1.] Explain how payment or performance extinguishes an obligation.

What are the special forms of payment? Give examples for each.
- Payment or performance consists not only of delivery of money but also of giving a thing (other
than money), doing an act, or not doing an act. 
    Special Forms of Payment:
         a.] Dation in Payment (Article 1245)
- The debtor alienates his property to the creditor in satisfaction of his monetary obligations.
Example: According to the current mortgage law, when a family can no longer continue paying
the mortgage that it drew on the appraisal value of its house, the bank will keep the property,
deducting from the pending debt only half of the value which was estimated in the contract.
This leads not only to the eviction of the family from its home, of which it is no longer the
owner, but to the on-going payment of a large percentage of the debt it maintains with the
bank. This situation is known among many of those who are affected as "eviction for life".
         b.] Application of payment (Article 1253)
- Designation of the debt in which the debtor wants his payment to be applied.
Example: Jane owes Kyrah as follows:
          (a) P1, 500 payable on September 5;
          (b) P1, 200 payable on September 20;        
          (c) A specific table worth P2, 000 to be delivered on September 20; and
          (d) P1, 000 payable on October 15.
          On September 20, Jane paid Kyrah P1, 500. Jane may apply the P1, 500 to debt (a), or to
debt (b) and (if Kyrah does not object) to a portion of debt (a). If Jane paid only P1, 000, she
cannot choose to apply her payment to the P1, 500 debt because Kyrah cannot be compelled to
receive partial payment. Jane cannot properly apply his payment to debt (c) because it is not of
the same kind. She must deliver the thing agreed upon. Neither can she apply it to debt (d)
which is not yet due unless there is a stipulation to the contrary or she has the benefit of the
period. An application of payment made by the debtor without objection from the creditor is
binding upon the latter. Her acquiescence is equivalent to an agreement and has the force and
efficacy of a contract.
         c.] Payment by cession (Article 1255)
- The debtor transfers all his properties to the creditor so the creditor may sell them and apply
the proceeds to his obligations.
Example: Kyriye Ongilav is indebted to several creditors in the total amount of P5 million. Her
assets are not sufficient to pay all her debts.
With the consent of her creditors, Kyriye may assign property to them to be sold, to satisfy their
credits. If the net proceeds of the sale amount only to P3 million, Kyriye is still liable for the
balance of P2 million unless there is a stipulation that the assignment shall be in full satisfaction
of all her debts.
         d.] Tender of payment and consignation (Article 1256-1261)
- The act of offering the thing or the sum due is tender of payment. Consignation is the act of
depositing the sum or the thing due in court.
Example: A mortgagor may tender a payment due on a mortgage to the bank, an insured may
tender a premium due on a policy to an insurance agent, or a consumer may tender money due
on an automobile to a loan company.

2.] Explain how (a) loss of the thing due and (b) confusion or merger of rights extinguishes an

obligation. Give examples.
(a) A thing is considered 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. (Article 1189, par. 2)
Example: Clester promised to deliver 100 cavans of rice to me. But the rice Clester intended to
deliver was washed away by the flood. Clester is liable to me because his obligation is to deliver a
generic thing, and it can still be paid from other sources. If it was lost or destroyed, the rice to be
delivered is confined to a particular class and may thus be considered a determinate thing.
(b) It is the meeting in one person of the qualities of creditor and debtor with respect to the same
obligation.
Example: Sarah owes John $5,000. John dies and in his will, he makes Sarah his only heir. The
debt is extinguished as Sarah is both debtor to the estate but also the estate itself, and therefore
creditor, as sole heir.

3.] Explain how (a) condonation and (b) compensation extinguish an obligation. Give examples.

(a) It is the gratuitous abandonment by the creditor of his right a gains the debtor. It is a form of
donation.
Example: If a wife did not object to her husband's adultery even though she was aware of it, and
she later tries to use it as grounds for a divorce or the basis for a settlement in her favor, he could
counter these efforts by arguing that she had condoned his behavior.
(b)  It is the extinguishment to the concurrent amount of the debts of two persons who, in their own
rights, are debtors and creditors of each other.
Example: Leo owes Ina the amount of P1, 000. Ina owes Leo the amount of P700. Both debts are
due and payable today. Here compensation takes place partially, that is, to the concurrent amount of
P700. How much is the liability of Leo? Leo shall be liable to Ina for only P300. If the two debts are of the
same amount, there is total compensation. The two debts are extinguished without actual transfer of
money between the parties.

4.] What is novation? What are the three ways by which obligations may be modified? Explain each
and give examples.
- It is the total or partial extinction of an obligation through the creation of a new one which substitutes
it. It is the substitution or change of an obligation by another, which extinguishes or modifies the first,
either by changing its object or principal conditions, by or substituting another in place of the debtor, or
by subrogating a third person in the rights of the creditor.
     Three ways by which obligations may be modified:
      1.] Changing their subject or principal conditions
Example: Lisa agreed to deliver to Jenny a car. Later, they entered into another contract
whereby, instead of Lisa delivering a car, she would deliver 10 air conditioners. The obligation to deliver
a car is extinguished by the obligation to deliver the 10 air conditioners. The change may involve the
principal terms of the obligation.
      2.] Substituting the person of the debtor
Example: If after the constitution of the obligation, both parties agreed that Rose will substitute
for Lisa or that Jisoo will be subrogated in the rights of Jenny, there is a personal novation. In this case,
Rose becomes the new debtor or Jisoo, the new creditor as the case may be.
      3.] Subrogating a third person in the rights of the creditor. (Article 1291)
Example: If the agreement of the parties is that Lisa will deliver to Jisoo the 10 air conditioners,
instead of Lisa delivering a car to Jenny, then there is a mixed novation because the object of the
obligation and the person of the creditor are changed.