The Law on Obligations and Contracts” (2014)

By: Hector S. De Leon & Hector M. De Leon Jr.

MODULE 5
Module Introduction:

This module primarily focuses on the different modes of extinguishment. It

will help individuals in determining instances where the parties can be
relieved from obligation. The different mode to abandon the obligation of
another person and its effect to the agreement or contracts. The
determination on how the parties may consider the instances of
extinguishment of obligation. In this chapter, the discussion will also
focus on the discussion of debts of an individual as well as the instances
when to be relieved from its liabilities.

Intended Learning Outcome:

After completing this chapter, the students should be able to:

1. Discuss the general overview of the extinguishment of an obligation.

2. Acquire knowledge of the fundamental concepts and pertinent legal

provisions governing the extinguishment of an obligation; and

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3. Develop analytical skills in the application of the law and

jurisprudence on daily transactions particularly in business dealings
especially as regards payment or performance, loss of the thing due,
condonation or remission, confusion or merger, compensation and
novation.

EXTINGUISHMENT OF OBLIGATIONS

Article 1231. Obligations are extinguished:

(1) By payment or performance;

(2) By the loss of the thing due;

(3) By the condonation or remission of the debt;

(4) By the confusion or merger of the rights of creditor and debtor;

(5) By compensation;

(6) By novation.

Other causes of extinguishment of obligations, such as annulment,

rescission, fulfillment of a resolutory condition, and prescription, are
governed elsewhere in this Code. (1156a)

Article 1232. Payment means not only the delivery of money but also the
performance, in any other manner, of an obligation. (n)

Article 1233. A debt shall not be understood to have been paid unless the
thing or service in which the obligation consists has been completely
delivered or rendered, as the case may be. (1157)

Payment may consist of not only in the delivery of money but also the
giving of a thing (other than money), by doing of an act, or not doing of
an act.

Payment is one of the mode of extinguishment of an obligation. If payment

is made as a penalty for non-performance of an obligation, it is still
considered as payment. Payment and performance are the same under the law.

A debt may only be considered paid if it is paid in full. Partial payment

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made by the debtor to its creditor does not satisfy the word payment and
can never be a mode of extinguishment of an obligation if it is not made in
full.

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. (n)

The general rule in Art. 1233 that payment is deemed made if it is done in
full have the exception that if the creditor accepts the same despite its
being partial is considered made in full or has been complied with.

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.

Whoever pays for another may demand from the debtor what he has paid,
except that if he paid without the knowledge or against the will of the
debtor, he can recover only insofar as the payment has been beneficial to
the debtor.

Effect of payment by a third person.

1. If made without the knowledge or against the will of the debtor; and
2. If made with the knowledge of the debtor.

Example:

A owes B the amount of P10,000.00. X a stranger offer to pay B, the latter

may or may not accept the said payment. If B will accept the payment two
effects will rise depending on the situation. If A does not have knowledge
regarding the payment made by X the latter may ask for reimbursement of the
said payment but if A already paid P5,000.00 X may only recover P5, 000.00
since A benefited from the remaining balance that has been paid.

Article 1238. Payment made by a third person 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 has accepted it. (n)

Example:

A is indebted to B in the amount of P10,000.00. X a third person paid the

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said amount to B and when A approached the former said he doesn’t want to
be reimbursed. The act made by X is considered as donation.

Article 1241. Payment to a person who is incapacitated to administer his

property shall be valid if he has kept the thing delivered, or insofar as
the payment has been beneficial to him.

Payment made to a third person shall also be valid insofar as it has

redounded to the benefit of the creditor. Such benefit to the creditor need
not be proved in the following cases:

(1) If after the payment, the third person acquires the creditor's rights;

(2) If the creditor ratifies the payment to the third person;

(3) If by the creditor's conduct, the debtor has been led to believe that
the third person had authority to receive the payment. (1163a)

In this provision the law clearly states that payment made to an

incapacitated shall not be valid unless the said incapacitated person kept
the said payment or he was benefited with that payment.
The debtor may be made to pay again by the creditor’s guardian or by the
said incapacitated person himself when he acquires his capacity or recovers
his capacity.

Example:

X the debtor made his payment to the creditor Y who at that time is not of
his sound mind. As a rule, the said payment is considered invalid. The
creditor’s guardian may ask for the payment in behalf of the creditor or
the latter himself recovered his capacity to accept the payment.

Article 1244. The debtor of a thing cannot compel the creditor to receive
a different one, although the latter may be of the same value as, or more
valuable than that which is due.

In obligations to do or not to do, an act or forbearance cannot be

substituted by another act or forbearance against the obligee's will.
(1166a)

Example:

X obliged himself to deliver to Y a Toyota Fortuner. X cannot force or

require Y to accept Mazda CX9 even though the price of the latter is higher

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than what has been promised.

In the said provision, Y also cannot require X to deliver another object

even though the same may be lower than what the latter had promised.

Article 1245. Dation in payment, whereby property is alienated to the

creditor in satisfaction of a debt in money, shall be governed by the law
of sales. (n)

Dation in payment is the conveyance of ownership of a thing as an accepted

equivalent of performance.

Example:

X is indebted to Y in the amount of P1M. X doesn’t have enough money he

gave his Rolex watch to Y in satisfaction of his monetary debt.

In case the Rolex watch is of lesser value than the amount of indebtedness,
the satisfaction of the indebtedness is up to the value of the watch only.
If the value of the watch is just P800,000.00, then the indebtedness has
not been satisfied yet unless there is an agreement between the parties
that the is enough already.

Article 1248. Unless there is an express stipulation to that effect, the

creditor cannot be compelled partially to receive the prestations in which
the obligation consists. Neither may the debtor be required to make
partial payments.

However, when the debt is in part liquidated and in part unliquidated, the
creditor may demand and the debtor may effect the payment of the former
without waiting for the liquidation of the latter. (1169a)

The law provides for the rule that payment may extinguish the obligation if
there is a complete performance of the obligation. The creditor may accept
but cannot be forced to accept partial performance. If the creditor for
example wants to have 100 sacks of rice based on the agreement but the
debtor just delivered 60 sacks of rice. The creditor cannot be compelled to
accept that partial performance in the above cited provision.

When partial performance allowed:

1. When there is an express stipulation to that effect;
2. When the debt is in part liquidated (definitely and determined or
computed) and in part unliquidated; and
3. When the different prestations in which the obligation consists are

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subject to different terms or conditions which affect some of them.

Examples:
1. X is indebted Y in the amount of P10, 000.00. X cannot require Y to
accept P6,000.00 as payment of his indebtedness or neither Y cannot order X
to pay him P6,000.00 unless there is an agreement to the contrary.

2. If X owes Y P10,000.00 plus the share of Y from the partnership business

which, however, has not yet been liquidated, Y may demand and X may effect
the payment of P10,000.00, which is already known.

3. If P6,000.00 of the debt of X is due today and P4000.00 tomorrow, the

obligation can be complied with partially.

Article 1251. Payment shall be made in the place designated in the

obligation.

There being no express stipulation and if the undertaking is to deliver a

determinate thing, the payment shall be made wherever the thing might be at
the moment the obligation was constituted.

In any other case the place of payment shall be the domicile of the debtor.

If the debtor changes his domicile in bad faith or after he has incurred in
delay, the additional expenses shall be borne by him.

These provisions are without prejudice to venue under the Rules of Court.
(1171a)

Place where the obligation shall be paid.

1. If there is an agreement, then payment shall be made in the place based
on the agreement.
2. If there is a place where the thing is about to be delivered then the
payment shall also on the place of its delivery.
3. If there is no stipulation as to the thing to be delivered, it shall be
on the place of the domicile of the debtor.

Domicile means the place where the person permanently resides or always
have the intention of going back to that same place.

SUBSECTION 1. Application of Payments

Article 1252. He who has various debts of the same kind in favor of one

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and the same creditor, may declare at the time of making the payment, to
which of them the same must 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.

If the debtor accepts from the creditor a receipt in which an application

of the payment is made, the former cannot complain of the same, unless
there is a cause for invalidating the contract. (1172a)

Application of payments is thee designation of the debt to which should be

applied the payment made by a debtor who has various debts of the same kind
in favor of one and the same creditor.

Requisites of application of payments:

1. There must be one debtor and one creditor;

2. There must be two or more debts;
3. The debts must be of the same kind;
4. The debts to which payment made by the debtor has been applied must be
due; and
5. The payment made must not be sufficient to cover all debts.

Example:

X is indebted to Y in the amount of P5000.00, it is due and demandable on

September 1, 2010. After two weeks, X approached Y again and asked for an
amount of P7000.00 and promised to give it back on September 15, 2010. X
again asked for another P5000.00 which shall be due and demandable on
September 30, 2010.
On September 20, 2010, X paid Y P5000.00. the said payment may be applied
either on the first indebtedness or the last indebtedness.

SUBSECTION 2. Payment by Cession

Article 1255. The debtor may cede or assign his property to his creditors
in payment of his debts. This cession, unless there is stipulation to the
contrary, shall only release the debtor from responsibility for the net
proceeds of the thing assigned. The agreements which, on the effect of the
cession, are made between the debtor and his creditors shall be governed
by special laws. (1175a)

Payment by cession is another form of payment. It is assignment or

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abandonment of all properties of the debtor for the benefit of his

creditors in order that the latter may sell the same and apply the proceeds
thereof to the satisfaction of his credits.

Example:

X is indebted to Y and W in the amount of P10M. The said indebtedness is

due and demandable on Sept. 28, 2010. X doesn’t have enough money for the
payment of the said indebtedness, he gave his house and lot to Y and W and
the two sold it to a third person. The proceeds of the said sale was
applied to X’s indebtedness.

In this rule, the assignment of the property to the creditor does not make
the latter owner of the same. The creditor will sell the said property to
the other person and the proceeds of the said sale will apply to the
indebtedness of the debtor. The latter will be absolved from the liability
unless the value of the property being sold is lesser than the value of the
indebtedness in which case the debtor is still liable for the remaining
balance.

Distinctions between Dation in Payment and Payment by Cession

Dation Cession
There is usually one creditor There are several creditors
Dation does not presuppose the The debtor is insolvent at the time
insolvency of the debtor of assignment
Dation does not involve all the Extends to all the property of the
property debtor subject to execution
In dation, the creditor becomes the In cession, creditors only acquire
owner of the property given by the rights to sell the thing and apply
debtor to their credits proportionately.
Dation is really an act of novation Cession is not an act of novation.

SUBSECTION 3. Tender of Payment and Consignation

Article 1256. If the creditor to whom tender of payment has been made
refuses without just cause to accept it, the debtor shall be released from
responsibility by the consignation of the thing or sum due.

Consignation alone shall produce the same effect in the following cases:

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(1) When the creditor is absent or unknown, or does not appear at the place
of payment;

(2) When he is incapacitated to receive the payment at the time it is due;

(3) When, without just cause, he refuses to give a receipt;

(4) When two or more persons claim the same right to collect;

(5) When the title of the obligation has been lost. (1176a)

Tender of Payment is the act on the part of the debtor offering the
creditor the thing or amount due. The debtor may show that he is in
possession of the thing or money to be delivered at the time of the offer.

Consignation is the act of depositing the thing or amount due with the
proper court when the creditor does not desire the or cannot receive it,
after complying with the formalities required by law.

Example:

X owes Y the sum of P500, 000.00. On the due date X is paying the said
indebtedness to Y but the latter refuses to accept the payment without any
reason.

In this case, the liability of X is still present until he made a valid

consignation. The refusal of Y to accept the payment without justifiable
reason will not have the effect on payment but X will not be liable for
payment of interest or penalty.

SECTION 2: Loss of the Thing Due

Article 1262. An obligation which consists in the delivery of a

determinate thing shall be extinguished if it should be lost or destroyed
without the fault of the debtor, and before he has incurred in delay.

When by law or stipulation, the obligor is liable even for fortuitous

events, the loss of the thing does not extinguish the obligation, and he
shall be responsible for damages. The same rule applies when the nature of
the obligation requires the assumption of risk. (1182a)

When loss of thing will extinguish the obligation to give:

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1. The obligation is to deliver a specific or determinate thing;

2. The loss of the thing occurs without the fault of the debtor; and
3. The debtor is not guilty of delay.

Article 1263. In an obligation to deliver a generic thing, the loss or

destruction of anything of the same kind does not extinguish the
obligation. (n)

Example:

X promised to deliver a car to Y. A big rock fell on the car that totally
wrecked the same. X did not deliver anymore. Is X liable to Y?

Yes, because X may still replace the car with another one since the
creditor asked for a generic thing.

Article 1270. Condonation or remission is essentially gratuitous, and

requires the acceptance by the obligor. It may be made expressly or
impliedly.

One and the other kind shall be subject to the rules which govern
inofficious donations. Express condonation shall, furthermore, comply with
the forms of donation. (1187)

Condonation or remission is the gratuitous abandonment by the creditor of

his right against the debtor.

Requisites of condonation or remission.

The requisites are the following:
1. It must be gratuitous;
2. It must be accepted by the obligor;
3. The parties must have capacity;
4. It must not be inofficious; and
5. If made expressly, it must comply with the forms of donations.

Example:

X is indebted to Y in the amount of P10,000.00. When X is about to pay Y,

the latter said to forget about his indebtedness as it is considered paid.
X then accepted the gratuitous act of Y.
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Article 1272. Whenever the private document in which the debt appears is
found in the possession of the debtor, it shall be presumed that the
creditor delivered it voluntarily, unless the contrary is proved. (1189)

If a document has been issued in favor of the creditor as a proof of the

indebtedness of the debtor has been delivered back to the debtor, it is
presumed that the debtor has been paid for its indebtedness. If the debtor
knew that he hasn’t made any payment yet and the document has been
delivered to him, it is considered as having been remitted.

Example:

X owes Y the sum of P10,000.00 and the former issued a promissory note in
favor of the latter. If the promissory note has been delivered to the
debtor, it is presumed that the debtor has paid its indebtedness. If the
debtor X knew that he hasn’t paid his debt yet, it is presumed that the
debt has been condoned by Y.

Article 1273. The renunciation of the principal debt shall extinguish the
accessory obligations; but the waiver of the latter shall leave the former
in force. (1190)

In this provision, it said that in case of remission in the principal debt

the accessory shall follow. But in case the latter is the only one being
remitted, the principal shall still in force.

Example:

X is indebted to Y in the amount of P50,000.00 guaranteed by W. If the

indebtedness of X has been condoned it is automatic that the guaranty of W
will be condoned also.
But in case it’s only the guaranty of W that has been condoned, the
indebtedness of X shall still be in force.

Article 1274. It is presumed that the accessory obligation of pledge has

been remitted when the thing pledged, after its delivery to the creditor,
is found in the possession of the debtor, or of a third person who owns
the thing. (1191a)
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SECTION 4 Confusion or Merger of Rights

Article 1275. The obligation is extinguished from the time the characters
of creditor and debtor are merged in the same person. (1192a)

Confusion or merger is the meeting in one person of the qualities of

creditor and debtor with respect to the same obligation.

Requisites of Confusion
1. It must take place between the principal debt and creditor; and
2. It must be complete.

Example:

X owes Y P100,000.00, for which X executed a promissory note and hand it

over to Y. Later on Y endorsed the said promissory note to W who he owes
for the same amount. W in turn was indebted to X for the rental of
commercial building, the former issued the said promissory note in favor of
X.

Here, X is indebted to himself. X’s obligation has been extinguished by

the merger.

Article 1276. Merger which takes place in the person of the principal
debtor or creditor benefits the guarantors. Confusion which takes place in
the person of any of the latter does not extinguish the obligation. (1193)

Example:

X is indebted to Y in the amount of P10,000.00 with W as guarantor. The

merger of characters of debtor and creditor in X shall free W as guarantor.

In this case, since there is merger in the characters of debtor and

creditor then the guarantor shall automatically be freed from its liability
also.

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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. (1194)

Example:

X, Y and Z are jointly liable to W in the amount of P15,000.00. X issued a

promissory note in favor of W, who later on issued the said promissory note
to a third person A. The latter is indebted to X, issued the said
promissory note in favor of the latter.
Here, there is a merger in the case of X and his obligation has been
extinguished but the liabilities of Y and Z and still in force since it is
only the liability of X has been extinguished due to merger.

SECTION 5 Compensation

Article 1278. Compensation shall take place when two persons, in their own
right, are creditors and debtors of each other. (1195)

Compensation is the extinguishment to the concurrent amount of the debts of

two persons, who, in their own right, are debtors and creditors of each
other.

Example:

X is indebted to Y in the amount of P10,000.00. When X is about to pay Y,

the latter refused to accept the payment and reminded the former that the
latter is indebted also to him for the same amount.

It is considered as total compensation. It means that two parties are

creditors and debtors of each other for the same amount.

Article 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;

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(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) That the two 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 persons and communicated in due time to the debtor.
(1196)

Examples:

1. X owes Y the sum of P5,000.00. Y owes X the sum of P5000.00. Here there
is compensation because X and Y are creditors and debtors of each other and
of the same kind.

2. X owes Y the sum of P20,000.00. Y owes X a cellphone amounting to

P20,000.00
Here there is no compensation because the second requisite provided in this
rule said that the indebtedness shall be in the same kind. Since money and
property are not of the same kind there shall be no compensation.

3. X owes Y the sum of P25,000.00 which is due on August 20, 2010. Y on the
other hand is indebted to X for the same amount but is due on September 20,
2010.
Here, there shall be no compensation because the indebtedness is of
different due dates. Rule number three (3) is not present.

4. X owes Y the sum of P10,000.00. Y owes X the share of the latter in the
partnership business. Here compensation shall not take place since debt of
Y is not yet liquidated. It may be of a greater or lesser value.

5. X owes Y P20,000.00. Y owes X P20,000.00 while Y owes W also for the

same amount. If the third person claims that they are both creditors of X
then the compensation shall be suspended and it cannot take place right
after.

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Article 1280. Notwithstanding the provisions of the preceding article, the

guarantor may set up compensation as regards what the creditor may owe the
principal debtor. (1197)

Example:

X is indebted to Y in the amount of P10,000.00 with Z as guarantor. Y is

indebted to X also for the same amount.

Here the obligation of guaranty has been extinguished by compensation. But

if X only paid P5,000.00 and cannot pay the remaining balance then Z will
be liable for the said balance.

Article 1281. Compensation may be total or partial. When the two debts are
of the same amount, there is a total compensation. (n)

Article 1282. The parties may agree upon the compensation of debts which
are not yet due. (n)

Article 1283. If one of the parties to a suit over an obligation has a

claim for damages against the other, the former may set it off by proving
his right to said damages and the amount thereof. (n)

Example:

X is indebted to Y in the amount of P50,000.00. When the latter is asking

for the payment bur the former failed to pay. Out of anger, Y scratched the
car of X that caused damage to the said property. If the court found out
that Y is liable, by final judgment X may set off his indebtedness over the
suit against Y.

Article 1284. When one or both debts are rescissible or voidable, they may
be compensated against each other before they are judicially rescinded or
avoided. (n)

Article 1285. The debtor who has consented to the assignment of rights
made by a creditor in favor of a third person, cannot set up against the
assignee the compensation which would pertain to him against the assignor,

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unless the assignor was notified by the debtor at the time he gave his
consent, that he reserved his right to the compensation.

If the creditor communicated the cession to him but the debtor did not
consent thereto, the latter may set up the compensation of debts previous
to the cession, but not of subsequent ones.

If the assignment is made without the knowledge of the debtor, he may set
up the compensation of all credits prior to the same and also later ones
until he had knowledge of the assignment. (1198a)

Article 1286. Compensation takes place by operation of law, even though

the debts may be payable at different places, but there shall be an
indemnity for expenses of exchange or transportation to the place of
payment. (1199a)

Article 1287. Compensation shall not be proper when one of the debts
arises from a depositum or from the obligations of a depositary or of a
bailee in commodatum.

Neither can compensation be set up against a creditor who has a claim for
support due by gratuitous title, without prejudice to the provisions of
paragraph 2 of article 301. (1200a)

Article 1288. Neither shall there be compensation if one of the debts

consists in civil liability arising from a penal offense. (n)

Article 1289. If a person should have against him several debts which are
susceptible of compensation, the rules on the application of payments
shall apply to the order of the compensation. (1201)

In this provision, the rule on application shall take place if there are
several debts present. The debtor shall inform the creditor into which
payment it will be applied otherwise, the payment shall be applied on the
most onerous one.

Article 1290. When all the requisites mentioned in article 1279 are
present, compensation takes effect by operation of law, and extinguishes

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both debts to the concurrent amount, even though the creditors and debtors
are not aware of the compensation. (1202a)

SECTION 6 Novation

Article 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. (1203)

Novation is the total or partial extinction of an obligation through the

creation of a new one which substitutes it.

Article 1292. In order that an obligation may be extinguished by another

which substitute the same, it is imperative that it be so declared in
unequivocal terms, or that the old and the new obligations be on every
point incompatible with each other. (1204)

Requisites of Novation:
1. A previous valid obligation;
2. Capacity and intention of the parties to modify or extinguish the
obligation;
3. The modification or extinguishment of the obligation; and
4. The creation of a new valid obligation.

Article 1293. Novation which consists in substituting a new debtor in the

place of the original one, may be made even without the knowledge or
against the will of the latter, but not without the consent of the
creditor. Payment by the new debtor gives him the rights mentioned in
articles 1236 and 1237. (1205a)

Kinds of Substitution
1. Expromission or that takes place when a third person of his own
initiative and without the knowledge or against the will of the original
debtor assumes the latter’s obligation with the consent of the creditor.

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It is essential that the old debtor shall be released from his obligation;
otherwise there is no expromission.

X is indebted to Y in the amount of P10,000.00. Z a third person paid the

P10,000.00 to Y. Is there an expromission?
None yet. Expromission will only take place if expressly stated that the
debtor shall be relieved from its indebtedness.

2. Delegacion that which takes place when the creditor accepts a third
person to take place of the debtor at the instance of the latter. The
creditor may withhold approval.

X is indebted to Y in the sum of P10,000.00. X told Y that Z a third person

will pay the said indebtedness. In this case, there are three parties the
old debtor, the creditor and the new debtor.

Article 1294. If the substitution is without the knowledge or against the

will of the debtor, the new debtor's insolvency or non-fulfillment of the
obligations shall not give rise to any liability on the part of the
original debtor. (n)

Article 1295. The insolvency of the new debtor, who has been proposed by
the original debtor and accepted by the creditor, shall not revive the
action of the latter against the original obligor, except when said
insolvency was already existing and of public knowledge, or known to the
debtor, when the delegated his debt. (1206a)

Article 1296. When the principal obligation is extinguished in consequence

of a novation, accessory obligations may subsist only insofar as they may
benefit third persons who did not give their consent. (1207)

In this provision, a debtor is indebted to its creditor and the latter is

also indebted to a third person when there exists an agreement that the
original debtor will pay the indebtedness of his creditor to a third person.

Article 1297. If the new obligation is void, the original one shall
subsist, unless the parties intended that the former relation should be
extinguished in any event. (n)

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Article 1298. The novation is void if the original obligation was void,
except when annulment may be claimed only by the debtor or when
ratification validates acts which are voidable. (1208a)

Article 1299. If the original obligation was subject to a suspensive or

resolutory condition, the new obligation shall be under the same condition,
unless it is otherwise stipulated. (n)

Article 1300. Subrogation of a third person in the rights of the creditor

is either legal or conventional. The former is not presumed, except in
cases expressly mentioned in this Code; the latter must be clearly
established in order that it may take effect. (1209a)

Article 1301. Conventional subrogation of a third person requires the

consent of the original parties and of the third person. (n)

Article 1302. It is presumed that there is legal subrogation:

(1) When a creditor pays another creditor who is preferred, even without
the debtor's knowledge;

(2) When a third person, not interested in the obligation, pays with the
express or tacit approval of the debtor;

(3) When, even without the knowledge of the debtor, a person interested in
the fulfillment of the obligation pays, without prejudice to the effects
of confusion as to the latter's share. (1210a)

Examples:

1. X is indebted to Y in the amount of P1M secured by a mortgage on

the house and lot of X. The latter is also indebted to Z in the amount of
P1.5M.
Here the preferred creditor is Y and Z is an ordinary creditor. But
in case Z pays the indebtedness of X to Y, then all the rights shall be
subrogated to the former.

2. X is indebted to Y in the amount of P1M. Z a third person with the

consent of X paid the said indebtedness to Y.
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Here, the express consent of the debtor is necessary.

3. X and Y are joint debtors of Z the creditor in the amount of

P10,000.00. If without the knowledge Y paid the whole obligation.
Here Y becomes the creditor of X, for the P5000.00 share of the
latter in the original indebtedness but not for the other P5000.00.

Article 1303. Subrogation transfers to the persons subrogated the credit

with all the rights thereto appertaining, either against the debtor or
against third person, be they guarantors or possessors of mortgages,
subject to stipulation in a conventional subrogation. (1212a)

In this rule, the effect of subrogation is to transfer all the rights

available to a person to the new creditor that the latter may exercise
either against the debtor or against a third person.

Article 1304. A creditor, to whom partial payment has been made, may
exercise his right for the remainder, and he shall be preferred to the
person who has been subrogated in his place in virtue of the partial
payment of the same credit. (1213)

Example:

X is indebted to Y in the amount of P1M. Z a third person with the

consent of X paid for P500,000.00. Here the rights that has been subrogated
to Z is only up to the amount of P500,000.00. Y is still a creditor for the
remaining balance.

References:

Books
De Leon, Hector S., (2016): "The Law on Obligations and Contracts", REX Book Store

De Leon, Hector S., (2014): "Comments and Cases on Obligations and Contracts", REX
Book Store

Paras, Edgardo L., (2013): "Civil Code of the Philippines Annotated" , REX Book
Store

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By: Hector S. De Leon & Hector M. De Leon Jr.

Sta. Maria, Melencio S., (2011): "Obligations and Contracts", REX Book Store

Electronic Sources

https://lawphil.net/statutes/repacts/ra1949/ra_386_1949.html

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