EXTINGUISHMENT OF OBLIGATION
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OBLIGATIONS ARE EXTINGUISHED IN
ANY OF THE FOLLOWING:
1. TENDER OF PAYMENT
Special Forms of Payment
a. Applications of Payment
b. Payment by Cession
c. Dation in Payment
d. Tender of Payment and
Consignation
2. LOSS OF THE THING DUE OR
IMPOSSIBILITY OF PERFORMANCE
3. BY CONDONATION OR REMISSION OF
THE DEBT
4. BY THE CONDONATION OR MERGER
OF THE RIGHTS OF CREDITOR AND
DEBTOR
5. BY COMPENSATION
6. BY NOVATION
TENDER OF PAYMENT
There is payment if the thing or service had
been completely delivered or services have
been rendered.
PERFORMANCE
Performance, in law, as defined by
Britannica, is the act of doing that which is
required by a contract.
SPECIAL FORMS OF PAYMENT
1. Application of Payment (Art. 1252)
2. Payment by Cession (Art. 1255)
3. Dation in payment (Art. 1245)
4. Tender of payment and consignation
APPLICATION OF PAYMENT
Designation of the debt to which should be
applied a payment made by a debtor who
owe several debts to the same creditor.
REQUISITE OF APPLICATION OF
PAYMENT
a. Plurality of debts
b. Debts are of the same kind
c. Debts are owed to the one and same
creditor and by the same debtor
d. All obligations must be due
e. Payment made is not enough to cover all
debts
RULES TO DETERMINE WHICH DEBT IS
ONEROUS
I. An interest bearing obligation is more
onerous than a non-interest bearing
obligation.
II. An older debt is more onerous than a
recent debt.
III. An obligation where the party is bound
as a principal is more onerous than an
obligation is bound as a surety.
IV. An obligation which is secured is more
onerous than an obligation which is
unsecured.
V. An obligation with a penal clause is more
onerous than an obligation without a penal
clause.
PENAL CLAUSE
A penal clause is an obligation which is
attached to the principal OBLIGATION . It
requires the payment or performance of
something, or simply, a greater
responsibility, in case of noncompliance.
“coercive means to secure from the debtor
compliance of the obligation.”
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“an accessory undertaking to assume
greater liability in case of on-compliance
with the obligation.
PAYMENT BY CESSION
Payment by Cession is an act whereby a
debtor abandons all his property to his
creditors, so that the latter may apply the
proceeds (of its sale) to their credits.
REQUISITES OF PAYMENT BY CESSION
a. Plurality of debts
b. Plurality of creditor
c. Partial insolvency of the debtor
d. Abandonment of all the debtor's
properties for the benefit of the creditors
e. Acceptance by the creditors
DATION IN PAYMENT
It refers to 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 (dacion en
pago).
DIFFERENCE
DATION IN PAYMENT
1. In favor of only one creditor
2. Transfer of ownership of thing alienated
to creditor.
3. Not necessarily in state of financial
difficulty.
4. Assignment of only some specific thing.
PAYMENT BY CESSION
1. There are various creditors
2. Only possession and administration with
authorization to convert property to cash
with which the debts shall be paid.
3. Assignment presupposes insolvency of
debtor.
4. Assignment involves all the property of
the debtor.
TENDER OF PAYMENT
it is the manifestation made by debtor to
creditor of his desire to comply with his
obligation, with offer of immediate
performance.
CONSIGNATION
It is the deposit of the object of obligation in
a competent court in accordance to the
rules prescribed by law, whenever the
creditor unjustly refuses payment or
because of some circumstances which
render direct payment to the creditor
impossible or inadvisable
REQUISITE OF CONSIGNATION
1) there was a debt due;
2) valid prior tender of payment, unless the
consignation was made because of some
legal cause provided in Article 1256;
3) previous notice of the consignation has
been given to the persons interested in the
performance of the obligation;
4) the amount or thing due was placed at
the disposal of the court; and,
5) After the consignation had been made,
the persons interested were notified thereof.
EFFECT OF CONSIGNATION
a. The debtor is released in the same
manner as if he had performed the
obligation at the time of consignation.
b. Accrual of interest is suspended from the
time of consignation.
c. Deterioration or loss of the object or
amount entrusted happens without the fault
of the debtor, must be borne by the creditor
from the moment of deposit.
d. Any increase in the value of the object
after consignation inures to the benefit of
the creditor.
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II. LOSS OF THE THING DUE OR
IMPOSSIBILITY OF PERFORMANCE
a thing is lost when it perishes, goes out of
commerce or disappears in such a way that
its existence is unknown or it cannot be
recovered.
REQUISITES
1. The loss is due to fortuitous event;
2. The obligation is to deliver a determinate
thing;
3. The debtor has not incurred in delay.
IMPOSSIBILITY OF PERFORMANCE
An impossibility of performance is when the
duties and contractual obligations of one or
more parties cannot be fulfilled under
normal circumstances.
DOCTRINE OF UNFORSEEN EVENT
When the service has become so difficult as
to be manifestly beyond the contemplation
of all the parties, the obligor may be
released in whole or in part (De Leon,
2003).
REQUISITES FOR THE DOCTRINE TO
APPLY
1. Event could not have been foreseen at
the time of the constitution of the contract.
2. Event makes performance extremely
difficult but not impossible.
3. Event not due to any act of the parties.
4. Contract is for future prestation.
III. CONDONATION OR REMISSION OF
DEBTS
Condonation or remission of debts is the
gratuitous abandonment by the creditor of
his right against the debtor. It is an act of
liberality, by virtue of which, without
receiving any equivalent, creditor renounces
the enforcement of the obligation.
REQUISITES
1. Debt must be existing and demandable.
2. Renunciation must be gratuitous without
any consideration.
3. Debtor must accept the condonation or
remission.
EFFECTS OF CONDONATION OR
REMISSION OF DEBT
Renunciation of the principal debt shall
extinguish the accessory obligations, but
remission of the latter leaves the principal
obligation in force. (Art. 1273.)
IV. CONFUSION OR MERGER OF RIGHTS
There is CONFUSION OR MERGER when
there is a meeting in one person of the
qualities of creditor and debtor with respect
to one and the same obligation.
REQUISITES
1. It should take place between principal
debtor and creditor
2. It must be complete and definite.
THE EFFECTS OF CONFUSION AND
MERGER OF RIGHTS
1. The obligation is extinguished from the
time the characters of the debtor and
creditor are merged in the same person.
2. In joint obligations, confusion does not
extinguish the obligation except as regards
the corresponding share of the creditor or
debtor in whom the two characters concur.
3. Obligation is not extinguished when
confusion takes place in the person of
subsidiary debtor (e.g. guarantor), but
merger in the person of the principal debtor
shall benefit the former.
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V. COMPENSATION
it pertains to the offsetting of two obligations
which are reciprocally extinguished if they
are of the same value, or extinguished to
the concurrent amount if of different values.
REQUISITE FOR COMPENSATION
1. Each obligor is bound principally, and at
the same time a principal creditor of the
other ;
2. Both debts must consist in a sum of
money, or if the things due are FUNGIBLE,
of the same kind & quality;
3. Both debts are due ;
4. Debts are liquidated and demandable.
5. There must be no retention or
controversy over either of the debts,
commenced by 3rd persons and
communicated in due time to the debtor
6. Compensation is not prohibited by law.
COMPENSATION IS PROHIBITED IN THE
FF:
1. Contracts of depositum
2. Contracts of commodatum
3. Future support due by gratuitous title
4. Civil liability arising from a penal offense
5. Obligations due to the government
6. Damage caused to the partnership by a
partner
KINDS OF COMPENSATION
1. As to extent
a. Total: That is when the debts are of the
same amount
b. Partial: When the debts are not equal
2. As to origin
a. Legal: This takes place by operation of
law.
b. Conventional: It is a situation where the
parties agree to compensate their mutual
obligations even when some requisite in Art.
1279 is lacking (Art. 1282).
c. Judicial: decreed by court when there is
counterclaim. Effective upon final judgment.
d. Facultative: a facultative compensation
is one which can only be set up at the
option of a creditor, when legal
compensation cannot take place because
some legal requisites in favor of the creditor
are lacking.
EFFECT OF COMPENSATION
1. Effects arise from the moment all the
requisites concur.
2. Debtor claiming its benefits must prove
compensation; once proven, effects retroact
from the moment when the requisites
concurred.
3. Both debts are extinguished to the
concurrent amount, even though the
creditors and debtors are not aware of the
compensation.
4. Accessory obligations are also
extinguished.
VI. NOVATION
it refers to the extinguishment of an
obligation by the substitution or change of
the obligation by a subsequent one which
extinguishes or modifies the first either by
the following manner:
I. changing the object or principal
conditions, or
II. by substituting the person of the debtor,
or
III. by subrogating a third person in the
rights of the creditor.
EXPROMISSION
it refers to the act by which a creditor
accepts a new debtor, who becomes bound
instead of the old, the latter being released.
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DELEGACION
takes place when the creditor accepts a
third person to take place of the debtor at
the instance of the latter (studymode.com).
Dito naman it is the debtor who will inform
the creditor about the substitution. If the
creditor accepts this then the old debtor will
be released from liability.
SUBROGATION
Subrogation refers to the substitution of one
person (subrogee) in the place of the
creditor (subroger) with reference to a claim
or right, giving the former all the rights of the
latter, including the right to employ all
remedies to enforce payment.
Kinds of subrogation
a. Conventional subrogation: By
agreement of all the parties;
Requisites:
The consent of the 3rd person, and of the
original parties (Art.1301).
b. Legal subrogation:
This takes place by operation of law without
agreement of the parties.
LEGAL SUBROGATION IS NOT
PRESUMED EXCEPT IN THE
FOLLOWING:
1. When creditor pays another creditor who
is preferred, even without the debtor’s
knowledge.
2. When a 3rd 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 the obligation.
REQUISITES
1. A previous valid obligation ;
2. Agreement of all the parties to the new
obligation ;
3. Extinguishment of the old obligation ;
4. Validity of the new obligation.
KINDS OF NOVATION
Express novation is where parties must
expressly disclose their intent to extinguish
the old obligation by creating a new one.
Implied novation there is no specific form
is required. There must be incompatibility
Between the old and new obligation or
contract.
Incompatibility test
Incompatibility test is concern as to whether
or not the old and new obligation can stand
together, each one having an independent
existence. No incompatibility exists when
they can stand together. Hence, there is no
novation. Incompatibility exists when they
cannot stand together. Hence, there is
novation.
EFFECT OF NOVATION
A. Total
1. Transfers to the person subrogated the
credit with all the rights thereto
appertaining, either against the debtor or
3rd persons.
2. Obligation is not extinguished, even if the
intention is to pay it.
3. Defenses against the old creditor are
retained, unless waived by the debtor
B. Partial
A creditor, to whom partial payment has
been made, may exercise his right for the
remainder, and shall be preferred to the
person subrogated in his place in virtue of
the partial payment. Such creditor remains a
creditor only up to the balance of the unpaid
debt.