CHAPTER 4: EXTINGUISHMENT OF ❌ No partial fulfillment

OBLIGATIONS  Integrity of prestation = complete

performance
GENERAL PROVISIONS  Identity of prestation = exactly what was
agreed upon
Article 1231 – Causes of Extinguishment of
Obligations 1. S promises 100 sacks of rice, delivers 90 →
Not full payment.
Obligations are extinguished by: 2. D owes ₱10,000, pays ₱9,000 → C can reject.
3. Painter X doesn't paint the kitchen → Y can
1. Payment or performance refuse to pay.
2. Loss of the thing due
3. Condonation or remission of debt – voluntary Burden of Proof:
forgiveness of the debt
4. Confusion or merger of rights – when debtor  Debtor must prove payment if they claim
and creditor become the same person obligation was fulfilled.
5. Compensation – when two persons are both
creditor and debtor to each other Article 1234 – Substantial Performance in Good Faith
6. Novation – changing the obligation by
modifying its object or principal conditions, If a person substantially performs the obligation in
substituting the person of the debtor, or good faith, they may recover payment minus any
subrogating a third person in the rights of the damages.
creditor
Requisites:
Other causes (governed by other provisions):
1. Substantial performance
 Death (when the obligation requires personal 2. Good faith (honest effort, no intention to
service) defraud)
 Mutual desistance (both parties agree to
withdraw from the contract) S must deliver 500 bags of cement, delivers 450 due
 Arrival of a resolutory period (period that to shortage.
ends the obligation)
 Compromise (amicable agreement) S can be paid for 450 bags if he acted in good faith.
 Impossibility of fulfillment
 Fortuitous event (unexpected event like Article 1235 – Creditor Accepts Incomplete
natural disasters Performance Without Protest

SECTION 1: PAYMENT OR PERFORMANCE If a creditor accepts incomplete or irregular

performance without objection, the obligation is
Article 1232 – Meaning of Payment considered fully performed.

Payment means not only delivering money but also Requisites:

fulfilling the obligation, whether it involves giving
something, doing something, or refraining from doing 1. Creditor knows of incompleteness
something. 2. No protest is made upon acceptance

D owes C to build a fence. When D completes the Y accepts painted house using a different paint
fence, the obligation is extinguished—even if no brand without complaint → Y waives objection.
money changed hands.

Article 1233 – When a Debt is Considered Paid

A debt is only paid if the entire obligation (thing or

service) has been fully delivered or rendered.
Article 1236 – Payment by Third Person Term Meaning
fulfill the obligation
First Paragraph:
Legal transfer of rights from
Subrogation creditor to the person who paid on
The creditor is not bound to accept payment from a
the debtor’s behalf
third person without interest in the obligation unless
there is a stipulation. Mutual When both parties agree to cancel
desistance the obligation
 Creditor can refuse payment from a stranger An unforeseeable event (e.g.,
Fortuitous
unless it was agreed beforehand. earthquake, flood) that prevents
event
fulfillment
Second Paragraph: Resolutory A future event that ends the
condition obligation when it happens
A person who pays: Replacing an old obligation with a
Novation new one (can be by changing terms
 With debtor’s knowledge = Can recover full or parties involved)
amount and be subrogated (step into
creditor's shoes) ART. 1238.
 Without debtor’s knowledge = Can only
recover to the extent of benefit received by
“Payment made by a third person who does not intend
debtor
to be reimbursed by the debtor is deemed to be a
donation, which requires the debtor’s consent. But the
D owes C ₱1,000. S pays: payment is in any case valid as to the creditor who has
accepted it.”
Without D’s knowledge, and D already paid ₱400 → S
can only recover ₱600.  This article involves donation in the form of
payment.
With D’s knowledge → S can recover ₱1,000 and  When a third person pays a debt but does not
claim mortgage/guaranty rights (subrogation). intend to be reimbursed, it’s considered a
donation to the debtor.
Article 1237 – No Subrogation Without Debtor's  Donation requires the acceptance of the
Consent debtor, per the rules on donations.
 However, the creditor is protected—payment
A third party who pays without the debtor’s is valid from their perspective, even if the
knowledge or against his will cannot compel the debtor never agreed to the "donation."
creditor to transfer his rights (e.g., mortgage, penalty).
 Donation: A gratuitous act where something
 Subrogation (transferring of rights) needs is given without expecting anything in return.
debtor’s consent
 Without consent, third-party payer can only Ana owes Carlo ₱10,000. Bea, a friend of Ana, pays
ask for reimbursement, not the full rights of Carlo but says she doesn’t want Ana to repay her. This
the creditor. is considered a donation. If Ana refuses to accept the
donation, the donation is not valid, but Carlo (creditor)
S pays D’s debt secretly → S cannot claim mortgage keeps the payment.
rights from creditor, only reimbursement.
ART. 1239.
Term Meaning
The object of the obligation (what “In obligations to do, the creditor may not compel the
Prestation needs to be delivered, done, or not debtor to make the substitution of the person who is
done) to do the act, unless the obligation so provides.”
The creditor; the person to whom
Obligee  Applies to personal obligations to do
the obligation is owed
something (not just deliver).
The debtor; the person who must
Obligor  The person expected to perform must be the
perform the obligation
one agreed upon, especially if the skill or
Good faith Honesty and sincere intention to personality matters (e.g., a famous artist).
  The creditor cannot ask for a substitute  Even if the person was not the actual creditor,
unless the contract allows it. if they possess the credit and the debtor paid
in good faith, the debt is extinguished.
If Anna hired Juan, a famous singer, to perform at her
party, she cannot compel Juan's brother to sing in his Rico owed Clara. Her assistant received payment and
place unless that option was included in the issued a receipt. If Rico didn’t know the assistant had
agreement. no authority, and paid in good faith, Rico is released
from liability.
ART. 1240.
ART. 1243.
“Payment shall be made to the person in whose favor
the obligation has been constituted, or his successor in “Payment made to the creditor by the debtor after the
interest, or any person authorized to receive it.” latter has been judicially ordered to retain the debt
shall not be valid.”
Payment is only valid if made to the:
 If a court orders the debtor to not pay the
o Creditor; creditor yet (e.g., due to garnishment), and
o Successor (like an heir); the debtor still pays, the payment is invalid.
o Authorized agent.
 If payment is made to the wrong person, the  Judicially ordered: Ordered by a court.
obligation may not be extinguished.  Garnishment: A legal process where a third
party (e.g., debtor) is ordered to hold
Pedro owes Maria ₱5,000. He gives the money to Ana, payment due to the creditor until the court
believing she’s authorized. If Ana is not Maria’s agent, decides.
Pedro is not released from the oblgation.
A court orders Juan not to pay Carla because Carla's
ART. 1241. creditor has a pending case against her. If Juan pays
Carla, that payment is invalid, and he still owes the
“Payment to a person who is incapacitated to money.
administer or dispose of his property shall be valid if
he has kept the thing delivered, or insofar as the ART. 1244.
payment has been beneficial to him.”
“The debtor of a thing cannot compel the creditor to
 Even if payment is made to someone who receive a different one, although the latter may be of
cannot legally accept it (e.g., minors, insane), the same value as, or more valuable than that which is
the payment is valid if: due. In obligations to do or not to do, an act or
o They kept the money or thing; forbearance cannot be substituted by another act or
o They benefited from it (e.g., used to forbearance against the obligee's will.”
buy essentials).
 The creditor has the right to demand exact
 Incapacitated: Legally unable to handle one's performance.
own affairs (e.g., minors, mentally ill persons).  Substituting what is due is not allowed, even
if it’s worth more, unless the creditor agrees.
Luis pays ₱10,000 to his creditor’s child who is 10
years old. If the child gives the money to the parent or Mico is required to deliver a white horse. He cannot
uses it to pay the family’s hospital bill, Luis may be deliver a brown horse of the same or greater value
released from his obligation because the payment without the creditor’s consent.
was beneficial.
ART. 1245.
ART. 1242.
“Dation in payment, whereby property is alienated to
“Payment made in good faith to any person in the creditor in satisfaction of a debt in money, shall be
possession of the credit shall release the debtor.” governed by the law of sales.”

 Dation in payment (also called dación en

pago) happens when:
 o A debtor transfers ownership of  Extrajudicial expenses: Costs incurred outside
property to the creditor; court.
o This satisfies a money debt;  Tender: Formal offer to perform an obligation.
o It is treated like a sale under the law.
If Andres must deliver a specific cow to Luis and
 Dation in payment / Dación en pago: Giving a delivery costs ₱2,000, Andres must pay unless they
thing as payment of a monetary debt. agreed otherwise. If he wants to be released from the
 Alienated: Transferred ownership. obligation, he must actually offer the cow to Luis.

Erwin owes Jose ₱100,000. Instead of cash, Erwin ART. 1248.

gives Jose a car worth ₱100,000. If Jose accepts, this is
dation in payment governed by sales law. “Unless there is an express stipulation to that effect,
the creditor cannot be compelled partially to receive
ART. 1246. the prestations in which the obligation consists.
Neither may the debtor be required to make partial
“When the obligation consists in the delivery of an payments, except when the debt is partly liquidated
indeterminate or generic thing, whose quality and and partly unliquidated.”
circumstances have not been stated, the creditor
cannot demand a thing of superior quality. Neither  Whole performance is required unless the
can the debtor deliver a thing of inferior quality. The contract allows partial performance.
purpose of the obligation and other circumstances  However, if part of the debt is liquidated
shall be taken into consideration.” (certain), and part is unliquidated (uncertain),
partial payment may be allowed.
If the thing to be delivered is generic (e.g., “a horse,”  Liquidated: Fixed or determined amount.
“rice”), the quality is presumed to be average or  Unliquidated: Still to be computed or decided.
medium—not best, not worst.
If Bella owes ₱20,000 and tries to pay only ₱10,000
 The purpose of the contract matters in without the creditor's agreement, the creditor can
deciding what is acceptable. refuse. But if ₱10,000 is a clear debt and another
 Indeterminate or generic thing: Described by ₱10,000 is still being computed, she may pay the fixed
class or genus, not by specific identity (e.g., “a part.
sack of rice”).
 Superior/inferior quality: Higher or lower ART. 1249.
than average standards.
“The payment of debts in money shall be made in the
If the obligation is to deliver "one carabao," the currency which is legal tender in the Philippines. If it
debtor can't deliver a sick or old one, nor can the is not possible to deliver the currency stipulated, then
creditor insist on a prized, award-winning carabao. A the currency which is legal tender in the Philippines
healthy, average-quality carabao will do. shall be used. The delivery of promissory notes,
checks, or other commercial documents shall produce
ART. 1247. the effect of payment only when they have been
cashed, or when through the fault of the creditor they
“Unless it is otherwise stipulated, the extrajudicial have been impaired.”
expenses required by the payment shall be for the
account of the debtor. Where the obligation is to  Payment must be made in Philippine legal
deliver a determinate thing, the debtor, in order to be tender unless otherwise agreed.
released from responsibility, must offer the thing and  Checks, promissory notes, etc. are not
place it at the disposal of the creditor.” payment unless:
o They are cashed, or
 Extrajudicial expenses (like delivery fees, o The creditor refused or delayed them
transfer costs) are usually shouldered by the unfairly.
debtor, unless the contract says otherwise.
 In determinate obligations (specific item), the  Legal tender: Money recognized by law for
debtor must tender (offer) the item properly payment (e.g., peso bills and coins).
to be released.  Commercial documents: Like checks or
promissory notes.
Ricky issues a check for ₱5,000. This is not considered  The debtor can choose which debt to pay
actual payment until the check is successfully when they owe multiple debts of the same
encashed. If the creditor delays or refuses to encash it, kind.
Ricky may be released.  The debtor must declare it at the time of
payment.
ART. 1250.  If the debt is not yet due, it can’t be chosen
unless agreed upon.
“In case an extraordinary inflation or deflation of the
currency stipulated should supervene, the value of the Jake owes Leo ₱5,000 (due now) and ₱10,000 (due
currency at the time of the establishment of the next month). If he pays ₱5,000 now, he can declare it
obligation shall be the basis of payment, unless there applies to the first debt only. He can’t apply it to the
is an agreement to the contrary.” ₱10,000 unless Leo agrees.

 If inflation (rising prices) or deflation (falling ART. 1253.

prices) suddenly changes the currency’s value,
the original value applies. “If the debt produces interest, payment of the
 Unless the parties agreed otherwise, the real principal shall not be deemed to have been made until
value when the obligation was created is the interests have been covered.”
what counts.
Ana owes ₱10,000 in 2020. Due to a crisis, the peso’s  Interest must be paid first, before the
value falls drastically by 2025. Ana must still pay the principal is considered paid.
equivalent value of ₱10,000 in 2020, not just the  Prevents debtors from evading interest.
nominal ₱10,000.
If Lily owes ₱10,000 with ₱1,000 interest, and she
ART. 1251. pays ₱10,000, only ₱9,000 goes to the principal. The
₱1,000 goes to cover interest first.
“Payment shall be made in the place designated in
the obligation. There being no express stipulation and ART. 1254
if the undertaking is to deliver a determinate thing,
the payment shall be made where the thing was at “When the payment cannot be applied in accordance
the time of the constitution of the obligation. In any with the preceding rules, or if application has not been
other case, the place of payment shall be the domicile made as therein provided, the debt which is most
of the debtor.” onerous to the debtor shall be deemed to have been
satisfied. If the debts due are of the same nature and
 If there is a designated place, that is where burden, the payment shall be applied to all of them
payment happens. proportionately.”
 If the object is determinate, it is delivered
where it was when the obligation was made.  If there’s no declaration or agreement,
 If none of the above applies, payment payment is applied to:
happens at the debtor’s home. 1. Most burdensome (onerous) debt to
 Domicile: Legal residence or home. the debtor.
2. If debts are equally burdensome, the
Mia is to deliver a specific sculpture located in Cebu. payment is split proportionately.
Payment and delivery should be in Cebu. But if the
contract is silent, and it’s not a specific item, payment  Onerous: More difficult or costly to bear.
should be at Mia’s house.
John owes ₱5,000 without interest;
ART. 1252.
 ₱5,000 with 10% interest;
“He who has various debts of the same kind in favor of If he pays ₱5,000 and makes no specification,
one and the same creditor may declare at the time of it applies to the one with interest because it is
making the payment, to which of them the same must more onerous.
be applied. Unless the parties so stipulate, or when the
application of payment is made by the party for whose
benefit the term has been constituted, application
shall not be made as to debts which are not yet due.”
SECTION 2 – LOSS OF THE THING DUE A must still deliver 50 sacks – from another source if
needed.
ARTICLE 1262
If the promise is “50 sacks from A’s harvest” and that
specific harvest is destroyed, it may now be determinate,
General Rule:
and the obligation may be extinguished.
An obligation to deliver a determinate (specific)
thing is extinguished if:
ARTICLE 1264
1. The thing is lost or destroyed;
General Rule:
2. There is no fault on the part of the debtor; and
3. The loss happens before the debtor is in delay. If there’s a partial loss of the object, the court will
decide if the loss is significant enough to
This article talks about obligations to deliver a specific extinguish the obligation.
item. If that item is lost without any fault of the person
who should deliver it (debtor), and it happens before When only part of a thing is lost or damaged, the law
he’s late (in delay), then the obligation is cancelled or doesn’t automatically end the obligation. The court
extinguished. must evaluate how serious the damage is in relation to
the whole object.
A promised to deliver a specific painting to B. Before the
due date, a fire destroyed the painting and A had no A agreed to deliver a racehorse to B. The horse suffers a
fault. permanent injury (broken leg).

Obligation is extinguished. Court may say this is a total loss if the purpose is racing.

If the fire happened after A was already late in delivering If the horse was for meat (to be slaughtered), the injury
it, A is still liable, even if it wasn’t his fault. doesn’t matter much, and A still has to deliver it (maybe
with minor compensation).
When the Obligation is NOT Extinguished
ARTICLE 1265
(Even Without Fault or Delay):
General Rule:
1. When the law requires liability even in loss (e.g., If a thing is lost while in the debtor’s possession,
Art. 1170 – if guilty of negligence). it is presumed to be his fault—unless he can
2. When there’s a stipulation (agreement) that prove otherwise.
debtor will still be liable even in case of
fortuitous event. When a thing is under the care of the debtor and it’s lost,
3. When the nature of the obligation involves risk the law assumes it was the debtor’s fault, unless he can
(e.g., insurance, transport of dangerous goods). give proof. But in cases of natural calamity, this
4. When the obligation is due to a crime (see Art. presumption does not apply.
1268).
D borrows C’s car. The car is stolen while in D’s garage.
ARTICLE 1263 It is presumed D was at fault unless he proves otherwise.
If the car was destroyed in an earthquake, and D proves
General Rule: it,
If the obligation is to deliver a generic thing, D is not liable.
the loss or destruction of any particular
object does not cancel the obligation.
ARTICLE 1266
A generic thing (like “100 sacks of rice”) doesn’t refer to
General Rule:
a specific object. The rule “genus nunquam perit” In obligations to do, the debtor is released if
applies – a class or kind of item never perishes. The performance becomes legally or physically
debtor can still provide another item of the same kind. impossible WITHOUT his fault.

A agreed to deliver 50 sacks of rice to B. A’s warehouse This refers to obligations to perform services or do
floods and the rice is destroyed. something. If it becomes impossible to do the task, the
debtor is released from responsibility—as long as it’s
not his fault.
  A was hired to build a sculpture, but loses his This protects the creditor. Even if the debtor is no longer
arms in an accident. liable (because the item was lost due to a third party),
the creditor may directly sue that third party.
He is physically incapable, so the obligation is
extinguished. A promises to deliver a specific horse to B. T, a third party,
killed the horse.
 A lawyer agrees to defend a client but later
becomes a judge (and can’t practice law). A is no longer liable to B, but B can sue T for damages.

The obligation is legally impossible. Definitions

ARTICLE 1267 1. Legal impossibility – The act becomes illegal

General Rule: due to a new law (e.g., lawyer becomes a judge
If the obligation becomes so difficult that it is and can’t take cases anymore).
beyond what both parties expected, the debtor 2. Loss of the thing – The object is destroyed,
may be released partially or fully. disappears permanently, or becomes unusable.
3. Difficulty of performance – It’s not totally
Even if not totally impossible, if fulfilling the obligation impossible, but so hard that it becomes unfair
becomes excessively difficult due to unforeseen events, to continue the obligation.
the law allows the debtor to be released to prevent
injustice. Q1: When is a person released from an obligation?

A contractor agrees to build a bridge. A landslide caused → (1) If the thing is lost without fault or delay (Art. 1262);
by a typhoon makes construction life-threatening.
→ (2) If the act becomes physically or legally impossible
The court may release A from the obligation. (Art. 1266).

ARTICLE 1268 Q2: When does loss NOT release a debtor?

General Rule: → If:

If the obligation arises from a crime, loss of the  The law says so
thing does not release the debtor—unless the  There’s a contract saying he’s liable even if the
item is lost
creditor refused the return of the item without
 The obligation involves assumed risk
good reason.
 The obligation arose from a crime
If someone is ordered to return stolen property and the
Q3: Does partial loss extinguish the obligation?
item is destroyed—even by accident—they are still
liable, unless the rightful owner refused to accept the
item. → Not automatically. The court decides based on how
serious the loss is.
A stole B’s car. A was ordered to return it. The car was
accidentally destroyed. Q1: X promises to deliver a carabao on July 31. It dies
on July 25. No proof of negligence.
A must pay for the value, unless B refused to accept the
return without valid reason. → Not liable. The carabao was lost before delay, and
there’s no fault. (Art. 1262)
ARTICLE 1269
Q2: X loses the thing before due date, without fault.
General Rule:
→ Yes, he is exempt if it is a specific thing, no fault, and
no delay. (Art. 1262)
If the obligation is extinguished due to loss, the
creditor inherits the right to go after third parties
Q3: Z (a third party) caused the loss.
who caused the loss.
→ Obligation of X to Y is extinguished.

→ Y can sue Z directly under Art. 1269.

SECTION 3 — Condonation or Remission This article gives us a classic example of implied
remission. If the creditor no longer holds the document
of Debt he needs to enforce payment and he voluntarily gave it
to the debtor, the law assumes he no longer wants to
ARTICLE 1270 collect.

General Rule: Important Notes:

Condonation or remission of a debt is essentially
gratuitous (free of charge) and requires  Applies only to private documents, not public
acceptance by the debtor. It may be done ones (like notarized contracts).
expressly or impliedly and must follow the rules of  The presumption is rebuttable (can be
donations. disproven by evidence).
 The creditor can avoid this presumption by
Condonation or remission is the voluntary and free act proving that the document was given only
of the creditor giving up his right to collect a debt. It is a temporarily (e.g., for checking or verification).
form of donation, so the rules on donations apply  If the obligation is joint, remission applies only
(including the need for formalities if the remission is to the debtor holding the document. If solidary,
express). the whole debt is presumed remitted.

 Condonation/Remission – The act of canceling  D owes C ₱10,000. C gives D the signed

or forgiving a debt without asking for anything promissory note.
in return.
 Gratuitous – Done without expecting → If D has not yet paid, the presumption is that
compensation or payment. C remitted the debt.
 Express – Clearly stated in writing or verbally.
 Implied – Inferred from actions or behavior, not → If D has paid, the delivery of the note is
directly stated. understood as proof of payment, not remission.
 Inofficious donation – A donation that goes
beyond what a person can legally give (e.g., ARTICLE 1272
exceeds the allowable share, harming
compulsory heirs). General Rule:
 Legitime – The portion of a person’s estate that If the debt document is found in the debtor’s
is legally reserved for compulsory heirs.
possession, the law presumes that the creditor
voluntarily gave it, which then implies remission—
Requisites for a valid remission:
unless proven otherwise.
1. Gratuitous (free of charge)
This article is related to Article 1271. The idea is that if
2. Accepted by the debtor
the document (which should be with the creditor) is
3. Both parties must have legal capacity
somehow in the hands of the debtor, the logical
4. Not inofficious (must not violate legitime)
assumption is that the creditor gave it up willingly.
5. If express, must comply with formalities of
donation
 D owes C ₱10,000 through a promissory note.
Later, the note is found with D, and no one
 A creditor tells the debtor in writing: “You don’t
knows how he got it.
need to pay me anymore.” This is an express
condonation.
→ It is presumed C gave it voluntarily, and thus,
 A creditor simply returns the promissory note
the debt is remitted, unless C proves otherwise.
evidencing the loan—this can be an implied
condonation if debtor hasn’t paid yet.
ARTICLE 1273
ARTICLE 1271
General Rule:
General Rule: If the principal debt is remitted, the accessory
If a creditor voluntarily delivers a private document obligations (e.g., guaranty or interest) are also
(e.g., promissory note) evidencing a debt to the extinguished. But if only the accessory is remitted,
debtor, it is presumed that the creditor is waiving his the main debt still exists.
right or remitting the debt.
This article follows the rule that accessory follows the 1. What are the requisites of a valid remission or
principal. However, the principal debt can survive condonation?
without accessories.
 Must be gratuity (free)
Definitions:  Must be accepted by the debtor
 Parties must have legal capacity
 Principal obligation – The main debt (e.g.,  Must not be inofficious (not excessive)
₱10,000).  If express, must follow the formalities of
 Accessory obligation – A supporting obligation, donation
such as a guarantee, interest, or security.
2. When is remission inofficious and what is the remedy?
 :D owes ₱10,000 to C. G acts as a guarantor.
 It is inofficious when the amount
→ If C remits the debt, G is also released. remitted/donated is more than what the
creditor is legally allowed to give (i.e., it affects
→ If C only waives the guaranty, D is still liable compulsory heirs’ legitime).
for the debt.  Remedy: Heirs can ask the court to reduce the
remission to the legal limit.

1. D borrowed money from C evidenced by a promissory

ARTICLE 1274 note.

General Rule: (a) What presumption arises if:

If the thing given in pledge is later found in the
debtor’s possession (or a third party who owns it), it 1) The promissory note is voluntarily given by C to D?
is presumed that the pledge was remitted (canceled).
→ Presumption of remission or renunciation of the debt
In a pledge, the creditor holds the item (e.g., a ring or (Art. 1271).
stock certificate) as security for the debt. If the item is
later found back with the debtor, the law presumes the 2) It is found in the possession of D?
creditor no longer needs it—remission of the pledge,
but not the debt. → Presumption that C gave it voluntarily and therefore
there is remission, unless C proves otherwise (Art. 1272).
Definitions:
(b) When will the presumption of remission arise?
 Pledge – A contract where a debtor gives an
object to the creditor as collateral or security. → When the debt has not been paid, and yet the credit
 Accessory obligation – In this case, the pledge document is in the debtor’s hands or was given by the
(the security), not the main debt itself. creditor without explanation.

 D borrows money from C and pledges a diamond 2. The debt of D is guaranteed by G and secured by a
ring. pledge (stock certificate).

→ Later, the ring is found with D. (a) What if the debt is condoned?

→ Presumption: the pledge was waived, but the → The entire debt is extinguished, so both guaranty and
debt still exists. pledge are also extinguished (Art. 1273).

1. Condonation or remission of debt – A free act (b) What if the certificate is found with D?
where the creditor forgives or cancels the debt.
It can be express (clearly stated) or implied → Presumption that the pledge has been waived, but
(inferred from actions). debt still exists (Art. 1274).
2. Inofficious remission – A type of remission or
donation that exceeds what the law allows the
creditor to give (violating legitime of heirs).
SECTION 4 – Confusion or Merger of ARTICLE 1276
Rights General Rule:

ARTICLE 1275
If the merger happens in the principal debtor or
creditor, the obligation is extinguished, and this
General Rule: benefits the guarantors.

An obligation is extinguished from the moment the If the merger happens only in the guarantor, the
characters of debtor and creditor are merged in one principal obligation continues.
person.
A guarantor is a third party who promises to pay the
Confusion or merger of rights occurs when one person debt if the debtor fails. When the main debt is
becomes both the creditor and debtor of the same extinguished, the guaranty is also extinguished. But if the
obligation. Since no person can be obliged to pay guarantor becomes creditor, only the guaranty is
himself, the obligation is automatically extinguished. extinguished—the debtor still owes the debt.

Requisites for Valid Confusion: 1. Merger in Creditor (Principal):

1. The same person must be both principal debtor  D owes C ₱10,000. G is the guarantor.
and creditor.  C’s credit is assigned to D.
2. The confusion must be complete (total, not
partial).
→ D now becomes creditor and debtor →
obligation is extinguished.
Negotiable Note Merger:
→ G (guarantor) is also released from the
 D owes C ₱10,000 via promissory note. obligation.
 C indorses the note to E, and E to F.
 F buys goods from D, and instead of paying cash,
2. Merger in Guarantor
gives the note back to D.
 C assigns his right to collect to G, the guarantor.
→ D becomes his own creditor, so the obligation
is extinguished.
→ The guaranty is extinguished since G is now
the creditor.
2. Usufruct and Ownership:
→ But D (debtor) still owes the amount to G.
 Z gives X a usufruct (right to use property) and
gives ownership to Y.
ARTICLE 127
 Later, Y sells his ownership to X.

General Rule:
→ Since X now owns and uses the property, the
usufruct is extinguished due to merger.
In a joint obligation, confusion only extinguishes the
share of the creditor or debtor where the roles merge.
3. Mortgage:
It does not affect the shares of other debtors or
creditors.
 D mortgages his land to C as security for a loan.
 Later, D sells the land to C.
In a joint obligation, each debtor is liable for his own
share and each creditor can demand only his part. So, if
→ The mortgage (accessory) is extinguished, but
one of them becomes both debtor and creditor, only his
the debt remains because the principal
share is canceled.
obligation persists.
 Joint obligation – An obligation where each
debtor is only responsible for his share, not the
whole debt.
 Solidary obligation – An obligation where each
debtor is responsible for the entire debt, and
the creditor can demand full payment from any
one of them.
 1. Joint Obligation: → But the principal obligation remains, and the
guarantor (now creditor) may still collect from the
 A, B, and C owe D ₱9,000 jointly. debtor
 D assigns the credit to A.
1. A, B, and C are jointly liable to D for ₱15,000. D assigns
→ A’s share (₱3,000) is extinguished by merger. his credit to C in exchange for goods. What is the effect?

→ B and C still owe ₱3,000 each to A (the new → In a joint obligation, C becomes his own creditor for
creditor). his ₱5,000 share.

2. Solidary Obligation: → C’s share is extinguished by merger.

 A, B, and C are solidarily liable for ₱9,000. → A and B remain liable for ₱5,000 each—now payable
 D assigns the credit to A. to C.

→ The entire obligation is extinguished. 2. What if the obligation of A, B, and C was solidary?

→ A can collect ₱3,000 each from B and C → In a solidary obligation, each is liable for the entire
through reimbursement. ₱15,000.

1. Confusion or Merger of Rights – A mode of → When D assigns the right to C, and C becomes one of
extinguishing an obligation when the roles of the solidary debtors, the entire debt is extinguished.
creditor and debtor meet in the same person
for the same obligation. → But C may reimburse A and B for their ₱5,000 shares.
2. Merger as a mode of extinguishment – Occurs
when the obligation is logically cancelled SECTION 5 — COMPENSATION
because a person cannot be obliged to fulfill an
obligation to himself.
ARTICLE 1278
1. What is the rationale behind confusion or merger as a
General Rule:
mode of extinguishing obligations?

Compensation occurs when two persons are mutually

 It is illogical and legally unnecessary for
creditors and debtors of each other in their own right.
someone to enforce an obligation against
himself.
 Also, the purpose of the obligation no longer Compensation means that if two people owe each other
exists when one person owns both sides of the money or similar obligations, their debts can cancel each
obligation. other out up to the amount that both debts are equal.
This avoids unnecessary payment and litigation.
2. What are the requisites for a valid merger or
confusion?  Compensation – A legal mode of extinguishing
obligations when two persons owe each other,
and their debts are of the same nature and
 It must involve the same obligation.
value.
 The merger must occur in the person who is
both principal debtor and principal creditor.
 It must be total, not partial.  A owes B ₱1,000.
 B owes A ₱700.
3. What is the effect of confusion if it occurs:
→ Compensation extinguishes ₱700 on both
sides. A still owes B ₱300.
(a) In the person of the principal debtor or creditor?

→ The obligation is extinguished. The guarantor is

released since the principal obligation is gone.

(b) In the person of the guarantor?

→ The guaranty (accessory) is extinguished.

ARTICLE 1279 ARTICLE 1280

General Rule: General Rule:

For legal compensation to apply, these 5 requisites A guarantor may set up compensation for what the
must be present: creditor owes the principal debtor.

1. Both parties must be principal creditors and Even though a guarantor is not primarily liable, the law
debtors of each other. allows them to use compensation if it results in
2. Both debts must consist of money or extinguishing the main obligation and therefore also the
consumable things of the same kind and guaranty.
quality.
3. The debts must be due.  A owes B ₱10,000. G is the guarantor.
4. The debts must be liquidated and demandable.  B owes A ₱10,000.
5. There must be no retention or controversy
initiated by a third party. → G can invoke compensation to cancel A’s
obligation and thereby be released from liability.
 Principal creditor/debtor – Direct parties to the
obligation, not just guarantors or agents. ARTICLE 1281
 Consumable things – Items that are used up, like
rice or gasoline. General Rule:
 Liquidated debt – The amount is certain or
clearly known.
Compensation may be total or partial:
 Demandable – The debt is due and can be
enforced legally.
 Total – If both debts are of the same amount.
 Retention or controversy – Another person
 Partial – If debts are unequal, it only cancels the
(third party) is claiming or withholding part of
smaller amount.
the debt.
 A owes B ₱1,000.
1. All conditions met:
 B owes A ₱800.
 A owes B ₱1,000.
→ Partial compensation extinguishes ₱800. A
 B owes A ₱1,000.
still owes ₱200.
→ Legal compensation takes place.
ARTICLE 1282
2. Guarantor cannot claim compensation:
General Rule:
Voluntary compensation is allowed even if the debts
 A owes B ₱1,000 with G as guarantor.
are not yet due, as long as both parties agree.
 B owes G ₱1,000.
Even if some legal requisites are lacking (e.g., debts are
→ No legal compensation. G is not a principal
not yet due), the parties may still agree to compensate
creditor of A.
their debts.

3. Non-matching object of obligation:

ARTICLE 1283
 A owes B 10 sacks of rice.
General Rule:
 B owes A 10 sacks of corn.
Judicial compensation occurs when one party proves a
→ No compensation. Not the same kind of item.
claim for damages in a lawsuit and sets it off against
their debt.
4. Debt not yet due:
 D owes C ₱10,000.
 A owes B ₱1,000 due today.  C damages D’s property worth ₱8,000.
 B owes A ₱1,000 due next month.
→ D can offset the ₱8,000 in damages from the
→ Compensation not allowed until both debts ₱10,000 he owes.
are due.
ARTICLE 1284 ARTICLE 1286

General Rule: General Rule:

Debts that are rescissible or voidable may still be Legal compensation takes place even if debts are
compensated before being annulled by a court. payable in different places, but the party invoking
compensation must pay expenses of exchange or
These debts are valid until declared void. So they may be transport.
used for compensation until annulled.
 A owes B ₱50,000 payable in Manila.
 A owes B ₱10,000 (valid).  B owes A ₱50,000 payable in Davao.
 B claims A owes him ₱10,000 through a
fraudulent promissory note. → Compensation can happen, but A (who
claims compensation) must pay for shipping or
→ Before annulment, the two debts can be transfer costs.
compensated. But if annulled later,
compensation is reversed. ARTICLE 1287

ARTICLE 1285 General Rule:

General Rule: No compensation if one debt arises from:

Assignment of credit and its effects on compensation 1. A depositum (a trust-based deposit of goods),
depend on the debtor’s consent or knowledge. 2. A commodatum (loan for use), or
3. A claim for support granted by gratuitous title.
Three Scenarios:
 A deposits a ring with B.
1. Debtor consents to the assignment:  A owes B ₱10,000.

→ Debtor cannot claim compensation unless he → B cannot refuse to return the ring by claiming
reserved the right. compensation.

2. Debtor is notified but does not consent:  B is A’s father. A owes B money.

→ He can claim compensation for debts before → B still has to provide support (as a legal
assignment, but not those incurred after. obligation), unless it’s support in arrears, which
may be compensated.
3. Debtor has no knowledge of assignment:
ARTICLE 1288
→ He can claim compensation for all debts
before and even after assignment, until he General Rule:
learns about it.
No compensation when one debt arises from civil
 A owes B ₱30,000. liability due to a crime.
 B owes A ₱20,000.
 C steals D’s jewelry (worth ₱10,000).
→ Legal compensation occurs; A owes B  C also lent ₱10,000 to D.
₱10,000.
→ C cannot claim compensation. Civil liability
 B assigns his right to C. from a crime cannot be set off.

→ C can only collect ₱10,000 from A, unless A ARTICLE 1289

had waived compensation.
General Rule:

If a debtor has multiple debts, the rules on application

of payments (Arts. 1252–1254) apply to determine
which debt will be compensated.
  A owes B ₱10,000 (with interest), ₱10,000 (no  If one debt arises from:
interest), and ₱10,000 (already due). o Depositum
 B owes A ₱10,000. o Commodatum
o Support
→ A may choose which debt to compensate. If o Civil liability from a crime
he does not choose, B applies it to the most
burdensome debt (highest interest). SECTION 6 —NOVATION
ARTICLE 1290 ARTICLE 1291

General Rule: General Rule:

When all the requisites of Article 1279 are present, Obligations may be modified or extinguished by
legal compensation takes place automatically—no need novation through:
for consent or awareness.
1. Changing the object or principal conditions
Once all requirements are present, the law automatically 2. Substituting the person of the debtor
cancels the debts up to the matching amount—even if 3. Subrogating a third person in the rights of the
the parties are unaware. creditor

DEFINITIONS

1. Compensation – The cancellation of mutual Novation

debts between two parties up to the amount of
concurrence.
Novation is the extinguishment or modification of an
2. Legal compensation – Compensation that takes
existing obligation by creating a new one that replaces
place automatically when legal conditions are
or alters it.
met.
3. Facultative compensation – Compensation that
It has a dual function:
only one party may invoke, depending on who
benefits.
1. Ends the old obligation
2. Creates a new one in its place
1. Distinguish confusion from compensation:

 Confusion: Only one obligation; one person is

Kinds of Novation:
both debtor and creditor.
 Compensation: Two obligations; two people By Origin:
owe each other.
 Legal – by operation of law
 Conventional – by agreement of the parties

2. How is compensation similar to payment? By Declaration:

 It settles debts without actual transfer of  Express – stated in clear, direct terms
money—just like simplified payment.  Implied – old and new obligations are
incompatible

By Effect:
3. Can compensation happen if the things due are not
consumable?  Extinctive (Total) – old obligation completely
extinguished
 Yes, as long as they are of the same kind and  Modificatory (Partial) – old obligation just
quality, like identical goods (e.g., horses, if modified
fungible).
By Subject:

 Real/Object – change in object or principal

4. When may compensation NOT apply? terms
  Personal – change in debtor or creditor General Rule:
 Mixed – both subject and parties change
Accessory obligations are extinguished unless they
 Real Novation: Obligation to deliver a car benefit a third party who did not consent to the
changed to obligation to deliver 10 air novation.
conditioners
 Personal Novation: A new debtor replaces the If an obligation to pay interest to a third party (C) exists,
original one and a new obligation is created without C’s consent, the
 Mixed Novation: Debtor and object both duty to pay C still remains.
changed (e.g., new debtor will deliver a different
item to a different creditor) ARTICLE 1297

ARTICLE 1292 General Rule:

General Rule: If the new obligation is void, the old one remains,
unless the parties intended otherwise.
Novation must be declared clearly or arise from
incompatible obligations. Effect of Void or Voidable Novation:

4 Requisites of Novation:  If new obligation is void → old one still valid

 If new obligation is voidable but not annulled →
1. A valid existing obligation novation is valid
2. An agreement to modify or extinguish it  If annulled later → revert to old obligation
3. A material change to the obligation unless intent was otherwise
4. A new valid obligation created
ARTICLE 1298

General Rule:
⚠ Novation is never presumed.
Novation is invalid if the original obligation was void,
It must be proven with clear intent or incompatibility unless the defect can be remedied (e.g., voidable and
between old and new obligations. ratified).

ARTICLE 1293–1295: Personal Novation by  Obligation to deliver illegal drugs → VOID →

Substitution Novation invalid
 Contract induced by fraud (voidable) but later
Expromisión ratified → Novation valid

 Third person voluntarily assumes the debt ARTICLE 1299

 Without debtor’s knowledge or consent
 Creditor’s consent is required General Rule:

Delegación If the original obligation has a condition, the new

obligation is also subject to the same condition, unless
 Initiated by the original debtors otherwise agreed.
 New debtor is proposed and approved by
creditor ARTICLE 1300–1304: Subrogation

Effect on Old Debtor’s Liability: Subrogation is the substitution of a new creditor in

place of the original, transferring all rights and actions of
Novation If New Debtor Fails to Old Debtor the original creditor.
Type Pay Liable?
Types of Subrogation:
Expromisión No ❌ Not liable
Yes, if insolvency was ✅ Liable in
Delegación Type Based On Consent Needed
known or public some cases
Legal Law ❌ No need for consent
ARTICLE 1296 Conventional Agreement ✅ All parties must consent
Legal Subrogation Cases (Art. 1302): 4. Are accessory obligations extinguished?

1. A creditor pays another preferred creditor → Yes, unless they benefit a third party who did not
2. A third party pays, with debtor’s approval consent to the novation.
3. A person interested (e.g., guarantor) pays even
without debtor’s knowledge

Effect of Subrogation (Art. 1303): III. Problems

The new creditor steps into the shoes of the original 1. T (third person) tells C (creditor) that T will pay the
creditor and can enforce the same rights and debt of D. C agrees. Is D released?
guarantees (e.g., pledges, mortgages).
→ No, unless there’s an express agreement to release D.
Partial Subrogation (Art. 1304): This is expromisión, and without express release, D is still
liable.
If the original creditor was only partially paid, they are
preferred over the new creditor in case the debtor 2. D proposes that T substitutes him, and C agrees. Is D
becomes insolvent. still liable if T becomes insolvent?

1. Novation – Substitution or modification of an → No, unless D knew T was insolvent or it was of public
obligation by another, extinguishing the original knowledge at the time of substitution (delegación
2. Mixed Novation – Novation involving both a exception).
change in the subject and the parties
3. Expromisión – A third person assumes the 3. T pays C without D’s objection. What are T’s rights?
debtor’s obligation without the debtor
initiating → T is subrogated to C’s rights. T can now collect from D
4. Delegación – The original debtor proposes a what was paid to C (Art. 1236, 1237, 1302).
new debtor with the creditor’s consent
4. Illustrate a mixed novation:
1. Requisites of Novation:
 A was obliged to deliver 10 laptops to B. Later, it
 A prior valid obligation was agreed that A would deliver a generator to
 Clear intent to novate C instead.
 Extinguishment or modification of the old
obligation → This is mixed novation (change of object and
 A new valid obligation creditor).

2. Rights acquired in Subrogation:

 All the rights, actions, and securities of the

original creditor
 Right to enforce payment against debtor or third
parties (e.g., guarantors)

3. Effects:

(a) If new obligation is voidable:

→ Novation exists until annulled. Old obligation revives if

annulled.

(b) If old obligation is voidable:

→ Novation can still happen if obligation is ratified.