Session 5

Application of Payment
1. Concept
a. Requisites of application of payment Art 1252(1)
b. Applicability of applications of Payments
Socony- Vacuum Corp. v Milaflores 67 Phil 304
Reparations Commission v Universal Deep-Sea Fishing Corporation A.M. No. 21901
(1978)
2. Right to make application of payment
a. Primarily belongs to debtor Art 1252(1)
Texas Company, Inc. v Marfil (C.A.) 39 O.G. 1238
Powell v National Bank 54 Phil 54
Bachrach Garage and Taxicab Co. v Golingco 39 Phil 912
Premiere Development Bank v Central Surety & Insurance Co., Inc., 579 SCRA 359 (2009)
b. If debtor fails to exercise such right
Premiere Development Bank v Central Surety & Insurance Co., Inc., 579 SCRA 359 (2009)
c. Exercise by the creditor of the right to make application of payment Art 1252
Traders Insurance & Surety v Dy Eng Giok 55 O.G. 5546
Banco de las Islas Filipinas v Espinosa (C.A.) 40 O.G. (Sup 4), 68
Sanz v Lavin Brothers 6 Phil 299
Kander v Dannug (C.A.) 43 O.G. 3176
3. Application of payment pursuant to provision of law: Art 1254
a. Debts which are more onerous to the debtor
Traders Insurance & Surety v Dy Eng Giok 55 O.G. 5546
Commonwealth v Far Eastern Surety & Insurance Company 83 Phil. 305
Hongkong Shanghai Bank v Aldanese 48 Phil. 990
Mision de San Vicente v Reyes 19 Phi. 525
Philippine National Bank v Veraguth 50 Phil. 253
Menzi & Co. v Quing Chuan G.R. No. L-46278 (1939)
4. Limitation upon debtor’s right to make application of payment Art 1253, Art 1792
Baltazar v Lingayen Gulf Electric Power Co., Inc., G.R. No. L-16236 (1965)
Magdalenda Estates, Inc. v Rodriguez G.R. No. L-18411 (1966)
In obligations to Give (Real Obligations)

1. Concept of loss in real obligations Art 1189(2), Art 1264
2. Not applicable to generic obligations
Gaisano Cagayn, Inc. v Insurance Co. of North America, G.R. No. 147839 (2006) citing Jurado
Book pp 289-290
Republic v Grijaldo 122 Phil. 1060, 1066 (1965)
De Leon v Soriano 87 Phil. 193, 196 (1950)
Bunge Corp. and Universal Comm Agencies v Elena Camenforte & Company, 91 Phil 861, 865
(1952)
Ramirez v CA 98 Phil. 225, 228 (1956)
a. Rule does not apply in case of delimited generic obligations
3. Requisites for the loss of obligation: Art 1262-1263, Art 1262(1), Art 1165(3), Art 1265
4. Presumption of fault on the part of the debtor
a. Rule Art 1265
b. When foregoing presumption not applicable Art 1265
5. When debtor is liable for the loss of thing caused by fortuitous event –
6. Rule when obligation to deliver a determinate thing arises from crime (ex delicto)
a. Rule Art 1268
b. Exception Art 1268
In Positive Personal Obligation (Obligations to Do)

1. Concept of loss in obligations to do: Art 1266, Art 1267
PNCC v CA G.R. No. 116896 (1997)
2. Art 1267, not absolute application of rebus sic stantibus
Naga Telephone Co. v CA 230 SCRA 351
Philippine National Construction Corp. v CA G.R. No. 116896 (1997)
Remedy of Creditor if Thing was Lost by Reason of Fault of Third Persons: Art 1262(1) and Art 1266, Art
1269
CONDONATION OR REMISSION OF THE DEBT
Condonation or Remission
1. Concept
a. Acceptance by the debtor is necessary
b. It must be gratuitous
Dizon v CA G.R. No. 140944 (2008) citing IV Tolentino p 353
2. Requisites for a valid condonation or remission – Art 1270, in relation to Art 752
3. Forms of condonation. Art 752
a. If made expressly
b. If made impliedly
4. Presumption of remission
a. Possession of private document of credit by debtor – Art 1272
b. Effect of such voluntary delivery – Art 1271(1) and (2)
Velasco v Masa 10 Phil. 279
c. Nature of payment
5. Remission of accessory obligation
a. Effect of remission of the principal obligation – Art 1273
b. Presumption of remission of pledge – Art 1316 and 2093, Art 1274
c. Effect of return by creditor of thing pledged – Art 2110(1) and (2)
CONFUSION OR MERGER OF RIGHTS
Confusion
1. Concept –Art 1275
2. Requisites – Art 1276
3. Confusion in joint and solidary obligations
a. In joint obligation – Art 1208 and Art 1277
b. In solidary obligation – Art 1215
COMPENSATION
1. Concept
PNB Madecor v Uy G.R. No. 129598 (2001), Art 1278
2. Kinds of compensation
a. Legal
Mavest (USA), Inc. v Sampaguita Garment Corp., G.R. No. 127454 (2005)
b. Conventional or Voluntary
c. Judicial
3. Minimum requirement of compensation
CKH Industrial and Development Corp. v CA 272 SCRA 333, 348
Legal Compensation
1. Requisites Art 1278, Art 1279
a. [R1] CKH Industrial and Development Corp. v CA 272 SCRA 333, 348
b. [R2] Art 1280
c. [R3] Art 1279(2)
d. [R4] Art 1279(3) and (4)
Silahis Marketing Corp. v IAC G.R. No. L-74027 (1989)
PNB Madecor v Uy G.R. No. 129598 (2001)
e. [R5] Art 1279(5)
PNB Madecor v Uy G.R. No. 129598 (2001)
f. Effect of Legal Compensation – Art 1290
BPI v CA 255 SCRA 571
Trinidad v Acapulco G.R. No. 147477 (2006)
Conventional or Voluntary Compensation

1. Concept
CKH Industrial and Development Corp. v CA 272 SCRA 333, Art 1282
2. Requirements of conventional compensation
CKH Industrial and Development Corp. v CA 272 SCRA 333
Tolentino (1985) p. 368
Obligations which may or may not be the subject of compensation

1. Debts which may not be the subject of compensation – Art 1287, Art 1288
Philex Mining Corp. v CIR G.R. No. 125704 (1998)
South African Airways v CIR 612 SCRA 665 (2010)
Francia v Intermediate Appellate Court 162 SCRA 753
Caltex Philippines v COA 208 SCRA 726
2. Example of debts which may be the subject of compensation – Art 1285
Serrano v Central Bank of the Philippines 96 SCRA 96
Traders Royal Bank v Radio Philippines Network, Inc. 390 SCRA 608
Associated Bank v CA 252 SCRA 620, 633
BPI v CA 216 SCRA 51, 63
BDO and Mortgage Bank v Equitable Banking Corporation 157 SCRA 188, 198
Republic Bank v Ebrada 65 SCRA 680, 687-688
Associated Bank v Tan G.R. No. 156940 (2004)
Effect of Assignment of Credit Upon Legal Compensation

1. Concept of assignment of credit
Far East Bank v Diaz Realty, Inc. 363 SCRA 659
Rodriguez v CA G.R. No. 84220 (1992) citing National Investment and Development Co. v De los
Angeles 40 SCRA 489
2. Effect if assignment is made after the requisites of compensation had taken place
3. Effect if assignment is made prior to the requisites of legal compensation taking place
a. And the assignment was made with the consent of the debtor – Art 1285(1)
b. And the assignment was made with the debtor’s knowledge but without his consent –
Art 1285(2)
c. And the assignment was made without the knowledge of the debtor – Art 1285(3)
NOVATION
1. Concept
Ajax Marketing and Development Corp. v CA., GR No. 118585 (1995)
2. Requisites of Novation
a. [R1] There must be a valid obligation – Art 1298
b. [R2] The parties concerned must agree to a new contract
c. [R3] The old contract must be extinguished
d. [R4] There must be a valid new contract
Adriatico Consortium, Inc. v Land Bank of the Philippines G.R. No. 187838 (2009) – Art
1297
3. Original obligation may be pure while new obligation may be conditional and vice versa. Art
1299 and IV Tolentino 1991 p. 397
Kinds of Novation
1. Executive and modificatory
Quinto v People of the Philippines G.R. No. 126712 (1999(
Babst v CA G.R. No. 99398 (2001)
Garcia v Llamas G.R. No. 154127 (2003)
Banate v Philippine Countryside Rural Bank (Liloan, Cebu). Inc. G.R. No. 163825 (2010)
Salazar v. J.Y. Brothers Marketing Corp., G.R. No. 171998 (2010)
a. When change is merely incidental to main obligation
Swagman Hotels and Travel, Inc. v CA G.R. No. 161135 (2005)
Quinto v People of the Philippines G.R. No. 126712 (1999)
Foundation Specialist, Inc. v Betonval Ready Concrete, Inc., G.R. No. 170674 (2009)
2. Objective (also known as real) and Subjective (also known as personal) Novations
Ajax Marketing and Development Corp. v CA., GR No. 118585 (1995), citing Cochingyan, Jr. v
R&B Surety and Insurance Co., Inc., 151 SCRA 339, 349 (1987)
Sps. Bautista v Pilar Development Corp., G.R. No. 135046 (1999)
Caneda v CA 181 SCRA 762
3. Express and Implied
Sps. Bautista v Pilar Development Corp., supra
Adriatico Consortium, Inc. v Land Bank of the Philippines G.R. No. 187838 (2009)
Young v CA G.R. No. 83271 (1991)
Novation is not presumed

1. Rule
Martinez v Cavives 25 Phil. 581, 586-597 (1913)
Tiu Suico v Habana 45 Phil 707, 713 (1924)
Goni v CA 144 SCRA 222, 232 (1986)
Art 1292
2. Rule as applied to objective and subjective novation
Ajax Marketing and Development Corp. v CA GR No. 118585 (1995)
Magdalena Estates, Inc. v Rodriguez G.R. No. L-18411 (1966)
Novation by Substitution of Debtor

1. There must be substitution of debtor
Testate Estate of Lazaro Mota v Serra G.R. No. L-22825 (1925) citing 8 manresa 424-426
2. Old debtor must be released and new debtor assumes his place
Ajax Marketing and Development Corp. v CA., GR No. 118585 (1995)
Reyes v CA G.R. No. 120817 (1996)
3. Two forms
Reyes v CA, supra
a. Expromision – Art 1293
Cortes v Venturanza G.R. No. L-26958 (1977)
Quinto v People of the Philippines, G.R. No. 126712 (1999)
b. Delagacion
Art 1293-1295
4. Creditor’s consent necessary
Art 1293-1295
Boysaw v Interphil, Inc. G.R. No. L-22590 (1987)
a. But his consent need not be given expressly.
Asia Banking Corporation v Elser 54 Phil 994 (1929)
Vda de Hijos Pio Barreto y Cia., Inc. v Albo & Sevilla, Inc. 62 Phil 593 (1935)
Babst v CA., Gr. No. 99398 (2001)
Estate of Mota v Serra 47 Phil. 464
5. Effect of expromision done without the knowledge or against the will of the debtor – Art 1293 v
Art 1236 and 1237)
6. Effect of novation by substitution of person of debtor – Art 1294 and Art 1295
Novation by Subrogation
1. Defined
Chemphil Export & Import Corp. (CEIC) v CA G.R. Nos. 112438-39, December 12, 1995
Licaros v Gatmaitan G.R. No. 142838 (2001)
2. Kinds of Subrogation – Art 1300
Licaros v Gatmaitan G.R. No. 142838 (2001)
3. Legal subrogation – art 1302
Wilson v Berkenkotter 92 Phil 918
4. Conventional subrogation
a. Requires conset of all – Art 1301
Licaros v Gatmaitan, supra
Ledonio v Capitol Development Bank. G.R. No. 149040 (2007) citing Licatos v Gatmaitan,
supra
b. Distinguished from the assignment of credit
Licaros v Gatmaitan, supra citing IV Tolentino p. 401
i. Requirement of debtor’s consent
Licaros v Gatmaitan, supra
Ledonio v Capitol Development Bank, supra
c. IV Tolentino 1991., 4-1 cited in Licaros v Gatmaitan
Ledonio v Capitol Development Bank, supra citing National Investment Corp. v Delos
Angeles 148-B Phil 452, 461
5. Effects of subrogation
a. In legal subrogation – Art 1303
b. In conventional subrogation - ibid
c. Effect of partial subrogation – art 1304
6. Effects of Extinvtive Novation Upon the Accessory Obligation

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Session 5

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Application of Payment

In obligations to Give (Real Obligations)

In Positive Personal Obligation (Obligations to Do)

CONDONATION OR REMISSION OF THE DEBT

CONFUSION OR MERGER OF RIGHTS

Conventional or Voluntary Compensation

Obligations which may or may not be the subject of compensation

Effect of Assignment of Credit Upon Legal Compensation

Novation is not presumed

Novation by Substitution of Debtor

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