G.

MODES OF EXTINGUISHMENT OF OBLIGATIONS o RATIONALE: because obligations may arise due to the mutual
[PaLoReMeComNo] agreement of the parties, the same may also be extinguished through such
Article 1231. Obligations are extinguished: means
(1) By payment or performance; o BUT some obligations may be extinguished through the unilateral act of
(2) By the loss of the thing due; one such as:
(3) By the condonation or remission of the debt; Agency
(4) By the confusion or merger of the rights of creditor and debtor; Partnership
(5) By compensation; Lease of services
(6) By novation. Insolvency
Other causes of extinguishment of obligations, such as annulment, o GR: does NOT extinguish obligations
rescission, fulfillment of a resolutory condition, and prescription, are o XPN: when the debtor is judicially declared as an insolvent and
governed elsewhere in this Code. discharge has been given to him
Enumeration NOT exhaustive Fortuitous Event
Art 1231 actually enumerates 10 modes: o NOT a mode of extinguishment but just an EVENT
o First 6
When the obligation is extinguished due to the happening of FE, this is
o Annulment already covered by LOSS of the thing due/ IMPOSSIBILITY of the
o Rescission performance of the obligation
Take note of distinctions between Art 1190 AND Art 1381 Renunciation
o Fulfillment of resolutory condition o Already covered by the first 6 modes:
o Prescription this extinguishes the CIVIL obligation and turns it into If onerous NOVATION
a NATURAL obligation If gratuitous CONDONATION
Nullity of contracts DOES NOT extinguish obligations because there o Compromise Agreement
is nothing to extinguish in the first place (Atty. Uribe) Generally results into the reduction of the obligation but NOT the
o Prof. Tolentino it is a mode of extinguishment extinguishment thereof
Death If it results to a change of the thing due NOVATION
o GR: does NOT extinguish obligations
o XPN: when the obligation is purely personal, death extinguishes the OLD LECTURE AN CASES
same Balane:
Want of interest Article 1231 gives us ten modes of extinguishing an obligation. One of the
o GR: does NOT extinguish obligations modes mentioned is rescission. But it does not tell us whether this is

o XPN: if the creditor has no more interest to serve such that performance rescission under Article 1191 (resolution) or rescission under

of the obligation constitutes an abuse of right on Article 1380, et. seq. If it means both, then we have eleven modes of
extinguishing an obligation under Article 1231. (Similar to Tolentino’s)

Abandonment • This enumeration is not exclusive.

o May ONLY extinguish obligations in special cases, viz: Other modes of extinguishing an obligation are the following:

Art 662 CC 1. death of one partner dissolves the partnership/agency;

Article 662. The cost of repairs and construction of party walls and the 2. Renunciation by the creditor

maintenance of fences, live hedges, ditches, and drains owned in common, 3. Compromise

shall be borne by all the owners of the lands or tenements having the 4. Arrival of Resolutory Term / fulfillment of resolutory condition

party wall in their favor, in proportion to the right of each. 5. Mutual Desistance or mutuo disenso (Saura v. DEBTORP)

Nevertheless, any owner may exempt himself from contributing to this 6. In some cases, Unilateral Withdrawal, e.g., in partnership, any partner

charge by renouncing his part-ownership, except when the party wall can withdraw any time from the partnership.

supports a building belonging to him. 7. In some cases, change of civil status, e.g., if marriage is annulled, it

Abandonment of vessel in Insurance Code extinguishes obligations like the obligation to give support, among others.

Mutual Dissent 8. sic stantibus) (Article 1267.)

9.
• If it is equitable to deem the OBLIGATION extinguished due to want of
interest of creditor in the fulfillment of such OBLIGATION.
10. s in Article 662, party wall; or abandonment of a vessel under Code of intent by the parties to novate the old agreement.15 Land Bank is thus
Comm. correct when it argues that there was no novation in the following:
11. Insolvency of debtor judicially declared and discharged. [W]hether or not Alfredo Ong has an interest in the obligation and payment was
made with the knowledge or consent of Spouses Sy, he may still pay the
Illustration: Carale owns a restaurant. He hires Molina as a chef. In the contract of
obligation for the reason that even before he paid the amount of P750,000.00 on
employment, there was a stipulation that if Molina resigns from Carale's
January 31, 1997, the substitution of debtors was already perfected by and
restaurant, he cannot seek employment from another restaurant for a period of
between Spouses Sy and Spouses Ong as evidenced by a Deed of Sale with
five years. Subsequently, Molina resigns from Carale's restaurant and wants to
Assumption of Mortgage executed by them on December 9, 1996. And since the
apply to Mildo's House of Chicken. In this case, Molina cannot work with Mildo's
substitution of debtors was made without the consent of Land Bank – a
because of the stipulation in the contract he signed with Carale. Suppose,
requirement which is indispensable in order to effect a novation of the
however, Carale, closes down his restaurant and engages in a totally different
obligation, it is therefore not bound to recognize the substitution of debtors.
business, a construction business, for example, Molina can apply for work at
Land Bank did not intervene in the contract between Spouses Sy and Spouses
Mildo's even before the lapse of the five year prohibitive period. In this case,
Ong and did not expressly give its consent to this substitution.
Molina can make out a case of extinguishment of obligation on the ground of
want of interest. The obvious purpose of the stipulation is to prevent unfair 1. Payment or performance
competition. Article 1232. Payment means not only the delivery of money but also the
performance, in any other manner, of an obligation. (n)
On the matter of novation, Spouses Benjamin and Agrifina Lim v.
Payment includes performance
M.B. Finance Corporation14 provides the following discussion:
Payment fulfillment of the prestation due
Novation, in its broad concept, may either be extinctive or modificatory. It is
o A fulfillment which extinguishes the obligation by the realization of the
extinctive when an old obligation is terminated by the creation of a new
purposes for which it was constituted
obligation that takes the place of the former; it is merely modificatory when the
REQUISITES:
old obligation subsists to the extent it remains compatible with the amendatory
o Voluntary
agreement. An extinctive novation results either by changing the object or
o Licit
principal conditions (objective or real), or by substituting the person of the
o Made with intent to extinguish the obligation
debtor or subrogating a third person in the rights of the creditor (subjective or
RULES ON PAYMENT
personal). Under this mode, novation would have dual functions ─ one to
o As to the person who pays
extinguish an existing obligation, the other to substitute a new one in its place ─
Payor term for the person who pays
requiring a conflux of four essential requisites: (1) a previous valid obligation; (2)
Not necessarily the debtor
an agreement of all parties concerned to a new contract; (3) the extinguishment
of the old obligation; and (4) the birth of a valid new obligation. x x x
1. If payor is BELOW 18 years old NOT a valid payment because there

In order that an obligation may be extinguished by another which is no capacity to dispose of the thing

substitutes the same, it is imperative that it be so declared in unequivocal - REMEDY: action against the guardian

terms, or that the old and the new obligations be on every point 2. If payor is in Bilibid NOT a valid payment because he cannot freely

incompatible with each other. The test of incompatibility is whether or not dispose of the thing through any act inter vivos

the two obligations can stand together, each one having its independent 3. If 3rd person OFFERED to pay may be extinguished if the creditor

existence. x x x (Emphasis supplied.) accepts

Furthermore, Art. 1293 of the Civil Code states: - GR: creditor is NOT bound to accept

Novation which consists in substituting a new debtor in the place of the - XPNs:

original one, may be made even without the knowledge or against the will - if it has been agreed upon that creditor shall be bound to accept

of the latter, but not without the consent of the creditor. Payment by the - if the 3rd person has an interest in the fulfillment of the obligation

new debtor gives him rights mentioned in articles 1236 and 1237. - take note of the difference in the wordings of Art 1236 (“has interest”)

We do not agree, then, with the CA in holding that there was a novation in and Art 1302 (“interested in”)

the contract between the parties. Not all the elements of novation were Article 1236. The creditor is not bound to accept payment or

present. performance by a third person who has no interest in the fulfillment of

Novation must be expressly consented to. Moreover, the conflicting the obligation, unless there is a stipulation to the contrary.

intention and acts of the parties underscore the absence of any express Whoever pays for another may demand from the debtor what he has paid,

disclosure or circumstances with which to deduce a clear and unequivocal except that if he paid without the knowledge or againstthe will of the
debtor, he can recover only insofar as the payment has been beneficial to
the debtor.
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.
- Atty Uribe: what is more accurate is has interest, and NOT interested in
- the ff are the persons who have an interest in the performance of an
obligation:
- guarantors
- sureties
- antichretic debtors
- those obliged under a penal clause
- joint debtor (even if the debts among the joint debtors are separate and
distinct from one another, a joint creditor is still one who is interested in
the extinguishment of the whole obligation because he might not want his
credit standing be affected in case of non-performance of the obligation)
4. If 3rd person PAID this SHALL extinguish the obligation, IF the 3rd
person has an interest in the fulfillment of the obligation
- BUT as regards the question of how much shall he be entitled as
reimbursement, knowledge and consent of the debtor is material, thus:
- If debtor has knowledge (even if he has not given consent, but provided
that he did not object thereto) 3rd person may demand
reimbursement from the debtor for the FULL amount paid
- If debtor has NO knowledge OR has OBJECTED to such payment 3rd
person may only demand reimbursementfrom the debtor to the extent that
the latter has benefitted therefrom
o The person to whom payment is made
Payee term for the person to whom payment is mande
NOT necessarily the creditor
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.
1. If payment is done NOT to the persons specified in Art 1240
- GR: payment is VOID
- XPNs:
- if the payment has redounded to the benefit of the creditor
- GR: the payor has the burden of proving this
- XPNs:
- if the law raises a conclusive presumption that the creditor has indeed
benefited from the payment (such as when the latter ratifies the same)
- if, by the acts of the creditor, the latter has led the payor to believe that
the payee had authority
- if the payee acquired rights of the creditor AFTER the payment
-NOTE: if the acquisition of rights occurred BEFORE the payment this
is payment to a successor-in-interest- if made in good faith to the person
in possession of the credit
- NOTE: this is NOT the same as the person in possession of the evidence
credit; it merely refers to the person who appears to have a right to such
payment
- NOTE: an agent is a creditor under Art 1240
- BUT he is a creditor NOT in his own right
o The thing to be paid
Substantial compliance rule under Art 1234
Article 1234. 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 oblige
No right to rescind on the part of the creditor
o REMEDY: sum of money and damages
Waiver and estoppel on the part of the creditor
Article 1235. 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.
o The manner, time, and place of payment
If the date due falls on a Sunday or holiday the obligation MUST
STILL be performed on such date
XPN: With respect to checks; under the NIL, it may be paid on the next
business day
Article 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)
REQUISITES for payment:
o Identity must be the very thing subject of the obligation
o Integrity must be completely delivered
As to issuance of receipt the CC does not expressly require it
o BUT the same is done pursuant to accepted practices
Article 1315. Contracts are perfected by mere consent, and from that
moment the parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which, according to
their nature, may be in keeping with good faith, usage and law.
o The refusal of the creditor to issue a receipt may be a valid ground for
consignation
Article 1256. If the creditor to whom tender of payment has been
made refuses without just cause to accept it, the debtor shall be released
from responsibility by the consignation of the thing or sum due.
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.
Article 1234. 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)
Art 1234 known as the Substantial Compliance Rule
REQUIREMENTS:
o There must be an attempt in good faith to perform strictly
o That, through oversight, misunderstanding, or excusable neglect, such
strict compliance can no longer be had
o The departure from the obligation must only be slight
o The omission or defect must be merely technical or unimportant
o The performance refers to a material part of the obligation
REMEDY of the party who has substantially complied with his obligation
against the party who refuses to comply with his own:
o If obligation of such other party is TO GIVE:
Specific performance OR
Sum of money and damages
o If obligation of such other party is TO DO:
Sum of money and damages
In other words, the party who has received the benefits from the
substantial compliance CANNOT resort to specific performance to compel
the other to perform the residual obligation
Article 1235. 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)
BASES: waiver and estoppel
IMPORTANT: there must be an intential relinquishment of a known right
REQUISITES:
o Acceptance of the defective performance
Accept to take as satisfactory or sufficient, or to agree to an
incomplete or irregular performance
THUS, the mere receipt of an incomplete payment is NOT necessarily
acceptance within the meaning of Art 1235
o Actual knowledge of the incompleteness or the defect that would
INDICATE an INTENTION to consider such performance complete
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)
RATIONALE: whenever a 3rd person pays, there is actually a
modification of the prestation that is due
o THUS, the creditor is not bound to accept the payment of a 3rd person
whom he dislikes or does not trust
This is a DEPARTURE from the Old Code which only proscribes payment
by 3rd persons of obligations which are personal as to the debtor
This change in the New Code has the ff effects:
o May prevent donations by 3rd persons who pay for the debtor
o May lead to the increase of burdens arising from default when the
debtor may be away
o Nullifies negotiorum gestio
Right of the 3rd person is AGAINST the debtor and not the creditor
Amount of recovery depends on knowledge and/or consent of the
debtor
When partial payment is made by the 3rd person without authorization
of the debtor the same CANNOT operate to stall the period for the
payment of the balance
Does the payment by a 3rd person of the REPURCHASE PRICE constitute
a payment by a 3rd person under Art 1236? There are conflicting
decisions.
o Gonzaga vs. Garcia NO. Where the thing subject of a pacto de retro
sale is sold, the buyer only steps into the shoes of the seller. Thus when
the same is sold to X, a 3rd person, and the judgment debtor pays the
repurchase price to X, the payment made is NOT a payment by a 3rd
person under Art 1236
o Sison vs. Balgos YES. When the thing is subject of an execution
sale, any person, whether with interest or not, may pay the redemption
price
EFFECT of payment by 3rd person EXTINGUISHMENT of the
obligation as to the original creditor and original debtor
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)
BASES of right to recover
o Mere fact of payment by the 3rd person and
o Considerations of justice
RATIONALE on why the payment of 3rd person DOES NOT necessarily
result in SUBROGATION the right of action that may be exercised
supposedly by the creditor, such as those against the securities,
guaranties, and the like, are already EXTINGUISHED together with the
principal obligation
EVEN if the creditor allows subrogation in favor of the 3rd person who
paid, the same still CANNOT be had
o RATIONALE: Art 1237 was created for the benefit of the debtor
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)
DONATION result of the payment by a 3rd person without intent to
be reimbursed
Article 1239. In obligations to give, payment made by one who does not
have the free disposal of the thing due and capacity to alienate it shall not
be valid, without prejudice to the provisions of article 1427 under the Title
on "Natural Obligations." (1160a)
EFFECTS of payment made by a 3rd person who has NO capacity to
dispose of thing:
o Creditor is not bound to accept the payment
o Consignation will NOT be proper
o In case the creditor accepts the payment, the same is NOT VALID
XPN: Art 1427
Article 1427. When a minor between eighteen and twenty-one years of
age, who has entered into a contract without the consent of the parent or
guardian, voluntarily pays a sum of money or delivers a fungible thing in
fulfillment of the obligation, there shall be no right to recover the same
from the obligee who has spent or consumed it in good faith.
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)
KINDS of authority given to another to accept payment:
o Legal conferred by law
Guardian of an incapacitated creditor
Administrator of the estate of a deceased creditor
Enemy Property Custodian designated during the Japanese
occupancy to sequester the properties of the enemies in the occupied
territory
Thus, payment to the EPC was VALID
o Conventional given by the creditor himself
Agent
Payment made to the WRONG party
o GR: Void
o XPNs:
If fault or negligence can be imputed against the creditor
If payment is under Art 1241
EFFECTS of payment made to a WRONG person:
o Does not prejudice the creditor
o Accrual of interest is NOT suspended
Payment by DEPOSIT in BANK without the consent of the creditor
o GR: DOES NOT extinguish the obligation
o XPN: When the creditor cannot be found in the place of payment
Payment by DEPOSIT in COURT (Consignation)
o GR: extinguishes the obligation
o XPN: when the creditor institutes an action to demand payment BUT
the debtor institutes another and consigns the amount in the court where
the latter case is pending, such consignation DOES NOT extinguish the
obligation
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)
Baviera: Number 3 is Estoppel in Pais.
REMEDIES if creditor is INCAPACITATED to accept payment:
o Pay the legal representative
o If there is none consign the amount under Art 1256
EFFECT if payment is made to such incapacitated creditor:
o VALID insofar as benefit has redounded to the creditor
o If there is NO such BENEFIT the debtor may be compelled to pay
once the creditor attains capacity or to the legal guardian during such
capacity
Views as regards benefit redounding to the incapacitated creditor
o Roman Doctrine (supported by many French writers) if payment
was NOT employed in necessary or indispensable things, but ONLY on
useful improvements which have CEASED to exist at the time of the
complaint, the benefit is only to the extent in which such improvement
may exist at that time
o Aubry and Rau (followed by the Argentine Code) so long as the
incapacitated person has received benefit from the payment, it is
immaterial whether the benefit subsists at the time of the complaint
o Demolombe (subscribed to by Tolentino) the payment shall be
considered as having benefited the incapacitated creditor, if he made an
intelligent and reasonable use thereof, for purposes necessary or useful to
him, such as that which his legal representative would have or could have
done under similar circumstances, even if at the time of the complaint the
effect of such use no longer exists
NO need for actual investment
There is BENEFIT when the thing is preserved or kept or be applied to
rational purposes for the benefit of the incapacitated creditor
Same rules apply when payment is made to a 3rd person
INSTANCES when payment of 3rd person releases the debtor:
o Those under Art 1241
o When 3rd person pays to the original debtor (assignor) in case of
assignment of credit which he had no notice of
Article 1626. The debtor who, before having knowledge of the
assignment, pays his creditor shall be released from the obligation.
o When 3rd person pays in good faith the person in possession of the
credit
Article 1242. Payment made in good faith to any person in possession
of the credit shall release the debtor.
Article 1242. Payment made in good faith to any person in possession of
the credit shall release the debtor. (1164)
Art 1242 constitutes as an XPN to the GR that payment must be
made to the person in whose favor the obligation is constituted OR to his
authorized representative
EXAMPLES:
o An heir who entered upon the hereditary estate and collects the credits
thereof BUT is later on disinherited
o An assignee of the credit who collects it but the assignment is later on
rescinded
o A holder of an instrument payable to bearer, who merely found it
Person in possession of credit vs. person in possession of
evidence of credit
o Mere holding of the document is NOT sufficient so as payment may
come within the purview of Art 1242
o BUT such holding of document is necessary to consider the ff:
The nature of the debt
The manner in which in which it was transferred
The form of its transmission
The relation of the possessor of the credit to the obligation itself
o Payment to the person in possession of the EVIDENCE of credit
does NOT necessarily extinguish the obligation
XPN: when the person is in possession of an instrument payable to
bearer
Payment in GOOD FAITH pertains to the DEBTOR
o THUS, the payee need NOT be in good faith
Article 1243. Payment made to the creditor by the debtor after the latter
has been judicially ordered to retain the debt shall not be valid. (1165)
Speaks of amounts that have been GARNISHED or ATTACHED
Thus, the ff are the EFFECTS of payment to the creditor made by the
debtor AFTER the amounts are garnished/ attached:
o VOID payment as to the party who applied for garnishment/ attachment
TO THE EXTENT of the amounts covered by the writ
o Debtor may be compelled to pay the party who applied for
garnishment/ attachment insofar as the amounts covered by the writ but
paid to the creditor
ILLUSTRATION:
o A (creditor) vs. B (debtor) sum of money
o B is the creditor of C
o A attaches the credit of B in the amount of PhP 500
From the moment that C receives the writ, C CANNOT pay B
o If C pays B and later on, A wins the suit:
C may be compelled to pay A the amount subject of attachment
BUT C may also demand B for the return of the amount paid by him
o Can C be compelled to pay A directly?
YES. Section 9(c) Rule 39 provides:
(c) Garnishment of debts and credits. — The officer may levy on debts
due the judgment obligor and other credits, including bank deposits,
financial interests, royalties, commissions and other personal property not
capable of manual delivery in the possession or control of third parties.
Levy shall be made by serving notice upon the person owing such debts or
having in his possession or control such credits to which the judgment
obligor is entitled. The garnishment shall cover only such amount as will
satisfy the judgment and all lawful fees.
The garnishee shall make a written report to the court within five (5)
days from service of the notice of garnishment stating whether or not the
judgment obligor has sufficient funds or credits to satisfy the amount of
the judgment. If not, the report shall state how much funds or credits the
garnishee holds for the judgment obligor. The garnished amount in
cash, or certified bank check issued in the name of the judgment
on Civil Law Review II based on the syllabus of Prof. Crisostomo
A. Uribe
80
obligee, shall be delivered directly to the judgment obligee within
ten (10) working days from service of notice on said garnishee
requiring such delivery, except the lawful fees which shall be paid
directly to the court.
In the event there are two or more garnishees holding deposits or
credits sufficient to satisfy the judgment, the judgment obligor, if available,
shall have the right to indicate the garnishee or garnishees who shall be
required to deliver the amount due, otherwise, the choice shall be made
by the judgment obligee.
The executing sheriff shall observe the same procedure under paragraph
(a) with respect to delivery of payment to the judgment obligee.
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)
Substitution of prestation may only be had with the consent of the
creditor:
o Dation in payment
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.
o Novation
Article 1291. Obligations may be modified by:
(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor
Waiver of defects:
o When creditor expressly so declares
o When creditor accepts the thing without protest
o When creditor accepts the thing and subsequently disposes of it or
consumes it
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)
Courts shall determine quality if parties cannot agree
Waiver of benefit under Art 1246:
o When creditor requires a thing of inferior quality
o When debtor delivers a thing of superior quality
UNLESS the price to be paid is dependent on the quality
Article 1247. Unless it is otherwise stipulated, the extrajudicial expenses
required by the payment shall be for the account of the debtor. With
regard to judicial costs, the Rules of Court shall govern. (1168a)
RATIONALE: payment is the duty of the debtor and such payment inures
to his benefit such that he is discharged from the burden of the obligation
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)
GR: creditor is not bound to accept and debtor is not required to make
partial payments
o XPNs:
Stipulations to these effects
When the debt is partly liquidated and partly unliquidated
o Other XPNs not mentioned in Art 1248:
When non-acceptance on the part of the creditor may result in abuse of
right
When good faith requires acceptance
When there is plurality in subject and ties
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)
Stipulation as regards payment of foreign currency is VALID
o BASIS: Civil Code
o R.A. 8183 is NOT the basis of such validity
REASON: said law deals with the performance of the obligation and
NOT the validity thereof
In other words, under RA 8183, a debtor may be compelled to pay in
such foreign currency as may be stipulated
Are checks legal tender? It depends on the period provided for in the
question, thus:
o In the 1980s checks are LEGAL TENDER
Provided that the same are manager’s OR cashier’s OR certified checks
These are deemed as CASH
o Present checks are NOT legal tender
Thus, creditor cannot be compelled to accept checks as payment
As regards STALE checks
o A stale check does not necessarily result in an extinguished obligation
As regards the ENCASHMENT of a check
o Art 1249 provides that payment is made upon encashment of the check
o That the check is with the creditor creates a presumption that the
obligation has NOT been paid
Article 1250. In case an extraordinary inflation or deflation of the
currency stipulated should supervene, the value of the currency at the
time of the establishment of the obligation shall be the basis of payment,
unless there is an agreement to the contrary. (n)
Baviera: This article applies to contracts only. EXTRAORDINARY means
unusual or beyond the common fluctuation, not foreseen.
Tolentino: Does NOT apply where obligation to pay arises from law,
independent of contracts, like the taking of private property by the
goverment in the exercise of its power of eminent domain
Applies only when there is a contract involved
Extraordinary inflation/ deflation that which is unusual or beyond the
common fluctuations in the value of currency, which the parties could not
have reasonably foreseen or which was manifestly beyond their
contemplation at the time when the obligation was constituted
BUT even without Art 1250, the effect would still be the same, in view of
the principle of good faith under Art 1315
o Article 1315. Contracts are perfected by mere consent, and from that
moment the parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which, according to o Prof. Tolentino the creditor because the law already fixes the
their nature, may be in keeping with good faith, usage and law. general rule that payment must be in the debtor’s domicile
Debts of value debts in money, in case of deflation/ devaluation of o XPN: If the debtor CHANGES domicile in bad faith OR after incurring
currency delay additional expenses shall be borne by him
o XPN if the debt refers to particular coins NOTE: only the additional expenses are to be borne by the debtor.
Doctrine of unforeseen risks provides that the parties must bear all Hence, when he transferred
the loss (and NOT the creditor alone) when the currency is devalued in in good faith, no expenses should be borne by him
terms beyond what could have been foreseen RULE as regards payment of money through transmission – who should
2 possible cases of devaluation of currency during the Japanese era: bear the risk?
o SITUATION # 1 obligation is incurred during Jap occupation; o DEPENDS on who chose the means of transmission
payable at a fixed period after date; maturity fell after liberation; payment If it was the creditor he shall bear the risk
was to be made in the currency after liberation Otherwise debtor
Must pay in PH currency
o SITUATION # 2 obligation is payable o or before fixed date OR Article 1302. It is presumed that there is legal subrogation:
within a given period; debtor could have chosen to pay during Jap (1) When a creditor pays another creditor who is preferred, even without
occupation the debtor's knowledge;
 (2) When a third person, not interested in the obligation, pays with the
The Ballantyne scale of values should be applied in this case express or tacit approval of the debtor;
This is an official document which courts should take judicial notice of (3) When, even Payee When can
Article 1251. Payment shall be made in the place designated in the without the there be legal
obligation. knowledge of the subrogation 
There being no express stipulation and if the undertaking is to deliver a debtor, a person
determinate thing, the payment shall be made wherever the thing might interested in the
be at the moment the obligation was constituted. fulfillment of the
In any other case the place of payment shall be the domicile of the debtor. obligation pays,
If the debtor changes his domicile in bad faith or after he has incurred in without prejudice
delay, the additional expenses shall be borne by him. to the effects of
These provisions are without prejudice to venue under the Rules of Court. confusion as to
(1171a) the latter's share.
RULES re place of payment: (1210a) Payor
o GR: when there is a DESIGNATED place, the payment shall be made Another creditor a preferred when payment is
there creditor made with or
o If there is NO designated place, the ff rules shall apply: without the
If the obligation is to deliver a determinate thing place of payment consent of the
is where the thing is situated at the time the obligation was constituted debtor 
This rule ALSO applies in obligations to do a specific act (eg. To paint a 3rd person person for whom when payment is
house) having no the obligation made with the
XPN: this rule DOES NOT apply when the thing situated in such place interest was constituted  express or tacit
temporarily approval of the
o in such case, the place of payment is the domicile of the debtor  debtor 

In other cases place of payment is the domicile of the debtor 3rd person person for whom when payment is

Applicable when the obligation is payment of money having interest the obligation made with or

o Thus, herein, it is the obligation of the creditor to go to the debtor to was constituted  without the

demand payment consent of the

When the creditor goes to the domicile of the debtor to demand debtor 

payment, who should bear the expenses? 

o Dean Capistrano the debtor REASON: such payment extinguishes the solidarity
o Article 1217. Payment made by one of the solidary debtors
extinguishes the obligation. If two or more solidary debtors offer to pay,
the creditor may choose which offer to accept.
He who made the payment may claim from his co-debtors only the share
which corresponds to each, with the interest for the payment already
made. If the payment is made before the debt is due, no interest for the
intervening period may be demanded.
When one of the solidary debtors cannot, because of his insolvency,
reimburse his share to the debtor paying the obligation, such share shall
be borne by all his co-debtors, in proportion to the debt of each.
Republic Act No. 529, as amended by R.A. No. 4100, provides:
SECTION 1. Every provision contained in, or made with respect to, any
domestic obligation to wit, any obligation contracted in the Philippines
which provision purports to give the obligee the right to require payment
in gold or in a particular kind of coin or currency other than Philippine
currency or in an amount of money of the Philippines measured thereby,
be as it is hereby declared against public policy, and null, void, and of no
effect, and no such provision shall be contained in, or made with respect
to, any obligation hereafter incurred.
The above prohibition shall not apply to
(a) transactions where the funds involved are the proceeds of loans or
investments made directly or indirectly, through bona fide intermediaries
or agents, by foreign governments, their agencies and instrumentalities,
and international financial banking institutions so long as the funds are
identifiable, as having emanated from the sources enumerated above;
(b) transactions affecting high-priority economic projects for agricultural,
industrial and power development as may be determined by the National
Economic Council which are financed by or through foreign funds;
(c) forward exchange transactions entered into between banks or between
banks and individuals or juridical persons;
(d) import-export and other international banking, financial investment and
industrial transactions.
With the exception of the cases enumerated in items (a), (b), (c) and (d)
in the foregoing provision, in which cases the terms of the parties’
agreement shall apply, every other domestic obligation heretofore or
hereafter incurred, whether or not any such provision as to payment is
contained therein or made with respect thereto, shall be discharged upon
payment in any coin or currency which at the time of payment is legal
tender for public and private debts.
Provided, That if the obligation was incurred prior to the enactment of this
Act and required payment in a particular kind of coin or currency other
than Philippine currency, it shall be discharged in Philippine currency,
measured at the prevailing rates of exchange at the time the obligation
was incurred, except in case of a loan made in a foreign currency
stipulated to be payable in the same currency in which case the rate of
exchange prevailing at the time of the stipulated date of payment shall
prevail. All coin and currency, including Central Bank notes, heretofore or
hereafter issued and declared by the Government of the Philippines shall
be legal tender for all debts, public and private.
Pertinent portion of Republic Act No. 8183 states:
SECTION 1. All monetary obligations shall be settled in 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.
SEC. 2. R.A. No. 529, as amended, entitled "An Act to Assure the Uniform
Value of Philippine Coin and Currency" is hereby repealed. (Approved on
June 11, 1996)
The repeal of R.A. No. 529 by R.A. No. 8183 has the effect of removing
the prohibition on the stipulation of currency other than
Philippine currency, such that obligations or transactions may now be paid
in the currency agreed upon by the parties.
Just like R.A. No. 529, however, the new law does not provide for the
applicable rate of exchange for the conversion of foreign currency
o incurred obligations in their peso equivalent.
It follows, therefore, that the jurisprudence established in R.A. No. 529
regarding the rate of conversion remains applicable. Thus, in Asia World
Recruitment, Inc. v. National Labor Relations Commission, the Court,
applying R.A. No. 8183, sustained the ruling of the NLRC that obligations
in foreign currency may be discharged in Philippine currency based on the
prevailing rate at the time of payment.
P.D. 32 provides:
Section 31. Section fifty-four of the same Act is hereby amended to read
as follows:
"Sec. 54. Legal tender power. All notes and coins issued by the Central
Bank shall fully guaranteed by the Government of the Republic of the
Philippines and shall be legal tender in the Philippines for all debts, both
public and private: Provided, however, That coins shall be legal tender in
amounts not exceeding fifty pesos for denominations from ten centavos to
one peso, and in amounts not exceeding twenty pesos for denominations
of five centavos or less."
Section 32. Section sixty-three of the same Act is hereby amended to read
as follows:
"Sec. 63. Legal character. Checks representing deposit money do not have
legal tender power and their acceptance in the payment of debts, both
public and private, is at the option of the creditor: Provided, however, That
a check which has been cleared and credited to the account of the creditor
shall be equivalent to a delivery to the creditor of cash in an amount equal
to the amount credited to his account."
Special Forms of Payment
i. Dation in Payment
Article 1245. Dation in payment, whereby property is alienated to the Express agreement
creditor in satisfaction of a debt in money, shall be governed by the law of Implied agreement
sales. (n) Silence
Dation in payment the delivery or transmission of ownership of a Dation in Assignment
thing by the debtor to the creditor as an accepted equivalent of the payment
performance of the obligation both are substitute of performance of an
o May also consist not only of a thing but also of a real right (eg. obligation
Usufruct, credit) Art 1245 Art 1255
o ONEROUS contract of alienation does not involve involves plurality
REASON: there is an object given in the place of credit plurality of of creditors

THUS, the provisions on sales re warranties are applicable creditors

HENCE, when the creditor is EVICTED from the thing delivered, HE may does not involve involves the whole

no longer revive because the first obligation has already been extinguished the whole property of the

REMEDY: breach of warranties under Art 1555 property of the debtor

Article 1555. When the warranty has been agreed upon or nothing debtor

has been stipulated on this point, in case eviction occurs, the vendee shall may be made supposes financial

have the right to demand of the vendor: even by a solvent difficulty on the

(1) The return of the value which the thing sold had at the time of the debtor; merely part of the debtor

eviction, be it greater or less than the price of the sale; involves a change

(2) The income or fruits, if he has been ordered to deliver them to the of the object of

party who won the suit against him; the obligation by

(3) The costs of the suit which caused the eviction, and, in a proper agreement of the

case, those of the suit brought against the vendor for the warranty; parties and at the

(4) The expenses of the contract, if the vendee has paid them; same time fulfilling

(5) The damages and interests, and ornamental expenses, if the sale the same

was made in bad faith. voluntarily

It is also considered as a novation by change of the subject

o HOWEVER, the CC provides that when the debt is money, the law on o When there is a cause for invalidating the contract this simply

sale shall govern means that there is vitiation of consent

Hence, in such cases , the act is considered as a sal In such cases, application shall be had by operation of law

on Civil Law Review II based on the syllabus of Prof. Crisostomo Article 1253. If the debt produces interest, payment of the principal shall

A. Uribe not be deemed to have been made until the interests have been covered.

83 (1173)
This is a MANDATORY provision

Price the amount of the obligation to the extent that it is What are the interests covered (2 views):

extinguished o Pothier only compensatory interests and NOT those because of

o Prof Tolentino HOWEVER, it is precisely in obligations where there o Salvat (subscribed to by Prof. Tolentino) no distinction, hence, must

is money debts that the true juridical nature of dation in payment becomes apply to both kinds of interest

manifest
There is real novation when the money debt is extinguished and Article 1254. When the payment cannot be applied in accordance with

delivery of a thing becomes the new obligation the preceding rules, or if application can not be inferred from other

o EFFECT on obligation circumstances, the debt which is most onerous to the debtor, among those

1st obligation is extinguished due, shall be deemed to have been satisfied.

TO WHAT EXTENT? If the debts due are of the same nature and burden, the payment shall be

o GR: to the extent of the value of the thing delivered as agreed upon or applied to all of them proportionately. (1174a)

as may be proved RULE:

o XPN: if the parties consider the thing as equivalent to the obligation o Most onerous first

through:
RATIONALE: the law assumed that the debtor would have done the o Sale of the properties
same thing (that is, pay the most onerous debt first) o Extinguishment of the debt only insofar as the net proceeds are
o If all are of the same nature and burden proportionate payment concerned
BUT the mere equality of the amounts DOES NOT imply a tacit KINDS:
application of payment to the debt to which it is equal in amount o Voluntary covered by Art 1255
BASES/RULES in determining what is MOST ONEROUS: o Judicial under the Insolvency Law
o Principal in obligation and surety in another debt where he is the Remedy of the debtor IF the creditors DO NOT accept his voluntary
PRINCIPAL cession
o Sole debtor in one obligation and solidary debtor in another debt GR: properties exempt from execution cannot be ceded to the creditors
where he is the SOLE DEBTOR o XPN: if the debtor waives such exemption
o As among solidary debtors the part of the debt corresponding to o Section 13, Rule 39
each is more burdensome than as to every debtor Section 13. Property exempt from execution. — Except as
o When there are various debts (all without interest) OLDEST otherwise expressly provided by law, the following property, and no other,
o When there are various debts (some with interest) that with shall be exempt from execution:
HIGHEST INTEREST RATE (a) The judgment obligor's family home as provided by law, or the
o When there is an unsecured debt with interest and a secured debt homestead in which he resides, and land necessarily used in connection
without interest that which has interest therewith;

o When there is an encumbrance that which is SECURED (b) Ordinary tools and implements personally used by him in his trade,

o When there is a bond where the principal and surety are solidarily employment, or livelihood;

bound BUT the a smaller portion pertains to the surety as to the (c) Three horses, or three cows, or three carabaos, or other beasts of

principal, the UNSECURED PORTION of the debt is more onerous burden, such as the judgment obligor may select necessarily used by him

o With respect to indemnity for damages those with a penal clause in his ordinary occupation;
(d) His necessary clothing and articles for ordinary personal use,
over those governed by the general rules on damages
excluding jewelry;
o Liquidated debts over unliquidated ones
(e) Household furniture and utensils necessary for housekeeping, and
o Those where the debtor is in default over those where he is not
used for that purpose by the judgment obligor and his family, such as the
judgment obligor may select, of a value not exceeding one hundred
Article 1248. Unless there is an express stipulation to that effect, the
thousand pesos;
creditor cannot be compelled partially to receive the prestations in which
(f) Provisions for individual or family use sufficient for four months;
the obligation consists. Neither may the debtor be required to make partial
(g) The professional libraries and equipment of judges, lawyers,
payments.
physicians, pharmacists, dentists, engineers, surveyors, clergymen,
However, when the debt is in part liquidated and in part unliquidated, the
teachers, and other professionals, not exceeding three hundred thousand
creditor may demand and the debtor may effect the payment of the
pesos in value;
former without waiting for the liquidation of the latter. (1169a)
(h) One fishing boat and accessories not exceeding the total value of one
hundred thousand pesos owned by a fisherman and by the lawful use of
iii. Payment by Cession or Assignment
which he earns his livelihood;
Article 1255. The debtor may cede or assign his property to his creditors
(i) So much of the salaries, wages, or earnings of the judgment obligor
in payment of his debts. This cession, unless there is stipulation to the
for his personal services within the four months preceding the levy as are
contrary, shall only release the debtor from responsibility for the net
necessary for the support of his family;
proceeds of the thing assigned. The agreements which, on the effect of
(j) Lettered gravestones;
the cession, are made between the debtor and his creditors shall be
(k) Monies, benefits, privileges, or annuities accruing or in any manner
governed by special laws. (1175a)
growing out of any life insurance;
Assignment/ Cession the abandonment of the universality of the
(l) The right to receive legal support, or money or property obtained as
property of the debtor for the benefit of his creditors in order that such
such support, or any pension or gratuity from the Government;
property may be applied to the payment of the credits
(m) Properties specially exempted by law.
PROCEDURE
But no article or species of property mentioned in this section shall be
o Initiative by the debtor
o Must be accepted by the creditor
judgment recovered for its price or upon a judgment of foreclosure of a o XPN: Soco vs. Militante case where SC held that the consignation was
mortgage thereon. void for lack of notice requirements

Dation in payment Assignment Article 1258. Consignation shall be made by depositing the things due at
As to transfer ownership is no such the disposal of judicial authority, before whom the tender of payment shall
of ownership transferred to transfer be proved, in a proper case, and the announcement of the consignation in
ownership other cases.
As to obli may totally obli is The consignation having been made, the interested parties shall also be
extinguishment be extinguished extinguished notified thereof. (1178)
of obligation only insofar as Judicial authority includes the sheriff
the net o Thus, amount of the redemption of the property sold in redemption sale
proceeds are may be given to the sheriff
concerned Powers of the court include:
(XPN: o Sale of property
stipulation) o Appointment of receiver
As to thing specific thing all properties o Order that property be taken into custody of an officer of the court
involved
As to creditor/s only one all creditors Article 1259. The expenses of consignation, when properly made, shall
involved be charged against the creditor. (1179)
 Consignation is PROPER in the ff cases (thus, expenses are borne by the
1st view only movables because you cannot actually deposit an creditor):
immovable o When consignation is made and the creditor ACCEPTS without objection
2nd view (subscribed to by Tolentino) both movables and
or reservation of right to contest the same
immovable; this is NOT a deposit; one merely places the thing at the
o When creditor refuses BUT the court DECLARES the same valid after
disposal of the court, hence, real property may be subject of consignation
due hearing
o After consignation, persons interested are notified
MAY be complied with by service of summons upon the creditor
Article 1260. Once the consignation has been duly made, the debtor may
OPTIONS of the creditor:
ask the judge to order the cancellation of the obligation.
Accept in this case, the payment is terminated
Before the creditor has accepted the consignation, or before a judicial
Refuse in this case, an action may be instituted to determine the
declaration that the consignation has been properly made, the debtor may
validity of the consignation
withdraw the thing or the sum deposited, allowing the obligation to remain
Neither accept nor refuse in this case, the debtor may ask the court
in force. (1180)
to cancel the obligation if he is able to show compliance with the When is consignation deemed to have been duly made
requirements of consignation
o When consignation is made and the creditor ACCEPTS without objection
or reservation of right to contest the same
Article 1257. In order that the consignation of the thing due may release
o When creditor refuses BUT the court DECLARES the same valid after
the obligor, it must first be announced to the persons interested in the
due hearing
fulfillment of the obligation.
Nota bene: A valid consignation has a retroactive effect from the
The consignation shall be ineffectual if it is not made strictly in consonance
time the deposit is made
with the provisions which regulate payment. (1177)
EFFECTS of valid consignation:
Notice must be given to ALL parties having interest whether:
o Debtor is released from obligation from the time of consignation
o Active subjects solidary co-creditors, litigants
o Accrual of interest is suspended from the time of consignation
o Passive subjects co-debtors, guarantors, sureties
o Deterioration or loss of the thing without the fault of the debtor is borne
HOW notice is given tender and notice of consignation may be made
by the creditor (REASON: risks are transferred to the creditor from the
in the same act
time of consignation)
Effect of lack of notice:
o Increment or increase in the value of the thing
o GR: does not invalidate the consignation BUT merely makes the debtor
liable for damages
 In case of RECIPROCAL obligations the party making the deposit
may ask the court to order the other party to deliver his part of the
obligation
o This right still stands notwithstanding the requirement that the tender
must be unconditional
When may the debtor withdraw the thing he consigned?
o BEFORE the creditor accepts it
XPN: the debtor may still withdraw even AFTER acceptance if the
creditor agrees to such withdrawal
EFFECT: In such case, the obligation is revived personally as to the
debtor BUT
o BEFORE judicial declaration of validity of consignation
EFFECT of withdrawal by debtor he becomes liable for the expenses
May other debtors, guarantors, and sureties OBJECT to the withdrawal of
the thing (2 views):
o 1st YES because they are likewise interested in the extinguishment
of the obligation
o 2nd (subscribed to by Tolentino) NO because prior to acceptance
by the creditor of the consignation OR prior to the judicial declaration of
validity of the same, the debtor remains to be the owner of the thing; he is
merely exercising his right to make use of consignation as a mode of
extinguishing the obligation
EFFECT of consignation on the thing consigned:
o NO lien on the part of the creditor UNTIL he accepts the consignation
o BUT the thing becomes in custodia legis THUS becomes exempt from
attachment and execution
EFFECT of dismissal of action consignation becomes ineffectual

Article 1261. If, the consignation having been made, the creditor should
authorize the debtor to withdraw the same, he shall lose every preference
which he may have over the thing. The co-debtors, guarantors and
sureties shall be released. (1181a)
GR: thing consigned may not be withdrawn after acceptance by the
creditor or after judicial declaration of validity of the same
o XPN: when the creditor consents to the same
BUT the co-debtors, guarantors and sureties are released

OLD LECTURE AND CASES

Requisites of Payment or Performance:
[TOLENTINO]
1.
2. the person to whom payment is made
3.
4. the manner, time and place of payment, etc.
the debtor to the creditor at the right time and place.
But technically,
Payment
Payment/ performance is the paradigmatic mode of extinguishment of an
obligation.
• It is the only normal way of extinguishing an obligation.
For BALANE: Article 1233 states these requisites of payment:
I. Re: The prestation
1. Identity
2. Integrity
3. Indivisibility
II. Re: The parties
1. Payor/ obligor/ debtor
2. Payee/ obligee/ creditor
III. Re: Time and place
Discussions:
I. With respect to prestation:
1. Identity
• If specific prestation, this requisite means that the very thing or service
must be delivered. (Article 1244.)
• If generic, the requisite requires the delivery of something of neither
inferior nor superior quality (Article 1246). It must be something in the
middle. In case of money, there are special rules:
Governing rule: RA 529 as amended by RA 4100
• In case of money debts, you will have to pay in legal tender in the
Philippines. This law supersedes Article 1249.
• If the parties stipulate that payment will be made in foreign currency, the
obligation to pay is valid but the obligation to pay in foreign currency is
void. Payment will be made in Phil. currency.
LEGAL TENDER – means such currency which in a given jurisdiction can be
used for payment of debts public and private, and which cannot be refused
by Creditor.
In the Republic of the Philippines, the ff. are legal tender: (Sec. 54, RA
265)
1. RP silver peso and half peso for debts of any amount, RP subsidiary
silver coins 20 ¢and 10 ¢ for up to P20 debts, and RP minor nickel and
copper coins for up to P2.00 debts;
2. RP Treasury certificates, new Victory series (EO 25, s. 1944, already
withdrawn from circulation)
3. All notes and coins issued by CB.
Q: How do you convert?
A: In case of an obligation which is not a loan in foreign currency, if
incurred before RA 529, conversion must be as of the time the obligation
was incurred. If incurred after RA 529 became effective, the conversion
must be as of the time the obligation was incurred (Kalalo v. Luz) If the
loan is in foreign currency, the conversion is as of the time of payment.
(RA 529)
manager's check or certified check is not payment in legal tender. The
ruling in Seneris has been reversed in the case of Bishop of Malolos. The
Malolos ruling is better. I found it hard to accept that manager's check or
certified check is good as legal tender. There are always risks to which
cashier's checks are subject. What if after having issued a cashier's check,
the drawee-bank closes, what happens to your cashier's check?
payment by check is accepted by the creditor, the acceptance is only a
provisional payment until the check is
(a) encashed or
(b) when through the fault of the creditor they have been impaired.
The case of Namarco v. Federation, 49 SCRA 238, interprets the phrase
"when through the fault of the creditor, they have been impaired" as to
apply only to a check used in payment if issued by a person other than the
debtor.
Why? It is because if the check was issued by the debtor himself, all that
the debtor have to do is to issue another check.
Revaluation in case of extraordinary inflation or deflation (Article 1250)
there was a recognition of extraordinary inflation in this country.
Exceptions to the requirement of identity
(i) Dacion en pago (Article 1245)
(ii) Novation
In both cases, there is a voluntary change in the object.
or completely fulfilled;
The exceptions to the requirement of integrity are:
1. In case of substantial performance in good faith (Article 1234.) This is
an equity rule.
2. In case of waiver of obligee/ creditor (Article 1235.)
3. In case of application of payments if several debts are equally onerous
(Article 1254, par. 2.)
3. Iact and not in parts. (Article 1248)
There are several exceptions to this requirement:
1. In case or express stipulation. (Article 1248.)
2. In case of prestations which necessarily entail partial performance.
(Article 1225, par. 2)
3. If the debt is liquidated in part and unliquidated in part (Article 1248.)
4. In case of joint divisible obligations (Article 1208.)
5. In solidary obligations when the debtors are bound under different
terms and conditions. (Article 1211.)
6. In compensation when a balance is left. (Article 1290.)
7. If the work is to be delivered partially, the price or compensation for
each part having been fixed. (Article 1720.)
8. In case of several guarantors who demand the right of division. (Article
2065.)
9. In case of impossibility or extreme difficulty of single performance.
II. With respect to the parties
There are two parties involved:
1. Payor/ obligor/ debtor
2. Payee/ obligee/ creditor
Requirements:
1. Article 1226 - 1238. Who should the payor be:
a. Without need of the creditor's consent (1) Legal: conferred by law, such as authority of guardian to include
1. The debtor himself creditor (Cr), or the administrator of estate
2. His heirs or assigns (2) Conventional: authority from Creditor himself, as when agent is
3. His agent appointed to collect from Debtor.
4. Anyone interested in the fulfillment of the obligation, e.g., a guarantor • Payment to wrong party does NOT extinguish obligation to Creditor, if
b. With the creditor's consent -- Anyone. there is no fault or negligence which can be imputed to the latter, even
consent on the part of the creditor. when Debtor acted in utmost Good Faith and by mistake as to the person
c. Effect of payment by a third person: of his Creditor, or through error induced by fraud of 3rd Person, EXCEPT
1. If the payment was with the debtor's consent, he becomes the agent of AS PROVIDED IN ARTICLE 1241.
the debtor. The effect is subrogation (Articles 1236-1237) • Deposit by Debtor in bank, in the name of and to the credit of Cr,
(1) Exception: If the person paying intended it to be a donation. (Article without latter’s authority does NOT constitute payment; but when the
1238.) Creditor cannot be found in the place of payment, such deposit may be a
2. If payment was without the debtor's consent, the third person may valid excuse for not holding the Debtor in default
demand repayment to the extent that the debtor has been benefited. General Rule: Consignation in court of thing or amount due, when properly made
(Article 1236, par. 2.) will extinguish the obligation.
2. Who may be the payee?
Tolentino:
1. The obligee proper (Articles 1240, 1626.)
• Legal tender: such currency which in a given jurisdiction can be used for
2. His successor or transferee (Article 1240.)
the payments of debts, public and private, and which cannot be refused by
3. His agent (ibid.)
the Creditor.
4. Any third person subject to the following qualifications:
• Since payment must be in money that is legal tender, payment in check
a. Provided it redounded to the obligee's benefit and only to the extent of
even when good may be validly refused by Creditor
such benefit. (Article 1241, par. 2.)
• Payment by Check: WON Manager’s check or ordinary is NOT a valid tender of
b. If it falls under Article 1241, par. 2 nos. 1, 2 and 3, benefit is deemed to be tota
payment
5. Anyone in possession of the credit. (Article 1242.)
Re Special Modes of Payment
garnished. (Article 1243)
III. With respect to the time and place of payment: [Balane]

1. When payment to be made: When due • Dacion en pago, in Roman law, called "datio in solutum", in French,

2. Place (Article 1251.) "dation en paiement," in Spanish, "dacion en pago.")

• Dation in payment is possible only if there is a debt in money. Instead of
Primary rule: As stipulated.
Secondary rule: Place where the thing was at the time the obligation was money, a thing is delivered in satisfaction of the debt in money. (Dation en

constituted if the obligation is to deliver a determinate thing. pago is explained in the case of Filinvest v. Phil Acetylene).
There are two ways at looking at dacion en pago:
Tertiary rule: At the debtor's domicile.
Balane: 1. treated as a sale.

** Payment and Performance are used interchangeably. 2.

used in obligations to do. Payment/ performance is the paradigmatic mode * A dacion en pago is not a sale because there is no intention to enter into

of extinguishment of an obligation. It is the only normal way of a contract of sale.

extinguishing an obligation. * It is not also a novation because in novation, the old obligation is

Substantial Performance: extinguished and a new obligation takes its place.

** But here, the old obligation is extinguished. What takes its place?
1. an attempt in GF to perform, without any willful or intentional departure
from it; Nothing. So what is it? It is a special form of payment which resembles a

2. deviation from performance of OBLIGATION must be slight, and sale.

There are two more things to remember in the cases of Filinvest v. Phil.
omission or defect must be so technical and unimportant, and must not
pervade the whole, must not be so material to the achievement of the very Acetylene, supra. and Lopez v. CA, 114 SCRA 671:

purpose of the parties; • Dacion en pago can take place only if both parties consent.

3. party claiming substantial performance must show attempt in good faith. Q: To what extent is the obligation extinguished?
Answer: Up to the value of the thing given (the thing must be appraised) unless
Tolentino: the parties agree on a total extinguishment. (Lopez. v. CA, supra.)
Authority to receive: LEGAL or CONVENTIONAL
2ND SPECIAL KIND OF PAYMENT: Application of Payment
[Balane]
Application of payment (Imputacion in Spanish) is the designation of a
debt which is being paid by the debtor who has several obligations of the
same kind in favor of the creditor to whom the payment is made.
Rules where the amount sent by the debtor to the creditor is less than all
that is due:
No.1: Apply in accordance with the agreement.
No.2: Debtor may apply the amount (an obvious limitation because of the
principles of indivisibility and integrity) where there would be partial
payment.
No.3: Creditor can make the application.
No.4: Apply to the most onerous debt. (Article 1252, par. 1.)
Q; What are the rules to determine which is the most onerous debt?
A: (Article 1252)
1. If one is interest paying and the other is not, the debt which is interest
paying is more onerous.
2. If one is a secured debt and the other is not, the secured debt is more
onerous
3. If both are interest free, one is older than the first, the newer one is
more onerous because prescription will take longer with respect to the
newer debt.
5th Rule: Proportional application if the debts are equally onerous.
3rd SPECIAL FORM OF Payment – by Cession
[Balane]
• Property is turned over by the debtor to the creditor who acquires the
right to sell it and divide the net proceeds among themselves.
Q: Why is payment by cession a special form of payment?
A: Because there is no completeness of performance (re: integrity.)
In most cases, there will be a balance due.
Q: Difference between dacion en pago and payment by cession:
In dacion en pago, there is a transfer of ownership from the debtor to the
creditor.
In payment by cession, there is no transfer of ownership. The creditors
simply acquire the right to sell the properties of the debtor and apply the
proceeds of the sale to the satisfaction of their credit.
Q: Does payment by cession terminate all debts due?
A: Generally, NO, only to the extent of the net proceeds. The
extinguishment of the obligation is pro tanto.
• Execution in Legal cession where the extinguishment of the obligation is
total. Legal cession is governed by the Insolvency Law.
Balane]
“Subsection 3.-- Tender of Payment and Consignation”
The title of the subsection is wrong. It should have been Consignation only
because that is the special mode of payment and not the tender of
payment.
• It is a special mode of payment because payment is made not to the
creditor but to the court.
• Consignation is an option on the part of the debtor because consignation
assumes that the creditor was in mora accipiendi (when the creditor
without just cause, refuses to accept payment.)
Consequence when the creditor without just cause, refuses to accept
payment He is therefore, given the option to consignation. Distinguish this
from BGB (German Civil Code) which states that mora accipiendi
extinguishes the obligation.
[Tolentino]
only in case where the Creditor refuses to accept it without just cause.
Effect on INTEREST: When tender is made in a form that Creditor could
have immediately realized payment (cash), followed by a prompt attempt
of the Debtor to make consignation, the accrual of interest will be
suspended from the date of such tender.
But when tender is not accompanied by means of pmt, and the Debtor did
not take any immediate step to consign, then interest is not suspended
from the time of such tender.
Consignation Defined:
• Consignation is the act of depositing the thing due with the court or judicial
authorities whenever the creditor (1) cannot accept or (2) refuses to accept
payment, and it generally requires a prior tender of payment.
Requisites of Valid Consignation:
In order that consignation may be effective, the debtor must first comply
with certain requirements prescribed by law. The debtor must show
1. that there was a debt due;
2. that the consignation of the obligation had been made because the
creditor to whom tender of payment was made refused to accept it, or
because he was absent or incapacitated, or because several persons
claimed to be entitled to receive the amount due (Article 1176,NCC);
3. that previous notice of the consignation had been given to the person
interested in the performance of the obligation (Article 1177,NCC);
4. that the amount due was placed at the disposal of the court (Article
1178,NCC); and
5. that after the consignation had been made the person interested was
notified thereof (Article 1178,NCC).
• Failure in any of these requirements is enough ground to render a
consignation ineffective. (Jose Ponce de Leon vs. Santiago Syjuco, Inc., 90
Phil. 311).
• Without prior notice, a consignation is void as payment. (Limkako vs.
Teodoro, 74 Phil 313)
• In order to be valid, the tender of payment must be made in lawful
currency. While payment in check by the debtor may be acceptable as
valid, if no prompt objection to said payment is made (Desbarats vs. Vda.
de Mortera, L-4915, May 25, 1956)
• The fact that in previous years payment in check was accepted does not
place its creditor in estoppel from requiring the debtor to pay his obligation
in cash (Sy vs. Eufemio, L-10572, Sept. 30, 1958).
• Thus, the tender of a check to pay for an obligation is not a valid tender
of payment thereof (Desbarats vs. Vda. de Mortera, supra).
• Tender of payment must be distinguished from consignation
Tender is the antecedent of consignation, that is, an act preparatory to the
consignation, which is the principal, and from which are derived the
immediate consequences which the debtor desires or seeks to obtain.
• Tender of payment is extrajudicial, while consignation is necessarily
judicial, and the priority of the first is the attempt to make a private
settlement before proceeding to the solemnities of consignation. (8
Manresa 325).
Baviera]
Q: When is there a need to tender payment?
A: (a) upon demand and (b) when debt is due
Q: There are 2 or more claims. What will Debtor do after consignation?
A: File INTERPLEADER.
Q: Why tender first?
A: It is because there is no need to consign if Creditor accepts payment.
We can only know this through tender. (EXHAUSTION OF EXTRAJUDICIAL
MEANS)
Q: Before and after consignation, there is a need to notify the Creditor.
Why is this?
A: So that the Creditor can get the money from the Clerk of court and
avoid costs of litigation.
Q: Debtor consigns. Hearing…Before the court could approve, the City Hall
burned + money. Should Debtor pay again?
A: No. When money is consigned, it is no longer generic. It becomes
specific. Creditor bears the loss because although it was due to a fortuitous
event, there was delay on his part when he refused to accept payment.
Q: In a Contract of Sale with pacto de retro. The vendor tendered payment
within the 3-yr pd but vendee refused to accept. Action for specific
performance by Vendor. According to Vendee, since money was not
consigned, Vendor cannot claim right of repurchase. Tenable argument?
A: No. As long as there was tender, no need to consign.
But in one case of a co-owner wanting to redeem at reasonable price (was
exorbitant), the court held that reasonable price is determined according
to the circumstances. So if you want to redeem, consign the full amount in
cout and ask it to fix the reasonable compensation.
2. Loss of the thing due or Impossibility of its performance
Loss NOT the strict legal meaning of loss
o Extends to those which are personal, therefore embracing all causes
which may render impossible the performance of the prestation
Refers to impossibility of performance
Article 1262. An obligation which consists in the delivery of a
determinate thing shall be extinguished if it should be lost or destroyed
without the fault of the debtor, and before he has incurred in delay.
When by law or stipulation, the obligor is liable even for fortuitous events,
the loss of the thing does not extinguish the obligation, and he shall be
responsible for damages. The same rule applies when the nature of the
obligation requires the assumption of risk. (1182a)
Loss when the thing goes out of commerce, perishes, or disappears
in such a way that its existence is unknown or that it cannot it recovered
o Non-existence of the thing in the hands of the debtor
Original subjective impossibility where the debtor does not have the
right to dispose of the thing because it belongs to another
o Here, there is no actual loss BUT there is impossibility of performance
o The debtor is LIABLE in this case
o EFFECT if the creditor subsequently acquires the thing from the 3rd
person:
If he acquired it by GRATUITOUS title debtor shall be liable for the
value of the thing
If through ONEROUS title debtor is liable for the price paid by the
creditor for it
FORTUITOUS EVENT only extinguishes the obligation IF:
o No fault on the part of the debtor
o Debtor not in delay
o No assumption of risk
o Law or stipulation DOES NOT provide for such liability
Robbery and Theft debtor must show that he could not resist the
violence
o THUS, when the business of the debtor is a pawnshop or a bank,
robbery and theft are NOT considered as FEs
FE in case of RECIPROCAL OBLIGATIONS:
o The other party’s part of the obligation is likewise extinguished
o BASIS: Res perit domino
The risk pertains to the debtor, thus, if an obligation is extinguished by
the loss of the thing or impossibility of performance through FE, the
counter-prestation is also extinguished
o Argentine Code extinguishment applies not only to the debtor BUT
also to the creditor
APPLICABLE in PH pursuant to Art 22 CC
Article 22. Every person who through an act of performance by
another, or any other means, acquires or comes into possession of
something at the expense of the latter without just or legal ground, shall
return the same to him.
GR: Loss of thing due to FE extinguishes the obligation
XPNs: in these cases, the debtor is LIABLE for DAMAGES
o When the law expressly so provides
Article 1942. The bailee is liable for the loss of the thing, even if it should
be through a fortuitous event:
(1) If he devotes the thing to any purpose different from that for which it
has been loaned;
(2) If he keeps it longer than the period stipulated, or after the
accomplishment of the use for which the commodatum has been
constituted;
(3) If the thing loaned has been delivered with appraisal of its value,
unless there is a stipulation exempting the bailee from responsibility in
case of a fortuitous event;
(4) If he lends or leases the thing to a third person, who is not a member
of his household;
(5) If, being able to save either the thing borrowed or his own thing, he
chose to save the latter. (1744a and 1745)
Article 1979. The depositary is liable for the loss of the thing through a
fortuitous event:
(1) If it is so stipulated;
(2) If he uses the thing without the depositor's permission;
(3) If he delays its return;
(4) If he allows others to use it, even though he himself may have been
authorized to use the same. (n)
Article 2147. The officious manager shall be liable for any fortuitous
event:
(1) If he undertakes risky operations which the owner was not accustomed
to embark upon;
(2) If he has preferred his own interest to that of the owner;
(3) If he fails to return the property or business after demand by the
owner;
(4) If he assumed the management in bad faith. (1891a)
Article 2159. Whoever in bad faith accepts an undue payment, shall pay
legal interest if a sum of money is involved, or shall be liable for fruits
received or which should have been received if the thing produces fruits.
He shall furthermore be answerable for any loss or impairment of the thing
from any cause, and for damages to the person who delivered the thing,
until it is recovered. (1896a)
o When there is an express stipulation to that effect
o When the nature of the obligation requires the assumption of risk
Article 1174. Except in cases expressly specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall be responsible for those
events which could not be foreseen, or which, though foreseen, were
inevitable. (1105a)
o When fault or negligence of the debtor CONCURS with FE in the loss of
the thing
o When the loss occurs AFTER the debtor has incurred in delay
o When the debtor promised to deliver the same thing to 2 or more
different parties with the same interest
Article 1165. When what is to be delivered is a determinate thing, the
creditor, in addition to the right granted him by article 1170, may compel
the debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the obligation be
complied with at the expense of the debtor.
If the obligor delays, or has promised to deliver the same thing to two or
more persons who do not have the same interest, he shall be responsible
for any fortuitous event until he has effected the delivery. (1096)
o When the obligation to deliver a determinate thing arises from a
criminal act.
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)
Article 1263. In an obligation to deliver a generic thing, the loss or
destruction of anything of the same kind does not extinguish the
obligation. (n)
Determinate thing a concrete particularized object, indicated by its
own individuality
Generic thing one which is confined to that of its nature or to the
genus to which it pertains
GR: obligation is NOT extinguished due to loss of a generic thing
o Rationale: genus nunquam perit
XPN: delimited generic obligations
o In such cases where the generic thing belongs to a particular group of
thing and the loss pertains to the whole group and NOT ONLY to the thing
itself, then the obligation is extinguished
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)
Partial loss under Art 1264 presupposes that it is NOT due to the
fault of the debtor but due to an FE
GR: partial loss does not extinguish the obligations because the thing
may still be delivered to the creditor without any liability on the part of the
debtor
o XPN: when there is partial loss and such loss is substantial
In such cases, court will determine extinguishment of obligation
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)
GR: In cases where the thing was loss while in the possession of the
debtor, burden is upon the latter to prove that such lost was not due to his
fault
o XPN: when there is a natural calamity
Should be read together with Art 1262:
 Article 1262. An obligation which consists in the delivery of a Article 1264. The courts shall determine whether, under the
determinate thing shall be extinguished if it should be lost or destroyed circumstances, the partial loss of the object of the obligation is so
without the fault of the debtor, and before he has incurred in delay. important as to extinguish the obligation.
o As to period of impossibility
When by law or stipulation, the obligor is liable even for fortuitous events, Permanent
the loss of the thing does not extinguish the obligation, and he shall be Temporary GR: does not extinguish the obligation but MERELY
responsible for damages. The same rule applies when the nature of the results in delay; XPN: by nature OR by will of the parties, the same is
obligation requires the assumption of risk. extinguished
Article 1266. The debtor in obligations to do shall also be released when EFFECT of impossibility
the prestation becomes legally or physically impossible without the fault of o Extinguishes obligation IF there is no fault on the part of the debtor
the obligor. (1184a) o BUT what is rendered impossible is the PRESTATION ITSELF and not
Art 1266 speaks of impossibility which arises AFTER the obligation has some other act which must be performed AFTER performance of the
been constituted prestation
o As contradistinguished from Art 1348 (impossibility existing at the time o If it is the condition that becomes impossible the prestation is
the obligation is constituted) VALID UNTIL ANNULLED
Art 1348 Art 1266 Article 1183. Impossible conditions, those contrary to good customs
nature of impossibility impossibility or public policy and those prohibited by law shall annul the obligation
impossibility existing at the which arises which depends upon them. If the obligation is divisible, that part thereof
time the AFTER the which is not affected by the impossible or unlawful condition shall be valid.
obligation is obligation has The condition not to do an impossible thing shall be considered as not
constituted been constituted having been agreed upon.
effect nullity of the MODIFICATION Article 1267. When the service has become so difficult as to be
contract of obligation OR manifestly beyond the contemplation of the parties, the obligor may also
EXTINGUISHMEN be released therefrom, in whole or in part. (n)
T thereof GR: extinguishment of obligation may only result from the loss of the
depending on thing or impossibility of service, among other causes provided for in CC
whether there o XPN: when the service has become so difficult as to be
was fault on the manifestly beyond the contemplation of the parties
part of the This rule in CC is COROLLARY to the rule in public international law of
obligation rebus sic stantibus
 o Which is an XPN to the GR of pacta sunt servanda (agreements must be
TYPES of impossibility: complied with in good faith)
o As to nature BUT Art 1267 is not an absolute application of rebus sic stantibus
Physical by reason of its nature o BECAUSE this might impair the rights of the parties to an agreement
Legal through some subsequent law REQUISITES for the application of Art 1267:
o As to which impossibility refers o Event or change in the circumstances that could not have been
Objective impossibility of the act or service itself without foreseen at the time of the execution of the contract
considering the person of the debtor Courts must be guided by those events that the parties could have
Subjective impossibility refers to the fact that the act or service can foreseen
no longer be done by the debtor but may still be performed by another o Such makes the performance extremely difficult but not impossible
person Extreme difficulty manifest disequilibrium in the prestations
Prof Tolentino: impossibility in Asrt 1266 refers to either objective OR
o Must not be due to the act of any parties
subjective because the law does not distinguish
o Contract is for a future prestation
o As to extent
If it is for immediate prestation the gross inequality may involve
Total
lesion OR want of cause (thus, ground for rescission under Art 1381)
Partial may be considered as total impossibility applying Art 1264
Loss of protected interest where the creditor’s interest which is
sought to be protected by the obligation disappears, such obligation is
extinguished

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)
REMEDIES of the debtor who has tendered payment to the creditor but
the same was refused by the latter:
o Consign the thing
o Keep the thing BUT with obligation to use DUE DILIGENCE; no
longer subject to the special liabilities under Art 1268
• Article 1979 provides for instances wherein depositary is still liable even
in cases of fortuitous event.
Q: What kind of diligence is required of a depositary?
A: Ordinary Diligence.
*Safety Deposit Box: If the jewelry inside a Safety Deposit Box was stolen,
rules on deposit will not apply because the contract governing the
transaction is LEASE of safety deposit box
OLD LECTURE AND CASES
Balane:
Article 1262 is the same as fortuitous event in Article 1174.
The effect is the same:

Article 1269. The obligation having been extinguished by the loss of the
thing. If the OBLIGATION is to deliver a generic thing, the OBLIGATION is
thing, the creditor shall have all the rights of action which the debtor may
not extinguished.
have against third persons by reason of the loss. (1186)
[General Rule] Genus nunquam perit ("Genus never perishes.")
Includes the indemnity that he debtor may have already received (eg.
But what is not covered by this rule is an OBLIGATION to deliver a limited
Money received from insurer)
generic – something in between specific and generic thing,
e.g., "For P3,000, I promise to deliver to you one of my watches." This
Article 1189. When the conditions have been imposed with the intention
OBLIGATION does not really fall under either Article 1262 or Article 1263.
of suspending the efficacy of an obligation to give, the following rules shall
But this OBLIGATION really falls under Article 1262. In this case, the
be observed in case of the improvement, loss or deterioration of the thing
OBLIGATION may be extinguished by the loss of all the thing through
during the pendency of the condition:
Fortuitous Event.
(1) If the thing is lost without the fault of the debtor, the obligation shall
[Balane]
be extinguished;
Objective and Subjective Impossibility:
(2) If the thing is lost through the fault of the debtor, he shall be obliged
mpossibility, the act cannot be done by anyone. The effect of objective
to pay damages; it is understood that the thing is lost when it perishes, or
impossibility is to extinguish the OBLIGATION.
goes out of commerce, or disappears in such a way that its existence is
respect to the obligor.
unknown or it cannot be recovered;
There are 3 views as to the effect of a subjective impossibility:
(3) When the thing deteriorates without the fault of the debtor, the
1. One view holds that the OBLIGATION is not extinguished. The obligor
impairment is to be borne by the creditor;
should ask another to do the OBLIGATION.
(4) If it deteriorates through the fault of the debtor, the creditor may
2. Another view holds that the OBLIGATION is extinguished.
choose between the rescission of the obligation and its fulfillment, with
3. A third view distinguishes one prestation which is very personal and one which
indemnity for damages in either case;
are not personal such that subjective impossibility is a cause for extinguishes a
(5) If the thing is improved by its nature, or by time, the improvement
very personal OBLIGATION, but not an OBLIGATION which is not very personal.
shall inure to the benefit of the creditor;
(6) If it is improved at the expense of the debtor, he shall have no other
3. Condonation or remission of the debt
right than that granted to the usufructuary. (1122)
Article 1270. Condonation or remission is essentially gratuitous, and
[Balane]
requires the acceptance by the obligor. It may be made expressly or
There are three requisites in order for Article 1189 to apply:
impliedly.
1. There is loss, deterioration or improvement before the happening of the
One and the other kind shall be subject to the rules which govern
condition.
inofficious donations. Express condonation shall, furthermore, comply with
2. There is an obligation to deliver a determinate thing (on the part of the
the forms of donation. (1187)
debtor)
Condonation/ Remission an act of liberality, by virtue of which,
3. The condition happens.
without receiving any equivalent, the creditor renounces the enforcement
Q: What if a depositor was in the premises of the bank and was robbed of
of an obligation, which is extinguished in its entirety or in that part or
his money which he was about to deposit?
aspect of the same to which the remission refers
A: Bank cannot be held liable for fortuitous event (robbery) especially in
o ALWAYS gratuitous; otherwise it will be:
the case of a bank where the money has not yet been actually deposited.
Dation in payment when the creditor receives a thing different
from that stipulated
Novation when the subject or principal conditions of the obligation
should be changed
Compromise when the matter renounced is in litigation or dispute
and in exchange of some concession which the creditor receives
o Must be proven by clear and convincing evidence
Burden upon the debtor
KINDS
o As to form
Express when made formally; should be in accordance with the
forms of ordinary donations
Acceptance is necessary for this to become effective
Movable property Art 748
o 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
No need to deliver the thing when the remission of a movable is ORAL
Immovable property Art 749
o 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)
Implied when it can be inferred from the acts of parties
o As to extent
Total
o As to manner of acceptance
Article 745. The donee must accept the donation personally, or
through an authorized person with a special power for the purpose, or with
a general and sufficient power; otherwise, the donation shall be void.
(630)
Article 746. Acceptance must be made during the lifetime of the
donor and of the donee. (n)
o As to the amount
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 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.
Notes on Civil Law Review II based on the syllabus of Prof.
Crisostomo A. Uribe
99
The donation shall be inofficious in all that it may exceed this limitation.
(636)
o As to revocation
Article 760. Every donation inter vivos, made by a person having no
children or descendants, legitimate or legitimated by subsequent marriage,
or illegitimate, may be revoked or reduced as provided in the next article,
by the happening of any of these events:
(1) If the donor, after the donation, should have legitimate or legitimated
or illegitimate children, even though they be posthumous;
(2) If the child of the donor, whom the latter believed to be dead when
he made the donation, should turn out to be living;
(3) If the donor subsequently adopt a minor child. (644a)
Article 761. In the cases referred to in the preceding article, the
donation shall be revoked or reduced insofar as it exceeds the portion that
may be freely disposed of by will, taking into account the whole estate of
the donor at the time of the birth, appearance or adoption of a child. (n)
Article 764. The donation shall be revoked at the instance of the

Partial donor, when the donee fails to comply with any of the conditions which

As to the amount of debt the former imposed upon the latter.

As to the accessory obligation

As to a certain amount of debt )in case of solidarity) In this case, the property donated shall be returned to the donor, the

o As to manner of remission alienations made by the donee and the mortgages imposed thereon by him

Inter vivos being void, with the limitations established, with regard to third persons,

Mortis causa must be in a will by the Mortgage Law and the Land Registration laws.

NATURE This action shall prescribe after four years from the noncompliance with

o Essentially a donation the condition, may be transmitted to the heirs of the donor, and may be

o Bilateral act exercised against the donee's heirs. (647a)

Governing RULES
Article 765. The donation may also be revoked at the instance of the
donor, by reason of ingratitude in the following cases:
(1) If the donee should commit some offense against the person, the
honor or the property of the donor, or of his wife or children under his
parental authority;
(2) If the donee imputes to the donor any criminal offense, or any act
involving moral turpitude, even though he should prove it, unless the crime
or the act has been committed against the donee himself, his wife or
children under his authority;
(3) If he unduly refuses him support when the donee is legally or morally
bound to give support to the donor. (648a)
REQUISITES:
o Debt must be existing and demandable at the time of remission
o Must be gratuitous
o Debtor must accept
As to condonation of interest it is only the creditor who can do this
and NOT the courts of justice
UNILATERAL RENUNCIATION (by the creditor) allowed under Art 6
of CC
o Article 6. Rights may be waived, unless the waiver is contrary to law,
public order, public policy, morals, or good customs, or prejudicial to a
third person with a right recognized by law.
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)
Ways by which implied/ tacit remission may be had:
o Art 1271
o Voluntary destruction or cancellation of the evidence of credit by the
creditor with INTENT to renounce his right
In such case, it may verily be proven that there was no such intent
(such as when the destruction was only due to mistake)
What kind of document is contemplated in this case?
o PRIVATE DOCUMENT only because if what was delivered is a
public document, the fact that there remains a copy in the archive of
certain offices of such document means that there can be no renunciation
if such were the case
Comment (De Diego) on “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.”
o This is immoral because it allows the debtor and his heirs to prove that
they paid the debt when IN FACT the law itself allows a situation where
there is a remission on the part of the creditor
o Opinion: this is a case of dura lex sed lex
Article 1272. Whenever the private document in which the debt appears
is found in the possession of the debtor, it shall be presumed that the
creditor delivered it voluntarily, unless the contrary is proved. (1189)
Presumption as regards possession of private document:
o In the hands of the creditor the debt is still unpaid
o In the hands of the debtor the document has been voluntarily
delivered by the creditor thus implying a remission on the latter’s part
NATURE of presumption: disputable ONLY
Plurality of subjects:
o Joint remission may pertain to one separate debt only
o Solidary remission must be total
Article 1273. The renunciation of the principal debt shall extinguish the
accessory obligations; but the waiver of the latter shall leave the former in
force. (1190)
Article 1274. It is presumed that the accessory obligation of pledge has
been remitted when the thing pledged, after its delivery to the creditor, is
found in the possession of the debtor, or of a third person who owns the
thing. (1191a)
2 views re nature of presumption under Art 1274:
o Sanchez Roman conclusive
o Tolentino disputable only
RATIONALE: there are many possibilities as to why the thing pledged
may be in the possession of the debtor AFTER its delivery to the creditor
like if the latter has mistakenly delivered the same
Further, presumption as to return under Art 2110 is likewise only
disputable
Article 2110. If the thing pledged is returned by the pledgee to the
pledgor or owner, the pledge is extinguished. Any stipulation to the
contrary shall be void.
If subsequent to the perfection of the pledge, the thing is in the possession of the
pledgor or owner, there is a prima facie presumption that the same has been
returned by the pledgee. This same presumption exists if the thing pledged is in
the possession of a third person who has received it from the pledgor or owner
after the constitution of the pledge.
4. Confusion or Merger of Rights
Article 1275. The obligation is extinguished from the time the characters
of creditor and debtor are merged in the same person. (1192a)
Merger/ Confusion the meeting in one person of the qualities of the
creditor and debtor with respect to the same obligation
o RATIONALE: it is absurd that a person should enforce an obligation
against himself
REQUISITES:
o Must take place between the creditor and the principal debtor
o Must involve the very same obligation
o Must be total (2) Donation;
Most common cause of merger succession (3) Negotiation of a negotiable instrument.
As regards REAL RIGHTS a real right may be merged with the right • Because of its nature, confusion/ merger may overlap with other causes
of ownership of extinguishment.
o Such as when the usufructuary becomes the naked owner For example, I owe Ms. Olores P100,000. She bequeath to me that credit.

o HOWEVER, this is NOT the MERGER contemplated in Art 1275 BUT only And then she died. In this case, there is extinguishment both by merger.

consolidation of title But in this case, merger could overlap with payment.

REVOCATION through any cause that may result in the nnullity, Article 1276 (below) is perfectly in consonance with Article 1275.

annulment or rescission of contract 5. Compensation

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

Article 1276. Merger which takes place in the person of the principal Compensation a mode of extinguishment to the concurrent amount,

debtor or creditor benefits the guarantors. Confusion which takes place in the obligations of those persons who in their own right, are reciprocally

the person of any of the latter does not extinguish the obligation. (1193) creditors and debtors of each other

Benefits the guarantors because theirs is only an accessory obligation o Offsetting of 2 obligations

BUT the merger of the creditor and the guarantor DOES NOT affect the ADVANTAGES over payment:

principal obligation
o Simpler takes effect without any action by either party

Article 1277. Confusion does not extinguish a joint obligation except as o More guaranty in making the credit more effective because there is

regards the share corresponding to the creditor or debtor in whom the two less risk of loss by the creditor due to insolvency or fraud of the debtor
characters concur. (1194) Compensation Payment
Article 1215. Novation, compensation, confusion or remission of the capacity of not indispensab
debt, made by any of the solidary creditors or with any of the solidary party to necessary le
debtors, shall extinguish the obligation, without prejudice to the provisions dispose of because it
of article 1219. thing takes effect
The creditor who may have executed any of these acts, as well as he who by
collects the debt, shall be liable to the others for the share in the obligation operation
corresponding to them. (1143) of law
Article 1217. Payment made by one of the solidary debtors extinguishes extent of may be must be
the obligation. If two or more solidary debtors offer to pay, the creditor extinguish partial complete
may choose which offer to accept. ment of
He who made the payment may claim from his co-debtors only the share obligation
which corresponds to each, with the interest for the payment already Article 1285. The debtor who has consented to the assignment of rights
made. If the payment is made before the debt is due, no interest for the made by a creditor in favor of a third person, cannot set up against the
intervening period may be demanded. assignee the compensation which would pertain to him against the
When one of the solidary debtors cannot, because of his insolvency, assignor, unless the assignor was notified by the debtor at the time he
reimburse his share to the debtor paying the obligation, such share shall gave his consent, that he reserved his right to the compensation.
be borne by all his co-debtors, in proportion to the debt of each. (1145a) If the creditor communicated the cession to him but the debtor did not
[Balane] consent thereto, the latter may set up the compensation of debts previous
• Confusion is the meeting in one person of the qualities of the creditor to the cession, but not of subsequent ones.
and debtor with respect to the same obligation. If the assignment is made without the knowledge of the debtor, he may
There are two (2) requisites: set up the compensation of all credits prior to the same and also later ones
1. It must take place between the creditor and the principle debtor (Article until he had knowledge of the assignment. (1198a)
1276.) Assignment BEFORE compensation there is already extinguishment
2. The very same obligation must be involved. o GR: Hence, a subsequent assignment of an extinguished obligation has
how can you sue yourself? NO legal effect upon the debtor
What may cause a merger or confusion? o REMEDIES of assignee:
(1) Succession, whether compulsory, testamentary or intestate; Eviction OR
Damages for fraud against the assignor
o XPN: when the debtor CONSENTS to the assignment, such consent
constitutes a waiver of the compensation
XPN to the XPN: when the debtor reserves his right to the
compensation
Assignment AFTER compensation
o When can this occur?
One of the debts is NOT yet due or liquidated OR
There is other cause that impedes compensation
o EFFECT on the part of the debtor: no assignment takes place except
from the time that he is notified thereof
o When notice is given at the ff times:
SIMULTANEOUS to the transfer debtor can set up compensation of
debts prior to such assignment
BEFORE the transfer such transfer takes effect at the time of
assignment
Same rule applies
o If debtor consents WAIVER
XPN: when there is a reservation
o If debtor is notified BUT did NOT consent debtor may set up
o Depositor may set up
It is, in reality, a facultative compensation
o Deposit in banks governed by contract of LOAN
Hence, there may be compensation in such cases
Commodatum
o BORROWER cannot set up compensation
Obligations in favor of government cannot be compensated
o REASON: they involve public interest
Article 1288. Neither shall there be compensation if one of the debts
consists in civil liability arising from a penal offense. (n)
Reason: fulfillment of this obligation is imperative
Article 1289. If a person should have against him several debts which
are susceptible of compensation, the rules on the application of payments
shall apply to the order of the compensation. (1201)
Article 1290. When all the requisites mentioned in article 1279 are
present, compensation takes effect by operation of law, and extinguishes
both debts to the concurrent amount, even though the creditors and
debtors are not aware of the compensation. (1202a)

compensation PROVIDED that the same became due before the This is LEGAL COMPENSATION

assignment Kind of When it takes effect

o If the debtor is NOT notified of the assignment all debts may still be Compensation

compensated Legal ipso jure; upon

REMEDY of assignee: against assignor concurrence of

requisites

Article 1286. Compensation takes place by operation of law, even though Voluntary upon agreement of

the debts may be payable at different places, but there shall be an parties

indemnity for expenses of exchange or transportation to the place of Facultative once creditor sets up

payment. (1199a) his option to

This applies only to legal compensation compensate

Judicial upon final judgment

Article 1287. Compensation shall not be proper when one of the debts
arises from a depositum or from the obligations of a depositary or of a 6. Novation

bailee in commodatum. Article 1291. Obligations may be modified by:

Neither can compensation be set up against a creditor who has a claim for (1) Changing their object or principal conditions;

support due by gratuitous title, without prejudice to the provisions of (2) Substituting the person of the debtor;

paragraph 2 of article 301. (1200a) (3) Subrogating a third person in the rights of the creditor. (1203)

Another XPN (under Art 1288) civil lliability ex delicto Dual functions of novation:

Reason for prohibition under Art2 1287 and 1288 JUSTICE o Extinguishes old obligation

Future compensation: o Creates new obligation

o To allow compensation would be to defeat the exemption from KINDS

execution and attachment As to nature Subjective/ modification of

o May expose the recipient to misery Personal obligation by

o Par 2 Art 301 (now in FC) support in arrears CAN BE compensated changing the

Depositum SUBJECT; ACTIVE

- if 3rd person is
o Only the DEPOSITARY cannot set up compensation
subrogated in the
 rights of the
creditor; PASSIVE
- if there is a
change in the
debtor
Objective/ Real when there is a change in
the object or the principal
condition
As to form Express when the parties
so declare
Implied when there is an
incompatibility as to the new
and old obligations
As to effect Partial when there is only
a change in the
principal condition
Total when the obligation is totally
extinguished
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)
Speaks of effect new debtor’s insolvency in case of delegaction
o GR: will NOT revive action against old debtor
o XPN: if insolvency is either:
Existing and or public knowledge
Known to the old debtor
o Other XPNs according to some authors:
o In this case, there can be no immediate novation
BUT if the 2 obligations are incompatible immediate novation may
be had AND the old obligation should be extinguished and the new one
deemed to have arisen.
Article 1300. Subrogation of a third person in the rights of the creditor is
either legal or conventional. The former is not presumed, except in cases
expressly mentioned in this Code; the latter must be clearly established in
order that it may take effect. (1209a)
Article 1301. Conventional subrogation of a third person requires the

If the new debtor is only secondarily liable consent of the original parties and of the third person. (n)

If the new debtor is only an agent of the debtor Article 1302. It is presumed that there is legal subrogation:

When new debtor is solidarily bound with old debtor (1) When a creditor pays another creditor who is preferred, even without

Tolentino: there is NO NOVATION in the 3 cases mentioned the debtor's knowledge;

(2) When a third person, not interested in the obligation, pays with the

Article 1296. When the principal obligation is extinguished in express or tacit approval of the debtor;

consequence of a novation, accessory obligations may subsist only insofar (3) When, even without the knowledge of the debtor, a person interested

as they may benefit third persons who did not give their consent. (1207) in the fulfillment of the obligation pays, without prejudice to the effects of

GR: novation extinguishes accessory obligations confusion as to the latter's share. (1210a)

XPN: insofar as pour atrui is concerned AND the novation is without the KINDS of obligation:

consent of such 3rd party o Legal (Art 1302)

o Conventional (Art 1301) requires the consent of the creditor, the
Article 1297. If the new obligation is void, the original one shall subsist, debtor, and 3rd person
unless the parties NOT identical to assignment of credit
intended that the former relation should be extinguished in any event. (n) Conventional Assignment of credit
THUS, if new obligation is merely voidable, then novation takes place Subrogation
If the intention is merely to attach a new condition there is NO as to debtor's necessary not necessary
novation consent
as to function extinguishes old the same right
Article 1298. The novation is void if the original obligation was void, obligation and passes from one
except when annulment may be claimed only by the debtor or when gives rise to person to
ratification validates acts which are voidable. (1208a) new one another
AR: if the old obligation is VOID, the novation is likewise void as to cure to nullity of OO no same cure
Author’s note: the rule should NOT be made to apply to obligations nullity of old may be cured
which are merely ANNULLABLE or RESCISSIBLE because the same are obligation by the validity
VALID until annulled or rescinded of NO
o It should only be applied UPON declaration of annulment or rescission,
as the case may be 5. There must be CONSENT of all the parties to the substitution, resulting
When can there be novation if the original obligation is ANNULLABLE? in the extinction of the old obligation and the creation of a valid one.

o Obligation has the essential requisites for existence [TOLENTINO]

o Debtor consents to the novation WITH knowledge of cause of • Novation is NEVER presumed.

annulment and AFTER the same has ceased 1. the old and the new contracts are incompatible in all points,
2. or that the will to novate appear by express agreement of the parties

Article 1299. If the original obligation was subject to a suspensive or 3. or in acts of equivalent import.

resolutory condition, the new obligation shall be under the same condition, required for an implied novation. All that is required is INCOMPATIBILITY

unless it is otherwise stipulated. (n) between the original and the subsequent contracts.

If BOTH obligations are subject to a condition and they can stand • A mere extension of the term of payment does not result in novation, for the

together ALL conditions must be complied with BEFORE novation may period affects only the performance, not the creation of the obligation

be effective
Passive Subjective Novation-- Articles 1293 and 1295
• Article 1293 talks of expromission (not upon the old debtor's initiative. It
could be upon the initiative of the creditor or of the new debtor.)
• Article 1295 talks of delegacion (change at the old debtor's initiative.)
• In expromission, the change in the person of the debtor is not upon the
initiative of the old debtor, whether or not he gave his consent. As soon as
a new debtor and creditor agree, novation takes place.
• In both cases, the intent of the parties must be to release the old debtor.
What is the difference in effect between expromission and delegacion?
• In expromission, the release of the old debtor is absolute (even if it turns
out that the new debtor is insolvent.)
• In delegacion, the release of the old debtor is not absolute. He may be
held liable (1) if the new debtor was already insolvent at the time of the
delegacion; and (2) such insolvency was either known to the old debtor or
of public knowledge.
Cases of expromission are quite rare.
[Balane]
cessory obligations may subsist only insofar as they may benefit third
persons who did not give their consent, e.g., stipulation pour atrui
General rule: In a novation, the accesory obligation is extinguished.
Exception: In an active subjective novation, the guarantors, pledgors,
mortgagors are not released.
Look at Article 1303, accessory obligations are not extinguished. So there
is a conflict.
How do you resolve? According to commentators, Article 1303 is an
exception to Article 1296.
Illustrations:
1. Special forms of payment:
a. Dation
b. Application – Before the courts do not consider application as special
form of payment.
c. Tender of payment and consignation – Tender of payment is not a form
of payment consignation is a special form of payment.
d. Cession
2. Distinguish one from the other or the rest:
a. Consent: is consent of both parties required in this special form of
payment? There is no question that as to debtors consent is obviously
there because he is the one offering to pay, so if he is the one offering to
pay then there must be consent, but as to creditor?
i. Dation in payment – the creditor has to accept the delivery of a thing
instead of the other prestation for the satisfaction of the debt, if there is
no consent on the part of the creditor, there can be no dation in payment.
CASE: Filinvest v. Phil. Acetelyn
ii. Application of payment – As a rule the consent of the creditor is not
required, it is only under certain circumstances that the consent of the
creditor will be present.
iii. Payment by cession – Definitely the consent of the creditor is required, if the
creditor would not agree that the debtor would abandon the properties for the
creditors to sell, there can be no payment by cession.
iv. Consignation – The consent of the creditor is not required even if the
creditor refuses to accept the thing delivered by the debtor to the court by
way of consignation, the court may declare the consignation to be valid.
b. As to the effect of the delivery of the thing from the debtor to the
creditor or from the debtor to the court is there transfer of ownership?
i. Dation in payment – yes there is transfer of ownership, because that
thing is being delivered and the ownership thereof is being transferred in
satisfaction of his debt.
ii. Application of payment – Yes there is transfer of ownership. If money is
delivered by the debtor to the creditor ownership passes to the creditor.
The only question here in this form of payment is to which debt the
payment will apply? This is the issue in this kind of payment, but as to
ownership it passes immediately to the creditor.
iii. Cession - Ownership does not pass because the creditor upon delivery
because the creditors just accept the things or those things to be sold and
the proceeds thereof to be applied to the indebtedness.
iv. Consignation – Upon the delivery of the thing to the court ownership
does not automatically pass to the creditors because the consignation may
be void, if it is void, then ownership does not pass to the creditor.
However, if the creditor will accept thereafter, may be months or years
thereafter, or maybe the court declares the consignation valid, then the
ownership passes, however, by law the effect of acceptance or the
declaration by the court that the consignation is valid retroacts to the time
of the delivery of the court as if the creditor is already the owner of the
thing at the time of the delivery.
c. Extent of Extinguishment: May there be total extinguishment of the
debt?
i. Application of payment – No, there can never be total extinguishment,
precisely because there is a need to determine to which debt the payment
is to be applied. Because the amount paid is not sufficient to cover all the
debts, because you will no longer have a problem is the amount is
sufficient to cover all the debts you just have to invoke the rules on
application on payments. Necessarily there is no total extinguishment of
the debts under the rules on application of payment.
ii. Cession – the extinguishment will only be to the extent of the net profits
of the sale, unless the parties agree that the abandonment will result to
the extinguishment of the entire debt. So here, the net proceeds is the
basis of the extent of the extinguishment of the debt.
iii. Consignation – Because this is a special form of payment it follows the
rule in payment, thus as a rule “partial performance is non performance”
therefore if the debtor delivers only a portion of his debt, then the
consignation is null and void. The exception will only be if the creditor
would agree to the delivery of partial amount, then to that extent there
will be partial extinguishment.
iv. Dation in payment – There are authors who will take the position that if
there is Dation in payment then the obligation is totally extinguished
unless it is clear in the intention of the parties that it will result only to
partial extinguishment. But is this the better rule?
For example if A is the debtor of B in the amount of 1M and A delivered to
B a car stating that it is to be applied to the amount that B owes A, the
value of the car is 150K, if the creditor accepted the car, does that mean
that the entire obligation is extinguished? This rule does not seem to be
equitable,
the BETTER RULE: As a rule the extinguishment is only to the extent of
the value of the thing delivered unless it is clear from the agreement of
the parties that the delivery of a thing, no matter the value, is equivalent
to the amount of the obligation.
3. Specific Rules:
a. Dation in payment – Again in Dation a thing is delivered and ownership
thereof is delivered by the debtor to the creditor in satisfaction of his debt.
Dation apparently will only apply to the delivery of the thing THIS IS NOT
TRUE.
The SC has ruled that even rights can be the subject of Dation for
example: if hereditary right is already vested to the debtor, the debtor can
deliver his rights to his creditor for the satisfaction of his debt. Also, in one
case, a credit owing to the debtor may be delivered by him to his creditor
for the satisfaction of his debt. But just like the other modes of payment,
in order that there be Dation there has to be an obligation to be
extinguished
(CASE: Citizen’s Surety v. CA: Perez was claiming that with the execution
of deed of assignment that practically extinguishes his obligation under the
indemnity agreement by way of Dation, the scenario here was: a contract
of sale was entered into, payable by installment, the buyer is Pascual
enterprises, to secure the fulfillment of his obligation, a surety bond was
executed in favor of the seller, not citizen’s surety executed an indemnity
agreement just in case it will be held liable under the bond, Pascual Perez
and his wife being the party thereto, Citizen’s also had Perez execute a
deed of assignment over certain stocks. The surety obviously was held
liable under the bond, the surety went after Perez under the indemnity
agreement. Perez claimed that the execution of deed of assignment was a
form of Dation, but the facts showed that at the time the deed of
assignment was executed there was no obligation under the indemnity
agreement nor under the surety bond. Why? Because the contract were all
dated earlier than the time he was made liable, therefore there was no
obligation yet. So what is really the nature of deed of assignment? It was a
form of security arrangement. Other facts relied upon by the SC in ruling
that the deed of assignment was not Dation in payment was that after the
deed of assignment was executed, Perez also executed a real estate
mortgage, so why would he execute a real estate mortgage if his
obligation was already extinguished by Dation. Also, in deed of
assignment, there were partial payments made, if there was Dation then
he would not have made the payments.)
What is the law governing Dation?
Others would say that this is governed by the law of sales.
If you will read 1245, it would appear that Dation is governed by law of
sales, but reading it more closely; the law on sales will only apply if the
obligation is in money.
For instance, A owes B 20K, instead of paying cash, A offered his cell
phone to B in satisfaction of the obligation, there is here Dation and this
will be governed by the law on sales as provided for in 1245.
Tolentino criticized this provision, considering that the trend worldwide is
to consider this as a form of novation because practically there is a change
in the object, from money to a thing.
REMEMBER! 1245 will not apply if the pre-existing obligation is not in
money.
For example: A is obliged to deliver to B a horse, so instead of delivering a
horse he delivered a car to B. 1245 will not apply here because the pre-
existing obligation is not in money, but it is to deliver a horse. So in this
case Novation shall apply because there was a changed in the object of
the obligation, from horse to car.
Again, going back to Tolentino’s criticism, he said that regardless of pre-
existing obligation whether money or thing, still the law that will apply is
the law of novation.
Atty. Uribe: I find wisdom in 1245 because, instead of paying in cash,
(refer to the cell phone example) the debtor paid by giving his phone to
the creditor, but is this not almost similar to the scenario where the debtor
paid in cash and the creditor used the cash to buy the cell phone? And
therefore the law on sales will govern. I think 1245 will do.
b. Application of payment – the only question relevant in this rule is “to
which debt will the payment be applied?
” the premise of this question is a debtor has two or more debts to one
creditor but may the rules on application of payments be invoked if the
debtor has two or more creditors?
Yes. As long as as to one creditor he has two or more debts. The law
does not require that the debtor should only have one creditor.
For example: A’s creditors are XYZ, for the rules to be invoked, he must
have two debts to one creditor. Let us say A owes X 100K, 50K, and 20K,
now if A delivers to X 30K, the question here is to which debt will the
payment apply?
1. AS A RULE: The debt designated by the debtor, so under the law, the
debtor has the right to designate to which debt the payment will apply. So
here, A can designate the 30K to apply to 100K or to 50K or to 20K or 30K.
But having said that, if A instructed the creditor to apply the 30K to 50K,
can the creditor be compelled to apply the payment to the 50K debt?
AS A RULE THE ANSWER IS NO because this is a special form of payment,
the rules of payment shall apply, the creditor cannot be compelled to
accept partial payment, nor the debtor be compelled to perform partial
payment. Therefore, unless there is a stipulation giving the debtor a right
to designate to a debt that will constitute partial payment, he cannot
designate payment to which the payment should be applied.
In the first place why would he designate it to the 50K? The 50K may be
interest bearing.
THEREFORE, THE RIGHT OF THE DEBTOR TO DESIGNATE TO WHICH
PAYMENT SHALL APPLY IS NOT ABSOULTE, ONE OF THE EXCEPTIONS IS
AS TO PARTIAL PAYMENT.
SECOND LIMITATION, A delivered the 30K, he designated it for the
payment of the 30K debt, however, the 30K debt is interest bearing, can
he compel the creditor to apply the payment to the principal first, then he
will just pay the interest later?
NO BY EXPRESS PROVISION OF THE LAW, PAYMENT SHOULD ALWAYS BE
APPLIED TO INTEREST FIRST, IF THERE ARE EXCESS THEN THAT WILL
BE THE AMOUNT APPLIED TO THE PRINCIPAL. THIRD LIMITATION: A
designated the 30K for the payment of the 30K debt, but the 30K debt is
not yet due.
THE LAW REQUIRES THAT THE DEBT IS ALREADY DUE IN ORDER THAT
THE DEBTOR WOULD HAVE THE RIGHT TO DESGINATE SUCH PAYMENT
TO THE DEBT. What is the meaning of due here?
The period must be fixed for the benefit of the creditor or for both of
them. If it is not yet due, but the period is fixed solely for the benefit of
the debtor it does not matter the debtor can designate such debt because
the period is for his benefit. But also he cannot vary an agreement which
they had as to which debt the payment to be applied.
PROBLEM: What if A entrusted X to apply the 30K to 30K debt, but the
debt is secured by a mortgage, as instructed X applied the payment, he
issued a receipt stating that the 30K is applied to the 30K debt, however,
days thereafter, A asked X to apply the amount to another debt, the 50K,
though the creditor cannot be compelled to accept, he may accept if he
wants to.
So, if X agrees, and he applied the payment of the 50K debt instead of
the 30K, thereafter A was not able to pay X as to the 30K debt, can X
foreclose the mortgage?
NOT ANYMORE! A already paid the 30K, although it was revived (when he
chose that the payment be applied to 50K instead) the mortgage was not
revived (mortgage is not revived without the consent of the mortgagor).
SECOND RULE: What if the debtor did not designate the debt to which the
payment shall apply?
The debt designated by the creditor. He would have the right to designate
to which debt the payment shall apply.
However, is the debtor’s consent required in the designation made by the
creditor?
Yes! By express provision of the law, if in the receipt the debtor sees that
the payment was applied to a particular debt, and the debtor does not
agree to such application, he may refuse to accept the application.
THIRD RULE: Neither the debtor nor the creditor made the designation.
Scenario: the debtor made payment; the creditor accepted and issued a
receipt without designating the particular debt, so to which debt the
payment shall apply?
IT WILL DEPEND ON WHETHER THE DEBT OF THE SAME NATURE AND
BURDEN OR WHETHER THE DEBT IS MOST ONEROUS OF THEM ALL.
If all the debts are of the same nature and burden, the law requires
proportional application. As regards to the most onerous debt, apply the
payment to the most onerous obligation.
TAKE NOTE! That you should only go into these rules if the law would not
guide you as to which debt the payment should be applied, there are
guides like partial payment, interest bearing, and the circumstances which
may show the intention of the parties, if these guides are not present,
then that is the time you go into the rules considering the nature and
burden of the debts.
IN DETERMINING WHICH DEBT IS THE MOST ONEROUS: is there a
particular rule?
None. The SC held that there is no hard and fast rule! This is because
each debt has its own features, for example, there are debts which consist
of bigger amount the other smaller amount but interest bearing, the other
one secured.
For example one debt is secured by real estate mortgage and another
debt is secured by pledge, what is more burdensome?
The debt secured by a real estate mortgage. However, real estate
mortgage may be constituted by one real estate, so consider if the real
estate mortgage constitutes a small lot and the pledge constitutes ships,
which is more onerous? Obviously the debt secured by pledge constituting
ships.
TAKE NOTE THAT ALL FACTORS ARE CONSIDERED IN DETERMINING
WHICH IS MORE ONEROUS. If for instance in one debt the debtor is
merely the guarantor and other debt he is the principal, apparently the
debt in which he is the principal debtor is more onerous, but the common
reason given by few authors is because in this debt where he is a
guarantor, his liability is only subsidiary, in fact inchoate, he may or may
not be held liable because the principal debtor should first be held in
default then his properties dissolved before the guarantor may be held
liable,
BUT THIS IS A WRONG REASON WHY? If the rules on applications of
payment are to be invoked, it presupposes as to the two debts he is
already liable, his liability is not merely inchoate, and even if it is only
subsidiary, he is already liable, in other words in this scenario for the rules
to be applied, the principal debtor should have defaulted and his
properties exhausted that is why the guarantor is liable, if he is not yet
liable there is no reason to apply the rules on application of payment
because there is only one debt, which is the debt to which he is the
principal debtor. But even considering that in the contract of guaranty the
guarantor is already liable, which is more onerous,
Atty. Uribe: the debt more onerous is the debt to which the debtor is a
principal, because in guaranty the guarantor may be able to recover what
he paid to the creditor from the debtor, in the debt to which he is a
principal, he cannot recover anything by way of reimbursement.
One author would claim: bigger amount is more onerous than smaller
amount. Is there any basis for this claim?
Atty. Uribe: I beg to disagree to this claim, first, if the debt is one peso or
two pesos or even one thousand pesos bigger in amount, does that really
matter in this country? But if you go by the rules, if you follow this claim,
then what will happen to the rule that there are debts of the same nature
and burden because if the debts would have 1 peso difference, then that
debt is already more onerous, since the law provides that proportional
application to debts, presupposes that the debts are of different amounts.
OBVIOUSLY THIS IS WRONG.
Example this is 1M the other debt is 10K, you think 1M is more onerous,
not necessarily, let’s say the debt is only 10K but it is interest bearing,
what should I pay first? Of course the 10K interest bearing.
Who cares about the 1M, after 2 years it is still 1M! Again the amount is
irrelevant. Another, OLDER DEBT IS MORE ONEROUS.
There is no basis to this claim. In fact, older debts may be less onerous
why? Because it is about to prescribe.
c. Cession or assignment – Here the debtor would abandon or assign all
his properties to the creditor which properties will have to be sold by the
creditor the net proceeds shall be applied to the credit.
FIRST ISSUE: All the properties of the debtor shall be delivered? No there
are properties which are exempt from execution. But can the debtor
deliver to the creditor properties which are exempt from execution?
Yes! Because that is a right which the debtor can waive, though he cannot
be compelled he may abandon those properties to the creditor.
However, there are certain properties which cannot be the subject of the
claim of the creditor even with the consent of the debtor LIKE THE FAMILY
HOME, of course there are beneficiaries of the family home who can object
to the sale thereof.
What if the debtor is willing to abandon all his properties and the creditors
would refuse, what is the remedy of the debtor? Authors would say that
the best remedy of the debtor is to file an action for insolvency. In a way
insolvency proceeding has its advantages, however, here in the Philippines
businessmen are really not keen on filing an insolvency proceedings.
What if the creditors did agree for this kind of payment but they failed to
agree as to how they will partition/distribution the proceeds? Atty. Uribe
agrees that the rules on concurrence and preference of credits because in
these rules there are preferred debts and those debts which are not
preferred they shall be paid proportionately.
Alleged requirement of few authors that in this form of payment, the
debtor is insolvent. In other words, there can be no cession if the debtor is
not insolvent.
Atty. Uribe CANNOT AGREE TO THIS REQUIREMENT because if you read
1265 there is no requirement that the debtor must be insolvent for
payment of cession to take place. Another important reason is the fact that
this is by agreement of parties, there can only be payment of cession
because the creditor agreed, as long as the debtor is willing to abandon
the properties and the creditors agree and the proceeds shall be applied to
the debt, there is cession. Other authors claim that the debtor should be
partially insolvent, is there any basis to this? NONE! Once a debtor failed
to comply with his obligations and xxx is insolvent. There is no such thing
as partial insolvent. The statement of Professor Sta. Maria is a better
statement “this mode of extinguishing obligation would normally be
resorted to by debtors who are in a financially difficult position.”
d. Tender of payment and consignation – Fist, let us go to the claim of
Prof. Jurado, as a rule tender of payment is necessary for consignation to
be valid, correct? Reading 1256, there are how many grounds or causes
for consignation wherein the law expressly provides that tender of
payment is not required.
In 1256 there are about 5 grounds, where the law provides that in those
grounds tender of payment is not required, obvious because in those
grounds the creditor is not present.
So in those causes, there is no tender of payment but the consignation is
valid. What are the grounds or causes for consignation where tender of
payment is necessary under the law?
Where the creditor refuses to accept without just cause. Therefore going
back to the statement tender of payment is required for consignation to be
valid, it seems wrong.
AS A RULE TENDER OF PAYMENT IS NOT REQUIRED, THE ONLY
EXCEPTION TO THAT RULE IS WHEN THE GROUND FOR CONSIGNATION
IS THAT THE CREDITOR REFUSES TO ACCEPT WITHOUT JUST CAUSE.
On the other hand, Jurado is very much correct in his statement that
“tender of payment by its very nature is extrajudicial” as you have read in
the case of Soco v. Milintante, tender of payment is made during the
pendency of the action, that consignation is void. Tender of payment
should be made prior to consignation not during the pendency of the
action. SO IT IS BY ITS VERY NATURE EXTRAJUDICIAL IN CHARACTER.
Now, if the ground for consignation requires tender of payment and the
debtor sent probably three letters to the creditor informing the creditor
that “I am willing to pay my debt xxx” is this a valid tender of payment?
NO! In order for tender of payment to be a valid tender of payment, you
have to actually offer the amount to the creditor; IT IS THE ACT OF
OFFERING THE AMOUNT WHICH CONSTITUTES A VALID TENDER OF
PAYMENT.
In to the requisites of a valid consignation:
i. There must be a debt to be extinguished – a sum of money is delivered
not to extinguish a debt but to exercise a right, like the right of
redemption, if the other party refuses to accept the money, then the
person who has the right is not required to deliver to the court the amount
by way of consignation because he is not intending to extinguish an
obligation. Example: A had the right to redeem, he offered to redeem, the
other party refused to accept, when the action was filed the defendant
claimed that the action should be dismissed because the redemptioner was
not sincere in redeeming the property because if the redemptioner was
sincere, when I refused to accept the money he should have deliver the
money to the court by way of consignation. The SC: the claim is
erroneous, because the redemptioner is exercising a right, and in the
exercise thereof there was refusal without just cause, there is no need for
consignation. But if the intention is to extinguish an obligation and the
money was refused, that is when the debtor has to go to the court and
deliver the money by way of consignation.
The consignation must be based on a ground provided by law – Is the
enumeration under 1256 an exclusive enumeration?
Atty. Uribe agrees with the position that the enumeration does not have
to be exclusive because as long as it would be more burdensome to the
debtor if he will not be allowed to deliver the thing or the money to the
court, consignation should be allowed.
Some of the grounds are:
a. When without just cause the creditor refuses to issue a receipt – is the
issuance of the receipt the operative fact which extinguishes the
obligation?
NO! in our jurisdiction PAYMENT IS THE MODE OF EXTINGUISHMENT,
THE RECEIPT IS MERELY AN EVIDENCE.
But if the creditor refuses to issue a receipt or does not want to issue a
receipt, it is better that the debtor does not give the payment to him,
because he can easily deny that the debtor did not pay. Actually, in other
jurisdiction, it is the issuance of the receipt that extinguishes the
obligation, this rule seems to have an advantage because it would
minimize the litigation involving issues as to payment.
b. When two or more persons claim the same right to collect – A good
example is an obligation to deliver a carabao, in this obligations three
creditors are claiming from the debtor, because three persons are claiming
to the carabao that will give the person a right to deliver the carabao to
the court by way of consignation? Not necessarily.
The SC held that the debtor should determine for himself the person who
has the right over the thing or the money.
iii. Notices required for consignation to be valid:
AT LEAST TWO:
Why? Because if the obligation pertain to an obligation to pay on a
monthly basis, like rental, the SC as rule in the case of SOCO, THERE
MUST BE AT LEAST TWO NOTICES FOR EACH AMOUNT WHICH BECAME
DUE (so every month that the payment is not accepted sent notice prior
the consignation).
But if there is only one debt, there should be two notices required, is it
required that both notices should come from the debtor?
NO! But the first notice should come from the debtor prior the
consignation and the second notice may come into the form of summons.
Is notice really an essential requisite for the validity?
TOLENTINO DOES NOT AGREE WITH THIS VIEW, he thinks that even
without such notice the consignation may still be considered as valid. But it
can be the basis of holding the debtor liable, this rule is better but THIS IS
NOT THE RULE LAID DOWN BY THE SUPREME COURT.
SECOND: if the payment is monthly and the creditor already refused to
accept the payment in the first month the defendant will question the
necessity of second notices, since the creditor already knows that the
debtor will again deliver to the court the payment by way of consignation
RATIONALE: THIS IS TO GIVE THE CREDITOR THE OPPORTUNITY TO
CHANGE HIS MIND. Which is very true, the bigger the amount the more
difficult to refuse.
There are only two questions in consignation: After the delivery of the
money or the thing with the court, what if thereafter the money was
withdrawn from the court, thereafter the debtor failed to pay the creditor,
can the creditor still go after those who are subsidiarily liable for the debt
(like the mortgagor)?
PREMISE HERE IS: A is indebted to B, A delivered a sum of money to the
court by way of consignation however, A withdrew the money, the debt is
secured by a mortgage, thereafter A failed to pay the creditor, can the
creditor foreclose the mortgage? It depend on the manner how A was able
to withdraw the money from the court.
IF A WITHDREW THE MONEY AS A MATTER OF RIGHT (when even the
court cannot refuse the withdrawal, and this can happen if the creditor has
not yet accepted and the court has not yet declared the consignation to be
valid, in this scenario, the debtor can still withdraw the money as a matter
of right at anytime),
THUS, NO DEBT HAS BEEN EXTINGUISHED, BECAUSE IN CONSIGNATION
THE DEBT WILL ONLY BE EXTINGUISHED EITHER BECAUSE THE
CREDITOR HAS ALREADY ACCEPTED OR THE COURT HAS ALREADY
DECLARED THAT THE CONSIGNATION IS VALID, ABSENCE OF THE TWO
NO OBLIGATION IS EXTINGUISHED, THEREFORE NO OBLIGATION IS
REVIVED,
THEREFORE IF THE DEBTOR WITHDREW UNDER THIS SCENARIO AND
FAILED TO PAY, THE CREDITOR MAY STILL FORECLOSE THE MORTGAGE,
BECAUSE THE OBLIGATION WAS NEVER EXTINGUISHED. HOWEVER, IF
THE WITHDRAWAL IS NOT AS A MATTER OF RIGHT,
THEREFORE HE WAS ONLY ABLE TO WITHDRAW WITH THE CONSENT OF
THE CREDITOR (this may happen either when the withdrawal was made
after the acceptance or the withdrawal was made after the declaration by
the court that the consignation was valid.) IN THIS CASE, THE CREDITOR
CONSENTED TO THE WITHDRAWAL. WHAT HAPPENS TO THE
OBLIGATION, UPON THE ACCEPTANCE BY THE CREDITOR OR
DECLARATION BY THE COURT THAT THE CONSIGNATION IS VALID, THE
OBLIGATION IS EXTINGUISHED, AND THEREFORE, WHEN THE AMOUNT
WAS WITHDREW BY THE DEBTOR THE OBLIGAITON WAS REVIVED,
UPON REVIVAL THE DEBTOR FAILED TO PAY, THE CREDITOR CAN NO
LONGER FORECLOSE THE MORTGAGE, WITH THE EXTINGUISHMENT OF
PRINCIPAL OBLIGAITON THE ACCESSORY CONTRACTS ARE ALSO
EXTINGUISHED.
Liability to pay interest: Let us assume that the obligation became due on
1. Jan. 1, 2002,
2. tender of payment was made Jan. 1, 2003 which is the due date, and
3. consignation was made January 2, 2006 three years after the tender.
4. Thereafter the court’s decision was released January 2, 2008,
QUESTION: can the debtor be held liable from period 3 to period 4? If the
court declared the consignation to be VOID there is no question that the
debtor is liable to pay interests, on the premise that there was demand
and that demand was necessary for the debtor to incur in delay. However,
what if the court declared the consignation to be valid? Is he liable for
interest? Is he liable from period 2 to 4? Obviously he is liable because he
made the tender of payment only period number two, but from the time of
consignation to the time the declaration of decision of the court is he liable
for interest?
NO! because the effect of the declaration retroact to the time of the
delivery of the amount to the court as if the obligation was extinguished at
the time the consignation was made, therefore there will be no obligation
to pay the interest. The problem is in period of tender of payment to the
consignation, can he be made liable for payment of interest? Juridically
speaking, there is basis to the SC ruling that the debtor is still liable
because the effect of consignation will only be from the time the thing is
delivered to the court, so until the obligation is extinguished the debtor
should still be held liable for interest.
However, in the recent cases of the SC, it was held that from the time
tender of payment was made the debtor is no longer required to pay
interest, here, the law requires that if the creditor refuses acceptance, the
debtor should immediately go to court, otherwise the debtor will have no
reason to go to the court because he no longer has liability for interest.
However, in the recent ruling of the SC, it held that BY REASON OF
JUSTICE AND EQUITY, why? Because here as the consignation is valid it
means that the creditor refused to accept without just cause, if the
creditor accepted it would there be liability on the part of the debtor to pay
interest? None!
So, under the principle of justice and equity the debtor should no longer
be held liable to pay interest from the time tender of payment was made
up to the time of consignation even if the consignation was made years
after.
ATTY. URIBE: This is quite inconsistent with consignation, there is a much
better basis than justice and equity, if you remember our discussion in
period, in periods two to three the debtor is liable for interest, but when
the creditor refused to accept without just cause, is it not that he is also in
delay which is known as mora xxx so if both parties are already in delay,
following the ruling of the SC in Agcaoili v. GSIS, in contemplation of law,
no one is in delay and if no one is in delay could there be liability to pay
interest?
None. Without invoking justice and equity, this decision seems to be more
correct.
4. LOSS OF A THING DUE – Can this mode of extinguishment be invoked
in all kinds of obligations meaning obligations to do?
It does not seem like it because it says loss of the thing. If you will read
the provisions under this mode, loss of the thing due, there are provisions
pertaining to obligation to do, thus, authors would consider a better name
for this mode, instead of loss of the thing due a better name would be
Impossibility of Performance.
In impossibility of performance it would already include even obligations to
give or to deliver, in case of obligations to give it will be impossible to
perform because the thing to be delivered is lost.
a. May this mode apply to obligations to deliver generic thing?
YES. If you remember the doctrine genus non quam peruit this applies to
a scenario where the loss or destruction of anything of the same kind does
not extinguish the obligation.
EXAMPLE: there is an obligation to deliver a brand new 2009 Toyota
camry, just because the brand new Toyota camry was lost does not mean
that the obligation is extinguished under this doctrine.
GOING BACK TO THE ORIGINAL QUESTION: May an obligation to deliver a
generic thing be extinguished because the obligation became impossible to
perform? YES!
As the law would define loss it is a scenario where the thing goes out of
commerce, so if the thing went out of commerce there is nothing to
deliver. Another scenario, is when it became legally impossible to perform,
impossibility of performance may either be physical impossibility or legal
impossibility. Pesigan v. Angeles Delivery of carabao from one province to
another, along the way the carabaos were confiscated because a law
became effective during the pendency of the obligation, therefore the
obligation was considered legally impossible to perform. TAKE NOTE THAT
when the law became effective, there must already be an obligation which
will become impossible to perform because if the law became effective
before the obligation was instituted in the first place the obligation is void
and there is nothing to be extinguished.
b. Obligations to deliver a determinate thing: if the thing to be delivered
was lost or destroyed, is the obligation extinguished?
If you will read 1262 literally, it will depend on the cause of the loss. If
the cause of the loss was due to the fault of the debtor then the obligation
is not extinguished 1263 provides that if the thing is lost or destroyed
without the fault of the debtor, the obligation is extinguished, therefore, if
the loss is caused by the debtor the obligations is not extinguished.
However, Prof. Tolentino opines even if the loss is due to thefault of the
debtor, what will be delivered? None, so here, there is physical
impossibility, and therefore the obligation should be deemed to be
extinguished without prejudice to his liability to pay damages because the
loss is due to his fault. Nonetheless if you want stick with the opinion of
Tolentino you can always cite 1262 as the basis but this does not seem to
be correct.
BUT ULTIMATELY IN CASES DECIDED BY THE SUPREME COURT: As to
the thing to be delivered is lost or destroyed, what is the issue that is
always mentioned in the case, is it “won the obligation was extinguished?”
No, the ISSUE IS WHEHTER THE DEBTOR CAN BE HELD FOR DAMAGES in
other words it does not matter whether the obligation was extinguished or
not, what matters is is the debtor liable for the damages caused by the
loss of the thing. If the loss was due to his fault he is liable for damages,
otherwise he cannot be held liable for damages.
In fact Sta. Maria also take this position, Sta. Maria will not state whether
the obligation is extinguished or not, the issue that will be posted is that
whether or not the obligation to deliver a thing is converted to an
obligation to pay a sum of money. However, if this is your position, you
actually take the position that there was extinguishment. If you remember
in prescription, prescription is a mode of extinguishing an obligation
because it converts the civil obligation to natural obligation, there is a
change in the obligation therefore there is extinguishment, in the same
manner if the obligation to deliver is converted to a monetary obligation
then there is an extinguishment of an obligation.
Who has the burden of proving as to the cause of the loss?
The creditor or the one claiming that it was the debtor’s fault who caused
the loss. Reasonable, because this follows the rule that whoever alleges
the fact must prove the fact. However, in certain circumstances, the
creditor or the plaintiff may not have the burden, because the law provides
for a presumption that the cause of the loss was due to the debtor, when
will this happen? If at the time of the loss the thing is in the possession of
the debtor. But take note that the presumption is not an absolute
presumption because the debtor can always post a defense that even if
the thing was in his possession the loss was due to the fault of somebody
else. However, even if a thing is lost while in his possession is it possible
that there is no presumption that it was due to his fault?
Yes if the loss happened during a calamity or on the occasion of a
calamity. Because even if the thing was lost even if in the possession of
the debtor but it was during a calamity, more often than not, the calamity
is the cause of the loss and not the fault of the debtor, therefore the
burden again will be shifted to the creditor or plaintiff if he would claim
that the loss was caused by the debtor.
We have already discussed that even if the loss was caused during
fortuitous event that will not necessarily exempt the debtor from liability.
That may be the general rule under 1174 but there are EXCEPTIONS
APPLICABLE TO OBLIGAITONS TO DELIVER A DETERMINATE THING:
stipulation of the party that the debtor will be liable whatever may be the
cause of the loss, or may be the law provides for liability even if the loss
was caused by a fortuitous event.
Occenia v. Jobson when the performance has become so difficult as to be
manifestly beyond the contemplation of the parties, the obligor may also
be released in whole or in part. THE LAW GRANTS THE COURT THE
POWER TO RELEASE THE DEBTOR IN WHOLE OR IN PART BUT IT DID
NOT VEST THE COURT THE POWER TO CHANGE THE TERMS AND
CONDITIONS AGREED UPON BY THE PARTIES.
Requirements:
i. The performance of the obligation has become so difficult. This should
not be confused with impossible; if the obligation has become impossible
to perform then 1267 will not apply in fact as a rule the obligation will be
considered extinguished.
ii. The difficulty to perform must be due to a fortuitous event or beyond
the contemplation of the parties.
Effect of partial loss.
A scenario could be an obligation to deliver a cell phone with housing,
what if the cell phone was lost but the housing is still available, is the
obligation totally extinguished, can the debtor still be compelled to deliver
the housing? The answer depends on the intention of the parties as to
really what was the principal motivation in entering the transaction.
But is it possible that the housing is more valuable than the cell phone?
Yes it is possible for instance it has diamonds.
So if the delivery of the housing was the intention, apparently the buyer
cannot be compelled to accept the cell phone.
5. Condonation or Remission of the debt or a.k.a donation of credit – As to
the kinds of condonation:
a. Extent of extinguishment whether total or partial: Condonation may be
partial.
PARTIAL: the principal amount may not even be reduced and the creditor
will only condone the interest or the principal amount nor the interest will
not be condoned but the accessory obligations will be condoned and
therefore it will result to partial condonation.
b. Whether Condonation is express or implied: if the condonation is
EXPRESS you should consider the rules as to formalities of donation.
BAR QUESTION: The son is indebted to his father 500K, the son paid 300K
through a check, thereafter the father died, the executor demanded for
the payment of the balance 200K, the son claimed that the 200K was
condoned by his father as can be seen from the writing at the back of the
check stating that the check is for the full payment of the debt,
was there extinguishment by condonation? U.P. LAW CENTER: the effect
of the writing on the check will depend on who wrote the same, if the son
is the one who wrote the writing the obligation was not totally
extinguished, if the father was the one who wrote was there a valid
condonation?
Yes because this is a form of implied condonation and therefore the law
does not require a particular form nor acceptance is required, Do you
agree to this?
ATTY URIBE: I do not agree to this answer, I agree more to the alternative
answer that as can be seen from the facts, what could be more express
than that? How express can this be? And therefore if this is an express
condonation this has to comply to the formalities of law as to donation,
this is a donation of credit and therefore under the law, if the credit is
more than 5K, the condonation must be in writing and that there must be
acceptance in writing, so there was a condonation in writing, but there
was no acceptance in writing, hence, there was no valid condonation.
IMPLIED CONDONATION, WHEN WILL THIS HAPPEN?
If the debt is evidenced by a promissory note, and the promissory note
after having been delivered to the creditor was found in the possession of
the debtor was the obligation extinguished?
At best there was only a presumption, a presumption that the promissory
note was voluntarily returned to the debtor. If it is voluntarily returned the
effect is that the obligation is extinguished.
Then when would the presumption arise that the delivery was a voluntary
delivery?
It will only arise if the document is a private document, but if it is a public
instrument, there is no such presumption because a public document has
several copies in custody of several people. At any rate, the presumption
here is only a disputable presumption. But ultimately if it was voluntarily
returned to the debtor,
how was the obligation extinguished?
DE LEON: Not by condonation but by payment. Thus, it was voluntarily
returned because there was payment, however, if the debtor cannot prove
that payment, like for instance he does not have a receipt, maybe he can
invoke the presumption of the law that there was a condonation, but
again, the presumption is disputable.
LAST RULE: A debtor of B, a ring was delivered to B as a security,
ordinarily this will be a pledge, now, after the perfection of the pledge, the
thing again was found in the possession of A the debtor, is the obligation
of A to B extinguished?
NO! Is there a presumption that this obligation is extinguished if there is a
presumption under the law it will pertain to the pledge.
If the thing to be delivered by way of pledge is thereafter found in the
possession of the debtor there may arise a presumption that it was
voluntarily delivered and therefore the pledge was extinguished.
“PRESUMPTION MAY ARISE” because the presumption may not arise,
why? The law requires that after the perfection of the pledge, the thing
must be found in the possession of the owner of the thing pledged.
Is the debtor necessarily the owner of the thing pledged?
No because pledge may be constituted by a third person, so if it was found
in the possession of the debtor, then no presumption will arise, the
presumption of voluntarily returned if thereafter it is found in the
possession of the owner of the thing pledged. Again, this presumption is
disputable presumption, because there are hundred and one reasons why
the debtor would return the thing to the owner, one of the reasons may be
for safe keeping.
So again it is a DISPUTABLE PRESUMPTION.
6. CONFUSION OR MERGER OF RIGHTS – this mode can easily be
understood by just imagining the merger of banks in the past few years.
Now, it is common that before the merger, one of the banks is indebted to
the other banks and therefore instead of xxx the creditor may agree to just
buy the debtor bank. Obviously this is by agreement of the parties. Can
there be confusion by operation of law?
Yes if the creditor for example died and the only heir is the debtor, of
course the heir will inherit the credit, the heir now who is the debtor will
now become the creditor, therefore there will be a meeting in one person
of the character of the debtor and creditor and therefore the obligation will
be extinguished. What if the decedent is the debtor and the heir is the
creditor, will the obligation be extinguished?
It seems like it will not be extinguished because the heir will not accept the
obligation. So the creditor will normally demand from the executor
payment. Can a guarantor invoke a merger or confusion?
YES! But he may invoke merger and confusion as to the character of
debtor and creditor because if the principal obligation is extinguished then
the guaranty will also be extinguished, the guarantors will benefit with the
confusion of the character of the principal debtor and the creditor, but if
the confusion was between the guarantor and the debtor will the principal
obligation be extinguished?
NO! What will happen here is that there will no longer be security because
the debtor and the guarantor will be one.
CAN THERE BE A PARTIAL EXTINGUISHMENT IN CONFUSION OR
MERGER?
YES! By express provision of law, in joint obligations and there was a
confusion pertaining to one of the joint debtors in the person of the
creditor, the extinguishment will only be to the extent of the debt of the
joint debtor.
This is different of course if the obligation is solidary, if there is confusion
between the creditor and one of the solidary creditor the obligation is
totally extinguished.
PROBLEM: THE OBLIGATION BECAME OVERDUE IN 1992, THE
OBLIGATION IS 1M PESOS AND THERE WAS MEREGER IN 1999 BETWEEN
THE DEBTOR AND THE CREDITOR, BUT JUST LIKE ANY OTHER
AGREEMENT THE AGREEMENT MAY BE RESCINDED, AND ASSUMING
THAT THE CONTRACT WAS RESCINDED IN 2007, 2008 B FILED AN
ACTION AGAINST A TO RECOVER THE 1M, WHY?
In rescission the effect is restitution, the parties will be reverted back to
their status prior to the merger, so as if A owes B 1M, so B files an action
today against A to recover the 1M, may the action prosper?
It seems that not anymore the action already prescribed, the obligation
was due in 1992 and the action was filed only in 2008, 16 years after.
BUT THE SC HELD THAT IT YES IT WILL PROSPER, THE TIME OF THE
MERGER TO THE TIME OF RESCISSION SHOULD NOT BE INCLUDED IN
THE COMPUTATION OF THE PRESCRIPTIVE PERIOD. This a very good
decision because creditor and the debtor are one at that time. Therefore
only 8 years has lapsed so the action has not yet prescribed.
7. COMPENSATION – By express provision of law, compensation may be
total or partial. With partial compensation may there be two or ten debts
extinguished as partial compensation?
Yes, there can be two or 100 debts extinguished by compensation but it is
still partial compensation why?
As long as the debts of one are not equal to the debts of the other the
compensation will only be to the concurrent amount and there will be no
total extinguishment.
Total extinguishment will only take place when the debts are totally equal
for instance if the debt is 1M and the other is 1M. Scenario: A owes B
100K, but B has several debts to A 2K, 1K, 5K, 20K but if you add it all up
it is only 80K, with compensation, all the debts will be totally extinguished,
because the extinguishment is for the concurrent amount, the 80K will be
totally extinguished, but A would still owe B 20K, why is this so important?
This is important as to the liability to pay interest or as to whether or not
there can be valid foreclosure etc.
EXAMPLE: A obligation to B, B has obligation to A, A’s obligation is interest
bearing, after compensation can B still collect interest can A be held liable
for interest? It will depend on the amount involved, if B’s debt is smaller
may be 50K, A’s debt is 100K, can be collect interest?
Not anymore because the debt will be totally extinguished, the 100K will
be reduced by 50K to the concurrent amount. On the other hand what if
the 100K is secured by a mortgage after compensation may A foreclose
the mortgage?
Yes! because there will still be a balance of 50K, a mortgage is an
indivisible contract, until the obligation is not extinguished the mortgage
will remain in force. And therefore if B failed to pay A the fifty thousand A
can still foreclose the mortgage.
BAR EXAM QUESTION: A opened a savings account with Y bank in the
amount of 1M, thereafter A borrowed money from the same bank 800K,
thereafter A wanted to withdraw the 1M, the bank said no you cannot
withdraw the 1M because your obligation to pay the 800K is already due
we are invoking compensation, you can only withdraw 200K less the
charges, A claimed you cannot do that because under 1287 there can be
no compensation when one of the debts arises from a deposit.
WHO IS CORRECT?
The bank was correct because a savings account deposit is not a deposit it
is a contract of loan, that is why 1287 (compensation will not be proper if
one of the obligations arises from depositum) will not apply. So if both are
simple loan there can be compensation. 1287 provides that there can be
no compensation when 1 of the obligations is arises from a deposit, this is
known as, as some authors would name it, a facultative obligation.
However, other authors does not see this as independent obligation, this
is just treated as a modification of the other kinds of compensation
recognized by law which is a facultative or conventional compensation the
third one is judicial compensation the first obviously is legal compensation.
Legal compensation is considered as the xxx if the examiner does not
mention any kind of compensation he is referring to LEGAL
COMPENSATION.
Voluntary compensation: the consent of both parties is required.
In facultative: it is only the consent of one of the parties which is
required.
Judicial: this would normally happen when a case is filed for a sum of
money but what would normally happen in cases, the defendant will have
counterclaim, usually the counterclaim is bigger, so in the end the plaintiff
becomes liable on the premise that the claim of plaintiff is valid and was
granted and the court also granted the counterclaim it is compensated up
to the concurrent amount. The obligations which are not yet liquidated at
the time of the filing of the action, they can be liquidated during the
proceedings. In compensation it is also called as set off or counterclaim
but it seems that this word is proper in judicial compensation because
counterclaim is usually used in the court.
a. VOLUNTARY COMPENSATION – this is by agreement of the parties,
even if not all of the requirements for legal compensation are present it
does not matter the obligations will be extinguished by agreement of the
parties.
For example: the debts are not yet due and they want to compensate,
what can we do? The parties already agreed. Also, probably one of the
debts pertain to a carabao and the other to a car, we cannot do anything
about it. In fact in lay man’s term we call this “quits”.
b. FACULTATIVE COMPENSATION it occurs in depositum, commodatum,
gratuitous support, and civil liability arising from crime- this will arise if one
of the debts arises from a depositum, in a depositum a thing is delivered
to the depositary for safekeeping, this can happen even also with a bank.
If a person for example would deliver 1M pesos to the bank only for
safekeeping, this will be a DEPOSITUM What if A deposited 1M not as a
savings account but in the safety deposit box, and A borrowed 800K, now
if A would want to withdraw the 1M from the safety deposit box can the
bank invoke compensation?
The depositary cannot invoke compensation but the DEPOSITOR CAN!
Aside from depositum, mentioned COMMODATUM when one of the debts
arises from commodatum xxx in this obligation the thing has to be
returned upon demand however here, the bailor can invoke consignation
but not the bailee.
SUPPORT should be gratuitous support and not contractual support why?
if this is legal support, a person needs this to survive thus, it cannot be
subject to compensation. But if it is support in arrears compensation may
take place. CIVIL LIABILITY ARISING FROM CRIME – probably the
scenario here is A is indebted to B 100K when B tried to collect A cannot
be so he stabbed A, so B was held criminally liable, then there was a
monetary award, what if the award to A is 120K, if A demands for 100K
from B can B invoke compensation? NO! The convict cannot invoke
compensation but the aggrieved party can invoke compensation.
c. LEGAL COMPENSATION, THIS IS BY OPERATION BY LAW – From the
moment all the essential requisites are present compensation takes place
even without the knowledge of the parties, even before they invoke
compensation .
SCENARIO: A owes B due 1992, B owes A due in 1999, possible that it’s
both 1M based on different transaction, A filed an action against B the
defense of B is compensation, however, A may claim that no you cannot
invoke compensation because you credit has already prescribed since my
debt has become due in 1992 is A correct?
NO!!! in 1999 even without their knowledge when the debts become due
and demandable compensation took place.
REQUIREMENTS OF LEGAL COMPENSATION:
i. THEY MUST BE MUTUAL CREDITORS AND DEBTORS - but if you
have read one case and a few authors would consider this instead of
mutual they would use reciprocal creditors ATTY. URIBE: I would not
encourage you to use reciprocal creditors, if reciprocal debtors and
creditors it will imply reciprocal obligations, if it is reciprocal obligations
then this obligations arose from the same transactions if this is the case
one of the requisites for legal compensation to take place will never be
complied with.
CASE: Francia vs. IAC was there legal compensation?
NONE because in the case Francia was indebted to the city government of
pasay because of xxx however, Francia was invoking legal compensation
because he was the creditor of an expropriation proceedings, it just so
happen that the city government did not expropriate his property the
national government did since the requirement no. 1 is not present there is
no legal compensation.
CASE: PNB v. ACERO: PNB was debtor of Isabela, this is simple loan, so
PNB owed Isabela, however ACERO was the judgment debtor of isabela
who wants to have the savings of Isabela garnished, however PNB claimed
that they invoked compensation because Isabela was also their debtor,
who is correct? No claim is correct, although PNB is the debtor of Isabela,
there was no proof that Isabela is the debtor of PNB.
ii. BOTH DEBTS MUST BE IN SUMS OF MONEY OR IF THEY
PERTAIN TO GOODS THEY MUST BE OF THE SAME KIND AND
QUALITY – in other words may the obligations be both in sums of money
if they are reciprocal obligations? It cannot happen.
In reciprocal obligations there are different prestations one is delivery and
the other monetary, it can never be both sums of money. Reading several
cases it might appear that this compensation may occur only when the
obligation arise from contracts, is this correct, will there be legal
compensation only if the debt in money arose from contract?
NOT TRUE! Even if the obligation arose from other sources there can be
compensation.
In fact if you read the CASES: Mindanao Portland xxx in these two cases
the amounts which are the subject of compensation were attorney’s fees,
these fees did not arise from contract. Mindanao Portland is unlikely,
company A filed a case against company B, one of them won and the court
awarded attorney’s fees, in another case the other company won and
attorney’s fees were also awarded, so the award is of the same amount,
the obligation is of the same nature, COMPENSATION TOOK PLACE.
Ultimately the QUESTION HERE IS:
Does it mean that all monetary obligations may be the subject of legal
compensation?
No! If you have read the case of Francia v. IAC certain monetary
obligations cannot be subject of legal compensation like payment of taxes,
customs duties, tariff etc.
iii. BOTH PARTIES MUST BE PRINCIPALLY BOUND – Principally
bound because in a scenario where A is indebted to B and this obligation is
secured by a guarantor G on the other hand B is the debtor of G in this
obligation, if Gdemands payment from G Can he claim that G is also
indebted to him because he is a guarantor in B’s obligation to A?
In its face NO, because the guarantor is not principally bound but take
note the moment A defaults and his properties are already exhausted, the
GUARANTOR WILL NOW BE LIABLE TO B AND FROM THEN ON
COMPENSATION WILL TAKE PLACE.
iv. THEY MUST BE CREDITORS AND DEBTORS OF EACH OTHER IN THEIR
OWN RIGHT: SYCIP v. CA:
the owner of the shares of stocks authorized Lapuz to sell the shares of
stock, lapuz on then authorized Sycip to sell the shares of stock, the latter
was able to sell the shares of stock (5K), however, despite the demand to
Sycip to remit the proceeds of the sale he refused to do so. A complaint
for estafa was filed against Sycip, he was convicted in the lower court, on
appeal Sycip claimed that Lapuz owed him (5K) so compensation took
place, therefore he cannot be liable for estafa, is Sycip’s contention
correct?
NO, even assuming that Lapuz is indebted to Sycip, the latter is really not
indebted to Lapuz in his own right. The real creditor of Lapuz is the buyer
of the shares.
v. BOTH DEBTS MUST ALREADY BE DUE AND DEMANDABLE – The
MOST COMMON MISTAKE WHEN ASKED WHY IS THERE NO LEGAL
COMPENSATION IS BECAUSE THE OBLIGAITON HAS NOT YET
BECOME DUE AT THE SAME TIME.
REMEMBER: the requirement of the law is that both debts are due and it
is not required that the debts are due at the same time. But if one debt
became due 3 years ago and the other debt became due today,
compensation will only take place today, but there can be compensation.
ANOTHER COMMON MISTAKE: EXAMPLE: A borrowed money, the other
one bought on credit, so they are debtors and creditors of each other,
however, they say that there can be no legal compensation because the
obligations do not pertain to sums of money, one is money the other one
car. HERE THE OBLIGATION OF THE BUYER IS TO PAY THE PRICE SO IT
IS ALSO MONETARY LEGAL COMPENSATION WILL TAKE PLACE.
vi. THE DEBTS MUST BE LIQUIDATED AND DEMANDABLE – In other
words there should be no claim by a third person over this right or credit,
because if the claim is subject of legal proceeding, there can be no legal
compensation.
Example: International Corporate Bank v. IAC: Fajardo borrowed money
from ICB 50M the bank released only 20M to secure this obligation,
Fajardo mortgaged properties amounting to 110M, thereafter she also
delivered 1M to the bank for money market investment, so just like any
other investments it matured, so she demanded for the return of the 1M,
the bank claimed that she has nothing to recover from the bank because
as to her loan which she failed to pay, when the foreclosed the mortgage
she still has deficiency of 6M, so compensation took place, however
Fajardo questioned the mortgage the
SC HELD: there can be no legal compensation because one of the claims
is still being litigated.
vii. ONE OF THE DEBTS MUST NOT ARISE FROM 1287 AND 1288
Because in such cases legal compensation will not take place since in
depositum the depositor or the bailor must invoke legal compensation.
d. EFFECT OF ASSIGNMENT OF A CREDIT AS TO THE RIGHT TO INVOKE
COMPENSATION –
Scenario: A was indebted to B 50K, 30K, and 20K, B on the other hand is
indebted to A 100K, A assigned his credit to X, X demanded payment from
B, how much can X demand from B?
Questions on assignment the first thing to look at is the DATE OF
ASSIGNMENT!

If the date of assignment took place long after the deed of assignment
took place, For example: 50K June 15, 2002, 30K Oct. 15, 2002, 20K Dec.
15 2002, the 100K due November 15, 2002, if the assignment was made,
Jan. 15, 2003, how much can X demand from B?

10,000 Pesos only as of Dec. 15, 2002, compensation took place as to the
extent of 90K pesos.

PROBLEM: Let us assume the 100K obligation became due on November

15, 2002, this obligation may be assigned even in March of the same year,
so it was assigned in March 2002, if the demand was made Oct. 1, 2002,
how much can X demand from B?
NONE!!! Because the obligation is not yet due! PROBLEM: Due date,
November 15, 2002, assignment July 2002, as of November 15, the X
demanded from B, how much can B be compelled to pay?

The first factor you have to consider:

WHETHER THE ASSIGNMENT WAS WITH THE KNOWLEDGE OF B OR
WITHOUT KNOWLEDGE: IF WITH KNOWLEDGE, YOU HAVE TO
DETERMINE WHETHER OR NOT THERE WAS CONSENT TO THE
ASSIGMENT OR NONE: IF CONSENT IS GIVEN, YOU HAVE TO DETERMINE
WHETHER OR NOT HE MADE A RESERVATION OR NO RESERVATION:

(so the scenario here is A and X advised B that A is assigning the credit to
X, B consented but he reserved his right to invoke compensation)

IF B RESERVED, HOW MUCH CAN X COLLECT FROM B? ONLY 50K

BECAUSE AS OF THE DATE OF THE ASSIGNMENT WHICH WAS WITH THE
KNOWLEDGE OF B, THE DEBT IN JUNE 15 IS ALREADY DUE, AS TO
DEBTS OWING TO B WHICH ARE ALREADY DUE HE CAN INVOKE
COMPENSATION OR AT LEAST RESERVE COMPENSAITON BECAUSE
COMPENSATION WILL TAKE PLACE ONLY NOV. 15, SO AS TO 30K AND
10K B CANNOT INVOKE COMPENSATION, AT THE TIME OF ASSIGNMENT
JULY 15, THE CREDITS ARE NOT YET DUE TO HIM.

NO RESERVATION HOW MUCH CAN X DEMAND FROM B? 100K BECAUSE

BY AGREEING WITHOUT RESERVATION HE WAIVED HIS RIGHT TO
COMPENSATION, B’S REMEDY HERE IS TO DEMAND THE PAYMENT OF
THE DEBTS FROM A. WITHOUT KNOWLEDGE: X demanded from B in
December, how much can B be compelled to pay? 10K he can invoke
compensation to those debts which became due if the assignment is
without his knowledge.
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