Chapter 4 – EXTINGUISHMENT OF Art.

1235 – Recovery Allowed When

OBLIGATIONS Incomplete or Irregular Performance Is
Waived; Requisites for the Application of Art.
1235
General Provisions.
i. General rule: Payment incomplete,
Art. 1231 – Causes of Extinguishment of creditor may reject
Obligations ii. In case of acceptance, obligation
extinguished
i. Payment/performance
ii. Loss of the thing due Requisites:
iii. Condonation/remission of the debt
i. Obligee knows performance is
iv. Confusion/merger of the rights of
incomplete/irregular (consent)
creditor & debtor
ii. He accepts w/o protest or objection
v. Compensation
(acceptance)
vi. Novation
Art. 1236 – Persons from Whom the Creditor
Other causes: annulment, rescission, fulfillment
Must Accept Payment; Creditor May Refuse
of resolutory condition & prescription
Payment by a Third Person; effect of payment
by 3rd person

Section 1. – Payment or Performance. i. Debtor

Art. 1232 – Meaning of Payment
 Delivery of money
 Giving a thing
 Doing an act
 Not doing an act
Art. 1233 – When Debt is Considered Paid
i. Integrity of prestation – thing
delivered/service rendered not paid
unless completely delivered/rendered
ii. Identity of the prestation – the very
prestation due must be
delivered/performed
Art. 1234 – Recovery Allowed in Case of
Substantial Performance in Good Faith;
Requisites for Application of Art. 1234
i. Must be substantial performance
ii. Obligor is in good faith
ii. 3rd person w/ interest in obligation
iii. 3rd person w/ no interest, but when
stipulated he can pay
Creditor refuse payment by 3rd person:
 3rd person whom he dislikes/distrust
 For perso reasons, may not want to
have any business dealings w/ 3rd
person
 May not have confidence in the honesty
of 3rd person
Effect of payment by 3rd person:
i. If made w/o knowledge/against will
of debtor. – recovery up to the
extent/amount of debt at time of
payment
ii. If made w/ knowledge of debtor. –
payor have rights of reimbursement
& subrogation
Art. 1237 – Right of 3rd Person to Subrogation;
Subrogation and Reimbursement Distinguished
 3rd pay on behalf of debtor, w/ consent,
is entitled to subrogation
 If not, 3rd person can’t compel creditor
to subrogate his rights
Subrogation & Reimbursement:
i. Subrogation – payor has acquired
right to be reimbursed and all other
rights to credit against debtor/3rd
person (guarantor etc.)
ii. Reimbursement – 3rd person has
right to be refunded
Art. 1238 – Payment by a 3rd Person Who Does
Not Intend to be Reimbursed
“no one should be compelled to accept the
generosity of another.”
 3rd person doesn’t intend to be
reimburse: Payment is considered a
donation, valid w/ debtor’s consent
Art. 1239 – Meaning of “free disposal of thing
due” and “capacity to alienate”; free disposal
of thing due and capacity to alienate required
i. Free disposal of the thing due –
thing to be delivered must not be
subject to any
claim/lien/encumbrance of a 3rd
person (mortgage, pledge, etc.)
ii. Capacity to alienate – person not
incapacitated to enter contracts,
and for that matter, to make a
disposition of thing due
General Rule:
 Obligation to give. Payment by one who
doesn’t have free disposal of thing due
& not have capacity to alienate is not
valid
Art. 1240 – person to whom payment shall be
made; meaning of any “any person authorized
to receive it”
i. Creditor
ii. Successor in interest
iii. 3rd person authorize to receive
3rd person authorized:
 By creditor
 By law (guardian, executor or
administrator of estate of deceased,
assignee, liquidator of partnership)
Art. 1241 – effect of payment to an
incapacitated person; effect of payment to 3rd
person; when benefit by creditor need not be
proved by debtor
Payment to incapacitated creditor:
 NOT VALID unless:
i. Kept the thing paid/delivered
ii. Payment benefited him
 Absence of benefit:
i. Debtor pay again to creditor’s
guardian
ii. Pay again to creditor after
recovery of capacity
Effect of pay to 3rd person
 Generally, not valid: unless benefitted
the incapacitated creditor, w/c needed
be proven by debtor
Proof not needed:
i. After payment, subrogation to 3rd
person
ii. Ratification by creditor to 3rd person
iii. By C’s conduct, D believe 3rd person
is authorized to receive
Art. 1242 – payment to 3rd person in
possession of credit
Obligation extinguished:  Law of sales – amount of money debt
becomes price of thing alienated
 Possession of credit itself, not mere
document or instrument Art. 1246 – rule of the medium quality
 Debtor must pay in good faith
 Delivery of specific thing, very thing
Art. 1243 – when payment to creditor not valid must be delivered
 Generic thing, considers purpose of
i. 3rd person file case against creditor
obligation & other circumstance to
for not paying 3rd person
determine quality/kind of the thing to
ii. During pendency of case, court
be delivered
ordered debtor not to pay creditor
 Art. 1246 – “principle of equity”
until case resolved
 Benefit waived by creditor: accepting
iii. “garnish” – payment subject to 3rd
inferior quality – delivering superior
person by debtor
quality
Art. 1244 – very prestation due must be
Art. 1247 – debtor pays for extrajudicial
complied with; when prestation may be
expenses; losing party generally pays judicial
substituted
cost
i. Real obligation: thing different from
 Reason: when obligation is
due cant be offered/demanded
extinguished, debtor is benefitted,
against will of creditor/debtor
unless stipulated who will bear
ii. Personal obligation: act
expenses
performed/prohibited cant be
 Doesn’t apply to expense by creditor
substituted against creditor’s will
going to debtor’s domicile to collect
Prestation substituted:
Judicial Cost
 When creditor consents (facultative)
 Amounts allowed to a party to an
Art. 1245 – special forms of payment; meaning action for his expense incurred in the
of dation in payment; governing law action
 Paid by losing party
i. Dation in payment
 Special reasons: either party shall pay
ii. Application of payments
cost or divided
iii. Payment by cession
 Cost against gov’t not allowed, unless
iv. Tender of payment and
provided by law
consignation
Art. 1248 – performance of obligation should
Dation in Payment
be complete; when partial performance
 Adjudication/ dacion en pago allowed
 Debt in money satisfied by alienation of
 One debtor, one creditor
property
Partial payment allowed:

i. Expressed stipulation
Governing law
 ii. Debt part liquidated; part
unliquidated
iii. Different prestation subject to diff.
terms & conditions (pay debts in
installments); need not executed
simultaneously but must be
complete
Art. 1249 – meaning of legal tender; legal
tender in the Philippines; payment by means
of instruments of credits
Legal Tender
 Currency
 If offered in right amount, creditor must
accept
 Debt in money be paid in currency
stipulated
Legal Tender in Ph.
 Absence of stipulation: payment made
in legal tender in the Ph.
 All notes & coins issued by BSP
 Coins – not exceeding P50 for
denominations of P0.25; not exceeding
P20 for P0.10
 Bills & coins above P1, any amount
allowed
Payment by instrument credits
i. Right of creditor to refuse/accept –
promissory notes, checks, bills of
exchange etc. are not legal tender,
creditor can’t be compelled to
accept
a. Creditor may accept w/o effect
of payment. Demand to
obligation is suspended
b. C can cash instrument. When
dishonored, C bring action for
non-payment
ii. Effect on obligation – payment by
means of mercantile document
doesn’t extinguish obligation:
a. Until cashed
b. Unless impaired through fault
of creditor
Art. 1250 – meaning of inflation and deflation;
basis of payment in case of extraordinary
inflation or deflation
i. Inflation – sharp & sudden increase
of money/credit or both (ex. P5T to
P2.5T)
 Drop in value of money cause rise in
price
ii. Deflation – reduction in volume &
circulation of money/credit, result
in decline of price (P5T to P10T)
Basis of payment:
 Purchasing value of currency at
establishment of obligation, subject to
agreement of parties to contrary
 Contractual obligation
Ex. D debt P5T to C (5 yrs. to pay). At time of
payment, D pay P2.5T (inflation) or P10T
(deflation) unless stipulated to pay P5T
regardless.
Art. 1251 – place where obligation shall be
paid
i. Case of stipulation – place designated
ii. Stipulation & determinate thing –
payment is made where the thing was
when contract is perfected
iii. No stipulation & generic thing –
payment at domicile of debtor &
creditor bears expense
Terms:
 Venue – place where court suit/action
must be filed/constituted
 Domicile – place of person’s habitual
residence
 Residence – element of domicile;
requires bodily presence
Subsection 1. – application of payments. art. 1253 – interest earned paid ahead of
principal
art. 1252 – meaning of application of
payments; requisites of application of  Mandatory: interest paid before
payments; application as to debts not yet due; principal
rules of application of payments  Subject to agreement of parties/waiver
application of payments – designation art. 1254 – application of payment to most
of debt to w/c should be applied the payment onerous debt; when debt more onerous than
by a debtor who has various debts of the same another; where debts subject to different
kind in favor of 1 creditor burdens
Requisites:  If no application of payment: apply to
most onerous
i. 1 debtor & creditor
 Same nature & burden: apply payment
ii. 2 or more debts
to debt proportionately
iii. Debts are same kind
iv. Debt to w/c payment be applied is Debt more onerous than another:
due
v. Payment made not enough to cover  Subjective to D
all debts  Rules by Supreme Court:
o Interest-bearing is more
Application to debts not due: onerous than non-bearing one
Can’t be made unless: o Sole debtor than solidary debtor
o Secured debts (by mortgage or
i. Stipulation that debtor may by pledge) than unsecured
apply debts
ii. Made by debtor/creditor, for o Between interest-bearing
whose benefit the period has debts, one w/ higher int.
been constituted o Obligation w/ penalty than w/o
Rules: penalty

i. D indicate at time of payment, not Debts subject to diff. burdens:

afterwards, w/c debt is being paid
ii. Decision of D irrevocable, unless C
consents
iii. If debtor doesn’t apply, C
designates w/c debt is paid
iv. If C doesn’t apply/application
invalid, debt is designated to most
onerous to D
v. If debts same nature & burden,
payment applied to all
proportionately
 Ex. Debt secured by mortgage & debt
w/ penalty; it can’t be determined w/c
is most onerous
 Payment applied proportionately
subsection 2. – payment by cession
art. 1255 – meaning of payment by cession;
requisites of payment by cession; effects
payment by cession; dation in payment and
cession distinguished
 payment by cession – assignment or
abandonment of all properties by D that the
creditor may sell the same & apply proceeds to
satisfy debt to creditors
Requisites payment by cession:
i. 2 or more Cs
ii. D be (partially) insolvent
iii. Assignment of all properties of D
iv. Cession be accepted by Cs
Effects payment by cession:
Unless stipulation
 Assignment not make Cs owner of D’s
property
 D release from obligation up to net
proceed of sale
Dation in payment & payment by cession:
i. Dation – 1 creditor; Cession –
several Cs
ii. Dation – doesn’t presuppose D’s
insolvency; Cession – D insolvent at
time of assignment
iii. Dation – not involve all property of
D; Cession – extend to all property
of D subject to execution
iv. Dation – C becomes owner of thing
given by D; Cession – acquire right
to sell & proceeds apply to their
credit proportionately
v. Dation – act of novation; cession –
not act of novation
subsection 3. Tender of payment and
consignation
art. 1256 – meaning of “tender of payment”
and “consignation”; requisites of a valid
consignation; when tender of payment not
required; requirements for valid tender of
payment
tender of payment – act of D of offering
the thing or amount due; D must show
possession of thing/money at time of offer
consignation – act of depositing
thing/amt. due w/ the proper court when C
doesn’t want/can’t receive it; applicable to
debt/obligation to pay; always judicial & require
tender of payment
Requisite valid consignation:
i. Existence of debt due
ii. Tender of payment; refusal of C w/o
justifiable reason
iii. Previous notice of consign. to
person interest in fulfillment of obli.
iv. Consign. of thing/sum due
v. Subsequent notice of consignation
to interested parties
Tender of payment not required:
 C informs D that payment of debt will
not be accepted, thereby waives
payment when its due
 D excused from making formal tender
of money
Requirement valid tender of pay:
i. Must comply rules of
payment/terms in contract
ii. Unconditional; whole amt due; in
legal tender
iii. Actual offer of thing/amt due
art. 1257 – prior notice to persons interested
required; consignation must comply w/
provisions on payment
 Absence of notice persons interested in
fulfillment of obli = consignation void
 Purpose: C a chance to reflect his
refusal because he bears expense of
consignation & loss of thing consigned
Provisions on payment:
 Provisions: 1233, 1239, 1244, 1246,
1249, 1253
 Payment made in legal tender
art. 1258 – consignation must be w/ proper
judicial authority; notice to be given to
interested parties of the consignation made
W/ proper judicial authority:
 Deposit thing/sum due w/ proper
judicial authority will effect payment
 Tender of pay must precede
consignation, tender prove by D
 Tender not required = only prior notice
be proved by D
Notice to other parties:
 After consignation is made, interested
parties must be notified
 Fulfilled by service of summons & copy
of complaint upon the defendants
art. 1259 – creditor bears expenses of
consignation; when consignation deemed
properly made
C bears expense:
 Because of unjustified refusal
 D bears if consignation not properly
made
Consignation properly made:
i. C accepts thing/sum deposited w/o
objection
ii. C questions validity, court proves
consignation valid after hearing
iii. C neither accepts nor questions,
court cancels obligation after
hearing
art. 1260 – withdrawal of debtor of thing or
sum deposited
withdrawal of deposit:
i. Before C accepts consignation
ii. Or before judicial declaration that
consignation is properly made
As D still the owner of the same
Obli remains in force; all expenses D bears
art. 1261 – effect of withdrawal w/ authority
of creditor
effect withdrawal authorized by C:
 C may authorize withdrawal; (1) after
accepting it or (2) after court cancels
obligation
 D & C relations will remain as before
 C losses preference over the thing
 Co-D, guarantor, sureties be released
section 2. – loss of the thing due
art. 1262 – when a thing is considered lost;
when lost of thing will extinguish an obligation
to give; when lost of thing will not extinguish
liability
Thing considered lost:
 Impossibility of performance
 Perishes
 Goes out of commerce
 Existence unknown/cannot be
recovered
When loss thing extinguished obli to give:
Ff. requisites must be present
i. Obli to deliver specific thing
ii. Loss thing not fault of D
iii. D not guilty of delay
Loss thing not extinguish liability:
i. When law provides
 ii. Stipulation
iii. Nature of obli assumes risk
iv. Obli to deliver specific thing arise
from crime
art. 1263 – effect of lost of a generic thing
“genus nunqam perit” – a generic thing
never perishes
 D still compelled to deliver a thing of
same kind
 C can’t demand superior quality, D
can’t deliver inferior quality
art. 1264 – effect of partial loss of a specific
thing
 Portion of thing lost/destroyed or
depreciated/deteriorated
 Obli to do – partial loss is the equivalent
of difficulty of performance
Effect of partial loss:
 Court decides is partial loss is
equivalent to complete/total loss
art. 1265 – presumption of fault in case of loss
of thing in possession of debtor; when
presumption not applicable
presumption of fault:
 Fault of D unless proof to contrary
 Under art. 1165, D who is not at fault
still liable for delay or promised to
deliver same thing to 2 or more person
Presumption not applicable:
 In case of natural calamity,
presumption doesn’t apply
art. 1266 – effect of impossibility of
performance; kinds of impossibility
impossibility of performance:
 Obli physically & legally impossible
 Result in extinction of obligation
 Impossibility took place after
constitution of obli
Kinds of impossibility:
i. Physical impossibility – involves
obligor’s personal qualifications;
takes place when obligor dies or
physically incapacitated
ii. Legal impossibility – impossible by
provision of law
art. 1267 – effect of difficulty of performance
difficulty of performance:
 Applicable to real and personal
obligations
 Performance/service becomes so
difficult
 Court authorize release of obligor in
whole or in part
 Element of fortuitous event
art. 1268 – effect of fortuitous event where
obligation proceeds from a criminal offense
effect of fortuitous event obli proceed from
crime:
 Fortuitous not exempt obligor from
liability
 Obli subsists except when C refuse to
accept thing (ex. C’s stolen property);
consignation not necessary but D
exercise due diligence
art. 1269 – right of creditor to proceed against
3rd person
right of C against 3rd person:
 C has right to proceed against 3rd person
responsible for thing loss
 Rights of action of D are transferred to
C & obli of D is extinguished
section 3. – condonation and remission of debt
art. 1270 – meaning of condonation or
remission; requisites of condonation or
remission; kinds of remission; effect of
inofficious remission
meaning condonation or remission:
condonation or remission – gratuitous
abandonment of C his right against D; a form of
donation
Requisites:
i. Must be gratuitous
ii. Accepted by D
iii. Parties must have capacity
iv. Not inofficious
v. If made expressly, must comply w/
forms of donations
Kinds of remission:
i. As to extent:
a. Complete – covers entire obli
b. Partial – not cover entire
ii. As to form:
a. Express – made verbally or
writing
b. Implied – inferred from conduct
iii. As to date of effectivity:
a. Inter vivos – take effect during
lifetime of donor
b. Mortis causa – effective upon
death of donor; must comply w/
formalities of a will
Effect inofficious remission:
Inofficious – of or relating to a
disposition of property that has the effect of
depriving descendants of the shares of a
succession to which they are entitled by law
Legitime – part of testator’s property he
can’t dispose because law reserved it to
compulsory heirs
 Testamentary disposition shall be
reduced if impairs legitime on petition
of the heirs insofar as they’re
inofficious/excessive
art. 1271 – presumption incase of voluntary
delivery of document of indebtedness by
creditor; payment, not remission of debt
Presumption:
i. Implied remission – tacit; C
renouncing his right
ii. Contrary evidence – prima facie or
rebuttable by contrary evidence
iii. Extent of remission – joint obli,
remission to D in possession of
document; soli obli, to whole obli
iv. Presumption applicable only to
private document – art. 1271 refers
to priv. document; doesn’t apply to
public document for it’s easy to
copy
Payment, not remission of debt:
 Remission null & void if proven
inofficious
 Delivery of document was made in
virtue of payment of debt proved by
debtor or heirs
art. 1272 – presumption in case document
found in possession of debtor
presumption:
 If private docu in possession of D,
unknown how, presumption C delivered
it voluntarily, give rise to presumption
of remission, unless proven contrary
 Also, voluntary delivery give rise to
presumption of payment, only when
known there’s no payment, then
assume remission
art. 1273 – effect of renunciation of the
principle debt of the accessory obligation
effect:
 Accessory follows principal
 Accessory obli can’t exist w/o principal;
principal can exist w/o accessory
art. 1274 – presumption in case thing pledged
found in possession of debtor
pledge – contract by virtue where D
delivers to C or T a movable/instrument
evidencing rights to secure fulfillment of obli,
when obli fulfilled thing delivered be returned
with fruits & accessories
presumption:
 If thing pledged in possession of D or 3rd
person, only accessory obli is remitted,
not obli itself
 Yields to contrary evidence
 Ex. D pledge ring to C for loan. If ring
found in possession of D, presumption
C agree to loan w/o pledge.
section 4. – confusion or merger of rights
art. 1275 – meaning of confusion or merger;
reason or basis for confusion; requisites of
confusion
Confusion/merger – meeting of one
person the qualities of creditor & debtor w/
respect to same obli
Reason or basis:
i. If D becomes its own C, extinguish
obli, since a person can’t claim
payment from himself
ii. When there’s confusion of rights,
purpose for creation of obli are
realized
Requisites:
i. Take place between principal debt
& creditor
ii. Must be complete
art. 1276 – effect of merger in the person of
principal debtor or creditor; effect of merger in
the person of guarantor
Effect of M in person of principal D or C:
 Merger in the person of principal D or C
extinguishes the obli
 Accessory obli of guaranty also
extinguish
Effect of M in the person of Guarantor:
 Merger w/c takes place in the person of
G extinguish the guaranty, not principal
obli
art. 1277 – confusion in a joint obligation;
confusion in a solidary obligation
confusion joint obli:
 Confusion taking place in the person of
any D or C does not affect others
 Confusion only extinguish share
corresponding to C or D in whom the 2
characters concur
Confusion soli obli:
 M in person of one of soli D extinguish
obli
section 5. – compensation
art. 1278 – meaning of compensation; object
of compensation; compensation and confusion
distinguished; kinds of compensation
compensation – extinguishment of
concurrent debts of 2 person who are D and C
of each other; balancing of 2 obli to the extent
in w/c amt of one is covered by other
 Simplified payment cause provides
more convenience & less expensive effectuation
of payments
object of compensation:
 To avoid unnecessary
litigation/payment
 Mutual extinguishment by operation of
law
Compensation & confusion:
i. Confusion – 1 C & D of himself;
Compensation – 2 persons, each a D
& C of each other
ii. Confusion – one obli; compensation
– 2 obli
iii. Confusion – impossibility of
payment; Compensation – indirect
payment
Kinds of compensation:
i. By effect/extent
a. Total – both obli same amt,
extinguish whole obli
b. Partial – 2 obli diff amts,
balance remains
ii. By cause/origin
a. Legal – takes place by operation
of law, w/o knowledge of both
parties
b. Voluntary – takes place by
agreement of parties
c. Judicial – takes place by order
of court, one party refuse, other
invokes
d. Facultative – can be set up by
one of parties
art. 1279 – requisites of legal compensation
requisites legal compe.
i. Parties principal D & C of each other
ii. Both debts in money or consumable
or same kind & quality
iii. Debts due or demandable
iv. 2 debts are liquidated
v. No retention or controversy
commenced by a 3rd person
Retention – when credit of one of parties is
subject to satisfaction of claims of a 3rd person
Controversy – 3rd person claims he is the
creditor of one of the parties
art. 1280 – compensation benefits guarantor
compe benefits G:
 Exception to rule: Principal D and C
 G is given right to set up compe
 Extinguish of principal obli carries w/ it
the accessory obli such as guaranty
art. 1281 – total and partial compensation
total & partial:
 Applies to all diff kinds of compe
 Total compe – 2 debts, same amt
 Partial compe – diff amts, total to small
debts & partial to large debts
art. 1282 – voluntary compensation
 Exception to rule: debts due &
demandable
 Voluntary compe takes place by
agreement of parties
 Enough that contract of parties is valid
art. 1283 – judicial compensation
 Compe may take place as final
judgement of court
 Party may set off claim against debt to
other party for damages and the amt
art. 1284 – compensation of rescissible or
voidable debts
 Rescissible & voidable obli are valid until
judicially rescinded/avoided
  Prior to rescission or annulment, debts
be compensated
art. 1285 – where compensation has taken
place before assignment; where compensation
has taken place after assignment
compe before assignment: (ex. In book)
 Extinguished debt assigned by C to 3rd
person, D can raise defense of compe
 Right of compe may be waived by D b4
or after assignment
Compe after assignment: (ex. In book)
i. Assignment w/ consent of D
ii. Assignment w/ knowledge but not
consent of D
iii. Assignment w/o knowledge of D
art. 1286 – compensation where debts payable
at different places
 Expenses of monetary exchange
(money debt) and transportation
(things to be delivered)
 Indemnity paid by person who raises
defense of compe
 Foreign exchange – conversion of an
amount of money/currency of 1 country
to an equivalent amt of
money/currency of another
 exchange rate – price of currency
expressed/quoted in another currency
Ex. A owes B $1T payable in NY. B owes A P26T
payable in Manila. If A claims compe, A pays
expenses of exchange.
art. 1287-1288 – instances where legal
compensation is not allowed by law
fiduciary – a person/entity (ex. Bank)
who has power & obli to act for another
(beneficiary etc.) under situations that require
total trust, good faith & honesty.
Depositum – bailment (legal transfer),
w/o reward, of goods to be kept for the
depositor (bailor), by the depositary.
i. one of debts arise from depositum
– a depositary can’t set off payment
for a lost depositum for a debt by
the depositor (fiduciary); but
depositor can set up deposit against
his debt to depositary
ii. one of debts arises from
commodatum – commodatum – a
gratuitous contract where one of
parties delivers to another
something unconsumable so latter
can use for certain time and return
(fiduciary); Lender can assert compe
iii. one of debt arise from claim of
support due by gratuitous title –
support for sustenance, dwelling,
clothing, etc.
iv. one of debts consist civil liab from
penal offense – compe improper &
inadvisable
art. 1289 – rules of application of payments
apply to order of compensation
 D inform C which debt susceptible to
compe
 If fail to do, apply to most onerous
art. 1290 – consent of parties not required in
legal compensation
i. Compe takes place automatic by
operation of law – if all requisites
concur
ii. Legal capacity not required
section 6. – novation
art. 1291 – meaning of novation; dual function
of novation; kinds of novation
novation – total or partial extinction of
obli thru creation of new obli w/c substitute it
  Novation is done by changing
object/principal conditions, or subs D,
or subrogating 3rd person
 Not absolute, only relative extinction of
obli (“modified”); new obli base on
former
Dual function novation:
2 stipulations
i. Extinguish/modify existing obli
ii. Substi new one in its place
kinds of novation:
i. Acc. To origin
a. Legal – takes place by operation
of law
b. Conventional – takes place by
agreement of parties
ii. Acc. To how’s it constituted
a. Express – declared
unequivocally
b. Implied – when old & new obli
incompatible w/ each other
iii. Acc. To extent/effect
a. Total/extinctive – old obli
completely extinguished
b. Partial/modificatory – old obli
merely modified
iv. Acc. To subject (ex. In book)
a. Real/objective –
object/principal conditions of
obli are changed
b. Personal/subjective – D is
substituted and/or 3rd person
subrogated
c. Mixed – object/principal
conditions & D or C or both
changed
art. 1292 – requisites of novation; novation is
not presumed; test of incompatibility between
two obligations or contracts
requisites:
i. Previous valid obli
ii. Capacity & intention of parties to
modify/extinguish obli
iii. Modification/extinguishment of obli
iv. Creation of new valid obli
Novation not presumed:
 Must be clearly & unmistakably
established by express agreement &
incompatibility of the 2 obli in every
material aspect
Test of incompatibility:
 If both obli can’t stand together
 Should take place in any of the matters
mentioned in art. 1291
art. 1293 – kinds of personal novation; kinds of
substitution; consent of creditor necessary;
right of new debtor who pays
kinds of personal novation:
i. Substitution – person of D is subs
ii. Subrogation – 3rd person
subrogated rights of C
Kinds of substitution:
i. Expromision – 3rd person w/ own
initiative & w/o knowledge or
against will of D, assume D’s obli w/
consent of C; requires consent of 3rd
person & C; old D released from obli
for expromision to effect
ii. Delegacion – C accepts 3rd person to
take place of D at the instance of D;
C may withhold approval; old D,
new D, C must agree
Consent C necessary:
 In 2 modes of substi, C’s consent
indispensable
 Reason: substi implies waiver of C of his
credit and it may be prejudicial for him
Right of new debtor:
i. In expromision – right to
reimbursement
ii. In delegacion – reimbursement &
subrogation
art. 1294 - effect of debtor’s insolvency or non-
fulfillment of obligation in expromision
effect non-fulfillment/insolvency expromision:
 Old D not liable for obli incase of new
D’s insolvency and non-fulfillment
art. 1295 – effect of debtor’s insolvency or
non-fulfillment of obligation in delegacion
effect non-fulfillment/insolvency delegacion:
general rule: old D not liable incase of
insolvency of new D
exception:
i. Insolvency already existing and
public knowledge (although not
known to D) at the time of
delegacion
ii. Insolvency existing and known to D
(even if not public knowledge) at
time of delegacion
art. 1296 – effect of novation in accessory
obligations
 Accessory follows principal
 Exception: accessory obli create in favor
of 3rd person, obli remains in force
unless 3rd person gives consent
art. 1297 – effect where the new obligation
void; effect where the new obligation voidable
effect new obli void:
 Requisite: new obli should be valid
 Old obli shall subsist except when
parties intend old obli should be
extinguish
Effect new obli voidable:
 Novation can still take place, unless new
obli is annulled, then old obli subsist
unless otherwise extinguish by parties
art. 1298 - effect where the old obligation void
or voidable
effect old obli void or voidable:
 If old obli void – nothing to novate
 If old obli voidable or valid by
ratification – novation valid
art. 1299 – presumption where original
obligation subject to a condition
presumption orig obli condition:
 1st obli subject to suspensive/resolutory
condition, 2nd obli subject to same
unless contrary is stipulated
 Reason: efficacy of new obli depend
upon whether condition w/c affects old
obli is complied w/ or not
art. 1300 – meaning of subrogation; kinds of
subrogation
subrogation – substi of 1 person in
place of creditor, w/ reference to credit/claim,
giving person all rights of creditor, includes all
remedies to enforce payment
kinds of subrogation:
i. Conventional – takes place by
express agreement of orig parties (D
& C) and 3rd person
 ii. Legal – w/o agreement but
operation of law; not presumed
except cases provided by law

art. 1301 – consent of all parties required in

conventional subrogation

consent conventional obli:

i. Debtor – because he’s liable under

new obli to new C
ii. Old creditor – because his right
extinguished against D
iii. New creditor – because he may
dislike/distrust D

art. 1302 – cases of legal subrogation

i. C pays another C who is preferred

(subrogation)
ii. 3rd person w/o interest in obli pays
for D w/ approval
iii. 3rd person w/ interest pays w/o
knowledge of D

art. 1303 – effect of legal subrogation

 Transfer of credit & all rights & actions

from old C to new C
 Obli subsist before novation
 Under this article, effect legal
subrogation may not be modified

art. 1204 – effect of partial subrogation

 Old C to whom partial payment is made

by new C, shall remain a creditor to the
extent of the balance
 In case D’s insolvency, old C given
preferential right to recover remainder
ahead of new C