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Extinguishment of Obligations

• Art. 1231, CC states that obligations are extinguished

Payment or Performance

• The obligation is fulfilled because the debtor has done what was required
• Example: Ana borrows P10,000 from Ben and pays him back the full amount on the due date, her obligation is now extinguished

Loss of the Thing Due

• If the thing that must be delivered is lost or destroyed without the debtor's fault, the obligation is extinguished
• Example: Carla promises to give Daniel a rare painting, but before she can deliver it, a fire destroys the painting and since the loss wasn't her fault, her obligation is extinguished

Condonation or Remission of the Debt

• The creditor voluntarily forgives the debt, meaning the debtor no longer has to pay
• Example: Juan owes Maria P5,000, but Maria tells Juan he doesn't need to pay her back, so the obligation is extinguished

Confusion or Merger of Rights

• When the same person becomes both the debtor and the creditor, the obligation is extinguished
• Example: ABC Corporation issues a promissory note to XYZ Bank for P1 million, then later ABC Corporation buys XYZ Bank, therefore ABC Corporation now owns XYZ Bank, so it has become both the debtor and the creditor, so the loan is extinguished through merger

Compensation

• When two people owe each other, their debts cancel out, at least to the extent of the smaller debt
• Example: Mark owes Paul P3,000, but Paul also owes Mark P3,000, so instead of paying each other, their obligations are considered settled

Novation

• A new obligation replaces the old one, which is then extinguished, other causes of extinguishment of obligations includes annulment, rescission, fulfillment of a resolutory condition, and prescription covered elsewhere in the Code
• Example: Peter owes Sarah P50,000, and instead of paying cash, Sarah agrees to receive Peter's motorcycle as payment, so this changes the obligation and extinguishes the original debt

Annulment

• If a contract is void or declared invalid, the obligation is extinguished
• Example: A minor signs a contract to sell his land, since he lacks legal capacity, the contract is annulled, and the obligation is void

Rescission

• A valid contract is canceled due to a breach or legal grounds
• Example: A construction company agrees to build a house but uses substandard materials, so the owner rescinds (cancels) the contract, extinguishing the obligation

Fulfillment of a Resolutory Condition

• When a future event happens, it cancels the obligation
• Example: John leases a property to Mike for as long as Mike stays in the city, if Mike moves out, the lease agreement ends

Prescription (NCC, Art. 1231)

• If the creditor does not claim payment within a certain time, the obligation is extinguished by law
• Example: Anna owes P10,000, but the creditor does not demand payment for 10 years, and since the deadline to claim has passed, Anna is no longer obligated to pay

Death

• In obligations which are of purely personal character, if an obligation is personal, the death of the debtor ends it
• Example: A singer is hired to perform at a concert, but she passes away before the event, so the obligation is extinguished since no one else can replace her

Arrival of Resolutory Period

• A deadline or time limit arrives, ending the obligation
• Example: A scholarship covers tuition until a student graduates, once the student graduates, the obligation to pay tuition ends

Mutual Dissent

• Both parties agree to cancel the contract
• Example: A couple hires a wedding planner but later decides to call off the wedding, so they both agree to cancel their contract, extinguishing their obligations

Change of Civil Status

• If a change in legal status affects the obligation, it may be extinguished
• Example: A prenuptial agreement states that if a person marries, a financial support obligation ends, so if the person marries, the obligation is extinguished

Happening of Unforeseen Events

• A sudden and unexpected event makes fulfilling the obligation impossible
• Example: A farmer agrees to deliver rice but a typhoon destroys his entire crop so since this was unforeseen, his obligation is extinguished

Mutual Desistance as Another Mode of Extinguishing Obligations:

• Mutual desistance means that if two people can agree to create a contract, they can also agree to cancel it
• If both parties no longer want to continue their agreement, they can mutually decide to end it, which will extinguish their obligations to each other
• Example: Anna and Ben agree to open a bakery together, but before they even start operations, they both realize they are not ready for the business and decide to cancel their partnership, therefore since both of them agreed to cancel, their obligations to contribute capital or run the business are extinguished by mutual desistance

Payment or Performance

• Payment: Fulfillment of obligation as intended
• Payment means completing an obligation by achieving its intended purpose and it is not just about giving money but about fulfilling what was agreed upon in the contract
• Breaking down payment:
  • Paying money = giving agreed amount
  • Delivering something = handing over that thing
  • Doing a service = performing that service as promised
• Example: Juan borrows P5,000 from Maria and agrees to pay it back in one month, when Juan pays Maria the full amount on time, he fulfills his obligation as the purpose of the loan was for Juan to repay

Characteristics of Payment

• Integrity: Payment of obligation must be completely made
• Identity: Payment of obligation must consist of the performance of the very thing due
• Indivisibility: Payment of the obligation must be in its entirety

Integrity

• Payment or performance must be complete
• Person must fully fulfill their obligation, whether paying money, goods, or performing a service, exactly as agreed
• Example: If Pedro promises to pay Juan P10,000, he must pay the full amount for the obligation to be considered complete

Exceptions to Integrity Rule

• Substantial performance performed in good faith if someone almost fulfills the obligation and tried their best (acted in good faith), the court may still consider it as completed
  • Example: A contractor builds a house but forgets to install one light fixture but since the house is mostly complete and the mistake was not intentional, it is considered substantial performance and the obligation is still valid
• When the obligee accepts the performance knowing its incompleteness or irregularity and without expressing any protest or objection: if the person owed (creditor) knows the performance is incomplete but accepts it anyway without protesting, obligation is considered fulfilled
  • Example: A painter is hired to paint an entire house but misses a small area and the owner sees the mistake but still pays the full amount without complaint, so since the owner accepted the work, the obligation is considered settled
• Debt is partly liquidated and partly unliquidated, but the liquidated part of the debt must be paid in full: if part of a debt is certain and clear (liquidated) and part is still unclear (unliquidated), the clear part must still be paid in full
  • A rule providing: if a good-faith attempt to perform does not precisely meet the terms of an agreement or statutory requirements, the performance will still be considered complete if the essential purpose is accomplished -This rule states that if someone makes an honest effort to fulfill an obligation but doesn't follow it perfectly, that performance can still be considered complete as long as the main goal of the agreement is met

Requisites/Requirements for Substantial Performance Doctrine

• Attempt in good-faith to comply with obligation, meaning a sincere attempt to do what was required
• Slight deviation from the obligation should not be a major failure
• Omission or defect of the performance is technical and unimportant
• Omission or defect does not pervade the whole
• Omission or defect is not so material that the objective which was intended isn't attained

Identity of the Thing

• Thing paid must be the very thing due and cannot be another thing, even if of the value or quality
• One must give or do exactly as agreed, cannot replace it with something else, even if the replacement is better or more valuable

Exceptions to Identity of the Thing

• Dation in payment: Instead of paying with money, the debtor gives something else that the creditor accepts as payment -Juan owes Pedro P50,000, and instead of cash, Pedro agrees to take Juan's motorcycle as payment
• Novation of the obligation where the creditor and debtor agree to change the original obligation to a new one and this is exemplified by Ana who was supposed to deliver rice, but the buyer agrees to accept corn instead
• Obligation is facultative when the debtor is allowed to give something else instead of what was originally agreed exemplified by Mark who agrees to deliver a specific car but has the option to deliver a different car if needed

Indivisibility

• Debtor cannot be compelled by the creditor to perform obligation in parts, and neither can the debtor compel the creditor to accept obligation in parts
• The obligation must be completed as a whole, not broken into smaller parts, the debtor cannot pay/perform in parts unless the creditor agrees, as well as when creditor cannot force the debtor to make a partial payment or partial performance

Exceptions to Indivisibility

• Partial performance has been agreed upon implying if both the debtor and creditor agree, the obligation can be performed in parts instead of all at once and exemplified by hiring a painter for P30,000 to paint the house, agreeing that painter will do the exterior for P15,000 and interior later for P15,000
• Part of the obligation is liquidated and part is unliquidated or If part of the debt is fixed and certain (liquidated) and the other part is unclear or disputed (unliquidated), the debtor must pay the clear part first and exemplified by owing Pedro P20,000 for delivered product (liquidated) and another P10,000 for item still being priced (unliquidated) and how since P20,000 is certain, must pay that amont even if the other P10,000 is still being finalized
• To require the debtor to perform in full is impractical with the meaning of if requiring the debtor to fully perform the obligation at once is impossible or impractical, partial performance may be accepted exemplified with a supplier who agrees to deliver 1,000 bags of cement, but a typhoon causes road closures and since delivering everything at once is not possible, the supplier delivers 500 bags now and the rest later

Acceptance by a Creditor of a Partial Payment

• Acceptance of partial payment is NOT an abandonment of its demand for full payment meaning that when creditors receive partial payment, they aren't assumed to have abandoned their demand for the full payment
• Meaning just because a creditor accepts partial payment, this doesn't mean they are giving up their right to demand the remaining balance, thus implying acceptance must be made under circumstances that indicate their intention to consider performance complete as well as to renounce their claim from the defect
• While Art. 1248 of the Civil Code states that creditors cannot be compelled to accept partial payments, it doesn't prohibit them from accepting payment showing creditors cannot be forced to accept partial payments, but they can willingly do so
• A creditor cannot be forced to accept a partial payment from a debtor, but if the creditor willingly accepts a partial payment, it is allowed
• A debtor cannot insist on paying only part of their debt if the creditor wants full payment exemplified by Anna owing a bank P100,000 so she then tries to pay P50,000 first, but the bank refuses because they want the full amount- the bank has the right to reject partial payment and demand full payment instead
• Ben owes Carlo P20,000 but only has P10,000 for now and Carlo chooses to accept the P10,000 as well as allows Ben to pay the rest later, thus since Carlo agreed, the partial payment is valid

Requisties of a Valid Payment

• The person who pays the debt must be the debtor also meaning the person who owes the debt should be the one making the payment, though someone else can pay if allowed
• The person to whom payment is made must be the creditor and this payment should be made to the person who is supposed to receive it and payment to the wrong person may not count (Anna owes P10,000 to Ben, so she must pay Ben directly or someone legally authorized by Ben or else if she mistakenly pays a random person, the debt is not settled)
• The thing to be paid or to be delivered must be the precise thing or the thing required to be delivered and the debtor must pay exactly what was agreed otherwise the creditor does not have to accept.
• Manner (if expressly agreed upon), time, and place of payment, must be followed
• Acceptance by the creditor so the creditor must receive and accept the payment for it to be valid

Kinds of Payment

• Normal means when the debtor voluntarility performs
• Abnormal means when he is "forced"
• The following persons may effect payment and compel the creditor to accept the payment: the debtor, his heirs and assignees, his agent and representative
• When made by a third person who has interest in the fulfillment of the obligation, the other can pay and the creditor it If someone else will be affected by the debt, they can pay even the creditor must accept it

Rights Of A Third Person Who Made Payment

• If made with knowlege of debtor then: can recover amount paid or may be subrogated to rights of creditor
• If not made with knowledge of debtor, can only recover if payment was benefical
• Third party is deemed as donation if they did not want to be paid back, can make official or no, creditors still gets payment

Person To Whom Payment Is Made

• Must be the person the debtor originally owes a service or money to
• Successor in interest or the person if something was transferred by dead or right to successor
• Any person or person allowed by law or by the creditor

Payment To An Unauthorized

• Payment is not valid, but with the person in incapacitated or unable to pay, then payment can still be considered valid

Special Form Of Payments

• Dation in payment (dacion en pago): the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation
• Assignment of Credit: An agreement by virtue of which the owner of a credit, transfers his credit and accessory rights too another knows as the "assignee"

Forms Of Payment

• Payment In Cash: Must be in Philoppine Currency
• Payment In Check Or Other Negotiable Intrument: Not consodered payment
• Applicatoin Of Payments: Is the designation of the debt to which the payemnt must be applied against which ones a person has multiple obligation

What if Payments is Not Enough To Cover All Debts Or Obligations:

• Debtor will have the oppurtinity to choose which they would want to pay, however they will need to choose

When Is Not Enough To Cover An Obligation?

• Interests of debt need to be paid first no matter what
• Legal Application Of Payment: If neither the debtor nor creditor chooses what to pay, law will make the decision
• Rulse of legal Application of Payment:

1. When a person is bounds as pricinpal one oblgication but a seurety inanother, its more onerous 2 older depths given priority if there are various death
2. When one bears interest and the other does not, is more onerous 4.Encumbrances, the debt with guartannty
3. With respect to indemnity 5: Liquidated debts is most burdensome compared to the other

• All depths equal it is Split prorptionanlly

PAYMENT BY CESSION

• Meaning: It is when a debtor (someone who owes money) gives up all their property to their creditors to pay debt
• All: If the creditors don’to accept then the debtor may have to be invonvency preceedings
• Partial of insolvency meaning not bankrucpt
• Dation: one creditior mostly, not nessairly finance

Tender Of Payment

Meaning: it means formally offering to pay their creditor back the money or service the offer shows are willing and ready

• Conlignnation the money is deposited in court
• Refuse to accpect can occur and creditor to withdraw thing
• Conlignnation shall cause effets of payemnt only if tender of payment

Loss Of The THing Due

Meaning: not contemplated in its strict and legal meaning

When Obligation Apply & Thing Considered Lost (DOPE)

• To delivered after contact (imposssible or invalad from start - but just cancel)

1. Thing disappear (existence unknown so disappear completly, painting) 2.It goes Out of commerce outside of commerces (cannot be legally trade banned object(
2. Perishes (perishables such as seafood spoilling) Requisites to obligation: - thing must determinate - lost without fault - before delay are incurred (art 1262) obligation Extinguesished

General Rul For When Thing Due Is Lost

• Obligation extingued (1262)

Law Provision For Loss (LASCD-PC6)

1, law proivdes otherwise ( (1262 2, Nature of debt or obllgaitons is what is assumed 3. Contriubiton by the detpor

G. When the depth of certain a and demtermintet goes from a criminal offence H.When the oblgation is generic does not perishes

Generic Oblgations: not extinguiwhed bcuase a getneric thing never perishes but it is for those with limited quantity

Types of imposingg : - Legqal impossinlity such act is prohibited by law * *Physcal impossibility

Effecy Of PArtial LOSSS

1: credutoir has riht to demand reciution

Effect when thinng Is lost in possession of the debotr

Oblgation not exgtinguidshed but the is a presumption

EFfect forseen difficulty Of fillmnet - service is sdo difficult it becomes beyond contremplation of what you where supposed to do

• Debth whcih porceeds from crciminal offence detpor not exmepted

CREDUTORS RIGHT OF ALL - obglkigatino is extigusihed so alll right are taken away

Condation/Remissons Or debt an acc of liberality in which the credtor is not reciving any prixe for not enfrocing such enfrcoememtn

• Reqiurements For remimssion GIDAE

1. Must Gratuitous 2, acceptance by the debtor 3, Formlaities is to follow

KInd Of Remissions

• Total: to recive the wholee amount
• PAirtal: recive the part of obglklugtaion
• Inter vivios: effectuve from creridotrs
• Mortis Causa : efftect upon deart, or in will
• implied; from the acts od partneres

Consufion Or Mergers of Rights

• A meetup is the creditior and debtror as to the samer oblkaaitoin

Requististes OF CONSUFON

• Take part between the prinicpal deptor
• Vewry same obligation with the involvmed
• Vonsio is itotal with regards or has a whole oblkaigtaiton
• the erfditor and detobr should be the same peropns involnved
• can ocir partial

COMENSATIONS

• Both persons become debtro and eritor of each toher (OBLGATIONS ARE NEGTED)

REQUISTES OF COMPENSATING ;

1. Each on the oblgators shouldl be bouind princeplaltyy and htat he is at ther same tipem a ptineal deptir thep
2. Botth shall ocnsist of money 1., Shall be Due
3. Both depth shluld be loquidated are demandanlbe
4. Nehtre needs to be retenbtoned the contrversy commenced by third person
5. . Compennsatoin mneds to not be phroinbited by law
6. .COmpsemsationt mnust nopt ber p[throubitded by law

COMMPENSAtuIO V PAYMEM< Defiintuio

• COmp: a mode of extinguised with those who has the rthgt to compsnate and each tohet
• Paument meants not only dolibvergyb

Kind: what the must capaciti ybe capacoiuty Both depht

Debts And Oglkigaons that should not be compensatoitn

• Depahs From contracts of deptostium
• • Oblgations assriong roms alikkee in commauditaumm

Kinds Of Compemsaiotb

1. Legal compersamtopn

Facaultarive It is only takes placde by agreesmen tof the parties

EFFectviity Of Compsnesauton for COMPENSUTATIONS to beoceme efecitjbe

Judicial compensation

If one of tthe parties to assuti over oblatikion has acclaim for damagess Againts to ther.

FACALUTIVE COMPENSATATIONS.

• on eot the apriteys has ractghit do claisin or obbgitngy Nogratins

Oblgatiobns to FAvaultitatie Comp[atatoin:

If one or botth decbts are resible voiadab

Effects Of Assignment On COmpemsation

COMPNESAIOB Novation

• What or a change of an pblgiatiob by another

Requisuites pf Noncation 1: VALID oLG - XPNS a when amnuglmnts may be clamed or btdebtorp or consited to

INTENTED TO OR MODIFIY,

Substaiotnal Dffrenccr

PARESUMPTON OF Novation is never presuempend. It is proven if any way

1. Explicuity Decation :

Two-Fold Fucntions of Notatwion: (1) extinctugise old ogation. , Create new obglaiton bllue

Kinds If Notatiion

• AS TO eSEENCE
• Objectvie O Reak nONCAITOIN

SUBJECTIVU - change of parties

Deleguation of a 1, suyb is itated by the old B EORIMSSSION- suyb from the new dtptor

As rto form if coubtsaititoons

• parties declared unwequvicaly (expr4ess
• implkued

As exntenyt of thire E[effecits , as theys extyignusihhed or of origialluioesed Rights Of THe DEptors 1 WITH debitros conset 2 Wothput cosnejse

Nonavtion By Substitution Of Deptoryh

• COnsete of crditor MANDANTOTTY

Rquisuites OD DElgtatstion 3,Th olde dtptor ios relieased from the oblgiations is a contse , Insolvncy The gr is that the soluvvnecr not revivesed

Insvsolvacy in Nwe Detbr

SUbstitiutions Without konwing or a agant with debtor then it shall it do nuyt giuvre risr

Effecits of nVcation

• Exterguish p[ricnipal also ectiojhuised , except i
• If Olud Olgavation is if ovoid if it s

NOvatibitiond - does nit e

(A,legal novation (B. Coventuonaovtion

Subrorgation

• It is the activle sybtjetycive norvartiond chacjrerizeds a strsnssfer t
• Rites with credtiior of the trtanction Kind: