1 EXTINGUISHMENT OF OBLIGATIONS *Enumeration is non-exclusive Principal modes of extinguishing relationship between parties: PaLoCo3No
PAYMENT – Not only the delivery of money but includes the performance of an obligation in any other manner. Kinds of performance or payment: 1. Normal or voluntary – debtor paid obli on his own volition, not because he was told to pay.
1. 2. 3. 4.
Payment Loss of the thing due Condonation or remission Confusion or merger of rights of the creditor and debtor 5. Compensation 6. Novation
2. Abnormal or involuntary – obligor is ordered to pay. – Classification: ○ Specific – obligor is compelled to perform a specific act; applies to only to give. ○ Substitute – the debtor is substituted by a 3rd person, at the expense of the debtor, if the obli is not personal to the debtor. ○ Equivalent – the economic equivalent of the obli is given.
Other modes: 1. 2. 3. 4.
Annulment of the contract Rescission of the obli Fulfillment of the resolutory condition Prescription *Death (not absolute) – refers to the death of the debtor; may be applied only if the obligation is personal to the obligor. Under the Law on Succession, the estate of the deceased includes all the rights, and oblis of that person which are not extinguished by death. *Mutual dissent – an agreement bet. the parties to mutually withdraw from the contract. This should not be confused with rescission. Rescission requires the existence of either of the two grounds: lesion or fraud, while mutual dissent requires none because its basis is the agreement of both parties to withdraw. Rescission always results in abrogation and, usually, in mutual restitution, except in cases where the law does not allow such, while in mutual dissent, the only effect produced is abrogation; restitution depends upon the agreement of the parties. Rescission may be available to 3rd persons who suffer injury because of the contract sought to be rescinded, while mutual dissent is not available to 3rd persons. ----
BadNotes
Requisites of a valid payment: 1. Parties (debtor and creditor) 2. The thing to be paid 3. Time, place, and manner of payment Parties –
There must be at least two parties.
–
What is required is the plurality of parties, not of persons, such that a person who represents at least two parties may effect a valid payment by himself.
–
Anyone can make payment – even a 3rd person.
–
Only those who have an interest in the fulfillment of the obli can compel the creditor to accept payment. These are the debtor, his heirs, successors-in-interest, assignee, or anyone authorized by him to make payment. His co-debtors, guarantor and surety are also included. The persons enumerated have as much right or interest as the debtor in fulfilling the obli because once the obli is extinguished, they are relieved from their obli.
2 –
Generally, payment must be made to the creditor, but payments may also be made to his heirs, successors-in-interest, or his agent.
–
There is dispute as to the requirement of capacity of the debtor and creditor for the validity of payment. Some say the need for the capacity of both is absolute, while some qualify and distinguish between obli to give and obli to do or not to do. ○
–
○
–
Payment made by a 3rd person is valid only if accepted by the creditor. Consent of debtor is not necessary for the validity of such payment, but it becomes essential in determining the rights of the 3rd person against the debtor.
–
Effect of payment by 3rd person: Payment is valid if accepted by the creditor.
–
Rights of the 3rd person: *If the 3rd person made the payment without the knowledge of the debtor, he acquires only the right to reimburse only up to the extent that the debtor may have been benefited (conditional reimbursement).
In obli to give, where there is a juridical transaction where ownership, dominium or title of the thing being given is involved, capacity becomes necessary because incapacitated persons cannot effectively transfer ownership from himself to the creditor.
It can be said that the capacity of both the creditor and debtor is essential. The capacity of the debtor is necessary to be able to effectively transfer title of the object given to the creditor. The capacity of the creditor is also equally necessary to be able to give a valid release from the obli. ○
–
GR: Payment to incapacitated creditor is invalid. XPN: Such remains valid if: 1. The payment redounds to the benefit of the creditor, and; 2. The creditor retains or keeps the thing paid
“Benefit” in XPN #1 refers to any kind of benefit EXCEPT sensual benefit.
–
Payment made by an incapacitated person will not be valid, neither will it be void. It is simply voidable.
–
There can be recovery if what has been paid has not been consumed. In other words, payment is annullable. But there can be no recovery if the payment has been consumed in good faith, in which case, the payment becomes valid.
BadNotes
*If payment was made with the consent of the debtor, the 3rd person acquires the right of absolute reimbursement and he is subrogated into the rights of the creditor. –
Kinds of subrogation: ○ Conventional – never presumed; agreement of the parties ○ Legal – GR: cannot be presumed. XPN: (a) when a creditor pays another creditor who is preferred; (b) 3rd person who is not interested in the fulfillment of the obli pays with the consent of the debtor; (c) 3rd person who has an interest in the fulfillment pays even without the consent of the debtor.
–
Rights of guarantor against the debtor: absolute reimbursement and subrogation.
–
Payment made to a 3rd person is invalid, except if such payment redounded to the benefit of the creditor. Debtor must prove such benefit, except if: • After payment, the 3rd person acquires the creditor’s rights. • Creditor ratifies the payment to the 3rd person. • By the creditor’s conduct, the debtor has been led to believe that the 3rd person had authority to revive the payment.
3 –
– –
• ○
rd
If a 3 person pays without intention of seeking reimbursement, such payment is considered by law as a donation which must be accepted by the debtor. If debtor does not give his consent, there is no donation, and the 3rd person acquires the right to reimbursement and subrogation. If debtor opposes, there will be no donation, and the 3rd person acquires the right to reimburse to the extent which the debtor was benefited.
○ ○ ○ ○
The debtor cannot compel the 3rd person to accept reimbursement.
–
Payment made in good faith to a person in possession of the credit shall extinguish obli.
Place of payment –
Thing to be paid –
This refers to the object of the prestation, not the obli. The object to be paid cannot be another object that is merely similar to that contemplated by the parties.
–
If the object is specific, the very same thing promised should be paid. If the object is generic, the thing paid must belong to the class of the thing agreed upon in the contract.
–
The debtor cannot compel the creditor to accept something of inferior quality. In the same manner, the creditor cannot compel the debtor to deliver something of superior quality. • XPN: Dation in payment
–
GR: Payment must be made on the day the obli falls due, even if it be a Sunday or holiday. XPN: When the instrument presented for payment is covered by the Negotiable Instruments Law which provides that when an obli falls due on a Sunday or holiday, the instrument must be presented for payment on the succeeding business day.
BadNotes
An obli falls due when it becomes demandable, such that the creditor acquires the right to enforce the obli.
No provision of law that dictates where demand must be made, but the law provides for the place of payment. (Art. 1251) If creditor demands payment in a place other than the proper place, debtor can refuse to pay w/o incurring delay. Likewise, if debtor offers to pay in a place other than the proper place, creditor can refuse w/o incurring delay.
Manner of payment –
Manner of payment must be accordance with the tenor of the obli.
–
Checks do not produce payment until encashed because checks are not legal tender. They are mere representations of money. The validity of payments made with checks depends on the kind. If the check used is certified, as the SC held in the case of New Pacific Timber v. Sener, the payment is valid. The SC also ruled in Co v. PNB that payment by manager’s check is valid.
–
Legal tender is that currency which when offered as payment for a debt, whether public of private, the creditor cannot refuse to accept.
Time of payment –
Requisites for negotiability: Must be in writing and signed by the maker or drawer Contains an unconditional promise or order to pay a sum certain in money Payable on demand or at a fixed, future time Payable to order or to bearer Instrument is addressed to a drawee who must be named or otherwise indicated therein with reasonable certainty.
in
4 –
Under RA 8183, which repealed the Uniform Currency Act, parties may agree on the currency to be used in the payment of an obli.
Characteristics of payment: 1. Integrity – GR: complete performance is necessary to extinguish obli. XPN: (a) Substantial performance. There must be attempt in good faith to comply and the deviation is not substantial. Creditor does not lose the right to recover damages. (b)Waiver/estoppel on the part of the creditor. There is full compliance but not in accordance with the obli, and the creditor, being aware of such irregularity, accepts it and does not protest it. 2. Identity – GR: Obli is fulfilled or performed only by giving that which has been agreed upon. XPN: Dation in payment. 3. Indivisibility – GR: Debtor cannot compel the creditor to accept partial payment, neither may the creditor compel the debtor to render partial performance. XPN: (a) parties have agreed on partial performance (b) Obli is partly liquidated and partly unliquidated Dation in Payment – debtor alienates property in payment of a debt in money. –
Does not apply only to debts in money; governed by the Law on Sales; Barter is also covered by the Law on Sales.
–
Eviction will not revive the orig obli. Remedy of the creditor who is evicted is to enforce the right of the vendee under the Law on Sales – right to recover the price paid plus interest thereon.
BadNotes
–
Deprivation in law (deprivation by virtue of a final judgment) will fall under the Law on Sales and gives rise to the enforcement of warranty against eviction.
–
There can be no dation in payment without the consent of the creditor because it involves a substitution or change in the object of the obli.
*Art. 1250 speaks of extraordinary inflation or deflation. The value of the currency at the time of the establishment of the obli shall be the basis of determining the payment EXCEPT when the parties agreed otherwise. *The SC held in Spouses Suapangco v. Manotoc Realty Corp. that Art. 1250 does not apply when the obli is payable in Phil. legal tender, bec. the article refers to “currency”, which means that the law is not referring to Phil. peso but a foreign currency. Application of Payment –
Designation of debt when several debts to a creditor.
–
Principally, it is the debtor who can make an application of payment. Failure of the debtor to make application automatically allows the creditor to make application. If both parties fail to make application, the More Burdensome Rule will apply.
– –
there
are
Limitations on the right to apply: • Debtor can’t make application of payment in a manner as to compel the creditor to accept partial payment. • If there is a stipulation on how to apply payment, such must be followed. • If obli is interest-earning, payment shall not be applied to the principal without first applying it on the interest. • GR: Application on payment can’t be made on debts that are not due. XPN: (a) parties so stipulate; (b) when the application is made by
5 the party for whose benefit the term has been constituted.
–
2-notice rule: 1st notice: notice of the intent to consign. 2nd notice: notification informing the creditor of the consignation of the thing. Absence of one of these notices will constitute a valid defect and will invalidate the consignation.
–
Consignation may be made judicially or extra-judicially. Extra-judicial consignation, is governed by BP 25, which refers to rentals in arrears. Extra-j is done through opening an account in a bank in the name of the creditor or lessor to enable such person to withdraw/claim what has been deposited. In extra-j, the debtor can’t withdraw the thing. Judicial consignation is obviously done with the court.
–
If deposit is made in a place that is not the proper place of payment, the court held in the case of Chua Kay v. Lim Chang that in case of loss of the thing, even if due to fortuitous event, such will not extinguish the obli.
–
The debtor may withdraw what has been deposited during the pendency of the case because he still owns the thing. However, the obli will subsist. He may also withdraw even after the consignation is declared proper, provided that the creditor consents to the withdrawal. In this case, the obli will remain but the creditor will lose his preference over the object and the parties interested in the fulfillment of the obli will have to be released from the obli.
–
The creditor may prevent the debtor from withdrawing by claiming what has been deposited. If the creditor claims the thing w/o reservation, it will extinguish obli. If he claims it w/ certain reservations, then his withdrawal will only partially extinguish the obli.
Cession –
–
Debtor abandons property in favor of the creditor so that the latter may dispose of the property in order to apply the same to the debts. If one creditor objects to the payment by cession, the remedy for the debtor is voluntary insolvency to attain the same objective.
Tender of Payment and Consignation –
Tender of payment is the offer to pay.
–
Consignation is the act of depositing the thing due or placing the same under judicial authority/disposal when the creditor refuses to accept payment without just cause.
–
Requisites: (a) valid tender of payment (satisfies the requisites of payment); (b) depositing the thing due to judicial disposal.
–
–
There may be consignation without valid tender of payment (Art. 1256): • Creditor is absent, unknown, or does not appear at the place of payment. (He must have had no legal representative) • Creditor is incapacitated at the time the obli falls due, or at the time payment, or offer of payment, is made. (Also, there must have been no legal representative) • Creditor, without just cause, refuses to give a receipt. • 2 or more persons claim the right to collect. • Title of the obli has been lost. Obli is extinguished when (a) creditor claims the thing consigned, or (b) the court declares that the consignation was properly made.
BadNotes
–
–
Consignation is not proper if what is involved is the right of option or the right of redemption because there is no debt due.
6 Loss of the thing due –
–
Effect depends: ○ Specific – (a) due to the fault of debtor – not extinguished; (b) not due to the fault of debtor – extinguished XPN: Exceptions to loss due to fortuitous event. ○ Generic – not extinguished. Loss of obli to do occurs when there is impossibility of performance or difficulty of performance.
–
Impossibility of performance happens when such performance is impossible because it is against laws (legal impossibility) or the laws of nature (physical impossibility).
–
There is difficulty of performance when the obli requires extraordinary effort that goes beyond the contemplation of the parties.
extinguishment of that solidary tie, and result in the conversion of the solidary obli to joint. Confusion or merger of rights –
The characters of debtor and creditor meet in one and the same person.
Effect of confusion that occurs in the person of the debtor – –
–
If there is only one debtor and one creditor, the obli is automatically extinguished. If there is plurality of debtors, and the confusion occurs in the person of a debtor, depends on the nature of the obli: ○ Joint obli – what is extinguished is only the share of that debtor in the obli. ○ Solidary obli – obli is extinguished If confusion takes place in the person of the guarantor, this shall extinguish only the contract of guaranty, but not the principal obli.
Condonation or remission of the debt
Compensation
–
It is an act of liberality; it is in the nature of a donation.
–
–
Not the same as renunciation because renunciation or waiver is a unilateral act while condonation or remission requires bilateral act because the law requires acceptance of the condonation.
Two persons or two parties are debtors and creditors of each other. (Not necessarily reciprocal, but it is bilateral)
–
Not the same as confusion. In confusion, there is only one obli involved, while in compensation, there are at least two oblis involved. In confusion, there is only one party involved because the characters of debtor and creditor meet in one and the same person. Whereas in compensation, there are two parties involved.
–
Condonation may be done impliedly (in any form), or expressly (must satisfy the requisites prescribed by law with respect to form under the law on donation).
Effect of condonation: –
–
If the obli condoned entirely was a joint or solidary obli, there is total extinguishment of the obli. If only a part of the obli has been condoned, it will give rise to partial extinguishment only.
If what was condoned was merely the solidary tie, then the effect is BadNotes
Kinds of Compensation – – – –
Legal – takes place by operation of law Conventional – takes place by agreement of the parties Judicial – decreed by the court Facultative – a party is entitled to oppose it when compensation is invoked by the
7 other but the one who can oppose is not precluded from invoking compensation. Requisites of Compensation –
–
– – –
Parties must be bound principally in their own rights (XPN: Guarantor who is allowed by law to claim compensation with respect to what the creditor owes the principal debtor) Both debts must consist of a sum of money or if fungible goods, although the law uses “consumable”, they must be the same kind and quality (Not necessary that they be of the same amount for compensation may be partial or total. If one of the debts is in money and the other is in goods, there can be no compensation, only dation) Both debts must be due They be liquidated and demandable Over neither of them there be any retention or controversy, commenced by 3rd persons and communicated in due time to the debtor
creates a new one to take the place of the extinguished one. –
– –
of
Extinctive – old obli is extinguished and a new one is created Modificatory – no extinguishment of obli. It simply modified the obli.
Changing the object or any other principal conditions of the obli – principal, not accessory condition. This is called real or objective novation, which refers to a change in the (a) cause of the obli; (b) object of the obli; (c) any of the principal conditions of the obli
–
Subsititution of the person of the debtor: ○
○
Expromision – initiative for the change of debtor comes from the 3rd person. Consent of creditor is necessary. Delegacion – initiative comes from the debtor himself. Consent of all parties is necessary.
*Effect of insolvency of substitute: *In expromision, the old obli will not be revived. *In delegacion, GR is the old obli will also not be revived, XPNs are: (1) if at the time of substitution, the new debtor is already insolvent and such is of public knowledge; and (2) if at the time of the substitution, insolvency of the new debtor was already existing, although such is not publicly known, yet it is known to the debtor.
Novation
BadNotes
case
–
Deposits Commodatum Support Civil liability arising from crime
Not an absolute mode of extinguishment, it is only relative because it plays a dual role. While it extinguishes an obli, it
simple
3 ways by which novation may take place:
Facultative compensation – Kinds of oblis that come under it: Obli arising from:
–
the
Novation may either be:
*In legal compensation, it is necessary that all requisites must concur in order for compensation to take place. But in conventional compensation, no, because the law allows compensation even if one debt is not due or liquidated as long as both parties agree.
– – – –
Also includes modification.
–
Subrogating a 3rd person into the rights of the creditor
8 Requisites of a valid novation: – – – –
Old valid obli New valid obli Substantial difference between the two Parties to both oblis must be capacitated. Capacity must be possessed at the time of the constitution of the old obli and at the time of the establishment of the new one.
BadNotes
