of Consignation (CIVIL CODE, Art. 1256-1258):
1. Existence of a valid debt which is due;
2. Tender of Payment by the debtor;
3. Creditors refusal to accept the payment is
without just cause or any of the cases provided In
Art. 1256 par. 2 exists.
a. Tender must precede consignation;
b. It must have been unconditional; and
c. Refusal must be without just cause
At the time of deposit, however it is not necessary for the debtor to show want of cause for the refusal of the
creditor; this fact may be established during the hearing of the case.
4. Previous notice of consignation to person interested in the fulfillment of the obligation, in order to give the creditor
the opportunity to reconsider his unjustified refusal and tro accept payment to avoid consignation and the
subsequent litigation.
Lack of previous notice does not invalidate the consignation, but simply makes the debtor liable for the expenses
occasioned thereby (TOLENTINO, Civil Code, supra at 324).
5. Consignation amount or thing due placed
at the disposal of the court.
This requirement is complied with if the debtor deposits the thing or amount with the Clerk of Court. Normally, this
requirement is accompanied by the filing of the complaint itself (JURADO, Obligations and Contracts, supra at 283).
6. Subsequent notice of consignation to enable
IT would be unjust to make the creditor suffer the risk of deterioration, depreciation or loss of such goods or money
by reason of lack of knowledge of the consignation
Note: Since consignation is a special form of payment, it must conform not only with the special requirements
prescribed by law, but also with all the requisite of a valid payment.
Instances where consignation shall produce the effects of payment without prior tender of payment
(CIVIL CODE, Art. 1256, par 2):
1. Creditor is absent or unknown, or does not appear at the place of payment.
Note: Absence need not be judicially declared. He must however, have no legal representative to accept the payment.
2. Creditor is incapacitated to receive the payment at the time it Is due.
2. When without just cause, the creditor refuses to give a receipt.
Note: It appears in this case that the refusal to issue a receipt preceded the tender of payment.
4. When two or more persons claim the same right to collect (as in the case of interpleder).
5. When the titles of the obligation has been lost.
The list is not exclusive. The rule also applies if the creditor, prior to the tender of payment, intimated that he will
not accept the debtors payment.
Effects of Consignation:
1. If the creditor accepts the thing or amount deposited without contesting the validity or efficacy of the
consignation, the obligation is not cancelled/extinguished.
2. If the creditor contest the validity of the consignation or if the creditor is not interested or unknown or is absent,
the result is litigation. If during the trial, the plaintiff-debtor is able to establish that all the requisites of
consignation have been complied with, the obligation is extinguished (JURADO, Obligation and Contracts, supra at
287).
Effects of withdrawal of the Object/Amount Deposited:
1. Before creditor has accepted consignation or before a judicial declaration of consignation (CIVIL CODE, Article
160, par 2):
Obligations remain in force.
Withdrawal by the debtor at this stage is a matter of right because he still owns the thing.
Should the debtor opt not to withdraw the thing at this stage, can another creditor attach the same property since
the debtor still owns the thing? No. Property deposited with court is exempt from attachment and now subject to
execution; It is said to be in custodia legis and cannot be withdrawn without express order from the court.
Note: To have the effect of payment, the law requires the twin acts of tender of payment and consignation. Tender of
payment without consignation only frees the debtor from the obligation to pay interest on the outstanding amount
from the time the unjustified refusal takes place (Go Sinco v. CA, G.R No. 151903, October 9, 2009).
The expenses of consignation, when properly made, shall be charged against the creditor (CIVIL CODE, art. 1259).
Impossibility In Fact
As to the thing
Must consist in the
nature of the thing ti
be done and not the
inability of the party
to do so
In the Absence of
inherent impossibility
in the nature of the
thing stipulated to be
performed, which is
only improbable or
out of the power of
the obligor
As to the effect
Renders the contract
void
Natural impossibility is reckoned from the time of constitution of the obligation. Thus, the obligation remains void
even if the prestation subsequently becomes possible.
In case of subsequent partial impossibility, the rule in Art. 1264 may be applied (TOLENTINO, Civil Code, supra at
345).
Temporary impossibility does not extinguish the obligation but merely delays its fulfillment. This presupposed that
the duration of impossibility has been contemplated by the parties; otherwise, the same may extinguish the
obligation under Art. 1267. In the latter case, the fact that the prestation later becomes possible does not revive the
obligation (Id. At 246).
p. 262
Effects if Relative Impossibility
Doctrine of Unforeseen Events (CIVIL CODE, Art. 1267)
When the service has become so difficult as to be manifestly beyond the contemplation of the parties, the court should be
authorize to release the obligor in whole or in part (This is also referred to as the Doctrine of Frustration of Enterprise).
The intention of the parties should govern and if it appears that the service turns out to be so difficult as to have been beyond
their contemplation, it would be doing violence to the intention to hold the obligor still responsible.
Doctrine of Rebus Sic Stantibus
The arties stipulate in the light of certain prevailing conditions and once these conditions cease to exist, the contract also ceases
to exist (Naga Telephone Co., et al. v. CA, G.R. No. 107112, February 24, 194)
It will be noted that Art. 1267 speaks of a service- a personal obligation. Thus, real obligations are not within its scope ( PARAS,
Civil Code, supra at 439). Justice Jurado however is of the opinion that the word service should be understood as referring to
the performance of the obligation (JURADO Obligations and Contracts, spra at 293).
It is not a requirement under Art. 1267 that the contract be for future service with future unusual change ( Naga telephone Cp.,v.
CA, G.R. No. use the 107112, February, 24, 1994).
The impossibility is relative because the difficulty of performance triggers a manifest disequilibrium in the prestation, such that
one party would be place at disadvantage by the unforeseen event.
Principle of Subjectively Impossibility
When there is no physical or legal loss but the object of the obligation belongs to another, the performance by the debtor of the
obligation undoubtedly becomes impossible. Failure of performance is imputable to the debtor. Thus, the suffered by the latter
(TOLENTINO, Civil Code, supra at 336).
.
Effects of Loss on reciprocal Obligations
First view: If an obligation is extinguished by the loss of the thing or impossibilty of performance through fortuitious events, the
counter-prestation is also extinguished. The debtor is released from the liability but he cannot demand the prestation which
Has been stipulated for his benefit. He who gives nothing has no reasin to demand (id. At 337-338).
Second view: The loss or impossibility of performance must be due to the fault of the debtor. In this case, the injured party may
ask for rescission under Article 1191 plus damages. If the loss or impossibility was due to a fortuitious event, the other party is
still obliged to give the prestation due to the other. (J.B.l, Reyes)
Rule if Obligation Arises from Criminal Offense (Civil Code, Art. 1268)
General Rule:
Debtor shall not be exempted from the payment of the price whatever may be the cause for the loss.
Exception: When the thing having been offered by the debtor to the person who should receive it, the latter refused without
justification.
The offer referred in Art, 1268 should not be confused with consignation the latter refers only to the payment of the obligation,
the former refers to the extinguishment of the obligation through loss by fortuitous event (Jurado, Obligations and Contracts,
supra at 296-297)
Condonation or Remission of the Debt
An act of liberality by virtue or which the oblige, without receiving any price or equivalent, renounces, the enforcement or the
obligation as a result of which is it extinguished in its entirely or in that aprt or aspects of the same to which the remission refers
(Id at 299)
Is it the gratuitious abandonment by the creditor of his right a form of donation. (Sanchez Roman(
1.
2.
3.
4.
5.
6.
Requisites of Remission:
It must be gratuitious
Must comply with the forms of donation should it be express (Civil Code, Art. 748 and 749)
Note: Whether express or implied, the extent of remission or condonation shall be governed by the rules regarding
inofficious donation.
If the creditor voluntarily delivers the private document evidencing the credit to the debtor, there is a presumption
that he renounces his right of action against the latter for the collection of the said
Credit (Art. 1271) when such private document is found in possession of the debtor, it shall be presumed that the creditor
delivered it voluntarily, unless the contrary is proved. (Art. 1272)
When the obligation is joint, and the private document evidencing a debt is found in the possession of one of the debtors, the
presumption of remission can refer only to the portion of the debtor who is in the possession of the instrument, if the obligation is
solidary, Articles 1215, 1219 and 1220 shall apply.
Rules when Accessory Obligations are Involved.
If the remission refers to the principal obligation all the accessory obligations are extinguished. However, if remission refers
only to the accessory obligation, the principal obligation continues to subsist. (Art. 1273)
It is presmed that the accessory obligation of pledge has been remitted when the third pledged after its delivery to the creditor, is
found in the possession of the debtor, or of a third person who owns the thing. (Art. 1274). The provision presupposes that the
accessory contract or pledge has been perfected.
Application of the Rules of Donation
Condonation or remission is assentially a donation of credit to the debtor. It must be subject to the rule on donations with respect
to acceptable (Art. 745 and 746) amount Civil Code, Art/ 750 and 752) and revocation Art. 760, 761, 764, and 765) (Tolentino,
Civil Code supra at 364)
Confusion
It is merger of the characters of the creditor and the debtor in one and the same person by virtue or which the obligation is
extinguished.
1.
2.
3.
1.
2.
3.
4.
Illustration: Atoy makes a check payable to bearer, and hands it to the Joey, who hands it to Kaye who finally hands it to Atoy.
Here Atoy owes himself and thus, his obligation is extinguished.
If however, the reason for the confusion ceases, the obligation is revived. Thus, should Kaye deliver the note to Atoy in the
performance of a void obligation; Atoys obligation is recreated. But the time interventing between the merger and its revocation
is not to be computed in the determination of the period of prescription.
Requisites of Merger:
Merger of the characters of the creditor and debtor must be in the same person.
Must take place in the person of either the principla creditor or the principal debtor; and
Whether the merger refers to the entire obligation or only part thereof, there must be complete and definite meeting of all
qualities of creditor and debtor in the obligation or in the part thereof affected by the merger. (Jurado, Obligations and Contracts,
supra at 397)
Effects of Confusion/Merger(Art. 1276-1277)
If confusion takes place in the person of either the principal creditor or principal debtor- extinguishment of entire obligation; or
If confusion takes place in the person of a subsidiary creditor or subsidiary debtor (e.g guarantor)- no extinguishment of principal
obligation; only substitution of creditor or debtor; or
If confusion takes place in one of the joint debtors- principal obligation is extinguished up to the share which corresponds to him;
or
If confusion takes place In one of the solidary debtors-entire obligation is extinguished. However the debtor in whom confusion
took place may claim reimbursement from co-debtors for the shares which corresponds to them. (Jurado, Obligations and
Contracts, supra ar 308-309)
Compensation
Mode of extinguishing in the concurrent amount of the obligation of these persons who are reciprocally debtors and creditors of
each other (Jurado, Civil Code, supra at 309 citing Castan)
Effect: It extinguishes both debts to the extent that the amount covered by the amount of the other.
Compensation v. Confusion
Compensation
Confusion
Compensation v. Payment
Compensation
Payment
p.264
by
As to Divisibity
As a rule, law premits
partial
extinguishment
of
obligation
As a rule complete
and indivisible
Compensation v. Counterclaim
Compensation
Counterclaim
Not necessary
As to Liquidity
As a rule, both debts
must be liquidated.
As to requirements to be effectual
Need not be pleaded.
Takes
effect
by
operation of law.
Must be pleaded to be
effectual
Kinds of Compensation
1.
a.
b.
c.
d.
2.
a.
b.
1.
2.
As to cause
Legal- takes effect by operation of law from the moment all of the requisites are present.
Voluntary- when parties who are mutually creditors debtor agree to compensate their respective obligations even though all of the
requisites for compensation may not be present.
Judicial- takes effect by judicial decree.
Facultative
As to effect
Totaldebts to be compensated are equal in amount
Partial- debts to be compensated are not equal in amount
Requisites of compensation- (Art. 1279)
there must be two parties, who In their own right are principal creditors and principal debtors of each other except in case of a
guarantor (Art. 1280).
Both debts must consists in sum of money, or if the things due are fungible (consumables), they must be of the same kind and
quality.
General Rule: Compensation is not possible in obligation to do because of the difference in the respective capacities of the
obligors. (Jurado, Obligations and Contracts, supra at 317)
3.
4.
5.
1.
2.
If with knowledge but without consent of debtor- debtor may set-up compensation prior to the assignment but not subsequent
ones; or
3.
If without knowledge of the debtor may set up compensation of all credits which he may have against the assignor and which may
have become demandable, before he was notified of the assignment. (Art. 1285)
1.
2.
3.
p.265
4.
5.
Note: Take note that the law did not limit itself to legal support and thus would include other rights which have for their purpose
the subsitence of the debtor, such as pensions.
Obligations arising from criminal offenses. (Art. 1288) and
Certain obligations in favor of government (e.g taxes, fees, duties. And others of a similar nature)
Note: but when the debts are purely contractual and are not of public interest, compensation can take place.
1.
2.
3.
Facultative Compensation
Compensation which can be set up only at the option of the creditor when legal compensation cannot take place because of want of
some legal requisites for the benefit of the creditor. The latter can renounce his right to oppose the compensation and he himself
can set it up. It differs from conventional compensation because it is unilateral while the latter depends upon the agreement of
both parties. (Tolentino, Civil Code, supra at 367)
Novation:
It is the substitution or change of an obligation by another, resulting in its extinguishement or modification, either by changing
its object or principal conditions, or by the substitutiong another in place of the debtor, or by subrogating a third person in the
rights of the creditor. (Jurado, Obligations and Contracts, supra at 325)
1.
Requisites of Novation:
Previous valid and existing obligation;
A new contract, recognizing and assuming a prescribed debt, would be valid and enforceable. The prescription, being available to
the debtor, can be waived by him. The novation of a prescriobed debt is thus valid.
2.
3.
4.
1.
2.
1.
Kinds of Novation
As to its essence
5.
a.
b.
c.
Objective/Real
Subjective/Personal- substitution of debtor or by subrogation
Mixed- change in the object or principal condition and change in the persons of either creditor and debtor of an existing
obligation.
2.
a.
b.
As to its form/constitution
Express- when it is declared in unequivocal terms that the old obligation is extinguished by a new one which substitutes the
same.
Implied- when the old and new are incompatible with each other on every point.
3.
a.
b.
Test of Incompatibility
Whether or not the old and new obligations can stand together, each having its own independednt existence. If they can stand
together, there is no incompatibility hence, no novation. Of they cannot stand together, there is incompatibility, consequently,
there is novation (Jurado, Obligations and Contracts, supra at 333) changes that breed incompatibility must be essential in
nature and not merely incidental (Id. At 328)
Note: The incompatibility must affect any of the essential elements of the obligations, such as its object, cause or principal
conditions thereof otherwise the change is merely modificatory in natur and insufficient to extinguish the original obligation.
(Heirs of Servando Franco v. Sps. Gonzales, GR No. 159709, June 27, 2012)
As to extent/effect
Total
Partial
Note: novation is never presumed. Unless it is clearly shown either by express agreement of the parties or by acts of equivalent
import this defense will never be allowed. (Ong v. Bongnalbal GR No. 149140, September 12 2006)
p. 266
1.
2.
3.
1.
2.
Objective Novation- (Art. 1291, par.1) According to Castan, objective novation is effected by:
Changing the cause of the obligation;
Changing the object of the obligation, or
Changing the principal or essential conditions or the obligations.
Requisites:
new obligation expressly declares that the old is extinguished or
new obligation is on every point incompatible with the old one (Alex Marketing and Development Corp. v. CA GR No. 118585,
September 14 1995)
Note: A change In the rate of interest is merely a collateral agreement, between the creditor and principal debtor that did not
affect the surely, the agreement to pay the additional interest was an additional burden upon the debtor only. Ot did not in any
way affect the orginal contract. Thus, despite the compounding of the interest the liability of the surety remains only up to the
original uncompounded interest. (Garcia JR v. Ca. GR No. L-80201, November 20, 1990)
The grant of a 45-day credit extension does not novate the contract as it merely modifies the contract by extending the time for
payment. (Foundation Specialist, Inc. v. Batonval Ready Concrete Inc. GR No. 170674, August 24, 2009)
The obligation to pay a sum of money is not novated by an instrument that expressly recognizes the old changes only the terms of
the payment, adds other obligations not incompatible with the old ones or the new contract merely supplements the old contract
(Sps. Reyes v. BPI Family Savings Banks, GR No. 149841-41 March 31, 2006)
If a subsequent contract is designed to novate a precious contract and not all parties to the original contract consented to or are
made parties in the subsequent contract, there can be no novation.
Novation by Substitution of Debtors (Civil Code, Art. 1293)
A subsjective/personal novation consists in the substituition of a new debtor in place of the original debtor.
1.
Expromision- effected with the consent of the creditor at the instance of the new debtor even without the consent or even
against the will of the old debtor (beneficial reimbursement)
Requisites
a.
b.
c.
a.
b.
2.
a.
b.
c.
d.
a.
b.
c.
P.267
1. Expromision
a. Substitution with knowledge and consent of original debtor and payment made by new debtor with or without knowledge and
consent of original debtor:
i. Reimbursement from the original debtor of the entire amount paid
ii. Subrogation in all the rights of the creditor
b. Substitution without the knowledge and consent of the original debtor, and payment is made by the consent of the original
debtor:
i. Reimbursement from the original debtor only insofar as the payment has been beneficial such debtor
ii. No subrogation
2. Delegacion Since substitution was effected with the consent of all the parties, the new debtor can demand reimbursement
from the original debtor of the entire amount which he has paid as well as compel the creditor to subrogate him to all of his
rights.
Note: The mere fact that the creditor receives a guaranty or accepts payment from a third person who agrees to assume the
obligation, when there is no agreement that the first debtor shall be released from responsibility, does not constitute novation,
and the creditor can still enforce the obligation against the original debtor. If the older debtor is not released, there is no
novation; the third person becomes merely a co-debtor, surety or co-surety (Mercantile Insurance Co., Inc. v. CA, GR. No. 85647,
April 22, 1991).
Effect of Insolvency or Non-fulfillment by New Debtor (CIVIL CODE, Art. 1294-1295)
1. Expromision If the substitution was effected without the knowledge and against the will of the original debtor. The new
debtors insolvency or nonfulfillment shall not revive the original debtors liability to the creditor (JURADO, Obligations and
Contracts, supra at 345).
If the substitution was effected with the knowledge and consent of the original debtor, it shall revive the original debtors liability
to the creditor (Id. At 345).
2. Delegacion The right of the creditor can no longer be revived except in the ff. cases:
a. Insolvency already existing and of public knowledge at the time when the original debtor delegated his debt
b. Insolvency was already existing and known to the original debtor, when he delegated his debt (Id. At 345).
It I submitted that actual knowledge of the creditor that new debtor was insolvent at the time of delegation, will bar him from
recovering from the old debtor. He must bear the consequence of his acts knowingly done.
Note: A change in the incidental elements of, or an addition of such elements to an obligation, unless otherwise expressed by the
parties, will not result in its extinguishment.
2. If the new obligation and the old obligation are subject to different conditions:
a. If the conditions can stand together
i. If both are fulfilled the new obligation becomes demandable
ii. Of only the condition affecting the old obligation Is fulfilled old obligation is revived while the new obligation loses its force.
iii. If only the condition affecting the new obligation is fulfilled there is no novation since the requisite of a previous valid and
effective obligation would be lacking.
b. If the conditions are incompatible the effect is to extinguish the old obligation so that only the new obligation remains and
whose demandability/effectivity depend upon the fulfillment-non-fulfillment of the condition affecting it (JURASDO, Obligations
and Contracts, supra at 348-349).
Assignment of Rights
Art.
Governed
by
1624- 1627
Art.
Is
Debtors consent
not required
Is
the
are
Defects/vices in the
old obligation are not
cured
As to Time of Effectivity
The effects arises
from the moment of
novation/subrogation
3. When, even without knowledge of the debtor, a person interested in the fulfillment of the obligation pays, without prejudice to
the effects of confusion as to the latters share.
Illustration: Joey owes Cath P10K secured by a mortgage and by a guaranty of Atoy. If Atoy even without Joeys knowledge pays
Cath, Atoy will be subrogated in Cathss place. By reason of confusion, or by reason of the fact that Atoy became a guarantor and
a creditor at the same time, the guaranty is extinguished.
Strictly speaking, there is no legal subrogation when a solidary debtor pays the entire obligation. Solidarity terminates upon the
payment of the whole obligation. Thus, the paying debtor does not completely step into the shoes of the creditor, as he cannot
demand from any of his co-debtors the compliance of the entire obligation but only the proportion which pertain s to each
(JURADO, Obligations and Contracts, supra at 352).
Effects of Subrogation (CIVIL CODE, Art. 1303-1304)
1. Total subrogation transfers to the person subrogated the credit with all the rights the original creditor had against third
persons and the rule is absolute with respect to legal subrogation. In conventional subrogation, accessory obligations maybe
increased or reduced upon agreement of the parties.
2. Partial Subrogation- 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.
Illustration: Atoy owes Eugene P4K. With the consent of both, Joey pays Eugene P2K. Now Eugene and Joey are the creditors of
Atoy to the amount of P2K. By reason of the preferential right to the remainder, Eugene is to be preferred in case Atoy has only
P2K. The preference, however, enjoyed by Eugene is only in the assets remaining with the debtor (Atoy) and not those already
transferred to others.
COMPROMISE
A compromise is a contract whereby the parties, by making reciprocal concessions, avoid litigation or put an end to one already
commenced (CIVIL CODE, Art. 2028).
Requisites;
1. Uncertainty of juridical relation; and
2. An agreement to eliminate the uncertainty through reciprocal concessions.
Kinds:
1. Judicial end a pending litigation; and
2. Extra-judicial to prevent a litigation from arising.
Characteristics:
1. Consensual;
2. Reciprocal;
3. Onerous;
4. Nominate;
5. Accessory (in the sense that a prior conflict is presupposed);
6. Once accepted, binding upon the [arties except if consent is vitiated; and
7. Principally, settlement of controversy; Incidentally, settlement of claim.
Questions on which there can be no valid compromise:
1. The civil status of persons;
2. The validity of a marriage of a legal separation;
3. Any ground for legal separation;
4. Future support;