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WEEK 7
EXTINGUISHMENT OF OBLIGATIONS
Article 1231 of the Civil Code states that Obligations are extinguished: (1) by payment or performance,
(2) by the loss of the thing due; (3) by the condonation or remission of the debt; (4) by the confusion or merger of the
rights of creditor and debtor; (5) by compensation; (6) by novation. The provision proceeded that other causes
of extinguishment of obligations include annulment, rescission, fulfillment of a resolutory condition and
prescription. Other modes include renunciation or waiver by the creditor, compromise, death of one of the parties in
a purely personal obligation and mutual assent or dissent.1
I. PAYMENT OR PERFORMANCE
Article 1232 defines Payment as not only the delivery of money but also the performance, in any other manner, of
an obligation.
Payment is viewed in three (3) different ways:
1) Consists in the fulfillment of the obligation either voluntarily or involuntarily, including its
extinguishment by any means or mode whatsoever;2
2) Consists in the normal and voluntary fulfillment of the obligation by the realization of the purposes for which it
was constituted;3
3) Fulfillment of the obligation by the delivery of a sum of money.4 In
law, payment and performance are synonymous.5
Article 1233, debt refers to an obligation to deliver money, to deliver a thing (other than money, to do an act or not
to do an act.6 The rules under Article 1233 can be summarized as follows:
Compliance with an Obligation to Give When the debtor or obligor has completely
delivered the thing which he had obligated himself to
deliver.7
Compliance with an Obligation to Do When the obligor has completely rendered the
service which he had obligated himself to render.8
Compliance with an Obligation Not to Do When the obligor has completely refrained from
doing that which he had obliged himself not to do.9
Exceptions to the Rules in Article 1233

1
8 Manresa, 5th Ed., Bk. 1, 3 Castan, 7th Ed.
2
Jurado, D.P. (2010). Comments and Jurisprudence on Obligations and Contracts: Quezon City: Rex
Printing Company, Inc.
3
Ibid.
4
3 Castan, 7th Ed., 236
5
De Leon, H.S. (2014). The Law on Obligations and Contracts. Quezon City: Rex Printing Company,
Inc.
6
Ibid.
7
Supra, note 2.
8
Ibid.
9
Ibid.
1) If the obligation has been substantially performed in good faith, the obligor may recover as though there
had been a strict and complete fulfillment, less damages suffered by the oblige. 10 The requisite for this exception
to apply are: (a) there must be substantial performance; and (b) the obligor must be in good faith.
Substantial performance means that the important or essential part of the contract had been performed and only a
small or minor part thereof has not been carried out.11
2) When the obligee accepts the performance, knowing its incompleteness or irregularity and with expressing
any protest or objection.12 The requisites for this exception to apply are: (a) the oblige knows that the
performance is incomplete or irregular; and (b) he accepts the performance without any protest or objection.
A.Who must Pay
The creditor is bound to accept payment or performance from the following:
1) the debtor, 2) any person who has an interest in the obligation and 3) a third person who has no interest in the
obligation when there is stipulation that he can make payment.13
EFFECT OF PAYMENT BY A THIRD PERSON
If made without the knowledge or against the If made with the knowledge of the debtor
will of the debtor.
The one who paid can recover from the debtor only The payer shall have the rights of reimbursement
insofar as the payment has been beneficial to the and subrogation, that is, to 1) recover what he has
debtor.14 This is the right of reimbursement. paid and 2) to acquire the all the rights of the
creditor.16
Whoever pays on behalf of the debtor without the
knowledge or against the will of the latter cannot
compel the creditor to subrogate him in his rights,
such as those arising from a mortgage, guaranty or
penalty.15
10
Article 1234, Civil Code.
11
Supra, note 5
12
Article 1235, Civil Code. Joe’s Radio and Electrical Supply vs. Alto Electronics Corp. 104 Phil. 333.
13
Supra, note 11.
14
15
16
Supra, note 13 citing Articles 1236, 1237, 1302 and1303, Civil Code.
Subrogation can only take place with the
consent of the debtor.17
SUBROGATION REIMBURSEMENT
The right to subrogation is wider in scope. The Applies whether the payment is effected with the
payor who exercises right to subrogation steps knowledge and consent of the debtor or without his
into the shoes of the creditor. The payor exercise all knowledge or even against his will.19
the rights which the creditor could have exercised
against the debtor and against the third persons such Payment with knowledge and consent of the
as those arising from a mortgage, guaranty or debtor, third person payor can recover from the latter
penalty.18 the entire amount which he has paid.20
Payment without knowledge or against the will

of the debtor, third person payor can only recover as
the payment has been beneficial to the latter.21
Note: If the third person pays without any intent to be reimbursed by the debtor, the presumption arises that such
payment is a donation.22 In this case, debtor’s consent is necessary for the same to be valid.23 However, if the
creditor accepts the payment, the same shall be valid as to him and the payor although the debtor did not give his
consent to the donation.24
Note: In obligations to give, payment (or performance by one who does not have the free disposal of the
things due and capacity to alienate it shall not be valid without prejudice to Article 1427 of the Civil Code.25
Ex. A delivers to B a motorcycle belonging to C. In this case, C may recover the motorcycle because the
payment is invalid. This also applies to minors and insane persons.
B.Who must be Paid
Under Article 1240, payment shall be made to:
a) the creditor or the obligee (person in whose favor obligation has been constituted), which may
17
Supra, note 5
18
Supra, note 2.
19
Supra, note 16
20
21
Ibid.
22
23
Ibid, Article 725, Civil Code.
24
Supra, note 2.
25
include the person who has been subrogated to the rights of a creditor at the time of payment;
b) his successor in interest (heir or assignee);
c) any person authorized to receive it26 such as a guardian, executor, administrator or assignee or liquidator of
a partnership.27
Note: If payment is made to a person other than those enumerated in Article 1240, it shall not be valid. There are
two (2) exceptions to this rule:
1) Payment to a third person that redounded to the benefit of the creditor. Benefit to the creditor MUST be proven
except:
a) if after the payment, the third person acquires the creditor’s rights;
b) if the creditor ratifies the payment of a third person;
c) if by the creditor’s conduct, the debtor has been led to believe that the third person had authority to receive
the payment.28
2) Under Article 1242, payment in good faith to any person in possession of the credit shall release the debtor.
Possession referred to in this provision refers to the credit itself and not merely the document or instrument of the
document or instrument evidencing the credit.29
Note: If the payment is made to a person who is incapacitated to administer his property, the payment is
considered valid if: (a) if he has kept the amount or thing paid or delivered or (b) insofar as the payment has
been beneficial to him.30 Example: X gave P1,000 to Y, an insane person under guardianship, as payment for a
debt. Y lost P400 due to negligence. In this case, payment shall be considered as only up to P600. But if Y kept
the money or used it for medication, the payment shall be valid.
C.What must be Paid
Article 1244 states that the debtor of a thing cannot compel the creditor to receive a different one, although the
latter may be of the same value as, or more valuable that that which is due. The same rules apply to obligations
to do or not to do. The only exception is when the oblige consents such as in facultative obligations.31
In obligations to deliver a generic thing, the creditor cannot demand a thing of superior quality while the
26
Supra, note 5.
27
Supra, note 1.
28
29
Supra, note 26.
30
Supra, note 2.
31
debtor cannot demand a thing of inferior quality.32 The parties may waive their right in cases where the debtor
delivers a thing of superior quality or when the creditor accepts a thing of inferior quality.
Example: B promised to deliver a dog to S. S cannot compel B to deliver a dog show winning, top breed dog
with many red marks. B cannot compel S to receive a dog infested with fleas. In any case, the circumstances of
the parties will be taken into consideration. If S is a dog breeder and B knows it, then B must deliver a high
quality dog.
Expenses of payment shall be borne by the debtor unless there is stipulation to the contrary.33
D.In what form must the Payment be Made
There are four (4) special forms of payment under the Civil Code: (1) dation in payment, (2) application of
payments, (3) payment by cession and (4) tender of payment and consignation. The last three will be discussed in
the succeeding modules.
Dation in payment (adjudication or dacion en pago) is defined as the transmission of the ownership of a
thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation. 34 This transmission
of ownership is governed by the Law on Sales. It is one of the special forms of payment wherein an existing
debt in money is satisfied, not by payment of money but by the alienation of property.35 Example: A executed a
promissory note in favor of B promising him to pay P100,000 in two (2) years. When the obligation became
due, A and B entered into an agreement wherein A shall deliver a motorcycle to B as equivalent of the
performance of the obligation.
In order that payment may extinguish an obligation, it is necessary that there be complete performance of the
prestation.36 There are three recognized exceptions: (a) first, when the obligation expressly states so, (b) the
different prestations or objects of the obligations are subject to different terms and conditions; and (c) when the
obligation is in part liquidated and in part unliquidated. 37 Example: A obliged himself to pay B P1,000
tomorrow and P4,000 next week. In this case, A can pay B P1,000 tomorrow in partial fulfillment of the
obligation. The obligations in this case are subject to different terms.
Commentator Castan requires three conditions or characteristics in order that payment may extinguish an
obligation:
1) identity which means only the prestation agreed upon and no other must be complied with;
2) completeness which means that the thing or service in which the obligation consists must be
completely delivered or rendered;
32
33
34
Supra, note 1.
35
Supra, note 5.
36
Ibid citing Article 1233, Civil Code.
37
8 Manresa, 5th Ed. Bk. 1
3) indivisibility meaning payment or performance must be indivisible.38
Legal Tender is that currency which if offered by the debtor in the right amount, the creditor must accept in
payment of a debt in money.39 In the Philippines, all coins and notes issued by the Bangko Sentral ng Pilipinas
constitute legal tender for all debts, both public or private.40
The payment through promissory notes, bills of exchange or other mercantile documents shall produce the effect
of payment in two (2) instances:
1) when they have been cashed;

2) when through the fault of the creditor, the same have been impaired.41 The creditor can only bring an action
for non payment of debt if the instrument has been dishonored.42
Example: If B failed to encash the check delivered by A as payment of obligation and the same has lost its
value, such check shall produce the effect of payment since it was through B’s fault that the check has been
impaired. B can no longer file an action for non payment of debt against A.
E.Where to Pay
If there is a stipulation as to the place of Payment shall be made in the place designated43
payment
If there is a stipulation and the obligation Payment shall be made at the place where the thing
involves a specific thing was, at the perfection of the contract.44
Example: X obliged to deliver a specific TV to Y. If

there is no agreed place of delivery and the TV was at
Z’s house, then the delivery shall be at Z’s house.
If the TV is currently in transit such as a temporary

warehouse or at the port, the place of delivery shall be
at X’ domicile.
If there is no stipulation and the obligation Payment shall be at the domicile of the debtor.45
involves a generic thing Domicile is the place of a person’s habitual
38
Supra, note 2.
39
Supra, note 35.
40
Ibid.
41
42
Ibid.
43
44
Ibid.
45
Ibid.
residence.46 This is the place where he has his true
fixed permanent home and to which place he, whenever
absent has the intention of returning.47
If the debtor changes his domicile in bad faith or after

he has incurred delay, the additional expenses shall
be borne by him.48
F.Factors Affecting Payment
Inflation Deflation
Sharp sudden increase of money or credit or both Reduction in volume and circulation of the
without a corresponding increase in business available money or credit, resulting in a decline in
transactions.49 It causes a drop in the value of price level.51
money, resulting in the rise of the general price
level.50
In case of extraordinary inflation or deflation of the currency stipulated should supervene, the value of the
currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an
agreement to the contrary.52
Article 1250 applies ONLY in contractual obligations where a currency is selected by the parties as the
medium of payment.53
Example: A borrowed from B the amount of P10,000 payable in 10 years. After 10 years, the value of
P10,000 decreased to P2,000 because of inflation. Assuming that the inflation was extraordinary in character,
A will only be liable for P2,000 unless there is agreement to the contrary.
WEEK 8
I. FORMS OF PAYMENT
A.APPLICATION OF PAYMENTS
Application of payments is the designation of the debt to which the payment made by a debtor shall be
applied.1 In order for application of payments to occur, the following requisites must be present:
a) There must be one (1) debtor and one (1) creditor;

b) There must be two (2) or more debts;
c) The debts must be of the same kind;
(d)The debts to which the payment made by the debtor has been applied must be due;
(e) The payment must NOT be sufficient to cover all the debts.2
The application of payments as to debts not yet due cannot be made UNLESS:
1) there is a stipulation that the debtor may apply payments;

2) it is made by the debtor or creditor, as the case may be, for whose benefit the period has been
constituted.3
Rules in Application of Payments:
a) The right to designate the debt to which the payment shall be applied belongs primarily to
the debtor.4 The right must be exercised at the time the payment is made;
b) If the debtor does not exercise the right, the creditor may make the designation by the
indicating in the receipt which debt is being paid.5 The debtor may reject or accept the
designation but once the receipt is accepted, the application or designation in the receipt can
no longer impugned.6
c) If neither the creditor nor the debtor made the application, the payment shall be applied to
the debt which is due and the most onerous to the debtor;7
d) If the debts are of the same nature and burden, the payment shall be applied
proportionately.8
A owes B the following: (1) P3,000 payable on December 11; (2) P3,000 payable on
1
Article 1252 , C iv il Code.
2
De Leon, H .S . (2014 ). The Law on O bligations and Contracts. Q uezon C ity : Rex Printing Com pany,
Inc.
3
Supra, note 2 c iting Articles 1196 and 1792 , C iv il Code.
4
5
Ib id .
6
G arcia vs. Enriquez, 71 Phil. 423 .
7
8
Supra, note 2 .
December 23; (3) a specific TV set worth P7,000 to be delivered December 23 and (d) P1,000
payable on December 27.
On December 23, A can apply his payment of P3,000 to either (1), (2) or (3) if B does not
object. A cannot apply his payment to (4) since the same is not yet due.
If A does not exercise his right, B can make the designation which A may accept or reject.
But once A accepts the receipt, the designation can no longer be questioned.
Under Article 1253, if the debt produces interest, payment of the principal shall not be
deemed to have been made until the interests have been covered. The payment must be applied
first to the interest and whatever balance is left can be credited to the principal.9
Legal Application of Payment
If neither the creditor nor the debtor made the application, the payment shall be applied to the
debt which is due and the most onerous to the debtor. 10 If the debts are of the same nature and
burden, the payment shall be applied proportionately.11
Rules in Legal Application of Payment:
1) Where there are various debts which are due and they were incurred at different dates,
the oldest are more onerous to the debtor that the more recent ones.12
2) A debt bearing interest is more onerous to the debtor.13 As between two debt bearing
interest, the higher rate is more onerous
3) When one debt is secured and the other is not, the debt with security is more
onerous to the debtor.14
4) A debtor as a sole debtor is more onerous than as a solidary debtor.15
5) An obligation for indemnity is more onerous that another obligation for penalty.16
6) The liquidated debt is more onerous to those which are not.17
Note: Solidary liability is most onerous followed by debt with a security then a debt bearing
interest.
B. PAYMENT BY CESSION
9
Supra, note 2 .
10
11
Supra, note 2 .
12
Jurado, D .P . (2010 ). Com m ents and Jurisprudence on O bligations and Contracts. Q uezon C ity : Rex
Printing Com pany, Inc.
13
M enzi & Co. vs. Q uing Chuan, 69 Phil 46
14
M ission de San V icente vs. Reyes, 19 Phil 525
15
Com m onwealth vs. Far Eastern Surety, 83 Phil 305 .
16
Supra, note 12 .
17
8 M anresa, 5 th Ed., Bk. 1
Cession or assignment may be defined as a special form of payment whereby the debtor abandons all of
his property for the benefit of his creditors in order that from the proceeds thereof the latter may obtain payment
of their credits.18 Unless there is a stipulation to the contrary, the assignment does not make the creditors the owners
of the property of the debtor and the debtor is released from his obligation only up to the net proceeds of the sale
of the property assigned.19 What is transferred to the creditor is only the possession of the thing or objects so that
they can proceed with the sale and from the proceeds thereof their respective credits will be paid.20
In order for the debtor to avail of payment by cession, the following requisites must concur:
a) There must be two (2) or more creditors;

b) The debtor must be partially insolvent;
c) The assignment must involve all the properties of the debtor; and
(d) The cession must be accepted by the creditors.21
DATION IN PAYMENT PAYMENT BY CESSION
There is only one (1) creditor Plurality of creditors is essential22
In dation in payment, insolvency of the debtor is Debtor must be insolvent at the time of
not necessary assignment
Involves only one thing which is considered to be Debtor cedes all of his property
the equivalent of the performance of the
obligation
Payment extinguishes the obligation to the extent of Releases the debtor for the net proceeds of the things
the value of the thing delivered23 ceded or assigned, unless there is a contrary
intention.24
C. TENDER OF PAYMENT and CONSIGNATION

Tender of payment consists in the manifestation made by the debtor to the creditor of his decision to
comply immediately with his obligation. 25 Consignation is the act of depositing the thing or amount due
with the proper court when the creditor does not desire or cannot receive it, after complying with the
formalities required by law.
18
8 M anresa, 5 th Ed., Bk. 1
19
20
3 Castan, 7 th Ed.
21
Supra, note 12 .
22
Ib id .
23
Ib id .
24
Supra, note 18
25
Supra, note 12 .
Tender of Payment always precedes consignation. Tender is extrajudicial in nature while consignation is judicial
in character. Consignation, in order to be valid, must also comply with the provisions on payment. 26
Requisites of Consignation:
1) That there is a debt due;

2) Debtor made a previous valid unconditional tender of payment and the creditor refused to
accept it without any justifiable reason;
Exceptions: In these instances, consignation alone is sufficient:

a) when the creditor is absent or unknown, or does not appear at the place of payment;
b) when he is incapacitate to receive the payment at the time it is due;
c) when, without just cause, he refuses to issue a receipt;
d) when two or more persons claim the same right to collect;
e) when the title of the obligation has been lost.27
3) Previous notice of consignation28 not only to the creditor but also other persons interested
in the fulfillment of the obligation. The purpose to give the creditor a chance to reflect on his
previous refusal to accept the payment considering that the expenses of consignation shall be
charged against him.29
4) The thing or amount had been place at the disposal of judicial authority;30
5) After the consignation was made, a subsequent notice must be made to those interested in
the fulfillment of the obligation.31
Subject Matter of the Consignation

Based on Article 1258, Consignation shall be made by depositing the things due at the disposal of judicial
authority, before whom the tender of payment shall be proved, in a proper case, and the announcement of
the consignation in other cases.
Note: The expenses of consignation when properly made, shall be charged against the creditor.32
Consignation shall be considered properly made:

1) when the creditor accepts the thing or amount deposited as payment without contesting
the efficacy or validity of the obligation;
2) when the creditor contests the efficacy and validity of the consignation and the
26
27
Article 1256 , C iv il Code
28
Supra, note 26 .
29
30
Supra, note 12 , Article 1258 , C iv il Code.
31
Ponce de Leon vs. Syjuco, 90 Phil. 311 .
32
Supra, note 29 .
court decides the it was properly made33
3) when the creditor neither accepts nor questions the validity of the consignation and the
court cancels the obligation of the debtor;34
EFFECTS OF CONSIGNATION EFFECT OF WITHDRAWAL
If the creditor accepts the thing or amount Withdrawal before the consignation is
deposited, the obligation is extinguished. accepted/before a judicial declaration of a
valid consignation
Obligations subsists
If the creditor contests the validity or efficacy of Withdrawal is made with creditor’s consent
the consignation, the result is a litigation.35
The creditor loses every preference he may have over
the thing.
Example: A is indebted to B in the amount of P100,000 with C as guarantor. On the date the
obligation fell due, A tendered payment in the amount of P50,000 to B but B refused. A made a
consignation but later on withdrew the amount with B’s consent. In this case, B shall lose every preference
he may have over the amount and C will be released. If A and C are solidarily liable, C will be released
only as the amount of P50,000.00
II. LOSS OF THE THING DUE

Loss, as defined in Article 1189, means that the thing which constitutes the object of the obligation perishes, or
goes out of the commerce of man, or disappears in such a way that its existence is unknown or cannot be
recovered. In obligations to do, it may also mean impossibility of compliance with the obligation through any
cause. 36
Requisites of Loss as a Mode of Extinguishment of Obligations

1) The thing lost must be specific or determinate;37
2) The thing is lost without any fault of the debtor;38
3) The thing is lost after the debtor has incurred in delay.39
Note: If the loss was due to fault of the debtor or when the loss occurred after the debtor
has incurred in delay, the debtor is obliged to indemnify the creditor for
33
Supra, note 12 .
34
35
Supra, note 12
36
4 Sanchez Rom an 442 , Article 1266 , C iv il Code.
37
Lawyers Coop. Pub. Co. vs. Tabora, 13 SCRA 762 ,
38
Supra, note 12 .
39
Ib id .
damages.
Fortuitous Events
As a rule, if the thing or object is lost or destroyed through a fortuitous event, the debtor
cannot be held liable. This rule admits of several exceptions:
a) When the law so provides;40
b) When the parties stipulated that the debtor remains liable for fortuitous events;
c) When the obligation requires the assumption of risk; 41
d) When the debtor is partially at fault for the loss or destruction of the thing;
e) When the loss occurred after the debtor has incurred in delay;42
f) When the debtor promised to deliver the same thing to two (2) or more persons who do not
have the same interests;43
g) When the source of an obligation is an act or omission punishable by law. 44 If the thing is
lost or destroyed, the debtor is not exempted from paying the price UNLESS the person who
is supposed to receive it refuses to accept it (mora accipiendi) . In this case, the debtor may (1)
make a consignation or (2) keep the object of the obligation.
h) When the obligation is generic,45 under the maxim genus nunquam peruit (generic thing
never perishes. In this case, debtor may be obliged to deliver a thing of the same kind.46
Partial Loss or Difficulty of Performance (Articles 1264 and 1267, Civil Code)
Partial loss means the only a portion of the thing is lost or destroyed or when it suffers depreciation or
deterioration.47 The difficulty contemplated in Article 1267 means that the performance has become too difficult as to
be manifestly beyond the contemplation of both parties. 48 In both these cases, the court may determine whether
the obligor may be released in whole or in part.
Example: X obliged himself to deliver all the 100 cavans of rice from his August harvest to
Y. Ninety cavans of rice was infested with bugs without any fault on the part of X. The partial
loss can be considered to extinguish the obligation.
Another example: X agreed to build a house for Y in a certain parcel of land. A

typhoon came and caused flash floods which isolated Y’s lot from the main land making it
difficult to transport construction materials and equipment. X may be released, in whole or in part,
from the obligation.
40
Articles 1174 , 1262 , C iv il Code.
41
42
43
Ib id .
44
45
46
Supra, note 2 .
47
Ib id .
48
Ib id .
Presumption of Fault if Loss occurs when the Object is in Debtor’s Possession
Whenever the thing is lost in the possession of the debtor, it shall be presumed that the loss was due to his fault,
unless there is proof to the contrary.49 The presumption does not apply in case of earthquake, flood, storm or other
natural calamity.50
Note: In case of delay or if the debtor promised to deliver the same thing to two (2) or more
persons who do not have the same interest, he shall be responsible for any fortuitous event
until he has effected the delivery.51
Effect of Impossibility of Performance

Under Article 1266 of the Civil Code, the debtor in obligations to do shall also be released when the prestation
becomes legally or physically impossible without the fault of the obligor.
Physical Impossibility takes place when the obligor dies or becomes physically incapacitated to perform
the obligation, particularly in purely personal obligations.52 Example: Donnie totally lost his voice a day
before he was scheduled to deliver a song in a party.
Legal Impossibility takes place when the obligation cannot be performed because it is rendered impossible
by provision of law.53 Example: A was obliged to deliver 100 cows to B. The government issued a
prohibition regarding transport of livestock due to mad cow disease. A’s obligation is extinguished.
Loss due to Third Persons

Article 1269 states that “The obligation having been extinguished by the loss of the thing, the creditor shall
have all the rights of action which the debtor may have against third persons by reason of the loss.” In this case,
the rights of action of the debtor are transferred to the creditor from the moment the obligation is extinguished.54
Example: A is obliged to deliver to B a specific motorcycle. The motorcycle was lost

through C’s fault. A’s obligation is extinguished. B however can proceed against C for the
recovery of the price of the motorcycle with damages.
III. CONDONATION OR REMISSION OF DEBT

Condonation or remission is an act of liberality by virtue of which, the obligee without receiving any
price or equivalent, renounces the enforcement of the obligation, as a result of which it is extinguished in its
entirety or in that part or aspect of the same to which the remission refers.55
Requisites of Condation or Remission:

49
50
Ib id .
51
Supra, note 12 .
52
Supra, note 2 .
53
Supra, note 2 .
54
Ib id .
55
Supra, note 18 .
1) It must be gratuitous, an act of pure liberality of the creditor for the benefit of the debtor;56
2) it must accepted by the obligor;
3) The parties must have capacity;
4) it must not be inofficious; and
5) If made expressly, it must comply with the form of donations.57
KINDS OF REMISSION
Express Implied
Made in accordance with the formalities May be deduced from the acts of the obligee or
prescribed by law for donations58 creditor.59
Complete Partial
When it covers the entire obligation60 When it does not cover the entire obligation.61
Inter Vivos Mortis Causa
Constituted by the agreement of the parties Constituted by the last will and testament
Under Article 1271, the delivery of a private document evidencing a credit, made voluntarily by the
creditor to the debtor, implies the renunciation of the action which the former had against the latter.
This Article talks about an implied remission.62
1) The document evidencing the credit must have been delivered by the creditor to the
debtor;63
2) The document must be a private document;64
3) Delivery must be voluntary.
The presumption is if the creditor voluntarily delivers a private document representing credit to the
debtor, he is deemed to have renounced his right. However, evidence to the contrary may be presented
to rebut this presumption such as when the document was delivered for inspection only.
56
Supra, note 12
57
Supra, note 2 .
58
Supra, note 12 .
59
Ib id .
60
Supra, note 2 .
61
Ib id .
62
Ib id .
63
Supra, note 12
64
Ib id .
If the private document is found in the possession of the debtor, it shall be presumed that the creditor
delivered it voluntarily.65
Note: This provision does NOT apply to public documents.
Example: A owes B P10,000 as evidenced by a promissory note. A signed the note and gave it to B. If
the note is delivered by B to A voluntarily, the presumption is that the obligation has been paid.
If it is known that there was no payment yet, it must be presumed that the obligation has been remitted
by B. If it is not known how A obtained possession of the note, the presumption is that it was voluntarily
given by B unless the contrary is proven.
Recall Article 1219 which states that “The remission made by the creditor of the share which affects
one of the solidary debtors does not release the latter from his responsibility towards the co debtors, in
case the debt had been totally paid by anyone of them before the remission was effected.” Article 1220
states that “The remission of the whole obligation obtained by one of the solidary debtors does not
entitle him to reimbursement from his co debtors.”
Note: The remission of the principal obligation extinguishes the accessory obligation while if the
accessory obligation is waived, the principal obligation subsists.66
Note: In a contract of pledge, debtor delivers to a creditor or a third person a movable property for the
purpose of securing the fulfillment of a principal obligation. If the obligation is fulfilled, the thing
shall be returned to the debtor with all its fruits and accessories. If the thing is found in the possession of
the debtor, the presumption is that the creditor has agreed to the loan without the pledge.
IV.CONFUSION OR MERGER OF RIGHTS

Confusion or merger is the meeting in one (1) person of the qualities of the creditor and debtor with respect
to the same obligation.67 The requisites of confusion are as follows:
(1)It must take place between the principal debtor and creditor;
If the merger takes place in the person of the guarantor extinguishes the guaranty
but leaves the principal obligation in force. 68 Example: A owes B and constitutes D
as his guarantor. If B assigns his credit to C and endorses the credit to D, the
contract of guaranty is extinguished but A’s obligation to B remains.
65
66
67
4 Sanchez Rom an 421
68
Supra, note 2 .
(2)It must be complete.
Example: A owes B the amount of P20,000. A executed a promissory note and gave it to B
who endorsed it to C who then gave it to D. D then bought a two (2) TV sets from A and used
the promissory note to pay A. The result is that the qualities of a debtor and creditor are
merged in A. Hence, the obligation is extinguished.
KINDS OF CONFUSION
Complete Partial
When it covers the entire obligation69 When it does not cover the entire obligation.70
a) the confusion or merger refers only to a part of

the obligation;71 and
b) the obligation is joint.72
Example: X,Y and Z are indebted to A in the

amount of P3,000 as embodied in a promissory
note. A endorsed the note to B who then bought X’s
phone and used the promissory note to pay the
same.
Only X’s share is extinguished. Y and Z are

liable to X in the amount of P1,000 each.
Inter Vivos Mortis Causa
Constituted by the agreement of the parties Constituted by the last will and testament
Note: Confusion in solidary obligations shall extinguish the solidary obligation. 73 The debtor who makes the payment may claim
reimbursement from his co debtors for the shares corresponding to them.74 Example: If the obligations of X,Y and Z are
solidary, the obligation is extinguished but X may claim reimbursement from Y and Z.
WEEK 9
COMPENSATION
Compensation is the extinguishment to the concurrent amount of the debts of two (2) persons
who in their own right are debtors and creditors of each other.1 It may also be defined as the
figurative operation of weighing two (2) obligations simultaneously in order to extinguish them
to the extent in which the amount of one is covered by the amount of the other.2 It may be total
when both obligations are fully extinguished,3 or partial when two (2) obligations are of different
amounts and a balance remains. Compensation actually presents a more convenient and less
expensive method of effecting the payment of two (2) obligations.4
Compensati Payme
on nt
Takes effect by operation of law Takes effect by act of parties
1
De Leon, H.S. (2014). The Law on Obligations and Contracts. Quezon City: Rex Printing Company, Inc.;
3 Castan, 7TH Ed.
2
8 Manresa, 5TH Ed.
3
4
Jurado, D.P. Comments and Jurisprudence on Obligations and Contracts. Quezon City: Rex Printing
Company, Inc..
Capacity to give and acquire is not Capacity to given and acquire is necessary
necessary
Compensation, as a rule is partial Payment is complete and indivisible5
Compensati Confusi
on on
Requires two persons The qualities of a creditor and debtor are
merged in one person
Capacity to give and acquire is not Capacity to given and acquire is

necessary necessary
Compensation, as a rule is partial Payment is complete and indivisible6
Kinds of Compensation
1.Legal. Compensation takes place by operation of law.7 Compensation may take place even if
the debts are payable at different places. 8 He who raises the defense of
compensation shall pay the expenses of exchange or transportation.
2.Voluntary. When compensation takes place by agreement of the parties.9
3. Judicial. Compensation takes place by order from a court in litigation. 10
This is embodied in Article 1283 which states that 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 damages and the amount thereof.
4.Facultative. When compensation can be set up only by one of the parties.11
Requisites of Compensation (Article 1279, Civil Code)
1. Each one of the obligors be bound principally and that he be at the same time a
principal creditor of the other; (compensation cannot apply to guarantors,
guardians, administrators or executors)
2. Both debts consist in a sum of money, or if the things due are consumable, they be of the same
kind, and also of the same quality if the latter has been stated; (take note of the word BOTH
which means identity of kind and quality)
5
Ibid.
6
Ibid.
7
Articles 1279, 1290, Civil Code.
8
9
10
11
3. That the two (2) debts are due;
Exception: The parties may agree upon the compensation of debts which are not yet due.
(Article 1282, Civil Code)
4. That they 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.
Retention consists in the application of the credit of one of the parties to the satisfaction of the
claims of a third person.12
Controversy refers to a case in which a third person claims to be the creditor.13
Example: X owes Y P1,000. Y owes Z P1,000. Y also owes X P1,000. In this case,
compensation may actually take place between X and Y. But if Z claims the credit of X against
Y to satisfy Y’s claim, there can be no compensation.
Note: The guarantor may set up compensation as regards what the creditor may owe the
principal debtor. 14 This is based on the principle that extinguishment of the principal obligation
carries with it the accessory obligation including a guaranty.
Note: When one or both debt are rescissible or voidable, they may be compensated against each
other before they are judicially rescinded or avoided. 15 But if the court later on annuls the debt,
the effect of annulment is retroactive and the parties stand as if no compensation had taken place.
Compensation takes place Compensation takes place after

before assignment assignment
The debtor who consented to the 1) When the assignment is made with
assignment of rights made by a creditor the consent of the debtor
in favor of a third person, cannot set up
against the assignee the compensation The debtor cannot set up against the assignee
which would pertain to him against the the compensation which would have pertained
assignor, unless the assignor to him against the assignor. The effect is the
was notified by the debtor at the same if the
time he
gave his consent, that he reserved compensation takes place before assignment
the right to the compensation.16 with the consent of the debtor.
Example: X owes Y P4,000 due last 2) When the assignment was made
Monday. Y also owes X due P1,000 due with knowledge but without the
last Monday consent of the debtor
Compensation may be made only in the Debtor may set up the defense of
amount of P3,000 so X remains liable to compensation of debts prior to the assignment
Y for P3,000. If Y assigns his credit to Z. but not of subsequent ones.17
Z can only collect P3,000 from X.
X owes Y P3,000 due
However, if X gave his consent to the September 1 Y owes X
assignment, Z may demand from X the P2,000 due September 3
entire P4,000. Meanwhile X can claim X again owes Y P1,000 due September 7
reimbursement from Y in the amount of
P1,000. X assigned his right on September 4. X
notified B but the latter did not give consent.
At the time X gave his consent, he must Compensation can only take place as regards
have reserved his right to the debt prior to the assignment but not
compensation. subsequent ones. No compensation can take
place regarding the debt due on September 7.
3) When the assignment was made

without the knowledge of the debtor
The debtor can set up the compensation of

credits before and after the assignment. If the
debtor acquired knowledge of the assignment
after the maturity of the debts, the debtor can
raise
the defense of compensation.
No Compensation shall take place:

1. When one of the debts arises from a contract of depositum or commodatum.18
16
17
Ibid.
18
Depositum is a contract constituted when a person receives a thing belonging to another with
the obligation of safely keeping it and of returning the same.19 Example X owes Y
P20,000.00 Y owes X the amount of P20,000 representing the value of a mobile phone
deposited by X with Y which the latter failed to return. Y cannot set up compensation. BUT X
can set up his deposit by way of compensation. This is a kind of facultative compensation.20
Commodatum is a gratuitous contract whereby one of the parties delivers to another

something not consumable so that the latter may use the same for a certain time and return it.21
2. When one of the debts arises from a claim for support.22

3. One of the debts consists in civil liability arising from a criminal offense.23
Example: X owes Y P20,000. Y stole X’s mobile phone worth P20,000. Y cannot set up
compensation but X can. (facultative compensation)
4. Obligations in favor of the government such as taxes, fees, duties and others of a similar
nature.24
Note: If a person should have against him several debts which are susceptible of
compensation, the rules on the application of payments shall apply to the order of
compensation. (See Module 8)
Effects of Compensation
1. Compensation extinguishes both debts to the extent that the amount of one is covered by the
amount of the other.25
2. Accessory obligations are extinguished.26
3. In legal compensation, the same takes place once all the requisites in Article 1279 are
fulfilled even without the knowledge or consent of the parties.27 Voluntary compensation takes
place from the moment agreed upon by the parties while judicial compensation will take effect
from the moment the judgment becomes final and executory.28
II. NOVATION
Novation is the substitution or change of an obligation by another, resulting in its extinguishment or
modification, either by changing its object or principal conditions, or by substituting another in place of
the
debtor, or by subrogating a third person in the rights of the creditor.29 It is actually a contract
containing two
(2) stipulations, one to extinguish or modify an existing obligation, the other to substitute a new
one in its place.30
Kinds of
Novation
Legal Conventional
Novation which takes place by operation of Novation which takes place by

law agreement of the parties.
Express Implied
The novation which is declared in When the old and the new obligations are
unequivocal terms31 essentially incompatible with each
other.32
The Test of Incompatibility
Determine whether or not both the old and

new obligation can stand together, each
having its own independent existence.33
If the two obligations can stand

together, there is no incompatibility.
If they cannot stand together, there is

incompatibility; hence there is
novation.34
Example: X obliged himself to build a

house on Y’s parcel of land. After a week,
X bound himself to construct a factory on
Y’s land. The construction plans would not
allow the construction of both structures.
Hence, there is
novation.
Total Partial or modificatory
29
Ibid.
30
Supra, note 1.
31
32
Ibid.
33
Supra, note 4.
34
Ibid.
Old obligation is completely Old obligation is merely modified36
extinguished35
Real or objective Personal or Subjective Mixed
Change either in the cause, Substitution of the person of Combination of

object or principal the debtor or to the objective bot
conditions of the subrogation of a third person an h
obligations. 37 in the rights of the creditor. 38 d novation. 39 subjecti
ve
Passive. Substitutionof
the person of the
debtor.
Active. Subrogation in the

rights of the creditor.
Requisites of Novation
1. A previous valid obligation;
2. An agreement of all parties concerned to a new contract;
3. The extinguishment of the old obligation and
4. The birth of a new obligation.40
Personal Novation
Article 1293 states that Novation which consists in the substituting a new debtor in the place of
the original one, may be made even without the knowledge or against the will of the latter but
not without the consent of the creditor. Payment by the new debtor gives him the rights
mentioned in Articles 1236 and 1237. It may be subrogation when a third person is subrogated
in the rights of the creditor.41
Subrogation is the substitution of one (1) person in the place of a creditor with reference to a
lawful claim or right, giving the former all the rights of the latter, including the right to employ
all remedies to enforce payment. 42 The effect of subrogation is to transfer to the person
subrogated to the credit with all the rights thereto appertaining, either against the debtor or
against third persons.43 It may conventional or legal.
35
Supra, note 1.
36
Ibid.
37
38
Ibid.
39
3 Castan, 7th Ed.
40
Supra, note 4 citing Quinto vs. People, 305 SCRA 708, April 14, 1999.
41
Article 1291, Article 1300, Civil Code.
42
Supra, note 1.
43
Conventional Subrogation Legal Subrogation
Takes place by express agreement of the Takes place by operation of law.45

parties and the third person.44
Consent of all parties is an essential 1) Creditor pays another creditor who is

requirement preferred, even without the debtor’s
knowledge
Note: The creditor to whom partial
payment has been made by the new Example: X has a credit of P20,000
creditor remains a creditor to the extent of against Y which is secured by a mortgage.
the balance of the debt. X also has a credit against Z which is
unsecured. If Z pays Y even without X’s
Example: X owes Y P20,000. Z pays Y consent, Z is subrogated to all the rights of
P12,000. X remains indebted to Y in the Y even against third persons.
amount of P8,000.00
2) When a third person, not interested in
In case X becomes insolvent, Y will be the obligation, pays with the express or
paid ahead of Z. tacit approval of the debtor
3) When, even without the knowledge of

the debtor, a person interested in the
fulfillment of the obligation pays, without
prejudice to the effects of confusion as
to the latter’s share.
Example: A guarantor who pays for the

obligation of the debtor even without his
knowledge is subrogated to
the rights of the creditor.
On the other hand, personal novation may be classified as substitution when the person
of the debtor is substituted.46 Substitution has two kinds, expromicion and delagacion.
Expromicion Delegacion
The substitution of debtors is effected with The substitution of debtors is effected with
the consent of the creditor at the instance of the consent of the creditor at the instance
the new debtor even without the of the old debtor with the concurrence of
knowledge or against the will of the old the new debtor.49
debtor.47
a) initiative for the substitution must
a) The initiative for the substitution emanate from the old debtor;
must emanate from the new debtor;
b) consent of the new debtor
b) consent of the creditor to the
substitution.48 c) acceptance by the
creditor;50 All the parties
must agree.51
Payment by the new debtor gives him the Payment by the new debtor gives him
right to reimbursement both the right to reimbursement and
subrogation
The new debtor’s insolvency or non The new debtor’s insolvency shall not
fulfillment of the obligation shall not give revive the action of the creditor against the
rise to any liability on the part of the original debtor EXCEPT when insolvency
original debtor.52 was already existing and of public
knowledge or known to the debtor, when
he delegated his debt.53
Example: X owes Y P20,000. X

proposed to Y that Z take his place as
debtor. Y agreed.
X will not be held liable if:
a) Z became insolvent after the

delegation
b) Z was already insolvent before but X

does not know or that the same is not
public knowledge
c) Z’s insolvency is known to Y
Note: Consent of creditor is indispensable. The reason is that substitution is equivalent to a

waiver by the creditor of his credit.54 Example: A and B bought a house and lot from C.
Without C’s consent, B cannot renege from his obligation to pay the price by saying that he
already ceded his interest in the house and lot to A.
Effects of Novation:
1. Accessory obligations are extinguished except in case of an accessory obligation created in
favor of a third person.55
2. If the new obligation is void, the original one shall subsist, unless the parties intended
that the former relation should be extinguished in any event.56
3. The novation is void if the original obligation was void except a) when annulment may be
claimed only by the debtor and b) when ratification validates acts which are voidable.57
Note: If the new obligation is voidable, novation can take place until the same is annulled
in which case, the original obligation can be enforced. If the old obligation is voidable or if
the voidable obligation is ratified, novation is valid.58
4. If the original obligation was subject to a suspensive condition or resolutory condition, the
new obligation shall be under the same condition, unless it is otherwise stipulated.59
You know have a basic understanding of

Compensation and
Novation
Test what you’ve learned through the following

activities.
WEEK 10
CONTRACT
A contract is a meeting of the minds between two persons whereby one binds himself, with respect to the
other, to give something or to render some service. 1 It may also be defined as a juridical convention
manifested in legal form, by virtue of which one or more persons bind themselves in favor of another, or others, or
reciprocally to the fulfillment of a prestation to give, to do or not to do.2
The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good customs, public order or public policy.
Limitation to the Freedom to Contract:

Law – The contract entered into must be in accordance with and not repugnant to, an applicable statute.3 Law
is a rule of conduct just, obligatory, promulgated by legitimate authority and of common observance and
benefit.4
1. Morals – A contract must not contravene norms of good and right conduct evolved in a community. 5 (example:
common law relationships without the benefit of a marriage, involuntary servitude to pay for a debt.
2. Good Customs – Customs consist of habits and practices which through long usage have been followed
and enforced by society or some part of it as a binding rule of conduct.6
3. Public Order – This refers principally to public safety.7
4. Public Policy – In addition to public order, it also refers to considerations which are moved by the
common good.8
1
2
4 Sanchez Roman 146 cited in SM Land, Inc. vs. Bases Conversion and Development Authority, 753
SCRA 613
3
Inc.
4
Ibid. citing 1 Sanchez Roman 3.
5
Ibid.
6
Ibid.
7
Ibid.
8
Ibid.
CONTRACT AGREEMENT
Contracts are binding agreements enforceable Those which cannot be enforced by action in the
through legal proceedings in case the other party courts of justice.10
does not comply with his obligation under the
agreement.9 Note: All contracts are agreements but not at all
agreements are contracts.11
Four Basic Characteristics of Contracts:
1. Obligatory force of contracts. Obligations arising from contracts have the force of law between the parties
and should be complied with in good faith.12
2. Autonomy of Contracts. Contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals, good customs,
public order or public policy.13 It may also refer to principle of party autonomy14 or simply freedom of
contract.15
3. Mutuality of Contracts. Contract must bind both contracting parties and the validity or compliance
cannot be left to the will of one of them. 16 The determination of the performance may be left to a third
person, whose decision shall not be binding until it has been made known to both contracting parties.17 If
the determination is evidently inequitable, the courts shall decide what is equitable under the
circumstances.18
Exceptions:
1) Presence of an essential equality of the parties to the contracts.19
2) Contract of Adhesion is defined as one in which one of the parties imposes a ready made form of
contract, which the other party may accept or reject, but cannot be modified. 20 If the terms thereof are
accepted, without objection, then the contract serves as the law between them.21
1. Relativity of Contracts. Contracts take effect only between the parties, their assigns and heirs, except in
case where the rights and obligations arising from the contract are not transmissible by their nature or by
stipulation or by provision of law.22
A third person is one who has not taken part in a contract and is, therefore, a stranger to the contract.
9
Ibid.
10
Ibid.
11
Ibid.
12
13
14
Pakistan International Airlines Corporation vs. Ople, 190 SCRA 90.
15
Cebu State College of Science and Technology vs. Misterio, 759 SCRA 1
16
17
18
19
Jespajo Realty vs. Court of Appeals, 390 SCRA 27.
20
Rabuya, E.T. (2019). Obligations and Contract. Quezon City: Rex Printing Company, Inc.
21
Mamaril vs. The Boy Scout of the Philippines, 688 SCRA 437
22
As a general rule, a third has no rights and obligations under a contract to which he is a stranger.23
If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided
he communicated his acceptance to the obligor before its revocation. The parties must have clearly and
deliberately conferred a favor upon a third person.24
Exceptions:
1. Stipulation pour autrui refers to contracts which confer benefits to a third person.25 The following are the
requisites of a stipulation pour autrui:
a) there is a stipulation in favor of a third person;
b) the st ipulation is a part, not the whole, of the contract;
c) the contracting parties clearly and deliberately conferred a favor to the third person (the favor is not an
incidental benefit);
d) the favor is unconditional and uncompensated;
e) the third person communicated his or her acceptance of the favor before its revocation;
f)the contracting parties do not represent, or are not authorized by the third party.26
2. Third persons who come into possession of the object of the contract may be bound under the provisions of
mortgage laws and land registration laws.27 The sale or transfer of a mortgaged property cannot affect or release the
mortgage and the purchaser or transferee is necessarily bound to acknowledge and reset the encumbrance.28
Example: X mortgaged his land in favor of Y as collateral. The mortgage was registered in the Registry of
Deeds. X then sold his land to Z. Since the mortgage was registered, it took the nature of a real right to which Z
is bound.
3. Creditors are protected in cases of contracts intended to defraud them.29 The remedy for these creditors is to
ask for a rescission of the contract. 30 Creditors in order to satisfy their claim may: (1) pursue the debtor’s
properties; (2) exercise all the rights and bring all the actions of the debtor; (3) impugn debtor’s acts intended
to defraud them.31
Example: A is indebted to B in the amount of P20,000. B won in the action for sum of money against A. A then
assigned his land to C so that the court cannot attach the property of A. B may ask for the rescission or
cancellation of the transfer.
4. Any third person who induces another to violate his contract can be made liable for damages to the other
contracting party.32
23
Supra, note 3.
24
Ibid.
25
Ibid.
26
Limitless Potentials, Inc. vs. Quilala, 463 SCRA 586
27
28
Garcia vs. Villar, 675 SCRA 80
29
30
Articles 1381, 1177, Civil Code.
31
32
5. Accion directa.33
CLASSIFICATION OF CONTRACTS
Preparatory Principal Accessory
A contract established as a A contract which can exist A contract which cannot exist as an
means for the execution of independently. Example: Sales, independent contract since its
another contract Example: lease consideration is the same as that of
Contract of agency the principal. Example:
mortgage or guaranty
Consensual Real
Contract which is perfected by mere consent or Perfected upon the delivery of the object of the
upon meeting of the minds.34 Example: sale contract.36 Example: deposit, pledge and
commodatum
From the moment of perfection, parties are bound

not only to the fulfillment of what has been
expressly stipulated but also to all the
consequences which according to their nature, may
be keeping with good faith, usage and law.35
Nominate Innominate
A contract with distinguished by a particular or A contract which is not specifically named in the
special name in the Civil Code Example: sale, Civil Code
lease
Innominate Contracts shall be regulated by the
stipulations of the parties, by the provisions of Title I and
II, by the rules governing the most analogous nominate
contracts and by the customs of the
place.37
33
34
Pallatao vs. Court of Appeals, 381 SCRA 681.
35
36
37
Onerous Remuneratory Aleatory
The cause is the prestation or The cause is service or benefit for Each of the parties or both
promise of a thing or service which remuneration is given.39 reciprocally bind themselves to give
by one contracting party. or to do something in
Example: sale.38 consideration of what the other shall
give or do upon the happening of
an event at an
indeterminate time.40
Common Special or solemn
Contracts which do not require any form.41 Contracts which require certain formalities for its
validity or enforceability. Example: Donation of real
property
Unilateral Bilateral
When the contract creates an obligation on the part When the contract creates a reciprocal obligation for both
of only one of the parties parties
Indivisible Divisible
Each part of the contracts is dependent upon the When one part of the contract may be satisfactorily
other parts for satisfactory performance performed independently of the other parts
Note: Any third person who induces another to violate his contract shall be liable for damages to the other
contracting parties.42 This is more commonly known as Principle of Tortious Interference or Interference with
Contractual Relations. The requisites of this principle are: (1) existence of a valid contract, (2) knowledge on
the part of the third person of the existence of the contract and (3) interference of the third person without
legal justification or excuse.43
Stages in the Life of a Contract
1. Preparation or Negotiation – includes all the steps taken by the parties leading to the perfection of
the contract;
2. Perfection or birth – the stage wherein the parties have come to a definite agreement or meeting of the
mind regarding the subject matter and cause of the contract
38
39
Ibid.
40
41
42
43
Ferro Chemicals, Inc. vs. Garcia 804 SCRA 528
3. Consummation or termination – When the parties have performed their respective obligations and
the contract may be said to have been fully accomplished or executed resulting in the extinguishment or
termination of the contract.44
WEEK 11
CONSENT
Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause
which are to constitute the contract. 1 Consent may also be defined as the conformity or concurrence of wills
(offer and acceptance) and with respect to contracts, it is the agreement of the will of one (1) contracting party
with that of another or others, upon the object and terms of the contract. 2 The offer must be certain and the
acceptance absolute.3 A qualified acceptance constitutes a counter offer.4 When there is merely an offer by one
party without acceptance by the other, there is no consent and the contract does not come into existence.5
In contracts, the source of the obligation is the intention of the parties, whether such intention is manifested
expressly or impliedly.6 Mutual consent, being a state of mind, its existence may only be inferred from the
confluence of two acts of the parties: (1) an offer certain as to the object of the contract and its consideration and
(2) an acceptance of the offer which is absolute in that it refers to the exact object and consideration embodied in said
offer.7
Under the Objective Theory of Contracts, the intention of the parties to enter into a contract is to be judged by
their outward or objective manifestations of intent.8
Requisites of Consent:
(1)Consent should be intelligent or with an exact notion of the matter to which it refers;
(2)Consent should be free; and
(3)Consent should be spotanenous.9
A.OFFER
An offer is defined as an expression of willingness to contract on certain terms, made with the
intention that it shall become binding as soon as it is accepted by the person to whom it is address. 10 In essence, offer
refers to the unilateral proposition which one party makes to the other for the celebration of the contract.11
Example: I am willing to sell my land for P1,000,000.00 in 10 monthly installments.
Requisites of an Offer:
1. The offeror must have a serious intention to become bound by his offer;
2. The terms of the offer must be reasonably certain, definite and complete, so that the parties and the court can
ascertain the terms of the offer; and
3. The offer must be communicated by the offeror to the offeree, resulting in the offeree’s knowledge of
1
2
Inc. 4 Sanchez Roman 191, 8 Manresa 648.
3
Ibid.
4
Ibid.
5
Greater Metropolitan Manila Solid Waste Management Committee vs. Jancom Environmental Corp.,
494 SCRA 280 (2006).
6
Rabuya, E.T. (2017). Obligations and Contracts. Quezon City: Rex Printing Company, Inc.
7
Villanueva vs. PNB, 510 SCRA 275 (2006).
8
Supra, note 7.
9
Lim, Jr. vs. San, 438 SCRA 102 (2004).
10
Ibid.
11
Paredes vs. Court of Appeals, 463 SCRA 504 (2005)
the offer.12 The latter cannot accept an offer which has not been communicated to him; and therefore, as a general
rule, an uncommunicated offer, whether by words or acts, cannot result in a contract.13 Note: The person making
the offer may fix the time, place and manner of acceptance, all of which must be complied with.14
Some principles in the form of an offer:

1. Advertisements of things for sale are treated not as offers to contract but as invitations to negotiate. 15 Unless it
appears otherwise, business advertisements of things for sale are not definite offers, but mere invitations to make an
offer.16 Example: John came across an ad in the Business Mirror about the sale of a specific motorcycle. When
he called the seller, he was informed that the same was already sold. In this case, John cannot sue the seller for
breach of contract.
2. Where a person or a corporation advertises for or requests bidders for property to be sold or for the erection
or construction of a particular work, it is well settled that this is simply an invitation to make offers, to make
tenders, as it is often called and is not an offer obliging the one extending the invitation to accept the highest or
lowest of any of the bids.17Advertisements for bidders are simply invitations to make proposals and the
advertiser is not bound to accept the highest or lowest bidder, unless the contrary appears.18
3. In auctions, the auctioneer’s call for bids is not considered as an offer but simply an invitation to make
proposals.19 Here, the bid proposal submitted by the bidder is an offer, which the auctioneer can accept or reject as
he chooses.20 The sale is considered perfected only when the auctioneer announces its perfection by the fall of the
hammer, or in other customary manner.21
4. The display of goods with a price ticket attached in a shop window or on a supermarket shelf is not an offer
to sell but an invitation for customers to make an offer to buy.22
Termination of the Offer

The termination of the offer may either be through operation of law or the action of the parties.
1. By operation of law. An offer becomes ineffective upon the death, civil interdiction, insanity or
insolvency of either party before acceptance is conveyed.23 The disappearance of either party or loss of their
capacity before perfection prevents the contractual tie from being formed.24 It may also be terminated by the
supervening illegality of the proposed contract. An offer is also terminated if the subject matter is destroyed
prior to acceptance.25
2. By action of the parties.
a. Revocation. At any time prior to the perfection of the contract, either negotiating party may stop
12
Supra, note 7.
13
Ibid.
14
15
Supra, note 7.
16
17
Supra, note 7 citing Holiday vs. Higbee, C.A. Colo. 172 F.2d 316, 318
18
19
Supra, note 7.
20
Ibid.
21
Article 1476(2), Civil Code.
22
Supra, note 7.
23
24
Ibid.
25
the negotiation.26 The offeror may withdraw its offer and revoke the same before acceptance thereof by the
offeree.27
b. Rejection and Counter offer. By rejecting the offer, the offeree thereby terminates the offer and
his subsequent attempt to accept the previous offer will not result in its reinstatement.28 A counter offer is
considered in law, a rejection of the original offer and an attempt to end the negotiation between the parties on a
different basis.29
c.Lapse of Time. The person making the offer may fix the time, place and manner of acceptance, all of
which must be complied with.30 However, an offer made inter praesentes (or made to a person) must be
accepted immediately.31
B.OPTION
An option is a preparatory contract in which one party grants to the other, for a fixed period and under
specified conditions, the power to decide whether or not to enter into a principal contract. 32 An option contract is
considered a separate agreement distinct from the contract which the parties may enter into upon the
consummation of the option.33 Option period is the period given within which the offeree must accept the
offer.34
Option is Supported by Separate Option is not Supported by Separate
Consideration35 Consideration
Where a period is given to the offeree within If the period is not itself founded upon or supported
which to accept the offer and the same is by a consideration, the option does not become a
founded or supported by a separate contract.39
consideration, a contract of option is deemed The right to withdraw must be exercised with
perfected. 36
honesty and good faith in keeping with Article 19 of
An accepted unilateral promise to buy or to the Civil Code.
sell a determinate thing for a price certain is
binding upon the promissor if the promise is
supported by a consideration distinct from the
price.37 The promise has the burden of
proving the consideration.38
If the offeror withdraws the offer before its
acceptance, he shall be liable for damages for
breach of the contract of option.
26
Swedish Match, AB vs. Court of Appeals, 441 SCRA 1 (2004).
27
Malbarosa vs. Court of Appeals, 402 SCRA 168 (2003).
28
Supra, note 7.
29
Manila Metal Container Corp. vs. PNB, 511 SCRA 444 (2006).
30
31
Supra, note 25.
32
Supra, note 7.
33
Carceller vs. Court of Appeals, 302 SCRA 718 (1999).
34
Supra, note 4.
35
36
Adelfa Properties vs. Court of Appeals, 240 SCRA 565 (1995).
37
38
Sanchez vs. Rigos, 45 SCRA 368 (1972).
39
Supra, note 7.
Earnest Money Option Money
Earnest money is something of value to show that Option money is the money given as a distinct
the buyer was really in earnest, and given to the consideration for an option contract.41
seller to bind the bargain and whenever earnest
money is given in a contract of sale, it is
considered as part of the purchase price and
proof of the perfection of the contract.40
Earnest money is given only when there is a Option money applies to a sale not yet perfected
perfected sale
When earnest money is given, the buyer is When the would be buyer, he is not required to
bound to pay the balance42 pay.43
C.ACCEPTANCE
Acceptance is defined as the offeree’s expression of assent to the exact terms of the offer. 44 It may also be
defined as the manifestation by the offeree of his assent to all the terms of the offer. 45 Where there is merely an
offer by one party without the acceptance of the offer, there is no consent and the contract does not come into
existence.46 An acceptance may be express or implied.47 Where a person accepts the services of another, whether
solicited or not, he has the obligation to pay the reasonable value of the service thus rendered upon the implied
contract of lease of service unless it is shown that the service was rendered gratuitously or without any
expectation that he would pay for the same.48
An acceptance is considered absolute and unqualified when it is identical in all respects with that of the offer so as to
produce consent or a meeting of the minds.49
A qualified acceptance or one that involves a new proposal constitutes a counter offer50 and a rejection of the
original offer.51 Mirror Image Rule states that the acceptance must be identical in all respects with that of the
offer so as to produce consent or meeting of the minds.52
Some principles in the form and manner of an Acceptance:

1. The person making the offer may fix the time, place and manner of acceptance, all of which must be complied
with.53 An attempt on the part of the offeree to accept the offer in a different manner does not bind the offeror as the
absence of the meeting of the minds on the altered type of acceptance.54
40
Laforteza vs. Machuca 333 SCRA 643 (2000).
41
Supra, note 7.
42
Ibid.
43
Ibid.
44
Ibid.
45
Supra, note 4.
46
Supra, note 6.
47
48
Supra, note 4.
49
Talampas, Jr. vs. Moldex Realty, Inc. 758 SCRA 666 (2015).
50
51
Supra, note 7.
52
Supra, note 46
53
54
Supra, note 27.
2. An acceptance may be express or implied 55 except when the law specifically requires a particular format or
manner of expressing such consent.56
3. An offer made through an agent is accepted from the time it is communicated to him.57
4. The Theory of Cognition states that an acceptance by letter of an offer has no effect until it comes to the
knowledge of the offeror.58 Another theory is the mailbox rule which states that an acceptance by letter of an
offer is effective from the time the letter is sent.59
Note: The acceptance can be withdrawn or revoked before it is made known to the offeror.60
D.CAPACITY TO GIVE CONSENT

The legal capacity of the parties is an essential element for the existence of the contract because it is an
indispensable condition for the existence of consent.61 Legal consent presupposes capacity.62 Article 1327
provides that the following cannot give consent to a contract: (a) unemancipated minors, (2) insane or demented
persons; and (3) deaf mutes who do not know how to write. In such cases, the
consent given will be considered “defective.” If both parties are incapable of giving consent, the contract is
“unenforceable.”63 On the other hand, if only one of the parties is incapable of giving consent, the contract is
“voidable.”64
The reason behind Article 1327 is that those persons mentioned can easily be the victims of fraud as they are
not capable of understanding or knowing the nature or import of their actions.65
(1) Minors
Minority is defined as the state of a person who is under the age of legal majority and a minor is a person below
18 years of age since majority commences upon attaining the age of 18 years. 66 The status of a contract entered
into by a minor is voidable. In any case, the minor may be represented by a guardian in entering into a contract.
(2) Insane or Demented
Every person is presumed to be capacitated to enter into a contract unless there is proof to the contrary.67
Contracts entered into during a lucid interval are valid. 68 Lucid interval is defined as that intervals occurring in
the mental life of an insane person during which he is completely restored to the use of his reason, or so far
restored that he has sufficient intelligence, judgment and will to enter into contractual relations or perform
other legal acts without disqualification by reason of his disease. 69 Drunkenness and hypnotic spell impair the
capacity of a person to give intelligent consent.70
55
56
Luzon Development Bank vs. Angeles, 497 SCRA 264 (2006).
57
58
Lagazo vs. Court of Appeals, 287 SCRA 18.
59
Ibid.
60
Supra, note 7.
61
Delos Reyes vs. Court of Appeals, 313 SCRA 642 (1999).
62
Ibid.
63
Article 1403, par. 3, Civil Code.
64
65
Supra, note 4.
66
Article 234, Family Code as amended by RA 6809.
67
68
69
Supra, note 7 citing Black’s Law Dictionary, 5th Ed.
70
Supra, note 4 citing (8 Manresa 660 to 661)
(3) Illiteracy
Under Article 1327, a deaf mute who does not know how to write is deemed incapable of giving consent
to a contract. Article 1332 provides that “When one of the parties is unable to read, or if the contract is in a
language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show
that the terms thereof have been fully explained to the former.”
(4) Old Age or other Physical Infirmities
Old age or other physical infirmities does not automatically equate to legal incapacity to enter into a
contract. However when such age or infirmities impair one’s mental faculties to the extent that he or she is
unable to properly, intelligently and fairly understand the provisions of the contract.71
(5) Civil Interdiction
According to the Revised Penal Code, civil interdiction is an accessory penalty imposed upon an accused
who is sentenced to a principal penalty not lower than reclusion temporal, a penalty ranging from twelve years
and one day to twenty years. Any person suffering from this accessory penalty may not validly enter into a
contract involving disposition of his property.72
Article 1329 provides that the incapacity declared in Article 1327 is subject to the modifications
determined by law and is understood to be without prejudice to special disqualifications established in the law.
Examples:
1. Spouses and persons living together as husband and wife are prohibited from making donations to each
other.73
2. The agent cannot acquire, by purchase, even at a public or judicial action, the property whose
administration or sale has been trusted to him, unless the consent of the principal has been given; 74 otherwise
the sale is void.
3. Public officers and employees cannot acquire by purchase even at a public or judicial action, the property of
the State or of any subdivision thereof or of any government owner or controlled corporation or institution, the
administration of which has been entrusted to them;75 otherwise, the sale is void.
E.VICES OF CONSENT
Under Article 1330, a contract where consent is given through mistake, violence, intimidation, undue influence
or fraud is voidable. Intelligence in consent is vitiated by error; freedom by violence, intimidation or undue
influence; and spontaneity by fraud.76
(1) Mistake
Under Article 1331, in order that mistake may invalidate consent, it should refer to the substance of
the thing which is the object of the contract, or to those conditions which have principally moved one or both
parties to enter into the contract. Mistake as to the identity or qualification of one of the parties will vitiate consent
only when such identity or qualifications have been the principal cause of the contract.
Ignorance is the absence of knowledge with respect to a thing while mistake properly speaking
71
Yason vs.Arciaga, 449 SCRA 458 (2005)
72
Supra, note 7.
73
Article 87, Family Code.
74
75
76
Supra, note 7.
is a wrong conception about said thing, or a belief in the existence of some circumstance, fact or event, which in
reality does not exist.77
Requisites in order for Mistake to Vitiate a Contract:

a. It should refer to the substance of the thing which is the object of the contract or to those conditions which
have principally moved one or both parties to enter into the contract, or to the identity or qualifications of one of
the parties when the same have been the principal cause of the contract;78
b. It must be excusable and not one that could have been avoided by the party alleging it; 79
c. It must generally be a mistake of fact and not mistake of law.
Kinds of Mistake When this Mistake will Invalidate a Contract

Mistake as to the Object of the Contract This may include:
(a) mistake over the identity of the thing
(b) mistake over the essence or the substantial
qualities of the thing. Example: a diamond ring
(c) mistake over determinate attributes or
characteristics of a thing. Example: Amorsolo
painting
Mistake as to Conditions Only when the conditions are essential or have

principally moved one or both parties to enter into
a contract.
Mistake as to Identity or Qualifications of Parties Mistake may either be:

(a) with regard to the identity or with regard to the
qualification of one of the contracting parties; or
(b) the identity or qualification must have been the
principal consideration for the celebration of the
contract.80
Mistakes of Fact which does not Vitiate Consent Example/Effect

Error regarding incidents House and lot have no access to national
highway; mileage of a car
Mistake as to quantity or amount Consent will NOT be vitiated; Correction
may be made
Error as to the Motives Buying a gun to exact revenge
Mistake which could have been avoided X was willing to sell his share in a parcel of
land so he asked the wives of his
77
Theis vs. Court of Appeals, 268 SCRA 167 (1997).
78
79
80
Roman Catholic Church vs. Pante, 669 SCRA 234 (2012)
co-owners Y and Z if they are willing as
well. The wives answered in the
affirmative. During the signing of the deed of
sale, it turned out that Y and Z did not agree
to sell their share in the property.
Note: There is no mistake if the party alleging it knew the doubt, contingency or risk affecting the object of the
contract.81 Mutual error as to the legal effect of an agreement when the real purpose of the parties is frustrated,
may vitiate consent.82 Mistake of law does not, as a general rule, vitiate consent because of the rule that
“ignorance of the law excuses no one from compliance therewith.”83 However, if (a) the mistake is with respect
to a legal effect of an agreement, (b) the mistake is mutual and (c) the real purpose of the parties in entering into a
contract was frustrated, mistake of law may be considered to have invalidated a contract.84
Note: When one the parties is unable to read, or if the contract is in a language not understood by him, and mistake
or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully
explained to the former.85
(2) Violence and Intimidation

Article 1335 reads:
“There is violence when in order to wrest consent, serious or irresistible force is employed.
There is intimidation when one of the contracting parties is compelled by a reasonable and well grounded fear
of an imminent and grave evil upon his person or property, or upon the person or property of his spouse,
descendants or ascendants, to give his consent…
Article 1336 provides:
Violence or intimidation shall annul the obligation although it may have been employed by a third person who
did not take part in the contract.”
Violence Intimidation
Refers to physical force or compulsion Moral force or compulsion
Actual infliction of harm A threat to inflict harm
External and prevents the will from acting at all Internal and does not prevent the will from
operating but merely directs it to operate in
only one particular manner
Part is deprived of free will and choice86
Requisites in Order for Violence to Vitiate Consent:
81
Supra, note 75.
82
83
84
Supra, note 7.
85
86
Supra, note 7.
1. The force employed is either serious or irresistible; and
2. It must have been the determining cause.87 Example: Every time X refuses to sign the contract, he is
electrocuted.
Requisites in Order for Intimidation to Vitiate Consent:

1. Intimidation must be the determining cause of the contract or must have cause the consent to be given;
2. that the threatened act be unjust or unlawful; (the threat of court action as a means to enforce a just or legal
claim is justified and does not vitiate consent)88
3. that the threat be real and serious, there being an evidence disproportion between the evil and the resistance
which all men can offer, leading to the choice of the contract as the lesser evil; and
4. that it produces a reasonable and well grounded fear that the person from whom it comes from has the
necessary means or ability to inflict the threatened injury.89 Example: A signs a contract on gunpoint
believing that B will kill him if he refuses to sign.
Note: In determining the degree of intimidation, the age, sex and condition of the person shall be borne in mind.90
Violence or intimidation shall annul the obligation, although it may have been employed by a third person who did
not take part in the contract.91
(2) Undue Influence

There is undue influence when a person takes improper advantage of his power over the will of another,
depriving the latter of a reasonable freedom of choice. The following circumstances shall be considered: the
confidential, family, spiritual and other relations between the parties, or the fact that the person alleged to have been
unduly influenced was suffering from mental weakness or was ignorant or in financial distress.92
Undue influence is influence of a kind that so overpowers the mind of a party as to prevent him from
acting understandingly and voluntarily to do what he would have done if he had been left to exercise freely his
own judgment and discretion.93
The following are examples of circumstances which shall be considered to determine whether undue
influence has been exercised: (a) confidential, family, spiritual and other relations between the parties, (b)
mental weakness, (c) ignorance or (d) financial distress of the person alleged to have been unduly influenced.
Example: A is the kasambahay of B who is indebted to the latter in the amount of P20,000. A is again asking
additional P20,000 to pay B but B insisted that A instead sell her wedding ring. If A is unwilling to sell her
wedding ring but she is compelled to sell it, it may be said that A’s consent was vitiated by undue influence on
account of her financial distress.
(2) Fraud
There is fraud when, through insidious words or machinations of one of the contracting parties, the
87
Ibid.
88
Supra, note 4.
89
Supra, note 7 citing Binua vs. Ong 727 SCRA 59 (2014).
90
91
92
93
Supra, note 4.
other is induced to enter into a contract which, without them, he would not have agreed to.94
Causal Fraud Incidental Fraud

Fraud committed by one (1) party before or at Incidental fraud only renders the party who employs it
the time of the celebration of the contract to liable for damages because the fraud was not the
secure the consent of the other.95 It is the fraud principal inducement that led the other to give his
used by a party to induce the other to enter consent.97
into a contract without which the latter would
not have agreed to.96
Requisites of Causal Fraud: Articles 1170 and 1171 refer to fraud occurring in
There must be misrepresentation or the performance of a contract. This does not affect
concealment of a material fact with the validity of the contract.99
knowledge of its falsity (Articles 1338 to
1339, Civil Code)
It must be serious (Article 1344)
It must have been employed by only one of
the contracting parties (Article 1342)
It must be made in bad faith or with intent
to deceive (Article 1343)
It must have induced the consent of the
other contracting party (Article 1338); and
It must be alleged and proved by clear and
convincing evidence.98
Example: Example:
A offered to sell her bracelet claiming it is A sold to B, a mango farmer, a parcel of land. A told B
made of Swarovski crystals. If B buys the that the land has 100 mango trees. After payment of the
bracelet, relying on A’s representations, the same purchase price and execution of the Deed of Sale, B
may be annulled on the ground of fraud. BUT found out that there were only 90 mango trees.
if B buys the bracelet without any inducement
from A, consent is not vitiated EXCEPT if B has a right to deduct from the contract price the
the Swarovski crystals are the main cause amount of the 10 mango trees.
why B bought the bracelet.
X sold a parcel of land to Y alleging that the

same is free from all liens and
encumbrances. When it was registered by
94
95
Supra, note 4.
96
Ibid.
97
98
Supra, note 4.
99
Ibid.
Y, the land was found out to be the subject
of litigation.
Fraud by Concealment
Under Article 1339, failure to disclose facts, when there is a duty to reveal them, as when the parties are
bound by confidential relations, constitutes fraud. Concealment is defined as the neglect or failure to communicate
or disclose that which a party to a contract knows and ought to communicate.100 If the failure is unintentional, the
basis of the action for annulment is not fraud but mistake or error. 101 Example: X and Y are partners engaged
in the real estate business. Here, the parties are bound by confidential relations. X learned that C was interested in
buying a certain a parcel of land owned by the partnership even for a high price. Without informing Y, X was able to
make Y sell to him Y’s share in the partnership. Then, X sold the land at a big profit. X is guilty of fraudulent
concealment.102 If the sale was at the initiative of Y, and X unintentionally failed to inform Y of C’s offer, the cause
for annulment is mistake or error on the part of Y.
Other Forms of Misrepresentation:

1) Usual Exaggerations in Trade
The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in
themselves fraudulent.103 In effect, the law does not consider such exaggerations, even if known as false by the
party making them, as amounting to fraud that will affect the validity of a contract.104
2)Expression of Opinion
Mere expression of an opinion does not signify fraud, unless made by an expert and the other party has
relied on the former’s special knowledge.105 In order that it may amount to fraud, the following requisites
must be present:
a) It must be made by an expert;
b) The other contracting party has relied on the expert’s opinion; and
c) The opinion turned out to be false or erroneous.106
Example: X relied on the opinion of Y, a goldsmith, regarding the golden ring which he purchased. If X relied on
Y’s opinion and the opinion turned out to be a misrepresentation, the contract may be annulled.
3)Fraud by a Third Person
Misrepresentation by a third person does not vitiate consent, unless such misrepresentation has
created substantial mistake and the same is mutual. 107 However, if the misrepresentation has created substantial
and the same is mutual, that is, it affects both parties, the contract may be annulled but principally on the ground of
mistake.108 Example: B wants to buy a parcel of land on which to build a house. S owns a land on which he
wants to construct a commercial building. C tells B and S that the
100
Supra, note 4.
101
102
Supra, note 4.
103
104
Supra, note 4.
105
106
Supra, note 4.
107
108
Supra, note 4.
area where the land is located is a residential zone. B and S then enter into a contract of sale. It turns out that the area is a
commercial zone.109
4)Misrepresentation in Good Faith
Misrepresentation made in good faith is not fraudulent but may constitute error. 110 If the misrepresentation is not
intentional but made in good faith (the person making the false statement believed it to be true), it is considered a mere mistake or
error.111
Simulation of Contract
Simulation of Contract may be absolute or relative. The former takes place when the parties when the parties do not
intend to be bound at all or the latter, when the parties conceal their true agreement.112 It may also be defined as the act of
deliberately deceiving others, by feigning or pretending by agreement, the appearance of a contract which either non-existent or
concealed.113
Absolute Simulation Relative Simulation

When the contract does not really exist and the When the contract entered into by the parties
parties do not intend to be bound at all.114 These is different from their true agreement.115
contracts are inexistent and void.
Example: A sued B in action for recovery of Example: D and C entered into a contract of
property. B made it appear that he donated his land mortgage. But wanting to hide the mortgage, it
to C when in truth and in fact, he remains was made to appear in the form of a deed
to be in possession of the property. of sale.116
109
Ibid.
110
111
Supra, note 4.
112
113
Supra, note 4.
114
Ibid.
115
Ibid.
116
Ibid.

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WEEK 7

Payment is viewed in three (3) different ways:

Exceptions to the Rules in Article 1233

A.Who must Pay

The creditor is bound to accept payment or performance from the following:

EFFECT OF PAYMENT BY A THIRD PERSON

Payment without knowledge or against the will

B.Who must be Paid

Under Article 1240, payment shall be made to:

b) his successor in interest (heir or assignee);

b) if the creditor ratifies the payment of a third person;

C.What must be Paid

D.In what form must the Payment be Made

1) when they have been cashed;

Example: X obliged to deliver a specific TV to Y. If

If the TV is currently in transit such as a temporary

If the debtor changes his domicile in bad faith or after

F.Factors Affecting Payment

a) There must be one (1) debtor and one (1) creditor;

1) there is a stipulation that the debtor may apply payments;

Rules in Application of Payments:

Legal Application of Payment

Rules in Legal Application of Payment:

a) There must be two (2) or more creditors;

DATION IN PAYMENT PAYMENT BY CESSION

There is only one (1) creditor Plurality of creditors is essential22

C. TENDER OF PAYMENT and CONSIGNATION

1) That there is a debt due;

Exceptions: In these instances, consignation alone is sufficient:

Subject Matter of the Consignation

Consignation shall be considered properly made:

EFFECTS OF CONSIGNATION EFFECT OF WITHDRAWAL

II. LOSS OF THE THING DUE

Requisites of Loss as a Mode of Extinguishment of Obligations

Another example: X agreed to build a house for Y in a certain parcel of land. A

Effect of Impossibility of Performance

Loss due to Third Persons

Example: A is obliged to deliver to B a specific motorcycle. The motorcycle was lost

III. CONDONATION OR REMISSION OF DEBT

Requisites of Condation or Remission:

Inter Vivos Mortis Causa

Note: This provision does NOT apply to public documents.

IV.CONFUSION OR MERGER OF RIGHTS

a) the confusion or merger refers only to a part of

b) the obligation is joint.72

Example: X,Y and Z are indebted to A in the

Only X’s share is extinguished. Y and Z are

Inter Vivos Mortis Causa

Capacity to give and acquire is not Capacity to given and acquire is

Requisites of Compensation (Article 1279, Civil Code)

4. That they be liquidated and demandable;

Compensation takes place Compensation takes place after

3) When the assignment was made

The debtor can set up the compensation of

No Compensation shall take place:

Commodatum is a gratuitous contract whereby one of the parties delivers to another

2. When one of the debts arises from a claim for support.22

Novation which takes place by operation of Novation which takes place by

The Test of Incompatibility