Reviewer in Law 1 (from De Leon's book) Chapter 4

CHAPTER 4 – EXTINGUISHMENT OF OBLIGATIONS

1)      Major causes of extinguishment of obligation

·         By payment or performance

·         By loss of the thing due

·         By condonation or remission of debt

·         By confusion or merger of rights of creditor and debtor

·         By compensation

·         By novation

2)      Other causes of extinguishment of obligation

·         Death of a party in case the obligation is a personal one

·         Mutual desistance or withdrawal

·         Arrival of a resolutory period

·         Compromise

·         Impossibility of performance

·         Happening of a fortuitous event

3)      Article 1232. Payment means not only the delivery of money but also the performance, in any other manner, of an obligation. Payment and performance are synonymous in law.

4)      Debt – may refer to an obligation to deliver money, to deliver a thing, to do an act, or not to do an act.

5)      General Rule: 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.
Exception to the general rule:
a) Article 1234. If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee.
b) 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.

6)      Requisites for the application of Art. 1234/ substantial performance

·         There must be a substantial performance

·         The obligor must be in good faith

7)      Requisites for the application of Art. 1235/ incomplete and irregular performance

·         The obligee knows that the performance is incomplete or irregular

·         He accepts the performance without expressing any protest or objection

8)      General Rule: 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.

Exception: Unless there is a stipulation to the contrary

General Rule: Second paragraph of Article 1236. Whoever pays for another may demand from the debtor what he has paid.

Exception: Except 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.

9)      Persons from whom the creditor must accept payment

·         The debtor

·         Any person who has an interest in the obligation (like a guarantor)

·         A third person who has no interest in the obligation when there is stipulation that he can make payment

10)   Effect of payment by third person

·         If made without the knowledge or against the will of debtor – the payer can only recover from the debtor the amount which has been beneficial to the latter.

·         If made with the knowledge and consent of the debtor – the payer has the right to reimbursement for the whole amount that has been paid and subrogation of rights of creditor.

11)   General Rule: Article 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.

Exceptions to the general rule: Article 1302. Legal subrogation by operation of law is presumed in certain cases.

12)   Reimbursement – the third person entitled by reason of payment has merely the bare right to be refunded to the extent provided in the second paragraph of Article 1236 without the right to the guarantees and securities of the original obligation.

13)   Subrogation – there is no real extinction of the obligation, but only a change of creditor.

14)   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.

15)   General Rule: Article 1239. In obligations to give, payment made by one who does not have the free disposal of the thing due and capacity to alienate it shall not be valid.
Exception to the general rule: Article 1427. When a minor entered into a contract without the consent of the parent or guardian, voluntarily pays a sum of money or delivers a fungible thing in fulfillment of the obligation, there shall be no right to recover the same from the obligee who has spent or consumed it in good faith.

16)   Free disposal of the thing due – means that the thing to be delivered must not be subject to any claim or lien or encumbrance of a third person.

17)   Capacity to alienate – means that the person is not incapacitated to enter into contracts and for that matter, to make a disposition of the thing due.

18)   Person to whom payment shall be made

·         The creditor or obligee (He must be the creditor at the time the payment is to be made not at the constitution of the obligation. Hence, if a person is subrogated to the right of the creditor, payment should be made to the new creditor.)

·         His successor in interest

·         Any person authorized to receive it

19)   Any person authorized to receive payment

·         Guardian of a ward

·         Administrator of executor of the estate of a deceased

·         Liquidator of a partnership/corporation

·         Persons authorized by special power of attorney

·         Third person provided that the payment benefits the creditor

20)   Ward – minor person or person of age but has a mental disposition of that as a minor.

21)   General Rule: Article 1241. Payment to a person incapacitated to administer or manage his property is not valid.
Except:
a) The incapacitated person kept the thing paid or delivered.
b) Or he was benefited by the payment

22)   General Rule: Article 1241. Payment to a third person is not valid.
Exception: The payment has been redounded to the benefit of the creditor and payment made in good faith (presumed) to any person in possession of the credit. (Art. 1242)

23)   General Rule: Article 1241. It is not presumed and therefore must be proven that the creditor was benefited by the payment made to a third person.
Exception: When benefit to creditor need not be proved by debtor
a) Subrogation of the payer in the creditor’s right
b) Ratification by the creditor
c) Estoppel on the part of the creditor

24)   Estoppel – an admission or representation is rendered conclusive upon the person making it and cannot be denied or disproved as against the person relying thereon.

25)   Ratification – process of cleansing the defect in a contract by acknowledging its validity despite its defects. Recognizing a person’s authority despite the absence of it.

26)   Article 1243. Payment made to the creditor by the debtor after the latter has been judicially ordered to retain the debt shall not be valid.

27)   General Rule: 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 obligation to do or not to do, an act or forbearance cannot be substituted by another act or forbearance against the obligee’s will.
Exception: Substitution can be made if the obligee consents, for example in facultative obligations. Article 1244 will not also apply in case of waiver by the creditor or substitution is allowed by stipulation with the consent of the creditor.

28)   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.

29)   Special forms of payment

·         Dation in payment

·         Application of payments (stictly speaking, it is not a special form of payment)

·         Payment by cession

·         Tender of payment and consignation

30)   Dation in payment (adjudication or dacion en pago) – is the conveyance of ownership of a thing as an accepted equivalent of performance. An existing debt in money is satisfied, not by payment of money but by the alienation of property.

31)   General Rule: Article 1246. (Rule of medium quality and a principle of equity) When the obligation consists in the delivery of an indeterminate or generic thing, whose quality and circumstances have not been stated, the creditor cannot demand a thing of superior quality. Neither can the debtor deliver a thing of inferior quality. The purpose of the obligation and other circumstances shall be taken into consideration.
Exception: The benefit of this article may be waived by the creditor or by accepting a thing of inferior quality, and by the debtor by delivering a thing of superior quality.

32)   General Rule: Article 1247. Extrajudicial expenses required by the payment shall be for the account of the debtor.
Exception: Unless it is otherwise stipulated, stipulation of the parties must be followed. This article does not apply to expenses incurred by the creditor in going to the debtor’s domicile to collect.

33)   Judicial costs – are the statutory amounts allowed to a party to an action for his expenses incurred in the action. The costs of an action shall, as a rule be paid by the losing party. The court may, however, for special reasons, adjudge that either party shall pay the costs or that the same be divided as may be equitable.

34)   General Rule: Article 1248. 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.
Exceptions: When partial performance is allowed
a) when there is an express stipulation to that effect
b) when the debt is in part liquidated and in part unliquidated
c) when the different prestations in which the obligation consists are subject to different terms or conditions which affect some of them.

35)   Legal Tender – is that currency which a debtor can legally compel a creditor to accept in payment of a debt in money when tendered by the debtor in the right amount.

36)   General Rule: Article 1250. In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment.
Except: Unless there is an agreement to the contrary.

37)   Inflation – is a sharp sudden increase of money or credit or both without a corresponding increase in business transactions. It causes a drop in the value of money, resulting in the rise of the general price level.

38)   Deflation – is the reduction in volume and circulation of the available money or credit, resulting in a decline of the general price level; it is the opposite of inflation.

39)   Place where obligation shall be paid

·         If there is a stipulation, the payment shall be made in the place designated.

·         If there is no stipulation and the thing to be delivered is specific, the payment shall be made at the place where the thing was, at the perfection of the contract.

·         If there is no stipulation and the thing to be delivered is generic, the place of payment shall be the domicile of the debtor. In this case, the creditor bears the expenses in going to the debtor’s place to accept payment.

40)   Venue – is the place where a court suit or action must be filed or instituted.

41)   Domicile – is the place of a person’s habitual residence; the place where he has his true fixed permanent home and to which place he, whenever he is absent, has the intention of returning.

42)   Residence – is only an element of domicile. It simply requires bodily presence as an inhabitant in a given place.

43)   General Rule: Article 1252. Application of payment shall not be made as to debts which are not yet due.
Except: The parties so stipulate or when the application of payment is made by the party for whose benefit the term has been constituted.

44)   General Rule: Article 1252. 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.
Except: There is a cause for invalidating the contract.

45)   Application of payments – is the 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.

46)   Requisites for application of payments

·         There must be one debtor and one creditor

·         There must be two or more debts

·         The debts must be of the same kind

·         The debts to which the payment has been applied must be due

·         The payment made must not be sufficient to cover all the debts

47)   Rules on application of payments

·         The debtor has the first choice; he must indicate at the time of making payment, and not afterwards, which particular debt is being paid. If, in making use of his right, the debtor applied the payment to a debt, he cannot later claim that it should be applied to another debt. The right to make the application once exercised is irrevocable unless the creditor consents to the change.

·         If the debtor does not apply payment, the creditor may make the designation by specifying in the receipt which debt is being paid. The debtor must consent to this.

·         If the creditor has not also made the application, or if the application is not valid, the debt, which is most onerous to the debtor among those due, shall be deemed to have been satisfied.

·         If the debts due are of the same nature and burden, the payment shall be applied to all of them proportionately.

48)    General Rule: Article 1253. If the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered.
Exception: The rule is subject, however, to any agreement between the parties, or to waiver by the creditor.

49)   Rules to onerosity

·         An interest-bearing debt is more onerous than a non-interest bearing debt even if the latter is an older one.

·         A debt as a sole debtor is more onerous than as a solidary debtor.

·         Debts secured by a mortgage or by pledge are more onerous than unsecured debts.

·         Of two interest bearing debts, the one with a higher rate is more onerous.

·         An obligation with a penalty clause is more burdensome than one without penalty clause.

50)   General Rule: Article 1255. Payment by cession shall only release the debtor from responsibility for the net proceeds of the thing assigned.
Exception: Unless there is a stipulation to the contrary.

51)   Payment by cession – is another special form of payment. It is the assignment or abandonment of all the 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 their credits.

52)   Requisites of payment by cession

·         There must be two or more creditors

·         The debtor must be insolvent

·         The cession must be accepted by the creditors

53)   Dation in payment and cession distinguished

·         In dation, there is usually only one creditor, while in cession, there are several creditors.

·         Dation does not presuppose the insolvency of the debtor, while in cession, the debtor is insolvent at the time of assignment.

·         Dation does not involve all the property of the debtor, while cession extends to all the property of the debtor subject to execution.

·         In dation, the creditor becomes the owner of the thing given by the debtor, while in cession, the creditors only acquire the right to sell the thing and apply the proceeds to their credits proportionately.

54)   Article 1256. If the creditor to whom tender of payment has been refused 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:
a) When the creditor is absent or unknown, or does not appear at the place of payment
b) When he is incapacitated to receive the payment at the time it is due
c) When, without just cause, he refuses to give a receipt
d) When two or more persons claim the same right to collect
e) When the title of the obligation has been lost

55)   Tender of payment – is the act, on the part of the debtor, of offering to the creditor the thing or amount due. The debtor must show that he has in his possession the thing or money to be delivered at the time of the offer.

56)   Consignation – is the act of depositing the thing or amount due with the proper court when the creditor does not desire or cannot receive it, after complying with the formalities required by law. It is always judicial and it generally requires a prior tender of payment which is by its very nature extrajudicial.

57)   Requisites of a valid consignation

·         Existence of a valid debt which is due

·         Tender of payment by the debtor and refusal without justifiable reason by the creditor to accept it

·         Previous notice of consignation to persons interested in the fulfillment of the obligation

·         Consignation of the thing or sum due

·         Subsequent notice of consignation made to the interested parties

58)   Requisites for valid tender of payment

·         Tender of payment must comply with the rules on payment (Art. 1256-1258). The tender, even if valid, does not by itself produce legal payment, unless it is completed by consignation.

·         It must be unconditional and for the whole amount.

·         It must be actually made.

59)   Article 1259.  The expenses of consignation, when properly made, shall be charged against the creditor.

60)   When consignation deemed properly made

·         When the creditor accepts the thing or sum deposited, without objection, as payment of the obligation

·         When the creditor questions the validity of the consignation, and the court, after hearing, declares that it has been properly made

·         When the creditor neither accepts nor questions the validity of the consignation, and the court after hearing, orders the cancellation of the obligation

61)   The debtor may withdraw as a matter of right the thing or sum deposited

·         Before the creditor has accepted the consignation

·         Before a judicial declaration that the consignation has been properly made, as he is still the owner of the same. In such a case, the obligation shall continue to remain in force. All expenses are paid by the debtor.

62)   Article 1261. If, the consignation having been made, the creditor should authorize the debtor to withdraw the same, he shall lose every preference which he may have over the thing. The co-debtors, guarantors and sureties shall be released.

63)   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.

64)   Loss of a determinate thing is equivalent to impossibility of performance in obligations to do.

65)   Requisites for loss of the thing in obligation to give

·         The obligation is to deliver a specific thing

·         The loss of the thing occurs without the fault of the debtor

·         The debtor is not guilty of delay

66)   (Exception to the General Rule that impossibility of performance or loss of the thing due releases the obligor) When loss of the thing will not extinguish liability

·         When the law so provides

·         When the stipulation so provides

·         When the nature of obligation requires the assumption of risk

·         When the obligation to deliver a specific  arises from a crime

67)   Art. 1263. In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish the obligation. It is based on the principle that a generic thing never perishes (genus nunquam perit).

68)   Partial Loss – only a portion of the thing is lost or destroyed or when it suffers depreciation or deterioration. It is equivalent of difficulty of performance in obligations to do.

69)   Art. 1264. The court shall determine whether, under the circumstances, the partial loss of the object of the obligation is so important as to extinguish the obligation.

70)   General Rule: Article 1265. Whenever the thing is lost in the possession of the debtor, it shall be presumed that the loss was due to his fault.
Exception: Unless there is proof to the contrary, and without prejudice to the provisions of article 1165. This presumption does not apply in case of earthquake, flood, storm or other natural calamity.

71)   Article 1266. The debtor in obligations to do shall also be released when the prestation becomes legally or physically impossible WITHOUT THE FAULT OF THE OBLIGOR.

72)   Kinds of Impossibility (Article 1266 refers to personal obligations)

·         Physical Impossibility

·         Legal Impossibility

·         Relative Impossibility

73)   Physical Impossibility – in purely personal obligations, when the personal qualifications of the obligor are involved, this takes place, when, for example, the obligor dies or becomes physically incapacitated to perform the obligation.

74)   Legal Impossibility – occurs when the obligation cannot be performed because it is rendered impossible by provision of law, although physically it may be possible of performance.

75)   Relative Impossibility – article 1267 talks about this. When the service 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.

76)   General Rule: Article 1268. When the debt of a thing certain and determinate proceeds from a criminal offense, the debtor shall not be exempted from the payment of its price, whatever may be the cause for the loss.
Exception: Unless the thing having been offered by him to the person who should receive it, the latter refused without justification to accept it. (Creditor is in mora accipiendi)

77)   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.

78)   Condonation or remission – is the gratuitous abandonment by the creditor of his right against the debtor. It is thus a form of donation.

79)   Requisites of condonation or remission

·         It must be gratuitous

·         It must be accepted by the obligor

·         The parties must have capacity

·         It must not be inofficious

·         If made expressly, it must comply with the forms of donations

80)   Kinds of Remission

As to its extent

·         Complete – when it covers the entire obligation

·         Partial – when it does not cover the entire obligation

As to its form

·         Express – when it is made either verbally or in writing

·         Implied – when it can only be inferred from conduct

As to its date of effectivity

·         Inter vivos – when it will take effect during the lifetime of the donor

·         Mortis causa – when it will become effective upon the death of the donor. It must comply with the formalities of a will

81)   Legitime – is that part of the testator’s property which he cannot dispose of because the law has reserved it from certain heirs who are, therefore, called COMPULSARY HEIRS.

82)   Article 1271. The delivery of a private document evidencing a credit made voluntarily by the creditor to the debtor, implies the renunciation of the action which the former had against the latter. It can be nullified, however, by showing that the waiver is inofficous.

83)   General Rule: 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.
Exception: Unless the contrary is proved.

84)   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.

85)   Pledge – is a contract by virtue which the debtor delivers to the creditor or to a third person a movable or instrument evidencing incorporeal rights for the purpose of securing the fulfillment of a principal obligation with the understanding that when the obligation is fulfilled the thing delivered shall be returned with all its fruits and accessions.

86)   General Rule: 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.
Exception: This presumption is subject to contrary evidence. It does not arise if the third person in possession of the thing pledged does not own the same.

87)   Confusion or merger – is the meeting in one person of the qualities of creditor and debtor with respect to the same obligation.

88)   Requisites of Confusion

·         It must take place between the principal debtor and creditor

·         It must be complete

89)   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.

90)   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.

91)   Confusion in solidary obligation – merger in the person of one of the solidary debtors shall extinguish the entire obligation because it is also a merger in the other solidary debtors.

92)   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.

93)   Kinds of Compensation:

·         By its effect or extent
 * Total – when both obligations are of the same amount and are entirely extinguished
* Partial – when the two obligations are of different amounts and a balance remains.

·         By its cause or origin
* Legal – when it takes place by operation of law even without the knowledge of the parties
* Voluntary – when it takes place by agreement of the parties
* Judicial – when it takes place by order from a court in a litigation.
* Facultative – when it can be set up only by one of the parties

94)   Requisities of Legal Compensation

·         The parties are principal creditors and principal debtors of each other

·         Both debts consist in a sum of money, or of consumable things of the same kind and quality

·         The two debts are due and demandable

·         The two debts are liquidated

·         No retention or controversy commenced by a third person

95)   General Rule: Only the principal debtor can set up against his creditor what the latter owes him
Exception: 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.

96)   Total compensation – results when the two debts are of the same amount.

97)   General Rule: Only debts which are due and demandable can be compensated.
Exception: (This is a kind of voluntary compensation) Article 1282. The parties may agree upon the  compensation of debts which are not yet due.

98)   Voluntary or conventional compensation – includes any compensation which takes place by agreement of the parties even if all the requisites for legal compensation are not present.

99)   Article 1283. (Judicial Compensation) If one of the parties to a suit over an obligation has claim for damages against the other, the former may set it off by proving his right to said damages and the amount thereof.

100)     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. After annulment, compensated is deemed not taken place.

101)     Where compensation has taken place BEFORE assignment – the debtor can raise the defense of compensation to the assignee. The remedy of the assignee is against the assignor.

102)     The right to the compensation may be waived by the debtor before or after the assignment.

103)     3 cases where compensation has taken place AFTER assignment

·         Assignment with the consent of debtor – debtor cannot set up compensation against the assignee unless he reserved his right to the compensation.

·         Assignment with the knowledge but without the consent of debtor – debtor can set up compensation

·         Assignment without the knowledge of the debtor – debtor can set up compensation when he learned of the assignment

104)     Foreign Exchange – has been defined as the conversion of an amount of money or currency of one country into an equivalent amount of money or currency of another.

105)     Article 1286. In legal compensation, 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 by the party who set up the compensation.

106)     Instances when legal compensation is not allowed by law:

·         Where one of the debts arises from a depositum

·         Where one of the debts arises from a commodatum

·         Where one of the debts arises from a claim for support due by gratuitous title

·         Where one of the debts consists in civil liability arising from a penal offense

107)     Deposit – is constituted from the moment a person receives a thing belonging to another with the obligation of safely keeping it and of returning the same.

108)     Commodatum – is a gratuitous contract whereby one of the parties delivers to another something not consumable so that the latter may use the same for a certain time and return it.

109)     Support – comprises everything that is indispensable for sustenance, dwelling, clothing, medical attendance, education and transportation, in keeping with the financial capacity of the family.

110)     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.

111)     Article 1290. When all the requisites mentioned in article 1279 are present, compensatiion takes effect by operation of law, and extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of it.

112)     Article 1291. Obligations may be modified by:

·         Changing their object or principal conditions

·         Substituting the person of the debtor

·         Subrogating a third person in the right of creditor

113)     Novation – is the extinction of an obligation through the creation of a new one which substitutes it.

114)     Dual function of novation – it is a contract containing two stipulations: one to extinguish an existing obligation, the other to substitute a new one in its place. It operates as a relative extinction only.

115)     Kinds of Novation

·         According to origin:

o   Legal – takes place by operation of law

o   Conventional – takes place by agreement of the parties

·         According to how it is constituted:

o   Express – declared in unequivocal terms

o   Implied – when the old and new obligations are essentially incompatible with each other

·         According to extent:

o   Total or extinctive –when the old obligation is completely extinguished

o   Partial or modificatory – when the old obligation is merely modified

·         According to subject:

o   Real or objective – when the object or principal conditions are changed

o   Personal or subjective – when the person of the debtor is substituted and/or when a third person is subrogated in the rights of the creditor

o   Mixed – when the object and the debtor or the creditor, or both the parties, are changed. It is a combination of real and personal novations.

116)     Article 1292. In order that an obligation may be extinguished by another which substitutes the same, it is imperative that the old and the new obligations be on every point incompatible with each other.

117)     Requisites of Novation

·         A previous valid obligation

·         Capacity and intention of the parties to modify or extinguish the obligation

·         The modification or extinguishment of the obligation

·         The creation of a new valid obligation

118)     Novation is never presumed. It must be clearly and unmistakably established either by the express agreement of the parties or acts of equivalent import or by the incompatibility of the two obligations with each other in every material respect.

119)     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.

120)     Kinds of personal novation:

·         Substitution – when the person of the debtor is substituted

·         Subrogation – when a third person is subrogated in the rights of the creditor

121)     Kinds of Substitution

·         Expromission – 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. It is essential that the old debtor be released from his obligation, otherwise, there is no expromission.

·         Delegacion – takes place when the creditor accepts a third person to take place of the debtor at the instance of the latter. All the parties, the old debtor and the new debtor, and the creditor must agree.

122)     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 obligation shall not give rise to any liability on the part of the original debtor. (Expromission)

123)     General Rule: The old debtor is not liable to the creditor in case of the insolvency of the new debtor.
Exceptions: (In case of Delegacion)
a) The said insolvency was already existing AND of public knowledge (although it was not known to the old debtor) at the time of the delegacion
b) The insolvency was already existing AND known to the debtor (although it was not of public knowledge) at the time of the delegacion

124)     General Rule: Extinguishment of the principal obligation carries with it that of the accessory obligations.
Exception: In the case of an accessory obligation created in favor of a third person which remains in force unless said third person gives his consent to the novation.

125)     General Rule: There is no novation if the new obligation is void and, therefore, the original one shall subsist for the reason that the second obligation being inexistent, it cannot extinguish or modify the first.
Exception: In case where the parties intended that the old obligation should be extinguished in any event.

126)     If the new obligation is only voidable, novation can take place. But the moment it is annulled, the novation must be considered as not having taken place, and the original one can be enforced, unless the intention of the parties is otherwise.

127)     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.

128)     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.

129)     Kinds of Subrogation

·         Conventional – when it takes place by express agreement of the original parties and the third person

·         Legal – when it takes place without agreement but by operation of law (not presumed except in cases expressly stipulated by law)

130)     Cases of Legal Subrogation

·         When a creditor pays another creditor who is preferred

·         When a third person without interest in the obligation pays with the approval of the debtor

·         When a third person with interest in the obligation pays even without the knowledge of the debtor

131)     Article 1303. Subrogation transfers to the person subrogated the credit with all the rights thereto appertaining, either against the debtor or against third persons, be they guarantors or possessors of mortgages, subject to stipulation in a conventional subrogation.

132)     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.