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Modes of Extinguishment

of Obligations
V Payment or V Compensation
performance
V Novation
V Loss of the thing
due V Annulment

V Condonation or V Rescission
remission of debt V Fulfillment of
V Confusion or resolutory
merger of rights condition
Payment / Performance
V delivery of money and performance, in any other manner of
the obligation

O   
      

V dith respect to the prestation


V Identity
V Integrity or completeness
V Indivisibility
Requisites for Valid
Payment
V dith respect to parties - must be made by proper party to
proper party
O
V Payor - the one performing, he can be the debtor himself or his
heirs or assigns or his agent, or anyone interested in the
fulfillment of the obligation; can be anyone as long as it is with
the creditor's consent
V 3rd person pays/performs - only the creditor's consent; If
performance is done also with debtor's consent - he takes the
place of the debtor. There is subrogation except if the 3rd
person intended it to be a donation
V 3rd person pays/performs with consent of creditor but not
with debtor's consent, the repayment is only to the extent that
the payment has been beneficial to debtor
Requisites for Valid
Payment

V Payee - creditor or obligee or successor in interest of
transferee, or agent
V 3rd person - if any of the ff. concur:
V It must have redounded to the obligee's
V benefit and only to the extent of such benefit
V It falls under art 1241, par 1,2,3 - the benefit is total so,
performance is total
V Anyone in possession of the credit - but will apply only if debt
has not been previously garnished
Payment
         


V Incapacitated person kept the thing delivered, or

V Insofar as the payment has been beneficial to him


Payment
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V After payment, 3rd person acquires the creditor·s rights

V Creditor ratifies payment to 3rd person

V By creditor·s conduct, debtor has been led to make the


payment (estoppel)
Payment
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V Payment by debtor must be made in good faith

V Creditor must be in possession of the credit and not merely


the evidence of indebtedness
dhere Payment Made
V In the place designated in the obligation

V If there is no express stipulation and the undertaking is


to deliver a specific thing ² at the place where the thing
might be at the moment the obligation was constituted

V In other case ² in the place of the domicile of the debtor


V Time of payment - time stipulated
V Effect of payment Ñ extinguish obligation order to
retain debt
Gubstantial Performance
V  -./!0. { 
 

    
  
   

        




V  -./!1. d
     
            

 
       

V Attempt in Good Faith to perform without willful or


intentional departure
V Deviation is slight
V Omission/Defect is technical or unimportant
V Must not be so material that intention of parties is not attained
Gubstantial Performance
 )2      * % 3

V Obligor may recover as though there has been strict and


complete fulfillment, less damages suffered by the oblige

V Right to rescind cannot be used for slight breach


Application of Payment
V the designation of the debt which payment shall be made,
out of 2 or more debts owing the same creditor

V stipulation or application of party given benefit of period ²


OK

V to be valid: must be debtor·s choice or with the consent of


debtor
Application of Payments
O  

V Various debts of the same kind

V Game debtor

V Game creditor

V All debts must be due

4 there may be application of payment even if all


debts are not yet due if:
V Parties so stipulate
V dhen application of payment is made by the party for whose
benefit the term has been constituted
V Payment is not enough to extinguish all debts
ëow Applictation is Made
V Debtor makes the designation

V If not, creditor makes it by so stating in the receipt that he


issues ² unless there is cause for invalidating the contract

V If neither the debtor nor creditor has made the application or


if the application is not valid, then application, is made by
operation of law
dho makes
application of debts?
V GR: Debtor

V Exceptions: Creditor
V Debtor without protest accepts receipt in which creditor
specified expressly and unmistakably the obligation to which
such payment was to be applied ² debtor in this case
renounced the right of choice
V dhen monthly statements were made by the bank specifying
the application and the debtor signed said statements
approving the status of her account as thus sent to her
monthly by the bank
V In case no application is made:
V Apply payment to the most onerous
V If debts are of the same nature and burden, application
shall be made to all proportionately
½ 
V mode of extinguishing an obligation whereby the debtor
alienates in favor of the creditor property for the satisfaction
of monetary debt

V extinguish up to amount of property unless there is a


contrary stipulation

V a special form of payment because 1 element of payment is


missing: IDENTITY
Conditions for a
Valid ½ 
V If creditor consents, for a sale presupposes the consent of
both parties

V If dacion will not prejudice the other creditors

V If debtor is not judicially declared insolvent

Note: ½  is governed by the Law on Gales.


Cession / Assignment
V +))))* %
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the process by which debtor transfer all the properties not
subject to execution in favor of creditors is that the latter
may sell them and thus, apply the proceeds to their credits

V extinguish up to amount of net proceeds (unless with a


contrary stipulation)
Assignment
- 6 

V  6 ² governed by the insolvency law

V
   ² agreement of creditors

O  
  6 

V More than one debt

V More than one creditor

V Complete or partial insolvency of debtor

V Abandonment of all debtor·s property not exempt from


execution

V Acceptance or consent on the part of the creditors


Effects of Assignment
V Creditors do not become the owner; they are merely
assignees with authority to sell

V Debtor is released up to the amount of the net proceeds of


the sale, unless there is a stipulation to the contrary

V Creditors will collect credits in the order of preference


agreed upon, or in default of agreement, in the order
ordinarily established by law
Dacion vs. Cession
    +   
One creditor Plurality of creditors
Not necessarily in state of financial Debtor must be partially or relatively
difficulty insolvent

Thing delivered is considered as Universality of property of debtor is


equivalent of performance what is ceded
Payment extinguishes obligation to Merely releases debtor for net
the extent of the value of the thing proceeds of things ceded of, assigned,
delivered as agreed upon, proved or unless there is a contrary intention
implied from the conduct of the
creditor
Consignation
V O -the act of offering the creditor what is due him
together with a demand that the creditor accept the same
(dhen creditor refuses w/o just cause to accept payment, he
becomes in    and debtor is released from
responsibility if he consigns the thing or sum due)

V +)*  5 the act of depositing the thing due


with the court or judicial authorities whenever the creditor
cannot accept or refuses to accept payment; generally
requires prior tender of payment
Requisites for Valid
Consignation
V Existence of valid debt

V Consignation was made because of some legal cause -


previous valid tender was unjustly refused or circumstances
making previous tender exempt

V Prior Notice of Consignation had been given to the person


interested in performance of obligation (1st notice)

V Actual deposit / Consignation with proper judicial


authorities

V Gubsequent notice of Consignation (2nd notice)


Effects of Consignation
V Debtor may ask judge to order cancellation of obligation

V Running of interest is suspended

V Before creditor accepts or before judge declares consignation


has been properly made, obligation remains (debtor bears
risk of loss at the meantime, after acceptance by creditor or
after judge declares that consignation has been properly
made ² risk of loss is shifted to creditor)
Consignation without
Prior Tender
Allowed when:

V Creditor absent or unknown/ does not appear at the place


of payment

V Incapacitated to receive payment at the time it is due

V Refuses to issue receipt w/o just cause

V 2 or more creditor claiming the same right to collect

V Title of obligation has been lost


Loss of the Thing Due
V partial or total/ includes impossibility of performance

d3 3  

V dhen the object perishes (physically)

V dhen it goes out of commerce

V dhen it disappears in such a way that: its existence is


unknown or it cannot be recovered
Impossibility of
Performance
V 3 2 

V  6 2 
V Directly ² caused as when prohibited by law
V Indirectly ² caused as when debtor is required to
enter a military draft
Loss
2 6  7  )+%+36

V *OO": Extinguished

V &+ )
V Debtor is at fault
V Debtor is made liable for fortuitous event because of a
provision of law, contractual stipulation or the nature of the
obligation requires assumption of risk on part of debtor
Loss
2 6  7  *O+36

V *OO": Not extinguished

V &+ )a
V If the generic thing is delimited
V If the generic thing has already been segregated
V Monetary obligation
Loss
2 6  

V *OO": Debtor is released when prestation


becomes legally or physically impossible without fault on
part of debtor
Effects of Partial Loss
V dhen loss is 6 ² may be enough to extinguish
obligation

V dhen loss 6  ² not enough to extinguish


obligation

 judicial determination of extent is necessary

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V Presumption: Loss due to debtor·s fault (disputable)

V Exception natural calamity, earthquake, flood, storm


O
 

V agreement is valid only if the same conditions prevailing at
time of contracting continue to exist at the time of
performance

V obligor may be released in whole or in part based on this


ground
Requisites:
O
 

V The event or change could not have been foreseen at the
time of the execution of the contract

V The performance is extremely difficult, but not impossible


(because if it is impossible, it is extinguished by
impossibility)

V The event was not due to the act of any of the parties

V The contract is for a future prestation


Condonation / Remission
V Gratuitous abandonment of debt

V If donation, rules on donation apply

V May be express or implied


Requisites: Condonation
V There must be an agreement

V There must be a subject matter (object of the remission,


otherwise there would be nothing to condone)

V Cause of consideration must be liberality (Essentially


gratuitous, an act of liberality )

V Parties must be capacitated and must consent; requires


acceptance by obligor; implied in mortis causa and
expressed inter vivos

V Formalities of a donation are required in the case of an


express remission
Requisites: Condonation
V Revocable ² subject to rule on inofficious donation (
excessive, legitime is impaired ) and ingratitude and
condition not followed

V Obligation remitted must have been demandable at the time


of remission

V daivers or remission are not to be presumed generally


Condonation / Remission
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Express ² must follow Total Principal ² accessory is
formalities of donation also condoned
Implied ² conduct is Partial Accessory ² principal is
sufficient still outstanding
Implied Condonation
V
   7 5 presumption; when evidence of
indebtedness is with the debtor ² presumed voluntarily
delivery by creditor (rebuttable)

V   7  7   2   2


  (conclusion)
V If in hands of joint debtor ² only his share is condoned
V If in hands of solidary debtor - whole debt is condoned
V J  ² voluntary destruction of instrument by creditor; made
to prescribe w/o demanding
Confusion / Merger
V character of debtor and creditor is merged in same person
with respect to same obligation

O  

V It must take place between principal debtor and principal


creditor only

V Merger must be clear and definite

V The obligation involved must be same and identical ² one


obligation only

V Revocable, if reason for confusion ceases, the obligation is


revived
Compensation
V Get off

V It is a mode of extinguishment to the concurrent amount the


obligation of persons who are in their own right reciprocally
debtors or creditors
Requisites: Compensation
V Both parties must be mutually creditors and debtors - in
their own right and as principals

V Both debts must consist in sum of money or if consumable ,


of the same kind or quality

V Both debts are due

V Both debts are liquidated and demandable (determined)

V Neither debt must be retained in a controversy commenced


by 3rd person and communicated w/ debtor (neither debt is
garnished)
Kinds of Compensation
V  6 5 by operation of law; as long as 5 requisites
concur- even if unknown to parties and if payable in
diff places; indemnity for expense of exchanges; even if
not equal debts ² only up to concurring amount

V +7  5 agreement of parties is enough, forget


other requirement as long as both consented

V %   7 Ñ one party has choice of


claiming/opposing one who has benefit of period may
choose to compensate:
V Not all requisites are present
V Depositum; commodatum; criminal offense; claim for future
support; taxes
Kinds of Compensation
V Î  l 5 set off; upon order of the court; needs
pleading and proof; all requirements must concur
except liquidation

V  5 when 2 debts are of the same amount

V   5 when 2 debts are not of the same amount


Effect of Assignment of
rd
Credit to a 3 Person
V If made after compensation took place ² no effect;
compensation already perfected

V If made before compensation took place ² it depends:


V dith consent of debtor ² debtor is estopped unless he reserves
his right and gave notice to assignee
V dith knowledge but w/o consent of debtor ² compensation
may be set up as to debts maturing prior to assignment
V dithout knowledge ² compensation may be set-up on all
debts prior to his knowledge
Novation
V extinguishment of obligation by creating/ substituting a
new one in its place

V Changing object or principal conditions

V Gubstituting person of debtor

V Gubrogating 3rd person in right of creditor


Requisites: Novation
V Valid obligation

V Intent to extinguish old obligation ² expressed or implied:


completely/substantially incompatible old and new
obligation on every point

V Capacity and consent of parties to the new obligation

V Valid new obligation


Effects of Novation
V Extinguishment of the principal carries the accessory,
except:
V Gtipulation to contrary
V Gtipulation   unless beneficiary consents
V Modificatory novation only; obliged to which is less onerous
V Old obligation is void

V Old obligation subsists if  82 6 is 7  


7 2 but annulled already (except: intention of parties)

V If old obligation has condition


V If O   and it occurred ² old obligation already
extinguished; no new obligation since nothing to novate
V If ) 7 and it never occurred ²as if no obligation; also
nothing to novate
Effects of Novation
V If old obligation has condition, must be compatible with the
new obligation; if new is w/o condition ² deemed attached
to new

V If new obligation has condition


V If   : valid
V If  7 and did not materialize: old obligation is
enforced
Kinds of Novation
O'Î+ 
5 change object, cause/consideration or
principal condition

O))"'Î+ 


V )26  2 (passive)


V EXPROMIGIONÀ initiative is from 3rd person or new debtor;
new debtor and creditor to consent; old debtor released from
obligation; subject to full reimbursement and subrogation if
made w/ consent of old debtor; if w/o consent or against will
, only beneficial reimbursement; if new debtor is insolvent, not
responsible since w/o his consent
Kinds of Novation
O))"'Î+ 


V )26  2 (passive)


V DELEGACION: initiative of old debtor; all parties to consent;
full reimbursement; if insolvent new debtor ² not responsible
old debtor because obligation extinguished by valid novation
unless: insolvency already existing and of public knowledge
or know to him at time of delegacion
V Delegante ² old debtor
V Delegatario - creditor
V Delegado ² new debtor
Kinds of Novation
O))"'Î+ 


V )2 6 6!   63  (active)


V Conventional - agreement and consent of all parties; clearly
established
V Legal ’ takes place by operation of law; no need for consent;
not presumed except as provided for in law:
V O)"d#’
V Creditor pays another preferred creditor even w/o
debtor·s knowledge
V 3rd person not interested in obligation pays w/ approval
of debtor
V Person interested in fulfillment of obligation pays debt
even w/o knowledge of debtor
Novation
     2! +3 6  2
 

Debtor is not necessarily released Debtor is released


from debt

Can be done without the consent of Needs consent of the creditor ²


the creditor express or implied

One obligation Two obligations ² one is extinguished


and the new one created

3rd person has no obligation to pay if New debtor is obliged to pay


insolvent