3.0 Notes - Extinguishment of Obligations

LAW ON OBLIGATION: EXTINGUISHMENT OF OBLIGATIONS
Extinguishment of Obligation
Meaning of Extinguishment
 An obligation is extinguished if it ceases to exist.
Grounds for Extinguishment

 By annulment, by rescission, by fulfillment of resolutory condition, by prescription, by death
whenever personal obligations are involved, by expiration of the resolutory period, by
compromise, impossibility of performance and by fortuitous event.
 By payment or performance, by compensation, by loss of the thing due, by merger or confusion,
by condonation or remission, by novation.
Payment or Performance
Meaning
 It does not cover only payment of money but includes all cases when the obligation is
performed.
Characteristics of Payment
1. Integrity
2. Identity
3. Indivisibility
Integrity of Payment
 It means the obligation must be complete and faithfully complied with.
 The creditor may reject partial or incomplete performance except
(1) when there is substantial compliance; and
(2) if the creditor is barred by estoppel.
Substantial Compliance, Requisites

1. There was substantial compliance; and
2. The compliance must have been done in good faith; and
3. There must be payment of damages that may have been incurred by the creditor.
 Creditor can recover.
Estoppel, Requisites
1. There was incomplete or irregular performance;
2. The creditor accepted the incomplete or irregular performance; and
3. The creditor did not protest or object.
 Creditor can recover.
CHRISTOPHER DE GUZMAN 1
Who Can Pay (perform) the Obligation (payor)

1. Debtor – the creditor may compel the debtor to pay or perform.
2. Third person – he cannot compel the creditor to accept payment.
Effect of Payment by Third Person
With Knowledge or Consent of the Debtor Without Knowledge or Consent of the Debtor
 Right of Reimbursement except when the  Right of reimbursement which is
third person did not intend to be beneficial to the debtor.
reimbursed (e.g., donation)
 Right of subrogation – third person may
exercise any right available to the
creditor.
Capacity of the Payor

 Payment by Incapacitated Person is invalid (e.g., minor or insane person)
To Whom the Payment Should be Made (Payee)

1. Creditor
2. Successor in interest of the creditor (e.g., heir, assignee)
3. Any person authorized to receive the payment by agreement or by law (e.g., agent, receiver,
administrator)
Capacity of Payee
 Payment to an incapacitated person is not effective except when such person kept what was
paid or he is benefited thereby.
Payment to Third Person

 As a rule, payment to a third person is not binding to the creditor. As a rule, the allegation that
the creditor was benefited by the payment made to a third person cannot be presumed and
must therefore be satisfactorily established by the person interested in proving this fact; except
under the following instances:
o If after the payment, the third person acquires creditor’s rights.
o If the creditor ratifies the payment to the third person.
o If the creditor led to believe that the third person had the authority to receive the
payment.
Payment to Person in Possession of the Credit

 Payment made in good faith to any person in possession of the credit shall release the debtor
(e.g., assignee).
 The person to whom payment is to be made under this rule is the “person in possession of
credit” and not the person in possession of the evidence on credit.
o The person in possession of credit includes an assignee in an invalid transfer.
Identity of Performance
 It means that the debtor must give what should be given or he must do what should be done.
 Exception: facultative obligation and dation in payment (or en pago).
Indeterminate or Generic Thing

 In case of an obligation to deliver generic thing, the parties may agree on the quality of thing to
be delivered.
 In the absence of agreement, the creditor cannot demand a thing of superior quality and the
debtor cannot deliver a thing which is of inferior quality.
 In case of disagreement, it is the court that will settle the controversy.
Dation in Payment or Dacion en Pago

 It is the delivery and transmission of ownership of a thing by the debtor to the creditor as an
accepted equivalent of the performance of the obligation.
Requisites of Dation in Payment

1. Instead of original prestation, another prestation is performed.
2. The original prestation that is due and the one performed are different.
3. The parties agreed that the performance of the different prestation extinguishes the obligation.
Extent of Extinguishment
 Dation in payment extinguishes the obligation to the extent of the value of the thing delivered
unless there is a stipulation to the contrary, in which case, obligation is totally extinguished.
 When a co-owner renounces his share in the co-owned property in lieu of payment of the
shares in the taxes and expenses for preservation, there is, in effect dacion en pago.
Indivisibility of Performance
 Means full compliance and no partial performance.
Exceptions to Full Compliance

1. When the debt is liquidated in part and unliquidated in part.
2. When the parties agreed on partial compliance.
3. When the nature of the obligation is that it cannot be done in one instance.
4. Solidary obligations where the debtor are bound by different terms and conditions.
5. Joint debtors who are bound to deliver their respective shares only.
Kinds of Currency or Money for Payment

 Parties may agree that the transaction be paid in currency other than the Philippine Peso.
 In the absence of stipulation as to currency, payment in money should be paid in legal tender.
Legal Tender
 Coins and notes issued by the BSP.
 Coins are considered legal tender in accordance with the following rules:
Denomination of Coins Maximum Amount of Legal Tender

One (1) Peso, Five (5) Pesos, and Ten (10) One Thousand Pesos (P1,000)
Pesos
One (1) Centavo, Five (5) Centavos, Ten (10) One Hundred Pesos (P100)
Centavos, and Twenty (20) Centavos
Commercial Papers
 Delivery of any commercial papers (bills of exchange like checks or promissory notes) whether
they are negotiable instruments or not does not produce the effect of payment.
 Exception: (1) when the paper or document is encashed; or (2) when the paper or document is
impaired due to the fault of the creditor.
 Delivery of mercantile documents like negotiable instruments may be acceptable if what is being
done is not payment but exercise of a right.
Ex. Mr. A mortgaged his house in favor of a bank to secure his loan. He failed to pay his
loan so the bank foreclosed the mortgage (sold it a public auction). Mr. A has one year
to redeem (to buy back) his property. Can Mr. A deliver a cashier’s check within one
year to redeem the property?
Problem to Solve:
Mr. A assigned a check and delivered it to Mr. B in payment of his obligation. Mr. B is indebted to
Mr. C. Mr. B delivered and Mr. C accepted the check of Mr. A in payment of the obligation to Mr.
B. Mr. C failed to encash the check for several years. In the meantime, Mr. A already closed his
checking account and can no longer be found. Can Mr. B claim that there is payment?
Application of Payments, Requisites

1. There are two or more debts;
2. The debtor and the creditor in such obligation are the same;
3. The obligation must be of the same kind;
4. The obligation are all due and demandable; and
5. The payment made is not sufficient to pay all obligations.
Rules in Application of Payment

1. The debtor shall designate the debt to which the payment shall be applied.
2. In the event that the debtor failed to exercise the right to elect, the creditor may choose to
which among the debts the payment is applied.
3. If there is no designated debt in accordance with the above stated rules application shall be
deemed made by operation of law as follows:
a. Payment shall be applied to the interest first before application to the principal.
b. Payment shall be applied to 1st, the debt that is more onerous, and 2nd, if the debts are of
the same terms and conditions and burden, payment shall be applied in proportion to
debt.
Problem:
1. Mr. A has two obligations to B, one for P 1,000 and the other also for P 1,000. Mr. A delivered
P1,000. If both due and are of equal burden, how should the payment be applied?
2. If the debtor owes his creditor several debts consisting of (a) an unsecured debt; (b) debts
secured by a mortgage; (3) interest bearing debt; and (4) a debt in which the debtor is solidarily
liable. Arrange the debts from most to least onerous.
3. Mr. A borrowed P1,000 from Mr. B payable on June 5, 2023. Later, Mr. A borrowed P 800 from
Mr. B payable on June 10, 2023. On June 15, 2023, Mr. A delivered P1,000 to Mr. B designating
the debt that is payable on June 5, 2023 as the debt that is being paid. Can there be an
application of payment?
4. Mr. A borrowed P1,000 from Mr. B payable on June 5, 2023. Later, Mr. A borrowed P 2,000 from
Mr. B payable on June 10, 2023. On June 15, 2023, Mr. A delivered P 1,000 to Mr. B designating
the debt that is payable on June 10, 2023 as the debt that is being paid. Is the designation of Mr.
A binding on Mr. B?
Payment by Cession, Requisites:

1. There must be two or more debts;
2. There must be two or more creditors;
3. There must be one debtor who is insolvent;
4. The debtor must abandon his properties in favor of the creditors; and
5. The creditors must accept the abandonment in their favor.
Note: Payment by Cession is also known as Voluntary or Conventional Assignment.
Payment by Cession vs. Dation in Payment
Dation in Payment Cession or Assignment

 Ownership of the thing delivered is  The creditors do not acquired ownership
transferred to the creditor. but must sell the thing and apply the
proceeds to the debts.
 The debt is extinguished up to the extent  The debts are extinguished only up to the
of the value of the thing unless there is a extent covered by the proceeds of the
stipulation to the contrary. sale.
 There is only one creditor.  There are two or more creditors.
 Insolvency of the debtor is not required.  Insolvency of the debtor is required.
Tender of Payment and Consignation

 As a rule, tender of payment and consignation must be both present to extinguish the
obligation. Tender of payment alone will not extinguish the obligation except under Art. 1256
when consignation alone is sufficient.
Tender of Payment
 It is the definitive act of offering the creditor what is due him or her, together with the demand
that the creditor accept the same.
Consignation
 It is the act of depositing the thing due with the court of judicial authority whenever the creditor
cannot accept or refuses to accept the payment.
Requisites of a Valid Tender of Payment

1. The tender of payment must be made to the creditor; and
2. The payment tendered must be complete, regular, and identical; and
3. The payment must not only be complete but must also include accessory obligations like
payment or interest; and
4. The obligation must be due; and
5. The tender must be unconditional.
Requisites of a Valid Consignation

1. The debt must be due; and
2. The consignation of the obligation had been made because the creditor to whom tender of
payment was made refused to accept without just cause; and
3. Previous notice of the consignation had been given to the person interested in the performance
of the obligation; and
4. The amount due was placed at the disposal of the court; and
5. After the consignation had been made the person interested must be notified thereof.
 Tender of payment and consignation does not apply to an exercise of right. For instance, the
redemption of property with a right of redemption.
Withdrawal By the Debtor without Authority of the Creditor

 The debtor may still withdraw the thing consigned in court if: (1) the creditor has not yet
accepted the consignation; and (2) the court has not yet declared that the consignation was
properly made.
Withdrawal By the Debtor with Authority of the Creditor, Effects

1. The obligation remains in force.
2. The creditor will no longer have any preference over the thing.
3. The co-debtors, guarantors and sureties shall be released.
When Consignation Alone is Sufficient

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.
Loss of the Thing Due

Meaning of Loss
 As to determinate thing, the said thing is lost if (1) it perishes; (2) it goes out of commerce; or (3)
it disappears in such a way that its existence is unknown or it cannot be recovered.
 As to obligation to do or not to do, it means the impossibility of performing the obligation.
Effects of Loss in Real Obligation (Before Delivery)
Specific Thing Generic Thing

 As a rule, obligation is extinguished.  Obligation is not extinguished.
 Except:  Except:
(1) When the law so provides (1) delimited generic thing (e.g., promise
(2) agreement by the parties to deliver one of his dogs but all his dogs
(3) by the nature it requires the died.
assumption of risk
(4) There is a delay
(5) promised to deliver the same thing to
two or more persons.
(6) generic thing
(7) Arising from a criminal act
(8) negligence concurs with fortuitous
event.
Loss in Reciprocal Obligations

 After perfection but before delivery, the buyer bears the risk of loss.
 Exceptions: (1) sale of corporeal personal property when the thing sold is lost though fortuitous
event; (2) in a contract for lease where the destruction of the thing extinguishes the obligation
to pay the rent; and (3) in a contract for a piece of work, where the loss of the thing before
delivery bars the contractor’s right to collect the price.
Partial Loss
 Partial loss will extinguish the obligation if the portion that was lost is so important such it
amounts to total loss.
Disputable Presumption of Fault

 Whenever the thing is lost in the possession of the debtor, it shall be presumed that the loss was
due to his fault except in case of calamity like earthquake, flood, storm or other natural calamity
where in presumption will not apply.
Effect of Impossibility
 Legal or physical impossibility of the performance of the work or service is equivalent to loss of
the object and the obligation is therefore extinguished.
 However, mere inconvenience, unexpected impediments, increased expenses, or even

pecuniary inability to fulfill an engagement, will not relieve the obligor from undertaking that it
has knowingly and freely contracted.
Theory of Imprevisibility (Theory of Unforeseen Events)

 When the service (prestation) has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole or in part.
 Requisites are as follows:
a. The event or change in circumstance could not have been foreseen at the time of the
execution of the contract;
b. It makes the performance of the contract extremely difficult but not impossible;
c. It must not be due to the act of any of the parties – no fault or negligence; and
d. The contract is for future prestation.
Rebus Sic Stantibus

 Parties stipulate that when a service has become so difficult as to be manifestly beyond their
contemplation, total or partial release from a prestation and counter prestation is allowed.
 This theory does not apply to contracts unless Theory of Unforeseen Events applies.
Effect of Criminal Offense

 Even if the loss is due to fortuitous event, the debtor is still liable under this provision because
the determinate thing proceeds from a criminal offense.
 Exception: When the creditor refused to receive it after the debtor offered it to deliver.
Other Rights of the Creditor in Case of Loss

1. Exercise rights and actions which the debtor may have against third person.
2. To recover any indemnity that may have been already received by the debtor.
Problem (Other Rights of the Creditor in Case of Loss)
1. Mr. A is obligated to deliver to Mr. B a one-hectare lot with a small house. The house was
destroyed by fire before delivery due to the gross negligence of Mr. C. What is the remedy of the
Mr. B?
2. Mr. A is obligated to deliver to Mr. B a one-hectare lot with a small house. The house was
destroyed by fire before delivery and Mr. A was able to receive the insurance proceeds. What is
the remedy of the Mr. B?
Condonation or Remission of Debt
Meaning
 It is an act of liberality by which, the oblige, who receives no price or equivalent thereof,
renounces the enforcement of the obligation which is extinguished in its entirety or in part or
aspect of the same to which the remission refers.
Requisites of Condonation
1. Acceptance by the obligor, express or implied;
2. Consideration which is pure liberality; and

3. Compliance with the required formalities.
Formalities of Condonation
 If express, comply with the formalities of donation (donation intervivos and mortis causa);
 If implied, no formalities is required.
Kinds of Condonation
1. Express or implied
2. Total or partial
3. Intervivos or mortis causa
Effect on Accessory
 Principle: Accessory follows the principal; if the principal obligation is extinguished, the
accessory is also extinguished. However, a waiver of the accessory does not result in the
extinguishment of obligation.
 If the thing pledge is in the possession of the owner, it is presumed that the obligation is
extinguished. Note that only the accessory obligation of pledge is presumed extinguished and
not the principal obligation.
Confusion or Merger
Meaning
 Takes place from the time the characters of the creditor and the debtor merged in the same
person.
Requisites of Confusion or Merger

1. It must take place between the principal creditor and principal debtor; and
2. It must be complete and definite.
Problem:
Mr. A is indebted to Mr. B. A is an heir of B. When B died A inherited all the properties and credits
of B. Is there a merger?
Compensation
Meaning
 It is a mode of extinguishing to the concurrent amount the obligations of persons who in their
own right and as principals are reciprocally debtors and creditors of each other.
Kinds of Compensation
1. Conventional – agreed upon by the parties.
2. Legal – by operation of law;
3. Judicial (set-off) – approved by the court; it must be pleaded and proved.

4. Express or implied
Elements of Legal Compensation

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 consists 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; and
5. That over neither of them there be any retention or controversy, commenced by third persons
and communicated in due time to the debtor.
Note: If elements are not complete, the parties can resort to voluntary compensation.
When Compensation Does Not Takes Place

1. When one of the debts arises from a deposit or from the obligations of the depositary.
2. When one of the debts arises from the obligations of the bailee in commodatum.
3. When one involves a claim for support by gratuitous title.
4. When one of the debts arises because of civil liability arising from criminal liability.
Compensation and Assignment
Assignment Before Compensation Assignment After Compensation

 Notice is given at the time of transfer of  The assignment is not effective because
credit – compensation of all debts due the obligation is automatically
prior to the transfer is effective but extinguished by legal compensation
ineffective as to debts due after the when all the requisites concur.
transfer.
 Without notice to or knowledge of the  Exception: When the debtor consents.

debtor – compensation for all debts due
prior to the notice is effective but not for Note: However, even if the debtor consent, the
debts due after the notice. obligation is extinguished if the debtor consents
with reservation with respect to compensation.
Problems:
1. Mr. A borrowed P100,000 from Mr. B payable on June 10, 2023. Mr. B is also obligated to pay
Mr. A P 100,000 on June 2, 2023. On June 15, 2023, Mr. B transferred his right to collect
P100,000 (from Mr. A) to Mr. C. Is assignment effective?
2. Mr. A borrowed P 100,000 from Mr. B payable on June 10, 2023. Mr. B is also obligated to pay
Mr. A P50,000 on June 2, 2023. On June 15, 2023, Mr. B transferred his right to collect P100,000
(from Mr. A) to Mr. C with the consent of Mr. A but Mr. A expressly stated that his consent is
subject to any compensation that may have been place. Is the assignment effective?
3. There is loan payable on June 10, 2023 by Mr. A to Mr. B in the amount of P 100,000. Mr. B is
also obligated to Mr. A P 100,000 on June 2, 2023. In another obligation, Mr. A is also obligated
to pay Mr. B P 50,000 on June 20, 2023.
On June 15, 2023, Mr. B transferred his right to collect both of the payables of Mr. A to Mr. C
with notice to Mr. A but without Mr. A’s consent. Can Mr. A refuse to pay his total obligation P
150,000? How much can the assignee collect?
4. Obligation of Mr. A to Mr. B is total of P 200,000 consisting of a loan payable on June 10, 2023 in
the amount of P 100,000 and a loan payable on June 20, 2023 in the amount of P 50,000 and
another P 50,000 payable on July 1, 2023.
On the other hand, obligation of Mr. B to Mr. A is P 150,000 payable on June 2, 2023.
On June 15, 2023, Mr. B transferred his right to collect all of payables of Mr. A to Mr. C without
notice or knowledge of Mr. A. Mr. A learned about the assignment on June 25, 2023. Is the
obligation extinguished? How much the assignee collects?
5. Sarah had a deposit in a savings account with Filipino Universal Bank in the amount of five
million pesos (P 5,000,000). To buy a new car, she obtained a loan from the same bank in the
amount of P 1,200,000, payable in 12 monthly installments. Sarah issue in favor of the bank post
dated checks, each in the amount of P 100,000, to cover the 12 monthly installments payments.
On the third, fourth, fifth months, the corresponding checks bounced.
The bank declared the whole obligation due, and proceeded to deduct the amount of P
1,000,000 from Sarah’s deposit after notice to her that this is a form of compensation allowed
by law. Is the bank correct? Explain.
Novation
Meaning
 It is the extinguishment of an obligation by a subsequent one which terminates it, either by
changing its object or principal conditions, by substituting a new debtor in place of an old one,
or by subrogating a third person to the rights of the creditor.
 It has dual functions, to extinguish the old obligation and to substitute a new one in its place.
Requisites of Novation
1. There must be a previous valid obligation;
2. There must be an agreement of the parties concerned to a new contract;
3. There must be an extinguishment of the old contract; and
4. There must be a valid new contract.
Novation Cannot Be Presumed
 Parties must expressly agree on the novation, or by their acts that are too clear and
unmistakable.
Kinds of Novation
1. As to effect (total or partial)
2. As to the form on constitution
a. Express – agreed by the parties
b. Implied – two obligations are incompatible
3. As to its nature
a. Subjective or personal – debtor or creditor are changed.
b. Objective or real – there is a change in the cause, object or principal conditions.
c. Mixed – both personal and real.
4. As to extent
a. Extinctive - old obligation is extinguished.
b. Modificatory – old obligation is modified.
Test to Determine Novation

1. Explicit declaration – if it is unequivocally stated in the new agreement that the old obligation is
extinguished.
2. Material incompatibility – if the old and new obligations are incompatible with each other point.
In the absence of an express agreement, novation takes place only when the old and new
obligation are incompatible on every point.
No Extinctive Novation
 If unimportant modifications are made on the obligation.
Cases of No Extinctive Novation
1. Where the parties agreed to impose payment of interest.

2. When the parties agreed that the debtor will give additional security like a mortgage, pledge, or
a surety bond.
3. Where the parties agreed to an extension of the period.
4. Where the parties reduced a verbal agreement to writing.
5. Where the parties changed the place where payment is supposed to be made.
Cases When There is Extinctive Novation
1. Where the obligation is originally pure and the new obligation is subject to a suspensive or
resolutory condition.
2. Where the amount to be paid is increased in the new obligation.
3. Where the parties agreed to reduce the period; or
4. Where a different object is to be delivered.
Type of Subjective Modification

1. Change of debtor: Expromission and Delagacion
2. Change of creditor: conventional and legal
Expromission and Delagacion
Expromission Delagacion
 The initiative does not come from the  The initiative comes from the debtor.
debtor.
 Consent of the debtor is not present and  Consent of the debtor, the creditor, and
not even necessary. third person are present.
 The debtor is released.  The debtor is released.
 Insolvency of the new debtor before or  Insolvency of the new debtor revives the
after the novation does not revive the obligation of the debtor if: (a) insolvency
obligation of the debtor. is existing at the time of novation; and
(b) of public knowledge or known to the
debtor.
Valid Obligation is Indispensable in Novation

 There can be no novation if the new obligation is void. Hence, the old obligation subsists except
if the parties intended to extinguish it in any event.
 There can be no novation if the old obligation is void.
 If the old obligation is subject to a suspensive or resolutory condition, the new obligation shall
also be subject to the same condition. Exception is there is an agreement to the contrary.
Problems:
1. Mr. X is obligated to deliver to Mr. Y a motorcycle that is made in Japan. The parties agreed to
change the object by converting the obligation into one for the delivery of specified drugs.
However, the parties were not aware that the Bureau of Drugs already banned the sale of said
drugs. In this case, the obligation to deliver a motorcycle subsists.
2. Mr. X is obligated to deliver to Mr. Y a sack of rice. The obligation was the result of the fraud
committed by Mr. Y. Later, Mr. Y and Mr. X agreed to change their agreement by making Mr. X
deliver three sacks of rice. What is the effect?
Subrogation
 It is the transfer of all the rights of the creditor to a third person.
Effects of Subrogation
1. Right of reimbursement of right to demand payment
2. Right to proceed against third person or any security like the right to foreclose the mortgage.
Kinds of Subrogation
1. Conventional – agreement of the parties and the third person.
2. Legal – by operation of law.
Legal Subrogation Not Presumed, Exceptions

 Legal subrogation is not presumed except under Art. 1302
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.
Problems:
1. Mr. A is indebted to Mr. X in the amount of P 10,000. This obligation is unsecured. Mr. A is also
indebted to Mr. Y in the amount of P 5,000. The obligation to Mr. Y is secured by the chattel
mortgage. Mr. X paid Mr. Y. Is there a legal subrogation?
2. Mr. A is indebted to Mr. X in the amount of P 10,000. Mr. Y paid Mr. X with the consent of Mr.
A. is there a legal subrogation?
3. Mr. A is indebted to Mr. X in the amount of P 10,000. The obligation of Mr. A is secured by a
surety Mr. Z. Mr. Z paid Mr. X. Is there a legal subrogation?
4. Eduardo was granted a loan by XYZ Bank for the purpose of improving a building which
XYZ leased from him. Eduardo executed a promissory note (PN) in favor of the bank,
with his friend Recardo as co-signatory. In the PN, they both acknowledged that they are
“individually and collectively” liable and waived the need for prior demand. To secure
the PN, Recardo executed a real estate mortgage on his own property. When Eduardo
defaulted on the PN, XYZ stopped payment of rentals on the building on the ground that
legal compensation had set in. Since there was still a balance due on the PN after
applying the rentals, XYZ foreclosed the real estate mortgage over Recardos property.
Recardo opposed the foreclosure on the ground that he is only a co-signatory; that no
demand was made upon him for payment, and assuming he is liable, his liability should
not go beyond half of the balance of the loan. Further, Recardo said that when the bank
invoked compensation between the rentals and the amount of the loan, it amounted to
a new contract or novation, and had the effect of extinguishing the security since he did
not give his consent (as owner of the property under the real estate mortgage) thereto.
Does Recardo have basis under the New Civil Code for claiming that the original contract
was novated?
5. A, B, C, D and E made themselves solidary indebted to X for the amount of P 50,000.

When X demanded payment from A, the latter refused on the following grounds: (a) B is
only 16 years old; (b) C has already been condoned by X; (c) D is insolvent; and (d) E was
given by X an extension of six moths without the consent of the other four co-debtors.
State the effects of each of the above defenses put up by A on his obligation to pay X, if
such defenses are found to be true. With respect to E, discuss if the extension is in the
nature of extinctive novation.
References:
1. Reviewer in Civil Law, 2018 Edition, Aquino Timoteo B.
2. New Civil Code of the Philippines

3.0 Notes - Extinguishment of Obligations

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3.0 Notes - Extinguishment of Obligations

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LAW ON OBLIGATION: EXTINGUISHMENT OF OBLIGATIONS

Grounds for Extinguishment

Substantial Compliance, Requisites

 Creditor can recover.

 Creditor can recover.

Who Can Pay (perform) the Obligation (payor)

Effect of Payment by Third Person

Capacity of the Payor

To Whom the Payment Should be Made (Payee)

Payment to Third Person

Payment to Person in Possession of the Credit

 Exception: facultative obligation and dation in payment (or en pago).

Indeterminate or Generic Thing

Dation in Payment or Dacion en Pago

Requisites of Dation in Payment

Exceptions to Full Compliance

Kinds of Currency or Money for Payment

Denomination of Coins Maximum Amount of Legal Tender

Centavos, and Twenty (20) Centavos

Application of Payments, Requisites

Rules in Application of Payment

Payment by Cession, Requisites:

Note: Payment by Cession is also known as Voluntary or Conventional Assignment.

Payment by Cession vs. Dation in Payment

Dation in Payment Cession or Assignment

Tender of Payment and Consignation

Requisites of a Valid Tender of Payment

Requisites of a Valid Consignation

Withdrawal By the Debtor without Authority of the Creditor

Withdrawal By the Debtor with Authority of the Creditor, Effects

When Consignation Alone is Sufficient

Loss of the Thing Due

Effects of Loss in Real Obligation (Before Delivery)

Specific Thing Generic Thing

Loss in Reciprocal Obligations

Disputable Presumption of Fault

 However, mere inconvenience, unexpected impediments, increased expenses, or even

Theory of Imprevisibility (Theory of Unforeseen Events)

Rebus Sic Stantibus

Effect of Criminal Offense

Other Rights of the Creditor in Case of Loss

Problem (Other Rights of the Creditor in Case of Loss)

Condonation or Remission of Debt

2. Consideration which is pure liberality; and

Requisites of Confusion or Merger

3. Judicial (set-off) – approved by the court; it must be pleaded and proved.

Elements of Legal Compensation

When Compensation Does Not Takes Place

Compensation and Assignment

Assignment Before Compensation Assignment After Compensation

 Without notice to or knowledge of the  Exception: When the debtor consents.

Novation Cannot Be Presumed

Test to Determine Novation

1. Where the parties agreed to impose payment of interest.

Cases When There is Extinctive Novation

Type of Subjective Modification

Expromission and Delagacion

Valid Obligation is Indispensable in Novation

Legal Subrogation Not Presumed, Exceptions