Extinguishment of Obligations PDF

EXTINGUISHMENT OF OBLIGATIONS Obligations are extinguished through the following means: 1. Payment or Performance Definition: Fulfillment of the obligation either by delivering money or performing an act as agreed. Requirements for Valid Payment: The debtor must own the thing being d...

EXTINGUISHMENT OF OBLIGATIONS Obligations are extinguished through the following means: 1. Payment or Performance Definition: Fulfillment of the obligation either by delivering money or performing an act as agreed. Requirements for Valid Payment: The debtor must own the thing being delivered or have the capacity to dispose of it. Payment must be complete unless exceptions apply. Exceptions to Complete Payment: Substantial Performance in Good Faith: ○ Example: If a contractor builds a house with minor defects but acted in good faith, the obligation may still be considered performed. Acceptance by the Creditor Without Objection: ○ Example: A creditor receives partial payment for a loan and does not raise any objections. Special Forms of Payment: 1. Dación en Pago: A debtor transfers property to a creditor to settle a monetary obligation. ○ Example: A debtor gives a car to the creditor instead of cash to settle a P500,000 debt. 2. Payment by Cession: In cases of insolvency, a debtor turns over all assets to creditors for liquidation. ○ Example: A bankrupt business surrenders its assets, which the creditors sell to recover their loans. 3. Tender of Payment and Consignation: Tender is the offer of payment; consignation occurs when payment is deposited in court if the creditor unjustly refuses it. ○ Example: A debtor offers to pay a debt, but the creditor refuses without valid reason. The debtor then deposits the payment in court. 4. Application of Payment: 1 debtor, 1 creditor. Debtor has several debts to creditor. Debts are same kind. Debtor, unless agreed upon that creditor or a 3rd person takes the right, can choose which of the several debts can be extinguished. It is only extinguishable if it is fully covered in payment. 2. Loss of the Thing Due Applicability: Only for specific, determinable things (determinate things). General Rule: The obligation is extinguished if the thing is lost due to a fortuitous event and without the debtor’s fault. Examples: A debtor owes a creditor a specific car. If the car is destroyed by a natural disaster (e.g., a flood), the obligation is extinguished. Exception: If the debtor caused the loss (e.g., through negligence), the obligation is not extinguished. Genus Never Perishes: If the obligation involves generic items (e.g., “deliver 100 sacks of rice”), the obligation is not extinguished since generic things are replaceable. 3. Condonation or Remission of the Debt Definition: A gratuitous act where the creditor forgives the debt, provided the debtor accepts it. Requirements: ○ Must follow the rules on donation: ○ If the value exceeds P5,000, it must be in writing. ○ If it involves immovable property, it must be in a public document. ○ It must not harm the rights of compulsory heirs. Example: A creditor forgives a P100,000 debt and signs a written agreement. If this remission deprives the creditor’s heir of their rightful inheritance, it may be invalidated. 4. Confusion or Merger of Rights Definition: When the roles of creditor and debtor merge in the same person, the obligation is extinguished. Example: A father lends money to his child. Upon the father’s death, the child inherits the father’s estate, including the loan. The roles of creditor and debtor merge, extinguishing the debt. 5. Compensation Definition: When two parties owe each other, their obligations may cancel out, either partially or fully. Kinds of Compensation: 1. Legal Compensation: Automatically arises by operation of law. Example: A owes B P10,000, and B owes A P10,000. Both debts are extinguished. 2. Voluntary/Conventional Compensation: Requires agreement between the parties. Example: A owes B P20,000, and B owes A P15,000. They agree to offset P15,000, leaving A with a P5,000 balance. 3. Judicial Compensation: Ordered by the court. 6. Novation Definition: Substitution of a new obligation for an existing one, extinguishing the original. Types of Novation: 1. Real or Objective Novation: Changes the object or conditions. Example: A debtor originally promised to deliver a car but later agrees to deliver a motorcycle instead. 2. Personal or Subjective Novation:  On the part of debtor: Substituting the person of the debtor. ○ Example: A creditor agrees to substitute the debtor with another person. On the part of the creditor: Subrogating a third person in the right(s) of the creditor. ○ You owe P10,000 to your friend. Your friend's relative, who is financially able, decides to pay the debt on your behalf and is then substituted as the creditor. The relative now has the right to claim the debt instead of your original friend. 3. Mixed Novation: Combines both real and personal novation. Example: The object of the obligation and the debtor are both changed.