OBLIGATION NOTES

Obligation is extinguished – turned into monetary consideration

Modes of extinguishing obligation

1. By payment of performance
2. Loss of the thing due
3. Condonation or remission
4. Confusion or merger
5. Compensation
6. Novation
In addition
7. Annulment
8. Rescission
9. Fulfillment of a resolutory condition
10. Prescription
11. Death of a party in case the obligation is personal
12. Mutual desistance
13. Compromise
14. Impossibility of fulfillment
15. Happening of a fortuitous event

1.1 Concept of Payment

Delivery of money/thing due
1.2 Methods of payment
 monetary – delivery of money in full
 object/thing – delivery of the thing
 to do – performance
 not to do – desist or refrain
1.3 Effect of payment by a third person (PAYOR)
 Without the consent/against will of debtor – reimbursement
 With the consent of the debtor – reimbursement + subrogation
 Payor does not intend to be reimbursed – donation
1.4 Effect of payment by a person who is incapitated/unauthorized
 Payment not valid
XPN :
- If he has ept the thing
- In so far as it is beneficial to the creditor
1.5 Person from whom the creditor must accept
 Debtor
 Person with interest in the obligation
 Person stipulated in the contract
1.6 Persons to whom the payment must be made
 Creditor
 Successor in interest
 Person authorized to receive payment
1.7 Payment to a third person
 Not valid
XPN
- When 3rd person is authorized
- Benefit has redounded to the creditor
- Third person was in possession and the payment was in good faith
1.8 Place where payment should be made
 Stipulation
 No stipulation:
- Determinate – where the thing was at the time og perfection
- Indeterminate – domicile of the debtor
1.9 Special modes of payment
1.9.1 Application of payment
1.9.1.1 Concept of application of payment
Designation of payment
1.9.1.2 Requisites
o Two or more debts
o Of the same kind
o One debtor, one creditor
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o All debts are due

o Tendered payment is not sufficient to extinguish all obligations
1.9.3 Right of application – debtor
1.9.4 Rules on application
o Apply it to the most onerous one – interest first (prior payments, in case of
installments)
o Obligations are of the same nature – proportionately
1.9.2 Cession of payment
1.9.2.1 Concept – transfers all properties in favor of creditors
1.9.2.2 Requisites
o More than 1 debt
o More than 1 creditor
o Complete or partial insolvency
o Abandonment of all debtor’s properties not exempt from execution
1.9.2.3 Effects of cession
o Creditors – not owners but assignees; collect credits in the order of preference
agreed upon/established by law
o Debtor – released from obligation to the extent of net proceeds
1.9.3 Dation in payment/Datio in solitum/adjuecacion en pago/payment in kind
1.9.3.1 Concept - obligation is in money, payment is in property
1.9.3.2 Legal tender in the Philippines – can compel a creditor to accept
o 25 cents up to Php50.00; 10 cents up to Php20.00
o All bills are valid

1.9.4 Tender of payment and consignation

1.9.4.1 Concept of tender of payment – act on the part of the debtor of offering the amt due
1.9.4.2 Requisites
o Fusion of intent and capability to make good
o Positive and unconditional act by the obligor
1.9.4.3 Concept of Consignation – deposit the thing due in court
1.9.4.4 Requisites
o Existence of a valid debt which is due
o ToP and refusal w/o just reason
o Previous notice of consignation
o Consignation of the thing/sum due
o Subsequent notice of consignation
1.9.4.5 Effect of tender w/o consignation
o Obligation not extinguished
o Notice of consignation must be sent to all persons interested in the fulfillment of
the obligation
1.9.4.6 Consignation w/o tender where the obligation is extinguished
o Creditor is absent/unknown
o Creditor is incapacitated
o Creditor refuses to issue receipt w/o just cause
o 2 or more person claim the same right to collect
o Title of the obligation has been lost
1.9.4. Effect of consignation that is properly made
o Debtor may ask the judge to order the cancellation of the obligation
o Running of the interest is suspended
o Before creditor & judge accept – obligation subsists
2.1 Concept of loss
The thing perishes, goes out of commerce or when it disappears in such a way that the existence
is unknown or cannot be recovered.
2.2 Kinds of impossibility
 Physical
 Legal
 Mora;
2.3 Effects of loss
 Determinate – extinguished
o XPN – debtor is at fault, debtor is liable by law, stipulation , nature of obli
 Indeterminate – not extinguished XPN object is a delimited generic
2.4 Partial loss considered as total loss
When the loss is so material
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2.5 Effect of loss in criminal offense

Shall not extinguish, unless the creditor is in default – must consign

3.1 Concept of Remission or Condonation

Gratuitous abandonment by the creditor
3.2 Essential requisites
 Agreement
 Parties must be capacitated
 A subject matter
 Cause/consideration – generosity
 Obligation is demandable at the time of the remission
 Remission must be inofficious
3.3 Effects of the renunciation of the principal and/or the accessory obligation
If the principal is remitted, the accessory will follow
3.4 Effect of the delivery of the thing pledged to the creditor by the creditor
Pledge is extinguished but the principal obligation is not

4.1 Concept of confusion or merger

Meeting in one person the qualities of creditor & debtor in the same obligation
4.2 Requisites of valid merger
 Between principal debtor and creditor
 Clear and definite
 Obligations are the same and principal
4.3 Effects of a merger/confusion
 Obligation is extinguished
 If there is guarantor and merger is in the principal debtor, he is released
 If there is guarantor and merger is not in the principal debtor, principal obligation is
extinguished but the accessory is extinguished
4.4 Confusion in Solidary and joint obligations
 Joint – only the share
 Solidary – totally extinguished

5.1 Concept of Compensation

Concurrent amount of the debt of two persons who in their own right are creditors and debtors
of one another
5.2 Kinds of compensation
5.1.1 As to their effects
o Total
o Partial (not allowed on payment)
5.1.2 As to origin
o Legal
o Facultative
o Conventional
o Judicial

5.3 Requisites of legal compensation

 Each of the obligors be bound principally, and that he be at the same time a principal creditor
of the other
 Same kind, same quality
 Two debts are due
 Liquidated and demandable
 Neither any retention or controversy
5.4 Rescissible and voidable contracts
Can be compensated provided they are not yet rescinded or avoided
5.5 When legal compensation cannot take place
 When one debt arises from a depositum in a contract
 When one debt arises from the obligation of a bailee in a commodatum
 When one debt arises because of a claim of support
 When one of the debt consists in civil liability arising from criminal offense

6.1 Concept of novation

Modification of the obligation
6.2 Ways of effecting novation
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 Object/principal
 Person of the debtor
 Subrogating a 3rd person in the rights of the creditor
6.3 Dual purpose of novation
 Original obligation – extinguished
 New obligation – created
6.4 Requisites of novation
 Previous valid obligation
 Capacity and intent to modify
 Modification/extinguishment
 Creation of a new valid obligation
6.5 Kinds of novation
 Personal
 Real
 Mixed
6.6 Change in period or term or time of payment
 Shortened – valid
 Extended – invalid
6.7 Concept of expromission
Third person assumes the obligation
6.7.1 Requisites
o Initiative of payment must com from the third person
o Without the knowledge/against the will of the debtor
o Creditor must consent
o Old obligation is totally extinguished
6.7.2 In case of insolvency of the third person
New debtor cannot claim reimbursement from the new debtor
6.8 Concept of delegacion
Third person acquires the obligation with the knowledge of the debtor
6.8.1 In case of solvency of the third person
New debtor cannot claim from the original debtor unless the fact that he is insolvent has
been established before the novation
6.8.2 Requisites
o Initiative of payment coes from the debtor
o All parties must consent
o Old obligation is generally extinguished
6.9 Effects of Novation
 On accessory obligation – subsist only insofar as they may benefit 3rd persons who did not
give their consent
 In void obligations - novating contract is also void
 Old voidable obligations –valid until annulled
 New voidable obligation – valid until annulled
 Original obligation is subject to condition – new obligation shall be subject under the same
condition
6.10 Concept of subrogation
Transfer to 3rd party of all the rights pertaining to the creditor; debtor’s consent is required
6.10.1 Kinds of Subrogation
o Conventional – by agreement
o Legal – by operation of law
6.10.2 Presumption of legal subrogation
o Creditor pays another creditor who is preferred even if w/o the debtor’s knowledge
o 3rd person not interested in the obligation pays with express or tacit approval of the debtor
o When, even without the knowledge of the debtor, a person interested in the fulfillment of
the obligation pays without prejudice to the efforts of confusion as to the latter’s share