Extinguishment of Obligation (Jurado)

OBLIGATIONS AND CONTRACTS (JURADO)

EXTINGUISHMENT OF OBLIGATION

EXTINGUISHMENT EXTINGUISHMENT OF OBLIGATION OBLIGATION 1. 2. 3. 4.

PAYMENT OR PERFORMANCE PERFORMANCE LOSS OF THE THING DUE CONDONATION CONDONATION or REMISSION OF THE DEBT CONFUSION OR MERGER OF THE RIGHTS OF CREDITOR AND DEBTOR 5. COMPENSATION 6. NOVATION 7. RENUNCIATION RENUNCIATION OR WAIVER by the oblige or creditor 8. COMPROMISE 9. EXPIRATION of the resolutory term or period 10. DEATH of one of the contracting parties in certain Contracts. 11. AGREEMENT of both contracting parties or mutual assent or dissent. dissent.

SECTION 1 – PAYMENT OR PERFORMANCE PAYMENT OR PERFORMANCE - delivery of money and also performance! 3 different acceptations: a) BROADEST SENSE- fulfilments of the obligation, voluntarily or Involuntarily, any means of mode whatsoever. b) LIMITED SENSE- CONSIST IN THE NORMAL AND VOLUNTARY FULFILLMENT OF THE OBLIGATION BY THE REALIZATION OF THE PURPOSES FOR WHICH IT WAS CONSTITUTED. c)

MORE LIMITED SENSE SENSE - Fulfilment Fulfilment of of obligation obligation by the delivery of a sum of money.

WHEN AN OBLIGATION IS UNDERSTOOD PAID OR PERFORMED Obligations to give: complete delivery of thing Obligations to do: completely performed or rendered the service Obligations not to do: completely refrained from not doing

OASAN, WL | DLSU-LAW

EXCEPTIONS 1) obligation is substantially performed in good faith. - as though t here's strict and complete fulfillment, less damages suffered by the obligee. 2) obligee accepts the performance, knowing its incompleteness or irregularity and without expressing any protest or objection. 3) when obligation to give, to do or not to do is converted into an obligation to indemnify the obligee or creditor because or breach or nonfulfillment and the indemnity is finally paid in full. PERSONS WHO MAY P AY OBLIGATION - debtor himself - any third person PAYMENT BY THIRD PERSON - whether he has an interest in the obligation or not, and whether the payment was made with knowledge and consent of the debtor or not. Cannot be applied: - PACTO DE RETRO - third persons who pays the redemption price in sales with right of repurchase Reason: vendor a retro is not a debtor within the meaning of the law GR: the creditor is not bound to accept payment or performance by a third person EXP: - has interest in the fulfilment of the obligation. - there is a stipulation to the contrary. RIGHTS OF THIRD PERSON  with knowledge and consent of debtor -->can recover from the debtor the entire amount which he has paid. He is subrogated to all of the rights of the creditor.  Without the knowledge or against the will of the debtor. --> Recover only insofar as the payment has been Beneficial to the said debtor.

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RIGHT OF REIMBURSEMENT - with knowledge and consent of debtor ---> third person can recover the entire amount he has paid -without knowledge or against the will ---> beneficial to the latter Reason: there is no reason why he can obligate the debtor to pay more than the amount which the said debtor would have been legally compelled to pay to the creditor. if obligation has been previously extinguished totally, third person who pays without knowledge of debtor ---> not able to recover anything from the latter if obligation previously extinguished partially ---> recover only that part which has not been extinguished because it is the only extent it has been beneficial to the debtor. Remedy of third person: to proceed against creditor who was unduly paid applying principle of unjust enrichment. "Can recover only insofar as the payment has been beneficial to the debtor " - when made against express will? Defense: by debtor only because it only affects its rights - may oppose payment before at the time the same was made, and not subsequent thereto. Subrogation - right available to the third person or payor, whereby he is entitled, not only to demand reimbursement from the debtor, but also to exercise all of the rights which the creditor could have exercised against the debtor and against third persons. Reimbursement - merely a personal action available to third person or payor against the debtor to recover from the latter what he has paid insofar as the payment has been beneficial to the said debtor. RIGHT OF SUBROGATION  with knowledge and consent of debtor



---> third person subrogated to all of the rights which the creditor could have exercised, not only against the debtor, but even against third person. 

without the knowledge or against the will of the debtor ---> third person cannot compel the creditor to subrogate him in his rights, such as those arising from a mortgage, guaranty, or penalty.

GRATUITOUS GRATUITOUS PAYMENTS - if the payment is made by a third person who does not intend to be reimbursed by the debtor, the presumption arises that such payment is a donation. -as far as the creditor who has accepted the payment is concerned, the debtor's consent is immaterial; the payment is valid in any case. CAPACITY TO MAKE PAYMENT - Essential for validity of payment; free disposal of the thing due and capacity to alienate it. - no capacity to make payment even if creditor accepted it, may be annuled by a proper action in court at the instance of the payor or his legal representative, unless falls with exception. - obligation still subsist if creditor r efuses to accept payment because he is aware of the payor's incapacity. TO WHOM PAYMENT MUST BE M ADE 1) the person in whose favor the obligation obligation has been constituted (Creditor at time of payment) 2) his successor in interest 3) any person authorized to receive it PERSONS AUTHORIZED TO RECEIVE PAYMENT - by the creditor - by law Example: guardian, executor, administrator of estate, assignee, liquidator PAYMENT TO UNAUTHORIZED PERSONSPERSONS - invalid

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OBLIGATIONS AND CONTRACTS (JURADO) - defendant made the payment at his own risk and can still be held liable for the purchase price. Exceptions: - redounded to the benefit of the creditor - payment to possessor of credit in good faith PAYMENT TO INCAPACITATED PERSONS - VALID - provided 1) if he has kept the amount or thing paid or delivered 2) insofar as the payment has been beneficial to hi *applicable only to obligations to give PAYMENT TO THIRD PERSONS - valid -redounded to the benefit of the creditor *applicable to obligations to give ***the rule cannot be invoked without conclusive proof of the benefit to the creditor, especially when there is not the slightest evidence that third person to whom payment was made had any claim to the creditor's right. It cannot be presumed, except in cases specified in 1241(2).

PAYMENT TO POSSESSORS OF CREDIT - payment made to the original creditor by a debtor who is not aware of the fact that the credit has already been assigned to another person. - to assignee: in good faith Remedy of the creditor: proceed against the possessor of the credit to whom payment was improperly made. PAYMENT AFTER JUDICIAL ORDER OF RETENTION -NOT VALID WHAT MUST BE PAID GR: what is stipulated or had agreed upon 

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---> debtor cannot fulfill his obligation by delivering a thing which is different from that which is due. (Even same or more valuable than what is due) obligation to do or not to do; object is determinate act of forbearance ---> Obligor cannot fulfil his obligation by substituting another act or forbearance.

* if creditor accepts the delivery or substitution, such acceptance shall give rise to the delivery or substitution the same effect as a fulfillment or performance of the obligation. EXP: DATION EN PAGO (Dation in Payment) DATION EN PAGO - transmission if ownership of a thing by debtor to the creditor as an accepted equivalent of the performance of the obligation. - theres an objective novation of the previous obligation effected by a change of the object thereof. - special form of payment. Analogous to contract of sales. - once there is an agreement between the debtor and the creditor with regard to the thing which must be delivered by the former to the latter as the equivalent of the performance of the obligation, the law on sales shall govern. Effect of GENERIC OBJECT - creditor cannot demand a thing of the best quality neither can the debtor deliver a thing of the worst quality. --> The obligation can only be fulfilled by delivery of superior or inferior quality. EXPENSES OF PAYMENT - debtor ( extrajudicial expenses)- especially if changes domicile and in bad faith - ROC shall govern( Judicial costs)

obligation to give; determinate object


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OBLIGATIONS AND CONTRACTS (JURADO) CHARACTER OF PAYMENT Prestation to be considered paid or performed: 3 conditions or characteristics o a) identity -only prestation agreed upon and no other must be complied with b) completeness - thing or service must be completely delivered or rendered. c) invisibility - payment or performance must be indivisible. * GR: applicable only: one debtor and one creditor; one prestation and one term or condition. EXP: o when the obligation expressly stipulates the contrary. o When the different prestations which constitutes the objects of the obligation are subject to different terms and conditions when the obligation is in part liquidated and in part unliquidated. o RULE IN MONETARY OBLIGATIONS GR: payment shall be made in the currency stipulated. EXP: legal tender of the Phils. If it is not possible to pay in the currency stipulated. Example case: zagala vs jimenez page 249 RA 4100 (1964) The law prohibiting stipulations in domestic monetary obligations purporting to give to the obligee the right to require payment in currency other than Philippine currency does not apply: A) transactions where the funds involved are the proceeds of loans and investments made directly or indirectly, through bona fide intermediaries or agents, by foreign governments.... B) transactions affecting high-priority economic projects financed by foreign funds C) foreign exchange transactions entered into between banks or between banks and individuals or juridical persons.



D) import- export and intl banking, financial investment and industrial transactions. Example page 250 LEGAL TENDER- currency used to pay all debts, whether public or private. Phil legal tender: all coins and notes issued by BSP PAYMENTS WITH JAPANESE MILITARY NOTES *Pre-war obligation: currency stipulated Payment: currency stipulated * if payment was made in Japanese military notes and the creditor refused to accept it, not valid even if there’s consignation followed. *pre-war obligation: currency legal tender in Phils or no stipulation Payment: japanese notes is valid PAYMENTS WITH EMERGENCY NOTES - valid. Legal tender in those times. - issued by Commonwealth Government during the invasion or by recognized guerilla governments during the occupation. PAYMENTS WITH NEGOTIABLE PAPER -PN- not negotiable. No payment effect GR: creditor has right to refuse to accept on that payment. Therefore, no valid payment Example: cases page 254 Exp: 1) when the document has been cashed (check) 2) when it had been impaired through the fault of the creditor. Example: Paper or document executed by a third person and delivered by the debtor to the creditor. EFFECT OF EXTRAORDINARY INFLATION OR DEFLATION

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OBLIGATIONS AND CONTRACTS (JURADO) - juridical relations of creditor and debtor should be equitably adjusted. - basis of payment: value of currency at the time of the establishement if the obligation. EXTRAORDINARY INFLATION/DEFLATION - unusual or beyond the common fluctuations in the value of the currency which parties could not have reasonably foreseen or which beyond contemplation at the time when obligation was established. REQUISITES: a) there must be decrease or increase in the purchasing power of the currency which is unusual or beyond the common fluctuation in the value of said currency. b) such decrease or increase could not have been reasonably Foreseen or was manifestly beyond the contemplation of the parties at the time of the establishment of the obligation. Example: page 262 • Value of currency at time of establishment shall be the basis of payment. WARTIME OBLIGATIONS -Currency stipulated in accordance 1249. BALLANTYNE SCHEDULE – PAGE 264 onwards with example PLACE OF PAYMENT Rules if no stipulation: 1.Determinate thing: at the place where the thing might be at the time obligation was constituted 2.Domicile of debtor o

Debtor changes domicile in bad faith: additional expenses be borne by him.



SUBSECTION 1 - APPLI CATION OF P AYMENT

APPLICATION OF PAYMENT - designation of the debt to which the payment must be applied when the debtor has several obligations of the same kind in favor of the same creditor. REQUISITES 1) only one debtor and only one creditor 2) two 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 debts. 1) ONE DEBTOR AND ONE CREDITOR Exception: Does not militate against the possibility of extending the o rules on application of payment to solidary obligations. reason: solidary debtor who paid may have obligations other than the solidary obligations here. does not militate against extending the rules on application of o payment to a case in which a person is indebted at the same time in separate and demandable sums to a partnership to the managing partner of partnership. 2) TWO OR MORE DEBTS OF THE SAME KIND Does not apply: Guarantor or surety whose liability is extended or confined only to a particular obligation Essential: each debt is identical or homogenous specie. --- monetary obligations. --- Obligations not identical specie at the time of their constitution, yet application of payment is possible if, at the time the designation or application is made, such obligation had already been converted into obligations to indemnify with damages by reason of breach or non fulfillment.

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OBLIGATIONS AND CONTRACTS (JURADO) ---not apply in monetary and delivery of things other than

may exercise right even after the delivery of the receipt acknowledging payment, provided, of course, that such application is approved by the debtor.

money 3) GENERAL RULE: all debts must be due EXCEPTION: when there is a stipulation to the contrary the application of payment is made by the party for whose benefit the term or period has been constituted. --> in relation to 1196. Renounce the benefit of term or period by performing obligation in advance.  

4) Insufficiency of amount is indispensable. Otherwise, no necessity of designating the debt or debts to which the payment shall be applied.


LIMITATION UPON RIGHT TO APPLY PAYMENT The creditor may impugn any application of payment which is contrary to the rule. 1253 applies only in absence or agreement to the contrary. 

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LEGAL APPLICATION OF PAYMENT Applicable: o when payment cannot be applied in accordance with the rules Application cannot be inferred from other circumstances. o Not applicable: An application can be deduced or inferred. o 

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THE RIGHT TO MAKE APPLICATION: DEBTOR When? At the time when payment is made. If right not exercised: right extinguished and application be governed by art 1254 EXCEPTION: the creditor makes the application by giving to the debtor, a receipt which application of the payment is made, the former cannot complain the same, Unless: there is a cause for invalidating the contract GR: application of payment is made by debtor Exception: by the creditor (accdg to book not accurate) the debtor may either accept or reject the application. Once the receipt is accepted, the application of payment made in such receipt can no longer be impugned, unless there is a cause, such as mistake, force, intimidation, undue influence or fraud, which will invalidate the application. TIME WHEN RIGHT IS EXERCISED Time payment is made. If he fails to exercise the right, the initiative is taken away from him and such application may then be made by the creditor who  


RULES WHEN DEBTS ARE NOT OF SAME BURDEN 1) various debts; incurred at different dates oldest is more onerous 2) one debt bears interest and other does not, even if latter was incurred in later date first is more onerous or the debt with higher interest rate is more onerous 3) one debt is secured and other is not first is more onerous 4) debtor is bound as principal in one and as guarantor or surety to another principal- more onerous 5) debtor is bound as solidary debtor in one, and sole in another solidary- more onerous 6) solidary obligation: share which corresponds to a solidary debtor is more onerous 7) one obligation is for indemnity and other penalty indemnity is more onerous 8) one debt is liquidated, other is not liquidated debt is more onerous 

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OBLIGATIONS AND CONTRACTS (JURADO) example:”page 274

As to effect

WHEN DEBTS ARE SAME BURDEN Payment shall be applied TO ALL OF THEM PROPORTIONATELY. Apply: fairly impossible to determine which of debt which e due is most onerous or burdensome to the debtor by applying any of the rules stated.

Payment extinguishes obligatyion on the value of thing delivered

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EXTINGUISHMENT OF OBLIGATION Releases debtor for the net proceeds of the things ceded or assigned. Unless contrary intention

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SUBSECTI ON 2 – PAYME NT BY CESSI ON

CESSION OR ASSIGNMENT – special form of payment whereby the debtor abandons all of his property for the benefit of his creditors in order that from the proceeds thereof the latter may obtain payment of their credits. REQUISITES: PLURALITY OF DEBTS PARTIAL OR RELATIVE INSOLVENCY OF THE DEBTOR ACCEPTANCE OF THE CESSION BY THE CREDITORS

EFFECT Only releases him from responsibility for the net proceeds of the property assigned. ***assignment does not transfer the ownership of the things or objects to the creditors; only possession and administration so that they can proceed with sale and from the proceeds thereof their respective credits are then paid. 

SUBSECTI ON 3 – TENDER OF PAYME NT AND CONSIGNATI ON

TENDER OF PAYMENT – manifestation made by the debtor to the creditor of his decision to comply immediately with his obligation.

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CONSIGNATION – deposit of the object of the obligation in a competent court in accordance with the rules prescribed by law after refusal or inability of the creditor to accept the tender of payment.

KINDS: 

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Contractual Art. 1255 NCC – regulated by Insolvency Law o Judicial o Voluntary or involuntary DACION EN PAGO

As to number of One creditor parties As to financial Not necessarily in condition of parties state of financial difficulty As to object Delivered is a thing as equivalent of performance of obligation


PAYMENT BY CESSION Plurality of creditors It is necessary

What is ceded is the universality of all his property.

Tender of payment Antecedent in consignation

Extrajudicial character

in

Consignation Principal act which produce the effects of payment of the obligation. Judicial in character

GENERAL REQUISITES: 1. Person who pays 2. The person to whom payment is made 3. The object of the obligation 4. Time when payment or performance demandable

becomes

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SPECIAL REQUISITES: (to produce the effects of payment) 1. There is debt due 2. Consignation has been made either because the creditor to whom tender of payment was made refused to accept the payment without just cause, or because any of the causes stated by law for effective consignation without previous tender of payment exists. 3. Previous notice of the consignation had been given to the persons interested in the fulfilment of the obligation 4. The thing or amount due had been placed at the disposal of judicial authority 5. After the consignation had been made, the persons interested in the fulfilment of the obligation had been notified thereof. SECOND REQUISITE: REQUIRED: 1) Tender of payment must have been made prior to the consignation 2) That it must have been unconditional 3) Creditor must have refused to accept payment without just cause. Example page 281 GR: previous tender of payment is necessary so that consignation shall produce the effect of payment EXCEPTIONS: 1) 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 right to collect 5) When the title of the obligation has been lost.


EFFECT OF VALID TENDER OF P AYMENT -obligation is not extinguished unless it is completed by consignation. But has the effect of exempting the debtor from payment of interest and/or damages. THIRD REQUISITE: Separate and distinct from tender of payment which precedes it. A formal act manifested not only to the creditor, but also to other persons interested in the fulfilment of the obligation directly announcing the consignation which will be made as a result of the unjust refusal of the creditor to accept payment.  

FOURTH REQUISITE: Complied with if the debtor deposits the thing or amount, with clerk of court. accompanied by filing of complaint itself 

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FIFTH REQUISITE: this notification is separate and distinct from the notification which is made prior consignation. NOTICE TO THE CREDITOR PRIOR AND AFTER CONSIGNATION IS REQUIRED. Reason: to enable the creditor to withdraw the goods or money deposited. It would be unjust to make him suffer the risk for any deterioration, depreciation or loss of such goods or money by reason of lack of knowledge of the consignation. 

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***upon compliance with all the requisites, two possible results: o Creditor may finally accept the thing or amount deposited – payment is settled. Refuses to accept the thing or amount or deposited or o that he is not interested or that he is not known or that he is absent – litigation will arise. Example: page 284 SUBJECT MATTER OF CONSIGANTION – movables or immovable


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OBLIGATIONS AND CONTRACTS (JURADO) EXPENSES OF CONSIGNATION Consignation must be properly made before creditor can be held liable with expenses o When the creditor accepts the thing or amount deposited as payment of the obligation without contesting the efficacy or validity of the consignation. o When the creditor contests the efficacy or the validity of the consignation and the court finally decides that it has been properly made or cancels the obligation at the instance of the debtor. EFFECTS OF CONSIGNATION 1. Creditor accepts without contesting anything: OBLIGATION IS CANCELLED OR EXTINGUISHED. 2. Creditor contests the validity or efficacy of consignation or not interested or is absent: LITIGATION During trial, debtor can prove requisites of a valid o consignation: obligation is extinguished. EFFECT OF WITHDRAWAL Withdrawal by debtor of the object before the creditor has accepted the consignation: o Obligation remains in force. Before judicial declaration that the consignation has been properly made: o creditor loses every preference which he may have over the thing. 


- REQUISITES: Thing lost must be determinate. Thing is lost without any fault of the debtor. Thing is lost forever before the debtor has incurred in delay.   

**lost through fault of debtor: obligation is not extinguished. Thing is lost after the debtor has already incurred delay: debtor liable for indemnity for damages. EFFECT OF FORTUITOUS EVENT Debtor cannot be held responsible. The obligation is extinguished. EXCEPTIONS: 1) Debtor is liable even for fortuitous events 2) by stipulation of the parties 3) requires assumption of risk 4) loss partly due to the fault of debtor 5) loss occurred after debtor has incurred in delay 6) debtor promised to deliver the same thing to two or more persons who do not have the same interest. 7) Obligation to deliver arises from a criminal offense. 8) Obligation is generic.

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SECTION 2 – LOSS OF THE THING DUE

EFFECT OF LOSS IN GENERIC OBLIGATIONS TO GIVE WILL NOT EXTINGUISHED OBLIGATION even without the debtor’s fault and before he has incurred in delay . Based on principle that “genus of the thing never perish.” The debtor can still be compelled to deliver a thing which must be neither of superior nor inferior quality.

“LOSS OF THE THING DUE”

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the thing which constitute the object of the obligation perishes or goes out of the commerce of man, or disappears in such a way that its existence is unknown or it cannot be recovered. Impossibility if compliance with the obligation through any cause.

EFFECT OF LOSS IN DETERMINATE OBLIGATIONS TO GIVE -extinguished


EFFECT OF PARTIAL LOSS Tantamount to a complete loss or destruction, shall depend upon the sound discretion of the court. RULE IF THING IS IN DEBTOR’S POSSESSION

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Disputable presumption that the loss was due to his fault. The obligation is not extinguished; the debtor is still liable to the creditor for damages.

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OBLIGATIONS AND CONTRACTS (JURADO) -

He shall be responsible for any fortuitous event until he has effected the delivery. Presumption does not apply: in case of earthquake, flood, storm, or natural calamity.

EFFECT OF IMPOSSIBILITY OF PERFORMANCE IN OBLIGATIONS TO DO - extinguishment - must be legally or physically impossible to comply without the fault of the obligor before he has incurred in delay Otherwise, the obligations shall be converted into one of indemnity for damages, - impossibility must occurred after the constitution of the obligation Otherwise, obligation is ineffective from its inception. TWO IMPOSSIBILITY: 1) LEGAL IMPOSSIBILITY - when the law prohibits the performance or execution of the work agreed upon, law imposes duties of a superior character upon the obligor which are incompatible with the work agreed upon. 2) PHYSICAL IMPOSSIBILITY - arise principally from the death of the obligor, when the act to be performed requires his personal qualifications, or from the death of the obligee, when the act can be of possible benefit only to him. - intransmissible. - may also arise from accident, acts of debtor himself, acts of third persons EFFECT - obligor is released from the obligation - compliance with the prestation which constitutes the object of the obligation will prove dangerous to life or property.


EFFECT OF RELATIVE IMPOSSIBILITY GR: release the obligor ***not a requirement that the contract be for future service with future unusual change. Doctrine of unforeseen events- parties stipulate in light of certain prevailing conditions, and once these conditions cease to exist, the contract also cease to exist. - the disappearance of the basis of the contract gives rise to a right to relief in favor of the party prejudiced. RULE IF OBLIGATION ARISES FROM CRIMINAL OFFENSE APPLICABLE: - there is an obligation of restitution of a certain and determinate thing on the part of the person criminally liable. - obligation arises by virtue of reparation or indemnification. *applicable to persons principally liable but also subsidiarily liable. * if the thing, the debtor shall bot be exempted from the payment of the price of the thing, whatever may be the cause for the loss. *If offered the thing to the obligee and the latter had refused to accept it without justification. TWO COURSES: 1) consignation- completely relieve himself for further liability 2) obligation shall still subsist EFFECT OF EXTINGUISHMENT OF OBLIGATION - all of the rights of action which the debtor may have against third persons by reason of the loss are transmitted by operation of law to the creditor. - such transmission is made from the moment of the extinguishment of the obligation.

Example page 294 EFFECT OF OBLIGATIONS NOT TO DO - (rare) obligation is extinguished too. Same as to do


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OBLIGATIONS AND CONTRACTS (JURADO) SECTION 3 – CONDONATION AND REMISSION OF DEBT REMISSION- Act of liberality by virtue of which the obligee, without receiving any price or equivalent, renounces the enforcement of the obligation, as a result of which it is extinguished in its entirety or that in part or aspect of the same to which the remission refers. REQUISITES: 1) gratuitous 2) accepted by obligor 3) obligation must be demandable KINDS


FORM OF EXPRESS REMISSION - comply with forms of donation. a) obligations to give (movable property) - if the remission is verbal, shall not be required since there is no transfer of property but merely a remission or condonation of an obligation to give personal property. - acceptance by debtor maybe implied or tacit, provided that the value of the debt which is condoned is not more than 5k. Obligations to give (immovable property) - art. 749 will apply

1) as to form Express- made in accordance with the formalities prescribed by law of donations. Implied- it is not made with formalities. It can be deduced from the acts of the obligee or creditor.

B) obligations to do or not to do - in accordance with the less solemn formalities established in Art.748,

2) as to extent Total- entire obligation is extinguished Partial- only to the principal or to accessory obligation or to an aspect which affects the debtor as for instance solidarity.

FORM OF IMPLIED REMISSION -code is silent - can be deduced form their acts and intent of creditor

3) as to constitution Inter vivos - by agreement of the obligee and the obligor Mortis causa- by last will and testament in which case it partakes of the nature of a donation mortis causa. NECESSITY OF ACCEPTANCE BY DEBTOR - because its very nature; donation - a bilateral act. Requires acceptance by the debtor. EXTENT OF REMISSION - rules regarding inofficious donation

*condoned in public instrument does not necessarily mean remission must also be in public instrument.

***an express remission which is formally defective cannot affect the obligee or creditor, unless new or other acts from which remission may be deduced should confirm the purpose expressed in the former. EFFECT IF DELIVERY OF EVIDENCE IF CREDIT TO DEBTOR - if the creditor voluntarily delivers the private document evidencing e credit to the debtor, there is a presumption that he renounces his right of action against the latter for the collection of said credit. REQUISITES( presumption will arise) 1) document evidencing credit must have been delivered by the creditor to the debtor 2) document must be a private document 3) delivery must be voluntary EFFECT OF REMISSION IN GENERAL - Extinguished obligation in its entirety or partially


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JOINT OBLIG: share of the creditor who makes the remission and the corresponding share of the debtor in whose favor the remission is amde. SOLIDARY OBLIG: art. 1215, 1219, 1220 of the code EFFECT UPON ACCESSORY OBLIGATION - if remission refers to principal obligation: accessory oblig are extinguished - if refers to accessory oblig only: principal subsists. RULE ON PLEDGE - presumed: accessory obligation of pledge has been remitted when the thing pledge, after its delivery to the creditor, is found in the possession of the debtor or of a third person who owns the thing. - principal obligation for which pledge is a security is of course, not affected.


- Must be of such character that will be a complete and definite meeting of all the qualities of creditor and debtor which is affected by merger. KINDS 1. AS TO CAUSE OR CONSTITUTIONS a) INTER VIVOS - constituted by agreement of the parties b) MORTIS CAUSA - constituted by succession. 2. AS TO EXTENT OR EFFECT a) TOTAL - results in extinguishment of entire obligation b) PARTIAL - results in extinguishment of only part of obligation i) confusion refers only to part of obli ii) joint obligation

SECTION 4 - CONFUSION OR MERGER OF RIGHTS CONFUSION--- (1275) merger of the characters of creditor and debtor in one and the same person by virtue of which the obligation is extinguished. --- meeting in one and the same person of the qualities of creditor and debtor with respect to one and the same obligation.

EFFECT UPON ACCESSORY OBLIGATIONS (1276)

* reason for extinguishment: impossibility of enforcing it since it would certainly be absurd for a person to enforce a claim against himself. And purpose of obligation is realized when qualities merged in one and same person

CONFUSION OR MERGER ON subsidiary C or D such GUARANTORS- obligation not extinguished ---there is only substitution of creditor and debtor --- provided guarantors BENEFITED on such confusion of rights

REQUISITES: 1. Merger of the characters of creditor and debtor must be in the same person 2. It must take place in the person of either the principal creditor or the principal debtor 3. must be complete and definite --> means whether the merger refers to the entire obligation or only a Part thereof.


CONFUSION OR MERGER ON PRINCIPAL CREDITOR AND DEBTOR -obligation is extinguished ( including accessory obligation) Reason: accessory obligation cannot exist without principal obligation as

*guarantor- creditor can demand performance of oblig from debtor Debtor- guarantor --- can demand directly from guarantor EFFECT UPON COLLECTIVE OBLIGATIONS(1277) JOINT OBLIGATIONS(1208) --presumption of equal division(essential characteristic) -- in case one of the debtors shall only refer to the share with corresponds to him. Partial extinguishment of the debt.

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OBLIGATIONS AND CONTRACTS (JURADO) Creditor can still proceed against the other debtors. SOLIDARY OBLIGATIONS(1215) --entire obligation is extinguished w/out prejudice to the rights and obligations of the solidary creditors and solidary debtors among themselves. EFFECT OF REVOCATION OF CONFUSION by agreement: --- it MAY BE REVOKED by the - presence of any of the causes for the rescission, - annulment, - nullity or - inexistence of contracts or - by some special cause such as redemption. By inheritance: --- IT MAY BE REVOKED by the - nullity of the will, or - other cause which will nullify the merger *general rule: original obligation is recreated in the same form and under the same condition in whoch it is found before the merger took place. *period- Merger to revocation cannot be computed because creditor cannot demand that time.


2) guaranty for the effectivity of credit Reason: still comply with formalities of payment--- can easily be prejudiced by fraud or insolvency of the other. DISTINGUISHED BY PAYMENT COMPENSATION - requisites different from payment - takes effect by operation of law - not necessary: capacity to give and to acquire - GR: partial PAYMENT - requisites diff - takes effect by act of parties - essential: capacity to give and to acquire - complete and indivisible DISTINGUISHED FROM CONFUSION COMPENSATION 1)2 persons - creditors and debtors of each other 2) num of obligations - at least 2 CONFUSION 1) one person who merged the qualities of creditor and debtor 2) only one obligation

SECTION 5. - COMPENSATION/ OFF-SET

DISTINGUISHED FROM COUNTERCLAIM/ off-set

COMPENSATION - two or more persons are creditor and debtors of each other. - mode of extinguishing in their concurrent amount those obligations of persons who in their own right are creditors and debtors of each other. - figurative operation of weighing two obligations simultaneously in order to extinguished them to the extent in which amount of one is covered by the amount of the other.

COMPENSATION - two debts consist in money or fungibles or of the same kind and quality - debt must be liquidated - need not be pleaded

Double advantage over payment: 1) facility of payment because it take effect by operation of law


COUNTERCLAIM/ set-off - not necessary in same kind - debts does not require to be liquidated - required to be pleaded to be effectual

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OBLIGATIONS AND CONTRACTS (JURADO) KINDS OF COMPENSATION AS to cause: 1) LEGAL - it takes effect by operation of law from the moment all the requisites are present 2) VOLUNTARY- when partied who are mutually creditors and debtors agree to compensate their respective obligations, even though all of the requisites for compensation may not then be present.


BOUND AS PRINCIPALS Guarantor may set up compensation as regards what the creditor may owe the principal debtor. When both parties are not only mutually creditors and debtors in their own right, but are also principally bound as creditors and debtors, compensation shall then take place provided all requisites are present. Example: page 316 2) AS TO OBJECTS

3) JUDICIAL- takes effect by judicial decree As to effect: 1) TOTAL- debts equal in amount 2) PARTIAL- not equal in amount REQUISITES OF COMPENSATION: 1) two parties Principal debtor and principal creditors of each other 2) both debts must consist in money; same kind same quality 3) both must be due 4) both must be liquidated and demandable 5) no retention or controversy commenced by third persons over either of the debts and communicated in due time to the debtor. 6) compensation must not be prohibited by law. 1) AS TO PARTIES NECESSARY: A) parties be, in their own right, principal creditors and principal debtors of each other. B) be bound as principals *no compensation to representative, guardian, or admin acting in his legal capacity. Example: page 314


- only obligation to GIVE Reason: differences in the capacities of obligirs in oblig to do. - "consumables" - movables which cannot be used in a manner appropriate to their nature without being consumed. "Fungibles" - may be exchanged or compensated by another of the same kind and quality. 3) AS TO MATURITY Natural, conditional, oblig with period CANNOT BE COMPENSATED 4) LIQUIDATION AND DEMANDABILITY LIQUIDATED DEBTS - amount of which may be determined by a simple arithmetical operation Debts not liquidated- no compensation May be compensated to parts liquidated 5) CLAIMS OF THIRD PERSONS - no retention or controversy, commenced by third persons and communicated in due time to the debtor, over either of the debts. RETENTION- application of the credit of one of the parties to the satisfaction of e claims of a third person. - no compensation - there is an excess or balance remaining after the application of the credit, compensation will still take place but only to the extent that the credit is not affected by the retention.

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OBLIGATIONS AND CONTRACTS (JURADO) CONTROVERSY- third person claims to be the creditor. - party interested in the compensation and the third person each claims that he is the real creditor. Effect: provisional suspension of compensation RIGHT OF THE GUARANTOR TO SET UP COMPENSATION The guarantor in case payment of the debt is demanded from him, may set up compensation, not only for what such creditor owes him, but also for what such creditor owes the principal debtor. Bond of the guarantor cannot be resorted to so long as the debtor can pay although it may be in the abbreviated form of compensation and also on the fact that if the principal obligation is extinguished, the accessory obligation of the guarantor is also extinguished since it is subordinated thereto. VOLUNTARY COMPENSATION - there can be no compensation because B's obligation is not yet due ----> parties may agree upon the compensation of two obligation JUDICIAL OBLIGATION ---> when the defendant who has an unliquidated claim for damages against the plaintiff sets it off by proving his right to said damages and the amount thereof, it is converted into a liquidated claim by court decree..compensation shall take effect from the moment the judgment liquidating the claim has become final. RULES IN CASE OF RESCISSIBLE OR VOIDABLE DEBTS ---considered demandable while the vices with which they are tainted are not yet judicially declared. If the action for rescission or annulment IS NOT EXERCISED, or is renounced, or if the debt or debts are ratified the obligation or obligations are susceptible of compensation. ...



SECTION 6 - NOVATION NOVATION - substitution or change of an obligation by another, resulting in its extinguishment or modification, either by changing its object or principal conditions, or by substituting another in place of the debtor, or by subrogating a third person in the rights of creditor DISTINCTIVE CHARACTERISTIC --->through it extinguishes the obligation, it also give birth to another obligation. Two fold purpose/ functions: - extinguishment of old obligation - giving birth to new obligation to take the place of the old REQUISITES: 1) previous valid obligation 2) agreement of parties to the new obligation 3) extinguishment of the old obligation 4) validity of the new obligation CONCEPT EXTINCTIVE- old obligation is terminated by the creation of the new obligation that takes place of the former - results either by changing the object or principal conditions or by substituting the person of the debtor or subrogating a third person in the rights of the creditor. MODIFICATORY- old obligation subsists to the extent it remains compatible with the amendatory agreement. Example: page 326 KINDS 1) As to its essence a) objective or real

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OBLIGATIONS AND CONTRACTS (JURADO) - change either in the cause, object or principal conditions of the obligations B) subjective or personal novation - substitution of the person of the debtor or to subrogation of a third person in the rights of the creditor. Passive- there is a substitution of the person of the debtor Active- subrogation in the rights of the creditor C) mixed novation - combination of objective and subjective novation 2) as to its form or constitution Express - declared in unequivocal terms that old obligation is extinguished by a new one which substitutes the same Tacit or implied- old and new obligations are incompatible with each other on every point. 3) As to its extent or effect Total or partial ----> whether there is an absolute extinguishment of the old obligation or merely a modification OBJECTIVE NOVATION 1) changing the CAUSE of the obligation 2) changing if the OBJECT of the obligation 3) changing the PRINCIPAL OR ESSENTIAL CONDITION of the obligation CHANGE OF CAUSE - will result in extinguishment of obligation CHANGE OF OBJECT - there is novation CHANGE OF PRINCIPAL OBLIGATION - there is a novation



- only those changes of an essential not accidental character can effect a novation of the previous or original obligation. - reiterating or ratifying his obligation without changing its object or principal conditions, minor changes as to form, no novation of the obligation. FORM OF EXTINGUISHMENT Express- declaration in unequivocal terms that the old obligation is extinguished by the new which substitutes it. Tacit or implied - old and new obligations are incompatible on every point.

NOVATION IS NEVER PRESUMED- must appear by express agreement of parties. it must be established that the old and new contracts are incompatible in all points, or that the will to novate appears by express agreement of the parties or in acts of similar import. Example page 331-332 EXPRESS NOVATION - so declared in unequivocal terms - intention to effect a novation clearly results from the terms of the agreement or is shown by a full discharge of the original debt. Otherwise, old contract remains in force and the new one is added to it. IMPLIED NOVATION -old and new obligation must be incompatible with each other on every point

TEST OF INCOMPATIBILITY Whether or not both of them can stand together, each having its own independent existence. NO NOVATION-- If they can stand together, there is no incompatibility NOVATION- cannot stand together, with incompatibility - clear case of incompatibility between two contracts in the sense that they cannot stand together, such as there is a change, not

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only of the parties but also of the amount due as we,, as of the date of maturity. - incompatible and cannot stand side by side with the former one.

Requisites: 1) the initiative for the substitution must emanate from the new debtor 2) consent of the creditor to the substitution

Example: 334- 336

Kinds: 1) substitution with the knowledge and consent of the debtor 2) substitution without the knowledge or against the will of the old debtor.

With a term or period: - distinction must be made with regard to the effect of any subsequent change of the term or period. INCREASE in term or duration - no novation Reason: no clear case of incompatibility between the two obligations Neither there is change in the obligatory relation between the parties which will alter the essence of the obligation. DECREASE of the duration of term or period: novation -clear incompatibility but there is also change or alterstion of the principal condition of the old obligation Example: 337 NOVATION BY SUBSTITUTION OF DEBTOR - substitution of a new debtor in the place of the original debtor, which must be effected with the consent of the creditor at the instance of either the new debtor or the old debtor. 2 FORMS: ***CONSENT OF CREDITOR IS NECESSARY Reason: substitution of one debtor for another may delay or prevent the fulfillment or performance of the obligation by the temporary inability or insolvency of the new debtor. "Expromision" - with the consent of the CREDITOR at the instance of the new debtor even without the knowledge or against the will of the old debtor. - initiative for the change does not come from the debtor and may even be made without his knowledge. -consent of creditor is required


"Delegacion" - with the consent of the CREDITOR. At the instance of the old debtor with the concurrence of the new debtor. - the ORIGINAL DEBTOR offers and the creditor accepts a third person who consents to the substitution. - debtor offers and creditor accepts, a third person who consents to the substitution and assumes the obligation, thereby releasing the original debtor from the obligation. - intervention and the consent of all parties thereto would perforce be necessary. Requisites: 1) the initiative for the substitution must emanate from the old debtor 2) consent of the new debtor 3) acceptance by the creditor EXAMPLE page 340 When consent of creditor may be given? - law does not prescribe when. It may be given simultaneously or afterwards. - express or implied Example of novation of contract page 342 (stockholder example) EFFECT PAYMENT - original debtor shall reimburse to the new debtor whatever benefits he may have derived therefrom. Expromision: (real benefit to the original debtor) --- relationship shall be regulated by the rules regarding payment of a debt by a third person.

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OBLIGATIONS AND CONTRACTS (JURADO) - RULES: --- SUBSTITUTION: with knowledge and consent of the original debtor PAYMENT: made with/without knowledge ->New debtor can demand reimbursement from the original debtor of the entire amount he has paid Subrogated in all of the rights of the creditor. --- SUBSTITUTION: without the knowledge and consent of original debtor PAYMENT: without knowledge and consent of original and consent -> new debtor can demand reimbursement from original debtor ONLY INSOFAR AS THE PAYMENT HAS BEEN BENEFICIAL TO SUCH DEBTOR. Cannot be subrogated in the rights of creditor. PAYMENT: with knowledge SUBSTITUTION: without knowledge ->new debtor can still demand reimbursement from the original debtor of the ENTIRE amount he has paid. Subrogated of all rights of creditor Delegacion: special agreement of parties ---regulated by such agreement ---- absence if agreement: rules regarding payment of debt by third person with debtor's consent, since delegacion, e original debtor himself is one who initiates the substitution. SUBSTITUTION: with consent of all parties -> new debtor can demand reimbursement from the original debtor ENTIRE AMOUNT he has paid. COMPEL creditor to subrogate him in all of his rights. Question: What if not all gave their consent? EFFECT OF NON PAYMENT OF NEW DEBTOR GR: novation by substitution of the person of the debtor whether by expromision or delegacion has the effect of releasing the original debtor



from his obligation to the creditor and at the same time of substituting the new debtor thereto. EXP: (1294- expromision; 1295- delegacion) EFFECT ON EXPROMISION -> WITH KNOWLEDGE AND CONSENT of original debtor --- the new debtor's insolvency or non-fulfillment of the obligation shall REVIVE the original debtor's liability to the creditor. -> WITHOUT KNOWLEDGE AND CONSENT of original debtor or against the will --- new debtor's insolvency or non-fulfillment of the obligation shall NOT REVIVE the original debtor's liability to the creditor.

EFFECT BY DELEGACION GR: the right of action of the creditor can no longer be revived. EXP: 1) when the insolvency of the new debtor was already existing and of public knowledge at the time when the original debtor delegated his debt. Necessary: condition that the insolvency of delegado was of public knowledge should exist at the time the delegacion was made, otherwise, delegante cannot held responsible since he himself was not aware of it. 2) when such insolvency was already existing and known to the original debtor when he delegated his debt. Purpose of exception: to prevent commission of fraud. EFFECT UPON ACCESSORY OBLIGATION GR: accessory obligation dependent on principal obligation cannot apply to novations effected by subrogating a third person in the rights of the creditir because if the effects of such novations are regulated by Arts. 1303 and 1304 of the NCC. EXP: stipulation constituted in favor of a third person

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OBLIGATIONS AND CONTRACTS (JURADO) May be demanded separately from the principal, obligation, although subordinated to the latter. EFFECT IF NEW/OLD OBLIGATIONS ARE VOID -OLD is VOID ---> nothing to novate. New obligation cannot produce any effect. - same with old obligation is extinguished. - NEW is VOID ---> no new obligation which is supposed to be the substitute for the old obligation. Old obligation shall subsist. Unless parties intended that the for er relation should be extinguished in any event.


If only the condition affecting the second obligation is fulfilled, the effect is that there is no novation since the requisite of a previous valid and effective obligation would be lacking. If the conditions affecting both obligations are incompatible with each other, it is evident that the effect of such incompatibility is the extinguishment of the first obligation so that only one obligation remains. NOVATION BY SUBROGATION - second method of personal novation

RULE IF OLD OBLIGATION IS VOIDABLE .... Di tapos

2kinds: 1) CONVENTIONAL SUBROGATION - takes place by the agreement of original creditor, the third person substituting the original creditor, and the debtor.

EFFECT IF OLD OBLIGATION IS CONDITIONAL

2) LEGAL SUBROGATION - takes place by operation of law

1) ORIGINAL OBLIGATION- suspensive or resolutory condition Then NEW OBLIGATION- subjected to same condition, unless otherwise stipulated. If the original obligation is conditional, the novation must also be conditional, and its efficacy shall, therefore, depend upon whether the condition which affects the first is complied with or not. *fulfillment or non-fulfillment of condition affects subsequent obligation Reason: previous obligation is placed in the same category as void obligation or an obligation which has already been extinguished.

CONVENTIONAL SUBROGATION - must be clearly established in order that it may take effect. - it is essential that there must be an agreement of all parties with respect to the subrogation. REQUISITES: a) consent of the original creditor, B) of the third person who is subrogated to the rights if the original creditor C) debtor is required *assignment of rights

2) if the conditions affecting both obligations can stand together, and they are all fulfilled, the new obligation becomes demandable. If only the condition affecting the first obligation is fulfilled, the previous obligation is revived, while the new obligation loses its f orce

DISTINCTION 1) As to rules which govern CONVENTIONAL - 1300-1304 ASSIGN- 1624-1627 2) as to necessity of debtor's consent CONVENTIONAL- debtor consent is required


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OBLIGATIONS AND CONTRACTS (JURADO) ASSIGN- not 3) as to effect upon obligation CONVENTIONAL- extinguishing the obligation and giving rise to a new one ASSIGNMENT - transmitting the rights of the creditor to another person without modifying or extinguishing the obligation 4) as to effect upon vices CONVENTIONAL- defects or vices in the original obligation are cured ASSIGNMENT- not 5) as to time of effectivity CONVENTIONAL- from moment of novation or subrogation ASSIGN- moment if notification


- f he pays without the knowledge or against the will of the debtor, although he is entitled to demand reimbursement to the extent that the latter has been benefited by the payments, he is not subrogatef in the rights of the creditor. C) "person interested in the fulfillment of the obligation" ---> co debtor, guarantor, owner of the thing which is given as security,or one who has real right over the t hing which is the object of the obligation. - co debtor who made the payment does not step into the shoes of the creditor because he cannot enforce against his co debtors the paymeny of the original obligation. EFFECT OF TOTAL SUBROGATION

LEGAL SUBROGATION - takes place without the agreement if the parties but by operation of law because of certain acts.

- applies to legal subrogation - all the rights which the original creditor had against the debtor or against third persons.

GR: NOT PRESUMED EXP: (1302) a) when a creditor pays another creditor who is preferred, even without the debtor's k nowledge B) when a third person, not interested in the obligation, pays with the express or tacit approval of the debtor. C) when, even without the knowledge of the debtor, a person interested in the fulfillment of the obligation pays, without prejudice to the effects of confusion as to t he latter's share.

EFFECT OF PARTIAL SUBROGATION - both rights shall co exist. - in case of conflict the original debtor right shall be preferred.

a) "preferred" - broad sense and in the rules on preference of credits. Subrogation may be effected without the debtor's knowledge. B) 1236-1237 applicable rules -when a person, not interested in the obligation, pays such obligation with the express or tacit approval of the debtor, he is entitled not only to demand reimbursement for what he has paid, but aldo to be subrogated in all of rights of the creditor.


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Extinguishment of Obligation (Jurado)

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