Assignment No.

1. What are the modes of Extinguishment of obligation?

EXTINGUISHMENT OF OBLIGATIONS
1. Payment or performance
2. Loss of the thing due
3. Condonation or remission
4. Confusion or merger
5. Compensation
6. Novation
7. Annulment
8. Rescission
9. Fulfillment of resolutory condition
10. Prescription

OTHER FORMS OF EXTINGUISHMENT

1. Happening of fortuitous event (Art. 1174)
2. Compromise (Art. 2028)
3. Mutual desistance or withdrawal
4. Arrival of resolutory period (Art. 1193, par. 2)
5. Impossibility of fulfillment of condition (Art 1266)
6. Death, for personal or intransmissible obligation. (Art. 1311 par.1)

2. What is payment?
ART. 1232: Payment means not only the delivery of money but also the performance, in any
other manner, of an obligation.

CONCEPT OF PAYMENT AND PERFORMANCE

It consists in the normal and voluntary fulfillment of the obligation by the realization of the
purposes for which it was constituted

3. What are the forms of payment? Explain each and give example
Special Modes of Payment or Performance

1. Application of Payment - He who has various debts of the same kind in favor of one and the
same creditor, may declare at the time of making the payment, to which of them the same
must be applied. Unless the parties so stipulate, or when the application of payment is
made by the party for whose benefit the term has been constituted, application shall not be
made as to debts which are not yet due.
2. Dacion en pago (Dation in payment] - 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.
3. Cession en pago (Payment by cession] - 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.
4. Tender of Payment and Consignation - If the creditor to whom tender of payment has been
made refuses 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:
(1) When the creditor is absent or unknown, or does not appear at the place of payment;

(2) When he 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. (1176a)

​ Tender of payment : manifestation made by the debtor to the creditor of his desire to comply with
his obligation; The act of the debtor of offering to the creditor the thing or amount due
​ Consignation : Deposit of the object or the amount due with the proper court after refusal or
inability of the creditor to accept the tender of payment
​ Tender of payment by certified check is valid; a mere check would also be valid for tender of payment
if the creditor makes no prompt objection, but this does not estop the latter from later demanding
payment in cash

4. Distinguish dacion en pago and payment by cesion.

Cession is a special form of payment whereby the debtor abandons or assigns all of his
property for the benefit of his creditors so that the latter may obtain payment of their credits
from the proceeds of the property.

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.

Difference between Dation and Cession

DATION CESSION

may be 1 creditor many creditors

does not require insolvency requires partial or relative insolvency

delivery of a thing delivery of all the property

transfer of ownership of the property no transfer of ownership (only of possession and

administration)
 a novation

payment extinguishes obligation (to the effect is merely to release debtor from the net
the extent of the value of the thing proceeds of the property; hence, partial
delivered) extinguishment of obligation.

What is legal tender?

​ LEGAL TENDER means such currency which in a given jurisdiction can be used for
the payment of debts, public and private, and which cannot be refused by the creditor

5. What are the requisites of application of payment?

​ Requisites:
1. 1 debtor and 1 creditor only
2. 2 or more debts of the same kind
3. all debts must be due
4. amount paid by the debtor must not be
sufficient to cover the total amount of all the debts

7. What are the instances where tender is not necessary before consignation?

TENDER OF PAYMENT AND CONSIGNATION

1256. If the creditor to whom tender of payment has been made refuses 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:
(1) When the creditor is absent or unknown, or does not appear at the place of
payment;
(2) When he 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. (1176a)

Tender of payment : manifestation made by the debtor to the creditor of his desire to
comply with his obligation; The act of the debtor of offering to the creditor the thing or
amount due

Consignation : Deposit of the object or the amount due with the proper court after refusal or
inability of the creditor to accept the tender of payment

Tender of payment by certified check is valid; a mere check would also be valid for tender of
payment if the creditor makes no prompt objection, but this does not estop the latter from
later demanding payment in cash

When a tender of payment is made in such a form that the creditor could have immediately
realized payment if he had accepted the tender, followed by a prompt attempt of the debtor to
deposit the means of payment in court by way of consignation, the accrual of interest on the
obligation will be suspended from the date of such tender. But when the tender of payment is
not accompanied by the means of payment, and the debtor did not take any immediate step to
make a consignation, then the interest is not suspended from the time of such tender.

GENERAL REQUISITES OF VALID CONSIGNATION vs SPECIAL REQUISITES

General Req : relative to payment (Arts. 1232 - 1251)
Special Req : very nature of consignation (Arts. 1256 – 1258)

Special Requisites of consignation: [DLN-DN]

1. [D] There was a debt due

2. [L] The consignation of the obligation was made because of some legal cause provided in
the present article

3. [N] That previous notice of the consignation has been given to persons interested in the
performance of the obligation
4. [D] The amount or thing due was placed at the disposal of the court
5. [N] After the consignation had been made thepersons interested had been notified thereof

If the reason for consignation is the unjust refusal of the creditor to accept payment, it must
be shown:

1. That there was previous tender of payment, without which the consignation is ineffective

2. That the tender of payment was of the very thing due, or in case of money obligations that
legal tender currency was offered

3. That the tender of payment was unconditional and

4. That the creditor refused to accept payment without just cause

Exception to requirement for tender of payment: [AIR-TT]

1. [A] When creditor is absent or unknown or does not appear at place of payment

2. [I] When he is incapacitated to receive payment

3. [R] When he refuses to give receipt, without just cause
4. [T] When two or more persons claim same right to collect
5. [T] When title of the obligation has been lost

The 1st and 2nd Special Requisites of Consignation are embodied in Article 1256.

As to the 2nd requisite ([L] – legal cause) the following musst be present:

(a) the tender of payment must have been made prior to the consignation

(b) that it must have been unconditional [e.g. where the debtor tendered a check for P3,250 to
the creditor as payment of a debt conditioned upon the signing by the latter of a motion to
dismiss a complaint for legal separation, such tender of payment is invalid.]

(c) that the creditor must have refused to accept the payment without just cause [it is not
necessary for the court where the thing or the amount is deposited to determine whether the
refusal of the creditor to accept the same was with or without just cause. The question will be
resolved anyway in a subsequent proceeding. Hence, the mere refusal of the creditor to accept
the tender of payment will be sufficient (Manresa)]
Assignment
1. What is condonation or remission? Give its requisites.
The condonation or remission of debt is a mode of extinguishment of obligation wherein the
creditor gratuitously renounced his right against the debtor with the latter's acceptance.
EXAMPLE: D owes C P1,000 evidenced by a promissory note. The note, signed by D, is
given to C. If the promissory note is voluntarily delivered to D, the presumption is that the
debt must have been paid by D. If it is known that D has not yet paid C, it must be presumed
that the obligation has been remitted by C.

2. What is merger or confusion. Give example.

SECTION 4
CONFUSION OR MERGER OF RIGHTS

1275. The obligation is extinguished from the time the characters of creditor and debtor
are merged in the same person. (1192a)

​ Merger or confusion is the meeting in one person of the qualities of creator and
debtor with respect to the same obligation. It erases the plurality of subjects of the
obligation. Further, the purposes for which the obligation may have been created are
considered as fully realized by the merger of the qualities of debtor and creditor in the
same person.
​ Requisites of merger or confusion are:
(1) It must take place between the creditor and the principal debtor,
(2) the very same obligation must be involved, for if the debtor acquires rights from
the creditor, but not the particular obligation in question in question there will be no
merger,
(3) the confusion must be total or as regards the entire obligation.
​ The effect of merger is to extinguish the obligation.
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. (1193)
 The extinguishment of the principal obligation through confusion releases the guarantor’s
because the obligation of the latter is merely accessory. When the merger takes place in the
person of a guarantor, the obligation is not extinguished.

3. Define compensation. What are the requisites of compensation.

COMPENSATION

1278. Compensation shall take place when two persons, in their own right, are creditors
and debtors of each other. (1195)

Compensation is a mode of extinguishing to the concurrent amount, the obligations of those

persons who in their own right are reciprocally debtors and creditors of each other. It is the
offsetting of two obligations which are reciprocally extinguished if they are of equal value.
Or extinguished to the concurrent amount if of different values.

Kinds of Compensation:
As to their effects

​ compensation may be total (when the two obligations are of the same amount); or
​ partial (when the amounts are not equal).

As to origin

1. it may be legal;
2. facultative;
3. conventional;
4. or judicial.

■ It of law because all requisites are present. is legal when it takes place by operation

It one of the parties, who, however, has the right to object to it, such as when one of the
obligations has a period for the benefit of one party alone and who renounces that period so
as to make the obligation due.
 ■ It is conventional when the parties agree to compensate their mutual obligations even
if some requisite is lacking.
■ It is judicial when decreed by the court in a case where there is a counterclaim.
From Dean Pineda:

■ Compensation Distinguished From Payment. In compensation, there can be partial

extinguishment of the obligation; in payment, the performance must be completer,
unless waived by the creditor. Payment involves delivery of action, while
compensation (legal compensation) takes place by operation of law without
simultaneous delivery.
■ Compensation Distinguished from Merger. In compensation, there are at least two
persons who stand as principal creditors and debtor of each other, in merger, there is
only one person involved in whom the characters of creditor and debtor are merged.
In merger, there is only one obligation, while in compensation, there are two
obligations involved.

4. What are the ways of novation?

NOVATION
HOW OBLIGATIONS ARE MODIFIED

1291. Obligations may be modified by:

(1) Changing their object or principal condition
(2) Substituting the person of the debtor
(3) Subrogating a third person in the rights of a creditor

Novation is the extinguishment of an obligation by a substitution or change of the obligation

by a subsequent one which extinguishes or modifies the first either by:

changing the object or principal conditions

by substituting the person of the debtor
subrogating a third person in the rights of the creditor

Novation is a juridical act of dual function. At the time it extinguishes an obligation it creates
a new one in lieu of the old
Requisites of Novation:

A previous valid obligation

Agreement of all parties
Extinguishment of the old contract – may be express of implied
Validity of the new one

5. What are the kinds of novation

Classification of Novation

​ as to nature
1. Subjective or personal – either
passive or active. Passive if there is substitution of the debtor. Active if a third
person is subrogated in the rights of the creditor.
2. Objective or real – substitution of the object with another or changing the
principal conditions
3. Mixed – Combination of subjective and objective
​ as to form
Express – parties declare that the old obligation is
substituted by the new
Implied – an incompatibility exists between the old and the new obligation that
cannot stand together
as to effect
2. Partial – when there is only a modification or change
in some principal conditions of the obligation
1. Total – when the old obligation is completely
extinguished

EXAMPLES:
(1) Real novation. - S agreed to deliver to B a car. Later, they entered into another contract
whereby, instead of S delivering car, he would deliver 10 air conditioners The obligation to
deliver the Car is extinguished by the obligation to deliver the 10 air conditioners. The
change may involve the principal terms of the obligation. (2) Personal novation. If after the
constitution of the obligation, both parties agreed that C will substitute for S or that D will be
subrogated in the rights of B, there is a personal novation. In this case, C becomes the new
debtor, or D, the new creditor, as the case may be (3) Mixed novation. If the agreement of the
parties is that S will deliver to D the 10 air conditioners, iristead of S delivering a car to B,
then there is a mixed novation because the object of the obligation and the person of the
creditor are changed.

Study Artlice 1270 to 1304

Kind of defective contracts

According to the Civil Code, there are four types of defective contracts:

● Voidable contract:
- A contract that can be voided for legal reasons, such as a material fact being
withheld, a mistake in the contract, or fraud
- Valid until annulled, can be ratified, and can only be challenged by the
contracting parties
● Unenforceable contract:
- A contract that cannot be enforced because it doesn't meet the required legal
obligations
- Valid but unenforceable, can be ratified, and can only be challenged by the
contracting parties
● Void contract:
- A contract that is void
- Invalid from the beginning, can't be ratified, and can be challenged by any
party
● Rescissible contract:
- A contract that can be rescinded
- Valid until rescinded, can be ratified, and can only be directly challenged