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Extinguishment of Obligations

The document discusses various ways that obligations can be extinguished, including payment, loss of the subject of the obligation, condonation or remission of debt, confusion or merger of rights, compensation, and novation. It provides details on the requisites and circumstances for each form of extinguishment.

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Ric Bienne Marc Andres
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22 views

Extinguishment of Obligations

The document discusses various ways that obligations can be extinguished, including payment, loss of the subject of the obligation, condonation or remission of debt, confusion or merger of rights, compensation, and novation. It provides details on the requisites and circumstances for each form of extinguishment.

Uploaded by

Ric Bienne Marc Andres
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Extinguishment of Obligations

Payment of debts of money


Payment is the delivery of money, giving of a thing, doing of an act, or not doing of an act.
Debt is paid when money is delivered, or service is rendered.

FULL not partial delivery – EXCEPTIONS:


◦ When there is substantial performance, where the Obligee is benefited. In this case, the
Obligor is allowed to recover as if complete fulfillment less damages suffered by the Obligee.
◦ Substantial performance: Only a small or minor part has not been performed.
◦ Requisites: SUBSTANTIAL PERFORMANCE AND GOOD FAITH BY THE DEBTOR

◦ When partial or irregular performance is accepted by the Obligee without objections.


◦ Requisites: OBLIGEE KNOWS THE PERFORMANCE IS INCOMPLETE OR
IRREGULAR; AND ACCEPTS WITHOUT PROTEST
OR OBJECTIONS

BURDEN OF PROOF of Payment lies with the DEBTOR.


CREDITOR should accept the payment from:
1. The debtor
2. Any person who has interest in the obligation
3. A third person who has no interest in the obligation, unless there is a stipulation to the
contrary.
◦ If without the knowledge and consent of the Debtor – Debtor can only recover up to the
amount he has been benefited.
◦ If with knowledge and consent, Debtor can recover full amount that the third party paid.

DEBTOR shall pay to:


1. the creditor or obligee
2. his successor in interest (ex. Heir, or assignee); or
3. any person authorized to receive it.

When payment is made to an incapacitated person to administer or manage his property, is


not valid unless payment is kept or the incapacitated person benefited from the payment.

Debtor cannot compel the Creditor:


◦ To receive a different thing; or
◦ To do or not to do another act; or
◦ To do any forbearance (postponement of loan payment)
UNLESS Creditor agrees.
Mercantile document as means of payment
Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it
is not possible to deliver such currency, then in the currency which is legal tender in the
Philippines.

The delivery of promissory notes payable to order, or bills of exchange or other mercantile
documents shall produce the effect of payment only when they have been cashed, or when
through the fault of the creditor they have been impaired.

In the meantime, the action derived from the original obligation shall be held in the abeyance.

*Legal tender – All coins and notes issued by the Bangko Sentral ng Pilipinas constitute
legal tender.

Special forms or modes of payment


DATION IN APPLICATION OF PAYMENT BY TENDER OF
PAYMENT PAYMENTS CESSION PAYMENT AND
(ART. 1245) (ART. 1253) (ART. 1255) CONSIGNATION
(ART. 1256-1261)

Dation in payment – Art. 1245 (Decion en pago)


Debt of money – but paid by the alienation of property.
Elements:
1. Existence of money obligation;
2. Alienation of property with consent of the Creditor;
3. Satisfaction of the money obligation.

Application of payments – Art. 1252


The provision is a guide on how to apply the payment.
Requisites:
1. One debtor and one creditor
2. Two or more debt
3. Debts of the same kind
4. Debts must be due
5. Payment to be made is insufficient to cover all debts.

Rules:
1. Debtor has the first choice, indicating at the time of payment.
2. Once the choice is made, it cannot be changed unless creditor agrees.
3. If Debtor did not make a choice, creditor can choose and the application should be
specified in the receipt.
4. If both debtor and creditor did not make a choice, payment is applied to the most onerous
debt.
5. If all debts are the same nature and burden, payment is applied to all proportionately.
Payment by cession – Art. 1255
Art. 155. The debtor may cede or assign his property to his creditors in payment of his debts.
This cession, unless there is stipulation to the contrary, shall only release the debtor from
responsibility for the net proceeds of the thing assigned. The agreements, which on the effect
of the cession, are made between the debtor and his creditors shall be governed by special
laws.

Debtor assigns his property to his creditors.


Creditors sell the property.
Proceeds of the sale to be applied to the obligation.
Requisites:
1. Two or more creditors
2. Debtor should be (partially) insolvent;
3. The assignment must involve all properties of the debtor; and
4. The cession must be accepted by the creditors.

Tender of payment and consignation


Art. 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.

Tender of payment (offer to pay)


+ Consignation (keep in court)
= released from responsibility

Tender of payment + Consignation = released from responsibility


BUT, consignation only can also release the debtor from responsibility in the following cases:
1. Creditor is absent, unknown, or does not appear at the place of payment;
2. Creditor is incapacitated to receive the payment at the time it is due;
3. When, without just cause, he refuses to give a receipt;
4. When two or more persons claim the same right to collect;
5. When the title of the obligation has been lost.

Requisites of a valid tender of payment:


1. Comply with the rules on payment or agreement by the parties in making such tender;
2. Unconditional, whole amount, and in legal tender; and
3. Actually made.

Before consignation, prior notice to interested persons is required.


Why? To give chance to the creditor to rethink his refusal to
accept payment.
Expenses of consignation to be for the account of the creditor.

Refusal to accept payment > Notice to the creditor and interested parties > Consignation >
Judicial declaration of consignation > Debtor requests for the cancellation of obligation
Loss of the thing due
REQUISITES for Extinguishment
Art. 1262. 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.

Instances when NOT extinguished


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.

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.

Creditor cannot demand a superior quality; Debtor cannot deliver an inferior quality.

Condonation or remission of debt


Art. 1270. Condonation or remission is essentially gratuitous, and requires the acceptance by
the obligor. It may be made expressly or impliedly.

Requisites:
1. Gratuitous;
2. Accepted by the obligor;
3. Parties with capacity;
4. Must not be inofficious (ex. Giving more than you can give, depriving heirs of their
rights); and
5. If expressly made, must comply with forms of donation.

Confusion or merger of rights


Art. 1275. The obligation is extinguished from the time the characters of creditor and
debtor are merged in the same person.

Requisites:
1. Merger in the same person of the characters of a creditor and debtor; and
2. Merger is definite and complete

When there is merger of rights, the guarantee also is extinguished based on the principle that:
“The accessory follows the principal.”

Merger in joint obligations – each is treated as separate. Therefore, merger as to one party
debtor does not affect the obligation as to the other parties.

In solidary obligations, merger in one of the debtors, will extinguish the whole obligation.
Reimbursement is allowed.
Compensation
Art. 1278. Compensation shall take place when two persons, in their own right, are creditors
and debtors of each other.

Differences Confusion/ Merger Compensation


How many creditors and 1 At least 2
debtors?
How many obligations? 1 2
Payment Impossible Indirect payment
Compensation may be partial or total.

Requisites:
1. Parties are principal creditors and principal debtors of each other;
2. Both debts consist in a sum of money, or of consumable things of the same kind and
quality;
3. The two debts are due and demandable; (but parties may agree for those not yet due)
4. The two debts are liquidated;
5. No retention or controversy commenced by a third party.
*Note: When all requisites are satisfied, the compensation will take place by operation of
law.

Effect when compensation took place before


assignment:
◦ D – Debtor
◦ C – Creditor/Assignor
◦ A – Assignee
Debtor can claim the defense of compensation against the Assignee.
Assignee can claim the debt from Assignor.

*Compensation is not applicable in


1. Debts arising from contracts of deposit
2. Debts arising from contracts of commodatum
3. Claims for support due by gratuitous title
4. Obligations arising from criminal offenses
5. Certain obligations in favor of government (e.g.taxes, fees, duties, and others of a similar
nature)
Novation
– is the total or partial extinction of an obligation through the creation of a new one which
substitutes it.

Art. 1291. Obligations may be modified by:


1. Changing their object or principal conditions;
2. Substituting the person of the debtor;

Kinds:
Expromision – 3rd party assumes the obligaton of the debtor without the knowledge or
against the will of the debtor with consent of the creditor.
Delegacion – Creditor accepts a 3rd party to
take the place of the debtor.
3. Subrogating a third person in the rights of
the creditor.

Requisites:
1. A previous valid obligation;
2. Capacity and intention of the parties to
modify or extinguish the obligation;
3. The modification or extinguishment of the
obligation; and
4. The creation of a new valid obligation.

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