Eh 401 SG Mod 4 Complete Oblicon Rev Trans

CIVIL LAW REVIEW | OBLICON TRANS | ATTY.
MBL | AY 2022-2023
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performance of the obligation. When you say payment
that will extinguish the obligation, it must be complete.
MODULE 4
EXTINGUISHMENT OF OBLIGATIONS
Completeness of payment
Payment or Performance Art. 1233. A debt shall not be understood to have

been paid unless the thing or service in which the
obligation consists has been completely delivered or
Art. 1231. Obligations are extinguished: rendered, as the case may be. (1157)
(1) By payment or performance:
(2) By the loss of the thing due:

Debt shall not be understood to have been paid unless the
(3) By the condonation or remission of the debt; thing or service in which the obligation consists has been
completely delivered or rendered as the case may be.
(4) By the confusion or merger of the rights of creditor
and debtor; Partial Fulfillment is not considered performance that
would extinguish an obligation
(5) By compensation;
(6) By novation. 1234. Substantial Performance.

Art. 1234. If the obligation has been substantially
Other causes of extinguishment of obligations, such as performed in good faith, the obligor may recover as
annulment, rescission, fulfillment of a resolutory though there had been a strict and complete fulfillment,
condition, and prescription, are governed elsewhere in less damages suffered by the obligee. (n)
this Code. (1156a)
Q: The obligation is to deliver 100 sacks of rice of a

certain type. The supplier despite all diligent efforts,
Art. 1232. Payment means not only the delivery of there was a problem to the supply chain. Instead of
money but also the performance, in any other manner, delivering 500 sacks, he was only able to deliver 400
of an obligation. (n)
sacks. Will that extinguish the obligation?
When you say payment: A: Yes. Falls under EXPN. There is substantial
1. Delivery of money performance. In this case, he was not able to deliver the
2. Performance in any other manner of an obligation sacks of rice due to circumstances which are out of his
Covers both personal and real obligation control.
Q: Do you consider it as payment if the obligation is TN: While it may extinguish his obligation, the other
to give 500,000 and the debtor pays 300,000. Is that party who will be paying will also not be obliged to pay
already payment? for the full amount because he only gets 400 sacks of
rice. He can also be paid but less damages that will be
A: No because for there to be payment, there must be the suffered by the obligee. The damages referred
delivery of the thing or there must be a complete
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CIVIL LAW REVIEW | OBLICON TRANS | ATTY. MBL | AY 2022-2023
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corresponds to that portion that was not delivered not 1236. Right to refuse payment or performance by 3rd
damages due to delay or bad faith. party.
Art. 1236. The creditor is not bound to accept payment
1235. Waiver and estoppel. or performance by a third person who has no interest in
Art. 1235. When the obligee accepts the performance, the fulfillment of the obligation, unless there is a
knowing its incompleteness or irregularity, and without stipulation to the contrary.
expressing any protest or objection, the obligation is
deemed fully complied with. (n) 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
Example: There was someone who was hired to paint the recover only insofar as the payment has been
house white. After it was painted, what came out was beneficial to the debtor. (1158a)
cream (not white). Owner of the house still paid and
accepted the house as it is. Will it extinguish the Q: Debtor has debt of 500,000 but he only has
obligation of the painter of the house. 300,000.
TN: If obligee accepted it but was unaware of its
incompleteness or irregularity, he can still go the obligor GR: He cannot compel the creditor to accept payment
and ask him to rectify the irregularity or the because it’s not complete
incompleteness. Is there anything stopping the creditor from accepting
partial payment? None.
In our example, the owner of the house knew of it’s 1236 talks about payment made by a third person.
irregularity because what was agreed upon was that it
should be painted cream. He still accepted it without Who are we referring to when we say 3rd persons
protest or objection. The obligation of the painter is without interest in the obligation?
deemed full complied with. They would not be benefited from the extinguishment of
an obligation.
What does your 1233, 1234 and 1235 tell you?
Complete strangers
GR: payment must be complete to extinguish the ● Not part of the principal contract
obligations ● Not part of subsidiary contract whose existence
will depend on the principal contract
EXPN: 1234 & 1235
1. Substantial compliance in good faith What would happen if your 3rd person who is not
2. Creditor knowingly accepts irregularity or interested in the fulfillment of the obligation will pay
incompleteness without objection the creditor and the creditor would accept?
Requisites for irregular or incomplete performance Ask: What will be the 3rd person’s rights against the
1. Obligee accepts incomplete payment debtor? It will depend if the 3rd person paid:
2. Obligee knows its incompleteness 1. without knowledge or against the will of debtor
3. Obligee did not register his objection 2. With the consent of debtor
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D is indebted to C for Php 500,000.00 and D also
With knowledge & Without knowledge or
consent of debtor consent previously paid Php 100,000.00 to C. T, the third person,
pays the creditor Php 500,000.00 without the knowledge
3rd person entitled to full Beneficial reimbursement of the debtor.
reimbursement
Q: What are the rights of T, the third person?
Subrogation to the rights
of the creditor
A: T can ask for the reimbursement of Php 400,000.00
from D - because that is only the extent that D was
Example: D (Debtor) and C (Creditor) and Third
benefitted.
Person T.
The Php 100,000.00 balance may then be asked by T
If D is indebted to C for 500,000 and then T who is not
from C based on undue payment because C had already
interested in the obligation pays the 500,000 to C. He
received Php 500,000.00 in payment.
does so with the consent of the debtor.
Discussion: This time, the third person can only have
Rights of T (Third Person): Full reimbursement and
beneficial reimbursement.
subrogation. This means that if the debt of the debtor to
the creditor was secured by a mortgage then if the debtor
Since the payment only benefitted the debtor up to Php
cannot pay the 3rd person who has paid his debt, 3rd
400,000.00, that is only what he can collect from the
person can foreclose the mortgage.
debtor.
Example: T paid 500k to C with consent D

Thus, while there is overpayment, you do not bother the
If D is indebted to C 500,000 but previously D already
debtor anymore because the third person paid it without
paid C 100,000. T paid with consent of D, paid 500,000.
his knowledge or consent. So, the third person has to
collect the overpayment from the creditor.
Rights of T (against D): T can ask for the full
reimbursement of the 500,000 even if the payment
Of course, there is no subrogation.
benefited D only up to the extent of 400,000. This is
because the payment was made with the consent of D
Summary of Payment by a Third Person & His
(Debtor) T has the right of subrogation.
Rights: If there is payment by a third person who is not
interested in the fulfillment of the obligation, and such is
Where will the debtor get the 100,000 over-payment?
paid:
D can get it from C.

(1) WITH THE KNOWLEDGE & CONSENT OF
THE DEBTOR: full reimbursement + subrogation
Illustration
(2) WITHOUT THE KNOWLEDGE & CONSENT
OF THE DEBTOR: beneficial reimbursement
Now, supposing - same amount of debt:
Article 1237. Whoever pays on behalf of the debtor

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Even if at the start he may have intended not to be
without the knowledge or against the will of the latter,
cannot compel the creditor to subrogate him in his reimbursed, but because the debtor did not give his
rights, such as those arising from a mortgage, guaranty, consent, third person can actually ask for beneficial
or penalty. reimbursement because there was no valid donation.
Discussion: Article 1237 is on subrogation - if payment Who may pay the obligation?
is made without the knowledge or against the will of the 1. Debtor himself
debtor, then there can be no subrogation. 2. Legal representative
3. Any third party
● A creditor cannot be compelled to accept from
Article 1238. Payment made by a third person who 3rd person
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 GR: Cannot be compelled to accept payment from 3rd
creditor who has accepted it. person
EXPN:
1. If the third person has an interest in the fulfillment of
Illustration
the obligation.
● A guarantor or a surety can compel creditor to
Supposing this third person who pays the creditor does
accept payment
not actually intend to be reimbursed. In other words, he
2. If stipulated by parties that creditor must accept
wants to donate.
payment from a third person even if third person is not
interested in the fulfillment of the obligation
Q: When can it be considered as a valid donation?
Illustration:
A: It will be considered a valid donation only when the
A is indebted to B for 500,000. C a 3rd person not
debtor consents to the donation.
interested in the fulfillment of the obligation pays B
500,000. A previously paid B 250,000. What are the
Note: This is the same principle as the one in Property
rights of C if he paid with the knowledge of A?
where the donation is only valid when accepted by the
donee.
A: Full reimbursement, plus subrogation
Q: What is the implication of “but the payment is in any
Q: There is an overpayment of 250,000? Who will
case valid as to the creditor who has accepted it”?
collect from whom?
A (debtor) will collect it from B(creditor)
A: The implication is that if the third person pays the
creditor, and the debtor has not given his consent - even
What if C has paid against the will of A? What are
if, initially, the third person meant it as a donation or
the rights of C?
intended not to be reimbursed, he can actually claim
A: C will only get beneficial reimbursement so, he may
beneficial reimbursement (since the debtor did not
only get 250,000 from A. C (third person) will have to go
consent = not considered a valid donation).
after B(creditor) for the other 250,000.
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Payment by an incapacitated person
1241. Payment to a person who is incapacitated to
1239. In obligations to give, payment made by one administer his property shall be valid if he has kept the
who does not have the free disposal of the thing due thing delivered, or insofar as the payment has been
and capacity to alienate it shall not be valid, without beneficial to him.
prejudice to the provisions of Article 1427 under the Payment made to a third person shall also be valid
Title on "Natural Obligations." insofar as it has redounded to the benefit of the
creditor. Such benefit to the creditor need not be
proved in the following cases:
GR: Payment is invalid. (1) If after the payment, the third person acquires the
creditor's rights;
Meaning: (2) If the creditor ratifies the payment to the third
● If the person paying has no capacity to pay person;
(unemancipated minor or an insane person) or (3) If by the creditor's conduct, the debtor has been led
you do not have to have free disposal of thing to believe that the third person had authority to receive
due (you do not yet own the thing) payment is the payment. (1163a)
invalid.
● The creditor cannot be compelled to accept the If you pay to unauthorized persons, how will the
payment payment be treated?
Example: GR: Invalid

Obligation is to deliver a specific car but you do not own EXPN: Valid if:
the car yet. Any payment therefore is not valid because A. Redounded to benefit of creditor
you do not have the capacity to alienate the car. B. Payment was made to the possessor of the credit
provided that it was made in good faith
Payment; to whom made. C. Also valid if unauthorized person:
D. Kept the thing delivered
1240. Payment shall be made to the person in whose
E. Insofar as payment was beneficial to him
favor the obligation has been constituted, or his
successor in interest, or any person authorized to
EXAMPLE:
receive it
1. 1M paid to minor who deposited it or kept it in a safe,
that is considered VALID.
2. 500,000 was spent on basic necessities. But he
To whom must payment be made? squandered the other 500,000. It is valid only to the
1. It must be made to the person in whose favor the extend as to the 500,000 which was beneficial to him.
obligation has been constituted (creditor at the time of
payment, not the original creditor) 2nd par. EXPN to GR
2. Successor-in-interest
3. Person authorized to receive it (by agreement/ by law) 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:
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● Creditor who received payment may be asked by
(1) If after the payment, the third person acquires the
the court to return the payment to the debtor
creditor's rights;
●
(2) If the creditor ratifies the payment to the third
Reason why court may ask debtor not to make any
person;
payments:
(3) If by the creditor's conduct, the debtor has been led
● So court can determine who else is the creditor
to believe that the third person had authority to receive
of this insolvent debtor and may able to fairly
the payment.
distribute whatever assets that are left with the
debtor.
You have to prove that it has redounded to the benefit
of the creditor. It cannot be allowed that the debtor would prioritize C in
our example because there may be other creditors whose
Instances debtor need not prove that it redounded to debts were due prior to C.
the benefit of the creditor:
(1) If after the payment, the third person acquires the

Article 1244. The debtor of a thing cannot
creditor's rights;
compel the creditor to receive a different one,
● you may have paid to unauthorized person but
although the latter may be of the same value
then after he received the payment, creditor
as, or more valuable than that which is due.
assigned the credit to him.
(Applies to specific things)
(2) If the creditor ratifies the payment to the third person;
(3) If by the creditor's conduct, the debtor has been led to
In obligations to do or not to do, an act or
believe that the third person had authority to receive the
forbearance cannot be substituted by another
payment.
act or forbearance against the obligee's will.
● Estoppel
Q: Supposing debtor obliged himself to deliver a specific

Art. 1242. Payment made in good faith to any person
necklace worth 50,000. The creditor has already seen the
in possession of the credit shall release the debtor.
necklace to be delivered. The debtor on due date and
upon demand of the creditor is now telling creditor that
Art. 1243. Payment made to the creditor by the debtor he will deliver another one but not to worry because the
after the latter has been judicially ordered to retain the necklace is worth the same price of 50,000. Can the
debt shall not be valid. debtor compel the debtor to receive of this other
necklace?
Debtor is indebted to creditor. But there was already A: NO. If what was agreed is a specific thing, even if the
insolvency proceedings against debtor; the debtor other necklace is of the same value or even of more
having several debts, one among which is in favor of value, the creditor cannot be compelled to accept it
C. The court has already ordered the debtor not to because it was not what was not agreed upon.
make any payments. Despite order, debtor still paid
C. What happens to the payment?
● Invalid
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Q: If you were hired to sing at a party, you cannot go to Atty: The transfer of the ownership of a thing by debtor
the party and say I will not sing, I will just dance for the as an accepted equivalent of the performance of the
same price. Is this allowed? obligation
A: No, this is not allowed under the 2 nd paragraph of Example:

Article 1244. This was not what was agreed upon by the The debtor is indebted in the amount of 1.5M. Instead of
parties. paying 1.5M, debtor delivers a brand
new car worth 1.5M.
TN: For real obligations, for 1244 to apply, it has to be
specific. The debtor, without the creditor’s consent Why will the law on sales govern?
cannot simply change it. It is like a sale. It’s like the creditor paid for the car.
GR: A debtor cannot fulfill his obligation by delivering a

thing different from that which is due, even if that other
Dation in Payment Sale
thing is of the same or greater value.
Pre-existing debt No pre-existing debt
EXPN: Dation in payment.
This is when the creditor accepts the delivery or
Extinguishes obligations Give rise to obligations
substitution. It shall give the same effect as fulfillment or
performance of the obligation.
Cause or consideration is Cause or consideration is
1245. Dation in payment. Dation in payment, extinguishment of debt price and obtaining of
whereby property is alienated to the creditor and acquisition of the object
object offered in credit
in satisfaction of a debt in money, shall be
governed by the law of sales. Less freedom in Greater freedom in
determining the price determination of price
(because pre-existing)
Dation in Payment
Mode of extinguishing an obligation whereby the debtor Giving of object in lieu of Giving the price generally
alienates in favor of the creditor property for the credit may extinguish ends the obligation of the
satisfaction of monetary debt completely or only buyer
· Governed by Law of Sales partially the credit
TN: ONLY DEBTS IN MONEY For there to be dation, does the debtor need to be
insolvent? No need. It only needs an agreement between
Requisites: debtor and creditor. If creditor accepts the payment in a
1. Creditor consents different prestation, that’s fine.
2. Will not prejudice other creditors
3. Debtor is not judicially declared insolvent Recap: When the obligation is to deliver a specific thing,
the debtor cannot compel the creditor to accept anything
else.
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What if the obligation is to give a generic
1247. Unless it is otherwise stipulated, the extrajudicial
thing? expenses required by the payment shall be for the
1246. When the obligation consists in the delivery of account of the debtor. With regard to judicial costs, the
Rules of Court shall govern.
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 GR: Debtor pays for extrajudicial expenses incurred
of the obligation and other circumstances shall be during payment.
taken into consideration.
EXPN: Stipulation to the contrary
Remember: If generic, not segregated from a class. Reason: debtor is the one who primarily benefits as his
obligation is extinguished
Example:
The obligation of A to B is to deliver a car. Judicial costs:
GR: Winning party
Rules: (1246) When quality and circumstances not
stated: EXPN: courts shall have the power for special reasons to
GR: creditor cannot demand a thing of superior quality adjudge that either party shall pay the costs or that the
EXPN: creditor may demand and accept one of inferior same may be divided as may be equitable.
quality.
GR: Debtor cannot deliver a thing of inferior quality 1248. Unless there is an express stipulation to that
EXPN: Debtor may deliver one of superior quality as effect, the creditor cannot be compelled partially to
receive the prestations in which the obligation consists.
longs as not different kind.
Neither may the debtor be required to make partial
payments.
Example:
Debtor delivers one of inferior quality, accepted by However, when the debt is in part liquidated and in
creditor, no problem. part unliquidated, the creditor may demand and the
Creditor demanded superior quality; debtor delivered. No debtor may effect the payment of the former without
problem waiting for the liquidation of the latter
VOID if:
Kind and quantity cannot be determined without need of GR: Creditor cannot be compelled to accept partial
a new agreement payment nor can the debtor be required to make partial
● Object of contract must be determinate as to its payments.
kind
● Fact that quantity is not determined shall not be EXPN:
an obstacle provided it is possible to determine 1. Stipulation to the contrary (they agree that they can
the same without a new obligation make or accept partial payments)
2. When the debt is in part liquidated and in part
Who shall bear Extrajudicial Expenses? unliquidated, the creditor may demand and the debtor
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may effect the payment of the liquidated part without
waiting for the liquidation of the latter. If you agreed on payment in US dollars then you have to
a. Example: Debtor promised to pay creditor pay in US dollars.
15,000 rental payment plus 20% of his sales for If not stipulated as to what currency
the month - Use Philippine peso because that is the legal tender here
b. In practice, rent, for example the agreement in the PH
must be made every 5th of the month. If the
monthly rental is 15,000 + 20% of the sales of Q: Supposing you pay in check the total amount of the
the month, come Sep.5, the debtor/lessee will debt, is that already considered as payment that will
have to pay the 15000. Your creditor can demand extinguish the obligation?
partial payment of 15,000 because the 20% of
sales is still unliquidated. Why? Because A: Not yet. It shall only produce the effect of payment
September is not yet over. when:
3. Obligation has different prestations subject to different 1. Cashed/cleared upon deposit; or
conditions (installments) 2. When impaired through creditor’s fault
a. Solidary obligation
i. A B C solidary debtors to X for 120k. In their Even if you pay in check or promissory notes, these
agreement: are just negotiable instruments; delivery of such is not
1. A will pay on Jan. 05, 2023 payment that will extinguish the obligation.
2. B will pay if he passes the 2022 bar exam
3. C will pay if his only dog dies During the time being, while the delivery of the check is
made up to the time it is encashed, the action derived
Legal Tender. from the original obligation shall be held in abeyance.
Art 1249. The payment of debts in money shall be
made in the currency stipulated, and if it is not possible IOW, during that period, the obligation will subsist;
to deliver such currency, then in the currency which is extinguished only upon encashment/clearing upon
legal tender in the Philippines deposit.
.
The delivery of promissory notes payable to order, or Effect:
bills of exchange or other mercantile documents shall
produce the effect of payment only when they have From the time the check is Obligation subsists
been cashed, or when through the fault of the creditor delivered to the time that
they have been impaired. it is encashed
In the meantime, the action derived from the original
obligation shall be held in the abeyance Once it is encashed or if Obligation is extinguished
deposited, when it clears
(the amount is added to
Payment of debts in money shall be made in the your account)
currency stipulated.
Extraordinary inflation or deflation.

EXPN: If it is not possible to deliver such currency, pay
with currency that is legal tender in the Philippines Article 1250. In case an extraordinary inflation or
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deflation of the currency stipulated should supervene,
the value of the currency at the time of the payment shall be made wherever the thing might be at
establishment of the obligation shall be the basis of the moment the obligation was constituted.
payment, unless there is an agreement to the contrary.
In any other case the place of payment shall be the
domicile of the debtor.
Extraordinary inflation or deflation of stipulated
currency If the debtor changes his domicile in bad faith or after
he has incurred in delay, the additional expenses shall
be borne by him.
GR: Value of the currency at the time of the
establishment of the obligation. These provisions are without prejudice to venue under
the Rules of Court.
XPN: Unless there is an agreement to the contrary.
GR: Payment shall be made at the place agreed upon
Reason: That was the value of the money when it was
transacted on.
If no express stipulation & undertaking is to deliver a
determinate thing
Illustration: A borrowed $100,000 from B and at the
● Payment made where the thing was located at the
time it was borrowed, $1 was equal to PHP45. There was
moment the obligation was made
extraordinary inflation and now the dollar is at PHP54.
Any other case (generic thing):
If there is no agreement, then the equivalent A must pay
● Domicile of the debtor
is PHP45 per $1 which was the equivalent when they
● If debtor changes domicile in bad faith or after
entered into the obligation.
incurring delay:
o Additional expenses borne by him
However, if A and B stipulated otherwise, then A must
Without prejudice to venue under ROC
pay PHP54 per $1.
Application of payment
TN: Art 1250 applies when there is no stipulation.
Applicability 1252. He who has various debts of the same kind in

favor of one and the same creditor, may declare at the
Contractual obligations Applicable time of making the payment, to which of them the
same must be applied. Unless the parties so stipulate,
Obligations arising from Not applicable or when the application of payment is made by the
torts party for whose benefit the term has been constituted,
application shall not be made as to debts which are not
Where payment is to be made yet due.
Article 1251. Payment shall be made in the place If the debtor accepts from the creditor a receipt in
designated in the obligation. which an application of the payment is made, the
former cannot complain of the same, unless there is a
There being no express stipulation and if the cause for invalidating the contract.
undertaking is to deliver a determinate thing, the
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What is application of payment?
proportionately.
A: Not a mode of extinguishment of obligation. It just
tells you which debt is paid first if there are multiple
debts. It is the designation of the debts to which the
Successive
payment should be applied when the debtor has
1. Apply to that designated by debtor
several obligations of the same kind in favor of the
a. In our example earlier, the debtor can designate
same creditor.
by saying “I am fully paying the 45,000 and
partially paying the 500,000. If the creditor
Requisites for the application of payment
accepts the partial payment, it’s fine.
1. One debtor & one creditor
2. Severalty of debts (2 or more debts)
2. If debtor does not make designation, creditor
3. Same kind
makes designation by stating in a receipt which debt
a. If debt in money, all the debts must be
is being paid.
in money
4. All debts must be due
3. If neither the debtor nor creditor makes the
a. There being no date, due and
designation, apply payment by operation of law.
demandable at once
a. Pay more onerous obligation
5. Payment shall not be enough to extinguish all debts
b. If equally burdensome/onerous: apply
proportionately (pro rata)
EXAMPLE:
A is indebted to B, 500,000.
Example:
A is also indebted to B for 45,000.
- 45,000 is with a pledge
No date so demandable at once.
- 500,000 is unsecured
If the facts will tell you that he only paid 400,000 to B.
- Neither Debtor nor creditor designates
That is the last requisite for application of payment
- How do you apply the 400,000?
where the payment that he (debtor) made was not
sufficient to cover all the debts.
A: apply first to 45,000 with a pledge because it the more
burdensome. (because it is secured)
Recap: Application of payment is designation of which
payment must be paid
Question: 45,000 is with a pledge. 500,000 is
unsecured. Neither Debtor nor creditor designates.
How do you apply the 400,000?
ORDER OF PAYMENT
A: Apply first to 45,000 with a pledge because it is more

1254. When the payment cannot be applied in burdensome. (because it is secured)
accordance with the preceding rules, or if application
can not be inferred from other circumstances, the debt
Q: If both the 45,000 and 500,000 are both secured by
which is most onerous to the debtor, among those due,
shall be deemed to have been satisfied. mortgages, how do you apply the 400,000?
If the debts due are of the same nature and burden, the A: Apply proportionately because they are equally
payment shall be applied to all of them burdensome.
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TN: Example:
● Pay more onerous obligation - A indebted to B for 500,000
● If equally burdensome/onerous: apply - Another debt for 45,000
proportionately (pro rata) - Both debts due and demandable
● The amount will matter if it has interest. If the - A only paid B 40,000
debts have the same amount of interest but the - A did not designate
other debt has a larger amount then the larger - B did not specify in the receipt
amount is more burdensome because the interest
is based on a larger amount. Proportionate because equally burdensome
Apply pro rata:
Q: Debt has interest, the debtor does not designate which
he is paying first, the principal or interest. Total: 545,000
Interest must be paid first. 1st debt: 500,000 / 545,000=91.74%

91.74 % × 40,000=36,697.24
1253. If the debt produces interest, payment of the
principal shall not be deemed to have been made until
2nd debt: 40,000−36,697.24 = 3,302.75
the interests have been covered.
Long method: 45,000 / 545,000 × 40,0000 = 3 ,302.75
Order of Payment. IOW: 1st debt divided by total debt multiplied by

payment
1254. When the payment cannot be applied in
accordance with the preceding rules, or if application
2nd debt: payment minus proportion for first debt
can not be inferred from other circumstances, the debt
which is most onerous to the debtor, among those due,
Q: What is cession?
shall be deemed to have been satisfied.
If the debts due are of the same nature and burden, the 1255. The debtor may cede or assign his property to
payment shall be applied to all of them his creditors in payment of his debts. This cession,
proportionately. unless there is stipulation to the contrary, shall only
release the debtor from responsibility for the net
proceeds of the thing assigned. The agreements which,
Example: on the effect of the cession, are made between the
- A is indebted to B for 500,000. debtor and his creditors shall be governed by special
- Another debt of 45,000 (interest-bearing) laws
- Both due and demandable
- A pays only 40,000
A: A special form of payment where debtor abandons all
If A did not designate and B did not specify in receipt, of his properties for the benefit of his creditors in order
Apply first to 2nd debt because more onerous
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12
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that from the proceeds thereof, the creditors may obtain
payment of their credits.
Requisites:
1. More than one debt TENDER OF PAYMENT AND CONSIGNATION
2. More than one creditor
3. Complete or partial insolvency Tender of payment - act of offering the creditor what is
a. Assets not enough to cover his debts due to him w/ a demand that the creditor accept it
4. Abandonment of all debtor’s property not
exempt Consignation – act of depositing thing due w/ the court
5. Creditor accepts the cession made by debtor when creditor cannot/refuses acceptance of payment
Cession v. Dation in Payment MBL: Tender of payment is when the debtor offers the
payment to the creditor. So that the debtor may deposit
the thing which is the object of the obligation. And you
Cession Dation in consign it in court, but you have to follow the
Payment requisites/rules before a valid consignation take place.
Properties Generally all Not all Requisites of a Valid Consignation

affected
1. Valid Obligation
2. Tender of payment that was unjustifiably refused
3. Previous notice of consignation to all parties who
Plurality Requires more Can be one
are interested in the fulfillment of the obligation
than on creditor creditor 4. Actual consignation
5. Subsequent notice of consignation
consent All must consent Specific or GR: Before you consign, tender payment first.
concerned
creditor must EXPN: You may directly proceed with consignation
consent even without tender of payment.
Insolvency Requires full Even if solvent

insolvency (essentially a
novation)
Ownership Merely assigns; Ownership

abandons right transferred upon
to dispose delivery
Novation No Yes
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4. When two or more persons claim the same right to
Art. 1256. If the creditor to whom tender of
collect
payment has been made refuses without just cause to
accept it, the debtor shall be released from
If you are a lessee and 2 people are collecting from you.
responsibility by the consignation of the thing or
You do not know who the actual lessor is because both
sum due.
persons are claiming that they are owners. You want your
Consignation alone shall produce the same effect in
rents to be paid, you don’t want to be incurring penalties.
the following cases:
You can consign rent in court.
(1) When the creditor is absent or unknown, or does OR you can file an interpleader so the 2 can litigate
not appear at the place of payment; between themselves. For you to extinguish your
obligation, even if you already have an interpleader, you
(2) When he is incapacitated to receive the payment still have to consign the thing in court.
at the time it is due;
(3) When, without just cause, he refuses to give a

5. When the title of the obligation has been lost.
receipt;
(4) When two or more persons claim the same right Illustration:
to collect;
Creditor has already assigned his credit to some other
(5) When the title of the obligation has been lost. person but at the moment you don’t know who. The title
of that creditor has been lost yet you don’t know who to
tender it to. Art. 1256 to extinguish obligation, you have
to consign the thing in court.
EXCEPTIONS:
1. When the creditor is absent or unknown, or does Art. 1256. If the creditor to whom tender of payment
not appear at the place of payment; has been made refuses without just cause to accept it,
You cannot make a tender of payment when you do not the debtor shall be released from responsibility by the
know where the creditor is. consignation of the thing or sum due.
2. When he is incapacitated to receive the payment at
the time it is due Consignation alone shall produce the same effect in the
following cases:
Ex. at the time the obligation was due the creditor was in (1) When the creditor is absent or unknown, or does
a coma, so he could not accept payment. If the debtor not appear at the place of payment;
wants to extinguish his obligation may consign the thing (2) When he is incapacitated to receive the payment at
in court.
the time it is due;
3. When, without just cause, he refuses to give a (3) When, without just cause, he refuses to give a
receipt receipt;
(4) When two or more persons claim the same right to
This actually tells you that there was a tender of collect;
payment. It was accepted initially but the creditor will (5) When the title of the obligation has been lost.
not give you proof that you have paid. It is the debtor’s
(1176a)
right to have proof of payment. ·To be safe, your debtor
can consign the thing in court.
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14
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TN: inform the parties that you already deposited the
thing in court.
Art. 1257. In order that the consignation of the thing
due may release the obligor, it must first be announced
Remember, there must be tender of payment, as a
to the persons interested in the fulfillment of the
general rule.
obligation.
Your tender of payment, as the debtor, could either be

The consignation shall be ineffectual if it is not made
accepted, then no problem; or it could be rejected.
strictly in consonance with the provisions which
regulate payment. (1177)
BUT, there may be reasons for rejecting the tender of
payment, it could be based on justifiable reasons:
Art. 1258. Consignation shall be made by depositing
the things due at the disposal of judicial authority,
1. Payment was made by a third person who is
before whom the tender of payment shall be proved, in
not authorized and the creditor wishes not to
a proper case, and the announcement of the
accept the tender of payment; or
consignation in other cases.
2. Payment of a different prestation other than
that which is promised; or
The consignation having been made, the interested
3. Partial payment – since you cannot compel
parties shall also be notified thereof. (1178)
the creditor to accept partial payment; or
4. When it is not a legal tender; or
5. When payment is premature.
1. Requisites of a Valid Consignation
Requisites of a Valid Consignation The tender of payment here, if refused, based on the
above grounds, it is justifiable. Meaning, you cannot
1. Valid obligation that is due – prove that there is
consign the thing in court.
a debtor/creditor relationship
If you do, it will be found that it was not made validly or

2. Tender of payment – not just the offer to pay,
it was not a proper consignation.
you will also have to be bringing the thing object
of the obligation and really offering it. Not
OTOH, the rejection of the offer could be
enough that there was intent without bringing the
UNJUSTIFIABLE. REMEDY OF THE DEBTOR:
prestation.
- Consignation is the remedy of the debtor.
(Recall requisites of a valid consignation)
3. Previous notice of consignation – to give
creditor the chance to change his mind because
in the end, he is the one who will shoulder all the ART. 1259. The expenses of consignation, when
expenses if the consignation was proper. If no properly made, shall be charged against the creditor.
previous notice, consignation is not valid. (1178)
4. Subsequent notice of consignation.

ART. 1259, if it is found that the consignation was
proper then it shall be charged against the creditor. Why?
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15
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- Had the creditor accepted the tender of
creditor should authorize the debtor to withdraw the
payment and he did not unjustifiably refused
same, he shall lose every preference which he may
it, then there would have been no need to
have over the thing. The co-debtors, guarantors and
consign in court and spend for consignation.
sureties shall be released. (1181a)
So, it will be charged to the creditor.
1261 is different from 1260, in the latter, the debtor

ART. 1260. Once the consignation has been duly
voluntarily withdrew the thing deposited. However, here,
made, the debtor may ask the judge to order the
it is the creditor authorizing the debtor to withdraw.
cancellation of the obligation.
Consequence is the same
Before the creditor has accepted the consignation, or
before a judicial declaration that the consignation has
This is different from Article 1260. because in Article
been properly made, the debtor may withdraw the thing
1260, the debtor voluntarily withdrew the thing
or the sum deposited, allowing the obligation to remain
deposited. But here, it's the creditor authorizing that
in force. (1180)
debtor to withdraw.
Once the consignment has been made that the prayer now Yes, the consequence is the same which is one the
of the debtor to the court would be to declare the obligation will continue.
obligation to be extinguished, to cancel the obligation.
Q: But there is another consequence on the part of the
Illustration creditor and what is that?
If you make a pleading in court, you file a complaint for A: The creditor will now lose every preference over
consignation then the prayer would be that you want the that particular thing because it would have been paid to
obligation to be extinguished. him had he accepted it, but he did not. And so if the
debtor has other creditors, the other creditors can now
2nd par. Of Art. 1260 make an attachment on that particular property. So that's
Before the creditor has accepted the consignation, or another consequence.
before a judicial declaration that the consignation has
been properly made x x x Another consequence also, is that the co-debtor,
guarantors, and sureties are released from liability.
During pendency of the proceedings, the debtor MAY
withdraw the thing deposited.
Montecillo v. Reynes
Consequence:
- The obligation is not extinguished. The
Facts: Reynes signed a Deed of Sale with Montecillo
obligation will remain and continue to
with an agreement that the purchase price be paid
subsist.
within a month. However, Montecillo failed to pay.
Reynes unilaterally revoked the same. Reynes then
ART. 1261. If, the consignation having been made, the sold the entire lot to spouses Abucay.
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16
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BPI v. Court of Appeals
Both Reynes and Spouses Abucay argued that the (G.R. No. 104612, May 10, 1994)
Deed of Sale was void since there was no meeting of
minds for lack of consideration. However, Montecillo Facts: Respondents (Eastern and Lim) held one joint
argued that he made his payments to Cebu Ice Storage bank account with CBTC which was opened by
to release the chattel mortgage which was then Velasco.
constituted as lien to the Lot.
When Velasco died, an Indemnity Undertaking was
Issue: Whether or not there was a valid payment to executed by Lim wherein 1/2 of the outstanding
Cebu Ice Storage? balance was provisionally released and transferred to
one of the bank accounts of Eastern with CBTC.
Ruling:
No. In Article 1240 of NCC, payment shall be made to Eastern obtained a loan from CBTC as “Additional
the person in whose favor the obligation was Working Capital” and was payable on demand with
constituted, successors-in-interest, or any person 14% per annum interest. For this loan, respondent
authorized to receive it. issued a negotiable promissory note (P73,000.00
payable on demand). No reference to any security for
In this case, Montecillo failed to show any evidence the loan appears on the note.
that Reynes agreed, either verbally or in writing, to pay
the P50K to Cebu Ice Storage. The SC ruled that the A case for the settlement of Velasco's estate was filed
payment is not considered a proper payment that in which the whole balance in the joint account of
would extinguish his obligation to Reynes. And Velasco and Lim was being claimed as part of
because Reynes was not a party nor a privy to the Velasco's estate. The intestate court granted the motion
contract of Cebu Ice Storage which was the mortgage of the heirs of Velasco to withdraw the deposit.
debt paid by Montecillo.
When CBTC was merged with BPI, BPI filed a
complaint against Lim and Eastern demanding
For the payment to be valid it must be paid to the person
payment of the promissory note.
in whose favor the obligation was constituted (the
creditor), or to his authorized representative, or to his
Respondents filed a counterclaim against BPI for the
successor-in-interest.
return of the balance in the disputed account and the
interest thereon.
Here, payment to Cebu Ice Storage - who was not the
creditor and who had no authority whatsoever granting
Issues:
authority to Cebu Ice Storage the acceptance of any
payment.
(1) W/N BPI can demand payment of the loan of
P73,000.00. (yes)
The Supreme Court said that there was no proof saying
that Cebu Ice Storage had any authority (audio got
(2) W/N BPI is still liable to the private respondents
choppy here), and so the payment was NOT considered
after its withdrawal by the heirs of Velasco. (yes)
as valid.
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17
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Ruling: other than those in whose favor the obligation was
constituted or whose right or authority to receive
(1) BPI can demand payment of the loan of payment is indisputable.
P73,000.00.
Payment made by the debtor to the wrong party
CBTC, or BPI - as its successor-in-interest, had every does not extinguish the obligation as to the creditor
right to demand that Eastern and Lim settle their who is without fault or negligence, even if the
liability under the promissory note. It cannot be debtor acted in utmost good faith and by mistake as
compelled to retain and apply the deposit in Lim and to the person of the creditor, or through error
Velasco's joint account to the payment of the note. induced by fraud of a third person. The payment
What the agreement conferred on CBTC was a then by BPI to the heirs of Velasco, even if done in
power, not a duty. To apply the deposit to the good faith, did not extinguish its obligation to the true
payment of a loan is a privilege, a right of set-off depositor, Eastern.
which the bank has the option to exercise. CBTC
was not in any way precluded from demanding
Atty: Here, the account even if it was in the name of Lim
payment from Eastern and from instituting an action to
and Velasco there was already an agreement and it was
recover payment of the loan. What it provides is an
proven that the account actually belonged to Eastern. The
alternative, not an exclusive, method of enforcing its
Supreme court said, just because the withdrawal was
claim on the note.
allowed by the heirs of Velasco it does not equate to
valid payment.
(2) BPI is still liable to the private respondents.
Question: Why do we say payment, when there’s a bank
As held in Serrano v. Central Bank of the Philippines,
account and there is a withdrawal?
bank deposits are really loans because they earn
interest. The relationship then between a depositor and
Answer: Remember, when you deposit money to the
a bank is one of creditor and debtor.
bank, it creates a debtor-creditor relationship. The bank
being the debtor and the depositor as the creditor. So, in
The account was proved and established to belong to
other words, should there have been a withdrawal, then
Eastern even if it was deposited in the names of Lim
that withdrawal should have been made by the owner of
and Velasco. As the real creditor of the bank, Eastern
the account, which was Eastern.
has the right to withdraw it or to demand payment
thereof. BPI cannot be relieved of its duty to pay
So, the Supreme Court said that BPI allowing the
Eastern simply because it already allowed the heirs of
withdrawal by the Velasco heirs, is not valid payment. It
Velasco to withdraw the whole balance of the account.
was already proven and BPI knew that the account
belonged to Eastern.
Moreover, the order of the court in the settlement case
of Velasco's estate merely authorized the heirs of
Velasco to withdraw the account. BPI was not
specifically ordered to release the account to the said RAYOS vs. REYES
heirs; hence, it was under no judicial compulsion to do
FACTS:
so. BPI, as the debtor, had no right to pay to persons
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18
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The three (3) parcels were formerly owned by the TRIAL COURT DECISION:
spouses Francisco and Asuncion Tazal who on 1 On 5 January 1963 the trial court in Civil Case No. A-
September 1957 sold them for P724.00 to respondents' 245 rejected the contention of Francisco Tazal that the
predecessor-in-interest, one Mamerto Reyes, with right deed of sale executed on 1 September 1957 was an
to repurchase within two (2) years from date thereof by equitable mortgage but held that Tazal could
paying to the vendee (Reyes) the purchase price and all nonetheless redeem the three (3) parcels of land within
expenses incident to their reconveyance. After the sale thirty (30) days from finality of judgment by paying to
the vendee a retro took physical possession of the Mamerto Reyes the purchase price of P724.00 and all
properties and paid the taxes thereon. expenses to execute the reconveyance, i.e., the
expenses of the contract and the necessary and useful
The otherwise inconsequential sale became expenses made on the properties as required by Art.
controversial when two (2) of the three (3) parcels 1616 of the Civil Code.
were again sold on 24 December 1958 by Francisco COURT OF APPEALS DECISION:
Tazal for P420.00 in favor of petitioners' predecessor-
in-interest Blas Rayos without first availing of his right Mamerto Reyes appealed the Decision to the Court of
to repurchase the properties. Appeals, which in turn elevated the appeal to this
Court since only questions of law were involved.
After the expiration of the redemption period, When Mamerto Reyes died in 1986, petitioner-spouses
Francisco Tazal attempted to repurchase the properties Teofilo and Simeona Rayos wrested physical
from Mamerto Reyes by asserting that the 1 September possession of the disputed properties from Reyes's
1957 deed of sale with right of repurchase was actually heirs.
an equitable mortgage and offering the amount of
P724.00 to pay for the alleged debt. But Mamerto SUPREME COURT DECISION:
Reyes refused the tender of payment and vigorously On 16 May 1990 this Court considered the case closed
claimed that their agreement was not an equitable and terminated for failure of the parties therein to
mortgage. manifest their interest to further prosecute the case. On
20 June 1990 the judgment in Civil Case No. A-245
9 May 1960 Francisco Tazal filed a complaint with the became final and executory.
Court of First Instance of Pangasinan against Mamerto Subsequent to the finality of judgment in Civil Case
Reyes, docketed as Civil Case No. A-245, for the No. A-245 petitioner-spouses did nothing to
declaration of the 1 September 1957 transaction as a repurchase the three (3) parcels of land within the
contract of equitable mortgage. He also prayed for an thirty (30)-day grace period from finality of judgment
order requiring defendant Mamerto Reyes to accept the since, according to them, they believed that the
amount of P724.00 which he had deposited on 31 May consignation of P724.00 in the civil case had perfected
1960 with the trial court as full payment for his debt, the repurchase of the disputed properties.
and canceling the supposed mortgage on the three (3)
parcels of land with the execution of the corresponding On 6 July 1992 respondents as heirs of Mamerto Reyes
documents of reconveyance in his favor. executed an affidavit adjudicating to themselves the
ownership of the parcels of land and declared the
On 22 June 1961 Francisco Tazal again sold the third properties in their names for assessment and collection
parcel of land previously purchased by Mamerto Reyes of real estate taxes. On 19 January 1993 respondents
to petitioner-spouses Tefilo and Simeona Rayos for registered the 1 September 1957 deed of sale with right
P400.00. On 1 July 1961 petitioner spouses bought of repurchase with the register of deeds.
from Blas Rayos for P400.00 the two (2) lots that
Tazal had sold at the fIrst instance to Mamerto Reyes On 8 July 1993 respondents filed a complaint for
and thereafter to Blas Rayos. damages and recovery of ownership and possession of
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19
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the three (3) parcels of land in dispute against herein (c) previous notice of the consignation had been given
petitioner-spouses Teofilo and Simeona Rayos and to the person interested in the performance of the
petitioner George Rayos as administrator thereof obligation; (d) the amount due was placed at the
before the Regional Trial Court of Alaminos, disposal of the court; and, (e) after the consignation
Pangasinan. It was respondents' theory that neither had been made the person interested was notified
petitioners nor their predecessors-in-interest Francisco thereof.
Tazal and Blas Rayos repurchased the properties
before buying them in 1958 and 1961 or when the In the instant case, petitioners failed, first to offer a
judgment in Civil Case No. A-245 became final and valid and unconditional tender of Payment; second, to
executory in 1990, hence the sale of the three (3) notify respondents of the intention to deposit the
parcels of land to petitioner-spouses did not transfer amount with the court; and third, to show the
ownership thereof to them. acceptance by the creditor of the amount deposited as
full settlement of the obligation, or in the alternative, a
declaration by the court of the validity of the
TRIAL COURT DECISION: consignation. The failure of petitioners to comply with
The court declared void the separate deeds of absolute any of these requirements rendered the consignation
sale thereof executed by Francisco Tazal in favor of ineffective.
Blas Rayos and to spouses Teofilo and Simeona Rayos
and by Blas Rayos to the same spouses, and ordered Consignation and tender of payment must not be
herein petitioners and Francisco Tazal to vacate and encumbered by conditions if they are to produce the
reconvey the lands to respondents as heirs of Mamerto intended result of fulfilling the obligation. In the
Reyes and to pay actual damages for litigation instant case, the tender of payment of P724.00 was
expenses in the sum of P20,000.00, attorney's fees of conditional and void as it was predicated upon the
P10,000.00, and exemplary damages of P50,000.00 argument of Francisco Tazal that he was paying a debt
plus costs. The court a quo rationalized that petitioners which he could do at any time allegedly because the 1
did not present evidence to prove that they and their September 1957 transaction was a contract of equitable
predecessor-in-interest were able to repurchase the mortgage and not a deed of sale with right to
property within the period of redemption set forth by repurchase.
the Court of First Instance in Civil Case No. A-245.
Petitioners appealed the Decision to the Court of Mamerto Reyes was therefore within his right to refuse
Appeals. the tender of payment offered by petitioners because it
was conditional upon his waiver of the two (2)-year
redemption period stipulated in the deed of sale with
COURT OF APPEALS DECISION: right to repurchase.
On 31 May 2001 the appellate court promulgated its
Decision affirming in toto the judgment appealed from. Petition is denied.
ISSUE: Whether or not the consignation is valid.
RULING: No, the Spouses failed to offer a valid and

RULING: No. In order that consignation may be unconditional tender of payment. Consignation and
effective the debtor must show that tender of payment must not be encumbered by a
(a) there was a debt due; condition in order to produce the results of fulfilling the
(b) the consignation of the obligation had been made obligation. Although there is a tender of payment of
because the creditor to whom a valid tender of
724K, such was conditional, thus, not a valid tender of
payment was made refused to accept it;
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20
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payment. This is predicated on the argument that he was
parcel of land which is undivided. The Deed stipulated
paying the debt which he could do at anytime because the
that Badayos has the right of repurchase after 2 years.
transaction was a contract of equitable mortgage and not
Sps. Lizondra, after 2 years, filed an action to
a deed of sale.
consolidate ownership on the premise that Badayos did
not exercise the right to repurchase. But such action
The purpose of offering the amount was to evade the
was opposed by Badayos because he contended that on
stipulated redemption period in the DOS. Reyes,
the period stated that after 2 years, he still can exercise
therefore, was within his rights to refuse the tender of
his right to repurchase. He questioned the the actioned
payment which was offered by Tazal because it was
filed
conditional upon the condition that he waives the 2-year
redemption period stipulated in the DOS.
ISSUE: WON Badayos exercised his right to
repurchase when there is a consignation of the amount
Sps. Tazal also failed to notify Reyes of the intention to
with the clerk of court?
deposit the amount with the Court. With Tazal’s failure
to give such notice, the requirement of notice is not
RULING: Yes. There is proper consignation in the part
fulfilled. Tazal also failed to show that the creditor Reyes
of Badayos. Thereby, there is a valid tender of
accepted the amount. There was no valid tender of
payment. It is clear in the deed that the 2 year period
payment and consignation.
should be interpreted to commence 2 yrs after the
execution of the contract. So, the consignation
ATTY: For payment to be valid, not only should the
operated as a valid offer or tender of the redemption
tender of payment for the full amount, it must also be
price
UNCONDITIONAL. Here, there was NO
UNCONDITIONAL tender of payment because there
was a condition that there be a waiver of the redemption
period. Also, there was no prior notice of consignation
and no proof of acceptance. ATTY: The first requisite is very important that there
must be a valid obligation because if it’s not an
For a valid consignation, one must be able to show all obligation then you don’t even need to consign it and you
the requisites: don’t even need to follow all the other requisites. You
● That there is a valid debt that was due; only need a prior tender of payment. Here, there is no
● That there is a valid tender of payment; creditor-debtor relationship. It was just a mere exercise
● That such was unjustifiably refused of a right to repurchase. Meaning, “right of repurchase”,
● Previous notice of consignation; you can forego of that right. You don’t; need to pay it
● Actual consignation; because when you talk of an obligation, you need to pay
● Subsequent notice of consignation it. It is an obligation and you have to abide by it. But if it
is a mere exercise of a right, then prior tender of payment
would be sufficient to a right of repurchase. In fact, SC
said there is no need to consign. Even granting arguendo
Badayos v. CA
WON there was a valid consignation, SC said yes. There
in fact was because in the agreement, it was after 2 years
FACTS: There was a sale of property with right of
that the right to repurchase can be exercised. The
repurchase between Badayos and Sps Lizondra over a
argument of the other party is that there is already a lapse
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21
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of 2 years. SC said you read your agreement because it’s Loss of determinate or specific thing will extinguish the
not 2 years. So, after 2 years that means the repurchase obligation if the loss is (1) due to fortuitous event and
can be had. there is (2) no delay
Thus, if the thing is lost due to the fault of the debtor,

debt is not extinguished. Instead, it is converted to a
LOSS OF THE THING DUE
monetary liability for indemnification of damages.
ARTICLE 1262. An obligation which consists in the Illustration:

delivery of a determinate thing shall be extinguished if it Obligation to deliver a specific car is due today but not
should be lost or destroyed without the fault of the delivered today, even after a demand has been made. The
debtor, and before he has incurred in delay. next day, the car floated in the flood.
When by law or stipulation, the obligor is liable even for Here, flood is a fortuitous event. But the debtor is still
fortuitous events, the loss of the thing does not liable for damages because there was already delay.
extinguish the obligation, and he shall be responsible for
damages. The same rule applies when the nature of the Illustration (cont’d):
obligation requires the assumption of risk. (1182a) If in the previous illustration no demand was made, and
on the next day, the car floated in the flood, the
This principle is a repeated principle under the nature and obligation is extinguished because there was no demand
effect of obligations because we said that the obligation yet. No demand, no delay. There may had been ordinary
is extinguished if the object of the obligation is a delay but there is no legal delay yet.
determinate or specific thing is lost due to a fortuitous
event. IOW, not the fault of the debtor. But there must be XPNs (FE does not extinguish obligation)
no delay. 1. When expressed by law
2. When stipulated by the parties
3. When nature of the obligation requires
ARTICLE 1262. An obligation which consists in the
assumption of risk
delivery of a determinate thing shall be extinguished if it
4. When the object of the obligation is lost and the
should be lost or destroyed without the fault of the
loss is due partly to the fault of the debtor
debtor, and before he has incurred in delay.
5. When the loss of the thing occurs after the debtor
has incurred in delay
When by law or stipulation, the obligor is liable even for
6. When the debtor promised to deliver the same
fortuitous events, the loss of the thing does not
thing to two or more persons who do not have
extinguish the obligation, and he shall be responsible for
the same interest
damages. The same rule applies when the nature of the
7. When the obligation to deliver arises from a
obligation requires the assumption of risk. (1182a)
criminal offense
8. When the obligation is generic
1262, par (2) discussion
GR Article 1263. In an obligation to deliver a generic

thing, the loss or destruction of anything of the same
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22
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stolen, this will not be considered a partial loss that
kind does not extinguish the obligation.
will extinguish the obligation.
GR: The obligation continues to exist because a generic

thing does not perish 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
EXC: contrary, and without prejudice to the provisions of
Article 1165. This presumption does not apply in case
1. If the generic thing is delimited of earthquake, flood, storm, or other natural calamity.
2. If the generic thing has already been segregated
or set aside, in which case it has become specific Q: If the loss occurs while the thing was in the
possession of the debtor, what is the effect?
Q: What if the money you set aside to pay your
obligation was robbed, will it extinguish your obligation? A: There is a disputable presumption that the loss was
due to the debtor’s fault.
A: No, because money is considered a generic thing
and as a general rule, it will not perish and thus your Q: Does the disputable presumption still apply in cases
obligation continues to exist. of earthquake, flood, storm, or other natural calamity.
Article 1264. The courts shall determine whether, A: It no longer applies because they are fortuitous events
under the circumstances, the partial loss of the object is where lack of fault is more likely.
so important as to extinguish the obligation.
Q: How does the law presume who is at fault?
Q: Will partial loss extinguish the obligation?
A: When the thing that was lost was in the possession of
A: The effect of partial loss on the obligation will depend the debtor at the time of loss, there is a disputable
upon the sound discretion of the court. It is therefore on a presumption that it was lost due to his fault. However,
case-to-case basis. this presumption shall not apply when the loss was
caused by natural calamities such as earthquakes, flood,
MBL Examples: (You can look into the purpose for or storm. If there is an occurrence of a natural calamity,
which the thing was given) the presumption then would be that it was caused by a
fortuitous event. (Art. 1265)
1. There is an obligation to deliver a specific car and
the purpose was for the creditor to drive the car. If
The engine was stolen, this can be considered a Article 1266. The debtor in obligations to do shall also
partial loss which will extinguish the obligation, be released when the prestation becomes legally or
provided that the debtor was not at fault or in delay. physically impossible without the fault of the obligor.
2. There is an obligation to deliver a specific car but it When you talk about loss, it could either refer to physical
was only for exhibition purposes. If the engine was impossibility or legal impossibility.
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Legal impossibility: if the prestation becomes illegal – subsists as this is a separate matter. This also excludes
perhaps by the passing of a new law prohibiting a damages from the criminal liability.
particular thing to be sold, or a particular act to be done.
ARTICLE 1269. The obligation having been
extinguished by the loss of the thing, the creditor
Article 1267. When the service has become so difficult shall have all the rights of action which the debtor
as to be manifestly beyond the contemplation of the may have against third persons by reason of the
parties, the obligor may also be released therefrom, in loss.
whole or in part.
When we talk about loss due to fortuitous events,

Article 1267 talks about relative impossibility.
fortuitous events may also include the acts of man or 3rd
persons. The debtor’s liability is extinguished because
Relevant case: There is a railway, and continuing it
the loss was not due to his fault and there must be
would be very dangerous to life and limb. The Supreme
negligence or bad faith on his part.
Court said that that was not what was contemplated by
the parties, for the railway track to be as dangerous as it
The creditor can now proceed against those who may
is. It was manifestly beyond the contemplation of the
have caused the loss.
parties, so it was held that the obligation is considered to
be extinguished.
CONDONATION OR REMISSION
Article 1268. When the debt of a thing certain and
determinate proceeds from a criminal offense, the
ARTICLE 1270. Condonation or remission is
debtor shall not be exempted from the payment of its
essentially gratuitous, and requires the acceptance
price, whatever maybe the cause for the loss, unless
by the obligor. It may be made expressly or
the thing having been offered by him to the person
impliedly.
who should receive it, the latter refused without
justification to accept it.
One and the other kind shall be subject to the rules
which govern inofficious donations. Express
Illustration: condonation shall, furthermore, comply with the
forms of donation.
Somebody stole a car — so in other words that proceeds
from a criminal offense. What Article 1268 tells you is
that even if the car is now totally wrecked due to a Condonation or Remission - an act of liberality by
typhoon (a fortuitous event), the liability of the virtue of which the oblige or creditor without receiving
perpetrator cannot be extinguished. any price or equivalent renounces the enforcement of the
obligation, as a result of which, it is extinguished in its
However, if the one who sold the car already tried to entirety or in that part of which the remission refers.
return it but the owner did not accept it without just cause
and the car was totally wrecked due to an earthquake. REQUISITES OF REMISSION:
That person is released from liability in terms of the
return of the car. His criminal liability for the theft still
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24
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First, It must be Gratuitous – creditor does not receive to the debtor, implies the renunciation of the action
anything in return for canceling the debt which the former had against the latter.
Second, it must be accepted by the obligor or debtor. If in order to nullify this waiver it should be claimed
to be inofficious, the debtor and his heirs may uphold
Third, obligation must already be due and demandable. it by proving that the delivery of the document was
made in virtue of payment of the debt.
Article 1270. Condonation or remission is essentially
gratuitous, and requires the acceptance by the Article 1271, 1st Paragraph
obligor. It may be made expressly or impliedly.
Q: Why should it be a private document evidencing a
One and the other kind shall be subject to the rules credit? If it is a notarized document evidencing a
which govern inofficious donations. Express credit that is being returned by the creditor to the
condonation shall, furthermore, comply with the debtor voluntarily, why isn’t that act considered
forms of donation. implied remission?
Article 1270, 1st Paragraph A: This rule on implied remission – when there’s
delivery of a private document evidencing credit – will
Acceptance by the obligor may be made: only apply to private documents. Because if it were
1. Expressly public or notarized documents, it’s very easy to get a
2. Impliedly copy of that. If you have documents notarized, you will
submit a copy to your notary public. The notary public
Article 1270, 2nd Paragraph will submit it to the clerk of court. The clerk of court will
have copies of that. So, it’s very easy, in theory, to get
One and the other kind shall be subject to the rules which copies of that.
govern inofficious donations. Express condonation shall,
furthermore, comply with the forms of donation. It would be dangerous for the law to allow that if there is
a public document evidencing the credit and then the
Q: Why donation? creditor delivered it to the debtor, that should not be
implied remission. Because your debtor may abuse
A: Because your creditor will no longer accept any such. He could just get a copy and say that it was
equivalent since he has basically given that to the debtor, delivered to him.
whatever the debtor may have received from him that
created the obligation to give something back. The implied remission must be coming from the private
document because it’s just between them. And then gi-uli
There is now a donation. Thus, the law says there must sa creditor to the debtor. That’s implied remission.
be acceptance, whether express or implied.
Because usually, it should be the creditor who should be
holding that as evidence that he has collectible from the
Article 1271. The delivery of a private document debtor.
evidencing a credit, made voluntarily by the creditor
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25
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That’s the reason behind the law. That the law considers
implied remission if the private document evidencing the
Art. 1273. The renunciation of the principal debt shall
credit is now in the hands of the debtor. extinguish the accessory obligations; but the waiver of
the latter shall leave the former in force.
Article 1271(2). If in order to nullify this waiver it
should be claimed to be inofficious, the debtor and his Q. if there is a contract of loan for 1M secured by a
heirs may uphold it by proving that the delivery of mortgaged over a parcel of land. If the creditor remits
the document was made in virtue of payment of the the contract of loan, what happens to the mortgage?
debt.
Since the principal obligation is extinguished, then the
Article 1271, 2nd Paragraph accessory is also extinguished.
Meaning: The 1st paragraph is just a disputable
presumption. Q. What if it was the mortgage that was remitted by
the creditor? What happens to the contract of loan?
Reason: The creditor himself, or his heirs, if he is
already dead, can offer proof that he delivered the Only the mortgage is extinguished. The principal
document only for purposes of collection or that it may obligation subsists.
have been inadvertence.
Principle: Accessory follows the principal.
Article 1272. Whenever the private document in
which the debt appears is found in the possession of If there is no principal debt, the accessory obligation no
the debtor, it shall be presumed that the creditor longer has a principal that it depends on for its existence.
delivered it voluntarily, unless the contrary is proved. But if it’s the accessory being remitted, the principal
contract of loan will remain because extinguishment of
Art. 1272 and 1272 go together. the accessory will not affect the principal.
Disputable presumptions if the private document Example:

evidencing credit is in the hands of the debtor If A is indebted to B and C is the guarantor (accessory
● This was delivered by the creditor voluntarily obligation of guaranty), if B renounces the debt of A, C’s
● This was delivered to the debtor to forgive the debt obligation is also extinguished.
TN: Disputable because the creditor can offer proof to Now, A borrowed P100K from B, and B required a
prove otherwise. deposit of a diamond ring as security for the loan. A few
months later, the ring is found in the possession of A.
Illustration: A owes B 100,000. A gave to B a PN What are the presumptions under the law?
evidencing such debt.
A:
Q. If the PN, is found in the possession of A, what are Art. 1274. It is presumed that the accessory obligation of
the presumptions? pledge has been remitted when the thing pledged, after its
● B voluntarily delivered it to A. delivery to the creditor, is found in the possession of the
● It was voluntarily delivered to A to forgive A’s debt. debtor, or of a third person who owns the thing.
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26
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Q: A is indebted to B in the amount of P100,000. C is the
So this law says that since the ring is now in the guarantor of A. If B assigns the credit of P100,000 to A.
possession of the debtor A, the disputable presumption is What happens to the obligation?
that the pledge has been remitted or condoned by the
creditor B. The principal obligation will remain. A: The obligation would be extinguished because B
assigned it back to A. So A is the debtor and also the
creditor at the same time. It is complete and definite. It is
CONFUSION OR MERGER OF RIGHTS
for the entire amount of P100,00.
Art. 1275. The obligation is extinguished from the Q: What happens to the contract of guaranty?
time the characters of creditor and debtor are merged
in the same person. A: The contract of guaranty would also be extinguished
because the principal obligation to which the existence of
Requisites: the accessory obligation depends on is also already
1. The character of the principal debtor and the extinguished by merger.
principal creditor must concur in the same
person; Q: A is indebted to B in the amount of P100,000. C is the
2. The merger must take place in the person of guarantor. If B assigns the credit to C, what happens to
principal debtor or principal creditor; the obligation?
3. The merger must be complete and definite.
A: The obligation would subsist. There is no valid
merger because it must take place in the principal debtor
and creditor who is A and B, respectively. So the merger
Article 1276. Merger which takes place in the person
should either happen in A or B, but B assigned the credit
of the principal debtor or creditor benefits the
to C. The obligation will remain. However, the guaranty
guarantors. Confusion which takes place in the person
is extinguished because C is now the creditor. He cannot
of any of the latter does not extinguish the obligation.
be the creditor and at the same the guarantor of A,
(1193)
because if he collects from A and A does not pay, he
would collect from himself.
● Merger which takes place in the person of the
principal debtor or creditor benefits the
guarantors. The obligation will be extinguished – Article 1277. Confusion does not extinguish a joint
if the principal obligation will be extinguished, obligation except as regards the share corresponding to
the accessory shall also be extinguished. the creditor or debtor in whom the two characters
● Confusion which takes place in the person of any concur. (1194)
of the guarantors will not extinguish the
obligation. But of course, the contract of
guaranty will be extinguished by merger. A and B, joint debtors, indebted to C in the amount of
P100,000. C assigns his credit to B.
Q: What happens to the obligation?

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Ans: The obligation of B will be extinguished but the

ISSUE: Whether remission of the debt occurred.
obligation of A will remain. In our example, 100,000
supposedly if joint, A shares 50,000 and B shares 50,000.
RULING: YES. Under the Civil Code, the possession
But then C, the credit of which was 100,000 was
by the debtor of a private document proving a debt
assigned to B, so B now for his share nahimog merger
supposes and creates the presumption that the creditor
but it should not extinguish the obligation of A because it
delivered it voluntarily, unless the contrary is proven,
is a joint obligation. The obligation of B is extinguished
and no such proof has been offered by Velasco upon
because he now became the debtor and creditor, but for
whom the burden rests to destroy the said presumption.
A, he still has to pay his share of 50,000, but this time he
pays to B.
Therefore, since no proof appears in the record that the
delivery of the document was not voluntarily made, it
It would have been different if the obligation is solidary,
appears from the whole of the foregoing that the debt
then A and B are considered as one so C will assign it to
now claimed was remitted for reasons of gratitude, and
B, then the entire obligation is extinguished because
that Velasco has implicitly waived its recovery.
there is now merger in one of the solidary debtors but
another obligation is created between and among solidary
MBL: Here as we said disputable presumption, they
debtors. At the end of the day, the effect is the same.
were not able to dispute the presumption. They could
That is Art. 1277.
not offer proof that there was no voluntary delivery of
the private document so the SC applied the general rule
Veloso vs Masa and applied the presumption that since the private
10 Phil. 279 document is with the debtor, it was remitted. There
were other pieces of evidence shown by the debtor that
FACTS: Felix Velasco filed a case for robbery against it was an act of gratitude.
Martin Masa. Velasco alleged that by means of threats,
Masa was able to obtain a private document against the
former’s wife, which was evidence of the loan Lopez vs. Tambunting
obtained by Masa from him. However, the latter was 33 Phil. 236
acquitted because it was proven that the private
Facts:
document had been delivered for reasons of gratitude
Unsatisfied, Velasco instituted this present civil case Lopez is a doctor who allegedly rendered professional
for the collection of the loan he allegedly granted to medical services to the daughter of Tambunting. In
Masa. consideration thereof, Lopez demanded payment from
Tambunting for the amount of P700. He allegedly sent
Velasco avers that the private document which a receipt to Tambunting as part of the former’s demand
evidenced the debt was obtained by Masa through for the latter to pay. Since his demands were not
coercion and trickeries exercised with respect to his heeded, he filed a case against Tambunting in the
wife. Meanwhile, Masa presented witnesses who Court of First Instance for the collection of P2000
testified that the evidence of indebtedness was returned
to him by Velasco, through his wife, as remission of Tambunting denied the allegations stating that the
the debt. obligation has already been extinguished as evidenced
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Facts: Paulina Sochayseng (plaintiff) is the mother of
by his possession of the receipt Marcela Sochayseng, the wife of the defendant who
died without leaving any legitimate heir other than the
Issue: Was the obligation extinguished? plaintiff.
Ruling: Months before her death, Marcela left her husband

with his knowledge and consent and went to her
No. Tambunting claims that he already paid for the mother. Paulina took care of Marcela while she was
obligation as evidenced by his possession of the sick which cost her the sum of P410 and the burial
receipt. He operates under the presumption in the Civil expenses of P320.
Code that states that an obligation delivered up to the
debtor has been paid, and whenever the private Plaintiff prayed that the defendant be sentenced to pay
instrument which evidences the debt is in possession of her the sum of P730 and be ordered to proceed with the
the debtor, it will be presumed that the creditor settlement and partition of the conjugal partnership
delivered it of his own free will, unless the contrary is estate.
proven.
Defendant filed a cross complaint by alleging that his
wife left him without his knowledge and consent.
In this case however, the legal presumption established
Moreover, he sent Marcela P12 a month for her
cannot stand if sufficient proof is adduced against it. support. Defendant demanded the plaintiff to deliver to
The trial court correctly held that there was sufficient him certain articles belonging to the conjugal
evidence to show that the obligation had not yet been partnership, valued at P615. Defendant also prayed for
paid. the dismissal of payment of P730 for it should have
been made to the commissioners of appraisal.
In order that such a presumption may be taken into
account, it is important that the evidence of the In settling the payment, the court ordered that the
obligation be delivered up to the debtor and that the conjugal property which amounted to P1615 must first
delivery of the instrument proving the credit be made be paid the value of the property brought into the
voluntarily by the creditor to the debtor. In this case, partnership by Marcela at her marriage which amounts
to P1490. The remaining balance of P125 shall be used
Lopez merely delivered the receipt as part of his
to pay the debts, charges, and obligations of the
demand for the latter to pay. It cannot be said that it
conjugal partnership.
was his intention that the document should remain in
possession of Tambunting if the latter did not pay the Issue: W/n plaintiff can collect P320 (amount of
said amount. funeral expenses) from defendant?
Ruling: NO. The trial court held that there was an

MBL: Here, the presumption of voluntary delivery and amount payable for subsistence furnished by plaintiff
to defendant’s deceased wife (P730). This credit must
of implied remission was rebutted with sufficient
be paid by the defendant.
evidence. SC said that here, the creditor/obligee had
proved that the reason why he sent it was for collection. In these special proceedings there should be presented,
if proper, the claim of P320 for the funeral expenses of
the deceased, to which preference should be given as
Sochayseng vs. Trujillo
prescribed by section 735 of the Code of Civil
31 Phil. 153
Procedure: "1. The necessary funeral expenses." But of
course we must not lose sight of the provision of
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article 1192 of the Civil Code: "Whenever the FACTS:
characters of creditor and debtor are merged in the Pelagio Yusingco was the owner of the steamship
same person, the obligation is extinguished." Yusingco. In November 1927, he executed a power of
attorney in favor of Yu to administer, lease, mortgage
However, the P320 expenses for the funeral must be and sell his properties, including his vessels or
paid not by the husband, but by the heir. Therefore the steamship.
P320 expenses for funeral services shouldered by the
plaintiff must be extinguished because she becomes the Yu then mortgaged to the plaintiff Yek Tong Lin Fire
debtor in such case. &
Marine Insurance the steamship to answer for any
Defendant is liable only to pay P410 as debt owed by amount that it might pay in the name of defendant
him as the legal administrator of the community Yusingco on account of the defendant's loan from
property for the cost of subsistence to which Marcela China Banking Corporation.
was entitled. Plaintiff will collect the P410 under her
personal right as a creditor of the defendant, like any Later, the steamship needed some repairs which were
third person who might have furnished that made by Earnshaw upon the petition of Hermanos who
subsistence, and the remaining P1,534 as the legitimate was co-owner of Pelagio Yusingco. The repairs were
heir of the deceased Marcela Yatco. made upon the guarantee of Vicente Madrigal.
MBL: You have here the mother of the deceased When neither Yusingco nor Hermanos could pay,
daughter suing the husband for refund for 410php Madrigal had to pay the obligation plus interest.
subsistence and 320php funeral expenses. For the 410, Earnshaw thus assigned its credit against Hermanos to
SC said it should be shouldered by the conjugal Madrigal. When Madrigal discovered that he was not
property. The conjugal property will have to refund the to be reimbursed, he brought an action against his
mother. But with respect to the 320 funeral expenses, Yusingco and Hermanos to compel them to reimburse
the law provides that for funeral expenses (at that which resulted in a favorable judgment.
time), it should have been the property of the deceased Madrigal later sought and obtained a writ of execution.
daughter that should be used. However, before the sale of the steamship, herein
plaintiff filed a third party claim demanding said ship,
So if paraphernal, the mother also became an heir. She alleging that it had been mortgaged to him long before
gets ½ of the share of the daughter. If she gets the the issuance of said writ and, therefore, he was entitled
share of the daughter it means that that share that to the possession thereof. Thus, he instituted this case
should have been used to pay, that she gets, the merger and asked for the issuance of a writ of preliminary
of the qualities of the creditor and debtor are now injunction addressed to the defendants to restrain them
found in the mother. Because she inherits but at the from selling the steamship at public auction.
same time she is liable to refund others including
herself for such expenses. That was extinguished by However, the writ of preliminary injunction was later
virtue of merger or confusion. dissolved and said ship was sold at public auction. The
same was purchased by Plaintiff.
ISSUE: Whether there is confusion or merger in so far

as the personality of the insurance company is
Yek Tong Lin Fire & Marine Insurance Co. vs concerned.
Yusingco
RULING: SC Held in affirmative.
46 Phil. 473
The SC said that there is confusion or merger in this
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case when the steamship was sold at a public auction,
the only right left to the plaintiff or the petitioner in
this case, was to collect its mortgage credit; however,
since it was the insurance company which successfully
bought the involved ship in this case at a public
auction, then it would be absurd for it to collect the
mortgage credit because what happens now is that the
purchaser becomes the owner of the steamship.
In addition (from 2021 404 digest):

Article 1922, paragraph 1, of the Civil Code,
Earnshaw was entitled to recover the cost of said
repairs, inasmuch as the steamship, before as well as at
the time of its sale at public auction by virtue of a
judicial writ, was in the possession of the owners,
debtors of the plaintiff.
If Earnshaw had such right, naturally the defendant and

appellant Madrigal later had such right, to the same
extent as the former, by virtue of the assignment made
to him after he, as guarantor, paid the obligation
contracted by the Yusingcos with the Earnshaw Docks
& Honolulu Iron Works for the repair of said vessel.
This is necessarily so because the assignee is entitled
to exercise the right and prosecute all actions
belonging to the assignor (Articles 1212 and 1528,
Civil Code; Section 114, Act No. 190).
When the plaintiff attempted to foreclose the mortgage

constituted in its favor, its only right with respect to
said vessel was to sell it judicially or extrajudicially in
accordance with law, upon default in the performance
of the conditions of the mortgage contract, in order to
apply the proceeds of the sale to its mortgage credit
against said owners, or at least against Pelagio
Yusingco, if such proceeds are sufficient; and if
sufficient, to collect the balance thereof on other
property belonging to said defendants. The steamship
Yusingco was then in custodia legis and, under the
circumstances, it could neither take possession thereof
nor sell it pursuant to the conditions of its mortgage
contract.
MBL: I wanted to explain this case because somehow

there’s something wrong with the case because it says
there that the mortgage credit is extinguished. It’s
actually wrong to say that the credit is extinguished
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A mode of extinguishing in their concurrent amount
because what was extinguished by merger or confusion
is actually just the mortgage. What happened here those obligations of persons who are reciprocally debtors
was Yusengco had two creditors – you have Yek Tong and creditors of each other.
Lin Fire and also Madrigal. Yek Tong Ling was a
mortgagee-creditor, and Madrigal was also a creditor Confusion v Compensation
for the repairs. So Yusengco was unable to pay for the
repairs. Yusingco was not able to pay for the repairs so Confusion - Extinguishment happens in one person there
Madrigal sued Yusingco for the payment but Yusingco
is a merger of the qualities of the debtor-creditor to one
was unable to pay so Madrigal attached the boat. That
means that you are asking the court to sell it at public person.
auction so that the proceeds will be used to pay off the
debt. So it was sold at public auction. Perhaps nagtuo Compensation - two people, one is debtor to another but
si Yek Tong Lin Fire that it would protect itself if they that person is also a creditor of another.
bought the property. They bought the boat. So what
happens? You bought the property that was supposedly Illustration for Compensation:
mortgaged in your favor as security. So you're a
creditor and then you bought the property that was
supposedly mortgaged to you. A (debtor) is indebted to B (creditor). B is also (debtor)
indebted to A (creditor).
So what happens? There's a merger on the mortgage.
So nawagtang ang mortgage in your favor. BUT of Illustration for Confusion:
course, the principal loan will have to remain. Don't be
misled because the SC said that the mortgage-credit is A is the debtor and creditor.
extinguished. No, it's just the mortgage. Perhaps the
SC actually meant just the mortgage, not the principal ARTICLE 1279. In order that compensation may be
loan because then it would be unfair on the part of Yek proper, it is necessary:
Tong Lin Fire if the principal loan will be 1. That each one of the obligors be bound principally,
extinguished. It's just the mortgage. Meaning, wala and that he be at the same time a principal creditor of
na'y security ang loan. Yek Tong Lin FIre, if it goes the other;
after Yusingco and Yusingco cannot pay, wala na 2. The debts must consist in a sum of money or if the
things due are consumables, they be of the same kind
siya’y mortgage na ma-foreclose. Why? Because it
and quality, if the latter has been stated;
already owns the property. 3. Both debts must be due;
4. The debts must be liquidated and demandable;
5. That over neither of them there be any retention or
controversy, commenced by third persons and
communicated in due time to the debtor.
COMPENSATION
What are the requisites for compensation to take
place?
ARTICLE 1278. Compensation shall take place when
two persons, in their own right, are creditors and
debtors of each other. Art. 1279
Concept of Compensation
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1. That each one of the obligors be bound principally, ● If A is indebted to B for 500,000 due on August
and that he be at the same time a principal creditor of the 13, 2022
other; ● B is indebted to A for 500,000 due on August
26, 2022
2. The debts must consist in a sum of money or if the
● Today, Aug. 25; no compensation yet
things due are consumables, they be of the same kind and ● Tomorrow Aug. 26, there is already
quality, if the latter has been stated; compensation
3. Both debts must be due;
4. The debts must be liquidated and demandable; Fourth Requisite, Debts are liquidated and
5. That over neither of them there be any retention or demandable
controversy, commenced by third persons and
Demandable
communicated in due time to the debtor.
o Neither of the debts has prescribed; or
o Obligation is not invalid or illegal
First Requisite - They are principal creditors and
debtors of each other Liquidated
o Amount known
Second Requisite - debts must consist in a sum of ● A is obliged to give to B rentals, 20000 plus 5%
money or if the things due are consumables, they be of of gross sales for the month of August due every
5th of the month
the same kind and quality
● B is indebted to A 10,000 due August 25, 2022
● How much may be legally compensated today,
Example: Aug. 25, 2022?
● Compensation may only take place between the
A is indebted to B for 500k. B is indebted for 500k. Both 20,000 and 10,000 because the 5% of gross sales
are in money. in the month is not yet liquidated
Consumables must be of the same kind Over neither of them, there should be no controversy or
retention from third persons and communicated in due
A is indebted to B to deliver 10 sacks of Jasmin Rice. B time to the debtor.
is also indebted to A to deliver 10 sacks of Jasmin.
Q. A is indebted to B in the amount of 100k, guaranteed
It cannot be extinguished by compensation, if: by C. B is indebted to C in the amount of 100K.
A is indebted to B for 10k. B is indebted for 10 sacks of There is no compensation but the guarantee remains. The
Granador rice. Because they are not of the same kind. debt of B to C is separate and distinct from the obligation
of A to B as well as the subsidiary liability of C as
BUT, if they agree even if they are not of the same kind guarantor. The first requisite is not present because the
then that is - Voluntary Compensation creditors and debtors in their own right owe each other.
Here, A owes B but B does not owe A.
HOWEVER, in Legal Compensation or by operation
of law - it has to be of the same kind. Q. A is indebted to B in the amount of 100K, B indebted
to A for a specific car. Can there be legal compensation?
Third Requisite, 2 debts be due
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No. It is not of the same kind. But, if they do agree to TN: for legal compensation to take place, both obligation
compensate even if they are not of the same kind, it’s must be in sum of money, or if consumable, it must be of
permissible since it’s voluntary compensation. the same kind or quality.
Q. A is indebted to B for 100k due on January 5, 2020. B XPN: if they agreed to compensate, even if not in the
indebted to A for 100k due on December 31, 2021. Is same kind, it is allowed because it is voluntary
there compensation on November 5, 2021? compensation.
There’s no compensation since one debt is not yet due Example #3

and demandable. A is indebted to B 100,000 due on Jan 5, 2020
B is indebted to A 100,000 due on December 21, 2021
Fifth Requisite, Over neither of them there be any
retention or controversy commenced by any third Q:Is there compensation on November 5, 2021?
persons and communicated in due time to the debtor No compensation yet because not both of debt is due and
demandable. Assuming there was no payment made yet,
● IOW, it is not subject of court litigation legal compensation may take place in December 21,
● If subject to court litigation, controversy 2021.
must first be resolved
Example #4
Example #1: A is indebted to B 100,00; 25,000 of which is being
● A is indebted to B in the amount of 100,000 garnished by the BIR
● Guaranteed by C B is indebted to A 100,000
● B is indebted to C for 100,000
● Guaranty remains Q: can there be compensation?
● The debt of B to C is totally separate from the No compensation, there is already a claim by a 3 rd person
obligation of A to B as well as the subsidiary or a controversy.
liability of C
● 1st requisite is missing Recall Example #1.
Q: what are the rights of C, should B go after C if A
Example #2 could not pay him the 100k? Since guaranty is not yet
A is indebted to B in the amount of 100,000 extinguished.
B is indebted to A to deliver a specific car
Is there any right or remedy granted by law to the
Q: can there be legal compensation? guarantor in this situation?
No legal compensation; not of the same kind. The other A: ART. 1280.
one pertains to a sum of money and the other one
pertains to a car.
Art. 1280 Guarantor sets up compensation.
Notwithstanding the provisions of the preceding
article, the guarantor may set up compensation as
regards what the creditor may owe the principal
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debtor. Article 1283. If one of the parties to a suit over an
obligation has a claim for damages against the other,
the former may set it off by proving his right to said
If there is a guarantor, the guarantor can set up damages and the amount thereof.
compensation. So if B will collect from A, the guarantor
can say to B that I will not pay you because you also owe
Article 1283 tells you that damages can be used to set off
my principal, because he is the guarantor. That is Article
an obligation that is due to another.
1280.
Example: A has sued B for collection of a sum of money
Q: When we talk about compensation, is it always total
in the amount of Php 1,000,000.00. However, B
compensation?
countersued for damages - claiming that A has abused his
rights in the collection (shamed him, posted about his
A: There may be partial compensation with the
debt on Facebook, called him a scammer, etc. = abuse of
concurrent amount or up to the extent only.
rights under Article 19).
So your compensation need not be total all the time.
If B is asking for Php 500,000.00 in damages and he is
There can still be legal compensation up to the
able to prove it and the court grants it, then there is
concurrent amount or what we call your partial
compensation up to Php 500,000.00.
compensation.
Illustration: If A is indebted to B 100,000 due on August Article 1284. When one or both debts are rescissible
27, 2022. B is indebted to A P60,000 due on August 29, or voidable, they may be compensated against each
2022. On August 29, both debts are already due and other before they are judicially rescinded or avoided.
demandable, up to what amount is there compensation?
Example: A is indebted to B in the amount of Php
A: Up to P60,000 only therefore A is still liable to B to 500,000.00 and B is indebted to A in the amount of Php
pay P40,000 on August 29. So B can still make a 80,000.00 (no periods - due and demandable). However,
demand. A was forced to promise to pay Php 500,000.00 to B
because B’s husband threatened A.
Voluntary Compensation
The parties may agree upon the compensation of debts Can there still be compensation?
which are not yet due, and even not of the same kind. So
the five requirements we mentioned talk about Legal A: Yes, because the force/intimidation is only grounds
Compensation where compensation takes effect by for a voidable contract or obligation. Being voidable, it is
operation of law. In other words, the parties will not do valid until annulled. Hence, there will be compensation
anything else as their obligation is now extinguished. unless the obligation of A to B is subsequently
annulled at the instance of A.
Judicial Compensation
Found in Article 1283. Here, there is obligation and Decree of rescission retroacts
damages so this article tells us that one party may offset
or compensate his obligations with the damages he may
be entitled to at the end of the proceedings.
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To avoid unfairness if rescission/annulment is later on
maturing before
decreed by the court; as if no compensation ever took assignment (before
place. notice)
WITHOUT Consent
Assignment without
knowledge GR: debtor can set up
Art. 1285. Effect of Assignment. The debtor who has compensation as defense
consented to the assignment of rights made by a for all debts maturing
creditor in favor of a third person, cannot set up against prior to his knowledge
the assignee the compensation which would pertain to (whether the debts
him against the assignor, unless the assignor was matured before or after
notified by the debtor at the time he gave his consent, the assignments
that he reserved his right to the compensation.
Crucial time: time of
knowledge (not
assignment)
If the creditor communicated the cession to him but the
debtor did not consent thereto, the latter may set up the Reason: prevention of
compensation of debts previous to the cession, but not fraudulent deprivation of
of subsequent ones. the benefits of total &
partial compensation.
If the assignment is made without the knowledge of the

debtor, he may set up the compensation of all credits Assignment WITH consent
prior to the same and also later ones until he had
knowledge of the assignment. A is indebted to B 100, 000. B is indebted to A 100, 000.
A assigns his credit to X. X now becomes the creditor. If
X collects from B, can B refuse to pay and say “I will not
Assignment WITH pay you X because A is also indebted to me for 100k.” If
consent GR: Compensation cannot such assignment was made with his consent.
be set up because consent
operates as a waiver. Answer: B cannot refuse because the assignment was
done with B’s consent. Therefore, on the day it will be
due and demandable, B has to pay X the 100k. Unless,
EXPN: right to there is a reservation of his right to collect.
compensation (that has
already taken place) is ATTY: Article 1285 tells you that if the debtor consents
reserved to the assignment, then he can no longer set up
compensation. Unless, even though you consented to the
GR: Compensation can be
Assignment WITH set up regarding debts assignment but you told A that you are reserving your
knowledge, previous to the cession or right to set up compensation even as against X.
assignment/debts
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WITH THE KNOWLEDGE BUT AGAINST THE Student: X can collect nothing because the assignment
WILL OF THE DEBTOR was done without his knowledge. The obligation is
totally extinguished.
A is indebted to B 100K which is due on August 31,
2022. B is also indebted to A 80K due on August 15, Atty: The reckoning point for legal compensation are
2022; 20K due on September 13 2022. B assigns his debts maturing prior to the knowledge of the assignment.
credit to X. The assignment was done on September 3, A came to know of the assignment only on Sept. 4, 2022.
2022. A knew about it, but did not consent to the The law says that the debtor can set up compensation
assignment. If X collects from A, how much can X only with debts maturing prior to the knowledge of
collect on September 5. 2022? the assignment.
Student: X, can collect 20,000 from A since against the So, A is the debtor of B for 100,000. B owes A 80,000
will of the debtor. There can only be compensation and 20,000. B assigns the 100,000 to X. X wants to
previous to the date pf assignment, date of knowledge collect the 100,000 from A. On Sept. 4, 2022, X can
which is 80,000 which is due Aug. 15, 2022. actually still collect 20,000 from A.
Atty: The reason for that is actually because of legal What is compensated are those debts maturing previous
compensation or operation of law they have set-off. to the knowledge. Compensation was only to the extent
of 80,000. There is still a balance from A of 20,000.
The assignment was made September 3,2022. There are 2
debts owed by B to A: 80,000 and 20,000. When the WITHOUT THE KNOWLEDGE OF THE DEBTOR
100,000 of A became due on August 31, they set of by
operation of law. So assuming, nothing was paid by A to If the assignment is made without the knowledge of the
B, that’s why B assigned the entire credit of 100,000 to debtor and subsequently the assignee demands the
X on September, 2022. There was already legal payment of the credit which was assigned - the debtor
compensation up to the concurrent amount. THe debts can set up compensation as a defense for all the debts
that was already due and demandable was the 80,000. So, maturing prior to his knowledge of the assignment.
X can still collect 20,000. A can already set up with the
debts maturing prior because there was already Illustration: A is indebted to B for P100k due on August
compensation by operation of law. That is assignment 31, 2022. B is also indebted to A for 2 debts: 1) P80k
with the knowledge but against the will of the debtor. which is due on August 15, 2022 and 2) P20k which is
due on September 13, 2022. B assigned the credit to X
How about assignment without the knowledge of the meaning the P100k that B owes him, he assigned it to X
debtor? A is indebted to B and B indebted C due on Aug. on September 3, 2022. A had knowledge of the
15,2022. 20,000 due on Sept. 10,2022. B assigned his assignment only on September 4, 2022. How much can
credit to X on Sept 3, 2022. A came to know of the X collect against A?
assignment only on September 4, 2022. If X collects
from A, how much can X collect on Sept 4, 2022 Answer: X can still collect P20k from A because what is
compensated are those debts maturing previous to the
knowledge, the knowledge came on September 4, 2022.
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And what were the debts maturing prior to Septemer 4, Without the Knowledge of the Debtor, the reckoning
2022? It was the P80k debt maturing on August 15, 2022 point of what debts you may set up compensation
which means that it was only compensated to the extent against: date when you come to know of the assignment.
of P80k, leaving a balance of P20k.
TN: When the facts are silent as to the date when the
Illustration: A is indebted to B for P100k due on August person came to know of the assignment, it is assumed to
31, 2022. B is also indebted to A for 2 debts: 1) P80k be the date of collection.
which is due on August 15, 2022 and 2) P20k which is
due on September 13, 2022. B assigned the credit to X
ARTICLE 1287. Compensation shall not be proper
meaning the P100k that B owes him, he assigned it to X
when one of the debts arises from a depositum or from
on September 3, 2022. A had knowledge of the
the obligations of a depositary or of a bailee in
assignment only on September 13, 2022.. How much
commodatum.
can X collect against A?
Answer: X can no longer collect anything from A. The Why? Because these debts (depositary, commodatum)
reckoning period under Art. 1285 is the date of the are not of the same kind.
knowledge of the assignment. Here, the debtor knew of
the assignment only on the date of collection by the ARTICLE 1287. (cont.) Neither can compensation be
assignee on September 4, 2022. And boths have already set up against a creditor who has a claim for support
matured so that legal compensation took effect by due by gratuitous title, without prejudice to the
operation of law and X can no longer collect anything provisions of paragraph 2 of Article 301.
from A.
ASSIGNMENT WHEN COMPENSATION HAS Illustration:

NOT TAKEN PLACE A is indebted to the amount of 25,000 to B.
B is entitled to give support to A, of 100,000.
With the With the Without the If A collects from B 100,000 in support, B cannot say to
consent of the knowledge but knowledge of A that he will only give 75,000.
debtor without the the debtor
consent of the
debtor Why? Because support cannot be set off or compensated
against another obligation.
GR: Debtor may set Debtor can set
Compensation up the defense up
can no longer be of compensation compensation as ARTICLE 1288. Neither shall there be compensation
set up of debts prior to a defense for all if one of the debts consists in civil liability arising
the assignment debts maturing from a penal offense.
UNLESS the prior to his
debtor reserves knowledge of
his right to set the assignment Art. 1288 gives the general rule.
up
compensation
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Q: What is the exception, wherein a debt consisting of a Q: What is the order?
civil liability arising from a penal offense may still be
compensated? A: First, the debtor will choose. If the debtor is unable to
choose, then the creditor will specify in the receipt. If the
Exception to compensation with regard Civil liability creditor fails to specify in the receipt, then the obligation
arising from a penal offense: which is more burdensome. If they are equally
burdensome, then pro-rata.
- When it is the victim who sets-up the
compensation
ARTICLE 1290. When all the requisites mentioned in
Article 1279 are present, compensation takes effect by
TN: ONLY the VICTIM can set-up compensation.
operation of law, and extinguishes both debts to the
Example: concurrent amount, even though the creditors and
debtors are not aware of the compensation.
Victim is indebted to the perpetrator, only the victim can
set-up compensation. You don’t do anything, it just happens. The obligation is
extinguished - both debts to the concurrent amount,
5. Obligations to the Government such as taxes, fees, even though the creditors and debtors are not aware
duties, and others of similar features. of the compensation.
Example: You are a contractor for government
construction projects amounting to 20M which remains ARTICLE 1291. Obligations may be modified by:
unpaid and you also have unpaid tax liabilities (1) Changing their object or principal conditions;
amounting to 15M. (2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the
You cannot tell the BIR that you no longer will pay creditor.
because the government owes you 20M. You are
indebted to the government for taxes not in a civil
liability but in its sovereign capacity.
NOVATION
Q: If there several debts, both parties are indebted to
each other and all are due and demandable but there can
only be partial compensation, which debt will be Q: What is Novation?
compensated first?
A: Novation is a mode of extinguishment of obligation
A: The rules on application of payment will be where it is either the:
applied.
1. Changing of their object or principal conditions
2. Substituting the person of the debtor (Change of
ARTICLE 1289. If a person should have against him Debtor)
several debts which are susceptible of compensation, 3. Subrogating a third person in the rights of the
the rules on the application of payments shall apply to creditor (Change of Creditor)
the order of the compensation.
Q: What are the requisites for novation to take place?
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1. Previous valid obligation – Because if the 2. If it can be enforced together, then no novation.
obligation is void, then there is nothing to 3. If there is incompatibility, then there is implied
novate. So, the previous obligation must be valid. novation.
2. The parties must agree to the new obligation;
3. Extinguishment of old obligation; and Test of incompatibility:
4. New obligation should be valid
In implied novation, the test of incompatibility between
the old obligation and the new obligation is whether or
1. Real or objective - change in the conditions. not the two of them can stand together, each having its
2. Personal or subjective - change of the debtor or own independent existence.
creditor.
The case of Cruz v. CA illustrates this test.
a. Expromission - change of the old debtor was
initiated by a third person, the new debtor.
CRUZ V COURT OF APPEALS
b. Delegation - change of the old debtor was
initiated by himself. In this case, the wife and children of deceased Cruz
executed a Deed of Partial Partition, dividing among
3. Mixed - change in the conditions or change of the themselves parcels of land left behind in the estate.
parties. They later executed a MOA agreeing that if one of
them were to sell their designated land, the proceeds
would be shared with everyone.
Art 1292. In order that an obligation may be
extinguished by another which substitute the same, it is The spouses Malolos sued one of the children Nerissa,
imperative that it be so declared in unequivocal terms, and lands belonging to her from the inheritance were
or that the old and the new obligations be on every levied for the enforcement of the judgment debt. The
point incompatible with each other. lands were sold at public auction and the spouses
bought it.
Two Types of Novation
The other Cruz heirs opposed, saying that by the
1. Express - declared in unequivocal terms. execution of the MOA, the DPP was novated to make
2. Implied - no clear expression of such novation but them all co-owners of all the lands of the estate.
the old and the new obligation are incompatible with
each other. The issue in this case is whether or not the DPP was
indeed novated by the MOA.
Novation is never presumed
The Supreme Court said NO, because it was not the
If it is not expressly stated that there is novation, you
intention of the parties. There was neither express
cannot just assume even if there is a new contract. You novation nor complete incompatibility between the
cannot just assume that there was novation. It has to be DPP and the MOA that would amount to novation.
proven that the old and the new obligations are
completely incompatible. The DPP granted title to the lots inherited, and
designating them to each of the heirs, while the MOA
Steps in Construing New Contracts merely added an agreement that any sale would
redound to their collective benefit. There is no
1. Reconcile the old and the new obligations
incompatibility, and since both documents can exist
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together, there is no novation.
In this case, the contracts do not show existence of an
explicit statement of novation, nor are any of the
In this case, the Supreme Court found no incompatibility stipulations incompatible with each other. In fact, the
between the second agreement (MOA) and the first second contract merely shows that the real estate
agreement (DPP). Novation is never presumed, so you mortgage was merely intended as additional
have to prove that in all points, the two agreements are security to the chattel mortgage. Novation was not
incompatible. intended here, so the chattel mortgage subsists.
Another case involving mortgage also illustrates this. The Supreme Court said you can execute as many
mortgage contracts. They are not incompatible with each
PEOPLE’S BANK AND TRUST CO V SYVEL’S other. The intent really was to have more properties
INC. secure the debt. Novation is never presumed.
In this case, Syvel was granted a credit line with The Supreme Court also had the occasion to say that if
PBTC with a guaranty of merchandise covered by a there is an increase of the term or period, such as when
chattel mortgage. The outstanding balance of Syvel there is a postponement of the date of payment or an
amounted to P601K, so when it failed to make
extension of the period of payment, there is certainly NO
payment, PBTC foreclosed the chattel mortgage.
novation. Because in such cases, there is no clear case of
Mr. Syyap, owner of Syvel, requested that PBTC incompatibility between the two obligations. Neither is
dismiss the case in consideration of a real estate there a change in the obligatory relation between the
mortgage he would execute as security for the payment parties which will alter the essence of the obligation. If
of the outstanding obligation, which PBTC allowed. there is an extension, that is not changing the obligation.
However, when PBTC moved to dismiss, Syvel
contested because of their counterclaim, so trial
But when there is a reduction or decrease of the duration
proceeded.
of the term or period, there is certainly a NOVATION
The trial court ordered Syvel to pay, and if they failed not only because there is a clear case of incompatibility
to do so, the chattel mortgage must be sold and the between the two obligations, but there is also a change or
proceeds applied to the debts. On appeal, Syvel argued alteration of the principal condition of the old obligation.
that the original agreement with the chattel mortgage
was novated with execution of the new agreement with If there is an extension — NO NOVATION
the real estate mortgage, so PBTC’s cause of action
was extinguished. If there is reduction of the term — THERE IS
NOVATION. There is now incompatibility because the
The issue in this case is whether or not there was new obligation will shorten the period. Unlike when
novation when the real estate mortgage was instituted. there is an extension, there is no incompatibility because
the old obligation which is due earlier is still being
The Supreme Court said NO. Novation can only take enforced with the new obligation.
place when the object or principal condition of an
obligation is changed, and that there must be an
explicit statement or that there must be manifest Art. 1293. Novation which consists in substituting a
incompatibility between the two agreements to new debtor in the place of the original one, may be
amount to novation. made even without the knowledge or against the will
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Requisites of Delegacion
of the latter, but not without the consent of the creditor.
Payment by the new debtor gives him the rights
1. Initiative comes from the old debtor
mentioned in Articles 1236 and 1237. (1205a)
2. Consent of the new debtor
3. Acceptance by the creditor of the substitution
Novation which consists in substituting a new debtor in
the place of the original one, may be made even without Example: A is indebted to B in the amount of 100K.
the knowledge or against the will of the latter – this A offered C, a third person, to be the new debtor. It
speaks of EXPROMISION because the initiative of the must be with the consent of C and accepted by B.
change of the debtor is not coming from the original
debtor. Because it could either be with his knowledge or Q: Now supposing in expromission, if the debtor has no
against his will. But it should not be without the consent knowledge of the substitution and the new debtor
of the creditor. becomes insolvent, what now happens to the obligation?
Can the creditor go after the old debtor?
Even if the change of the debtor is not initiated by the
debtor himself, in fact it could be against his will or A is indebted to B in the amount of 100,000, C is the
without his knowledge — it is necessary that the creditor third person, he offers himself to pay and becomes the
gives his consent. new debtor, and this is accepted by the creditor, but A,
debtor, has no knowledge. If C does not fulfill the
Note: Payment by the new debtor gives him the rights obligation due to insolvency, can B, creditor, compel the
mentioned in Articles 1236 and 1237. old debtor to pay?
To wit: A: Because the initiative does not come from the old
debtor and B, the creditor, has accepted the substitution,
- Payment with the knowledge of the debtor will
even if the new debtor is not able to fulfill his obligation
entitle the payor to full reimbursement and
or becomes insolvent, B cannot go after A.
subrogation
- But payment without the knowledge or against the
will of the debtor, there is only beneficial ARTICLE 1294. If the substitution is without the
reimbursement. knowledge or against the will of the debtor, the new
debtor’s insolvency or non-fulfillment of the
obligations shall not give rise to any liability on the
part of the original debtor.
Requisites of Expromision
Q: Now, what if it is A, debtor, who offered the new
1. Initiative comes from the new debtor debtor, C, and C consented and B, creditor, accepted. C
2. Creditor consents to the substitution is insolvent. Will B be able to go after A, the old debtor?
Example: A is indebted to B in the amount of 100K.

A: Still, no. That is Article 1295.
C a third person, a new debtor, pays B. Remember,
this payment could be with or without the knowledge
GR: Because nagkasinabot namong tanan na
of A. What is important is that B must give his
magchange ug debtor, so the creditor should not go after
consent.
the old debtor anymore.
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EXP: Because there was no valid novation unless it was really

1. when said insolvency was already existing and of the intent of the parties that the old obligation be
public knowledge, or extinguished.
2. known to the debtor, when he delegated his

debt.
Art. 1298. The novation is void if the original
Why? Because there is fraud involved here. You offered obligation was void, except when annulment may be
someone whom you know cannot pay because at the time claimed only by the debtor or when ratification
you made a delegation, he was already insolvent and you
validates acts which are voidable.
knew of it. In these cases, your creditor can still go after
the old debtor.
There is nothing to novate.
Art. 1295. The insolvency of the new debtor, who has
been proposed by the original debtor and accepted by Exception: annulment may be claimed only by the
the creditor, (this is your delegacion) shall not revive debtor or when there is ratification. Basically, it is not a
the action of the latter against the original obligor, previous void obligation but a voidable one.
except when said insolvency was already existing and
of public knowledge, or known to the debtor, when the
delegated his debt. Art. 1299. If the original obligation was subject to a
suspensive or resolutory condition, the new obligation
Or the insolvency is already existing at the time of the shall be under the same condition, unless it is
delegation Or the insolvency is already existing at the otherwise stipulated.
time of the delegation and already of public knowledge.
- The creditor can still go after the old debtor.
Art. 1300. Subrogation of a third person in the rights
of the creditor is either legal or conventional. The
Art. 1296. When the principal obligation is former is not presumed, except in cases expressly
extinguished in consequence of a novation, accessory mentioned in this Code; the latter must be clearly
obligations may subsist only insofar as they may established in order that it may take effect.
benefit third persons who did not give their consent.
Change of creditor may be:

The accessory will also be extinguished. ● Voluntary Subrogation - by agreement between
the parties.
Exception: ● Legal Subrogation - takes effect by operation of
If there are 3rd persons who may benefit from it and they law.
did not give their consent.
Art. 1301. Conventional subrogation of a third person

Art. 1297. If the new obligation is void, the original requires the consent of the original parties and of the
one shall subsist, unless the parties intended that the third person
former relation should be extinguished in any event.
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Why is consent needed? Because it’s voluntary. If there’s ● C, a creditor, pays another creditor B (preferred,
a new creditor, then the debtor and the old creditor must why preferred? Secured by mortgage; more
agree, that’s conventional subrogation. onerous)
What does 1302 tell you?

Art. 1302. Legal Subrogation. It is presumed that ● C shall acquire the credit of B as well as the right
there is legal subrogation: to foreclose the mortgage
What does that mean?
(1) When a creditor pays another creditor who is Meaning si C duha na iya kolektahunon – 20k & 100k
preferred, even without the debtor's knowledge; plus he steps into the shoes of B
● C is now subrogated into the rights of B
(2) When a third person, not interested in the
obligation, pays with the express or tacit approval of Example #2
the debtor; ● A is indebted to B 100,000
● C, not interested in the fulfillment of the
(3) When, even without the knowledge of the debtor, obligation, pays with express approval of A
a person interested in the fulfillment of the obligation ● Full reimbursement + subrogation
pays, without prejudice to the effects of confusion as
to the latter's share. If C is guarantor, full reimbursement + subrogation
A is indebted to B 100K. C, third person, pays. C,

person, not interested in the fulfillment of the obligation,
Presumed when: if C pays the obligation of A to B, with the express or
tacit approval of A, as we said 1236 and 1237, full
● A creditor pays another who is preferred, even
reimbursement plus subrogation. If C is a guarantor even
without the debtor’s knowledge;
without the consent of A, still full reimbursement plus
● A 3rd person not interested in the obligation pays
subrogation because he is a third person interested in the
with the express and tacit approval of the debtor
fulfillment of the obligation. That’s 1302, paragraph 3.
o CONSENTS: Full reimbursement +
Subrogation is the transfer to the person subrogated to
subrogation
the credit of all the rights thereto appertaining. Same
● A person interested in the fulfillment of the atong when a creditor pays another creditor who is
obligation pays even without the knowledge of a preferred, he steps into the shoes of the creditor. He can
debtor, without prejudice to the effects of now also exercise all the rights of the creditor. So all the
confusion as to the latter’s share (guaranty, rights thereto appertaining either against the debtor or
surety) against the third persons, be they guarantors or
possessors of mortgages, subject to stipulation in a
ILLUSTRATION: conventional subrogation.
● A is indebted to B 100,000 secured by a

mortgage
● A is indebted to C 20,000 (so duha iya creditors)
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44
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Art. 1303. Effects of subrogation. Subrogation
transfers to the persons subrogated the credit with all
the rights thereto appertaining, either against the debtor
or against third person, be they guarantors or
possessors of mortgages, subject to stipulation in a
conventional subrogation.
Subrogation transfers to the person subrogated the

credit with all the rights thereto appertaining either
against the debtor or against 3rd persons subject to
stipulation in a conventional subrogation
● Obligation subsists as it has not yet been

extinguished or paid
● Suspensive condition: the new creditor cannot
collect until after the condition is fulfilled
Art. 1304. A creditor, to whom partial payment has

been made, may exercise his right for the remainder,
and he shall be preferred to the person who has been
subrogated in his place in virtue of the partial payment
of the same credit.
A indebted to B in the amount of 10, 000 plus secured by

mortgage. A indebted also to C, 20, 000. C Pays B, 6000.
He pays the 6000 sa 10, 000 na utang ni A kay B. The
remaining 4, 000 should still be paid. Kinsa’y una ang
bayaran? 1304 says it is still B. B is still preferred
because the preference continues.
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45

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CIVIL LAW REVIEW | OBLICON TRANS | ATTY.

Payment or Performance Art. 1233. A debt shall not be understood to have

(2) By the loss of the thing due:

(6) By novation. 1234. Substantial Performance.

Q: The obligation is to deliver 100 sacks of rice of a

Example: T paid 500k to C with consent D

D can get it from C.

Article 1237. Whoever pays on behalf of the debtor

Example: GR: Invalid

(1) If after the payment, the third person acquires the

Q: Supposing debtor obliged himself to deliver a specific

A: No, this is not allowed under the 2 nd paragraph of Example:

GR: A debtor cannot fulfill his obligation by delivering a

Extraordinary inflation or deflation.

Applicability 1252. He who has various debts of the same kind in

A: Apply first to 45,000 with a pledge because it is more

Interest must be paid first. 1st debt: 500,000 / 545,000=91.74%

Long method: 45,000 / 545,000 × 40,0000 = 3 ,302.75

Order of Payment. IOW: 1st debt divided by total debt multiplied by

Properties Generally all Not all Requisites of a Valid Consignation

Insolvency Requires full Even if solvent

Ownership Merely assigns; Ownership

(3) When, without just cause, he refuses to give a

Your tender of payment, as the debtor, could either be

If you do, it will be found that it was not made validly or

4. Subsequent notice of consignation.

1261 is different from 1260, in the latter, the debtor

ISSUE: Whether or not the consignation is valid.

RULING: No, the Spouses failed to offer a valid and

Thus, if the thing is lost due to the fault of the debtor,

ARTICLE 1262. An obligation which consists in the Illustration:

GR Article 1263. In an obligation to deliver a generic

GR: The obligation continues to exist because a generic

When we talk about loss due to fortuitous events,

Disputable presumptions if the private document Example:

Q: What happens to the obligation?

Ans: The obligation of B will be extinguished but the

Ruling: Months before her death, Marcela left her husband

Ruling: NO. The trial court held that there was an

ISSUE: Whether there is confusion or merger in so far

In addition (from 2021 404 digest):

If Earnshaw had such right, naturally the defendant and

When the plaintiff attempted to foreclose the mortgage

MBL: I wanted to explain this case because somehow

There’s no compensation since one debt is not yet due Example #3

If the assignment is made without the knowledge of the

ASSIGNMENT WHEN COMPENSATION HAS Illustration:

Example: A is indebted to B in the amount of 100K.

EXP: Because there was no valid novation unless it was really

2. known to the debtor, when he delegated his

Change of creditor may be:

Art. 1301. Conventional subrogation of a third person

What does 1302 tell you?

A is indebted to B 100K. C, third person, pays. C,

● A is indebted to B 100,000 secured by a

Subrogation transfers to the person subrogated the

● Obligation subsists as it has not yet been

Art. 1304. A creditor, to whom partial payment has

A indebted to B in the amount of 10, 000 plus secured by