Obligations AND Contracts: E O P II
Obligations AND Contracts: E O P II
Obligations AND Contracts: E O P II
EXTINGUISHMENT OF OBLIGATIONS
PART II
A.
LOSS OF THE THING DUE
B.
CONDONATION OR REMISSION OF THE DEBT
C.
CONFUSION OR MERGER OF RIGHTS
D.
COMPENSATION
E.
NOVATION
BY:
In case of loss of the thing due, the general rule is that such loss
extinguishes an obligation provided that the same is without fault of the
debtor1. In other words, for an obligation to be extinguished, the cause of
the loss must be a fortuitous event. Resultantly, the debtor is exempted from
any liability and the creditor suffers the loss.
1 Article 1262, 1st par. 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.
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exceptions collectively provided by the law and jurisprudence (Supreme
Court decisions), as follows:
5. If the debtor has promised to deliver the same thing to two (2) or
more persons who do not have the same interests6;
2 Article 1262, 2nd par. 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.
3 Footnote no. 2, Ibid.
5 Article 1165, 3rd par. If the obligor delays, or has promised to deliver the same thing to two or more persons
who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the
delivery.
6 Footnote no. 5, Ibid.
7 Article 1263. In an obligation to deliver a generic thing, the loss or destruction of anything of the same
shall not be exempted from the payment of its price, whatever may be the cause for the loss, unless the
thing having been offered by him to the person who should receive it, the latter refused without justification
to accept it.
9 G.R. No. 159617, 08 August 2007.
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“It has been held that an act of God cannot be invoked to protect
a person who has failed to take steps to forestall the possible
adverse consequences of such a loss. One's negligence may have
concurred with an act of God in producing damage and injury
to another; nonetheless, showing that the immediate or
proximate cause of the damage or injury was a fortuitous event
would not exempt one from liability. When the effect is found
to be partly the result of a person's participation — whether by
active intervention, neglect or failure to act — the whole
occurrence is humanized and removed from the rules
applicable to acts of God.”
Generally, loss of the thing due only applies to prestations “to give”
because it is only in this kind of prestation that we speak of a “thing” or
“object”. However, by analogy, the law made it likewise applicable to
prestations “to do” by stating that the debtor in obligations to do shall also
be released when the prestation becomes legally or physically impossible
without the fault of the obligor.13 Moreover, the law adds that when the
service has become so difficult as to be manifestly beyond the contemplation
10 Article 1189 (2) xxx; it is understood that the thing is lost when it perishes, or goes out of commerce, or
disappears in such a way that its existence is unknown or it cannot be recovered;
11 Article 1264. The courts shall determine whether, under the circumstances, the partial loss of the object
13 Article 1266.
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of the parties, the obligor may also be released therefrom, in whole or in
part.14
In the event that the fortuitous event was caused by a third person (not
a party to the obligation) and the same does not fall under any of the
exceptions mentioned above, the creditor shall have the right of recourse
against the third person for the damage or injury he suffered by reason of
the extinguishment of obligation.15
14 Article 1267.
15 Article 1269. The obligation having been extinguished by the loss of the thing, the creditor shall have all
the rights of action which the debtor may have against third persons by reason of the loss.
16 Article 1270, 1st par. Condonation or remission is essentially gratuitous, and requires the acceptance by
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.
18 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.
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In addition, condonation of a principal obligation carries with it the
extinguishment of the accessory obligation because of the principle in law
that the accessory follows the principal. However, condonation of the
accessory obligation does not extinguish the principal obligation.19
19 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.
20 Article 1271, par. 2. If in order to nullify this waiver it should be claimed to be inofficious, the debtor and
his heirs may uphold it by proving that the delivery of the document was made in virtue of payment of the
debt.
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creditor-donor and the acceptance of the debtor-donee
can be made orally21;
An oral donation requires the simultaneous delivery of the thing or of the document representing the right
donated.
If the value of the personal property donated exceeds five thousand pesos, the donation and the acceptance
shall be made in writing. Otherwise, the donation shall be void.
22 Footnote no. 18, Ibid.
23 Article 749. In order that the donation of an immovable may be valid, it must be made in a public
document, specifying therein the property donated and the value of the charges which the donee must
satisfy.
The acceptance may be made in the same deed of donation or in a separate public document, but it shall
not take effect unless it is done during the lifetime of the donor.
If the acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic form,
and this step shall be noted in both instruments.
24 Article 1275. The obligation is extinguished from the time the characters of creditor and debtor are merged
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to him, the obligation is extinguished. A became the debtor and creditor
of his own promissory note.”25
COMPENSATION
This mode is different with confusion as, in the former, there are at
least two (2) obligations where each party is both a debtor and creditor of
each of the two obligations, while in the latter, there is only one obligation
where one person became the debtor and creditor at the same time.
There are two (2) kinds of compensation – the legal compensation and
the conventional compensation. Legal compensation is compensation by
operation of law, while conventional compensation is compensation by
agreement of the parties.
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1. That each one of the obligors be bound principally, and that he
be at the same time a principal creditor of the other;
In addition, the law provides that if one of the parties should have
against him several obligations which are susceptible of compensation, then
30 Article 1290. When all the requisites mentioned in article 1279 are present, compensation takes effect by
operation of law, and extinguishes both debts to the concurrent amount, even though the creditors and
debtors are not aware of the compensation.
31 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.
32 Article 1281. Compensation may be total or partial. When the two debts are of the same amount, there is
a total compensation.
33 Article 1284. When one or both debts are rescissible or voidable, they may be compensated against each
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the rules on the application of payments shall apply to the order of
compensation.34
Now, the question is: can C collect from B? If yes, how much? If no,
why not? To answer these questions, the law provides for the following
guidelines38:
34 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.
35 Article 1287, 1st par. Compensation shall not be proper when one of the debts arises from a depositum
due by gratuitous title, without prejudice to the provisions of paragraph 2 of article 301.
37 Article 1288. Neither shall there be compensation if one of the debts consists in civil liability arising from
a penal offense.
38 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, unless the assignor was notified by the debtor at the time he gave his consent, that he reserved
his right to the compensation.
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1. If the debtor consented to the assignment of rights made by a
creditor in favor of a third person, the debtor cannot set up
against the assignee the compensation which would pertain to
him against the assignor, 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.
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creditor prior and subsequent to the assignment until he obtains
knowledge of the assignment.
Conventional compensation
This is a kind of compensation where not all the elements for legal
compensation are present, yet, by agreement of the parties, compensation is
set up. The best example of conventional compensation is when parties
agree to compensate obligations which are not yet due.39
NOVATION
39 Article 1282. The parties may agree upon the compensation of debts which are not yet due.
40 Article 1291. Obligations may be modified by:
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1. Change in the object of the obligation or principal conditions;
Legal capacity of the parties to the old and new obligations shall
be reckoned at the time of constitution of the old and new
obligations, respectively.
claimed only by the debtor or when ratification validates acts which are voidable.
42 Article 1297. If the new obligation is void, the original one shall subsist, unless the parties intended that
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third persons who did not give their consent.44 More so, if the original
obligation was subject to a suspensive or resolutory condition, the new
obligation shall be under the same condition, unless otherwise stipulated.45
Substitution is the change in the person of the debtor. The change must
always be with the consent of the creditor. There are two (2) kinds of
substitution:
44 Article 1296.
45 Article 1299
46 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.
47 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.
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b. When the substitution took place, the old debtor already
knew as a fact the insolvency of the new debtor.
2. Payment made with the knowledge but against the will of the
old debtor – the new debtor, by operation of law, is now
subrogated in the shoes of the creditor subject to two (2)
conditions, namely (a) he can only recover from the debtor only
insofar as payment has been beneficial to the latter49 (otherwise
known as the “Right of Conditional/Beneficial
Reimbursement”); and (b) he cannot compel the creditor to
subrogate him in his rights such as those arising from mortgage,
guaranty, or penalty.50
48 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.
49 Art. 1236, 2nd par. x x x
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.
50 Art. 1237. Whoever pays on behalf of the debtor without the knowledge or against the will of the latter,
cannot compel the creditor to subrogate him in his rights, such as those arising from a mortgage, guaranty,
or penalty
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Subrogation is the change in the person of the creditor. There are two
(2) kinds of subrogation:
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.54 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.55
x x x Nothing follows x x x
51 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.
52 Article 1302.
53 Article 1301. Conventional subrogation of a third person requires the consent of the original parties and
55 Article 1304.
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