PART I: DIFFERENT KINDS OF OBLIGATIONS

A. PURE AND CONDITIONAL OBLIGATION

1. Pure Obligation— A pure obligation is one which does not contain any condition or term upon
which its fulfillment is made to depend. It is immediately demandable by the creditors and the debtor
cannot be excused from complying with his prestation. If the debtor does not fulfill his prestation,
specially after a valid demand, he is placed in default.
Illustration: I promise to Pay Mr. X the amount of P5000.00.
2. Conditional Obligation— A conditionnel obligation is that kindo of obligation which is subject to a
condition A conditional obligation is one whose effectivity is subordinated to the fulfillment or the non-
fulfillment of a future and uncertain event. If the condition is suspensive, its fulfillment gives rise to the
obligation. If it is not fulfilled, no obligaiton will arise. If the condition is resolutory, its happeingi
extinguishes the obligation whis is already existing.
Classifications of Conditions:
1. a.) Suspensive (or condition precedent)— when the performance or fulfillment of the condition
results in the birth or acquisition of the rights contemplated in the obligation.
b.) Resolutory (or condition subsequent)— When the performance or fulfillment of the condition
results in the extinguishment of the rights which have previously arisen out of the obligation.
2. a.) Potestative— when the performance or fulfillment of the condition depends upon the exclusive
will of one of the parties (e.g. I wiill buy you a watch when I am in a good mood.) NOTE: If the
fulfillment of the potestative condition depends exclusively upon the will of the debtor, the conditional
obligation is void, that is, both the obligation and the condition are void.
b.) Casual— when the performance or the fulfillment of the condition depends upon chance and/or
upon the will of a third person (e.g. If I win the lotto, I will buy you a watch.)
c.) Mixed— when the performance or fulfillment of the condition depends partly upon will of a party to
the obligation and partly upon chance and /or the will of a third person (e.g. I will give you my Rolex
watch If I want to and if Mr. X will travel to Australia)
3. a.) Possible— when the condition is capable of fulfillment according to nature, law, public policy or
good customs.
b.) Impossible— when the condition is not capable of fulfillment according to nature, law, public
policy or good customs.
4. a.) Positive— when the condition involves the doing of an act
b.) Negative— when the condition involves the omission of an act
5. a.) Divisible— when the condition is susceptible of partial performance
b.) Indivisible— when the condition is not susceptible of partial performance
6. a.) Conjunctive— when there are several conditions in an obligation and al of which must be
performed.
b.) Alternative— when there are several conditions in an obligation but only one must be performed.
7. a.) Express— when the condition is expressly stated
b.) Implied— when the condition is not expressly stated but merely inferred from the conduct of the
parties.
B. OBLIGATIONS WITH A PERIOD
Obligation with a Period or Term.— Period and term have the same meaning. They are used
interchangeably. It consists in a space and length of time upon the arrival of which, the demandability
or extinguishment of an obligation is determined.
Effect or term or period.— Obligations with a term or period are demandable only when the day
fixed for their performance arrives.
Classifications of Obligations with a period:
1. Legal— when the period is fixed by law
2. Voluntary— when the period is agreed upon by the parties
3. Judicial— when the period is fixed by the court for the performance of the obligation or for its
extinguishment.
Day Certain— A day certain is understood to be that which must necessarily come, although it may
not be known when.
Requisties of a Valid Term or Period.
1. It must be future.
2. It must be certain, that is, sure to come but may be extended by mutual agreement.
3. It must be possible physically and legally.
Presumption when a Period is Designated— When a period is designated in the performance of
an obligation, it is presumed that the period is intended for the benefit of both the creditor and debtor
such as a “loan with interest.” This bieng the case, the creditor cannot demand the performance of
the obligation before the expiration of the designated period in the same manner that the debtor
cannot also perform the obligation before the expiration of the period.
The reason for this is that the creditor is interested in the interest, while the debtor is interested in the
time given him within which to pay the obligation.
C. ALTERNATIVE OBLIGATION
Alternative Obligation— is one where the debtor is alternatively bound by different prestations but
the complete performance of one of them is sufficient to extinguish the obligation. While there are
several prestations, only one is due.
Illustration of an Alternative Obligation:
MR. “A” promises to give Mr. “B” an Iphone 7 or a Samsung Note 9 or P50,000.00 cash money. In
this alternative obligation, Mr. “A” is not bound to deliver all the three things to “B.” The delivery of one
is enough to extinguish the obligation..
Right To Choose The Prestation To Be Performed.— The debtor in alternative obligaiton is bound
by different prestations, one of which must be completely performed. It is the debtor who has the right
to choose which of the prestations he shall perform.
Rule When Only One Prestation is Practicable— When all the prestations except one had become
impracticable, that is, impossible or unlawful, the debtor loses his right of choice. This is but proper
because the obligation loses its alternative character. There being one prestation availabel, this
prestation becomes a simple obligaiton
Facultative Obligation— This is the kind of obligation where the obligor is obliged to perform only
one prestation, but he is allowed to perform or deliver another one in substitution thereof.
Illustration:
Mr. “A” promises to deliver to Mr. “B” an iPhone X with a stipulation that he could give a Samsung
Galaxy Note 9 as substitute.
D. JOINT AND SOLIDARY OBLIGATIONS
Solidary Obligation: A solidary obligation is one in which each of the debtors is liable for the entire
obligation and each of the creditors is entitled to demand the satisfaction of the whole obligation from
any of all the debtors.
In case of concurrence of two or more creditors or of two or more debtors in one and the same
obligation, and in the absence of express and indubitable terms of charactererizing the obligaition as
solidary, the presumption is that the obligation is only joint.
Consequences of Joint Obligaiton— If the obligation of debtors is joint, the following are the legal
consequences:
(1) Each debtor is liable only for a proportionate part of the entire debt. The reaon being that there are
as many separate debts as there are debtors.
Illustration:
“A”, “B”, “C” and “D” owe “X” P1,000,000.00. There are four (4) debts but only one (1) credit. In the
absence of any agreement, the liability of “A” “B” “C” and “D” is only P250,000.00 each.
“X” cannot collect the entire amount from any one of them. He can only collect P250,000.00 from
each of the debtors.
(2) Each creditor, if there are several, is entitled only to a proportionate part of the credit. The reason
is, there are as many separate credits as there are creditors.
Illustration:
“A” obtained a loan of P1,000,000.00 from “X” and “Y”. There is only one debt but two credits. “X” can
collect only P500,000.00 from “A”. Similarly, “Y” can collect only P500,000.00 from “A”.
(3) The demand made by one creditor upon one debtor, produces the effects of default only as
between dem, but not with respect to the others.
(4) The interruption of prescription caused by the demand made by one creditor upon one debtor, will
not benefit the co-creditors; Neither, will it allow a creditor to demand anything from the co-creditors.
(5) The insolvency of a debtor will not increase the liability of his co-debtors. Neither, will it allow a
creditor to demand anything from the co-creditors.
(6) The vices of each obligation emanating from the personal defect of a particular debtor or creditor
will not affect the obligation or rights of the others.
Consequences of Solidarity—
(1) Passive Solidarity— This arises when any one of the several debtors can be made liable for the
payment or performance of the entire obligation without prejudice to his right to seek reimbursement
from his co-debtors as to their respective shares in the obligation in accordance with their internal
arrangement— of which they are allowed to enter into.
illustration:
“A” “B” and “C” are solidaire debtors of “X” in the sum of P900,000.00. As the obligation of the
solidary debtors is in the nature of mutual guaranty, “X” can demand payment of the entire obligation
from any one of the debtors or agaisnt all of them at the same time.
(2) Active Solidarity— This arises where any one of the solidary creditors can demand the payment or
performance of the entire obligation from the debtor or any of the debtors if there are several of them.
Among them, there is mutual representation with tpower to exercise the rights of others in the same
manner as their own rights.
Illustration:
“A” is indebted in the sum of P900,000.00 (without interest) ot “X” “Y” and “Z” who are solidary
creditors. “A” can pay either to “X” “Y” or “Z”. The full payment to any of the solidary creditors
extinguishes the obligation.
E. DIVISIBLE AND INDIVISIBLE OBLIGATIONS
Divisibility and Indivisibility of Obligations, Distinguished.—
Divisibility refers to the susceptibility of an obligation to be performed partially.
Indivisibility refers to the non-susceptibility of an obligation to partial performance.
Illustrations:
Divisible Obligation: Obligation to deliver 500 television sets of a particular brand and quality.
Indivisible Obligation: Obligation to deliver a particular car.
True Test of Divisibility— the true test of divisibility is whether or not the prestation is susceptible to
partial performance.
Indivisible Obligations.— The following are considered indivisible obligations—
(1) Obligations to give definite things— such as the obligation to deliver or give a definite or specified
diamond ring.
(2) Obligations which are not susceptible of partial performance— such as the obligation to make a
wedding dress to be used by a bride on a particular day .
Even though the object or service may be physically divisible, the obligaiton is indivisible if (a) the law
so provides; or (b) when the parties intended it to be divisible.
Divisible Obligations.— Obligations are deemed divisible under the following circumstances:
(1) When the object of the obligation is the execution of a certain number of days of work— such as
the employment of a carpenter to work for a week.
(2) When the object of the obligation is the accomplishment of work measured by material units—
such as the irrigation of ten hectares of agricultural land.
(3) When the object of the obligation is susceptible of partial compliance such as the stage-by-stage
construction of a building.
(4) When the object of the obligation is the accomplishment of analogous things such as when the
debtor is required to pay in installments
Effect of Illegality of a Part of a Contract—
Divisible Contract— If the contract is divisible and a part thereof is illegal, the illegal part is void and
is not enforceable. However, the legal part shall be valid and is enforceable.
Indivisible Contract— If the conttact is indivisible and a part is illegal, the entire cotnract is void and
is not enforceable.
Effect of Partial Performance of an Indivisible Obligation.— When an obligaiton is indivisible, it is
not susceptible to partial performance. In indivisible obligation, partial performance is tantamount to
non-performance.
F. OBLIGATIONS WITH A PENAL CLAUSE
Penalty Clause.— This is an accessory obligation or undertaking attached to a principal obligation,
which imposes an additional liability in case of breach of the principal obligation. In effect, it is a moral
coercion for the debtor to perform his obligation faithfully and promptly within the period agreed upon.
Otherwise he suffers a fixed civil penalty without need of proving the damages of the other party.
Illustration:
In a contract for the sale of a subdivision lot, it was sitipulated that the buyer would complete a
residential house within two years on the lot, otherwise, the buyer will pay the sum of P11, 123.00 to
the seller As the buyer failed to construct 50% of the proposed residential house within the period
stipulated, the penalty is demandable.
Situations When Penalty is Not Enforceable
(1) When the principal obligation has become imposible of performance due to fortuitous events.
(2) When the debtor is prevented by the creditor to fulfill the obligation;
(3) When the penalty agreed upon is contrary to morals or good customs. Thus, a penalty of forfeiture
of future support is contrary to law morals and good customs. It is void.
(4) When both parties are guilty of breach of contract
(5) When none of the contracting parties committed any wilfull or culpable violation of the
agreeement, no one can invoke the penalty clause against the other.
(6) When the breach of the contract is committed by the creditor.
PART II: EXTINGUISHMENT OF OBLIGATIONS
A. PAYMENT OR PERFORMANCE
Payment is the satisfaction or fulfillment of a prestation that is due, resulting in the extinguishment of
the obligation of the debtor.
Payment and performance are identical.
Kinds of Payment.-- Payment may be voluntary or involuntary. It is voluntary when the debtor
willingly pays in money or performs the prestation stipulated; it is involuntary, when the debtor is
forced to deliver or perform by order of the court.
Requisites of a Valid Payment--
(a) Capacity of the person paying;
(b) Capacity of the person receiving the payment;
(c) Delivery of the full amount or the full performance of the prestation;
(d) propriety of the time, place and manner of payment; and
(e) Acceptance of the payment by the creditor.
When Indebtedness is Deemed Paid--
Payment extinguishes debts. A debt is considered paid when the full amount has been delivered, or
the service for which the obligation consisted has been rendered. To extinguish the indebtedness or
the prestation, the payment must be in full, or the performance be complete-- unless otherwise
stipulated.
If the debt consists in not doing something, payment is effected by refraining from doing the act which
the obligor agreed not to do at the contemplated time.
Evidence of Payment: Presentation of a receipt is a good proof of payment. A debtor can demand
the issuance of a receipt when the debt is paid. If the creditor refused to issue the receipt,
consignation may be resorted to by the debtor.
Burden of Proof: The burden of proving payment rests upon the debtor, after the creditor has shown
that the debt exists.
Substantial Compliance of an Obligation: There is substantial compliance by the debtor whwn in good
faith, he has attempted to perform the contract or prestation, but through oversight, or any excusable
neglect, he failed to make a full and complete performance, for which the other party may be
indemnified. The omission or defect must be slight and unimportant, that is, it must not be so material
as to frustrate the accomplishment of the intended work.
Article 1235. When the obligee accepts the performance knowing its incompleteness or irregularity,
and without expressing any protest or objection, the obligation is deemed fully complied with.
Reason: Although the obligation is not completely executed, the same is deemed fully fulfilled or
performed becaude the obligee has waived his right to question the defect when he made the
acceptance without any protest or objection thereto.
Article 1236. The creditor is not bound to accept payment or performance by a third person who has
no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary.
The creditor is not bound to accept payment or performance proferred by a third person who has no
interest in the fulfillment of the obligation.
Exceptions:
(1) If there is a stipulation that the creditor shall accept payment made by a third person
(2) If the third person has an interest in the fulfillment of an obligation such as the interest of a surety,
a guarantor or a mortgagee.
Article 1238. Payment made by a third perosn who does not intend to be reimbursed by the debtor is
deemed to be a donation, which requires the debtor’s consent. But the payment is in any case valid
as to the creditor who accepted it.
Reason why consent of the debtor is required in payment made by a third person who does
not intend to be reimbursed-- The reason as stated by the Code Comission is that “no one should
be compelled to accept the generosity of another”.
Effect of absence of Debtor’s Consent-- Even if the debtor did not give his consent to the presumed
donation, the payment if accepted by the creditor will have the effect of extinguishing the obligation.
The consent of the debtor is immaterial insofar as the extinguishment of the obligation is concerned.
Article 1245. Dation in Payment, whereby property alienated to the creditor in satisfaction of a debt in
money, shall be governed by the law on sales.
Dation in Payment-- Dation in payment is the alienation by the debtor of a particular property in favor
of his creditor, with the latter’s consent, for the satisfaction of the former’s money obligation to teh
latter, witht eh effect of extinguishing the said money obligation.
Illustration:
“A” owes “B” certain amount of money. “A” could not pay his money obligations to “B”. “A” offered a
property as payment for his money obligations. If “B” agreed to accept the property as payment, there
is dation in payment.
Elements of Dation in Payment- Dation in payment has the following elements:
(1) Existence of a money obligation;
(2) Alienation to the creditor of a property by the debtor with the consent of the former;
(3) Satisfaction of the money obligation of the debtor.
Governing Law in Dation in Payment. -- By express provision of the Article, the law on sales shall
govern the relation of the parties. Thus, the debtor shall be deemed the vendor and the creditor, the
vendee in their judicial relationship.
Legal Tender-- Legal tender refers to such currency which may be used for payments of debts
whether public or private, and which teh creditor cannot refuse to accept.
What does “legal tender power” of a currency mean?
Legal tender power means that when the currency is offered in payment of a debt, public or private,
the same must be accepted.
Is there a limit to the legal tender power of Philippine currency notes and coins?
Philippine currency notes have no limit to their legal tender power. In particular, all notes and coins
issued by the BSP shall be fully guaranteed by the Government of the Republic of the Philippines and
shall be legal tender in the Philippines for all debts, both public and private, as stipulated under
Section 52 of the New Central Bank Act. However, in the case of coins in denomination of 1-, 5-, and
10 piso they shall be legal tender in amounts not exceeding P1,000.00 while coins in denomination
1-, 5- and 10 and 25 centimo shall be legal tender in amounts not exceeding P100.00, pursuant to
BSP Circular No 537, series of 2006.
Rule on Payment in Check.-- A check, whether it is an ordinary check or manager’s check is not
legal tender. Its offer, in payment of debt may be refused because it is not legal tender.
Venue of Payment-- The place of payment shall be as follows:
1. If there is a specific palce designated where payment shall be made, that place shall be the
place where payment shall be made;
2. If there is no agreement on where payment shall be made the following rules shall apply:
(a) If the undertaking is to deliver a determinate thing, the place of payment is where the thing might
be at the time the obligation was constituted.
(b) In other cases (like the obligaiton to deliver money, a generic thing or to perform a personal
obligation), payment shall be made at the domicile of the debtor.
APPLICATION OF PAYMENTS
Application of payments is the designation of the particular debt being paid by the debtor who has tow
or more debts or obligations of the same kind in favor of the same creditor to whom the payment is
made.
Requisites for a valid Application of Payments by the Debtor--
1. There is ony one debtor and one creditor
2. The debtor owes the creidotr tow or more debts which are of the sme kind or identical specie
such as money obligations obtained on different dates;
3. All the debts are due and demandable.
4. The payment made by the debtor is not sufficient to cover or settle all the debts. If it is
sufficient, there is no sense making any designation of payments.
PAYMENT BY CESSION
Payment by Cession or Assignment-- Payment by cession is the same as payment by assignment.
It is a special form of payment whereby the debtor cedes his property to his creditors so the latter
may sell the same and the proceeds realiszed applied to the debts of the debtor.
There will be no cession or assignment if the credotrs do not agree to the abandonment of ahte
debtor’s property in their favor. Without the creditor’s acceptance, this special form of payment will not
be effective.
Requisites of Voluntary Cession or Assignment
1. There is pluarility of debts;
2. There is complete or partial insolvency on the part of the debtor;
3. There at at least two creditors;
4. There is acceptance of the cession or assignment by the creditors;
5. Property ceded or assigned is not exempt for execution.
TENDER OF PAYMENT
Tender of Payment is the voluntary act of the debtor whereby he offers to the creditor for acceptance
the immediate performance of the former’s obligation to the latter. Consignation is the act of
depositing the object of the obligation witht eh court or competent authority after the creditor has
unsjustifiably refused to accept the same or is not in a position to accept it due to certain reasons or
circumstances.
Rationale for Consignation-- The rationale for consignation is to avoid the performance of an
obligation becoming more onerous to the debtor by reason of causes not imputable to him.
Effect of Valid Consignation-- When the consignation is properly effected, the court will order the
cancellation of the obligation upon motion duly filed by the debtor. When the validity of the
consignation has been affirmed or declared by the court, the consignation shall have a retroactive
effect. The obligation is deemed paid from the moment the amount or the thing due has been actually
placed at the disposal of the court. The running of interest if stipulated is also deemed suspended at
the same time.
B. LOSS OF THE THING DUE
It is understood that the thing is lost when it perishes, or goes out of commerce, or disappears in
sucha a way that its existence is unknown or it cannot be recovered.
Effect if Debtor is at Fault.— When the debtor is at fault, that is, he is the cause of the loss or
destruction, the obligation to deliver the lost determinate thing is converted into an obligation to
indemnify for damages.
Effect if Debtor is not at fault but he has incurred delay in the delivery of the thing.— if the debtor is
not at fault, but he is in delay in the delivery of the thing, he will be liable for damages.
Liability of Obligor or Debtor for Loss of Thing Due to Fortuitous Events.— Under Art. 1174,
“No person shall be responsible for those events which could not be foreseen, or which though
foreseen, were inevitable. The exceptions are: (a( in case expresly provided by law; (b) when
stipulated by the parties; (c) when the nature of the obligation requires the assumption of risk. When
the exemptions are not present, the obligation is extinguished.
Art. 1263. In an obligation to deliver a generic thing, the loss or destruction of anything of the same
kind does not extinguish the obligation.
Determinate versus Determinate thing— A determinate thing is a concrete particularized object,
indicated by its own individuality, while a generic thing is one whose determination is confined to that
of its nature, to the genus to which it peratins such as a book, a chair.
Consequences of Loss of a Generic Thing.— When the obligor’s obligation is to deliver a generic
thing, the loss or destruction of anything of same kind does not extinguish the obligation. The
obligation subsists because generic objects are not deemed lost under the principle “genus never
perishes”.
Illustration:
A generic obligation to pay money, such as the liability of the employer to its employees under its
pension plan, is not extinguished by the loss or inability of the employer to raise funds.
Art. 1266. The debtor in obligations to do shall also be released when the prestation becomes legally
or physically impossible without the fault of the obligor.
Obligation to Perform one’s Commitment. — Where a person by his contract charges himself with
an obligation possibe to be performed, he must perform it, unless performance is rendered impossible
by the act of God, by the law or by the other party, it being the rule that in case the party desires to be
excused from performing in the event of contingencies arising, it is his duty to provide therefor in his
contract.
Kinds of Impossibility—
(1) Legal Impossibility.— Legal impossibility arises when the act stipulated to be performed is
subsequently prohibited by law.
Illustration:
“A” agreed to construct a 32 story building for “B”. Before the constructjion could be started a law was
passed limiting the construction of structures in the area only up to 3 story for purposes of safe
aviation. The contractor is released from his obligation.
(2) Physical Impossibility.— Physical impossibility arises when the act supposed to be performed
by the obligor due to reasons subsequent to the execution of the contract, could not be physically
performed by the obligor.
Illustration:
A painter has agreed to paint the picture of a client. After the execution of the agreement, the painter
featured in an accident resulting in the amputation of his hands. The prestation has thus become
physically impossible to perform. Consequently, the painter is released from his obligation to paint.
C. CONDONATION OR REMISSION OF DEBT
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. In brief, it is the gratuitous
abandonment by the creditor of his right.
Condonation is an act of liberality by which the creditor renounces the enforcement of the obligation
contracted in his favor. To condone is to forgive or remit a debt.
Acceptance by Debtor Required. Condonation or remission is an act of liberality. It is a donation of
an existing credit— considered a property right— in favor of the debtor. As the liberality of a person
cannot just be imposed upon another, it is required that the debtor gives his consent thereto by
making an acceptance. Condonation or remission is not a unilateral act. It is a bilateral act. If there is
no acceptance, there is no remission.
Limitation on Creditor’s Right to Condone or Remit Debts; Condonation must not be
inofficious.— As condonation or remission is essentially an act of donation, it is subject to the rule
that it shall not be inofficious. The creditor must reserve sufficient means for his own support and of
all relatives who are entitled to be supported by him at the time of the acceptance of the condonation
or remission.
If the condonation or remission made by the creditor is excessive or inofficious, it may be totally
revoked or reduced depending on whether or not it is totally or only partially inofficious.
Requisites of Condonation or Remission
(1) Existence of a demandable debt;
(2) Renunciation of the debt is purely gratuitious;
(3) Acceptance of the condonation or remission by the debtor;
(4) Formalities required by law on donation must be compliedf with;
(5) What has been condoned or remitted must not be inofficious.
Art. 1273. The renunciation of the principal debt shall extinguish the accessory obligations; but the
waiver of the later shall leave the former in force.
D. CONFUSION OR MERGER OF RIGHTS
Confusion is also known as merger of rights. The latter is more descriptive of its concept than the
former.
Confusion is the merging or convergence of the rights of a creditor and a debtor in one and in the
same person with regard to the same obligation.
By reason of the merger or convergence of the characters of creditor and debtor in the same person
involving the same obligation, the said person becomes botha a creditor to himself as well as a
debtor. Since, it is non-sensical for the said person to push and pursue in the extinguishment of the
obligation. It is for this reason that confusiion or merger of rights is made as one of causes for
extinguishing obligations.
Requisites for confusion or merger of rights—
(1) There is a merger in the same person of the characters of a creditor and a debtor;
(2) The merger must be in the characters of a principal creditor and a principal debtor.
(3) The merger is definite and complete.
Illustration of merger of rights:
“A” issued a check payable to “cash”, in favor of “B” in payment of “A”’s debt to “B”. Instead of
encashing the check, “B” endorsed it to his creditor “C”. Latter “C” indorsed it ot “A” in payment of his
(“C”) indebtedness to “A”.
Ultimately, “A” the debtor and issuer of the check, received the same check in payment of his credit
owing from “C”. There is a merger which is definite and complete.
Article 1277. Confusion does not extinguish a joint obligation except as regards the share
corresponding to the creditor or debtor in whom the two characters concur.
Joint Obligation is not extinguished by confusion.—
Generally, as there are several debtors and creditors in a joint obligation, the emegence of confusion
in one principal debtor or principal creditor will nhot extinguish the joint obligation because the
confusion is not definite and complete with regard to the entire obligation. A part of the obligation still
remains outstanding.
If the confusion takes place in the person of the debtor, the effect is only wiht regard to his share in
the obligation or debt. In fine, there is only partial extinguishment of the obligation Thus, the creditors
can still go after the other debtors whos part of the debt had not been affected by the extinguishment.
Illustration:
Cory and Doy, jointly obtained a loan of P1M from Fidel. The latter assigned his whole credit to Cory.
This assignment results in the extinguishment of Cory’s share (P500,000) in the obligation becuase of
the merger of the characters of principal debtor and creditor in her person.
However, Doy remains liable to the extent of his share (P500,000) in the obligation—not to Fidel but
to Cory.
Rule on Solidary Obligation.— The rule in solidary obligation is different If a solidary debtor had
paid the entire obligation, the obligation is totally extinguished without prejudice to the rights of the
solidary debtor who paid, to proceed against his solidary co-debtors for the latter’s individual
contribution or liability.
E. COMPENSATION
Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and
debtors of each other.
Illustration
“A” barrowed P100,000.00 from “B”. Later, “B” borrowed money from “A” in the sum of P50,000.00.
The obligation of “A” to “B” is extinguished up to the concurrent amount— P50,000.00 “A” now owes
“B” only P50,000.00 by reason of compensation.
If “B” borrowed P100,000.00 from “A”, the compensation is full. “A”’s total obligation is now totally
extinguished.
Kinds of Compensation
(a) As to Origin:
(1) Conventional or Voluntary— It takes place when the parties who are mutually debtors and
creditors of one another agree to compensate or set off their respective obligations.
(2) Legal— It takes place by operation of law from the time all the requisites of compensation concur.
(3) Judicial— It takes place by judgment of the court when there is a counterclaim duly pleaded, and
the compensation decreed.
(4) Facultative— It takes place when it is claimed by one of the parties who has the right to object to
it, but waives his objection thereto such as when the obligation of such party is with a period for hsi
benefit alone, and he renounces the period to make the obligation become due. Example: “A”
borrowed P100,000.00 from “B” payable within three years. “B” borrowed money from “A” for the
same amount. If “A” will renounce the term (3 years) which is for his benefit, there will be an
immediate compensation of the reciprocal obligations of the parties.
(b) As to extent:
(1) Total— it takes place when both obligations are totally extinguished because they happen to be of
the same amount, or by agreement of the parties;
(2) Partial— It takes place when after the operation of compensation, a balance still remains because
the obligations are not of the same amount.
Art. 1279. In order that compensation may be proper, it is necessary:
(1) that each one of the obligors be bound principally, and that he be at the same time a principal
creditor of the other;
(2) That 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;
(3) Tha the tow debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third perosns and
communicated in due time to the debtor.
F. NOVATION
Art. 1291. Obligations may be modified by:
(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor.
Novation is defined as the extinguishment of an obligation by substitution or change of the obligation
by a subsequent one which terminates the first, either by changing the object or principal conditions,
substituting the persons of the debtor or subrogating a third person with the rights of the creditor. The
animus novandi, whether partial or total, must appear by the express agreement of the parties, or by
their acts that are too clear and unequivocal to be mistaken.
Two-Fold Function of Novation.— Unlke the other modes of extinguishing obligations, novation has
a two fold functiion or dual purpose, to wit: (1) it extinguishes an obligation; and it (2) creates a new
obligaiton in lieu of the old one.
If the novation is partial, modificatory or an imperfect one, it will operate only as a relative extinction.
Novation need not be absolute, thus the beginning of the Article reads, “Obligations may be
modified…” implying clearly that it may be partial.
Requisites for Valid Novation.— The requisites for a valid Novation are—
(1) There must be a previous valid obligation. If there is no previously existing obligation, there is
nothing to substitute or modify. If the obligation is void, it cannot be substituted nor modified because
in the eyes of the law, it does not exist.
(2) There must be an agreement by the parties to extinguish or modify the old obligation, and to
create a new one or a modified version.
(3) The validity of the new obligation.
Effects of Valid Novation.— In novation consisting of the substitution of a new debtor in place of the
original one, it is enough to extend the juridical relation to a third person; it is necessary that the old
debtor be release from the obligation, and the third person or ne debtor take his place in the relation,
for without such release, there is no novation and the third person who has assumed the obligation of
the debtor merely becomes a co-debtor or surety.
Defective Obligations. — A void (inexistent) obligation cannot be novated. But, a voidable obligation
may be novated before it is annulled. If the new obligation created by the parties is void, there is no
novation. The original obligation will subsist, unless the parties intended that the former relation is
extinguished in any event.
Kinds of Novation
(a) As to their essence:
(1) Objective or real Novation— This is the novation effected by changing the object or principal
conditions of the obligation
(2) Subjective or personal Novation— This is the novation effected by (a) substituting the person of
the debtor or (b) subrogating a third person to the rights of the creditor. The first kind is also called
passive novation and the second active novation.
(3) Mixed Novation. This is the novation which arises when there is a combination of the objective
and subjective novations.
(b) As to the form of their constitution:
(1) Express— it is express when the parties declared in unequivocal terms that the old obligation is
extinguished by the new obligation, the latter thusly superseding the old one.
(2) Implied— It is implied when there are no express declarations that hte old obligation is
extinguished by the new one. However, the old and new obligations are incompatible on every
material point such that they cannot co-exist.
Novation, in its broad concept, may either be extinctive or modificatory— extinctive when an old
obligation is terminated by the creation of a new obligation that takes the place of the former, and it is
merely modificatory when the old obligation subsists to the extent it remains compatible with the
amendatory agreement.
(c) As to the entent of their effects:
(1) Total or Extinctive— It is total when the original obligaiton is completely extinguished. Extinctive
novation has four (4) requisites: (a) the existence of a previous valid obligation; (b) The agreement of
all the parties to the new contract; (c) the extinguishment of the old obligation or contract; and (d) the
validity of the new one. Thus, novation is effected only when a new contract has extinguished an
earlier contract between the same parties. Necessarily, there is no novation when the new contract is
not between the same parties as in the old contract.
(2) Partial or Modificatory— It is partial or Modificatory modificatory when the original obligation is
not totally extinguished but merely modified. Hence, the unmodified portion of the obligation remains
effective.
Novation is merely modificatory when the old obligation subsists to the extent it remains compativle
with the amendatory agreement.
(d) As to their Origin:
(1) Legal novation— this novation takes palce by operation of law.
(2) Conventional novation— This novation takes place by agreement of the parties.
(e) As to the presence or absence of condition:
(1) Pure— when the creation of a new obligation is not subject to any condition
(2) Conditional- when the creation of the new obligation is subject to a condition.
Effect of non-fulfillment of condition— If the condition is not fulfilled, there is no novation. Failure
to comply with a suspensive condition of the novation restores the original agreement.
Novation is never presumed. Novation must be clearly proved since its existence is not presumed
— it must be proven as a fact either by express stipulation of the parties or by implication derived
from an irreconcilable incompatibility between old and new obigations or contracts.
Art. 1293. Novation which consists in substituting a new debtor in 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…
Passive Subjective or Personal Novation. Passive subjective novation consists in the substitution
of a new debtor in place of the original debtor with the consent of the creditor. Active subjective
novation consists in substituting a new creditor in place of the old creditor.
There are two forms of passive subjective (or personal) novation:
(1) Delegacion— when the substitution is initiated by the old debtor himself by convincing another
person to take his palce and to pay his obligation to the creditor.
(2) Expromision— when the substitution of the old debtor by a new debtor is upon the initiative or
proposal of a third person. In expromision, there is an agreement by and among the old debtor, the
new debtor and the creditor to extinguish the old obligation. There must be an express and clear
agreement that with the entry of the new debtor, the old debtor is released from the obligation.
Otherwise, the old debtor remains liable to the creditor.